FEDERAL COURT OF AUSTRALIA

ADMINISTRATIVE LAW - Social Security - Meaning of “received in good faith” - where Respondent knew not entitled to Austudy but did not know he was receiving it - whether in good faith - Student and Youth Assistance Act 1973 s 289(2)(b)

secretary, department of education, employment, training & youth affairs v barry prince

ng 338 of 1997

finn j

canberra

21 NOVEMBER 1997

THE COURT ORDERS THAT:

(1)          the Tribunal’s decision be set aside; and

(2)          the respondents’ application to the Tribunal be dismissed and the decision under review by the Tribunal be affirmed.

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

EX TEMPORE REASONS FOR JUDGMENT

This is an application by way of an appeal from a decision of the Administrative Appeals Tribunal (“the Tribunal”) that the debt owed by the respondent, Mr Prince, to the Commonwealth is waived under the provisions of s 289 of the Student and Youth Assistance Act 1973 (the “SYA Act”).  That debt was incurred in consequence of Austudy payments being made to Mr Prince to which he was not entitled.  Insofar as presently relevant s 289 provides:

Waiver of whole of a debt

Waiver of debt

           289.     (1)        The Secretary may, on behalf of the Commonwealth, decide to waive the Commonwealth’s rights to recover the whole of a debt from a person but only in accordance with this section.

Administrative error

            (2)        The Secretary must waive if:

(a)        the debt arose solely because of an administrative error made by the Commonwealth; and

(b)        the person received in good faith the payment or payments that gave rise to the debt.

The Secretary referred to is the applicant in this proceeding.

The background circumstances as found by the Tribunal can be stated briefly.

(1)          Having previously been in receipt of Austudy payments for study he was undertaking, Mr Prince took the steps appropriate to cancel his entitlement to such payment on 22 December 1993.  He was aware that he was not entitled thereafter to Austudy.

(2)          Because of an administrative error payments continued to be made to him, these payments being made into his bank account on 5 January 1994, 19 January 1994, 2 February 1994, 16 February 1994, 2 March 1994 and 16 March 1994.  The error was later discovered.

(3)          On 10 May the applicant provided Mr Prince with a Notice of Assessment requiring repayment of the Austudy payments.

(4)          In the period after 22 December 1994 and up to 7 February 1994, Mr Prince was quite unaware that he was continuing to receive Austudy.  From 7 February he was “alert to the possibility that [Austudy] payments continued to be paid into his bank account”.  By 28 February 1994 he was sure that such was the case.  From 7 February he took steps, first, to ascertain whether he was being paid and, then, to advise the Department of Education, Employment, Training and Youth Affairs (“DEETYA”) of the continuing payments to him.  In late February he enlisted the assistance of a member of Parliament.  A person on that member’s staff also communicated her concerns to DEETYA.

The Tribunal’s Decision

The Tribunal considered a range of matters that are not the subject of this appeal.  For present purposes reference need only be made to one aspect of its decision.  This is the Tribunal’s construction of the words “received in good faith” in s 289(2)(b) of the SYA Act.  In dealing with these words the Tribunal treated the relevant “receipt” as having occurred when the Austudy payments were made into Mr Prince’s bank account.  As to the meaning of “good faith” the Tribunal noted that that formula has been used, and considered in case law, in a variety of statutory contexts which it noted.  It likewise made reference to an explanatory illustration of the concept of “received in good faith” given in the Explanatory Memorandum to the Student and Youth Assistance Amendment (Youth Training Allowance) Bill (No 2) 1995 that referred to s 289.  And it noted that there were inconsistent decisions of the Tribunal on the formula as used in provisions similar to s 289.

It concluded that the meaning of “received in good faith” in relation to the waiver of debts attributable solely to administrative error was not settled in the Tribunal.  It then went on to say that it believed-

“It should consider whether the payments of AUSTUDY in this matter were received in good faith on the facts of the case”: emphasis added

Its conclusions on this were as follows:

(1)          In relation to the payments received up to and including 2 February, these were received in good faith in that, having taken appropriate steps to cancel Austudy, Mr Prince was unaware he was continuing to receive them.

(2)          In relation to the payments from after his suspicion as to continuing payment was aroused from 7 February, the conclusion was:

that once the Applicant began to suspect he was still receiving AUSTUDY he acted with honesty of purpose and with reasonable diligence in attempting to clarify the situation and to provide information to the Department to cause the payments to be stopped.  There was nothing fraudulent about his behaviour and he demonstrated no intention to defraud the Department.  The issue then with regard to the payments on 16 February and 2 and 16 March is whether or not it can be said that the Applicant received the payments in good faith when he suspected or knew he had received money to which he was not entitled.  It has been argued that a person cannot receive the payments in good faith if he knew he was not entitled to those payments.  The Tribunal does not accept this interpretation.  In the particular circumstances of this case, the Applicant received the payments after having taken reasonable steps to interrupt its payment and failed.

