CHAPTER ONE – BACKGROUND TO THE COMPENSATION RECOVERY
In Parry v Cleaver  A.C. 1, Lord Reid identified two salient questions about how a Plaintiff (now Claimant) should be compensated:
“First, what did the plaintiff lose as a result of the accident? What are the sums which he would have received but for the accident but which by reason of the accident he can no longer get? And, secondly, what are the sums which he did in fact receive as a result of the accident but which he would not have received if there had been no accident? And then the question arises whether the latter sums must be deducted from the former in assessing the damages.”
In England and Wales, an Injured Person may well be in receipt of state benefits after being involved in an accident or developing a disease. The question that arises is how those benefits should be taken into account, if at all, when damages come to be assessed. Lord Reid’s judgment is often cited as the foundation principle that the state paid benefit monies must be deducted from the Injured Person’s damages when assessing compensation, in order to prevent the Injured Person being over-compensated.
Since 6 October 1997, all compensation payments made as a result of an accident, injury or disease, and paid on behalf of a person compensating an Injured Person in respect of that accident, injury or disease, are subject to deductions of applicable state benefits. The current scheme came into existence on that date, and whilst there were rules in place before 1997, there is little point in discussing those in detail as they are no longer of any real use to practitioners. Those who practised in the field of personal injury claims prior to the introduction of the Social Security (Recovery of Benefits) Act (1997) will recall that the offsetting of benefits was treated very differently. For a time, the state recouped benefits payments from any head of loss claimed, including damages for pain, suffering and loss of amenity, once the damages awarded exceeded £2,500. This position was considered unfair, as damages awarded for pain suffering and loss of amenity were not associated with the payment of state benefits, and Injured Persons were unfairly deprived of a portion of their compensation.
The rationale behind the current recovery of benefits scheme is that it operates as a clawback by the Department for Work and Pensions. It allows the government to recover benefit monies from a Compensator who has admitted causing, or been found by a civil court to have caused, injury, disease or loss to a Claimant and who is paying compensation which reflects, or touches upon, the types of benefit which have been received. The introduction of the Social Security (Recovery of Benefits) Act (1997) changed the legislative landscape, in that there is no longer any right to recoup benefit payments from damages for pain, suffering and loss of amenity. Such damages are now ‘ring fenced’ and cannot be affected by payments of state benefits, although there are some exceptions that are discussed in chapter five.
The current rules require a like for like deduction from damages of the amounts of certain listed state benefits paid to the Injured Person by the Department for Work and Pensions between the date of injury and the resolution of the claim, with a cap of five years from the date of injury. The scheme derives from the general rule set out by the House of Lords in Hodgson v Trapp  A.C. 807, that a Claimant must give credit for benefits which have accrued as a result of an accident which is the substance of the litigation.
The key pieces of legislation enacted in relation to the Compensation Recovery Unit (‘CRU’) are the Social Security (Recovery of Benefits) Act (1997), (‘Recovery of Benefits Act’), the Health and Social Care (Community Health and Standards) Act (2003), (‘Health and Social Care Act’), and the Welfare Reform Act (2012), (‘Welfare Reform Act’). Whilst there is a significant amount of legislation and statutory instruments in this field, these Acts underpin this area of law.
The Recovery of Benefits Act established the current legislative framework for imposing liabilities on Compensators to repay state benefits, and also set out the ways by which benefits could be offset against heads of damage claimed by the Injured Person. The Health and Social Care Act established the framework for the recovery of NHS charges, and the Welfare Reform Act made amendments to the types of applicable benefits which could be offset and paid.
Imposition of liability
Since the enactment of the Recovery of Benefits Act, a person who makes a payment in respect of an accident, injury or disease suffered by another, has been required to repay recoverable benefits to the Secretary of State. As set out in Goff & Jones The Law of Unjust Enrichment 9th Ed. 19-44 the legislation:
effectively give the NHS and the (renamed) Department for Work and Pensions a right to reimbursement from tortfeasors who would otherwise be unjustly enriched at their expense if the damages that they were liable to pay were reduced by the amount of benefit or care received by their victims.
The right of the Secretary of State to recover the benefits from the Compensator is set out at s6(1) Recovery of Benefits Act:
A person who makes a compensation payment in any case is liable to pay to the Secretary of State an amount equal to the total amount of the recoverable benefits.
