Edwards; Secretary, Department of Family and Community Services - [2002] AATA 187

DECISION AND REASONS FOR DECISION [2002] AATA 187

ADMINISTRATIVE APPEALS TRIBUNAL )

) No Q2001/983

GENERAL ADMINISTRATIVE DIVISION          )
           Re      SECRETARY, DEPARTMENT OF FAMILY AND COMMUNITY SERVICES
  Applicant
           And    PETER EDWARDS
  Respondent

DECISION

Tribunal Ms J Cowdroy, Member

Date21 March 2002
PlaceBrisbane

Decision      The decision under review is set aside and in substitution thereof the Tribunal decides that there are no special circumstances which warrant reduction of the lump sum preclusion period.
  ..................(Sgnd)..................
  Ms J Cowdroy
  Member

CATCHWORDS

SOCIAL SECURITY – compensation payment – preclusion period – whether special circumstances exist to justify a reduction in the length of the preclusion period – divisor - GST

Social Security Act 1991

Secretary, Department of Family and Community Services v Allan [2001] FCA 1160
Secretary, Department of Family and Community Services v Giannekas [2001] FCA 1161
Re Morgan and Secretary, Department of Family and Community Services [2001] AATA 734

Re Karaarslan and Secretary, Department of Family and Community Services [2001] AATA 838

Re Secretary, Department of Family and Community Services and Szoke [2001] AATA 353

Re Secretary, Department of Family and Community Services and Braeckmans [1999] AATA 384

Re Ivovic and Director-General of Social Services (AAT 492, 15 July 1981)

Re Secretary, Department of Social Security and Winterbotham (AAT 6499, 11 December 1990)

Re Lukic and Secretary, Department of Social Security (AAT 6944, 6 May 1991)
Re Beadle and Director-General of Social Security (1984) 6 ALD 1

