Re Wendy Halliday as the Administrator of the Estate of the Late Ashley Pauling and Secretary of Social Services

Wendy Halliday as the Administrator of the Estate of the Late Ashley Pauling; Secretary, Department of Social Services and (Social services second review) [2018] AATA 3865 (11 October 2018)
Division:GENERAL DIVISION
File Number: 2017/2618
Re:Secretary, Department of Social Services
APPLICANT

Wendy Halliday as theAnd Administrator of the Estate of the Late Ashley Pauling
RESPONDENT

DECISION
Tribunal:Deputy President B J McCabe
Dr L Bygrave, Member
Date:11 October 2018
Place:Sydney

The decision under review is set aside and, in substitution, the Tribunal decides no special circumstances exist within the meaning of section 1184K of the Social Security Act 1991 (Cth) that justify waiving part or all of the preclusion period applied to Ms Ashley Pauling from 6 October 2011 to 15 February 2017.
.............................[SGD]...........................................
Deputy President B J McCabe
CATCHWORDS
SOCIAL SECURITY – disability support pension – lump sum preclusion period – reviewable decision – whether special circumstances exist – death of applicant – administrator of estate – financial hardship – economic loss – decision set aside and substituted
LEGISLATION
Administrative Appeals Tribunal Act 1975 (Cth)
Social Security Act 1991 (Cth)
CASES
Angelakos v Secretary, Department of Employment and Workplace Relations [2007] FCA 25
Brian Lawlor Automotive Pty Ltd and Collector of Customs (NSW) (1978) 1 ALD 167
Chamberlain and Secretary, Department of Family and Community Services [2002] AATA 487
Collector of Customs (NSW) v Brian Lawlor Automotive Pty Ltd (1979) 2 ALD 1
Dranichnikov v Centrelink [2003] FCAFC 133
Secretary, Department of Social Security v Alvaro [1994] FCA 1124
SECONDARY MATERIALS
Guide to Social Security Law
REASONS FOR DECISION
Deputy President B J McCabe
Dr L Bygrave, Member
11 October 2018
INTRODUCTION

