Edward Bishop on interest on social security benefits

Edward Bishop, of No 1 Serjeants' Inn, acted for Surrey County Council.

Having picked themselves off the canvas after Wells v Wells, insurers are on the ropes again in Wadey v Surrey County Council (CA).

In this case, it was held by the Court of Appeal that a plaintiff in a personal injury action no longer has to give credit for social security benefits received before calculating interest on his damages.

The point has arisen because of the repeal of section 103 of the Social Security Administration Act 1992 (which re-enacted a previous provision in the Social Security Act 1989). Under the 1989 Act, benefits received by a plaintiff were deducted from his damages and paid back to the state by the defendant.

The question of interest on damages equivalent to the benefits paid back was dealt with expressly by section 103 of the 1992 Act thus:

"In assessing the amount of interest payable in respect of an award of damages, the amount of the award shall be treated as reduced by a sum equal to the amount of the relevant payment (if any) required to be made in connection with the payment of the damages."

In 1997 the scheme changed. Parliament recognised that it was unfair to plaintiffs that defendants were sometimes required to deduct benefits from plaintiffs' general damages. Therefore the Social Security (Recovery of Benefits) Act 1997 introduced provisions to protect the plaintiff's damages so that benefits could only be deducted where they corresponded to claims made by the plaintiff – effectively a like-for-like system.

The 1997 Act came into force on 6 October 1997 and section 103 of the 1992 Act was not re-enacted. Plaintiffs began to argue that interest should be awarded on the total damages, irrespective of any deduction pursuant to the scheme.

In Wadey, the Court of Appeal came down on the side of the plaintiff. The court recognised that from 1990 to 1997 defendants enjoyed a windfall because the state did not require them to pay interest on the benefits taken from plaintiffs that they paid back to the state. That windfall must now be enjoyed by plaintiffs, it was said, as a result of the clear intention of Parliament in not re-enacting section 103.

Wadey is being appealed to the Lords. It remains to be seen in whose basket they will place the windfall.