Balding, R (on the application of) v Secretary of State for Work & Pensions

This is another case which requires consideration of the interrelationship between the Social Security Administration Act 1992 (“the 1992 Act”) and the Insolvency Act 1986 (“the 1986 Act”): although the actual issue here arising has not, according to the researches of counsel, itself been the subject of any previous decision. The issue, put compendiously, is this. Where it has been determined pursuant to s.71(1) of the 1992 Act that an individual has been overpaid benefits and the Secretary of State for Work and Pensions has decided to recover them by way of deduction from subsequently payable prescribed benefits, and the individual then goes bankrupt, is that individual released from liability to repay the overpayments, by reason of s.281 of the 1986 Act, upon his subsequent discharge from bankruptcy?

The background facts giving rise to these proceedings can be shortly stated.

Mr Balding, the Claimant, had received income support over a number of years. Investigations in due course were made. A review decision was reached on the 12^th June 1994 that Mr Balding had been overpaid £8680.45 by reason of a failure on his part to disclose a material fact as to his residence (and mortgage interest payable in respect of it). On 6^th July 1994 an Adjudicating Officer determined under s.71 of the 1992 Act that the sum of £8680.45 was recoverable. Mr Balding, as was his right, challenged the decision by way of appeal to the Leicester Social Security Tribunal. By decision, after a hearing on 23^rd October 1995, notified on the 8^th December 1995 the Tribunal determined that Mr Balding had failed to disclose that he was not living at a particular address and that income support of £8,335.48 had been overpaid, which amount was recoverable. The original decision was thus in effect upheld. Neither the original review nor the Tribunal made any finding, however, of fraud in this regard; and it is not suggested before us that Mr Balding had been fraudulent.

In the meantime Mr Balding had presented his own bankruptcy petition on 15^th June 1995 and he was declared bankrupt by order of the Leicester County Court on the 16^th June 1995.

On the 23^rd December 1995 the Benefits Agency wrote to the Official Receiver to say that “In addition to his right to prove for this debt in the bankruptcy in the normal way” the Secretary of State might, without prejudice to any other method of recovery, recover overpayments by deduction from prescribed benefits; and that “debts recovered in this way are outside the scope of [the] bankruptcy legislation”. On the 1^st April 1996 the Secretary of State commenced recovery, by way of deduction from prescribed benefits payable to Mr Balding. On 30^th July 1996 the Benefits Agency wrote a lengthy letter to Mr Balding (who had queried the entitlement to make deductions in view of his bankruptcy) saying among other things that entitlement to, and the power to recover from, benefits were “free standing provisions of law operating quite outside the law of insolvency”.

Deductions thereafter from prescribed benefits payable to Mr Balding were, for various reasons, sporadic. At all events, on 16^th June 1998 Mr Balding was discharged from bankruptcy. Recoveries stopped shortly thereafter: in part at least because Mr Balding was now in prison. Deductions recommenced on 4^th October 2000 but were stopped on 17^th July 2001, at a time when the outstanding balance was £7,621.60. The matter was referred to Central Recovery Group.

On the 6^th August 2003 Mr Balding presented a further debtor’s bankruptcy petition and he was declared bankrupt, for the second time, by order of the Leicester County Court on 7^th August 2003. In his statement in the bankruptcy proceedings he listed the outstanding overpaid income support as a bankruptcy debt. Mr Balding has not yet been discharged from that bankruptcy.

On the 2^nd February 2004 the deductions recommenced. There are indications in the papers that the Department for Work and Pensions had first proposed execution process and court proceedings against Mr Balding but did not pursue these when it learned of the second bankruptcy; and instead proceeded to make deductions.

At the end of 2005 solicitors instructed on behalf of Mr Balding wrote to the Department for Work and Pensions asserting that, by reason of Mr Balding’s discharge from his first bankruptcy, the overpayment ceased to be recoverable. The matter was debated, with no particular sense of urgency, in correspondence in 2006, deductions being suspended in the meantime. A detailed letter of claim was sent on 27^th June 2006. On 18^th July 2006, there was a response by the Department to the effect that discharge from bankruptcy on 16^th June 1998 did not release Mr Balding from his liability to repay the overpayment. These proceedings, claiming wide ranging relief, were issued on the 12^th September 2006. Permission was granted on 13^th November 2006.

