FEDERAL COURT OF AUSTRALIA

Sutcliffe v Secretary, Department of Social Services [2019] FCA 1534

ORDERS

THE COURT ORDERS THAT:

1.    The appeal is dismissed.

2.    The applicant pay the respondent’s costs of an incidental to the appeal which are to be taxed in default of agreement.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

ANDERSON J:

Introduction and summary

1    The applicant appeals under s 44 of the Administrative Appeals Tribunal Act 1975 (AAT Act) from a decision of the General Division of the Administrative Appeals Tribunal (Tribunal) that affirmed, ultimately, decisions of the Department of Human Services (Department) to reduce the rate of the applicant’s age pension, and subsequently cancel that pension, on the basis of assessments of the value of a property owned by the applicant in Bellambi, NSW (Bellambi Property) in addition to his principal home.

2    The applicant’s central complaint relates to the value attributed to the Bellambi Property by the Tribunal for the purposes of the assets test under the Social Security Act 1991 (Cth) (Act). The Tribunal assessed the value of the Bellambi Property by reference to an indicative valuation of the property of $625,000 as at 20 January 2017. The applicant, in contrast, contends that the Bellambi Property should be valued at $135,000, being the purchase price paid by his mother for the property in 1998, or at most $150,000.

3    The applicant’s application for an extension of time to appeal was granted by Kenny J on 16 August 2018. But, for the reasons below, his appeal must be dismissed. The value of the Bellambi Property was a finding of fact by the Tribunal. There was no error of law in the Tribunal adopting the market valuation to assess the value of the property.

Background

4    On 27 April 1998, the applicant’s mother purchased the Bellambi Property for $135,000.

5    On 4 December 2005, the Department recorded the applicant’s principal home as located in South Yarra, Victoria.

6    On 2 August 2010, the applicant was granted the age pension under the Act.

7    On 19 July 2011, the Bellambi Property was transferred to the applicant following distribution of his late mother’s estate.

8    On 28 July 2011, the applicant advised the Department that he had a 100% unencumbered interest in the Bellambi Property with an estimated value of $370,000. The applicant confirmed that he had an interest in two properties and that he did not reside at the Bellambi Property.

Department’s decisions

9    On 26 August 2016, the Department determined to reduce the applicant’s rate of age pension on the basis that the Bellambi Property had increased in value to $415,170 (rate reduction decision).

10    On 1 September 2016, the applicant requested review of the rate reduction decision.

11    On 5 December 2016, the applicant submitted that the Bellambi Property should be valued at the purchase price paid by his mother for the property—$135,000—and provided a copy of settlement figures dated 16 April 1998 in support.

12    On 20 January 2017, MVS Valuers Australia Pty Ltd (MVS), upon instruction by the Department, valued the Bellambi property at $625,000.

13    On 24 January 2017, the Department made a decision to cancel the applicant’s age pension on the basis that the value of his assets exceeded the “assets value limit” under the Act (cancellation decision).

14    On 24 January 2017, an authorised review officer of the Department affirmed the rate reduction decision and the cancellation decision (ARO Decision).

Review by Social Security and Child Support Division of the Tribunal

15    On 6 February 2017, the applicant requested review of the ARO Decision by the Social Services and Child Support Division of the Tribunal.

16    On 22 May 2017, the applicant confirmed in evidence to the Tribunal that his principal home was in South Yarra, Victoria and that, in 2011, he was left the Bellambi Property following distribution of his late mother’s estate.

17    On 22 May 2017, the Tribunal affirmed the ARO decision (First Tribunal Decision).

Review by General Division of Tribunal

18    On 27 June 2017, the applicant requested review of the First Tribunal Decision by the General Division of the Tribunal.

