LANDY v THE CHIEF EXECUTIVE OF THE MINISTRY OF SOCIAL DEVELOPMENT [2015] NZHC 2338

LANDY v THE CHIEF EXECUTIVE OF THE MINISTRY OF SOCIAL DEVELOPMENT [2015] NZHC 2338 [25 September 2015]IN THE HIGH COURT OF NEW ZEALANDWELLINGTON REGISTRYCIV-2015-485-000327[2015] NZHC 2338IN THE MATTER OF an appeal by way of Case Stated from thedetermination of the Social SecurityAppeal Authority at Wellington unders 12Q of the Social Security Act 1964BETWEEN DIANNE LANDYAppellantAND THE CHIEF EXECUTIVE OF THEMINISTRY OF SOCIALDEVELOPMENTRespondentHearing: 16 September 2015Appearances: Appellant in Person with McKenzie friend G HowellI Clarke and M Conway for RespondentJudgment: 25 September 2015JUDGMENT OF VENNING JThis judgment was delivered by me on 25 September 2015 at 2.30 pm, pursuant to Rule 11.5 of the High Court Rules.Registrar/Deputy RegistrarDateSolicitors: Crown Law, WellingtonCopy to: AppellantIntroduction[1] In 2007 Ms Landy suffered a debilitating injury. After initially receiving compensation under the Accident Compensation Act 2001, Ms Landy was advised the compensation was to be stopped. She contested the decision to stop the compensation. Between 8 November 2009 and 11 November 2012, while contestingthe decision, Ms Landy received an invalid's benefit/sickness benefit (main benefit)and, in addition, received a further disability allowance, accommodation supplement and temporary GST assistance (supplementary benefits).[2] Ultimately Ms Landy was successful in her claim for the compensation to be reinstated. As a result she was entitled to compensation backdated for a number of years. However, as a result of Ms Landy's successful claim to compensation for therelevant period, she was not entitled to have received the main benefit and supplementary benefits she had received. She was liable to repay both the main benefit and the supplementary benefits she had received to the Ministry of Social Development (the Ministry).[3] Ms Landy was aware that she would have to repay the overpaid benefits. On 12 November 2012 she asked the Ministry to recover any debt she might owe it from the backpayment of compensation due from the Accident Compensation Corporation (the Corporation).[4] On 13 December 2012 the Corporation repaid the Ministry debt arising from the main benefit (totalling $32,065.15) but it did not deduct the balance of the debt (totalling $18,295.29) arising from the supplementary benefits before paying the balance of the compensation to Ms Landy on or about 17 December 2012.1[5] On 17 December 2012 Ms Landy left a telephone message with the Ministry seeking clarification of how much of the compensation backpayment had been paid towards her debt. The Ministry called her to advise the main benefit had been reimbursed but was unable to contact her.1 The main benefit was an excess income-tested benefit under s 252 of the Accident Compensation Act and under s 252(4) of that Act the Corporation was required to refund it to the Ministry.[6] Ms Landy therefore remained liable for the balance of the debt relating to the supplementary benefits. The Ministry sought to recover the debt under s 86(1) of the Social Security Act 1964 (the Act) on 10 January 2013.[7] Ms Landy resisted the Ministry's attempts to recover the sum owing, arguingthat the Ministry and/or the Corporation had failed to implement her direction to deduct all benefits she had been paid from the ACC payment and that, as she had spent the money received from the Corporation in good faith, it was unreasonable for the Ministry to seek to recover the benefit.Procedural background[8] On 20 March 2013 Ms Landy applied for a review of the Ministry's decision to recover the supplementary benefits overpayment. The Ministry's decision wasupheld in an internal review and also by the Benefits Review Committee. Ms Landy then appealed to the Social Security Appeal Authority (the Authority). The Authority received a report from the Ministry and heard oral evidence and submissions from Ms Landy.2 The Authority dismissed Ms Landy's appeal on 23 September 2014.3 It considered that the debt was not the result of an error by the Ministry. Further, it didnot consider Ms Landy's circumstances to be such as to support the exercise of the discretion not to recover to be exercised in her favour.[9] Ms Landy now appeals from the Authority's decision by way of case stated on two questions of law.The questions of law:Question 1Did the Authority err in law in determining that the Ministry's failure to carry out [Ms Landy's] request that overpayments be recovered directly fromthe Corporation from the ACC backpayments owed to [Ms Landy] was not an error which caused the debt for the purposes of s 86(9A) of the Social Security Act 1964?42 It also heard evidence from Ms Landy's sister.3 [2014] NZSSAA 75.4 In submissions Ms Landy suggests that the first question ought to be amended to refer to s 86(9B), but nothing turns on that point. Section 86(9B) merely defines "error" for thepurposes of s 86(9A).Question 2Did the Authority err in determining it was not prepared to direct that the Chief Executive take no steps to recover the debt pursuant to s 86(1) or s 86A of the Act?The statutory background[10] Section 85A creates the debt. As it read at the material time, and as relevant, s 85A provided:85A Payments that are debts due to the Crown:The following payments or other sums are debts due to the Crown:(f) a sum (an overpayment), paid or advanced under this Act to or for the credit of a person—(ii) to which the person has no entitlement.