Levenda; Secretary to the Department of Family and Community Services - [2002] AATA 1120

DECISION AND REASONS FOR DECISION [2002] AATA 1120

ADMINISTRATIVE APPEALS TRIBUNAL        Nº V2002/905
GENERAL ADMINISTRATIVE DIVISION
  Re:         SECRETARY TO THE
  DEPARTMENT OF FAMILY AND
  COMMUNITY SERVICES
  Applicant

And:ERNST LEVENDA AND ADA LEVENDA
Respondents

DECISION

Tribunal:       G.D. Friedman, Member
Date:             31 October 2002
Place:            Melbourne

Decision:The Tribunal sets aside the decision under review and substitutes a decision that the amounts of $9955.13 (for Ernst Levenda for the period 5 February 2000 to 27 April 2001), $3918.42 (for Ernst Levenda for the period 28 April 2001 to 12 October 2001), $4415.56 (for Ada Levenda for the period 5 February 2000 to 27 August 2001) and $4633.20 (for Ada Levenda for the period 28 August 2000 to 12 October 2001) are debts to be raised and recovered by the Commonwealth.

(sgd) G.D. Friedman
Member

SOCIAL SECURITY - purchase of investment property - mortgage over principal residence - intention of parties - whether mutual mistake - valuation of asset - waiver of debt - whether special circumstances exist
Social Security Act 1991 ss1118(1), 1121(1), (2), (3), 1237A(2), 1237AAD
Re Achbar andSecretary, Department of Social Security [2001] AATA 684
Re Ayik and Department of Social Security AAT 12479, 5 December 1997)
Re Beadle and Director-General of Social Security (1984) 6 ALD 1
Re Berry andSecretary, Department of Social Security (1995) 40 ALD 327
Re Callaghan and Secretary, Department of Social Security (1996) 45 ALD 435

Re Lawless and Secretary, Department of Family and Community Services [2002] AATA 536

Re Roessel and Secretary of Department of Social Security (AAT 2371, 22 October 1985)
Re Samek andSecretary, Department of Social Security (1988) 16 ALD 295
Re Secretary, Department of Social Security and Griffin (1997) 49 ALD 662
Re Secretary, Department of Social Security and Lee (1993) 30 ALD 250
Re Smith andSecretary, Department of Social Security [1999] AATA 267

REASONS FOR DECISION

31 October 2002 G.D. Friedman, Member

This is an application by the Secretary to the Department of Family and Community Services (the applicant) for review of a decision of the Social Security Appeals Tribunal (SSAT) dated 12 July 2002. The SSAT set aside decisions of an authorised review officer of Centrelink dated 26 February 2002 to raise and recover debts arising from overpayment of benefits to Ernst Levenda and Ada Levenda (the respondents).
At the hearing of this matter on 21 October 2002 Ms E. King, a Centrelink advocate, represented the applicant and Ms L. Sarmas of counsel represented the respondents.
The Tribunal received into evidence the documents (T1 to T56) lodged under s37 of the Administrative Appeals Tribunal Act1975, together with one exhibit (Exhibit A1) tendered by the applicant and five exhibits (Exhibits R1-R5) tendered by the respondents.
BACKGROUND
On 1 September 1998 the respondents signed a contract of sale to purchase an investment property in Broadbeach, Queensland (the property) for $228,000.00. They obtained a loan of $241,000.00 to cover the purchase price and associated costs. The contract contained a handwritten note that the respondents' unencumbered principal residence in Melbourne (the principal residence) was to be included as additional security. However, the loan contract between the respondents and the lender of the funds (the finance provider), signed on 21 September 1998, contained a clause that security for the loan would take the form of a registered mortgage over the principal residence.
In October 1999 Mr Levenda was retrenched from his employment and on 22 December 1999 he applied for Newstart Allowance (NSA). On the same date Mrs Levenda applied for Partner Allowance (PA) and subsequently applied for Aged Pension (AP) on 28 August 2000. On 18 April 2001 Mr Levenda applied for Mature Age Allowance (MAA). In their application forms the respondents did not declare the property as an asset.
After becoming aware of the property and the existence of the mortgage over the principal residence, on 17 October 2001 Centrelink decided the respondents' assets exceeded the allowable limits for the payments that they had received from Centrelink. Therefore, Centrelink decided to raise and recover the following overpayments against the respondents:

$9955.13 (NSA for the period 5 February 2000 to 27 April 2001)
$3918.42 (NMA for the period 28 April 2001 to 12 October 2001)
$4415.56 (PA for the period 5 February 2000 to 27 August 2000)
$3796.90 (AP for the period 28 August 2000 to 12 October 2001)

