COWLEY V MINISTRY OF SOCIAL DEVELOPMENT HC WN CIV-2008-485-381

COWLEY V MINISTRY OF SOCIAL DEVELOPMENT HC WN CIV-2008-485-381 1 September 2008IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY CIV-2008-485-381IN THE MATTER OF an appeal by way of case stated from the determination of the Social Security Appeal Authority at Wellington under s 12Q of the Social Security Act 1964 BETWEEN NATALIE COWLEY Appellant AND THE CHIEF EXECUTIVE OF THE MINISTRY OF SOCIAL DEVELOPMENT Respondent Hearing: 17 July 2008 Counsel: S Price for the appellant U Jagose and D Harris for the respondent Judgment: 1 September 2008RESERVED JUDGMENT OF CLIFFORD J Introduction[1] This is an appeal, pursuant to s 12Q of the Social Security Act 1964 ("the Act"), on a point of law by way of case stated. The question of law raised by this appeal is whether the Social Security Appeal Authority ("the Authority") applied the correct legal test in upholding a decision by the respondent, the Chief Executive of the Ministry of Social Development ("the Chief Executive"), to resume recovery from the appellant, Ms Cowley, of a debt representing benefit payments received by Ms Cowley to which she was not entitled.Background[2] Between November 1993 and August 1998, Ms Cowley received domestic purposes and other benefit payments to which the Chief Executive subsequently determined she was not entitled. Very much in summary, the Chief Executive determined that Ms Cowley was living in a relationship in the nature of marriage, contrary to her representations at the time. The existence of that relationship disentitled Ms Cowley to those benefits. The Chief Executive determined that Ms Cowley had received benefit payments to which she was not entitled of $49,670.92 ("the Overpayment Debt"). [3] Ms Cowley challenged the Chief Executive's original decision as to the existence of that relationship. She also challenged various subsequent decisions to recover, by way of deduction from ongoing benefit payments to which she was entitled, the Overpayment Debt. [4] In July 2002 the High Court, on an earlier appeal by way of case stated, finally upheld the Chief Executive's decisions. It was not until January 2006, however, that the Chief Executive took steps to resume recovery of the Overpayment Debt by deduction at the rate of $5 per week. [5] Ms Cowley was advised of that decision in February 2006. Ms Cowley challenged that decision. She argued that the Overpayment Debt should be reduced to $5,000, but that she would repay at the rate of $10 per week. [6] In February 2007 a Benefits Review Committee upheld the Chief Executive's decision. Ms Cowley then appealed to the Authority.The Authority's decision[7] Ms Cowley's appeal to the Authority was by way of rehearing. For the purposes of such a rehearing, the Authority has all the powers, duties, functions and discretions that the Chief Executive had when making the decision under appeal (s 12I(2) of the Act).[8] Ms Cowley contended that, because of the inaction by the Chief Executive, she had a legitimate expectation that no recovery action would be taken and that therefore recovery action would be inequitable and incorrect in law. Ms Cowley referred also to her straitened financial circumstances. [9] The Authority first concluded that Ms Cowley could not have had any reasonable or legitimate expectation that the overpayment debt would not be recovered. There is no challenge to that aspect of the Authority's decision. [10] The Authority then noted there was no contention that s 86(9A) of the Act applied. Section 86(9A) precludes recovery in certain circumstances where a benefit overpayment results from Ministry errors. [11] The Authority went on to consider whether there was a more general basis not to recover the debt. It did so in the following terms:[21] We have considered whether there is any basis for exercising the discretion under s.86(1) not to recover the debt in this instance. [22] Given that Parliament has specified the circumstances in which a debt should not be recovered in s.86(9A) the occasions the Chief Executive should exercise his discretion not to take steps to recover a debt which does not meet the criteria of s.86(9A) must be limited (see The Director General of Social Welfare v Attrill and ors [1998] NZAR 368). [23] We think that if the provisions of s.86(9A) cannot be made out in relation to a particular overpayment then there must either be highly unusual circumstances or circumstances relating to the practicality of recovering the debt which would warrant the Chief Executive exercising discretion not to recover. Other than the level of debt the appellant's circumstances are not highly unusual. While the budget presented in her affidavit does not indicate any surplus it is clearly not an entirely accurate budget. For example, it does not show deductions being made from the appellant's benefit for other recoveries. Moreover we recall that for at least part of the time the debt was incurred the appellant was in part time employment. It is difficult to understand why she does not have at least part time employment at the present time. [24] Further to limit recovery of the debt to $5,000.00 would create significant inconsistencies with other beneficiaries who owe debts to the Chief Executive. [25] We are not satisfied that this is a case where the Chief Executive should exercise any residual discretion under s.86(1) not to recover the debt.