Bouthier and Anor; Secretary, Department of Employment and Workplace Relations and Anor and

[2007] AATA 1904

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2007] AATA 1904

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          N^o V 200600662,

GENERAL ADMINISTRATIVE   DIVISION		)              V 200601056
Re		SECRETARY, DEPARTMENT OF EMPLOYMENT AND WORKPLACE RELATIONS

Applicant

And BELINDA BOUTHIER  

Respondent

AND

Re BELINDA BOUTHIER

Applicant

And SECRETARY, DEPARTMENT OF EMPLOYMENT AND WORKPLACE RELATIONS

Respondent

DECISION

Tribunal Dr Gordon Hughes, Member

Date31 October 2007

PlaceMelbourne

Decision

The Tribunal sets aside the decision of the Social Security Appeals Tribunal dated 20 June 2006 and in substitution decides that:

1.    the Secretary recalculate the amount of the debt in accordance with the reasons set out in this decision; and

2. the recovery of any overpaid amounts between 6 June 2003 and 29 March 2004 be waived pursuant to section 1237AAD of the Social Security Act 1991.

(sgd) Dr Gordon Hughes

Member

SOCIAL SECURITY – eligibility for disability support pension – value of interest in a private company – charge over company assets – existence of collateral security – waiver of debt  –whether special circumstances exist

Social Security Act 1991 ss 1207Q(2), 1207X(1)(a), 1208G, 1208H, 1237AAD

In re Athill; Athill v Athill (1880-81) L.R. 16 Ch.D 211

Re Beadle v Director-General of Social Security (1984) 6 ALD 1

Beadle v Director-General of Social Security (1985) 60 ALR 225

Secretary, Department of Social Security v Hales (1998) 82 FCR 154

Dranichnikov v Centrelink (2003) 53 ATR 270

Ryde v Secretary, Department of Family and Community Services [2005] FCA 866

Petrykowski v Secretary, Department of Employment and Workplace Relations [2005] AATA 1142

Davy v Secretary, Department of Employment and Workplace Relations [2007] AATA 1114

Angelakos v Secretary, Department of Employment and Workplace Relations [2007] FCA 25

REASONS FOR DECISION

31 October 2007 Dr Gordon Hughes, Member

1.      In this matter, the Department of Employment and Workplace Relations (the Department) was seeking the review of a decision made by the Social Security Appeals Tribunal (SSAT) on 20 June 2006 concerning Ms Bouthier's eligibility for the disability support pension (DSP).  There was a cross-appeal by Ms Bouthier regarding her liability to refund any overpaid amounts.

2.      In summary, the Department contended that for the purposes of determining Ms Bouthier's eligibility for DSP, and in particular the value of her childcare business, the full amount of a $400,000 loan used to purchase the business should not be deducted from the value of the company’s assets because parallel security for the loan existed in the form of mortgages over three other properties.  The Department further contended that a personal loan to Ms Bouthier from her business partner for $18,128.55 should not be deducted because it was not an arm's length loan.  It was contended for Ms Bouthier that regardless of the Tribunal's determination in respect of these issues, Ms Bouthier was confronting special circumstances which justified the waiver of an obligation to refund previously overpaid DSP amounts.

Background 

3.      Centrelink, which is the service delivery agency for the Department, granted Ms Bouthier the DSP in 2001.

4.      Ms Bouthier and Ms Maria Paola established a company, Giordano Louis-Phillipe Pty Ltd, on 7 January 2003.  They both were directors and equal shareholders of the company.

5.      The company purchased a childcare centre valued at $485,000.  The company paid a deposit on 24 December 2002 and settlement was finalised on 6 June 2003.  The company took possession of the centre on the settlement date.

6.      The purchase of the childcare centre was financed by a $400,000 loan to the company from the Commonwealth Bank (the $400,000 loan), a second loan from the Commonwealth Bank for  $60,000 (the $60,000 loan) and a personal loan from Ms Paola of $18,128 (the $18,128 loan).

