McLellan and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs - [2011] AATA 125

Administrative Appeals Tribunal
DECISION AND REASONS FOR DECISION [2011] AATA 125
ADMINISTRATIVE APPEALS TRIBUNAL )
) No 2011/0051

GENERAL ADMINISTRATIVE DIVISION )

Re JAMES McLELLAN

Applicant

And

SECRETARY, DEPARTMENT OF FAMILIES, HOUSING, COMMUNITY SERVICES & INDIGENOUS AFFAIRS

Respondent

DECISION

Tribunal Deputy President P E Hack SC
Date25 February 2011
PlaceBrisbane (heard in Grafton)

Decision
The decision under review is set aside and a decision substituted that $55,000.00 of the compensation payment received by the applicant be treated as not having been made.

...................[Sgd]..................
Deputy President

CATCHWORDS
SOCIAL SECURITY – Benefits and entitlements – Entitlement to Disability Support Pension – Compensation - Preclusion period – Discretion to reduce preclusion period on basis of special circumstances – Aggregation of lump sum payments – Notification of consequences of lump sum payments – Decision that first payment be treated as not made – Decision under review treated as affirmed in all other respects.
Social Security Act 1991 (Cth) ss 1169, 1171, 1184K
Groth v Secretary, Department of Social Security (1995) 40 ALD 541
REASONS FOR DECISION

