Fotos and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs
[2011] AATA 441
•24 June 2011
Administrative Appeals Tribunal
ADMINISTRATIVE APPEALS TRIBUNAL )
) No: 2010/1470
GENERAL ADMINISTRATIVE DIVISION )
Michael Fotos
ApplicantAnd: Secretary, Department of Families, Housing, Community Services and Indigenous Affairs
RespondentCORRIGENDUM TO DECISION [2011] AATA 441
TRIBUNAL: Senior Member A K Britton
DATE: 24 June 2011
PLACE: Sydney
1. The Tribunal released written reasons for decision in this matter, dated 24 June 2011
2. It has come to the Tribunal’s attention that there was an error in the decision.
3. The Tribunal wishes to amend the written decision so as to rectify this error and wishing to do so with the least cost and inconvenience to the parties, applies the provision of section 43AA of the Administrative Appeals Tribunal Act1975 (the Act).
NOW THE TRIBUNAL THEREFORE DIRECTS that the Registrar, pursuant to section 43AA(1) of the Act, alter the text of the decision as follows:
(a) Replace the words “1 July 2012” in paragraph 43 of the decision with the words “1 January 2012”.
..........................[sgd].........................................
Senior Member A K Britton
Administrative Appeals Tribunal
DECISION AND REASONS FOR DECISION [2011] AATA 441
ADMINISTRATIVE APPEALS TRIBUNAL )
) No 2010/1470
GENERAL ADMINISTRATIVE DIVISION ) Re Michael Fotos Applicant
And
Secretary, Department of Families, Housing, Community Services and Indigenous Affairs
Respondent
DECISION
Tribunal Senior Member A K Britton Date24 June 2011
PlaceSydney
Decision The Tribunal sets aside the decision under review, and in place of that decision decides that such part of the compensation payment received by the applicant shall be treated as not having been made as shall result in the preclusion period ending on 1 January 2012 instead of 4 June 2015. .......................[sgd].......................
Senior Member A K Britton
CATCHWORDS
SOCIAL SECURITY – Disability Support Pension – compensation payment - imposition of preclusion period – whether discretionary power to treat whole or part of compensation payment as “not having been made” should be exercised – special circumstances - decision under review set aside
Social Security Act 1991 (Cth) – ss 1169, 1184K(1)
Beadle v Director-General of Social Security (1985) 7 ALD 670 at 673; [1984] AATA 176
Boscolo v Secretary, Department of Social Security (1999) FCR 531; [1999] FCA 106
Groth v Secretary, Department of Social Security (1995) 40 ALD 541; [1995] FCA 1708
Secretary Department of Social Security v Hodgson (1992) 37 FCR 32; [1992] FCA 338
Fischer v Secretary, Department of Families, Housing, Community Services & Indigenous Affairs (2010) 185 FCR 52; [2010] FCA 441
Drake v Minister for Immigration and Ethnic Affairs (1979) 2 ALD 60; (1979) 46 FLR 409
Secretary to the Department of Family & Community Services v Allan (2001) 116 FCR 1; [2001] FCA 1160
Re Fuller and Secretary, Department of Family and Community Services [2004] AATA 615
REASONS FOR DECISION
Senior Member A K Britton
1. In December 2008, Mr Michael Fotos received a compensation payment of $502,000 (net) in respect of a motor vehicle accident in 2004 which left him with physical injuries, depression and possible frontal lobe damage. Having received that payment by the operation of s 1169 of the Social Security Act 1991 (Cth) (the Act), Mr Fotos is not entitled to receive any social security payment, including the Disability Support Pension (DSP), for the duration of the “preclusion period”. It is agreed that the preclusion period in this case runs for a period of 555 weeks, commencing on 15 October 2004 and ending on 4 June 2015. The parties also agree that but for the preclusion period, Mr Fotos would have been eligible to receive the DSP from November 2009.
