Secretary, Department of Social Security v Southcott, Anthony

[1998] FCA 323

SECRETARY, DEPARTMENT OF SOCIAL SECURITY and ANTHONY SOUTHCOTT
No. VG 180 of 1997
FED No. 323/98
Number of pages - 13
Bankruptcy and Social Security

IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY

GENERAL DIVISION

NORTH J

Bankruptcy and Social Security - Recovery of overpayments made by the Commonwealth - Right to recovery when there is a debt due to the Commonwealth - Effect of bankruptcy of the recipient of the overpayment - Whether recovery procedures still available after bankruptcy of the recipient of the overpayment - Issue of garnishee notice after bankruptcy of the recipient of the overpayment - Whether waiver or write off available after bankruptcy of the recipient of the overpayment

Bankruptcy Act 1996 (Cth) s 58(3)(a)

Social Security Act 1991 (Cth) ss 1233, 1224

Social Security Legislation Amendment (Carer Pension and Other Measures) Act 1995 (Cth) s 1237AAD

Data-Matching Program (Assistance and Tax) Act 1990 (Cth) s 11(1)(d)

Social Security Act 1947 (Cth) s 181

Income Tax Assessment Act 1936 (Cth) s 218

Re Stewart v Secretary, Department of Social Security (1985) 8 ALD 515, considered

Taylor v Secretary to the Department of Social Security (1988) 18 FCR 322, distinguished

Clyne v Deputy Commissioner of Taxation(1984) 154 CLR 589, considered

Edelsten's Trustee v Commissioner of Taxation (1987) 16 FCR 386. applied

Deputy Commissioner of Taxation (NSW) v Donnelly (1989) 25 FCR 432, applied

Deputy Commissioner of Taxation v Government Insurance Office of NSW (1993) 45 FCR 284, applied

MELBOURNE, 2 and 15 October 1997 (hearing), 13 March 1998 (decision)

#DATE 13:3:1998

Counsel for the Applicant: Ms H Symon

Solicitor for the Applicant: Australian Government Solicitor

Counsel for the Respondent: Mr M Scarfo

Solicitor for the Respondent: Alan Alpass & Co

THE COURT DECLARES THAT:

1. The decision of the Secretary of the Department of Social Security to raise an overpayment against the respondent for $7,558.28 for the period 7 May 1991 to 28 June 1993 was void ab initio.

AND THE COURT ORDERS THAT:

2. The appeal is dismissed.

3. The appellant is to pay the costs of the respondent.

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

NORTH J

This is an appeal from a decision of the Administrative Appeals Tribunal (the Tribunal) made on 2 April 1997. The question of law raised in the original notice of appeal is whether the Tribunal erred in holding that the Bankruptcy Act 1996 (Cth) does not allow the appellant, the Secretary of the Department of Social Security (the Secretary), to recover a debt owing by the respondent, Mr Southcott, to the Commonwealth by deduction from his wages using the garnishee procedure provided by s 1233 of the Social Security Act 1991 (Cth). The question arises in the following factual and legislative background.

Mr Southcott and his wife were partners in a trucking business. In 1987 they separated and his wife continued to operate the business. He did not participate in the enterprise or physically receive any income from it. When Mr Southcott applied for unemployment benefits in 1991, he told the Department of Social Security (the Department) that he was not involved in the business and received no income from it. On the basis of these statements, the Department paid unemployment and other social security benefits to him between 7 May 1991 and 28 June 1993. However, tax returns were lodged on behalf of Mr Southcott for the 1991/92 and 1992/93 financial years, which showed that he had been allocated a share of the profits of the business. The tax returns were prepared by an accountant on instructions given by Mr Southcott's wife. By a data matching exercise between the Australian Tax Office and the Department, the inconsistency between the contents of the tax returns and the statements made to the Department was revealed in about April 1994. In August 1994, a delegate of the Secretary made a decision "to raise an o/p [overpayment] for $7,558.28 for the period 7/5//91 to 28/6/93". The written record of the decision shows that the decision was based on s 1224 of the Social Security Act, which provides:

"1224. (1) If: (a) an amount has been paid to a recipient by way of social security payment; and (b) the amount was paid because the recipient or another person: (i) made a false statement or a false representation; or (ii) failed or omitted to comply with a provision of this Act or the 1947 Act; the amount so paid is a debt due by the recipient to the Commonwealth. 1224. (2) A debt due to the Commonwealth under subsection (1) is recoverable by the Commonwealth by means of: (a) if the person is receiving a social security payment under this Act - deductions from that person's social security payment; or (aa) if section 1234A applies to another person who is receiving a social security payment under this Act - deductions from that other person's social security payment; or (b) legal proceedings; or (c) garnishee notice."

