Judgments - Hinchy (Respondent) v. Secretary of State for Work and Pensions (Appellant)

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    33.  It remains to mention two matters. First, Mr Howell QC submitted for Miss Hinchy that as a matter of construction of the notes on the order book, she was not obliged to notify the cessation of her DLA. Her benefit had not gone "up or down" but had simply ceased in accordance with its terms. In my opinion this is a construction which would only occur to a lawyer. The instruction in the order book is not concerned with the terms upon which the benefit is payable but with the amount of money coming in. Miss Hinchy's weekly DLA payments had gone down to zero and that in my opinion was a notifiable change of circumstances.

    34.  Secondly, the Tribunal decided the case on the basis that the Secretary of State had to prove that, in all the circumstances, Miss Hinchy could reasonably have been expected to make disclosure. As the Tribunal found in favour of the Secretary of State on this point, I have said nothing about it. The concept is, however, not without its difficulties; in particular, how it can be reconciled with the terms of the disclosure obligation imposed by regulation 32 and the extent to which it involves an objective standard or whether matters personal to the claimant can be taken into account. Some of these questions are explored in a recent decision of the Tribunal of Commissioners (CIS/4348/2003) which your Lordships were told is under appeal to the Court of Appeal. I express no views about them.

    35.  I would allow the appeal and restore the decision of the Commissioner.

    LORD HOPE OF CRAIGHEAD

My Lords,

    36.  I have had the advantage of reading in draft the speech of my noble and learned friend Lord Hoffmann. I agree with it, and for all the reasons that he has given I too would allow the appeal.

LORD SCOTT OF FOSCOTE

My Lords,

    37.  I find, to my regret, that I am unable to concur in the opinion of your Lordships that this appeal by the Secretary of State should be allowed. I have had the advantage of reading in advance the opinion prepared by my noble and learned friend Lord Hoffmann and gratefully adopt his exposition of the factual and statutory background to this appeal. I need not repeat what he has fully and clearly set out.

    38.  The issues that arise on this appeal all raise, in one way or another, questions of construction of the words "failed to disclose" in section 71(1) of the Social Security Administration Act 1992 (set out by Lord Hoffmann in para 4 of his opinion). The Secretary of State is seeking to recover from Ms Hinchy the sum of £3550 odd. Over the period 13 October 1998 to 3 July 2000 she was paid by way of income support a greater sum than that to which she was entitled. The £3550 is the excess that was paid to her. The Secretary of State says that the £3550 was paid because she had "failed to disclose" that the disability living allowance ("DLA") that she had been awarded in October 1993 for a fixed five year period, and that had had the consequence of a "serious disability premium" being added to her weekly income support payment, had ceased to be paid on the expiry of the five year period. The addition to her income support payments of the serious disability premium ought also to have ceased on the expiry of the five year period. But, due to administrative inefficiencies, the premium continued to be added until July 2000. The Secretary of State, relying on section 71(1), is seeking to recover the money from her.

    39.  The critical issue in this case, in my opinion, is whether Ms Hinchy was under an obligation to disclose to the Hackney office that dealt with her income support payments the fact that her DLA payments had come to an end. In their submissions before your Lordships both Mr Drabble QC for the Secretary of State and Mr Howell QC for Ms Hinchy were in agreement that the concept of a failure to disclose, for section 71(1) purposes, imported the notion that a duty to disclose had been broken. I think this must be right. One would not normally describe a person as having "failed" to do something that the person in question had no reason to do. "Failed" or "failure" both in the context of section 71(1), and in normal speech, has a tendentious quality. It implies that something has not been done that should have been done. In Decision R (SB) 21/82 Mr Commissioner Edwards-Jones QC said, at para 4(2), that:

    "a 'failure' to disclose necessarily imports the concept of some breach of obligation, moral or legal i.e. the non-disclosure must have occurred in circumstances in which, at lowest, disclosure by the person in question was reasonably to be expected…"

This passage has been the subject of criticism, most recently in Decision CIS/4348/2003 (which I understand is pending appeal to the Court of Appeal) and I would not accept that, for section 71(1) purposes, the failure to disclose could be based on breach of no more than a moral obligation to disclose. The coherence of the statutory scheme requires, in my opinion, that the failure to disclose be based on breach of an obligation to disclose imposed by the statutory scheme itself. For present purposes the obligation must, I think, be founded either in section 71(1) or in regulation 32(1) of the Social Security (Claims and Payments) Regulations 1987.

