FEDERAL COURT OF AUSTRALIA

Evans v Secretary, Department of Families, Housing, Community Services and Indigenous Affairs (No 2) [2011] FCA 1207

THE COURT ORDERS THAT:

1.    The appeal be dismissed.

2.    The applicant pay the respondent’s costs.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. The text of entered orders can be located using Federal Law Search on the Court’s website.

REASONS FOR JUDGMENT

1        The applicant in these proceedings, Gordon Douglas Evans (as executor of the estate of the late Joan Gladys Evans) appeals pursuant to s 44 of the Administrative Appeals Tribunal Act 1975 (Cth) from a decision of the Administrative Appeals Tribunal (‘the Tribunal’) delivered on 5 August 2010: see Joan Evans and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs [2010] AATA 578 (‘Tribunal decision’).

2        The Tribunal upheld a decision of the Social Security Appeals Tribunal (‘the SSAT’) made on 22 January 2010. The SSAT had affirmed a decision of Centrelink which decided that the late Mrs Joan Gladys Evans (‘Mrs Evans’) had made a gift of money to the applicant. As a result of such decision, Centrelink, pursuant to s 1123 of the Social Security Act 1991 (Cth) (‘the Act’), cancelled pension benefits to Mrs Evans.

3        On 15 September 2010 Mrs Evans applied pursuant to O 53 r 7 of the Federal Court Rules 1979 for an extension of time to file a notice of appeal against the Tribunal decision. On 28 January 2011, after the hearing on the extension of time application but before the judgment was delivered, the Court was informed that Mrs Evans had passed away on 25 January 2011.

4        On 1 February 2011 this Court ordered that the interests of justice warranted the granting of the extension of time: see Evans v Secretary, Department of Families, Housing, Community Services and Indigenous Affairs [2011] FCA 28.

FACTS

5        Both Mrs Evans and her late husband Mr Douglas Evans were joint registered owners of a house in Putney, New South Wales, which they purchased in 1949 (‘the residence’). Upon her husband’s death on 22 April 2006, Mrs Evans became the sole legal owner of the residence. On 14 September 2007 Mrs Evans settled the sale of the residence for $2,250,000. Mrs Evans subsequently purchased another house and transferred approximately half the proceeds of the sale, namely $1,131,233, to the applicant. This transfer was allegedly made pursuant to an agreement made between the late Mr Douglas Evans, Mrs Evans and the applicant (‘the agreement’).

6        Mrs Evans received the age pension from 28 July 1999 to 6 May 2009. Centrelink considered that the transfer of $1,131,233 from the settlement of the residence to the applicant was to be characterised as a gift under the Act. Further, as the gift was more than $10,000, Centrelink considered that its value was required to be taken into account pursuant to s 1126AA of the Act in determining the quantum of her assets. Centrelink considered that the value of Mrs Evans’ assets, including the gifted sum, nullified her entitlement to the pension under the Act.

THE TRIBUNAL DECISION

7        The applicant in these proceedings is the only child of the late Mr and Mrs Evans. The applicant gave evidence before the Tribunal that in 1995 he became the managing director of his parents’ business. The business dealt in industrial fasteners, nuts and bolts and occupational health and safety equipment.

8        The applicant gave evidence before the Tribunal that he and his father had agreed that if the applicant conducted the family business instead of pursuing his theatre career, the proceeds of the sale of the residence would be divided into third shares if his two parents were still alive when it was sold, or if only one of the applicant’s parents survived, the applicant and his surviving parent would share the proceeds of sale equally. If neither parent survived, then the applicant would receive the entire proceeds of the sale of the residence.

9        The applicant told the Tribunal that before he commenced to work full-time for his parents’ business, he was working as a well-respected theatre designer and that in 1995 he was earning between $75,000 and $100,000 per annum. The applicant also testified that his salary whilst operating his parents’ business was ‘very minimal’. The applicant estimated that his former colleagues were earning between $100,000 and $500,000 per year as theatre designers. He estimated the loss of his earnings at $1.2 million as a result of joining the family company full-time for the period 1995–2007.

10        The applicant claimed that by foregoing his income as a theatre designer and instead working for his parents in their business, he provided legal consideration for the agreement. As such, the proceeds given to him from the sale of the residence should not be construed as a gift.

