CATHERINE HUGHES and SECRETARY, DEPARTMENT OF FAMILIES, HOUSING, COMMUNITY SERVICES AND INDIGENOUS AFFAIRS
[2010] AATA 600
•13 August 2010
Administrative Appeals Tribunal
DECISION AND REASONS FOR DECISION [2010] AATA 600
ADMINISTRATIVE APPEALS TRIBUNAL )
) No 2009/6146
GENERAL ADMINISTRATIVE DIVISION ) Re CATHERINE HUGHES Applicant
And
SECRETARY, DEPARTMENT OF FAMILIES, HOUSING, COMMUNITY SERVICES AND INDIGENOUS AFFAIRS
Respondent
DECISION
Tribunal Mr Egon Fice, Senior Member Date13 August 2010
PlaceMelbourne
Decision The Tribunal sets aside the decision of the Social Security Appeals Tribunal made on 19 November 2009 and instead determines that Mrs Hughes’ preclusion period ends on 31 December 2010.
..........(sgd) Egon Fice............
Senior Member
SOCIAL SECURITY – Impairment payment – periodic compensation payments – lump sum compensation payment – Centrelink – income support payments – preclusion period – disability support pension – legal costs when dealing with a lump sum preclusion period – special circumstances – Departmental policy - unforseen breakdown of relationship – property settlement
Accident Compensation Act 1985 s 134AB (25)
Relationships Act 2008
Social Security Act 1991 ss 17(1), 17(2), 17(3), 17(8), 1169(1), 1170(1), 1170(4), 1171(1), 1184K(1)
Beadle v Director-General of Social Security (1985) 60 ALR 225
Clark v Secretary, Department of Employment and Workplace Relations (2007) 161 FCR 451
Dranichnikov v Centrelink [2003] 75 ALD 134
Re Drake and Minister for Immigration and Ethnic Affairs (No 2) (1979) 2 ALD 634
Secretary Department of Employment Workplace Relations v Barrington [2006] FCA 527
Secretary, Department of Family and Community Services v Allan (2001) 116 FCR 1
Secretary, Department of Family and Community Services v Chamberlain (2002) 116 FCR 348
Guide to Social Security Law
REASONS FOR DECISION
13 August 2010 Mr Egon Fice, Senior Member 1. Mrs Catherine Hughes was injured at work on 31 July 2003. She received a lump sum impairment payment of $25,510 on 21 September 2006. She received periodic payments of compensation until 12 September 2008, when she signed a settlement agreement. This resulted in her being entitled to receive a lump sum compensation payment of $330,000. Although the settlement agreement included an agreement on costs, Mrs Hughes maintained that because those costs were on a party/party basis, she had to pay her solicitors a further sum. She received $300,000 from the settlement agreement. That fact was not in dispute.
2. On 5 September 2008 Mrs Hughes informed Centrelink that she was in receipt of a lump sum compensation payment. On 15 September 2008 a Centrelink delegate wrote to Mrs Hughes stating that if she needed to apply for income support in the future, Centrelink had calculated that she had a preclusion period (that is a period in which she was not entitled to receive income support payments). The preclusion period started on 13 September 2008 and ended on 1 March 2013. Centrelink’s letter also set out how the preclusion period was calculated. It said that the preclusion period was calculated by dividing the compensation part of the lump sum payment (in most cases 50 per cent of a lump sum) by the cut-off limit for a single rate pension under the income test applying at the date of settlement (at that time $759.75 per week).
3. A file note made by a Centrelink Customer Service Officer indicated that Mrs Hughes attended an interview with that officer on 24 September 2008. Mrs Hughes was apparently very distressed about the preclusion period because she wanted to buy a house, but if she spent her funds on purchasing a home, she may have little left over to live on for the five year preclusion period. The file note indicated that Mrs Hughes became very angry and stormed out from the interview.
4. On 24 July 2009 Mrs Hughes lodged a claim for the disability support pension (DSP). On her claim form, she wrote the following:
When I received my compensation payout, I bought a house jointly with a friend. He has since left and I am required to buy out his share. This has meant that I have to use my compensation payment to do this. It was the only way I could get a loan for the rest of the amount. I wish to stay in this house as it has had special renovations done to allow for my disability.
5. On 20 August 2009 Centrelink rejected Mrs Hughes’s claim for the DSP because of the calculated preclusion period. The Social Security Appeals Tribunal (SSAT) affirmed Centrelink’s decision on 19 November 2009.
