Jebb v Repatriation Commission

Exhibit 1 - Documents prepared pursuant to Section 37 or the Administrative Appeals Tribunal Act 1975.

Exhibit 2 - Bundle of documents additional to Exhibit 1 documents.

Exhibit 3 - Copy of Section 53 of the Veterans' Entitlements Act 1986 as at 1986.

Exhibit 4 - Copy of extract of Act No. 130 of 1987 showing the date of effect of amendments to Section 53 of the Veterans' Entitlements Act 1986.

Exhibit 5 - Report of ACIL Australia Pty Ltd dated 13 December 1988.

Exhibit 6 - Report of Australian Valuation Office dated 25 August 1989.

8. As at the time the Respondent made its decision being the decision under review Section 53 Sub-section 3 stated:

"Where the Commission is of the opinion that the annual rate of Service Pension, Wife's Service Pension or Carer's Service Pension applicable to a person under Sub-section (2) should, having regard to the annual rate of income that could reasonably be expected to be derived from, or produced with the use of, property of the person or the person's spouse that is property referred to in paragraph (1)(c), be reduced, the Commission may direct that the annual rate of Service Pension, Wife's Service Pension or Carer's Service Pension payable to the person be reduced by such amount per year as the Commission determines in writing."

9. Section 53 of the Veterans' Entitlements Act 1986 was amended by the Social Security and Veterans' Entitlements Amendment Act (No 2) of 1987, (being Act No 130 of 1987), which Act received Royal assent on 16 December 1987. Sub-section 53(3) of the Veterans' Entitlements Act 1986 now reads:

(a) the amount per annum of the reduction under subsection (2) in the maximum annual rate of pension applicable to a person in respect of property of the pe on or the person's spouse that is property referred to in paragraph (1)(c) is less than the lesser of the following amounts per annum:

(i) the amount per annum equal to 2.5% of the value of that property;

(ii) the amount per annum that could reasonably be expected to be obtained from a purely commercial application of that property; or

(b) there is no reduction under subsection (2) in respect of that property;

the maximum annual rate of pension, applicable to the person shall:

(c) in a case to which paragraph (a) applies - be further reduced by the difference between that first-mentioned reduction and that lesser amount per annum; or

(d) in a case to which paragraph (b) applies - be reduced by that lesser amount per annum."

The amendments to Subsection 53(3) effected by Act No 130 of 1987 had as their date of commencement the 13th day of November 1987.

1. Having regard to the decision of the Federal Court in Jebb v Repatriation Commission [1988] FCA 105; (1988) 80 ALR 329 and the decision of Deputy President Layton in Re Sharpe and Secretary Department of Social Security (1988) 14 ALD 681 I consider that I should determine the Applicant's case pursuant to Subsection 53(3) as it existed up to 12 November 1987 and thereafter apply the provisions of Subsection 53(3) as amended by Act No 130 of 1987.
2. The Applicant is the registered owner in fee simple of one undivided half share as tenant in common with his brother Colin Shephard of the land more particularly described in Certificate of Title Volume 5739 Folio 133. The said property is known as "Devonhurst" and contains an area of 234.4 hectares.
3. Management and labour to conduct the farming operations on Devonhurst is provided by the Applicant's nephew Peter Shephard who is Colin's son. Evidence was given by the Applicant that the property has been in the Shephard family for some 110 years, the present generation being the fourth generation to farm that land. The Applicant further stated that Peter will inherit his share in the land. Peter Shephard gave evidence that his father had made a will devising his share of the said land to him.
4. Since 1984 Peter had paid no consideration to either owner for the use of the land, neither has any formal arrangement been entered into between the parties respecting Peter's use and occupation. The understanding between all three was described by the Applicant as being that Peter will eventually inherit, and so long as he pays all expenses and outgoings and does not overfarm so as to degrade the land, he should have the use and enjoyment of the land.
5. Colin Shephard is confined to a nursing home and the Applicant lives in the house on the property. That house is in a near derelict condition and is beyond economical repair. The report of the valuer, Mr Armstrong, called by the Respondent states as regards to the house:

"The house in its present condition is not acceptable for normal commercial rental purposes and as such is considered not to add rental value to the property."

