D v THE CHIEF EXECUTIVE OF THE MINISTRY OF SOCIAL DEVELOPMENT [2014] NZHC 1392

D v THE CHIEF EXECUTIVE OF THE MINISTRY OF SOCIAL DEVELOPMENT [2014] NZHC 1392 [19 June 2014]IN THE HIGH COURT OF NEW ZEALANDWELLINGTON REGISTRYCIV-2013-485-003031[2014] NZHC 1392IN THE MATTER of an appeal by way of Case Stated fromthe determination of the Social SecurityAppeal Authority at Wellington under s12Q of the Social Security Act 1964BETWEEN DAppellantAND THE CHIEF EXECUTIVE OF THEMINISTRY OF SOCIALDEVELOPMENTRespondentHearing: 17 June 2014Counsel: Appellant in person (with G R Howell as advocate)T I Hallett-Hook for RespondentJudgment: 19 June 2014JUDGMENT OF COLLINS JIntroduction[1] The Social Security Appeal Authority (the Authority) has posed three questions of law for me to consider.1 Those questions arise from decisions delivered by the Authority on 31 July 2012 and 5 December 2012.[2] In its decisions the Authority decided:(1) Ms D was living in a relationship with Mr M during the period 4 August 1994 to 17 September 1995 (the relevant period).1 Social Security Act 1964, s 12Q.(2) The relationship between Ms D and Mr M was in the nature of a marriage.(3) During the relevant period Mr M received income ftrom his role as apainting subcontractor to John Henderson & O'Donnell ContractorsLtd, and as an employee of Hawkins' Construction Ltd. Mr M was also unemployed during part of the relevant period.(4) During the relevant period Ms D received unemployment, accommodation supplement and special benefits (the benefits).(5) Mr M's income during the relevant period was required to be takeninto account in assessing Ms D's entitlement to the benefits.(6) Ms D's failure to disclose her relationship with Mr M during the relevant period resulted in her receiving $6,996.59 in benefits to which she was not entitled.[3] Ms D has now repaid all but $67.73 of the amount in issue in this proceeding.[4] The three questions posed by the Authority are:(1) Was there evidence on which the Authority could conclude that [Mr M] had received income which needed to be taken into account in assessing [Ms D's] entitlement to [the] benefits?(2) Was there any evidence on which the Authority could conclude that there had been overpayments of [the benefits] amounting to $6,996.59?(3) Did the Authority err in law when it concluded that there was no basis on which it could direct that the Chief Executive exercised the discretion provided in ss 86(1) or 86A of the [Act] not to recover the debts?[5] The Supreme Court explained in Bryson v Three Foot Six2 that those who wish to challenge factual findings as an error of law face a high onus. The Supreme Court said that a factual error could amount to an error of law where the finding was"so unsupportable" and "so clearly untenable" that the error in question could beappropriately classified as an error of law.3 That is the test I have applied whenanswering the Authority's first two questions which involve an assessment of whether or not factual findings amount to an error of law. My response to the questions is:(1) Yes.(2) Yes.(3) No.Background[6] This case has had an extraordinarily protracted history.[7] On 5 August 1994 Ms D was granted the benefits.[8] On 22 December 1995 the benefits were cancelled when the Ministry of Social Welfare (the Ministry) concluded Ms D was living in a relationship with Mr M and that the relationship was in the nature of a marriage. The Ministry referred its concerns to the police.[9] On 26 January 1996 Ms D advised the Ministry that she wished to pursue areview of the Ministry's decisions cancelling her benefits.[10] On 6 March 1997 Ms D was convicted of six charges of using a document with intent to defraud in relation to her failure to disclose her relationship with Mr M when she applied for the benefits. Ms D was sentenced to 130 hours community2 Bryson v Three Foot Six [2005] NZSC 34, [2005] 3 NZLR 721.3 At [26].service on 30 May 1997. Her appeal against her convictions was dismissed by the High Court on 5 March 1998.[11] Ms D wrote to the Ministry on 4 August 1997 and inquired into what had happened to her application for a review of the decisions cancelling her benefits.[12] Ms D wrote a further letter to the Ministry on 11 December 1997 expressing her dissatisfaction at the lack of action in progressing her application for a review.[13] On 18 December 1997 the benefits review committee4 convened to hear Ms D's review but adjourned its hearing at Ms D's request.[14] On 8 March 1999 the Ministry wrote to Ms D asking her to confirm if she still wished to pursue her application to review the cancellation of her benefits.[15] On 14 March 1999 Ms D wrote to the Ministry advising there were matters that needed to be addressed before a new date for the hearing of her review could be set.[16] On 28 January 2000 the Ministry wrote to Ms D saying it intended to apply to have her review set down for hearing.[17] On 5 October 2009 Ms D's sickness benefit was stopped. She was advisedshe owed the Ministry $15,671.61.[18] On 15 November 2010 the Benefits Review Committee wrote to Ms D advising it would hear her review on 1 December 2010. The hearing in fact took place on 20 December 2010.[19] On 2 March 2011 the Benefits Review Committee delivered its decision inwhich it upheld the Ministry's calculation of the debt owed by Ms D for the relevant period.4 Social Security Act 1964, s 10A. The Benefits Review Committee is an administrative body that hears appeals from persons who are dissatisfied with decisions made by the Ministry in relation to their benefits.