MITRE BLIZNAKOVSKI and SECRETARY, DEPARTMENT OF FAMILIES, HOUSING, COMMUNITY SERVICES AND INDIGENOUS AFFAIRS
[2010] AATA 159
•5 March 2010
Administrative Appeals Tribunal
DECISION AND REASONS FOR DECISION [2010] AATA 159
ADMINISTRATIVE APPEALS TRIBUNAL )
) No 2009/0752
GENERAL ADMINISTRATIVE DIVISION
)
Re MITRE BLIZNAKOVSKI Applicant
And
SECRETARY, DEPARTMENT OF FAMILIES, HOUSING, COMMUNITY SERVICES AND INDIGENOUS AFFAIRS
Respondent
DECISION
Tribunal Justice C Dawe
Senior Member K BeanDate5 March 2010
PlaceAdelaide
Decision 1. The decision under review is set aside.
2. The matter is remitted to the respondent for determination and calculation of Mr Bliznakovski’s entitlements on the following bases:
(a) that s 1164 of the Social Security Act 1991 applied to the economic loss component of the lump sum redemption payment received by Mr Bliznakovski in 2001, being an amount of $645,000 (the redemption amount); and
(b) the redemption amount was calculated by reference to the period commencing when Mr Bliznakovski entered into the redemption agreement, on 9 August 2001, and ending on his 65th birthday, being 12 January 2007...............................................
JUSTICE C DAWE
(Presidential Member)
CATCHWORDS
SOCIAL SECURITY – pensions, benefits and allowances – Age Pension – “compensation affected payment” – redemption of periodic payments – application of s 1164 of Social Security Act 1991 – whether redemption calculated by reference to a period – whether provisions operate retrospectively in relation to applicant – whether provisions operate harshly or unfairly in precluding applicant from receipt of Age Pension when redemption only intended to compensate him for lost earnings to age 65 – s 1164 applies – though not necessary to decide, special circumstances also exist – decision under review set aside
Social Security Act 1991 ss 17, 1160(1), 1164, 1169, 1170(3), 1171, 1184K(1), 1237AAD
Workers Rehabilitation and Compensation Act 1986 (SA) ss 35(5), 43
Secretary, Department of Social Security v a’Beckett (1990) 21 ALD 79
Re Secretary, Department of Family and Community Services and Nielsen [1999] AATA 918
Re Secretary, Department of Families, Housing, Community Services and Indigenous Affairs and Donald [2009] AATA 920
Secretary, Department of Family and Community Services v Reid [2000] FCA 1874
Re Beadle and Director-General of Social Security (1984) 6 ALD 1
Beadle v Director-General of Social Security (1985) 7 ALD 670
Groth v Secretary, Department of Social Security (1995) 40 ALD 541
Riddell v Secretary, Department of Social Security (1993) 42 FCR 443
Secretary, Department of Family and Community Services v Allan (2001) 66 ALD 147
Secretary, Department of Social Security v Hales (1998) 82 FCR 154
Haidar v Secretary, Department of Social Security (1998) 52 ALD 255REASONS FOR DECISION
5 March 2010 Justice C Dawe
Senior Member K Bean1. In June 1996, the applicant, Mitre (Jim) Bliznakovski, suffered serious injuries in the course of his employment with Santos, resulting in paraplegia. His disability is permanent, he is paralysed from the chest down and is confined to a wheelchair. In October 1996, he was paid a lump sum amount pursuant to s 43 of the Workers Rehabilitation and Compensation Act 1986 (SA) of $171,855 with respect to non-economic loss. Following that payment, Santos continued to pay him weekly amounts by way of income maintenance and also met his medical expenses.
2. On 9 August 2001, Mr Bliznakovski entered into an agreement with Santos for “redemption” of Santos’ undischarged liability to make weekly payments of income maintenance and to pay reasonable medical and like expenses. Pursuant to that agreement, Mr Bliznakovski was paid a total of $650,000, with $645,000 representing the redemption of weekly payments and $5,000 representing future medical expenses.
3. Shortly after receiving this payment, on 27 September 2001, Mr Bliznakovski was advised that as a result of the compensation he had received, he would be precluded from receipt of Centrelink payments for a period commencing on 10 August 2001 and ending on 9 July 2015.
4. Nevertheless, in September 2007 Mr Bliznakovski lodged a claim for the Age Pension and sought a shortening of the preclusion period. This was refused by Centrelink and he then sought review by an Authorised Review Officer (ARO). The ARO found on 25 October 2007 that the preclusion period had been correctly calculated, the claim for Age Pension had been correctly refused and there were no special circumstances which justified shortening the preclusion period. Mr Bliznakovski subsequently sought review of that decision by the Social Security Appeals Tribunal (SSAT) and on 28 July 2008, the ARO’s decision was affirmed by the SSAT.
