Ovari v Secretary, Department of Employment, Education

[1999] FCA 1416

FEDERAL COURT OF AUSTRALIA

Ovari v Secretary, Department of Employment, Education,
Training & Youth Affairs
[1999] FCA 1416

ADMINISTRATIVE LAW – appeal from a decision of the Administrative Appeals Tribunal (“the Tribunal”) that the applicants were not entitled to AUSTUDY in 1996 – assets test – whether family’s assets exceeded $393,750 – whether full value of property found to be the principal home but from which business activities were conducted ought to have been excluded from assets – whether intra-family loan ought to have been excluded from assets – whether the Tribunal’s methodology of averaging asset values to determine eligibility for AUSTUDY for a particular period was incorrect

Student & Youth Assistance Act 1973 (Cth), Parts 2 and 9

Administrative Appeals Tribunal Act 1975 (Cth), s 44

AUSTUDY Regulations (Cth), regs 13(1A), 14(1), 14(4), 15

Re Di Primio and Secretary, Department of Social Security (1993) 31 ALD 233, distinguished
Re Stewart and Secretary, Department of Social Security (1987) 11 ALD 470, discussed
Re Bowden and Repatriation Commission (1992) 15 AAR 325, discussed

ATTILA FRANCIS OVARI and ZOLTAN LASZLO OVARI v SECRETARY, DEPARTMENT OF EMPLOYMENT, EDUCATION, TRAINING AND YOUTH AFFAIRS

AG 57 OF 1997

GYLES J
CANBERRA

7 OCTOBER 1999

IN THE FEDERAL COURT OF AUSTRALIA
AUSTRALIAN CAPITAL TERRITORY DISTRICT REGISTRY	AG 57 OF 1997

BETWEEN:

ATTILA FRANCIS OVARI
First Applicant

ZOLTAN LASZLO OVARI
Second Applicant

AND:

SECRETARY, DEPARTMENT OF EMPLOYMENT, EDUCATION, TRAINING AND YOUTH AFFAIRS
Respondent

JUDGE:

GYLES J

DATE OF ORDER:

7 OCTOBER 1999

WHERE MADE:

CANBERRA

THE COURT ORDERS THAT:

1.The decision of the Administrative Appeals Tribunal of 23 June 1997 be set aside.

2.The decisions of the delegate of the respondent made on 29 January 1997 be set aside and in lieu it be determined that each applicant was eligible for AUSTUDY in 1996.

3.The respondent to pay the applicants’ costs of the appeal from and including 26 August 1998.

4.The proceedings be remitted to Finn J to determine the proper order in relation to costs incurred before 26 August 1998.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
AUSTRALIAN CAPITAL TERRITORY DISTRICT REGISTRY	AG 57 OF 1997

BETWEEN:

ATTILA FRANCIS OVARI
First Applicant

ZOLTAN LASZLO OVARI
Second Applicant

AND:

SECRETARY, DEPARTMENT OF EMPLOYMENT, EDUCATION, TRAINING AND YOUTH AFFAIRS
Respondent

JUDGE:	GYLES J
DATE:	7 OCTOBER 1999
PLACE:	CANBERRA

EX TEMPORE REASONS FOR JUDGMENT

1. In December 1995 and January 1996, Attila Ovari and Zoltan Ovari, who are brothers, respectively applied for the continuation of AUSTUDY benefits.  At the time, this was a scheme for the provision of benefits to students authorised by Part 2 of the Student & Youth Assistance Act 1973 (Cth) (“the Act”). The scheme itself was established by the AUSTUDY Regulations (“the Regulations”) in force under the Act. Division 1B of Part 1 of the Regulations deals with a means test of parents and spouse which may disqualify an applicant, and Division 2 provides for an assets test which may also disqualify an applicant.

2. Each application was rejected by delegates of the Secretary of the then Department of Employment, Education and Training (“the Department”) under the means test provisions of the Regulations. In March 1996 another delegate of the Secretary affirmed the original decisions. An appeal was lodged on behalf of each applicant to the Social Security Appeals Tribunal (“SSAT”) which, on 20 August 1996, set aside the decisions under review and substituted a decision that the applicants were entitled to AUSTUDY in 1996. Both the earlier confirmation by the delegate of the Secretary and the review by the SSAT were pursuant to Part 9 of the Act.

