Newcombe and Insolvency and Trustee Service Australia
[2007] AATA 1755
•13 September 2007
Administrative Appeals Tribunal
DECISION AND REASONS FOR DECISION [2007] AATA 1755
ADMINISTRATIVE APPEALS TRIBUNAL )
) No S 200400284
GENERAL ADMINISTRATIVE DIVISION ) Re DR JOHN RICHARD PREHN NEWCOMBE Applicant
And
INSOLVENCY AND TRUSTEE SERVICE AUSTRALIA
Respondent
DECISION
Tribunal Senior Member R W Dunne Date13 September 2007
PlaceAdelaide
Decision The Tribunal sets aside the decision under review and directs that the matter be remitted to the Inspector-General for reconsideration in accordance with the Tribunal’s findings, namely that the applicant’s contribution liability for CAP 1 be reduced to nil.
..............................................
R W DUNNE
(Senior Member)
CATCHWORDS
BANKRUPTCY – application for determination of higher income threshold because of hardship – illness or disability of applicant – cost of rented accommodation – circumstances of an exceptional nature imposing an excessive financial burden on applicant – decision set aside
Bankruptcy Act 1966 (Cth) ss 139S, 139T, 139W, 139ZF
Bankruptcy Regulations 1996 Reg 6.16
Re Milsom and Official Receiver in Bankruptcy [2004] AATA 275
Re Pearce and Official Receiver in Bankruptcy (AAT 9778, 7 July 1994)
REASONS FOR DECISION
13 September 2007 Senior Member R W Dunne 1. The applicant (John Richard Prehn Newcombe) was made bankrupt on the petition of the Deputy Commissioner of Taxation on 21 August 2000. At the time of his bankruptcy, he was carrying on business as a psychiatrist, which he continued to do until 31 December 2003. Since then, because of ongoing enquiries by the Medical Board, he has conducted a counselling practice.
2. The trustee of Dr Newcombe’s estate and, on review, the Inspector-General in Bankruptcy calculated his assessed income for each annual period (a contribution assessment period or “CAP”) following his bankruptcy. The annual periods were 21 August 2000 to 20 August 2001 (CAP 1), 21 August 2001 to 20 August 2002 (CAP 2), and 21 August 2002 to 20 August 2003 (CAP 3). The Inspector-General calculated the contribution which Dr Newcombe was liable to pay to his estate in respect of the three CAPs, in accordance with Division 4B of the Bankruptcy Act 1966 (Cth) (“Act”) as follows:
CAP 1 $17,138
CAP 2 $9,735
CAP 3 $2,136
Dr Newcombe applied to this Tribunal for review of the Inspector-General’s determination pursuant to s 139ZF of the Act. On 10 December 2004, Deputy President D G Jarvis made the following findings as to Dr Newcombe’s contribution liability for the CAPs involved:
CAP 1 $14,822
CAP 2 $0
CAP 3 $0
3. On 21 July 2004, Dr Newcombe’s legal representative applied to the Inspector-General (pursuant to s 139T of the Act) for the determination of a higher income threshold on the grounds of hardship. As it did not specify which hardship provision applied or which contribution period was involved, after the prescribed period had elapsed and following an unanswered request for further information, the application was taken to have been refused under s 139T(5) of the Act. Dr Newcombe has now applied to this Tribunal for review of the Inspector-General’s determination pursuant to s 139ZF of the Act.
4. At the hearing, Mr G Randall (a legal practitioner) appeared for the applicant and Mr R Sallis (of counsel) with Mr N Parkyn appeared for the respondent. The T documents, lodged pursuant to s 37 of the Administrative Appeals Tribunal Act 1975, were admitted in evidence as Exhibit R1. In addition, the following documents were admitted:
Exhibit A1 Letter from L J Hooker, Blackwood, dated 20 September 2001
Exhibit A2 Letter from Dr Llewelyn, Blackwood Clinic, dated 11 October 2006
Exhibit A3 Extract from Housing Industry Prospects Report – September 2003
Exhibit A4 Extract from Housing Industry Prospects Report – September 2000
Exhibit A5 Statement of applicant dated 23 October 2006
Exhibit A6 Letter from Medicare to applicant dated 11 January 2007 Exhibit A7 Undated document entitled “Hardship – Current Financial Considerations”
Exhibit A8 Street Directory map
Exhibit A9 Spreadsheets of B Rohde’s payslips
Exhibit A10 Applicant’s cash receipts for period 28 May 2001 – 1 June 2001
Exhibit A11 Applicant’s cash receipts for period from 1 June 2001
Exhibit A12 Applicant’s 2001/02 Income Tax Return
Exhibit A13 Applicant’s 2001/02 Notice of Assessment
Exhibit A14 Applicant’s 2002/03 Income Tax Return
Exhibit A15 Applicant’s 2002/03 Notice of Assessment
Exhibit R2 Extract from Housing Industry Prospects Report – March 2000
Exhibit R3 Extract from Housing Industry Prospects Report – March 2001
Exhibit R4 Bundle of rental accommodation advertisements for period 1 July 2000 – 2 June 2001
Exhibit R5 Key map of Blackwood/Coromandel Valley area
Exhibit R6 List of advertisements for rental properties generally – 1 January 2000 – 29 January 2000
Exhibit R7 Volumes 1-9 of respondent’s documents in response to direction of Tribunal dated 29 November 2006
Exhibit R8 Letter from Mr Uglesic (AGS) to applicant dated 1 December 2006
5. As was the case in the hearing before Deputy President Jarvis, the parties indicated that they had agreed that the relevant figures in respect of the financial year ended 30 June 2001 would apply to CAP 1 because the figures for this financial year were readily available and would closely reflect the figures for the CAP involved. The application proceeded on the basis that the figures for the year ended 30 June 2001 equated to the figures for CAP 1.
