Secretary, Department of Education, Employment and Workplace Relations v Ergin

IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 789 of 2009

BETWEEN: SECRETARY, DEPARTMENT OF EDUCATION, EMPLOYMENT AND WORKPLACE RELATIONS

JUDGE: TRACEY J DATE: 22 December 2010 PLACE: MELBOURNE

REASONS FOR JUDGMENT 1 This appeal from the Administrative Appeals Tribunal ("the AAT") raises some important issues relating to the entitlement of persons, who have received significant payments on the termination of their employment, to receive social security benefits until they are able to find new jobs. The issues relate to the calculation of entitlements in circumstances where the person who is unemployed uses part of his or her termination payments on discretionary spending which is not required to meet the person's day to day living expenses.

FACTUAL BACKGROUND 2 The facts are not in dispute. Mr Ergin's former employment was terminated on 27 March 2009. On that date he received a lump sum termination payment (after tax) of approximately $46,000. This sum he quickly spent. $20,000 was used to repay debts. He paid $8,000 for a holiday in Bali. He lost $12,000 gambling. $6,000 was used for living expenses. 3 On 5 May 2009, finding himself impecunious and unemployed, Mr Ergin approached Centrelink and subsequently applied for a Newstart Allowance. On 24 June 2009 Centrelink accepted the claim but determined that payment could not commence before 4 April 2010. This was said to be because: "We are taking into account Income Maintenance Period amounts. This is money you have received for a redundancy payment and/or unused leave entitlements (for example, annual leave and long service leave). Your Income Maintenance Period will start on 31 May 2009 and will end on 3 April 2010." 4 Mr Ergin appealed from this decision to the Social Security Appeals Tribunal ("the SSAT"). On 24 July 2009 the SSAT affirmed Centrelink's decision.

APPEAL TO THE ADMINISTRATIVE APPEALS TRIBUNAL 5 On 25 September 2009 the AAT varied the SSAT's decision "to the extent of finding that the applicant is subject to an income maintenance period for the period from 27 March 2009 to 20 August 2009." The AAT's reasons were shortly stated: They were that: "5. Under s 1068-G7AM [of the Social Security Act 1991 (Cth)], part or all of the income maintenance period can be waived If the Secretary is satisfied that a person is in severe financial hardship because the person has incurred unavoidable or reasonable expenditure while an income maintenance period applies to the person … It was accepted by the respondent and this Tribunal that Mr Ergin is in severe financial hardship. It was further accepted that he had incurred unavoidable and reasonable expenditure of $27,898 to the date of this decision made up of: Loan repayments $20,000 Car Registration $ 560 Living costs $ 7,388 _______ $27,898 Pursuant to s 19C(6), living costs are capped at the amount of the newstart allowance that would have been payable if the income maintenance period had not applied. In this case it would have been $564.50 per fortnight for 13 fortnights. Given the terms and intention of the legislation, it is not possible to regard the expenditure on gambling and an expensive holiday as unavoidable or reasonable expenditure. It may be regarded as irresponsible to allow a person to exhaust their available funds on such expenditure and then provide funds from government revenue to make up for their lack of foresight and prudence. 6. Given the foregoing, it is appropriate to exercise the discretion provided by s 1068-G7AM to determine that part of the income maintenance period does not apply relative to the unavoidable and reasonable expenditure. The method of doing so is not prescribed but it would appear that an appropriate method would be to reduce the period by a calculation of the proportion of the net termination expended on unavoidable and reasonable expenditure over the total termination payment. Such calculation is as follows: Unavoidable and reasonable expenditure Loan Repayments $20,000 Car Registration $560 Living Costs - 11 fortnights at $564.50 $6209 $27,769 Net Termination Payment $46,000 Balance to be taken into account Income Maintenance Period based on termination payment $19,231 53 weeks Income Maintenance period to be waived $26,769 / $46,000 of 53 weeks - 31 weeks Balance of income maintenance period = 22 weeks Income maintenance period expires = 20 August 2009

7. Given the foregoing, the appropriate decision of this Tribunal should be that the decision under review should be varied to the extent of finding that Mr Ergin is subject to an income maintenance period from 27 March 2009 to 20 August 2009. See Ergin v Secretary, Department of Education, Employment and Workplace Relations [2009] AATA 740.

