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Wadey v. Surrey County Council
HOUSE OF LORDS
Lord Slynn of Hadley Lord Woolf M.R. Lord Hope of Craighead
OPINIONS OF THE LORDS OF APPEAL FOR JUDGMENT
IN THE CAUSE
JOHN FULTON PLUMBERS LIMITED
SURREY COUNTY COUNCIL
ON 6 APRIL 2000
LORD SLYNN OF HADLEY
I have had the advantage of reading in draft the speeches of my noble and learned friends Lord Hope of Craighead, Lord Clyde and Lord Millett. I find the arguments in these two cases very evenly balanced; there is much force in the appellants' contentions as Simon Brown L.J. also appears to have thought. However, in the end I consider that the Lord President in Wisely's case and Otton L.J. in Wadey's case came to the right conclusion. Accordingly, I agree with my noble and learned friends that for the reasons they give the appeals in both cases should be dismissed.
LORD WOOLF M.R.
I have had the advantage of reading in draft the speeches prepared by my noble and learned friends Lord Hope of Craighead, Lord Clyde and Lord Millett. I agree with them, and for the reasons that they give I too would dismiss both appeals.
LORD HOPE OF CRAIGHEAD
These appeals, one from the Inner House of the Court of Session in Scotland and the other from the Court of Appeal, Civil Division, in England, both raise the same question. It is whether, in an action for damages for personal injuries, social security benefits received by the injured person that are disregarded in the assessment of special damages must be disregarded when interest is being calculated on those damages. All parties are agreed that this question should receive the same answer in Scotland and in England, as the Social Security (Recovery of Benefits) Act 1997 under which it is raised applies uniformly to both countries. The appeals were heard together, and - apart from a few introductory words - what I shall have to say in this speech applies equally to both of them.
The Scottish case is Wisely v. John Fulton (Plumbers) Ltd., 1998 S.C. 910. The pursuer sustained personal injuries as a result of an accident in the course of his employment with the defenders. He brought an action of damages against them in the Court of Session. The Lord Ordinary (Lord Johnston) held that he was entitled to damages. The damages for which the defenders were found liable included a sum for past loss of earnings on which interest fell to be awarded under the Interest on Damages (Scotland) Act 1958 as amended. That sum was calculated by taking the pursuer's earnings prior the accident and applying them to the period for which he was off work to the date of the award. He was in receipt of social security benefits during this period, but the amount of those benefits was disregarded in the calculation. This was because section 17 of the Act of 1997 states that in assessing damages in respect of any accident, injury or disease, the amount of any listed benefits paid or likely to be paid is to be disregarded. The Lord Ordinary was then faced with a problem about the calculation of interest. The Act of 1997 contains no provision dealing with that matter, and there were conflicting decisions on this point in the Outer House. In George v. George C. Peebles & Son, 1998 S.L.T. 685, Lord Nimmo Smith held that interest was due only on that part of the award which represents the difference between the sum awarded as damages for past wage loss and the amount of the benefits received during the relevant period. In Spence v. Wilson, 1998 S.C. 433, Lord Eassie held that interest should be awarded on the whole of the sum awarded as damages for past wage loss. The Lord Ordinary took the appropriate course of reporting the case to the Inner House under the procedure which was available to him under rule 34.1 of the Rules of the Court of Session 1994 for an authoritative decision on the matter before making his award. The First Division (the Lord President (Rodger), Lord Sutherland and Lord Caplan) held that interest on the loss of earnings during the relevant period should be calculated without deducting the amount of the benefits. Spence v. Wilson was approved and George v. George C. Peebles & Son was overruled.
The English case is Wadey v. Surrey County Council  1 W.L.R. 1614. The plaintiff had been awarded a sum of damages in Wandsworth County Court for the personal injury, loss and damage which he suffered as the result of injuries sustained in the course of his employment with the defendants as a firefighter. Included in the award of special damages was a sum for past loss of wages which had been calculated, as the Act of 1997 requires, without deducting the benefits which the plaintiff had received during the relevant period. When he assessed the interest which he should award under section 69 of the County Courts Act 1984 on the special damages the judge deducted the amount of those benefits. The defendants appealed against the judge's findings on liability, and the plaintiff cross-appealed against his decision to deduct the benefits in assessing the interest on the special damages. The defendants' appeal was later compromised, but the plaintiff proceeded with the cross-appeal. The Court of Appeal, Civil Division (Simon Brown, Otton and Schiemann L.J.J.), following Wisely v. John Fulton (Plumbers) Ltd, 1998 S.C. 910, allowed the appeal on the ground that the judge erred in deducting the benefits.
