McKenzie; Secretary, Department of Social Services and (Social services second review) - [2019] AATA 3271

McKenzie; Secretary, Department of Social Services and (Social services second review) [2019] AATA 3271 (4 September 2019)
Division:GENERAL DIVISION
File Number(s): 2019/3158
Re:Secretary, Department of Social Services
APPLICANT

Timothy McKenzieAnd
RESPONDENT

DECISION
Tribunal:Deputy President P Britten-Jones
Date:4 September 2019
Place:Adelaide

The Tribunal sets aside the decision made by the Social Security and Child Support Division of the Administrative Appeals Tribunal on 7 May 2019 and substitutes a decision to affirm the decision of the ARO dated 5 July 2018.
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Deputy President P Britten-Jones
CATCHWORDS
SOCIAL SECURITY – Newstart allowance – Debt to Commonwealth due to payment of benefits to which applicant not entitled – Lump sum compensation payment – Compensation preclusion period – Whether debt is waived on the basis of special circumstances – Financial hardship, bankruptcy, ill health and funding for further litigation – Evidence does not support special circumstances – Decision under review set aside
LEGISLATION
Social Security Act 1991 (Cth)
CASES
Beadle v Director-General of Social Security (1985) 60 ALR 225
Groth v Secretary, Department of Social Security (1995) 40 ALD 541
Massoud v Secretary, Department of Social Services [2017] AATA 1366
Secretary, Department of Social Services v Mills [2019] AATA 753
Secretary to the Department of Family & Community Services v Allan (2001) 116 FCR 1
REASONS FOR DECISION
Deputy President P Britten-Jones

