Summary

A Ministry of Social Development review of benefit overpayments established due to relationships in the nature of marriage between 1 November 1996 and 31 December 2000 resulted in the reversal of over $35 million of debt wrongly held to be owed by almost 3000 beneficiaries.

At least a further $60 million of wrongly established debt remains, and is still being recovered from the poorest in our community.

The review followed an independent report to the Minister of Social Services that the Ministry of Social Development had failed to apply the correct test as set out by the Court of Appeal in Ruka v Department of Social Welfare [1997] 1 NZLR 154.

The Joychild Report found “strong evidence that the incorrect legal test had been applied” in cases involving relationships in the nature of marriage between 1 November 1996 and 31 December 2000, and recommended that all overpayments established during this period be reviewed.

Reasons identified in the report for the failure included a culture within the Ministry’s Benefit Control Unit (BCU) based on financial targets and incentives aimed at recovering from beneficiaries as much money as possible, including a “Million Dollar Club” for BCU investigators who establish over $1 million against beneficiaries in a year.

While a huge 63% of the overpayments revisited were disestablished, only 5700 applications were received. This is out of a total of more than 15,600 potentially wrong decisions made within the timeframe. The Ministry could review the additional 9900 cases but chose to put the onus on beneficiaries to apply to have their cases reconsidered, rather than fix errors based on information it has at its fingertips. Moreover, out of the remaining 37% of cases that were reviewed and upheld, there is evidence that shows the review panels arrived at conclusions by stepping outside of the review’s Terms of Reference set by the Minister of Social Services.

In addition, those affected by decisions involving determinations of relationships in the nature of marriage outside of the timeframe ought to have been given the opportunity to have their cases considered. There is evidence that the Ministry continues to ignore the Ruka test or apply it incorrectly.

A Unit Driven by Money

The government agency responsible for ensuring that basic needs of the poorest in society are met, instead created a culture that persecuted those on the lowest incomes. When requested by the Minister to put things right, that same agency went out of its way to avoid the accountability needed to ensure that those affected were treated with a fairness required by law. The BCU has a culture of financial gain so entrenched that it operates unfairly, unlawfully, and contrary to the principles of natural justice.

Joychild found that the fundamental legal principle of fairness was not being followed. Public servants were exercising a statutory discretion while at the same time being subject to “enticements” and “encouragement” towards using that discretion in a particular way. A fundamental conflict exists between the use of monetary targets as a performance measurement in an administrative law context that requires the impartial exercise of a statutory power of decision as to benefit eligibility. In short, a bias is created in favour of establishing large overpayments. Joychild said:

“It would be wrong to ignore the very real potential this culture had to unconsciously influence investigators when exercising their broad discretions to decide whether there was a marriage type relationship in existence and the date at which it commenced. This influence explains the corresponding dramatic increase in the level of overpayment per beneficiary in [marriage type cases] since the Unit was established.”

The culture of the BCU is unique in that its operations, that ought to be governed by principles of administrative fairness, have been underpinned by financial incentives. For example, when introduced in 1987, $1 was expected to be returned for every dollar spent. Throughout the 1990s this increased to $2 then $2-50 for every dollar spent, and finally reaching at one point $3-25. The targets were heavily criticised by Labour when in opposition. However, the present Labour government has continued to allow measurement of the BCU’s performance by the amount of debt it can recover until recently when the targets were changed to the number of investigations undertaken by the unit.

The BCU operations include a dedicated data-matching unit that matches information with that held by the Inland Revenue Department and the Immigration Service in order to detect benefit overpayments arising out of undeclared earnings and people leaving the country. However, the largest proportion of the BCU’s work involves investigations into alleged relationships in the nature of marriage.

The most perverse illustration of how the BCU saw itself was the setting up within the Unit of the “Million Dollar Club”. As observed by Joychild, the:

“‘million dollar’ club was open to all investigators who could collect a million dollars or more from beneficiaries in any one year. Investigators who collected this level of money were publicly affirmed and valued by management at the Unit’s annual conferences.”