APPEAL TO THIS COURT 6 The appeal to this Court is brought pursuant to s 44 of the Administrative Appeals Tribunal Act 1975 (Cth) ("the AAT Act"). It is brought by the Secretary of the Department which administers Centrelink. 7 A person who was a party to a proceeding before the AAT may appeal to this Court "on a question of law" from any decision of the AAT in the proceeding. The terms in which this right of appeal is cast are significant. As Gummow J observed in TNT Skypak International (Aust) Pty Ltd v Federal Commissioner of Taxation (1988) 82 ALR 175 at 178: "Section 44 of the AAT act is expressed in narrower terms than the old s 196 of the Tax Act. This provided for appeals from the Board of Review which 'involved' a question of law. The result was that if some question of law was involved, the whole of the decision of the Board was open to review, not merely the question of law … This no longer will be the case with appeals brought to this court under s 44 of the AAT Act. The existence of a question of law is now not merely a qualifying condition to ground the appeal, but also the subject matter of the appeal itself …" 8 On many occasions over recent years, Full Courts and single judges of this Court have drawn attention to the necessity for questions of law to be identified before the Court's jurisdiction under s 44 is enlivened: see, for example, Birdseye v Australian Securities and Investments Commission (2003) 76 ALD 321 at 324-8; Comcare v Etheridge (2006) 149 FCR 522 at 527; Hussain v Minister for Foreign Affairs (2008) 169 FCR 241 at 254. Each question must "be stated with precision as a pure question of law": see Birdseye at 325 (per Branson and Stone JJ). 9 The questions of law, said by the Secretary to arise from the decision of the AAT, are set out in her amended Notice of Appeal as follows: "a. Whether, the Tribunal erred in exercising the discretion found in s 1068-G7AM of the Social Security Act 1991 (the Act) in circumstances where the Respondent's severe financial hardship was not 'because of' 'unavoidable or reasonable expenditure' while an income maintenance period applies. b. Whether, in exercising the discretion found in s 1068-G7AM of the Social Security Act (the Act) the Tribunal erred in apportioning 'unavoidable or reasonable expenditure' and other expenditure to determine that part of the income maintenance period does not apply proportionate to the 'unavoidable or reasonable expenditure. c. Whether, in reaching the conclusion that the discretion under s 1068-G7AM of the Social Security Act 1991 could be exercised so as to determine that part of the income maintenance period does not apply to the Respondent the Tribunal gave adequate reasons for its decision." 10 These are not "pure questions of law". Questions such as those posed in paragraphs a and b which ask whether a tribunal has "erred" simply beg the question of law. They cannot convert that which is otherwise not a question of law into one: see Australian Telecommunications Corporation v Lambroglou (1990) 12 AAR 515 at 524 (per Ryan J). Question c is, at best, a mixed question of fact and law. 11 Despite the failure of appellants to identify questions of law, this Court has, in appropriate cases, such as Birdseye, been prepared to frame questions in order to found its jurisdiction. This, in my view, is a case in which this step should be taken. It is evident, from the Secretary's submissions, that at least one question of law arises. It is a question of importance in the administration of the relevant legislation. It should be dealt with. 12 In order to identify that question, it is first necessary to examine the legislative provisions which govern Mr Ergin's entitlement to receive a Newstart Allowance.

