Johnson; Secretary, Department of Family and Community Services a Nd
[2003] AATA 243
•14 March 2003
Administrative
Appeals
Tribunal
DECISION AND REASONS FOR DECISION [2003] AATA 243
ADMINISTRATIVE APPEALS TRIBUNAL )
) No W2001/341
GENERAL ADMINISTRATIVE DIVISION
)
Re SECRETARY, DEPARTMENT OF
FAMILY AND COMMUNITY
SERVICESApplicant
And
PAUL JOHNSON
Respondent
DECISION
Tribunal Mr Murray Allen (Member) Date 14 March 2003
Place Perth
Decision The Tribunal decides that:
1. The decision of the Social Security Appeals Tribunal made on 31 August 2001 be set aside.
2. In substitution therefore the Tribunal decides that:a) the lump sum of $70000 received by the respondent was a payment made wholly or partly in respect of lost earnings or lost capacity to earn and is compensation within the meaning of s17(2) of the Act;
b) pursuant to s1184 of the Act and in the special circumstances of the case it is appropriate that $34000 of the lump sum received by the respondent should be treated as not having been made; and
c) the matter should be remitted to the Secretary for a new calculation of the preclusion period that is to apply to the respondent in accordance with this decision.….………(sgd M Allen)………..
Member
CATCHWORDS
SOCIAL SECURITY –– preclusion period for compensation-affected payments - whether all or part of a lump sum compensation payment received was made wholly or partly in respect of loss of earnings or lost capacity to earn – incorrect advice by representative of insurer - whether in special circumstances of the case it is appropriate to regard part of the lump sum as not having been made – comment regarding desirability of Secretary clarifying the circumstances in which the Secretary will contend that lump sum payments are income for the purposes of establishing entitlement to social security benefits
Social Security Act 1991 ss8, 17, 1165, 1184
Boscolo v S,DSS (1999) 53 ALD 277
Kertland v Secretary, Department of Family & Community Services [1999] FCA 1596
Haidar v Secretary, Department of Social Security [1998] 994 FCA
Re Cunneen: 48 ALD 351.
Re Beadle and Director–General of Social Security (1984) 6 ALD 1
S,DFCS v a’Beckett (1990) 21 ALD 79
REASONS FOR DECISION
1. This is the application of the Secretary of the Department of Family and Community Services (the Secretary or the applicant) for a review of a decision made by the Social Security Appeals Tribunal (SSAT) dated 31 August 2001. On that day the SSAT set aside a decision made on 22 April 2001 by a delegate of the Secretary and substituted a decision that a lump sum payment received by the respondent, Mr Paul Johnson, was not compensation for the purposes of the social security law and that the respondent was not subject to a preclusion period from compensation–affected payments.
2. At the hearing of the application on 4 December 2002 the Secretary was represented by Mr Ellis from Centrelink’s Advocacy and Administrative Law Team and Mr Johnson was represented by Mr S Walker of counsel.
3. The Tribunal received into evidence the documents (the T documents) lodged by the Secretary in accordance with s37 of the Administrative Appeals Tribunal Act 1975 (the AAT Act). Oral evidence was given by Mr Johnson and the Tribunal also received into evidence other documents from the applicant and the respondent and which were numbered A1 – A9 and R 1 – R20 respectively.
Background
4. The respondent was employed as a mineworker in the Kalgoorlie region of Western Australia when he suffered injury at work on 14 December 1998. At the time he was 33 years old. He received periodic payments of workers compensation until he settled his damages claim against his former employer on 18 April 2001 for a payment of $70,000 plus $10,000 costs. On 23 April 2001 Centrelink decided to impose a preclusion period until 26 June 2000 , during which period Mr Johnson was ineligible to receive disability support pension or any other compensation affected payments. During the month of May 2001 and the first part of June 2001 Mr Johnson spent in various ways a significant part of the lump sum payment and claimed to have lost approximately $34,000 of the amount by it being stolen from him on a trip to Melbourne. On 15 June 2001 Mr Johnson lodged an application for disability support pension. On 13 July 2001 an Authorised Review Officer affirmed the decision to impose a preclusion period and on 25 July 2001 Mr Johnson applied to the SSAT for review of that decision. On 31 August 2001 the SSAT decided to set aside the decision under review and substituted its decision that Mr Johnson's lump sum payment was not compensation for the purposes of the Social Security law and, for that reason, he was not subject to a preclusion period from compensation affected payments.
The issues
5. The issues to be determined by the Tribunal in this case can be summarised as follows:
(a) whether the lump sum payment received by Mr Johnson was compensation for the purposes of the social security law;
(b) if so, whether in the special circumstances of the case it is appropriate to treat any part of the lump sum payment as not having been received;
(c) if the answer to issue (a) is no, whether the lump sum payment received should be treated as income of Mr Johnson for the purposes of the social security law; and
(d) if the answer to issue (c) is yes, whether any part of the lump sum payment should be treated as an exempt lump sum.Consideration of the issues
Issue (a): Was the lump sum received compensation
6. Insofar as is presently relevant, at the relevant time s17 of the Social Security Act 1991 (the Act) provided as follows:
17 Compensation recovery definitions
…
17(2) For the purposes of this Act, compensation means:
(a) a payment of damages; or(b) a payment under a scheme of insurance or compensation under a Commonwealth, State or Territory law, including a payment under a contract entered into under such a scheme; or
(c) a payment (with or without admission of liability) in settlement of a claim for damages or a claim under such an insurance scheme; or
(d) any other compensation or damages payment;
(whether the payment is in the form of a lump sum or in the form of a series of periodic payments) that is:
(e) made wholly or partly in respect of lost earnings or lost capacity to earn; and
(f) made either within or outside Australia.
Note: Under section 1163B, a person may be treated as having receivedcompensation that the person would have received but for the effect of a State or Territory law.
