"SRUU" & "SRVV" and Department of Family and Community Services - [2001] AATA 581

DECISION AND REASONS FOR DECISION [2001] AATA 581

ADMINISTRATIVE APPEALS TRIBUNAL )

) No N2000/919 &

GENERAL ADMINISTRATIVE DIVISION       )              N2000/920
           Re      "SRUU" & "SRVV"
  Applicant
           And    SECRETARY, DEPARTMENT OF FAMILY AND COMMUNITY SERVICES
  Respondent

DECISION

Tribunal Mr R P Handley, Senior Member

Date26 June 2001
PlaceSydney

Decision The Tribunal sets aside the decision under review and remits the matter to the Respondent with the following directions: 1. To recalculate the Applicants' entitlements to pension on the basis of the following findings: (a) Any shareholder equity in Kiama Holdings Pty Ltd, Kiama Development Pty Ltd and Terralong Estates Pty Ltd during the period under review was attributable to SRUU. (b) Despite what is recorded in Kiama Development Pty Ltd's financial statements, SRUU never received a loan from that company. (c) Despite what is recorded in Terralong Estates Pty Ltd's financial statements, SRUU never made a loan to that company. (d) Despite what is recorded in Kiama Developments Pty Ltd's financial statements, property, plant and equipment valued at $69,647.40 should not be included in that company's assets as at 30 June 1995. 2. Any overpayment of pension to the Applicants is a debt. 3. Any debt should be recovered.

[sgd MR R P HANDLEY
Senior Member
CATCHWORDS
SOCIAL SECURITY – age pension – wife pension – whether overpayments of pension were received – percentage of shareholder equity in companies – whether loans were made to and/or received from companies – whether certain property, plant and equipment should be included in company's assets – if overpayments were received, whether the overpayments are a debt due to the Commonwealth – false statement or representation or failure to comply with a provision of the Act – if the overpayments are a debt due to the Commonwealth, whether the debt should be recovered or waived – whether overpayments received in good faith – whether overpayments attributable solely to an administrative error – whether special circumstances exist
Social Security Act 1991 – ss 1122, 1224, 1237A, 1237 AAD
Re Eimberts and Repatriation Commission (1988) 16 ALD 19
Secretary, Department of Social Security v Southcott (1998) 82 FCR 100
Beadle v Director-General of Social Security (1985) 7 ALD 670
Re Beadle and Director-General of Social Security (1984) 6 ALD 1
Groth v Secretary, Department of Social Security (1995) 40 ALD 541

