Kassien Khaled and Secretary, Department of Social Services
[2014] AATA 763
•23 October 2014
[2014] AATA 763
Division GENERAL ADMINISTRATIVE DIVISION File Number
2013/5299
Re
Kassien Khaled
APPLICANT
And
Secretary, Department of Social Services
RESPONDENT
DECISION
Tribunal P W Taylor SC, Senior Member
Date 23 October 2014 Place Sydney The decision under review is affirmed.
.......................[sgd].................................................
P W Taylor SC, Senior Member
CATCHWORDS
SOCIAL SECURITY - Lump sum preclusion period - Applicant in receipt of Disability Support Pension - Compensation part of payment - Whether special circumstances - Portion of lump sum used to repay mortgage - No special circumstances present - Decision under review affirmed
LEGISLATION
Motor Accidents Compensation Act 1999 (NSW)
Social Security Act 1991 (Cth), ss 17(1), 17(2), 17(3), 23, 1064, 1169, 1170(1), 1170(2), 1170(3), 1170(4), 1184K(1)
Social Security Act 1947 (Cth)
CASES
Secretary to Department of Family and Community Services v Allan [2001] FCA 1160
Secretary, Department of Social Security v Banks (1990) 23 FCR 416
REASONS FOR DECISION
P W Taylor SC, Senior Member
23 October 2014
In a 20 September 2012 Settlement Agreement Mr Khaled settled a claim for damages arising out of a 2008 motor vehicle accident. The settlement sum was $250,000.
For many years before, and since, the 2008 motor vehicle accident, Mr Khaled has been receiving disability support pension. It is one of many categories of social security pensions, payments and benefits that are not payable during a “lump sum preclusion period”: see Social Security Act 1991 (Cth) (“the SSA 1991”) ss 17(1), 1169 & 1170.
As a result of the sum to which Mr Khaled was entitled under the September 2012 Settlement Agreement, Centrelink determined that he was subject to a preclusion period - from 7 September 2008 to 2 July 2011. The effect of the preclusion period was that Mr Khaled was liable to repay the pension payments he had received during that period. On 5 October 2012 Centrelink gave the relevant motor vehicle insurer a recovery notice, under s 1184 of the SSA 1991. On 22 October 2012, in accordance with the notice, the insurer deducted the $37,482.50 recovery notice amount from Mr Khaled’s settlement sum, and paid it to Centrelink.
The Social Security Appeals Tribunal affirmed the preclusion period decision, and the $37,482.50 recovery, on 2 October 2013. Mr Khaled challenges the decision in these review proceedings.
The substance of Mr Khaled’s challenge is that the decision operates harshly, in his personal circumstances. He says the Secretary should have exercised the discretion conferred by the SSA 1991, s 1184K(1). The discretion itself is to “treat the whole or part of a compensation payment as…not having been made”. The exercise of that discretion is contingent only on satisfaction that “special circumstances” apply. The practical effect of the exercise of the discretion is to reduce, and potentially eliminate, the preclusion period that would otherwise apply. A consequence of reducing or eliminating the preclusion period would be to restore Mr Khaled’s entitlement to a corresponding proportion of the $37,482.50 recovery amount.
THE MATTERS RELIED ON AS “SPECIAL CIRCUMSTANCES”
There are three principally relevant aspects of Mr Khaled’s review application. First his limited financial circumstances and his parental responsibilities. Second, he asserts that no proper account has been taken of the fact that he has not been able to work since the September 2008 accident. Third he says he used the settlement monies in a sensible and prudent way, and that those decisions should not be held against him.
THE “PRECLUSION PERIOD” PROVISIONS
The SSA 1991 describes the various kinds of pensions, payments and allowances that are “compensation affected payments” and whose potential recipients may be subject to a “lump sum preclusion period”. The category of “compensation affected payments” includes a disability support pension: the SSA 1991, ss 17(1) & 23.
A lump sum payment relating to a claim for damages or workers compensation gives rise to a lump sum preclusion period if it is made “in respect of” lost earnings or lost earning capacity: the SSA 1991, s 17(2). The general policy underlying the preclusion period provisions in SSA 1991 is to avoid “double dipping” – where a person who has been compensated for loss of earning and/or loss of earning capacity, and still claims entitlement to a relevant social security benefit or payment: see Secretary to Department of Family and Community Services v Allan [2001] FCA 1160.
Where a person (such as Mr Khaled) has not been receiving periodic compensation payments, their lump sum preclusion period starts when their loss of earnings, or loss of earning capacity, started: the SSA 1991, ss 1170(1)-(3). In Mr Khaled’s case the start date is 7 September 2008.
The length of any preclusion period depends, in general terms, on the amount of the compensation payment a person has received, and on the total of the maximum basic pension rate and various specified pension supplements (the “income cut out amount”) specified in the tables in the SSA 1991, s 1064: the SSA 1991, s 17(8). The length of a preclusion period is expressed in weeks. The number of weeks involved is the (rounded down) numerical value of the quotient obtained from dividing the relevant compensation or damages amount by the “income cut out amount”: the SSA 1991, s 1170(4).
