Federal Court of Australia

Secretary, Department of Social Services v FNPQ [2024] FCA 1428

ORDERS

THE COURT ORDERS THAT:

1.    The third respondent be removed as a party to the appeal.

2.    The appeal be allowed.

3.    Within 28 days from the date of these orders, the parties confer and, if possible, agree upon a form of orders that gives effect to the court’s reasons herein.

4.    In the event that such an agreement is reached, the appellant is thereafter to submit the agreed minute of orders to the chambers of Justice Snaden, whereupon further orders substantially consistent with what is agreed may be made in chambers.

5.    In the event that no such agreement is reached, the parties are thereafter to submit to the chambers of Justice Snaden competing minutes of the orders that each proposes to give effect to the court’s reasons herein, whereupon the matter is to be scheduled for further hearing limited to that issue.

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

REASONS FOR JUDGMENT

SNADEN J:

1    The first and second respondents are a married couple. Prior to June 2021, they received periodic welfare payments in the form of what the Social Security Act 1991 (Cth) (the “SS Act”) refers to as the age pension. On 16 June 2021, those entitlements were cancelled. That was brought about in consequence of some lump sum payments that had been made to the first respondent by her former employer, apparently as a result of an audit that revealed that it had underpaid her between 7 May 2013 and 30 April 2019. In total, she received $184,909.71, which was paid to her in three tranches as follows, namely:

(1)    $8,166.56 on 12 February 2021 (referable to the period between 1 July 2018 and 30 April 2019);

(2)    $106,191.10 on 1 April 2021 (referable to the period 1 July 2015 to 30 June 2018); and

(3)    $70,552.05 on 29 April 2021 (referable to the period 7 May 2013 to 30 June 2015).

2    Properly, the first respondent disclosed her receipt of those sums (hereafter, the “Back-pay Amounts”). As age pension entitlements for couples are at least partly dependent upon combined incomes, her and her husband’s entitlement to receive the age pension was then reviewed, following which their collective entitlement was reduced to nil. That situation maintained for 12 weeks. On 16 June 2021, the appellant (the “Secretary”) made a decision to cancel their age pension entitlement altogether. The reduction and, ultimately, cancellation of that entitlement was said to be a product of the operation of s 1073A of the SS Act (to the terms of which attention will shortly redirect).

3    Two days later (on 18 June 2021), the first and second respondents (to whom, for reasons that will shortly become apparent, I shall collectively refer as the “respondents”) made a fresh application to receive the age pension (the “Age Pension Application”). Initially (indeed twice), the agency responsible for administering the age pension (Centrelink) rejected that application on the same basis as that upon which the respondents’ prior entitlement had been reduced and cancelled: namely, because s 1073A had the effect of deeming the Back-pay Amounts as though payable at and from the time that they were received (rather than in respect of periods dating back several years); which, in turn, had the effect of raising the respondents’ income above the level in respect of which the age pension was payable.

4    That determination (the “Rejection Decision”) did not sit well with the respondents, who promptly asked the third respondent (the “AAT”) to review it. The AAT’s Social Services and Child Support Division did so and, by a decision dated 26 May 2022, determined that the Rejection Decision should be set aside and that the respondents’ Age Pension Application should be reassessed on the basis that their income did not incorporate the Back-pay Amounts.

5    The Secretary then applied to the AAT’s General Division for a review of the Social Services and Child Support Division’s decision (the “Review Application”). On 24 January 2023, the General Division decided (relevantly) to affirm it (the “AAT Decision”). Specifically, the AAT reasoned that s 1073A of the SS Act did not operate so as to deem the Back-pay Amounts as income for the purposes of the Age Pension Application. It remitted that application to the Secretary for determination consistent with that conclusion.

6    By a notice dated 21 February 2023, the Secretary now appeals to this court under what was, until recently, s 44 of the Administrative Appeals Tribunal Act 1975 (Cth). He asks the court to set aside the AAT Decision and remit the Review Application for determination according to law.

