Fode and Secretary, Dept of Families, Housing, Community Services and Indigenous Affairs
[2011] AATA 543
•4 August 2011
Administrative Appeals Tribunal
DECISION AND REASONS FOR DECISION [2011] AATA 543
ADMINISTRATIVE APPEALS TRIBUNAL )
) No 2010/5292
GENERAL ADMINISTRATIVE DIVISION ) Re Lenin Fode Applicant
And
Secretary, Dept of Families, Housing, Community Services and Indigenous Affairs
Respondent
DECISION
Tribunal C Walsh, Senior Member Date4 August 2011
PlacePerth
Decision The Tribunal:
(i) affirms the decision of the SSAT on 30 September 2010 that Mr Fode was overpaid $7,711.97 in newstart allowance in the period 31 October 2000 to 24 October 2001 and that that overpayment represents a debt due to the Commonwealth;
(ii) affirms the decision of the SSAT on 30 September 2010 that Mr Fode was overpaid $907.71 in disability support pension in the period 25 October 2001 to 31 December 2001 and that that overpayment represents a debt due to the Commonwealth;
(iii) affirms the decision of the SSAT on 30 September 2010 to reject Mr Fode’s claim for age pension;
(iv) sets-aside the decision of the SSAT on 30 September 2010 that Mr Fode’s debts (for overpayment of newstart allowance and disability support pension) were incurred by him by means of “fraud” pursuant to section 153(2)(b) of the Bankruptcy Act 1966 and substitutes that decision with the following decision:
“The Tribunal finds that Mr Fode’s debt of $7,711.97, for overpayment of newstart allowance in the period 31 October 2000 to 24 October 2001, and that Mr Fode’s debt of $907.71, for overpayment of disability support pension in the period 25 October 2001 to 31 December 2001, were not incurred by Mr Fode by means of “fraud” within the meaning of section 153(2)(b) of the Bankruptcy Act 1966 and that Mr Fode should have been released from those debts upon his discharge from bankruptcy on 21 August 2010 pursuant to section 153(1) of the Bankruptcy Act 1966.”; and
(v) sets-aside the decision of the SSAT on 30 September 2010 that Mr Fode’s debts should not be waived due to administrative error or special circumstances or written-off and substitutes that decision with the following decision:
“The Tribunal orders that Mr Fode’s debts to Centrelink for overpayment of newstart allowance, in the period 31 October 2000 to 24 October 2001, and for overpayment of disability support pension, in the period 25 October 2001 to 31 December 2001, are debts which are irrecoverable at law for the purposes of section 1236(1A)(a) and section 1236(1B)(c) of the Social Security Act 1991 and that those debts should be written-off by the Secretary (Centrelink) under section 1236(1) of the Social Security Act 1991. Accordingly, it is unnecessary for the Tribunal to make a finding on whether the debts should be waived due to administrative error or special circumstances.”.
..........[sgd C Walsh]........
Senior Member
CATCHWORDS
Social security – newstart allowance overpayment – disability support pension overpayment - debts due to the Commonwealth – bankruptcy – effect of discharge from bankruptcy on recovery of debts – whether “debt incurred by means of fraud” – meaning of “fraud” in section 153(2)(b) of the Bankruptcy Act 1966 – age pension claim rejected –- waiver of debts - administrative error – special circumstances – write-off of debts
LEGISLATION
Social Security Act 1991 (Cth) – section 11(1) – section 11(2) – section 44 - section 98 - section 611(1) – section 611(2) – section 612(2) – section 1064 - section 1118(1)(b) – section 1121(1) – section 1122 – section 1207 – section 1207P(1) – section 1207V - section 1207V(1) – section 1207V(2) - section 1207Q(1) – section 1223(1) – section 1236 – section 1236(1A) - section 1236(1B)
Social Security Administration Act 1999 – section 80(1)
Bankruptcy Act 1966 – section 153(1) – section 153(2)(b)CASES
Re Civitareale and Secretary, SDSS (1999) 57 ALD 541, considered and applied
Derry v Peek (1889) 14 App Cas 337, considered and applied
Angus v Clifford [1891] 2 Ch 449, considered and applied
SGB v The Queen (2005) HCA 80, considered and applied
Nocton v Lord Ashburton [1914] AC 932, considered
Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 653, cited
John McGrath Motors (Canberra) Pty Ltd v Applebee (1964) 110 CLR 656, cited
R v Sinclair [1968] 3 All ER 241, considered and applied
Armitage v Nurse [1998] Ch 241 (CA), considered
Skalkos v Smiles (2006) 4 ABC (NS) 349, cited
Re Bosun Pty Ltd (in liq) (2000) 34 ACSR 597, considered
Secretary, Department of Social Security v Prelaj Malaj (1993) 31 ALD 391, citedCornelius v Barewa Oil and Mining (NL) (in liq) (1982) 42 ALR 83, considered
REASONS FOR DECISION
4 August 2011 C Walsh, Senior Member Introduction
1. For almost 24 years Mr Fode ran a successful sheet metal roof plumbing business until, at the age of about 62, Mr Fode fell off a roof at work and injured his back. As a consequence of his injury, Mr Fode could no longer work as a roof plumber. Acting on the advice of his Doctor, Mr Fode subsequently claimed social security payments from Centrelink.
2. Mr Fode received newstart allowance from Centrelink from 31 October 2000 until 24 October 2001. Mr Fode was then transferred to disability support pension which he received from 25 October 2001 until 31 December 2001, at which time his pension was cancelled. Mr Fode’s wife received a partner allowance from Centrelink from 31 October 2000 until 19 May 2003. Mr Fode made a further claim for disability support pension on 3 June 2003 which was rejected by Centrelink. Mr Fode then lodged a claim for age pension on 4 February 2004 which was rejected by Centrelink on 9 February 2004 on the basis that the value of his and his wife’s assets was above the allowable “asset value limit”.
3. On 6 February 2004 a Centrelink officer decided that Mr Fode had been overpaid a total of $7,711.97 in newstart allowance for the period 31 October 2000 to 24 October 2001 and had been overpaid a total of $1,679.14 in disability support pension for the period 25 October 2001 to 31 December 2001. The debts were raised by Centrelink on the basis that the combined “value” of Mr Fode and his wife’s “assets” in those periods precluded him from receiving any social security payments.
4. Mr Fode requested a review of Centrelink’s decisions. As a result, on 24 April 2004 a Centrelink authorised review officer (ARO) decided to: (i) affirm the decision to raise a newstart allowance debt of $7,711.97 against Mr Fode; (ii) vary the decision to raise a disability support pension debt against Mr Fode, reducing the amount of the debt raised from $1,679.14 to $907.71; and (iii) affirm the decision to reject Mr Fode's age pension claim.
5. Mr Fode became bankrupt from 6 November 2006 as a result of a sequestration order being lodged by him on 20 August 2007. Centrelink was listed as a creditor for an amount of $8,800 in respect of his overpayment of newstart allowance and disability support pension. Mr Fode was automatically discharged from bankruptcy on 21 August 2010.
6. Subject to certain exceptions, a discharge from bankruptcy releases the debtor from all provable debts. One exception is where a debt is incurred by means of “fraud”. On 20 January 2009, Centrelink decided that, on the balance of probabilities, Mr Fode’s newstart allowance and disability support pension debts had been incurred by him by means of “fraud” such that he should not be released from the debts upon his discharge from bankruptcy and they remained recoverable by the Commonwealth.
7. On 22 July 2010 Mr Fode lodged an application for a review of Centrelink’s decisions with the Social Security Appeals Tribunal (SSAT). On 30 September 2010 the SSAT affirmed the decisions made by the Centrelink ARO (on 24 April 2004) and affirmed Centrelink’s decision (dated 20 January 2009) that Mr Fode’s debts were incurred by “fraud” such that he should not be released from them and they remained recoverable by the Commonwealth. The SSAT also found that Mr Fode’s debts should not otherwise be waived due to administrative error or special circumstances or written-off.
8. Mr Fode (currently 72 years of age) now seeks a review of the SSAT’s decision by this Tribunal. In particular, Mr Fode takes issue with the SSAT’s finding that his debts were incurred by “fraud” such that he was not released from those debts upon his discharge from bankruptcy on 21 August 2010.
What Was the Value of Mr and Mrs Fode’s Assets in the Period Under Review?
