Osborne v Chief Executive of the Ministry of Social Development HC Auckland CIV-2007-485-002579 [2009] NZHC 930; [2010] 1 NZLR 559 (31 August 2009)

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IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

_{CIV-2007-485-002579}

IN THE MATTER OF an appeal by way of Case Stated from the determination of the Social Security Appeal Authority under s 12Q of the Social Security Act 1964

BETWEEN LINDA MARIE OSBORNE Appellant

AND THE CHIEF EXECUTIVE OF THE MINISTRY OF SOCIAL DEVELOPMENT

Respondent

Hearing: 31 July 2008

Appearances: S C Abernethy for the Appellant

U R Jagose and L M Fong for the Respondent

Judgment: 31 August 2009

_{JUDGMENT OF DUFFY J}

This judgment was delivered by Justice Duffy on 31 August 2009 at 11.30 am, pursuant to

r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Date:

Counsel: S C Abernethy P O Box 56438 Dominion Road Auckland 1446 for the

Appellant

Solicitors: Crown Law P O Box 2858 Wellington 6140 for the Respondent

Copies To: W J Spring 55 Hurstmere Road Takapuna North Shore City 0622

Ministry of Justice (Social Security Appeal Authority Tribunals Unit) P O Box 5027 Lambton Quay Wellington 6145

OSBORNE V CHIEF EXECUTIVE MINISTRY OF SOCIAL DEVELOPMENT HC AK CIV-2007-485-

002579 31 August 2009

[1] This is an appeal by way of case stated from a determination of the Social Security Appeal Authority. The case stated poses six questions for determination. They are:

Question 1: Did the Authority err in law in finding it had no jurisdiction to consider an appeal where a Benefits Review Committee has declined to extend time for requesting a review under s 10A(1)(B)(B) of the Act?

Question 2: Did the Authority err in law in finding that there was no substantive or final decision made in relation to the issue of reparation by either the District Court or the High Court?

Question 3: Was the Authority correct in holding that reparation under the Sentencing Act 2002 and whether or not a debt should be recovered under the provisions of the Social Security Act 1964 are not the same issue to prevent the recovery of a debt arising out of the same circumstance?

Question 4: Did the Authority err in law in finding that s 26(2) of the New Zealand Bill of Rights Act 1990 did not prevent the Chief Executive from exercising his powers under the Social Security Act 1964 to recover a debt owed to the Crown?

Question 5: Did the Authority err in law in its interpretation of the circumstances in which the Chief Executive could exercise a residual discretion under s 86(1) of the Act not to recover a debt?

Question 6: Was there any evidence which entitled the Authority to conclude that [the] Chief Executive should not exercise any residual discretion under s 86(1)?

Background

[2] The appeal emanates from a decision of the Chief Executive of the Ministry of Social Development to recover overpayments of the domestic purposes benefit, accommodation benefit and special benefit, all of which amount to $170,142.17. The decision was upheld by a Benefits Review Committee (BRC). Subsequently, there was an appeal to the Social Security Appeal Authority, which allowed the appeal in part. It is this determination that has given rise to the present appeal.

Facts

[3] The appellant began receiving a domestic purposes benefit on 5 July 1993. Following an investigation on 20 January 2003, the appellant was advised that she had received an overpayment of $173,120.10 and that her benefit would be

cancelled. The overpayments resulted from the appellant claiming benefits to which she was not entitled. A criminal prosecution in relation to the overpayment was also commenced.

[4] Following a defended hearing in the District Court at the North Shore, the appellant was convicted of 17 charges under s 299A of the Crimes Act 1961 in relation to receipt of the domestic purposes benefit, accommodation supplement and special benefit over the period 5 July 1993 to 4 March 2003. During that time, she was found to have lived in a relationship in the nature of marriage with a Peter George Davies. Following her conviction, the appellant was sentenced to three and a half years’ imprisonment on 4 March 2004.

[5] On her release from prison, the appellant and her partner, Mr Davies, were granted the unemployment benefit. On 24 June 2005, the appellant was advised that as from 30 June 2005, deductions of $20 per week would be made from her unemployment benefit to recover the overpayment that had led to her conviction and sentence. The appellant sought a review of the decision to deduct $20 from her current benefit. A BRC determined that the review of the decision to establish the overpayment (made on 20 January 2003) was out of time. It refused to hear the review out of time. The BRC also determined that review rights acknowledged in a Work and Income letter of 24 June 2005 to the appellant were rights arising from the more recent decision to recover the overpayment at $20 per week. The BRC upheld this decision. Subsequently, there was an appeal to the Social Security Appeal Authority.

[6] The Authority found it had no jurisdiction to hear an appeal from the decision of the BRC refusing to hear the appellant’s review, of the decision to establish an overpayment, out of time. The finding turned on the Authority’s interpretation of its powers under the Social Security Act 1964. It concluded that its jurisdiction was limited to hearing appeals from a decision of the Chief Executive that had been either upheld or varied by a BRC. Since the decision not to hear the review out of time originated from the BRC, pursuant to their discretionary powers under s 10A of the Social Security Act, it fell outside the scope of the Authority’s appellate jurisdiction.

