Walker, K. v Secretary, Department of Social Security [1995] FCA 130

Walker, K. v Secretary, Department of Social Security [1995] FCA 130 | Case summary | Zoe

[2]

IN THE FEDERAL COURT OF AUSTRALIA) No. QG 227 of 1993 QUEENSLAND DISTRICT REGISTRY ) GENERAL DIVISION ) ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA BETWEEN: KELVIN WALKER Appellant AND: SECRETARY, DEPARTMENT OF SOCIAL SECURITY Respondent Coram: Spender, Drummond and Cooper JJ Place: Brisbane Date: 17 March, 1995 REASONS FOR JUDGMENT DRUMMOND J: The question for decision in this appeal under s. 44 the Administrative Appeals Tribunal Act 1975 (Cth) is whether the Secretary, Department of Social Security ("the Secretary") can lawfully refuse to pay the arrears of benefit which a person has been held entitled to receive under the Social Security Act 1947 (Cth), by a decision of the Administrative Appeals Tribunal ("AAT"), because that person has received payments of social security benefit in the past to which he was not in truth entitled greater than the amount of those arrears. The question arises in this way. On 3 May, 1988 the Department of Social Security ("the Department") recorded that there had been an overpayment of $20,287.03 in sickness benefits to the appellant. This overpayment was made in response to false claims lodged by the appellant for the period 27 February, 1984 to 17 August, 1987. He was prosecuted and convicted in respect of these claims and imprisoned on 12 April, 1989. A claim he made for sickness benefits on 8 November, 1988 ultimately resulted in a decision by Bulley J, sitting as a Presidential Member of the AAT, in his favour to the effect that he was entitled to be paid sickness benefits from 20 October, 1988. Following this decision given on 21 June, 1991, it remained for the Department to calculate the amount of the appellant's entitlement for the period from 20 October, 1988 to 11 April, 1989, i.e., up to the time of his imprisonment. On 9 July, 1991 it fixed this amount at $2,134.40. On the same day, without reference to the appellant, a delegate of the respondent determined to offset that sum against the overpayments totalling $20,287.03. The appellant has not been paid the $2,134.40. The appellant was successful in having the delegate's decision overturned by the Social Security Appeals Tribunal ("SSAT"). However, the respondent successfully sought a review of the SSAT decision by the AAT. The appellant's appeal against the AAT's decision was dismissed by von Doussa J.

[3]

Although both the AAT and the learned primary judge considered a number of questions raised as to the operation of ss. 1224 and 1231 the Social Security Act 1991 (Cth) ("the Act") and both were of the view that neither of those provisions would have entitled the respondent to offset the arrears of benefit against the amount of the fraudulent claims, both decisions turned on the question whether, apart from the statute, the respondent was entitled to make this set-off. Von Doussa J affirmed the AAT's decision that the respondent was so entitled, after examining the legal bases of the statutory right to set-off a liquidated sum against a claim for a debt or other liquidated amount. His Honour said at (1994) 120 A.L.R. 123, pages 130-131: "Where there are cross-demands for liquidated sums between citizens, the one whose debt is the greater will ordinarily simply refuse to pay if demand is made by the other. In a practical sense the set-off is relied upon as soon as the demand is made. If the demanding party is dissatisfied with this response, the recourse provided by law is legal proceedings in a court of competent jurisdiction. If legal proceedings are commenced, the set-off will be pleaded, and will constitute a defence. The outcome of the legal proceedings will be no different to that achieved by the defendant's first refusal to pay on the demand, apart from wasted legal expenses. In my opinion the provisions of the Act which empower the Commonwealth to recover debts by legal proceedings should not be construed so as to deny to the Commonwealth the same practical rights which an ordinary citizen possesses to raise and rely upon a right of set-off in advance of the formal issue of legal proceedings. If the applicant were to take further action to enforce payment to him of the sum of $2134 which he claims as a debt due by the Commonwealth for sickness benefits payable under the Act, he would do so by legal proceedings in a court of competent jurisdiction. In the absence of a defence by the Commonwealth judgment could be expected to follow, and that judgment could be recovered by the procedure laid down in ss.65 and 66 of the Judiciary Act 1903 (Cth). However, if the Commonwealth were to plead as a set-off the debt recoverable by the Commonwealth under s.1224, on the trial of the legal proceedings, the applicant would fail. The object which the decision under appeal sought to achieve would then, clearly, have been achieved in legal proceedings. And the debt due to the Commonwealth under s.1224(1) would have been reduced in consequence of the successful plea of set-off by the amount of $2134. In my opinion the AAT correctly concluded that the decision of 9 July 1991 to set off that amount against the debt due by the applicant to the Commonwealth was legitimate, that it is in accordance with the Act, fair and sensible."

[5]

(3) If a person has received an overpayment under certain other Acts or schemes, the amount of the overpayment may be recoverable by means of deductions from the person's pension, benefit or allowance under this Act." The table contained in sub-section (2) lists the sections of the Act under which recoverable debts arise; against each section there is listed the means of recovery, generally but not invariably by "deductions", "legal proceedings" and "garnishee notice". A column in the table identifies the particular sections of the Act that prescribe each such recovery method. The opening words of sub-section (1) are a strong indication that Chapter 5 contains an exclusive statement of how the Commonwealth can recover social security payments of the kind listed in that sub-section. Part 5.2 of the Act identifies the various circumstances in which payments by way of pension, benefit or allowance under, inter alia, the Act are recoverable by the Commonwealth. Section 1224 deals with the recoverability of payments procured by a recipient's contravention of the Act: s. 1224(1) declares such overpayments to be debts due to the Commonwealth and s. 1224(2) provides: "(2)A debt due to the Commonwealth under sub section (1) is recoverable by the Commonwealth by means of: (a) if the person is receiving a pension, benefit or allowance under this Act - deductions from that person's pension, benefit or allowance; or (aa)if section 1234A applies to another person who is receiving a pension, benefit or allowance under this Act - deductions from that other person's pension, benefit or allowance; or (b) legal proceedings; or (c) garnishee notice." The other sections of this Part provide for the recovery of certain social security payments made in a range of other circumstances. For example, s. 1223(1) deals with the recoverability of payments made to a person not qualified to receive the particular benefit; s. 1224A deals with the recoverability of debts incurred in respect of payments under the pension loans scheme contained in s. 1135 of the Act. Each section in this Part which provides for recovery of benefits contains provisions to the same effect as s. 1224: each, like s. 1224(1), either declares a particular kind of social security payment made in particular circumstances to be a debt due to the Commonwealth or identifies it as a debt arising by force of other statutory provisions and, like s. 1224(2), each prescribes the methods by which that debt is recoverable. These methods are generally, but not invariably, the same four methods set out in s. 1224(2). Part 5.3, headed "Methods of Recovery", deals with the three common methods of recovery to which I have referred, viz., by deduction from benefit payments, by legal proceedings and by garnishee proceedings. Section 1231, insofar as it applies to s. 1224, deals with how a debt arising from a recipient's contravention of the Act is to be recovered by way of deduction from a person's pension, benefit or allowance. Section 1232 deals with recovery by the Commonwealth by way of legal proceedings. Sub-section (1) provides: "If a debt is recoverable by the Commonwealth by means of legal proceedings under: (a) Part 5.2 of this Act; or (b) the 1947 Act; the debt is recoverable by the Commonwealth in a court of competent jurisdiction."

