McKinnon and Secretary, Department of Family and Community Servic Es
[2003] AATA 415
•6 May 2003
Administrative
Appeals
Tribunal
DECISION AND REASONS FOR DECISION [2003] AATA 415
ADMINISTRATIVE APPEALS TRIBUNAL )
) No S2002/265
GENERAL ADMINISTRATIVE DIVISION ) Re KARMYN THERESE McKINNON Applicant
And
SECRETARY, DEPARTMENT OF FAMILY AND COMMUNITY SERVICES
Respondent
DECISION
Tribunal Deputy President CR Wright, QC Date6 May 2003
PlaceAdelaide
Decision The Tribunal affirms the decision under review.
(Signed)
CR WRIGHT, QC
(Deputy President)
CATCHWORDS
SOCIAL SECURITY - pensions, benefits and allowances – receipt of compensation – period of preclusion from entitlement to allowance – whether legal costs component of compensation award was compensation – whether special circumstances exist that make it appropriate to treat any portion of the compensation as not having been made
Social Security Act 1991 sections 17, 1171, 1184K
Secretary, Department of Social Security v a’Beckett (1990) 21 ALD 79
Secretary, Department of Social Security v Banks (1990) 23 FCR 416
Nehme and Secretary, Department of Family and Community Services [2002] AATA 1225Secretary to the Department of Social Security v Cunneen (1997) 1033 FCA
Secretary, Department of Social Security v Hulls (1991) 22 ALD 570
Secretary, Department of Social Security and Beaumont (1990) 20 ALD 482
Beadle v Director-General of Social Security (1985) 7 ALD 670REASONS FOR DECISION
6 May 2003 Deputy President CR Wright, QC 1. The applicant was injured in a motor vehicle accident on 16 May 1997. She engaged the services of Downs Lawyers of Mt Gambier, who instituted a claim for damages on her behalf in the District Court of South Australia.
2. The claim was settled by agreement at a conference held on 13 February 2002, for the sum of $200,000, plus previous interim payments of $18,000, plus costs. The parties negotiated as to costs which were agreed at the sum of $27,500 on 27 February 2002.
3. A consent judgment was entered in the District Court on 5 March 2002.
4. Centrelink determined that the amount of the lump sum settlement was $245,500, and that as a consequence the applicant was precluded from receiving certain compensation affected social security payments from 16 May 1997 to 7 June 2001.
5. Centrelink also determined that the compensation affected payments made to the applicant during the above preclusion period amounted to $33,979.73, and accordingly determined that this amount was recoverable by the Commonwealth.
6. An authorised review officer affirmed the Centrelink determination on 19 April 2002.
7. The applicant appealed to the Social Security Appeals Tribunal (the SSAT) on 28 April 2002, and on 8 July 2002 the SSAT affirmed the original determination.
8. The applicant sought review of the SSAT decision by letter dated 26 July 2002 addressed to the Administrative Appeals Tribunal in Adelaide.
9. The application for review was heard in Adelaide on 28 April 2003. The applicant was represented by Mr Philip Smith of Downs Lawyers, and the respondent was represented by Mr Christian Goldsworthy. No oral evidence was adduced.. The material before the Tribunal consisted of the section 37 (“T”) documents and a Book of Documents tendered by the applicant (Exhibit “A”). The Tribunal also had the benefit of oral and written submissions from the parties’ representatives.
issues
10. There are 2 principle issues requiring determination:
(a) Was the Centrelink determination correct in assessing the whole of the sum of $245,500 as lump sum compensation to be taken into account when assessing the preclusion period, or should the sum of $27,500, representing the costs paid to the applicant, be excluded therefrom for that purpose?
(b) If the Centrelink determination was correct, are there any special circumstances within the meaning of section 1184K of the Social Security Act 1991 (the Act) which would justify a decision to treat the $27,500 as not having been made?
11. It was not disputed that benefit payments made to the applicant during the preclusion period were “compensation affected payments” within the meaning of section 17(1) of the Act.
legislation
12. Section 17(2) of the Act defines “compensation” in the following terms:
“Compensation
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.”
The compensation paid to the applicant, a payment in settlement of a claim for damages which was wholly or partly in respect of lost earnings or lost capacity to earn, was thus “compensation” under section 17(2)(c).
13. Section 17(3) of the Act applies to identify the compensation part of a compensation payment which is made in a “lump sum”. It provides:
“Compensation part of a lump sum
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
…”
Section 17(3) thus applies to such amount of the applicant’s payment pursuant to the settlement as may be regarded as a lump sum payment or lump sum payments, and has the effect of deeming 50% thereof to be the compensation part of her lump sum compensation payment.