LEGISLATIVE SCHEME 13 Section 593 of the Social Security Act 1991 (Cth) ("the SS Act") provides for the payment of Newstart Allowance to an unemployed person in certain circumstances. Where an applicant for Newstart Allowance has been terminated from his or her employment and, as a result of the termination, is entitled to a lump sum from the former employer, the applicant is taken to have received "ordinary income" as defined in s 8 of the SS Act for a period equal to the period (called "the income maintenance period") to which the payment relates: s 1068-G7AH. The "period to which the payment relates" is defined in s 1068-G7AQ to mean the period to which any leave payment relates or, in the case of redundancy payments, the period during which the person would have received, as ordinary income, the total redundancy payment. Section 1068-G7AKA of the SS Act provides that the income maintenance period commences on the day a person is paid the termination payment. During this period the applicant is ineligible to receive the Newstart Allowance. If the Secretary is satisfied that the person is in "severe financial hardship" as defined in s 19C(2) of the SS Act because the person has incurred "unavoidable or reasonable expenditure" while an "income maintenance period" applies to the person, the Secretary may determine that the whole, or any part, of the "income maintenance period" does not apply: s 1068-G7AM of the SS Act. 14 The question of law which the Secretary seeks to ventilate relates to the operation of s 1068-G7AM. This section empowers the Secretary to determine, in certain circumstances, that the whole or part of an income maintenance period does not apply to an applicant. It provides, relevantly: "If the Secretary is satisfied that a person is in severe financial hardship because the person has incurred unavoidable or reasonable expenditure while an income maintenance period applies to the person, the Secretary may determine that the whole, or any part, of the period does not apply to the person…" 15 The definition of "severe financial hardship" for a single person is provided by s 19C(2) of the Act which provides: "A person who is not a member of a couple and who makes a claim for parenting payment, austudy payment, special benefit, disability support pension, carer payment or one of the following allowances: (a) newstart allowance; (b) widow allowance; (c) mature age allowance; (d) sickness allowance; (e) youth allowance is in severe financial hardship if the value of the person's liquid assets…is less than the fortnightly amount at the maximum payment rate of the payment, benefit, pension or allowance that would be payable to the person: (f) if the person's claim were granted; and (g) in the case of a person to whom an income maintenance period applies, if that period did not apply." 16 "Unavoidable or reasonable expenditure" is defined in s 19C(4) which provides: "Unavoidable or reasonable expenditure, in relation to a person who is serving a liquid assets test waiting period or is subject to a seasonal work preclusion period, or a person to whom an income maintenance period applies, includes, but is not limited to, the following expenditure: (a) the reasonable costs of living that the person is taken, under subsection (6) or (7), to have incurred in respect of … (iii) if an income maintenance period applies to the person - that part of the period that has already applied to the person; (b) the costs of repairs to, or replacement of, essential whitegoods situated in the person's home; (c) school expenses; (d) funeral expenses; (e) essential expenses arising on the birth of the person's child or adoption of a child by the person; (f) expenditure to buy replacement essential household goods because of loss of those goods through theft or natural disaster when the cost of replacement is not the subject of an insurance policy; (g) the costs of essential repairs to the person's car or home; (h) premiums in respect of vehicle or home insurance; (i) expenses in respect of vehicle registration; (j) essential medical expenses; (k) any other costs that the Secretary determines are unavoidable or reasonable expenditure in the circumstances in relation to a person. However, unavoidable or reasonable expenditure does not include any reasonable costs of living other than those referred to in paragraph (a)."

SUBMISSIONS 17 The Secretary contended that the discretion conferred by s 1068-G7AM of the SS Act, to determine that the whole, or any part, or the "income maintenance period" does not apply to a person, can only be exercised where the person is in "severe financial hardship" as defined in s 19C(2) of the SS Act, that is, where the hardship being experienced is solely due to "unavoidable or reasonable expenditure", as defined in s 19C(4) of the SS Act, incurred during the "income maintenance period". 18 The Secretary relied on a series of decisions in which the AAT had held that there is no discretion, under s 1068-G7AM to waive the "income maintenance period" in whole, or in part, where the person is in "severe financial hardship" because of a combination of "unavoidable or reasonable expenditure" and other expenditure: see Nicola and Secretary, Department of Education, Employment and Workplace Relations [2008] AATA 134 at [14]; Bailey and Secretary, Department of Education, Employment and Workplace Relations [2009] AATA 173 at [36]; Secretary, Department of Education, Employment and Workplace Relations v Bristow [2009] AATA 1005 at [30]; and Glasson and Secretary, Department of Education, Employment and Workplace Relations [2009] AATA 969 at [13]. The Secretary submitted that, in the exercise of its discretion under the Act, the AAT took into account irrelevant considerations, because s 1068G7-AM neither refers to expenditure that is not "unavoidable or reasonable", nor does it provide for a process of apportionment between expenditure that is "unavoidable or reasonable" and other expenditure. 19 The Secretary further contended that, if resort to s 1068G7-AM was available in circumstances such as the present, there would always be an entitlement to exercise of the discretion in every case where there was "severe financial hardship" provided that some expenditure had been made which was "unavoidable and reasonable". The Secretary submits that this would undermine the policy objective of the SS Act that "people must reasonably exhaust available funds prior to seeking a government benefit": Goldfinch and Department of Family and Community Services [2000] AATA 837 at [24]. In that case, the AAT considered that it would be socially irresponsible to allow applicants for benefits to exhaust available funds on discretionary expenditure and then receive benefits to make up for their lack of foresight and prudence. 20 Mr Ergin did not seek to challenge the Secretary's submissions. He sought only to emphasise the unfair effect, in a general sense, that a decision to re-impose the full income maintenance period would have on his financial position, reiterating arguments he had made before the AAT. He said that he is no longer impecunious, having found gainful employment.

