Bornecrantz v Secretary, Department of Social Services

Federal Court of Australia|2017-08-29|Before: Perry J

Counsel for the Applicant: The applicant appeared in person.

Solicitor for the Respondent: Australian Government Solicitor

AND: SECRETARY, DEPARTMENT OF SOCIAL SERVICES Respondent

The appeal under section 44 of the Administrative Appeals Tribunal Act 1975 (Cth) is allowed.
The decision of the Administrative Appeals Tribunal is set aside.
The matter is to be remitted to the Administrative Appeals Tribunal to be determined according to law.
The respondent is to pay the applicant's costs as agreed or assessed. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

PERRY J: 1 INTRODUCTION [1] 2 PROCEDURAL MATTERS [7] 3 BACKGROUND [10] 3.1 The first Tribunal decision (Bornecrantz (AAT) (No. 1)) [10] 3.2 Cancellation of the applicant's pension by Centrelink and the second decisions by a review officer and the SSAT [16] 3.3 The second Tribunal decision (Bornecrantz (AAT) (No. 2)) [21] 4 THE ISSUES ON APPEAL [25] 5 THE STATUTORY FRAMEWORK [31] 5.1 Provisions governing calculation of the rate of the age pension for couples [31] 5.2 Part 3.18 of the Social Security Act [33] 5.3 Decision-making principles [41] 6 WHEN IS A DECISION LEGALLY UNREASONABLE? [45] 7 LAWFULNESS OF THE TRIBUNAL'S DECISION [52] 7.1 The Tribunal's consideration of the 'double counting' issue [52] 7.2 Was the Tribunal's decision unreasonable? [58] 8 CONCLUSION [71]

INTRODUCTION 1 This is an appeal from a decision of the Administrative Appeals Tribunal (Tribunal) affirming a decision of the Social Security Appeals Tribunal (SSAT). The SSAT had affirmed an earlier decision of an authorised review officer (review officer) agreeing with Centrelink's decision to cancel the applicant's age pension on the ground that he failed the assets test under the Social Security Act 1991 (Cth) (Social Security Act). The applicant's and his wife's combined asset value exceeded the asset limit for eligibility to receive the age pension. 2 The so-called "appeal" is under s 44 of the Administrative Appeals Tribunal Act 1975 (Cth) (AAT Act) and as such is limited to an appeal on questions of law. 3 The applicant was unrepresented and appeared by telephone as he is resident in the United Kingdom. He identified the following questions of law in his application:
1. May the AAT, SSAT and the Dept of Social Services ignore a Pensioners declaration of changes in circumstances and refuse to hear the Pensioners evidence to those changes and thus continue to support faulty applications of the Social Security Act when such acts result in the appeal not being heard on the evidence?
2. May the Dept. Of Social Security interpret a reasoning by the AAT to the detriment of the Pensioner and contrary to Accounting Principles and Society rules of valuation to the detriment of the Pensioner? 4 In addition, the applicant raised questions as to the constitutional validity of the Social Security Act insofar as it relates to the age pension and its consistency with Australia's international obligations. It is unnecessary to address these issues, given the conclusion I have reached on the first grounds. 5 It is apparent from the applicant's submissions that his primary complaint is that the Tribunal's decision is unreasonable because the value of his and his wife's combined assets for the purpose of determining his entitlement to the age pension was artificially inflated because certain assets (company loans) were counted twice in the calculations or "double counted" as the applicant submitted. 6 For the reasons set out above, I accept that the decision of the Tribunal is legally unreasonable and that the appeal must therefore be allowed.

PROCEDURAL MATTERS 7 The matter was initially listed for hearing on 26 July 2016. However, the matter was adjourned at the start of that hearing so as to allow the parties to make submissions on whether the Tribunal failed to consider the 'double counting' issue raised by Mr Bornecrantz and the consequences of any such failure. An adjournment was also necessary as the notices under s 78B of the Judiciary Act 1903 (Cth) filed in the proceedings had not been properly served. A timetable was set for the filing of further written submissions and the matter was re-listed for further hearing on 1 September 2016. 8 At the re-convened hearing on 1 September 2016, the Secretary raised an argument at [12]-[16] of his supplementary written submissions and elaborated on at the hearing which, if pressed, may have required the Court to determine whether Mr Bornecrantz had prima facie committed a breach of certain provisions of the Social Security Act. In the circumstances, I did not consider that it was appropriate to hear argument on that submission, and considered that if it were pressed, Mr Bornecrantz should be afforded an opportunity to obtain legal advice. A timetable was set for the Secretary to obtain further instructions as to whether he intended to press the submission and, if necessary, to call the matter on for further directions. At the hearing on 1 September 2016, the Secretary therefore addressed the balance of his oral submissions on the 'double counting' issue and the matter was adjourned to allow the Secretary to obtain further instructions. 9 Subsequently the Secretary sent an email to the Court confirming that he did not press the submission based on an alleged prima facie breach of the Social Security Act. In accordance with the timetable agreed at the hearing, instead of resuming for further oral argument, Mr Bornecrantz filed further written submissions addressing the balance of the Secretary's submissions on the double counting issue.

