Jovanovic and Department of Family and Community Services

[2001] AATA 190

DECISION AND REASONS FOR DECISION [2001] AATA 190

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No   V2000/820

GENERAL  ADMINISTRATIVE  DIVISION     )          
           Re      Ljiljana Jovanovic            
  Applicant
           And    Secretary, Department of Family and Community Services         
  Respondent

DECISION

Tribunal       Mr J.T.C Brassil, AM, Member      

Date14 March 2001

PlaceMelbourne

Decision      The Tribunal decides to set aside the reviewable decision and to substitute therefor a decision pursuant to ss. 1184(1) of the Social Security Act 1991 that 92.5% be the part of the compensation payment that will be taken as not having been made in the calculation of the preclusion period applicable.        
  ……(sgd. J.T.C. Brassil)…...
  Member
CATCHWORDS
SOCIAL SECURITY - compensation received – the 50% rule – preclusion period - whether there are special circumstances – treating part or whole of lump sum as not having been received – decision set aside

Social Security Act 1991 - ss. 17(2) and (3), ss. 1163(1) and (3), ss. 1165(2AA), ss. 1166(1), ss. 1184 (1)

Re Ivovic and Director-General of Social Services (1981) 3 ALN 95
Beadle v Director-General of Social Services (1985) 60 ALR 225
Secretary, Department of Social Security and Jayne Tasanen, AAT 12102, 8 August 1997
Kertland v Secretary, Department of Family and Community Services [1999] FCA 1596
Haidar v Secretary, Department of Social Security (1998) 52 ALD 255
Secretary, Department of Social Security v Hulls (1991) 22 ALD 570
Eggleton and Secretary, Department of Social Security, AAT 12707, 13 March 1998
Fowles and Secretary, Department of Social Security (1995) 38 ALD 152
Glass and Secretary, Department of Social Security, AAT 13512, 7 December 1998
Najdovski and Secretary, Department of Social Security, AAT 13423, 30 October 1998

REASONS FOR DECISION

14 March 2001                  Mr J.T.C Brassil, AM, Member      

1. This is an application for review of a decision made by a Centrelink officer on 8 December 1999 to raise and recover a compensation charge of $18,296.10, being partner allowance and parenting allowance paid in respect of the period 22 July 1994 to 3 April 1997.  The decision was affirmed by an authorised review officer on 8 March 2000.  On 26 May 2000 the Social Security Appeals Tribunal ("SSAT") the matter was sent back to Centrelink with a directive that only $30,000, rather than $60,000, be regarded as the compensation part of the lump sum payment with the effect that the preclusion period would be reduced to half.

2. The applicant was present at the hearing on 29 August 2000 and was represented by Mr A Garsa, solicitor.  The respondent was represented by Ms Carolyn McInnes, a departmental advocate.

3. The applicant gave evidence with the assistance of an interpreter in the Serbian language.  Her 21 year old son Alexander Vasic also gave evidence. The documents submitted pursuant to s. 37 of the Administrative Appeals Tribunal Act 1975 (the "T Documents") were taken into evidence and the respondent provided one exhibit, R1, which was a copy of the Transport Accident Commission ("TAC") breakdown of the compensation payment made to the applicant following a motor vehicle accident.
   FACTS

4. Mrs Jovanovic was seriously injured in a motor vehicle accident on 22 July 1994.  Her claim was settled on 26 November 1999.  She has been notified on 24 March 1999 that any payment of compensation may affect payments of social security benefits.

5. The settlement amount was $120,720 and legal costs of $12,000 as set out in Exhibit R1.  This indicated that general damages were paid in the amount of $75,000, then for future economic loss $26,703.90 and an amount of $18,296.10 was designated as "sickness benefits".  The discrepancy of $720 was not explained however the total paid by 24 August 2000 was shown as $132,520, some $200 less.  The Release document (T8) records the payment of $120,000 and professional and disbursements costs of $12,520.  The Tribunal notes the SSAT finding that the settlement amount was $120,000.  The SSAT found also as a matter of fact that there was no payment for past loss of earnings.

6. On 8 December 1999 a delegate of the respondent had requested the TAC pay to Centrelink an amount of $18,296.10 from the proposed settlement being the amount received by the applicant from Centrelink in the period 22 July 1994 to 3 April 1997.  This coincided with the amount above referred to as "sickness benefits".

