Savage v DEWR - [2008] FMCA 32

FEDERAL MAGISTRATES COURT OF AUSTRALIA

SAVAGE v DEWR

[2008] FMCA 32

ADMINISTRATIVE LAW – Construction of Part 3.14 Social Security Act 1991 – meaning of lump sum compensation payment.

SOCIAL SECURITY – Recovery provisions – receipt of compensation – meaning of lump sum compensation payment – whether statute enables there to be more than one lump sum payment of compensation.

Administrative Appeals Tribunal Act1975, s.44
Social Security Act 1991 (Cth), ss.17(1),(2),(3), (4), (5),(5A), 1169, 1170, 1171, 1184
Workcover Queensland Act 1996 (Qld)
Acts Interpretation Act1901 (Cth), s.23
Social Security (Administration) Act1999, s.192

Secretary, Department of Social Security v Jackson (1998) 88 FCR 193
Secretary, Department of Social Security v Banks (1990) 20 ALD 19

Applicant:

DAVID GORDON SAVAGE

Respondent:

SECRETARY, DEPARTMENT OF EMPLOYMENT AND WORKPLACE RELATIONS

File Number:

BRG 769 of 2007

Judgment of:

Wilson FM

Hearing date:

7 December 2007

Date of Last Submission:

7 December 2007

Delivered at:

Brisbane

Delivered on:

29 January 2008

REPRESENTATION

Counsel for the Applicant:

Mr Wilson

Solicitors for the Applicant:

Gall Standfield & Smith

Counsel for the Respondent:

Mr Dube

Solicitors for the Respondent:

Sparke Helmore Lawyers

ORDERS

That the appeal be allowed, and the decision of the Administrative Appeals Tribunal given on 28 June 2007 be set aside.
The respondent shall pay the appellant’s costs of the appeal to be taxed.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
BRISBANE

