IN THE UPPER TRIBUNAL	Case No.  CIS/3218/2011
ADMINISTRATIVE APPEALS CHAMBER

Before Upper Tribunal Judge Rowland

Decision:  	The claimant’s request for a further oral hearing is refused.

The claimant’s appeal is allowed.  The decision of the First-tier Tribunal dated 23 June 2011 is set aside and there is substituted a decision that the claimant was overpaid income support amounting to £9,285.41 from 27 April 2004 to 14 April 2008 and £591.78 of that sum is recoverable from him.

REASONS FOR DECISION

1.	This appeal from a decision of the First-tier Tribunal raises a short point of construction of the legislation concerned with the recoverability of overpayments.  It is brought by the claimant with permission granted by Upper Tribunal Judge Jacobs.  I held an oral hearing at which the claimant appeared in person and the Secretary of State was represented by Mr Stephen Cooper, solicitor, as agent for the Solicitor to the Department for Work and Pensions.  I have since received further written submissions from the parties and I apologise for the delay there has been since they were received.

2.	The claimant was awarded income support with effect from 2 September 2002.  In or before January 2008, the Department for Work and Pensions was alerted to the existence of a substantial amount of capital in a previously undisclosed bank account in the claimant’s name.  On 31 January 2008, the claimant was interviewed and stated that the money was his young son’s, derived from his late father’s estate.  On 24 April 2008, after he had been interviewed again and had failed to provide documentary evidence in support of his explanation, the award of income support was suspended with effect from 15 April 2008.  On 17 June 2008, the Secretary of State decided that the claimant had not been entitled to income support at all since 2 September 2002.  The precise form of the formal decision made and the way in which it was communicated are obscure, but the decision was, or should have been (on the Secretary of State’s then view of the case), a decision superseding the original award and any subsequent decisions on the ground that the decision-maker(s) had been ignorant of the material fact that the claimant possessed capital in excess of the statutory limit and substituting a decision to the effect that the claimant was not entitled to income support from 2 September 2002.  It was not, in my view, necessary to make separate entitlement decisions in respect of the period before, and the period from, 15 April 2008.

3.	On 25 June 2008, it was decided that the claimant had been overpaid income support amounting to £30,468.61 in respect for the period from 29 July 2003 to 14 April 2008.  The Secretary of State felt unable to calculate the overpayment from 2 September 2002 to 28 July 2003 because he no longer held details of the payments made in respect of that period.  On 24 July 2008, the Secretary of State informed the claimant that the £30,468.61 “that has been overpaid must be paid back under Social Security law” and so presumably had made a formal decision that the overpayment was recoverable.  

4.	Meanwhile, the claimant had appealed against the entitlement decision and, on 29 May 2009, the First-tier Tribunal allowed his appeal on the basis that the relevant capital was at all times the property of his son and remained so.  It appears that £20,000 had been paid into the bank account in April 2004 and then most of it had subsequently been invested elsewhere.  The Secretary of State did not appeal against that decision.  The implication of the decision was that, although the claimant was entitled to income support from 2 September 2002, the amount to which he was entitled from April 2004 had to be calculated without including in his applicable amount any amount in respect of his son.  After the award of income support had been suspended, the claimant had become entitled to child tax credit, which further affected the way in which his entitlement to income support was to be calculated.  A new award of income support appears to have been made from the date of the First-tier Tribunal’s decision and I am not aware of any dispute about the calculation.

5.	However, there remained outstanding an overpayment equal to the amount that had wrongly been included in the claimant’s applicable amount from April 2004 and there also remained outstanding arrears due to the claimant from 15 April 2008, when the previous award had been suspended.  On 22 July 2009, the Secretary of State revised the decision of 24 July 2008 and decided that £4,185.17 had been overpaid to the claimant and that that sum was recoverable from him on the ground that he had failed to disclose his son’s capital.  That sum was calculated on the basis that there had been a recoverable overpayment of £9,270.97 in respect of the period from 27 April 2004 to 14 April 2008 but that, after setting it off against £5,085.80 arrears due to the claimant during the period from 15 April 2008 to 28 May 2009, there remained only the balance of £4,185.17 to be recovered.