REASONS FOR DECISION

21 March 2002 Ms J Cowdroy, Member

This is an application by the Secretary, Department of Family and Community Services to review a decision of the Social Security Appeals Tribunal ("the SSAT") made on 19 September 2001 which determined that $60,000 of a lump sum compensation payment received by the respondent is to be disregarded for the purposes for calculating the compensation preclusion period. The SSAT set aside a decision of an Authorised Review Officer made on 27 April 2001.
The matter was heard on 8 February 2002. The applicant was represented by Mr J Walsh, a Departmental Advocate and the respondent was represented by Dr R Copp of Counsel. Written and oral submissions were made by both parties and Mr Edwards gave evidence. At the hearing, the Tribunal had in evidence before it documents lodged pursuant to s 37 of the Administrative Appeals Tribunal Act 1975 - the T-documents (Exhibit A1) - and exhibits A2, A3 and R4.
Issues Before the Tribunal
The only issue to be decided by the Tribunal was whether there were any "special circumstances" to justify a reduction in the length of the compensation preclusion period imposed on Mr Edwards.
Background to the Application
The following facts were not in dispute and are stated briefly. Mr Edwards was injured in an accident on 25 November 1994. As a result, he suffered a below knee amputation and a split aorta. On 6 July 1998 he was paid a lump sum settlement amount of $350,000.
The Department imposed a preclusion period for social security payments from 25 November 1994 until 23 January 2003.
Mr Edwards' Evidence
Mr Edwards gave evidence about the circumstances of the pay-out and how the monies had been expended. He explained that he underwent a below right knee amputation in January 1995 following the motor vehicle accident in 1994. He received a pay-out in 1998 at which time he was aged 38 years. He married in early 1998. However, he acknowledged that he had lived with his wife from a short time after the accident. At the time of receiving the compensation pay-out, Mrs Edwards was seven months pregnant with the couple's first child. He agreed that the monies were expended in accordance with the schedule set out in paragraph 4 of the SSAT's decision.
He purchased land at Medowie at a cost of $90,000 and spent $120,000 on a house. That figure did not include paths, lawns, driveway, clothes-lines, furniture and fittings. Mr Edwards estimated that, over time, the house cost him between $250,000 and $260,000. He sold that house in late 2001 for $230,000. At that time, he had a $70,000 mortgage on the property. He estimated that he received approximately $160,000 from the proceeds of that sale, which was then used to purchase a house at Currimundi on the Sunshine Coast, with settlement occurring in late November 2001. That house cost $225,000 plus legal costs. It was financed by way of $140,000 from the proceeds of the Medowie property and a $90,000 mortgage. The other $20,000 from the Medowie property proceeds was expended on repaying credit card debts, removal expenses to the Sunshine Coast and travel to Adelaide and accommodation to attend his mother's funeral.
His evidence was that he was forced to sell the house at Medowie because of his financial situation and, in particular, he had personal loans and debts which he could not meet. Mr Edwards stated that he obtained a mortgage from Suncorp Metway on the basis of a letter from the respondent (Exhibit R4) to the effect that a disability support pension provides an income of $345.50 per fortnight. Under cross-examination, Mr Edwards stated that he took this step on the understanding that his hearing with the SSAT was successful. It was pointed out to him that the SSAT had indicated in its letter to him (Exhibit A3), that there was a possibility of the Department appealing to the Administrative Appeals Tribunal. The respondent's response was that as it was only a possibility and he had been informed by someone that only a very small amount of decisions are appealed, he proceeded to purchase the house.
The applicant was hopeful that, by setting up a business which involved providing day runs to Nelson Bay and the Hunter Valley vineyards, he could create employment for himself and provide financially for his family. He had been a tour operator in Cairns for four years. However, at that time he was fit and healthy. He explained that initially he thought he had the ability to make a success of a new business, however as time went on, he lost confidence and that the business really "never worked". A four-wheel drive vehicle was sold with the business for around $15,000 and he purchased a 1995 Ford Falcon Station Wagon for around $10,000 which is now worth $6,000 - $7,000. It is the family's only means transportation.
He acknowledged he received advice about the preclusion period. In essence, he used the remainder of his funds, once he had purchased the business, in the fitting out and decorating of his house at Medowie. He estimated that curtains and floor coverings cost between $40,000 and $50,000 and there were also costs involved in landscaping etc. He acknowledged that most of the remaining money was spent in a matter of months. When he sold the house at Medowie, he had contemplated renting and rented at Dickie Beach prior to purchasing the house at Currimundi. He was asked if he considered renting until the end of the preclusion period and he stated that although he was renting, there was a shortage of rental properties in that area. After receiving the letter from the SSAT, telling him that his application had been successful, he thought he would "buy a place".
He acknowledged that when he went to Centrelink and asked them for the letter (Exhibit R4), he was not in receipt of any form of benefits, but believed he was about to receive same. The letter is dated 12 October 2001 and his benefits were re-instated on 15 November 2001. In response to questions from Mr Walsh, Mr Edwards stated that if he was required to sell his home he would repay the mortgage and have approximately $120,00 which he could live on until the preclusion period expired. His wife is receiving approximately $800 a fortnight in social security benefits and this has been the case for a number of years.
In respect to the business venture, he said it never occurred to him that it would not succeed, however by the end of 1998, he knew there was a prospect it might fail. He said that he was aware that the first twelve months of a new business is always a difficult time and during this period his confidence was at an "all time low". He acknowledged that he did not have any prospect of income for the first twelve months of the business. When asked how he was going to survive financially during that twelve month period, he repeated his assertion that he still had faith in the business eventually being successful.
During re-examination on the evidence regarding the scarcity of rental properties, Mr Edwards stated that the reason for his dislike of rental properties was the lack of privacy and that it was embarrassing when real estate agents called to inspect the property if they found him there "propped up without his leg" whereas if he had purchased his own property he believed that his privacy was assured. He rented the property at Dickie Beach for four or five months and paid between $200 and $225 rent per week. He thought that if he had to sell his house there was a prospect of divorce and that assuming the proceeds of the house were divided in equal shares, after the repayment of the mortgage, he would receive $37,500 which would not be sufficient to support him until the end of the preclusion period.
He acknowledged that he had received a further compensation payment of $30,000 on 30 August 1999. After expenses, he thought he probably received about $20,000 net and that that money had also been spent on the Medowie house.
Applicant's Case
Mr Walsh submitted that the decision of the SSAT was not sustainable. The SSAT decided to disregard $60,000 and in doing so was influenced by:
(i)a change in the applicant's domestic arrangements,
(ii)the fact that the applicant had utilised most of the funds to purchase a home in order to provide secure accommodation for his family;
(iii)that the divisor used in the preclusion calculations had increased from July 2000.

