Jacob and Secretary, Department of Education, Employment and Workplace Relations [2010] AATA 98 (11 February 2010)

DECISION AND REASONS FOR DECISION [2010] AATA 98

SECRETARY, DEPARTMENT OF EDUCATION, EMLOYMENT AND WORKPLACE RELATIONS

SOCIAL SECURITY - pensions, benefits and allowances - cancellation of Parenting Payment (Single) - assets value limit - calculation of value of assets - encumbrance or charge over a disregarded asset - whether encumbrance can be offset against the total value of assets if it is security for a loan not used to fund the disregarded asset - overpayment of Parenting Payment (Single) - waiver of debt - decision affirmed

Social Security Act 1991 ss 1068A, 1118(1), 1121, 1208G, 1223(1), 1236(1A), 1237AAD

Re Archibald Edwin Fawthrop and Repatriation Commission [1993] AATA 359

Re Berry and Secretary, Department of Social Security [1995] AATA 238

Re Worner and Secretary, Department of Employment and Workplace Relations [2006] AATA 560

Re Beadle and Director-General of Social Security (1984) 6 ALD 1

Groth v Secretary, Department of Social Security [1995] FCA 1708; (1995) 40 ALD 541

Angelakis v Secretary, Department of Employment and Workplace Relations [2007] FCA 25

1. Donna Jacob ("applicant") had been receiving Parenting Payment (Single) ("PPS") since 30 January 2003. Due to a change in the holding of assets and the encumbrances relating to them, the respondent ("Centrelink") determined that her assets exceeded the assets value limit. A Centrelink officer identified an overpayment of PPS for the period 22 October 2004 to 30 May 2008 and raised a debt due to the Commonwealth of $20,351.58. The officer also decided to cancel PPS from 31 May 2008. At the request of Ms Jacob, an Authorised Review Officer varied this decision, reduced the overpayment of PPS and reduced the subsequent debt to $17,539.93. The Authorised Review Officer also decided not to cancel the PPS from 31 May 2008.
2. Upon review, the decision was affirmed by the Social Security Appeals Tribunal ("SSAT"). Ms Jacob applied to this Tribunal for review of the decision of the SSAT relating to the overpayment of PPS and the debt of $17,539.93. At the hearing, she represented herself and Mr Christian Visser (from Centrelink Legal Services and Procurement Branch) represented Centrelink. The Tribunal received into evidence the T documents lodged pursuant to s 37 of the Administrative Appeals Tribunal Act 1975 (Exhibit R1), together with the following:
   • SSAT documents (Exhibit R2); and
   • Centrelink real estate details questionnaire (Exhibit R3).

Ms Jacob called Ms Katrina Ladbrook as a witness. Mr Visser called Ms Lisa Buchanan (Complex Assessment Officer) and Ms Karoline Lister (Authorised Review Officer) from Centrelink as witnesses.

(a) Has the value of the applicant's assets been correctly determined for the period 22 October 2004 to 30 May 2008?

(b) Should the applicant's PPS have been cancelled on 31 May 2008?

(c) Has there been an overpayment of PPS and, if so, has the amount overpaid been correctly calculated and is a debt due to the Commonwealth?

(d) Should any part of the debt be waived or written-off?

1. The legislation that relevantly applies in the present case is contained in the Social Security Act 1991 ("Act"). The rate of PPS to which a person is entitled is calculated in accordance with s 1068A of the Act. A PPS recipient is subject to an assets test. The assessable assets limits differ depending on whether the recipient is a homeowner or a non-homeowner.
2. The main provisions of the Act that apply in Ms Jacob's case appear in ss 1118(1) and 1121 of the Act. There are other relevant provisions of the Act and these appear later in these reasons. Sections 1118(1) and 1121 relevantly read:

"1118 Certain assets to be disregarded in calculating the value of a person's assets

(1) In calculating the value of a person's assets for the purposes of this Act (other than sections 198F to 198MA (inclusive), Division 1B of Part 3.10, Division 2 and sections 1133 and 1135A), disregard the following:

(a) if the person is not a member of a couple - the value of any right or interest of the person in the person's principal home that is a right or interest that gives the person reasonable security of tenure in the home;

...