On 2 September 1994, an authorised review officer affirmed the decision of the delegate.

On 12 April 1995, Mr Southcott appealed to the Social Security Appeals Tribunal (SSAT) against the decision. The SSAT stated that the issues before it were "whether a recoverable debt has occurred and, if so, whether this debt should be recovered, written off or waived". On 4 July 1995, Mr Southcott was made bankrupt. On 12 December 1995, the Social Security Legislation Amendment (Carer Pension and Other Measures) Act 1995 received Royal Assent. This Act expanded the circumstances in which the Secretary could waive the right to recover a debt owed to the Commonwealth. It added a new section to the Social Security Act, s 1237AAD, which provided:

"1237AAD. 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 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."

This section operated from 1 January 1996. On 22 January 1996, the SSAT decided that, although a recoverable debt had arisen, the recovery of the debt was to be waived under s 1237AAD. It therefore set aside the decision of the delegate. The Secretary applied to the Tribunal for a review of the decision of the SSAT.

PROCEEDINGS BEFORE THE TRIBUNAL

The Secretary's initial argument before the Tribunal challenged the waiver on the basis that s 1237AAD did not apply because it was not enacted at the date when the original decision was made in 1994, or that the SSAT had not considered whether the debt should be written off under s 1236 before applying s 1237AAD, or that, in any event, the requirements of s 1237AAD had not been met. The Tribunal examined the evidence and determined that the social security payments had been paid to Mr Southcott because of the false statements made by him. Consequently, the overpayment was a debt due to the Commonwealth under s 1224(1). The Tribunal then raised the question whether the bankruptcy of Mr Southcott affected the recoverability of the debt. In particular, it considered whether the Secretary was entitled to give a garnishee notice referred to in s 1224(2)(c) to Mr Southcott's employer in respect of wages being earned by Mr Southcott during the bankruptcy. The procedure for service of a garnishee notice is set out in s 1233 which, in part, provides:

"1233. (1) If a debt is recoverable from a person (in this section called the 'debtor') by the Commonwealth under section 1223, 1223AA, 1223AB, 1223A, 1223B, 1224, 1224AA, 1224AB, 1224A, 1224B, 1224C, 1224D, 1224E, 1225, 1226A, 1227 or 1230 of this Act or under the 1947 Act, the Secretary may by written notice given to another person: (a) by whom any money is due or accruing, or may become due, to the debtor; or (b) who holds or may subsequently hold money for or on account of the debtor; or (c) who holds or may subsequently hold money on account of some other person for payment to the debtor; or (d) who has the authority from some other person to pay money to the debtor; require the person to whom the notice is given to pay the Commonwealth: (e) an amount specified in the notice, not exceeding the amount of the debt or the amount of the money referred to in the preceding paragraph that is applicable; or (f) such amount as is specified in the notice out of each payment that the person becomes liable from time to time to make to the debtor until that debt is satisfied; or (g) such percentage as is specified in the notice of each payment that the person becomes liable from time to time to make to the debtor until that debt is satisfied. ...... 1223.(3) A person who fails to comply with a notice under subsection (1) to the extent that the person is capable of doing so is guilty of an offence. Penalty: Imprisonment for 12 months."

The issue was seen by the Tribunal as being whether s 58(3)(a) of the Bankruptcy Act applied. It provides:

"58.(3) Except as provided by this Act, after a debtor has become a bankrupt, it is not competent for a creditor: (a) to enforce any remedy against the person or the property of the bankrupt in respect of a provable debt ....".