In the Statement of Facts in support of the claim Mr Balding referred to his discharge from his first bankruptcy and said: “I hoped that following the indignity of bankruptcy I would have a new start free of debt”. Rather curiously, Mr Balding nowhere in his statement mentioned the fact of his subsequent (second) bankruptcy. However, the argument before us proceeded on the footing that the second bankruptcy has no bearing on the issue now raised.

Since Mr Balding had been discharged from his first bankruptcy on 16^th June 1998, it is a point of comment that these proceedings – which heavily rely on the fact of that discharge – were not issued until over 8 years later. Of course, the Secretary of State asserts an ongoing entitlement to deductions: and at all events Miss Olley (appearing on behalf of the Secretary of State before this court) disclaimed any argument to the effect that delay was a bar to this claim. For his part, Mr Stagg (appearing on behalf of Mr Balding) accepted that the delay might have a bearing on at least some aspects of the remedies claimed if these proceedings were otherwise well-founded.

At the outset of the hearing, this Court granted to the Secretary of State an extension of time in respect of its Grounds of Defence and supporting evidence.

Overpayments and adjustments of benefits are dealt with in Part III of the 1992 Act (as amended). Section 71 provides, in the relevant respects, as follows:

“71.

(1) Where it is determined that, whether fraudulently or otherwise, any person has misrepresented, or failed to disclose, any material fact and in consequence of the misrepresentations or failure –

(a)

a payment has been made in respect of a benefit to which this section applies; or

(b)

any sum recoverable by or on behalf of the Secretary of State in connection with any such payment has not been recovered,

the Secretary of State shall be entitled to recover the amount of any payment which he would not have made or any sum which he would have received but for the misrepresentation or failure to disclose.

[ (2) Where any such determination as is referred to in subsection (1) above is made, the person making the determination shall [in the case of the Secretary of State or a tribunal, and may in the case of a Commissioner or court]

(a)

determine whether any, and if so what, amount is recoverable under that subsection by the Secretary of State, and

(b)

specify the period during which that amount was paid to the person concerned.]

(3)

An amount recoverable under subsection (1) above is in all cases recoverable from the person who misrepresented the fact or failed to disclose it.

. . . . .

(8)

Where any amount paid [, other than an amount paid in respect of child benefit or guardian’s allowance,] is recoverable under –

(a)

subsection (1) above;

. . . . .

it may, without prejudice to any other method of recovery, be recovered by deduction from prescribed benefits.

(9)

Any amount recoverable under the provisions mentioned in sub-section (8) above –

(a)

if the person from whom it is recoverable resides in England and Wales and the county court so orders, shall be recoverable by execution issued from the county court or otherwise as if it were payable under an order of that court…

[(10A) Where –

(a)

a jobseeker’s allowance is payable to a person from whom any amount is recoverable as mentioned in subsection (8) above; and

(b)

that person is subject to a bankruptcy order, a sum deducted from that benefit under that subsection shall not be treated as income of his for the purposes of the Insolvency Act 1986.

. . . . .”

That last sub-section was introduced, by way of amendment, with effect from 7^th October 1996 by certain provisions of the Jobseekers Act 1995. It is common ground that by sub-section (11) section 71 applied to the benefits paid to Mr Balding.

Section 78 of the 1992 Act relates to social fund awards. That in part provides as follows:

“78.

(1) A social fund award which is repayable shall be recoverable by the Secretary of State.

(2)

Without prejudice to any other method of recovery, the Secretary of State may recover an award by deduction from prescribed benefits”

. . . . .

