MARTIN JEFFREY and and MARTIN JEFFREY
[2009] AATA 471
•26 June 2009
Administrative Appeals Tribunal
DECISION AND REASONS FOR DECISION [2009] AATA 471
ADMINISTRATIVE APPEALS TRIBUNAL )
) No 2008/0179
GENERAL ADMINISTRATIVE DIVISION ) 2008/0473 Re MARTIN JEFFREY Applicant
And
SECRETARY, DEPARTMENT OF FAMILIES, HOUSING, COMMUNITY SERVICES AND INDIGENOUS AFFAIRS
Respondent
AND
Re SECRETARY, DEPARTMENT OF FAMILIES, HOUSING, COMMUNITY SERVICES AND INDIGENOUS AFFAIRS Applicant
And
MARTIN JEFFREY
Respondent
DECISION
Tribunal Mrs Josephine Kelly, Senior Member Date26 June 2009
PlaceSydney
Decision Proceedings 2008/0179 and 2008/0473
I affirm the decision of the Social Security Appeals Tribunal (SSAT) dated 21 September 2007, insofar as it found that Mr Jeffrey is liable to repay a debt of $75,640.41 for DSP. I otherwise set aside the SSAT decision and substitute the decision that Mr Jeffrey is subject to a lump sum preclusion period on Mr Jeffrey starting on 4 May 2002 and ending on 3 January 2020.
....................[sgd].........................
Senior Member
Mrs Josephine Kelly
CATCHWORDS
SOCIAL SECURITY – Lump sum compensation payment – Settlement of damages claim approved by Court - Debt for disability support pension raised – Lump sum preclusion period imposed – Whether compensation part of lump sum 50% or only part in respect of future economic loss – Whether preclusion period starts on at date of accident or Court settlement – Whether a settlement or otherwise - Whether special circumstances – Decision set aside in part – Decision affirmed in part
Social Security Act 1991, Part 3.14, ss 17, 1161, 1169, 1170, 1184A, 1184K
Civil Procedure Act 2005 (NSW), s 76
Guide to the Social Security Law
Re Beadle v Director-General of Social Security (1985) 60 ALR 225
Re Groth v Secretary, Department of Social Security (1995) 40 ALD 541
Re Welch and Secretary, Department of Family and Community Services (2003) 78 ALD 550
Secretary, Department of Family and Community Services v Chamberlain (2002) 116 FCR 348
Secretary, Department of Social Security v Banks (1990) 23 FCR 416
REASONS FOR DECISION
26 June 2009 Mrs Josephine Kelly, Senior Member SUMMARY
1. Mr Martin Jeffrey was seriously injured on 4 May 2002 when he was struck by a motor cycle while he was stationary with his pushbike in the middle of a busy road (the accident). He sustained a head injury, brain damage and cognitive deficits as well as significant orthopaedic injury.
2. Mr Jeffrey was, and remains, legally incapacitated. His tutor commenced personal injury proceedings in the NSW District Court (the Court).
3. On 22 May 2007 the Court approved Short Minutes of Order dated 15 May 2007, and signed by counsel for the Plaintiff and Defendant, pursuant to s 76(4)) of the Civil Procedure Act 2005 (NSW) (the Civil Procedure Act). The Order stated:
“The settlement of $995,750.00 inclusive of payments made to date ($116,301.00) plus costs of funds management agreed in the sum of $187,000.00 plus party-party costs [of $160,000] is approved pursuant to section 76(4) of the [Civil Procedure Act 2005 (NSW)].”
4. I will refer to the payment Mr Jeffrey received following Court's approval of the short minutes of order as "the Court approved payment".
5. Mr Jeffrey was in receipt of disability support pension (DSP) at the time of the accident and continued to receive DSP until the Court proceedings were concluded. The DSP had been granted in September 2001 because Mr Jeffrey was diagnosed at that time to be suffering from depression and personality disorder.
6. Mr Quickenden, counsel appearing for Mr Jeffrey, acknowledged that the purpose of the statutory regime set out in Part 3.14 of the Social Security Act 1991 (the Act) is for the Commonwealth to recover benefits paid to persons who have a right to be compensated by a third party, for example as a result of a motor vehicle accident. It is the effect of that legislative scheme in relation to Mr Jeffrey's circumstances that is in issue in these proceedings.
7. On 21 June 2007, Centrelink decided:
(a)to raise and recover from Mr Jeffrey a debt of $75,640.41 for DSP that had been paid between the time of the accident and the date when the Court approved the short minutes of order; and
(b)to impose a lump sum preclusion period from 4 May 2002 until 3 January 2020, that is the period during which Mr Jeffrey would be precluded from receiving DSP because part of the monies he had received as compensation for the accident was deemed to provide an income stream during that period.
