HAMILTON and SECRETARY, DEPARTMENT OF FAMILIES, HOUSING, COMMUNITY SERVICES AND INDIGENOUS AFFAIRS

[2010] AATA 282

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2010] AATA 282

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No. 2008/5817

GENERAL ADMINISTRATIVE DIVISION		)
Re		IAN hamilton

Applicant

And secretary, department of families, housing, community services and indigenous affairs

Respondent

DECISION

Tribunal

Ms N Isenberg, Senior Member

Mr I Laughlin, Member

Date21 April 2010

PlaceSydney

Decision The decision under review is affirmed

..................[SGD}.........................

Ms N Isenberg

Senior Member

CATCHWORDS

SOCIAL SECURITY – lump sum workers’ compensation payment – 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’ –decision under review affirmed

LEGISLATION

Administrative Appeals Tribunal Act 1975

Property (Relationship) Act 1984 (NSW)

Social Security Act 1991

CASE LAW

Beadle v Director of Social Security (1984) 7 ALD 670

Groth v Secretary of Social Security (1995) 40 ALD 541

Haidar v Secretary of Social Security (1998) 52 ALD 255

Kirkbright v Secretary, Department of Family and Community Services (2000) 65 ALD 211

Re Krzywak and SDSS (1988) 15 ALD 690

Secretary, Department of Social Security v Hulls (1991) 22 ALD 570

Secretary, Department of Social Security v Smith (1991) 23 ALD 277

Secretary, Department of Social Security v Ellis (1997) 46 ALD 1

REASONS FOR DECISION

21 April 2010

Ms N Isenberg, Senior Member

Mr I Laughlin, Member

Decision Under Review

1.      The decision under review is the decision by the Social Security Appeals Tribunal (SSAT) made on 27 October 2008 to affirm a decision made by Centrelink to impose a compensation preclusion period on Mr Hamilton from 4 April 1996 to 14 February 2080.

Background

2.      In April 1996 Mr Hamilton was very seriously injured in a motor vehicle accident.  On 10 May 2000 his compensation claim was settled for a lump sum of $3,750,000 plus legal costs.  Of that amount, Mr Hamilton received $2,686,685.56 net, after repaying advances of $940,678 by the insurance company.  Centrelink informed Mr Hamilton and his solicitors that as a result of the settlement of his claim he was precluded from receiving social security payments in the period from 4 April 1996 to 14 February 2080.  He was also required to repay $45,563.26, being social security payments made to him between April 1999 and May 2000. 

3.      In mid-late 2004 Mr Hamilton sought review of that decision, claiming on 28 December 2004, “all the monies passed to me in a 3^rd party MVA are now gone.” On 3 November 2005 Mr Hamilton's then solicitor wrote to Centrelink indicating his client was considering making an application for a social security benefit, and a formal claim was lodged on 22 August 2006.  

4.      Mr Hamilton's claim for Disability Support Pension (DSP) was rejected because of the preclusion period.  That decision was affirmed on internal review and by the Social Security Appeals Tribunal.  Mr Hamilton now seeks review of that decision.

Legislation

5. Section 1169 of the Social Security Act 1991 (the Act) deals with compensation payments during a lump sum preclusion period.  Subsection 1169(1) relevantly provides:

(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.

6.      Section 17 of the Act contains the definition of compensation.  It is defined to include a payment for damages, or a payment in settlement of a claim for damages, that is made in respect of lost earnings or lost capacity to earn resulting from personal injury (s 17(2)).  Section 17 also contains the law in respect to how much of the compensation payment is to be applied to the calculation of the preclusion period.  If payment is made by way of settlement, either by consent judgement or otherwise, then 50 per cent of the payment is assessable (s 17(3)(a)). 

7.      Briefly, the scheme of the legislation is aimed at preventing those receiving lump sum compensation payments for loss of income from receiving benefits from the public purse.  This amount is the “compensation part of the lump sum” and is then used, by application of a statutory formula, to calculate a period of time during which a person will not be eligible to receive Centrelink payments.  This is called “the preclusion period”.  The Act provides potential relief from the strict application of the compensation preclusion period, by giving the Secretary – and the Tribunal - a discretion to disregard the whole or part of the compensation payment in “special circumstances”, as follows: 

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.”

