Chesworth and Secretary, Department of Employment and Workplace Relations
[2006] AATA 901
•23 October 2006
Administrative
Appeals
Tribunal
DECISION AND REASONS FOR DECISION [2006] AATA 901
ADMINISTRATIVE APPEALS TRIBUNAL № V2006/471
GENERAL ADMINISTRATIVE DIVISION
Re: DEREK CHESWORTH
Applicant
And: SECRETARY,
DEPARTMENT OF EMPLOYMENT
AND WORKPLACE RELATIONS
Respondent
DECISION
Tribunal: Mr C. Ermert, Member
Date:23 October 2006
Place:Melbourne
Decision:The Tribunal affirms the decision under review.
(sgd) Conrad Ermert
Member
SOCIAL SECURITY – disability support pension – lump sum compensation payout ‑ compensation preclusion period – whether part of compensation payout should be disregarded – whether special circumstances – whether financial hardship
Social Security Act 1991
Secretary, Department of Social Security v Banks (1990) 95 ALR 605
Re Secretary, Department of Social Security and Winterbotham (AAT 6499, 11 December 1990)
Beadle v Director-General of Social Security (1985) 7 ALD 670
Secretary, Department of Social Security v Ellis (1997) 46 ALD 1
Re Colaiacolo and Secretary to the Department of Social Security (AAT 2109, 24 April 1985)
Re Krzywak and Secretary, Department of Social Security (1988) 15 ALD 690
REASONS FOR DECISION
23 October 2006 Mr C. Ermert, Member
INTRODUCTION
1. Mr Chesworth suffered a workplace injury on 1 September 1996 which resulted in his permanent incapacity due to Complex Regional Pain Syndrome. He made a claim for workers’ compensation and on 18 October 2005 Mr Chesworth settled the claim for the sum of $430,000. On 9 November 2005 he was sent a notice by Centrelink, which acts as the service agent of the Department of Employment and Workplace Relations (DEWR), advising him that, as a result of receiving a lump sum settlement of his compensation claim, he was subject to a lump sum preclusion period, during which he was not entitled to receive compensation affected payments from Centrelink, such as disability support pensions. The preclusion period was determined to commence on 22 October 2005 and to end on 4 November 2011.
2. Mr Chesworth used his lump sum settlement to pay his solicitors, to pay off the mortgage on his house, to repay a debt to his sister-in-law and to replace his two cars. He draws on the balance to pay his living expenses and to meet the school expenses of two of his children. He also paid off a debt accumulated by his daughter. Mr Chesworth’s house needs substantial repairs and, because of the limitations imposed by his medical condition he has to pay other people to do work on the house and on the cars that he used to do himself. At the date of the hearing Mr Chesworth estimated that only $103,000 of his lump sum settlement remained and he said he faced the prospect of running out of money before the end of the preclusion period. Mr Chesworth unsuccessfully sought review of the decision to impose the preclusion period, first by an Authorised Review Officer at Centrelink and then by the Social Security Appeals Tribunal (SSAT). He is now seeking review of the decision in this Tribunal. He is seeking consideration of his special circumstances, being his poor financial situation, to have part of the preclusion period disregarded.
3. At the hearing Mr Chesworth represented himself. Owing to the physical restrictions on his mobility, Mr Chesworth gave his evidence by telephone. The respondent was represented by Ms K Paul, a Centrelink advocate representing the Secretary for the Department of Employment and Workplace Relations (the Secretary). I had before me the documents lodged by the Secretary pursuant to section 37 Administrative Appeals Tribunal Act 1975 (the T Documents).
The Issues
4. The issues in this case are:
·Has Mr Chesworth received a lump sum compensation payment?
·Is Mr Chesworth subject to a lump sum preclusion period?
·Has the preclusion period been properly determined?
·Are there special circumstances that would justify the Secretary disregarding all or part of Mr Chesworth’s lump sum compensation payment?
Has Mr Chesworth received a Lump Sum Compensation Payment?
5. Section 17(2) of the Social Security Act 1991 (the Act) defines compensation as follows:
17(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.
(Subsection 2B relates to compensation for criminal injury and is not applicable to this matter).
6. It is agreed between the parties that, on 18 October 2005 Mr Chesworth received a lump sum settlement of his workplace injury compensation claim, amounting to $430,000 and that the payment was made partly in respect of lost earnings or lost capacity to earn resulting from personal injury. The payment meets the definition of compensation. Accordingly, I find that Mr Chesworth received a lump sum compensation payment on 18 October 2005.
Is Mr Chesworth subject to a Lump Sum Preclusion Period?
7. Section 1169(1) of the Act provides for a lump sum preclusion period as follows:
1169(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.
