Chief Executive of the Ministry of Social Development v Morgan

IN THE COURT OF APPEAL OF NEW ZEALAND

CA418/2014
[2015] NZCA 453

BETWEEN	THE CHIEF EXECUTIVE OF THE MINISTRY OF SOCIAL DEVELOPMENT Appellant
AND	IAN RICHARD MORGAN AND JEANNE MORGAN Respondents

Hearing:	8 September 2015
Court:	Harrison, French and Cooper JJ
Counsel:	J C Holden and M J R Conway for Appellant G M Brodie for Respondents
Judgment:	22 September 2015 at 10.00 am

JUDGMENT OF THE COURT

AWe answer the question of law submitted under s 12R of the Social Security Act 1964 for determination by this Court:
Did the High Court err in its interpretation of s 74(1)(d) of the Social Security Act 1964 and/or the Temporary Accommodation and Assistance (Canterbury Earthquake) (“TAA”) Programme by considering whether ownership of a property necessarily prevented an applicant from qualifying for TAA rather than whether ownership of the property in respect of which the respondents applied for TAA would have prevented the respondents from qualifying for TAA, when assessing whether the respondents’ deprivation of property had “resulted” in them qualifying for TAA?
Yes.

BThe appeal is allowed and the decision of the High Court quashed.
CThere is no order as to costs.

____________________________________________________________________

REASONS OF THE COURT

(Given by French J)

Introduction

Section 74(1)(d) of the Social Security Act 1964 confers a discretion on the Chief Executive of the Ministry of Social Development (the Chief Executive) to decline to grant a benefit if satisfied:
that the applicant has directly or indirectly deprived himself of any income or property which results in his qualifying for that … benefit …
In the decision under appeal, Dunningham J held that Mr and Mrs Morgan had deprived themselves of property within the meaning of s 74(1)(d), but that it had not resulted in them qualifying for a benefit.[1]
[1]Morgan v Chief Executive of the Ministry of Social Development [2014] NZHC 421.
The only issue on appeal is whether the Judge erred in her consideration of the causal link that s 74(1)(d) requires to be established between the deprivation of property and qualifying for the benefit in question.

The facts

Following the Christchurch earthquake of February 2011, Mr and Mrs Morgan had to move out of their earthquake-damaged home and live elsewhere while the house was being rebuilt.
They shifted into another house, which for ease of reference we shall call the Newcastle Street property. The Newcastle Street property was owned by the I M Property Trust (the Trust). The Trust had purchased the property in 2008. The settlor of the Trust was Mr Morgan. The trustee is a company whose sole shareholder is Mr Morgan. Mr and Mrs Morgan are the only directors. The beneficiaries of the Trust are the I & J Morgan Family Trust and two charities. The Newcastle Street property had previously been occupied by tenants who paid rent to the Trust. The tenants had vacated the property.
On 15 March 2011, Mr and Mrs Morgan entered into a tenancy agreement with the Trust under which they agreed to pay rental to the Trust.
Initially the insurer of the earthquake-damaged house met the Morgans’ rental costs, but that entitlement expired in March 2012. In February 2012 the Morgans applied to the Ministry of Social Development for assistance with the rent under a welfare programme known as the Temporary Accommodation Assistance (Canterbury Earthquake) (“TAA”) Programme.
The TAA Programme was established in February 2011 under s 124(1)(d) of the Social Security Act. The essential purpose of the programme is to assist Canterbury homeowners to meet temporary accommodation costs incurred as a result of their having to leave their usual homes while earthquake repairs are undertaken.[2]