8. A Centrelink Authorised Review Officer (ARO) affirmed that decision on 6 August 2007, and made findings that:
(a)Mr Jeffrey had received a lump sum compensation settlement of $1,342,750 on 15 May 2007 ($995,750 plus $187,000 investment funds plus costs $160,000);
(b)the settlement was agreed to by a judge in the NSW District Court, and was a court approved compromise; and
(c)the 50% rule applies to Mr Jeffrey’s compensation lump sum as the payment included an amount for economic loss and was not a judgment by contested hearing.
9. On 12 December 2007, the Social Security Appeals Tribunal (SSAT) varied the ARO’s decision, finding that the preclusion period ought to be recalculated on the basis that the compensation part of the lump sum was $182,750, that is, the amount relating to the future economic loss component of the settlement. Therefore Mr Jeffrey was partially successful. The SSAT otherwise affirmed the decision to recover a compensation charge of $75,640.41, and remitted the matter to the Secretary, Department of Families, Housing, Community Services and Indigenous Affairs (the Secretary) to recalculate the length of the preclusion period to reflect the future economic loss component of the court approved settlement.
10. Mr Jeffrey, by his trustee, and the Secretary, have both applied for review of the SSAT’s decision.
ISSUES
11. The issues in simple terms are:
a) How much of the Court approved payment should be taken into account when determining the length of the period during which Mr Jeffrey is precluded from receiving DSP (the preclusion period)?
b) What, if any, is the start date of the preclusion period? If there is a start date, is it the date of the accident (4 May 2002) or the date of the Court approval of the short minutes of order (22 May 2007)?
c) Are there special circumstances in Mr Jeffrey’s case that make it appropriate to treat any part of the relevant compensation payment as not having been made, so as to reduce the preclusion period?
LEGAL FRAMEWORK
12. It is necessary to set out the relevant legislative provisions in order to understand the issues and the arguments put by the parties.
13. Section 17(1) of the Act provides that DSP is a compensation affected payment.
14. Section 17(2) of the Act defines “compensation”:
Compensation
(2) Subject to subsection (2B), for the purposes of this Act, compensation means:
(a) a payment of damages; or
(b) a payment 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) a payment (with or without admission of liability) in settlement of a claim for damages or a claim under such an insurance scheme; or
(d) any other compensation or damages payment;
(whether the payment is in the form of a lump sum or in the form of a series of periodic payments and whether it is made within or outside Australia) that is made wholly or partly in respect of lost earnings or lost capacity to earn resulting from personal injury.
15. Both parties accepted that the Court approved payment Mr Jeffrey received was relevantly "compensation" as defined. .
16. Section 17(3) of the Act defines “the compensation part of a lump sum compensation payment”. It provides, relevantly:
Subject to subsection (4), for the purposes of this Act, the compensation part of a lump sum compensation payment is:
(a) 50% of the payment if the following circumstances apply:
(i) the payment is made (either with or without admission of liability) in settlement of a claim that is, in whole or in part, related to a disease, injury or condition; and
(ii) the claim was settled, either by consent judgment being entered in respect of the settlement or otherwise; or
…
(b) if those circumstances do not apply—so much of the payment as is, in the Secretary’s opinion, in respect of lost earnings or lost capacity to earn, or both
17. Both parties accepted that s 17(3) applied to the payment, that is, both accepted that the payment Mr Jeffrey received was a lump sum compensation payment. The question is: what is the "compensation part" of that lump sum compensation payment?
18. Section 17(5A) of the Act provides:
17(5A) For the purposes of subsection (2B) of this section and Part 3.14, the event that gives rise to a person’s entitlement to compensation for a disease, injury or condition is:
(a)if the disease, injury or condition was caused by an accident – the accident; or
(b)in any other case – the disease, injury or condition first becoming apparent;
and is not, for example, the decision or settlement under which the compensation is payable.
19. Section 1161(1)(b) of the Act has the effect that because Mr Jeffrey is a recipient of compensation, payment of DSP to him is affected by the provisions in Part 3.14 of the Act which comprises sections 1160 to 1185L.
20. Section 1169 provides that a person cannot receive a compensation affected payment during a lump sum preclusion period.
21. Section 1170 of the Act sets out when the preclusion period begins and ends. The parties agreed that subsection 1170(3) is relevant in this case:
1170(3) 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 subsection (4) and (5)
22. Section 1170(4) prescribes a formula to work out the number of weeks in the lump sum preclusion period and s 1170(5) provides that the result of that calculation is to be rounded down to the nearest whole number if the result is not a whole number.