This statutory provision imposes a liability on the Compensator to repay to the Secretary of State, benefits listed on the Certificate of Recoverable Benefits (‘CRB’). The CRU administers the scheme for the recovery of these monies on behalf of the Secretary of State. The CRU works with insurance companies, solicitors and Injured Persons, to recover social security benefits and NHS charges. The issue of NHS charges will be addressed in a separate chapter later in this book.
The CRU’s website (https://www.gov.uk/government/collections/cru), sets out that it has two stated aims, these are:
to recover amounts of social security benefits paid as a result of an accident, injury or disease, if a compensation payment has been made; and
to recover costs incurred by NHS hospitals and Ambulance Trusts for treatment from injuries from road traffic accidents and personal injury claims.
Accrual and cessation of liability
The liability on the Compensator can arise at different times depending upon the type of case that is being brought against the Compensator. The date from which the CRU can recover benefits from is:
the day following an accident or injury or
in disease cases the date that an applicable benefit is first claimed as a result of the disease
As can be seen in, for example, a case concerning a road traffic accident, the date from which benefits can start to accrue is often very clear and causes little difficulty. In cases concerning for example, injuries attributable to asbestos where there may be no definitive date of exposure, the date can be less clearly assigned as it is not always certain when the medical condition first developed. A Compensator may be well advised to carefully examine the CRB upon receipt and consider whether the benefits listed have been paid as a consequence of the injury or disease, or because of other causes not associated with the substantive claim brought against the Compensator.
A Compensator is not liable to repay benefits paid otherwise than in relation to the accident, injury or disease, and may wish to challenge any benefits listed on the CRB that are not linked to the substantive claim. The Review and Appeals process, by which a Compensator takes such action, is covered in a later chapter in this book.
The date on which the Compensator’s liability for state benefits ceases is:
the day a compensation payment is made in final discharge of a claim or
the date an agreement is made between the Compensator and injured person under which an earlier compensation payment is treated as having been made in final discharge of any claim or
the date five years after the relevant recovery period begins, whichever comes first
As readers will note, point three above outlines the term ‘relevant recovery period’, this is a term defined in s3 Recovery of Benefits Act which provides:
(1) In relation to a person (“the claimant”) who has suffered any accident, injury or disease, “the relevant period” has the meaning given by the following subsections.
(2) Subject to subsection (4), if it is a case of accident or injury, the relevant period is the period of five years immediately following the day on which the accident or injury in question occurred.
(3) Subject to subsection (4), if it is a case of disease, the relevant period is the period of five years beginning with the date on which the claimant first claims a listed benefit in consequence of the disease.
(4) If at any time before the end of the period referred to in subsection (2) or (3)—
(a) a person makes a compensation payment in final discharge of any claim made by or in respect of the claimant and arising out of the accident, injury or disease, or
(b) an agreement is made under which an earlier compensation payment is treated as having been made in final discharge of any such claim, the relevant period ends at that time.
The date on which a Compensator ceases to be liable for state benefits does not cause a difficulty in the majority of cases. The claim for damages is settled at the stage the Compensator repays the benefits, the claim does not succeed (in which case of course no liability to repay the benefits falls on the Compensator), or the five-year point is reached. At any of these points, the Compensator’s liability to repay the applicable benefits ceases.
The position is more complicated though if an appeal in the substantive claim is launched after a trial. In such a situation, the parties should take note of the position expounded by Professor Lewis in his book Deducting Benefits from Damages for Personal Injury Claims. At s13.14, it is noted that, pursuant to the rule in Mitchell v Laing (1998) The Times, January 28, where a case is concluded by way of a Court order and not by way of a settlement, the ‘cutoff date’ is not the date of the Court order, but the date of the payment of the sum awarded. This means that if the judgment is appealed, the recovery period of applicable benefits can continue until the payment of any damages awarded. Therefore, during the life of the appeal, benefits may still accrue, and thus the Compensator’s liability increases.
