Secretary, Department of Social Security v Banks

[1990] FCA 317

Re: SECRETARY TO THE DEPARTMENT OF SOCIAL SECURITY
And: JOHN ALEXANDER BANKS
No. 19 of 1990
FED No. 317
Social Security
23 FCR 416/20 ALD 19/12 AAR 38

COURT

IN THE FEDERAL COURT OF AUSTRALIA

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

CATCHWORDS

Social Security - reduction in rate of pension where beneficiary receives a lump sum payment by way of compensation that is in whole or in part in respect of an incapacity for work - meaning of "lump sum" payment - meaning of "compensation part of a lump sum payment by way of compensation" - meaning of "lump sum payment. . . made. . . in settlement of claim. . ." - whether amount included for future medical expenses in an order by consent settling a worker's compensation claim was part of a lump sum payment made in settlement of a claim.

Social Security Act 1947, ss.152 and 153.

HEARING

ADELAIDE

#DATE 19:6:1990

Counsel for the applicant: Mr D.E. Clayton

Solicitor for the applicant: Australian Government Solicitor

Counsel for the respondent: No appearance

Solicitor for the respondent: No appearance

ORDER

The appeal be allowed.

The decision of the Administrative Appeals Tribunal be set aside.

The decision of the delegate of the Secretary to the Department of Social Security that a pension is not payable to the respondent for the period from 23 November 1988 until 26 July 1989 be restored.

No order as to costs of the appeal.

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 constituted by a Senior Member concerns the construction of s.152 of the Social Security Act 1947 ("the Act").

1. The respondent Mr Banks was for many years employed by the Education Department of South Australia as a cleaner. He suffered injuries to his back arising out of or in the course of his employment on 15 September 1976 and on 14 June 1987. He last worked on 12 August 1987. From that date until 23 November 1988 he received weekly payments of compensation from his employer pursuant to the Workers Compensation Act 1971 (S.A.). On 23 November 1988 his entitlement to weekly and other compensation pursuant to the Workers Compensation Act was settled by an order made by consent in the Industrial Court of South Australia. The relevant parts of that order provided:
   "WHEREAS
   (i) personal injury arising out of or in the course
   

of his employment with the employer, namely back, anxiety and depression and any other psychiatric sequelae was caused to the worker on 15/9/1976, in June 1987, and at any other time during employment (hereinafter, whether more than one injury or not, called 'the injury')

. . . NOW by consent this Court orders as follows:-

1. that, subject to the provisions of the Commonwealth Social Security Act, 1947 as amended, the employer pay to the worker within 14 days of this date

(a) the sum of $34,000.00 representing an assessment of compensation pursuant to section 69/70 of the Act for the injury

(b) the sum of $1,000.00 representing a redemption of the employer's liability pursuant to section 72 of the Act

- to pay the worker's future expenses incurred pursuant to section 59 of the Act

. . ."

1. By November 1988 Mr Banks had applied for an invalid pension. Following the entry of the consent order in the Industrial Court of South Australia a delegate of the Secretary to the Department of social Security decided that under the provisions of para 153(1)(d) of the Act Mr Banks should be precluded from recovery of pension payments from 23 November 1988 until 26 July 1989, a period of 35 weeks.

2. The Act in relevant respects provides:
   "1529(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 . . .

152(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;

(b) a reference to the receipt by a person of a payment includes a reference to the receipt of the payment by another person on behalf of or at the direction of the first-mentioned person;

(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) . . .

(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.

. . .

156 The Secretary may, for the purposes of this Part, treat the whole or a part of a payment by way of compensation that has been, or that will be, made as not having been made or has not likely to become liable to be made if the Secretary considers it appropriate to do so in the special circumstances of the case."

1. In calculating the exclusion period of 35 weeks the delegate treated 50% of the total amount payable under the order of the Industrial Court of South Australia as "the compensation part of a lump sum payment by way of compensation" pursuant to sub-para 152(2)(c)(i). The resulting sum of $17,500 was divided by a sum representing the average total weekly earnings of all male employees in Australia at the relevant time, as required by para 152(2)(e), to determine "the lump sum period". Under para 153(1)(d) that period became the exclusion period.

