Kang and Secretary, Department of Family and Community Services
[2004] AATA 421
•28 April 2004
Administrative
Appeals
Tribunal
DECISION AND REASONS FOR DECISION [2004] AATA 421
ADMINISTRATIVE APPEALS TRIBUNAL )
) No W2003/165
GENERAL ADMINISTRATIVE DIVISION ) Re DUK KYONG KANG Applicant
And
SECRETARY, DEPARTMENT OF FAMILY AND COMMUNITY SERVICES
Respondent
DECISION
Tribunal Murray Allen, Member Date28 April 2004
PlacePerth
Decision The decision of the Social Security Appeals Tribunal (“SSAT”) made on 19 March 2003 is set aside. The matter is remitted to the respondent for recalculation of the amount of overpayment of benefits in accordance with the following directions:
(a) the applicant was a home owner only for the period from 31 October 1996 until 29 July 1998;
(b) the assets of the applicant in the period from 31 October 1996 until 5 November 2002 are as set out in paragraphs 23(d)(i) to (v) of the decision of the SSAT;
(c) the amount of benefits overpaid to the applicant in the period from 31 October 1996 until 5 November 2002 as recalculated in accordance with this decision is a debt due to the Commonwealth and should be recovered.
..............(sgd M Allen)......................
Member
CATCHWORDS
Social Security – Aged pension – assets test – whether applicant was a home owner in relevant period – whether applicant had a right or interest in property owned by discretionary family trust – whether applicant had reasonable security of tenure – whether loans made to companies should be treated as assets of the applicant – relevance of hardship provisions in relation to unrealisable assets – whether recovery of debt due should be waived
Social Security Act 1991 ss 11, 1064, 1129, 1223, 1236, 1237, 1237AAD
Re Reyes and Secretary, Department of Social Security V93/10 AAT No 9212
Re Johnston and Repatriation Commission (1994) V93/831 AAT No 9508
Re Wheatley and Repatriation Commission (1996) W95/205 AAT 10793
Re Beadle and Director General of Social Security (1984) 6 ALD 1
Boscolo v Secretary Department of Social Security (1999) 53 ALD 277
Re Saunders and Secretary, Department of Family and Community Services [2002] AATA 1256
Secretary, Department of Social Security v Hales (1998) 51 ALD 695
REASONS FOR DECISION
28 April 2004 Murray Allen, Member 1. This is an application by Mrs Duk Kyong Kang for review of a decision made by the Social Security Appeals Tribunal (“SSAT”) on 19 March 2003. On that day the SSAT decided to vary a decision made by a delegate of the respondent in July 2002 to raise and recover overpayments of age pension (“AP”) of $57,718.18.
2. The SSAT remitted the matter to the respondent for reconsideration with directions that a debt did exist for the period 31 October 1996 to 5 November 2002 which must be recovered, but that the debt was to be recalculated taking into account the value of various assets as found by the SSAT, but disregarding the sum of $241,658.00 which the applicant had transferred to her husband, Mr Kang, following the sale of the former matrimonial home. The recalculation of the debt on that basis reduced the debt to $54,206.95.
3. The SSAT concluded that the applicant was to be regarded as a home owner for the purposes of the application of the assets test under the Social Security Act 1991 (“the Act”) during the period in question and considered that the applicant’s assets for the period were as follows:
(a)vacant land at 225 South Terrace Fremantle valued at $145,000 from 31 October 1996 to 30 June 1998, $165,000 from 1 July 1998 to 30 June 2000 $195,000 from 1 July 2000 to 4 June 2001 and $200,000 from 5 June 2001 to 5 November 2002;
(b)a loan to First Union Pty Ltd (“First Union”) of $113,030 from 31 October 1996 to 30 June 1997 and $112,972 from 1 July 1997 to 12 December 2001;
(c)a loan to The Korean Club Pty Ltd (“The Korean Club”) of $28,688 from 1 July 1998 to 30 June 1999, $24,167 from 1 July 1999 to 30 June 2000 and $22,277 from 1 July 2000 to 5 November 2002;
(d)money in the bank of $735 from 31 October 1996 to 9 September 1999 and $500 from 10 September 1999 to 5 November 2002;
(e)car and household items worth $17,000 as at 31 October 1996 to 9 September 1999, $5,000 from 10 September 1999 to 4 June 2001 and $10,000 from 5 June 2001 to 5 November 2002.
4. At the hearing of the matter the applicant did not dispute the SSAT’s findings in relation to items (a), (d) and (e). Accordingly, the issues to be determined in the proceedings are whether the applicant should be regarded as a home owner for the purposes of the Act, and whether the loans to the two companies referred to above should be regarded as assets of the applicant. If the result of considering those issues is that there would be a debt due by the applicant then consideration must be given to whether that debt should be recovered.
5. The applicant represented herself at the hearing and the respondent was represented by Mr Blades, an officer of the Australian Government Solicitor.
