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Accident Compensation Cases

Owens v Chief Executive of the Ministry of Social Development (HC, 04/04/05)

Judgment Text

Miller J
Work and Income New Zealand cancelled Mrs Owens' Accommodation Supplement in 2002, and sought to recover an overpayment of Accommodation Supplement paid between 25 October 1996 and 3 March 2002. The amount involved is $10,040.00. 
Mrs Owens appealed to a Benefits Review Committee, and then to the Social Security Appeal Authority. The Authority dismissed the appeal. It has now stated a case for the opinion of this Court under s 12Q of the Social Security Act 1964. 
The appeal has been consolidated with an application for judicial review, which is concerned solely with the Authority's dismissal of a very late application for a second adjournment of the appeal. 
Factual background 
The following summary is taken from the decision of the Authority and the case stated. 
Mrs Owens is in receipt of Unemployment Benefit paid at the single rate. She has been in receipt of either Unemployment Benefit or Community Wage since 27 May 1996. 
Mrs Owens purchased a flat at 18B Kingsford Road, Brookfield, in 1996, using a gift from her mother of $20,000 as a deposit and financing the balance by way of mortgage. She rented it out. 
After purchasing the property, Mrs Owens continued to live in rented accommodation and received Accommodation Supplement based on the rent she was paying. She did not at any stage declare the existence of her interest in the Kingsford Road property or the rent she was receiving from it. In an Application for Review of Benefit form signed by Mrs Owens on 26 June 1997, she responded no to the question do you or your partner have any of the following - holiday homes or other land and buildings other than your home. In similar forms dated 13 January 1998, the answer to this question was not completed. 
In February 2002, in the course of an investigation, Mrs Owens acknowledged that she owned the flat. (I will accept that she freely volunteered this information.) That led to a review of Mrs Owens' entitlement to Accommodation Supplement. It was cancelled, and an overpayment was established for the period 25 October 1996 to 3 March 2002. 
In a letter written to her advocate and produced before the Authority, Mrs Owens wrote: 
“I can honestly saw that I was never asked what I had or did not have in the way of assets etc. I filled out forms and was paid the benefit without any problems. I have never set out to rip off or defraud the system and I think this has all happened out of ignorance. I certainly did not know there was a limit on assets until this all blew up and as far as I was concerned I was being paid a benefit because I was unemployed. 
The tiny rental brought with my mother's help was just an investment and I certainly would not want to live in it. I would not fit in there and having only one bedroom my children would not be able to stay - particularly hard for my son and his family who come from Nelson. 
I have seen copies of the application to review forms and I personally did not say yes or no to the land and building question - I obviously did not read the form properly …  ”
At a Benefits Review Committee hearing on 24 July 2002, Mrs Owens indicated that she thought her equity in the property was $30,000. A Rates Instalment Notice for 2002 records the capital value of the property to be $78,000. A bank statement indicated that as at 22 May 2002, the mortgage registered against the property had an amount outstanding of $24,760.26. The Authority concluded that her equity in the property was approximately $54,000. 
Turning to process, Mrs Owens filed her appeal to the Authority on 24 July 2002. On 26 August, the Authority advised her representative, the Combined Beneficiaries Union Inc, that it intended to set the appeal down for hearing during the week of 11-15 November 2002, in Auckland. On 15 October, a fixture for Wednesday 13 November was confirmed. 
On 8 November 2002, Mr Sowry of the Combined Beneficiaries Union sought an adjournment on the grounds that he had had difficulty in contacting Mrs Owens over the last two weeks and, on finally speaking to her, he had learned she was absent from her home in the South Island for a family commitment. An adjournment was granted. 
On 25 November, the Combined Beneficiaries Union was told by letter that the appeal had been adjourned to the week of 10-14 March 2003, again in Auckland. On 19 February 2003, the Authority notified the Union of the confirmed fixture date of Thursday 13 March. 
On 12 March Mr Sowry wrote to the Authority requesting a further adjournment. He explained that the Union had tried on numerous occasions over the last three weeks to contact Mrs Owens but without success. He said that since one issue involved a write-off and the other the circumstances in which her property was purchased, it would be particularly difficult to present her case without having her present. He sought a final adjournment until May. 
The request was referred to the chairperson of the Authority. Her ruling reads as follows: 
“The application for adjournment is declined. This matter was previously set down for hearing on Wednesday 13 November 2002. It was adjourned at the request of the appellant who claimed to be staying at St Arnaud for the week of the hearings. On 25 November 2002, the Authority advised that the matter would be adjourned to the week of 10-14 March 2003. 
