R(IS) 16/96
(Franklin v. Chief Adjudication Officer)

CA (Staughton, Evans and Swinton Thomas LJJ)	CIS/145/1994
13.12.95
Recovery of overpayment - claimant unaware of material fact - whether misrepresentation made when signing order book declaration 
The claimant’s housing costs, used to calculate her income support, included interest on two mortgages. Benefit was paid every week, and on each occasion the claimant signed a declaration “I declare that I have read and understood all the instructions in the order book, that I have correctly reported any facts which could affect the amount of any payment and I am entitled to the above sum.” On making routine enquiries sometime later, the Department discovered that the interest rate on one mortgage had reduced, causing an overpayment of benefit. The adjudication officer, and on appeal a tribunal, decided the overpayment was recoverable under section 71(1) of the Social Security Administration Act 1992, because in signing the declaration the claimant had represented, albeit not fraudulently, that she had correctly reported any facts that could affect the amount of her benefit, whereas, unknown to her, the interest rate had reduced. Although the tribunal accepted the claimant had not known the interest rate had fallen, they considered that lack of knowledge was immaterial to the form of declaration made. The claimant appealed to a Commissioner who dismissed the appeal on the ground that there was no scope for implying into the declaration a qualification that the representation was true as far as the claimant was aware. The claimant appealed to the Court of Appeal.
Held, allowing the appeal, that:
the declaration was to be construed as a declaration that the claimant had reported all material facts known to her and therefore there was no misrepresentation in this case and the overpayment was not recoverable. 

DECISION OF THE COURT OF APPEAL
Mr. J. R. Drabble QC and Miss N. Lieven (instructed by David Thomas, Child Poverty Action Group) appeared on behalf of the Appellant.
Mr. M. J. Beloff QC and Mr. P. Stinchcombe (instructed by the Solicitor for the Department of Social Security) appeared on behalf of the Respondent.

LORD JUSTICE STAUGHTON: Mrs. Franklin in April 1990 was left by her husband. She was a young woman with three small children. She lived in a house that was mortgaged twice over. When she applied for income support, she was asked what the interest rates were and she said that on the first mortgage to the Cheltenham & Gloucester Building Society it was 15.4%, on the second mortgage to Nationwide Credit Corporation 19.9%. On the basis of those figure her income support was calculated and paid every week. On each occasion she had to sign a declaration:
“I declare that I have read and understood all the instructions in the order book, that I have correctly reported any facts which could affect the amount of any payment and that I am entitled to the above sum.”

In February 1992 the Department of Social Security made some routine enquiries of the two mortgagees. They discovered that the rate payable to Nationwide Credit remained the same but Cheltenham & Gloucester’s rate had been reduced to 11.5% on 1 October 1991. Since that date Mrs. Franklin had been paid more money by way of income support than she was entitled to. The social security adjudicator held that she had been overpaid by £437.14 in the period from 25 September 1991 to 
25 February 1992 and that this amount was recoverable from her.

She appealed to the SSAT. In response the adjudicator, who was then arguing for the Department of Social Security, contended that a larger sum had been overpaid (that is to say, £980 between 5 December 1990 and 25 February 1992). Eventually the appeal tribunal in dismissing the appeal found that £304.20 had been overpaid for the period 27 February 1991 to 25 February 1992 and was recoverable.

There was a further appeal by leave to a social security Commissioner but that was dismissed. There is now an appeal to this court by leave of the Commissioner.

There is one more fact of importance: the SSAT were told by Mrs. Franklin that she had not known of the decrease in her mortgage interest rate. The tribunal found her to be a witness of truth and believed her.

Section 71(1) of the Social Security Administration Act 1992 provides:
“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 misrepresentation 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.”
It will be observed that the section deals both with misrepresentation and non‑disclosure.