[26] We do not think the recovery rate of $5.00 per week in inappropriate. It seems that at the time the s.12K report was written the appellant was repaying an outstanding advance of $10.50 per week. The amount was due to be recovered within 10 weeks. That advance should by now be repaid and the appellant's ability to resume repayments of this overpayment should have improved.[12] Following that decision, the following question of law was submitted to this Court for determination:Did the Authority err in law in finding that if the provisions of s 86(9A) of the Act could not be made out in relation to a particular overpayment then before the Chief Executive could exercise his discretion under s 86(1) of the Act not to take action to recover an overpayment there must be highly unusual circumstances or circumstances relating to the practicality of recovering the debt?The case on appeal[13] It was Mr Price's submission, for Ms Cowley, that the Authority had applied an unlawful gloss or fetter on the question of when the discretion not to recover an overpayment debt might be exercised. That unlawful gloss or fetter was the application by the Authority of the test of "highly unusual circumstances". Mr Price put the argument this way in his written submissions:The appellant accepts that the Chief Executive must have the discretion not to recover overpayments when it would be uneconomic to do so (providing that this discretion is not exercised in a discriminatory fashion). The crucial question, then, is whether the only other situation in which the Chief Executive may choose not to recover a debt is where there are "highly unusual circumstances".[14] Mr Price then argued that the s 86(1) discretion could not be constrained in that way for a variety of reasons. Included in those reasons were the following: a) The constraint was a gloss that appeared nowhere in the statutory language; b) Parliament had chosen to expressly use similar tests elsewhere in the Act and in other legislation, but has not used that test in s 86(1); c) The gloss was not required as a matter of necessary implication;d) The gloss was at odds with the purpose of the Act; e) The gloss was at odds with High Court authority; f) The gloss would authorise (and even require) exercises of discretion in a range of patently unfair, unreasonable, and otherwise inappropriate circumstances, being circumstances that arise relatively commonly and cannot therefore be described as "highly unusual"; and g) The gloss was not even consistent with Authority and Chief Executive practice. [15] Mr Price submitted that a proper reading of s 86(1) required the exercise of the discretion to recover unless it was uneconomic, unreasonable or otherwise inequitable or inappropriate in all the circumstances to recover the debt at that time. [16] Ms Jagose, for the respondent, accepted in argument that if the Authority had in these circumstances applied a test of "highly unusual circumstances" as a pre- condition to a decision not to recover an overpayment debt, then the Authority would have erred. The correct approach was to consider each individual case on its merits, and within the framework provided by the Act. She argued, however, that in referring to "highly unusual circumstances" the Authority was not applying a test. Rather, it was describing – given the nature of the residual discretion existing under s 86(1) – the type of circumstances particular to a debtor where a decision was likely to be made that no recovery was appropriate. [17] Ms Jagose further argued that the scheme of the Act, and the wording of s 86(1), indicate that there is a presumption that any debt that is recoverable should be recovered. The Chief Executive had a general responsibility to make sure resources were used efficiently. That general responsibility was reflected in s 86(1). The presumption that such debts would be recovered may be displaced, but almost by definition, normal circumstances would be insufficient to displace this presumption, for in normal circumstances the presumption would apply. Thus the Chief Executive and the Authority had followed the statutory scheme.Discussion[18] I propose first to consider the nature of the respondent's discretion not to recover an overpayment debt. I will then address the specific point of law raised by this appeal.The Chief Executive's discretion[19] The general scheme of the Act regarding overpayment debts is found in a number of sections. [20] Section 81(1)(b) entitles the Chief Executive to renew any benefit from time to time to determine whether the beneficiary may not, or may not have been, entitled to receive it. [21] Section 85A(f) provides that a sum paid to a person under the Act that was in excess of the amount to which the person was entitled (i.e. an overpayment), or to which the person had no entitlement is a debt due to the Crown. [22] Section 86 provides for the recovery of such debts. Subsections (1) and (9A) are of direct relevance. They provide as follows:(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 (c) in the case of a debt referred to in section 85A(d), deduct all or part of that debt from any payment of a grant of special assistance under a welfare programme approved under section 124(1)(d). (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(b) it would be inequitable in all the circumstances, including the debtor's financial circumstances, to permit recovery.