1121 Effect of charge or encumbrance on value of assets

(1) If there is a charge or encumbrance over a particular asset of the person, the value of the asset, for the purposes of calculating the value of the person's assets for the purposes of this Act (other than Division 1B of Part 3.10), is to be reduced by the value of that charge or encumbrance.

Note: this section does not apply to an asset to which section 1121A (primary production assets) applies.

(2) Subsection (1) does not apply to a charge or encumbrance over an asset of a person to the extent that:

1. The facts of this case are not in dispute and, for the most part, appear in the reasons for decision of the SSAT. Ms Jacob was employed as a sole trader and also had earnings from rental properties. The rate of her PPS took into account her assets and her income from these sources. At the time she was granted PPS she had two rental properties:
   • 6/286 Seaview Road, Henley Beach, South Australia; and
   • 30 Jamison Street, Kingswood, New South Wales.
2. On 4 February 2003, she had completed a real estate details questionnaire (Exhibit R3) declaring that she was "100 percent owner" of the Seaview Road property. It subsequently transpired that she owned 50 percent of the Seaview Road property herself and held the remaining 50 percent on trust for her brother. On 22 October 2004, she moved to 42 Newland Avenue, Marino, South Australia and was paying rent of $150 a week to the landlord, Mr Daniel Hynes. It further transpired that the Marino property had been purchased on 19 October 2004, 50 percent of the property was owned by Mr Hynes and the remaining 50 percent was held by Mr Hynes on trust for Ms Jacob. This ownership arrangement of the Marino property was evidenced in a "Land Ownership Agreement" between Ms Jacob and Mr Hynes dated 7 December 2005 (Exhibit R1, T4 at pages 45-52). Mr Hynes borrowed $300,000 to purchase the Marino property and provided his property, at 2 Bode Street, Henley Beach, South Australia, as part security for the loan. In the Land Ownership Agreement Ms Jacob acknowledged that she:

"... is occupying and will pay rent for the property as currently agreed and the parties will contribute those moneys to the mortgage and pay any monthly mortgage balance thereafter equally. In all other respects save this arrangement the parties will pay all mortgage payments equally".

1. On 18 August 2006, Ms Katrina Ladbrook purchased the property at 4/8 Water Street, Semaphore, South Australia. Under the terms of a further Land Ownership Agreement between Ms Ladbrook and Ms Jacob dated 5 December 2005 (Exhibit R1, T4 pages 54-60) the parties purchased the property "in common". However, Ms Ladbrook was to be the sole registered proprietor holding 50 percent of the property in her name and the remaining 50 percent on trust for Ms Jacob. Ms Ladbrook borrowed $150,000 to purchase the property, providing her property at 20 Jervois Terrace, Marino, South Australia as security to obtain the loan. On 11 December 2006, Ms Jacob purchased a property at 5/8 Water Street, Semaphore, South Australia jointly with Ms Ladbrook, and with a bank loan of $160,000. This loan was secured against the value of the properties at 4/8 Water Street, Semaphore and 5/8 Water Street, Semaphore. On 2 April 2007, Ms Jacob and Ms Ladbrook jointly purchased 6/8 Water Street, Semaphore, South Australia with a bank loan of $94,300, secured against the property. On 31 July 2007, the property at 4/8 Water Street, Semaphore was sold.