Prior to September 2012, Mr McKenzie (“the respondent”) was working as a scraper operator for MacMahon Holdings Limited (“MacMahon”) on a 4 weeks on 1 week off basis and earning approximately $200,000.00 per year. With this salary he was able to pay the bills (including the mortgage for his Moonta Bay residence), purchase items such as a boat and motorbikes, and play golf in his downtime.
Mr McKenzie had a workplace accident that would change the course of his life. Whilst disembarking the machinery he was operating, Mr McKenzie rolled his ankle on uneven ground. MacMahon accepted liability and provided for weekly compensation payments and medical costs which included an ankle reconstruction.
What initially appeared to be a minor injury then developed into a series of debilitating health conditions that prevented Mr McKenzie from going back to work. Mr McKenzie has since been declared bankrupt, he has been in an ongoing legal battle against his previous employer, and he has become dependent on Commonwealth assistance in order to support his family and their needs. It is with respect to the Commonwealth assistance that the parties convened before me.
BACKGROUND FACTS
The following facts are not in dispute:
(a)Until September 2012, Mr McKenzie worked for MacMahon. He suffered a workplace injury on 10 September 2012.
(b)Mr McKenzie was paid weekly compensation payments until December 2013, when he was cleared to go back to work. The position that he had previously held at MacMahon was no longer available.
(c)Mr McKenzie received Newstart Allowance (“NSA”) sporadically throughout 2014, 2015 and 2016.
(d)On 22 May 2018, GIO paid Mr McKenzie $129,034.08 in compensation. This was said to represent lost earnings for the period between 2 March 2015 and 26 December 2016. On 29 May 2018, the Secretary provided GIO with a compensation recovery notice. This notice advised that, from the settlement GIO proposed to pay to Mr McKenzie, the Secretary was entitled to recover $43,789.04 under s 1184 of the Social Security Act 1991 (Cth) (“the Act”). The $43,789.04 comprised of $20,893.08 of NSA paid to Mr McKenzie and $22,895.96 of NSA paid to Mr McKenzie’s partner in the period between 2 March 2015 and 26 December 2016. The Secretary did in fact recover this money from GIO.
(e)Mr McKenzie sought review of the decision to recover the amount and, on 5 July 2018, an Authorised Review Officer (“ARO”) decided to affirm the recovery decision.
(f)Mr McKenzie sought review in the Social Security and Child Support Division of the Administrative Appeals Tribunal (“AAT1”). On 7 May 2019, a member of the Tribunal decided that all but $21,894.50 of the compensation payment should be treated by the Department of Social Services (“the Department”) as not having been made. The AAT1 directed the Secretary to refund $21,894.50 to Mr McKenzie.
(g)On 5 June 2019, the Secretary lodged an application for further review by the Administrative Appeals Tribunal (General Division) (“the Tribunal”).
LEGISLATIVE FRAMEWORK
Pursuant to s 23 of the Act, NSA is a social security benefit and therefore a compensation affected payment pursuant to s 17(1) of the Act.
Section 1169 of the Act states:
(1)If:
(a)a person receives or claims a compensation affected payment; and
(b)the person receives a lump sum compensation payment;
the compensation affected payment is not payable to the person in relation to any day or days in the lump sum preclusion period.
(2)In this section:
lump sum compensation payment does not include a lump sum payment:
(a)to which section 1164 applies; or
(b)that relates only to arrears of periodic compensation payments.
Section 1184K of the Act states:
(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.
Section 1184K is applicable where a person has received a compensation payment and, as a result, has lost all or part of their entitlement to a pension or allowance under the Act for a period of weeks known as the “lump sum preclusion period”. Section 1184K(1) permits the Secretary to treat all or part of the compensation as if it had never been received by the person.
In order to exercise the discretion conferred on the Secretary in s 1184K, the Secretary must be satisfied that there are “special circumstances” that make it appropriate to do so. As I am to stand in the shoes of the original decision-maker, I too must be satisfied that there are “special circumstances” warranting the application of s 1184K to the compensation payment received by Mr McKenzie.
WHAT ARE “SPECIAL CIRCUMSTANCES”?
The phrase “special circumstances” in s 1184K of the Act must be read in light of the overall scheme enacted in Part 3.14. The Second Reading speech of the Bill that introduced the compensation preclusion and recovery scheme as it now stands provides a useful summary:
The compensation recovery provisions of the Act protect the social security system from “double dippers”, that is, those who might receive social security payment, as well as compensation, for the same period.[1]
[1] Commonwealth, Parliamentary Debates, Senate, Wednesday 21 June 1995 at 1530
Heerey J expands upon these sentiments in his decision in Secretary to the Department of Family & Community Services v Allan[2] where he states:
The basic policy, understandably enough, is that there should not be “double dipping”. People should not receive social security payments for loss of earnings where they have received compensation for that same loss of earnings from another source.[3]
[2] (2001) 116 FCR 1
[3] (2001) 116 FCR 1 at 2
In Beadle v Director-General of Social Security[4], the Full Court commented on what is meant by the phrase “special circumstances”. It said:
Presumably in this context special circumstances must include events which would render the six months unfair or inappropriate… We do not think it is possible to lay down precise limits or precise rules… The phrase “special circumstances”, although lacking precision, is sufficiently understood in our view not to require judicial gloss.[5]