5. On 20 February 2009, Mr Bliznakovski applied to this Tribunal for review of the decision of the SSAT and on 26 February 2009, by consent, the Tribunal granted him an extension of time for the filing of his application, which had been filed six months after the required period.
issues before the tribunal
6. The issues for the Tribunal are as follows:
(a) whether Mr Bliznakovski is subject to a preclusion period;
(b) if so, whether the preclusion period was correctly calculated;
(c) whether Mr Bliznakovski’s claim for Age Pension was correctly refused; and
(d)if so, whether there are any “special circumstances” in existence to warrant a decision to regard part or all of the settlement monies as not having been paid, pursuant to s 1184K of the Social Security Act 1991 (the Act).
the evidence
7. Mr Bliznakovski is currently 68 years of age. He is married and his wife is his primary carer. Following receipt of his first lump sum payment from Santos, he built a house to meet his needs. As this cost far more than the amount of the first lump sum payment, he was obliged to put a significant amount of his superannuation towards the cost of this house. In evidence to the SSAT, Mr Bliznakovski said that the house had cost he and his wife over $450,000. In his evidence to this Tribunal, Mr Bliznakovski explained that his previous house had been unsuitable, as it was split level. His new house is on one level and the surrounds of the house are flat, both of which features make the house much more suitable to his needs. Mr Bliznakovski also said that he had paid for extensive paving around the house, which allows him to leave the house in his wheelchair in order to get to his shed or do some light gardening.
8. He also explained that, prior to his accident, his wife had owned and run a retail clothing shop which employed two people. Following his accident, she had been obliged to close the shop in order to be available to care for him. It was apparent from his evidence that Mr Bliznakovski was acutely aware of her sacrifice in this regard, which weighed heavily upon him.
9. In relation to his state of awareness regarding the social security implications of his receipt of the two lump sum payments, Mr Bliznakovski said that, in relation to the 1996 payment, he gave no real thought to this at the time he received the payment and was not given any advice as to the potential social security implications of this payment.
10. In relation to the second lump sum payment, it is apparent from the documents accompanying the redemption agreement that Mr Bliznakovski was given legal advice in relation to various matters including the social security implications of the redemption payment. He claims however that this advice was restricted to the implications of that payment, and did not embrace the potential implications of the two lump sum payments, added together.
11. In relation to precisely what advice he was given in relation to the implications of the 2001 lump sum, Mr Bliznakovski’s evidence was somewhat unclear. He did indicate however that he thought he would be able to apply for the Age Pension from 2011.
12. In relation to the adequacy of the 2001 lump sum, he stated that at the time of the settlement, his medical expenses had been approximately $2,220 per month. Currently, he said that his general medical expenses are $7,000 per year and medication expenses are $4,000 per year. As to why the amount allocated in the 2001 lump sum for medical expenses was only $5,000, Mr Bliznakovski said his lawyers had been pursuing payment of a higher figure, in the vicinity of $820,000. However, Santos was not prepared to pay that much and, in the end, the amount of $650,000 was arrived at as a compromise figure, albeit not one which accurately reflected his current or likely future medical expenses.
13. Mr Bliznakovski also said that he has other equipment expenses which were not provided for at all in the lump sum payment. For example, his wheelchair must be replaced every four years and his current bed is 13½ years old and cost $5,000 to purchase. He is likely to require additional lifting equipment in the future and he will also be required to pay for this himself.
14. In relation to his health, Mr Bliznakovski said this had deteriorated very significantly in recent years. He said that he had arthritis all over his body, resulting in pain for which he took medication. He also said that his blood pressure is extremely low which makes him dizzy and tired and causes him to have difficulty concentrating.
15. In relation to the disposition of the 2001 lump sum payment, Mr Bliznakovski acknowledged that he gave $250,000 of this to his wife to put towards her superannuation. In the course of his evidence, he referred to a number of reasons for this. Mr Bliznakovski said he was advised to do this by his accountant and that he understood if he did this, he would be entitled to receive the Age Pension in 2011. He also said that he was aware of other people in his situation whose spouses had left them and indicated that this was a matter which had influenced him in his decision to give that amount of money to his wife to put towards her superannuation. In addition, he also said that it was because of him that his wife had been forced to give up her own business, and suggested that this had compromised her ability to provide for her own future.
16. The Tribunal received the impression from Mr Bliznakovski’s evidence that he regarded this payment in part as a form of recompense to his wife for her sacrifice in giving up her own business to care for him. It was also apparent from his evidence that, if his wife was not available to care for him, Mr Bliznakovski would incur very significant expenses to achieve an equivalent level of care. Mr Bliznakovski said that his wife goes on holiday for approximately one week per year. While she is away, he is required to pay for someone to come to the house and assist him, including with bowel care, for 1½ to 2 hours per day. He said that he can obtain these services privately at a rate of approximately $20 per hour. However, if he is required to engage a company, the cost is $46 per hour.
17. In relation to his current activities, Mr Bliznakovski acknowledged that he engages in share trading and indicated that he had had a good year in 2007, although in the last 2 years he had made very little money from share trading. He said that in 2009 he had earned in the vicinity of $2,000 only. He said there was currently $22,000 in a share portfolio shared between himself and his wife and he was continuing to purchase shares.
18. In relation to his present financial situation, he said that his wife currently had over $400,000 in superannuation although, from January 2010, she would begin to draw a pension from her superannuation. He said that their house was worth approximately $570,000 on the basis of the last council rates notice and the house was not subject to any mortgage. He claimed that he now had no superannuation left and he and his wife had only $6,500 between them in savings.
