Steele, R (on the application of) v Birmingham City Council & Anor

For the purposes of Insolvency Act 1986, section 382, a liability to repay overpaid social-security benefit is not contingent merely because the underlying misrepresentation and overpayment occurred before bankruptcy. Until the Secretary of State makes the determination required by section 71(1) of the Social Security Administration Act 1992, the claimant has only a risk of liability, not a bankruptcy debt. The determination is substantive because statutory conditions must be satisfied and it is subject to appeal. Where a benefit claim has been made, the statutory recovery machinery applies. The Court did not decide the separate questions concerning the Secretary of State’s recovery discretion or the effect of bankruptcy discharge.

David William Steele claimed jobseeker’s allowance after stating that he was not receiving an occupational pension. He was later adjudged bankrupt. After the bankruptcy order, the Secretary of State determined under section 71(1) of the Social Security Administration Act 1992 that benefit had been overpaid and began recovery by deductions from incapacity benefit.

Following Mr Steele’s discharge from bankruptcy, the Secretary of State resumed recovery. The Administrative Court, before Gibbs J, granted judicial review and quashed that decision. The defendants appealed. The central issue was whether the later-determined overpayment was a contingent liability and therefore a bankruptcy debt under section 382 of the Insolvency Act 1986.

Appeal allowed. Sir Martin Nourse gave the leading judgment. Lady Justice Arden agreed with the principal reasoning and result, subject to the reservations identified below. The order of Gibbs J was discharged and the Secretary of State’s decision of 19 November 2003 was reinstated.

1. Section 382 of the Insolvency Act 1986 requires the bankrupt to be subject to the relevant debt or liability at the commencement of bankruptcy. The fact that the section treats it as immaterial whether a liability is present or future, certain or contingent, does not transform a mere risk of liability into a liability.
2. Section 71(1) of the Social Security Administration Act 1992 creates a self-standing recovery remedy. Before recovery is available, the Secretary of State must determine that there was a misrepresentation or failure to disclose a material fact which caused the overpayment. That determination is not a formality. The claimant has a right of appeal to an independent tribunal.
3. Applying the reasoning in Glenister v Rowe [2000] Ch 76, the possibility that a determination might later be made amounted only to exposure to a risk of liability. On the bankruptcy date there was no present liability and no future liability, because there was no certainty that the statutory determination would be made. The overpayment was therefore not a contingent liability or bankruptcy debt.
4. Sir Martin Nourse rejected the alternative submission based on common-law restitution. He explained that the observations in Chief Adjudication Officer v Sherriff (4th May 1995) Ref CIF/545/1992 concerned benefit paid without a claim. Once a claim had been made, the section 71 machinery was engaged. Arden LJ expressly left open whether section 71 superseded any common-law remedy.
5. The court expressed no view on whether the Secretary of State’s discretion not to enforce recovery after a determination was independently decisive, or on the subsidiary question concerning the effect of section 281(1) of the Insolvency Act 1986 if the liability had been a bankruptcy debt.

• Court of Appeal (Civil Division) — In [2005] EWCA Civ 1824, the appeal was allowed. The order of Gibbs J was discharged and the Secretary of State’s decision was reinstated.
• High Court of Justice, Queen’s Bench Division, Administrative Court — Gibbs J granted judicial review and quashed the Secretary of State’s decision to resume recovery after Mr Steele’s bankruptcy discharge.