…
7. The main issue considered by the SSAT was whether or not the lump sum received by Mr Johnson from the settlement of his damages claim contained an amount wholly or partly in respect of loss of earnings or loss of capacity to earn. After examining the available evidence, including documentary evidence from the solicitors for the insurer, the SSAT considered that no part of the settlement was for lost earnings or lost capacity to earn (see paragraphs 19 and 22 of document T2). Paragraph 19 of the decision was as follows:
“The Tribunal was aware that, in the absence of evidence to the contrary, it can usually be taken that a global settlement of a damages claim contains a component for economic loss. Economic loss is a category of damages. In Mr Johnson’s case, past loss of earnings were specifically excluded from the judgement sum by the words of the judgement. Also, in the view of the Tribunal, the evidence from GIO Australia, both on the Centrelink Questionnaire and orally through Mr Johnson’s solicitors, shows that no part of the award was for lost capacity to earn. The words of the judgement do nothing to refute that view.”
8. Whether or not a lump sum settlement payment contains an element that is in respect of lost earnings or lost capacity to earn will often be difficult to determine and perceptions in the past that the terms of settlement were being manipulated to minimise the proportion of a settlement that was in respect of such items resulted in amendment of the relevant legislation to its present form, with section 17(3) of the Act providing a formula by which the compensation part of a lump sum compensation payment can be calculated. The respective values of evidence given by the injured recipient of the compensation payment on the one hand and the "more objective evidence "that may be available about the circumstances of the settlement was considered by von Doussa J. in S,DFCS v a’Beckett (1990) 21 ALD 79 as follows:
“39. In the present case the evidence of the respondent and his solicitor
could throw little light on the defendant's reasons for making the payment.
There is no reason arising from the objects of Part XVII of the SocialSecurity Act which would make the views of the pensioner and his solicitor any more significant than those of the party making the payment in settlement of the claim. On the contrary, in many cases there may be reason to suspect thatthe pensioner's evidence could be less than objective about the component parts of a settlement. The difficulties which may arise if primary attention is given to the pensioner's statements as to the components of a global settlement, or even to statements formally recorded in documents signed by both sides to the settlement, have been adverted to in the secondary material connected with the Bills to amend the Social Security Act introduced in Parliament in 1979 and 1988 to which reference is made in Secretary, Department of Social Security v. Banks. Unfortunately experience has shown that such statements are at times incapable of rational explanation and are the product of "manipulation" by the parties to obscure the true position.
40. This is not to say that the evidence of the parties as to the course of
negotiations is irrelevant. It is not, but it is only a part of the total
picture, and often it will be of little assistance in determining if any part
of a payment made in settlement of a claim is in part a payment in respect of
an incapacity for work.41. Usually the more objective evidence available about the nature and extent of the injury, and the events which followed it, for example the duration of absences from work, actual loss of wages, changes in work activity and the like, will provide a more reliable guide than the asserted beliefs of the claimant as to how the settlement sum was arrived at. Ordinarily, statements by the claimant asserting a loss resulting from an impaired capacity for work made in circumstances where those statements can reasonably be regarded as having been made to influence a defendant to pay will be entitled to substantial weight. Foremost amongst such statements will be formal particulars of claim. The formal particulars of claim identify the subject matter of the claim presented by the pensioner.”
9. I therefore turn to consider the evidence that was available concerning the terms of the settlement and the circumstances in which it arose.
10. Mr Johnson gave evidence to the Tribunal that from about the age of 16 he had always worked on various mining projects in the goldfields. He worked on numerous projects but he had always found work and there was usually only a very short period of time (about two weeks) between each project. He had been working on a particular project (earning about $70000 per annum) for about five months when he was injured in December 1998. He was off work for a period of time but then had a graduated return to work. However, he had aggravated his injury in a number of fresh incidents during 1999 and was again unable to work and on compensation by December 1999. While on compensation his employer made him redundant and he eventually moved to live in Perth. His weekly compensation payments had stopped when he was declared redundant but his then solicitors (McDonald Rudder) had been able to recover arrears of payments (although these had been mostly taken by legal expenses) and ongoing compensation payments of about $370 per week (which was considerably less than his pre-accident wages). At about that time the insurer (GIO) for his previous employer had offered an amount of $50,000 to settle his common law claim but his solicitors had advised him not to accept that amount and the offer had been rejected.
11. He eventually appointed new solicitors, Friedman Lurie Singh, (FLS) who undertook negotiations to settle his claim. At one meeting he had been offered a settlement of something less than $100,000 which had been rejected. A new meeting was arranged and he expected that a higher offer would be made. Instead, he was offered $50,000 and then an increase to $70,000 and because he was more or less destitute and homeless at the time, addicted to morphine and not coping at all well, he decided to accept that offer plus a further $10,000 for costs.
12. At the time he was particularly concerned to know what the impact of such a settlement would be on his entitlement to social security benefits because he was hopeful that he could borrow some money from a bank and with his settlement money would be able to make a substantial deposit on a house. However, it was essential that he be able to receive social security benefits because that would be his only income. At the final meeting between his solicitor (from FLS) and himself and a representative from GIO (Mr Scannell) and the insurer’s solicitor (Mr Jarman from Jackson McDonald), he had asked specifically whether the settlement would affect his benefit payments. He was told by Mr Scannell that because he was accepting a low amount he could receive benefits immediately and that GIO would mark the relevant document that would be submitted to Centrelink in a way that would indicate that the settlement did not include loss of wages. He had spoken to Mr Scannell on the telephone the next day (to confirm arrangements about payment of an amount to the Health Insurance Commission) and was again informed that he would be eligible to receive social security benefits immediately. He had agreed to the settlement terms only on that basis and he would not have agreed to terms if he had not been so eligible. He received approximately $61,000 in his hand from the settlement.
13. When he had contacted Centrelink a few days after the settlement he had been informed about the likelihood of a preclusion period and he had been greatly surprised by this. He had told Centrelink that they obviously did not understand properly the terms of the settlement (and at that stage Centrelink had not received the documentation from GIO) and he was certain that Centrelink would change its mind about a preclusion period when they understood the full picture. He had never been in any doubt about his entitlement to immediate social security benefits.
14. Although no other oral evidence was adduced by either party, there was a considerable amount of documentary evidence available to the SSAT and to this Tribunal. From that documentary evidence the following sequence of events can be established.
15. On 4 April 2000 McDonald Rudder wrote to GIO putting forward a counter offer to the original offer of $50,000 that had been made and rejected. A copy of this letter was not tendered in evidence but a letter dated 14 April 2000 from Jackson McDonald to GIO (R11) refers to the 4 April 2000 letter and sets out the terms that were proposed in that letter as follows: “1) $110,000 over and above payments of compensation to date; 2) all reasonable travelling expenses; 3) indemnity to [Health Insurance Commission]; 4) payment of all costs.”