6. The Tribunal received into evidence the documents filed pursuant to s 37 of the Administrative Appeals Tribunal Act 1975 (“the Act”) (T1 – T64), and Exhibit A1 tendered by the applicant. The applicant gave oral evidence.
Background
7. The background to the matter is that the applicant applied for AP on 31 October 1996, which was about the time of her separation from her husband, Mr Kang. At the time the applicant lived in the former matrimonial home in a suburb of Sydney with her severely disabled adult son, Harry. Subsequently, the former matrimonial home was sold and part of the proceeds of sale was paid to Mr Kang. The respondent initially regarded the transfer of the part proceeds to Mr Kang as a disposal of assets by the applicant for the purposes of s 1123 of the Act. However, in view of the SSAT’s findings on this point in favour of the applicant it is unnecessary to consider that aspect of the history further.
8. In 1998 or 1999 the applicant and Harry moved to Perth and began living in a house in Philip Street, East Fremantle (“the Philip Street house”). The Philip Street house is owned by a company, Vameze Pty Ltd (“Vameze”) as trustee for the Kang Family Trust (“the Trust”).
Is The Applicant a Home Owner?
9. Under the pension rate calculator provisions contained in s 1064 of the Act the value of assets that a person (who is not a member of a couple) may have before reducing the rate of benefits receivable differs according to whether or not the person is a home owner. A person who is not a home owner for the purposes of the Act can have assets of greater value without causing a reduction of AP benefits then can a home owner. During the period in question in this case the following asset value limits were applicable:
Date
Single Homeowner
Single Non-Homeowner
01/07/96
$124,000
$212,500
01/07/97
$125,750
$215,750
01/07/99
$127,750
$219,250
01/07/00
$133,250
$228,750
01/07/01
$141,000
$242,000
01/07/02
$145,250
$249,750
10. Whether or not a person is a home owner is to be determined by reference to the provisions of s 11(4) of the Act, which relevantly provide that a person will be a home owner if the person has a “right or interest” in his or her “principal home”, and that right or interest gives the person “reasonable security of tenure” in the home. With regard to what is “reasonable security of tenure”, s 11(8) relevantly provides that if a person has a right or interest in his or her principal home, then the person “is … to be taken to have a right or interest that gives the person reasonable security of tenure in the home unless the Secretary [and this Tribunal on review] is satisfied that the right or interest does not give the person reasonable security of tenure in the home.”
11. The SSAT, at para 25 of its decision, stated that “the Tribunal also found that as Mrs Kang is a Director of Vameze and lives in a home owned by Vameze as Trustee for the Kang Family Trust, and has reasonable security of tenure, then she is determined to be a home owner under s 11(5) of the Act.” The SSAT then concluded that because the Philip Street house was the applicant’s principal home, its value should be disregarded for assets test purposes pursuant to s 1118(1) of the Act.
12. The applicant gave oral evidence that the Philip Street house had been purchased many years ago by her husband to form part of the Family Trust established by her husband at a time when she and Harry had been living in Sydney with her husband. The house had been occupied by her husband’s mother for some years and for some time by a second son of the applicant and her husband whilst he was studying in Perth.
13. After the separation and the sale of the former matrimonial home in Sydney Mrs Kang rented in Sydney for a period and then, in consultation with her two other sons, (apart from Harry) it had been agreed that she should move to Perth with Harry because it would be quieter for him. Her mother-in-law had moved out of the Philip Street house at about the time Mrs Kang moved to Perth and she has lived in the house with Harry, and on occasions one of her other sons when he was in Perth. She pays for telephone and water and other utilities, but pays no rent. Because of her financial position she is obliged to ask her other sons for financial assistance from time to time.
14. The applicant said that as far as she was concerned her husband had purchased the house years ago as part of Trust arrangements for the benefit ultimately of their children. At the time that she had decided to move to Perth to live in the Philip Street house there had been some consultation with her husband, but there was no discussion specifically about how long she would stay in the house. She last had contact with her husband about two years ago, although she is aware that he has contact with their sons occasionally. She is aware that she and her son, Duncan, are the only shareholders and directors of Vameze, although her husband had been a director between 1987 and 1989.
15. The applicant said that so far as she knew she was not a beneficiary under the Trust and that her husband could remove the directors of Vameze or remove Vameze as the trustee of the Trust at any time. She could not presume anything about the length of time that she could remain living in the Philip Street home as this depended entirely upon her husband. He had never indicated that he intended to remove Vameze as a trustee and she had no idea of his intentions.
16. The applicant said that she was aware that Vameze owned two other pieces of vacant land south of Perth. She understood that in previous years her husband met the expenses of maintaining these properties (arranging for annual fire breaks, local authority rates etc) but she understood that in recent years her two other sons were meeting the expenses. She presumed they did this because they expected to get some benefit ultimately as beneficiaries of the Trust.
