Re Morgan and Secretary Department of Family and Community Services - [2001] AATA 734

DECISION AND REASONS FOR DECISION [2001] AATA 734

ADMINISTRATIVE APPEALS TRIBUNAL )

) No V2001/354

GENERAL ADMINISTRATIVE DIVISION          )
           Re      JUDITH MORGAN
  Applicant
           And    SECRETARY, DEPARTMENT OF FAMILY & COMMUNITY SERVICES
  Respondent

DECISION

Tribunal Mr J. Handley, Senior Member

Date10 August 2001
PlaceMelbourne

Decision      Decision under review is affirmed.
  ........Sgd. Mr J. Handley...........
  Senior Member
CATCHWORDS
Social Security - Compensation lump sum - Preclusion period - method of calculation - date of application of compensation divisor - whether any special circumstances - decision affirmed.
Social Security Act 1991 s.1165(8)
Re Beadle & Director General Social Security 1984 6 ALD 1

REASONS FOR DECISION

10 August 2001 Mr J. Handley, Senior Member

The applicant applies to review a decision of the Social Security Appeals Tribunal ("SSAT") made on 15 March 2001. The SSAT affirmed a decision previously made by an Authorised Review Officer ("ARO") of the respondent to impose a preclusion period from receipt of Disability Support Pension ("DSP").
The hearing was convened in Bendigo. Mrs Morgan appeared with her husband. Mr Baker represented the respondent.
The facts may be briefly summarised as follows-
Mrs Morgan suffered severe injuries in a motor car accident in 1992. Payments were made to her from the Transport Accident Commission ("TAC") until 17 June 1995. On 18 June 1995 Mrs Morgan began receiving Disability Support Pension ("DSP").
On 1 June 1998 her claim against the TAC was settled in the sum of $320,000. The DSP was then cancelled and a charge of $21,406.30 was levied by the respondent against the settlement sum with respect to pension paid prior to the date of settlement. That sum has subsequently been repaid by the TAC.
The respondent calculated a period of preclusion between 18 June 1995 (being the day after the cessation of TAC payments) and 7 December 2002. The preclusion period was calculated by reference to the formula found at s.1165(8) of the Social Security Act 1991 ("the Act").
On behalf of his wife, Mr Morgan submitted that the calculation of the preclusion period was made in error. He submitted that the settlement sum had an economic loss component of $120,000 and that that sum only should be bought into account in calculating the preclusion period. In addition, he said the "income cut-out amount" was in the vicinity of $530-$560 and not $410 as applied by the Department. Accordingly, he submitted the calculations made by the Department were in error and the preclusion period should have well and truly expired.
Mr and Mrs Morgan do not dispute the fact that a preclusion period must be imposed nor is the any dispute as to the charge of $21,406.30.
The Legislation
Division 3 of the Act provides the mechanisms for calculating the preclusion period. Section 1165 provides that a "compensation affected payment" is not payable during a lump sum preclusion period. For the purposes of this exercise a Disability Support Pension is a compensation affected payment (refer s.17(1)).
The formula used to calculate the period of preclusion is set out at s.1165(8) of the Act. It is reproduced at page 8 of the T-documents being part of the decision of the SSAT. It provides that a preclusion period is imposed following the receipt of a "compensation lump sum" after 20 March 1997. In effect the "compensation part of a lump sum" is divided by the "income cut-out amount" and the result is the equivalent of a number of weeks being the duration of the preclusion period.
The "compensation part of a lump sum" is defined at s.17(3) of the Act and is either 50% of the payment made in settlement of the claim where the claim was settled after 9 February 1988 or 50% of the lump sum payment being representative of periodic payments where the settlement also was entered into after 9 February 1988 or if these circumstances do not apply so much of the payment as in the opinion of the Secretary of the department, is in respect of lost earnings or lost capacity to earn.
The "income cut-out amount" is defined at s.17(1) of the Act, and is a formula used to decide the divisor for the purposes of the formula under s.1165(8). It represents the amount of weekly earnings at which rate pension (at the single rate) is no longer payable.
The expression "lump sum" is not defined but is referable to a payment of money, which is not paid by way of periodic payment.
Section 17(2) of the Act defines "compensation" as follows-
"(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) that is:
(e) wholly or partly in respect of lost earnings or lost capacity to earn; and
(f) made either within or outside Australia

Conclusion & Reasons For Decision

It was submitted that only $120,000 should be brought into account in calculating the preclusion period. This was because the T-documents at page 50 contain a letter from the solicitors for TAC recording that the settlement sum of $320,000 represented $200,000 for general damages and $120,000 "for economic loss and costs". Despite Mr Morgan's submissions on behalf of his wife, the sum of $120,000 cannot, in isolation, be used to calculate the preclusion period.
The effect of section 17(2) is that the whole of the settlement sum namely $320,000 must be brought into account in calculating the preclusion period. The effect of section 17(3) is that, in the present case the "compensation part of a lump sum" (for the purposes of s.1165(8)), is $160,000. Put another way, 50% of the lump sum payment is brought into account, being $160,000.00. The applicant's contention that only the sum of $120,000 can be brought into account is therefore rejected.
The "income cut-out amount" is calculated by reference to the formula found at s.17(8). At all relevant times it is apparent from the T-documents that that sum was calculated by the respondent to be $410 (see pp 41, 43, 46, 47, 49, 52, 54, 68, 70 and 72). However, the SSAT decision (at p 9 T-docs) states:
"To calculate the preclusion period this sum must be divided by the income cut-out amount, that is, the amount of weekly income which will cause no pension to be payable to a single person under the income test. In this case the amount varied during the different periods in question and ranged from $530 - $560."

