Ozren Mirkovic and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs
[2012] AATA 505
•2 August 2012
[2012] AATA 505
Division GENERAL ADMINISTRATIVE DIVISION File Number(s)
2011/5377 & 5384
Re
Ozren Mirkovic
APPLICANT
And
Secretary, Department of Families, Housing, Community Services and Indigenous Affairs
RESPONDENT
DECISION
Tribunal Ms J L Redfern, Senior Member
Date 2 August 2012 Place Sydney The decisions under review are affirmed.
………………[sgd]…………………...
Ms J L Redfern Senior Member
Catchwords
SOCIAL SECURITY: Disability Support Pension – lump sum payment of compensation resulting in benefit preclusion period – whether preclusion period correctly calculated – whether legal costs and medical expenses can be excluded from formula - exercise of discretion to treat part of the payment as not having been made because of special circumstances – entitlement to health care card – no special circumstances – Decisions under review affirmed.
Legislation
Social Security Act 1991 ss17(1), 17(2), 17(3), 17(4), 17(4A), 17(5), 1061ZO, 1071A, 1073, 1169, 1170, 1184K
Cases
Re Beadle and the Director-General of Social Security (1984) 6 ALD 1
Beadle and the Director-General of Social Security (1985) 7 ALD 670; 60 ALR 225
Clark v Secretary, Department Of Employment and Workplace Relations (2007) 96 ALD 129
Fuller and Secretary, Department of Family and Community Services [2004] AATA 615
Secretary, Department of Social Security v Hulls and others (1991) 22 ALD 570
Secondary Materials
Second Reading Speech on the Social Security Amendment Bill (Hansard, House of Representatives, 13 April 1988)
REASONS FOR DECISION
Ms J L Redfern, Senior Member
Mr Ozren Mirkovic is a 65 year old man who was involved in a motor vehicle accident in 2005. At the time of the accident he was in receipt of the disability support pension (DSP). Mr Mirkovic made a claim for compensation in respect of his injury and on 19 May 2010 his claim was settled for $235,000, inclusive of legal costs and medical expenses.
By letter dated 21 July 2010, Centrelink notified Mr Mirkovic that he was precluded from receiving a DSP from 27 May 2010 to 26 September 2012 by reason of the compensation settlement. Centrelink calculated the preclusion period by reference to a formula set out in the Social Security legislation.
On 16 July 2010, Mr Mirkovic applied for a low income health care card. His claim was rejected on the basis that his income, which took into account the lump sum compensation payment, was above the threshold for entitlement to the card. Mr Mirkovic requested a review, and then reconsideration. Both decisions were subsequently affirmed by an Authorised Review Officer (ARO) at Centrelink.
Mr Mirkovic sought review of these decisions by the Social Security Appeals Tribunal (SSAT). The SSAT affirmed the decisions on 15 November 2011, finding that the preclusion period was correctly calculated; the low income health care card was properly rejected; and there were no special circumstances that warranted the exclusion of the legal expenses and medical costs from the calculations. Mr Mirkovic now seeks a review by this Tribunal.
LEGISLATIVE FRAMEWORK
The relevant legislation is the Social Security Act 1991 (Cth) (the Act). The Secretary of the Department of Families, Housing, Community Services and Indigenous Affairs (the Secretary) is responsible for the administration of the Act, and has delegated a number of the functions and powers under the Act to Centrelink.
Section 17(1) of the Act provides that certain payments and allowances, including the DSP and the age pension, will be affected by compensation paid to an applicant. These are referred to as “compensation affected payments”. Under s 1169 if a person receives or claims a compensation affected payment and receives a lump compensation settlement, the compensation affected payment (in this case the DSP and, from February 2012, the age pension) is not payable in the lump sum preclusion period. The lump sum preclusion period is calculated by reference to the formulae set out in s 1170. Where a person receives both periodic compensation payments and a lump sum compensation payment, the preclusion period commences on the day following the last periodic payment, and ends at the end of the number of weeks worked out using the formula in ss 1170(4) as follows:
Compensation part of lump sum
Income cut-out amount
The “compensation part of a lump sum compensation payment” is 50 per cent of the payment (ss 17(3) of the Act). Where a person has received periodic compensation payments and is required to repay those payments after receiving a lump sum settlement, the amount repaid will be excluded from the lump sum compensation amount for the purposes of calculating the preclusion period (ss 17(4) and (4A) and ss 1169(2) of the Act).
