Milinkovic and Department of Family and Community Services

[2001] AATA 93

DECISION AND REASONS FOR DECISION [2001] AATA 93

ADMINISTRATIVE APPEALS TRIBUNAL      )

)     No N99/1955

GENERAL  ADMINISTRATIVE  DIVISION     )          

Re      TOMISLAV MILINKOVIC  

Applicant

And    SECRETARY, DEPARTMENT OF FAMILY AND COMMUNITY SERVICES        

Respondent

DECISION

Tribunal      Mr RP Handley, Senior Member  

Date12 February 2001

PlaceSydney

Decision      The Tribunal affirms the decision under review.

[sgn]           RP Handley
  Senior Member         
  CATCHWORDS
SOCIAL SECURITY  –  disability support pension  – compensation  – preclusion  period  – 50 per cent formula – whether special circumstances  -  expenses  -  gambling habit  - ongoing medical problem

Social Security Act 1991, sections 17, 1165 and 1184

Groth v Secretary, Department of Social Security (1995) 40 ALD 541
Secretary, Department of Social Security and a'Beckett (1990) 26 FCR 349
Hulls and Secretary, Department of Social Security (1991) 22 ALD 570
Secretary, Department of Social Security and Banks  (1990) 20 ALD 19
Re Fowles and Secretary, Department of Social Security (1995) 38 ALD 152
Beadle v Director-General of Social Security (1985) 60 ALR 225
Re Beadle and Director-General of Social Security (1984) 6 ALD 1

REASONS FOR DECISION

Mr R P Handley (Senior Member)   

1. This is an application by Tomislav Milinkovic ("the Applicant") for a review of a decision of the Social Security Appeals Tribunal ("the SSAT") made on 29 September 1999 which affirmed a decision of a delegate of the Secretary of the Department of Family and Community Services ("the Respondent") and an Authorised Review Officer to impose a preclusion period, precluding the payment of a Social Security benefit or pension to the Applicant from 6 September 1997 to 17 August 2007.

2. At the hearing, the Applicant was represented by John Henness of Counsel and the Respondent was represented by George Lozynsky of Centrelink. The evidence before the Tribunal comprised the documents lodged pursuant to section 37 of the Administrative Appeals Tribunal Act 1975 ("the T Documents") together with the exhibits tendered by the parties. The Applicant gave sworn evidence.
   BACKGROUND

1. The Applicant, who was born on 14 February 1948 and is aged 52, was injured in a motor vehicle accident on 8 August 1994 while on his way to work. He has not worked since. He was paid weekly Workers Compensation by HIH Winterthur until 5 September 1997, having, on 19 August 1997, received a compensation settlement of $475,000. Of this sum, the Applicant received $207,224.98.

2. On 23 October 1998, the Applicant lodged a claim for disability support pension. On 6 November 1998, the Respondent decided to impose a preclusion period in respect of the payment of social security benefits or pension from 6 September 1997 to 17 August 2007. The preclusion period was calculated by deducting from the settlement of $475,000 a refund of $55,811.42, which was paid to the Workers Compensation insurer in respect of weekly payments of compensation. Fifty per cent of the balance of $419,188.28, ie $209,594.14, was divided by the then correct income cut out amount of $403.20, to give a figure of 519 weeks. A period of 519 weeks commencing on the day after weekly payment of Workers Compensation ceased on 5 September 1997, ie 6 September 1997, ends on 7 August 2007.

3. On 30 November 1998, this decision was confirmed after an internal review. The decision was also affirmed by an Authorised Review Officer on  2 July 1999 and by the SSAT on 29 September 1999. On 22 December 1999 the Applicant lodged an application for a review by this Tribunal.
   APPLICABLE LEGISLATION

1. The relevant provisions of the Social Security Act 1991 ("the Act"), sections 17, 1165 and 1184, are set out below. Essentially, the Applicant challenges the length of the preclusion period calculated pursuant to these provisions.

   17 (2)  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) that is:

   (e)    made wholly or partly in respect of lost earnings or lost capacity to earn;  and

   (f)     made either within or outside Australia.

   17 (3)    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, on or after 9 February 1988; 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, on or after 9 February 1988; 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.

