Revenue and Customs Commissioners v Kearney

National Insurance is one of the cornerstones of the Welfare State, introduced by the first post-war Labour Government in the wake of the wartime Beveridge Report. As its name suggests it was an insurance scheme under which contributors made regular periodic payments in return for which they would be entitled to a variety of non-means tested benefits. These included free healthcare from the National Health Service, sickness benefit and a retirement pension.

It is a pay as you go scheme in the sense the current payers pay for current benefits and pensions. Contributions must be paid within specified time limits. These are important for two reasons. First, it would be unfair to most contributors whose regular contributions are deducted from their wages. Second, it is contrary to the principle of insurance, by which a premium must be paid for a policy in order to maintain it in force and payment cannot be delayed until the risk insured against has materialised.

Mr John Joseph Kearney, the Respondent in this case, was born in 1929. He served with the Palestine Police until its disbandment in 1948. He returned to England and took a job with the London County Council in June 1948. The National Insurance Contribution Scheme began on 5 July 1948 and Mr Kearney entered the scheme. Between 5 July 1948 and 30 September 1948 he made ten contributions to the scheme. His contributions would have been recorded by stamps on a card which would have been issued to him when he registered for the scheme.

On 1 October 1948, Mr Kearney left the United Kingdom to take up a position in the Kenyan Police. His employer was the Colonial Office. He served as a police officer in Kenya through the Mau Mau emergency between 1951 and 1956. He continued to work in Kenya until 1975.

Mr Kearney did not pay National Insurance Contributions for most of his time in Kenya. It was not until 1971 that he notified the National Insurance authorities that he had gone to live abroad. In October 1971 he paid six years backdated contributions. Mr Kearney now wishes to pay the contributions that would have been payable between 1948 and 1965 in order to become entitled to a full State retirement pension. The amount concerned is modest, but I am told that a number of cases depend on this.

Mr Norbatt, who appears on behalf of the Revenue, has carefully taken me through the legislation, as a result of which I am satisfied that I have been shown the evolution of the legislation and need not refer to it all.

Regulation 5 of the National Insurance Residence and Persons Abroad Regulations 1948 provides as follows:

“1.

Where an insured person is throughout any contribution week outside Great Britain and is not in that week an employed person he shall not be liable to pay any contributions as an insured person for that week.

2.

(a) Subject to the condition specified in sub-paragraph (b) of this paragraph an insured person shall for any week during the whole of which he is outside great Britain and for which by virtue of paragraph 1 of this regulation he is not liable to pay a contribution as an insured person be entitled to pay a contribution as a non-employed person or if he so desires and is gainfully occupied in that week as a self-employed person.

(b)

The conditions referred to in the preceding paragraph are:

(i)

either that subject to the provisions of sub-paragraph (c) of this paragraph not less than 156 contributions of any Class under the Act have been paid by him as an insured person or alternatively that he had been resident in great Britain for a continuous period of not less than three years at any time before the week in question and

(ii)

that in either case he exercises the option to pay contributions in respect of any period during which he is outside great Britain before the expiration of 26 weeks from the date on which the period commenced or in the case of a person for whom the proviso to Regulation 4 applies, within such longer period as the Minister may allow.” (Quote unchecked)

Regulation 5(2)(bb) deals with the time within which the contributions must be paid. Regulation 5 thus removes the obligation to pay National Insurance contributions from a person resident abroad and substitutes an entitlement to pay. There are two stages to this entitlement. The first stage is to exercise the option and the second is to make the payment. Where payments are not made on time Regulation 50 of the Social Security Contributions Regulations 2001 applies. That provides as follows:

“1.

If

(a)

a person, the contributor

(i)

was entitled to pay a Class III contribution under Regulation 48.1462(b) or 147 and

(ii)

fails to pay that contribution in the appropriate period specified for its payment and

(b)

the condition in paragraph 2 is satisfied the contributor may pay the contribution within such further period as an officer of the board may direct.

2.

