QX05/10 and Secretary, Department of Employment and Workplace Relations
[2006] AATA 178
•1 March 2006
Administrative
Appeals
Tribunal
DECISION AND REASONS FOR DECISION [2006] AATA 178
ADMINISTRATIVE APPEALS TRIBUNAL )
) No Q2005/269
GENERAL ADMINISTRATIVE DIVISION ) Re QX05/10 Applicant
And
SECRETARY, DEPARTMENT OF EMPLOYMENT AND WORKPLACE RELATIONS
Respondent
DECISION
Tribunal Senior Member P McDermott, Member Dr G Maynard Date1 March 2006
PlaceBrisbane
Decision The Tribunal sets side the decision under review, and substitutes a decision that in the special circumstances of this matter, so much of the compensation paid to the applicant be treated as not having been made so as to allow the preclusion period to end on the date of this decision.
.......[Sgd].......
P McDermott
Presiding Member
CATCHWORDS
SOCIAL SECURITY – lump sum compensation payment – debt raised by centrelink – preclusion period – special circumstances due to poor health of applicant – failure of centrelink to account for variation due to introduction of GST.
Social Security Act 1991
BT v Oei [1999] NSWSC 1082.
Department of Social Security v Banks (1990) 23 FCR 416
Fuller and Secretary, Department of Family and Community Services (2004) 83 ALD 152
Department of Social Security v Chamberlain [2002] FCA 67
Beadle v Director-General of Social Security (1985) 7 ALD 670, 60 ALR 225Re Secretary, Department of Social Security and Hickman (1996) 43 ALD 75.
Groth v Secretary, Department of Social Security (1995) 40 ALD 541
Secretary, Department of Social Security v Hulls (1991) 22 ALD 570,
Barrington and Secretary, Department of Employment and Workplace Relations [2005] AATA 1050.
Secretary of the Department of Social Security v Thompson (1994) 53 FCR 580Secretary, Department of Social Security and VYS (1995) 40 ALD 745
Secretary, Department of Security and Hickman (1996) 43 ALD 75 at [18].
Re Allen and Secretary Department of Family and Community Services, (2001), 66 ALD 147,
Re Stephens and Secretary Department of Family and Community Services [2001] AATA 108.REASONS FOR DECISION
1 March 2006 Senior Member P McDermott Introduction
1. The applicant was a plaintiff in a medical negligence action in the Supreme Court of New South Wales (“the Supreme Court”) which held, in a landmark decision, that the applicant contracted HIV as a direct result of negligent advice from a medical practitioner: see BT v Oei [1999] NSWSC 1082. This decision is a precedent that medical practitioners owe a duty of care to third parties.
2. After the decision of the trial judge was delivered, the defendant lodged an appeal against this decision. The claim of the applicant was then compromised for the sum of $825,000 which sum was inclusive of the costs of the applicant. Of this settlement amount, approximately $347,258.60 was for legal costs.
3. In this case Centrelink officers have calculated a compensation preclusion period of 975 weeks. This preclusion period commenced in 1992 and will end in 2010.
4. We have to decide whether there are special circumstances which would justify a shortening of the preclusion period.
Confidentiality Order
5. In the reasons for decision of the Supreme Court of New South Wales the name of the applicant was kept confidential. We have made an order that in these proceedings the applicant be shown as QX05/10 in view of her evidence that she was ostracised following the disclosure of her medical condition. We have also in these reasons endeavoured to not disclose any information which would enable her to be identified.
Centrelink Decision
6. On 18 November 2004 the authorised review officer of Centrelink affirmed the decision of the original decision maker to preclude the applicant from receiving a compensation affected payment from Centrelink during the period of 1 January 1992 to 7 September 2010, a period of seventeen years, eight months (T41 at 162).
7. The preclusion period was calculated using the “50% Rule” (which we later refer to) whereby the compensation component of the lump sum that was used to calculate the preclusion period was assessed at $412,500.00. The compensation divisor that was applied on 26 April 2000 was $422.90 resulting in a preclusion period of 975 weeks. (T41 at folios 163 and 164).