   17 (4)     Where a person:
                   (a)      has received periodic compensation payments; and

   (b)    after receiving those payments, receives a lump sum compensation payment (in this subsection called the "LSP); and
   (c)     because of receiving the LSP, becomes liable to repay an amount (in this subsection called the Repaid Periodic Compensation Payment - RPCP) equal to the periodic compensation payments received;

   then, for the purposes of subsection (3), the amount of the lump sum compensation payment is:
   LSP  -  RPCP

   1165 (2AA)     Subject to subsection (2B), if:
             (a)       a person receives or claims a compensation affected payment; and
             (b)       the person is a member of a couple; and

   (c)       the person receives a lump sum compensation payment (whether before or after the person receives or claims the compensation affected payment) on or after 20 March 1997;

   no compensation affected payment is payable to the person for the new lump sum preclusion period.
   1165 (5)        If periodic compensation payments are made in respect of the lost earnings or lost earning capacity, the new lump sum preclusion period is the period that:

   (a)       begins on the day after the last day of the periodic payment period; and
   (b)       ends after the number of weeks worked out under subsections (8) and (9).

   1165 (8)        If a compensation lump sum is received on or after 20 March 1997, the number of weeks in the preclusion period is the number worked out under the following formula:

1165 (9)     If the number worked out under subsection (4) or (8) is not a whole number, the number is to be rounded down to the nearest whole number.

1184 (1)        For the purposes of this Part, the Secretary may treat the whole or part of a compensation payment as:
          (a)       not having been made; or
          (b)       not liable to be made;
if the Secretary thinks it is appropriate to do so in the special circumstances of the case.

THE APPLICANT'S EVIDENCE

1. The Applicant was called to give evidence by Mr Lozynsky. He said he suffers from pain in the neck, shoulders and leg. About February/March this year, he tried to return to work, working as a carpenter for a builder in Gundagai, but he had to stop after 3 weeks because he could not sleep at night as a result of pain, especially in his shoulders and legs. The Applicant said he does not do housework – his wife does that. He has worked on his Gundagai house as a hobby – for example, he has put on the skirting boards and hung the doors. But often he can only work for an hour before he needs to stop and rest. He calls on his friends to help him with any hard jobs. He said, on a good day, he could work for a maximum of half a day, but even then would probably have to rest the next day.

2. The Applicant said he suffers from high blood pressure and, yesterday, obtained prescriptions from his doctor for medication for his blood pressure and the rheumatism in his arms. He also produced a medical certificate from his treating doctor, Dr M. Pukanic, dated 09 November 2000 (A1), which states that the Applicant suffers from anxiety and depression.

3. The Applicant said that after the motor vehicle accident in 1994, he received weekly payments of Workers Compensation. He agreed he was receiving about $316 per week at the time that payment ceased. The Applicant said that, before the settlement, he had not enquired of Social Security as to whether he could obtain a Social Security benefit. His solicitor, Trevor Carter, did inform him, at the time of settlement, that any payment of Social Security benefit would be subject to a preclusion period. The Applicant acknowledged that he did ask Social Security about this before he spent his compensation settlement.

4. The Applicant said that when he was living at Bradbury (near Campbelltown) after the accident, he had nothing to do so he would go to the club and play the poker machines. He acknowledged he has a gambling problem. So he sold his Bradbury house and moved to Gundagai. The completion on the sale was about November 1999. The sale price was $138,000 of which he received about $120,000 after payment of commission, costs etc. The Applicant said he had spent most of that money on his property at Gundagai. He has about $34,000 remaining, in an account with the Commonwealth Bank.

5. The Applicant said he had intended to save more money from the settlement but he just could not stop spending it and going to the club. He did not consult any financial advisers. He had purchased a bobcat at auction in Sydney for $8,500 but it proved to be no good and he had to spend a lot of money on repairs. He then resold it for about $10,000. Apart from the remaining money in the bank, the Applicant has only his property in Gundagai, his car and furniture. He has no debts.

6. The Applicant said he and his wife have no children living with them at the moment, although his daughter, who lost her job in Sydney and cannot survive on Social Security payments of $150 per week, would like to move in with them. His wife is not working. She looks after him. She is currently receiving Social Security payments of about $150 per week. They have not sought any help from welfare agencies.
   THE APPLICANT'S SUBMISSIONS

1. Mr Henness, for the Applicant, said the Applicant had received a settlement of $475,000. Of this sum, $183,651 had initially been repaid to HIH Winterthur, the Workers Compensation insurer, including $55,811.72 in respect of periodic payments of Workers Compensation. Subsequently, $5,215.98 of this sum was returned to the Applicant.