19. Mr Bliznakovski also said that his wife is currently in receipt of Carer Payment and Carer Allowance and, aside from any money he was able to make through share trading, this was the only current income of the couple as at the date of the hearing (in December 2009).
20. In relation to whether he could ask his wife to return the $250,000 he had given her, Mr Bliznakovski said he could not do that as she was looking after him and doing everything for him. In a written statement dated 4 June 2009 and tendered into evidence before the Tribunal, he stated:
“…
5. She has to do everything for me. I used to have someone come in to care for my feet. It cost $75 a visit. I can’t afford that now. My wife has to cook and clean for me, she washes me. She pays for the things around the house. I can’t ask her for a lump sum.
6. She can’t be 24 hours sitting with me. She needs to be able to go out; she needs to be able to have some freedom. If she wants to go on a holiday, I can’t stop her. And I don’t want to stop her. She needs some life. If she goes away I have to pay for a carer.
7. This has been a hard life for me. But it is hard for her too. I can’t ask for the money back. If we were young and it was the way things were then I could. But the way the relationship is now, it is not possible.
8. I see 90% of marriages where the wife has left. A friend I know, the wife left him with 5 children. Every wife needs freedom and a life.
9. I am scared that my health is getting worse. I have low blood pressure and I can have a stroke. And it is getting harder for my wife to lift me. She is getting older. She is 64. She needs the money to be able to have some freedom, I can’t ask for it back.”
21. Mr Bliznakovski also relies upon a report of Dr Ruth Marshall, Consultant, Rehabilitation Medicine, Director, SA Spinal Cord Injury Service, dated 2 September 2009. This report confirms that, since his injury, Mr Bliznakovski has had “multiple problems including significant dependent oedema, chronic severe neuropathic pain, recurrent urinary tract infections, autonomic dysreflexia and loss of temperature control”. It also confirms that in recent years, “Mr Bliznakovski has suffered from a deterioration in function associated with the problems of ageing with a spinal cord injury”. These problems have included shoulder and wrist problems, cardiac problems and continuing difficulties with recurrent urinary tract infections. The report also confirms that Mr Bliznakovski suffers from very low blood pressure leading to extreme fatigability and dizziness. Dr Marshall also states:
“At the time that Mr Bliznakovski was ‘paid out’ through his compensation insurer, I do not believe that the issues of ageing with a spinal cord injury, as indicated above, were taken into account and therefore Mr Bliznakovski is likely to have been under compensated for his long term medical needs.”
22. Mr Bliznakovski also relies upon a report of Dr Marmion, apparently his general practitioner, dated 28 July 2009. This report confirms a number of the matters alluded to by Dr Marshall, although Dr Marmion also adds that, partly due to his wife’s reduced ability to lift or help him, Mr Bliznakovski has been required to purchase “more complex lifting equipment”. The doctor also states “I gather as she is no longer able to assist Jim as she used to they have applied to Disability SA for assistance with showering & dressing for Jim. This is currently awaiting a reply”. Dr Marmion also states:
“As you can see both Mr & Mrs Bliznakovski’s conditions have worsen [sic] with time & they are as would be expected requiring more assistance. This has meant that financially they have significantly more demands on their income more recently.”
legislative scheme
23. Part 3.14 of the Act provides for the effect of compensation recovery on certain social security benefits. Section 1160(1) of the Act provides for the general effect of that Part of the Act. It provides as follows:
“1160(1)This Part operates in certain specified circumstances to do one or more of the following:
(a) reduce a person’s compensation affected payment;
(b) render a person’s compensation affected payment not payable;
(c)require the repayment of some or all of a person’s compensation affected payment;
because of the receipt of compensation by the person or the person’s partner.”
24. Section 1169 of the Act provides that a compensation affected payment is not payable during a lump sum preclusion period. It provides as follows:
“1169(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.”
25. Section 17(2) of the Act defines “compensation” and provides as follows:
”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.”
26. Section 17(1) of the Act defines the expression “compensation affected payment”, and Age Pension is included in that definition.
27. Section 1170(3) provides relevantly that the lump sum preclusion period is the period that begins on the day on which the loss of earnings or loss of earning capacity began, and ends at the end of the number of weeks worked out pursuant to the statutory formula referred to in ss 1170(4) and (5). That formula refers to the “compensation part of lump sum”.
28. Section 17(3) of the Act provides an artificial statutory formula for determining the “compensation part of a lump sum compensation payment”. It provides relevantly as follows:
“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 … .”
29. Section 1171 also requires that, where more than one lump sum is received and one of the lump sums relates to lost earnings or lost capacity to earn, both lump sums must be taken into account. It provides as follows:
“1171 Deemed lump sum payment arising from separate payments
(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.
(2)A payment is not a lump sum payment for the purposes of paragraph (1)(a) if it relates exclusively to arrears of periodic compensation.”
