Kelso and Secretary, Department of Education, Employment and Workplace Relations

[2008] AATA 960

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2008] AATA 960

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No 2008/2865

GENERAL ADMINISTRATIVE DIVISION		)
Re		MELISSA KELSO

Applicant

And SECRETARY, DEPARTMENT OF EDUCATION, EMPLOYMENT AND WORKPLACE RELATIONS

Respondent

DECISION

Tribunal Professor T Sourdin, Member

Date29 October 2008

PlaceSydney

Decision The decision under review is affirmed.

..................[Sgd]....................

Professor T Sourdin
  Member

CATCHWORDS

SOCIAL SECURITY – compensation lump sum - preclusion period – whether special circumstances  – financial hardship – grounds for exercise of discretion – decision under review affirmed.

Social Security Act (1991) – ss 17, 1170, 1184K

Re Beadle and Director-General of Social Security (1984) 6 ALD 1

Beadle (and ors) v Director-General of Social Security (1985) 60 ALR 225

Re Colaiacolo and Secretary, Department of Social Security (AAT 2109, 24 April 1985)

Director-General of Social Services v Hales (1983) 47 ALR 281

Re Groth and Secretary, Department of Social Security (1995) 37 ALD 797

Re Krzywak and Secretary, Department of Social Security (1988) 15 ALD 690

Re Green and Secretary, Department of Social Security (1990) 21 ALD 772

Secretary, Department of Social Security and Hill (1995) 2(1) SSR 9

Re Hajar and Secretary, Department of Social Security (1988) 16 ALD 716

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

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

Secretary, Department of Social Security v Banks (1990) 23 FCR 416

Re Ivovic & Director-General of Social Services (1981) 3 ALN No 61

Secretary, Department of Social Security v Smith (1991) 30 FCR 56

REASONS FOR DECISION

29 October 2008 Professor T Sourdin, Member      

1.      This is an application by Miss Melissa Kelso (“the Applicant”) for review of a decision of the Social Security Appeals Tribunal (“SSAT”) in respect of the decision regarding the decision to impose a preclusion period preventing payment of Social Security benefits from 10 December 2004 to 18 September 2008.  An authorised review officer (“ARO”) affirmed this original decision on 7 March 2008.  The SSAT affirmed this decision on 30 May 2008. An application was lodged with the Administrative Appeals Tribunal (“the Tribunal”) on 27 June 2008.

2.      The hearing of the application for review was held in Sydney on 27 October 2008. The Applicant was self-represented and Ms Mantaring of Centrelink represented the Respondent.

3.      The Applicant provided oral evidence.  The following written material was also placed in evidence before the Tribunal:

4.      The issue before the Tribunal is whether there are any circumstances in which all or any part of the compensation awarded to the Applicant should be disregarded for the purposes of determining the preclusion period that operates preventing payment of social security benefits.

Exhibit	Description	Date
R1 T Docs	Documents lodged pursuant to section 37 of the Administrative Appeals Tribunals Act 1975 (pages 1 – 70)	20 August 2008
A1	Medical Certificate of Dr Guirguis	27 August 2008
A2	Letter from Annette Kelso	24 October 2008
R2	Letter from Centrelink to Applicant	20 August 2008
R3	Respondent Statement of Facts and Contentions	16 October 2008

legislation

5.      The relevant legislation is the Social Security Act 1991 (“the Act”) and in particular sections 17, 1170, and 1184K.

17(3) Subject to subsection (4), for the purposes of this Act, the compensation part of a lump sum compensation payment is:

(a)50% of the payment if the following circumstances apply:

(i)the payment is made (either with or without admission of liability) in settlement of a claim that is, in whole or in part, related to a disease, injury or condition; and

(ii)the claim was settled, either by consent judgment being entered in respect of the settlement or otherwise; or

(ab)  50% of the payment if the following circumstances apply:

(i)the payment represents that part of a person’s entitlement to periodic compensation payments that the person has chosen to receive in the form of a lump sum; and

(ii)the entitlement to periodic compensation payments arose from the settlement (either with or without admission of liability) of a claim that is, in whole or in part, related to a disease, injury or condition; and

(iii)the claim was settled, either by consent judgment being entered in respect of the settlement or otherwise; or

(b)if those circumstances do not apply—so much of the payment as is, in the Secretary’s opinion, in respect of lost earnings or lost capacity to earn, or both.

