Luo and National Disability Insurance Agency
[2024] AATA 3402
•26 September 2024
Luo and National Disability Insurance Agency [2024] AATA 3402 (26 September 2024)
Division:NATIONAL DISABILITY INSURANCE SCHEME DIVISION
File Number(s): 2023/0927
Re:Quanyu Luo
APPLICANT
AndNational Disability Insurance Agency
RESPONDENT
DECISION
Tribunal:Member K Bean
Date:26 September 2024
Place:Sydney
The Tribunal affirms the decision under review pursuant to subsection 43(1)(a) of the Administrative Appeals Tribunal Act 1975 (Cth).
.................[SGD]..............................
Member K Bean
CATCHWORDS
NATIONAL DISABILITY INSURANCE SCHEME – Compensation Reduction Amount – Lump Sum Compensation Payment – Settlement and calculation of Compensation Reduction Amount – Legal Costs – Special Circumstances – Decision Affirmed
LEGISLATION
Administrative Appeals Tribunal Act 1975 (Cth)
National Disability Insurance Scheme Act 2013 (Cth)
National Disability Insurance Scheme (Supports for Participants - Accounting for Compensation) Rules 2013
CASES
BEADLE AND DIRECTOR-GENERAL OF SOCIAL SECURITY [1984] AATA 176
DEPARTMENT OF SOCIAL SECURITY V SMITH [1991] 30 FDCR 56
KIRKBRIGHT V DEPARTMENT OF FAMILY AND COMMUNITY SERVICES [2000] FCA 1876
REASONS FOR DECISION
Member K Bean
26 September 2024
INTRODUCTION
The Applicant is a 46-year-old man who suffered an Acquired Brain Injury as a result of two strokes in 2011. He became a participant in the National Disability Insurance Scheme (NDIS) on 28 June 2017.[1]
[1] ST 19.
The issue before the Tribunal is whether the funds available to the Applicant under the NDIS should be reduced, having regard to a very large amount paid to him in 2021 pursuant to the settlement of a personal injury action brought by him against three doctors he claimed negligently caused his strokes.
On 11 January 2023, a delegate of the Respondent decided to affirm an earlier decision to apply a ‘compensation reduction amount’ (CRA) to the Applicant’s current NDIS plan, pursuant to the applicable legal framework reducing the funding available in the Applicant’s plan by $187,813.58. On 6 February 2023, the Applicant applied to this Tribunal for review of that decision, giving rise to this application.
The Applicant has been represented in these proceedings by his wife, Ms Grace He, and the matter was ultimately heard over 2 days, being 17 June 2024 and 29 July 2024.
I will first explain the legal framework before identifying and addressing the issues more directly.
STATUTORY FRAMEWORK
Most of the provisions relevant to this matter are contained in the National Disability Insurance Scheme (Supports for Participants-Accounting for Compensation) Rules 2013 (Cth) (the Compensation Rules), which have legislative force. The Compensation Rules directly affect the funds available to a participant under their NDIS plan because sections 34 and 35 of the National Disability Insurance Scheme Act 2013 (Cth) (the NDIS Act) require that the Compensation Rules be complied with in determining a participant’s statement of participant supports as part of their NDIS plan.
The Compensation Rules provide that where:
(a)A participant receives a lump sum amount by way of compensation as a result of settling a personal injury action; and
(b)
The settlement includes an amount that relates to the provision of “supports of a kind that may be funded or provided under the NDIS after the date of the judgement or settlement”[2],
a “compensation reduction amount” is to be determined and applied to the Applicant’s NDIS plan (unless there are “special circumstances”).
[2] Rule 4.4, s 11 of the NDIS Act.
The Compensation Rules also specify a formula which is to be applied to any judgment or settlement to determine the CRA. Where a settlement includes a component for economic loss, one of the steps in applying this formula is to subtract 50% of the amount awarded, unless there is an applicable preclusion period. Other steps in applying the formula include subtracting other amounts repayable to the Commonwealth under various Acts, and subtracting amounts incurred in obtaining supports prior to the recipient becoming an NDIS participant.