16. On 11 September 2000 FLS wrote to Jackson McDonald (document A4) stating that Mr Johnson would be prepared to consider a proposal of settlement as follows: “a) lump sum compensation, including Schedule 2 disability and proportion of future weekly wages $135,000; b) future medical treatment (including possible surgery) $17,500; c) future rehabilitation $2500; d) payment of all outstanding medical accounts (by insurer); e) refund to Medicare (if applicable-by insurer); f) contribution towards legal costs $12,500.”
17. On 11 April 2001 Jackson Donald wrote to GIO (R4) and referred to the conference that was to take place on 18 April 2001. The letter refers to the fact that Mr Johnson was seeking $150,000 plus costs and that GIO had made an offer of $50,000 plus costs. The letter records the opinion that "the workers common law claim is certainly arguable" and notes that a medical specialist had assessed “a permanent disability of the thoracic spine of 10% and a 16% disability of the cervical spine” and that Mr Johnson was “…incapacitated for his pre-accident duties as a bogger driver…”, although a gradual improvement in the long-term was anticipated to the extent that Mr Johnson would be capable of full-time sedentary work provided he was retrained. He was not considered capable of returning to manual work. The letter concludedthat GIO's "…most likely exposure is the balance of the prescribed amount in relation to weekly payments together with a further sum representing statutory allowances."
18. The meeting to discuss a possible settlement held on 18 April 2001 was attended by Mr Johnson, Ms Laslett from FLS, Mr Scannell from GIO and Mr Jarman from Jackson McDonald. Document A5 is Mr Scannell's notes made at the meeting. It records discussion along the following lines
· Ms Laslett advised that they were still looking for more than $100000 to settle.
· Mr Jarman offered $60000.
· There is discussion about which accident had caused the present condition and it is noted that Mr Johnson was positive to the hepatitis C virus.
· Ms Laslett said that the bottom line is $110000.
· Mr Jarman said that GIO did not want to pay that much. GIO should agree the total disability at 16% and offer to settle for $70,000. Mr Johnson would then have to make an election within seven days [to either accept the offer or proceed with litigation for common law damages]. Alternatively, he could take $70000 today and some costs.
· Ms Laslett asked for $85000 including costs plus $2200 for medical reports.
· Someone then suggested that they split the difference and offer $80000 including costs and disbursements. The terms of a settlement are then recorded, being
“- no [Department of Social Security] indemnity
-no [Health Insurance Commission] indemnity - will have to do 10%advance payment to HIC
- agreement will cover all injuries from 14.12.98 right through
…
- $70000 (including $1000 advance payments for medicals)
- $10000 costs including disbursements”.
19. On 19 April 2001 Mr Scannell completed and sent to Centrelink answers to questions about the settlement of the claim(T6). Question 9 of that form was in the following terms: "Please advise any economic loss components. If Global, please advise if economic loss claimed.” The word “No” was circled and the word "global" was written beside the question.
20. On 20 April 2001 Mr Jarman wrote to Mr Scannell (R12) referring to the agreement that had been reached at the meeting in the following way: “The worker was initially seeking a sum in the vicinity of $150,000. We offered $60,000 and the worker counter offered $110,000. We indicated to the worker that we would agree the level of disability at 16 percent and force him to elect, in which case his payments of compensation would cease. We were then successful in negotiating a settlement in the sum of $70,000 plus costs inclusive of disbursements.”
21. On 24 April 2001 a generally endorsed writ of summons was issued out of the District Court of Western Australia) (T24) with the endorsement of claim being in the following terms: "The plaintiff’s claim is for damages for all injuries to the plaintiff’s neck and spine arising out of accidents which occurred during the course of his employment with the defendant from 1 December 1998 to 5 December 1999 and all aggravations of all injuries sustained as a result of the defendant’s negligence, breach of contract, breach of statutory duty and all other course (sic) of action." On 27 April 2001 the parties by their solicitors consented to a judgment in the following terms: "1) There be judgment for the plaintiff against the defendant in the sum of $70,000, in addition to all compensation paid to date pursuant to the Workers Compensation and Rehabilitation Act 1981 as amended; and 2) the defendant do pay the plaintiff’s costs of the action in the sum of $10,000 inclusive of disbursements."
22. A Centrelink computer record (T10) dated 23 April 2001 records that Mr Scannell advised of the settlement reached on 18 April 2001 and notes that the preclusion period is from 19 April 2001 until 26 June 2001, although it is not clear whether the Centrelink officer concerned mentioned that fact to Mr Scannell. The record also notes that a letter was sent to Mr Johnson on that day but a later note records that it was returned and placed on file on 3 May 2001.
23. On 11 May 2001 a Centrelink officer spoke to Mr Johnson and obtained details of his current address in Scarborough and told him that further details about the lump sum settlement would be obtained from GIO and his solicitor. The note recording the conversation (T10) is in the following terms: “ [Mr Johnson] told me that he would only [have] accepted the lump sum settlement if there was no allowance for economic loss. The lump sum settlement was for his injuries which [were] for his neck and spine. [He] told me that he can hardly walk or pick up his son. [He] settled the claim because they were going to stop his weekly compensation payments of approximately $670 per week and he had to sue under common law and this would take 3-4 years or settle for a much lesser amount. Then [Mr Johnson] told his solicitor [from FLS] and Mr Scannell from GIO he would accept a lower figure of $70,000 if there was no allowance for economic loss Mr Johnson knew [tha]t if there was no allowance for economic loss then there would be no preclusion period and he could put all the lump sum settlement on a house and then he can claim [disability support pension] and pay the mortgage and live on the balance. [He] told me that he has high medication costs. I told [Mr Johnson] that Centrelink can treat the lump sum settlement using the 50 percent rule if it is clear that the parties involved tried to contravene the Social Security Act 1991. [He] told me that he is yet to receive the lump sum settlement. He still wants to purchase a house so that he has an asset to leave his son. Preclusion and garnishee letter sent to [his] correct address.”