6.	The claimant appealed.  Following an adjournment of the appeal, the Secretary of State further revised the decision and reduced the recoverable overpayment to £3672.52 on the basis that there had been disclosure at the interview on 31 January 2008 and so the overpayment from 29 January 2008 to 14 April 2008 could not be said to have been caused by a failure to disclose and so was not recoverable.  The calculation of the total overpayment was also expressed differently, £4,185.17 being described as the balance after £21,744.20 arrears of entitlement in respect of the period from 27 April 2004 to 28 May 2009 had been deducted from the sum of £25,929.37 paid from 27 April 2004 to 14 April 2008.  Following a second adjournment, the amount of the recoverable overpayment was again recalculated, this time to take into account the fact that child tax credit had been awarded on 6 May 2008, even though the award had been effective from three months earlier.  This resulted in revised figures: the total amount of income support properly due from 27 April 2004 to 28 May 2009 was said to be £21,723.61, the overpayment from 27 April 2004 to 14 April 2008 was said to be £9,285.41, of which £527.09 was not the result of a failure to disclose, and the amount that ought properly to have been paid during the period of suspension was said to be £5,079.65.  It was therefore submitted by the Secretary of State that the true amount overpaid was £4,205.76, of which £3,678.67 was recoverable, a minor increase of £6.15 over the previous figure.

7.	However, the First-tier Tribunal, sitting on 23 June 2011, found that the claimant had disclosed his son’s receipt of capital to the Department on 3 August 2004 and that there had been no further failure to disclose thereafter.  Therefore, although it agreed that £4,205.76 had been overpaid, it decided that the sum recoverable from the claimant was only £591.78 (14 weeks from 27 April 2004 to 2 August 2004 at £42.27 pw) and that the balance was not recoverable.

8.	The claimant sought permission to appeal on the ground that the decision of 23 June 2011 was inconsistent with that of 29 May 2009 and that, in the absence of any supersession by the Secretary of State of the latter decision, for which there were no grounds, the First-tier Tribunal sitting on 23 June 2011 had not been entitled to find that there had been an overpayment in respect of the period from 27 April 2004 to 3 August 2004.  Permission to appeal was refused by the First-tier Tribunal but was granted by Upper Tribunal Judge Jacobs when, following a grant of the claimant’s request for an oral hearing of the application, the Secretary of State conceded that the decision had indeed been wrong in law.  However, Judge Jacobs expressed reservations about the parties’ submissions and he directed an oral hearing of that appeal.

9.	At that hearing, not only did the Secretary of State resile from his previous support from the claimant’s appeal but it also became clear that the claimant’s main complaint was not that the First-tier Tribunal’s decision was inconsistent with the earlier decision but that he was being left out of pocket because the effect of the First-tier Tribunal’s decision was, or at least appeared to be, that the Secretary of State was to be entitled to retain the benefit that had never been paid during the period of suspension as well as to recover the £591.78.  If the £591.78 had properly been found to be recoverable, he would not complain if it were deducted from the benefit that ought to have been paid during the period of suspension and only the balance were paid to him.  I gave the parties an opportunity to make further submissions on this latter point.  The claimant has asked for a further oral hearing but the Secretary of State has not.  Since I propose to determine this point in the claimant’s favour, I refuse his request for a further oral hearing.

10.	I do not consider that there is any inconsistency between the two decisions of the First-tier Tribunal.  The first was concerned with the claimant’s entitlement to income support.  The First-tier Tribunal allowed the claimant’s appeal.  Although, having “set aside” the Secretary of State’s decision, it purported to give “the decision which the respondent should have given”, it decided that the claimant “is entitled to income support from 2nd September 2002”, but did not determine the amount of benefit to which the claimant was entitled.  As the decision it had set aside was a decision superseding a previous award from 2 September 2002, in some contexts it might have been taken simply to have reinstated the previous award.  However, it recorded in the decision notice a finding of fact – that the claimant’s son was the owner of the sum of money which had been received in April 2004 – that was inconsistent with that award continuing unchanged from April 2004.  It is arguable that the First-tier Tribunal should have made it plain that the award from 2 September 2002 fell to be superseded to take into account the change of circumstances from April 2004, but it was quite entitled to leave the calculation of entitlement to the Secretary of State on the basis that the claimant could appeal against the new decision if he wished to challenge it (see R(IS) 2/08) and it seems to me that it was probably entitled to leave the technicalities of supersession from April 2004 to him as well.  If not, the question of supersession could have been referred back to the First-tier Tribunal in one way or another.  Since it is incontrovertible that the receipt of the money did justify a supersession of the original award on the ground of a change of circumstances, I need not go into this issue any further.