[4] (1985) 60 ALR 225
[5] (1985) 60 ALR 225 at 228
In Groth v Secretary, Department of Social Security[6], Kiefel J stated:
The phrase “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.[7]
[6] (1995) 40 ALD 541
[7] (1995) 40 ALD 541 at 545
Although the Federal Court has made it clear that there is no hard and fast rule as to what “special circumstances” are, circumstances that are commonly relied upon by recipients of compensation affected payments include:
·failures by legal advisers;
·failures by the Department;
·financial hardship;
·spending the compensation lump sum to buy a house;
·conduct in the expenditure of the lump sum;
·ill health;
·social and cultural factors; and
·other unusual factors.
The decision to apply the special circumstances provision should be based on a holistic view of a person’s circumstances.[8]
[8] Secretary, Department of Social Services v Mills [2019] AATA 753 at [41]
It should also be noted here that one of the most common features that defeats a finding of special circumstances is the irresponsible dissipation of the compensation lump sum.
FINDINGS OF FACT
Mr McKenzie gave oral evidence before me on two occasions namely 24 July and 30 July 2019. I also have the benefit of comprehensive written submissions provided to the Tribunal by Mr McKenzie’s legal representative. On that basis, I make the following findings of fact.
Mr McKenzie is 48 years old. He is married and has four children, three of which still live with him and his wife in their family home in Moonta Bay. He is currently unemployed and receives NSA. His wife also receives NSA as well as Family Tax Benefit payments.
In 2012, he injured his ankle as he was getting out of the machine he had been operating. He rolled his ankle badly and required ankle reconstruction surgery. His recovery took approximately 12 months. MacMahon accepted liability and compensated Mr McKenzie by way of weekly payments. MacMahon ceased making these payments on 11 December 2013.
Mr McKenzie intended to return to work with MacMahon but, to his great disappointment, he was retrenched at the end of 2013 due to a downturn in the mining industry. From early 2014 Mr McKenzie was paid NSA during various periods. Importantly, on 4 February 2014 he received a letter from Centrelink which said:
If you receive any payment of weekly compensation or a lump sum compensation payment, some or all of the Centrelink payments paid to you and your partner since the date of injury may have to be paid back.
…
Centrelink’s estimate service
When a settlement is pending, you may wish to take advantage of Centrelink’s estimate service. Centrelink’s compensation estimator gives you the amount expected to be recovered and the period of preclusion weeks which will apply.
Mr McKenzie attempted to find different employment however deterioration in his health made it difficult for him to work. By 2015, he was experiencing recurring ankle problems, and knee and hip problems. His surgeon noted that he had right ankle osteoarthritis, a right knee condition and a right hip condition that were all attributable to his work injury in 2012.
In June 2015, Mr McKenzie engaged lawyers to represent him in a WorkCover WA claim against GIO.
In November 2015, Mr McKenzie incurred a debt of $8,500.00 to Venergy Pty Ltd (“Venergy”) for the installation of solar panels at the Moonta Bay property.
Mr McKenzie failed to pay the debt and, in early 2016, Venergy obtained a judgment against Mr McKenzie and then filed a creditor’s petition to bankrupt him. Mr McKenzie became bankrupt on 15 February 2016.
Worrells, a firm specialising in insolvency administration, was assigned as the Trustee in Bankruptcy. On 28 June 2016, Worrells sent Mr McKenzie a letter requesting Mr McKenzie to provide “an update in respect of the compensation funds that you expect to receive including any advice on the date that you expect the funds to be paid to you”.
Mr McKenzie did not provide the requested information to Worrells who consequently filed an objection to discharge on 10 August 2016 under s 149D(1)(d) of the Bankruptcy Act 1966. The effect of this objection to discharge was that Mr McKenzie’s automatic discharge date was extended from 3 years after the date of bankruptcy to 8 years. A further objection to discharge was filed on 12 January 2018. As at today, Mr McKenzie remains an undischarged bankrupt.
On 4 July 2016, Mr McKenzie’s lawyers required him to pay $24,000.00 into their trust account if he wished them to continue acting for him in the WorkCover WA action. Mr McKenzie, having been unemployed for some time now and having exhausted his savings, borrowed that amount from his aunty. Mr McKenzie is yet to pay this money back.
On 26 April 2017, the Workers’ Compensation Arbitration Service in WA found in favour of Mr McKenzie and ordered that weekly payments be reinstated. GIO appealed the decision.
On 8 November 2017, the appeal was heard in the District Court of WA. On 21 February 2018, the appeal was dismissed and MacMahon was ordered to reinstate the weekly payments of compensation for the period 2 March 2015 to 26 December 2016. Mr McKenzie was advised that he would be receiving a lump sum payment and that Centrelink would very likely seek to recover the NSA paid to him for that period.
On 22 May 2018, GIO paid Mr McKenzie $129,034.08 plus interest. On 29 May 2018, Centrelink raised a charge in the amount of $43,789.05 for the NSA payments received by Mr McKenzie and Mrs McKenzie between 2 March 2015 and 26 December 2016. Mr McKenzie requested a review of Centrelink’s decision on 19 June 2018.
Of the $129,034.08 plus interest, $53,897.33 went to the Australian Taxation Office (“ATO”) and $43,789.05 went to Centrelink. Mr McKenzie received $40,512.25, half of which went into his bank account and the other half into his wife’s bank account.