[23] Section 132G provides for regulations to establish general schemes for the suspension or remittance of overpayments. Such schemes would appear to be intended to be based on criteria (kinds of overpayments, kinds of beneficiaries, value of debts) and for different periods of suspension to be determined by reference to those matters. Such regulations may only be made however if they are likely to support the general goal of assisting beneficiaries to move from dependence on a benefit to self-support through employment. [24] Both parties accepted the general presumption that the Chief Executive would recover overpayments, but that at law he had a discretion as to whether and to what extent he did so. Further, both the appellant and the respondent considered that s 86(1) was the source of that discretion, although they expressed that view in different ways. [25] For the appellant, Mr Price put the matter this way:15. Section 86(1) creates a discretion to recover overpayments: Director- General of Social Welfare v Attrill [1998] NZAR 368, Matenga v Director-General of Social Welfare (1999) 1 NZSC 40,455. In Attrill, Doogue J held that this discretion is not unfettered, but did not clearly set out what the fetters might be. 16. This discretion is not equivalent to a power to write off debts. It is simply a determination, for the time being, not to recover a particular debt. With one exception (s 86(9A), the chief executive has no power under the [Act] to treat a debt as permanently not recoverable.[26] Ms Jagose, in her written submission for the Chief Executive, put the general position in the following way:The Act is silent on the chief executive's power not to collect a debt owing to the Crown. But it does not appear to be at issue between the parties that the chief executive may decide not to recover a debt. That is plainly the corollary of s 86(1). It is a residual discretion, arising from s 86(1), rather than a statutory discretion conferred directly.[27] Ms Jagose also relied on the Attrill and Matenga decisions together with the unreported decision McConkey v Director-General of Work and Income New Zealand (HC WN AP277/00 20 August 2002 Goddard J).[28] I agree with Ms Jagose's characterisation of the discretion as a residual one not to recover an overpayment in contrast to Mr Price's characterisation of the discretion as one to recover overpayments. However, I do not accept that the only relevant source of that discretion is s 86(1). [29] In my view s 86(1) is best to be understood as empowering the Chief Executive to take proceedings to recover overpayments. The need for such an empowerment, no doubt a matter of administrative convenience for the Crown, can be seen from s 14(1) of the Crown Proceedings Act 1950 which provides:14 Method of making Crown a party to proceedingsSubject to the provisions of this Act and any other Act, civil proceedings under this Act by the Crown may be instituted by – (a) the appropriate Government department in its own name if the department has power to sue apart from this section; or (b) the appropriate officer of the Crown in the name in which he may sue on behalf of the Crown or any Government department if the officer has power to sue on behalf of the Crown or any Government Department apart from this section; or (c) the Attorney-General if there is no such appropriate department or officer of the Attorney-General has any reasonable doubt whether, and if so, which department or officer is appropriate; or (d) any two or more of them jointly.[30] Without s 86(1), therefore, proceedings to recover overpayments would have to be taken by the Attorney-General . It is s 86(1) which, in the case of the Chief Executive, constitutes power to sue "apart from" s 14 of the Crown Proceedings Act. [31] Further, s 86(1) also authorises recovery of overpayments not by Court proceedings but by deduction from benefit payments to which the relevant beneficiary is otherwise entitled. Without that legislative authority, and given that entitlement, the Chief Executive would not be able to so recover overpayments. [32] The question, however, of whether, and to what extent, a Department or officer statutorily empowered to commence civil proceedings, including for the recovery of a debt, also has authority to write off or to not recover that debt is in my view a separate question.