Thorogood and Secretary, Department of Families, Community Services and Indigenous Affairs

[2007] AATA 1126

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2007] AATA 1126

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No Q 200600616,

GENERAL ADMINISTRATIVE DIVISION		)         and Q 200600617
Re		PETER THOROGOOD and DIANA THOROGOOD

Applicants

And SECRETARY, DEPARTMENT OF FAMILIES, COMMUNITY SERVICES AND INDIGENOUS AFFAIRS

Respondent

DECISION

Tribunal Deputy President P E Hack SC

Date13 March 2007

PlaceBrisbane (Heard in Gympie)

Decision In each matter the Tribunal sets aside the decision under review and remits the matter to the respondent for reconsideration in accordance with the direction that the entitlement of the applicants to age pension and pension bonus be determined on the basis that the sum of $151,000 was a financial asset of the applicants for the purposes of Division 1B of Part 3.10 of the Social Security Act 1991 up to, and including, the day prior to the presentation of the cheque for $151,000 to the applicants’ bank.  

................Signed..............

Deputy President

CATCHWORDS

SOCIAL SECURITY – calculation of rate of age pension and pension bonus – words and phrases - meaning of “financial asset” – $151 000 in bank account a financial asset until the day prior to presentation of cheque to bank – decision under review remitted for reconsideration

SOCIAL SECURITY – contractual dealings – objective theory of contract – time of creation of pension plan upon acceptance of cheque – character of undrawn funds as a “financial asset” – decision under review remitted for reconsideration

SOCIAL SECURITY – words and phrases – “financial assets” – “financial investment” – “available money” – “deposit money”

Social Security Act 1991 (Cth) – ss 8(1), 9(1), 1077(2)
Social Security and Veterans’ Affairs Legislation Amendment Act 1995, No 1. 1996.
Corporations Act 2001 (Cth)

Companies (Queensland) Code (Qld) - s 368(1)

Cheques Act 1986 (Cth) - s 71(a), 88

Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd and Others (2004) 219 CLR 165
Re Loteka Pty Ltd (in liq) [1990] 1 QdR 322
Re Coleman and Department of Family and Community Services [1999] AATA 283
National Australia Bank Ltd v KDS Construction Services Pty Ltd (1987) 163 CLR 668

REASONS FOR DECISION

13 March 2007 Deputy President P E Hack SC    

Introduction

1.The applicants, Mr Peter Thorogood and Mrs Diana Thorogood, are husband and wife. On 18 November 2005 they submitted claims for age pension.

2.The applicants were each granted age pension with effect from 14 November 2005.  In determining the rate at which the age pension and a pension bonus was payable Centrelink, on behalf of the respondent, was obliged to take into account their financial assets as at that date.

3.In doing so Centrelink decided that the amount in the applicants’ bank account of $155,113.21 was a financial asset despite the fact that $151,000 of that amount represented a cheque drawn on that account, given to the payee well prior to 14 November 2005 but not negotiated as at that date. It was this figure, rather than the balance after taking into account the unpresented cheque, which Centrelink relied upon to determine the applicants’ assets.

4.The issue that I have to decide is whether that decision of Centrelink was correct.

Background

5.The background against which that issue falls to be determined was not in dispute. Mr Thorogood is an accountant by profession. For some time prior to November 2005 he had planned his retirement from practice and his and his wife’s application for age pension.

6.In undertaking his retirement planning Mr Thorogood had a number of dealings with Mr Simon Thomas. Mr Thomas was a financial planner who was the authorised representative (as that term is used in the Corporations Act 2001) of AMP Financial Planning Pty Ltd.

7.Mr Thomas, in that capacity, promoted life insurance and superannuation policies issued by AMP Life Limited and AMP Superannuation Limited. I suspect that Mr Thorogood, in his dealings with Mr Thomas, drew no distinction between the various corporate entities but, rather, regarded himself as dealing with “AMP”.

8.In early November 2005 Mr Thorogood had a balance of approximately $154,000 in his bank account with ANZ Bank. He was conscious of the need to ensure that such an amount was not in the account when he applied for age pension. When he consulted Mr Thomas on, or shortly prior to, 8 November 2005 Mr Thomas provided him with advice on a way to convert the asset, comprised by the funds in the bank account, into an asset that would not be regarded as such for age pension purposes.

9.It is convenient to set out that advice in the way that it was subsequently recorded by Mr Thomas in a written recommendation[1] dated 11 November 2005. Mr Thomas wrote:

“Accordingly I recommend that you establish an AMP Flexible Lifetime Superannuation Plan as this plan accepts undeducted contributions. I have selected the investment option for these funds as AMP Cash Plus which is a capital guaranteed investment option. This will alleviate any volatility within your investment given your extremely short investment time horizon.

