Read v The Commonwealth

Clause 4 set out the terms of repayment and release. "4.1 The Borrower shall repay the Money Secured in full to the Authority upon demand on or before the Date for Repayment if the Borrower, the Covenantor or any Associated Person breaches any of the terms of this Agreement. 4.2 If no demand is made by the Authority prior to the Date for Repayment, the Borrower shall be no longer obliged to repay the Money Secured and neither the Borrower nor the Covenantors shall be liable to the Authority with respect to the Money Secured."

THE REASONING OF THE ADMINISTRATIVE APPEALS TRIBUNAL The first question which the Tribunal posed for itself was whether the amounts received under the agreement were loans. It concluded that they were not: "In substance the arrangement was to pay over the principal sum to the applicants for their enjoyment without any intention to repay but in the unlikely event of a breach of covenant within three years and the DIA seeking to exercise its discretion to recover, a similar amount becomes payable to the DIA at that time, such amount bearing interest from the date of demand. That is, there are, in substance two distinct amounts, a payment to the respondents upon entering the agreement and a contingency payment to the DIA upon the occurrence of certain events." The second question was whether or not the moneys were income under s 8 of the Social Security Act 1991. Reference was made to the interpretation, by the Tribunal, in Re Hungerford and Repatriation Commission (1990) 21 ALD 568, of similar provisions in s 35(1) of the Veterans Entitlements Act 1986. The interpretation in that case, adopted by the Tribunal in this, was: "... that the basic meaning which should be ascribed to the words "personal earnings, moneys, valuable consideration and profits" is that they "relate to gains derived by a person as a result of the provision by that person of consideration in the form of personal exertion or other services or the disposition of property....whether of a capital nature or not." The effect of the agreement in relation to the McLaughlins was "to extinguish any rights they may otherwise have had as licensed milk vendors". The payment did not therefore constitute consideration for the disposal of any property. The question then remained whether the payments were valuable consideration or a profit in the hands of the respondents. After referring to Re Hungerford (supra) again, the Tribunal concluded that the payment was not a profit as there was no disposal of property. The payment was "... compensation for the extinguishment of their business and in consideration of the respondents entering into the restrictive trade covenant referred to above". The payment was therefore not income. THE GROUNDS OF APPEAL The grounds of appeal set out in the Secretary's application are as follows: "The Tribunal erred in law in construing and applying the definitions of "income amount" and "income" in subsection (1) of s 8 of the Act. PARTICULARS (a) In July and September 1995 respectively, the Respondents received from the DIA two lump sum payments of monies ("the sums") amounting in total to $121,950 pursuant to an Agreement between them and the DIA entered into on 4 July 1995 ("the Agreement"). (b) The Tribunal found that the sums were in the form of consideration for the Respondents entering into a restrictive trade covenant that they should not engage in the milk distribution or milk vending business effectively for a period of three years. (c) The Tribunal also found that the sums were not "valuable consideration", "personal earnings", or "profits" within the meanings of those terms in the definition of "income amount" in subsection (1) of s 8 and hence did not constitute "income" within the meaning of the latter term in that subsection, in consequence of which they should not be taken into account when assessing the entitlements of the Respondents to Disability Support Pension and Partner Allowance respectively. (d) The Tribunal did not, or did not adequately, address the issue whether, for the purposes of the definition of "income amount" and therefore that of "income", the sums were "monies" within the extended terms of the first-mentioned definition. (e) The Tribunal should have found the sums were, in their legal nature, " monies" and hence together constituted an "income amount". (f) The Tribunal, having also effectively found that the sums: (i) were received by the Respondents; (ii) were available to them for their own use or benefit; and (iii) did not fall within any of the exclusions under subsection (4), or (8) of s 8 of the Act; should therefore have found that the sums were "an income amount...received by the [Respondents] for [their] own use or benefit" and thus "income" within the meaning of that term in s 8(1) of the Act. (g) Further and alternatively, in construing the definition of "income amount" in s 8(1) of the Act, the Tribunal further erred in holding that the