On 26 February 2002 an authorised review officer of Centrelink affirmed the decisions, apart from the decision regarding AP for the period 28 August 2000 to 12 October 2001, which was varied to increase the debt to $4633.20. On 11 March 2002 the property was sold for $200,000.00. On 6 May 2002 the respondents applied to the SSAT for review of the decisions. Following the decision of the SSAT, the applicant lodged an application to the Tribunal on 22 August 2002.
EVIDENCE
Mr Levenda gave oral evidence that when he and his wife agreed to purchase the property he did not wish to have a first mortgage over the principal residence. For this reason he insisted that the principal residence be nominated as additional security to cover legal and other costs associated with the purchase. He said he intended that the finance provider would secure the property with a first mortgage over the property itself. He stated that neither he nor his solicitor noticed in the loan agreement, signed by himself and his wife, that a first mortgage had been taken over the principal residence. He said that he contacted the lender at a later date but was informed that changes could not be made.
Mr Levenda told the Tribunal that he was retrenched from his employment on 29 October 1999 and shortly afterwards he placed the property on the market because it was no longer a viable investment. On 14 December 1999 the property was auctioned with a reserve price of $200,000.00 but was passed in at $145,000.00.
On 22 December 1999 Mr Levenda lodged a claim with Centrelink for NSA. He stated that a financial adviser, Mr L. Kyle, assisted him to complete the form. In answer to question 12 of section G (income and assets): Do you own, or partly own, any real estate other than the home you live in? He answered No, on advice from Mr Kyle, because he understood the question to refer to assets of value, and the amount of the loan for the purchase of the property exceeded its value, so the property had a value of nil. Mr Levenda stated that he expressed doubts to Mr Kyle, who assured him that he had answered correctly. Mr Levenda said that he did not seek advice from Centrelink because he had faith in his adviser, although he now realised that his answer was incorrect. He stated that at no time did he intend to mislead or deceive Centrelink.
Mr Levenda said that in October 2001 when Centrelink informed him of the error he contacted Mr Kyle, who told him that nothing could be done about the matter. Mr Levenda said that he attempted to seek redress against Mr Kyle through a complaints procedure in the finance industry, but was informed that all appeal processes must be exhausted before such action could begin. Mr Levenda said that he was not in a financial position to take further action against Mr Kyle. He told the Tribunal that a contract for sale of the property was signed in December 2001, but this did not proceed. A further contract was signed in December 2001 and settlement took place on 11 March 2002 for $200,000.00.
In relation to his financial and other circumstances, Mr Levenda stated that he used his retrenchment payment to repay some of the outstanding loan on the property. He said that he and his wife relied on social security benefits, superannuation, savings and a time-share apartment to meet living expenses. He said that they pay the rent for his son's accommodation and provide other support.
Ms Levenda gave evidence and supported the evidence given by Mr Levenda concerning their intention that the loan for the property be secured by a mortgage over the property and not over the principal residence. She said that she was present when Mr Kyle gave advice in completing the application for government benefits, but she did not discuss any doubts that her husband may have had because she accepted that a nil value of the property meant that there was no property to declare in answer to question 12. She said that she did not read the loan agreement before she signed it. Ms Levenda stated that she and her husband have an ongoing obligation to provide financial support for their son.
CONSIDERATION OF THE ISSUES
The relevant provisions of the Social Security Act 1991 (the Act) are:
1118.(1)   In calculating the value of a person's assets for the purposes of this Act (other than sections 198H, 198HA, 198HB, 198J, 198JA, 198JB, 198K and 198L, subparagraph 501E(1)(d)(iv) and sections 1125, 1126, 1133 and 1135A), disregard the following:
…
(b)if the person is a member of a couple—the value of any right or interest of the person in one residence that is the principal home of the person, of the person's partner or of both of them that:
(i)is a right or interest that gives the person or the person's partner reasonable security of tenure in the home;
…
1121.(1)   If there is a charge or encumbrance over a particular asset of the person, the value of the asset, for the purposes of calculating the value of the person's assets for the purposes of this Act, is to be reduced by the value of that charge or encumbrance.
(2)          Subsection (1) does not apply to a charge or encumbrance over an asset of a person to the extent that:
(a)       the charge or encumbrance is a collateral security; or
(b)the charge or encumbrance was given for the benefit of a person other than the person or the person's partner.
(3)      Subsection (1) does not apply to a charge or encumbrance over assets that are to be disregarded under section 1118.
…
1237A.(2) If:
(a)a debt arose because the debtor or the debtor's partner underestimated the value of particular property of the debtor or partner; and
(b)the estimate was made in good faith; and
(c)the value of the property was not able to be easily determined when the estimate was made;
the Secretary must waive the right to recover the proportion of the debt attributable to the underestimate.
…
1237AAD. 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 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.
Ms King submitted that on 5 February 2000, when benefits were first granted to the respondents, the property was valued at $200,000.00, and that a registered valuer from the Australian Valuation Office confirmed this value in February 2001. She said that this amount was the correct valuation, and should be preferred to estimates of $170,000.00 and the passed-in price of $145,000.00, which might be relevant prior to the date of the claim for benefits. Ms King stated that the respondents' total assets at the date of grant of benefits were $278,917.00, which exceeded the assets limit for the entitlement to payments, and at the date of cancellation of benefits the total assets remained above the limit. She said that for this reason the debts were calculated correctly.
Ms King said that no mortgage was registered over the property, and under s1121(3) and s1118(1)(b) of the Act the mortgage over the principal residence could not be used to reduce the value of the property, and the respondents should have included the property as an asset in their application. She noted that question 12 is clear and unambiguous, and any doubts held by Mr Levenda should have been raised with Centrelink. She said that the respondents accepted the loan offer and had ample opportunity to check title deeds and rectify any error before signing the document. Ms King referred the Tribunal to Re Callaghan and Secretary, Department of Social Security (1996) 45 ALD 435 in which the Tribunal stated that, in relation to making a false statement or representation or omitting to comply with the Act, the test was actual knowledge. Ms King said that the respondents had actual knowledge of the facts from which false statements or omissions were made. She said that waiver was not available because the respondents knowingly made false statements or omitted to comply with the requirements of the Act.
Ms King submitted that there were no special circumstances (other than financial hardship alone) that would justify waiving all or part of the debts. She noted that appropriate channels existed for the respondents to pursue their legal or financial advisers for recovery of any losses caused by poor advice.
Ms Sarmas submitted that under s1121(1) of the Act the value of the mortgage over the principal residence should be subtracted from the value of the property because the mortgage was actually an encumbrance over the property, and the value of the property would then be nil. She referred the Tribunal to Re Samek andSecretary, Department of Social Security (1988) 16 ALD 295 in which the Tribunal held that an unsecured loan obtained specifically for the purchase of a particular asset may be deducted from the value of the asset. She said that in real estate matters a mortgage is held usually against the property in question. In the decisions of Re Berry andSecretary, Department of Social Security (1995) 40 ALD 327, Re Smith and Secretary, Department of Social Security [1999] AATA 267, and Re Achbar andSecretary, Department of Social Security [2001] AATA 684 the Tribunal was dealing with assets other than real estate, so these cases should be distinguished.
Ms Sarmas said that the Tribunal should take into account that a court of equity could rectify the mutual mistake made by the respondents and the finance provider in the wording of the loan agreement that included the mortgage over the principal residence. She said that in having regard to the intention of the parties in its overall context the Tribunal should conclude that the value of the property was nil at the relevant time.
With regard to a waiver of the debts under s1237A(2) of the Act, Ms Sarmas submitted that the respondents believed that the value of the property was nil, so they underestimated its value in good faith after relying on advice. She submitted that on this basis the debt must be waived. Ms Sarmas submitted further that special circumstances existed under s1237AAD to justify waiver of the debts. She said that when the respondents answered No to question 12 they did not have actual knowledge of any false statement or representation or omission under the Act. She referred to Re Secretary, Department of Social Security and Griffin (1997) 49 ALD 662 in which the applicant received incorrect investment advice and the Tribunal held that he did not knowingly make a false statement.
Ms Sarmas said that special circumstances included the mutual mistake made in the wording of the loan agreement, the unfairness to the respondent of the application of the Act when the respondents derived no benefit (Re Secretary, Department of Social Security and Lee (1993) 30 ALD 250), and the negligent advice received by the respondent (Re Lawless and Department of Family and Community Services [2002] AATA 536, Re Roessel and Secretary to Department of Social Security (AAT 2371, 22 October 1985) and Re Ayik and Department of Social Security (AAT 12479, 5 December 1997)). She said that the respondents were not well-off financially and were unlikely to be engaged in full-time employment in the future. They have an ongoing commitment to support their son and must rely on superannuation, savings and appropriate government benefits. She submitted that, taken together, the circumstances in this matter constituted special circumstances.
