PANETTA and SECRETARY, DEPARTMENT OF FAMILIES, HOUSING, COMMUNITY SERVICES AND INDIGENOUS AFFAIRS

[2009] AATA 996

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2009] AATA 996

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No 2009/4443

GENERAL ADMINISTRATIVE  DIVISION		)
Re		GLORIA PANETTA

Applicant

And SECRETARY, DEPARTMENT OF FAMILIES, HOUSING, COMMUNITY SERVICES AND INDIGENOUS AFFAIRS

Respondent

DECISION

Tribunal Mr Frank O'Loughlin, Senior Member

Date24 December 2009

PlaceMelbourne

Decision The Tribunal sets aside the decision under review and in substitution decides that special circumstances warranting exercise of the discretion under s 1184K of the Social Security Act1991 do exist and that the applicable compensation preclusion period is 124 whole weeks.

(sgd) Frank O’Loughlin

Senior Member

Social Security - compensation preclusion period - whether special circumstances exist warranting exercise of s 1184K discretion to exclude amounts to be included in calculation of period.

Social Security Act 1991 s 1184K

Beadle v Director-General of Social Security (1985) 7 ALD 670

Director-General of Social Services v Hales (1983) 47 ALR 281

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

Re Deacon and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs [2009] AATA 88

Re Eggleton and Secretary, Department of Social Security (1998) 50 ALD 1018

Re Evagrew and Director-General of Social Security (1983) 16 SSR 161

Re Fuller and Secretary, Department of Family and Community Services [2004] AATA 615

Re Hotzl and Secretary, Department of Family and Community Services [2002] AATA 378

Re Ivovic and Director-General of Social Services (1981) 3 ALN No 61

Re Kulakov and Secretary, Department of Social Security (1991) 63 SSR 879

Re PGVK and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs [2008] AATA 381

Re Secretary, Department of Social Security and Ah Sam (1994) 83 SSR 1218

Re Secretary, Department of Social Security and Hill (1995) 39 ALD 667

Re Secretary, Department of Social Security and Robert Anderson [1997] AATA 142

Secretary, Department of Family and Community Services v Allan (2001) 66 ALD 147

Secretary, Department of Social Security v (D A) Smith (1991) 23 ALD 277

Secretary, Department of Social Security v Thompson (1994) 53 FCR 580

REASONS FOR DECISION

24 December 2009 Mr Frank O'Loughlin, Senior Member       

ISSUES

1.      The questions for the Tribunal are as follows:

(a)How does Ms Panetta's lump sum compensation payment affect her entitlement to social security payments?

(b)Are there special circumstances that would justify disregarding all or part of Ms Panetta's lump sum compensation payment?

FACTS

2.      Based on the evidence before it the Social Security Appeals Tribunal (SSAT) made the following findings which were not contested by either party on appeal to the Tribunal:

(a)Ms Panetta was injured in a motor vehicle accident on 10 August 2004.

(b)Ms Panetta was paid periodic compensation payments until 9 August 2007.  From 10 August 2007 to 8 August 2008, she received a disability support pension.

(c)On 25 July 2008, Ms Panetta settled her compensation claim by consent for $230,000.

(d)On 12 August 2008, Centrelink wrote to Ms Panetta and her solicitors in each case advising that she must repay $14,313.19 for disability support pension she had received and that she would be subject to a compensation preclusion period from 10 August 2007 to 8 July 2010.

(e)On the same date Centrelink wrote to Ms Panetta advising her that her disability support pension had been cancelled because of her compensation settlement and that she could not get a pension until after 8 July 2010.

(f)From Ms Panetta’s compensation settlement of $230,000, $24,200 was withheld for legal costs and $14,313.19 for Centrelink repayment of the disability support pension received from 10 August 2007.  Ms Panetta received approximately $190,000.

(g)Ms Panetta lives alone and doesn't recall receiving the letters from Centrelink about the compensation preclusion period.  She wasn't able to cope at the time and read the letters that came in but put them aside.

