Secretary, Department of Social Security v a'Beckett

Re: SECRETARY TO THE DEPARTMENT OF SOCIAL SECURITY
And: EDWARD CLIVE a'BECKETT
No. G49 of 1990
FED No. 491
Social Security
12 AAR 212
21 ALD 79
26 FCR 349

COURT

IN THE FEDERAL COURT OF AUSTRALIA

SOUTH AUSTRALIAN DISTRICT REGISTRY
GENERAL DIVISION
Von Doussa J.(1)

CATCHWORDS

Social Security - reduction in the rate of pension where a pensioner receives a payment by way of compensation - meaning of "payment by way of compensation" - meaning of "in respect of an incapacity for work" - whether a lump sum payment in settlement of a common law claim for damages for bodily injury was "in whole or in part, in respect of an incapacity for work" - whether a payment for the loss of the goodwill in the pensioner's legal practice was in respect of an incapacity for work - determination of "the first day of the period in respect of which a lump sum payment was...made"

Social Security Act 1947, ss.6, 152, 153

HEARING

ADELAIDE

#DATE 31:8:1990

Counsel for the applicant: Ms C.M. Branson

Solicitor for the applicant: Australian Government Solicitor

The respondent appeared in person

ORDER

The appeal be allowed.

The decision of the Administrative Appeals Tribunal made on 10 May 1990 be set aside and in lieu thereof that it be determined that the sum of $60,000 paid to the respondent is a lump sum payment by way of compensation for the purposes of Part XVII of the Social Security Act 1947.

The matter be remitted to the applicant to calculate the "lump sum payment period" pursuant to para.152(2)(e) of the Social Security Act 1947 in accordance with the reasons for judgment delivered this day on the footing that "the first day of the period in respect of which the payment was...made" for the purpose of the said paragraph is 8 November 1983.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

This appeal from a decision of the Administrative Appeals Tribunal raises questions concerning ss.152 and 153 of the Social Security Act 1947 which provide for the reduction in the rate of pension where certain payments by way of compensation have been received by a pensioner.

The respondent was involved in a motor vehicle accident on 8 November 1983. On 26 February 1986 he commenced proceedings in the County Court at Melbourne claiming damages at common law for injuries suffered in the accident. On 1 February 1988 the respondent applied for an invalid pension which was later granted payable to him from 4 February 1988. His wife was granted a spouse's pension payable from 12 May 1988. The County Court proceedings were compromised when he accepted a global offer of $60,000 inclusive of costs. The respondent signed a release evidencing the settlement on 22 July 1988. On 4 August 1988 the pension payments to the respondent and his wife were cancelled. A delegate of the Secretary to the Department of Social Security determined that under para.153(1)(d) the respondent and his wife should be precluded from recovering a pension for 63 weeks from 8 December 1987 to 20 February 1989, being the relevant "lump sum payment period". This preclusion period was calculated by the delegate treating 50% of the settlement amount as "the compensation part of a lump sum payment by way of compensation" in accordance with the arbitrary provisions of sub.para.152(2)(c)(i). The resulting sum of $30,000 was then divided by the appropriate figure representing the estimated average total weekly earnings of all male employees in Australia pursuant to para.152(2)(e) to arrive at the "lump sum payment period". Later in these reasons it is explained why the lump sum payment period was determined to commence on 8 December 1987. It was also determined that the respondent should repay $1,615 (later amended to $1,463.40) being pension benefits received by him during the preclusion period.
The respondent appealed against this determination to the Social Security Appeals Tribunal ("SSAT"). His principal contention (which he has maintained throughout) was that no part of the payment made in settlement of his claim was a payment "in respect of an incapacity for work", and for this reason he contended that no part of the payment came within the expression "payment by way of compensation" used in ss.152 and 153. The SSAT was of the opinion that the respondent's legal costs of the County Court action amounting to $6,000 should be excised from the payment of $60,000 for the purposes of applying the formula in sub.para.152(2)(c)(i), but otherwise rejected the respondent's submission saying "there clearly was a past loss of income component included in Mr a'Beckett's award". A delegate of the Secretary however did not follow this recommendation, and on 12 December 1988 affirmed the earlier decision to preclude the respondent from benefits for a period of 63 weeks. If any part of the sum of $60,000 received by the respondent were a payment of the kind described in para.152(2)(a), being a payment in whole or in part in respect of an incapacity for work, the component in that sum representing legal costs should properly be treated as part of the "lump sum payment by way of compensation". This has more recently been determined by the Administrative Appeals Tribunal in Secretary, Department of Social Security v. Weir (No. S89/169 delivered on 21 December 1989); and see Secretary, Department of Social Security v. Banks, (a judgment of this Court delivered 19 June 1990). The delegate was therefore correct to disregard that part of the recommendation which related to costs, and the contrary has not been suggested on this appeal.
The respondent made application to the Administrative Appeals Tribunal to review the decision of the delegate. The Tribunal, by a majority (Deputy President Burns and Dr D.B. Williams, member) held that the evidence before the Tribunal indicated that the lump sum payment in settlement of the common law proceedings "may well have not included in it any component in respect of an incapacity for work", and not being satisfied on the balance of probabilities that any part of the payment was in respect of an incapacity for work, set aside the decision of the delegate. Mr B.C. Lock, member, was of the opinion that the evidence established that the payment received by the respondent did include a component for loss of earnings and loss of earning capacity, and he would have affirmed the decision of the delegate.
On appeal to this Court the applicant's primary contention is that upon the proper construction of ss.152 and 153 the Tribunal should have held that the sum of $60,000 received by the respondent was one "in whole or in part, in respect of an incapacity for work" and therefore to be treated as a lump sum payment by way of compensation. The provisions of those sections of immediate importance to this argument are as follows:

152.(1) In this Part -

'pension' means:

(a) an invalid pension (including any allowance under section 31);

(b) a benefit under Part XIII; or

(c) a sheltered employment allowance under Part XIV (including any allowance under section 143); being a pension, benefit or allowance that commenced to be paid on or after 1 May 1987, or a rehabilitation allowance under Part XVI that became payable in lieu of such a pension, benefit or allowance;

'spouse's pension' means -

(a) a pension; or

(b) a wife's pension or a carer's pension that commenced to be paid on or after 1 May 1987.

(2) In this Part -

(a) a reference to a payment by way of compensation is a reference to -

(i) a payment by way of damages;

(ii) a payment under a scheme of insurance or compensation provided for by a law of the Commonwealth or of a State or Territory, including a payment under a contract entered into pursuant to such a scheme;

(iii) a payment, whether with or without admission of liability, in settlement of a claim under such a scheme or of a claim for damages; or

(iv) any other payment in the nature of compensation or damages, other than a payment for which the recipient has made contributions, whether made within or outside Australia, being a payment received on or after 1 May 1987 that is, in whole or in part, in respect of an incapacity for work; . . .

(c) a reference to the compensation part of a lump sum payment by way of compensation is a reference to:

(i) if the lump sum payment was made (whether with or without admission of liability) in settlement of a claim that is, in whole or in part, related to disease or injury and:

(A) in a case where a judgment by consent was entered in respect of the settlement - the judgment was entered on or after 9 February 1988; or

(B) in any other case - the settlement was made or entered into on or after 9 February 1988; 50% of the lump sum payment; or

(ii) in any other case - so much of the lump sum payment as is, in the opinion of the Secretary, in respect of an incapacity for work;

(d) a reference to the periodic payments period, in relation to a series of periodical payments by way of compensation, is a reference to -

(i) in a case where those payments have ceased - the period in respect of which those payments were made; or

(ii) in any other case - the period in respect of which those payments will, in the opinion of the Secretary, be made; and

(e) a reference to the lump sum payment period, in relation to a lump sum payment by way of compensation, is a reference to the number of weeks, beginning on the first day of the period in respect of which the payment was or is to be made, ascertained by dividing the compensation part of the lump sum payment by the estimate last published by the Australian Statistician before the lump sum became payable of the average total weekly earnings of all male employees in Australia for a particular month.

(3) The reference in paragraph (2)(e) to the first day of the period in respect of which a lump sum payment was or is to be made is a reference to -

(a) in a case to which paragraph (b) does not apply - the day on which the relevant incapacity for work commenced; or

(b) in a case where periodical payments by way of compensation were made in respect of the incapacity - the day after the day on which the last of those payments was made. 153.(1) Where a person, or the spouse of a person, who is qualified to receive a pension receives or has received (whether before or after becoming so qualified) -

(a) a payment forming part of a series of periodical payments by way of compensation; or

(b) a lump sum payment by way of compensation, then -

(c) in a case to which paragraph (a) applies -

(i) if the person is an unmarried person or a married person whose spouse is not receiving a spouse's pension - the amount per week of the pension payable to the person shall, during the period during which the periodical payments are made, be reduced by the amount per week of the periodical payments; or

(ii) in any other case - the amount per week of the pension payable to the person and the amount per week of the spouse's pension payable to the person's spouse shall, during that period be reduced by one-half of the amount per week of the periodical payments; or

(d) in a case to which paragraph (b) applies - a pension is not payable to the person and, if the person is a married person, a spouse's pension is not payable to the person's spouse at any time during the lump sum payment period."

In Secretary, Department of Social Security v. Banks I considered the application of these provisions to a case where a person in receipt of an invalid pension had received a payment in settlement of a worker's compensation claim. The payment had been made pursuant to an award made by consent in the Industrial Court of South Australia. The question was whether an amount separately specified in the award as being a payment in redemption of a liability for future medical expenses comprised part of a "lump sum payment by way of compensation" which should be brought to account in the application of the arbitrary formula in sub.para.152(2)(c)(i) when calculating the "compensation part of a lump sum payment by way of compensation". In that case a finding by the Administrative Appeals Tribunal that part of the payment made in settlement of the worker's compensation claim was "in respect of an incapacity for work" was not disputed and accordingly the meaning and application of those words in the definition of "a payment by way of compensation", which arise for decision in this case, were not issues.
It is necessary to say more about the circumstances which led to the settlement. In the motor vehicle accident the respondent suffered injuries including a whiplash injury to his cervical spine. He was at the time a self-employed barrister and solicitor resident in Victoria. He conducted a modest suburban practice. He had for many years been in poor health. After the accident he lost time from work in his practice intermittently due to the injuries received in the accident. Before the accident he conducted cricket coaching classes and his ability to continue doing so was also impaired. The respondent claimed benefits under the Victorian Motor Accident Act 1973, later repealed and replaced by the Transport Accident Act 1986 (Vic.). The Commission administering the scheme under those Acts initially denied his entitlement to weekly benefits for impaired earning capacity. At the time when the County Court proceedings were commenced he had received no payments under those Acts. His particulars of claim in the County Court dated 26 February 1986, which claimed in all $100,000 damages, included the following allegations:

"PARTICULARS OF LOSS OF EARNINGS AND LOSS OF EARNING CAPACITY A. The Plaintiff was born on the 18th day of January 1940. B. At the time of the collision the Plaintiff was a self-employed Solicitor and a part-time professional cricket coach.

C. As a result of the injuries sustained in the collision the Plaintiff's ability to engage in his occupation has been severely restricted. He will not be able to engage in activities to the same extent as he could prior to the accident and accordingly his capacity to earn income has been severely affected."

During 1987 the Transport Accident Commission agreed to pay weekly benefits for the respondent's impaired earning capacity. On 10 April 1987 he received an interim payment of $3,250 which the Commission calculated on an assessed net weekly entitlement of $250 for the period 1 May 1986 to 30 July 1986. The respondent was informed that further payments would be considered on submission of medical certification of his incapacity for work. Medical reports were made available, and on 3 August 1987 the Commission made a further payment of $17,550. This payment was also assessed on a weekly entitlement of $250, and was paid as compensation from 31 July 1986 to 7 December 1987. The maximum sum payable under the Transport Accident Act for deprivation or impairment of earning capacity was $20,800. At the time of the second payment the respondent was advised by the Commission that it had assessed his claim at the statutory maximum. It will be noted that the second payment covered a period which expired some months after the date of payment.
In support of the claim made under the Transport Accident Act the respondent particularised his loss of income due to the accident to 30 June 1987 as follows:

(a) Net loss to 3rd June 1984 $7,000

(b) Net loss to 30th June 1985 $7,000

(c) Net loss to 30th June 1986 $10,000

(d) Net loss to 30th June 1987 $10,000

(e) Loss of income from cricket

coaching, estimate $5,000 _______ $39,000

These particulars were later used by the respondent's solicitor Mr Scott when negotiating with the solicitors for the defendant in the County Court proceedings to indicate the extent of the claim for past loss of earning capacity which would be pressed if the matter proceeded to trial.
In the latter part of 1987 the respondent developed a severe illness which caused a cerebral abscess. On two occasions the abscess required major neurosurgery to drain it. The respondent was in hospital during October, November and December 1987. When he was discharged the prognosis was that he would be unlikely to resume his career as a legal practitioner. The disability resulting from time cerebral abscess and his operations led him to apply for the invalid pension, which, as I have recorded, was granted payable from 4 February 1988.
During the first half of 1988 the respondent's solicitor negotiated with the solicitors for the defendant over the common law claim. Offers and counter offers were made. The respondent approached the settlement of his claim on the assumption that the accident was entirely the defendant's fault although at no stage was liability formally admitted. The losses alleged by the respondent included past loss of earning capacity as particularised above to 30 June 1987, and further loss thereafter; loss of goodwill attached to the respondent's legal practice which had been valued for the purposes of the litigation at $20,000 at the date of the accident and at nil as at 30 June 1987; damages for future loss of earning capacity; damages for pain and suffering; and costs. Although these losses had been alleged by the respondent he had been advised by his solicitor and counsel that he would have much difficulty establishing his claims for past and future loss of earning capacity. He was advised that the past loss would be difficult to establish because he was a sole practitioner, he had been in poor health, and he had suffered a loss in one year before the accident. He was advised that he might not recover more than the sum of $20,800 which he had received under the Transport Accident Act. It has been common ground throughout the proceedings between the respondent and the applicant that common law damages could only be recovered in respect of losses established by the respondent over and above the payments received under the Transport Accident Act. The respondent was also advised that it was unlikely that he could prove a future loss of earning capacity as at that time it appeared that the cerebral abscess had destroyed his future earning capacity. It was doubtful that the abscess could be causally related to the accident.
In the course of the negotiations a medical report was obtained by the respondent's solicitor from his neurosurgeon dated 1 March 1988. This report raised as a possibility that the cerebral abscess may have been secondary to an infection in his lungs which could have been precipitated by a state of debilitation brought about by stress and pain caused by the accident. This report was given to the defendant's solicitors. Shortly afterwards the defendant made an offer to settle the common law claim for $60,000 (which was understood to be in addition to the sum of $20,000 received under the Transport Accident Act). This offer was significantly higher than earlier ones. The offer was received by the respondent's solicitor on 5 July 1988. At about this time the respondent communicated with the Department of Social Security endeavouring to ascertain how he could structure a settlement of his common law claim so that it would have minimal impact on his pension entitlement. The Department informed him only that his pension entitlement would be reconsidered when the outcome of his common law claim was known.