The condition is that an officer of the board is satisfied that

(a)

the failure to pay is attributable to the contributors ignorance or error and

(b)

that ignorance or error was not the result of the contributor’s failure to exercise due care and diligence.” (Quote unchecked)

Mr Kearney applied to the Board under Regulation 50 in relation to the payment which he wishes to make for the years 1948 to 1965. The Board accepted that his failure to pay was attributable to his ignorance or error, but the Board was not satisfied that the error or ignorance was not attributable to Mr Kearney’s failure to exercise due care and diligence.

Mr Kearney then appealed to the General Commissioners. He presented his case before the General Commissioners in person as he did before me. The General Commissioners allowed his appeal.

The crucial parts of their decision are set out in the case stated. The crucial findings of fact, apart from the general history which I have relate are the following, paragraph 5 (vii):

“The Respondent did not notify the NICS authorities that he had gone abroad until 1971. Had the Respondent so notified the NICS authorities he would have been sent leaflet M138, which contained information about liability and entitlement whilst abroad to pay National Insurance contributions.”

Paragraph 5 (viii):

“Although Mr West told us that it was the practice of the Colonial Office to send their employees going abroad a copy of a circular telegram dated 15 August 1948 containing information about liability and entitlement of those abroad to pay National Insurance contributions, the Colonial Office in Kenya apparently failed to ensure that all of its employees were so notified.”

Despite the use of the word “apparently” I take this to amount to a finding of fact that Mr Kearney did not see the circular telegram.

Thus, the General Commissioners, like the Board, accepted that Mr Kearney’s failure to pay was attributable to ignorance or error. However, this was not, in fact, in issue before them. What was in issue was whether Mr Kearney’s ignorance was the result of his failure to exercise due care and diligence. The question therefore, for the General Commissioners to address, was why was Mr Kearney ignorant of his entitlement to make the contributions? The burden of proof was on Mr Kearney to establish why he was ignorant of his entitlement and to show that whatever the reason was it was not attributable to lack of care or due diligence. There are no specific findings of fact which deal with this question, apart from the finding that Mr Kearney had not been made aware of the contents of the circular telegram dated 15 August 1948.

However, the General Commissioners recorded a number of contentions advanced by Mr Kearney which I am prepared to assume they accepted as being correct. The crucial contentions are these. Paragraph 6 (i):

“He was not a new claimant and had done everything possible to bring his payments up to date. He was unaware of the circular telegraph dated 15 August 1948 and as soon as he was aware of the need to make contributions he had tried everything to rectify the situation.”

Paragraph 6 (iii):

“The National Health Scheme was introduced in 1948 at which time the Respondent was a young 19 year old serving in the Palestine Police during one of its bloodiest periods. He returned to the United Kingdom for a period of a few weeks, during which he had a part-time job with the London County Council. He left for Kenya in October 1948. At this stage the National Health Service was in its infancy. The Respondent was never given any information about the implications of making or not making National Insurance contributions. In the circumstances this is hardly surprising. He simply assumed that as a Government servant he would have been looked after.”

Paragraph 6 (iv):

“As soon as the Respondent realised that payments had not been made he took action and had spent over 35 years trying to rectify the situation. He had been relentless in his attempts to try and resolve the matter.”

Paragraph 6 (v):

“It was not until 1960 that the Colonial Office started to hand out leaflets. The Respondent had not seen the circular telegram dated 15 August 1948. Colonial governments were advised to inform all their ex-patriots to play Class III NIC, but apparently in Kenya the Colonial Government neglected to do so.” (Quote unchecked)

The Commissioners reached their conclusion in paragraph 9 of the case stated, they are as follows:

“(b)

We were satisfied that the Respondent was not made aware of the need to notify the National Insurance Contributions Office of his posting abroad firstly by the National Insurance Contributions Office, since his RF85E was returned and secondly, because the Colonial Office in Kenya apparently failed to ensure that all of its employees were notified of the contents of the circular telegram dated 15 August 1948.