2. The issue to be decided in this review is whether the discretionary power conferred by 1184K(1) of the Act to treat the whole or part of Mr Fotos’s compensation payment as “not having been made” should be exercised.
Background to claim
3. On 19 December 2008, settlement monies in the sum of $502,000 were deposited into Mr Fotos’s Westpac “Classic Account”. Eleven days later he moved $490,000 from that account to his “Westpac eSaver” bank account. On 24 March 2009, Mr Fotos opened an account with the St George Bank — “The Michael Fotos Super Fund” — into which he moved the $400,000 from the “Westpac eSaver” account. A week later, he transferred those funds into an account he had just opened with ING.
4. Mr Fotos claims that he had arranged the transfer of money into the ING account on the recommendation of a relative, an accountant employed by ING who then managed that account. From that time until late September 2009, in most weeks, an amount of $5000 was transferred from Mr Fotos’s ING account into his St George account, and fully expended. Mr Fotos testified that most of that money was spent on gambling. Bank statements covering this period list most of the transactions as “EFTPOS Purchase — TAB Ltd Belmore” and “ATM withdrawal — Bulldogs [Canterbury Bulldogs Club]”. A pattern of multiple withdrawals in the space of a few hours is discernable on many days during the period.
5. Mr Fotos claims that on return from holiday in Thailand in June 2009 he decided to buy a property because he was concerned that the remaining settlement money would be gambled away. In late September 2009 he purchased a two-bedroom unit in Belmore, a suburb of Sydney, for $212,000. Settlement took place on 6 November 2009. Two weeks later Mr Fotos lodged a claim for DSP.
6. According to Mr Fotos, on purchase, the unit was in a state of disrepair and required extensive renovation. He claims that he spent about $55,000 on renovations, and paid half of that money before he made his claim for DSP and the other half, after making the claim.
7. Mr Fotos declared on an Income and Assets form, lodged with Centrelink on 30 November 2009, that his only savings was $9 held in a St George Savings Account. Two weeks later, he deposited an amount of just under $30,000 into that account, he claims being the proceeds from the sale of his car. By June 2010 no funds were remaining in that account. Bank statements for the period November 2009 to June 2010 list most of the transactions during that period as “ATM withdrawals — Bulldogs”.
8. Prior to purchasing the unit, Mr Fotos had been living in private rental accommodation.
Knowledge of the preclusion period
9. Centrelink gave Mr Fotos and the solicitors who represented him in his compensation claim, written notice before and after Mr Fotos received the settlement payment that he would be precluded from receiving social security benefits for a period. Mr Fotos admits that he was told by his lawyers that he would be ineligible to receive Centrelink benefits for about four or five years. He also admits being told by a Centrelink officer that he was ineligible to receive benefits until 2015. He denies receiving written notice of that advice from Centrelink.
10. An electronic file note made by a Centrelink officer dated 3 March 2009, records that in a phone conversation on that day, Mr Fotos asked what would happen if he were to buy a house and run out of money during the preclusion period. The file note also records an appointment being made for Mr Fotos to meet with a Financial Services Information officer later that month. Mr Fotos did not attend that appointment and denies being notified of it.
Gambling habit
11. Mr Christopher Pangopoulos testified that Mr Fotos has had a problem with gambling since they first met, thirty years ago. He claims that within three months of receiving $100,000 in settlement following the dissolution of his second marriage, Mr Fotos gambled away $30,000. Mr Pangopoulos also claims that although he managed to persuade Mr Fotos to purchase a property with the remaining money, he sold it after 18 months and gambled away the proceeds of sale, about $60,000, within a matter of weeks.
12. Mr Pangopoulos stated that after receiving the settlement monies in 2008 Mr Fotos appeared “happy again” and started punting on horses and playing poker machines. He claims that he saw Mr Fotos at the TAB in Belmore on most days between midday to about 6pm. According to Mr Pangopoulos, Mr Fotos has now stopped gambling because he has run out of money. Mr Fotos’s evidence is broadly consistent with that given by Mr Pangopoulos.