7    For the reasons that follow, that relief will be granted. The General Division of the AAT (like the Social Services and Child Support Division before it) erred in law insofar as it concluded that s 1073A of the SS Act did not operate so as to regard the Back-pay Amounts as income for the purposes of the respondents’ Age Pension Application. In fact, that is how the provision operated and the Review Application should be considered afresh on that basis.

8    Before addressing the point of central concern, mention should be made of the AAT’s status as the third respondent to this appeal. That reflects an error on the part of the Secretary. The AAT ought not to be party to the present appeal and, as is customary, has taken no part in it (indeed, so far as I am aware, has not been served with any relevant material). At the hearing of the appeal, senior counsel for the Secretary accepted as much and, with the respondents’ concurrence, I indicated that an order would be made removing the AAT as a party.

The statutory framework

9    Various provisions of the SS Act bear upon the amount of age pension that is or might be payable to an age pension applicant. For the most part, they appear in ch 3 of the SS Act, which is entitled, “General provisions relating to payability and rates”. Of significance to the present matter are ss 1064 and 1073A.

10    Section 1064 provides for the manner in which (amongst other things) age pension rates are to be calculated. The provision is complex; but most of it has no bearing on this matter. For present purposes, it suffices to note that it contemplates the calculation of age pension entitlements “…in accordance with the Rate Calculator [that is described] at the end of [the] section”.

11    That “Rate Calculator” is described, by a heading that appears immediately after the operative subsections of s 1064, as “Pension Rate Calculator A”. Below that heading appears (amongst other things) the following, namely (emphases original):

Module A—Overall rate calculation process

    Method of calculating rate

1064-A1    The rate of pension is a daily rate. That rate is worked out by dividing the annual rate calculated according to this Rate Calculator by 364 (fortnightly rates are provided for information only).

Method statement

Step 1.    Work out the person’s maximum basic rate using MODULE B below.

Step 1A.    Work out the amount of pension supplement using Module BA below.

Step 1B.    Work out the energy supplement (if any) using Module C below.

Step 3.    Work out the amount per year (if any) for rent assistance in accordance with paragraph 1070A(b).

Step 4.    Add up the amounts obtained in Steps 1, 1A, 1B and 3: the result is called the maximum payment rate.

Step 5.    Apply the ordinary income test using MODULE E below to work out the income reduction.

    Note:    Module F contains provisions that may apply to working out the ordinary income of a person, and the ordinary income of a partner of the person, for the purposes of disability support pension.

Step 8.    Take the income reduction away from the maximum payment rate: the result is called the income reduced rate.

…

…

12    There then follow a series of “modules” (“B” through “H”), each of which is identifiable by a heading. “Module E” assumes significance for present purposes. It identifies (amongst other things) the ways in which an age pension applicant’s income bears upon the calculation of his or her age pension entitlement. Again, the provision is complex; and, again, most (indeed, almost all) of it is of no moment in this appeal. It will suffice to note that it contemplates, as one might expect, that the rate of age pension payable to an applicant will vary depending upon (and in inverse proportion to) his or her “ordinary income”. That is the (perhaps over-simplified) effect of s 1064-E1 (which is within “Module E” of “Pension Rate Calculator A”).

13    Part 3.10 of the SS Act is entitled “General provisions relating to the ordinary income test”. At least insofar as concerns a person who applies for a benefit for which the SS Act makes provision, the part contains various sections that bear in various ways upon the calculation of his or her “ordinary income”, an important component of which is the income that one might earn through employment. Division 1AA of pt 3.10 is entitled “Employment income attribution rules”. It is within that division that s 1073A resides.

14    The sole issue upon which the present appeal turns concerns the proper construction of s 1073A of the SS Act. It provides (and relevantly provided) as follows, namely:

1073A    Attribution of employment income paid in respect of a particular period or periods

(1)    This section applies if:

(a)    a person is receiving a social security pension or a social security benefit; and

(b)    the person’s rate of payment of the pension or benefit is worked out with regard to the income test module of a rate calculator in this Chapter; and

(c)    one or more amounts of employment income, each of which is in respect of a particular period or periods (each period is an employment period), are paid in an instalment period of the person to or for the benefit of the person by the same employer.