The part of a lump sum compensation or damages payment relevant to the calculation of a “lump sum preclusion period” is described as the “compensation part of a lump sum compensation payment”: the SSA 1991, s 17(3). The actual amount of the “compensation part” depends upon whether the payment results from an adjudicated judgment or an agreed settlement. In the case of an adjudicated judgment the “compensation part” is whatever amount the Secretary considers was paid “in respect of” past lost earnings and lost future earning capacity: see the SSA 1991, s 17(3)(b). In the case of a settlement (and also a consent judgment) the compensation part is 50% of the total compensation payments: SSA 1991, s 17(3)(a).
The distinction between the way adjudicated judgments and settlements are treated involves an arbitrary categorisation. That categorisation relates back to amendments in 1988 to corresponding provisions of the Social Security Act 1947 (Cth). As von Doussa J explained in Secretary, Department of Social Security v Banks (1990) 23 FCR 416 at 424, the purpose of the provisions was (and is) to avoid the risk of damages settlements being manipulated to obscure the work incapacity component of lump sum compensation payments (thereby tending to improperly reduce the assessment of the appropriate preclusion period that should properly apply.)
CENTRELINK’S DETERMINATION OF MR KHALED’S PRECLUSION PERIOD
Centrelink notified Mr Khaled of its preclusion period decision in a letter dated 5 October 2012. The parameters Centrelink applied in making its decision, and the result of its application of the various legislative provisions, is summarised in the following Table.
Compensation payments Date (or Description) Value Explanation 20-September-2012 $250,000.00 Motor Accidents Act damages Preclusion Period determination Date (or Description) Value Explanation Total compensation $250,000.00 Settlement amount Compensation part $125,000.00 50% of total payments - SSA 1991 s 171(3)(a) Income cut out amount $848.60 Social Security Act - ss 17(8) Preclusion period (weeks) 147 Compensation part / income cut out - SSA 1991 s 1170(4) 07-September-2008 Start: Preclusion period 03-July-2011 End: Preclusion period
As can be seen from the Table, the preclusion period ended on 3 July 2011, more than a year before the September 2012 Settlement Agreement. Therefore it did not result in any interruption to Mr Khaled’s ongoing receipt of disability support pension. The only effect of the preclusion period decision was to recover the $37,482.50 from the $250,000 settlement amount.
THE LIKELY NATURE OF THE SETTLEMENT AGREEMENT COMPENSATION
Mr Khaled was 48 at the time of the September 2008 accident. He is recorded as having suffered neck, shoulder and low back pain as a result of the accident. He had a shoulder operation in December 2008, apparently to repair a supraspinatus tendon tear. Subsequently various assessments relating to the compensation provisions of the Motor Accidents Compensation Act 1999 (NSW) determined that Mr Khaled had:
(a)a 7% whole person impairment attributable to a soft tissue injury to his left shoulder: 17 December 2010 assessment;
(b)a 4% whole person impairment attributable to a head injury causing persistent dizziness and tinnitus: 20 December 2010 assessment;
(c)a combined 11% whole person impairment attributable to the September 2008 accident: 8 February 2011 assessment.
Mr Khaled worked as a taxi driver, at least one day a week, up until about the time of the September 2008 accident. Despite an apparently uneventful post-operative history, and a period of rehabilitation, he has never returned to work. Consistent with that history, correspondence from the motor vehicle insurer described the $250,000 settlement amount as including a component for lost earnings and lost capacity to earn. On one view, Mr Khaled’s limited work history (he worked only one day a week), comparatively minor injuries, and his age at the time of the accident, would tend to suggest that the economic loss component of his settlement amount might have been modest. On another view, the comparatively minor nature of his assessed impairment would tend to suggest that he had only a small degree of permanent disability associated with his injuries. Consequently, it is possible that only a minor proportion of the settlement agreement payment was attributable to general damages (pain and suffering) relating to his injuries and impairment. These possibilities also suggest that Mr Khaled was particularly successful in obtaining a settlement amount as high as $250,000. And that suggestion is highlighted by the fact that in July 2011 Mr Khaled’s lawyers had informed Centrelink that the proposed settlement amount was only $150,000. But these apparent suggestions can be taken no further. There is no information that justifies any informed decision about them, and no basis (other than the statutory presumption in the SSA 1991, s 17(3)(a)) to quantify the proportion of the $250,000 settlement amount that relates to loss of earnings or loss of earning capacity.
THE “COMPENSATION” AMOUNT
Mr Khaled did not actually receive the full settlement amount of $250,000. However he did receive a substantial portion of it. The amount that he received, and the way in which he used that amount, can be readily discerned from the following Table.