On 19 February 2003, the appellant's advocates were advised that the hearing would be on 13 March 2003. 
The appellant and her advocates have had ample notice of hearing. No further adjournment is warranted. ”
The hearing proceeded on 13 March. Mr Sowry appeared, but Mrs Owens did not. He renewed his application for adjournment, without success. The hearing was brief. The Authority's decision was delivered on 16 April 2003. 
Legislative context 
Section 61EA(1) of the Social Security Act 1964 provides that the Chief Executive may grant an Accommodation Supplement to assist in meeting the applicant's accommodation costs. The amount of Mrs Owens' Accommodation Supplement was governed by s 61EC(1)(4), which provide so far as relevant: 
The rate of accommodation supplement granted under section 61EA of this Act shall, in each case, be paid at the appropriate rate specified in the Schedule 18 to this Act. 
Notwithstanding anything to the contrary in this Act, an accommodation supplement shall not be paid to any person who has cash assets exceeding- 
$16,200 in the case of- 
A married person; or 
A single person with a dependent child or children: 
$8,100 in any other case …  
Notwithstanding the provisions of this section or of section 61EA of this Act, the [chief executive] may, if he or she is satisfied that the applicant or the applicant's spouse has not realised any assets available for the applicant's personal use,- 
Refuse to grant an accommodation supplement; or 
Reduce the rate of any accommodation supplement already granted; or 
Terminate any accommodation supplement already granted. ”
The term “cash assets”
money saved, invested, or banked with a bank or other institution: 
money invested in securities, bonds, or debentures, or advanced on mortgage: 
money invested in shares in a partnership or limited liability company or other incorporated or unincorporated body; but 
does not include any specified item or amount of cash assets, or cash assets of a specified kind, that is declared not to be cash assets for the purposes of this Act by regulations made under section 132] ”
Recovery of overpayments is governed by s 85A and s 86(1) of the Act, which provides that an overpayment is recoverable as a debt due to the Crown. There is a defence to the claim for recovery of a debt in s 86(9A). The subsection was amended in 2002, but the former version governs this appeal. It provided: 
“Notwithstanding anything to the contrary in this section, the [[chief executive]] may, [[I the [chief executive]'s discretion]], authorise the provisional writing-off of a debt which arose as a result of an error [[made by an officer or employee of the Department,]] not intentionally contributed to by the debtor if the [[chief executive]] is satisfied that the person receiving the amount so paid in error did so in good faith and has so altered his position in reliance on the validity of the payment that it would be inequitable in all the circumstances, including his financial circumstances, to require repayment.] ”
The Authority has all the powers of the Chief Executive when hearing an appeal: s 12I(1) and (2) of the Act. Procedure before the Authority is governed by s 12K. Subsections (7), (8), (9) and (10) provide: 
“ …
As soon as conveniently may be after the receipt of any appeal, the Appeal Authority shall, unless it considers that the appeal can be properly determined without a hearing, fix a time and place for the hearing of the appeal, and shall give not less than 10 clear days' notice thereof to the appellant and to the [[chief executive]]. 
At the hearing of any appeal the [[chief executive]] may be represented by counsel or by an officer of the Department and any other party may appear and act personally or by counsel or any duly authorised representative. 
Proceedings before the Authority shall not be held bad for want of form. 
Except as provided by this Act or by any regulations for the time being in force under this Act, the procedure of the Authority shall be such as the Authority may determine. ”
The Authority also has full discretionary power to hear and receive evidence: s 12M(3). 
The decision of the Authority 
Cancellation of Accommodation Supplement 
The Authority reasoned that the property at 18B Kingswood Road was an investment, and that Mrs Owens' equity in it should be considered a cash asset as defined in the Act. As her equity exceeded $8,100.00, s 61EC precluded an Accommodation Supplement. 
In the alternative, the Authority reasoned that s 61EC(4) confers a discretion on the Chief Executive not to grant Accommodation Supplement where the applicant has not realised any assets available for her personal use. The flat was clearly available for her personal use, and she had control over whether it was retained or sold. It would have been appropriate for the Chief Executive to exercise his discretion to refuse to grant Accommodation Supplement had he known of the flat. 
The Authority concluded that it was appropriate that the Chief Executive cancelled Mrs Owens' entitlement to Accommodation Supplement and established an overpayment. That decision was not disputed before me. 
Recovery of overpayment 
The Authority directed itself that it must be satisfied that each of the criteria in s 86(9A) had been established by Mrs Owens. It held firstly that the overpayment was an error, referring to Moody v The Chief Executive of the Department of Work and Income [2001] NZAR 608. No issue is taken with that conclusion on this appeal. 
