Nicholas Loizou and Secretary Department of Families, Housing, Community Services and Indigenous Affairs
[2012] AATA 224
•18 April 2012
[2012] AATA 224
Division GENERAL ADMINISTRATIVE DIVISION File Number
2010/0898
Re
Nicholas Loizou
APPLICANT
And
Secretary Department of Families, Housing, Community Services and Indigenous Affairs
RESPONDENT
DECISION
Tribunal Senior Member K Bean
Date 18 April 2012 Place Adelaide The decision under review is set aside and in substitution for that decision the Tribunal decides that:
(a) Mr Loizou's debt is to be recalculated having regard to the fact that the cash deposit of 1 December 2008 was $2,203.01 rather than $2023.01;
(b) so much of Mr Loizou's debt as is attributable to income by way of gambling receipts in the amount of $20,000.00 is to remain on foot;
(c) the balance of Mr Loizou's debt is waived due to the existence of special circumstances within the meaning of s 1237AAD of the Social Security Act 1991; and
(d) the matter is remitted to the respondent for determination of the precise amount of the debt which is to be waived, in accordance with these Reasons.
.......................[Sgd].................................................
Senior Member K Bean
CATCHWORDS
SOCIAL SECURITY - Pensions - Whether gambling receipts constitute "income" for purposes of Social Security Act 1991 (Cth) - Recovery of debt - Waiver or write off - Whether gambling addiction combined with absence of profit amounts to "special circumstances" - Decision under review set aside.
LEGISLATION
Social Security Act 1991, ss 1072, 1073(1), 1075(1), 1236(1)(1A), (1C) and 1237AAD
Social Security (Administration) Act 1999, ss 64 & 74
CASES
Re Strauss and Secretary, Department of Family and Community Services (2005) 88 ALD 176
Re Secretary, Department of Employment and Workplace Relations and Ruan (2007) 97 ALD 229
Re Secretary, Department of Families, Housing, Community Services and Indigenous Affairs and Nguyen [2007] AATA 2075
Re Callaghan and Secretary, Department of Social Security (1996) 45 ALD 435
Secretary, Department of Social Security v Hales (1993) 82 FCR 154
Re Randall and Secretary Department of Families, Housing, Community Services and Indigenous Affairs [2011] AATA 922
Re Secretary, Department of Education, Employment and Workplace Relations and Kambouris [2008] AATA 221REASONS FOR DECISION
Senior Member K Bean
18 April 2012
INTRODUCTION
The applicant, Mr Loizou, has had a difficult life. He has a lengthy history of coming to the attention of the criminal justice system, beginning when he was approximately 15 years old. He is currently 41 years old. He was married at one time however that marriage broke up in 1995 when his daughter from that marriage was approximately two months old. Mr Loizou also has significant psychological problems and has been diagnosed as suffering from a number of psychiatric disorders, including “intermittent explosive disorder” which causes him to have difficulty controlling his anger and aggression. In addition, he has been gambling since approximately his early twenties and is now considered to have a pathological addiction to gambling. Largely as a result of his gambling, Mr Loizou has had and continues to have chronic financial problems and has been evicted from his rental accommodation on many occasions.
Mr Loizou has also been in receipt of a Disability Support Pension (DSP) since April 2001. However in 2009, it came to the attention of Centrelink that there had been a number of significant and unexplained deposits into Mr Loizou’s bank account. This resulted in an investigation which ultimately revealed that between 11 September 2006 and 15 July 2009, an amount of approximately $57,000 had been deposited into bank accounts held by Mr Loizou.
It was subsequently determined that these deposits represented the proceeds of gambling and that the monies also represented ordinary income within the meaning of the Social Security Act 1991 (the Act) such that they were relevant to determining Mr Loizou’s entitlement to DSP. It was further determined that having regard to this income, which Mr Loizou had not declared to Centrelink, he had been overpaid DSP in the relevant period resulting in a debt of $17,549.49. A decision by an authorised review officer (ARO) of Centrelink to raise a debt in that amount was affirmed by the Social Security Appeals Tribunal (SSAT)[1].
[1] T2
On 5 March 2010, Mr Loizou filed an application with this Tribunal seeking review of the decision of the SSAT and giving rise to these proceedings.
THE ISSUES
It follows that the issues for my determination are as follows:
(a)whether Mr Loizou’s receipts from gambling are “income” for the purposes of the Act;
(b)if so, the amount of income received by him during the period 11 September 2006 to 15 July 2009;
(c)whether Mr Loizou was overpaid DSP during this period and, if so, the amount of that overpayment;
(d)whether that overpayment constitutes a debt to the Commonwealth and the amount of any debt; and
(e)if Mr Loizou does owe a debt to the Commonwealth, whether there are grounds upon which all or part of that debt should be waived or written off.
I propose to address each of these issues in turn.
DO MR LOIZOU’S GAMBLING RECEIPTS CONSTITUTE “INCOME” FOR THE PURPOSES OF THE ACT?
There was no dispute between the parties that Mr Loizou had received significant amounts by way of gambling winnings during the relevant period. I accordingly propose to address the question of whether such receipts constitute “income” before proceeding to consider the precise amount of any “income” received by Mr Loizou by way of gambling winnings.
In addressing this issue, I will first outline the applicable statutory scheme before considering some of the applicable case law and the application of the law to the circumstances of this matter.
As to what constitutes “income” for the purposes of the Act, ss 8, 1072 and 1073(1) and 1075(1) of the Act relevantly provide as follows:
“s8(1) In this Act, unless the contrary intention appears:
...
‘earned, derived or received’ has the meaning given by subsection (2).
...
‘exempt lump sum’ has the meaning given by subsection (11).
...