13. In a report dated 30 November 2010, social worker Ms Pamela Verrender described Mr Fotos as a “problem” rather than a “pathological” gambler. She used the former to describe a person who experiences harm from excessive gambling, irrespective of the presence of impaired control or dependence and the latter to describe a person with an underlying impairment in control or dependence. In oral evidence she stated that having considered Mr Pangopoulos’s evidence, which had not been available when she prepared her report, she had formed the view that Mr Fotos’s gambling problem was more severe than she had originally thought. She said that while this new evidence suggested that he might be a pathological gambler, she felt that she was not qualified to make that diagnosis.
Expenditure of compensation settlement monies
14. Mr Fotos told the Social Security Appeals Tribunal at a hearing in March 2010 that he expended his compensation settlement monies as follows:
(a)$225,000 purchase of unit
(b)$55,000 renovations to unit
(c)$12,000 furniture
(d)$40,000 purchase of a Toyota Rav 4
(e)$8,000 clothing
(f)$20,000 holiday in Asia
15.He claims that the balance was spent on gambling and day to day living expenses.
Current financial position
16. Mr Fotos claims that the Belmore unit is his sole asset. He also claims that after depleting all his savings in mid-2010 he has lived off money borrowed from his brother and friends. On his account his brother gives him about $700 every three weeks or so. He reported to Ms Verrender that he feels distressed and anxious by the burden placed on his brother and believes that continuing to borrow money is unsustainable. He testified that he now owes $900 in rates, $1200 in strata management fees and between $18,000 and $19,000 to his brother.
Mr Fotos’s health
17. Mr Fotos was severely injured in the 2004 motor vehicle accident, sustaining injuries to his skull, face, left shoulder and hip. In addition he sustained frontal bone fractures and possible frontal lobe disruption: see reports of occupational physician, Dr P.L. Harvey-Sutton 20 December 2010, consultant physician in rehabilitation medicine, Dr Stephen Buckley, 19 February 2008 and psychiatrist, Dr Anthony Dinnen, 9 February 2011.
18. In the two years following the accident Mr Fotos underwent a number of surgical procedures including a total hip replacement and rotator cuff repair. He has difficulty walking and uses a walking stick. His recovery from his physical injuries was slow and incomplete. He reports that he suffers chronic shoulder pain and takes regular medication for pain relief.
19. Mr Fotos was diagnosed as suffering a major depressive disorder in October 2005. In 2007, psychiatrist Dr Selwyn Smith made a diagnosis of a major depressive episode and chronic pain disorder. In late 2007, on the recommendation of Dr Smith, Mr Fotos was hospitalised for two weeks following reports of self-harm. He remained under Dr Smith’s care until about 2010. He continues to take anti-depressant medication. Mr Fotos reported to Ms Verrender that he was suicidal for a “long period” after the accident.
20. In February 2011, Mr Fotos was assessed for the purpose of these proceedings by psychiatrist, Dr Dinnen. In Dr Dinnen’s opinion, Mr Fotos suffers from a chronic major depressive disorder.
Intellectual Functioning
21. Consultant psychiatrist, Dr Jonathon Phillips, assessed Mr Fotos in 2006 and concluded that his intelligence was in the “borderline/low average” range. Dr Phillips observed a marked slowing of the stream of Mr Fotos’s thoughts and slowed, laboured and sticky cognition barely adequate for the purposes of interview. Dr Phillips was of the opinion that Mr Fotos would prove a difficult candidate for psychological therapy, given his relatively “modest level of intelligence”.
22. A neurological assessment undertaken in 2008 indicated that Mr Fotos suffered some “cognitive impairment”. He performed below 99% of his peer group “across a battery of tests”. His verbal comprehension and perceptual organisation abilities were classified as “impaired”. His working memory was classified within the borderline range, below 93% of peers. Mr Fotos’s “well below average intellectual functioning” was assessed as “likely to be secondary to his psychological condition”, and there was not sufficient evidence to conclude that Mr Fotos had a significant brain injury separate to his psychiatric illness.