Compensation recovery provisions in Part 3.14 of the Social Security Act 1991 (Cth) (the Act) provide that an individual who receives a lump sum compensation payment for personal injury (for example, from an insurer in connection with a medical negligence claim) will be subject to a preclusion period if the settlement amount includes a component in respect of economic loss. The person is not entitled to receive income support payments during the preclusion period because they are expected to rely on the compensation payment instead of receiving assistance from the social security system. If income support payments have already been paid during the preclusion period – which may occur where the person was already in receipt of benefits or became qualified to receive them in the period between the incident giving rise to the compensation and the final settlement – the Secretary may impose a compensation charge that recoups the amount of those payments. The compensation recovery regime ensures that individuals are not able to ‘double dip’ by receiving income support payments through the social security system when they have been compensated for a loss of opportunity to earn income through the settlement.
The Secretary has the discretion in section 1184K of the Act to treat part of a compensation settlement payment as if it had not been made where there are special circumstances. The effect of the exercise of the discretion is to permit a person to access income support payments before the end of the preclusion period. The discretion ensures the Secretary has the ability to make exceptions where the imposition of a preclusion period results in a harsh outcome.
We have to decide whether this matter is such a case. Specifically, we must decide whether there are special circumstances within the meaning of section 1184K of the Act that suggest we should disregard part or all of the lump sum compensation settlement amount paid to the late Ms Ashley Pauling on 11 April 2016. If we are satisfied an amount should be disregarded, the preclusion period will effectively finish early and Ms Pauling’s estate will be entitled to a refund of the compensation charge (or part of it) that was imposed at the time of her lump settlement.
The Administrative Appeals Tribunal (the Tribunal) decided to disregard a portion of the settlement when it conducted the first tier review in the Social Services and Child Support Division (SSCSD). The Secretary has asked us to reconsider that decision. We have reached a different view and set that decision aside for reasons we will explain. However, we must first address a question about jurisdiction in light of submissions made by the Secretary. The question over jurisdiction arises out of the fact Ms Pauling had passed away at the time of the first tier review decision. We therefore begin by explaining the history of the proceedings and make findings about our jurisdiction before explaining the reasons for our substantive decision.
The background to the proceedings and the jurisdiction of the Tribunal
Ms Pauling received a lump sum compensation payment of $535,000 on 11 April 2016. The payment was made in settlement of a professional negligence claim that had been brought in the Supreme Court of New South Wales. The claim included a component in respect of economic loss.
The Department of Human Services (the Department) was informed of the settlement when it occurred. On 5 May 2016, the Department informed Ms Pauling it had calculated a preclusion period from 6 October 2011 to 15 February 2017.
Ms Pauling was in receipt of what are known as compensation affected payments at the time of the lump sum settlement. She had been granted the disability support pension from 19 February 2003 and the pensioner education settlement from 26 August 2013. Those payments were cancelled when the preclusion period was imposed.
The Department required that Ms Pauling repay $99,731.25 that she had been paid in the form of the disability support pension and pensioner education supplement during the preclusion period. The compensation charge was disbursed from the settlement monies by Ms Pauling’s lawyer.
On 20 May 2016, Ms Pauling completed a written form authorising Mr Justin Kelly as her nominee for the period of 18 May 2016 to 18 May 2018.
Mr Kelly sought review of the Department’s decision and, on 22 September 2016, an authorised review officer from the Department affirmed the original decision.
On 25 November 2016, Ms Pauling lodged a review with the SSCSD of the Tribunal and listed Mr Kelly as her representative.
Ms Pauling passed away on 18 December 2016.
On 28 March 2017, the SSCSD set aside the decision of the authorised review officer and, in substitution, decided that the preclusion period be halved on the basis that special circumstances applied to Ms Pauling.
The Department applied for review to the General Division of the Tribunal on 2 May 2017.
Two questions of jurisdiction arise in connection with the second tier review by the General Division of the Tribunal.
The first was dealt with on 12 April 2018 following an interlocutory hearing. The outcome from that hearing was that the administrator of Ms Pauling’s estate, Ms Wendy Halliday, was joined as a party to these proceedings. Ms Halliday subsequently appointed Mr Kelly as her representative and Mr Kelly has continued to participate and assist on that basis. The interlocutory decision overcame an objection that these proceedings were unable to continue in the absence of a competent party.