19    On 17 January 2018, the General Division of the Tribunal affirmed the First Tribunal Decision: Sutcliffe and Secretary, Department of Social Services [2018] AATA 382 (Tribunal’s decision). This is the decision that is the subject of the present appeal to this Court. In this decision, the Tribunal member stated her conclusion as follows:

26.     The Tribunal understood the emotional attachment Mr Sutcliffe had to his mother’s property in Bellambi but as it was not his principal place of residence, it was an asset and had to valued for determination of his age pension entitlement.

27.     The Tribunal had put to Mr Sutcliffe that whilst there is an accepted human right to shelter there was not an accepted right that an individual had access to two roofs over their head. The community would not consider Mr Sutcliffe’s need for a holiday house which he referred to as a ‘bolthole’ as a universal right. The Tribunal accept Mr Sutcliffe’s argument that he could not be forced to sell any asset to provide for his daily living expenses however the Tribunal did not accept his correlating argument that he therefore was entitled to an age pension.

28.     The Tribunal accepted the argument put by the Respondent that the rationale for the income and assets test of the Act was described in the explanatory memorandum to the Social Security and Veterans Entitlement Legislation Amendment (Private Trusts and Private Company’s Integrity of Mean Testing) Act 2000 which stated:

Social security pension and allowance payments are intended for people who, because of age, disability, unemployment, or caring responsibilities, are unable to adequately support themselves. 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 goes 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.

29.     The Tribunal took Mr Sutcliffe to his original declaration of real estate details in which he indicated the market value of the property at Bellambi was $370,000 and not the amount of $135,000/$150,000 he now asserted. Mr Sutcliffe advised the Tribunal he had given a great deal of thought and consideration to the value of private property over time and was now adamant that the only true value of a property was that enshrined in contract.

30.     The Tribunal then enquired of the value of Mr Sutcliffe’s principal place of residence in South Yarra to which he attested he had purchased it in 1970 for $40,000 and that it was currently valued at $625,000. This indicated to the Tribunal that Mr Sutcliffe had an appreciation of market value.

31.     The Tribunal did not accept any of Mr Sutcliffe’s arguments in respect of the method of valuation of property. It was simply preposterous to propose that a property had a stagnant value in time based on a sales contract. The Tribunal preferred the established case law that Mr Sutcliffe’s property at Bellambi was an asset that should be valued by an independent valuer based on the notion of market value: “that of a willing but not eager purchaser and a willing but not anxious seller would arrive at on the day in arms-length transaction”.

32.     The Tribunal afforded Mr Sutcliffe abundant time to express his argument, reference to case law and his expansive view on the Crown before it made its oral determination that the original decision be affirmed.

Application to this Court

20    On 21 February 2018, the applicant filed in this Court an application for an extension of time to commence an appeal from the Tribunal’s decision. Justice Kenny granted the extension of time on 16 August 2018.

21    The Court was provided by the applicant with a Draft notice of appeal, which set out 11 lengthy questions of law and five findings of fact through which the applicant channelled his challenge of the Tribunal’s decision. The two “grounds relied on” in the draft notice of appeal were as follows:

1.    The decisions by AAT members have supported government policy of the day and have ignored the proper protections of the common people that are provided by the law.

2.    Decisions that ignore the law in all of its aspects are invalid, in fact illegal. The law must be respected in all matters. No one is above the law. The government is not above the law.

22    The written submissions of the applicant confirm that the central complaint by the applicant in respect of the decisions under appeal was the value attributed to the Bellambi Property by the Tribunal. His written submissions in this respect including the following passages:

Some might argue that the sale of other land between other parties at another place and another time can be used as evidence of the current market value of any particular property, for example, my house at Bellambi. This argument is logically perverse and irrational. Market value is a theoretical idealisation of the operation of a fair market where there may be a theoretical balance between supply and demand, ceteris parebis (all other things holding even). But there in practice will never be found a real population and aggregate in which all other things are even; all other things are never even in a live human society. And in an economic environment of galloping inflation, with a house value said to be increasing from 350,000 to 625,000 over the interval between August and January due to sales of completely different properties, ceteris parebis fails. Or even merely increasing from 135,000 in 1998 to 625,000 in 2017. The inflating economy destroys all pretense of fair comparison. The only reliable evidence of true value is the contract sale event. This is why real property is called a hedge against inflation, its real value cannot be plundered and wasted by a swindler’s sophisticated arguments. If a gain or loss is made in real value over time it will become realised if or when the property is subsequently sold. Gain over time is usually discounted for inflation; inflation does not increase or contribute to real value in any way and neither does it contribute to assessable taxable income. This is affirmed by the Income Tax Assessment Act 1997 Section 114 Indexation of costs base etc. Neither can inflation magically magnify or assist a pensioner’s capacity to support himself or herself in any way. Neither does it increase anyone’s wealth or real asset worth. Only a swindler will asset that it does.

…

My property is not for sale. It is not in any property market. It is not a marketable commodity. The title in fee simply means the property is out of every market unless I seek to sell it in such a market. … The government never has any rights over property owned by others. The government is an incorporated person, and it must abide by the law the same as every natural person who is a citizen or who otherwise has the protection of the Crown and the Crown law. The last occasion on which my property was valued in a market was in 1998; the value is established and fixed by evidence as $135,000. Since then there was an improvement, the cost of which was about $11,000. I claim the value of the property is no more than $150,000.

…

If the value of the house has changed in a numerical sense, it is not due to inherent value, the house is basically the same. What has happened is that there has been such a dreadful decrease in the value of the Australian dollar that many more dollars of lesser worth are required to buy the same house than were required before. This is called inflation. Inflation does not ever add any value to anything. If the government is claiming that inflation is increasing the value of a house, the government is lying. Inflation price increase is not an increase in demand. Demand means the people who are seeking to buy a residence for their own residential use are numerous. But unless people have the actual financial means to make a purchase, then they are not in the market, and these cannot affect demand.

…

The second AAT decision [i.e. the decision now under appeal] likewise ignore all common consideration of the common law of contract and property, and the effect of inflation in invaliding property values as indicators of the real value of my own private property.

…

The equitable purpose of the Social Security Act is to assist the maintenance of a pensioner’s income, not to rob him or his property and pension entitlement. Equity outlaws the government’s actions to reduce and cancel my age pension. A current market cannot include properties not in the market. A current property market that includes mostly forced property sales to property investors-for-profit is not a fair market. The fair market value recorded for my own property at Bellambi, New South Wales if the price that was paid for it when my mother purchased it in 1998.

23    Apparently referring to the authorities cited in the Secretary’s written submissions, the applicant’s written submissions also expressed the following:

The cases generally cited are not suitable for general valuations of properties because the circumstances are entirely different, and hence the idea of any relevant precedent is invalid. It is all the more so invalid in the present case of a Centrelink Age pension, due to the very different circumstances of the cases.

24    The Secretary, through oral and written submissions, submitted that there was no error of law in the approach adopted by the Tribunal.

Role of this Court

25    The applicant also made various submissions in relation to matters beyond the valuation of the Bellambi Property. Before considering matters pertaining to the valuation of the property, it is useful to outline the role of this Court upon hearing an appeal from the Tribunal under s 44 of the AAT Act, and also to briefly comment on some particular submissions advanced by the applicant.

26    Section 44 of the AAT Act provides that an applicant may appeal to the Federal Court “on a question of law, from any decision of the Tribunal”. Thus, “the ambit of the appeal is confined to a question or questions of law” (Haritos v Federal Commissioner of Taxation [2015] FCAFC 92; 233 FCR 315 (Haritos) at [62]), which may include review for legally erroneous fact finding: ibid at [192].

27    It is definitively impermissible, however, for this Court to determine or express a preference on what may broadly be characterised as questions of policy. The applicant’s appeal strayed into this territory. For instance, the applicant expressed at the hearing that he had paid all the necessary taxes to the Government during his lifetime and that this should be sufficient for him to receive the age pension (ostensibly irrespective of the value of his personal assets). It is moreover evident from the applicant’s written submissions that he viewed the consequence (and, indeed, the intention) of the policy effected by the terms of the Act as forcing him to divest his title to the Bellambi Property.

