Ziming Cao and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs

[2013] AATA 591

[2013] AATA  591

Division	GENERAL ADMINISTRATIVE DIVISION
File Number(s)	2013/1255; 2013/1264
Re	Ziming Cao
APPLICANT
And	Secretary, Department of Families, Housing, Community Services and Indigenous Affairs
RESPONDENT

DECISION

Tribunal	Senior Member A K Britton
Date	22 August 2013
Place	Sydney

The decision under review is affirmed.

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Senior Member A K Britton

CATCHWORDS

SOCIAL SECURITY—Overpayments and debt recovery—Whether deposits into Applicant’s bank account constitute income—Whether the debt should be written off—Whether the debt should be waived—Decision affirmed

LEGISLATION

Administrative Appeals Tribunal Act 1975 (Cth) – s 37

Social Security Act 1991 (Cth) – ss 8(1); 8(2); 1064; 1068; 1072; 1223(1); 1236; 1237A; 1237AAD

CASES

Boscolo v Secretary, Department of Social Security (1999) 90 FCR 531

Cao and Secretary, Dept Families, and Housing, Community Services and Indigenous Affairs (unreported, Social Security Appeals Tribunal, Presiding Member Richardson, Member Smith, 14 February 2013)

Fischer v Secretary, Department of Families, Housing, Community Services & Indigenous Affairs (2010) 185 FCR 52

Groth v Secretary, Department of Social Security (1995) 40 ALD 541

Secretary Department of Social Security v Hodgson (1992) 37 FCR 32

REASONS FOR DECISION

Senior Member A K Britton

22 August 2013

1. Mr Ziming Cao challenges the decision made by Centrelink and affirmed by the Social Security Appeals Tribunal, to raise and recover an alleged debt of just over $40,000. The genesis of the debt was money, totalling over $200,000, deposited into an account held by Mr Cao with the HSBC bank between January 2003 and July 2010 (the debt period). Centrelink contends that those deposits constitute “income” within the meaning of the Social Security Act 1991 (Cth) (the Act) and must be taken into account in calculating Mr Cao’s social security entitlements.

2. Mr Cao on the other hand contends that the money deposited into his HSBC account (the disputed deposits) did not belong to him but rather had been borrowed from third parties on behalf of friends based in China, the Yu brothers, for whom he was acting as “business sponsor”. It follows, he argues, that the disputed deposits are irrelevant to the calculation of the rate of social security payments payable to him throughout the debt period.

3. The central issue to be decided is the proper characterisation of the disputed deposits. If some or all of the deposits are found to constitute income it will also be necessary to decide:

   whether Mr Cao was overpaid Disability Support Pension (DSP) and/or Newstart Allowance during the debt period, and the amount of any overpayment;

   if as a result of any overpayment Mr Cao owes a debt to the Commonwealth, whether the power to waive or write off the debt can or should be exercised.

   STATUTORY FRAMEWORK

4. The rate of Newstart Allowance and DSP payable to a person is calculated by applying the Pension Rate Calculators in s 1068 and s 1064 of the Act, respectively. In calculating each rate the recipient’s “ordinary income” must be taken into account.

5. “Ordinary income” is defined to mean a person’s gross ordinary income from all sources for the period calculated without any reduction (s 1072 of the Act). Section 8(1) defines “income” in relation to a person, to mean:

   an income amount earned, derived or received by the person for the person's own use or benefit…

   …

   but does not include an amount that is excluded under subsection (4), (5) or (8).

6. Subsections (4), (5) and (8) do not apply in this matter.

7. Section 8(2) provides that a reference in the Act to an “income amount earned, derived or received” is a reference to:

   an income amount earned, derived or received by any means; and

   an income amount earned, derived or received from any source (whether within or outside Australia).

8. An “income amount” is defined to include moneys.

   DO THE DISPUTED DEPOSITS CONSTITUTE “INCOME” FOR THE PURPOSES OF THE ACT?