3. All parties then exercised their respective rights to seek review by the Administrative Appeals Tribunal (“AAT”) of the decision of the SSAT pursuant to Division 3 of Part 9 of the Act.  Before those applications for review could be determined, on 29 January 1997 a delegate of the Secretary wrote to each applicant in identical terms, which, omitting formal parts, was as follows:

   “I refer to your application for AUSTUDY in 1996.

   You are advised that as a result of information that has come to light through the Social Security Appeals Tribunal hearing and other information provided by you since 20 August 1996 I have, as a delegate of the Secretary under the Student and Youth Assistance Act 1973, reviewed your eligibility for AUSTUDY in 1996.

   As a result of that review and on the basis of information received about your family’s assets and actual means for the relevant period, I have determined that you are ineligible for AUSTUDY because:

   ·the estimated net market value of your family’s combined assets exceeded $393,960;  and

   ·your family’s actual means are greater than the maximum after tax income that would allow a comparable PAYE family to qualify for minimum AUSTUDY.”

   This decision invoked for the first time the assets test provisions of the Regulations.

4. The parties accepted that this amounted either to a variation of the decision pursuant to s 325(1) of the Act or the setting aside and substituting of a new decision within s 325(2) of the Act, and each party elected to proceed with the application for review of the varied or new decision.  The result was that the AAT proceeded to determine the merits of the decision of 29 January 1997.  In the event, the matter proceeded on the basis of the assets test rather than the means test.  On 23 June 1997 the AAT decided that neither applicant was entitled to AUSTUDY in 1996, as the family’s assets amounted to $400,613.31 and so exceeded the limit of $393,750 by $6,863.31.

5. Each applicant appeals from that decision pursuant to s 44 of the Administrative Appeals Tribunal Act 1975 (Cth) on what they contend are various questions of law.

6. It is common ground that the effect of the Regulations is that the applicants were not eligible for AUSTUDY if the value of the assets (as defined) of the students’ family (as defined) exceeded $393,750. In each of the present cases, the family included at least the student and the student’s parents (reg 13(1A)). Assets are any kind of property, whether in Australia or elsewhere, unless expressly excluded (reg 14(1)). It is the exclusions which are relevant in the present case, and it is their application which forms the substance of the decision of the AAT.

7. The contentions of the applicants can be gleaned from the Amended Notice of Appeal and their submissions of 19 February 1999 filed pursuant to a direction of the Court made on 18 September 1998.  These were elaborated upon in oral argument before me.  Given the very small amount by which the AAT found that the family’s assets exceeded the limit, it is not surprising that the applicants’ contentions descend to a minute level of detail.  It is apparent that, as was submitted by the respondent, most of the applicants’ contentions raise issues of fact rather than questions of law, no matter how widely that phrase might be construed.  In my opinion, the only legitimate questions of law which are raised are those identified in subparagraphs 2(i), (ii) and (iii) of the Amended Notice of Appeal.  I should say that the grounds and contentions which allege a breach of natural justice in relation to directions which were given prior to the AAT hearing are not able to be determined by me as there is no evidence before me of what took place before the AAT.  Furthermore, questions of natural justice of this kind would not normally be classed as questions of law.

   Principal home

8. Regulation 15 provides as follows:

   “15     What is excluded from assets?  (a) principal home

   15(1)    The principal home includes:

   (a)any land around the home used primarily for private and domestic purposes if the land and the ground floor of the home are 2 hectares or less;  or

   (b)a garage or storeroom of a flat or home unit that is used primarily for private or domestic purposes.

   (2)Any right or interest in a person’s principal home is not included in the person’s assets.

   (3)No account is taken of an amount from the sale of a person’s principal home that he or she is likely to use within 12 months of the sale to buy another principal home.”

9. The Ovari family home was number 13 Victor Street, Monash, a suburb of Canberra.  A valuation report which was in evidence describes the site area at 923.2m².  The land is described as:

   “Slightly irregular rectangular shaped block at end of short cul-de-sac.  Elevated, above road rising to rear.  Views.”

   The improvements are described as:

   “[A brick veneer/concrete tile] house.  [Four bedrooms], ensuite etc.  Double garage and flat/rumpus under.  Good garden.”

10. The AAT found that $205,000 was the value of that property.  I will leave aside, for present purposes, criticisms of that finding.  The AAT then said:

    “There is no dispute that the Monash property is used as the Ovari family residence and as the business premises of AGAZO International.  The Department accepts that 53.33% of the value of the property should be regarded as a business asset, consistent with taxation acceptance of such an apportionment, and the Tribunal finds accordingly.  The Monash property is a business asset in the sum of $109,326.50.”