issues for the tribunal
6. The issues for the Tribunal are:
(a)whether, under s 139T(1) of the Act, the applicant will suffer hardship for any of the following reasons, namely:
(i)the applicant or a dependant of the applicant suffers from an illness or disability that requires ongoing medical attention and medicines and the applicant is required to meet a substantial proportion of the costs of that medical attention or those medicines from his income;
(ii)the applicant is living in rented accommodation, that is not provided by the Commonwealth, a State or Territory or a relevant authority and the applicant is required to pay the cost of that accommodation wholly or mainly from his income;
(iii)a circumstance has occurred in relation to the applicant or a dependant of the applicant that is of an exceptional nature and imposes an excessive financial burden on the applicant;
(b)whether the assessment of the contribution amount payable by the applicant for CAP 1 should be varied; and
(c)whether the applicant’s circumstances after CAP 1 can be considered when determining an application pursuant to s 139T(1) of the Act.
legislation
7. The provisions of the Act and the Bankruptcy Regulations 1996 (Cth) that relevantly apply to the issues before the Tribunal are as follows:
The Act
“139S Contribution payable by bankrupt
The contribution that a bankrupt is liable to pay in respect of a contribution assessment period is the amount worked out in accordance with the formula:
Assessed income – Actual income threshold amount
2
where:
Assessed income means the amount assessed by the trustee to be the income that the bankrupt is likely to derive, or derived, during the contribution assessment period.
Actual income threshold amount means the actual income threshold amount assessed by the trustee to be applicable in relation to the bankrupt when the assessment is made.
139T Determination of higher income threshold in cases of hardship
(1) If:
(a)the trustee has made an assessment of a contribution that a bankrupt is liable to pay to the trustee in respect of a contribution assessment period; and
(b) the bankrupt considers that, if required to pay that contribution, he or she will suffer hardship for a reason or reasons set out in subsection (2);
the bankrupt may apply in writing to the Official Receiver for the making of a determination under this section in respect of that period.
(2) The reasons for which an application may be made under subsection (1) are as follows:
(a) the bankrupt or a dependant of the bankrupt suffers from an illness or disability that requires on-going medical attention and the supply of medicines, and the bankrupt is required to meet a substantial proportion of the costs of that medical attention or those medicines from his or her income;
(b)the bankrupt is required to make payments from his or her income to meet the cost of child day-care to enable the bankrupt to continue in employment or other work;
(c) the bankrupt is living in rented accommodation not provided by, or by an authority of, the Commonwealth, a State or a Territory, or by a local government authority, and the bankrupt is required to pay the cost of that accommodation wholly or mainly from his or her income;
(d) the bankrupt incurs substantial expense in travelling to and from the bankrupt's place of employment or other work, whether by public transport or otherwise;
(e)the spouse of the bankrupt, or another person residing with the bankrupt, who ordinarily contributes to the costs of maintaining the bankrupt's household has become unable to contribute to those costs because of unemployment, illness or injury;
(f) any other reason prescribed by the regulations.
(3) The Official Receiver must not make a determination under this section unless the bankrupt provides satisfactory evidence of the bankrupt's income and expenses, and any other matters on which the bankrupt relies to establish the reasons for the application.
(4)The Official Receiver must decide the application as soon as practicable, and in any event not later than 30 days, after the day on which the application is received.
(5) If the Official Receiver does not make a decision on the application within that period of 30 days, the Official Receiver is taken to have made a decision at the end of that period refusing the application.
(6) If the Official Receiver is satisfied that the bankrupt will suffer hardship if required to pay the contribution, the Official Receiver may determine that, for the purposes of the application of section 139S in relation to the bankrupt in respect of the contribution assessment period, the actual income threshold amount that was applicable in relation to the bankrupt when the assessment was made is taken to have been increased to such amount as the Official Receiver determines.
(7) If the Official Receiver is not satisfied that the bankrupt will suffer hardship if required to pay the contribution, the Official Receiver is to refuse the application.
(8) If the Official Receiver makes a determination under subsection (6), the Official Receiver has all the powers of the trustee in relation to the bankrupt in respect of the contribution assessment period and may make such assessment under section 139W as is necessary to give effect to the determination.
…
139WAssessment of bankrupt’s income and contribution
(1)As soon as practicable after the start of each contribution assessment period in relation to a bankrupt, the trustee is to make an assessment of the income that is likely to be derived, or was derived, by the bankrupt during that period, of the actual income threshold amount that is applicable in relation to the bankrupt when the assessment is made and of the contribution (if any) that the bankrupt is liable to pay in respect of that period under section 139S.
