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

[2009] AATA 248

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2009] AATA 248

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No 2007/1855

GENERAL ADMINISTRATIVE DIVISION		)
Re		MARIO KEZCHEK

Applicant

And SECRETARY, DEPARTMENT OF EDUCATION, EMPLOYMENT AND WORKPLACE RELATIONS

Respondent

DECISION

Tribunal Mrs Josephine Kelly, Senior Member

Date16 April 2009

PlaceSydney

Decision I affirm the decision under review.  

....................[sgd].......................

Senior Member
  Mrs Josephine Kelly

CATCHWORDS

SOCIAL SECURITY - Compensation payment – Determination and payment under Motor Accidents Compensation Act - Preclusion period imposed -  Compensation part of lump sum affected payment – Whether payment made in settlement of a claim – Whether claim settled by consent judgment or otherwise – Held not a settlement - Not by agreement negotiated between the parties - Decision affirmed

Motor Accidents Compensation Act 1999 (NSW), ss 5, 89, 94, 95, 151

Public Trustee Act 1978, s 69

Social Security Act 1991, Part 3.14, ss 17, 1184K

Supreme Court of Queensland Act 1991 (Qld)

Hansen v Daly (1998)  1 Qd R 629

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

Re Welch and Secretary, Department of Family and Community Services [2003] AATA 905

Guide to the Social Security Law, 4.12.2.40

REASONS FOR DECISION

16 April 2009 Mrs Josephine Kelly, Senior Member      

1. Part 3.14 of the Social Security Act 1991 (the Act), provides that, when a person receives certain lump sum payments of compensation, part of the payment is considered to be for lost earnings or lost capacity to earn (the compensation part).  The compensation part is then used to calculate a period of time when a person will not be eligible to receive certain Centrelink payments, that is, the preclusion period. 

2.      Mr Mario Kezchek received a lump sum compensation payment.  He seeks the review of the decision made by the Social  Security Appeals Tribunal (SSAT) on 21 November 2006 upholding Centrelink's assessment of the preclusion period  as a period of 167 weeks, starting on 27 May 2006 and ending on 7 August 2009.

3.      The original decision-maker found the preclusion period ended on 3 June 2011, however on review, special circumstances were found pursuant to s 1184K of the Act, and the preclusion period was determined to end on 7 August 2009, which was affirmed by the Authorised Review Officer and the SSAT. .

ISSUE

4.      The only issue in dispute between the parties for decision by this Tribunal, is whether the compensation payment received by Mr Kezchek falls within section 17(3)(a) or 17(3)(b) of the Act.

5.      Section 17(3) of the Act provides:

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

…

(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.

[emphasis added]

6.      Centrelink applied section 17(3)(b) to work out the "compensation part" of the lump sum compensation payment Mr Kezchek received.  On behalf of Mr Kezchek it was contended that s 17(3)(a), "the 50% rule", should have been applied because the matter was settled otherwise  than by consent judgment, within the meaning of s 17(3)(a)(ii) of the Act.  

7.      Section 17(2) of the Act defines "compensation". In essence, it refers to various payments that are made wholly or partly in respect of lost earnings or lost capacity to earn resulting from personal injury.

AGREED FACTS

8.      The parties helpfully filed a statement of agreed facts which I accept as being uncontentious.   

9.      Mr Kezchek was injured at work on 16 August 2002 and claimed compensation as a result.

10.     The insurer accepted liability for the injury.

11.     On 3 May 2006, the NSW Motor Accidents Authority’s Claims Assessment and Resolution Service (CARS) assessed the value of his compensation claim as $267,368.44.

12.     On 3 May 2006, the CARS assessed the costs payable to Mr Kezchek by the insurer as $21,696.61.

13.     Mr Kezchek received $91,398.07 in his hand on or about September 2006 out of the award of $267,368.44.

14.     Additionally, Mr Kezchek received a refund from Medicare for $24,504.95 on or about July 2006, making a total of $115,903.02 received by him (the compensation payment).

