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	England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Amanda Vera Ellen Craigie v Secretary Of State For Social Security [2000] EWCA Civ 329 (15 December 2000) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2000/329.html Cite as: [2000] EWCA Civ 329

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Case No: QBCOF.2000.0347

IN THE SUPREME COURT OF JUDICATURE

COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE HON. MR. JUSTICE ELIAS

Royal Courts of Justice

Strand, London, WC2A 2LL

Friday 15^th December 2000

LORD JUSTICE SCHIEMANN:

1. This is an appeal from a judgment of Elias J. The appellant was entitled to income support. Part of the amount to which she was entitled related to mortgage interest on her house. She had a deferred interest mortgage. The Secretary of State made payments to her lender. He paid the lender too much. He recovered the overpayments from the lender. The judge held that he was entitled so to do. The appellant challenges the correctness of that holding. She says she has been disadvantaged by the Secretary of State's action and he was not entitled to disadvantage her just because he had made a mistake. The judge held that she had not been disadvantaged and dismissed her claim on that basis.

2. Before setting out the statutory scheme in relation to income support and the recovery of overpayments and explaining what happened, it will be useful first to explain the type of mortgage which the claimant had. Traditionally mortgagors have been granted mortgages on terms that make them liable for a variable rate of interest - when interest rates go up, the monthly payments go up; when rates go down, the monthly payments go down. However, relatively recently mortgagees have made available for potential customers deferred interest mortgages. Under these, the customer is not liable to pay each month all of the interest which is chargeable in respect of the loan of capital for that month. He is allowed to roll up some of that interest and add it to the capital outstanding. Under such an arrangement the mortgagor will owe to the mortgagee interest charged at whatever is the mortgagee's current charging rate but in practice he will, for a period of x years, only have to make monthly repayments at a fixed payment rate. There is of course always a downside to such arrangements for the borrower : where, as is usually the case, the payment rate is lower than the charging rate the difference between the charging rate and the payment rate is added to the capital which the borrower owes to the mortgagee. This will have the consequence that the borrower will be charged interest on the gradually increasing capital, and so more and more interest becomes chargeable. Thereafter either (i)the borrower will have to pay off the extra indebtedness by extra monthly payments or (ii) when he wants to sell his house and pay off the mortgage the borrower will find that he has to repay more capital than he initially borrowed in order to finance the purchase of the house.

3. The statutory scheme in relation to income support is broadly as follows. A person is entitled to income support if he fulfils the statutory criteria, which include having an income which does not exceed "the applicable amount"[1]. The applicable amount is the amount prescribed by regulations as the amount which, in the particular class of case, is the threshold for income support[2]. The applicable amount is calculated by reference to various matters, including housing costs. The interest payable on a domestic mortgage generally qualifies as a housing cost. The consequence of all that is that the interest is included in the applicable amount and thus the threshold below which income support is payable rises.

4. It is common ground that in the case of deferred interest mortgages, such as the one with which we are concerned, the interest rate which must be used for the purpose of arriving at the applicable amount was, at the relevant time, the payment rate not the charging rate[3].This seems reasonable enough if one considers that the purpose of including housing costs as part of the applicable amount is to enable people when they fall on hard times to continue to live in their house. So long as the state meets the monthly amounts at the payment rate the mortgagee cannot repossess the house and the applicant can continue to live there. The fact that the capital indebtedness is meanwhile increasing because of the difference between the payment rate and the charging rate may not matter very much -a claimant may find work again after a while and the value of the house may rise with the passage of time.

5. The amount of income support payable is, in broad terms, the claimant's applicable amount minus her income, if any. In the present case there was no income. What went wrong in the present case was that the Secretary of State paid, not at the payment rate as he should have done, but at the charging rate. The result was that he paid over £3000 too much. When he found out his mistake he made no payments at all in respect of the housing costs element of income support for many months. He accepts that during these months he was in principle liable to make payment at the payment rate. But he asserts that he was entitled to set off the amounts which he was obliged to pay against the amounts which he had overpaid earlier.

6. The applicable amount is generally paid to the claimant. But in certain circumstances, of which the present is one, the mortgage interest element of the applicable amount is payable direct to the lender[4].

7. The mortgage interest element which is paid to the lender is referred to as the "specified part" of the claimant's income support[5].

8. The provisions in the relevant schedule in relation to repayments of monies overpaid are as follows:

(1) Where sums have been paid to a qualified lender under Regulation 34A which ought not to have been paid for one or both of the reasons mentioned in sub-paragraph (2) of this paragraph, the qualifying lender shall, at the request of the Secretary of State, repay the sum over-paid.