…”
The Regulations
Reg 6.16 provides:
“Reasons for application to Official Receiver to vary contributions
For the purposes of paragraph 139T(2)(f) of the Act, it is a prescribed reason that a circumstance has occurred in relation to the bankrupt or a dependent of the bankrupt that, in the opinion of the Official Receiver:
(a) is of an exceptional nature; and
(b) imposes an excessive financial burden on the bankrupt.”
background
8. Following his bankruptcy and his application for review of the trustee’s calculation of the contribution to his estate, the finding of Deputy President Jarvis was that Dr Newcombe’s contribution liability was effectively $6,699.78. It is this finding that is the subject of Dr Newcombe’s hardship application. It is now apparent from the evidence and the case put for the applicant that the bases of the application are limited to those set out in paragraph 6(a) of these reasons and no other reasons in s 139T(2). These bases, briefly repeated, are:
§the costs of ongoing medical attention and medicines associated with the illness or disability of the applicant that are largely met from his income;
§the costs of private rental accommodation largely met from the applicant’s income; and
§a circumstance of an exceptional nature that imposes an excessive financial burden on the applicant.
evidence of dr newcombe
9. Dr Newcombe’s evidence was that he had a recurring back problem that dated back to 1996. Since then, he has had three back operations in May 1997, December 1998 and January 2002. The last operation was significant and involved posterior and anterior fusion of the spine, with metal screws inserted for stabilisation. As a result, he said he was unable to leave his home for some four to five weeks. Mr Sallis referred him to the medical reports from Professor Robert Fraser, Spinal Surgeon at the Adelaide Spine Clinic (respondent’s statement of facts and contention at pages 30-33). When asked about the reports and the comments made by Professor Fraser, the applicant said that, from mid 2000 until the beginning of 2001, he was functioning, but with limitations. The limitations steadily increased during 2001. The costs of surgery were minimal, but the major costs subsequently were pharmaceutical. He took a variety of prescribed medications, including an analgesic (Tramadol), Panadeine Forte and anti-inflammatories (Naproxen). When he was specifically referred by Mr Randall to CAP 1, he said he had been prescribed Coloxyl, Temazepam, Diazepam and Glucosamine. Mr Randall then referred the applicant to a report from Dr D Llewelyn at the Blackwood Clinic (Exhibit A2). When asked about the drugs listed in the report, Dr Newcombe said that it was substantially the same medication that had been prescribed for him since his second back operation, but that he was now taking more Tramadol (or Tramal SR) and was no longer taking Naproxen.
10. When questioned by Mr Sallis about his income and expenses, Dr Newcombe said that his former book-keeper had prepared his accounts for CAP 1, to assist in the preparation of his taxation return. The book-keeper would come to his office, sit with him and go through the bills for payment. The book-keeper would write out the cheques himself, keep the records of the transactions and prepare the accounting files, for which he used QuickBooks at the time. Dr Newcombe was referred to an annexure to the applicant’s statement of facts, issues and contentions, which was a list of expenses headed “Health, Medical & Dental”. His evidence was that the total amount for these expenses was $7,986.49, which were all purchases of medications or prescription items relating to him during CAP 1 and did not include non-medical items. However, because most of the purchases had been with a credit card or cash, he did not have the original chemist slips referring to them. The list had been prepared by his book-keeper and based upon credit card slips and cheques drawn by the book-keeper. He said that he maintained private medical insurance during CAP 1 and that he paid a premium of $1,960 during that period. After taxation relief, this premium amounted to $1,372.
11. Dr Newcombe’s further evidence was that he rented private accommodation at Wentworth Close, Blackwood in CAP 1. Previously, he had lived with his former de facto wife, his two elder sons by another relationship and his younger son in a residence at Toohey Crescent, Pasadena. He owned Toohey Crescent with his de facto wife, who was the younger son’s mother. It appears there had been a breakdown in the relationship at some stage and there were proceedings in the Family Court. His de facto wife left Toohey Crescent in March 2000 and the applicant agreed with her to sell the residence in April or May 2000. Following her departure, renovations were undertaken to the property to enable its sale to proceed. The applicant said that, apart from minimal work (such as changing light fittings and tidying up), he was not involved in the renovation work. When asked by the Tribunal about the renovations, he was unable to say what work was done, apart from the minimal amount that he did. Toohey Crescent was ultimately sold in July or August 2000. It was a forced sale by the State Bank and the applicant said he had nothing to do with the actual process of sale, the financial aspects or the settlement. When it was suggested by Mr Sallis that the applicant tried to undertake the Toohey Crescent renovations himself, he said:
“Go on, don’t be silly. I mean, I would have problem sweeping a floor, let alone doing substantial work. I mean, in terms of renovating, firstly, it was really a matter of cleaning up and making the place presentable. As I said, the most significant thing I did was install some light shades which were effectively, you know, if I held my hand up, I could touch the bulb, so installing light shades in the house, tidying up, spraying a few weeds around the place, was about the limit of what I was able to do. Anything else that was done – and I certainly can’t even remember what was done, but it was a bill of over $1,000 for work undertaken by the people working for the agent.” (Transcript, 5 February 2007 at page 43)
12. Mr Randall referred the applicant to a list annexed to the applicant’s statement of facts, issues and contentions. He said the list was of payments made to L J Hooker, for the rental of Wentworth Close during CAP1, and totalled $17,820. Again, the list had been prepared by his former book-keeper and had been extracted from cheques (or cheque stubs) in respect of the payments made to the rental agent. Mr Randall also referred the applicant to a rental payment history (Exhibit A1) which, according to Dr Newcombe, confirmed the rental payments that he had made to L J Hooker for the Wentworth Close property during CAP 1.
