Miller and Repatriation Commission

[2004] AATA 84

Administrative

Appeals

Tribunal

 

DECISION AND REASONS FOR DECISION [2004] AATA 84

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No Q2003/174

VETERANS' APPEALS DIVISION		)
Re		JOHN and MERRILYN MILLER

Applicants

And REPATRIATION COMMISSION

Respondent

DECISION

Tribunal The Hon CR Wright, QC (Deputy President)

Date3 February 2004 

PlaceBrisbane

Decision The Tribunal affirms the decision under review and remits the matter to the respondent for reassessment of the relevant overpayments to the applicants and their recovery by the respondent

(Sgd) The Hon CR Wright QC

Deputy President

CATCHWORDS

VETERANS’ AFFAIRS – benefits and entitlements – service pension and partner service pension – entitlement – assets – assets held by family trust – outstanding loans from applicants – overpayment – no hardship – decision affirmed

Veterans’ Entitlements Act 1986 s 37, 52

Australian Energy Ltd v Lennard Oil N L (1986) 2 Qd R 216

REASONS FOR DECISION

3 February 2004  The Hon CR Wright, QC (Deputy President)     

Facts

1.      In 1979 “The Miller Family Trust” was constituted.  The beneficiaries of that trust were the male applicant, his first wife, Sandra Denise Miller, and their children.  The male applicant separated from his first wife in 1980 and married the female applicant in 1982.

2.      At about that time a further trust was established between the applicants and Joem Nominees Pty Ltd.  Joem Nominees Pty Ltd is the trustee of The Miller Family Trust. The applicants are the directors of Joem Nominees Pty Ltd (“Joem”).

3.      Following their marriage the applicants purchased a house in Melbourne.  In about 1985 that house was sold and a further house was purchased in Canterbury, Melbourne, Victoria as the principal family residence.

4.      At about this time the male applicant planned to build factories in the Mackay/Airlie Beach area (the factory being small pre-fabricated buildings which could be fitted out individually for various forms of business).  The residence in Canterbury was valued at that stage at some $900,000.  After discussions with the National Australia Bank the applicants borrowed $600,000 against the security of that property.

5.      The funds were used to purchase land at Airlie Beach in order to commence construction of the pre-fabricated buildings. 

6.      During the process of construction and sale, the value of the residence in Canterbury reduced to the point where it was necessary to sell the property in order to cover the loan that had been taken through the National Australia Bank.  Ultimately the house was sold for $675,000.  The loan from the National Australia Bank was paid out, leaving the applicants with a nett amount of about $17,000.

7.      In addition to the monies borrowed from the National Australia Bank against the marital home, further monies ($300,000) were borrowed from Graham and Co who are brokers in Brisbane and a further loan from Suncorp for $480,000 was negotiated by Joem. The applicants also obtained an additional loan of some $150,000 from the female applicant’s mother.

8.      The construction was carried out and the business of purchasing land and selling factories was done through Joem as trustees for The Miller Family Trust.  Monies secured upon the mortgage of the Canterbury residence were advanced to the Miller Family Trust for the purposes of the factory building enterprise.  In the financial records of the Miller Family Trust, the monies advanced by the applicants for that enterprise were recorded as a loan from the applicants to the trust. 

9.      The male applicant claims that it was never intended by him at the time that the monies be advanced to The Miller Family Trust as a loan.  He says that he

“saw this as an investment, which would provide profit and return for myself and my wife and my family.  Had the investment gone according to plan, as each factory was sold off there would be a return on that investment paid to me, but like any other investment, should it not go well the investment would be lost.  I am unable to advise why my accountant determined that those monies should be identified as a loan to The Miller Family Trust.  Naturally if the investment had worked well then those monies may ultimately be returned to me by way of a return on my investment (with or without the initial investment), however if the investment went well it may have continued indefinitely.”

10.     On 20 June 1994, the male applicant lodged an application for a service pension pursuant to the Veterans’ Entitlements Act 1986 (the Act) at the North Queensland Office of the Department (DVA).  The application contained information identifying the existence of the Miller Family Trust and the secondary trust.  The information provided included a Balance Sheet for the Miller Family Trust.  That document did not show the existence of any loans being payable to either of the applicants.  Nothing else in the material provided by the male applicant disclosed the existence of loans to Joem from either of the applicants.

11.     On 11 August 1994, DVA granted to the male applicant a Service Pension from 12 May 1994 at the single rate.  In accordance with the usual practice of the Department, the letter contained details of the applicant’s reporting obligations under section 54 of the Act in relation to his Service Pension together with DVA’s understanding of the applicant’s assets and income.  The assets identified were minimal, being $9,500 in some Bank accounts and a Datsun Sunny motor car worth $950.  The letter included the statement:

“Obligations – Financial

You presently receive the maximum rate of service pension.  You will continue to receive the maximum rate so long as your income is less than $90.00 per fortnight and your assets are less than $187,000.00.  You are obliged by law to tell us if this is not correct.  You must tell us by writing to the Deputy Commissioner at the address shown at the beginning of this letter.  If in the future your income or assets increase above either of these limits, you must tell us in writing, within 2 days of the change.”