[6]

The section goes on to provide for relevant limitation periods for the bringing of such proceedings. Section 1233 deals with recovery by way of garnishee notice. In its application to recovery of a debt arising under s. 1224, taking that section as an example, s. 1233 requires the Secretary to give a written notice "to another person" by whom money is due to the overpaid social security benefit recipient, which notice requires that other person to pay to the Commonwealth the amount specified in the notice; this amount must not exceed the amount of the debt due by that other to the person who has been overpaid the benefit. When this particular recovery procedure is used, the person who has been overpaid benefits must be given a copy of the notice issued by the Secretary to the garnishee (s. 1233(4)); if the garnishee makes a payment to the Commonwealth in compliance with such a notice, he gets a good discharge in respect of that payment as against his debtor, i.e., the person who has been overpaid benefits (s. 1233(5)) and the Secretary must also notify the person who has been overpaid the benefits of the receipt of any payments from the garnishee (s. 1233(6)). Importantly, this garnishee procedure can be used not only where a third person owes money to the person who has been overpaid benefits under the Act; it can also be used where money "is due" by the Commonwealth itself to the person overpaid: see ss. 1233(1)(a) and (8)(a). But in such case, the procedure can only be effectively invoked if the Secretary gives the garnishee notice to an appropriate officer of the Commonwealth and if he also gives a copy of that garnishee notice to the person to whom benefits have been overpaid. See ss. 1233(1) and (4). Here, the Secretary failed to do what was required by this section to entitle him to recover under it any of the benefits overpaid to the appellant. The other sections in Part 5.3 empower the Secretary to allow a person to pay a debt of the kind here in question by instalments (s. 1234) and to recover such debts by deduction from the social security benefit being paid to a person other than the recipient of the overpayments, where the deduction procedure prescribed by s. 1231 has not been followed or is not available, but where the person receiving the pension from which the deductions are to be made consents to that being done. The last section of Chapter 5, Part 5.4, empowers the Secretary to write off these kinds of debts (s. 1236) and to waive the Commonwealth's right to recover the whole or part of any such debt (s. 1237).

[8]

Chapter 5, however, does in my opinion reveal an intention to state, in an exclusive way, how the Commonwealth can recover certain kinds of overpaid benefits. Chapter 5 commences with the statement in s. 1222 of its intended operation, which includes the identification of those social security and other payments which are recoverable by the Commonwealth, and lists the procedures to be followed by the Commonwealth in recovering each class of payment. The Chapter then defines these recovery procedures and makes provision for recovery in two other ways (viz., by instalments and by consent deductions). It concludes with provisions empowering the Secretary to forego the Commonwealth's entitlement to recovery of such payments. In my opinion, the opening words of s. 1222(1) and the structure of Chapter 5 show that it is a code which prescribes the exclusive methods whereby recovery can be lawfully effected of those social security and other benefits listed in s. 1222(1). It was common ground on the hearing of the appeal that the course followed by the respondent's delegate here did not conform to any of the methods in Chapter 5 for recovery by the Commonwealth of any part of the overpayments of sickness benefit made to the appellant, from the arrears of sickness benefit to which he had an established entitlement pursuant to Bulley J's judgment. But the subject matter of Chapter 5 of the Act is limited to the "recovery" of certain debts owed to the Commonwealth. The provision of relevance in this case, s. 1224(2), identifies the only four methods whereby debts arising from overpayments of social security benefit due to false statements by the recipient are lawfully "recoverable". Among the dictionary meanings of the word "recover", the following are relevant: The Macquarie Dictionary: recover (1) to get again, or regain (something lost or taken away); to recover lost property. ... (4) Law. a) to obtain by judgment in a court of law, or by legal proceedings: to recover damages for a wrong. b) to acquire title to through judicial process: to recover land. recovery (1) the act of recovering. (2) the regaining of something lost or taken away, or the possibility of this ... (9) Law. the obtaining of right to something by verdict or judgment of a court of law. Shorter Oxford English Dictionary: recover (1) To get back again into one's hands or possession; to regain possession of (something lost or taken away). ... (5) Law. To get back or gain by judgement in a court of law; to obtain possession of, or a right to, by legal process. ... recovery (II) Possibility or means of recovering, or of being restored to, a normal state. ... (II) (1) Law. The fact or procedure of gaining possession of some property or right by a verdict or judgement of court ... (2) The recovering of something lost or taken away; the possibility of recovering such a thing ...

