FEDERAL COURT OF AUSTRALIA

Secretary, Department of Family and Community Services v Geeves

[2004] FCAFC 166

SOCIAL WELFARE – appeal – assets test – carer payment entitlement – assets in Court-ordered trust funds – whether the Social Security Act 1991 (Cth) requires that assets in a trust fund created by order of the Court are to be taken into account in valuing the assets of the beneficiary of that fund – entitlement of beneficiary’s carer to a carer payment under Part 2.5 of the Act – whether beneficiary’s interest in a private trust is property that is an ‘asset’ within the meaning of s11 the Act – nature of beneficiary’s interest in the trust – meaning of ‘property’ in s11 of the Act – operation of s198E of the Act in determining qualification for a carer payment – whether the trust is a designated private trust for the purposes of Part 3.18 of the Act

Statutes

Acts Interpretation Act 1901 (Cth) s 46A

Social Security Act 1991 (Cth) Part 2.5; s 198D(1);  Part 2.5, Div 1;  ss 198(1);  198(1B);  198D;  198E;  Part 3.12;  ss 1188(1)(a);  1118(1)(h);  1118(1)(j);  198F;  198MA;  11(1);  Part 3.18;  ss 198E(c);  1207;  1207P(1);  1207P(4);  1207P(5);  1207P(6);  1207V(1);  1207V(3);  1207V(2);  1207X(1);  1207X(2);  1207X(2)(d);  11;  1207V;  1207P, 1207P(1)(c)

Social Security and Veterans’ Entitlements Legislation Amendment (Private Trusts and Private Companies - Integrity of Means Testing) Act 2000

Cases

Anstis v Secretary, Department of Social Security (1999) 94 FCR 421 Cons

Baker v Archer-Shee (1927) AC 844 Foll

Blunn v Cleaver (1993) 47 FCR 111 Cons

Charles v Federal Commissioner of Taxation (1954) 90 CLR 598 Foll

Commissioner of Stamp Duties (Queensland) v Livingston [1965] AC 694 Cons

Gisborne v Gisborne (1877) 2 App. Cas. 300 Cons

Livingston v Commissioner of Stamp Duties (Q) (1960) 107 CLR 411 Refd

Official Receiver in Bankruptcy v Schultz (1990) 170 CLR 306 Cons

Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 Foll

Secretary, Department of Family and Community Services v Geeves [2003] FCA 1486 Cited

Authorities

RP Meagher & WMC Gummow, Jacobs’ Law of Trusts in Australia, 6^th edn, Butterworths, Sydney, 1997, par 109

AW Scott & WF Fratcher, The Law of Trusts 4^th end, Vol II, Little, Brown and Company, Boston, 1987, par 130 pp 406-415

Scott on Trusts, Vol IIA, par 130, pp 406-415;  par 154, pp 146-148;  par 155, p 155

Principles of Property Law, Sydney, The Law Book Company Limited, 1967, pp 40-41

D Browne, Ashburner’s Principles of Equity, 2^nd ed., London, Butterworth & Co (Publishers) Ltd, 1933, p 132

SECRETARY, DEPARTMENT OF FAMILY AND COMMUNITY SERVICES V ROSLYN GEEVES

TAD 2 of 2004

KIEFEL, WEINBERG AND STONE JJ

25 JUNE 2004

BRISBANE (HEARD IN HOBART)

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

THE COURT ORDERS THAT:

1.         The appeal be dismissed.

2.         The order of the Court of 16 December 2003 be varied to add the following:

‘Par 1 of the determination of the Tribunal made on 25 June 2003 be set aside.’

3.         The appellant pay the respondent’s costs of the appeal. 

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

REASONS FOR JUDGMENT

KIEFEL J

1                     This appeal concerns the question whether the Social Security Act 1991 (Cth) (‘the Act’) requires that the assets in a trust fund created by order of the Court are to be taken into account in valuing the assets of the beneficiary of that fund.  That assessment determines the entitlement of the beneficiary’s carer to a carer payment under Part 2.5 of the Act.  Mr Escott is the beneficiary of such a fund and the respondent, Ms Geeves, has been his carer since 1995.  His Honour the primary judge held that the trust assets did not have to be taken into account (Secretary, Department of Family and Community Services v Geeves [2003] FCA 1486).

2                     Mr Escott sustained permanent brain damage as a result of a motor vehicle accident.  In an action brought in the Supreme Court of Queensland for damages for those injuries an order was made, on 5 August 1998, sanctioning a compromise of the proceedings in the sum of $900,000 plus costs.  The Court also directed that the balance of the settlement monies, after payment of certain charges, be paid to the Public Trustee of Tasmania to hold the monies upon trust for Mr Escott.  Pursuant to the Order the terms of the Trust followed O 24 r 11(3) and (4) of the Rules of the Supreme Court of Tasmania.  Those sub-rules provide in relevant part:

‘(3)      … any money paid to the Public Trustee under this rule in respect of a person under disability shall, subject to any directions of the Court or a judge, be held in trust and applied by him in such manner as he may think fit for the maintenance and education or otherwise for the benefit of the person under disability.