6. A job capacity assessment report made on 6 August 2009 indicated that Mrs Hughes had a total impairment rating of 40 points and a future capacity for work within two years with intervention of 0-7 hours per week. Mrs Hughes suffers from chronic back pain. She has had four spinal fusion operations and has a spinal infusion pump implant. Mrs Hughes also suffers from Hepatitis C and depression. She continues to be highly medicated through her pump implant.
7. The issues I need to address are:
(a) whether a compensation preclusion period should be applied to Mrs Hughes’s claim for DSP;
(b) if the answer to (a) is affirmative, the duration of the preclusion period; and
(c) whether there are special circumstances which should cause the Secretary to treat the whole or part of her compensation payment as not having been made.
DOES A COMPENSATION PRECLUSION PERIOD APPLY?
8. There was no dispute about the fact that payment of the DSP is subject to a lump sum compensation payment preclusion period (see s 17(1) of the Social Security Act 1991 (the Act)).
9. The term compensation is defined in s 17(2) of the Act and it means:
(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.
10. There is no doubt that the payments received by Mrs Hughes were in relation to a claim for damages in respect of a work related injury. That much is clear from a letter to Centrelink from her solicitors, Hounslow & Associates, dated 4 September 2008. It is also clear from the deed of release signed by Mrs Hughes on 1 September 2008. The expression the settlement sum is defined in that deed of release as $330,000, being the net settlement amount after the reduction required by s 134AB(25) of the Accident Compensation Act 1985. There is also an acknowledgement in the release that the settlement sum represents both pecuniary loss and pain and suffering damages.
11. In addition to that settlement sum, Mrs Hughes was paid $25,510 in September 2006. Where a person receives two or more lump sum payments in relation to the same event which gives rise to an entitlement to compensation, then the person is taken to have received one lump sum compensation payment of an amount equal to the sum of the multiple payments. The payment is deemed to have been received by the person on the day on which he or she received the last of the multiple payments (s 1171(1) of the Act). Therefore, I find that Mrs Hughes received a lump sum compensation payment of $355,510 on 13 September 2008.
12. Section 1169(1) of the Act provides:
Compensation affected payment not payable during lump sum preclusion period
(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.
DSP is a compensation affected payment (see s 17(1) of the Act).
13. Section 1170(1) of the Act sets out how the lump sum preclusion period is calculated where a person receives both periodic compensation payments and a lump sum payment, as in Mrs Hughes’s case. Section 1170(1) provides that the lump sum preclusion period is the period that:
(a) begins on the day following the last day of the periodic payments period or, where there is more than one periodic payments period, the day following the last day of the last periodic payments period; and
(b) ends at the end of the number of weeks worked out under ss 1170(4) and (5).
14. The expression compensation part of a lump sum compensation payment is defined in s 17(3) of the Act. Insofar as it is relevant to Mrs Hughes’s claim, it provides:
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 …
The compensation part of the lump sum compensation payment in Mrs Hughes’s case is 50 per cent of $355,510, being $177,755.
15. Section 17(1) of the Act defines the expression income cut-out amount:
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.
16. Using the formula in s 17(8) of the Act, the Secretary calculated the income cut-out amount to be $759.75. There was no dispute about that calculation.
17. By applying the formula set out in s 1170(4) of the Act, the income preclusion period is calculated to be 233 weeks. Therefore, I find that the preclusion period which commenced on 13 September 2008, would end on 1 March 2013.
18. Although Mrs Hughes did not raise the issue of legal costs and whether they should be taken into account when calculating the preclusion period, cases dealing with the lump sum preclusion period have frequently considered this issue. More commonly, it is raised where the legal costs form a substantial proportion of the total lump sum compensation payment.
19. As a matter of statutory construction, the expression lump sum payment, as it is used in the context of Division 3 of the Act dealing with receipt of compensation, is clearly a reference to the entire payment received at a particular point in time. Where legal costs are not included in a lump sum compensation payment when first made, but are subsequently paid to the recipient by agreement or in settlement of costs, there may be an issue about including that amount in the lump sum. That kind of question does not arise in this case.
20. The fact that legal costs are included in a lump sum compensation payment was accepted by the Federal Court of Australia in Secretary Department of Employment Workplace Relations v Barrington [2006] FCA 527 at [36]. As Heerey J said in that case, the amount of legal costs can be a relevant factor in assessing whether or not the Secretary should exercise his discretion regarding some payments under s 1184K of the Act. In fact, it is likely that this aspect would become significant where an applicant is not aware of significant legal costs which will need to be met from a lump sum payment. Again, that is not the case here.