1. It was Ms Jacob's evidence that, in relation to 42 Newland Avenue, Marino and 4/8 Water Street, Semaphore, she had not considered the ownership of the properties involved trust relationships. She said:

"I didn't believe I was a beneficiary of a trust. I purchased property with people. I got a legal agreement drawn up to protect my interests. In that legal agree was the use of the word "trust" but I didn't believe I was a beneficiary of a trust. I believed I was a half owner of a property that wasn't in my name." [Transcript, page 15]

Ms Jacob said that the Newland Avenue property had been purchased on 19 October 2004, but the Land Ownership Agreement relating to the property had not been signed until 7 December 2005 because Mr Hynes had delayed its signing. Ms Jacob was referred to the Land Ownership Agreement relating to the 4/8 Water Street, Semaphore property which the SSAT stated was purchased on 18 August 2006. She said that this date was wrong and the property would have been purchased around December 2005. In relation to the property at 5/8 Water Street, Semaphore, this had been purchased with Ms Ladbrook as tenants-in-common. The same applied with the purchase of the property at 6/8 Water Street, Semaphore. This latter purchase took place at approximately the same time the property at 4/8 Water Street, Semaphore had been sold.

1. Ms Jacob said that, under each Land Ownership Agreement, she was liable for one half of the mortgage debt and was entitled to a one half share of the Newland Avenue property and the 4/8 Water Street property. In relation to the Newland Avenue property, her share of the loan debt was $150,000. In relation to the 4/8 Water Street property, her share of the debt was $75,000. In the circumstances, she believed she should be entitled to offset her share of the mortgage debt for each of the properties against the value of her interests in the properties.
2. In cross-examination, Ms Jacob said that she had paid a half share of the stamp duty payable on the purchase of the Newland Avenue property with Mr Hynes. The same applied in relation to payment of the half share of the stamp duty payable on the purchase of the 4/8 Water Street property with Ms Ladbrook.

1. It was Ms Ladbrook's evidence that she had purchased the property at 4/8 Water Street, Semaphore in 2006, but she was unable to recall the exact date. She was unable to say whether it had been December 2005, rather than August 2006. She confirmed that the purchase of the property at 5/8 Water Street, Semaphore, had been with Ms Jacob as tenants-in-common. She acknowledged that this ownership was different to the property at 4/8 Water Street, where she had an agreement with Ms Jacob that they would "go halves in the property and that the half of the asset would be hers and half of the debts would be hers".

1. In examination by Mr Visser, Ms Buchanan said that the liabilities of a person or a trust would be offset against assets, but only if the liabilities were secured solely against the assets involved. Any liabilities that were secured against other items would have to be apportioned. She said:

"... Basically we apportion it to see how much of the liability can be used to offset the asset that we are looking at and that is done looking at the security for the particular loan or liability and the value of the things that it is secured against. Probably the most common thing is when somebody has a rental property. Most banks will ask them to secure the loan against the rental property and their home property. So we have to use the values of the two properties to work out how much can be offset against each other. If they are of equal value, 50 per cent of each - of the loan gets offset against each and that is important, especially when it is against a home property, because that is exempt from the assessment and the same if it is two rental properties, we just do it based on the value of each property, and apportion on a percentage basis." [Transcript, pages 33-34]

1. In cross-examination, Ms Jacob referred Ms Buchanan to an extract from paragraph 4.6.6.30 of the Social Security Guide which reads:

"If a customer has an unsecured loan AND provides evidence that the loan was specifically obtained to purchase the asset, the outstanding amount of the loan IS deducted from the value of the asset."

When asked by Ms Jacob what she could have done differently to have made an unsecured loan, Ms Buchanan said:

"If there had been a clear loan made to the customer which was, you know, documented but not secured and then you can see the same money transferred to buy the property, then that would be an unsecured loan but that didn't appear to be the case here because the property was bought by Daniel in Daniel's name with a mortgage in his name. There didn't appear to be a loan to ... Donna and her using that to purchase the property. The way they set it up in a trust, we are looking at the trust's liabilities.

...