It is common ground that for the purposes of that section misrepresentation may be either fraudulent or innocent. I must try to elucidate that. If the representor does not know that the statement is untrue and is not reckless as to its truth within the case of Derry v. Peek, that is innocent misrepresentation but it is still within section 71. Also innocent would be the case where a representor knows of the untruth but does not know that it is material and is not reckless as to that. However, I am not sure that that it is covered by existing authority.
Non‑disclosure at any rate in this court is different. In R. v. Medical Appeal Tribunal (North Midland Region), ex parte Hubble (which was dealing with National Insurance and industrial injuries), it was held that there could not be non‑disclosure by a person of something which he did not know. Lord Goddard in the course of the argument said:
“In the case of a proposal for insurance, non‑disclosure means non‑disclosure of a known fact. How could there be non‑disclosure of an unknown fact?”
That is page 235. Again at page 236, he said:
“If one does not know, he cannot disclose.”
The powerful interventions of Lord Goddard were reflected in the judgment of Diplock J at page 242.

That doctrine has also found its way into the modern benefit law in Chief Adjudication Officer v. Edith Constance Sheriff unreported 4 May 1995. There, Nourse LJ at page 13, following a passage in the judgment of Evans LJ in Jones v. Chief Adjudication Officer [1994] 1 WLR 62 at 65, upheld the view that knowledge was needed to establish non‑disclosure. 

In the present case, the Department of Social Security relies not on non‑disclosure but on misrepresentation. The Department claims to do that because the terms of the declaration contain a representation that the beneficiary has correctly reported any facts which could affect the amount of any payment. Therefore, the Department says, if relevant facts have not been reported there has been a misrepresentation; never mind that it	is innocent and that the beneficiary did not know, still the Department has a right to recover the overpayments.

In answer to that, two points are taken. First it is said that on a true construction of the declaration the representation is that the beneficiary has reported only facts which are known to her which are relevant. It is said that the word “reported” in itself conveys the notion of passing on information that one has received. 

Reliance was also placed on the dicta of Stuart‑Smith LJ and Dillon LJ in Jones. Stuart‑Smith LJ at page 71 said:
“...The declaration can properly be expanded by the inclusion of the words emphasised to read ‘I have correctly reported any facts known to me which would affect the amount of my payment’.”
Indeed, earlier on the page, he had said:
“There cannot be a non‑disclosure of a fact which is unknown to the claimant.”
For that he cited the case of Hubble. So, too, Dillon LJ said at page 72:
“I read that declaration as a representation by Mr. Jones, each time he signed such a declaration, that there were no facts known to him at the time he signed which could affect the amount of his payment but which he had not reported. The representation must be limited, at a matter both of common sense and law, to a representation that he had disclosed or reported all material facts known to him, since he could not sensibly be expected to represent that he had disclosed all material facts that were not known to him.”

Against that, we have been referred by Mr. Beloff for the Department of Social Security to the fact that on occasion other forms of declaration have been used which make it clear what the effect is. An example which he gave arose in the case of Jones itself, where there was also another claimant, a Mr. Sharples. He had signed a declaration which contained the words “as far as I know” (see the judgment of Evans LJ at p. 70). Mr. Beloff submits that the omission of those words in the declaration signed by Mrs. Franklin shows that there was not meant to be any such limitation.

But why should Mrs. Franklin be affected in the interpretation of the declaration she made by what, unknown to her, in all probability, the Department has put in a form of declaration used on other occasions? She is entitled to know the meaning of what she is putting her name to, even if in practice she had no choice. How can she know what it meant if the interpretation of it is governed by material which is not available to her? I would leave that out of account.

Mr. Beloff also relies on the case of Sheriff where the declaration was in a different form. It said:
“I declare that the information I have given on this form is correct and complete.” 
Mr. Beloff says, why did not the Court of Appeal in Sheriff’s case insert some words saying “to the best of my information” or “so far as I know” or something like that? The answer is because that was not a case where an attempt was made to convert non-disclosure into misrepresentation.

Also relevant in my view is the statute itself. This no doubt was quite unknown to Mrs. Franklin but it was in the public domain, and it is legitimate to have regard to the statute in my opinion in interpreting her declaration. The statute provides in section 71 that there are two circumstances in which a beneficiary can be called on to repay. One is where she has made statements which are untrue, whether fraudulently or otherwise. Another is where she has been guilty of non‑disclosure, which means failure to disclose circumstances which she knows of.

