Re Vecchio and Secretary, Department of Education, Employment and Workplace Relations
[2008] AATA 97
•6 February 2008
Administrative Appeals Tribunal
DECISION AND REASONS FOR DECISION [2008] AATA 97
ADMINISTRATIVE APPEALS TRIBUNAL )
) No Q2007/32
GENERAL ADMINISTRATIVE DIVISION ) Re DENISE VECCHIO Applicant
And
SECRETARY, DEPARTMENT OF EMPLOYMENT AND WORKPLACE RELATIONS
Respondent
DECISION
Tribunal Mr SC Fisher, Member Date6 February 2008
PlaceBrisbane
Decision The Tribunal affirms the decision under review. .................[Sgd]......................
DISTRICT REGISTRAR
CATCHWORDS
Social Security - Pensions, Benefits and Allowances - calculation of lump sum compensation payment pursuant to section 17(3) of the Social Security Act- preclusion period and compensation recovery charge - decision affirmed
Social Security (Administration) Act 1999
Social Security Act 1991 ss17(1),(2),(2A),(3),(4); 1169(1),(2); 1170(1),(2),(3),(4),(5); 1171(1),(2).
Secretary, Department of Social Security v Banks (1990) 23 FCR 416
Secretary, Department Of Social Security v Hulls (1991) 22 ALD 570; 13 AAR 414; 60 SSR 834
Kertland v SDFaCS (1999) 95 FCR 64; 57 ALD 600 at 602; 30 AAR 411
Harmony and Montague Tin & Copper Mining Company (1873) 8 L.R. Ch. App. 407
East Finchley Pty Limited v Federal Commissioner of Taxation (1989) 20 ATR 1623
REASONS FOR DECISION
6 February 2008 Mr SC Fisher, Member Introduction and Background
1. Ms Denise Vecchio (the Applicant) suffered a workplace injury in 2004. The Applicant received periodic payments workers compensation until 22 February 2005. From 23 February 2005, Centrelink (acting on behalf of the Secretary, Department of Employment and Workplace Relations) (the Respondent) paid the Applicant a disability support pension.
2. The Applicant's common law claim for damages against her employer was settled on the basis of the payment to her of the sum of $120,000. It was a term of the settlement that WorkCover Queensland was not entitled to a refund of the statutory workers compensation payments of $58,701.64(which included an amount of $37,624.00 for periodic compensation payments).
3. Centrelink calculated a lump-sum preclusion period by reference to a sum of $141,077.64. This was calculated by adding the WorkCover Queensland refund of 58,701.64 to the settlement sum of $120,000 and then deducting periodic compensation payments of $37,624.00 under section 17(4) of the Social Security Act 1991.
4. The Applicant disagreed with the practice of the Respondent to the use the higher figure of $141,077.64 instead of the lower figure of $120,000 in calculating the lump-sum preclusion period of 23 February 2005 to 30 January 2007.
5. The Applicant sought internal review within Centrelink from the decision of the original decision maker, and when this was unsuccessful, the Applicant appealed to the Social Security Appeals Tribunal on 1 November 2006.
6. The Applicant disagreed with the decision of the Social Security Appeals Tribunal made 22 December 2006 and appealed to this Tribunal on 15 January 2007.
Jurisdiction
7. In a procedural sense, the Tribunal has jurisdiction in this appeal by virtue of Part 4, Division 5 of the Social Security (Administration) Act 1999 (the Administration Act). In a substantive sense, the merits of this appeal are governed by the Social Security Act 1991 (the Act).
Evidence
8. Neither party called any evidence. Both parties did provide written submissions to assist the Tribunal.
Issues
9. The sole issue in this appeal is whether the preclusion period and compensation recovery charge have been correctly calculated.
The Legislation
10. The following provisions of the Act were relevant to the resolution of the issues presented by this appeal:
“17(1) In this Act, unless the contrary intention appears:
compensation has the meaning given by subsection (2).