21. Accordingly, I find that the calculation of the lump sum preclusion period by the Secretary in this case was correct. Mrs Hughes’ preclusion period ends on 1 March 2013 and she is not eligible to receive the DSP prior to that date.
SHOULD SOME OR ALL OF THE LUMP SUM COMPENSATION PAYMENT BE TREATED AS NOT HAVING BEEN MADE?
22. Section 1184K(1) of the Act provides:
1184K Secretary may disregard some payments
(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.
23. The expression special circumstances has been considered by the Federal Court on many occasions. In essence, as Kiefel J said in Secretary, Department of Family and Community Services v Chamberlain (2002) 116 FCR 348, those words are not so imprecise as to require judicial gloss. Her Honour then said, at 353:
In Groth v Secretary, Department of Social Security (1995) 40 ALD 541 at 545 I expressed the view that the words require something which distinguishes a person’s case from others, something that sets it apart from the usual or ordinary case.
24. The view expressed by Kiefel J in Chamberlain’s case was, essentially, repeated by the Full Court of the Federal Court in Dranichnikov v Centrelink [2003] 75 ALD 134, where the Court (Hill, Kiefel and Hely JJ) referred to the Full Court decision in Beadle v Director-General of Social Security (1985) 60 ALR 225. In that case the Court said that the question of whether there are special circumstances is for the decision maker, bearing in mind the purpose for which the power was given.
25. Lindgren J, in Clark v Secretary, Department of Employment and Workplace Relations (2007) 161 FCR 451 dealt with the expression the special circumstances of the case in the context of s 1184K of the Act. He said that the expression: is a reference to circumstances of the case which make it unusual or out of the ordinary run (at 138). His Honour said the notion is referable to some understanding of the usual or ordinary circumstances to which the provision in question was intended to apply.
26. Heerey J, in Secretary, Department of Family and Community Services v Allan (2001) 116 FCR 1 at 5, also said it was not sensible to lay down precise limits or precise rules as to what may constitute special circumstances. He then said:
Ill health, financial circumstances and the unfairness of a strict application of the Act are some matters which may in an individual case, constitute special circumstances: …
27. The Secretary has developed a policy which deals with factors to consider when determining the special circumstance provisions. It is set out in the Department’s Guide to Social Security Law (the Guide). The Tribunal should take into account Departmental policy when making administrative decisions which involve the exercise of discretion. This was clearly spelled out in Re Drake and Minister for Immigration and Ethnic Affairs (No 2) (1979) 2 ALD 634. In that case, Brennan J, the then President of the Tribunal, was dealing with Ministerial policy. Nevertheless, the principles which His Honour set out in that case have been applied equally to Departmental policy. As His Honour said, the establishment of a policy will assist in the consistency of decision making. He said, at 640:
There are powerful considerations in favour of a Minister adopting a guiding policy. It can serve to focus attention on the purpose which the exercise of the discretion is calculated to achieve, and thereby to assist the Minister and others to see more clearly, in each case, the desirability of exercising the power in one way or another. Decision-making is facilitated by the guidance given by an adopted policy, and the integrity of decision-making in particular cases is the better assured if decisions can be tested against such a policy. By diminishing the importance of individual predilection, an adopted policy can diminish the inconsistencies which might otherwise appear in a series of decisions, and enhance the sense of satisfaction with fairness and continuity of the administrative process.
28. Brennan J was also careful to point out that a Tribunal ought not and indeed cannot deprive itself of its freedom to give no weight to a Minister’s policy in a particular case. However, he said, at 644:
But in general, it would be manifestly imprudent for the Tribunal to override a Ministerial policy and to adopt a general administrative policy of its own. Although the practice of giving reasons for decisions inevitably spins out threads of policy from the facts of the cases, the policy developed in this way originates in the need to ensure that justice is done in individual cases, and it is a different development from a Ministerial declaration of broad policy relating to the generality of cases. The Tribunal is no doubt able to refine a broad policy,…
And then, at 645:
When the Tribunal is reviewing the exercise of a discretionary power reposed in a Minister, and the Minister has adopted a general policy to guide him in the exercise of the power, the Tribunal will ordinarily apply that policy in reviewing the decision, unless the policy is unlawful or unless its application tends to produce an unjust decision in the circumstances of the particular case.
