McCouch and Secretary, Department of Social Services (Social security) - [2024] ARTA 716

McCouch and Secretary, Department of Social Services (Social security) [2024] ARTA 716 (29 October 2024)

Applicant: Mr McCouch

Respondent: Secretary, Department of Social Services

Chief Executive Centrelink

Tribunal Number: 2024/B189789
Tribunal: Member K Hamilton
Place:Brisbane
Date:29 October 2024

Decision:The decision under review is set aside and the matter is sent back to the Chief Executive Centrelink for reconsideration with the direction that in accordance with section 1184K of the Social Security Act 1991, so much of the compensation lump sum is to be disregarded such that the compensation preclusion period ends on 29 October 2024.

CATCHWORDS

SOCIAL SECURITY – Disability Support Pension – lump sum compensation preclusion period – special circumstances – income cut-out amount – gambling away compensation partially – retaining a home asset – further medical conditions – preclusion period shortened – decision under review set aside and sent back for reconsideration

Names used in all published decisions are pseudonyms. Any references appearing in square brackets indicate that information has been omitted from this decision and replaced with generic information pursuant to subsection 201(1A) of the Social Security (Administration) Act 1999.

Statement of Reasons

BACKGROUND

On 31 January 1999, Mr McCouch was catastrophically injured in an accident resulting in incomplete quadriplegia.
[in] August 2000, Mr McCouch settled his claim for compensation for a lump sum of $1,657,500.
On 18 August 2000 Centrelink wrote to Mr McCouch and advised as follows:
I am writing to you about the effect your compensation payment has on the social security payments paid to you.
Part 3.14 of the Social Security Act 1991 provides that when a person receives a lump sum payment of compensation, part of the payment is considered to be for lost earnings or lost capacity to earn. This amount is then used to calculate a period of time when a person will not be eligible to receive social security payments, with the exception of payments made for children, Carers Allowance and Mobility Allowance. This period of time is called the preclusion period and, depending on a person's circumstances, may affect past and/or future payments made to that person.
I have been advised that you are entitled to a lump sum compensation payment of $1,657,500.00 and I have calculated that the amount of social security payments to be repaid is $13,452.46. The preclusion period start date is 31 January 1999 and the end date is 15 April 2028.
On 11 May 2009 Mr McCouch lodged a claim for disability support pension (DSP). This claim was rejected by Centrelink on the basis that Mr McCouch was subject to a lump sum compensation preclusion period.
On 23 August 2012, Mr McCouch lodged a further claim for DSP. This claim was also rejected by Centrelink on the basis that a lump sum compensation preclusion period was in place. Mr McCouch sought internal review of that decision and later, review by the Social Security Appeals Tribunal (SSAT). On 26 September 2021 the SSAT affirmed Centrelink’s decision to reject Mr McCouch’s claim for DSP.
On 10 April 2024 Mr McCouch again lodged a claim for DSP, which was rejected by Centrelink.
Mr McCouch sought internal review of that decision and on 9 July 2024, an authorised review officer (ARO) affirmed the rejection. The ARO found that DSP was not payable to Mr McCouch as a preclusion period applied until 15 April 2028, and that there were no special circumstances that made it appropriate to disregard any part of his lump sum compensation.
On 17 July 2024, Mr McCouch applied to the Administrative Appeals Tribunal (AAT) for independent review of the decision of the ARO.
From 14 October 2024, the AAT became the Administrative Review Tribunal (the Tribunal). Under the transitional provisions in the Administrative Review Tribunal (Consequential and Transitional Provisions No. 1) Act 2024 (the Transitional Act), applications for review to the AAT that were not finalised before 14 October 2024 are taken to be an application for review to the Tribunal. The Transitional Act gives the Tribunal the authority to continue and finalise any aspect of the review not already completed by the AAT. This decision and statement of reasons is made by the Tribunal.
The matter was heard on 29 October 2024. Mr McCouch participated in the hearing by telephone accompanied by a support person. The Tribunal had regard to relevant documents produced by Centrelink, numbered as pages 1–153.

ISSUES

The issues which arise in this case are:
·      Does a lump sum compensation preclusion period apply, and if so, has it been calculated correctly?
·      Are there special circumstances justifying treating part or all of Mr McCouch’s compensation as not having been made, such that the compensation preclusion period can be shortened? And
·      Was the decision to reject Mr McCouch’s claim for DSP correct?

