Foschi and Secretary, Department of Families, Community Services and Indigenous Affairs

[2006] AATA 458

Administrative

Appeals

Tribunal

 

DECISION AND REASONS FOR DECISION [2006] AATA 458

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No Q2005/536

GENERAL ADMINISTRATIVE DIVISION		)
Re		CLARA FOSCHI

Applicant

And SECRETARY DEPARTMENT OF FAMILIES, COMMUNITY SERVICES and INDIGENOUS AFFAIRS

Respondent

DECISION

Tribunal Ms M J Carstairs, Member

Date26 May 2006

PlaceMount Isa

Decision The Tribunal sets aside the decision under review and substitutes the decision that Mrs Foschi’s age pension debt is wholly waived, with effect from the date the debt was raised.   

..........[Sgd].........

M J Carstairs
  Member

CATCHWORDS

SOCIAL SECURITY – recovery of debt – assets in excess of statutory limits – loans to company as asset – no knowledge of husband’s business activities - contribution of administrative error to debt – debt waived for special circumstances.

Social Security Act 1991 ss 1237(2)(a),1237AAD

McLean and Secretary Department of Family and Community Services (2003) 37 AAR 328
Re Beadle and Director-General of Social Security (1984) 6 ALD 1
Groth v Department of Social Security (1995) 40 ALD 541
Re Ivovic and Director General of Social Services (1981) 3 ALN N95.
Secretary, Department of Social Security v Hales (1998) 153 ALR 259
Director General of Social Services v Hales (1983) 78 FLR 373
Ryde v Secretary, Department of Family and Community Services [2005] FCA 866

REASONS FOR DECISION

26 May 2006 Ms M J Carstairs, Member        

1.      Clara Foschi is an age pensioner who has had a substantial debt raised against her on the basis that, over some five years between 1996 and 2001, her assets, when combined with those of her husband, Italo Foschi, were not correctly assessed by Centrelink.  As a result both were overpaid age pension and the respondent has raised debts against each to recover the money. 

2.      When the Social Security Appeals Tribunal heard their matters, that Tribunal decided to waive part of Mr and Mrs Foschi’s debts, taking into account administrative error on Centrelink’s part during 2001.  As a result Mrs Foschi’s debt is now $34,257.24.  Mr Foschi’s debt is $35,856.03. 

3.      This decision deals with Mrs Foschi’s debt.  However her debt exists in the legislative context that requires that their combined assets be taken into account in order to calculate their rates pension. 

4.      The main asset in issue relates to loans made by Mr Foschi from time to time to his company, Foschi Enterprises.  At the end of 2001, when Centrelink cancelled Mr and Mrs Foschi’s pensions on the basis of those and other assets, Mr Foschi forgave the loans.  Mr and Mrs Foschi had other assets, about which Centrelink were also seemingly unaware, including two properties in Italy.  Thus, it was not the loan to Foschi Enterprises alone that led to the cancellation.  Nevertheless the loan, standing at a total of $294,970 in 2001, was a significant component of their total assets when the upper assets limit for a couple then was $415,500.

5.      The reason that Mr Foschi’s loans to Foschi Enterprises came to Centrelink’s attention in 2001, and Centrelink began the processes towards raising the debts, was because of proposed changes to the Social Security Act 1991 (the Act) being implemented the following year.  The changes provided for the assets and income of private trusts and companies to be attributed to related individuals who might be seeking a social security payment.  Before the introduction of these new measures, assets and income from private trusts or companies could only be attributed to individuals if the legal ownership or a fixed right of income was established. 

6.      On 1 February 2001 Centrelink sent out a data collection package to Mr Foschi, and the Foschi’s then accountants, McGuiness Cramb & Brown, replied promptly.   The question Does the company owe money to any associates? was answered :

..Yes    √         Amount owed $294,970.   Note assets of the company are insufficient to repay this debt. (88, folio 433)

7.      It is Mr Foschi’s position that his loans should not have affected his or Mrs Foschi’s pensions because Foschi Enterprises was never in a position to repay him.  His solicitors have presented additional submissions in regard to the loans, their recoverability and Centrelink assessment procedures.  These matters and the discussion of the circumstances surrounding the company and its financial position over the years, are discussed in the decision on Mr Foschi’s debt, also handed down today. 

8.      There is no need to repeat that detail here, because on the view that I have taken, the question of Mrs Foschi’s debt is guided by the over-riding consideration that there are special circumstances that militate against the Commonwealth taking any recovery action. 

