Narelle Whittall and Secretary, Department of Social Services
[2015] AATA 129
•6 March 2015
[2015] AATA 129
Division GENERAL ADMINISTRATIVE DIVISION File Numbers
2014/4767
Re
Narelle Whittall
APPLICANT
And
Secretary, Department of Social Services
RESPONDENT
DECISION
Tribunal Professor R McCallum AO, Member
Date 6 March 2015 Place Sydney The Tribunal varies the decision under review by reducing the Applicant’s award of compensation by $100,000 and remits the matter to the Respondent to recalculate the compensation preclusion period in accordance with these reasons.
...........................[sgd].............................................
Professor R McCallum AO, Member
CATCHWORDS
SOCIAL SECURITY – disability support pension – cancellation of payments – compensation preclusion period – whether special circumstances exist – purchase of property – property development business venture – grossly dishonest treatment of Applicant by partners in business venture – whether to treat whole or part of compensation payment as not having been made – decision varied and remitted
LEGISLATION
Social Security Act 1991 (Cth) s 1184K
CASES
Re Ivovic and Director-General of Social Services [1981] AATA 57
Dranichnikov v Centrelink [2003] FCAFC 133
Boscolo v Secretary, Department of Social Security [1999] FCA 106
REASONS FOR DECISION
Professor R McCallum AO, Member
6 March 2015
The Applicant, Ms Narelle Whittall, is in her forties and commenced receiving the Disability Support Pension (DSP) on 15 November 2012.
In 2010 the Applicant was injured in a motor vehicle accident and she brought proceedings in the courts for compensation for the injuries which she had suffered. On 5 November 2013 she settled her claim for the lump sum of $725,000.
The Applicant’s DSP was cancelled on 19 November 2013 on the basis that her entitlement to these payments were subject to a compensation preclusion period from 16 November 2013 to 17 July 2020.
The Applicant requested a review of the original decision on 21 May 2014. An Authorised Review Officer (ARO) affirmed the original decision on 22 June 2014. On 26 June 2014, the Applicant applied to the Social Security Appeals Tribunal (SSAT) for review of the decision of the ARO, and on 29 July 2014 the SSAT affirmed the decision under review.
The Applicant now seeks review of the SSAT’s decision with this Tribunal.
THE COMPENSATION PRECLUSION PERIOD
The Social Security Act 1991 (Cth) (the SS Act) establishes the “compensation preclusion period”, a mechanism which is designed to ensure that where a social security recipient obtains a monetary award of compensation for injuries, the recipient utilises the compensation to cover their living costs in place of their social security payments for an appropriate period of time, having regard to the amount of the award. This period is known as the compensation preclusion period, during which recipients of compensation such as the Applicant are precluded from receiving social security payments.
The relevant provisions which both govern and demark the compensation preclusion period are sections 17, 1169 and 1170 of the SS Act. As the Applicant no longer contests the accuracy of the calculations in her case it is unnecessary to set out these provisions.
The Applicant was awarded the sum of $725,000 as compensation, which was inclusive of legal and related costs. The award of compensation also included $94,960.52 being arrears of periodic compensation payments which the Applicant had already received. Thus in calculating the compensation preclusion period, the arrears of periodic compensation payments, that is $94,960.52, are taken off the award of compensation. For the purposes of calculating the compensation preclusion period, the arrears amount is subtracted from the overall compensation award, which results in an award lump sum of $630,039.48. In accordance with the rather complicated formula, first, the lump sum is divided by 50% to $315,019.74. Second, this amount is divided by the “income cut-out amount” which is the maximum pension rate payable at the time the compensation was received. In the Applicant’s case, the “income cut-out amount” is $905.10 per week. The length of the Applicant’s compensation preclusion period is 348 weeks, commencing on 16 November 2013 and concluding on 17 July 2020.
THE SECTION 1184K DISCRETION
Section 1184K of the SS Act is headed, “Secretary may disregard some payments”. Sub-section 1184K(1) provides:
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.
Put briefly, the existence of “special circumstances” in a particular case enables the Secretary to disregard some or all of the compensation payments, which will either extinguish or more usually will shorten the compensation preclusion period. The Applicant asserts that the special circumstances of her case warrant the exercise of this discretion. This is the only issue which I must determine.