7.      The $400,000 loan was secured by a charge over the company's assets; a mortgage over a property at Unit 4, 16 Walsh Street, Ormond where Ms Bouthier and Ms Paolo resided; a mortgage over an investment property at Unit 1, 16 Walsh Street, Ormond which was jointly owned by Ms Bouthier and Ms Paola; and a mortgage over an investment property at 103/80 Clarendon Street, Southbank which was also jointly owned by Ms Bouthier and Ms Paolo.  The $60,000 loan was secured by a mortgage over the property at 103/80 Clarendon Street only.  The $18,128 loan was unsecured.

8.      Ms Bouthier resigned as a director of the company on 25 May 2004.  Her pension was not paid between 30 March and 25 May 2004.  An issue arose as to Ms Bouthier's entitlement to the DSP between 6 June 2003, when the childcare business commenced, and 29 March 2004 and, specifically, the value of her assets during that period.

9.      On 17 January 2005 a Centrelink delegate assessed the value of Ms Bouthier's directly-owned assets during the period in question to be $169,699.  This amount exceeded the assets test threshold, and Centrelink determined that Ms Bouthier had been overpaid $14,332.04 in DSP.  Centrelink sought to recover the overpayment by raising a debt of $14,332.04 in respect of the payment period.  On 28 March 2006, a Centrelink authorised review officer affirmed the decision but recalculated  the debt at $9,589.85.

10.     On 20 June 2006 the SSAT set aside the decision and directed that Ms Bouthier's entitlement to DSP during the relevant period be reassessed.  Importantly, the SSAT concluded that the $400,000 loan should be taken into account in reducing the value of the company assets because although there was a registered mortgage over Ms Bouthier's home and two investment properties, this did not negate the fact that a charge was also registered over the company.

11.     While concluding that the authorised review officer (ARO) had over-estimated the value of Ms Bouthier's assets, the SSAT also determined that any debt owing to Centrelink by Ms Bouthier in respect of previously overpaid amounts should not be waived due to special circumstances pursuant to section 1237AAD of the Social Security Act 1991 (the Act). 

12.     In the proceedings before this Tribunal, the Department was appealing against the SSAT's finding that the full amount of the $400,000 charge, together with the $18,128.55 unsecured loan, should be deducted when calculating the value of the assets of the company.  Ms Bouthier was appealing against the SSAT's finding that she was not entitled to a waiver of any debt attributable to previous overpayment of DSP during the relevant period due to special circumstances.

13.     There was no dispute regarding the SSAT's findings that the $60,000 loan could not be deducted from the company's assets as it was not secured over those assets.  Both parties also agreed that the company was a controlled private company in relation to Miss Bouthier for the purposes of section 1207Q(2) of the Act and that Miss Bouthier was an attributable stakeholder for the purposes of section 1207X(1)(a) during the period in question.

Value of Assets

14. Mr Gray, counsel for the Secretary, contended that the SSAT erred in treating both the $400,000 loan and the $18,128.55 loan as reducing the company's assets under section 1208G(1) of the Act.

15.     Mr Hall, counsel for Ms Bouthier, informed the Tribunal that his client was not concerned to challenge either point.  His client would be relying solely on the contention that, whatever  the debt, it should be waived (as discussed below).

16. Section 1208G(1) of the Act states:

1208G(1)For the purposes of the application of this Division (other than this section) to a particular individual and a particular company or trust, if:

(a)there is a charge or encumbrance over a particular asset of the company or trust; and

(b)the charge or encumbrance relates exclusively to that asset;

the value of the asset is to be reduced by the value of the charge or encumbrance.

17. Importantly, s 1208G(2) then provides:

1208G(2)Subsection (1) does not apply to a charge or encumbrance over an asset of a company or trust to the extent that:

(a)the charge or encumbrance is a collateral security; or

(b)the charge or encumbrance was given for the benefit of an entity other than the company or trust; or

(c)the value of the charge or encumbrance is excluded under subsection (6).

18.      Mr Gray contended that the SSAT had been in error when it concluded, in paragraph 34 of its Reasons for Decision, that none of the provisions in section 1208G(2) apply in this case.  Mr Gray submitted that the charge over the company's assets, which formed part of the security for the $400,000 loan, was to some extent a collateral security for the purposes of section 1208G(2)(a) because the loan was also secured by mortgages over three other properties.

19 Mr Gray nevertheless informed the Tribunal that an alternative interpretation of the legislation, more favourable to Ms Bouthier, was arguably available under sections 1208G(3) and s 1208G(4).