Shortly after receiving the compensation payment, Mr McKenzie began gambling. He thought that he would be able to win money. Mr McKenzie lost his share of the money and then dipped into his wife’s share as well.
On 5 July 2018, the Authorised Review Officer (“the ARO”) managing Mr McKenzie’s review contacted him by telephone. During that conversation, Mr McKenzie stated that he was some $200,000.00 in debt. He stated he was in financial hardship. He stated that he had a lot of bills.
In February 2019, Mr McKenzie received approximately $13,000.00 from the ATO. From this money, he paid $6,000.00 to Craig Gamba, a friend that had loaned him money when he was first experiencing financial difficulties.
Mr McKenzie also has a mortgage with Commonwealth Bank of Australia (“CBA”) over his property in Moonta Bay. As at 30 June 2019, the loan balance is $296,682.77. Mr McKenzie gave evidence that the CBA has a judgment entered against him for the full debt and that he considered that the CBA was going to take possession of the property. Mr McKenzie’s son has been making some loan repayments but only with respect to interest.
After the conclusion of the hearing Mr McKenzie was served with a Notice to Occupier to serve a warrant of possession dated 29 August 2019 (“the Notice”). The Notice was provided to the Secretary on 2 September 2019 and there was an application to re-open the respondent’s case to allow the document to be admitted. This was opposed by the Secretary. On 2 September 2019, the parties were informed that they could make submissions with respect to the Notice on the following day.
I heard argument on 3 September. Mr McKenzie’s legal representative made submissions that the Notice was relevant to Mr McKenzie’s financial position and therefore to the key issue of whether there are special circumstances because it established that CBA was actually taking action to repossess the property.
Mr Morris, on behalf of the Department, argued that the Notice was new evidence. He submitted that, at the hearing on 24 July and 30 July 2019, the Department’s understanding of Mr McKenzie’s position was that CBA had a judgment debt over Mr McKenzie’s property. The Notice, however, establishes that CBA has had an order for possession since 1 April 2015 and this fact, according to Mr Morris, undermines one of the Department’s key arguments. Mr Morris argued that procedural fairness required that the Department be given more time (namely one week) to consider the document so that instructions could be provided and further submissions made.
I consider that the document is not critical to the determination of the case because the evidence before the Tribunal, prior to receiving this additional document, was that Mr McKenzie’s financial situation was dire and that it was likely that the CBA would act to take possession.
The Notice merely confirms that CBA is taking steps to possess the property. It also provides a date for the judgment debt being 1 April 2015 and records that there was also an order for possession made by the Supreme Court on that day. I consider that it is a simple document that does not materially change the effect of the evidence on which the hearing proceeded. There is no prejudice to the Department if the Notice is admitted in circumstances when time (namely overnight) has been given to make submissions. I reject the contention that a week is required. The Notice is documentary evidence that supports the oral evidence of Mr McKenzie that CBA intended to take possession of his property. All of the evidence at the hearing pointed towards that outcome in any event because CBA already had a judgment debt, Mr McKenzie had been told that the loan had been moved internally to a business manager (i.e. away from the normal lending division of the bank), Mr McKenzie was an undischarged bankrupt whose financial situation was unlikely to improve, and only interest payments were being made towards the loan.
At the further hearing on 3 September I gave leave to Mr McKenzie to re-open his case for the purpose of admitting the Notice and I informed the parties that I would deliver my decision on or before Friday that week.
THE RESPONDENT’S CONTENTIONS
For the following reasons, Mr McKenzie contends that there are special circumstances warranting an exercise of the Tribunal’s discretion to treat whole or part of the compensation payment by GIO as not having been made:
(a)he needs the money to fund further litigation against GIO;
(b)he is suffering from debilitating physical injuries that prevent him from obtaining employment as well as depression and anxiety;
(c)he is experiencing severe financial hardship; and
(d)the period of time it took for his weekly compensation payments to be reinstated.
CONSIDERATION
Mr McKenzie pressed the point that he is entitled to further compensation from GIO for the permanent impairment that he has suffered as a consequence of the workplace injury. He stated that he is owed a further $178,000.00 in compensation for extension of wages. When questioned where this figure comes from, he indicated that he had done some research of other workers’ compensation matters and compared his circumstances to the circumstances in those other matters. He claimed that he has not been able to pursue this litigation because his lawyers are requesting a further $6,000.00 upfront which is money he does not have.
However, I am not satisfied that the real barrier to Mr McKenzie pursuing this further litigation is lack of funds. In order for him to pursue an application to extend the prescribed amount for weekly payments on the basis that his compensable injury has resulted in permanent total incapacity for work, he needs to establish that his injury has reached maximum medical improvement (“MMI”). Permanent incapacity can only be determined once a person has reached MMI. Mr McKenzie’s injury has not reached MMI as he requires further surgery. Until Mr McKenzie has had that surgery and has recovered from the surgery, permanent incapacity cannot be determined.

