Sammut and Department of Family and Community Services
[2000] AATA 618
•28 July 2000
DECISION AND REASONS FOR DECISION [2000] AATA 618
ADMINISTRATIVE APPEALS TRIBUNAL )
) No N2000/40
GENERAL ADMINISTRATIVE DIVISION )
Re ANNETTE SAMMUT
Applicant
And SECRETARY, DEPARTMENT OF FAMILY AND COMMUNITY SERVICES
Respondent
DECISION
Tribunal Mr M D Allen, Member
Date28 July 2000
PlaceSydney
Decision 1. The decision under review is set aside. 2. This matter is remitted to the Respondent with the direction that a calculation is to be made so as to treat so much of the Applicant's lump sum compensation as not having been made that results in an effective decision pursuant to subsection 1184(1) of the Social Security Act 1991 requiring the Applicant to pay to the Respondent the sum of $1,300.00 only for the purposes of section 17 of the Social Security Act 1991. 3. Liberty to apply. (3)
(Sgd) M D ALLEN
..............................................
Senior Member
CATCHWORDS
SOCIAL SECURITY – Lump sum settlement for damages claimed following motor vehicle accident. At that time and subsequent Applicant receiving Social Security benefits for unrelated illness. Applicant under misapprehension settlement sum included no amount for economic loss. Whether special circumstances existed.
Social Security Act 1991 - s17 and s1184
Secretary, Department of Social Security v a'Beckett 12 AAR 212
Secretary, Department of Social Security v Banks 12 AAR 38
Secretary of the Department of Family and Community Services v Sammut [1999] FCA 1735
Secretary, Department of Family and Community Services v Annette Sammut [1999] FCA 1298
Re Stern and Secretary, Department of Family and Community Services [1999] AATA 54
REASONS FOR DECISION
28 July 2000 Mr M D Allen, Member
This matter came on for hearing before me at Sydney on 11 July 2000. The matter was originally heard by Dr J D Campbell, Member, who delivered a decision favourable to the Applicant on 16 June 1999. On 15 December 1999 an appeal by the present Respondent to the Federal Court was successful and the matter remitted to the Tribunal for re-hearing.
At the hearing before me the following documents were taken in as exhibits and marked as follows, namely:
T1 – T54: The documents prepared for the Tribunal pursuant to section 37 of the Administrative Appeals Tribunal Act 1975
Exhibit A1: The Applicant's Statement of Facts and Contentions plus attachments
ExhibitA2: Transcript of matter N1998/742 of 27 January 1999
Exhibit R1: Respondent's statement of Facts & Contentions.
In addition the Applicant gave oral evidence to the Tribunal. Because of her medical disabilities, that evidence was given per medium of the telephone.
Events relevant to this matter commenced on 23 November 1993 when the Applicant was involved in a motor vehicle accident. At that time the Applicant was unemployed and receiving a sickness benefit from the Department of Social Security. As part of her rehabilitation the Applicant was working one day a month in a low stress environment and her sickness benefit amount was adjusted accordingly.
Following the motor vehicle accident the Applicant engaged a solicitor, a Ms Wilson, a sole practitioner practising under the name of Andrea Wilson & Associates, to act on her behalf.
Proceedings were issued out of the District Court at Sydney claiming damages for personal injury by Ms Wilson, acting for the Applicant. The statement of claim included, as part of the particulars of loss and damage, a claim for loss of earnings and loss of earning capacity - particulars to be provided.
Messrs Moray and Agnew, Solicitors, entered a defence to the said action on behalf of the Defendant's Third Party Insurer, FAI Insurance Company Limited (FAI). On 14 August 1997 a Deed of Settlement was entered into, signed by the solicitors for the respective parties, settling the Applicant's claim in the lump sum of $56,500.00 inclusive of costs.
The actual settlement sum followed negotiations between the solicitors. The original sum offered by the Defendant's solicitors was rejected by the Applicant as she was aware of the existence of a preclusion period and needed to obtain the sum of $45,000.00 at least clear.
