Molloy v Chief Executive of the Ministry of Social Development
[2013] NZHC 1233
•28 May 2013
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
CIV 2012-485-2564 [2013] NZHC 1233
UNDER the Social Security Act 1964
IN THE MATTER OF an appeal by way of case stated from a determination of the Social Security Appeal Authority under s 12Q of the Social Security Act 1964
BETWEEN FRANCES MOLLOY Appellant
ANDCHIEF EXECUTIVE OF THE MINISTRY OF SOCIAL DEVELOPMENT
Respondent
Hearing: 22 May 2013
Counsel: T McGurk for Appellant
T I Hallett-Hook for the Respondent
Judgment: 28 May 2013
JUDGMENT OF MALLON J
Introduction
[1] This appeal concerns the period against which income received by a beneficiary is to be allocated against a benefit entitlement under s 64(2B) of the Social Security Act 1964. The appeal is by way of case stated from a decision of the Social Security Appeal Authority (“the Authority”).
[2] The question of law for the opinion of the Court is:
Did the Authority err in law in determining that the Chief Executive had properly exercised his discretion under s 64 of the Social Security Act 1964
MOLLOY v CHIEF EXECUTIVE OF THE MINISTRY OF SOCIAL DEVELOPMENT [2013] NZHC 1233 [28
May 2013]
to allocate income to the review year rather than charge the income against entitlement to benefit in the period it was earned?
[3] The parties are agreed that the answer to this question is “Yes” and that the appeal should be allowed. If the Court agrees with the parties’ view about this, a judgment setting this out is sufficient to resolve the matter. The parties are agreed that there will be no need to refer the matter back to the Authority and the respondent (the Ministry) will recalculate the appellant’s (Ms Molloy’s) entitlement in accordance with their agreed position and this judgment.
Background facts
[4] An invalid’s benefit is abated by income earned by the beneficiary. In this case, Ms Molloy was first granted an invalid’s benefit some time in 1997. Her entitlement continued until 18 May 2009. It ceased at that point because Ms Molloy’s income from part-time earnings had increased to a level that fully abated the benefit payable. On 27 July 2009 Ms Molloy applied for and was again granted an invalid’s benefit because her income at this time had reduced to a level that did not fully abate the benefit. On 21 February 2011 Ms Molloy’s part-time employment ceased so from that date she was then entitled to the full benefit without abatement.
[5] The amount a beneficiary receives is based on the applicable rate of benefit less an abatement on the basis of estimated anticipated income. A later reconciliation is necessary because the estimated income may vary from the actual income received. The Ministry refers to this reconciliation process as a “due/paid assessment”. At issue on this appeal is a reconciliation of Ms Molloy’s estimated income with her actual income which was carried out by the Ministry in respect of the period 12 July 2010 to 10 July 2011. This due/paid assessment took account of income earned by Ms Molloy between 17 May 2010 and 15 May 2011 in calculating the rate of benefit for the period 12 July 2010 to 10 July 2011. On this basis an overpayment to Ms Molloy of $22.17 was established on 8 August 2011.
[6] Ms Molloy sought a review of the 8 August 2011 decision which established the overpayment of $22.17. Under the process provided for in the Social Security
Act, this review was by a benefits review committee. That committee considered the matter on 22 September 2011 and confirmed the Ministry’s decision as correct. Ms Molloy then appealed to the Authority. The Authority issued its decision on 15
March 2012 upholding the Ministry’s decision.
The legislation
[7] Section 42 of the Act provides that the invalid’s benefit is payable to any beneficiary at the rate specified in cl 1 of Schedule 6. That clause lists various dollar amounts as weekly rates, according to the person’s circumstances, and subject to the relevant income test:1
Schedule 6
Rates of invalid’s benefits
1.(a) To a single beneficiary under the age of 18 years without dependent children $196.35 a week, subject to Income Test
1.
(b) To any other single beneficiary without dependent children
$242.63 a week, subject to Income Test 1.
(c) To a single beneficiary with 1 or more dependent children
$318.75 a week subject to Income Test 1.
...
[8] The relevant income test for Ms Molloy was Income Test 1, as defined in s 3(1) of the Act:
3 Interpretation
(1) In this Act, unless the context otherwise requires,—
...
