Lillis and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs

[2008] AATA 412

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2008] AATA 412

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No 2007/5345

GENERAL ADMINISTRATIVE DIVISION		)
Re		DAVID LILLIS

Applicant

And SECRETARY, DEPARTMENT OF FAMILIES, HOUSING, COMMUNITY SERVICES AND INDIGENOUS AFFAIRS

Respondent

DECISION

Tribunal	Ms N Isenberg, Senior Member
Decision	The decision under review is set aside and in substitution therefor the Tribunal decides that the preclusion period imposed on the Applicant is to end on 15 August 2010.

Date              20 May 2008

PlaceWyong

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

Ms N Isenberg

Senior Member

CATCHWORDS

SOCIAL SECURITY – lump sum workers’ compensation payment not able to be dissected – preclusion period – policy underlying preclusion period – avoidance of “double dipping” –– whether special circumstances exist to justify the exercise of the discretion to disregard all or part of the compensation payment being made – decision under review is set aside

Social Security Act 1991 – sections 1169, 1170 and 1184K

Kirkbright v Secretary, Department of Family and Community Services (2000) 65 ALD 211

Secretary, Department of Social Security v Cunneen (1997) 78 FCR 576

Beadle v Director General of Social Security (1985) 7 ALD 670

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

Haidar v Secretary, Department of Social Security (1998) 52 ALD 255

Groth v Secretary, Department of Social Security (1995) 40 ALD 541

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

Dranichnikov v Centrelink (2003) 75 ALD 134  

Angelakos v Secretary, Department of Employment and Workplace Relations (2007) 44 AAR 436; [2007] FCA 25

Re Secretary, Department of Social Security and Bolton (1989) 18 ALD 464

Re Secretary, Department of Social Security and Bunge (1990) 20 ALD 488

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

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

Hadchiti and Secretary, Department of Family and Community Services [1999] AATA 20

Secretary, Department of Family and Community Services and Cawthorn (2002) 71 ALD 423

Re Guerrero and Secretary, Department of Social Security (AAT 9603, 13 July 1994)

Secretary, Department of Social Security and Winterbotham (AAT 6499, 11 December 1990)

Lintern and Secretary, Department of Social Security (1993) 72 SSR 1041; (AAT 8479, 14 January 1993)  

REASONS FOR DECISION

20 May 2008  Ms N Isenberg, Senior Member

DECISION UNDER REVIEW

1.      The decision under review is the decision of the Social Security Appeals Tribunal (SSAT) dated 3 October 2007 which affirmed Centrelink’s decision that Mr Lillis was not eligible for disability support pension due to a preclusion period.

BACKGROUND

2.      Mr Lillis was injured at work on 11 April 1989 and received weekly periodic payments of compensation until 10 May 2001. 

3.      Mr Lillis brought personal injuries proceedings which were settled on 7 May 2001 for $1,000,000.00 inclusive of costs.  Following the settlement Centrelink advised Mr Lillis and his solicitor that a preclusion period from 8 May 2001 to 14 May 2018 would apply.  His solicitor sought a review of that decision and it was reduced to end on 20 April 2015, because an error had occured in the calculations.  On 14 January 2002 the SSAT decided to further reduce the preclusion period to end on 15 August 2011, as the continuation of a preclusion period beyond Mr Lillis’ 66th birthday would produce a result inconsistent with the purposes of the legislation. 

4.      On 28 January 2003 Mr Lillis was granted a low income healthcare card and from 1 September 2004 was paid carer allowance in respect of his mother.

5.      On 15 May 2007 Mr Lillis lodged a claim for disability support pension.  Although it was not in dispute that he qualified for that pension, his claim was rejected because of the preclusion period.  That decision was affirmed on internal review and by the SSAT.  Mr Lillis now seeks review of that decision.

ISSUE BEFORE THE TRIBUNAL

6.      There was no dispute that application of the statutory formula produces a preclusion period ending on 20 April 2015.  Centrelink does not seek to have that preclusion period re-imposed, but argues that the preclusion period should not be further reduced from 15 August 2011, the date of Mr Lillis’ 66th birthday, as determined by the SSAT on 14 January 2002.