23. Ms Verrender commented in her report that Mr Fotos’s modest level of intelligence was highlighted when he attempted to explain to her the terms of the preclusion period.
Opinion on capacity
24. In a report prepared in 2008, Dr Buckley commented that although Mr Fotos’s capacity to manage funds was a matter for psychiatric opinion, he thought that Mr Fotos was at least impaired to the extent where he required the assistance of a professional funds manager but declined to comment on whether Mr Fotos’s affairs should be subject to financial management. Dr Smith echoed those concerns, stating that while strictly speaking Mr Fotos was capable of managing his affairs, he thought it would be of “considerable assistance” if a professional funds manager was appointed. He thought that because of his depressive symptomologies, Mr Fotos would have “significant inability to focus and concentrate and master the requirement of appropriate testing”.
25. In Dr Dinnen’s opinion Mr Fotos’s chronic depressive disorder, and likely frontal lobe injury has caused “subtle impairment of judgment”.
26. Ms Verrender wrote that the process of adjusting to a grossly altered lifestyle with permanent impairment following the accident has been “a precarious journey for Mr Fotos”.
Impact of sale of unit
27. Ms Verrender reported that when she met with Mr Fotos in November 2010 he appeared to be extremely distressed at the prospect that he might have to sell the unit. In her opinion, he had limited personal resources and lacked the requisite skills to deal with significant change and challenges. She thought that the forced sale of the unit would invariably lead to a deterioration in his mental health and cause further setbacks. In oral evidence she commented that from her limited observation of him in these proceedings he appeared considerably less anxious than when she interviewed him six months earlier.
28. Dr Smith was also of the opinion that Mr Fotos’s psychiatric condition would “markedly deteriorate” if he were required to sell the unit. Dr Dinnen shared that view and thought he would function with some difficulty because of his “well entrenched depression”. He thought, given his long history of depression, the risk that Mr Fotos might self-harm, while not high, was unpredictable.
Are there “special circumstances” that make it appropriate to reduce the preclusion period?
29. Section 1184K gives a decision-maker, including the Tribunal, the power to reduce the preclusion period:
Secretary may disregard some payments
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 appropriate to do so in the special circumstances of the case.
30. The term “special circumstances” is contained in a number of provisions within the Act. Its meaning has been the subject of exhaustive consideration by the AAT and the Federal Court. The Federal Court has consistently declined to adopt a prescriptive formula: see for example Beadle v Director-General of Social Security (1985) 7 ALD 670 at 673; French J in Boscolo v Secretary, Department of Social Security (1999) FCR 531 at 535. Nonetheless the Court has emphasised that the term denotes a requirement that there be “something which distinguishes [the claimant’s] case from others, to take it out of the usual or ordinary case”: per Kiefel J in Groth v Secretary, Department of Social Security (1995) 40 ALD 541 at 545. This however is not to be interpreted as a requirement that the claimant’s circumstances be “extremely unusual, uncommon or exceptional” per Hill J in Secretary Department of Social Security v Hodgson (1992) 37 FCR 32 at 42. There is no requirement that the circumstances be unique to the individual — circumstances might be special although they apply to more than one person or to a class of persons, provided they are not of universal application: per Katzmann J in Fischer v Secretary, Department of Families, Housing, Community Services & Indigenous Affairs (2010) 185 FCR 52 at 65.
31. The Guide to Social Security Law (the Guide) provides direction to decision‑makers on the application of the “special circumstances” discretion. The Tribunal is not bound to apply the policy expressed in the Guide, but may do so and, indeed, will usually do so unless there are cogent reasons in a particular case for not doing so (see Drake v Minister for Immigration and Ethnic Affairs (1979) 2 ALD 60).