REASONS FOR DECISION

Mr R P Handley, Senior Member

This matter involves applications by "SRUU" and "SRVV" ("the Applicants") for a review of decisions of the Social Security Appeals Tribunal ("the SSAT") made on 5 May 1990, to affirm decisions made by a delegate of the Secretary of the Department of Family and Community Services ("the Respondent") and an authorised review officer, to cancel payment of the Applicants' pensions and raise and recover debts of $46,965.50 against each of them in respect of overpayments of pension during the period 19 November 1992 to 15 October 1998.
At the hearing, the Applicants represented themselves and the Respondent was represented by Ms Angela Smith of Centrelink.
The evidence before the Tribunal comprised the documents produced pursuant to section 37 of the Administrative Appeals Tribunal Act 1975 ("the T-documents") together with exhibits tendered by the parties. The Applicants also gave oral evidence at the hearing.
background
SRUU, who was born on 25 February 1926 and is aged 75, and SRVV, who was born on 8 July 1954 and is aged 46, were involved in property and business ventures through companies owned by the Applicants and members of SRUU's family. In November 1992, SRUU applied for age pension and SRVV for wife pension, which were granted from 19 November 1992 (T21). On 3 November 1998, the Respondent decided to cancel payment of these pensions and raise debts against the Applicants, on the ground that the value of their assets was "too high" for them to be paid a pension (T59).
These decisions were affirmed by an authorised review officer on 11 October 1999 (T102) and by the SSAT on 5 May 2000 (T2). On 15 June 2000, the Applicants lodged applications for a review by the Administrative Appeals Tribunal (T1). The Applicants claim that when they applied for a pension, they provided the Respondent with the correct information and any error as to payment was the fault of the Respondent. They dispute that there was an overpayment or, alternatively, if there was an overpayment, that they should have to repay it.
the applicants' evidence
SRUU confirmed that he was declared bankrupt on 30 August 2000. As a result, the Respondent is no longer making withholdings from his pension. Instead, the Commonwealth has a right to prove against his bankrupt estate along with other creditors.
SRUU said he met SRVV in March 1992 and she became a director of some of the companies involved in this matter later that year. However, she knew little of the background of the companies.
In 1992, Terralong Estates Pty Ltd ("Terralong") loaned about $1.5 million to Junction St. No 3 Pty Ltd ("Junction St") for the refurbishment of leased premises in Kings Cross, which were to be used as a nightclub. However, because of a delay in obtaining a consent for the nightclub from Sydney City Council, there was in turn a delay in commencing operation of the club and, after three to four months of operation, a six-month rent free period, which was a condition of the lease, expired and Junction St was unable to pay the rent. Junction St was evicted from the premises, suffered a major financial loss and went into liquidation in November 1993.
At much the same time, the house in Mosman, which SRUU had renovated, was sold when SRUU was unable to make the required loan payments. The sale was completed on 23 April 1993. Howard Finance, the mortgagee, was repaid in full from the proceeds of sale, but there were insufficient funds to repay the second mortgagee, National Australia Bank. The Bank's charge extended to Terralong's property in Kiama until the loan was repaid from the sale of blocks of land in Glenbrook Drive, Kiama.
After Junction St went into liquidation in late 1993, the Applicants purchased a property in Murray Street, Pyrmont with a deposit of $20,000 loaned to them by SRVV's father and the balance loaned to them by the Advance Bank (now St George Bank). This property was rented, but then sold about a year later with the mortgage to St George Bank being transferred to 6 Glenbrook Drive, Kiama. The St George loan was later re-financed by Bank West of Western Australia who still hold a first mortgage on the property where the Applicants are living in Kiama, with an outstanding liability of approximately $205,000.
Mid-November 1992, the Applicants attended the Respondent's Crows Nest office to lodge claims for age pension and wife pension. They took completed forms with them. After waiting a while, they were interviewed by an Indian lady with a pronounced accent who was not easily understood. At that time, SRUU, who has a hearing impairment, had not yet obtained hearing aids and the result was that he could not understand what she was saying and became frustrated and upset. This was exacerbated by the embarrassment of their needing to apply for social security benefits. Eventually, SRUU asked to see the supervisor with whom SRUU was able to sort things out. The supervisor asked for copies of various documents, which SRUU took in later. He does not remember the nature of the documents.
SRUU said he provided all the information that was requested by the Respondent. He strongly disputed the inference drawn by Ms Smith in the Respondent's Statement of Facts and Contentions (SoFC), that the fact that the Applicants were granted pensions at the maximum rate "compels an inference that the Applicants did not provide a full account of their financial position at the time of the claim". SRUU noted that at the time the pension claims were lodged in mid-November 1992, the annual accounts for Terralong had not yet been finalised (T15). This did not happen until 16 December 1992. SRUU submitted that if the value of their assets did exceed the threshold for the grant of pensions at that time, this was solely due to the Respondent's administrative error.
SRUU also described how he and SRVV had a visit from Anne Hocking, an officer with the Respondent's mobile review team, on 18 June 1997 (T41). This was in response to a "dob-in" following a report about SRUU's business activities in the Kiama press. Ms Hocking spent the morning talking with the Applicants in their house in Kiama. SRUU said she referred to the information he had provided to the Crows Nest office. SRUU provided Ms Hocking with all the relevant documents he had for her to inspect, including those relating to Terralong and Kiama Development Pty Ltd ("Kiama Development"). He was anxious to show her everything so that she understood what they were doing. It was in the Applicants' best interest to do so. Ms Hocking took notes as they explained and, at the end of the interview, she was satisfied with what they told her and said they would not be hearing from her again. She also took statements from both SRUU and SRVV (T41).
