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Social Security Reporter |
Age pension assets test: gift; family arrangement; rebuttable presumption
Federal Court of Australia
Decided: 27th October 2011 by Cowdroy J.
Evans and her husband were joint owners and occupiers of a house in Putney. Evans became sole owner on her husband’s death in 2006 and, in 2007, she sold the home for $2,250,000. On settlement she transferred approximately half of the proceeds, $1,131,233 to her only child, and she purchased another house. Centrelink determined that Evans had made a gift of the money and cancelled Evans’ age pension. The AAT upheld the Centrelink decision.
On 15 September 2010 Evans applied to the Federal Court for an extension of time to appeal the AAT decision. That was granted, but Evans passed away before the substantive hearing, and the son proceeded as the executor of the estate.
The son alleged there had been a family agreement in 1995 that if he became managing director of his parents’ business, instead of pursuing his theatre career, when the Putney house was sold the proceeds would be divided into third shares or, if only one of the parents survived, into half shares. The son alleged that he had been earning between $75,000-$100,000 when he rejoined the family company and that, over the period of 1997-2007, he estimated his loss at $1.2 million. The son claimed that ss. 1223 and 1124 of the Social Security Act 1991 (the Act) had no application because of the agreement between the parties.
The AAT found that there was no proof that a legally enforceable agreement existed, that there was no hard data, no tax returns to substantiate the loss of earnings and that there was no timeframe for the sale of the residence. The AAT found that it was not relevant that half the proceeds were paid to the son on the date of settlement. Evans did not attend the AAT and could not be cross-examined due to ill-health. The AAT concluded that a Statutory Declaration provided by Evans was prepared for her and consequently accorded it ‘little weight’.
The AAT had held that the sale of the residence amounted to the disposal of an asset and s.1223 of the Act applied.
Section 1123 Disposal of assets
(1) For the purposes of this Act, a person disposes of assets of the person if:
(a) the person engages in a course of conduct that directly or indirectly:
(i) ..
(ii) disposes of all or some of the person’s assets; or
(iii) diminishes the value of all or some of the person’s assets; and
(b) one of the following subparagraphs is satisfied:
(i) the person receives no consideration in money or money’s worth for the destruction, disposal or diminution;
(ii) t h e p e r s o n r e c e i v e s inadequate consideration in money or money’s worth for the destruction, disposal or diminution;
(iii) the Secretary is satisfied that the person’s purpose, or the dominant purpose, in engaging in that course of conduct was to obtain a social security advantage.
Section 1124 Amount of disposal or disposition
If a person disposes of assets, the amount of the disposal or disposition is:
(a) if the person receives no consideration for the destruction, disposal or diminution--an amount equal to:
(i) ..
(ii) the value of the assets that are disposed of; or
(iii) the amount of the diminution in the value of the assets whose value is diminished;
The appeal
The notice of appeal contained three grounds. The characterisation and weight given to Evans’ Statutory Declaration; the findings about the existence of the alleged agreement and whether the AAT wrongly applied a rebuttable presumption that agreements made between family members are usually not intended to create legal obligations (the rebuttable presumption); and whether the conduct of the parties after the conclusion of the agreement should have been taken into account.
The AAT found that the agreement had been an oral agreement, a personal matter within the family, and the only witnesses to the agreement were the members of the family. At the time of the AAT hearing Evans was not fully competent and her memory was said to be unreliable. The AAT found that her Statutory Declaration had been drafted and prepared by the lawyer and the AAT found that Evans was likely to have not ‘fully comprehended the declaration’. The AAT also heard evidence that Evans would have been relying on the memory of her son. There was medical evidence that Evans was in poor health and unable to attend. It was submitted on behalf of Evans that the Tribunal made its decision to afford little weight to the declaration in the absence of material to support such a finding and thereby committed an error of law.
In answer to the submission that the Tribunal had ‘no evidence from Mr Price that the Declaration was prepared for her’, the Court noted that the Tribunal had before it evidence that the declaration was ‘drafted and prepared’ by ‘Mr Price, with mother’. On the basis of this evidence the Tribunal found that Evans was ‘likely not to have fully comprehended the declaration’, and for this reason the Tribunal accorded little weight to the declaration.