CONSIDERATION 21 The legislative purpose served by the "income maintenance period" regime is clear. A person who, upon becoming unemployed, receives a termination payment is expected to use that payment to cover his or her reasonable living expenses and is not entitled, immediately, to receive income support from the public purse. The SS Act provides a formula pursuant to which the length of any "income maintenance period" is to be calculated. Once the period has expired the person is entitled to the benefit claimed provided that he or she remains otherwise eligible. 22 The SS Act also takes account of the possibility that a person may suffer severe financial hardship during an income maintenance period because some or all of the termination payment is expended on necessary ("unavoidable or reasonable") expenditure on goods or services or the satisfaction of legal obligations. In such cases the Secretary is given a discretion by s 1068-G7AM to determine that the income maintenance period (or part of it) should not apply to the applicant. 23 The occasion for the Secretary to give consideration to the exercise of her discretion under s 1068-G7AM will only arise if the Secretary is satisfied of three things. They are that: The applicant is in severe financial hardship; The applicant is suffering such hardship "because" he or she has incurred unavoidable or reasonable expenditure; and Such expenditure has been incurred while the income maintenance period applies to the applicant. 24 Upon being satisfied of each of these three matters the Secretary may decide that the whole of the income maintenance period or part of it does not apply to the applicant. No formula is prescribed for calculating the length of any dispensation which may be granted by the Secretary once she has determined that the discretionary power is enlivened. 25 An applicant must be in severe financial hardship at the time at which the Secretary makes her decision under s 1068-G7AM. In the case of a single person such hardship will be found to exist if the requirements of s 19C(2) of the SS Act are satisfied. This will involve a comparison of a person's liquid assets, as defined by s 14A, and the rate at which the benefit would be payable but for the imposition of an income maintenance period. 26 Given that the "income maintenance period" commences on the day on which a person is paid a termination payment (s 1068-G7AKA) any relevant expenditure of the whole or part of that termination payment will necessarily occur during the period. 27 Of the three matters the only one in dispute is the second. When the appeal was before the AAT, the Secretary agreed and the AAT accepted that Mr Ergin was then in severe financial hardship. He was in this position because he had dissipated, during the income maintenance period, the termination payments which had been made to him. 28 The critical question which remained and which the AAT failed to ask, was whether Mr Ergin was in severe financial hardship because he had incurred "unavoidable or reasonable expenditure." 29 Section 1068-G7AM requires that there be an inquiry as to why an applicant is suffering severe financial hardship: cf Purvis v The State of New South Wales (2003) 217 CLR 92 at 163 (per Gummow, Hayne and Heydon JJ); Toben v Jones (2003) 129 FCR 515 at 526 (per Carr J). Before the decision-maker can exercise the discretion which is conferred by the section she must be satisfied that the cause of an applicant's hardship was the incurring of "unavoidable or reasonable expenditure" during the relevant period. 30 In some cases this question will easily be answered. The applicant may have expended all or almost all of the termination payment on goods or services which do not meet the statutory definition of unavoidable or reasonable expenditure. In such cases the second precondition will not be satisfied. Other cases, such as the present, will cause greater difficulty because some expenditure falls within the "unavoidable or reasonable" category and some does not. 31 It is common, in legislation which is protective of human rights, for provision to be made that, if a prejudicial act is done for multiple reasons and one of those reasons is a proscribed reason or is a material or operative reason, a contravention may be established: see, for example, Disability Discrimination Act 1992 (Cth), s 10; Racial Discrimination Act 1975 (Cth), s 18B; Sex Discrimination Act 1984 (Cth), s 8; Fair Work Act 2009 (Cth) s 360. The SS Act contains no equivalent provision. Section 1068-G7AM provides for an exception to be made to the general rule that social security benefits should not be paid to persons who have received termination payments until after the period notionally covered by those payments has expired. The occasion for the exercise of the discretion is limited and, once the occasion arises, the exercise of the discretion is unfettered save by implications derived from the subject matter, scope and purpose of the legislation: see Minister for Aboriginal Affairs v Peko-Wallsend Ltd (1986) 162 CLR 24 at 39-40 (per Mason J). The legislative purpose, identified above at [21], is one consideration which will inform the manner in which the discretion is exercised. This means that there may be cases in which the Secretary is satisfied that each of the three preconditions have been met and, nonetheless, determines not to waive any of the income maintenance period. 32 Having regard to the context in which it appears, s 1068-G7AM requires that the Secretary be satisfied that the cause of an applicant's impecuniosity was the incurring of "unavoidable or reasonable expenditure" during the income maintenance period, before the power to exercise the discretion is enlivened. 