Bornecrantz and Secretary, Department of Social Services (Social services second review)

[2018] AATA 1108

Bornecrantz and Secretary, Department of Social Services (Social services second review) [2018] AATA 1108 (2 May 2018)

Division:GENERAL DIVISION

File Number:          2015/0997

Re:Leiv Bornecrantz

APPLICANT

AndSecretary, Department of Social Services

RESPONDENT

DECISION

Tribunal:Deputy President B W Rayment

Date:2 May 2018

Place:Sydney

The reviewable decision is set aside and remitted for reconsideration in the light of the findings made by the Tribunal in these reasons.

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Deputy President B W Rayment

CATCHWORDS

SOCIAL SECURITY – age pension – assets test – the assets reduced rate – property valuation – the income reduced rate – decision to reduce social security benefits – decision based on assessment of property value – outstanding company loans – decision set aside and remitted.

LEGISLATION

Social Security Act 1991 (Cth) - ss 11(12), 11(13), 1064, 1208E

REASONS FOR DECISION

Deputy President B W Rayment

2 May 2018

INTRODUCTION

1. These proceedings have had a lengthy history. They concern the pension entitlements of the applicant.

2. They were before Deputy President R.P Handley in May 2014, and a number of aspects of the pension situation of Mr Bornecrantz were dealt with in his reasons for decision. On that occasion, Mr Bornecrantz gave oral evidence before the Deputy President. In the result, it was determined that the decision then under review should be varied by reducing, from 50% to 45%, the assets and income of Hanbury Investments Pty Ltd attributed to Mr Bornecrantz.

3. Subsequently, his pension was cancelled by Departmental decision, and after internal review, and a decision of the Social Security Division of this Tribunal, in October 2015, they came before Deputy President Deutsch, who affirmed the decision to cancel Mr Bornecrantz’s pension.

4. Mr Bornecrantz appealed to the Federal Court from the decision of Deputy President Deutsch, and the appeal was allowed by Perry J, who allowed the appeal and set aside the decision of this Tribunal, which had adopted and followed the decision of Deputy President Handley. Her Honour held that it was legally unreasonable to adopt and follow a part of Deputy President Handley’s reasons.

5. The matter now comes before me, on remission from the Federal Court. I have the benefit of written and oral submissions from both parties, and some additional evidence given by Mr Bornecrantz, by telephone, upon which he was cross-examined by Dr Thompson on behalf of the Secretary.

6. The task which I am to perform again is to do again the work earlier done by Deputy President Deutsch, with the benefit of the decision of Perry J, and in the light of the evidence including matter relating to the up-to-date position of Mr Bornecrantz. Some of the current position of Mr Bornecrantz has not previously been taken into account.

   BACKGROUND

7. I will first summarise what was decided by Deputy President Handley in 2014. It should be explained that in accordance with the statute a pensioner is to be remunerated either on the assets test (the assets reduced rate) or on the basis of the income test (the income reduced rate), whichever produces the lower rate of pension (See step 11 of s.1064-A1 of the Social Security Act 1991). If the assets test is used, as it has been in relation to Mr Bornecrantz, and if he is part of a couple, as he is and has been, then the assets of the members of the couple are to be pooled, and half of the combined assets are to be attributed to each. (See s.1064-A2). They are also treated as sharing expenses equally.

8. As things then stood, Mr Bornecrantz had applied for the age pension in April 2011, and was paid an age pension at a reduced rate from 25 June 2011. He then had a pension from the Swedish government at $2,006.50 a year, and a superannuation account with a balance of $27,820. The first departmental decision of 2011 had apparently been calculated on an income basis.

9. He controlled both Hanbury Investments Pty Ltd and Hasso Pty Limited and the value of those companies was taken into account in calculating the value of his assets in 2013.