11        Counsel for the applicant submitted that ss 1123 and 1124 of the Act had no application in this case. Sections 1123(1) and 1124 relevantly provide:

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)     the person receives 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; or

…

12        The Tribunal considered the applicant’s submission that there was a binding contract with the requisite intention to create binding legal relations. However, the Tribunal found that there was insufficient evidence to find that a legally enforceable agreement existed. Significantly the Tribunal noted that the agreement was oral and that the applicant did not provide any ‘hard data, tax returns or other corroborating evidence of earnings he claimed he had foregone’ (see [16] of the Tribunal’s decision).

13        The Tribunal also found that the agreement failed for uncertainty as there was no ‘time frame’ for the sale of the residence and no indication ‘whether either parent would still be alive and take part in the proceeds’. The Tribunal also found that the fact that half of the proceeds of the sale were paid to the applicant on the day of settlement was ‘not relevant’.

14        At the hearing before the Tribunal, the applicant testified and tendered a statutory declaration (‘the declaration’) signed by Mrs Evans who did not attend the hearing and could not be cross-examined due to ill health. The Tribunal considered that the declaration should be accorded ‘little weight’.

15        The Tribunal concluded that the transfer of half the proceeds of the sale of the residence to the applicant was a gift and thus fell within the ambit of s 1123(1) of the Act and accordingly the Tribunal upheld the decision of the SSAT.

THE APPEAL

16        The applicant filed his notice of appeal on 28 April 2011 which raises three grounds of appeal, namely the Tribunal’s characterisation and weight given to the declaration; whether the Tribunal made erroneous findings regarding the existence of the alleged agreement and 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 Tribunal should have taken into account the conduct of the parties after the conclusion of the alleged agreement. Each ground of appeal will be considered in turn.

GROUND 1: MRS EVANS’ STATUTORY DECLARATION

17        The applicant raises several issues concerning the findings of the Tribunal in respect of Mrs Evans’ capacity when she signed the declaration on 9 December 2009.

18        At [2] the Tribunal said:

Mrs Evans suffers poor health, and her son, Mr Gordon Evans, who has her power of attorney, attended the hearing on her behalf, and gave oral evidence. Mr Price, solicitor of Price & Company Solicitors, represented Mrs Evans and her son. I had before me a doctor’s report supporting Mr Price’s explanation for Mrs Evans’ non-attendance, dated 26 June 2010, a few days before the hearing (Exhibit A1). I also had before me, a Statutory Declaration of Mrs Evans (Exhibit A2), which Mr Price conceded was written for her. As I understand Mrs Evans is likely not to have fully comprehended the Declaration she signed, and was not able to be questioned about it, I have accorded it little weight in coming to my decision.

19        The applicant submits that there was no evidence that the declaration was ‘written’ for Mrs Evans and that the use of the Tribunal’s language suggests that the content of the declaration was merely adopted by Mrs Evans. The applicant submits that such finding constitutes an erroneous approach to the evidence and that the subsequent statement contained in [33] of the decision confirms the Tribunal’s approach:

I have already said that I put little weight on the Statutory Declaration of Mrs Evans because of her poor health and inability to give evidence.

20        The applicant also relies upon the observations of the Tribunal at [21] at which the Tribunal member considered the declaration as having been ‘prepared for her’, as follows:

In considering whether there was an agreement between Mr Evans and his parents, or how to characterise what status it might have, I considered the evidence before me. Firstly, I am satisfied to conclude that any agreement made was oral, there was no witnesses to it other than Mr Evans, the deceased father, and Mrs Evans, the mother, who is now not fully competent to give evidence about it, and was not called for examination in the Tribunal. Mrs Evans stated in her Statutory Declaration, (which I have already noted was prepared for her), that the family agreement was a personal matter in the family, and that accordingly they did not seek advice before entering into it. Mr Evans corroborated that.

21        The applicant submits 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: see Secretary, Department of Social Secretary [sic] v Murphy (1998) 52 ALD 268 at 271 and Collins v Minister for Immigration and Ethnic Affairs (1981) 4 ALD 198 at 201.

Findings

22        The following exchange took place before the Tribunal:

MS ETTINGER: Mr Price, was there anything else from Mrs Evans?

MR PRICE: From Mrs Evans? No, Senior Member.

MS ETTINGER: Well, you know ---

MR PRICE: Only because her health, as I understand it, precluded her. By that time – she made the statement at the time when she was ---

MS ETTINGER: Well, it’s dated the 9th.

