Mohamed; Secretary, Department of Family and Community Services

[2005] AATA 811

Administrative

Appeals

Tribunal

 

DECISION AND REASONS FOR DECISION [2005] AATA 811

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No  N2004/1208

GENERAL ADMINISTRATIVE DIVISION		)
Re		SECRETARY, DEPARTMENT OF FAMILY AND COMMUNITY SERVICES

Applicant

And SHAWKEY MOHAMED

Respondent

DECISION

Tribunal Ms N Isenberg, Member

Date24 August 2005

PlaceSydney

Decision The decision of the Social Security Appeals Tribunal is set aside and the matter is remitted to Centrelink with directions that the amount of $10,318.04 recovered from the insurer is to be repaid to Mr Mohamed.

[Sgd] Ms N. Isenberg, Member

CATCHWORDS

SOCIAL SECURITY – lump sum personal injuries settlement – preclusion period – whether special circumstances exist to justify the exercise of the discretion to disregard all or part of the compensation payment being made – unfairness of the strict application of the ‘50% rule’ – decision set aside

LEGISLATION

Social Security Act 1991 – sections 17, 1170 and 1184

CASE LAW

Beadle and Director-General of Social Security (1985) 60 ALR 225

Groth v Secretary, Department of Social Security (1995) 40 ALD 541

Haidar v Secretary of Social Security (1998) 52 ALD 255

Department of Social Security v Ellis (1997) 46 ALD 1

Department of Social Security v Hulls (1991) 22 ALD 570

Secretary, Department of Social Security v Smith (1991) 30 FCR 56

Department of Social Security v Hales (1998) 82 FCR 154

REASONS FOR DECISION

24 August 2005   Ms N Isenberg, Member

DECISION UNDER REVIEW

1.      The decision under review before the Administrative Appeals Tribunal (“the Tribunal”) was the decision of the Social Security Appeals Tribunal (“SSAT”) dated 25 August 2004, to set aside the decision of the Authorised Review Officer (“ARO”) dated 14 May 2004.  The ARO affirmed the Centrelink decision to apply a preclusion period to Mr Mohamed’s lump sum compensation payment and to recover a charge of $10,318.04.  The SSAT set aside the decision of the ARO and remitted the matter to Centrelink for reconsideration with directions that the charge is provable in Mr Mohamed’s bankruptcy and the amount of $10,318.04 recovered from the insurer is to be repaid to Mr Mohamed.  

BACKGROUND

2.      In April 1998 Mr Mohamed injured his foot while gardening.  After suffering medical complications (necessitating the amputation of his right big toe), Mr Mohamed sued his doctors in negligence (T5/14).  His claim included loss of earnings and earning capacity based on his employment as a casual truck driver for the six months prior to the injury (T5/18).

3.      On 3 February 2004, the matter settled for $85,000 plus costs (T11/ 39). 

4.      Mr Mohamed’s solicitors informed Centrelink of the settlement on 5 February 2004 (T12/41).  As Mr Mohamed had been in receipt of Disability Support Pension (“DSP”) since the accident, Centrelink calculated a preclusion period from 14 April 1998 to 26 July 1999 and a compensation charge of $10,318.04 for DSP paid during that period.  Mr Mohamed was informed of the calculations on 13 February 2004 (T14/45). 

5. On the same date, Centrelink sent United Medical Protection Ltd (“the insurer”) a recovery notice under section 1184D of the Act (T13/43).

6.      Mr Mohamed’s solicitor sought review of the decision on 19 February 2004 (T17/51).

7.      On 27 February 2004, Mr Mohamed lodged a debtor’s petition under the Bankruptcy Act (T18/53) and was declared bankrupt from that date.  In his statement of affairs he listed only a credit card debt of $9,800 to the Commonwealth Bank (T19/60).

8.      On 9 March 2004, Centrelink received the insurer’s cheque for $10,318.04 (T23/76).

9.      On 23 March 2004, an Original Decision Maker (“ODM”) reviewed the decision and decided that no special circumstances existed in which compensation should be disregarded (T25/78).  An ARO affirmed this decision on 14 May 2004 (T32/93-97).  On 16 August 2004, the SSAT set aside the previous decisions and remitted the decision to Centrelink with a direction that the charge is provable in bankruptcy and that $10,318.04 should be refunded to Mr Mohamed.

THE HEARING

10.      A hearing was held before me on 26 July 2005 at which Centrelink was represented by Mr Gary Richardson, an advocate from the Centrelink Service Recovery Team.  Mr Mohamed appeared without representation. 

11.      I had before me documents lodged pursuant to section 37 of the Administrative Appeals Tribunals Act 1975 ("the T-documents"), which I took into evidence.  Additional documents as to Mr Mohamed’s medical condition and that of his son, Ahmed, were also taken in as Exhibits.  Mr Mohamed also provided a statement.

12.      Mr Mohamed gave evidence and was cross-examined on behalf of Centrelink.  I also asked him questions.

13.     In coming to the correct and preferable decision, I took into account all the evidence, submissions, case law and relevant legislation.

