Davis and Secretary, Department of Social Services (Social services second review)

[2016] AATA 82

Davis and Secretary, Department of Social Services (Social services second review) [2016] AATA 82 (18 February 2016)

Division	GENERAL DIVISION
File Number(s)	2015/1750
Re	Mervyn Davis
APPLICANT
And	Secretary, Department of Social Services
RESPONDENT

DECISION

Tribunal	Deputy President Gary Humphries
Date	18 February 2016
Place	Canberra

The decision under review is affirmed.

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Deputy President Gary Humphries

Catchwords

SOCIAL SECURITY – Application for Disability Support Pension barred by compensation preclusion period – whether preclusion period properly calculated – whether special circumstances exist to shorten preclusion period

Legislation

Social Security Act 1991 (Cth) ss 17, 1169, 1170, 1184K

Cases

Beadle and Director-General of Social Security (1984) 6 ALD 1
Director-General of Social Security v Hales (1983) 78 FLR 373
Groth and Secretary, Department of Social Security (1995) 37 ALD 797
Manafikhi v Secretary, Department of Employment and Workplace Relations [2007] AATA 1529
Secretary, Department of Social Security v Banks [1990] FCA 196
Secretary, Department of Social Security and Winterbotham [1990] AATA 808
Taylor and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs [2013] AATA 161

REASONS FOR DECISION

Deputy President Gary Humphries

18 February 2016

Background

1. In 2004, the applicant, Mr Mervyn Davis, suffered an injury in a car accident. He sued for compensation and in June 2008 received a lump sum compensation payment. The gross settlement amount was $950,000, of which Mr Davis personally received slightly less than $550,000. At about this time he was advised in writing by the relevant department that, in consequence of receiving the lump sum, a preclusion period applied in relation to any claims for social security payments he may make; the preclusion period was to run until April 2019. In October 2012, Mr Davis applied for review of the decision regarding the preclusion period; as a result, in August 2013 the preclusion period was reduced so as to end two years earlier, in April 2017.

2. Notwithstanding this preclusion period, on 19 November 2014 Mr Davis lodged a claim for Disability Support Pension (DSP). The claim was rejected on 24 November 2014. This decision was affirmed on internal review and by the Social Security Appeals Tribunal on 13 March 2015. He now seeks review of the latter decision by this Tribunal.

3. A hearing was conducted on 11 December 2015 and resumed on 10 February 2016. The interval was intended to provide Mr Davis with the opportunity to produce bank records and details of his June 2008 settlement, and the Secretary with the opportunity to demonstrate that the preclusion period had been properly calculated.

   The legislation

4. Mr Davis may be entitled to Disability Support Pension under the Social Security Act 1991 (the Act) if eligibility is established, but he is prevented from receiving the pension while a preclusion period applies to him, pursuant to ss 1169 and 1170 of the Act.

5. Assessing the duration of the preclusion period is a complex calculation involving the interaction of ss 17, 1169 and 1170 of the Act. It is calculated by reference to that part of any compensation paid to an applicant which includes an amount paid in respect of lost earnings, or a lost capacity to earn. Section 17(3) defines the compensation part of a lump sum payment as 50 percent of the total of a settled compensation claim. Section 1170(3) provides that the lump sum preclusion period … begins on the day on which the loss of earnings or loss of capacity to earn began… The section goes on to set out the formula for calculation of the duration of the preclusion period; it is the compensation part of the lump sum divided by the income cut-out amount, this being an amount based on the maximum pension rate payable at the time the compensation was received.

6. Section 1184K of the Act provides for the Secretary to 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…

   It therefore falls to the Tribunal to determine whether special circumstances exist in Mr Davis’s case which would allow it to disregard part of the June 2008 settlement for the purposes of shortening the preclusion period, in addition to that part of the settlement already disregarded in August 2013.

   Mr Davis’s circumstances

7. Mr Davis told the Tribunal that he lives with chronic obstructive pulmonary disorder and with emphysema. The conditions affect his capacity to undertake day-to-day activities, his mobility and his memory. Reference was also made in the Secretary’s submissions to chronic back pain, chronic depression, obesity with insulin resistance and arthritis. Mr Davis told the Tribunal that he was flat out walking around town and that he relied on an oxygen machine for 16 hours every day. Oxygen deprivation also made it difficult for him to remember things; he noticed that this got worse about four years ago and he has been seeking treatment for it.

8. He told the Tribunal that he had spent some of his settlement money purchasing a house in about 2009, which he had subsequently sold in 2011 or 2012, making a loss of at least $20,000 due to falls in property values. He had spent considerable amounts renovating the house, he said. He had also spent money on a Toyota LandCruiser. He had been in a relationship, but this had ended.