13. Dr Newcombe said that he commenced the lease of Wentworth Close on 4 February 2000 because he had concerns about when he would have to move from Toohey Crescent after the breakdown in the relationship with his former de facto wife. The rental for Wentworth Close was $330 per week. He said that he did not move into Wentworth Close until June or July 2000 because, despite his back problems, he was trying to renovate the Toohey Crescent property for sale. He said he had difficulty in finding rental accommodation. There were issues involving the Family Court proceedings, his inability to move around as a result of his back problem and because he wanted to find rental accommodation that did not involve a lot of travel. Because of his back, he could not travel distances and wanted a rental property that was close to his practice and to where he had to take and pick up his children. He said he found it difficult to find suitable rental properties that were available and then physically to be in a position to be able to inspect the properties. The considerations that convinced him to commence the rental of the Wentworth Close property were to provide sufficient accommodation for his two older sons, adequate facilities for his younger son (who stayed alternate weeks and half school holidays) and the proximity of transport. With Wentworth Close, there was insufficient space for his younger son and he had to partition part of the lounge area as a bedroom for him. He said Wentworth Close was the best he could do at the time and, although the rent was above average, it was not extreme. Had he been able to get something more reasonable for the price, he would have done so. When asked by the Tribunal what he based his reference to “above average” on, the applicant said:
“Well, I think that the rents – I mean, I had rented houses previously and the – from my – all the rents I had looked at, you know, in the paper for all over Adelaide, were in between 250 and 300. There was obviously more that were, you know, 300 with 350 to 380, but certainly we are talking, you know, in a normal market at the time, the 320/330 wasn’t unusual but it was on a, you know, higher average. I mean this is going from memory, I can’t be specific about what I saw, but it certainly – I didn’t want to pay the 330 but I didn’t really have much choice as far as – you know, I mean I thought it was a tad high but I mean that’s what I ended up agreeing to because I had little option.” (Transcript, 29 November 2006 at page 25)
14. The applicant said he had signed a standard 12 month lease for Wentworth Close and had stayed there for approximately 18 months (until September 2001), after the lease had expired in February 2001. He did not want to take another 12 month lease, then and was able to avoid entering into one, but at the same time was finding it difficult to look for a new rental property because of his ongoing back problem. He first started looking for a rental property in January 2000. He said he presumed he would have looked for properties for lease through advertisements in “The Advertiser” newspaper. Because of his difficulty with driving, he said he was not able to travel more than about 9 or 10 kilometres to inspect rental properties. He said he had to balance the distance from his work, his children’s school and the intended rental property to ensure that the travelling time was not excessive.
15. Mr Sallis referred the applicant to his comments that the rental he paid for Wentworth Close was “above average” (paragraph 13 of these reasons). The applicant was provided with a copy of the Housing Industry Prospects Report of March 2000 (Exhibit R2) and asked to comment on the following extract from the report:
“Average weekly rent levels in Adelaide continued to slowly increase since early-1996. The average nominal rent for 3+ bedroom houses during December quarter 1999, was $171, a five per cent increase on the $163 weekly rental for the same quarter in 1998. Over the same period, the more numerous 2-bedroom flats/units average rents rose from $123 to $127 per week. The vacancy rate is expected to remain very tight and upward pressure on rent levels will continue for the foreseeable future.”
The applicant said that he had provided “other documents” in materials to the respondent which showed higher rentals and he preferred the rentals in those other documents. Neither the applicant nor Mr Randall was able to identify the other documents to the Tribunal. When asked by Mr Sallis whether he rejected the information in the Housing Industry Prospects Report of March 2000, the applicant said that his position was that he went by the rentals provided in the “other documents”.