THE CASE FOR MR KEZCHEK

15.     Ms Sant, counsel for Mr Kezchek, contended that the payment made by the insurer to Mr Kezchek was "in settlement of a claim" that was "settled" "otherwise" than by consent judgment, and therefore falls within s 17(3)(a) of the Act.   There was no dispute that the claim was in whole or in part, related to a disease, injury or condition.  

CONSIDERATION

16.     To determine the question in issue, it is necessary to consider the statutory regime under which the compensation payment was made, the Motor Accidents Compensation Act 1999 (NSW) (the MAC Act).

17. One of the objects of the MAC Act is:

to provide compensation for compensable injuries sustained in motor accidents, and to encourage the early resolution of compensation claims (s 5 (1) (b of the MAC Act).

18. Section 89 of MAC Act provides that "nothing in this Part [Part 4.4 Claims assessment and resolution] prevents a claim from being settled at any time".

19. Section 95 of the MAC Act provides:

Status of Assessments

(1) An assessment under this Part of the issue of liability for a claim is not binding on any party to the assessment.

(2) An assessment under this Part of the amount of damages for liability under a claim is binding on the insurer, and the insurer must pay to the claimant the amount of damages specified in the certificate as to the assessment if:

(a) the insurer accepts liability under the claim, and

(b) the claimant accepts that amount of damages in settlement of the claim within 21 days after the certificate of assessment is issued.

Note: If the amount of damages is not accepted by the claimant within that period, section 151 makes provision with respect to liability for legal costs incurred after the certificate of assessment was issued.

(3) It is a condition of an insurer’s licence under Part 7.1 that the insurer complies with this section.

20. Section 151 of the MAC Act addresses costs incurred after the certificate of assessment is issued. It provides that the insurer is liable to pay costs in two circumstances where court awarded damages exceed the amount of damages specified in the certificate of assessment, and that the claimant is liable to pay costs if the amount of court awarded damages does not exceed the amount of damages specified in the certificate of assessment, but imposes a maximum amount that a claimant is liable to pay.

21. In Mr Kezchek's case, the insurer accepted liability. There was an assessment of damages pursuant to s 95(2) of the MAC Act by an independent claims assessor which was binding on the insurer because it had accepted liability (s 95(2)(a)), and Mr Kezchek accepted the amount assessed (s 95(2)(b)).

22. The CARS assessor provided an eight page document "Reasons for Decision" issued pursuant to s 94(5) of the MAC Act. In the final paragraph he stated that the claimant had asked him to record his findings on incapacity but without detailing the explanation for the finding, and that the insurer asked for his reasons for deciding the issues of residual earnings capacity. He also noted that had not recorded the material provided by the parties, summarised the information provided at the assessment conference, recorded the submissions made or detailed his findings of fact in reaching his conclusions, other than in relation to the aspects requested by the parties.

23.     The parties referred to the following cases in argument. In Secretary, Department of Social Security v Banks, von Doussa J traced the history of the predecessor of s 17(3) in the 1947 Act which is in similar terms.  His Honour said:

It is clear that the amendment was inserted to overcome the administrative difficulties which confronted the Secretary under the earlier provision.  It is permissible in the construction of an Act to have regard to the second reading speech on the Bill to identify the mischief which it was intended to rectify …

24.     After quoting part of the second reading speech, His Honour said:

The mischief is clearly identified as the abuse of the earlier provisions which had come about through settlements being manipulated to obscure the economic loss component in the compensation payment.  

…

Section 152(2)(c) is concerned with lump sum payments.  Subparagraph (i) introduces an arbitrary formula to be applied if the lump sum payment was made in settlement of a claim.  What stands in contrast with a lump sum payment made in settlement of a claim is a lump sum payment made pursuant to curial determination of a claim on the merits according to law.  Determinations of this kind are dealt with by subpar (ii).  It is understandable with this class of lump sum payment that the Secretary is still required to form an opinion as to the amount of a lump sum payment that is in respect of an incapacity for work, as a curial determination will be accompanied by reasons for decision which can be expected to disclose the component parts of the award, which constituted the lump sum payment.