[7] The Authority then went on to consider the Chief Executive’s decision to recover the overpayment as a debt at the rate of a $20 per week deduction from the appellant’s unemployment benefit. It found that in the criminal hearings involving the appellant, neither the District Court nor the High Court involved in those matters had made any final or substantive finding on recovery of the overpayment that could operate as an issue estoppel. In this regard, the Authority concluded that the decision not to impose a reparation order as part of the sentence of the appellant could in no way legally preclude the subsequent recovery of the overpayment as a debt under s 86 of the Social Security Act 1964. This flowed from the distinction between reparation, which was a punishment, and recovery of the overpayment as a debt under s 86. The Authority also rejected the suggestion that the length of the term of imprisonment imposed on the appellant reflected the sentencing court’s view on the appellant’s inability to pay reparation of the overpayment. The legal distinction between reparation and recovery of debt also caused the Authority to conclude that any subsequent attempt to recover the overpayment as a debt under s 86 could not contravene s 26(2) of the New Zealand Bill of Rights Act 1990.

[8] The Authority then proceeded to consider the decision to recover the overpayment as a debt due. Section 86 deals with recovery of debts. Section 86(1) confers on the Chief Executive a discretion to recover a debt. The Authority recognised this, but then concluded that the discretion in s 86(1) was restricted by the terms of s 86(9A) and s 86(9B) and any regulations made under s 132G. Those provisions specify when the Chief Executive must not recover an overpayment. The overpayment to Ms Osborne resulted from fraud and was, therefore, outside the scope of s 86(9A).

[9] The Authority took the view that, since Parliament has specified the circumstances under which a debt could not be recovered in s 86(9A), the Chief Executive’s discretion not to recover a debt under different circumstances than mentioned in s 86(9A) must be limited. This interpretation of s 86 caused the Authority to conclude that when exercising discretionary authority under s 86(1), the Chief Executive could only decide not to recover a debt in “highly unusual circumstances” or “circumstances relating to the practicality of recovering the debt”.

[10] The Authority determined that Ms Osborne’s debt did not come within the category of occasions when the discretion not to recover a debt under s 86(1) was available. It considered that, other than the magnitude of the debt, there was nothing unusual about the debt or that there were any other circumstances relating to Ms Osborne that needed to be taken into account. As regards the magnitude of the debt, the Authority was of the view that it would be odd for this to constitute a factor that could excuse her from repaying the debt, since it was her fraud that had created the debt. The Authority was, therefore, satisfied that the Chief Executive had properly decided to recover the debt. The Authority did, however, decide that the recovery could be reduced from $20 per week to $10 per week, with the prospect of any change of circumstance leading to the increase or decrease of those payments.

Question one

[11] The Authority is established under s 12A of the Social Security Act. Section 12I vests the Authority with the function of determining appeals under s 12J of the Social Security Act and s 16A of the War Pensions Act 1954. That is the extent of the Authority’s appellate jurisdiction. It does not sit as a general appellate body entitled to hear appeals from any aspect of the workings of the Social Security Act.

[12] Section 12J gives a right of appeal to the Authority against certain decisions or determinations of the Chief Executive. The key point is that the determination, or decision, must result from the exercise of a decision-making power of the Chief Executive. Decisions which originate from persons other than the Chief Executive and which spring from a statutory power vested in those persons would seem to me to be outside the scope of s 12J.

[13] The power to hear a benefit review brought out of time is a power vested directly in the BRC, pursuant to s 10A(1B)(b). It has no connection whatsoever with the Chief Executive or his statutory powers under the Act. It follows that decisions made under s 10A(1B)(b) are outside s 12J and cannot, therefore, be the subject of an appeal to the Authority under that provision.

[14] I do not accept Ms Osborne’s argument that by refusing to hear a review out of time, the BRC has confirmed the Chief Executive’s decision. To confirm a decision requires some positive act, both in giving consideration to whether or not the decision should be confirmed, and then in articulating the decision arrived at. When the BRC decides not to hear a review out of time, this will have the consequence of leaving the Chief Executive’s decision in place as it is. But this outcome is no more than the automatic consequence of being unable to challenge the decision and is no act of confirmation.

[15] I also do not accept Ms Osborne’s argument that for the Authority not to hear appeals of refusals under s 10A(1B)(b) is a breach of natural justice. Rights of appeal are statutory. The limits of appeal rights are determined by the statutory expression of those rights. A court cannot graft natural justice requirements or a more supervisory appellate role onto an appeal right in a way that extends its scope beyond the terms expressed in the statute. Breaches of natural justice are cured by judicial review; not by judicial expansion of appellate rights to accommodate challenges to decisions that do not come expressly within an appellate jurisdiction. Instances of illegality arising from the acts or omissions of public officers that fall outside the scope of an appeal right can also be dealt with by judicial review. There is neither reason nor cause to support Ms Osborne’s proposition.

[16] The answer to question one, therefore, is the Authority did not err in law when it made the finding in question one.

Question two

[17] At [36] and [37] of its decision, the Authority expressed the view that the District Court Judge responsible for sentencing Ms Osborne made no substantive or final decision on reparation of the money obtained as part of the benefit fraud. The Authority reached the same conclusion in relation to the High Court’s findings in Ms Osborne’s appeal against sentence.