16. Mr Sallis then asked the applicant to comment on the series of advertisements for rental accommodation copied from “The Advertiser” newspaper for the period between 1 July 2000 to 2 June 2001 (Exhibit R4). In response, the applicant said:
“… I find it very difficult to be able to come to any opinion about what has been provided to me, and I feel this is quite unrepresentative of anything that I have had to previously rent in the past. I have rented quite a number of houses in the last five or 10 years and I can categorically say, only one of them was below 250. During that time, the one we rented at Millswood was $250. That was from 1993. When we built a house at Toohey Crescent we rented one at Glenalta. That was 260. We only had a six month lease on that one. The house was still not complete. We rented another house at Pasadena. That was 240, and that was despite the fact that we made particular efforts to find cheaper accommodation in those areas for all of the family, and to my mind, to bring up the low-lying properties that have not been sighted or inspected, I cannot have any comment or opinion about what is provided from something I cannot read.” (Transcript 5 February 2007 at page 31)
Then, when asked to comment on the fact that the average rentals disclosed in the advertisements were significantly less than $330, the applicant said:
“I had a limited period during which I could look. I was under pressure, not knowing what was happening with my family. I had problems with my ability to actually look at the time for a property. I was not emotionally in a state where I could really contemplate being able to look great distances and I think that given the circumstances at a time when in fact this period here does not cover what was a peak period in the industry, when in fact a lot of rental properties were up for sale. I found it exceptionally difficult during this time to find any properties within the area that was suitable, to actually – and I will admit that I did not look at many because I could not look at many. The ones that I did look at – and particularly with my concern about how I could actually adequately look after a property myself, and whether or not it was suitable – the one I got only had two bedrooms. I required three bedrooms. If I could have got a three bedroom house for the price, I would have got it, but that was the best I could do.” (Transcript 5 February 2007 at page 32)
17. The applicant said that, in about September 2001, he eventually moved from Wentworth Close to a rental property at Wynns Road, Coromandel Valley. This was at a time when his back condition was still debilitating and he could not travel more than 8 to 10 kilometres at a time. Wynns Road was also proximate to his work at Marion, the exchange point for his younger son and his children’s school, all of which assisted him in selecting the Wynns Road property. He said that, although Wynns Road was not as close to Blackwood as Wentworth Close, because he was on Shepherds Hill Road, it took him only a short time to reach his workplace. At $250 per week, the rent there was less than Wentworth Close and it was a larger house, but it still only had three bedrooms. Again, he had to partition off part of the large lounge as a bedroom for his younger son. In comparing Wentworth Close with Wynns Road, he said he did not feel he had much option (with Wentworth Close) in terms of what he paid for rent. However, when he applied for the rental of Wynns Road, he was reasonably confident that he would get it at the price he offered, given the nature of the premises and its disposition. He said that, because of its position off the main road, he had found it difficult to locate the property. Although it was not as close to the nearest shopping centre at Blackwood as Wentworth Close, it still fitted his travel distance needs.
18. The applicant acknowledged that, between February 2000 and about September 2000 he was paying expenses for two properties, Toohey Crescent and Wentworth Close. However, the expenses at Wentworth Close were largely for electricity and were only minimal. In 2001, his partner at the time (Barbara Rohde) took up residence with him at Wynns Road. He had met her in December 2000 and the relationship with her began in earnest in around March 2001. She was diagnosed with breast cancer in April 2001 and lived with the applicant at Wynns Road until October 2001. He said that Ms Rohde had never lived with him at Wentworth Close, she made no contribution towards the rent for the property, nor did anyone else. Their relationship ended in March 2002. He met his current wife, Susan, in late 2003. She purchased Wynns Road in July 2004 for $300,000 and the applicant said he did not contribute to the purchase price of the property. He currently lives with his wife, who he married in October 2004, at the Wynns Road property.
19. In further cross-examination by Mr Sallis, the applicant said that his service company went into liquidation in March 2001. He continued in his psychiatry practice as a sole practitioner until December 2003. The profit and loss account for the applicant’s practice for the year ended 30 June 2001 (respondent’s statement of facts and contentions at page 34) had been prepared by Mr Randall and based upon a profit and loss account prepared by the applicant’s former book-keeper. Because of complications associated with the liquidator, the profit and loss account was not prepared until 2004 when the applicant’s taxation returns for 2001, 2002 and 2003 were submitted.
20. Mr Sallis questioned the applicant about his superannuation arrangements, The applicant said that contributions had been made to the Newcombe Retirement Fund during the 2001 financial year. In addition, contributions had been made to a Commonwealth Bank superannuation contribution account. He said that there was about $25,000 in the superannuation funds, comprising $15,000 in the Retirement Fund and $10,000 with the Commonwealth Bank. When questioned more closely, he said that he did not make superannuation contributions to the Retirement Fund from 1 July 2000 until January 2004. The only money that had gone into the Fund had been dividend payments. With respect to the Commonwealth Bank account, during the period between 1 July 2000 and January 2004, the applicant made contributions during 2001 and in the subsequent financial year. The applicant acknowledged that these contributions did not appear in his profit and loss statement or the review of income/expenses appearing as attachments to the respondent’s statement of facts, issues and contentions.
closing addresses
21. Having concluded receiving the evidence, it was suggested that the Tribunal should take closing addresses by way of written submissions. Given the number of sitting days and the extent of the oral and documentary evidence involved, and with the agreement of both parties, the Tribunal accepted that written submissions be made in closing, rather than oral submissions. Based on the manner in which the applicant’s case was presented, the Tribunal determined that the respondent should provide written submissions in the first instance. Those submissions, both initially and in reply, may be summarised as follows:
(a)The applicant’s hardship application appeared to be confined to the three grounds set out in paragraph 8 of these reasons.
(b)In relation to the applicant’s medical expenses and medical impairments:
(i)that, without proper receipts or records, there was no satisfactory evidence before the Tribunal to establish that the amount the applicant asserted he spent on medical expenses in CAP 1 (totalling $7,986.49) was true;
(ii)that the best evidence before the Tribunal as to the quantum of costs contributed by the applicant for prescription medication was that found in PBS records and amounted $1,843.10; and
(iii)that the applicant’s evidence as to the extent of the impact of his back injury and the restrictions on him brought about by emotional issues was untruthful and highly exaggerated and should not be accepted.
