Overpayments and ‘legitimate expectation’

Martin Williams looks at a recent decision in which DWP assurances to a claimant that their universal credit payments were correct meant that an overpayment was not recoverable.

The introduction of universal credit (UC) was accompanied by an important change in the law regarding recovery of certain benefits.

Section 71ZB of the Social Security Administration Act 1992, inserted at the same time (in 2013) as UC was introduced, provides that for UC, new-style jobseeker’s allowance and new-style employment and support allowance all overpayments are potentially recoverable – the previous test for recovery, of whether the overpayment had been caused by claimant misrepresentation or failure to disclose a material fact, no longer applied in such cases.

But what if, following queries from the claimant, the DWP assured them that their benefit was correctly calculated? The recent case of R (on the application of K) v SSWP [2023] EWHC 233 (Admin) is an example of a well-advised claimant successfully challenging the lawfulness of the decision to recover a large recoverable overpayment. The judgment holds that there are circumstances in which statements made by the DWP about the correctness of the amounts being paid may mean that they should not later be allowed to recover them when it turns out those statements were wrong (this is referred to as the claimant having a ‘legitimate expectation’).

This defence is not limited to UC overpayment recovery. But it will not apply (including in UC) where the overpayment was caused by the claimant failing to disclose a fact or by a misrepresentation about the facts. In such cases, DWP assurances that a payment was correct cannot be relied upon because they are given on the basis of an incorrect understanding of the facts. Therefore, the ‘legitimate expectation’ defence to recovery will likely only be relevant to cases where there is no statutory defence to recovery.

Assuming that there was an overpayment that was in principle recoverable, should it be recovered? That is a decision for the Secretary of State for Work and Pensions (SSWP), against which there is no right of appeal. Therefore, advice on judicial review challenges to the decision taken by the SSWP about whether or not to use the power to recover have depended on analysing whether the SSWP’s power to recover overpayments had been exercised in a lawful way. But the decision in K v SSWP shows that the ‘legitimate expectation’ defence is not so much about that as about whether the overpayment can legitimately be said to be recoverable in the first place, and that ultimately this will be for the court (on judicial review) to decide, rather than the Secretary of State.

In K’s case, the overpayment had arisen because K had gone on having a child element, and a child disability element, included within her UC, in respect of her 17-year-old son, A, on the grounds he counted as receiving full-time education, despite the fact that A was undertaking an apprenticeship (which does not count as receipt of full-time education). K had, on at least three occasions, queried whether it was correct to pay her amounts for A in these circumstances. On each occasion K was told that she was entitled to these sums.

One of the headings under which K challenged the lawfulness of the SSWP’s refusal to waive recovery was that her legitimate expectation that she was entitled to the overpaid amounts should prevent the recovery of the overpayment. A legitimate expectation of this sort arises where a public authority gives a clear and unambiguous undertaking to act in a certain way, which it would be unfair to allow it to depart from.

In many public law challenges to the exercise of a discretion, the result of a successful challenge is simply that the decision must be remade. For example, if it was said that a decision maker had unlawfully failed to take account of financial hardship under the policy, then the remedy might be simply to remake the decision having regard to hardship. Once such regard is had, that does not mean the decision will necessarily be any different in outcome. However, a legitimate expectation challenge is not a challenge to the way a discretion was issued and, if successful, actually prevents the state from pursuing a course of action its earlier statements mean it is unfair for it to take.

The K case, which the SSWP is not appealing, establishes that a benefit claimant can rely on a legitimate expectation defence to recovery of an overpaid benefit. In coming to this conclusion, the court considered and rejected an argument that a legitimate expectation could not arise in such a case because the SSWP could not bind himself, through representations made to a claimant, to act in a way which was incompatible with what the regulations required. The question is whether it would be inconsistent with the statutory scheme to allow the DWP’s misunderstanding of the law and the misstatements to the claimant based on this, to bind the SSWP. Mrs Justice Steyn reasoned that she was not expecting the SSWP to be bound by his representation that K was entitled to money for A, when the regulations said K was not, in the sense that the SSWP was not bound to go on paying K an incorrect amount in breach of a statutory duty but was merely prevented from exercising his discretion to recover:

‘[K] has not invoked the legitimate expectation to secure the overpayment […]. She relies on the legitimate expectation to assert that the defendant is not entitled to resile from it by seeking to recover the UC overpayment.’

Now that it is established that a legitimate expectation can make it unlawful to recover an overpaid amount, it is important for advisers to understand the elements of such a defence and how a case can be set out.

A claimant who wishes to rely on a legitimate expectation will need to show that it was fair for them to interpret that the conduct or statements of the DWP amounted to a clear and unambiguous promise, devoid of qualification, that they were entitled to the overpaid amounts.

K was able to point to a range of factors which meant it was fair for her to have interpreted the DWP as making statements that she was entitled to the child element and disability element for her son. These included that she had, on repeated occasions, checked with the DWP whether this was correct and been reassured, following internal checks, on at least two occasions that it was. Further, the payment had continued after her raising the specific point about her son being on an apprenticeship.