(h)Before her accident Ms Panetta was employed and used to help her mother and neighbors and was very happy with her life.  She has changed personality since her accident.  When she had her accident, they cut through her throat and entered the top of her spine. She still suffers from throat infections and has stitches inside and out.  She is seeing a psychologist and is still suffering from pain.

(i)In relation to her compensation claim following her accident, Ms Panetta was represented by lawyers who advised her it was best to settle her claim.  She didn’t want to settle because she didn't think the amount plus the compensation preclusion period was fair.  She said no and left a relevant meeting but her lawyers rang her the next day and the day after and advised her to settle so she did. 

(j)Ms Panetta told her barrister she was in debt and he told her she could do what she liked with the money. 

(k)Before her settlement payment Ms Panetta had had banks pursuing her for money she owed them which she found very stressful.  Her main ambition when she received the settlement money was to pay out her debts.  She didn't consider bringing the debts up to date and making regular repayments rather than paying them out because of the suffering and pain she had been through.  In her mind, she thought she did not want to get in debt again and paying all her debts off at once was the right thing to do.

(l)At the time of her accident Ms Panetta was living in a three bedroom house in Frankston which she had to sell because she was unable to make mortgage payments after the accident.  She sold this property for approximately $250,000 of which she received $170,000 or $180,000 after paying out the mortgage.  When she received the settlement moneys, she then bought a small unit in Pakenham which was still mortgaged and she had to borrow to pay the stamp duty of about $7,000.  Ms Panetta found herself very isolated in Pakenham because she knew nobody out there.  She stayed only six to nine months before selling it for about $217,000 and moving to Carrum Downs which was closer to where she lived before the accident.  She bought a house in Carrum Downs where she is not so isolated for about $295,000 where she still lives.  The Carrum Downs house is not mortgaged.  She paid about $10,000 in stamp duty.

(m)She also purchased a car for $5,500 and paid off four bankcard debts. The Commonwealth loan of $19,620 was her home loan for the Pakenham mortgage.

(n)Her car is having problems which she can't afford to get fixed. At the end of January 2009 she had $1,000 in the bank, and in April 2009 she had nothing. To survive, she is selling off old household goods such as an old TV and sofa.

(o)She has four adult children, including two daughters who are married with their own families.  Her children can no longer afford to help her.

(p)Ms Panetta was advised by Centrelink and her legal representatives that she would be unable to claim social security benefits during her compensation preclusion period.  While Ms Panetta was advised by both Centrelink and her lawyers that there would be a preclusion period, she wasn't told she had to live on her compensation moneys, rather her barrister told her that she could do what she wanted with it. She doesn't remember everything that was said to her by her advisers.

(q)Ms Panetta knew of the compensation preclusion period prior to expending the majority of her monies.

(r)From her compensation moneys, she expended the following:

(i)$83,784 on the purchase of her current property in Carrum Downs.

(ii)$24,200 was withheld from her settlement for legal costs.

(iii)$14,313 was withheld from her settlement for Centrelink repayments.

(iv)$5,500 on the purchase of a car.

(v)$10,000 for stamp duty on the Carrum Downs property.

(vi)$5,500 on agent's fees.

(vii)$19,620 to the Commonwealth Bank relating to moneys borrowed against the Packenham property.

(viii)$7,030 paid to the Commonwealth Bank.

(ix)$2,200 for a Commonwealth Bank credit card.

(x)$3,329 for an ANZ credit card.

(xi)$6,429 for a Westpac credit card.

(xii)$799 paid to The Good Guys.

(xiii)$503 paid to Furniture Galore.

(xiv)$593.80 paid to VicRoads.

(s)Ms Panetta has none of the settlement money remaining.  The balance of almost $50,000 was spent, on a deposit on the Carrum Downs property, insurance, carriers, removalists, utility connections, car repairs and registration and living expenses.

(t)Ms Panetta’s assets at the time of the SSAT hearing consisted of:

(i)Her house purchased for $295,000 in October 2008 which is owned free of encumbrances.

(ii)Her car purchased for $5,500 which needs repair.

(iii)Her household possessions.