[2]“Temporary Accommodation Assistance (Canterbury Earthquake) Programme” (3 March 2011) New Zealand Gazette 619 (TAA Programme), cl 4.
One of the eligibility criteria for TAA is that the applicant must be incurring costs in respect of his or her temporary accommodation.[3] “Temporary accommodation costs” are defined in cl 5 of the Programme as rent, board, lodgings, or short term accommodation in a holiday park, motel, hotel or serviced apartment. TAA is not intended to cover the wider costs of home ownership, such as mortgage payments, rates or insurance, or to assist homeowners who have been financially disadvantaged as the result of the Christchurch earthquakes through, for example, loss of rental income. It is also not available to persons who live with friends or relatives and do not pay board or rent.
[3]Clause 8.
The Chief Executive initially declined the Morgans’ application on the grounds they were occupying their own rental property. This decision was upheld on review internally and again by the Benefits Review Committee.
The Morgans appealed to the Social Security Appeal Authority (the Authority). The Authority held that the TAA Programme was to be treated as a benefit for the purposes of the discretion under s 74(1)(d).[4] It accepted the Morgans were not the legal owners of the Newcastle Street property, but found they had deprived themselves of the property, bringing them within the scope of s 74(1)(d).[5] The Authority then considered all the circumstances and decided to exercise the discretion against the Morgans. It held their application for TAA should be declined and dismissed their appeal.[6]
[4]This is the effect of cl 6 of the TAA Programme, which expressly states that s 74 of the Social Security Act 1964 applies to the programme as if it were a benefit under the Act.
[5]An appeal against a decision of the Benefits Review Committee [2013] NZSSAA 38.
[6]Under s 12I(2) of the Social Security Act, the Authority is vested with all the discretions available to the Chief Executive and was therefore entitled to exercise the discretion in s 74(1)(d) notwithstanding it had not been relied upon by the Chief Executive himself or the Benefit Review Committee.
Dissatisfied with that outcome, the Morgans appealed to the High Court using the case stated procedure.[7] The case was heard by Dunningham J. She reversed the decision of the Authority and held that the discretion under s 74(1)(d) was not engaged. The Judge made an order approving the Morgans’ application for temporary accommodation assistance under the TAA Programme subject to a maximum weekly reimbursement.[8]
[7]As required by s12Q(6) of the Social Security Act, the form of the case stated was settled by the Chairperson of the Authority.
[8]Morgan v Chief Executive of the Ministry of Social Development, above n 1, at [79].
The Chief Executive then sought leave to appeal to this Court under s 12R of the Social Security Act. In a separate leave decision, Dunningham J granted leave to appeal in respect of the following question:[9]
Did the High Court err in its interpretation of s 74(1)(d) of the Social Security Act 1964 and/or the Temporary Accommodation and Assistance (Canterbury Earthquake) (“TAA”) Programme by considering whether ownership of a property necessarily prevented an applicant from qualifying for TAA rather than whether ownership of the property in respect of which the respondents applied for TAA would have prevented the respondents from qualifying for TAA, when assessing whether the respondents’ deprivation of property had “resulted” in them qualifying for TAA?
[9]Morgan v Chief Executive of the Ministry of Social Development [2014] NZHC 1610 at [3]. The parties agreed to minor amendments at the appeal hearing in order to clarify the meaning of the question.
As will be apparent, the question is badly worded and leave should not have been granted to appeal according to its terms.