9.      I have decided that the respondent must re-look at its calculations of Mr Foschi’s debt.  Briefly stated, I was not satisfied (on this point, accepting a submission prepared by counsel on Mr Foschi’s behalf) that the legislation has been correctly applied when valuing the loans Mr Foschi had made prior to October 1987. 

10.     I could have taken the same approach in relation to Mrs Foschi’s debt, but I decided this would not be the correct approach in her case.  Regardless of how the debt is calculated or its precise sum, in her case there are compelling reasons to waive her liability.  That being my view there is no practical reason to delay the resolution of her matter pending the implementation of my direction to re-calculate Mr Foschi’s debt..

BACKGROUND

11.     Mrs Foschi commenced receiving age pension when she turned sixty in 1994.  Before that she was receiving a wife pension.  Both Mr and Mrs Foschi are currently paid age pension, this being possible after Mr Foschi forgave the loans.  In 2004 he ceased his involvement with Foschi Enterprises.  Mrs Foschi also receives an Italian pension, which varies with the exchange rate but is usually somewhere between $250 and $300 per month.  Mrs Foschi’s age pension debt is being recovered by withholding $80 per fortnight from her pension.    . 

12.     Mr and Mrs Foschi’s original claim forms for their age pensions have been lost.  Consequently, we cannot know with certainty what personal or business information Mr and Mrs Foschi provided to the then Department of Social Security when they applied..  The respondent acknowledged that some information about Foschi Enterprises was provided at the time of the claims or soon thereafter.  This acknowledgment could be seen for instance, in a debt submission documented at T171 where a delegate noted that Centrelink [sic] was aware of the company as at 1995 (T171 page 634).The authorised review officer, who later reviewed the case, noted that the information given to Centrelink concerning Foschi Enterprises was not fully coded and the loans appearing on the company balance sheets were not recognised as being made by the customer to the company.

13.     I understood from that remark that the review officer was acknowledging that Centrelink (or its predecessor, the Department of Social Security) had not coded information that the Foschis had supplied.  Some support for that view comes from one of the few retained early records from the Foschi’s files, namely a letter dated 22 October 1993 from the Mt Isa Regional Manager of Social Security to Mr Foschi’s then accountants, Coopers and Lybrand, requesting Foschi Enterprises financial records for the 1992/1993 tax year (T24).  This request predated Mr Foschi’s grant of age pension, and it can be inferred from Mr Foschi then being granted age pension the following month, that Coopers and Lybrand provided the requested information.  An early notice sent by Centrelink to Mr and Mrs Foschi referred to their assets as including the value of the company’s mining leases (T30).  Later notices did not refer to the valuation of the mining leases. 

SHOULD MRS FOSCHI’S DEBTS BE WAIVED ON THE GROUNDS OF SPECIAL CIRCUMSTANCES?

14.     The authorised review officer did not consider the possibility of exercising discretion for special circumstances provided for in s1237AAD of the Act, but the Social Security Appeals Tribunal did.  The Social Security Appeals Tribunal concluded that the discretion was one open for consideration in Mrs Foschi’s case because her debt did not arise from knowing breaches of the legislation: s1237AAD(a) of the Act.  I agree with that conclusion. 

15.     Consideration of Mrs Foschi’s case seems to have been clouded by the complexities of the legal issues in Mr Foschi’s case.  Those issues have been the subject of his solicitors’ comprehensive submissions to Centrelink and to two Tribunals.  I note also that the solicitors who represented Mr Foschi at the Social Security Appeals Tribunal did not represent Mrs Foschi.  Their written submissions do not refer her issues.  Some specific focus on Mrs Foschi’s issues might have been possible if decision makers at Centrelink had spoken to her, but there was no evidence that they did.  A better approach, with a debt of this size , would have been to discuss matters with her, particularly once she had requested the review of the decision.  It appears that her matter was decided solely on the limited file materials remaining in existence, but no-one spoke to Mrs Foschi. .