[18] Ms Osborne contends that the existence of a substantive or final determination on the topic of reparation can be gleaned from the sentence

Ms Osborne received, and the refusal of the High Court to interfere with that sentence on appeal. In this regard, Ms Osborne asserts that she received a severe sentence of imprisonment because she could not make reparation of any of the money that she had fraudulently obtained. She says, in essence, that the sentence of imprisonment imposed on her has within it a component that reflects her inability to pay reparation, and that she has paid an equivalent to reparation through this component being imposed on her.

[19] The respondent has elevated Ms Osborne’s argument on this issue to one that asserts the existence of an issue estoppel, which precludes recovery of the overpayment in civil proceedings. This may be what lies behind the proposition for which Ms Osborne contends and which has necessitated question two being raised in this appeal. But it is not necessary to determine the issue estoppel point in the context of question two.

[20] The respondent has sensibly accepted that both the District Court and the High Court on appeal may have made a substantive or final decision on reparation in relation to Ms Osborne’s sentence. Given the requirements of the Sentencing Act

2002, I consider that it is likely that the sentencing Judge’s decision on the term of imprisonment to impose on Ms Osborne was influenced by her inability to pay reparation. Reparation can be treated as a mitigating factor under ss 9(2)(f) and 10 of the Sentencing Act, and that could result in a discount of the term of imprisonment. If no reparation can be paid, there will be no discount.

[21] However, the part the absence of reparation played in the calculation of the term of imprisonment Ms Osborne received cannot represent a decision on the part of the District Court, and later the High Court on appeal, on the recovery of the overpayment as a debt due to the Crown.

[22] I consider that the view the Authority has expressed in [37] of its decision is incorrect. A sentencing Court is not prevented from ordering reparation simply because a prosecuting authority does not seek it, which apparently was the case here. An offender can offer to pay reparation, and a sentencing court can decide to incorporate reparation into the sentencing assessment. With Ms Osborne, both the

District Court and the High Court have accepted that reparation was not possible and have, therefore, excluded it as a sentencing option. In that way, those courts have each made a final or substantive determination on the role reparation might play in her sentence. But that is as far as the determinations go; they do not extend to the civil recovery of the fraudulently obtained money.

[23] It follows that when it comes to the Authority’s legal interpretation of the sentencing judgment, and the judgment on the appeal against sentence, the Authority has erred. However, that error can only have a material effect on Ms Osborne if the sentence imposed on her and how it was affected by her inability to pay reparation are factors that should be taken into account when exercising the discretion in s 86(1) to recover the overpayment as a debt due. This relates to a later question for appeal.

[24] The answer to question two, therefore, is the Authority did err in law when it made the finding in question two.

Question three

[25] At [38] to [40] of its decision, the Authority found reparation and whether or not a debt could be recovered were not the same issue, and that any finding on reparation could not prevent recovery of money owing as an overpayment through the civil process for debt recovery.

[26] Ms Osborne contends that the decision to prosecute her for benefit fraud amounts to an election which thereby precluded any later recourse to a civil process to recover the fraudulently obtained overpayment. She further contends that the choice of the criminal process means any attempt to recover the overpayment must be advanced under the “criminal aegis”. In this regard, Ms Osborne points to well established authority which shows that courts have refused to make reparation orders when “there is no realistic prospect of payment being made within a few years ... at least not for the full amount sought”: see Ruka v Department of Social Welfare (1996) 14 CRNZ 196 (CA). Ms Osborne submits that within the welfare context, the question of reparation has historically been the subject of special treatment: Ruka v DSW and Rihari v Department of Social Welfare (1991) 7 CRNZ 586 (HC). Having

elected to use the criminal process against Ms Osborne, the appellant submits that it vacated its right to also pursue the appellant for a civil recovery of debt as well. The appellant argues that because reparation was not sought as part of the sentencing process, and the appellant received a sentence that reflected the lack of reparation and the debt she owed, then the Ministry cannot also seek to pursue recovery of the debt as part of the civil process, as the issue has already been decided. The appellant submits that it is an abuse of process to do so.

[27] The appellant cites Rihari v DSW and Ruka v DSW as supporting the proposition that the courts should make orders that are reasonably capable of being complied with and that it is not appropriate for people to effectively be bonded debtors for their whole lives. The appellant also argues that by making a reparation order that would take 330 years to pay off, the appellant is effectively being held in servitude, and that is contrary to New Zealand’s commitment to the International Covenant on Civil and Political Rights, specifically Article 8(2).

[28] The appellant further submits that the decision of Chief Executive of Ministry of Social Development v Batt [2004] NZAR 180 is authority for the proposition that it is an abuse of process to collaterally attack a finding in a criminal proceeding by re-litigating that issue in a subsequent civil action. The appellant claims that the issue here is that in the criminal forum reparation was not ordered and this resulted in the appellant receiving a longer prison term. To order recovery of the debt in the civil forum is to undercut the criminal sentencing process.

[29] In conclusion, the appellant submits that because the debt is the same debt in both the criminal and civil fora, and because the parties are the same, the Ministry is abusing process to pursue the appellant civilly for the debt when it had already been decided in the criminal forum that reparation was impossible, and the appellant had received a higher sentence because of that.

[30] The respondent submits that no issue estoppel can arise in this case because the elements of the doctrine are not satisfied. First, there was no final judicial decision on the issue of civil debt recovery. Secondly, the appellant has not been ordered to pay reparation, but to repay benefit overpayments acquired through fraud.