RELEVANT LAW

The statutory provisions relevant to this review are contained in the Social Security Act 1991 (the Act).
The compensation recovery provisions are found in Part 3.14 of the Act. The purpose of these provisions is to ensure that a person is not doubly compensated for lost earnings or loss of earning capacity - both by a liable party paying compensation and by the community through social security payments. When compensation has been received in a lump sum, the Act achieves this purpose by providing that for a defined period, worked out under a formula, the person is precluded from receiving social security payments.
Section 1169 of the Act provides that a “compensation affected payment” is not payable during a lump sum preclusion period.
Section 1170 of the Act provides that, in the case of a person who has not received periodic compensation payments, the lump sum preclusion period begins on the day on which the loss of earnings or loss of capacity to earn began. This section also provides a formula for calculating the number of weeks of the preclusion period, which requires dividing the “compensation part of lump sum” by the “income cut-out amount”.
A “compensation affected payment” is defined in section 17 of the Act. Section 17 also defines the compensation part of a lump sum and provides a formula for calculating the income cut-out amount.
Section 1184K of the Act allows all or part of a compensation payment to be treated as not having been made if appropriate in the special circumstances of the case.
The Tribunal also had regard to the Social Security Guide, in particular chapter 4.13. While the Tribunal is not bound by government policy contained in the Guide, where such policy is not inconsistent with the law, it is a relevant factor for the Tribunal to take into account in reviewing a decision.

CONSIDERATION

Issue 1: Does a compensation preclusion period apply and has it been correctly calculated?

The payment of $1,657,500 made to Mr McCouch [in] August 2000 was a lump sum compensation payment made at least partially in respect of Mr McCouch’s loss of earnings or loss of earning capacity. The compensation part of Mr McCouch’s lump sum compensation payment is therefore 50% of $1,657,500 (being $828,750): paragraph 17(3)(a) of the Act.
At the time that Mr McCouch received his lump sum settlement in August 2000, the income cut-out amount was $543.63. Applying the statutory formula gives a preclusion period of 1,524 weeks, commencing from 31 January 1999: section 1170 of the Act.
I find that Mr McCouch is subject to a lump sum preclusion period which has been correctly calculated by Centrelink as starting on 31 January 1999 and ending on 15 April 2028.
Mr McCouch at hearing confirmed that he did not dispute that a compensation preclusion period applied, or that it had been correctly calculated by Centrelink, but asked that the preclusion period be shortened on the basis of his special circumstances.

Issue 2: Are there special circumstances to treat part or all of the compensation as not having been made?