THE CASE LAW
The phrase “special circumstances” appears in several provisions of the SS Act and in its predecessor statutes. These words not only concern the compensation preclusion period, but they also govern discretions relating to debt recovery and over payments. There are many decisions concerning the manner in which “special circumstances” discretions should be exercised in social security matters.
In Re Ivovic and Director-General of Social Services [1981] AATA 57 at [45], the Tribunal commented upon the phrase “special circumstances” with respect to debt recovery under section 115 of the Social Services Act 1947 (Cth):
It is, in our view, the plain intention of s.115 of the Act that in cases such as the present the amount of the liability properly determined in accordance with sub-section (4) of that section must be paid unless the Director-General (or on review this Tribunal) is satisfied that special circumstances exist by reason of which the person should be released in whole or in part from that liability (s.115(4A)). Whilst it would be unwise, if not impossible, to attempt to lay down any precise delineation of what may amount to ‘special circumstances’ for the purposes of s.115(4A) (cf. Re Norman (1886) 16 QBD 673 at 677 per Lopes LJ), the use of the word ‘special’ is, we think, intended to allow the decision-maker the fullest opportunity to consider the particular circumstances of each case (cf. Ex parte Bucknell [1936] HCA 67; (1936) 56 CLR 221 at 224). Whilst we agree that hardship is a relevant consideration in the exercise of the discretion conferred by s.115(4A), we reject the submission by Mr Watkins that we should ignore the circumstances out of which the alleged hardship is said to have arisen. The reference to special circumstances ‘by reason of which’ a person liable ‘should be released’ requires, in our view, that there must exist in the circumstances of the case, a factor or factors which justify the making of an exception in whole or in part to the principle of liability which the Act otherwise establishes. In the exercise of the discretion which s.115(4A) confers, the decision-maker must have regard to whether, by exercising the discretion in a particular case, he will be achieving or frustrating ends or objects which are conformable with the scope and purpose of the Social Services Act 1947: cf. Water Conservation and Irrigation Commission (NSW) v Browning [1947] HCA 21; (1947) 74 CLR 492 at 505 per Dixon J. Thus whilst keeping the dominant principle of s.115 in mind, he must nevertheless be prepared to respond to the special circumstances of any particular case by reason of which strict enforcement of the liability created by the section would be unjust, unreasonable or otherwise inappropriate.
More recently in Dranichnikov v Centrelink [2003] FCAFC 133, Hill J (with Kiefel and Heely JJ agreeing) said at [66]:
Other cases which have considered analogous words such as “special reasons” has tended to conclude, albeit in different contexts, that what is required will be circumstances which distinguish the case in consideration from the usual case. There will be a requirement that the circumstances are such that takes the case out of the ordinary.
In Boscolo v Secretary, Department of Social Security [1999] FCA 106, French J (as he then was) stated at [18]:
The word “special” conditioning “reasons” or “circumstances” guards the entrance to the exercise of many different statutory discretions. It is generally futile to search for its meaning in terms of other words. It is in essence instrumental, a direction to the decision-maker that the discretion it constrains is not lightly to be enlivened. A Full Court has spoken of it as having content which is “...sufficiently understood not to require judicial gloss” – Beadle v Director-General of Social Security [1984] AATA 176; (1985) 60 ALR 225 at 228. If helpful to speak in terms of its meaning almost all of it comes from context.
In essence, the phrase “special circumstances” as it appears in sub-section 1184K(1) of the SS Act bestow upon decision-makers latitude to examine the circumstances of applicants to ensure that out of the ordinary factors do not lead to unjustifiable hardship, provided the purposes of the provisions dealing with compensation preclusion periods are upheld.
THE APPLICANTS’ EVIDENCE
The Applicant gave sworn evidence at the hearing on 17 December 2014, and she gave further sworn evidence when the hearing resumed on 17 February 2015. The Applicant was the only person to give oral evidence and I found her to be a truthful witness.
In her evidence, the Applicant stated that she no longer contested the date of commencement of the compensation preclusion period, nor the manner in which it was calculated. However, she argued that given the special circumstances of her situation, the compensation preclusion period should be extinguished, or at the very least shortened.
The Applicant gave evidence that although the lump sum was $630,039.48, the amount of compensation which she actually received was $413,000. This was because she was required to pay legal costs and to pay moneys to Medicare and to QBE Insurance.
The Applicant stated that she has custody of a ten year old child whom she treats as her daughter. The only support the Applicant said she receives for her daughter are family tax benefit payments, which gross $287.28 per fortnight.
