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

[2017] AATA 1214

Macri and Secretary, Department of Social Services (Social services second review) [2017] AATA 1214 (2 August 2017)

Division:GENERAL DIVISION

File Number:           2017/1268

Re:Teresa Macri

APPLICANT

AndSecretary, Department of Social Services

RESPONDENT

DECISION

Tribunal:Senior Member N Isenberg

Date:2 August 2017

Place:Sydney

The decision under review is affirmed.

...................................[sgd].....................................

Senior Member N Isenberg

CATCHWORDS

SOCIAL SECURITY – disability support pension – whether Applicant entered into a loan agreement – whether Applicant is required to declare loan agreement – whether value of loan should be counted as an asset for calculating disability support pension – whether debt is properly raised – whether all or part of the debt can be written off or waived – decision affirmed.

LEGISLATION

Social Security Act 1991 (Cth), ss 8(4), 8(5), 8(6), 117(a), 1064(1)(b), 1072, 1076, 1122, 1236, 1237A, 1237AAD(b)

Social Security (Administration) Act 1999 (Cth), s 68(2)

CASES

Angelakos v Secretary, Department of Employment and Workplace Relations (2007) 100 ALD 9; [2007] FCA 25

Beadle v Director-General of Social Security [1984] AATA 176; (1985) 7 ALD 670
Drake v Minister for Immigration and Ethnic Affairs (1979) 46 FLR 409
Groth v Secretary, Department of Social Security [1995] FCA 1708; (1995) 40 ALD 541  
Oberhardt v Secretary, Department of Education, Employment and Workplace Relations (2008) FCA 1923
Re Beadle and Director-General of Social Security (1984) 6 ALD 1
Secretary, Department of Social Security and VYS (1995) 40 ALD 745
Severino and Secretary, Department of Family and Community Services [2005] AATA 745

Skinner and Secretary, Department of Social Services [2015] AATA 569

SECONDARY MATERIALS

Department of Social Services, Guide to Social Security Law

REASONS FOR DECISION

Senior Member N Isenberg

2 August 2017

The Applicant, Teresa Macri, has been paid disability support pension (DSP) since 17 February 2003.  On 13 May 2016, Centrelink decided that she had been overpaid DSP by $52,686.31 during the period 14 December 2006 to 2 May 2016.  That decision was affirmed on internal review and by the Social Services & Child Support Division of the Tribunal (AAT1) made on 30 January 2017.  The Applicant seeks review of that decision. 

The Respondent contended that the debt arose because Ms Macri did not declare to Centrelink a deed of loan dated 14 December 2006 during the period 14 December 2006 to 2 May 2016 (debt period). 

ISSUES

The issues that are before the Tribunal are:

(a)whether Ms Macri entered into the loan agreement as the lender to Andrew of $250,000;

(b)whether Ms Macri was required to declare the loan agreement as an asset to Centrelink and, if so, whether she declared the loan;

(c)whether the value of the loan should have been counted as an asset for the purpose of calculating the rate of Ms Macri’s DSP under sections 117(a) and 1064(1)(b) of the Social Security Act 1991 (the Act);

(d)whether the debt raised against Ms Macri was properly raised; and

(e)if so, whether all or part of the debt can be written off for a period or waived.

BACKGROUND

Ms Macri owns her home in the Manly-Warringah area (the property), which consists of a two bedroom apartment on the upper floor and commercial premises on the lower floor.  In 2006, the property was valued at $480,000.

In December 2006, Ms Macri’s daughter, Fiona, and Fiona’s estranged husband, Andrew, prevailed upon the Applicant to enter into a deed of loan for $250,000 with Challenger Commercial Lending Limited now known as Howard Commercial Lending Pty Ltd (Challenger), using the property as security (the Challenger loan).  The bulk of the proceeds of the mortgage were to be paid to a firm of solicitors and to Andrew.  Andrew commenced making the repayments.

In January 2007, Ms Macri entered into a loan agreement with Andrew, formalising the on-lending of the $250,000 from the Challenger loan (the loan agreement).  The loan agreement was later documented on or about 29 March 2007.

It was not until 20 April 2016 that Ms Macri disclosed the loan agreement to Centrelink when, in providing information about her real estate, she informed Centrelink that she had a debt of nearly $170,000 secured over her property. 

On 13 May 2016, Centrelink decided that, as the loan agreement was an undisclosed asset, Ms Macri had been overpaid, and to raise the debt.  According to Centrelink’s calculations, this gave rise to an overpayment of $52,686.31.