14. Section 1171(1) applies so as to amalgamate multiple lump sum payments of compensation into one single payment for the purposes of the Act (including the assessment of the compensation part of lump sum compensation funds) pursuant to the 50% apportionment rule referred to in section 17(3). Section 1171(1) is in the following terms:
“(1) If:
(a)a person receives 2 or more lump sum payments in relation to the same event that gave rise to an entitlement of the person to compensation (the multiple payments); and
(b)at least one of the multiple payments is made wholly or partly in respect of lost earnings or lost capacity to earn;
the following paragraphs have effect for the purposes of this Act and the Administration Act:
(c)the person is taken to have received one lump sum compensation payment (the single payment) of an amount equal to the sum of the multiple payments;
(d)the single payment is taken to have been received by the person
(i)on the day on which he or she received the last of the multiple payments; or
(ii)if the multiple payments were all received on the same day, on that day.”
Section 1171(2) applies in respect of exceptions which are not currently relevant.
contentions and discussion
15. The applicant contends that the payment of $27,500 costs was not made “in relation to the same event that gave rise to an entitlement of the person to compensation” as provided in section 1171(1) of the Act, but should be regarded for all relevant purposes as being made “in relation to the Court proceedings”.
16. The SSAT rejected this argument in the following passage of its decision:
“…
The Tribunal rejects the argument that the damages payment of $218,000 and the legal costs of $27,500 were not in respect of the same event. The legal costs are a component of Miss McKinnon’s claim for damages, for personal injuries she received in the motor vehicle accident. They arise as a result of the same event. It would be unfair, if settlements were treated differently just because their costs were agreed on a different day to the damages and expressed as an exclusive amount.
…”
17. The words “in relation to” are of very wide connotation, and can apply to circumstances where there is any discernible relationship or connection between two subject matters. The words “in relation to” and “in respect of” have a similar broad ambit. In Secretary, Department of Social Security v a’Beckett (1990) 21 ALD 79 at pp 87-88 Von Doussa J said:
“…
Counsel for the applicant submits that the words “in respect of” are words of the widest possible meaning of any expression intended to cover some connection or relation between the 2 subject matters to which the words refer. This is so, but the meaning ascribed to the words in a particular situation depends on the context in which they are used and must have regard to the purpose and object of the legislation: see State Government Insurance Office (Qld) v Rees (1979) 144 CLR 549 at 560-1; 26 ALR 341, Butler v Johnston, Guild & Somes (1984) 55 ALR 265 at 268, and Secretary, Department of Social Security v Siviero (1986) 68 ALR 147 at 156-7; 11 ALN N114.
…”
18. The applicant also pointed out that section 1171 requires that there be two or more “lump sum” payments and contended that the payment of $27,500 for costs was not a “lump sum” payment. In support of this contention reference was made to the words of Von Doussa J in Secretary, Department of Social Security v Banks (1990) 20 ALD 19 at p24:
“ … The words “lump sum” are not defined. They are not words of art. In the Macquarie Dictionary a “lump sum” is defined as a sum “including a number of items taken together or in the lump”. In my opinion the words bear that meaning in the section. The words are used in Pt XVII of the Act to distinguish “lump sum payments by way of compensation” from “periodical payments by way of compensation” (see, eg, ss 152(2)(d), (3)(b) and 153(1)(a)). A “lump sum” payment is simply one which includes a number of items. Where a payment by way of compensation consists of the aggregate of several amounts which could have been paid separately or at different times the payment is one of a lump sum. A payment the total of which is arrived at by adding amounts for different heads of loss would also be a lump sum payment.
…”
19. In my opinion these observations do not assist the applicant. There can be no dispute that the costs sum of $27,500 comprised numerous items, including professional work and disbursements over a substantial period of time. As such the payment was clearly a lump sum payment. If it was a lump sum payment in relation to the event that gave rise to an entitlement of the applicant to compensation and the payment of the sum of $218,00 was made wholly or partly in respect of lost earnings or lost capacity to earn – a fact which is not in dispute – it is obvious that the $27,500 and the sum of $218,000 must be aggregated pursuant to section 1171(1) of the Act.
20. In my opinion a conclusion that this aggregation must occur is supported by a number of decided cases, all of which were helpfully reviewed by Senior Member Sassella in Nehme and Secretary, Department of Family and Community Services [2002] AATA 1225. Whilst none of the decisions was based upon facts identical in all respects with those presently before the Tribunal, they show a consistent approach and constitute strong persuasive authority against the applicant’s case.
21. In Nehme’s case, an action for negligence arising out of a motor vehicle accident had been settled on 28 September 2001 for $120,000, plus costs agreed at $20,000. For the purpose of assessing a preclusion period the compensation payment was assessed as being $140,000. In essential respects that case differed from the present only in that the quantum of the costs were agreed at the time of settlement. The applicant in that case contended that the $20,000 costs amount should not have been taken into account.