The term “compensation” as it applies in this context is defined in s 11 of the NDIS Act as follows:
Definition relating to compensation(1) In this Act:
compensation means a payment (with or without admission of liability) in respect of:
(a) compensation or damages in respect of personal injury; or
(b) personal injury, under a scheme of insurance or compensation under a Commonwealth, State or Territory law, including a payment under a contract entered into under such a scheme; or
(c) personal injury, in settlement of a claim for damages or a claim under such an insurance scheme;
that is wholly or partly in respect of the cost of supports that may be provided to a participant (whether or not specifically identified as such). It does not matter whether the payment is made directly to the person who sustained the personal injury or to another person in respect of that person.
Relevantly for this matter, Rule 3.10 of the Compensation Rules provides:
Special circumstances
3.10 -For the purposes of paragraph 3.5, the CEO may ignore the whole or part of a compensation reduction amount that would otherwise arise under this Part if the CEO thinks it appropriate to do so in the special circumstances of the case (which may include financial hardship suffered by the participant).
Once a CRA is determined, the Compensation Rules also provide that this amount is then apportioned equally over the remaining estimated lifetime of the participant. The funds available under a participant’s plan are then reduced by the applicable amount which relates to the plan period. For example, if a participant had a CRA of $100,000 and was assessed as having a remaining lifetime of 10 years, the funds available in each of their 12-month NDIS plans would be reduced by $10,000.
THE APPLICANT’S SETTLEMENT AND CALCULATION OF THE CRA
As already alluded to, in 2013 Mr Luo commenced proceedings in the Supreme Court of Victoria against three doctors he alleged had negligently caused his strokes. Although the amount sought in the action was significantly larger, on 27 April 2017, the action was ultimately settled for $4 million plus reasonable costs and disbursements on the basis that liability was denied. Shortly after this, on 28 June 2017, Mr Luo became a participant in the NDIS.[3]
[3] ST 19.
As is ordinarily the case, various deductions were made from the settlement amount before Mr Luo received it. These included costs charged by his solicitors which were not paid by the defendants in the action, ultimately allowed in the amount of $350,000.[4] In August 2021, the amount of $3,634,504.05 was paid into Mr Luo’s bank account in satisfaction of the settlement reached.[5]
[4] ST 40.
[5] T5, ST14.
On 11 November 2022, Mr Luo was advised that a total CRA amount of $1,662,366.76 had been determined under the Rules and this would be divided over 18 years. The Respondent has accurately depicted the way the relevant formula was applied to Mr Luo’s settlement as follows:
NDIS Rule Application 3.13 Figure Compensation Settlement $4,000,000.00 Subtract Medicare repayment $7,451.15 Subtract Centrelink repayment $36,653.00 Subtract value of any period of preclusion from a statutory scheme of entitlements, for example Centrelink (or 50% if a preclusion period has not been applied and economic loss has been awarded) $2,000,000.00 SUBTOTAL $1,955,895.85 Subtract NDIS type supports paid for by you from 11 December 2011 to 27 June 2018 – please see attached “Supports considered for CRA calculation.” $8,379.30 Total CRA calculated under Rule 3.13 $1,974,516.55 Subtract the CRA that would have been applied to earlier NDIS plans but have been ignored by applying Special Circumstances under Rule 3.10[6] $285,149.79 Total CRA $1,662,366.76 [6] It appears this relates to the amounts which would have been deducted from Mr Luo’s previous plans if the CRA had been applied earlier. The Respondent has given Mr Luo the benefit of this reduction, even though no CRA amount was applied to the earlier plans. Neither party suggested there should be any change to this aspect of the calculation.
Mr Luo was further advised an amount of $187,813.58[7] was to be reduced from his new plan, commencing on 11 November 2022. He was also advised on 10 November 2022 that his request to have the CRA reduced by reason of special circumstances had been unsuccessful.[8]
[7] ST2.