Section 1184K contains the following discretionary power:
(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 concept of “special circumstances” is not defined in the Act, but in Groth v Secretary, Department of Social Security (1995) 40 ALD 541 at 545, the Federal Court noted that the term would require something to distinguish the particular case from others, to take it out of the run of usual or ordinary cases, and commented that “it would of course follow that if one were to conclude that something unfair, unintended or unjust had occurred that there must be some feature out of the ordinary”.
Financial hardship is not, of itself, a special circumstance (Re Hajar and SDSS (1988) 16 ALD 716 at 719).
Any conclusion as to whether any unfairness or unjust outcome exists in Mr McCouch’s case must be reached having regard to the context and intent of the legislation. The intention behind the compensation recovery provisions is that a person who receives compensation for loss of income in respect of a period should not also be compensated by receiving social security income support payments for the same period. To avoid this so-called “double dipping”, compensation recipients are precluded from receiving social security payments for a specified period and are expected to support themselves from their compensation money.
Mr McCouch was frank in his evidence to the Tribunal. He said that he was fully aware that the preclusion period was in place until 2028. He said he took full responsibility for running out of money prior to the end of the preclusion period.
Mr McCouch told the Tribunal that apart from the Centrelink refund ($13,452.46) and a modest amount of legal fees (approximately $30,000) he spent $320,000 of his compensation to purchase a new home. The majority of the balance of his compensation he spent on online gambling, drugs and alcohol. While Mr McCouch did not seek to excuse the manner in which he wasted his compensation, he said that he turned to gambling and drinking as a way to deal with becoming a quadriplegic as well as the breakdown of his marriage, which occurred only a year after he received his compensation. Mr McCouch said that he had been advised after his accident that his life expectancy would be only around 10 years, so he was not thinking straight about the need to make his compensation last.
At the time he received the settlement, Mr McCouch was married with [number] children. They were living in a 3 bedroom unit which was completely unsuitable for his disability. For example, it had a shower over a step in bath which he could not access, and the kitchen and bathroom benches were too high. He decided to purchase a home in joint names with his wife that was accessible for him so that he could remain living with his family.
Around a year after receiving his compensation, Mr McCouch separated from his wife. He moved to Melbourne and his mother and father became his primary carers. He purchased a property in Melbourne for $140,000 and lived there for the next 10 years with his mother and father. Eventually his elderly parents were no longer able to care for him. Mr McCouch then sold the Melbourne property for around $160,000 and moved back to Queensland.
In the intervening years Mr McCouch and his ex-wife had sold the house originally purchased with his compensation money and purchased another home for the same amount of money. Mr McCouch said that he did this, again putting the house in joint names despite the breakdown of his relationship, to ensure that his children had a home. He did not make any money on the sale of the original property.
When he moved back to Queensland Mr McCouch’s ex-wife agreed to become his carer. Mr McCouch used most of the funds from the sale of the Melbourne property to construct an extension that was disability-friendly on the back of his ex-wife’s home. This cost him around $120,000 to $130,000. He then had $30,000 remaining, which he lived on for a year or so.
Mr McCouch was able to obtain a part-time job at [Employer 1] around 14 years ago. He still works there for a maximum of 8 hours per week, earning about $260 per week. He mostly works Saturdays and Sundays as his boss tries to give him weekend shifts so he can be paid at a higher hourly rate. He also receives around $30 per week in superannuation and, as he is over 60, he can access these amounts from his superannuation each month to supplement his income.
Mr McCouch said that the breakdown of his relationship resulted in significant unanticipated expenses for him. While living with his parents, he had to pay for professional support workers to help him with showering and dressing, transferring out of bed, and to do his enemas, bowel therapy and cleaning after toileting. He was required to pay $100 per day for this home support, 7 days per week.
At the time of his settlement, Mr McCouch said that it was envisaged that his ex-wife would be his carer and so his compensation did not include much money to cover professional in-home support that his parents were unable to provide while he lived with them. Mr McCouch also paid $400 per month to his ex-wife for child support while he was living interstate.
Mr McCouch accepted that the compensation he received was not to buy a house but to look after himself for the duration of the preclusion period. However, Mr McCouch feels that if he had not purchased and modified a property to suit his disability, he likely would have expended all of his compensation money by now in any event in rental costs.
Mr McCouch also advised the Tribunal that a few years ago he was diagnosed with [medical condition 1]. This causes his immune system to [react]. He takes medications that suppress his immune system. This has resulted in him being prone to frequent infections [specified]. He has been hospitalised multiple times in the last few years, on average for 10 days at a time. He has been missing a lot of work as a result and is not sure how much longer he can continue in his job.
These repeated infections have also caused Mr McCouch to lose a lot of muscle strength so he is less mobile now than he used to be. He has put on a lot of weight. He was diagnosed with sleep apnoea around 6 months ago but cannot afford a CPAP machine. His asthma has also gotten a lot worse.
Following his last unsuccessful appeal, Mr McCouch borrowed $140,000 against his home. He is still paying this debt off at the rate of $1,200 per month. Mr McCouch pays $440 towards this loan each month; his ex-wife pays the rest. Mr McCouch recently tried to get an extension of his loan to enable him to serve out the balance of the preclusion period, but the banks rejected him because of his age.
From his minimal income Mr McCouch also pays $50 per week for rates, and pays for his own phone, groceries and medication. He has [other specified] debts totalling $2,400 which he took out to replace his fridge and television when they broke.
Mr McCouch’s ex-wife receives carer payment for care she provides to him. Mr McCouch’s adult [son] lives with them and receives the full rate of DSP. His son contributes $240 per week in board to the household.
Mr McCouch receives assistance through the NDIS which provides him with support workers to assist with showers, transport to hospital and providing some disability equipment. He also receives a transport allowance of $94 per week to assist him in getting to and from his employment.
There are 2 factors present in this case that would generally work against any exercise of the discretion to disregard part of Mr McCouch’s lump sum compensation. The first is the fact that Mr McCouch, as he readily acknowledged, has recklessly gambled away a large amount of his compensation.
In considering the impact of gambling on compensation recipients, the caselaw generally distinguishes between a gambling addiction that has been diagnosed as a psychological condition as opposed to gambling by recklessness or choice. In Davis and Department of Family and Community Services [1999] AATA 84, the AAT declined to exercise the special circumstances discretion where the applicant had been “grossly irresponsible” in gambling away a large proportion of his $330,000 compensation payment, but there was no evidence of a gambling addiction.
In Secretary, Department of Family and Community Services and Rankin [1999] AATA 496, there was evidence that Mr Rankin was clinically depressed, but the AAT found that this did not “justify the view that when he indulged in what the SSAT described as his ‘reckless dissipation of money’ in gambling, he suffered from some form or temporary insanity so as not to be responsible for his own acts. His gambling spree may well be described colloquially as an ‘act of madness’ but it falls short of insanity.” The AAT declined to exercise the special circumstances discretion and reimposed Mr Rankin’s lump sum preclusion period in full, observing that “the circumstances out of which the hardship arose, and the degree of hardship, are both relevant in deciding whether and how the discretion under the Act should be exercised.”
However, in O’Neill and Secretary, Department of Employment, Education and Workplace Relations [2009] AATA 619, the AAT was prepared to end the preclusion period early even though the applicant had gambled away much of his compensation payment, having regard to the severe hardship that the applicant was experiencing.
The second factor that may militate against the exercise of the discretion under section 1184K is that Mr McCouch retains an asset, namely his home, which was purchased with his compensation funds. In Secretary, Department of Social Security and Winterbotham [1990] AATA 808, the AAT observed as follows:
The respondent contended that he was perfectly entitled to have expended his settlement moneys in providing his family with a home and no-one, least of all this Tribunal, would dispute that. However, that is not the issue – it is the fact that the respondent, having disposed of his settlement moneys, now seeks support from the community. The emotional attachment of the respondent and his wife to the family home was obvious and their reluctance even to think of selling it understandable. However, the Tribunal must take that home into account in deciding whether the respondent is in a position of exceptional financial hardship. While the respondent has assets of such value he can never be so regarded….The Tribunal cannot ignore the view that the selling of the house is one way by which the applicant could resolve his present difficulties.
However, in other decisions the AAT has found that where a compensation recipient has suffered significant injuries rendering them wheelchair bound, and has purchased or modified a home to accommodate their disability, the existence of such asset does not preclude a finding that special circumstances exist to justify the shortening of the preclusion period (see Menere and Secretary, Department of Family, Housing, Community Services and Indigenous Affairs [2008] AATA 930 and Chaker and Secretary, Department of Social Services [2020] AATA 3128).
It is true that Mr McCouch’s household is not entirely without means of support. In addition to his small income from employment, his ex-wife and son are in receipt of their own social security payments. Mr McCouch said that he does not wish to cause further financial hardship to his family because of his own mistakes. Mr McCouch acknowledged that the expenditure of a large proportion of his compensation on gambling, drugs and alcohol was reckless in the extreme. He does not engage in these behaviours anymore.
Overall I am satisfied that there are a number of factors, other than financial hardship alone, which support a conclusion that Mr McCouch’s circumstances are sufficiently special so as to justify shortening the preclusion period.

