Peter Schostakowski and Secretary, Department of Education, Employment and Workplace Relations

[2013] AATA 586

[2013] AATA 586  

Division	GENERAL ADMINISTRATIVE DIVISION
File Number	2013/1998
Re	Peter Schostakowski
APPLICANT
And	Secretary, Department of Education, Employment and Workplace Relations
RESPONDENT

DECISION

Tribunal	Mr R G Kenny, Senior Member
Date	21 August 2013
Place	Brisbane

The Tribunal affirms the decision under review.

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Mr R G Kenny, Senior Member

CATCHWORDS

SOCIAL SECURITY – Pensions, benefits and allowances – Settlement of compensation claim – Lump sum compensation payment includes component referable to lost earnings and capacity to earn – Imposition of preclusion period – Special circumstances not established – No part of settlement treated as not having been received – Preclusion period not shortened – Decision under review affirmed

LEGISLATION

Social Security Act 1991 (Cth) ss 17, 1163, 1169, 1170, 1184K

CASES

Angelakos v Secretary, Department of Employment and Workplace Relations [2007] FCA 25

Davis v Secretary, Department of Family and Community Services [2004] AATA 84
Director-General of Social Services v Hales (1983) 47 ALR 281
Groth v Secretary, Department of Social Security (1995) 40 ALD 541
Secretary, Department of Family and Community Services v Allan (2001) 66 ALD 147

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

REASONS FOR DECISION

Mr R G Kenny, Senior Member

21 August 2013

BACKGROUND

1. As a result of a compensable injury sustained in 2007, Mr Schostakowski was paid,

   
   

   in settlement of his common law damages claim, an amount of $450,360.11. This was reduced by workers compensation payments, previously received by him, of $76,419.10. The net amount of $373,941.01 was taken by the respondent to include an economic loss component. Based on that net amount, the respondent determined that Mr Schostakowski was subject to a preclusion period. This meant that Mr Schostakowski was prevented from receiving income support payments from Centrelink under the Social Security Act 1991 (Cth) (“the Act”) for the period from 4 April 2009 until 24 January 2014

   
   

   (“the preclusion period”). Precluded payments included Newstart Allowance for which

   
   

   Mr Schostakowski subsequently claimed on 19 February 2013. His claim was rejected by Centrelink on 26 February 2013 because of the preclusion period. That decision was affirmed by an Authorised Review Officer on 4 March 2013 and, in turn, by the Social Security Appeals Tribunal on 17 April 2013.

   SUBMISSIONS, ISSUES AND LEGISLATION 

2. There is no dispute in this matter in relation to the monies paid to Mr Schostakowski or the calculations made by Centrelink for the length of the preclusion period. I am satisfied that the relevant provisions of the Act have been correctly applied and that the preclusion period has been correctly calculated.[1] Mr Schostakowski submitted that he had received only about $180,000 after all expenses had been met in relation to his payment and that he had not been fully aware of the consequences of having a preclusion period imposed on him. He submitted that this was because he had been suffering from mental health problems at the relevant times. He submitted that there were special circumstances applying to his situation which required that some part of his settlement monies be disregarded so that the preclusion period would be shortened. In the main, those factors were his and his family’s health and an inability to gain access to funds from his bank.

   [1] See ss 17, 1163, 1169 and 1170 of the Act.

3. Ms Karen Hamilton, for the respondent, submitted that Mr Schostakowski had been made aware at all material times by Centrelink of the need to preserve his compensation payment to maintain himself until January 2013. She submitted that Mr Schostakowski had made conscious choices to utilise a large component of his compensation payment to discharge part of the mortgage on his home, to purchase two motor vehicles and to repay personal loans to friends from whom Mr Schostakowski had borrowed when awaiting his compensation settlement. While this did not account for the expenditure of all of the monies, she submitted that it was unclear how the remainder of the sum had been dissipated. She also noted that Mr Schostakowski had been in full-time employment from December 2010 until February 2013. She submitted that there was no special circumstance to justify the reduction of the preclusion period.

4. The issue for the Tribunal is whether special circumstances arise in Mr Schostakowski’s case to enable the whole or part of his compensation payment to be treated as not having been made to him. In that regard, the relevant provision of the Act, reads:

   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.