9. Mr Davis admits to having spent substantial amounts from his 2008 settlement. With some exceptions, however, he was unable to tell the Tribunal on what the withdrawals from his bank accounts had been spent on. Bank records produced by Mr Davis show a number of substantial withdrawals from his accounts between December 2008 and January 2015. Mr Davis was able to offer explanations for some of the withdrawals (for example, in relation to the purchase of a car, paying off a bad loan to his previous partner’s son and making contributions to a previous partner’s home, as well as sums on medication and specialist treatment). These payments were used by a review officer in August 2013 to reduce the preclusion period by two years, to April 2017, pursuant to s 1184K. However, other substantial expenditure amounts were not explained.

10. Mr Davis did obtain some work between February 2013 and July 2014 as a truck driver. His bank records, the Secretary submitted, indicate that he received $15,778.82 during that period in salary. Mr Davis said that he was no longer well enough to drive trucks.

    Calculation of the preclusion period

11. The Secretary put it to the Tribunal that the purpose of a preclusion period is to prevent claimants double dipping, by accessing public funds for income support when they ought to be relying on private compensation payments: Secretary, Department of Social Security v Banks (1990) 23 FCR 416. In Secretary, Department of Social Security and Winterbotham [1990] AATA 808 the Tribunal observed (at [19]):

    This particular piece of legislation (the Social Security Amendment Act 1988)… was aimed specifically at preventing those people receiving compensation for loss of income because of incapacity for work, from being able also to receive benefit from the public purse ... Primary responsibility for the payment of such compensation lies at the feet of those responsible for the compensable injury. Once that responsibility has been met, by way of a settlement sum agreed to by both parties, it is inequitable for the recipient to seek supplementary funds from the tax-payer.

12. Some doubt was raised during the hearing as to whether the preclusion period had been properly calculated. In particular, Mr Davis suggested that the payment of amounts in lieu of lost wages had been not properly been taken into account in the calculation of the impact of his settlement lump sum on the preclusion period.

13. Applying the formula to Mr Davis’s circumstances, the preclusion period was calculated to end on 17 April 2019. The Secretary advised that the preclusion period here had been reduced by use of the discretion conferred by s 1184K, as discussed in paragraph 7 above, with the lump sum payment being discounted by $160,000. Applying the formula, the preclusion period was recalculated to end on 5 April 2017.

14. Mr Davis said that the amount he was required to pay back to the insurance company (CGU Workers Compensation Ltd) on settlement of his claim was artificially inflated by the insurance company having changed partway through his action, when his action became one for personal injuries rather than for workers’ compensation. The adjournment of proceedings in December was designed, in part, to allow him to clarify this matter, but at the resumed hearing no further evidence about this was available to the Tribunal.

15. Mr Davis also maintained that, since he received in hand only half (approximately) of the amount awarded to him on settlement of his compensation claim, that the 50 percent rule should apply to the half he received, not to the total sum of the settlement. The Tribunal does not see that this approach is supported by the terms of the legislation, however. The legislation appears to proceed on the presumption that Centrelink will not look into the entrails of a settlement arrangement to determine what part of a payment represents lost earning capacity as opposed to other components. Rather it makes a blanket assumption that 50 percent of the amount received is available for a claimant to live on, and the preclusion period is assessed on a further assumption that the claimant will draw on that 50 percent at a certain rate until it is exhausted. In this calculation, the reality that the claimant may have more or less than the 50 percent of the settlement figure to live on, or be drawing on it at a faster rate than the calculation assumes, is irrelevant.

16. In fact, based on the information from his former lawyers supplied by Mr Davis, it seems Mr Davis had more than 50 percent of the settlement monies paid in mid-2008 on which to live from that time; it appears he received $549,674.44 in hand at that time (from a nominal settlement of $950,000). Particularly given the further discounting under s 1184K of the sums used to calculate the preclusion period in August 2013, it appears that the 50 percent rule has worked to Mr Davis’s advantage.

17. The Tribunal went through the details of the calculation with both parties in the hearings; it finds that the preclusion period has been correctly calculated.

    Whether special circumstances exist

18. The Act does not define special circumstances, but the phrase has been considered by the Tribunal and the Federal Court on several occasions. In Beadle and Director-General of Social Security (1984) 6 ALD 1, the Tribunal held that special circumstances were circumstances which are unusual, uncommon or exceptional, such that they would make a case markedly different from the usual run of cases.

19. In Groth and Secretary, Department of Social Security (1995) 37 ALD 797, the Tribunal said that it should be borne in mind, when considering whether there are special circumstances, that the purpose of the provisions is to ensure that a person is not paid from two sources in respect of the same period of time. Deputy President Forgie commented (at 798):

    Therefore, there will be special circumstances if the circumstances are such that it is unreasonable, unjust or inappropriate not to treat whole or part of a compensation payment as not having been made...

20. Mr Davis did not put much in evidence to the Tribunal with respect to the special circumstances he claimed existed; most of what was before it came from the Secretary’s submissions, the previous decision of the Social Security Appeals Tribunal and questions put by this Tribunal to Mr Davis. He is ill with emphysema and chronic obstructive pulmonary disorder, which affect his ability to operate normally or to remember things. Additionally, he indicated that his available financial resources were almost depleted, and that he would soon run out of money to live on.