    40.  Mr Drabble told your Lordships that he was agnostic as to whether the obligation on Ms Hinchy to disclose that her DLA payments had ceased derived from section 71, via an implied term, or from regulation 32(1). For my part I think he should be converted to a reliance on regulation 32(1). I do not see how the requisite term could be implied into section 71, bearing in mind that "any person" in section 71(1) is not confined to the person entitled to the benefit in question (see section 71(3)). The implied term imposing the duty to disclose would have to apply across the board to "any person" who had "failed to disclose". It could not possibly be said that mere knowledge by some person of the material fact imposed the duty to disclose. There would have to be some other connection between the claimant of the benefit and the person with the knowledge to justify imposing a duty to disclose on the latter. I think it would be impossible to construct an implied term that could cope with the difficulty of distinguishing between those with the requisite knowledge and a duty to disclose and those with the requisite knowledge but no duty to disclose. So I think the requisite duty to disclose must be found elsewhere. Regulation 32(1) is the obvious candidate for present purposes. No other regulation has been suggested.

    41.  Regulation 32(1) is set out in para 19 of Lord Hoffmann's opinion. It imposes two duties on persons such as Ms Hinchy. First it requires her to:

    "furnish in such manner and at such times as the Secretary of State may determine … such information or facts affecting the right to benefit or to its receipt as the Secretary of State may require …"

Second, it requires her to:

    "notify the Secretary of State of any change of circumstances which [she] might reasonably be expected to know might affect the right to benefit, or to its receipt, as soon as reasonably practicable after its occurrence …"

    42.  As to the first of these two duties, the contention of the Secretary of State is that the contents of the order book, by means of which Ms Hinchy obtained her weekly income support payments, required Ms Hinchy to inform the Hackney office that her DLA payments had ceased. The relevant contents of the order book are set out in paras 6 and 7 of Lord Hoffmann's opinion. The requirement is said to be imposed by paragraph 13 of the notes at the back of the order book. The paragraph is headed "Any benefit goes up or down" and says "You must send us a letter or form A9 if this happens to your money". The form A9, a copy of which would have been issued to Ms Hinchy, has a heading "Changes to do with other money coming in" and says "Tell us if you … start to get a different amount of benefit". Is this language adequate to constitute a requirement by the Secretary of State that Ms Hinchy inform the Hackney income support office that her DLA payments had come to an end? In my opinion, it is not. It may be assumed that Ms Hinchy knew that the five year period for which she had been awarded DLA had expired. After all, she had applied for its renewal and had unsuccessfully appealed against a refusal. But so far as DLA was concerned she had not started to get a different amount of benefit. Her DLA had not gone "up or down". It had simply terminated at the end of the period for which it had been granted and had not been renewed. Lord Hoffmann has stigmatised this approach to the paragraph 13 note as a construction that would occur only to a lawyer. With respect, I think not. I think that the ordinary person in receipt of income support who read paragraph 13 would think that he or she would need to inform the income support office if some other benefit was being paid at an increased level or at a reduced level. And that, evidently, is how the author of form A9 read the requirement - "Tell us if you … start to get a different amount of benefit" conveys, not only to lawyers but to anyone able to read, a quite different message from "Tell us if payment of any other benefit ceases". If the Secretary of State is to rely on the first duty imposed by regulation 32(1) his requirement for information or facts must, in my opinion, be expressed in terms that clearly cover the information or facts of which non-disclosure is alleged. Paragraph 13 on the order book does not, in my view, make clear that Ms Hinchy was required to inform the Hackney income support office that the five year period for which her DLA had been awarded had expired.

    43.  The second regulation 32(1) duty required Ms Hinchy to notify the Secretary of State "of any change of circumstances which [she] might reasonably be expected to know might affect …" her right to income support. Why should Ms Hinchy be expected to have known that the termination of her DLA payments would produce a knock-on reduction to the amount of income support to which she was entitled? The Tribunal made no finding on this issue. The Tribunal's notes of evidence given by Ms Hinchy contain one or two relevant entries e.g.

    "The person I spoke to on the phone didn't think my IS would be affected by DLA";

    "I've been on benefits for many years. I don't understand the benefits system"; and

    "I didn't understand how IS worked and that part was dependent on DLA".

In the face of this evidence, and in the absence of any finding by the Tribunal that Ms Hinchy ought to have known that the termination of DLA would affect her income support payments, the Secretary of State cannot rely on the second regulation 32(1) duty.