Note 1:    If the person has multiple employers, this section applies separately in relation to each employer.

Note 2:    If a person is receiving a social security pension and is paid employment income monthly, section 1073B may apply to that income instead of this section.

Note 3:    Section 1073BA deals with the payment of employment income that is not in respect of a particular period.

(2)    The person is taken to have received the employment income over a period (the assessment period) that consists of the number of days that is equal to the sum of the number of days in each employment period, where the assessment period begins on the first day of the instalment period in which the amounts of employment income are paid.

Example:    On 3 June a person is paid $756 employment income for work the person performed in the period beginning on 9 May and ending at the end of 29 May. The number of days in the employment period is 21.

    Assume the instalment period begins on 1 June. The person is taken to have received the $756 over the period beginning on 1 June and ending at the end of 21 June (a period of 21 days).

(3)    Subject to subsection (4), for each day in the assessment period, the person is taken to have received an amount of employment income worked out by dividing the total amount of the employment income covered by paragraph (1)(c) by the number of days in the assessment period.

Example:    To continue the example in subsection (2), the person is taken to have received $36 ($756/21) on each of the days in the period beginning on 1 June and ending at the end of 21 June.

(4)    If the person is taken, under subsection (3), to have received employment income (the attributed employment income) during a part, but not the whole, of a particular instalment period, the person is taken to receive on each day in that instalment period an amount of employment income worked out by dividing the total amount of the attributed employment income by the number of days in the instalment period.

Example:    To continue the example in subsection (2), for the instalment period beginning on 15 June and ending at the end of 28 June the person is taken, under subsection (3), to have received employment income during a part of that instalment period (15 June to 21 June). The person is taken to have received $252 ($36 x 7).

    Under subsection (4), the person is taken to receive on each day in that instalment period an amount of employment income of $18 ($252/14).

    Interpretation

(5)    This section applies in relation to an amount of employment income paid on a day in an instalment period, whether or not the amount is received on that day.

(6)    In applying subsection (2) in relation to one or more amounts of employment income paid by a particular employer in an instalment period, in working out the sum of the number of days in each employment period, if a day in an employment period overlaps with a day in another employment period, that day must only be counted once.

The AAT Decision

15    The AAT decision—like the decision of the Social Services and Child Support Division before it—concerned both the Rejection Decision and the earlier decision to cancel the respondents’ previous entitlement to the age pension. It is to be recalled that that cancellation came about by reason of the first respondent’s receipt of the Back-pay Amounts and by the operation thereto of s 1073A of the SS Act.

16    At every stage that it was raised, the decision to cancel the respondents’ previous entitlement was affirmed and, in this court, no challenge is mounted to those affirmations. At issue presently is the AAT’s decision to require (or effectively require) that the respondents’ Age Pension Application be determined in a way that does not treat the Back-pay Amounts as though income of the first respondent.

17    In coming to its decision, the AAT considered that s 1073A of the SS Act had no operation upon the respondents’ Age Pension Application. En route to that conclusion, it reasoned as follows (AAT Decision, [50]-[55]):

The method statement for s 1064 of the [SS Act] is provided in s 1064-A1[.] Step 5 of this process is to work out a person’s ordinary income using Module E. Step 1 of s 1064-E1 requires the decision maker to work out the ordinary income of the person on an annual basis. Section 1073A of the [SS Act] then informs how ordinary income is calculated. Section 1073A(1)(a) of the [SS Act] specifies that it only applies if the person is receiving a social security pension or social security benefit.

When a new claim is lodged, it must be determined at that point in time whether the payment claimed is payable to the person. To determine if an age pension is payable, a determination must be made at the time the claim is lodged (or is deemed to be lodged) about whether the rate is greater than nil. Section 55 of the [SS Act] requires the rate to [be] calculated by reference to s 1064E of the [SS Act]. Section 1064E of the [SS Act] requires a calculation of the person’s ordinary income. A person’s ordinary income at that point in time is determined in part by the operation of s 1073A of the [SS Act].

The legislative pathway in determining a claim requires the steps to be taken in this order unless there is a provision that specifies otherwise.