16.     Where the discretion for special circumstances is open for consideration, the case law acknowledges that:

“An expression such as ‘special circumstances’ is by its very nature incapable of precise or exhaustive definition….This is not to say that the circumstances must be unique but they must have a particular quality of unusualness that permits them to be described as special.” (Re Beadle and Director-General of Social Security (1984) 6 ALD 1 at 3)

17.     The discretion addresses any circumstances that distinguish a particular case from the usual, in order to justify a departure from the rule by which money overpaid should be repaid by the person who received it.  In Ryde v Secretary, Department of Family and Community Services [2005] FCA 866 at [26], the Federal Court held that the use of the term special circumstances in the legislation demonstrated an intention to proscribe waiver in ordinary cases and any hardship or unfairness should be sufficient to justify departure from the general rule.  The discretion has also been described as one to avoid unfairness: ….. that something unfair, unintended or unjust had occurred...some feature out of the ordinary (Groth v Department of Social Security (1995) 40 ALD 541 at 545). In Secretary, Department of Social Security v Hales (1998) 153 ALR 259 at 267, French J said that the discretion enables a flexible response to the wide range of situations which could give rise to hardship or unfairness in the event of a rigid application of a requirement for recovery of a debt.

18.     Mrs Foschi has raised a number of matters as grounds for the exercise of this discretion.  She provided a report from her general practitioner Dr L Power (exhibit A1) stating that Mrs Foschi suffers from possible ischemic heart disease, hypertension, and severe depression, generalised osteoarthritis with degenerative disease to both knees and the right shoulder.  Dr Power ventured the view that Mrs Foschi had been totally oppressed by her husband for at least 20 years, although she provided no supporting evidence in her written report for the basis of her expressed view.  She was not called to give oral evidence, and I must treat her opinion with some caution in view of that. 

19.     Mrs Foschi told the Social Security Appeals Tribunal that she came to Australia 38 years ago, which means about 1967.  The Social Security Appeals Tribunal noted that she neither reads nor writes in English.  Mr and Mrs Foschi both gave their evidence at the hearing with the assistance of Ms Sirianni, an interpreter in the Italian language.  Mrs Foschi said that she has never been provided with an interpreter when she has attended at a Centrelink office.  Mrs Foschi said that she did not know whether the people with whom she spoke at Centrelink understood her, but she knew she had to tell them the truth.

20.     One of the respondent’s delegates wrote a submission recommending waiver of Mrs Foschi’s debt on the grounds of administrative error, the substance of which was as follows:

“Why you consider the customer received the payment(s) in ‘good faith’.

Centrelink was aware of the company as at 1995.  Mrs Foschi provided financial statements as at October 1997 (as discussed above) showing liabilities of the company.  Discussions with accountant have demonstrated that Mrs Foschi is never present at meetings relating to the company and actually, 23 October 2003 – when she attended his office without Mr Foschi to discuss the Centrelink debt, was the first time he had seen her.  File notes and CSOs dealings with Mr and Mrs Foschi have noted that Mr Foschi is quite difficult to deal with and he does all the talking and representing of their circumstances.  She has on a number of occasions fronted at Mt Isa Centrelink to advise that they have separated, CSOs at Mt Isa have noted (as per advice from Mrs Foschi) that this is usually on Mr Foschi’s instruction – when he goes overseas to Italy for extended stays.  Mrs Foschi has advised that she was not aware of the loan account – and it is solely in Mr Foschi’s name.  She was a director of the company but this was the extent of her involvement.  Her input into the company matters consisted of ‘signing where told to.’  Details of the company show that the company liabilities have always exceeded assets and the loan account is basically reflective of monies put into the company by Mr Foschi ‘throwing good money after bad’ in the words of the accountant.  It is reasonable to accept that Mrs Foschi was not aware of the accounting means of recognising these amounts.  The company owned mining leases that continued to lose money and Mr Foschi was desperately attempting to salvage his holdings.  This company has never provided any form of distributions or profits to the shareholders.  This means that Mrs Foschi would never have included payments from the company in her personal tax returns.  Mrs Foschi was not involved in the day to day running of the company and her involvement stemmed from being a (non active) director.  Based on the above, with reference to the company involvement (only), I consider that Mrs Foschi received her Centrelink payments in good faith due to her lack of understanding of the company financial statements, her lack of involvement in the company, the seemingly autocratic behaviour of her husband and the fact that she did provide financial statements to Centrelink in 1997.  Allowing that, if Centrelink staff cannot assess these financial statements correctly or recognise personal assets held, it should be reasonable to expect that a person with minimal to no involvement should also experience difficulty.” (T171, folios 634-635)

21.     The Centrelink delegate’s submission was not accepted by her superiors. Whilst it is in terms directed at an alternative ground of waiver, it seems to me that this submission highlights a number of the factors that justify waiver on the basis of special circumstances.