Issue Before the Tribunal

8.      There was no dispute that if the statutory formula were applied to Mr Hamilton’s circumstances a preclusion period would result from 4 April 1996 to 14 February 2080.

9.      Initially, Mr Hamilton said he was told in writing by Centrelink in 2005 that his preclusion period would end in 2010, but there was nothing on the Centrelink file, nor could Mr Hamilton produce any document to that effect.  The submission was not pressed. 

10.     The remaining issue was the application of s 1184K of the Act, that is: whether there are any “special circumstances” in Mr Hamilton‘s case to reduce the length of the preclusion period.

Consideration

11.     Documents lodged pursuant to s 37 of the Administrative Appeals Tribunals Act 1975 ("the T-documents"), were in evidence.  In addition, the parties tendered a number of documents. These are listed at Annexure “A”. 

12.     The submission on Mr Hamilton’s behalf was succinct: ‘he’s broke’ and ‘he was ripped off’.  Mr Hamilton said he has no source of income, and will shortly resort to begging.

13.     In March 2006 Mr Hamilton and his former partner, Mr Jonath entered into a deed.  While it may have been entered into in the context of their relationship breakdown – it refers to the Property (Relationship) Act 1984 (NSW) - more significantly though, it sets out the following, which we find most disturbing:

6. Ian’s Application for Centrelink Benefits

6.1Peter shall provide whatever assistance he is able to, in assisting Ian and his legal and financial advisors in making an application for Centrelink benefits.

6.2      Peter acknowledges that the reason why Ian is entering into this Deed                 of Settlement is to endeavour to make a successful application for  Centrelink Benefits [sic].

6.3      In order for Ian to qualify for Centrelink benefits, he is required to               dispose of a significant portion of the capital that he has available to  him. In that regard, Ian is using that capital to pay down the Mortgage             on the property [emphasis added].

6.4      The terms of this settlement are conditional upon Ian obtaining the            Centrelink benefit and the parties agree that should this Deed be  signed it shall be held in escrow until Ian obtains such Centrelink  benefit.

14.     Mr Hamilton described the deed as a ‘non-working document’ because he is no longer ‘involved’ with his former solicitor, which we understood to mean that he no longer uses the services of that solicitor.  Whatever Mr Hamilton understands about the status of the agreement, the document is, in the clearest terms, intended to ‘dispose of a significant portion of the capital’ so as to obtain Centrelink benefits.  We were concerned that Mr Hamilton may have set out to structure his affairs by divesting himself of assets so as to achieve a shortening of the preclusion period. 

15.     It is against that background that the whole of the evidence was considered, especially as Mr Hamilton gave evidence which we found confusing and, at times, contradictory. 

16.     Mr Hamilton said Mr Jonath left him ‘when the money ran out’.  He said, at first, that they had not lived together for 10 years then said they had separated four years ago.  In his claim for DSP dated 24 August 2006 he wrote that they had separated in 2002.  His evidence at the first hearing on 5 February 2010 was that Mr Jonath was ‘no longer in [his] life’.  Somewhat inconsistently, he later said that Mr Jonath works in Canberra and lives with him at their jointly owned apartment in Potts Point on the weekends.  Mr Jonath, in a submission to Australian Prudential Regulation Authority for early release of his superannuation funds dated 9 November 2009, provided the same information about the current arrangement.  As a result, we were unclear about the nature of their ongoing financial relationship.  We observe that Mr Hamilton has taken no steps to sever the joint tenancy with Mr Jonath in respect of their Potts Point property (see below), and Mr Jonath retains apparently unfettered access to Mr Hamilton’s bank accounts (see below). 

17.     Quite apart from the clear intent of the deed, we had difficulty being satisfied as to how all the settlement money was spent.  It appears that initially most of the money was placed in three accounts, totalling about $2.2M: Supplementary T-Documents 26; 28; and 51.  One account, the MasterKey Custom Cash Account shows significant withdrawals for share, trust and managed funds purchases.  At first, it would seem, there were reasonably prudent investments made by Mr Hamilton or on his behalf. 