11. The applicants submit that the AAT erred in law in so finding, contending that reg 15 does not enable an apportionment of the value of the principal home in that manner.  The respondent points out that the definition of “principal home” in reg 15 is inclusive only.  It submits that the regulation does not purport to give an exclusive definition the effect of which is to make indivisible the entire property upon which the principal home is situated.  It put that the AAT has recognised in decisions under the Social Security Act 1947 (Cth) that the value of the principal home can be apportioned between a business asset and that part which is used as the principal home, citing Re Di Primio and Secretary, Department of Social Security (1993) 31 ALD 233.

12. In my opinion, once a property is found to be the principal home of the relevant person, then no right or interest which that person has in that home is to be included in that person’s assets for the purposes of the assets test.  It is not to the point that business activities may be conducted from the home.  Indeed, there is no particular reason why business activities are inconsistent with, or detract from, the function of a house as a home.  The AAT found that the property was used as the Ovari family residence, and this is simply another way of saying that it is their principal home.  It should also be noted that AGAZO International was a partnership between family members, if that be relevant.  Furthermore, the finding of the AAT must have been inevitable, as the valuer’s description of the property shows it to be a typical family home and garden for parents and two student children in the suburbs of Canberra.

13. The AAT seems to have been influenced by the fact that the partnership claimed 53.33% of expenses such as repairs, electricity, rates and insurance in relation to the property as business expenses pursuant to s 51 of the Income Tax Assessment Act 1936 (Cth). In my opinion, this is not a proper basis for considering the issue which arises under reg 15. Apportionment of business expenses is, for the purposes of s 51 of the Income Tax Assessment Act 1936 (Cth), commonplace, but that is a quite separate statutory regime and another field of discourse altogether.

14. Re Di Primio (supra) concerned legislative provisions in the Social Security Act 1947 (Cth) which are similar in material respects to reg 15. The facts were quite unusual. The building in question was a two storey building constructed of cavity brick with a heritage-listed brick and cement rendered façade. The ground floor was a concrete slab and the upper level had a hardwood timber floor. The condition was poor. It was located in the nightclub area of the City of Townsville approximately 170m from the post office. It adjoined a property known as “The Bank” which operated as a nightclub. To the rear of the main building, a small two unit cement rendered toilet block was located and there was also a small toilet facility attached to the rear of the upper floor of the main building. The property was zoned “Tourist Facilities” under the council’s Town Planning Scheme. The ground floor was 139m².  The applicant used 60m² for a hairdressing, gift and souvenir business, used 20m² to sleep and eat and the remaining 59m² was used to store various items.  He had in previous years used the upper floor to live on, but after an accident had ceased that practice.

15. On those facts, it is not surprising that the AAT had some difficulty in applying the principal home exemption.  The issue thrown up in that case where part of what was obviously a commercial building was used for domestic, recreational or private activities, is distinct from the issue which arises where a family is occupying a house designed as a home for that purpose.

16. I have also considered the authorities referred to in Re Di Primio.  The first is Re Stewart and Secretary, Department of Social Security (1987) 11 ALD 470. In that case, the applicant had demolished her house and built a freestanding, self-contained unit on it. A little later she built a second self-contained unit which shared a common wall with the first. The second unit was leased. The AAT held that the second unit was not part of the applicant’s principal home, although both units were on the same title. The second is Re Bowden and Repatriation Commission (1992) 15 AAR 325, where, for the purposes of a similar exemption in the Veterans’ Entitlements Act 1986 (Cth), the AAT considered a situation where the applicant had leased a flat forming part of the house where he lived to a tenant as the result of an arms-length transaction. The AAT held that the principal home did not include the separately let area. Each of these cases presented a problem different to that which exists in the present case, and it is not necessary for the purposes of this decision to express any opinion as to the correctness of those decisions. It is obvious that the second is more controversial than the first. In any event, there is no indication that the AAT considered these authorities in the manner in which it approached its task.

