Secretary, Department of Social Security v Lilian Agnes Montgomery [1997] FCA 98 (24 February 1997)

CATCHWORDS

SOCIAL SECURITY - rent assistance - Retirement Village resident - "Ingoing Sum" paid by respondent to owner of Retirement Village prior to occupation under Licence Agreement - payee of "Ingoing Sum" making annual deduction of "Yearly Sum" from "Ingoing Sum" during term of licence - whether Administrative Appeals Tribunal in error in affirming a decision of the Social Security Appeals Tribunal that the annual deduction of the "Yearly Sum" was "rent" for the purposes of the Act.

Social Security Act 1991 (Cth), s13(2), s1064

Accident Insurance Mutual Ltd v Sullivan (1986) 7 NSWLR 65

Department of Social Security v Knight (Tamberlin J, 23 December 1996, unreported)

Khoury (M & S) v Government Insurance Office of New South Wales [1984] HCA 55; (1984) 54 ALR 639

SECRETARY, DEPARTMENT OF SOCIAL SECURITY v LILIAN AGNES MONTGOMERY

NO WAG 136 OF 1996

R D NICHOLSON J

PERTH

24 FEBRUARY 1997

IN THE FEDERAL COURT OF AUSTRALIA )

WESTERN AUSTRALIA DISTRICT REGISTRY )

GENERAL DIVISION ) NO WAG 136 OF 1996

On appeal from the Administrative Appeals Tribunal

B E T W E E N: SECRETARY, DEPARTMENT OF SOCIAL SECURITY

Applicant

and

LILIAN AGNES MONTGOMERY

Respondent

MINUTE OF ORDER

JUDGE MAKING ORDER: R D NICHOLSON J

DATE OF ORDER: 24 FEBRUARY 1997

WHERE MADE: PERTH

THE COURT ORDERS THAT:

1. The appeal be allowed.

2. The decision of the Administrative Appeals Tribunal made on 8 August 1996 be set aside and the following decision substituted therefore:

"The decision of the Social Security Appeals Tribunal dated 19 February 1996 be set aside and in lieu thereof the decision of the Authorised Review Officer of the Department of Social Security dated 17 October 1995 be affirmed."

3. There be no order as to costs.

4. The respondent be granted a costs certificate in respect of the appeal pursuant to s6(1) of the Federal Proceedings (Costs) Act 1981 .

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA )

WESTERN AUSTRALIA DISTRICT REGISTRY )

GENERAL DIVISION ) NO WAG 136 OF 1996

On appeal from the Administrative Appeals Tribunal

B E T W E E N: SECRETARY, DEPARTMENT OF SOCIAL SECURITY

Applicant

and

LILIAN AGNES MONTGOMERY

Respondent

CORAM: R D NICHOLSON J

DATE: 24 FEBRUARY 1997

PLACE: PERTH

REASONS FOR JUDGMENT

This is an appeal from a decision of a Senior Member of the Administrative Appeals Tribunal ("the Tribunal") on 8 August 1996 affirming a decision of the Social Security Appeals Tribunal ("the SSAT") dated 19 February 1996. The decision of the SSAT was to set aside a decision made by a delegate of the Secretary to the Department of Social Security ("the Department") on 12 October 1995 affirmed by an Authorised Review Officer on 17 October 1995 to the effect that the respondent was not eligible for rent assistance. The consequence of the decision of the Tribunal affirming the decision of the SSAT was to substitute a decision that the respondent was entitled to rent assistance from the time of her claim for it made on or about 24 July 1995.

Relevant statutory provisions

Qualification for rent assistance is the subject of s1064-D1 of the Social Security Act 1991 (Cth) ("the Act") which provides:

"Section 1064-D1 An additional amount to help cover the cost of rent is to be added to a person's maximum basic rate if:

(a) the person is not an ineligible homeowner; and

(c) the person pays, or is liable to pay, rent (other than Government rent); and

(d) the rent is payable at a rate of more than the rent threshold rate; and

(e) the person is in Australia; and

(f) either:

(i) neither the person nor the person's partner is qualified for additional family payment for a dependent child of the person; or

(ii) the person is a member of an illness separated or respite care couple or temporarily separated couple and is the partner of a person who is receiving additional family payment."