Description Date Amount Settlement Agreement 20-Sep-12 250,000 Deductions from settlement Medical expenses 20-Sep-12 19,046 Medicare advance payment 16-Nov-12 25,000 Centrelink repayment 22-Oct-12 37,483 Solicitors fees 16-Nov-12 35,000 Solicitors disbursements 16-Nov-12 3,213 Counsel fees 16-Nov-12 5,500 Total deductions 128,742 Funds actually received Advance payment 23-Oct-12 90,000 Final payment 16-Nov-12 31,258 Subtotal actual receipts 121,258 Total deductions & receipts 250,000 Probable additional receipt Medicare adjustment (est) 8,000 Application of receipts Mortgage repayment 24-Oct-12 88,483 Miscellaneous expenses 32,775
As can be seen from the Table, the various deductions from the $250,000 settlement amount relate to compulsory reductions (for example in repayment of Medicare expenses) and payment of the costs of his accident damages claim. Expenses of those kinds are inevitable, and must ordinarily be regarded as amounts that the arbitrary 50% “compensation part” formula contemplates should be discharged by the compensated person. They could not ordinarily, and do not in the present case, provide a basis for the exercise of the “special circumstances” discretion.
In relation to the recovery amount itself, Mr Khaled knew, before entering into the Settlement Agreement, that Centrelink was likely to require a substantial repayment. After 20 September 2012, he contacted Centrelink on 3 October 2012 and obtained information to the effect that an estimate of the likely repayment amount was about $31,000.
As the information in the Table also discloses, it was three weeks after receiving that information that Mr Khaled received first received part of the settlement monies ($90,000) on 23 October 2012. He immediately paid a similar amount off his mortgage. His reason for doing so, as stated in the evidence he gave to the Tribunal, was that he could not afford the cost of the ongoing ordinary repayments.
Whilst I do not intend to be unsympathetic to Mr Khaled’s situation, with his limited work capacity and restricted financial means, I do not accept that his decision to pay about $90,000 off his mortgage principal, rather than retain a substantial part of the funds and use it to meet ongoing obligations as they arose (or fell due), can in any sense constitute special circumstances. There is nothing to evidence that he was in default at the time of the mortgage payment, or that it was anything other than a discretionary decision on his part. He obviously preferred to reduce his mortgage principal liability, rather than retain funds he could use to meet ongoing periodic repayment obligations. He may have felt it was a prudent and reasonable decision. Views may differ about the prudence of his decision. But it was clearly a deliberate decision he made, and it was also a decision he made at a time when he knew about the Centrelink recovery amount. There is in my view no justification for regarding his decision, and the mortgage repayment amount, as involving special circumstances for the purpose of the SSA 1991 s 1184K(1) discretion.
The same conclusion applies to the “miscellaneous payments” – amounting to about $33,000 – indicated in the Table above. Mr Khaled gave only the most general evidence about the nature of these payments. He said he bought a new car, because his old car had broken down and was too expensive to repair. He paid off some debts, mainly for money he had previously borrowed. He made other payments which he described as meeting daily demands and looking after the needs of his children. In the context of explaining this category of expenditure he referred to school fees, other school needs and clothing costs. He explained that he had just tried to make up for some of the things that he had not previously been able to provide for his children.
Mr Khaled’s desire to make better provision for his children, and use part of the settlement funds to do so, is understandable. Mr Khaled has four children. They are aged about 14, 13 and 12 (twins). His wife does not work, although she does receive a carer’s pension. It takes no imagination, given Mr Khaled’s history of disability and limited work, to appreciate the family’s limited means. But the difficulties of his position are likely to be similar to many other social security claimants. Nothing was provided, by way of additional detail, or particular need, that would justify a conclusion that Mr Khaled’s circumstances could be regarded as special, for the purpose of the SSA 1991 s 1184K(1) discretion.
Mr Khaled complained that the preclusion period decision and its consequential repayment obligation did not take into account the fact that he had been unable work since the September 2008 accident. He pointed out that this meant he no longer had the income he previously earned as a part time taxi driver. But Mr Khaled’s complaint overlooks the fact that any loss of income or loss of earning capacity attributable to the September 2008 accident was (or at least ought to have been) compensated for in the 2012 Settlement Agreement. He has therefore received, in a lump sum, an amount that includes compensation for his lost income. No doubt the fact that he is no longer able to work, and derive regular income as a taxi driver, has a noticeable impact on his financial situation. But that does not give rise to special circumstances relevant to the preclusion period decision. Still less does it do so when he has accepted a compensation payment that in fact included a compromise of any loss of income claim that he may have had.
DECISION
Nothing to which Mr Khaled pointed in relation to the settlement amount, the deductions from it, the way in which he applied the money he received, or his personal and family circumstances, warrant a conclusion that, for the purposes of the exercise of the SSA 1991 s 1184K(1), special circumstances apply.
The decision under review is affirmed.
I certify that the preceding 26 (twenty -six) paragraphs are a true copy of the reasons for the decision herein of Mr P W Taylor SC, Senior Member ........................................................................
Associate
Dated 23 October 2014
Dates of hearing 9 September and 8 October 2014 Applicant In person Solicitors for the Respondent Mr S Davidson, Department of Human Services
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