Albert Walda and Secretary, Department of Social Services
[2015] AATA 482
•6 July 2015
Walda and Secretary, Department of Social Services (Social services second review) [2015] AATA 482 (6 July 2015)
Division GENERAL DIVISION File Number(s)
2014/6262
Re
Albert Walda
APPLICANT
And
Secretary, Department of Social Services
RESPONDENT
Decision
Tribunal Senior Member Cunningham
Date 6 July 2015
Place Perth The Tribunal affirms the decision under review.
...(Sgd) A F Cunningham.....................................................................
Senior Member Cunningham
Catchwords
Social Security-lump-sum compensation payment-preclusion period-special circumstances-decision under review affirmed
Legislation
Social Security Act 1991(Cth)- s17 -s17(1)- s17(2)- s17(3)- s17(4)- s17(5) – s23 - s1164- s1169- s1170- s1170(1)- s1170(1)(a)- s1170(4) - s1170(5)- s1184k
Cases
Re Beadle and Director-General of Social Security (1984) 6 ALD 1
Drake and Minister for Immigration and Ethnic Affairs (No 2) (1979) 46 FLR 409
Dranichnikov v Centrelink [2003] FCAFC 133
Re Ivovic and Director General of Social Services [1981] AATA 57
Re Krzywak and Department of Social Services (1988) 15 ALD 690
secondar materials
Guide to Social Security Law- Pt 4.13.4.10- Pt 4.13.4.20
REASONS FOR DECISION
Senior Member Cunningham
6 July 2015
The Applicant, Albert Walda seeks the review of a decision of the Social Security Appeals Tribunal (SSAT) made on 19 November 2014. This decision affirmed a decision of Centrelink which determined that as a result of receiving a lump-sum compensation payment, Mr Walda must serve a preclusion period starting 26 July 2014 and ending 6 January 2017 during which he could not receive any Social Security payments.
Mr Walda disputes the calculation of the preclusion period on the basis that it is based on an amount of money not actually received by him. Mr Walda further contends that in the special circumstances of his case and in particular, his dire financial circumstances, the preclusion period should be shortened.
The hearing was conducted by way of video link to the Perth registry of the AAT. Mr Walda appeared on his own behalf and gave oral evidence. Ms Vahala appeared for the Respondent.
The T documents were tendered pursuant to section 37 of the Administrative Appeals Tribunal Act 1975.
Mr Walda submitted a letter from the Gosnells Community Legal Centre in support of his application for review. The letter detailed Mr Walda’s instructions to the author of the letter, Catherine Haag, Financial Counsellor, submitting that the preclusion period should be reviewed in light of Mr Walda’s personal situation and debt repayment obligations. Attached to the letter is a weekly income and expenditure statement as at 5 March 2015, a copy of the consent judgment dated 25 July 2014 and a statement from Mr Walda advising of the settlement sum and the monies received by him. In the letter Mr Walda contends that the preclusion period should be shortened to a period of 12 months on the basis of the debts that he has accumulated over the past 3 to 4 years and further, that the current period would cause him “excessive undue hardship”.
BACKGROUND FACTS
Mr Walda was employed by Tensioned Concrete Pty Ltd when he was injured at work on 4 January 2011. As a result of a worker’s compensation claim against his employer, a consent judgment was entered in the sum of $448,000 by way of damages exclusive of legal costs. This amount included a component for economic loss. The sum of $297,487.07 was deducted from the lump-sum being the total amount paid by worker’s compensation payments inclusive of medical expenses.
On 4 August 2014 Centrelink wrote to Mr Walda advising that he is precluded from receiving any Centrelink income support payments between 26 July 2014 and 6 January 2017 as a result of receiving a compensation payment of $448,000 (less $211,443.30 refunded weekly compensation payments).
Mr Walda states that the amount actually received by him was $150,532.93 and he contends that the preclusion period should be calculated on this figure and not the $235,556 used by Centrelink in its calculations.
issues
The issues for the Tribunal to determine are:
(a)Whether, as a result of receiving a lump-sum compensation payment, Mr Walda’s lump sum preclusion period has been correctly calculated; and
(b)Whether there are special circumstances that make it appropriate to treat all or part of the lump-sum compensation payment as having not been paid.
