Taylor v Secretary to the Department of Social Security

[1988] HCATrans 93

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Sydney No S38 of 1988

B e t w e e n -

MAUREEN TAYLOR

Applicant

and

SECRETARY TO THE DEPARTMENT

UF SOCIAL SECURITY

Respondent

Application for special leave

to appeal

MASON CJ
BRENNAN J

DEANE J

Taylor

TRANSCRIPT. OF PROCEEDINGS

AT SYDNEY ON FRIDAY,. 13 MAY 1988, AT 3.21 PM

Copyright in the High Court of Australia

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MR J. BASTEN:  I appear for the applicant in this matter, if

Your Honours please. (instructed by C. Sahlin,

Welfare Rights Centre Ltd)

MR R.R. SORENSEN:  I appear for the respondent in this matter.

(instructed by the Australian Government Solicitor.

MASON CJ: Yes, Mr Basten.

MR BASTEN:  Your Honour, the case concerns, in my submission,

some basic questions with respect to the scheme and

operation of the BANKRUPTCY ACT and of its interaction
with the provisions of the SOCIAL SECURITY ACT in

respect of recovery of overpayments.

MASON CJ: Yes. Now, your difficulty is to persuade us that

you have got an arguable case. So, I think you might

proceed straight to that question.

MR BASTEN:  I will come straight to that if I may. May I hand

up, Your Honour, copies of the legislatio~. and, so far

as it is appropriate, copies of two decisions to

which I might take the Court.

MASON CJ: Yes.

MR BASTEN:	Your Honours, the first section I would seek to take the Court to is that which appears on page 4 of the
second bundle of legislation referring to the SOCIAL
SECURITY ACT.  It is section 181 which refers to
recovery of overpayments and which, in subsections
(1) and (2) provide for recovery by court action and
deduction from the pension.

That provision has, to the best of my knowledge,

been considered by this Court in only one case and that

is HARRIS V DIRECTOR-GENERAL OF SOCIAL SECURITY,

(1985) 59 ALJ& 194, which is also attached to the

bundle, Your Honours. In considering the predecessor

to section 181, section 140, this Court noted both in
the majority judgment of the Chief Justice and

Your Honours Justice Brennan and Deane and Mr Justice Dawson,

at the top of page 198, in the second column:

It is unnecessary, therefore, to consider
the limits of the right to recoup under

s. 140(2). For our part, we would reserve

for future consideration the question of

what is required to satisfy the criterion

of a pension, etc., "which shouldrot have

been paid", and particularly whether that

criterion is any wider than the elements

of the right of recovery conferred by

s. 140(1).

And there is a similar comment by His Honour

Mr Justice Brennan.

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Your Honours, this question, therefore, in my

submission, is one which is open and which is dealt

with in three ways in the decision of the Federal

Court in this matter. May I take the Court first to

page 34 of the appeal book, at the bottom of the

page, where in the judgment of Mr Justice Lockhart,

His Honour having considered through page 34 the

application of the principle that the BANKRUPTCY ACT converts a debt into a right to share in the estate,

concludes at line 24:

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 sub-s. 181(2) of the

SOCIAL SECURITY ACT has been countermanded.

Nor does the operation of the sub-section depend upon the existence of a debt due and owing to the Commonwealth.

And there is a similar passage in His Honour
Mr Justice Beaumont's judgment at page 52 where

His Honour quotes from the decision of this Court in

CLYNE in the middle of the page and says that the

applicant's argument reliant on that -

is too widely stated. It ignores the

existence of the Commonwealth's authority

to deduct pursuant to ..... 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.

Now, in our submission, there is no principle

which would establish as of right that the

Commonwealth retains the right to recover an amount

which is not legally owing and, in our submission, it is incorrect to say that the Commonwealth has a	power under section 181(2) to recoup moneys from a
pensioner which would not otherwise be considered to be legally owing.

BRENNAN J: What do you mean by "legally owning", Mr Basten?

MR BASTEN: The subject of some right in the Commonwealth to

recover by the alternative means.

BRENNAN J: Which is?

MR BASTEN:  Which is to sue in a court of law pursuant to

subsection (1).

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BRENNAN J:  But does subsection (1) say that?

MR BASTEN: Subsection (1), in its present form, establishes

that in certain circumstances an overpayment becomes

a debt with respect to which the Commonwealth can

sue. They say it -

is a debt due to the Commonwealth.

DEANE J:	Is not the bankruptcy legislation a bit of a side wind here? I mean once you accept the basic effect of
bankruptcy on a debt on so on, are not the problems of
this case really confined within the meaning of
section 181(1) and 181(2)? I mean, one of the starting
points is that which Mr Justice Brennan just raised
with you and that is whether 181(2) should be read
as confined to circumstances when an amount would be
recoverable by action or whether, for example, it applies to a payment by reason of mistake of law which, in the circumstances, is not recoverable.
MR BASTEN:	Yes. Well, in my submission, Your Honour, the first

subsection may be more restricted than the second but

that does not mean that the second extends to amounts

which would otherwise be unrecoverable at law pursuant

to the AUCKLAND HARBOUR principle perhaps.

