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Social Security Reporter |
Assets test: whether homeowner: loan or equitable lien
(Federal Court of Australia)
Decided: 7th June 2007 by Greenwood J.
Vanderpluym was granted a parenting allowance in 1995. The Secretary subsequently contended that because the relevant assets of Vanderpluym and her husband exceeded the applicable statutory threshold, Vanderpluym had received $16,708.41 more than she was entitled to receive. Centrelink made a decision on 2 September 2003 to recover from Vanderpluym a debt under s.1223(1) of the Social Security Act1991 (the Act). Vanderpluym sought review of that decision and on 1 November 2004 the SSAT set aside the decision and remitted the matter to Centrelink with directions that an overpayment in the period 14November 1999 to 10 July 2001 be calculated on the footing that Vanderpluym’s assets in that period exceeded the assets value limit set by the Act; that any overpayment in that period was a debt due to the Commonwealth; and that as to the period 11 February 1999 to 13November 1999, any overpayment be calculated on the basis of Mrs Vanderpluym’s income in that period. As a result of those calculations, an overpayment of $12,258.55 was said to arise in the period 14November 1999 to 10 July 2001 and no overpayment in the earlier period.
Vanderpluym sought review of the decision of the SSAT, and on 20October 2005, the AAT set aside that part of the decision of the SSAT which dealt with the receipt of payments by Mrs Vanderpluym in the period 14 November 1999 to 10 July 2001and remitted the matter to the Secretary for reconsideration with directions that:
‘1(i) During the period 14 November 1999 to 15 April 2001, Peter Vanderpluym and Dolores Vanderpluym were not “homeowners” within the meaning of that term in the Social Security Act 1991,
(ii) During the period 14 November 1999 to 15 April 2001 Peter Vanderpluym had an asset by way of an unpaid loan to Magnetic Magic Pty Ltd, as part of his assets for the purpose of calculating the quantum of parenting payment payable to Dolores Vanderpluym from time to time during the said period.’
Otherwise, the AAT affirmed the decision of the SSAT
The issues in this case were whether Vanderpluym and her husband were homeowners for the purposes of the Act; whether Centrelink was to disregard an equitable charge held by Mr Vanderpluym in calculating Vanderpluym’s assets value limit; and whether Mr Vanderpluym had an asset by way of an unpaid loan to a company (MMPL) as part of his property for the purposes of the Act.
The Secretary contended that an error of law arose when the AAT concluded that a right or interest arising under a lease arrangement or rental agreement is not a right or interest for the purpose of s.11(4)(b). The Secretary contended that on the facts found by the AAT Vanderpluym had a right or interest in the property by way of an informal lease under which a commercial rate of rent was paid to MMPL through the services of MMPL’s real-estate agent; and that Mr Vanderpluym had an equitable lien in respect of the unpaid purchase price for the property($50,000).
In early 1995, the Vanderpluyms sold their home in Sydney and moved to Magnetic Island in Queensland. In doing so, they received cleared funds of approximately $200,000 from the sale of their home in Sydney. The family initially moved into a rented house on Magnetic Island. Mr Vanderpluym commenced an internet computing business on Magnetic Island and registered the business name ‘Magnetic Magic’ in July1995. In late 1995 or early 1996, the Vanderpluyms bought a vacant block of land for approximately $50,000. After the purchase of that land, Mr Vanderpluym had residual amount of approximately $150,000 remaining in his bank account. On 28August 1995, the Secretary granted Vanderpluym a parenting payment. On 3 February 1999,Mr Vanderpluym incorporated a company called Magnetic Magic Pty Ltd (MMPL). Mr Vanderpluym was the sole director and shareholder of that company and controlled the activities of that company. Shortly after the incorporation of MMPL, the Vanderpluyms transferred ownership of the land to MMPL. Mr Vanderpluym then obtained registration as an owner/builder and supervised the building of a home on the land. During the course of construction of the home, Mr Vanderpluym transferred money from his bank account into the account of MMPL and payments were made to suppliers and contractors from that account. At 30 June 1999, the books of account of MMPL showed a loan from Mr Vanderpluym to the company of $204,056.00.