Note: See also section 1163B.
compensation affected payment means:
(aa) an age pension; or
(a) a disability support pension; or
(b) a parenting payment; or
(c) a social security benefit; or
(e) a disability support wife pension; or
(f) a carer payment; or
(g) a special needs disability support pension; or
(h) a special needs disability support wife pension; or
(i) mature age allowance; or
(j) mature age partner allowance; or
(k) a former payment type; or
(l) any of the following:
(i) an advance pharmaceutical allowance;
(ii)a telephone allowance, other than a telephone allowance payable to the holder of a senior’s health card;
(iii) an employment entry payment;
(iv) an education entry payment;
(v) a pensioner education supplement;
where, in order to be qualified for the allowance, payment or supplement, a person must be receiving, or receiving at a particular time, another kind of payment and that other kind of payment (the underlying compensation affected payment) is a compensation affected payment to which any of paragraphs (aa) to (k) applies; or
(m) a fares allowance, where:
(i)if subparagraph 1061ZAAA(1)(b)(i), (ii) or (iii) applies—the allowance or payment (the underlying compensation affected payment) mentioned in that subparagraph is a compensation affected payment to which any of paragraphs (aa) to (k) of this definition applies; or
(ii)if subparagraph 1061ZAAA(1)(b)(iv) applies—in order to be qualified for the supplement mentioned in that subparagraph, a person must be receiving another kind of payment and that other kind of payment (the underlying compensation affected payment) is a compensation affected payment to which any of paragraphs (aa) to (k) of this definition applies; or
(n)a CDEP Scheme Participant Supplement, where the pension, payment or allowance (the underlying compensation affected payment) mentioned in paragraph 1188D(2)(a) is a compensation affected payment to which any of paragraphs (aa) to (k) of this definition applies.
17(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.
17(2A) Paragraph (2)(d) does not apply to a compensation payment if:
(a)the recipient has made contributions (for example, by way of insurance premiums) towards the payment; and
(b) either:
(i)the agreement under which the contributions are made does not provide for the amounts that would otherwise be payable under the agreement being reduced or not payable because the recipient is eligible for or receives payments under this Act that are compensation affected payments; or
(ii)the agreement does so provide but the compensation payment has been calculated without reference to the provision.
17(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.
1169 Compensation affected payment not payable during lump sum preclusion period
1169(1) If:
(a) a person receives or claims a compensation affected payment; and
(b) 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.
1169(2) In this section:
lump sum compensation payment does not include a lump sum payment:
(a) to which section 1164 applies; or
(b) that relates only to arrears of periodic compensation payments.
1170 Lump sum preclusion period
1170 (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).
1170(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).
1170 (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).
1170 (4)The number of weeks in the lump sum preclusion period in relation to a person is the number worked out using the formula:
1170(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.
1171 Deemed lump sum payment arising from separate payments
1171(1) If:
(a)a person receives 2 or more lump sum payments in relation to the same event that gave rise to an entitlement of the person to compensation (the multiple payments); and
(b)at least one of the multiple payments is made wholly or partly in respect of lost earnings or lost capacity to earn;
the following paragraphs have effect for the purposes of this Act and the Administration Act:
(c)the person is taken to have received one lump sum compensation payment (the single payment) of an amount equal to the sum of the multiple payments;
(d) the single payment is taken to have been received by the person:
(i)on the day on which he or she received the last of the multiple payments; or
(ii)if the multiple payments were all received on the same day, on that day.
1171(2) A payment is not a lump sum payment for the purposes of paragraph (1)(a) if it relates exclusively to arrears of periodic compensation.”
11. Section 1169 bars access by a potential Social Security recipient to certain forms of income support payments under the Act where a person has received a lump sum payment for compensation for injury. The scope of the payments so affected are defined as "compensation affected payments" in section 17(1), and one of the stipulated forms of income support is disability support pension, paid by the Responded to the Applicant in this case. Section 17(4) excludes periodic compensation payments from the lump sum compensation payment formula.
Tribunal’s Reasons
12. In this case, the parties were divided as to whether the Respondent was correct to add back the WorkCover Queensland refund.
13. There was no dispute about the facts or the underlying evidence between the parties.
14. This difference between the parties concerning the meaning and operation of the phrase “lump sum compensation payment” is central to this appeal. This phrase is not defined in the Act but it has been judicially considered in two decisions of the Federal Court namely, Secretary, Department of Social Security v Banks (1990) 23 FCR 416 and Secretary, Department Of Social Security v Hulls (1991) 22 ALD 570; 13 AAR 414; 60 SSR 834. In the second case, O’Loughlin J said (22 ALD 570 at 578):
“29. The history of this legislation and, in particular, the reasons for using an arbitrary formula of 50% were traced in detail by von Doussa J. in Secretary to the Department of Social Security v Banks (1990) 23 FCR 416. His Honour referred to the Minister's second reading speech when the "50% rule" was introduced into the legislation. The relevant passage from that speech is (p 422):-
"Settlements of lump sum compensation particularly in the workers compensation jurisdiction are being manipulated to obscure the economic loss component and to avoid recovery of social security payments. To prevent this abuse the Minister announced on 8 February 1988 that, for future personal injury settlements made by agreement or by consent order, 50 per cent of lump sum compensation will be deemed to be in respect of economic loss. This Bill gives effect to that proposal." (Hansard, 13 April 1988, p 1497)
30. Once the mischief at which the amending legislation was aimed has been so clearly identified, it becomes apparent that the legislation prevents any dissection of "the lump sum". Although those words are not defined, I respectfully agree with what von Doussa J. said of them in Banks' case:-
"They are not words of art. In the Macquarie Dictionary a 'lump sum' is defined as a sum 'including a number of items taken together or in the lump'. In my opinion the words bear that meaning in the section."
