Mantzios and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs

[2008] AATA 892

Administrative

Appeals

Tribunal

 

Administrative

Appeals

Tribunal

 

DECISION AND REASONS FOR DECISION [2008] AATA 892

ADMINISTRATIVE APPEALS TRIBUNAL      Nº 2007/2989

GENERAL ADMINISTRATIVE DIVISION

Re:EVANGELIA AND DEMITRIOS

MANTZIOS

Applicants

And:SECRETARY, DEPARTMENT OF FAMILIES, HOUSING, COMMUNITY SERVICES & INDIGENOUS AFFAIRS

Respondent

DECISION

Tribunal:       G.D. Friedman, Senior Member

Date:             7 October 2008

Place:            Melbourne

Decision:The Tribunal sets aside the reviewable decision dated 22 May 2007 and remits the matter to the respondent to re-calculate Mr and Mrs Mantzios’ entitlement to Disability Support Pension (DSP) from 6 September 2001 to 6 July 2005 in accordance with these Reasons.

The Tribunal directs that if, after re-calculation, Mr and Mrs Mantzios have been overpaid DSP, the respondent is to notify the Tribunal for consideration of whether, if there is a debt to the Commonwealth, the debt should be waived or written off.

(sgd) G.D. Friedman

Senior Member

SOCIAL SECURITY – disability support pension – overpayment – assessable assets exceed allowable limit – principal residence exemption –  disposal of assets – whether inadequate consideration – encumbrance over asset for the benefit of son

Social Security Act 1991 ss 11(7), 1118(1)(b), 1121, 1123(1)

Frendo v Secretary, Department of Social Security [1987] FCA 438
Re Stanbouli and Secretary, Department of Family and Community Services [2006] AATA 78

Woolworths Ltd v Kelly (1991) 22 NSWLR 189

REASONS FOR DECISION

7 October 2008  G.D. Friedman, Senior Member

1.        Mr and Mrs Mantzios were receiving disability support pension (DSP).  In September 2000 they left Australia to live in Greece while their son subdivided the family home and built three units, one of which they would retain as their residence.  In 2005 Centrelink cancelled their DSP and in 2006 raised a debt of $35,871.74 each for amounts of DSP received on the basis that the property remained an assessable asset during the period 6 September 2001 to 6 July 2005.

ISSUES

2.        The issues before the Tribunal are:

·Should the property be treated as an assessable asset in calculating the rate of DSP?

·Were Mr and Mrs Mantzios overpaid DSP; If so, by how much, and was this a debt to the Commonwealth?

·Should any debt be waived or written off?

SHOULD THE PROPERTY BE TREATED AS AN ASSESSABLE ASSET IN CALCULATING THE RATE OF DSP?

3.        To answer this question the Tribunal must consider:

·When did the family home cease to be the principal residence of Mr and Mrs Mantzios?

·Did Mr and Mrs Mantzios dispose of their Bennett Street property for inadequate consideration?

·Should the value of the property be reduced by the amount of the charge or encumbrance on the property? and;

·Did Mr and Mrs Mantzios dispose of the proceeds of Lot 3 for inadequate consideration?

When did the family home cease to be the principal residence of Mr and Mrs Mantzios?

4. Section 11(7) of the Social Security Act 1991 (the Act) provided (at the relevant time) that a residence of a person is taken to continue be the person’s principal residence during any period (not exceeding 12 months) during which the person is temporarily absent from the residence.

5.        Mr Chris Mantzios told the Tribunal that his parents bought their home in Bennett Street, Richmond in 1972 as their principal residence.  He said that by the late 1990s the house was in urgent need of renovation, so the family decided that he would re-develop the property by subdividing it into a number of dwellings.  The intention was that Chris would fund the re-development and Mr and Mrs Mantzios would retain one unit as their new unencumbered home, and would transfer the others to Chris for him to dispose of as he wished.

6.        Chris explained that he applied for planning approval in 1998 but the applications took longer than expected to be approved.  In 2000 Mr and Mrs Mantzios decided to stay with family in Greece while construction took place, and on 2 August 2000 they attended Centrelink to discuss arrangements for the continued payment of DSP.  A Centrelink record of that interview (T3, page 25) states: re portability going o/s for 3 yrs.  A Centrelink record dated 3 August 2000 (T3, page 26) states: clt & ptnr want to depart australia on the 11/9/2000 for greece for approximately 2 years…  A Centrelink document dated 8 September 2000 which recorded a decision about portability of DSP (T3, page 28) states: A/n plans to leave Australia on 06 SEP 2000.  A/n does not intend to return to Australia.  Mr Demitrios Mantzios told the Tribunal that he and his wife left Australia on 6 September 2000 and only intended to stay in Greece until their unit was built.  He said that they had no permanent home in Greece, and were relying on relatives for temporary accommodation.  Mr Mantzios said that neither he nor Mrs Mantzios can read or write in English, and they relied totally on Chris for the subdivision and construction of the units.