17. In my opinion, the applicant has established that the AAT misdirected itself as to the proper construction and application of reg 15 when it included an amount of $109,362.50 in the business assets of the family on account of the Monash property.  It was agreed by the parties that if I came to this conclusion the quantum affected by it is such that eligibility of each of the applicants for AUSTUDY for 1996 would, on the other findings of the AAT, be established.  That is sufficient to dispose of the matter, but it is appropriate that I say something about the other two questions of law which I have identified in case the matter goes further.

    Intra-family loan

18. The AAT was satisfied that the partnership AGAZO International had made a loan of $4,614.50 to the applicant Zoltan Ovari.  It found that this was a business asset and included it as such in its calculations. 

19. The applicants submit that where the objective of the Regulations is to ascertain the total assets of the family, intra-family loans are irrelevant as they cannot affect the total assets. This submission has the force of overwhelming commonsense. The respondent, however, relies upon reg 14(4), which is in the following terms:

    “A person’s assets include any money owed to the person, but do not include any interest on the money that is not yet due.”

    Furthermore, there does not appear to be any general deduction of liabilities from assets permitted.  The rationale for this latter point is difficult to discern. 

20. The written submissions of the respondent on this point assert that AGAZO International is a separate legal entity to the individual family members, and seek to defend the decision on this basis.  However, this was a partnership not a separate entity.  Indeed, the AAT found that it was a partnership between the two applicants and their parents contrary to the position of the applicants, who put forward that it was a partnership between the parents.  If the AAT were correct in this, then, of course, there could be no loan, there would merely be an advance to one partner to be taken into account in the partnership accounts. 

21. In the event, it seems to me that, to avoid absurdity, reg 14(4) should be read as relating to money owed by any person other than a member of the family as defined by reg 13(1A).  This is not the basis upon which the AAT proceeded.  It is not necessary to further explore the precise ramifications of this construction upon the facts of the case.

    Averaging

22. The point which is reflected in subparagraph 2(ii) of the Amended Notice of Appeal is also reflected in subparagraphs 2(vi), 2(vii), 2(viii) and 2(ix) and in a number of the supporting arguments in the written submissions.  Those who were present in Court during submissions, and saw the physical demonstration on behalf of the applicants, will recall it as the “sliced salami point” and spicy Spanish salami at that. 

23. It was common ground between the parties that the first date at which eligibility was to be tested was 27 January 1996.  Much of the evidence was expressly directed to that date.  It was the date on which the parents had submitted particulars of their assets.  The claim was for AUSTUDY for the whole of 1996.  By the time the AAT came to look at the matter, the whole of 1996 had elapsed, so that the AAT saw it as its task to determine eligibility for the whole of the period.  This it sought to do by a process of averaging, so as to arrive at one calculation of asset values applicable to the whole year.  In my opinion, it does not need elaborate analysis to appreciate that this methodology simply cannot be correct.  In this case, various assets, and various classes of assets, are involved.  The market value of those assets obviously changes, from day to day, from week to week and from month to month.  There is simply no such thing as an average value of an asset over a year which is relevant for this statutory purpose.  The salami needs to be sliced at right angles, not on an acute angle. 

24. In my opinion, there was no escape from finding the value of the assets as at 27 January 1996 as the starting point for eligibility for that year.  The parties, and the AAT, could decide, either in advance or after that initial decision were made, how to handle movement of asset values during the balance of the year.  It is no disrespect to counsel for the respondent to say that his written and oral attempts to support this methodology were unconvincing.  The applicants have established legal error in this respect.  As it is not possible to judge the quantum of the effect of the error, it would have been necessary to return the matter to the AAT to be decided according to law if this had been the only ground established by the applicants.

    Orders

25. In the orders I am about to make, I have not distinguished between the applicants.  Their actual entitlements may need to be considered in light of the period during which they were full-time students in 1996.

26. I therefore set aside the decision of the AAT and, in the unusual circumstances of this case, set aside the decisions of the delegate made in respect of each application on 29 January 1997 and substitute a determination that each applicant was eligible for AUSTUDY in 1996.  I order that the respondent pay the applicants’ costs of this appeal from and including 26 August 1998.  I remit the proceedings to Finn J to determine the proper order in relation to costs incurred prior to 26 August 1998.

I certify that the preceding twenty-six (26) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gyles.

Associate:

Dated:             18 October 1999

The Applicants represented themselves.
Counsel for the Respondent:	Mr CM Erskine
Solicitor for the Respondent:	Australian Government Solicitor
Date of Hearing:	6, 7 October 1999
Date of Judgment:	7 October 1999