9. It is first necessary to determine the combined “value” of Mr Fode and his wife’s “assets” in the period under review. The reason for this is that whether Mr Fode was entitled to receive newstart allowance and disability support pension under the Social Security Act 1991 (Cth) (Act) in the periods concerned (and, if not, whether he was overpaid newstart allowance and disability support pension such that he has debts due to the Commonwealth) ultimately turns on the combined “value” of his and his wife’s “assets” during the relevant periods. Mr Fode’s entitlement to age pension under the Act also hinges on the combined “value” of his and his wife’s “assets” at the relevant time. The relevant period for consideration is from 31 October 2000, when Mr Fode commenced receiving newstart allowance from Centrelink, until 4 February 2004, when Mr Fode claimed age pension from Centrelink.
10. The term “asset” is defined in section 11(1) of the Act to mean property, including property outside Australia. However, there is no definition of “property” in the Act. Consequently, that term has the wide meaning it has under general law and therefore includes money, goods, real estate, personal property, accommodation bonds and debts owing to the person. If an asset is owned jointly by a person, the value of that particular asset is the person’s interest in it: section 11(2) of the Act.
11. Any money on loan (including interest free loans and mortgages) will be included in a person’s “assets”. However, where a person lends an amount after 27 October 1986, the value of the assets of the person will include so much of the loan that is outstanding but does not include any interest that is payable under the loan: section 1122 of the Act.
12. The general rule for valuing assets for the purposes of the “asset value limit” is the ‘net market value’. The ‘net market value’ is broadly the amount an asset can be sold for, less the value of any charge or encumbrance over the asset: section 1121(1) of the Act. Further, the value of a person’s principal home is exempt from being included in the total value of their assets: section 1118(1)(b) of the Act.
13. From 1 January 2002, the assets and income of private companies and private trusts is attributed to the person who either controls the company or trust or who provided the source: section 1207 of the Act. Section 1207 of the Act relevantly states:
“…………..For an asset or income to be attributed to an individual:
(a)the company must be a designated private company or the trust must be a designated private trust (sections 1207N and 1207P); and
(b)the company must be a controlled private company in relation to the individual or the trust must be a controlled private trust in relation to the individual (sections 1207Q and 1207V); and
(c)the individual must be an attributable stakeholder of the company or trust (section 1207X).
A company or trust will be a controlled private trust or a controlled private company if the individual passes a control test or a source test.
An individual will not be an attributable stakeholder of a trust if the trust is a concessional primary production trust in relation to the individual.
The asset deprivation rules and the income deprivation rules are modified if attribution happens.”
14. Section 1207P(1) of the Act states that a trust is a “private trust” unless all of the following conditions are satisfied:
“(i) the trust is a fixed trust;
(ii) the units in the trust are held by 50 or more persons;
(iii)the trust was not created, continued in existence or operated under a scheme that was entered into or carried out for the sole or dominant purpose of enabling any individual or individuals to avoid the application of this Part and/or Division 11A of Part IIIB of the Veterans’ Entitlements Act; or
(a)the trust is a complying superannuation fund (see subsection (3)); or
(b)The trust is an excluded trust (see subsection (4)).”.
15. A trust is a “controlled” trust if the person either passes the ‘control test’ or the ‘source test’: section 1207V(1) of the act. Relevant for present purposes is the ‘control test’ in section 1207V(2) of the Act, which section provides that a person passes the ‘control test’ if he or she is trustee of the trust or able to remove or appoint a trustee (i.e. is the “Appointor” of the trust).
16. A company is a “controlled” company if the person passes the ‘control test’ or the ‘source test’ in sections 1207Q(2) and 1207Q(3) of the Act, respectively. Relevant to this matter is the ‘control test’. According to section 1207Q(2) of the Act, a person passes the control test if he or she holds 50% or more of the voting interest in the company, either alone or together with ‘associates’, and is in a position to exercise control over the company.
17. The evidence before the Tribunal is that Mr Fode is associated with the following private companies and private trusts:
· the Len Fode Family Trust;
· the Len Fode Family Trust No 2;
· Fode Nominees Pty Ltd;
· Seabound Pty Ltd;
· Fode Racquet Trust;
· Milljet Pty Ltd;
· Park Trading Enterprises;
· Gnangara All Metals Pty Ltd; and
· Nells Unit Trust.
18. The “assets” of the above companies and trusts during the relevant period are outlined below.
· Len Fode Family Trust
19. The major assets of the Len Fode Family Trust comprise properties at 41 Kalgoorlie Street, Mount Hawthorn (which was occupied by Mr Fode’s mother), 175 Ravenscar Road, Doubleview (which is occupied by Mr Fode’s daughter) and loans to the trust.
20. Prior to 1 January 2002 (before the introduction into the Act of the attribution rules for private companies and private trusts), the Len Fode Family Trust was treated as a discretionary trust so that the value of the assets owned by the Fodes was limited to the value of Mr Fode’s loan. On 21 October 2000, being the date on which Mr Fode was granted newstart allowance by Centrelink, the value of Mr Fode’s loan was $173,612.57. This loan is an “asset” of the Len Fode Family Trust pursuant to section 1122 of the Act. On 24 October 2001, being the date Mr Fode lodged his claim with Centrelink for disability support pension, the amount of the loan had increased to $229,590.17. Consequently, the value of the Len Fode Family Trust on 21 October 2000 was $173,612 and on 24 October 2001 was $229,590.
21. As stated above, effective 1 January 2002 the assets and income of private companies and private trust are attributed to the person(s) who control those entities: section 1207 of the Act. Mr Fode is the sole director and shareholder of Fode Nominees Pty Ltd, which is the trustee of the Len Fode Family Trust. As the Appointor of the Len Fode Family Trust, Mr Fode is the controller of the trust as he has the power to appoint or dismiss the trustee: section 1207V(2) of the Act. Consequently, Mr Fode is attributed with any assets and income of the Len Fode Family Trust pursuant to section 1207 of the Act. The Len Fode Family Trust had ceased trading prior to 2 January 2002, with accumulated losses, but it has not been wound up.
22. On 1 January 2002 the property at 41 Kalgoorlie Street, Mount Hawthorn was valued at $210,000, the property at 175 Ravenscar Road, Doubleview was valued at $200,000 and the value of the various loans to the Len Fode Family Trust was $1,357,457.57, resulting in a total trust asset value of $1,767,475.57. The liabilities of the trust were recorded as being $694,567.57. Therefore, by deduction the net asset value of the Len Fode Family Trust on 1 January 2002 was $1,072,908.
23. On 3 June 2003 (being the date Mr Fode lodged his second claim for disability support pension with Centrelink) and on 4 February 2004 (being the date Mr Fode lodged his claim for age pension with Centrelink) the Mount Hawthorn and Doubleview properties were valued at $250,000 and $270,000 respectively and the asset value of the various loans to the trust was $1,3848,475.57, giving a total trust asset value of $1,868,475. The liabilities of the trust were $688,493.50, giving a net asset value for the trust of $1,179,982. In addition, on 1 January 2002 the trust owed Mr Fode $229,559. However, according to the trust’s balance sheets, that loan had decreased to the amount of $223,516 by 3 June 2003. This loan is an “asset” under section 1122 of the Act and, therefore, the value of it must be included in the total value of the Fode’s assets.
· Len Fode Family Trust No 2
24. Mrs Fode has a loan to the Len Fode Family Trust No 2 of $48,358 which is an “asset” under section 1122 of the Act which forms part of the value of the Fode’s combined assets for the period 31 October 2000 to 31 December 2001 (during which period Mr Fode was first in receipt of newstart allowance and later disability support pension).
25. Mr Fode is the Appointor of the Len Fode Family Trust No 2 and is the sole director and shareholder of Fode Nominees Pty Ltd, which is the trustee of the trust. Consequently, from 1 January 2002 Mr Fode is considered, pursuant to section 1207V(2) of the Act, to be the controller of the trust and is attributed with its assets and income in accordance with section 1207 of the Act.
26. The Len Fode Family Trust No 2 ceased trading in 2001 but has not been wound up. The balance sheet for the trust for the year ended 30 June 2001 indicates a net asset value of $20 which amount must be included in the total value of the Fode’s assets.
27. In addition, the Len Fode Family Trust No 2 owes Mrs Fode $48,358 which is an “asset” pursuant to section 1122 of the act and the value of it must therefore be included in the total value of the Fode’s assets.
· Seabound Pty Ltd
28. Mr Fode and his wife have a loan of $136,312 to Seabound Pty Ltd which is an “asset” pursuant to section 1122 of the Act and the value of it must be included in the total value of the Fode’s assets.