7. While submissions were made concerning the application of a preclusion period there was no challenge to the process of calculation of a preclusion period used by Centrelink in making its claim to the TAC.  Thus if the reviewable decision is affirmed the amount of $18,296.10 can be taken as the deduction appropriate for the calculated preclusion period.
   ISSUES BEFORE THE TRIBUNAL

8. Whether the applicant was paid an amount of money which could be characterised as "compensation" within the meaning of s. 17(2) of the Social Security Act 1991 ("the Act") is the primary issue.

9. Whether the submission put on behalf of the applicant that there was no component for past earnings, understandably because the applicant had no past earnings of significance, hence should not be denied social security payments for a period needs to be tested against the provisions of the Act.

10. If it is determined that compensation has to be paid pursuant to the provisions of s. 17(3) (the 50% rule) then the Tribunal would have to consider whether there are special circumstances such that it is appropriate pursuant to s. 1184(1) to treat whole or part of the compensation part as not having been paid and, in particular, to review the decision of the SSAT that half of the compensation part should be so treated.
    LEGISLATION

11. There are a number of sub-sections which can be regarded as the compensation recovery provisions of the Act. These provide under s. 1163 that payment of compensation may affect social security payments, define what compensation may be affected under s. 17(2), determine the compensation part of the lump sum payment under s. 17(3) (the 50% rule), define the subsequent preclusion period under s. 1165(2AA), calculate the preclusion period under s. 1165(8) and require the Secretary to notify the person of the amount repayable because of the application of the preclusion period under s. 1166(1). A very detailed statement of these recovery provisions can be found in Kertland v Secretary, Department of Social Security [1999] FCA 1596, ("Kertland").
    EVIDENCE

12. Mrs Jovanovic gave evidence of how she was affected by the accident and the consequent costs not covered by the TAC.  She had received about $80,000 after the deduction for Centrelink and the additional legal costs in relation to her case.  Over nearly 6 years she had to borrow from her family in order to meet her necessary expenses and got no assistance from her husband who was alcoholic and had become addicted to gambling.

13. Over $40,000 of the net payment she received went to pay back debts to relatives and outstanding medical expenses.  She spent $3,000 on essential furniture, sent about $2,000 to needy relatives in Yugoslavia and paid about $6,000 to send her two younger sons for a short visit to her elderly parents in Yugoslavia.  She said these two boys were then 17 years and 12 years, had been born there but her parents had not seen them during the 12 years since they had migrated to Australia.  She had banked the rest.

14. Her husband was much in debt from his gambling through her period of incapacitation and very great pressure was put on both of them by his debtors to pay them out.  Her husband took the money from the bank account to pay those debts and lost the rest on more gambling.  The couple separated after this in January 2000 and he was now  back with his parents in Yugoslavia.

15. She stated there was considerable family stress in the period after the accident and she had hoped the settlement might reduce this.  She said it had not and although she had paid all her debts and those of her husband she still had no assets and would never be able to work.

16. Alexander Vasic, the applicant's eldest son said he had lived at home prior to the accident but had moved out soon after.  He confirmed that his father was often drunk and could not stop gambling.  When his mother was in hospital he would even turn up there drunk.  At the end of last year he had advised his mother to leave his father. He stated he was aware his father had debts that his mother was under pressure to pay and his father had gambled away what was remaining.
    SUBMISSIONS

17. Mr Garsa submitted on behalf of the applicant that she had actually received $78,493.50 after paying additional costs including $5,000 to Dawson and Associates.  Costs had been assessed at about $23,000 but as can be expected the TAC had not met all of these. 

18. The negotiations for settlement meant a reduced amount for damages and the amount for future economic loss was lower because the applicant could not prove from her prior employment any real capacity to earn.  Her only income had been from occasional engagements to sing at ethnic gatherings and averaged only $20 per week, insufficient to affect her welfare payments.  When the three-quarters reduction was applied in the settlement discussions this equated to estimated future earnings of only $5 per week.

19. In the negotiations with the TAC prior to settlement it was confidently stated by TAC representatives that because of the applicant's small earnings prior to the accident there would be no deduction by Centrelink from the lump sum.  The applicant and her representative in the negotiations relied on that TAC advice and were influenced by the advice in accepting the amount at which they settled.  To apply the preclusion period in these circumstances would be unfair to the applicant.

20. In his submission the legislation is obviously meant to prevent double payment but the preclusion period in this case had the direct effect that the applicant would receive nothing at all for the first three years after the accident, the period of most pain and suffering.  He submitted this was a most unfair result.