3.1 The first Tribunal decision (Bornecrantz (AAT) (No. 1)) 10 On 7 June 2011, Centrelink decided to pay the applicant the age pension at a reduced rate from 25 June 2011, being the day on which the applicant reached the pension age. 11 On 22 April 2013, a review officer varied Centrelink's decision by further reducing the rate of Mr Bornecrantz's age pension due to the value of his assets. The decision to vary the applicant's pension focussed primarily on the attribution of assets held by two companies, Hanbury Investments Pty Ltd (Hanbury) and Hasso Pty Ltd (Hasso). The applicant established both companies, held shares in each, and at various times acted as their director. In particular and relevantly to this appeal, the review officer decided that: (1) 50% of the income and assets of Hanbury were to be attributed to the applicant; (2) 100% of the income and assets of Hasso should be attributed to the applicant and his wife jointly; and (3) loans made to Hanbury by the applicant's wife and a Ms Hughes were not to be recognised as liabilities of Hanbury because no written loan agreements had been provided to the Department. 12 On 29 August 2013, the decision of the review officer was affirmed by the SSAT 13 On 27 May 2014, the Tribunal in Bornecrantz v Secretary, Department of Social Services [2014] AATA 327 (Bornecrantz (AAT) (No. 1)) varied the decision under review by reducing from 50% to 45% the assets and income of Hanbury attributed to the applicant for the purpose of applying the Assets Test, and otherwise affirmed the decision of the SSAT. The Tribunal relevantly concluded that: (1) Hanbury was a designated private company for the purposes of s 1270N as it was a company with a revenue of less than $25 million and had fewer than 50 employees (Bornecrantz (AAT) (No. 1) at [26]); (2) Hanbury was a "controlled private company" in relation to the applicant within the meaning of s 1207Q of the Social Security Act (at [37]); (3) it was "not inappropriate" for the applicant to be an "attributable stakeholder" of Hanbury for the purposes of s 1207X(1)(a) of the Social Security Act (at [38]-[40]); (4) the shares held by the applicant did not reflect the degree of control and benefit derived by him from Hanbury (at [44]); and (5) given the evidence, 90% of the assets of Hanbury were attributable to the applicant and his wife, of which 45% was attributable to each (at [45]). 14 However, the Tribunal rejected the applicant's submission that the loans from his wife and Ms Hughes to Hanbury should be considered as liabilities of Hanbury and therefore taken into account in reducing the value of Hanbury's assets. The Tribunal's reasoning on this issue at [46]-[51] is, with respect, somewhat confused. It appears to have conflated its consideration of whether the loans should be excluded assets under s 1208E(2) in the exercise of that discretion, on the one hand, with a consideration of whether the value of Hanbury's assets should be reduced by the amount of the loans in the exercise of discretion under s 1208H, on the other hand. In relation to both discretions, the Tribunal apparently took into account whether each of the loans was an "arm's length transaction" by reference to paragraphs 8 and 12-14 of the Social Security (Attribution of Assets) Principles 2001 (the 2001 Principles). Those paragraphs set out the factors to be considered in determining whether a transaction is an "arm's length transaction" for the purposes of, respectively, s 1208G (dealing with the effect of charges and encumbrances on the value of company assets) and s 1208H (dealing with the effect of an unsecured loan on company assets): see further below at [41]-[44]. The Tribunal concluded relevantly that: 50. I am not satisfied that either Ms Hughes' or Mrs Bornecrantz's loans to Hanbury were arm's length transactions in accordance with the criteria in paragraph 13. In neither case were the loans made under the terms of a written agreement of the kind required by paragraph 13(1)(b). While Mr Bornecrantz set out the terms of the agreement made with his wife in 1997, this was done after the event and for the purpose of producing written evidence of the agreement at the request of Centrelink (He has never claimed that such a written agreement was entered into at the time the agreement was made.) Turning to the other matters referred to in paragraph 14 which go to the structure and control of the company, and the relationship of the parties, the close relationship of the parties is such to negate these loans being arm's length transactions. 51. Thus, having regard to the Attribution of Assets principles and noting in particular that the loans were not arm's length transactions, I am not satisfied that the loans should be taken into account in reducing the value of Hanbury's loans. 15 The applicant did not appeal the first Tribunal decision.

3.2 Cancellation of the applicant's pension by Centrelink and the second decisions by a review officer and the SSAT 16 On 2 March 2014 and while the earlier Tribunal proceedings were on foot, the applicant wrote a letter addressed to the AAT and Centrelink attaching a balance sheet of Hanbury dated 30 December 2013. On 26 May 2014, Centrelink wrote a letter to the applicant seeking further answers to questions in relation to certain items in the balance sheet. The applicant responded to these questions on 3 June 2014. 17 On 23 July 2014, an officer of the Legal Services Division of Centrelink wrote an internal memorandum to Centrelink's Complex Assessments Officer. That letter summarised the earlier decision of the Tribunal and referred the matter to the complex assessments team for implementation. 18 On 28 July 2014, Centrelink cancelled the applicant's aged pension because he failed the asset test at that date, taking into account his response to the request for further information and the decision in Bornecrantz (AAT) (No. 1). The applicant's combined assets were as follows: ANZ Bank account - Mr Bornecrantz $500 Westpac Bank account - Mrs Bornecrantz $100 Loan to Hasso Pty Ltd - Mr Bornecrantz $46,545 Loan to Hanbury Investments Pty Ltd - Mrs Bornecrantz $197,879 Loan to Hanbury Investments Pty Ltd - Mr Bornecrantz $534,030 House contents $5,000 Hanbury's assets - 90% attributed to Mr and Mrs Bornecrantz $548,667 TOTAL $1,332,721

(the combined asset valuation) 19 As the combined assets for the applicant and his wife were valued at $1,332,721.00, they exceeded the asset limit to receive the age pension for a partnered homeowner which was $1,134,000 as at 28 July 2014. 20 The decision to cancel the applicant's pension was affirmed by a review officer on 26 August 2014. On 20 February 2015, the SSAT affirmed the review officer's decision (the second SSAT decision).