Once these funds are invested in your AMP Flexible Lifetime Superannuation Plan, I recommend that you rollover the full balance into an AMP Flexible Lifetime Allocated Pension Plan to provide you with a pension as requested.”

[1]Mr Thorogood confirmed in his evidence that the substance and effect of the oral advice was as set out in the letter from Mr Thomas dated 11 November 2005.

10.Mr Thorogood states, and I accept, that he agreed to act in accordance with that advice and provided a cheque for $151,000 made payable to AMP to Mr Thomas on 9 November 2005. He was given a receipt for the cheque. The evidence of Mr Thorogood was that there was nothing in the words or conduct of Mr Thomas that suggested that the acceptance of the cheque was conditional in any way or subject to ratification by AMP Superannuation Limited, the entity that provided the pension plan.

11.The pension plan was issued by AMP Life Limited on behalf of AMP Superannuation Limited. According to documents provided by AMP Life Limited the date of purchase of the pension plan was 16 December 2005 and the purchase price was $150,823.14.

12.Having paid the cheque to AMP Mr Thorogood waited a few days and then, on 18 November 2005, he and his wife submitted a joint claim for age pension. The pension was, as I have said, paid to the applicants with effect from 14 November 2005[2].

[2]I understand that the date of effect is the date of initial notification of an intention to make a claim provided a written claim is received within a specified period.

13.But in determining the rate at which the pension was payable Centrelink took the view that the applicants’ bank balance was $155,113.21 and that the whole of this amount represented a financial asset. It was this figure, rather than the balance after taking the cheque for $151,000 into account that Centrelink relied upon in determining the applicants’ assets and thus the rate of pension payable.

14.On this basis each of the applicants was initially paid the age pension at the rate of $263.69 per fortnight. The pension bonus for each applicant was paid on the basis of that rate. From 16 December 2005 the rate of pension was increased to $318.67 per fortnight. It was increased from this date because Centrelink took the view that that date was the date on which the allocated pension was finalised.

15.The applicants then sought review of the decision to regard the amount of $151,000 as a financial asset until 16 December 2005. The decision was affirmed by an authorised review officer on 7 June 2006 and subsequently by the Social Security Appeals Tribunal on 11 August 2006.

The Legislation

16.At the outset, and before discussing the terms of the statute, the context in which this issue arises needs to be considered. That context is what the respondent calls the “deeming rules”. These “rules” were introduced by legislative amendment in 1996[3] for the purpose of discouraging the then common practice of pension recipients receiving little or no interest income from their savings. This was overcome by deeming a rate of return on financial investments held regardless of the actual return received on the investment.

[3]        See Social Security and Veterans’ Affairs Legislation Amendment Act 1995, No 1. 1996.

17.It is not necessary for present purposes to examine the precise way in which the deeming rules work; it is enough to notice that the calculation for deemed income from financial assets starts at s 1077(2) of the Social Security Act 1991 (“the Act”). It provides:

“If one or both of the members of a couple have financial assets, the members of the couple are taken, for the purposes of this Act, to receive together ordinary income on those assets in accordance with this section.”

18.The term financial asset is defined in s 9(1) of the Act as meaning a financial investment or a deprived asset. A financial investment is defined in the same sub-section as meaning:

“(a) available money; or

(b) deposit money; or

(c) a managed investment; or

(d) a listed security; or

(e) a loan that has not been repaid in full; or

(f) an unlisted public security; or

(g) gold, silver or platinum bullion; or

(h) an asset-tested income stream (short term).”

Given the way in which the respondent’s case was presented to the Tribunal it is necessary to have regard to two of these terms – available money and deposit money.

19.Those terms are defined in s 8(1) of the Act in this way:

“ ‘available money’, in relation to a person, means money that:

(a)is held by or on behalf of the person; and

(b)is not deposit money of the person; and

(c)is not the subject of a loan made by the person;

‘deposit money’, in relation to a person, means the person’s money that is deposited in an account with a financial institution.”

The Parties’ Cases

20.The applicants’ case was that, on 9 November 2005, Mr Thorogood had done all that was required to convert the funds of $151,000 into a pension plan. The funds represented by the face value of the cheque drawn but not presented whilst nominally in the bank account were not funds available to Mr Thorogood.

21.The respondent’s case, as it was developed in submissions dated 19 February 2007, was that the money held in the bank account on 14 November 2005 answered the description of available money. Alternatively, it was submitted, those monies answered the description of deposit money. In either case it was said that the monies were a financial investment and thus were required to be brought into account for the purposes of Div. 1B of Part 3.10 of the Act.

22.It was common ground that an allocated pension of the type obtained by Mr Thorogood was not a financial asset. The contest in these proceedings concerned when the pension plan came into existence. The respondent’s case was that the pension plan did not come into existence until 16 December 2005, that being the date that AMP Life Limited described as the date of purchase of the pension plan.