terms "personal earnings, monies, valuable consideration and profits where they appear in the definition of "income amount" necessarily require that the sums must relate to gains derived by a person as a result of the provision by that person of consideration in the form of personal exertion or other services or disposition of property whether of a capital gain or not. (h) Even assuming (which the Applicant does not concede), that an element of gain needs to be established for an "income amount" to fall within the definition of "income" in s 8(1) of the Act, the Tribunal, having found that the sums were received by the Respondents in consideration of their having entered into a restrictive trade covenant under the Agreement, should have held that the necessary conditions of a gain had been satisfied in the circumstances, so that the sums were "income" for the purposes of determining the Respondents' entitlement to benefits provided under the Act." NOTICE OF CONTENTION The McLaughlins filed a Notice of Contention seeking to affirm the Tribunal's decision on the following grounds, in addition to those relied upon by the Tribunal: "1. Having regard to the terms of the deed of agreement dated 4 July 1995 between the Dairy Industry Authority and the Respondents, the letter to the Social Security Appeals Tribunal from the Dairy Industry Authority of Western Australia dated 23 May 1996 and the fact that the appeal to the Tribunal proceeded on the basis that there was no dispute about the relevant facts that were sufficiently documented in the documents before the Tribunal the Tribunal erred in law in holding that the amounts paid to the Respondents were not loans and the Tribunal should have found that the amounts were loans and were therefore not income within the meaning of that term in subsection 8(1) of the Social Security Act 1991; 2. The milk vending business carried on pursuant to the licence issued by the Dairy Industry Authority to Mr and Mrs McLaughlin was carried on by Stepick Pty Ltd as Trustee for the McLaughlin Family Trust ("the Trust") the sums received by the Respondents were received by them on behalf of the Trust the sums were not income within the meaning of that word in subsection 8(1) of the Social Security Act 1991 because they were not for the Respondents' own use or benefit." The latter contention was not pressed at the hearing. CHARACTERISATION OF THE PAYMENTS The definitions of "income" and "income amount" in the Social Security Act indicate that like their statutory predecessors they are of wide application. This meets the public policy requirement that "public expenditure is directed to those who stand in actual need of the periodic support which income-related pensions provide" - Read v The Commonwealth (1989) 167 CLR 57 at 69 (Brennan J). The purpose of the applicable provisions of the Act is to "maintain a basic level of income for those who [are] unable to receive sufficient income to provide for themselves" - Secretary, Department of Social Security v Garvey (1989) 22 FCR 132 at 136. The concept of "income" defined in the Social Security Act is entirely different from that embodied in the comparable provisions of the Income Tax Assessment Act 1986 - Read v The Commonwealth (supra) at 69. The general approach to construction was considered in Rose v Department of Social Security (1990) 21 FCR 241 at 244: "The Act is a remedial provision in that it gives benefits to persons and thereby remedies Parliament's perceptions of injustice. It calls for no narrow or pedantic construction; but, as mentioned earlier, it contains both enabling and excepting provisions which do not therefore necessarily require beneficial interpretation. It depends on the particular statutory provision and an analysis of its language and purpose. Aids to construction, including the principle of liberal interpretation of remedial provisions, are generally invoked when there is some ambiguity on the fact (sic) of the particular statutory provision. That is not the case here with the definition of "income" in its introductory general words with which this case is concerned." However wide the scope of the term "income", in my opinion it would not extend to a bona fide loan. Counsel for the Secretary argued to the contrary, submitting that even if characterised as a loan the payments made to the McLaughlins were for their immediate benefit, alleviating their need for the support provided by the disability and partner allowances. It was contended for the McLaughlins that the parties to the deed had agreed it was a loan and that the appeal proceeded on the basis that there was no dispute about the relevant facts. But the relevant facts did not extend to the characterisation of the agreement as a loan. True, the agreement used the designation "Borrower" to describe the McLaughlins and referred to the "Principal Sum" as "lent, advanced or otherwise made available by the Authority". But in my opinion the substance of the