Kendall and Department of Family and Community Services

[2000] AATA 1166

DECISION AND REASONS FOR DECISION [2000] AATA 1166

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No Q2000/232

GENERAL ADMINISTRATIVE  DIVISION       )          
           Re      NEVILLE KENDALL         
  Applicant
           And    SECRETARY, DEPARTMENT OF FAMILY AND COMMUNITY SERVICES        
  Respondent

DECISION

Tribunal       Dr E K Christie, Member   

Date5 December 2000 

PlaceBrisbane

Decision      The decision under review is affirmed.  This means Mr. Kendall's application is unsuccessful.         
  ............(Signed)..........................
  DR E K CHRISTIE
  MEMBER
CATCHWORDS
SOCIAL SECURITY – Compensation  consent settlement – preclusion period – dispute as to whether economic loss was a component of settlement – special circumstances – financial – ill health – legal advice – whether appropriate to treat part of compensation payment as not having been made
Social Security Act 1991: s 1184
Re Beadle and Director-General of Social Security (1984) 6 ALD 1
Re Colaracolo and Secretary, Department of Social Security (N84/439 24 April 1985)
Director-General of Social Security v Hales (1982) 47 ALR 281
Groth v Secretary, Department of Social Security (1995) 40 ALD 541
Re Hajar and Secretary, Department of Social Security (1988) 16 ALD 716
Re Martin and Secretary, Department of Social Security (1989) AATA 6482
Re Minda and Secretary, Department of Social Security (1995) 2 SSR 641
Secretary, Department of Social Security v Banks (1989-1990) 20 ALD 19
Secretary, Department of Social Security and VXY (1990) 30 ALD 681

REASONS FOR DECISION

5 December 2000    Dr E K Christie, Member               

1. This is an application by Neville Kendall for review of a decision of the Social Security Appeals Tribunal ("the SSAT") made on 11 February 2000.   The SSAT decided that the preclusion period imposed on Mr. Kendall, from 2 December 1992 to 9 November 1999 applied.  The amount of $27,273.00 of Disability Support Pension ("DSP") paid to Mr. Kendall over this period should be recovered because there were no "special circumstances" in Mr. Kendall's situation to justify varying the length of the preclusion period.  The SSAT decision affirmed a decision of a Centrelink Authorised Review Officer made on 5 December 1996.

2. Mr. Kendall represented himself at the hearing.  The Department of Family and Community Services ("the Department") was represented by Mr. R. McQuinlan, a Departmental Advocate.

3. At the hearing, the Tribunal had before it documents lodged pursuant to section 37 of the Administrative Appeals Tribunal Act 1975 (the "T" documents) ("Exhibit 1") and the following exhibits:

   ·     Exhibit 2- letter from James Taylor and Company (23 April 1996);  and

   ·     Exhibit 3 – bundle of medical reports provided by Mr. Kendall.

ISSUES

1. The issues for the Tribunal to decide were:

   ·     Whether Mr. Kendall's lump sum compensation settlement included an amount for economic loss;

   ·     Whether the decision to recover the DSP entitlements of $27,273.00 over the preclusion period imposed was correct;  and

   ·     Whether there were "special circumstances" which would justify a reduction in length of the preclusion period and hence, the amount of DSP entitlements recovered.

FACTS

1. The following findings of fact made by the SSAT were acknowledged by Mr. Kendall:

   ·     Mr. Kendall suffered post traumatic stress disorder in the Voyager sinking on 10 February 1964.

   ·     Mr. Kendall was discharged from the Navy in 1965.

   ·     He was granted Disability Support Pension on 2 December 1992.

   ·     Mr. Kendall was paid Disability Support Pension of $27,273.12 between 18 January 1993 and 18 April 1996.

