Treble, Andrea --- "Administrative Error Waiver and Good Faith - Trends in the Case Law" [2008] SocSecRpr 35; (2008) 10(4) Social Security Reporter, Article 1

• Administrative Error Waiver and Good Faith – Trends in the Case Law
• Definitions
• Trends from AAT and Federal Court cases
• Summary

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Administrative Error Waiver and Good Faith – Trends in the Case Law

Definitions

Section 1237A(1)of the Social Security Act 1991 requires a decision maker to waive a debt that has been caused solely by Commonwealth error, provided the overpaid amount has been received in good faith. A similar provision exists in section 97 of the Family Assistance(Administration) Act 1999, although there is usually an additional requirement under that legislation, namely that the decision maker must also be satisfied that the debtor would suffer severe financial hardship if the debt were not waived.

The most commonly referred to definition of the term ‘good faith’ is to be found in Secretary, Department of Education, Employment, Training & Youth Affairs v Prince [1997] FCA 1565, (1997) 50 ALD 186:

Its concern is with the state of mind of a person concerning his or her receipt of the payment: if that person knows or has reason to know that he or she is not entitled to a payment received – i.e. is not entitled to use the moneys received as his or her own -that person does not receive the payment in good faith....

..can a receipt be otherwise than in good faith when the recipient is unaware that the payment has been received? The short answer to that in my view is ‘yes’. Knowing that, in the relevant period, he had no entitlement to receive an Austudy payment, he was never in a position to be able to assert that any mistaken payment made to him was one to which he had an entitlement.

In this matter Prince knew he was not entitled to Austudy but he was unaware he was being paid funds into his account. However, if he had known they were there, he would have known they were not his, and he would not have been in a position to form a positive belief that he was entitled to use those funds.

That was how the test was put in Haggerty v Department of Education Training & Youth Affairs 4(7) SSR 91, [2000] FCA 1287 by Justice French, who looked at Prince and said:

... want of good faith will arise where there is a positive belief that the payment has been made by mistake. It will also arise where there is a suspicion held by the recipient that he or she may not be entitled to the payment made or a doubt as to the entitlement coupled with some objective basis for such suspicion or doubt.

Haggerty was paid Austudy after applying at the same time as his sister. Her claim was rejected after the application of the parental actual means test, but because of error, his claim was assessed without taking into account the actual means test. Haggerty’s evidence was that he knew his sister’s claim had been rejected but he did not know why, and he thought it was because of their different ages and courses of study.

The AAT applied the test in Prince and decided Haggerty had reason to know that he was not entitled to the payment because it found that he had reason to make further enquiries given his sister’s situation.

However, Justice French said:

I do not take what his honour said in [Prince] as supporting the proposition that a person can be found to be receiving payment other than in good faith simply by reason of the fact that there are other facts in existence which are known to the recipient sufficient to negative the recipient’s entitlement...Knowledge of relevant facts is not enough to generate a reason to know of the lack of entitlement.

Concern, puzzlement, upset and a perception of unusual circumstances, coupled with absence of further inquiry, are not enough themselves to constitute want of good faith.

The Court also stressed that any doubt about entitlement should be coupled with some objective basis for that suspicion or doubt.

There is no want of good faith ‘simply because there are in existence objective facts which would raise a belief or a doubt or a suspicion of no entitlement in the mind of some imaginary receipt. The term reason to know does not incorporate imputed good faith’. In Haggerty’s case while there was reason to enquire, this was not sufficient to constitute lack of good faith.

In Jazazievska v Secretary Department of Family & Community Services [2000] FCA1484, the Federal Court said:

A person does not act in good faith where the person turns a blind eye to circumstances which raise doubt to the entitlement of the person to receive and retain the payment or refuses to make reasonable enquiries where doubt exists.

A lack of good faith does not mean that the recipient must be acting fraudulently when the payment is received and retained. It means that for whatever reason, the recipient acts without an honest belief that he or she was entitled to receive or retain the payment when he or she receives the payment and decides to exercise control over it by retaining it.