Since being made public the “club” has quietly disappeared. However, as of the time of the Joychild Report 10% of an investigator’s salary continued to be paid according to the level of debt that was established against beneficiaries.

The Ruka decision

The Ruka decision marked a significant change to the way The Ministry is required to assess a person’s marital status for benefit purposes. The Court made it clear that such determinations were not a simple matter of weighing up certain indicators and arriving at a result, as earlier case law had suggested. In an environment where in-house recognition and prestige were given to BCU investigators for putting as many beneficiaries into debt as possible, it is not difficult to see why the requirement to follow the more stringent test set out in Ruka was resisted.

Section 63(b) of the Social Security Act 1964 gives the Ministry a discretion when determining benefit eligibility to “regard as husband and wife any man and woman who, not being legally married, have entered into a relationship in the nature of marriage.” The Act does not go on to define what a relationship in the nature of marriage is. This has been decided by case law, in the past by looking at factors such as the pooling of resources, living under the same roof, sharing of domestic duties, being viewed by the community as a couple, and so on.

However, the Court of Appeal in Ruka went further than merely a weighing up of these types of factors in some kind of “checklist” approach by concluding that the principal elements of a relationship in the nature of marriage are financial interdependence and emotional commitment. While certain factors may be indicative of a relationship in the nature of marriage, they are not determinative. The Court made it clear that:

“where co-habitation and a degree of companionship demonstrating an emotional commitment...are found together with financial interdependence, there will be such a merging of lives as equates for the purposes of the legislation to a legal marriage...the significant point is that both mental and emotional commitment and the financial interdependence must be found to exist...”

The Court pointed out the importance of resisting what it called the “checklist” approach. It highlighted the danger that an overly simplistic weighing up of factors such as the sharing of household duties, provision of domestic services, sharing of a sexual relationship, sharing of companionship etc, which may be present in a given situation, but that are in no way determinative of a relationship is in the nature of a marriage.

For example, there are often instances where a number of positive indicators may in fact be present, but the reality of the situation is nothing more than two teenagers flatting together. The importance of the test of financial interdependence and emotional commitment is in the necessity to identify the true essence of a relationship, instead of relying on any one aspect or set of factors that may or may not be present and cannot themselves indicate whether a relationship is or is not in the nature of a marriage.

Evidence that the Ministry ignored the legal test can be seen in the findings of the Joychild Report, which concluded there was nothing to show that the Ruka decision had been implemented.

In addition, beneficiary advocacy groups report that the BCU continue to use the “checklist” approach when conducting investigations, and rely heavily on seeking admission statements from the person concerned rather than apply the test the Ruka decision requires.

In particular, Joychild found: a failure to amend any staff manuals, guidelines or information resources to reflect the legal test;

the Ministry’s failure to provide written notification to its investigators of legal changes;

absence of training post Ruka;

no training about violence to women;

lack of legal oversight of the BCU;

culture of the BCU between 1996 - 2000 which valued and rewarded investigators on the basis of level of monetary overpayments established

lack of independent advice and support for beneficiaries

It is important to consider the BC ignoring the Ruka decision alongside the unit’s ‘million dollar’ club mentality, the continued use of the “checklist” approach, and the push to first seek an admission statement from the person investigated. Combined, it is inevitable that situations will arise where people are lumbered with debt resulting from alleged benefit overpayments based on decisions that are wrong in law. While the extent of the problem is not entirely clear, the findings of the Joychild Report together with other evidence show that serious and widespread problems remain.

Admission Statements

The BCU has stated publicly that when an ‘admission’ is received, a statement is taken then a decision is made. Cases this year before the Social Security Appeal Authority also show that MSD still rely on admission statements.

Joychild observed that investigators would often seek admission statements from people. For example, investigators often attempt first to encourage the person to simply admit being in a relationship in the nature of marriage in order to avoid prosecution. The investigator uses the “checklist” to convey to the person that they are in fact in such a relationship, then offers the choice of either making the admission statement and accepting the debt, or face prosecution. The correct definition of what constitutes a relationship in the nature of marriage was almost never explained to those investigated before the admission statement was sought.

