DAVID SMITH AND JEAN CHAN V CHIEF EXECUTIVE OF WORK AND INCOME NEW ZEALAND CA CA181/05

DAVID SMITH AND JEAN CHAN V CHIEF EXECUTIVE OF WORK AND INCOME NEW ZEALAND CA CA181/05 23 October 2006IN THE COURT OF APPEAL OF NEW ZEALAND CA181/05BETWEEN DAVID SMITH AND JEAN CHAN Appellants AND CHIEF EXECUTIVE OF WORK AND INCOME NEW ZEALAND Respondent Hearing: 12 October 2006 Court: Arnold, Gendall and Venning JJ Counsel: T McGurk for Appellants L M Hansen and D L Harris for Respondent Judgment: 23 October 2006JUDGMENT OF THE COURT The appeal is dismissed. REASONS OF THE COURT(Given by Arnold J)Introduction[1] This is an appeal on a question of law from a decision of Wild J delivered on 10 May 2005 on an appeal by way of case stated from a decision of theSocial Security Appeal Authority. The appeal concerns the assessment of eligibility for a special benefit under s 61G of the Social Security Act 1964 (the Act). More particularly, the appeal concerns the meaning to be given to the term "special circumstances" in the definition of "allowable costs" in a ministerial direction to which the respondent was required to have regard in determining whether to grant a special benefit under s 61G. [2] The question of law on which leave to appeal was granted is: Whether the definition of allowable costs contained in clause 2.1 of the Minister's Direction in Relation to Special Benefit means that costs listed in paragraphs (a) to (h) are to be included in the formula assessment and that any other costs to be included must arise out of the circumstances of the applicant which are unusual or different from the norm. [3] The parties are agreed that the answer to the first part of this question (in relation to the costs listed in the specified paragraphs) is "yes". The dispute between them concerns the second part of the question, and turns on whether the word "special" in the phrase "arising out of the special circumstances of the applicant" should be interpreted to mean "unusual" or simply "particular". Wild J held that the former meaning was correct, so that the answer to the second part of the question was "yes".The direction and the statutory framework[4] There are three tiers of benefit under the Act. The first tier comprises basic benefits such as unemployment and sickness benefits. The second tier comprises benefits designed to deal with specific needs, such as the accommodation supplement and disability allowance. The third tier includes various discretionary benefits such as the special benefit (now replaced with "temporary additional assistance").[5] At the relevant time s 61G(1) of the Act provided:(1) Subject to s 68A of the Act, the Chief Executive may, in the Chief Executive's discretion, fix a special entitlement to a special benefit in respect of any person, whether or not that person is receiving any other benefit under this Act or the Social Welfare (Transitional Provisions) Act 1990 or any pension or allowance under the War Pensions Act 1954, if the Chief Executive is satisfied that, after taking into account all of that person's financial circumstances and commitments, including any benefit payable under this Act or the Social Welfare (Transitional Provisions) Act 1990 and any pension or allowance under the War Pensions Act 1954, such a special entitlement is justified.[6] Under s 5 of the Act the relevant Minister may issue written directions to the respondent about how to exercise powers under the Act. The respondent is obliged to comply with such directions. The Minister issued several directions concerning s 61G. The direction at issue in the present case was issued on 10 February 1999. [7] The Minister's 1999 direction opens as follows:In the exercise of your discretion to grant a special benefit under section 61G of the Act, and without derogating from your duty to have regard to the particular financial circumstances and commitments of the applicant, you must have regard to the following matters.[8] The direction then goes on in clause 1 to set out certain general principles. Clause 1.1 states that the intention of a special benefit is "to alleviate financial hardship" and that such a benefit should not be granted unless the applicant would suffer financial hardship without it. Clause 1.2 says that a special benefit should not normally be granted unless the applicant suffers from a "reasonably substantial" deficiency of income over expenditure and commitments and the deficiency is likely to continue for a period that justifies the grant of a special benefit. Clause 1.3 provides that a special benefit should be considered only in respect of the applicant's costs "that are essential and are not reasonably avoidable". Finally, clause 1.4 identifies some factors that the respondent must consider on any application for a special benefit. [9] Clause 2 of the direction contains definitions. Two definitions are relevant here – "allowable costs" and "standard costs".[10] The opening portion of the definition of "allowable costs" is:"Allowable costs", in relation to an application and subject to section 68A of the Act, means any regular essential expenses reckoned on a weekly basis arising out of the special circumstances of the applicant and his or her spouse (if any) which cannot readily be avoided or varied"The definition then goes on in paragraphs (a) to (h) to list certain costs that are specifically included as "allowable costs". These are the applicant's actual accommodation costs, hire purchase and similar payments for a washing machine, refrigerator, television or other household furniture where the acquisition of the item was essential, disability related expenses, telephone, motor vehicle, transportation and childcare costs in certain circumstances. There are then some specified exclusions from the definition (eg, electricity line charges). [11] The definition of "standard costs" is:"Standard costs", in relation to an applicant, means the appropriate amount set out in the Schedule, being the proportion of the living costs of the applicant and his or her dependants that he or she may be expected to meet- (a) From his or her benefit; or (b) In the case of a non-beneficiary, from the appropriate rate of a community wage that could be payable to the applicant if he or she was entitled to that benefit,- but do not include any of the applicant's allowable costs.