I think that it is appropriate, before turning to consider the provisions of the statutes, to take note of the general principles with reference to which interest is ordered to be paid on sums awarded by a court as damages. In Wisely at p. 916E-F the Lord President said that the Act of 1997 was essentially a practical compromise and that the court was best guided by looking to the terms of the Act itself rather than by trying to apply more general principles. That observation lies at the heart of the whole issue. As a general rule Parliament must be taken to have legislated against the background of the general principles of the common law. It may be found on an examination of the statute that Parliament has decided not to follow the common law. In that situation the common law must give way to the provisions of the statute. But an accurate appreciation of the relevant common law principles is nevertheless a necessary part of the exercise of construing the statute.
The general principle of the common law is that, apart from contract, a party will only be entitled to interest on money if the principal sum has been wrongfully withheld and not paid on the day when it ought to have been paid: Carmichael v. Caledonian Railway Co. (1870) 8 M. (H.L.) 119, 131; L.R. 2 H.L. Sc. 56, per Lord Westbury; Kolbin & Sons v. Kinnear & Co., 1931 S.C. (H.L.) 128, 137 per Lord Atkin. It has been recognised that interest is due where possession of land is taken before the price has been paid for it, and this rule has been applied to the acquisition of land by the purchasing authority by virtue of a compulsory purchase order made under a private or public act: Greenock Harbour Trustees v. Glasgow and South-Western Railway Co., 1909 S.C. (H.L.) 49; Birrell Ltd. v. City of Edinburgh District Council, 1982 S.C. (H.L.) 75, 110-111, per Lord Fraser of Tullybelton. In Stirling & Dunfermline Railway Co. v. Edinburgh & Glasgow Railway Co. (1857) 19 D. 598, 621 Lord Cowan said:
But a claimant had no general right under the common law to interest for being kept out of his money. This was regarded by many as unsatisfactory: see London, Chatham and Dover Railway Co. v. South Eastern Railway Co.  A.C. 429, 437, per Lord Herschell L.C.
This common law principle was applied to awards of damages. The practice both in England and in Scotland was that interest was not due on sums awarded as damages until the making of the award. As Lord Justice Clerk Thomson said in Macrae v. Reed & Mallik Ltd., 1961 S.C. 68, 72:
A statutory power to award interest for periods prior to the date of the award was introduced in England by section 3(1) of the Law Reform (Miscellaneous Provisions) Act 1934. Under this power the court was enabled to award interest:
The current provisions regarding the awarding of interest on debts and damages are set out in section 35A(1) of the Supreme Court Act 1981 as amended by section 15(1) of and Part I of Schedule 1 to the Administration of Justice Act 1982 and in section 69(1) of the County Courts Act 1984 where the amount to bear interest exceeds £200. Section 69(1) of the Act of 1984, which in all material respects is in the same terms as section 35A(1) of the Act of 1981, provides:
A similar power was introduced in Scotland by the Interest on Damages (Scotland) Act 1958. As amended by the Interest on Damages Act 1971, section 1 of that Act provides:
The current practice in each country is to award interest on loss of wages for the past, and for past outlays, to cover the period between the incurring of these items of loss and the date of the award. The principle which is followed in England was explained in these terms by Lord Denning M.R. in Jefford v. Gee  2 Q.B. 130, 146A:
This principle was applied by the judge in Wadey's case when he awarded interest on past loss of wages. The same principle was applied in each of the two conflicting decisions in the Outer House which preceded the decision of the Lord Ordinary in Wisely's case to report the case to the Inner House for guidance before making his award. I think that it can be assumed from what Lord Nimmo Smith did in George v. George C. Peebles & Son and which the judge did in Wadey's case that there is unlikely to be any difficulty in practice in ascertaining the amount of the benefits received during the relevant period and calculating the amount of the award for past wages loss which is to carry interest after deducting those benefits. The question is whether the court is permitted to make that calculation. This makes it necessary for me to turn now to the statutory provisions and in particular to the scheme for the recovery of benefits which the Act of 1997 lays down.