(2) The reasons referred to in sub-paragraph (1) of this paragraph are -

(a) that -

(i) the rate at which the borrower pays mortgage interest has been reduced ...... or the amount outstanding on the loan has been reduced, and

(ii) as a result of this reduction the applicable amount of the relevant beneficiary has also been reduced, but

(iii) no corresponding reduction was made to the specified part; or

(b) .........

9. That is the background against which the present proceedings were launched. Overpayments were made between February 1992 and March 1995. The applicant was first informed in March 1995 of the overpayments. She was told that the mortgagee had been asked to refund the amounts overpaid as soon as possible. She sought the advice of SHELTER who entered into a correspondence on her behalf. Shelter referred to a case decided by this court (Sir Richard Scott V-C, Roch and Henry LJJ) on 1 July 1996 : R v Adjudication Officer and Secretary of State for Social Security, ex parte Michael Golding. In that case the Vice-Chancellor said this:

"...... the Secretary of State accepts that the machinery of set-off, to recoup from a mortgage lender over-payments that under paragraph 11 of Schedule 9A the Secretary of State is entitled to require the mortgage lender to repay, can only be used if its use does not adversely affect the position of the beneficiary mortgagor.

The purpose of the set-off is, it was explained, simply to avoid the necessity of a cheque being sent by the Secretary of State to the mortgage lender and cheque for the same amount then being sent by the mortgage lender to the Secretary of State. If, on every occasion on which the Secretary of State deducts over-paid sums from the "specified part" payable to the mortgage lender, the lender then credits the beneficiary borrower's mortgage interest account with a corresponding sum, the position of the beneficiary borrower will not, as it seems to me, have been adversely affected by the set-off. But if the lender does not do so, and calls upon the beneficiary borrower to pay the mortgage interest that, in the absence of such a credit, will have remained outstanding and due, the beneficiary borrower's position will have been adversely affected by the set-off. The statutory scheme places the Secretary of State under a statutory obligation to pay the mortgage interest element of the beneficiary's income support to the lender. If the set-off is accompanied by a credit to the borrower's mortgage interest account of the set-off sum, the arrangement can fairly be regarded as equivalent to payment of the mortgage interest. But, in the absence of such crediting, the Secretary of State would, as it seems to me at present, be in breach of his statutory obligation to pay the "specified part".

As I understand the position, the Secretary of State may not, in fact, know what accounting system is employed by lenders in general, or, indeed, by the [mortgagee in that case] in particular, when the machinery of set-off is used to recoup over-payments previously made in respect of mortgage interest. The accounting treatment may differ from lender to lender and may depend on whether the over-payments were, when received by the lender, credited to the borrower's capital account or to his interest account or were placed to some separate reserve account. My present opinion is, as I have said, that the use of set-off machinery to recoup over-payments is only permissible if it is accompanied by a credit to the beneficiary borrower's interest account with the lender of an amount equal to the set-off sum."

10. Following a lengthy correspondence the Department sent a letter dated 10th September 1998. They asserted that Mrs. Craigie had not been disadvantaged in any way by the course taken by the Department. On 9th December 1998 Shelter on Mrs. Craigie's behalf lodged a Form 86A. the decision in respect of which she sought relief was described thus:

"The decision by the Benefit Manager of the Benefits Agency communicated by letter dated 10th September 1998.....

A: upholding the decision to withhold current mortgage interest benefit throughout the period November 1995 until September 1996 as a means of recouping over-payments during the period 1992 - 1995, purported relying upon Social Security (Claims and Payments) Regulations 1987 Schedule 9A paragraph 11.

B: justifying putting the applicant in seriously (sic) arrears of her mortgage by such failure to make mortgage payments.

C: refusing to pay to the applicant or her mortgagee the full sum so deducted by non-payments.

The relief sought was

1. An order for certiorari for quashing the decision.

2. An order for mandamus requiring the respondent do (sic) make a further determination according to law.

3. A declaration that the respondent is not entitled to rely upon internal procedural changes to derogate from its public law duty only to use the said recoupment method if it did not adversely affect the position of the claimant.

4. Damages to place the applicant in the same financial position she would have been in but for the respondents said unlawful act and decision."

