Demkowski; Secretary, Department of Employment and Workplace Relations
[2005] AATA 1308
•23 December 2005
Administrative
Appeals
Tribunal
DECISION AND REASONS FOR DECISION [2005] AATA 1308
ADMINISTRATIVE APPEALS TRIBUNAL )
) N2005/1326
GENERAL ADMINISTRATIVE DIVISION ) Re SECRETARY, DEPARTMENT OF EMPLOYMENT AND WORKPLACE RELATIONS Applicant
And
BRONISLAW DEMKOWSKI
Respondent
DECISION
Tribunal Ms N Isenberg, Member Date23 December 2005
PlaceSydney
Decision The Administrative Appeals Tribunal sets aside the decision under review and in substitution thereof decides that a compensation preclusion period from 7 April 2005 to 2 November 2005 should be imposed.
[Sgd] Ms N Isenberg, Member
CATCHWORDS
SOCIAL SECURITY – lump sum workers’ compensation payment not able to be dissected – preclusion period – whether special circumstances exist to justify the exercise of the discretion to disregard all or part of the compensation payment being made – unfairness of the strict application of the ‘50% rule’ – no special circumstances – decision set aside
Social Security Act 1991 – sections 17, 1169, 1170 and 1184K
Secretary, Department of Social Security v Banks (1990) 20 ALD 19
Secretary, Department of Social Security v Cunneen (1997) 149 ALR 665
Kirkbright v Secretary, Department of Family and Community Services (2000) 65 ALD 211
Re Beadle and Director General of Social Security (1985) 60 ALR 225
Secretary, Department of Social Security v Hulls (1991) 22 ALD 570
Secretary, Department of Social Security v Smith (1991) 23 ALD 277
Haidar v Secretary of Social Security (1998) 52 ALD 255
Groth v Secretary of Social Security (1995) 40 ALD 541
Secretary, Department of Social Security v Ellis (1997) 46 ALD 1
REASONS FOR DECISION
23 December 2005
Ms N Isenberg, Member
DECISION UNDER REVIEW
1. The decision under review by this Tribunal is the decision of the Social Security Appeals Tribunal (“SSAT”) dated 12 September 2005 which reviewed the decision of an Authorised Review Officer (“ARO”) to cancel Mr Demowski’s Disability Support Pension (“DSP”) because of the imposition of a compensation preclusion period from 7 April 2005 to 2 November 2005. The SSAT set aside the ARO decision and remit the matter back to Centrelink for reconsideration with directions that the preclusion period be recalculated excluding the $32,000 arrears of periodic compensation from such calculation.
THE HEARING
2. A hearing was held before me on 19 December 2005 at which Centrelink was represented by Ms Hannelore Schuster, an advocate from Centrelink Service Recovery Team. Mr Demkowski appeared without representation, but assisted by an interpreter in the Polish language.
3. I had before me three volumes of documents lodged pursuant to section 37 of the Administrative Appeals Tribunals Act 1975 ("the T-documents"), which I took into evidence. In addition, extracts from the insurer’s file were tendered. Mr Demkowski provided written submissions, as did Centrelink in the form of a Statement of Facts and Contentions.
BACKGROUND
4. Mr Demkowski claimed workers compensation in respect of two workplace injuries sustained in about 1997 and 2001.
5. Mr Demkowski was paid Newstart Allowance briefly in April/May 1999, April/May 2003 and October 2004. He was subsequently paid DSP. Mr Demkowski was also in receipt of periodic compensation payments from the insurer which continued until 6 April 2005.
6. On 6 April 2005 Mr Demkowski received a gross amount of $40,000 in settlement of his compensation claim. This amount comprised $8,000 for section 66 payments and $32,000 for arrears of weekly workers compensation payments.
7. On 26 July 2005, based of the settlement, Centrelink calculated a lump sum preclusion period from 7 April 2005 to 2 November 2005. On 17 August 2005, an ARO affirmed this decision.
8. On 12 September 2005 the SSAT set aside the decision of the ARO. The SSAT found that a lump sum period should be calculated on the basis of $8,000 being the lump sum received, while $32,000 was to be treated as arrears of periodic compensation payments (T2), and thereby excluded in the calculation of the preclusion period.
ISSUE BEFORE THE TRIBUNAL
9. The main issue for me to decide is whether:
(a)Mr Demkowski’s lump sum of $40,000 can be dissected into its component parts in order to determine the length of the lump sum preclusion period under section 1170 of the Social Security Act 1991 (“the Act”).