23.For completeness I should note that at an earlier time, and in proceedings in the Social Security Appeals Tribunal, the respondent placed reliance upon the definition of “commencement day” in s 9 of the Act to support the conclusion that it was on 16 December 2005 that the asset comprised by the $151,000 could be disregarded. The reasoning that leads to that conclusion was plainly wrong. Moreover the respondent now accepts that the definition relied upon has no bearing at all on the present case and, in fact, applies only to income streams purchased prior to 20 September 2004.

24.As it seems to me the first task to be undertaken is to analyse the contractual dealings between Mr Thorogood and AMP Superannuation. Once that analysis is undertaken it will then be possible to consider both the time of creation of the pension plan and the true character of the undrawn funds in the bank account.

Analysis of Contractual Dealings

25.The first task in discussing the contractual dealings in these proceedings is to identify the parties. Mr Thorogood plainly was one. The other, although not identified by precise name in Mr Thorogood’s dealings with Mr Thomas, was AMP Superannuation Ltd. The documents show that it is that entity, through AMP Life Limited, which is the provider to Mr Thorogood of the Flexible Lifetime–Allocated Pension Plan which, according to the same document, was purchased on 16 December 2005.

26.On the basis of that document Mr Keim, who appeared for the respondent, was minded to submit that the contract between Mr Thorogood and AMP Superannuation Ltd was formed on 16 December 2005. I am unable to accept that submission. The evidence of Mr Thorogood, which was not challenged, was consistent only with there being a concluded agreement when Mr Thorogood tendered the cheque for $151,000 to Mr Thomas.

27.It is not to the point that AMP Superannuation Ltd may have been of the view that the pension plan was purchased on 16 December 2005. In this country it is the objective theory of contract, and not the subjective that prevails[4]. Mr Thomas was held out as the agent of the AMP entities; if nothing else, the AMP corporate logo appeared on his letterhead. The agreement made between the parties was within the scope of his apparent authority.  

[4]See eg Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd and Others (2004) 219 CLR 165 at 179-180 par [40] – [41].

Time of Creation of Pension Plan

28.In circumstances where the cheque was tendered and accepted, absent any suggestion of conditional acceptance or acceptance subject to

ratification, I conclude that the contract came into being upon payment of the cheque to Mr Thomas as an agent for AMP on 9 November 2005. Necessarily there were administrative matters to be attended to before the second step in the process – the creation of the pension plan – was able to be documented but the delay in documenting the contract means no more than that performance of the obligations of that party was deferred. It does not detract from the existence of the contract nor defer its creation.

29.In my view, once Mr Thomas accepted the cheque for $151,000 AMP Superannuation Limited came under an enforceable obligation to provide Mr Thorogood with a pension plan in the terms discussed and agreed between Mr Thorogood and Mr Thomas.

30.And, by the same token, Mr Thorogood, by drawing the cheque was undertaking that on presentation for payment the cheque would be paid according to its tenor[5].

[5]        See Cheques Act 1986 (Commonwealth) s 71(a) as it relates to the liability of the drawer.

The Character Of Undrawn Funds

31.Essential to an understanding of the character of undrawn funds is an analysis of the legal incidents of payment by cheque. That analysis has, to date, been lacking in this case.

32.The considerable body of common law learning was examined by McPherson J in Re Loteka Pty Ltd (in liq)[6] . In that case a company had drawn cheques and issued them to creditors after the presentation of a petition to wind up the company. These cheques were met on presentation. Thereafter, an order for winding up was made but the winding up commenced on the date of presentation of the petition. The liquidator sought to recover the value of the cheques from the bank on the basis that the cheques were dispositions of property of the company made after the commencement of the winding up that were void by operation of s 368(1) of the Companies (Queensland) Code (Qld).

[6] [1990] 1 QdR 322.

33.Having examined the case law his Honour said[7]

“From all this it follows that when on the dates listed above the company in this case drew cheques and issued by delivering them to the creditors whose names are specified on that list, it thereby transferred the property in a chattel that was an instrument having a value equal to the amount for which it was drawn. Of course, the value of each cheque was dependent upon there being funds in the account of the company available to meet it; but, as it turned out there were, and the cheques were met by the Bank. It seems to me, therefore, that, although there was a disposition of property of the company, it took place not when the cheques were paid but on the date or dates on which each cheque was issued; and that the disponee in each case was not the Bank but the particular creditor in whose favour the cheque was drawn and delivered.”

[7]        See note 6 at pp 329 – 330.