[8] ST1.
As referred to above, Mr Luo’s request for internal review of the decision to apply a CRA amount to his plan was also unsuccessful, with a delegate affirming the decision to apply the full CRA amount of $187,813.58 to his plan and declining to reduce this by reason of special circumstances.[9]
[9] T2.
With respect to calculation of the CRA amount, Ms He contends this was not done correctly as the Respondent failed to deduct legal costs from the settlement amount before applying the formula, as required by the Compensation Rules. However, I am not persuaded this contention is correct.
As will be apparent from s 11(1) of the NDIS Act set out above, for the purpose of calculating the CRA, “compensation” is defined to include a payment made by way of settlement of a personal injury action which is “wholly or partly in respect of the costs of supports that may be provided to a participant”.
As outlined above, Mr Luo’s action was settled for an amount of $4 million plus costs and disbursements. Correctly in my view, the applicable formula was applied only to the settlement amount of $4 million, excluding the amount subsequently paid by the defendants for legal costs. As often occurs, the amount ultimately paid by the defendants for Mr Luo’s legal costs did not fully cover his actual legal costs, and an amount of $350,000 was subsequently paid by him to his solicitors in satisfaction of the additional amount owing. As things transpired, this was paid out of his settlement funds before they were released to him, although it was not inevitable this would occur. It could have been paid from other funds if these had been available to Mr Luo.
In these circumstances, I accept the Respondent’s submission that the Compensation Rules required the applicable formula be applied to the whole of Mr Luo’s settlement of $4 million. I note there is no provision of the Rules which allows for the exclusion from a compensation lump sum of an amount the participant later pays out of those funds for costs payable to their own solicitor.
As I am also satisfied the CRA applied to Mr Luo’s plan was otherwise correctly calculated in accordance with the formula provided in the Rules, the only remaining issue is whether the CRA should be reduced by reason of special circumstances.
SHOULD THE CRA APPLIED TO MR LUO’s PLAN BE REDUCED BY REASON OF SPECIAL CIRCUMSTANCES?
What are “special circumstances”?
What constitutes special circumstances is explained further in the relevant Operational Guidelines, the Compensation Operational Guidelines – Special Circumstances, by reference in part to how this phrase has been construed in the context of administration of the social security law. I accept that to be “special”, the relevant circumstances must be “unusual, uncommon or exceptional”, and the financial circumstances of a participant alone will not necessarily be sufficient.[10]
[10] Beadle and Director-General of Social Security [1984] AATA 176.
Although it is not possible to devise an exhaustive list, factors which may constitute or contribute to special circumstances include financial hardship, fraud, the circumstances of the compensable event, errors by others and incorrect or insufficient legal advice. It is also clear from the case law in the social security context that significant injustice or unfairness arising from the application of the statutory formula may be sufficient to amount to special circumstances such that a strict application of the statutory formula is inappropriate and should be ameliorated in the circumstances of a particular individual.[11]
[11] Department of Social Security v Smith [1991] 30 FDCR 56; Kirkbright v Department of Family and Community Services [2000] FCA 1876.
Are there special circumstances here?
Circumstances relied uponMs He has put forward a range of matters which are relied upon in support of her contention that her husband’s circumstances are “special” in the relevant sense. The facts and circumstances relied on include:
(a)Alleged errors and failures by the Respondent commencing in 2017[12], including failure to provide adequate advice about the impact any settlement on Mr Luo’s NDIS entitlements, and giving incorrect advice in September 2020 that Mr Luo was “clear” and the settlement would not affect his ongoing or future NDIS entitlements[13];
(b)The Respondent erroneously failing to deduct legal costs from the amount to which the applicable formula was applied, resulting in an incorrect CRA amount;
(c)Financial hardship;
(d)Incorrect legal advice to the effect that after settlement, Mr Luo could continue to access his NDIS funding as usual;
(e)Ms He’s own health issues;
(f)Ms He and Mr Lou’s frustration and disappointment that the settlement amount was significantly lower than the full value of Mr Luo’s claim:
(g)Mr Lou used some of his settlement funds to engage in share trading and made a significant loss; and
(h)The settlement amount did not include any allowance for some of the supports covered by the NDIS, for example funding to attend group activities.