If I find that the lump sum cannot be dissected and that the statutory formula must apply to the lump sum, there is no dispute between the parties that a lump sum preclusion period would result from 7 April 2005 to 2 November 2005. If this is the case, I must consider whether:
(a)Any “special circumstances” exist in Mr Demowski’s case to reduce the length of the preclusion period, in accordance with section 1184K of the Act
LEGISLATION
10. Section 1169 of the Act provides effectively, that, where a lump sum payment has been received a pension is not payable during a lump sum preclusion period, which is calculated by a formula that depends on the amount of the lump sum compensation payment.
11. Section 1170 sets out a formula to be used to calculate the length of a lump sum preclusion period.
12. Section 1184K of the Act provides potential relief from the strict application of the compensation preclusion period, by providing the Secretary discretion to disregard whole or part of the compensation payment in “special circumstances”. Section 1184K(1) of the Act reads:
“1184K Secretary may disregard some payments
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.”
DISCUSSION AND FINDINGS
13. In coming to the correct and preferable decision, I took into account all the evidence, submissions, case law and relevant legislation.
14. A Centrelink Settlement Details Advice Sheet dated 25 April 2005 sets out GIO’s advice to Centrelink regarding Mr Demkowski’s workers compensation payments. In this form GIO advises that “Gross Settlement Amount: $40,000”.
15. However, the SSAT found that $32,000 of the lump sum of $40,000 was referable to arrears of weekly compensation payment. The SSAT relied on section 17(4A) of the Act for its finding that $32,000 was not part of the lump sum.
16. Section 17(4) states:
“17(4A)For the purposes of this Act, a payment of arrears of periodic compensation payments is not a lump sum compensation payment.”
17. The SSAT found that $32,000 of the total amount referred to arrears of periodic compensation for the periods 9 July 1997 to 11 December 1998, 24 September 1998 to 1 October 2001 and 12 December 2001 to 18 February 2002. Although weekly compensation is mentioned in the Workers Compensation Certificate of Determination, the parties agreed that this entitlement totalled $32,000, without attributing particular amounts to particular periods.
18. Mr Demkowski submitted that the information provided by the GIO was wrong and that the ‘gross settlement amount’ was not $40,000, but $8000, and that weekly compensation totalling $32,000 was ‘arrears of periodic compensation payments’ in accordance with section 17(4A) and should be excluded form the calculation of the preclusion period.
19. I was referred to the Federal Court decision in Secretary, Department of Social Security v Banks (1990) 20 ALD 19 where Von Doussa J. held that it was incorrect to break down the lump sum payable to Mr Banks by excluding from the calculations a sum of $1000 which was said to be in respect of future medical expenses. The meaning of ‘lump sum’ was discussed:
“The words "lump sum" are not defined. They are not words of art. In the Macquarie Dictionary a "lump sum" is defined as a sum "including a number of items taken together or in the lump". In my opinion the words bear that meaning in the section. The words are used in Part XVII of the Act to distinguish "lump sum payments by way of compensation" from "periodical payments by way of compensation" (see, for example, paras 152(2)(d), 152(3)(b), and 153(1)(a)). A “lump sum" payment is simply one which includes a number of items. Where a payment by way of compensation consists of the aggregate of several amounts which could have been paid separately or at different times the payment is one of a lump sum. A payment the total of which is arrived at by adding amounts for different heads of loss would also be a lump sum payment.”
20. Von Doussa J. further noted:
“20. 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 paragraph (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.”
21. Centrelink contended that the purpose of the compensation provisions is to prevent ‘double dipping’ by ensuring that all lump sum payments are treated consistently under the 50 percent rule. (See Second Reading Speech for Bill introducing the Social Security Amendment Act 1988 Hansard House of representatives 13 April 1988.) As stated in Banks, this was to avoid deliberate manipulation of settlement sums. If lump sums are dissected into different parts for different heads of damage, including amounts for arrears of periodic compensation payments, this would allow people to manipulate their settlements and defeat the purpose of the 50 percent rule.
22. I was also referred to Secretary, Department of Social Security v Cunneen (1997) 149 ALR 665 in which Foster J cited Banks with approval. He noted in relation to section 17(4A):
“The purpose of the provision was to ensure that where a payment was simply a total of previously unpaid periodic payments it would not, thereby, acquire the characterisation of a "lump sum compensation". The section, in my view, was not intended to apply where a payment of arrears of periodic compensation did not stand alone but was included as a component in a larger "lump sum" payable as “compensation" within the meaning of s 17(2). I have accepted the primary submission made by counsel for the Secretary, namely that it was an error of law on the part of the Tribunal to have, in effect, regarded each component of the total sum payable as being "lump sum compensation payments" in themselves. The proper construction of the legislation required that it characterise the total sum payable not the individual parts. If, having done so, the total sum qualified for the legislative description of a "lump sum compensation payment" then the provisions of s 17(3) would be applicable.”
