Unicomb v Secretary, Department of Social Security

[1998] FCA 204

FEDERAL COURT OF AUSTRALIA

ADMINISTRATIVE LAW - appeal from decision of Administrative Appeals Tribunal.

SOCIAL SECURITY - Social Security Act 1991 (Cth), s 1122 - applicant’s social security entitlement subject to assets test - value of assets to include amount that a person “lends” - whether applicant lent sum of $647,000 within the meaning of the Act.

Social Security Act 1991 (Cth)

Re Gordon and Department of Social Security (1992) 16 AAR 100, cited

GEOFFREY WILLIAM UNICOMB v
SECRETARY, DEPARTMENT OF SOCIAL SECURITY
NG 458 of 1996

BRANSON J
SYDNEY
13 MARCH 1998

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NG 458  of   1996

BETWEEN:	GEOFFREY WILLIAM UNICOMB APPLICANT
AND:	SECRETARY, DEPARTMENT OF SOCIAL SECURITY RESPONDENT
JUDGE(S):		BRANSON J
DATE OF ORDER:		13 MARCH 1998
WHERE MADE:		SYDNEY

THE COURT ORDERS THAT:

1. The appeal be dismissed.

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

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NG 458 of 1996

BETWEEN:	GEOFFREY WILLIAM UNICOMB APPLICANT
AND:	SECRETARY, DEPARTMENT OF SOCIAL SECURITY RESPONDENT

JUDGE(S):	BRANSON J
DATE:	13 MARCH 1998
PLACE:	SYDNEY

REASONS FOR JUDGMENT

INTRODUCTION

This is an appeal against a decision of the Administrative Appeals Tribunal (“the Tribunal”) whereby the Tribunal set aside a decision of the Social Security Appeals Tribunal and remitted the matter before it to the respondent to recalculate the applicant’s entitlement to social security benefit. 

The applicant’s relevant entitlement to social security benefit is an entitlement which is subject to an assets test. The question of law raised on the appeal relates to the proper interpretation of s 1122 of the Social Security Act 1991 (Cth) (“the Act”), which is concerned with the calculation of the value of a person’s assets for the purposes of the Act. Section 1122 of the Act provides as follows:

“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.”   (emphasis in Act)

BACKGROUND FACTS

The facts relevant to this appeal fall within a narrow compass.  In about August 1993, Paul Unicomb (“Paul”), the applicant’s son, had plans for the construction of some home units by a company controlled by him, Chemle Pty Limited (“Chemle”).   Paul requested the applicant to help with the raising of the money necessary to allow the home unit project to proceed.  The applicant agreed to help with the raising of such money.   Paul made an approach to Australian Guarantee Corporation Limited (“AGC”).

On 18 August 1993, a deed described as a “Deed of Incoming Guarantee” (“the Deed”) was signed.  The parties to the Deed, and their respective description therein, were as follows:

The applicant:  “the Borrower”
AGC:  “the Lender”
Geoff Unicomb & Sons Pty Ltd and Patricia Mary Unicomb:
  “the Continuing Guarantors”
           Chemle:  “the Incoming Guarantor”.

Patricia Mary Unicomb (“Mrs Unicomb”) is the wife of the applicant.  Geoff Unicomb & Sons Pty Ltd is a company controlled by the applicant and his wife.

The Deed, by its terms, is declared to be supplemental and collateral to a finance facility deed  (“the primary security”) dated 14 February 1992 made between the applicant, AGC, Geoff Unicomb & Sons Pty Ltd and Mrs Unicomb.  The Deed records that AGC has agreed to advance to the applicant an additional advance of $647,000 which is to form part of the sum secured by the primary security.  By the Deed, Chemle guarantees to AGC the due performance by the applicant of the applicant’s obligations to AGC under the primary security as though Chemle had at all times been a party to the primary security.

AGC did advance the sum of $647,000 to the applicant.  It is not entirely clear whether this amount was paid by AGC directly to Chemle or whether it was paid to the applicant who passed it on to Chemle.

The Tribunal found that the applicant was aware of the nature and purport of the Deed.  This finding of the Tribunal was not challenged before me.

By 5 September 1994, the whole of the sum of $647,000 had been repaid by Chemle to AGC.

REASONS OF THE TRIBUNAL

Before the Tribunal, as before me, the applicant placed reliance on the decision of the Tribunal in Re Gordon and Department of Social Security (1992) 16 AAR 100. In that case, Deputy President Forgie looked behind the terms of a memorandum of mortgage, which by its terms purported to secure the repayment of a loan, in order to determine whether in fact any such loan had been made. The circumstances which gave rise to the memorandum of mortgage were that the applicant in that case had sold a property for a price of $120,000 payable by twenty-four monthly instalments. The purpose for which the mortgage was brought into existence was to secure the payment of the monthly instalments. The Deputy President held that, in the circumstances, the applicant before her had not made a loan of the outstanding monthly instalments to the purchaser of his property.