9. In these proceedings Mr Cao testified that in 2003 he agreed to act as “business sponsor” for the Yu brothers, who ran a paint importation business out of China. He claims he was told by the Yu brothers that their Australian supplier, Barloworld Coatings Australia Pty Ltd (Barloworld), had refused to supply them with paint unless their payments were guaranteed by a person based in Australia. He claimed that he agreed to take on this role, which he described as “business sponsor” because he and the Yu brothers were friends and they had provided him with much needed support during a difficult period in his life. While not completely clear, I understand him to claim that he provided the guarantee through two companies of which he was a director, Winga Enterprises Pty Ltd (Winga Enterprises)and from 2007, Oziming–Caoziming Pty Ltd (Oziming–Caoziming). He claimed that neither he nor either company received any payment or reward for undertaking this role.

10. According to Mr Cao from time to time throughout the debt period, the Yu brothers were unable to meet their payments to Barloworld because they had not been paid by their local customers. He claimed that on these occasions he stepped in and “pushed” the Yu brothers to repay the monies and, if unsuccessful, used his own money or money borrowed from Mr Rong and others, to repay Barloworld.

11. I am unable to accept this account for these reasons.

12. First no mention was made of Mr Cao acting in effect in the role of trustee on behalf of the Yu brothers prior to the hearing in these proceedings. In a record of a phone conversation with Mr Cao made in September 2012, a Centrelink Authorised Review Officer recorded Mr Cao as saying that in 2002 he borrowed $30,000 to $40,000 from a friend to start a paint business. The Social Security Appeals Tribunal in its reasons for decision recorded a similar history (Cao and Secretary, Dept Families, and Housing, Community Services and Indigenous Affairs (unreported, Social Security Appeals Tribunal, Presiding Member Richardson, Member Smith, 14 February 2013) at [16] to [23]). In these proceedings when asked to explain why he had not previously disclosed his role as business sponsor, he asserted that he had not been given the opportunity to do so. That claim cannot be accepted.

13. Mr Cao testified in these proceedings that most of the money deposited into his HSBC account was borrowed from a Mr Rong, a friend of the Yu brothers. This was the first mention made of Mr Rong in these proceedings. He is not referred to in any of the documents Mr Cao provided to Centrelink, the records made by Centrelink officers following conversations with Mr Cao, or in the reasons for decision given by the Social Security Appeals Tribunal.

14. Second, the sole evidence to support Mr Cao’s claim of having acted as business sponsor for the Yu brothers is his oral testimony given in these proceedings. Since Centrelink commenced an investigation into the source of these deposits in May 2009, Mr Cao has provided Centrelink with a number of documents in support of his claim that the disputed deposits do not constitute income. These include statements prepared by Messrs Zhong Zhang, Haunto Du and Zhi Han. None refer to the Yu brothers or Mr Cao’s role as “business sponsor”. In separate statements Messrs Han and Du each stated that they lent Mr Cao money at various times throughout the debt period. Mr Han does not disclose the purpose of the loan made to Mr Cao; Mr Du stated that he made a loan to Mr Cao “to do business”. The only mention of Barloworld is in the statement prepared by Mr Zhang (undated). He stated that between 2004 and 2008 he deposited $120,0000 into Mr Cao’s account to do “coating business” and Mr Cao in turn paid $120,000 “for me” to Barloworld. Mr Zhang also stated that between 2009 and 2010 “bit by bit” he lent $25,000 to Mr Cao and has only been repaid $4000. If anything Mr Zhang’s statement supports the earlier claim made by Mr Cao that the disputed deposits were used to finance his personal business interests.

15. Mr Cao tendered a number of additional documents in these proceedings in support of his claim of having acted as business sponsor on behalf of the Yu brothers. These include invoice statements issued by Barloworld and various shipping documents. The former make no mention of the Yu brothers, identify the “customer” as Winger Enterprises and, from 2007, Oziming–Caoziming. The latter merely establish that paint supplied by Barloworld was shipped to China (Exhibit A4).