17. The applicant said that she had taken legal advice about the possibility of instituting divorce proceedings and seeking some kind of property settlement. She had been advised that it would be better to try to agree all matters between she and her husband rather than resorting to court proceedings. She had been reluctant to take any action that might precipitate a change in the existing arrangements regarding her occupancy of the Philip Street house.
18. The applicant said that when the Trust had been established in 1987 she understood that it had been for the benefit of the family as a whole and that her husband had complete control of it. She thought at that time that was an appropriate arrangement because there had been no thought in her mind of separation from her husband. She had understood that her husband was not to be a beneficiary under the Trust, but she did not fully appreciate at that time that she was not to be a beneficiary or, if she was aware of it in general terms, she did not think it mattered to her because of the marital relationship.
19. It appears from document T5 (T documents page 24) that the Philip Street house was owned by Mr Kang between October 1986 and January 1988, when it was transferred into the name of Vameze. According to document T47 (page 246) the Trust was established in December 1987 with Vameze as the trustee.
20. The decisions made in the present case relate to the period commencing in October 1996 when the applicant first started to receive AP payments. It is necessary, therefore, to consider whether the applicant was a home owner for any period of time since then.
21. There was no dispute between the parties that the applicant initially lived in a house in Sydney that she was the registered proprietor of, and which was sold on 29 July 1998 (T15 and T16). That residence was the applicant’s principal home until that date and her ownership of it meant that she had a right or interest in the property for the purposes of s 11(4) of the Act, and that right or interest gave her a reasonable security of tenure. Accordingly, I find that the applicant was a home owner for the purposes of the Act for the period from 31 October 1996 until 29 July 1998.
22. The applicant’s evidence was that she rented in Sydney for a time after the sale of the house before moving to Perth. It is not clear on the evidence exactly when she did move to Perth, but in written submissions filed after the hearing the respondent stated (at paragraph 1) that it was not disputed that the Philip Street house had been the applicant’s principal home since the sale of the Sydney home in July 1998.
23. That concession by the respondent is not necessarily one that I am prepared, on the evidence to accept. Because the asset value limits for home owners is less than the limit for non-home owners, it is a concession that works to the advantage of the respondent if the applicant should be found to be a home owner in respect of the Philip Street house. Document T18 is an extract from the respondent’s computer system relating to the applicant and described as an “address history”. It shows that the Philip Street house became the applicant’s address for the respondent’s records, with effect from 21 June 1999 – suggesting that the applicant moved to the Philip Street house on or about that date. That conclusion is not necessarily correct, however, because the address history may itself not be a reliable guide to where the applicant was living. For example, the same document records the Sydney address as still being applicable in May 1999, by which time the Sydney house had been sold for some months.
24. However, doing the best that I can on the evidence before me, I find that on balance the applicant did not move to the Philip Street house until approximately 21 June 1999 and that, as a consequence, she was living in rented accommodation elsewhere prior to that date. As such, I am satisfied that she was not a home owner during the period from 29 July 1998 until 21 June 1999.
25. I turn then to consider the question of whether the applicant was a home owner from the time that she took up residence in the Philip Street house on or about 21 June 1999. There is no dispute between the parties that the Philip Street house has been her principal home since that date. The question for determination is whether she has had any right or interest in that property and whether that right or interest gives her reasonable security of tenure.
26. For the purposes of the Act and similar legislation, it has been held that a right or interest in a principal home or residence is synonymous with or equivalent to a right or interest in real property: Re Reyes and Secretary, Department of Social Security V93/10 AAT No 9212 per Deputy President Forrest at p6 and Re Johnston and Repatriation Commission (1994) V93/831 AAT No 9508 per Deputy President Forgie and Members Argent and McLean.
27. In the present case a freehold estate in the Philip Street house is held by Vameze, which holds the legal interest in the property and holds the beneficial interest on trust for the beneficiaries provided for in the Trust Deed of the Kang Family Trust (T47). Clause 1 of the Trust Deed provides that the “eligible beneficiaries” of the Trust are the children, grand children or great grand children of Mr Kang and any spouse of any child of Mr Kang, as well as any other persons whom Mr Kang (or his personal representatives after his death) so nominate to the Trustee as eligible beneficiaries. Certain categories of persons cannot be nominated by Mr Kang as an eligible beneficiary, the most significant of which is Mr Kang himself. In addition to eligible beneficiaries, the Trustee may in its absolute discretion nominate “nominated beneficiaries” and revoke such nominations and nominate other persons. The Trustee holds all the trust funds and the income thereof in trust for all or one or more of the eligible beneficiaries in proportions that the Trustee can determine from time to time. The Trustee may, in its absolute discretion, pay the income of the fund to the eligible beneficiaries in proportions determined by the Trustee. It appears that no nominated beneficiaries have been nominated by the Trustee.