23. Division 4 of Part 3.14 of the Act provides for recovery of compensation affected payments made during a lump sum preclusion period. Section 1184 provides that the Secretary may give written notice to a compensation payer that the Secretary proposes to recover an amount specified in the notice.
24. Section 1184A(1) of the Act provides:
The section 1184 recoverable amount
(1) If a person receives compensation affected payments in relation to a day or days in a lump sum preclusion period, the recoverable amount under this section is equal to the smallest of the following amounts:
(a) the sum of all compensation affected payments made to the person that relate to a day or days in a lump sum preclusion period;
(b) the compensation part of the lump sum payment;
(c) in the case of a compensation payer--the maximum amount that the compensation payer is liable to pay to the person in relation to the matter at any time after receiving:
(i) a notice under section 1182 in relation to the matter; or
(ii) if the compensation payer has not received a notice under section 1182--the notice under section 1184 in relation to the matter;
(d) in the case of an insurer--the maximum amount for which the insurer is liable to indemnify the compensation payer in relation to the matter at any time after receiving:
(i) a notice under section 1182 in relation to the matter; or
(ii) if the insurer has not received a notice under section 1182--the notice under section 1184 in relation to the matter.
25. Section 76 of the Civil Procedure Act requires that settlement or compromise of proceedings commenced in the court on behalf of a person under legal incapacity must be approved by the court. It provides:
Settlement of proceedings commenced by or on behalf of, or against, person under legal incapacity
76 Settlement of proceedings commenced by or on behalf of, or against, person under legal incapacity
(cf Act No 25 1929, section 4)
(1) This section applies to proceedings commenced by or on behalf of, or against, any of the following persons:
(a) a person under legal incapacity,
(b) a person who, during the course of the proceedings, becomes a person under legal incapacity,
(c) a person whom the court finds, during the course of the proceedings, to be incapable of managing his or her own affairs.
(2) The court may make a finding referred to in subsection (1) (c) only on the basis of evidence given in the proceedings in which it is made, and such a finding has effect for the purpose only of those proceedings.
(3) Except with the approval of the court, there may not be:
(a) any compromise or settlement of any proceedings to which this section applies, or
(b) any acceptance of money paid into court in any such proceedings,
as regards a claim made by or on behalf of, or against, a person referred to in subsection (1).
(4) If an agreement for the compromise or settlement of any matter in dispute in any such proceedings is made by or on behalf of a person referred to in subsection (1), the court may approve or disapprove the agreement.
(5) An agreement disapproved by the court does not bind the person by whom or on whose behalf it was made.
(6) An agreement approved by the court binds the person by whom or on whose behalf it was made as if he or she were of full capacity and (if it was made by some other person on his or her behalf) as if that other person had made the agreement as his or her agent.
CONSIDERATION
26. I have taken into account all the evidence that was before me and the written and oral submissions made by the parties. I address each submission made by Mr Quickenden, counsel who appeared on behalf of Mr Jeffrey, in the order in which he made them.
When does lump sum preclusion period begin, if at all?
27. Mr Quickenden argued that s 1170(3)(a) of the Act requires a factual analysis to determine "the day on which the loss of earnings or loss of capacity to earn began". He said that that assertion is supported by the Guide to the Social Security Law, and as a matter of common sense. Therefore, in this case, the start date of the preclusion period is the date the Court "found" that there was no past economic loss but only future economic loss, the 22 May 2007. That is, he argued the Court made a finding that loss of earnings or loss of capacity to earn resulting from the accident began on that day for the purpose of s 1170(3)(a) of the Act.
28. Therefore, Mr Quickenden argued, Mr Jeffrey had no loss of income or earning capacity arising from his compensable claim until 22 May 2007. The lump sum preclusion period would begin, say, on 23 May 2007, the day after the Court’s finding that there was a loss of future earnings. It follows that the amount of $75,640.41 was not recoverable under s 1184A(1) of the Act because it had been received before there was relevant loss of capacity.
29. During the hearing Mr Quickenden put an alternative argument that, in fact, there was no preclusion period because there was no start date. He argued that there was no evidence on which a decision-maker could find a specific time or day that Mr Jeffery’s earning capacity was lost because of the compensable event.