Moreover, in a letter dated 15 August 2018, Mr McKenzie’s lawyer states the following:
I confirm that in the present circumstances you have two options:
1. Remain on the system and continue to receive medical expenses and other statutory entitlements until you have reached MMI. Thereafter consideration can be given to your prospects of success to pursue an application. If you wish to instruct TGB at that stage to conduct preliminary investigations you will be required to pay an upfront payment of $6,000.00.
This letter makes it very clear that Mr McKenzie was not required to make an immediate payment of $6,000.00 to his lawyer. Rather, it clarifies the position that further litigation on the basis of permanent total incapacity for work is currently not an option as Mr McKenzie has not reached MMI and that lack of funds is not the precluding factor. Further, if it was just a matter of paying his lawyers in order for the litigation to proceed then Mr McKenzie could have allocated to his lawyers some of the $43,789.05 received late May 2018. The fact that he did not do so suggests that the real reason for not pursuing the litigation was because his injury had not reached MMI.
I do not accept that there are special circumstances based on a need to fund further litigation when Mr McKenzie failed to allocate any of his $43,789.05 payment towards that litigation. Further, there is a real issue as to whether litigation is a present option given the advice received from his lawyers in August 2018.
I accept that Mr McKenzie’s injuries cause him a lot of pain and that this pain prevents him from being able to stand for extended periods of time. I also accept that the inability to work and provide for his family has had significant consequences on his mental health and that he now suffers from symptoms of anxiety and depression. However, this is not a situation unique to Mr McKenzie. His ill health is not of a more severe nature than many Disability Support Pension recipients. Moreover, the existence of an injury or injuries for which compensation was paid in the first place is usually unable to be considered a circumstance outside of the ordinary. As Senior Member Sosso explained in Massoud v Secretary, Department of Social Services:[9]
The applicant is in bad health, but in most cases involving the preclusion period that would be expected. The fact that an applicant has been injured and received a compensation payout usually results in that person being in ill health during the preclusion period or immediately thereafter. The various Tribunal determinations focus on the consequences of that ill health in making a determination as to special circumstances. In short ill health is the starting point of the exercise, not the determining factor. Further, it is usually the case when determining ill health is a special circumstance, the ill health being experienced by an applicant is more severe than the majority of DSP recipients.[10]
[9] [2017] AATA 1366
[10] [2017] AATA 1366 at [70]
Mr McKenzie’s symptoms of anxiety and depression are not included in the injury for which compensation was paid in the first place. I have no diagnostic evidence before me from a psychiatrist or psychologist nor do I have any evidence indicating the severity of these conditions.
Mr McKenzie also relied on his financial circumstances as a reason for why the special circumstances provision should apply to him. His bankruptcy has caused him a considerable amount of stress and anxiety. He complained of being harassed by his Trustee in Bankruptcy to provide documents which he alleged the Trustee should have already had. Further, he alleged that his Trustee in Bankruptcy also put pressure on him to sell the family property in order to discharge his debts. I note here that Mr McKenzie’s bankruptcy is unrelated to the Department recovering the $43,789.04. Mr McKenzie was declared bankrupt more than 2 years before Centrelink recovered that amount from GIO.
Similarly, Mr McKenzie’s concerns that his house will be repossessed by CBA pre-date Centrelink’s decision to recover the $43,789.04. The Notice dated 29 August 2019 reveals that an order for possession of his house was made back in April 2015, more than 3 years before the Department recovered the $43,789.04. Mr McKenzie has provided no evidence from CBA as to how it would act if it received part of or all of the $43,789.04. Consequently, even if the Department were to treat the totality of Mr McKenzie’s compensation as not having been made, the repayment of the $43,789.04 to Mr McKenzie would not place him in a position where there was no possibility of him losing his house.
