McCulloch and Secretary, Department of Family and Community Servi Ces

[2003] AATA 260

Administrative

Appeals

Tribunal

 

DECISION AND REASONS FOR DECISION [2003] AATA 260

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No   N2002/1383

GENERAL ADMINISTRATIVE  DIVISION		)
Re		Janette McCulloch

Applicant

And Secretary, Department of Family and Community Services

Respondent

DECISION

Tribunal Mr RP Handley, Deputy President

Date20 March 2003

PlaceSydney

Decision The Tribunal affirms the decision under review.

...............................................

RP Handley
  Deputy  President

CATCHWORDS

SOCIAL SECURITY – disability support pension – compensation for work related injury including future loss of earnings - preclusion period – application of the 50 per cent formula – special circumstances – examination of compensation award and the Applicant’s legal expenses arising from her claim – examination of Applicant’s medical expenses, ongoing health problems and financial circumstances – held that the Applicant’s circumstances are not so exceptional or unusual to be  “special” – decision under review is affirmed.

Social Security Act 1991 ss 17(2)(3), 17(2)(e), 1165(8), 1184K(1)

Beadle v Director-General of Social Security (1985) 60 ALR 225

Groth v Secretary, Department of Social Security (1995) 40 ALD 541

Secretary, Department of Social Security and Banks (1990) 23 FCR 416

Re Beadle and Director-General of Social Security (1984) 6 ALD 1

Re Willis and Secretary, Department of Family and Community Services [2002] AATA 267

Secretary, Department of Social Security v Hulls (1991) 22 ALD 570

REASONS FOR DECISION

20 March 2003 Mr RP Handley, Deputy President          

1.      This is an application by Janette McCulloch (“the Applicant”) for a review of a decision of the Social Security Appeals Tribunal (“the SSAT”) made on 22 August 2002 which affirmed a decision of a delegate of the Secretary of the Department of Family and Community Services (“the Respondent”) to impose a preclusion period precluding the payment of a Social Security benefit or pension to the Applicant from 10 June 1995 to 30 July 2004, and to recover compensation affected payments paid to the Applicant during the preclusion period, amounting to a total charge of $58,582.31.

2. At the hearing, the Applicant represented herself and the Respondent was represented by Sheryl Collis, Solicitor, of Centrelink. The evidence before the Tribunal comprised the documents produced pursuant to s 37 of the Administrative Appeals Tribunal Act 1975 (“the T Documents”) together with exhibits tendered by the parties. The Applicant and her husband, Ashley McCulloch, gave oral evidence.

Background

3.      The Applicant, Mrs McCulloch was born on 9 April 1949 and is aged 53.  She is married to Ashley McCulloch, who was born on 1 October 1943 and is aged 59.  They have twin sons, Clint and Drew, who will be 29 in June 2003.

4.      On 10 June 1995, Mrs McCulloch was injured while working at her hairdressing salon in a shopping centre in Maitland.  She inhaled paint spray and fumes from the air conditioning system, causing burns and respiratory problems.   A similar incident occurred on 22 July 1995.  Following this, Mrs McCulloch developed an anxiety condition and now suffers from panic attacks, agoraphobia, anxiety and depression.  As a result of her various conditions, including low blood pressure, she is prone to black outs in which on a number of occasions she has suffered injuries.    She has not worked since 1995 and is cared for on a full-time basis by her husband with the exception of eight hours per week respite care.

5.      Between 10 June 1995 and 10 July 1996, Mrs McCulloch was paid a newstart partner allowance and between 11 July 1996 and 15 January 2002 she received a disability support pension.

