SOCIAL SECURITY - pensions, benefits and allowances - Newstart Allowance - assets test limits - offsetting loans - "encumbrance" and "charge" considered - debt recovery provisions considered - waiver considered

Social Security Act 1991 ss.1237A, 1237AAD

Re Ryan and Secretary, Department of Family and Community Services [2000] AATA 642

Re Fawthrop and Repatriation Commission [1993] AATA 359; (1993) 19 AAR 290

Re Samek and Secretary, Department of Social Security (1988) 16 ALD 295

Re Anstis and Secretary, Department of Family and Community Services [1999] AATA 760

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

1. This is an application by Mr Ivo Radovanovic (the applicant) for review of a decision of the Social Security Appeals Tribunal (SSAT) dated 18 August 1999 (T2) which affirmed upon review a decision of an authorised review officer (ARO) dated 29 March 1999 (T26) which had affirmed the delegate's decision of 26 February 1999 (T24) to raise and recover a debt in the amount of $1,926.22 being Newstart Allowance paid in the period 17 March 1993 to 25 May 1993.

2. The Tribunal received into evidence the documents lodged pursuant to s.37 of the Administrative Appeals Tribunal Act 1975 (T1-T34), together with eight exhibits, four lodged by the applicant (Exhibits A1-A4) and four lodged by the respondent (Exhibits R1-R4). The applicant represented himself and the respondent was represented by Ms A. Pugsley, a departmental advocate.

3. The applicant claimed Newstart Allowance on 15 March 1993 and was granted such with effect from 17 March 1993.

4. On 22 March 1993 the applicant made a deposit of $307,197.57 into an account held in joint names with his partner. A withdrawal in the amount of $75,000 was made on the same day, and following two minor withdrawals on 25 March 1993, a balance of $237,133.49 remained.

5. On 27 January 1994 a delegate decided that the applicant was above the relevant asset test limit, calculating his assets to be $253,474.49 during the period 17 March 1993 to 25 May 1993. The applicant appealed that decision to the AAT, but later withdrew the application. In 1999 he provided fresh information to the Department indicating that his mother had lent him $12,511, which he repaid by 29 February 1996 (T22). A delegate reviewed the original decision on this basis but did not vary it. Various other information was provided during the review processes, leading to several reviews by the respondent. Ultimately, on 18 August 1999 the SSAT affirmed the ARO's decision under review, finding that the applicant had assets in the relevant period totalling $251,074.00.

6. The applicant told the Tribunal that the Savings and Loan account statement (T6) received by the Department sometime in May 1993 was never produced by him, as it does not have the correct letterhead. He stated that he believed he provided the original and all relevant information on 1 April 1993 and received payments thereafter in good faith. In support of this submission, he stated that if such information had not been provided to the Department at this time, there would have been no need for him to produce the statement of Mrs K. Harding (his mother) dated 2 April 1993 (and stamped "sighted" 13 April 1993) (Exhibit R3).

7. On this basis, he considered that as he complied with all notification obligations, the debt should be waived pursuant to section 1237A of the Social Security Act 1991 (the Act).

8. He submitted that he had no intention to purchase a residential home in 1993 and that the purchase of a residential home in September 1993 was unexpected. As such, he considered that the definition of homeowner in sub-paragraph 11(4)(c)(ii) of the Act is inapplicable. In support of this, he took the Tribunal through the business plan he prepared at the time during his involvement with the New Employment Incentive Scheme (NEIS), noting that no provision was made for a residential home, as the intention was that he and his wife would live at her parents' place. He also stated that as of March 1993 they had sold much of their household contents with a view to moving to the applicant's wife's parents' place.

9. He told the Tribunal that the correct value of his assets was $230,932, when two "charges" are taken into consideration. These charges were the $3,200 owed to Brock Partners, and the monies owed to his mother. He detailed to the Tribunal the arrangement in place with his mother whereby the loan was offset against the loss his company incurred whilst building her home (T30/85). He submitted that an unsecured "arms length" debt constitutes a charge, and that such a charge does not need to be secured against real estate or registered. He submitted that the loan from his mother was "secured" against his bank account, because had she instituted bankruptcy proceedings she could have accessed that money.

10. The respondent calculated the applicant's asset value as follows:

* $237,474.49 in Savings and Loan account as at 22 March 1993 (Exhibit R1)

* $6,200 motor car (accepting some depreciation from the $8,000 recorded in January 1992 (T8)

* - $14,322.20 contributed to purchase of house in September 1993

creating a total of $237,352.29. If the Tribunal considered the applicant to be a non-home owner, Ms Pugsley submitted that the $14,322.20 would not be discounted, leaving an asset value of $251,674.49.

11. Ms Pugsley submitted, on behalf of the respondent, that the debts to Brock Partners and the applicant's mother are not encumbrances or charges, as there is no security involved. In her submission neither creditor has the right to deduct amounts from the applicant's bank account.

12. She submitted that if the Department had acquired the Savings and Loan account statement received in May 1993 (T6) there would be a record of the Department making such a request.