‘income’, in relation to a person, means:
(a)an income amount earned, derived or received by the person for the person’s own use or benefit; or
(b)a periodical payment by way of gift or allowance; or
(c)a periodical benefit by way of a gift or allowance;
but does not include an amount that is excluded under subsection (4), (5) or (8).
...
‘income amount’ means:
(a)valuable consideration; or
(b)personal earnings; or
(c)moneys; or
(d)profits;
(whether of a capital nature or not).
‘income from personal exertion’ means an income amount that is earned, derived or received by a person by way of payment for personal exertion by the person but does not include an income amount received as compensation for the person’s inability to earn, derive or receive income through personal exertion.
...
‘ordinary income’ means income that is not maintenance income or an exempt lump sum.
...
s8(2) A reference in this Act to an income amount ‘earned, derived or received’ is a reference to:
(a) an income amount earned, derived or received by any means; and
(b)an income amount earned, derived or received from any source (whether within or outside Australia).
...
s8(8) The following amounts are not income for the purposes of this Act:
...
(z)a periodical payment by way of gift or allowance, or a periodical benefit by way of gift or allowance, from a parent, child, brother or sister of the person.
...
s8(11) An amount received by a person is an ‘exempt lump sum’ if:
(a)the amount is not a periodic amount (within the meaning of subsection (11A)); and
(b)the amount is not a leave payment within the meaning of points 1067G-H20, 1067L-D16 and 1068-G7AR; and
(c)the amount is not income from remunerative work undertaken by the person; and
(d)the amount is an amount, or class of amounts, determined by the Secretary to be an exempt lump sum.
Note: Some examples of the kinds of lump sums that the Secretary may determine to be exempt lump sums include a lottery win or other windfall, a legacy or bequest, or a gift—if it is a one-off gift.
...
s1072 General meaning of ordinary income.
A reference in this Act to a person’s ordinary income for a period is a reference to the person’s gross ordinary income from all sources for the period calculated without any reduction, other than a reduction under Division 1A.
...
s1073 Certain amounts taken to be received over 12 months
(1) Subject to points 1067G-H5 to 1067G-H20 (inclusive), 1067L-D4 to 1067L-D16 (inclusive), 1068-G7AA to 1068-G7AR (inclusive), 1068A-E2 to 1068A-E12 (inclusive) and 1068B-D7 to 1068B-D18 (inclusive), if a person receives, whether before or after the commencement of this section, an amount that:
(a) is not income within the meaning of Division 1B or 1 C of this Part; and
(b) is not:
(i) income in the form of periodic payments; or
(ii)ordinary income from remunerative work undertaken by the person; or
(iii)an exempt lump sum
the person is, for the purposes of this Act, taken to receive one fifty-second of that amount as ordinary income of the person during each work in the 12 months commencing on the day on which the person becomes entitled to receive that amount.”
Ms Riley, who appeared as advocate for Mr Loizou, contended that the amounts received by Mr Loizou by way of gambling winnings should be treated as having the character of a lottery win or other windfall and therefore be treated as an “exempt lump sum” pursuant to s 8(11) of the Act. However pursuant to the terms of s 8(11), in order for an amount to constitute an “exempt lump sum”, in addition to the requirements that it not be a periodic amount, a leave payment or income from remunerative work, an amount must be “an amount, or class of amounts, determined by the Secretary to be an exempt lump sum”.
The difficulty for Ms Riley’s argument is that the Secretary has not determined that any form of gambling receipts, or Mr Loizou’s gambling receipts in particular, are to be treated as an exempt lump sum.[2] Further, for the reasons given by the President of the Tribunal, Justice Downes, in Re Strauss and Secretary, Department of Family and Community Services (2005) 88 ALD 176, this Tribunal does not have jurisdiction to make a determination pursuant to s 8(11)(d) unless the power to do so has been delegated either to the original decision maker or the reviewing decision maker. As there is nothing before me to suggest that that power had been delegated to the original decision maker or the ARO, it follows that I do not have jurisdiction to make a determination pursuant to s 8(11)(d). In the absence of any relevant determination having been made, it also follows that Mr Loizou’s gambling receipts are not an exempt lump sum pursuant to s 8(11) of the Act.
[2] Social Security Guide 4.3.2.35.
As to whether gambling receipts fall within the definition of ordinary income within the meaning of the Act, Ms Riley accepted the correctness of the Tribunal’s decisions in Secretary, Department of Employment and Workplace Relations and Ruan (2007) 97 ALD 229 and Re Secretary, Department of Families, Housing, Community Services and Indigenous Affairs and Nguyen [2007] AATA 2075.
In Ruan, SM Dunne stated as follows:
“It follows from what has been said in the previous paragraph that Mr Ruan’s gambling receipts are ‘monies’ earned, derived or received by him from his gambling activities. On his evidence, he has used those receipts for various purposes, including socialising, the payment of bills, the purchase of a house and further gambling. In relation to the expression ‘own use or benefit’, it is not defined in the Act. In these circumstances, the expression has the meaning it bears in ordinary speech and it is a question of facts (see Secretary, Department of Social Security v Ekis (1998) 52 ALD 246 at 251 per Drummond J). Given the use to which he put the receipts, the tribunal is satisfied (and so finds) that the receipts have been earned, derived or received by Mr Ruan for his ‘own use or benefit’. The receipts do not represent a one-off windfall, nor are they amounts which could not be foreseen or predicted or expected or which are unlikely to occur again.”[3]
SM Dunne also went on to conclude that the effect of s 1072 of the Act was that “ordinary income” means gross income from all sources without deduction, other than allowable deductions against business income as provided for by s 1075.[4]
[3] At [20].
[4] At [24].