Section 1064 of the [SS Act] appears in Chapter 3 of the [SS Act] “General provisions relating to payability and rates”. The Chapter commences with the steps in a rate calculation at s 1062E of the [SS Act] before going on to the rate calculators in Part 3.2. Section 1073A of the [SS Act] appears in the later Part 3.10 “General provisions relating to the ordinary income test”. The sequence of the legislation shows that in context, the rate calculator in s 1064 of the [SS Act] is to be applied before looking to later definitions about how ordinary income is calculated.

In context, and promoting the unity of all the statutory provisions, s 1073A of the [SS Act] is accessed from Step 1 in s 1064-E1 of the [SS Act]. The submission of the Secretary that primacy cannot be given to s 1064 of the [SS Act] is rejected as the legislative pathway requires an assessment of the rate to determine if a payment should be granted, and in this case s 55 of the [SS Act] requires the application of s 1064 before the application of s 1073A.

This legislative pathway requires a rate to be determined at the point in time a new claim is made in determining if the claim should be granted or rejected.

18    Later, the AAT posed for consideration whether, insofar as concerned an application for an age pension, an age pension rate could be calculated by reference to income that was received at points pre-dating the application. The AAT was drawn to conclude that “…working out a person’s ordinary income…involves a prospective approach, and not the retrospective approach required to account for income received in the past.” The AAT continued (AAT Decision, [70]):

…Step 1 in s 1064-E1 requires that at the time the rate is calculated this calls for a consideration of the person’s ordinary income on a yearly basis for income anticipated to be received in the coming year. Unless income received in the past is an indication of income that will be received in the future, past income does not assist in determining the person’s ordinary income on a yearly basis.

19    The AAT then moved to consider “[t]he deeming argument” and the “statutory fiction” established by s 1073A(2) of the SS Act, namely that, in defined circumstances, employment income is to be taken as being paid in respect of periods other than those in respect of which it was actually paid. The AAT reasoned (AAT Decision, [75]):

While s 1073A creates a statutory fiction regarding the period in which employment income is taken to be received, it operates in the context of s 1073A(1) of the [SS Act] which states it applies if a person is receiving a social security pension or social security benefit.

20    Ultimately, the AAT reached the following conclusion (AAT Decision, [84]):

Section 1073A of the [SS Act] applies if the person receives employment income while he or she is receiving a social security pension or a social security benefit. It does not apply if the person has received employment income in the past and has made a new claim for a social security payment.

21    It is that conclusion at which, by this appeal, the Secretary takes aim. Whether or not it is correct is the central question upon which the court is called to answer.

The proper construction of s 1073A

22    The Secretary maintains that s 1073A(2) is temporally agnostic. He maintains that it applies if the three prerequisites listed in sub-s (1) are satisfied. Insofar as they are (in the case of any given person), the Secretary submits that it is sub-s (2) that applies to effect the deeming process to which the section is directed. That subsection makes no reference to any point or points in time in respect of which that process should or should not apply.

23    Insofar as it reasoned otherwise, the Secretary submits, the AAT wrongly construed the provisions upon which the Age Pension Application turned; and that error was an error of law that this court ought to correct on appeal by granting the relief for which he moves.

24    The respondents maintain that the AAT’s construction of s 1073A and its interaction with the rest of the SS Act (particularly s 1064 and “Pension Rate Calculator A” for which it provides) was correct. They submit that, by its terms, the provision applies only in respect of people who are in receipt of a social security pension or a social security benefit; and that, at the time that they made their Age Pension Application, they were not in that category.

25    In support of that central contention, the respondents were concerned to impress upon the court that the SS Act is “beneficial legislation”; and, applying the ratio of authorities such as IW v City of Perth (1997) 191 CLR 1, ought to be construed in a way that is consistent with maximising access to the kinds of benefit for which they applied.

26    Both sides sought to attribute to the opposing construction outcomes that were described as absurd or unjust. The Secretary, for example, noted that the effect of the AAT Decision is that pension recipients whose entitlements are cancelled following the application of s 1073A of the SS Act are able to escape that consequence by simply (and, if they’re so minded, immediately) lodging a fresh application.

