Mahfoud and Secretary, Department of Social Services (Social services second review) - [2021] AATA 140

Mahfoud and Secretary, Department of Social Services (Social services second review) [2021] AATA 140 (5 February 2021)
Division:GENERAL DIVISION
File Numbers: 2020/3679, 2020/3680, 2020/3681
Re:Marwan Mahfoud
APPLICANT

AndSecretary, Department of Social Services
RESPONDENT

Decision
Tribunal:Mr S Evans, Member
Date:5 February 2021
Place:Sydney

The decision under review is affirmed.
..............[sgd]...................
Mr S Evans, Member
Catchwords
Social Security – receipt of lump sum compensation payment – preclusion period – discretion to treat whole or part of compensation payment as not having been made – whether special circumstances exist – no special circumstances found – decision under review affirmed
Legislation
Social Security Act 1991 (Cth)

Social Security (Administration) Act 1999 (Cth)
Cases
Re Davis and Department of Family and Community Services [1999] 56 ALD 793
Males and Secretary, Department of Family and Community Services [1999] AATA 863
SRL and Secretary, Department of Social Services [1997] AATA 374
Stavrakis and Secretary, Department of Family and Community Services [2003] AATA 212
REASONS FOR DECISION
Mr S Evans, Member
5 February 2021
Introduction

