Secretary of State for Work & Pensions v Burley & Anor

Some of the work in the Civil Division of the Court of Appeal covers the same territory as the invaluable services of Citizens’ Advice Bureaux, Legal Advice Centres and Law Centres all over the country: everyday legal problems of the average citizen in housing, landlord and tenant, neighbour disputes, consumer complaints, minor personal injuries and personal debt. Although there are excellent pro-bono schemes offering expert advice, assistance and representation through voluntary agencies, parties often present their cases without the benefit of legal representation. Many cannot afford to do otherwise. This creates difficulties for litigants and for the court. The legal conundrum in the citizen’s small claim can be just as challenging as a grand commercial case funded by corporate cash.

In unravelling the retirement pension entitlement of two octogenarians, it has been necessary for this court to examine an international social security agreement, two EC Regulations, three Orders in Council and several judgments of the Court of Justice in Luxemburg. The court is indebted to counsel for the Secretary of State for Work and Pensions and those instructing him for their expert assistance.

Over the last four years this case has passed through the specialist hands of the Secretary of State, the Appeal Tribunal and the Social Security Commissioner with differing legal outcomes. The increasing inaccessibility, complexity and remoteness of areas of law affecting the daily lives of ordinary people increase my sympathy for Dr Burley and his parents who, without legal advice or expertise, have wrestled with legislation that is difficult to find and fathom and about which even qualified experts disagree.

Mr Eric Burley is a UK national. He is getting on for 87. He received a 100% state retirement pension from 28 April 1986 down to the events of 4 years ago that triggered this case. His wife Joan is 83 years old. She received a 100% pension from 2 December 1985. She was born in Australia and has dual nationality. The Burleys lived in Australia from about 1948 until the 1970’s, when they came to live in the UK. When they reached pensionable age, they were credited with deemed contributions and received a higher rate UK retirement pension entitlement.

On 24 February 2004 they moved to Paris to live near their son, Dr Peter Burley. They ceased to reside permanently in the UK. On 25 June 2004 the Secretary of State for Work and Pensions made an “award” reducing their retirement pensions to 35% of the standard rate. Their son took up their case. He cares deeply about what he sees as shabby State treatment of his aged parents. With their agreement and the permission of this court he has assisted in the presentation of their case. The court is as grateful to him as his parents must be.

Although the Burleys’ appeal was dismissed by the Appeal Tribunal on 17 October 2005, it succeeded before the Social Security Commissioner on 21 March 2007. Leave to appeal was granted by Mr Commissioner Rowland on 6 July 2007. The Burleys served a respondent’s notice for which this court granted an extension of time, should such an extension be necessary.

The issue is whether Mr & Mrs Burley are entitled to receive their higher rate retirement pensions undiminished by their ceasing to be permanently resident in the UK. Counsel for the Secretary of State has assured the court that this is not a one-off case. Potentially a large number of cases could be affected by the court’s ruling on the question whether EC Regulation No 1408/71 (the 1971 Regulation) applies to the case and enables the Burleys to export, without reduction, their higher rate retirement pension to France in accordance with the general rule contained in Article 10 of the Regulation.

It is not immediately obvious, in these times of the fundamental freedom of movement enshrined in EC law, why a change of residence from the UK to another Member State should result in an “award” of a drastic reduction in the size of a retirement pension. The Burleys have received 100% pension under the social security law of the UK for more than 20 years. Why should their entitlement be reduced because they go to live in Paris? It is not as if anything has happened which would increase the social security burden on either the UK or the French authorities.

Counsel for the Secretary of State submitted that part of the answer was in several passages of the speech of Lord Hoffmann in R (Carson) v. SSWP [2006] 1 AC 173, in which he explained the purpose of the social security system and of state retirement pensions.

“8.

The primary function of social security benefits, including state retirement pensions, is to provide a basic standard of living for the inhabitants of the United Kingdom. They do so as part of an interlocking system of taxation and social welfare, including the provision of benefits in kind such as social housing and the National Health Service. The system as a whole is neither adapted nor intended to maintain the standard of living of inhabitants of other countries, even if they have past connections with the United Kingdom….” (see also paragraph 18 of the same speech)

In that case the claimant, Mrs Carson, had paid contributions in the UK at the full rate. She then moved to South Africa. She claimed that she was the victim of an unlawful discriminatory treatment when she was denied the “uprating” of her pension with inflation, to which she would have been entitled if she had remained living in the UK. She relied on Article 14 of the ECHR and Article 1 of the First Protocol. Carson does not provide the complete answer to this case, which turns on the interrelationship of an international social security convention, the 1971 Regulation and the pension entitlements under the national legislation. The Secretary of State’s contention that the 1971 Regulation does not apply to this case was accepted by the Appeal Tribunal, but not by the Social Security Commissioner (Mr Commissioner Angus.)