(c)In relation to the cost of the applicant’s rental accommodation:
(i)that the availability and cost of rental properties was not consistent with other evidence before the Tribunal;
(ii)that the rental for the Wentworth Close property was excessive and was not supported by other evidence before the Tribunal; and
(iii)that the applicant’s decision to lease the Wentworth Close property in February 2000 and to remain there after the expiration of the 12 month lease and not move into less expensive rental accommodation at that time involved discretionary expenditure.
(d)In relation to the applicant’s financial position, that he engaged in a high level of discretionary spending during and after CAP 1, such that there can be no suggestion of a circumstance of an exceptional nature that imposed an excessive financial burden on the applicant.
(e)In response to the applicant’s closing submissions, that the introduction of further evidence through those submissions should not be permitted as the respondent would be denied the opportunity to test the evidence and would be prejudiced if it were admitted at this stage of the proceedings.
22. The written submissions for the applicant largely involved comments on and criticisms of the respondent’s written submissions. Apart from these, the applicant’s submissions were often an attempt to introduce additional evidence or to expand upon and explain evidence already given to the Tribunal. Nevertheless, the applicant’s submissions were intended to summarise the case presented for him at the hearing, namely:
(a)That evidence was before the Tribunal that disclosed a total of $7,986.49 medical expenses and $1,372 private health costs were paid from the income of the applicant during CAP 1. These expenses were made up as follows:
Chemist $1,917.69
Psychology $5,397.00
Dental $546.80
Optical $125.00
Total $7,986.49
Private health costs $1,372.00
Total $9,358.49
(b)That evidence was before the Tribunal that, on the balance of probabilities, rental of $17,820 was paid by the applicant from his income during CAP 1, that the rental paid was not excessive and that the applicant obtained no other advantage by paying the amount of rental that he did apart from securing adequate accommodation for himself and his family in circumstances requiring a quick, practical solution.
(c)In relation to the circumstances of an exceptional nature:
(i)that the decision of Deputy President Jarvis to reduce the applicant’s contribution liability in CAP 1 from $45,777 to $14,822 was unable to take account of the timing of taxation liabilities which would have reduced the ultimate contribution liability to nil;
(ii)that the loss of his practicing certificate and the circumstances involving the ongoing review by the Medical Board had prevented the applicant from re-commencing his psychiatry practice in 2004 and severely curtailed his ability to derive income;
(iii)that, because of his ongoing health issues, expenses were incurred which would not ordinarily be met; and
(iv)that outstanding debts were due to the Australian Taxation Office, to the Child Support Agency, for practice lease rentals and for lawyer’s fees.
consideration
23. From the perspective of both the applicant and the respondent, the conduct of this matter in this Tribunal has been both lengthy and prolonged. Prior to the hearing, it involved no less than 10 pre-listing processes between 21 October 2004 and 8 December 2005. Following the decision of Deputy President Jarvis in December 2004, Dr Newcombe’s contribution liability for CAP 1 was reduced to $6,699.78. It was submitted for Dr Newcombe that, if he was required to pay the contribution assessed, he would suffer hardship for the reasons set out in paragraphs (a), (c) and (f) of s 139T(2) of the Act. It was said that the back injury suffered by Dr Newcombe required him to meet higher than normal medical expenses from his income. It was also said that, for various reasons, it was necessary for Dr Newcombe to live in rental accommodation and to pay for the cost of that accommodation from his income. The cost of the accommodation rental during CAP 1 was said to total $17,820. Although cheaper accommodation might have been available, it was argued that, at a time when there was no indication of pending bankruptcy, the property at Wentworth Close, although in need of some modifications, suited his immediate needs. At that time, the applicant was involved in Family Court proceedings with his former de facto wife, he had only limited time to look for and inspect properties and he found that Wentworth Close was proximate to public transport, it was near to the town of Blackwood and enabled him to travel in quick time to his practice at Marion. In the alternative, it was submitted that Dr Newcombe’s circumstances were of an exceptional nature and imposed an excessive financial burden on him. These circumstances included the consequences of his back injury which required operations in May 1997, December 1998 and January 2002 and its impact on his home and business life, a protracted dispute with the Medical Board of South Australia which had restricted his income-earning capacity and significant liabilities to the Child Support Agency, the Australian Taxation Office and for practice lease rentals. It was submitted that these circumstances satisfied Reg 6.16 of the Regulations.
24. In considering whether Dr Newcombe will suffer hardship if required to pay the contribution assessed for CAP 1, s 139T requires the hardship to be for a reason set out in sub-s (2) of that section. As was observed by Senior Member B H Pascoe in Re Milsom and Official Receiver in Bankruptcy [2004] AATA 275 (at paragraph 18):
“… Given that all of the paragraphs of sub-s (2) refer to expenditure of the bankrupt, it seems clear that, in the words of the Tribunal in Pearce and Official Receiver in Bankruptcy (AAT 9778, 11 October 1994), ‘...The “hardship” must refer to the financial burden’ and ‘...it must be the requirement to pay that contribution which creates a financial burden which is such as to justify a finding of hardship’. Further, the financial burden must arise from expenditure covered by sub-s (2).”