Before the Tribunal it was conceded the respondent satisfied pars(a), (c), (e), and (f)(ii) of this section but it was submitted she did not satisfy par(d). Section 1064-D2 contains a table (Table DA) which sets out the various rent threshold rates applying to a person's family situation. It was common ground before the Tribunal that the "rent threshold rate" in the respondent's case is $32.20 per week.

The Act defines the concept of "rent" as it appears in s13(2) of the Act, which reads:

"13(2) Amounts are rent in relation to the person if:

(a) the amounts are payable by the person:

(i) as a condition of occupancy of premises, or of a part of premises occupied by the person as the person's principal home; or

(ii) for services provided in a retirement village that is the person's principal home; or

(iii) if the person is residing in a nursing home that is the person's principal home - for accommodation in the nursing home; or

(iv) for lodging in premises that are the person's principal home; or

(v) for the use of a site for:

(A) a caravan or other vehicle; or

(B) a structure;

occupied by the person as the person's principal home; or

(vi) for the right to moor a vessel that is occupied by the person as the person's principal home; and

(b) either:

(i) the amounts are payable every 3 months or more frequently; or

(ii) the amounts are payable at regular intervals (greater than 3 months) and the Secretary is satisfied that the amounts should be treated as rent for the purposes of this Act."

Respondent's circumstances

The Tribunal found the following facts in relation to the respondent. She was born on 19 December 1914 and married Mr Montgomery on 30 July 1977. On 22 August 1994 she and her husband commenced to reside in a unit in a Retirement Village. They occupied this unit pursuant to a Licence Agreement ("the Licence") which they entered into with the Australian Pensioners' League ("the League"), the owner of the Retirement Village.

Under the terms of the Licence the League granted to the respondent and her husband an "exclusive licence... to occupy and use" the unit. The Licence was to endure for "the Term" which is not defined by the Licence and by implication continues until determination of the Licence.

Determination is provided for in cl8 of the Licence. That clause reads:

"8. DETERMINATION

(1) If:

(a) the person described in item 1 of the Schedule (or where there is more than one person, the last surviving person) and his nominated spouse (if any) die;

(b) any moneys payable under this Licence are unpaid for fourteen (14) days after written notice for demand for those moneys has been given by the League;

(c) the Resident defaults in the observance or performance of any of the covenants, conditions or stipulations on the Residents part to be observed or performed under this Licence and if the covenant, condition or stipulation is, in the opinion of the League, capable of remedy, also fails to rectify the default within fourteen (14) days of written notice by the League to the Resident requiring the default to be rectified;

the League may forthwith, or if service of a notice under s81 of the Property Law Act 1969 -1973 as amended is required upon the failure of the Resident to comply with that notice within the time specified in the notice, re-enter the unit or any part of the unit in the name of the whole and take possession whereupon the Term will determine without prejudice to any right of action of the League in respect of any antecedent breach of any covenant contained in this Licence to be observed or performed by the Resident.

(2) The Resident may, at any time upon giving three (3) months written notice to the League of the intention of the Resident in that behalf, determine the Term and upon the expiration of the period of that notice the Term will forthwith determine without prejudice to any right of action of the League in respect of any antecedent breach of any covenant contained in this Licence to be observed or performed by the Resident.

(3) Upon the determination of this Licence, an amount (if any) calculated in accordance with the following formula shall forthwith be paid by the League to the Resident;

$ [IS - (YE x YS)] - default

Where "IS" is the Ingoing Sum

"YE" is the number of anniversaries of the commencement of the Term which have elapsed since the commencement of the Term PROVIDED HOWEVER that if this Licence is determined during the first year of this Licence, then YS shall be the number 1.

