Poulton and Secretary, Department of Social Services (Social services second review)
[2015] AATA 629
•25 August 2015
Poulton and Secretary, Department of Social Services (Social services second review) [2015] AATA 629 (25 August 2015)
Division
General Division
File Number(s)
2014/2415
Re
Gail Poulton
APPLICANT
And
Secretary, Department of Social Services
RESPONDENT
Decision
Tribunal Dr Teresa Nicoletti, Senior Member
Date 25 August 2015 Place Sydney The Tribunal affirms the decision under review.
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Dr Teresa Nicoletti, Senior Member
CATCHWORDS – SOCIAL SECURITY – lump sum compensation – compensation affected payment – preclusion period – whether special circumstances of the case enliven discretion to treat all or part of lump sum payment as not being made – whether disposal of lump sum reasonable – no special circumstances – decision affirmed
Legislation
Social Security Act 1991 ss 17(2), 17(3), 17(4), 17(8), 1169, 1170, 1184K
Cases
Re Beadle and the Director-General of Social Security (1984) 6 ALD 1
Groth and Secretary, Department of Social Security (1995) FCA 1708
Lindsay and Secretary, Department of Families, Housing, Communities Services and Indigenous Affairs [2008] AATA 559
Emeli and Secretary, Department of Families, Housing, Communities Services and Indigenous Affairs [2008] AATA 1092
Martin and Secretary, Department of Social Services [1990] AATA 768
Re Wilson and Director-General of Social Services 4 ALN 94
REASONS FOR DECISION
Dr Teresa Nicoletti, Senior Member
25 August 2015
BACKGROUND
On 28 July 2010, Ms Poulton was involved in a motor vehicle accident in which she sustained serious injuries.
On 17 October 2013, Ms Poulton finalised her compensation matter by way of a consent judgment in the amount of $780,000 for personal injuries resulting from this accident.
On 11 November 2013, Centrelink sent Ms Poulton a letter stating that it had been advised that she was about to receive $251,480.05 in compensation and that, on the basis of that sum, there would be a preclusion period from 8 November 2013 to 1 October 2015 in respect of the Disability Support Pension (DSP) she was receiving.
On 18 November 2013, Centrelink sent a further letter to Ms Poulton’s legal representatives advising of the preclusion period on the basis that Ms Poulton would be receiving a lump sum compensation payment of $780,000 and that her preclusion period for this amount would start on 8 November 2013 and continue until 15 April 2021.
On 19 December 2013, Centrelink sent Ms Poulton a letter stating that she was subject to a compensation preclusion period from 8 November 2013 to 15 April 2021. The letter also set out the calculations involved in determining this period.
Ms Poulton’s appeal to this decision was rejected, both internally and on review by the Social Security Appeals Tribunal (SSAT). The SSAT affirmed the decision that Ms Poulton was subject to a compensation preclusion period and that it was correctly calculated. It also agreed that there were no special circumstances that would enliven the discretion of the decision maker to disregard some or all of the compensation payment, which would reduce the length of the preclusion period.
On 11 March 2014, Ms Poulton submitted a claim for DSP. On 21 March 2014, Centrelink rejected her claim for a pension because she was precluded from receiving income support payments.
Ms Poulton seeks a review of the SSAT decision on 30 April 2014 by the Tribunal.
At the hearing, Ms Poulton appeared by telephone and gave oral evidence.
ISSUES
The issues before the Tribunal are:
(a)Whether Ms Poulton is subject to a lump sum preclusion period; and, if so
(b)Whether it is appropriate to treat all or part of a compensation payment received as having not been made in the special circumstances of the case.
LEGISLATION
Section 1170 of the Social Security Act 1991 (the Act) outlines the calculation of a lump sum preclusion period. Relevantly, it provides:
Lump sum preclusion period
(1) Subject to subsection (2), if a person receives both periodic compensation payments and a lump sum compensation payment, the lump sum preclusion period is the period that:
(a) begins on the day following the last day of the periodic payments period or, where there is more than one periodic payments period, the day following the last day of the last periodic payments period; and
(b) ends at the end of the number of weeks worked out under subsections (4) and (5).
(2) If a person chooses to receive part of an entitlement to periodic compensation payments in the form of a lump sum, the lump sum preclusion period is the period that:
(a) begins on the first day on which the person's periodic compensation payment is a reduced payment because of that choice; and
(b) ends at the end of the number of weeks worked out under subsections (4) and (5).
(3) If neither of subsections (1) and (2) applies, the lump sum preclusion period is the period that:
(a) begins on the day on which the loss of earnings or loss of capacity to earn began; and
(b) ends at the end of the number of weeks worked out under subsections (4) and (5).
(4) The number of weeks in the lump sum preclusion period in relation to a person is the number worked out using the formula:
(5) If the number worked out under subsection (4) is not a whole number, the number is to be rounded down to the nearest whole number.