Marwan Mahfoud (“Mr Mahfoud”) is currently 28 years old. In November 2015, he was injured in a motor vehicle accident. In February 2019, a claim for compensation related to that accident was settled for a gross lump sum of $875,000.00 and Mr Mahfoud received $594,943.60, after various deductions, in his bank account. As the compensation included an amount for lost earnings, Mr Mahfoud is subject to a preclusion period during which he is ineligible for social security payments. Mr Mahfoud contends that he has spent the settlement funds, has no money, and that his circumstances are now such that the preclusion period should be waived so that he may receive social security payments.
Background
Mr Mahfoud’s application history
Mr Mahfoud lodged a claim for newstart allowance (“NSA”) on 7 February 2020. The following day, he lodged a claim for disability support pension (“DSP”).
On 12 February 2020, Services Australia (Centrelink)[1] (“the Agency”) wrote to Mr Mahfoud informing him that his claim for NSA was declined because he was not entitled to payment until 4 April 2024. The same day Mr Mahfoud provided the Agency with a proof of account balance relating to his Westpac bank account showing a balance of $31.45.
[1] Previously known as the Department of Human Services. The Respondent represents the Commonwealth’s / the Agency’s interests in this matter.
On 25 February 2020 Mr Mahfoud provided a transaction summary relating to his bank account.
On 25 March 2020 Mr Mahfoud lodged an online claim for JobSeeker Payment.
Mr Mahfoud’s claim for DSP was rejected on 27 March 2020.
Mr Mahfoud’s claim for JobSeeker Payment was rejected on 31 March 2020.
On 11 May 2020 an Authorised Review Officer (“ARO”) affirmed the decisions to reject Mr Mahfoud’s claims for NSA, DSP and JobSeeker Payment on the basis that Mr Mahfoud was subject to a compensation preclusion period from 19 November 2015 to 27 March 2024.
The ARO’s decision was reviewed by the Social Services and Child Support Division of the Tribunal (“AAT1”). The AAT1 affirmed the decision on 11 June 2020. The Applicant now seeks review of the AAT1 decision (“decision under review”) at the General Division of the Administrative Appeals Tribunal (“the Tribunal”).
Each of the reviewable decisions arising from claims for each of NSA, DSP and JobSeeker Payment, forming part of the decision under review, have been given a separate case number with the Tribunal upon this review but are dealt with in this decision and review. The case numbers and to which social security payments they relate are:
·2020/3679 – NSA
·2020/3680 – DSP
·2020/3681 – JobSeeker Payment
Issues to be determined
The issues to be determined by the Tribunal are:
(i)Is Mr Mahfoud subject to a compensation preclusion period? And if so;
(ii)Do special circumstances exist such that the compensation preclusion period could be disregarded in whole or in part so that he may be eligible for NSA, DSP or Jobseeker Payment?
Is Mr Mahfoud subject to a compensation preclusion period?
Mr Mahfoud settled his claim for compensation for a gross lump sum of $875,000.00 and the Agency received advice of that settlement on 6 February 2019. It is unclear from the documents before the Tribunal exactly how much of this amount was expended in costs relating to Mr Mahfoud’s claim. It appears that Mr Mahfoud received at least $594,943.60 “in hand”, that being the amount deposited in his bank account on 19 March 2019.
The relevant law in relation to compensation payments is set out in the Social Security Act 1991 (Cth) (“the Act”) and the Social Security (Administration) Act 1999 (Cth) (“Administration Act”). Additional relevant information is set out in the Social Security Guide (“the Guide”).
The Guide sets out the rationale for compensation recovery provisions of social security law which are designed to ensure that people who receive compensation for a loss of income do not also receive income support from the Australian Government in respect to the same period of time.
Subsection 17(2) of the Act defines compensation to include, among other things, a payment (with or without liability) in settlement of a claim for damages or a claim under such an insurance scheme.
Subsection 1169(1) of the Act stipulates that a preclusion period applies when a person receives a lump sum compensation payment and is receiving, or intends to receive, a compensation affected payment. A preclusion period is a period during which a person cannot receive a relevant social security payment. The section states:
(1)         If:
(a)       a person receives or claims a compensation affected payment; and
(b)       the person receives a lump sum compensation payment;
the compensation affected payment is not payable to the person in relation to any day or days in the lump sum preclusion period.
(2)        In this section:
lump sum compensation payment does not include a lump sum payment:
(a)       to which section 1164 applies; or
(b)       that relates only to arrears of periodic compensation payments.
…
(emphasis in original)
Section 1164 does not apply to this matter. NSA, DSP and Jobseeker Payment are compensation affected payments under the Act.
The definition of “compensation affected payment” in subsection 17(1) of the Act includes NSA, DSP and JobSeeker Payment and consequently these payments are subject to a lump sum preclusion period which is worked out in accordance with section 1170 of the Act.
Subsection 1170(3) of the Act sets out the start date of the preclusion period and relevantly states:
If neither of subsections (1) and (2) applies, the lump sum preclusion period is the period that:
(a)begins on the day on which the loss of earnings or loss of capacity to earn began; and
(b)ends at the end of the number of weeks worked out under subsections (4) and (5).
Subsections 1170(4) and (5) of the Act sets out the method of calculating the length of the lump sum preclusion period:
(4)The number of weeks in the lump sum preclusion period in relation to a person is the number worked out using the formula:
(5)If the number worked out under subsection (4) is not a whole number, the number is to be rounded down to the nearest whole number.