LEGISLATION

14. Section 1170 of the Social Security Act 1991 (“the Act”) provides that, where a lump sum compensation payment has been received, ‘a compensation affected payment’ is not payable during a lump sum preclusion period.  Subsection 17(1) defines a ‘'compensation affected payment'’ to include a social security payment (such as sickness benefits and Newstart Allowance).  Subsection 17(2) defines ‘'compensation'’ to include settlement of a claim for damages and requires that the payment be "made wholly or partly in respect of lost earnings or lost capacity to earn". 

15.      The preclusion period is calculated by reference to the ‘‘compensation part’’ of a lump sum compensation payment.  Subsection 17(3) defines the ‘‘compensation part’’ as being equivalent to 50 per cent of the lump sum compensation payment.

ISSUES BEFORE THE TRIBUNAL

16.     There was no dispute between the parties as to whether the settlement amount was a compensation lump sum that was received partly in respect of lost earnings or lost capacity to earn; or whether the preclusion period and charge have been correctly calculated. The remaining issues were as follows:

·What is the effect of Mr. Mohamed’s bankruptcy on recovery of the charge?

·Are there ‘special circumstances’ to justify treating part of all of the lump sum as not having been made?

What is the effect of Mr. Mohamed’s bankruptcy on recovery of the charge?

17.     I agree with Centrelink’s submission that the SSAT decision is wrong in respect of the effect of Mr Mohamed’s bankruptcy.

18.     The debt to the Commonwealth recovered in this matter was owed by the insurer, not Mr Mohamed.  Compensation debts which arise from past preclusion periods are not overpayments.  They do not accrue as each instalment of a compensation affected payment was made.  A debt does not arise until a recovery notice is given to a compensation payer under subsection 1184(1), an insurer under subsection 1184(2) or a compensation recipient under section 1178.

19.     The recovery notice of 13 February 2004 (T13/53) was given to the insurer under subsection 1184(2).  Subsection 1184(3) provides that it is the insurer who is liable to pay to the Commonwealth the amount specified in the notice.  The person to whom the notice is given is the person who owes the debt to the Commonwealth (section 1184G). 

20.     No recovery notice was given to Mr Mohamed.  He was not the debtor to the Commonwealth. 

21.     Therefore the ‘debt’ to which the SSAT referred is not provable in Mr Mohamed’s bankruptcy, under section 82(1) of the Bankruptcy Act.

22.     Having come to that view it was not necessary for me to consider Centrelink’s further contentions in respect of Mr Mohamed’s bankruptcy.

Relief from strict application of section 1170

23. Section 1184K of the Act provides potential relief from the strict application of the compensation preclusion period, by giving the Secretary discretion to disregard whole or part of the compensation payment in “special circumstances”. Section 1184K(1) of the Act reads:

“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.”

Mr Mohamed’s claim for special circumstances 

24.     Mr Mohamed essentially claimed special circumstances on five bases:

·     his health,

·     his family circumstances (including his son’s health),

·     his financial circumstances,

·     his solicitor’s excessive costs; and

·     inconsistency in approach as between Medicare and Centrelink.

Each of these was examined in turn.

Mr Mohamed’s health

25.     Mr Mohamed, who is now aged 69, is severely debilitated by the effects of his diabetes mellitus.  The condition itself now requires nightly administration of insulin by injection.  During the day he takes medication.  He also suffers peripheral vascular disease and peripheral neuropathy.  These have apparently lead to the limited use of his hands which, he said, never get warm and also have reduced grip strength.  He has daily tremors and frequently drops his coffee cup.

26.     Mr Mohamed’s left ankle injury may require amputation in that region.  He showed the Tribunal the plastic cast he wears to control ulceration in the left foot and ankle.  He has had the right great toe and right second toe amputated and, because of his poor circulation, is at risk of further amputations.  His conditions cause him chronic pain.  He requires special shoes and he frequently uses a stick to walk because his balance is unreliable.  He can only drive an automatic car.

27.     He recently has had nocturnal urinary incontinence.

28.     His evidence was supported by the medical reports tendered.

Mr Mohamed’s family circumstances (including his son’s health)

29.     Mr Mohamed lives in public housing with his wife who does not work and receives wife pension at the maximum rate.  His son, Ahmed and their daughters, Sara and Samar also live with Mr Mohamed and his wife. 

30.     Ahmed has medical conditions, including possible brain damage, as a result of a work injury.  His financial circumstances, as explained my Mr Mohamed, were unclear.  He has declined support from Centrelink, because he ‘won’t be like a beggar’.  He is not in receipt of workers’ compensation payments as, apparently, liability is in issue and the matter will be ‘going to court’.  Although he did some work for three months in the three years since the accident, he is essentially supported by his parents.

31.     Sara is aged 19 and at university and is shortly to start full time work, while undertaking her studies part time.  The youngest daughter, Samar, is at school.

Mr Mohamed’s financial circumstances

32.     At the time of the SSAT decision, less than 12 months ago, Mr Mohamed had approximately $5,000 remaining from his compensation.  At the hearing he produced a bank statement to the effect that he has only about $20 in his bank account.