[12] Applicant’s Statement of Facts, Issues and Contentions dated 2 June 2024, at p 16.
[13] Applicant’s Statement of Facts, Issues and Contentions dated 2 June 2024, at [4].
However, before I address these matters, there is one particular aspect of Mr Luo and Ms He’s circumstances which in my view requires particular attention in determining whether their circumstances are potentially special in the relevant sense.
House purchase
As noted above, Mr Luo ultimately received an amount of approximately $3.6 million pursuant to settlement of his personal injury action. It is apparent from the documents filed in Mr Luo’s action that the largest component of any settlement or judgment was expected to relate to his future “attendant care” needs, with an amount of $3,793,544.94 estimated for this in Mr Luo’s Updated Particulars of Loss and Damage filed on 23 November 2016.[14]
[14] ST34A, p 3.
It is also apparent from the evidence in this matter that the vast majority of Mr Luo’s settlement has been spent on the purchase of a block of land (including demolition of the existing dwelling) and construction of a house, with little remaining to cover his care and support needs.
In her oral evidence, Ms He confirmed that in November 2022 (after they were advised a CRA may be applied to Mr Luo’s plan and given an estimate[15]) she and her husband used his settlement funds to purchase a house for $2.3 million.[16] Unfortunately, it was subsequently discovered there were serious problems with this house such that it would need to be demolished and a new dwelling erected. She explained that she and her husband had entered a contract for the building of a new house at a cost of approximately $845,000. She said this house was currently being built and they had paid $400,000 so far, with approximately the same amount still owing. She said of the original amount received by her husband there was now only about $340,000 left. As this would not cover the remaining cost of the build, she expected they may need a small mortgage to complete this transaction.
[15] Joint Hearing Bundle, 16 at pp 110-111, 17 at pp 114-115, 18 at p 119.
[16] T6.
It is therefore clear that, of the $3.6 million received by Mr Luo, approximately $3.15 million in total has been either expended or committed to the purchase of land and building of a new house, leaving only about $450,000 available for other things, including Mr Luo’s care and support needs.
Ms He further explained that, as they are waiting for their new house to be built, the family is currently paying rent on the property they are living in and will continue to incur this expense until the new house is ready, which she expects to be some time in the middle of next year. She said that her income is sufficient to cover the family’s living expenses, although it doesn’t cover her daughter’s school fees. She said that before the CRA amount was applied to Mr Luo’s plan, Mr Luo would regularly go out to attend group activities, funded by the NDIS. However, as he no longer had access to NDIS funding for this, he no longer attended external activities and spent large slabs of each day sitting at home and watching YouTube.
In essence, what Ms He’s evidence reveals is that she and her husband have taken the “lion’s share” of his personal injury settlement and, rather than directing it to Mr Luo’s support needs, they have instead diverted this toward the purchase of a house, apparently leaving Mr Luo without adequate care and support, or at least access to external activities. Ms He contends that in these circumstances, the CRA should be waived so that all of Mr Luo’s support needs can be met by the NDIS, while the family receives the benefit of their new house, purchased at a total cost of $3.15m from her husband’s compensation settlement.
The difficulty with this however, is that the purpose of the settlement paid to Mr Luo was in large part to allow him to pay for the care and support he needs. What Ms He is effectively saying is that because she and her husband have chosen to spend most of the settlement on a house instead, the CRA should be reduced or waived, and his support needs should be met by the NDIS rather than from the settlement.