On 11 July 1988 the respondent instructed his solicitors by letter in the following terms:

"I accept the all-in offer of $60,000 as discussed with you today. However there is one express condition that unless it is stated in the release that there is NO losses of earnings in this compromise settlement I'll have to battle on if this can't be agreed to. I agree if this is achieved it is a satisfactory basis to settle because of the obvious risks of costs and maybe less awarded in a Court decision..."

On 13 July 1988 the respondent's solicitor in an oral communication with the defendant's solicitors accepted the offer saying that the acceptance was on the condition that the money was only for goodwill in the legal practice and pain and suffering and certainly not for future loss of earning capacity. On 14 July 1988 the defendant's solicitors wrote enclosing a form of release. Their covering letter included the following passages:

"We further confirm that the settlement moneys contain the following components.

General Damages with respect to pain and suffering and loss of enjoyment of life.

Alleged past loss of income.

Economic loss consequent upon the loss of goodwill of the Plaintiff's legal practice.

Your professional costs and disbursements. The settlement amount contains no component with respect to diminished earning capacity ie. future economic loss."

The respondent signed the release proffered by the defendant's solicitors. It was in standard form discharging the defendant in consideration of the payment of $60,000 from all actions, suits, causes of action, demands, costs and expenses of every description in respect of the accident, and recorded that the payment was made with a denial of liability. In due course the release was returned to the defendant and the terms of settlement were carried out.
On 26 July 1988 the respondent's solicitor wrote to the Compensation Recoveries Section of the Department of Social Security advising that the respondent's common law claim had been settled for $60,000. The letter advised the Department that the settlement contained the following components:

General damages with respect to pain and suffering and loss of enjoyment of life; past loss of income; the loss of goodwill of our client's legal practice of not less than $20,000.00; our costs and disbursements of approximately $6,000.00.

The settlement amount contains no component whatsoever with respect of diminished earning capacity, that is, future economic loss."

Before the Tribunal the respondent, and his solicitor Mr Scott, gave evidence touching the matters set out above. The respondent said that if the action had gone to trial he would have pressed his claim for past and future loss of earning capacity. However he was anxious to avoid a trial because of his ill health and the expense. He therefore chose to accept the offer on the condition recorded in his written instructions to his solicitor. He maintained that the payment he received represented only the loss of goodwill for his practice ($20,000), damages for pain and suffering, and his costs. He settled on the footing that the payment of $20,800 under the Transport Accident Act fully compensated him for his past loss of earning capacity. Mr Scott was less dogmatic about the components of loss comprised in the settlement sum, but confirmed that he held doubts whether the past loss of earning capacity could have been proved at more than $20,800 and whether any future loss of earning capacity could have been established. Mr Scott's assessments of the heads of damage relating to the loss of goodwill and pain and suffering, together with the costs, fell short of $60,000.
No evidence was adduced from the defendant or his solicitors to explain why the defendant was minded to pay $60,000, although the letter from the defendant's solicitors of 14 July 1988 was before the Tribunal.
In their reasons for decision, the majority of the Tribunal said:

"12. The Tribunal has considered the evidence before it with respect to the above question, together with the submissions made by the applicant, and Mr. Taylor on behalf of the respondent.

In addition to the documentary evidence, the Tribunal had the advantage of hearing evidence on oath from the applicant and Mr. Scott, who was the solicitor for the applicant in relation to the settlement of his common law damages claim, and who had a detailed understanding of the circumstances leading to the settlement of that claim, which he explained in considerable depth to the Tribunal.

13. The Tribunal found both the applicant and Mr. Scott to be both frank and credible in their testimony, and we have no hesitation in accepting the totality of their evidence which indicated, in our view, that the lump sum compromise settlement may well have not included in it any component in respect of an incapacity for work. After examining and weighing all of the evidence before the Tribunal with respect to whether any part of the settlement sum was in respect of an incapacity for work, we are not satisfied on the balance of probabilities that any portion of it was in respect of an incapacity for work.

14. In reaching this conclusion we have preferred the oral evidence of the applicant, and particularly that of Mr. Scott (with respect to the likely components of the settlement sum) as opposed to the evidence which may have suggested that there was a component in the lump sum with respect to loss of income. The uncertainty of the likely components comprising the settlement sum in this particular case lead us to acknowledge that whilst it is possible that loss of income may have formed part of the lump sum in question we are unable to say that this was more probably than not."

An argument raised by the applicant before the Tribunal, and also before this Court, was that the claim for damages for the lost value of the goodwill of the respondent's legal practice was a claim "in respect of an incapacity for work". The Tribunal did not refer to this argument in its reasons for decision.
In the events which happened it is clear that, within the definition of a "payment by way of compensation" in sub.para.152(2)(a)(iii) the respondent received "a payment...without admission of liability, in settlement of...a claim for damages...made within...Australia, being a payment received on or after 1 May 1987...". The critical question which the Tribunal had to decide was whether, within the remaining words of the definition, the payment was "in whole or in part, in respect of an incapacity for work".
The reasoning of the Tribunal indicates that it construed these words so as to require that the payment be proved to be, in whole or in part, an identifiable payment of compensation or damages for a loss or impairment of an incapacity for work.
The members of the majority had been two of the three members of the Tribunal which decided Secretary, Department of Social Security v. Cavaleri (No. S89/96, decision delivered 21 December 1989). In that decision the Tribunal said:

"The words 'in respect of' are, of their very nature, difficult of definition and can have the widest possible meaning of some inter-relationship between the two subject matters to which they refer, i.e. a payment by way of compensation (as defined by s.152(2)(a) of the Act) and an incapacity for work.

