Katholos and Secretary, Department of Social Services (Social services second review)

The case of Katholos and Secretary, Department of Social Services (Social services second review) concerned a dispute over social security payments, specifically the classification of certain property transfers as loans for the purposes of calculating an age pension and carer payment. The applicant, Mrs Katholos, sought to have decisions of the Social Services and Child Support Division of the Tribunal and an Authorised Review Officer set aside. The core of the dispute involved two residential properties transferred by Mr and Mrs Katholos to their sons, Richard and Frank, in 1998. Later, in 2003, "Deeds of Family Arrangement" were executed between the parents and sons, which documented principal sums and interest, ostensibly representing loans. The Secretary contended these sums should be treated as loans for social security purposes, leading to overpayments.

The primary legal issue before the court was whether the principal sums documented in the Deeds of Family Arrangement, totalling $439,390.00 to Richard and $313,990.00 to Frank, constituted legally enforceable loans under the *Social Security Act 1991* for the purpose of assessing the Katholos' eligibility for and rate of social security payments. This required determining if the transactions, despite being documented in deeds, were genuinely intended by the parties to create legally binding loan obligations, or if they were merely a facade for gifts, potentially to protect assets from future claims by the sons' spouses.

The court found that while the Deeds of Family Arrangement were legally enforceable contracts at common law, the critical element for social security purposes was the intention of the parties to create legal relations regarding a loan. The court was satisfied, on the balance of probabilities, that the initial transfers of the properties in 1998 were gifts, made with the intention that they would ultimately benefit the sons. Although the Deeds of Family Arrangement were executed in 2003, the court found that it was never the intention of Mr and Mrs Katholos to seek repayment of the principal sums or interest. Similarly, there was no evidence that either son regarded the transactions as loan agreements or ever offered to make payments. The court concluded that the transactions were not loans for the purposes of the *Social Security Act*, as the essential element of an intention to create legal relations in the form of a loan was absent.

Consequently, the decisions of the Social Services and Child Support Division of the Tribunal and the Authorised Review Officer were set aside. The matters were remitted to the Secretary, Department of Social Services, for reconsideration in accordance with the court's reasons, meaning the sums in question would not be characterised as loans for the calculation of social security entitlements.