LEGISLATION
The legislation relevant to the decision under review is set out in the Social Security Act 1991 (Social Security Act).
Section 17 of the Social Security Act contains a number of definitions relating to compensation recovery, and relevantly provides:
17 Compensation recovery definitions
(1) In this Act, unless the contrary intention appears:
compensation has the meaning given by subsection (2).
Note: See also section 1163B.
compensation affected payment means:
…
(c) a social security benefit; or
…
compensation part, in relation to a lump sum compensation payment, has the meaning given by subsections (3) and (4).
compensation payer means:
(a) a person who is liable to make a compensation payment; or
(b) an authority of a State or Territory that has determined that it will make a payment by way of compensation to another person, whether or not the authority is liable to make the payment.
…
income cut-out amount, in relation to a person who has received a compensation payment, means the amount worked out using the formula in subsection (8), as in force at the time when the compensation was received.
…
periodic payments period means:
(a) the period to which a periodic compensation payment, or a series of periodic compensation payments, relates; or
(b) in the case of a payment of arrears of periodic compensation payments—the period to which those payments would have related if they had not been made by way of an arrears payment.
…
receives compensation has the meaning given by subsection (5).
…
Compensation
(2) Subject to subsection (2B), for the purposes of this Act, compensation means:
(a) a payment of damages; or
(b) a payment under a scheme of insurance or compensation under a Commonwealth, State or Territory law, including a payment under a contract entered into under such a scheme; or
(c) a payment (with or without admission of liability) in settlement of a claim for damages or a claim under such an insurance scheme; or
(d) any other compensation or damages payment;
(whether the payment is in the form of a lump sum or in the form of a series of periodic payments and whether it is made within or outside Australia) that is made wholly or partly in respect of lost earnings or lost capacity to earn resulting from personal injury.
(2A) Paragraph (2)(d) does not apply to a compensation payment if:
(a) the recipient has made contributions (for example, by way of insurance premiums) towards the payment; and
(b) either:
(i)the agreement under which the contributions are made does not provide for the amounts that would otherwise be payable under the agreement being reduced or not payable because the recipient is eligible for or receives payments under this Act that are compensation affected payments; or
(ii)the agreement does so provide but the compensation payment has been calculated without reference to the provision.
(2B) A payment under a law of the Commonwealth, a State or a Territory that provides for the payment of compensation for a criminal injury does not constitute compensation for the purposes of this Act.
(2C) The reference in subsection (2B) to a criminal injury is a reference to a personal injury suffered, or a disease or condition contracted, as a result of the commission of an offence.
Compensation part of a lump sum
(3) Subject to subsection (4), for the purposes of this Act, the compensation part of a lump sum compensation payment is:
(a) 50% of the payment if the following circumstances apply:
(i)the payment is made (either with or without admission of liability) in settlement of a claim that is, in whole or in part, related to a disease, injury or condition; and
(ii)the claim was settled, either by consent judgment being entered in respect of the settlement or otherwise; or
(ab) 50% of the payment if the following circumstances apply:
(i)the payment represents that part of a person’s entitlement to periodic compensation payments that the person has chosen to receive in the form of a lump sum; and
(ii)the entitlement to periodic compensation payments arose from the settlement (either with or without admission of liability) of a claim that is, in whole or in part, related to a disease, injury or condition; and
(iii)the claim was settled, either by consent judgment being entered in respect of the settlement or otherwise; or
(b) if those circumstances do not apply—so much of the payment as is, in the Secretary’s opinion, in respect of lost earnings or lost capacity to earn, or both.
(4) Where a person:
(a) has received periodic compensation payments; and
(b) after receiving those payments, receives a lump sum compensation payment (in this subsection called the LSP); and
(c) because of receiving the LSP, becomes liable to repay an amount (in this subsection called the Repaid Periodic Compensation Payment—RPCP) equal to the periodic compensation payments received;
then, for the purposes of subsection (3), the amount of the lump sum compensation payment is:
…
Receives compensation
(5) A person receives compensation whether he or she receives it directly or whether another person receives it, on behalf of, or at the direction of the first person.