This would appear to be the source of the applicant's claim that the calculation of the preclusion period was made in error by the department. After the hearing, in a letter dated 13 July 2001, the Tribunal drew this anomaly to the attention of the respondent and requested that it advise how the respondent calculated the figure of $410, including the components of the formula in section 17(8) of the Act and at what point in time this figure was calculated. In addition, the respondent was requested to provide the Tribunal with written submissions regarding the figures referred to in the SSAT's decision.

The respondent subsequently provided the Tribunal with a printout on 27 July 2001 of the "Compensation divisor" as varied from time to time. Those figures are produced with effect from 18 May 1995 on page 6.
Additionally, and by way of explanation, the divisor applicable before 20 March 1997 was based on 'average weekly earnings' as defined in s.17(1). Subsequent to 20 March 1997, the divisor is the 'income cut out amount' being the rate of average weekly earnings at which a pension is not payable at the single rate (refer s.17(1) & (8) & s.1064). As may be seen from the following Table, there was a considerable difference in the quantum of the divisor at 20 March 1997.

Date of Effect         Pre 20 Mar 97         Date of Effect         Post 20 Mar 97
18 May 1995 $544.40         20 Mar 1997            $402.20
27 July 1995 $547.60         1 Jul 1997     $403.20
17 Aug 1995 $548.50         20 Mar 1998 $410.00
26 Oct 1995 $552.20         20 Sep 1998 $412.70
16 Nov 1995 $551.30         20 Mar 1999 $416.80
8 Feb 1996    $555.00         1Jul 1999      $417.80
29 Feb 1996 $554.50         20 Sep 1999 $422.90
24 Apr 1996 $559.20         20 Mar 2000 $428.40
17 May 1996 $558.40         1 Jul 2000     $543.63
25 Jul 1996   $563.60         20 Sep 2000 $552.63
16 Aug 1996 $564.60         1 Jan 2001    $552.88
24 Oct 1996 $566.70         20 Mar 2001 $562.75
14 Nov 1996 $569.20         1 July 2001    $565.75
6 Feb 1997    $572.10
27 Feb 1997 $571.90