21. The Secretary, in turn, accepted that Mr Davis was in poor health, but that his ill health was no more severe than the majority of DSP recipients. On the evidence available to the Tribunal, this submission carries some weight. Applying the test in Manafikhi and Secretary, Department of Employment and Workplace Relations [2007] AATA 1529 at [42], it does not appear to the Tribunal that Mr Davis’s poor health can be considered particularly unusual, uncommon or exceptional, particularly by reference to others who receive the DSP.

22. With respect to his financial hardship, Mr Davis submitted details of his bank accounts going back to the end of 2008, the year in which he received his compensation settlement. Those bank statements indicate that there was a steady stream of withdrawals, some quite substantial, over the subsequent period. There was evidence before the Tribunal relating to the reason for some of these withdrawals. This includes matters taken into account by the review officer in August 2013 to reduce the preclusion period by two years, as well as the purchase of a new car and a new oxygen concentrator because of a fault in the previous one. He told the Tribunal he had spent at least $5000 on oxygen equipment.

23. However, many substantial withdrawals were not specifically accounted for. They include the following:

    ·$16,000 on 10 February 2009;

    ·$5,000 on 19 March 2009;

    ·$5,000 on 5 August 2009;

    ·$16,500 on 7 August 2010;

    ·$5,500 on 1 November 2010;

    ·$23,000 on 16 November 2011;

    ·$3,800 on 1 October 2014.

24. It appears to the Tribunal that some of the unexplained withdrawals over this period may have been accounted for in the decision of August 2013 to reduce the preclusion period. The review officer at that time reduced the figure on which the preclusion period was calculated by $160,000. Nonetheless, many withdrawals remain unexplained and appear to be well above amounts that Mr Davis might reasonably be supposed to need for living expenses or for, for example, renovating his house. The Tribunal regards the previous discounting of the lump sum payment by $160,000 as an adequate – perhaps even a generous – allowance for reasonable expenses he incurred but has difficulty seeing an acceptable rationale for further discounting of that amount.

25. Mr Davis explained that his memory was not good enough to allow him to recall what those withdrawals were for, and that he did not keep receipts as he had downsized from a house to a caravan. At the time of the hearing in December 2015, he told the Tribunal that he had about $9,000 left in the bank. At the hearing in February 2016, his rough estimate of the contents of his bank account was $6,500.

26. In Director-General of Social Security v Hales (1983) 78 FLR 373, the Full Federal Court indicated why financial difficulties were not usually special circumstances (at 412):

    The legislation provides for the payment of a variety of benefits to different classes of people who will usually have one thing in common; they will be impecunious and in straitened circumstances.

    Previous decisions also make it very clear that the circumstances giving rise to an applicant’s impecuniosity will be relevant considerations in assessing special circumstances. An applicant must at least be able to give a reasonable account of how settlement monies have been expended, such that he or she no longer has those monies to draw on for financial support.

27. In Taylor and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs [2013] AATA 161 Senior Member Dr P McDermott RFD made this assessment of the applicant’s financial position in relation to the legislation (at [16]):

    The applicant contends that in four months he expended the sum of $108,000. It is not possible on the evidence before me to see how the funds from the compensation payment have been dispersed. The applicant informed the Social Security Appeals Tribunal that he repaid debts of $60,000 as well as spending $44,000 for two vehicles. However, in giving telephone evidence at this Tribunal, the applicant stated that he had repaid debts of $35,000 as well as purchasing the two vehicles. The applicant states that he has no money in the bank but has not provided any documentary evidence to show how the settlement funds have been applied. I would be reluctant to exercise the discretion under s 1184K of the Act in circumstances where there is no documentary evidence of how the settlement funds have been applied.

28. In contrast to the factual circumstances facing the Tribunal in Taylor, here Mr Davis has spent a much greater amount of money (albeit over a longer period) but offers little in explanation for that expenditure. Like the Tribunal in Taylor, I feel some reluctance to exercise the compassionate discretion contained in s 1184K in that context. Mr Davis owns no home, drives a car worth $10,000 and has about $6,500 in the bank, despite receiving over half a million dollars less than eight years ago. It is hard to escape the supposition that the money may have been spent less than wisely, and as such diminishes the justification for his call on the public purse to support him now.

29. Mr Davis has already benefited from a very substantial reduction in the length of the preclusion period. The Tribunal is not persuaded however that it would be reasonable, just or appropriate in the overall circumstances to further reduce that period. Accordingly it affirms the reviewable decision of 13 March 2015.

I certify that the preceding 29 (twenty -nine) paragraphs are a true copy of the reasons for the decision herein of Deputy President Gary Humphries

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Associate

Dated 18 February 2016

Dates of hearing	11 December 2015, 10 February 2016
Applicant	In person
Advocate for the Respondent	Department of Human Services