23. On 15 May 2001 Ms Laslett from FLS advised Centrelink that there was no statement of claim in respect of Mr Johnson’s claim and that she did not know until after the claim had settled that GIO had settled globally and not incorporating economic loss. She informed the Centrelink officer that the original assessment of Mr Johnson's claim was for $100,000 (T10). Document T10 also records that on 15 May 2001 Mr Scannell informed a Centrelink officer that “…the claim settled globally but he could not say if there was or was not a component for economic loss in the lump sum settlement.” He referred the Centrelink officer back to Ms Laslett. Document T10 also records that on 5 June 2001 Mr Jarman from Jackson McDonald advised a Centrelink officer that Mr Johnson had asked for $150,000, GIO agreed to pay $70,000, and they did not agree to any strict apportionment. The note records Mr Jarman as advising that "…there would have been economic loss in the global lump sum settlement but no figure was mentioned."
24. By a statement received by Centrelink on 15 June 2001 (T13) Mr Johnson sought a review of the original decision regarding the preclusion period. In that statement he claimed that "…when I agreed to my claim I was led to believe I would receive my disability pension immediately…" and that "[Mr Scannell] from GIO assured me when we spoke on the phone that he had marked the claim form sent to Centrelink that the amount of compensation was for the injury I sustained and that none of it was for past or future wages." In another document completed by Mr Johnson and lodged with Centrelink on 15 June 2001 (T12), Mr Johnson provided information to Centrelink in support of his claim for future benefits. The form sought information about compensation and damages that had been or would be claimed and which were relevant to the assessment of entitlements for future benefits. Question 9 asked "what type of compensation has been or will be claimed" and Mr Johnson ticked the box marked "workers compensation/damages as a result of work injury”. Question 12 asked "have you ever received a lump sum compensation payment", to which Mr Johnson ticked the box marked “Yes”.
25. On 31 August 2001 Ms Laslett from FLS wrote to the SSAT enclosing copies of various documents and making the following observations:
“The claim settled for the sum of $70,000. At negotiations the insurer did not tell us how they arrived at this figure. (Their previous offer had been for $50,000 and they informed us that they were only prepared to increase this so as to try and finalise the claim. The $50,000 offer was made while other solicitors were acting for our client).
The figure of $70,000 was the figure the insurer assessed the claim at, not our assessment. As we were not privy to the discussions between the insurer and their solicitor we cannot say how they came up with $70,000. However, we can confirm that subsequent to negotiations Mr Scannell, who attended the conference for the insurer, GIO Australia, informed the writer that no amount for economic loss was included in the figure offered of $70,000."
26. On 4 September 2001 Mr Scannell informed a Centrelink officer (R10) that future economic loss was not discussed at the settlement conference as neither his notes nor Mr Jarman's letter of advice of 20 April 2001 mentioned future economic loss. The discussions had simply been about global figures. Mr Scannell did point out to the Centrelink officer that the facsimile from FLS dated 11 September 2000 (A4) did break down the terms of a settlement offer that would be considered by Mr Johnson.
27. On this issue Mr Ellis submitted that it was clear that Mr Johnson did have a reduced capacity to earn, that at least initially his solicitors had submitted that as a head of claim, that he had an ongoing right to receive workers compensation payments, and that the settlement that was reached was in respect of all claims of any kind once and for all. Accordingly, it was only reasonable to assume that part of the settlement amount was with respect to, and to settle finally, all outstanding claims regarding compensation and loss of earnings.
28. Mr Walker submitted that it was appropriate to take into account all surrounding circumstances in order to answer the question of whether a payment contained a part with respect to loss of earnings. He said that Mr Johnson had chosen to give evidence and there was no suggestion that any time had he been other than honest in his statements about believing that economic loss had been excluded from the settlement amount, based on his own desire to qualify for social security benefits and on the statements he claims were made to him at the settlement conferences. On the other hand, Mr Walker submitted that the evidence from other people involved in the negotiations leading to the settlement was inconsistent and inconclusive. On that basis, it could not be said that the Secretary had provided sufficient material to persuade the Tribunal to accept the proposition advanced by the Secretary, namely that the lump sum included an amount with respect to loss of income on loss of capacity to earn.
29. It is undoubtedly true that much of the evidence before the tribunal is inconsistent. However, some aspects of the situation are clear, in my opinion, and the following findings of fact can be made:
(a) Mr Johnson was injured at work and did experience a significant disability that resulted in him being totally unfit for manual labour in future – and, hence, in a reduced ability to earn income in future from his previous type of employment, although there was some prospect that he would be physically capable of undertaking sedentary work if he were appropriately retrained. Given his lack of formal education, his addiction to morphine and other health problems his employment prospects at the time of the settlement could not be described as other than poor.
(b) Both Mr Johnson's original and subsequent solicitors made claims on his behalf against his employer for common law damages and identified economic loss as one of the heads of claim, although it appears that at no time was any attempt made to provide information to the insurer that quantified the claim with any precision by reference to past earnings and estimates of future earnings.
(c) Mr Johnson was aware, at the time negotiations were underway that if he obtained a compensation settlement that included an amount for economic loss (past or future) then a preclusion period would apply during which he would not be eligible for benefits. He wanted to be eligible immediately because he wanted to use the lump sum that he might receive as part payment for a house and live on social security benefits.
(d) The insurer and its solicitor were aware of the claim for economic loss and considered the employer’s possible liability under that heading. Nevertheless, in the negotiations that occurred the insurer took what might be regarded as a hard bargaining position, offering Mr Johnson the choice between an early relatively small amount (ie $70,000 plus $10,000 for costs) or the prospect of weekly compensation payments being terminated and the need to make an election about forgoing or pursuing a common law claim.
(e) Despite the absence of references to economic loss in the notes made at the meeting on 18 April 2001, I am satisfied that the subject was in fact discussed - if only because Mr Johnson raised it in order to allay his own fears about the possible consequences of a settlement that included an element for economic loss. I accept Mr Johnson's evidence that he asked about this possible consequence and was told by Mr Scannell that the documentation to be submitted to Centrelink would advise that there was no economic loss component. In addition, and taking a commonsense approach to the circumstances of that meeting, I consider that the fact that FLS had previously identified “future weekly wages” as part of “lump sum compensation” which they had quantified at $135000, would have meant that it was most unlikely that future loss of income would not have been raised in the negotiations.
