The Home Office v. R L Ayres [1991] UKEAT 501_89_1110

EAT
The Home Office v. R L Ayres
[1991] UKEAT 501_89_1110 · 1991-09-10
MR JUSTICE WOOD (PRESIDENT) By an Originating Application dated 24th May 1989 the Applicant, Mr Ayres, claimed under S.5(1) of the Wages Act 1986 that a deduction made from his wages was made in contravention of S.1(1) and claimed a declaration and an order for repayment of the amount - £830.89. Section 5 in its relevant parts reads as follows:-
"5(1) A worker may present a complaint to an industrial tribunal - (a) that his employer has made a deduction from his wages in contravention of section 1(1) (including a deduction made in contravention of that provision as it applies by virtue of section 2(3) (b) ... (c) ... (d) ..."
(2) ...(3) ...(4) ...
"5(4) Where a tribunal finds that a complaint under this section is well-founded, it shall make a declaration to that effect; and (subject to subsections (5) and (6) - (a) in the case of a complaint under subsection (1)(a) or (b), the tribunal shall order the employer to pay to the worker the amount of any deduction, or to repay to him the amount of any payment, made or received in contravention of section 1;"
Mr Ayres succeeded in his claim and an Industrial Tribunal sitting at Ashford on 2nd August 1989 under the Chairmanship of Mr Daniel ordered repayment of the sum of £830.89 which had been deducted by the Home Office from his pay.The Home office appeals.From March 1967 until his retirement on the grounds of ill-health on 15th May 1989 Mr Ayres was a Prison Officer. In December 1987 he underwent serious heart surgery and did not thereafter return to effective duty.Mr Ayres was paid monthly at the end of each month by direct payment to his bank with a payslip which was sent to him. In about the middle of each month he received a bank statement from which he could check the pay credit against his payslip. Until 1987 there had been no queries and the Applicant knew exactly what to expect in each month.From December 1987 his pay was calculated differently. For 6 months he was on full pay - 1374.50. For a short period in June and July 1988 he was paid at the rate of £687.25 per month (half rate pay) plus £393.60 per month (statutory sick pay) - a total of £1,080.85. From 5th July until 14th October 1988 he was paid at half rate pay - £687.25 per month. There was no statutory sick pay. From that date Mr Ayres was entitled to payment at the pension rate (410.59 per month) until the last 3 months before his date of retirement when he was paid at the full rate of pay.During the latter part of October - from the 14th - when he should have gone on to pension rate he was overpaid in that he was paid statutory sick pay - £393.60 - and at the rate of half rate pay instead of pension rate, an overpayment of £160.65. The error in October was therefore an overpayment of £554.25. During November he continued to be paid at the erroneous rate of half pay rate and the overpayment was £276.66.Thereafter he continued at the correct pension pay of £410.59 per month until his last 3 months.The fluctuations can be readily calculated and the total overpayment in October and November 1988 was £830.91 - the sum at issue.Mr Ayres was the only witness before the Industrial Tribunal who comment that his evidence was not challenged. They find the facts in the following paragraphs -
"5. These payments differed quite considerably in amount with no explanation being offered. The applicant became confused as he did not know when the pay changes referred to in paragraph 3 would take effect. He did get a letter dated the 4 October 1988 (...) that the pensionable rate of pay would commence on the 14 October subject to confirmation but he received no confirmation.
6. The applicant, who was the only witness in the case and whose evidence was not challenged, made enquiries at the administrative offices in Canterbury where he had been employed. He was told by a clerk there that the pay office had been moved from there to Bootle and that she could not therefore confirm the correctness of his pay. On another visit the administrative officer told him that his pay must be correct.7. In the absence of pay slips and explanations for the changing amounts of pay, the applicant naturally assumed that he was being paid correctly in the light of correct payments over the previous 20 years.8. It was not until he received the letter dated the 15 February 1989 (...) that he knew he had been overpaid in the sum of £830.89. The respondents then told him that they were recouping that overpayment by deductions from each of the following 3 months salary payments. He took immediate steps through the Prison Officers Association to challenge those deductions but they have all been made."