Reviewable Decision
8. The applicant appealed to the Social Security Appeals Tribunal. The members of the Tribunal were satisfied that the circumstances of the applicant amounted to special circumstances in accordance with the provisions of section 1184K(1) of the Social Security Act 1991 (“the Act”) (T2 at fol. 15). The Tribunal varied the decision of the authorised review officer of Centrelink to treat $100,000.00 of the lump sum compensation as not having been made. The reduction was to reflect the increase in the cost of living since the introduction of GST.
Legislation
9. In deciding this application we have had regard to a number of provisions of the Act.
·Compensation affected payment
10. If a person receives or claims a compensation affected payment; and the person receives a lump sum compensation payment; the compensation affected payment is not payable to the person in relation to any day or days in the lump sum preclusion period: s 1169(1). The expression “compensation affected payment” includes “a parenting payment which was received by the applicant: see s 17(1), para (b) of the definition.
·Compensation
11. Compensation is defined by subsection 17(2) (c) of the Act, to include “a payment (with or without admission of liability) in settlement of a claim for damages or a claim under such an insurance scheme”: see para (c). The definition also includes “any other compensation or damages payment”: see para (d). The concluding words at the foot of s 17(2) make it clear that the definition applied whether the payment is in the form of a lump sum (as was the case in this matter) or in the form of a series of periodic payments and whether it is made wholly or partly in respect of lost earnings or lost capacity to earn resulting from personal injury.
·“50 per cent rule”
12. It is also appropriate to mention subsection 17(3) of the Act which defines the “compensation part of a lump sum compensation payment”. This is referred to as the “50 per cent rule”. The “compensation part of a lump sum compensation payment” is defined to be 50% of a payment if 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 the claim was settled, either by consent judgment being entered in respect of the settlement or otherwise: see para (a).
13. This provision was introduced in 1988 to overcome any difficulty caused where a sum that is received in settlement of a claim where the settlement does not expressly allocate a component which is attributable to lost earnings or lost capacity to earn: see Secretary of the Department of Social Security v Banks (1990) 23 FCR 416 at 422 per Von Doussa J. As President G Downes J observed in Fuller and Secretary, Department of Family and Community Services (2004) 83 ALD 152 at 157, the provision was introduced to avoid “what the responsible minister described in his second reading speech as a practice of manipulating lump sum compensation payments ‘to obscure the economic loss component and to avoid payment of social security payments’”.
Preclusion periods
14. Preclusion periods are calculated in accordance with subsection 1170 (formerly section 1165) of the Act. To calculate a preclusion period, only the compensation part of the lump sum payment is taken into account. The compensation part is determined under the provisions of subsection 17(3) of the Act. The number of weeks in the lump sum preclusion period in relation to a person is the number worked out using the formula in s 1170(4) which is the compensation part of a lump sum divided by the income cut-out-amount. If that number worked out is not a whole number, the number is to be rounded down to the nearest whole number: see s 1170(5).
15. Chapter 3 of the Act deals with compensation recovery: see Part 3.14. Subsection 1184K deals with circumstances where a whole or part of a compensation payment may be treated as not having been made or not liable to be made if the Secretary thinks it is appropriate to do so in the special circumstances of a case.
16. Section 1184K of the Act provides that for the purposes of Part 3.14 of the Act, 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: see subsection (1).
History Of The Matter
17. The applicant gave evidence that in September 1992 she attended at the rooms of her prospective partner’s medical practitioner. Her prospective partner accompanied her. The medical practitioner advised them that it was safe for them to become intimate. The Supreme Court held that she contracted HIV as a direct result of that negligent advice. The applicant’s partner died in 1995. The applicant is now chronically unwell, and has a significantly reduced life expectancy [T2].
18. During the period of 12 January 1995 to April 2000 the applicant received a parenting payment. This is a compensation affected payment: s 17(1). She received an amount of $32,281.90 during this period (T41 at fol. 164).
19. At first instance before the Supreme Court the applicant was awarded $713,392.80 plus costs. There is evidence that the case was strongly resisted by the medical defendant organisation representing the defendant medical practitioner and they advised her that they would appeal against the decision. In order to put an end to the litigation, the applicant agreed to a compromise of her claim. She settled the matter for the sum of $825,000.00 inclusive of costs.