(4)       Whether the Public Trustee holds any money or other property in trust under sub-rule (3) of this rule, he may at any time request the Court or a judge to give him directions as to the trust or its administration, or to vary any directions already given in relation thereto, or to determine any question arising therein, and any such directions or determination may be given accordingly.’

3                     On 24 January 2002, the Secretary, Department of Family and Community Services (‘the Secretary’) cancelled Ms Geeves’ carer payments on the ground that Mr Escott’s assets exceeded the disqualifying level set by the Act.  At the date of cancellation the assets of the trust were $630,000, the Administrative Appeals Tribunal has found.  Pursuant to s 198D(1) of the Act, and at the relevant date, the assets of the person receiving care must be less than $464,500.

STATUTORY PROVISIONS

4                     Division 1 of Part 2.5 of the Act deals with the qualification for a carer payment.  Section 198(1) provides that ‘the carer’ is qualified for it if they provide constant care for a severely handicapped person.  Section 198(1B), so far as is relevant to this case, requires that that person pass the assets test under s 198D, amongst other things.  Section 198D(1) provides that the ‘care receiver’ passes that test if the total value of their assets is less than a nominated amount, being an amount that is indexed annually.  Section 198E is concerned with working out the value of the assets:

‘For the purposes of subsection 198D(1), (1A), (1C) or (1E), the value of assets is to be worked out in accordance with:

(a)       Part 3.12, except Divisions 2, 3 and 4 of that Part;  and

(b)       sections 198F to 198MA (inclusive);  and 

(c)        Part 3.18, except Division 9.’

5                     Part 3.12 provides that certain assets are to be disregarded in calculating the value of a person’s assets.  They include any interest in the person’s home (s 1118(1)(a)) and the value of a contingent remainder or reversionary interest in an estate of a deceased person which have not been, and are not able to be, received (s 1118(1)(h) and (j)).  Division 2 of Part 3.12 deals with the circumstances in which assets disposed of by the person are to be taken into account.  Sections 198F to 198MA make further provision with respect to the disposal of assets, as the note to s 198E explains.  An ‘asset’ was defined by s 11(1) to mean ‘property’ prior to the Social Security and Veterans’ Entitlements Legislation Amendment (Private Trusts and Private Companies - Integrity of Means Testing) Act 2000.  That Act added to the definition the words ‘or money’. 

6                     These amendments also inserted a new Part 3.18 into the Act and s 198E(c) was added.  Part 3.18 is entitled ‘Means test treatment of private companies and private trusts’.  The ‘Simplified outline’ in s 1207 of the Part explains that it ‘… sets up a system for the attribution to individuals of the assets and income of private companies and private trusts …’.  There are three requirements to be met before a trust could be attributed as an asset of an individual:  the trust must be a designated private trust;  it must be a controlled private trust in relation to the individual;  and the individual must be an attributable stakeholder.

7                     Section 1207P(1) provides that a trust is a designated private trust unless some conditions, which are there listed, are met. They are not applicable in the present case.  Certain trusts may also be excluded.  Subsection (4) of s 1207P provides:

‘Excluded trusts

The Secretary may, by writing, declare that each trust included in a specific class of trusts is an excluded trust for the purposes of this section.’

8                     The declaration has effect accordingly (subs (5)) and is a disallowable instrument for the purposes of s 46A of the Acts Interpretation Act 1901 (Cth):  subs (6).  A declaration relevant to the present case was made.  Clause 6 of the Social Security (Means Test Treatment of Private Trusts – Excluded Trusts) Declaration 2001  provides:

‘(1)      Each trust that is a court-ordered trust is an excluded trust for section 1207P of the Act.

(2)       A court-ordered trust is a trust created by an order of a court that:

            (a)        relates to a personal injury matter;  and

(b)       provides for some or all of the proceeds of the judgment of the court, or of a settlement between parties, to be held in trust for the benefit of the person in whose favour the judgment or settlement was made.’

9                     That Mr Escott’s trust was court-ordered within the meaning of the declaration is not disputed.

10                  Section 1207V(1) provides that, for the purposes of that Part, a trust is a controlled private trust in relation to an individual if the trust is a designated private trust and the individual passes the control test or the source test.  The source test is not relevant to this case.  It refers to a transfer of property to the trust in question by the individual for no consideration:  s 1207V(3).  Subsection (2) provides that an individual passes the control test if:

‘(a)      the individual, or an associate of the individual (other than an associate covered by paragraph 1207C(1)(j)), is the trustee, or any of the trustees, of the trust; or

(b)       a group in relation to the individual was able to remove or appoint the trustee, or any of the trustees, of the trust;  or

