Marshall and Secretary, Department of Social Services (Social services second review)

Marshall and Secretary, Department of Social Services (Social services second review) [2019] AATA 670 (4 April 2019)
Division:GENERAL DIVISION
File Number(s): 2018/4269
Re:Michael Marshall
APPLICANT

AndSecretary, Department of Social Services
RESPONDENT

DECISION
Tribunal:Chris Puplick AM, Senior Member
Date:4 April 2019
Place:Sydney

The decision under review is set aside and a new preclusion period is determined to end on 19 February 2020.
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Chris Puplick AM, Senior Member
CATCHWORDS
SOCIAL SECURITY – Newstart – preclusion period – compensation payment – application of statutory formula – compensation payment for personal injury received – whether special circumstances exist – financial hardship – decision set aside
LEGISLATION
Social Security Act 1991
CASES
Beadle and Director-General of Social Security [1984] AATA 176
Davy and Secretary Department of Employment and Workplace Relations [2007] AATA 1114
Groth v Secretary, Department of Social Security [1995] 40 ALD 541
Re Beadle and Director-General of Social Security [1984] AATA 176
Riddell v Secretary, Department of Social Security [1993] 114 ALR 340
Sams v Secretary, Department of Social Services [2016] AATA 654
Secretary, Department of Social Security v Hulls and Others (1991) 22 ALD 570
Shi and Migration Agents Registration Authority [2008] HCA 31
SECONDARY MATERIALS
Social Security Guide
REASONS FOR DECISION
Chris Puplick AM, Senior Member
4 April 2019