20. From the settlement moneys of $825,000.00 sums which total $388 506.60 were deducted: ($8,966.10, HIC; $32,281.90, Centrelink; $347,258.60, solicitor’s costs and outlays) [T44].
21. The applicant received a number of instalments from the settlement monies: 23 December 1999, $30,000.00; 5 May 2000, $10,000.00; 12 May 2000, $390 000.00; 24 July 2000, $6 493.25. In all, she received a total of $436 493.25.
22. The compensation that was received by the applicant was to compensate her for the economic losses in respect of her employment prospects as well as the non-economic losses that she had sustained. There is no material before us which indicates the economic and non-economic components of the compensation. However, even if there was such material it is clear that we cannot as a decision-maker make any assumptions as to the components of the compensation. We have considered the decision of Secretary of the Department of Social Security v Chamberlain [2002] FCA 67 where at [36] Keifel J remarked that a consequence of the adoption of the “50 per cent” rule is that a decision-maker is not required to consider contentions about what part of the compensation reflected the economic loss component”.
Expenditure Of Settlement Moneys
23. The major expenditure of the applicant from the settlement moneys was the purchase of a home for $145,000. This home, as the Social Security Appeals Tribunal pointed out, is a modest home at the lower end of the market. She spent a further $50,000 on renovations; she purchased a car for $30,500 and installed air-conditioning costing $2747.00. She has a current bank balance of $42,000.00.
24. The current annual expenses of the applicant include rates ($1,200); car expenses ($950); electricity ($1,500), medications and vitamins ($900), and telephone ($1,200). Her telephone expense includes weekly calls to her parents and a Foxtel subscription. The Foxtel subscription is required due to her difficulty in having access to entertainment. She also has difficulties in reading a book. The applicant’s limited access to entertainment is due to her poor health and more recently her appearance. The applicant is uncomfortable in public. This is because since she ceased her medication her hair has been falling out. She also feels the need to conserve strength for important travel. She is also due to have another round of blood tests.
25. The authorised review officer of Centrelink characterised the expenditure of the applicant on buying and renovating a house, an air conditioner and day to day living expenses as “discretionary” (T41 at 162). We do not regard her expenditure of the settlement moneys as being extravagant. The home is modest and there is much force in the submission of Mr Stannard, who appeared for the applicant before the Social Security Appeals Tribunal, that if she did not purchase the home she would have had to apply for rent assistance. The purchase of an air conditioner is reasonable having regard to the hot summers in Queensland and the already high level of the applicant’s discomfort. We are satisfied that her expenditure has not been extravagant.
Legal Costs
26. The legal costs incurred by the applicant amounted to some $347,258.60. Her case was unusual in that it was a precedent setting case regarding the duty of care of health care practitioners to third parties. The case required an unusually lengthy amount of time for preparation, research and report writing and expert witnesses. Due to the implications for medical insurers arising from an expansion of the duty, her action was strenuously defended. The hearing took two weeks and an appeal was lodged against the decision of the trial judge. This contributed to the high level of costs.
27. The case of the applicant was indeed the type of case that was adverted to by the President in Fuller and Secretary, Department of Family and Community Services (2004) 83 ALD 152 at 158 as being where a claim is resisted “until the last minute so that substantial costs are incurred by the applicant”. However, unlike the situation in Fuller the settlement did not specifically provide what moneys were to be applied for the payment of legal costs.
28. The applicant received a sum of approximately $436,493.25 in compensation after the payment of all costs. Using the 50% rule an amount of $412,500.00 was used to calculate the preclusion period. The applicant submitted that the application of the 50% rule in her case failed to take into account the unusually high costs incurred in the matter and that she sustained hardship and unfairness in having the full amount of compensation used to calculate the preclusion period. It was submitted on her behalf that legal costs should not be taken as part of the lump sum compensation amount to calculate the preclusion period.