7. The only issue then is whether there are special circumstances that make it appropriate to further reduce Mr Lillis’ preclusion period in accordance with the discretion in subsection 1184K(1) of the Social Security Act 1991 (“the Act”).

LEGISLATION

8. Section 1169 of the Act provides effectively that where a lump sum compensation payment has been received, a pension is not payable during a lump sum preclusion period. The lump sum preclusion period is calculated by a formula, set out in section 1170 of the Act, that depends on the amount of the lump sum compensation payment.

9. Section 1184K of the Act provides potential relief from the strict application of the compensation preclusion period, by providing the Secretary (and, on review, this Tribunal) with a discretion to disregard whole or part of the compensation payment in “special circumstances”.

DISCUSSION OF THE EVIDENCE AND FINDINGS

10.     In coming to the correct and preferable decision, I took into account all the evidence, submissions, case law and relevant legislation.

11. It is well established that section 1184K is designed specifically to enable decision-makers to ameliorate unfairness or injustice which results from the strict application of the statutory formula (Kirkbright v Secretary, Department of Family and Community Services (2000) 65 ALD 211). In Secretary, Department of Social Security v Cunneen (1997) 78 FCR 576 it was acknowledged that the statutory rule is an arbitrary one which may produce genuine hardship. The discretion to disregard the whole or part of a compensation payment can be exercised where application of the usual rules would lead to a result that is unfair or inappropriate (see Beadle v Director-General of Social Security (1985) 7 ALD 670 and Secretary, Department of Social Security v Hulls (1991) 22 ALD 570).

12.     Special circumstances do not have to be statistically “extreme” or “unique”; it is sufficient if there is something that takes the matter out of the usual ordinary case (see Haidar v Secretary, Department of Social Security (1998) 52 ALD 255, Groth v Secretary, Department of Social Security (1995) 40 ALD 541 and Department of Social Security v Ellis (1997) 46 ALD 1). There must be “circumstances which distinguish [one’s] case from the usual case”: Dranichnikov v Centrelink (2003) 75 ALD 134, but they need not be “exceptional”: Angelakos v Secretary, Department of Employment and Workplace Relations (2007) 44 AAR 436; [2007] FCA 25.

13.     Mr Lillis claimed his circumstances were special in a number of respects. 

What happened to the settlement monies?

14.     Mr Lillis said that of the $1,000,000, an amount had to be repaid for his workers’ compensation payments and his medical expenses, and that there were $48,000 arrears of child support to be paid.  His solicitors’ costs were $250,000.  He received a balance of only $440,000, and his solicitors delayed 2 months in paying him.

15.     He invested about $350,000.  Of this, he invested about $150,000 with Fincorp, which “went broke”, and he recovered only $75,000. 

16.     He paid out his mortgage and spent about $5,000 doing urgent repairs to his home (and had to pay a similar amount last year when the property was flood damaged).  His appliances were old and rusting and “temperamental” and he replaced some.  He put in air conditioning because his back pain prevents a lot of sleep and he hoped to sleep more if it were cooler.  He also suffers sleep apnoea.  He also needed to purchase a harder bed for his back. 

17.     He repaid his mother about $30,000 she had lent him in the 12 years between the date of the accident and the settlement.  While he had received full workers’ compensation at first after the accident, this had reduced to half after a while and he had not been able to meet his bills for about 10 years. 

18.     He spent about $70,000 improving his mother’s home, to make her life a little easier, especially given her frailty.  There had been an arrangement that his daughter would make some financial contribution to the improvements and move in to care for her grandmother, although this did not ultimately occur.

19.     He reached an agreement with his brother in respect of their mother’s property whereby the Applicant paid his brother, who was in some financial distress at the time, $85,000 and, in return his brother agreed to make no claim on their mother’s estate when she passed away.  The will was apparently changed as a result, but the agreement between the brothers was not documented.

20.     He currently has $170,000 invested at 6.65% and he receives $845 per month gross – “about $200 per week” - on which he lives.  He also received $48 per week as carer payment in respect of his mother, but as she is now in palliative care, that payment has ceased.

What are Mr Lillis’ financial circumstances compared to pensioners?