[33] Although not the subject of extensive submissions before me, but referred to in general terms by Ms Jagose, my understanding is that the Public Finance Act 1989 provides the general framework for delegated authority within Government departments for the writing off of debts represented by Crown assets. [34] It does not logically follow that a person to whom authority is given, for the purposes of s 14(1) of the Crown Proceedings Act, to commence proceedings for the recovery of debts also has the appropriate authority under the Public Finance Act to write off Crown debts. However, nor does it follow that the same person is obligedto recover a particular debt. This, again, would depend upon whether or not, within the general scheme provided by the Public Finance Act, a decision was made by a person with authority that the debt should, or should not, be recovered. If a decision to recover a particular debt was made outside the Act (and not by the Chief Executive) then it is difficult to see how that decision would, in and of itself, be appealable to the Authority. That reservation is, however, more theoretical than real in my view in this instance. [35] Both parties rely on the decision in Attrill. The principal issue in Attrill was not whether the Chief Executive had a discretion to write off overpayments, but rather whether his discretion in that regard arose under the Act and was therefore appealable to the Authority. The Chief Executive's argument in Attrill was that, other than to the extent provided in s 86(9A), whilst he did have delegated powers as regards debt recovery, those delegations did not arise under the provisions of the Act. Rather, they had come into existence pursuant to the exercise of the powers of the Minister of Social Welfare and, under the then current legislation, the Treasurer. As originally conceived, therefore, s 86(9A) was seen as an independent delegation of discretionary power – existing outside the general provisions of the regime provided for by the Public Finance Act, to write off certain Crown debts. [36] The Chief Executive argued that where s 86(9A) did not apply, the writing off a debt could only be done under the authority of the Public Finance Act, and implicitly required appropriation. Therefore, a decision to write off or waive the repayment of such an overpayment was not taken by the Chief Executive under theAct, and nor could it be taken by the Authority, as to do so would be to use a statutory provision (implicitly s 86(1)) to ratify an improper payment. [37] Doogue J did not accept the argument that the Chief Executive had no discretion under s 86(1), the principal purpose of which argument had been to oust the jurisdiction to appeal such a decision to the Authority. In that context Doogue J also rejected the argument that s 86(1) required recovery actions to be taken, and construed the use of the word "may" within the section as reflecting the existence of a discretion. Further, where the Director-General made a determination that a recovery should be pursued against the recipient of an overpayment, Doogue J concluded there must be a right of appeal by such recipient to the Authority. The decision was one made under the provisions of Part 1 of the Act, and there was no language from which it could be inferred or implied that the intention of the legislature was to exclude such a right of appeal. Doogue J recorded that he was certainly not prepared, by an examination of what occurred in respect of public finance, to add a gloss to the clear provisions of the statute that the legislature did not intend a right of appeal against a determination of the appellant to either commence proceedings against the beneficiary, or make adjustments in instalments of a benefit otherwise becoming payable to the beneficiary. [38] I concur with that analysis. However, to the extent that Attrill might be read as authority for the proposition that s 86(1) is the only source of the discretion whereby the Chief Executive can decide not to recover overpayments, I disagree. [39] I acknowledge that where Doogue J uses such phrases as "the discretions vested in the Appeal Authority under the provisions of ss 86(1) – (1D)" it can be argued that that is what he had in mind. I note, however, the following concluding remarks:This case highlights the desirability of the legislature reconsidering provision of s 86 and associated provisions of the Act. One would hope for clear statutory guidance to the Director-General and the Appeal Authority in the exercise of their powers and duties.DecisionI do not regard it is appropriate that I endeavour to answer directly a the questions posed for the Court by the Appeal Authority. It is unclear from cases stated whether there has been a determination by the appellant in termsof the provisions of s 86(1) or s 86(1A) to take a particular course of recovery for overpayment which would attract an appeal right under the provisions of s 12J(1). Any discretion which may exist under the provisions of ss 86(1)-(1D) is necessarily limited having regard to the provisions of s 86(9A). It not open to the Court