MR PRICE: --- capable of doing so and that unfortunately is now – her position has now deteriorated where I don’t think there would be any genuine utility in obtaining a statement because she may not, subsequently, at this point in time, necessarily, be fully aware of what it is she is saying. A bit like, you know, if you’ve got a power of attorney or something like that, so that the maker has to be aware of the contents.

23        As to the evidence relating to the preparation of the declaration, the following is a critical passage from the transcript of the hearing before the Tribunal:

Do you know who prepared that statement? That is, who drafted and prepared it? --- Mr Price, with mother.

Okay, and you’re aware, obviously, about the issue – and we’ve been over this before – about when your mother recalls the agreement? --- Yes.

1993? --- Yes, she would’ve probably been running on my memory as much as hers at that point.

24        In answer to the submission that the Tribunal had ‘no evidence from Mr Price that the Declaration was prepared for her’, 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 Mrs Evans was ‘likely not to have fully comprehended the declaration’, and for this reason the Tribunal accorded little weight to the declaration.

25        Further, there was the evidence that Mrs Evans’ recollection was unreliable because she was reliant upon the applicant’s memory of events. Such inference can be drawn from the testimony of the applicant relating to the preparation of the declaration in which he said that Mrs 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 Mrs Evans was in poor health and unable to attend the hearing and that she had given a power of attorney to the applicant.

26        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: see Minister for Aboriginal Affairs v Peko-Wallsend Ltd (1986) 162 CLR 24 at 41-42 (per Mason J) and Minister for Immigration and Multicultural Affairs v Eshetu (1999) 197 CLR 611 at [56]. This was not an instance in which there was no evidence before the Tribunal upon which it could make its decision, unlike the situation in Preston v Secretary, Department of Family and Community Services [2004] FCA 300 or in Secretary, Department of Social Secretary [sic] v Murphy. The Tribunal did not ignore the declaration nor did it rely upon irrelevant material; had it done so, jurisdictional error would have resulted: see Craig v The State of South Australia (1995) 184 CLR 163 at 179.

27        Based upon the evidence before it, the Tribunal was entitled to draw the inference that as at 9 December 2009 (being the date of the declaration), Mrs Evans may not have fully comprehended the contents of the declaration as she may have been in as poor health as she was as at the date of the hearing.

28        Accordingly, there is no appellable error concerning this finding by the Tribunal.

GROUND 2

(a) Should the presumption have been applied?

29        The appellant submits that the Tribunal wrongly applied the rebuttable presumption.

30        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 Tribunal cited the decision of Jones v Padavatton [1969] 2 All ER 616.

31        The applicant relies upon the observations of Gaudron, McHugh, Hayne and Callinan JJ in Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95 at [25]-[27]. In that decision the High Court referred to 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.

32        In Jones v Padavatton the Court found that an arrangement between a mother and daughter was one which never gave raise to a legally binding contract. Fenton Atkinson LJ concluded that an arrangement made between the mother and daughter pursuant to which the daughter was entitled to occupy a house for a modest rental was ‘far too vague and uncertain to be itself enforceable as a contract …’. His Lordship referred to the daughter’s evidence that she never believed her mother would take her to court and that a person with normal feelings would be ‘upset by what was happening’. Fenton Atkinson LJ relied upon those answers to conclude:

Those answers and the daughter’s conduct on that occasion provide a strong indication that she had never for a moment contemplated the possibility of the mother or herself going to court to enforce legal obligations, and that she felt it quite intolerable that a purely family arrangement should become the subject of proceedings in a court of law.

33        In reaching his decision, Fenton Atkinson LJ referred to the observations of Atkin LJ in Balfour v Balfour [1919] 2 KB 571 at 578-579 in which Atkin LJ said, in reference to agreements made between members of a family:

To my mind those agreements, or many of them, do not result in contracts at all, and they do not result in contracts even though there may be what as between other parties would constitute consideration for the agreement. The consideration, as we know, may consist either in some right, interest, profit, or benefit accruing to ne party, or some forbearance, detriment, loss or responsibility given, suffered, or undertaken by the other. That is a well-known definition, and it constantly happens, I think, that such arrangements made between husband and wife are arrangements in which there are no mutual promises, or in which there is consideration in the form within the definition that I have mentioned. Nevertheless, they are not contracts, and they are not contracts because the parties did not intend that they should be attended by legal consequences.