29. Mr Fode is the sole director and shareholder of Seabound Pty Ltd and is therefore the controller of the company under section 1207V(2) of the Act and must be attributed with its assets and income pursuant to section 1207 of the Act.
30. Seabound Pty Ltd ceased trading in April 2008 but has not been wound up.
31. According to the final income tax return for Seabound Pty Ltd for the year ended 30 June 1998, the company had a net asset deficiency of $11,267. Consequently, the value of the company is ‘nil’ for social security purposes.
· Fode Racquet Trust
32. Neither Mr Fode nor his wife has a loan to the Fode Racquet Trust. Therefore, the trust’s asset value before 1 January 2002 was ‘nil’.
33. Mr Fode is the Appointor of the Fode Racquet Trust such that, pursuant to section 1207V(2) of the Act, he is the controller of the trust from 1 January 2002 and is attributed with the assets and income of the trust under section 1207 of the Act.
34. The Fode Racquet Trust ceased trading in June 1999 but has not been wound up. Since 1 January 2002, the value of the trust’s liabilities has exceeded its asset value. Consequently, the value of the Fode Racquet Trust is ‘nil’ for social security purposes.
· Gnangara All Metals Pty Ltd
35. Mr Fode is the sole director of Gnangara All Metals Pty Ltd and is its majority shareholder. Consequently, pursuant to section 1207V(2) of the Act, Mr Fode is the controller of the company and is attributed with its assets and income under section 1207 of the Act.
36. Gnangara All Metals Pty Ltd had ceased trading by the close of the income year ended 30 June 1999. The balance sheet for the company for the year ended 30 June 1999 indicates that the value of the company’s assets as at 30 June 1999 was $43,581.43. That balance sheet also shows that the company owed Mr Fode $1,756.41. Normally that loan would be included as an “asset” of the company under section 1122 of the Act. However, because Mr Fode’s response to Question 18 of the Centrelink form PC Module, “Does the company owe money to any associates”, including directors and shareholders, on 21 December 2001 was ‘no’, the Tribunal finds that the loan should not be included in the company’s “assets”.
37. Accordingly, from 1 January 2002 the net asset value of Gnangara All Metals Pty Ltd was $41,825 (being $43,581.43 less $1,756.41) which amount must be included in calculating the total value of the Fode’s assets.
· Nells Unit Trust
38. Mr Fode is the sole director of Park Trading Enterprises which is the trustee company for Nells Unit Trust. The Len Fode Family Trust is the sole unit holder and beneficiary of Nells Unit Trust. It follows that Mr Fode is the controller of Nells Unit Trust pursuant to section 1207V(2) of the Act.
39. Nells Unit Trust ceased trading in May 1998 but has not been wound up. Whilst no tax returns exist in relation to the period concerned, the balance sheet for the unit trust for the year ended 30 June 2007 shows a deficiency in the unit trust funds of $11,588. Consequently, for the relevant period the value of the unit trust was ‘nil’ for social security purposes.
· Fode Nominees Pty Ltd, Milljet Pty Ltd & Park Trading Enterprises
40. Mr Fode is the sole director and shareholder of Fode Nominees Pty Ltd, Milljet Pty Ltd and Park Trading Enterprises and is therefore the controller of these companies for the purposes of the private company attribution rules. However, since these companies are trustee companies only, and do not trade or have any assets, there is nothing which can be attributed to Mr Fode.
· Other “assets” of Mr & Mrs Fode
41. Other “assets” of Mr Fode and his wife during the period under review comprised an ANZ bank account with a balance $6,953.26 (as at 7 September 2000) and $3,690.13 (as at 2 June 2003) and household effects with a value of $1,000 (as at 31 October 2000) and $2,000 (as at 4 February 2004).
· Summary of assets of Mr & Mrs Fode
42. The value of the assets of Mr Fode and his wife during the relevant period (being from 31 October 2000, when Mr Fode commenced receiving newstart allowance from Centrelink, until 4 February 2004, when Mr Fode lodged a claim with Centrelink for age pension) is summarized in the following table.
31 October 2000
24 October 2001 1 January 2002 3 June 2003 and 4 Feb 2004 Len Fode Family Trust $0 $0 $1,072,908 $1,179,982 L Fode loan $173,612 $229,590 $229,590 $223,516 The Fode Racquet Trust $0 $0 $0 $0 Nells Unit Trust $0 $0 $0 $0 The Len Fode Family Trust No2 $20 $20 $20 $20 Fode loan $48,358 $48,358 $48,358 $48,358 Seabound Pty Ltd $0 $0 $0 $0 Fode loan $136,312 $136,312 $136,312 $136,312 Gnangara All-Metals Pty Ltd $41,825 $41,825 ANZ Bank $6,953 $6,953 $6,953 $3,690 Household effects $1,000 $1,000 $1,000 $2,000 TOTAL $366,235 $422,213 $1,536,946 $1,635,683
Was Mr Fode Overpaid Newstart Allowance in the Period 31 October 2000 to 24 October 2001?
43. The basic qualifications for newstart allowance are set out in section 593 of the Act. Newstart allowance is not payable to a person if the value of their “assets” exceeds their applicable “assets value limit”: section 611(1) of the Act.
44. A person’s “assets value limit” is worked out using the table in section 611(2) of the Act and broadly depends on whether the person is single or partnered and whether they are a homeowner or not and is adjusted for CPI annually on 1 July. If a person is a member of a couple, and their partner is in receipt of a social security payment, the value of the person’s assets is 50% of the combined asset “value” of the couple’s “assets”: section 612(2) of the Act. As noted above, Mr Fode’s wife was in receipt of a partner allowance during the period from 31 October 2000 to 19 May 2003 which covers the whole period in which Mr Fode was in receipt of social security payments from Centrelink. Accordingly, pursuant to section 612(2) of the Act, the value of Mr Fode’s assets is 50% of the combined value of his and his wife’s assets at the relevant time.
45. A social security payment (including newstart allowance) may be cancelled if the person receiving it is not qualified or entitled to receive it: section 80(1) of the Social Security Administration Act 1999 (Cth) (Administration Act).
46. Mr Fode was notified by Centrelink that he had been granted newstart allowance on 21 December 2000 but he was paid newstart allowance from 31 October 2000 until 24 October 2001.
47. On 31 October 2000 (when Mr Fode commenced receiving newstart allowance), the combined value of Mr Fode and his wife’s assets was $366,235, comprising: (i) a loan from Mr Fode to the Len Fode Family Trust of $173,612; (ii) $20 in the Len Fode Family Trust; (iii) a loan from Mrs Fode to the Len Fode Family Trust No 2 of $48,358; (iv) a loan from Mr and Mrs Fode to Seabound Pty Ltd of $136,312; (v) $6,593 in a joint ANZ bank account; (vi) $1,000 in household effects: refer to the table in paragraph 42 above. At that time, Mr and Mrs Fode were homeowners as they had not yet sold their family home to their son (that occurred later in December 2000).
48. As at 31 October 2000, the “asset value limit” for a partnered person who was a homeowner was $94,750. The combined value of Mr Fode and his wife’s assets as at 31 October 2000 was $364,875. Therefore, the value of Mr Fode’s assets as at 31 October 2000 was $182,437 (being 50% of $364,875: refer to the table in paragraph 42 above). Consequently, the value of Mr Fode’s assets was clearly in excess of his “asset value limit” for newstart allowance purposes on 31 October 2000.
49. In December 2000, Mr Fode and his wife sold their family home to their son thereby making them non-homeowners for social security purposes. The “asset value limit” for a partnered person who was a non-homeowner at 24 October 2001 was $150,750. The value of Mr Fode’s assets at 24 October 2001 was $211,106 (being 50% of $422,213: refer to the table in paragraph 42 above) such that the value of Mr Fode’s assets was clearly in excess of his “asset value limit” for newstart allowance purposes on 24 October 2001.
50. Consequently, Mr Fode was not entitled to receive newstart allowance in the period 31 October 2000 to 24 October 2001 pursuant to section 611(1) of the Act and that payment should have been cancelled under section 80(1) of the Administration Act.
51. According to Centrelink’s calculations, Mr Fode was overpaid a total of $7,711.97 in newstart allowance during the period 31 October 2000 to 24 October 2001. The Tribunal accepts those calculations as accurate.