30. Section 1164 also provides that particular types of lump sums, being those which represent an aggregation of what would otherwise have been an entitlement to periodic payments, are to be treated differently. It provides:
“1164 Certain lump sums to be treated as though they were received as periodic compensation payments
If:
(a)a person was entitled to periodic compensation payments under a law of a State or Territory; and
(b)the person’s entitlement to the periodic payments was converted under the law of the State or Territory into an entitlement to a lump sum; and
(c) the lump sum was calculated by reference to a period;
this Part applies to the person as if:
(d) the person had not received:
(i) the lump sum; or
(ii)if the lump sum was to be paid in instalments—any of the instalments; and
(e)the person had received in each fortnight during the period a periodic compensation payment equal to:
where:
lump sum amount is the amount of the lump sum referred to in paragraph (b);
number of fortnights in the period is the number of whole fortnights in the period referred to in paragraph (c).”
31. The above provisions must, however, be read subject to s 1184K of the Act. That section authorises the Secretary (and this Tribunal, standing in the shoes of the Secretary) to disregard the whole or part of a compensation payment in certain circumstances. Section 1184K(1) provides as follows:
“1184K(1)For the purposes of this Part, the Secretary may treat the whole or part of the 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.”
parties’ contentions
32. Ms Riley, who appeared for the applicant, provided detailed and helpful written submissions, which she supplemented orally at the hearing. In relation to what matters could constitute “special circumstances” for the purposes of s 1184K(1), she submitted that an examination of the case law reveals that these have been found to fall broadly into a number of categories which she described as financial hardship, legislative change, incorrect legal advice, ill health and unfairness. She submitted that each of these factors was present in Mr Bliznakovski’s case. She submitted that the global financial crisis had had an impact on Mr Bliznakovski’s ability to be self-sufficient and his medical costs were increasing and likely to continue to increase. She pointed out that his actual medical costs were far in excess of the amount allowed for these in the 2001 lump sum. She submitted that he was not in a position to request that his wife return to him the $250,000 which he gave her, particularly as he was concerned this may impact on his marital relationship.
33. In relation to legislative change, Ms Riley also submitted that s 1171 had had a retrospective operation in relation to Mr Bliznakovski in relation to the 1996 lump sum, as that provision was only inserted in 2001. She accordingly claimed that Mr Bliznakovski could not have foreseen at that time that the payment would have social security ramifications in the future.
34. In addition, she submitted that the legislative scheme had operated harshly and in a somewhat perverse manner in relation to Mr Bliznakovski, as his “redemption” had only been intended to compensate him for loss of earnings to age 65. However, the legislative scheme had operated so as to prevent him from receiving Age Pension, which was only payable after the age of 65.
35. In support of this argument, she relied upon the decision of Justice von Doussa in Secretary, Department of Social Security v a’Beckett (1990) 21 ALD 79, in which His Honour observed in relation to the legislative scheme which then applied:
“That the legislation should embody a notion of matching periods during which payments from the two different sources are made or to be made is a reflection of the object of the legislation to avoid double payments for an inability to exercise an earning capacity. It would be contrary to this object to deprive a person otherwise entitled to a pension during a period when there was no coincidence (or presumed coincidence) between payments from the two sources. In such cases there would be no overlapping of benefit.”[1]
[1] At pp 88-89.
36. Ms Riley submitted further that the applicant was not somebody who had behaved irresponsibly, such as for example by gambling or otherwise “frittering away” his money. Rather, he found himself in his current situation largely due to matters beyond his control.
37. In relation to incorrect legal advice, Ms Riley also submitted that Mr Bliznakovski agreed to the 2001 redemption on the understanding that he would be eligible to claim Age Pension in 2011 and that he received legal advice to that effect. She submitted that in 2001, neither his lawyer nor financial adviser mentioned to him that the ultimate preclusion period would be calculated based on an aggregate of the two lump sums, that paid in 1996 and the 2001 lump sum added together. Ms Riley also submitted that Mr Bliznakovski’s health was deteriorating and that in order to have any sense of independence, he needed to be in a position to pay for care if the need arose. Ms Riley submitted that, taken together, the above matters were sufficient to establish “special circumstances” within the meaning of s 1184K and as a result, the preclusion period should be brought to an end forthwith. In the alternative, she submitted that the Tribunal should take into account only the second lump sum in calculating the preclusion period, with the result that it would come to an end in August 2012.
38. In response, Mr Parker for the respondent, submitted it was unclear on the evidence as to whether incorrect legal advice had in fact been given. In relation to Mr Bliznakovski’s financial circumstances, Mr Parker pointed out that he and his wife own their home outright. Further, in relation to Mr Bliznakovski’s evidence that he could not retrieve money he had given his wife as it was her money, he pointed out that in the event the couple separated, Mr Bliznakovski would be likely to have some entitlement to a portion of her superannuation. He further pointed out that, in any event, the amount paid to Mr Bliznakovski by way of redemption of his incapacity payments was intended to be used by him towards his own needs and it was contrary to the principles underlying the legislative scheme for him to give away a large proportion of an amount paid to him by way of compensation and then seek support from the public purse as a consequence of having done so.
39. Mr Parker also submitted that Mr Bliznakovski had a share portfolio and was engaging in share trading, including purchasing new shares, and this to some extent undermined his claim to be suffering from financial hardship. Mr Parker sought to rely in particular on the decision of Re Secretary, Department of Family and Community Services and Nielsen [1999] AATA 918, which he submitted fitted quite closely the circumstances of this matter. In that matter, the Tribunal had regard to the fact that the applicant was not currently impecunious and had significant equity in her family home, concluding that her circumstances were therefore not “special” in the relevant sense.