3.3 The second Tribunal decision (Bornecrantz (AAT) (No. 2)) 21 On 20 October 2015, the Tribunal affirmed the second decision of the SSAT: Bornecrantz v Secretary, Department of Social Services [2015] AATA 814 (Bornecrantz (AAT) (No. 2)). It is this decision which is the subject of the present appeal. 22 The Tribunal considered at [12] that it appeared that the applicant sought to raise four substantive issues: Issue 1 - whether the assessable amounts that are reflected above [i.e., the combined asset valuation] are properly included and calculated especially in relation to the three loans and the attribution of the Hanbury assets? Issue 2 - whether Mr and Mrs Bornecrantz were properly treated as a couple for the purposes of the Social Security Act? Issue 3 - whether Mrs Bornecrantz should be attributed with 45% of Hanbury's assets? Issue 4 - whether the Social Security Act is illegal as it contravenes the UN Universal Declaration of Human Rights, international law and certain treaties and whether the Social Security Act is faulty due to single people getting more than married people? 23 As to the first issue on which this appeal is focused, the Tribunal found that, there being no evidence to the contrary, the loans to Hanbury and Hasso are assets that count in the calculation of the applicant's and his wife's combined asset value under Part 3.18 of the Social Security Act. However, the Tribunal found that it could not be satisfied that the loans should be taken into account in reducing the value of Hanbury's assets to be attributed to them for this purpose. 24 As to the other issues, the Tribunal: (1) rejected the second issue on the ground that no evidence was given in support of it (at [29]-[32]; (2) rejected the third issue on the grounds that the earlier Tribunal had decided to attribute 45% of Hanbury's value to the applicant, rejecting the proposition that no finding properly so-called had been made, and the issue should not be re-opened (at [33]-[35]); and (3) found that it lacked jurisdiction to determine the fourth issue.

THE ISSUES ON APPEAL 25 Rule 33.12(2)(b) of the Federal Court Rules 2011 (FCR) provides that the "precise" question or questions of law sought to be raised under s 44 of the AAT Act must be stated in the notice of appeal. The questions of law posed here do not comply with this requirement. Nor are the grounds relied on in support of the relief sought stated "specifically" in the notice of appeal so as to comply with FCR r 33.12(2)(e). Generally self-represented litigants are not exempt from these requirements: see by analogy SZJJC v Minister for Immigration and Citizenship [2008] FCA 614 at [15]. However, while the existence of a question of law is necessary to found the jurisdiction of the Court under s 44 of the AAT Act, the failure to state a question of law does not go to the existence of the Court's jurisdiction under that provision; rather, whether a question of law is raised for the purposes of s 44 must be ascertained as a matter of substance: Haritos v Federal Commissioner of Taxation [2015] FCAFC 92; (2015) 233 FCR 315 at 62 and (6) and [94]. 26 It is apparent from the applicant's notice of appeal and submissions that, while using somewhat more colourful language, the applicant's central complaint is, in substance, that any exercise of discretion by the Tribunal was legally unreasonable by reason of the Tribunal's alleged failure to take into account the "double counting" of the value of the Hanbury loans in valuing his and his wife's combined assets for the purposes of the Asset Test. Specifically, the double counting is said to have occurred because the debt owed by Hanbury to the applicant's wife was included in the valuation of the applicant's and his wife's combined assets, on the one hand, but no account was taken of Hanbury's liability to repay that debt in attributing the value of Hanbury's assets to the applicant and his wife, on the other hand. Thus in his notice of appeal the applicant raised as his second question of law, whether the Tribunal may "interpret a reasoning by the AAT to the detriment of the Pensioner and contrary to Accounting Principles and Society rules of valuation to the detriment of the Pensioner." 27 This complaint was relevantly elaborated upon by the applicant in his written submissions in the following passages: The value of Assets as calculated by Centrelink is an impossible amount and a fantasy. … …The big contention is that the liabilities should not be counted as assets, that is double counting. The assets have been purchased with the liabilities. What is so difficult to understand? One can not use both sides of an Accounting entry! (errors in the original) 28 The applicant further alleged "… there is no sentence or paragraph that specifies that Assets should be Double Counted", and further that: Clearly, once a loan is not of "Arms Length" etc, then for the purposes of the Act, it does not exist. [Mrs Bornecratnz] is no longer a creditor, but an investor with a 45% claim on the Assets. … …A Balance Sheet must "Balance", hence the name. 29 As such, I do not agree with the Secretary's submission that it is necessary for the applicant to seek leave to amend his notice of appeal to raise the issue of legal unreasonableness. The applicant has, in my view, fairly raised that issue. Equally, underlying the applicant's concerns and fairly raised by him is the question of whether the Tribunal was required by implication under the Social Security Act to take into account any 'double counting' in considering whether and how s 1208E(1) of the Act might apply in assessing the applicant's and his wife's combined asset value. A failure to have regard to a relevant consideration which affects the exercise of power is also an error of law and gives rise to jurisdictional error: see e.g. Minister for Aboriginal Affairs v Peko-Wallsend Ltd (1986) 162 CLR 24 (Peko-Wallsend) at 39-40; and Minister for Immigration and Multicultural Affairs v Yusuf [2001] HCA 30; (2001) 206 CLR 323 at [82]-[84] (McHugh, Gummow and Hayne JJ). 30 In addition, at the hearing on 26 July 2016, the Court raised a concern with the respondent as to whether the Tribunal failed to appreciate that it had a broad (or indeed any) discretion in attributing Hanbury's assets to the applicant and his wife (referring in particular to s 1208H of the Act) and thereby misapprehended its statutory task. While the Minister correctly submitted that that ground had not been pleaded, the question of whether the Tribunal's decision was legally unreasonable must be considered in any event in the statutory context in which the decision-making power is conferred in line with the principles set out later below and therefore having regard to the proper construction of the Social Security Act.

