Department of Social Security v Burman, G.J
[1986] FCA 133
•18 APRIL 1986
Re: THE SECRETARY TO THE DEPARTMENT OF SOCIAL SECURITY
And: GERDA JOSEPHINE BURMAN
No. ACT G55 of 1985
Administrative Law
COURT
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
GENERAL DIVISION
Neaves J.
CATCHWORDS
Administrative Law - Administrative Appeals Tribunal - Appeal to Federal Court - Social Services - Reduction of rate of old age pension - Question of law - Whether material before Tribunal reasonably admitted of different conclusions - Whether amounts payable monthly under the terms of a written agreement properly characterised as "income" as defined.
Administrative Appeals Tribunal Act 1975 (Cth), s.44
Social Security Act 1947 (Cth), s.18 (definition of "income")
HEARING
CANBERRA
#DATE 18:4:1986
Counsel for the applicant: Dr G.A. Flick
Solicitor for the applicant: Australian Government Solicitor
Counsel for the respondent: Mr A. Cavanough
Solicitor for the respondent: Ms A. Durack
ORDER
The decision of the Administrative Appeals Tribunal made on 2 August 1985 setting aside the decision of a delegate of the Secretary to the Department of Social Security reducing the rate of age pension payable to Gerda Josephine Burman under Division 4 of Part III of the Social Security Act 1947 (Cth) and determining that supplementary assistance under Division 4A of that Part was not payable be set aside.
The said decision of the delegate of the Secretary to the Department of Social Security be restored.
There be no order as to costs.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
JUDGE1
This is an application by way of appeal, pursuant to s.44 of the Administrative Appeals Tribunal Act 1975 (Cth), from a decision of the Administrative Appeals Tribunal constituted by a senior member. The Tribunal set aside a decision of a delegate of the Secretary to the Department of Social Security ("the applicant") reducing the rate of age pension payable to Gerda Josephine Burman ("the respondent") under Division 4 of Part III of the Social Security Act 1947 (Cth) ("the Act") and determining that supplementary assistance under Division 4A of that Part was not payable. The delegate's decision was based upon sub-ss.28(2) and 30A(3B) of the Act and was consequential upon a determination of the respondent's annual rate of income.
There is, and there was before the Tribunal, no dispute as to the relevant facts. The respondent lived for a number of years with a son, one of her six children, and kept house for him. He sold the house in which they lived and gave the respondent $20,000 from the proceeds of sale. The respondent then lived for some weeks with her daughter, Monica Therese, and her husband, David John Pattrick. There was, however, insufficient room for her in their house and she endeavoured, without success, to obtain suitable government housing. A proposal was discussed between the respondent and Mr and Mrs Pattrick whereby Mr and Mrs Pattrick would purchase a larger house than the one in which they were then living, the respondent lending them the sum of $20,000 to assist them to do so. Under the proposal the respondent was to live in the newly purchased house paying an agreed amount by way of rent.
The respondent's concern was to secure suitable accommodation for herself under an arrangement with Mr and Mrs Pattrick but to do so in a way that would not be seen by her other children as giving Mrs Pattrick a disproportionate benefit. She, therefore, sought legal advice.
In accordance with the advice received, an agreement was signed by the respondent and Mr and Mrs Pattrick on 6 January 1984. The agreement was in the following terms -
"AN AGREEMENT MADE BETWEEN GERDA JOSEFINA BURMAN (hereinafter called "the Lender") and DAVID JOHN PATTRICK and MONICA THERESE PATTRICK (hereinafter called "the Borrowers")
WHEREBY IT IS AGREED as follows:-
1. The Lender agrees to lend to the Borrowers the sum of $20,000 to enable the Borrowers to invest in a house to the value of $60,000.
2. The Lender agrees to rent the house from the Borrowers and to pay rent of $350 per month for the next two years.
3. The Borrowers agree to pay interest at the rate of 12% per annum, ie $200 each month.
4. The Lender will pay the Borrowers an amount of $150 each month which represents the rent money payable by the Lender to the Borrowers of $350 per month less the interest payable by the Borrowers to the Lender of $200 per month.
5. At the end of two years from the date of this agreement the Borrowers agree to repay the principal of $20,000 or to renegotiate this agreement to the mutual agreement of the Lender and Borrowers."
On 11 January 1984 the Crown lease of a house property known as 105 Phillip Avenue, Watson in the Australian Capital Territory was transferred to Mr and Mrs Pattrick as joint tenants in consideration of the payment of $57,500. Immediately thereafter the respondent moved into the house. It is not clear whether it was intended that Mr and Mrs Pattrick should also live in the house but, in the event, they did not do so.