   EVIDENCE

   Mr Schostakowski

5. Mr Schostakowski experienced workplace stress in 2007 and suffered from depression as a result. He then ceased work which he described as an executive position with a high salary. He was living near Ipswich at the time and, with his wife and three children, moved to Hervey Bay in January 2010 to remove themselves from contact with his previous work colleagues. He found employment as a truck driver in December 2010 until February 2013 but ceased this because, he said, of the continuing symptoms of depression for which he takes high dose medication. He described his wife and children as suffering from significant health problems. His wife receives the carer payment in relation to one of their two sons and the carer allowance in relation to each of them. The children demonstrate behavioural problems such that the family would be unable to acquire rental premises.

6. When Mr Schostakowski ceased work in 2007, he received workers compensation payments for a period. He accepted that he had conversed with Centrelink staff in 2009 about the consequences of the imposition of the preclusion period. However, he believed that his depression impacted on his reasoning capacity at the time of receiving the Centrelink advice. He was unable to recall any advice about the preclusion period from his lawyers at any time. The lump sum he received was approximately $180,000. At that time, he was concerned about his costs of living, in particular the level of mortgage payments in excess of $600 per week for his home loan with Heritage Bank. After discussions with personnel at the bank, he paid $90,000 into his loan account to reduce substantially his mortgage payments to $300 per week. He believed that by doing so his repayments would be equivalent to weekly rental payments. This was done with an understanding that he would be able to draw on the account in the event that he needed funds. This was on 2 December 2009, the day after he had spoken with a Centrelink officer about the effect of the preclusion period. His mortgage stands at $230,000 and he valued his house at $380,000.

7. Mr Schostakowski had borrowed money from friends and, after receiving his compensation payment, repaid this in amounts totalling approximately $20,000.

   
   

   As he no longer had the use of cars supplied by his employer, he purchased a car for himself and one for his wife totalling $20,000. He also incurred costs associated with relocating to Hervey Bay in the amount of approximately $30,000. He has been in financial difficulty and, in 2011, drew down two sums of $20,000 from the bank but has been advised that he is now precluded from further withdrawals. He was granted hardship relief by the bank in relation to mortgage payments since February 2013 with repayments then due at $372 per week. He had three months of unemployment insurance which was paid directly into the loan account. 

8. Mr Schostakowski has two credit cards with debts of $2,600 and $2,000, respectively.

   
   

   He could not recall on what he spent the $40,000 he drew down from the bank but thought it had been absorbed into general family living costs. His fixed expenses are medications, doctor’s bills and special requests related to obsessive behaviour problems of his son (expensive clothing and shoes) and daughter (snake collection). His daughter pays no rent but helps out with household expenses. He received a termination payment of $874 along with his final payment of $2,980.69 in February 2013 when he ceased work. He agreed that his wife receives fortnightly social security payments which include the carer payment for one son, carer allowance for each of their sons and family tax benefit. Mr Schostakowski has applied for access to his superannuation funds and the matter is still under consideration by the Australian Prudential Regulation Authority.

   Medical evidence

9. Mr Schostakowski’s treating doctor, Dr Brian Bigg, completed a report on

   
   

   14 March 2013 in which he referred to the health problems of Mr Schostakowski’s wife as fibromyalgia, multiple chemical sensitivity, and mixed anxiety/depression/PTSD and possible Lupus as well as a previous mini stroke. Dr Bigg described Mr Schostakowski’s daughter as having severe Aspergers; one of his son’s as having Aspergers and the other son as having behavioural issues and ADHD. He noted that the children require “specialized help, counselling, schooling and doctors etc”. In a further report,

   
   

   dated 25 June 2013,[2] Dr Bigg described Mr Schostakowski as having multiple medical problems including depression for which he takes high dose medication and as having had thoughts of self-harm. He confirmed that Mr Schostakowski’s family has health problems.

   [2] Exhibit 3.

10. Psychiatrist, Dr Patrick Wong in a report, dated 7 February 2009,[3] wrote that he had treated Mr Schostakowski since 28 April 2008 and that Mr Schostakowski suffered from major depression in partial remission with an inability to work at that time. In a report, dated 3 April 2013,[4] he wrote that, in his opinion, Mr Schostakowski did not have the mental capacity “to make any logical decision in March 2010 for the following 6 to 12 months”.