[20] On 21 March 2011 Ms D appealed the Benefits Review Committee's decisionto the Authority.[21] On 24 November 2011 the Authority issued an interim decision relating to the issues it would consider.[22] The Authority conducted its substantive hearing on 14 February 2012.[23] The Authority delivered the first of its substantive decisions on 31 July 2012.The Authority's second substantive decision was delivered on 5 December 2012.[24] On 24 July 2013 the Authority stated its questions for this Court to consider.Question 1[25] The first question posed by the Authority requires me to determine whether there was sufficient evidence before the Authority to enable it to conclude that Mr M was receiving income that needed to be taken into account when assessing Ms D'sentitlement to the benefits.[26] "Income" is defined in s 3 of the Act.5 The definition of "income" is wide:(1) it is to be noted that payments contingent on the completion of work specified in a contract are expressly included in the definition of"income";5 income in relation to any person,–(a) means any money received or the value in money's worth of any interest acquired, beforeincome tax, by the person which is not capital (except as hereinafter set out); and(b) includes, whether capital or not and as calculated before the deduction (where applicable) of income tax, any periodical payments made, and the value of any credits or services provided periodically, from any source for income-related purposes and used by the person for income-related purposes; and(d) includes–(ii) any payment contingent on the completion of either a fixed-term engagement or an engagement to complete work specified in a contract:(f) does not include–(i) Any benefit, grant, allowance, or concession received under this Act or Part 6 of the War Pensions Act 1954 or the New Zealand Superannuation and Retirement Income Act 2001, including the value of any benefit under Part 2 of this Act.(2) the Ministry will generally deduct expenses incurred earning business income where those expenses affect the amount of money a beneficiary can be properly regarded as having received; and(3) a one-off sale of personal property will generally be regarded as a one-off capital payment and therefore not within the definition of income.[27] During the relevant period the income of a person's spouse or partner was required to be taken into account in assessing the person's entitlement to a benefit.6[28] As soon as it was decided that Mr M was living in a relationship in the nature of a marriage with Ms D then the Ministry was required to recalculate the rate at which her benefits had been paid. In particular:(1) under Schedule 9 of the Act Ms D was entitled to receive the unemployment benefit at a married rate;(2) under Schedule 18(2)(a) and (b) of the Act the income of Mr M was required to be taken into account for the purposes of income abatement of the accommodation supplement; and(3) the income of a person's partner or spouse was a factor whichdetermined whether or not the special benefit should be granted and if so at what rate.6 63 Conjugal status for benefit purposesFor the purposes of determining any application for any benefit, or of reviewing any benefit already granted, or of determining the rate of any benefit, or of the granting of any payment of a funeral grant under section 61DB of this Act or of any welfare programme approved by the Minister under section 124(1)(d) of this Act, or of assessing the financial means of any person under section 69FA or Part 4 the chief executive may in the chief executive's discretion–(a) regard as single any applicant or beneficiary who is married or in a civil union but is living apart from his or her spouse or partner:(b) regard as married any 2 people who, not being legally married or in a civil union, have entered into a relationship in the nature of marriage–and may determine a date on which they shall be regarded as having commenced to live apart or a date on which they shall be regarded as having entered into such a relationship, as the casemay be, and may then in the chief executive's discretion grant a benefit, refuse to grant a benefit,or terminate, reduce, or increase any benefit already granted, from that date accordingly.[29] Thus, the Authority correctly determined that Mr M's income needed to betaken into account in order to correctly assess Ms D's entitlement to receive thebenefits during the relevant period.[30] The Authority concluded that there was evidence that Mr M received income during the relevant period. The evidence in question included:(1) A bank statement recording money deposited into and withdrawn from Ms D's bank account between 13 July 1994 and 23 June 1995.(2) Information provided by the Bank of New Zealand and John Henderson & O'Donnell Contractors Ltd pursuant to s 11 of theAct, which showed that:(i) Mr M was engaged as a painting subcontractor by JohnHenderson & O'Donnell Contractors Ltd for part of the relevantperiod and received payment for his services;(ii) Mr M provided Ms D's bank account details to John Henderson & O'Donnell Contractors Ltd; and(iii) Payments to Mr M in relation to his painting services were deposited into Ms D's bank account by John Henderson & O'Donnell Contractors Ltd.(3) Information provided by Mr M when applying for the unemploymentbenefit that he had been employed by Hawkins' Construction duringpart of the relevant period.