Borcherdt and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs

[2008] AATA 916

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2008] AATA 916

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No 2008/3465

GENERAL ADMINISTRATIVE DIVISION		)
Re		HENDRIKUS BORCHERDT

Applicant

And SECRETARY, DEPARTMENT OF FAMILIES, HOUSING, COMMUNITY SERVICES AND INDIGENOUS AFFAIRS

Respondent

DECISION

Tribunal Senior Member Bernard J McCabe

Date13 October 2008

PlaceBrisbane

Decision The Tribunal affirms the decision under review.

......................[Sgd]........................

Senior Member

CATCHWORDS

Social Security – Compensation recovery – Lump sum preclusion period – Whether applicant received compensation affected payment or ex gratia payment – Applicant received compensation affected payment – Payment was in settlement of claim of damages – Part of payment was in respect of loss of capacity to earn – Decision affirmed

Social Security Act 1991 (Cth), ss 17(2), 1169

REASONS FOR DECISION

13 October 2008 Senior Member Bernard J McCabe         

1. Mr Hendrikus Borcherdt, the applicant, was injured in a collision with a bus in 2001. He sued the bus owner to recover damages for personal injury. In 2007, he negotiated with the owner’s insurance company over a settlement. A plaintiff who receives a lump sum compensation payment that includes a component with respect to economic loss as part of settlement of personal injury proceedings would ordinarily be subject to a preclusion period pursuant to s 1169 of the Social Security Act 1991 (“the Act”). That person is not entitled to receive compensation affected social security payments during that period. If he or she did receive payments during the preclusion period, that person will be required to refund the money to Centrelink.

2.      The applicant says the payment he received at the time of the settlement was an ex gratia payment. He also argued it did not include a component for economic loss. He contended the payment was not covered by s 1169. The Secretary, the respondent to these proceedings, takes a different view.

3.      In order to resolve this dispute, I am required to consider the proper characterisation of the payment the applicant received as part of his agreement to end the personal injury compensation proceedings.

The facts

4.      Mr Borcherdt was riding his bike in March 2001 when he collided with a city bus. He instructed a local firm of solicitors to commence proceedings on his behalf in the Supreme Court in 2004. The statement of claim includes a claim in respect of economic loss.

5.      The applicant had a difficult relationship with his solicitors. He instructed a new firm to act on his behalf in relation to the personal injuries claim. After a while, he became dissatisfied with those lawyers as well and began acting on his own behalf. As the trial approached, he instructed a third firm of solicitors to take on the case.

6.      A pre-trial settlement conference was held on 27 November 2007. Mr Borcherdt was represented by counsel at the conference. Mr Borcherdt says his counsel suggested he had a weak claim in respect of economic loss. The applicant recalled the barrister for the other side saying the same thing during the conference.

7.      Mr Borcherdt accepted an offer that he sign a document called a “Release Discharge and Indemnity” that waived his rights against the defendant in return for a payment of $250,000. He says he accepted the offer reluctantly. A copy of the document is found in Exhibit 1 at folios 97-98. It was executed by Mr Borcherdt on 27 November 2007. He noted the defendant or its representative did not sign. He said he doubted the document constituted an agreement, although he expected to receive the money that was promised.

8.      The document confirmed that any statutory charges would be deducted from the amount of the payment that had been promised, and that the payment would:

not be payable until 21 days after receipt by the [bus owner and its insurers] of a clearance or notice of charge from WorkCover Queensland and Centrelink and the Health Insurance Commission or any other statutory authorities.

9.      The document also confirmed the defendants were not admitting liability for the accident. The document did not refer to any portion of the money being set aside in respect of economic loss, or in respect of any other aspect of the claim for damages. 

10.     The defendant’s solicitors provided a copy of the Discharge agreement to Centrelink. Centrelink wrote to the parties on 3 December 2007 to advise that a preclusion period would be imposed and that an amount of $31,610.45 would be recovered. Mr Borcherdt told me at the hearing that he became aware of Centrelink’s view decision during the course of December or January 2008.

11.     Mr Borcherdt waited for his money. He said he expected to have a cheque by Christmas. The cheque did not arrive. He said his solicitors did not appear to be on top of the matter. He decided to contact the defendant’s lawyers by telephone on or about 6 February 2008. The lawyer handling the case for the defendant quite properly refused to discuss the matter given Mr Borcherdt was legally represented. Mr Borcherdt had a subsequent telephone conversation with his own lawyers where it appears he made a number of allegations about the quality of his representation. The firm terminated the retainer on 7 February.