I will discuss some aspects of Mr Loizou’s evidence and the documentary evidence in more detail below. In general terms, however, the effect of Mr Loizou’s evidence was that he used the bulk of his winnings from gambling for further gambling. On occasion, when he had a large win, he used some of the proceeds for purchasing particular items such as, on one occasion, a car. In light of his evidence, I am satisfied that, like Mr Ruan, Mr Loizou’s gambling receipts were earned, derived or received by Mr Loizou for his “own use or benefit” and that consequently they constitute “income” within the meaning of the Act. Further, as Mr Loizou was not carrying on a business, the whole of his gambling receipts constitute “ordinary income” within the meaning of s 1072 of the Act.
WHAT WAS MR LOIZOU’S INCOME FROM GAMBLING IN THE RELEVANT PERIOD?
An ARO of Centrelink concluded that for the period from 11 September 2006 to 15 July 2009, 19 lump sum payments totalling $57,323.01 were received by Mr Loizou. As Mr Loizou had been in receipt of DSP during that period, and had not advised Centrelink of this income, the ARO concluded that Mr Loizou owed a debt of $17,549.49 in respect of an overpayment of DSP during that period. That decision was affirmed by the SSAT.[5]
[5] T2/3-10.
The amounts referred to by the ARO included deposits into Mr Loizou’s bank account as follows:
Date Amount 11 September 2006 $8,000.00[6] 7 June 2007 $2,500.00[7] 13 June 2007 $1,500.00[8] 1 August 2007 $500.00[9] 20 August 2007 $4,500.00[10] 3 September 2007 $1,000.00[11] 20 September 2007 $2,750.00[12] 21 November 2007 $350.00[13] 15 January 2008 $1,200.00[14] 3 March 2008 $8,000.00[15] 6 March 2008 $850.00[16] 13 March 2008 $500.00[17] 18 March 2008 $4,150.00[18] 20 March 2008 $5,500.00[19] 26 March 2008 $8,700.00[20] 27 March 2008 $500.00[21] 1 August 2008 $4,000.00[22] 1 December 2008 $2,023.01[23] 12 January 2009 $800.00[24] Total $57,323.01 [6] T12/78.
[7] T12/88.
[8] T12/88.
[9] T12/89.
[10] T12/89.
[11] T12/90.
[12] T12/90.
[13] T12/92.
[14] T8/44.
[15] T12/94.
[16] T12/94.
[17] T12/95.
[18] T12/95.
[19] T12/95.
[20] T12/95.
[21] T12/95.
[22] T8/44.
[23] T8/44.
[24] T12/102.
In respect of a number of these deposits into Mr Loizou’s bank account, Ms Riley contended that less than the whole amount of the deposit should be treated as “income” received by Mr Loizou, having regard to the fact that some of the amount was a ‘re-deposit’ of monies received from Centrelink, or, in some cases, previous winnings. For example, Ms Riley pointed out that on 14 September 2007, Mr Loizou received a total amount of approximately $620.00 by way of pension and benefits and on the same day he withdrew the whole of that amount.[25] On 20 September 2007, he deposited an amount of $2,750.00[26], which Ms Riley submitted should be taken to include the amount previously withdrawn, such that only the net amount of $2,130.00 should be treated as income.
[25] T12/90.
[26] T12/90.
Ms Riley made a similar submission with respect to Mr Loizou’s deposit of $350.00 on 21 November 2007, pointing out that on 9 November Mr Loizou had withdrawn an amount of $630.00, including his pension and benefits paid on that day.[27] Similarly, she submitted that Mr Loizou’s deposit of $8,000.00 on 6 March 2008[28] represented a win from gambling. She pointed out that over the ensuing couple of days he had withdrawn approximately $994.00, before depositing $850.00.[29] She accordingly submitted that the deposit of $850.00 on 6 March 2008 should be treated as a re-deposit of the money withdrawn, rather than further income.
[27] T12/92.
[28] T12/94.
[29] T12/94.
Ms Riley made a similar submission with respect to the period 6 March 2008 to 12 March 2008, when Mr Loizou withdrew $3,060.00 over five days and deposited $500.00.[30] Ms Riley submitted that this $500.00 should also be treated as being part of the original deposit of $8,000.00, rather than fresh income of a further $500.00. Similarly, she submitted that Mr Loizou withdrew $1,800.00 on 17 March 2008 and deposited $4,150.00 on 18 March 2008. She contended that the $1,800.00 withdrawal should be treated as part of the $4,150.00, such that the $4,150.00 was a net deposit of only $2,350.00.
[30] T12/95.
Ms Riley also pointed out that on 25 March 2008, Mr Loizou withdrew amounts totalling $12,500.00.[31] She contended that this withdrawal included the initial $8,000.00 Mr Loizou had won on 3 March 2008. In respect of a deposit of $8,700.00 by Mr Loizou on 26 March 2008[32], she also submitted that this represented a re-deposit of money previously withdrawn rather than fresh income.
[31] T12/95.
[32] T12/95.
Similarly, Ms Riley pointed out that Mr Loizou withdrew all of his pension payment of $750.00 on 2 January 2009.[33] Consequently, she submitted that a cash deposit of $800.00 on 12 January 2009 should not be treated as income or alternatively, only $50.00 of that amount should be treated as income.
[33] T12/102.
In considering how these deposits should be treated however, it is important that I have regard to Mr Loizou’s evidence as to his pattern of gambling, spending and depositing money into his bank account during the relevant period.