Mr Michael Marshall[1] (the Applicant) applied for the Newstart Allowance on 3 April 2018 and the following day Centrelink (Department of Human Services) rejected his claim on the basis that he was precluded from receiving any form of social security benefits as a result of his having received a compensation payment in May 2017.
[1] Year of birth 1978.
The Applicant sought a review of this decision through both an internal review of the decision by an Authorised Review Officer (ARO) of the Department and subsequently by the Social Services and Child Support Division of this Tribunal (AAT1). As he was not satisfied with that latter decision he lodged an appeal for further review with this Tribunal on 24 July 2018 and the matter was heard on 29 March 2019.
THE LEGISLATIVE SCHEME
It is not necessary to set out the legislation in any detail as the process by which decisions are made in this instance is relatively straightforward and key facts and the process itself is not a matter of dispute between the parties.
Section 1169 of the Social Security Act 1991 (the Act) provides that where an individual receives a compensation payment they may be precluded, for a specified period of time, from receiving any other “compensation affected payment” which includes the Newstart Allowance.
Compensation payments are made in two tranches. In the first instance an individual receives periodic compensation payments when the quantum in question is determined and, after a period of time these periodic payments cease and the individual is provided with a lump sum, being the balance of the original compensation determination.
Centrelink calculates the amount of the compensation payment and then applies to that sum a formula set out in the Act (at sections 1170 and 17) to arrive at what is called the “preclusion period”. The preclusion period is stated numerically in terms of weeks. That number of weeks is then calculated forward from the date of the ending of the periodic compensation payments (actually the day following the last payment) and until the expiry of that time an individual is “precluded” from receiving any other social security benefit – thus avoiding the possibility that there may be any form of “double dipping” and payment from more than one source.
Only part of the total compensation lump sum is taken into account in making this calculation. Depending upon how the compensation decision is made, that is whether it was made by a judgement (where one or more party contests the calculation) or by a settlement, a certain portion of the total (referred to as the “compensation part” of the lump sum) made be excluded from these calculations.
In this instance the proportion of the lump sum which has been excluded from these calculations is 50%. In the event that more than one lump sum payment is made in relation to the same event, those multiple payments are aggregated into one single total. This determines the compensation part of the lump sum.
Once that calculation has been made, the resultant figure is divided by what is called the “cut out amount” which itself is derived from an elaborate formula is section 17(8) of the Act, details of which need not be elaborated in this instance.
The application of this formula results in a figure which is then rounded to a whole number and that number, expressed now as weeks is used to calculate the preclusion period.
The figures relevant to this calculation are not in dispute between the parties and may be summarised as follows[2]:
The total lump sum received by the Applicant was $366,112[3].
Allowing for the 50% reduction applicable this became $183,056.
The cut out amount at the relevant time was $970.30.
Dividing the 183.056 by 970.30 gives a result of 188.659.
This is rounded down to 188.
A period of 188 weeks is added to the date at which the Applicant’s last periodic payment was received (that being 11 May 2017) with the result that a preclusion period is established which expires on 16 December 2020.
[2] These figures are set out in the Respondent’s Statement of Facts, Issues and Contentions at paragraphs [27]-[30].
[3] For a workplace injury sustained on 30 October 2009.
The Act (section 1184K) provides that where there are “special circumstances” some or all of the compensation payment may be excluded from the calculation of the preclusion period. In that case the preclusion period may, as a result, be reduced.
THE APPLICANT’S POSITION
Using the process outlined above, the Department originally calculated that the Applicant’s preclusion period lasted until 16 December 2020. However he appealed for a review of that determination on the basis that there were “special circumstances” in his case which imposed on him a degree of financial and emotional hardship and, as a result of that, some of his expenses should be excluded from the calculations.
The Departmental ARO agreed with his submission and determined that a sum of $60,000 should be excluded from those calculations. Using the same formula (with the lump sum reduced to $306,112) the ARO calculated that the preclusion period would be reduced to 13 May 2020.[4]
[4] Section 37 Tribunal Documents at [180].
On appeal to the AAT1 a further calculation was made by that Tribunal and it was decided that the Applicant should be allowed to claim a reduction of $78,296 (rounded) for special circumstances. Once again this resulted in a further reduction of the preclusion period, this time to 11 March 2020.[5]
[5] Ibid at [9].
BEFORE THIS TRIBUNAL
In the Secretary’s submission the Tribunal is asked to affirm that decision of the AAT1 which the Secretary regards as “generous”[6] but does not contest further. The Tribunal is not bound to accept any of the previous three decisions: the original decision, the ARO’s decision or the AAT1’s decision. It has a responsibility to approach the Applicant’s claim de novo and determine, firstly if there are “special circumstances” in this case and, if there are, what amount should be reduced from the calculation of the lump sum in order to arrive at a date for the preclusion period. It must take into account matters as they stand at the date on which it makes it determination.[7]
[6] Respondent’s Statement of Facts, Issues and Contentions at [40].
[7] Shi and Migration Agents Registration Authority [2008] HCA 31 at [37].
THE RATIONALE FOR A PRECLUSION PERIOD
Part 4.13.2.60 of the Social Security Guide (a manual to assist decision-makers in interpreting various provisions of the Act) sets out a rationale for having a preclusion period:
The compensation provisions of SSAct Part 3.14 reflect the principle that if a person has been compensated for loss of income, they should use that money to live off rather than receive a taxpayer-funded payment. Lump sum compensation payments are treated on the basis that people who cannot work because of a compensable injury should NOT receive income support for the same period from both the:
·social security system, AND
·compensation systems.
This reflects the view of successive Australian Governments that primary responsibility for the support of people who are incapacitated because of a compensable illness or injury rests with the relevant State or Territory compensation schemes, and not with taxpayer funded social security programs
In doing so it makes it clear that it expects people who receive compensation payments to use them to live off and to do so without recourse to taxpayer funded social security payments for as long as their compensation payment may reasonably be expected to last.
SPECIAL CIRCUMSTANCES
As noted above, the Applicant has argued that there are special circumstances in his case which justify certain expenditures being excluded from the lump sum calculations.
The Secretary’s discretion is provide for in s 1184K(1) of the Act:
1184K Secretary may disregard some payments
(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 key phrase here is “special circumstances”. It is up to any Applicant to establish exactly what these might be.
Much Tribunal and judicial ink has been spent to try and settle a clear definition of “special circumstances”, not to very much avail.
As with other terms such as “public interest”, “good character”, “fit and proper person”, it is unfortunate that there is no definition in the relevant legislation of the precise meaning of “special circumstances”. Once again the Tribunal must rely upon judicial guidance in the matter and once again there is ample authority.
In Beadle[8] the Tribunal stated:
[12] An expression such as "special circumstances" is by its very nature incapable of precise or exhaustive definition. The qualifying adjective looks to circumstances that are unusual, uncommon or exceptional. Whether circumstances answer any of these descriptions must depend upon the context in which they occur. For it is the context which allows one to say that the circumstances in one case are markedly different from the usual run of cases. This is not to say that the circumstances must be unique but they must have a particular quality of unusualness that permits them to be described as special.”
[8] Re Beadle and Director-General of Social Security [1984] AATA 176.