…

A notion of finality however is introduced in s 152(2)(c)(i) by the requirement that the lump sum payment be one “in settlement of a claim…”. The expression “the lump sum payment… made… in settlement of a claim” is apt to describe the total amount which is payable as the monetary consideration passing from the party on whose behalf the payment is to be made to the recipient in exchange for release of the claim.

…

…the expression “settlement of a claim” in s 152(2)(a)(i) does not necessarily require that the payment be in settlement of all claims between the recipient and the party on whose behalf it is made… The order in the present case in favour of Mr Banks did not by its terms prevent him from proceeding independently of the Workers Compensation Act for damages at common law against his employer. Even where such a claim remains open, a lump sum payment made in settlement of claims arising under the Act meets the description in s 152(2)(c)(i) of a “lump sum payment… made… in settlement  of a claim…”.

25.     In Singh v Secretary, Department of Family & Community Services, Justice Gray said  that s 17(3)(a) and s 17(3)(ab):

… apply to cases that have been settled on the basis of the payment of a lump sum.  They apply an arbitrary rule that, where a lump sum settlement means that there is no disclosure of the amount of the lump sum that is in respect of lost earnings or lost earning capacity,  then half of the lump sum is to be treated as being paid in respect of lost earnings or lost  capacity to earn.  Where the payments have been made in consequence of a judgment of a court, and the specific calculations have been made or can be made those provisions are inapplicable.   … Payments mandated by judgments do not answer these descriptions.

26.     The case of Hansen v Daly involved an application on the part of three infant plaintiffs. Section 59 of the Public Trustee Act 1978 (Qld) stated that "no settlement or compromise" in relation to a person under a disability will be valid without the sanction of a court or the Public Trustee. The Supreme Court of Queensland Act 1991 (Qld) provided for alternative dispute resolution (ADR) processes including mediation and case appraisal. A case appraiser's decision was not binding on the parties until the time prescribed under the Court Rules for filing an election to go to trial had passed, and the Court by order gave effect to the decision. In this case there had been a case appraisal and no election had been filed. The parties did not oppose any proper order the Court thought appropriate. Fryberg J held that a case appraiser's decision was neither a "settlement" nor a "compromise" within the meaning of s 59. In his Honour's judgment the Supreme Court Act 'envisages "settlement" as the outcome of mediation, and "resolution" as the outcome of appraisal'.  His Honour held that the term "settlement" and the term "compromise" were apt to refer to situations where there had been some element of consensus in reaching the outcome which has been achieved.

27.     In Re Welch and Secretary, Department of Family and Community Services, Member Allen decided that an "order of compromise" made by consent in the District Court of Western Australia fell within s 17(3)(a) rather than s 17(3)(b). The proceedings were taken by parents as the "next friends" of their son who had suffered catastrophic injuries in a motor vehicle accident.  Following a determination of liability by the Full Court of Western Australia, negotiations between the parties resulted in a provisional compromise of the quantum of damages.   Order 70 of the Rules of the Supreme Court required Court approval of the compromise. For that purpose, counsel retained on behalf of the plaintiff provided an opinion about the way damages should be assessed and whether the terms of the compromise were in the plaintiff's interests.  The opinion set out heads of damage including past loss of earnings, interest on that amount, future loss of earnings and lost past and future superannuation benefits.

DEFINITIONS OF SETTLE, SETTLEMENT

28.     Following are various definitions of "settle" and "settlement" to which I was referred.

The Macquarie Dictionary: 

settle

23.   Law (of the parties in a dispute) to come to a compromise before or during the course of a hearing:  to settle out of court

Butterworths Australian Legal Dictionary

Settle 1.  To resolve a dispute or proceedings

Settlement … the compromise or resolution of a claim or dispute

Black's Law Dictionary

Settlement

2.  An agreement ending a dispute or lawsuit

The CCH Macquarie Concise Dictionary of Modern Law

Settlement

2.  the compromise of a dispute by the parties' own agreement before or during the course of a hearing

Butterworths Guides   Legal Terms

Settle  1.  To resolve a dispute or proceedings

Settlement … the compromise or resolution of a claim or dispute

Oxford English Dictionary Online

Settle

32 c. To fix by mutual agreement

33 d.  Law To decide (a case) by arrangement between the contesting parties.  More fully, to settle out of court.

