Analysis: Secretary of State cannot recover benefits overpaid by mistake
9 December 2010
The Supreme Court has ruled that where benefits are overpaid as a result of a mistaken calculation, the department responsible cannot claim these amounts back via the common law route of restitution; the Secretary of State’s only recourse is via Section 71 of the Social Security Administration Act.
The following summary is taken from the Supreme Court site’s Press Release, with my comment below:
This appeal concerns the question whether, in cases of social security benefit awards mistakenly inflated due to a calculation error, the Secretary of State is entitled to recover sums overpaid under the common law of unjust enrichment or whether section 71 of the Social Security Administration Act 1992 (the “1992 Act”) provides the only route to recovery (nb. the Supreme Court press summary wrongly refers to the Social Security Benefits Act 1992).
Section 71 allows the Secretary of State to recover any overpayment resulting from misrepresentation or the non-disclosure of a material fact by the benefits claimant. The background to this appeal is the Secretary of State’s practice (adopted in about 2006) of writing to benefit claimants who he considered have been overpaid, but where there had been no misrepresentation or non-disclosure, indicating that his Department had a common law right of action to recover the overpayment. Although no common law claim for repayment was ever in fact brought in the courts, the letters led to the recovery of substantial sums, for example, just over £4m in 2007-8. The Child Poverty Action Group brought this legal test case on behalf of social security claimants to challenge the Secretary of State’s practice on the basis that it is based on a false legal premise.
Prior to the Social Security Act 1998 (the “1998 Act”) the Secretary of State was responsible for the payment function only and therefore at the time of enactment of section 71 of the 1992 Act there was no possibility of mistake on the part of the Secretary of State in the calculation of the award, since he played no part in the calculation. The only possibility of mistake lay in the payment of the award. Since the 1998 Act the Secretary of State has been responsible both for the calculation and the payment of the awards. Both parties agreed that where the Secretary of State overpays by mistake, for instance by sending a cheque for £120 following an award of £60, the amount of the overpayment can be recovered as money paid by mistake. The overpayments with which this appeal is concerned are those made as a result of a mistake in calculating the award.
Appeal dismissed. Section 71 of the 1992 Act provides the only route to recovery of social security benefits overpayments to the exclusion of any common law rights. It would seem “inconceivable” that Parliament would have contemplated leaving the common law restitutionary recovery available to the Secretary of State alongside the carefully prescribed scheme of section 71. It was also “striking” that Parliament had not made express provisions for recovery of mistaken overpayments alongside provisions for misrepresentation and non-disclosure.
The change in the identity of adjudicator of the social security benefits awards in 1998, which was not accompanied by any change in the statutory criteria for recovery of overpayments, was not intended to open the door to recovery any wider than it previously had been.
Even if, contrary to the finding of the Court, the common law right to recovery did exist by the time section 71 and its predecessors were introduced, that right was impliedly displaced by statute. The test is not one of “necessary implication” but instead that of statutory interpretation, namely, whether, looked at as a whole, a common law remedy would be incompatible with the statutory scheme and therefore could not have been intended to coexist with it. The Court was unanimous in holding that Section 71 was intended to be an exhaustive route to recovery of wrongly calculated benefits.
What the press summary fails to make clear is that the only the circumstance in which Section 71(1) entitles the Secretary of State to recover an overpayment is where the original award was obtained by misrepresentation or non-disclosure. So where the receipt is of an overpayment due to a mistaken award, even knowing receipt does not entitle the Secretary of State to seek recovery.
The Secretary of State argued that by “necessary implication” the statutory scheme could not exclude the Crown’s common law right to recover benefits overpaid by mistake of fact or law. There is, the appellant submitted, nothing inconsistent between the express right of recovery in cases of misrepresentation and non-disclosure provided for by section 71(1) and the common law right to seek recovery in other cases.
The appellant derived this “necessary implication” test from the context of human rights or the principle of legality referred to in R v Secretary of State for the Home Department, Ex p Simms  2 AC 115 and R (Morgan Grenfell & Co Ltd) v Special Commissioner of Income Tax  UKHL 21,  1 AC 563, where the question was whether section 20 of the Taxes Management Act 1970 overrode legal professional privilege, a common law right deemed on a par with an Article 6 right by the House of Lords in that case.
The court rejected this argument, making clear that even if a common law right of recovery existed before the passing of the 1992 Act (the court said it didn’t), that right would have been displaced by the clear provision of the statute and in particular section 71.
If it could be said that the Secretary of State in this context is the custodian of taxpayers’ money, and therefore preventing him from recovering overpaid benefits distributed as a result of mistake was an interference, somehow, with the peaceful enjoyment (ie custodianship) of this treasure chest, there might have been a role for Article Protocol 1 (the right to peaceful enjoyment of property) in this argument over statutory interpretation.
The problem of course with this proposition is that the Crown is not generally viewed as a “rights-bearer”. This is not an article of faith; it is an established principle of Strasbourg jurisprudence. Public authorities are bound by the Convention; what they can and cannot do is set out in the justification subsections of the ECHR provisions, not in the primary rights. The principle that a public body cannot qualify as a “victim” holds good for Convention rights as incorporated by the Human Rights Act; during the passage of the Bill, the under-secretary for the Home Office stated that:
The intention is that a victim under the Bill should be in Strasbourg. A local authority cannot be a victim under [s]7 because it cannot be a victim in Strasbourg (Hansard HC 24 June 1998
And by virtue of Section 7(1) and (3) of the HRA, the Act can only be used to bring proceedings by a person who is, or would be, a victim of a violation.
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