In his evidence, Mr Loizou said that he had been betting since about the age of 20 and his gambling had increased over the years. He said he bet on horses and sports a lot. He said his general practice was to keep approximately $60.00 in his pocket and outlay the rest of any money he had on gambling. He said when he had a win he would put some money back in the bank so he did not lose it. He said his general practice was to take money out of the bank, use this on gambling and then put the winnings back in the bank. He said he tried to withdraw small amounts for betting in an effort to control his betting. However, invariably he would go back to the bank and get more money and gamble that as well. He said he could easily spend $500.00 to $600.00 per day on betting on the horses.
In respect of a deposit of $8,000.00 on 3 March 2008, Mr Loizou said this represented a big win he had had on a “treble or quadrella”. He said he thought he bought a car with part of these winnings and thought the car cost $10,000.00. In respect of a large cash deposit of $4,150.00 on 18 March 2008, he said this represented a win on the horses and that was also the case with respect to a deposit of $5,500.00 on 20 March 2008. He said he thought the withdrawal of over $10,000.00 on 25 March 2008 related to his purchase of a car and the withdrawal of $7,300.00 on 31 March 2008 may also have been related to purchasing the same car. He said that over time, he was sure that he had lost far more through gambling than he had won.
In summary, my understanding of Mr Loizou’s evidence was that although he could not recall each and every transaction, his general practice or pattern was to withdraw money for gambling, spend that money on gambling and then deposit any winnings. In turn, those winnings would invariably be used for further gambling.
In light of that evidence, it appears likely to me that on each of the occasions referred to by Ms Riley, where there was a withdrawal of money followed quickly by a further deposit, that the deposit represented the proceeds of Mr Loizou having spent the money he previously withdrew on gambling. In other words, that on each occasion the money deposited was not simply a re-deposit of the money previously withdrawn but, rather, represented the proceeds of his gambling with the money he had withdrawn.
Consistently with the meaning of “income” in the Act as discussed above, it therefore follows that in my view each of the deposits detailed above was correctly treated by Centrelink as representing “ordinary income” within the meaning of the Act.
As to the correctness of the amounts used to calculate the debt, Mr d’Assumpcao, who appeared as counsel for the respondent, pointed out that the figure for 1 December 2008 used by Centrelink of $2,023.01 was incorrect and in fact the relevant cash deposit was for an amount of $2,203.01.[34] He accordingly submitted that the debt should be recalculated to reflect the correct amount of that cash deposit and I accept that submission.
[34] T12/114.
WHAT IS THE AMOUNT OF THE OVERPAYMENT?
It follows from my conclusions above that in the period 11 September 2006 to 15 July 2009 Mr Loizou received income totalling $57,503.01[35], which was not taken into account in assessing his entitlement to DSP. Pursuant to s 1073 of the Act, in calculating Mr Loizou’s debt the relevant deposits were assessed as income being lump sum payments included as weekly amounts over periods of 12 months. I consider that approach to have been correct and that the resulting debt of $17,549.49 was correct on the basis of the figures used by Centrelink. As I have indicated above however, I consider that the debt should be recalculated so as to make the correction I have referred to above to the relevant deposits. I would not anticipate that this will make any significant difference to the ultimate amount of the debt.
[35] This is the correct total when the deposit of 1 December 2008 is treated as $2,203.01 rather than $2,023.01.
IS THE OVERPAYMENT A DEBT?
Section 1223(1) of the Act provides:
“s1223(1) Subject to this section, if:
(a) a social security payment is made; and
(b) a person who obtains the benefit of the payment was not entitled for any reason to obtain that benefit;
the amount of the payment is a debt due to the Commonwealth by the person and the debt is taken to arise when the person obtains the benefit of the payment.”
Accordingly, once it is recalculated, the amount of the overpayment of DSP to Mr Loizou will constitute a debt to the Commonwealth.
ARE THERE ANY GROUNDS UPON WHICH THE DEBT SHOULD BE WAIVED OF WRITTEN OFF?
There are a number of separate provisions of the Act pursuant to which the debt can potentially be waived or written off and I propose to consider the potential application of each of these provisions in turn.
Waiver for administrative error
Section 1237A of the Act allows for a debt to be waived due to administrative error and provides as follows:
s1237A(1) Subject to subsection (1A), the Secretary must waive the right to recover the proportion of a debt that is attributable solely to an administrative error made by the Commonwealth if the debtor received in good faith the payment or payments that gave rise to that proportion of the debt.”
However, as there is nothing before me to suggest that the debt is attributable to an administrative error made by the Commonwealth, this provision has no application to the circumstances of this matter.
Waiver for special circumstances
Section 1237AAD of the Act allows for a debt to be waived where there are special circumstances and relevantly provides as follows:
“s1237AAD The Secretary may waive the right to recover all or part of a debt if the Secretary is satisfied that:
(a)the debt did not result wholly or partly from the debtor or another person knowingly:
(i) making a false statement or a false representation; or
(ii)failing or omitting to comply with a provision of this Act, the Administration Act or the 1947 Act; and
(b)there are special circumstances (other than financial hardship alone) that make it desirable to waive; and
(c)it is more appropriate to waive than to write off the debt or part of the debt.”
The potential application of this provision raises a number of issues, the first of which is whether the debt arose wholly or partly from Mr Loizou making a false statement or false representation or failing or omitting to comply with a provision of the Act.
There was no real dispute between the parties that Mr Loizou either received or is deemed to have received notices from Centrelink advising him that he was under an obligation to tell them of any relevant changes in his circumstances, including the receipt of income. However, Ms Riley submitted that those notices were not effective to put Mr Loizou on notice that he was required to declare gambling winnings, and Mr Loizou was not otherwise aware that he was required to declare gambling winnings as income.