Document T7 is a copy of a form entitled "Estimate of Social Security Charge/Preclusion" completed by the Applicant's solicitor on 28 July 1997 and faxed to the Respondent. The solicitor has written on that form: "Does not comprise any economic loss component." On the basis of that statement the Respondent calculated the preclusion period as nil. The date of the calculation is stated to be 5 August 1997.
On 14 August 1997 the solicitors signed the Deed of Settlement settling the Applicant's claim in the sum of $56,500.00. Subsection 17(1) of the Social Security Act 1991 defines "compensation affected payment" as meaning:
"…
(c)a social security benefit; …"
Whereas subsection 17(2) reads inter alia:
"For the purposes of this Act, compensation means:
(a)a payment of damages; or
(b)…
(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)made wholly or partly in respect of lost earnings or lost capacity to earn; and
(f)made either within or outside Australia."
Subsection 17(3) then goes on to provide:
"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, on or after 9 February 1988; 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, on or after 9 February 1988; 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."
Subsection 1166(1) provides that:
"If:
(a)a person receives a lump sum compensation payment; and
(b)the person receives payments of a compensation affected payment for the lump sum preclusion period:
the Secretary may, by written notice to the person, determine that the person is liable to pay to the Commonwealth the amount specified in the notice."
Subsection 1184(1) then provides:
"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."
Document T9 is an internal document of the Respondent's department. It reads inter alia:
"Client's solicitor advised no economic loss however a check with the FAI, who verified in writing as confirmed by their solicitors there was an economic loss, therefore have calculated charge on the basis that an economic loss is a component of the settlement. …"
That document also refers to a preclusion period of 70 weeks leading to a recoverable sum in the amount of $7,965.83. The verification in writing referred to in Document T9 has never been produced by the Respondent. A letter from FAI to the Respondent dated 27 June 2000 (see Exhibit R1 at Attachment B) reads:
"We confirm that it was our understanding that past economic loss was a component of this claim, however it was never an issue, because the mode of settlement was terms and not verdict.
We confirm that we have no correspondence on file relating to a breakup sent to yourselves or the claimant's solicitors."
The evidence is that there were correspondence and telephone calls between the Applicant's solicitor and the solicitors for the insurer, the Applicant's solicitor insisting that there was no economic loss component in the settlement and the insurer's solicitors insisting that "standard" Terms of Settlement had been forwarded by them and that they had advised their client an economic loss component of $1,300.00 was included in the settlement sum.
At no stage have the solicitors for FAI attempted to explain how the sum of $1,300.00 for past economic loss was calculated. At Document T36 they do state in correspondence addressed to the Manager, Centrelink and dated 10 November 1998:
"We confirm that within the settlement figure, $1,300.00 was allowed for past economic loss component. Please note there was no allowance for future economic loss."
Notwithstanding the lack of precision in its calculation, FAI and its solicitors have continued to maintain that a component for economic loss was included in the settlement sum. All that is certain is that in the Applicant's statement of claim, economic loss was stated to be a head of damage.
I accept the Applicant's evidence that had she been aware of the claim for $7,965.83 repayment of Social Security benefits, she would not have settled the matter for the sum of $56,500.00. At the time she settled the matter she was under severe financial strain.
I also accept that the Applicant's solicitor attempted to obtain agreement from the insurer's solicitors that economic loss was not a component of the settlement. They rejected this approach and apparently advised their client that there was an element of economic loss in the settlement sum. The insurers in turn advised the Respondent of this.