Dr Peter Burley, in forceful written and oral arguments seeking justice for his elderly parents, has no doubt that the Commissioner’s decision was correct. It backed up what he says his parents were told by the Pension Service when they contacted it prior to their move to France. He says that they were informed that there would be no complications resulting from the move and that their pensions would be unaltered and paid in France as normal. For the first 4 months after the move his father in fact received 100% of his pension, though his mother received none at all. Then they were distressed to learn of the 65% reduction made in June 2004 on the basis of their ceasing to be permanently resident in the UK.

What the Burleys were told before the move may be a basis for making a possible public law claim against the Secretary of State, but it does not affect the questions of statutory interpretation in this case. The Secretary of State is willing, if requested to do so by the Burleys, to investigate the circumstances of the claim about the advice that was given. So far nothing in writing relating to the alleged advice has been discovered.

I turn first to the construction of the 1971 Regulation. Without it the Burleys would be unable to claim an entitlement to their higher rate UK retirement pensions in France. The overall submission of the Secretary of Sate is that the provisions of the 1971 Regulation do not apply to this case; that UK domestic law giving effect to an international social security agreement with Australia applies; and that under UK domestic law the right to the higher rate retirement pension ceased when they ceased to live permanently in the UK. The Secretary of State relies both on the express terms of a derogation provision in the Regulation itself (paragraph 7 of Section Y in Annex VI) and on the reasoning of the Court of Justice in an interpretive ruling on another part of the 1971 Regulation.

Two EC Regulations (No 1408/71 and No 883/2004) deal with the co-ordination and application of social security schemes to employed persons and their families moving within the EC.

The more recent Regulation No 883/2004 (the 2004 Regulation) can be dealt with quite shortly. Dr Burley referred to some of the provisions of the 2004 Regulation, in particular Article 7. Although the 2004 Regulation is in force and directly applicable in all Member States, it has not yet been implemented. It cannot be invoked until it has been implemented and has no legal effect on this appeal. Article 89 of the 2004 Regulation provides that a “further Regulation shall lay down the procedure for implementing this Regulation.” Article 91 provides that the Regulation shall enter into force on the 20^th day after its publication in the Official Journal of the European Union (it was published on 30 April 2004), but that it shall apply from the date of entry into force of the Implementing Regulation. The 1971 Regulation is only repealed from the date of implementation of the 2004 Regulation. When that is to be done is a matter for the EC institutions, not for the UK government or for the domestic courts. Article 87 of the 2004 Regulation makes it clear that no rights shall be acquired under the Regulation for the period before its date of application. Counsel cited the decisions of the Court of Justice in Nemec v. Caisse Regionale d’Assurance Maladie du Nord-Est [2007] 1 CMLR 29 and El Youssfi v. Office National des Pensions (ONP) (case -276/06 -17 April 2007) as confirmation by the Court of Justice of the correctness of this analysis of the position under the 2004 Regulation.

Thus, the 1971 Regulation has not been repealed. It remains in force for the time being pending the implementation of the 2004 Regulation. The general terms of Article 10 of the 1971 Regulation support the Burleys, as they preclude a reduction in benefits made on the basis that the claimant is residing in another member state-

“Save as otherwise provided in this Regulation, …old age and survivors’ cash benefits, …acquired under the legislation of one or more Member States shall not be subject to any reduction ….by reason of the fact that the recipient resides in the territory of a Member State other than that in which the institution responsible for payment is situated.”

There are, however, derogation provisions in the 1971 Regulation. They define the circumstances in which a Member State is allowed to make a reduction in the benefits on a change of residence. Before the Commissioner the Secretary of State relied on the provisions in paragraph 7 of Section Y in Annex VI to the 1971 Regulation as entitling the UK to make reductions in the retirement pension of the Burleys on their move to live in France. The paragraph relates to special procedures for applying the legislation of certain member states-

“The Regulation does not apply to those provisions of United Kingdom legislation which are intended to bring into force any social security agreement concluded between the United Kingdom and a third state.”

If the 1971 Regulation does not apply to the provisions of UK legislation in this case, then Article 10 cannot be relied on by the Burleys to preclude the UK from reducing their retirement pensions on the ground that they no longer permanently reside in the UK.

The Commissioner is holding that Article 10 of the 1971 Regulation applies to this case was based on his conclusion that the relevant provisions of UK legislation do not fit the description of provisions of UK legislation in paragraph 7. In order to fall within that paragraph the provisions of UK legislation in question must be “intended to bring into force” a social security agreement like that concluded between the UK and Australia, the third state in question.