…
(8) For the purposes of the definition of income cut-out amount in subsection (1), the formula is as follows:
(c)
where:
clean energy supplement component means the clean energy supplement worked out under point 1064-C3 for a person who is not a member of a couple:
(a) whether or not the person for whom the income cut-out amount is being worked out is a member of a couple; and
(b) whether or not that Module applies to the person for whom the income cut-out amount is being worked out.
maximum basic rate means the amount specified in column 3 of item 1 of the table in point 1064-B1.
ordinary free area limit means the amount specified in column 3 of item 1 in Table E-1 in point 1064-E4.
pension supplement component means the pension supplement amount worked out under point 1064-BA3 for a person who is not a member of a couple:
(a) whether or not the person for whom the income cut-out amount is being worked out is a member of a couple; and
(b) whether or not that point applies to the person for whom the income cut-out amount is being worked out.
(1) For the purposes of this Part, the Secretary may treat the whole or part of a compensation payment as:
(a) not having been made; or
(b) not liable to be made;
if the Secretary thinks it is appropriate to do so in the special circumstances of the case.
(2) If:
(a) a person or a person's partner receives or claims a compensation affected payment; and
(b) the person receives compensation; and
(c) the set of circumstances that gave rise to the claim for compensation is not related to the set of circumstances that gave rise to the person's or the person's partner's receipt of, or claim for, the compensation affected payment;
the fact that those 2 sets of circumstances are unrelated does not alone constitute special circumstances for the purposes of subsection (1).
The relevant provisions relating to compensation recovery are contained in Chapter 3 Part 3.14 of the Social Security Act Section 1169 provides that:
(1) If:
(a) a person receives or claims a compensation affected payment; and
(b) the person receives a lump sum compensation payment;
the compensation affected payment is not payable to the person in relation to any day or days in the lump sum preclusion period.
(2) In this section:
"lump sum compensation payment" does not include a lump sum payment:
(a) to which section 1164 applies; or
(b) that relates only to arrears of periodic compensation payments.
The provisions relating to how a lump-sum preclusion period is calculated are set out in section 1170.
Section 1184K of the Social Security Act allows the Secretary to treat the whole or part of a compensation payment as having not been made if the Secretary thinks it is appropriate to do so in the special circumstances of the case. That section provides:
(1) For the purposes of this Part, the Secretary may treat the whole or part of a compensation payment as:
(a) not having been made; or
(b) not liable to be made;
if the Secretary thinks it is appropriate to do so in the special circumstances of the case.
(2) If:
(a) a person or a person's partner receives or claims a compensation affected payment; and
(b) the person receives compensation; and
(c) the set of circumstances that gave rise to the claim for compensation is not related to the set of circumstances that gave rise to the person's or the person's partner's receipt of, or claim for, the compensation affected payment;
the fact that those 2 sets of circumstances are unrelated does not alone constitute special circumstances for the purposes of subsection (1).
A Social Security benefit is defined in section 23 of the Social Security Act. Mr Walda made enquiries to obtain Newstart allowance which is a Social Security benefit as defined in section 23 of the Social Security Act. Section 17 (1) includes a Social Security benefit in the definition of “compensation affected payment”.
COMPENSATION
At T 18 page 92 there is a file note advising that Zürich Insurers had confirmed by telephone that from the total settlement monies the sum of $297,467.07 had been refunded representing the total amount paid by Zürich prior to settlement. Further that economic loss (wages) is included in the lump-sum and that of this amount, $211,443 was for weekly compensation payments.
It is not disputed and the Tribunal finds that the payment made to Mr Walda pursuant to the consent order of the District Court of Western Australia is a “compensation payment” within the meaning of section 17 (2) of the Social Security Act. It is a payment for damages which is wholly or partly in respect of lost earnings and lost capacity to earn resulting from personal injury and includes a component for past or future economic loss.
Mr Walda confirmed that the total payment received by him was $150,532.93. This sum is also confirmed in a letter addressed to Mr Walda from his solicitors, Stephen Brown lawyers.
Although Mr Walda personally received $150,532.93, the sum that is taken into account for the purpose of calculating the compensation preclusion period is the full $448,000. This is because subsection 17 (5) refers to the compensation received whether directly or on behalf of, or at the direction of the person. Compensation is defined in subsection 17 (2) as the ‘payment of damages.’
compensation part oF lump-sum compensation payment
Pursuant to subsection 17 (3) of the Social Security Act, the compensation part of a lump-sum compensation payment is 50% of the payment if it was made in settlement of a claim that is related in whole or in part to a disease, injury or condition, and the claim was settled by consent judgment.