Income Test 1 means that the applicable rate of benefit shall be reduced—
(a) By 30 cents for every $1 of the total income of the beneficiary and his or her spouse or partner which is more than $100 a week but not more than $200 a week; and
(b) By 70 cents for every $1 of that income which is more than $200 a week
1 The following benefit rates were those in place for the period 27 September 2010 to 31 March
2011.
[9] Section 3(1) also defines “income”. The definition is a wide one. It means “any money received or the value in money’s worth of any interest acquired, before income tax, by the person which is not capital”. It goes on to provide further detail by specifying what is included in this definition and what is excluded.
[10] Section 64 sets out further provisions relating to the assessment of a person’s weekly income for the purposes of calculating the rate of benefit to which the person is entitled. For present purposes the relevant provisions of that section are ss 64(2A) and (2B):
(2A) Where in relation to the rate of any benefit or additional benefit, reference is made in this Act or in any Schedule to this Act ... to the weekly income of a person, such income shall, unless the context otherwise requires, be determined by dividing the person’s total income over the appropriate number of weeks specified in regulations made under this Act (not exceeding 52 weeks) by the number of weeks in that period.
(2B) For the purposes of determining a person’s weekly income under subsection (2A), the chief executive may determine the period or periods to which any income relates, having regard to –
(a) the extent to which it was earned in that period or those periods; or
(b) the extent to which any other entitlement to it arose in, or in respect of, that period or those periods; or
(c) the period or periods for which it was otherwise received, acquired, paid, provided, or supplied.
[11] Therefore s 64(2A) requires the Ministry to use a person’s average weekly income over the period prescribed in regulations, rather than the actual income earned in a particular week when assessing the rate of benefit to which they are entitled. The average weekly income is derived by dividing the person’s total income over the number of weeks specified in the regulations. Section 64(2B) permits the Ministry to determine the period to which income relates for the purposes of determining their weekly income under s 64(2A).
[12] The relevant regulations for the purposes of s 64(2A) are the Social Security (Period of Income Assessment) Regulations 1996 (“the regulations”). Clause 2 of the regulations states:
2 Period over which income to be calculated
(1) For the purposes of determining the weekly income of any person in accordance with section 64(2A) of the Social Security Act 1964, the number of weeks over which that income is to be determined shall be the appropriate number of weeks set out in the Schedule to these regulations.
[13] The Schedule to the regulations specifies that for an invalid’s benefit the “number of weeks over which a person’s weekly income is to be determined under section 64(2A) of the Social Security Act 1964” is “in each case, 52 weeks”. This means that, when applying the income test to the rate of benefit to which the person is entitled, a person’s weekly income will be their average income over a 52 week period.
[14] Neither s 64 nor the regulations, however, specifies when the 52 week period over which the weekly income is averaged is intended to commence. And it is this which was in issue between Ms Molloy and the Ministry.
The Ministry’s earlier position
[15] As the Ministry’s submissions put it, the issue is whether s 64(2B) is a mechanism intended to:
(a) pick the 52 week period of income that is used for the purposes of the
“due/paid” assessment; or
(b)determine what income should be regarded as attributable to the relevant 52 week period over which income is being assessed.
[16] The Ministry’s view had been the former. It adopted an administrative practice of allocating an “income year” as a 52 week period commencing eight weeks prior to the “review year” (i.e. the 52 week period over which a person’s entitlement was assessed/reviewed). The Ministry adopted this practice because it was thought that this would ensure that the beneficiary had sufficient time to obtain information about their annual income, and for this information to be reviewed by the Ministry, prior to the annual review of their benefit. This practice was adopted at a time when the legislation required a person to re-establish their entitlement to a
benefit each year. The practice was seen by the Ministry as serving to ensure continuity of their benefit. This view, and the reason for the practice that had developed, was advanced to the Authority on the Ministry’s behalf in respect of Ms Molloy’s appeal.