(4) Mr M's confirmation during the course of the hearing that he did nothave his own bank account and that all money he received from working was paid into Ms D's bank account.[31] In light of this evidence, I am driven to conclude that there was sufficient evidence to enable the Authority to conclude that Mr M was receiving income thatneeded to be taken into account when assessing Ms D's entitlement to the benefitduring the relevant period.Question 2[32] The second question posed by the Authority asks whether there was sufficient evidence for the Authority to enable it to conclude Ms D had been overpaid $6,996.59.[33] The Authority calculated the debt Ms D owed by assessing her and Mr M'sincome during three distinct phases of the relevant period. Those phases were:(1) 5 August 1994 to 2 July 1995 when Mr M was a self-employedsubcontractor to John Henderson & O'Donnell Contractors Ltd.(2) 3 July 1995 to 20 August 1995 when Mr M was employed byHawkins' Construction receiving wages.(3) 21 August 1995 to 15 September 1995 when Mr M was unemployed.[34] The principal dispute before the Authority concerned the period 5 August 1994 to 2 July 1995 and whether the Ministry was correct when it treated payments made into Ms D's bank account during this period as income.[35] The Authority carefully assessed the deposits into Ms D's bank account andgenerally agreed with Ms D when she was able to provide an explanation that the deposits in question were not income. This involved the Authority making an assessment of facts. There is nothing inherently wrong in the approach adopted bythe Authority and no error of law arises from the Authority's methodology.[36] The Authority also undertook a careful assessment of what business expenses and GST payments should be deducted from the income generated by Mr M. Because of the absence of detailed records the Authority made an estimate based upon Inland Revenue Department (IRD) performance benchmarks for self-employed painters and decorators. Using this information as a base, the Authority settled upona 30 per cent deduction for income to represent Mr M's business expenses during thetime he was self-employed. This notional deduction was more advantageous to Ms D than the IRD performance benchmark figures.[37] Ms D has raised a number of objections to the way the Authority assessed the deductions that were attributed to Mr M's income. In essence, Ms D objects to the way the Authority:(1) assessed her and Mr M's evidence; and(2) drew inferences which were adverse to Ms D when she could not be blamed for the inability to produce supporting documentation after such a long period of time.[38] I have considerable sympathy for Ms D's position. It is difficult to determinewhat more she could do to accurately determine Mr M's actual business expensesduring the period in question. However, notwithstanding my sympathy for Ms D, I am required to determine if the Authority made an error of law. In my assessment, the Authority made factual assessments which were available to it on the evidence when it calculated the deductions that should be attributed to Mr M's income.[39] Ms D also raises concerns about the Authority's failure to take into account PAYE/withholding tax in relation to payments made to Mr M and GST payments he was required to pay to the IRD.[40] The Authority should have made allowance for withholding tax. However, this sum would have been very trivial. Furthermore, the Authority's analysis of theevidence entitled it to infer that Mr M did not pay GST to IRD in relation to hiscontract work with John Henderson & O'Donnell Contractors Ltd.[41] Having determined what Mr M's income was, the Authority needed todetermine the period to which the income related so that it could be taken into account for abatement purposes. At the relevant time s 64(2A) of the Act provided:64 Mode of ascertaining income for benefit purposes(2A) Where, in relation to the rate of any benefit or additional, reference is made in this Part of this Act or any Schedule to this Act or in the Social Welfare (Transitional Provisions) Act 1990 to the weekly income of the beneficiary, such income shall, unless the context otherwise requires, be determined by dividing the beneficiary's totalincome over a number of weeks specified by the Director-General (not exceeding 52 weeks) by the number of weeks in that period.[42] Thus, at the relevant time the Act did not expressly define how the weekly income earned by Mr M and attributable to Ms D should be assessed. That deficiency was addressed with effect from 1996.[43] In this case the Authority averaged Mr M's income over the period he wasself-employed, even though there was no specific legislative endorsement of thisapproach. The issue I have to consider is whether the Authority's approach waswrong in law.[44] I have concluded that the purpose which underpins the Act's abatementprovisions is to encourage beneficiaries to take steps to support themselves and reserve benefits for those assessed as being in need. It is necessary to look at the substantive effect of payments received by beneficiaries.[45] In this case, where Mr M was working as a painting contractor it is unrealistic to limit the time over which his income was attributed to the week he received progress payments. Instead, Mr M's income should be attributed to the entire timehe was carrying a specific contract. I believe this approach is consistent with Tapp v Chief Executive Officer of the Department of Work and Income7 and Molloy v Chief Executive of the Ministry of Social Development.8 It is the approach which the Authority correctly took in this case.