(f) I am satisfied that Mr Johnson genuinely believed that the settlement figure that was finally negotiated was less that that to which he was really entitled (had all his possible heads of claim for damages been adjudicated by a court) and that he was consciously prepared to accept a lesser amount because he was, in my opinion, influenced by the facts that to pursue his common law claims in the absence of a negotiated settlement could take some years; his living circumstances at the time were such that he desperately wanted to settle the claim and receive some amount of money; and his belief based on what he had been told that he would be eligible immediately for social security benefits.
30. As regards the positions of FLS, GIO and Jackson McDonald the evidence is much less clear-cut. I observe that the persons concerned could have been called to give evidence by either party– but they were not. Nevertheless, with the exception of the telephone conversation between Mr Scannell and a Centrelink officer on 4 September 2001 and the facsimile from Ms Laslett to the SSAT of 31 August 2001, the various advices given to Centrelink were reasonably contemporaneous and I can see no reason not to place considerable weight on them.
31. Ms Laslet’s initial advice of 15 May 2001 to Centrelink that the original assessment of Mr Johnson's claim was for $100,000 and that she did not know until after the claim settled that GIO settled globally and did not incorporate economic loss suggests that, at the time of the settlement, she was under the impression that economic loss was included. Her advice to the SSAT later is not inconsistent with that. It is, in my opinion, clear that the FLS letter to Jackson McDonald on 11 September 2000 contained a claim for economic loss. Had that claim been abandoned at some stage by Mr Johnson and FLS Ms Laslett would have been aware of that. That, plus Ms Laslett’s apparent lack of knowledge at the time of settlement that GIO/Jackson McDonald were not including economic loss when making offers (if that was in fact the case) suggests that at the time of the negotiations Ms Laslett continued to believe that loss of earnings were included.
32. In the case of GIO, in my opinion its representatives were conscious of the possibility that Mr Johnson might succeed in respect of a claim for economic loss - but took advantage of his predicament to try to negotiate a settlement that, taken globally, settled all claims that Mr Johnson could make (both at common law and under workers compensation legislation) without specifically identifying an element for past or future loss of earnings. Mr Scannell's advice to Centrelink on 15 May 2001 that he could not say if there was or was not a component for economic loss in the lump sum settlement is not, in my opinion, convincing - especially when compared with Mr Jarman's advice to Centrelink on 5 June 2001 that there would have been economic loss in the global lump sum settlement but no figure was mentioned and there had not been any agreement about strict apportionment. Mr Scannell’s advice to Centrelink on 4 September 2001 that economic loss was not considered at the time of settlement is inconsistent with his earlier statement that he could not say whether it was or not.
33. It is apparent that the settlement reached on 18 April 2001 in fact settled once and for all whatever claim for past or future loss of income that Mr Johnson may have had and that the legal representatives of the parties had contemplated the possibilities of success of such a claim. Although I accept the evidence from Mr Johnson that he was particularly concerned to see that the settlement would not affect his future social security entitlement, and that he specifically raised the issue at the settlement conference and was re-assured by the insurer's representative, I do not consider that that necessarily means that the settlement amount arrived at did in fact exclude economic loss. On the balance of probabilities I am prepared to find that the amount eventually negotiated was acceptable to Mr Johnson only because he believed it enabled him to be eligible for social security benefits immediately, but, in the light of the evidence available to me from the various statements of the representatives of the insurer and the two law firms, I also find on the balance of probabilities that the settlement amount did include an element of compensation for loss of earnings or earning capacity.
34. In that respect I differ from the conclusion of the SSAT. I should add that I do not agree with the statement of the SSAT in paragraph 19 of its decision that the consent judgement specifically excluded past loss of earnings from the judgement sum. Rather, I take the first paragraph of the judgement to mean only that the sum of $70000 is to be in addition to all compensation of any nature (which could include such things as medical expenses and rehabilitation costs as well as periodic compensation for lost wages) paid under the workers compensation legislation.
33. Having concluded that the lump sum received by Mr Johnson was in part in respect of loss of capacity to earn (and therefore compensation for the purposes of ss17(2) of the Act, it follows that the compensation part of the lump sum is to be calculated in accordance with ss17(3) and the preclusion period provisions contained in s1165 of the Act are applicable to Mr Johnson as determined by the Secretary - unless it would be appropriate to exercise the discretion that was at the relevant time available in s1184 of the Act to disregard some or all of the lump sum received. I turn now to that issue.
Issue (b): Should the s1184(1) discretion be exercised?
34. The discretion that is available is in the following terms:
“1184(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.”
35. What should be regarded as special circumstances is an issue that confronts this Tribunal regularly in a number of contexts. Reference is frequently made, with approval, to the decision of the Tribunal in Re Beadle and Director–General of Social Security (1984) 6 ALD 1 at 3, that one should look for circumstances that are unusual, uncommon or exceptional. They need not be unique, but they must have a particular quality of unusualness that permits them to be described as special. In Boscolo v S,DSS French J described the core of the requirement as being that there be something unusual or different to take the matter out of the ordinary course, but without requiring that the case be extremely unusual, uncommon or exceptional (1999) 53 ALD 277 at 281, 282.
36. The object of Part 3.14 of the Act, which deals with recovery of compensation amounts, has been described by Merkel J in Kertland v Secretary, Department of Family & Community Services [1999] FCA 1596 at para 1 as follows:
1. The Social Security Act 1991 (Cth) ("the Act") provides for the Secretary, Department of Family and Community Services, to reduce and, where appropriate, recover certain social security benefits payable under the Act to a person who receives personal injury compensation which includes payment for loss of earnings or earning capacity. The statutory scheme is designed to prevent a person from being entitled to receive social security benefits in respect of a period during which the person receives, or is entitled to receive, personal injury compensation for loss of earnings or earning capacity. The relevant provisions operate to prevent "double payment" by depriving a person of an entitlement to social security benefits payable under the Act during the relevant period ("the preclusion period").
37. Hill J in Haidar v Secretary, Department of Social Security [1998] 994 FCA described the position thus:
So, as von Doussa J observed in Secretary, Department of Social Security v Smith (1991) 30 FCR 56, in a passage quoted by Einfeld J in Secretary, Department of Social Security v Thompson (1994) 53 FCR 580 at 583-4, an attempt was made to balance on the one hand finite budgetary allocations against the interests of the recipient of the payment. Without putting too fine a point upon it, the purpose of the basic thrust of the legislation was to avoid a claimant being entitled both to social security benefits and benefits in the nature of income through lump sum payments.