(u)Ms Panetta is unable to work as a result of her injuries.

(v)Both Centrelink and Ms Panetta’s lawyers advised her of the compensation preclusion period before she expended her compensation moneys but she chose to expend her compensation moneys regardless of that advice.

(w)Some of those moneys were used to repay debts and some to purchase assets such as the house and the car. 

3.      The SSAT found that it was open to Ms Panetta to sell or mortgage those assets in order to provide herself with a means of support during the preclusion period.

4.      In the hearing before the Tribunal Ms Panetta gave evidence that was not contradicted.  Her evidence was that:

(a)She had been raised to hold a strong belief that it was appropriate to pay one’s debts.

(b)There were two sets of agents’ fees and the total she spent was between $15,000 and $16,000 which were not all included in the SSAT’s findings.

(c)She spent the winter sitting in a darkened and unheated house because she had no means of paying electricity and heating bills.

(d)Before the accident she was a socially engaged, community minded person and now she was isolated and continued to suffer emotionally and physically from the accident and what it had done to her life.

(e)The debts that had accumulated were the result of her accident and her inability to work.

(f)She has not indulged herself with the compensation payout by gambling it away or taking holidays.

(g)She was of the view that she could not borrow against the equity in her home because she had no means of repayment of the amounts that would be owed or the interest that would be charged. 

5.      In the absence of any challenge to this evidence it follows that the Tribunal must find the matters set out in paragraph 4 above as additional facts.

6.      Materials before the Tribunal reveal that:

(a)Ms Panetta resided at her Frankston home until March 2008 and her Pakenham home until December 2008.

(b)In addition to the settlement payment she received an impairment payment of $984.56 from the Transport Accident Commission of Victoria.  This amount was not included in the calculation of the applicable preclusion period by the SSAT.  While the Respondent did not cross appeal from the decision of the SSAT, it does contend that the correct or preferred decision of the Tribunal ought have regard to this amount and increase the applicable preclusion period by one week.

7.      Following the hearing:

(a)The Tribunal directed that a report be prepared as to the availability of reverse mortgage or home equity release styled products to Ms Panetta and that the Respondent’s financial information advisory service provide all necessary assistance to secure such a report.  The report sought by the Tribunal has not been provided but the Respondent has reported that reverse mortgage and home equity release products were not available to Ms Panetta as they are offered to persons over 60 years of age which she is not.  The Respondent also provided generic advertising material produced by a number of financial institutions concerning a number of products offered generally.  There is no information as to whether any of these products are available to Ms Panetta.  The only finding that the Tribunal can make in these circumstances is that Ms Panetta was of the view that she could not borrow due to her inability to make necessary payments of interest and repayments of principal and, as a gloss on the finding of the SSAT noted at paragraph 3 above, that the options available to her to raise funds on which she could live were limited.

(b)The Respondent confirmed that the current policy of the Department is to treat two different forms of compensation payout differently:

(i)For a payout that is structured in the form of an amount of compensation plus the costs of securing that recovery, only the compensation amount is included in the preclusion period calculation.  This is said to be a beneficial policy intended to obviate the hardship inherent in delaying a preclusion calculation until the exact costs are known, and applies to relatively few in the social security population.

(ii)For costs inclusive lump sum payouts the whole of the compensation payout is included in the preclusion period calculation.

OBSERVATIONS ON THE FACTS

8.      The pattern of behaviour and expenditure of money by Ms Panetta reveals an intention following her accident to live prudently within her means to the extent she could.  The purchase of a cheaper house in Pakenham upon being unable to afford to make payments on her Frankston home, the purchase of a second hand car for a modest price and the purchase of a house in Carrum Downs upon being unable to continue to live in Pakenham are not indicators of extravagant living.  Nor are spending modest amounts on furniture and paying off modest credit card debts.  Living in conditions minimising use of lighting and heating facilities within a house because of an inability to pay bills is clear evidence of genuine attempts to live within the means available to Ms Panetta.

9.      Ms Panetta’s circumstances can be summarised to the effect that she is subject to:

(a)A life of continuing, and significant, emotional and physical suffering as a consequence of an accident in respect of which she was not at any fault.