in these proceedings to define the extent of the discretion which exists in the appellant and the Appeal Authority in relation to the pursuance of either type of remedy identified within ss 86(1)- (1D) for the recovery of an overpayment established under s 81 [40] Doogue J was acknowledging considerable uncertainty in this area. I also acknowledge the uncertainty that exists. I do not think any possible difference of view as to the significance of s 86(1) for the existence of the discretion is of great moment. In my judgment, however, the position as regards the discretion not to recover overpayments can best be summarised as follows. [41] Such a discretion is a residual one, namely it exists against a general presumption that overpayments – other than in s 86(9A) circumstances – are to be recovered. 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. [42] Section 86(1) reflects the existence of that discretion, rather than being its independent source. As a matter of general principle, and subject to appropriate decision-making, the Crown need not always recover debts owing to the Crown. Furthermore, delegated decision-making under the Public Finance Act provides for decisions not to recover overpayments. Finally, such a decision is one to be made not only with reference to generally applicable criteria, but also with reference to relevant considerations arising in the context of the Act itself. There will, therefore, be circumstances where the Chief Executive decides not to pursue recovery from a beneficiary when – absent the policy framework and statutory purposes of the Act – such a decision would not be made. [43] In other words, the exercise of the discretion reflected by s 86(1) is one which is to be informed by the statutory framework within which it is made, namely the Act. [44] I adopt Ms Jagose's characterisation of the overall purpose of the Act as follows:18. It is well-settled that the Act is concerned to aid those who truly need financial assistance, by providing assistance for the costs of the basic necessities of life and thus alleviating (but not necessarily removing) financial hardship. The Act is to be administered efficiently so as not to waste public funds while at the same time being attentive to individuals' genuine needs. The Court of Appeal has expressed that purpose in various ways: 18.1 "Social security benefits are to be reserved for those who truly need them:: Tapp v Chief Executive of Department of Work and Income [2003] NZFLR 761, at paragraph [19]. 18.2 " the relevant statutory objectives [provide] for the efficient administration of social welfare benefits and protecting the public purse": Nicholson v Department of social Welfare [1999] 3 NZLR 50, 58, paragraph [30]. 18.3 "The concern of the legislation was with the provision of financial help for people who for one reason or another could not adequately support themselves": Ruka v Department of Social Welfare [1997] 1 NZLR 154, 161.[45] The Chief Executive also has to discharge his responsibilities under s 32 of the State Sector Act 1988 for the efficient, effective and economical management of the Ministry. [46] Taken overall, therefore, the general presumption will be that the Chief Executive will take recovery action as regards overpayments. He may not take such steps where s 86(9A) applies. In terms of principles affecting the Crown's general discretion as to whether or not to recover debts, he may also not take such action where considerations of "practicality" lead him to that conclusion. Finally, he may also not take such action where considerations of the circumstances of an individual beneficiary within the policy framework created by the Act lead to such a conclusion. In that last context, I consider that – as a matter of fact – circumstances where it is appropriate for the Chief Executive to take no steps at all, whether by way of deduction or otherwise, will be unusual. Beyond that, and as accepted not only by Doogue J in Attrill, but also by Goddard J in McConkey, I do not think it is appropriate for the Court to endeavour to set out criteria for the exercise of the discretion not to recover. [47] Finally, a decision made to exercise the power given by s 86(1) is a decision made under Part 1 of the Act, and is therefore appealable to the Authority: s 12J(1)(a)."Highly unusual circumstances" – an unlawful fetter?