Mr Loizou’s evidence in relation to this issue was clear and consistent. He said that he was aware he needed to tell Centrelink if he commenced work or changed his address. However, he also said that he did not consider gambling winnings to be earnings and it did not occur to him that he was required to declare these to Centrelink. He said that when he received letters from Centrelink, he read the details of what he was being paid but did not read the back of the letters which contained the notification obligations. Under cross-examination, he acknowledged he was obliged to advise Centrelink of a change in his financial circumstances and he did not dispute that some of the notices he was sent told him he was obliged to notify Centrelink if he received a lump sum.
Mr d’Assumpcao tendered into evidence electronic copies of the notices forwarded to Mr Loizou on 20 January 2006 and 6 June 2007. The first of these notices clearly advised Mr Loizou that he must tell Centrelink within 14 days “if you receive a lump sum amount of money or one-off payment from any source”.[36] The second notice also advised him that he was obliged to tell Centrelink if he got any money from “any source”.[37]
[36] Exhibit 4.
[37] Exhibit 4.
As the relevant notices were issued under s 68 of the Social Security (Administration) Act 1999 (the Administration Act) and s 74 provides that a person must not refuse or fail to comply with such a notice, it follows that Mr Loizou did fail to comply with a provision of the Administration Act. However, that still leaves the question of whether he did so “knowingly”.
The meaning of the word “knowingly” was considered by the Tribunal in Re Callaghan and Secretary, Department of Social Security (1996) 45 ALD 435, in which the Tribunal observed as follows (at [48]):
“There is nothing in section 1237AAD which suggests that the word "knowingly" should be given any meaning other than that a person has actual knowledge, rather than constructive knowledge, that he or she is making a false statement or representation or that he or she is failing or omitting to comply with a provision of the Act. That actual knowledge is to be ascertained by reference to the statements of the person as to his or her actual state of knowledge at the time and to events surrounding the false statement or the act or omission.”
It follows that in considering whether Mr Loizou “knowingly” failed to comply with the Administration Act, I am required to consider whether he actually knew that he was obliged to tell Centrelink of his gambling winnings. Having regard to the evidence, that question resolves itself into two further questions, namely whether he was aware of any obligation to report each and every win, and if not, whether he was aware, at the point at which he accumulated a lump sum which he then deposited into the bank, that he was obliged to notify Centrelink of his possession of any such lump sum.
In addressing the first question, I accept Mr Loizou’s evidence that he was not aware that he was under an obligation to tell Centrelink each and every time he had a gambling win. However, that still leaves the question of whether, when he emerged from any particular gambling session with a net win resulting in a lump sum which he placed in the bank, he was aware that such a lump sum constituted money which may affect his DSP and of which he was obliged to notify Centrelink. On the evidence, I consider that to be a more finely balanced question. On one view of the matter, it is difficult to accept that at the point Mr Loizou was in possession of large lump sums which he deposited into the bank, he would not have realised that this could potentially affect his DSP and would be of interest to Centrelink. On the other hand, however, Mr Loizou’s evidence was that he did not read the whole of the notices which were sent to him by Centrelink and that he was not aware that he was under any obligation to report any gambling winnings. He also made it clear in his evidence that in any event he did not consider that he made any money from gambling, as over time he always lost more than he won.
Having regard to this evidence, on balance I am satisfied that Mr Loizou genuinely did not appreciate that he was obliged to report any of his gambling winnings to Centrelink, despite his receipt of notices forwarded to him pursuant to s 68 of the Administration Act. It follows that although he failed to comply with his notification obligations under the Act, he did not do so “knowingly”.
It therefore also follows that the discretion conferred by s 1237AAD of the Act is potentially available to be exercised in this matter.
The remaining question, however, is whether there are “special circumstances” which make it desirable to waive the debt and whether it is more appropriate to waive than to write off the debt or part of the debt.
As to what constitutes “special circumstances” for the purposes of s 1237AAD, his Honour French J observed in Secretary, Department of Social Security v Hales (1993) 82 FCR 154, at 162:
“The evident purpose of s 1237AAD is to enable a flexible response to the wide range of situations which could give rise to hardship or unfairness in the event of a rigid application of a requirement for recovery of debt. It is inappropriate to constrain that flexibility by imposing a narrow or artificial construction upon the words. It may be that there will be few cases in which the secretary will be satisfied that there are special circumstances in the absence of financial hardship. It may be that there are few cases in which having found special circumstances to exist, the Secretary would exercise the discretion to waive in the absence of financial hardship. But to anticipate the limits of the categories of possible cases by imposing on the language of the section a fetter upon its application which is not mandated by its words, is to erode its useful purpose.”
In contending that there were “special circumstances”, Ms Riley relied primarily upon four particular aspects of Mr Loizou’s circumstances which she said in combination were sufficient to render his circumstances special. The particular matters relied upon were:
a) the evidence of Mr Loizou's treating psychiatrist, Dr Jennings, as to his gambling problem and other psychological difficulties;
b) the fact that there was no fraud associated with the overpayment in the sense that it was not the result of a deliberate failure or omission on Mr Loizou’s part;
c) Mr Loizou’s overall financial and other life circumstances; and
d) the fact that being required to repay a debt in circumstances where he was not aware that it was accruing and by reference to money from which he received no benefit would cause Mr Loizou particular stress and a feeling of “ill-usage”.
I propose to briefly consider each of these matters in turn before addressing the question of whether any of them individually or in combination give rise to “special circumstances”.
Medical issues
Mr Loizou’s treating psychiatrist, Dr Jennings, has provided a report and also gave oral evidence at the hearing.
On the basis of his evidence, which is discussed in a separate Addendum to these Reasons, I am satisfied that Mr Loizou has a pathological addiction to gambling and during the relevant period this was the prime driver of his gambling activities.