The Authority then reviewed the evidence regarding Mrs Owens' knowledge of the error, but gave her the benefit of the doubt and accepted that she did not intentionally contribute to the overpayment. It also held that she received the money in good faith and altered her position in reliance on its validity. 
However, the Authority held against Mrs Owens on the final consideration, whether it would be inequitable in all the circumstances to require repayment. It reasoned that: 
“In this regard in our view the appellant was at the very least negligent in failing to disclose the existence of her rental property to the Department either at the time the apartment was purchased or in subsequent applications for review which specifically asked her to disclose the existence of land and buildings not used as a home. ”
The Authority added that, moreover, Mrs Owens had been able to use the gift from her mother to increase her financial resources at the same time as claiming income tested benefits. Her equity in the property was now substantially more than her original investment. 
For both of these reasons, the Authority held that it would not be inequitable to require repayment. 
Questions of law 
The Authority has stated the following questions for the Court's opinion: 
As a matter of law was the Authority entitled to take negligence on the part of the beneficiary into account as a factor in determining whether to exercise the discretion to provisionally write off the debt pursuant to the provisions of s 86(9A) of the Social Security Act 1964. 
Was there any evidence upon which the Authority was entitled to conclude that the appellant had been negligent? 
Was there any evidence upon which the Authority was entitled to conclude that the appellant's equity in her property was now substantially more than the original investment? 
As a matter of law was the Authority entitled to exercise its discretion to decline to direct the provisional write-off of the debt pursuant to the provisions of s 86(9A) of the Social Security Act 1964. 
The application for judicial review 
The application for judicial review is directed to the Authority's refusal to grant an adjournment. There were three causes of action, but before me the argument focused on the first, which alleged breach of natural justice. 
The plaintiff relies on affidavits from Mrs Owens and her advocate before the Authority, Mr Sowry. Mrs Owens says that the first adjournment was sought after she went to stay with family at St Arnaud. She had not appreciated until Mr Sowry managed to contact her on or about 8 November 2002, that the hearing was scheduled for 13 November. She also says that she learned the hearing had gone ahead on 13 March after returning from St Arnaud, where she had been looking after her grandchildren for three weeks. 
Mrs Owens considers it was important for her to be at the hearing to give evidence, as she had before the Benefit Review Committee. She says the Authority has made factual errors. For instance, it was wrong to conclude that the equity in the property was $55,000. She sold it around September 2003, at which time the balance on the mortgage was $33,000. The property sold for $88,000. I observe that the equity accordingly proved to be $55,000 at that time. However, she points out that there was no refinancing between 22 May 2002, when the Authority assessed the equity, and the time the property was sold, and she had continued to make repayments between May 2002 and August 2003. 
Mrs Owens also says the Authority was wrong to conclude she was negligent in filling out forms. The forms were badly drafted, and she believes she did everything that a person in her situation could have done. She emphasises the overpayment was discovered because she freely volunteered the information following a so-called “investigation” into alleged earnings that she had been disclosing fully all along. Lastly, she says that she never received surplus funds from the property; the rent was barely enough to meet the outgoings. She has suffered an immeasurable amount of stress because she cannot repay such a huge amount of money from an income that she could hardly survive on as it is. 
Mr Sowry records that he had twice pointed out to the Authority the importance of Mrs Owens' giving evidence at the hearing. He says he also sought an adjournment in person when the matter was called on 13 March 2002. The appearance before the Authority lasted approximately 20 minutes. He reiterated that it was very difficult to present a case that relied so heavily on evidence that only she could give. 
The Authority abides the Court's decision, but the Operations Manager for the Tribunals Unit, Robert Wesney, has sworn an affidavit setting out the process followed by the Authority and annexing relevant parts of the Authority's file. I have summarised above the steps that the Authority followed. 
Question 1: Was the Authority entitled to take negligence into account under s.86(9A)? 
Mr McGurk contended that negligence on the part of the debtor plays no part in s 86(9A). The question whether a claimant has so altered position in reliance on validity of the payment that it would be inequitable to require repayment arises only after the Authority has determined that the debt resulted from an error by the Department that was not contributed to by the claimant and was received in good faith. The Authority's approach involves revisiting of these threshold criteria when exercising the discretion. Put another way, negligence raises questions of fault, but the discretion does not arise at all until it is established that the claimant was not at fault. Mr McGurk also submitted that if negligence was to become relevant, it would be necessary to define duties owed by the claimant. Yet there is no duty of care. The Authority appears to have used negligence in a wider sense, but in doing so it left the Department with no framework or guidance to assess what is expected of a beneficiary in any particular case. 