[31] The respondent distinguishes reparation under the Sentencing Act from a civil debt recovery. Each has a different purpose and intent. The purpose and intent of reparation is to require offenders to compensate their victim for harm done by the offending. Civil debt recovery, on the other hand, is a civil matter between the parties. It is not part of a sentence for a criminal offence. The respondent submits that these distinctions mean that both a criminal sentencing and a civil debt recovery can be utilised against the same person. The respondent points to s 145(3) of the Sentencing Act and ss 86(1) and (2A) of the Social Security Act, which confirm this distinction. To add additional weight to this argument, the respondent refers to the cases of R v Jarvis CA306/86 2 March 1987, Hogan v Ministry of Social Development (2005) 23 CRNZ 500 (HC), and Hazlett v Department of Social Welfare HC DUN AP93/89 3 October 1989 as authorities for the proposition that the courts have always distinguished criminal reparation from civil recovery.

[32] The respondent argues, in response to the appellant’s reliance on cases illustrative of the fact that an offender ought not be sentenced to make reparation with which they cannot reasonably comply, (among which are R v Hooker CA88/90

6 August 1990, Rihari v Department of Social Welfare, Jarvis, Hazlett and Ruka), that proceedings for civil recovery are not restricted by this reasonable compliance factor, as they are outside the arena of criminal enforcement.

[33] The respondent dismisses the bonded servitude submission by stating that international covenants are no more than an interpretative tool, and here the recovery of the debt is expressly permitted by a statute.

[34] In the alternative, the respondent submits that if there was a final determination on reparation to the effect that civil debt recovery could not proceed, then that was only collateral to the sentence and cannot, therefore, give rise to an issue estoppel. The respondent submits that, at most, it could only have been one factor amongst others contributing to the sentence. Other factors the respondent relies on to preclude an issue estoppel arising are that: at the sentencing the prosecution informed the Court of the intention to pursue a civil recovery of the overpayment; there is no indication that the absence of reparation led to an increased sentence, or that reparation would have reduced the sentence; the appellant could

have raised on appeal (against sentence) the prospect of civil recovery of debt as a mitigating factor, but she did not; and finally, to invoke issue estoppel would be contrary to the scheme of the Social Security Act.

[35] The respondent has made full and ample submissions on this question, all of which make it very clear that no issue estoppel can arise from criminal proceedings which would have the effect of precluding civil recovery of money which the appellant owes to the respondent. It has always been open to victims of crime to pursue civil remedies available to them against the criminal perpetrator. It would be correct for the Authority to hold that actual payment of reparation under the Sentencing Act would prevent recovery of a debt arising out of the same circumstance simply because the reparation payment would also extinguish the debt. But where there is no reparation payment ordered, or where the reparation payment ordered only partially extinguishes the debt, it is difficult to see how, on any view of existing law, there could be an issue estoppel preventing recovery of the debt or the balance thereof. Here, the debt has arisen from the appellant obtaining a wrongful overpayment of a benefit. Provided the overpayment has been properly established (which cannot be contradicted in this case) and remains outstanding, the events that have or have not occurred in the criminal proceeding cannot affect the conduct of civil proceedings to recover the debt. It follows that the Authority was correct in the stance it took in relation to the issues arising in question three. Section 38(2) of the Sentencing Act makes it clear that a victim is not precluded from obtaining additional relief through other proceedings available to him or to her; this was recently recognised in Davies v Police SC83/2007, 25 May 2009 at para [10].

Question four

[36] The appellant has very responsibly conceded that her appeal on this question of law cannot succeed. She has referred the Court to authorities which confirm this is so. Accordingly, I do not propose to deal with this question in any detail. The judgments in Harder v Director of Land Transport Safety (1998) 5 HRNZ 343, S v G [1995] 3 NZLR 681 and Bracanov v Moss [1996] 1 NZLR 445 make this plain. The answer to question four must be no.

Questions five and six

[37] These questions have the same sub-strata; that is, they each question the scope of the discretionary authority provided for in s 86. Question five queries whether the Authority has viewed the circumstances in which the discretion can be exercised too narrowly. Question six queries whether the Authority wrongly concluded that, on the evidence available, the discretion should not be exercised. I propose, therefore, to deal with both questions together.

[38] The appellant points to the fact that it would take her about 332 years to pay off the debt at $10 a week and contends that this is indicative of the impracticality of recovering the debt. In this regard, she submits that the size of her debt, when taken together with her low income lifestyle, qualify as unusual circumstances, which, in turn, justify the respondent exercising the discretion in s 86 against recovery of the debt. Hence, the Authority erred in failing to recognise this.

[39] The appellant relies on Moody v Chief Executive of the Department of Work and Income [2001] NZAR 608 for support of her submission that the present circumstances can qualify as “commercial grounds” for exercising the s 86 discretion against recovery of the debt. The appellant argues that the fact that it will take her

332 years to pay off the debt, and the sheer impracticality of recovery which this gives rise to, can amount to a commercial consideration which supports non- recovery of the debt. The appellant also submits that she has a low income, is part of a four-person family, and has health problems.

