Donovan v Secretary, Department of Family and Community Services

REASONS FOR JUDGMENT 1 The applicants appeal from a decision of the Administrative Appeals Tribunal ("the Tribunal") under s 44(1) of the Administrative Appeals Tribunal Act 1975 (Cth) ("the AAT Act"). They base their application on the assertion that policies of life insurance are not a recognised species of property in our legal system unless and until the contingency occurs on which payment is to be made under such policies. 2 The issue arises in this way. Under Part 3.2 of the Social Security Act 1991 (Cth) ("the Act") the rate of aged pension payable to a person can be reduced because of the value of that person's assets (other than of what are described in s 1118 to be "exempt assets"). 3 The first applicant, Michael Donovan, holds two life insurance policies, one with the APS Benevolent Society, the other with the Mutual Life and Citizens Assurance Co Ltd ("MLC"). Additionally each of Mr Donovan and his wife, the second applicant, held $5,000 funeral plans which were exempt assets for aged pension computation purposes. 4 Mr and Mrs Donovan have been in receipt of age pensions since 1997. Mr Donovan's two insurance policies were initially valued at $9,588 (APS) and $17,998 (MLC) respectively. On 7 December a delegate of the respondent Minister determined that the surrender values of the policies provided their asset values for the purposes of assessing their rates of age pension. Those values were $3,326 (APS) and $67,706 (MLC). This effected a reduction in the rates of pension received by the Donovans. 5 The delegate's determination underwent review, first, within the Department, then, with the Social Security Appeals Tribunal and, ultimately, with the Tribunal. The determination was confirmed (though the values were varied by the Tribunal to reflect their then current surrender values of $3,326 and $58,683.20). 6 Section 11(1) of the Act defines "assets" for the purposes of the Act to mean "property (including property outside of Australia)". As the first step in its decision, the Tribunal found that Mr Donovan held the two life insurance policies; that they had the surrender values noted above; and that both "policies fall within the scope of the broad definition of "asset" in s 11(1) of the Act". That conclusion is challenged in this proceeding by Mr Donovan. He contends his policies are not property because the benefit they secure (ie payment on death) has not been received. They do not become property until that benefit is received. He sought to reinforce this view by reference to s 204 of the Life Insurance Act 1995 (Cth) which excludes the interests of the insured under a life policy from property available for execution under a court order etc to discharge a debt owed by the insured. 7 I would note in passing that s 207 of the same Act makes provision for the surrender of a life policy to its owner and it gives the owner of such policy the right to request its surrender (subject to a not presently relevant limitation). 8 Its is understandable that Mr Donovan takes the particular "materialistic" view of property that he does. Unfortunately that view does not accord with the law's conception of property. Professor Kevin Gray has rightly observed of the word "property" that it is in large part "a category of illusory reference": Gray, "Property in Thin Air" [1991] Camb LJ 252 at 305; a "conceptual mirage": Gray and Gray, Elements of Land Law, 93 (3rd ed, 2001). The description " 'property' does not refer to a thing": Tanner v Eaton (1999) 166 ALR 258 at 264. 9 It has long been accepted in our legal system that personal property can be constituted by a physical thing which its owner can enjoy by taking possession of it. But it can also be constituted by a right or bundle of rights which have no physical manifestation and of which the enjoyment can, ultimately, only be secured by legal action taken by the possessor of those rights. These latter are "choses in action" which are in turn classified as legal or equitable choses depending upon whether the right in question is legal or equitable. So for example, it is said in Halsbury's Laws of England, vol 6, "Choses in Action" para 6: "Legal choses in action are those which formerly could be recovered or enforced by action at law, as for instance a debt, a bill of exchange, or a claim on a policy of insurance, or which are created by statute and can be legally owned." 10 The proprietary character of life insurance policies is, in my view, not open to doubt. Both in equity and under the Life Insurance Act 1995 s 200, they can be assigned: see also In re Crothers; Crothers v Crothers [1930] VLR 49; they can be mortgaged: s 201; and can be the subject matter of a trust: s 201. 11 Mr Donovan has represented himself and his wife. His misapprehensions about property are understandable. But his contention is untenable. The decision of the Tribunal that the life policies were property and therefore assets is unimpeachable. 12 For the sake of completeness there is an additional matter to which I should refer. Having found the policies to be assets, the Tribunal went on to consider whether they were "exempt assets" under s 1118(1) of the Act such that they should be disregarded when calculating the rate of pension payable to Mr and Mrs Donovan. The relevant possible exemption was that they were each an "exempt funeral investment": s 1118(1)(ma); a term defined in the Act: s 23. I will not set out the relevant provisions here. 13 The Tribunal concluded that they were not such an investment. Though Mr Donovan has not challenged that finding expressly, I have nonetheless reviewed this matter. I agree with the respondent's submissions that on the facts as found there was no other conclusion open to the Tribunal under the Act. 14 I will order that the application be dismissed. I certify that the preceding fourteen (14) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Finn J.