Analysis

It was common ground the Authority was correct to hold the TAA Programme was a benefit for the purposes of s 74(1)(d).
Section 74(1)(d) states:
74 Limitation in certain other cases
(1)Notwithstanding anything to the contrary in this Act or Part 6 of the Veterans’ Support Act 2014 or the New Zealand Superannuation and Retirement Income Act 2001, the chief executive may, in the chief executive’s discretion, refuse to grant any benefit or may terminate or reduce any benefit already granted or may grant a benefit at a reduced rate in any case where the chief executive is satisfied–—
…
(d)that the applicant has directly or indirectly deprived himself of any income or property which results in his qualifying for that or any other benefit or an increased rate of benefit.
The section mandates a composite two-stage inquiry:
(a)Whether the applicant for a benefit has deprived themselves of property; and, if so,
(b)whether the deprivation resulted in the applicant qualifying for the benefit.
Even if the two prerequisites are satisfied, the Chief Executive still has a residual discretion to grant the benefit.
As regards the first prerequisite, Dunningham J found that the Newcastle Street property was an asset that could equally have been owned by Mr and Mrs Morgan in their personal capacity but for a decision to acquire it through a trust structure. In those circumstances, she considered the Authority was entitled to infer the Morgans had deprived themselves of property (being ownership of the Newcastle Street property) within the meaning of s 74(1)(d).[10]
[10]Morgan v Chief Executive of the Ministry of Social Development, above n 1, at [60]–[61].
This finding was not challenged on appeal to this Court. Both parties appear to have assumed it was a finding of fact and therefore not amenable to appeal. In the absence of any argument, we have therefore proceeded on the basis there was deprivation of property. However, our decision should not be taken as endorsing the finding or the test applied by the High Court in determining what amounts to deprivation.
The sole focus of the appeal was whether Dunningham J erred in concluding that the deprivation had not resulted in the Morgans qualifying for TAA. Unfortunately, the Judge’s reasoning on this point is not clear, in part we suspect because of the Authority’s approach in conflating the two stages of the inquiry,[11] the poor wording of the questions in the case stated and the order in which the Judge addressed the issues — dealing with the second prerequisite before the first.
[11]The Authority addressed only the first prerequisite, and assumed the second prerequisite was satisfied, before considering the residual discretion. Justice Dunningham recognised this in Morgan v Chief Executive of the Ministry of Social Development, above n 1, at [52].
In her decision, the Judge stated:
[46] In my view, the word “results” in this subsection requires the deprivation to be the determining factor which creates the entitlement to the benefit. Where a benefit is means tested by reference to ownership of assets or level of income, it is clear that deprivation of an asset or of income could result in an applicant qualifying for a benefit when they otherwise would not have.
…
[48] Here, the relevant consideration is whether deprivation of ownership of the Newcastle Street property means the appellants qualify for a benefit when otherwise they would not. In this case I do not think that this is the determinative factor.
The Judge then went on to consider the position if the Morgans had chosen to rent from a stranger — that is if they had found another tenant for the Newcastle Street property and themselves rented a different property altogether owned by a stranger. The Chief Executive had acknowledged that in such a hypothetical situation an applicant could receive TAA provided they were able to demonstrate they minimised their temporary accommodation costs. It was also acknowledged that an applicant who owned a habitable property rented to someone else would not necessarily be required to evict their tenants. Whether that was a reasonable expectation would depend on all the circumstances.[12]
[12]Morgan v Chief Executive of the Ministry of Social Development, above n 1, at [50].
In the Judge’s view, this meant ownership of the Newcastle Street property in the Trust’s name was not what determined whether the Morgans were eligible for TAA. It followed she said that the discretion to deny the benefit under s 74 was not available to the Chief Executive.
We agree with the Chief Executive that to reason in this way by reference to hypothetical examples was a departure from the plain words of s 74(1)(d) and hence an error of law. The second stage of the inquiry mandated by s 74(1)(d) is simply an inquiry into causation, the existence or otherwise of a causal link between the deprivation of property and qualifying for the benefit. In our view, all that is required is a straightforward application of the “but for” test on the facts of the particular case. Analysed in that way, the answer to the causation question on the facts of this case is obvious. The deprivation of property did result in the Morgans qualifying for TAA. If they had personally owned the Newcastle Street property, (that is, if they had not deprived themselves of the property) they would not have been eligible for assistance under the TAA Programme. Hypothetical scenarios have no place in the inquiry.
Counsel for the Morgans, Mr Brodie, sought to support the Judge’s decision by arguing that the deprivation had not resulted in the Morgans qualifying for assistance because they met all of the eligibility criteria under the TAA Programme. They owned an insured house, which was rendered uninhabitable by the Christchurch earthquakes, and they were required to find alternative rented accommodation. However that is a circular argument. As Mr Brodie accepted, if the Morgans had owned the property personally they would not have qualified. They would not have incurred temporary accommodation costs as defined or if they did purport to pay rent to themselves it would not have been a genuine payment. It was precisely because of the deprivation that the Morgans were able to meet all of the criteria.
Mr Brodie emphasised the rent charged was reasonable, and that it was not a case of the Morgans deliberately structuring their affairs so as to be eligible for TAA. We accept that is the case. The property was acquired in the name of the Trust well before the first earthquake. However those types of argument are irrelevant to the very narrow issue before us.
Finally, for completeness we note that Dunningham J went on to say in her decision that if she were wrong and the s 74(1)(d) discretion were available, then it should be exercised in light of the purposes of the Social Security Act and the TAA Programme. These, the Judge stated, included meeting the needs of people in financial hardship and ensuring families are not burdened with extra rental costs. In the Judge’s view, the discretion should have been exercised in favour of the Morgans because the Trust was genuinely in the business of renting the property and the Morgans had not created an artificial situation.[13]
[13]Morgan v Chief Executive of the Ministry of Social Development, above n 1, at [52]–[53].
The difficulty with this reasoning is that the Authority’s exercise of its residual discretion was not before the Judge. The only question before her was whether the Authority had jurisdiction to dismiss the Morgans’ appeal. Further it is apparent from the Authority’s decision that it did take into account the factual matters identified by the Judge when exercising its residual discretion.[14]

Outcome

[14]The Judge may also have overlooked that another relevant statutory purpose is that, where appropriate, people should use the resources available to them before seeking financial support under the Social Security Act: see s 1A(c)(i).

We answer the question of law submitted to this Court for determination in the affirmative.
The appeal is allowed and the decision of the High Court quashed.
In accordance with the wishes of the parties, there will be no order as to costs.

Solicitors:
Crown Law Office, Wellington for Appellant
Godfreys Law, Christchurch for Respondents

[2015] NZCA 453

22 September 2015 at 10.00 am