Subsection 17 (4) of the Social Security Act applies where a person has received periodic compensation payments and subsequently receives a lump-sum compensation payment (LSP) and, because of receiving that payment becomes liable to repay an amount (RPC P) equal to the periodic compensation payments received. The Respondent’s insurance company, Zürich Australia Insurance Ltd advised that the total amount of periodic payments Mr Walda was required to repay was $211,443.30.
Applying the formula set out in subsection 17 (4),( LSP - RPCP), the compensation part of the lump-sum is $448,000 - $211,433.30 = $236,556.70. 50% of this amount is $118,278.35.
calculation of lump-sum preclusion period
It is the Secretary’s contention that Mr Walda’s lump sum preclusion period has been correctly calculated in accordance with section 1170 of the Social Security Act. Subsection 1170 (4) provides that to work out the number of weeks in a lump-sum preclusion period, the compensation part of the lump-sum is to be divided by the relevant income cutout amount. The income cutout amount that was in force at the time when the compensation was received was $922.80.
Accordingly the number of weeks in the lump-sum preclusion period is calculated as follows:
$118,278.35/$922.80= 128.17 weeks.
In accordance with subsection 1170 (5) of the Social Security Act, this number is rounded down to the nearest whole number namely 128 weeks.
Pursuant to subsection 1170 (1) (a), Mr Walda’s lump sum preclusion period would commence on 26 July 2014, being the day following the last day of the periodic payment period and end 128 weeks after that, namely on 6 January 2017.
It is accordingly the Tribunal’s conclusion that the lump-sum preclusion period has been correctly calculated in accordance with the relevant legislative provisions.
Special circumstances
Pursuant to section 1184K the Tribunal can treat all or part of the lump-sum compensation payment as having not been made if it is satisfied that it is appropriate to do so in the special circumstances of the case.
The term “special circumstances” is not defined in the Social Security Act but has been considered in a number of cases. In Re Beadle and Director-General of Social Security (1984) 6 ALD 1, the Tribunal said (at 6):
“An expression such as “special circumstances” is by its very nature incapable of precise or exhaustive definition. The qualifying adjective looks to circumstances that are unusual, uncommon or exceptional. Whether circumstances answer any of these descriptions must depend on the context in which they occur. For it is the context which allows one to say that the circumstances in one case are markedly different from the usual run of cases. This is not to say that the circumstances must be unique but they must have a particular quality of unusualness that permits them to be described as special.”
In Dranichnikov v Centrelink (2003) FCA FC 133 the Full Federal Court held that for a finding of special circumstances to be made:
“… What is required will be circumstances which distinguish the case in consideration from the usual case. There will be a requirement that the circumstances are such that takes the case out of the ordinary.”
In Re Ivovic and Director-General of Social Services (1981) AAT 57 (Re Ivovic) the Tribunal commented that the use of the word “special” is:
“….intended to allow the decision maker the fullest opportunity to consider the particular circumstances of each case.”
The Tribunal went on to state (at 45):
“the reference to special circumstances… Requires, in our view, that there must exist in the circumstances of the case, a factor or factors which justify the making of an exception in whole or in part to the principle of liability which the Act otherwise establishes. In the exercise of the discretion…the decision-maker must have regard to whether, by exercising the discretion in a particular case, he will be achieving or frustrating ends or objects which are conformable with the scope and purpose of the… Act.
One of the evident objects of the legislation is to require compensation recipients to provide for their own support during preclusion periods. The discretion of the special circumstances should be exercised with that in mind.”
The Tribunal in Re Ivovic recognised that the decision maker must be prepared to respond to the “special circumstances” of any case by reason of which a strict enforcement of the legislative provisions would produce an unjust, or unreasonable or otherwise inappropriate result. This is not to say however, that merely because a result may be harsh, that the decision maker is justified in ignoring the clear meaning of the legislative provisions and the intent of Parliament (Re Krzywak and Department of Social Services (1988) 15 ALD 690).