(c)        a group in relation to the individual was able to vary the trust deed or to veto the decisions of the trustee; or

(d)       the aggregate of:

(i)        the beneficial interests in the corpus or income of the trust held by the individual (whether directly or indirectly);  and

(ii)       the beneficial interests in the corpus or income of the trust held by associates of the individual (whether directly or indirectly); 

is 50% or more;  or

(e)        a group in relation to the individual had the power (by means of the exercise by the group of any power of appointment or revocation or otherwise) to obtain, with or without the consent of any other entity, the beneficial enjoyment of the corpus or income of the trust;  or

(f)        a group in relation to the individual was capable under a scheme of gaining the enjoyment or the control referred to in paragraph (e) or (f);  or

(h)       a trustee of the trust was accustomed or under an obligation (whether formally or informally) or might reasonably be expected to act in accordance with the directions, instructions or wishes of a group in relation to the individual.’

Subsections 1207X(1) and (2) provide, in effect, that if a trust is a controlled private trust in relation to an individual then the individual is an attributable stakeholder of the trust, unless the Secretary otherwise determines.  One hundred per cent of the assets are attributable to that stakeholder, unless the Secretary determines a lesser rate:  s 1207X(2)(d). 

the explanatory memorandum

11                  It would not seem necessary to refer to the Explanatory Memorandum concerning the amendments to discern that the purpose of Part 3.18 was to bring trust and company assets into account in assessing a person’s means and that it was considered that the previous provisions with respect to valuing assets did not extend to trusts.  The ‘Outline’ of the Bill provided by the Explanatory Memorandum explained its aim:

‘This measure aims to ensure that customers who hold their assets in private companies or private trusts receive comparable treatment under the means test to those customers who hold their assets directly.  The assets and income of the structure will be attributed to the person or persons who control the company or trust, or to the person or persons who were the source of the capital or corpus of the company or trust.’

12                  And under ‘Background’ the following explanation was given:

‘Social security payments are targeted to those most in need through assets and income tests – together known as “the means test”.  The means test is the fairest way to ensure that the limited taxpayer funds available for social security expenditure go to those in greatest need.

The assets test is based on the principle that people with substantial assets apart from their home should use those assets either directly or to produce income to meet day to day living expenses before calling upon community resources for income support through the social security system. 

…

A key principle of our social security system is that people with similar levels of private resources should receive similar pension or allowance payments.  However, the existing means test treatment of private trusts and private companies is inconsistent with the principles underlying effective targeting of social security payments.  Under current social security law, assets and income are only attributed to a person where legal ownership or a fixed right to income is established.  This means that private trusts and private companies may be used to hold and control assets and/or income outside the scope of the means test.

The key issue for means testing purposes is:  to whom the assets and/or income of a structure should be attributed?  At present, assets held by individuals, sole traders or partnerships are taken into account.  Similarly, investments in public companies and public unit trusts currently are assessed as financial assets of the customer.  It is with structures legally separate from, although controlled by, the customer, where the current means test does not consistently attribute assets and/or income to reflect a customer’s real circumstances.’

13                  The Explanatory Memorandum also gave an hypothetical example of the application of the new measures.  The example was the subject of some comment by his Honour the primary Judge.  It provides:

‘Mr and Mrs Smith, aged 72 and 64 respectively, own real estate, shares and managed investments worth $850,000 and providing a net return of $34,000 per annum.  They are not eligible for social security income support assistance, because their assets exceed the allowable limits.

Several years ago, Mr Smith learned that he has a degenerative disease.  The Smiths’ solicitor suggested that Mrs Smith transfer all her personal assets to Mr Smith.  Mr Smith then set up a discretionary testamentary trust, placing all his assets, which now included the personal assets that were formerly Mrs Smith’s assets, in a discretionary trust that becomes effective upon his death.  Mrs Smith is trustee of this discretionary trust, while Mrs Smith and the Smiths’ children are the beneficiaries.

When Mr Smith dies, the current means test rules would mean that the assets in the testamentary discretionary trust could not be regarded as Mrs Smith’s assets, as she is only one of several potential beneficiaries. Consequently, Mrs Smith would be eligible for age pension at the maximum rate, because she appears to have little personal income and few personal assets.

In reality however, Mrs Smith may be able to direct the trust income to any of the trust beneficiaries, including herself, in whatever proportion she sees fit.  She is also able to enjoy the use of the trust’s assets (such as a holiday home, or motor vehicle).

If the $850,000 worth of assets were in Mrs Smith’s name, rather than held in the trust, Mrs Smith’s entitlement to a social security payment would be nil.  As a result of the operation of this measure, Mrs Smith’s entitlement will also be nil.’

The decisions

14                  The Social Security Appeals Tribunal set the Secretary’s decision aside and determined that the monies held by the Public Trustee were not an asset of Mr Escott.  The Administrative Appeals Tribunal set that decision aside and substituted a decision that Mr Escott’s beneficial interest in the trust was an asset within the meaning of s 11 and s 198D of the Act but that it was an excluded trust within the meaning of the amended s 198E.  As a consequence Ms Geeves was entitled to the carer payment at the time of cancellation.