22.     Mrs Foschi said that her involvement with Foschi Enterprises was limited to signing where and when she was told to when Mr Foschi brought documents home.  She was adamant that he never explained to her what she was signing, and she felt she had no option other than to sign.  She said that Mr Foschi did not discuss Foschi Enterprises with her and said it was his company.  This point about her lack of involvement was reinforced by the Centrelink note at T171, recording that the accountants had never even seen Mrs Foschi before 2003 when Centrelink raised the debts.

23.     Mrs Foschi described the relationship with her husband as one where he dominated her in the home, refusing to give her money and insisting that she take in work, ironing and cleaning, in order to contribute to the household.  She said that ultimately she stopped asking him for money because he would become angry.  He would threaten her that she must leave the home if she asked for money and had locked her out on one occasion, forcing her to obtain assistance from charitable sources.  She said that she has always done without things.  She acknowledged that he had given her $5000 when he closed the company down in 2004, which she used to visit her sick brother in Italy.  She gave evidence that in their present arrangement they share the bills equally in the house, and organise the domestic activity on a conventional basis, but Mr Foschi does not speak to her. 

24.     Mrs Foschi said that Centrelink refused to accept her applications for payment of pension at the single rate (although living under the same roof as Mr Foschi) rather than the married rate.  There was evidence that in June 1998 (T55) she had requested that Centrelink treat her as single, stating that Mr Foschi had gone to Italy without telling her of his plans, and that the relationship had broken down over the years.  A computer record from December 1998 stated that Mrs Foschi telephoned to say her husband wanted the payments restored to married rate and that he had told her he would try to do better (T63).

25.     On 14 June 2004, Ms J Rush, a friend nominated by Mrs Foschi to vouch for the separation, wrote the following to Centrelink:

Over the last eight years my husband has had many business meetings with Mr Foschi in relation to taking over some of his mining leases… at no time over these years has my husband or I ever seen Mr Foschi invite his wife to participate or contribute to these matters.  In discussion with Clara, she indicated that she has never been consulted by Mr Foschi on any matters in relation to the running of Foschi Enterprises and signed up as a share holder at his insistence.  This exclusion from all business affairs has been to the extreme.  An example being in the 70’s when Mr Foschi told Clara she had to make an appointment to see him.  More recently a major rift was caused in their relationship by his refusal to allow her access to information held in Italy. (T206, folio 722)

26.     I do not have to decide whether Centrelink is correct or not in refusing to treat Mr and Mrs Foschi as separated.  However I did consider as relevant that, years before any debt was raised, Mrs Foschi had approached Centrelink about the problems in their marriage.  This lends support to what Mrs Foschi now says about her limited knowledge of the company and her husband’s preference not to share business discussions with her.  I considered the evidence Mrs Foschi gave about their relationship was true. 

27.     Much was made by those reviewing the decision with Centrelink of a contact between the Social Security office and Mrs Foschi on 5 December 1994 (T29).  The computer record that contact, a record presumably completed by the officer who spoke to Mrs Foschi on that date, was that Mrs Foschi:

required value of assets being held on record…she advised that her bank balances had changed.  

28.     The officer’s note then continued as follows:

…I gave her printouts of assets from ole [on line enquiries] ..i advised that I would update these I also requested her to bring in any record of monies owing by foschi enterprises maybe these can be offset against value held for foschi enterprises

29.     The authorised review officer referred to this contact when refusing to accept Mrs Foschi’s statement that she had no input in running the business, and that she was unaware of the existence of the loans (T182).  His conclusion, so adverse to Mrs Foschi, is not the only interpretation that could be placed on this record of the discussion.  I do not draw that conclusion from the brief note of the discussion and it is at odds with Mrs Foschi’s uncontested evidence (which I accept) that she had no knowledge of the company’s operations, a point independently confirmed by other documentary material.

30.     I accept that for Mrs Foschi incurring this debt at this stage of her life has been stressful.  She said that it has affected her blood pressure, and this is quite understandable.  She is clearly not in the best of health and suffers from depression.  Mrs Foschi is at a point in her life where she is ill-equipped to repay such a large sum.  She told me, and I accept, that she is unable to work now, and even if she could she would be unlikely to obtain employment.  She is not destitute, but neither is she financially well off.  The debt is a substantial sum for an age pensioner to repay and Mrs Foschi would be very elderly before it would be recovered in full.  However, these matters, which I have taken into account along with others, on their own, would not be sufficient to justify waiving this debt.