By s.187 of the 1992 Act it is provided that certain benefit is to be inalienable. Section 187(1) provides as follows:

“187.(1) Subject to the provisions of this Act, every assignment of or charge on –

(a)

benefit as defined in section 122 of the Contributions and Benefits Act;

[ (aa) a jobseeker’s allowance;]

[ (ab) state pension credit;]

(b)

any income-related benefit; or

(c)

child benefit,

and every agreement to assign or charge such benefit shall be void; and, on the bankruptcy of a beneficiary, such benefit shall not pass to any trustee or other person acting on behalf of his creditors

. . . . .”

The Social Security (Payments on account, Overpayments and Recovery) Regulations 1988, SI 1998 No 664, make further provision for the recovery of overpayments by deduction from prescribed benefits: see in particular Regulations 15 and 16. Regulation 16 places certain restrictions on the amount that may be so recovered in respect of any one benefit week.

Turning, then, to the 1986 Act (as amended) the principal relevant provisions are these.

Section 278 provides that bankruptcy commences on the day on which the bankruptcy order is made and continues until the individual is discharged under the provisions of the Act. Sections 279 and 280 then make provision for discharge.

Section 281 reads as follows:

“281.

Effect of discharge

(1)

Subject as follows, where a bankrupt is discharged, the discharge releases him from all the bankruptcy debts, but has no effect -

(a)

on the functions (so far as they remain to be carried out) of the trustee of his estate, or

(b)

on the operation, for the purposes of the carrying out of those functions, of the provisions of this Part;

and in particular, discharge does not affect the right of any creditor of the bankrupt to prove in the bankruptcy for any debt from which the bankrupt is released.

(2)

Discharge does not affect the right of any secured creditor of the bankrupt to enforce his security for the payment of a debt from which the bankrupt is released.

(3)

Discharge does not release the bankrupt from any bankruptcy debt which he incurred in respect of, or forbearance in respect of which was secured by means of, any fraud or fraudulent breach of trust to which he was a party.

(4)

Discharge does not release the bankrupt from any liability in respect of a fine imposed for an offence or from any liability under a recognisance except, in the case of a penalty imposed for an offence under an enactment relating to the public revenue or of a recognisance, with the consent of the Treasury.

(5)

Discharge does not, except to such extent and on such conditions as the court may direct, release the bankrupt from any bankruptcy debt which –

(a)

consists in a liability to pay damages for negligence, nuisance or breach of a statutory, contractual or other duty, [or to pay damages by virtue of Part I of the Consumer Protection Act 1987, being in either case] damages in respect of personal injuries to any person, or

(b)

arises under any order made in family proceedings [or under a maintenance assessment made under the Child Support Act 1991].

(6)

Discharge does not release the bankrupt from such other bankruptcy debts, not being debts provable in his bankruptcy, as are prescribed.

(7)

Discharge does not release any person other than the bankrupt from any liability (whether as partner or co-trustee of the bankrupt or otherwise) from which the bankrupt is released by the discharge, or from any liability as surety for the bankrupt or as a person in the nature of such a surety.

. . . . .”

“Bankruptcy debt” is defined in s382 as follows:

382.

“Bankruptcy Debt”, etc

(1)

“Bankruptcy debt”, in relation to a bankrupt, means (subject to the next subsection) any of the following-

(a)

any debt or liability to which he is subject at the commencement of the bankruptcy,

(b)

any debt or liability to which he may become subject after the commencement of the bankruptcy (including after his discharge from bankruptcy) by reason of any obligation incurred before the commencement of the bankruptcy,

(c)

any amount specified in pursuance of section 39(3)(c) of the Powers of Criminal Courts Act 1973 in any criminal bankruptcy order made against him before the commencement of the bankruptcy, and

(d)

any interest provable as mentioned in section 322(2) in Chapter IV of Part IX.

(2)

In determining for the purposes of any provision in this Group of Parts whether any liability in tort is a bankruptcy debt, the bankrupt is deemed to become subject to that liability by reason of an obligation incurred at the time when the cause of action accrued.