    [3] Exhibit 2, pp. 19-21.

    [4] Exhibit 2, p. 36.

    Centrelink records

11. In evidence were notices to Mr Schostakowski from Centrelink, dated 11 June 2009, advising him that a lump sum payment may have the effect of precluding Centrelink payments in the future. The notices also offered him the use of Financial Information Services.[5] A Centrelink file note, dated 1 December 2009, records advice to

    
    

    Mr Schostakowski that his compensation payment was for income support and that he should only make the loan reduction payment to the bank if he had sufficient funds to support himself until the end of the future preclusion period.[6] Another item,

    
    

    dated 1 December 2009, records that the Centrelink officer contacted

    
    

    Mr Schostakowski’s lawyer who advised that the effect of the preclusion period had been explained by him to Mr Schostakowski on the previous day.[7]

    [5] Exhibit 1, T-document 5, p. 47.

    [6] Exhibit 1, T-document 19, pp. 114-136.  

    [7] Ibid.

    Heritage Bank records

12. Mr Schostakowski’s bank account records show deposits of $3,943 on

    
    

    11 November 2009 and $180,787.45 on 30 November 2009. They also confirm withdrawals in amounts equivalent to his repayments of loans to friends and expenditure relating to the relocation from Ipswich to Hervey Bay. They also record a transfer of $100,000 on 3 December 2009 to his loan account.

    Other documentation

13. An Employment Separation Certificate, dated 19 February 2013, from the employer for whom Mr Schostakowski worked until February 2013 was in evidence. This confirmed a final payment of $2,980.69 and a redundancy payment of $874. It also recoded the reason for his termination as “shortage of work” by reason of “decline in fishing & freight in Bundaberg region due to floods and damaged infrastructure”.[8]

    [8] Exhibit 1, T-document 16, p. 104.  

    CONSIDERATION

14. The provisions in the Act relating to preclusion periods have been described as operating as 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.[9]

    [9] Secretary, Department of Social Security v Smith (1991) 23 ALD 277 at 281-282 per von Doussa J.

15. Similarly, they have been described as a safeguard against “double dipping” in that:

    People should not receive social security payments for loss of earnings where they have received compensation for that same loss of earnings from another source.[10]

    [10] Secretary, Department of Family and Community Services v Allan (2001) 66 ALD 147 at 148 per Heerey J.

16. Those considerations must be kept in mind when determining, for the purposes of applying s 1184K(1) of the Act, whether or not special circumstances exist in a given case. The issue of special circumstances arises in various parts of the Act. In the context of other aspects of the Act, it was observed that what is required is:

    … something to distinguish ... [the] … 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.[11]

    [11] Groth v Secretary, Department of Social Security (1995) 40 ALD 541 at 545 per Kiefel J.

17. That observation is equally applicable to s 1184K(1) of the Act. Accordingly, there must be something about Mr Schostakowski’s situation which makes it “unusual” or “uncommon” such that it distinguishes it from the ordinary or usual case.[12] I am satisfied that Mr Schostakowski's circumstances do not meet that description.

    [12] Angelakos v Secretary, Department of Employment and Workplace Relations [2007] FCA 25 at [33] per Besanko J.

18. When considering the discretion in s 1184K(1) of the Act, all relevant circumstances are to be taken into account.[13] In this matter, these include health issues of

    
    

    Mr Schostakowski and his family as well as his financial circumstances.

    [13] Davis v Secretary, Department of Family and Community Services [1999] AATA 84.

    Health matters

19. The health problems of Mr Schostakowski and of his family have been set out above. Significantly, his own health concerns are associated directly with the condition for which his compensation payment was made. It is not a special circumstance that a person compensated for an injury would continue to suffer from the effects of that condition.

20. Mr Schostakowski incurs costs associated with medical consultations and in servicing the associated medication needs of him and his family. There is no material which points to the health problems of his wife and children post-dating the receipt by him of his compensation monies. Accordingly, these were matters he was or should have been aware of when he made the decisions which dramatically reduced the capital which was to provide for him and his family until January 2014. Mr Schostakowski stated that he ceased work in February 2013 because of the effects of his depression. That is not consistent with the employer’s separation certificate which gave details of the reduction in availability of work for Mr Schostakowski, due to the effects of flooding in the Bundaberg region.