The Court noted further, that there was the evidence that Evans’ recollection was unreliable. Such inference could be drawn from the testimony of Evans’ son relating to the preparation of the declaration in which he said that Evans ‘would’ve probably been running on my memory as much as hers at that point’. There was also medical evidence before the Tribunal that Evans was in poor health and unable to attend the hearing and that she had given a power of attorney to the applicant.
The Court said:
Ultimately, it was the Tribunal’s decision to decide the weight it would give to the declaration. This is a factual matter entirely within the Tribunal’s jurisdiction: ...This was not an instance in which there was no evidence before the Tribunal upon which it could make its decision.
(Reasons, para. 26)
The Court found that the AAT did not ignore the Statutory Declaration nor did it rely upon irrelevant material.
The Tribunal referred to the ‘rebuttable presumption of fact that close relatives such as parent and child do not intend the arrangements to create legal relations’. In support of this proposition the AAT cited the decision of Jones v Padavattonon[1968] EWCA Civ 4; [1968] EWCA Civ 4; [1969] 2 All ER 616.
Evans relied on the High Court decision in Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95 at [25]-[27] which considered the presumption that ‘family arrangements’ were not intended to give rise to legal obligations. The High Court said at [26]:
... For our part, we doubt the utility of using the language of presumptions in this context. At best, the use of that language does no more than invite attention to identifying the party who bears the onus of proof. In this case, where issue was joined about the existence of a legally binding contract between the parties, there could be no doubt that it was for the appellant to demonstrate that there was such a contract. Reference to presumptions may serve only to distract attention from that more basic and important proposition.
The Court examined other cases showing that family arrangements can be agreements but do not necessarily result in contracts even though there may be consideration. They are not usually contracts because the parties do not intend for there to be legal consequences. The Court said:
Ultimately the success of the applicant must depend upon the factual findings of the Tribunal. The burden of proof lay upon the applicant to satisfy the Tribunal that an agreement which was legally binding existed between the applicant and his parents. As was observed by Bryson AJ in Xu v Shi and Anor [2009] NSWSC 955 at [30], the presumption is not a legal rule. Rather it is a consideration to be taken into account when determining the true intention of the parties to an alleged agreement. To similar effect, Pembroke J in Tadrous v Tadrous [2010] NSWSC 1388 at [5] observed that presumptions may be unhelpful. Such observations also accord with the findings of Austin J in Selen v Selen [2011] FamCA 310 at [49]- [50].
The High Court’s observations in Ermogenous do no more than provide a salutary warning that the presumption is not necessarily determinative nor that its application is mandatory, and that it could be erroneous to afford it undue weight. However, the High Court did not indicate in Ermogenous that the presumption applied by the Tribunal is no longer good law.
(Reasons, paras. 36-37)
The AAT found that the son failed to show evidence to quantify his loss of earnings to support his claims of consideration and that the payment of half the proceeds on the day of settlement could have been referrable to an agreement or consistent with payment of a gift. The AAT found that there was not enough evidence to prove a legally binding agreement and not enough records to show that consideration had been provided.
The Court found that there was evidence before the Tribunal to support its conclusions. Essentially the applicant’s claim failed because of the lack of probative evidence. Accordingly the Tribunal made no error of law in concluding that no binding agreement existed between the applicant and his parents. The Court rejected the submission that the presumption was wrongly applied by the Tribunal.
The son argued that the transfer of funds was post-agreement conduct and supported the existence of a binding agreement. The FCA found that the AAT did not disregard the post-agreement conduct of the parties but that it was not found to be determinative.
The appeal was dismissed with costs.
The evidence about whether an agreement existed and whether adequate consideration is given are findings of fact. For an appeal to amount to an error of law it must be shown that there was no material before the Tribunal to enable a properly based conclusion. If the applicant failed because of a lack of probative evidence that is not an error of law. [M.R.]
Court:
Federal Court of Australia
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URL: http://www.austlii.edu.au/au/journals/SocSecRpr/2012/17.html