The compensation part of the lump sum is divided by an “income cut-out amount”. The “income cut-out amount” refers to the maximum amount of weekly earnings that a person can earn before a pension, at the single person rate, is no longer payable to that person. The formula for calculating the income cut-out amount is contained in subsection 17(8) of the Act.
“Compensation part of a lump sum” is defined in subsection 17(3) as follows:
(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…
Under section 36 of the Administration Act, the Agency is obliged to determine a claim for a social security payment, either granting or rejecting the claim.
Findings in relation to the compensation preclusion period
The settlement agreement between Mr Mahfoud and Insurance Australia Ltd for his claim following the motor vehicle accident in which Mr Mahfoud was injured was settled for a gross lump sum settlement amount of $875,000.00. The compensation component of a lump sum compensation payment is defined in subsection 17(3) of the Act which provides that it is fifty percent of the gross settlement. In Mr Mahfoud’s case, this equals a compensation component of $437,500.00. Section 1170 of the Act determines that the lump sum preclusion period is the period that began on the day on which the loss of earnings or loss of capacity to earn began, being the date of injury on 19 November 2015.
In accordance with subsection 17(8) of the Act, the income cut-out amount at 1 February 2019 is determined to be $1,002.30. By applying the formula set out in subsection 1170(4) of the Act, the income preclusion period is calculated to be 436 weeks.
Having considered the calculation of the lump sum preclusion period in accordance with section 1170 of the Act, I am satisfied that Mr Mahfoud’s lump sum preclusion period beginning 19 November 2015 to 27 March 2024 inclusive has been correctly calculated and applied by the Agency.
Do special circumstances exist?
An exemption exists in the Act which allows the Tribunal, acting as the decision-maker, to shorten the compensation preclusion period in special circumstances. Mr Mahfoud argues that special circumstances should apply to his case. In his 17 May 2020 application to the Tribunal, he writes that he feels that he made a mistake but now he has “no money to eat and [his] parents are going to kick him out of the house”.
Relevant legislation and policy
Section 1184K of the Act allows the Secretary to treat whole or part of a compensation payment as not having been made or not liable to be made if the Secretary thinks it is appropriate to do so in the special circumstances of the case. The Guide at 4.13.4.10 provides guidance on special circumstances.
Special circumstances are provided for in subsection 1184(K) of the Act:
(1)For the purposes of this Part, the Secretary may treat the whole or part of a compensation payment as:
(a) not having been made; or
(b) not liable to be made;
if the Secretary thinks it is appropriate to do so in the special circumstances of the case.
The Act does not define what constitutes “special circumstances”. However, the Guide at 4.13.4.20 provides a list of factors to consider when determining special circumstances which relevantly includes ill health, emotional state, decision making capacity, financial circumstances, addiction and changed circumstances.
There has also been considerable judicial consideration of the phrase including in the context of other social security legislation.
Notably, in Beadle and Director-General of Social Security (1984) 6 ALD 1 (“Beadle”) the Tribunal observed that “an expression such as ‘special circumstances’ is by its very nature incapable of precise or exhaustive definition”. Special circumstances are by definition expected to be “unusual, uncommon or exceptional”. They need not be unique, but “they must have a particular quality of unusualness that permits them to be described as special”.
Consistent with Beadle, the Guide states that the circumstances must be either “unusual, uncommon or exceptional” or that the operation of the Act would result in circumstances that are “unfair, unjust, or unreasonable”.
Evidence and facts
Mr Mahfoud’s circumstances
In 2009 Mr Mahfoud began his apprenticeship to become a carpenter. In 2015, he registered for an ABN with a view to starting his own business, but his plans were scuppered by the motor vehicle accident later that year. Following the accident Mr Mahfoud’s life changed. An OccHealth Report outlining Mr Mahfoud’s Functional Recovery Program following the accident records a diagnosis of “fractured pelvis, left leg, right hand and right knee ligamentous injuries”.
In addition to the care he received for the physical injuries, Mr Mahfoud saw a psychologist for three years until 2018. He described his recovery from the accident as a difficult time where he went from being able to walk before the accident to being unable to shower by himself. He spent many months in painful recovery.
Whilst the accident occurred in November 2015, the compensation claim was settled in February 2019. Mr Mahfoud had known that he would receive compensation for some time prior to settlement and initially planned to buy a business with some of the money.
Shortly after receiving his compensation payment Mr Mahfoud travelled to Lebanon where he had dental work completed. He booked Business Class flights and was upgraded to First Class. Mr Mahfoud also moved out of his family home and into rental accommodation.
Before the Tribunal are bank account statements which cover the period from March 2019, when Mr Mahfoud received the compensation payment, through to February 2020. The statements show an opening balance of $576,244.77 on 29 March 2019. By 31 June 2019 his bank balance was $580.05.