transaction was not a loan but a payment on a condition of non-engagement in the industry for a minimum of three years. As the Tribunal observed an intention to repay is an essential attribute of a loan of money whereas in the present case: "In substance the arrangement was to pay over the principal sum to the applicants for their enjoyment without any intention to repay but in the unlikely event of a breach of covenant within three years and the DIA seeking to exercise its discretion to recover, a similar amount becomes payable to the DIA at that time, such amount bearing interest from the date of demand. That is, there are in substance two distinct amounts, a payment to the respondents upon entering the agreement and a contingency payment to the DIA upon the occurrence of certain events." The ground relied upon in the Notice of Contention is therefore not made out. The general approach to the construction of the terms "income" and "income amount" outlined above was relied upon by the Secretary. There was no significant dispute on that question. The primary submission of the Secretary was that the amounts paid to the McLaughlins constituted "moneys" within the definition of "income amount" in s 8. The moneys were received by the McLaughlins and were for their own use or benefit. On this basis it was said the payments satisfy the requirements of the definition of "income" in s 8(1). Counsel for the McLaughlins submitted however that the Social Security Act 1991 is concerned with net income or net gain. There was no net gain to the McLaughlins because they paid a price for the money received by way of their covenants not to carry on business as milk vendors or distributors and their contingent liability to repay the money. The decision of the Full Court of this Court in Haldane-Stevenson v Director-General of Social Security (1986) 9 FCR 73 was relied upon for the proposition that income relates to a "net gain". The Court in Haldane-Stevenson was concerned with the definition of "income" in s 18 of the Social Security Act 1947 which was in substantially similar terms to that in s 8 of the present Act. In Haldane-Stevenson, McGregor and Pincus JJ said, at 75: "It will be noted that the definition of "income" makes no reference to expenses or deductions. It leaves uncertain the answer to the question whether gross income or net income is meant. Having regard to the purpose of reducing the pension by reference to income earned, we are of the view that, at least in general, net income is meant." The proposition that "in general" net income is meant does not exclude the possibility of a wider application. Read v The Commonwealth (supra), also relied upon by the McLaughlins, is of limited assistance in this case as the "income" in question there was the issue of additional units in a unit trust. What the Tribunal has sought to do and the Court is invited now to do is to read down the definition of "income" and "income amount". That reading down involves not just a choice of meanings to be attributed to the existing words of the definitions but the introduction into the definitions of words of limitation which the legislature has not seen fit to enact. The definition of "income" extends to income amounts "received" by a person. There is no requirement in the Act that such amounts are received in exchange for anything. They may therefore extend to gifts. This is reinforced by the extension of the definition of "income" to "a periodical payment by way of gift or allowance". There is no requirement in the definition for the payment received to constitute a net gain. Absent such a requirement a payment of money received by a person for that person's own use or benefit is a payment of an income amount. No doubt examples may be generated and multiplied of apparently startling or unfair results of this construction. The receipt of the proceeds of the sale of a house or a lottery win may constitute "income" for the purposes of the Act. Such debates, however, are best reserved for the legislature. There is, in my opinion, no room in the language of the definitions of "income" and "income amount" for the kind of construction adopted by the Tribunal. The amounts paid were income and should be treated as such. CONCLUSION It was submitted for the McLaughlins that if the appeal were to be successful there is in Mrs McLaughlin's case an issue that will need to be considered by the Tribunal which appears to have been overlooked, that is whether or not the moneys received by Mrs McLaughlin should be treated as "income" only in the fortnight of receipt. In the circumstances it seems to me that the best course is to allow the appeal and remit the application to the Tribunal to be dealt with according to law. I certify that this and the preceding thirteen (13) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice French

Counsel for the Applicant: Mr P. Johnston with Mr T. Carey

Solicitor for the Applicant: Australian Government Solicitor