8. The term compensation affected payment is defined in section 17(1) of the Act and includes the disability support pension. Mr Chesworth submitted a claim for a disability support pension on 30 November 2005 (T5 p37); and, as I found earlier, he has received a lump sum compensation payment. Section 1169(1) acts to prevent payment to Mr Chesworth of the disability support pension in relation to any days in the lump sum preclusion period. Accordingly, I find that the disability support pension, being a compensation affected payment, is not payable to Mr Chesworth in relation to any days in the lump sum preclusion period.
Has the Preclusion Period been properly determined?
9. The start and end of the lump sum preclusion period are provided for in section 1170(1) of the Act as follows:
1170(1) Subject to subsection (2), if a person receives both periodic compensation payments and a lump sum compensation payment, 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 subsections (4) and (5).
10. It is not in dispute that Mr Chesworth received periodic compensation payments from the date of his accepted work injury to 21 October 2005. Applying the provisions of section 1170(1) the lump sum preclusion period begins on the 22 October 2005, being the day following the last day of the periodic payments period.
11. The end of the preclusion period is worked out under sections 1170(4) and (5) of the Act, which provide a formula for calculating the length of the lump sum preclusion period. The length of the preclusion period is calculated by dividing the compensation part of the lump sum by the income cut-out amount.
12. In addressing the issue of the compensation part of the lump sum, Mr Chesworth submitted that his lump sum payment should be considered as comprising 80 per cent for loss of earnings and 20 per cent for pain and suffering. He also contended that his legal fees relating to the settlement should not be included in the compensation part of the lump sum. The fees amounted to $50,000. Ms Paul submitted that section 17(3) of the Act deems 50 per cent of the lump sum settlement payment to be the compensation part of the payment and that the legal fees are deemed to have been taken from the remaining 50 per cent. In this case, Ms Paul submitted that the compensation part of the lump sum would amount to $215,000.
13. The relevant provisions of section 17(3) of the Act are:
Compensation part of a lump sum
17(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 …
(Subsection 17(4) relates to Repaid Periodic Compensation Payment and is not relevant in this case.)
14. The issue of the compensation part of a lump sum compensation payment was considered by von Doussa J in Secretary, Department of Social Security v Banks (1990) 95 ALR 605 where he said at page 613and 614:
The provisions of sub-para 152(2)(c)(i) apply where a lump sum payment was made in settlement of a claim "that is, in whole or in part, related to disease or injury. . . " The wide scope of sub-para (i) is further emphasised in the definition in para (a) of a "payment by way of compensation" which extends to any of the specified kinds of payment that is "in whole or in part, in respect of an incapacity for work". If a payment in settlement of a claim has these characteristics, the total amount paid, which comprises the "lump sum", becomes subject to the arbitrary formula of sub-para.(i) to determine "the compensation part of the lump sum payment by way of compensation". Thus, sub-para (i) will apply to the total amount paid in settlement of a claim if the amount paid is in some part in respect of an incapacity for work and if the claim relates in some part to disease or injury. This will be so even though the lump sum also clearly includes amounts for heads of loss which are unrelated to incapacity for work, for example for pain and suffering, for disfigurement, or for future medical expenses in relation to disease or injury. This will also be the case where the lump sum payment is in settlement of a claim which includes a head of loss that is unrelated either to incapacity for work or to disease or injury, for example, a component for property damage.
The wide language of sub-para (i) is a recognition by Parliament that unless every component part of a lump sum payment made in settlement of a claim which has the prescribed characteristics is brought to account the mischief to which para (c) is directed will not be remedied. The scope for manipulation by inflating some heads of loss and diminishing or excluding others, without altering the total amount of the lump sum, would otherwise remain. The prescribed percentage (50 per cent) of the lump sum payment made in settlement of a claim which by sub-para 152(2)(c)(i) is deemed to be the "compensation part of a lump sum payment by way of compensation" should be viewed as a broad attempt to balance the interests of the recipient of the payment with the competing interests of others in the community whose needs must be met as far as possible from a finite budget allocation for social security measures. The paragraph seeks to eliminate double dipping in a practical way which operates effectively in a straight forward manner…
15. The decision in Banks makes it clear that there can be no exclusions from the total of the lump sum payment before determining the 50 per cent as being the compensation part of the lump sum payment. Accordingly, I accept Ms Paul’s submission and find that, in this case, the compensation part of the lump sum is $215,000, being 50 per cent of the compensation payment of $430,000.
16. The income cut-out amount is defined in section 17(1) of the Act as follows:
…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…
17. Section 17(8) provides the formula for the calculation of the amount of the income cut-out amount. The calculations were not considered at the hearing. However, it was accepted by the parties that the income cut-out amount at the time of Mr Chesworth’s settlement in October 2005 was $680.38.