…

1170(1)  Subject to subsection (2), if a person receives both periodic compensation payments and a lump sum compensation payment, the lump sum preclusion period is the period that:

(a)begins on the day following the last day of the periodic payments period or, where there is more than one periodic payments period, the day following the last day of the last periodic payments period; and

(b)ends at the end of the number of weeks worked out under subsections (4) and (5).

1170(2)  If a person chooses to receive part of an entitlement to periodic compensation payments in the form of a lump sum, the lump sum preclusion period is the period that:

(a)begins on the first day on which the person’s periodic compensation payment is a reduced payment because of that choice; and

(b)ends at the end of the number of weeks worked out under subsections (4) and (5).

1170(3)  If neither of subsections (1) and (2) applies, the lump sum preclusion period is the period that:

(a)begins on the day on which the loss of earnings or loss of capacity to earn began; and

(b)ends at the end of the number of weeks worked out under subsections (4) and (5).

1170(4)  The number of weeks in the lump sum preclusion period in relation to a person is the number worked out using the formula:

Compensation part of lump sum

Income cut-out amount

1170(5)  If the number worked out under subsection (4) is not a whole number, the number is to be rounded down to the nearest whole number.

…

1184K(1)  For the purposes of this Part, the Secretary may treat the whole or part of a compensation payment as:

(a)not having been made;  or

(b)not liable to be made;

if the Secretary thinks it is appropriate to do so in the special circumstances of the case.

background

6.      On 24 September 2001, Miss Kelso sustained severe injuries at work and received some ongoing weekly compensation payments until her matter was settled on 9 December 2004. Centrelink decided that she would be precluded from receiving Social Security payments until 18 September 2008.

7.      Following receipt of a compensation payment of $210,203.20 net (following deductions for legal and other costs), the Applicant repaid some credit card debts (approximately $17,000), took two holidays (one on the Gold Coast for one week and one in Malta, Sicily an Tunisia for 6 weeks) (approximately $23,000), purchased a car (approximately $45,401) and then over a two year period expended the balance of the monies on poker machine gambling and living expenses (approximately $125,000). By the beginning of 2007, the Applicant essentially had no funds or income. She lived with her mother and relied on family help from that time. On 18 September 2008 (when the preclusion period ended) she started to receive the Newstart benefit and was receiving this benefit at the date of the Tribunal hearing.

8.      On 30 May 2008 the SSAT decided to affirm the decision made by Centrelink (on 14 February 2008) to reject Miss Kelso’s claim for the Newstart allowance.

evidence of the applicant 

9.      The Applicant was born on 15 May 1975.  In her accident at work on 24 September 2001, she was left with disabilities in her left arm. She currently takes medication for depression and described her left arm as causing her frequent and severe pain. She told the Tribunal that she had three surgical operations on her arm and did not consider that her arm would get better. She indicated that she could not afford any medical treatment or to attend any doctors after January 2007 as she had no money until her preclusion period ceased. However, in August 2008 she was driven to the Doctors by her father (who does not live with her) and she was given some anti depressant medication at that time which she continues to take. She sees a GP every two weeks and also suffers from Asthma. She indicated that because of the preclusion period she had not been able to have any medical or other attention as she could not afford to travel by public transport or car and that she had become depressed. She described her life as difficult. During the preclusion period she was unable to afford to maintain or fuel her motor vehicle and this meant that she was socially restricted and isolated.

10.     The Applicant said that she “ran out of money” following her compensation payment as she had accrued debts while receiving a weekly compensation payment and then expended much of her compensation payment on gambling. Miss Kelso described her gambling problem – “It started as a social habit …then I was spending everything I had…I was at the Club every day.” She admitted that she had gambled most of her compensation money away and said that she knew that she had a gambling addiction.

11.     The Applicant has not returned to work since the date of her accident although she did commence a small on-line business that has provided a very small return. 

12.     The Applicant indicated that she has a personal debt owing to her mother who had provided her with a home from the beginning of 2007 to September 2008 when she had no income. 

13.     At the time of spending the lump sum, the Applicant understood that she would not be entitled to Centrelink benefit until September 2008.

submissions

14.     The Applicant submitted special circumstances existed that included her financial hardship and the circumstances surrounding the expenditure of his lump sum payment.