5.1 Provisions governing calculation of the rate of the age pension for couples 31 The long title of the Social Security Act, being an Act "to provide for the payment of certain pensions, benefits and allowances, and for related purposes", identifies that its purposes are beneficial: see by analogy Repatriation Commission v Kimpton [2006] FCA 1120 (Kimpton) at [45] (French J (as his Honour then was)). The primary purpose of the pension is to maintain a basic level of income for those who are unable to provide for themselves: Secretary, Department of Social Services v Garvey (1989) 22 FCR 132 at 136 (the Court). 32 Section 1064(1) of the Social Security Act provides that the rate of the age pension is to be calculated by reference to the Rate Calculator in Part 3.2 of the Act. Step 11 of s 1064-1A (which establishes the general rate calculation process) provides that the method of calculation to be applied is whichever of the Assets Test or the Income Test results in the lowest rate of pension. As earlier explained, in this case the Assets Test was found to apply. In applying the Assets Test, s 1064-A2 provides that, where two people are members of a couple as in the case of the applicant and his wife, they will be treated as pooling their income and assets and sharing them on a 50/50 basis.

5.2 Part 3.18 of the Social Security Act 33 Part 3.18 was inserted by item 23 of Sch 1 to the Social Security and Veterans' Entitlements Legislation Amendment (Private Trusts and Private Companies - Integrity of Means Testing) Act 2000 (Cth) (the 2000 Amending Act). It provides for assets held in private companies or private trusts to be attributed to an individual or couple in certain circumstances with the aim of ensuring that such persons receive comparable treatment under the means test to those who hold their assets directly: see further below. Specifically, under Div 8 (ss 1208E-1208J) of Part 3.18, which deals with the attribution of assets of controlled private companies and trusts, s 1208E(1) provides for the assets of a private company to be attributed to an individual or couple as follows: (1) For the purposes of this Act, if: (a) an individual is an attributable stakeholder of a company or trust at a particular time on or after 1 January 2002; and (b) at that time, the company or trust owns a particular asset (whether alone or jointly or in common with another entity or entities); and (c) if, at that time, that asset had been owned by the individual instead of by the company or trust, the value of the asset would not be required to be disregarded by any express provision of this Act; and (d) at that time, the asset is not an excluded asset (see subsection (2)); there is to be included in the value of the individual's assets an amount equal to the individual's asset attribution percentage of the value of the asset referred to in paragraph (b). 34 Section 1207X of the Social Security Act provides that, if a company is a "controlled private company in relation to an individual", the individual is an "attributable stakeholder of the company" unless the Secretary otherwise determines in the exercise of discretion: see s 1207X(1)(a), Social Security Act. In turn, a company is a "controlled private company in relation to an individual" if the company is a "designated private company" (as defined in s 1207N) and the individual passes the "control test" under s 1207(2) or the "source test" in s 1207Q(3): see s 1207Q(1). The control test turns upon such matters as the aggregate direct voting interests held in the company by the individual and her or his associates, while the source test turns upon whether property or services were transferred by the individual to the company before 9 May 2000 for no consideration or for consideration less than an "arms length" amount. 35 In effect, therefore, s 1208E(1) requires that 'the corporate veil' be 'lifted' where certain criteria are met so as to give primacy to substance over form in terms of valuing the individual's asset position for the purposes of the Asset Test. However, for reasons that will be apparent, it is important to stress that the application of s 1208E(1) is potentially affected by a number of statutory discretions in addition to that conferred by s 1207X(1)(a) which are, relevantly, as follows. (1) First, s 1208E(2) confers a discretion upon the decision-maker to determine that a specified asset is excluded from the operation of subs (1), namely: (2) The Secretary may, by writing, determine that, for the purposes of the application of subsection (1) to a specified individual and a particular company or trust, a specified asset is an excluded asset. (3) A determination under subsection (2) has effect accordingly. (2) Secondly, s 1208H concerning the effect of unsecured loans on the value of company assets provides that: (1) For the purposes of the application of this Division [i.e. Division 8 of Part 3.18] to a particular individual and a particular company or trust, if: (a) the company or trust is the borrower under a loan; and (b) the loan is not secured by a charge or encumbrance over one or more of the assets of the company or trust; the Secretary may, by writing, determine that the value of a specified asset of the company or trust is to be reduced by the whole, or a specified part, of the amount of the loan. (2) A determination under subsection (1) has effect accordingly. (3) Thirdly, s 1129 provides that where certain criteria are met, the value of an unrealisable asset of the person and the person's partner may be disregarded: see further at [62]-[67] below. 36 As to the first of these provisions, notwithstanding the mandatory language of s 1208E(1) ("is to be included"), one of the criteria under s 1208E(1) is that the asset is not an "excluded asset". Section 1208E(2) in turn confers a discretion on the decision-maker to determine that an asset is an excluded asset and in this way introduces a discretion into s 1208E(1). Not only does this construction accord with the ordinary meaning of the word "may" in s 1208E(2), but it is also strongly supported by the lack of any express statutory criteria by reference to which a determination under subs (2) must be made. The provision requires only that in making the determination, the Secretary must comply with "any relevant decision-making principles". In turn, the ordinary meaning of the phrase "decision-making principle" is a "principle" concerned with how decisions are made, including the factors that may or must be considered, as opposed to prescribing an outcome: see further below at [41]-[42]. 37 The purpose of s 1208E(2) can be discerned from its interaction with s 1208E(1). Where applicable, s 1208E(1) operates to increase the value of a pensioner's assets for the purposes of applying the Asset Test with the consequence that the rate of pension payable to the pensioner may be reduced or alternatively that no pension is payable at all. That being so, it is apparent that s 1208E(2) provides a means whereby a decision-maker may ensure that s 1208E(1) does not operate unfairly in a particular case, consistently with the beneficial purpose of the legislation as a whole in providing pensions for those in need relative to their needs but not otherwise. That purpose is best served by construing s 1208E(2) as conferring a broad discretion on the decision-maker to deal with the many and varied circumstances of particular individuals. Section 1208H can be seen to serve a similar purpose with respect to the discretion to reduce the value of a specified asset of a company by the amount (in whole or in part) of a loan to the company. 38 This purpose is confirmed by the extrinsic materials. As the Explanatory Memorandum explains, Part 3.18 was inserted by item 23 in Sch 1 of the 2000 Amending Act so as to ensure that social security customers who held their assets in private companies or private trusts received comparable treatment under the means test to those customers who held their assets directly: Explanatory Memorandum to the Social Security and Veterans' Entitlements Legislation Amendment (Private Trusts and Private Companies - Integrity of Means Testing) Bill 2000. Similarly, the Second Reading Speech to that Act explained that: Under current social security and veterans' affairs legislation, assets held in private trusts and private companies generally cannot be assessed under the social security means test. This means that individuals can use private trusts or private companies to hold and control assets outside the bounds of the current means test. People who arrange their affairs this way are therefore often treated more favourably under the means test than a person holding similar levels of assets directly. Thus well-off or even quite wealthy people can receive income support payments. This isn't how the community expects the income support system to operate. It is also at odds with the principle that people with similar levels of private resources should receive similar levels of payment. This measure is about providing a level playing field for all social security customers, no matter how they choose to hold their assets or income. (Commonwealth of Australia, House of Representatives, Parliamentary Debates (Hansard), 17 August 2000, 19225-19226). 39 This construction accords with that adopted in Kimpton which considered the nature of the power conferred by s 52ZZR in Division 11A of the Veterans' Entitlements Act 1986 (Cth). That Division was also enacted by the 2000 Amending Act and was intended to serve the same purpose as Part 3.18 of the Social Security Act. With respect to s 52ZZR, which is in the same terms as s 1208E of the Social Security Act, French J (as his Honour then was) held that: 46. The novelty and generality of the provisions of Div 11A raise the possibility of unfair and unintended consequences in the application of its provisions to people claiming or in receipt of service pensions. The power under s 52ZZR(2) to determine that assets, otherwise attributable to an individual, should be excluded assets is provided to avoid such cases. Its generality makes that purpose apparent. That purpose is also reflected in the passage quoted by the Tribunal from the Explanatory Memorandum which refers to the object of the relieving provisions in the amending Act as '… to ensure that people are not treated unfairly or affected unintentionally as a result of this measure'. 47. The power conferred by s 52ZZR(2) allows for flexibility of response to the great variety of circumstances that may present for decision by the Commission. At the same time the exercise of the power should be consistent across similar cases. The ability of the Commission to promulgate decision-making principles with which it must comply in the exercise of its discretion enables the development of consistent approaches to like cases. As the experience of the Commission in the application of s 52ZZR grows, classes of similar cases requiring similar treatment will no doubt emerge. Efficient and consistent decision-making in such cases will be assisted by the promulgation of decision-making principles. It cannot however, by making such principles, fetter its discretion so as to limit it to a particular class of case. That would amount to a confinement of the broad power which the Parliament has conferred. The authority to make decision-making principles, which are a species of delegated legislation, does not sanction limitation by the Commission of the range of cases which it may consider for the purpose of determining whether otherwise attributable assets are to be excluded. 40 The generality or breadth of the discretion in s 1208E(2) means, in my view, that it may overlap with other discretions such as those contained in s 1208H and s 1129 and enable a decision to be made to exclude an asset from the calculation of an individual's asset value even where the criteria for the exercise of other discretions under the Social Security Act are not met. In other words, consistently with the construction of s 1208E adopted in Kimpton, I do not consider that the presence of other more closely confined discretions elsewhere in the Social Security Act was intended to cut down the width of the discretion conferred by s 1208E(2).