Neither of the solicitors concerned in the Applicant's damages case were called. The Applicant's solicitor, Ms Wilson, represented the Applicant before the Social Security Appeals Tribunal and is reported as having stated (T32 p90):
"… it was understood by all of the parties that the lump sum settlement would not include a component for economic loss. ... It was not until the final document was received that Ms Wilson or Ms Sammut were aware that economic loss was not explicitly excluded. The terms of settlement did not specifically refer to economic loss, and (she) Ms Wilson was assured by a solicitor for Moray and Agnew that the lack of reference to it was sufficient to imply that it was not included as part of the settlement. She was not entirely confident in this advice, but hadn't got anywhere with her requests to have it made explicit, in the terms of settlement, that economic loss wasn't included. She spoke to Ms Sammut who, due to her financial situation, decided to accept the terms of the agreement as they stood."
Ms Wilson also added that during negotiations to have economic loss explicitly excluded from the Terms of Settlement, she returned the insurance company's cheque on two occasions but the Applicant finally accepted it just before Christmas.
I also refer to Document T7 prepared by the Applicant's solicitor and forwarded by her to the then Department of Social Security. That document clearly states: "Does not comprise any economic loss component."
I have no reason to doubt that Ms Wilson is a reputable solicitor and, as an officer of the New South Wales Supreme Court, gave an accurate and truthful account to the Social Security Appeals Tribunal and did not forward to the then Department of Social Security a document she knew to be false. I therefore find as a fact that at the time the Terms of Settlement were signed, the Applicant's solicitor believed economic loss was not a component of the settlement sum. Why the insurers' solicitors resiled from their initial approach of no economic loss component is not explained.
Clause 2 of the Terms of Settlement (T8) read:
"FAI is authorized to deduct and/or pay from the said sum any monies repayable by the Plaintiff to any person or body in respect of workers' compensation, social services, …" (Tribunal's emphasis)
If no part of the settlement sum related to economic loss then the Applicant's solicitor should have insisted on that being specified in the settlement terms. All I can deduce from the material before me is that the Applicant's claim against the Defendant referred to economic loss and a lump sum settlement was received covering all heads of damage claimed. In other words, economic loss was, by default, a component of the lump sum settlement.
In Secretary, Department of Social Security v a'Beckett 12 AAR 212 von Doussa J, after noting at p223:
"In my opinion the intention of the scheme for preclusion and recovery is to prevent double payments arising from that part of a payment by way of compensation which is fairly to be characterised as damages or compensation for an incapacity for work. …"
said at p225:
"Usually the more objective evidence available about the nature and extent of the injury, and the events which followed it, for example, the duration of absences from work; actual loss of wages; changes in work activity and the like, will provide a more reliable guide than the asserted beliefs of the claimant as to how the settlement sum was arrived at. Ordinarily, statements by the claimant asserting a loss resulting from an impaired capacity for work made in circumstances where those statements can reasonably be regarded as having been made to influence a defendant to pay will be entitled to substantial weight. Foremost amongst such statements will be formal particulars of claim. The formal particulars of claim identify the subject-matter of the claim presented by the pensioner."
Economic loss being a component of the settlement, section 17 of the Social Security Act applies and the sum of $7,965.83 has been claimed by the Respondent. In these proceedings no issue was taken as to whether this sum was correctly calculated or not, so I have assumed that the accuracy of the calculations is not challenged.
Subsection 1184(1) of the Social Security Act 1991 gives a power to ameliorate the provisions of sections 17 and 1166 if special circumstances can be found. As to what constitute "special circumstances", I refer to the decision of Carr J in Secretary, Department of Social Security v Ellis 24 AAR 535 at 539, namely:
"In Beadle v Director-General of Social Security (1985) 7 ALD 670, a Full Court of this Court had to consider whether the Administrative Appeals Tribunal had erred in its interpretation of s 102(1)(a) of the Act which provided for an extension of time in which to claim a family allowance '… in special circumstances …'. At 673-674 the Full Court said:
'Presumably in this context special circumstances must include events which would render the six months unfair or inappropriate … It would depend upon the circumstances of the particular case whether these constituted special circumstances. We do not think it is possible to lay down precise limits or precise rules. The matter is one for the Director-General bearing in mind the purpose for which the power is given. The phrase 'special circumstances', although lacking precision, is sufficiently understood in our view not to require judicial gloss.'