Although the Applicant does reside in the house, electricity is paid for by Peter Shephard as are the rates.

1. Peter Shephard Is and always has been unable to make a sufficient living from the farm but supports his farming activities by working off the farm, primarily as a woolclasser. The Applicant himself recognizes that Devonhurst is not a viable property and this was confirmed by Mr John Dore the agricultural consultant called on behalf of the Applicant. In the main, the property's lack of viability is due to its relatively small area.
2. Apart from paying all outgoings Peter Shephard has also purchased the necessary plant and equipment to enable him to farm Devonhurst. There is, as I understand the evidence, no plant or equipment now in use which came to him with the farm, although there are certain fixtures apart from the house. Those fixtures are also in a fair to poor condition except for a machinery shed purchased and erected by Peter Shephard.
3. Having regard to the whole of the evidence I find that the highest and best use of Devonhurst would be to lease it to a neighbouring farmer who required additional land to work in conjunction with other holdings farmed by him. As stated Devonhurst is too small in itself to be a viable farming proposition and it is recognized that Peter Shephard must expand his holdings if he is to become viable as a farmer.
4. Furthermore I accept the evidence by Mr Dore that whilst recent years have seen high commodity prices there has now been a downturn, and the viability of the Devonhurst operations will be called more into question. There was no evidence to contradict in any way Mr Dore's findings as expressed at page 14 of his report (Exhibit 5) namely:

"(i) The farm is barely capable of producing a surplus over and above all necessary costs in most years. This is expected to become more difficult in the future.

(ii) If Peter Shephard wishes to remain a farmer he will have to increase the area of land he uses.

(iii) By good management and by obtaining work as a woolclasser Peter Shephard is saving money and increasing the amount he has invested with the Westpac Bank.

(iv) The present 'costs' do not include any financial costs or rent on Devonhurst.

(v) Any increases in costs or decreases in farm returns will make it very difficult for the farm business to remain viable unless the area is increased.

Increases in costs will make it very difficult or impossible to increase the size of the holding.

(vi) With the present uncertainties regarding his commitments to Athol Shephard it is very difficult for Peter Shephard to make any long term plans."

19. The evidence clearly disclosed that Mr Peter Shephard has had an interest in farming throughout his life and has educated himself to this end, having a Diploma of Applied Science (Agriculture) and qualifications as a woolclasser. He has worked hard not only on the farm but also off the farm in order to advance his career as a primary producer. By dint of hard work he has been able to accumulate some assets but the actual farm activities do not provide enough income to enable rent to be paid. He will eventually inherit the property but in the interim he is permitted to farm it, both the Applicant and his brother being now physically incapable of so doing. On the evidence before me I regard it as unrealistic to expect Peter Shephard to pay any rent as payment of any sum would render his farming activities even less viable. (See Allman v the Secretary The Department of Social Security 12 ALD 239 especially at p.241 paragraph 62.)

1. It may be suggested that the amounts paid for rates and electricity constitute consideration for the use of the land. For reasons discussed in paragraph 33 below I do not regard these payments as being in the nature of consideration.
2. It was not contested that the provisions of Subsection 53(1) applied to the Applicant and having regard to the evidence I find that the hardship provisions as they existed up to and including 12 November 1987 should be applied to the Applicant.
3. Subsection 53(3) of the Veterans' Entitlements Act 1986 in its present form requires a consideration of three matters in this case, namely:

(i) what is the value of the property and hence what sum represents 2.5% of that value;

(ii) what is the amount per annum that could reasonably be expected to be obtained from a purely commercial application of that property; and

(iii) a finding as to what sum represents the lesser of (i) and (ii).