27    The respondents countered by noting that, on the construction that the Secretary prefers, they would have to forego what they would otherwise have been entitled to receive had they simply not been receiving pensions at the time that the Back-pay Amounts were paid. Their exclusion from receipt of nine months’ worth of age pension would, they said, occasion a significant injustice.

28    The court’s task presently is to determine whether the AAT Decision accords with what s 1073A of the SS Act envisages upon its proper construction. Doing so involves reading the terms of the statute in a way that is consistent with how the legislature should be presumed to have intended that they would apply: Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355, 381-2 [69]-[70] (McHugh, Gummow, Kirby and Hayne JJ). Recently, in Qube Ports Pty Ltd v Construction, Forestry and Maritime Employees Union [2024] FCAFC 132, [72]-[73] (Rangiah, Wheelahan and Snaden JJ), that familiar task of statutory construction was described as follows:

72    The modern approach to statutory construction acknowledges that the task involves ascertaining the legal meaning of a provision by reference to “its text, while at the same time regard is … had to its context and purpose”: ENT19 v Minister for Home Affairs [2023] HCA 18; 410 ALR 1 at [86] (Gordon, Edelman, Steward and Gleeson JJ). And, as the High Court has stated, that legal meaning will “[o]rdinarily … correspond with the grammatical meaning of the provision” in question –

[b]ut not always. The context of the words, the consequences of a literal or grammatical construction, the purpose of the statute or the canons of construction may require the words of a legislative provision to be read in a way that does not correspond with the literal or grammatical meaning.

    Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28; 194 CLR 355 at [78] (McHugh, Gummow, Kirby and Hayne JJ).

73    Just as the task of construction requires more than sitting with the words of the Act in one hand and a dictionary in the other, so it requires more than matching up statutory text against pronouncements made in books on grammar or English usage: see Cunard SS Co Ltd v Mellon (1922) 284 F 890 at 894 (Judge Learned Hand), cited in Weiss v The Queen [2005] HCA 81; 224 CLR 300 at [10] (Gleeson CJ, Gummow, Kirby, Hayne, Callinan and Heydon JJ), Re Refugee Tribunal; Ex parte Aala [2000] HCA 57; 204 CLR 82 at [25] (Gaudron and Gummow JJ), and APLA Ltd v Legal Services Commissioner (NSW) [2005] HCA 44; 224 CLR 322 at [423] (Hayne J).

29    Where a statutory provision admits of more than one construction, the court must prefer the one that aligns best with the statute’s purpose or object: Acts Interpretation Act 1901 (Cth), s 15AA. Similarly, constructions that avoid results that might fairly be described as irrational or unjust are to be preferred over ones that do not: Legal Services Board v Gillespie-Jones (2013) 249 CLR 493, 509 [48] (French CJ, Hayne, Crennan and Kiefel JJ).

30    Presently, there is little about the objects or purposes of the SS Act that is uncertain. It exists to establish a social security system within which identified classes of people can qualify for periodic, taxpayer-funded welfare payments, including in the form of the age pension. The statute erects various criteria that govern the circumstances in (and the extent to) which a person might so qualify; and amongst them are the income thresholds that bear upon if or to what extent an age pension might be payable to any given applicant.

31    The purpose that underlies s 1073A of the SS Act is similarly apparent. It serves, in certain circumstances, to deem the times at (or the periods over) which employment income is taken to have been received. Its obvious purpose is to ensure that the receipt of employment income is brought to bear upon the amounts to which recipients of a social security pension or a social security benefit are entitled; and that that occurs regardless of how far it is beyond the period in respect of which they are payable that the amounts are, in fact, paid.

32    I accept that the construction of s 1073A of the SS Act that the Secretary advances is correct. It is consistent with the terms in which the provision is framed and their context within the broader scheme of the SS Act. The deeming function (or process of “attribution”, as the respondents were careful to describe it) to which the section is directed is a function of s 1073A(2). It deems employment income that is received by certain pension recipients to be referrable to periods other than those in respect of which they were actually paid. It operates with that effect if the conditions listed in s 1073A(1) are satisfied; in other words, from the point that a person who is receiving (relevantly) an age pension receives employment income. Employment income so received is deemed to have been received in the way that sub-s (2) provides. The section does not identify any point or points in time to which that artificial deeming process is limited.