Was Mr Fode Overpaid Disability Support Pension in the Period 25 October 2001 to 31 December 2001?
52. Section 94 of the Act sets out the qualifications for disability support pension. In some circumstances, a disability support pension will not be payable to a person even though he or she is qualified for the pension. This includes the situation where the person’s rate of pension would be nil: section 98 of the Act. A person’s social security payment (including disability support pension) may be cancelled if the person receiving it is not qualified or entitled to receive it: section 80(1) of the Administration Act.
53. Broadly, the rate of disability support pension payable to a person (if that person has turned 21 and is not permanently blind) is worked out using the Pension Rate Calculator A at the end of section 1064 of the Act. Disability support pension is subject to an ordinary “income test” and an “assets test”. The tests are applied separately but only one determines the amount of pension to be paid. The rate of pension payable will be the lower of the rates produced by the two tests. Further, in determining the rate of disability support pension payable to a person, members of a couple are treated as pooling their resources (income and assets) and sharing them on a 50/50 basis. They are also treated as sharing their expenses on a 50/50 basis: section 1064-A2 of the Act.
54. Relevant for present purposes is the “assets test”. Under the “assets test”, a person will be paid a reduced rate of pension if he or she (or his or her partner) has assets over a specified limit, called the “asset value limit”. A person’s “asset value limit” is worked out using Table G-1 and the limit depends upon the person’s family situation (i.e. whether they are single or a member of a couple) and home ownership situation (i.e. whether they are a homeowner or non-homeowner): section 1064-G3 of the Act.
55. Where a person’s assessable assets have a net market value in excess of the persons’ “asset value limit” then the rate of pension payable to that person is reduced in accordance with the following formula in Table G-2 of section 1064-G4 of the Act (titled “Reduction for assets”):
“
2.
Partnered (partner getting neither pension nor benefit)
Assets excess X 19.50
250
3.
Partnered (partner getting pension nor benefit)
Assets excess X 19.50
250
”
56. A person’s “assets excess” is the value of the person’s “assets” less the person’s “asset value limit”: point 1064-G5 of the Act
57. As at 25 October 2001 (when Mr Fode commenced receiving disability support pension) the combined value of Mr Fode and his wife’s assets was $422,213, comprising: (i) a loan from Mr Fode to the Len Fode Family Trust of $229,590; (ii) $20 in the Len Fode Family Trust; (iii) a loan from Mrs Fode to the Len Fode Family Trust No 2 of $48,358; (iv) a loan from Mr and Mrs Fode to Seabound Pty Ltd of $136,312; (v) $6,953 in a joint ANZ bank account; and (v) $1,000 in household effects: refer to the table in paragraph 42 above. At that time, Mr and Mrs Fode were no longer homeowners, having sold the home in which they lived to their son in December 2000.
58. Mr Fode received disability support pension from Centrelink from 25 October 2001 to 31 December 2001. During this period, a partnered non-homeowner was entitled to a full rate of disability support pension if the level of his or her assets was less than $150,750 (being 50% of $301,500), or a part pension if the value of his or her assets was more than $150,750, but less than $266,000 (being 50% of $532,000): see “Chart A – Assets test for non-homeowner” in Centrelink’s “A Guide to Commonwealth Government Payments” (dated 20 September – 31 December 2001). In the period 25 October 2001 to 31 December 2001, the combined value of Mr Fode and his wife’s assets was $422,213: refer to the table in paragraph 42 above. Therefore, the value of Mr Fode’s assets in this period was $211,106 (being 50% of $422,213). Accordingly, Mr Fode was not entitled to be paid the full rate of disability support pension during this period, but was entitled to a part rate, reduced in accordance with section 1064 of the Act.
59. According to Centrelink’s calculations, Mr Fode was overpaid a total of $907.71 in disability support pension during the period 25 October 2001 to 31 December 2001. The Tribunal accepts those calculations as accurate.
60. On 17 December 2001, Centrelink cancelled Mr Fode’s disability support pension due to his failure to respond to letters which had been sent to him requesting information about the trusts with which he was associated. On 28 December 2001, Mr Fode lodged the required trust forms, but it was noted by Centrelink that it was unable to complete the assessment until tax returns for each of the entities was provided to it.
61. Mr Fode lodged a further claim for disability support pension on 3 June 2003. Based on the information provided on the trust forms and 1997/1998 trust tax returns, Centrelink determined that the value of Mr Fode’s assets were in excess of his “asset value limit” that allowed disability support pension to be paid to a partnered non-homeowner and, therefore, rejected his claim.
62. Based on the evidence before the Tribunal, the combined value of Mr and Mrs Fode’s assets at 3 June 2003 (when Mr Fode lodged a further claim for disability support pension) was $1,635,683: refer to the table in paragraph 42 above. Thus, the value of Mr Fode’s assets as at 3 June 2003 was $817,841 (being 50% of $1,635,683). The “asset value limit” for a partnered person who was a non-homeowner as at 3 June 2003 was $279,000, with the result that Mr Fode’s rate of disability support pension should have been reduced to ‘nil’ under the ‘assets test’ (when applying the formula in section 1064-G4 of the Act).
63. Indeed, Mr Fode ceased to be entitled to disability support pension from at least 1 January 2002, when the private company and private trust attribution rules became effective, since attribution under those rules resulted in his applicable rate being reduced to ‘nil’, when applying the formula in section 1064-G4 of the Act.
64. It follows from the above that Centrelink’s decision to reject Mr Fode’s second claim for the disability support pension on 3 June 2003, pursuant to section 98(1) of the Act, was the correct one.
Was Centrelink’s Decision to Reject Mr Fode’s Claim for Age Pension the Correct or Preferable One?
65. Section 43 of the Act sets out the qualifications for age pension. Age pension has the same method of rate calculation as for disability support pension described above. That is, the rate calculator at the end of section 1064 of the Act is applied to determine the applicable rate for age pension and disability support pension. Like disability support pension, age pension is not payable if the rate of payment would be ‘nil’: section 44 of the Act.
66. When Mr Fode lodged his claim for age pension on 4 February 2004, the relevant “asset value limit” for age pension purposes was $287,250. As indicated above (in the table in paragraph 42), the combined value of Mr Fode and his wife’s assets as at 4 February 2004 $1,635,683. Consequently, the value of Mr Fode’s assets as at 4 February 2004 was $817,841 (being 50% of $1,635,683). Since the value of Mr Fode’s assets clearly exceeded his “asset value limit” as at 4 February 2004, Centrelink’s decision on 9 February 2004 to reject Mr Fode’s claim for age pension pursuant to section 44 of the Act was the correct one.
67. Indeed, as far back as 1 January 2002, the value of Mr and Mrs Fode’s combined assets was in excess of $1,500,000 (as a result of attribution under the newly introduced private company and private trust provisions) and that remained so on 4 February 2004 (when Mr Fode claimed age pension from Centrelink, which was rejected by it on 9 February 2004). In other words, the value of Mr Fode’s assets was in excess of his “asset value limit” for age pension purposes well before he lodged a claim for age pension.
Does Mr Fode Have Debts Due to the Commonwealth?
68. Section 1223(1) of the Act provides that if a social security payment is made to a person and that person is not entitled to that payment, the amount of the payment is a debt due to the Commonwealth by the person.
69. The Tribunal considers that Mr Fode received newstart allowance in the period 31 December 2000 to 24 October 2001 to which he had no entitlement under the Act: refer to paragraphs 43 to 51 above. Centrelink has calculated the amount of Mr Fode’s overpayment of newstart allowance for that period to be $7,711.97. Based on the evidence before it, the Tribunal is satisfied that Centrelink has calculated this overpayment amount correctly. Accordingly, Mr Fode has a debt due to the Commonwealth for the amount of $7,711.97: section 1223(1) of the Act.
70. Further, the Tribunal takes the view that Mr Fode was paid a greater rate of disability support pension in the period 25 October 2001 to 31 December 2001 than he was entitled: refer to paragraphs 52 to 64 above. Centrelink has calculated the amount of Mr Fode’s overpayment of disability support pension for that period to be $907.71. Based on the evidence before it, the Tribunal is satisfied that Centrelink has calculated this overpayment amount correctly. Consequently, Mr Fode has a debt due to the Commonwealth for the amount of $907.71: section 1223(1) of the Act.
What is the effect of Mr Fode’s bankruptcy on Centrelink’s recovery of the debts?
