FEDERAL COURT OF AUSTRALIA

ADMINISTRATIVE LAW – residency requirement for aged pension – Social Security Act 1991 (Cth) s 43(1) – contributions to funds in Italy and Australia – reciprocity of entitlement to pensions between Australia and Italy – Social Security Act s 1208(1) and Sch 3 – Agreement Between Australia and the Republic of Italy Providing for Reciprocity in Matters Relating to Social Security – interpretation of “period of credited contributions” defined in Article 1 of the Agreement – minimum period of Australian residence and minimum period of credited contributions in Italy prescribed by Article 7(1) of the Agreement – whether periods of time, being residence (Australia) and credited contributions (Italy), can be considered cumulatively.

Social Security Act 1991 (Cth): s 43(1), Sch 3.

SECRETARY, DEPARTMENT OF SOCIAL SECURITY v IOLANDA FERLAT

VG 454 OF 1997

BLACK CJ, FOSTER AND MANSFIELD JJ

MELBOURNE

17 MARCH 1998

THE COURT ORDERS THAT:

1.                  The appeal be dismissed.

2.                  The appellant pay the respondent’s costs in the appeal.

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

REASONS FOR JUDGMENT

THE COURT:

This is an appeal from a judgment of Heerey J dismissing the appellant's appeal from a decision of the Administrative Appeals Tribunal.  The Administrative Appeals Tribunal had affirmed a decision of the Social Security Appeals Tribunal to the effect that the respondent "satisfied the residency requirement for an aged pension" under the Social Security Act 1991 (Cth) (the “Act”).

The respondent was born in Italy in 1934 and lived in Australia from 25 May 1960 to April 1969.  In 1964 she became an Australian citizen.  After returning to Italy in 1969 she worked and made contributions to an Italian pension fund known as INPS (Instituto Nazionale della Previdenza Sociale) between October 1974 and May 1980.  In June 1980 she commenced employment with the Commune de Trieste and during this employment made contributions to another pension fund known as CDPEL.  She continued to make contributions to that fund until her retirement in 1992.  Upon retirement her contributions to the INPS fund were transferred to CDPEL.  At the time the matter was before the tribunal she was in receipt of a pension from the latter fund.

On 7 July 1995 she lodged a claim for an Australian age pension.  The general requirement for eligibility for an Australian age pension is reaching the pension age and having 10 years' Australian residence (see s 43(1) of the Act).  The legislation provides, however, for reciprocity of entitlement to pensions as between Australia and certain other countries.  Section 1208(1) of the Act provides for "a scheduled international society security agreement" to have effect despite anything in the Act.  One such agreement is the “Agreement Between Australia and the Republic of Italy Providing for Reciprocity in Matters Relating to Social Security" (the “Agreement”) which appears in Sch 3 of the Act.

Article 7(1) of the Agreement provides as follows:

“Where a person to whom the Agreement applies has accumulated:

(a)               a period of residence in Australia that is:

(i)                 less than the period required to qualify him or her, in respect of residence, under the social security laws of Australia for an Australian benefit; and

(ii)               equal to or greater than the minimum period identified in accordance with paragraph 4 for that person; or

(b)               a period of credited contributions that is:

(i)                 less than the period required to qualify him or her, in respect of contributions, under the social security laws of Italy for an Italian benefit; and

(ii)               equal to or greater than the minimum period identified in accordance with paragraph 5 for that benefit,

and, on the other hand, has accumulated both a period of Australian residence during working life and a period of credited contributions in Italy which, when added together, are equal to or in excess of the required minimum period specified for that benefit by the legislation that is within the scope of this Agreement in relation to the Contracting Party by whom the benefit may be payable, then:

(c)               for the purposes of a claim for that Australian benefit, the last-mentioned period of credited contributions shall be deemed to be a period in which that person was residing in Australia: and

(d)       for the purposes of a claim for that Italian benefit, the last-mentioned period of Australian residence during working life shall be deemed to be a period of credited contributions in Italy.”