21.     Much was made by the Centrelink advocate that Mr Lillis is in a better financial position than many pensioners, especially as he owns his own home and has money invested.  It was suggested he move to a smaller residence, but his evidence was that his home has only 2 bedrooms and that he needs to be in a location near his elderly mother.  Also, the repair work undertaken was unlikely to increase the value because it did not amount to improvements and therefore there was unlikely to be any financial gain in moving.

22.     Mr Lillis says that he is actually in a worse financial situation than some other pensioners.  He noted, and the Centrelink advocate confirmed, that a single pensioner (on either age or disability support pension) who owns his own home (as Mr Lillis does) can have assets of nearly $167,000 and income of $132 per fortnight and still receive a full pension of about $545 per fortnight.  While Mr Lillis presently has only marginally more by way of assets, and earns about $400 per fortnight, a pensioner can earn as much as $1500 per fortnight and still retain some entitlement. 

23.     Another major difference between his situation and other pension recipients is that he does not have access to the accompanying health card.  Indeed, this is his major concern.

24.     In that regard, Mr Lillis gave evidence of his poor health. 

25.     As a result of the accident which gave rise to the litigation, Mr Lillis has a severe back problem, which has required 3 operations.  At the hearing Mr Lillis was observed to wear a large brace.  He has sciatica which has made his right leg “numb”.  He cannot afford the physiotherapy on his “income” of $200 per week.  Centrelink contended that any contention about Mr Lillis’ medical expenses cannot constitute special circumstances as that was likley to have been taken into account by his solicitors before settling the matter for $1,000,000. 

26.     However, Mr Lillis has a number of additional serious conditions unrelated to the accident.  He is an insulin–dependent diabetic.  For this he is monitored by an endocrinologist every 3 months and must have his eyes checked every 6 months.  He is developing associated circulatory problems.

27.     Mr Lillis has had a bowel problem and requires an annual colonoscopy.  He has a prostate problem which causes urinary frequency.  He has a hernia which requires surgery.  He has a sinus problem which also requires surgery and which has affected his hearing.  The sinus specialist costs $120 per visit, and only half is recoverable from Medicare.  He needs to see his GP weekly, but “nobody” in the area is bulk-billing.

28.     His medications, only some of which relate to his back, cost him $282 per month (after pharmaceutical benefit contributions), and another $60 for non-prescription medications.  As a result of the distress associated with the recent serious decline in his mother’s health he now also requires anti-depressants.

29.     Centrelink contended that Mr Lillis’ medical conditions do not of themselves constitute special circumstances: Re Secretary, Department of Social Security and Bolton (1989) 18 ALD 464. I was also referred to Re Secretary, Department of Social Security and Bunge (1990) 20 ALD 488, where the Tribunal held that if a person’s health would make him eligible to receive disability support pension, this would not itself constitute special circumstances within the context of the Act.

Financial hardship

30.     Mr Lillis told me he receives about $200 per week from his investment.  This entire amount goes in his expenses.  His back condition prevents him from being able to mow the lawn and he has to pay someone to do that.  He cannot afford a cleaner and he estimates that the physiotherapy he requires would cost about $200 a week itself.  He earns a little extra baby-sitting. 

31.     Mr Lillis said he wants to preserve the remaining capital from his compensation settlement because he viewed it as his superannuation and it would be too difficult to live just on an age pension.  He also wants to provide something for his daughters. 

32.     He considered getting some financial advice recently but the bank he approached wanted $400 to advise him. 

33.     Financial hardship alone is not sufficient to amount to special circumstances unless it is “exceptional” and not merely “straitened”: Re Colaiacolo and Secretary, Department of Social Security (AAT 2109, 24 April 1985) and Re Hajar and Department of Social Security (1988) 16 ALD 716.

34.     Centrelink submitted that with careful budgeting for the future, Mr Lillis’ lump sum settlement should support him until 2011.  I was referred to Hadchiti and Secretary, Department of Family and Community Services [1999] AATA 20, where the Tribunal specifically stressed the need for proper budgeting for the future where a person receives compensation since access to social security benefits should not be available to them. I was also referred to Secretary, Department of Family and Community Services and Cawthorn (2002) 71 ALD 423 in which the Tribunal failed to find special circumstances when the applicant had $359,000 invested, from which he received a regular income, and when he had modest expenses.