22. In rejecting the applicant’s submission and affirming the decision under review, Senior Member Sassella said this at paragraph 34:
“34. The tribunal concludes from this survey of the authorities that it is well accepted by the Federal Court of Australia and by the tribunal that legal costs are not to be excised from the lump sum compensation payment for the purposes of the application of s 17(3) of the Act. This has been the case regardless of whether a settlement occurs on the basis of a lump sum payment which makes no reference to legal costs, or on the basis of a lump sum payment “inclusive of costs” but leaving them unqualified, or on the basis of a lump sum payment inclusive of costs which have been quantified.”
This conclusion was reached after a comprehensive discussion of the following cases:
Secretary to the Department of Social Security v Cunneen (1997) 1033 FCA Foster J
Secretary, Department of Social Security v Banks (1990) 23 FCR 416 Von Doussa J
Secretary, Department of Social Security v Hulls (1991) 22 ALD 570 O’Loughlin J
Secretary, Department of Social Security and Beaumont (1990) 20 ALD 482 Deputy President BurnsSecretary, Department of Social Security v a’Beckett (1990) 21 ALD 79 Von Doussa J
There is no need for me to embark upon a separate review of these decisions as that task has already been undertaken by Senior Member Sassella and there is little, if anything, which I could usefully add to his analysis.
23. Just as usefully for present purposes Senior Member Sassella also considered arguments advanced by counsel for the applicant which he described as follows:
“18. Mr Goodridge presented a thoughtful and interesting set of submissions on the applicant’s behalf. At base he submitted that a damages claim can be settled for an amount “plus costs” or “costs inclusive”.. Where the settlement is plus costs it can take a long time, possibly years, to determine costs. In such a case neither the respondent nor Centrelink would know what ultimately occurs regarding costs. The plaintiff would escape any preclusion period in respect of these costs. Mr Goodridge suggested that no plaintiff would ever quantify costs in the settlement process if that quantification led to the imposition of an extended preclusion period. In Mr Nehme’s case the costs were settled early, were known to the respondent, and the respondent sought to include them as compensation.”
24. Senior Member Sassella dealt with the submissions at paragraphs 35 and 36 of his Reasons. He said:
“35. The tribunal has considered Mr Goodridge’s submissions in paragraph 18 above and has concluded as follows. Mr Goodridge raised the problem of a settlement for a certain figure “plus costs” which are not quantified at the time. As the authorities show, this is not a variation that has presented itself in the decided cases. In the decided cases the final settlement figure has been agreed and the Act’s consequences flow from that. In Mr Nehme’s case this variation did not present itself. A final figure, ie $140,000, was agreed upon and paid.
36. As regards Mr Goodridge’s hypothetical case of the settlement “plus costs”, the tribunal doubts that such an arrangement would be of great attraction to many defendants. They seem to prefer to settle for a global figure inflated somewhat by a costs allowance. However, even if Mr Goodridge is correct, the respondent would have the same statutory rights in respect of both instalments of the compensation payment, the corpus of the award and the later determined costs element.”
Senior Member Sassella then reproduced section 1171(1) of the Act, and pointed out its effect in converting two payments into one lump sum payment. He followed up by referring to sections 1182, 1183, 1184, 1184A, 1184B, 1184C, 1184D, 1184E and 1184J and concluded:
“39. This throws upon the compensation payer and/or insurer a strict obligation to notify Centrelink of payments made and equips Centrelink to make the relevant decisions as to recovery of amounts and preclusion periods. In a “plus costs” settlement it would be an administrative matter for Centrelink to check periodically to ascertain what has occurred in relation to any subsequent payments if there is any concern that the compensation payer may be unreliable. This appears to answer Mr Goodridge’s concerns as to the practicality of regarding a “plus costs” settlement as one where costs are included as part of the compensation.”
25. I concur with the views expressed by Senior Member Sassella in Nehme’s case. In my opinion, the amount of $245,500 was properly brought into account by Centrelink for the purpose of assessing the applicant’s compensation preclusion period. The mere fact that the costs were agreed 14 days after the original agreement relating to the sums of $200,000 and $18,000 does not take this case outside the principle discussed in the earlier decisions.
26. As the learned author of “Law of Costs” by L.L. Oliver (1960) observed in his opening paragraph of Chapter 1:
“In its primary sense, the word “costs” means the remuneration of a solicitor for professional services rendered to a client and such payments made in connection with those services as are sanctioned as professional payments by the general and established custom and practice of the profession. But where a judgment or order provides for the payment of costs to a party by another party or out of a fund, the word is used in a different sense; such costs do not belong to the solicitor; they are the property of the client and are given to him as an indemnity or partial indemnity against the costs he has incurred in the proceedings.”