BRG 769 of 2007

DAVID GORDON SAVAGE

Applicant

And

SECRETARY, DEPARTMENT OF EMPLOYMENT AND WORKPLACE RELATIONS

Respondent

REASONS FOR JUDGMENT

This appeal is brought against the decision of the Administrative Appeals Tribunal, constituted by Dr KS Levy, delivered on 28 June 2007. The appeal is limited to matters of law: s.44 Administrative Appeals Tribunal Act1975. The questions of law said to arise are:
a)Do the words “ . . . in settlement of a claim . . . “ in s.17(2)(c) Social Security Act 1991 (Cwth) allow the Secretary, Department of Employment and Workplace Relations to include in one lump sum, compensation paid for two or more claims arising from different events?
b)In considering the interpretation to be given to the words “special circumstances” contained within s.1184K of the Act, should the Secretary have considered as appropriate the following factual matrix:
i)That a second injury diagnosed as a minor aggravation and of little lasting impact for which only statutory compensation was received, but having the result of delaying the calculation of a preclusion period by two years; and/or
ii)The apparent failure by legal representatives to:
1. advise the applicant on the effect of settling two claims for one lump sum payment and within one settlement agreement, rather than two lump sum payments pursuant to two settlement agreements; and
2. to properly advise the applicant that by settling his two claims in one settlement agreement and one lump sum payment, the effect this would have on the calculation of the Centrelink preclusion period under s.1170 of the Act.
The Tribunal set aside the decision of the Social Security Appeals Tribunal and determined that:
a)The amount received in settlement by the appellant was a single lump sum compensation payment;
b)The charges and preclusion periods calculated by Centrelink were correct. The preclusion period commenced on 9 April 2005 and ended on 20 July 2007;
c)There are no special circumstances which justify a reduction in the preclusion period.
The appellant did not appear before the Tribunal on the hearing.
In order to understand the questions of law said to arise, it is necessary to understand the factual background to the present appeal. My summary is taken from the reasons of the Tribunal, and where it is not inconsistent with the reasons of the Tribunal from documents in the appeal book referred to in the reasons of the Tribunal. The appellant suffered three back injuries in the course of his employment with the same employer. The first injury occurred in late 2002. The appellant was off work for 13 weeks, but made no claim in respect of the injuries suffered by him. The second injury occurred on 9 May 2003. The appellant lodged a claim with Workcover Queensland, the statutory insurer of his employer, and was off work for a number of weeks. On 30 August 2004 the third injury occurred. The appellant has not returned to work since. The appellant also made a Workcover claim in respect of this incident.
The appellant proposed to bring a claim for common law damages against his employer. As required by the Workcover Queensland Act 1996 (Qld) a notice of claim for damages was lodged with Workcover. That notice incorporated a claim in respect of both the second and third accidents. The notice of claim was served on 15 June 2005.
Prior to the service of the notice of claim, two separate claim files were opened by Workcover Queensland. Claim file S02NC144394 was opened in respect of the first claim, arising from the second accident. In respect of that claim the appellant was paid weekly benefits from 24 May 2003 until 19 August 2003 in the sum of $9,907.60. Claim file S04NC252736 was opened in respect of the second claim. The appellant was paid weekly benefits from 4 September 2004 until 8 April 2005 in the sum of $25,190.00.
The claims for damages made by the appellant against his employer and Workcover Queensland were compromised. The appellant executed a deed of release and discharge on 28 February 2006. That deed provided:
a)The settlement was in respect of injuries suffered in the two incidents;
b)The “claim” was the appellant’s claim for damages in respect of the two incidents;
c)The claim was compromised for a payment by Workcover Queensland to the appellant of $150,000.00 nett of any statutory payments made by Workcover to or on behalf of the appellant.
d)The total statutory payments made by Workcover for both claims were $48,299.92.
Statutory benefits paid in respect of the first claim were $16,732.23, including the weekly benefits referred to earlier. Statutory benefits paid in respect of the second claim were $31,567.69, including the weekly benefits referred to earlier. The total of these two amounts was recorded in the deed of release and discharge.
On 16 March 2006 Centrelink determined that a compensation charge of $14,261.60 was to be imposed, and this sum was recovered from the appellant from the settlement monies paid by Workcover Queensland. As will appear subsequently in my reasons, where a person receives compensation for a loss or impairment of that person’s earning capacity, and the person has also received certain payments under the Social Security Act Centrelink is entitled to recover the payments made by it, and to impose a “preclusion period” during which the person is not entitled to receive Centrelink payments. The policy reasons underlying this are clear enough. The person receives Centrelink payments because he cannot work. He then receives compensation for that inability to work. He should not be allowed to receive double compensation, therefore the Social Security Act allows Centrelink to recover certain payments made by it. The correct method of the calculation of the amount Centrelink is able to recover, and the determination of the preclusion period is at the heart of this appeal.
Workcover Queensland generated two “settlement reports” to Centrelink. The first related to the accident on 9 May 2003 and noted the date of last benefit paid as 9 August 2003, the date of accident as 9 May 2003, gross weekly benefits of $9,907.60, and a gross common law settlement $166,732.23 for this claim ($150,000 plus total statutory payments). The second settlement report recorded the date of accident as 30 August 2004, the date last benefit paid as 8 April 2005, gross weekly benefits of $25,190.00 and a gross common law settlement of $31,567.69 being the total amount of statutory payments recorded against this claim. Thus, Workcover Queensland, for whatever reason, has recorded the $150,000 payment against the first claim.
No evidence was put before the Tribunal which enabled it to make any findings as to the seriousness of the injuries in the two compensable incidents or the extent to which each of them contributed to a diminution of the appellant’s earning capacity.
Centrelink has then used the aggregate figure of $198,299.90, and deducted the total amount of periodic (or weekly) compensation ($35,097.60). It has divided the result by two and arrived at a figure of $81,601.16. It has then divided this figure by $680.38 to arrive at the figure of 119. This process undertaken by Centrelink applied a formula prescribed by the statute. It however used, as the starting point for the calculation both of the amount sought to be recovered and the preclusion period the date of 9 April 2005, being the day after the last day of receipt by the appellant of weekly benefits in respect of the second claim. It is the choice of that day that is challenged by the appellant.