6.      Mrs McCulloch instituted legal proceedings for compensation in the NSW Supreme Court against Trevor Tapp, the painter and allegedly a subcontractor  (the first defendant), Programmed Maintenance Services Pty Ltd, the principal contractor responsible for painting the roof of the shopping centre (the second defendant), and Frank Knight (Newcastle) Pty Ltd, the manager of the shopping centre (the third defendant) who contracted the second defendant to undertake the painting.  The first defendant was uninsured and had no assets and the third defendant was insured by HIH Insurance Group which, by the time of the listed hearing date, was in liquidation.  Moreover, on 30 September 2000, the third defendant had been de-registered (A1). Mrs McCulloch’s claim for compensation, made in an offer of settlement to the second defendant on 21 February 2001 (R1), was for $2,991,675, which included claims for five and a half years lost wages and future loss of income to the age of 65.

7.      In late 2001, Mrs McCulloch was advised that there was little prospect of recovery against either the first or third defendants.  Mrs McCulloch was advised to pursue an offer of settlement with the second defendant who was insured. However, she was also advised that there was a possibility that, if the matter went to trial, the second defendant might escape liability on the ground that it had passed control to the first defendant, an independent contractor, and had not been negligent.  Mrs McCulloch  believes that her claim was severely compromised by the particular circumstances of the case.  On 3 December 2001, she settled her claim for compensation in an out-of-court settlement, receiving a lump sum payment of $550,000 including costs of $150,000.   On 28 November 2001, Mr McCulloch enquired of Centrelink about the effect of a compensation settlement on his wife’s entitlement to Social Security benefits.  He was warned that she would be subject to a preclusion period during which she would not be entitled to benefits (R2).

8.      On 23 January 2002, the Respondent decided to preclude Mrs McCulloch from receiving compensation affected payments from 10 June 1995 until 30 July 2004, being a preclusion period of 477 weeks, and to recover from her the compensation affected payments already paid to her during the preclusion period amounting to $58,582.31.  The preclusion period was calculated pursuant to the Social Security Act 1991 (“the Act”) by taking 50% of the total settlement of $550,000 ie $275,000. This was then divided by the then correct income cut-out amount of $576.38, to give a figure for the preclusion period of 477 weeks commencing from the date of the accident.

9.      On 11 February 2002, Mrs McCulloch applied for a review of the decision, which was confirmed on 10 April 2002.  The decision was also affirmed by an Authorised Review Officer on 3 June 2002 and by the SSAT on 22 August 2002.  On 18 September 2002, Mrs McCulloch lodged an application for review by this Tribunal.

Applicable Legislation

10. The relevant provisions of the Act, subsections 17(2), 17(3) and 1165(8), pursuant to which the preclusion period was calculated, are set out below. Essentially, Mrs McCulloch challenges the length of the preclusion period.

17(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.

17(3) 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

(ab)     50% of the payment if the following circumstances apply:

(i) the payment represents that part of a person's entitlement to periodic compensation payments that the person has chosen to receive in the form of a lump sum; and

(ii) the entitlement to periodic compensation payments arose from the settlement (either with or without admission of liability) of a claim that is, in whole or in part, related to a disease, injury or condition; and

(iii) 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.

11. The lump sum preclusion period is calculated in accordance with the formula which is now set out in s 1170(4) of the Act but which used to be set out in s 1165(8). The formula itself remains unchanged and provides for the number of weeks in the lump sum preclusion period to be worked out using the formula:

Compensation part of lump sum ¸ Income cut-out amount

12. Section 1184K(1), which provides that the Secretary may disregard the whole or part of a payment, states:

1184K(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.

Mr and Mrs McCulloch’s Evidence

13.     Mrs McCulloch said she was a hairdresser and beauty therapist.  She was working in her hairdressing salon late one Saturday afternoon cleaning and drying the hair brushes.  When contractors painting the roof of the shopping centre spray painted the air conditioning duct, paint was sucked into the air conditioning system and expelled through the vent in Mrs McCulloch’s salon burning her eyes and face and, because she inhaled the paint, damaging her respiratory system.  The paint solution also covered parts of the salon.  Mrs McCulloch said she could not breathe.  She went to the chemist’s shop nearby to obtain medication for the burns to her face and eyes and purchased a Ventolin puffer to ease her breathing.