SRVV said she remembered coming down to the kitchen and seeing papers spread everywhere, and that both Terralong and Kiama Development were mentioned. She said she did not take much part in the interview because she was bleeding heavily at the time, which subsequently required her to undergo a hysterectomy. Both she and SRUU were worried about her health.
The Applicants therefore disputed the statement in paragraph 1 of Ms Smith's SoFC that the overpayments arose "because the Applicants did not disclose the full extent of their financial interests in a number of private companies". SRUU said the reference in Ms Hocking's file note of the meeting of 18 June 1997 (Exhibit R1) to Kiama Development and her apparent lack of knowledge of Terralong might have been because it was Kiama Development who purchased the lease of Kiama Wharf. However, SRVV said she was sure they had discussed Terralong with Ms Hocking because she remembered talking about the villas and lot 53 Glenbrook Drive, which were owned by Terralong. SRUU said that, in discussing Kiama Development's accounts, he would have referred to Terralong because Terralong provided collateral security in respect of lots 53 and 47 Glenbrook Drive, Kiama, to enable Kiama Development to secure the necessary loan to purchase the lease of Kiama Wharf (Exhibit A9). In any event, Ms Hocking must have been aware of the Applicants' interest in Terralong because she undertook a search at the Australian Securities Commission on 18 July 1997. SRUU could not explain why Ms Hocking might have recorded that his daughter owned their house (Exhibit R1 – document 2). This was wrong and Ms Hocking must have been confused.
SRUU also referred to a visit by John Scott, Field Section Manager for the Respondent's Illawarra Compliance Centre in November 1998. Mr Scott visited the Applicants at their home in Kiama after SRUU complained to the manager of the Dapto office about their treatment in being accused of not disclosing their assets to the Respondent. Mr Scott had been to their house on two occasions, the second to return documents provided by the Applicants. Mr Scott did not take a written statement but recorded his visit in a file note made on 24 November 1998 (T65). SRUU agreed that the file note seemed to reflect what had happened in the course of the first visit.
In answer to a question from the Tribunal, SRUU said that the Australian Taxation Office (ATO) had agreed that neither further company financial statements nor personal income tax returns for SRUU and SRVV need to be lodged. The Applicants have not had to lodge income tax returns since 1993, since their incomes have been below the threshold for lodgement.
With regard to the company accounts, SRUU said these were essentially an historical record. Whilst he signed his name to the statement that they represented a "true and fair view", he was, nevertheless, relying on their accountant's work in preparing the accounts. SRUU noted that while the accounts show that Kiama Council owed Terralong $300,000 at one stage, which was recorded as a debt, this was never recovered because the debt was disputed by the Council.
Of the four companies involved in this matter, Junction St went into liquidation in November 1993, Kiama Development went into liquidation on 30 September 1999 and will be de-registered in about 6 months time, Kiama Holdings Pty Ltd ("Kiama Holdings") has never traded and was recently de-registered, and Terralong, while, at one stage, having gone into voluntary liquidation, came out of this in late September 1999 and is still a live company. Terralong's only assets are the Applicants' house in Kiama, which is subject to the mortgage to Bank West, and land at Dido Street, Kiama, valued by the Australian Valuation Office at $45,000.
SRUU disputed Ms Smith's figures for the value of his shares in Kiama Holdings, Kiama Development and Terralong at the time of the pension claims in November 1992. He noted that his former wife's shares in Kiama Development, Terralong and Kiama Holdings were de facto transferred to him after the divorce settlement, in about 1975. He had the necessary papers but did not register the transfer of ownership of the shares in Terralong until May 1999. Kiama Holdings has been de-registered and Kiama Development is in liquidation and will shortly be de-registered.
SRUU said his only assets are a 1973 Toyota car, a small amount of money in the bank and his share of household furnishings. SRVV has, in addition, a 1985 model car. SRUU noted that references in Ms Smith's SoFC should not be to his personal liabilities, for example in respect of legal costs, but to those of Terralong.
In answer to a question from Ms Smith, SRUU said that the Mosman property had been purchased by Terralong but later transferred into his name, before his claim for age pension had been lodged. SRUU said neither he nor SRVV had ever been paid a salary by any of the companies, nor had any dividends ever been paid. When referred to the accounts for Kiama Development for the financial year ended 30 June 1994, which show a salary paid to him of $9596.40 (T12), and for the financial year ended 30 June 1995, which show a salary paid to him of $9600.00 (T13), SRUU was unable to explain this and denied ever receiving such a salary. SRUU said that during the period 1992 to 1998, neither he nor SRVV had any other source of income other than their pensions.
In the period November 1992 to October 1998, SRUU said he could not recall receiving any review forms from the Respondent, although it was possible he might have done so. Nor did he recall receiving any notification of changes in his rate of pension. He did, however, recall receiving end of financial year statements of the pension received, issued for income tax return purposes. SRUU said that since their pensions were restored in 1999, he and SRVV have received review forms regularly.
SRUU said he is currently receiving an age pension. SRVV said she has been looking for work, unsuccessfully, and has recently re-applied for a wife pension. They are trying to sell the house at 6 Glenbrook Drive. It went to auction a year ago but there were no bidders. The Applicants confirmed that they moved there in late January 1995. Once the house is sold, the Applicants intend to repay the loan to Bank West and then repay other loans from members of their families, which are as follows:

$39,500 from SRVV's sister (used mainly to finance a legal action against the Applicants' accountant for breach of fiduciary duty and in respect of other claims – this action is ongoing)
$17,000 from SRVV's mother
$3,000 from SRUU's son
$2,500 from SRUU's daughter

Total $62,000.

The Applicants said they have been selling antique furniture piece by piece in order to survive. Fortunately, their health is good, despite the stress of dealing with many difficult financial matters. SRUU explained that apart from the property at 6 Glenbrook Drive, Terralong also still owns land at Dido Street, Kiama. This comprises 4 ¼ acres, which is now zoned as "scenic protection". There are riparian rights over the land and, despite attempts to do so, the Applicants have been unable to sell it. The only current realistic use is the agistment of horses. The land cannot currently be developed.
SRUU explained how the legal action over the Kiama Wharf lease had arisen. Contracts for the purchase of the lease by Kiama Development were exchanged early in 1995 providing for settlement in September 1995. However in August 1995, the sub-tenants of the building commenced legal proceedings against the vendors of the lease, and Kiama Development as purchaser of the lease and SRUU as a director of that company were joined as co-defendants. Settlement of the purchase was therefore delayed (until 14 May 1997). The defendants won the action at first instance but the plaintiffs appealed and, in April 1997, won, with legal costs of $122,000 being awarded against the defendants. Ultimately, when the subtenants went bankrupt, and, after Kiama Development went into liquidation following non-payment of those costs, for which the co-defendants were held jointly and severally liable, recovery was sought from SRUU and it was this that forced him into bankruptcy. SRUU said that Kiama Development's lease of the wharf building was terminated last year.
SRUU said that when 6 Glenbrook Drive is sold, the Applicants hope that after repayment of all the loans, they will be left with a small equity which will enable them to start a new business well away from Kiama.
the applicants' submissions
SRUU noted that the Respondent has accepted and used the revised accounts provided for Terralong, whilst stating that they "should not necessarily be accepted by the Tribunal". However, the Respondent has given no reason for the Tribunal not to accept them.
SRUU said that he had stated in giving evidence that the shares held in Terralong by his former wife were not formally transferred to him until May 1999. While, from the time of their divorce settlement, she had no further involvement in the companies, SRUU contended that his former wife remained the legal owner of the shares. Thus, the Respondent should continue to treat SRUU and his former wife as shareholders in the companies during the period in question.
SRUU said that it had always been the Applicants' contention that there had never been any loans or borrowings by the directors or shareholders of the companies. The record of these loans/borrowings in the companies' accounts were merely book entries. No attention was paid to these entries because they made no difference to the companies' overall position and the companies' accountant was never queried on them. There is no other evidence to show that such loans/borrowings were made.
SRUU provided the following figures for the period in respect of which the overpayment was raised:
30 November 1992 (in relation to the period 19/11/1992 to 30/6/1993)
Value of SRUU's shares in Terralong  Nil
Value of SRUU's shares in Kiama Development  $161.60
Household contents (per $1183(3))  $10,000.00
Motor vehicles ($2,500 (SRVV) and $600 (SRUU))              $3,100.00
Bank accounts ($6000 (SRVV) and $400 (SRUU))               $6,400.00
  Total          $19,661.60
30 June 1993 (in relation to the period 1/7/1993 to 30/6/1994)
Value of SRUU's shares in Terralong   Nil
Value of SRUU's shares in Kiama Development   Nil (Exhibt A11)
Household contents  $10,000.00
Motor vehicle   $4,000.00
Bank accounts       $400.00
  Total                $14,400.0030
June 1994 (in relation to the period 1/7/1994 to 30/6/1995)
Value of SRUU's shares in Terralong:  Nil
Value of SRUU's shares in Kiama Development  $23,382.19
(Exhibit A12)
Household contents   $10,000.00
Motor Vehicle   $4,000.00
Wages paid to SRUU by Kiama Development   $9,596.00
Bank accounts      $400.00
  Total   $47,378.19
NB: The value of SRUU's shares in Kiama Development has not allowed for the loan to Terralong of $41,209.26.
30 June 1995 (in relation to the period 1/7/1995 to 30/6/1996)
Value of SRUU's shares in Terralong   Nil
Value of SRUU's shares in Kiama Development   Nil (Exhibit A13)
Household contents   $10,000.00
Motor vehicle  $4,000.00
Loan to Terralong from SRVV   $8,601.00
Wages paid to SRUU by Kiama Development   $9,600.00
Bank accounts   $8,262.00
  Total   $40,463.00
NB: Kiama Development's amended figures exclude $69,647.50 originally included as an asset in respect of property, plant and equipment (A13). SRUU said, having searched available records, there was no evidence of any plant or equipment being owned by the company during that year.
30 June 1996 (in relation to the period 1/7/1996 to 30/6/1997)
Value of SRUU's shares in Terralong   $171,238.00
Value of SRUU's shares in Kiama Development   Nil
Household contents  $10,000.00
Motor vehicle  $10,600.00
Loan to Terralong from SRVV   $78,762.00
Wages paid to SRUU by Kiama Development       $9,600.00
  Sub-total   $280,200.00
Bank accounts (per computer records) $4,262 from 1/7/1996 to 8/1/1997 and $6,700 from 9/1/1997 to 30/6/1997. Balances (per Exhibit A2 sheet A) total $850.
30 June 1997 (in relation to the period 1/7/1997 to 30/6/1998)
Value of SRUU's shares in Terralong   $171,238.00
Value of SRUU's shares in Kiama Development   Nil
Household contents   $10,000.00
Motor vehicle  $12,600.00
Loan to Terralong from SRVV   $78,762.00
Bank balances (average figure accepted by Respondent)               $644.00
  Total                 $273,244.00
30 June 1998 (in relation to the period 1/7/1998 to 30/6/1999)
Value of SRUU's shares in Terralong:  $188,488.00
Value of SRUU's shares in Kiama Development   Nil
Household contents   $10,000.00
Motor vehicle  $12,600.00
Loan to Terralong from SRVV   $89,512.00
Bank balances (average figure accepted by Respondent)             $389.00
  Total               $300,989.00
NB: SRUU submitted that the total amount should be reduced by $62,000, being Kiama Development's deficit which was secured by a collateral charge over Terralong's assets, thereby giving a total of $238,989 ($300,989 minus $62,000) (per Exhibit A2 sheet C)).
30 June 1999 (in relation to the period 1/7/1999 to 13/7/1999)
The Applicants are prepared to accept a continuation of the financial situation for the year ended 30 June 1998 above, although it should be noted that Kiama Development went into liquidation in March 1998.