11.	To the extent that the claimant disagreed with the new calculation of the amount of income support to which he was entitled between 2 September 2002 and 28 May 2009, the appeal to the second tribunal could no doubt have been treated as an appeal against that decision as well as against he calculation of the overpayment and the decision that part of the overpayment was recoverable.  In fact, the claimant has not challenged the calculation of entitlement except insofar as he has said on this appeal that the money paid into the bank account was held in trust for his son who, as a child, had no right to call for it.  That point was not taken before the second tribunal and, as the Secretary of State submits, it did not mean that the fund had no current value to the claimant’s son (see McAuley v Department for Social Development [2001] NICA 15 (reported as an Appendix to R3/01(IS)).  I do not consider it to be arguable that the calculation of entitlement was incorrect.  The only issues before the second tribunal were the calculation of the overpayment and, more obviously, the question whether it was recoverable.

12.	As to recoverability, the claimant has not challenged the First-tier Tribunal’s finding that he failed to disclose the receipt on 27 April 2004 of the relevant sum of money until 3 August 2004 and the Secretary of State has not challenged its finding that there was no further failure of disclosure after that.  The sum of £591.78 overpaid in consequence of the failure to disclose is clearly recoverable under section 71(1) of the Social Security Act 1992, as the First-tier Tribunal decided.

13.	It is the calculation of the overpayment that is really in dispute.  The question is whether the First-tier Tribunal was right to accept the Secretary of State’s submission that the relevant overpayment was only £4,205.76 (i.e., the overpayment of £9,285.41 less the subsequent underpayment of £5,079.65) or whether the relevant overpayment was the full £9,285.41 and the claimant was still entitled to the arrears of £5,079.65 concurrently with the Secretary of State’s right to recover the £591.78.  In other words, may an underpayment in respect of one period be set off against an irrecoverable overpayment in respect of another period?

14.	Part III of the Social Security (Payments on Account, Overpayments and Recovery) Regulations 1988 (SI 1988/664) provides for “offsetting”. In so far as is material and with a statutory reference updated, regulations 5 and 6 provide –

“5.–(1) Subject to … regulation 6 (exception from offset of recoverable overpayment), any sum paid in respect of a period covered by a subsequent determination of any cases set out in paragraph (2) shall be offset against arrears of entitlement under the subsequent determination and, except to the extent that the sum exceeds the arrears, shall be treated as properly paid on account of them.
  …
  (2) Paragraph (1) applies to the following cases –
Case 1: Payment pursuant to a decision which is revised or superseded, or overturned on appeal
Where a person has been paid a sum by way of benefit … pursuant to a decision which is subsequently revised under section 9 of the Social Security Act 1998, superseded under section 10 of that Act or overturned on appeal.
  …
  (3) Where an amount has been deducted under regulation 13(b) (sums to be deducted in calculating recoverable amounts) an equivalent sum shall be offset against any arrears of entitlement of that person under a subsequent award of income support, state pension credit, income-based jobseeker’s allowance or income-related employment and support allowance for the period to which the deducted amount relates.
  …
6. No amount may be offset under regulation 5(1) which has been determined to be a recoverable overpayment for the purposes of [section 71(1) of the Social Security Administration Act 1992].”

Regulation 13(1)(a), in Part VI (calculation of amount recoverable), provided at the material time  that, in calculating the amounts recoverable under section 71(1) of the 1992 Act where there had been an overpayment of benefit, the Secretary of State was obliged to deduct any amount that had been offset under Part III.  In combination with regulation 6, this prevented double recovery.