14.     Mrs McCulloch said when the manager of the shopping centre did nothing about the situation, she called in Workcover.  Despite this and a promise by the painting contractor that the mistake would not reoccur, about four or five weeks later, the contractor was again painting the roof of the shopping centre when paint fumes and paint particles were sucked into the air conditioning system and expelled into Mrs McCulloch’s salon.   Mrs McCulloch and two of her clients were covered with paint particles.  After this incident, Mrs McCulloch was unable to handle the work, particularly because of the smell of the priming solutions and the ammonia and peroxides used in hairdressing.  However, because she was paying $1,000 a week rent for the shop and because she was the principal worker in the business – doing hairdressing, beauty treatments and nails - she tried to keep going.

15.     After the business closed down, Mrs McCulloch instructed Rankin & Nathan, Solicitors, to pursue a compensation claim for her.  Claims were lodged against three parties, the painter, the painting contractor, and the shopping centre manager – Knight Frank (Newcastle) Pty Ltd which was insured by HIH Insurance Group.  Another shopping centre manager was later appointed, Knight Frank (Newcastle) Pty Ltd was de-registered, and HIH went into liquidation.

16.     Mrs McCulloch said she feels as if her fight has been for a lost cause.  Her friends have not supported her and she feels she has lost everything.  She used to be a successful businesswoman with everything going for her.  Now she is unable to do anything, cries all the time, is obese and is totally dependent on her husband.  This dependence has also made their relationship very difficult at times.  Mr McCulloch only gets away for eight hours a week while she has respite care.

17.     Mr and Mrs McCulloch are purchasing a small house in a community title development of 17 houses.  Completion has been delayed by various problems since they first paid a holding deposit in January 2002.  Construction started in July 2002, contracts have now been exchanged and completion will probably take place in May 2003.  The purchase price has also gone up by $16,000 to $180,000 although the vendor agreed not to increase the price by a further $10,000.  Mr and Mrs McCulloch believe that the house will provide some security for Mrs McCulloch’s future should anything happen to Mr McCulloch. They will have a brand new, low maintenance house, near local services, and will avoid paying rent.

18.     Mr McCulloch said his wife received $317,000 net from her solicitor after paying legal and other fees and disbursements including $23,000 repaid to Medicare and $58,582.31 repaid to Social Security.  From the $317,000, they repaid $20,000 to their son Clint, in respect of money borrowed from Clint and Drew to pay bills over a period of about eight years including for running the hairdressing salon before it closed.  They also purchased a Ford Fairlane with low kilometres for $40,000.  Mr McCulloch said he wanted a large car to facilitate easy carriage of his wife’s wheelchair and with climate control air conditioning because of his wife’s respiratory problems.  He hopes the car will last for many years.

19.     They have also spent about $7,000 on furniture for the new house and will need to spend another $4,000 to $5,000 on furniture and furnishings.  To date, only a 10% deposit of $9,000 has been paid for the house.  The balance of the purchase price is $171,000 and stamp duty and legal fees will probably account for another $9,000.  Otherwise, Mr and Mrs McCulloch’s only major expenditure has been on medical and dental bills.  Mrs McCulloch said she needs to be in a private health fund because of her condition.  Mr and Mrs McCulloch have basic hospital cover for $92 per month with an excess of $50 per night for the first 10 nights.

20.     Mr McCulloch said that currently his wife has a balance of $221,000 invested in bank deposits. With approximately $180,000 yet to pay on the house, stamp duty and legal fees, plus $4,000 to $5,000 to spend on furniture and furnishings, this should leave them just enough money to live on until the expiry of the preclusion period on 30 July 2004.  Their only other asset is 554 NRMA shares.  Mr McCulloch had more NRMA shares but sold some to pay registration and other fees for their car.   In the same way, in the past he has sold furniture to pay bills. 