7. The Tribunal accepts the evidence of Mr Mantzios, which is consistent with Chris’ evidence about the planned re-development and the Centrelink file notes made on 2 and 3 August 2000, and finds that the Bennett Street property was Mr and Mrs Mantzios’ principal residence until 6 September 2001, which is 12 months after their departure for Greece. Under s 1118(1)(b) of the Act the principal residence is disregarded in calculating the value of Mr and Mrs Mantzios’ assets until that date.

Did Mr and Mrs Mantzios dispose of their Bennett Street property for inadequate consideration?

8. Section 1123(1) of the Act provides that a person disposes of assets if the person engages in conduct that directly or indirectly disposes of the assets and receives no or inadequate consideration in money or money’s worth for the disposal.

9.        Chris produced a Deed of Agreement (Exhibit A2) between himself and Mr and Mrs Mantzios, signed on 5 September 2000, which acknowledged that Mr and Mrs Mantzios were the owners of the Bennett Street property; that Chris desired to undertake works including subdividing the property into three lots, constructing new units at his expense and co-ordinating the work needed; and that in consideration of Mr and Mrs Mantzios transferring two lots to Chris, he proposed to construct a unit on a third lot to be retained by Mr and Mrs Mantzios.

10.      Chris stated that on the same day Mr and Mrs Mantzios signed a Power of Attorney authorising him to act on their behalf.  He said that on 20 October 2000, on advice from the bank from whom he hoped to obtain finance for the project, Mr and Mrs Mantzios transferred a one-fiftieth share of the Bennett Street property to him for love and affection.  On 6 November 2000 a loan of $300,000 was obtained by Mr and Mrs Mantzios and Chris, secured by a mortgage over Bennett Street.  On 20 March 2003 Lots 1 and 2 (at the rear of the property) were transferred by Mr and Mrs Mantzios to Chris.  He said that, although no money changed hands, Mr and Mrs Mantzios received valuable consideration in the form of the discharge of their share of the existing mortgage on 25 March 2003 (for $293,839); and the promise of a new unit (as specified in the Deed), which was understood to be unencumbered on completion.

11.      Chris emphasised that, at the time of the transfer, he was developing the property and required assets to secure funding.  He said that on 25 March 2003 he took out four loans, in his name, totalling $796,000 secured by Lots 1 and 2, and at that time Mr and Mrs Mantzios remained the registered proprietors of Lot 3 (their intended unit) free from any encumbrance until a loan of $364,000 was obtained on 29 November 2003.  He said that he alone was responsible for repayment of the mortgages and interest, and for the construction of the three units.

12.      In Frendo v Secretary, Department of Social Security [1987] FCA 438 Woodward J stated at [21]:

…if a pensioner disposes of property…he or she must receive consideration, in the sense recognized by the law of contract of an act, forbearance or promise sufficient to establish the existence of a binding contract.

Mr and Mrs Mantzios relinquished their house and property at Bennett Street in return for a renovated unit on one of the lots (Lot 3) of the subdivided property.  The transfer of Lots 1 and 2 was linked to the promise to construct a unit on Lot 3 by the Deed.  Mr and Mrs Mantzios had an enforceable future right to own a newly constructed unit on Lot 3.  Therefore, the Tribunal finds that there has been consideration for the transfer of Lots 1 and 2.

13.      In Woolworths Ltd v Kelly (1991) 22 NSWLR 189 at 193 Kirby P referred to the common law principle that there must be some consideration for a contract but a court would not inquire into its adequacy or inadequacy in determining whether a promise, undoubtedly made, was enforceable at law. However, s 1123 of the Act requires an enquiry into whether a person receives no consideration or inadequate consideration in money or money’s worth for the disposal of an asset.

14.      The language of the Deed, so far as the obligations on the parties is concerned, is clear.  Paragraph 3.1 of the Deed states:

The Parties agree that Demitrios & Evangelia will retain one of the subdivided lots on which a three bedroom unit has been constructed and in consideration of Chris having constructed the said unit Demitrios & Evangelia will transfer the remaining to [sic] 2 lots to Chris.

On 20 March 2003 the titles to Lots 1 and 2 were transferred to Chris.  Lot 3 eventually sold for $731,000.

15.      In all the circumstances the Tribunal finds that the Deed represents a binding contract and that there was not inadequate consideration in money or money’s worth in the terms specified in the Deed.  Therefore Mr and Mrs Mantzios have not deprived themselves of Lots 1 and 2 to Chris for a lack of, or inadequate, consideration.

Should the value of the property be reduced by the amount of the charge or encumbrance on the property?

16. Section 1121 of the Act states:

(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.

17.      Mr and Mrs Mantzios agreed that the following assessable assets were in their possession:

• Bennett Street from 6 September 2001 to 7 March 2003 (date of subdivision);
• Lots 1, 2 and 3 from 7 March 2003 to 20 March 2003 (date of transfer of Lots 1 and 2 to Chris); and
• Lot 3 from 20 March 2003 to 17 December 2004 (date of sale).

Chris had a one-fiftieth share in these assets in the same periods.