In relation to recovery of any debt, the Applicants contended that they did not fail to advise the Respondent of any change in their circumstances. It is no fault of the Applicants that the Respondent's original file from the Crows Nest office cannot be located. The Applicants provided Ms Hocking with all relevant information in 1997. No alterations to the Applicants' pensions were made after the Respondent's investigations in July 1997. Naturally, the Applicants are relying on their memory of what occurred. The Respondent relies on a less than comprehensive computer report by Ms Hocking and has failed to call her to give evidence. The Applicants contended there is no evidence to prove that the Applicants failed to advise of any altered circumstances or that the information provided to the Respondent in 1992 was not correct. Thus, if any error was made, that error was made by the Respondent. The Applicants received their social security payments in good faith.
The Applicants submitted their circumstances are "special" for the purposes of section 1237AAD for the following reasons. This matter has been very protracted and has caused extreme stress to the Applicants. They have experienced similar stress in relation to their business and legal affairs. Their financial situation is one of significant hardship: SRUU has been declared bankrupt, the Applicants owe approximately $62,000 in loans to family members and are selling antique furniture to survive. SRUU pointed out that the confusing and sometimes inaccurate state of the financial documents was because their accountant "had not been able to give us the service, guidance and accuracy that we required".
the respondent's submissions
Ms Smith said the Respondent contends that the Applicants have been overpaid age pension and wife's pension respectively during the period 19 November 1992 to 15 October 1998. Originally, the Respondent contended that the amount of the overpayments was $46,965.50 for each of the Applicants but, during the course of the hearing, it became clear that this figure would need to be recalculated as further information about the Applicants' financial affairs emerged.
In her SoFC, Ms Smith noted the decision in Re Eimberts and Repatriation Commission (1988) 16 ALD 19 where the Tribunal emphasised that the assets of family companies must be treated as separate from those of their shareholders, recognising their separate legal entities. Ms Smith said the appropriate method of valuing the shares in a private company was the net asset backing method.
Ms Smith said that since beneficial ownership of SRUU's former wife's shares in Terralong and Kiama Development was transferred to SRUU following their divorce settlement, 100 per cent of the net assets of these companies are assessable for determining the rate of the Applicants' pensions, despite the fact that legal ownership of the shares was not transferred to SRUU until 1999.
Ms Smith noted that the accounts for Terralong include reference to loans from SRUU and SRVV to the company. Ms Smith referred to s1122 of the Social Security Act 1991 ("the Act") which states:
"Loans
If a person lends an amount after 27 October 1986, the value of the assets of the person for the purposes of this Act includes so much of that amount as remains unpaid but does not include any amount payable by way of interest under the loan."

Thus, any unpaid portion of the principal loan must be treated as an assessable asset.

Ms Smith contended that the recorded loans by SRUU to Terralong should not be regarded as being irrecoverable since Terralong has not been wound up and had assets to meet its liabilities during the overpayment period.
Ms Smith's assessment of the Applicants' net assets during the relevant period is as follows:
30 November 1992 (in relation to the period 19/11/92 to 30/6/93)
Value of SRUU's shares in Terralong     Nil
Value of SRUU's shares in Kiama Development          $126,342.70
(Loan to shareholder of $126,181.10 plus net assets of $161.60)   (Exhibit A10)
Household contents $10,000.00
Motor vehicles           $3,100.00
Bank accounts         $6,400.00
Total   $ 145,842.70