[40] The respondent submits that the Authority has not erred in law in its interpretation of the circumstances in which the Chief Executive can exercise the discretionary authority in s 86(1) not to recover a debt. In this regard, the respondent argues that the Authority was correct in its approach to the operation of the s 86(1) discretion, which must be interpreted in light of s 86, the purpose and scheme of the Act, and the Chief Executive’s public finance obligations. The debt, being recoverable, should be recovered, unless the debtor’s circumstances were highly unusual. In the particular circumstances, the Authority was correct in holding that the magnitude of the appellant’s debt was not a reason to excuse repayment, as to do

otherwise would create perverse incentives for people to engage in benefit fraud. The Authority also took into account the appellant’s term of imprisonment for fraud, and was entitled to have regard to s 38(2) of the Sentencing Act, and the provisions of the Social Security Act, in finding that the appellant’s conviction and sentencing for fraud did not constitute an exceptional circumstance warranting the exercise of the Chief Executive’s residual discretion under s 86(1).

[41] As regards the appellant’s contention that her circumstances favour non- recovery of the debt on commercial grounds, the respondent submits that the appellant’s dispute here is as to the weight attributed to the evidence. The respondent cites Scrimgeour v The Chief Executive of Work and Income New Zealand HC WN AP206/01 17 March 2003, as authority for the proposition that the weight accorded to evidence does not constitute an error of law. The respondent submits that there is no basis for claiming that the Authority erred in its assessment of the evidence, as their result is consistent with the evidence before it. The respondent also submits that the Authority was correct to find that the size of the debt was not a reason to excuse payment. In this regard, the respondent recognises that recovery of debt will always be harsh on low-income earners, regardless of the size of the debt.

[42] The legislative scheme for recovering payments due to the Crown is to be found in s 85A and s 86 of the Act. It provides a two step process: first, there is the identification of payments that constitute a debt (s 85A); secondly, there is the decision to recover the debt (s 86). Section 85A provides:

85A Payments that are debts due to the Crown

The following payments or other sums are debts due to the Crown: (a) any penalty payable under this Act:

(b) any benefit paid conditionally or provisionally under this Act that a person has become liable to repay (by direction of the chief executive or otherwise):

(c) any advance payment of a benefit made to a person under section

82(6):

(d) any money paid to or for the credit of a person as a grant of special assistance under a welfare programme approved under section

124(1)(d) that is—

(i) paid as a recoverable grant of assistance; or

(ii) otherwise recoverable from that person under the terms and conditions of the programme:

(e) any amount described by this Act as a debt due to the Crown from the person:

(f) a sum (an overpayment), paid or advanced under this Act or the Social Welfare (Transitional Provisions Act 1990 [[or Part 6 of the War Pensions Act 1954]] or Part 1 of the [[New Zealand Superannuation and Retirement Income Act 2001]] to or for the credit of a person—

(i) that is in excess of the amount to which the person is entitled; or

(ii) to which the person has no entitlement.

[43] Section 85A(f) is the subsection that applies to the payments that Ms Osborne received. Establishing a debt under this subsection entails some analysis of the amounts under the Act to which a recipient of an overpayment may have been entitled. This is because s 85A(f) refers to “sums” paid or advanced under the Act, rather than to a benefit paid or advanced under the Act. Rather than isolate particular benefits and focus on whether or not a recipient has wrongly been overpaid a particular benefit, the subsection refers simply to “sums” and “amounts”. I consider that this more flexible language permits account to be taken of a recipient’s entitlement to some other benefit, which should have been the one that was received. Thus, the overpaid sums are to be measured against any amount the recipient is entitled to under the Act, if at all. Where there is some alternative entitlement, this is to be deducted from the overpayment, with the result that the balance constitutes the recoverable debt.

[44] Having identified that a payment is a debt due to the Crown, it is then for the Chief Executive to determine its recovery. Section 86 vests the Chief Executive with authority to recover these debts. The relevant parts of the section provide:

86 Recovery of payments made in excess of authorised rates

(1) The chief executive, in order to recover a debt referred to in section

85A, may—

(a) bring proceedings in the name of the chief executive; or

(b) deduct all or part of that debt from any amount payable to that person by the department as a benefit or a student allowance; or

(c) in the case of a debt referred to in section 85A(d), deduct all or part of that debt from any payment of a grant of special assistance under a welfare programme approved under section 124(1)(d).

(1A) Subsection (1) is subject to subsections (9A) and (9B), and to any regulations made under section 132G.

(1B) Nothing in section 94B of the Judicature Act 1908 or any rule of law relating to payment by or under mistake prevents recovery of a debt under subsection (1).

...

(9A) 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 intentionally 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.

(9B) In subsection (9A), error— (a) means—

(i) the provision of incorrect information by an officer of the department:

(ii) any erroneous act or omission of an officer of the department that occurs during an investigation under section 12:

(iii) any other erroneous act or omission of an officer of the department; but

(b) does not include the simple act of making a payment to which the recipient is not entitled if that act is not caused, wholly or partly, by any erroneous act or omission of an officer of the department.

[45] Section 86(1) gives the Chief Executive discretionary authority to recover those debts identified in s 85A in three possible ways. The provision does not mandate that the Chief Executive take any such action. Section 86(1A) limits the operation of s 86(1) by making it subject to s 86(9A) and s (9B). The effect of those provisions is that no action will be taken to recover debts coming within the specified exceptions, which apply to money paid by or under a mistake. At the same time, s 86(1B) makes it clear that other legal rules and principles affecting the recovery of money paid under a mistake do not prevent recovery under s 86(1). When it comes to money paid by or under a mistake to beneficiaries, Parliament has chosen to stipulate when recovery may not be undertaken. Other than that, the language used in the remainder of s 86 shows that Parliament intended the operation of s 86(1) to be discretionary.