5.3 Decision-making principles 41 In making a determination under s 1208E(2) or s 2108H(1), the Secretary must comply with any "relevant decision-making principles": see s 1208E(4) and 2108H(3). The relevant decision-making principles are found in the 2001 Principles. 42 First, Part 2 of the 2001 Principles contains the decision-making principles with which the Secretary must comply for the purposes of making a determination under s 1208E of the Social Security Act. The only substantive principle in Part 2 is set out in paragraph 6. This paragraph provides in effect that, where an individual who is not an attributable stakeholder of a particular company, has made a genuine transfer of capital to the company or trust, the Secretary must consider the extent to which part of this capacity should be an excluded asset in relation to the attributable stakeholders. However, in line with the observations by French J in Kimpton, the fact that this is the only issue to which a decision-maker must have regard that is prescribed by the Principles for the purposes of s 1208E(2) cannot limit the breadth of the discretion under that provision to cases where this issue arises. 43 Secondly, Part 4 of the 2001 Principles sets out the decision-making principles with which the decision-maker must comply when making a determination under s 1208H(1) of the Social Security Act. Paragraph 12 of Part 4 provides: In relation to an unsecured loan, the Secretary must take into account: (a) whether a transaction that gave rise to the loan was an arm's length transaction, having regard to the criteria described in section 13; and (b) the matters referred to in section 14. 44 The criteria for an arm's length transaction for the purposes of paragraph 12(a) are set out in paragraph 13 of the Principles. Paragraph 14 of Part 4, in turn, provides: For paragraph 12(b), the Secretary must also take into account, in relation to the transaction that gave rise to the charge or encumbrance: (a) whether the individual is the sole attributable stakeholder, or a member of a couple both members of which are the only 2 attributable stakeholders of the company or trust; and (b) whether the loan is secured by a charge or encumbrance over an asset other than an asset described in paragraph 1208H(1)(b) of the Act; and (c) the commercial, social and familial relationships (if any) between the parties to the transaction; and (d) the nature and circumstances of the transaction.