(b)An inability to engage in paid employment.

(c)Straightened financial circumstances in which, absent going into debt that has caused her emotional and financial stress in the past, she has no source of money for daily living other than by selling household furniture and effects which are limited.

(d)Absent exercise of the s 1184K discretion, a continuing compensation preclusion period disentitling her to any disability support pension until July 2010 in circumstances where had she received a settlement of $205,800 plus costs which were subsequently determined to be $24,200 the departmental practice would have been to have regard to only the $205,800 in calculating the compensation preclusion period which would have been some 16 weeks shorter as a consequence.

(e)Limited availability to release the equity she has in her home to raise money to live.

(f)Minimal, if any, means of family support for her day to day needs.

While she:

(g)Has endured a preclusion period of in excess of 123 weeks to date.

(h)Attempted to live within her means selling her home and buying another.

(i)Repaid debts accumulated because she had had her accident and was unable to earn money.

(j)Had unexpectedly found it necessary to expend further money to relocate her home a second time to avoid further emotional and practical difficulties.  On the evidence it seems that half of the total of between $15,000 and $16,000 in agents’ cost, the stamp duty on the Carrum Downs purchase of approximately $10,000 and an unquantified amount for removal services and associated costs of relocation which can reasonably be assumed to have been unexpectedly sustained in endeavors to live within her available means under her then present personal circumstances.

THE RELEVANT LEGISLATION

10.     The scheme of the Social Security Act 1991 (the Act) in so far as it provides for preclusion periods after receipt of compensation payments is said to recognise a .....fair balance of the interests of the recipient of the payment with the competing interests of others in the community whose needs must be met as far as possible from a finite budget allocation for social security measures see Secretary, Department of Social Security v(D A) Smith (1991) 23 ALD 277 at 281-282 per von Doussa J. This provides a safeguard to prevent double dipping or receipt of money or income from more than one source – see Secretary, Department of Family and Community Services  v Allan (2001) 66 ALD 147 at 148 per Heerey J.

11. The special circumstances discretion in s 1184K of the Act, which allows part or the whole of a compensation payment to be ignored in determining the applicable preclusion period, is the protection afforded by the Act to protect against or ameliorate unfair results that would otherwise be produced by the arbitrary features of the scheme of the Act – see Re Secretary, Department of Social Security and Hill (1995) 39 ALD 667 at [22].

12. Section 1184K provides as follows:

1184K  Secretary may disregard some payments

(1)For the purposes of this Part, the Secretary may treat the whole or part of a compensation payment as:

(a)not having been made; or

(b)not liable to be made;

if the Secretary thinks it is appropriate to do so in the special circumstances of the case.

13.     As noted in Beadle vDirector-General of Social Security (1985) 7 ALD 670 , a decision of the Full Federal Court, it is often not possible to lay down precise limits or rules to determine whether circumstances are special. Much turns on the circumstances of a particular case.

14.     In Secretary, Department of Social SecurityvThompson (1994) 53 FCR 580 at 586 Einfeld J said of the s 1184K discretion:

The width of the discretion under the section clearly extends to all the circumstances of the case, including circumstances not specifically related to a particular portion of the compensation payment. It is not therefore outside the section for the Tribunal to consider the general factors such as the mental health and social conditioning of the individual in concluding that the preclusion period should be shortened. Indeed it was not suggested by the Department that the Tribunal erred in so doing in this case.

This conclusion has significance here. In some cases the special circumstances identified by the Tribunal will direct attention to a specific part of the compensation payment that ought to be treated as not having been made. One example, referred to in Smith, is where a payment is not received by the intended recipient because of a defalcation by an agent to whom the money is paid on his behalf. In such a case the decision-maker might treat that payment as not having been made.