[46] But the language used in s 86(1) has left room for argument on the scope of this discretion. On one view, s 86(1) can be read as providing no more than a limited discretion to select from the recovery processes provided in the subsection. When read in this way, authority to decide whether or not to recover a debt would be understood to rest elsewhere: for example, the Public Finance Act 1989. On the other hand, s 86(1) can be read as leaving it open to the Chief Executive to decide whether, in any particular case, recovery should be undertaken at all.

[47] The present form of s 86(1) is part of a package of amendments to s 86 that were made in September 2002 with the enactment of ss 21 and 22 of the Social Security (Personal Development and Employment) Amendment Act 2002. The other parts of the package were s 85A, s 86(1A) and ss 86(9A) and (9B). To understand the intended scope of the discretion in s 86(1), relevant to recovery of overpayments to beneficiaries, it is helpful to consider the earlier forms of this provision. There have been a number of amendments over the years.

[48] A common feature of the earlier provisions is that the language used made it clear that the decision to recover a payment was discretionary. In its original form, s 86(1) provided:

If any benefit or instalment of a benefit is paid in excess of the amount to which the beneficiary is by law entitled, the amount so paid in excess may be recovered from the beneficiary as a debt due to the Crown at the suit of any member of the Commission, or the Commission may make any adjustments in any instalments of the same or any other benefit thereafter becoming payable.

[49] I read the original version of s 86(1) as giving the decision-maker a discretion to take steps to recover overpayments, either through legal proceedings against the recipient, or by adjusting the recipient’s benefit or any future benefit to which he or she becomes entitled. I do not understand this version to limit the discretion to the choice of process to achieve recovery. Past amendments have not altered this meaning. Whilst those amendments have included additional provisions for recovering overpayments, each of them was framed in terms of the decision-maker having the power to choose whether or not he or she undertook recovery of the overpayment.

[50] Before the current version of s 86(1) was enacted, the equivalent earlier versions gave the appointed decision-maker discretionary authority to decide whether or not to recover an overpayment. The current version of s 86(1) appears to support two meanings (as noted in s 48); one of which is consistent with the earlier versions, whilst the other is not. I consider that if Parliament had intended to remove the authority to choose whether or not to recover an overpayment, Parliament would have done so in clearer terms. Hence, whereas the language of the current s 86(1) might suggest that the discretion was limited to selecting from the various ways of obtaining repayment, I do not consider this to be the intended meaning. It follows that the intended meaning of s 86(1) is that the Chief Executive has discretion to decide whether or not to recover an overpayment.

[51] I now turn to consider the considerations that will affect the exercise of s 86(1). The respondent contends that the Chief Executive only has a “residual discretion” to decide not to recover an overpayment and that this can only be

exercised in a narrow range of what must be highly unusual circumstances. The respondent argues that Ms Osborne’s circumstances cannot be so described.

[52] Previous High Court decisions have interpreted the current s 86(1) as providing a “residual discretion”, in the sense that it exists against a general presumption that overpayments – other than in s 86(9A) circumstances – are to be recovered: see Cowley v Chief Executive of the Ministry of Social Development HC WN CIV2008-485-381 1 September 2008, Clifford J at [46]:

Taken overall, therefore, the general presumption will be that the Chief Executive will take recovery action as regards overpayments. He may not take such steps where s 86(9A) applies. In terms of principles affecting the Crown’s general discretion as to whether or not to recover debts, he may also not take such action where considerations of “practicality” lead him to that conclusion. Finally, he may also not take such action where considerations of the circumstances of an individual beneficiary within the policy framework created by the Act lead to such a conclusion. In that last context, I consider that – as a matter of fact – circumstances where it is appropriate for the Chief Executive to take no steps at all, whether by way of deduction or otherwise, will be unusual. Beyond that, and as accepted not only by Doogue J in Attrill, but also by Goddard J in McConkey, I do not think it is appropriate for the Court to endeavour to set out criteria for the exercise of the discretion not to recover.

Earlier in Director-General of Social Welfare v Attrill [1998] NZAR 368, Doogue J

said of an earlier version of s 86 that:

Any discretion which may exist under the provisions of subss 86(1) to (1D)

is necessarily limited having regard to the provisions of subs 86(9A).

There are statements of like effect to be found in McConkey HC WN AP277/00

20 August 2002.

[53] The idea that s 86(1) provides for no more than a “residual discretion” to decide not to recover an overpayment is derived from contrasting s 86(1) with s 86(9A) and s 86(9B). Those subsections set out when the Chief Executive may not recover an overpayment. An inference is drawn from the presence of those subsections to the effect that Parliament, having specified when recovery may not be undertaken, must have intended that for circumstances falling outside those provisions, recovery should be undertaken, the only exception to that rule being when the circumstances are highly unusual. Reading s 86(1) as if it contained only a

residual discretion against recovery is said to be consistent with the Chief Executive’s obligations under the Public Finance Act, which includes, for example, the responsibility for financial management (s 34 of the Act).