In questioning by the Respondent’s representative, Mr Mahfoud was taken to a withdrawal of $369,000 which was made on 6 June 2019. He confirmed that he was trying to move part of his compensation to another account where he could not access it. He told the hearing that this was made difficult as he could not deposit the money in a normal term-deposit account without accumulating interest, which he did not want to do for religious reasons. He acknowledged that he “was a bit of an over-spender” and he eventually moved some of the money to a joint account he held with his brother which he was hoping would prevent him from accessing and therefore spending his compensation. Nonetheless, he was able to find ways to access the money.
Consideration of Mr Mahfoud’s bank statements reveals that, whilst unsustainable, his overspending does not appear to be the main cause of his financial problems. Whilst he was spending considerable sums on UberEats, shopping and holidays, Mr Mahfoud’s evidence to the AAT1 that he spent approximately $150,000 on general living expenses, buying a car and an overseas trip appears accurate.
His bank statements are in some ways an unreliable record of his spending owing to the large transfers which reduced his bank balance prematurely. Some, such as the transfer of $369,000 on 6 June 2019, appear to confirm Mr Mahfoud’s account that he moved large sums to a joint account he held with his brother for safekeeping. Mr Mahfoud was unable to recall the purpose of others, such as a deposit for nearly $60,000 on 11 June 2019.
Mr Mahfoud told the Tribunal that he has been struggling for eight months since spending his compensation. He submits that he is depressed and the rejection of his applications for social security payments has exacerbated his mental health conditions. He said that when the money ran out his friends were no longer there. His girlfriend has stuck by him and is currently expecting their child.
His family, who warned him to be careful with his compensation, only found out that he had spent it in early 2020. Mr Maufoud reported that whilst he is close to his family and currently lives with his parents and siblings, his recent behaviour has been disruptive and caused difficulties. He said that he becomes very aggressive and feels stressed at the prospect of not being able to support his child and he recently was charged with an assault following an altercation.
Mr Mahfoud explained that whilst he was working prior to his accident, he is now too short-tempered to hold a job or deal with customers. Describing his current circumstances, he said that he does as much as he can but that he gets tired. He spends a lot of time watching television and playing computer games.
Plus+500
Mr Mahfoud was introduced to the Plus+500 contract for difference (“CFD”) trading platform by a friend. As noted by the AAT1, “CFDs are complex instruments that come with a high risk of losing money rapidly due to leverage”.
Mr Mahfoud gave evidence that Plus+500 trading became addictive and he would trade continuously from 8am to 4am. He was fixated on trying to win back the money he had lost. Whilst some of the people close to him, including his girlfriend, were aware of his obsessive use of Plus+500, no-one was able to stop him. Mr Mahfoud now views his behaviour at the time as reckless and uncontrollable and submits that the experience has taught him the value of money.
Before the Tribunal is a report of Mr Mahfoud’s Plus+500 trading for the period 3 June 2019 to 25 February 2020. It shows that he made a net loss of $270,634.66 over the period during which he entered into CFDs for instruments as diverse as oil, platinum, various currencies, cattle and the Germany 30 stock indices. He made in excess of 1000 trades on the platform in which he would gain or lose hundreds to thousands of dollars over a period of hours. As recently as 23 January 2020 Mr Mahfoud made a loss of over $2300 on a CFD for oil. His final trade was entered into on 7 February 2020. When he applied for NSA that same day, he claimed he had $2,000 cash to hand and $50 in his bank account. His bank account statement for the period 31 December 2019 to 31 January 2020 records transfers of $92,000 over 34 transfers to his Plus+500 trading account.
Medical evidence
In a medical certificate dated 27 March 2020, Dr Norman Lum writes that Mr Mahfoud had a ‘major bike injury’ and ‘multiple injuries requiring knee + pelvis + back surgery’, and it is stated that Mr Mahfoud has a “permanent back condition”.
Consultant psychologist Bill Singh has been seeing Mr Mahfoud since he was referred to him for clinically significant levels of depression and anxiety and adjustment issues under a GP Mental Health Care Plan by Dr Ma. Mr Mahfoud told the hearing that he had seen Mr Singh on approximately five occasions and Mr Singh writes that he has been seeing Mr Mahfoud fortnightly since July 2020.
Mr Singh confirms that Mr Mahfoud is suffering from depression and anxiety but that counselling has been beneficial for him. In a report dated 19 October 2020, he writes that Mr Mahfoud is “severely stressed and disclosed he is struggling socially and financially and reports relationship breakdown within his family and these factors appear to have exacerbated his mental health and coping skills”. He also reports that Mr Mahfoud presents as ‘unable to work and study at this point of time’.
An earlier psychological progress report dated 20 August 2020 states that Mr Mahfoud “succumbed to gambling addiction” fuelling “his mental health decline”. Mr Singh writes that an unspecified “Gambling Addiction Questionnaire” confirms that Mr Mahfoud suffers from “gambling addiction in the compulsive range”. Based on clinical assessment and observational evidence, Mr Singh diagnoses Mr Mahfoud as suffering depression, anxiety and stress “which contributed to historical compulsive gambling addition”.
Consideration
Based on the evidence, it is apparent that Mr Mahfoud has spent most of his compensation payment – at least the amount lost on Plus+500 and his claimed general living expenses of – approximately $150,000 – which still leaves over $170,000 unaccounted for. At the time of the AAT1 hearing, Mr Mahfoud still had a realisable asset in the form of his second-hand motor vehicle. After the AAT1 hearing Mr Mahfoud sold his vehicle for $6,000. He claims to have quickly spent the proceeds of the sale on living expenses and “baby stuff” leaving him with $500.