28    The role of this Court upon hearing an appeal under s 44 of the AAT Act is not to critique the policies underpinning the mechanisms for means testing under the Act, and the practical consequences of those polices. The applicant’s dissatisfaction with legislative scheme, and the policy that underpins it, is a matter of political taste, not legality. It is a concern to take up with the Commonwealth Parliament and its representatives, not this Court.

29    The question for the Court upon hearing an appeal under s 44 of the AAT Act is whether the Tribunal committed an error of law. One of the functions of this inquiry is to ensure that the Tribunal remains within the bounds of its statutory jurisdiction: Haritos at [202]. But it will also include review for any non-jurisdictional error of law: Allan v Transurban City Link Ltd [2001] HCA 58; 208 CLR 167 at [11] per Gleeson CJ, Gaudron, Gummow, Hayne and Callinan JJ. To this extent, I accept the submission of the applicant that the Government is not immune from being brought to account for wrongdoing. The function of s 44 of the AAT is “to ensure that the Tribunal acts lawfully and with authority”: Haritos at [202].

30    To a large extent, the applicant’s written submissions complained about administrative processes and decisions prior to the Tribunal’s decision. Those complaints, having regard to s 3(3) of the AAT Act, are not in relation to “decisions” upon which an appeal under s 44 of the AAT Act arises: see, for example, Geographical Indications Committee v The Honourable Justice O’Connor [2000] FCA 1877; 32 AAR 169; 64 ALD 325 at [19] per von Doussa, O’Loughlin and Mansfield JJ.

31    The applicant’s written submissions were in substance focussed on one aspect of the Tribunal’s decision: whether the Tribunal fell into error in assessing the value of the Bellambi Property for the purposes of the assets test under the Act.

Valuation of the Bellambi Property

Relevant legislation

32    The relevant provisions of the Act were extracted in the Tribunal’s decision at [17]-[19]. Pursuant to these provisions, an entitlement to the age pension is not unqualified. It suffices for current purposes to summarise that an “assets test” influences the rate at which the age pension is payable and, ultimately, the availability of that pension. The assets test is one mechanism enforcing the policy embodied within the Act that, depending on personal and financial circumstances, some people are to be entitled to the age pension, and some people are not. This policy was explained in the explanatory memorandum to the Social Security and Veterans’ Entitlements Legislation Amendment (Private Trusts and Private Companies – Integrity of Means Testing) Act 2000 (Cth) as follows:

Social security pension and allowance payments are intended for people who, because of age, disability, unemployment, or caring responsibilities, are unable to adequately support themselves. 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.

33    The application of the assets test is set out in “Module G” under s 1064 of the Act. The test requires, amongst other steps, the identification of “the value of the person’s assets”: s 1064-G1, Step 1. Although certain assets to be disregarded in calculating the value of a person’s assets (s 1118), the Act does not define how to obtain the “value” of an asset.

Method of obtaining value

34    To arrive at its factual finding in respect of the value of the Bellambi Property, the Tribunal considered the applicant’s submissions and specifically noted the applicant’s contention that “the value of property could not be derived by any other means than a contract of sale”. However, the applicant did not identify any case law to support his contention that the value of an asset, such as real property, should remain static from date of purchase for the purposes of the assets test. The Secretary’s written submissions expressed that she was not aware of any case law which supports this proposition and contended that the proposition was incorrect at law.