29. It is clear that the basis of settlement in this case disadvantaged the applicant. This is because of what the President in Fuller and Secretary, Department of Family and Community Services (2004) 83 ALD 152 remarked, at 158: as being an “anomaly” in the administration of the legislation. The President remarked: “I was candidly informed by the department that if a settlement was reached inclusive of costs, whether those costs are separately identified or not, the practice has been for the total figure to be treated as the lump sum compensation payment. However, if a matter is settled on the basis that costs are to be paid subsequently, after being assessed, then the preclusion period is calculated without reference to the costs because to do so would result in hardship because the lump sum cannot be released until the preclusion period is calculated.” The President added: ‘This is a most capricious result”.
30. The President made further remarks in Fuller which discussed how unequal treatment would constitute hardship for the exercise of discretion under s1184K of the Act at [27]:
“I have referred above to the anomaly which arises from the way in which the respondent treats settlements which provide for costs to be subsequently assessed. It excludes costs from the calculation of the lump sum preclusion period. It does this because of the hardship that would result from delay. In adopting this approach the respondent must be exercising discretion...conferred by s1184K. If hardship is a basis for the exercise of such a discretion it seems to me that unfairness must also be a basis for the exercise of that discretion.Section 1184K is not confined to hardship. Moreover, being treated unequally can be a hardship. Where the costs agreed in settlement are a genuine assessment of those costs it seems to me that there is an unfairness arising out of the different way in which applicants are treated. I do not see any reason why in a case in which an agreed sum of costs is a genuine assessment of those costs the applicant should not be treated in the same way as an applicant who is a party to a settlement where costs are to be subsequently agreed or assessed. Indeed, well advised applicants would probably seek to negotiate a figure with costs to be agreed on [and] assessed in the future even if those costs were agreed very shortly after the settlement was reached.”
31. The President, at [29], thought that there was the need by the respondent to consider cases where there was a genuine cost assessment.
“…consideration [should] be given to the question of whether, by parity with its practice of calculating preclusion periods without regard to the amount of costs to be paid when those costs are not agreed at the time of settlement, a decision should be made in the present and all similar cases, where these is no reason to doubt the genuineness of the assessment of costs, by which these costs are not taken into account in calculating the lump sum preclusion period".”
32. Under this basis the preclusion period would only be calculated on the amount of compensation actually received by the applicant. This would shorten the preclusion period and reduce the hardship placed on her. The decision of the President in Fuller was delivered on 18 June 2004. The decision of the authorised review officer of Centrelink was delivered on 18 November 2004. Having regard to the normative effect of Tribunal decisions, it is somewhat surprising that the decision of the President in Fuller was not referred to by the authorised review officer.
Medical Evidence
33. A report of Associate Professor John Chuah of the Gold Coast Sexual Health Clinic, Queensland Health of 7 December 2005 was admitted into evidence [Exhibit A1]. Professor Chuah also gave evidence before the Tribunal.
34. Professor Chuah considers that the applicant has had HIV since 1994. He stated that she had an AIDS defining illness in 1997 when she had progressive weight loss of more than 6 kg. At this time she had chronic nausea, diarrhoea, fatigue and abdominal discomfort.
35. Professor Chuah also stated that since 1994 she has also experienced mental depression and anxiety, although her mental depression probably predated the HIV diagnosis. This is manifested by progressive despondency, poor concentration and “bouts of flights of thoughts”. Her mental depression cannot be treated by antidepressants due to the complex interactions between various antidepressants and HIV mediciations.
36. Professor Chuah also stated that her other complaints include asthma, gallstones, and chronic skin eczema.
37. Professor Chuah stated that the applicant commenced antiretroviral combination therapy in Sydney in 1997. She continued this therapy after she attended the Gold Coast Sexual Health Clinic in July 2000. Unfortunately the applicant experienced severe side-effects of this therapy. There were many changes and interruptions of various combination therapies.
38. In May 2005 the applicant suffered what Professor Chuah describes as “a very severe and near fatal bout of lactic acidosis and liver combination”. Professor Chuah stated that she took over three months to recover from this complaint which required a week of hospitalization.