DEANE J:	On the present construction - am I correct - that if
the amount is overpaid by misrepresentation and the
Commissioner has taken some action under (1) the
recipient is a lot better off on the present approach
than if the amount was received quite innocently with the consquence that the Commissioner could not take
action under subsection (1) because if he could not
take action under subsection (1) the qualification in subsection (2) cannot apply.
MR BASTEN:	Is Your Honour saying that in relation to a person

who is bankrupt or a person generally?

DEANE J: In relation to a person who is bankrupt.

MR BASTEN:  Yes. Well, in our submission, that woµldmt

necessarily flow because if, under subsection (1)

you have a provable debt, you would lose the right

to other improve in the estate and, in my submission,

all debts which fell within subsection (1) would be

provable under section 82 of the BANKRUPTCY ACT.

DEANE J: Well, take two cases: one is where there was a false

statement, a subsection (1) case; the other where

it was an innocent receipt of an overpayment and assume

that the Commissioner has sued under subsection (1)

in .the case of the false statement, would not the result

on bankruptcy be that the person who had made the

false statement would be exempt under section 181(2)

because of the exception and therefore the Commissioner

could only go in bankruptcy, whereas the innocent person,

on the present construction, would not be exempt

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because the Commissioner could never have gone

under 181(1).

MR BASTEN:  My submission would be that the provision of a

remedy under 181(1) does not preclude the Commissioner

from going under 181(2). In other words, in your

false representation case - - -

DEANE J:	I was looking at unless the Secretary takes action
under section 186(1) in relation to that amount.
MR BASTEN:	I am sorry, 186(1) is the provision in relation to

waiver of the debt or writing off of the debt.

DEANE J:	I am sorry, I was misreading the section, Mr Basten.
MR BASTEN:	I see, yes. And certainly those provisions would

apply equally to subsections (1) and (2), in my

submission.

BRENNAN J: Does your argument go to this extent, Mr Basten,

that if the Commonwealth sued to judgment and recovered

a judgment so that the debt merged in it, there

would no longer be a right to deduction under 181(2)?

MR BASTEN:  Your Honour, not in relation to this case. That

matter does not arise.

BRENNAN J:  I appreciate that but is that the implication of

your argument?

MR BASTEN:  No, Your Honour. Whether or not one sues to

judgment under 181(1) one may still be able, in my

submission, to deduct under 181(2) as long as there

is an amount owing. The question that would arise

from Your Honour's example would be whether or not

one was then seeking to recover an amount which should

not have been paid by way of a pension and whether

the merger in the judgment. would have the effect of

depriving the debt of that quality. In my submission,

nor would it determine whether or not 181(2) would	that question would not necessarily arise in this case
continue to apply after a bankruptcy. There is no doubt that there is still an amount legally owing
ultimately on account of an amount overpaid and I
would not seek to argue for the present purposes that
a judgment would.preclude that but if it did,
it would not subvert from my argument that one needs an amount legally owing in order to make deductions
under 181(2).

BRENNAN J: What is it about the bankruptcy that makes it no

longer owing?

MR BASTEN: Merely that the debt has been converted into a right

to share in the estate.

BRENNAN J:  I see.

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MR BASTEN:	And if that is correct then one is left with the proposition that for some reason,:outside the BANKRUPTCY
ACT, section 181(2) has the effect of providing a
remedy which is not inconsistent with the BANKRUPTCY ACT, either by way of section 58(3) or otherwise.
And Their Honours were happy to accept that position
but on a basis which, in my submission, is in doubt.

At page 37 of the appeal book Mr Justice Lockhart

notes at the top of the page that:

sub-s. 181(2) had directed that deductions

from overpayments of pensions be made from
money or other property of the pensioner

which constituted divisible property upon

bankruptcy then a conflict would have

arisen between the law of insolvency and
the operation of the sub-section. Such a
conflict does not arise here because the

sub-section does not permit access to

divisible property of a bankrupt whose

pension has been overpaid.

Now, in our submission, His Honour is agreeing that

there would be a problem of recognition if access to

divisible property was permitted. In other words, it

is only the special protection given to the pensioner

by way of inalienability of a pension which says, in

His Honours view, that there is no conflict and it would

be ironic, in our submission, if that were the basis

on which the right to recover continued to exist against

the pensioner. But there is a stronger argument than

that because since January 1988 section 4 has been

amended, as His Honour notes, to provide that

section 58(3) of the BANKRUPTCY ACT protects not only

divisible property but all property of the bankrupt

which clearly includes income.

So that the conflict which His Honour thought

was not present, in our submission, was present if one

. looks at the dual purpose of the BANKRUPTCY ACT

which is not only to provide a fair and equitable

distribution but also to relieve the debtor from

the burden of his debts. But that policy is now

accorded to statutory recognition in the new provision

in relation to section 58(3).