The Authority’s decision
[17] The Authority’s decision was as follows:
Section 64(2B) of the Social Security Act 1964 gives the Chief Executive a discretion to determine the period or periods to which any income relates. The Chief Executive’s discretion is not an unlimited discretion. It is clear that he must have regard to the period in which income was earned, received, acquired, paid, provided or supplied. However the fact that a discretion has been conferred on the Chief Executive suggests that it was anticipated that income would not necessarily be assessed in the period that it was earned. We understand the current regime which involves an eight week difference between the income year and the review year has been decided on for administrative purposes. The eight week difference allows the beneficiary to collect the necessary information from their employer, allows time for it to be provided to the Ministry and for the Ministry to carry out its assessment.
[18] The Authority accepted that the Ministry’s approach to weekly benefits might differ from its approach to annual benefits. It also accepted that the Ministry’s practice would be confusing for beneficiaries. It did not see these factors as requiring the Authority to change its practice. It also rejected a submission that the practice may be disadvantageous to beneficiaries on the basis that there was no evidence to support that submission.
The parties’ agreed view
[19] Following the Authority's decision dismissing Ms Molloy’s appeal, an appeal by case stated was filed in this Court. In accordance with the usual procedure, the parties each filed submissions. The Ministry’s submissions set out its revised view that s 64(2B) did not permit the Ministry to pick the 52 week period of income that was to be used for the purposes of the “due/paid” assessment. The parties then filed a joint memorandum. In that joint memorandum the parties’ agreed view was as follows:
... the purpose of s 64(2B) is to make it clear that the Ministry is not required to treat the point at which income is received as determinative of the period
to which that income is attributable. Where, for example, a lump sum payment is received by [a] beneficiary s 64(2B) provides the Chief Executive with a discretion to consider the period of time this income be regarded as relating to in accordance with the considerations in s 64(2B)(a)- (c).
This has been confirmed by the High Court and Court of Appeal in Goh v
Ministry of Social Development:
... The wording of this section requires the Chief Executive to focus on the “period” when the income was “earned” or “arose in”, rather than the time when the income was paid. In other words, the section indicates that in determining what is income it is correct for the Chief Executive to treat entitlements paid for certain periods as income for the periods, even if the payments are actually made at a much later date. The period to which payments are attributable will usually be identified by reference to the period when the right to payment was acquired.
The parties are agreed that the Authority erred in law by failing to interpret s 64(2B) in this way and that, as a result, the answer to the question of law is “yes”.
[20] I agree with this view. Section 64(2B) was enacted after the High Court decision and before the Court of Appeal decision in Tapp v The Chief Executive of the Department of Work and Income.2 In that case the Court was concerned with abatement of the benefit of Government Superannuation Fund payments. These payments were paid in four weekly instalments and the question was whether the payments were income only in the week a particular payment was received, or
whether it was to be treated as derived over the whole of the four week period to which it related. The High Court held that it was to be treated as derived over the whole of the four week period to which it related. The Court of Appeal agreed. In reaching that conclusion the Court of Appeal said:3
In the absence of any legislative provision to the contrary the period to which income is attributable will usually be identified by reference to the dates upon which rights and interests are acquired. That approach is consistent with the meaning of “income” as defined in s 3(1) of the Social Security Act.
2 Tapp v The Chief Executive of the Department of Work and Income HC Wellington AP264/00, 29
June 2001; affirmed by Tapp v The Chief Executive of the Department of Work and Income
[2003] NZFLR 761 (CA).
3 At [18].
[21] It considered that this interpretation was also consistent with the legislative purpose of the abatement, namely to balance self-support incentives against reservation of benefits to those in need.
[22] As the parties submitted, s 64(2B) seems to have been a direct response to the issue that was before the High Court in Tapp. It clarified that the Ministry could look behind the point at which income was received by a person and make an assessment of the period or periods over which the income properly could be said to be attributed. The Court of Appeal considered that to be the position even without the amendment introduced. There is nothing to suggest that the amendment was intended to provide the Ministry with a direction to abate income earned in one period against a benefit received in a different period.