The respondent lived in the house until November 1984 when, for financial reasons, Mr and Mrs Pattrick had to put it on the market. The lease was transferred on 9 April 1985 for a consideration of $77,950. Out of the proceeds of sale the respondent received $20,000 in repayment of the principal amount of the loan. She received no part of the capital appreciation.
Between January and November 1984 the respondent made monthly payments to Mr and Mrs Pattrick of $150 in accordance with clause 4 of the agreement the text of which is set out above. In each of the months of December 1984 and January, February and March 1985 the respondent received from Mr and Mrs Pattrick amounts of $200 which the respondent described as interest and which she agreed were received pursuant to the loan agreement.
The question for the Tribunal was whether, on those facts, the respondent was properly to be regarded as having income of $200 a month during the period from January 1984 to March 1985 inclusive. That question was to be resolved by reference to the definition of "income" as it appeared in the Act (s.18) prior to the amendments effected by the Social Security and Repatriation (Budget Measures and Assets Test) Act 1984 (Cth). The definition, so far as material, was in the following terms -
"'income', in relation to a person, means any personal earnings, moneys, valuable consideration or profits earned, derived or received by that person for his own use or benefit by any means from any source whatsoever, within or outside Australia, and includes any periodical payment or benefit by way of gift or allowance from a person other than the father, mother, son, daughter, brother or sister of the first-mentioned person..."
The definition continued by setting out in some 21 paragraphs what the term "income" was not to include, but nothing in those paragraphs was relevant to the issue before the Tribunal.
The Tribunal gave separate consideration to the period from January to November 1984 and to the later period. It described the first period as being a period "when the applicant (the present respondent) was receiving a reduction in rent" and the second as a period when she "was receiving $200.00 per month as interest until the house was sold". The reasons for decision of the Tribunal continue -
"As to whether the reduction in rent or the $200.00 a month is 'personal earnings, moneys, valuable consideration or profits' it seems that for both periods the reduction in rent and the $200.00 is valuable consideration. As to whether the moneys and valuable consideration were 'earned, derived or received' by the applicant clearly the applicant actually received the $200.00 during the second period; for the first period the applicant derived the $200.00 a month as she had a 'clear present legal entitlement to that money even though it remained unpaid' .... It is also apparent that the monies and valuable consideration were for the applicant's 'own use or benefit'."
By these findings the Tribunal must be taken to have been satisfied that, in respect of each of the periods with which it was dealing, all the constituent elements of the first limb of the definition of "income", that is to say, that part of the definition which states what the expression "means", were present.
The Tribunal then turned to a consideration of the facts in relation to the second limb of the definition which provides that "income" includes certain payments and benefits by way of gift or allowances. The Tribunal postulated that the "real question is whether the two periods involved 'any periodical payment or benefit by way of gift or allowance from a person other than the ... daughter' of the applicant", that is the present respondent. Although the question was framed in that way, it is plain from the Tribunal's reasons for decision which follow that it was proceeding on the basis that, although introduced by the words "and includes", one of the effects of the second limb of the definition was to exclude from the concept of "income" any periodical payment or benefit by way of gift or allowance from the father, mother, son, daughter, brother or sister of the person receiving the payment or benefit and this notwithstanding that the characteristics of the payment or benefit might otherwise have brought it within the first limb of the definition. No objection to that approach was taken before the Tribunal or before me and I am content to consider the present application on that basis: cf. the definition of income in sub-s.6(1) of the Act, with particular reference to par.(u) thereof, as inserted by s.34 of the Social Security and Repatriation (Budget Measures and Assets Test) Act 1984 (Cth).
After finding that the "benefit" in the form of a reduction in the rent in the first period and the "payment" in the second period were periodical and after referring to the meaning of "gift" and "allowance" in the definition of "income", the Tribunal said:
"This matter cannot be determined solely by the terms of the agreement as though it stood between two parties negotiating at arms length. It has to be seen as part of a family arrangement. The applicant had lived with one son without, I infer, paying rent. When he had to sell up he gave her part of the proceeds of the house; it seems that this was in part a matter of love and affection and in part because she had looked after him over the years. The applicant then needed shelter and had this small amount of capital available. She tried to live with Monica and David, I infer rent free, but this was not satisfactory largely because the house was too small. They then hit upon an arrangement which gave the applicant suitable shelter and did so in a way which was fair to all the applicant's children. The consideration given by Monica and David was care for the applicant and the possibility of capital appreciation, which eventuated. The payment of rent by the applicant had not been part of her earlier arrangement with her other son nor with Monica and David when she lived with them. In my view the reduction in rent while the applicant lived in the Watson house comes within the exclusion whether it comes within the word 'gift' or 'allowance'; on these facts I think gift is as appropriate as allowance.