20 Section 1208G(3) states:

1208G(3)For the purposes of the application of this Division (other than this section) to a particular individual and a particular company or trust, if:

(a)there is a charge or encumbrance over a particular asset (the first asset) of the company or trust; and

(b)the charge or encumbrance relates to the first asset and one or more other assets of the company or trust;

the value of the first asset is to be reduced by the amount worked out using the formula:

Value of the charge or encumbrance	x	Value of the first asset	x	Total value of attributable assets subject to the charge or encumbrance
		Total value of the first asset and the other assets		Total value of assets subject to the charge or encumbrance

21. Section 1208G(4) states:

1208G(4)Subsection (3) does not apply to a charge or encumbrance over an asset of the company or trust to the extent that:

(a)the charge or encumbrance was given for the benefit of an entity other than the company or trust; or

(b)the value of the charge or encumbrance is excluded under subsection (6).

22. It is not necessary to consider section 1208G(6) for present purposes.

23. Mr Gray acknowledged that, on one interpretation, the $400,000 loan was embraced by section 1208G(3), meaning in turn that Ms Bouthier would benefit from the fact that there is no exception for collateral security in section 1208G(4). The Tribunal does not accept this alternative hypothesis advanced by Mr Gray. Rather, it accepts the rebuttal, also advanced by Mr Gray, that it would be impractical to attempt to apply the formula in section 1208G(3) to specific assets such as stock in trade prior to crystallisation. It is the Tribunal's opinion that section 1208G(3) was not intended to apply in such circumstances, a conclusion which was not contested by Mr Hall.

24. The Tribunal is of the opinion that the correct interpretation of the application of section 1208G in the current circumstances is that the charge over the company's assets which forms part of the security for the $400,000 loan falls within section 1208G(2)(a) and that, as a consequence, a proportionate allowance must be made for the value of the three other properties which also represent security for the loan. This conclusion is consistent with the plain wording of the legislation and with its apparent intent. Although the term collateral security is not defined by the legislation, its meaning in this context is uncontentious, namely, that it is a reference to parallel or additional security: see In re Athill; Athill v Athill (1880-81) L.R. 16 Ch.D 211. The charge over the company's assets represented parallel security for the $400,000 loan, standing on an equal footing with the mortgages over the two Walsh Street  properties and the Clarendon Street property.

25       Accordingly the Tribunal considers the SSAT erred in concluding that Ms Bouthier's assets during the relevant period be calculated on the basis that the entire $400,000 loan be deducted from the company's assets. 

26. In relation to the $18,128.55 unsecured loan, Mr Gray submitted that the SSAT erred by failing to consider sections 11 to 14 of the Social Security (Attribution of Assets) Principles2001.

27. Section 1208H of the Act requires the Secretary to comply with any relevant decision-making principles when determining the value of a specified asset of a company.

28. Section 1208H states, relevantly:

1208H(1)For the purposes of the application of this Division to a particular individual and a particular company or trust, if:

(a)the company or trust is the borrower under a loan; and

(b)the loan is not secured by a charge or encumbrance over one or more of the assets of the company or trust;

the Secretary may, by writing, determine that the value of a specified asset of the company or trust is to be reduced by the whole, or a specified part, of the amount of the loan.

1208H(2)A determination under subsection (1) has effect accordingly.

1208H(3)In making a determination under subsection (1), the Secretary must comply with any relevant decision-making principles.

29. For the purposes of section 1208H(3), the relevant decision-making principles are the Social Security (Attribution of Assets) Principles 2001.  The Principles are directed to the question of whether a relevant transaction is at arm's length.  The relevant sections of Part 4 of the Principles state as follows:

11.Purpose of Part 4

This Part sets out decision-making principles with which the Secretary must comply in making a determination under subsection 1208H(1) of the Act.

12.    Effect of unsecured loan on value of assets

In relation to an unsecured loan, the Secretary must take into account:

(a)whether a transaction that gave rise to the loan was an arm's length transaction, having regard to the criteria described in section 13; and

(b)the matters referred to in section 14.