16. Third, Mr Cao’s claim about the interrelationship between Barloworld, the Yu brothers and himself, is inherently implausible. On his account notwithstanding that his only source of income since 1996 was social security payments he was prepared to act on a voluntary basis to guarantee debts incurred by the Yu brothers, which from time to time came close to $100,000 (see Exhibit A3). More to the point, it is implausible that Barloworld, if concerned to secure payment for goods supplied, would have taken any comfort from a guarantee given by a person in Mr Cao’s position.

17. Fourth, Mr Cao’s own bank records do not support his claim. Included in the documents produced under section 37 of the Administrative Appeals Tribunal Act 1975 (Cth) are copies of Mr Cao’s bank statements covering most of the debt period. They reveal that throughout that period relatively small deposits were made into Mr Cao’s account on an irregular basis. The source of these deposits is not evident from the statements. The withdrawals were in the main in cash for relatively small amounts, typically $500 or $1000. There is nothing on the statements to suggest that the money withdrawn was paid to Barloworld.

18. When asked to identify those records he believes support the claim he met debts incurred by the Yu brothers by using money lent by third parties that had been paid into his personal account, Mr Cao pointed to three records of deposits. (documents produced under section 37 of the Administrative Appeals Tribunal Act 1975 (Cth), T115, p 586). All relate to deposits made into the account of Winga Enterprises in June 2006. Two bear no relationship to Mr Cao’s personal HSBC account and simply indicate that cash deposits in the sum of $10,000 and $5,000 were made into the account of Winga Enterprises. No reference is made to the source of that cash. The third indicates that $40,000 was transferred from Mr Cao’s personal account to Winga Enterprises.

19. The bank records also reveal that in March 2003 the sum of $16,500 was transferred from Mr Cao’s personal account to Winga Enterprises. The evidence of these transfers simply establishes that funds from Mr Cao’s personal account were transferred to Winga Enterprises. It could not be reasonably argued that this evidence supports Mr Cao’s contention that the disputed deposits were loans made to him and held in trust for the Yu brothers, or that the “borrowed” funds were paid to Barloworld.

20. Mr Cao proffered no explanation for the reason the disputed deposits were paid into his personal account and not directly to Winga Enterprises, Oziming-Caoziming or indeed Barloworld itself.

21. Fifth, the evidence given by Mr Cao raises doubts about the reliability of his evidence. For example when questioned about the source of funding for the 30 overseas trips he made since 2000, he told a Centrelink Authorised Review Officer in 2009 that they had been paid for by Mr Zhang. In contrast in these proceedings he claimed his mother financed those trips.

22. While not put in these terms Mr Cao argues in effect that he was acting as trustee on behalf of the Yu brothers. While no doubt Mr Cao, Winga Enterprises and Oziming–Caoziming had a relationship with and paid some money to Barloworld, the evidence falls well short of establishing that the disputed deposits were paid to Mr Cao in trust for the Yu brothers and used for that purpose. I am not satisfied that the disputed deposits were paid to Mr Cao in his capacity as trustee for the Yu brothers or used to repay Barloworld for debts incurred by the Yu brothers. I am satisfied that the disputed deposits were received by Mr Cao for his own use or benefit and constitute “income” for the purposes of the Act (ss 8(1) and 1072 by the Act).

    WAS THE AMOUNT OF THE DEBT CORRECTLY CALCULATED? 

23. Having reviewed the calculations made by the Authorised Review Officer and the assumptions on which they were based, I am satisfied that Mr Cao received an overpayment of $40,877.96 made up of (i) $14,376.53 being for DSP payments made between 15 January 2003 and 19 April 2005; and (ii) $26,501.43 being for Newstart Allowance payments made between 16 August 2005 and 29 July 2010.

24. By the operation of s 1223(1) of the Act that overpayment is a debt due to the Commonwealth owed by Mr Cao.

    SHOULD THE DEBT BE WRITTEN OFF?

25. Section 1236 gives the decision-maker the power to write off a debt and provides:

    1236  Secretary may write off debt

    1Subject to subsection (1A), the Secretary may, on behalf of the Commonwealth, decide to write off a debt, for a stated period or otherwise.