Having regard to that section it seems to me legitimate to construe the declaration in the way that it was construed by this court in the Jones case. It is true that the views expressed by Stuart‑Smith LJ and Dillon LJ were obiter in the sense that they were not essential to the decision. It is also true that Evans LJ said nothing of that kind, merely observing that it did not arise in his judgment. Nevertheless it seems to me that either as a matter of interpretation or by implication that was and is the right understanding of the declaration that Mrs. Jones signed. Accordingly there was no breach in this case, as she did not know, according to the finding of the tribunal, the facts which she had not disclosed.

That makes it strictly unnecessary to deal with the second point which is that if the declaration means what the Department says it means, that was outside the powers of the Secretary of State under the statute. However, as one may anticipate that this case will go further one way or the other (that is to say either to a higher tribunal or else to the Parliamentary draughtsmen to see what can be done about it), it may be it would be of some help if we say a word or two on that point.

Section 5 of the Act confers the power to make regulations. That provides:
“(1) Regulations may provide-
...
(h)	for requiring any information or evidence needed for the determination of such a claim or of any question arising in connection with such a claim to be furnished by such person as may be prescribed in accordance with the regulations;
(i)	for the person to whom, time when and manner in which a benefit to which this section applies is to be paid and for the information and evidence to be furnished in connection with the payment of such a benefit;
(j)	for notice to be given of any change of circumstances affecting the continuance of entitlement to such a benefit or payment of such a benefit.”

It is argued by Mr. Beloff that (h) is dealing with the formal procedure before an adjudicator when that stage is reached and it may well be that he is right about that. It seems to me that (i) and (j) are the paragraphs which are relevant to this case.

Under	that power in section 5, regulation 32 has been made which provides as follows:
“(1) Every beneficiary and every person by whom or on whose behalf sums payable by way of benefit are receivable shall furnish in such manner and at such times as the Secretary of State may determine such certificates and other documents and such information or facts affecting the right to benefit or to its receipt as the Secretary of State may require (either as a condition on which any sum or sums shall be receivable or otherwise), and in particular shall notify the Secretary of State of any change of circumstances which he might reasonably be expected to know might affect the right to benefit, or to its receipt, as soon as reasonably practicable after its occurrence, by giving notice in writing (unless the Secretary of State determines in any particular case to accept notice given otherwise than in writing) of any such change to the appropriate office.”
There does not appear to me to be power in regulation 32 to make provision for the consequences of misrepresentation or of non‑disclosure unless perhaps it is to be found in the words “either as a condition on which any sum or sums shall be receivable or otherwise”. But whether that be so or not, in my view it is immaterial. The consequences of misrepresentation and a non‑disclosure are set out in section 71 of the Act. Nowhere else in the Act is any other power conferred to deal with the consequences of misrepresentation and non‑disclosure. If and to the extent that regulation 32 purports to do so, upon which I express no opinion,‑ it is not authorised by the powers conferred in the Act. It seems to me that it is section 71 of the Act which alone must regulate the consequences of misrepresentation and non‑disclosure.

It is not open to the Secretary of State to provide, as the declaration seeks to provide, that non‑disclosure shall count as misrepresentation and therefore attract a sanction which is not available in the case of non‑disclosure under section 71 of the Act.
I appreciate that it is not always easy to prove that non‑disclosure was made with knowledge of the facts not disclosed, and I realise that our decision may have unfortunate consequences. If that be so, then legislation must be passed to put it right, if it is to be put right at all. I can see that it might be politically awkward to say that a person is deemed not to have disclosed that which she did not know. The alternative route might be at least to change the burden of proof, so that it would be for the beneficiary to show that she did not know the material facts which she did not disclose. However, that is not a matter for us.

I should have mentioned that Mr. Beloff wishes to reserve, in case the case goes to a higher tribunal, the point whether non‑disclosure in this statute necessarily conveys that the beneficiary knew the facts that she was not disclosing. He may seek to argue that the words “fraudulently or otherwise” apply both to misrepresentation and to non‑disclosure. But that is not an argument which he has pursued here.

I would allow the appeal and dismiss the Secretary of State’s claim.

LORD JUSTICE EVANS: I entirely agree and would add only the following: it was no coincidence that in their judgments in Jones v. Chief Adjudication Officer [1994] 1 WLR 62 both Stuart Smith LJ and Dillon LJ introduced a requirement of knowledge into their definitions of the representation which is made by the weekly declaration in terms such as here “I have correctly reported any facts which could affect the amount of any payment”. As Dillon LJ said, those definitions rested both upon the law and common sense. It was no coincidence because that was, as I would call it and did call it, essentially a case of non‑disclosure.