(3)

For the purposes of references in this Group of Parts to a debt or liability, it is immaterial whether the debt or liability is present or future, whether it is certain or contingent or whether its amount is fixed or liquidated, or is capable of being ascertained by fixed rules or as a matter of opinion; and references in this Group or Parts to owing a debt are to be read accordingly.

(4)

In this Group of Parts, except in so far as the context otherwise requires, “liability” means (subject to subsection (3) above) a liability to pay money or money’s worth, including any liability under an enactment, any liability for breach of trust, any liability in contract, tort or bailment and any liability arising out of an obligation to make restitution.”

It is the general scheme of the 1986 Act that there is to be protection of the bankrupt’s estate during the bankruptcy: this is dealt with in Chapter 2 of Part IX of the 1986 Act. “Bankrupt’s estate” is defined in s283(1) (and subject to certain specified exceptions not material for present purposes) as follows:

“283.

Definition of bankrupt’s estate

(1)

Subject as follows, a bankrupt’s estate for the purposes of any of this Group of Parts comprises-

(a)

all property belonging to or vested in the bankrupt at the commencement of the bankruptcy, and

(b)

any property which by virtue of any of the following provisions of this Part is comprised in that estate or is treated as falling within the preceding paragraph…..”

This definition connotes that income accruing after the bankruptcy commences does not form part of the bankruptcy estate – although s.310 empowers the court to make an income payments order for the benefit of the bankrupt’s estate. The effect of s.283 of the 1986 Act and of s.187 of the 1992 Act therefore is that income support and other prescribed income benefits ordinarily are not part of the bankrupt’s estate.

Section 285 of the 1986 Act places restrictions on proceedings and remedies. It provides as follows:

“285.

Restriction on proceedings and remedies

(1)

At any time when proceedings on a bankruptcy petition are pending or an individual has been adjudged bankrupt the court may stay any action, execution or other legal process against the property or person of the debtor or, as the case may be, of the bankrupt.

(2)

Any court in which proceedings are pending against any individual may, on proof that a bankruptcy petition has been presented in respect of that individual or that he is an undischarged bankrupt, either stay the proceedings or allow them to continue on such terms as it thinks fit.

(3)

After the making of a bankruptcy order no person who is a creditor of the bankrupt in respect of a debt provable in the bankruptcy shall-

(a)

have any remedy against the property or person of the bankrupt in respect of that debt, or

(b)

before the discharge of the bankrupt, commence any action or other legal proceedings against the bankrupt except with the leave of the court and on such terms as the court may impose.

This is subject to sections 346 (enforcement procedures) and 347 (limited rights to distress).

(4)

Subject as follows, subsection (3) does not affect the right of a secured creditor of the bankrupt to enforce his security.

(5)

Where any goods of an undischarged bankrupt are held by any person by way of pledge, pawn or other security, the official receiver may, after giving notice in writing of his intention to do so, inspect the goods.

Where such a notice has been given to any person, that person is not entitled, without leave of the court, to realise his security unless he has given the trustee of the bankrupt’s estate a reasonable opportunity of inspecting the goods and of exercising the bankrupt’s right of redemption.

(6)

References in this section to the property or goods of the bankrupt are to any of his property or goods, whether or not comprised in his estate.”

Proof of any bankruptcy debt is provided for in s.322 (and subject to mutual credits and set-off), essentially by reference to the Insolvency Rules. Insolvency Rule 12.3 provides that, subject as there follows, in bankruptcy all claims by creditors are provable as debts against the bankrupt, whether they are present or future, certain or contingent, ascertained or sounding in only damages. Certain specific exceptions which are not provable are set out: these exceptions do not include recoveries of overpayment under s.71 of the 1992 Act.

Finally, it may be noted that by s.434 the provisions of the 1986 Act deriving from the Insolvency Act 1985 bind the Crown in relation to (among other things) discharge from bankruptcy.