"YS is the Yearly Sum

"default" is the amount (if any) owed by the Resident to the League and referred to in subclause 10(b) hereof, together with all reasonable office and other expenses incurred by the League in connection with the determination of this Licence."

"Yearly Sum" is defined in cl1(1) of the Licence to mean the sum specified in item 5 of the Schedule, which is $4,700.

Clause 4 of the Licence imposed an obligation on the respondent and her husband to pay operating and other costs in the following terms:

"4. OPERATING COSTS OF RETIREMENT VILLAGE AND OTHER CHARGES

(1) During the Term the Resident shall punctually pay to the League his proportion of the operating costs of the Retirement Village, payable four (4) weekly in advance during the Term. The estimate of such costs at the commencement of the term being $27.00 per week.

(2) The Resident shall duly and punctually pay and discharge all charges and meter rents in respect of gas, electricity, telephone, water, excess water and other charges used, consumed, rated, taxed, assessed, imposed or incurred in or upon the Unit."

The reference to "operating costs of the Retirement Village" was defined by cl1(1) of the Licence to mean:

"(to the extent to which the same are not specifically payable from time to time by any Resident in respect of any part of the Retirement Village under the terms of this Licence thereof) that proportion set by the League and agreed by the Representative of the total amount of all outgoing costs and expenses of the League now or after the date of execution of this Licence properly and reasonably assessed, charged or chargeable, paid or payable or otherwise incurred upon or in respect of the maintenance, management and operation of the Retirement Village..."

In addition cl5 provided in part:

"5. RESIDENT'S COVENANTS

The Resident, to the intent that the obligations continue throughout the Term HEREBY COVENANTS with the League as follows:

(1) to pay to the League the Ingoing Sum upon the Residents signing this Licence;"

Clause 1(1) of the Licence defined "Ingoing Sum" to mean the sum specified in item 4 of the Schedule, which was the amount of $69,000.

The Tribunal found the respondent and her husband paid to the League the Ingoing Sum of $69,000 prior to the occupation of the unit and an amount for the operating costs of the Retirement Village being $27 per week on the commencement of their occupation of the unit.

In early 1995 Mr Montgomery moved from the Retirement Village to a nursing home. The respondent was granted an age pension by a delegate of the applicant as from 9 February 1995 on the basis she was a "Retirement Village Resident" who was a "member of an illness separated couple". On or about 24 July 1995 she applied for rent assistance.

By letter dated 3 August 1995 a delegate of the applicant wrote to the respondent as follows:

"I am writing about your recent application for rent assistance. You are not entitled to rent assistance at the present time, because the $27.00 per week you pay in maintenance fees is below the current threshold of $31.30 per week which would entitle you to payment of rent assistance.

With regard to the annual fee of $4,700... this is an annual reduction of the initial entry fee of $69,000 which you paid to the Australian Pensioners' League when you first purchased your life tenancy. As you will know this fee is reduced over 14.7 years until the original figure is reduced to NIL.

As you are regarded as a non-homeowner for the purpose of the Social Act (sic) this entry fee is maintained as an asset by the Department. In your case it will have no effect on the amount of pension paid to you..."

By letter dated 17 October 1995 the Authorised Review Officer advised the respondent of his affirmation of the delegate's decision. The decision of the SSAT and then of the Tribunal followed.

Tribunal's reasons

After recounting the submissions made on behalf of the applicant and the respondent the Tribunal said:

"...the decisive issue in this case is whether the "Yearly Sum" of $4,700.00, which, pursuant to the Licence, is deducted annually from the "Ingoing Sum" of $69,000.00 during the term of the respondent's occupation of the Retirement Village, is "rent" within the meaning of s13(2) of the Act."

The Tribunal's characterisation of the issue in that way followed submissions to it on behalf of the respondent to the effect that neither the Ingoing Sum "nor the "Yearly Sum" of $4,700 by which the "Ingoing Sum" is, pursuant to the Licence, reduced annually during the term of the respondent's occupation of Unit 20, is "rent" within the meaning of that definition". Similarly, in submissions for the respondent it was said the respondent's continuing right to occupy the unit "was conditional on the annual deduction, during the term of the respondent's occupancy of the "Yearly Sum" of $4,700 from the balance of the "Ingoing Sum"."