13.Criteria for arm's length transaction

(1)For paragraph 12(a), a transaction is an arm's length transaction if:

(a)the transaction is for the purposes of the business activities of the company or trust; and

(b)the transaction is made under a written agreement that is signed by each party to the agreement, and witnessed by an individual who is not a party to the transaction; and

(c)each party to the transaction is:

(i)     at least 18 years old; or

(ii)     at least 16 years old and engaged in a full-time occupation; or

(iii)     at least 16 years old and receiving a social security entitlement; and

(d)the transaction is made for an arm's length amount.

…

14.      Other Matters

For paragraph 12(b), the Secretary must also take into account, in relation to the transaction that gave rise to the charge or encumbrance:

(a)whether the individual is the sole attributable stakeholder, or a member of a couple both members of which are the only 2 attributable stakeholders of the company or trust; and

(b)whether the loan is secured by a charge or encumbrance over an asset other than a asset described in paragraph 1208H(1)(b) of the Act; and

(c)the commercial, social and familial relationships (if any) between the parties to the transaction; and

(d)the nature and circumstances of the transaction.

30.      Mr Gray contended that the undocumented loan was not at arm's length or, at the very least, the material presently before the Tribunal was insufficient for a determination of reduction to be made.  Mr Hall did not contest Mr Gray's submission.

31.      The Tribunal agrees that the loan cannot be considered to have been made at arm's length.  Specifically, section 12 of the Principles requires the Secretary to take into account the criteria set out in section 13, and section 13(1)(b) requires that, for a transaction to be at arm's length, it must be in writing, signed and independently witnessed.

Existence of special circumstances

32.      Mr Hall asserted that whatever the value of Ms Bouthier's share of the company's assets, and whatever amount of DSP she had been overpaid, she should be entitled to a waiver on the grounds of special circumstances pursuant to section 1237AAD. Section 1237AAD states:

The Secretary may waive the right to recover all or part of a debt if the Secretary is satisfied that:

(a)the debt did not result wholly or partly from the debtor or another person knowingly:

(i)making a false statement or a false representation; or

(ii)failing or omitting to comply with a provision of this Act or the 1947 Act; and

(b)there are special circumstances (other than financial hardship alone) that make it desirable to waive; and

(c)it is more appropriate to waive than to write off the debt or part of the debt. 

33.      Evidence before the Tribunal revealed that Ms Bouthier had been suffering a major depressive disorder which developed in the late 1990s as a consequence of thoracic outlet syndrome and chronic torticollis.  This was a fluctuating condition and, during periods of deterioration, could result in suicidal tendencies.

34.      Mr Hall described Ms Bouthier's parlous financial situation and delicate mental health.  Mr Hall described the circumstances which confronted Ms Bouthier as unique.  She had been in a relationship with Ms Paola and Ms Paola had always managed Ms Bouthier's affairs.  Ms Paola held a power of attorney for Ms Bouthier.  Since the purchase of the childcare business, however, Ms Paola had become a mother and while she remained friends with Ms Bouthier she was now unable to assist her, financially or otherwise, to the same extent as before. 

35.      In evidence to the Tribunal, Ms Bouthier stated that she had found it difficult to cope without the financial or emotional support of Ms Paola.  She admitted to suicidal thoughts and tendencies and said she was still on medication. 

36.      Ms Paola also gave evidence before the Tribunal.  She stated that prior to becoming a mother she had supported Ms Bouthier financially and emotionally.  She now had less time to devote to Ms Bouthier, and also now lacked the finances to help Ms Bouthier pay her bills.  Ms Paola works as a fulltime registered nurse, and also has a part-time, casual job.  Ms Paola said that previously she had assisted Ms Bouthier in paying electricity, gas, telephone and credit card bills; adding that she was still making the payments on the joint investment properties because Ms Bouthier was unable to contribute.  She acknowledged that if the jointly-owned properties were sold, a small profit would be realised.  She also told the Tribunal that Ms Bouthier owned a small share portfolio. 

37.      A medical report from Ms Bouthier's treating doctor, Dr John Webber, dated 30 January 2007 included the following:

…

Miss Bouthier's mental state fluctuated throughout 2003 and 2004.  She had persisting emotional difficulties with continued periods of anxiety and depression and periods of suicidal and self destructive behaviour.  This had been a persisting and recurring picture since I first started seeing her in January 1998.  As a consequence of her illness she required further hospitalisations to psychiatric hospitals in August 2003 and in October 2004.  She was also treated in the Darwin hospital following an overdose in November 2003 and subsequently also took an overdose which required treatment at Monash Medical Centre and was admitted to the Alfred Hospital under certificate in late 2003. 