The reasoning of the Tribunal on the issue raised by this appeal is contained in the following paragraph from its reasons for decision:

“22. The case of re Gordon and Secretary, Department of Social Security 16 AAR 100, cited by Mr Hodges, Solicitor for the Applicant, is distinguishable. In this matter the loan documents clearly nominate the Applicant as the borrower and notwithstanding the arrangements made by him and those associated with him to repay the sum advanced, it was to the Applicant that AGC was entitled to have recourse in the first instance for repayment of the monies. Although the lender may have been directed by the Applicant to make payments from the sum advanced to others, those payments were made on the Applicant’s behalf. In these circumstances I consider that the Applicant received the monies to his own use. They are thus to be regarded as assets in his hands (see S1122 of the Social Security Act) and the value of the assets at any time being the outstanding balance of the loan at that time.”

CONTENTIONS OF THE PARTIES

On behalf of the applicant it was contended that the Tribunal erred in finding that the applicant lent $647,000 to Chemle.  The meaning of “lends” in s 1122, it was argued, incorporates the notion that the lender has a legally enforceable right to claim repayment of the sum lent. It was contended that the applicant was not in such a position.

As an alternative submission, it was suggested on behalf of the applicant that the approach taken by the Tribunal involved isolating individual parts of the total transaction.   If the total transaction were looked at, it was argued, it could be seen that, although the obligation of Chemle to repay the sum of $647,000 was an asset held by the applicant, the value of that asset to the applicant was wholly offset by the applicant’s obligation to pay that sum to AGC.  That is, that the total arrangement concerning the sum of $647,000 had a neutral impact on the value of the applicant’s total assets.

On behalf of the respondent it was contended that the above approach disregarded the relevant statutory provisions. It was argued that the scheme of the Act is not such that, in determining the value of the assets of a person, you deduct from his or her total assets his or her total liabilities. It was suggested that there were good policy reasons for the net assets approach not having been adopted for the purposes of the Act.

CONSIDERATION

The issue which I am required to determine is that of whether the applicant, by the arrangement set out above, lent the sum of $647,000 to Chemle within the meaning of s 1122 of the Act.

It seems to me to be beyond argument that the applicant borrowed the sum of $647,000 from AGC.  He executed a deed which records that AGC has agreed, upon the condition that the parties to the Deed enter into the Deed, to lend him such sum.   He acknowledges that the sum of $647,000 was paid by AGC pursuant to the Deed, either to him or at his direction, and that he assumed a principal liability to AGC to repay that sum.

The question is thus whether the applicant lent the sum of $647,000 to Chemle.   There was no evidence before the Tribunal as to the terms of the arrangement between the applicant and Chemle pursuant to which Chemle came to have the benefit of the monies borrowed by the applicant from AGC.   However, there is no suggestion that the monies were a gift to Chemle.   It is thus to be assumed that the applicant did have a legally enforceable right to claim repayment of such monies from Chemle.

Nothing in the terms of s 1122 of the Act, in my view, suggests that it is appropriate, for the purpose of determining whether a person has lent an amount, to consider whether, having regard to the factual circumstances which surround the transaction prima facie falling within the terms of the section, the person has gained a net advantage from such transaction so far as his or her total assets are concerned.   In any event, in this case to look simply at the arrangement between the applicant and Chemle with respect to the $647,000 is to overlook aspects of what the applicant has described as “the whole transaction”.  There is no evidence before me upon which I can determine the nature and extent (if any) of the obligation which Chemle assumed as “the Incoming Guarantor” under the Deed, or the nature and extent (if any) of the benefit which the applicant and “the Continuing Guarantors” under the Deed received, or may receive, as a consequence of Chemle’s having executed the Deed.  That is, it is not open, in my view, to conclude that, if the total transaction is looked at, it can be seen to be no more than arrangement by which an amount of $647,000 was borrowed by or on behalf of Chemle and subsequently repaid by Chemle.

I conclude that the applicant did lend the amount of $647,000 to Chemle within the meaning of s 1122 of the Act. The value of the applicant’s assets thereafter for the purposes of the Act included so much of that amount as remained unpaid. In the circumstances of this case, payment by Chemle to AGC is to be regarded as payment made at the direction of the applicant, and thus, for the purposes of s 1122 of the Act, as equivalent to payment to the applicant.

The above conclusion is the same as that reached by the Tribunal.  The appeal will be dismissed.

I certify that this and the preceding five (5) pages are a true copy of the Reasons for Judgment herein of the Honourabl  e Justice Branson.

Associate:

Dated:             

Solicitor appearing for the Applicant:	S Hodges
Solicitor for the Applicant:	Stephen Hodges, Solicitor
Counsel for the Respondent:	R Beech-Jones
Solicitor for the Respondent:	Australian Government Solicitor
Date of Hearing:	18 February 1998
Date of Judgment:	13 March 1998