Debt Burden

Joychild pointed to a number of instances where beneficiaries were so heavily in debt to the Ministry that the amount would never be repaid during their life-time, in many cases over $60,000. The Ministry continues to have no policy on the issue of life-time indebtedness, and to date has done nothing about dealing with its effect on the beneficiary.

In relationship in the nature of marriage cases it is predominantly women who are prosecuted and/or required to repay the debts established, rather than both the man and the woman involved. The figures for the year ending 31 December 2001 show that $23,360,694 of debt was established in respect of 1,936 females, compared with $5,247,689 established in respect of 931 men. For the year ending 30 June 2004, $19,803,566 debt was established against 1,388 females, and $3,881,270.50 debt was established in respect of 568 men. This indicates that the average overpayment in the 2003/2004 fiscal year was $14,267.70 for females and $6833.22 for males.

There is an irony in the fact that a government agency having the role of assisting the poorest in our community can at the same time be the agency that can lock the citizen into life-long debt. The High Court has on a number of occasions said that it is inappropriate to impose upon a beneficiary a level of debt that cannot be expected to repay.

The Ruka Review

The principal recommendation made by Joychild was that:

“all decisions taken by the department to establish overpayments against beneficiaries on the grounds that they were in a marriage-type-relationship, between November 1996 and December 2000, be reviewed to ensure the evidence satisfies the Ruka legal test. … At the heart of the matter are two key factors. First is the fact that the decision in Ruka was not an incremental change to the marriage type relationship test but a significant change. Second is the fact that decisions made that a beneficiary is or was in a marriage-type-relationship have far reaching effects on that person.”

As a result, the then Associate Minister of Social Services Ruth Dyson requested the Ministry to carry out a review, on a case by case basis, of BCU decisions regarding relationships in the nature of marriage made between 1 November 1996 and 31 December 2000. The Ministry invited 6000 affected people by post to apply for a review, and issued public notices to those unable to be contacted directly. It was estimated that up to 15,600 people were potentially facing debts wrongfully established during the 1996 to 2000 period.

Dyson’s instructions were clear. The review was to consider whether or not the correct legal test had in each particular case been applied. If it had not, any debt established could not stand. The review was not about giving the BCU or reviewer another opportunity to reinvestigate, gather new evidence, or reconsider the substantive decision afresh. As the Minister’s instructions said: “we are reviewing whether the legal test was applied correctly or not (i.e. we are not reviewing the actual previous decision)” .

The BCU ignored these instructions and set out to reinvestigate all those who applied for a review. Rather than following the instructions issued by Dyson that clearly focused on whether or not the original investigator had applied the correct legal test, the BCU prepared itself for complete reinvestigations, including gathering fresh evidence and new information, a total re-examination of the applicant’s circumstances.

The approach the BCU were prepared to follow fell well outside of the Minister’s instructions, and highlights the attitude and type of thinking behind the Ministry’s blatant refusal to implement the Ruka test in the first place.

While one of the obvious reasons for the review focusing on whether the correct legal test had been applied was because of the practical difficulties of expecting accurate information to still exist regarding decisions that had been made so far back in the past, principles of fairness dictate that a decision reached based on a legally incorrect test was by definition wrong in law. A decision-maker expected to apply the law correctly ought not to be given another bite at the cherry if for some reason it is found that the law in any particular case has been misapplied. The onus is always upon the Ministry to show that a person is liable for any debt it may wish to establish. It is simply unfair for an applicant who has already been put through a BCU investigation to be subjected to a complete reinvestigation if the original decision was arrived at using a legally incorrect test, which was obviously the case here.

Beneficiary advocacy groups became aware of the BCU’s proposed intention to reinvestigate those applying under the review provisions, and managed to halt its plans by convincing Dyson to reiterate to the BCU the purpose of the review being to look only at the whether or not the investigator had applied the correct legal test.