2. Mr. Kendall did not agree with the finding that the settlement amount contained an element for loss of earnings and lost earning capacity.  In addition, it was his view that he settled a claim against the Commonwealth out of court on 9 November 1995 for $400,000.00 plus $40,000 legal costs on a party and party basis.
   EVIDENCE OF MR. KENDALL

3. Mr. Kendall said that he had a solicitor and barrister acting for him during the mediation when a lump sum compensation settlement was negotiated.  Mr. Kendall said that at no time during the settlement negotiations was there any mention of economic loss or loss of earning capacity as a component of his lump sum compensation settlement.

4. Mr. Kendall said the following statements contained in the mediator's letter (Bruce McLean, T45, 1 October 1999) to his solicitor James Taylor substantiated his position:

   ·     "I confirm that the terms of both the draft and executed Release accurately reflect the agreed terms of settlement reached during the mediation.  I further confirm that my notes do not contain any reference to the provision of an indemnity.  Having said that, however, I agree with your suggestion that, in a case in which the plaintiff had received social security payments, the lack of any evidence of any discussions on the subject of securing any indemnity is puzzling and very unusual (possibly even unprecedented) under the 'Voyager Scheme'";

   ·     "That my notes only contain passing references to the 'payments' issue and that neither the recorded terms of settlement nor the Release contain an indemnity strongly suggests to me that the lawyers present during the mediation either did not consider it was required or alternatively for some reason overlooked it. While I am inclined to think it was the former, given the events that took place on the day in question, I can appreciate why it may have been overlooked";

   ·     "I am of the firm view that the current attempts to recover social security payments from your client may be misguided.  I say that because I don't believe the Commonwealth, in reaching a settlement figure, made any allowance for your client's economic loss during the period he received social security payments.  It seems clear to me that those payments were made in respect of a non-Voyager related injury (i.e. the back and shoulder injuries suffered as a result of driving trucks and working on civilian ships)";  and

   ·     "If the Tribunal takes a different view, then I think the plaintiff ought not be penalised for what was a clear and inadvertent omission during the mediation process – an omission caused by any of the following contributing factors:

   1.   the fact that three cases were mediated throughout the day;

   2.a failure on my part to appreciate the instructions given to me or to fully convey a message given to me;

   3.the lateness of the time at which the release was signed coupled with the fact that the Commonwealth's representatives and I had to leave the session at 6.15pm [12 minutes after the mediation sessions concluded that day] to catch flights out of Brisbane."

1. Mr. Kendall said that if he had been correctly advised by his lawyers on his rights in relation to the legal implications of his lump sum compensation payment, he would have settled for a larger amount as Voyager compensation claims were settled at amounts up to $800.000.  Because of the legal advice given, he had elected to accept an amount around the mid-point of claims.

2. Mr. Kendall referred to the letter he received from his lawyer (James Taylor, T8 Folio 44, 15 January 1995) which Mr. Kendall said substantiated his claim that his compensation "payment was for pain and suffering only".

3. Mr. Kendall said that, three months before he received his first DSP entitlement, he advised the Department of Social Security's Wynnum office that his financial circumstances would change because of his "Voyager" compensation settlement.  He was told "not to worry.  Tell us when you get it."  On receipt of his DSP entitlement, the subsequent advice he received from the Department was "don't spend it as we may have an interest in it."

4. Following the Department's advice, Mr. Kendall telephoned his lawyer Mr. Taylor and relayed this information to him.  In essence, Mr. Kendall stated that Mr. Taylor's reply was that it had nothing to do with the Department of Social Security and to go and spend the compensation which Mr. Kendall did by purchasing, initially, a house.

5. Mr. Kendall said that he was assisted by the Department in preparing a Statement of Financial Circumstances (around April 1996).  It was at this time he first became aware that his compensation settlement would reduce the rate of his DSP entitlement.

6. Under cross-examination, Mr. Kendall agreed that he had spent his compensation settlement on the purchase of a house for $210,000, paid legal fees of $40,000, spent $90,000 on renovations and on a car, $20,000 on a Harley Davidson motor-cycle;  he had an AGC investment of $86,000 as well as having a small balance in an every day bank account (T2 Folios 2,3).  Mr. Kendall said that he had no debts.  He did not believe his financial position to be one of severe financial hardship but one that enabled him to "get by".