30 June 1993 (in relation to the period 1/7/93 to 30/6/84)
Value of SRUU's shares in Terralong     Nil
Value of SRUU's shares in Kiama Development          $125,760.10
(Loan to shareholder of $126,181.10 less net liabilities of $421.00 Exhibit A11)
Shareholder loan to Terralong Household contents       $46,725.00    $10,000.00
Motor vehicles              $4,000.00
Bank accounts        $400.00
Total   $186,885.10

30 June 1994 (in relation to the period 1/7/94 to 30/6/95)
Value of SRUU's shares in Terralong     Nil
Value of SRUU's shares in Kiama Development            $116,160.51
(Loan to shareholder of $92,778.32 plus net assets of $23,382.19 Exhibit A12)
Shareholder loan to Terralong (Exhibit A3)        $110,122.00
Household contents Motor vehicles        $10,000 $4,000.00
Bank accounts        $400.00
Wages paid to SRUU by Kiama Development   $9,596.00
Total   $ 250,278.51

30 June 1995 (in relation to the period 1/7/95 to 30/6/96)
Value of SRUU's shares in Terralong     Nil
Value of SRUU's shares in Kiama Development          $105,080.83
(Loan to shareholder of $80,105 plus property, plant and equipment of $69,647.40 less net liabilities of $44,671.57) (Exhibit A13)
Loan to Terralong from SRUU Loan to Terralong from SRVV $120,672.00 $78,762.00
Wages paid to SRUU from Kiama Development Household contents          $9,600.00 $10,000.00
Motor vehicles         $4,000.00
Bank accounts        $8,262.00
Total   $336,376.00
30 June 1996 (in relation to the period 1/7/96 to 30/6/97)
Value of SRUU's shares in Terralong (Exhibit A2 sheet C)   $50,566.00
Value of SRUU's shares in Kiama Development          $105,080.00
(Kiama Development was not active in this year so the net asset situation remained static)
Loan to Terralong from SRUU     $120,672.00
Loan to Terralong from SRVV      $78,762.00
Wages paid to SRUU from Kiama Development          $9,600.00
Household contents $10,000.00
Motor vehicles         $10,600.00
Sub total       $ 385,280.00
Plus bank accounts ($4,262 from 1/7/96 to 8/1/97 and $6,700 from 9/1/97 to 30/6/97. Balances per Exhibit A2 sheet A total $850)

30 June 1997 (in relation to the period 1/7/97 to 30/6/98)
Value of SRUU's shares in Terralong     $50,566.00
Value of SRUU's shares in Kiama Development          $105,080.00
Loan to Terralong from SRUU Loan to Terralong from SRVV $120,672.00 $78,762.00
Household contents $10,000.00
Motor vehicles         $12,600.00
Bank accounts        $644.00
Total   $378,324.00

30 June 1998 (in relation to the period 1/7/98 to 30/6/99)
Value of SRUU's shares in Terralong     $67,816.00
Value of SRUU's shares in Kiama Development          $43,080.00
(For both values, Exhibit A2, attachment C)
Loan to Terralong from SRUU     $120,672.00
Loan to Terralong from SRVV      $89,512.00
Household contents $10,000.00
Motor vehicles         $12,600.00
Bank accounts        $389.00
Total   $ 344,069.00

30 June 1999 (in relation to the period 1/7/99 to 13/7/99)
Value of SRUU's shares in Terralong     $67,816.00
Value of SRUU's shares in Kiama Development          $43,080.00
(For both values, Exhibit A2, attachment C)
Loan to Terralong from SRUU     $120,672.00
Loan to Terralong from SRVV      $89,512.00
Household contents $ 10,000.00
Motor vehicles         $12,600.00
Bank accounts        $ 389.00
Total   $ 344,069.00

In relation to the recovery of the debts, Ms Smith noted that SRUU was declared bankrupt on 30 August 2000. Ms Smith cited North J in Secretary, Department of Social Security v Southcott (1998) 82 FCR 100 who said:
"After the bankruptcy has commenced, the debt due to the Commonwealth [under s1224(1)] is replaced by a right of the Commonwealth to prove in the bankruptcy…"

Ms Smith said the Respondent rejects the Applicants' assertion that the debts arose solely as a result of administrative error by Centrelink staff. Whilst noting that the Applicants' original claim forms and supporting documentation are no longer available, the Respondent contends that there is an inference that the Applicants did not provide a full account of their financial situation at the time of the claim. Had they done so, it would have been clear that their assets exceeded the disqualifying limits.
With regard to Ms Hocking's interview with the Applicants on 18 June 1997, Ms Smith contended that Ms Hocking's computer-archived record of that interview (Exhibit R1) suggested that the Applicants did not inform Ms Hocking of their interest in Terralong. While "the Applicants' original file can no longer be located, it is clear that full disclosure of the Applicants' interests in all relevant companies had not been made". Ms Smith noted that Ms Hocking's record was a contemporaneous one. By contrast, SRUU's initial evidence was that he did not recall all the details of the interview. Moreover, SRVV was ill at the time and was not present for most of the interview.
Thus, Ms Smith submitted that:
"While some elements of administrative error may have been present at some point during the debt period, the debts were not caused solely by administrative error and therefore the debts cannot be waived under s 1237A of the Act."