As a ground for claiming to recover overpayment under section 71, non‑disclosure has the disadvantage for the Secretary of State that it is subject to the overriding rule of law and common sense that you cannot disclose what you do not know. Therefore, knowledge comes in issue when non‑disclosure is alleged.

That is not the case where the claim is based upon an allegation of misrepresentation. This has clearly been established by the recent judgment of the Court of Appeal in the Sheriff case, to which my Lord has referred. No such questions as to knowledge then arise and so misrepresentation becomes a far more attractive basis for the Secretary of State when he claims recovery of any overpayments that have been made.

Mr. Beloff QC submits, for reasons which include administrative simplicity, that the same should be true in all cases of misrepresentation including those which are centred or founded upon the claimant’s failure to disclose facts or changes in circumstances which are regarded as material.

Both parties invite us to construe the declaration and I therefore am content to do so. In a case which rests essentially upon non‑disclosure, the words “I have correctly reported any facts” cannot be read literally, because there has been no relevant report. In such a case, it stems to me that the representation has to be taken as meaning something to the effect of “I have not failed to disclose any material fact”. Since you cannot disclose what you do not know and there is no duty to do so, I would hold that the representation is not false in a case where the claimant has no knowledge of the relevant facts. Conversely, the Minister cannot recover under section 71 either for non‑disclosure or by relying on the representation contained in the declaration, as Jones permits him to do, in a case where the claimant did not know the material facts which were not disclosed.

The only other matter is a short one in relation to regulation 32 to which my Lord has referred. Like him, I would express no concluded view as to whether it is directly relevant for present purposes or not. But in relation to the phrase “and in particular shall notify the Secretary of State of any change of circumstances which he might reasonably be expected to know might affect the right to benefit”, I would emphasise the word “notify”. It seems to me that by parity of reasoning one cannot be under an obligation to notify what one does not know. It would follow from that that I would adopt Mr. Drabble’s submissions that this formulation certainly does imply knowledge of the relevant factual change of circumstances.

LORD JUSTICE SWINTON THOMAS: The weekly standard declaration reads:
“I declare that I have read and understood all the instructions in the order book, that I have correctly reported any facts which could affect the amount of any payment and that I am entitled to the above sum.”

What does it mean? Does it mean that the applicant must report only facts in respect of which she has knowledge? Or does it means she is obliged to report material facts or facts of which she has no knowledge? Mr. Drabble submits the former and Mr. Beloff the latter.

The central word is “reported”. I, for my part, find it difficult to understand how a person can report something of which she has no knowledge. There is no material distinction between “disclose” and “report”. The standard form is prepared by the Department for laymen. “Disclose” is a word well known to lawyers, perhaps not so well‑known to laymen. “Report” is an ordinary English word well understood to the layman. If knowledge is a prerequisite to disclosure, so also must it be to reporting.

In Jones v. Chief Adjudication Officer [1994] 1 WLR 62 at 65, Evans LJ said:
“Knowledge is not irrelevant in the case of non‑disclosure, even though section 53 covers innocent as well as fraudulent non‑disclosure. This is because of the equally well established rule that a person cannot be held liable for failing to disclose what he does not know.” 
At least so far as this court is concerned, Mr. Beloff concedes that that is an accurate statement of law.

So far as knowledge of a material fact is concerned, I am in agreement with the reasoning that lay behind the judgments of Dillon LJ and Stuart‑Smith LJ in the Jones case. In my judgment, before a person can be held to have failed correctly to report a fact which could affect the amount of payment to which she was entitled pursuant to the standard form of declaration as opposed to the original application, she must have knowledge of that fact. I agree with the judgment of Staughton LJ and Evans LJ on this issue. There is nothing that I would wish to add on the vires issue. Accordingly, I agree that the appeal should be allowed.

Order: Appeal allowed with costs; the decision of the social security Commissioner to be set aside and it be determined that the overpayment is not recoverable; leave to take the matter to the House of Lords refused.