7. In response to a Tribunal question as to his current state of health, Mr. Kendall, Mr. Kendall said that he had the following medical conditions:

   ·     20% permanent impairment of his spine for which he received DSP;

   ·     pleural plaques on his lungs from asbestos exposure whilst in the Navy (Exhibit 3, Dr. Heiner);

   ·     deep vein thrombosis in his legs;

   ·     severe and significant psychological traumatisation at the time of the Voyager incident and has had a psychiatric disorder over the years possibly affecting his work capacity and his interpersonal relationships (T45, Folios 173, 174);  and

   ·     Potential problems from exposure to plutonium radiation at Maralinga.

8. In addition, Mr. Kendall said that because of the incorrect legal advice he had been given by Mr. Taylor in negotiating a "Voyager" compensation settlement, he had initiated legal action against Mr. Taylor with the Melbourne law firm Ryan, Carlisle and Thomas.  He had been given an Advice on prospects of success and on this basis will continue to pursue the claim.
   CONTENTIONS AND SUBMISSIONS OF THE PARTIES

9. Mr. McQuinlan referred to the ambiguity raised by Mr. Kendall in the amount of the lump sum compensation payment that he had actually received.  The Deed of Release (T7, Folio 43, 9 November 1995) stated:

   "C.      The Settlement Sum is the total of:
             (a)       $440,000.00

   (b)my [any] reasonable party/party legal costs to be taxed in default of agreement."

Notwithstanding, Mr. Kendall's interpretation on the amount of compensation he received (see paragraph (6), Mr. McQuinlan said that the Department had made a generous decision as the amount of $400,000 was used by Centrelink in their calculation of the preclusion period (T8 Folio 60).  He contended that this fact offset any claim by Mr. Kendall to reduce the length of the preclusion period because of "special circumstances".

1. Mr. McQuinlan referred to the evidence of Mr. Kendall, which relied on the statements of the mediator, Mr. McLean, as to the provision of an indemnity in the settlement (see paragraph 8) as "speculative".

2. Mr. McQuinlan referred to the following passage in the SSAT decision to support his contention that the question of indemnity had never been raised during Mr. Kendall's mediation:

   "14.  The Tribunal spoke to the Australian Government Solicitor's office in Melbourne on the day of the hearing and asked about the Commonwealth's attitude to agreeing to indemnities in relation to claims by Voyager claimants.  The Tribunal was told that each case was considered individually. There was no general policy to offer or grant indemnities.  There had been over 200 claims and indemnities had been agreed to in less than 10 cases.  It may have been less than 5 cases.  However if an indemnity was requested it was generally granted.  If an indemnity was not requested it was not offered.  A claimant may have accepted a lesser amount if an indemnity was agreed to by the Commonwealth.  The records of the mediation of Mr. Kendall's claim had been referred to and there is no record of the question of an indemnity being raised at the mediation. T2 Folio 8)."

1. Mr. McQuinlan referred to Mr. Kendall's oral evidence in which he conceded that his financial situation was such that severe financial hardship did not exist.  Consequently, Mr. McQuinlan submitted that "special circumstances" did not apply in such a case.

2. Mr. McQuinlan concluded by referring to this Tribunal's decision in Re Hajar and Secretary, Department of Social Security (1989) 16 ALD 716:

   "(45)  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, particularly, when the lack of encumbrances has been brought about by diversion of some of the compensation moneys that led to the present application. ……
   (46)  Misleading legal advice has been considered as a possible factor in special circumstances in other decisions.  It seems to me however, that if this misleading advice has led to a pecuniary loss, then recovery of this loss is a matter within the applicant's power.  There was no evidence that he had taken any necessary steps against his solicitor, asserting any right to damages for breach of contract or negligence.  Hardship that can be resolved by actions of the complainant is not hardship at all.  This view was taken by the Tribunal in Re Colaiacolo, supra, and in Re Zito (unreported, 3 November 1987, No 3881, para (10)), Re Jerkin (1988) 14 ALD 480 para (4) and Re Venables (1988) 15 ALD 180."