21.     Mr McCulloch currently receives a Carer Pension of $388 per fortnight and Carer Allowance of $85 per fortnight, a total of $473 per fortnight.  Mrs McCulloch receives $160 per week in bank interest on the $221,000 currently invested.  They are sharing a house which belongs to their son, Drew and paying him rent.  Otherwise, they have the normal household expenses.  As stated above, they pay $92 per month for private medical cover, but Mrs McCulloch’s medications cost approximately $100 to $110 per month.  Mrs McCulloch has also incurred extra expenditure in paying for dental and optical care a result of injuries resulting from her blackouts.  They pay $48 per month to Homecare for the twice weekly four hour periods of respite care for Mrs McCulloch which enable Mr McCulloch to go out on his own for short periods.  Aside from these expenses, they have no other debts or liabilities.  Mr McCulloch indicated that they are able to live frugally.

22.     Mrs McCuloch said her health has remained much the same in the last few years.  However, her husband contracted pneumonia last year and had to be hospitalised.  They arranged for carers to be with her while Mr McCulloch was in hospital.  Mr McCulloch also had a hernia operation on 10 October 2002 and has been diagnosed as having plaque on the lungs.  Mrs McCulloch said their son Drew is at home some of the time outside working hours.  However, he regularly works away from home for extended periods. He is currently working in Nowra.  Mr and Mrs McCulloch’s other son, Clint, is currently living and working in Queensland.

23.     Mrs McCulloch sees her general practitioner, Dr Alexander, regularly.  She sees her psychiatrist, Dr Brash monthly and Dr Deacon, her respiratory specialist every four or five months.  Mrs McCulloch acknowledged that she became addicted to Benzodiazepine.  She was intending to commit suicide and she still thinks about this.  She spent three weeks in a private hospital with the object “of drying out” but there was very little supervision and she had blackouts on most days.  After an occasion when she blacked out and fell in the shower cracking a number of ribs and suffering other injuries, she decided to discharge herself.  Nevertheless, she now takes the prescribed amount of drugs.

24.     Mrs McCulloch said her blood pressure is very low.  Recently, she wore a heart monitor for 10 months.  She will probably need a pacemaker in due course.

25.     Mr McCulloch said he has a to supervise his wife.  He encourages her to get out of bed in the morning.  He is present when she gets in and out of the shower in case she blacks out.  He monitors her medication.  If they go out, Mrs McCulloch said she gets frightened if he is not with her.  She is worried she will black out and someone will steal her bag.  About two months ago, they went on an outing to Scone.  She blacked out in a public toilet and fell in the scum on the floor.  She is totally dependent on him.  Mr McCulloch said if he was not present to care for his wife, she would have to pay for carers at a cost of at least $50,000 per annum.  At that rate, her compensation money would not last long.

SUBMISSIONS

Applicant

26. Mr and Mrs McCulloch submitted that the legal costs of $150,000 should not be included in the lump sum compensation payment used to calculate the preclusion period because of the particular circumstances related to the settlement of Mrs McCulloch’s claim. Alternatively, they submitted that the discretion in s 1184K(1) should be exercised in Mrs McCulloch’s favour because of the special circumstances of her case.

27.     These circumstances arise from the difficulty of pursuing the first and third defendants in her compensation case, and questions arising over the liability of the second defendant which lead to this part of her claim being severely compromised.  Additional costs were also incurred in the transfer of the matter from the Newcastle to the Sydney registry of the Supreme Court.  Moreover, Mrs McCulloch’s medical condition, requiring 24 hour care, poses special problems for her and her husband which, they contend, necessitate securing a home for Mrs McCulloch.

Respondent

28.     Ms Collis, for the Respondent, submitted that the 50% formula was correctly applied in Mrs McCulloch’s case since the compensation settlement she received contained a component for economic loss.  While Mrs McCulloch’s legal fees were high, this is not a reason for not applying the 50% formula as the Federal Court recognised in Secretary, Department of Social Security v Hulls (1991) 22 ALD 570, a decision followed by the Tribunal recently in ReWillis andSecretary to the Department of the Family and Community Services [2002] AATA 267. The provisions of s 17 were included in the Act to prevent a dissection of the compensation settlement.

