Herbert Makowski v Secretary, Department of Families, Community Services and Indigenous Affairs

[2007] AATA 21

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2007] AATA 21

ADMINISTRATIVE APPEALS TRIBUNAL          N°V2006/743

GENERAL  ADMINISTRATIVE  DIVISION
Re		HERBERT MAKOWSKI

Applicant

And SECRETARY, DEPARTMENT OF FAMILIES, COMMUNITY SERVICES AND INDIGENOUS AFFAIRS

Respondent

DECISION

Tribunal:Mr Egon Fice, Member

Date:16 January 2007

Place:Melbourne

Decision:The Tribunal sets aside the decision of the Social Security Appeals Tribunal made on 20 July 2006 and remits the matter to the Secretary.

. . . . . . . . . . . . . . . . . . . . . . .

Member

SOCIAL SECURITY – age pension – lump sum payment – foreign pension –international pension service – substantial financial penalty - unusual and unfair circumstances

Social Security Act 1991

Beadle v Director General of Social Security (1985) 60 ALR 225
Re Beadle and Director-General of Social Security (1984) 6 ALD 1
Ryde v Secretary, Department of Family and Community Services [2005] FCA 866

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

REASONS FOR DECISION

16 January 2007  Mr Egon Fice, Member

1.      Mr H Makowski, who has been receiving the age pension since May 1997, arranged for a claim to be made on his behalf in 2003 for a German pension to which he believed he was entitled.  His application for a German pension was successful and he was paid a total of $36,401.73 by way of a lump sum in arrears for his pension entitlements between April 2001 and January 2006.  However, he only received half of this amount because he engaged the services of an organisation called Migrant Service Publication (MSP) to assist him in claiming the German pension and, by agreement, MSP received 50 per cent of the lump sum payment. 

2.      Mr Makowski declared the receipt of the German pension and the lump sum payment to Centrelink as he was required to do under the Social Security Act 1991 (the Act).  Because of the payment of the arrears of pension, Centrelink re-calculated Mr Makowski’s age pension entitlement between 2001 and 2006, concluding that he had been overpaid $6,059.38.  Centrelink decided to raise a debt in the amount of the overpayment.

3.      Mr Makowski objected to calculation of the debt based on the full sum of $36,401.73 because he only received $18,200.87 of the lump sum payment.  An authorised review officer affirmed that decision on 24 May 2006, as did the Social Security Appeals Tribunal (SSAT) on 20 July 2006.  Although Mr Makowski has repaid the debt, he seeks a review of the SSAT decision. 

4.      The issues before the Tribunal are:

(a)whether the debt raised by the Commonwealth should have been calculated on the amount actually received by Mr Makowski as opposed to his full entitlement; and

(b)if the debt to the Commonwealth was correctly calculated and raised, whether there is any reason why Mr Makowski should not have to repay the debt.

RELEVANT FACTS

5.      The facts in this matter are not disputed.

6.      On 8 February 2003 Mr Makowski entered into an agreement with MSP (the Agreement) appointing that organisation to take the necessary steps and proceedings to apply for a German pension on his behalf.  Mr Makowski was seriously ill at that time, awaiting surgery for an aneurism.  He had also lost his voice and was generally unwell, having had the operation put off on two prior occasions.  He had contacted Centrelink officers for the purpose of obtaining assistance in claiming the German pension but was told that Centrelink could not assist him in that claim.

7.      It was a term of the Agreement that MSP would receive 50 per cent of any arrears of the German pension that it might be successful in claiming on Mr Makowski’s behalf.  If his claim was not accepted by the relevant authority, MSP would not require any payment from Mr Makowski.  He did not anticipate any arrears payments to be of a significant sum and therefore did not turn his mind to the consequences of having to pay 50 per cent to MSP.

8.      MSP made a successful claim on behalf of Mr Makowski and he notified Centrelink on 6 January 2006 that he had received the first payment of his German pension.  Mr Makowski followed up that notification with documents which he delivered to the Camberwell Office of Centrelink on 12 January 2006. 

9.      MSP wrote to Mr Makowski on 17 February 2006 informing him that it had received arrears of pension payment on his behalf in the total sum of $36,401.73.  From that sum, MSP had deducted $18,200.86 and forwarded the balance, $18,200.87, to Mr Makowski. 

10.     On 5 May 2006, Centrelink raised a debt in respect of the lump sum payment in the sum of $6,059.38.  The debt was calculated on the basis that Mr Makowski had received $36,401.73 by way of lump sum payment of his German pension.  Centrelink accepts that 50 per cent of that sum was paid to MSP. 