15                  It was argued for the Secretary before his Honour the primary Judge that the trust was already covered by the ordinary assets test.  That is to say the funds or property in the trust were Mr Escott’s property and therefore fell within the meaning of the definition of ‘asset’.  The exclusion of this type of trust by the declaration meant no more than that the special attribution rules in Part 3.18 do not apply.  There was no need for them to apply because Mr Escott’s beneficial interest in the trust was an asset under the ‘ordinary rules’ and in particular the definition in s 11(1) of the Act.  His Honour did not accept the submissions, and said (at [18]):

‘What is determinative is not the question of assets in the abstract but how the value of assets is to be “worked out” for the specified purpose of eligibility for carer payments.  The clear words of the legislation lead unavoidably to the conclusion that the trust for Mr Escott is an “excluded trust” and therefore not a “designated private trust” for the purposes of Pt 3.18.  Thus he is not to be “affected unintentionally” because the Act has made specific provision for what must be a common situation.’

16                  His Honour also appears to have doubted that the trust could be regarded as an ‘asset’ in any event (at [19]):

‘Moreover, the premise of the applicant’s argument - that Mr Escott’s trust would have been caught by the “ordinary rules” prior to the 2000 amendment - seems doubtful.  Plainly it was a discretionary trust over which he had no legal control.  In that regard he was in substantially the same position as a beneficiary of a discretionary trust like the hypothetical example given in the explanatory statement.  Yet the drafters of the 2000 amendment assumed such a trust would not be caught under the Act as it then stood.  That was the whole point of the 2000 amendment.’

the appeal

17                  Were it not for the declaration made by the Secretary with respect to trusts of the kind here in question, the means-testing provisions effected by the amendments of 2000 would apply and the trust assets would be attributed to Mr Escott.  The three requirements to be met before trust property could be attributed as an asset of a person would be satisfied.  The trust is a designated private trust within s 1207P(1).  Mr Escott’s beneficial interest in the trust fund is 50 per cent or more with the result that he would pass the control test under s 1207V(2)(d).  Whether his interest in the fund may also be described as a proprietary interest is a question I shall deal with later in these reasons.  And Section 1207X has the effect that Mr Escott is taken to be an attributable stakeholder of the trust.  The Secretary’s declaration however excludes a trust such as that in question from the operation of s 1207P.  The result is that it cannot be a designated private trust and the requirements for attribution are not satisfied.

18                  The Secretary’s principal submission to his Honour was repeated upon the appeal.  It was submitted that the trust in question was an asset of Mr Escott pursuant to s 11 before the introduction of the attribution rules in Part 3.18.  The enactment did not and could not change that situation.  Section 198E is not the only route through which Mr Escott’s interest in the trust could be brought within the assets test, it was contended.  The purpose of s 198E, in the Secretary’s submission, is to permit assets to be attributed to a person in circumstances where they would not usually be so regarded at law.  The real issue on the appeal, it is submitted, is whether Mr Escott’s interest in the trust fund is property and therefore an asset within the meaning of the Act.  It is convenient to deal with this latter contention first. 

19                  The trust in question is a private trust with an ascertained beneficiary.  It is not a discretionary trust where the entitlement of beneficiaries is unascertained.  The monies ordered to be paid by the Court were by way of compensation for Mr Escott’s injuries and their effects.  But for the imposition of the trust Mr Escott would have been regarded as the legal owner of the monies ordered to be paid.  The trust is of the nature of a protective trust, one whereby Mr Escott is unable to demand the payment of any part of the fund to him.  He has a right to enforce the trust and ensure the trustee complies with its obligations.  The trustee does not have an absolute discretion to withhold monies from Mr Escott, but does have a discretion as to how and by what manner monies are to be directed for his maintenance and support. 

20                  As a beneficiary under a private trust Mr Escott has a proprietary interest in all the property which for the time being is subject to the trust:  Baker v Archer-Shee (1927) AC 844;  Charles v Federal Commissioner of Taxation (1954) 90 CLR 598 at 609 (and by analogy with beneficiaries of estates see Official Receiver in Bankruptcy v Schultz (1990) 170 CLR 306 at 313, referring to Livingston v Commissioner of Stamp Duties (Q) (1960) 107 CLR 411).  It may be described as an equitable proprietary interest:  RP Meagher & WMC Gummow, Jacobs’ Law of Trusts in Australia, 6^th edn, Butterworths, Sydney, 1997, par 109;  AW Scott & WF Fratcher, The Law of Trusts 4^th end, Vol II, Little, Brown and Company, Boston, 1987, par 130, pp 406-415 (‘Scott on Trusts’).  It is explained in Scott on Trusts that the notion of a proprietary interest was derived from the courts, at an early point, holding that a beneficiary has rights against third persons in connexion with the trust and that a beneficiary may follow and reach property which has been acquired through the wrongful use of trust property.  The fact that the trust is one for maintenance and support only would not appear to me to affect the nature of Mr Escott’s interest.  It does however affect his ability to assign his interest.  He is unable to do so:  Scott on Trusts, Vol IIA, par 154, pp 146-148 and par 155, p 155. 