[9]

There are numerous cases in which, in various statutory contexts, the word "recover" and its derivatives have been held to bear a meaning wider than its strict legal meaning of "recover by action". In Haines v Welch and Marriott (1868) L.R. 4 C.P. 91, it was said of a statute entitling the succeeding landlord "to recover and receive of the tenant, in the same manner as his predecessor ... a fair proportion of the rent ..." that this provision entitled the succeeding landlord to exercise the form of self-help, distraint for rent, since: "it [`recover'] is now often used in the larger sense of obtaining in any legal manner ...". See also In re The Gilbert Machinery Company (No. 1) [1907] N.Z.L.R. 47 at 50 and Maksimovic v Coshott (1987) 11 N.S.W.L.R. 184. In view of the procedures made available by Chapter 5 to the Commonwealth for recovering overpaid benefits that do not involve court action, it is in this larger sense that the terms "recovery" and "recoverable" are there used. However, in making the decision of 9 July, 1991 to offset the amount of the appellant's entitlement to the benefits he obtained pursuant to the decision of Bulley J against the overpayment of sickness benefits made to him, the delegate was not purporting to recover the $2,134.40 from the appellant, even in the larger meaning of the word. He did not, as both the AAT and the learned primary judge held, attempt to invoke any of the recovery procedures prescribed by s. 1224(2). He did not by his decision of 9 July, 1991 obtain or even purport to obtain anything from the appellant. All the delegate did was make a decision to refuse to part with funds of the Commonwealth in favour of the appellant to the extent of $2,134.40, because the appellant owed the Commonwealth a larger sum in respect of fraudulently obtained benefits. Since the respondent has not sought to recover anything from the appellant in respect of the $2,134.40 entitlement of the latter to arrears of benefit pursuant to the judgment of 21 June, 1991, the fact that the respondent has not yet followed any of the procedures prescribed by s. 1224(2) for recovery of the overpaid benefits does not necessarily mean that the appeal must succeed. Von Doussa J described the action of a person entitled to raise a set-off in answer to a claim made on him by another of withholding payment of the amount in question before the other has sued as a "practical right". What Goff J said in the "Kostas Melas" [1981] 1 Lloyd's Rep. 18 at 26 is, I think, an accurate description of the nature and effect of the delegate's decision of 9 July, 1991 (if it is assumed that the respondent would be able to plead a set-off, either legal or equitable, in answer to any action that the appellant were to bring to compel payment of the $2,134.40): "... although a right of set-off is a defence, with all the legal consequences which follow from it, in practice the exercise of a right of deduction or set-off is essentially a provisional act. It decides nothing finally. Its exercise simply operates as a temporary retention of an economic asset by the party exercising the right, and the temporary deprivation of the other party of that asset. For the exercise of the right does not prevent either party from subsequently proving his claim or cross-claim, and so does not affect the final resolution of the fundamental dispute. ..."

[10]

Whether it is properly characterised as a right recognised by the law, a person who so acts does nothing unlawful. It would, in my opinion, require a clear indication in the Social Security Act 1991 (Cth) that the Crown was not to be entitled to take such action in an appropriate case against a person entitled to receive benefits under that Act. It is, as the learned primary judge recognised in the passage in his judgment set out earlier, a well-established principle that, in the absence of clear words, statutes are not to be read as depriving persons of their ordinary legal rights and remedies. See Bennion, Statutory Interpretation, 2nd ed., pp. 590-593; Pearce & Geddes, Statutory Interpretation in Australia, 3rd ed., para. 5.11; and Boulting v Association of Cinematograph, Television and Allied Technicians [1963] 2 Q.B. 606 at 643-644. I do not think that there is anything in the Social Security Act 1991 (Cth) that justifies the conclusion that the respondent is not entitled to withhold payment of arrears of benefit to a person because the respondent has a money claim against that same person. The only provisions of the Act that touch on this are in Chapter 5. But that Chapter does not purport to deal with anything other than recovery of overpayment of benefit. The learned primary judge held that since the Commonwealth would be entitled to plead, in answer to any action brought by the appellant to recover the $2,134.40, a set-off based on the Commonwealth's entitlement to recover from the appellant the benefits overpaid to him, the Commonwealth was entitled to rely upon a right of set-off in advance of the formal issue of legal proceedings. His Honour's judgment proceeded on the assumption that each of the Commonwealth and the appellant owed debts to the other which could be the subject of a set-off at law, if legal proceedings were taken by the latter against the former in respect of the debt due to him. Of a medicare benefit payable pursuant to the provisions of the Health Insurance Act 1973 (Cth), Brennan J, in Health Insurance Commission v Peverill (1994) 179 C.L.R. 226, said at 241-3: "A practitioner's right to the payment of a medicare benefit assigned by a patient is conferred by statute exclusively upon the assignee practitioner when the conditions prescribed by the Principal Act [i.e. the Health Insurance Act] are satisfied. It is not capable of assumption by third parties. It is a right ultimately to be paid by the Commission a sum of money out of Consolidated Revenue. The Commission is under a corresponding statutory duty [i.e. to pay]. That duty is enforceable by a public law remedy: by mandamus or mandatory order under the Administrative Decisions (Judicial Review) Act 1977 (Cth). ... Once it is appreciated that the right conferred by the Principal Act upon an assignee practitioner is to be discharged by a statutory authority when certain statutory criteria are fulfilled, it is clear that that Act does not create a debt enforceable by action. The Principal Act is a code prescribing the benefits to be paid and the manner of paying them. The only way in which a medicare benefit can be paid to a claimant is by acceptance of a claim made within time followed by a payment by the Commission in an amount prescribed by the statutory Tables out of Consolidated Revenue in such a manner as the General Manager of the Commission determines. The money thus to be paid is the only money appropriated for the purpose of paying medical benefits. ... ... the Principal Act creates no debt recoverable as such in any court of competent jurisdiction. The scheme of that Act is to appropriate Consolidated Revenue to the extent necessary to allow the Commission, after acceptance of claims made to it within the times prescribed, to pay out to claimants the amounts prescribed by the Principal Act. The Principal Act confers on assignee practitioners a right to be paid medicare benefits subject to the conditions prescribed but it does not create a debt."

[11]