However, even though the review has been carried out there remains a large amount of wrongly established debt being recovered from beneficiaries. This inference can clearly be drawn from the following:

A Joychild’s findings–

there was nothing to show the Ministry had ever implemented the correct legal test set out in Ruka the culture within the BCU based on ‘collect as much money from beneficiaries as possible the BCU’s use of admission statements to establish debt without applying the Ruka test the unit’s lack of legal oversight;

B That of the 15,600 potentially wrong decisions made during the period covering the review, only 5700 applications were received;

C It was found that the incorrect test had been applied in a huge 63% of cases reviewed;

D Of the remaining 37% of cases reviewed that were upheld, advocacy groups are already seeing instances where the review panel has apparently reconsidered the merits of the original decision, and if this turns out to be the case, it is clearly outside of the reviews Terms of Reference;

E Advocacy groups also report that despite the review, the BCU still routinely fail to apply the Ruka test, in favour of following the “checklist” approach instead.

While the fact that 63% of the decisions reviewed were overturned, it is likely that this has been due to the BCU’s high reliance on admission statements. Where admission statements are present, it would be clear at the outset that the Ruka test had not been applied because as the BCU have stated, no further evidence is sought after an admission statement has been received.

As found by Joychild, there was no evidence that suggested the BCU ever implemented the Ruka test as part of its policy. No training was ever given on how the decision affected the BCU’s work, despite the Court of Appeal’s findings fundamentally altering how the BCU ought to be conducting itself. How then could even 37% of cases be shown to have had the Ruka test applied correctly?

It is likely that the Ministry’s obvious zeal prior to the commencement of the review to reconsider the merits of an applicant’s case appears to have remained. When looking at a particular case, it is not difficult to see how the Ministry’s review panels, in the absence of an admission statement, could not have resisted the urge to reconsider the information before it, however limited and without an applicant’s right to reply, in terms of whether a relationship in the nature of marriage existed rather than under the review’s Terms of Reference.

The 63% of cases that were reviewed showed an application of the incorrect legal test, but only a third of the 15,600 potentially wrong decisions made in the review period were considered. This 63% figure together with the low take-up rate suggest that there are still large numbers of incorrect decisions to establish and recover beneficiary debt that have not been revisited.

The high likelihood that the 37% of cases that were reviewed and upheld were still based on a failure to have regard to the Ruka test increases the number of wrongly established debts potentially being recovered.

Advocacy groups report that the BCU continue to routinely use the checklist approach rather than the legally required Ruka test when investigating allegations. Clear evidence exists that investigators have since 2000 established debts after engaging in the same type of behaviour lambasted both in the Joychild Report and by the Court of Appeal. Again, the number of beneficiaries who have had debts wrongly established must inevitably be even greater still.

There can clearly be no confidence that the BCU has done much at all to remedy the unfair and unlawful policies and practices that have had such a devastating effect on the lives of thousands of people.

The Bruce Jesson Foundation takes no responsibility for the views expressed, nor does it necessarily endorse or advocate any recommendations reached by the author.

Ref.
Frances Joychild, Review of Department The Ministry Implementation of the Court of Appeal Decision Ruka v Department of Social Welfare (1997) 1 NZLR 154
Ibid
Ruka v Department of Social Welfare [1997] 1 NZLR 154
Interview with Stephen Ruth, Wellington People’s Centre, November 2004
Dominion Post, 3 August 2002, p. A24
Letter from Peter Hughes, Chief Executive, Ministry of Social Development, 4 October 2004
Letter from Peter Hughes, Chief Executive Officer, Ministry of Social Development, 11 February 2002
Frances Joychild, Review of Department The Ministry Implementation of the Court of Appeal Decision Ruka v Department of Social Welfare (1997) 1 NZLR 154
Ruth Dyson Associate Minister of Social Services, Media Release, 30 August 2002
Process document agreed between Ruth Dyson’s office and MSD, 30 August 2002
BCU Review Project, Process Documents, 5 September 2002
Letter from Minister of Social Services, Steve Maharey, 12 November 2004
Ibid
Interview with Stephen Ruth, Wellington People’s Centre, November 2004
Ibid
Ibid