The Applicant admitted that Centrelink had written to her about the compensation preclusion period and how the moneys which she had received should be used to supply her with income throughout this period.
The Applicant stated that she had applied for jobs in her area, however, in her view, her prior receipt of workers compensation payments made employers reluctant to hire her.
At the time of the commencement of the compensation preclusion period the Applicant was renting a house. She said that she believed the landlord was going to sell the property. She asked an estate agent what would happen if the landlord sold the property and was told that without a prior history of renting and without income she would find it difficult to obtain other rental accommodation.
In 2014 the Applicant took out a mortgage of approximately $250, 000 which she used, together with her award of compensation, to purchase a home for $511, 000. The Applicant gave evidence that the stamp duty on this purchase was approximately $20,000, and not $40,000, which was the amount specified in the decision of the SSAT. In the bank statements produced by the Applicant prior to the resumed hearing there is a record of a bank cheque dated 3 March 2014 for the amount of $18,470. The Applicant said in evidence that this bank cheque was the payment of the stamp duty on the purchase of her home.
The Applicant gave evidence that as she could not find work, she thought she would use some of the compensation moneys to start a business from which she could derive income. In early 2014, before the Applicant had purchased her home, she contacted Mr CJ who encouraged her to invest $100,000 in a property development venture he was involved in. The arrangement was meant to provide her with an on-going income (managing the property development), a capital gain and access to mortgage funds for the home she bought for herself.
The Tribunal has before it a letter written by Mr BT to the Applicant dated 17 January 2014 in which Mr BT writes “As earlier discussed today” and which outlines the proposed business venture. Accordingly I infer that on or about 17 January 2014, the Applicant met with Mr CJ and his business partner Mr BT at the Hornsby RSL to discuss this business venture.
The essence of the proposed venture appears to have been as follows. The Applicant was to establish a family trust and a company. The Applicant would lend the company money in order to purchase a block of land costing in the vicinity of $30,000. The Applicant stated that Mr BT said that he had a builder who would build two villas on the block of land and once completed, the Applicant would take out a company loan to pay the builder $210,000 for building the villas. One of the villas would be sold in the vicinity of $175,000 to $185,000 and she would keep the other villa and rent it out for around $180 per week. She would then purchase another block and duplicate the process again.
Thereupon, the Applicant put $100,000 into Mr BT’s trust account and put a deposit on property she wished to purchase for herself on the assurance that her trust deed would be stamped, the $100,000 would be transferred to her family trust once it was established and a subsequent loan approval would be ascertained. Mr BT then assisted the Applicant with the creation of her company and family trust. He then took the trust deed and it was not provided to the Office of State Revenue for stamping until sometime later. The $100,000 was never transferred to the trust account, the land was never purchased, the Applicant did not gain approval for her home loan and she was served with a notice to complete, and there was a refusal to return her $100,000.
During the course of these events unfolding, Mr BT suggested the Applicant be employed by his company until the trust was established in order to assist her in obtaining approval for her home loan. She was paid wages for about nine weeks, totalling $7,064.76 with tax withheld, and then those payments also ceased. On the pay slips provided by the Applicant, the gross amount of the wages was $10,769.22.
At the time she entered into this venture in early 2014, the Applicant was not aware that Mr BT had been convicted of various offenses concerning dishonesty, including a charge for managing corporations while being disqualified following a conviction for fraud in 2000.
The Applicant has made attempts to recover the $100,000. She sought to recall this money from the Bank of Queensland. In a letter dated 14 April 2014, a representative of the Bank of Queensland stated they were unable to recall the money.
The Applicant gave evidence that she sought assistance from Legal Aid and from the NSW Law Society Pro Bono Scheme in relation to the recovery of this money, but to no avail. The Applicant also instructed a firm of solicitors, the Australian Legal Practice, to act for her. However, in her evidence, she stated that after paying the solicitors $6,000 she had no more money to cover their costs. The Tribunal has before it, a Receipt from Australian Legal Practice dated 19 May 2014 for the amount of $6000. The Tribunal also has before it the following documents from the Australian Legal Practice: a letter from The Australian Legal Practice to Mr BT dated 7 May 2014, a letter from The Australian Legal Practice to the Australian Securities and Investments Commission dated 9 May 2014, a letter from Australian Legal Practice to Mr BT dated 12 May 2014, and an observations document prepared by The Australian Legal Practice.