15. In Kertland v SDFaCS (1999) 95 FCR 64; 57 ALD 600 at 602; 30 AAR 411; 4(1) SSR 11, Merkel J of the Federal Court explained the rationale of the 50% rule in these terms:
“The adjustment of 50% was arbitrarily prescribed by Parliament to prevent parties adjusting their settlement calculations to understate the amount of the settlement sum attributable to loss of earning capacity and thereby minimising the loss of a claimant’s social security benefits: see Secretary, Department of Social Security v Banks (1990) 23 FCR 416 at 420-422 and Secretary, Department of Social Security v Smith (1991) 30 FCR 56 at 61-62.”
16. Mr McGhie (for the Applicant) submitted that there was no legislative basis for the practice of Centrelink adding back onto the lump sum the WorkCover Queensland refund of $58,701.64. This submission is technically correct, but it misses the point, having regard to the decisions of the Federal Court in Secretary, Department of Social Security v Banks (1990) 23 FCR 416 and Secretary, Department Of Social Security v Hulls (1991) 22 ALD 570; 13 AAR 414; 60 SSR 834 concerning the meaning and operation of the “lump sum” element as part of the composite “lump sum compensation payment”. In both cases, the Federal Court proceeded to gross up all payments received that stemmed from the “settlement of a claim that is, in whole or in part, related to a disease, injury or condition” within a precursor to section 17(3) of the Act (in those cases, section 152(2)(c) of the Social Security Act 1947, which is materially identical to section 17(3) of the Act). In those cases, the Federal Court reasoned that it was immaterial that a component of a lump sum may have been notionally earmarked as a particular heads of damages or form of consequential loss, so long as it was attributable to settlement of a claim that is, in whole or in part, related to a disease, injury or condition”. This reasoning binds this Tribunal and in any event, this Tribunal is not inclined to rule otherwise. “Lump sum” means all of the items of sum that are taken together to form in aggregate a larger sum, providing those items can be traced back to a disease, injury or condition.
17. To recapitulate, the disputed item in this case is the “add back” onto the lump sum of $120,000 the WorkCover Queensland refund of $58,701.64. It is important to recall, however, that not every lump sum that a person receives constitutes a lump sum compensation payment. For that to be so, it must come within the meaning of one of paragraphs (a) to (d) of the definition of compensation in sub-section 17(2) of the Act” (Broad and Secretary, Department of Family and Community Services [2003] AATA 1017 at [20]). In this case, the WorkCover Queensland refund of $58,701.64 was foregone by WorkCover Queensland on its own account on behalf of its insured employer under clause 3.2 of the Deed of Release and Discharge dated 28 June 2006. The character of this WorkCover Queensland refund is that they are "statutory benefits" under clause 3.2 of the Deed of Release and Discharge. These payments comprise "a payment under a scheme of insurance of compensation under a... State... law" within section 17(2)(b) of the Act. Consequently, the WorkCover Queensland refund of $58,701.64 falls under the statutory rubric of "compensation", and so is subject to the restrictions under sections 1169 and 1170.
18. The Applicant argued that the decision by WorkCover Queensland not to seek a specific refund of $58,701.64 meant that the Applicant had not received a payment within section 17(3)(a) of the Act. In opposition to this contention, Dr Spry for the Respondent argued that "payment" in section 17(3)(a) included a release. The Respondent referred to clause 3.2 of the Deed of Release and Discharge (which read "WorkCover acknowledges that it is not entitled to a refund of statutory benefits paid under claim number [not reproduced] totalling $58,701.64"). The Respondent invoked the principle in Spargo’s Case (1873) 8 LR Ch App 407 (In re Harmony and Montague Tin & Copper Mining Company ("Spargo's Case") (1873) 8 L.R. Ch. App. 407).