The Act is silent on the question of which divisor should be applied. Determining which divisor to use when calculating a preclusion period is critical when one can see the considerable affect even a small increase in the divisor can have on the length of the preclusion period. Using the divisor in effect at the time of Mrs Morgan's settlement on 1 June 1998, $410, and also that used by the respondent in its calculations, the preclusion period is approximately 7 and a half years. However, using the divisor currently in effect, $565.75, for example, the preclusion period would be reduced by approximately 2 years.
The SSAT decision made no reference to the date of effect of the divisor used. The respondent stated in its submissions dated 27 July 2001:
"It is not readily apparent from an examination of the divisor amounts (R2) or the T documents before the AAT what was the origin of the figures $530.70 and $560.60 referred to by the SSAT. The former of those figures was the divisor which was in place between 18 Aug and 9 Nov 94. In Ms Morgan's case her solicitor advised that weekly compensation was last paid on 17 June 1995 and the preclusion periods were calculated to commence from 18 June 95. I note that the charge amount recovered from Ms Morgan was for the period 13 July 95 to 24 Jun 98. In any event the SSAT affirmed the decision which was based on the figure of $410.00 used by the original decision maker and affirmed by the Authorised Review Officer."
The respondent also submitted that it is departmental policy to apply the divisor in effect at the date of settlement and provided the legislative history in support of that policy. The Tribunal notes that the Act has been amended to define the income cut-out amount as that "in force at the time when the compensation was received" (see Schedule 1, Family and Community Services Legislation (Simplification and Other Measures) Act 2001 (Act No 71/2001)). However, this does not take effect until 20 September 2001.
Nevertheless, if it is the department's policy to apply the divisor in effect at the date of settlement, that policy should be applied so that there is consistency in decision-making. It follows therefore that the contention by the applicant to impose an income cut-out amount of between $530 and $560 must also be rejected. Additionally, I would add, that from the Table reproduced earlier, at no time has the respondent ever published a divisor of $530.70 or $560.60. The expression '$530 & $560' as decided by the SSAT lacks precision. The divisor of $410 applied at the date of settlement. This is when the preclusion period commences. Logically, this is the sum to be applied, because at this date, the duration is calculated. It can only be calculated by reference to the divisor then current.
It follows in turn that the period of preclusion as calculated by the respondent, by reference to the legislation, is in the circumstances correct and the decision with respect to the imposition of a preclusion period must be affirmed.
I asked the applicant whether there were any circumstances in her case, which could be considered "special" under s. 1184, thereby permitting the respondent to "disregard" some or all of the compensation payment as not having been made or as not liable to be made. Mr and Mrs Morgan confirmed that their only quarrel with respect to the imposition of a preclusion period was by reference only to their submissions as to calculation (refer paragraph 8).
Nonetheless it should be recorded that Mrs Morgan settled her compensation claim at $320,000 from which $21,406.30 was repaid to the Department as a charge (this sum is not to be excluded in calculating the preclusion period). This is because the settled sum took account of the TAC payments not made prior to settlement during which time DSP was paid.
From that settled sum, a number of costs and charges were withdrawn by the applicant's former solicitors. Those charges and costs are found at p. 106-107 of the T-documents, the net effect being that $195,066.26 was paid to Mrs Morgan. The costs and charges were with respect to legal costs incurred in the proceedings, and repayment of mortgage and interest.
From the sum of $195,000 (in round terms), Mrs Morgan expended the funds upon repayment of other mortgages over the home, extinguishing credit card debts, purchase of a motor car and furniture and shares with Telstra.
Presently, Mrs Morgan and her husband own a house and land of 2.5 acres near Echuca, which has an estimated current market value of $300,000. Seventeen thousand dollars remains payable over the property upon a mortgage taken out by Mr Morgan with the Defence Force Retirement Benefits Fund. Mr and Mrs Morgan also own a Calais motor car valued at $40,000 and have house contents estimated at $15,000. There is a superannuation policy held by Mr Morgan, which has been rolled over and is to be paid to him at age 65 in the sum of $18,000. Mrs Morgan does have ongoing medical costs, which are being met by the TAC.
Mrs Morgan does not receive income from any source. Mr Morgan is a Department of Veterans Affairs Pensioner and presently receives pension at 100% of the General Rate at $289 per fortnight. He also receives a carers pension from the respondent, with respect to his care of Mrs Morgan at $75 per fortnight. The applicant's sons presently aged 18 and 24 both live at home and pay $50 per week towards board and food costs. The mortgage to the DFREDB is paid at $156 per month.
Despite the impact on Mrs Morgan's domestic, personal and financial circumstances as a result of the injuries suffered in the motor vehicle accident, she has received settlement funds and has considerable assets. The costs incurred to her solicitors on account of the legal work are to be associated normally with litigation (although I acknowledge on the figures presented that the legal charges appear to be – by reference to other applications that I have observed – excessive). Mrs Morgan indicated that she did consider a complaint to the law institute, but has been told that she is "out of time". Additionally the monies paid by Mrs Morgan to extinguish a mortgage are charges normally associated with borrowing funds to purchase real estate.
I can find nothing in the case of Mrs Morgan, which would suggest that her circumstances are "special" as far as section 1184(1) is concerned.
The expression "special circumstances" was discussed by the Tribunal in the case of ReBeadle & Director General Social Security 1984 6 ALD 1 at p 3 -
"An expression such as "special circumstances" is by its very nature incapable of precise or exhaustive definition. The qualifying adjective looks to circumstances that are unusual, uncommon or exceptional. Whether the circumstances answer any of these descriptions must depend upon the context in which they occur, For it is in the context which allows one to say that the circumstances in one case are markedly different from the usual run of cases. That is not to say that the circumstances must be unique but they must have a particular quality of unusualness that permits them to be described as "special". "

Mrs Morgan said that she was aware prior to the settlement of the compensation claim that a preclusion period would be imposed but was told by her solicitors that the period would expire in the year 2000. If I were to accept as a fact that she was given that advice it would appear that it was erroneously given, having regard to the calculations made by the respondent as an estimate and provided to the applicant's solicitors as found at pages 47 and 54 of the T-documents. Any consequence to Mrs Morgan as a result of that advice – if negligent – should be exercised by her against the solicitors. It is not a circumstance, which may be regarded as being "special" for the purposes of reducing or disregarding the compensation payments for the purposes of calculating the period of preclusion.
Mrs Morgan unfortunately is in need of continuing medical care, often having to travel to Melbourne. These costs and charges however are incurred wholly by the TAC – including the cost of travel.
In all of the circumstances – despite the limited perimeters over which the applicant advanced her case – I am unable to find that there are any special circumstances to permit a reduction in the period of preclusion as permitted by section 1184.
In all of the circumstances the decision under review must be affirmed.
I certify that the 37 preceding paragraphs are a true copy of the reasons for the decision herein of Mr J. Handley, Senior Member.
Signed:         ..C. Irons..............................................
  Secretary
Date/s of Hearing  25 June 2001
Date of Decision  10 August 2001
Counsel for the Applicant        David Morgan
Solicitor for the Applicant
Counsel for the Respondent    Terry Baker
Solicitor for the Respondent