The recovery of benefits - history
The original scheme for the recovery of social security benefits was set out in section 2(1) of the Law Reform (Personal Injuries) Act 1948. It had been recognised as a general principle by Beveridge that an injured person should not be compensated twice over for the same loss: Social Insurance and Allied Services, Cmnd. 6404 (1942), p. 101, para. 260. He suggested that this principle could be preserved if the claimant repaid the benefits to the Ministry when he was awarded damages or the benefits which he received were taken into account in the assessment of damages. When the Monkton Committee came to examine this issue the general principle was recognised, but there was disagreement as to how it was to be applied under the new scheme: Departmental Committee on Alternative Remedies, Cmnd. 6860 (1946), para. 38. The majority recommended that the general principle on which legislation should be framed was that the claimant should not recover more by way of damages and benefits than he could have recovered from either source alone: p. 18, para. 38. Two members dissented, on the view that the scheme for national insurance was very little different from private insurance so the claimant's benefits should be left out of account altogether in the assessment of damages.
Section 2(1) of the Act of 1948 appears to have been arrived at as a compromise between these two views. It provided that there was to be taken into account in the assessment of damages for any loss of earnings or profits accruing to the injured person from his injuries one half of the benefits which he had received during the period of five years beginning with the time when the cause of action accrued. But this system did not extend to the full range of welfare benefits. Only those specified in section 2(1) of the Act as amended from time to time were subject to the statutory rule that one half of the benefits received was to be offset in the calculation of damages. These were sickness benefit, invalidity benefit, non-contributory invalidity pension, severe disablement allowance, sickness benefit (formerly injury benefit) and disablement benefit. Attendance allowance and mobility allowance, family credit (formerly family income supplement), income supplement (formerly supplementary benefit), redundancy payments, reduced earnings allowance, statutory sick pay, and unemployment benefit were not subject to the statutory rule. In a series of decisions in both England and Scotland it was held that the whole of sums received in respect of benefits which were not subject to the rule must be deducted. This is in accordance with the general principle that damages are intended to be purely compensatory, and that what the court must measure is the net consequential loss and expense which has been incurred in arriving at the measure of the claimant's damages: see Wilson v. National Coal Board, 1981 S.C. (H.L.) 9; Hodgson v. Trapp  1 A.C. 807, 822A-823D per Lord Bridge of Harwich.
In the application of this scheme in assessing damages only one half of the listed benefits was regarded as compensation for the loss of income or loss of profits due to the accident. That half was taken into account in the calculation by deducting it from the loss of income or profits to arrive at the net loss. The other half was disregarded in the same way as if it had been received from charity or under a private insurance policy. Awards of interest followed the same pattern. The one half of the benefits which was taken into account in the calculation did not bear interest. As it had been deducted from the principal sum awarded as damages, it reduced by the same amount the net loss on which interest was to be payable. But the disregarded half bore interest along with the rest of the award. As Lord Sutherland said in Wisely's case at p. 918G, it was never suggested in Scotland that interest should not be payable on the whole of the loss of earnings so calculated even though the pursuer had received, during the relevant period, half of the benefits. In Wadey's case Simon Brown L.J. said at p. 1620H that Jefford v. Gee  2 Q.B. 130 made it plain that the plaintiff (whilst, of course, he received no interest on the moiety for which he gave credit against damages) did not have to give credit in the interest calculation in respect of his windfall receipt of the other moiety of the benefits paid.
The recommendation by Beveridge that the full amount of the benefits received by the injured person or his dependants as the result of an injury should be deducted in the assessment of damages was adopted when the whole subject of compensation for personal injury was considered by the Pearson Commission: Royal Commission on Civil Liability and Compensation for Personal Injury, Cmnd. 7054-1 (1978), ch. 13. It recommended that the full amount should be deducted, and this view was accepted in principle by the government: Social Security Act 1975: Reform of the Industrial Injuries Scheme Cmnd. 8402 (1981), ch. 8. But it was concluded that a workable scheme for the direct recovery of this amount from the injured person or his dependants would not be practicable in view of its cost and the large number of cases which were settled extrajudicially. It was not until 1989, when the Social Security Act 1989 was enacted, that a system was introduced for the recovery in full of the benefits received from the compensation paid to the injured person under a court order or an agreed settlement.