The Challenger Loan

When Andrew apparently had some difficulty making payments to Challenger (see below), Fiona, on her mother’s behalf, applied to Credit Ombudsman Service Limited (the Credit Ombudsman), claiming that it was an unjust transaction.  According to information provided by Challenger, in response to the complaint:

• Ms Macri applied to Challenger for a loan of $250,000 in her name to fund the subdivision of another property for re-sale;

• Challenger took a registered 1^st mortgage over the property as well as a guarantee from Fiona as security for the loan; and

• Ms Macri received independent advice on her ability “to comply with the loan commitments, her capacity to meet the loan commitments and offered a mortgage over the property willingly and without undue influence”.

Unfortunately, a copy of the Challenger loan was not available to the Tribunal.  However, the Credit Ombudsman found as facts, that in December 2006, the Applicant signed a declaration stating that the Challenger loan would be used wholly or predominantly for business or investment purposes.  There was also an acknowledgement that she had received independent financial advice on her ability to comply with the loan commitments and was satisfied that she would have the capacity to meet those commitments.  She acknowledged that she had obtained legal advice from a solicitor about the deed of loan, the mortgage over her property, the deed of guarantee and indemnity, and that after receiving the solicitor’s advice, she freely and voluntarily signed the loan documents. 

The loan agreement

The Credit Ombudsman also found that in January 2007, Andrew began making the interest repayments due under the Challenger loan.  In March 2007, a contract was entered into between Ms Macri (as lender) and Andrew (as borrower) whereby Ms Macri would lend $250,000 to Andrew interest free.  Unfortunately, a copy of the loan agreement was also unavailable. 

Between January 2007 and 1 August 2010, Andrew paid the majority of repayments due under the loan in full and on time.  Then, between August and November 2010, the majority of the payments were dishonoured.  However, from December 2010 onwards, Andrew resumed making payments on the account. 

Ultimately, the Challenger loan was refinanced, with the Applicant and her two children borrowing from National Australia Bank.  Andrew’s partner has been making the payments on that loan, as evidenced by bank statements provided at the hearing.    

In cross-examination, the Applicant denied that she had received independent advice in relation to either the Challenger loan or the loan agreement and that she had just done as she was asked.  The plan was always that she would on-lend the money to Andrew, and that he would bear all responsibility for the repayments.  She said her daughter had asked her to help Andrew because their marriage was floundering and a cash injection into his business enterprises might assist.  Fiona also provided a letter to the Tribunal to this effect.  

On 29 January 2017, Andrew supplied a statutory declaration in relation to the loan agreement.  His account was to the effect that he would repay the funds in full when his property development project was finalised but no comment was made about how the ongoing monthly loan commitments were to be serviced.  He wrote that Ms Macri would receive no financial benefit from the arrangement. 

LEGISLATION AND POLICY

The relevant legislation is:

• the Social Security Act 1991 (the Act); and

• the Social Security (Administration) Act 1999 (Administration Act).

The relevant associated policy is the Australian Government’s Guide to Social Security Law (the Guide).  Policy documents of this kind are applied by the Tribunal unless there are cogent reasons to depart from the policy: Drake v Minister for Immigration and Ethnic Affairs (1979) 46 FLR 409)

The Act provides that the rate of DSP is subject to an income and assets test: s 1064. In working out a person’s assets, s 1122 of the Act provides that loans the person has made, are included as an asset and there is a deemed income stream: see also s 1076.

The scheme of the Act is such that there are limited assets that are not included for the purposes of calculating a person’s income: s 8(4), (5) or (8). Further, s 1072 provides that it is the gross income that is assessed. That means, that the expenses the Applicant incurred in obtaining the money she lent to Andrew, including her liability to repay the Challenger loan, are not offset against her assets and deemed income.

CONSIDERATION

Did Ms Macri enter into the loan agreement as the lender to Andrew of $250,000?

The Applicant did not dispute that she had entered the Challenger loan and the loan agreement with Andrew.  Her contention though, was that she was unaware of the “implications” of doing so. 

Was Ms Macri required to declare the loan agreement as an asset to Centrelink and, if so, whether she declared the loan?

Section 68(2) of the Administration Act allows Centrelink to give a person who receives a social security payment a notice that requires them to provide Centrelink with information about a matter that might affect their payment. The Applicant agreed she had received many letters from Centrelink at the property over the relevant period and while these required her to declare such assets, she said she did not really read them. I find that Ms Macri failed to declare the loan agreement during the debt period.

