Avery and Secretary, Department of Family and Community Services and Indigenous Affairs
[2007] AATA 1523
•9 July 2007
Administrative Appeals Tribunal
DECISION AND REASONS FOR DECISION AATA [2007] 1523
ADMINISTRATIVE APPEALS TRIBUNAL )
) No 2007/309
GENERAL ADMINISTRATIVE DIVISION ) Re LANGER AVERY Applicant
And
SECRETARY,DEPARTMENT OF FAMILY AND COMMUNITY SERVICES AND INDIGENOUS AFFAIRS
Respondent
DECISION
Tribunal Ms N Bell, Senior Member Date9 July 2007
PlaceSydney
Decision The decision under review is affirmed. ...........................................
Ms N Bell Senior Member
AGE PENSION – Combined Assets exceeded the Cut off Point – Joint Assets – Caveats – Collateral Security – Caveat is not considered an Encumbrance – Decision Under Review is Affirmed
Leros Pty Ltd v Terara Pty Ltd (1992) 106 ALR 595
Kirkman and Secretary, Department of Social Security (1990) 20 ALD 400
Social Security Act 1991
REASONS FOR DECISION
Ms N Bell, Senior Member 1. Mr Avery’s claim for age pension was rejected because Centrelink considered his, and his partner’s, combined assets exceed the cut off point for payment of the pension. Those assets, owned jointly with his partner, Ms Banks, include two lots at Mt Wilson, with an agreed value, at the time of his claim for pension, of $875,000. Mr Avery also had, at the time of his claim, a debt to the National Australia Bank (NAB) of some $720,000. The relevant loan documentation says the debt is secured by the Mt Wilson lots and by Mr Avery’s principal home at Bowral – a property owned by his partner. Mr Avery was bankrupted in 2005 and his bankruptcy trustee placed caveats on the two Mt Wilson properties to protect the interests of Mr Avery’s unsecured creditors. His bankrupt estate includes unsecured liabilities of some $440,000.
2. The Social Security Act 1991 allows for a person’s principal home to be disregarded for the purpose of the assets test. It also allows for the reduction of the value of an asset by the amount of an encumbrance held over that asset. Section 1121(4) provides for a formula to be applied in the calculation of such a reduction.
3. Mr Avery contends that the trustee’s caveats should be considered to be encumbrances over the Mt Wilson lots and that the amount of his unsecured debts should therefore be deducted from the value of those assets. He also considers that the value of the loan from the NAB should be deducted from the value of the Mt Wilson lots only. He maintains that the deduction should not be applied to the Bowral property, his principal home, because that property was collateral security and the Mt Wilson lots were the principal security for the loan. In this way, says Mr Avery, the provisions of section 1121(2) of the Act apply to remove the Bowral property from an apportionment of the value reducing effect of the NAB loan.
4. The Secretary contends that the caveats do not amount to encumbrances and the formula provided for in section 1121(4) should apply so as to take the value of the Bowral property into account when apportioning the reducing effect of the NAB loan.
issues
5. Mr Avery’s application raises two issues. The first is whether a caveat placed on real property by a trustee in bankruptcy amounts to an encumbrance on the asset in that property. The second is whether Mr Avery’s principal home at Bowral was security for a mortgage or whether it was merely collateral security to the primary security of two lots at Mt Wilson.
is a caveat an encumbrance?
6. The Act does not provide a definition of the terms “caveat” or “encumbrance”.
7. The High Court, per Mason CJ, Dawson and McHugh JJ, in Leros Pty Ltd v Terara Pty Ltd[1] held, as obiter, that a caveat is not an encumbrance.
[1] (1992) 106 ALR 595 at 603
8. Deputy President Forgie, (adapting the definition from the Western Australia Transfer of Land Act s(4)(1)) in Kirkman and Secretary, Department of Social Security[2], defined an ‘encumbrance’ as “all prior estates, interests, rights, claims and demands which can or may be set up into or upon or in respect of land”[3]. This was contrasted with a caveat, which was defined as “a simple protective device allowing the caveator an opportunity to take other action to establish his interest.”[4]
[2] (1990) 20 ALD 400
[3] Western Australia Transfer of Land Act (s4(1))
[4] Kirkman and Secretary, Department of Social Security (1990) 20 ALD 400
9. The terms are therefore distinct. A caveat is not an encumbrance. It follows that the trustee’s unsecured debts, which are the basis of the trustee’s caveats on the Mt Wilson properties, should not be deducted from the value of those assets in the calculation of Mr Avery’s rate of pension.
was the bowral property collateral security?
10. The term “collateral security” is not defined in the Act. However, Osborn’s Concise Law Dictionary (6th Ed) defines the term as:
“A collateral assurance, agreement, etc, which is independent of, but subordinate to, an assurance or agreement affecting that same subject- matter. A collateral security is one which is given in addition to the principal security. A person who borrows money on the security of a mortgage may deposit shares with the lender as collateral security. ”
11. Mr Avery submitted that the mortgage with the NAB is secured principally by his two properties at Mt Wilson and collaterally by the property at Bowral, his principal home. A letter from NAB, dated 19 August 2005, lists all three properties as security for the mortgage. Indeed, the Bowral property appears first in that list. Mr Avery referred to his discussions with the NAB which, he said, gave him the impression that the properties did not have equal importance as securities for the mortgage and the Bowral property was merely an extra or collateral security. In the face of the letter from the NAB and in the absence of any other evidence in support of Mr Avery’s view of the matter, I cannot conclude that the Bowral property was merely collateral security for the mortgage. It follows that the Bowral property must be included in the apportionment and the value reduction calculation provided for by section 1121(4) of the Act.
decision
The decision under review is affirmed.
I certify that the 11 preceding paragraphs are a true copy of the reasons for the decision herein of Ms N Bell, Senior Member.
Signed: ..............[ Sanjiv Shah ]..................
AssociateDate of Hearing 8 May 2007
Date of Decision 9 July 2007Solicitor for the Respondent Ken Bullock
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