With regard to "special circumstances" and the power to waive recovery of the debts under s 1237AAD, Ms Smith submitted that the Applicants' circumstances are not so unusual, exceptional or uncommon as to permit them to be described as special. While the Respondent accepts that the Applicants' financial situation is straitened, it cannot be described as exceptional. Ms Smith acknowledged that the Applicants currently owe approximately $61,500 to family members, and have some credit card debts. However, the evidence is that eventually these debts will be paid out of the sale of the property where they live. Although the Applicants have had "financial reversals", SRUU's bankruptcy is not a circumstance which necessarily sets them apart from the majority of income support claimants. Ms Smith noted that the Applicants also have no particular health problems.
consideration of law and findings
The first issue for the Tribunal to determine is whether the Applicants received overpayments of pension. Making such a determination has proved extremely difficult as a result of the apparently inaccurate state of the financial statements for the companies whose assets are relevant in this case, that is Terralong and Kiama Development. The Applicants have sought to make significant changes to these financial statements to reflect what they claim to be the true financial position. The Tribunal has had to rely solely on the Applicants' evidence in the absence of any other corroborating evidence. The Applicants stated they are involved in litigation with their former accountant so that access to his files has not proved possible.
The Tribunal does not doubt the veracity of the Applicants' evidence – their evidence was given in an open and forthright manner and was, in the Tribunal's opinion, credible. However, the Tribunal has found much of the financial information to be confusing and difficult to follow. The Tribunal has, therefore, adopted an approach of making what it regards to be key findings, with a remittal to the Respondent for the Applicants' entitlements to be recalculated in accordance with these findings.
The key issues in contention between the parties are as follows:
(a)the percentage of the shareholder equity in Terralong and Kiama Development which should be attributed to SRUU;
(b) whether SRUU received a loan from Kiama Development;
(c)whether SRUU made a loan to Terralong;
(d)whether, if SRUU is found to have made a loan to Terralong, that loan should be taken into account if there is little or no likelihood of that loan ever being recovered;
(e)whether property, plant and equipment valued at $69,647.40 should be included in Kiama Development's assets as at 30 June 1995.
A few other issues were resolved to the satisfaction of the parties during the course of three days of hearings and are, therefore, not referred to here.

With regard to issue (a), SRUU gave evidence that after the divorce settlement with his former wife in 1975, her shares in Kiama Holdings, Kiama Development and Terralong were de facto transferred to him. He had the necessary papers but did not register the transfer of ownership of the shares. The transfer of the ownership of his former wife's shares in Terralong was registered in May 1999 (T88). The Tribunal finds that SRUU was, therefore, the beneficial owner of all Kiama Development and Terralong shares during the relevant period and the shareholder equity in those companies is attributable to him.
With regard to issue (b), the Tribunal accepts SRUU's evidence that there have never been any loans to him from Kiama Development, and that records of such a loan in Kiama Development's financial statements are purely book entries. The Tribunal notes that Kiama Development went into voluntary liquidation in July 1999 (T87) and, according to SRUU, will be de-registered in about six months time.
With regard to issue (c), SRUU's evidence was that he never made a loan to Terralong. The Tribunal also notes that when Terralong was placed in administration in July 1999, SRUU's claim as a creditor was for $1 only (T86). The Tribunal finds that SRUU did not make a loan to Terralong. Having made such a finding, it is unnecessary to make any finding in relation to issue (d).
With regard to issue (e), the Applicants' evidence was that, as at 30 June 1995, Kiama Development did not own any property, plant and equipment. The Applicants made a check of their available records to confirm this. The Tribunal accepts this evidence and determines that property, plant and equipment valued at $69,647.40 should not be included in Kiama Development's assets at 30 June 1995.
The Tribunal remits the matter to the Respondent to recalculate the Applicants' entitlements in accordance with these findings. If the recalculation shows that the Applicants received an overpayment of pension in the relevant period, then the second issue for the Tribunal is whether the overpayments are debts due to the Commonwealth. Consideration must be given to the application of s 1224(1) of the Act which states:
"Debts arising from recipient's contravention of Act
1224(I) 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."