The sum of $60,000 represents the loss sustained by the respondent as a result of a failed business venture. In this context, the applicant contended that the loss was attributable to "faulty business assumptions, excessive hope or both". The applicant pointed out that there was nothing unusual or special about the non-viability of a business venture, as it is not unusual for small businesses to fail in the early stages of operation and this was recognised by the SSAT.
In relation to the changed domestic circumstances, it was contended that Mr Edwards and his partner had lived together from at least 1996 and that their subsequent marriage and the birth of children did not render his domestic circumstances special.
In respect to the SSAT's view that it was reasonable for Mr Edwards to purchase the house for his family's security, it was pointed out that to take such a view was contrary to the legislative intent of the preclusion provision. Further, the SSAT considered that the sale of the house would be inappropriate as it was Mr Edwards' only real asset. The applicant pointed out that the property was sold after the SSAT hearing, and the proceeds of the sale would have allowed Mr Edwards to be self-supporting until the end of the preclusion period.
In the face of a possible appeal by the Department, Mr Edwards acquired another property on the Sunshine Coast area. In those circumstances, the contention was made that Mr Edwards should not benefit from his decision to expend all his available funds on real estate.
In relation to the increase in the divisor used in the preclusion calculations, the applicant acknowledged that this factor is capable of being taken into account should the particular circumstances justify that course, referring to Secretary, Department of Family and Community Services v Allan [2001] FCA 1160. However it was pointed out that, given that the divisor change applies in a uniform manner, it might be expected that this of itself would not often be regarded as a "special circumstance".
Mr Walsh pointed out that the respondent had purchased two houses with full knowledge of a preclusion period. Such actions ought not to enable the recipient to then be provided with income support. To do so would be tantamount to encouraging recipients of compensation payments to utilise their pay-out for real estate purchases and then avoid the preclusion period. The legislative intent of the scheme is to provide income support, not to provide the means for acquisition of property.
In regard to the purchase of the business, this was also a course of action undertaken in the knowledge of a preclusion period. By 1999, most of the money from the compensation pay-out had been expended.
The Tribunal was referred to Heerey J in the Federal Court in the matter of Secretary, Department of Family and Community Services v Giannekas [2001] FCA 1161 who stated that a change in the divisor and the implications of the GST were factors capable of being taken into account. However, in the matters of Re Morgan and Secretary, Department of Family and Community Services [20001] AATA 734 and Re Karaarslan and Secretary, Department of Family and Community Services [2001] AATA 838, the Tribunal members acknowledged that there was a change to the divisor and yet both decisions did not consider that it constituted special circumstances.
The Tribunal was also referred to Re Secretary, Department of Family and Community Services and Szoke [2001] AATA 353 which was heard by Senior Member Beddoe and Member, Ms AM Brennan, AM. In that case the Tribunal acknowledged that the formula applied to determine the lump sum preclusion period had changed, so that a lesser preclusion period would have been imposed if the payment had been made after 1 July 2000. The Tribunal did not consider that that could be accepted as a special circumstance. In Szoke, the respondent had spent all her compensation pay-out and it was acknowledged that she was in an impoverished situation. Counsel for the applicant submitted that as most of Mr Edwards' monies had been expended by 1999, and the change in divisor and the introduction of GST did not commence until 1 July 2000, it was difficult to see how the respondent was disadvantaged.
The Tribunal was also referred to Re Secretary, Department of Family and Community Services and Braeckmans [1999] AATA 384, a matter heard by Dr EK Christie, Member. In that matter Mr Braeckmans had chosen to spend his settlement monies on real estate. This did not constitute a special circumstance. The Tribunal acknowledged Mr Braeckmans' reason for purchasing a home was future security for his family, however such an action was imprudent, given that he was aware that he was required to utilise those funds to provide him with a source of income throughout the preclusion period.
Reference was made to Re Ivovic and Director-General of Social Services (AAT 492, 15 July 1981) in which the Tribunal said (at par 47):
"It may well impose hardship on the applicant and his family if he is obliged to sell the premises in their present incomplete state in order to pay the moneys claimed by the Director-General. Any hardship which may thereby ensue, is primarily of the applicant's own making due to his decision to proceed with the construction of a residence which was beyond his financial resources and to utilise for that purpose the whole of the moneys made available by his solicitors without making any provision for payment of his acknowledged debt."