Beadle was referred to by Kiefel J (as her Honour then was) in the following terms:
“The phrase “special circumstances”, it has been said, although imprecise is sufficiently understood not to require judicial gloss …. And for present purposes it is sufficient to observe that it would require something to distinguish Mr Groth’s case from others, to take it out of the usual or ordinary case.”[9]
[9] Groth v Secretary, Department of Social Security [1995] 40 ALD 541 at [545].
Thus, judicial authority recognises that the term is “by its very nature incapable of precise or exhaustive definition”[10] but that it requires something to distinguish it from other cases in a way “to take it out of the usual or ordinary case”.[11]
[10] Beadle and Director-General of Social Security [1984] AATA 176 at [12].
[11] Groth v Secretary, Department of Social Security [1995] 40 ALD 541 at [545].
Furthermore, when decisions are made they must evidence “a consideration of the person’s individual circumstances but also a consideration of the general administration of the social security system.”[12]
[12] Davy and Secretary Department of Employment and Workplace Relations [2007] AATA 1114 at [80].
That having been said, each case is different, and “each particular case must be considered in its merits.”[13] This may be to such an extent that “the particular facts of a case might make them – or the amount of them – a special circumstance.”[14]
[13] Riddell v Secretary, Department of Social Security [1993] 114 ALR 340 at [347].
[14] Secretary, Department of Social Security v Hulls and Others (1991) 22 ALD 570 at [580].
THE APPLICANT’S “SPECIAL CIRCUMSTANCES”
The ARO considered the Applicant’s appeal and made the following determination:
“I find that Michael does have special circumstances due to the combination of his financial circumstances, medical conditions, the need to establish a new home as well as his court cases for divorce.”[15]
[15] Section 37 Tribunal Documents at [180].
In evidence, the Applicant told the Tribunal that shortly after he received his compensation payment he and his wife were involved in an acrimonious end to their marriage. This resulted in the Applicant moving out of the family home, leaving his wife in possession of the furniture and fittings and, at that stage in custody of two young sons.
He has expended considerable sums of money on legal fees related to the divorce and related proceedings.
He was required to establish a new home for himself and to make accommodation and other arrangements for the time when his sons are with him. This meant that he had to buy new furniture, electrical and white goods and a car (his wife having possession of their previous vehicle). In relation to the car, the Applicant stated that it needed to be reliable enough to allow him to make the regular trip between his home in Glenn Innes and the children’s home in Walgett – a six hour drive. It also needed to be comfortable enough for him to manage with his back and spinal problems which were the matters for which he received compensation in the first place.
However, in due course, the Applicant reported that he has expended all his compensation money, had been forced to downsize and then sell his car; to give up his own home and move back in with his mother (whose sole soured of income is the Disability Support Pension) and sell most of this personal possessions, including a collection of rare books which he had been accumulating since the age of 14.
He reports that he is active in seeking employment, although this is limited by both his back injury and his lack of a car (which has also prevented him from seeing his sons for the last year). He did find some casual seasonal work over the Christmas period. His previous employment has been in managing retail operations. He is currently undertaking courses of RSA (Responsible Service of Alcohol) and RSG (Responsible Services in Gambling) to improve his employment prospects.
He does not want to move from his home in Glenn Innes and, as an only child, is concerned for the welfare of his mother. He has purchased various items (such as a new washing machine) for his mother and makes some contribution to their shared domestic costs.
The Tribunal agrees with the ARO and the AAT1 that the Applicant does meet the “special circumstances” requirement as set out in the Act and notes that this is not a finding with which the Respondent disagrees.
In making his/her calculations, the ARO took all the above matters into consideration and determined that the amount to be disregarded from the compensation amount was $60,000 comprised of
·$10,000 associated with legal costs
·$10,000 associated with the establishment of a new home and a rental bond
·$40,000 for the purchase of a reliable car.[16]
[16] Idem.
The ARO stated:
“Whilst customer has spent more than $10,000 establishing a new home, I find ongoing rent is not unforeseen and extra amounts spent on furniture to be excessive. He further advised of repaying loans and having living expenses, which again I find are not unforeseen.”[17]
[17] Idem.
The AAT1 in its determination allowed (rounded):
·$18,896 in legal fees
·$39,980 for his motor vehicle
·$19,420 for appliance, electrical goods and furnishings.
The Tribunal thus arrived at its discounted figure of $78,296.[18]
[18] Section 37 Tribunal Documents at [7].
In his oral evidence the Applicant stated that his calculation of his legal fees was in the order of “$25,000 – $30,000”. The Tribunal has independently added up the totals in the invoices from the Applicant’s solicitors, APJ Law, which it has before it. Over the period from February 2015 to March 2018 they amount to $24,981.[19]
[19] Ibid at [184]-[230].
The Applicant also stated, for the first time in his oral evidence that he had received notification from the Child Support Agency of a potential liability (at the rate of $400 per month) for the payment of child support. This could not be verified independently and, in any case, it is disputed by the Applicant on the basis that he had reached a private settlement with his wife which, he says, specifically ruled out the payment of child support. It is not a matter the Tribunal can take into account in the absence of independent verification.
At the hearing the Respondent challenged the Applicant in relation to both his overall pattern and total of expenditure as well as expenditure on specific items.
One of these was the car (a Holden Commodore). However both the ARO and the AAT1 accepted this is proper expenditure given the circumstances and this Tribunal sees no reason to take a different view.
Similarly, the Respondent was critical of the Applicant’s provision of “gifts” (a washing machine) and other financial support to his pensioner mother. The sums in question were not discussed and while the Tribunal accepts that compensation payments are made to an individual for their own personal support, it cannot be critical of this item of expenditure.
The Respondent pressed the Applicant on his expenditure on furniture making the point that apparently cheaper items could have been acquired, to which the Applicant responded that such items bought on-line were not accompanied by warrantees nor was it that easy to either acquire in, or transport such items to Glenn Innes.
Nevertheless the Applicant did concede that he did perhaps “over-spend a bit” but that generally he thought that, overall, his expenditure had been justified.
In May 2017 the Applicant received payments totalling $200,973. In that month, in setting up his house and acquiring his car he spent somewhere in the order of $63,000. Thereafter he spent the balance of some $137,000 within the next seven months, so that, by the end of 2017 he had virtually no funds left.
The Tribunal has made frequent references to excessive or imprudent expenditure of compensation payments resulting in financial hardship for individuals.
Deputy President Constance in his determination in Sams[20] said:
“[40] Although I do not suggest that Mrs Sams dwindled the money on extravagant purchases, I am satisfied that had she been more careful in managing her finances then Mrs Sam’s present financial hardship could have been prevented.”
[20] Sams v Secretary, Department of Social Services [2016] AATA 654.
There is no evidence that the Applicant sought any form of professional advice to help him plan and manage his finances after the compensation payment had been made.
It is important to note that the Applicant says that he did not receive any advice that there was a preclusion period triggered by that compensation payment. Although there is clear evidence before the Tribunal that the Department wrote to both the Applicant[21] and his Solicitors[22] explaining these arrangements to them, the Applicant denies that he ever received the Department’s letter or that he was provided such advice by the solicitors.
[21] Section 37 Tribunal Documents at [39].
[22] Ibid at [42].
That is most unfortunate but it does not, in itself, vitiate the Applicant’s responsibility to be prudent in the management of his finances rather than seeking to rely upon payments from the taxpayer within a very short period of time after receipt of a large enough sum to live upon for some time.