On 14 November 1999, the Vanderpluyms took up exclusive occupancy of the residence as their principal home and resided there as weekly tenants of the registered proprietor MMPL, exercising exclusive occupation until title was transferred to them on 15 April 2001 when they became the registered proprietors. During that period, the tenancy was oral, entirely undocumented as to any terms but evidenced in relation to payment by the arrangement Mr Vanderpluym put in place for a real estate agent to receive payment of the rent by cheque. The Vanderpluym family moved from a rented home to the new home taking up occupancy on 14 November 1999. Mr Vanderpluym paid rent in respect of that occupancy of the home to a real estate agent who then paid the money into the account of MMPL. By 30 June 2000, there had been a transfer of furniture and a motor car to MMPL. The loan account of MMPL showed a debt due to Mr Vanderpluym by 30 June 2000 of $239,526.00.
On 15 April 2001, the house and land was transferred from MMPL to the Vanderpluyms apparently in satisfaction of the debt owed tom Vanderpluym. At 30 June 2001, the loan account as between MMPL and Mr Vanderpluym showed a debt due to Mr Vanderpluym of $6000.00. Mr Vanderpluym initially transferred title to the land to MMPL without receiving payment and made further advances so as to provide MMPL with cash flow to obtain an overdraft facility for the benefit of the internet and computer business. The rent from November 1999 was paid to MMPL for the occupation of the home but there was no written agreement for lease or tenancy of the home. Mr Vanderpluym appointed a real estate agent to collect the rent on behalf of MMPL and Mr Vanderpluym paid rent of $165.00 per week to MMPL’s agent by personal cheque. Although the AAT found as a fact that the house and land was transferred from MMPL to Mr and Mrs Vanderpluym on 15 April 2001,the decision of the SSAT suggests that the transfer was registered to Mr and Mrs Vanderpluym in July2001.
Section 500Q(1)of the Act provides that a parenting payment is not payable to a person if the value of the person’s assets exceeds the person’s assets value limit. Section 500Q(3)of the Act prescribes the assets value limit applicable to Vanderpluym depending on whether either of the Vanderpluyms was a homeowner. If so, the value of any right or interest in a residence that is the ‘principal home of the person’ is excluded by s.1118(1) of the Act from the calculation of the value of assets.
Whether a person is a homeowner is determined by s.11(4)(b) which states:
11(4)(b)A person who is a member of a couple is a homeowner if:
(i) the person, or the person’s partner, has a right or interest in one residence that is;
(A) the person’s principal home; or
(B) the partner’s principal home; or
(C) the principal home of both of them; and
(ii) the person’s right or interest, or the partner’s right or interest, in the home gives the person, or the person’s partner, reasonable security of tenure in the home.
The Court held that the Vanderpluyms enjoyed exclusive occupation or exclusive possession of the residence and in that sense occupied the premises under a lease. The weekly tenancy arrangement coupled with occupation and payment of rent gave rise to an equitable interest in the sense that the tenant could secure an order for an equitable remedy in support of a tenancy at common law. The Vanderpluyms enjoyed an equitable interest in the residence in circumstances where they could hold no doubt as to the assured continuity of occupation of the home. The symmetrical relationship between the landlord and the tenant in the sense that either Mr Vanderpluym or Mrs and Mrs Vanderpluym by consensus controlled both the occupation of the premises and the conduct of the landlord made it clear that Vanderpluym enjoyed a very high threshold of security of tenure in the residence as principal home. Vanderpluym was at all relevant times a homeowner for the purposes of s.11(4)(b) of the Act.
Section 1122 of the Act provides that if a person lends an amount, the ‘value of the assets’ of the person includes so much of that amount as remains unpaid but does not include any amount payable by way of interest under the loan. As Mr Vanderpluym lent money to MMPL which at the relevant date remained unpaid, this amount was included in the value of Vanderpluym’s assets.
However, Vanderpluym argued that the debt due to Mr Vanderpluym ought not to be included in the value of her assets for the purposes of the assets value limit because the debt represented, in truth, the value of the residence and since a purposive construction ought to be adopted to the Act, the corporate veil or corporate identity of MMPL should be stripped away with the result that the value of the debt should be disregarded. Otherwise the very purpose of excluding the value of the right or interest in the residence as principal home would be defeated by including the debt drawn down by MMPL from Mr Vanderpluym in order to build the home. Secondly, Vanderpluym argued that the debt due to Mr Vanderpluym bore the character of a secured interest by way of an equitable lien and was thus an ‘interest’ in the residence held by Mr Vanderpluym that was, in turn, the source of the Vanderpluyms’ reasonable security of tenure in the home. Accordingly, by operation of s.1118(1), the value of that interest ought to be treated as an excluded asset.