21                  The question which then arises is whether the ‘property’, which the Act would include as a person’s assets, was intended to extend to a property interest of the kind held by a beneficiary under a trust such as this.  It could not operate with respect to a discretionary trust, and that was the reason for the introduction of Part 3.18.  The trust in question is not a discretionary trust and Mr Escott can be said to have an equitable proprietary interest in the trust property. 

22                  Generally speaking it may be said that the notion of property extends to equitable interests of the kind in question.  The meaning of the word ‘property’ is, however, to be derived from the context of the Act and its purpose:  Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 at 368 and 381.  Its evident purpose is to provide financial assistance to persons whose means are limited.  Even before the amendments of 2000 it could be seen that the Act was concerned to ensure that persons who had assets and income beyond a certain level should not be recipients of benefits and that they should utilise the means available to them. 

23                  The evident focus of the Act, in my view, is upon assets which are available for a person’s use.  It does not seem to be consistent with the purpose of the Act to require that assets which are not able to be utilised by a person are to be taken into account in assessing whether they qualify for the benefit in question.  In this regard I have considered what is to be inferred from the specific exclusion in s 1118(1) of interests in deceased’s estates.  On one view it may not have been necessary to provide for the exclusion, if the conceptions of property and assets are limited in the way I have suggested.  Equally however it may reinforce the central tenet of the legislation.

24                  Even on a wider view of property a discretionary trust would not qualify.  It could in no sense be said to be the property of a person who is not yet identified as a beneficiary of it.  For the purposes of the Social Security Act however some beneficiaries of discretionary trusts in reality, if not in law, have access to the trust assets because they are in a position to control the trust.  The amendments of 2000 recognise and deal with such a situation.  They and the Explanatory Memorandum tend to confirm, in my view, that it is assets which are in truth available to a person which are relevant for the purposes of the Act. 

25                  In the present case Mr Escott does not have available to him the funds or property in the trust.  He is unable to require the trustee to make it available to him and he cannot deal with his interest.  In these circumstances it could not be said that the corpus of the trust is his property in the sense referred to above.  The benefit he derives from the trust is his maintenance and support, but it may be that he does not himself derive income from the trust.  The payments necessary may be directed to third parties.  In any event, the Secretary’s case has never been based upon the income he receives. 

26                  I would therefore conclude that Mr Escott’s interest in the trust assets would not be regarded as property or assets within the meaning of s 11 of the Act.  The amendments of 2000 have the effect however that they would nevertheless be attributed to him.  Whilst not in control in the same sense as persons who control discretionary trusts, he would pass the control test set up by s 1207V(2) because his beneficial interest in the trust fund would be 50 per cent or more.  The presumption here is that he does have a measure of control because of the extent of his interests.  The Secretary’s declaration exempts a court-ordered trust, such as that in question here, from the attribution rules.  It puts beyond doubt that they are not to be included in the value of the care receiver’s assets. 

27                  I have dealt with the question as to whether Mr Escott’s interest comes within the definition of ‘asset’ in s 11 because that was the Secretary’s principal argument on the appeal and it had been dealt with by his Honour, to an extent.  I should add however that it is not the relevant question, as his Honour the primary Judge held.  The Act does not require that any assets of the care receiver be taken into account with respect to the qualification of a carer for payment of a benefit.  Section 198E says how the value of the assets is to be ‘worked out’.  The approach then dictated by Part 2.5 is to disregard some specified assets, to take into account some assets which have been disposed of by the person and, since the amendments, to attribute some assets to the person if some requirements are met.  I would respectfully agree with his Honour the primary Judge that this inquiry, and not a consideration of what might be assets in the abstract, is determinative of the question whether a person qualifies for a carer payment. 

28                  In my view the appeal should be dismissed.  In view of the conclusion I have reached about the nature of Mr Escott’s interest it would be necessary to correct that part of the Tribunal’s determination which holds that it is an asset within the meaning of s 11 and s 198D of the Act.  In view of the operation of s 198E it is not necessary to make further orders or declarations that his interest is not property to which the Act refers.  The Secretary should pay Ms Geeves’ costs of the appeal. 

Associate:

Dated:              25 June 2004

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

REASONS FOR JUDGMENT

WEINBERG J

29                  I have had the advantage of reading in draft both the reasons for judgment prepared by Kiefel J, and those prepared by Stone J.  I am in substantial agreement with those reasons, and with the orders proposed.  I wish to add a few general observations.

