Vesic and Secretary, Department of Social Services (Social services second review)
[2016] AATA 1074
•22 December 2016
Vesic and Secretary, Department of Social Services (Social services second review) [2016] AATA 1074 (22 December 2016)
Division
GENERAL DIVISION
File Number(s)
2014/5282
Re
Zeljko Vesic
APPLICANT
And
Secretary, Department of Social Services
RESPONDENT
DECISION
Tribunal Deputy President S E Frost
Mr N Gaudion, MemberDate 22 December 2016 Place Sydney The decision under review is set aside. The matter is remitted for reconsideration in accordance with these reasons.
.......................[sgd].................................................
Deputy President S E Frost
CATCHWORDS
SOCIAL SECURITY – disability support pension – overpayment of pension – recovery of debt – whether debts were properly raised – assets test – whether value of loans advanced by the Applicant includes the balance of funds in an account in Applicant’s name – whether a valid trust exists – designated private trust – whether the Applicant is an attributable stakeholder – deprived assets – decision set aside and remitted
LEGISLATION
Social Security Act 1991 (Cth), s 1064, s 1122, s 1207P, s 1207V(1), s 1207V(2)(a), s 1207X(2)(c)
CASES
Kauter v Hilton (1953) 90 CLR 86
SECONDARY MATERIALS
Social Security (Attributable Stakeholders and Attribution Percentages) Principles 2000
REASONS FOR DECISION
Deputy President S E Frost
Mr N Gaudion, Member22 December 2016
INTRODUCTION
The Applicant started receiving the disability support pension (DSP) in January 2005.
In February 2013 Centrelink concluded, on the basis of information that it held about the Applicant’s affairs, that the Applicant had been overpaid DSP during the period 8 August 2006 to 14 January 2013 (the relevant period). Centrelink raised debts against the Applicant in the amount of $82,757.16. The Applicant sought review of the decision to raise the debts but the decision was affirmed by an Authorised Review Officer. The Applicant appealed to the then Social Security Appeals Tribunal but the decision was once again affirmed.
The claimed overpayments have since been recovered in full from the Applicant. Nevertheless, the Applicant has applied to this Tribunal for further review of the decision to raise the debts. The question for the Tribunal is whether Centrelink was correct to raise the debts. If the debts were not properly raised, then the Applicant will be entitled to a refund of part or all of the amount previously recovered from him.
THE ISSUES
The dispute between the parties is centred upon the total value of the Applicant’s assets during the relevant period.
One of the assets is an apartment, owned by the Applicant since 1999 but only relatively recently disclosed to Centrelink. The parties have reached agreement on the value of that apartment and we do not need to give any further consideration to it.
The rest of the dispute concerns the value of loans advanced by the Applicant from time to time to a friend of his, Nenad Cavric.
As we will explain in more detail later in these reasons, Mr Cavric has used most, if not all, of that borrowed money to trade in Contracts for Difference (CFDs) with CMC Markets Asia Pacific Pty Ltd (CMC). Those trades were made on a CMC account that had been opened in the Applicant’s name. Some of the trades have been successful, leading to significant profits. Some of them have resulted in significant losses. The question for the Tribunal is whether any of the CMC account balance from time to time is an asset of the Applicant for social security purposes.
THE HISTORY
In 2002 the Applicant was involved in a workplace accident. As a result of injuries he sustained in the accident he has not been able to work since.
In 2003 the Applicant was involved in a motor vehicle accident. He ultimately received, in April 2007, a compensation payment in relation to that accident. The settlement amount was $250,000 ‘all inclusive’, of which, after disbursements, he received $200,000.
From about 2004 until the receipt of the compensation payment in April 2007, the Applicant was financially dependent on Mr Cavric. The two men had been friends since their childhood. Mr Cavric had come into a significant amount of money from a former employer and he was in a position to help his friend. Mr Cavric said that over this period of time he helped the Applicant by paying his bills and also giving him extra money to live on. It was his expectation that the money would be paid back when the Applicant was in a position to do so. The Applicant seems to have thought the same.
Neither man could say precisely how much financial assistance was provided during this period. There was no written loan agreement. If there were any contemporaneous records kept they were not produced to the Tribunal. Mr Cavric said the amount he had provided to his friend was ‘approximately $100,000’[1]. The Applicant said that shortly after receiving his compensation payment, he paid Mr Cavric everything that he owed him, and he thought this amounted to ‘approximately $95,000’[2]. Whatever the amount was, both men said that by about the middle of 2007, neither of them owed the other any money.