1. Mr. Kendall submitted that it was never his intention to defraud the Federal Government and genuinely believed he was entitled to the DSP.  On receiving advice from the Department of Social Security on the possible effects of his "Voyager" settlement on his DSP he had contacted his lawyer (Mr. Taylor) immediately.

2. Mr. Kendall contended that the advice Mr. Taylor then gave him, and upon which he acted in disbursing his "Voyager" settlement, was incorrect.  Moreover, he said that Mr. Taylor had subsequently advised him that the Department's advice was incorrect.

3. Mr. Kendall then referred to the following extract of evidence provided at the SSAT hearing by himself and Mr. Taylor:

   "Mr Taylor said he accepted responsibility for this oversight and had told Mr Kendall that he had a cause of action against him and his barrister, who was also present, for negligence.  The alternative was to sue the Commonwealth for rectification of the settlement agreement that is, the release.  Mr Taylor referred to the letter the authorised review officer had written to Mr Kendall dated 5 December 1996.  He said that the statement on page 2 of the letter to the effect that neither he nor Mr Kendall was aware that the proceeds of Mr Kendall's settlement would affect Mr Kendall's entitlement to certain payments from Centrelink was incorrect.  Mr Kendall did not know but he, Mr Taylor, knew they would and that was why he had meant to obtain an indemnity from the Commonwealth in respect of any liability Mr Kendall might have in that regard…."

1. Mr. Kendall concluded that the "Voyager" lump sum compensation payment did not include an amount for loss of future earnings – rather, it was based purely on pain and suffering only.
   CONSIDERATION OF THE ISSUES

2. The objective of the Tribunal is to review administrative decisions on their merits and in accordance with the law at all times.  The relevant legislation is the Social Security Act 1991 ("the Act").

3. Section 1184 of the Act provides the Department with discretion to decrease the length of the preclusion period:

   "SECTION 1184  SECRETARY MAY DISREGARD SOME PAYMENTS
   1184(1)  [Special circumstances]  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."

1. The Tribunal has had to consider the meaning and application of the expression "special circumstances" on many occasions.  The decision of the Tribunal in Re Beadle and Director-General of Social Security (1984) 6 ALD 1 has become an oft-quoted benchmark as to the interpretation of "special circumstances".  In that case, the Tribunal said (at 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."

1. The requirements that the circumstances be unusual or out of the ordinary has been emphasised by the Federal Court in later decisions.  In Groth v Secretary, Department of Social Security (1995) 40 ALD 541 Justice Kiefel stated at 545:

   "…. 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."

1. Analysis of cases decided by the Tribunal where "special circumstances" have been considered as the basis for varying the length of the preclusion period most commonly focus on:

   (a)Financial issues

   (b)Legal advice

   (c)Health status;  and

   (d)Departmental advice provided

as well as the interaction between these matters.  This approach is followed in this decision.
FINANCIAL ISSUES

1. The following decisions assist in determining the principles underlying the acceptance of financial matters as "special circumstances":

   ·     Director General of Social Security v Hales (1982) 47 ALR 281, in which Sheppard J stated at 321:

   "The legislation provides for the payment of a variety of benefits to different classes of people;  who will usually have one thing in common;  they will be impecunious and in straitened circumstances."

• In Re Colaracolo and Secretary, Department of Social Security (unreported decision N84/439 24 April 1985) it was stated at paragraph 19 that the financial circumstances must be more than straitened, they must be exceptional.

• In Re Hajar and Secretary, Department of Social Security (1988) 16 ALD 716, it was stated that financial hardship standing by itself would not amount to a special circumstance.