29.     Ms Collis submitted there is no evidence of financial hardship.  Mr and Mrs McCulloch’s evidence is that they have adequate funds to meet their needs until the end of the preclusion period.  They have chosen to buy a house in the knowledge, from the time of the settlement, that Mrs McCulloch would be subject to a lengthy preclusion period.  Their ongoing medical expenses are not excessive.

30.     As to their other circumstances, while Ms Collis acknowledged that Mrs McCulloch has been left with severe disabilities as a result of her injuries, she has been compensated for those injuries, and there is nothing to suggest that her circumstances “have that peculiar quality of unusualness or uncommonness to evoke the discretion in s 1184K”.

Consideration of the Law and Findings

31.     The Tribunal finds that although not specifically identified in the compensation settlement, a part of the claim which gave rise to the settlement was “in respect of lost earnings or lost capacity to earn” (s 17(2)).  This is evidenced from the offer of settlement made to the second defendant on 21 February 2001 (R1) which included a claim for five and a half years lost wages and future loss of income to the age of 65.

32. Having made this finding, the first issue for the Tribunal to determine is whether the provisions of the Act have been applied correctly in determining the compensation part of Mrs McCulloch’s lump sum compensation payment. As has been recognised in a number of Federal Court decisions, the 50% formula set out in s 17(3) of the Act was designed to overcome the need to dissect a lump sum settlement and prevent manipulation of the components of a settlement: Secretary, Department of Social Security v Banks (1990) 23 FCR 416 at 422 (von Doussa J). As the Court recognised in Hulls (supra), the arbitrariness of the application of the formula can be addressed under s 1184K(1) where the application of the formula would create an injustice.

33. Thus, it is clear that the $150,000 component of the settlement attributable to Mrs McCulloch’s legal costs cannot be isolated from the $400,000 notional compensation amount: the whole $550,000 settlement amount must be taken into consideration in applying the 50% formula in s 17(3). The compensation part of Mrs McCulloch’s lump sum compensation payment is, therefore, $275,000.

34. The preclusion period that applies in respect of “compensation affected payments”, which include disability support pension, is calculated pursuant to s 1165(8) by dividing the compensation part of the lump sum by the income cut - out amount. The “income cut-out amount” at the relevant time, worked out in accordance with the formula in s 17(1), was $576.38. Thus, the preclusion period is calculated by dividing $275,000 by $576.38, giving a figure of 477 weeks. The Tribunal therefore finds that the preclusion period was calculated correctly.

35. The second issue for the Tribunal if whether, pursuant to s 1184K(1), there are special circumstances which justify the exercise of the Secretary’s discretion to treat the whole or part of the compensation settlement as not having been made. Although the Act provides no guidance as to the meaning of “special circumstances”, this has been the subject of statutory interpretation by the Federal Court and the Tribunal.

36.     The leading case is probably Beadle v Director-General of Social Security (1985) 60 ALR 225, a decision of the Full Federal Court. In Beadle (supra), the Court did not think it possible to lay down precise limits or precise rules. It would depend on the circumstances of the particular case as to whether they constituted special circumstances. Moreover, even though the phrase “special circumstances” lacks precision, it “is sufficiently understood in our view not to require judicial gloss” (at 228).

37.     In that case, the Court affirmed the decision of the Tribunal under review in that case, Re Beadle and Director-General of Social Security (1984) 6 ALD 1, in which the Tribunal, whilst acknowledging that the phrase “special circumstances” is “incapable of precise and exhaustive definition”, said, nevertheless, that the circumstances “must have a particular quality of unusualness that permits them to be described as special” (at 3).

38.     In Groth v Secretary, Department of Social Security (1995) 40 ALD 541 at 545, Kiefel J, after referring to the Federal Court’s decision in Beadle (supra 1985), observed that special circumstances:

would require something to distinguish Mr Groth’s case from others, to take it out of the usual or ordinary case… 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.