34        In recent decisions of Australian courts the principle referred to in Jones v Padavatton has been applied. In Gray v Gray [2004] NSWCA 408 the New South Wales Court of Appeal specifically referred to Jones v Padavatton.

35        At [56] and [57] in Gray v Gray Young CJ in Equity said:

[56] That decision [Jones v Padavatton] was followed by the Court of Appeal in Fleming v Beevers [1994] 1 NZLR 385. When giving the judgment of the Court, Tipping J said at 389:

The range of circumstances in cases such as these is likely to be so varied that in any particular case a presumption, albeit a fact, is likely to be of limited assistance. Each case will turn on its own facts and there is no substitute for a careful examination of those facts. The subject-matter and attendant circumstances may well suggest that the parties had no intention of creating a legally enforceable obligation. The converse may equally be true.

[57] Austin J held that on the facts of this case it was distinguishable from cases like Jones v Padavatton. He said:

In my opinion that reasoning [the reasoning of Salmon LJ in Jones] is inapplicable where a mother provides a very large sum of money, more than half her wealth, to her son so that he can buy a house. The amount involved, and the significance of the amount to the wealth of the mother, suggests an intention to create legal relations ... . In my view the present case is not a case of non-binding family arrangement. It is true, as counsel for the second defendant emphasised, that much of the language used in the conversations with his mother to which the second defendant deposed, and in the correspondence, was informal and non-mandatory. Lying behind that polite language, however, was the idea asserted by Mrs Gray through her solicitor Mr Hattersley, and by Mr Cuttance, and by the second defendant himself, that the money was paid by way of loan and therefore there was a legal obligation to repay it when required.

In my view his Honour was well able to take that view on the evidence before him.

36        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].

37        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.

38        The Court accordingly rejects the submission that the presumption was wrongly applied by the Tribunal.

(b) Findings relating to the agreement

39        The Tribunal gave several reasons which led it to its determination that it was not satisfied that a legally binding or enforceable agreement existed. One of the reasons was that referred to above, namely, that little weight could be ascribed to the declaration because of Mrs Evans’ poor health and inability to give evidence at the hearing.

40        The Tribunal also observed that the applicant gave no evidence to support his assertion that he had given good consideration in the form of loss of future earnings, finding at [31]:

Because Mr Evans had no documents to substantiate his claims or even corroborate his evidence, he was unable to quantify the loss of earnings to which he referred. I am unable to accept the evidence regarding the existence of a binding agreement, for uncertainty. If there was a loose arrangement made in 1993, or 1995, then I am satisfied there was no intention to create legal relations, and make it legally binding, and Mr Evans gave no good consideration for his future benefit, the amount and timing of which was known to him. I do not doubt he worked in the family business, but have no evidence upon which to rely in order to quantify any loss of earnings he suffered.

41        The Tribunal found that the fact that half of the proceeds from the sale of the residence were paid to Mr Evans on the day of settlement was ‘not relevant’; that is, to support the existence of the alleged agreement. The Tribunal in effect considered that the payment on the settlement day of half of the proceeds of sale was, by itself, equivocal since it could have been referrable to an agreement, as urged by Mr Evans, but was also consistent with the payment of a gift.

42        Such conclusion was one of the reasons why the Tribunal found that the requisite standard of proof was not satisfied and why the agreement ‘fail[ed] for uncertainty’. The burden of proof establishing a legally binding agreement lay upon the applicant. No records were produced to establish the income which the applicant received while he was conducting the business nor any evidence of income which he might have otherwise received had he not joined the business. That is, no records were available to demonstrate his income immediately before working in the business. The applicant was required to satisfy the Tribunal that consideration had been given; that is, consideration in the legal sense. In the absence of such records, the Tribunal could not conclude that the appellant was actually deprived of any income because of his involvement in the business. It follows that there was no probative evidence that any consideration was in fact given by the applicant. The Tribunal, in the absence of corroborative evidence, was not satisfied that consideration had been provided by the applicant.

43        Before the Tribunal, the applicant sought to distinguish the decision of Woodward J in Frendo v Secretary, Department of Social Security (1987) 13 ALD 681. In that decision the Court found that the transfer of a house by parents to their children on the understanding that the children would thereafter care for their parents did not constitute adequate consideration under the extant Social Security Act 1947 (Cth). The applicant argued that in Frendo the children had ‘future expectations, but not an obligation’ (see [27] of the Tribunal decision).