18. Dividing the compensation part of the lump sum of $215,000 by the income cut-out amount of $680.38 results in a lump sum preclusion period of 315 weeks. As I determined in paragraph 11, the start date is 22 October 2005. Therefore, the period of 315 weeks ends on 4 November 2011.
19. I find that Centrelink has correctly determined the lump sum preclusion period to apply from 22 October 2005 to 4 November 2011.
Are there any Special Circumstances?
20. The main issue in this case is whether there are special circumstances that would allow the Secretary to treat the whole or part of the compensation payment as not having been made. Section 1184K(1) of the Act states:
1184K(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.
21. Mr Chesworth claims that the special circumstance in his case is the probability that he will suffer financial hardship before the end of the preclusion period. In his evidence Mr Chesworth stated that his expenses since receiving his lump sum settlement have included:
·legal expenses ‑ $50,000;
·repayment to his sister-in-law of a loan for his mortgage ‑ $110,000;
·two $70,000 payments to the bank for his mortgage line of credit ‑ $140,000;
·two cars ‑ $17,800; and
·a loan to his daughter ‑ $12,000.
22. Mr Chesworth stated that he now has only $103,000 left from the lump sum payment. He said that his average monthly payments to Bankcard for his living expenses amount to between $4,500 and $6,000 a month. Mr Chesworth gave evidence that he is currently looking for work but sees little chance of finding paid work due to his disability. He said that he currently works part time on three days a week as a volunteer teaching assistant at the local school. Mr Chesworth stated that there is a possibility that this may become paid work in future, but it is by no means certain. As the remaining money will not last until 2011, Mr Chesworth submitted that the preclusion period should be reduced from 6 to 4 years.
23. In answers to questions from Ms Paul, Mr Chesworth agreed that the family received the following payments from Centrelink:
· $414.00 per fortnight to Mrs Chesworth as carer payments;
· $352.94 per fortnight to Mrs Chesworth in family payments;
· $94.70 per fortnight to Mrs Chesworth for a carer allowance; and
· $100 per fortnight to their son as youth allowance (transcript p 12).
24. Mr Chesworth also gave evidence that his 23 year old daughter is currently working as an apprentice electrician and that he expects her to be employed shortly by Yarra Valley Water with an increase in pay. He also stated that his daughter was supposed to be repaying his loan to her at a rate of $200 per fortnight.
25. When asked by Ms Paul about the current value of his house he said that he had had someone in who valued the house at $280,000 if the house were finished off. Mr Chesworth estimated that without completing the work he would get $200,000 for it, mainly for the land. In answer to my questions he estimated the value of his cars as $10,000 and $3,500.
26. Ms Paul submitted that Mr Chesworth’s financial circumstances do not meet the required degree of specialness for the discretion in section 1184K(1) of the Act to be exercised. Ms Paul said:
… his circumstances are not special enough to waive the compensation preclusion period under section 118(4)(k) of the Act. Mr Chesworth has given evidence that his house has equity of at least 185,000 once you take away the balance in his line of credit of 15,000 and his liquid assets are 113,000. In addition to that his wife is getting Centrelink payments of 860 per fortnight, on average, or approximately. His son is receiving approximately $100 a fortnight and his daughter is paying $200 a fortnight towards - I am not sure if it is to pay off the loan, but either way this is regular money going into the household.
… another Centrelink recipient who did not have the advantage of a lump sum amount of money would only be receiving approximately 13,000 per annum in Centrelink payments… (transcript p 24-25).
27. Ms Paul also submitted that Mr Chesworth’s expenses in the future were difficult to predict. She asserted:
…it would be very difficult for the Tribunal to be able to project into the future how much of the preclusion period should be reduced without definite knowledge of what may happen in the future. Mr Chesworth's daughter's income may increase considerably. In the next four year his son may go out to work. There are a lot of unknowns that may change Mr Chesworth's financial situation in the next five year period before the preclusion period ends. (transcript p 25-26).