[1] Exhibit A1 (statutory declaration dated 24 April 2013) [5]
[2] T31-186 [23]
Mr Cavric, who at the time was a professional share trader, had made a lot of money trading CFDs. In 2008 he started to suffer what he described as ‘massive financial losses’, and ended up owing CMC about $60,000. A dispute developed between Mr Cavric and CMC about the outstanding balance, Mr Cavric asserting that he should not have to pay the amount claimed, but CMC maintained their position. Mr Cavric thought he could recover his losses through further CFD trading. However, while the dispute continued, he could not trade through a CMC account in his own name, because if he had, CMC would simply have offset any gains against the $60,000 balance that they claimed he owed.
Mr Cavric therefore turned to the Applicant for financial assistance. The Applicant felt inclined to help his friend, in part to reciprocate the assistance Mr Cavric had given him earlier. He agreed to lend Mr Cavric some money, and he also agreed to open an account with CMC in his own name, and allow Mr Cavric to trade on that account. He told the Tribunal that, as far as he was concerned, any money that he provided to Mr Cavric was provided by way of loan. He expected that money to be repaid but he did not claim an entitlement to any gains that Mr Cavric might make through the CMC account. By the same token, he did not expect to be liable for any losses that Mr Cavric might incur.
Mr Cavric had the same view about the arrangement with the Applicant: he was obliged to repay any amounts advanced to him by the Applicant, but any gains or losses on the CMC account were his, and his alone.
Mr Cavric is not a lawyer, but that did not stop him creating a document he described as a ‘Declaration of Trust’[3] which, he said, reflected the agreement he and the Applicant had made, at least as far as the money in the CMC account was concerned. The document, which we will refer to as the ‘Trust Deed’, is a sloppy piece of work. It is dated 25 May 2008 and it identifies the Applicant as the ‘Trustee’ and Mr Cavric as the ‘Beneficiary’. It reads as follows, without correction:
[3] T14-98
RECITALS
A.The Beneficiary would like to urgently trade CFDs on the DMD Markets platform in a number of companies.
B.The Beneficiary cannot trade with CMC Markets in his own name.
C.The Trustee will open a CMC trading account with CMC Markets.
D.The Beneficiary wishes to use the Trustee’s CMC Markets account.
E.The Trustee will allow the Beneficiary to use his CMC Markets account to purchase CFDs and will hold any such CFDs purchased on trust for the Beneficiary.
1.INTERPRETATION
In this deed:
(a) Reference to the singular and plural and the converse.
(b) The gender includes all genders.
(c) Where a work or phrase is defined, it’s other grammatical forms have a corresponding meaning.
(d) The headings are not to be taken into account in the interpretation of this deed.
(e) The terms of the deed are to be constructed in accordance with the laws of New South Wales.
2.DEFINITIONS
In this deed:
CMC Account means any account in the Trustee’s name held with CMC Markets.
Trust Funds means the balance of monies in the CMC Markets account.
3.DECLARATION OF TRUST
3.1The Trustee declares that any CFDs purchased on the CMC account will be held on trust for the Beneficiary.
3.2The Trustee declares that any profits, dividends or any receipts derived by the Beneficiary whilst holding or trading in CFDs on the CMC Markets account are solely held for the beneficiary.
3.3The Trustee must act at the request of the Beneficiary and must deal with the Trust properly in such a manner as the Beneficiary directs.
3.4Nothing in this deed entitles the Trustee to beneficial ownership of the Trust Property or to deprive the Beneficiary ownership of the Trust Property.
By the time the Trust Deed was signed, an account with CMC had already been opened in the Applicant’s name. The account holder was not styled as ‘Zeljko Vesic as trustee for the Cavric Trust’, or something similar, but simply as ‘Zeljko Vesic’. CMC knew nothing about the ‘trust’ arrangement; all they knew was that an account had been opened, and the Applicant was the account holder.
Mr Cavric insisted that the purpose of the Trust Deed was to protect both Mr Cavric and the Applicant. It protected Mr Cavric, he said, by ensuring that all gains made on the account belonged to him and not to the Applicant. And it protected the Applicant, according to Mr Cavric, by ensuring that any losses came home to Mr Cavric rather than to the Applicant.