Exactly what is required in an individual case will be fact sensitive. The question is always whether the DWP statements were clear and unambiguous and devoid of qualification and it was therefore reasonable for them to be interpreted as meaning no overpayment was occurring. The following are also relevant.

1. A claimant must have disclosed all the relevant facts to have enabled the DWP to have made the correct decision – ie, not to have overpaid them. Any representations made by the DWP based on an incomplete understanding of the claimant’s factual position which is the fault of the claimant would undermine a legitimate expectation case.

2. A claimant who has specifically queried whether their payment is correct – ideally pointing to the thing that makes it incorrect – and been reassured, at least once, but ideally more than this, that the payment is correct will be in a strong position.

In order to establish what information has been disclosed to the DWP and what representations about the correctness of the payments it has made, a claimant can offer evidence of what they were told. However, advisers assisting claimants to make waiver requests on the grounds of legitimate expectation should also consider making a subject access request and printing out the UC journal in order to see (1) any written questions a claimant has asked, (2) the responses given, and (3) any DWP internal consideration of entitlement.

Once it is accepted that a claimant had reasonably concluded from the clear and unambiguous statements and conduct of the DWP that they were entitled to the sums paid, the only remaining question is whether it would, in all the circumstances, be fair to allow the DWP to depart from those statements and pursue recovery. And that is, at least in general, a question for a court to answer itself, rather than simply deferring to the SSWP’s view: ‘the court is the arbiter of fairness in this context’ (Re Finucane (Northern Ireland) [2019] UKSC 7, reported as [2019] 3 All ER 191, paragraph 62).

In the K case, the judge concluded that ‘fairness clearly compels the conclusion that the claimant’s legitimate expectation should be protected’. The judge, in reaching that conclusion, took into account firstly that K had relied on the legitimate expectation to her detriment in two different ways: she had spent the overpaid amounts thinking she was entitled to it, and she had not taken steps that could have led her to be entitled to what ended up being overpaid amounts – eg, by getting A to switch to a different course instead of the apprenticeship. The judge also considered the effect on K that recovery would cause: here of relevance was the fact recovery would come out of her existing UC award and do so for a period of many years. Furthermore, the claimant’s difficult health and financial circumstances were relevant. Given those circumstances and the fact the claimant had taken all reasonable steps to alert the DWP to the overpayment and query her entitlement, the court held that it would be unfair for recovery to take place.

It is likely that any claimant who gets past the first stage of a legitimate expectation defence (ie, they can show it was reasonable for them to interpret the statements of the DWP as a clear and unambiguous statement that they were entitled) will also be able to point to at least several of the factors K was able to rely on. For example, it is not common for claimants who think they are entitled to the benefits they receive to do anything other than spend the money. Similarly, for a claimant who is likely to remain on UC, it is difficult to see how recovery of a large overpayment would not reduce ongoing entitlement for years. Nonetheless, it is still important for advisers to set out all the details of the effect on the claimant of recovery.

When an overpayment is waived after some of it has been recovered, the SSWP’s policy approach is not to refund the amounts already recovered. The lawfulness of that approach may be particularly questionable in the context of legitimate expectations (ie, cases founded on the SSWP’s own conduct) – a claimant might wish to argue that the SSWP could and should have known all along that there was a legitimate expectation defence.

Advisers assisting overpaid claimants need to be alert to finding out whether the DWP, having been apprised of the correct factual situation, has made clear statements to the claimant that they are entitled to the overpaid amounts. That is essential. Where that can be shown to have occurred, then there may at least be the beginning of a legitimate expectation defence to recovery. Whether a particular case meets the legitimate expectation threshold is fact sensitive – as K’s case shows. Cases where claimants have been repeatedly told that they are being paid the correct amount are likely to be particularly strong candidates.

The SSWP’s policy on whether to apply a waiver (ie, decide as a matter of discretion not to use the power to recover an overpayment that is recoverable) is now set out in Chapter 8 of the Benefit Overpayment Recovery Guide (the ‘BORG’).1DWP, Benefit Overpayment Recovery Guide, 22 February 2023, Chapter 8, available at gov.uk/government/publications/benefit-overpayment-recovery-staff-guide/benefit-overpayment-recovery-guide#chapter-8 Following K, the DWP has now rewritten the BORG, and has incorporated other, previously undisclosed, guidance into it (the court ruled that the failure to have published that other guidance was unlawful but, following its assimilation into the BORG, that point is no longer of relevance legally – although still of interest to Trekkies amused by the way in which life sometimes follows art).

Representations made on behalf of claimants requesting waivers under the policy will need to set out how the factors currently listed in paragraph 8.6 of the BORG as relevant to a waiver decision, are in play in their client’s case. Where the request is made on hardship grounds, then the guidance shows the detailed evidence that is expected. Importantly, the guidance now makes clear that the cause of the overpayment and considerations such as a claimant having relied on the overpayment to their detriment are relevant as well as hardship issues. Provided a decision maker considers all the relevant factors in a rational way, it will be difficult to challenge an individual decision on waiver under the policy outside the context of legitimate expectation (challenges need to be by way of judicial review, although further evidence can also be adduced along with a request for reconsideration).

The guide, at present, does not cover legitimate expectations directly.