Owens v Chief Executive of the Ministry of Social Development CA131/05 [2006] NZCA 471; [2007] NZAR 185; (2006) 26 FRNZ 663 (30 October 2006)

Last Updated: 3 February 2014

IN THE COURT OF APPEAL OF NEW ZEALAND

CA131/05
_CA132/05

BETWEEN PATRICIA LINDA OWENS Appellant

AND THE CHIEF EXECUTIVE OF THE MINISTRY OF SOCIAL DEVELOPMENT

Respondent

Hearing: 24 August 2006

Court: William Young P, Arnold and Ellen France JJ Counsel: P D McKenzie QC and T McGurk for Appellant

U R Jagose and G A J Stanish for Respondent

Judgment: 30 October 2006 at 11 am

_{JUDGMENT OF THE COURT}

A The appeals are dismissed.

_{B There is no order for costs.}

REASONS OF THE COURT

_{(Given by Ellen France J)}

PATRICIA LINDA OWENS V THE CHIEF EXECUTIVE OF THE MINISTRY OF SOCIAL DEVELOPMENT CA CA131/05 30 October 2006

Introduction

[1] Over the period from 25 October 1996 to 3 March 2002, the appellant, Mrs Owens, was in receipt of benefits paid to her by Work and Income New Zealand (WINZ). She was in receipt of either the unemployment benefit or a community wage as well as an accommodation supplement.

[2] In October 1996, Mrs Owens purchased a flat using a gift from her mother as a deposit and financing the balance by way of mortgage. She rented out the flat. Mrs Owens did not declare to WINZ the existence of her interest in the flat or the rent she was receiving from it. In fact, in an application form signed by Mrs Owens on 26 June 1997, she responded “no” to the question “do you or your partner have any of the following – holiday homes or other land and buildings other than your home”. In similar forms dated 13 January 1998, she did not answer the question about the ownership of property.

[3] It is accepted Mrs Owens did not deliberately attempt to mislead WINZ in these answers and that she received the accommodation supplement in good faith.

[4] If Mrs Owens had answered the questions about property ownership correctly, she would not have been paid the accommodation supplement. There was, accordingly, an overpayment for the period from October 1996 to March 2002 which amounted to $10,040.00. The chief executive of WINZ sought recovery of the resulting debt from Mrs Owens. In reliance, in part, on s 86(9A) of the Social Security Act 1964, Mrs Owens challenged the decision to seek to recover the overpayment before a Benefits Review Committee. The decision was upheld by the Benefits Review Committee and Mrs Owens appealed to the Social Security Appeal Authority.

[5] The Authority dismissed the appeal. The Authority concluded it would not be inequitable in terms of s 86(9A) of the Act to require repayment of the debt. In reaching that view, the Authority took into account Mrs Owens’ negligence or relative fault in not disclosing the existence of the property, and the fact the equity in the property had substantially increased.

[6] The Authority then stated a case for the High Court. Miller J, in a decision delivered on 4 April 2005, answered the case stated in favour of the chief executive. Miller J subsequently granted Mrs Owens leave to appeal to this Court on one of the questions in the case stated. This Court, in a decision delivered on 18 August 2005, granted special leave on one other question.

[7] As a result, the two issues before us are as follows:

(a) Is relative fault relevant when applying s 86(9A)?

(b) Is the fact the equity in the property had increased relevant when applying s 86(9A)?

The legislative context

[8] Under s 86 of the Social Security Act, the chief executive has a discretion to recover overpayments from a beneficiary. The overpayment becomes a debt due to the Crown at the suit of the chief executive. William Young J, as he then was, in Moody v Department of Work and Income [2001] NZAR 608 at [19] suggested there were two practical reasons for giving the chief executive the powers in s 86. The first reason was so that claims could then be brought by the chief executive without involving the Attorney-General. (The Attorney-General’s involvement is otherwise needed because of s 14(1)(c) of the Crown Proceedings Act 1950.) Second, the section enabled recovery by deductions from benefits which otherwise could not be done.

[9] Where the overpayment is a result of an error not intentionally contributed to by the beneficiary and where the beneficiary received the amount in good faith and has altered his or her position in reliance on the validity of the payment, the chief executive has a discretion to write-off the debt where it would be inequitable in all the circumstances to require repayment. That is the effect of s 86(9A), which provided at the relevant time as follows:

Notwithstanding anything to the contrary in this section, the chief executive may, in the chief executive’s discretion, authorise the provisional writing-off

of a debt which arose as a result of an error, made by an officer or employee of the Department, not intentionally contributed to by the debtor if the chief executive is satisfied that the person receiving the amount so paid in error did so in good faith and has so altered his position in reliance on the validity of the payment that it would be inequitable in all the circumstances, including his financial circumstances, to require payment.

[10] It appears that s 86(9A) was introduced on the, mistaken, basis that there was a legal obligation on the chief executive to recover overpayments: Moody at [27].