Given that the relevant deposits arise from Mr Loizou’s gambling activities and those activities were in turn driven largely by a psychiatric condition, these features tend to distinguish this matter from the majority of those in which a debt is payable by a welfare recipient. However, I propose to also consider the other aspects of the matter referred to above, before returning to the question of whether any or all of the aspects referred to above constitute “special circumstances” in the relevant sense.
Absence of blame
In view of my conclusions above as to Mr Loizou’s state of mind in relation to his gambling winnings, I accept Ms Riley’s submission that the debt did not arise as a result of any conscious failure or deliberate action on Mr Loizou’s part and in that sense it is the result of an “innocent” mistake. However, as that is the case in respect of many social security debts and is effectively a requirement before the s 1237AAD discretion is available to be exercised, in my view this aspect is not capable of amounting or contributing to “special circumstances” in the relevant sense.
Overall financial and life circumstances
Ms Riley also submitted that Mr Loizou was living on the “edge of catastrophe” and whilst this is a dramatic statement, I accept that it is reasonably accurate having regard to the evidence before me. Mr Loizou gave evidence that he receives $729.40 per fortnight from Centrelink and has $472.00 left after he pays rent. He said he was currently contributing $100.00 per fortnight towards child support for his daughter and owed court fines of approximately $8,000.00. He said that once all of the direct debits were taken out of his pension and he paid money for his daughter he was often left without any money. He said he is currently in State housing on condition that the rent was paid by direct debit directly out of his account. He said he was currently repaying Centrelink at the rate of $20.00 per week. Mr Loizou also said that at the time of the hearing in this matter he was facing a number of criminal charges including unlawful possession of a razor, participating in a high speed pursuit and refusing to undertake a breath test. He also said he was on bail for the high speed pursuit and unlawful possession matters.
I accept that Mr Loizou lives in extremely difficult and straightened circumstances. Further, whilst his financial circumstances alone can amount to “special circumstances”, I consider that his financial circumstances and overall life circumstances more generally are capable of contributing to a conclusion that his circumstances are “special” in the relevant sense.
Stress likely to arise from repayment
As I have alluded to above, Ms Riley also submitted that I should have regard to the fact that, if he was required to repay the debt this would cause unwarranted stress to Mr Loizou given the circumstances in which the debt arose. Those circumstances include the fact that he derived little or no benefit from the funds in question and was unaware of the need to report this income.
On the evidence before me, I accept that a decision that this debt must be recovered has the potential to cause Mr Loizou to feel aggrieved and that the potential for this is probably greater than it would otherwise be having regard to his psychiatric conditions and personality. However, I also note that Mr Loizou is frustrated and aggrieved with many agencies and circumstances in his life and in my view such frustration as may result from an adverse decision in this matter is not likely to have a significantly deleterious impact on his overall emotional state. Further and in any event, in my view Mr Loizou’s potential emotional reaction to the debt being enforced is not a matter which in itself amounts to a “special circumstance” in the relevant sense.
Absence of profit
For completeness, I should also acknowledge that whilst I do not have a complete documentary record of Mr Loizou’s gambling activities, his evidence that he did not make a net profit from his gambling activities but rather lost more than he won, is borne out by such records as are available. The records which are available suggest that in the vast majority of cases when Mr Loizou had a win which he then banked, he subsequently withdrew most if not all of those funds and used them for further gambling. The only exception to this which is emerges clearly from the evidence is that on one occasion Mr Loizou used the proceeds of his gambling to purchase a car for $10,000.00. That is a significant exception in that it shows that he derived real and lasting benefit from his winnings at least on that one occasion. It also seems probable on the evidence before me that from time to time he made other purchases of goods and services from his gambling winnings which he would not have been able to afford if he had been in receipt of DSP alone. For example, in view of his history of alcohol and marijuana abuse, it seems likely that on occasion he purchased alcohol and marijuana with money he won from gambling.
Nevertheless, on the evidence before me, I am satisfied that Mr Loizou derived no benefit from most of the gambling receipts in question, because the relevant cash deposits were used for further and ultimately unsuccessful gambling.
Again, this is a circumstance which potentially distinguishes this matter from the ordinary case.
Conclusion as to “special circumstances”
In summary, the matters which I have identified as potentially leading to a conclusion that Mr Loizou’s circumstances are “special” in the relevant sense are:
(a) the fact he did not actually benefit from most of the income to which regard has been had in calculating the overpayment;
(b) he suffers from a pathological gambling addiction and the deposits which have given rise to the overpayment are largely attributable to that addiction; and
(c)his life is extremely difficult and his financial circumstances are extremely straightened.
The most important of these factors in my view is Mr Loizou’s pathological gambling problem. The fact that there is in effect a direct nexus between a diagnosed medical condition and the behaviour which has led to the overpayment is an unusual circumstance which bears directly upon the fairness of Mr Loizou being required to repay the debt. Also relevant in this context is the fact that, on the evidence before me, he did not actually profit or benefit from most of the funds he received as they were simply expended on further and ultimately unsuccessful gambling.
Had it not been for those two considerations, I would not have been satisfied that Mr Loizou’s circumstances were sufficiently special such as to warrant waiver of any part of his debt. However, when regard is had both to his addiction and to the fact that most of what has been treated as “income” was not in any meaningful sense money which was available to him to use, in my view it is apparent that those circumstances are sufficiently unusual and sufficiently exculpatory as to amount to “special circumstances” within the meaning of the Act. I note that my conclusion in this regard as to the relevance of a gambling addiction in contributing to special circumstances, is consistent with the recent decision of Senior Member Britton in Randall and Secretary Department of Families, Housing, Community Services and Indigenous Affairs [2011] AATA 922.