Where there is actual doubt about entitlement and a person turns a blind eye to the matter, rather than making enquiries, there will not be good faith, but mere puzzlement will not be enough.

Trends from AAT and Federal Court cases

In the AAT matter of Vaughan [2001] AATA 815; (2001) 4(12) SSR 142, Vaughan was paid both newstart allowance and youth allowance in error. She was unaware she continued to receive newstart allowance, as well as youth allowance. Her youth allowance varied because of earnings and she was not alerted to any problem by way of her bank balance or account statements.

It was argued by the Department that Vaughan was aware she was not entitled to two payments and could not be said to receive the money in good faith even if she was ignorant of the payment being made. The Department argued that the test was ‘knowledge of an entitlement to payment received, not of actual knowledge of its receipt’.

However, the AAT found that the test related to ‘knowledge of the payments actually received, rather than knowledge of a general entitlement to only one payment each fortnight’. The AAT found good faith because Vaughan was unaware she was receiving double payments.

In Pledger v Secretary, Department of Family & Community Services (2002) 5(7) SSR 88; [2002] FCA 1576, Pledger received carer pension in respect of care provided for her mother. Her mother died and the Department was notified but pension continued to be paid for another 4 years. Pledger told Centrelink on several occasions about her mother’s death to no avail.

Pledger’s evidence was that she knew she was not entitled to carer pension so the AAT found there was a lack of good faith. However, she also said she thought she was entitled to some other sort of Centrelink payment.

The Federal Court made some interesting comments in this case. The Court said that good faith was broadly synonymous with honesty and it was relevant to consider whether Plegder acted in good faith. The Court said:

I consider there is a serious question as to whether ordinary, decent members of the community would regard what she did as dishonest.

I accept that Finn J in Prince correctly held that there is a distinction between receiving a payment in good faith, and acting in good faith. However, the two concepts are not wholly removed from one another.

When, as in the present case, a recipient of a particular pension has tried repeatedly, but without success, to have the Department cease paying that particular pension, and the person knows or believes that she is entitled in any event to a different pension or benefit, it is impossible to treat these matters as irrelevant to whether the payments were received in ‘good faith’.

I do not accept the submission advanced on behalf of the respondent that the applicant’s attempts to have the Department rectify its error were irrelevant. Nor do I accept the submission that the applicant was obliged, as a matter of law, to leave the funds credited to her in her bank account until she somehow persuaded the Department to change the basis upon which the payments were made. That submissions truck me as being unrealistic. The applicant plainly had no other sources of income, and no other means to live ... I note that the error made by the Department persisted for approximately four years.

The Court remitted the matter back to the AAT to make findings about good faith but said:

A finding that a person was aware that he or she was being paid a carer pension when no longer eligible, will normally lead to the conclusion that the payments were not received in good faith. However, knowledge of lack of entitlement to a particular type of pension will not inevitably lead to that conclusion.

In Duncan(2003) 6(4) SSR 35, Duncan received parenting payment single after his daughter turned 16 years of age. The debt was solely due to Centrelink error.

Duncan said that he did not believe himself entitled to parenting payment single. However, he thought the payments he received were payments of unknown identity for himself and youth allowance for his daughter.

The Department argued that it was not reasonable for Duncan to make the assumption that the money was paid pursuant to an entitlement he had, when he had not specifically applied for any benefits, and when his daughter had received a letter from Centrelink saying her claim for youth allowance had been rejected.

Duncan, however, said he was unused to dealing with Centrelink and had provided Centrelink with information he thought might have led to an entitlement. He also spoke with a Centrelink officer about his daughter’s situation and he was under the impression the defects in the application were being addressed, and that Centrelink would not necessarily have declined to make the payments in the interim.