28. Clause 16 of the Trust Deed provides that Mr Kang, during his lifetime, has the power to remove any trustee at any time and to appoint new trustees and this power of appointment rests in Mr Kang’s personal representatives on his death.
29. The Trust Deed defines the “perpetuity date” as being the date 60 years from the date of the Deed (ie 4 December 2047) or the date of death of the last survivor of the descendants of King George VI of England (whichever shall first occur), or such earlier date as the Trustee shall in its absolute discretion appoint to be the perpetuity date for the purposes of the Deed.
30. Clause 5 of the Deed provides that on the perpetuity date the Trustee is to hold the trust fund and the income thereof upon trust for “the mother, if she shall at the perpetuity date be living and be the wife or widow of [Mr Kang] or if she shall have died before the perpetuity date” then for the children of Mr Kang. The version of the Trust Deed provided to the Tribunal by the respondent in the T documents purports to be a complete document. However, the expression “the mother” is nowhere defined in the Deed and there is nothing to indicate that it is a reference to the applicant other than the requirement mentioned above that she be the wife or widow of Mr Kang.
31. I have proceeded on the assumption that the reference to “the mother” is indeed a reference to the applicant, but for the reasons set out below I do not consider that it alters the conclusions that I have reached in relation to whether or not the applicant is a home owner.
32. The applicant’s written submissions refer to the fact that the Trust Deed excludes the applicant from the list of eligible beneficiaries and to the ability of Mr Kang to remove trustees and appoint new ones. It is submitted that, despite being a director of Vameze, the applicant is only a trustee “at the whim and pleasure of Mr Kang” and not in control of the Trust. It is submitted that the applicant does not have the same rights and interests in relation to the Philip Street house as any land owner or leaseholder, because if the house were to be sold the applicant would not realise any proceeds from such a sale for her own financial gain. Rather, the proceeds would be held as an asset of the trust to which she is not a beneficiary. Accordingly, it is submitted that the applicant does not have any right or interest in the Philip Street house and the issue of whether there is any reasonable security of tenure only arises once a person is found to have a right or interest. The respondent could not therefore rely on any argument that the applicant’s role as carer for Harry means that it is unlikely that Mr Kang would terminate her occupancy of the Philip Street house.
33. The respondent submitted that as a shareholder and director of Vameze the applicant has an interest in the Philip Street house in that she and her son Duncan, as the only two shareholders of Vameze, have legal control over the property. As the applicant is a director and shareholder of Vameze she “has an interest in and control the same rights and interests … as any land owner or leaseholder.” The respondent submits that, even if the Trustee were to be changed by Mr Kang, it would be unlikely for the applicant’s residence in the home to be terminated because she has occupied the property since 1998, there are no plans for her to leave, it is unlikely that she would evict herself, and her disabled son Harry is a beneficiary under the Trust and she is his primary carer.
34. As a shareholder and director of Vameze with her son Duncan, the applicant is in a position to exercise a degree of influence and control over decisions made by Vameze in its capacity as trustee of the Family Trust. The Articles of Association of Vameze were not in evidence before me but with only two shares on issue, held equally by the applicant and Duncan, and only 2 directors, there would be a need for both the applicant and Duncan to act together on all matters if a stale mate is to be avoided. There is no evidence before me as to the way in which the affairs of Vameze are in fact managed on a day-to-day basis. However, what is clear is that, as a director and shareholder, the applicant has no legal or equitable interest in any of Vameze’s assets (of course, Vameze has no beneficial interest in the assets that make up the trust fund).
35. Even if it were possible to say that the applicant was in a position to substantially control the day-to-day affairs of Vameze, it does not follow that the applicant would have any right or interest in the trust fund that Vameze holds or in the Philip Street house, which is part of that trust fund. As noted above, Vameze holds the legal interest in the Philip Street house pursuant to the terms of the Trust. The beneficiaries of a discretionary trust of this type have no vested or contingent interest in any of the assets that make up the trust fund although a beneficiary does have certain rights in relation to the fund, namely the right that the fund will be administered in accordance with the terms of the Trust Deed and that the Trustee will exercise its powers in good faith. However, the existence of these rights do not mean that a beneficiary has an equitable interest in the fund prior to its distribution, or in any particular asset within the trust fund: see Re Johnston and Repatriation Commission at [30] and the cases referred to therein.
36. It follows that even if the applicant were to be taken to be a beneficiary under the Trust because of the terms relating to how the trust fund (if it still exists) at the perpetuity date is to be dealt with, which I am not prepared to conclude is the case, then the applicant would have no legal or beneficial interest in the Philip Street house for these reasons.
37. Accordingly, and I find, the applicant has no right or interest in the Philip Street house because of any connection she may have as a shareholder or director of Vameze, or as a possible beneficiary under the Trust.