There then follows this important finding in paragraph 9 -

"We are satisfied that the applicant has spent all the money he received quite innocently on normal living expenses (...). There was no unusual expenditure during the period in question."
The importance of that finding can only be understood by reading the way in which the Applicant's case was put in the Originating Application. The essential plea is put thus:- "8. The applicant had been on long term sick leave and during this period his salary had fluctuated to such an extent that he was unable to calculate accurately his correct monthly salary. In November and December of 1988 he received no pay advice slips and during one other month the pay advice slip was handwritten and could not be read.9. the applicant has spent the money he received in meeting his ordinary day to day living expenses.10. Notwithstanding the applicant's refusal to give authority for the deduction from salary of the purported overpayment, the respondent has made deductions from the applicant's salary in February, March and April in breach of Section (1)(d) of the Wages Act 1986.11. The applicant accepted the monies paid to him in good faith and without knowledge that they were an overpayment. The respondent provided no means whereby the applicant could have known that he was not entitled to these monies. As such the respondent is estopped from deducting the alleged overpayment."His case was that the Home Office was not lawfully entitled to the repayment of the £830.89 and should not therefore have deducted it. To expand that submission, it is that if the Home Office had claimed the sum in a County Court, it would have been met with a defence of estoppel or change of position for the worse. If now the Applicant were to sue in the County Court for money due under his contract of employment, the Home Office would seek to counter-claim or set off that sum and would be met by the plea of estoppel in the Reply.The case for the Home Office is that upon the natural and ordinary meaning of the words in S.1(5)(a) of the Wages Act, the Applicant cannot make his claim under that Act but must proceed in the County Court. There is no appeal on the finding of estoppel.

The relevant sections of the Act for our consideration are -

"1. General restrictions on deductions made, or payments received, by employers

(1) An employer shall not make any deduction from any wages of any worker employed by him unless the deduction satisfies one of the following conditions, namely -(a) it is required or authorised to be made by virtue of any statutory provision or any relevant provision of the worker's contract(b) ..."
"(2) An employer shall not receive any payment from any worker employed by him unless the payment satisfies one of the conditions set out in paragraphs (a) and (b) of subsection (1)"
(3) ...(4) ...
"(5) Nothing in this section applies - (a) to any deduction from a worker's wages made by his employer, or any payment received from a worker by his employer, where the purpose of the deduction or payment is the reimbursement of the employer in respect of - (i) any overpayment of wages, or
(ii) any overpayment in respect of expenses incurred by the worker in carrying out his employment,

made (for any reason) by the employer to the worker;" (b) - (f) ..."

"6. Supplementary provisions relating to complaints

(1) The remedy of a worker in respect of any contravention of section 1(1) or(2) or section 2(1) or 3(4) shall be by way of a complaint under section 5 and not otherwise."7. ...