10. In a decision of 22 April 2003, an authorised review officer varied the earlier departmental decision, recalculating the pension on an asset test basis. He attributed to Mr and Mrs Bornecrantz the assets of Hanbury Investments Pty Ltd and Hasso Pty Ltd. The superannuation account was not an asset of Mr Bornecrantz after 16 November 2011. The officer decided that 50% of the assets of Hanbury Investments should be attributed to each of Mr and Mrs Bornecrantz and 100% of the value of Hasso Pty Ltd should be attributed to Mr and Mrs Bornecrantz jointly, and that two loans to Hanbury (one of which was made by Mrs Bornecrantz and the other by Ms Hughes, a former business partner of Mr Bornecrantz) should not be recognised as liabilities of Hanbury Investments because they were not at arms-length and were not documented. That had the effect of inflating the value of Hanbury Investments. The authorised review officer also decided that the value of homes in which Mr Bornecrantz had lived from time to time should be disregarded for the purposes of the assets test. That was a property in NSW, which Mr Bornecrantz had lived in until 21 November 2011, and after that date, his property in Sweden to which Mr and Mrs Bornecrantz had then moved.

11. The Deputy President decided that Ms Hughes should be attributed a 10% interest in Hanbury, despite the fact that the share register suggested she was the sole owner of the shares in the company’s capital. It seems that Ms Hughes had rather acquiesced in Mr Bornecrantz and his wife treating the company as their own. As a result, he varied the percentage shareholding of Mr and Mrs Bornecrantz to 45% instead of 50%. He affirmed the decision in other respects. That involved a continuation of the disregarding of the loans made to the company by Mrs Bornecrantz and Ms Hughes.

12. The Deputy President recorded some of the history of Hanbury Investments, which was de facto utilised by Mr Bornecrantz for his benefit and that of his present wife. He found that before her marriage to Mr Bornecrantz, his wife had lent or paid the proceeds of the sale by her of a house in Bondi Junction, and the money was used in 1997 to purchase in the company’s name a house in Gordon Park, Queensland. That was done with her agreement, apparently for some reason of convenience because at the relevant time she was out of Australia. (On ordinary equitable principles, of course, that house would have been seen to be held on trust for her.) Subsequently, Mr Bornecrantz and his present wife lived in that Gordon Park house as their principal home until 2011. They had married in 2006. At the instigation of Mr Bornecrantz, the Gordon Park property was subsequently mortgaged to enable the company to acquire other assets including an investment property in Logan Central, and that investment was sold by the company in August 2013.

13. In 1999, the company purchased a home at Macquarie Fields, New South Wales. That became the principal home of Mr Bornecrantz and his wife until 2011 after which they moved to a house in Bengtfors, Sweden, which was still their principal home at the time of the hearing before the Deputy President. Mr Bornecrantz said that he then intended to sell the Macquarie Fields property, and hoped to sell the Swedish property after which they intended to move to the United Kingdom.

14. The evidence before the Deputy President satisfied him that the Assets Test rather than the Income Test was properly applicable to Mr Bornecrantz.

15. For a time, one of the businesses of Hanbury Investments was a transport subcontracting business. At the time of some dealings between Mr Bornecrantz and Ms Hughes around 1994, Hanbury discontinued that business and Hasso Pty Limited was incorporated to carry it on. Hasso was a company in which Mr Bornecrantz was and remained the sole shareholder.

16. Certain facts were not well known at the time of the hearing before Deputy President Handley. One of those facts was whether Mrs Bornecrantz was in receipt of payments from her superannuation fund. If so, said DP Handley, then the fund was also to be treated as part of their combined assets.

17. DP Handley decided that Hanbury Investments was a designated private company and controlled private company and that Mr Bornecrantz was an attributable shareholder of the company. He rejected (at [46]-[50] of his reasons) a submission made by Mr Bornecrantz that the loans by his wife and Ms Hughes should be recognised as liabilities of Hanbury Investments.

18. Because the Swedish property was then the principal home of Mr and Mrs Bornecrantz, DP Handley excluded it as an asset of Hanbury in accordance with s. 1208E(1)(c) of the Act.

19. No appeal was brought from the decision of DP Handley.

20. On 28 July 2014, several months after DP Handley’s reasons were published, Centrelink recalculated Mr Bornecrantz’ pension entitlements and cancelled his age pension because he failed the assets test, in that on the recalculated figures, his assets exceeded the asset limit. His assets were calculated at $1,332,721 and the limit was $1,134,000.

21. That matter came before Deputy President Deutsch, on second review from the Social Services Administrative Tribunal, and was decided on 20 October 2015. DP Deutsch referred to the caution which should be exercised before an earlier decision of the Tribunal between the same parties is revisited and followed the decisions made by DP Handley.