1. Valuation evidence was called by the Respondent. No challenge was made to the qualifications of the valuer, to the manner in which he prepared his valuation nor the comparable leases relied upon to support that valuation.
2. Where the valuation adduced by the Respondent is questionable is in the instructions given to the valuer. He gave evidence that his instructions were to value the property known as "Devonhurst" on a commercial lease basis.
3. As stated above I find on the available evidence that the highest and best use of the subject land is to lease it to adjoining owners. The Respondent's valuer opined that on the information given to him when preparing his valuation there was a market for leases of such properties. Mr Dore, the agricultural consultant, did not dissent from this proposition although he stated that it would be unlikely that anyone would lease Devonhurst unless they already had property in the area.
4. The reservation by Mr Dore strikes me as axiomatic. The sole purpose of leasing additional property such as Devonhurst is to achieve a greater cultivation or grazing area. This is nullified if plant etc. cannot be expeditiously moved from one property to the other. Even the comparable leases, relied upon by Mr Armstrong have as lessees persons owning other land in the vicinity.
5. What Mr Armstrong's instructions did not convey was that the interests of the Applicant were not those of a proprietor in fee simple in the whole of the land but only those of a proprietor of an undivided moiety. This was a circumstance that Mr Armstrong freely admitted he had never come across within his experience.

28. The status of a tenant in common is discussed in Woodman "The Law of Real Property" Vol 1 at page 162 as follows:

"A tenancy in common is a co-ownership under which each tenant has a distinct, although undivided, share or interest in the property. As with a joint tenancy, there is unity of possession, so that no tenant has a right to possession of any particular part of the property. The other three unities of a joint tenancy may be lacking, and accordingly, tenants in common may acquire their interests under separate titles, at different times, and may have unequal shares or interests. There is no survivorship, so that a tenant in common may devise his interest by will and, if he fails to do so, it passes on his death to his executor or administrator for the benefit of the persons entitled on intestacy."

See also Megarry and Wade "The Law of Real Property" 2nd edition at page 395.

1. In this case the Applicant's brother's son is in possession of the land and the evidence was that there has been and there is no reason to believe that Colin Shephard would act in any way detrimental to what either he or Peter Shephard saw as Peter's best interests. It can be assumed therefore that Colin would not be prepared to join with the Applicant in granting a lease of the land to a stranger.
2. I find myself in somewhat the same position as must have been the Tribunal that considered the original application in the matter that was before the Full Court of the Federal Court as Secretary, Department of Social Security v Copping and Anor (1987) 73 ALR 343. At p347 Jenkinson J. said:

"It seems right to understand the word 'property' in that section as designating, in relation to land, the estate or interest of 'the person', concerning whom the section is expressed to operate, in that land, or the estate or interest of 'the person's spouse', as the case may be. if, therefore, the inquiry were, as the applicant submitted to this court that s 6AD(3) required, what annual rate of income could be derived if the personal feelings and circumstances of the persons concerned in the land were disregarded, it would be the annual rate of income that could be derived cooperatively by two of the three joint owners of a fee simple estate in the land, without the cooperation or consent of the third, that would be in question. For if the respondents are to be conceived as pursuing the maximum economic return to themselves from the land, the third co-owner of the land, Peter Copping, like the hypothetical purchaser of a lease of the land, must also be conceived as seeking his own maximum economic return from the land. Unless he were induced to take another course in consideration of a share of the rent, Peter could be expected, if he were conceived merely as homo economicus, to continue to exercise the right to possession of the whole of the land which his co-ownership confers on him. The hypothetical prospective tenant could be expected to offer scant rent for a lease by the respondents of their interests in the land while Peter maintained his own right to possession of the whole. There was in fact no evidence before - or consideration by - the tribunal of what rent in an open market the respondents might be offered by a stranger for a lease, or leases, of the respondents' interests in the land while Peter stood aloof and maintained his own possession of the whole."