But when a special circumstance relates not to a specific element of the compensation award, but to the general circumstances of the recipient, the decision-maker (in this case the Tribunal) would rather direct its mind to the effect on the recipient of any reduction in the preclusion period. It may be that after such consideration the Tribunal decides on some time by which the period should be reduced. If so, and having determined on a time, accepting the Department's argument would mean that the Tribunal must then go through the mechanical process of justifying the reduction by working back to or from a decrease in the compensation sum. According to this argument the Tribunal must at least include in any reasons for judgment a formula to the effect that, for example, "the compensation payment be reduced by such an amount as will have the effect of reducing the preclusion period by" whatever time has been decided.

15.     The authorities that have had cause to consider whether there are special circumstances warranting a reduction in a preclusion period are to the effect that:

(a)Straitened financial circumstances are not sufficient to be regarded as special circumstances, see Director-General of Social Security v Hales (1983) 47 ALR 281 at 321 per Sheppard J. Use of compensation money to payout home loan debt where the claimant for social security benefits has unencumbered equity in a home is not, of itself, regarded as sufficiently exceptional.

(b)The circumstances must be unusual, uncommon or exceptional in the context in which they occur.

(c)Special circumstances need to be circumstances that distinguish an Applicant’s case from others or to take it out of the usual or ordinary case and those circumstances can be presumed if the conclusion reached were unfair or unjust – see Groth v Secretary, Department of Social Security (1995) 40 ALD 541 at 545 per Kiefel J.

(d)Ill health resulting in incapacity to engage in paid work is relevant to finding special circumstances – see Re Evagrew and Director-General of Social Security (1983) 16 SSR 161, but not necessarily determinative particularly when that is the only basis upon which special circumstances are asserted – see Re Kulakov and Secretary, Department of Social Security (1991) 63 SSR 879.

(e)Personal value systems can contribute to a finding that special circumstances exist – see Secretary, Department of Social SecurityvThompson (cited above) but they are not necessarily determinative particularly when that is the only basis upon which special circumstances are asserted – see Re Secretary, Department of Social Security and Ah Sam (1994) 83 SSR 1218.

(f)In exercising the discretion it is necessary to have regard to whether its exercise in a particular instance will achieve or frustrate the ends, objects or purposes of the Act – see Secretary, Department of Social Security v(D A)Smith (1991) 23 ALD 277 at 280 per von Doussa J and the reference there to Re Ivovic and Director-General of Social Services (1981) 3 ALN No 61 at n96-97.

16.     The impact of the costs incurred in achieving a settlement, and the treatment afforded to costs inclusive and plus costs settlements have been varied in earlier decisions.

17.     In Re Eggleton and Secretary, Department of Social Security (1998) 50 ALD 1018, the Tribunal does not appear to have had its attention drawn to the differential treatment afforded to those who receive a settlement plus costs compensation payment as opposed to a cost inclusive payment. The Tribunal and did not consider legal costs in that context. As such, it is a decision of limited, if any, assistance in relation to this question. The decision in ReHotzlandSecretary, Department of Family and Community Services [2002] AATA 378 is similarly of limited, if any, assistance for the same reason. While specifically asserting that payment of legal expenses does not constitute a special circumstance, the decision in Secretary, Department of Social Security and Robert Anderson [1997] AATA 142, is of the same, limited, assistance for the same reason. It is not clear whether the inequity of differential treatment of two economically equivalent recipients of compensation was squarely put to or considered by the Tribunal in Re PGVK and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs [2008] AATA 381 such that that decision in not regarded as one to the effect that special circumstances are not extant as a consequence of the differential departmental policy.

18.     In Re Fuller and Secretary, Department of Family and Community Services [2004] AATA 615 at [27] Downes J expressed the view that unequal treatment can be a hardship. In Re Deacon and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs [2009] AATA 88 at [19] and [20] DP Hack expressed similar sentiment. While there are examples of conclusions reached where Fuller [2004] AATA 615 and Deacon [2009] AATA 88 have not been followed, e.g. PGVK, the reasoning behind the sentiment in Fuller and Deacon is preferred.