The AAT1 noted that prior to his accident the Applicant had an annual income of approximately $40,000 (at the hearing he said it was $38,000) and on that he had managed to live and to do so as part of a couple and with dependent children. The AAT1 remarked that:
”…. even after his legal costs, setting up household costs and car purchase are excluded, he spent more than three times his usual annual income in about seven months.”[23]
[23] Ibid at [7].
This Tribunal cannot but agree with this criticism of the Applicant’s expenditure pattern even in the absence of an understanding of the impact of the preclusion period.
CONSIDERATIONS
The Tribunal has accepted that there are special circumstances in relation to Mr Marshall’s application which arise from both the impact of major financial costs associated with his divorce and custody matters and with the necessity to set up a new home following his separation from his wife.
In relation to the legal costs, the Tribunal is inclined to set a slightly higher figure than the AAT1 based upon the invoices which it has before it and to increase that amount from the AAT1’s figure of $18,896 to $25,000.
In respect to the motor vehicle cost of $39,980 and the household establishment costs of $19,419.50 accepted by the AAT1, this Tribunal agrees that those are reasonable and justifiable figures. It would not propose any variation in those amounts.
Taking those figures together arrives at a total for reduction from the lump sum of $84,399.50.
This Tribunal’s calculations would thus be as follows:
Total lump sum  $366,112.00
Less special circumstances calculation       $ 84,399.50
Total  $281,712.50
Application of 50% discount rule  $140,856.25
Divided by cut out amount ($970.30)             145.16 weeks.
The 145.16 weeks is rounded down to 145 weeks. This is the preclusion period. This is taken to commence on 11 May 2017 and hence ends on 19 February 2020.
DECISION
The decision under review is set aside and a new preclusion period is determined to end on 19 February 2020.

I certify that the preceding 62 (sixty -two) paragraphs are a true copy of the reasons for the decision herein of Chris Puplick AM, Senior Member

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Associate
Dated: 4 April 2019

Date(s) of hearing: 29 March 2019

Applicant: By phone

Solicitors for the Respondent: Mr G Lozynsky, Department of Human Services

[2019] AATA 670

4 April 2019

Key Legal Topics

Areas of Law

Administrative Law

Statutory Interpretation

Legal Concepts

Judicial Review

Natural Justice

Procedural Fairness

Statutory Construction

Standing

Date(s) of hearing:	29 March 2019
Applicant:	By phone
Solicitors for the Respondent:	Mr G Lozynsky, Department of Human Services