23. I note that the SSAT did not consider either of these cases.
24. I agree that a lump sum cannot be dissected into its component parts for the purpose of calculating a lump sum preclusion period.
25. In coming to this view, I accept that subsection 17(4A) was only intended to apply to situations where arrears of periodic compensation payment are made on their own and not where arrears are paid with other heads of damage in one lump sum. The Explanatory Memorandum to the Social Security Legislation Amendment Bill 1992 provides as follows:
“The intention is that such payments are to be regarded as periodic payments (eg weekly, in workers’ compensation cases) that happen to be paid in a “lump sum”. These payments are not true lump sums for the purposes of these provisions and the amendments make it clear that, while they may be paid in a “lump sum”, they are to be regarded as having been received on a periodic basis. This approach spreads the arrears of periodic payments over the period in questions with the intent being that the result on the person would be similar had they in fact received the payments on a periodic basis. This amendment will prevent such “lump sum” payments being regarded as income only in the week or fortnight in which the sum was actually received; a treatment which distorts the true nature of the arrears payment.”
26. I accept that the total settlement was $40,000, as shown on the advice from the GIO. Although this total may have been calculated using different heads of loss, for the purpose of section 1170, once arrears were paid with other damages as part of a lump sum they ceased to be regarded as specific arrears of periodic compensation payments.
Special Circumstances
27. There was no dispute that, if the statutory formula was applied to the Mr Demkowski’s circumstances, a preclusion period would result from 7 April 2005 to 2 November 2005.
28. It was Centrelink’s position (and this was also the view of the SSAT) that, there are no special circumstances in the Mr Demkowski’s case such that the discretion to disregard parts of the compensation payments pursuant to section 1184K of the Act should not be exercised.
29. It is well established that section 1184K is designed specifically to enable the Secretary to ameliorate unfairness or injustice which results upon the strict application of the Act. (Kirkbright v Secretary Department of Family and Community Services (2000) 65 ALD 211). In Cunneen it was specifically noted that:
“…if the application of what is an essentially arbitrary rule produces genuine hardship, then, clearly, the Secretary may act under s 1184 to alleviate that hardship”
30. The discretion to disregard the whole or part of a compensation payment can be exercised where application of the usual rules would lead to a result that is unfair or inappropriate (see Beadle v Director General of Social Security (1985) 7 ALD 670 and Secretary, Department of Social Security v Hulls (1991) 22 ALD 570). The Federal Court in Secretary, Department of Social Security v Smith (1991) 30 FCR 56 held that it is appropriate for the discretion under section 1184K to be used where the arbitrary nature of the “50% rule” results in unfairness in a particular case.
31. Section 1184K is a way of alleviating the harshness of the statutory provision in appropriate cases where there are special circumstances. Special circumstances do not have to be statistically “extreme” or “unique”, it is sufficient if there is something that takes the matter out of the usual ordinary case, (see Haidar v Secretary Department of Social Security (1998) 52 ALD 255 at 264, in which Hill J cited the earlier Federal Court cases of Groth v Secretary, Department of Social Security (1995) 40 ALD 541 and Secretary, Department of Social Security v Ellis (1997) 46 ALD 1).
32. Mr Demkowski told me that he had been in difficult financial circumstances after the settlement. He had to pay $10,000 tax on the $32,000. Then, in June 2005, he repaid a debt of $20,000, although, there was no evidence that he was being pressed to do so. As a result, there is nothing left. He has borrowed a further $2600 from his sister. Since going onto DSP his financial circumstances are now more under control. However it embarrasses him that he lives in a one bedroom flat and is unable to buy his sons presents.
33. He also told me of ongoing legal disputes and a possible action in negligence against one of his former solicitors. This is entirely a matter for him.
34. He considers himself ‘too old’ at 49 to rejoin the workforce and ‘start again’.
35. Ms Schuster reminded me that the debt of $20,000 was repaid at a time when Mr Demkowski was on notice from Centrelink that the settlement monies were to last him until November 2005. His financial difficulties during the preclusion period therefore were largely of his own doing.
36. I have come to the view that Mr Demkowski’s circumstances are not special in that there is nothing out of the ordinary in his case compared to other welfare recipients (per Haidar). I do not consider that the application of the usual rules would lead to a result that is unfair or inappropriate (per Beadle).
DECISION
37. The Administrative Appeals Tribunal sets aside the decision under review and in substitution thereof decides that a compensation preclusion period from 7 April 2005 to 2 November 2005 should be imposed.
I certify that the 37 preceding paragraphs are a true copy of the reasons for the decision herein of Ms N Isenberg, Member
Signed: A. Krilis Associate
Date of Decision 2006
Advocate for the Department Hannelore Schuster
Representative for Mr Demkowski Self - Represented
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