31. In this case there is no direct evidence as to what amount a purely commercial application of the property could be expected to obtain. It seems to me however that, having regard to the report of Mr Dore as to the economics of the property and considering that the valua to a tenant could only be calculated on what he could hope to obtain by working the property then, applying the remarks of Jenkinson J. in Copping's case supra as to the scant rent which would be offered where there remained an owner in possession that in all reality in this case a lease of the Applicant's interests in Devonhurst would not be commercially viable, that is to say the amount to be obtained from a purely commercial application of his interests is nil.

32. If it is sought to be suggested that the Applicant should force his brother to join with him in seeking a commercial rent I believe the decision of Thrift v Thrift (1976) 10 ALR 332 is relevant. There Hutley JA said at page 339:

"The criticism of the appellant for having her mother and her lover on the property on terms which do not extract the fullest economic benefit to the appellant misconceives her legal position. A co-owner who by letting the property has received rent is bound to account to his co-owners what he receives, but I know of no principle by which he is liable to account on the basis of what he ought to have received (see Re Tolman's Estate (1928) 23 Tas LR 29, which seems to me directly in point). To criticise the appellant for not getting as much as she could if she were a more enterprising landlady is wrong."

33. It may be suggested that the Applicant is receiving a rent in that his electricity and the rates on the land are paid by Peter Shephard. However, as co-owners both the Applicant and his brother are jointly and severally liable for such expenses (Woodman page 164). Furthermore I prefer the reasoning of Deputy President Layton in Re Sharpe and Director of Department of Social Security 14 ALD 681 at 692 and hold in conformity with the views expressed in that case that payment by Peter Shephard of rates and electricity do not constitute a benefit so as to be income in the hands of the Applicant.

1. It was agreed between the parties that the valuation of the total property was not in dispute. However, the amount which must he considered under sub-paragraph 53(3)(c) of the Veterans' Entitlements Act 1986 is the lesser amount, namely that of nil.
2. The property as a whole was valued at $327,600-00 by a valuer from the Australian Taxation Office on 3 April 1985. This valuation in unsatisfactory in that it was apparently arrived at by an application of what the valuer described as "local knowledge" but without inspection. No basis was given for the valuation but it is the only valuation evidence as to the value of the property in fee simple that the parties put before me. The Respondent then determined the value of the Applicant's share by a simple division after deducting from the total value the sum of $25,000-00 representing the home and curtilage, giving the sum of $151,300-00. It is difficult to ascertain how these sums were derived if no inspection of the subject property was made.
3. As the amount to be considered pursuant to Subsection 53(2) is not less than the amount under Subsection 53(3) then in this case the only amounts to be considered in reducing the Applicant's Service Pension are those amounts regarded as income. As stated above these amounts do not include payments made on his behalf for rates or electricity.
4. No evidence was adduced as to how the value of the Applicant's moiety should be ascertained. It would seem, however, that the value of a half share in an undivided whole may be less than the value of one half of the whole. See for example Mellowes "The Law of Succession" at page 262. In Royal Sydney Golf Club v The Federal Commissioner of Taxation [1955] HCA 13; 91 CLR 610 the High Court in discussing an assessment pursuant to the Land Tax Assessment Act (N.S.W.) 1910-1950 said at page 623:

... in assessing the unimproved value an estate in fee simple must be taken as the hypothesis unencumbered and subject to no condition restricting the use or enjoyment of the land."

Similar considerations would seem to apply when seeking to assess the value to the Applicant being an owner in fee simple of one undivided half as tenant in common, particularly as in this case where the co-owner is in possession through his son. It would seem to me that in such cases the real value to the Applicant of his share is less than 50% of the whole.

1. In this case, however, it is unnecessary to ascertain this figure as whatever value is allocated to the Applicant's share it is not less than the amount calculated pursuant to Subsection 53(3). The decision under review is set aside and the matter remitted to the Respondent with the direction that no deduction is to be made from the Applicant's Service Pension on account of income deemed to be derived from or associated with the property known as "Devonhurst".
2. In case of any difficulties in deriving the ultimate amounts to be considered I give liberty to either party to apply.