29. Instruction 4.13.4.20 of the Guide sets out factors to consider when determining the special circumstance provisions in s 1184K cases. Among the relevant factors to consider in this case are ill health and changed circumstances.
30. In evidence before me was a brief medical report from Langpark Medical Centre dated 22 February 2010. The letter was signed by Dr John Siemienowicz. The report states that Mrs Hughes has been a patient of the practice since 2004 and that she has a chronic back problem for which she has had multiple operations. Mrs Hughes has a chronic pain condition and requires analgesics, oral and an intrathecal pump with a pethidine infusion. Her medical history is set out as follows:
Date Condition
3 March 2004 back pain
14 March 2004 spinal fusion
8 March 2005 restless legs
12 June 2005 spinal fusion
22 August 2005 spinal fusion
23 May 2006 spinal fusion
20 March 2007 spinal infusion pump
1 April 2008 wound infection
5 May 2009 Hepatitis C
11 June 2009 spinal fusion
31. Dr Siemienowicz also set out the medications being administered to Mrs Hughes. The list is extensive.
32. Mrs Hughes also provided to the Tribunal a letter from Frankston Psychology & Hypnotherapy dated 11 February 2010. A Counselling Psychologist, Ms Christine Ffrench, stated that Mrs Hughes had been attending counselling with her since 2006. Prior to that, she was seeing another Psychologist at the practice. She had been referred by her GP for counselling related to depression. Ms Ffrench stated that Mrs Hughes had no current work capacity and that it was likely her condition was permanent. She was highly medicated and was struggling with the fact that she was not able to work. It caused her great distress.
33. From the Secretary’s Guidelines, the changed circumstances are described as: circumstances which have altered significantly since the preclusion period commenced due to circumstances wholly or partly outside of the person’s control. A number of examples are given including the following: the compensation recipient has divorced since the settlement and their personal assets have reduced due to the property settlement.
34. Mrs Hughes’ evidence was that she entered into a relationship with Mr Christopher Kerri in November 2006. When she received her lump sum compensation payment, she decided to buy a modest house in Frankston, jointly with Mr Kerri. At the time of making this decision, Mrs Hughes was aware that she would be subjected to a five year preclusion period as a result of her lump sum compensation payment. She was aware of this because she had received a letter from Centrelink.
35. The property was purchased in December 2008 for approximately $400,000. Mrs Hughes paid a $200,000 deposit from her compensation monies and the balance came from a joint bank loan to her and Mr Kerri. The bank loan was secured by a joint mortgage. Mrs Hughes and Mr Kerri were to share the mortgage repayments.
36. Unfortunately, the relationship between Mrs Hughes and Mr Kerri broke down and they separated in early 2009. In order to effect a division of their assets and financial resources, Mrs Hughes and Mr Kerri entered into a relationship agreement which was prepared by Richard Calley Family Lawyers. As Mr Kerri had stopped making repayments of his share of the loan under the mortgage agreement, Mrs Hughes decided that the house should be transferred into her name as the sole proprietor. However, in order to do that, she was required to refinance the property to reduce the size of the mortgage. She said the bank decided she had insufficient earnings to sustain the current level of borrowings.
37. Mrs Hughes said she reduced the mortgage level to about $75,000 and the bank agreed to release Mr Kerri from the mortgage. Ownership of the property was then transferred to her as sole proprietor. She said that at that time, she had some $80,000 remaining from her lump sum compensation payment and had received an extra $64,000 from a dispute which was settled with her children regarding another property. Her mortgage repayments were approximately $177.00 per fortnight. Mrs Hughes estimated that her Frankston house is now valued at about $380,000.
38. Mrs Hughes also testified that she had special renovations made to the house to allow ready access by wheelchair. She was seriously concerned that at some time in the future, she might be confined to a wheelchair because of her back problems. As the house had been renovated to accommodate her needs, she was extremely reluctant to contemplate selling it at this stage.
39. Mrs Hughes said at the hearing of this matter that she had only $980.00 left to her to live on. While I do not accept that to be an accurate statement, I have little doubt that her financial situation at present is ‘extremely tight’. Given that Mrs Hughes received approximately $300,000 net from the lump sum compensation payment, and that $200,000 was paid by way of deposit on the Frankston house, at that point, she had approximately $100,000 remaining. She then received some $64,000 from a settlement in a dispute with her children about another property. That left her with approximately $164,000. She then refinanced the mortgage and her current outstanding loan to the Commonwealth Bank is around $70,000. That indicates she made a further payment in respect of the house of approximately $120,000. That would leave her with a balance of about $44,000 in 2009.