[11] The main benefit and supplementary benefits were overpayments which, as a consequence of the award of backdated compensation, Ms Landy had no entitlement to.[12] Section 86 provides for the recovery of such overpayments and other debts due to the Ministry. The material provisions at the relevant time were:Recovery of payments made in excess of authorised rates(1) The chief executive, in order to recover a debt referred to in section 85A, may—"(a) bring proceedings in the name of the chief executive; or"(b) deduct all or part of that debt from any amount payable to that person by the department as a benefit or a student allowance; or(1A) Subsection (1) is subject to subsections (9A) and (9B), and to any regulations made under section 132G.(1B) Nothing in section 94B of the Judicature Act 1908 or any rule of law relating to payment by or under mistake prevents recovery of a debtunder subsection (1)."(9A) The chief executive may not recover any sum comprising that part of a debt that was caused wholly or partly by an error to which the debtor did not intentionally contribute if—(a) the debtor—(i) received that sum in good faith; and(ii) changed his or her position in the belief that he or she was entitled to that sum and would not have to pay or repay that sum to the chief executive; and(b) it would be inequitable in all the circumstances, including the debtor's financial circumstances, to permit recovery.(9B) In subsection (9A), error—(a) means—(i) the provision of incorrect information by an officer of the department:(ii) any erroneous act or omission of an officer of the department that occurs during an investigation under section 12:(iii) any other erroneous act or omission of an officer of the department; but(b) does not include the simple act of making a payment to which the recipient is not entitled if that act is not caused, wholly or partly, by any erroneous act or omission of an officer of the department.[13] Ms Landy's case is that the Ministry's failure to carry out her clearinstructions to deduct the debt from the ACC payment was an error in terms of s 86(9A). Ms Landy noted that the Ministry had apologised to her. She submitted the apology was an acknowledgement of error on the Ministry's behalf. She argued that the cases relied on by the Ministry to support recovery largely related to instances of fraud by the beneficiary.[14] Put another way it is her case that there would have been no debt if her instructions had been followed. She should not have to pay now for the mistakes made by either the Ministry or the Corporation (or both) in failing to deduct the overpaid special benefits before paying out her backdated compensation.[15] Alternatively Ms Landy submits it would be unfair and unreasonable to expect to recover the overpayment from her, taking account of her circumstances. She considered she had made an arrangement with the Corporation and the Ministry for the overpayments to be repaid and was not informed that had not been actioned. It was extraordinary, rare or unusual for her request to be ignored by a Government department.DecisionQuestion 1[16] The starting point must be the statutory wording. By operation of s 85A Ms Landy has a debt to the Ministry arising from the special benefits she received before the compensation was paid.[17] Ms Landy relies on s 86(9A). The section prevents recovery of debts otherwise due to the Ministry in certain circumstances. The debt (or part of it sought to be recovered) may not be recovered if it satisfies the following tests:(a) it was caused wholly or partly by an error;(b) to which the debtor did not intentionally contribute; and(c) the debtor must have received the sum in good faith; and(d) have changed her position in the belief that she was entitled to that sum; and(e) it would be inequitable in all the circumstances, including the debtor'sfinancial circumstances to permit recovery.[18] The tests are disjunctive. The first and only issue under question one is whether the debt was caused wholly or partly by an error of the Ministry. If it was not, as was found by the Authority, then the Chief Executive is not prevented from seeking to recover the debt. Error is defined in s 86(9B), in this context, as an erroneous act or omission of an officer of the department. The erroneous act reliedon by Ms Landy is the failure of the Ministry's officers to implement her direction to the Ministry to deduct the amounts she was required to repay from the payment made to her by the Corporation.