30                  Kiefel J has set out in detail the reasons why Mr Escott’s interest in the trust assets is not properly to be equated to the interest of a potential beneficiary under a discretionary trust.  Her Honour has also set out clearly why Mr Escott’s interest, assuming it to be proprietary, is not an interest of a kind that falls within the definition of “asset” in s 11 of the Social Security Act.  I agree generally with her Honour’s observations though I would add that there is, in my mind, a real question as to whether Mr Escott has a proprietary interest in the corpus of the trust in any generally recognised sense. 

31                  Some assistance may be gained from the decision of the Privy Council in Commissioner of Stamp Duties (Queensland) v Livingston [1965] AC 694.  In that case, the Privy Council dismissed an appeal from the High Court of Australia, and held that a person who is entitled to a deceased’s estate has no proprietary interest therein while the executor or administrator is administering that estate.  Their Lordships’ advice distinguished between a “property right” in any of the items making up the assets of the estate, and a right to ensure that “the assets are properly dealt with and the rights that they hope will accrue to them in the future are safeguarded”.  This latter right was characterised as a “chose in action” as distinct from “a beneficial interest” in property.  The holder of the proprietary interest was said to be the executor.  The beneficiary could make the executor act to protect his interest.  However, he could not protect his interest from interference by a third party without invoking the assistance of the executor.  The Privy Council held that this meant that he did not hold a proprietary interest. 

32                  I note, of course, that the decision of the Privy Council has been the subject of strong criticism.  See, for example, D C Jackson Principles of Property Law, Sydney, The Law Book Company Limited, 1967, at pp 40-41.  I am also mindful of the fact that when the matter was before the High Court(Livingston v Commissioner of Stamp Duties (Q.) (1960) 107 CLR 411), Dixon CJ, with whom Windeyer J agreed, dissented.

33                  Mr Escott’s position is clearly not on all fours with that of the beneficiary in Livingston.  There are, however, some similarities between a beneficiary under a protective trust, and the residual beneficiary of an estate that is subject to administration. 

34                  Moreover, the interests of a beneficiary under a protective trust and those of a beneficiary under an ordinary private trust differ.  In Gisborne v Gisborne (1877) 2 App. Cas. 300, the House of Lords held that a trust created by a will that conferred upon the trustees “absolute discretion”, and “uncontrollable authority”, to apply the whole or part of an annual income as they might think expedient for the maintenance of a lunatic, rendered the bequest a power, and not a trust.  The relevant issues are discussed in D Browne, Ashburner’s Principles of Equity, 2^nd ed., London, Butterworth & Co (Publishers) Ltd, 1933, at p 132.

35                  In any event, I agree entirely with both Kiefel J and Stone J that the primary judge was correct in holding that the trust for Mr Escott is an “excluded trust”.  It follows that the assets of the trust cannot be attributed to Mr Escott and cannot be taken into account in calculating his assets for the purposes of s 198D. 

36                  I should add the following comments.  It is almost farcical that it should take eminent senior counsel the best part of a morning simply to take the Court through the various provisions of the Social Security Act that are relevant in order to determine whether a particular individual is entitled to a benefit under that Act.  The question whether Ms Geeves should receive a carer’s benefit for looking after Mr Escott ought to be able to be answered relatively easily.  There is nothing extraordinary about his situation, and it can hardly be said that the legislature did not anticipate cases such as his. 

37                  Regrettably, as each year goes by, the Social Security Act becomes still more complex, and less accessible to those who most need to understand it.  This point has been made on earlier occasions.  In Anstis v Secretary, Department of Social Security (1999) 94 FCR 421, I described the Act as having been drafted in a manner “both prolix and obscure”.  I also referred to the observations of the Full Court in Blunn v Cleaver (1993) 47 FCR 111 in which it was noted that the object of the Bill that became the Act was said by the Minister, in his Second Reading Speech, to be “to overcome the problem of readability by using a ‘clear English’ drafting style and format”.  The Minister went on to say that this should make the Act “a more accessible piece of legislation that ordinary Australians can reasonably be expected to understand”. 

38                  It is extraordinary to think that a Bill drafted with such laudatory aims could end up as the Social Security Act in its present form. 

39                  I conclude by setting out two passages from the judgment of the Full Court in Blunn v Cleaver that I previously cited in Anstis.  The Full Court said at 127:

“Before concluding this judgment, we feel constrained to make a general reference to the Act in which the legislation in question is contained, the Social Security Act 1991.  The Act in its current form contains more than 1,364 sections.  We have not counted the precise number.  To do so would involve taking account of a number of sections which are identified by letters as well as numbers.  These have been added to the Act in the short period of two years in which it has been in force.  The Act, including the notes to it, occupies 1,471 pages of the Commonwealth Statutes.

