Hawkins and Secretary Department of Family and Community Services
[2005] AATA 1219
•12 December 2005
Administrative
Appeals
Tribunal
DECISION AND REASONS FOR DECISION [2005] AATA 1219
ADMINISTRATIVE APPEALS TRIBUNAL )
) No Q2004/45
GENERAL ADMINISTRATIVE DIVISION )
Re TREVOR HAWKINS Applicant
And
SECRETARY DEPARTMENT OF FAMILY AND COMMUNITY SERVICES
Respondent
DECISION
Tribunal Ms M J Carstairs, Member Date12 December 2005
PlaceBrisbane
Decision The Tribunal sets aside the decision under review and remits the matter to the respondent to re-assess Mr Hawkins’ assets in the relevant period in accordance with the following:
§ Loans of $7,885 and $90,929 must be assessed at face value as these had not been repaid at the time of the claim for disability support pension;
§ The amount of $172,132 was gifted to Jindalee Trust on 13 November 1999;
§ The value of Mr Hawkins’ interest in Doric Holdings was $23,356;
§ The value of Mr Hawkins’ other assets was as set out in the decision of the Social Security Appeals Tribunal dated 23 December 2003.
......[Sgd].....
M J Carstairs
Member
CATCHWORDS
SOCIAL SECURITY - Disability support pension – assets test – whether loans to private company and trust should be treated as assets – the effect of Statute of Limitations – valuation of the asset where the person lends money. – drawing of promissory note – endorsement – whether a gift
Bills of Exchange Act 1909 s92(1)
Limitation of Actions Act 1974 (Qld) s37(3)
Limitation Act 1969 (NSW) ss 63-65
Social Security Act 1947
Social Security Act 1991 ss4, 9, 11,1118,1122Ogilvie v Adams [1981] VR 1041.
Secretary Department of Social Security and Vonhoff (1998) 54 ALD 227
Secretary, Department of Family & Community Services v Draper [2003] FCA 1409
Unicomb v Secretary Department of Social Security [1998] FCA 204
Re Boyd and Secretary Department of Social Security (1994) 36 ALD 331
Commonwealth v Mewett (1997) 191 CLR 471
Secretary Department of Family and Community Services and Downes [2002] AATA 737
In re Transplanters (Holding Company) Ltd [1958] 1 WLR 822Vanderpluym and Secretary Department of Family and Community Services [2005] AATA 1044
REASONS FOR DECISION
12 December 2005 Ms M J Carstairs, Member 1. Trevor Hawkins claimed disability support pension in April 2003. Mr Hawkins’ claim was refused because his assets were too high. The Social Security Act 1991 requires that a person’s assets be assessed in order to determine the person’s appropriate rate of payment. Mr Hawkins’ assets as assessed by Centrelink, were above the upper limit for any payment. A substantial part of those assets related to loans he had made to Jindalee Trust and/or to Doric Holdings Pty Ltd, the trustee company for Jindalee Trust.
2. Mr Hawkins organised his financial affairs through a company and trust structure. He has channelled money into these entities and in particular, directed moneys through the entities to purchase a 46-acre property at Boreen Point in Queensland, and later to build a house on that land. Doric Holdings Pty Ltd is the registered proprietor on the Certificate of Title for the Boreen Point property. Mr Hawkins has a 35 year lease with Doric Holdings to rent the house. Although he is a tenant, he is treated as a homeowner under the Social Security Act. The asset limit for those assessed as homeowners is lower than for those assessed as non-homeowners.
3. There was no dispute that Mr Hawkins lent moneys to Doric Holdings and Jindalee Trust. The question I had to address was how these loans should be dealt with under the Social Security Act. Mr Hawkins says that the moneys were loaned a long time ago and would be barred from recovery under the Limitation of Actions Act (Qld) 1974 after a period of 6 years had elapsed from the date of the loan. He says that as a consequence they are not recoverable by him, and are no longer his asset, and should not be taken into account for social security purposes.
THE ISSUES
4. Mr Hawkins is aged sixty four, quite unwell and no longer able to work. He is now on a disability support pension, after signing a forgiveness of the debt(s) in October 2004. That document recorded the following:
To the extent that I have made any loans at any time to Doric Holdings Pty Ltd in its own capacity, or in its capacity as trustee of the Jindalee Trust, I hereby unconditionally forgive those loans and waive any requirement for their repayment…
5. What remains in issue between Mr Hawkins and Centrelink then is the assessment of the loan(s) between the date of his first claim in April 2003 and when he executed this forgiveness of debt.