38. However, it remains the fact that the applicant does occupy the Philip Street house and has done so since at least 1999 under some kind of arrangement that has the implicit or overt concurrence of Mr Kang. It is not in dispute that there is no written lease agreement or that the applicant does not pay rent for her occupancy. I accept the applicant’s evidence that there is no agreement or understanding regarding how long she may remain in the house. Her occupancy, therefore, cannot be said to be either for a fixed term or a periodic tenancy. However, the applicant’s occupancy of the Philip Street house does have the hallmarks of a tenancy at will. A tenancy at will is created when a person occupies land as a tenant on the basis that the tenant or the land owner may terminate the tenancy at any time. There is no agreement as to duration and usually no agreement as to the payment of rent. The tenancy will end automatically if the tenant tries to alienate the tenant’s interest or if the tenant dies. The simplest example of the creation of a tenancy at will is where a person, with the permission of the owner of the land, takes possession of a property rent free for an indefinite period; see The Laws of Australia 28.1 at [65] and [66] and see generally Megarry and Wade, The Law of Real Property, 5th Edition at 654 and 655.
39. In Re Johnston and Repatriation Commission the Tribunal concluded that persons who occupy a property under a periodic tenancy or a tenancy at will will have a right in the property and that, on the particular facts of that case, that right was such as to give Mr and Mrs Johnston reasonable security of tenure in the property in question.
40. I am not sure that I agree that a person whose only right in a property is as a tenant at will has a right that is sufficient for the purposes of the Act. However, it is unnecessary for me to reach a concluded opinion on this point because I consider that even if the applicant does have a right in the Philip Street house because of her position as a tenant at will, that right or interest is not such as would give her reasonable security of tenure in that property. The present case can be contrasted with cases such as Re Johnston and Repatriation Commission and Re Wheatley and Repatriation Commission (1996) W95/205 AAT 10793, in both of which the occupants of the residence in question were taken to be the “controlling minds” of the trustee and the arrangements between the occupants and the trustee were such that there was a certainty or assurance of occupation – and hence security of tenure for the purposes of the Act: see Re Johnston at [41] and [42] and Re Wheatley at [25].
41. In the present case, in my opinion, the reality of the situation is that Vameze’s ability as trustee to enter into any kind of arrangement with the applicant is subject to the overriding ability of Mr Kang to remove Vameze and replace it as trustee. That is certainly the applicant’s expectation and belief and I accept her evidence that that is the reality of the situation. It may be the case that Mr Kang has no such intention and is content to allow the applicant and Harry to continue to live in the Philip Street house indefinitely. That is not, however, something that objectively gives the applicant any degree of security of tenure. The arrangements could be brought to an end at any time should Mr Kang choose to appoint a trustee who would do so. The possible right of the applicant to take action in the Family Court to seek some form of settlement of property does not alter that position at the present time.
42. I conclude that even if (which I doubt) the applicant is taken to have a right in the Philip Street house by virtue of her tenancy at will, for the purposes of the Act I am satisfied that any such right or interest does not give the applicant security of tenure as required by the Act.
43. I find, therefore, that the applicant has not been a home owner by virtue of her occupancy of the Philip Street house since 21 June 1999 and her asset value limits for the purpose of calculating her AP entitlement must reflect that status.
Are the Loans Assets of the Applicant?
44. In relation to First Union, the applicant’s evidence was that she thought the company had been established by her husband about 10 years ago to carry on a business, but in fact never did much in the way of business. She thought that she was a director of the company with her son, although her husband was a director at the start. Because he spent much of his time overseas he had been replaced by their son Duncan. She also thought that she was a shareholder of the company but she had little knowledge of its activities.
45. At various times whilst living in Sydney she was aware that her husband had been putting money into the company to cover various expenses. At some later stage Mr Kang had sent her money on several occasions when he was overseas for her to pay to the company. She had seen the company’s accountant and handed the money over and she could only assume that the accountant had regarded the funds as a loan made by her to the company, and recorded them as such in the books of account of the company. There had never been any agreement or discussion regarding the payment of interest, nor concerning repayment of the money. At no time had she ever considered that she was a lender of money to the company because it was not in fact her money that she had handed over to the accountant for the company. She only became aware that the company’s accounts showed loans due to her when Centrelink started asking questions about the loans. She does recall signing various documents for the company in her capacity as a director but she does not remember whether or not they showed loans due to her.
46. According to document T37, which contains information from the corporate data base of the Australian Securities and Investments Commission (ASIC) the applicant and Mr Kang were appointed directors of the company in 1974 and Mr Kang was replaced by Duncan in 1990. The applicant holds 75 A class shares and Duncan holds 25 B class shares (these having previously been held by Mr Kang).
47. The earliest financial information regarding First Union that is before me is a balance sheet for the company as at 30 June 1996, which shows that directors had loaned the company $150,707 although the identity of the directors who had made the loan or loans are not specified (T14 pages 49 and 50). The amount of loans made by directors remained constant in the years ended 30 June 1997 (T14), 1998- 1999 (T25), and 2000 (T31), but no subsequent financial information regarding First Union is before me and the company was deregistered in December 2001.