WHEN IS A DECISION LEGALLY UNREASONABLE? 45 Legal reasonableness or an absence of legal unreasonableness is an essential element of lawfulness in decision-making, it being implied that Parliament intended that a discretionary power conferred by statute must be exercised reasonably: Minister for Immigration and Citizenship v Li [2013] HCA 18; (2013) 249 CLR 332 (Li) at [26], [29] (French CJ), 362 [63] (Hayne, Kiefel and Bell JJ) and [88] (Gageler J). In determining whether an administrative decision is vitiated by legal unreasonableness, it is essential first to bear in mind that the Court's jurisdiction is strictly supervisory: Li at [66]. As the Full Court emphasised in Minister for Immigration and Border Protection v Eden [2016] FCAFC 28; (2016) 240 FCR 158 (Eden) at [59]: It does not involve the Court reviewing the merits of the decision under the guise of an evaluation of the decision's reasonableness, or the Court substituting its own view as to how the decision should be exercised for that of the decision-maker… Nor does it involve the Court remaking the decision according to its own view of reasonableness… (citations omitted) 46 Secondly, there are two contexts in which the concept of legal unreasonableness may be employed, namely: (1) legal unreasonableness can be a conclusion reached by a supervising court after a jurisdictional error has been identified; (2) legal unreasonableness can also be "outcome focused" without necessarily identifying jurisdictional error. (Minister for Immigration and Border Protection v Singh [2014] FCAFC 1; (2014) 231 FCR 437 (Singh) at [44]) 47 Thirdly, in either context, an evaluation of whether an administrative decision is legally unreasonable and therefore outside the range of possible lawful possible outcomes must be made having regard to the terms, scope and policy of the statutory source of the power: see Minister for Immigration and Border Protection v Stretton [2016] FCAFC 11; (2016) 237 FCR 1 (Stretton) at [11] (Allsop CJ, with whose reasons Wigney J agreed at [90])). As the Full Court also explained in Eden: 63. … The task of determining whether a decision is legally reasonable or unreasonable involves the evaluation of the nature and quality of the decision by reference to the subject matter, scope and purpose of the relevant statutory power, together with the attendant principles and values of the common law concerning reasonableness in decision-making: Stretton at [7] and [11] (Allsop CJ). The evaluation is also likely to be fact dependant and to require careful attention to the evidence: Singh at 445[42]. 48 With respect to the values of the common law, Allsop CJ explained in Stretton at [9] that: The terms, scope and policy of the statute and the fundamental values that attend the proper exercise of power - a rejection of unfairness, of unreasonableness and of arbitrariness; equality; and the humanity and dignity of the individual - will inform the conclusion, necessarily to a degree evaluative, as to whether the decision bespeaks an exercise of power beyond its source. 49 Fourthly, in assessing whether a particular outcome is unreasonable, the Court held in Eden at [62] that "…it is necessary to bear in mind that within the boundaries of power there is an area of "decisional freedom" within which a decision-maker has a genuinely free discretion…" and within which reasonable minds may differ as to the correct decision or outcome. 50 Furthermore, where, as here, reasons for the decision are available, the Court in Eden held that: 64. …the reasons are likely to provide the focus for the evaluation of whether the decision is legally unreasonable: Singh at [45]-[47]. Where the reasons provide an evident and intelligible justification for the decision, it is unlikely that the decision could be considered to be legally unreasonable: Singh at [47]. However, an inference or conclusion of legal unreasonableness may be drawn even if no error in the reasons can be identified. In such a case, the court may not be able to comprehend from the reasons how the decision was arrived at, or the justification in the reasons may not be sufficient to outweigh the inference that the decision is otherwise outside the bounds of legal reasonableness or outside the range of possible lawful outcomes: Li at [76] (Hayne, Kiefel and Bell JJ); Stretton at [13] (Allsop CJ). 51 Finally, it is important to bear in mind that legal unreasonableness will overlap with other errors of law including whether or not there has been a failure to have regard to a mandatory relevant consideration. In this regard, it is well established that the question of what factors a decision-maker is bound to consider in making a decision is determined by the construction of the statute conferring the discretion. As Mason J (as his Honour then was) explained in Peko-Wallsend at 39-40: If the statute expressly states the consideration to be taken into account, it will often be necessary for the court to decide whether those enumerated factors are exhaustive or merely inclusive. If the relevant factors - and in this context I use the expression to refer to the factors which the decision-maker is bound to consider - are not expressly stated, they must be determined by implication from the subject matter, scope and purpose of the Act. In the context of judicial review on the ground of taking into account irrelevant considerations, this Court has held that, where a statute confers a discretion which in its terms is unconfined, the factors that may be taken into account in the exercise of the discretion are similarly unconfined, except in so far as there may be found in the subject matter, scope and purpose of the statute some implied limitation on the factors to which the decision-maker may legitimately have regard…