[19] The record of Ms Landy's first contact with the Ministry on this issue on 12November 2012 is:The first computer note made at 9.32am records:"Client requested I email you to advise that ACC will be contacting the office in regards to the swap over from benefit to ACC".The second computer note made at 9.37am records:"Her debts pls be paid off aswel (sic) from the back payment from ACC".[20] There is a further record of Ms Landy's contact with the Corporation on 17December 2012 to the effect:Received msg from client. Tried to ring. Will try again.Client left message wanting confirmation as to how much ACC has paid towards her Work and Income debt established due to ACC entitlement.ACC has reimbursed the full main benefit debt of $32,065.15. Tried tophone client to confirm. Will try again to advise.[21] In the meantime, on 16 November 2012 the Ministry had written to advise Ms Landy that:"Once ACC has calculated what rate of weekly compensation you will beentitled to they will advise Work and Income, We will then review the benefit and any supplementary assistance that you may have received, as the weekly compensation affects the rate of benefit you can get.This review may result in a debt being established on your benefit. Once wehave received the details from ACC, we will then tell you how much you havebeen overpaid and advise you of the repayment process. Where possibleWork and Income will seek full repayment of your benefit debt directly fromyour ACC arrears as our legislation allows us to do this".[22] On 23 November a letter was sent to Ms Landy to advise that the sum of $32,065.15 would be reimbursed to Work and Income by ACC and the balance of $18,295.29 was her responsibility to repay.[23] While Ms Landy's communication of 17 December was more an inquiry rather than a direct instruction, Ms Landy's evidence before the Authority was to the effect that she had instructed the Authority to deduct all amounts, not only the main benefit but also the supplementary benefit payments. She says she did so on morethan one occasion. Her sister's evidence before the Authority was to similar effect.Also, that was the gist of the earlier communication on 12 November. The Ministryappears to accept Ms Landy's position on this because in its report under s 12K(4)(e) of the Act to the Authority it records:The Ministry accepts that the appellant did make contact on 12 November 2012 with a view to having all her debts repaid from the ACC back payment. It appears that the Ministry did not take any action in this regard. The Ministry apologises for this oversight.[24] For present purposes then I accept that it can be said the failure of theMinistry to implement Ms Landy's instructions was an omission which constitutesan error in terms of s 86(9)(B). However, that begs the primary question which is whether the debt, the overpayment of the special benefits, was caused wholly (or partly) by that error.[25] The sums paid to Ms Landy for both the main benefit and the supplementary benefits were payments to which she had no entitlement once it was confirmed that she was entitled to accident compensation. To that extent both were a debt under s 85A as a sum (overpayment) to which she was not entitled to. That overpayment of the special benefits arose as each of the special benefits were paid. The debt was not itself caused by any error in the failure to implement her instructions of 12 November. At the latest the overpayments crystalised and the sum due wasquantified when the decision was made confirming Ms Landy's entitlement tocompensation. The overpayment was made prior to 12 November. The debt arose as a consequence of Ms Landy's statutory obligation to repay the overpaid specialbenefits.[26] I note that in Owens v Chief Executive of the Ministry of Social Development5the Court of Appeal discussed the application of s 86(9A) in the following terms:[9] Where the overpayment is a result of an error not intentionally contributed to by the beneficiary and where the beneficiary received the amount in good faith and has altered his or her position in reliance on the validity of the payment, the Chief Executive has a discretion to write-off the debt where it would be inequitable in all the circumstances to require repayment. That is the effect of s 86(9A), which provided at the relevant time as follows:(9A) Notwithstanding anything to the contrary in this section, the chief executive may, in the chief executive's discretion, authorise theprovisional 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 payment.[27] In the present case the payment referred to in Owens that Ms Landy says she received in good faith and altered her position in reliance on, is the backdated compensation paid by the Corporation rather than the special benefits which she had previously received. To the extent Ms Landy altered her position she did so not because of the overpayment of the special benefits, but rather on receipt of the backdated compensation from the Corporation.