[12] Clause 3 of the direction sets out the assessment procedure. It contemplates a two-stage process. The first stage involves the application of a formula, utilising allowable costs and standard costs, which is designed to identify whether the applicant has a deficiency of expenditure over income. This process produces a preliminary outcome. Following the completion of the first stage of the process, the direction requires the respondent to look at the position overall before making a final decision. In other words, the preliminary outcome is not binding. [13] Accordingly, clause 3.3 provides:3.3 Upon completion of the appropriate calculation set out in clauses 3.1 or 3.2, you must consider whether there is justification for increasing or decreasing the rate of special benefit paid to the applicant, or tofix or decline to fix an entitlement to special benefit, having regard to the principles set out in clause 1 and to the following matters: (a) Whether the applicant has any special or unusual financial expenditure compared to others in a similar general position to the applicant and the extent of any such expenditure. (b) Whether the applicant has any special or unusual reasons for any expenditure item that has caused or contributed to his or her Deficiency; (c) The nature of the financial difficulty, and the likely duration of the Deficiency; (d) The age and health of the applicant and his or her dependants and any special needs arising from that age or health; (e) The ability of the applicant to improve his or her financial situation; (f) The causes of the applicant's financial difficulty; (g) The extent to which the basic necessities of life for the applicant or his or her dependants would be at risk if a grant or special benefit at the rate calculated, or another rate, was not made; (h) Any other matters that in the circumstances of the particular case, you consider to be relevant.[14] Finally, clause 3.4 makes it clear that nothing in clauses 1 and 3 requires the respondent to grant a special benefit, either at all or at a particular rate, if the respondent determines, as a matter of discretion, that such a grant should not be made in the circumstances of the particular case.Discussion[15] For the appellants Mr McGurk argued that the word "special" in the phrase "arising out of the special circumstances of the applicant" in the definition of allowable costs referred to the "particular" circumstances of the applicant, rather than to "unusual" circumstances, or circumstances that were outside the norm. This interpretation, he argued, was consistent with the purpose of the special benefit, and with the way in which the two-stage process established in the direction was intended to operate.[16] Mr McGurk relied on the dictionary definitions of "special", which include both of the meanings contended for in this case. He said that aspects of the context supported his argument. He argued that the authorities relied on by the respondent dealt with the meaning of "special circumstances" in contexts that were different to the present and which made it clear that the more limited meaning of "special" was intended. [17] Mr McGurk argued that there was an inconsistency in the respondent's position, as upheld by Wild J, because at least some of the items specifically included in the definition of "allowable costs" in paragraphs (a) to (h) (eg, the applicant's actual accommodation costs) were not unusual or out of the norm. He said that the respondent's interpretation in effect allowed for two types of "allowable costs" – those that did arise from circumstances that were unusual and out of the norm, and others which did not. [18] While we accept that there is force in some of the points made by Mr McGurk, and that the drafting of the direction could be improved, we think it is clear that Wild J's interpretation of "special circumstances" is correct. We reach this view principally for two reasons. [19] First, there is the language. On Mr McGurk's approach the words "arising out of the special circumstances" in the definition are effectively redundant. The definition would more accurately read "any regular essential expenses of the applicant". As a matter of construction, we consider that the words at issue should be given meaning and that they were intended to limit the "regular essential expenses" that could be taken into account. They can perform this function only if "special" is given the meaning of "unusual" or "outside the norm". [20] Second, there is the context, in particular the relationship between standard costs and allowable costs in the direction. The direction contemplates that each definition covers discrete costs – they do not overlap. But on the approach advocated by Mr McGurk there would inevitably be double-counting of costs, as submitted by Ms Hansen for the respondent.