The medical evidence in relation to Mr Mahfoud’s claimed gambling disorder lacks detail and is not accepted by the Respondent as a diagnosis. In considering the DSM-IV, it is apparent that some of the behaviour he claims to have experienced during his CFD trading was akin to that experienced by a problem gambler. Specifically, chasing his losses, concealing the extent of his losses from family and now relying on others to provide money to relieve his desperate financial situation.
As noted by the Respondent, the Tribunal has previously considered the impact of gambling and reckless and profligate expenditure on compensation recipients in the context of applying section 1184K of the Act. In SRL and Secretary, Department of Social Services [1997] AATA 374 the Tribunal shortened the preclusion period of an applicant who had spent his lump sum compensation and was experiencing financial hardship during the preclusion period. In that instance, it was accepted that the applicant had an acquired brain injury which contributed to the expenditure of the lump sum compensation period. In addition, the applicant’s wife had a physical disability, his eldest son had a brain injury and his youngest child had congenital lower limb deformities and all required support from the applicant.
In Males and Secretary, Department of Family and Community Services [1999] AATA 863 the applicant had spent his compensation gambling on poker machines and found himself living with his mother in a small rural town with limited opportunity and dependent on her for financial assistance. In determining that the preclusion period should be shortened, Senior Member Handley observed that the applicant’s financial circumstances ‘cannot be looked at in isolation from his personal circumstances being his age, domicile, incapacity, injury, limited education, limited job opportunities and social status’.
In Stavrakis and Secretary, Department of Family and Community Services [2003] AATA 212 the Tribunal agreed that a person who is a compulsive gambler may be able to demonstrate special circumstances, but that “the addiction must be such that it can truly be said that the person is subject to a state where his mind is overborne by the addiction”.
In Re Davis and Department of Family and Community Services [1999] 56 ALD 793 the Tribunal considered an applicant who had spent his compensation five months into his eight-year preclusion period. Finding that there was no evidence that the applicant was addicted to gambling and drinking it described the applicant’s behaviour as “grossly irresponsible” and found that no special circumstances existed to justify the treatment of whole or part of the compensation payment as not having been made.
As per Beadle cited earlier in these reasons, financial circumstances alone do not ordinarily amount to special circumstances for the purposes of section 1184K. In considering Beadle and the other cases cited, it is apparent that where special circumstances have been deemed to exist such that the provision should be exercised, the applicant’s poor choices are just one of a constellation of factors at play. Typically, chronic factors, conditions or obligations have befallen the applicant which, together with their own actions, have set in place such egregiously difficult circumstances that recovery through their own efforts is almost inconceivable.
The Respondent contends that whilst Mr Mahfoud’s circumstances are difficult, they are neither dire nor special. The Tribunal accepts that in many regards, Mr Mahfoud is in a fortunate position. He has the support of his family who, he concedes, provide him food and a place to live, and a girlfriend who is supportive of him.
Whilst he contends that he is unable to work, there is scarce evidence to support this conclusion, and Mr Mahfoud conceded that at the time of the hearing he had not attempted to find work.
Conclusion
The Tribunal finds that Mr Mahfoud is subject to a compensation preclusion period and that his circumstances do not warrant exercising the Tribunal’s discretion in section 1184K.
Mr Mahfoud clearly regrets having lost so much money CFD trading and says that he has learnt a valuable lesson from the experience. The Tribunal accepts that Mr Mahfoud has experienced a difficult situation made worse by his depression and anxiety. He is additionally faced with the responsibility of becoming a parent.
However, when considering the special circumstances provisions, the Tribunal must be mindful of the general administration of the social security system. Mr Mahfoud was trading CFDs on the day before he applied for NSA. As noted in Davis, should the preclusion period be waived or shortened as a consequence of such reckless spending, “then that would be an invitation to others in similar circumstances to do likewise and then to become dependent on the public purse”.
For these reasons, I am satisfied that Mr Mahfoud does not meet the criteria for the exercise of the special circumstances provisions and therefore the decision under review should be affirmed.
Decision
The decision under review is affirmed.

I certify that the preceding 65 (sixty-five) paragraphs are a true copy of the reasons for the decision herein of Mr S Evans, Member

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Associate
Dated: 5 February 2021

Date of hearing: 23 October 2020

Solicitors for the Applicant:
Self-represented

Solicitors for the Respondent: Ms R Alam, Services Australia

Date of hearing:	23 October 2020
Solicitors for the Applicant:	Self-represented
Solicitors for the Respondent:	Ms R Alam, Services Australia