This important distinction is not without significance in considering the present issues. In a loose and uncritical sense it could be contended that the costs recoverable on settlement or judgment in a case like the present are recompense to the plaintiff’s solicitors provided by the losing party or his insurers. In fact the costs when recovered belong to the plaintiff and thus disposal is at his direction. As a matter of practice they are usually appropriated by the solicitor in part or full satisfaction of his fees and charges, but even so he is obliged to fully account for their receipt and disbursement to his client. In principle therefore there is little that can be said to justify the quarantining of costs from the combined operation of sections 17(2), 17(3) and section 1171(1).
27. Mr Smith, solicitor for the applicant, submitted that the discretion conferred by section 1184K(1) of the Act to treat part of a compensation payment as “not having been made” should be exercised in his client’s favour in respect of the $27,500 cost component of the aggregate sum, as there are special circumstances in the present case.
28. Usually one would look for “special circumstances” in the occurrence of unexpected financial or other personal hardship experienced by the review applicant and/or his or her dependants in consequence of the operation of the Act, or other, perhaps unforeseen, circumstances. The nature of a “special circumstances” provision of this kind was discussed by the Full Federal Court in Beadle v Director-General of Social Security (1985) 7 ALD 670. At pp673-4 the Court said:
“The two main questions argued on the appeals were, first, what was meant by “special circumstances”, and, second, whether in a case where special circumstances were found the Director-General had a residual discretion to allow or to refuse to allow the appropriate “longer period” than six months.
As we have seen the Director-General in acting under sub-s 102(1) is concerned with the period between the date a claimant became eligible and the time when the claim was lodged. The legislature has indicated that six months latitude is sufficient in the normal case. The Director-General has power to fix a longer period in special circumstances. Presumably in this context special circumstances must include events which would render the six months unfair or inappropriate. For example, where the delay beyond six months was due to the claimant’s being misled by a departmental officer or was due to the negligence of a third party it might be thought the normal six months would be inappropriate; that special circumstances had been shown which warranted a longer period. More difficult would be questions of ignorance, illiteracy, isolation, illness and the like. It would depend upon the circumstances of the particular case whether these constituted special circumstances. We do not think it is possible to lay down precise limits or precise rules. The matter is one for the Director-General bearing in mind the purpose for which the power is given. The phrase “special circumstances”, although lacking precision, is sufficiently understood in our view not to require judicial gloss.”
29. Mr Smith called no evidence from his client, but invited the Tribunal to infer from the contents of correspondence included in Exhibit “A”, that he had been misled by Guides produced under the auspices of the Department which suggested that a settlement in the terms which he negotiated on his client’s behalf would not require the costs component of the bargain to be brought into account to assess the relevant preclusion period. He invited the Tribunal to infer that his client would have been advised accordingly by him and further, acting upon that advice she would have agreed to the settlement.
30. In the absence of evidence supporting these contentions, this is asking a lot of the Tribunal, but for present purposes I am prepared to assume that Mr Smith interpreted the Guide as suggested, advised his client of the effect of that interpretation and received her instructions to settle on the basis of her acceptance of that advice.
31. However I do not accept that the Guide was misleading or contained error. At best from the applicant’s point of view it may have been ambiguous. I do not accept that it was reasonable for Mr Smith to interpret it as he did in the absence of further consultation with Departmental representatives or a closer study of the legislation and, if necessary, the case law.
32. Mr Smith also appeared to be contending that the legislation operated unfairly by requiring that sums such as costs should be taken into account in assessing the compensation, the compensation part of lump sum compensation payments and the consequent preclusion periods applicable to benefit-receiving plaintiffs or claimants, but I find it impossible to regard the mere operation of law in accordance with the expressed legislative intent as a “special circumstance”.. It is not to the point that some may regard the operation of law as unfair or inequitable because of the rigid statutory formula provided. The reason for the implementation of the statutory formula is clearly explained in the material, including the Second Reading Speech and Explanatory Memoranda contained in Exhibit “A”.
33. In my opinion the SSAT made the correct decision in this case. The decision under review is affirmed.
I certify that the 33 preceding paragraphs are a true copy of the reasons for the decision herein of Deputy President CR Wright QC
Signed: .......................................................................................
AssociateDate of Hearing 28 April 2003
Date of Decision 6 May 2003
Counsel for the Applicant Mr P Smith
Solicitor for the Applicant Downs Lawyers
Counsel for the Respondent Mr C Goldsworthy
Solicitor for the Respondent Centrelink Service Recovery Team
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