12.     The applicant resumed acting on his own behalf. He wrote to the defendant’s solicitors on 7 February 2008. He made a number of complaints about the delay in receiving his money. He purported to rescind the agreement that had been entered into on 27 November 2007. He said the agreement was “null and void and the action is back on.” He explained that he considered the defendant had breached an essential term of the agreement that the payment would be made 21 days after receiving the clearance or notice of charge from the relevant authorities. The applicant then proceeded to make what he says was a fresh offer to settle the proceedings. The letter said:

Should your client still wish to resolve this matter by agreement, I would be willing to accept an ex gratia payment for [$250,000] in effort to obviate the expense of a trial to your client. Please note that, whether it be now or in the future, I shall only accept such a consensual settlement if that payment does not include any component for economic loss.

In full consideration for such a payment I would be willing to discharge all actions, suits and demands brought by me against your client arising out of [the accident] in which I suffered personal injury.

13.     The defendant’s solicitors did not respond to this letter. Instead, the settlement monies were paid into court so that the entitlements of the various claimants could be determined. The bulk of that money has now been released although a dispute over legal costs appears to be rumbling on. As a result of that dispute, the compensation proceedings have not been formally withdrawn.

The law and its application

14.     I will deal firstly with Mr Borcherdt’s claim that he rescinded the settlement agreement because the defendant in the compensation proceedings had failed to discharge its obligations. The applicant says his payment should be assessed having regard to the terms of the fresh offer in his letter of 7 February 2008. He is wrong. The original agreement provided that the payment would not be forthcoming until at least 21 days had elapsed after the clearances were obtained. In the absence of an express time limit, it was presumably required to pay within a reasonable time after 21 days had elapsed. There was admittedly a delay in finalising the payment, which was unfortunate, but the delay was not such as to render the defendant in breach of its obligations. It follows that the arrangement embodied in the original discharge document remained on foot. Mr Borcherdt’s attempts to rescind that agreement and strike a fresh one that expressly excluded a payment in respect of economic loss is a cheeky attempt to avoid any obligation to repay Centrelink.

15. Section 17(2) of the Act defines the expression “compensation”. There are two limbs to the definition. There can be no doubt that the agreement to pay $250,000 in return for the applicant/plaintiff discharging the defendant satisfies the first limb in that it was a “payment in settlement of a claim for damages…” within the meaning of s 17(2)(c) of the Act. The second limb requires that the payment be “made wholly or partly in respect of lost earnings or lost capacity to earn resulting from personal injury”. The Discharge document is silent on the question of economic loss. Where does that leave the applicant?

16.     I am satisfied that at least a portion of the compensation payment was made in respect of economic loss because the payment was made to settle a claim that included a claim for economic loss. Nothing was said in the documents to rebut that assumption. It is unsurprising, although perhaps unfortunate, that parties to settlement negotiations often focus on the final figure without documenting the amount that would be paid in respect of each aspect of the claim. It is certainly plausible that the niceties involved in this process would be lost on a client who is concerned with how much money he or she is likely to receive and retain in the settlement. I note the defendant’s solicitor took the view (expressed in an email to Centrelink) that the settlement included a component in respect of economic loss. Given Mr Borcherdt was studying to become a lawyer, it would be surprising if the settlement did not include a component for future economic loss at least.

17.     The Secretary was right to impose a preclusion period on the basis that the applicant received a lump sum compensation payment that included an economic component. Having characterised the payment correctly, there was no dispute over the calculations. The applicant did not refer to any special circumstances that would justify exercising the discretion to effectively shorten the preclusion period.

Conclusion

18.     The reviewable decision is affirmed. The applicant is required to repay the amount of $31,610.45.

I certify that the 18 preceding paragraphs are a true copy of the reasons for the decision herein of Senior Member Bernard J McCabe.

Signed:....................................[Sgd]..........................................
  Michael Buckingham, Associate

Date of Hearing  7 October 2008
Date of Decision  13 October 2008              
Applicant was self-represented
Advocate for the respondent     Ms R Knight, Centrelink