18.      On 6 November 2000 a $300,000 loan was obtained by Mr and Mrs Mantzios and Chris and secured by a mortgage over Bennett Street.  On 25 March 2003 that loan was discharged.  On 29 November 2003 a $364,000 loan was obtained by Mr and Mrs Mantzios and Chris and secured by the mortgage over Bennett Street (as Lot 3).  On 17 December 2004 that loan was discharged.  On behalf of Mr and Mrs Mantzios Ms Porter submitted that these loans, and Chris’ one-fiftieth share of Bennett Street, should be taken into account, at the relevant times, to reduce the value of the assets because the loans were taken out for the benefit of Mr and Mrs Mantzios under the Deed.

19.      In Re Stanbouli and Secretary, Department of Family and Community Services [2006] AATA 78 the Tribunal held that the applicant encumbered a property for the benefit of his sons’ business, and under s 1121(2)(b) of the Act that encumbrance did not reduce the value of the property.

20.      Although the loans were taken out jointly in the names of Mr and Mrs Mantzios and Chris, it was Chris who effectively took out the loans.  He made all the decisions regarding the mortgage, made the repayments and discharged the loans.  The loans were not for the benefit of Mr and Mrs Mantzios but for the benefit of Chris to assist him to carry out his obligation under the Deed to provide Mr and Mrs Mantzios with a renovated unit on Lot 3 in exchange for the transfer to him of Lots 1 and 2.

21. Therefore the Tribunal finds that Mr and Mrs Mantzios encumbered Bennett Street for the benefit of Chris and, under s 1121(2)(b) of the Act, the mortgages over Bennett Street between 6 November 2000 and 17 December 2004 did not reduce the value of the property for the purposes of calculating the value of Mr and Mrs Mantzios’ assets.

Did Mr and Mrs Mantzios dispose of Lot 3 for inadequate consideration?

22.      Chris stated that Lot 1 was sold on 11 August 2004 for $525,000 and the loans of $208,862 and $146,070 were discharged on the same day.  Lot 3 was sold on 17 December 2004 for $731,000 and the loan of $342,530 was discharged on the same day.  Lot 2 was sold on 14 August 2006 for $715,000 and the loans of $268,581 and $145,742 were discharged on the same day.  He emphasised that at the time of the sale of Lot 3 all units had been completed, and that Mr and Mrs Mantzios had disposed of all the proceeds of sale in the amount of $731,000.  He said that in consideration of the proceeds of sale of $388,470 ($731,000 less the discharge of the mortgage of $342,530) Mr and Mrs Mantzios had received consideration in the form of payment of advertising and commission costs of about $20,000; loan and interest payments by him on remaining loans of $416,000 (secured by Lot 2, which were obtained to fund the redevelopment project); and the promise of a new and unencumbered unit.  He said that the consideration for the proceeds of sale was adequate.

23.       The Tribunal finds that the $342,530 of the proceeds of Lot 3 went to discharging the mortgage over it, and the remainder was put towards repaying a loan that was secured by Lot 2.  The Tribunal finds that these loans secured by Lots 2 and 3 were taken out for the benefit of Chris to assist him in carrying out his obligations under the Deed.  Mr and Mrs Mantzios have received inadequate consideration for the repayment of these loans and so have disposed of the proceeds of the sale of their asset.  As Chris owned a one-fiftieth share in Lot 3, forty-nine fiftieths of the sale price must be treated as a disposed asset under s 1123 of the Act and must be maintained as an assessable asset for five years from 17 December 2004.

WERE MR AND MRS MANTZIOS OVERPAID DSP; IF SO, BY HOW MUCH, AND WAS THIS A DEBT TO THE COMMONWEALTH? AND;

SHOULD ANY DEBT BE WAIVED OR WRITTEN OFF?

24.      These questions cannot be determined until the appropriate level of DSP in the relevant period is re-calculated by Centrelink in accordance with these Reasons.

DECISION

25.      The Tribunal sets aside the reviewable decision dated 22 May 2007 and remits the matter to the respondent to re-calculate Mr and Mrs Mantzios’ entitlement to Disability Support Pension (DSP) from 6 September 2001 to 6 July 2005 in accordance with these Reasons.

The Tribunal directs that if, after re-calculation, Mr and Mrs Mantzios have been overpaid DSP, the respondent is to notify the Tribunal for consideration of whether, if there is a debt to the Commonwealth, the debt should be waived or written off.

I certify that the twenty-five [25] preceding paragraphs are a true copy of the reasons for the decision herein of

G.D. Friedman, Senior Member:

(sgd) Mara Putnis

Associate

Dates of hearing:  26 February 2008, 30 May 2008, 29 September 2008

Date of decision:  7 October 2008

Advocate for applicants:              Mr C. Mantzios (26 February 2008)

Counsel for applicants:                Mr R. Niall (30 May 2008)

Ms E. Porter (29 September 2008)

Advocate for respondent:            Ms K. Paul, Centrelink (26 February and 30 May 2008)

Mr T. Noonan, Centrelink (29 September 2008)