30. In my view, the Court made no "finding" of fact as to the day on which the loss of earnings or loss of capacity to earn began. The Court's role under s 76 of the Civil Procedure Act was to approve or not approve the settlement, not to make findings in terms of the parties' agreement or to make such a finding independently of that agreement. It is conceivable that there may be cases where a court makes a finding in a judgment, following a contested hearing, that a loss of earnings or loss of earning capacity occurred on a date other than the date of the accident causing that loss, but this is not such a case. For the reasons given later in this decision, I find that the Court approved settlement falls within s 17(3)(a) rather than s 17(3)(b) of the Act.
31. The alternative argument that there is no start date because there was no evidence on which a decision-maker could find a specific time or day that Mr Jeffery's earning capacity was lost because of the compensable event contradicts the previous argument. It also acknowledges that the compensable event was the accident.
32. Section 17(5A)(a) of the Act supports my conclusion that the start date of the preclusion period in this case is the date of the accident, 4 May 2002. Mr Jeffery received the injuries which gave rise to his entitlement to "compensation" as defined in s 17(2) of the Act at that time.
What is the meaning of "the payment" in s 17(3)(a) of the Act?
33. Mr Quickenden challenged what he described as the traditional interpretation of s 17(3)(a) that applies the 50% figure to the total damages and costs of the settlement amount. He argued that phrase “the payment”, in subsection 17(3)(a), means a payment made in respect of lost earnings or lost capacity to earn, resulting from the compensable event. Therefore only the sum of $182,750 which was allowed for future loss of earning capacity should be applied in the formula in s 1170(4) of the Act. The calculation proposed by Mr Quickenden would then be:
$182,750 divided by $620 = 295 weeks, approximately 5.6 years.
34. Mr Quickenden said that it was unlikely that Mr Jeffrey would receive benefits in the future because of the money held on his behalf. This is not a matter that I need to determine.
35. I can see no support for Mr Quickenden's argument that "the payment" in s 17(3)(a) of the Act refers to a payment made in respect of lost earnings or lost capacity to earn, resulting from the compensable event. In my view, "payment", where it appears in s 17(3)(a) and (b) of the Act, is clearly a short-hand reference to the phrase "lump sum compensation payment", which appears in the introductory words to the section.
36. The parties agreed that the "lump sum compensation payment" received by Mr Jeffrey was the amount $1,342,750.
Does the Court approved settlement fall within s 17(3)(a) or (b) of the Act?
37. Mr Quickenden's third submission was to challenge the correctness of Re Welch and Secretary, Department of Family and Community Services (2003) 78 ALD 550. He also argued that the compromised approval pursuant to s 76 of the Civil Procedure Act 2005 (NSW) does not fall within s 17(3)(a) of the Act. He submitted that the claim was not settled by "consent judgment" or otherwise because the Court had approved the Short Minutes of Order pursuant to s 76 of the Civil Procedure Act.
38. He also sought to distinguish Welch from this case. First, he argued that, in Welch, the third party caused the injuries which resulted in the compensable person claiming the benefit, whereas Mr Jeffrey’s injuries did not cause him to apply for the benefit. Mr Jeffrey was already receiving the DSP benefit at the time of the accident. I accept that that is a factual distinction. However, that does not exclude Mr Jeffrey's circumstances from the effect of s 17(3) of the Act.
39. Secondly, Mr Quickenden argued that the settlement in Welch was between the parties and that the court had no input, whereas in the present case, the Court did have an input pursuant to s 76 of the Civil Procedure Act. As stated above, in my view the Court was approving the terms of settlement, albeit on the basis of evidence put before it by the parties. In my opinion, that is not different from Welch.
40. In Welch, Member Allen decided that an "order of compromise" made by consent in the District Court of Western Australia fell within s 17(3)(a) rather than s 17(3)(b). The proceedings were taken by parents as the "next friends" of their son who had suffered catastrophic injuries in a motor vehicle accident. Following a determination of liability by the Full Court of the Supreme Court of Western Australia, negotiations between the parties resulted in a provisional compromise of the quantum of damages. Order 70 of the Rules of the Supreme Court required Court approval of the compromise. For that purpose, counsel retained on behalf of the plaintiff provided an opinion about the way damages should be assessed and whether the terms of the compromise were in the plaintiff's interests. The opinion set out heads of damage including past loss of earnings, interest on that amount, future loss of earnings and lost past and future superannuation benefits.
41. In Secretary, Department of Social Security v Banks (1990) 23 FCR 416, von Doussa J traced the history of the predecessor of s 17(3) in the 1947 Act, which is in similar terms. His Honour said at 421:
It is clear that the amendment was inserted to overcome the administrative difficulties which confronted the Secretary under the earlier provision. It is permissible in the construction of an Act to have regard to the second reading speech on the Bill to identify the mischief which it was intended to rectify …
42. After quoting part of the second reading speech, His Honour said at 422:
The mischief is clearly identified as the abuse of the earlier provisions which had come about through settlements being manipulated to obscure the economic loss component in the compensation payment.