33.     Mr Mohamed told me that he spent $22,000 of his settlement on his daughter's wedding on 29 May 2004 and on buying her some household goods.  Mr Mohamed also paid for his wife to visit Egypt to visit her sister who was ill (T2/5).  He spent some money attending to family business issues in Egypt and also gave his relatives about $5000 - 6000 to assist in a legal dispute.

34.     He has borrowed about $7000 from friends but is not being immediately pressed to repay it.

35.     Mr Mohamed has difficulty making ends meet and cannot, for example, pay the fortnightly electricity bill.

36.     He owns a car.  He has a mobile phone which he needs in case the car breaks down and he requires assistance from his family to come and get him.

37.     He and his family rarely go out. If they do, it is to the harbour or riverside.  He does not gamble.

38.     Centrelink does not accept that Mr Mohamed is in financial hardship.  Mr Richardson stated that his financial position is similar to that of many other pensioners. 

Mr Mohamed’s solicitor’s excessive costs

39.     Mr Mohamed says he received only $42,000 in hand from the settlement (T2, 7).  That is, from his settlement monies he apparently paid over half in legal fees.  He said that initially his solicitor was going to give him only $20,000 and keep the rest in fees but he avoided this outcome because he complained to the Law Society. 

40.     It is not for me to determine if he was charged excessively high solicitors’ costs.  That issue should be pursued elsewhere. 

41.     I do observe though that the matter did not proceed to hearing and in those circumstances $43,000 seems a great deal to have paid in legal fees in addition to the party/party costs which were agreed to be met by the Defendant.

Inconsistency in approach as between Medicare and Centrelink

42.     Mr Mohamed expressed concern that there was a difference in approach by Medicare and Centrelink in dealing with settlement monies.  He said that Medicare had ‘taken’ only some of the settlement monies.  As Mr Richardson discussed with Mr Mohamed at the hearing, Medicare is entitled to recover monies paid to, or on behalf of Mr Mohamed, which had related to his compensation matter.  Other payments made in respect of other medical expenses were to be borne by Mr Mohamed.  This is a completely different scheme to that concerning the Centrelink preclusion period.  I do not take this matter into account in my decision finding special circumstances.

Are there ‘special circumstances’ to justify treating part of all of the lump sum as not having been made?

43.     Discretion to disregard whole or part of a compensation payment can be exercised where application of the usual rules would lead to a result that is unfair or inappropriate (see Beadle and Director-General of Social Security (1985) 60 ALR 225 and Department of Social Security v Hulls (1991) 22 ALD 570). The Federal Court in Secretary, Department of Social Security v Smith (1991) 30 FCR 56 held that it is appropriate for the discretion under section 1184 of the Act to be used where the arbitrary nature of the “50% rule” results in unfairness in a particular case.

44.     Special circumstances do not have to be statistically “extreme” or “unique”; it is sufficient if there is something that takes the matter out of the usual ordinary case (see Haidar v Secretary of Social Security (1998) 52 ALD 255 at 264, in which Hill J cited the earlier Federal Court cases of Groth v Secretary, Department of Social Security (1995) 40 ALD 541 and Department of Social Security v Ellis (1997) 46 ALD 1).

45.     Centrelink contended that the circumstances surrounding Mr Mohamed’s expenditure of the settlement monies or his family and financial circumstances are not special, unusual, uncommon or exceptional and that it is therefore inappropriate to exercise the discretion in his favour.

46.     Mr Mohamed gave evidence that he is presently in fairly impecunious circumstances.  His own health is poor, having been on DSP for some years.  He has had amputations and more are foreshadowed.

47.     He has the financial, as well as emotional, burden of caring for his adult son, who may be brain damaged.  At this stage that care may be solely borne by the family, without the benefit of any compensation settlement.  He also supports two younger daughters living at home; one is still at school.

48.     His family live in fairy abstemious circumstances; that he spent $22,000 on his daughter’s wedding is not excessive.

49.     I also observe that from his settlement monies he apparently paid $43,000, that is, over half, in legal fees. 

50.     I came to the view that none of Mr Mohamed’s circumstances amounted, alone, to ‘special circumstances’ for the purposes of exercising the discretion under section 1184K.

51.     However, in Department of Social Security v Hales (1998) 82 FCR 154 at 162, it was stated by the Tribunal that the "concept" of special circumstances was:

"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 the law].” 

52.     In the present case, I find that, considering all Mr Mohamed’s circumstances in their totality, his circumstances were ‘special’ within the meaning of section 1184K of the Act. As such, I find it appropriate to exercise the discretion under section 1184K to treat part of his compensation payment as not having been made.

DECISION

53.     The Administrative Appeals Tribunal sets aside the decision under review.  The matter is remitted to Centrelink with directions that the amount of $10,318.04 recovered from the insurer is to be repaid to Mr Mohamed.

I certify that the 53 preceding paragraphs are a true copy of the reasons for the decision herein of Ms N Isenberg, Member

Signed:         A. Krilis
  Associate

Date of Decision  24 August 2005
Representative for the Applicant               Self-represented      
Representative for the Respondent          Mr Gary Richardson