    44.  In my opinion, therefore, the statutory scheme created by the 1992 Act, regulation 32 of the 1987 Regulations and the instructions to Ms Hinchy contained in the Notes to her order book, read in conjunction with form A9, did not impose on her the obligation to inform the Hackney income support office that her five year DLA entitlement had expired. I conclude, therefore, that the Secretary of State has not established that she "failed to disclose" that material fact and, for reasons different from those given by the Court of Appeal, I would dismiss this appeal.

    45.  I am happy to be able to come to this conclusion although I would readily accept that if Ms Hinchy had told the Hackney office that her DLA had come to an end the probability is that the severe disability premium would not thereafter have been added to her income support payments. But the more important reason why the premium continued to be added was sheer inefficiency in the Hackney office. Unfortunately the Tribunal decided this case under a factual misapprehension for which the Department was responsible. The Tribunal was told that at the relevant time, 1993 to 1998, there was no system in place for the transmission of information about DLA from the office administering Ms Hinchy's DLA to the Hackney office administering her income support. The Tribunal made their findings of fact on that footing. It was a false footing. A letter dated 20 August 2002 from the Secretary of State's solicitor to the Child Poverty Action Group ("CPAG"), who had taken up the cudgels on behalf of Ms Hinchy, corrected the misapprehension. The letter made clear that there had been a manual process in operation at the material time for the transmission of information from the DLA office to the Hackney income support office. The letter explained that:

    "This system … was in use at the relevant time. The … system should operate as follows. When an award of DLA is made, the DLA office should send a card notification to the relevant IS office by normal internal post. The card provides a breakdown of the components of the award, the period and type of award…If the award is revised or superseded for any reason, a further card should be sent from the DLA office to the relevant IS office which should contain the details of the changes. No further notification is sent to the IS office when the award of DLA comes to an end automatically. When these card notifications are received by the IS office, the action by the IS staff should be to record the details of the award and to alter the amount of benefit payable accordingly. A case control should also be set for six weeks before the award is due to end. This only applies when the award is for a fixed term …"

The fact that following the DLA award in 1993 a severe disability premium was added to Ms Hinchy's income support payments shows that the requisite card must have been sent by the DLA office to the Hackney income support office. But the Hackney office presumably failed to set the requisite case control entry. If the case control had been set, as the system required, the severe disability premium would not have continued to be added to the income support payments after the five year DLA period had expired.

    46.  It is, of course, a matter of regret that the information contained in the Department's 20 August 2002 letter was not available to the Tribunal. The letter shows, first, that there was a very sensible Departmental system in force which, if it had been followed, could be expected to have prevented the overpayments to Ms Hinchy. It shows, also, that, on a high balance of probabilities, the Hackney office had in 1993 been sent by the DLA office a card containing the details of Ms Hinchy's five year DLA award. In attributing knowledge to the Secretary of State that Ms Hinchy's DLA award was for a five year period expiring on 12 October 1998 it is not necessary to rely on knowledge of officials in the DLA office. The same knowledge had been communicated to the Hackney income support office but, when October 1998 arrived, had been forgotten or overlooked. For the reasons cogently given by Lord Hoffmann I would not wish to base my conclusion in this case on the proposition that there could have been no failure to disclose because the Secretary of State, via his officials, already had the information in question. But it seems to me apparent that the Secretary of State is seeking by his section 71(1) claim against Ms Hinchy to remedy the consequences of the inefficiencies of his own Departmental officials. I regret that what I regard as a strained construction of a paragraph of the notes at the back of Ms Hinchy's order book should enable him to succeed in doing so.

LORD WALKER OF GESTINGTHORPE

My Lords,

    47.  I too agree that this appeal should be allowed for the reasons set out in the opinion of my noble and learned friend Lord Hoffmann, with which I am in complete agreement.

BARONESS HALE OF RICHMOND

My Lords,

    48.  The benefits system is there for anyone who has or may have a claim upon it. In practice that is almost everyone. This is not just law for the poor. Many claimants are wholly dependent on benefits and have no other resources available to them. Many are old, ill, disabled or struggling to bring up children on their own. Benefits are there to guard against the eventualities which make it difficult for people to be self-sufficient. But they do this in a number of different ways, by a mixture of universal, contributory and non-contributory, non-means-tested and means-tested benefits or tax credits. This means that almost everyone at some time in their lives will have a valid claim to some form of benefit. We are all potential claimants as well as contributors. This means that it is in all our interests that the system be well designed and well administered so that everyone receives what they are properly entitled to, neither more nor less. It also means that the system is enormously complicated. Few people can be expected to understand even their own entitlements and how these have been worked out, let alone the system as a whole.