48. In a form submitted by the applicant to Centrelink in January 2001 (T40) the applicant answered “no” to the question of whether she or her husband had loaned any money, real estate or other assets to a company or trust but answered “yes” to the question “are there any loans owing to you or your partner on a company or trust balance sheet” – and provided details of an amount of $112,972.50 as having been loaned by her to First Union. The applicant said that she does not recognise the handwriting of the person who has completed that form and that the accountant named in the form had not provided her with assistance in completing it. The applicant said that the signature on the form is hers.
49. In relation to The Korean Club the applicant said that this had also been established at least 10 years ago by Mr Kang, whose intention had been to use it for the operating of a business but in fact, so far as the applicant knew, the company had never really been involved in any significant business activity. The applicant said she was a director of the company and thought that she had been a shareholder, but she didn’t know if any of the children had been directors or shareholders. She thought that her husband had been, and still was a director.
50. The applicant said that the loans shown in the books of account of The Korean Club had arisen in the same way as those in relation to First Union, namely that her husband had sent her money that she was to pay into the company’s accounts, and that she had done this through the accountant. Once again she had never had any understanding regarding the payment of interest or the repayment of the principal amount.
51. Document T34 contains ASIC details regarding The Korean Club and shows that the applicant was appointed as a director in May 1974 as was her husband. Mr Kang ceased to be a director in October 1992 when he was replaced by a third party, who ceased to be a director in January 1997. Since that time it appears that the applicant has been the only director of the company. The applicant holds one B class share and Mr Kang holds one A class share and 9,998 ordinary shares in the company.
52. According to financial statements for The Korean Club in the T documents (T22 and T30), at 30 June 1998 the applicant had loaned $28,688 to the company. This amount was reduced to $24,167 and $22,277 at 30 June 1999 and 2000 respectively. The applicant’s evidence was that she could not explain these reductions in the amount because she had never been repaid any principal. In a form submitted by the applicant to Centrelink in January 2001 (T39) the applicant disclosed a debt of $24,167 as loaned by her to The Korean Club.
53. In addition to the above evidence, in October 2002 the applicant provided Centrelink with information about how the proceeds of the sale of the Sydney house had been disposed of (T61). Apart from paying $241,658 to Mr Kang, the applicant advised that on 31 July 1998 she had paid $42,212 to The Korean Club and $33,894 to Vameze. In addition, on 10 August 1998 she had paid $86,692 to another company that the family was associated with (Australian Business Consultants Pty Ltd). Copies of bank statements and deposit slips confirmed those payments. The applicant gave no evidence to explain the transactions in question.
54. Although the applicant in her evidence claimed not to have a good understanding of the nature of all the transactions and business activities of these companies, I am satisfied that she had a reasonable appreciation of what was involved. Over the years she has signed many documents on behalf of the various companies in her capacity as a director and she exhibited a reasonable knowledge of a number of matters concerning the companies. For example, she was aware that First Union had made loans to The Korean Club, as had another family company Recol Pty Ltd (of which the applicant was a director). Likewise, it was the applicant who had asked her accountant to arrange for the deregistration of First Union but had chosen not to, at this stage, have The Korean Club deregistered.
55. In matters such as this where a family is involved in a number of companies and in which sums of money are moved between companies, often being recorded as loans, there will often be an element of doubt as to the true nature of the transactions in question. On the information provided by the applicant to Centrelink, at least the loan shown as due by The Korean Club to her is the result of moneys she paid to that company out of her share of the proceeds of the sale of the Sydney home. On balance I find that the various amounts shown in the company’s books as a loan by the applicant to The Korean Club and First Union are assets of the applicant for the relevant periods.
56. Accordingly, I find that the applicant’s assets for the purposes of the application of the assets test under the Act must include the loans referred to in paras 3(a) and 3(b) above, as found by the SSAT.
57. At the hearing and in subsequent submissions the applicant contended that the loans due from the companies to her should be treated as unrealisable and disregarded because, prior to its deregistration, First Union did not have the capacity to repay the loan and The Korean Club has not had, and does not now have, that capacity either.
58. In the case of the First Union loan, that has not been included in the assets of the applicant after the date of First Union’s deregistration. As was explained by Member Kenny in Re Saunders and Secretary Department of Family and Community Services [2002] AATA 1256, whether or not a loan can in fact be repaid by the debtor has no relevance to the application of the assets test when assessing the value of assets. The notion of an unrealisable asset only becomes relevant if the financial hardship provisions of s 1129 of the Act are invoked, after it has been determined that a benefit or pension is not payable because of the application of the assets test and a request has been lodged in the approved form for the financial hardship provisions to be applied. The SSAT made a similar observation at para 20 of its decision.