This Tribunal must of course construe the meaning of the words 'in respect of' an incapacity for work having regard to the purpose or object underlying the legislation and the context in which they appear. The object of the legislation as it now stands is to reduce or preclude the payment of a 'pension' (which now includes all income support benefits irrespective of whether husband or wife were recipients of compensation so long as one of them is entitled to a 'pension') where a payment by way of compensation has been made which is in respect of an incapacity for work. The requirement no longer exists that the compensation and the benefit be in respect of the same incapacity.

It is essential in our view, particularly bearing in mind the consequences which flow from the somewhat arbitrary provisions of s.152(2)(c)(i) of the Act to narrow the meaning of the subject words so that there is a specific and direct relationship between a payment by way of compensation and, an incapacity for work. Tenuous links between the two subject matters are to be discarded. Thus a payment by way of compensation for injury which resulted in an incapacity for work or a payment by way of compensation for pain and suffering for injuries which resulted in an incapacity for work are not in our view to be said to be 'in respect of' an incapacity for work. We are of the opinion having regard to the object of the legislation as it now stands and the context in which the subject words appear that the inter-relationship between compensation on the one hand and an incapacity for work on the other is established where the incapacity for work has directly resulted in some form of financial loss either actual or potential which in turn has been compensated."

Although in the present case the Tribunal has not referred expressly to Cavaleri, the reasoning of the majority would appear to apply the relationship test formulated in that decision. In the meantime however, in Baker v. Secretary, Department of Social Security (Matters Nos. 89/880 and 89/930, decision delivered 13 February 1990) a differently constituted Tribunal had declined to follow Cavaleri saying that the relationship test there formulated read down the words "in respect of" too far. The Tribunal said:

"They (the words 'in respect of') have an ordinary meaning recognised by dictionaries. Glosses or substitutes for statutory phrases are fraught with danger. If payments are made in relation to, in reference to or in regard to a worker's incapacity, it is not essential that they have a specific relationship to any aspect of his incapacity in order to be caught up by the legislation."

In Baker the Tribunal held that a payment for medical expenses, because it was a payment for the treatment of a medical condition which brought about incapacity for work, was one "in respect of an incapacity for work" within the meaning of para.152(2)(a).

Counsel for the applicant submits that the words "in respect of" are words of the widest possible meaning of any expression intended to cover some connection or relation between the two subject matters to which the words refer. This is so, but the meaning ascribed to the words in a particular situation depends on the context in which they are used and must have regard to the purpose and object of the legislation: see State Government Insurance Office (Qld) v. Rees (1979) 144 CLR 549 at 560-561, Butler v. Johnston, Guild and Somes (1984) 55 ALR 265 at 268, and Secretary, Department of Social Security v. Siviero (1986) 68 ALR 147 at 156-157.
The provisions of Part XVII of the Social Security Act, first introduced substantially in their present form by Act No. 106 of 1986, provide a more extensive scheme for preclusion from and recovery of pensions in cases where a pensioner becomes entitled to payments by way of compensation than hitherto existed. The provisions of Part XVII, by the definition of "pension" in sub.s.152(1), now cover invalid pensions, sickness and unemployment benefits paid under Part XIII, sheltered employment allowance paid under Part XIV, and rehabilitation allowance paid under Part XVI that become payable in lieu of such a pension. These pensions are payable to people who are unable to earn income in the ordinary way. The inability may be due to incapacity for work caused by injury or disease or to an unavailability of work.
A payment by way of compensation is broadly defined by para.152(2)(a) to cover payments of damages or compensation of several kinds, but a common requirement imposed by the definition for all such payments is that they be "in whole or in part, in respect of an incapacity for work".
The scheme for preclusion and recovery applies both in the case of periodical payments by way of compensation and to lump sum payments by way of compensation.
In cases of periodical payments by way of compensation, the scheme for preclusion and recovery operates only in relation to payments of pension made "during the period during which the periodical payments are made": see para.153(1)(c), and sub.ss.153(3), 154(1) and 155(1) insofar as those sub-sections relate to periodical payments by way of compensation. Clearly the object of the scheme in relation to periodical payments is to prevent a person having an entitlement to receive payments from two sources for the same inability to work.
In cases of lump sum payments by way of compensation the scheme for preclusion and recovery is no longer conditioned on there being established an actual coincidence between a period during which pension payments were or are to be made and a period during which the pensioner is entitled to receive damages or compensation for an incapacity for work. In these cases the scheme introduces what may be described as a concept of presumed coincidence in time by applying an arbitrary formula which appears in para.152(2)(e) to fix a 'lump sum payment period". Sub-section 152(3) determines the day on which a lump sum payment period shall commence. The scheme for preclusion and recovery then operates only during the lump sum payment period as if the pensioner were receiving periodical payments sufficient to eliminate the pension entitlement. The notion that there must be a temporal matching of pension payments to payments by way of compensation is in this way applied to lump sum payments by way of compensation. Once "the relevant incapacity" referred to in para.152(3)(a) is identified the scheme for preclusion and recovery operates to prevent an entitlement to double payments during the period of presumed entitlement to payments by way of compensation for that incapacity for work.
That the legislation should embody a notion of matching periods during which payments from the two different sources are made or to be made is a reflection of the object of the legislation to avoid double payments for an inability to exercise an earning capacity. It would be contrary to this object to deprive a person otherwise entitled to a pension during a period when there was no coincidence (or presumed coincidence) between payments from the two sources. In such cases there would be no overlaping of benefit.
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. I consider the words "in respect of an incapacity for work" in the definition in para.152(2)(a) mean simply "for an incapacity for work". I do not think it is possible or helpful to try to further define the words in isolation from factual situations where it is sought to apply the definition.
I am unable to agree with the reasoning of the Tribunal in Cavaleri that the provisions of sub.para.152(2)(c)(i) require a narrower meaning to be adopted. I referred to the legislative history of para.152(2)(c) in Secretary, Department of Social Security v. Banks. Prior to the enactment of the present paragraph in Act No. 58 of 1988 para.152(2)(c) read:

"a reference to the compensation part of a lump sum payment by way of compensation is a reference to so much of the lump sum payment as is, in the opinion of the Secretary, in respect of an incapacity for work;"

The "somewhat arbitrary provisions: now appearing in sub.para.152(2)(c)(i), which the Tribunal considered to be important, did not then apply. The amendment which introduced them, in my opinion, did not have the effect of changing the meaning of the words "in respect of" which had been introduced into the definition of "payment by way of compensation" by Act No. 106 of 1986, the same Act which introduced the original provisions of para.152(2)(c) just set out.

The object of the present para.152(2)(c) was not to qualify the definition of "a payment by way of compensation" but to avoid the abuse of Part XVII which had come about in cases where the manner of recording the settlement of a claim that included components for compensation for economic loss had been manipulated to obscure that fact. There is no reason to think that the remedy adopted to cure this mischief had the effect of altering the scope of "a payment by way of compensation" which is central to the balance of the scheme under Part XVII which was not subject to amendment.
For the same reason I am also unable to accept a submission made by counsel for the applicant that para.152(2)(a) should be read subject to para.152(2)(c) so as to extend the words "in respect of an incapacity for work" to cover any payment by way of compensation received in settlement of a claim that is in whole or in part related to disease or injury. Not only is this submission not supported by the legislative history of para.152(2)(c), but the construction contended goes beyond elucidating the meaning of "in respect of". The construction would negate the evidence intent of the words which is to require as an element of the definition of "a payment by way of compensation" a relationship between the payment and an incapacity for work. Such a relationship is fundamental to the scheme of Part XVII. I do not think reference to para.152(2)(c) as amended by Act No.58 of 1988 assists in ascertaining the nature of that relationship.
In my opinion a payment for medical expenses would not be a payment "in respect of an incapacity for work" within the meaning of para.152(2)(a). If a sum for medical expenses were determined by curial decision, and not by settlement, so that sub.para.152(2)(c)(ii) applied in lieu of the arbitrary provisions of sub.para.152(2)(c)(i), the sum would not be one properly to be inclouded in "the compensation part of a lump sum payment by way of compensation" as one in respect of an incapacity for work. I am unable to agree with the Tribunal's decision in Baker insofar as it held that a payment for medical expenses was a payment in respect of an incapacity for work, although the decision reached to bring to account the particular sum could I think be upheld on the different ground that the agreed sum formed part of a lump sum settlement by way of compensation which comprised the sum for medical expenses and another sum agreed at the same time, both sums together being the consideration for abandoning an application for compensation.
I now turn to the facts of the present case. The task of the delegate, and of the Tribunal, was to apply in a sensible way the words of the definition to the primary facts as found, drawing such inferences as fairly arose from those facts. Where a claim for damages or compensation is settled after negotiation between the parties for a global sum it will frequently be impossible to dissect that sum into component parts in any meaningful way. It will frequently be impossible to determine as a matter of hard fact that a particular amount, or even an approximate amount, was included for a particular head of loss. A claimant may have one belief about the merits, or the lack of them, of a particular head of claim put forward on his behalf, whilst the party paying might have quite another view. Where liability is in issue a claimant might accept a modest offer believing (perhaps on facts unknown to the other side) that a particular head of loss will not be proved if the matter proceeds to trial. On the other hand the party making the payment might provisionally allocate a substantial sum to that particular head when calculating an offer, and then markedly discount the calculation to reflect a view that the claimant could fail altogether, or in a negligence action, is partly to blame. These considerations, in my opinion, render an exercise of the kind undertaken by the Tribunal in the present case where primary consideration is given to the beliefs of the claimant and his advisers, an unhelpful one.