The male applicant did not inform DVA that the statement of assets was not correct and that he had assets in the form of loans owing to him by Joem.

12.     On 6 October 1994, the female applicant, lodged a claim with DVA for a Partner Service Pension.  On the application form the female applicant answered “Yes” to the question inquiring whether or not she was involved in a family trust.  The details provided were simply a reference to her husband’s application for a Service Pension.

13.     On 17 October 1994, DVA granted the female applicant a Partner Service Pension from 13 October 1994.  The letter advising of the granting of the pension identified the same reporting obligations as were set out in the letter sent to the male applicant. The letter identified the value of the female applicant’s assets at $11,225.00 and the value of her earnings at $134.97.  DVA’s letter advised the female applicant was obliged by law to inform the department if the value of her assets or income was not correct.  The rate of the male applicant’s pension was altered as a result of the pension being provided to the female applicant.

14.     The female applicant did not inform the DVA that the statement of assets was not correct and that she had assets in the form of loans owing to her by Joem.

15.     In the period from 1989 to 2003, both applicants made loans to Joem in its capacity as the trustee of the Miller Family Trust.  In the following periods the amount of the loans from them were as follows:

As at 30 June 1993  $336,670.71
             As at 30 June 1994  $374,296.62
             As at 30 June 1995  $378,023.44
             As at 30 June 1996  $385,906.95
             As at 30 June 1997  $378,871.38
             As at 30 June 1998  $380,907.30
             As at 30 June 1999  $380,406.55
             As at 30 June 2000  $350,810.41
             As at 30 June 2001  ($87,872.65)
             As at 30 June 2002  $84,972.31

As at 30 June 2003  $69,682.05

The ratio of loans as between the applicants varied over the period stated.

16.     In July 2000, the loan agreements between the applicants and Joem were reduced to writing.  The extant loans were acknowledged and the rate of interest was specified at 7.55%.  The extant loans and the loans made to Joem for the previous two years were identified in schedules to the agreements.

17.     On 20 March 2001, the applicants identified, in a Centrelink Private Trust disclosure form, the existence of the trust and its beneficiaries, the property of the trust (which included $400,000 cash in the Bank and two parcels of land with factories on them producing rental income), and that there was an amount of approximately $316,810 owing by the trustee to the applicants, although the exact nature of the amount was not disclosed.

18.     On 21 June 2001, DVA determined that the applicants had control of Joem.  This determination was made as a consequence of amending legislation coming into force.  It has not been disputed by the applicants that they control Joem.

19.     On 30 October 2002, DVA determined that the applicants had lent money to the Trustee of the Miller Family Trust and that this had not been disclosed in breach of section 54 of the Act. An overpayment was raised as a consequence of the operation of section 56B of the Act.

20.     On 30 October 2002, by letters to the applicants, DVA advised them that their pensions were to be reduced as a result of their income and assets exceeding the allowable limit, and furthermore, that an overpayment had been raised and that there was an amount of money owing to DVA.  A letter advised that the overpayment had arisen as a result of the failure to the applicants to advise of the existence of the asset being the loans to the Trust. An overpayment of $31,799.50 was raised against the male applicant, and an overpayment of $31,699.44 was raised against the female applicant.

21.     On 14 February 2003, the Repatriation Commission reviewed the determination of the DVA delegate.  As a consequence the original decision was set aside and in its place it was determined that the male applicant should be assessed as having had an overpayment of $36,888.05 and the female applicant should be assessed as having had an overpayment of $25,592.35

22.     The rate for the payment of the male applicant’s pension is prescribed in section 37N of the Act.  That requires that the rate of pension to be calculated in accordance with the Rate Calculator.

23.     The rate for the payment of Mrs Miller’s partner’s pension is prescribed by section 38N of the Act.  That section also requires that the rate of pension to be calculated in accordance with the Rate Calculator.

24.     The Rate Calculator is found in Part 2 of Schedule 6.  Module A is the “Overall rate calculation process”.  By Schedule 6-A1(2), Method Statement 1 is the applicable method, which provides:

(a)By applying steps 1 to 4, the amount of the maximum payment rate, being the total possible pension and other allowances, is calculated;

(b)There is then a reduction of that amount, calculated by assessing the “ordinary/adjusted income” and taking that from the maximum payment rate. The ordinary/adjusted income is determined by an application of Module E.

(c)There are then other adjustments for “assets tests” as prescribed by Module F.

(d)The overall calculation in Module A provides the persons rate of service pension.