RELEVANT LEGISLATION

11.     Section 55 of the Act provides that a person’s rate of aged pension must be worked out using the Pension Rate Calculator A in s 1064 of the Act.  When using the Rate Calculator, Module E requires a reduction to be made to the aged pension taking into account any ordinary income received by the pensioner.  Section 8 of the Act defines income, in relation to a person, as:

(a)      an income amount earned, derived or received by the person for the person’s own use or benefit; or

(b)       a periodical payment by way of gift or allowance; or

(c)       a periodical benefit by way of gift or allowance;

but does not include an amount that is excluded under subsection (4), (5) or (8).

Note 1: See also sections 1074 and 1075 (business income), sections 1076-1084 (deemed income from financial assets), sections 1095 to 1099DAA (income from income streams), section 1099F (exempt bond amount does not count as income) and section 1099K (refunded amount does not count as income).

Note 2: where a person or a person’s partner has disposed of income, the person’s income may be taken to include the amount which has been disposed of—see sections 1106-1112.

Note 3: income is equivalent to ordinary income plus maintenance income.

Subsections (4), (5) and (8) are not relevant in this case.

12.     Ordinary income is defined in s 8(1)of the Act as:

income that is not maintenance income or an exempt lump sum.

Mr Makowski’s German pension was not maintenance income or an exempt lump sum.

13.     Section 1072 of the Act sets out the general meaning of ordinary income as follows:

A reference in this Act to a person’s ordinary income for a period is a reference to the person’s gross ordinary income from all sources for the period calculated without any reduction, other than a reduction under Division 2 or 3.

Note 1: For ordinary income see subsection 8(1).

Note 2: For other provisions affecting the amount of a person’s ordinary income see sections 1074 and 1075 (business income), sections 1076 to 1084 (deemed income from financial assets) and sections 1095 to 1099DAA (income from income streams).

Although Division 2 of the Act applies to Mr Makowski’s German pension lump sum payment, it only goes to the calculation to the amount in Australian dollars.  There is no dispute about that and Division 3 is not applicable.

MR MAKOWSKI’S ORDINARY INCOME

14.     The legislation makes it clear that a person’s rate of pension must be reduced by any ordinary income over the income free area.  As explained in s 1072 of the Act, any reference in the Act to a person’s ordinary income for a period is a reference to a person’s gross ordinary income from all sources.  A reference to gross is clearly a reference to the total sum without deduction.  Also, income is defined in s 8 of the Act as an amount earned, derived or received by the person for the person’s own use of benefit.  Therefore it is clear that the sum of $36,401.73 must be added to Mr Makowski’s gross ordinary income in order to correctly calculate his age pension entitlement for the arrears period.  The fact that he entered into a contractual arrangement to pay half of that sum to MSP does not alter the position.  The full sum was earned, derived or received by Mr Makowski for his own use or benefit and upon notional receipt, he paid half of that sum to MSP in accordance with his contractual obligations with that organisation.

15.     I am therefore satisfied that Mr Makowski received an overpayment of age pension in the amount of $6,059.38 for the period 1 April 2001 to 31 January 2006.

RECOVERABLE DEBT

16.     Section 1228A of the Act applies to a person who has received a social security payment in respect of a particular period if, during that period, the person also received a payment of arrears of a comparable foreign payment (e.g. a pension).  The section assumes that had the lump sum been paid by way of periodical payments over the stated period, the social security amount would have been reduced.  If that is the case, then the amount by which social security amount would have been reduced is the debt due to the Commonwealth (s 1228A(2)).

17.     It is clear that s 1228A of the Act applies to Mr Makowski.  The lump sum payment he received in respect of his German pension would have been paid to him by way of periodical payments commencing in 2001.  That, in turn, would have resulted in a reduction in his Australian age pension payments.  Therefore, there can be no question that the amount of $6,059.38 is a debt due to the Commonwealth. 

WAIVER IN SPECIAL CIRCUMSTANCES

18.     Mr Makowski did not argue that the debt should be written off under s 1236 of the Act or that the debt should be waived by reason of having been caused solely by administrative error in accordance with s 1237A(a) of the Act.  However, Mr Makowski relied on s 1237AAD of the Act which permits debts to be waived in the event of special circumstances.  Section 1237AAD provides:

Waiver in special circumstances

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

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

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

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

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

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

Note 1: Section 1236 allows the Secretary to write off a debt on behalf of the Commonwealth.

Note 2: This section has effect subject to section 1237AAE in relation to an assurance of support debt.

19.     There is no suggestion at all that Mr Makowski made a false statement or a false representation which caused the debt to arise.  Furthermore, the Secretary accepts that Mr Makowski did not fail to comply with the information notices issued to him from time to time.  In fact the evidence is that Mr Makowski notified Centrelink not only of his intention to claim a German pension, but also that he had been notified that a German pension would be paid to him.  As soon as he received documents from Germany setting out his pension entitlements, he delivered copies of those documents to Centrelink.  Therefore he did not fail to comply with the notice provisions of the Act.  There is also no issue about the fact that, given it would not be appropriate to write off the debt in these circumstances, it would be more appropriate to waive the debt.  Mr Makowski has already repaid the debt, clearly evidencing his capacity to repay.  Therefore, the only question under s 1237AAD is whether, in the circumstances described by Mr Makowski, it is desirable to waive the right to recover all or part of the debt. 