40. In reply, Ms Riley submitted that this case was more similar to the decision of Re Secretary, Department of Families, Housing, Community Services and Indigenous Affairs and Donald [2009] AATA 920, in which the Tribunal had regard to the circumstances which would be likely to be faced by the applicant if her husband became unavailable to care for her. In that matter, the Tribunal concluded that the combination of circumstances faced by the applicant, including the gravity of her condition, amounted to “special circumstances”.
41. At the hearing, the Tribunal also raised with the parties the potential application of s 1164 of the Act to this matter, and made directions for the parties to file supplementary written submissions in relation to this issue, as well as the retrospectivity question referred to above. The parties’ contentions in relation to each of those issues are outlined and addressed below.
consideration
42. We propose to first address the issues identified immediately above, of the potential application of s 1164 and the question of retrospectivity, before proceeding to the remaining issues.
Application of s 1164
43. As Ms Riley set out in her supplementary written submissions, the current s 1164 of the Act has its origins in the previous s 1163A, which was introduced into the Act by the Social Security (Budget and Other Measures) Legislation Amendment Bill 1993 (No 121/1993). The enactment and subsequent history of that provision is traced by von Doussa J in Secretary, Department of Family and Community Services v Reid [2000] FCA 1874.[2] In his decision, His Honour refers to the Explanatory Memorandum accompanying the enactment of the provision, which explained that it was designed to address recent amendments under State legislation, in particular changes to the South Australian Workers’ Rehabilitation and Compensation Act 1987 which allowed compensation to be paid by way of instalments of a “lump sum”.
[2] This decision was upheld by the Full Court of the Federal Court in Reid v Secretary, Department of Family and Community Services (2001) FCR 477 and a subsequent application for special leave to appeal was refused.
44. The introduction of the provision was apparently intended to have the effect that, where, instead of being paid weekly payments of workers’ compensation a worker received two or more “instalments” of weekly payments, the worker would be subject to the same consequences for social security purposes as if the worker had continued to receive weekly payments by way of income maintenance. In other words, the instalments would not be treated as “lump sums” under the Act, because of the perverse consequences which would flow from this.
45. As von Doussa J also explained in Reid, s 1163A was subsequently amended by the Social Security Legislation Amendment (Carer Pension and Other Measures) Bill 1995 and the Explanatory Memorandum which accompanied that Bill, gave the following explanation for the amendments:
“’2. Background
...
S1163A of the Principal Act provides that when a person's entitlement to periodic compensation payments under a law or a State or Territory is converted into an entitlement to a lump sum, that is calculated by reference to a period and is to be paid in 2 or more instalments, the person is deemed to have received in each fortnight during the period, a periodic compensation payment equal to the lump sum amount divided by the number of fortnights in the period.
However, in most cases when a person's entitlement to periodic compensation payments is converted into an entitlement to a lump sum, that is calculated by reference to a period, only a single payment is made. In other words, the lump sum is not paid in 2 or more instalments as is currently required by para1163A(d) of the Principal Act.
...
4. Explanation of the changes
The amendments made to s1163A of the Principal Act will ensure that when a person's entitlement to periodic compensation payments is converted into an entitlement to a lump sum payment, that is calculated by reference to a period, the person is considered to have received in each fortnight during the period, a periodic compensation payment equal to the lump sum amount divided by the number of fortnights in the period, irrespective of whether the lump sum is paid by a single payment or in instalments. This will close a loophole in the current law whereby a lump sum paid by a single payment, in the situation described, is not subject to the provisions contained in s1163A.’”
(Emphasis added)
46. After citing this extract of the Explanatory Memorandum in Reid, His Honour added:
“[36] In introducing the Bill for the 1995 amendments into the House of Representatives on 25 October 1995 the Parliamentary Secretary to the Minister for Social Security said:
‘The bill makes some minor amendments relating to compensation recovery. In this regard, it clarifies the situation that, when a person's entitlement to periodic compensation payments under a law of a state or territory is converted into an entitlement to a lump sum and it is calculated by reference to a period, the person is considered to have received in each fortnight during the period a periodic compensation payment equal to the lump sum divided by the number of fortnights in the period.’”
47. His Honour went on to observe:
“[37] The purpose of the removal of the former s1163A(d) was intended to have the effect of applying s1163A, and not s1165 to a single payment lump sum made under a legislative scheme like that established under s42A of the WCRA where the lump sum is calculated by reference to a period (in s42A, by reference to the ‘worker’s notional working life’).”[3]
[3] At [37]
48. His Honour continued:
“[39] Prior to the amendment the application of s1163A was conditioned upon (a) the lump sum being calculated by reference to a period, and (b) the lump sum being paid in two or more instalments. With the removal of the second of these conditions, unless there was some other provision indicating the respective fields of operation of s1163A and s1165, it is not difficult to envisage cases where there could be argument as to which section should apply. This is so as most assessments of damage or compensation assume a loss over a span of time, and there could be uncertainty whether in a particular case a lump sum payment was calculated ‘by reference to a period’. …”
49. His Honour’s prescience in making that observation is illustrated by the circumstances of this matter.
50. Following His Honour’s decision in Reid, some minor amendments were made to clarify the intention of the provision. As Ms Riley pointed out in her supplementary written submissions, “is entitled” was changed to “was entitled” and “is to be paid” was amended to “was to be paid”. However, apart from those changes, the current s 1164 is a mirror of s 1163A as it was following the 1995 amendments.