The Tribunal held that the giving of a garnishee notice addressed to Mr Southcott's employer in respect of wages was a remedy against the property of Mr Southcott and, consequently, the Secretary was prevented by s 58(3)(a) from giving such a garnishee notice. The Tribunal distinguished the cases of Re Stewart v Secretary, Department of Social Security (1985) 8 ALD 515 and Taylor v Secretary to the Department of Social Security (1988) 18 FCR 322, which held that the deduction of overpayments from future social security payments under an earlier version of the now ss 1224(2)(a) and 1231 was not a remedy against the property of a bankrupt pensioner and, hence, was not proscribed by s 58(3)(a) during bankruptcy. This followed because, under the terms of the legislation being considered, the bankrupt only became entitled to a social security payment after the deduction for overpayment had been made. Therefore, the property of the bankrupt was the amount remaining after the deduction of the overpayment had been made. In contrast, in the Tribunal's view, a garnishee notice given in respect of the wages of the bankrupt "would have the effect of depriving Mr Southcott of income to which he is entitled from his employer and would thus be a remedy against the property of the bankrupt." The Tribunal then concluded:

"At present, as Mr Southcott is not in receipt of payments under the Act, the only way for the Secretary to recover the amount of the debt from Mr Southcott would be to prove in his bankruptcy. But, as Mr Southcott's weekly income is below that at which a contribution is required to be made, and as the only funds which have been available to satisfy the debt are taxation rebates which the Commissioner of Taxation, no doubt by administrative decision, is holding rather than paying to Mr Southcott, it seems unlikely that the Secretary would consider it worthwhile proving in his bankruptcy. That makes it unnecessary to decide at this stage whether the debt should be waived or written off. If Mr Southcott stopped working and again applied for job search allowance, such a decision would have to be made in the light of the circumstances existing at that time."

In essence, once the Tribunal had concluded that a garnishee notice could not be given during bankruptcy, it found that there was no practical or realistic prospect of recovering the overpayment in the existing circumstances. It followed, the Tribunal considered, that it was not necessary to decide whether the debt should be written off or waived.

The Tribunal then raised the question of the adequacy of the notice given to Mr Southcott under s 11(1) of the Data-Matching Program (Assistance and Tax) Act 1990 (Cth). It held that the notice was defective and, as a result, by reason of s 11(1)(d), the Department was not entitled to recover the overpayment. There was no appeal from this aspect of the Tribunal's decision.

The result of this reasoning led to the Tribunal recording its decision in the following terms:

"The Tribunal varies the decision under review to provide: (i) there is a debt due by Mr Southcott to the Commonwealth; and (ii) the debt cannot be recovered at the present time because: (a) the respondent has not given Mr Southcott notice which complies with the Data-Matching Program (Assistance and Tax) Act 1990; (b) the respondent has not lodged a proof of debt in Mr Southcott's bankruptcy; and (c) as Mr Southcott is currently in employment and not receiving any payment under the Social Security Act 1991, the respondent cannot use the deduction procedure in s 1224(2)(a) of that Act."

There is no issue between the parties that a debt was owed to the Commonwealth because of an overpayment of social security payments, prior to Mr Southcott's bankruptcy. The central issue which gives rise to this appeal is what effect Mr Southcott's bankruptcy had on the Department's ability to recover the debt.

CAN THE SECRETARY GIVE A GARNISHEE NOTICE DURING BANKRUPTCY?

I will now consider whether the Tribunal erred in holding that the Secretary could not give a garnishee notice to Mr Southcott's employer during the bankruptcy. Section 1224(1) creates or acknowledges a statutory debt due to the Commonwealth in the case of an overpayment of a social security benefit made as a result of a false statement or representation or a failure or omission to comply with the specified statutes. Section 1224(2) provides for the means of recovery of the statutory debt. The power to make deductions from future social security payments and the garnishee notice procedure are special processes applicable to the recovery of overpayments referred to in s 1224(1). The other means of recovery, namely, legal proceedings, is applicable to both the recovery of the statutory debt and to the recovery of any other debts.

