MATHEWS Applicant And DEFENCE FORCE RETIREMENT & DEATH BENEFITS AUTHORITY
[2010] AATA 548
•22 July 2010
Administrative Appeals Tribunal
DECISION AND REASONS FOR DECISION [2010] AATA 548
ADMINISTRATIVE APPEALS TRIBUNAL )
) No. 2008/5607
GENERAL ADMINISTRATIVE DIVISION ) Re NICHOLAS mathews Applicant
And
DEFENCE FORCE RETIREMENT & DEATH BENEFITS AUTHORITY
Respondent
DECISION
Tribunal Ms N Isenberg, Senior Member Date22 July 2010
PlaceSydney
Decision The decision under review is set aside
.................[SGD].........................
Ms N Isenberg
Senior Member
CATCHWORDS
DEFENCE FORCE RETIREMENT & DEATH BENEFITS – Military Superannuation Benefits – Period of continuous full time service – valid election under section 61B – previous elections relevant – no subsequent elections therefore necessary – decision under review set aside
Defence Force Retirement and Death Benefits Act 1973, section 61B
Military Superannuation and Benefits Act 1991, section 6
Defence Force Retirement and Death Benefits Authority v Gregory [2009] FCA 875
Gregory and Defence Force Retirement and Death Benefits Authority [2008] AATA 1053
News Limited v South Sydney District Rugby League Football Club Limited [2003] HCA 45
Strutt and Defence Force Retirement and Death Benefits Authority [2007] AATA 1614
Williams and Defence Force Retirement and Death Benefits Authority [2008] AATA 585
REASONS FOR DECISION
22 July 2010 Ms N Isenberg, Senior Member Background
1. Commander Nicholas Mathews (CDR Mathews) served as a full time member of the RAN for over 20 years, retiring on 30 June 1997. At that time he transferred to the Reserves and commenced receiving pension under the Defence Force Retirement and Death Benefits Act 1973 (DFRDB Act).
2. On 6 January 2003, he commenced continuous full time service (CFTS) in the Reserves for a period of more than 12 months (the first period), ceasing on 31 December 2004. On 19 December 2002, that is prior to taking up that service, he elected under s 61B of the DFRDB Act not to become a member of the Military Superannuation and Benefits Scheme (MSB Scheme). Defence Force Retirement and Death Benefits entitlements (DFRDB entitlements) are not payable when CFTS is for 12 months or more.
3. On 11 November 2005, CDR Mathews resumed CFTS which was to cease on 5 February 2007 - subsequently extended to 15 February 2007 – that is, a period of more than 12 months (the second period). On 11 October 2005 he again elected not to become member of the MSB Scheme.
4. In a letter of 18 January 2007, the Directorate of Naval Officers' Postings (DNOP) wrote to CDR Mathews offering him another period of CFTS, commencing on 5 February 2007 and expiring on 25 January 2008, ie for less than 12 months. The letter specified that the CFTS was only for that period and that an extension to the CFTS period could not be guaranteed. This was acknowledged by CDR Mathews in a declaration dated 12 February 2007.
5. Meanwhile, in a letter dated 7 February 2007, CDR Mathews wrote to the Respondent requesting payment of full DFRDB entitlements on completion of his then current CFTS contract on 15 February 2007, and the Respondent commenced paying DFRDB entitlements, including retirement pay, from that date.
6. On 18 February 2007, CDR Mathews resumed CFTS (the third period) but did not make an election under s 61B before doing so. It was not until 26 February 2007 that, in a DM100 form, CDR Mathews ticked a box to indicate that he had previously re-entered the Defence Force and had made such an election at that time.
Legislation
7.Subsection 61B of the DFRDB Act provides:
(1) Where a person:
(a)who is a recipient member; or
(b)in respect of whom deferred benefits are applicable under section 78;
intends to resume full-time service;
(c)as a member of the Permanent Forces; or
(d)as a member of a Reserve for a continuous period of not less than 12 months;
the person must, before resuming service, in writing addressed to the Authority, elect:
(e)to become a contributing member; or
(f)to become a member of the MSB Scheme.