It remains for us to consider the second question of jurisdiction that was not resolved by the interlocutory decision – namely, whether the SSCSD could hear and decide Ms Pauling’s application given she passed away on 18 December 2016. The Secretary contended that, if the SSCSD decision is not valid, the General Division of the Tribunal does not have jurisdiction to hear the application made by the Department on 2 May 2017.
The parties made their submissions in relation to this question at the outset of the substantive hearing in Sydney on 17 August 2018. Written and oral submissions were provided to the Tribunal by Mr Kelly and Dr Stephen Thompson, the Secretary’s legal representative.
There is no doubt Ms Pauling had the capacity and the right to seek a review before the SSCSD at the time she commenced the proceedings. However, those proceedings should have come to a halt when she passed away. The correct course in those circumstances was for the administrator of Ms Pauling’s estate to apply to be joined as a party pursuant to subsection 30(1A) of the Administrative Appeals Tribunal Act 1975 (Cth) (the AAT Act) on the basis of an interest that was affected by the decision. But that is not what happened. The Tribunal proceeded to make its decision on the strength of submissions made by Mr Kelly without formally involving the administrator. The Secretary says that amounts to a jurisdictional error on the part of the Tribunal, which means the decision is of no legal effect. As a matter of law, we were told, the SSCSD at the first tier of the Tribunal did not make any decision at all. The consequence of having failed to exercise its jurisdiction at the first tier was that the Tribunal’s second review before the General Division could not proceed because there was no reviewable decision made by the SSCSD.
We disagree. Even if the decision made by the Tribunal in the SSCSD was subject to jurisdictional error, it does not inevitably follow there is no reviewable decision before the General Division. We reach that view in light of our understanding of the concept of reviewable decision and the merits review process.
The Tribunal is a creature of statute. It does not have an open-ended power to review any administrative decision that is the subject of a complaint. Section 25 of the AAT Act states the Tribunal only has jurisdiction to review a decision if an enactment designates that decision as a reviewable decision. As it happens, there are now over 450 different enactments that include provisions investing the Tribunal with power to review particular decisions. One of those enactments is the Social Security Administration Act 1991 (Cth) (the Administration Act). Subsection 142(1) of the Administration Act gives the Tribunal jurisdiction to review decisions made by the Secretary or the Chief Executive Officer of Centrelink or an authorised review officer (the ‘first tier review’ before the SSCSD) and subsection 179(1) provides the General Division of the Tribunal jurisdiction to review a decision after it has been reviewed by the SSCSD.
Once the Tribunal is satisfied there is a reviewable decision and it has jurisdiction, it is not ordinarily concerned with what was decided by the original decision-maker or the SSCSD. The Tribunal conducts a fresh review on the merits, which means it generally reconsiders all of the evidence – which in most cases will include evidence that has become available since the date of the original decision – and takes submissions from the parties with a view to reaching the correct or preferable decision on the material before the Tribunal. There are some reviewable decisions which require a different approach. For example, in some cases, the decision must be made having regard only to evidence that was available at a fixed point in time. But those exceptions do not apply in this case.
A proper understanding of the Tribunal’s role in the decision-making process shows why it does not matter if the original decision (or the SSCSD decision) was wrong, or if it was affected by legal error, provided there was a reviewable decision within the meaning of the AAT Act. The Tribunal is often said to ‘step into the shoes of the original decision-maker’ upon review. In the course of the review process, it exercises all of the original decision-maker’s powers and is subject to the same legal constraints. When the Tribunal makes its decision, the decision takes effect as the decision of the original decision-maker: subsection 43(6) of the AAT Act.
The effect of the framework of Australian administrative law is to incorporate the Tribunal’s review process into each agency’s decision-making, at least in relation to those decisions which are declared to be reviewable decisions of that agency. Even if the original decision-maker (or an intermediate decision-maker where there are several steps in the process) has run into trouble, the Tribunal provides a convenient and effective mechanism for the decision-making to be corrected and (at least in a legal sense) perfected before the extended decision-making process is finalised: see, for example, Secretary, Department of Social Security v Alvaro [1994] FCA 1124 at [16]-[17] per von Doussa J.
Courts and Tribunals have consistently given a wide interpretation to the expression reviewable decision. The leading authorities are Brian Lawlor Automotive Pty Ltd and Collector of Customs (NSW) (1978) 1 ALD 167 per Brennan J and (on appeal to the Full Court) Collector of Customs (NSW) v Brian Lawlor Automotive Pty Ltd (1979) 2 ALD 1. In the Tribunal proceedings in Brian Lawlor, Brennan J concluded there would be a reviewable decision within the Tribunal’s jurisdiction if the decision-maker went through a decision-making process with the intention of exercising the relevant power. His Honour looked to the fact of a decision as a consequence of a decision-making process, as opposed to evaluating the quality or efficacy of that decision: at [180]. The Full Court essentially agreed with this approach, although Bowen CJ (with whom Smithers J agreed) cautioned against looking into the intentions of the decision-maker. Bowen CJ said it was enough if there was in fact a decision made in purported exercise of the power in the relevant enactment: at [16]-[17].