71. Section 153(2) of the Bankruptcy Act 1966 (Cth) (Bankruptcy Act) provides that, subject to certain exceptions, discharge from bankruptcy releases the debtor from all debts provable in the bankruptcy. One exception is where a debt is incurred by means of “fraud”: section 153(2)(b) of the Bankruptcy Act.
72. The term “fraud” is not defined in the Bankruptcy Act. “Fraud” is defined in Black’s Law Dictionary 6th Edition (at 660) as:
“An intentional perversion of truth for the purpose of inducing another in reliance upon it to part with some valuable thing belonging to him or to surrender a legal right. A false representation of a matter of fact, whether by words or conduct, by false or misleading allegations, or by concealment of that which should have been disclosed, which deceives and is intended to deceive another so that he shall act upon it to his legal injury. Anything calculated to deceive, whether by a single act or combination, or by suppression of truth, or suggestion of what is false, whether it be by direct falsehood or innuendo, by speech or silence, word of mouth or look or gesture…..
A generic term, embracing all multifarious means which human ingenuity can devise, and which are resorted to by one individual to get advantage over another by false suggestions or by suppression of the truth, and includes all surprise trick, cunning, dissembling, and any unfair way by which another is cheated….
As distinguished from negligence, it is always positive, intentional.”
73. Civil “fraud” has been classified by the courts as either common law (or actual) fraud or equitable (or constructive) fraud. Equitable (or constructive) “fraud” is much broader than common law (or actual) “fraud”.
74. Common law (or actual) “fraud” requires an act or omission done for an intentionally deceitful purpose or with reckless indifference as to the truth or falsity of the representation: Derry v Peek (1889) 14 App Cas 337 at 374. Mere carelessness will not constitute “fraud” at common law: Angus v Clifford [1891] 2 Ch 449. Common law (or actual) fraud places a heavy on the representee who alleges “fraud”. According to the formulation of Lord Herschell in Derry v Peek, fraud is proved where the representor made a false statement/representation (1) knowingly; (2) without belief in its truth; or (3) recklessly, careless whether it be true or false. As pointed out by the High Court of Australia in SGB v The Queen (2005) HCA 80 [at 2], the third limb of the test (i.e. reckless indifference as to the truth) is:
“….but an instance of (2) because, as Lord Herschell put it in Derry v Peek [at 374]:
[One] who makes a statement under such circumstances can have no real belief in the trust of what he states.
This reasoning is akin to that which supports the evidentiary inference explained by Lord Esher MR as being that one who willfully shuts his eyes to what would result from further inquiry may be found to know of that result [English and Scottish Mercantile Investment Co v Brunton [1892] 2 QB 700 at 707-708].”
75. Common law (or actual) fraud implies deception. A ‘wicked mind’ is needed. This is the sense of fraud for tortious purposes determined in Derry v Peek, a case decided, as Lord Haldane pointed out in Nocton v Lord Ashburton [1914] AC 932 at 951, without an equity lawyer on the bench. The test is subjective so that it is essential to find out what meaning the representor placed on the statement and then whether he or she honestly believed that meaning to be true: Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563 at 577 and John McGrath Motors (Canberra) Pty Ltd v Applebee (1964) 110 CLR 656 at 659-660: see also R v Sinclair [1968] 3 All ER 241 wherein James J stated (at 246) that to cheat and defraud is to act with “deliberate dishonesty to the prejudice of another’s proprietary right”.
76. “Fraud” has a wide denotation in equity. Equitable (or constructive) fraud includes conduct which falls short of deceit “but [imports] a breach of duty to which equity attached its sanction” and has a special meaning which does not entail the ‘dishonesty’ that is the hallmark of fraud at common law: Nocton v Lord Ashburton, at 951 and 954 per Lord Haldane. Equitable (or constructive) fraud straddles a wide field of human activity, including breach of fiduciary duty, undue influence, abuse of confidence, unconscionable conduct and frauds on the powers: Armitage v Nurse [1998] Ch 241 (CA) at 252-253 per Millett LJ, citing Norton v Lord Ashburton, at 953. Equitable (or constructive) fraud is has a wide denotation reflecting the fact that the courts of equity are courts of conscience, acting in personam.
77. What constitutes "fraud" for the purposes of section 153(2)(b) of the Bankruptcy Act was considered by the Tribunal in Re Civitareale and Secretary, SDSS (1999) 57 ALD 541. In that case, in applying the decision in R v Sinclair (discussed above in paragraph 75), the Tribunal found that for a debt to be excluded from discharge under section 153(2)(b) on the basis of “fraud”, the test is whether the bankrupt, in incurring the debt, had acted with some “deliberate dishonesty to the prejudice of another person’s proprietary right”. In that case, the Tribunal found that the recipients of benefits under the Act, to which they were not entitled, had not incurred a debt by means of “fraud” as there was no “deliberate dishonesty in failing to notify the Department of the [relevant] payments”. The Tribunal was also satisfied that they “did not act recklessly without any regard for whether their answers to the Department in relation to their income were true or false”: see also Skalkos v Smiles (2006) 4 ABC(NS) 349; [2006] NSWSC 192; Re Bosun Pty Ltd (in liq) (2000) 34 ACSR 597 and Secretary, Department of Social Security v Prelaj Malaj (1993) 31 ALD 391. According to the Tribunal in Re Civitareale, for a debt to be incurred by means fraud there must be a subjective element of deliberate dishonesty or a reckless disregard for the truthfulness or otherwise of a contention. Thus, in Re Civitareale, the Tribunal applied the tests for common law (or actual) fraud in interpreting the meaning of “fraud” for the purposes of section 153(2)(b) of the Bankruptcy Act.
78. In Re Civitareale, the Tribunal also considered the decision of the Full Court of the Supreme Court of Western Australia in Cornelius v Barewa Oil and Mining (NL) (in liq) (1982) 42 ALR 83 (comprising Burt CJ, Wickham and Kennedy JJ), which case also considered the meaning of “fraud” in the context of section 153(2)(b) of the Bankruptcy Act. In that case, neither Burt CJ nor Wickham J addressed whether section 153(2)(b) of the Bankruptcy Act refers to common law (or actual) fraud or equitable (or constructive) fraud as they considered it unnecessary to do so in the context of the case. However, Kennedy J was prepared to accept, in the context of the case, that “fraud” as it appears in section 153(2)(b) of the Bankruptcy Act, means common law (or actual) fraud. His Honour stated (at 297-298):
“There appear to me to be some risks involved in glossing the words of the statute…..I am, however, prepared to accept, for the purposes of this case, that ‘fraud’ and ‘fraudulent’ in [section 153(2)(b) of the Bankruptcy Act] mean ‘actual fraud’ and ‘actually fraudulent’. Such an interpretation has been placed upon these words in earlier Acts, although not in relation to this provision…”.
79. Further, in Re Civitareale the Tribunal noted that there is nothing in their Honours’ judgments in Cornelius v Barewa Oil and Mining (NL) (in liq) which detracts from the general principles enunciated by Lord Herschell in Derry v Peek and James J in R v Sinclair, namely that to defraud is to act with “deliberate dishonesty to the prejudice of another’s proprietary right”, which is to be tested subjectively: see also SGB v The Queen (2005) HCA 80. Examples of cases which have given the term “fraud” in section 153(2)(b) of the Bankruptcy Act a broader meaning, extending to equitable fraud include Maxwell v Chittick (unreported, NSW Court of Appeal, 23 August 1994) and Re Bosun.
80. Whilst it is unclear on the authorities whether “fraud” in section 153(2)(b) of the Bankruptcy Act extends to (or constructive) fraud it is clear that “fraud” in that section is intended to encompass, at the very least, common law (or actual) fraud. It is unnecessary for present purposes to make a determination on whether “fraud” in section 153(2)(b) extends to equitable (or constructive) fraud, since the alleged fraudulent conduct in this case does not fall within the field of human activity which is generally considered to involve equitable fraud: refer to paragraph 76 above and Nocton v Lord Ashburton and Armitage v Nurse.
81. Mr Fode became bankrupt on 6 November 2006 as a result of a sequestration order being lodged on 20 August 2007. Centrelink lodged a proof of debt with the trustee in bankruptcy pursuant to Division 1 of Part VI of the Bankruptcy Act for the amount of $8,800 which debt was admitted in whole by the trustee. Consequently, Centrelink was listed as a creditor for the amount of $8,800. On 20 January 2009, Centrelink decided that Mr Fode’s debts to Centrelink were incurred by him by means of “fraud” such that he should not be released from the debts upon his discharge from bankruptcy. Specifically, Centrelink’s computer records, dated 20 January 2009, state the following:
“
*Customer failed to provide info when there was an obligation to do so (mainly the beneficiary loans to your trusts and the directors’ loans to your companies) was not correctly declared to Centrelink.