I therefore turn to the UK legislation.

In order to identify the relevant provisions of UK legislation to which paragraph 7 refers, I shall first outline their development. The question is whether those provisions were “intended to bring into force” an international social security agreement concluded between the UK and Australia.

The initial order was the Family Allowances and National Insurance (Australia) Order 1958 (SI 1958/422). That gave effect to a reciprocal agreement between the UK and Australia about payment of social security benefits. The Agreement dealt with retirement pensions by virtue of residence in Australia and the UK. A person permanently resident in the UK was treated, in general, as if the person had paid contributions under the legislation of the UK for any period that the person was resident in Australia. It was, however, provided in Article 3(5) of the Australian Agreement that a pension awarded by virtue of the Article ceased to be payable if the pensioner ceased to be permanently resident in the territory of the UK.

A new reciprocal agreement was made between Australia and the UK in 1990. Its terms were not materially different from the previous agreement. It included provisions in Article 26 for the termination of the agreement by 12 months written notice, subject to it continuing to have effect in relation to all persons who, by virtue of the agreement, were in receipt of benefits at the date of termination.

In 1992 changes were made to the primary and secondary legislation in the UK. Under the Social Security (Contributions and Benefits) Act 1992 the level of retirement pension depends on the level of contribution with which they are to be credited. In the case of the Burleys they continued to be entitled to be credited with contributions made in the UK, as enhanced by the amount deemed to be credited. Under an order made in 1992 contributions made in Australia were to be deemed contributions in the UK. The 1958 Order ceased to be legislation on its replacement by the Social Security (Australia) Order 1992 (SI 1992/ 1312) (the 1992 Order). The 1992 Order gave effect to the scheduled Agreement on Social Security between the Governments of the UK and Australia made on 1 October 1990. As before Article 3(5) provided that

“Any pension which is awarded by virtue of this Article shall cease to be payable if the pensioner ceases to be permanently resident in the territory of the United Kingdom.”

Article 26(2) of the Agreement contained termination provisions which provided that

“(2)

In the event that this Agreement is terminated in accordance with paragraph (1), the Agreement shall continue to have effect in relation to all persons who by virtue of this Agreement:

(a)

at the date of termination, are in receipt of benefits ….”

Australia invoked the termination provisions of the Agreement with effect from 1 March 2001. The 1992 Order was then revoked with effect from 1 March 2001 by virtue of the Social Security (Australia) Order 2000 (SI 2000/ 3255) (the 2000 Order). It contained express provisions governing the position of persons like the Burleys, who were in receipt of benefits when the reciprocal agreement was terminated by Australia.

Article 2 of the 2000 Order provided that

“(1)

Subject to paragraph (2) of this Article, modifications made to the legislation by the Australian Order shall cease to have effect.

(2)

Modifications made to the legislation by the Australia Order shall continue to have effect in relation to any person who-

(a)

was on 28 February 2001 in receipt of benefit by virtue of those modifications.”

The key question of construction is whether these provisions fit the description in paragraph 7 of Section Y of Annex VI of the 1971 Regulation of “provisions of UK legislation which are “intended to bring into force” a relevant social security agreement. If they do fit the description, the 1971 Regulation does not apply and the Burleys cannot invoke Article 10 and their claim to an undiminished retirement pension fails. If, on the other hand, the provisions of UK legislation do not fit the description, the Burleys can invoke Article 10 of the 1971 Regulation to preserve their retirement pension on the move to Paris.

Mr Commissioner Angus concluded that the UK legislation in the form of the 2000 Order was “not intended to bring into force” any social security agreement concluded between UK and Australia. In this respect it was different from the 1992 Order, which was intended to bring the Australia Agreement into force. The 2000 Order was not made with that intention, as it came into force when the Australia Agreement was terminated. It could not have been intended to bring into force an agreement that ceased to have effect on the very date the 2000 Order came into force. There was no permitted opt-out by the UK from Article 10 of the EC Regulation.

Mr Commissioner Angus rejected the submission of the Secretary of State that, despite its revocation, the 1992 Order continued to be legislation and that the 2000 order, by continuing it in effect as regards existing pensioners, was legislation “intended to bring” the Australian Agreement into effect. The 2000 Order, which is the only relevant legislation in force, simply did not fit the description in paragraph 7. As Dr Burley put it “What was the intended effect of the transitional provisions in Article 2 of the 2000 Order?” It could not be to bring the reciprocal agreement with Australia into force, as it had been terminated on 28 February 2001. Their object, he said, was to ensure that his parents and others in the same position would not be disadvantaged by the revocation of the 1992 Order.