18.     There were, however, a number of withdrawals described as “benefit payments” totalling nearly $900,000, which Mr Hamilton said were withdrawals ‘on his behalf’.  Mr Hamilton said he had spent quite some time in hospital, especially in 2003 (when about $530,000 was withdrawn) and thought Mr Jonath would have made those withdrawals.  There was no suggestion that withdrawals were made without Mr Hamilton’s consent.  In fact, Mr Hamilton said at the resumed hearing on 19 February 2010 that Mr Jonath still had access to his accounts.  Although voluminous material was provided by Mr Hamilton in relation to a variety of bank accounts, it was not apparent that the money had just been moved between accounts. Where the money has gone is extremely unclear. There are inconsistencies in his evidence. On the first day of hearing he said that he had about $24,000 in credit card debts, and nil in his superannuation. At the resumed hearing he said he had no credit card debts (although an affidavit given to us that day still mentions two significant credit card debts) and $22,000 in the bank, which he said was the last of his superannuation proceeds.

19.     Mr Hamilton told us that in 2005 his solicitors advised him to make a claim for DSP because, he said, he had “drawn down all his superannuation and his money was tied up.”  In fact, at that time, there were still significant amounts in his superannuation fund and he had cash available.  At a time when he said he was destitute, his bank records show that the average monthly expenditure in the year from 1 April 2008 to 30 March 2009 was over $7,200.  That level of spending also significantly exceeds the estimated expenditure provided to the SSAT (p358, ST21).

20.     Mr Hamilton wrote to Centrelink in April and August 2005 to the effect that Mr Jonath, Bruce Hamilton (presumably a relative) and Tony Hittman had lent him unspecified amounts of money.  He informed Centrelink in September 2006 (ST298) that he had lost a total of $261,000 in shares.  He estimated that poor advice had cost him about $860,000.  A report commissioned by his former solicitor, Mr Morrissey, from Amable Management Services Pty Limited to support his claim for DSP did not refer to any such loans or losses.  

21.     Mr Hamilton made some extravagant purchases: a Mercedes Benz (variously described as having paid $160,000 and $223,470) - later sold for $90,000; another Mercedes Benz for $100,000 – later sold for $25,000; $60,000 for a motor vehicle for Mr Jonath; and $40,000 for a motor cycle for Mr Jonath.  In his affidavit of 9 October 2009 Mr Hamilton neglected to mention that he also owned a Rolls Royce.  He told the SSAT that he sold it in 2008. At the first hearing he told us he had sold all the cars.  At the resumed hearing he said he had not yet sold the Rolls Royce, but someone else was driving it as security for a $22,000 loan made the day before the resumed hearing.

22.     Despite these concerns we were satisfied that Mr Hamilton made a number of ill-advised business decisions, some of which resulted in losses:

·Property in Ainslie: purchased for $230,000, plus $300,000 renovations and sold for $480,000 (ST 17) – a loss of $50,000.

·Property in Double Bay: purchased and re-sold, realising a profit of $31,000.  A greater profit would have been achieved but for about $125,000 being spent on a development approval managed by a Mr Stevens that ultimately did not proceed.

·Development at Aldinga Beach: Mr Hamilton and Mr Jonath formed a company, Harold Hogg Pty Ltd and entered a joint venture with Mr Stevens and his company to re-develop two properties into four townhouses. They expected to make a profit of about $1,000,000 following an investment of about $800,000.  Instead, the developer’s costs were about $1,290,000.  Overall there was a loss of about $872,000.  Mr Hamilton and Mr Jonath were experienced property developers, according to their previous solicitor (ST47).  Mr Hamilton said Harold Hogg Pty Ltd has no assets, although there was no evidence to that effect.  He said his former solicitor had explored taking action against Mr Stevens and his company but counsel’s advice was that it was ”hopeless.”

·Mortgage for $500,000 secured over Aldinga Beach: Harold Hogg Pty Ltd borrowed $500,000 against the property.  

·‘Mortgage’ for $700,000: A loan, secured against the Potts Point property, was obtained to provide additional finance for the Aldinga Beach development.  At the hearing, it appears for the first time in the context of his application for DSP, Mr Hamilton contended that his signature had been forged and that neither he nor Mr Jonath knew about the mortgage. This contrasts with his statutory declaration of 4 September 2008 where at paragraph 55 he states, “I took out a mortgage on my property in Victoria St, Potts Point, for $721,500.00.” From what we could make out though, he did not deny that he or his company had been provided with the funds.  Mr Hamilton said he only found out about the mortgage when he and Mr Jonath sought to “separate their financial affairs” in 2005-2006 (c.f. paragraph 16 above). He said he told the Commonwealth Bank about the forgery about three years ago; and that Mr Jonath went to the Australian Federal Police about it. There as no evidence in support of these contentions.  We had some difficulty accepting that Mr Hamilton’s solicitor would have advised him to pay the mortgage out immediately, as Mr Hamilton contended; especially if Mr Hamilton considered the mortgage to be fraudulent.   