7.1 The Tribunal's consideration of the 'double counting' issue 52 The Tribunal's consideration of the 'double counting' issue in its second decision had two limbs, namely: (1) the value of the loans made by the applicant and his wife to Hanbury and Hasso as assets belonging to the applicant and his wife in their capacity as lenders; and (2) in the event that the loans counted as assets of the applicant and his wife, whether the loans to Hanbury should go to reduce the value of the Hanbury asset, as the applicant submitted. 53 With respect to the first limb, the Tribunal noted that the only information provided to it regarding the loans from the applicant and his wife to Hanbury was contained in a letter dated 25 April 2015 to Centrelink which stated: Now, take careful note: THERE ARE NO OFFICIAL LENDING BY MR BORNECRANTZ If Centrelink want to waste more time on wrong calculations, that would be an important item to consider! (emphasis in the original.) 54 The Tribunal nonetheless found that: 15. Exactly what message this brief statement conveys is unclear but while it may be the case that there was no "official lending" that is of no consequence to the legal position which clearly is that whether it was official or not, there were loans in place which were made by the Applicant and Mrs Bornecrantz in circumstances where those loans are each assets belonging to the lenders and which have a value equal to the outstanding principal unless contrary evidence is provided. 16. In the absence of such contrary evidence, these loans are assets that count in accordance with part 3.18 of the Social Security Act. 55 The Tribunal then found that "no tangible evidence has been provided at any time to suggest that the value of the loans have in fact diminished to any extent" (Bornecrantz (No. 2) at [21]). As such, the Tribunal concluded on the first limb of issue 1 that: 22. …On the basis of the lack of any tangible evidence, it is clear that the loans to Hanbury and Hasso remained extant and the fact that the Applicant and Mrs Bornecrantz are the lenders referred to appears to be uncontradicted. Further, there is no evidence that the loans are in any way impaired in any meaningful way such that they could not be recovered to the full extent of the outstanding amounts. (emphasis added) 56 As to the second limb of issue one, the Tribunal found that: 25. This matter was comprehensively dealt with [in Bornecrantz (No.1)] where it was concluded that Mrs Bornecrantz's loan to Hanbury in particular was not an arms-length transaction and having regard to the relevant statutory provisions and the formulation of the relevant principles it was concluded that the Tribunal could not be satisfied the loans should be taken into account in reducing the value of Hanbury's assets. 57 After referring to the "extreme caution" to be exercised before the Tribunal should reconsider a matter already decided (at [26]) and finding that it would be inappropriate and undesirable for the Tribunal to do so here, the Tribunal concluded that: 28. Accordingly, having regard to the fact that the previous decision was concluded on the basis that the loans in question were not arm's length, the loans cannot operate to reduce the value of the Hanbury assets by virtue of the operation of the existing law. (emphasis added)