"8. General interpretation of Part I

(1) -(2) ...(3) Where the total amount of any wages that are paid on any occasion by an employer to any worker employed by him is less than the total amount of the wages that are properly payable by him to the worker on that occasion (after deductions) then, except in so far as the deficiency is attributable to an error of computation, the amount of the deficiency shall be treated for the purposes of this Part as a deduction made by the employer from the worker's wages on that occasion."Mr Jay for the Home Office argued before the Industrial Tribunal, as he did before us, that the natural and ordinary meaning of the words in S.1(5) is clear. There is no need for a purposive approach. Mr Ayres therefore was non-suited in that S.1(1) could not be applied. Mr Jay submits that the Wages Act is a discrete - exhaustive - statutory scheme and the general law, including the principle of estoppel, is immaterial. In particular, he pointed to the opening words of subsection 1(5) - " Nothing in this section applies ..." . He also draws our attention to the wording of S.8(3) and the phrase - " wages that are properly payable" - submitting that if it had been intended that only lawful deductions are to be allowed by S.1(5) then the draughtsmen could have so stated. If his submission is well founded, he does not shrink from the result which is that the Applicant would be bound to bring his claim in the County Court.The case for Mr Ayres, put at its simplest, is that Parliament could not have intended that an employer should be able to make deductions in respect of overpayment of wages unless the deduction was a "lawful" deduction, and the reimbursement was of monies to which the employer was "lawfully" entitled. By this is meant that the employer could succeed in their recovery in a Court of Law. Thus where there is a clear mistake which is obvious to both sides this Act provide a quick and simple remedy to an employer, but where there is an issue as to the entitlement to the monies deducted, that issue must be tried in the Industrial Tribunal. In the present case it had been and Mr Ayres had succeeded.There are a number of considerations which in our judgment point in favour of the case for the Applicant - we assume that the alleged overpayment was made under a mistake of fact:-(a) The preamble to the Act reads - " An Act to make fresh provisions with respect to the protection of workers in relation to the payment of wages " ... . If an employer is entitled to make deductions for reimbursement of overpayment of wages without being faced with any enquiry as to that entitlement in law, it would allow an arbitrary and excessive deduction to be made. Thereafter the employer would stand back and wait to be sued. This would leave an employee without his money, which could be substantial, for a lengthy period. This result would seem contrary to the intention of the preamble. There is a potential for grave injustice. After all the mistake was that of the employer.(b) In view of the provisions of S.6(1) of the Act, an employee suing in the County Court might be met with a defence under that subsection. We appreciate that it can be argued that the employee was relying on his contract and not on S.1 of the Act, but this would tend to complicate matters.(c) The definition section - S.8 - caters for the calculation of wages due for the purposes of "deduction" and it seems to us that the phrase - "wages that are properly payable" requires an Industrial Tribunal to apply common law principles. We see no reason why the issue of an overpayment and the right to repayment or reimbursement should not also be the subject of enquiry by an Industrial Tribunal under the principles of general law. see GREG MAY LTD v. DRING [1990] ICR 188(d) The remaining sub subsections of S.1(5) clearly impose upon an Industrial Tribunal the duty to examine the lawfulness of each deduction before that sub subsection can properly be given effect. Thus, in looking at the purpose of this part of the Act, we take the view that the true intent of Parliament is best achieved by reading S.1(5)(a) as if the word "lawful" were inserted in the opening phrase - "to any (lawful) deduction" - and before the word "reimbursement".When an employer relies on S.1(5)(a) by way of defence to a claim under S.1(1), the applicant by way of reply will be able to raise a number of defences - no overpayment - incorrect amount of deduction - the purpose of the deduction was not to reimburse - some defence under the general law to the claim to deduct.As we uphold Mr Westgate's submissions on the proper construction of this subsection as interpreted by the Industrial Tribunal there is no need for us to consider his later submissions on the basis of estoppel.Mr Jay rightly argues that to allow an Industrial Tribunal to apply the general law could raise difficult and complex issues of fact and law which Parliament could never have intended should be tried before an Industrial Tribunal. In the present case the Industrial Tribunal decided the merits in favour of Mr Ayres and there is no appeal. Anyone would have sympathy with him in his ill health and this case may well prove to be special on its facts.Mr Jay also points to the difficult case of AVON COUNTY COUNCIL v. HOWLETT [1983] 1 WLR 605 which was cited to the Industrial Tribunal. He points out the problems of allowing a defence of estoppel to be raised when the real defence was "it was your mistake and I have spent the money".Our minds were exercised about the problems and difficulties which can be raised on issues of estoppel. A general defence of change of position would seem to provide a more readily understandable principle. See the "Law of Restitution" - 3rd Ed. Ch.39 - p.694 where the learned Editors say:
" It is important to interpret that defence generously, given that the litigation will generally arise and the context of payments made under a mistake of fact; for it now appears that a payer can recover his payment if he can prove that he would not have made the payment if he had known the true facts. That is a wide principle, which protects the payer, even though he was negligent in making the payment. In order to protect the bona fide recipient, it is then all the more necessary to accept a broad defence of change of position."
This general defence has now become part of our common law in the very recent case of LIPKIN GORMAN (a firm) v. KARPNALE LTD [1991] 3 WLR 10 . The facts of that case are complicated and it is unnecessary for the present purposes to recite them. The principle speech was that of Lord Goff of Chieveley. We extract a number of passages which may be helpful to Industrial Tribunals meeting problems such as the present which we are told will become quite numerous in the near future.At pages 32 and 33 Lord Goff turns to consider the defence of "change of position" and at p.33B he says -
"... The recovery of money in restitution is not, as a general rule, a matter of discretion for the court. A claim to recover money at common law is made as a matter of right; and even though the underlying principle of recovery is the principle of unjust enrichment, nevertheless, where recovery is denied, it is denied on the basis of legal principle.
It is therefore necessary to consider whether Mr Lightman's submission can be upheld on the basis of legal principle. In my opinion it is plain, from the nature of his submission, that he is in fact seeking to invoke a principle of change of position, asserting that recovery should be denied because of the change in position of the respondents, who acted in good faith throughout."