However, I do not consider this a tenable position for the Tribunal to adopt. It is clear from the legislative framework that the purpose of a CRA is to “claw back” from settlements and judgements amounts which have been paid to participants with respect to their care and support needs. There is a clear public policy reason for this, since in the absence of such provisions, it would be open to participants to “double dip” by receiving compensation to cover their support costs, but then obtaining their supports though the NDIS, which of course is taxpayer funded. Seen in this context, the Compensation Rules and related provisions in the NDIS Act are an important integrity measure to protect the Scheme from being required to meet expenses for which a participant has already been compensated.
As I have already acknowledged, the only issues I currently have jurisdiction to determine are whether the CRA of $187,813.58 which has been applied to Mr Luo’s plan has been correctly calculated and whether it should be reduced by reason of special circumstances. I do not have jurisdiction with respect to the total CRA amount arrived at, the CRA amounts to be applied to future plans, or whether any of those amounts should be reduced by reference to special circumstances existing at the relevant time.
In this context, even if all the factual matters and contentions put forward by Ms He were accepted as being well founded, it would be very difficult for me to be satisfied that Mr Luo’s current circumstances should to be regarded as “special” in the relevant sense such that the current CRA amount of $187,813.58 should be reduced.
This is because the amount Mr Luo and Ms He have diverted from the settlement into the purchase of a house is about 16 times greater than the current CRA amount. It is clear that if Mr Luo had used the proceeds of the settlement as intended, he could comfortably have covered the shortfall in funding in his current plan caused by the CRA. On my analysis, the reason those funds are not available to him is not because of any of the matters alluded to by Ms He, but because he and Ms Le have chosen to spend those funds on a house rather than for their intended purpose.
If the Tribunal were to accept these circumstances are “special” and reduce the CRA accordingly, this would clearly be unfair to other participants in similar circumstances who have applied their compensation for its intended purpose. It would also create an incentive for participants in receipt of lump sum compensation amounts to spend that compensation on other things and then seek to have their care and support needs met by the NDIS.
As I have explained, the main reason Mr Luo is not able to meet his care and support needs from his settlement is because most of the settlement has been spent on a house. This being the case, I doubt it is properly open to me to conclude that Mr Luo’s circumstances are “special” in the relevant sense, notwithstanding all of the other matters referred to by Ms He. The main and most proximate cause of any hardship being suffered by Mr Luo is the purchase of the house rather than any of the other matters raised by Ms He. Reducing the CRA in these circumstances would run counter to the well-founded public policy reasons for the Compensation Rules, as well as being unjust and unfair to other participants.
Nevertheless, I will briefly address some of the other matters put forward by Ms He.
Other Circumstances Relied On
I have already indicated above that I do not accept Ms He’s contention that the CRA was wrongly calculated because the Respondent did not exclude legal costs. The Respondent did in fact exclude the legal costs paid by the defendants in calculating the CRA. With respect to the costs paid by Mr Luo to his solicitors from the settlement amount, as I have explained, I am satisfied there was no proper basis for this amount to be excluded in calculating the CRA.
With respect to financial hardship, I accept that Mr Luo and Ms He have very little left of the $4 milllion settlement because of the house purchase, and the associated unforeseen costs related to this. However, any financial hardship resulting from this can readily be alleviated by sale of the house, potentially following completion of the build next year. In these circumstances, I do not accept that Mr Luo is experiencing financial hardship in the relevant sense.
With respect to incorrect advice and information, I accept that Ms He may have received unclear, inconsistent and/or conflicting advice from the Respondent about the impact of the settlement on Mr Luo’s NDIS entitlements, particularly in or around 2017. I also accept that her communications with Mr Luo’s lawyers did not result in her having a clear understanding that the settlement would significantly reduce Mr Luo’s NDIS entitlements. I note Ms He asserts she was assured Mr Luo would still be able to access the NDIS as usual following settlement, however there is no evidence to corroborate this, and it is unnecessary for me to make a finding with respect to it as little turns on the precise details of these communications.