7.2 Was the Tribunal's decision unreasonable? 58 In my view, the outcome of the second Tribunal decision was legally unreasonable and therefore the decision is invalid. In the alternative, the decision is unreasonable by reason of the failure by the Tribunal to take into account a relevant consideration being the result ('double-counting') that would ensue if s 1208B(1) were applied so as to attribute 90% of Hanbury's assets to the combined asset value of the applicant and his wife together with the debt owed to them by Hanbury, without taking into account Hanbury's liability to repay the loan. 59 First, as earlier explained, in determining the combined asset value of the applicant and his wife for the purposes of the Asset Test, the Tribunal included the value of the debts owed by Hanbury to Mrs Bornecrantz and 90% of the value of Hanbury's assets without taking account of Hanbury's liability to repay the loan because the loan was not arms length. However, in attributing the value of the debt to the applicant's and his wife's combined asset value, the Tribunal found that Hanbury had a liability to repay the loan and that there was no evidence that any part of the loan had been paid down. It made no sense then, with respect, for the Tribunal to proceed on the basis that no such liability existed on the other side of the equation in attributing 90% of the value of Hanbury's assets to the applicant and his wife's combined asset value. 60 Secondly, the effect of this disparity in the Tribunal's approach was to inflate artificially the value of the applicant's and his wife's combined assets for the purposes of the Assets Test. To illustrate the point in simple terms, if correct, that line of reasoning would mean that a couple holding $100,000 in a bank account would be assessed as having a combined asset value of $100,000 for the purposes of the Assets Test. However, if the couple lent $100,000 to their private controlled company, their combined assets would be liable to be assessed to the value of $200,000, being the value of the debt owed to them by the company and the value of the company's assets because the company's liability to repay the debt which had been accepted on one side of the equation was ignored on the other. 61 Thirdly, that result runs counter to the purpose of Division 3.18 to ensure that those with similar levels of private resources receive a similar pension rate, that is, to create a 'level playing field', thereby ensuring that pensions are provided for those in need in accordance with their needs: see above at [38]-[39]. That purpose is intended to give effect to substance over form in calculating an individual's asset worth, as I have earlier explained. However, it is no part of that purpose to disadvantage or penalise those holding their assets indirectly as opposed to directly. Yet as explained at [60] above, that is the effect of the Tribunal's decision in this case, notwithstanding the existence of statutory mechanisms in the Social Security Act designed to avoid such results, including ss 1208E(2) and 1208H. With respect, the end result, therefore, of the Tribunal's decision is an unfair and arbitrary one, whether considered in the context of the Social Security Act or by reference to the fundamental values that attend the proper exercise of power: see above at [47]-[48]. 62 Fourthly, the Secretary submits that any unfairness or hardship that results from the application of s 1208B(1) of the Social Security Act could be cured by the person lodging a request for s 1129 to apply to her or him. Quite apart from the fact that this submission ignores the elaborate scheme of discretions at each stage of the decision-making process, the Secretary's submission with respect misapprehends the operation of s 1129 and 1130 in the context of Part 3.18 of the Social Security Act. 63 Section 1130 provides that if s 1129 applies to a person, the value of any unrealisable asset of the person and the person's partner "is to be disregarded in working out the person's social security pension rate." Section 1129 provides that the Secretary must determine that s 1129 applies to a person where certain preconditions are met, relevantly that: (a) either: (i) a social security pension is not payable to a person because of the application of an assets test; …and (b) either: (i) sections 1108 and 1109 (disposal of income) and 1124A, 1125, 1125A, 1126, 1126AA, 1126AB, 1126AC, 1126AD and 1126E (so far as section 1126E relates to sections 1126AA, 1126AB, 1126AC and 1126AD) (disposal of assets) do not apply to the person; or (ii) the Secretary determines that the application of those sections to the person should, for the purposes of this section, be disregarded; and (c) the person, or the person's partner, has an unrealisable asset; and (d) the person lodges with the Department, in a form approved by the Secretary, a request that this section apply to the person; and (e) the Secretary is satisfied that the person would suffer severe financial hardship if this section did not apply to the person; 64 "Unrealisable asset" is defined in s 11(12) and (13) of the Social Security Act as follows: (12) An asset of a person is an unrealisable asset if: (a) the person cannot sell or realise the asset; and (b) the person cannot use the asset as a security for borrowing. (13) For the purposes of the application of this Act to a social security pension (other than a pension PP (single)), an asset of a person is also an unrealisable asset if: (a) the person could not reasonably be expected to sell or realise the asset; and (b) the person could not reasonably be expected to use the asset as a security for borrowing. 65 In the Secretary's submission the loans, if genuine, would be unrealisable assets. As counsel for the Secretary submitted at the hearing: So that if ultimately all of the information was provided - say, the loans - let's take the true double counting situation. So a person has an unwritten loan but that loan, once the circumstances are investigated, is a genuine loan. There's no other resources. It's against a company. The company's assets match the loan and they've been double counted, then that loan is unrealisable because, as against those assets, it's already in the person's hand. It can't realise - the person can't realise that asset against themselves because they've already been attributed with it. 66 However, with respect, that submission overlooks the operation of s 1208F. That section provides that: (1) For the purposes of this Act, if: (a) an individual is an attributable stakeholder of a company or trust at a particular time on or after 1 January 2002; and (b) at that time, the company or trust owns a particular asset (whether alone or jointly or in common with another entity or entities); and (c) under section 1208E, there is included in the value of the individual's assets an amount equal to the individual's asset attribution percentage of the value of the asset held by the company or trust; the amount referred to in paragraph (c) is taken not to be an unrealisable asset of the individual unless the asset referred to in paragraph (b) is an unrealisable asset of the company or trust. … (3) For the purposes of this section, in determining whether an asset is an unrealisable asset of a company or trust, subsections 11(12) and (13) have effect as if each reference in those subsections to a person included a reference to a company or trust. 67 In other words, an attributed asset under s 1208E will be unrealisable only where it is unrealisable by both the individual to whom the company asset is attributed and the company. Contrary to the respondent's submission therefore, the discretion under s 1129 is not engaged in the context of attributed assets under Part 3.18 merely because the asset cannot be realised by the individual concerned. It follows that s 1129 would not necessarily provide a means of responding to cases of 'double counting' resulting from the application of s 1208E(1). 68 In the fifth place, the lack of evidence about the loans in Bornecrantz (AAT) (No. 2) was relevant in that the Tribunal found that there was no material on the basis of which it could find that those loans had been paid down or paid off, or to suggest that they may not be recoverable in full, for the purposes of including the full value of the loans in the applicant's and his wife's combined asset value. Contrary to the Secretary's submissions, however, there is nothing to suggest that the second Tribunal took into account any lack of evidence in finding, on the other side of the equation at [28], that the loans "cannot operate to reduce the value of the Hanbury assets." That conclusion was said to follow "by virtue of the operation of the existing law" because the loans were not arms-length (the second Tribunal having decided not to revisit the finding made in Bornecrantz (AAT) (No. 1)) that the loans were not arms length). 69 In any event, were it necessary to decide, I would find in any event that the presence in particular of s 1208E(2) and s 1208H and their purpose as earlier explained provide a basis on which it can be inferred that the outcome of applying s 1208E(1) in the particular case is a relevant consideration in a jurisdictional sense, that is, whether the application of s 1208E(1) would lead to an anomalous, unfair, or unintended outcome. In this sense, the Tribunal was required to consider the "double counting" issue raised by the appellant, as he submitted. Indeed, the Tribunal must consider whether an asset is an excluded asset under s 1208E as an essential precondition to the application of s 1208E(1) and therefore must consider whether the case is an appropriate one for the exercise of the discretion in s 1208E(2) to exclude any asset informed by the scope and purpose of the Social Security Act. Yet in this case, the Tribunal's reasoning at [34] wrongly denied the existence of any discretion. 70 Finally, given that this case is one in which I have found that the outcome of the decision is unreasonable, it cannot be an answer that in Bornecrantz (AAT) (No. 2), the Tribunal declined in the exercise of discretion to revisit its earlier decision (quite apart from the Secretary's concession that the second Tribunal at [28] management misstated the effect of Bornecrantz (AAT) (No. 1)). The Tribunal has power to protect its processes against the 're-litigation' of issues and should act, as the Tribunal said at [26], with caution before reconsidering a matter which has already been decided by an earlier Tribunal: see also e.g. Novosel v Comcare [2017] FCA 722 at [104]-[108] as to the circumstances in which such conduct may amount to an abuse of process. Nonetheless such considerations cannot absolve the Tribunal from revisiting an issue already decided where the result of applying the earlier decision is to lead to a decision that is legally unreasonable. As such, this is a case where the justification for the decision in the reasons is not sufficient to outweigh the inference that the decision is outside the bounds of legal reasonableness: see above at [50]. Nor, in any event, was this a simple case of re-litigating an earlier decision. The first Tribunal had decided to reduce the applicant's pension rate, whereas the issue before the second Tribunal was to review a decision by the SSAT affirming a decision to cancel the applicant's pension.

CONCLUSION 71 For these reasons, the appeal under s 44 of the AAT Act should be allowed with costs, the decision of the Tribunal in Bornecrantz (AAT) (No. 2) set aside, and the matter remitted to the Tribunal to be heard and determined according to law. I certify that the preceding seventy-one (71) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Perry.

Social Security and Veterans' Entitlements Legislation Amendment (Private Trusts and Private Companies - Integrity of Means Testing) Act 2000(Cth)

At a glance

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Before

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Judgment (20 paragraphs)

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Legislation Cited (5)

Cases Cited (19)