This, in my opinion, is an accurate description of the nature of the appellant's right to receive the $2,134.40 by way of sickness benefits under the Social Security Act 1991 (Cth). Once Bulley J's decision was delivered, the Secretary, the Department of Social Security became subject to a duty, legally enforceable by the appellant by appropriate public law remedies, to pay the amount of this benefit to the appellant, unless the delegate was entitled to off-set the appellant's indebtedness to the Commonwealth in respect of overpaid benefits, against his entitlement to be paid the $2,134.40. But the appellant's entitlement to be paid this sum was not a right which could be made the subject of an action in debt against the Commonwealth. It could not give rise to any other common law cause of action for the payment of money to him. The Commonwealth could therefore never be entitled to a set-off at law of the appellant's indebtedness to it against the appellant's right to be paid the sum in question. See Derham, Set-Off, p. 7. The judgment appealed from cannot be supported on the ground that the Commonwealth is as much entitled as any citizen to decline to pay a debt owing in reliance on a debt due to it that will entitle it to plead a set-off at law in defence to any action that the claimant may bring against the Commonwealth to enforce payment of the debt owing by it to him. If, however, the Commonwealth would be entitled to treat its right to recover the debt due to it in respect of the benefits overpaid to the appellant as an equitable set-off against the appellant's statutory right to payment to him of the $2,134.40, that would be sufficient to justify the delegate's action here. In Rawson v Samuel (1841) Cr. & Ph. 161 at 178, the Lord Chancellor described the essential characteristic of an equitable set-off as a requirement that "the party seeking the benefit of it can shew some equitable ground for being protected against his adversary's demand". The only assistance the Lord Chancellor gave in identifying what would constitute such an equitable ground were his statements, at 178, that "[t]he mere existence of cross-demands is not sufficient ..." and, at 179, that an equitable set-off arose if "... the equity of the bill impeached the title to the legal demand.". This judgment is regarded in Australian courts as stating the principle to be applied in determining whether a defendant can rely on equitable set-off as a defence to a money claim that is made on him: see J. & S. Holdings Pty. Ltd. v N.R.M.A. Insurance Ltd. (1982) 61 F.L.R. 108 at 127 (Full Court of this Court); Lord v Direct Acceptance Corporation Ltd. (1993) 32 N.S.W.L.R. 362 at 367 (Court of Appeal); Indrisie v General Credits Ltd. [1985] V.R. 251 at 254 (Full Court); and Gibb Australia Pty. Ltd. v Cremor Pty. Ltd. (1992) 108 F.L.R. 129 at 135 (ACT Full Court). In this last-mentioned case the Full Court said at 135 that "[w]hat constitutes good equitable grounds has never been precisely formulated" and Derham, in his article "Recent Issues in Relation to Set-Off" in 68 A.L.J. 331, observed at 332: "The concept of impeachment' itself suffers from a sense of vagueness." The author lists various judicial explications of this term that do not, however, illuminate it beyond emphasising the necessity for a close connection between the subject matter of the set-off and that of the adversary's demand. To these references can be added the statement in Lord at 367: "The concept [of impeachment] is better stated in Meagher, Gummow and Lehane, Equity, Doctrines and Remedies, 3rd ed (1992), par. 3709(h) at 818, where the learned authors say that it is an indispensable requirement of equitable set-off that the set-off actually go to the root of, be essentially bound up with, impeach' the title of the plaintiff." In James v Commonwealth Bank of Australia (1992) 37 F.C.R. 445, Gummow J at 458-9 referred to a number of cases, including D. Galambos & Son Pty. Ltd. v McIntyre (1974) 5 A.C.T.R. 10, as illustrating what was involved in the notion of "impeachment". His Honour concluded, at 459: "Nevertheless, these authorities, particularly Piggott v Williams (supra) (which antedates Rawson v Samuel), suggest that it is sufficient that the existence of the legal demand, in this case the applicant's claims to payment by the banks on the indemnities, would not have come about or were at least contributed to by the applicant's own breaches of duty owed to the banks."

[13]

His Honour concluded at 462 that, because of the criticism of this statement by Dixon J in McDonnell & East Ltd. v McGregor (1936) 56 C.L.R. 50, "... in this Court the Newfoundland case does not provide a good juridical root for any changed doctrine of equitable set-off." Insofar as James establishes that it is not enough to give rise to an equitable set-off for the cross demand to flow out of and be inseparably connected with the transactions out of which the plaintiff's claim arose, I respectfully agree. If, however, James should be understood as going beyond that and as holding that there is no place in the law of equitable set-off for a requirement that the nexus between claim and cross-demand sufficient to give rise to an equitable set-off must be such that it will be unjust to permit the plaintiff to claim without bringing into account the defendant's cross-demand, then I am unable to accept it as a correct statement of the law. Like Smart J, in Sydmar Pty. Ltd. v Statewise Developments Pty. Ltd. (1987) 73 A.L.R. 289 at 293, I accept the correctness of Woodward J's conclusion in D. Galambos & Son Pty. Ltd. v McIntyre (1974) 5 A.C.T.R. 10 at 20 that the McDonnell & East case "cannot be regarded as an authority on the question of equitable set-off". The issue in McDonnell & East was whether the trial judge was right in refusing to allow the defendant to plead certain debts owed to the defendant by the plaintiff as a set-off against the plaintiff's claims for unliquidated damages for conversion; the trial judge had allowed the defendant to plead the debts by way of counter-claim, with the result that the plaintiff avoided most of her liability in respect of these debts because most were time-barred. Dixon J, with whom McTiernan J agreed, said that O. 22, r. 3 the Rules of the Supreme Court (Qld) did not obliterate the distinction between set-off and counter-claim and that it followed that, since a set-off was a true defence while a counter-claim was a cross action, a set-off was time-barred only if the limitation period had expired at the time the plaintiff's writ was issued while a counter-claim was time-barred if the limitation period had expired at the time that the counter-claim was made. See pp. 57 and 58 of the report. Dixon J criticised the Privy Council's dictum in the Newfoundland Railway case, which I have set out above, only because it suggested the contrary. See pp. 59 to 60. His Honour did not express any view on the correctness of what the Privy Council said about the circumstances in which an equitable set-off could arise; his Honour was concerned only with what their Honours appeared to say to be the effect of the Judicature Act 1876 (Qld) changes in obliterating one of the distinctions between equitable and legal set-offs, viz., that prior to those changes unliquidated damages could only be the subject of set-off in equity, not at law. In the course of his judgment in Galambos, Woodward J extensively reviewed the authorities on equitable set-off. At p. 18, his Honour set out the proposition which he considered was established by the Lord Chancellor's judgment in Rawson v Samuel, supra, saying: "It seems, from the language used by the Lord Chancellor and the cases he referred to, that he regarded the prerequisites of an equitable set-off to be: (i) clear cross-claims for debts or damages, which (ii)were so closely related as to subject-matter that the claim sought to be set-off impeached the other in the sense that it made it positively unjust that there should be recovery without deduction."