21. He submitted that this was unfortunately a battle between Commonwealth and State authorities over his client's compensation with a result, if the decision is affirmed, that she will have virtually received nothing.  It was unfair for the respondent to apply a preclusion period that had the effect of taking from her most of what had been provided to cover her future economic position.

22. It should be taken into consideration that hers was a difficult family situation made significantly worse by the accident and what followed.  Most of the money had gone to pay debts accrued directly because of the accident, legal, medical and living expenses.  The applicant had not squandered what she had received and should not be penalised for sending her two younger sons to see the ageing grandparents at a time she was having great difficulty with a drunken gambling addict who was her husband.

23. He submitted that even if the law permitted a preclusion period then it should be seen that the applicant's circumstances were unusual and should be deemed "special circumstances" pursuant to s. 1184(1) as the SSAT had already decided. He noted previous decisions in Beadle v Director-General of Social Security (1985) 60 ALR 225 ("Beadle"), Re Ivovic and Director-General of Social Services (1981) 3 ALN 95 ("Ivovic") and Najdovski and Secretary, Department of Social Security, AAT 13423, 30 October 1998 in support of this application of the discretion in s. 1184(1).

24. It was his submission that this Tribunal should be prepared to go further and determine, using that discretion, that the whole of the compensation received by the applicant should be taken as not having been received.

25. Miss McInnes on behalf of the respondent submitted that the recovery sections of the Act required that the "50% rule" be applied following receipt of a compensation lump sum by Mrs Jovanovic. This had been calculated pursuant to the provisions of the Act to be $18,296.10 and had been correctly deducted by the TAC before payment of the residual lump sum.

26. She submitted that it was not relevant under the Act whether the lump sum included compensation for past or future economic loss, only that there was payment for economic loss.

27. She submitted that, following Bulley J of the Federal Court in Fowles and Secretary, Department of Social Security (1995) 38 ALD 152 (at 162-3) ("Fowles"), the Tribunal is precluded from dissecting the lump sum into components.  She submitted that similar views had been expressed in later AAT decisions, Eggleton and Secretary, Department of Social Security, AAT 12707, 13 March 1998 ("Eggleton") and Glass and Secretary, Department of Social Security, AAT 13512, 7 December 1998 ("Glass").  The SSAT was thus in error in reducing the preclusion period by half because the component for economic loss was minor.

28. The 50% rule was introduced by the Parliament to avoid such dissection, it was arbitrary but that was the intention of the Parliament according to O'Loughlin J in Secretary, Department of Social Security v Hulls (1991) 22 ALD 570 ("Hulls").

29. Further in her submission the incorrect advice from TAC, if given, should have been taken to Centrelink for checking at the time by the applicant or her solicitor.  Even if we are prepared to concede there was a misapprehension such inaction by her solicitor would not constitute special circumstances.  She submitted that Deputy President Burns made this point in Secretary, Department of Social Security and Jayne Tasanen, AAT 12102, 8 August 1997, pointing out that the client may well have an action against the solicitor "rather than using taxpayers funds to ameliorate the wrongs of others".

30. She submitted the finding of special circumstances had been dealt with a number of times by the Federal Court.  It is generally accepted following Beadle that the circumstances must be "unusual, uncommon or exceptional".  A view was on this was expressed by O'Loughlin J in Hulls at 580 that special circumstances are those where it would lead to an outcome which is unjust, unreasonable or otherwise inappropriate.  She submitted that straitened financial circumstances alone would not meet these criteria.

31. Reckless expenditure beyond the applicant's liability should not be considered in respect to special circumstances.  Ms Jovanovic had gifted relatives, sent her children on an overseas holiday and paid her husband's gambling debts, none of which were her direct liability.

32. While accepting that Merkel J in Kertland stated that the purpose of the discretion in ss. 1184(1) was to exercise it when it was appropriate to do so because the circumstances of the particular case will give rise to an unreasonable or unjust result it was the submission of the respondent that there were no special circumstances in this case which would justify the use of that discretion.
    CONSIDERATION OF THE ISSUES

33. The Tribunal is satisfied that the applicant received a compensation lump sum payment which would attract the provisions of ss. 17(2) of the Act and finds this sum was $120,000 in accordance with the Release document (T8).