2. Mr Henness submitted that the word "payment" in subsection 17(3) of the Act should be interpreted as meaning net payment and not gross payment. Thus, the payment used for calculating the "compensation part of a lump sum compensation payment" in subsection 17(3) should be taken as $475,000 less the repayment to HIH Winterthur of $178,435.95 (ie $183,651.93 - $5,215.88) and to the Health Insurance Commission ("HIC") of $47,500, a net amount of $249,063.99. If the 50% formula provided for in subsection 17(3) were applied to this amount, then this would result in a preclusion period of 308 weeks, commencing on 06 September 1997 and ceasing on 09 August 2002.

3. Mr Henness noted that the letter from Hunt & Hunt, NRMA's solicitors, dated September 1997 (T7), refers to a "cheque in the sum of $243,848.07 representing settlement moneys". (To this should be added the $5,215.88 later repaid.) Mr Henness noted that this sum did not take account of legal costs and other medical expenses and disbursements amounting to $29,438.07. The Applicant ultimately received $202,009 + $5,215.88.

4. Mr Henness said that cases on this issue do not refer to a refund to the insurer  they refer to legal and medical expenses. He submitted that while subsection 17(4) specifically provides for a deduction from the lump sum compensation payment of a repayment in respect of periodic payments, for the purpose of calculating the preclusion period, it does not preclude a similar deduction in respect of a repayment to the insurer for other expenditure. There are no cases which specifically indicate that a repayment outside the terms of subsection 17(4) cannot be deducted from the gross amount of the payment.

5. Mr Henness contended that the Applicant had not "double dipped". The Applicant had $183,651.93 deducted from his original compensation settlement which was repaid to the insurer. If anything, the Applicant had suffered the reverse of double dipping.

6. With regard to the application of the subsection 1184(1) discretion, Mr Henness noted that this provision was used to overcome hardship and injustices where strict application of the provisions of the Act did not make sense. He referred to the decision in Groth v Secretary, Department of Social Security (1995) 40 ALD 541, where the Court referred to special circumstances as including unreasonable, unjust and inappropriate. Mr Henness contended that the Applicant's situation is one to which those words refer. It was the intention of section 17 to avoid double dipping – to prevent a person from being paid from two sources simultaneously. This has not occurred in this case.

7. It was the framing of the Applicant's terms of settlement which make his circumstances unjust and unreasonable, thereby justifying the exercise of subsection 1184(1). The difference between using the gross figure rather than the net figure in calculating the preclusion period had resulted in an additional five years preclusion period.

8. Mr Henness contended that exercise of the subsection 1184(1) discretion could also be justified on the basis of the financial hardship suffered by the Applicant to which reference was made in the evidence.
   THE RESPONDENT'S SUBMISSIONS

9. Mr Lozynsky, for the Respondent, contended that the SSAT made the correct decision. The word "payment" in subsection 17(3) of the Act should be interpreted as the net and not the gross amount. Mr Lozynsky referred to Secretary, Department of Social Security and a'Beckett (1990) 26 FCR 349, Hulls and Secretary, Department of Social Security (1991) 22 ALD 570, and Secretary, Department of Social Security and Banks (1990) 20 ALD 19 in support of that contention. He contended that as long as the lump sum compensation payment was wholly or partly in respect of lost earnings or earning capacity, then the whole payment is caught within the meaning of "compensation". The reference to payment in subsection 17(3) is clearly a reference to a compensation payment referred to in subsection 17(2).

10. Thus, Mr Lozynsky said, the Respondent was correct in taking $475,000 as the payment "wholly or partly in respect of lost earnings or capacity to earn" (subsection 17(2)(e)). From that amount, the Respondent had acted in accordance with subsection 17(4) in deducting $55,811.72 in respect of weekly compensation payments which had been repaid from the overall settlement. Mr Lozynsky said the balance of $419,188.28 was the amount to which the 50 per cent formula should be applied. There was no provision for deducting the balance of the repayment to HIH Winterthur or the repayment to the HIC from the settlement amount.

11. Mr Lozynsky submitted that the Applicant's circumstances are not so unusual, uncommon or exceptional as to warrant exercise of the subsection 1184(1) discretion. It was not the responsibility of the Respondent to go behind the settlement agreed to by the Applicant. (In his statement of facts and contentions, Mr Lozynsky referred to Re Fowles and Secretary, Department of Social Security (1995) 38 ALD 152 in support of this contention.)