Information about the preclusion period

35.     As to the preclusion period, Centrelink contended that Mr Lillis was advised of the preclusion period by both Centrelink and his solicitor at the time of his settlement, and as a consequence, had full knowledge that he would incur a period in which he would not be eligible to receive social security benefits.  Mr Lillis said though that he was unaware of the preclusion period and as he is dyslexic would not have realised what it meant. 

36.     Mr Lillis said though that he thought at the time that if he paid off his house he would be able to live off his investments until he turned 65, and then he would go on the age pension.  Mr Lillis said that he did not realise how little he would receive from the settlement.  He said that, after several days’ hearing he was told he was going to lose and that he should accept the settlement offer.  He said he had wanted to settle on a “plus costs” basis because he knew the legal fees would be high, but it was not ultimaltey settled on that basis.  It is not a matter for me to go behind the settlement to ascertain if it were appropriate in the circumstances.  If Mr Lillis believes his legal advice has been negligent, that is a matter he may wish to pursue elsewhere: Re Guerrero and Secretary, Department of Social Security (AAT 9603, 13 July 1994).

37.     In January 2001 Mr Lillis’ solicitors made enquiries of Centrelink about the likely preclusion period if the matter were to be settled for $1,000,000.  The solicitors were advised of a preclusion period of 904 weeks. There was an estimate, made by Centrelink, that the end of the preclusion period would be 7 August 2006.  Another letter provided at apparently the same time noted that the “charge period commences from the day after periodic compensation ceases to be paid”, but did not address the end of the preclusion period.  The reference to an end date of 7 August 2006 appears to have been made on the basis that the preclusion period would have commenced from the date of the accident, that is, 11 April 1989.  Other ‘estimates’ were provided at about the same time, in respect of possible settlement amounts of $750,000 and $500,000.  However, these referred only to a lesser duration of the preclusion period expressed in weeks and did not specify an end date.  It is arguable that the solicitors proceeded on the basis that the settlement period would end, at the latest, on 7 August 2006.  However the solicitors would have had information about their client’s compensation payments and should have recognised that Centrelink had erred in noting that the preclusion period was to commence from the date of the accident. 

38.     When Mr Lillis earlier sought review of the preclusion period, the SSAT discussed (T39, p 80) the change in the legislation in 1997 which extended the application of preclusion periods to the age pension.  Prior to the legislation change, had he not settled his claim, Mr Lillis would have been entitled to age pension from 2010 when he turned 65, notwithstanding that his compensation payments would have been paid until age 66.  Had the matter been settled before the change of legislation, instead of 12 years after the accident, he would have been entitled to age pension at age 65, irrespective of the preclusion period.

39.     It is arguable that the solicitors should have taken this into account in considering the settlement offer.  It is unknown if they did so.

40.     I was referred to Secretary, Department of Social Security and Winterbotham (AAT 6499, 11 December 1990) where the Tribunal did not consider that retrospective changes in legislation were a special circumstance because they apply equally to any number of people and not uniquely or unusually to any one person.  The Tribunal acknowledged that this may produce a harsh outcome but noted that primary responsibility for the payment of compensation lies with those responsible for the compensable injury and that once the matter is settled, it is inequitable for the recipient to seek supplementary funds from the tax-payer.

Solicitor’s costs

41.     Mr Lillis also contended that his solicitors “ripped [him] off”, and that this amounted to special circumstances.  He was charged $250,000 in legal expenses for the litigation.  He had “3 barristers” and “a team from the solicitors”.  He thought he was going to receive about $600,000 after costs.  He said that about a year before the hearing he was told it would cost “about $15,000 all up”, but then the solicitors needed another barrister, and he charged “$85,000 for the week [hearing]”.

42.     When he disputed the bill and queried the preclusion period with the solicitors he alleges he was “threatened” and charged an extra $6000. 

43.     The alleged overcharging and “threat” are serious matters and should be taken up by Mr Lillis elsewhere.  For the current purpsoses however, even if there were exorbitant legal fees, I am unable to dissect the lump sum settlement into its constituent parts: Secretary, Department of Social Security v Cunneen (1997) 78 FCR 576.