15. In written submissions, the Respondent contended that the preclusion period was correctly calculated pursuant to sections 17 and 1170 of the Act. In respect of special circumstances the Respondent submitted that Miss Kelso made no effort to preserve the compensation amount in order to support herself until the end of the preclusion period did not act prudently with his monies and that his spending priorities were inappropriate. In relation to the Applicant’s expenditure on gambling the Respondent has noted that “Miss Kelso has provided no supporting medical evidence in respect of a gambling addiction… there is no evidence to support the view that her behaviour was outside her control (that is, as a result of an addiction or a psychological condition).”

16. Whilst the Respondent conceded that the Act gives relief to the strict application of the compensation preclusion period by giving the Secretary a discretion to disregard the compensation payment in whole or part in ‘special circumstances’ in accordance with section 1184K of the Act, the Respondent did not consider that the discretion should be exercised in this matter. The authorities of Beadle v Director-General of Social Security (1985) 60 ALR 225, Re Beadle and Director-General of Social Security (1984) 6 ALD 1, Krzywak and Secretary, Department of Social Security (1988) 15 ALD 690 and Re Green and Secretary, Department of Social Security (1990) 21 ALD 772, suggest that the discretion may not be exercised after consideration of a range of matters that may include a reference to the circumstances in which the hardship arose.

consideration

17.     In considering the exercise of the discretion, it is clear that financial hardship must go beyond straitened circumstances and be truly exceptional see Secretary, Department of Social Security and Hill (1995) 2(1) SSR 9, Re Hajar and Secretary, Department of Social Security (1988) 16 ALD 716, Re Beadle (supra, 1984), Re Colaiacolo and Secretary, Department of Social Security (AAT 2109, 24 April 1985).  In this matter, the SSAT accepted that Miss Kelso was experiencing financial hardship however the SSAT also noted that she could sell her car to use this money to support herself. The SSAT also considered that there was nothing about her financial situation or health that “sets her apart from the usual run of cases”. However, at the time that the SSAT considered the matter they did not have the Medical Certificate from Dr Guirguis. 

18. The Tribunal first turns to consider whether the calculation of the preclusion period was correct. The Applicant’s payment falls within the definition of compensation in accordance with subsection 17(2) of the Act, which defines compensation as a payment of damages or a payment under a scheme of insurance or a payment in settlement of a claim for damages. As the compensation payment was received by way of a settlement, subsection 17(3) applies. For the purposes of the Act, the compensation part of a lump sum compensation payment is 50 per cent of the payment where the payment is made in settlement of a claim that is, in whole or in part, related to a disease, injury or condition.

19. The preclusion period in relation to this amount is calculated in accordance with section 1170 of the Act. In this regard, the Tribunal is satisfied that the approach of the SSAT was correct.

20.     The Tribunal now turns to consider whether there are in fact any additional special circumstances, which exist in the Applicant’s case.  The case law on this issue is clear.  In the leading case of Beadle (supra, 1985) the Full Federal Court held that it was not possible to lay down precise rules but rather, a consideration of special circumstances would depend upon the facts of the case.  Further, even though the phrase ‘special circumstances’ lacks precision, it “is sufficiently understood in our view not to require judicial gloss”.  In Re Beadle (supra, 1984), the Tribunal held that the phrase ‘special circumstances’ is “incapable of precise or exhaustive definition” but said that the circumstances:

…must have a particular quality of unusualness that permits them to be described as special…the qualifying adjective looks to circumstances that are unusual, uncommon or exceptional.

21.     In Groth v Secretary, Department of Social Security (1995) 37 ALD 797; 40 ALD 541 at 545, Kiefel J stated that special circumstances would require something “to take it out of the usual or ordinary case”. Further the court agreed that hardship was a relevant consideration in the discretion conferred, however they rejected the submission that they should ignore the circumstances out of which the alleged hardship is said to have arisen.

22.     In the Federal Court decision in Secretary, Department of Social Security v Hales (1998) 82 FCR 154, French J said of the “concept” of special circumstances that the evident purpose “…is to enable a flexible response to the wide range of situations which could give rise to hardship or unfairness”.

23.          In considering whether the Applicant’s circumstances are unusual or uncommon, the Tribunal turns to consider the facts in evidence.  The Tribunal considers that the Applicant’s claim of special circumstances relates to past financial hardship.

24.          The Applicant’s past financial situation was undoubtedly difficult, but must be considered against the circumstances of others in a similar situation and be found to have an element which makes them exceptional, which sets them apart from the rest.  Regard must be had to the fact that many claimants of social security benefits are in a difficult financial situation that is similar to that of the Applicant.