Mr McKenzie also pointed to his living conditions as evidence of his financial hardship. He gave evidence that only a third of the house has electricity. He stated that his electricity bills are very high but that he does not have the finances to engage an electrician to assess why this is the case. He also gave evidence that there is no hot water during the day. Mr McKenzie stated that, in order to have a hot shower, you needed to shower between midnight and 5 am. Although I accept that such living conditions are far from ideal and that improvements could be made, I do not consider them to be so poor or exceptional to warrant a finding of special circumstances.
Moreover, in considering whether a person’s financial hardship amounts to special circumstances, it is relevant to consider the reasonableness of the person’s action in disposing of the compensation money. The Tribunal has considered on many occasions whether the fact that a person has gambled away some of their compensation money can amount to special circumstances. Although those decisions are not binding on me, I note that it seems a clear distinction has been drawn between gambling due to a psychological condition and gambling as a lifestyle choice. Where the latter is the case, the Tribunal has been loathed to find that special circumstances exist.
Mr McKenzie gave evidence that when he received the compensation money he was depressed. He said that he started gambling in the hope that he could win more money. He did not proffer an exact amount of money that he lost, however, he indicated that after he gambled away his share of the compensation money he also started gambling away the money that went into his wife’s account. He acknowledged that he had wasted a lot of money.
There is no evidence before the Tribunal that Mr McKenzie suffers from a gambling addiction or that there is an underlying pathological basis for his gambling. On this basis, I cannot find that Mr McKenzie’s gambling amounts to special circumstances. Furthermore, his gambling significantly undermines any existing argument of financial hardship.
A further argument that has been proffered by Mr McKenzie is that the significant delay in getting his weekly compensation payments reinstated contributed to his financial hardship and consequently this delay should be considered as a special circumstance. He claimed that, if his compensation payments had been paid in weekly instalments from March 2015 onwards, he would have been able to make his mortgage repayments as well as his repayments to Venergy. Instead, it took about 2 years to get a judgment from the Workers’ Compensation Arbitration Service in WA to reinstate the weekly payments. That decision was then appealed and Mr McKenzie had to wait another 10 months for a decision on the appeal in the District Court and a further 3 months until the compensation payment was actually made.
I note that whilst Mr McKenzie was engaged in this litigation, he and his wife were both receiving NSA and his wife was also receiving Family Tax Benefit with respect to their children. There is no doubt that that these payments would not have amounted to anywhere near the $200,000.00 per annum that Mr McKenzie asserts to have received prior to his injury but he was fortunate enough to be receiving government payments. Further, when Mr McKenzie finally did receive his compensation payment it well exceeded the amount that the legislation, absent special circumstances, obliged him to repay. In other words, at that time, he had the money but unfortunately much of it was dissipated on gambling. There is no doubt that the delay in receiving the compensation payout caused financial stress but such delay is not unusual. Moreover, he was notified as early as February 2014 that he may need to repay the Centrelink payments if he received a lump sum compensation payment, which was likely because he had been injured at work and was pursuing compensation.
DECISION
Mr McKenzie’s circumstances do not amount to special circumstances so as to enliven the discretionary power in s 1184K of the Act. I set aside the decision of AAT1 made on 7 May 2019 and substitute a decision to affirm the decision of the ARO dated 5 July 2018.

I certify that the preceding 58 (fifty-eight) paragraphs are a true copy of the reasons for the decision herein of Deputy President P Britten-Jones.

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Associate
Dated: 4 September 2019

Dates of hearing: 24 & 30 July and 3 September 2019

Representative for the Applicant
Mr O Morris from the Department of Human Services

Representative for the Respondent Ms M Riley

Dates of hearing:	24 & 30 July and 3 September 2019
Representative for the Applicant	Mr O Morris from the Department of Human Services
Representative for the Respondent	Ms M Riley