• In Re Groth v Secretary Department of Social Security (1995) 37 ALD 797, the Tribunal stated at paragraph 50:

  "(Mr Groth) must be very careful financially and the choices he and his family have are severely curtailed both by the limited finances and their poor health. Difficult as (Mr and Mrs Groth's) circumstances are, however, they are not special when considered in the light of others in a similar situation and in light of the objects of the Act."

1. The Tribunal, on considering Mr. Kendall's financial assets (see paragraph 14) and liabilities concludes that his financial circumstances are not sufficiently straitened or exceptional to warrant the description of "special circumstances".  Mr. Kendall's own evidence is that he is not in severe financial hardship.  Mr. Kendall's financial circumstances are not dissimilar to other Social Security recipients, in that he has to meet particular expenses and make appropriate financial decisions in the light of his limited financial income from Social Security.  Accordingly, the Tribunal concludes that Mr. Kendall's financial circumstances alone do not constitute "special circumstances".
   LEGAL ADVICE

1. Mr. Kendall's evidence was that incorrect legal advice had created the situation in which he found himself.  Acting on the legal advice he had been given, he had believed that his "Voyager" lump sum compensation was for pain and suffering only.  In addition, the manner he had spent his settlement moneys, and the amount of settlement he had agreed to, were based on the legal advice he had received (see paragraphs 7 – 12).

2. The Tribunal finds that the failure to exclude economic loss as a component in the mediated agreement is the source of the difficulties that have arisen and that this has occurred through no fault of Mr. Kendall.

3. The Tribunal, in considering whether such circumstances may constitute special circumstances, is mindful that other decisions in the past have determined that failure by a legal adviser to properly advise have not established "special circumstances"

• In Re Martin and Secretary Department of Social Security (1989) AAT 6482, 14 November 1989, the Tribunal stated that:

  "Overall this factor is not persuasive or determinative and the best view is that the matter is one, if at all, as between solicitor and client."

• Such a view was further confirmed in Re Minda and Secretary, Department of Social Security (1995) 2 SSR 641 and Re Secretary, Department of Social Security and VXY (1990) 30 ALD 681, when it was considered that decisions associated with incorrect legal advice did not constitute "special circumstances" because the person had a claim in negligence against a solicitor.

1. In the circumstances of this matter, the Tribunal has concluded that the legal process surrounding Mr. Kendall's mediated compensation settlement has not served Mr. Kendall's interest; that the processes undertaken by his solicitor in this process may have been insufficient; and that Mr. Kendall may have course to a legal redress against his solicitor. In regard to the latter, the Tribunal notes that Mr. Kendall has, indeed, commenced legal action against his solicitor (see paragraph 16). Accordingly, in Mr. Kendall's circumstances where legal redress has been commenced and in the light of other cases decided by the Tribunal, it is concluded the failure of the legal adviser to properly advise does not establish "special circumstances" in Mr. Kendall's fact situation and in the context of the Social Security Act.

DEPARTMENTAL ADVICE

1. It is evident to the Tribunal that the Department dealt appropriately with regard to the information provided to Mr. Kendall in response to queries he raised, directly, with respect to his "Voyager" settlement (see paragraph 11).  With respect to the mediated lump sum compensation payment, the Tribunal makes the observation that the Department cannot go behind the agreement to establish the understandings which led to the agreement.

2. The Tribunal concludes that the circumstances outlined in relation to Departmental advice to Mr. Kendall do not constitute "special circumstances"
   HEALTH ISSUES

3. It appears to the Tribunal that any assessment of Mr. Kendall's health status (see paragraph 15) indicates that his long-term prognosis is not at all sound.

4. However, in previous decisions, the Tribunal has found that ill health alone does not constitute "special circumstances".

• In Re Groth, the Tribunal stated:

  "Mr Groth is unable to work and requires treatment.  Mrs Groth has difficulties as does Shilo (their daughter).  Looking at all their health difficulties, they are not such that the operations of the compensation provision becomes unjust or unreasonable."