11. The Judge records that before him it was common ground that the Secretary of State was entitled to use the powers given to him by paragraph 11 of Schedule 9A to recover the over-payments that arose in this case. The argument was entirely about whether or no the applicant had been disadvantaged by what had been done. The Judge said:

" In this case, it seems plain to me that the applicant could not claim to be worse off than she would have been [if the proper payments had been made at the relevant time] since she has had what is, in effect, an accelerated payment in respect of some of these interest charges. Furthermore, not even the whole of the over-payment has been recovered."

The Judge said in relation to the passage from the judgment of the Vice-Chancellor which we have set out:

"It is seems to me plain from this passage in the Vice-Chancellor's judgment that he is simply requiring that in the case of a set-off the money which would have been recovered by the Secretary of State in the normal way - by way of a cheque to the Secretary of State from the lender - must actually be used to the benefit of the applicant in relation to her account. Otherwise the Secretary of State would not be meeting his statutory obligation to make the interest payments. That is precisely what occurred in this case."

12. The Notice of Appeal asks for an order that the judgment be set aside and that there be an order for certiorari quashing the decision complained of in the Form 86A. There is no suggestion either in that document or in the skeleton argument submitted on behalf of the appellant that it would be submitted that the conditions in paragraph 11 of Schedule 9A had not been fulfilled. The grounds were concerned entirely with disadvantage allegedly suffered by the applicant.

13. We endeavoured during the course of the hearing to obtain from Mr Timothy Carlisle, counsel for the appellant, a clear submission as to the manner in which it was alleged that Mrs Craigie had been disadvantaged by the action of the Secretary of State. Notwithstanding some extra time over the short adjournment Mr Carlisle was not in a position to show that she had been disadvantaged in any way. He could not show either (i) that in principle what the Secretary of State did was likely to disadvantage Mrs Craigie or (ii) that, by reason of the way the mortgagee had treated the matter in the statement of Mrs Craigie's account with them she had in the event been disadvantaged. He pointed out that during the time in 1995 and 1996 that the mortgagee was not credited with the specified part of the income support Mrs Craigie's indebtedness to the mortgagee increased so that it was higher at the end of that period than it had been at the beginning. That is no doubt true. It is exactly what one would expect in the case of a deferment mortgage where the payment rate was lower than the charging rate. However the fact is that, had the Secretary of State between 1992 and 1995 only done what he was obliged to do, namely, paid to the mortgagee interest at the payment rate (rather than at the charging rate) then Mrs Craigie would have been debited at that time, month by month, with the difference between the two interest rates and so the indebtedness would have increased gradually over the years 92-95. This did not happen. What happened was that the increase in indebtedness was postponed until 1996/97. What happened to her did not leave her any the worse off than she would have been if the Secretary of State had not made the mistake in the first place.

14. Since the Secretary of State did not in fact keep for himself the whole amount of the overpayment but, for reasons which do not presently matter, returned some of it to the lender, it seems probable that she was rather better off by reason of the mistake. However, because of the poverty of the underlying material before the court relating to the state of Mrs Craigie's account with the mortgagee and the inability of counsel to fill in the gaps we are not in a position to assert this with absolute confidence.

15. I therefore consider that the judge was right in the conclusion to which he came and in the reason which he advanced for that conclusion.

16. However, I suggested during argument that what had been done by the Secretary of State arguably did not fall within paragraph 11. It seemed to me then, and still seems to me, that the phrase in subparagraph (2)(i) "the rate at which the borrower pays interest" in the context of a deferred interest mortgage refers to the payment rate not to the charging rate. My reason for so thinking is that

1. that is the natural meaning of the words used when applied to a deferred interest mortgage,

2. the "applicable amount" referred to in subparagraph (2)(ii) is calculated by using the payment rate not the charging rate and this reinforces the view as to the natural meaning of "the rate at which the borrower pays interest".

17. Mr Carlisle, although the point had not been advanced in the notice of appeal or the skeleton argument which had been drafted by another counsel sought leave to withdraw the concession which had been made by them in the court below to the effect that the action of the Secretary of State fell within the wording of the subparagraph. That was not objected to by Mr Kovats, who appeared on behalf of the Secretary of State and we were content that he should be able to adopt the point.

18. Mr Kovats, while appreciating the force of the point, faintly argued that there were policy considerations which required the paragraph to be construed as though "the rate at which the borrower pays interest" meant "the rate at which the borrower is charged interest". The policy reason was not spelt out but was presumably that it is in the public interest that sums which have been unnecessarily disgorged by the public purse should be recoverable. I see the force of that. However, two points can be made on the other side. 1. The proposition clearly did not attract the framer of the Regulations in its full breadth otherwise he would not have inserted subparagraph (2). 2. There is no right of appeal against a decision by the Secretary of State to recover an over-payment under paragraph 11 of Schedule 9A and there may well be other methods whereby overpayments can be recovered.