51. Having regard to the history of the provision, and the intentions which motivated its enactment and subsequent amendment, it appears to us that s 1164 is intended to apply to a redemption such as that received by Mr Bliznakovski, providing that redemption has been calculated “by reference to a period”.
52. Mr Parker contends that Mr Bliznakovski’s redemption was not calculated by reference to a period, as there is nothing in the redemption documentation referring to any period by reference to which the redemption amount was calculated. As submitted by Ms Riley however, whilst what Mr Parker says is correct as far as it goes, there is nevertheless a good argument that the redemption amount was calculated by reference to a period. Ms Riley argues that it is clear that Mr Bliznakovski’s redemption was calculated by reference to a period when regard is had to the following:
(a) Mr Bliznakovski suffered serious injuries which prevent him from working;
(b) s 35(5) of the Workers’ Rehabilitation and Compensation Act 1986 (SA), as it was in force in 2001, stated that weekly payments in respect of a compensable disability resulting in an incapacity for work, are not payable after a worker reaches retirement age; and
(c) s 35(5)(b) at the relevant time defined retirement age as the age of 65 years unless the normal age for the relevant kind of employment was earlier (which did not apply in Mr Bliznakovski’s case).
53. Mr Bliznakovski was born on 12 January 1942, therefore at the time the redemption agreement was entered into, he was 58 years old. His evidence was that at the time of the accident he was earning between $60,000 and $80,000 a year. Having regard to these earnings and given his age at that time of the redemption, the amount of $645,000 by way of redemption of weekly payments seems a relatively large amount if it was intended to compensate him for loss of income for seven years. However, it is also inconsistent with him having retained any earning capacity, and the applicable legal framework would seem to suggest that it was calculated on the basis that it was intended to compensate him for his loss of earning capacity to age 65. It should also be borne in mind that Mr Bliznakovski last worked in 1996, whereas the redemption would have been calculated having regard to his likely earnings from 2001 onwards.
54. It could also be observed that the amount allowed in the redemption agreement for medical expenses, of $5,000, is surprisingly low, and on Mr Bliznakovski’s evidence has proved to be grossly inadequate. This gives rise to the possibility that the redemption amounts were for some reasons “skewed” so that Mr Bliznakovski received an inflated amount in respect of economic loss, whilst receiving less than he should have in relation to medical expenses. This possibility highlights the difficulty, alluded to by von Doussa J in Reid, of determining whether a particular redemption amount was in fact calculated by reference to a period, or calculated partly by reference to other matters.
55. Nevertheless, it is clear on the face of the legislation that Mr Bliznakovski was only entitled to receive compensation by way of weekly payments in respect of lost earning capacity up until the age of 65. We consider it unlikely that he was paid more by way of redemption than he would have been entitled to had he continued to receive weekly payments. It therefore follows that the amount paid to him by way of redemption must have been calculated by reference to a “period”, namely the period commencing when he entered the redemption agreement and ending when he turned 65. It follows further that, in our view, s 1164 applies to Mr Bliznakovski.
56. We note this has the result that Mr Bliznakovski is taken to have received in each fortnight following his receipt of the redemption lump sum in respect of weekly payments, the amount arrived at by dividing the lump sum by the total number of fortnights in the period, being the period commencing when he received the lump sum and ending when he turned 65. We anticipate this would have the result that he would have been entitled to receive Age Pension from when he turned 65, in the absence of other income after that date.
57. We also note that if s 1164 applies, then by virtue of the terms of that provision, Part 3.14 of the Act applies to him as if he had not received the lump sum paid to him by way of redemption of weekly payments. As he has not received any other lump sum in respect of lost earnings or capacity to earn, s 1171 therefore has no operation in relation to him as he has not received any lump sum which “triggers” that provision.
58. For that reason, if we are correct in our analysis and s 1164 applies, that is sufficient to dispose of this application. However, in case we are wrong in our analysis, we will proceed to address the remaining issues raised by this application, so that it is apparent how we would have dealt with the application if we had concluded that s 1164 did not apply.
Retrospectivity
59. As mentioned above, we also sought submissions from the parties as to the possible retrospective operation of s 1171 of the Act in relation to Mr Bliznakovski and the relevance of this in determining whether his circumstances were “special”.
60. Mr Parker for the respondent submitted that although s 1171 was enacted after the redemption agreement entered into by Mr Bliznakovski in August 2001, its precursor, s 17(2B) was introduced in 1995 via the Social Security Legislation Amendment Act (No 1) 1995 (No 104-1995) and was relevantly in the same terms. Whilst Mr Bliznakovski’s first lump sum was received in October 1996 and his second in August 2001, the respondent submitted that, as the legislation was in relevantly similar terms when both payments were made, there was no retrospectivity involved. Ms Riley did not address this issue in her written submissions in relation to retrospectivity, but simply contended that, as s 1171 was inserted after Mr Bliznakovski had received both of his payments, it could not have been foreseen by him and its operation in relation to him was unfair.