It is a basic notion of the law of bankruptcy that upon bankruptcy the right of a creditor to the payment of a debt is converted into a right to prove in the bankrupt estate. Thus, in Clyne v Deputy Commissioner of Taxation(1984) 154 CLR 589, the High Court held that a second sequestration order could not be made in the course of the bankruptcy of a debtor where the second order was based on a debt existing at the time of making the first sequestration order. Gibbs CJ, Murphy, Brennan and Dawson JJ said, at 594-5:

"Before the court can make a sequestration order, it must be satisfied that 'the debt or debts on which the petitioning creditor relies is or are still owing': s 52(1)(c). But since the debtor was already bankrupt when the petition came to be heard, the remedies against the person and property formerly available to the Deputy Commissioner had been taken away and there was substituted a right to prove against the estate which had become vested in Mr Andrew as trustee: see In re Thomas: Ex parte Commissioners of Woods and Forests ((1888) 21 QBD 380, at 383). At that time the Deputy Commissioner 'was not a mere creditor. [He] was a creditor whose claim was in proof. [His] claim was no longer a mere right of action for a debt. [He] could no longer have maintained an action as for a debt. The debt had been, at any rate provisionally, merged in an equitable execution ....'.... Amounts which were owed by a debtor at the date of the bankruptcy may, notwithstanding his bankruptcy, still be described as debts, and the Act refers to them as such: see, eg, ss 58(2), 84(1), 85(1), 86(1), 153(1), 154(1)(b). They are 'debts' from which the bankrupt is not released until he is discharged from bankruptcy: s 153. However, in our opinion, they are no longer debts 'still owing' within the meaning of s 52(1)(c). Although, as was rightly observed in the Federal Court, one dictionary meaning of 'owing' is 'that is yet to be paid', the word connotes a sense of obligation to make the payment. The effect of the bankruptcy however is that the debtor is no longer obliged to pay his creditors; indeed he is disabled from doing so. If he offered payment they could not safely accept it; their right is a right of proof against the estate."

The terms and context of ss 1224 and 1233 suggest that the statutory debt is subject to the usual consequences of bankruptcy. In Taylor, Lockhart J, with whom Wilcox J agreed, considered s 181 of the Social Security Act 1947, as amended by the Social Security Amendment Act 1987 (Cth). This section was the predecessor of s 1224(1) and (2)(a) of the present Act, and provided:

"181. (1) Where, in consequence of a false statement or representation, or in consequence of a failure or omission to comply with any provision of this Act, an amount has been paid by way of pension, allowance or benefit under this Act which would not have been paid but for the false statement or representation, failure or omission, the amount so paid is a debt due to the Commonwealth. 181. (2) Notwithstanding anything contained in this Act, where - (a) an amount has been paid by way of pension, benefit or allowance under this Act that should not have been paid; (b) an amount has been paid by way of pension or allowance under the Veterans' Entitlements Act 1986 or the Seamen's War Pensions and Allowances Act 1940 that should not have been paid; or (c) an amount has been paid to a person under a prescribed educational scheme that should not have been paid, being an amount paid during a period during which the person was in receipt of a prescribed pension (other than a pension under the Veterans' Entitlements Act 1986), and the person to whom that amount was paid is receiving, or is entitled to receive, a pension, benefit or allowance under this Act (other than a funeral benefit under Part VIII), that amount (including any amount payable by the person under subsection (3)) shall, unless the Secretary takes action under subsection 186(1) in relation to that amount, be deducted from that last-mentioned pension, benefit or allowance by reducing each payment of that pension, benefit or allowance by a proportion of that pension, benefit or allowance, being a proportion decided by the Secretary in each particular case, until the sum of the amounts by which the payments are reduced equals that amount."

His Honour referred to the consequences of bankruptcy on the statutory debt referred to in s 181(1), at 330-331, as follows:

"Section 181(1) either acknowledges or creates a debt (it does not matter which for present purposes) due to the Commonwealth where overpayments of pensions, benefits or allowances under the Social Security Act have been made in consequence of a false statement or representation or failure or omission to comply with that Act and would not otherwise have been made. The debt is enforceable at law against the recipient of the overpayment and, upon his or her becoming bankrupt, may be proved in the bankruptcy. The Commonwealth is generally in the same position with respect to its provable debts as any other creditor since the Bankruptcy Act binds the Crown in right of the Commonwealth (s 8). The intervention of bankruptcy converts a creditor's right of action against the debtor to a right to prove and share in the distribution of his estate then vested in the trustee. During a bankruptcy a creditor is no longer able to maintain an action for a debt or otherwise enforce remedies against the person or property of the bankrupt which may affect his estate: Ex parte: Trustee of Property of Cork; Blackburn (1932) 5 ABC 1 at 6-7; Re Higginson & Dean; Ex parte The Attorney-General [1899] 1 QB 325 at 333; Clyne v Deputy Commissioner of Taxation (Cth) (1984) 154 CLR 589 at 594-595; Re Weiss; Ex parte Official Trustee in Bankruptcy (1985) 7 FCR 121 at 123-124; Knight v Deputy Federal Commissioner of Taxation (1987) 87 ATC 4970 per Burchett J at 4971-4972. The right to sue is replaced by a right to share with other proved creditors equally and proportionately in the distribution of the estate of the bankrupt: see Re Thomas; Ex parte The Commissioners of Woods and Forests (1888) 21 QBD 380 at 383 and Re White (1960) 20 ABC 11; [1961] ALR 331. Bankruptcy does not extinguish the debt. The creditor's right to sue may be revived if, for example, the bankruptcy is annulled. If a bankruptcy takes its usual course and the bankrupt is subsequently discharged from bankruptcy, he is released from all provable debts (s 153 of the Bankruptcy Act), though the assets constituting his divisible property remain in the hands of the trustee available for distribution among proved creditors. The overpayments by the Commonwealth to the applicant constitute a debt which upon her bankruptcy became a provable debt, thus converting the right of the Commonwealth to sue into a right to prove and share in her estate."

Section 1224(1) was introduced in 1991, after the decision in Taylor. The fact that the new section utilises the concept of a debt due to the Commonwealth indicates that Parliament intended to use the concept in the way explained by Lockhart J, so that the statutory debt was subject to the general notions of bankruptcy law.

Further, in the light of this background, there is particular significance in the fact that a new approach was taken to recoverability in s 1224(2) by providing that the means of recovery provided by the subsection were available only in respect of "a debt due to the Commonwealth under subsection (1)". The availability of the methods of recovery are thereby limited to a time when there is a debt due to the Commonwealth. If the recipient of the overpayment has become bankrupt, the debt due to the Commonwealth is replaced by the right of the Commonwealth to prove in the bankruptcy and none of the means of recovery provided in s 1224(2) are available. Thus, s 1224(2) does not allow the Secretary to give a garnishee notice during the bankruptcy of the recipient of the overpayment.

Three decisions concerning s 218 of the Income Tax Assessment Act 1936 (Cth) provide some support for the conclusion that a provision in the terms of s 1224(2)(c) does not allow the giving of a garnishee notice during bankruptcy. Section 218 of the Income Tax Assessment Act 1936 (Cth) is the equivalent of ss 1224(3)(c) and 1233 in the Social Security Act. It provides:

"218 (1) The Commissioner may at any time, or from time to time, by notice in writing (a copy of which shall be forwarded to the taxpayer at his last place of address known to the Commissioner, require - (a) any person by whom any money is due or accruing or may become due to a taxpayer; (b) any person who holds or may subsequently hold money for or on account of a taxpayer; (c) any person who holds or may subsequently hold money on account of some other person for payment to a taxpayer; or (d) any person having authority from some other person to pay money to a taxpayer, to pay to the Commissioner, either forthwith upon the money becoming due or being held, or at or within a time specified in the notice (not being a time before the money becomes due or is held) - (e) so much of the money as is sufficient to pay the amount due by the taxpayer in respect of tax or, if the amount of the money is equal to or less than the amount due by the taxpayer in respect of tax, the amount of the money; or (f) such amount as is specified in the notice out of each payment that the person so notified becomes liable from time to time to make to the taxpayer until the amount due by the taxpayer in respect of tax is satisfied, and may at any time, or from time to time, amend or revoke any such notice, or extend the time for making any payment in pursuance of the notice. (2) Any person who refuses or fails to comply with any notice under this section is guilty of an offence. Penalty: $1000"