13. She also submitted that the business plan was not sufficient to provide conclusive evidence of a lack of intent to purchase a home. She submitted that there is a lack of proof that the household items were sold, and that this new information was inconsistent with the documentary evidence. She further submitted that the applicant would still remain above the assets limits even if it were accepted that he sold most of his household contents.

14. The Tribunal has only briefly set out the evidence and submissions before it, but notes that there were detailed written submissions from both parties. It has given attention to all of the evidence and submissions put before it in coming to its decision.

15. One preliminary point of note, is that the applicant provided further submissions after the close of the hearing concerning a consent agreement in this matter. With the consent of the respondent, the Tribunal received that further evidence. It remains of no consequence however, for the applicant did not sign the consent agreement, and wished to proceed to hearing. He was given time to accept the without prejudice offer of the respondent, and since he indicated that he did not wish to take up that offer, the respondent was entitled to withdraw the offer. It is a matter that now has no bearing on this decision.

16. Whether or not there is a recoverable debt in this matter will depend upon the Tribunal's assessment of the value of the applicant's assets at the relevant time. As the Tribunal discussed recently in Re Ryan and Secretary, Department of Family and Community Services [2000] AATA 642, a debt will arise in any event if the value is above the allowable limit pursuant to section 1223 of the Act, even were the Tribunal to find that the applicant complied with his notification requirements. If the Tribunal did so find in relation to notification, this would of course impact upon the issue of waiver.

17. The question arising is whether the applicant's liabilities to his mother and to Brock Partners can be offset against the total (or part of the) assets. On the applicant's own valuations (Exhibit A1), without offsetting the liabilities, the total value is $246,578, above both the homeowner and non-home owner limits.

18. The Tribunal is required to consider sub-section 1121(1) of the Act in this regard:

"1121.(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, is to be reduced by the value of that charge or encumbrance."

19. The applicant contends that a charge can exist against cash in a bank account, as security over such could come into being by the instigation of proceedings. Ms Pugsley submitted to the contrary, that a charge or encumbrance cannot be said to exist without some form of actual security.

20. The words "charge" and "encumbrance" were considered in Re Fawthrop and Repatriation Commission [1993] AATA 359; (1993) 19 AAR 290 in an equivalent context in respect of the Veterans' Entitlements Act 1986 wherein the Tribunal stated (inter alia) at p295-96:

Given the context in which the word "security" is used in s 52c and particularly in the juxtaposition with the words "charge" and "encumbrance", we have concluded that the word "security" must be understood to connote a debt or claim the payment of which is in some way secured. For the same reasons, the word "charge" must also be given its narrower meaning to denote a liability, the performance of which is secured and the word "encumbrance" to mean a claim, lien or burden attached to a property.

21. The Tribunal was referred by the applicant to Re Samek and Secretary, Department of Social Security (1988) 16 ALD 295 wherein Senior Member Hayes referred to the relevant instructions in the Pensions Manual as providing a guide to "encumbrance" (inter alia) at page 297:

In my view the instructions in Part A of the Pensions Manual concerned with assets applied by the respondent in this case, in particular 6.1050, provide an appropriate interpretation of the concept of an encumbrance. The instruction is as follows: "The outstanding value of an unsecured loan may be deducted from the value of a particular asset if the pensioner can provide evidence that the loan was obtained specifically for the purchase of that particular asset. For example, a person might provide documentary evidence that he or she had obtained an unsecured loan on a given date in order to purchase a particular item and that the amount advanced was immediately used to purchase that asset.

22. In that case, there was a considerable lapse of time between purchase of the property and entry into the loan agreement, such that the unsecured debt was not considered to be an encumbrance.

23. In the present application, the Tribunal is not satisfied that there is any form of what could be considered "security" so as to bring either liability owing the applicant's mother or Brock Partners into the scope of "charge" or "encumbrance" as those terms are to be understood in relation to sub-section 1121(1) of the Act. This Tribunal concurs with the approach in Re Fawthrop and cannot accept that loans with no security can fall within the scope of "charge" or "encumbrance". Re Samek goes no further than to support the proposition that if there is a direct relationship between an unsecured loan and the purchase of a property, such a loan may be offset against the value of the asset. It cannot be extended to encompass the situation before the Tribunal here, where there is no security in respect of the loans. Regardless of the method by which the applicant ultimately repaid his mother, that loan was not in respect of a particular property, nor was it secured against such. The applicant argued that his mother had security in that she could have commenced proceedings against him to recover such monies had he not repaid her. Whilst this is true, the capacity to commence proceedings is not of itself "security". Security would arise where such proceedings had been commenced and an order put in place over a particular property interest, whether that be land or the applicant's bank account.

24. Accordingly, without allowing for either loan to be deducted, the applicant does not fall under either the homeowner or non-home owner asset limit, and the Tribunal so finds. In making this finding, the Tribunal would concur with Ms Pugsley in that if the applicant is to be treated as a non-home owner, the $14,322.20 put towards the home purchase in September 1993 is not an appropriate deduction for the period March to May 1993.