6. Mr Hawkins’ argument that the debts are statute-barred addresses two matters that require consideration under the Social Security Act:
§ whether the loans ceased to be his asset (s4 of the Social Security Act); and
§ whether the loans ceased to have any value as an asset (s1122 of the Social Security Act).
7. In relation to the second of these, the point was made that if a loan cannot be enforced, its market value is nil because no third party would pay to take an assignment of an unenforceable debt (Applicant’s Amended Statement of Facts and Contentions dated 9 March 2005).
8. The parties relied on the documentary materials lodged under s37 of the Administrative Appeals Tribunal Act (T1-T45) and various written submissions, and attachments. No oral evidence was called. Mr Hawkins was too unwell to attend and give evidence. Without the assistance of any oral evidence from Mr Hawkins, or others involved with Jindalee Trust and Doric Holdings at the time the financial arrangements were put in place, it was difficult to be certain about dates that money was lent, and about amounts. However I was asked to look more generally at the legal issues and their application in the legislation. I have adopted that approach, and any other outstanding factual matters can be dealt with by the parties when the recalculation of assets that will follow from my decision is undertaken.
9. My analysis of these issues however, proceeded on the basis that Mr Hawkins correctly stated when he filled out his claim form (T5) the amounts of money that he transferred to Doric Holdings and/or the Jindalee Trust. There was no compelling evidence to do otherwise. In the claim form, Mr Hawkins said that the moneys that passed to Doric Holdings and/or Jindalee totalled $270,946. He repeated that total in a document he forwarded to the Complex Assessment Officer at Centrelink on 8 March 2004 (attachment “A” to Further Submissions on Behalf of the Respondent dated 19 April 2005).
10. This total of $270,946 was broken down in the claim form as follows:
§two amounts ($7885, $90,929) which was referred to as invested in Doric Holdings; and
§a further amount of $172,132. In the claim form this was described as a gift of an unsecured loan to trust. A promissory note was drafted for $172,132 in 1999.
11. The respondent maintains that until all debts were forgiven in October 2004, the total amount of $270,946 was loaned money. As such it was Mr Hawkins’ asset, assessable under s1122 of the Social Security Act which provides that where a person lends money after 1986 the value of the assets for the purposes of the Act includes that which remains unpaid.
12. The issues for the Tribunal are:
§ were the loans Mr Hawkins’ asset?
§ what was the effect of the promissory note in 1999?
THE LOANS
13. Mr Hawkins holds the sole “A” class Governing Director share in Doric Holdings, a company incorporated in 1972 but which, at least more recently, has been a non-trading trustee company only. Mr Hawkins also holds 51 ordinary shares in Doric Holdings, and his daughter, Ms Tania O’Shea, holds 49 ordinary shares.
14. The parties agreed on a number of matters. They agreed, firstly, that the loans were repayable on demand, with no set repayment date. They agreed (ultimately, after early dispute on this point) that as a consequence of being payable on demand, the lender’s cause of action arose when the borrower received the money and not when demand was made for repayment: Ogilvie v Adams [1981] VR 1041. It follows from this conclusion that under the Limitation of Actions Act 1974 (Qld) that the debts would be statute-barred if no action was taken on them within six years from when the loans were made.
15. At least some of the loan moneys derived from the sale of a taxi licence in 1988 and it was about this time that the land at Boreen Point was purchased by Doric Holdings as trustee for Jindalee Trust. Some time later, about 1994, Mr Hawkins inherited money from an aunt and financed the building of a house on the property at Boreen Point (attachment “A’ to Further Submissions on Behalf of the Respondent dated 19 April 2005).
16. Mr Ashton submitted on behalf of Mr Hawkins that when Mr Hawkins made his claim for disability support pension in 2003 the loans were irrecoverable because they were statute-barred, and no cause of action was later revived on these loans. Mr Howard submitted that it should be inferred from various financial documents for Doric Holdings and Jindalee Trust that the debt was revived by acknowledgement as referred to in s37(3) of the Queensland Limitation of Actions Act.However In re Transplanters (Holding Company) Ltd (1958) 1 WLR 822 is authority for the point that signing of financial documents by the claiming creditor who has an interest in the debt will not constitute acknowledgment of the debt to extend a limitation period.