(2) Subsection (1) does not apply if the person has previously:
(a) made an election under that subsection; or
(b)made, under subsection (3), an election to become a member of the MSB Scheme.
(3) A recipient member who:
(a)intends to resume full‑time service as a member of a Reserve for a continuous period of less than 12 months; and
(b)has not previously made, under this section, an election to become a member of the MSB scheme;
must, before resuming service, in writing addressed to the Authority, elect whether or not to become a member of that scheme.
8. Section 6 of the Military Superannuation and Benefits Act 1991 (MSB Act) provides:
(1) Subject to subsection (2), each of the following persons is, by force of this section, a member of the Scheme:
(a) a member of the Permanent Forces;
(b) a member of the Reserves who is rendering continuous full-time service under an undertaking to serve for period of not less than 12 months;
(c) a member of the Reserves who is rendering continuous full-time service under an undertaking to serve for a period of less than 12 months unless that member has elected not to become a member of the Scheme under section 61B of the DFRDB Act.
(2) In spite of subsection (1), a person is not a member of the Scheme if the person is an eligible member of the Defence Force for the purposes of the DFRDB Act
Issues
·Did CDR Mathews make a valid election under s 61B(3) to remain a member of the DFRDB before resuming CFTS on 18 February 2007?
·Did CDR Mathews become a member of the MSB Scheme in accordance with s 6 of the Military Superannuation and Benefits Act 1991 (MSB Act) with effect from 18 February 2007?
·If so, is there a debt for repayment of DFRDB benefits?
·If so, are there reasons why the amount of $27,974.94 for DFRDB retirement pay paid to CDR Mathews should not be recovered on behalf of the Commonwealth under subs 126(4) of the DFRDB Act.
Consideration
9. The legislation, when read with the authorities to which I was referred, is clear: a person wishing to remain in the DFRDB Scheme must make an election to do so prior to resuming CFTS. Failure to make the election at that time results in transfer to the MSB Scheme, and there is no discretion to allow an applicant to make a retrospective election.
10. The only occasion when this election prior to undertaking CFTS need not occur is when a person who intends to resume CFTS for at least 12 months, has previously made an election: s 61B(2).
11. The Respondent’s position was straightforward: CDR Mathews had failed to make an election with respect to his preferred scheme before embarking upon his (third period) of CFTS. It relied on Strutt and Defence Force Retirement and Death Benefits Authority [2007] AATA 1614, where the Tribunal held to the effect that the failure to make a scheme election prior to resuming CFTS resulted in the person becoming a member of the MSB Scheme by operation of the law. Further, in Gregory and Defence Force Retirement and Death Benefits Authority [2008] AATA 1053, the Tribunal decided that there was no discretion to allow an Applicant to make a retrospective election whether or not to join the MSB Scheme or remain in the DFRDB scheme. The same view was expressed in Williams and Defence Force Retirement and Death Benefits Authority [2008] AATA 585. This interpretation of the DFRDB Act re-entry provisions has recently been confirmed by the Federal Court in Defence Force Retirement and Death Benefits Authority v Gregory [2009] FCA 875.
12. It was the Applicant's case that this matter can be distinguished from those decisions, because those individuals had not previously made a valid election to remain in the DFRDB Scheme before resuming service, whereas prior to the 18 February 2007 period of CFTS, CDR Mathews had - twice in fact - made valid elections not to join the MSB Scheme. The Applicant submitted that, in accordance with s 61B(2), because it was his intention to undertake CFTS for a period of not less than 12 months, he was not obliged to make an election, because he had already done so. As there was no dispute that CDR Mathews had previously made a valid election (to remain in the DFRDB Scheme) thereby satisfying s 61B(2)(a), the only issue for consideration was whether CDR Mathews intended to resume CFTS for a period of not less than 12 months.