34.  a.  To arrange matters in dispute, to come to terms or agreement with a person.

29.     Part 4.12.2.40 of the Guide to the Social Security Law is headed “Compensation Part of Lump Sum – Judgement by Contested Hearing”.  Under the heading Judgement by contested hearing, is stated:

A court, tribunal or arbitrator can make a judgement by contested hearing.  The nature of judgements mean that the decision would not have been subject to manipulation and so the compensation part of the lump sum is determined by the delegate based on the specific amounts awarded or economic loss.

CONCLUSION

30. Ms Sant acknowledged that the payment in this case was not made by agreement between the parties. However, she pointed to the language of s 95(2)(b) of the MAC Act, which refers to a claimant who "accepts that amount of damages in settlement of the claim" (emphasis added).  Ms Sant also referred to paragraph 45 of the decision in Welch where Member Allen said that:

… in my opinion  the words "settlement' and "settled" in s 17(3)(a)(i) and (ii) should be given a wide meaning so as to cover the general concept of an arrangement that involves the agreement of terms upon which a claim or dispute is to be satisfied and brought to an end".

31.     Ms Sant argued that her case was supported by the fact that, in this case, unlike Welch, no court made an assessment of liability, and nor did a court make a finding in relation to damages.  In this respect, she pointed to the reference by von Doussa J in Banks to a curial determination.  She emphasised that the assessment of damages did not bind Mr Kezcheck, and that he could have contested that matter in court, subject to cost penalties if he did not do significantly better. Once Mr Kezchek had accepted the assessment the matter was finalised. She referred to information that stated that CARS is an independent claims assessment and dispute resolution service and that all disputed claims had to go to CARS before they can go to court.  She also argued that the language used by the decision-makers in this case reflected confusion about the nature of the payment, for example "settled for … by judgment on …" and "settled in court as an arbitration".   Finally, Ms Sant argued that the "settlement" was otherwise than by a consent judgment, that is, as I understand her submission, it was pursuant to a statutory scheme.

32.     In my opinion, taking into account the statutory history of s 17(3) and its purpose as discussed by von Doussa J in Banks  and referred to by Gray J in Singh, and the definitions to which I have been referred, the words "settlement" and "settled" in s 17(3)(i) and (ii) refer to agreement negotiated between the parties resolving a claim or dispute.  That was the case in Welch, although Court approval of that agreement was required. 

33.     In this case, the payment was not the result of an agreement negotiated between the parties.  Rather, a statutory scheme applied such that, once the insurer accepted liability, an independent assessment of damages was made on the basis of material put forward by the parties, reasons were given, and the relevant heads of damage set out.  It is true that Mr Kezchek did not have to accept that assessment, however, there were costs penalties if he was not significantly more successful in court.  The consequence is that there is material available from an independent third party which enables the Secretary to form the opinion required pursuant to s 17(3)(b) of the Act.  This is in my view is consistent with the statutory scheme of s 17(3).

DECISION

34.     I agree that there are special circumstances such that it is appropriate that part of the compensation payment received by Mr Kezchek be treated as not having been made in accordance with section 1184K(1) of the Act . The decision made by the Centrelink compensation recovery officer on 4 October 2006 was correct in relation to the exercise of the discretion pursuant to s 1184K of the Act.

35.     For those reasons I affirm the decision under review that the preclusion period begins on 27 May 2006 and ends on 7 August 2009. 

I certify that the 35 preceding paragraphs are a true copy of the reasons for the decision herein of Mrs Josephine Kelly, Senior Member.

Signed: ……..[sgd].....…….

Steven Mulipola, Associate

Date of hearing:  30 October 2008

Date of decision:  16 April 2009

Counsel for the Applicant:  Dr K Sant

Solicitors for the Applicant:  Legal Aid Commission of NSW

Counsel for the Respondent:  Mr J Smith

Representative for the Respondent:       Centrelink Legal Services and Procurement