34.On that basis, when Mr Thorogood drew the cheque for $151,000 and delivered it to the agent for the AMP entities (Mr Thomas) he transferred to AMP the property in the chattel (the cheque) that had a value of $151,000, this being the face value of the cheque. Because the cheque was honoured on presentation it constituted actual payment of Mr Thorogood’s debt from the time it was given[8].

[8]See National Australia Bank Ltd v KDS Construction Services Pty Ltd (1987) 163 CLR 668 at p 676.

35.However, the respondent submits that these cases are concerned with different issues to the relevant Social Security law. That law, it is submitted, is concerned with the amounts of income generated by an investment or the equivalent deemed amount in accordance with the legislation.

36.The respondent’s primary argument is that all of the funds in Mr Thorogood’s bank account as at 14 November 2005 answered the description of available money in the Act. The only case authority to which my attention has been drawn is Coleman and Department of Family and Community Services[9]. In that case Senior Member Kiosoglous expressed the view that:

“ ‘available money’ is intended to mean money which is immediately available to a person, and best fits the description of ‘cash at hand’”[10].

[9] [1999] AATA 283

[10] Note 10 above at par [26].

I respectfully agree. On that basis, on no view could the funds in the bank account be regarded as “cash at hand”.

37.The alternative argument for the respondent, that the funds in Mr Thorogood’s bank account represented deposit money, has a sounder foundation. There is no doubt that the ANZ Bank is a financial institution as defined and that Mr Thorogood’s account at that bank was an account as defined. The question is whether the amount of $151,000 which formed part of the balance in the account on 14 November 2005 was Mr Thorogood’s money deposited in the account.

38.I consider that it can be so regarded.

39.In coming to that conclusion I am conscious that the drawing of the cheque does not, of itself, operate as an assignment of funds that are available[11]. Furthermore, the drawing of the cheque does not create any lien or charge over the funds standing to the credit of Mr Thorogood’s account. In an accounting sense there is no doubt that it is the net balance of the account that would be regarded as the value of the asset. But the legislative definition in issue here does not have regard to accounting concepts; it merely looks to the money that is deposited in the account. Whilst he plainly would not have done so, it was theoretically possible for Mr Thorogood to draw against the funds despite having issued the earlier cheque to AMP. The funds, represented by the amount of the unpresented cheque, were available to Mr Thorogood at all times up until presentation of the cheque even though he had no intention of drawing against them.

[11]        See Cheques Act 1986 (Cth), s 88.

40.All of the balance of $155,113.21 answers the description of “the person’s money” in relation to Mr Thorogood, for Mr Thorogood still had the beneficial interest in all those funds despite having drawn and issued a cheque for $151,000. Additionally these funds were, as at 14 November 2005, deposited in his account in a financial institution.

41.In my view, it follows that the amount of $151,000 was deposit money and thus a financial asset to be taken into account for the purposes of the calculation required by Division 1B of Part 3.10.

42.That, however, is not the end of the matter. The respondent has calculated the applicant’s entitlement to the age pension for the period 14 November 2005 to 15 December 2005 on the basis that the sum of $151,000 remained a financial asset until that later date. That approach is wrong because it treats the sum as being deposit money until 16 December 2005, the date when, on the respondent’s flawed contractual analysis, the fund was converted into an income stream.

43.On the view I take of the matter the sum of $151,000 represented by the unpresented cheque remained a financial asset only so long as the funds remained in the account. From the day of presentation there was no longer a financial asset of $151,000.

44.My difficulty is that I have no evidence as to the date of presentation of the cheque but it seems to me to be highly unlikely to have been 16 December 2005. Because I do not know the date of presentation I would set aside the decision under review and remit the matter to the respondent for reconsideration and direct that the entitlement of the applicants to age pension and pension bonus be determined on the basis that the sum of $151,000 was a financial asset of the applicants for the purposes of Division 1B of Part 3.10 of the Social Security Act up to, and including, the day prior to the presentation of the cheque for $151,000 to the applicants’ bank.

45.I should say that I regard this result as most unfortunate.  Whilst, on the view I take of the matter, the funds in the account were within the definition of ‘financial asset’ it is plain that Mr Thorogood did not regard them as being funds available to him. The absurdity of this result is demonstrated by the realisation that, had Mr Thorogood withdrawn the $151,000 in cash and paid it to AMP in that way, he would have avoided the present result. But regrettably, this is not an area where the respondent or the Tribunal has any discretion. Our task is to apply the legislation according to its terms.

I certify that the 45 preceding paragraphs are a true copy of the reasons for the decision herein of Deputy President P E Hack SC

Signed:         ........................Signed............................................
  Associate, Eleanor O’Gorman

Date of Hearing  5 February 2007
Date of last submissions          26 February 2007
Date of decision  13 March 2007
Applicants appeared in person    
Solicitor for the Respondent     Advocate, Centrelink Legal Services