Firstly, although he retains as an asset the family home, that property has been specially modified to accommodate his severe level of disability. Mr McCouch’s compensation would have included an amount for the modification of a property to be accessible and habitable having regard to his disabilities. It would be extremely difficult for Mr McCouch to be able to secure alternate disability-friendly accommodation were he forced to sell his home, particularly given his very limited financial capacity.
Secondly, Mr McCouch has experienced a number of unexpected events since receiving his settlement which together have had the effect of eating up his compensation much quicker than anticipated. This includes the breakdown of his marriage, resulting in much higher out-of-pocket costs for in-home nursing care, which was not contemplated as being needed to the same degree at the time of settlement.
His marriage breakdown also imposed on Mr McCouch additional costs of moving interstate to reside with his parents, and subsequently moving back to Queensland, as well as the moral (if not legal) obligation to provide additional money to his ex-wife for the financial support of his children.
Mr McCouch has also developed further medical conditions in addition to those for which he received compensation. In particular, his serious [medical condition 1] has resulted in higher medication costs, frequent hospitalisations and a reduction in his capacity to sustain his current minimal employment.
Mr McCouch has taken appropriate steps to attempt to stretch his limited resources to serve out the duration of the preclusion period, by obtaining employment and previously accessing some equity in his home. He has now managed to serve over 24 years of his more than 28 year preclusion period, which is an exceptionally long preclusion period.
I consider that ending the preclusion period as at the date of this Tribunal’s decision strikes an appropriate balance between the competing interests of the taxpayer, and Mr McCouch’s difficult circumstances. The end result is that more than 85% of the original preclusion period would have been served by Mr McCouch, and he will obtain some much-needed financial relief given his increasing medical needs and difficulty sustaining his employment.

Issue 3: Was the decision to reject Mr McCouch’s claim for DSP correct?

DSP is specified to be a compensation affected payment: section 17 of the Act. DSP was therefore not payable to Mr McCouch at the time he lodged his claim, and Centrelink was correct to reject his claim lodged on 10 April 2024.
However, as I have found that the discretion under section 1184K of the Act should be exercised to end Mr McCouch’s compensation preclusion period as at the date of this decision, on 29 October 2024, it is open to him to now lodge a new claim for DSP with Centrelink to test his eligibility for that payment.
As I have reached a different conclusion to Centrelink, the decision under review will be set aside.

DECISION

The decision under review is set aside and the matter is sent back to the Chief Executive Centrelink for reconsideration with the direction that in accordance with section 1184K of the Social Security Act 1991, so much of the compensation lump sum is to be disregarded such that the compensation preclusion period ends on 29 October 2024.

Date(s) of hearing:	Tuesday, 29 October 2024
Representative for the Applicant:	Self