In relation to the first matter, the Court considered that the proper approach was to give voice to the legal relationships established by the Vanderpluyms. There was nothing inconsistent with the objects sought to be achieved by the Act in recognising that consistent with s.1118(1)(b) the right or interest of the Vanderpluyms in the residence as principal home ought to be disregarded in the calculation of the assets value limit on the one hand and the inclusion within the assets of Vanderpluym of the value of the debt due to Mr Vanderpluym, on the other. There was no basis for disregarding the corporate personality of MMPL or in treating the legal arrangements expressly put in place by Mr and Mrs Vanderpluym as something else. The unpaid due debt to Mr Vanderpluym reflected in the balance sheet of the company, was an asset of Vanderpluym for the purposes of s.1122 of the Act.
As to the second proposition, the Court rejected the contention that the fact of the loan or sequence of advances to MMPL by Mr Vanderpluym resulting in the balance sheet debt to him, was the source of the Vanderpluyms’ reasonable security of tenure in the home. That objective degree of reasonable security was in part a result of the tenancy arrangement between the company and the Vanderpluyms. The assurance in the security and continuity of the arrangements derived from MrVanderpluym’s control of the landlord with the result that all that was required to give reasonable security of tenure in the home was an oral weekly tenancy. The debt due to Mr Vanderpluym, the capacity to call up that debt and any rights derived by reason of the loan arrangement did not give the reasonable security of tenure contemplated by s.1118(1).
The Court also said that there was little in the facts as found by the AAT which suggested an equitable lien in Mr Vanderpluym in respect of the loans made to MMPL. There was nothing in the facts found by the AAT which suggested that advances or loans made by Mr Vanderpluym to MMPL were to be a charge upon the company or any particular asset of the company such as the residence.
An equitable lien was properly understood as a positive right to obtain a remedial order for the sale of the subject property or for actual payment from a subject fund rather than a negative right of retention of a legal or equitable interest in the subject property. In this case, the Court accepted that the circumstances of the transaction for the transfer of the land by the Vanderpluyms to MMPL gave rise to a resulting trust and an equitable lien arose by implication of that equitable doctrine, to secure the discharge of the obligation upon MMPL to account to the transfer or for the value of the land at the date of transfer. However, having regard to the findings of fact by the AAT, Mr Vanderpluym chose to make advances to MMPL and entered into a debtor/creditor relationship. There was nothing in the facts which suggested that the land was to be charged with the burden of the repayment of the debt to Mr Vanderpluym and nor did an equitable lien arise out of the circumstance that Mr Vanderpluym acted as a lender to MMPL. A debtor/creditor relationship did not give rise to an equitable lien and the circumstances of this transaction made it clear that Mr Vanderpluym was simply acting as an unsecured lender to MMPL.
The Secretary argued that the true character of the transaction between the Vanderpluyms and MMPL gave rise to a resulting purchase price trust enlivening a resulting beneficial interest in the land in the transfer or, the transaction, and was not, to that extent, one of lender/borrower for the purposes of s.1122. The obligation upon MMPL to pay the transfer purchase price did not amount to a remaining unpaid loan within the section. The Court accepted this submission, in respect of the initial$50,000.00. Accordingly, that sum was to be excluded from the assets of Vanderpluym. As to the monies lent by Mr Vanderpluym to MMPL being the further advances, the remaining unpaid amount of those loans properly formed part of the assets of Vanderpluym.
The Court held that the decision of the SSAT made on 1 November 2004, remitting the decision under review to Centrelink with a direction that the overpayment to Vanderpluym for the period 14 November 1999 to 10 July 2001be calculated on the basis that the value of Mrs Vanderpluym’s assets exceeded the assets value limit, was affirmed, subject to the following further directions:
(i) that in calculating the overpayment Centrelink was to disregard in calculating the value of Vanderpluym’s assets, the sum of $50,000 in respect of which Mr Vanderpluym had the benefit of an equitable charge in respect of the residence at Magnetic Island;
(ii) that in the period 14 November 1999 to 10 July 2001 Vanderpluym and her husband were homeowners within the meaning of that term in the Act; and
(iii) that during the said period, Mr Vanderpluym had an asset by way of an unpaid loan to MMPL as part of his property for the purposes of the Act.
[I.T.]
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URL: http://www.austlii.edu.au/au/journals/SocSecRpr/2007/39.html