The Applicant placed money in the CMC account, both before and after signing the Trust Deed. There is some disagreement between the parties as to the amount the Applicant put in, but we find it to be $44,900, as set out in Annexure 1 to the Respondent’s Written Submissions dated 27 June 2016, and for the reasons detailed under the heading ‘Disagreement’ in Annexure 2 to those submissions. The Applicant accepts that the proper characterisation of the amount deposited by him to the CMC account is as a loan to Mr Cavric which needs to be repaid.
In 2009 the Applicant refinanced his mortgage, increasing his borrowings by $190,000. That refinance was undertaken at Mr Cavric’s request, and it enabled the Applicant to advance further money to Mr Cavric for his CFD trades.
Mr Cavric enjoyed some success with his CFD trading but he still had ‘one more big trade’[4] to make. From May to September 2009, he transferred a total of $328,000 from the CMC account to his personal bank account, which he was able to do since he had unfettered access to the CMC account even though it was in the Applicant’s name. He made the ‘big trade’ – an opportunistic share purchase – and lost the lot.
[4] Transcript of AAT Proceedings, 15 June 2016, 39.20-21
Mr Cavric believes, and we accept, that the total amount he borrowed from the Applicant during the period April 2008 to August 2009 is $126,254.21[5]. In around October 2009 he was able to secure the Applicant’s agreement to accept $50,000 in full and final settlement of his liability. Mr Cavric and the Applicant were consistent in their explanation of the compromise of the debt, and we accept that they made an agreement to that effect. Mr Cavric claims to have paid the agreed amount of $50,000 to the Applicant in December 2010. However, shortly thereafter he once again became ‘financially desperate’ and asked the Applicant to lend him $50,000. The Applicant agreed to give him $30,000 on 10 June 2011, and that amount also was lost. At the time of making his statutory declaration on 24 April 2013, Mr Cavric acknowledged that the $30,000 was an amount that he owed to the Applicant.
[5] Detailed in the table at [27] of Mr Cavric’s statutory declaration dated 24 April 2013 (Exhibit A1)
THE ASSETS TEST
People who are eligible for the DSP can have their entitlement reduced if the value of their assets is too high. The process for working out whether any adjustment is necessary is found in Pension Rate Calculator A at the end of s 1064 of the Social Security Act 1991 (the Act), and specifically in Module G.
The first step in Module G is Step 1 – ‘Work out the value of the person’s assets’.
Section 1122 of the Act provides that where a person has lent money, the value of the person’s assets must include any amount of the loan that has not been repaid.
The Applicant accepts that any amount he has lent to Mr Cavric that remains unpaid must be included in the calculation of the value of his assets. But he says the only amounts he has lent to Mr Cavric are those that he advanced to allow Mr Cavric to start trading on his account, and those that he provided later, from time to time, to ‘top up’ that account. He did not also lend to Mr Cavric the gains that Mr Cavric was making on the trading account. They were not the Applicant’s assets, they were Mr Cavric’s. All he ever required back from Mr Cavric is what he had lent him, not what Mr Cavric had earned by using that money to trade in CFDs.
The Respondent’s position is that the entirety of the CMC account balance must be included in the calculation of the value of the Applicant’s assets. There are two ways of reaching that outcome. The first way is based on the assumption that the ‘trust’ arrangement between the Applicant and Mr Cavric is not valid. The argument is simply this – the account is in the Applicant’s name, so the money belongs to him. The second way is based on the alternative assumption, that the ‘trust’ arrangement is valid. The outcome here is equally clear:
·The trust is a ‘designated private trust’: s 1207P of the Act;
·The Applicant passes the ‘control test’ because he is the trustee: s 1207V(2)(a) of the Act;
·That makes the trust a ‘controlled private trust’ for the purposes of Part 3.18: s 1207V(1) of the Act;
·The Applicant is an ‘attributable stakeholder’ of the trust unless the Secretary otherwise determines: s 1207X(2)(c) of the Act;
·If the Applicant is an ‘attributable stakeholder’ then his ‘asset attribution percentage’ in relation to the trust is 100% unless the Secretary determines a lower percentage: s 1207X(2)(d) of the Act;
·The Secretary has not made determinations favourable to the Applicant for the purposes of s 1207X(2)(c) or (d) and nor should the Tribunal.