In Edelsten's Trustee v Commissioner of Taxation (1987) 16 FCR 386, Burchett J was concerned with s 218 notices served by the Deputy Commissioner of Taxation on the Medical Insurance Commission to recover amounts of tax outstanding by Dr Edelsten. The notices were served before Dr Edelsten became bankrupt. During his bankruptcy, Dr Edelsten continued his medical practice and, as a result, became entitled to payments from the Medical Insurance Commission for medical services provided to patients. Burchett J held that the moneys arising from work done during bankruptcy were not subject to the notice and, hence, not payable by the Medical Insurance Commission to the Commissioner of Taxation. He relied on Clyne to hold that the Commissioner of Taxation's right to payment of the tax was converted upon bankruptcy to a right to prove in the bankruptcy. From the date of the bankruptcy, there was no "amount due by the taxpayer in respect of tax" to which the s 218 notice could relate. This decision supports the conclusion in the present case that the Secretary cannot give a garnishee notice during Mr Southcott's bankruptcy.

In Deputy Commissioner of Taxation (NSW) v Donnelly (1989) 25 FCR 432, the Full Court dealt with a later stage in the bankruptcy of Dr Edelsten. The main issue concerned the effect of a s 218 notice on amounts owing to the taxpayer. In contrast, the main issue in Edelsten's Trustee was the nature of the amount owing by the taxpayer. In Donnelly, the contest was between the Commissioner of Taxation and the trustee in bankruptcy in respect of the relation back period immediately prior to the making of the sequestration order. Hill and Lockhart JJ held that the service of the s 218 notice charged the amounts payable by the Health Insurance Commission to Dr Edelsten in favour of the Commissioner of Taxation so that, as soon as the amounts became payable, the Commissioner of Taxation became immediately entitled to these amounts. Von Doussa J, on the other hand, held that the s 218 notice did not create a security in respect of amounts which were not payable at the time of the notice. Hence, these amounts were the property of the bankrupt and vested in the trustee upon bankruptcy. The case was argued upon the basis that the notice did not apply to amounts payable to Dr Edelsten after the making of the sequestration order. Hill J said, at 452:

"The parties were not in dispute that the debts becoming due to Dr Edelsten after the making of the sequestration order would not fall within the terms of the notice because once the sequestration order was made the Commissioner of Taxation was no longer a creditor for the income tax theretofore payable but the tax debt was converted into a right of proof in the bankruptcy: Edelsten's Trustee v Commissioner of Taxation (1987) 16 FCR 386".

Lockhart J said, at 435:

"It was common ground between the parties that debts becoming due to Dr Edelsten after the making of the sequestration order would not be subject to the charges because, upon the making of the sequestration order, against the estate of Dr Edelsten the Deputy Commissioner's rights as a creditor for unpaid income tax were converted into a right of proof in the bankruptcy. It is perhaps open to some question whether this concession was correctly made."

Hill J expressed no disagreement with the agreement of the parties. The doubt expressed by Lockhart J was in the context of his consideration of the question whether the notice constituted a security over amounts payable to Dr Edelsten. Burchett J did not have to determine this issue in Edelsten's Trustees because he found that, upon bankruptcy, the debt owing by Dr Edelsten to the Commissioner of Taxation was converted into a right to prove in the bankruptcy and, therefore, did not provide a basis for the operation of the s 218 notice. It is not clear that Lockhart J doubted this step. Once it is held that the service of the notice creates a charge over amounts payable to the bankrupt after the making of the sequestration order, it may follow that it is sufficient for the security to operate if the debt owing to the Commonwealth was in existence at the time of service of the notice. Lockhart J and Hill J did not have to address that issue in the light of the agreement of the parties.