39.     The Tribunal finds relying on Mr and Mrs McCulloch’s evidence, that Mrs McCulloch received $317,000 net after payment of legal and other fees and disbursements including $23,000 repaid to Medicare and $58,582.31 repaid to Centrelink.  From the $317,000, Mr and Mrs McCulloch have purchased a car for $40,000 and a house for $180,000.  Settlement on the house will probably take place in May 2003, contracts having been exchanged. 

40.     According to Mr McCulloch, the house purchase is likely to attract legal fees and stamp duty amounting to about $9,000.  Mr and Mrs McCulloch have spent about $7,000 on furniture for the house and say they will need to spend another $4,000 to $5,000 on furniture and furnishings.  They also repaid $20,000 borrowed from their two sons to pay various bills over a number of years.

41.     Mr McCulloch explained that they purchased a near new car to last them for many years.  They chose a car large enough to accommodate Mrs McCulloch’s wheelchair and, because of Mrs McCulloch’s respiratory problems, with climate control air conditioning. They decided to buy a small house as security for Mrs McCulloch’s future and to avoid paying rent.  The house is near local services and, because it is new, should have low maintenance costs.

42.     Aside from the large items of expenditure detailed above, Mr and Mrs McCulloch’s other expenditure has been limited to paying medical bills and other living expenses.  The Tribunal accepts that they are frugal in their expenditure and have managed the settlement carefully.  After all the above payments have been finalised, Mrs McCulloch will be left with a residue, according to the Tribunal’s calculations, of about $36,000, on which to live until the end of the preclusion period on 30 July 2004.

43.     However, Mr McCulloch is also receiving $393.74 per fortnight in Carer’s Allowance together with Carers Disability Allowance of $87.70 per fortnight, a total of $481.44 per fortnight.  This, together with the interest on the balance of the settlement amount currently deposited with their bank, comprises Mr and Mrs McCulloch’s source of income.  The Tribunal notes that they have no assets other than those described above except for 554 NRMA shares held by Mr McCulloch.

44.     The Tribunal finds that Mrs McCulloch will have sufficient funds to live on until the end of the preclusion period, after which she will be able to apply for a disability support pension.  In the Tribunal’s view, their situation cannot be considered one of financial hardship.  They have made a rational choice to spend the greater part of Mrs McCulloch’s net compensation settlement on a house.  They could have chosen instead to maintain the amount spent on the house as an income generating investment.

45.     The Tribunal finds that Mrs McCulloch has a number of severe disabilities following the injuries suffered in 1995.  These disabilities and, in particular, her agoraphobia, anxiety and depression, and unrelated low blood pressure require that she have 24 hour care.  She is prone to blackouts and has injured herself on a number of occasions having blacked out and fallen.  Care is provided by her husband full-time except for two four hour periods of respite care per week.  This has put considerable stress on their relationship.  Having previously been an independent business-woman, Mrs McCulloch obviously finds her life very difficult and is frustrated by what she considers an unjust outcome to her compensation claim.

46.     The Tribunal acknowledges the difficult situation in which Mrs McCulloch and her husband find themselves and the financial constraints to which they are subject.  They have been careful in managing their finances and have made considered choices in the use of Mrs McCulloch’s compensation settlement.  Whilst many people would empathise with their situation, in the Tribunal’s view, their circumstances are not so unusual or exceptional as to amount to “special circumstances” within the meaning attributed to that phrase in cases such as Beadle (supra 1985) or Groth (supra).  In terms of the settlement itself, the Tribunal finds that it was arrived at on the basis of independent legal advice and cannot be said to be so “unfair, unintended or unjust” to distinguish it as out of the ordinary.

47.     The Tribunal therefore affirms the decision under review.

I certify that the 47 preceding paragraphs are a true copy of the reasons for the decision herein of Mr RP Handley, Deputy President

Signed:         .......................................................................................
  Associate

Date/s of Hearing  7 March 2003
Date of Decision  20 March 2003
Representative for the Applicant               Self Represented
Representative for the Respondent          Ms S Collis, Solicitor