The submissions of Mr Stagg on behalf of Mr Balding had the great attraction of being clear, straightforward and logical. They can be summarised in this way:

The argument of Miss Olley on behalf of the Secretary of State was altogether more elusive (although “subtle” was her own chosen epithet). At all events, at the outset of her argument she emphasised what she said were the applicable policy considerations which, she submitted, showed that there was not here a “bankruptcy debt” with the meaning of s.281 of the 1986 Act.

In that regard she drew attention to the Witness Statement dated 1^st February 2007 of Mr Milner, of the Debt Repayment Operational Policy Unit of the Department of Work and Pensions, in particular at paragraphs 22 to 28. But, with respect, I did not find that cast much light on the present matter. That Statement asserts first that the Secretary of State, in pursing recovery of overpaid benefit by deductions, is in a very different position from an ordinary creditor. That may be so; but it hardly bears on the current issues of statutory interpretation. Mr Milner goes on to say, secondly, that the statutory scheme “strikes a balance between the need to protect the public purse by recovering overpaid benefit and the need to ensure that excessive hardship is not caused to the claimant”. No doubt that is an underlying policy approach; but again it does not seem to me to assist very much, as a generalised position, in determining the issue of statutory interpretation now before the court. The third and final point made is that the consequence of the restrictions on the amount of benefit which can be recovered by deduction (applying the 1998 Regulations) is that “the Secretary of State may well have to wait a very long time to recover any overpaid benefit”. Leaving aside the fact that the Secretary of State is in any event not precluded from other forms of recovery, I cannot see how this point as so advanced has any real bearing on the issue of statutory interpretation arising in this case.

At all events, the arguments advanced on behalf of the Secretary of State then, as I understood them, proceeded as follows:

We were referred to a number of authorities.

In Steele v Birmingham City Council [2006] ICR 869, [2005] EWCA Civ 1824 the question was whether liability to repay certain overpaid social security benefits constituted a “bankruptcy debt” and, if they did, whether the benefits authority concerned could continue to recover such overpaid benefits by way of deduction from ongoing entitlements after the claimant was discharged from bankruptcy.

However there was a material and crucial distinction of fact in that case as compared to the present case.

As noted by Gibbs J at first instance in the Steele case [2005] EWHC 783 (Admin) there can be said to be four categories into which overpayment can fall where an individual is made bankrupt and then discharged:

It is expressly agreed by counsel on the facts of the case before us that Mr Balding is within category 1, the relevant decision having been made before the date of bankruptcy. (It was not suggested to us that the subsequent appeal to the Tribunal affected that.) But in Steele, on its facts, the matter fell within Category 2 – since no decision by the Secretary of State or authority that the overpaid benefits were recoverable was made prior to the date of bankruptcy.

The principal argument thus raised in Steele was whether (for the purposes of s.382 of the 1986 Act) the liability of Mr Steele to repay in respect of previous overpayments was a “debt or liability to which he may become subject after the commencement of the bankruptcy (including after his discharge from bankruptcy) by reason of any obligation incurred before the commencement of the bankruptcy”; and whether the debt or liability could be properly categorised as “contingent”, for the purposes of s.382. At first instance, Gibbs J held that the liability did fall within the definition of “bankruptcy debt”, he taking the view that there was a contingent liability for the purposes of s.382 (3). He further held that he could not find any provision in the statutory scheme which would exclude the liability to repay from the definition of “bankruptcy debt”, whether expressly or impliedly. Having so decided, he went on to hold that Mr Steele was released from the liability on his discharge from bankruptcy, stating “I can find no basis in the authorities cited, given that it is a bankruptcy debt, for holding that the claimant is not released by virtue of s.281(1) on his discharge from bankruptcy”.