The Tribunal accepted the submission on behalf of the applicant that the Ingoing Sum was not rent within the meaning of s13(2) of the Act. The Tribunal's reasons then continued:

"35. The Tribunal now turns to a consideration of whether the "Yearly Sum" falls within the definition of "rent" is s13(2) of the Act. In considering this issue, the Tribunal naturally accepts that the Act is intended to be beneficial legislation and should, where possible and appropriate, be interpreted liberally and in favour of the social security claimant: see, for example, Re Secretary, Department of Social Security and Underwood (1991) 25 ALD 343 at 347; Re Secretary, Department of Social Security and Knight Unreported, Decision No. 10810, 14 March 1996, p8.

36. In the Tribunal's opinion the "Yearly Sum" of $4,700.00 per annum is an amount payable by the respondent as a condition of occupancy of Unit 20 in the Retirement Village. Under the provision of the Licence (in particular cl8(3)), that amount is, for all practical purposes, payable by way of an annual deduction, on the expiration of each year of occupancy, from the balance of the "Ingoing Sum" that is repayable to the respondent upon determination of the Licence. The fact that the deduction is made at the end of each year of occupation, rather then at the beginning of each year of occupation (that is, in advance), makes no difference. The annual deduction of the "Yearly Sum" from the amount of the "Ingoing Sum" that is repayable to the respondent upon determination of the Licence constitutes, in the Tribunal's opinion, an annual payment of the amount of the "Yearly Sum" (viz. $4,700.00) by the respondent to the League as a condition of her occupancy of Unit 20 in the Retirement Village under the provisions of the Licence. Accordingly, the "Yearly Sum" of $4,700.00 per annum satisfies para (a)(i) of the definition of "rent" in s13(2) of the Act.

37. As regards para (b)(ii) of the definition of "rent" in s13(2) of the Act, the Tribunal has no difficulty in finding that the "Yearly Sum" of $4,700.00 is "payable at regular intervals (greater than 3 months)" because, under the provisions of the Licence, it is payable at regular 12-monthly intervals on each anniversary of the date of commencement of the term of the respondent's occupation of Unit 20 in the Retirement Village. Finally, the Tribunal is of the opinion, having regarded to the beneficial purpose of the Act and the interests of fairness and equity, that the discretion conferred by s13(2)(b)(ii) should be exercised favourably to the respondent. Accordingly, the Tribunal is satisfied that the "Yearly Sum" of $4,700.00 should be treated as rent for the purposes of the Act in this case."

The Tribunal concluded:

"38. It follows that the Tribunal finds that the respondent satisfies para (d) of s1064-D1 of the Act in that the amount of rent payable by her to the League under the Licence (viz approximately $117.00 per week) clearly exceeds the "rent threshold rate" applicable to her under s1064-D2 (Table DA) of the Act (viz $32.20 per week)."

The Tribunal affirmed the decision of the SSAT under review.

Grounds of appeal

This appeal does not challenge the conclusion of the Tribunal that the Ingoing Sum paid to the League pursuant to the Licence was not "rent" within s13(2) of the Act. The grounds contend only that the Tribunal erred in law in misconstruing s13(2) of the Act to apply to the Yearly Sum of $4,700.00.

Requirement that the amounts be "payable"

The first submission for the applicant focuses on the word "payable" as it appears in s13(2)(a). It is submitted that:

"A word such as "payable" should be construed as a matter of ordinary language and given its natural meaning (Gummow J in Edelsten v Health Insurance Commission [1988] FCA 258; (1988) 90 ALR 595, at 600; citing Clyne v DCT [1981] HCA 40; (1981) 150 CLR 1) unless there is something in the context supporting a departure from its literal meaning (Napier J in Metro Brick Company v Haywood [1938] SRSA 462, 466). A Court or Tribunal should be slow to give it an artificial or extraordinary meaning (Barwick CJ in Allen v Belmore Property Co Pty Ltd (1965) 114 CLR 459 at 466)."