39. Professor Chuah said that she has been recommended and scheduled to commence on new experimental anti-HIV medications in 2006. This will require close supervision and monitoring of the side-effects of this drug.
40. Professor Chuah stated:
“In view of her severe immunodeficiency, impending commencement of her new HIV treatment program and fluctuating depressive state of mind, plus the reality of treatment side effects and interactions with antidepressants, I feel her prognosis, quality of life and life expectancy over the next five years is not very optimistic ” (Exhibit A1).
41. Professor Chuah considers that it would “be totally unrealistic to expect the applicant to ever enter the workforce again”. He stated that “she will be requiring increasing health care and social support as her health deteriorates”.
Arguments Of Applicant
42. The applicant contended that the preclusion period should be calculated in the light of the special circumstances surrounding the case. One special circumstance was the medical condition of the applicant.
43. The applicant submitted that the application of the 50% rule did not fairly reflect the compensation actually received by her. The applicant submitted that she was disadvantaged by the advent of Goods and Services Tax (GST). It is the contention of the applicant the divisor used by Centrelink does not take into account the effect of GST which was introduced two months later.
44. The applicant also submitted that the nature of test case litigation should be appreciated. It was contended that the lump sum compensation payment should exclude the costs incurred in asserting the applicant’s right to compensation.
Special Circumstances
45. We have to decide whether the discretion under s 1184 of the Act should be exercises to reduce the preclusion period because of any special circumstances of this case. Before we can consider whether it is appropriate to exercise this discretion we must first consider whether there are special circumstances in this case.
46. We have already mentioned that the term “special circumstances” is contained in section 1184K of the Act. There are decisions of the Federal Court of Australia, which bind us, which have considered the meaning of this term.
47. The Federal Court of Australia in Beadle v Director-General of Social Security (1985) 7 ALD 670, in agreement with a decision of this Tribunal in Re Beadle and Director-General of Social Security (1984) 6 ALD 1, determined that special circumstances look to situations which are “unusual, uncommon or exceptional”: see also Re Secretary, Department of Social Security and Hickman (1996) 43 ALD 75.
48. It has been recognised that the circumstances need not be unique but must have a particular quality of unusualness, which would permit a description of being “special”. A similar discussion is to be found in Groth v Secretary, Department of Social Security (1995) 40 ALD 541.
49. In determining whether “special circumstances” exist in a case it has been recognised that s 1184K of the Act confers a very broad discretion which requires us to consider all the circumstances of this case: see Beadle v Director-General of Social Security (1985) 60 ALR 225 at 228
50. In Secretary, Department of Social Security v Hulls (1991) 22 ALD 570, O’Loughlin J in considering the predecessor provision to s 1184K of the Act remarked that a decision maker “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.”
51. We have found that special circumstances exist in this case which warrants the exercise of discretion under s 1184K of the Act. We give our reasons for our finding.
Ill-health of the applicant
52. The applicant gave evidence of what we considered to be her genuine attempts to enter the workforce. We, however, consider that it is not a viable option for her to be in the workforce. We have accepted the evidence of Professor Chuah that it is totally unrealistic to expect the applicant to ever enter the workforce again. Previous decisions of this Tribunal have recognised that ill health resulting in an incapacity to engage in paid employment is relevant to a finding of special circumstances: see Barrington and Secretary, Department of Employment and Workplace Relations [2005] AATA 1050.
53. We find that the ill health of the applicant is a special circumstance of this case.
Mental health
54. In Secretary of the Department of Social Security v Thompson (1994) 53 FCR 580 Einfeld J, in discussing the predecessor provision to s 1184K of the Act, remarked at 586:
“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.”
55. Having regard to these remarks of Einfeld J we have taken into account the mental health of the applicant.
56. We find that the fact that the mental depression and anxiety of the applicant is also a special circumstance of this case.
Shortening Of The Preclusion Period
57. Having determined that there are special circumstances in this case, we consider that a shortening of the preclusion period is warranted.
58. We appreciate that the purpose of the legislation is to ensure that a person in receipt of compensation does not “double- dip”, that is to receive income from compensation in addition to income security from the respondent. The legislation, however, enables the preclusion period to be shortened where there are special circumstances.