Mr McGurk also contended that an assessment of how the debt to the Department was incurred does not form part of the balancing exercise, relying on my judgment in Karl v ACC (High Court Wellington, CIV 2004-485-800, 9 September 2004). 
Ms Jagose, for the respondent and second defendant, contended that the discretion in ss (9A) is a broad one involving consideration of “all of the circumstances”. That involves a broad consideration of the equities, or justice, of requiring repayment where the beneficiary has altered position in reliance upon the payment. The discretion is intended to enable the Chief Executive to do what the justice of the case requires. Further, she submitted that Mr McGurk's approach to the subsection ignores the express reference to any “intentional” contribution by the beneficiary. The discretion does not arise at all where there was an intentional contribution to the overpayment, but it does not follow that unintentional contributions must be ignored in a case where the discretion is available. 
The Authority did not define what it meant by “negligence” but I infer from the facts that it had in mind an act of carelessness or inattention, in the form (for example) of a negative answer given to the question “do you or your partner have any of the following - holiday homes or other land and buildings other than your home?” I infer from the Authority's findings that the act of carelessness or inattention was material, in that it was causally connected to her continued receipt of Accommodation Supplement since her equity in the property was sufficient to disqualify her from receiving it. It must also follow that the Authority considered the forms were not so badly drafted that she would likely have completed them incorrectly had she paid close attention to them. 
The discretion under ss (9A) is available only where it is first established that the debt arose as a result of a Department error not intentionally contributed to by the debtor. The Chief Executive must also be satisfied that the debtor received the payment in good faith and has so altered position in reliance on the validity of the payment that it would be inequitable in all the circumstances, including the debtor's financial circumstances, to require repayment. Mr McGurk argued, first, that in exercising the discretion, the Chief Executive may not take into account the threshold criteria (an error to which the debtor did not intentionally contribute, and receipt in good faith) and, second, that those threshold requirements delimit the extent to which debtor fault may be taken into account. Accordingly, he submitted an unintentional contribution to an overpayment may not be taken into account when balancing the equities. 
I reject these submissions. As a matter of construction, the subsection allows the Chief Executive to take all the circumstances into account when considering whether it would be inequitable to order repayment. The requirements that there be no intentional contribution to the error and that the payment be received in good faith are merely pre-requisites to the exercise of the discretion. Once the discretion arises, the subsection does not expressly limit the circumstances that may be taken into account in determining whether repayment would be inequitable. It would also be odd for example, if the Chief Executive was required to ignore, when exercising the discretion, the fact that the overpayment had been received in good faith. 
Mr McGurk also referred to my judgment in Karl v ACC (above). That case was concerned with the question whether ACC's error in making an overpayment could be taken into account in determining whether it was inequitable to order repayment under s 372(2) of the Accident Insurance Act 1998. ACC contended that the legislation did not contemplate a balancing of the equities, in which relative fault is relevant. I concluded, by reference to National Bank of New Zealand v Waitaki International Processing [1999] 2 NZLR 211 and MacMillan Builders Limited v Morningside Industries Limited [1986] 2 NZLR 12, that “inequitable” carried the connotation of “unfair or unjust”, which allowed the Court to consider relative fault. Accordingly, the judgment does not assist Mr McGurk. 
Mr McGurk also cited Karl for the proposition that fault is unlikely to be a significant consideration. I accept that submission. The point made in Karl (at [56]) was that fault was unlikely to be a significant consideration under s 372, because the question was whether a person who had received payment in good faith had so altered position in reliance on validity of the payment that it would be inequitable to order repayment. That is equally true of the former s 86(9A). It has also been held that the section should be interpreted in a way that is consistent with the Court's approach to s 94B of the Judicature Act 1908: Moody v Department of Work and Income [2001] NZAR 608 at [34]. The principal considerations are that the debtor did not intentionally contribute to the error, has acted in good faith, and altered position in reliance on the validity of the payment. 
Question 2: Was there any evidence upon which the Authority was entitled to conclude that Mrs Owens had been negligent? 
I approach this issue, as already noted, on the basis that by “negligence” the Authority meant carelessness or inattention in completing the WINZ forms. Further, the weight given to the evidence is a question for the Authority: Butler v Removal Review Authority [1998] NZAR 409
Mr McGurk submitted that there is no evidential foundation for the finding that Mrs Owens was negligent, citing Scrimgeour v Chief Executive of the Department of Work and Income (High Court Wellington, AP 206/01, 17 March 2003, Gendall J) for the proposition that there is an error of law where there is no evidence at all upon which to base a factual finding. Manifestly, there was evidence before the Authority that Mrs Owens had made a mistake. Mr McGurk accordingly submitted that the Authority's conclusion could not be supported because it was contrary to the evidence or based on evidence that was untested because Mrs Owens was not present to give evidence herself. For example, he submitted the Authority made no reference to the finding of the Benefits Review Committee that the forms were badly written and may have misled Mrs Owens. 