17. I was satisfied that there was no direct evidence that anyone apart from Mr Hawkins signed the trust or company financial documents. The evidence included an affidavit prepared by Ms Annette Koch, partner at Love and Partners Chartered Accountants. She has acted for Mr Hawkins, Doric Holdings and Jindalee Trust since 2004 when her firm took over from the accounting practice which previously dealt with Mr Hawkins’ affairs. The effect of her affidavit was, that with respect to the applicant’s financial records after 1995, she could find nothing to show that the documents were signed by anyone other than Mr Hawkins (many were lodged electronically and of course had no signature). I accept Ms Koch’s evidence on this.
18. I was satisfied that the debts, or at least two amounts of $7885, $90,929 were statute barred well before Mr Hawkins lodged his claim for disability support pension in 2003. Does this matter for the purposes of the assets test? I was satisfied that it does not.
19. In some instances a limitation provision expressly extinguishes the person’s right to a cause of action. In other cases it bars only the remedy. The High Court in Commonwealth v Mewett (1997) 191 CLR 471 confirmed that in an action founded on tort or contract, as is the case here, the effect of the expiry of the limitation period is to bar the remedy but not to extinguish the right. Barring the remedy rather than the right means although that the right may not be enforceable in a Court, it nevertheless may be enforceable, and it may still be valuable (per Gummow and Kirby JJ in Mewett).
20. Some Limitation Acts, such as that applying in New South Wales (see ss63, 64, 65 of Limitation Act (NSW) 1969) do extinguish rights substantively but this is not the case with the Queensland Limitation of Actions Act. A different conclusion might be reached where the New South Wales statute applies.
21. Thus when Mr Hawkins applied for disability support pension in 2003 there was no reason on the basis of expired limitation periods to take these debts out of the equation when looking at the loans. There is no question that under this legislation a debt is an asset. Asset is defined in s11(1) of the Social Security Act as meaning money or property. Loans and debts are a species of property: Secretary Department of Social Security and Vonhoff (1998) 54 ALD 227. The Federal Court in Secretary, Department of Family & Community Services v Draper [2003] FCA 1409 noted that the reference to property and money in the definition in s11 does not involve the attribution of ownership by any particular person but rather the concept of anything that is capable of ownership.
22. The value of an asset is also referred to in s11(2), but it is s1122 that specifically deals with the asset valuation of loans. This provision, that the value is that amount as remains unpaid, has a long history in the legislation. It was introduced into the Social Security Act 1947 in 1986 (by Act No 106 of 1986), and from the Explanatory Memorandum to the Bill it seems the amendment was intended to simplify the valuation procedures and overcome the need for actuarial valuations of debts.
23. Section 1122 has been interpreted in a number of Tribunal and Federal Court decisions. In Unicomb v Secretary Department of Social Security [1998] FCA 204 the Federal Court considered, but rejected, an argument that the meaning of lends in s1122 incorporates the notion of the lender having a legally enforceable right to claim repayment of the sum. In Re Boyd and Secretary Department of Social Security (1994) 36 ALD 331 the Tribunal noted that because the words of s1122 of the Social Security Act refer to the value of the loan being that which remains unpaid, those words cannot be replaced by the words remains recoverable. These cases underline from another perspective why the argument about the limitation period must fail.
24. The Federal Court in Draper noted that the definition of asset in s11(1) would include the subcategories of financial asset which is defined in s9(1) of the Social Security Act, to include a loan that has not been repaid in full. In Draper the Court went on to say that the Social Security Act does not contain any general methodology for valuing assets or financial assets but noted that the approach to valuation is limited to emphasising certain aspects of or prescribing variations to an assumed methodology. It seems to me that those comments are pertinent to applying s1122 of the Social Security Act.
25. Section 1122 determines the manner in which loans are valued under the Social Security Act and requires that in order to assess loans; the value of the assets of the person for the purposes of this Act includes so much of the amount as remains unpaid. It is a valuation method specific to this legislation, as is reinforced by the use of the words for the purposes of this Act.