In the present case the evidence of the respondent and his solicitor could throw little light on the defendant's reasons for making the payment. There is no reason arising from the objects of Part XVII of the Social Security Act which would make the views of the pensioner and his solicitor any more significant than those of the party making the payment in settlement of the claim. On the contrary, in many cases there may be reason to suspect that the pensioner's evidence could be less than objective about the component parts of a settlement. The difficulties which may arise if primary attention is given to the pensioner's statements as to the components of a global settlement, or even to statements formally recorded in documents signed by both sides to the settlement, have been adverted to in the secondary material connected with the Bills to amend the Social Security Act introduced in Parliament in 1979 and 1988 to which reference is made in Secretary, Department of Social Security v. Banks. Unfortunately experience has shown that such statements are at times incapable of rational explanation and are the product of "manipulation" by the parties to obscure the true position.
This is not to say that the evidence of the parties as to the course of negotiations is irrelevant. It is not, but it is only a part of the total picture, and often it will be of little assistance in determining if any part of a payment made in settlement of a claim is in part a payment in respect of an incapacity for work.
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.
In the present case the particulars of claim allege a past and future loss of earning capacity; a summary of lost earnings from the day of the accident was submitted by the respondent both to the Traffic Accident Commission and to the defendant alleging a substantial past loss ($39,000 to 30 June 1987, and continuing); the respondent concedes that the defendant was told that if the case were to proceed to trial he would seek to establish this loss; and negotiations took a marked turn in favour of the respondent when a medical report was provided suggesting a possible link between his brain abscess and the accident. Putting aside the correspondence which passed between the solicitors after oral acceptance of the settlement offer, it is contrary to the overwhelming weight of the evidence to find that the settlement included no component for or "in respect of" an incapacity for work. The solicitors' correspondence in my view also pointed strongly in the same direction.
Although the respondent says he treated the receipt of the Transport Accident Commission of $20,800 as extinguishing his claim for past loss of earnings, this assertion overlooks the fact that the payment was made to him as one at the rate of $250 from 1 May 1986 to 7 December 1987, and that he was by his particulars of lost income, telling the defendant that he had suffered a loss of about $140 per week in the period to 30 June 1985 and thereafter at the rate of about $200 per week. The letter from the defendant's solicitors dated 14 July 1988 records that the settlement includes a component "for alleged past loss of income". These matters point to the conclusion that part of the payment was "in respect of an incapacity for work". In my opinion the conclusion of the Tribunal cannot be supported as one reasonably open on the evidence if the Tribunal properly applied the definition of "a payment by way of compensation" in para.152(2)(a). The Tribunal's reasons suggest to me that the Tribunal reached its decision by applying the narrow test of relationship earlier formulated in Cavaleri. In either event I consider there has been an error of law which empowers this Court on appeal to intervene: s.44 of the Administrative Appeals Tribunal Act 1975.
I have so far assumed that the payment received by the respondent, insofar as it included a component for the loss of the value of the goodwill of his legal practice, was not one in respect of an incapacity for work. The applicant's argument that such a compomnent is one in respect of an incapacity for work raises a difficult question. The conclusions already expressed make it strictly unnecessary to decide this question, but I shall briefly state my reasons for thinking that a payment for the loss of the goodwill of the practice was one in respect of an incapacity for work.
The goodwill which existed at the date of the accident was the product of the exercise of the respondent's capacity for work before the accident. The valuation of the goodwill assumes the theoretical existence of a buyer prepared to pay the estimated value, and the theoretical position that on sale the respondent would be no further involved in the practice. On these assumptions, the practice could have been sold immediately after the accident at the estimated value. This would have been so even if the respondent had been killed in the accident. The value of the goodwill was at the date of the accident a capital asset distinguishable from the respondent's future earning capacity, and in particular his capacity to carry on the business as a legal practitioner. However the loss of the goodwill of the practice which then occurred during the period to 30 June 1987 was the result of the respondent's inability to maintain his pre-accident level of work in his practice. An award of damages in his favour for the loss of the value of the goodwill of his practice can only be explained on the footing that the loss was the result of that inability to work. In my view whatever component in the settlement was included to compensate the respondent for the lost goodwill was a payment in respect of an incapacity for work within the meaning of para.152(2)(a).
The applicant made a further submission to this Court which had not been raised before the Tribunal. It was contended that if it were held that on the proper construction of s.152 no part of the payment received by the respondent was a payment in respect of an incapacity for work, it should be held that this result came about by reason of the respondent abandoning claims for past and future loss of earning capacity so as to avoid the consequences of the scheme for preclusion and recovery. It was submitted that the provisions of s.6 of the Social Security Act should be applied as the abandonment of those aspects of the claim amounted to a disposition of property of the pensioner. In the case of the respondent this would have an effect upon the rate of the pension thereafter payable to him. This submission raises important questions of some difficulty. In my opinion the evidence led before the Tribunal establishes that whatever the conditions the respondent thought he was imposing on his acceptance of the offer made in settlement of his claim, his decision to accept that offer was one based on the merits of the claim and on the risks and personal discomfort associated with pressing on. I do not consider there was in any real sense an abandonment of any aspect of his claim by him. I do not think the facts of the case raise an issue for consideration under s.6. In these circumstances it is not appropriate to further discuss that section.
For the reasons which I have given, I consider that the decision of the Tribunal cannot be supported and should be set aside. However I do not think that the circumstances of the case support the original decision of the delegate insofar as it determined that the preclusion period, being the "lump sum payment period", should run from 8 December 1987.
The delegate determined that the "first day of the period in respect of which a lump sum payment was...to be made" was 8 December 1987 by treating the circumstances of the case as one within para.152(3)(b), that is as one where periodical payments by way of compensation had been made in respect of the incapacity. This determination assumed that "the incapacity" in respect of which the Transport Accident Commission paid benefits was the same incapacity for work as that in respect of which the payment by way of compensation was made. This assumption is unchallenged and in the circumstances of the case may be accepted as properly made.
In my opinion neither of the payments made by the Transport Accident Commission were periodical payments by way of compensation within the meaning of Part XVII. The first payment made on 10 April 1987 was in respect of a closed period ending 30 July 1986. The second payment on 3 August 1987 was in part for a past period and in part for a future period. I consider each payment is properly to be described as "a lump sum payment by way of compensation" made in respect of the same incapacity for work as the later payment made in settlement of the common law claim. In Secretary, Department of Social Security v. Banks at pp 13-15 I expressed the view that there could be more than one lump sum payment in respect of an incapacity for work. This occurred in the instant case.
The wording of para.152(2)(e) and sub.s.152(3) does not in terms provide expressly for such a situation. In my view where more than one lump sum payment by way of compensation is received by a pensioner in respect of the same incapacity for work para.152(2)(e) has to be expanded as accommodating two or more lump sum payments as well as a single lump sum payment. The paragraph has to be read in the following way:

A reference to the lump sum payment period, in relation to one or more lump sum payments by way of compensation made in respect of the same incapacity for work, is a reference to the number of weeks, beginning on the first day of the period in respect of which the payment or payments was or is to be made, ascertained by dividing the compensation part of the lump sum payment or where two or more lump sum payments are made in respect of the same incapacity for work the sum of the compensation parts of the lump sum payments by the estimate last published by the Australian Statistician before the lump sum or where two or more lump sum payments are made in respect of the same incapacity for work the last of those payments became payable of the average total weeekly earnings of all male employees in Australia for a particular month.

To apply the relevant provisions of the Act meaningfully in a case where more than one lump sum payment by way of compensation is made in respect of the same incapacity for work, it will be necessary to apply those provisions when the first lump sum payment is made, and to re-apply them by aggregating the compensation parts of the lump sum payments as and when further lump sum payments are made. It may be expected that the recalculation of the "lump sum payment period" which will occur on each occasion that a lump sum payment is made will have the effect of extending the lump sum payment period, although in each instance the first day of the period so calculated will be the same day, the day on which the relevant incapacity for work commenced.
In the present case the relevant incapacity for work commenced on the day of the accident. It is from that day that the respondent alleged an impaired capacity for work, and loss of income resulting therefrom, against both the Traffic Accident Commission and at common law. As events turned out the Traffic Accident Commission commenced payments from a later date. It has not been suggested that it is possible in the circumstances of this case to treat the Traffic Accident Commission payments as relating to a separate incapacity for work from that in respect of which damages were claimed and paid. The first day of the period in respect of which the lump sum payments were made is 8 November 1983. In the case of the two payments by the Traffic Accident Commission, they are not, in my view, to be treated as payments in settlement of claims within the meaning of sub.para.152(2)(c)(i), but as payments otherwise made and therefore subject to the provisions of sub.para.152(2)(c)(ii). They are clearly payments wholly in respect of an incpacity for work. If those two payments of $20,800 are added to the sum of $30,000, being the arbitrarily fixed compensation part of the lump sum payment made in settlement of the common law claim, and the result then divided by the appropriate estimate of the average total weekly earnings of all male employees in Australia, the result will be a lump sum payment period which expired long before the respondent's grant of invalid pension first became payable, and sub.s.153(d) will have no application to the respondent. For the same reason the respondent will not become liable to repay any part of the pensions which he or his wife have received.
Even if it were sought to contend that the lump sum payment by way of compensation in respect of the common law claim was not a payment in respect of the same incapacity for work as the payments made by the Traffic Accident Commission that argument could not support the determination that the lump sum payment period commenced on 8 December 1987. On this approach, the only lump sum payment to be considered would be that made in settlement of the common law claim, and clearly that payment was in respect of an incapacity which commenced on the day of the motor vehicle accident.
Although on the conclusions which I have reached no question of recovery of pension payments made to the respondent and his wife arises, I record that at the outset of the hearing of the appeal the applicant announced that any claim for repayment of pension would be waived whatever the outcome of the appeal, and further that the applicant would not seek costs if the appeal were successful.
In my opinion the appeal should be allowed. The decision of the Tribunal should be set aside. It should be determined that the sum of $60,000 paid to the respondent in settlement of his common law claim was a lump sum payment by way of compensation for the purposes of Part XVII of the Social Security Act. The matter should be remitted to the applicant to calculate the "lump sum payment period" pursuant to para.152(2)(e) in accordance with these reasons on the footing that "the first day of the period in respect of which the payment was...made" is 8 November 1983. In accordance with the intimation of counsel for the applicant there should be no order as to costs.

[1990] FCA 491

31 AUGUST 1990