[28] As Busby v Chief Executive of the Ministry of Social Development6 confirms, causation is the key. Mr Busby had argued, amongst other things, that the Ministry had made an inadequate investigation into his circumstances when the overpayments were first established. In response to that submission Simon France J said:[20] In terms of what error might have been made by the Ministry, Mr Busby's submissions on this appeal focus on what he says was aninadequate investigation in 2003/2004 when the overpayments were first established. However, this is not the type of error at which s 86(9A) is directed. Any error in the investigation would have occurred after the payments were made, and was not therefore causative of the overpayment happening. The Authority correctly focussed on the only suggestion of an error made at the relevant time. Its conclusion no error was made was open to it on the facts.5 Owens v Chief Executive of the Ministry of Social Development [2007] NZAR 185 (CA).6 Busby v Chief Executive of the Ministry of Social Development [2014] NZHC 294.[29] Logically the debt (overpayment) in this case was not caused by the error Ms Landy relies on. The reference to debt in s 86(9A) is a reference (through the operation of s 86(1)) to the debt created by s 85A(f) which is the overpayment of the special benefits so that in the present case the section would read:The chief executive may not recover any sum comprising that part of the overpayment of the special benefits that was caused wholly or partly by an error to which Ms Landy did not intentionally contribute [30] The causative link is missing in this case. The debt, the overpayment of the special benefits, that Ms Landy owes the Ministry was not caused by any error of the Ministry. It has arisen as a consequence of the overpayment of the special benefits, not the failure of the Ministry to deduct the special benefits from the backdated compensation.Question 2[31] The second question is:Did the Authority err in determining it was not prepared to direct that the Chief Executive take no steps to recover the debt pursuant to s 86(1) or s 86A of the Act?[32] The Chief Executive's ability to recover the debt under s 86(1) is in each casecouched in discretionary terms.[33] As Ms Conway submitted the case law is divided as to whether the discretion under s 86(1) is truly residual, i.e. limited by the presence of s 86(9A) and s 86(9B) or is a general discretion.[34] In Osborne v Chief Executive of the Ministry of Social Development7 Duffy J noted previous authorities interpreting s 86 as providing a residual discretion but went on to note that in its original form the discretion in s 86(1) could only be seen as a general discretion because the original version of the section had no equivalent of s 86(9A) and (9B). The only constraint on the exercise would have been the usual administrative law principles requiring general discretionary authority to be exercised lawfully, reasonably and in accordance with procedural fairness. Duffy J7 Osborne v Chief Executive of the Ministry of Social Development [2010] 1 NZLR 559 (HC).ultimately concluded that the discretion under s 86(1) was a residual discretion inferentially limited by the presence of ss 86(9A) and (9B).8[35] Previously, in Cowley v Chief Executive of the Ministry of Social Development9 Clifford J considered the discretion to be a residual one to the extent it existed against a general presumption that overpayments, other than in s 86(9A) circumstances, were to be recovered:[41] The discretion is not so much one to recover but one not to recover, whether in whole or in part, and for a certain period.[36] In Beer v Ministry of Social Development10 Kós J noted the differing approaches and said:[53] The practical fact is that where the Ministry establishes an overpayment that is contested, the primary questions will then be whether the s 22(b) "no choice" exception applies (so there is no overpayment at all),or the s 86(9A) "your fault" exception applies (so that there is an overpayment, but it is irrecoverable). After that, as here, the recipient'sremaining resort is to the s 86(1) discretion. For that reason, and because regard is had first to the respective conduct of the recipient and the Ministry within the foregoing provisions, the discretion may reasonably be describedas "residual".[37] I respectfully agree with the above analysis by Kós J and also with the following observations as to the approach to be taken by the Court:[55] Two further points can usefully be made.[56] First, the discretion is not fettered, but remains subject to the conventional fetters imposed by public law on the exercise of a general discretion: it must be exercised lawfully, reasonably and in accordance with procedural fairness.