The professed aim of the drafting of the Act is to make it more accessible to persons without legal training.  It is necessary to say "more accessible" - perhaps it is really necessary to say "less inaccessible" - because no-one seriously believes the layman can master the Act unaided.  This case shows its own authors did not - for if they had, they would not have left it so ambiguous.”

40                  The Full Court then referred to the fact that in February 1993, the Senate Standing Committee on Legal and Constitutional Affairs had emphasised the need for the law to be as comprehensible to members of the public as possible.  The Full Court continued at 128:

“The comments we have made are not intended to undervalue simplicity.  But the pursuit of simplicity without due regard to the subject matter may be foolishness.  And an Act that is two or three times as long is not necessarily easier to read because some technical expressions (which once understood were succinct) have been replaced by wordier ones.  The point is not peculiar to Australia; "The Times" Law Reports for 10 October 1993 reports the remarks of Millett J in Arab Bank Plc v Mercantile Holdings Ltd, where the use of more modern language in companies legislation appears to have had an undesirable (and very probably unintended) consequence.  Millett J is quoted as having said "that the case illustrated the danger inherent in any attempt to recast statutory language in more modern and direct form for no better reason than to make it shorter, simpler and more easily intelligible".  For our part, we would see those as good reasons, but they should not have priority over the first requirement of legislation - the clear expression of what Parliament intended.

A substantial portion of these reasons contains our attempt to explain the provisions of the legislation relevant to the problem here at issue.  We do not apologise for the fact that, to many, what we have written will appear complex and difficult to follow.  Indeed, without a copy of the Act within one's hand and a reference to a succession of provisions, one can make no sense of it.  It is difficult to know what can be done about this problem.  As the Senate Committee remarked, the increasingly complex society in which we all live very often demands that legislation be expressed in a complex form.  That is the factor which will so often operate to prevent simplicity in legislative drafting.  The area of social services legislation is a complex one as the terms of the previous legislation and judicial decisions upon it have demonstrated.  That is what the draftsman of this legislation may have sought to overcome.  Regrettably, the replacement consists of a maze of provisions made the more complex by prolix definitions, provisos and exceptions.  Both those who claim entitlements under it and those responsible for its administration will not always find it easy to discover whether or not a benefit is payable.”

41                  I can only hope that one day these comments will be taken on board.

Associate:        

Dated:              25 June 2004

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

REASONS FOR JUDGMENT

STONE J:

42                  I have had the advantage of reading, in draft, the reasons of Kiefel J and I gratefully adopt her Honour’s outline of the background to this appeal and the history of the amendments to the relevant provisions of the Social Security Act 1991 (Cth) (‘Social Security Act’).  With that advantage I can state my reasons for dismissing this appeal briefly.

43                  The issue in this appeal is whether in calculating the value of Mr Escott’s assets for the purpose of s 198D of the Social Security Act the trust that was created for him by order of the Supreme Court of Queensland (‘Trust’) is to be included.  It is not in dispute that Mr Escott is a severely handicapped person and that he would pass the assets test referred to in s 198D(1) if the total value of his assets is less than the amount provided under that section.  Put simply, if Mr Escott passes the assets test then the respondent, Ms Geeves, who is Mr Escott’s carer, qualifies for a carer payment under s 198(1). 

44                  The calculation of the value of assets for the purposes of s 198D is governed by s 198E which provides: 

‘For the purposes of subsection 198D(1), (1A), (1C) or (1E), the value of assets is to be worked out in accordance with:

(a)               Part 3.12, except Divisions 2, 3 and 4 of that Part; and

(b)               sections 198F to 198MA (inclusive); and

(c)               Part 3.18, except Division 9.’

For present purposes only Part 3.18 is relevant.  Part 3.18 was introduced into the Social Security Act in 2000 by the Social Security and Veterans’ Entitlements Legislation Amendment (Private Trusts and Private Companies – Integrity of Means Testing) Act 2000.  As the explanatory memorandum for the amending legislation states, its purpose was to ensure that under the means test, assets in private companies and private trusts are treated on a comparable basis to assets held directly.  It achieves this aim by attributing, in specified circumstances, the assets or income of private companies and trusts to individuals. 

45                  In relation to trust assets, Part 3.18 provides two preconditions that must be met before those assets are attributable to an individual: the trust must be a ‘designated private trust’ and the individual must be an ‘attributable stakeholder’ in the trust; see the simplified outline in s 1207 of the Social Security Act. 

46                  Section 1207X(2) provides that a person is an attributable stakeholder of a trust if: 

‘(a)      a trust is a controlled private trust in relation to an individual; and

(b)               the trust is not a concessional primary production trust in relation to the individual …’

A ‘controlled private trust’ is defined in s 1207V.  An essential requirement under the definition in s 1207V is that the trust be a ‘designated private trust’.  The definition of a designated private trust is found in s 1207P which provides in ss (1)(c) that for the purposes of Part 3.18 a trust is a designated private trust unless ‘the trust is an excluded trust’; the subsection then refers to subsection 4 which states: 

‘(4)      The Secretary may, by writing, declare that each trust included in a specified class of trusts is an excluded trust for the purposes of this section.’