[46] I am therefore satisfied that the Authority took an appropriate approach when assessing the period over which Mr M's income should be attributed to Ms D. As a consequence I am driven to conclude the Authority correctly calculated Ms D was7 Tapp v Chief Executive Officer of Department of Work and Income [2003] NZFLR 761 (CA).8 Molloy v Chief Executive of the Ministry of Social Development [2013] NZHC 1233overpaid during the relevant period the following sums in relation to the benefits she received:(1) unemployment benefit $3,251.53(2) accommodation supplement $ 865.00(3) special benefit $2,880.06________Total $6,999.59________Question 3[47] The third question asks if the Authority erred when it decided it could not in this case direct the Chief Executive of the Ministry to take no recovery steps against Ms D.[48] Section 86(1) of the Act9 as it applied during the relevant period conferred a general discretion on the Chief Executive of the Ministry to recover overpayments of benefits.109 86 Recovery of payments made in excess of authorised rates(1) If any benefit or instalment of a benefit is paid in excess of the amount to which the beneficiary is by law entitled, the amount so paid in excess may be recovered from the beneficiary as a debt due to the Crown at the suit of any member of the Director- General or the Director-General may make any necessary adjustments in any instalments of the same or any other benefit thereafter becoming payable.(1A) If a person has obtained payment of, or has received credit for, any money payable under a benefit to which he is not entitled, the sum of that money shall constitute a debt due to the Crown and may be recovered at the suit of any member of the Director- General, or the Director-General may recover that debt by deduction from any benefit thereafter payable to that person.(9A) Notwithstanding anything to the contrary in this section, the Director-General may, in the Director-General's discretion, authorise the provisional writing off of a debt whicharose as a result of an error, made by an officer or employee of the Department, not intentionally contributed to by the debtor if the Director-General is satisfied that the person receiving the amount so paid in error did so in good faith and 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.10 Osborne v Chief Executive of the Ministry of Social Development [2010] 1 NZLR 559 (HC) at [54]; Harlen v Ministry of Social Development [2012] NZHC 669, [2012] NZAR 491 at [36].[49] In this case the Authority cited the amendments to s 86 of the Act that came into force in 2002. That was a mistake.[50] However, when assessing the way the Ministry exercised the discretion not to enforce recovery of the overpayment of the benefits to Ms D, the Authority correctlyacknowledged the Chief Executive's obligation is to ensure only benefit paymentsthat are authorised by law are paid.[51] The Authority also considered Ms D's circumstances and in particular that:(1) she was in employment at the time the Authority considered her appeal;(2) Ms D has two dependent children; and(3) Ms D's debt had been effectively recovered, thereby suggesting thatenforcement of the debt would not constitute an unacceptable hardship.[52] The Authority also correctly noted that in this case the debt arose as a result of Ms D's failure to advise the Ministry she was living in a relationship in the natureof a marriage and to disclose Mr M's income.[53] Ms D submits the Authority should have concluded there were unusual circumstances that warranted an exercise of discretion in her favour. Those special circumstances are:(1) that she was at risk of domestic violence and that Mr M was her only protector;(2) Mr M did not contribute to her financial circumstances and that in light of the law articulated by the Court of Appeal in Ruka v Department of Social Welfare,11 "her relationship may not in fact have11 Ruka v Department of Social Welfare [1997] 1 NZLR 154 (CA).been regarded as a marital type relationship because of the absence offinancial support and genuine ongoing emotional support"; and(3) the delay between when the debt was first established and the determination of her appeal made it very difficult for Ms D and Mr M to present evidence of their actual income.[54] Although the Authority cited the wrong legislative provision, I am satisfiedthat the Authority's decision was in substance unimpeachable. It is difficult to seehow the Authority could have reached a different decision had it applied the correct version of s 86 of the Act in force at the relevant period.[55] It is also very difficult to move beyond the basic fact that Ms D received overpayment of benefits as a result of her failure to disclose her relationship with Mr M. It would have been an extraordinary decision for the Chief Executive of the Ministry not to have taken enforcement steps in the circumstances of this case.Conclusion[56] For the reasons outlined above the answers to the questions posed by the Authority are answered in favour of the approach taken by the Authority in relation to each question.[57] I am not making any order for costs. I am exercising my discretion in favour of Ms D on this issue because it is time this saga concluded._______________________D B Collins JSolicitors:Crown Law Office, Wellington for Respondent