Before the Tribunal, the applicant confined the reasons for his hardship application to those contained in paragraphs (a), (c) and (f) of sub-s (2). No evidence was given and no submissions were made in relation to other possible reasons. Accordingly, the Tribunal has considered the applicant’s application only within the ambit of these provisions. The Tribunal noted that, in assessing Dr Newcombe’s ability to pay the contribution assessed for CAP 1, the period in question was accepted by both parties as being from 1 July 2000 to 30 June 2001. Although there were at times inconsistencies in his evidence and, because of the passage of time, he found it difficult to recall events or the contents of documents, the Tribunal overall found Dr Newcombe to be a credible witness. However, on many occasions in giving his evidence, and notwithstanding cautioning by the Tribunal, the applicant was allowed by his inexperienced legal representative to lapse into irrelevant and time-consuming detail.
Illness or disability requiring ongoing medical attention and medicines
25. Although not conceded by the respondent, the Tribunal is satisfied that, during CAP 1, Dr Newcombe suffered from an illness or disability that required ongoing medical attention and the supply of medicines. His evidence was that he had been treated by Professor Fraser at the Adelaide Spine Clinic between February 1999 and December 2001. He said that he was aware that from mid-2000 to the beginning of 2001 he was functioning, but with limitations. These limitations steadily increased during 2001. He also gave evidence of the medication that was prescribed for him during the 2000-2001 period for the relief of pain. Dr Newcombe was referred by Mr Randall to the applicant’s statement of facts, issues and contentions and to the annexure of two pages titled “Health, Medical & Dental” for the period from 31 July 2000 to 30 June 2001. The following exchange then took place between them (Transcript, 29 November 2006 at pages 13-14):
“MR RANDALL: That page is titled Health, Medical and Dental, is that correct?---Yes.
The next page has a total amount; is that correct?---That’s correct.
And that total amount is $7,986.49?---That’s correct.
What does the listing of all the items on those two pages represent?---The – they’re a combination of medical and health items, including pharmaceutical purchases on visa card, psychology expenses. Yes, the bulk of the items there are pharmaceutical.
Do they list where purchases were made?---The purchases were primarily used here. The chemists at Blackwood. There’s a couple of items which are the chemist at Marian [sic] Westfield.
Do these include costs for your family?---No.
How can you be so confident?---The - first of all my children haven’t required any treatment in general, but specifically there’s been some angst or ire between myself and the mother of my children, in that she has objected to my involvement with their treatment. To that end there were undertakings from previous Family Court proceedings that I not involve myself in any prescription medication or treatment of the children.
So in broad terms you did not purchase medical items for your children? That list is your expenses only, and yours alone?---That’s correct, because at the time I was living by myself, you know, not as a single parent, and there was no---
Sorry, as a single parent?---As a single parent, and did not purchase medication either for the children or anybody else.”
Dr Newcombe was asked several times by Mr Sallis to produce receipts or other documentary evidence to show that the health cover, medical and dental expenses that were listed were paid for by him from his income during CAP 1. He was unable to produce satisfactory evidence of the expenses having been paid from his income during the period 1 July 2000 to 30 June 2001. The Tribunal is, therefore, unable to accept that the requirements of s 139T(2)(a) are satisfied in order to support his hardship application.
26. In his closing submissions, the applicant attempted to introduce further evidence to support the total amount of his medical expenses of $7,986.49 that he had identified. The Tribunal is unable to have regard to this additional evidence and, in any event, is still unable to be satisfied that the expenses were paid from the applicant’s income during CAP 1.
Cost of rented accommodation paid wholly or mainly from applicant’s income
27. Dr Newcombe lived in rented accommodation at Wentworth Close, Blackwood with his two sons (and, at times, his third younger son) during CAP 1. Although he was unsure of the actual rental period, the Tribunal is satisfied that the applicant commenced to rent the property from 4 February 2000 at a fortnightly rental of $660. From the evidence before the Tribunal (Exhibit A1), it appears that the property was rented by the applicant until 14 October 2001. The Tribunal is also satisfied, and so finds, based upon the evidence contained in Exhibit A1 and annexures to the applicant’s statement of facts, issues and contentions, that the applicant paid rental for the property of $17,135 from his income during CAP 1. The question, then, is whether the payment of the rental is a cause of financial hardship or is a discretionary amount which could have been reduced by choosing alternative accommodation initially or by moving to cheaper accommodation. In the case of Re Pearce and Official Receiver in Bankruptcy (AAT 9778, 7 July 1994), the applicant had been paying fortnightly rent of $520, but the evidence before the Tribunal was that he had since moved to other premises at a fortnightly rental of $380. Senior Member K L Beddoe said (at paragraph 16):
“The fact that the applicant pays $520 per fortnight for rent is not a cause of financial hardship if that rental is a discretionary amount. The evidence is that the applicant has since removed his family to a less expensive house and is now paying $380 per fortnight for rent. That rental does not suggest that the present house is less than adequate and appropriate for the family and except for the distance from schools that was not suggested to be the case. The distance from schools is a factor only because a decision was made not to change schools.”
Senior Member Beddoe found, in addition to the rental issue, that there was a significant element of discretionary expenditure in other outgoings. This led him to conclude that Mr Pearce did not suffer financial hardship.
