Chief Executive of the Department of Work and Income New Zealand v Bruce [2006] NZCA 33; [2006] NZAR 473 (16 March 2006)

Last Updated: 28 December 2011

IN THE COURT OF APPEAL OF NEW ZEALAND

CA33/05

BETWEEN CHIEF EXECUTIVE OF THE DEPARTMENT OF WORK AND INCOME NEW ZEALAND
Appellant

AND ROBINA DAVIDSON BRUCE
Respondent

Hearing: 22 February 2006

Court: Chambers, O'Regan and Ellen France JJ

Counsel: W G Liddell and H L Dempster for Appellant
R J Davidson for Respondent

Judgment: 16 March 2006

JUDGMENT OF THE COURT

1. The appeal is allowed. The order made by the High Court is set aside and the decision of the Social Security Appeal Authority is reinstated.

B We make no order for costs.

REASONS

(Given by Ellen France J)

Table of Contents

Para No
Introduction [1]
Factual background [3]
Statutory scheme [10]
The issues on appeal [23]
Submissions for appellant [24]
Submissions for respondent [27]
Discussion [30]
Result [39]

Introduction

[1] This is an appeal from an oral judgment of Chisholm J now reported as D v Chief Executive of the Department of Work and Income New Zealand [2005] NZAR 472, in which he answered a question posed in a case stated by the Social Security Appeal Authority under s 12Q of the Social Security Act 1964 (the Act) adversely to the appellant. Leave to appeal to this Court was granted by Chisholm J in a decision delivered on 9 February 2005. The appeal raises issues about the interpretation of Ministerial directions issued pursuant to s 61G of the Act. Those directions govern how the appellant should make decisions on applications for a special benefit.
[2] Generally, the appeal concerns the interpretation of the description in the directions of relevant expenses as “essential” and “unavoidable”.

Factual background

[3] The respondent, who suffers from rheumatoid arthritis and hyperthyroidism, has been in receipt of various social welfare benefits over a period from 1995. The respondent made a number of applications for a special benefit, the first of these in 2001.
[4] The present appeal arises from the respondent’s third application for a special benefit which was made in May 2002. The application was made on the basis of travel needs for treatment following surgery. A special benefit was granted from 8 May 2002 at the rate of $82.00 per week. On review, the Benefits Review Committee backdated the special benefit and increased it to include 50% of payments being made by the respondent on a personal loan. That decision was then the subject of an appeal by the respondent to the Social Security Appeal Authority in which she challenged the rate of her special benefit and the refusal to backdate the benefit to an earlier date.
[5] On appeal, the Authority declined to backdate the respondent’s benefit to any earlier date. The Authority also questioned whether a number of the respondent’s costs were “essential” expenses in terms of the Ministerial directions. The items in issue were, first, a debt of $1,600 to her lawyer for costs relating to litigation the respondent brought against her kennel club in 1999. She was paying those costs at the rate of $10 per week. Second, costs relating to the respondent’s three dogs which she displayed in dog shows. Third, excessive telephone calls (the respondent was incurring telephone costs of up to $110 per month, i.e. some $60 per month more than the basic rental charge.) Finally, costs for a personal loan of $4,550.40 - some of which had been used to pay a credit card bill. Given that these items were not “essential” in terms of the directions, and given the overall circumstances of the case, the Authority took the view the respondent’s special benefit should not be granted at a higher rate than had been adopted.
[6] The respondent appealed that decision by way of case stated to the High Court. Three questions were before the High Court but only one remains live. That question was:

Did the Authority err in law when it held that the Chief Executive exercised his discretion correctly by not granting a Special Benefit at a rate higher than the rate specified in the formula assessment carried out pursuant to the Ministerial Directive? (Paragraph 51 of the Authority’s decision).