·Property at Potts Point: purchased by Mr Hamilton and Mr Jonath jointly for either $475,000 (ST22) or $650,000 (ST17); legal and renovation expenses were about $353,000 – a total of either $828,000 or $1,003,000.  Mr Hamilton provided all the capital for the purchase and renovations. Curiously, the work was conducted by Mr Stevens, who brought tradesmen from South Australia to Sydney to undertake the renovations. Unsurprisingly issues arose with the Body Corporate because it apparently was not consulted about changes to the common property (ST 47) and this added to the expense of the renovations.  The value of the property was estimated by Mr Hamilton in 2007 as $950,000, although it is likely to be more now.  There was some confusing evidence about paying out the loan, and attempts made by Mr Jonath to access his superannuation.  Mr Hamilton’s evidence at the resumed hearing was that he had ”now cleared up the debt” but it was unclear from where he had sourced those funds.  He said that if the property were sold his share would be sufficient to buy a one bedroom apartment. 

23.     It was the Respondent’s position that there are no special circumstances in Mr Hamilton’s case such that the discretion to disregard parts of the compensation payments pursuant to section 1184K(1) of the Act should be exercised.

24.     Section 1184K is designed specifically to enable the Department to ameliorate such 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. 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: Beadle v Director General of Social Security (1985) 7ALD 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 to be used where the arbitrary nature of the “50% rule” results in unfairness in a particular case.  

25.     Section 1184K(1) 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).

26.     Something that is unusual about Mr Hamilton’s case is the length of the preclusion period: some 84 years.  Even at current DSP rates, we were informed the settlement money should have lasted him until he was 82 years old.  Instead, on his application, it was all gone in less than five years.  By the date of the hearing – 10 years after the settlement – he is said to be destitute, and he said he proposes to go begging.  Some of the money appears to have been spent on lavish purchases.  There were some imprudent investments, some of which were speculative.  Because of the inconsistencies in his evidence we were not reasonably satisfied that he is in fact as penniless as he suggests.  Neither do we do accept that he was the victim of fraud vis-à-vis the mortgage. 

27.     Financial hardship may be grounds for finding special circumstances.  To qualify, however, financial hardship must go beyond "straitened" and be truly exceptional: (Krzywak and SDSS (1988) 15 ALD 690). Mr Hamilton has at least a half interest in the Potts Point property. Clause 2 of the deed seems to suggest that after repaying the mortgage Mr Hamilton would get the next $955,000 of the proceeds. We accept that the unit has been modified to meet his needs, but it is a realisable asset, the funds from which should last him for some years.

28.     We accept that Mr Hamilton has serious health problems.  He has significant medical expenses and he said he requires a carer.  The extent of his disability was reflected in the size of the settlement of his compensation case.  However, since that time, Mr Hamilton contends that his condition has deteriorated because of alleged medical negligence by a Canberra surgeon, against whom he is to take proceedings.  He said he has been advised that his prospects are good. There was no supporting evidence about this contention. It was unclear from his evidence what aspect of his present medical condition was unanticipated at the time of settlement, and had therefore not been the subject of compensation.

29.     Had Mr Hamilton more prudently invested the settlement money, he would have had sufficient funds to tide him over at a reasonable standard of living for many years.  We have come to the view that we cannot be reasonably satisfied that Mr Hamilton’s circumstances possess that particular quality of unusualness that permits them to be described as special, such that the discretion in section 1184K should be exercised. 

Decision

30.     The Tribunal decides that the decision under review is affirmed.

I certify that the 30 preceding paragraphs are a true copy of the reasons for the decision herein of Ms N Isenberg, Senior Member.

Signed: ...............[SGD].............................................................
           Associate

Date/s of Hearing  5 February and 19 March 2010
Date of Decision  21 April 2010
Solicitor for the Applicant          Mr R Dunbier
Solicitor for the Respondent     Ms H Schuster, Centrelink Advocacy Branch