Non-personal injury claims
This book is aimed at addressing personal injury claims, so I will not dwell on the recovery of benefits in non-personal injury claims, but there are two instances that are worth noting. The CRU’s website contains a very helpful Technical Note. This Technical Note is referred to in a number of sections in this book, it can be found at https://www.gov.uk/government/publications/recovery-of-benefits-and
-or-lump-sum-payments-and-nhs-charges-technical-guidance/recovery-of-benefits-and-lump-sum-payments-and-nhs-charges-technical-guidance. This Technical Note also addresses the applicability of the scheme in relation to property damage claims, professional negligence claims and goodwill payments. Even though they are not claims arising from personal injury or disease matters, in certain circumstances the scheme can apply to such claims. In relation to property damage claims, the CRU Technical Note asserts:
You must notify CRU on form CRU1 if a claim for property damage includes:
a claim for loss of earnings
a loss of mobility
cost of care
any other element of compensation
In relation to professional negligence claims, the CRU Technical Note asserts:
Where a claim is made for professional negligence and the particulars of claim, statement of claim or letter before action includes a claim for compensation as a result of the original accident, injury or disease, form CRU1 must be submitted and any listed benefits and lump sum payment paid in consequence of the original accident, injury or disease will be recoverable.
Finally, in relation to goodwill payments, the CRU Technical Note asserts:
A goodwill payment, usually in the form of gift vouchers or the like, is sometimes made in response to a complaint about a product or incident. For example, if someone slips in a retailer’s premises and only suffers a minor injury, inconvenience or embarrassment or if the consumption of foodstuffs is alleged to have caused a stomach complaint.
If such a payment is made at the time of the complaint or incident, CRU does not need to be informed.
However, if such a payment is made at a later date, benefits or NHS treatment may have been received. In these cases, a form CRU1 must be submitted, especially compensation is being sought in respect of:
loss of earnings
cost of care
loss of mobility
As such, a Compensator can be liable to repay applicable benefits in certain non-personal injury claims, where the nature of the claim includes a claim for damages where the Claimant may already have received state benefits. These situations can arise where litigants in person advance their own claims but seek to, for example, only claim for lost earnings caused by the Compensator’s negligence. The Compensator has to be alive to the fact that such a payment may render them liable to also repay any applicable benefits.
Whilst the above legislation imposes a liability on Compensators to repay recoverable benefits to the Secretary of State, there are certain situations where the Compensator does not have to repay the recoverable benefits. Schedule 1 Recovery of Benefits Act makes provision for certain compensation payments to be classified as ‘exempt payments’ and thus a liability to repay benefits to the Secretary of State does not arise. Schedule 1 provides that recovery will not be made from the following types of payments:
Any small payment (defined in Part II of this Schedule).
Any payment made to or for the injured person under section 130 of the Powers of Criminal Courts (Sentencing) Act] 2000, section 8 of the Modern Slavery Act 2015, section 175 of the Armed Forces Act 2006 or section 249 of the Criminal Procedure (Scotland) Act 1995 (compensation orders against convicted persons).
Any payment made in the exercise of a discretion out of property held subject to a trust in a case where no more than 50 per cent. by value of the capital contributed to the trust was directly or indirectly provided by persons who are, or are alleged to be, liable in respect of—
(a) the accident, injury or disease suffered by the injured person, or
(b) the same or any connected accident, injury or disease suffered by another.
Any payment made out of property held for the purposes of any prescribed trust (whether the payment also falls within paragraph 3 or not).
(1) Any payment made to the injured person by an insurer] under the terms of any contract of insurance entered into between the injured person and the insurer] before—
(a) the date on which the injured person first claims a listed benefit in consequence of the disease in question, or
(b) the occurrence of the accident or injury in question.
(a) a person who has permission under Part 4, Part 4A of the Financial Services and Markets Act 2000 to effect or carry out contracts of insurance; or
(b) an EEA firm of the kind mentioned in paragraph 5(d) of Schedule 3 to that Act which has permission under paragraph 15 of that Schedule (as a result of qualifying for authorisation under paragraph 12 of that Schedule) to effect or carry out contracts of insurance.
(3)Sub-paragraph (2) must be read with—
(a) section 22 of the Financial Services and Markets Act 2000;
(b) any relevant order under that section; and
(c) Schedule 2 to that Act.
Any redundancy payment falling to be taken into account in the assessment of damages in respect of an accident, injury or disease.
So much of any payment as is referable to costs.
Any prescribed payment.
Many of these sections require secondary legislation to be brought forwards before they are implemented. As a consequence they are rarely seen in practice, and Compensators are best reminded that they have a statutory obligation to repay applicable benefits unless otherwise relieved of that obligation.