In any event, even if Ms He and Mr Luo did have a clear understanding of the likely impact of the settlement on Mr Luo’s NDIS entitlements at the time, I am not persuaded this would necessarily have resulted in a different or better outcome for Mr Luo. I accept it may have resulted in Mr Luo not accepting the settlement offer, however as I understand it, there were very significant doubts surrounding whether liability for negligence would be established if the matter proceeded, and the settlement amount reflected this risk. If Mr Luo had declined the offer, this may have resulted in him ultimately receiving nothing by way of damages and being liable for the defendants’ legal costs. Therefore, as it is not clear that correct information would have resulted in a better outcome for Mr Luo, I am not satisfied that the provision of inadequate advice or information can properly be considered to have resulted in circumstances which are “special” in the relevant sense.
With respect to the amount of the settlement, I accept the action was settled for significantly less than the amount originally claimed. As I understand it, a compromise was reached as it was by no means certain negligence would be established if the action went to trial. Ms He and Mr Luo were advised to accept the offer made, and ultimately did so, albeit not without significant misgivings. However, a settlement between the parties for less than the full value of the claim is a very common outcome of litigation. In my view there is nothing unusual or “special” about the way Mr Luo’s action was resolved.
I also accept Ms He’s contention that the calculation of the damages sought by Mr Luo did not necessarily specifically refer to items typically funded by the NDIS, such as group activities. However, as I have indicated, it did include a very large amount intended to cover Mr Luo’s future care and support needs. These funds could have been spent on facilitating Mr Luo’s attendance at group activities but have instead been spent on a house. This being the case, I do not regard the absence of specific reference to group activities in the calculation of the damages sought by Mr Luo as assisting him to establish that his circumstances are special.
I also accept that Ms He has some health concerns, however I have little detail or evidence with respect to these, and in any event, I note she is working and has recently travelled to China to care for her mother. On the material I have, I am not satisfied that Ms He’s health issues are sufficient to assist Mr Luo in establishing that his circumstances are special.
Finally, I also accept that some of the proceeds of Mr Luo’s settlement were spent on share trading, resulting in a loss. However, in my view a decision to risk investing some of the settlement proceeds in share trading which did not prove profitable would not ordinarily be regarded as a special circumstance. In the context of $3.15 million from the settlement being spent on a house (which can potentially be sold), I do not consider Mr Luo’s losses from share trading of assistance to him in establishing that his circumstances are special.
For completeness, I should also acknowledge emails sent by Ms He to the Tribunal after the hearing on 12 August and 22 September 2024, which I have read. In my assessment, these emails essentially reiterate submissions previously made and their content does not change my conclusions in this matter.
CONCLUSION
For these reasons I have concluded Mr Luo has not established “special circumstances” and as I am satisfied the CRA amount applied to Mr Luo’s plan has been correctly calculated, the decision under review should be affirmed.
For abundant clarity, I have also considered whether all the circumstances referred to by Ms He cumulatively could be considered “special”, but I am not persuaded this is the case. As I have explained, the current shortfall in Mr Luo’s NDIS plan and the absence of funding to meet his care and support needs is the direct result of the couple’s decision to use the vast bulk of Mr Luo’s settlement to purchase a house. This is not a circumstance which can be considered “special” in the relevant sense, either in isolation or in combination with the other matters put forward by Ms He.
DECISION
The Tribunal affirms the decision under review pursuant to subsection 43(1)(a) of the Administrative Appeals Tribunal Act 1975 (Cth).
I certify that the preceding 51 (fifty-one) paragraphs are a true copy of the reasons for the decision herein of Member K Bean.
........................[SGD]................................
Associate
Dated: 26 September 2024
Date(s) of hearing: 17 June and 29 July 2024 the Applicant: Self-Represented Counsel for the Respondent: Mr N Swan Solicitors for the Respondent: Ms V Parkins, Moray and Agnew Lawyers
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