19.     As a matter of principle, reducing the compensation amount used in the formula to calculate the applicable preclusion period by the amount of costs incurred in securing a settlement sum would not frustrate the ends, objects or purposes of the Act.  Those ends are to ensure that recipients of commonwealth benefits do not inappropriately have two sources of money or income.  A reduction of the compensation amount by the costs paid would simply recognise that the compensation receipt would not have been received without outlaying the cost of professional services to secure it, leaving the actual amount received to be included in the formula to calculate a period in respect of which the Act is to deny the Applicant dual sources of money or income.  The 0.5 factor in the formula has the effect of spreading the cost of the professional services evenly over the two notional components of the compensation payment.

20.     The Departmental policy would treat two recipients of compensation who receive equivalent amounts in respect of earnings and equivalent amounts in respect of costs differently.  It is unquestionably the case that where an injured party sues for damages in respect of an injury and secures a compensation payment, the amount that is made available to that person is the net amount after the costs of recovery.  That person enjoys the net amount only.

21.     To calculate a preclusion period for one injured party on the basis of a net amount received and enjoyed and for another injured party on the basis of a gross receipt is to treat the two parties differently with little, if any, justification when examined against the backdrop of the scheme of the preclusion period system, namely to prevent a person from receiving money from two sources.  Such a system would reward the client of an informed adviser and penalise the client of an ill informed advisor when the two clients may, in every other respect, be in equivalent positions.

22.     Such an approach to treatment of a social security claimant who receives a costs inclusive compensation payment can be described as unreasonable, unjust or inappropriate. 

23. In the Tribunal’s view unequal treatment of itself, on a stand alone basis, is unjust and injustice constitutes a special circumstance warranting exercise of the s 1184K discretion.

24.     Further, in the whole of the circumstances of Ms Panetta’s personal situation, to treat the amount paid in pursuit of her compensation settlement as part of the amount received, and to calculate a longer compensation preclusion period than what would be calculated if the costs were ignored, produces an unjust result which is inconsistent with the objects of the legislation which are to prevent double dipping. 

25. That leaves the amounts unexpectedly incurred or expended by Ms Panetta associated with her changes in residence arrangements. While it is true to say that these amounts were expended at her discretion and therefore her current financial predicament is the product of her own hands, a factor that would normally count against exercise of the s 1184K discretion, it is a misleading half truth to stop there and not look to the circumstances in which Ms Panetta found herself at the time of making these expenditures. She was attempting to deal with a financial situation that caused her stress when she was otherwise under great personal stress. She was attempting to live within her means and then to deal with the isolation and the emotional stress that that was causing. She repaid debts that had accumulated due to her inability to work as a result of her accident. She has limited availability to borrow against the equity in her home. Had she not moved away from her Frankston home, she would presumably have had available to her further amounts of approximately $16,000 in agents’ costs and $17,000 in stamp duty. The cost of her first change of residence does not warrant characterisation as a special circumstance as recipients of lump sum compensation amounts can be expected to take reasonable measures to live within the means available to them. The additional cost associated with the second change, however, can be so characterised. This move was associated with heightened emotional stress and produced an unexpected outgoing and has led to straitened financial circumstances.

26.     In all of Ms Panetta’s circumstances a further amount of $17,500 (being half the combined agents’ costs assumed to be $15,000 (the lower end of the range asserted by Ms Panetta) and the second stamp duty impost of $10,000) ought be excluded from the compensation preclusion period calculation.

CONCLUSION

27.     Accepting the Respondent’s submission that the impairment payment of $984.56 from the Transport Accident Commission of Victoria is required to be included in the compensation preclusion period calculation, excluding the amounts of $20,200 and $17,500 and using the divisor of $759.75 produces a compensation preclusion period of 124 whole weeks.  Commencing on 10 August 2007, that period ends on 24 December 2009.

I certify that the twenty-seven [27] preceding paragraphs are a true copy of the reasons for the decision herein of   December 2009

Mr Frank O’Loughlin, Senior Member

(sgd):  Leah Berardi
  Clerk

Date of Hearing  23 November 2009

Date of Decision  24 December 2009
Self-represented Applicant          Ms G Panetta
Advocate for the Respondent       Ms P Heffernan, Centrelink Legal Services Branch