As a result of its calculations, Centrelink determined that the appellant had received $14,261.60 in “compensation affected payments” following 9 April and imposed a preclusion period of 119 weeks, meaning that the appellant could not receive Centrelink benefits from 9 April 2005 until 20 July 2007.
The Social Security Appeals Tribunal disagreed with this method of calculation. It considered the correct approach was to treat the total amount of the compromise as comprising two lump sums. This had a dramatic effect on the calculation of the preclusion period, because it ran largely from 20 August 2003, when the payment of weekly benefits by Workcover Queensland ceased in respect of the first claim made to it.
The Tribunal commenced its consideration of the appeal before it by referring to the statutory scheme. Part 3.14 of the Act deals with compensation recovery. The key provisions are ss.1169 and 1170 of the Act, which provide:
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(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 that 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 eaernings 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:
Compensation part of lump sum
Income cut-out amount
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.
It is common ground that the appellant has received a “compensation affected payment” as that term is defined in s.17(1) of the Act. The issue between the parties is the calculation of the lump sum preclusion period. Integral in that contest is the meaning of “lump sum compensation payment” and whether, in the present case, the appellant received one or two such payments. There is no definition of “lump sum compensation payment” in the Act.
The reasoning of the Tribunal was as follows:
a)The payment agreed to be made by Workcover Queensland was “compensation” as defined in s.17(2)(c) of the Act;
b)The “lump sum compensation payment” in s.17(3)(a) is the total amount agreed to be paid by Workcover Queensland, i.e. $198,299.92;
c)The amount of the “lump sum compensation payment” in s.17(4) was $163,202.32, being the amount in subparagraph b. hereof less the total amount of weekly benefits paid;
d)s.1171 of the Act does not apply because there was only one claim and one payment made. To apply a notional apportionment seems artificial and contrary to the facts;
e)In reliance on Secretary, Department of Social Security v Banks (1990) 20 ALD 19 although there were two injuries the settlement amount was a single lump sum payment (paragraph 15 of reasons);
f)There was one settlement amount and therefore one lump sum compensation payment (reasons paragraph 21, my emphasis);
g)Consequent upon the determination that there was a single lump sum compensation payment, the calculation initially made by Centrelink was correct.
The appellant puts six arguments in favour of its preferred construction of the legislation:
a)The Tribunal’s decision in relation to the proper construction of s.1170 renders the deeming provisions of s.1171 otiose;
b)The Tribunal failed to appreciate the pivotal role played by the “event” giving rise to the claim;
c)The process of selective pluralising authorised by s.23 Acts Interpretation Act 1901 (Cwth) is inapposite to s.1170 of the Act;
d)The decision of the Tribunal would be different if the settlement of the respondent’s claim had been differently documented, which militates against a consistent construction of the statute;
e)The construction urged by the appellant does not involve the selection of a calculation process within s.1170 that entails a departure from the strict application of the section;
f)The decision of the Tribunal produces anomalous and unintended outcomes, such that the appellant’s construction should be preferred.
I have already set out ss.1169 and 1170 of the Act. Other relevant provisions should now be noted. Section 17(2) of the Act defines “compensation” to mean:
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 mde within or outside Australia) that is made wholly or partly in respect of lost earnings or lost capacity to earn resulting from personal injury.
Whilst the Tribunal has focussed on s.17(2)(c) it is apparent that, in the circumstances of the present case, not only is the payment of $150,000 “compensation” as defined in that subsection, but the other payments made to or on behalf of the appellant would be “compensation” under s.17(2)(b) of the Act.
The phrase “receives compensation” is defined by reference to s.17(5) of the Act. Section 17(3) and (4) of the Act provide:
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.
17(4) Where a person:
a) has received periodic compensation payments; and
b) after receiving those payments, receives a lump sum compensation payment (in this subsection called the LSP); and
c) because of receiving the LSP, becomes liable to repay an amount (in this subsection called the Repaid Periodic Compensation Payment – RPCP) equal to the periodic compensation payments received;
then, for the purposes of subsection (3), the amount of the lump sum compensation payment is:
LSP - RPCP
These definitions, when applied in s.1170 of the Act explain the calculation performed by Centrelink, referred to at paragraphs 12 and 13 of these reasons.
Section 17(5A) (which was not referred to by the Tribunal) is important. It provides:
For the purposes of subsection (2B) of this section and Part 3.14, the event that gives rise to a person’s entitlement to compensation for a disease, injury or condition is:
a) if the disease, injury or condition was caused by an accident – the accident; or
b) in any other case – the disease, injury or condition first becoming apparent;
and is not, for example, the decision or settlement under which the compensation is payable.
The application of this subsection means that the first argument advanced by the appellant must fail. Section 1171 is directed to a different problem than that which arises in the present case. Here each of the second and third accidents suffered by the appellant was an event that caused the appellant injury. There were not two or more lump sum payments made to the appellant in respect of either of those events. At best for the appellant there was one lump sum payment made to him for each event.
Because I do not consider that s.1171 of the Act is in any way relevant to the question on appeal, the appellant’s second argument must also be rejected. However, the express recognition in s.17(5A) of the Act, that a nexus needs to exist between the event giving rise to a claim and the entitlement to compensation remains important when further considering the question of the proper construction of s.1170 of the Act.
The appellant’s third argument focuses on the use, in ss.1169(1)(b), 1170(1) and (2) of the Act of the singular “a” before the words “lump sum”. The calculation in s.1170 presupposes that there is one payment. However, there is no reason in principle why the calculation cannot be done more than once if there are more than one lump sum payments. The appellant argues, in effect, that the Tribunal’s reasoning at paragraph [21] is erroneous. Simply because there is one settlement amount does not mean that there is necessarily only one lump sum payment for the purpose of s.1170. Section 17(5A) draws a distinction between the settlement and the event giving rise to compensation. It follows, in my opinion, that there can be one settlement of two claims for compensation arising from two events. That is what occurred in the present case.