Subsections (5) and (6) provide respectively that the Secretary’s declaration ‘has effect accordingly’ and that an instrument made under ss (4) is a ‘disallowable instrument for the purposes of s 46A of the Acts Interpretation Act 1901.’   

47                  Such a declaration, the Social Security (Means Test Treatment of Private Trusts – Excluded Trusts) Declaration 2001 was made, clause 6 of which provides: 

‘(1)      Each trust that is a court-ordered trust is an excluded trust for section 1207P of the Act.

(2)               A court-ordered trust is a trust created by an order of a court that:

(a)               relates to a personal injury matter; and

(b)               provides for some or all of the proceeds of the judgment of the court, or of a settlement between parties, to be held in trust for the benefit of the person in whose favour the judgment or settlement was made.’ 

It is not in dispute that the Trust is a court-ordered trust within the meaning of this Declaration. 

48                  It follows from the above that the Trust is not a designated private trust.  It therefore cannot be a controlled private trust and Mr Escott cannot be an attributable stakeholder.  Neither of the two essential preconditions mentioned in [45] above are met in this case.  Consequently it would seem that the assets of the Trust cannot be attributed to Mr Escott and cannot be taken into account in calculating his assets for the purpose of s 198D of the Social Security Act. 

49                  The appellant submits, however, that the ordinary assets test in the Social Security Act covers the Trust and there is no need to have recourse to Part 3.18 which, in the circumstances, does not apply.  The appellant argues that the exclusion of court-ordered trusts in the Declaration referred to in [47] above was merely a recognition that the special attribution rules in Part 3.18 do not apply to such trusts.  This submission is based on the proposition that the subject of the Trust is Mr Escott’s property and therefore is an asset within the definition of that term in s 11(1) of the Social Security Act.   The definition is: 

‘“asset” means property or money (including property or money outside Australia)’.

50                  This argument was put to his Honour, the primary judge, who dismissed it saying, at [18]: 

‘What is determinative is not the question of assets in the abstract but how the value of assets is to be “worked out” for the specific purpose of eligibility for carer payments.  The clear words of the legislation lead unavoidably to the conclusion that the trust for Mr Escott is an “excluded trust” and therefore not a “designated private trust” for the purposes of Pt 3.18.  Thus he is not to be “affected unintentionally” because the Act has made specific provision for what must be a common situation.’ 

51                  This argument of the appellant led to detailed submissions as to the nature of the interest that Mr Escott has in the Trust and whether, if it is a proprietary interest, it is property that would be included in the definition of ‘asset’.  At [19] of his reasons the primary judge expressed some doubt as to whether the Trust would have been caught by the ‘ordinary rules’ prior to the introduction of Part 3.18.  I do not find it necessary to consider this issue and I express no opinion in respect of it.  Even if Mr Escott’s interest in the Trust is an asset as defined in s 11(1) my conclusion would be the same; namely that his interest cannot be taken into account in calculating his assets for the purpose of s 198D. 

52                  I accept the submission of Mr Tree, counsel for the respondent, who in his written submissions stated: 

‘It seems as though the argument of the appellant is that, on this occasion, the intention of parliament as manifested via the explanatory memorandum must be ignored because it was a mistake.  Shorn of its elegant articulation, the appellant’s submission seems to be that the intention of the enactment of Part 3.18 was to take, not give, and therefore this Court ought insist upon an interpretation which effects taking.   However that submission flies in face of the words of the explanatory memorandum itself, namely that it “aims to ensure that customers who hold their assets in private companies or private trusts receive comparable treatment under the means test to those customers who hold their assets directly.”  In other words the intention of the Act was to achieve fairness and equity between citizens for the purposes of the disposition of funds under the Act.  Parliament proceeded to articulate in statutory form, how that fairness and equity was to be achieved.  Particularly, it was to be achieved by attributing the assets of certain private companies and private trusts to individuals in specific circumstances.  One of the specific circumstances in which they were not to be so attributed is if they were excluded.’

53                  Given the clear words of the legislation, the appellant’s submission as to the purpose of the Secretary’s Declaration (see [49] above) cannot be accepted.  The explanatory memorandum makes it clear that the objective of the social security system and the new provisions is ‘to assist those who cannot adequately support themselves, and to encourage self-provision by those who can.’  It then states: 

‘To ensure that people are not treated unfairly or affected unintentionally as a result of this measure, there are provisions in the attribution process for assets and/or income to be disregarded, if appropriate.’ 

The power of the Secretary to make declarations under s 1207P(4) is consistent with that purpose.  The appellant’s submission is inconsistent with this purpose and with the clear words of the legislation. 

54                  For the reasons stated above I would dismiss the appeal and order that the appellant pay the costs of this appeal. 

Associate:        

Dated:              25 June 2004