25 February 2011 Deputy President P E Hack SC

Introduction

The applicant, Mr James McLellan, satisfies the criteria for the payment of disability support pension (DSP). He is, however, precluded by the Social Security Act 1991 (Cth) from being paid DSP until April 2014 because, in August 2004 and November 2009, he was paid lump sum compensation for a work injury. With one qualification, Mr McLellan accepts that the Social Security Act operates in that way however he says that the circumstances are “special” such that a discretion to treat all or part of his compensation payments as not having been made ought be exercised in his favour.
Centrelink has earlier decided that his circumstances are not such as would warrant the exercise of that discretion. That decision has been affirmed on internal review and by the Social Security Appeals Tribunal.
Mr McLellan seeks a review of the decision by this Tribunal.
The legislative framework
The provisions of the Social Security Act need only be briefly noticed. By virtue of s 1169(1) of that Act, where a person receives a lump sum compensation payment DSP (and a range of other pensions) is not payable to the person “in the lump sum preclusion period”. It will suffice for present purposes to note that the Act deems half of any payment to be a payment of economic loss and provides a formula to determine the length of the preclusion period. Mr McLellan accepts, subject to one issue, that the calculation of the preclusion has been correctly undertaken.
The issue that is raised concerns the aggregation of the two payments. Section 1171(1) of the Social Security Act deals with that situation. It provides:
“(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.”
The provision of particular importance in the present case is s 1184K(1). It is in these terms:
“(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.”
Background
Mr McLellan, who is now 34 years of age, badly injured his back in the course of his employment in November 2001. In August 2004 he was paid damages of $55,000.00 representing, he said, the pain and suffering component of his claim for compensation. Thereafter he continued to receive fortnightly payments of compensation for lost earnings. Then in November 2009 Mr McLellan was paid a further $285,000.00 (of which he received approximately $270,000.00 in the hand) when the parties agreed to commute his ongoing compensation entitlements into a lump sum.
On a number of occasions prior to, and around the time of, payment of the $285,000.00 Mr McLellan was told by Centrelink that he would be precluded from receiving DSP if he received a lump sum payment. It is pertinent to note, at this juncture, that he appears not to have been informed of this in or around August 2004 when the first payment was made to him.
Following the receipt of the payment of $285,000.00 Mr McLellan was notified in writing by Centrelink that his DSP had been cancelled and that he could not get DSP again until after 11 April 2014. Despite this, there is a notation in Centrelink’s records that in March 2010 that Mr McLellan contacted Centrelink and asked “whether if he ran out of funds within a couple of years what would happen”.
On 3 August 2010 Centrelink received a letter from Mr McLellan seeking that the preclusion decision “be overturned on severe urgent compassionate grounds”. On 9 August 2010 Centrelink determined not to alter the decision. The decision maker explicitly declined to exercise the s 1184K discretion favourably to Mr McLellan. The decision was affirmed by an authorised review officer on 8 September 2010 and by the Social Security Appeals tribunal on 16 December 2010.
Consideration
Two issues fall for decision – the effect of the split payment of compensation and whether the special circumstances discretion ought be exercised.
As to the first of these, s 1171(1) of the Social Security Act provides a ready answer. The two payments were lump sum payments that were made in relation to the same event, that is, the injury at work in November 2001. The second payment was made wholly or partly in respect of lost earnings or lost capacity to earn and thus Mr McLellan is taken to have received one lump sum compensation payment of an amount equal to the sum of the two payments on the day on which he received the last of them. Centrelink was right to combine the two payments to determine the preclusion period.
It is not necessary to consider the vast array of cases that have considered the expression “special circumstances” in the present, or analogous, context. It is enough to say, adapting the words of Kiefel J in Groth v Secretary, Department of Social Security[1], that something to distinguish Mr McLellan’s case from others, to take it out of the usual or ordinary case, is required. Mr McLellan argues that his medical condition and the fact that he is destitute achieve that. I am unable to agree.
[1] (1995) 40 ALD 541, 545.
Mr McLellan has a disabling injury. Mr McQuinlan, who presented the case for the Secretary with his customary fairness, accepted that Mr McLennan has no capacity to engage in employment. But that does not, of course, distinguish his case. Those who are qualified for DSP are, by definition, unable to engage in employment.
Additionally Mr McLellan said that his circumstances were special because he was destitute, having squandered all of his damages payout on gambling, the abuse of legal and illicit substances and other extravagances. He was, he said, now reliant upon the charity of community organisations to provide the necessities of life for himself and the son he raises. There is certainly material that suggests that Mr McLennan has spent considerable sums on gambling however I have the distinct impression that Mr McLennan has not been frank or fulsome in presenting evidence about his financial circumstances. Three matters illustrate my concerns.
First, so far as I can tell, Mr McLellan has never provided Centrelink with the bank statements that might demonstrate the dissipation of some $270,000.00 in a little over 12 months, an extraordinary rate of expenditure, or provided Centrelink with details of the account to enable it to use its statutory powers to obtain that information. Next, Mr McLennan presented a picture in his evidence in chief that he was about to be evicted from the rented premises where he and his son reside. It emerged in cross-examination that Mr McLellan had informed the real estate agent that he wished to terminate the tenancy in order to live with a relative and that it was his request that led to the issue of the notice terminating the tenancy. Finally, it also emerged in cross-examination that in September 2010, after Mr McLellan’s letter of 3 August 2010 presented a picture of dire financial hardship and after Centrelink had affirmed the decision to impose the preclusion period, Mr McLellan had travelled overseas for a holiday with his former partner and various children for a period of 12 days and at a cost that Mr McLellan estimated between $5,000.00 and $6,000.00.
I am not satisfied that Mr McLennan’s financial position is as he represented it to be so. Thus I need not decide whether, if it were to be the case, that could amount to special circumstances. Equally, I am not in a position to decide whether Mr McLennan’s extravagance was occasioned by an addiction or by lifestyle choice, a distinction that has been regarded as important in some of the cases in this area. There is no evidence, beyond the apparent fact of the expenditure, that would lead me to conclude that the expenditure was the consequence of an addiction.
There is, however, one aspect of the matter where I regard the circumstances as special and that relates to the split payment of compensation. Here an initial payment of $55,000.00 was made to Mr McLennan in August 2004. There is no evidence that Mr McLennan was then informed, either by Centrelink or by his solicitors, that that payment would be aggregated with any future payment to lengthen a preclusion period. Given that that payment was for pain and suffering, it is likely that neither Centrelink nor Mr McLennan’s solicitors considered the issue and advised Mr McLennan about the likelihood of that course being taken. Thus the likelihood is that Mr McLennan received that payment unaware of the need either to be cautious about how he spent it or to keep track of how he did so.
More than five years after that payment was made, final payment was received and a preclusion decision made that treated Mr McLennan as having received, at that time, all of the monies. The period in excess of five years strikes me as a particularly long period between payments of instalments of compensation. That length of time coupled with the likelihood that Mr McLennan was not made aware of the potential consequences of the interim award on his future entitlement to DSP creates a situation that is, I consider, sufficiently outside the usual or ordinary course as to warrant the description of “special”. I am satisfied that it is appropriate to treat the payment of compensation of $55,000.00 as not having been made.
I would add that it is open to Mr McLennan to renew his request to Centrelink to exercise the discretion to treat more of the compensation sum as not having been paid. I do not doubt that Centrelink would re-examine the matter were some better evidence of the dissipation of the funds to be provided and if some medical evidence were to be presented that suggested that Mr McLennan’s spending and drug abuse were the product of addiction, not lifestyle choice. In that latter regard I note that he has an appointment to see a psychiatrist in the near future.
I certify that the 20 preceding paragraphs are a true copy of the reasons for the decision herein of Deputy President P E Hack SC
Signed: ............................[Sgd]..............................................
  Alex Seagar, Associate
Dates of Hearing  22 February 2011
Date of Decision  25 February 2011
Applicant  In person
Respondent  Departmental advocate

GENERAL ADMINISTRATIVE DIVISION		)
Re		JAMES McLELLAN