The definition of “compensation” is broad and covers compensation whether it is received directly or whether another person receives the compensation, on behalf of or at the direction of the person (ss 17(5) of the Act). Relevantly, ss 17(2) provides that “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.
Section 1061ZO of the Act sets out the criteria for qualification to a health care card. The applicant must satisfy the “health care card income test”, which is set out in s 1071A and includes payments of compensation. The income component is calculated by reference to s 1073, which provides that a person who receives a lump sum compensation payment is “taken” to receive the payment as income over a period of 52 weeks from the day the person received the compensation payment. The relevant threshold for the low income health care card as at 16 July 2010, being the time Mr Mirkovic’s claim was rejected, was $6,112 over an eight week period. It is not in dispute that if the whole of the compensation payment received by Mr Mirkovic is taken into account, Mr Mirkovic would not be entitled to the low income health care card under s 1071A of the Act as at 16 July 2010.
Section 1184K provides that the Secretary has discretion to disregard compensation payments if the Secretary thinks it is appropriate to do so in the “special circumstances” of the case. If the Secretary treats certain payments as “not having been made”, this may have the effect of reducing any preclusion period for Mr Mirkovic and/or affecting his entitlement to the low income health care card.
CONTENTIONS OF THE PARTIES AND ISSUES IN DISPUTE
Mr Mirkovic contended that the formula used by Centrelink to calculate the preclusion period was incorrect. Centrelink should have deducted additional amounts from the compensation payment in the sum of approximately $76,000 for legal costs and medical and other expenses incurred and paid by him. The only amount deducted was $45,637.95 for repaid worker’s compensation. As a result of the other deductions, Mr Mirkovic received a balance of $109,487 from the compensation balance, and to calculate the preclusion period and health care card income test on the full amount of the compensation payable was either incorrect or unfair. Mr Mirkovic also contended that even if the calculation is correct, the Secretary, and therefore this Tribunal, should exercise discretion in his favour to exclude these additional costs from his compensation payment. Mr Mirkovic has had serious illness and this should be taken into account when exercising the discretion. He also contended that the decisions in relation to his entitlement to receive the pension and the rejection of the low income health care card should be set aside or, at the least in the case of his pension, varied to allow him pension for some of the period.
The Secretary contended that the preclusion period has been calculated correctly. Moreover, there are no “special circumstances” that warrant the exercise of the discretion Mr Mirkovic's favour. Both decisions should there be therefore be affirmed.
The issues for determination in this matter are:
(a)What is the correct preclusion period, and, in particular, is Mr Mirkovic entitled to have legal costs and medical expenses deducted from the lump sum compensation payment received by him on 26 May 2010 to reduce the preclusion period?
(b)If the preclusion period is correct, should the Tribunal nonetheless exercise discretion in Mr Mirkovic’s favour to exclude these payments from the calculation?
(c)In relation to Mr Mirkovic’s entitlement to receive the low income health care card, should the Tribunal exercise discretion to exclude payments and, if so would Mr Mirkovic have been entitled to receive the low income health care card as at 16 July 2010?
The facts in this matter are not in dispute. It should be noted that Mirkovic turned 65 in February 2012 and would have been eligible for the age pension from this date but for the preclusion period. It should also be noted that Mr Mirkovic was issued with a health care card on 9 December 2011.
BACKGROUND FACTS
Mr Mirkovic is married to Mrs Ljiljana Mirkovic. They are of Serbian background and immigrated to Australia in 1970. Prior to his injury Mr Mirkovic worked as a cabinet maker. As a result of the injury, Mr Mirkovic was unable to work and received worker’s compensation benefits from the time of his incapacity until receipt of the settlement payment on 27 May 2010. Mr Mirkovic received a sum of $109,487.40, representing the balance of the proceeds of settlement after deductions of $23,500 for reimbursement of Medicare, $71,468.18 for refund of worker’s compensation payments, $1117.14 to Centrelink and $27,024.80 for legal fees and GST.
By letter dated to 21 July 2010, Centrelink notified Mr Mirkovic that the preclusion period for his pension was from 27 May 2010 until 26 September 2012, being 122.6 weeks, calculated as follows:
[$235,000 – $45,637.95 (wages)] x 50% = $94,681.02
$772.10 (income cut-out amount)
The figures used in the formula represent the lump sum compensation payment and the worker’s compensation wages paid to Mr Mirkovic in the period and reimbursed by him to the insurer. The “income cut-out amount” which is based on a statutory formula set out in ss 17(8) of the Act.