[17]

Gibb Australia Pty. Ltd. v Cremor Pty. Ltd., supra, is another in this line of authority: see p. 138. Other such cases are referred to in AWA Ltd. v Exicom Australia Pty. Ltd. (1990) 19 N.S.W.L.R. 705; there Giles J, at 711, accepted that Woodward J's interpretation of Rawson v Samuel explained what was meant by the requirement that an equitable set-off must go to the root of or impeach the title to the plaintiff's claim. His Honour continued at 711-712: "In Tooth & Co. Ltd. v Smith, Clarke J observed that a determination as to whether an equitable set-off exists in any particular case requires an examination of the closeness of the respective claims, and that no general rule can be laid down except by stating that such a set-off will arise when there exist circumstances which make it unjust or inequitable that a plaintiff should be permitted to proceed with his claim. In Tooth & Co. Ltd. v Rosier, while continuing to acknowledge the necessity that the set-off raise an equity which impeaches, or is essentially bound up with, or goes to the root of title of the plaintiff's claims', Wood J observed that as presently advised he saw no fault in the test thus expressed by Clarke J, and in Sydmar Pty. Ltd. v Statewise Developments Pty. Ltd., Smart J appeared to accept that test and referred (at 296; 623) to the evolution and development that has taken place in this area of the law and which is reflected in Galambos, the modern English cases and the cases in this court' ... In the consideration of all the circumstances of the case no mechanical test can be applied. ... The ultimate question is whether, bearing in mind that the existence of Exicom's claim is not enough [to constitute it as an equitable set-off] and that something more is needed, sufficient to warrant the intervention of equity to protect Exicom, it would be unjust or inequitable that AWA should be permitted to proceed with its claim. Primarily that throws up the relationship and closeness of connection between the claims. That the ultimate question is one of equity's intervention is shown by the observations that the general conduct of the parties will be relevant to the granting of equitable relief: D. Galambos & Son Pty. Ltd. v McIntyre (at 26) and Sydmar Pty. Ltd. v Statewise Developments Pty. Ltd. at (296; 623). Those observations were given effect in APM Wood Products Pty. Ltd. v Kimberley Homes Pty. Ltd. (Cole J, 17 February 1989, unreported) where an equitable set-off was denied notwithstanding closeness of the respective claims because the cross-claimant's failure to investigate, quantify or press its cross-claim disentitled it in equity from maintaining the cross-claim as defence."

[18]

Various commentators express the same view that, in deciding whether the defendant's claim impeaches the plaintiff's title to his claim, regard must be had to whether the cross demands are so closely connected that it would be unjust or inequitable for one party to proceed with his claim without giving credit for the other. See Derham, "Recent Issues in Relation to Set-Off", supra, at 332; Spry, Equitable Remedies, 4th ed., at 173-4; The Laws of Australia, title "Equity", Chapter 15.4, para. 62. The learned authors of Equity, Doctrines and Remedies, supra, appear, however, to hold a different view: see paras. 3709 and 3710. While I respectfully agree with Gummow J's criticism in James of the unreliability of the dictum in the Newfoundland Railway case as a guide to the circumstances in which an equitable set-off will arise, in my opinion, Woodward J's understanding of Rawson v Samuel does not reflect the heresy propounded in the Newfoundland Railway case; it is consistent with principle and accurately states the test for determining whether a defendant's cross-demand will impeach the plaintiff's title to his claim and so be available as an equitable set-off against that claim. Although equitable set-off is more restrictive than set-off at law in the sense that it is available only where the cross demand impeaches, in the sense referred to, the plaintiff's title to his claim, equitable set-off is otherwise available in a wider range of circumstances than set-off at law. In equity, there is no necessity for the cross demands to be mutual in the sense that they arise between the same parties in the same right or capacity: see West Street Properties Pty. Limited v Jamison [1974] 2 N.S.W.L.R. 435 at 441-2. Nor is it necessary that the plaintiff's claim and the defendant's cross demand both arise out of the one transaction before there can be an equitable set-off: Galambos at 26; British Anzani (Felixstowe) Ltd. v International Marine Management (U.K.) Ltd. [1980] Q.B. 137 at 155-6; and The Laws of Australia, title "Equity", Chapter 15.4, para. 63. Derham, in Set-Off at 20, puts the matter in this way: "Lord Cottenham emphasized in Rawson v Samuel that it is not sufficient for an equitable set-off that both demands arose out of the same contract. Equally, though, it is not an essential requirement of an equitable set-off that both the claim and the cross-claim should have originated in the same contract. The crucial issue is whether the claims are so closely connected that the title of the plaintiff at law to prosecute his demand may be regarded as impeached, and while the fact that the claim and the cross-claim each arose under different contracts (or that one claim is based on contract and the other on tort) is a factor to be considered in relation to the question of whether the claims are sufficiently connected, it is not conclusive against a set-off."

[20]