32. The Guide states (at 4.13.4.10):
…
When special circumstances should generally NOT be applied
Each case must be examined on its own merits by the delegate but as a general rule, special circumstances would NOT usually be applied where:
the person has sufficient liquid assets to support themselves, and their family if applicable, for the duration of the preclusion period, or
the person acquired realisable assets AFTER the person was advised of the preclusion period, and there is no impediment to the realisation of those assets, or
….
33. Section 1184K requires two separate but interrelated issues to be addressed — whether “special circumstances” exist in Mr Fotos’s case and, if so, whether the discretion to treat some or all of his compensation payments as not having been made, should be exercised.
34. It is argued for Mr Fotos, that his cognitive impairment, chronic pain disorder and depression, history of self-harm and gambling habit, in combination, constitute “special circumstances”. The Secretary on the other hand contends that while Mr Fotos is plainly not a sophisticated man, his purported inability to manage his own affairs has been overstated and, inconsistent with his proven ability to, unaided, setup multiple bank accounts, arrange the transfer of funds, purchase a unit and arrange an overseas trip. While conceding that Mr Fotos has a gambling problem, the Secretary contends that it is not so severe that he cannot make any rational decision in relation to expenditure, pointing out that he managed to use nearly half of his settlement monies to purchase and renovate a property. It is relevant, argues the Secretary, that Mr Fotos organised to purchase a unit within a relatively short period after his return from overseas and lodged a claim for DSP within weeks of settlement. These facts, the Secretary suggests, indicate a degree of craft on Mr Fotos’s part.
35. I accept the argument put for the Secretary that Mr Fotos’s intellectual functioning could not be described as completely disabling. While the consensus of medical opinion is that he is a person of low intelligence, his ability to purchase a property and oversee its renovation within a relatively short period is not suggestive of a person of borderline intellectual functioning. That view is bolstered by his presentation in these proceedings. His answers to questions were responsive and not suggestive of a person of extremely low intelligence.
36. I also agree with Ms Verrender’s assessment that Mr Fotos is probably a “problem” rather than a “pathological” gambler. As the Secretary points out, his gambling habit is not of such a destructive nature that he is unable to exercise any control. His actions in purchasing the unit bear this out. Nonetheless his long history of frittering away significant sums of money within a matter of months indicates that, however described, he has a serious gambling problem. I am satisfied that a combination of factors establish special circumstances in this case: Mr Fotos’s ill-health, gambling habit and his inability to support himself for the balance of the preclusion period unless he disposes of the unit. While the discretionary power to reduce the preclusion period is enlivened the more difficult issue is whether it should be exercised.
37. The following factors, in my opinion, weight against the exercise of that power. First, Mr Fotos purchased the property in full knowledge that because of the preclusion period he would not be entitled to receive any social security benefit for a number of years. I do not agree with Ms Verrender’s more benign assessment that Mr Fotos was confused about the operation of the preclusion period. While he may have been confused about aspects of the arrangements, the inescapable conclusion is that he purchased the property and expended funds on its renovation in the knowledge that he would be left without sufficient funds to support himself throughout the preclusion period. It was plainly a calculated decision.
38. Second, as pointed out by the Secretary, Mr Fotos is not without options. For example, he could sell the unit and live off the proceeds of sale. It would be reasonable to assume that its market value has increased as a result of its renovation. The proceeds of its sale would provide Mr Fotos with a significantly higher level of income for the balance of the preclusion period than that received by social security recipients in an equivalent position. A further option might be that he mortgage the unit and use those funds to support himself and repay his debtors. Third, while in a difficult financial position Mr Fotos’s position is not as dire as many social security recipients. He has no dependents or significant regular expenses. While he owes significant sums, there is no evidence that his major creditor, his brother, intends to call in his debt.