Initially I was impressed by the attractively simple way in which the Commissioner and Dr Burley put this point. On reflection, however, I have reached the conclusion that the Secretary of State is right about the construction of the 1971 Regulation and the domestic legislation.

First, it is clear that the 1992 Order fitted the description of paragraph 7: it was legislation intended to bring into force the Australian Agreement. If the Burleys had moved to live in Paris while the 1992 Order was in force, they would have ceased to be entitled to the higher rate retirement pension.

Secondly, the 1992 Order ceased to be the relevant legislation when it was replaced by the 2000 Order. Although the Australian Agreement was terminated as from 2001, the 2000 Order did bring certain provisions into effect for a limited purpose, namely that preserving and continuing, in accordance with the terms of the terminated Australian Agreement, the retirement pension rights of pensioners like the Burleys. To that limited extent the 2000 Order satisfied the description of UK legislation in paragraph 7. The retirement pension remained, however, subject to the provisions of Article 3(5) for cesser of enhanced pension rights on cesser of permanent residence in the UK.

I would allow the Secretary of State’s appeal on this point.

I should add that counsel for the Secretary of State confirmed to the court that the higher rate of retirement pension would resume if the Burleys were to become permanently resident again in the UK: see Articles 3(1) and 26(2) of the Australian Agreement and Article 2(2) of the 2000 Order. Article 3(5) of the Australian Agreement would not then apply.

The Secretary of State had an alternative submission based on the ruling of the Court of Justice in the Grana-Novoa case (Case C-23/92- 2 August 1993) on the scope of application of the 1971 Regulation. The ruling concerned the interpretation of “legislation” as used in other Articles in the 1971 Regulation. It was argued that the Australian Agreement fell outside the 1971 Regulation, on which the Burleys had to rely to preclude the reduction of benefits for the sole reason that a person moves to live in another Member State.

The ECJ’s ruling on the interpretation of the 1971 Regulation was that the concept of “legislation” referred to in Articles 3(1) and 1(j) of the Regulation does not cover the provisions of international security conventions concluded between a single Member State and a non-member State. The Australian Agreement was such a convention.

The ECJ also held that this interpretation was not invalidated by the fact that such a convention has been incorporated as statute law into the domestic legal order of the State concerned (paragraph 28).

No reference was made by the Court of Justice or by the Advocate General to paragraph 7 of Section Y of Annex VI to the Regulation. The reference to the ECJ arose out of a claim for permanent incapacity benefit in Germany. The claimant was a Spanish National, who pursued an occupation subject to compulsory national insurance first in Switzerland and then in the Federal Republic of Germany. Her claim was rejected by the German authorities on the basis that she had not worked in Germany for a sufficient number of years to complete the qualifying period required by the German rules. She contended that the insurance periods completed by her in Switzerland should be taken into account. There was a social security convention concluded between Germany and the Swiss Federation.

It was ruled (paragraph 23) that the 1971 Regulation only applied to conventions concluded between at least two member states and one or more non-Member states and (paragraphs 24 and 28) that it was intended to exclude from its field of application conventions concluded between a single Member State and a third non-member state. Such a convention was not therefore legislation within the meaning of the Articles relied on in the Regulation. Legislation, as defined in Article 1(j), did not mention international social security conventions, which were dealt with specifically in other provisions of the 1971 Regulation.

In my judgment, this ruling of the Court of Justice leaves this court with no option but to allow the Secretary of State’s appeal on that ground too.

In order to succeed the Burleys had to invoke the 1971 Regulation. This meant that they had to show that their retirement pension rights did not derive from legislation bringing into force an international social security agreement concluded between the UK and a third state, on the one hand, and that they did not derive from an international social security agreement between a single member state, on the other. The true construction of paragraph 7 and the ruling in Gran-Novoa make it impossible for them to succeed. Whichever way one looks at their predicament, any on-going rights that they have to an enhanced retirement pension while living permanently outside the UK derives from a social security agreement concluded between the UK and a non-member state and any UK legislation dealing with such rights is similarly derived.

I would allow the appeal.

I agree with the judgment of Lord Justice Mummery. In particular, I consider that para. 7 of section Y in Annex VI to the 1971 Regulation should be interpreted purposively so as to cover legislation which continues in force, as well as brings into force, a social security agreement concluded between the United Kingdom and a third state. The crucial point is that both types of legislation give effect to social security agreements of that description and there is no difference for this purpose between legislation which brings into force, and legislation which continues into force, such an agreement.

I also agree.