A claim for damages flowing from the infringement of a statutory proscription, such as s. 52 the Trade Practices Act 1974 (Cth), can thus be the subject of an equitable set-off: such a set-off is not confined to debts, liquidated demands and orthodox claims for equitable or common law damages. All that is necessary before an equitable set-off can be raised is that the claim and the set-off each be in respect of a sum of money. There is in my opinion no reason to deny that a statutory claim to a benefit payable in money, such as a pension under the Social Security Act 1991 (Cth), can be the subject of an equitable set-off or can be a claim against which an equitable set-off can be raised. There is no procedural obstacle to this even though such a statutory claim must be made by way of a claim for a public law remedy such as a claim for a mandamus. Where an application is made under O. 54A the Federal Court Rules for an order that a writ of mandamus issue pursuant to s. 39B the Judiciary Act 1903 (Cth) to compel payment by the Secretary of a social security benefit, it is apparent from O. 54A, r. 2 and Form 5 that such an application will be dealt with in the same way as any other application to the Court: subject to the Court's power to give special directions, the hearing of the application will proceed after the exchange of affidavits or pleadings identifying the issues of fact and law which the applicant proposes to prove to justify the issue of the writ. It would be open to the respondent, in such a case, to defeat the application by asserting and proving, e.g., that the benefit had already been paid or that it was not payable because the applicant had not complied with the statutory conditions upon which his entitlement depended or that there was some other good reason why it was not payable. In Griffiths v Commonwealth Bank of Australia (1994) 123 A.L.R. 111 at 124, Lee J said that O. 11, r. 12 the Federal Court Rules does not create a defence, that it merely recognises a procedure to be followed where a respondent has a claim to a sum of money from the applicant which at law or in equity can be relied upon as a defence to the applicant's claim. But if the respondent's claim against the appellant here, in respect of overpaid benefits, does constitute an equitable set-off against the appellant's claim, as I think is the case, the rule is a specific authority that permits the respondent, if he were sued for a mandamus, to seek to defeat the claim for the order by pleading the set-off. This rule of court is consistent with the old procedure regulating proceedings on writs of mandamus, of which former O. 81 the Supreme Court Rules (Qld) provides a typical example: an application for a writ of mandamus was, in the first instance, for an order calling on the respondent to show cause why the writ should not issue (O. 81, r. 1). On the return of the order to show cause, if the Court entertained no doubt about the applicant's entitlement to a mandamus, it would make the order absolute; but if it entertained any doubt either upon the law or upon the facts, it would grant the writ in order that the points of law could be fully discussed upon the return of the writ or that the facts could be tried in the usual manner: see Short & Mellor, The Practice on the Crown Side of the King's Bench Division, 2nd ed., London, 1908, at 227. If the writ issued, it did so as a command to the respondent to do the act in question or to show cause why he had not done it. (O. 81, r. 15). The respondent to a writ of mandamus was required, within the time allowed by the writ, to file with the writ a certificate stating that he had done the act commanded by the writ or setting forth the reasons why he had not done the act. (O. 81, r. 19). Where an excuse for non-performance of the act commanded by the writ was so certified, r. 21 required the same course to be followed as if the return to the writ were a defence in an action in which the prosecutor was the plaintiff and the respondent to whom the writ was directed was the defendant and had pleaded the return as his defence. As to the content of the certificate pleading an excuse for not performing the act commanded by the writ, Short & Mellor at p. 238 say: "When the writ is not obeyed ... the return must show sufficient cause for not obeying it, and must be drawn with great care and circumspection. It must be positive and certain. ... Although the mandatory part of a writ may be very general, the return must be very minute in showing why the party did not do that which he was commanded; it must not be argumentative. Facts should be traversed, but not the law. ... If the defendant chooses he may excuse his performance, but he must do it with great precision ... It is a good return to allege impossibility. It is doubtful whether a bare return of want to funds to discharge a statutory obligation without anything more is sufficient. The return may be of obedience to part of a writ and of new facts which furnish an answer to the rest of it ..."

[21]

An example of the range of issues of fact and law that might be raised to excuse non-compliance with a writ of mandamus commanding a local authority to pay from its funds an amount claimed as arrears of salary by its superintendent of public works is provided by R v The Mayor and Councillors of Footscray; Ex parte Irving (1866) 3 W.W. & a'B 9, in the return to the writ set out at pp. 11 to 13. An equitable set-off could be relied on in the return to a writ of mandamus to justify non-compliance, in whole or in part, with a duty to pay public moneys to the prosecutor, just as could any other factual or legal justification for non-compliance. The Commonwealth's claims on Mr. Walker are in respect of sickness benefits paid out of the Consolidated Revenue Fund, as a result of fraudulent claims made by him in the name of his dead brother for benefit, for the period 27 February, 1984 to 17 August, 1987. Mr. Walker's entitlement against the Commonwealth is to be paid out of the Consolidated Revenue Fund sickness benefits for the period from 20 October, 1988 to 11 April, 1989. Section 238 the Social Security Act 1947 (Cth) operated as the statutory appropriation from the Consolidated Revenue Fund of so much of those public moneys as were necessary to pay all benefits, pensions and allowances to which persons were entitled under that Act. However, that the Commonwealth's claim against the appellant is for moneys wrongly paid to the appellant out of the Consolidated Revenue Fund established by s. 81 the Commonwealth Constitution, while the appellant's claim against the Commonwealth is for moneys to be paid to him out of that same Fund, is not, I think, sufficient by itself to make satisfaction of the appellant's claim dependent upon him first satisfying the Commonwealth's claim. Given the nature of the Consolidated Revenue Fund as the fund into which the general revenues of the Commonwealth are received and out of which the general demands on the Commonwealth treasury are paid, claims against and claims for the benefit of that Fund can arise by and against the one person when there is no connection at all between the circumstances out of which the two claims arise. For example, the same person could be liable to repay to the Commonwealth advances of bounty paid out of the Consolidated Revenue Fund pursuant to ss. 16 and 27 the Ship Construction Bounty Act 1975 (Cth), but could have an entitlement to a medicare benefit under the Health Insurance Act 1973 (Cth). The Commonwealth's claim on that person for ship bounty overpaid could not be said to impeach that person's title to his medicare benefit. That that person may have received moneys from the Fund by way of ship bounty to which he was not entitled could not by itself make it unconscionable for him to receive payment from the same Fund of a medicare benefit to which he was entitled, without first bringing into account his obligation to refuse the bounty. But where, as here, a person obtains moneys from the Consolidated Revenue Fund that have been appropriated to a particular purpose, viz., the payment of certain social security benefits, but he has no entitlement to those benefits, that is a better reason for saying that that person's just claim to payment of other moneys that have been appropriated from the Fund to meet that same purpose should be rejected until the situation created by the overpayment of benefit has been rectified. There is a gap in time between the period for which the appellant received benefits to which he had no entitlement and the later period for which he has been held to have such an entitlement: his claim on the Commonwealth and its claim on him cannot be said to arise out of the one transaction. But that is not fatal, for the reasons given, to the latter claim qualifying as an equitable set-off against the former. The Commonwealth's claim in respect of overpaid benefits is connected with the appellant's just claim for arrears of benefit because both involve the disbursement of moneys from the Consolidated Revenue Fund appropriated to the payment of benefits payable under the Social Security Act 1947 (Cth). And the appellant's conduct in procuring the earlier payments by fraud (a factor which Woodward J identified in Galambos as one to be taken into account in determining whether the Commonwealth's claim impeaches the title to his demand) is sufficient, in my opinion, when added to this connection between the two claims to make the connection so close that it would be unjust to allow recovery by the appellant without bringing into account the Commonwealth's claim on him. If the appellant sued to compel the respondent to pay him the $2,134.40, the respondent could therefore defeat that action in reliance on its equitable set-off. It follows that the respondent's delegate was lawfully entitled to take the action he did on 9 July, 1991. I would dismiss the appeal. It remains only to note that this case is concerned only with whether the Department can lawfully refuse to pay a person a sum by way of arrears of benefit to which he has established an entitlement because that person is indebted to the Department in respect of other benefits overpaid to him: the case is not concerned with whether the Department can lawfully set-off against a person's current entitlement to a periodic benefit a claim in respect of benefit overpaid in the past. I certify that this and the preceding 33 pages are a true copy of the reasons for judgment herein of the Honourable Justice Drummond. Associate: Date: 17 March, 1995