[7] The High Court answered this question in the respondent’s favour and remitted the matter to the Authority for further determination. In the course of his decision, Chisholm J said that the fact that an application for a special benefit was “locked into” a repayment programme for a debt “genuinely and responsibly incurred” was a weighty factor in the decision on the special benefit application.
[8] The answer given to the question on the case stated was as follows:

If, as seems to be the case, the Authority looked at the debt for lawyers fees and the Ashburton Building Society loan on a purely historical basis rather than in accordance with A and B v Department of Social Welfare, then the answer to this question is “yes”.

[9] The reference to A & B v Department of Social Welfare relates to a decision of the High Court reported at [2001] NZAR 874. In that case, which dealt with a different set of directions under s 61G, Durie J had concluded that the reason for incurring the debt was not relevant to the decision on a special benefit application.

Statutory scheme

[10] The Social Security Act 1964 makes provision for three “tiers” of benefits. The first tier is made up of basic benefits such as the unemployment, sickness, invalid’s and widow’s benefits. In the second tier are benefits designed to deal with specific needs, namely, the accommodation supplement and the disability allowance. The third tier includes special benefits under s 61G of the Act as well as other discretionary payments.
[11] Section 61G was introduced in 1975 and provides that:

(1) .. the chief executive may, in the chief executive’s discretion, fix a special entitlement to a special benefit in respect of any person, whether or not that person is receiving any other benefit .. if the chief executive is satisfied that, after taking into account all of that person’s financial circumstances and commitments, including any benefit payable under this Act or the Social Welfare (Transitional Provisions) Act 1990 or the New Zealand Superannuation and Retirement Income Act 2001 and any pension or allowance payable under the War Pensions Act 1954, such a special entitlement is justified.

(2) A special benefit must not be fixed under this section in respect of the costs of residential care services supplied to a person who has a psychiatric, intellectual, physical, or sensory disability if –

(a) the person’s accommodation costs .. are wholly or partly funded under the New Zealand Public Health and Disability Act 2000; or
(b) the person’s care (other than care in his or her own home) is wholly or partly funded under the [2000] .. Act.
[12] Under s 5 of the Act, the Minister may issue directions to the appellant as to how the Chief Executive is to exercise powers under the Act. Those directions are binding on the Chief Executive and directions have been made as to how decisions are to be taken under s 61G. The directions have taken a number of forms over the years but the directions applying to this case are those gazetted in 1999.
[13] The directions essentially envisage a two-stage process. The first stage is the application of what is described as the “formula assessment”. As the description suggests, this stage requires the Chief Executive to assess need by reference to a comparison of income and cash assets against costs. (There is a general discretion under the second stage to grant a special benefit to an applicant with more cash assets.) The items to be compared are all defined in the directions.
[14] At the second stage, the appellant is directed to consider a number of factors as well as some general principles in order to decide whether there is justification for increasing or decreasing the weekly special benefit rate produced by the formula assessment, or to decide whether or not to grant a special benefit at all.
[15] The first step is dealt with in clause 3.1 of the directions. Part of this formula assessment directs the Chief Executive to ascertain the applicant’s disposable income. That figure is reached by deducting “allowable costs” from the applicant’s weekly chargeable income.
[16] For the purposes of this appeal, the definition of “allowable costs” is important and clause 2.1 defines these costs as:

Any regular essential expenses reckoned on a weekly basis arising out of the special circumstances of the applicant and his or her spouse (if any) which cannot readily be avoided or varied, ...

[17] Clause 2.1 continues by providing that the definition of allowable costs “includes” certain specified costs. These specified costs (detailed in paragraphs (a) to (h)) cover matters such as actual accommodation costs; hire purchase and other types of regular payments for a washing machine or refrigerator; disability related expenses; and motor vehicle repayments and reasonable running costs in certain circumstances.
[18] Some costs are specifically excluded from the definition of “allowable costs”. The exclusion in paragraph (j) is relevant and states that “allowable costs” do not include any payments required to be made by the applicant or his or her spouse in respect of any debt, fine, or other liability, other than the payments or repayments referred to in paragraphs (a) to (h).
[19] As we have discussed, at the second stage, once the appropriate calculation in clauses 3.1 or 3.2 has been completed, consideration is to be given as to whether there is justification for increasing or decreasing the rate of special benefit paid to the applicant or to fix or decline to fix an entitlement to special benefit having regard to the principles set out in clause 1 and to various other matters listed in clause 3.3. Those matters include any special or unusual reasons for any expenditure item that has contributed to the applicant’s deficiency in income over expenditure and the causes of the applicant’s financial difficulty.
[20] The general principles to which regard must be had are as follows:

• 1.1 THAT the intention of a special benefit under the Act is to alleviate financial hardship and that a special benefit should not be granted unless without the grant, the applicant or a person dependent upon the applicant would suffer financial hardship.
• 1.2 THAT a special benefit should not normally be granted unless the applicant’s Deficiency of Income over his or her expenditure and commitments is reasonably substantial, and that Deficiency is likely to continue for a period that justifies special benefit being granted.
• 1.3 THAT a special benefit should be considered only in respect of costs of the applicant that are essential and not reasonably avoidable.
• 1.4 THAT in considering any application for special benefit, consideration should be given to - [certain enumerated factors]

[21] The general principles section of the directions concludes by providing that a special benefit,

should not normally be considered for expenses normally covered by the assistance available under [other specified] schemes or [the Health and Disability Services Act 1993] unless the applicant has extraordinary expenses and has exhausted his or her entitlements under those schemes or that Act.

[22] Clause 3.4 makes it clear that there is no requirement to grant a special benefit or a special benefit at any particular rate if, in the Chief Executive’s discretion, it is determined that in the circumstances of a particular case such a grant ought not to be made.

The issues on appeal

[23] The questions the Court needs to determine on the appeal are as follows:

• (i) Does the requirement in the directions that expenses be “essential” add anything to the requirement the expenditure is unavoidable? And
  • (ii) If so, what does “essential” mean? And
  • (iii) When is what constitutes an “essential” expense to be determined?

Submissions for appellant

[24] The appellant submits that “essential” expenses are those which are essential to meet basic necessities. That interpretation is consistent with the nature and purpose of the special benefit which is intended to be a “last resort” measure and is designed to alleviate (but not necessarily to eliminate) hardship. The nature of the types of costs listed in clause 2.1 also suggests allowable costs are those related to the acquisition of basic necessities.
[25] The fact that repayment of expenses incurred is unavoidable does not make the expense an “essential” one. The direction in clause 1.3 that a special benefit should be considered “only” in respect of the costs of the applicant that are essential and not reasonably avoidable makes this clear.
[26] It follows, the appellant says, that the question of whether an expense is essential is to be determined at the time the application for a special benefit is made. The High Court Judge was wrong to conclude otherwise and A & B is also wrong on this point.

Submissions for respondent

[27] The respondent’s case is that “essential” and “cannot be avoided” mean the same thing. The limiting feature is the requirement imposed by the High Court that the expenditure must be genuine and responsibly incurred. This interpretation best reflects the intention to provide flexibility.
[28] In developing this proposition, the respondent emphasises the two-stage assessment process. What is an allowable cost is to be looked at in the first (formula) stage entirely as at the date of the application for a special benefit. If the expense at that stage is essential because it has to be paid (i.e. is unavoidable) then it is an allowable expense.
[29] It is at the second stage that the sorts of factors of concern to the appellant are factored into the equation. For this reason, at the second stage, the Chief Executive is expressly directed to consider the causes of the applicant’s financial difficulty.