25.     The rate of payment of pension for the male applicant is prescribed by section 37N of the Act and the rate of payment for the female applicant is prescribed in section 38N of the Act.  There is no need to discuss the details of relevant calculations as all parties are in agreement that, in the event that it is determined that these applications for review are unsuccessful, the assessment of the correct rate of pension payable to each applicant as a result of such determination should be referred back to the Department.

26.     Section 32D of the Act provides:

“If a person lends an amount after 22 May 1986, the value of the assets of the person for the purposes of this Act includes so much of that amount as remains unpaid but does not include any amount payable by way of interest under the loan.”

27.     It is common ground that for the purpose of assessing the pension entitlements of each applicant it is necessary for any amount of unpaid loan monies advanced by them to Joem to be taken into account.

The Application to Review and the Issues Arising

28.     The applicants have applied to review the determinations of the Repatriation Commission made on 14 February 2003 referred to in paragraph 21 above.  The applications for review were heard in Townsville on 13 November 2003.  Mr Darryn Honchin of counsel appeared for the applicants..  Mr Roger Derrington of counsel appeared for the respondent.  The male applicant gave sworn oral evidence, and so did Maria Sala, a self employed accountant and registered tax agent.  Several documentary exhibits were taken into evidence.

29.     As may be apparent from the foregoing statements of facts and references to relevant matters of law, the central issue in dispute was whether or not advances of money made by the applicants to Joem were “loans” within the meaning of section 32D, or were some other form of investment in the company.  The applicants contend that the monies advanced by them to Joem were not loans. It was contended that the Loan Agreements executed by the two applicants and Joem dated 1 July 2000 (Exhibits 4 and 5) in which the transactions were treated as and referred to as loans were not conclusive of the status of the relevant transactions which had actually occurred on occasions well before those exhibits came into existence. 

30.     Whilst I agree that the two exhibits carry little weight on their own as to the intent of the parties at the time the funds were actually paid over to Joem, the agreements are significant as evidence of ex post facto behaviour of the parties consistent with the respondent’s contention that each advance of monies to Joem constituted a loan (Australian Energy Ltd v Lennard Oil N L (1986) 2 Qd R 216).

31.     Mr Honchin was pressed on several occasions during the hearing to characterise the payments in some way other than as loans but was unable to do better than to say that the payments were “investments” in Joem or “assets” of the applicants.

32.     Mr Honchin contended that at least until 1 July 2000 there was never any agreement between the relevant parties as to (a) the terms of the loan(s), (b) the rate of interest payable on the loan(s), (c) the security for the loans.  He submitted that in consequence of these facts and the further fact that the contributions by the applicants to Joem were made “piecemeal” the payments lacked the essential characteristics of loans payable on demand.

33.     It was not contended that the advanced monies were in the nature of a contribution of capital for a joint venture between Joem and the applicants or either of them.  Nor was it claimed that the monies were intended to purchase shares in Joem or for any similar purpose.

34.     It was properly conceded by the applicants that the monies and assets of Joem including the sums paid by the applicants did not remain the assets of the applicants.

35.     There is no need to refer in detail to the evidence of the male applicant or that as Ms Sala, save to say, that it is plain that he left all his relevant financial affairs to his accountants and was unable to contribute any specific material with a direct bearing upon the question now before the Tribunal.  His evidence which is set forth in para 9 of these Reasons is not accepted.

36.     Ms Salas’ evidence showed quite clearly that at all times when she has been dealing with the financial affairs of the applicants over a period of years she has dealt with the monies advanced to Joem as loans by the applicants.

37.     In my opinion the evidence in this case overwhelmingly supports the contentions of the respondent that the monies advanced by the applicants to Joem Pty Ltd were loans.  In my opinion the contentions by Mr Honchin as to the terms of the loan, the interest rates and the lack of security do not provide a reasonable basis for reaching a contrary conclusion.  In essence I accept the contentions set out in paragraphs 21-27 of the Statement of Facts and Contentions lodged on behalf of the respondent.  I did not understand the applicants to seek to rely on section 52Y of the Act.  However, if I am wrong as to this and there is some implied suggestion that I should examine hardship issues, I record that I also agree with paragraph 28 of the last mentioned document.

38.     In the result, the applications to review fail and the decision will be remitted to the respondent for reassessment of the relevant overpayments to the applicants and their recovery by the respondent. 

I certify that the 38 preceding paragraphs are a true copy of the reasons for the decision herein of The Hon CR Wright, QC (Deputy President)

Signed:         Sarah Oliver
  Associate

Date of Hearing  13 November 2003 (at Townsville)
Date of Decision  3 February 2004
Counsel for the Applicant         Mr D Honchin
Solicitor for the Applicant          Purcell Taylor Lawyers
Counsel for the Respondent     Mr R Derrington
Solicitor for the Respondent     Australian Government Solicitor