26. The general provisions of the Act applying to assets, including s1122, sit within Part 3.12 of the Social Security Act as part of a scheme of provisions. The scheme provides that certain assets can be disregarded (s1118 of the Act); but also provides for the ways of ascribing value to certain assets - s1122 is one such provision - or for taking account of lost value. The scheme also addresses situations where a person disposes of assets and provides for financial hardship provisions. The Tribunal in Secretary Department of Family and Community Services and Downes [2002] AATA 737 referred to a number of Tribunal cases that reinforce the proposition that loans must be given their face value rather than a reduced rate that might take account of any component of their ‘unrealisability’. As was pointed out in Downes, given the clear terms of s1122, other issues such as whether a loan is unrealisable may be addressed under the hardship provisions rather than affecting the valuation of the loan itself. Following that reasoning, the effects of limitation provisions on questions of value of a debt that has become unrealisable because statute barred should be addressed under the hardship provisions but not otherwise.
THE PROMISSORY NOTE
27. The sum of $172,132 requires separate treatment because it was dealt with on 13 November 1999 by way of a promissory note, though I thought it more likely than not that the sum had been lent to Doric Holdings by Mr Hawkins well before 1999. I cannot make any conclusive findings on whether the loan might have been statute-barred by 1999, but consistently with the reasoning above, this is not the determining issue in relation to that debt, just as it is not with the other amounts lent by Mr Hawkins.
28. The promissory note (T7) provided as follows :
By: DORIC HOLDINGS PTY LTD
BOREEN POINT
QUEENSLAND 4565
As Trustee for the JINDALEE TRUST
IN FAVOUR OF: Trevor Hawkins
DORIC HOLDINGS PTY LTD as Trustee for the JINDALEE TRUST, unconditionally promises to pay TREVOR HAWKINS or Bearer, the sum of one hundred and seventy-two thousand, one hundred and thirty two dollars.
VALUE RECEIVED ON DEMAND.
Dated this 13th day of November 1999
The common seal of
Doric Holdings Pty Ltd T Hawkins.(signed)
Director
A Director/Secretary who certify T O’Shea
they are the proper officers to Director/Secretary
affix the seal
29. On the same day that the promissory note was drawn (and from the signatures and minutes of the Directors Meeting for Doric Holdings that took place on the same day, I infer that this was when the promissory note was delivered to Mr Hawkins as drawee) he endorsed the promissory note back to Doric Holdings. This endorsement was dated, and his signature was witnessed. The endorsement was as follows:
I, TREVOR HAWKINS, unconditionally promise to pay Doric Holdings Pty Ltd as Trustee for the Jindalee Trust, the sum of one hundred and seventy two thousand one hundred and thirty two dollars.
30. This transaction was referred to in the Minutes of the Directors meeting:
REPAYMENT OF LOAN
IT WAS RESOLVED that the Trustee issue to Trevor Hawkins a Promissory note for the sum of $172,132 in part repayment of the debt owing to him.
31. A statutory declaration dated 13 November 1999 (T7) sworn by Ms C Parkinson who was present at the Directors meeting attested:
“3. Trevor showed to me a PROMISSORY NOTE for $172,132 drawn in his name and payable to Doric Holdings Pty. Limited as Trustee of The JINDALEE TRUST (‘the Trust’). Trevor passed that PROMISSORY NOTE to TANIA JOY O’SHEA and asked that it be deposited to the account of the Trust.
4. At the time that Trevor passed that PROMISSIORY NOTE to TANIA JOY O’SHEA, he said the following words to that officer:
“I give you this Promissory note for $172,132 for the benefit of Doric Holdings Pty. Ltd. in its capacity as Trustee of The Jindalee Trust. The Promissory note represents a gift from me to be held for the beneficiaries of and subject to the terms of The Jindalee Trust”.
32. I was satisfied that the promissory note was validly drawn in accordance with the Bills of Exchange Act 1909 and that Mr Hawkins’ endorsement was in accordance with that Act. I have no reason to question the efficacy of the transaction and the re-transaction of the promissory note on 13 November 1999.
33. Mr Ashton submitted that there were several possible constructions of the transaction and re-transaction of the promissory note, including that the loan was being forgiven. Mr Howard submitted that the Social Security Appeals Tribunal correctly dealt with the promissory note in their reasons for decision where at paragraph 23 the SSAT stated that s92(1) of the Bills of Exchange Act operates to provide that where a promissory note is endorsed it must be presented within a reasonable time or else the endorser is discharged. The SSAT concluded that the effect in economic terms of the endorsement of the promissory note back to its maker is to cancel the liability of the maker to the endorser and of the endorser to the maker. Whether or not this is true in economic terms I do not think that this is a correct statement of the legal effect of drawing the promissory note and endorsing it back to the maker. I do not consider that s92(1) of the Bills of Exchange Act leads inevitably to this conclusion. The better view is, as Mr Ashton submitted, the loan was being forgiven.