22. He was asked to treat loans made by Mr Bornecrantz to Hanbury Investments (which, so far as I can see, were not considered by DP Handley) and treated them as within DP Handley’s decision relating to the loans made by Mrs Bornecrantz and Ms Hughes. He affirmed the Centrelink decision.

23. The matter then went on appeal to the Federal Court and as I have mentioned, came before Perry J. Her Honour set aside the decision of DP Deutsch, finding that the remarks of DP Handley about the loans at [46]-[50] of his reasons were erroneous and that the adoption of those findings by DP Deutsch was legally unreasonable. Contrary to a submission made by the Secretary, I do not find that the decision of DP Deutsch is still applicable except to the extent to which her Honour has found it to be legally unreasonable. The decision of DP Deutsch has been wholly set aside and the matter is before me for re-determination generally, with the benefit of the reasons of Perry J by which I am bound.

24. Her Honour drew attention to s. 1208E of the Act which enabled the Secretary, in the exercise of his or her discretion, to determine that the value of the asset (here Hanbury Investments) which is a borrower to determine that the value of the asset is to be reduced by the whole or a specified part of the amount of the loan. Her Honour held that the discretion under the section should be exercised so as to reduce the value of Hanbury Investments and Hasso by the amounts of the loans by Mr and Mrs Bornecrantz. It must follow my opinion that the loan by Ms Hughes referred to in the reasons of DP Handley would be dealt with similarly. Her Honour remitted the matter to this Tribunal to be dealt with afresh. It is that context that the matter comes before me.

    EVIDENCE

25. As I have said, I received additional evidence and submissions in the proceedings.

26. The position today in the light of that evidence is that Mr and Mrs Bornecrantz live in a house in East Sussex, purchased by them using, amongst other things, cash generated by the sale of Mr Bornecrantz’s former residence in NSW which stood in the company’s name. The evidence of Mr Bornecrantz is to the contrary of a submission made on behalf of the Secretary that today, the proceeds of the sale of the NSW residence of Mr and Mrs Bornecrantz is still held by Hanbury Investments. I accept the evidence of Mr Bornecrantz that the proceeds of sale of their former NSW residence were utilised together with other funds of Hanbury Investments in order to purchase the East Sussex house. The secretary’s submissions appear to be based on the terms of a “Sales Memorandum subject to contract” issued by the residential estate agents Rush Witt & Wilson and dated 14 July 2014. I take that document to be a sales advice prepared at the time when the sale and purchase was negotiated, as distinct from settled. As I understand Mr Bornecrantz’ evidence, the sale was completed using the funds of Hanbury Investments including the proceeds of sale of the property in which Mr and Mrs Bornecrantz had resided until 2011.

27. The most reliable information about the value of Hanbury Investments at the present time is that provided by Mr Bornecrantz, who controls the company and whose evidence was largely accepted by DP Handley in 2014. He provided written evidence and was administered an affirmation and gave evidence by telephone. He was cross-examined by Dr Thompson for the Secretary.

28. Mr Bornecrantz said that the house in Sweden had been sold in April 2017 and the proceeds of sale had been placed in a bank account in Australia. They amounted, in Australian dollars, to about $130,000 and that bank account has been reduced in the meantime to about $60,000, as Mr and Mrs Bornecrantz resorted to it to pay living expenses incurred in the United Kingdom.

29. They now regard the amounts which they lend the company as offset or repaid by means of the purchase made from company funds of their house (which is registered in their personal names). The purchase price was 270,000 GB pounds, and the property is not mortgaged. It was purchased in or about July 2014.

30. His evidence was that at that time the balance sheet of Hanbury Investments had three assets only: Cash of $2,000, investments of $2,775 and the Swedish property then having an estimated value of $125,000.

    CONSIDERATION

31. Today, one would need to have regard to the two items of $2,000 and $2,775 (if they still exist) and the residue of the proceeds of sale of the Swedish property, or about $60,000.

32. That amount, or, consistently with the reasons of DP Handley, 90% of it, would need to be attributed equally to Mr and Mrs Bornecrantz, if an assets test is still to be applied to them.