    1AThe Secretary may decide to write off a debt under subsection (1) if, and only if:

    (a)the debt is irrecoverable at law; or

    (b)the debtor has no capacity to repay the debt; or

    (c)the debtor's whereabouts are unknown after all reasonable efforts have been made to locate the debtor; or

    (d)it is not cost effective for the Commonwealth to take action to recover the debt.

    …

26. If a debt is recoverable by means of deductions from the debtor's social security payment the debtor is taken to have a capacity to repay the debt for the purpose of              paragraph (1A)(b) unless recovery by those means would result in the debtor being in severe financial hardship (s 1236(1C).

27. There is no evidence — and nor is it suggested — that the criteria set out in pars (a), (c) or (d) of s 1236(1A) apply in this case. By the operation of s 1236(1C) of the Act Mr Cao is taken to have the capacity to repay the debt as it is recoverable from deductions from his social security payments. I am satisfied for the reasons outlined below that given Mr Cao’s current circumstances this would not result in him being in severe financial hardship.

28. It follows that the power to write off the debt cannot be exercised.

    SHOULD THE DEBT BE WAIVED ON ACCOUNT OF ADMINISTRATIVE ERROR?

29. Section 1237A of the Act allows for a debt that is solely attributable to an administrative error made by the Commonwealth, to be waived.

30. The genesis of the debt was Mr Cao’s failure to disclose the disputed deposits. There is no evidence to suggest that any part of the debt was attributable to an administrative error made by Centrelink. Accordingly the power to waive the debt under this provision cannot be exercised.

    SHOULD THE DEBT BE WAIVED BECAUSE OF SPECIAL CIRCUMSTANCES?

31. Section 1237AAD of the Act gives the decision-maker the power to waive all or part of a debt if satisfied, among other things, that “there are special circumstances (other than financial hardship alone) that make it desirable to waive [the debt]”.

32. The term “special circumstances” is contained in a number of provisions of the Act and has been the subject of exhaustive consideration by the Administrative Appeals Tribunal and the Federal Court. The Federal Court has consistently declined to adopt a prescriptive formula. (See for example French J in Boscolo v Secretary, Department of Social Security (1999) 90 FCR 531 at 535.) Nonetheless, the Court has emphasised that the term denotes a requirement that there be “something to distinguish [the claimant’s] case from others, to take it out of the usual or ordinary case”: per Kiefel J in Groth v Secretary, Department of Social Security (1995) 40 ALD 541 at 545. This however is not to be interpreted as a requirement that the claimant’s circumstances be “extremely unusual, uncommon or exceptional”: per Hill J in Secretary Department of Social Security v Hodgson (1992) 37 FCR 32 at 42. Nor is there a requirement that the circumstances be unique to the individual: per Katzmann J in Fischer v Secretary, Department of Families, Housing, Community Services & Indigenous Affairs (2010) 185 FCR 52 at 65.

33. Mr Cao is currently repaying the debt owed to Centrelink at the rate of $60 per fortnight by way of automatic deductions made from his social security payments. After those deductions are made he receives about $800 per fortnight (inclusive of rent assistance). He has no dependents and lives in a share household paying $130 per week in rent. He estimates that he owes a few hundred dollars in medical expenses. He claims to owe $22,000 to Mr Zhang and a few thousand dollars to an accountant. There is no evidence that either Mr Zhang or the accountant have or intend to take action to recover the alleged debt.

34. The evidence does not suggest that Mr Cao’s current financial circumstances could be described as straitened. I am not satisfied that taken as a whole Mr Cao’s circumstances are such “to take it out of the usual or ordinary case”.

35. It follows that the debt cannot be waived under s 1237AAD of the Act.

    CONCLUSION

36. The decision to raise and recover a debt of $40,877.96 from Mr Cao is affirmed.

I certify that the preceding 36 (thirty-six) paragraphs are a true copy of the reasons for the decision herein of Senior Member A K Britton

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Associate

Dated 22 August 2013

Date(s) of hearing	15 August 2013
Applicant	In person
Solicitors for the Respondent	Australian Government Solicitor