40. Mrs Hughes estimated her household expenditure to be about $16,500 per year. Therefore, it is likely that her available funds are somewhere in the vicinity of $20,000. Because Mrs Hughes did not provide the Tribunal with any financial statements, it is difficult to be more precise. Therefore, as best I am able to determine on the material before me, Mrs Hughes is likely to run out of funds in the next 12 months. That is of course assuming that her medical condition will not deteriorate further.
41. I am surprised that no prior decision maker has addressed the fact that Mrs Hughes’ circumstances have altered significantly after commencement of the preclusion period. Furthermore, those circumstances were wholly outside Mrs Hughes’ control. Although she was not in a marriage relationship with Mr Kerri, quite plainly, that was a marriage-like relationship. It lasted for some three years.
42. Despite the fact that changed circumstances in the Guide includes a divorce and settlement of personal assets between married couples, no consideration has been given to Mrs Hughes’ circumstances which are no different to a divorce and property settlement. In fact, she and Mr Kerri entered into a relationship agreement under the Relationships Act 2008 (Vic) for the purpose of settling the division of assets and financial resources which were jointly owned. In return for the transfer of the property into her name as sole proprietor, Mr Kerri was released from outgoings and mortgage repayments associated with the property from 6 July 2009.
43. Prior to that unexpected relationship breakdown, it is clear that Mrs Hughes, despite acquiring the Frankston property with full knowledge of the preclusion period, had set aside sufficient funds to see her through to 1 March 2013. She had not simply squandered the money or purchased a property which could be described as extravagant. It was the unforseen breakdown in her relationship with Mr Kerri that resulted in a property settlement and, necessarily, the expenditure of reserved monies to enable her to retain the Frankston property. In my opinion, those circumstances are unusual and unforseen and can properly be described as special circumstances in the context in which that phrase appears in s 1184K of the Act.
44. Furthermore, it is a factor which is set out in the Guide for determining when special circumstances might arise. It would be grossly unfair to treat Mrs Hughes’ separation differently to situations where married couples separate unexpectedly following the commencement of a preclusion period.
45. To add to Mrs Hughes’ problems, she does suffer from serious medical conditions. It is unlikely, on the evidence before me, that she will ever be able to return to the workforce in a meaningful way. In fact, her medical history indicates that the serious deteriorations to her health which she fears are not unfounded. She now suffers from serious depression as a consequence of her back condition. It is not part of the injury for which she received compensation. It therefore also falls within the guidelines established by the Secretary.
46. While of course it is possible for Mrs Hughes to sell the property and to find another place to live, I accept that to do so would impact adversely on her wellbeing. In the circumstances, I consider that to be an inappropriate course of action for Mrs Hughes to take.
47. Accordingly, in accordance with s 1184K(1) of the Act, I find that it is appropriate in the circumstances of Mrs Hughes’ case, to treat part of her compensation payment as not having been made. I am of the opinion that Mrs Hughes’ preclusion period should end on 31 December 2010.
CONCLUSION
48. The Secretary has correctly calculated the lump sum preclusion period to be between 13 September 2008 and 1 March 2013. That decision is reflected in the decision of the SSAT made on 19 November 2009. However, for the reasons I have set out above, I have found that there is reason to disregard part of the compensation payment received by Mrs Hughes.
49. In my opinion, there are special circumstances in her case which must be taken into consideration, particularly as her circumstances fall within the Department’s Guidelines for the exercise of the discretion set out in s 1184K of the Act. In my opinion, Mrs Hughes’s preclusion period should end on 31 December 2010. Accordingly, I set aside the decision made by the SSAT on 19 November 2009 and instead I find that Mrs Hughes’s compensation preclusion period should apply from 13 September 2008 to 31 December 2010.
I certify that the forty-nine [49] preceding paragraphs are a true copy of the reasons for the decision herein of
Mr Egon Fice, Senior Member.
Signed: ....(sgd) Elise Montalto.....
Elise Montalto, AssociateDate of Hearing 24 May 2010
Date of Decision 13 August 2010
Advocate for the Applicant Self Represented
Advocate for the Respondent Mr T Noonan
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