34. Nevertheless it seems to me that effect has to be given to the intention of the parties at the time, as evidenced by Ms Parkinson’s statutory declaration. Mr Hawkins was gifting the benefit of the promissory note to the beneficiaries of Jindalee Trust. I was not told who beneficiaries under the trust are. Mr Hawkins reiterated in the claim for disability support pension in April 2003 that he gifted the benefit of the promissory note where he answered Yes to the question:
“In the last 5 years have you:
·given away
·sold for less that their value
·surrendered a right to
any cash, assets, property on (sic) income”
The claim form was then filled out with the words referring to the amount of $172,132 as a gift of an unsecured loan to trust.
35. I accept that the endorsement of the promissory note was forgiving a loan of $172,132 made at an earlier time, but the gifting of the amount to Jindalee trust may have consequences for any claimed social security payment, because the gifting took place within 5 years of Mr Hawkins’ claim in 2003: 1123 of the Social Security Act. That matter must now be considered. As it is appropriate to remit the overall assets assessment to the respondent in accordance with these reasons, the consequences of gifting can be considered by the respondent in carrying out the asset re-assessment.
OTHER ISSUES RELATING TO MR HAWKINS’ ASSETS
36. I was not asked to look at the question of the valuation of the land at Boreen Point and how this was assessed after an apportioning exercise that was more fully set out in the documentary materials that were before me. The apportioning exercise in regard to the property may need to be redone.
37. Mr Hawkins has been assessed as a homeowner under the legislation which means he has a right or interest in the principal home, which gives him reasonable security of tenure in the home. This seems a reasonable conclusion to reach taking into account all the circumstances in particular the 35 year lease and the fact that Mr Hawkins provided all the purchase moneys (attachment “A” to Further Submissions on Behalf of the Respondent dated 19 April 2005). In accordance with decided Tribunal cases such as Re Koch and Secretary Department of Family and Community Services [2002] AATA 407 Mr Hawkins satisfies the requirements of being a homeowner. His circumstances were somewhat different to those in Vanderpluym and Secretary Department of Family and Community Services [2005] AATA 1044.
38. The SSAT found as a fact that Mr Hawkins share of Doric Holdings was 51% and amounted to $45,797. That issue was not fully argued before me, though I was urged by Mr Howard to ascribe a 100% share to Mr Hawkins. I am mindful of the effect of the trust and companies provisions in the legislation, as no doubt was the SSAT. I agree with the SSAT that Mr Hawkins should have attributed to him only a 51% of the capital of Doric Holdings, as this avoids undue double counting of that asset.
39. As set out above homeowners and non-homeowners have different assets limits for social security payments. I was informed that the assets limit for payment of a full pension to a single homeowner at the time of the claim was $145,250 and that having assets totalling $294,000 was the cut-off point for any part-pension payment. These provisions for assets limits would have risen from time to time during the relevant period (from the claim in April 2003 to October 2004) as they are adjusted regularly. It is now a matter for Centrelink to reassess Mr Hawkins’ assets taking into account these reasons, so that if there is an entitlement to disability support pension in the relevant period the rate of that payment can be established.
DECISION
40. The Tribunal sets aside the decision under review and remits the matter to the respondent to re-assess Mr Hawkins’ assets in the relevant period in accordance with the following:
§ Loans of $7,885 and $90,929 must be assessed at face value as these had not been repaid at the time of the claim for disability support pension;
§ The amount of $172,132 was gifted to Jindalee Trust on 13 November 1999;
§ The value of Mr Hawkins’ interest in Doric Holdings was $23,356;
§ The value of Mr Hawkins other assets was as set out in the decision of the Social Security Appeals Tribunal dated 23 December 2003.
I certify that the 40 preceding paragraphs are a true copy of the reasons for the decision herein of
Signed: Jeff Mills
Legal Research Officer
Date/s of Hearing 30 April 2004, 4 July 2005, 19 August 2005
Date of Decision 12 December 2005
Counsel for the Applicant Mr R Ashton
Solicitor for the Applicant Minter Ellison
For the Respondent James Howard, Departmental Advocate
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