Mr Mirkovic was diagnosed with bowel cancer in November 2005, for which he received treatment. He had a gastrectomy and spleenectomy and requires a special diet. Mr Mirkovic said he has ongoing health issues and can no longer work. Mrs Mirkovic is his carer and receives carer payments from Centrelink. Mr and Mrs Mirkovic own their own home in Villawood but have a small mortgage. They have no other debts. When Mr Mirkovic received the compensation payment, he deposited $80,000 in a term deposit with the Commonwealth Bank Australia. At the time of the making his application for the low income health care card on 16 July 2010 and according to an assets declaration made by Mr Mirkovic, he and Mrs Mirkovic held term deposits totalling approximately $106,000 and had savings of approximately $10,000. Mr Mirkovic gave evidence that he incurred expenses in making “necessary renovations” to his house and repaying loans to St George Bank and to a friend for his daughter's wedding. The total payments made by Mr Mirkovic were in the vicinity of $67,000. After paying these expenses, Mr Mirkovic had approximately $21,000 left in savings by the time of the hearing.
The expenses included approximately $18,000 building costs, $2,584 for bathroom and laundry fittings and furniture and a stove and range hood for the kitchen, $20,000 repayment of the loan to his friend and $11,700 repayment of a loan for their car. Mr Mirkovic said the renovation was necessary because a pipe in the wall started to leak in the bathroom and leaked into the bedroom, causing damage to both rooms. The gyprock needed to be cut, the pipe repaired and the gyprock and tiles needed to be replaced. This was an unexpected expenditure which he had not anticipated and had to be done immediately. It was not part of the maintenance of the house. The other fittings and furniture were old and needed to be replaced. In Mr Mirkovic’s view, these were unavoidable expenses.
Mr Mirkovic also said he had incurred expenses for his ongoing medical needs, such as special medicine, scans and other tests to monitor his cancer and ongoing treatment arising out of his previous injuries. Mr Mirkovic did not have details of the expenses said to have been paid.
CONSIDERATION
The first issue is whether the lump sum preclusion period is properly calculated. The mathematical calculation is not in dispute. What is in dispute is whether the lump sum compensation payment should have included amounts not actually received by Mr Mirkovic, being amounts paid for costs or medical expenses.
The definition of compensation is broad enough to cover all lump sum payments in settlement of a claim, regardless of how the payment is categorised and whether they were received by him or paid to another at his direction. The only amounts that can be excluded are those amount specifically referred to in ss 17(4) and (4A). As noted by O’Loughlin J in Secretary, Department of Social Security v Hulls and others (1991) 22 ALD 570, “the legislation prevents any dissection” of the lump sum compensation payment. The 50 per cent formula in ss 17(3) was described by Justice Downes in Fuller and Secretary, Department of Family and Community Services [2004] AATA 615 [at 12] as an “artificial mechanism” and he observed as follows:
No doubt, the legislative purpose was to create a reasonable rule of thumb to be applied to total compensation claimants in place of actual amounts agreed between parties which might inflate non-economic loss components.
The rationale for this is explained by the responsible Minister when introducing provisions substantially similar to ss 17(3) by the Social Security Amendment Act 1988 in the Second Reading Speech on the Bill (Hansard, House of Representatives, 13 April 1988 p 1497):
This Bill contains measures to improve the administration and integrity of the compensation recovery provisions. Where a person receives personal injury compensation that makes up for lost income the Social Security Act provides that pension or benefit may be reduced or recovered. This is one way in which social security expenditures are directed to those most in need.
Settlements of lump sum compensation particularly in the workers compensation jurisdiction are being manipulated to obscure the economic loss component and to avoid recovery of social security payments. To prevent this abuse, the Minister announced on 8 February 1988 that, for future personal injury settlements made by agreement or by consent order, 50 per cent of lump sum compensation will be deemed to be in respect of economic loss. This Bill gives effect to that proposal.
Given the above, I am of the view that the calculation of the “compensation part of the lump sum” made by Centrelink, and notified to Mr Mirkovic by letter dated 21 July 2010, is correct and has been calculated in accordance with s 1170 of the Act. The part of the lump sum that was used to pay legal costs and expenses cannot be excluded. The only amount that can properly be excluded is the worker’s compensation payments received by Mr Mirkovic which had to be repaid and these amounts were deducted from the lump sum. As such, I agree with the finding of the SSAT that the lump sum preclusion period commences on 27 May 2010 and ends on 26 September 2012, which is 122.6 weeks.
The issue therefore arises as to whether the whole or any part of the compensation payment, in particular those amounts representing legal costs and reimbursement for medical expenses, should be disregarded on the basis of special circumstances under s 1184K of the Act.