• In Re Colaracolo, the Tribunal found that no special circumstances existed where the wife was ill with chronic schizophrenia, with the applicant tending to her and the household on a full-time basis, a daughter with a disability attending a special school and the applicant under the care of an orthopaedic surgeon.  In addition, it was noted that the applicant did not own a home, and their assets amounted to $3,000.

1. The Tribunal concludes that Mr. Kendall's health problems do not alone constitute "special circumstances".  In so concluding, the Tribunal has given consideration to the nature of the condition and the effect that the condition has upon Mr. Kendall.  Further, the Tribunal has been mindful that in considering all the health difficulties, it is evident that the health circumstances alone are not sufficiently unusual, unjust or unreasonable as to constitute "special circumstances".

2. In considering each of the above issues, the Tribunal finds that neither issue – financial issues, legal advice, departmental advice or health issues, represents "special circumstances".  Furthermore, a similar finding is made when the interaction between each of these issues is considered.  Mr. Kendall is proceeding to seek legal redress because of a failure of his solicitor to negotiate a settlement in which "economic loss" as a component was not included in the mediated settlement.  His financial circumstances are not straitened or, in any way, could be described as "severe financial hardship".  The Departmental advice given to Mr. Kendall was not incorrect – rather, Mr. Kendall relied on his solicitor's advice in his decisions to spend his settlement.  Although, Mr. Kendall has health problems, he has continued to pursue legal action against his solicitor.  Accordingly, the Tribunal concludes that in Mr. Kendall's fact situation, "special circumstances" do not exist when each issue is considered singly or in combination.

3. The Tribunal makes the further conclusion that the Department's approach to calculating the length of the preclusion period by taking 50% of Mr. Kendall's Voyager settlement as an economic loss component (T18 Folio 60) was correct.  In Secretary, Department of Social Security v Banks (1989-1990) 20 ALD 19 the Federal Court noted that the 50% rule had been introduced to remedy a mischief involving the manipulation of settlement figures to obscure the economic loss component and so avoid recovery of social security payments (at 23-24). In addition, in this case, Von Doussa J quoted (at 24) from the Second Reading Speech on the Social Security Amendment Act 1988 (Cth) which introduced the scheme:

   "This Bill contains measures to improve the administration and integrity of compensation recovery provisions. Where a person receives personal injury compensation that makes up for lost income the Social Security Act provides that pension or benefit may be reduced or recovered. This is one way in which social security expenditures are directed to those most in need.
   Settlement of lump sum compensation particularly in the workers' compensation jurisdiction are being manipulated to obscure the economic loss component and to avoid recovery of social security payments.  To prevent this abuse the Minister announced on 8 February 1988 that, for future personal injury settlements made by agreement or by consent order, 50 per cent lump sum compensation will be deemed to be in respect of economic loss.  This Bill gives effect to that proposal."  (at p.422).

1. Finally, the Tribunal finds Mr. Kendall to be an honest and credible witness in his dealings over time with the Department.

2. For all of the above reasons, the Tribunal finds that Mr. Kendall's lump sum compensation settlement included an amount for economic loss consistent with the requirements of the Social Security Act. In turn, the decision to recover DSP entitlements over the preclusion period was correct. Finally, there were no "special circumstances" to justify a reduction in length of the preclusion period and the amount of DSP entitlements recovered.

3. The decision under review is affirmed.  This means Mr. Kendall's application is unsuccessful.

I certify that the 46 preceding paragraphs are a true copy of the reasons for the decision herein of Dr E K Christie, Member.

Signed:         .....................................................................................
           R. Hayes, Associate

Date/s of Hearing  5 December 2000  
Date of Decision  5 December 2000
Applicant  Mr. Kendall, himself
Counsel for the Respondent    Mr. R. McQuinlan, Departmental Advocate