Article 7(3) prescribes the minimum period of Australian residence and the minimum period of credited contributions in Italy:

“Where a period of residence in Australia and a period of credited contributions in Italy coincide, the period of coincidence shall be taken into account once by each of the Contracting Parties for the purposes of this Article, as follows:

(a)               for an Australian benefit: as a period of residence in Australia; and

(b)       for an Italian benefit: as a period of credited contributions.”

The respondent, in a temporal sense at least, satisfied each such requirement. 

The expression "period of credited contributions" is defined in Article 1 of the Agreement as

“a period, or the total or two or more periods, of contributions used to acquire a benefit, and any period deemed to be a period of contributions, under the social security laws of Italy by that person but does not include any period deemed pursuant to sub-paragraph 1 (d) of Article 7 to be a period of credited contributions in Italy.”

The word "benefit" is defined to mean “Australian benefit or Italian benefit”, terms which are themselves defined in Article 1.

The principal issue in this appeal concerns the construction of the agreement between Australia and the Republic of Italy.  The issue arises in this way.  The respondent lived in Australia for just under nine years and so she did not satisfy the qualification for 10 years residence provided for by s 43(1) of the Act.  She sought to add to that period the five and a half years during which she contributed to the INPS.  It was common ground that contributions made to the INPS were, at the time they were made, contributions made to acquire a benefit under the social security laws of Italy and that, but for one critical complication, the period in respect of which she paid them would have enabled Mrs Ferlat to bring herself within the provisions of Article 7(1) of the Agreement.  

The complication which lies at the heart of this matter was that the period of Mrs Ferlat's payments to the INPS ended in May 1980 and she later made contributions to the other pension fund, CDPEL, consequent upon the change in employment.  The latter fund, unlike the former, was not a specified fund in accordance with the administrative arrangements entered into between Australia and the Republic of Italy pursuant to Article 19 of the Agreement, and the Administrative Appeals Tribunal proceeded upon the basis that the contributions to the CDPEL were not contributions "used to acquire a benefit under the social security laws of Italy".

As we have noted, when Mrs Ferlat retired the contributions standing to her credit with INPS were transferred to CDPEL.  The result of this was that at the time she made a claim for an Australian pension in 1995 there were no contributions remaining to her credit in the INPS fund.  The appellant contends that the further result is that at the time the application for an Australian pension was made there was no relevant "period of credited contributions in Italy" within the meaning of Article 7(1) to be added to her period of residence in Australia in order to satisfy the 10 year eligibility requirement.  This follows, the appellant contends, from the definition of "period of credited contributions" in Article 1 and the use of the word "accumulated" in Article 7, the combined effect of which was to require that the phrase "used to acquire a benefit" in the definition in Article 1 must necessarily be read as "currently capable of being used to acquire a benefit".

As the respondent's credited contributions with INPS had been disposed of by transfer to her new fund, CDPEL, at the date of her application for an Australian pension, she could not be said relevantly to have "accumulated" them; she had, rather, expended them.  Consequently she no longer had "a period ... of contributions used to acquire a benefit" because the term "benefit" referred to a benefit under Italian law.  It is thus only possible to say of a person that he or she has accumulated a period of credited contributions if the person has a period of contributions standing to his or her credit under the relevant Italian legislation at the time the Australian pension is applied for.  If the person has no such credit at that time, so it was argued, then the person has not accumulated a period of credited contributions capable of being added together for the period of residence of Australia so as to bring into play Article 7 of the Agreement.

The respondent's contention, which was upheld by Heerey J, was that the focus should be upon the historical period of contributions and that the period of credited contributions continued to exist and to be recognised for the purpose of the Agreement, notwithstanding that the benefits of the contributions made in the period had then been transferred to the other fund.  Heerey J said:

“The Agreement is not concerned with the amounts of contribution but rather the historical period during which contributions were credited.  The commodity with which Article 7 deals is periods of time.  It is those which are to be accumulated.”

We agree with this approach to the construction of Article 7.  As Heerey J noted:

“The Agreement had to provide a mechanism for reciprocity of entitlement to pensions and other benefits between two countries which have fundamentally different systems.  In Australia entitlement depends on residence for the prescribed period, in Italy it depends on contributions to a particular kind of fund.  What Article 7(1) does in that context is to provide for accumulations of periods of time, on the one hand a period of residence (Australia) and on the other a period of credited contributions (Italy).”