[25]

The appellant appealed to this Court. On 22 December, 1993 von Doussa J. dismissed the appeal. In relation to the issue of set-off, his Honour said :- "Rules of court now invariably provide procedures for pleading a counter claim, set-off or cross demand in answer to a claim made in legal proceedings. Where the claim is for a debt or other liquidated sum, and a set-off of a liquidated sum which equals or exceeds the claim is pleaded in answer, the set-off will constitute a complete defence to the claim. The right to raise a set-off as a defence is a statutory right which forms part of the law of procedure: In re K.L. Tractors Ltd [1954] VLR 505 at 507. It operates not as a denial of the debt. The defence of set-off assumes that the claimed debt continues to exist until judgment. The procedural right of set-off is therefore to be distinguished from an agreed set-off, which for most purposes amounts to payment so that cross demands between the agreeing parties are mutually extinguished: Federal Commissioner of Taxation v Steven Agnew & Co (Victoria) Pty Ltd (1951) 82 CLR 408 at 420-421. Where there are cross demands for liquidated sums between citizens, the one whose debt is the greater will ordinarily simply refuse to pay if demand is made by the other. In a practical sense the set-off is relied upon as soon as the demand is made. If the demanding party is dissatisfied with this response, the recourse provided by law is legal proceedings in a court of competent jurisdiction. If legal proceedings are commenced, the set-off will be pleaded, and will constitute a defence. The outcome of the legal proceedings will be no different to that achieved by the defendant's first refusal to pay on the demand, apart from wasted legal expenses. In my opinion the provisions of the Act which empower the Commonwealth to recover debts by legal proceedings should not be construed so as to deny to the Commonwealth the same practical rights which an ordinary citizen possesses to raise and rely upon a right of set-off in advance of the formal issue of legal proceedings. If the applicant were to take further action to enforce payment to him of the sum of $2,134 which he claims as a debt due by the Commonwealth for sickness benefits payable under the Act, he would do so by legal proceedings in a court of competent jurisdiction. In the absence of a defence by the Commonwealth judgment could be expected to follow, and that judgment could be recovered by the procedure laid down in ss.65 and 66 of the Judiciary Act 1903. However, if the Commonwealth were to plead as a set-off the debt recoverable by the Commonwealth under s.1224, on the trial of the legal proceedings, the applicant would fail. The object which the decision under appeal sought to achieve would then, clearly, have been achieved in legal proceedings. And the debt due to the Commonwealth under s.1224(1) would have been reduced in consequence of the successful plea of set-off by the amount of $2,134. In my opinion the AAT correctly concluded that the decision of 9 July 1991 to set-off that amount against the debt due by the applicant to the Commonwealth was legitimate, that is in accordance with the Act, fair and sensible."

[27]

The "Act" referred to in ground 1 is the Social Security Act 1991 ("the Act"). The appellant appeared and argued his appeal in person. The respondent did not take any of the steps provided in sections 1231, 1232, 1233 or 1224 of the Act to recover the sum of $20,287.03. In consequence, the issue on appeal was whether it was open to the respondent to set-off the sum of $2,134.00 being part of the debt due of $20,287.03 against the appellant's entitlement to be paid a sickness benefit for the period 20 October, 1988 to 12 April, 1989, and if so, with what consequence. A right to receive a sickness benefit under the 1947 Act was a statutory entitlement to receive payments from consolidated revenue which was not based on an antecedent proprietary right recognised by the common law (Health Insurance Commission v. Peverill (1994) 179 CLR 226 at 237,242). The Secretary of the Department of Social Security was under a corresponding duty to pay the benefit. That duty was enforceable by a public law remedy: mandamus or mandatory order under the Administrative Decisions (Judicial Review) Act 1977 (Cth) (Federal Commissioner of Taxation v. Official Receiver (1956) 95 CLR 300 at 305, 310-312, 324; Health Insurance Commission v. Peverill at 242; Peverill v. Meir (1990) 95 ALR 401 at 421). Because the right conferred by section 117 of the 1947 Act to a sickness benefit is to be discharged by the statutory performance of a duty to administer a scheme to pay benefits in the manner prescribed by the 1947 Act, that Act does not create a debt enforceable by action in any court of competent jurisdiction. The reason that no debt is created was explained by Brennan J. in Health Insurance Commission v. Peverill where the benefit in issue was the medicare benefit payable under the Health Insurance Act ("the Principal Act"). His Honour said (at 242-243) :- "Once it is appreciated that the right conferred by the Principal Act upon an assignee practitioner is to be discharged by a statutory authority when certain statutory criteria are fulfilled, it is clear that that Act does not create a debt enforceable by action. The Principal Act is a code prescribing the benefits to be paid and the manner of paying them. The only way in which a medicare benefit can be paid to a claimant is by acceptance of a claim made within time followed by a payment by the Commission in an amount prescribed by the statutory Tables out of Consolidated Revenue in such a manner as the General Manager of the Commission determines. The money thus to be paid is the only money appropriated for the purpose of paying medical benefits. The principle is stated by Isaacs J. in Josephson v. Walker (1914) 18 C.L.R. 691, at p. 701 :- Prima facie, where the same statute creates a new right and specifies the remedy, that remedy is exclusive. The natural presumption to begin with is that Parliament in creating the novel right attaches to it the particular mode of enforcement as part of its statutory scheme. To that extent the enactment is a code.' In the leading case of Pasmore v. Oswaldtwistle Urban Council [1898] A.C. 387, at pp. 394-395, the Earl of Halsbury L.C. said : The principle that where a specific remedy is given by a statute, it thereby deprives the person who insists upon a remedy of any other form of remedy than that given by the statute, is one which is very familiar and which runs through the law....the statute which creates the obligation is the statute to which one must look to see if there is a specified remedy contained in it. There is a specified remedy contained in it, which is an application to the proper Government department.' In Federal Commissioner of Taxation v. Official Receiver (1956) 95 C.L.R. 300, the nature of a taxpayer's right to a refund of overpaid P.A.Y.E. instalments fell for consideration. A majority (Dixon C.J., Williams and Fullagar JJ.) denied that that right was an ordinary debt. Fullagar J. said (ibid., at p. 324; see pp. 310-312, per Williams J. Dixon C.J. agreed with both Williams J. and Fullagar J. at p.305) : `we have here nothing really analogous to an ordinary "debt", but simply a statutory direction to an officer of the Commonwealth to cause a payment to be made out of consolidated revenue to a specified person and an appropriation of consolidated revenue for the purpose of that payment and of no other payment.' Similarly, the Principal Act creates no debt recoverable as such in any court of competent jurisdiction. The scheme of that Act is to appropriate Consolidated Revenue to the extent necessary to allow the Commission, after acceptance of claims made to it within the times prescribed, to pay out to claimants the amounts prescribed by the Principal Act. The Principal Act confers on assignee practitioners a right to be paid medicare benefits subject to the conditions prescribed but it does not create a debt."