39. Those factors must be weighed against the following. First, based on his history there is a strong likelihood that if forced to dispose of his unit, Mr Fotos will gamble away its proceeds. Second, the weight of medical opinion is that a forced sale would cause his fragile mental state to further deteriorate. Ms Verrender believes that Mr Fotos has found it extremely difficult to cope with his altered and diminished lifestyle following the accident and is ill-equipped to deal with significant change. The weight of evidence indicates that the unit is a stabilising factor in his life. Third, there is expert psychiatric opinion that given his history of depression and self-harm, if Mr Fotos were to lose his unit, there is a material risk of self-harm.
40. The considerations in this matter are finely balanced. On one hand a reduction of the preclusion period arguably offends Government policy which states that special circumstances would generally not apply where the person acquired realisable assets after being advised of the existence and effect of a preclusion period. It would also offend the “basic policy” underlying provisions such as s 1169 of the Act which operate to suspend social security benefits where recipients have received compensation for loss of earnings to avoid "double dipping”, as identified by Heerey J in Secretary to the Department of Family & Community Services v Allan (2001) 116 FCR 1 at 2. The effect of reducing the preclusion period would be to allow Mr Fotos to enjoy a benefit not available to other persons eligible to receive social security benefits who have received compensation payments.
41. Nonetheless, Government policy also recognises that special circumstances may arise in individual cases which make it appropriate to exercise the power to reduce the preclusion period. I am satisfied that despite the powerful factors listed above which weigh against the exercise of that power they are outweighed by those that favour its exercise. The risk that Mr Fotos’s perilous mental state will deteriorate further if forced to sell the unit and the strong likelihood that the proceeds of sale will be squandered, have weighed heavily in my consideration. If the power to make an income management type order was available and sufficient funds from any sale could be quarantined to ensure that Mr Fotos would have sufficient funds to support himself for the balance of the preclusion period, I might have reached a different decision.
42. While I am persuaded that the circumstances warrant the reduction of the preclusion period in this case, I have decided not to reduce it to the extent requested by Mr Fotos. He seeks the period to be reduced so as to end on the date he made his claim for DSP. That would give Mr Fotos a lump sum payment of around $23,000, in addition to on-going DSP payments. Given his proven inability to manage lump sums and the absence of any reliable evidence that he would in fact use that money to repay debts incurred, I have decided that it is not appropriate to reduce the preclusion period, to end in November 2009.
43. In my view, the more appropriate course is to reduce the preclusion period so that it would end on 1 July 2012. While there is probably a limit to the extent to which Mr Fotos’s brother could continue to support him, there is no evidence to suggest that it could not continue for a further six months. It would be open to Mr Fotos, when DSP payments commence, to arrange for regular automatic payments to be made to his brother and any other debtor.
44. Mr Fotos argues that consistent with the decision of the President in Re Fuller and Secretary, Department of Family and Community Services [2004] AATA 615 (Fuller), the discretion to reduce the preclusion period should be exercised in this matter because the figure used to calculate the preclusion period included an amount for legal costs of about $150,000. It is agreed that the effect of adopting that course, which the Secretary opposes, would be to reduce the preclusion period by about two years that is, to end in mid-2013. I have decided that it is unnecessary to consider that submission, because even I were to adopt the approach in Fuller, I would not reduce the preclusion period beyond that I have already determined, that is to end on 1 January 2012.
45. For these reasons I have decided to set aside the decision under review. In place of that decision I have decided that such part of the compensation payment received by Mr Fotos shall be treated as not having been made as shall result in the preclusion period ending on 1 January 2012 instead of 4 June 2015.
I certify that the 45 preceding paragraphs are a true copy of the reasons for the decision herein of Senior Member A K Britton
Signed: .......................................[sgd].................................
Associate to Senior Member BrittonDate/s of Hearing 7 and 8 June 2011
Date of Decision 24 June 2011
Counsel for the Applicant Mr C Colborne
Solicitor for the Applicant Mr C Hynes, Legal Aid Commission
Solicitor for the Respondent Mr B Slattery, Centrelink Advocacy
0
10
0