33 The judgment which the decision-maker is required to form must be made in a practical manner. The judgment will, normally, fall to be made in the course of an income maintenance period. Just when, during such a period, the issue will arise will usually depend on when an applicant seeks the favourable exercise of the Secretary's discretion. At whatever point such a request is made, it will be necessary for the Secretary to examine the financial position of the applicant at that time and then to ascertain how the applicant has disposed of the termination payment. 34 Depending on the circumstances, the Secretary may be satisfied that the cause of the applicant's impecunious state was unavoidable or reasonable expenditure even though some of the termination payment may have been spent on items which do not fall into this category. Such a conclusion may be possible, for example, in a case in which an application for the exercise of discretion is made towards the end of an income maintenance period and it is found that the bulk of the termination payment has been expended on unavoidable and reasonable purchases, notwithstanding that a very small sum has been used for other purposes. I do not, therefore, accept the submission that the discretion, conferred by s 1068G7AM, can only be exercised where none of the applicant's termination payment has been expended for such other purposes. 35 Mr Ergin had, as the AAT found, incurred some "unavoidable or reasonable expenditure". It did not, however, find that he was suffering severe financial hardship because he had done so. Had the appropriate question been asked, the answer was, by no means, inevitable. Mr Ergin's "ordinary income" when employed was a little less than $1,000 per week. His redundancy and leave payments covered a period of 53 weeks during which he would notionally have received ordinary income at this rate. These 53 weeks became the income maintenance period applied to him. The AAT found that $26,769 of the $46,000 which Mr Ergin received, after tax, as a termination payment, was attributable to "unavoidable and reasonable expenditure". This left $19,231. The AAT accepted that this amount had been expended on a holiday and gambling which it found was neither unavoidable nor reasonable expenditure. The AAT further found that, at relevant times, the rate at which Mr Ergin would have been paid a Newstart allowance would have been $282.25 per week. At this rate he would have received slightly less than $15,000 during the income maintenance period, an amount less than the $19,231 found to have been expended on the holiday and gambling. Although at the times at which he applied for the Newstart Allowance and his appeal was determined by the AAT Mr Ergin was in severe financial hardship as defined by s 19C(2) of the Act, it does not, therefore, necessarily follow that this predicament was caused by his incurring unavoidable and reasonable expenses. 36 Despite failing to find that Mr Ergin's hardship arose from his incurring unavoidable or reasonable expenditure, the AAT assumed, without explaining why, that it was in a position to exercise the discretion conferred on the Secretary by s 1068-G7AM, and proceeded to exercise it. 37 The question of law which the Secretary has sought to raise in paragraph a, as I understand it, relates to this aspect of the AAT's decision. As framed, this question assumes that, as a matter of fact, Mr Ergin's hardship was not occasioned by unavoidable or reasonable expenditure. That may have been so but no such finding was made by the AAT. Nor, for the reasons which I have given, was such a finding inevitable having regard to the factual findings which were made. Given that the question of law is the subject matter of the appeal, it seems to me that the question needs to be reframed along the following lines: "Whether, on its proper construction, s 1068-G7AM of the Social Security Act 1991 (Cth), empowers the Secretary to exercise the discretion therein provided for, without the Secretary first being satisfied that a person is in severe financial hardship because he or she has incurred unavoidable or reasonable expenditure?" The question, so framed, should be answered: no. 38 In exercising the discretionary power which it assumed, the AAT accepted, in paragraph [5] of its reasons which are set out above at [5], that the policy, reflected in the Act, would be undermined if Mr Ergin were able to receive the Newstart Allowance for that proportion of the income maintenance period which corresponded with the proportion of his termination payment which was spent on his holiday and gambling. The income maintenance period was retained to that extent but was otherwise waived. (It may be that, in calculating the length of the part of the income maintenance period which was to be retained, the AAT made an error: the period of 22 weeks, commencing on 27 March 2009, would have expired on 28 August 2009). 39 The Secretary challenges this exercise of discretion on the ground that the AAT had regard to irrelevant considerations. Question b is intended to deal with this aspect of the AAT's decision. 40 Given that the occasion for the exercise of the discretion did not arise on the findings made by the AAT, question b is hypothetical. It is not, therefore, necessary to attempt to frame a question of law to deal with this issue. It should be noted, however, that an irrelevant considerations ground would be more appropriately raised in judicial review proceedings and that, in any event, the discretion conferred on decision-makers by s 1068-G7AM is broad and unfettered. It may be that there will be cases in which it might be appropriate for the decision-maker to adopt the "apportionment" method in determining what part of an income maintenance period should not be applied to an applicant. The further consideration of this issue should await a case in which it is squarely raised and fully argued.