[21] Standard costs are set out in a schedule to the direction. That schedule identifies different classes of potential applicants for a special benefit and fixes the standard costs for each class. The standard costs figure fixed is the amount of the applicant's (and any dependant's) living costs that the applicant is expected to meet from his or her benefit or other source of income. Costs comprising an applicant's allowable costs are not included in the standard costs figure. [22] The material before us does not indicate how the standard costs figures were derived. We were advised by counsel that they comprise a range of costs that applicants are expected to meet but do not include accommodation costs. [23] If "special circumstances" meant simply "particular circumstances", all of the applicant's costs that could be characterised as "regular essential expenses which cannot be readily varied or avoided" would fall within the definition of allowable costs, as Mr McGurk argued should, in principle, be the case. Mr McGurk did contend that there would be no double-counting because the costs of the particular applicant would necessarily exclude those costs incurred by everybody (ie, the standard costs). But that result is not dictated by the definition if "special circumstances" is given the wider meaning. Some of a particular applicant's regular essential and unavoidable expenses would inevitably relate to items that form part of the standard costs figure (there being no basis to exclude them), with the result that there would be double-counting of some costs. [24] By contrast, if the phrase "arising from the special circumstances of the applicant" is given the meaning contended for by the respondent, expenses that comprise standard costs are excluded from the calculation of allowable costs, as contemplated by the definition of standard costs. This is because standard costs are, as their name implies, usual costs – they are not costs that arise out of any unusual circumstances of the applicant. [25] As Mr McGurk said, some of the costs particularised in paragraphs (a) to (h) of the definition of allowable costs do not arise out of unusual circumstances, although others do. But it cannot be inferred from this that the general part of the definition therefore bears the wider of the two possible meanings. It seems that costssuch as accommodation costs, which do not arise from unusual circumstances, were included within the definition of allowable costs because they were not provided for in the calculation of standard costs. No doubt the Minister considered that such costs should be taken into account at the first stage of the special benefit assessment process, so they were specifically included as allowable costs even though they would not have met the general part of the definition. That is a drafting technique which is used on occasion. [26] Turning to the authorities, the respondent relied on Re M [1993] NZFLR 74 (FC, HC), Lyon v Wilcox [1994] 3 NZLR 422 (CA), Peninsula Watchdog Group v Minister of Energy [1996] 2 NZLR 529 (CA) and Kidd v Van Heeren (1997) 11 PRNZ 422 (CA). In each case the Court was called upon to interpret the words "special circumstances" in a particular statutory context. In each case, the Court held that the words referred to circumstances that were exceptional, abnormal, uncommon or out of the ordinary but not extraordinary or unique. On this basis, Ms Hansen suggested that "special circumstances" was a term of art. [27] For his part, Mr McGurk argued that limited weight could be given to these authorities as the particular contexts at issue made it clear that "special circumstances" carried the narrower of the two possible meanings, by, for example, stating a general rule but creating an exception for "special circumstances". [28] While there is some force in Mr McGurk's point, and we do not regard "special circumstances" as a term of art, we do derive some support from these authorities for the view which we have reached concerning the meaning of "special circumstances" in the definition. The narrower meaning seems to be the predominant meaning. [29] Finally, we address Mr McGurk's concern that if the narrower interpretation of "special circumstances" was adopted, the respondent would not be able to take all of an applicant's "regular essential expenseswhich cannot be avoided or varied" into account in deciding whether to grant a special benefit. This concern arises particularly because clause 3.3 of the direction, which deals with the second stage of the process, refers at (a) to "special or unusual financial expenditure compared toothers in a similar general position" and at (b) to "special or unusual reasons for any expenditure". These provisions, he argues, limit the factors that may be taken into account at the second stage to the "special or unusual". [30] We do not agree. The purpose of clauses 3.3(a) and (b) may be to allow the respondent to take account of expenditure that, although unusual, does not otherwise meet the "allowable costs" definition (ie, because it is not regular or essential, or because it could be avoided). In any event, clauses 3.3(c), (f), (g) and (h) are not limited in the way that (a) and (b) are. The respondent will be able to take account of all relevant factors before making a final decision, including expenditure to meet regular essential expenses that cannot be readily avoided but which are not unusual or out of the ordinary. [31] Accordingly, we agree with Wild J that the answer to the second part of the question posed in [2] above is "yes".Decision[32] The appeal is dismissed. There will be no order as to costs.Solicitors: Otene & Ellis, Auckland for Appellants Crown Law Office, Wellington for Respondent