Editors --- "Waiver: administrative error; good faith and special circumstance" [2005] SocSecRpr 13; (2005) 7 Social Security Reporter, Article 13

• DALY and SECRETARY TO THE DFaCS
• Background
• The evidence
• The Department’s submissions
• The findings
• Formal decision

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Waiver: administrative error; good faith and special circumstance

DALY and SECRETARY TO THE DFaCS

(2005/740)

Decided: 4th August 2005 by K.S. Levy

Background

On 16 September 2004 Centrelink raised a debt against Mr Daly to recover overpaid disability support pension for the period 10 July 2001 to 28 March 2003 in the amount of $2,191.99. On the same date Centrelink raised a debt against Mrs Daly to recover overpaid partner allowance for the period 10 July 2001 to 3 March 2003 in the amount of$2,692.62. The overpayments arose as a result of errors made by Mrs Daly when reporting wages and the non-reporting of commissions earned by Mrs Daly after December 2001.

On 25 November 2004 an ARO varied the decisions and reduced Mr Daly’s debt to $2,072.35 and Mrs Daly’s debt to$2,271.60. On 25 May 2005 the debts were varied to waive that part of the debts which arose due to the errors in reporting or recording Mrs Daly’s wages under s.1237A(1) of the Social Security Act 1991 (the Act). Mr Daly’s debt was reduced to $1,221.34 and Mrs Daly’s debt was reduced to $1,368.49.

The evidence

The AAT heard evidence from Mr Daly concerning the information he and his wife had provided to Centrelink during the period. He said that the SU19 forms lodged by Mrs Daly were completed diligently and lodged fortnightly and had included all income including commission earned by Mrs Daly up until December 2001. In September or December 2000 he was advised that commission payments did not have to be included on the SU19 forms however, despite this, Mrs Daly continued to include all commissions on her forms until around 10 December 2001. Mr Daly’s evidence was that when he went to lodge this fortnightly form he was told that commissions could not be included and so he had to take the form to Mrs Daly’s place of work to have it altered. He contacted Centrelink the following weekend was told there was no need to include commissions, as they were not treated as income.

Centrelink documents included an entry for 1 September 2000 that Mr Daly had contacted Centrelink to query ‘how much payment of commission should be reported.’ The document recorded that he was advised the commission ‘should be reported as a lump sum in the F/N received.’ Centrelink also relied on letters sent to the Dalys.

The Department’s submissions

The Department accepted that errors had been made and submitted that some amounts had been waived in respect of each debt as a result of these errors. In respect of the proper treatment of lump sum payments, the Department referred to s.1068 – G7D of the Act and said that such amounts were taken to be received as 1/52of the amount for each week of the financial year. The Department stated that as there was a file note which was the only official record of the advice that the Centrelink officer provided to Mr Daly in September 2000, it should be accepted.

The Department also argued that the waiver provisions of s.1237A in relation to administrative error were not relevant and that the “special circumstances” provisions unders.1237AAD were not satisfied.

The findings

The AAT found that the Dalys were truthful and it accepted their evidence in relation to the advice they had been given concerning the reporting of commission income.

The AAT accepted that Mr and Mrs Daly both declared income from employment on fortnightly application for payment forms but not commission for the periods following December 2001. It found that income was under-declared in particular fortnights and overstated in others. In the 2001/02 year income was under-declared by $3,143. Commission of$6,875.03 was earned but was not declared during the period.

The AAT noted the large number of administrative errors in the 2001/02 financial year (there were 23administrative errors noted out of 26 fortnights reported) and that these were partly due to error by the Dalys and partly to errors made by the Department. Further the AAT noted that the Department had waived a significant amount of debt in relation to the overpayment to reflect the Department’s contribution to the errors involved.

The AAT found that in respect of commission income:

· Mr Daly made an enquiry with Centrelink in September 2000 and was advised that commission payments were not to be declared in the forms submitted;

· Commission was always reported on the appropriate SU19 form until Mr Daly was advised not to report it;

· In about December 2001 he had to have his wife amend one form to delete the commission and resubmit it at the direction of a Centrelink officer;

· Mr Daly contacted Centrelink on17 December 2001 by telephone and was again advised there was no need to report commissions earned as they were not treated as income.