For the purpose of section 1170 of the Act, compensation is defined in s 17(2) of the Act as:
Compensation
(2) Subject to subsection (2B), for the purposes of this Act, 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.
The compensation part of a lump sum is defined in s 17 (3) of the Act as:
(3) Subject to subsection (4), for the purposes of this Act, the compensation part of a lump sum compensation payment is:
(a) 50% of the payment if the following circumstances apply:
(i) the payment is made (either with or without admission of liability) in settlement of a claim that is, in whole or in part, related to a disease, injury or condition; and
(ii) the claim was settled, either by consent judgment being entered in respect of the settlement or otherwise; or
(ab) 50% of the payment if the following circumstances apply:
(i) the payment represents that part of a person’s entitlement to periodic compensation payments that the person has chosen to receive in the form of a lump sum; and
(ii) the entitlement to periodic compensation payments arose from the settlement (either with or without admission of liability) of a claim that is, in whole or in part, related to a disease, injury or condition; and
(iii) the claim was settled, either by consent judgment being entered in respect of the settlement or otherwise; or
(b) if those circumstances do not apply—so much of the payment as is, in the Secretary’s opinion, in respect of lost earnings or lost capacity to earn, or both.
Income cut-out amount is defined in s 17(8) of the Act as:
(8) For the purposes of the definition of income cut-out amount in subsection (1), the formula is as follows:
where:
energy supplement component means the energy supplement worked out under point 1064-C3 for a person who is not a member of a couple:
(a) whether or not the person for whom the income cut-out amount is being worked out is a member of a couple; and
(b) whether or not that point applies to the person for whom the income cut-out amount is being worked out.
maximum basic rate means the amount specified in column 3 of item 1 of the table in point 1064-B1.
ordinary free area limit means the amount specified in column 3 of item 1 of the table in point 1064-E4.
pension supplement component means the pension supplement amount worked out under point 1064-BA3 for a person who is not a member of a couple:
(a) whether or not the person for whom the income cut-out amount is being worked out is a member of a couple; and
(b) whether or not that point applies to the person for whom the income cut-out amount is being worked out.
The ability of the Secretary to disregard all or part of a compensation payment is set out in s 1184K of the Act:
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.
(2) If:
(a) a person or a person’s partner receives or claims a compensation affected payment; and
(b) the person receives compensation; and
(c)the set of circumstances that gave rise to the claim for compensation is not related to the set of circumstances that gave rise to the person’s or the person’s partner’s receipt of, or claim for, the compensation affected payment;
the fact that those 2 sets of circumstances are unrelated does not alone constitute special circumstances for the purposes of subsection (1).
CONSIDERATION
Preclusion period
The settlement sum Ms Poulton received on 20 November 2013 constitutes compensation for social security purposes under section 17(2)(c) of the Act because it was a payment in settlement of a claim under an insurance scheme.
Accordingly, by operation of section 1169(1) of the Act, Ms Poulton cannot receive or claim a compensation-affected payment (which includes a disability support pension) for any day during the lump sum preclusion period if she received a lump sum compensation payment.
Because Ms Poulton received periodic compensation payments followed by a lump sum compensation payment, her lump sum preclusion period is determined in accordance with section 1170 of the Act.
The Respondent contends that Ms Poulton's lump sum preclusion period from 8 November 2013 until 15 April 2021 was correctly calculated, by application of section 1170 of the Act.
The lump sum preclusion period commences on the day following the last day of Ms Poulton's periodic payment period, which was 7 November 2013. Ms Poulton’s preclusion period therefore commenced on 8 November 2013.
Subsection 1170(4) of the Act provides that the "compensation part of the lump sum" should be divided by the "income cut-out amount".
Ms Poulton received periodic compensation payments totalling $76,114.38 prior to her lump sum settlement. Pursuant to subsection 17(4) of the Act, these payments must be deducted from the total lump sum payment ($780,000) as repaid period compensation payments. By section 17(3)(a) of the Act, the compensation part of the lump sum was 50% of the total payment ($780,000) minus the payback amount ($703,885.62 x 50% = $351,942.81) because the payment was made in a court-approved settlement of a claim that is related to an injury or condition.
The "income cut-out amount", calculated using the formula in section 17(8) of the Act, is $905.10.
Therefore, the lump sum preclusion period applicable to Ms Poulton is $351,942.81 divided by $905.10, which is 388 weeks (rounded down). Accordingly, 388 weeks from 8 November 2013 (the start of the preclusion period) is 15 April 2021.
Section 1168 of the Act provides that Division 3 - Receipt of compensation (discussed above) applies whether or not a lump-sum compensation payment was received before or after a person claims a compensation-affected payment.
Special Circumstances
In accordance with section 1184K of the Act, the Tribunal may treat the whole or part of Ms Poulton’s compensation payment as not having been made, or not liable to be made, if the Tribunal thinks it is appropriate to do so in the special circumstances of the case.