The AAT found that Duncan actually believed he was receiving what he was entitled to receive. It said that the belief was not necessarily reasonable in the circumstances and that he may well have wondered or been puzzled about his entitlements – the fact that he spoke with Centrelink officers about entitlements reinforced that view. The AAT went on to say:

The responses he received might not have satisfied the ‘imaginary recipient’ referred to by French J in Haggerty, but that is irrelevant. Mr Duncan was unused to dealing with Centrelink, and was almost certainly naïve. In particular, he was naïve to assume Centrelink would pay benefits to his daughter even though her application had been rejected. But I do not accept his assumptions about the behaviour of Centrelink were so idiosyncratic as to prevent him relying on s 1237A.

In Schultze(2004) 6(4) SSR 37, Schultze was overpaid parenting payment partnered. In this case the AAT found a lack of good faith because Schultze would have expected reduction in his pension following notification of income. He also had an objective basis for this on the grounds of previous experience of a pension overpayment. That is, he had reason to know, based on his past experience and knowledge that the rate, following notification of income, should have changed yet did not check. This amounted to indifference or recklessness on his part and a lack of good faith.

In Ward (2006) 8(2)SSR 9, Ward received disability support pension and notified of income. His disability support pension should have stopped but he was overpaid due to Centrelink error.

Ward’s evidence was that he believed he was not entitled to disability support pension and he thought his disability support pension would stop but he assumed funds deposited into his bank were sums paid by the University where he was employed.

The AAT found he did not know he was being paid by Centrelink. It found he had no reason to believe the funds he was accessing from his account were the result of wrongful payment by Centrelink. Rather, he held a reasonable belief that the funds paid were put into his account by the University as part of his salary, and having notified Centrelink of his income he believed Centrelink had suspended his disability support pension payments. Good faith was established.

In Kam Yuen(2006) 8(4) SSR 12, Centrelink error caused on overpayment of parenting payment single because income was coded as fortnightly instead of weekly.

In this case it was found that Kam Yuen made enquiries with Centrelink about whether she had been overpaid and received verification that she had not. The AAT said that:

While she was previously concerned ... she felt exonerated after her enquiry ... the applicant was entitled to believe her previous reports were faithfully recorded. In the circumstances, whatever human frailty existed concerning her suspicions about the arrears payment, this was overcome in that she did not refuse to make reasonable enquiries. This was consistent with her level of education and insight and consistent with the level of honest enquiry which would be expected by the community.

Good faith was established.

Summary

From the above body of case law, the following suggested principles or guidelines can be formulated:

The test of good faith is a subjective test and good faith cannot be imputed based on what a reasonable person might have believed. (Haggerty)

Good faith is absent if the person knows or has reason to know that he or she is not entitled to a payment received. This can be the case even if the person is not aware they have received the payment. (Prince)

Good faith is absent if there is a positive belief that the payment has been made by mistake. (Haggerty)

Where there is actual doubt about entitlement and a person turns a blind eye to the matter rather than making enquiries there will not be good faith. (Jazazievska)

Or to put it another way – good faith is likely to be absent if the person is reckless or indifferent in circumstances where a reasonable enquiry could or should be made. (Schultze)

Good faith is absent if there is a suspicion held by the recipient that he or she may not be entitled to the payment made or a doubt as to the entitlement, coupled with some objective basis for such suspicion or doubt. (Haggerty)

These matters can be tested by looking at what the person’s expectations of payment might be in the light of their previous experience and knowledge, level of education and the like. (Schultze, Kam Yuen)

Concern, puzzlement, or a perception of unusual circumstances, coupled with absence of further inquiry, is not enough to constitute want of good faith. (Haggerty, Duncan)

Where there is concern or puzzlement, and further enquiry is made, that will not necessarily negate good faith and may be supportive of a positive finding where the person is then led to believe there is an entitlement. (Kam Yuen)

The test relates to belief about entitlement to the funds received not the type of payment (Vaughan, Ward) and this might be the case even where the person knows that the particular payment made is one they are not eligible for, if they believe they have an entitlement to another payment. (Pledger)

By Andrea Treble