13. By way of further submission, the Applicant contended that, CDR Mathews, having made prior, valid elections to remain in the DFRDB Scheme, was not obliged to make such an election on every occasion that he undertook a fresh period of CFTS.
14. Another alternative submission was that the third period of CFTS was actually an extension of the second period, and the election he had made in anticipation of that period of CFTS remained in operation in respect of the so-called ‘third period’. I do not think this submission has any merit as there was clearly a break, albeit only a couple of days, between the second and third periods.
15. CDR Mathews provided a statutory declaration dated 3 December 2009 in which he wrote that it was always his intention to undertake as much CFTS as possible up until the Navy’s compulsory retiring age of 60. He said he was offered the position of Command Supply Officer and ”willingly accepted” for a period of 11 months – the ‘third period’. He gave evidence that in the lead up to the third period he had been in discussions with staff at DNOP, his Admiral and others about his undertaking another period of CFTS. He said he had hoped to be offered more than 12 months, because in order for his DFRDB benefits to ever be paid on the basis of the 2007 ‘new’ pay scale – said to be in the order of a 25 per cent increase in pay – he needed to undertake 12 months CFTS. However, he was told that a permanent officer was to take up the position in January 2008 and so the role he was offered was to conclude at that time. He hoped there would still be a project role for him and anticipated another two to three years, as this was how long he expected it to take to bed down the logistic support system he had designed and which was in the process of being implemented. He was confident that an extension would occur because he had previously held the position of Fleet HR officer and knew that of the 29 permanent positions at his level, there were seven vacancies. He sat on the Navy’s Supply Advisory Council and he could track how many recruits were being engaged, and he had information as to how long before they would come on stream: it was expected to be five to seven years before senior supply officers in the permanent Navy would be at full strength. He also knew the number of available reservists, HR funding and policy issues, and was aware of various political and other factors that might affect the decision on how long he might be ultimately required. He knew CFTS contracts were usually either quite short – three, six months or about two years.
16. As it transpired, on 11 October 2007 he was offered an extension of CFTS from 26 January 2008, the day after the third period was to have concluded, to 26 June 2009. When issues arose about his DFRDB entitlement, he resigned with effect from 30 May 2008, and instead of CFTS commenced work on a ‘days’ basis’. He entered a new CFTS arrangement from 1 December 2008 to 27 November 2009, taking up the position of Executive Officer, Defence National Storage and Distribution Centre. This has been extended, and is now to conclude in January 2011. He also gave evidence that his first period of CFTS was to be extended but he had already accepted another position.
17. Mrs Mathews gave evidence, in relation to the third period, of her concern that they might have to move to Canberra. She was concerned that the contract was only for 11 months but her husband re-assured her that it was likely to be for longer.
18. As to his intention, it was suggested to CDR Mathews in cross-examination that he had in fact sought a period of less than 12 months so that he could retain his DFRDB benefits while undertaking CFTS, for which he would be paid at the same time. He denied this to be the case, referring again to the need to undertake CFTS for 12 months in order to get the ongoing benefits of the 2007 pay increase. Rolling-over a series of short term CFTS contracts was possible, but he thought unlikely, and did not accord with his experience.
19. CDR Mathews was also referred in cross-examination to his letter of 25 May 2006 to Chief of Navy where he wrote to the effect that he no longer aspired to go to sea or to be deployed. This was at odds, it was submitted, with CDR Mathews having sought medical re-classification, following his downgrading to MEC 4, and his evidence that he wanted to deploy.
20. As I understand CDR Mathews’ evidence, he explained that he required medical re-classification in order to be eligible not only for substantive promotion to Commander - and the DFRDB benefits that would ultimately flow from retirement at that higher rank - but also to be eligible for CFTS at all, which, according to his evidence, is not available if classified lower than MEC 1 or 2. This aspect of his evidence was unchallenged. His evidence too was that he has subsequently been deployed.