…
Section 152(2)(c) is concerned with lump sum payments. Subparagraph (i) introduces an arbitrary formula to be applied if the lump sum payment was made in settlement of a claim. What stands in contrast with a lump sum payment made in settlement of a claim is a lump sum payment made pursuant to curial determination of a claim on the merits according to law. Determinations of this kind are dealt with by subpar (ii). It is understandable with this class of lump sum payment that the Secretary is still required to form an opinion as to the amount of a lump sum payment that is in respect of an incapacity for work, as a curial determination will be accompanied by reasons for decision which can be expected to disclose the component parts of the award, which constituted the lump sum payment.
…
A notion of finality however is introduced in s 152(2)(c)(i) by the requirement that the lump sum payment be one “in settlement of a claim…”. The expression “the lump sum payment… made… in settlement of a claim” is apt to describe the total amount which is payable as the monetary consideration passing from the party on whose behalf the payment is to be made to the recipient in exchange for release of the claim.
43. In this case, there was a settlement agreed between the parties which required approval of the Court. I find that the Court approved order of 22 May 2007 falls within s 17(3)(a) of the Act, not s 17(3)(b).
44. I would further observe that, on the material before me, it is conceivable that Mr Jeffrey’s settlement was constructed to include no past economic loss component of the lump sum compensation payment to support an argument that Mr Jeffrey did not have to repay the DSP benefit received from the time of the accident until the time of the Court approved settlement. Mr Jeffrey's tutor stated in the affidavit in support of the Court approval:
“However, I also further understand there may be no Centrelink repayment because the Plaintiff was unlikely to receive any past sum for loss of earning capacity given his pre injury circumstances. I also note it is intended that the Plaintiff make no claim in respect of past loss of earning capacity”.
45. It is not for me to make a finding on this matter. However, if that were the case, that is precisely the mischief the amendment to the Act was intended to rectify, as von Doussa discussed in Banks at 421 - 422.
Are there special circumstances in Mr Jeffrey's case?
46. The fourth submission made by Mr Quickenden was that there are special circumstances within s 1184K(2) of the Act, and that in that respect, this case is similar to Welch. There would be unfairness in the rigid application of the legislation. Mr Jeffrey’s head injury makes any recovery unlikely and most of his damages are for care, not for loss of earnings or loss of earning capacity. Mr Quickenden argued that no account has been taken of the 15% contributory negligence, nor of the fact that Mr Jeffrey would have continued on DSP without any prospect of the Commonwealth recovering any benefits.
47. Section 1184K(2) of the Act provides that the Secretary, or in this case the Tribunal, may treat the whole or part of a compensation payment as not having been or liable to be, made if it thinks it is appropriate to do so in the special circumstances of the case.
48. I do not consider that there are special circumstances in this case. There is nothing before me to indicate that Mr Jeffrey’s case is unusual, uncommon or exceptional or markedly different from the usual run of such cases (see Re Groth v Secretary, Department of Social Security (1995) 40 ALD 541, Re Beadle v Director-General of Social Security (1985) 60 ALR 225). In coming to this conclusion, I have taken into account the medical evidence before me. It seems to me that the complaint in this case is that strict application of the statute gives rise to an unjust result. As Kiefel J pointed out in Secretary, Department of Family and Community Services v Chamberlain (2002) 116 FCR 348 at 354 – 355, that, by itself, cannot amount to "special circumstances".
DECISION
49. In respect of both applications, 2008/0179 and 2008/0473, I affirm the decision of the SSAT dated 21 September 2007, insofar as it found Mr Jeffrey is liable to repay a debt of $75,640.41 for DSP. I otherwise set aside the SSAT decision and substitute the decision that Mr Jeffrey is subject to a lump sum preclusion period starting on 4 May 2002 and ending on 3 January 2020.
I certify that the 49 preceding paragraphs are a true copy of the reasons for the decision herein of Mrs Josephine Kelly, Senior Member.
Signed: ………[sgd]….......
Steven Mulipola, Associate
Date of hearing: 19 March 2009
Date of decision: 26 June 2009
Counsel for the Applicant: Mr R Quickenden
Representative for the Applicant: IPAC Securities Ltd
Counsel for the Respondent: Ms K Eastman
Solicitor for the Respondent: Australian Government Solicitor
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