In Re Beadle and the Director-General of Social Security (1984) 6 ALD 1 the Tribunal held that for special circumstances to apply which would warrant a shorter preclusion period in respect of a compensation payment, the circumstances must be unusual or uncommon.
In Groth and Secretary Department of Social Security (1995) FCA 1708, the Federal Court held:
...the phrase "special circumstances", it has been said, although imprecise is sufficiently understood not to require judicial gloss...it is sufficient to observe that it would require something to distinguish Mr Groth's case from others, to take it out of the usual or ordinary case. That was, I consider, the only enquiry to be undertaken in this 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. The enquiry I have referred to would involve considering what would be the effect, if the provision in question or the principle of liability it creates, is applied...
At the hearing, Ms Poulton told the Tribunal that when she received the lump sum settlement amount, she used it to:
(a)repay the mortgage on her home ($319,684.25), which she co-owned and shared with her estranged husband, in exchange for her husband agreeing to support her financially in the period between the accident and the settlement; and
(b)pay off a number of credit card debts, totalling $26,958.02.
Ms Poulton was notified that her compensation settlement would affect her ability to claim compensation-affected payments. Letters were sent to Ms Poulton on 11 November 2014 and 19 December 2014, at her current address. A letter was also sent to Ms Poulton’s legal representatives on 18 November 2014. Notably, the letters were sent to Ms Poulton after she received her final periodic compensation payment (on 7 November 2014), but before she received her lump sum settlement payment (on 20 November 2014).
Ms Poulton claims that she did not receive any of the notifications until after she had already spent the lump sum settlement payment. She also claims that she was not advised by her legal representatives that, because she received a lump sum settlement payment, she would be subject to a preclusion period in respect of any future claim for compensation-affected payments.
The decisions in Lindsay and Secretary, Department of Families, Housing, Communities Services and Indigenous Affairs [2008] AATA 559 and Emeli and Secretary, Department of Families, Housing, Communities Services and Indigenous Affairs [2008] AATA 1092 held that inadequate legal advice regarding the application of a preclusion period following the receipt of a lump sum settlement amount will not support a finding of special circumstances.
The reasonableness of Ms Poulton's conduct in spending her lump sum compensation payment is relevant to the Tribunal’s determination of whether special circumstances apply in Ms Poulton’s case. In Martin and Secretary, Department of Social Services [1990] AATA 768, the Tribunal stated that when considering the question of financial hardship, it is relevant to consider the reasonableness of the applicant's action in disposing of the compensation monies: Re Wilson and Director-General of Social Services 4 ALN 94.
Ms Poulton spent almost all of her settlement sum repaying debts, including her mortgage, within a very short period of time. To exercise the discretion on the basis of special circumstances in this case would condone an irresponsible use of the settlement sum by Ms Poulton which took no account of her financial needs during the preclusion period.
In considering the reasonableness of Ms Poulton’s actions in disposing of her compensation monies, the Tribunal notes that Ms Poulton is now the co-owner of a home which, thanks to her payment, is mortgage-free. Although Ms Poulton stated in her evidence that she had “given” the home to her estranged husband in exchange for him supporting her for many years, she admitted that she still remained a co-owner of the home on the certificate of title. However, she rejected the Tribunal’s suggestion that it was open to her to either sell the home or draw on its equity in order to support herself financially during the preclusion period.
In any event, Ms Poulton stated in her evidence that Mr Poulton had been supporting her financially by giving her $250 per week and also covering her health costs (it is noted that Ms Poulton suffers from a number of medical conditions, including a thyroid disorder, high blood pressure and chronic obstructive pulmonary disease). Notably, according to the Statement of Financial Circumstances form that Ms Poulton completed, her household expenses amount to approximately $1,010 per month, and are therefore largely covered by the financial support provided by Mr Poulton.
Ms Poulton did not provide any credible evidence demonstrating that her circumstances give rise to severe or significant financial hardship.
On the basis of the above, notwithstanding the fact that Ms Poulton exhausted her lump sum settlement amount by paying her mortgage and credit card debts, I am not satisfied that this gives rise to a finding of special circumstances which would warrant me exercising my discretion to shorten the preclusion period.
The Tribunal therefore decides that Ms Poulton is subject to a compensation preclusion period from 8 November 2013 until 15 April 2021.
decision
The decision under review is affirmed.
1. I certify that the preceding 40 (forty-one) paragraphs are a true copy of the reasons for the decision herein of Dr T Nicoletti, Senior Member.
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AssociateDated 25 August 2015
Date(s) of hearing
25 May 2015
Representatives for the Applicant
Self-represented
Representatives for the Respondent
Ms Biljana Salaji, Advocate
Key Legal Topics
Areas of Law
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Social Security Law
Legal Concepts
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Compensation Preclusion Period
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Affirmation of Decision
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Administrative Review
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