The issue here is whether the Applicants or another person made a false statement or representation, or failed or omitted to comply with a provision of the Act. The Tribunal accepts that the Applicants did not deliberately mislead the Respondent as to their assets. Indeed, their evidence is that they did everything they could to comply with the Respondent's requirements. There is no direct evidence of what information was provided by the Applicants in November 1992. Those file documents have been lost. There is also no direct evidence of what information was provided to Ms Hocking in June 1997. Those file documents have also been lost. The only evidence, other than the Applicants', is Ms Hocking's computer note (Exhibit R1). While the Respondent contends that inferences can be drawn from this record, in the Tribunal's view the level of detail in that record is, by itself, insufficient to support a definitive finding of fact as to what information was provided by the Applicants.
However, it is clear from the alterations to Terralong's and Kiama Development's financial statements made by the Applicants at the hearings, that the financial statements of these companies do not accurately reflect their actual financial situation. Whether the Applicants or their accountant were at fault is of no consequence to the present issue. If the Applicants' contentions are accepted, then those financial statements constituted an inaccurate and therefore false statement. The Tribunal therefore concludes that s 1224(1)(b)(i) is satisfied and that any overpayments raised against the Applicants after a recalculation of their entitlements in accordance with the Tribunal's directions, are a debt due to the Commonwealth.
The third issue for the Tribunal to determine is whether, if the Applicants do owe a debt, that debt should be recovered. The Act provides for the Secretary to waive recovery of debts in certain limited circumstances. There are two relevant provisions in this case: s 1237A(1) and s 1237AAD. Section 1237A(1) states:
"Waiver of debt arising from error
Administrative error
1237A(1) Subject to the 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."

The Tribunal does not doubt that the Applicants received any overpayment in good faith. However, in the Tribunal's view it cannot be said that such an overpayment is attributable solely to an administrative error made by the Respondent. While Ms Smith acknowledged that "some element of administrative error may have been present at some point during the debt period", in the Tribunal's view the inaccuracy of the financial statements for Kiama Development and Terralong undoubtedly contributed to the overpayment arising. Thus, s 1237A(1) is not applicable in this case.
The other relevant provision is s1237AAD:
"Waiver in special circumstances
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."

The Tribunal is satisfied that the Applicants did not knowingly make a false statement or false representation. At issue is whether there are special circumstances (other than financial hardship alone) that make it desirable to waive recovery of the debt. Although the Act provides no guidance as to the meaning of special circumstances, this has been the subject of statutory interpretation by the Federal Court and the Tribunal.
The leading case is probably Beadle v Director-General of Social Security (1985) 7 ALD 670, a decision of the Full Federal Court. In Beadle (supra), the Court did not think it possible to lay down precise limits or precise rules. It would depend upon the circumstances. Moreover, even though the phrase 'special circumstances' lacks precision, it "is sufficiently understood in our view not to require judicial gloss" (at ALD 674).
The Court affirmed the decision of the Tribunal under review in that case, Re Beadle and Director-General of Social Security (1984) 6 ALD 1, in which the Tribunal, whilst acknowledging that the phrase 'special circumstances' is "incapable of precise or exhaustive definition", said, nevertheless, that the circumstances "must have a particular quality of unusualness that permits them to be described as special" (at ALD 3).

In Groth v Secretary, Department of Social Security (1995) 40 ALD 541 at 545, Kiefel J, after referring to the Federal Court's decision in Beadle (supra, 1985), observed that special circumstances:
"…
would require something to distinguish Mr Groth's case from others, to take it out of the usual or ordinary case…It would of course follow that if one were to conclude that something unfair, unintended or unjust had occurred that there must be some feature out of the ordinary."

The Applicants submitted that their protracted and extremely stressful legal and financial affairs of recent years, including in relation to Social Security, the consequent financial hardship, and their present straitened financial position amount to special circumstances within the meaning of the Act. The Respondent, while accepting that the Applicants' financial situation is straitened, submitted that their circumstances are not so unusual, uncommon or exceptional as to justify describing them as special.
The Tribunal also acknowledges the legal and financial difficulties the Applicants have been subject to in recent years and their present straitened financial situation. However, the Tribunal's findings above will go some way towards addressing any unfairness or injustice which might otherwise affect the Applicants if, for example, the loans/borrowings recorded in the companies' financial statements were not disregarded. Having addressed these matters in its findings, the Applicants' circumstances cannot otherwise, in the Tribunal's view, be said to be so unusual or exceptional to justify exercise of the discretion in s 1237AAD.
Thus, the Tribunal concludes that if the Applicants owe a debt, then it should be recovered.
I certify that the 63 preceding paragraphs are a true copy of the reasons for the decision herein of Mr R P Handley, Senior Member
Signed:         .....................................................................................
  Associate
Date/s of Hearing  27 April 2001, 4 May 2001 and 25 May 2001
Date of Decision  26 June 2001
Solicitor for the Applicant         Self Represented
Solicitor for the Respondent    Angela Smith