That decision was reversed by the Court of Appeal. The Court of Appeal held that, until the Secretary of State had made his determination under s.71(1) of the 1992 Act, the claimant was under no obligation to repay the overpaid benefit; and since there had been no such determination in the case of Mr Steele prior to the date of his bankruptcy he was not subject to a “contingent liability” for the purposes of s.382 of the 1986 Act. Accordingly there was no “bankruptcy debt” which could be released on discharge from bankruptcy under s.281 of the 1986 Act. The Court having reached that conclusion, the question of whether s.281 had the effect of precluding the recovery of overpayment did not fall for decision. Sir Martin Nourse (at p877A) and Arden LJ (at p879E) recorded that they preferred to express no opinion on that matter. It may, however, be noted that counsel then appearing for the Secretary of State had apparently conceded that if there were a contingent liability constituting a bankruptcy debt then it was released, by reason of s.281(1), on discharge from bankruptcy: see at p.873B. In the present case before us Miss Olley initially made the same concession. However, after Mr Stagg had made his closing submissions in reply, she then indicated that she withdrew the concession.

In R v Secretary of State for Social Security ex p. Taylor and Chapman [1997] BPIR 505 the question before the Court was whether the right to recover overpayments under s.71(8) and s.78(2) of the 1992 Act continued after the relevant individuals had become bankrupt. That case did not, therefore, it should be noted, involve the consideration of the position after discharge from bankruptcy: rather it primarily involved a consideration of the relationship between s.71(8) and s.78(2) of the 1992 Act on the one hand and s.285(3) of the 1986 Act on the other hand (that section, of course, relating to restrictions on proceedings and remedies during the currency of a bankruptcy).

In the court of his judgment, Keene J rejected a submission that the 1992 Act was to be taken as excluding the bankruptcy legislation or as taking precedence over it. He went on, however, to hold that the deductions made did not constitute a “remedy against the property” of the bankrupt, for the purposes of s.285. In so holding, Keene J followed the approach of the Court of Appeal in Bradley-Hole v Cusen [1953] 1 QB 302. In that case, a tenant had overpaid rent to a landlord contrary to the provisions of the Increase of Rent and Mortgage Interest (Restrictions) Act 1920. The landlord then became bankrupt. Section 14(1) of the statute provided that where any such sum had been so overpaid then “the sum so paid shall be recoverable from the landlord… and any such sum… may, without prejudice to any other method of recovery, be deducted by the tenant or mortgagor from any rent or interest payable by him to the landlord or mortgagee”. It was argued that the tenant’s right was restricted to proving in the bankruptcy and that any other method of recovery would be barred under the bankruptcy legislation and would unduly prefer the tenant. It was held, however, that the statutory right of deduction remained available and the trustee in bankruptcy could be in no better position than the landlord. It seems to me, I might add, that it is reasonable to assume that the draftsman of the 1992 Act would have been aware of the implications of adopting a drafting technique similar to that used in the statute considered in Bradley-Hole.

In the course of his judgment in Taylor Keene J (at p513D) stated that the claimant’s entitlement under the 1992 Act was “on the facts of the case” only to the net amount after deduction. Mr Stagg challenged the correctness of that statement. He submitted that the question of entitlement to the prescribed benefits was one for the adjudicating officer: which is to be distinguished, he said, from what is then actually paid, the Secretary of State having power to withhold by way of deductions. I regard that as a semantic quibble. The reality is that the claimant is indeed only entitled to the net amount of the prescribed benefit just because of the election to make deductions pursuant to s.71(8). I would add that it seems to me that the comments of Keene J were not intended to be a generalised comment on the effect of s.71 but only a comment on the factual situation where the method of recovery actually chosen is by way of deduction.

We were also referred to the House of Lords decision in the Scottish case of Mulvey v Secretary of State for Social Services [1997] SC(HL) 105, [1997] SLT 753. That considered the relationship between s.78(2) of the 1992 Act and the relevant Scottish bankruptcy legislation. The question – corresponding to that in the case of Taylor – was whether, where the relevant individual had been made bankrupt, the Secretary of State was entitled to continue making deductions under s.78(2). It was submitted that to recover by way of deductions was tantamount to suing the debtor personally for enforcement of a pre-bankruptcy obligation or in any event was doing diligence contrary to s.32 of the Bankruptcy (Scotland) Act 1985 – which, as I understand it, broadly, although not precisely, would correspond to s.285 of the 1986 Act.