28. Dr Newcombe’s evidence was that, at the time he commenced renting Wentworth Close in February 2000, there were a number of factors influencing his choice. Moreover, when he did choose Wentworth Close at a weekly rental of $330, the prospect of bankruptcy and the restrictions that it would impose would not have been in the forefront of his mind. Dr Newcombe’s evidence was that the factors that influenced his choice of Wentworth Close were:
(a)there were family pressures early in 2000, largely arising from Family Court proceedings and the breakdown in the relationship with his former de facto wife, that required him to locate alternative accommodation;
(b)because of his back injury, he was unable to spend time locating and inspecting rental properties and ultimately had to make a hasty choice of a property;
(c)Wentworth Close provided sufficient accommodation for himself, his two older sons and his younger son and was reasonably proximate to the town of Blackwood, to the collection point for his young son and his children’s’ school and his practice at Marion.
29. Dr Newcombe could have moved to cheaper accommodation after he was declared bankrupt in August 2000. However, there would no doubt have been a cost to break the existing lease halfway through its term, but it is not clear that this could have been done in a financially neutral way. Mr Sallis referred the applicant to instances of cheaper rental accommodation that was available at the time he was searching in January 2000. It is apparent that alternative accommodation was available at the time that the applicant commenced renting Wentworth Close at a rental below that which he chose to pay in February 2000. However, the Tribunal is not satisfied that the alternative (and cheaper) accommodation would have been adequate for Dr Newcombe’s needs, given the circumstances that were applying at the time. On balance, the Tribunal is satisfied and so finds that the rental which Dr Newcombe was required to pay from his income in respect of CAP 1 during the relevant period was not a discretionary amount. Further, on the evidence, the Tribunal finds that the weekly rental of $330 was not unreasonable in the circumstances and that payment would cause him hardship if he was required to make it.
Circumstances of an exceptional nature imposing an excessive financial burden
30. It was Dr Newcombe’s case that the circumstances in which he found himself during CAP 1 were exceptional and imposed an excessive financial burden on him. In his oral evidence, he described the circumstances in the following way:
(a)He suffered from a back injury which, from 1996, required ongoing medical treatment, operations and medicine.
(b)He was involved in Family Court proceedings with his former de facto wife which he described as demanding and emotional.
(c)Because of his back injury, he needed a cleaner and other assistance around the home.
(d)He suffered stress when his fiancé, Ms Rohde, was diagnosed with cancer and his relationship with her ceased. This prevented him from expanding his practice and caused a reduction in his income.
31. In the present case, the reference in s 139T(2)(f) to “any other reason prescribed by the regulations” is to the former Reg 6.16. This Regulation was considered in Re Milsom (supra). There, Senior Member Pascoe said (at paragraph 23):
“The circumstances of Ms Milsom, who has an illness and is with a partner who has suffered illness and, consequently, earns little, cause her difficulties and hardship. I am unable to find that ‘a circumstance of an exceptional nature’ which ‘imposes an excessive financial burden’ on her has occurred. Her overall circumstances impose a financial burden, but I do not find that any of these circumstances can be said to satisfy the requirements of reg 6.16.”
The Tribunal sympathises with the predicament in which Dr Newcombe found himself during CAP 1 and which, it appears from his evidence, he still finds himself. However, as Senior Member Pascoe found in Re Milsom, the Tribunal is unable to find that, in relation to CAP 1, “that a circumstance of an exceptional nature…imposes an excessive financial burden” on the applicant. Similarly, his overall circumstances impose a financial burden, but the Tribunal is not satisfied that they can be said to satisfy the requirements of Reg 6.16.
32. In their closing submissions, both the applicant and the respondent addressed the factors that they considered were relevant to the applicant’s hardship application. Although the issue is not presently relevant, giving the findings the Tribunal has made, the Tribunal is of the view that the only matters pertinent to the consideration of the hardship application are those occurring in CAP 1. Without analysing them in detail, the Tribunal does not accept the applicant’s submission that the circumstances that are relevant are those that exist from the beginning of CAP 1 until a date well outside that period. This submission is inconsistent with the intention that is clearly identified in s 139T of the Act.
conclusion
33. In the present case and notwithstanding the deficiencies in the manner in which the applicant’s case was presented, the Tribunal is acutely aware of the requirement to provide procedural fairness. In view of the above findings, it is appropriate that the assessment of the contribution amount payable by the applicant for CAP 1 should be varied. Having regard to the findings of Deputy President Jarvis on 10 December 2004, the “assessed income threshold amount” is increased by $17,135 to $62,912. Dr Newcombe’s contribution liability for CAP 1 becomes $6,254. As Deputy President Jarvis found, he made contributions of $8,122.22 and accordingly the CAP 1 liability is effectively reduced to nil.
decision
34. For the above reasons, the Tribunal sets aside the decision under review and directs that the matter be remitted to the Inspector-General for reconsideration in accordance with the Tribunal’s findings, namely that the applicant’s contribution liability for CAP 1 be reduced to nil.
I certify that the 34 preceding paragraphs are a true copy of the reasons for the decision herein of Senior Member R W Dunne
Signed: ............J Coulthard.............................................
AssociateDates of Hearing 16 October 2006, 29 November 2006,
5/6 February 2007, 12 February 2007Date of Decision 13 September 2007
Solicitor for the Applicant Mr G Randall
Counsel for the Respondent Mr R Sallis
Solicitor for the Respondent AGS
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