2. From the decision of the delegate Mr Banks appealed to the Social Security Appeals Tribunal ("the SSAT") which set aside the decision. The SSAT was of the opinion that no part of the payment of $35,000 received by Mr Banks was a "payment by way of compensation" within the definition in para 152(2)(a) as no part of the payment was "in respect of an incapacity for work". The SSAT was of the opinion that the payment of $34,000 was in respect of a "disability", which, for the purposes of the Workers Compensation Act was to be distinguished from "incapacity for work". The sum of $1,000 in redemption of future expenses incurred pursuant to s.59 of the Workers Compensation Act related to future medical expenses.

3. The Secretary then appealed from the decision of the SSAT to the Administrative Appeals Tribunal. Before the Tribunal it was conceded by counsel for Mr Banks that on the medical evidence the provision in the consent order relating to the payment of $34,000 could only be explained as a payment made pursuant to s.70 of the Workers Compensation Act. That section commences:
   

"70.(1) If the worker suffers a permanent injury not mentioned in the table set forth in section 69 and that injury results in either total or partial incapacity for work, whether such incapacity is actual or potential or that injury is an injury referred to in subsection (3), compensation for that injury shall, subject to subsection

(2), be assessed by the court as if-

(a) the injury were set out in that table; and

(b) a percentage fixed by the court having regard to-

(i) the nature of the injury;

and

(ii) the employment or occupation for which the worker was suited before the occurrence of the injury and the employment or occupation for which the worker is suited after the occurrence of the injury,

were set out in that table opposite the description of the injury, and section 69 of this Act shall apply and have effect in all respects as if the injury were set out in the table and the percentage fixed by the Court were set out in the table opposite the description of the injury."

1. Sub-sections 70(2) and (3) had no application to Mr Bank's claim. It is not material for present purposes to set out in detail the provisions of the Workers Compensation Act. A more extensive summary may be found in the report of Secretary to Department of Social Security v. Siviero (1986) 68 ALR 147 where a Full Court considered the meaning of "incapacity" both under the Workers Compensation Act and the Social Security Act as it then stood.

2. Under the Workers Compensation Act, the table of injuries set out in s.69 does not include injury to "back" or the conditions of "anxiety", "depression", or "other psychiatric sequelae" to physical injury. It will be noted that an assessment of compensation under s.70 is conditional on the worker suffering a permanent injury which "injury results in either total or partial incapacity for work, whether such incapacity is actual or potential . . ." The Tribunal held that as the $34,000 component of the consent order was a payment pursuant to s.70, that payment was one falling within para 152(2)(a), that is that it was a payment under a scheme of compensation provided for by a law of a State, being a payment that is "in whole or in part in respect of an incapacity for work". This conclusion seems to follow inevitably from the terms of s.70 of the Workers Compensation Act. The Tribunal also rejected a submission by counsel for Mr Banks that his case had special circumstances which attracted the exercise of the discretion residing in the Secretary under s.156 to disregard certain payments. There is no need to further consider these aspects of the decision of the Tribunal which are not raised by the grounds of appeal.

3. However, the Tribunal went on to hold that in the ascertainment of the "compensation part of a lump sum payment by way of compensation" pursuant to sub-para 152(2)(c)(i) the sum of $1,000 for the redemption of future medical expenses should not be included as part of "the lump sum payment". The Secretary now appeals to this Court complaining of the exclusion of the amount of $1,000. The grounds of appeal contend that upon the proper construction of the Act, the notion of "the lump sum payment" referred to in para 152(2)(c) required that sum to be included. The applicant contends that the original decision of the delegate which brought to account the total sum of $35,000 correctly reflected the terms of the Act.

4. At the time of the decision in Secretary to Department of Social Security v. Siviero, s.115B of the Act provided for the refusal, reduction or cancellation of a sickness benefit in respect of an incapacity where a person who otherwise qualified to receive the benefit had received or was qualified or entitled to receive a payment that was "in the opinion of the Secretary, in whole or in part a payment by way of compensation in respect of that incapacity". The application of that section was conditioned on the Secretary being able to form an opinion about how the amount of a payment by way of compensation was made up, and whether part of the amount related to the same incapacity which qualified the recipient for a sickness benefit. As Siviero demonstrated, the application of the section was rendered difficult where the document evidencing the terms of the settlement (in that case a consent order of the Industrial Court of South Australia) described the component parts of the amount to be paid in a way which bore little or no relationship to the likely situation of the recipient of the payment. Reference is made in the reasons for the decision at pp 154-155 to the Committee Notes for the 1979 Bill which introduced s.115B and in particular to the explanatory statement in those Notes that:
   

"In the event of a lump sum award covering the same period for which benefit has been paid and being in respect of the same incapacity, the amount of benefit paid is recovered from the client or the person responsible for paying compensation or the insurer. Over recent years, however, practices have come to notice which limit the Commonwealth's ability to reduce or recover sickness benefit in these cases."