In the course of his speech Lord Jauncey noted that, by reason of s.187 of the 1992 Act, the income support payable to the bankrupt could not be part of the estate or pass to the trustee. He further noted that, could such deductions not continue to be made, bankruptcy would confer an immediate financial advantage on the bankrupt: which would be particularly unacceptable where the overpayments had been obtained by fraud. He went on to find that nothing in s.32(5) of the Bankruptcy (Scotland) Act 1985 affected such a conclusion. He went on at p756F to say this: “The deductions made by the respondent were not, as in the normal case of compensation in bankruptcy, a result of the bankruptcy but were made in pursuance of a statutory scheme which was already in operation at the time of sequestration and with which the permanent trustee can have no concern. Prior to sequestration the appellant had no right to receive by way of income support benefit more than her gross entitlement under deduction of such sum as had been notified to her…”. Reference was also made, without disapproval, to the Bradley-Hole decision.

These authorities make clear that the right to make deductions under s.71(8) and s.78(2) continues after the onset of bankruptcy. But what they do not decide is the effect of discharge from bankruptcy. The point (although decided by Gibbs J at first instance) was left open by the Court of Appeal in Steele. In Mulvey that point also did not fall for decision, Lord Jauncey’s observations at p756F being “Even assuming that the appellant’s obligation to repay the social fund awards would be discharged under sec.55 [viz. of the Bankruptcy (Scotland) Act 1985] after three years, a point on which I do not find it necessary to express a view…”

In my view, the submissions of Mr Stagg reflect the actual wording of the statutory provisions and are correct.

Bankruptcy Debt

The first question is whether there was here a bankruptcy debt.

It seems to me to be beyond argument that the overpaid benefit was recoverable from Mr Balding just because, by reason of the determination, he was liable to repay the overpaid benefit. That liability arises in this case under s.71(1) of the 1992 Act. As such, it is a liability to pay money under an enactment for the purposes of s.382(4) of the 1986 Act; and in all other respects falls within the ambit of a “bankruptcy debt” as defined.

Miss Olley emphasised that the entitlement is only to the net amount after deduction. But that does not seem to me to displace the fact that there is here a liability under an enactment. The overpaid income support can be recovered by deduction just because there is a liability to repay.

This is, as I see it, confirmed by the fact that s.71(8) confers the right to recover by deduction “without prejudice to any other method of recovery”. Miss Olley necessarily had to accept that in any particular case where an individual is not bankrupt the Secretary of State could sue for recovery of the overpaid amount as a debt. Section 78(9) expressly provides that amounts recoverable under the provisions mentioned in sub-section (8) may be recovered by execution issued from the County Court or otherwise as if payable under an order of the Court. On bankruptcy, moreover, as was conceded, the Secretary of State could also elect, as a creditor, to prove in the bankruptcy – an option, indeed, alluded to in the Benefits Agency’s letter of 23^rd December 1995 to Mr Balding’s trustee in bankruptcy. It is to be noted that s.322 of the 1986 Act relates to the “proof of any bankruptcy debt”: and Insolvency Rule 12.3 does not specifically exclude recovery of sums under the 1992 Act from the categories of provable debts.

Miss Olley’s approach in any event seems to assume that the individual is only ever entitled to the net benefit after deduction. But in my view that is not right. That will no doubt be so if the Secretary of State has actually elected – as he did in this case - to recoup the overpaid benefit by deduction at source from subsequent prescribed benefits. But the Secretary of State may in other cases decide to effect recovery by other means. The fact that he has not done so in this particular case is no answer to the question of statutory interpretation arising. As I see it, the liability to repay cannot be said to be not a “bankruptcy debt” (as defined) if one form of recovery – viz by deduction under s.71(8) or s.78(2) – is adopted but can be a “bankruptcy debt” if another form of recovery is adopted. The liability arising under s.71 of the 1992 Act, upon determination made prior to bankruptcy, either is or is not on a subsequent bankruptcy a “bankruptcy debt”, as defined. In my view, it is.