19. The point, not having been taken below and not having been foreseen when counsel prepared their submissions, I do not think it right to express a concluded view on the basis of the limited argument which we heard. But I am prepared to assume in Mrs Craigie's favour that on the facts of this case there was no obligation on the mortgagee to repay the sums overpaid because the conditions inn subparagraph 11(2) were not fulfilled.

20. In those circumstances should we grant Mrs Craigie any relief and if so what? I put it that way because Mr Carlisle never clearly formulated what he was asking the court to do and the mortgagees are not parties to the present action.

21. The point is sought to be taken for the first time years after it could have been taken. In the circumstances, the discretion of the court is bound to be involved whether one looks at the matter as one involving amendment of the notice of appeal, allowing a point to be raised which was expressly not taken below, giving permission for an amendment of the pleadings, or giving permission for judicial review long out of time. I start from the position that it has not been shown that Mrs Craigie has suffered any damage by reason of the error by the Secretary of State. On the contrary she has had the benefit of overpayments which, in all probability, have reduced the amount which she would otherwise have owed to the mortgagee. So I would be disinclined to exercise any discretion in Mrs Craigie's favour.

22. That being the case, and there being no specific application on her behalf, the proper course is simply to dismiss this appeal on the basis that the judge rightly rejected the case which she advanced before him.

LORD JUSTICE BUXTON:

23. I agree that this appeal should be disposed of as my Lord proposes. I add only three footnotes.

24. First, although Mr Kovats did not oppose the application to withdraw the express concession on which the case has proceeded throughout, that the Secretary of State was given power by paragraph 11 to act as he did, the disadvantages of an appeal proceeding on a basis different from that adopted in the trial court rapidly became apparent. I agree with my Lord that the wording of paragraph 11(2)(a)(i) naturally directs itself to a case where the amounts actually paid by the mortgagor have been reduced in the course of the mortgage, and that reduction has not been reported to the Secretary of State. Contrary to what I at first thought, it is unnatural to characterise a reduction of the payment rate below the charging rate as a condition of a deferred interest mortgage as being a reduction of the kind envisaged by paragraph 11(2)(a)(i).

25. In its relevance to this case, however, that exclusion of paragraph 11 from consideration rests on the assumption that the lending relation between the parties was from the start a deferred interest mortgage. If it were not, and the deferred interest terms were rather introduced at any later stage of the relationship, then the condition stated above, of the "rate at which the borrower pays interest" being reduced, would be fulfilled. And that would bring the case within paragraph 11, and do so without artificiality or unreason: because I consider the exclusion of the present case from paragraph 11 as accidental in the light of the obvious and proper aim of the Regulations to protect public funds, and as only arising because deferred interest mortgages, and the possibility that mortgagors like Mrs Craigie would report the charging rate and not the payment rate, was not in the draftsman's mind.

26. This possibility does not arise because, so far as we can tell, the deferred interest arrangement was the original arrangement between the parties to the loan. But I have to say, so far as we can tell, because the evidence does not clearly establish that point: the point, on the case as originally argued, not having been in issue. Were there not other and telling reasons for dismissing this appeal in any event, I would think it necessary, if the paragraph 11 point were to be admitted and pursued, for the case to be remitted for the evidential position relevant to that, new, point to be clarified.

27. Second, while the argument proceeded on the assumption that an obligation, expressed in entirely general terms, not to act to the disadvantage of the applicant had been imposed on the Secretary of State by this court in ex p Golding, that was a matter of assumption only. I am far from certain that the judgments in that case went any further than to say that benefits actually obtained from the lender must accrue to the advantage of the borrower. I should not be taken as deciding any wider rule.

28. Third, as to the issue of disadvantage, the Judge held that the burden was on the applicant to establish relevant disadvantage, and that she had not done so. Neither of those findings was specifically appealed, the Notice of Appeal contenting itself with saying, in general terms, that "the learned judge ought to have found that there was sufficient evidence of an adverse effect to have quashed the decision". It will therefore be appreciated that it was a considerable concession to Mrs Craigie to permit those issues to be explored at all before this court.

MR JUSTICE JACOB:

29. I agree with the judgments of Lord Justice Schiemann and Lord Justice Buxton.