In considering the context, scope and purpose of the compensation provisions of the Social Security Act, the Tribunal's attention was drawn to Re Secretary, Department of Social Security and Winterbotham (AAT 6499, 11 December 1990), in which the Tribunal observed (at par 19):
"This particular piece of legislation … 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 compensible 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 taxpayer."
In the applicant's submission, it was not appropriate for the Tribunal to be asked to speculate as to what might happen if the decision was in the applicant's favour. Additionally, the respondent's evidence of a 25 per cent reduction in the value of the home, in which he has resided for only three months, is also entirely speculative.
While it was pointed out by the respondent that Suncorp Metway advanced a mortgage to the respondent on the Dickie Beach property, there was no evidence that Suncorp Metway was aware that the SSAT's decision could be the subject of an appeal to the Administrative Appeals Tribunal.
Further, it was contended that even if the Tribunal accepted that it was reasonable for Mr Edwards to expend all his money within twelve months of receiving it, it does not necessarily follow that it is appropriate for him to have earlier access to social security benefits. In Re Lukic and Secretary, Department of Social Security (AAT 6944, 6 May 1991) the Tribunal rejected a submission that reasonable expenditure was a relevant consideration and the fact that reasonable expenditure may have been made in this case would not produce a finding that the circumstances are special.
Finally, it was difficult to see how the introduction of the GST in July 2000 impacted on the respondent when the money had already been spent at that time. In the applicant's submission, the respondent had not made any adequate provision for his financial future and there was nothing unusual in his circumstances to justify a reduction in the preclusion period.
Respondent's Submissions
Counsel for the respondent pointed out that the respondent had attempted to be self-supporting by setting himself up in a business. He did not want to be reliant on social security benefits. He acknowledged that there was some misunderstanding on the part of the SSAT as to the number of dependants the respondent had at the time he received his settlement monies. It was acknowledged that two children were born after the settlement monies were received and that Mr Edwards utilised all the proceeds of the compensation payment on the purchase of a house and business to provide a stable environment for them. It was pointed out that there has been a change in the law which now permits Mrs Edwards to receive social security benefits. In Dr Copp's submission, this indicates that the law has become more compassionate since the sentiments in Winterbotham were expressed.
The respondent considered it an uneconomic proposition to rent a house, and that mortgage payments were less expensive. In respect to Exhibit R4, the respondent had a perception that letters from a Government body could be relied on and, although he was not in receipt of disability support pension when he applied for a mortgage from Suncorp Metway, he had an anticipation that he was about to receive it. With the benefit of hindsight, it was acknowledged that it would have been prudent to have waited.
In respect to the failed business venture, it was submitted that the decision to set the business up was a reasonable one and that respondent considered that the risks were acceptable, provided he could eventually make a reasonable income. In purchasing and operating that business, Mr Edwards had failed to take account of his diminished abilities and clearly, if the business was sold as an ongoing concern, it must have been considered to be viable. It was suggested that the business failed, not because it was a speculative venture, but because of the respondent's state of health.