I have more difficulty with the period after the applicant had ceased to live at the Watson house. The argument that the payment was interest on an agreement is reasonable. But if the payment comes within the exclusion it is nevertheless excluded. This payment was made, inter alia, by the applicant's daughter. It was pursuant to a family arrangement assisting the applicant to have necessary shelter and to which the financial terms were not of the essence. It accrued during the winding up of that arrangement and not in some new enterprise. The applicant received no part of the capital appreciation. In my view this payment is also covered by the exclusion."
It may be noted in passing, that the statement in the first of the two paragraphs quoted that the consideration given by Mr and Mrs Pattrick included "the possibility of capital appreciation" would seem not to be correct, but the error, if it be one, is of no consequence for present purposes.
The Tribunal then asked "whether this allowance was from 'a person other than the .... daughter'" by reason of the circumstance that the respondent's son-in-law was a party to the arrangement as well as her daughter. The Tribunal's finding that the allowance was made by the daughter was based on the following reasoning -
"A son-in-law was a party to the arrangement as well as the daughter. However as Mr Madden pointed out in his address:-
'The benefit of the reduced rent was conferred pursuant to the loan agreement under which Mrs Burman's daughter and son-in-law were joint borrowers. The money was borrowed from Mrs Burman for the purpose of buying a house of which the daughter and son-in-law were joint tenants, and so even though the indebtedness or the obligations encumbered on the daughter and son-in-law was an obligation jointly held by them, for that very reason it can be treated simply as an obligation owed or a benefit allowed by the daughter in her own right.
The fact that the son also allowed the benefit does not affect the fact it is a benefit allowed by the daughter.'
Looking at the whole circumstance of this case and the true intention of the applicant in making out the loan contract I accept Mr Madden's submission on this point. Plainly the arrangement was principally between daughter and mother."
The applicant identified the questions of law raised by the appeal as -
(a) whether the decision reached by the Tribunal was one open to it as a matter of law given its findings of fact;
(b) whether the facts as found by the Tribunal could as a matter of law be construed as a "gift or allowance" within the meaning of those words in the definition of "income" in s.18 of the Act;
(c) whether the facts as found by the Tribunal could as a matter of law be construed as a payment by way of gift or allowance from the respondent's daughter within the meaning of that definition; and
(d) whether it was open to the Tribunal on the material before it to find as a fact -
(i) that the matter could not be determined "solely by the terms of the agreement as though it stood between two parties negotiating at arms length";
(ii) that the consideration given by the daughter and son-in-law was care for the respondent and the possibility of capital appreciation;
(iii) that the arrangement was "principally between daughter and mother".
The respondent raised as a threshold question the competency of the appeal, contending that it was not on a question or questions of law but on questions of fact only. I am unable to accept that contention. The issue before the Tribunal was whether the amounts of $200 payable monthly to the respondent under the terms of the agreement signed by the parties on 6 January 1984 fell within the definition of "income" in s.18 of the Act. The question whether the material before the Tribunal reasonably admitted of different conclusions upon the issue is clearly a question of law: N.S.W. Associated Blue-Metal Quarries Ltd. v. Federal Commissioner of Taxation (1955) 94 CLR 509 per Kitto J. at p 512: see also Hope v. Bathurst City Council (1980) 144 CLR 1 per Mason J. at pp 7-9.
The agreement signed by the parties on 6 January 1984 expressly provided for the payment to the respondent by Mr and Mrs Pattrick of interest at the rate of 12% per annum, or $200 a month, upon the principal sum of $20,000 which, by the terms of the agreement, the respondent agreed to lend. There was no material before the Tribunal which in any way suggested that the document executed by the parties did not truly reflect the arrangements that had been made between them or that the agreement was not intended to have effect according to its tenor. It had been represented by the respondent to the Department of Social Security that the agreement had been entered into in order to give effect to her desire to secure accommodation for herself by an arrangement with one of her children (and her son-in-law) but in a way which would not give, or be seen to be giving, an advantage to that child over her other children. The respondent clearly recognised, and indeed asserted, that she was providing money to her daughter and son-in-law not by way of a gift but by way of a loan and that she was to be entitled to receive interest on the loan. She further insisted that she was to pay a fair rent for her occupation of the premises when acquired by her daughter and son-in-law with the assistance of the moneys loaned to them. Further, she acknowledged that, by the arrangement between the parties as evidenced by the agreement, she was not in fact to receive the monthly interest payments of $200, those payments being credited against her indebtedness for rent in the sum of $350 per month.