61. In relation to this issue, we are persuaded by Mr Parker’s submissions that the enactment of s 1171 did not relevantly change the law as it operated in relation to either of Mr Bliznakovski’s lump sums, because prior to the enactment of s 1171, there was another provision in the Act, s 17(3), which relevantly had the same effect. Accordingly, the legislation did not operate retrospectively in relation to him.
62. It also follows that, as a result of the operation of s 17(3), and later s 1171, both lump sums must be taken into account in calculating the applicable preclusion period (assuming s 1164 does not apply).
Do special circumstances exist?
63. Having disposed of these more technical issues, it remains for us to consider whether, apart from the matters referred to above, there are any aspects of Mr Bliznakovski’s circumstances which render them “special”.
64. The concept of what constitutes “special circumstances” has been discussed in many cases in the Federal Court and in this Tribunal. In Re Beadle and Director-General of Social Security (1984) 6 ALD 1 the Tribunal was dealing with an application under a different section of the Act which also, however, involved a consideration of whether special circumstances existed. Toohey J said (at page 3):
“An expression such as ‘special circumstances’ is by its very nature incapable of precise or exhaustive definition. The qualifying adjective looks to circumstances that are unusual, uncommon or exceptional. Whether circumstances answer any of these descriptions must depend upon the context in which they occur. For it is the context which allows one to say that the circumstances in one case are markedly different from the usual run of cases. This is not to say that the circumstances must be unique but they must have a particular quality of unusualness that permits them to be described as special.”
65. In the same case on appeal ((1985) 7 ALD 670), a Full Federal Court (Bowen CJ, Fisher and Lockhart JJ) said, at 675, that it was “in broad agreement with the approach of the Tribunal”, and reiterated the need to avoid limiting the scope of what might constitute special circumstances when it explained, at 674:
“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.”
66. In a later case, Groth v Secretary, Department of Social Security (1995) 40 ALD 541, Kiefel J, after referring to the Federal Court’s decision in Beadle, observed at 545 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.”
67. The flexibility of the concept of special circumstances was referred to in Riddell v Secretary, Department of Social Security (1993) 42 FCR 443, where a Full Court of the Federal Court (Neaves, Burchett and O’Loughlin JJ) said, at page 450:
“Each particular case must be considered on its merits. It is the essential nature of the provision to create a broad discretion to meet the great variety of circumstances which must occur, raising considerations of individual hardship, need, fairness, reasonableness, and whatever else may move an administrator, keeping in mind the scope and purposes of the Act, to make a decision one way or the other.”
68. In a similar vein Heerey J, in Secretary, Department of Family and Community Services v Allan (2001) 66 ALD 147, said at [17]:
“It is not sensible to lay down precise limits or precise rules as to what may constitute special circumstances … Ill health, financial circumstances and the unfairness of a strict application of the Act are some matters which may in an individual case, constitute special circumstances.” (References omitted).
69. The purpose of the “special circumstances” provision was explained (in the context of a similar section, namely s 1237AAD of the Act, ) by French J (as he then was) in Secretary, Department of Social Security v Hales (1998) 82 FCR 154, when he said, at page 162:
“The evident purpose of s 1237AAD is to enable a flexible response to the wide range of situations which could give rise to hardship or unfairness in the event of a rigid application of a requirement for recovery of debt.”
His Honour also said, at page 162:
“The concept of special circumstances is broad. A constellation of factors, including financial circumstances, may fall within it.”
70. Finally, we refer to Haidar v Secretary, Department of Social Security (1998) 52 ALD 255 at 263, where Hill J discussed the predecessor of s 1184K of the Act, and agreed with an earlier observation by von Doussa J to the effect that in that section an attempt was made to balance on the one hand finite budgetary allocations against the interests of the recipient of the payment. His Honour continued:
“Without putting too fine a point upon it, the purpose of the basic thrust of the legislation was to avoid a claimant being entitled both to social security benefits and benefits in the nature of income through lump sum payments.
However, the legislature was conscious of the possible harshness of a rule structured in an arbitrary way. Section 1184, therefore, provided the means whereby the secretary or, in the event ultimately of an appeal to the Administrative Appeals Tribunal, that tribunal, could alleviate the harshness of the statutory provision in an appropriate case but only where there were special circumstances. The question of what constitutes special circumstances has been the subject of a number of decisions of this court. It suffices here to say no more than that something is required which would take the matter out of the usual ordinary case …”.
71. As noted above, apart from the issue of retrospectivity, Ms Riley also submitted that in any event the operation of the legislation was unfair or inappropriate in relation to Mr Bliznakovski as his redemption was intended to compensate him for lost earnings up until age 65, whereas the preclusion period extended until he was 73. She relied upon the decision of von Doussa J in a’Beckett, submitting that, unlike the position of most applicants, there was no element of “double dipping” involved in allowing Mr Bliznakovski to access Age Pension from the age of 65 notwithstanding his compensation settlement. In our view, there is considerable force in this submission.