[54] However, in its original form, the discretion in s 86(1) could only have been seen as a general statutory discretion. This is because the original version of s 86 had no equivalent of s 86(9A) and s 86(9B). Nor did the equivalent exist elsewhere in the Act. There was nothing in the section or elsewhere in the Act which could be seen as imposing a constraint on this discretion. Hence, the only constraint on its exercise would have been the usual administrative law principles, which would require all general discretionary authority to be exercised lawfully, reasonably and in accordance with procedural fairness. The question, therefore, is whether when Parliament introduced s 86(9A) and s 86(9B) and their earlier equivalents, it did so with the intention of having those amendments to s 86 confine the existing discretion in s 86(1).

[55] Section 86(9A) was first introduced into s 86 in 1973 by the Social Security

Amendment Act 1973. This provision read:

Notwithstanding anything to the contrary in this section, the Commission may, in its discretion, authorise the provisional writing off of a debt which arose as a result of an error not intentionally contributed to by the debtor if the Commission 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.

[56] The introductory words of the subsection suggest that Parliament considered that without the subsection, the existing language of s 86 meant that recovery should be undertaken. This is consistent with the view expressed in the Report of the Royal Commission on Social Security in 1972, which took the view that the then administering authority of the Act must, by s 86 of the Act, seek recovery of the amount overpaid, whatever the cause of the overpayment. Subsequently, in the course of the Minister’s remarks in support of the Social Security Amendment Bill, he said:

Under the existing legislation the Social Security Commission is required to recover all overpayments of social security benefits, whatever their cause,

but a number of overpayments arise through no fault of the beneficiaries and in circumstances in which it is unreasonable to expect the beneficiary to refund the money to the department. The Bill provides discretionary authority for the commission to write off these overpayments.

An underlying policy argument of how subs (9A) made its way into the Act is outlined in Attrill.

[57] The idea that s 86(9A) was necessary before a decision could be made not to recover an overpayment may seem to be inconsistent with the discretionary language used in s 86(1). This was recognised in Moody v Chief Executive Department of Work and Income [2001] NZAR 608 at [27]:

Further, it is perfectly clear, despite the view to the contrary expressed by the Minister in the second reading debate in 1973, there is no obligation in law on the Department to recover over-payments, see Director-General of Social Welfare v Attrill. and Director-General of Social Services v Hales (1983)

47 at ALR 281 307 and 319. Consequently, it would rather appear as though s 86(9A) was introduced on the basis of a false premise as to the law.

But there is a line of authority that has held that decision-makers dealing with public money act unreasonably when they act over-generously: see Roberts v Hopwood [1925] AC 578. It may, therefore, be that Parliament had this in mind when it decided to introduce s 86(9A) into s 86.

[58] When first introduced, s 86(9A) was framed in a way which still left a discretion as to whether to recover in the circumstances. Section 86(9A) remained in this form until 2002 when it was amended by the Social Security (Personal Development and Employment) Amendment Act 2002. This Act introduced the current form now found in s 86(9A) and s 86(9B). The use of the term “the Chief Executive may not recover”, in the current form of s 86(9A), strengthens the impediment the subsections present to recovering overpayments falling within their ambit.

[59] The strengthening of the language in s 86(9A) and s 86(9B), coupled with the express overriding of s 94B of the Judicature Act, and the rules of law relating to recovery of money paid under mistake, in s 86(1B), can be understood as Parliament’s response to aspects of the decision in Moody, which acknowledged that the general law on recovering money paid under a mistake was applicable to

decisions under s 86. The response Parliament adopted suggests that Parliament was troubled by those aspects of Moody. However, it is interesting that when amendments to s 86 were made in 2002, Parliament did not make use of similarly expressive language to outline the nature of the discretionary authority in s 86(1).

[60] In Moody at [28], Young J said that:

... s 86(9A) is, undoubtedly, a strange provision. It was apparently introduced to provide an exception to an obligation which did not exist.

[61] This was said of s 86(9A) at a time when it was framed as a discretionary power to permit the writing off of overpayments made as a result of a departmental error. It was after Moody that Parliament amended s 86(9A) to make it read as a requirement not to recover overpayments made in specified circumstances. This provision changed from an exception to what has been judicially described as an incorrectly perceived obligation to recover overpayments to a straight-out injunction not to recover them in certain specific circumstances. Despite that clear change, Parliament did not amend s 86(1) in a way which would indicate it wanted to alter the meaning Moody attributed to the discretionary authority to recover overpayments in general. Given the clear changes made to s 86(9A), I consider that had Parliament wanted to depart from the understanding of s 86(1) which Young J expressed in Moody, then Parliament would have done so in a similarly clear fashion. When seen in this light, it is difficult to contemplate why s 86(9A) and s 86(9B) should be understood to inferentially limit the exercise of the general discretionary authority in s 86(1).

[62] The overall impression I gain from the legislative history and from the language used in s 86 is that Parliament sees the lawful and reasonable exercise of the discretion in s 86 as leading to recovery of overpayments. This view is consistent with the line of authorities dealt with in Wade & Forsyth Administrative Law (10^ed 2009) at pp 336-338 under the heading of misplaced philanthropy. To ensure that this approach is tempered when it comes to those persons whose circumstances come within s 86(9A) and s 86(9B), Parliament has expressly curtailed recovery in such circumstances.