*Customer knows how to contact Centrelink from the doc’s on the sys.
*On the available evidence it appears probable that cust[omer] knowingly contributed to debts being raised.
*On the balance of probabilities debts 62371033 & 62371035 were incurred by fraud. Ref sect 1236 of SSA 1991.
*Debts will be Temp W/O for the period of the Bankruptcy and will be recoverable after the period of the Bankruptcy. Ref sect 1236 of SSA 1991.” [Emphasis added]
Mr Fode was automatically discharged from bankruptcy on 21 August 2010.
82. The reasons Centrelink’s reached that decision Mr Fode’s debts were incurred by “fraud” appear to in summary be as follows.
83. On 2 November 2000, when Mr Fode lodged his claim for newstart allowance, he indicated his and his wife’s involvement with the Len Fode Family Trust, Fode Nominees Pty Ltd and the Len Fode Family Trust No 2. The 1996/1997 tax returns which were provided to Centrelink for those trusts and the 1997 Balance Sheet and Profit and Loss Statement for the Len Fode Family Trust showed the existence of loans to the trusts and distributions of income. Based on this information, Centrelink made an informal assessment that Mr Fode would not be entitled to be paid newstart allowance, but in order to properly decide on his eligibility for newstart allowance, on 15 November 2000, Centrelink requested that Mr Fode provide it with either a tax return or account from your accountant for the 1999/2000 financial year for the Len Fode Family Trust and the Len Fode Family Trust No 2, as well as proof that the Fode Racquet Trust had been dispersed.
84. On 4 December 2000 Mr Fode telephoned Centrelink upset at its request for the current tax details for his family trusts. He was told by a Centrelink officer that the trust tax returns she had received were more than three years old and that if he claimed newstart allowance based on that information he would not be eligible. Mr Fode told the Centrelink officer that he had not lodged a tax return in the past three years and, in response, she said to him that he should be able to get a statement from his accountant confirming that he hasn’t had any distributions in the past three years.
85. On 19 December 2000, Mr Fode’s accountant and tax agent, Mr John Edwards, wrote to Centrelink to clarify the tax and trading position of Mr Fode and his associated entities. Mr Edwards explained in that letter that the outstanding tax returns had not been completed for two reasons “First, because Mr Fode’s financial circumstances, he has been unable to pay for the necessary work to be done to complete the returns. Secondly, no tax liability will arise from the completion and lodgement of the returns.” Despite this, Mr Edwards said that he had agreed to complete and lodge the outstanding tax returns by 28 February 2001 and that copies of those returns would be provided to Centrelink on completion. There is no evidence in Centrelink’s computer records of those tax returns being received by it in early 2001.
86. On 21 December 2000 Mr Fode signed a Centrelink “Statement” which provided that “To my knowledge there is no loans through the trusts”. This Statement, although signed by Mr Fode appears to have been completed by Centrelink officer “K. [Kylie] Jordan” as it is not, based on the other evidence before the Tribunal, in Mr Fode’s usual handwriting. However, this matter could not be confirmed since Ms Jordan was not present at the hearing to provide evidence. At the bottom of the Statement appears the following “The information in this statement has been read to me/aloud by me, and to the best of my knowledge it is complete and correct”. The statement that there were “no loans through the trusts” later proved to be false when balance sheets, profit and loss statements and trust tax returns were subsequently provided to Centrelink in 2004. On 21 December 2000 was advised by Centrelink that he had been granted newstart allowance and advised that he was required to advise Centrelink of any changes to his or his wife’s circumstances, including if the value of the combined assets increased to more than $285,000.
87. Centrelink’s contention is that the Centrelink “Statement” that Mr Fode signed on 21 December 2000 was done so by him with reckless disregard to the truth such that his debt for newstart allowance, paid to him in the period 31 October 2000 to 24 October 2001 (totalling $7,711.97), was incurred by him by means of “fraud” and remains recoverable by the Commonwealth following his discharge from bankruptcy pursuant to section 153(2)(b) of the Bankruptcy Act.
88. On 10 December 2001 Mr Fode lodged his first claim for disability support pension. At Question 24 of Part F of that claim form Mr Fode answered ticked the “No” box in response to the question “Do you have any money invested in, or do you receive income from, family trusts? i.e. are you a trustee, a beneficiary or have you gifted or loaned money or other assets to a trust.” On 10 December 2001 Centrelink notified Mr Fode that his disability support pension had been granted and that he was required to advise Centrelink of any changes to his or his wife’s circumstances, including if the value of their combined assets increased to more than $198,798.
89. On 17 December 2001 Mr Fode was notified by Centrelink that his disability support pension had been cancelled “because we have not received a reply to the trust and company letter we sent you”. On 7 January 2002, Mr Fode telephoned Centrelink regarding the cancellation of his pension. The Centrelink records show that Mr Fode told Centrelink that his “accountant returned the original forms” and that they must have been lost by Centrelink and that he had personally lodged the second set himself in December at Centrelink in Innaloo. He told the Centrelink officer that he was “VERY upset at [his] payments ceasing”. In response, the Centrelink officer told Mr Fode that she “would contact Perth and see if [Centrelink] could find the forms and request if they could be processed” and told him that “would call him later [that] afternoon on his mobile.” Centrelink’s records indicate that the Centrelink officer did call Mr Fode later that day and told Mr Fode that he or she “now [had] the papers that were he be lodged” by Mr Fode at Centrelink in Innaloo on 28 December 2001 and that he or she would process them, but would be unable to complete the assessment until trust tax returns were provided for each of the entities. Centrelink’s records show that the Centrelink officer proceeded to contact Mr Fode’s accountant (Mr Edwards) directly, to obtain the trust tax returns, but the officer’s call was automatically “transferred to a mobile with a recording that the number has been disconnected.”
90. On 3 June 2003 Mr Fode lodged a further claim for disability support pension. At Question 24 of Part H of the claim form Mr Fode ticked the “No” box in response to the question “Are you, or have you been, involved in a private trust? You may be, or have been: a trustee, an appointor, a beneficiary or have made a loan to a private trust…”. Based on the available evidence (including, for example, trust tax returns, profit and loss statement, balance sheet and depreciation schedule for the 1997/1998 financial year), on 13 June 2003 a Centrelink Complex Assessment Officer made an assessment of Mr Fode’s financial position which resulted in his disability support pension claim being rejected as the value of his and his wife’s assets was above the allowable asset value limit.
91. On 23 July 2003 Centrelink was advised by Mr Fode’s accountant, Mr Edwards, of updates to Mr Fode’s trusts and informed that tax returns had not been completed since 2000 since there were no tax liabilities. On 6 August 2003 Mr Edwards telephoned Centrelink to discuss Mr Fode’s involvement in several entities and said that he would provide Centrelink with updated financials for all of the entities with which Mr Fode was involved. On 28 January 2004 Centrelink received copies of Mr Fode and his wife’s personal tax returns as well as trust tax returns and income tax returns for his associated trusts and companies for the 1999/2000, 2000/2001, 2001/2002 and 2002/2003 financial years.
92. It is Centrelink’s submission that Mr Fode’s debt for the disability support pension paid to by him in the period 25 October 2001 to 31 December 2001 (totalling $907.71) to which he was not entitled was incurred by him by “fraud” such that it remains recoverable by the Commonwealth following his discharge from bankruptcy pursuant to section 153(2)(b) of the Bankruptcy Act.
93. On 30 September 2010 the SSAT affirmed Centrelink’s decision that Mr Fode’s debts were incurred by him by means of “fraud” and that he should therefore not be released from the debts upon his discharge from bankruptcy. In reaching this decision, the SSAT stated:
“61. …………The [SSAT] found that Mr Fode made a statement on 21 December 2000 to the effect that to his knowledge there were no loans through the Trusts. He did not provide any up-to-date balance sheets. The balance sheets for the subsequent years were eventually provided to Centrelink and show Mr Fode’s claim to be false. The [SSAT] was of the view that that statement by Mr Fode was false and made with a reckless disregard for the truth.”