    Financial matters

21. Apart from his inability to remain in employment, contribution to Mr Schostakowski’s financial difficulties have come from the expenditure he has incurred following his receipt of the lump sum compensation payment in November 2009. He repaid personal loans to friends, purchased cars for himself and his wife and incurred costs in removing his family from Ipswich to Hervey Bay. Dr Wong described a lack of capacity to make decisions at that time. However, I am satisfied that the major decision around that time was to relocate to Hervey Bay and that the reasons given for doing so were entirely rational. Expenses related to those actions used more than one-third of his net compensation payment.

22. The major reduction in his capital resulted from his decision to reduce his outstanding home mortgage debt with his bank. He has variously estimated the amount of this payment at $80,000 to $100,000.[14] His evidence in this matter was that the amount was $90,000. However, the amount of $100,000 accords with the record of transfer into his Heritage Bank loan account as noted above.[15] I am satisfied that the payment made by him was $100,000. That payment served to expend almost all of his remaining capital and was a voluntary payment made by him.

    [14] See the Reasons published by the SSAT (at Para 10).

    [15] See Para 12 (above).

23. Mr Schostakowski claimed that he was unaware of the significance of his action to make the loan repayment at the time because of his mental state. However, I do not accept his evidence in that regard. On the day immediately prior to making the payment, he was advised by Centrelink of the potential consequences of doing so. The Centrelink record reveals that his lawyer also gave him similar advice. Importantly, Mr Schostakowski gave a rationale for making the loan repayment in that it would reduce his weekly loan repayment to an amount which approximated a rental payment. That measured approach is not consistent with his reference to being affected by mental instability at the time. I have noted Dr Wong’s report of mental capacity impacting on Mr Schostakowski’s capacity for logical decision-making in March 2010 and for the following six to 12 months. However, the transfer of $100,000 occurred in December 2009, a period not identified by Dr Wong as problematical for Mr Schostakowski’s mental functioning.

24. In 2011, Mr Schostakowski was assisted financially by drawing down on his loan account in the amount of $40,000. At that time, he was again in full-time employment and his wife was in receipt of Centrelink payments. However, by the time his employment was terminated in February 2013, his financial position was such that he was granted hardship relief by the bank in relation to mortgage payments. This was despite receiving, at that time, a redundancy and final payment from his employer in excess of $3,800. A significant characteristic of Mr Schostakowski’s evidence was that he was unable to explain how his financial situation had deteriorated so significantly by that time although he did indicate that it may have been due to the costs of living. 

    Summary

25. Special circumstances may be found in financial hardship where that goes beyond straitened circumstances which are truly exceptional.[16] Mr Schostakowski has substantial equity in his house; he has prospects of obtaining an advance on his superannuation monies; and he has assets in the form of an additional motor vehicle. His wife is in receipt of significant levels of Centrelink benefits in the form of carer payment, carer allowances and family tax benefit. His daughter lives at home and contributes to household expenditure from her disability support pension. While he is faced with some financial concerns for the months until his preclusion period ends, I am satisfied that

    
    

    Mr Schostakowski is not living in straitened circumstances which are truly exceptional.

    [16] Director-General of Social Services v Hales (1983) 47 ALR 281 at 321 per Sheppard J.

26. I am particularly mindful of the purposes behind the imposition of preclusion period as set out in the authorities noted above. There must be something about

    
    

    Mr Schostakowski’s situation which makes it “unusual” or “uncommon” such that it distinguishes it from the ordinary or usual case.[17] I am satisfied that Mr Schostakowski's circumstances do not meet that description.

    [17] Angelakos v Secretary, Department of Employment and Workplace Relations [2007] FCA 25 at [33] per Besanko J.

27. I am satisfied that there are no circumstances, either individually or in conjunction with each other, that are special such as to meet the requirements of s 1184K(1) of the Act.

    DECISION

1. The Tribunal affirms the decision under review.

I certify that the preceding 28 (twenty-eight) paragraphs are a true copy of the reasons for the decision herein of Mr R G Kenny, Senior Member

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Associate

Dated 21 August 2013

Date of hearing	8 August 2013
Applicant	In person
Advocate for the Respondent	Ms Karen Hamilton, Departmental Advocate