RESOLUTION
We found both the Applicant and Mr Cavric to be witnesses of truth on critical issues arising in this application.
By his own admission[6], Mr Cavric is a ‘gambler’ and, we would add, quite a reckless one. But there is no doubt that in trading on the CMC account he was gambling for himself, not for the Applicant. He had been generous towards his friend in the past, but that generosity was not going to extend to sharing any of the upside of his trades – of that we have absolutely no doubt.
[6] Transcript of AAT Proceedings, 15 June 2016, 39.21, 58.24
The Applicant, by contrast, is not a gambler[7]. While he knew Mr Cavric was trading CFDs, he had no detailed knowledge of the specific trades Mr Cavric was undertaking. Moreover, he was not concerned about the balance of the CMC account, and the reason is obvious: the balance wasn’t his to worry about. He was never going to get his hands on any profits, for two reasons: one, he would never have asked for them; and two, even if he had, Mr Cavric would not have handed them over. As far as the Applicant was concerned, any gains made on his account were not his. All he wanted back from Mr Cavric was what he had lent him.
[7] Transcript of AAT Proceedings, 15 June 2016, 89.10
The Applicant genuinely believed this was the actual legal position, and so did Mr Cavric. Moreover, we are satisfied that neither of them would have acted in any way that conflicted with their genuinely held belief.
Is there a valid trust?
The Respondent urges us to find that the Applicant has failed to establish the existence of a valid trust. That position is taken on the basis of the uncertainties that are said to surround the Trust Deed.
We do not see things that way.
First, we consider the document to be an unambiguous declaration of the Applicant’s and Mr Cavric’s intention to create a trust. That intention was consistently and repeatedly confirmed by both the Applicant and Mr Cavric in their oral evidence.
Second, the property that is subject to the trust has been unambiguously identified, as:
·Any CFDs purchased on the CMC account (clause 3.1 of the Trust Deed); and
·Any profits, dividends or receipts derived by the beneficiary (Mr Cavric) whilst holding or trading in CFDs on the CMC account (clause 3.2 of the Trust Deed).
We consider the definition of ‘Trust Funds’ in clause 2 to be nothing more than a distraction. The expression ‘Trust Funds’ is not used in any operative clause of the document, and so the definition has no effect. The expression that is used elsewhere in the Deed is ‘Trust property’ (mistakenly, ‘Trust properly’ in clause 3.3) and there can be no doubt that what is being referred to is the property that has already been identified in clauses 3.1 and 3.2.
If we are wrong with that, then in any event we do not accept the Respondent’s submission that there is uncertainty, or inconsistency, arising from Mr Cavric’s being beneficially entitled to all the funds in the CMC account while at the same time being obliged to pay back some of those funds. We accept the Applicant’s submission that any repayments made to the Applicant by Mr Cavric did not need to come from the funds held in the CMC account, but even if they did, Mr Cavric’s obligation to repay borrowed money arose under a separate agreement with the Applicant, which did not undermine Mr Cavric’s beneficial entitlement to the funds in the CMC account.
Third, the beneficiary has been unambiguously identified, as Mr Cavric.
The High Court in Kauter v Hilton (1953) 90 CLR 86 referred at 97 to:
… the established rule that in order to constitute a trust the intention to do so must be clear and that it must also be clear what property is subject to the trust and reasonably certain who are the beneficiaries.
That established rule has been met in this case. A valid trust was created.
What about Part 3.18 of the Act?
There is no doubt that:
·the trust is a ‘designated private trust’: s 1207P of the Act;
·the Applicant passes the ‘control test’ because he is the trustee: s 1207V(2)(a) of the Act;
·the trust is a ‘controlled private trust’ for the purposes of Part 3.18: s 1207V(1) of the Act;
·the Applicant is prima facie an ‘attributable stakeholder’ of the trust: s 1207X(2)(c) of the Act.
It is now necessary to consider whether the Tribunal should determine either:
·that the Applicant is not an attributable stakeholder; or
·that the Applicant’s asset attribution percentage in relation to the trust is less than 100%.