94. Tendered into evidence was a letter (dated 1 July 2011) which was signed by Mr Fode but which had been prepared by Mr Fode with the assistance of Ms Kate Beaumont of Welfare Rights & Advocacy Services. In the letter Mr Fode stated that he required Ms Beaumont’s assistance to complete the letter as he has “some difficulties with reading and writing and comprehension and [has] had only a basic education leaving school at 13.” The letter further stated that “Kate has looked at the documents and explained them to me. I do not understand the documents myself”.
95. In the letter dated 1 July 2011, Mr Fode claims that at no time was he fraudulent in his dealings with Centrelink. Further, he states “At the time I lodged my claim [for newstart allowance] I provided the information by [Centrelink] and where I was not able to, I clearly let Centrelink know and asked them to contact my accountant, John Edwards. I had not had any dealings with Centrelink before [lodging a claim for newstart allowance] and expected that [Centrelink] would contact my accountant, as occurs in other areas of my life where financial information is required, as I do not understand my financial affairs.”
96. Mr Fode also gave verbal evidence to the effect that for the 24 years that he had run his sheet metal roof plumbing business he had had a girl who worked for him who did all of his “office work and his paperwork”. He said that he had grown up in Boulder in the Goldfields and had left school at the age of 13 and wasn’t competent to perform the paperwork associated with his business himself and had always relied on others for assistance with his financial affairs.
97. In relation to relation to his overpayment of newstart allowance and, in particular, with regard to the sentence in the Centrelink “Statement” signed by Mr Fode on 21 December 2000, “To my knowledge there is no loans through the trusts”, Mr Fode’s letter (dated 1 July 2011) states the following:
“On 31 October 2000 I contacted Centrelink about claiming a payment as I had injured my back and my doctor suggested that I approach Centrelink for help. On 2 November 2000 I went to Innaloo Centrelink and had an interview. Although I cannot remember it a statement must have been completed by the Centrelink officer as it is not in my handwriting, however it is my signature (T5: p67). The statement included information that I had supported myself over recent years through the sale of properties and some odd jobs. The contact details of my accountant, John Edwards was also included at the bottom of the statement. I would have gotten them to put down John’s name and contact details because he knows all of the ins and outs of my financial situation (T5: p67). The Centrelink document records that I attended the interview at Innaloo on 2/11/2000 but it could not be completed as I did not have hardly any information with me or the completed forms (T36: p492).
I remember that I took the Centrelink forms to John Edwards, my accountant to get his help with filling out the forms. John Edwards completed much of the claim form and it is in John’s handwriting for both my wife and I and the trusts and the real estate forms which were signed by Yvonne and I. I provided those forms to Centrelink and also the latest financial statements for the Len Fode Family Trust (up to the year ended 30 June 1997) and the Len Fode Family Trust No 2 (up to the year ended 30 June 1996) and the Trust Deeds. I’m not sure when these documents were given to Centrelink…..
From the Centrelink file it appears that on 15 November 2000 Centrelink asked me to provide them with up to date information in relation to the two family trusts and additional information about the Len Fode Family Trust, Fode nominees and proof that the Fode Racquet Trust was dispersed. The Centrelink records show that I contacted Centrelink on 4 December 2000 and spoke to a person at the Centrelink Call Centre and was upset about them asking for my current tax details. This was because I had already explained to them that I did not have more recent records than the ones that I had provided.
……………….
The next thing that seems to have happened according to my Centrelink file is that on 19 December 2000 a letter from my accountant, John Edwards, which set out information about my tax and trading position was received by Centrelink (T11A: p125-126).
…………………
I can’t remember this but according to the Centrelink file I again went to Innaloo Centrelink on 21 December 2000. A statement was prepared which was written by Kylie Jordan [a Centrelink officer] which I signed. I do not think the words that were used in the statement are the words that I would have used. I cannot recall the discussions between Kylie and myself which led to the preparation of the statement, although I must have been aware that she had spoken to my accountant and if so would have thought this was where she got the information which was included in the statement. I had not seen the letter from John Edwards to Centrelink.
At the time I did not know there were loans to the trust. The statement made ‘To my knowledge there is no loans through the trusts’ is what I thought at the time. I do not consider that I was reckless in making this statement as I really did not know all the ins and outs of my finances and would have believed that Centrelink had been in contact with John Edwards and so would have thought that it was correct. It never entered my mind that they would not have obtained all of the required information from John Edwards……
After the appointment I assumed that everything was fine as Centrelink granted payment to my wife and [me]. I really did not understand much about the payment that I was on as I was getting paid as I had a bad back. This is the first time that I had ever been on any sort of payment from Centrelink and I had no experience of the Social Security System. Over the time I was on Centrelink payments I had minimal contact with Centrelink except for having put in medical certificates initially monthly and then my doctor put me on three monthly medical certificates.
I can recall while I was getting Centrelink payments that I got some letters about Data Collection. Each time I got one of these letters I took the paperwork to my accountant, John Edwards and he said that he would deal with it. Each time I got another reminder letter I contacted John Edwards….I had assumed that John would deal with it.” [Emphasis added]
98. As regards his overpayment of disability support pension, Mr Fode’s letter (dated 1 July 2011) states the following:
“I am a bit confused as to how I came to be put on Disability Support Pension (DSP) and it felt like I was put on it one week and then taken off the next week. According to the Centrelink computer records, I lodged a claim for DSP on 10 December 2001 at Innaloo Centrelink (T14: p132-174). It was a short time later that I got a letter saying my payments had been cancelled as I had not returned the Trust and Company Modules (T16: p179). My accountant told me that he had lodged the modules at Centrelink. When I went to Centrelink on 24 December 2001 following the cancellation of my DSP I explained to them that my accountant had already lodged the Trust and Company Information (T36: p477). I then got John Edwards to assist with the completion of another set of forms. According to the Centrelink record these duplicate Trust and Company Modules were lodged by me on 28 December 2001 at Innaloo Centrelink (T36: p476)….
On 8 January 2002 I was contacted by Centrelink and was told that [my DSP claim] would be processed but that until the income tax returns for all the entities were provided that it could not be finalised. I referred the Centrelink officer to my accountant and he agreed to contact John Edwards (T36: p476). From the Centrelink document it appears that worker tried to phone John Edwards but the call was transferred to a mobile with a recording that the number had been disconnected. I would have thought that if they had not been able to talk to John Edwards they would have rung me back. It seems that nothing was done following that contact and, according to the documents, on 28 February 2001 the Complex Assessment Officer indicated that a file for the Len Fode Family Trust had been created and that if I was to contact again about getting an income and asset test payment that I should not get payment until the trust or company had been assessed by a CAO (T36: p474).
My next contact with Centrelink was when I tried to get onto a Centrelink payment on 27 May 2003 and lodged a new claim for DSP at Innaloo Centrelink…….On 14 July 2003 my claim for DSP was rejected (T19: p238).
On 6 August 2003 John Edwards contacted Centrelink and was advised that he needed to have updated financials for all of the entities and that Centrelink was looking at past entitlements to see if I had been overpaid. [John Edwards] said that most of the assets had been sold to repay the debts and the only two real properties that remained were assets owned by the Len Fode Family Trust (T36: p467; T21: p241).
On 28 January Financial Statements for both me and my wife for the various trusts and companies were provided to Centrelink. There is a disclaimer that the personal income tax returns for me and my wife were estimates only (T23). These were prepared by John Edwards.
………….On 6 February 2004 Centrelink raised debts for the entire amount of Newstart Allowance and Disability Support Pension I was paid (T36: p459-460).
On 17 February 2004 John Edwards and I went to Centrelink and had an appointment with the [CAO] who explained the 1 January 2002 trust and company changes. This is the first time that my accountant became aware that Centrelink do not permit the offset of one entity’s deficit against other positive equities (T36: p458). I can remember that John Edwards swore when the Centrelink worker explained the difference between Taxation and Centrelink law and about how they treated trusts and companies. The potential for resubmitting further financial statements and a request for review was made at this time (T36: p459).” [Emphasis added]
99. Mr Fode’s accountant, Mr John Edwards, appeared before the Tribunal and gave evidence. In summary, Mr Edwards’ evidence was as follows.
· Mr Edwards confirmed that he had been Mr Fode’s accountant for many years but that he had not had much to do with Mr Fode at the time he lodged his claim with Centrelink for newstart allowance since, by that stage, Mr Fode’s business had wound down. However, according to Mr Edwards, it had historically been Mr Fode’s practice to refer matters involving his financial affairs to him. Although, Mr Edwards stated that Mr Fode had never specifically asked him to be his contact person for the purposes of answering Centrelink’s enquiries concerning Mr Fode’s financial affairs for social security purposes and there was no formal agreement in place between Mr Fode and Mr Edwards to this effect.