Should the value of the loan be counted as an asset for the purpose of calculating the rate of Ms Macri’s DSP under sections 117(a) and 1064(1)(b) of the Act?

As noted above, the rate of DSP is subject to an income and assets test and that loans the person has made are included as an asset.

I find that the value of the loan agreement is properly included in the Applicant’s assets.

As to whether the liability to make payments under the Challenger loan are deductible from her deemed income, the answer is no.  (See discussion above)

Was the debt against Ms Macri properly raised?

Centrelink calculated the debt owed by Ms Macri, taking the loan agreement into account as an undisclosed asset.  Those calculations, which were unchallenged were that:

(a)Ms Macri received $135,511.14 in DSP payments over the debt period;

(b)she was only entitled to receive $82,824.83; and

(c)she therefore had a debt of $52,686.31.

Should all or part of the debt be written off for a period or waived?

A debt that is due to the Commonwealth is normally recoverable from the debtor. Section 1236 of the Act provides that the debt may be written-off if it is irrecoverable or the debtor has no capacity to repay the debt or the debtor is not receiving a social security payment under the Act, and it is not cost effective for the Commonwealth to take action to recover the debt. This cannot be applied to the Applicant because she receives a social security pension, from which repayment of the debt is being made.

Section 1237A of the Act provides that all or part of a debt may be waived in specified circumstances, namely that the debt has arisen solely because of an administrative error. Here, there is no evidence that the debt arose solely because of an administrative error and therefore the debt cannot be waived on this basis.

Section 1237AAD of the Act also provides that a debt may be waived where there are special circumstances, other than financial hardship alone, that makes it desirable to waive the debt.

There are prerequisites before the discretion to waive the debt due to special circumstances can be considered.  I must first be satisfied that Ms Macri did not knowingly make a false statement or a false representation with respect to her failure to disclose the loan agreement.  Centrelink accepted that the Applicant might have misunderstood her legal requirement to declare the loan to Centrelink.  The Applicant consistently said in her evidence that she was unaware of the “implications” of the loans.  I accept her evidence that she did not think she had to bring either loan to Centrelink’s attention because she did not receive any benefit from (either) loan.  The money was all paid to Andrew.  Also, she understands it to be Andrew’s responsibility to repay the now-refinanced loan.  I accept that she did not knowingly make a false representation to Centrelink about her assets. 

I must also be satisfied that it must be more appropriate to waive the debt than to write off some or all of the debt.  There was no evidence to persuade me that it would be better to write off Ms Macri’s debt rather than waiving the debt.    

Are there special circumstances why the Applicant should not have to repay the debt?

As to ‘special circumstances’, the term is not defined in the social security legislation.  There must be more than financial hardship alone for there to be special circumstances. 

The Act provides no guidance as to the meaning of the term “special circumstances” in the provision.  In Beadle v Director-General of Social Security [1984] AATA 176; (1985) 7 ALD 670 at 674, the Full Federal Court stated that it was not possible to lay down precise limits or precise rules for the meaning of the term. The Court indicated that this would depend upon the circumstances of each particular case but commented that, even though the term lacks precision, it was sufficiently understood “not to require judicial gloss”. There, the Court dismissed the appeal from the decision of the Tribunal in Re Beadle and Director-General of Social Security (1984) 6 ALD 1 where, at (3) the Tribunal had acknowledged that the term was “incapable of precise or exhaustive definition” and that, to be special, the circumstances “must have a particular quality of unusualness that permits them to be described as special” (See also Angelakos v Secretary, Department of Employment and Workplace Relations (2007) 100 ALD 9; [2007] FCA 25 per Besanko J at [33]). In Groth v Secretary, Department of Social Security [1995] FCA 1708; (1995) 40 ALD 541, Kiefel J, after referring to the Federal Court’s decision in Beadle’s case, observed (at 545) that special circumstances:

would require something to distinguish [the] case from others, to take it out of the usual or ordinary case... It would of course follow that if one were to conclude that something unfair, unintended or unjust had occurred that there must be some feature out of the ordinary.

The decision to apply special circumstances should take into account all of the person's circumstances and would usually be based on a combination of factors: Oberhardt v Secretary, Department of Education, Employment and Workplace Relations (2008) FCA 1923. In the present matter, these include, Ms Macri’s current circumstances, and is not limited to her circumstances at the date of the loan agreement.