Relevant dictionary definitions of "payable" are as follows:

[diamond] "falling due... able to be paid": Shorter Oxford English Dictionary (1993) at 2130.

[diamond] "owed; to be paid; due... imposing an immediate obligation on the debtor": Macquarie Dictionary, 2nd ed at 1303.

Definitions of the associated word "paid" are relevantly:

[diamond] "give (a thing owed, due or deserved)... give money in return for something; esp discharge a debt": Shorter Oxford English Dictionary (1993) at 2129.

[diamond] "to discharge (a debt, obligation, etc)... to satisfy the claims of (a person etc) as by giving money due": Macquarie Dictionary, 2nd ed at 1303.

For the applicant it is said the amounts of the annual deductions are not "payable" because the Ingoing Sum from which the Yearly Sums are deducted has already been paid to the League. It is therefore the property of the League so that there is no continuing obligation making any amount payable as a Yearly Sum by the respondent to the League.

The argument is put in a slightly different way be stating that the deduction of monies does not mean the amounts are "payable".

From an examination of the terms of the Licence it is apparent that the submission for the applicant is correct when it states that the Ingoing Sum was paid to the League - see cl5(1) and the findings of the Tribunal.

From an examination of cl8 of the Licence it is also apparent there is no provision for deduction to be made annually of the Yearly Sum - see cl8(3). The formula in the subclause only applies upon the determination of the Licence for any of the reasons specified in it, namely, death, non-payment or default. Until that point in time no Yearly Sum is required to be deducted. Indeed, the whole of the Ingoing Sum being held by the League, it has an entitlement to deal with it as it sees fit, subject to its obligation upon determination to make payment to the Resident in accordance with the formula under cl8(3).

In these circumstances it is difficult to see how the case came to be argued before the Tribunal and the SSAT on the basis there were annual deductions from the Ingoing Sum which fell to be considered as amounts payable. The qualification by the Tribunal of the concept of payment by way of annual deduction by the words "for all practical purposes" used in par36 of its reasons does not cure the position.

However, in argument on this appeal it was accepted on behalf of both parties that the matter had indeed been brought to the Tribunal on that issue and it falls to this Court to decide the appeal on the basis there were annual deductions from the Ingoing Sum.

Proceeding on that basis, the question is whether such annual deductions properly fall within the word "payable". In my opinion they could not. The reason is that the Ingoing Sum has already been paid by the Resident to the League. When the annual deduction is made it is the League dealing with its own funds. The act of payment is complete. Nothing passes from the Resident to the League to constitute a payment and no obligation arises making any such amount "payable" even if annually deducted.

Expressed another way, the use of the word "payable" posits that there is a payment yet to be made. Even if there was an annual entitlement to deduction that could not refer to something payable by the Resident because the only relevant obligation on the Resident to make payment had been discharged upon payment of the Ingoing Sum. The consequence of the Resident having discharged the obligation of paying the Incoming Sum is that there is no further payment required other than for operating costs and other charges to satisfy the condition necessary for occupancy. There can be no default in "payment" of a sum in the nature of $4,700 that could give rise to a right in the League to recover that sum or terminate the Licence. Rather, what occurs is that the resident is entitled to a repayment on termination of the Licence which gives rise to right in the resident to recover the sum (less amounts calculated using the formula). It is the resident to whom the sum is "payable".

Adopting a beneficial approach to the interpretation of the Act and the word "payable" does not lead to any different conclusion. Even if a beneficial approach is to be taken in the absence of an ambiguity, that approach cannot recategorise the subject to which it applies; that is, change amounts "payable" into amounts for which no obligation to pay exists. The interpretation adopted 'must be restrained within the confines of the actual language employed and what is fairly open on the words used': Khoury (M & S) v Government Insurance Office of New South Wales [1984] HCA 55; (1984) 54 ALR 639 at 650; Accident Insurance Mutual Ltd v Sullivan (1986) 7 NSWLR 65 at 68 per Burchett J; see D C Pearce and R S Geddes, Statutory Interpretation in Australia (Butterworths, 1996) at 222.