It follows, in my view that the Tribunal erred in concluding that because there was one payment to be made under the deed of settlement that necessarily meant there was one payment of lump sum compensation.
The appellant says that this conclusion finds support in the judgment of Olney J in Secretary, Department of Social Security v Jackson (1998) 88 FCR 193. In that case, the Full Court was concerned with only one event that caused injury, but separate periods of time off work during which the respondent worker received either workers’ compensation or social security benefits. Importantly, the worker received payments of workers’ compensation in two periods in respect of the same injury. To that extent it is importantly different to the present case. Olney J observed, at 195, that the lump sum preclusion period in s.1170 of the Act involves the application of an arbitrary formula which pays no regard to the actual basis upon which lump sum compensation has been calculated. His Honour also concluded, at 196, that there is no statutory authorisation for a suspension of the preclusion period. That is, a preclusion period calculated in respect of a lump sum compensation payment must run for a fixed period from its starting date. His Honour considered that the legislation encompassed the possibility of more than one periodic payments period.
I do not consider that the decision is Jackson binds me to determine this appeal in a particular way.
Secretary, Department of Social Security v Banks (1990) 20 ALD 19, referred to by the Tribunal and relied upon by the respondent, concerned two injuries suffered by an employee, some time apart. However, he only commenced receiving workers’ compensation following the second injury. Again, that is an important distinction from the present case. The issue on appeal was in determining whether the Tribunal correctly excised from the payment an amount said to have been paid on account of medical expenses. At page 24 Von Doussa J said:
“The words are used in [the statutory predecessor to the present provisions] to distinguish ‘lump sum payments by way of compensation’ from ‘periodical payments by way of compensation’ . . . A lump sum payment is simply one which includes a number of items. Where a payment by way of compensation consists of the aggregate of several amounts which could have been paid separately or at different times the payment is one of a lump sum.”
His Honour continued, at page 25, to make it clear that there was a nexus between the payment and a claim for compensation. This supports the appellant’s argument in the present case that if there is more than one claim, then notwithstanding that both claims are settled by the agreement to pay a particular sum of money, that settlement figure may comprise more than one lump sum. That is, there may be a lump sum calculated for each injury, and then the totals aggregated to form the settlement sum. There is nothing in Banks that warrants the conclusion, reached by the Tribunal, that simply because there is one settlement sum, there must, for the purposes of s.1170, be one lump sum payment.
The respondent relies on the finding by the Tribunal, said to be a finding of fact, that there was a single lump sum payment. In my view, this finding was made upon an erroneous construction of the legislation, that if there is one settlement of two claims, arising from two events, there can only be one lump sum payment to be used in the calculation performed under s.1170 of the Act. Once that finding is rejected, as it must be, the reliance by the respondent on the purported “finding” is misplaced. It must then support the conclusion reached by the Tribunal by reference to the correct construction of the legislation.
Reference to a practical example illustrates the error in the Tribunal’s reasoning. Assume a manual worker suffered a serious injury to his leg in his employment with employer A for which he received worker’s compensation payments for a lengthy period, and then payments of social security benefits. The worker returns to work, in a sedentary capacity (being the only work he is able to do after the first injury) with employer B. He suffers an injury to his brain that renders him unable to work at all. He receives workers’ compensation payments following this injury. Both employers are insured by the same insurer. The worker brings a claim for common law damages in respect of both events in one set of court proceedings. The insurer settles the proceedings by the payment of one amount. On the construction favoured by the Tribunal, and the respondent, this one payment would be a single lump sum payment of compensation. But it is plainly not. It is a single payment, comprising a lump sum for the compensation to which the worker is entitled for the first injury, and a lump sum for the compensation to which the worker is entitled for the second injury.
It might then be said that Centrelink has no way of knowing how the settlement sum should be apportioned. It is not a matter, as the Tribunal has said, of applying a notional or artificial apportionment. Centrelink has the power, under s.192 Social Security (Administration) Act 1999, to require the recipient of lump sum compensation to provide information that would enable the apportionment to be made. The failure to obtain that information would be of Centrelink’s choosing. If a single settlement is reached involving multiple claims then Centrelink will have to request such information as is necessary to enable it to calculate a lump sum preclusion period in respect of each separate claim.