Financial circumstances

Ms Macri’s main contention, expressed during the hearing on numerous occasions, was that she did not appreciate the “implications” of borrowing the funds from Challenger and the loan agreement.  Despite asking her to clarify this several times, her focus appeared to be that she had been financially disadvantaged in respect of her Centrelink benefits by entering into the loan agreement. 

Ms Macri referred to having left school at an early age, and that she was without formal qualifications of any kind.  She had left the workforce when her children were born, and did not attempt work of any kind outside the home for many years.  She and her ex-husband had owned their own home and the property.  When they separated, as part of the financial settlement, the Applicant received the property, unencumbered. 

Ms Macri professed to be financially naïve.  However, in the course of her evidence, she referred to possible exposure to capital gains tax, the impact of the global financial crisis, her management of her tenant, apportionment of rates and taxes, and a proposed joint venture with the tenant to develop the property.  Contrary to her assertion, I found her to be somewhat financially astute.  Perhaps, it is for that reason that the unforeseen impact on her rate of DSP has been particularly annoying to her.

She said the property, including her apartment, is in a state of disrepair and she cannot afford to refurbish it.  It was unclear as to the property’s current value, irrespective of its condition, but presumably this is significantly more than in 2006, when it was valued for the purpose of the Challenger loan at $480,000. 

She said she is reduced to seeking food from the ‘food bank’.  However she conceded that she has a gambling addiction, which, she said, costs her, on average, $200 per week.  If she had more money, she would spend more, she said.

I do not accept that the Applicant is in “severe financial hardship”: per Skinner and Secretary, Department of Social Services [2015] AATA 569 at [29] – [35] (Skinner). 

In any event, as discussed, financial hardship alone cannot amount to special circumstances under s 1237AAD(b).

Health conditions

According to Ms Macri’s GP, Dr Sena, Ms Macri has “a long and complex history of severe medical and psychiatric issues”.  I am satisfied that Ms Macri has a number of serious health conditions, some of which may have been the basis on which she was granted DSP.  This is perhaps the most significant factor to consider in the determination of special circumstances in her case: per Severino and Secretary, Department of Family and Community Services [2005] AATA 745 at [31]. However, these alone are not, in my view, sufficient to constitute special circumstances. It is not unusual, uncommon or exceptional for a recipient of DSP to have health problems: Secretary, Department of Social Security and VYS (1995) 40 ALD 745.

The public interest

A factor to be taken into account in Ms Macri’s case is the public interest.  This factor was discussed by Deputy President Deutsch in Skinner at [48] – [49]:

It is important to recognise the need to ensure the integrity of the social security system and the public interest. This means that those recipients who have received monies to which they are not entitled, are generally expected to repay those monies unless the repayment is in the specific circumstances unjust, unreasonable or inappropriate.

No evidence has been proffered by the Applicant to suggest that there are sound reasons for the amount owing not to be repaid.

I agree that there is a community expectation that those who receive Centrelink benefits to which they are not entitled should repay those amounts. 

Centrelink noted that Ms Macri has apparently taken no steps to enforce the loan agreement.  Her evidence was that Andrew now has another family to support and could not afford to pay out the loan in full.  If that is the case, and there is no evidence to the contrary, it would appear to be futile to call on the loan, even if she were entitled to do so at this time.  As noted above, his partner is making the regular monthly payments.  It may be open to her to renegotiate her loan to Andrew.

I do not doubt that, at the time, it seemed like a good idea for Ms Macri’s to financially help her daughter’s estranged husband.  I have found that she went into the arrangement knowing that she would have a loan liability, but that she thought Andrew was going to pay it all.  I accept that she may have been unaware of the financial consequences with respect to her Centrelink benefits, but this, perhaps should have been a matter she canvassed with her solicitor or raised with members of her family when entering into the loans. 

Considering all of Ms Macri’s circumstances, including her financial circumstances, there is little to suggest that her situation is unusual or uncommon when compared to other social security recipients.  In fact, her home ownership and income stream from a tenant puts her in a far better position than most.  I accept she has a number of medical conditions, and now has a gambling ‘addiction’.  In all, I find she has advanced no sound reason for why her debt should not be repaid.  I find that there are no special circumstances in Ms Macri’s case.

DECISION

The decision under review is affirmed.

I certify that the preceding 47 (forty -seven) paragraphs are a true copy of the reasons for the decision herein of Senior Member N Isenberg

...................................[sgd].....................................

Associate

Dated: 2 August 2017

Date of hearing:	28 June 2017
Applicant:	In person
Solicitors for the Respondent:	Dr S Thompson, Department of Human Services