Ms Bouthier's condition has settled significantly since then and while she is still at times vulnerable to mood fluctuations, her overall condition has improved.  She remains on the medications, Luvox 50 mg per day, Seroquel 50 mg at night and Rivotril 1.5 mg per day.

38.      Mr Gray asserted that nevertheless there was little basis for the Tribunal to make a finding as to Ms Bouthier's current medical condition.  He also noted Dr Webber's assessment that her condition had improved overall in recent times. 

39.      A number of authorities were brought to the Tribunal's attention.

40.      In Re Beadle v Director-General of Social Security (1984) 6 ALD 1, the Tribunal held that special circumstances required circumstances that were unusual, uncommon or exceptional.  The Tribunal in that case considered that these circumstances did not exist, notwithstanding that the applicant had been ignorant of her rights for a substantial part of the period during which she was overpaid, suffered financial hardship, had one handicapped child and another ill child and that she was in a bad domestic situation. 

41.      On appeal, in Beadle v Director-General of Social Security (1985) 60 ALR 225, the Tribunal's finding was upheld, although the requirement for circumstances to be unusual, uncommon or exceptional was clearly regarded by the court as too rigid (at 230):

While we would place less emphasis on one dictionary definition of "special", we are in broad agreement with the approach of the Tribunal and are in agreement with its conclusion.

42.      In Secretary, Department of Social Security v Hales (1998) 82 FCR 154, French J emphasised the need for flexibility in applying the special circumstances  test (at 267):

The concept of special circumstances is broad.  A constellation of factors, including financial circumstances, may fall within it.  The express exclusion of financial hardship alone as a special circumstance is an indicator that it would otherwise be included.  This gives some measure of the range of circumstances which will qualify as special.  but as a matter of grammar and ordinary logic, the exclusion of financial hardship alone as a special circumstance does not mandate its inclusion in the range of matters constituting such circumstances for the purpose of enlivening the Secretary's discretion. 

…

The evident purpose of s1237AAD is to enable a flexible response to the wide range of situations which could give rise to hardship or unfairness in the event of a rigid application of a requirement for recovery of debt.  It is inappropriate to constrain that flexibility by imposing a narrow or artificial construction upon the words. … [T]o anticipate the limits of the categories of possible cases by imposing on the language of the section a fetter upon its application which is not mandated by its words, is to erode its useful purpose.

43.      In Dranichnikov v Centrelink (2003) 53 ATR 270, the Full Court of the Federal Court considered a statutory provision similar to section 1237AAB, namely, section 101 of the A New Tax System (Family Assistance) (Administration) Act 1999, in the context of a mistaken payment of the family tax benefit.  The court observed (at paragraph 66) that:

… to some extent the question whether there were special circumstances must depend on how it came about that the error occurred and that what is required will be circumstances which distinguish the case in consideration from the usual case.

44.      In Ryde v Secretary, Department of Family and Community Services [2005] FCA 866, the Federal Court upheld the Tribunal's decision not to waive the recovery of a relatively small overpayment. The court emphasised that while flexibility was important, something other than ordinary circumstances was required (at paragraph 26):

While, as French J pointed out in Hales, the evident purpose of s1237AAD is to enable a flexible response to the wide range of circumstances which could give rise to hardship or unfairness, the statutory requirement for "special circumstances" discloses an intention to proscribe waiver in ordinary cases.  The hardship or unfairness to which French J referred must be understood to be hardship or unfairness sufficient to justify departure from the general rule in the particular case.

45.      In Re Petrykowski v Secretary, Department of Employment and Workplace Relations [2005] AATA 1142, the Tribunal found that special circumstances justified the waiver of the balance of an outstanding debt in respect of an overpaid newstart allowance.  This conclusion was reached, notwithstanding the fact that the applicant was the joint owner of a home, after taking account of his financial, physical and psychiatric circumstances … as a whole.  This conclusion was influenced by the fact that the applicant lacked the intellectual and communication skills to comprehend that he had claimed certain benefits in error. 