There is a danger of over-thinking some of the jurisprudence on jurisdictional error. The provisions of the AAT Act (read in light of the decisions in Brian Lawlor) point the way to dealing with defective decisions by original decision-makers. The fact the Tribunal is independent of the agencies whose decisions it reviews does not change the fact the Tribunal remains part of the executive. The Tribunal’s decision-making processes are incorporated by operation of law into the executive decision-making process that it reviews. If there is a problem – even a fundamental problem – encountered during the course of the original decision-making process, the Tribunal can set things to right.
The Tribunal has several options once it is satisfied it has jurisdiction to entertain the review. The most obvious choice is to complete its review and reach a decision under section 43 of the AAT Act. Section 43 includes the power to set aside and remit the decision to the original decision-maker for further consideration. In most cases, the Tribunal may at any point decide to remit the reviewable decision to the original decision-maker pursuant to section 42D of the AAT Act. This power is particularly useful where it would be more convenient for the original decision-maker to revisit the decision, or particular questions arise in the course of the decision-making process. The power is particularly useful where questions of fact require further investigation before those matters are ripe for the Tribunal’s more elaborate formal review.
We are satisfied the decision-maker at the first tier review purported to exercise its powers to make its decision. Even if there is a question over the legal effect of that decision, we are satisfied there is a reviewable decision before us. We are also satisfied there is no advantage in remitting the decision to the original decision-maker for reconsideration.
We now proceed to determine the substantive issues, which are whether:
(a)a preclusion period applies to Ms Pauling; and
(b)any special circumstances exist under which part or all of the preclusion period can be waived.
Does a preclusion period apply in the ordinary course – and if so, for how long?
Section 1169 of the Act requires that a preclusion period applies when a person receives a lump sum compensation payment. Compensation is defined in subsubsections 17(2) and 17(3) of the Act. Relevantly, subsection 17(2) defines compensation as:
(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. [emphasis added]
A letter from HWL Ebsworth dated 11 April 2015 stated Ms Pauling received settlement for an injury suffered between 7 April 2011 and 6 October 2011 in the amount of $535,000, which included a ‘claim for economic loss’.[1] This was verified in a Consent Judgment finalised on 7 April 2016.
[1] Exhibit 1, T5 p 43.
The Amended Statement of Particulars in Ms Pauling’s Statement of Claim noted under the heading ‘Particulars of Past and Future Loss of Earnings’ that she claimed ‘past loss of earnings’, ‘past loss of compulsory superannuation contributions’, ‘damages for her future loss of earning capacity as a nurse until a retirement age of 67’ and ‘damages for the loss of future superannuation entitlements’.[2]
[2] Exhibit 1, ST4.
Based on that evidence, we are satisfied the lump sum settlement of $535,000 made to Ms Pauling included a component for economic loss resulting from injury and is therefore compensation as defined in subsection 17(2) of the Act. It follows Ms Pauling was subject to a preclusion period should apply to Ms Pauling.
The length of the lump sum preclusion period is calculated in accordance with section 1170 of the Act, which identifies the start date and end date of the preclusion period. The start date of Ms Pauling’s preclusion period is 6 October 2011, which was the date of her injury. The length of the total preclusion period, and therefore the end date for a preclusion period, is derived according to subsections 1170(4) and (5), which provide:
(4) The number of weeks in the lump sum preclusion period in relation to a person is the number worked out using the formula:
compensation part of lump sum
___________________________
income cut-out amount
(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.
Paragraph 17(3)(a) of the Act defines the ‘compensation part of a lump sum compensation payment’ as ‘50% of the payment’. This 50% rule is applied to the gross lump sum.[3] As the lump sum payment was $535,000, we accept the compensation part of the lump sum compensation payment was $267,500 (50% of $535,000).
[3] Guide to Social Security Law, section 4.13.2.30.
In accordance with the formula set out in subsection 1170(4) of the Act, Ms Pauling’s preclusion period is calculated as $267,500/$954.90 ($954.90 was the income cut-out amount when she received her settlement payment). This equates to 280 weeks preclusion period when rounded down as required by subsection 1170(5).
We are satisfied that a preclusion period of 280 weeks applied to Ms Pauling. This period commenced on 6 October 2011 and ended on 15 February 2017.
Are there any special circumstances that exist under which part or all of the preclusion period can be waived?
Section 1184K of the Act provides:
(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).