28. In considering the submissions I had regard to the Tribunal’s decision in Re Secretary, Department of Social Security and Winterbotham (AAT 6499, 11 December 1990). In that case Mr Winterbotham suffered an injury to his back in the course of his employment for which he received periodic compensation payments and for which he later settled for a lump sum payment. He used a significant portion of the payment on his home and a motor vehicle. Later when Mr Winterbotham applied for a special benefit it was refused, as a preclusion period had been applied. In hearing the Secretary’s appeal against a SSAT decision allowing special circumstances, the Tribunal said:
23. Evidence was given as to the financial hardship suffered by the respondent (Mr Winterbotham). Financial hardship alone does not amount to special circumstances (Re Beadle supra) and for financial circumstances to be considered special, the hardship must be exceptional (Re Colaiacolo & Secretary, Department of Social Security, Decision 2109, 24 April 1985). The respondent is certainly in straitened financial circumstances: he has a dependent wife and family, with all the attendant expenses and financial liabilities, a personal loan of $10,000 to repay, a common-law claim against him of some $4,000 and no income or savings. He also has assets of at least $130,000.00. His situation cannot be compared with that of the applicant in Re Krzywak where financial circumstances were considered to be special. Mrs Krzywak had no income or savings, but unlike the present respondent she had no means of providing for her own support.
24. The respondent contended that he was perfectly entitled to have expended his settlement moneys in providing his family with a home and no-one, least of all this Tribunal, would dispute that. However, that is not the issue – it is the fact that the respondent, having disposed of his settlement moneys, now seeks support from the community. The emotional attachment of the respondent and his wife to the family home was obvious and their reluctance even to think of selling it understandable. However, the Tribunal must take that home into account in deciding whether the respondent is in a position of exceptional financial hardship. While the respondent has assets of such value he can never be so regarded..
29. In that case the Tribunal found against Mr Winterbotham. Another case with similarities to the present matter is Secretary, Department of Social Security v Ellis (1997) 46 ALD 1, in which the Secretary unsuccessfully appealed against a decision of the Administrative Appeals Tribunal which accepted that special circumstances applied to Mrs Ellis. In that matter Mrs Ellis was found to be suffering extreme financial hardship. She had four children, all under the age of ten and had been receiving no maintenance or other support, financial or otherwise, from her husband or from any other source. Mrs Ellis had a mortgage on the family home and credit card debts and she suffered from workplace injuries that precluded her from working. She had virtually no assets accept some equity in her house. Carr J found that the Tribunal had not fallen into error of law in finding that the circumstances were out of the ordinary.
30. I consider the circumstances in Ellis to be distinguishable from those of Mr Chesworth by the severity of the financial hardship suffered. Mr Chesworth has considerable equity in his house and his two cars. He owns two cars because his wife will not drive his car. In explanation he said …but she got in it and she just didn't like it … we couldn't come to a compromise with a vehicle that had a sensible seating arrangement to suit both of us. (transcript p 18-19). The family unit receives $961.64 per fortnight from the benefits payable to his wife and son. As his daughter is in paid employment with the possibility of an imminent pay rise she should be in a position to repay her loan to her father. I consider Mr Chesworth’s circumstances to be more akin to those of Mr Winterbotham than to those of Mrs Ellis. Accordingly, I accept Ms Paul’ submission that at the time of the original decision Mr Chesworth’s financial circumstances were not sufficiently straitened to be considered as special circumstances.
31. I also accept Ms Paul’s submission that it is not possible to predict what Mr Chesworth’s financial circumstances will be over the next few years. His circumstances may be affected by the possibility of Mr Chesworth’s volunteer teaching assistance becoming paid work and by the progression of his daughter from an apprenticeship to a fully paid employment position, thereby providing the possibility of a quicker repayment of the loan and a contribution to the living expenses of the household. There is also scope for Mr Chesworth to reduce the costs of running and maintaining two cars.
32. After considering all the evidence I find that Mr Chesworth circumstances are not sufficiently special to be considered special circumstances in the terms of section 1184K of the Act. Accordingly, I find that the Secretary may not treat the whole or part of the compensation payment as not having been made or not liable to be made.
Summary of Findings
33. In considering all the issues in this matter I have made the following findings:
·Mr Chesworth did receive a lump sum compensation payment;
·Mr Chesworth is subject to a lump sum preclusion period;
·the preclusion period been properly determined; and
·there are no special circumstances that would justify the Secretary disregarding all or part of Mr Chesworth’s lump sum compensation payment.
34. Accordingly, I find that a disability support pension, being a compensation affected payment, is not payable to Mr Chesworth in relation to any day or days in the lump sum preclusion period from 22 October 2005 to 4 November 2011.
35. As this finding is not in Mr Chesworth’s favour, I will record the advice given to him at the hearing by Ms Paul …that he can always apply later if something unexpected happens and he runs out of the money. (transcript p 6).
Decision
36.The Tribunal affirms the reviewable decision.
I certify that the thirty‑six [36] preceding paragraphs are a true copy of the reasons for the decision herein of
Mr C. Ermert, Member
(sgd) Dianne Eva
ClerkDate of Hearing: 15 September 2006
Date of Decision: 23 October 2006
Advocate for the applicant: Self represented
Advocate for the respondent: Ms K. Paul, Centrelink Legal Services Branch
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