The AAT then concluded that Mr Daly had been overpaid amounts of disability support pension and Mrs Daly had been overpaid amounts of partner allowance. The AAT held that pursuant to ss .1223(1) and 1224(1) of the Act both were debts due to the Commonwealth and that write-off was not available as none of the circumstances in s.1236 were applicable to the applicants.

Administrative error waiver

The AAT considered whether the debt could be said to be solely attributable to the fault of the Commonwealth. It noted that the SU19forms were no longer available owing to the Department’s archiving policy and that the officer who made the original note concerning the September 2000contact did not provide evidence and was not available to be cross-examined. The AAT stated:

Given the applicant’s otherwise diligent (and in some respects almost obsessive) recording and contact with Centrelink and the fact that the evidence of the applicants was regarded as truthful, it is accepted that the cessation of recording of commission payments was done solely on the basis of advice from Centrelink. While some doubt was clearly in the applicant’s mind when he made the initial enquiry, he made a subsequent enquiry and was given confirmation of the original advice. It is accepted therefore that his action was not negligent or cavalier, but was done diligently. Consequently, the payments were received in good faith ...In respect of commission payments therefore, section 1237A(1) is satisfied. I therefore find that the payments were made solely due to the administrative error made by the Commonwealth.

The AAT found that while there were some reporting errors by the Dalys, these were not relevant to the initial decision to report or not to report commission income. It concluded that pursuant to s.1237A(1) of the Act the debt should be waived because Centrelink’s advice was the cause of the failure to report commission income.

Special circumstances waiver

The AAT then considered whether the circumstances were such as to warrant waiver under s.1237AAD of the Act.

The AAT concluded that although there was evidence of some discrepancies in the Dalys’ reporting of income some of these were not significant and could have been due to timing differences between the reporting period of Centrelink and the period for which income was received. It accepted that the Dalys honestly and diligently reported income to Centrelink as required.

In considering whether there were ‘special circumstances’ the AAT referred to Dranichnikov v Centrelink[2003] FCAFC 133; (2003) 75 ALD 134 where it was stated “to some extent, the question whether there were special circumstances must depend on how it came about that the error occurred.” It also referred to Liberty Funding Pty Ltd v Phoenix Capital Ltd (2005) FCAFC 3 where it was stated that ‘special circumstances does not require extraordinary factors to exist before a discretion associated with special circumstances might be exercised.’

The AAT then set out the circumstances in which it is proper to exercise a discretion in favour of the applicant where there are special circumstances. It stated that there must be:

(a) an acceptable explanation of the circumstances to justify acceptance of the facts;

(b) the applicant should not have taken any action that might be seen to disadvantage the respondent Orto avoid compliance with the law;

(c) the merits of the application must be properly weighed;

(d) the period of time over which the circumstances were in existence will be relevant;

(e) expressions of good faith by the applicant will be important e.g. willingness to repay a debt determined by a lawful authority.

The AAT concluded that there were “special circumstances” that were not the ordinary or usual case and the factors which led to the position in which the Daly’s found themselves were ‘essentially attributable to their interface with officers of Centrelink.’ The AAT went on to state:

... Mr Daly ... seemed honest, forthright and intelligent, and not lacking in capacity notwithstanding that (he)now has serious heart problems and other medical difficulties. He seems to have regularly had contact with Centrelink and has not avoided or endeavoured to disadvantage Centrelink by withholding of information. He is accepted as a person of truth. ... Given the degree of his diligence in checking requirements with Centrelink... this unusual feature would result in unfairness if Mr and Mrs Daly were to pay the penalty for errors which emanate from Centrelink’s advice.

The AAT found that the debts which occurred as a result of the non-reporting of commission payments and the consequential overpayments of allowances, emanated directly from Centrelink’s incorrect advice and this amounted to special circumstances. The debts should be waived under s.1237A(1) and under s.1237AAD.

Formal decision

The AAT set aside the decision under review and substituted a decision that in respect of the debt relating to the increase in payments made to both Mr and Mrs Daly as a result of the non-reporting of commission earnings of Mrs Daly from 10 December 2001 the amounts of the overpayments were waived and the matter remitted to Centrelink for recalculation.

[C.E.]