59. In the context of the operation of the preclusion period this Tribunal has previously mentioned that it does not regard the social security system to require people to take “a one way ticket to poverty”: see Secretary, Department of Social Security and VYS (1995) 40 ALD 745; Secretary, Department of Security and Hickman (1996) 43 ALD 75 at [18].
60. We appreciate that the applicant has funds but we consider that it is undesirable that a person who is not in immediate financial hardship should be reduced to long-term financial difficulties if special circumstances are not found.
61. The preclusion period has been imposed for the period from 1992 and ending in 2010. By now a significant portion of the period had elapsed.
62. In Secretary, Department of Social Security v Thompson (1994) 53 FCR 580 at [28] Einfeld J said in calculating the appropriate reduction of the preclusion period: “intuitive justice will often be as fair a criterion and as faithful to the legislative intention as any other approach”.
63. In determining the appropriate adjustment that must be made it is not necessary to precisely calculate a figure, but to consider all of the relevant facts and circumstances in this case: see Barrington and Secretary, Department of Employment and Workplace Relations [2005] AATA 1050.
GST
64. The income divisor that was used to calculate the preclusion period for the applicant was $422.90 resulting in a preclusion period of 975 weeks. However, if the calculation was to take into account the introduction of GST the divisor is $543.63 and would result in a preclusion period of 758 weeks. (T2 at 12).
65. One argument of the applicant was that in calculating a preclusion period the divisor used did not take into account the introduction of GST. It was pointed out that the applicant was unfairly treated with respect to the increased cost of living, as the expectation as to how far the compensation amount would meet her needs pre-GST was undone by the introduction of a tax which was neither predicted nor predictable at the time of settlement, Re Allen and Secretary Department of Family and Community Services ( 2001), 66 ALD 147, and on appeal before the Federal Court, and Allen and Secretary Department of Family and Community Services, 116 FCR 1.
66. We consider that the calculation of the applicant’s preclusion period has not taken into account the introduction of GST in July 2000. As a result she does not benefit from the increase in the income cut-out figure and is forced to live with the increased cost of living. We consider that this matter is within the purview of what may be taken into account by the decision-maker. See Re Stephens and Secretary Department of Family and Community Services [2001] AATA 108.
Decision
67. In framing the terms of the decision, which appears at the commencement of these reasons, we have been instructed by the remarks of Einfeld J in Secretary, Department of Social Security v Thompson(1994) 53 FCR 580 at [28] that we may made a decision which refers to the length by which the preclusion period is shortened without specifying the corresponding reduction in the compensation sum.
68. We have decided to set aside the decision under review and substitute a decision that in the special circumstances of her case, so much of the compensation paid to her should be treated as not having been made so as to allow the preclusion period to end on the date of this decision.
69. We have made this decision on the basis of our exercise of the discretion that is vested in the Secretary under s 1184K of the Act because of the special circumstances of this case. These special circumstances are the ill health of the applicant who has HIV and the fact that the applicant has mental depression and anxiety. We have also relied upon the observations of the President in Fuller that unequal treatment which would constitute hardship is a matter that can be considered by the Secretary in exercise of discretion under s 1118K of the Act.
70. In framing our order we have made an order that can be administratively implemented without any further action on the part of the Secretary. We are conscious that the applicant is about to undergo further therapy and we wish to ensure that medication is available to her on a subsidised basis.
71. We wish to record our assistance to counsel who appeared for the applicant on a pro bono basis.
72. We also make the observation that some amendment to s 17 of the Act may be warranted to remove the anomaly which was identified by the President in Fuller.
I certify that the 72 preceding paragraphs are a true copy of the reasons for the decision herein of Senior Member P McDermott and Member Dr G Maynard
Signed: Jeff Mills
Legal Research OfficerDate/s of Hearing 13 December 2005, 6 February 2006
Date of Decision 1 March 2006
Counsel for the Applicant Ms C Heyworth-Smith
Solicitor for the Applicant Welfare Rights
For the Respondent Mr R McQuinlan, Departmental Advocate
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