33. Mrs Bornecrantz has also applied for an Australian pension, and I do not understand that her application has yet been dealt with. As I explained to Mrs Bornecrantz, her entitlement is not able to be considered in this review, which is concerned with the decision to cancel his pension made on 28 July 2014, in the light of the up to date evidence now before me.

34. The company cannot on the evidence repay any amount to Mr or Mrs Bornecrantz, or Ms Hughes, if their loans are still outstanding. Consistently, with the reasons of DP Handley, with which I agree in this respect, the East Sussex property would not be treated as an asset of Hanbury Investments. The loans dealt with in the reasons of Perry J exceed the value of the East Sussex Property and it is only the recoverable balance of the loans made by Mr and Mrs Bornecrantz which might, theoretically fall to be considered as part of their assets. The recoverable portion of any of those loans is likely to be minimal and the loans, or almost all of them, are unrealisable assets within the meaning of s. 11 (12) and (13) of the Act. Neither Mr Bornecrantz nor his wife can realise the assets (being the loans which they made) and they may apparently (because of the acquiescence of Ms Hughes) continue to resort, if they need to, to the sum of $60,000 as required for their living expenses.

35. In the course of the recent hearing, I asked Mr Bornecrantz how he and his wife are providing for themselves in their retirement. He then said that in the United Kingdom there is a “pension credit scheme”. That is a UK scheme which involves topping up income to a guaranteed minimum level, which is different in the case of single persons and couples. It is possible, if Mr Bornecrantz (or he and his wife) have been receiving sums from the UK government under that scheme, then it may be that the appropriate way to calculate his pension entitlements is by application of the income test, at least from whatever date he has been receiving money under the UK scheme. If payments are now to be made of the old age pension to Mr and Mrs Bornecrantz, that may mean that for the future they will no longer be entitled to all or some of the pension scheme amounts. During the cross-examination by Dr Thompson, Mr Bornecrantz expressed some disapproval of the questions he was being asked, and hung up. Dr Thompson did not seek further to cross-examine Mr Bornecrantz, and as events transpired, I had no opportunity to ask Mr Bornecrantz further about any amounts currently being received by him from the United Kingdom government, and when they commenced.

36. I was told by Dr Thompson that if the asset test were applied to Mr Bornecrantz on the basis I have indicated in these reasons, then he would be and have been entitled to a full pension.

37. It seems to me that the findings I have made affect the utilisation of the asset test from at least 28 July 2014.

38. It will be open to the Department to make further enquiries of Mr Bornecrantz as to the amounts of income earned since that date, including from the pension credit scheme, in case it becomes clear that the appropriate basis on which to calculate Mr Bornecrantz’ pension entitlement is the income test for some or all of the intervening period, between 28 July 2014 and the present time.

39. Mr Bornecrantz also suggested to me in written submissions that his pension should be adjusted because until 12 January 2016 his wife was unable to work and that his pension should be adjusted on that basis up to 12 January 2016, when his wife became entitled to the old age Australian pension. I had no opportunity to investigate that matter legally or actually in the hearing. That is also a matter to which the Department should give attention when recalculating his entitlement.

40. In either event, the reviewable decision should be set aside and the matter will be remitted for reconsideration in the light of the findings made in these reasons.

41. Finally, I should mention that Mr Bornecrantz urged on DP Deutsch and later on me, and also on Perry J, some issues as to the validity of the Social Security Act, in the light of Australia’s international obligations by treaty and pursuant to the UN Declaration of Human Rights. Perry J did not reach those issues, although s. 78B notices were served for that purpose in case her honour did reach them. DP Deutsch observed that the Tribunal had no jurisdiction to entertain such submissions. I agree. I observed to Mr Bornecrantz that I did not believe that any such challenge would be likely to succeed in a Court in any event, but that since it was not a matter for me I would not entertain his submissions on the question.

    ORDER

42. The reviewable decision is set aside and remitted for reconsideration in the light of the findings made by the Tribunal in these reasons.

I certify that the preceding 42 (forty -two) paragraphs are a true copy of the reasons for the decision herein of Deputy President B W Rayment

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Associate

Dated: 2 May 2018

Dates of hearing:	12 February and 20 April 2018
Applicant:	In person
Solicitors for the Respondent:	Dr S Thompson, Department of Human Services