59. The applicant has not requested in the specified manner that the financial hardship provisions apply and hence there has been no decision made by the respondent in relation to that issue. It follows that there has been no decision made that would have been reviewable by the SSAT or by this Tribunal. I note in passing that the relevant provisions of the Act provide that a request to invoke the financial hardship provisions can take effect no earlier than 6 months before the application is made, and it would not now be possible for those provisions to be invoked to cover the period of concern in these proceedings.
60. As a result of the above I have arrived at slightly different conclusions from those reached by the SSAT. Specifically, I have differed from the SSAT in that I have concluded that the applicant is to be regarded as a home owner only for the period from 31 October 1996 until 29 July 1998. I have agreed with the conclusions of the SSAT in relation to the individual assets of the applicant as set out at paragraph 3(a) to 3(e) above.
61. The net result of the above findings is that the entitlement of the applicant to AP must be recalculated having regard to the higher asset value limits that are applicable to a non-home owner for the periods in which I have concluded that the applicant was not a home owner. That recalculation will result in a reduction in the amount of over payment of benefits made to the applicant and it is appropriate that the respondent recalculate the entitlements and consequential overpayments. The eventual amount of the overpayment as recalculated will constitute a debt due by the applicant to the Commonwealth, because it will represent the amount of payments made to the applicant to which she was not entitled: s 1223(1) of the Act.
Should the Debt be Recovered?
62. Having determined that a debt will exist and be due to the Commonwealth by the applicant, even though the exact amount is yet to be recalculated by the respondent, I must now consider whether all or part of that debt should be recovered from the applicant.
63. French J in Secretary, Department of Social Security v Hales (1998) 51 ALD 695 commented as follows: (at p 695, 696):
“From time to time in the administration of Social Security Benefits overpayments occur. Sometimes these are result of innocent non-compliance with the requirements of the law which can be affected by the stress associated with the circumstances that lead to the receipt of benefits in the first place. The taxpayer is entitled to expect that in the ordinary course money paid to people which they are not entitled to receive will be recovered, albeit in a way appropriate to the circumstances which lead to the overpayment and the circumstances of the persons concerned. However, the confining of a recovering regime by rigid rules, particularly in this area of the law, is likely to be productive of unfair or harsh outcomes in some of the great variety of fact situations that can arise. There are provisions in the Act which recognise that reality. They relate to the writing off and the waiver of debts otherwise due to the Commonwealth.”
64. Section 1236 of the Act permits the recovery of a debt to be delayed for a period of time, but only in the circumstances referred to in that section. Section 1236(1A) sets out four circumstances in which the recovery of a debt may be deferred if any one of the four are applicable, namely:
“(a) the debt is irrecoverable at law; or
(b) the debtor has no capacity to repay the debt; or
(c)the debtor’s whereabouts are unknown after all reasonable efforts have been made to locate the debtor; or
(d)it is not cost effective for the Commonwealth to take action to recover the debt.”
65. The only one of the circumstances referred to above that is relevant in the present case is s 1236(1A)(b). Section 1236(1C) provides that a person will be taken to have a capacity to repay a debt if the debt is recoverable by means of deductions from a person’s social security payment unless recovery by those means would cause the person severe financial hardship. In the present case the applicant has not been in receipt of any AP. Nevertheless, the applicant does have financial assets that might be called upon to repay the debt in question, specifically real estate that was valued at $200,000 in November 2002. In the circumstances I conclude that the applicant would have the capacity to repay the debt and hence it would not be appropriate to write off the debt pursuant to s 1236.
66. The other provision of the Act that may be relevant is s 1237(1) of the Act which grants to the Secretary, and hence to this Tribunal, the ability to waive the Commonwealth’s right to recover the whole or part of a debt due from a debtor in circumstances described in a number of specified sections of the Act. The only such section that may be relevant in the present case is s 1237AAD which relevantly provides that the right to recover all or part of a debt may be waived if the Secretary (or the Tribunal) 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 false representation; or
(ii) failing or omitting to comply with a provision of this 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.”
67. In the Statement of Facts and Contentions filed by the respondent prior to the hearing, the respondent did not assert that s 1237AAD(a) was not satisfied in the present case, preferring to rely on the absence of any special circumstances. At the hearing, Mr Blades for the respondent conceded that s 1237AAD(a) was satisfied, and I consider on the evidence that that was an appropriate concession.
68. In relation to s 1237AAD(b) and special cirumstances, a decision of the Tribunal in Re Beadle and Director General of Social Security (1984) 6 ALD 1 at 3 is authority for the proposition that one should look for circumstances that are unusual, uncommon or exceptional. They need not be unique but they must have a particular quality of unusualness that permits them to be described as special. In Boscolo v Secretary Department of Social Security (1999) 53 ALD 277 at 281 and 282 French J described the core of the requirement as being that there is something unusual or different to take the matter out of the ordinary course, but without requiring that the case be extremely unusual, uncommon or exceptional.