[11] Section 86(9A) has since been amended, in 2001, to clarify a point arising in Moody as to what constituted an “error” for the purposes of the section: Social Security Amendment Act 2001, s 22.

[12] Reference should also be made to s 94B of the Judicature Act 1908 which provides a defence based on change of position and says that relief will be denied:

wholly or in part if the person from whom relief is sought received the payment in good faith and has so altered his position in reliance on the validity of the payment that in the opinion of the Court, having regard to all possible implications in respect of other persons, it is inequitable to grant relief, or to grant relief in full, as the case may be.

The decision of the Appeal Authority

[13] The Authority accepted that Mrs Owens did not intentionally contribute to the overpayment; that she received the money in good faith; and that she altered her position in reliance on the validity of the payment. However, the Authority decided it would not be inequitable to require repayment in the circumstances for two reasons.

[14] The first reason was that Mrs Owens was “at the very least” negligent in not disclosing the existence of the property either at the time she bought the flat or in later forms which asked her to disclose the existence of such property.

[15] The second reason was that Mrs Owens had the use of the gift from her mother to increase her capital resources at the same time as claiming income tested benefits. The equity in her property had substantially increased and so she was in a position to repay.

The judgment of Miller J

[16] On the first question, the ability to consider relative fault, Miller J concluded that the chief executive’s discretion under s 86(9A) was a very broad one without any express limit on the relevant circumstances. Miller J saw the requirements that the error was unintentional and the payment be received in good faith as no more than the pre-requisites to the discretion coming into play.

[17] On the second question, Miller J accepted that the Authority was entitled to conclude Mrs Owens had been able to increase her equity in the property while receiving the accommodation supplement. That was a relevant consideration.

[18] The Judge accepted that the evidence did not show whether Mrs Owens increased her equity as a result of receiving the accommodation supplement. However, Miller J took the view WINZ did not have to establish a causal connection between the overpayment and the increase in equity. The question was whether she had so altered her position in terms of s 86(9A) as to make it inequitable to require repayment. Miller J said it was sufficient that she had been able to increase her equity while maintaining a modest standard of living. She was left with an increase in asset value of some $55,000 that could be used to make the repayment.

Discussion

(i) Relevance of relative fault

[19] The appellant’s case is that s 86(9A) should be interpreted consistently with the change of position defence in s 94B of the Judicature Act and the common law defence of change of position. It would be unfair, the appellant says, for a beneficiary to be worse off under s 86(9A) than he or she might be under either s 94B or at common law. The effect of the High Court’s approach, the appellant submits, is that although the appellant would be able to avail herself of the defence at common law she cannot do so here.

[20] In developing this submission, the appellant argues that the High Court should have applied the decision of the Privy Council in Dextra Bank & Trust Company Limited v Bank of Jamaica [2002] 1 All ER (Comm) 193 (PC). In Dextra, at [45], their Lordships expressed reluctance at introducing the concept of relative fault into this branch of the common law and said they declined to do so.

[21] There is support for the view that s 94B and the common law is available to a beneficiary in Mrs Owens’ situation, in Moody at [26]. The alternative view (although not one advanced by the respondent) is that neither s 94B nor the common law apply to proceedings for the recovery of this overpayment. In other words, in the present situation, s 86(9A) occupies the field.

[22] We do not consider it is necessary to decide whether Moody is correct on this point. Taking the high water mark of the appellant’s argument would mean interpreting s 86(9A) in the same way as s 94B but with the gloss of the observations in Dextra that relative fault should not be brought into the balance. That additional gloss is contrary to the current New Zealand authority on s 94B to the effect that relative fault is relevant: Thomas v Houston Corbett Co [1969] NZLR 151(CA) and in National Bank New Zealand Ltd v Waitaki International Processing (NI) Ltd [1999] 2 NZLR 211 (CA). We see no reason for taking a different view in this case. That is because, again taking the highest point of the appellant’s case, Dextra as a Privy Council decision from another Commonwealth country would only bind New Zealand courts if it dealt with a “common issue of law”: Breuer v Wright [1982] 2

NZLR 77 at 83 (CA). Largely for the reasons advanced by the respondent, we do not consider Dextra concerns a “common issue of law”.

[23] The key distinction is that Dextra dealt with the position at common law. The comments in Dextra about the relevance of relative fault were not central to the reasoning in that case but, in any event, their Lordships treated the approach to s 94B as though the New Zealand courts were dealing with the common law. Of course that is not so. Arguably, the position in terms of s 86(9A) is further removed because of the different statutory context. As the respondent put it, the chief executive under the Social Security Act has “broad duties” to administer the Act to ensure benefits are paid to those who are eligible in the situations envisaged by

Parliament. The relationship in issue is that of a beneficiary vis à vis an arm of the state and not that of parties to a commercial transaction. In addition, there is nothing on the face of s 86(9A) to restrict the circumstances relevant to the exercise of the discretion.