Whilst I am satisfied that “special circumstances” are present, however, I am not satisfied that those circumstances warrant waiver of the whole of the debt. In this regard, as I have noted above, it is apparent that Mr Loizou did spend some of his gambling winnings on items other than on further gambling and, for example, he admitted that on one occasion he bought a car from his winnings. I therefore consider that some proportion of the debt should remain on foot.
The question of how much of the debt should remain on foot is a difficult one and as it was not addressed at the hearing, I sought further submissions in relation to it from the parties after the hearing.
In response, Ms Riley submitted that, if the Tribunal concluded that, of the income received by Mr Loizou from gambling, he benefited only from the $10,000.00 spent on purchasing a car, the Tribunal should also have regard to the income free threshold applicable at the relevant time, which she contended was $3,432.00 with a “taper” or “dollar for dollar reduction rate” of forty cents in the dollar. Accordingly, she submitted that having regard to what Mr Loizou would have been allowed to earn at the time he bought the car in 2008, only $7,332.00 should be treated as Mr Loizou’s “true” income.
The respondent contended that the correct income free threshold for the last quarter of 2008 was $3,588.00 and did not dispute that the “taper rate” was forty cents. The respondent also submitted that “in terms of the overpayment amount, the evidence is clear that all of the applicant’s gambling receipts (including the purchase of his car) were used for his own benefit. On that analysis, the calculated debt would remain unchanged”. However the respondent did not contend that there was any basis for concluding that any other part of the income received by Mr Loizou during the relevant period, apart from the $10,000.00 used to purchase a car, was used by him for purposes other than further gambling.
In these circumstances, I have concluded that of the income amount received by Mr Loizou during the relevant period, $10,000.00 can clearly be shown on the evidence to have been used for a purpose other than gambling, i.e. the purchase of a car. On the evidence and noting Mr Loizou’s history of alcohol and marijuana abuse, I also consider it likely that on occasion Mr Loizou used the proceeds of his gambling to purchase other smaller items such as alcohol, marijuana and perhaps food.
I have therefore given consideration to whether I should make allowance for an additional amount which is likely to have been spent by Mr Loizou on the purchase of smaller items such as alcohol, drugs and food. As I have stated above, there is no evidence before me directed to the question of what proportion of Mr Loizou’s gambling receipts were spent on such items and the respondent expressly did not submit that there was any basis upon which I could be satisfied that a specific proportion of Mr Loizou’s gambling receipts were spent on such items. Nevertheless, having regard to Mr Loizou’s history of alcohol and marijuana abuse and the likelihood that he spent some of his gambling proceeds on such items, I have concluded that I should make some allowance for expenditure of that kind in determining what proportion of the debt should remain on foot. Doing the best I can on the material before me and taking a “broad axe”[38] approach, I have concluded that I should make allowance for an amount of $10,000.00 which I consider is likely to have been spent by Mr Loizou on items or activities other than further gambling, in addition to the $10,000.00 he spent on purchasing a car.
[38] See Secretary Department of Education, Employment and Workplace Relations and Kambouris [2008] AATA 221.
In other words, I have concluded that $20,000.00 of the “income” received by Mr Loizou during the relevant period is likely to have been spent on items or activities other than further gambling. However for the reasons given above I am satisfied on the evidence that the balance of the “income” received by Mr Loizou, of approximately $37,000.00, was spent on further gambling from which Mr Loizou ultimately derived no benefit.
As to Ms Riley’s submissions in relation to the amount Mr Loizou would have been allowed to earn, whilst I have carefully considered that submission, I am not persuaded that it is necessary for me to proceed in the way contended for by Ms Riley. In the context of waiver of part of the debt, I have decided that it is sufficient for me to determine the amount of Mr Loizou’s income to which regard should be had in calculating what part of the debt should remain on foot. As I understand the position, in the event I determine that only that part of the debt attributable to income which was not spent on further gambling should remain on foot, that will in any event result in a residual debt which is calculated by reference to what Mr Loizou would have been permitted to earn at the relevant time.
For the reasons explained above, I consider that the portion of the debt attributable to monies which Mr Loizou spent on further gambling should be disregarded in calculating his debt such that the portion of the debt attributable to those monies is waived pursuant s 1237AAD of the Act. I have accordingly concluded that the portion of the debt attributable to the amount of Mr Loizou’s income spent on further gambling, being $37,503.00, should be waived pursuant to s 1237AAD. The portion of the debt which I consider should remain on foot is that part which is calculated by reference to him having received income of $10,000.00 in March 2008 (which he spent on purchasing a car) and a further $10,000.00 over the period during which the debt arose, being September 2006 to January 2009.
Ability to repay
Section 1236 of the Act relevantly provides:
“s1236 Secretary may write off debt
(1) Subject to subsection (1A), the Secretary may, on behalf of the Commonwealth, decide to write off a debt, for a stated period or otherwise.
(1A) The Secretary may decide to write off a debt under subsection (1) if, and only if:
(a) the debt is irrecoverable at law; or
(b) the debtor has no capacity to repay the debt; or
(c) the debtor’s whereabouts are unknown after all reasonable efforts have been made to locate the debtor; or
(d) it is not cost effective for the Commonwealth to take action to recover the debt.
….
(1C) For the purposes of paragraph (1A)(b), if a debt is recoverable by means of:
(a) deductions from the debtor’s social security payment; or
(b) deductions under section 84 of the A New Tax System (Family Assistance) (Administration) Act 1999; or
(c) setting off under section 84A of that Act;
the debtor is taken to have a capacity to repay the debt unless recovery by those means would result in the debtor being in severe financial hardship.”