The third case is Deputy Commissioner of Taxation v Government Insurance Office of NSW (1993) 45 FCR 284, in which the Full Court considered the operation of the bankruptcy law on s 218 notices. Mr Daoui was injured in a car accident in December 1985. In April 1986, the Commissioner of Taxation assessed him for income tax for the 1980 to 1983 financial years. In July 1986, Mr Daoui commenced proceedings against the Government Insurance Office of NSW (GIO) for personal injuries arising out of the accident. In October 1986, the Commissioner of Taxation issued notices to GIO under s 218, requiring GIO to pay the Commissioner of Taxation any moneys which became due from GIO to Mr Daoui. In July 1987, Mr Daoui became bankrupt. The Commissioner of Taxation lodged a proof of debt but this was not dealt with by the trustee. In 1990, Mr Daoui was discharged from bankruptcy. In August 1991, he obtained judgment against GIO and the Commissioner of Taxation sought payment of this sum from GIO under the s 218 notice. The Court considered whether the Commissioner of Taxation was a secured creditor. If, at the date of discharge, the Commissioner of Taxation was a secured creditor the overpayment owing to him is deemed not to be released (Bankruptcy Act s 153). Hill J, with whom Beazley J agreed, held that the Commissioner of Taxation was not a secured creditor because, at the time of discharge, there was no debt from GIO capable of being expressed in terms of money due to the taxpayer on which the charge could operate. The consequence was that the tax debt was released upon discharge from bankruptcy. The majority then considered whether the s 218 notice applied to the debt released by discharge from bankruptcy, so that GIO was still obliged to pay the Commissioner of Taxation in accordance with the notice. Hill J said, at 298-299:

"The question is whether the words 'the amount due by the taxpayer in respect of tax' in s 218(1)(e) of the ITA Act refer to the amount actually due by the taxpayer for tax at the moment the notice was given, unaffected by subsequent events, or whether they mean the amount, if any, of tax due by the taxpayer at the time the notice becomes operative to require the person to whom it is given to pay moneys to the Commissioner. ...... Section 218 is silent as to what is to happen if the tax debt upon which the s 218 notice is based is discharged other than by way of payment. That could occur, for example, by reason of an objection being made to the assessment and that objection being allowed; by reason of an appeal against an objection decision, either to the Administrative Appeals Tribunal or to the court, being decided favourably to the taxpayer or, as in the present case, by reason of the debt being released on a discharge from bankruptcy. The short question is whether s 218, in any of these circumstances, contemplates that the recipient of a notice must nevertheless make payment to the Commissioner of tax no longer payable, or whether it is to be construed as requiring the recipient only to make payment in a case where the tax is in fact properly payable. .... In my view the latter construction should be adopted. It is unlikely that the parliamentary intention was that the recipient of a notice should make payment to the Commissioner where tax is no longer payable in cases where it would then be incumbent upon the taxpayer to seek to recover from the Commissioner the amount wrongly paid. In my view the proper construction of s 218 is that the words 'the amount due by the taxpayer in respect of tax' refers to so much of the tax due and owing by the taxpayer immediately upon the issue of the s 218 notice as remains due and owing from time to time. So construed, the section can be given a sensible operation. However, it follows that in the present case, there being upon the discharge of Mr Daoui from bankruptcy no amount of tax thereafter due, the GIO was under no obligation to make payment to the Commissioner but rather was obliged to make payment to Mr Daoui of the amount of the judgment and costs due to him."

The reasoning of the majority led to the conclusion that the debt in respect of which the Commissioner of Taxation could give a s 218 notice was released under the Bankruptcy Act. Underlying the conclusions in all three cases was the view that the Bankruptcy Act applied to the notice procedure. That view supports the conclusion in the present case that the Secretary cannot give a garnishee notice during bankruptcy.

Ms Symon, who appeared as counsel for the Secretary, contended that the garnishee notice procedure provided by s 1224(2)(c) is a special procedure providing for the recovery of overpayments of social security benefits and is additional to the remedies provided by the general law. She argued that the procedure was available to the Secretary in the present case, even though Mr Southcott is bankrupt. She relied upon Taylor, in which the Full Court held that the power to deduct overpayments from future social security payments remained available during bankruptcy. Ms Symon argued that the power to give a garnishee notice was similarly intended to be available during bankruptcy.

In my view, Taylor does not assist the Secretary in the present case. In Taylor, the power to make deductions was provided in s 181(2) of the Social Security Act1947, which has already been set out. After the bankruptcy of the pensioner, deductions were made from ongoing social security payments of amounts to recoup the overpayment which had been made as a result of false statements. The Secretary argued that the power to deduct continued despite the bankruptcy. In reliance on Clyne, the pensioner argued that the bankruptcy converted the right to repayment into a right to prove in the bankruptcy and that the remedy of deduction was no longer available. As to the Secretary's argument, Beaumont J, at 339, said:

"In my opinion, the submission is too widely stated. It ignores the existence of the Commonwealth's authority to deduct pursuant to s 140(2) (now s 181(2)) and this statutory authority is clearly intended to be supplementary to the ordinary remedies available to the Commonwealth under the general law."