The only evidence on the above matters before the Tribunal was that given by the respondent. Mr and Mrs Pattrick did not give evidence and there is no hint in the material before the Tribunal that they understood the arrangement in any different light. In particular, there was no evidence to suggest that it was simply an act of benevolence on their part to reduce the rent from $350 to $150 per month or to make the payments to the respondent of $200 per month after November 1984 (the date when the respondent went out of occupation) until the principal amount of the loan was repaid to the respondent after the sale of the premises.
It must, of course, be recognised that the agreement was entered into as part of a family arrangement to provide suitable accommodation for the respondent. But there are a number of features of the agreement itself, and of the circumstances surrounding its execution, which support the finding that it was intended to create legally enforceable rights, although it was probably never contemplated that those rights would be, or would need to be, enforced by legal process. Those features include -
. the circumstance that the agreement was executed only after the respondent had sought and obtained legal advice as to the means of achieving her expressed intention that, whatever arrangement was made, it should not be seen as advantaging Mrs Pattrick at the expense of the respondent's other children;
. the respondent's clear understanding that the arrangement was to be one of loan and a loan on interest-bearing terms;
. the description by the agreement itself of the transaction as one of loan and the identification therein of the parties as "lender" and "borrowers" respectively; and
. the circumstance that the rate of interest payable was, at the time, a commercial rate and the further circumstance that the amount of rent reserved, $350 a month, was a fair rent for the premises that were then proposed to be purchased.
In the light of the above considerations, no other conclusion was, to my mind, open to the Tribunal than that the amounts of $200 per month which Mr and Mrs Pattrick had undertaken to pay to the respondent were properly to be characterised as payments of interest upon the loan moneys. It was, in my opinion, not reasonably open to conclude, as counsel for the respondent contended, that each of those amounts answered the description of "a periodical payment or benefit by way of a gift or allowance" within the meaning of that expression in s.18 of the Act.
For the respondent an alternative argument was advanced in relation to the period from January to November 1984. During that period clause 4 of the agreement operated so that the respondent paid to Mr and Mrs Pattrick an amount of $150 per month representing the rent payable ($350) less the interest payable on the loan ($200). It was submitted that in those circumstances it could not properly be said that the respondent had "earned, derived or received" the interest of $200 per month because, looking at the transaction as a whole, that sum was not "available for the maintenance of the pensioner", an expression taken from the judgment of Davies J. in Haldane-Stevenson v. Director-General of Social Security (1985) 60 ALR 621 at p 627.
His Honour was there commenting upon a submission put to the Court by counsel for the Director-General of Social Security in relation to the definition of "income" in s.18 of the Act that "while any calculation of profits, which he (counsel) took to be income from a trade or business, required a balance to be drawn from receipts and expenditure, the other items of income, 'personal earnings, moneys, valuable consideration', were to be brought to account as gross items without deduction". In rejecting that submission, Davies J., after stating that the Act did not require any distinction to be drawn between personal earnings and profits, the Act being concerned in each case with the net return, said at p.627:
"Similarly, the Act does not intend that valuable consideration should be brought in as a gross figure without regard to the cost of that for which the valuable consideration was given or that income by way of moneys, such as interest, dividends and rents, be brought to account without regard to costs such as commission paid for collection. After all, the Social Security Act is an Act which provides for income maintenance. It would not be consistent with this concept to bring into account gross income rather than net income, the latter being the sum which is available for the maintenance of the pensioner."
In my opinion what was said by Davies J. in that case provides no support for the proposition put forward on behalf of the respondent that, because the monthly amounts of interest were credited against the rent she was under an obligation to pay, the amounts did not fall within the definition of "income". In no sense can the amount of rent be treated as a cost or an expense or outgoing incurred in gaining the income represented by the interest on the moneys loaned.
For these reasons, the decision of the Tribunal should be set aside and the decision of the delegate of the applicant restored. As the applicant does not seek an order for costs, I make no order in that regard.
0