The Social Security Act is also interpreted with the assistance of a policy called “the Guide to Social Security Law” (the Guide). Whilst the policy is not binding on the Tribunal, regard may be had to the policy, provided it is consistent with the legislation. (Drake and Minister for Immigration and Ethnic Affairs (No 2) (1979) 46 FLIR 409). However, if the Tribunal in exercising its function to reach the correct or preferable decision considers that the application of the policy would produce an unjust decision in the circumstances of a particular case, it may depart from the policy provisions.
Part 4.13.4.20 of the Guide, whilst acknowledging that is impossible to give a precise list of factors that should be taken into account when considering whether the special circumstances provision should apply, sets out some common factors that may amount to special circumstances and provides guidance to decision makers about those factors. The Guide states “there is usually not one factor which makes a situation unusual, unforeseen or exceptional, but a combination of factors applying to each individual.”
In the overview of the application of the special circumstances provisions, the Guide at 4.13.4.10 states that the intention of compensation recovery provisions is “to ensure that people who receive compensation for a loss of income do not also receive income support from the Australian government in respect of the same period of time.”
Whilst recognising that each case must be examined on its own merits, the Guide states that as a general rule special circumstances would not usually be applied where: the person has sufficient liquid assets to support themselves, and their family if applicable, for the duration of the preclusion period; the person acquired realisable assets after being advised of the preclusion period and there is no impediment to the realisation of those assets; the person’s periodic compensation payments reduced due to the effects of taxation laws, and this is the only ground for consideration; where the only special circumstance is the legal deduction from both a Social Security payment and DVA payment; where the only special circumstances is the perceived unfairness of the “50 per cent rule”; if the sole factor is that the person or their partner’s reason for receiving a CAP was different to the reason the compensation was paid.
The main factors put forward by Mr Walda as justifying special circumstances in his case are his strained financial circumstances and the ill health of himself and his wife. Mrs Walda is currently in receipt of a Disability Support Pension in the approximate sum of $500 per fortnight.
Mr Walda was ill-prepared for the appeal hearing. He had brought no documentation with him, not even a copy of the T documents including the decision under review. He had no medical evidence and no supporting financial documentation, bank statements, loan documents or other documentation supporting his financial circumstances. It was Mr Walda’s evidence that he estimated that within three months the balance remaining from the lump-sum compensation payment which is currently approximately $20,000, would be fully expended.
In the SSAT’s decision in November 2014 it is recorded that Mr and Mrs Walda had $94,000 in savings, owned their car outright and had equity in their home. Mr Walda was asked by the Tribunal how he had spent some $70,000 between November 2014 and the present time, a period of only six months. Mr Walda was unable to satisfactorily account for this large expenditure. He referred to the purchase of solar panels at a cost of about $5000 and the payment of bank card debts and electricity and gas bills. He did not recall the details of the accounts and had no documentation to support the expenditure.
It was Mr Walda‘s evidence that from the compensation monies received in the amount of $150,000 he had paid out an ANZ credit card debt in the sum of between $7000 and $8000, a Commonwealth credit card debt of approximately $2000, a Citibank debt of approximately $18,000 and a debt owed to ME Money in the approximate sum of $12,000. He had also repaid his daughter the sum of $10,000 for the purchase of a motor vehicle on his behalf. Mr Walda had travelled to Sydney to investigate a special pain program. However, after spending approximately $4000 in travel costs he found that he was not eligible for the program.
The SSAT decision recorded that at the time of the hearing Mr and Mrs Walda had three adult children and two grandchildren living in the home because as Mr Walda claimed, they were unable to afford to live elsewhere. None of these adult children contributed towards the mortgage repayments or household expenses apart from the purchase of some food from time to time.
At the hearing before the AAT Mr Walda confirmed that his three adult children and their families are currently residing with Mr and Mrs Walda and still not contributing towards the mortgage or the household expenses. His eldest daughter is aged 42 years, is in employment and occasionally contributes towards her food costs. She works for BGC but Mr Walda is unaware of her income. She has been residing with her parents for some four years. Mr and Mrs Walda’s adult son who is aged around 38 years, together with his wife and two children also live with them. The couple have had another child since the SSAT hearing. Mr Walda’s son is in employment but does not contribute towards the mortgage because in Mr Walda’s words he “has his own bills to pay” but Mr Walda is not sure what they are. Mr and Mrs Walda’s middle daughter is unemployed and lives in the house together with her four-year-old child. Her sole source of income is a single parent pension and she makes some contribution towards the food costs only.