Mr Loizou said in his evidence that he was currently repaying his debt to Centrelink from his DSP in the amount of $20.00 per fortnight. Whilst there is evidence before me that Mr Loizou is in straightened circumstances, Ms Riley did not submit that he lacked capacity to repay the debt on the basis that recovery by means of deductions would result in him being in severe financial hardship. On the material before me, I consider that Ms Riley was correct in not advancing that submission as, whilst Mr Loizou’s circumstances are clearly straightened, I am not satisfied that the deductions from his DSP in respect of his Centrelink debt are likely to result in him being in severe financial hardship, particularly in light of my decision that part of the debt should be waived. In reaching that conclusion, I have also had regard to the fact that there is capacity for the amount of the deductions made from Mr Loizou’s DSP to be further reduced by negotiation with Centrelink.
Accordingly, I do not consider that any part of Mr Loizou’s debt should be written off pursuant to s 1236.
CONCLUSION
I have concluded that Mr Loizou’s gambling receipts during the period 11 September 2006 to 15 July 2009 constitute “income” for the purposes of the Act and give rise to an overpayment of disability support pension and consequent debt of approximately $17,549.00. However I have also concluded that Mr Loizou suffers from a gambling addiction and that the bulk of his gambling receipts during the relevant period were spent on further gambling, with no “net” benefit to him. On the evidence, I have concluded that a significant exception to that is an occasion in 2008 when he purchased a car for $10,000.00 from his gambling proceeds. I have also concluded that he is likely to have spent a further $10,000.00 from his gambling proceeds on items or activities other than further gambling. I have accordingly concluded that the portion of Mr Loizou’s debt attributable to gambling income of $20,000.00 should stand, but that the balance of his debt should be waived pursuant to s 1237AAD on the basis that there are special circumstances that make it desirable to waive that part of the debt. I have also decided that the matter should be remitted to the respondent for calculation of the precise amount of the debt which is to be waived.
DECISION
The decision under review is set aside and in substitution for that decision the Tribunal decides that:
(a) Mr Loizou’s debt is to be recalculated having regard to the fact that the cash deposit of 1 December 2008 was $2,203.01 rather than $2,023.01;
(b) so much of Mr Loizou’s debt as is attributable to income by way of gambling receipts in the amount of $20,000.00 is to remain on foot;
(c) the balance of Mr Loizou’s debt is waived due to the existence of special circumstances within the meaning of s 1237AAD of the Social Security Act 1991; and
(d) the matter is remitted to the respondent for determination of the precise amount of the debt which is to be waived, in accordance with these Reasons.
ADDENDUM
1.In his evidence, Dr Jennings acknowledged that in August 2009 he advised Centrelink that he considered Mr Loizou had a personality disorder, depression and that he was also narcissistic. Dr Jennings also advised Centrelink at that time that non-recovery of the debt would not assist Mr Loizou because due to his personality, he would “think he has got away with it and would re-offend”.[39]
[39] T6/36.
2.In his report of 13 October 2011[40], Dr Jennings indicated that he had been treating Mr Loizou since mid-2009 although he had only seen Mr Loizou intermittently. Dr Jennings reported that his initial assessment of Mr Loizou indicated that he had a narcissistic personality disorder with anti-social traits, complicated by alcohol and marijuana abuse, and an intermittent explosive disorder, as well as an underlying adjustment disorder with depressed and anxious mood. He noted that a forensic psychologist had assessed Mr Loizou as having an anti-social personality disorder, alcohol abuse, anger management problems and “pathological gambling”.
[40] Exhibit 5.
3.Dr Jennings also indicated in his report that Mr Loizou did not initially present gambling as being a problem for him, although Mr Loizou subsequently admitted to Dr Jennings that he had been gambling around $200.00 per day and had recently gambled $6,000.00 worth of winnings. As to whether Mr Loizou’s mental health status would contribute to a gambling problem, Dr Jennings stated in his report:
“Mr Loizou’s personality is marked by a lack of empathy, sense of entitlement and self-importance, with arrogance and at time inter-personal exploitation. This has caused him a longstanding problem with interacting with people, often resulting in confrontations. ... His sense of entitlements and expectations of improved life style may also have contributed to the possibility of high winnings. Also the dysinhibition[sic] from his marijuana and alcohol use would have also potentially escalated his gambling, even if he was not successful.”
4.In his oral evidence, Dr Jennings confirmed that his diagnosis had not changed since he wrote this report. He also indicated that he did not resile from his comments made to Centrelink and remained of the view that non-recovery of the debt would not assist Mr Loizou. As to whether Mr Loizou had a gambling addiction, Dr Jennings indicated this was not his area of expertise, but said he expected Mr Loizou would fulfil the diagnostic criteria for persistent maladaptive gambling behaviour, which I understand to be a reference to the diagnostic criteria for “Pathological Gambling” in the American Psychiatric Association’s Diagnostic and Statistical Manual of Mental Disorders: Text Revision, 4th Ed. 1994.[41]
[41] See p. 674.
5.When asked whether pursuit of the debt would fuel Mr Loizou’s anger, Dr Jennings indicated that the debt was merely one of many sources of frustration for Mr Loizou and that a myriad of factors contributed to his frustrations. He said if the debt was repaid at $5.00 per fortnight, this was not something which would weigh heavily in Mr Loizou’s life.
I certify that the preceding 77 (seventy seven) paragraphs are a true copy of the reasons for the decision herein of Senior Member K Bean.
....................[Sgd]....................................................
Administrative Assistant
Dated 18 April 2012
Date(s) of hearing 20 September 2011 and 10 November 2011 Date final submissions received 22 February 2012 Advocate for the Applicant Ms Margaret Riley Solicitors for the Applicant Welfare Rights Centre (SA) Inc Counsel for the Respondent Mr Paul d'Assumpcao Solicitors for the Respondent Australian Government Solcitor
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