A trust has been established with the customer's share of the ownership is held in a trust. So we are not looking at the customer's liabilities. We're looking at the liabilities of the trust." [Transcript pages 40-41]

1. In-examination, Mr Visser referred Ms Lister to her notes relating to the applicant's case (Exhibit R2 at pages 38-46). She said that she had determined to reduce the PPS debt to recognise the trust relationship that existed between the applicant and her brother in relation to the property at 6/286 Seaview Road, Henley Beach. In relation to the 42 Newland Avenue, Marino property, Mr Visser asked Ms Lister why Centrelink would not reduce the applicant's net asset amount by the amount she owed under the Land Ownership Agreement. She replied:

"When we are assessing the trust, we are saying that the trust asset is 50 per cent of the property. Then we look and say, well, what is the trust's liabilities. The actual liability is the loan that Mr Hynes took out in relation to the Marino property and he secured that property - that loan against his home and the Marino property and when you have got a loan that is a secured loan, we look an [sic] say what is it encumbered against and we apportionate it against the properties which is what is within our legislation. It is the same as if I had a personally owned home and I wanted to buy a rental property and the bank asks for my home as security, if I sold my rental property, I wouldn't have to pay back the loan necessarily because it's not secured against that, it's secured against my home. So we look at what is the actual security for the loan and the loan is a secured loan against property. It is not an unsecured loan. There is no unsecured loan there." [Transcript page 45]

When questioned further as to why the Land Ownership Agreement was not an encumbrance, her reply was that the agreement was personal and was not actually registered as an encumbrance over the property.

Has the value of the applicant's assets been correctly determined for the period 22 October 2004 to 30 May 2008?

1. During the hearing and in the applicant's Statement of Facts, Issues and Contentions it was contended that, under the Land Ownership Agreements, Ms Jacob is liable for one half of the debts to Mr Hynes and Ms Ladbrook and is entitled to one half of the equity in the 42 Newland Avenue, Marino property ("Marino") and in the 4/8 Water Street, Semaphore property ("Semaphore"). The amounts borrowed to purchase Marino and Semaphore include liabilities of Ms Jacob to Mr Hynes and to Ms Ladbrook. Although Ms Jacob has the benefit of interests in assets held on trust for her, they are in the form of loans and the loans are payable (or repayable) to Mr Hynes and Ms Ladbrook. It was further contended that it is unjust to allow the properties to be counted as assets and not allow the same corresponding liabilities to be brought to account to reduce Ms Jacob's assets for calculation of entitlement to PPS.
2. It is clear that a trust relationship existed in relation to Marino and Semaphore. In simple terms, both Mr Hynes and Ms Ladbrook were the trustees and Ms Jacob was the beneficiary of the trusts. In these circumstances, s 1208G of the Act would apply. It relevantly reads:

"1208G Effect of charge or encumbrance on value of assets

Charge or encumbrance relating to a single asset

(1) For the purposes of the application of this Division (other than this section) to a particular individual and a particular company or trust, if:

(a) there is a charge or encumbrance over a particular asset of the company or trust; and

(b) the charge or encumbrance relates exclusively to that asset;

the value of the asset is to be reduced by the value of the charge or encumbrance.

(2) Subsection (1) does not apply to a charge or encumbrance over an asset of a company or trust to the extent that:

(a) the charge or encumbrance is a collateral security; or

(b) the charge or encumbrance was given for the benefit of an entity other than the company or trust; or

(c) the value of the charge or encumbrance is excluded under subsection (6).

..."

1. As it was understood, Ms Jacob's argument was that the terms of the Loan Ownership Agreements created a charge or encumbrance over the assets comprised in the trusts. Alternatively, the terms of the Loan Ownership Agreements created a charge or encumbrance over the interests Ms Jacob had in Marino and Semaphore. The terms "charge" and "encumbrance" were considered in Re Archibald Edwin Fawthrop and Repatriation Commission [1993] AATA 359. The Tribunal there (comprising Deputy President S A Forgie, Member J D Horrigan and Member E T Keane) said (at paragraphs 23 and 24):