CONSIDERATION
Under section 1184K of the SS Act, the existence of “special circumstances” in a particular case, enables the Secretary to disregard some or all of the compensation payments, which will either extinguish or more usually will shorten the compensation preclusion period.
In considering whether the Applicant’s case warrants the exercise the of the “special circumstances” discretion in section 1184K of the SS Act, it is useful to turn to the discussion of the meaning of “special circumstances” in the case law. In my view, the most useful definition is given by Hill J in Dranichnikov v Centrelink. His Honour said at [66] that “...what is required will be circumstances which distinguish the case in consideration from the usual case. There will be a requirement that the circumstances are such that takes the case out of the ordinary.”
It is often difficult for recipients of lump sum awards of compensation to manage their compensation money in an appropriate manner. However, do any of the matters in the Applicant’s case amount to “special circumstances” because they take the case out of the ordinary?
I note that in October 2013 the Applicant notified Centrelink that she would be receiving an award of compensation and was advised of the effects of this award on her social security payments by a Centrelink officer. The Applicant has further contact with Centrelink regarding the preclusion period and on 22 November 2013, the Department notified her that she was subject to a compensation preclusion period from 16 November 2013 to 17 July 2020.
The Respondent submits that given the above circumstances, the Applicant had full knowledge she would incur a period in which she would not be eligible to receive income support payments. Despite receiving such advices, the Applicant spent a significant portion of her compensation monies purchasing a home. The Respondent pressed upon me that this purchase does not fall within the intention of the workers compensation legislation, that the decision to purchase the home was a significant financial risk and a decision the Applicant made to her own detriment.
In my view, it was not unreasonable for the Applicant to purchase a home in early 2014. She was concerned that the accommodation which she was renting was to be sold. She had sought advice from an estate agent who told her that without a prior history of renting and without income she would find it difficult to obtain other rental accommodation. If she was unable to find employment and if her money ran out before the end of the compensation preclusion period, she would most probably have to consider selling the home.
In an attempt to earn income, the Applicant did enter into a land development business venture with Mr CJ and Mr BT on or about 17 January 2014. From the evidence, I find that the Applicant lacked the knowledge and experience to enter into the land development business. Perhaps the Applicant should have made more detailed inquiries, especially about Mr BT.
In any event, the Applicant was dealt with, at the very least, in a grossly dishonest manner. She lost $100,000 of her lump sum compensation.
I find that the Applicant made strenuous attempts to recover this money, by endeavouring to recall the $100,000, and ultimately in hiring the Australian Legal Practice solicitors to act on her behalf, but to no avail.
I find that the applicant was treated in a grossly dishonest manner, and that this gross dishonesty takes her case out of the ordinary, so as to enliven the “special circumstances” discretion in section 1184K of the SS Act.
In relation to the $100,000 which the Applicant lost, I note that she received wages over nine weeks amounting to $7,064.76 with tax withheld. On the other side of the ledger, the Applicant paid $6,000 to the Australian Legal Practice in an attempt to recover the money. If the Applicant had had the use of the $100,000 over the last year, she most probably would have earned bank interest on this sum.
In my view, the exercise of this discretionary power requires the wisdom of Solomon, and I am a mere mortal. I have decided to treat $100,000 of the compensation payment to the Applicant as not having been made. On the one side, I have disregarded the salary which was paid to the Applicant. On the other side, I have disregarded the Applicant’s payment to the Australian Legal Practice, together with any interest which the Applicant would most likely have earned had she not been dishonestly deprived of her money.
In exercising the “special circumstances” discretion under section 1184K of the SS Act, I have decided to reduce the Applicant’s award of compensation by $100,000. Therefore, the Applicant’s award of compensation which was $725,000, is now $625,000.
The exercise of this discretion and the reduction of the Applicant’s award of compensation has the effect of shortening the preclusion period in accordance with the formula contained in the SS Act (see above at [8]).
DECISION
The Tribunal varies the decision under review by reducing the Applicant’s award of compensation by $100,000 and remits the matter to the Respondent to recalculate the compensation preclusion period in accordance with these reasons.
I certify that the preceding 46 (forty -six) paragraphs are a true copy of the reasons for the decision herein of Professor R McCallum AO, Member .......................[sgd].................................................
Associate
Dated 6 March 2015
Dates of hearing 17 December 2014 and 17 February 2015 Applicant In person Solicitors for the Respondent Department of Human Services
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