However, the legislature was conscious of the possible harshness of a rule structured in an arbitrary way. Section 1184, therefore, provided the means whereby the Secretary or, in the event ultimately of an appeal to the Administrative Appeals Tribunal, that Tribunal, could alleviate the harshness of the statutory provision in an appropriate case but only where there were special circumstances. The question of what constitutes special circumstances has been the subject of a number of decisions of this Court. It suffices here to say no more than that something is required which would take the matter out of the usual ordinary case: Groth v Secretary, Department of Social Security (1995) 40 ALD 541 at 545 per Kiefel J, Secretary Department of Social Security v Ellis (1997) 46 ALD 1 at 5 per Carr J.
As the Full Court of this Court said in Beadle v Director-General of Social Security (1985) 60 ALR 225 at 228, albeit in a slightly different context, special circumstances will be those matters which render circumstances unfair or inappropriate
38. The present case is one of those relatively unusual ones where the preclusion period had ended at the time that the original decision came to be reviewed by this Tribunal. An issue therefore arises as to the relevance of circumstances that arose after the end of the preclusion period and, perhaps, were still present at the time of the review decision. In Haidar Hill J expressed the following:
In the case such as the present where the preclusion period required by the statutory formula in the absence of discretion had finished, it cannot be said that events at the time of hearing would necessarily be irrelevant. It is clear enough that the Tribunal sitting on appeal from a decision maker, be it the Minister or another Tribunal, must take into account the facts as they exist at the time the matter is heard by the Administrative Appeals Tribunal, to the extent those facts are relevant to the decision. It is not limited to taking into account events which occurred at the time the original decision was made, nor for that matter facts as they were known at that time, notwithstanding that later knowledge would lead to a revision of the earlier factual assessment. However, the fact that the Tribunal can consider facts after the date the initial decision was made does not mean that every fact after that date is necessarily relevant. Where, between the end of the preclusion period and the time of the decision, a claimant's economic situation is good and that arose as a result of receipt of a lump sum compensation amount, clearly the decision maker or Tribunal in place of the decision maker could take into account the economic circumstances existing at the time of the decision. But that is because those economic circumstances bear some relationship to the matter under decision, namely the relevance of the lump sum payment and its impact upon the question whether a pension be paid notwithstanding the receipt of a lump sum.
Conversely, should it be the case, that some event which happened after the expiration of the preclusion period but before the Tribunal heard the matter, and which event was wholly unrelated to the relationship between the lump sum and pension, have any significance at all? It is hard to see how it could.
39. Because of the view that it took about the issue of whether the lump sum was compensation, the SSAT was not required to determine whether the s1184(1) discretion should be exercised. It did, however, express an opinion about the evidence relating to possible special circumstances as follows:
“20. The Tribunal concluded, in the basis of the medical evidence and its own observation of Mr Johnson, that it was highly likely that the way in which he dealt with the money awarded to him in the settlement was, to at least some extent, the result of his medical condition, that is, the effects of the morphine addiction. In the view of the Tribuinal these circumstances are sufficiently special to warrant considering the extension to him of the benefit of legal provisions which depend on the existence of special circumstances.
21. The Tribunal also accepted that Mr Johnson had good reason to assume that he would not be subject to a preclusion period from social security benefits, because of advice given to him by GIO Australia, and this was also a factor in his failure to preserve his lump-sum.”
40. The SSAT concluded (at para 27) that “…the findings of the Tribunal were such that a decision to disregard at least part of his damages would have been a very likely outcome, if the matter had had to be decided on those grounds.”
41. The preclusion period had been calculated by the Secretary as commencing on 19 April 2001 and ending on 26 June 2002. After the SSAT decision was made the Secretary determined to apply to this Tribunal for a review of that decision and to obtain an order staying the operation of the SSAT decision until this Tribunal’s decision was made. On 23 October 2001 Deputy President Hotop made an order that the SSAT decision be stayed for the period from 15 June 2001 (when Mr Johnson made his application for a benefit) until 31 August 2001. The effect of that order was that Mr Johnson received a disability support pension from 31 August 2001 for the balance of the preclusion period and thereafter. Accordingly, should the decision of this Tribunal be that the original preclusion period is to stand, one consequence would be that Mr Johnson would have had no entitlement to the benefits paid to him in the period 1 September 2001 to 26 June 2002 and the amount of such benefits would constitute a debt due by him to the Commonwealth.
42. The circumstances leading up to the negotiated settlement and the receipt by Mr Johnson of the lump sum in April/May 2001 have been described above. I add that evidence was available to the SSAT and this Tribunal that he had been receiving heavy medication prior to the settlement (including narcotics) with a risk of addiction (see R3); he was depressed (see R14); and (from Dr Alizadeh) that his addiction to morphine made it likely that he would exhibit “drug addict behaviours”, that he would make irrational decisions, and that alcohol would exacerbate these problems (see T2 para 14 and T23). That evidence was not contested and I accept it.
43. Paragraphs 13 and 23 above outline the events that occurred shortly after the time of the settlement and confirm that Mr Johnson was aware of Centrelink’s stance in relation to a possible preclusion period – although he was of the view that that stance could not be correct.
44. Mr Johnson gave evidence that, thereafter, he went with his girlfriend to Melbourne, where his parents live, for a holiday. He had decided that some of the settlement money would be used to buy a motor vehicle – and he decided to withdraw approximately $34000 from his bank in cash and carry it with him. He was accustomed to carrying large amounts of cash without incident. He gave evidence of, one afternoon, drinking in several hotels with two men he had only just met and then being on his own at night in a hotel that he could not later identify. He did not normally drink and recalls wondering how his medication might be affected by alcohol. He did not appreciate just how much he must have been affected by the few drinks that he had had. He recalls wanting to have a look around the hotel that he was in and walked around for a few minutes, accidentally leaving unattended the jacket that he had been wearing and in the pockets of which were bundles of money making up the $34000. After being away from his seat for a short time (probably only 7-8 minutes and no more than 15 minutes) he realised he had left his jacket unattended. Although he rushed back to his seat the jacket and the money were gone and his frantic efforts to find them were unsuccessful. He panicked and felt physically sick at this realisation and vomited several times. He called the hotel security people for help and asked them to call the police. He does not know whether the police were called or not because he left the hotel before police arrived.