[30]

Included within the Imperial Acts subject to section 7 were the Acts 2 Geo 11 c 22 and 8 Geo 11 c 24. The Queensland Act was in the same terms as the Imperial Acts Application Act 1969 (NSW). Neither the Queensland nor the New South Wales Act contained a "Westbury savings" clause (as to the origin and relevance of such clauses see McDermott, "Statute Law Revision Statutes - Westbury Savings" (1988) Statute Law Review 139) which was the basis of the continued operation of set-off at law in the United Kingdom with the repeal of the Statutes of Set-Off (Hanak v. Green [1958] 2 QB 9 at 22). In New South Wales it has been held that the operation of the Imperial Acts Application Act 1969 has caused the abolition of set-off at law in that State (Stehar Knitting Mills Pty. Ltd. v. Southern Textile Converters Pty. Ltd. [1980] 2 NSWLR 514; Sydmar Pty. Ltd. v. Statewise Developments Pty. Ltd. (1987) 73 ALR 289 at 292; Buttrose v. Versi (Young J., Unreported, 14 May, 1992 at page 8 of his reasons); McDermott, "Imperial Statutes in Australia and New Zealand" (1990) 2 Bond L.R. 162 at 164-166; Derham at 1.1; Derham "Recent Issues in Relation to Set-Off" (1994) 68 ALJ 331 at 332; Meagher, Gummow & Lehane "Equity Doctrines and Remedies" 3rd Ed., Butterworths, para 3714). There is a serious question whether the 1984 Queensland legislation brought about the same result (see Derham 68 ALJ at 344). The respondent on the appeal argued on the basis that there was available in Queensland a right to set-off at law mutual debts, the right being in the nature of a plea in bar and relied upon the observations of O'Bryan J. in Re K.L. Tractors Ltd. [1954] VLR 505 at 507 to support the contention. In Victoria, the Statutes of Set-Off were repealed by section 7 of the Imperial Acts Application Act 1922 (Vic.). However, that Act included a "Westbury Savings" clause similar to that in the United Kingdom repealing Act. No argument as to the termination of the application of the Statutes of Set-Off in Queensland and the effect of such termination was addressed to the court by the respondent. To establish a right to an equitable set-off, it is not sufficient that there are merely cross-demands. It is necessary that there be shown a recognised equitable ground for being, to the relevant extent, protected from the adversary's demand (Rawson v. Samuel (1841) Cr. & Ph. 161 at 178; 41 ER 451 at 458; Hill v. Ziymack (1908) 7 CLR 352 at 360-362, 368; J. & S. Holdings Pty. Ltd. v. NRMA Insurance Ltd. (1982) 61 FLR 108 FC at 127). The equity has to be such as to impeach the adversary's title to demand payment (Lord v. Direct Acceptance Corporation (1993) 32 NSWLR 362 CA at 367; Indrisie v. General Credits Ltd. [1985] VR 251 FC at 254; James v. Commonwealth Bank of Australia (1992) 37 FCR 445 at 457-460; Griffiths v. Commonwealth Bank of Australia (1994) 123 ALR 111 at 124).

[31]

The respondent has not sought to point to any relevant equity of the type necessary to sustain a defence of equitable set-off. Merely to point to the cross-claims is not of itself sufficient. For the above reasons the refusal of the respondent to pay to the appellant cannot be justified on the basis of any set-off whether at law or in equity. The refusal to pay the benefit constituted a breach of statutory duty. I agree with Drummond J. for the reasons he has given that Chapter 5 of the Act constitutes a code for the recovery of over-payments as debts due to the Commonwealth. The part provides for overpayments to constitute debts (section 1224) and for three modes of enforcement of payment; deduction from benefit payments (section 1231), by legal proceedings (section 1232) and by garnishee (section 1233). Recovery by voluntary instalment or repayment by deduction is dealt with by sections 1234 and 1234A respectively. The citations from Josephson v. Walker (1914) 18 CLR 691 at 701 (together with other observations at 695 and 703) and Pasmore v. Oswaldtwistle Urban Council [1898] AC 387 at 394-395 in the judgment of Brennan J. in Health Insurance Commission v. Peverill set out above are also relevant to treating the provisions of the Act relating to recovery of over-payments as prima facie a code. No basis to displace such a prima facie construction of Chapter 5 of the Act has been made out. If the respondent wishes to reduce the indebtedness of the appellant to the respondent in the sum of $20,287.03 by recourse to the sickness benefit payable under the 1947 Act to the appellant for the period 20 October, 1988 to 12 April, 1989, then the respondent may only do so by complying with the provisions of section 1233 of the Act. The decision on 9 July, 1991 to apply the sum of $2,134.00 to reduce the over-payment of $20,287.03 did not satisfy the statutory requirements of section 1233 of the Act. The appellant is entitled to succeed on his appeal and have the orders of von Doussa J. and the AAT set aside and in lieu thereof it be declared that the respondent is obliged to discharge the statutory duty to pay to the appellant a sickness benefit for the period 20 October, 1988 to 12 April, 1989 calculated in accordance with the provisions of the Social Security Act 1947 unless such payment is garnished in accordance with the provisions of section 1233 of the Social Security Act 1991. The appellant having acted in person at first instance and on the appeal is not entitled to an order for professional costs (Cachia v. Hanes (1994) 68 ALJR 374 at 379). However, he may be entitled to be paid direct outlays necessarily incurred by him in bringing the application and appeal. That is for the taxing officer to determine guided by the principles propounded in the authorities (see Rettke v. Comcare Unreported, Full Court of the Federal Court, QG 26 of 1994, Brisbane, 26 October, 1994 in the reasons of Sheppard J.). I would propose the following orders and declaration :-

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