The term special circumstances is not defined in the legislation; however, the Federal Court and the Tribunal have considered the issue of special circumstances on many occasions. In every case, the individual circumstances of the case were examined to determine whether the circumstances were such that it would be unjust, unreasonable or inappropriate for the debt to be recovered. Reduced to its simplest, the decision-maker is required to consider whether there are circumstances in the particular case that suggest an exception should be made and the usual rule should not apply: see, for example, Dranichnikov v Centrelink [2003] FCAFC 133 at [65]-[66]; see also Angelakos v Secretary, Department of Employment and Workplace Relations [2007] FCA 25 at [33].
We make two further observations in discussing the nature of the special circumstances that must be evident before the power in section 1184K may be exercised.
First, financial hardship on its own is not sufficient to make a finding of special circumstances. Almost every recipient of social security benefits is likely to experience some level of financial hardship; there is nothing unusual about that in isolation from other factors.
Second, the fact the economic loss component of the compensation settlement was, in reality, a small amount of the settlement sum (and certainly smaller than the statutory presumption of 50%) is not ordinarily a basis for claiming special circumstances. The whole point of the deeming provision is that it removes the need to consider that issue: see Chamberlain and Secretary, Department of Family and Community Services [2002] AATA 487 at [20]. While the deeming provision is arbitrary, this affects almost every recipient of a lump sum compensation settlement.
Dr Thompson and Mr Kelly provided submissions to the Tribunal regarding the temporal interpretation of special circumstances; and in particular, whether the Tribunal should consider the circumstances of Ms Pauling at various dates prior to her passing on 18 December 2016 and/or the current circumstances involving the estate of the late Ms Pauling. We interpret the wording in section 1184K of the Act, which refers to the “special circumstances of the case” [emphasis added], to direct that we are required to consider all aspects of the matter irrespective of time.
Written submissions by Mr Kelly dated 8 August 2018 stated Ms Pauling’s circumstances were special for the following summarized reasons:
·The component for economic loss only comprised a small amount of Ms Pauling’s settlement sum.
·Ms Pauling’s receipt of the disability support pension was not attributable to the injuries for which she was paid the settlement sum.
·Ms Pauling’s compensation for economic loss was trivial.
·Ms Pauling was unlikely to gain paid employment or complete her university qualification because of her medical conditions.
These submissions misunderstand the nature of the compensation payment which triggered the preclusion period. The settlement amount was at least partly in respect of economic loss as a consequence of the injuries Ms Pauling sustained; it was not solely intended as compensation for pain and suffering or loss of amenity. While the economic loss component may have been small relative to the total amount, the statute requires that 50% of the total be used for the purposes of calculating the length of the preclusion period. All the grounds identified in Mr Kelly’s submissions are ultimately a complaint about the operation of the deeming provision. For reasons we have already explained in paragraph 42 above, we are not satisfied that fact on its own amounts to special circumstances that justify the exercise of the discretion.
Mr Kelly explained to the Tribunal that Ms Pauling had deposited the amount of her settlement sum, minus legal fees of $125,000, in her bank account. Mr Kelly noted that most of the settlement monies remained in Ms Pauling’s estate because Ms Pauling only withdrew amounts for her living expenses and minor purchases in the period from her receipt of the settlement sum in April 2016 until she passed away in December 2016. Both Mr Kelly and Dr Thompson told the Tribunal that the SSCSD decision was subject to a stay order so a decision by the General Division to set aside the SSCSD decision would not require the estate of Ms Pauling to pay any money to the Department.
Mr Kelly also explained the circumstances of Ms Halliday, the administrator of the estate of Ms Pauling. He noted that Ms Pauling was the daughter of Ms Halliday and Ms Halliday has experienced significant distress with her daughter passing away at the age of 31 years.
We acknowledge Ms Halliday’s circumstances are awful and distressing. However the legislation requires that we are satisfied there are special circumstances in the sense we have already discussed. It is not clear how the imposition of the usual rule produces an outcome that is harsh, unfair or unusual in the present case. There was no evidence to suggest that refunding even a proportion of the compensation charge is going to be a salve for Ms Halliday’s grief, or that refusing to refund the charge will somehow pile insult upon injury and thereby increase Ms Halliday’s distress. We are not satisfied there is evidence of special circumstances which suggest an exception should be made to the usual rule.
DECISION
The decision under review is set aside and, in substitution, the Tribunal decides no special circumstances exist within the meaning of section 1184K of the Social Security Act 1991 (Cth) that justify waiving part or all of the preclusion period applied to Ms Ashley Pauling from 6 October 2011 to 15 February 2017.

I certify that the preceding 49 (forty - nine) paragraphs are a true copy of the reasons for the decision herein of Deputy President B J McCabe, Dr L Bygrave, Member

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Associate
Dated: 11 October 2018

Date(s) of hearing: 17 September 2018

Solicitors for the Applicant: Dr S Thompson - Department of Human Services

Advocate for the Respondent: Mr J Kelly

[2018] AATA 3865

11 October 2018

Key Legal Topics

Areas of Law

Administrative Law

Statutory Interpretation

Legal Concepts

Judicial Review

Jurisdiction

Procedural Fairness

Standing

Statutory Construction

Remedies

Date(s) of hearing:	17 September 2018
Solicitors for the Applicant:	Dr S Thompson - Department of Human Services
Advocate for the Respondent:	Mr J Kelly