In reaching its decision the Tribunal takes into account the written and oral evidence and the submissions made at the hearing. The Tribunal agrees with Ms King that the valuation of the property of $200,000.00, made on 5 February 2000 and confirmed by a registered valuer one year later, is preferable to the figure at which the property was passed-in at auction before the date of the claim, and to other estimates provided by estate agents. Therefore, the Tribunal finds that the assets of the respondents at the date of the claim and the date of cancellation of benefits exceeded the allowable limits and the debts were calculated correctly.
The Tribunal accepts the evidence from the respondents that at the time of signing the contract of sale to purchase the property their preference was that any mortgage over the principal residence be limited to the amount of security not provided by a mortgage over the property. However, the Tribunal notes that the respondents signed the loan agreement that included a mortgage over the principal residence only, and they had legal advice before signing the agreement. They had ample opportunity to ensure that they understood and agreed with its contents. There is no evidence before the Tribunal that would convince the Tribunal that the finance provider made a mistake in including a mortgage over the unencumbered principal residence as security for the property. For this reason the Tribunal does not accept that there was a mutual mistake.
The wording of s1121(3) and s1118 of the Act is clear in its exclusion of a person's principal residence from any deduction of an encumbrance from the value of an asset under s1121(1). In this case, under the loan agreement the mortgage was over the principal residence, so the Tribunal does not accept the submission by Ms Sarmas and finds that the value of the mortgage cannot be subtracted from the value of the property. Therefore, the property should have been declared in answer to question 12 of the claim form lodged by the respondents. The Tribunal agrees with Ms King that, on the evidence of Mr Levenda, there was a degree of doubt in his mind about the advice he says he received from Mr Kyle, and he should have sought confirmation from Centrelink. There is no evidence to corroborate the oral evidence from the respondents about the nature of the advice received from Mr Kyle, either from Mr Kyle himself or in correspondence or other material alleging a complaint against him. For these reasons the Tribunal is not satisfied that the respondents underestimated the value of the property in good faith, so waiver of the debts under s1237A(2) of the Act is not applicable.
With respect to waiver of all or part of the debts under s1237AAD of the Act, the respondents must satisfy s1237AAD(a), (b) and (c). In relation to s1237AAD(b) concerning special circumstances, the Tribunal held in Re Beadle and Director-General of Social Security (1984) 6 ALD 1 that special circumstances must be unusual, uncommon or exceptional, and there must be something to distinguish the case from others. On the available material, the Tribunal is not satisfied, for reasons already stated, that the advice received by the respondents from the financial adviser in relation to the answer to question 12 was negligent. Similarly there is no evidence before the Tribunal that the respondents' legal advisers provided negligent advice regarding the loan agreement.
In view of these matters and its finding that there was no evidence of mutual mistake, the Tribunal concludes that there was no unfairness to the respondents due to the application of the Act. The Tribunal accepts the submission from Ms King that these and other matters such as financial support for their son and their overall financial situation do not constitute special circumstances (other than financial circumstances) which make it desirable to waive the debt. Therefore, the Tribunal finds that the respondents do not satisfy s1237AAD(b) of the Act. As a result of this finding there is no need for the Tribunal to make findings on whether the debts resulted from the respondents knowingly making a false statement or failing to comply with the Act (s1237AAD(a)), or whether it is more appropriate to waive than to write off the debt in whole or in part (s1237AAD(c)). The respondents are unable to satisfy s1237AAD, so the applicant's right to recover all or part of the debts may not be waived.
DECISION

The Tribunal sets aside the decision under review and substitutes a decision that the amounts of $9,955.13 (for Ernst Levenda for the period 5 February 2000 to 27 April 2001), $3,918.42 (for Ernst Levenda for the period 28 April 2001 to 12 October 2001), $4,415.56 (for Ada Levenda for the period 5 February 2000 to 27 August 2001) and $4,633.20 (for Ada Levenda for the period 28 August 2000 to 12 October 2001) are debts to be raised and recovered by the Commonwealth.
I certify that the twenty-seven [27] preceding paragraphs are a true copy of the reasons for the decision of:
G.D. Friedman, Member
(sgd)       Catherine Thomas
              Clerk
Date of hearing:  21 October 2002
Date of decision:  31 October 2002
Advocate for applicant:               Ms E. King, Centrelink
Counsel for respondents:            Ms L. Sarmas
Solicitor for respondents:            Nil