45. The following day he phoned the police but because he was not sure whether the hotel security people had called police or not or what hotel he had been in he had not been able to find out anything. As he expected, the police had no record of any money being reported lost or found. Thereafter he had gone on to Sydney for a few days and then back to Perth with only a few thousand dollars of the settlement money left. On his return he received approximately $6400 as a refund from the Health Insurance Commission. Apart from the $34000 lost he could account for expenditure of about $26000 (see T2 para 10 and T16, page 48) as follows, which accounted for virtually all of the money he had received:
$4000 Jewellery
$3500 Airfares to and from, accommodation in Sydney/Melbourne
$5000 Spending money on trip
$5500 Furniture/electrical goods for new flat
$1250 bond for new flat/ moving costs
$1500 presents for mother
$3000 presents for son
$960 car hire expenses
$1000 purchase of old car
$25710 Total
46. By mid June 2001 he had virtually no money and applied for a disability support pension. That has been his only income since that time. He has tried to find work without success. When he tells a prospective employer that he has a back problem they have no interest in him. Friends who run businesses have told him that if they were to employ him their insurance premiums would go up substantially. He accepts that he is not qualified to do many jobs.
47. His pension is approximately $470 per fortnight. He lives in a rented cabin in a caravan park, paying $190 per week rent at the time of the hearing, but he expected that to go down to $155 per week after a few weeks. He cannot live satisfactorily on what he has left over. He has sold everything that he can, including the jewellery he had bought after the settlement. He gets no financial assistance from anyone else although he sometimes borrows money from his mother. He had discussed with his present girlfriend the prospect of her moving in and living with him. At the time of hearing she was in hospital and was normally in receipt of social security benefits – although at that time she had been breached by Centrelink for some failure to meet reporting obligations.
48. He sees his general practitioner 2 or 3 times a week and other medical practitioners each fortnight. Sometimes those visits are bulk billed and sometimes not. He takes 6-12 anti-inflammatory and anti-depression tablets per day. His main medication costs $3.60 for 20 tablets or $90 for 60 tablets. He buys the cheaper version, but this means that he must go to the doctor and have his prescription renewed every few days. He can’t think things through and he is indecisive. He used to be forthright and direct and now he is never sure what to do. It can take him several hours to get ready to go out of the house.
49. Mr Ellis submitted that no special circumstances could be found in Mr Johnson’s case. He knew of the preclusion period before he received the settlement funds but chose to ignore the prospect – preferring his own view that there would be no preclusion period, he had recklessly, but quite consciously, carried a large sum of money in Melbourne. He had given his evidence to the Tribunal rationally and was able to explain matters even though he is apparently still morphine dependent. Although he may be confused on occasions and may misjudge situations and people he is still responsible. He had some money left on his return to Perth but still continued to spend money, apparently without a care. To this extent he can be seen as the author of his own misfortune and there are no other special circumstances such as a life-threatening illness, he is not starving on the street, he is receiving his full benefit entitlement and apparently managing reasonably well. Mr Ellis accepted that Mr Johnson had a large medication expense. He could not argue either way about whether the $34000 had in fact been stolen or had been lost in some other way or had been spent otherwise. He was not able to produce evidence to prove or disprove the point. On this latter point I note that in an early statement of facts and contentions filed by the Secretary the point had been made that in document T13, which was lodged by Mr Johnson with Centrelink on 15 June 2001 in support of a request that the decision about the preclusion period be reviewed, Mr Johnson had made no mention of the loss of the money by theft. This issue was not raised by Mr Johnson until he lodged T14 on 2 July 2001.
50. It was submitted on behalf of Mr Johnson that special circumstances could be found in the following: 1) he relied on advice from GIO that the settlement would not affect social security entitlements and he therefore accepted a lesser sum than he otherwise might have because of that; 2) the pain and the prescribed morphine(and the addiction to that) left him confused and indecisive; 3) the addiction seriously impaired his judgement and left him acting irrationally and this explains the irresponsible expenditure of the lump sum; 4) he was at the time of settlement and is now suffering from severe financial hardship; 5) prior to the work accident in 1998 Mr Johnson had a good work history and no prior drug or alcohol problems; 6) his current health problems reduce his ability to find employment and require heavy expenditure on prescription drugs each week.
51. In all the circumstances I am inclined to agree with the SSAT that the circumstances of Mr Johnson’s case are such that they can be described as sufficiently special to justify disregarding at least some of the lump sum received. I would summarise my thoughts on this issue as follows.
52. The significance of incorrect advice about preclusion periods from a legal or other professional adviser will usually be that a person will not have knowledge of the preclusion arrangements at all or is under a misapprehension about the length of the period in his/her case. In Mr Johnson’s case he was aware of the possibility of a preclusion period but, as I have found, he received incorrect advice that there would not be one in his case. There is no evidence before me about whether he was deliberately misled or the incorrect advice was the result of a genuine error by the professionals who were involved in the settlement and I express no opinion about that. It remains the case, however, in my opinion, that he did receive incorrect advice based on the view I have taken about the nature of the settlement.
53. Two factors mitigate the impact of that advice, however, to some extent. The first is that Mr Johnson was informed by Centrelink of the correct position at an early date – in fact, before he received the settlement money - and he was, therefore, on notice that he needed to manage the money so that he could live on it during whatever the preclusion period turned out to be. The second is that, given Mr Johnson’s belief that he should have received a higher lump sum if lost future earnings were to be included, such a higher sum would have resulted in a longer preclusion period than the one that actually applied.
54. Overall, the incorrect advice he received must have added to the sense of injustice and unfairness about the whole situation and settlement felt by Mr Johnson. On balance I believe that the incorrect advice is a factor, but not a particularly large factor, that points to special circumstances.