69. The applicant’s evidence was that she has had no income since her AP entitlement ceased in November 2002 and is presently supported by two of her sons (who are 30 and 32 years of age), both of whom are working but who have obligations of their own. Her third son, Harry, is severely intellectually disabled as a result of a childhood illness, as a result of which he lost his powers of speech. Harry now suffers from obesity, grand mal epileptic seizures, strong mood swings and behavioural obsessions. Harry receives a disability pension and mobility allowance of approximately $566 per fortnight and the applicant is entitled to a carers’ allowance of $80 per fortnight, but Centrelink deducts virtually all of this amount to recover the overpayment of a rent allowance paid to the applicant in previous years. I was informed at the hearing that there is currently $5,544 remaining to be paid on that debt.
70. The applicant is 71 years of age and is not in good health generally. Exhibit A1 was a certificate from her general practitioner who related a history of migraine, hypertension and ischaemic vascular disease. The applicant said that she has suffered from migraines for 30 years and her health is deteriorating. She suffered a fall at home recently that resulted in a broken shoulder. Although that has mended she has little strength in that shoulder. Harry’s obesity and his inability to care for himself means that she must undertake much of his physical care and this is particularly onerous. The Disability Services Commission of Western Australia provides a carer for 5 hours per week and the applicant said that she had applied for greater assistance but did not know whether it would be granted to her.
71. Financially, the applicant said she was dependent upon Harry’s disability support pension and such financial assistance as her two other sons are able to give her. She has borrowed in total about $10,000 from her sons over the years.
72. She has considered selling the land at South Terrace in Fremantle, but she has not done so yet because she is uncertain about her future, given that she has no guarantee of staying in the Philip Street house, and because her own health is deteriorating. In the long run, decisions will have to be made about the care of Harry and that is her major preoccupation at this time.
73. As noted above the applicant also said that she had considered the question of divorce proceedings as a way of precipitating a settlement of financial matters between she and her husband. She has not taken such a step because of a desire to try to agree matters rather than have them resolved by a court.
74. It is obvious from all of the oral and documentary evidence in this case that the applicant’s financial position is complicated and inextricably bound up with the financial situation of her husband, her sons and various companies with which family members have been and are presently associated. The evidence before me is that out of her share of the proceeds of the sale of the Sydney house, she paid approximately $160,000 to Vameze, The Korean Club and Australian Business Consultants Pty Ltd. The applicant’s evidence was that Vameze owns 2 pieces of real estate south of Perth that are said to be of substantial value, Australian Business Consultants is a company used by her one of her sons for business purposes. In addition to that the applicant owns vacant land valued at at least $200,000 in Fremantle which I was told generates no income. If sold, the proceeds of sale could be used to provide some income for the applicant.
75. The applicant must face obvious problems on a daily basis in the care of Harry and the uncertainty surrounding her occupancy of the Philip Street house must be of concern to her. The fact remains, though, that she has chosen not to bring the affairs between she and her husband to some finality, either by commencing divorce proceedings or attempting over the last few years to negotiate some kind of financial or other arrangement that would provide her and Harry (who is unquestionably an eligible beneficiary under the Trust) with some reasonable degree of financial and residential security. No evidence is before me that the applicant cannot recover the funds advanced to Vameze and Australian Business Consultants in 1998 and I am not prepared to conclude that she could not do so.
76. The applicant’s responsibilities to Harry are obviously onerous and difficult. Nevertheless, taking account of all the applicant’s circumstances, I am not satisfied that they can be described as sufficiently exceptional or out of the ordinary as to be “special” and to justify the waiving of recovery of the overpayments of entitlements that have occurred. Accordingly, I am not prepared to exercise the discretion to waive the debt to be found in s 1237AAD.
77. For the reasons given above my decision is that the decision of the SSAT made on 19 March 2003 is set aside. The matter is remitted to the respondent for recalculation of the amount of overpayment of AP benefits in accordance with the following directions:
(a)the applicant was a home owner only for the period from 31 October 1996 until 29 July 1998;
(b)the assets of the applicant in the period from 31 October 1996 until 5 November 2002 are as set out in paragraphs 23(d)(i) to (v) of the decision of the SSAT;
(c)the amount of benefits overpaid to the applicant in the period from 31 October 1996 until 5 November 2002 as recalculated in accordance with this decision is a debt due to the Commonwealth and should be recovered.
I certify that the 77 preceding paragraphs are a true copy of the reasons for the decision herein of Murray Allen, Member
Signed: ............(sgd V Wong)...................................
AssociateDate/s of Hearing 2 December 2003
Date of Decision 28 April 2004
Counsel for the Applicant Self represented
Counsel for the Respondent Mr D Blades
Solicitor for the Respondent Australian Government Solicitor
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