There is a set of ‘decision-making principles’ that must be complied with[8] in making a determination of either of those kinds. They are the Social Security (Attributable Stakeholders and Attribution Percentages) Principles 2000, made by the Secretary of the Department of Family and Community Services under s 1209E of the Act. We will refer to them as the ‘Attribution Principles’.
[8] s 1207X(5) of the Act
To make a determination that an individual is not an attributable stakeholder, the Secretary or the Tribunal must comply with the decision-making principles in Part 2 of the Attribution Principles. For a determination that an attributable stakeholder’s asset attribution percentage is lower than 100%, the principles in Part 3 must be complied with. Apart from minor differences to reflect the character of the two types of determinations, the circumstances listed in Part 2 are relevantly identical to the circumstances listed in Part 3.
Section 6(2) in Part 2 requires consideration of the relationship between the individual and the trust having regard to:
(a)the reason why, but for a determination, the individual would be an attributable stakeholder; and
(b)the circumstances mentioned in this Part.
Section 6(3) requires the decision-maker to consider whether the effect of one or more of the circumstances mentioned in Part 2 provides ‘a sufficient basis on which to determine that the individual is not an attributable stakeholder’.
Section 7 identifies as a relevant circumstance the question whether the individual can reasonably be expected to exercise effective control in relation to the trust. Having regard to the fact that, by clauses 3.3 and 3.4 of the Trust Deed, the Applicant had no discretion whatsoever to do anything other than at Mr Cavric’s request or direction, it is clear that the Applicant was unable to exercise any control in relation to the trust.
Section 8 addresses contributions to the trust, and in particular the value of the contributions, the proportion that the value of the contributions has to the total assets of the trust at the time the contributions are made, the effect of the contributions on the financial position of the trust, and the amount of consideration (if any) received by the individual for the contributions.
The Applicant contributed $44,900 to the trust while Mr Cavric contributed $9,000. Of course, the $44,900, while deposited directly by the Applicant or from his accounts, had the character of a loan to Mr Cavric, and to that extent could equally be regarded as a contribution by Mr Cavric to the corpus of the trust.
Section 9 focuses on whether the individual has received a benefit from a distribution made by the trust. The Applicant received from the trust a total of $32,000 but that was plainly by way of part repayment of the amounts lent to Mr Cavric.
We do not regard sections 10, 11 or 12 in Part 2 of the Attribution Principles to be relevant in this case and we have not identified, for the purposes of section 13, any other circumstances that affect the involvement of the Applicant with the activities or the administration of the trust.
Having regard to the relevant circumstances in Part 2 of the Attribution Principles, and in view of the substance of the arrangement between the Applicant and Mr Cavric, we consider that there is a sufficient basis on which to determine that the Applicant is not an attributable stakeholder and we make a determination accordingly.
However, if we are found to have reached that conclusion in error, we would nevertheless determine under Part 3 of the Attribution Principles that the Applicant’s asset attribution percentage is 0%, and for the reasons specified in [46]-[49] above, by reference to the corresponding sections 16, 17 and 18 in Part 3.
CONCLUSION
The value of loans advanced by the Applicant to Mr Cavric does not include the balance from time to time in the CMC account.
It does, however, include any amounts not repaid by Mr Cavric – and in particular the amount of $76,254.21 (the difference between the amounts advanced, $126,254.21, and the $50,000 accepted in October 2009 in final settlement of Mr Cavric’s liability). That amount of $76,254.21 is a ‘deprived asset’ within s 9(4) of the Act and must be included in the asset calculation: see also s 1123 of the Act. There is a further amount of $30,000 lent to Mr Cavric on 10 June 2011 which would also need to be included in any calculation of the value of the Applicant’s assets until the date it is repaid.
DECISION
The decision under review is set aside. The matter is remitted for reconsideration in accordance with these reasons.
I certify that the preceding 55 (fifty -five) paragraphs are a true copy of the reasons for the decision herein of Deputy President S E Frost and Mr N Gaudion, Member ......................[sgd]..................................................
Associate
Dated 22 December 2016
Date(s) of hearing 15 and 16 June 2016 Date final submissions received 11 July 2016 Counsel for the Applicant Mr A Jordan Solicitors for the Applicant Mr A Macri, NSW Compensation Lawyers Counsel for the Respondent Ms R Graycar Solicitors for the Respondent Ms G Doyle, Sparke Helmore
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