33    Insofar as concerns a pension application that is made later in time (that is to say, after employment income is received in the circumstances that s 1073A(1) of the SS Act contemplates), there is no reason to read s 1073A(2) as ceasing to apply or applying with modified effect. That is not what s 1073A says; and nor is it consistent with the apparent object of the provision or its place within the broader statutory context. To construe the provision as the AAT construed it is to permit—precisely as has occurred here—the all-but-immediate circumvention of the very consequences that the provision is plainly intended to accommodate (including, as in this case, the processes pursuant to which the respondents’ prior age pension entitlement was reduced to nil and, ultimately, cancelled). Such a construction would mean (as it has in this matter so far) that a cancellation brought about by reason of a recipient’s deemed receipt of employment income could be immediately set at naught simply by the making of a fresh pension application.

34    That is an absurd outcome that the legislature cannot reasonably be presumed to have intended.

35    There is further reason to reject it. Before me, it was accepted that s 1073A did not mandate the cancellation of—or, by its application, lead to a circumstance in which there was no option other than to cancel—the respondents’ existing age pension entitlement. An alternative option was, I was told, for the Secretary to suspend it pursuant to s 80 of the Social Security (Administration) Act 1999 (Cth). Had that occurred, there could be no suggestion that the suspension did not properly foreclose upon the respondents’ receiving their age pension for the full 12-month “assessment period” that s 1073A of the SS Act established in respect of the Back-pay Amounts. That would be so because (as I should hope is already apparent) there was no question that those amounts were sufficient to take the respondents beyond the income threshold at which age pension entitlements are reduced to nil.

36    It is the case, as the respondents were at pains to point out, that, had they not been in receipt of the age pension at the point that the Back-pay Amounts were received, there would be no question that their Age Pension Application should proceed as the AAT has determined. In that universe, s 1073A would have no application, there would be no deeming as to when the Back-pay Amounts were received and those amounts would not qualify as employment income upon which the outcome of the application might turn. Thus, a couple that had received the same Back-pay Amounts at the same time as the respondents (or the first respondent)—and that applied at the same time as they did for the same pension entitlement in circumstances that were otherwise identical—would, nonetheless, be treated to a different outcome.

37    Accepting that hypothetical proposition, it remains clear all the same, from the provision’s text and context, that that is what was intended. Section 1073A(2) applies so as to deem the time or times at which employment income is received if the conditions outlined in s 1073A(1) are met. There is no question, presently, that those criteria were met.

38    Nothing in the text of s 1073A or the broader statutory context within which it appears suggests that s 1073A(2) is temporally limited such that a “person is taken to have received the employment income over a period” only insofar as concerns an ongoing entitlement to an existing pension and not insofar as concerns a fresh application made at some later time. The section contemplates simply that a person will be “taken” to have received certain income as identified. It does not identify any time or limitations as to when the person will be so taken.

39    Having construed the relevant provisions of the SS Act differently, it follows that the AAT Decision was a product of legal error. That decision should (and will) be set aside and the Review Application should be remitted for redetermination upon the correct statutory interpretation. The Secretary does not seek an order for his costs in this appeal and, accordingly, none shall be made.

40    There is a minor complication. Since the commencement of this appeal, the AAT has ceased to be. It was recently succeeded by the Administrative Review Tribunal (the “ART”). It appears to me that, by operation of item 25 of sch 16 to the Administrative Review Tribunal (Consequential and Transitional Provisions No. 1) Act 2024 (Cth), it is open to the court to remit the Review Application to the ART, much as it would previously have remitted it to the AAT. In the absence of confirmation from the parties, I should prefer not to assume that that is so; and, accordingly, will invite them to confer and, ideally, agree upon whatever form of order they consider is appropriate to give effect to these reasons. In the absence of agreement, I will invite further submission limited to that very narrow issue.

Associate:

Dated:    13 December 2024