· In addition, Mr Edwards verified that he had completed Mr Fode’s “Statement of Affairs” dated 16 August 2007 in relation to his bankruptcy. On the last page of that Statement the question “Reason the person required your assistance?” is asked. In answer to that question, Mr Edwards wrote “Difficulty in reading/Understanding Form, Complexity of Bankrupt’s Affairs”. At point 44C (on page 19) of that Statement Mr Edwards had inserted “L & Y Fode – Loan - $319,589” under “Asset Description”. Mr Edwards confirmed that that amount was money Mr Fode and his wife owed the Len Fode Family Trust.
· Mr Edwards also confirmed that he had assisted Mr Fode to complete Centrelink Mod R “Real Estate Details” forms for Len Fode Family Trust owned properties at 41 Kalgoorlie Street, Mr Hawthorn and 171 Ravenscar Street, Doubleview which were signed by Mr Fode on 2 November 2000.
· Mr Edwards told the Tribunal that he had helped Mrs Fode to complete a Centrelink Mod P “Partner Details” form which was signed by Mr Fode’s wife on 2 November 2000. At point 15 (on page 6) of that form, the “No” box had been ticked in response to the question “Do you have any bonds, debentures, money on loan or unsecured notes?”. Mr Edwards explained that the reason for that was that that to his knowledge Mrs Fode “owed money to the trust and not the other way around”. However, as indicated above, in the balance sheet for the Len Fode Family Trust No 2 as at 30 June 2001, Mrs Fode has a loan to that trust of $48,358 which was an “asset” pursuant to section 1122 of the Act and therefore forms part of the value of the Fode’s combined assets, for social security purposes, for the period 31 October 2000 to 31 December 2001.
100. Based on the verbal evidence given by Mr Fode and his accountant, Mr Edwards, Mr Fode’s letter dated 1 July 2011 and the other evidence before it (as detailed above), the Tribunal is not on the balance of probabilities satisfied that Mr Fode acted with any deliberate or intentional dishonesty in signing the Centrelink “Statement” dated 21 December 2000 which said “To my knowledge there is no loans through the trusts” even though that statement later proved to be false: R v Sinclair and Re Civitareale. The Tribunal is also satisfied that subjectively Mr Fode did not sign that Statement knowingly, without belief in its truth or recklessly without any regard to whether it was true or false: Derry v Peek and SGB v The Queen. This is apparent from Mr Fode’s letter dated 1 July 2011 which states:
“At the time I did not know there were loans to the trust. The statement made ‘To my knowledge there is no loans through the trusts’ is what I thought at the time. I do not consider that I was reckless in making this statement as I really did not know all the ins and outs of my finances and would have believed that Centrelink had been in contact with John Edwards and so would have thought that it was correct. It never entered my mind that they would not have obtained all of the required information from John Edwards……”
101. It is clear from the evidence that Mr Fode did not know the “ins and outs”, as he put it, of his financial affairs and has always relied on others, including his accountant Mr Edwards, to take care of them for him. If anything, Mr Fode was careless in assuming and expecting that Centrelink would contact his accountant, Mr Edwards, to clarify his financial situation and to obtain the relevant supporting documents (e.g. trust tax returns, balance sheets profit and loss statements etc.). However, mere carelessness does not constitute “fraud” at common law: Angus v Clifford. The Tribunal considers that Mr Fode honestly believed the statement “To my knowledge there is no loans through the trusts” to be true at the time he made it. There is nothing to suggest otherwise: Krakowski v Eurolynx and John McGrath Motors v Applebee. The Tribunal also takes the view based on the evidence before it that Mr Fode was not otherwise fraudulent in his dealings with Centrelink. In reaching its decision that Mr Fode did not incur his debts to Centerlink by means of “fraud”, the Tribunal is mindful of the following words of Deputy President Hack SC in Cook and Secretary, Department of Employment and Workplace Relations [2007] AATA 1690 (24 August 2007) [at 35]:
“A finding of fraud is a serious matter which ought be made only in the clearest of cases. Whether it can or should be made will depend upon the evidence then available.”
Should Recovery of the Debts be Waived Due to Administrative Error or Special Circumstances or be Written-off?
102. Since the Tribunal is satisfied that Mr Fode did not incur his newstart allowance and disability support pension debts by means of “fraud”, it is unnecessary to consider questions of waiver due to administrative error or special circumstances. The issue of write-off is considered below.
103. Section 1236(1) of the Act provides that the Secretary (Centrelink) may, on behalf of the Commonwealth, decide to write off a debt in certain circumstances, including where the “debt” is “irrecoverable at law”: section 1236 (1A)(a) of the Act.
104. Subsection 1236(1B)of the Act relevantly provides:
“For the purposes of paragraph (1A)(a), a debt is taken to be irrecoverable at law if, and only if:
the debt cannot be recovered by means of deductions, or legal proceedings, or garnishee notice, because the relevant 6 year period mentioned in section 1231, 1232 or 1233 has elapsed; or
……………………...
(c) the debtor is discharged from bankruptcy and the debt was incurred before the debtor became bankrupt and was not incurred by fraud;”
105. Since: (i) Mr Fode was discharged from bankruptcy on 21 August 2010; (ii) Mr Fode’s debts for overpayment of newstart allowance and disability support pension were incurred by him before he became bankrupt on 6 November 2006; and (iii) the Tribunal has decided, for the reasons provided above, that Mr Fode’s debts were not incurred by him by “fraud” for the purposes of section 153(2)(b) of the Bankruptcy Act, the Tribunal considers that the Secretary (Centrelink) should write-off Mr Fode’s debts pursuant to section 1236(1) of the Act
Decision
106. For the above reasons, the Tribunal:
(i)affirms the decision of the SSAT on 30 September 2010 that Mr Fode was overpaid $7,711.97 in newstart allowance in the period 31 October 2000 to 24 October 2001 and that that overpayment represents a debt due to the Commonwealth;
(ii)affirms the decision of the SSAT on 30 September 2010 that Mr Fode was overpaid $907.71 in disability support pension in the period 25 October 2001 to 31 December 2001 and that that overpayment represents a debt due to the Commonwealth;
(iii)affirms the decision of the SSAT on 30 September 2010 to reject Mr Fode’s claim for age pension;
(iv)sets-aside the decision of the SSAT on 30 September 2010 that Mr Fode’s debts (for overpayment of newstart allowance and disability support pension) were incurred by him by means of “fraud” pursuant to section 153(2)(b) of the Bankruptcy Act and substitutes that decision with the following decision:
“The Tribunal finds that Mr Fode’s debt of $7,711.97, for overpayment of newstart allowance in the period 31 October 2000 to 24 October 2001, and that Mr Fode’s debt of $907.71, for overpayment of disability support pension in the period 25 October 2001 to 31 December 2001, were not incurred by Mr Fode by means of “fraud” within the meaning of section 153(2)(b) of the Bankruptcy Act and that Mr Fode should have been released from those debts upon his discharge from bankruptcy on 21 August 2010 pursuant to section 153(1) of the Bankruptcy Act.”; and
(v)sets-aside the decision of the SSAT on 30 September 2010 that Mr Fode’s debts should not be waived due to administrative error or special circumstances or written-off and substitutes that decision with the following decision:
“The Tribunal orders that Mr Fode’s debts to Centrelink for overpayment of newstart allowance in the period 31 October 2000 to 24 October 2001 and for overpayment of disability support pension in the period 25 October 2001 to 31 December 2001 are debts which are irrecoverable at law for the purposes of section 1236(1A)(a) and section 1236(1B)(c) of the Act and that those debts should be written-off by the Secretary (Centrelink) under section 1236(1) of the Act. Accordingly, it is unnecessary for the Tribunal to make a finding on whether the debts should be waived due to administrative error or special circumstances.”
I certify that the 106 preceding paragraphs are a true copy of the reasons for the decision herein of C Walsh, Senior Member
Signed: .............[sgd D Brodie]....................................
Associate
Date/s of Hearing 4 July 2011
Date of Decision 4 August 2011
Representative for the Applicant Mr L Fode (Self-represented)
Representative for the Respondent Ms M Conlon (for the Secretary)
4
6
0