In our opinion the construction sought to be given to a "period of credited contributions" by the appellant is erroneous.  The phrase "used to acquire a benefit" does not bear the extended meaning contended for.  The phrase serves no purpose in the definition, in our view, other than to qualify in a completely adjectival way the word "contributions".  It serves merely to define the type of contributions with which the definition is concerned.  In our view this is the effect of the ordinary meaning of the words.  The word used in the definition could not mean the contributions have in fact been employed actually to generate an entitlement to a pension.  That is clear from Article 7(1)(b); it assumes that the contributions are insufficient to have been so employed.  In fact, it is the character of the contributions which is the focus of the definition.

The appellant accepted that much but sought to add the requirement that the required character of the contributions is that they are presently capable of being employed towards eligibility for a pension.  It seems to us, however,  that the construction contended for by the appellant involves an expansion of the words used in a way that the language and the subject matter does not require.  It does not reflect the circumstances that Article 7 deals with periods of time and aggregation of periods of time; "totalisation" is the word used in the heading to Part III of Sch 3 of the Act.  That it does so is, in our opinion, reinforced by the language of Articles 7(2)(b), 7(3) and 16(1).  The accumulation to which Article 7 refers is an accumulation of periods of time over which certain facts occur.

In the case of Australia the fact is residence, and in the case of Italy the fact is the crediting of contributions of a certain character.  The period of time so accumulated does not cease to exist because at a later period the contributions are transferred to a different pension fund, any more than it ceases to exist because, at the later point, the claimant ceases to reside in Australia.  Accordingly, we reject the appellant's primary submission. 

The appellant also submitted that the Tribunal was not entitled to go behind the contents of a document provided to the Department by INPS in response to the Department's inquiry.  The document in question appears to assert that the appellant made no contributions to the INPS fund at any time and that the respondent was not entitled to benefits from the fund.

The evidence before the Administrative Appeals Tribunal showed quite clearly, as indeed the Tribunal found, that the respondent had made the contributions already referred to.  There seems never to have been any dispute that these contributions were made.  The appellant argued, however, that Article 20 of the Agreement required that the Australian authorities accept - even though contrary to the fact as shown by the materials in their possession - that no contribution had been made.  In our view Article 20 has no such effect.  Article 20 is concerned with the exchange of information necessary for the operation of the Agreement.  Clauses 1 and 5 of that Article provide:

“1.       The competent authorities and the institutions of the Contracting Parties shall exchange such information as is necessary for the operation of this Agreement or of the social security laws of the Contracting Parties concerning all matters arising under this Agreement or under those laws.

5.         Unless there are reasonable grounds for believing the contrary, any information received by a competent authority or relevant institution from the competent authority or an institution of the other Contracting Party shall be accepted as valid or true, as the case requires.”

They do not purport to oblige the Australian authorities to accept one piece of information of the nature described when other information suggests to the contrary.

There was material before the Tribunal, apparently also emanating from INPS, that the respondent had made 286 weeks of contributions to INPS between 1974 and 1980.  The proviso to clause 5, to the effect that certain information received in accordance with its terms should be accepted as valid or true unless there are reasonable grounds for believing to the contrary, was clearly a provision to which regard was had in the present circumstances.  It was appropriate to do so.  Such provisions no doubt assist in the administration of the agreement between Australia and the Italian Republic but there were obviously grounds that prompted the appellant to seek clarification from the Italian authorities and, this having been done, the original information was put in context, it being made clear that the respondent had in fact made contributions over the earlier period.  The submission based on Article 20 must be rejected.

The respondent submitted that the contributions to CDPEL should themselves be regarded as contributions used to acquire a benefit under the social security laws of Italy and so could give rise to a period of credited contributions for the purposes of Article 7 of the Agreement.  Having regard to our conclusions on the other issues, it is unnecessary for us to express a view on this point. 

The appeal should be dismissed with costs.

Associate:

Dated:              17 March 1998