31.     It seems to me that the most compelling circumstances which do warrant the exercise of the discretion in Mrs Foschi’s favour are, firstly, the significant administrative errors on Centrelink’s part in dealing with Mr and Mrs Foschi‘s information.  There were several occasions when Centrelink had information about the company and should have carried out further checks.  I have referred earlier in these reasons to some of the specific occasions, but another occasion took place in October 1997 when Mrs Foschi (or, more likely, the accountants to Foschi Enterprises) provided the profit and loss statements and balance sheets for Foschi Enterprises.  There is no evidence that Centrelink used the information to again update either Mr Foschi’s or Mrs Foschi’s records.

32.     Secondly, the absence of pension records, particularly the original claim forms, is worrying.  This is a large debt.  I am mindful of Mrs Foschi’s disadvantage when dealing with communications in English.  The debt was raised a very long time after the Foschis had first provided information about Foschi Enterprises.  I accept that it is more likely than not that in the first instance (that is, at the time of the claims in 1993 and 1994) Mr Foschi did not directly provide information that identified his loans to the company.  Nevertheless, it is less than satisfactory that we are left to infer this, without the opportunity of seeing what questions were asked on the forms and what Mr and Mrs Foschi answered.

33.     Apart from 1997 there are no claim forms, nor review forms on Mrs Foschi’s file.  Any opportunity for her to point to any supportive material in either her or her husband’s claims is lost. 

34.     I acknowledge, as the respondent told me, that an absence of records was addressed by adopting a later date from which to commence this debt than Centrelink otherwise might have set.  However I see the problem as being of a different kind, which cannot be addressed simply by limiting the period for which the debt is calculated.  Here we have a case where the debt rests in large measure on what Mr and Mrs Foschi may or may not have stated well in the past, and particularly at the time of their claims in 1993 and 1994.  But those forms are gone.  A number of Tribunal cases point to the difficulty that delay can present for those who must then defend a debt. 

35.     In Re McLean and Secretary Department of Family and Community Services (2003) 37 AAR 328 at 332 the Tribunal held that delay in raising a debt had a significant effect on the applicant’s ability to meet the contentions made against her. This is accentuated here, where Mrs Foschi starts as a person who is disadvantaged when communicating with Centrelink, and, indeed, with tribunals, in a second language.

36.     Mrs Foschi had no direct contact with the company accountants, so she did not have professional assistance to support her in providing information to Centrelink.  Had Mr Foschi provided complete information in regard to his own pension claim, Mr and Mrs Foschi’s records more likely than not would have been updated together, and Mrs Foschi would not find herself in the situation that she finds herself in now.

37.     Taking all these matters into account, I was satisfied that Mrs Foschi should not have to repay this debt.  Mrs Foschi may have received moneys to which she was not entitled: Director General of Social Services v Hales (1983) 78 FLR 373. The public has the right to expect that moneys paid from the public purse in error will be recovered from the person who obtained the benefit.  However in some cases this factor will be outweighed by other factors.  Mrs Foschi’s case is one where strict enforcement of the liability would be unjust unreasonable or otherwise inappropriate: Re Ivovic and Director General Department of Social Security (1981) 3 ALN N95..

38.     In summary: I take into account the elements of administrative error and absence of documents;; Mrs Foschi’s lack of  knowledge of Foschi Enterprises’ operations; her disadvantage when communicating in English: as well as her advanced age, poor health and limited financial resources, and decide that the recovery of this amount after an excessively lengthy period would be unreasonable, unfair and unjust.  These matters, when combined, take her case out of the ordinary run of cases, and justify departure from the rule that overpaid moneys should be recovered by the Commonwealth. 

DECISION

39.     I set aside the decision under review and waive the debt on the grounds of special circumstances, from the date that the debt was raised: s1237(2)(a) of the Act. This means that moneys already recovered from Mrs Foschi are to be remitted to her.

I certify that the 39 preceding paragraphs are a true copy of the reasons for the decision herein of Ms M J Carstairs, Member

Signed:         Jeff Mills

Legal Research Officer

Date/s of Hearing  10 January 2006 
Date of Decision  26 May 2006
Date of Applicant’s Written Submission       27 January 2006
Date of Respondent’s Written Submission   24 February 2006
The Applicant appeared in person                
For the Respondent  Ms S Oliver, Departmental Advocate