"23. Turning to sub-section 52C(5), we should briefly consider the meaning of the terms 'charge', 'encumbrance' and 'security'. Taking first the word 'charge', we note that an ordinary meaning of it is the liability to pay money but that it may also denote a particular liability to pay money when performance is secured by the creditor's right to receive payment from a specific fund or out of the proceeds of the realisation of specific property (see, for example, the consideration in Davison v Bathurst City Council (1966) 1 NSWLR 61 at 64, Re Price, ex parte Tinning (1931) 26 Tas L R 158 per Nicholls CJ at 160 and Davies v Littlejohn (1923) CLR 174 per Knox CJ at pp 180-182 and 184).

24. The word 'encumbrance' may also have a wider and a narrower meaning in general language as is apparent from the case of Wallace v Love ((1922) [1922] HCA 42; 31 CLR 156 at 164) when it was said:

'The word 'encumbrances', in its ordinary connotation, means that a

person is burdened with debts, obligations or responsibilities. True the

word is in law especially used to indicate a burden on property, a claim,

lien or liability attached to property. ...'"

1. In the Tribunal's view, no charge or encumbrance was created by the Land Ownership Agreements over the assets of the trust or, alternatively, over the interests of Ms Jacob in Marino and Semaphore. However, even if it could be said that a charge or encumbrance was created, either s 1208G(2)(b) or s 1121(2)(b) of the Act would apply. The charge or encumbrance would have been given for the benefit of Ms Jacob, rather than the trusts or rather than Mr Hynes and Ms Ladbrook. The liabilities of Ms Jacob under the Loan Ownership Agreements are not able to reduce the value of Ms Jacob's interests in Marino and Semaphore. It follows that the value of Ms Jacob's assets has been correctly determined for the period 22 October 2004 to 30 May 2008.
2. The finding in the previous paragraph as to the value of Ms Jacob's assets may appear unfair, and the Tribunal has sympathy for her position. However, as was observed by the Tribunals in their decisions in Re Berry and Secretary, Department of Social Security [1995] AATA 238 and Re Worner and Secretary, Department of Employment and Workplace Relations [2006] AATA 560, the relevant terms of the Act are to be read strictly. As was said in Re Worner, "that is the law as it has been prescribed by the Parliament".

Should the applicant's PPS have been cancelled on 31 May 2008?

1. Under s 1118(1)(a) of the Act, in calculating the value of Ms Jacob's assets, the value of any right or interest she has in her principal home that is a right or interest that gives her reasonable security of tenure in the home, is disregarded. On the evidence before the Tribunal, Ms Jacob lived in Marino from 22 October 2004 to 9 February 2007. In these circumstances, the value of Marino should not be treated as an asset during this period. As at 31 May 2008, she was living in rented accommodation and was not considered to be a homeowner for the purposes of assessing her assets. As the value of her assessable assets on 31 May 2008 was less than the assets limit for non-homeowners, she was entitled to PPS. It follows that Ms Jacob's PPS should not have been cancelled on 31 May 2008.

Has there been an overpayment of PPS and, if so, has the amount overpaid been correctly calculated and is a debt due to the Commonwealth?

1. According to the evidence and the decision of the Authorised Review Officer (Exhibit R2 at page 11), in the period 22 October 2004 to 21 September 2007 Ms Jacob received PPS totalling $41,663.20, and she was entitled to receive $23,544.55. The excess payment was thus $18,118.65, but a previous debt of $578.72 for the period 18 April 2006 to 29 December 2006 was raised and recovered, leaving an excess payment of $17,539.93. In the Tribunal's view, this excess payment has been correctly calculated and Ms Jacob does not dispute the calculation.
2. Under s 1223(1) of the Act, the overpayment becomes a recoverable debt Ms Jacob owes to the Commonwealth. The section relevantly reads:

"1223 Debts arising from lack of qualification, overpayment etc.