55. As regards the loss of the $34000, I regret that more evidence was not adduced to help me form an informed view about the truth of the matter. I am somewhat surprised that Mr Johnson did not attempt to demonstrate the truth of his version of the loss by providing evidence that might corroborate his story – perhaps from his parents who were told of the loss at an early time and who could, presumably, corroborate the attempts to follow up with the police. The Secretary might also have tried to obtain such evidence. I have already pointed out the delay by Mr Johnson in mentioning the loss to Centrelink and in his evidence in chief Mr Johnson said that at most he would have lost only “a couple of hundred dollars” on poker machines in the various hotels he had visited. In the absence of other evidence I accept (somewhat reluctantly) on balance that the money was lost in the way described by Mr Johnson.
56. That way was, as Mr Walker conceded, the result of reckless behaviour by Mr Johnson in carrying such a large amount of money on his person at a time when he was drinking alcohol on top of his medication and in places where he could easily have been the victim of a crime. The inevitable question that must be answered is whether such conduct was out of the ordinary for Mr Johnson and contributed to by his depression, medication and addiction – about which there was evidence that I accept. I accept that Mr Johnson had a good work record prior to his accidents and medical problems and that his ability to cope has been adversely affected by his addiction.
57. On the face of it, Mr Johnson’s evidence about the impact of these problems was somewhat contradictory. On the one hand he said that he is now indecisive and can’t think things through. On the other hand he emphasised to Centrelink that he was “not a fool when it comes to monetary matters” when he was explaining why he settled in the way that he did (T13) and when giving evidence at the hearing he appeared to be confident about his ability to manage his affairs (although he was struggling financially) and to explain his point of view on the various issues that he was asked about. I assessed him as a person who is quite able to manage most circumstances as they arise but who is also likely to act in a way that is irresponsible and even reckless without much concern for the consequences. That may well be consistent with the observation of Dr Alizadeh made to the SSAT member who contacted him that Mr Johnson’s drug problems may cause him to exhibit “drug addict behaviour” and to make irrational decisions (T23).
58. On balance I am prepared to accept this as a reasonable explanation of the reckless behaviour that lead to the loss of the $34000. The expenditure of the other approximately $27000 requires more explanation. It seems that Mr Johnson must have abandoned at an early point the idea that he would use all or most of the settlement money to buy a house and he seems to have made no effort to pursue that apparently sensible course of action. Perhaps the explanation is that he knew from an early time that Centrelink would try to impose a preclusion period and he might have to live on the money. There is no evidence on the point and I express no opinion about it. What is clear is that he returned from the eastern states with some money left but continued to spend – at least partly in a way that could be described as unnecessarily extravagant (in particular the gifts and the jewellery). I am satisfied that some of the expenditure (furniture for flat, removal expenses etc) was not unreasonable in nature or amount.
59. In relation to his present living circumstances, I am satisfied that Mr Johnson is in financial trouble. His rent seems high for a single man, although that might be alleviated if his girlfriend were to move in and be in a position to meet a share of some of the normal living expenses. In essence, however, most of his financial problems are connected with the drug problem and the incessant need to consult his medical practitioner in order to access the cheap version of the drugs that he is prescribed.
59. Viewed in its totality, I conclude that Mr Johnson was a person who was not capable of managing the money that he received in the circumstances in which he received it – by reason of his health and medical problems, in particular his drug addiction and the consequential behavioural problems. To that extent I consider that his circumstances are sufficiently out of the ordinary to be called special and the discretion in s1184 of the Act should be exercised in his favour. The question is to what extent he should benefit from the exercise of that discretion.
60. In my opinion it would not be appropriate to disregard all of the lump sum received by Mr Johnson. He was not, in my opinion, so unable to manage his affairs that he should be relieved entirely of the consequences of his actions. I have considered Mr Walker’s submission that at least Mr Johnson should not be left in a position in which there is a debt due because of the payment of benefits after 31 August 2001 to the end of the preclusion period. Given that benefits were paid from 31 August 2001 that outcome would require approximately 70% of the total lump sum being disregarded. In my opinion that would be too great a proportion. Although I recognise that it is somewhat arbitrary, I consider that an outcome that saw the $34000 lost in Melbourne (or just under 50% of the total lump sum) being disregarded would be a reasonable reflection of the merits of the situation. That will result in a new preclusion period being calculated and I expect that there will arise a debt due by Mr Johnson to the Commonwealth. Although it is not a matter before me in these proceedings, in view of the opinion that I have formed about the circumstances of the case I believe that it would not be inappropriate for me to express the view that the Secretary may wish to take a similar view about the application of the discretion to waive that debt under the discretion available in s 1237AAD of the Act.
Other issues
61. Because of the view I have taken regarding the first two of the issues set out in para 5 above and the s1184 discretion there is no need for me to consider the third and fourth issues concerning whether the lump sum should be regarded as income within the meaning of s8(1) of the Act for the purposes of calculating social security benefits. I agree with the submission made by Mr Ellis that the question of income should only arise if an amount is judged not to be compensation. If the amount is considered to be compensation then the specific provisions of the Act dealing with compensation must prevail over the more general provisions concerning income. I would observe, however, that it seems to be the case that the Secretary does not raise the issue of whether a lump sum is to be treated as income in all cases where the lump sum is regarded as not being compensation. It remains unclear to me how the Secretary determines in which cases the income argument will be pursued. In my opinion there should be consistency in the approach – and the Secretary may wish to consider making a public statement about the stance that will be taken and the circumstances in which arguments of the kind considered by Foster J in Re Cunneen: 48 ALD 351 will be made to the Tribunal.
Decision
62. For the reasons set out above my decision is that the decision under review should be set aside and in substitution therefore it is decided that:
a) the lump sum of $70000 received by the respondent was a payment made wholly or partly in respect of lost earnings or lost capacity to earn and is compensation within the meaning of s17(2) of the Act;
b) pursuant to s1184 of the Act and in the special circumstances of the case it is appropriate that $34000 of the lump sum received by the respondent should be treated as not having been made; and
c) the matter should be remitted to the Secretary for a new calculation of the preclusion period that is to apply to the respondent in accordance with this decision.
I certify that the 62 preceding paragraphs are a true copy of the reasons for the decision herein of Mr M Allen, Member
Signed: .........(sgd V Wong)...................................
AssociateDate/s of Hearing 3 December 2002
Date of Decision 14 March 2003
Counsel for the Applicant Mr S Ellis
Counsel for the Respondent Mr S Walker
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