12. Mr Lozynsky contended that the Applicant was not in financial hardship and, in any event, financial hardship alone is not sufficient to establish special circumstances. The Applicant had been informed of the preclusion period and had contacted Centrelink about this before he spent his settlement monies. He should have budgeted for future income support. He spent approximately $165,000 on his property at Gundagai and sold his property at Bradbury for $120,000 net. He still has $34,000 in the bank. The fact that the Applicant has an ongoing need for medication and, therefore, ongoing medical expenses, is not special. Many of his expenses will be covered by Medicare and the Applicant has a Health Care Card. The Applicant's wife is also now receiving Newstart Allowance of $319.20 per fortnight.
    CONSIDERATION OF LAW AND FINDINGS

1. The first issue for the Tribunal is whether the 50 per cent formula provided for in subsection 17(3) of the Act applies to the amount of the compensation settlement after deduction of any repayment of periodic compensation payments to the Applicant (subsection 17(4)), but without taking into account other repayments. It is clear to the Tribunal from cases such as Hulls (supra), a'Beckett (supra) and Banks (supra), that such repayments should not be "excised" (see, for example, Hulls (supra) at 581) (and the fact of not doing so does not, of itself, constitute special circumstances).

2. The 50 per cent formula was designed to overcome the need to dissect a lump sum settlement and prevent manipulation of the components of a settlement in order to obscure or diminish an economic loss component: Banks (supra) at 422 and 424.

3. The second issue for the Tribunal is whether, pursuant to subsection 1184(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.

4. 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, the Court did not think it possible to lay down precise limits or precise rules. It would depend on the circumstances of a 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).

5. 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).

6. In Groth (supra) 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.

1. The Tribunal finds that of the $475,000 settlement, the Applicant received $207,224.98. (The NRMA's solicitors, Hunt & Hunt, forwarded a cheque to the Applicant's solicitor of $243,848.07 in September 1997 (T7). From this sum, the Applicant's solicitor deducted $29,438.07 in respect of costs and disbursements and paid the Applicant $202,009 (T17). The Applicant later received a further $5215.98 in respect of an over-payment to HIH Winterthur (T44), making the total actually received by the Applicant $207,224.98.)

1. At the time of the accident, the Applicant and his wife lived at a property at Bradbury. After the settlement, the Applicant purchased a 10.5 hectare block of land at Gundagai on which he built a house. It is unclear from the T Documents as to the exact amount spent on the purchase of the Gundagai property and house, but it appears to have been in the order of $155,000 (T45).

2. The Applicant's evidence was that he sold his property at Bradbury for $138,000 in November 1999, from which he received approximately $120,000 after payment of costs and disbursements. The Applicant also acknowledged in evidence that he has a gambling problem. In answer to written questions from Centrelink, the Applicant stated he lost $20,000 on poker machines between 24 September 1997 and 10 June 1999 (T45). A record of a Centrelink officer's interview with the Applicant on 26 February 1999 (T30) indicates $7,000 spent on car repairs, and the SSAT records the Applicant's evidence that he purchased a car for his daughter for $3,500 (T3).

3. The Applicant acknowledged in evidence that he was aware, at the time of the settlement, that a preclusion period would be imposed in respect of the payment of a Social Security benefit or pension. He did not consult any financial advisers and did not make any financial plan providing for his financial support during the course of a preclusion period. A substantial sum, $20,000, was lost through gambling. Currently, he has $34,000 in his Commonwealth Bank Account, and has no debts. His wife is receiving Newstart Allowance payments of $319.20 per fortnight.

4. The Tribunal accepts the Applicant's evidence as to ongoing medical problems, especially with his neck, shoulders, back and legs, which affect his capacity to undertake his usual work as a carpenter. He will have an ongoing need for medication but has the benefit of Medicare coverage and a Health Care Card.

5. While the Tribunal accepts that the Applicant is likely to encounter financial problems in the future and that his medical condition has been permanently affected by his accident in 1994, none of this amounts to such unusual or exceptional and "special" circumstances which would justify exercise of the discretion in subsection 1184(1). Nor did the application of the 50% formula in the Applicant's case lead to such unfairness or injustice as would justify exercise of the discretion. Thus, in the Tribunal's view, the SSAT's decision was correct and should be affirmed.

I certify that the 36 preceding paragraphs are a true copy of the reasons for the decision herein of Mr R.P. Handley, Senior Member

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

Date/s of Hearing  15 December 2000
Date of Decision  
Counsel for the Applicant        Mr J Henness
Solicitor for the Respondent    Mr G Lozynsky