In Groth v Secretary, Department of Social Security (1995) 40 ALD 541 at 545, Kiefel J, after referring to Beadle, said:
'… for present purposes it is sufficient to observe that it would require something to distinguish Mr Groth's case from others, to take it out of the usual or ordinary case. That was, I consider, the only inquiry to be undertaken in this case. It would of course follow that if one were to conclude that something unfair, unintended or unjust had occurred that there must be some feature out of the ordinary. The inquiry I have referred to would involve considering what would be the effect, if the provision in question or the principle of liability it creates, is applied.'"
In Secretary of the Department of Family and Community Services v Sammut [1999] FCA 1735 at para 21 it was said:
"Section 1184(1) of the Act plainly calls for a two stage decision-making process. First, does the case have 'special circumstances' within the meaning of the subsection. Secondly, if it does, should the Secretary (or other relevant decision maker) in the exercise of his or her discretion, treat either the whole or some part of the compensation payment as not having been made or as not liable to be made …"
The Respondent, in Exhibit R1, sets out various cases where the existence or otherwise of special circumstances was considered either by the Federal Court or the Tribunal. To my mind these cases whilst illustrative, are not determinative. What may or may not amount to special circumstances depends upon the facts of any particular case.
At the outset let me say that I do agree with the Respondent's submission that the negligence of a legal adviser cannot normally of itself amount to a special circumstance. If negligence by a solicitor is suggested, the remedy is to sue the solicitor - see Re Guerrero and Secretary, Department of Social Security (unreported AAT 9603, 13 July 1994) following Hunt v Piggott, Wood and Baker (unreported Supreme Court of Tasmania No B20 of 1993, delivered 28 May 1993).
As part of its case against the Applicant's claimed special circumstances, the Respondent obtained a valuation by the Australian Valuation Office of the Applicant's dwelling. To my mind that valuation is not one that can be acted upon. It is stated to be a "roadside valuation only" and the basis of the valuation is not given.
The valuer who purported to give the valuation was not called by the Respondent. I therefore do not know how familiar he was with properties in the particular area. No comparable sales are listed against which the Applicant's property was compared.
Indeed no basis whatsoever is given for the valuation. As a "roadside valuation", I take it the valuer did not inspect the property therefore its state of repair is unknown nor is it known if there are unauthorised works which would be revealed if a search of council records was undertaken and would of course mitigate against the price a willing purchaser would be prepared to offer.
No prudent purchaser would undertake the purchase of a property in Sydney without a building inspection, similarly a lending authority would most likely require a proper inspection and valuation to be carried out, yet the Respondent is content with a valuation without inspection. As I said in argument, an opinion from a local real estate agent would have been more pertinent.
The Applicant gave evidence, unchallenged, that she and her husband attempted to sell the subject property in 1996 for the sum of $300,000.00 and that there were no interested purchasers. To me this is a better indication of value than a roadside inspection. As the evidence stands I am not able to accept the Australian Valuation Office valuation but, in absence of contemporaneous evidence from the Applicant, I can only find that she has a dwelling subject to an ongoing mortgage which she must meet from her Social Security benefits. If, as suggested, the Applicant were to sell the property she would still have to find another dwelling after payment of agent's fee, conveyancing costs and stamp duty. If she went into rented accommodation a rental allowance may be payable by the Respondent.
The Applicant's states in Exhibit A1 that moving house or selling a home would be contrary to medical advice regarding her illness in that she has been advised to try to maintain an even keel in her affairs. Given the nature of the Applicant's illness, I can understand that the stress of having to sell and then buy a house would be detrimental to her wellbeing.
The Applicant currently suffers from anxiety/panic attacks and agoraphobia. She has consulted a psychiatrist, Dr Lampe, but that specialist believes that recovery will not occur until the Applicant's current litigation with the Respondent has resolved. As a result of her illness she has not been able to work unaccompanied by her husband and her husband has had to cease work as it became difficult for the Applicant to cope at home alone. At present the Applicant's husband has still been unable to seek work as he is required to stay at home and care for the Applicant.