34. Further, after consideration of all the submissions, the Tribunal adopts the views expressed in Fowles, Glass and Eggleton on dissection.  Despite the submissions made on behalf of the applicant in respect to her minuscule prior earnings and the reduction applied in negotiations to her future potential earnings there was a provision for economic loss and the 50% rule catches that payment.  Thus the Tribunal finds that a preclusion period can be applied to the compensation part of the lump sum received by the applicant.

35. The SSAT found that there were special circumstances sufficient to use the discretion under ss. 1184(1) and further used that discretion to treat half of the compensation as not having been made. It is necessary now for this Tribunal to determine whether special circumstances exist that would justify the use of that discretion. The legislative provision for imposition of a preclusion period can be characterised as arbitrary as it was meant to catch payments made no matter the lack of specific classification of the parts that may make up a lump sum. Inserted also however is the discretionary power which can be exercised when there are special circumstances. In ss. 1184(1) there is no formula provided and it can only be subjective judgment of the decision-maker after consideration of the particular facts of the case.

36. The Tribunal adopts Beadle, Ivovic and Hulls in respect to what may constitute "special circumstances" in the particular facts of the case.  It also adopts Haidar v Secretary, Department of Social Security (1998) 52 ALD 255 ("Haidar") which is referred to with approval in Kertland.  In Haidar Hill J at 264 said:

    "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 that would take the matter out of the usual ordinary case."

1. Hill J in Haidar refers to the complex matrix of facts which the Tribunal had concluded constituted "special circumstances".  That matrix was composed from the particular facts of the case, not every fact being relevant in deciding the matrix.

2. The applicant, Mrs Ljiljana Jovanovic, had suffered serious injury in a car accident and then followed more than five years before she accepted, on advice, a negotiated settlement  with TAC of $120,000 plus a portion of the legal costs incurred.  It is uncontested that she actually received less than $80,000 and immediately paid out some $40,000 in repayment of loans from relatives and in payment of outstanding medical expenses.  It appears that about $12,000 was paid out in gifts to relatives in war-torn Yugoslavia, the purchase of essential furniture and sending her younger sons to visit ageing grandparents.  The rest of the money seems to have been taken or passed under pressure to her husband and/or his demanding creditors.

3. Taking into consideration the evidence of the applicant and its corroboration by her eldest son, Alexander, the Tribunal is satisfied that throughout this period and since the applicant has been under particular and additional stress because of the alcoholism and gambling addiction of her husband from whom she has now separated.

4. The Tribunal is satisfied that the circumstances of the applicant can be regarded as "unusual and uncommon" and "out of the usual ordinary case" sufficient to meet the requirements both of Beadle and Haidar for the existence of "special circumstances".

5. It is also satisfied that the particular circumstances have produced an outcome that is "unjust, unreasonable or otherwise inappropriate" in the sense expressed by O'Loughlin J in Hulls.

6. In then determining the part of the compensation sum that should not be taken to have been made the Tribunal notes the view expressed in Haidar in respect to reasonableness required of a decision-maker using this discretion. The Tribunal also notes that the SSAT has already determined that half of the compensation sum should be taken as not having been received.

7. While it was submitted that some of the expenditure by the applicant was "reckless" since she had no direct liability for it the Tribunal would not so characterise this expenditure.  In the circumstances of her relatives in Yugoslavia and the desire for her parents to see the sons who had left as babies these payments were not "reckless" but they were not essential.  On the other hand the purchase of furniture and payment of her husband's debt under the demands of both him and his debtors could reasonably be considered as unavoidable and both linked with the circumstances the applicant experienced over the period following her accident.
   CONCLUSION

8. The Tribunal will set aside the reviewable decision in respect to the application of a preclusion period finding that there are special circumstances of this particular case which make it appropriate to invoke the discretion pursuant to ss. 1184(1) of the Act.

1. After due consideration of all of the particular facts of this case and the finding that some $9,000 could not be characterised as directly consequential to the accident and its aftermath the Tribunal will set the part of the compensation payment to be taken as not having been made to be 92.5% of the sum of $120,000.

   I certify that the forty-five preceding paragraphs are a true copy of the reasons for the decision herein of
   Mr J. T. C. Brassil, AM, Member

   Signed:         .....................................................................................
     Personal Assistant

   Date/s of Hearing  29 August 2000
   Date of Decision  14 March 2001
   Solicitor for the Applicant         Mr A. Garsa, C/- Kahns
   For the Respondent                 Ms C. McInnes, departmental advocate