Discharge

The next question, on the footing that there is here a bankruptcy debt, is whether discharge released Mr Balding from liability for recovery of the overpaid benefit.

In my view, that must follow given the wording of s.281, which in terms releases a bankrupt from “all the bankruptcy debts”. Further:

The logic of Miss Olley’s argument, as she found difficult to dispute, would be that after discharge the Secretary of State could, in a particular case, discontinue recovery by way of deduction and sue for the balance outstanding. If, as Miss Olley’s argument connotes, discharge does not affect the Secretary of State’s entitlement to continue to make deductions at source from prescribed benefits, then that must be because the liability under s.71 continues. But if that liability continues then the right of recovery by way of deduction under s.71(8) continues “without prejudice to any other method of recovery”. Accordingly, on the argument advanced, the right to sue or to levy execution would continue after discharge. That does not fit with the wording of, or policy behind, s.281 at all; and my view, such a result would simply compel a conclusion that what is here involved is indeed a “bankruptcy debt” which is released on discharge. It is to be noted that s.281 operates as a release from bankruptcy debts: it does not operate (in contrast to s.285, which applies during the currency of a bankruptcy) as a release from or restriction on methods of recovery of such debts.

Accordingly, and in agreement with the approach of Gibbs J at first instance in the Steele case on this point, I conclude that, there being a bankruptcy debt, the claimant was released from it on his discharge from bankruptcy.

I would however add this. Underlying the arguments advanced by the Secretary of State was, I think (although not explicitly advanced in argument before us), a perception that the operation of these provisions of the 1992 Act and 1988 Regulations was simply not intended to be subject to the bankruptcy legislation. That would not be an empty proposition. As Gibbs J pointed out at the conclusion of his first instance judgment in Steele, there may be good policy reasons why the framework of these statutory benefits should be separated from the bankruptcy legislation and why the right to deduct overpayments should be exempted from such legislation.

In this context, each of Categories 2, 3 and 4 identified by Gibbs J are – as was agreed before us – outside the reach of the bankruptcy legislation so far as deductions are concerned. Further, as has been authoritatively decided, Category 1 is outside the reach of the bankruptcy legislation during the currency of the bankruptcy so far as deductions are concerned. Further, the effect of s.187 of the 1992 Act (reinforced by the definition of “bankrupt’s estate” in s.283 of the 1986 Act) is that specified benefits, whether gross or net of deduction, would not be part of the estate available for distribution among creditors (leaving aside s.310 of the 1986 Act). One rationale for s.285 – in addition, of course, to the need for an orderly administration of the bankruptcy – can be said to be that by having his estate surrendered by operation of statute for the benefit of creditors the bankrupt, both as to his person and property, is to be protected from proceedings. A similar rationale – in addition to the “wiping the slate clean” rationale – may play a part in the discharge provisions of s.281. But that seems altogether less powerful when the benefits in question never were part of the estate or available for distribution among creditors. Further, as put by Keene J in Taylor (albeit in the context of the case before him at p.513G): “It is difficult to see why someone who goes bankrupt should be in a better position so far as state benefits are concerned than someone who does not”. A similar viewpoint appears in the speech of Lord Jauncey in Mulvey; although Mr Stagg observed that discharge generally puts a bankrupt in a better position than he previously would have been in.

However, it seems to me that Mr Stagg was right to warn against, in effect, judicial speculation as to Parliament’s intentions and right to submit that such considerations cannot operate to subvert the clear words of the legislation. Moreover the result here is not one which would be contrary to sense or without any purpose: on the contrary, it would fall within the general purpose underpinning s.281. If Parliament had desired to provide that – exceptionally – the liability to restore overpaid benefits (being a bankruptcy debt) was to be excluded from the operation of s.281 on discharge from bankruptcy then it behoved it so to provide. It has not done so. Moreover:

In my judgment, therefore, this claim succeeds. I think that it will be necessary to hear counsel as to the form of order that should be made in consequence.

I agree.