21. I was referred to News Limited v South Sydney District Rugby League Football Club Limited[2003] HCA 45, at paragraph 44, as authority for the manner in which CDR Mathews’ ”intention” should be viewed. While that matter referred to entirely different legislation, McHugh J, in acknowledging that the relevant test for determining a “purpose” was a subjective one, observed that that did not exclude an objective consideration of the surrounding circumstances.
22. In this matter, there are few surrounding circumstances that might have dissuaded me from accepting CDR Mathews’ stated intention. Firstly, because CDR Mathews would continue to receive DFRDB benefits, as well as ordinary pay, only if his CFTS contract was less than 12 months, this was a more financially advantageous arrangement, at least in the short term. On the other hand, he needed to have 12 months CFTS at his substantive rank of Commander in order to qualify for higher DFRDB pension in the long term. Further, he thought it unlikely that he could engineer ongoing extensions of a short term CFTS contract.
23. Secondly, DNOP’s letter of 18 January 2007 which offered CDR Mathews a period of CFTS for less than 12 months, was very clear that the CFTS was only for that period, and that an extension to the CFTS period could not be guaranteed. Against this was the email dated 9 February 2010 by CAPT O’Brien, the Director of Naval Officers’ Postings, who wrote that although periods of CFTS are ”generally stipulated” as 12 month postings, “it is quite common for such periods to be extended part way through if there is no identifiable P[ermanent] N[avy] member to post to the position.” This was consistent, in my view, not only with the stated intention of CDR Mathews, but reflected what had previously happened to him and, in fact, what has subsequently occurred.
24. I accept that CDR Mathews’ intention was to undertake CFTS for a period of not less than 12 months. In coming to that view I accept that it was more than just CDR Mathews’ preference to work in the Navy as much as possible until compulsory retiring age. He was very well-informed: he came to a view about his prospects, having regard to his background as Fleet HR manager, knowing of vacancies at his level, and the unlikelihood of sufficient replacements – either regular or reserves – in the foreseeable future. He was attuned to factors that might affect the likelihood of extension. Even on an objective test his intention of extension was a reasonable one.
25. I am also satisfied that s 61B(2) operates in such a way as to relieve CDR Mathews from the requirement of making a further election in relation to any service for continuous periods of greater than 12 months. I agree with the submission that if it were the intention of Parliament to require that each period of service be preceded by a new election, such a requirement would have been clearly articulated in the DFRDB Act. A valid election to maintain membership of the DFRDB Scheme remains extant until revoked by a subsequent election to opt into the MSB Scheme. Consequently, there is no requirement to continue making elections to remain a member of the DFRDB Scheme. In coming to this view, I observe that in the relevant Notification of Re-entry Form (DM100), CDR Mathews ticked that “I have previously re-entered the Defence Force and made such an election at the time.” That answer was appropriate and there was no requirement for CDR Mathews to also tick the box electing not to become a member of the MSB Scheme. There was no requirement on the form, or for that matter, in s 61, for CDR Mathews to tick both boxes. The response given by CDR Mathews is that of a person who wished to affirm his previous election not to become a member of the MSB Scheme. If a fresh election was required on each period of CFTS the third option becomes redundant.
26. For these reasons I find that CDR Mathews did not cease to be a member of the Defence Force Retirement and Death Benefits Scheme as an election under s 61B(3) not to join the MSB Scheme had already been made. As such, there has been no over payment of DFRDB benefits on the basis that he had transferred to the MSB Scheme.
Decision
27. The decision under review is set aside.
I certify that the 27 preceding paragraphs are a true copy of the reasons for the decision herein of Ms N Isenberg, Senior Member.
Signed: .................[SGD]..........................................................
AssociateDate of Hearing 5 July 2010
Date of Decision 22 July 2010
Counsel for the Applicant Mr S Lowe
Counsel for the Respondent Mr D O’Donovan
Solicitor for the Respondent Mr T Giugni
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