[63] The proper application of any discretionary power that authorises recovery of public money, which has been wrongly obtained, is likely to result in decisions not to recover being limited to rare and unusual circumstances. Since the considerations for the Chief Executive to take into account when exercising the authority in s 86(1) are not prescribed, he or she is free to consider anything that is reasonable and relevant to the decision to be made. This will include obligations under the Public Finance Act.

[64] The circumstances in Roberts v Hopwood show that attitudes to what is an unreasonable use of public money can alter over time. To that extent, a decision on recovery of an overpayment should be able to be influenced by prevailing attitudes at the time. This approach is in keep with s 6 of the Interpretation Act 1999, and the general principle of statutory construction, that Parliament intends the court to apply to an ongoing Act a construction that continuously updates its wording to allow for changes since the Act was initially framed: see Bennion On Statutory Interpretation, section 288 at pp 889-890.

[65] To read the discretion in s 86(1) as being confined by s 86(9A) and s 86(9B) would fix s 86(1) with the meaning it was believed to have when s 86(9A) was first introduced. This is unnecessary. The general law relating to discretionary decisions on the application of public money precludes an overly generous approach to its use. In this respect, I agree with the view Doogue J expressed in Attrill that it would be inappropriate for the court either to define the extent of the discretion or to attempt to list factors which might be taken into account.

[66] It follows that I see no reason to describe the discretion in s 86(1) as being a “residual discretion” that is inferentially limited by the presence of s 86(9A) and s 86(9B). Section 86(1) gives the Chief Executive general discretionary authority to determine whether or not to recover overpayments that fall outside the circumstances prescribed in s 86(9A) and s 86(9B). Like any general discretion, the discretion in s 86(1) is not unfettered. But this only means that it is subject to the usual fetters administrative law places on the exercise of any general discretion; that is, the discretion must be exercised lawfully, reasonably and in accordance with procedural fairness.

[67] I now turn to consider how questions five and six should be answered. I consider the Authority’s use of the phrase “residual discretion” in the case stated to be unfortunate. However, when I look at how the Authority has approached the exercise of the discretion in s 86(1), I consider the Authority was right to conclude that Ms Osborne’s circumstances did not warrant exercising the s 86(1) discretion in her favour; the answer to question five is no. I consider there was no evidence which would have entitled the Authority to conclude that the Chief Executive should not exercise the discretion in s 86(1); the answer to question six is no. The length of time it will take for the debt to be repaid does not make its recovery unreasonable. Clearly, at the present rate, it will never be fully repaid. But that cannot preclude taking steps to ensure partial repayment is achieved. Nor is it a basis for writing off part of the debt. Ms Osborne’s financial circumstances may improve. If that occurs, the Chief Executive can increase the rate at which recovery is made. The sheer impossibility of achieving full recovery at the present rate does not make it unreasonable or inconsistent with good commercial practice to attempt some recovery. This is especially so when it is remembered that the overpayment has resulted from Ms Osborne’s dishonesty and a calculated action on her part to obtain a benefit to which she had no entitlement. In this respect, her circumstances are different from the appellant in Moody, which in turn could justify a different approach.

[68] The Authority correctly recognised at [46] of its decision that s 86(9A) precluded recovery when the criteria in that section were made out, but that this would not exclude the possibility of a decision not to recover for circumstances that did not fit within the s 86(9A) criteria. The Authority also correctly recognised at [48] of its decision that the discretion in s 86(1) was not unfettered but that, apart from circumstances coming within s 86(9A), the occasions when a decision not to recover would be made were limited and likely to be highly unusual circumstances or where recovery was impractical. I understand the Authority’s reference to the impracticality of recovery to relate to circumstances where money is not easily recovered. Although Ms Osborne contends recovery in her case is impractical, this only relates to the length of time it will take to obtain full recovery. Whilst she remains in receipt of a benefit, there is no difficulty in deducting repayments by instalments. In this sense, there is nothing impractical about the recovery process as

applied to Ms Osborne. There is nothing to suggest that the Authority has misapplied s 86(1) to its assessment of Ms Osborne’s case.

[69] I found at [24] and [25] that the Authority had erred in its legal interpretation of the sentencing judgment in relation to reparation. I also found that this could only have an effect on the outcome of the appeal if the sentence imposed on Ms Osborne, and how it was affected by her inability to pay reparation, are factors for the Chief Executive to take into account when deciding to recover the overpayment. Those circumstances are not prescribed mandatory considerations. I see no reason why they should be seen as implied mandatory considerations. In the context where one party has caused loss to another in the course of committing a criminal offence, the law has always countenanced pursuit of civil remedies along with the imposition of criminal sanctions. Unless recognition of the circumstances as they applied to Ms Osborne’s sentencing is read as an implied mandatory consideration for the exercise of s 86(1), which is plainly wrong, it is for the Chief Executive to determine what regard, if any, is paid to those circumstances. Failure to have regard to them will not invalidate the exercise of s 86(1). It follows that, despite the finding on question two that the Authority erred, the error is of no legal consequence.

Result

[70] Of the six questions in the case stated, only question two has been answered affirmatively for Ms Osborne. However, the effect is of no consequence. The practical outcome of the appeal is that the lawfulness of the steps taken by the Chief Executive to recover the overpayment has been upheld.

Duffy J