Your Honours, the other approach which the

court took is illustrated at page 43 in the judgment of

Mr Justice Lockhart where His Honour suggests that the

provision is not in conflict with the BANKRUPTCY ACT

because it is a reduction provision in terms of the

that way of looking at the difficulty. Our

rate of payment of pension, rather than a provision with

for recovery of moneys which are otherwise owing.

first submission is that it is not correct to treat

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this section as relating to the rate of payment of a

pension. To do so ignores not only the title which is

"Recovery of overpayment" but also ignores the fact

that this provision comes in a Part of the Act which

is quite unrelated to that with respect to the

establishment of rates of pension which appears in

sections 48 to 50 in the legislation to which I have

referred.

It is true to say that the introductory words of

the section 181(2) note that it applies:

Notwithstanding anything contained in this

Act -

but one must look to see what other provisions of the

Act that could have in mind. If one turns to the rest of

the Act, .there are either the rate of pension provisions

from which it may derogate or the inalienability
provisions from which it may derogate, and it may be

a small straw in the wind but section 48 which

determines the rate of pension is said to be subject to

this Part which is not a part in which section 181

appears whereas, the inalienabili~y provision which

is section 184 is said to be subject to the Act as a

whole, so that it would make sense of the Act if

section 181(2) was applied as derogating from the
otherwise broad inalienability.

If, on the other hand, it is correct to say that the question is one of whether the pension is reduced

rather than having a deduction made from it that,

in our submission, does not necessarily avoid the

question and takes one back to the issue to which I
referred at the beginning. One still needs to ask

whether or not section 181(2) applies in relation to

an amount for which there is no legal liability to

pay. So that whichever. way one goes at that approach,

in my submission, one does not avoid the very real

question of whether there is inconsistency with the

BANKRUPTCY ACT.

MASON CJ: But, unfortunately from your point of view,

subsection (2) is not expressed in that way. It says

the deduction shall be made:

where -

(a) an amount has been paid by way of pension,

benefit or allowance under this Act that

should not have been paid,

MR BASTEN:  Yes.

Tl5 MASON CJ: That is the form the subsection follows. So that you

are only concerned with whether there was an overpayment

or a, .payment that should not have been made. If there

is, then the provision for deduction from the pension

entitlement comes into operation.

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MR BASTEN:  Comes into operation, Your Honour, but it comes

a proportion by which the rate has to be reduced. into operation subject to the Secretary determining

MASON CJ: Yes.

MR BASTEN:  And, in our submission, if Your Honour is pointing

to the fact that there is no action of the Secretary

needed to bring the section into force, that - - -

MASON CJ:  No, I was, 1not pointing to that. I was pointing,

rather, to the framework of the provision.

MR BASTEN:  Yes.

DEANE J: You have really got to say that we should read

section 181(2) as meaning a recoverable amount.

MR BASTEN: That is so, Your Honour, and if one does not read

it that way then one asks where is the limit to the

amount to be recovered.

DEANE J: Well, it is the amount that has been overpaid that can

be deducted.

MR BASTEN:  That envisages a breach of the provisions of the

Act though in order to determine how much that amount

is. That is why, in our submission, it would be

necessary to find an amount which was unlawfully paid

in the first place.

DEANE J:	It seems to me that is the problem in your path, if
I might say so, that -

MR BASTEN: Well, Your Honour, if one looks at it the other way

it is difficult to know what alternative there was

available ·.to the draftsman except to suggest that

the Secretary had a broad discretion to recover any

moneys which he thought should be recovered or some

such terminology. That is not the approach which has

been adopted. The amount is one which should not have

been paid either because of some false representation

and so on or possibly because of an administrative

error. But it is difficult to understand why the

Commonwealth should have a greater right of recovery

in relation to an amount wrongly paid by administrative

error than otherwise and, in my submission, unless

there is an amount recoverable at law that would be a

doubtful conclusion.

Might I also say that there is an anomaly in a

sense in the result reached by the Federal Court

because, of course, the Commonwealth is not able to

recover such amounts from anyone other than a pensioner

so that a person in the work place who goes bankrupt

or a person who, for some reason, has other means of
support but is bankrupt would not be subject to this

provision and power of recovery.

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Your Honours, those are the arguments which, in

my submission, are the basis of the case which is

set out in His Honour Mr Justice Lockhart's judgment

and in Mr Justice Beaumont's judgment and for those

reasons, in my submission, it is an appropriate case

for this Court to consider, for the first time,

the precise circumference of subsection (2) which was

not considered in HARRIS' case.

MASON CJ:  The Court need not trouble you, Mr Sorensen.

Notwithstanding the persuasive arguments

presented by Mr Basten in support of this application,

we are not persuaded that the conclusion reached by

the Full Court of the Federal Court is attended with

sufficient doubt to justify the grant of special leave to appeal. The application is therefore refused.

AT 3.42 PM THE MATTER WAS ADJOURNED SINE DIE

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