[48] On that basis I will now consider the legal point raised by the case stated. [49] In doing so, I think it is important to focus on the specific decision made by the Authority in the decision under appeal. The decision made, and upheld by the Authority, was that Overpayment Debt should be recovered, implicitly until there was some change in Ms Cowley's circumstances, by deduction from ongoing benefit payments at the rate of $5 per week. Ms Cowley's challenge to that decision was that the Chief Executive should formally have limited recovery of the debt to $5,000. The assertion seems to have been that the Chief Executive should not only have written off the Overpayment Debt to that extent, but should also have remitted or forgiven any liability that Ms Cowley had over and above that amount to pay the Overpayment Debt. This assertion, therefore, seems somewhat at odds with Mr Price's acceptance that the only power the Chief Executive had under s 86(1), in terms of a discretion not to recover, was to temporarily suspend or defer an obligation to pay such a debt. Be that as it may, in considering this appeal I put difficulty to one side. [50] At [11] I set out that part of the Authority's decision which recorded its consideration of Ms Cowley's position on appeal to the Authority. Although that discussion by the Authority is not extensive, in my judgment the Authority did in fact consider the individual position of the appellant. I note, in particular, that the Authority clearly had had regard to the information presented to it as regards the appellant's individual financial position noting in particular. As summarised in the Case Stated, the Authority noted that the appellant's budget was clearly not an entirely accurate budget, and that it was difficult to understand why she did not have at least part time employment. [51] The Authority also noted that, at the time the s 12K report was written, Ms Cowley was paying off another outstanding advance "at the rate of $10.50 per week". The reference to "$10.50" per week would appear to be an error, the s 12K report itself referring to an advance (for a washing machine, car repair and bond), being recovered at $15 per week. The Authority noted, however, that that advanceshould by now be repaid and that accordingly the appellant's ability to resume repayments of the Overpayment Debt should have improved. [52] Therefore, whilst referring to there being a need for "highly unusual circumstances" to justify a decision not to recover the Overpayment Debt, it is clear that the Authority looked at the individual circumstances of the appellant. It is also clear that the Authority had considered the s 12K report. That report, a copy of which was provided to me after the hearing of this appeal, contains an extensive analysis of Ms Cowley's interactions with the Chief Executive, and of the Chief Executive's assessment of her individual position. In this context, I note that the s 12K report itself confirmed that it had been an individual assessment of Ms Cowley's position that had given rise to the Chief Executive's decision to recommence recovery action in the first place. [53] In my view, therefore, the Authority, where it referred to there being a need for there to be highly unusual circumstances, was describing the outcome of an inquiry into an individual beneficiary's position, rather than creating and imposing a legal test or fetter on itself. [54] In this context I note that, with reference to the decision of Goddard J inMcConkey, it had been Mr Price's submission that Goddard J used the phrase "extraordinary features" at p 10 of the judgment simply to mean "features that show no recovery is warranted". As I indicated at the hearing, accepting the logic of that proposition as regard Goddard J's decision in McConkey – which I do – goes a long way to recognising the validity of the same proposition as regards the Appeal Authority's use of the phrase "highly unusual circumstances" in the decision under appeal. [55] Therefore, and in this case, I do not think the Authority erred in law when it used the phrase "there must either be highly unusual circumstances or circumstances relating to the practicality of recovering the debt which would warrant the Chief Executive exercising discretion not to recover". I answer the question of law posed by the case stated in the negative and dismiss this appeal.[56] Having said that, and more generally, I accept Ms Jagose's acknowledgement that, if the Authority were to apply such a test, it would err as a matter of law. The Authority has in the past used references to "highly unusual circumstances" as something of a shorthand for the outcome of the type of analysis it undertakes in considering circumstances of individual beneficiaries who are challenging recovery decisions made by the Chief Executive. In my view it would be desirable in the future for the Authority to re-phrase any such description of that analysis. In that context, I note further that at the hearing of this appeal I understood Ms Jagose's acknowledgement to be that the Chief Executive had not developed any particular principles or policies to guide the exercise of his discretion in this area. The development of such principles may be a matter that could usefully be considered by the Chief Executive. Carrying out such an exercise might also help clarify the interaction between principles which apply generally, in terms of considerations under the Public Finance Act, and considerations which arise in the context of the Act itself. [57] I did not understand any question of costs to arise. If that understanding is not correct, the parties may make submissions."Clifford J"Solicitors: Rotorua Peoples Advocacy Centre, P O Box 149, Rotorua Crown Law Office, Wellington for the respondent