Until recently the Applicant's husband has been ineligible for any Social Security benefit as he is a migrant. He is now eligible and will, for a period of 13 weeks, be paid Newstart Allowance but payment after that date will depend upon efforts to obtain work. Those efforts will be compromised as the Applicant's husband is, as stated above, required to stay and care for the Applicant. It is therefore unlikely that his Social Security payments will continue. Both at the time of the original decision and also currently, the Applicant's financial situation is parlous. The Applicant currently estimates the outgoings for herself and her husband at the sum of $592.00 per fortnight whereas income is $313.80. Included in the outgoings is interest upon the mortgage on the dwelling house but it would appear that no capital is being paid off it.
At the time of the motor vehicle accident which led to the Applicant receiving the damages settlement, she was not employed. In 1993 she had suffered a work place injury and was placed on a sickness benefit paid by the Respondent. Because of policy changes by the Respondent, the Applicant's payment has now changed from that of a sickness benefit to a Newstart Allowance but because of certified illness, she is not required to undertake the job search requirements of the Newstart Allowance.
There was a remission in the Applicant's condition during the period May 1995 to May 1996 and work was undertaken during that period, but apart from that period the Applicant's only income has been Social Security benefits.
The motor vehicle accident of 23 November 1993 caused orthopaedic injuries to the Applicant. At that time the Applicant was receiving a sickness benefit because of psychiatric illness caused by workplace events. At no time did the Applicant's orthopaedic injuries result in her being unable to engage in employment.
The reasons behind the provisions outlined in section 17 of the Social Security Act were discussed by von Doussa J in Secretary, Department of Social Security v Banks 12 AAR 38 at p43. It is clear from the material referred to by von Doussa J that the provisions, apart from being designed to overcome artificial settlements, were designed to prevent so-called "double dipping" and that Social Security benefits paid to cover lost income should be recovered where personal injury compensation makes up for that lost income.
In this matter the Applicant was receiving a sickness benefit at the time of her motor vehicle accident for a condition unrelated to any injuries received in the said motor vehicle accident. That motor vehicle accident may have exacerbated those injuries as the Applicant's statement of claim gives particulars of injury as including "stress, hyperventilation, anxiety, panic attacks".
I do not put any great weight upon the list of alleged injuries detailed in the Applicant's District Court Statement of Claim. It has all the hallmarks of a "grab bag" of symptoms made in an ambit claim and subject to more detailed medical reporting. In Exhibit A1 the Applicant states that following the motor vehicle accident she completed and posted to FAI a Motor Accident Personal Injury Claim Form and in that form stated that she was, at the time of the accident, not employed as she was recovering from stress. She also gave details of a Work Cover claim for stress. Obviously, had the Applicant rejected any settlement offer pre-existing injury would have been an issue at trial. The underlying fact is, however, that the Applicant was in receipt of a sickness benefit because of psychiatric illness prior to the motor vehicle accident and benefits have continued because of psychiatric illness, not the orthopaedic injuries caused by the said accident.
Paragraph 17(3)(b) of the Social Security Act reads inter alia:
"(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."
In other words, the paragraph recognises that a payment of compensation may include a greater or lesser amount than 50% of the lump sum on account of economic loss. Although the circumstances for the application of para 17(3)(b) do not arise here, the factual situation is very much the same as in the matter of Re Stern and Secretary, Department of Family and Community Services [1999] AATA 54 where the Tribunal, after quoting the remarks of O'Loughlin J in Secretary, Department of Social Security v Hulls 22 ALD 570 remarked:
"To my mind the remarks by O'Loughlin specifically sum up this case. It is conformity with the legislation that an award of damages unconnected with the conditions for which the Disability Support Pension was granted be regarded as special circumstances. An injured person's resort against a defendant for damages for pain and suffering should not be turned into a revenue gathering exercise by the Commonwealth."