[57] Secondly, where an appeal is brought against the exercise of a discretion, an appellate body will normally take a more conservative approach than where the issue is a determination of right. In the former case, the usual rule is that an appellant must show that the decision-maker "acted on a wrong principle; failed to take into account some relevant matter; took account of some irrelevant matter or was plainly wrong". Suchconstraint should be shown both by the Authority and by the Court on appeal from it.8 At [66].9 Cowley v Chief Executive of the Ministry of Social Development HC Wellington CIV-2008-485- 381, 1 September 2008.10 Beer v Ministry of Social Development [2012] NZAR 264 (HC).[38] Ms Landy's case in relation to this aspect of the cases is that the decisionmaker must act fairly and reasonably in exercising the discretion. Given the acknowledgement by the Ministry that her instructions were not followed and given the information she put before the Authority concerning her personal circumstances, she says the discretion should have been exercised in her favour.[39] Noting the requirement for rare and unusual circumstances11 Ms Landy argued that it should be rare and unusual for Ministry officials not to implement the instructions of a person in her position.[40] I agree with the approach suggested by Kós J that some constraint must beshown by this Court on appeal from the Authority's decision on the exercise of thediscretion. In determining the Chief Executive was correct not to exercise his discretion the Authority took into account the following factors:(a) Ms Landy's personal and financial circumstances (at [28] to [31] of the decision). Those circumstances included the original injury, the subsequent medical and psychological issues, her income, her domestic situation and her outgoings.(b) The correspondence and communications between the Ministry and Ms Landy.(c) That the Ministry had, through oversight, failed to request Ms Landy'swritten authority to deduct the overpaid special benefits from the compensation payment.[41] As noted, the Ministry wrote on 16 November 2012 to Ms Landy advising her that as a result of her being granted ACC payments a review of her entitlement would be conducted and a debt may be established. That was followed by a letter of23 November 2012 which advised that the Corporation could not repay the GSTextra assistance debt and supplementary debt (the supplementary benefits) of$18,295.29, which remained her responsibility to repay. Those letters predated the11 Osborne v Chief Executive of the Ministry of Social Development, above n 7, at [63].communication on 17 December from Ms Landy seeking confirmation as to how much ACC had paid towards the Work and Income debt which coincided with the payment to her of the compensation. Ms Landy says she did not receive those letters, but it was open to the Authority to find Ms Landy was aware of the letters given her communication with the Ministry.[42] The Authority was also aware of the further correspondence from the Ministry to Ms Landy on 10 and 24 January 2013 advising there was a residual debt calculated at that time of $19,052.29.[43] Further, Ms Landy did not provide details of when her compensation payment was spent. She did not produce copies of her bank statements. In the circumstances it was open to the Authority to infer that it was unlikely Ms Landy would have spent all the money prior to 10 and 24 January.[44] The only point on which it could be said the Authority misdirected itself wasits apparent acceptance of the Ministry's submission that it needed written authorityto recover the supplementary benefits. That is not strictly correct. The Corporation was required to deduct the overpaid main benefit by s 252 of the Accident Compensation Act 2001. While the Accident Compensation Act did not provide for deduction of the special benefits there is no statutory or regulatory requirement thatMs Landy's authority to deduct them was required to be in writing. While it is understandable as a matter of practice the Ministry (and the Corporation) might require written authority to deduct in the absence of statutory authority, such was not required.[45] Nevertheless that is a relatively minor error in the context of the decision as awhole and I am satisfied it did not have a significant or material effect on theexercise of the Authority's discretion whether to direct the Chief Executive not toseek to recover the overpaid special benefits.[46] In confirming that the case did not support the exercise of the discretion the Authority took into account all other relevant factors. It was open for the Authorityto find that the circumstances did not prevent the Chief Executive from recovering the debt in this case.Result[47] The questions of law are answered:Question 1: No.Question 2: No.Costs[48] The respondent Ministry sought costs on a 1B basis. Given the background to the way this matter has developed the points raised were reasonably raised. While Ms Landy has failed in her appeal, there is an acknowledgement by the Ministry that it failed to implement her instructions. The Ministry is entitled to recover the debt, but I do not consider Ms Landy should be further prejudiced by an award of costs. In the circumstances there will be no order for costs in the proceeding.__________________________ Venning J