(1) Subject to this section, if:

(a) a social security payment is made; and

(b) a person who obtains the benefit of the payment was not entitled for any reason to obtain that benefit;

the amount of the payment is a debt due to the Commonwealth by the person and the debt is taken to arise when the person obtains the benefit of the payment."

1. Section 1223(1) applies no matter what the reasons for the overpayment, including overpayments caused by an intentional failure to comply with the law or from an administrative error.

Should any part of the debt be waived or written-off?

1. On the facts of this case, the only provision in the Act under which recovery of the debt may be waived is where there are "special circumstances", under s 1237AAD. This provision reads:

"1237AAD Waiver in special circumstances

The Secretary may waive the right to recover all or part of a debt if the Secretary is satisfied that:

(a) the debt did not result wholly or partly from the debtor or another person knowingly:

(i) making a false statement or a false representation; or

(ii) failing or omitting to comply with a provision of this Act, the Administration Act or the 1947 Act; and

(b) there are special circumstances (other than financial hardship alone) that make it desirable to waive; and

(c) it is more appropriate to waive than to write off the debt or part of the debt."

1. The expression "special circumstances" has been considered on numerous occasions by Courts and Tribunals. In the case of Re Beadle and Director-General of Social Security (1984) 6 ALD 1, the Tribunal said (at page 3):

"...

An expression such as "special circumstances" is by its very nature incapable of precise or exhaustive definition. The qualifying adjective looks to circumstances that are unusual, uncommon or exceptional. Whether circumstances answer any of these descriptions must depend on the context in which they occur. For it is the context which allows one to say that the circumstances in one case are markedly different from the usual run of cases. This is not to say that the circumstances must be unique but they must have a particular quality of unusualness that permits them to be described as special.

..." (emphasis added)

1. In Groth v Secretary, Department of Social Security [1995] FCA 1708; (1995) 40 ALD 541, Kiefel J, after referring to the Federal Court's decision in Re Beadle, observed that special circumstances:

"... would require something to distinguish Mr Groth's case from others, to take it out of the usual or ordinary case. ... It would of course follow that if one were to conclude that something unfair, unintended or unjust had occurred that there must be some feature out of the ordinary. ..."

In Angelakis v Secretary, Department of Employment and Workplace Relations [2007] FCA 25, Besanko J considered that, in stating the "special circumstances" test, the danger is that the word "exceptional" is emphasised. At paragraph 33 of his decision, Besanko J said:

"33. ... It was not the intention of Parliament to confine the exercise of the discretion to an exceptional case. There is less risk of overstatement if the words 'unusual' or 'uncommon' are emphasised. Those words indicate, correctly in my view, the fact that there must be something that distinguishes the case from the ordinary or usual case. ..."

1. The Tribunal has considered Ms Jacob's circumstances and finds that they are not unusual or uncommon and do not warrant the waiving of any part of the debt.
2. As to write-off of the debt, the Tribunal notes the provisions of s 1236(1A) of the Act which reads:

"1236 Secretary may write off debt

...

(1A) The Secretary may decide to write off a debt under subsection (1) if, and only if:

(a) the debt is irrecoverable at law; or

(b) the debtor has no capacity to repay the debt; or

(c) the debtor's whereabouts are unknown after all reasonable efforts have been made to locate the debtor; or

(d) it is not cost effective for the Commonwealth to take action to recover the debt".

In the Tribunal's view, all of the sub-paragraphs in s 1236(1A) are capable of applying. In particular, the Tribunal is satisfied that Ms Jacob has the capacity to repay the debt due to the Commonwealth.

1. The Tribunal notes from the decision of the SSAT that Ms Jacob conceded she had been overpaid approximately $5,000 in Rent Assistance during the period between 22 October 2004 and 10 February 2007. Before the Tribunal, Ms Jacob did not resile from this concession.

1. The Tribunal affirms the decision under review.

I certify that the 31 preceding paragraphs are a true copy of the reasons for the decision herein of Senior Member R W Dunne

Signed: ............J Coulthard..........................................