1. By the Social Security and Veterans' Affairs (Miscellaneous Amendments) Act 1986 (Act No. 106 of 1986) s.115B, and associated sections were repealed and replaced by a new Part VIIIAA which introduced ss.135SA to 135SG. Those sections, following the renumbering which occurred by Act No. 77 of 1987, now appear in Part XVII as ss.152 to 157. As first introduced, para 135SA(2)(c), which became after renumbering 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;"

Under that paragraph the Secretary was still required to form an opinion about how much of a lump sum payment by way of compensation was in respect of an incapacity for work. The difficulties in doing so where the payment by way of compensation was made pursuant to a settlement that was evidenced in terms which inappropriately or misleadingly described the nature of the payment or its component parts remained.

1. Paragraph 152(2)(c) was repealed and replaced in its present form by the Social Security Amendment Act 1988 (Act No. 58 of 1988). It is clear that the amendment was inserted to overcome the administrative difficulties which confronted the Secretary under the earlier provisions. It is permissible in the construction of an Act to have regard to the second reading speech on the Bill to identify the mischief which it was intended to rectify: TCN Channel Nine Pty Ltd and Ors v. Australian Mutual Provident Society (1982) 42 ALR 496 at 507-508 and Wright and Anor v. McLeod and Anor (1983) 51 ALR 483 at 530 per Sheppard J. In the second reading speech on the Social Security Amendment Bill the Hon. Mrs Kelly MP said (Hansard, 13 April 1988, p 1497):
   

"This Bill contains measures to improve the administration and integrity of compensation recovery provisions. Where a person receives personal injury compensation that makes up for lost income the Social Security Act provides that pension or benefit may be reduced or recovered. This is one way in which social security expenditures are directed to those most in need. Settlements of lump sum compensation particularly in the workers compensation jurisdiction are being manipulated to obscure the economic loss component and to avoid recovery of social security payments. To prevent this abuse the Minister announced on 8 February 1988 that, for future personal injury settlements made by agreement or by consent order, 50 per cent of lump sum compensation will be deemed to be in respect of economic loss. This Bill gives effect to that proposal. Where, on the other hand, a court has made an order after a contested hearing specifying the economic loss component, the Secretary to the Department will continue to have regard to the characterisation given to the award by the court."

The mischief is clearly identified as the abuse of the earlier provisions which had come about through settlements being manipulated to obscure the economic loss component in the compensation payment.

1. It is clear from the language of para 152(2)(c) that the amendment seeks to resolve the mischief by applying markedly different means of determining "the compensation part of a lump sum payment by way of compensation" according to whether, on the one hand, the lump sum payment is made "in settlement of a claim that is, in whole or in part, related to disease or injury" or, on the other hand, is a lump sum payment made "in any other case".

2. Paragraph 152(2)(c) is concerned with lump sum payments. Sub-paragraph (i) introduces an arbitrary formula to be applied if the lump sum payment was made in settlement of a claim. What stands in contrast with a lump sum payment made in settlement of a claim is a lump sum payment made pursuant to a curial determination of a claim on the merits according to law. Determinations of this kind are dealt with by sub-para (ii). It is understandable with this class of lump sum payment that the Secretary is still required to form an opinion as to the amount of a lump sum payment that is in respect of an incapacity for work, as a curial determination will be accompanied by reasons for decision which can be expected to disclose the component parts of the award, which constitutes the lump sum payment.