15.	I agree with the Secretary of State that this case fell within Case 1 of regulation 5(2) so that regulation 5(1) applied and the sums paid under the original award were to be treated as payments on account of the sums due under the later award.  The question is whether that applies only to arrears due in respect of the same period or the same part of the overall period covered by the subsequent award.  Normally, this is not an issue but it is where there has been a suspension of payments so that arrears are due for a longer period than that for which payments have been made.  

16.	There had been a suspension of payments in SB v Secretary of State for Work and Pensions [2006] EWCA Civ 89 reported as R(DLA) 2/07.  In that case, the child claimant had been awarded both the care component and the mobility component of disability living allowance in 2000.  In May 2003, the award was suspended and, in October 2003, the award was superseded on the ground that the claimant was not entitled to the care component during term times when he was boarding in a school that fell to be regarded as a residential home.  Payments made were treated under regulation 5 as paid on account of sums due under the new award.  In January 2004, the overpayments during previous term times were held not to be recoverable but the Secretary of State declined to pay to the claimant £529 due in respect of the care component during the summer holiday in 2003 (i.e., during the period of suspension), arguing that the payments made under the original award had been treated as paid on account of it.  The Court of Appeal did not accept the Secretary of State’s argument.  Waller LJ, with whom Hallett and Lawrence Collins LJJ agreed, said –

“24.	The Regulations of which Regulation 5 forms part were passed pursuant to Section 71(6)(b) of the 1992 Act. That subsection provides that:
 ‘Regulations may provide….
    (b) 	for treating any amount paid to any person under an award which is subsequently determined was not payable- 
    (i) 	As properly paid; or
    (ii) 	As paid on account of a payment which it is determined should be or should have been made, and for reducing or withholding any arrears payable by virtue of the subsequent determination…’ 

25.	The section is empowering the Regulations to deal with "arrears" payable by virtue of the subsequent determination. The same language does not reappear in Regulation 5(1) itself where the overpayment is to be offset against "arrears" of entitlement "under the subsequent determination". If one asks the question was the £529 an entitlement "under" the subsequent determination the answer as found by the Commissioner may well be "yes" (on the basis that the October decision entirely replaces retrospectively the original decision). If however one asks the question whether the £529 was "arrears" by virtue of the subsequent determination, the answer is "no" or, at best, not solely. The £529 was in arrears by virtue of the decision to suspend payments payable under the original decision and/or by virtue of a delay in reaching a decision as to the amount of overpayment. 

26.	It seems to me that if for the moment one considered a determination being made as at the end of May when the new circumstances had been discovered, and assumed the determination was to supersede the original June 2000 decision, that determination would be analysed in this way. First a decision would be taken as to how much had been overpaid during the preceding period. Second a decision would then be taken as to how much should have been paid on the basis of the facts as now known. Thirdly a determination would be made as to whether any balance should be recoverable. The second decision would clearly be a determination of the "arrears of entitlement"; those arrears would be due "by virtue" of the subsequent determination and solely by virtue of that subsequent determination. If a determination is not made as in this case for some months and while payments are suspended, there are two types of arrears identifiable. There will be the arrears which it is determined should be paid in place of the sum overpaid, i.e. in this case the sums due in place of the overpayment, and the arrears being the sum which the department should on this basis have paid after the period of the overpayment but which are in arrears because payment was suspended. 

27.	In Regulation 16(3) there is recognition of the distinction to be drawn between arrears due to a suspension of payments and other arrears, and it seems that the Regulation even when dealing with recoverable sums, draws the line at allowing recovery against arrears due to suspension of payment. This is a matter relied on by Mr Stagg as indicating that if recovery of recoverable overpayments should not be allowed from arrears due to suspension of payments, a fortiori, in relation to irrecoverable overpayments, it cannot have been intended to allow offsets against arrears due to suspension of payments. There is force in that submission. But of course as Mr Maurici points out, the other side of that coin is that in Regulation 16(3) the distinction is recognised between arrears due to suspension of payments and other sorts of arrears, but despite being aware of the distinction, those drafting the regulations deliberately did not draw the same distinction in Regulation 5. He submits thus that it must be presumed that Regulation 5 intended to allow offset against arrears whether due to a suspension of payments or otherwise. 