Decision in Knight's case

In the Department of Social Security v Knight (Tamberlin J, 23 December 1996, unreported) the Court dismissed an appeal from the decision of a Tribunal affirming the decision of the SSAT that rent assistance was payable to Mrs Knight from 16 February 1995 at an increased rate arising from certain payments made by her on a four week periodic basis relating to the grant of a licence to occupy a unit in a Retirement Village.

In that case the total entry contribution payable to secure residence in the village was $30,000. Of this $15,000 was paid by or on behalf of Mrs Knight. The balance of the entry contribution was agreed to be paid off by regular monthly instalments over ten years. Initially this was $154.00 for each four week period up to February 1995 after which it reduced to approximately $127.00 per payment. The Court concluded:

"In the circumstances of this matter, the direct legal nexus between the occupancy of the premises and the obligation to make contribution payments, coupled with the regular periodic nature of the payments, leads me to the conclusion that the payments both in form and substance are properly characterised as "rent" within the meaning of ss13(2) and 1064-D1 of the Act."

In the course of his reasons Tamberlin J, dealing with submissions as to interpretation of beneficial provisions, said:

"In my opinion, the primary and natural significance of the language used in ss13(2) and 1064-D1 should not be read down or interpreted in the light of vague indirect inferences sought to be derived from the general provisions of the Act relating to the assets tests."

He also said:

"The clear intention of the parties as evidenced by the Licence Agreement and the correspondence in evidence before the Tribunal, is that in substance the contribution payments were meant to be a condition of occupation of the premises. See Samuel v Salmon and Gluckstein Limited (1946) 1 Ch 8 at 12-13 applied in Nixon v Doney (1961) SR (NSW) 311 at 315. Further, the periodic contribution payments were to cease upon cessation of occupancy, with no resultant residual debt or financial obligation subsisting on the part of either party. Moreover, default in meeting the contribution payments would amount to breach of the Licence Agreement with the consequence that the licensor is entitled under cl14 of the Licence Agreement, to terminate the licence and the occupancy under it."

The facts at issue in Knight's case provide the basis by which it may be distinguished from the present case. Mrs Knight was obligated pursuant to the licence agreement applicable to her to pay the balance of the "Incoming Cost" by instalments of certain amounts at certain periods. The obligation to make those payments and the periodicity of such payments lay at the foundation of Tamberlin J's reasons and conclusion.

In the present case there is no obligation for periodic payments. The making of annual deductions entails no obligation on the part of the respondent. There is no legal nexus here between the respondent's occupancy of the premises and any obligation on her to make payments in the form of annual deductions. There is an entire absence of any requirement for regular periodic payments over and above those already accepted as relevant.

In my opinion the facts in Knight stand in sharp contrast to the present case and the reasoning which followed from those facts finds no parallel basis here.

Conclusion

For these reasons I consider the Tribunal was in error in concluding the assumed annual deduction of the Yearly Sum could constitute an amount "payable" within s13(2) of the Act. The appeal should be allowed, the decision of the Tribunal set aside and a decision substituted having the effect of deciding that the respondent does not qualify for rent assistance under the Act.

I certify that this and the preceding 10 pages are a true copy of the Reasons for Judgment of his Honour Justice R D Nicholson.

Associate:

Date: 24 February 1997

APPEARANCES

Counsel for the Applicant: Mr P W Johnston and

Ms L Ward

Solicitors for the Applicant: Australian Government

Solicitor

Counsel for the Respondent: Mr M Herron

Solicitors for the Respondent: Gibson & Gibson

Date of Hearing: 14 February 1997

Date of Judgment: 24 February 1997