(c)

We found that the Respondent took immediate action to remedy the situation on being made aware of it and that he had continued his fight for the last 35 years. The Respondent’s failure to pay National Insurance contributions was due to ignorance. We did not consider this failure was due to a lack of care and due diligence on the part of the Respondent. We order that if the Respondent pays the Class III National Insurance contributions for the period 1 October 1948 to 5 September 1965 they are to be treated as having been paid on the due dates.” (Quote unchecked)

Paragraph 9(b) goes to the first of the two questions, namely whether Mr Kearney’s failure to pay was attributable to ignorance or error. Those findings do not, in my judgment, go to the second question at all. The second question is whether the ignorance or error was or was not attributable to the lack of due care and diligence. The conclusion in paragraph 9(c) of the case statement devotes a single sentence to the second question, but without explanation save for the bold conclusion.

There have been a number of cases in which the contributor has sought to rely on a failure by the authorities to chase him for payment. This contention has always been rejected as exonerating a contributor from a failure to pay and in any event, where the contributor is not obliged to pay, but merely entitled to pay and where the entitlement to pay is signified by the exercise of an option, there can, in my judgment, be no duty on the National Insurance authorities to chase up a former contributor who has ceased to pay. Such a person may simply have chosen not to exercise the option. Nor do I consider that the National Insurance authorities had any duty to explain to Mr Kearney what the consequences of his going abroad would mean for him. Quite apart from anything else they had no way of knowing that he was going abroad.

It is, I think, impossible to define what amounts to due care and diligence. It would depend on all the facts of the particular case. In his written skeleton argument Mr Norbatt, who appears on behalf of the Revenue, submitted that due diligence requires positive action to be taken by the contributor and that in the absence of enquiry by a contributor who has knowledge of the Scheme due diligence could not be shown as a matter of law. I do not believe that the position is so clear cut. Suppose, for example, the person taking up a posting abroad at the behest of the Government is given a leaflet by his employer which contains incorrect information. He relies on the information that he has been given and does nothing more. In such circumstances it may be inactivity would amount to due care and diligence or, as the cases suggest, a person who is entirely ignorant of the National Insurance Scheme may be able to establish an error not attributable to a lack of care or diligence even though he did nothing.

Mr Kearney submitted that the test of due diligence was flexible test. The factors that would be relevant would include the degree of knowledge of the Scheme, the length of time during which a person was contributing to a Scheme, the point in the line of the Scheme at which the person began to contribute. I think that all these factors are potentially relevant. I would add to them, whether the person concerned has claimed benefits under the Scheme, which would in itself indicate a knowledge of it and what information he received about his liabilities and entitlements under the Scheme and from what source.

Mr Norbatt also submitted that in order to amount to due diligence the enquiries had to be made of the relevant National Insurance authorities. After some questioning from me, I think that he moved from this rather inflexible position. He accepted, in my judgment rightly, that enquiries made of a responsible person, for example, an employer or a trade union could, depending on the circumstances, amount to due diligence. The General Commissioners relied on Mr Kearney’s immediate action to remedy the situation on being made aware of it. Mr Norbatt said that this was irrelevant, because the action relied upon was outside the critical period during which the contribution should have been paid. I think he is right. There is, in my view, another reason why this finding by the General Commissioners is not relevant, although it may go to show that Mr Kearney’s failure to pay was due to ignorance or error, it does nothing to explain why the error was made. In the present case on the basis of the General Commissioners’ findings, the core reason why Mr Kearney did not make the payment was that he simply assumed that as a Government servant he would be looked after. He made no enquiries of the National Insurance authorities. He made no enquiries of his employer. There was nothing that positively led him to believe that he would be entitled to a full State pension. It was simply an assumption on his part. Nor did he enquire of his employer whether deductions were actually being made from his salary to fund contributions. He assumed that as a Government servant all that would be handled for him.

In my judgment, to rely on an assumption, which has not been shown to have been positively induced and without making any further enquiries cannot amount to the exercise of due care and diligence. The question posed by the case stated is expressed as follows:

“Whether on the facts found and evidence before us we were right to find that the Respondent exercised due care and diligence in accordance with Regulation 24 of the National Insurance Contributions Regulations 1969 and Regulation 6 of the Social Security Crediting and Treatment of Contributions and National Insurance Number Regulations 2001.”

In my judgment, the answer is no. I must, therefore, allow the appeal.