28.	The Regulations are not easy to interpret and it is not easy to draw conclusions as to what was intended in one regulation by reference to what is expressly said in another. Any interpretation should however reach, if possible, a logical result which will not produce decisions which as between beneficiaries could be seen to be arbitrary or capricious. To allow the offset of payments in arrears against irrecoverable overpayments, because payments have been suspended and which in amount will vary depending on how long it takes for the Department to reach a determination must lead to arbitrary results without any logic to them. 

29.	When the Department made its determination in October 2003 it determined that for the period from when SB entered the residential home the previous decision should be superseded so as not to allow the care component to be paid while he was in the residential home but to allow it while he was at home; it recorded furthermore that "Any DLA/AA already paid shall be treated as paid on account of that benefit now awarded." That determination looks at the payment that has in fact been made up to May 2003 and determines that it be treated as paid on account of what should on the superseded decision have been paid. If a sum is being treated as paid on account of some other sum due, that would normally be understood to mean that one should look at each payment and treat each payment as offset against what would at that same time have been due under the superseded decision. The determination in October 2003 accordingly fits even as a matter of language with the construction I would suggest should be placed on Regulation 5. 

30.	I would allow the appeal from the Commissioner. Even if the decision of October 2003 had entirely replaced the July 2000 decision, the entitlement to £529 for the summer months were not arrears of entitlement under (or by virtue of) the subsequent decision, but were arrears by virtue of the suspension of payment directed in May 2003. The determination in October 2003 was simply determining that during the period of overpayment, that overpayment should be being treated as paying on account that now held to be due (but in arrears) over that same period.”

17.	The Secretary of State submits that that approach does not apply in the present case because the Secretary of State did not offset any amounts for the period when benefit was suspended.  That is not correct.  The overpayment was made during the period ending on 14 April 2008, because obviously no payments were made during the period of suspension.  However, the Secretary of State calculated the overpayment by deducting from the amount paid up to 14 April 2008 the amount due up to 28 May 2009, and the First-tier Tribunal accepted that calculation.  In my judgment, SB is on all fours with the present case and is not distinguishable.  It is plain from the Court of Appeal’s decision – particularly paragraph 30 – that the payments made up to 14 April 2008 should be treated as a payment on account of arrears due “over the same period”.  Arrears due in respect of the period of the suspension “were not arrears of entitlement under (or by virtue of) the subsequent decision, but were arrears by virtue of the suspension of payment” and so no part of the payments made during the earlier period are to be treated as paid on account of them.  The amount of the overpayment should therefore have been calculated by subtracting from the payments made up to 14 April 2008 the payments subsequently found to have been due up to the same date.

18.	Therefore, just as the claimant in SB was entitled to be paid the arrears due in respect of the period when payment had been suspended, notwithstanding that there had been an earlier overpayment, so too is the claimant in this case entitled to be paid the arrears due in respect of the period when payment was suspended, notwithstanding that there has been an earlier overpayment.  However, since in this case part of the overpayment has been held to be recoverable, I can see no reason why, under the general law, the Secretary of State should not recover that part of the overpayment by deducting it from the arrears due in respect of the period of the suspension.

19.	I would add one point to the Court of Appeal’s reasoning.  Apart from the fact that the Secretary of State approach is apt to lead to capricious results, it seems to me that accepting the Secretary of State’s argument would undermine section 71(1) of the 1992 Act.  Properly and strictly applied, the effect of section 71(1) is to protect the claimant who, through no fault of his own and through the fault – whether by action or inaction – of the Department is misled into believing that he or she is entitled to payments wrongly made and so spends the money received.  It acts like an estoppel.  In the general law, a person may be estopped from denying that another is entitled to, say, a sum of money if the first person has, by conduct or by representation, asserted that the second is entitled to the money and the second has relied upon the assertion to his or her detriment by, for instance, spending the money on consumables rather than keeping it.  It would be inconsistent with that purpose of section 71(1) then to claw the money back merely because there has been a suspension by virtue of which proper payments have been withheld, because to do so is to leave the claimant poorer than he or she would have been had the proper payments been made from the day when the claimant ceased to be misled..

Mark Rowland
21 November 2013