CONCLUSION

44.     Centrelink submitted that if Mr Lillis were to receive some Centrelink pension this would be “double dipping”, as he has already been compensated through the settlement.  The objects of the legislation require compensation recipients to provide for their own support during preclusion periods.  I agree with the Centrelink submission that the Tribunal should be constrained in its discretion by having to take into account the interests of the tax-payer and the legislative intent that, in general, people should be required to live off their compensation payments for the appropriate period: Lintern and Secretary, Department of Social Security (1993) 72 SSR 1041; (AAT 8479, 14 January 1993).  The discretion should be exercised sparingly.

45.     I accept that Mr Lillis was disappointed by the amount he received in the hand as a result of the settlement of his litigation.  Further, he was not reckless in his expenditure of those funds, as is the case with many plaintiffs who receive large settlement amounts. 

46.     I note that, from the available evidence, in advising him about the settlement offer, the solicitors may have proceeded on the basis that the preclusion period would end in 2006, having regard to the information provided by Centrelink.  Further, it is possible that the solicitors were unaware that there was a change in the legislation about age pension, or at least failed to bring that to Mr Lillis’ attention.  In this regard, I note Mr Lillis’ evidence that he expected that the money had to last till he was 65.  To that end, he made investments which at the time appeared prudent.  He also made repairs and some improvements to his own home which were not unreasonable, especially having regard to the length of time he was on reduced workers’ compensation until the time of settlement. 

47.     While he expects to shortly inherit his mother’s property, which he said is valued at about $200,000, it is possible (although unlikely) that his mother could change her will at any time.  He however, was perhaps a little naïve in failing to secure the arrangement between him and his brother, and also with his daughter, in respect of his mother’s house.  It would be unfortunate if any increase in value due to the improvements he has made is eaten up by litigation between the family members upon his mother’s demise.  There is the risk his brother may make a successful claim on the estate.  While Mr Lillis may arguablly have some equitable interest in the property having regard to the inprovements he made to it, he in fact, at this time, has no entitlement at law to the property.  It is not properly regarded as his asset. 

48.     It was suggested that the only thing to have changed since his preclusion period was reduced in 2002 was the collapse of Fincorp and the resultant loss of about half his invested funds, through no fault of his.  This in itself may be sufficient to further invoke the discretionary provisons.  There are other considerations as well.  His overall health has deteriorated further, and this has created additional financial burden. 

49.     Mr Lillis’ situation can aptly be described as one in which he is ‘asset rich but cash poor’.  His home, valued in the vicinity of $200,000, is unencumbered.  I reject though the Centrelink submission that he could move to a cheaper property.  In addition he has money invested.  The result is that he lives on $400 per fortnight.  This is considerably less than disability support pension or age pension, which at the single rate currently, I am informed, is $546.80 per fortnight. 

50.     I have come to the view that Mr Lillis’ circumstances are sufficiently special and there is something out of the ordinary in his case compared to other welfare recipients (per Haidar).  I consider that the application of the usual rules would lead to a result that is unfair or inappropriate (per Beadle).

51.     As a result the preclusion period is to end when Mr Lillis turns 65.  I appreciate that this does not provide Mr Lillis with the immediate access to the health card which he seeks.  It does, however, bring that access closer in time and in accordance with his expectations at the time of settlement, i.e. that his funds needed to last him to age 65.  While I appreciate that he wishes to provide a nest egg for his daughters and does not wish to diminish his remaining invested funds, it is unfair to the taxpayer to finance Mr Lillis before that time, when he has already been compensated.

DECISION

52.     The decision under review is set aside. The preclusion period is to end on 15 August 2010, being Mr Lillis’ 65^th birthday.

I certify that the 52 preceding paragraphs are a true copy of the reasons for the decision herein of Ms N Isenberg, Senior Member.

Signed: ...............[sgd]....................
  Associate

Date of Hearing  2 April 2008  
Date of Decision  20 May 2008            
Representative for the Applicant    Self-represented      
Solicitor for the Respondent         Mr G Lozynsky  

Note: The Tribunal notes that it has been informed that Mr Lillis’ mother in fact passed away on the day following the hearing. At the hearing, Mr Lillis’ devotion to his mother was clear, and the Tribunal extends its sympathy for his loss.