19. The principle in Spargo’s Case which the Respondent invoked was the statement at 414 where Lord Justice Mellish said:
"Indeed, it is a general rule of law, that in every case where a transaction resolves itself into paying money by A. to B., and then handing it back again by B. to A., if the parties meet together and agree to set one demand against the other, they need not go through the form and ceremony of handing the money backwards and forwards."
20. Using the springboard of the principle in Spargo’s Case, the Respondent said that it was not necessary for the Applicant to have physically paid over $58,701.64 to WorkCover Queensland, and then for WorkCover Queensland to refund the same amount in order to achieve the object of clause 3.2 of the Deed of Release and Discharge. The Respondent argued that "payment" included a release such as that documented in clause 3.2 of the Deed of Release and Discharge.
21. Ordinarily, the term "payment" denotes the transfer of money or the performance of some other act which discharges a monetary obligation: RM Goode, Payment Obligations in Commercial and Financial Transactions (Sweet & Maxwell, London, 1983). For the principle in Spargo’s Case to apply, there must be two concurrent present obligations: The Taxpayer and the Commissioner of Taxation [1997] AATA 91. This principle has not been applied in the Social Security context according to the research of the Tribunal. It has been, however, applied in a taxation context: see Whim Creek Consolidated NL v Federal Commissioner of Taxation[1977] FCA 19; (1977) 31 FLR 146; Federal Commissioner of Taxation v SteevesAgnew & Co. (Vict.) Pty. Ltd (1951) 82 CLR 408, 420 and Curran v Federal Commissioner of Taxation.
22. The principle in Spargo’s Case has been held to be applicable beyond the taxation and corporate law contexts. In East Finchley Pty Limited v Federal Commissioner of Taxation (1989) 20 ATR 1623, Hill J stated (at 1635) that the rule in Spargo’s case is not a principle confined merely to the company law context but that at its heart is the undeniable futility of two parties, each obligated to the other, passing cheques backwards and forwards to accomplish a transaction (see Jarrett & Ors v Perpetual Trustee Co Limited [2007] NSWSC 1231at [164] per Hall J). The Tribunal considers that the principle in Spargo’s Case rests upon a concept of commercial convenience.
23. The Applicant disputed that Spargo’s Case applied to section 17(3) of the Act.
24. The Tribunal is satisfied that the principle in Spargo’s Case applies to section 17(3) of the Act. First, it is a general principle applicable to concurrent liabilities. Secondly, nothing in section 17(3) gives the term "payment" a narrow connotation embracing only the denotations of physical payments and excluding set off. Thirdly, the legislative intent behind the prevention of double dipping in the context of the operation of lump-sum preclusion periods would be subverted if the form of payment prevails over the substance of payment. Fourthly, the principle in Spargo’s Case is consistent with what von Doussa J said in Department of Social Security v Banks (1990) 20 ALD 19 at 25 :
"The expression 'the lump sum payment...made...in settlement of a claim' is apt to describe the total amount which is payable as the monetary consideration passing from the party on whose behalf the payment is to be made to the recipient in exchange for a release from the claim."
25. The total amount payable is the consideration for the settlement of the Applicant’s claim for liability on the part of WorkCover Queensland (being subjugated to the position of her employer) to pay compensation which includes not only the settlement sum of $120,000 but also the concurrent release of her statutory liability to refund WorkCover Queensland statutory benefits.
26. In this case, with the exception of the proper treatment of the WorkCover Queensland refund of $58,701.64, there was no dispute between the parties about the calculation of the lump sum preclusion period. This meant that it would not be necessary to remit the case to the Respondent for recalculation of the lump sum preclusion period if the Applicant is unsuccessful.
Tribunal’s Conclusion
27. Based upon the material before it, and for these Reasons, the Tribunal concludes that the compensation part of a lump sum compensation payment includes any payment by way of a third party relinquishing any statutory or common law right of reimbursement or refund of benefits paid to a Social Security recipient under a scheme of insurance or compensation under a State law.
Tribunal’s Order
28. The Tribunal decides to affirm the decision under review.
I certify that the 28 preceding paragraphs are a true copy of the reasons for the decision herein of Member SC Fisher.
Signed:
[Sgd] Research AssociateDates of Hearing 30 April 2007
Last Submissions 4 June 2007
Date of Decision 6 February 2008
Counsel for the Applicant Mr S McGhie
Solicitor for the Applicant Richardson McGhie
Counsel for the Respondent Dr M Spry
Solicitor for the Respondent Minter Ellison
3
7
0