The application of s 1184K has been considered on a number of occasions in this Tribunal and by the Federal Court. In Re Beadle and the Director-General of Social Security (1984) 6 ALD 1, the Tribunal (comprising Presidential Member Toohey J and Members Wilkins and Dr Billings) stated [at 3] as follows:
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.
This was approved by the full court of the Federal Court in Beadle and the Director-General of Social Security (1985) 7 ALD 670; 60 ALR 225. According to Lindgren J in Clark v Secretary, Department Of Employment and Workplace Relations (2007) 96 ALD 129 at 75, the expression special circumstances “does not embrace the circumstance that the 50% rule will yield a preclusion period beginning on a certain date that will or may be excessive”. To embark on this inquiry would defeat the legislative intention. There must be something about and applicant’s circumstances that “take it out of the usual or ordinary case” (Kiefel J in Groth v Secretary, Department of Social Security (1995) 40 ALD 541 at 545).
Mr Mirkovic contended that his ongoing health issues, the expense he had paid after he received the lump sum compensation payment, and the fact that medical expenses and legal costs were not excluded from the calculation of the lump sum preclusion period operated unfairly.
The Secretary contended there was nothing special about the facts at all this case. The expenses incurred by Mr Mirkovic were discretionary. He made the choice to repay loans for debts previously incurred. Those debts did not relate to unusual or special circumstances. The expenses Mr Mirkovic incurred for renovations to his house were not unavoidable or unusual. Even if Mr Mirkovic was required to repair the leaking pipe, the renovation he had undertaken was more extensive than required. There was no evidence of costs incurred as a result of his health-care needs, and the issue of the health care card in December 2001 would have ameliorated the effects of any costs. Moreover, Mr Mirkovic’s legal costs and expenses were not excessive and there was nothing unjust about the application of the 50 per cent rule in this case in any event.
I accept the contentions of the Secretary. The payments of approximately $67,000 that were made by Mr Mirkovic after he received the compensation payout included normal expenses such as household bills, home insurance and running costs for Mr Mirkovic's car of approximately $8,000. The repayment of loans related to expenses that were not special or unusual, and included the cost of Mr Mirkovic's daughter's wedding and repayment of a previous debt incurred for a loan for the car. The costs incurred for the replacement of ageing household items are costs incurred by many families. On one view, the repair of the leaking pipe was part of the ordinary maintenance of an older home but, even if it is accepted that this was an unusual expense, the costs incurred were not excessive.
Mr Mirkovic was not able to identify any extraordinary expenses incurred as a result of his illness. I also note that Mrs Mirkovic has been receiving carer's allowance and Mr Mirkovic was issued with the low income health-care card in December 2011. Mr Mirkovic's illness does not of itself give rise to special circumstances.
Similarly, the legal costs and medical expenses incurred were not so excessive as to warrant the exercise of the discretion to disregard the whole or part of the lump sum payment received by Mr Mirkovic. There is no suggestion these costs and expenses were inappropriately deducted, that Mr Mirkovic did not receive appropriate advice about this matter or that the costs and expenses were exorbitant. The preclusion period was calculated by reference to 50 per cent of the adjusted compensation part of the lump sum, which was $94,691.02. This is less than the amount received by Mr Mirkovic after payment of these costs, expenses and repayment of the worker’s compensation payments. In Mr Mirkovic's case, the rule of thumb calculation using the 50 per cent rule did not operate unfairly in any event.
Having regard to all of the evidence and the facts in this case, I am not satisfied that there are special circumstances that warrant the exercise of the discretion to treat the whole or part of the compensation payment to Mr Mirkovic as not having been made under s 1184K of the Act. I therefore find that the decision to apply a lump sum preclusion period from 27 May 2010 to 26 September 2012 and to cancel Mr Mirkovic’s disability support pension should be affirmed.
Similar considerations apply in respect of calculation of Mr Mirkovic’s income for the purposes of assessing his entitlement to the low income health care card as at 16 July 2010. As such, I also find that the decision to reject Mr Mirkovic’s claim for the low income health care card as at 16 July 2010 should be affirmed.
I certify that the preceding 34 (thirty four) paragraphs are a true copy of the reasons for the decision herein of Ms J L Redfern, Senior Member.
................[sgd].............................................
Associate
Dated 2 August 2012
Date of hearing 25 May 2012 Date final submissions received 31 May 2012 The Applicant In Person Representative for the Respondent Centrelink Legal Services
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