Under the scheme which was enacted by section 22 of and Schedule 4 to the Social Security Act 1989 the compensator was required before making a compensation payment to the injured person under a court award or an out of court settlement to obtain a certificate from the Secretary of State stating how much benefit was to be deducted. He was then to pay to the Secretary of State the amount shown in the certificate and to furnish to the person who was to be compensated a certificate of deduction specifying the amount which he had deducted from the compensation and paid to the Secretary of State. Section 22(2) provided that any right of the intended recipient to receive the compensation payment in question was to be regarded as satisfied to the extent of the amount certified in the certificate of deduction. The benefits which were to be recovered by the Secretary of State were to comprise the total amount of the prescribed benefits received in respect of the accident, injury or disease for which the injured party was to be compensated for a period of five years or, if less, for the period up to the date when the compensation payment was made. Section 22(6) provided:
The Act of 1989 made no provision as to how interest was to be calculated on the damages assessed under this rule. But shortly after it came into force this matter was the subject of an amendment. By section 7 of and paragraph 6 of Schedule 1 to the Social Security Act 1990 the following paragraph was added to Schedule 4 to the Act of 1989:
The next stage in the history of this legislation was its consolidation in 1992 by the enactment of three new statutes. The provisions relating to the recovery of benefits from compensation payments were re-enacted in Part IV of the Social Security Administration Act 1992. Section 82 of that Act reproduced the provisions of section 22(1) of the Act of 1989. Sections 22 (2) and (6) of and paragraph 24 of Schedule 4 to the Act of 1989 were re-enacted in sections 82(2), 81(5) and 103 respectively of the Act of 1992.
The scheme introduced by the Act of 1989 was thus preserved in all its elements. But in three particular respects it was found to be unsatisfactory. First, it required the compensator to deduct the gross amount of the benefits from the compensation payment, which was defined in section 81(1) of the Act of 1992 as meaning any payment falling to be made to the victim in consequence of the accident, injury or disease in question. The effect of this definition was to include any damages payable for pain and suffering in the amount against which the compensator was entitled to make the deduction. This fact was recognised in the provision which was made in section 103 for the calculation of interest, but it attracted criticism because the benefits were not regarded as compensation for pain and suffering. Secondly, it exempted persons making small payments of compensation, the amount of which was fixed by regulations at £2,500, from making the deduction: see the Social Security (Recoupment) Regulations 1990 (S.I. 1990 No. 322). The government was advised that this had led to the making of a disproportionate amount of settlements at or just below the small payments limit. It was said that insurers and compensators were gaining an advantage at the expense of victims who were settling their claims for less than their true value. Thirdly, the system for appeals against certificates of deduction was thought to be in need of some reform in the light of experience. These concerns led to the preparation of a revised scheme for the recovery of benefits which was introduced by the Social Security (Recovery of Benefits) Act 1997. This is the scheme which is before your Lordships in this appeal.
The Scheme of the Act of 1997
The principal features of the scheme introduced by the Act of 1989 are reproduced in the Act of 1997. It enables the Secretary of State to recover the whole amount of any listed benefits paid to a person in consequence of any accident, injury or disease during the relevant period where that person also receives a compensation payment for that accident, injury or disease from a third party. The compensator is liable to pay to the Secretary of State the whole amount of the listed benefits received by the claimant for the relevant period. He is then entitled to deduct that amount from the compensation which he is to make to the injured party. But there are some important differences. Under the new scheme the reduction in respect of recoverable benefits is restricted to particular heads of the compensation payment, with the result that other heads - in particular damages for pain and suffering - are insulated from, or ring-fenced against, the deduction. According to a system of calculation which is set out in section 8 and Schedule 2, the only heads of compensation which are affected by it are those for loss of earnings, cost of care and loss of mobility during the relevant period against which are to be set the amount of any recoverable benefit which is attributed to those heads. There is no small payments limit under the new scheme, and a new procedure for appeals against certificates of recoverable benefit has been introduced.
The feature of the new scheme which has given rise to the question raised in these two appeals is the absence from the Act of 1997 of the provision regarding the calculation of interest which was introduced by amendment as paragraph 24 of Schedule 4 to the 1989 Act and was then re-enacted in section 103 of the Act of 1992. The Act of 1997 is concerned almost entirely with the system for the issuing of certificates of recoverable benefits, the liability of the person making the compensation payment and reviews and appeals against certificates. It contains only three sections directed to the courts. Section 15 contains a provision about the form which is to be followed when the court makes an order for a compensation payment unless the order is made with the consent of both parties. Section 16 deals with payments into court but does not extend to Scotland where this procedure does not apply. Section 17, which contains the only provision relating to the assessment of damages, re-enacts with only a few minor changes section 81(5) of the Act of 1992. It provides:
The whole of Part IV of the Act of 1992, including section 103 which dealt with interest, was repealed by section 33(2) of and Schedule 4 to the Act of 1997.