It went on to say, I can only say to my surprise, that:

once the Applicant became aware that he was still receiving AUSTUDY to which he was not entitled, the appropriation of those moneys is one relevant factor to take into account in deciding whether or not he has received those further payments in good faith.  Other relevant factors include the attempts the Applicant made to stop the payments as well as his attitude to the repayment of the money.

As Mr Prince was prepared to repay the money received, even as he spent it, and as he made efforts to have the payments stopped, the payments from 16 February onwards were also held to be received in good faith.

The Appeal

There is so clear and palpable an error of law in the Tribunal’s decision that I mean no disrespect to the parties in treating their submissions in an apparently cursory way.  The Tribunal simply did not address itself to the central question raised by s 289 (2)(b).  It correctly concluded that payments were “received” where they were available for Mr Prince’s use and that occurred when they were deposited in his bank account.  It likewise correctly noted that the formula “good faith” derives its meaning from its particular context.  What the Tribunal failed to do was to construe “in good faith” in its context.

The section asks that a quite specific question be addressed: was the payment received in good faith?  It is quite unconcerned, for example, with whether, after 22 December, Mr Prince acted in good faith towards DEETYA.  Its sole concern is with whether a particular state of affairs exists at the time a payment (or payments) is received.

The significance of the statutory context in which the formula is used is in the illumination it gives as to what is that required state of affairs.  It has correctly been observed that the term “good faith” (or its now less fashionable Latin equivalent “bona fide”) is a protean one having longstanding usage in a variety of statutory and, for that matter, common law contexts.  I merely instance provisions protective of public officials in respect of illegal acts done in good faith in the purported execution of a statute; for a discussion of which see eg Little v The Commonwealth (1947) 75 CLR 94 at 108-110; the duty of good faith of a mortgagee exercising a power of sale: eg Downsview Nominees Ltd v First City Corp Ltd [1993] 1 NZLR 513; and “good faith” as an essentially knowledge or notice idea in both statutory and common law contexts involving property dealings: see eg Bankruptcy Act 1966, s 120(6); Queensland Bacon Pty Ltd v Rees (1966) 115 CLR 266.

The burden of the formula can vary significantly given the purpose it is intended to serve in a given setting.  In one context it can focus inquiry upon a person’s reason for action (eg as with the good faith duty of company directors); in another, to a person’s state of knowledge when a particular event occurs.

For my own part, I consider the burden of the formula in the s 289 setting to be obvious enough.  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 - ie is not entitled to use the moneys received as his or her own - that person does not receive the payment in good faith.  Absent such knowledge or reason to know, the receipt would be in good faith.

Given the conventional liability of a mistaken payee of money from consolidated revenue to repay that money irrespective of his or her belief as to an entitlement to it (ie the “rule” in Auckland Harbour Board v The King [1924] AC 318), the concession made to the mistaken payee by s 289 of the SYA Act does seem in all probability to be directed to a payee who receives the money (to put the matter positively) in the good faith belief that he or she is entitled to receive it.  In other words the frame of the section is to exclude from the right to a waiver, a person who knows or has reason to know that he or she is not entitled to receive the payment.  It would be surprising to find that the Parliament intended otherwise.

To the extent that there are appropriate analogues to s 289 - and they are all inexact - those concerned with good faith as a state of knowledge that protects a property disposition from attack or the property recipient from personal liability for the receipt are, in my view, the most opposite.  I refer, for example, to the preference provisions of the Bankruptcy Act 1966 (Cth) on which the appellant here relies, and more distantly, to the “knowing receipt” limb of the rule in Barnes v Addy (1874) LR 9 Ch App 244.

It manifestly is the case that the Tribunal in this matter did not address the requirements of the section because it misconceived the meaning of s 289 (2)(b).  Necessarily the appeal will be allowed.  Little purpose would be served in remitting the matter to the Tribunal given the findings that have been made and the nature of the question ultimately to be decided.

In these circumstances it is appropriate that I express a view on one matter that might otherwise be thought to be a possible cause of complication in making a decision under s 289.  It is this.  It is clear in the present case that at all relevant times after 22 December 1993 Mr Prince actually knew that he had no entitlement to receive Austudy payments.  Is the consequence of this that he could never claim that any of the payments he received from DEETYA as Austudy payments in 1994 were received in good faith even though at the time of receipt of the first three he was unaware that he had received the payment? In other words, 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.  Thus while he may have received a payment of which he was ignorant, he could not, in the sense that I have explained, have received it in good faith.

In the very distinctive circumstances of this case the appropriate orders to be made are:

(1)          that the Tribunal’s decision be set aside; and

(2)          that the respondents’ application to the Tribunal be dismissed and the decision under review by the Tribunal be affirmed.

Associate:

Dated:              2 December 1997