In any event, that problem did not arise in the present case. Centrelink was provided with information, by Workcover Queensland, as to how the settlement sum should be apportioned (referred to at paragraph 10 of these reasons). There is nothing in the material before me to suggest that such apportionment was contrived, or designed to defeat Centrelink’s entitlement to recover monies under the Act.
It might be said that claimants could circumvent the recovery provisions of the Act, in the case of multiple injuries, if there can be more than one preclusion period, by apportioning as much of their settlement to the first injury. That would, however, require the connivance of the payer of the settlement monies. It should not be presumed that payers, which are by and large insurers or statutory insurers, are likely to be party to defrauding the Commonwealth. In any event, if the respondent’s arguments were accepted, injured persons will be advised to reach separate settlements, and require separate payments, in respect of each claim.
The various amendments to the Act, and the reasons for those amendments, are not undermined by the construction I favour. As the appellant submits, the legislative history of the relevant provisions is a permissible aid to their construction. The legislation has been progressively tightened to avoid claimants minimising the economic loss components of damages settlements so as to reduce any preclusion period, and the amount of any refund. That would not be adversely affected by a construction that permits more than one lump sum payment. Rather, the construction I favour enhances the intent of the legislation, which is that a person not receive social security benefits during the period (or periods) that he has been compensated for a loss of his earning capacity. To start a preclusion period from the day following the last receipt of compensation benefits for the last of a series of injuries ignores that the person is being compensated for loss of earning capacity during earlier periods, and may well have received social security benefits during those earlier times. Indeed, the construction advocated by the respondent would work a real injustice where the last injury was a trivial one, but a large settlement was achieved including compensation for earlier, more serious, injuries.
The results that flow from the Tribunal’s conclusions leads into the appellant’s fourth, fifth and sixth arguments. A different result would be reached in the present case if the respondent had reached a separate settlement in respect of each claim, and signed two deeds of release recording two payments. That suggests the construction advocated by the respondent is dependent more upon form than substance. Section 1171 would not operate in those circumstances because each payment would be made in respect of a different event. A consistent construction of the legislation that obviates the need to look at form is to be preferred.
It might also be said that the construction I prefer may lead to situations where there is an overlap in the preclusion periods, where a person has received compensation for more than one injury. That would also occur if there are two separate settlements, and it is not a reason for adopting the construction that, in my opinion, best reflects the intent, and literal language of the legislation.
Further, Centrelink is entitled, pursuant to s.1166 of the Act, to require the recipient of a compensation affected payment to take action to claim compensation as “specified by the Secretary”. It would be anomalous if the Secretary could direct a person who had suffered multiple injuries over a period of time, to act in such a way as might preclude that person from receiving social security benefits for a lengthy period of time, whereas if they acted in a different way, as a matter of form, they would not be so precluded.
I therefore conclude that, properly construed, ss.1169 and 1170 of the Act admit of a settlement consisting of more than one lump sum payment. In those circumstances, Centrelink is required to calculate separately the amount of refund and the preclusion period for each event giving rise to a claim for compensation.
In the present case, the practical effect of that construction is that the appellant received a lump sum payment of $166,732.23 in respect of the first accident, and a lump sum payment of $31,567.69 in respect of the second accident.
The compensation part of the lump sum settlements, in accordance with ss.17(3) and (4) of the Act are $156,824.63 and $6,377.69 respectively.
The lump sum preclusion periods will have to be calculated from 10 August 2003 and 9 April 2005 respectively. The amount entitled to be recovered by Centrelink will likewise have to be recalculated. These calculations have, in my opinion, been correctly performed by the Social Security Appeals Tribunal, at paragraphs 31-34 of its reasons at AB 11-12.
In those circumstances, the only order required to be made is to allow the appeal. The matter will then be dealt with in accordance with the decision of the SSAT.
In view of the conclusions I have reached regarding the proper construction of the legislation, it is not necessary to consider paragraph 2(ii) of the Amended Notice of Appeal. I should record, however, that the ground of appeal was not argued before me or seriously pressed by the appellant.

I certify that the preceding forty-six (46) paragraphs are a true copy of the reasons for judgment of Wilson FM

Deputy Associate: Kristy Glover

Date: 29 January 2008