35    The valuation of a property for the purposes of an entitlement to social security payments was in issue in Kirkovski v Secretary, Department of Family and Community Services [2004] FCA 790 (Kirkovski). In that case, Mr Kirkovski disputed the cancellation of his Newstart Allowance due to the valuation of his property. Bennett J expressed the following at [17]:

Under the Social Security Act 1991 (Cth) there is no statutory provision specifying any method for the valuation of assets. The test which seems to have been applied by the AAT in a majority of cases is a net market value approach based on comparable sales and the ‘best use’ to which the asset could be put (see Fong and Secretary Department of Family and Community Services [2002] AAT 172; Re Emberts and Repatriation Commission (1988) 16 ALD 19). Following the same approach, the AAT accepted Mr Dyson's valuation and made a finding that the value of the property was $220,000. This was a finding of fact and was open to the AAT on the evidence before it. On the basis of this finding of fact, the AAT affirmed the decision to cancel the applicant's Newstart Allowance because the value of the applicant's combined assets was above the allowable asset limit.

36    The approach in Kirkovski was applied in Cummins and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs [2011] AATA 513 (Cummins), where the Tribunal stated the following:

23.     The Act does not specify how assets are to be valued for the assets test. Over the years, however, the Tribunal and the courts have established authority for the valuation of real estate through determining a market value based on comparable sales and the best use of the property. That approach has been widely followed in the Tribunal and was accepted by the Federal Court in Kirkovski v Secretary, Department of Family and Community Services [2004] FCA 790. The market value of a property was addressed by the High Court in Spencer v Commonwealth [1907] HCA 82; (1907) 5 CLR 418. Griffith CJ (at 432) put it as follows:

In my judgment the test of value of land is to be determined, not by inquiring what price a man desiring to sell could actually have obtained for it on a given day, ie whether there was on that day a willing buyer, but by inquiring ‘What would a man desiring to buy the land have had to pay for it on that day to a vendor willing to sell it for a fair price but not desirous to sell?’

24.     That approach - that the market value is the price a willing, but not eager, purchaser and a willing, but not anxious, seller would arrive at on the day in an arms-length transaction, with both sides informed and the property appropriately marketed - has been followed since.

37    The applicant contended in his written submissions that the “test of value of land” put forward by Griffith CJ in Spencer v Commonwealth [1907] HCA 82; 5 CLR 418 (Spencer), as referred to above in Cummins, was not applicable because that case concerned the compulsory acquisition of property and should be distinguished from the present case. However, the remarks of Griffith CJ were directed at the valuation of land generally and should not be confined to cases involving compulsory acquisitions. The principle is applicable to this case.

38    The Secretary noted in this Court that the use of the market valuation for assessing the value of the Bellambi Property for the purposes of the assets test under the Act was consistent with the Department’s Social Security Guide (Guide). In particular, instruction 4.6.6.10 of the Guide states the following:

Assets are generally assessed at their net market value ... The net market value is the amount a person would expect to receive if they sold the asset on the open market, less any valid debts or encumbrances ...

39    Ostensibly drawing from the decision of Williams J in Abrahams v Federal Commissioner of Taxation [1944] HCA 32; 70 CLR 23 at 29, instruction 1.1.M.40 of the Guide defines “market value” as follows:

The market value is the point at which a willing purchaser and a willing, but NOT anxious vendor, would reach agreement.

40    Previous decisions of the Tribunal have applied these instructions to value assets: see, for example, Re Phung Phi Nguyen and Secretary, Department of Employment and Workplace Relations [2006] AATA 1106 at [120]; Re Tey and Secretary, Dept of Education, Employment and Workplace Relations [2011] AATA 773 at [41]-[43].

41    The Guide is currently available to the public on the Department’s website at guides.dss.gov.au. That webpage expresses the following:

The Guides to Social Policy Law is a collection of publications designed to assist decision makers administering social policy law. The purpose of each Guide is to support decision making by assisting in understanding the related law and policy, and its application. Decision makers must base their decisions on the relevant law, with regard to the Australian Government's policy and intent.