In respect to the argument that the change in divisor should be taken into account, it was acknowledged that the intent of s 1167 of the Act is to prevent double-dipping. It was contended that if the effect of the GST and the change in divisor was not taken into account then that, in itself, was a form of double-dipping in favour of the Government.
In relation to the authorities referred to by the applicant, in particular Szoke, which determined that a change in divisor and the introduction of GST did not amount to special circumstances, it was pointed out that this Tribunal is not bound by previous decisions. Additionally, that matter could be distinguished in that the respondent was unable to provide any rational explanation as to how the money was utilised. That is quite a different situation to that of Mr Edwards who has justified how the entire proceeds of his compensation payment had been expended.
In respect to Braeckmans, there was no change in the personal circumstances of the respondent which again could be distinguished from Mr Edwards' circumstances. Winterbotham was an old decision and it was tentatively suggested a more compassionate attitude may be prevalent.
In respect to the decision by the SSAT to disregard $60,000, it was suggested that this, in fact, should be $69,000. The $60,000 was calculated as the amount spent by Mr Edwards in setting up his business after the deduction of $15,000 which he received for the sale of a four wheel drive vehicle. It was contended that in fact, the reduction from the cost of setting up the business ($75,000), should only be $6,000 as that is the present value of his current vehicle.
Consideration of the Issues
The basis for the application before this Tribunal is that the SSAT was wrong to decide that special circumstances existed within the meaning of s 1184 of the Social Security Act 1991. Section 1184 of the Act confers upon the decision-maker discretion to decrease the length of the preclusion period:
"1184(1) (Special Circumstances) 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."
The term "special circumstances" has been considered by the Tribunal and other forums on numerous occasions. In this context the decision of Re Beadleand Director-General of Social Security (1984) 6 ALD 1 has been much quoted as the benchmark in respect to the interpretation of those words. In that case the Tribunal said:
"An expression such as 'special circumstances' is by its very nature incapable of precise or exhaustive definition. The qualifying adjective looks to circumstances that are unusual, uncommon or exceptional. Whether circumstances answer any of these descriptions must depend upon the context in which they occur. For it is the context in which they occur. For it is the context which allows one to say that the circumstances in one case are markedly different from the usual run of cases. This is not to say that the circumstances must be unique but they must have a particular quality of unusualness that permits them to be described as special."

Basically, the respondent's case is that he is in an impoverished situation and has no financial resources to carry him through the lump sum preclusion period, other than via the sale of the family home. The Tribunal appreciates Mr Edwards' desire and commitment to providing a stable environment for his wife and three children. However, it is clear that he has failed to make any financial provision to support himself through the preclusion period and this is evidenced by the fact that he had expended the settlement monies within a period of twelve months, in addition to a further amount of $20,000.
It is clear that his present impoverishment, if it exists, is as a result of his voluntary actions. It was unrealistic and imprudent of him to channel all his resources into the business and a home in the full knowledge that he was required to be financially self-supporting until 2003. His evidence was that he realised that there was no prospect that income would be generated from the business for the first twelve months, but despite this knowledge, he made no contingency plans and exhausted all his finances without regard for the future.
Further, when he received $20,000 in August of 1999, rather than keeping this money in reserve, it also was channelled into the house at Medowie. The evidence supports the contention that the respondent had an awareness that the SSAT decision may well be the subject of an appeal and yet, in his endeavours to buy another house, he omitted to provide this information to Suncorp Metway. In fact, he produced to that lending institution a letter which was, to say the least, quite misleading.
In respect to the argument regarding the change in divisor, the Tribunal is aware that the divisor used in calculating the respondent's preclusion period is now more relaxed so that there would have been a lesser preclusion period if the payment had been made after 1 July 2000. That of itself, in the Tribunal's view, cannot be regarded as a special circumstances as the same situation applies to all recipients of lump sum compensation payments who received their payment prior to the amendment to the legislation.
In relation to the domestic circumstances, it was the case, that by the time the compensation pay-out was received, he had married and was shortly expecting his first child. Another two children were subsequently born. The Tribunal did not consider that the responsibility of additional dependants after receiving the payment renders his circumstances special.
In summary therefore, the Tribunal, whilst realising this may cause the respondent some hardship, considers there is no basis to make a finding that special circumstances exist in Mr Edwards' situation.
For the above reasons the Tribunal decides to set aside the decision under review and in substitution thereof decides that the preclusion period extends from 25 November 1994 to 23 January 2003.
I certify that the forty-seven (47) preceding paragraphs are a true copy of the reasons for the decision herein of Ms J Cowdroy, Member
Signed:         .....................................................................................
  Associate
Date of Hearing  8 February 2002
Date of Decision  21 March 2002
For the Applicant  Mr J Walsh
For the Respondent                 Dr R Copp