I reject these submissions. On the evidence, it was open to the Authority to conclude that Mrs Owens had been careless. Before the Benefits Review Committee, she had accepted that she must have failed to read the form properly. The Authority might conclude, notwithstanding an honest mistake on her part, that the meaning of the question regarding other assets would have been apparent had she read the form properly. Put another way, the finding of good faith does not preclude a conclusion that Mrs Owens was also careless. It is true that the Benefits Review Committee had concluded that the forms were badly drafted and may have misled Mrs Owens, but the Authority did not adopt that finding. On the contrary, it is implicit in the finding of carelessness that a reasonable person would not have been misled by the forms, had she taken the time to read them with care. 
Question 3: Was there any evidence upon which the Authority was entitled to conclude that Mrs Owens' equity in the property was substantially more than the original investment? 
Mr McGurk contended that there was no evidence upon which the Authority might have concluded that the net equity was substantially more than the original investment. He submitted that the Authority appeared to make its finding based on a figure of $24,760.26 listed as “total borrowings” that appeared on a bank loan summary dated 22 May 2002, and the capital value of the property ($78,000) said to be contained in a rates notice. Mrs Owens had told the Benefits Review Committee on 24 July 2002 that the equity was likely to be around $30,000. He contended that on the evidence that was before the Authority, the equity was more likely to be closer to $30,000, although the Authority might have concluded that it was as much as $34,000-35,000. Thus the increase in equity since Mrs Owens acquired the property was somewhere between $10,000-15,000, and the Authority overstated the equity by $25,000-30,000. 
Ms Jagose contended that the evidence justified an inference that the net income from rental of $49.11 per week was applied to the principal outstanding on the mortgage, and contended that the Authority could also rely on the bank statement and the evidence that the house was purchased for $79,000 and had a capital value of $78,000. She also submitted that the Authority had recognised that Mrs Owens was able to increase her assets by drawing on the Accommodation Supplement. Had she been declined the supplement, she would have had to turn to her personal assets to cover her accommodation expenses, so reducing her equity. 
There was evidence before the Authority, in the form of the bank statement and rates notice, to indicate that the balance outstanding on Mr Owens mortgage was $24,760.26, while the capital value of the property was $78,000.00. That was evidence on which the Authority might rely in calculating Mrs Owens' equity in the property. 
Mr McGurk dealt with this point by arguing that there was other evidence before the Authority, in the form of the rent payments, which suggested that the amount outstanding under the mortgage was higher. There had been some 300 weekly payments of $49.11, so the increase in equity since acquisition of the property was not more than $15,000, making a total equity (including the initial contribution of $20,000) of around $35,000. But mortgage repayments are not the only potential source of an increase in equity. Another might be financial assistance from Mrs Owens' family. Accordingly, this evidence does not render the bank statement and rates notice unreliable. 
I conclude that there was evidence in which the Authority might find that the equity was $54,000, and I observe that the subsequent sale of the property suggests the Authority's estimate was not unreasonable. 
Question 4: As a matter of law was the Authority entitled to exercise its discretion to decline to direct the provisional write-off of the debt under s 86(9A)? 
I understand this question to ask whether the consideration that the Authority relied on are sufficient in law to justify its conclusion that it was not inequitable to order repayment. As Ms Jagose submitted, the two considerations (carelessness and the increase in equity) may be considered together for this purpose. 
Mr McGurk argued that there was no direct connection between receipt of the overpayment and the factors relied on to show repayment was not inequitable. Accordingly, those factors could not be taken into account. In particular, the overpayment did not lead to an increase in equity, since the rent on 18 Brookfield Road covered the mortgage payments. She spent the overpayment on living expenses. Had she not received the Accommodation Supplement, she might have reduced her living expenses, so it could not be said that she preserved an asset (the flat) by retaining it instead of selling it to meet living expenses. 
Alternatively, if the Authority was entitled to take negligence or the increase in equity into account when balancing the equities, he submitted that the decision was unreasonable and unfair such that the discretion should not have been exercised against Mrs Owens: Carmichael v Director-General of Social Welfare [1994] 3 NZLR 477, 484. Mrs Owens does not have a freehold home or any savings or any other cash assets. Without relief, she would be in a worse position than she would have been in had the payments not been made in the first place. 

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