25.          With regard to the Applicant’s financial hardship, the decision in Re Hajar (supra) is relevant:

Here the applicant could not be said to be suffering from any real financial hardship that could in any way be regarded as special.  He is making no contribution to the maintenance or support of his wife or children…His day-to-day living needs are modest and are financed by small borrowings from friends and family. This is a continuation of the way of life he had in financial matters from the time of his resignation until the time of his settlement. His borrowings, however, are much smaller as he no longer has a liability to meet his house payments, nor does he support his family. With the possible exception of his Adelaide brother, who bowed to his wife's insistence, none of his creditors appear to have been pressing…On the question of hardship, I find it impossible to ignore the existence of the house, which is valued at approximately $175,000 and which is free of encumbrances…It is inequitable for the applicant to claim financial hardship when he owns such a valuable asset and does nothing to realise on it…

26.          The Tribunal accepts the Applicant’s comments about her expenditure. The Applicant was aware of the preclusion period when she began to dissipate his funds, including the purchase of a car, taking of holidays and the expenditure on gambling, in the knowledge that she would not be entitled to receive a social security benefit for 197 weeks.

27.          The issue is - are her circumstances exceptional? Do they have the quality of unusualness which might justify the double advantage of receiving social security payments to supplement a compensation lump sum, the majority of which has been exhausted through the Applicant’s own choices. The Tribunal finds that the Applicant’s circumstances as detailed, do not constitute special circumstances. In this regard, it is of note that in Re Beadle (supra, 1984), where the Tribunal, comprising Toohey J, Presidential Member, Mr Wilkins and Dr Billings, Members, said, at p.3:

. . . An expression such as "special circumstances" is by its very nature incapable of precise or exhaustive definition. The qualifying adjective looks to circumstances that are unusual, uncommon or exceptional. Whether circumstances answer any of these descriptions must depend upon the context in which they occur. For it is the context which allows one to say that the circumstances in one case are markedly different from the usual run of cases. This is not to say that the circumstances must be unique but they must have a particular quality of unusualness that permits them to be described as special (emphasis added).

28.     As previously noted the requirement that the circumstances be unusual or out of the ordinary has been emphasised by the Federal Court in a number of later decisions. Justice Kiefel in Groth (supra) said that a special circumstance for the purposes of s 1184K must be something that takes the matter "out of the usual or ordinary case". Her Honour said at p545:

…for present purposes it is sufficient to observe that it would require something to distinguish Mr Groth's case from others, to take it out of the usual or ordinary case. That was, I consider, the only enquiry to be undertaken in this case. It would of course follow that if one were to conclude that something unfair, unintended or unjust had occurred that there must be some feature out of the ordinary. The enquiry I have referred to would involve considering what would be the effect, if the provision in question or the principle of liability it creates, is applied.

29.     Clearly, financial hardship alone may not be sufficient. Carr J in Secretary, Department of Social Security v Ellis (1997) 46 ALD 1 at p5 held that the Tribunal had not erred in finding that Mrs Ellis was suffering "extreme financial hardship." He then considered whether that was a "special circumstances". He said at p6:

In my opinion, the evidence to which the Tribunal referred which was before it, and had previously been led before the Social Security Appeals Tribunal, raised a strong prima facie case of circumstances which were so out of the ordinary as to amount to "special circumstances". If the truth of the matter is that these are ordinary circumstances to be found throughout Australia, then the applicant could quite easily have led that evidence by, for example, producing the statistics.

30. Another matter, which must be considered when deciding whether it is appropriate to exercise the special circumstance discretion in s 1184K of the Act, is that the discretion must be exercised in conformity with the objects of the Act. However, as O'Loughlin J explained, in Secretary, Department of Social Security v Hulls (1991) 22 ALD 570, that does not mean that the discretion cannot be used to alleviate the strict enforcement of certain provisions of the Act if otherwise their operation "would be unjust, unreasonable or otherwise inappropriate", or in the words of the Full Court in Beadle (supra) "unfair or inappropriate". O'Loughlin J, at 581, quoted with approval the following passage from the reasons for decision of the AAT in Re Ivovic & Director-General of Social Services (1981) 3 ALN No 61:

The reference to special circumstances "by reason of which" a person liable "should be released" requires, in our view, that there must exist in the circumstances of the case, a factor or factors which justify the making of an exception in whole or in part to the principle of liability which the Act otherwise establishes. In the exercise of the discretion which s 115(4A) confers, the decision-maker must have regard to whether, by exercising the discretion in a particular case, he will be achieving or frustrating ends or objects which are conformable with the scope and purpose of the Social Services Act 1947: cf Water Conservation and Irrigation Commission (NSW) v Browning (1947) 74 CLR 492 at 505 per Dixon J. Thus whilst keeping the dominant principle of s 115 in mind, he [sic] must nevertheless be prepared to respond to the special circumstances of any particular case by reason of which strict enforcement of the liability created by the section would be unjust, unreasonable or otherwise inappropriate.