Exhibit A1 at page 26 is an extract from the Centrelink protocols contained in the Compensation Recovery Manual relating to the assessment of estimates of recoverable payments. The Centrelink guidelines read inter alia:
"· Many customers or their representatives request estimates prior to negotiating a settlement. This allows customers and their representatives to understand the ramifications of agreeing to a proposed settlement amount before committing themselves during settlement negotiations.
· Estimates are always calculated using the 50% rule. See [Guide to the Social Security Act, guideline 4.3.7.40, Assessing the Compensation Part of a Lump Sum]
…
· Customers or their representatives may sometimes advise that no economic loss is expected in a settlement. In these cases, estimates are still calculated as though economic loss will be awarded."
Thus, although the Applicant's solicitor advised the then Department of Social Security that no economic loss was involved, the estimate calculation carried out by the Department should have been done on the prescribed presumed economic loss basis. By not doing so the Department led the Applicant and her solicitor into error. It was this error that led to the acceptance of the sum of $56,500.00 only.
The reason for the instruction is clear and this matter is a good illustration of why it is in place. At page 22 of Exhibit A1 the extract from the Compensation Recovery Manual states that the solicitor (for) or the insurance company should be contacted, as was done in this case. It was the insurance company who then advised that there was an economic loss component, contrary to the Applicant's solicitor's understanding.
Whereas the Applicant did receive a lump sum compensation payment which included an amount in respect of economic loss, that amount is the sum of $1,300.00 and it is out of all proportion to the amount claimed by the Respondent.
I have taken into account the following factors, namely:
the Applicant is in ongoing ill health, in impecunious circumstances and reliant upon Social Security benefits and any benefits paid to her partner are of a restricted nature. The fact that the settlement was agreed to under a misapprehension as to any economic loss factor and the fact that although the Respondent was advised that there was no economic loss, its procedures mandated that economic loss should be assumed in any estimate given of recoverable amounts and a preclusion period. In this matter the 50% rule does not accurately reflect the known component for economic loss and the Applicant was in receipt of benefits both before and after the motor vehicle accident and settlement for conditions totally unrelated to injuries caused by the said motor vehicle accident.
I find that these factors are sufficient to constitute special circumstances in the Applicant's case.
There was, however, an economic loss component in the settlement and this sum should be paid to the Respondent to offset the benefits received by the Applicant for any inability to undertake employment.
The judgment of Branson J in Secretary, Department of Family and Community Services v Sammut supra makes it clear that a calculation must be carried out by the Tribunal referable to the settlement sum. This is an exercise that can be undertaken by the Respondent although I will give liberty to apply in case difficulties arise in the calculation process.
My understanding, following the decision of Hely J in Secretary, Department of Family and Community Services v Annette Sammut [1999] FCA 1298 is that the sum of $7,965.83 has been paid to the Applicant or, if it has not, it should have been. The order which I have made in this matter is predicated upon the presumption that the Respondent has complied with the law and the Applicant has received the said sum of $7,965.83.
The order of the Tribunal is:
(1) The decision under review is set aside.
(2)This matter is remitted to the Respondent with the direction that a calculation is to be made so as to treat so much of the Applicant's lump sum compensation as not having been made that results in an effective decision pursuant to subsection 1184(1) of the Social Security Act 1991 requiring the Applicant to pay to the Respondent the sum of $1,300.00 only for the purposes of section 17 of the Social Security Act 1991.
(3)Liberty to apply.
I certify that the 48 preceding paragraphs are a true copy of the reasons for the decision herein of:
Mr M D Allen, Member
Signed: Kwai-Ling Wong .....................................................................................
AssociateDate/s of Hearing 11 July 2000
Date of Decision 28 July 2000
Solicitor for the Applicant Applicant was self-represented
Advocate for the Respondent Mr G Lozynsky, Centrelink
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