46.      In Davy v Secretary, Department of Employment and Workplace Relations [2007] AATA 1114, Deputy President Forgie drew a distinction between events which were out of the ordinary and special circumstances in a case where the applicant's father had diverted correspondence from Centrelink and the applicant had remained ignorant of the fact that some payment had been made.  DP Forgie emphasised that the payments had been made to a person with no legal entitlement to them, and who therefore had a prima facie responsibility to repay them (at paragraph 80):

… Waiver of the debt would mean that Mr Davy would have had the benefit of part of his DSP in circumstances in which he was not entitled to it. … He has had the benefit of the money and there is no injustice in requiring him to repay the money of which he has had the benefit but not the entitlement.  His not knowing that his father had continued to receive the money does not take him outside the expectation that all social security recipients should repay money when they receive money but are not entitled to it.

47.      In Angelakos v Secretary, Department of Employment and Workplace Relations [2007] FCA 25, Besanko J in the Federal Court defended a Tribunal member's reference to the expression unusual, uncommon or exceptional, while emphasising that such usage must be viewed in context (at paragraph 33 and 34):

[33] … [T]he authorities have emphasised time and again the importance of maintaining flexibility in determining what constitutes special circumstances.  The danger is that the test will be overstated if the word "exception" is emphasised.  It was not the intention of Parliament to confine the exercise of the discretion to an exceptional case.  There is less risk of overstatement if the words "unusual" or "uncommon" are emphasised.  Those words indicate, correctly in my view, the fact that there must be something that distinguishes the case from the ordinary or usual case.  It may not be easy to postulate the ordinary or usual case other than in quite general terms and, in doing so, close attention must be given to the particular statutory context. 

[34] It is true that in expressing his conclusions the Tribunal member said that there was nothing unusual, uncommon or exceptional about the applicant's case.  However, his reasons must be read as a whole and when that is done I do not think that he applied too demanding a test.

48.      Every case must be considered on its merits.  It is necessary to identify circumstances which clearly distinguish a case from the ordinary, while remaining mindful that the Tribunal has on occasion found that circumstances involving apparent extreme misfortune nevertheless remain within the ordinary.  A combination of financial, physical and domestic distress should not necessarily justify a relative windfall in the form of a waiver of an obligation to refund monies received in error. At the same time, one must be sufficiently flexible to recognise particular instances in which an obligation to repay a debt might disproportionately aggravate the personal misfortune of a particular individual so as to take it out of the ordinary.  In the Tribunal's opinion, this is one such case.

49.      Ms Bouthier is clearly not a well woman – this was apparent from her presence at the Tribunal and the evidence which she gave.  Her immediate financial circumstances are not desperate but it is clear that any financial reserves which she has accumulated are the result of the business acumen of Ms Paola.  The relationship between Ms Bouthier and Ms Paola, both past and present, is quite unique.  It was apparent from the evidence of Ms Bouthier and Ms Paola that Ms Paola's emotional and domestic support has been the mainstay of Ms Bouthier's existence in the past.  That support has now receded and, given Ms Paola's new domestic priorities as a mother, is unlikely to be restored.  Ms Bouthier is left in an emotionally, as well as financially, precarious position which shows no immediate signs of improving.  She appears to have only a limited capacity to cope on her own, and is likely to face challenging times in the immediate and longer term future.  The Tribunal considers that the situation confronting Ms Bouthier is clearly out of the ordinary and represents the type of special circumstances which section 1237AAD of the Act intended to embrace.

50.      For the above reasons, The Tribunal sets aside the decision under review and in substitution decides:

1.that the Secretary recalculate the amount of the debt in accordance with the reasons set out in this decision; and

2. that the recovery of any overpaid amounts between 6 June 2003 and 29 March 2004 be waived pursuant to section 1237AAD of the Social Security Act 1991.

I certify that the fifty [50] preceding paragraphs are a true copy of the reasons for the decision of:

Dr Gordon Hughes, Member

signed:           Lauren Spragg

Clerk

Date of Hearing  20 July 2007

Date of Decision  31 October 2007

Counsel for the Secretary           Mr P. Gray

Advocate for Ms Bouthier            Mr C. Hall