25. The Tribunal would further concur with the reasoning of Deputy President Forgie in Re Anstis and Secretary, Department of Family and Community Services [1999] AATA 760 wherein it is considered that there is a distinction to be drawn between "financial asset" and "asset", such that the existence of the monies in the bank mean that the offsetting envisaged by sub-section 1118(2) of the Act is not applicable in this case. This means that even were the Tribunal satisfied that the applicant was likely to purchase a principle home within twelve months of the February 1993 home sale, the existence of the monies in an interest bearing account during March to May 1993 created a financial asset for this period which cannot be offset.

26. Accordingly, whether or not the applicant is a home owner for the relevant period, or complied with his notification obligations, the Tribunal finds that there is a debt in this case for the period 17 March 1993 to 25 May 1993 in the amount of $1926.20 pursuant to section 1223 of the Act. Section 1223 provides that a debt arises where a person was in receipt of a benefit during a period in which he or she was not so entitled. As the applicant was above the relevant asset limits for the stated period, he was not entitled to the allowances paid.

27. In relation to waiver, the Tribunal has given due consideration to sections 1237A and 1237AAD of the Act. Of particular note in this case, is the existence of the letter dated 2 April 1993 (and stamped "sighted" 13 April 1993) (Exhibit R3) evidencing loan repayments to Mrs Harding from the applicant and his wife. The applicant raised an interesting point in that why would such a letter have been produced in April, if it were not in response to some departmental inquiry? If indeed the Department was so inquiring, one would imagine that it would have been as a result of seeing the applicant's bank statement and querying the entries for late March 1993.

28. On 4 May 1993, the Department sent the applicant a letter which stated (inter alia) (T5):

You notified the Department that you have repaid a loan used to build a house at 29 Rawson Penfold Drive Rosslyn Park. Our records show you [sic] current address as 28 Balmoral Rd Dernancourt.

What is your current home address? 28 Balmoral Rd, Dernancourt

[the Tribunal has included the applicant's response as on the original document]

29. The difficulty for the Tribunal in accepting the applicant's assertion that the fact of the existence of the letter dated 2 April 1993 (and stamped "sighted" on 13 April 1993) (Exhibit R3) indicates that the Department must have seen a bank statement on 1 April 1993 and asked for further information as a result, is that there is no corroboration of this account. The documentary evidence suggests that the applicant did not fully complete question 8 on the form dated 30 March 1993 (T4), which required notification (inter alia) of change in investments. Whilst the applicant notified of the sale of the house, he did not apparently provide any further information at this time as to the state of his accounts. If the respondent had in fact sighted a bank statement on 1 April 1993 and requested further information on or about this time, the Tribunal would expect to see some evidence of that in documentary form. The lack of documentary evidence to this effect puts the applicant's account into some doubt.

30. It was not until May that bank account details were received by the respondent. The applicant contends that the statement date stamped "... May 1993" (T6) must have been obtained by the respondent, as it is a different format to the types of statement he receives. The Tribunal considers it much more likely that the applicant did in fact obtain that particular statement, as an "archived transactions" enquiry printout will not necessarily be identical to the other statements he may have received. There is also a further file note dated 3 June 1993 (T7) which states (inter alia): "A/N provided bank details on 25/5/93". Reference to "A/N" also appears on a further file note (T8) and appears in that context to mean the applicant.

31. The Tribunal does not consider it likely that the respondent obtained the bank statement received by it in May 1993, as there is no documentary evidence to support this proposition. The powers of the respondent to obtain such bank account information is somewhat limited, and in the absence of any evidence that it made any such request, it is much more likely that the applicant provided such details.

32. The Tribunal is not satisfied that there is sufficient evidence to sustain, on the balance of probabilities, the contention that the respondent had all available information as at 1 April 1993. Whilst there is some delay from 30 March 1993 until May 1993 before the matter is actioned upon, the delay in this case cannot be said to be entirely the fault of the Department, for there appears to be insufficient information coming from the applicant at the time. The Department could certainly have been somewhat more pro-active, but its actions are not such in this matter so as to mean that the monies received in error by the applicant were a result of sole departmental error and the Tribunal so finds.

33. Further, whilst that aspect of the matter is somewhat unusual, the circumstances are not such so as to satisfy this Tribunal that it is appropriate to waive the debt pursuant to section 1237AAD of the Act. The phrase "special circumstances" has been considered in many previous Tribunal cases, and the Tribunal finds it unnecessary to discuss its meaning at length in the present matter. The Tribunal adopts the meaning given to the phrase in Re Beadle and Director-General of Social Security (1984) 6 ALD 1 and followed in many subsequent cases. Suffice to say, the circumstances of this case, when considered in their totality, do not persuade the Tribunal that it is unjust, unreasonable or otherwise inappropriate to recover this debt, especially given the applicant's asset base as at the time of overpayment.

34. For the above reasons, and pursuant to section 43 of the Administrative Appeals Tribunal Act 1975, the Tribunal affirms the decision under review.

I certify that the 34 preceding paragraphs are a true copy of the reasons for the decision herein of Senior Member J.A. Kiosoglous MBE

Signed: .....................................................................................