    49.  The issue in this appeal is whether in the circumstances the respondent failed to disclose any material fact to the Secretary of State for the purpose of section 71 of the Social Security Administration Act 1992 in consequence of which he made a payment which he would not have made but for that failure. The size and complexity of the system is relevant to that issue in at least three ways. First, if the specialist judiciary who do understand the system and the people it serves have established consistent principles, the generalist courts should respect those principles unless they can clearly be shown to be wrong in law. Second, there is nothing intrinsically wrong in relying on the claimant to give the Secretary of State the information he requires to make his decisions, provided that this is information which the claimant has and that the Secretary of State has made his requirements plain. Nor is it intrinsically wrong to include in these requirements information which is already known in one part of the system but not in the part that needs to know it to make the decision in question. (It is different, of course, if the claimant does not know and cannot reasonably be expected to know but the department does and can: see Kerr v Department for Social Development [2004] UKHL 23, [2004] 1 WLR 1372.) In an ideal world, administrative systems might be so efficient that any official in one office might at a few clicks of a mouse be able to retrieve all the information about a particular claimant held everywhere else in the system. But many would find such efficiency sinister. It is certainly not yet with us. Third, however, the way in which claimants and others are required to give their information should reflect the respective knowledge and expertise of those who administer the system, on the one hand, and of the claimants who have to deal with it, on the other. The fact-finding process is a co-operative effort in which both have a part to play.

    50.  Until recently, the social security commissioners had established a consistent approach to the recovery of overpaid benefits under section 71 of the Social Security Administration Act 1992 and its predecessors. On the one hand, they have consistently rejected the attempts of Mr Howell and Mr Drabble, and others before them, to persuade them that what is known in one part of the system is deemed to be already known throughout and thus need not be disclosed again. On the other hand, they have interpreted section 71 in such a way as to place reasonable rather than unreasonable burdens upon claimants. There are good reasons for this. The section gives the Secretary of State a statutory right of recovery which is more favourable than an action for money had and received. There is, for example, no defence of change of position. It also gives him an easy method of recovery through deduction from future benefits: see section 71(8). Further, section 71 tightened up the law, by applying to all benefits the rule which before 1986 had been applicable only to means-tested benefits. The differences were explained by Lord Woolf in Plewa v Chief Adjudication Officer [1995] 1 AC 249, at 253 to 255. In particular, the defence of due care and diligence to avoid overpayment, previously available for people who had been overpaid non-means-tested benefits, but not for those who had been overpaid means-tested benefits, was no longer available to anyone. Even so, the section does not give an absolute right of recovery of all overpaid benefit. The over-payment must have been the result of misrepresentation or failure to disclose a material fact. Simple non-disclosure is not enough. It must be in breach of a duty to disclose.

    51.  The original statement of this principle, by Mr Commissioner Edwards-Jones QC in R(SB) 21/82, at para 4(2), was as follows:

    " . . . I consider that a 'failure' to disclose necessarily imports the concept of some breach of obligation, moral or legal - i.e. the non-disclosure must have occurred in circumstances in which, at lowest, disclosure by the person in question was reasonably to be expected; see amongst the definitions of 'failure' in the Shorter Oxford English Dictionary:

    '1 . . . non-performance, default; also a lapse . . . '"

This was picked up by a Tribunal of Commissioners in R(SB)15/87 (see also Tribunal decisions CG/4494/1999 and R(IS) 5/03 and numerous individual Commissioners' decisions), at para 26:

    ". . . The section uses the phrase 'fails to disclose' and not 'does not disclose' and one Commissioner said in Decision R(SB) 21/82 at paragraph 4(2) (in a passage that has frequently, e.g. in Decision R(SB) 28/83 at paragraph 11 and R(SB) 54/83 at paragraph 13(3), been cited with approval by other Commissioners) that a failure imported the breach of some obligation such that the relevant non-disclosure occurred in circumstances in which, at the lowest, disclosure by the person in question was reasonably to be expected. To whom is there this obligation to disclose? We are concerned here with breaches of the obligation which have the consequence that expenditure is incurred by the Secretary of State; and, in our view, the obligation is to disclose to a member or members of the staff of an office of the Department handling the transaction giving rise to the expenditure."

    52.  Although it had been consistently stated by Commissioners for many years, the principle that 'disclosure by the person in question was reasonably to be expected' has recently been disapproved by another Tribunal of Commissioners in CIS/4348/2003. That decision turned on whether the individual characteristics of the claimant were relevant to whether she was in breach of the duty to disclose. It is currently under appeal to the Court of Appeal. We are concerned with a different issue and nothing in this case should be seen as prejudicing the outcome of that appeal.