Mr Walda estimated the value of the family home which was purchased some five years ago at around $500,000. The outstanding mortgage is approximately $360,000.
Mr Walda maintains that none of his adult children who are aged in their late 30s to early 40s are able to contribute towards the mortgage and household expenses. He provided no documentary evidence to support his contention and was not even aware of the income earned by two of his adult children.
The SSAT considered that it would be reasonable for Mr and Mrs Walda to ask their adult offspring to contribute towards the necessary weekly household expenses including the mortgage repayments and commented that “in this way, Mr and Mrs Walda could improve their overall financial situation, enabling them to meet their weekly expenses without unduly depleting their savings.” The SSAT estimated that by allocating the current maximum rate of DSP for couples of $532.60 of fortnight, their remaining savings of $94,000 on the SSAT’s calculations would see out the balance of the preclusion period which ends on 6 January 2017.
Mr Walda has obviously ignored the Tribunal’s advice and has given no indication that he intends to ask his adult children for a contribution towards their living expenses. Mr Walda has managed to spend some $70,000 since November 2014. There is no evidence that he has made any provision for the remaining compensation monies to cover his living expenses during the balance of the preclusion period.
The accompanying income and expenditure statement prepared by Gosnells Community Legal Centre, although entitled a “weekly” statement is in fact Mr Walda’s fortnightly income and expenditure. His fortnightly expenditure is estimated at $2156 and includes the sum of $1200 in mortgage repayments. The Tribunal considers that Mr Walda provided no satisfactory reason as to why he should not expect his three adult children to contribute towards the mortgage and other household commitments on a regular basis to ease the disparity between Mr and Mrs Walda’s income and expenditure. The income stated does not appear to include Mrs Walda ‘s DSP benefit which she has claimed since the SSAT hearing. The Tribunal does not doubt that Mr and Mrs Walda’s financial circumstances are difficult due to the disparity between their income and expenditure. It appears however, that Mr Walda has made no provision for the compensation monies received by him to cover the preclusion period of which he was notified only some 10 days after the entering of the consent judgment.
Whilst the Tribunal accepts that the amount received by Mr Walda was $150,532.93, the legislation makes no provision for this figure to be used in the calculations of the lump sum preclusion period. The Explanatory Memorandum introducing the amended legislation for what has been referred to as the “50 per cent rule” makes it clear that the legislative intent was to avoid the abuse of earlier provisions by the manipulation in settlements obscuring the economic loss component in lump sum compensation payments.
As the Guide makes clear, the compensation recovery provisions of the Social Security law are designed to ensure that people who receive compensation for a loss of income do not also receive income support from the Australian government in respect of the same period of time. The special circumstances provisions should not be used to override this basic legislative intention. The Tribunal is not satisfied that Mr Walda’s circumstances are sufficiently unusual, uncommon or exceptional such as to distinguish them from those that apply to the majority of Social Security recipients. There is no particular factor that was unforeseen or exceptional that has contributed to Mr Walda’s current financial predicament. The Tribunal agrees with the findings of the SSAT that Mr Walda has the option of improving his financial circumstances by seeking a justified contribution from his three adult children towards their own living expenses for which he and his wife are currently assuming full responsibility. The Tribunal considers that there is nothing in the circumstances of these adult children that would excuse them from making a reasonable contribution towards their living costs which includes accommodation, food and other outgoings such as heating, power and water.
For all of the above reasons the Tribunal does not consider that either on their own or together, any of the circumstances submitted by Mr Walda constitute “special circumstances” within the meaning of the legislation and as these words have been defined by the authorities referred to above.
For all of these reasons the Tribunal affirms the decision under review.
I certify that the preceding 51 (fifty one) paragraphs are a true copy of the reasons for the decision herein of Ms A F Cunningham, Senior Member
..(Sgd) A Tran......................................................................
Associate
Dated 6 July 2015
Date of hearing
Applicant
27 May 2015
In Person
Representative for the Respondent
Ms S Vahala Solicitors for the Respondent Australian Government Solicitors
Key Legal Topics
Areas of Law
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Social Security Law
Legal Concepts
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Compensation Recovery
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Preclusion Period
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Special Circumstances
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