42    In Re Drake v Minister for Immigration and Ethnic Affairs (No 2) [1979] AATA 179; 2 ALD 634 (Drake (No 2)), a decision of Brennan J sitting as president of the Tribunal, his Honour expressed at 644-645 that, although government policy is not binding on the Tribunal, it will ordinarily be followed unless the policy is unlawful or there is an otherwise cogent reason not to do so. This principle was recently applied in respect of the Guide by the Tribunal in Meyers and Secretary, Dept of Social Services (Social Services Second Review) [2019] AATA 788 at [25].

43    Although the lawfulness of the Guide was not directly immediately in question in this case, my view is that these aspects of the Guide are, to adopt the words of Brennan J at 641 of Drake (No 2), an “appropriate policy which guides but does not control the making of decisions, a policy which is informative of the standards and values which the [Department] usually applies”. For recent consideration of the lawfulness of executive policies, see Minister for Home Affairs v G [2019] FCAFC 79; 367 ALR 49; 164 ALD 103 per Murphy, Moshinsky and O’Callaghan JJ.

44    Returning to the Tribunal’s decision, the applicant criticised the adoption of the market valuation as reliance on a hypothetical assessment. That is of course correct. The indicative valuation by MVS was a product of theory, albeit directed by experience and, according to the report produced by MVS, comparisons with previous sales in the area. But the characterisation of the valuation of a property as hypothetical does not assist the applicant. For instance, in Spencer, Griffith CJ accepted at 432 that the question of determining the value of land was “no doubt, very difficult to answer” and that “any answer must be to some extent conjectural”. His Honour continued to explain that “[t]he necessary mental process is to put yourself as far as possible in the position of persons conversant with the subject at the relevant time, and from that point of view to ascertain what, according to the then current opinion of land values, a purchaser would have had to offer for the land …” (emphasis added). In other words, in the absence of a contract of sale in a competitive market on or immediately around the date of valuation, an assessment of the value of land will always be hypothetical to some degree.

45    The applicant also made reference in his submissions to the Tribunal not adhering to the common law of contract and property. A few points in response are necessary. First, as a starting point, the relevant task of the Tribunal was to apply the terms of the Act, not directly to apply common law doctrine. The principles known to the common law of contract and property may inform the application of those statutory terms where relevant, but the terms of the Act are paramount. In this case, the Tribunal was required to attribute a “value” to the Bellambi Property. It was appropriate in these circumstances for the Tribunal to refer to the “common law”, in the sense of referring to pertinent judicial decisions in accordance with established curial method. The Tribunal did so by quoting Cummins, which in turn referred to Kirkovski and Spencer. But the Tribunal was only entitled to refer to the “common law” in order to determine the meaning of, and apply, the relevant statutory concepts.

46    Second, the applicant evidently perceived his appeal to the Tribunal, and then to this Court, as the manifestation of his entitlement under the common law of property, as he saw it, to defend any claim against that property. The result of the Tribunal adopting the MVP valuation as the proper basis on which to value the property was, in the words of the applicant, a “wrongful advantage from my property ownership”. However, the actions of the Tribunal, in performing its statutory function by applying the terms of the Act, did not infringe the applicant’s proprietary rights in respect of the Bellambi Property. The Tribunal’s decision did not “override the authority and power of an entitled owner”, as submitted by the applicant. The Tribunal’s decision did not disturb the applicant’s title to, or use of, the property.

47    The value of Bellambi Property was a finding of fact. Having considered the authorities outlined above, and the contents of the Guide, my view is that it was open to the Tribunal to favour the market value of the property rather than its purchase price. The Tribunal, making its decision as at 17 January 2018, had before it an independent and certified market valuation dated 20 January 2017 in the amount of $625,000. It was open to Tribunal to accept that value over the purchase price of $135,000 on 27 April 1998, or the alternative value of $150,000 advanced by the applicant. Indeed, to do so was consistent with lawful executive policy.

48    For these reasons, there was no error of law in the approach and reasoning of the Tribunal.

Conclusion

49    The appeal will be dismissed. The applicant will pay the respondent’s costs which are to be taxed in default of agreement.

Associate:

Dated:        25 September 2019