    53.  All of these decisions are consistent, however, in requiring that there be some breach of a duty to disclose. Indeed, in CIS/4348/2003 the Tribunal of Commissioners disapproved of the idea that there might be only a moral duty to disclose. In my view they were right to do so. Failure to disclose has legal consequences which may be very serious for the person concerned; a breach of a moral duty, even if disclosure is reasonably to be expected in the circumstances, should not suffice. Furthermore, section 71(1) permits recovery from the person who misrepresented or failed to disclose the fact, rather than from the person who received the overpaid benefit. It could not be right to require such third parties to pay back money which they had never received unless they were in breach of a legal duty to disclose the information in question. Section 71(1) clearly presupposes the existence of a legal duty to disclose the fact in question and failure to disclose refers to a breach of that duty.

    54.  What is the source and content of that duty? One obvious source (although there may be others to which our attention has not been drawn) are the regulations under which claimants and others may be required to furnish information to the Secretary of State. The vires for such regulations are contained in section 5 of the 1992 Act (quoted by my noble and learned friend, Lord Hoffmann, in paragraph 17 earlier). The relevant regulation at the time was regulation 32(1) of the Social Security (Claims and Payments) Regulations 1987 (quoted by Lord Hoffmann, in paragraph 19). The beneficiary "shall furnish in such manner and at such times as the Secretary of State…may determine such certificates and other documents and such information or facts affecting the right to benefit or to its receipt as the Secretary of State…may require…, and in particular shall notify the Secretary of State…of any change of circumstances which he might reasonably be expected to know might affect the right to benefit, . . ."

    55.  This is commonly regarded as imposing two duties: a duty to give the information and supporting evidence required by the Secretary of State and a further duty to notify changes which the claimant might reasonably be expected to know might affect the right to benefit to the appropriate office. It is not entirely plain whether the second duty is merely a particular instance of the first, so that the Secretary of State must have required such changes to be notified, or whether it is a free-standing duty. In my view, nothing turns on that difference here. In the first case, it is incumbent upon the Secretary of State to make it crystal clear what it is that he needs to know and in the second case the claimant cannot reasonably be expected to know that something might affect his claim to benefit unless the Secretary of State has made it clear what sort of changes might do so.

    56.  I say this because this regulation has to be interpreted and applied in its factual context. Those administering the system on behalf of the Secretary of State have to understand all its ramifications and interactions. Claimants cannot be expected to do so. They cannot be expected to guess all the information which may be relevant to their claims. They do not know the conditions of entitlement or how their right to one benefit may affect their right to another. It is incumbent upon the Secretary of State to make it clear what information he requires. This has to be made particularly clear where any reasonable claimant might not think that it was relevant at all. It should also be made particularly clear where it might not occur to any reasonable claimant in this day and age that the relevant office did not already have the information in question. In this context, there is a difference between matters which only the claimant can know and matters which someone in the benefits system knows or ought to know. The claimant cannot be expected to guess who needs to know the information required. It is incumbent upon the Secretary of State to make it plain to whom the information is to be given or the change in circumstances notified.

    57.  Whether Ms Hinchy was in breach of her duty to disclose therefore depends upon how one reads the instructions in her Order Book (quoted by Lord Hoffmann at paragraph 7). The Appeal Tribunal thought that the instruction to tell the Social Security Office if "any benefit goes up or down" was "a simple instruction". I have at least three reasons for doubting that. First, it clearly does not mean exactly what it says. Read literally, claimants would have to send in Form A9 or write to the office every time the benefit rates changed. This would definitely not be welcomed in hard pressed local offices up and down the land. But how can claimants be expected to know whether they are supposed to be literal minded pedants or to take a relaxed view of information which is common general knowledge in the benefits world? How are claimants to know whether the Secretary of State is such a pedant? Second, two highly literate and intelligent Law Lords have interpreted it differently. How can a poor claimant be expected to know what it means? Third, the particular fact in issue here is within the knowledge and expertise of the Secretary of State rather than the claimant. A reasonable claimant might well think that if the local office knew enough about her disability living allowance to add on the premium at the outset it would know enough to take it off when the award expired. A reasonable claimant might well not understand the inter-action between the two benefits: in many cases where another benefit goes down, the means-tested benefit goes up. A reasonable claimant might not realise that if benefit A is lost, she will also lose some of her means-tested benefit B. In this case, removal from one category of disability living allowance led to a double loss of sums which mean a great deal to people living at the margins of subsistence.

 
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