[24] The Privy Council in Dextra saw good faith on the part of the recipient as a sufficient requirement in terms of the common law defence. The appellant argues that s 86(9A) similarly does not envisage a re-visiting of the bona fides of the beneficiary nor, indeed, of any factors relating to how the debt occurred. Rather, the appellant submits, fairness of recovery is concerned only with how the beneficiary alters his or her position.

[25] The appellant relies for these propositions on the fact that s 86(9A) is premised on the beneficiary not having intentionally contributed to the error and acting in good faith.

[26] We agree with Miller J that s 86(9A) allows the chief executive to consider all the circumstances including negligence when deciding whether it would be inequitable to order repayment. The directions that there be no intentional contribution to the error and that the payment be received in good faith are solely pre-requisites to the exercise of the discretion but no more than that. As Miller J put it, at [42]:

Once the discretion arises, the subsection does not expressly limit the circumstances that may be taken into account in determining whether repayment would be inequitable. It would also be odd for example, if the Chief Executive was required to ignore, when exercising the discretion, the fact that the overpayment was received in good faith.

[27] The rather different setting of the Social Security Act also, in our view, means the sorts of concerns prompting the reluctance to consider relative fault in Dextra have less weight. The range of potential situations that will arise under s 86(9A) is much narrower than those that may arise under either s 94B or at common law. This is relevant to the concern expressed in Dextra at [45] and in the academic writing about the uncertainty and complexity of considering relative fault.

[28] Similarly, the criticism that the common law defence becomes doctrinally unstable and its operation uncertain if relative fault is considered is less likely to be an issue under s 86(9A): see, for example, R Grantham and C Rickett “Change of Position and Balancing the Equitities” [1997] Restitution Law Review 158 at 163. This and other academic criticisms of a consideration of relative fault are based on philosophical views about the underlying basis of claims for unjust enrichment. Those sorts of considerations are not likely to be relevant here.

[29] Finally, we see no merit in the appellant’s argument that it would be unjust to consider relative fault where the negligence had contributed only in part to the overpayment. This argument is made on the basis that there is no power to recover part only of a debt under s 86(9A) whereas under s 94B there is an express power to recover in part or in whole. In our view, s 86(9A) on its face is sufficiently broad to enable the chief executive to write off part of a debt. The power to do the greater (to write off the whole) must include the power to do the lesser (write off part of the whole), at least in the absence of something in the statute which plainly precludes that.

[30] For these reasons, we agree with the Authority and with Miller J that relative fault is a relevant consideration under s 86(9A).

(ii) Relevance of increased equity

[31] We also consider that the Authority and Miller J were right to conclude that the fact the appellant’s equity in her property had increased was a relevant consideration in assessing where the equities lay.

[32] The appellant’s argument that the increased equity was irrelevant rested, in part, on the view that the word “so” in the phrase “has so altered her position that it is inequitable” indicates that the circumstances to which regard may be had must be related to the alteration of position. In other words, the appellant says, “so” governs the later reference to “all the circumstances”.

[33] We consider that “so” means “to such an extent” i.e. has altered his or her position to such an extent that recovery would be inequitable. This construction does not, however, have the result that “circumstances” is limited in the way the appellant suggests.

[34] The ability to address all of the circumstances, “including ... financial circumstances” suggests that the chief executive is not limited to considering matters relating to the alteration of position. Alteration of position concerns financial circumstances. The reference to “including his financial circumstances” would be superfluous if those circumstances were limited to the alteration of position.

[35] On this analysis, the authorities relied on by the appellant which require a causal link between the change of position and the overpayment are not relevant. It follows also that it is irrelevant whether or not the evidence showed that the increase in value was attributable to receipt of the money.

[36] The appellant also relies on the amendment to s 86(9A) which now reads:

The chief executive may not recover any sum comprising that part of a debt that was caused wholly or partly by an error to which the debtor did not immediately contribute if –

(a) the debtor -

(i) received that sum in good faith; and

(ii) changed his or her position in the belief that he or she was entitled to that sum and would not have to pay or repay that sum to the chief executive; and

(b) it would be inequitable in all the circumstances, including the debtor’s financial circumstances, to permit recovery.

The new s 86(9B) defines what is meant by “error” in s 86(9A).

[37] The fact Parliament has seen fit to put the matter beyond doubt does not alter the interpretation of the earlier version of s 86(9A).

[38] Finally, the respondent is right that the chief executive must be able to consider matters such as a beneficiary’s Lotto win or some family disaster that

impacts on his or her ability to repay the debt. The point is not whether the appellant has been enriched in some way but rather whether the appellant’s circumstances were such that she was in a position to repay. That was the focus of the inquiry by the Authority and the High Court. In the context of s 86(9A), the ability to repay was relevant to a consideration of the inequity or otherwise of requiring repayment.

[39] The answer to the second question is that the increased equity was a relevant consideration.

Result

[40] The appeals are dismissed. We make no order for costs.

Solicitors:

Otene & Ellis, Auckland for Appellant

Crown Law Office, Wellington