31.   Similarly in Secretary, Department of Social Security v Smith (1991) 30 FCR 56; 23 ALD 277 at p281 Von Doussa J said:

The appellant contends that the Tribunal exercised the discretion under s 156 in a way which is inconsistent with ss 152 and 153. The obligation to repay imposed on the respondent necessarily flowed from the terms of ss 152 and 153, and for this reason the result cannot be alleviated under s 156. It is argued that s 156 cannot have been intended to “rewrite” the earlier provisions of Pt XVII so as to permit an apparently unjust result reached under the earlier provisions to be overridden as the apparent injustice is the product of the legislation itself.

I am unable to accept this argument. The fallacy of the argument lies in its failure to read s 156 as part of the overall scheme enacted in Pt XVII to provide for cases where a person becomes eligible to payments both under the Act and from an independent source by way of compensation that is in whole or in part in respect of an incapacity for work. The purpose of the scheme in Pt XVII is discussed in Banks [(1990) 23 FCR 416] and Hulls. The scheme was intended to avoid a person receiving double payments for an inability to exercise an earning capacity.

32.   To eliminate difficulties which had arisen under earlier enactments which required the Secretary to form an opinion about how the amount of a payment by way of compensation was made up (see Secretary, Department of Social Security v Banks (1990) 23 FCR 416) an arbitrary formula was adopted in sub.para.152 (2)(c)(i). This formula enables the compensation part of a lump sum payment made in settlement of a claim to be fixed with administrative ease. O'Loughlin J. observed in Hulls (supra) at p 22-23:

This provision has the hallmarks of simplicity and certainty, leaving s.156 and its reference to 'special circumstances' to remedy those particular cases where the application of the arbitrary rule would create injustice.

33.    Von Doussa J, in Smith (supra), then went on to explain that it is "in the very nature of an arbitrary provision that it can entail a degree of unfairness in a particular case." He added at p459:

At the same time the legislature must have recognised that from time to time a case may arise where the degree of unfairness to a recipient of a payment by way of compensation would bring about an unreasonable or unjust result which was outside that which could be justified by the practical expediency of the arbitrary nature of the provisions in ss.152 and 153. Section 156 was enacted as part of the scheme under Part XVII before the "50% rule" was introduced by the Social Security Amendment Act 1988 (Cth), but this is no reason to construe s.156 as having no operation in respect of a case where the "50% rule" produces a clearly unjust result.

34.     The Tribunal considers that one factor that is relevant in considering the exercise of the discretion, is a consideration of the circumstances in which the hardship arose (see Groth (supra)). However, this circumstance must be considered in the context of all the circumstances.

35.     Here, the Tribunal finds that Miss Kelso had a gambling problem. She presented as an honest witness who had experienced significant difficulties as a result of this addiction to gambling. She has ongoing health issues and has recently begun to receive support in respect of depression. She indicated that as a result of the preclusion period she was not able to access health care and support. She was unable to manage the money that she received as a compensation payment and it is unfortunate that she did not obtain financial support and advice at that time. However, the Tribunal finds that the circumstances were not unusual and the Tribunal considers that the SSAT approach to these circumstances was appropriate under the circumstances and considering how the monies received by Miss Kelso were dissipated. Whilst Miss Kelso’s mother indicated that she would not allow her to stay in her house if Miss Kelso’s car was sold (her mother was concerned that any monies from a sale would be gambled away), it is clear that this asset remained and could have been utilised before any claim was made in respect of social security benefits.

conclusion

36.     Accordingly, the Tribunal affirms the decision of the SSAT.

I certify that the 36 preceding paragraphs are a true copy of the reasons for the decision herein of Professor T Sourdin, Member

Signed:         ………………[Sgd]…………………
  Associate

Date of Hearing  27 October 2008

Date of Decision  29 October 2008      
           Solicitor for Applicant  Self Represented

Advocate for the Respondent         Ms Mantaring, Centrelink Legal Services