20.     The term special circumstances is not defined in the Act.  In Re Beadle and Director-General of Social Security (1984) 6 ALD 1 at 3 Toohey J said:

…

An expression such as “special circumstances” is by its very nature incapable of precise or exhaustive definition.  The qualifying adjective looks to circumstances that are unusual, uncommon or exceptional. Whether circumstances answer any of these descriptions must depend upon the context in which they occur.  For it is the context which allows one to say that the circumstances in one case are markedly different from the usual run of cases.  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.

21.      However, Beadle went on appeal to the Full Court of the Federal Court (Beadle v Director General of Social Security (1985) 60 ALR 225) where the Full Court said, at 228:

The phrase “special circumstances”, although lacking precision, is sufficiently understood in our view not to require judicial gloss.

22.     French J, in Secretary, Department of Social Security v Hales (1998) 82 FCR 154, when dealing with s 1237AAD, said at 162:

The concept of special circumstances is broad.  A constellation of factors, including financial circumstances, may fall within it.  The express exclusion of financial hardship alone as a special circumstance is an indicator that it would otherwise be included.  This gives some measure of the range of circumstances which will qualify as special. …

… The evident purpose of s 1237AAD is to enable a flexible response to the wide range of situations which could give rise to hardship or unfairness in the event of a rigid application of a requirement for recovery of debt.  It is inappropriate to constrain that flexibility by imposing a narrow or artificial construction upon the words. …

23.     In Ryde v Secretary, Department of Family and Community Services [2005] FCA 866, Branson J accepted what was said by the Full Court in Beadle and French J in Hales stating, at para 26:

While, as French J pointed out in Hales, the evident purpose of s 1237AAD is to enable a flexible response to the wide range of circumstances which could give rise to hardship or unfairness, the statutory requirement for ”special circumstances” discloses an intention to proscribe waiver in ordinary cases.  The hardship or unfairness to which French J referred must be understood to be hardship or unfairness sufficient to justify departure from the general rule in the particular case.

24.     In my view, the circumstances in which Mr Makowski obtained a German pension are not usual.  Ordinarily, an applicant for a pension would simply make the application directly to the authority of a foreign country responsible for paying the pension and a decision would be made as to whether or not the applicant was qualified to receive the pension.  However, Mr Makowski had no means of making the enquiries himself particularly given his poor state of health at the time.  Further, he was unaware at the time he arranged for the application to be made that he might become entitled to a substantial lump sum payment.  His evidence was that had he known that, he would not have entered into the agreement with MSP permitting it take 50 per cent of such a payment.  I am satisfied that had Mr Makowski been well enough at the time, he would have organised things quite differently.

25.     It is also unfair that Mr Makowski, who has incurred considerable expenditure in obtaining a German pension, should bear the entire financial burden of his actions.  By applying for the German pension, Mr Makowski has reduced his reliance on the Australian public purse to the benefit of the Commonwealth.  However, by doing so, he has suffered a substantial financial penalty by way of a large payment to MSP and also having to repay a debt to the Commonwealth calculated on the gross amount of his lump sum payment of German pension.  In my view, that is an unintended consequence of the legislation and it is appropriate in this case that the Secretary should take into account the expenditure incurred by Mr Makowski to secure the foreign pension.  In the ordinary case, this is likely to be very small or insignificant.  However, because of Mr Makowski’s circumstances at the time he made the application, the expenditure was unavoidable.  Therefore, I am of the view that it is desirable to waive that part of the debt which is attributable to the cost of the service provided by MSP to acquire Mr Makowski’s German pension payments. 

CONCLUSION

26.     Although I am satisfied that the Secretary was correct in calculating the debt due to the Commonwealth pursuant to s 1228A(2) of the Act to be $6,059.38, the unusual circumstances in this case and the unfairness which results from the application of the legislation make it desirable that the Secretary waive part of that debt.

27.     The decision of the SSAT made on 20 July 2006 should be set aside and the matter remitted to the Secretary to enable the debt due to the Commonwealth to be re-calculated on the basis that the lump sum payment of German pension received by Mr Makowski was $18,200.87.

I certify that the twenty-seven [27] preceding paragraphs are a true copy of the reasons for the decision herein of:

Mr Egon Fice, Member

Signed: ...........................
  Clerk

Date/s of Hearing:  21 November 2006
Date of Decision:  16 January 2007
Advocate for the Applicant:      Self-represented
Advocate for the Respondent:  Paul Mentor, Sparke Helmore