72. Whilst, as discussed above, the amount allowed in the redemption agreement in respect of weekly payments appears to have been relatively high, the amount allowed for medical costs was surprisingly low. Nevertheless, for the reasons pointed out by Ms Riley, it is extremely unlikely that the overall amount paid to Mr Bliznakovski exceeded what his entitlements would otherwise have been, and in relation to weekly payments, those entitlements would only have subsisted to age 65. To that extent, the legislation appears to us to have worked unfairly and inappropriately in relation to Mr Bliznakovski.
73. We note also that the global financial crisis appears to have had an adverse impact on Mr Bliznakovski’s ability to be self-sufficient, although we expect that problem to have been a relatively short-term one. We also note that his medical costs are likely to continue to increase and that the amount allowed in the redemption agreement has proved grossly insufficient.
74. Ms Riley defended Mr Bliznakovski’s reluctance to ask his wife to return to him the $250,000 which he had given her, submitting that it was untenable for him to do this, given that, in effect, he is dependent upon his wife for care and saw this as fair compensation to her for what she had provided and was expected to continue to provide to him. She also pointed out that, to some extent, he had been misled by the advice given to him, as he had understood he would be eligible to claim Age Pension in 2011.
75. Nevertheless, as pointed out by Mr Parker, Mr Bliznakovski’s current financial circumstances are by no means parlous. He has substantial equity in his home and some prospect of improving his financial situation through engaging in share trading.
76. In relation to the balance of the issues, apart from the unfair operation of the legislation, we are inclined to accept Mr Parker’s submissions that, there is no element of Mr Bliznakovski’s situation which renders his circumstances “special” in the relevant sense. In reaching that conclusion, we have paid particular regard to his overall financial situation, and the fact that his current situation is in part attributable to his decision to give $250,000 from his compensation settlement to his wife.
77. However, as to the operation of the legislation such as to preclude Mr Bliznakovski from receiving Age Pension, notwithstanding that, in our view, his compensation settlement was only intended to compensate him to age 65, we do consider his circumstances to be unusual and further that there is significant element of injustice involved in that result. We accept Ms Riley’s submission that, like the situation considered by von Doussa J in a’Beckett, there is no element of double dipping involved in Mr Bliznakovski receiving the Age Pension, notwithstanding his receipt of a compensation settlement intended to compensate him for loss of earnings until age 65.
78. It appears to us to be an unjust and probably unintended result that, simply because he has decided to redeem his entitlements to weekly payments and medical expenses, Mr Bliznakovski has become ineligible for the Age Pension until he reaches the age of 73. We say that because, on the material available to us, if Mr Bliznakovski had instead elected to continue to receive his weekly incapacity payments, and have his medical expenses paid, although his entitlement to weekly payments would have ceased when he turned 65, he would then have become entitled to receive Age Pension, subject to satisfying all of the relevant criteria. In any event he would not have been automatically precluded from receiving Age Pension. It seems unlikely to us that the Parliament intended the legislation to operate in this way when, as in a’Beckett, there is no element of “double dipping” involved.
79. We have taken into account the fact that, in including Age Pension within the definition of “compensation affected” payments, the Parliament has expressly contemplated that in some circumstances, receipt of compensation will preclude a person from receiving Age Pension. However, it appears to us that this is intended to provide for the situation whereby a person receives compensation for lost earnings or earning capacity beyond pension age. Therefore it does not detract from our conclusion that there is an element of unintended injustice in precluding Mr Bliznakovski from receipt of Age Pension, by reference to receipt of a compensation payment which was intended to compensate him for lost earnings to age 65 only.
80. For these reasons, we are satisfied that Mr Bliznakovski’s circumstances are “special” in the relevant sense and that, pursuant to s 1184K of the Act, so much of his lump sum payments should be treated as not having been made so as to reduce the preclusion period applying to him so that it ended on his 65th birthday, being 12 January 2007.
conclusion
81. We have decided that s 1164 of the Act applies to the economic loss component of Mr Bliznakovski’s lump sum redemption payment received by him in 2001, being an amount of $645,000.
decision
82. Our decision is as follows:
(a) The decision under review is set aside.
(b) The matter is remitted to the respondent for determination and calculation of Mr Bliznakovski’s entitlements on the following bases:
(i)s 1164 of the Act applied to the economic loss component of the lump sum redemption payment received by him in 2001, being an amount of $645,000 (the redemption amount); and
(ii) the redemption amount was calculated by reference to the period commencing when Mr Bliznakovski entered into the redemption agreement, on 9 August 2001, and ending on his 65th birthday, being 12 January 2007.
I certify that the 82 preceding paragraphs are a true copy of the reasons for the decision herein of Justice C Dawe and
Senior Member K BeanSigned: ...........J Coulthard...........................................
AssociateDate of Hearing 9 December 2009
Date of Decision 5 March 2010
Advocate for the Applicant Ms M Riley
Solicitor for the Applicant Welfare Rights Centre (SA) IncAdvocate for the Respondent Mr A Parker
Centrelink Legal Services & Procurement Branch
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