44        However, the Court rejects the applicant’s submission and respectfully adopts the observations of Woodward J in Frendo at 683 where his Honour said:

In my view the immediate and natural effect of a reference in legislation to “consideration” is to direct the mind of the reader towards the law of contract where, for hundreds of years, the word has had a special meaning. A closer examination of the context could lead to a different result, but when the word is used, as it is here, in the sense of a return or balancing factor for the diminishment of a person's assets, it is difficult to escape the conclusion that it is used in a technical, legal sense.

45        At 684, Woodward J continued:

Thus the Ministerial policy expressed in the words “without receiving adequate value in return” has been converted by the legislative draftsman into “... receives no consideration or inadequate consideration, in money or money's worth ...” There are sound reasons why the draftsman would choose this term well known to the law. In the first place it should make for greater certainty of interpretation. Secondly, it comprehends in a single word both a present benefit and the promise of a future benefit. Thirdly, it covers both an act and a forbearance. Finally it underlines the requirement that the “adequate value” received must be “in return” for the disposal of assets – the concept of a bargain is highlighted.

46        His Honour then concluded at 684:

Accordingly I take the view that, if a pensioner disposes of property, then to escape the effect of sub-sec (10) of s.6AC of the Act, he or she must receive consideration, in the sense recognized by the law of contract of an act, forbearance or promise sufficient to establish the existence of a binding contract.

47        In summary the Tribunal, in the application before it, was not satisfied by the oral evidence of the applicant, and by the weight given by the Tribunal to the declaration, that the agreement existed, and further, that any consideration was given. These findings are findings of fact. It is well settled that findings of fact by a Tribunal cannot be reviewed by this Court: see Re Minister for Immigration and Multicultural Affairs and Others; Ex parte Durairajasingham (2000) 58 ALD 609 per McHugh J at [67].

48        In this appeal there is no basis for the submission that the Tribunal made findings without evidence. As was observed by the Full Court in Collins v Minister for Immigration and Ethnic Affairs at 201:

We would, however, comment that the concepts of a decision being against the evidence and of being against the weight of the evidence belong to appeals from courts of law and have particular application to jury verdicts. Even in that context, they do not involve questions of law. They certainly have no place when the appeal, or review, is of proceedings of an administrative tribunal which is not bound by the rules of evidence and which, subject to the obligation to observe the requirements of natural justice, can inform itself as it chooses: see, s 33(1)(c) of the Administrative Appeals Tribunal Act 1975. An appellant who attacks a conclusion of the Tribunal because of deficiency of proof said to amount to error of law must show, if he is to succeed, that there was no material before the Tribunal upon which the conclusion could properly be based.

49        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.

50        For the above reasons the Court rejects the second ground of appeal.

GROUND 3: POST-CONTRACTUAL CONDUCT

51        The applicant submits that the transfer by Mrs Evans to the applicant confirms or at least supports that a binding agreement was made between the applicant and his parents.

52        There is authority for the proposition that the use of post-contractual conduct to assist in the construction of a contract ‘is not yet settled’: see County Securities Pty Limited v Challenger Group Holdings and Anor [2008] NSWCA 193 at [161]-[162]. However, at [162] the Court of Appeal recognised that it is ‘permissible to have regard to the conduct of parties, even subsequent conduct, as constituting an admission of the state of the parties’ rights …’. See also Council of the City of Sydney v Goldspar Australia Pty Ltd (ACN 002 705 991) and Another (2006) 280 ALR 437 at [164] in which Gyles J concluded as follows:

I can see no difficulty in regarding subsequent conduct as relevant to the question as to whether a term is necessary to give business efficacy to the contract. Indeed, if a contract has been performed without adhering to, or without inconsistency with, the claimed term, without complaint or commercial difficulty, that would be powerful evidence that the term is not necessary.

53        It is clear that the Tribunal did not disregard the alleged post-agreement conduct of the parties. The Tribunal considered such conduct and found that it was not determinative of the existence of the alleged agreement. Accordingly, the authorities concerning the use of post-contractual conduct to demonstrate the formation of a contract do not assist the applicant.

54        The third ground of appeal is therefore dismissed.

ORDERS

55        It follows that the appeal must be dismissed with costs.

Associate:

Dated:    27 October 2011