He then proceeds to consider a number of earlier authorities and continues -

"... Instead, where change of position has been relied upon by the defendant, it has been usual to approach the problem as one of estoppel: see, eg R E Jones Ltd v. Waring and Gillow Ltd [1926] AC 670, and Avon County Council v. Howlett [1983] 1 WLR 605. But it is difficult to see the justification for such a rationalisation. First, estoppel normally depends upon the existence of a representation by one party, in reliance upon which the representee has so changed his position that it is inequitable for the representor to go back upon his representation. But, in cases of restitution, the requirement of a representation appears to be unnecessary. It is true that, in cases where the plaintiff has paid money directly to the defendant, it has been argued (though with difficulty) that the plaintiff has represented to the defendant that he is entitled to the money; but in a case such as the present, in which the money is paid to an innocent donee by a thief, the true owner has made no representation whatever to the defendant. Again, it was held by the Court of Appeal in Avon County Council v. Howlett that estoppel cannot operate pro tanto, with the effect that if, for example, the defendant has innocently changed his position by disposing of part of the money, a defence of estoppel would provide him with a defence to the whole of the claim. Considerations such as these provide a strong indication that, in many cases, estoppel is not an appropriate concept to deal with the problem.
In these circumstances, it is right that we should ask ourselves: why do we feel that it would be unjust to allow restitution in cases such as these? The answer must be that, where an innocent defendant's position is so changed that he will suffer an injustice if called upon to repay or to repay in full, the injustice of requiring him so to repay outweighs the injustice of denying the plaintiff restitution. ..."

And finally he states the principle at p.34G - 35D -

"I am most anxious that, in recognising this defence to actions of restitution, nothing should be said at this stage to inhibit the development of the defence on a case by case basis, in the usual way. It is, of course, plain that the defence is not open to one who has changed his position in bad faith, as where the defendant has paid away the money with knowledge of the facts entitling the plaintiff to restitution; and it is commonly accepted that the defence should not be open to a wrongdoer. These are matters which can, in due course, be considered in depth in cases where they arise for consideration. They do not arise in the present case. Here there is no doubt that the respondents have acted in good faith throughout, and the action is not founded upon any wrongdoing of the respondents. It is not however appropriate in the present case to attempt to identify all those actions in restitution to which change of position may be a defence. A prominent example will, no doubt, be found in those cases where the plaintiff is seeking repayment of money paid under a mistake of fact; but I can see no reason why the defence should not also be available in principle in a case such as the present, where the plaintiff's money has been paid by a thief to an innocent donee, and the plaintiff then seeks repayment from the donee in an action for money had and received. At present I do not wish to state the principle any less broadly than this: that the defence is available to a person whose position has so changed that it would be inequitable in all the circumstances to require him to make restitution, or alternatively to make restitution in full. I wish to stress however that the mere fact that the defendant has spent the money, in whole or in part, does not of itself render it inequitable that he should be called upon to repay, because the expenditure might in any event have been incurred by him in the ordinary course of things. I fear that the mistaken assumption that mere expenditure of money may be regarded as amounting to a change of position for present purposes has led in the past to opposition by some to recognition of a defence which in fact is likely to be available only on comparatively rare occasions. In this connection I have particularly in mind the speech of Lord Simonds in Ministry of Health v. Simpson [1951] AC 251, 276 ."

(our emphasis)

The only other passage in the speeches to which we would refer is that in the speech of Lord Bridge of Harwich at p.14H where he says -
"I agree with my noble and learned friend, Lord Goff of Chieveley, that it is right for English law to recognise that a claim to restitution, based on the unjust enrichment of the defendant, may be met by the defence that the defendant has changed his position in good faith. I equally agree that in expressly acknowledging the availability of this defence for the first time it would be unwise to attempt to define its scope in abstract terms, but better to allow the law on the subject to develop on a case by case basis. ..."
Each case where the defence under S.1(5)(a) is raised must depend upon its own facts but it may be relevant to examine the pattern of payment - the pattern of overpayment - how recent was that overpayment - how much was it - were the payslips clear? The only issue which we decide in the present appeal however is the proper interpretation to be given to the statute. We have given our reasons and this appeal is dismissed.Leave to appeal.