[23] Subsequent to the enactment of s 64(2B) was the High Court’s decision in Goh v The Chief Executive of the Ministry of Social Development.4 In that case the Court was concerned with whether income by way of arrears of ACC compensation should reduce benefit payments that related to the period to which the arrears related, or whether the income should relate to the week when the compensation payment was received. The High Court Judge considered it to be the former and in so doing expressed the view that is quoted in [19] above. The Court of Appeal rejected an application for special leave to appeal that decision.5
[24] There is no reason for me to take any different view. I agree that the words of s 64(2B) in light of their purpose mean that the Ministry is not bound, when determining the weekly income under s 64(2A), by when the income was received. The Ministry is able to determine the period to which any income relates. It is to do so having regard to the matter set out in sub-paragraphs (a) to (c). The definition of “income” in s 3(1) is wide. Subparagraphs (a) to (c) in s 64(2B) capture matters that will be relevant to (using the words in Tapp) the “dates upon which rights and interests are acquired” in relation to income that falls within that definition. If rights and interests to income acquired in one period are applied to the same period in
which a benefit is received, the proper abatement will be achieved.
4 Goh v The Chief Executive of the Ministry of Social Development HC Auckland CIV 2008-485-
2391, 30 June 2009.
5 Goh v The Chief Executive of the Ministry of Social Development [2010] NZCA 110.
[25] Therefore, although the practice the Ministry adopted was put in place for what were seen as good administrative reasons, it was not a practice authorised by s 64(2B). For completeness I note that there is now no longer a requirement for beneficiaries to re-establish their entitlement each year. The administrative reason for the practice has therefore gone.
Further issue
[26] The parties agree that if the Authority erred in its interpretation of s 64(2B), a further question arises, namely what was the correct period of income to use to assess Ms Molloy’s entitlement to receive the invalid’s benefit?
[27] The parties agree that it is important that this issue be addressed in order to clearly resolve the matters that were raised before the Authority. The parties submit that this issue can be addressed during the course of answering the current question of law for the opinion of the Court. Alternatively, if this is not the case, the parties agree that it would be appropriate for the Court to exercise its power under High Court Rule 21.12(2) to amend the case stated to add an additional question of law as follows:
How should the 52 week period prescribed by the Social Security (Period of Income Assessment) Regulations 1996 have been determined for the purposes of the retrospective assessment of Ms Molloy’s entitlement to the invalid’s benefit at issue in this appeal?
[28] The parties submit that where the rate at which a person’s benefit is paid over a period is being assessed for abatement purposes, it is the income that is attributable to this same period that should be used to carry out this assessment. The parties agree that under s 64(2A) of the Act and the regulations the starting point for the 52 week period contemplated by the regulations is the date at which the benefit that is being assessed commenced. It follows that where, as in the case of Ms Molloy, a beneficiary has been continuously receiving a benefit for more than 52 weeks, subsequent 52 week “income periods” should run on from the end of the original 52 week “income period”.
[29] The parties submit that in Ms Molloy’s case the initial period over which her
entitlement to receive the invalid’s benefit should have been assessed was 27 July
2009 (the date on which her continuous entitlement commenced) to 25 July 2010 (being the date 52 weeks after 27 July 2009, a year being 52 weeks and one day long except in leap years when it is 52 weeks and two days long). By extension, the yearly “due/paid” assessment to which this appeal relates should have been conducted for the period between 26 July 2010 and 24 July 2011 using the income Ms Molloy earned in this period.
[30] I agree with the parties. It follows from the discussion above as to the meaning and purpose of s 64(2B). I therefore formally amend the case stated to add the above additional question and answer it in accordance with the parties’ agreed position above (at [29]).
Result
[31] The first question was as follows:
Did the Authority err in law in determining that the Chief Executive had properly exercised his discretion under s 64 of the Social Security Act 1964 to allocate income to the review year rather than charge the income against entitlement to benefit in the period it was earned?
[32] The answer to the first question is “yes”.
[33] The second question was as follows:
How should the 52 week period prescribed by the Social Security (Period of Income Assessment) Regulations 1996 have been determined for the purposes of the retrospective assessment of Ms Molloy’s entitlement to the invalid’s benefit at issue in this appeal?
[34] The answer to the second question is that the yearly “due/paid” assessment should have been conducted for the period between 26 July 2010 and 24 July 2011 using the income Ms Molloy earned in this period.
[35] The appeal is allowed. Ms Molloy’s entitlement at issue in this appeal is to
be recalculated in accordance with the answers to the two questions.
Mallon J
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