Discussion

[30] Counsel were at odds as to the exact scope of the High Court decision. We do not need to resolve that question as it is apparent from the High Court record that the approach of counsel on both sides in this Court was significantly different from the approach adopted in the High Court. It is for that reason too that we do not find it necessary to explain why we are differing from the High Court judgment. We mean no disrespect of Chisholm J by our decision not to grapple with his judgment. This just happens to be one of those cases where the luxury of a second appeal has given rise to considerable refinement of approach on counsel’s part.
[31] There was also some discussion about the utility of clarifying the points in issue given that special benefits under s 61G will be replaced by a new regime as from 1 April 2006 (Social Security (Working for Families) Amendment Act 2004, s 10). This was not an issue in the context of the decision of Chisholm J to grant leave to appeal. But, in any event, Mr Liddell for the appellant explained that the special benefits regime under s 61G will continue to apply to those currently receiving a special benefit and, as such, the issues raised on the appeal have some ongoing impact.
[32] The Social Security Appeal Authority in its decision in this case observed that a special benefit is,

assistance available to beneficiaries when it is clear that they are unable to make ends meet on their basic benefit and supplementary benefits such as Accommodation Supplement and Disability Allowance. Generally speaking it is available when a beneficiary is able to demonstrate that without such a benefit he or she would suffer financial hardship, the deficiency in income over expenditure is reasonably substantial, the costs of the applicant are essential and not reasonably avoidable, and the applicant is unable to meet the deficiency from his or her own resources, amongst other things.

[33] In applying that framework to the respondent’s case the Authority has taken the view that the requirement expenditure be essential is additional to the requirement that the expenses are unavoidable. We agree with the Authority’s approach. The use of the word “essential” has to be given some meaning. Both clauses 1.3 and 2.1 on their face direct attention to items which are both essential and unavoidable. This means it is wrong to conflate essentiality and avoidability.
[34] This interpretation is consistent, as the appellant says, with the nature and purpose of the special benefit regime and its place in the hierarchy of benefits. Those matters all suggest an essential item will be one relating to the basic necessities. Gendall J in Te Aonui v The Chief Executive of the Department of Work and Income New Zealand HC WN CIV2004-485-1982 11 August 2005 took the same view in rejecting the claim that the cost of a security bracelet the applicant had offered to wear as a condition of being granted bail was an essential expense.
[35] Further, the fact that some items, particularly debts are excluded from the definition of allowable costs suggests it will be necessary to look at how and for what purpose the expenditure was incurred. The lawyer’s fees in this case illustrate the point. Those fees were incurred in the context of litigation brought by the respondent against a kennel club. That seems unlikely to be an essential expenditure. However, it is also a debt and as such is excluded from the definition of allowable costs in terms of paragraph (j). The fact there has been an agreement to repay which converts the “debt” into a regular weekly expense does not alter its nature for these purposes. Mr Davidson accepted that the debt to the lawyer would not have been an expense if it remained as a debt. That must be right. It would be an odd result if a debtor could alter the nature of the cost by simply agreeing to pay off the debt on a regular basis.
[36] As to the other costs, those relating to the dogs, the excessive telephone calls, and part of the costs of the personal loan, it was open to the Authority to conclude that these costs were not an essential expense.
[37] The appellant suggested any other approach would open the risk of abuse of the regime. We doubt this is the case because the Chief Executive’s discretion under clause 3.3 is probably sufficient control but in any event we agree with the appellant as to the correct approach to be taken to this case.
[38] The appellant asked the Court to overrule A & B. The respondent in that context pointed out the appellant had not appealed the decision in A & B. Mr Liddell explained A & B is not being followed in applications to which the 1999 directions apply. The subject-matter of A & B was the directions in place in 1992 and there are differences in the wording of the 1992 and 1999 directions. We did not hear argument on the 1992 directions. For that reason, it would not be appropriate for us to overrule A & B. It suffices to say that if a correct reading of A & B would lead to a different approach in the present case, we would disagree.

Result

[39] We agree with the interpretation of the Social Security Appeal Authority in this case and therefore allow the appeal. The order of the High Court is set aside and that of the Social Security Appeal Authority is reinstated.

[40] We make no costs order.

Solicitors:
Crown Law Office, Wellington for Appellant
P J Doody, Christchurch for Respondent