Lockhart J said, at 331:

"The overpayments by the Commonwealth to the applicant constitute a debt which upon her bankruptcy became a provable debt, thus converting the right of the Commonwealth to sue into a right to prove and share in her estate. But it does not follow that the statutory directive of s 181(2) of the Social Security Act has been countermanded. Nor does the operation of the subsection depend upon the existence of a debt due and owing to the Commonwealth."

Wilcox J agreed with both Lockhart and Beaumont JJ.

It is immediately apparent that the wording of s 181(2) and s 1224(2) are different. The opening words of s 1224(2), "a debt due to the Commonwealth under subsection (1)", which prescribe a pre-condition for the use of the recovery mechanisms, do not appear in s 181(2). The lack of any requirement in s 181(2) that there be a debt due and owing to the Commonwealth before a deduction could be made was critical to the reasoning of Lockhart J. He said, at 331: "Nor does the operation of the subsection depend upon the existence of a debt due and owing to the Commonwealth". In contrast, the remedies provided in s 1224(2) expressly depend on the existence of a debt due to the Commonwealth. The change in wording means that the deduction procedure will never be available to the Secretary during bankruptcy because, when further social security payments are made during bankruptcy, there will be no debt due to the Commonwealth within the meaning of the opening words of s 1224(2). Similarly, it is not open to the Secretary to give a garnishee notice during bankruptcy. After the bankruptcy has commenced, the debt due to the Commonwealth is replaced by a right of the Commonwealth to prove in the bankruptcy and the precondition for the issue of the notice cannot be fulfilled. Thus, it is not open to the Secretary, in the present case, to give a garnishee notice to Mr Southcott's employer in respect of wages in order to recover the overpayment.

The Tribunal arrived at the same conclusion, albeit by a different path of reasoning. The Tribunal determined that the garnishee notice was a remedy against the property of Mr Southcott and, therefore, proscribed by s 58(3)(a) of the Bankruptcy Act. On the approach I take, this question does not arise.

CAN THE SECRETARY WAIVE OR WRITE OFF A DEBT ARISING FROM OVERPAYMENT DURING BANKRUPTCY

As mentioned earlier, the Tribunal determined that the garnishee procedure was not available and that there was little likelihood that the Secretary would desire to prove in the bankruptcy of Mr Southcott. It therefore decided that it was unnecessary to determine, at that stage, whether the debt should be waived or written off. In my view, the Tribunal had no power to decide to waive or write off the debt once Mr Southcott was declared bankrupt. Section 1236(1) provides that:

"The Secretary may, on behalf of the Commonwealth, decide to write off a debt."

Section 1237AAD, which is set out earlier, commences as follows:

"The Secretary may waive the right to recover all or part of a debt ...."

The word "debt" in both sections means a debt recoverable under Part 5.2 of the Act and, in this case, under s 1224 (s 1235(a)). As I have already held, the overpayment was not recoverable under s 1224 during the bankruptcy of Mr Southcott. Consequently, the Secretary had no power to waive or write off the debt during the bankruptcy. Once Mr Southcott became bankrupt, the Secretary could lodge a proof of debt for the amount of overpayment, or could determine not to lodge a proof of debt in the bankruptcy. If and when Mr Southcott is released from bankruptcy, his liability for the overpayment will be discharged. The bankruptcy processes of proof of debt and release of provable debts replace the processes of waiver and write off.

DISPOSITION OF THE APPEAL

On the view I take, the Secretary had no power to decide to recover the overpayment. There will therefore be a declaration that the decision of the Secretary was void ab initio. There was thus no jurisdiction for the appeals to the SSAT and then to the Tribunal. It follows that the appeal from the Tribunal must be dismissed. The Secretary must pay Mr Southcott's costs of the appeal to this Court.