OTHER MATTERS 41 The Secretary also sought to impugn the AAT's decision on the grounds that it had denied her procedural fairness by making its decision without first hearing the Secretary on the questions of whether the occasion for the exercise of discretion under s 1068-G7AM existed and, if so, whether it was open to the AAT to exercise the discretion using the apportionment method which it adopted. The Secretary further objected that the AAT had erred in law by failing, contrary to s 43 of the AAT Act, to provide adequate reasons for its decision. In particular, no reasons were given for the AAT's assumption that, in the circumstances, the discretion provided for in s 1068-G7AM was enlivened. 42 This latter ground is linked to question of law c. 43 It is not necessary to deal with this objection in order to dispose of this appeal. There can be no doubt that the AAT is required to accord procedural fairness to those appearing before it but authority is divided as to whether a failure to do so (at least where the failure must be established by resort to material other than that provided to the Court pursuant to s 46 of the AAT Act) can give rise to a question of law for the purposes of s 44: see, for example, Clements v Independent Indigenous Advisory Committee (2003) 131 FCR 28 at 312; 46-7. Similarly, it is by no means clear that a failure, by the AAT, to provide adequate reasons for its decision gives rise to reviewable error of law: see Kennedy v Australian Fisheries Management Authority (2009) 182 FCR 411 at 431-6. Unless a relevant ground exists, it will be difficult to identify a related question of law: see Birdseye at 325.

DISPOSITION 44 The appeal should be allowed. As the AAT has failed to find the necessary facts to support the exercise of the discretion conferred by s 1068-G7AM of the SS Act, the proceeding should be remitted to the AAT for re-hearing according to law. 45 The Secretary did not seek an order for costs should the appeal be successful. No order for costs will, therefore, be made. I certify that the preceding forty-five (45) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Tracey.