1. Paragraph 152(2)(c) applies where there is "a lump sum payment by way of compensation". The expression "payment by way of compensation" is defined in para 152(2)(a). The words "lump sum" are not defined. They are not words of art. In the Macquarie Dictionary a "lump sum" is defined as a sum "including a number of items taken together or in the lump". In my opinion the words bear that meaning in the section. The words are used in Part XVII of the Act to distinguish "lump sum payments by way of compensation" from "periodical payments by way of compensation" (see, for example, paras 152(2)(d), 152(3)(b), and 153(1)(a)). A "lump sum" payment is simply one which includes a number of items. Where a payment by way of compensation consists of the aggragate of several amounts which could have been paid separately or at different times the payment is one of a lump sum. A payment the total of which is arrived at by adding amounts for different heads of loss would also be a lump sum payment.

2. A "payment by way of compensation" as defined in para 152(2)(a) includes periodic payments. A "payment by way of compensation" need not be a final payment. There could be a "lump sum payment by way of compensation" attracting the provisions of para 152(2)(c) which did not have the characteristic of a final payment intended to conclude the liability of the party on whose behalf the payment is made. Thus, the provisions of sub-para 152(2)(c) (ii) could apply to an interim assessment of damages made under s. 30b of the Supreme Court Act 1935 (S.A).

3. A notion of finality however is introduced in sub-para 152(2)(c)(i) by the requirement that the lump sum payment be one "in settlement of a claim. . ." The expression "the lump sum payment. . . made. . . in settlement of a claim" is apt to describe the total amount which is payable as the monetary consideration passing from the party on whose behalf the payment is to be made to the recipient in exchange for a release from the claim. The reference to a judgement by consent in clause (A) of sub-para (i) provides a further guide to the broad meaning of the expression "the lump sum payment". Where a judgment is entered, the underlying claim or cause of action merges in the judgment. The judgment sum in the case of a payment by way of damages on a claim that includes a claim related to disease or injury, will usually be a once and for all amount paid in discharge of all legal liability of the defendant. In sub-para (i) a "lump sum payment. . . in settlement of a claim" is a compendious expression encompassing the total amount paid in settlement of the claim. However the expression "settlement of a claim" in sub-para 152(2)(a)(i) does not necessarily require that the payment be in settlement of all claims between the recipient of the payment and the party on whose behalf it is made. Under the provisions of the Workers Compensation Act 1971 (S.A.) an employer making a lump sum payment of compensation may by registered agreement or order of the court be discharged from further liability pursuant to the provisions of the Act without affecting any liability which exists independently of the Act: see in particular s.82. The order in the present case in favour of Mr Banks did not by its terms prevent him from proceeding independently of the Workers Compensation Act for damages at common law against his employer. Even where such a claim remains open, a lump sum payment made in settlement of claims arising under the Act meets the description in sub-para 152(2)(c)(i) of a "lump sum payment. . . made. . . in settlement of a claim. . . ". If the respondent were to independently pursue a claim for damages at common law a further lump sum payment made in settlement of that claim could also have the characteristics which brings it within sub-para (i).

4. The provisions of sub-para 152(2)(c)(i) apply where a lump sum payment was made in settlement of a claim "that is, in whole or in part, related to disease or injury. . . " The wide scope of sub-para (i) is further emphasised in the definition in para (a) of a "payment by way of compensation" which extends to any of the specified kinds of payment that is "in whole or in part, in respect of an incapacity for work". If a payment in settlement of a claim has these characteristics, the total amount paid, which comprises the "lump sum", becomes subject to the arbitrary formula of sub-para.(i) to determine "the compensation part of the lump sum payment by way of compensation". Thus, sub-para (i) will apply to the total amount paid in settlement of a claim if the amount paid is in some part in respect of an incapacity for work and if the claim relates in some part to disease or injury. This will be so even though the lump sum also clearly includes amounts for heads of loss which are unrelated to incapacity for work, for example for pain and suffering, for disfigurement, or for future medical expenses in relation to disease or injury. This will also be the case where the lump sum payment is in settlement of a claim which includes a head of loss that is unrelated either to incapacity for work or to disease or injury, for example, a component for property damage.

5. The wide language of sub-para (i) is a recognition by Parliament that unless every component part of a lump sum payment made in settlement of a claim which has the prescribed characteristics is brought to account the mischief to which paragraph (c) is directed will not be remedied. The scope for manipulation by inflating some heads of loss and diminishing or excluding others, without altering the total amount of the lump sum, would otherwise remain. The prescribed percentage (50 per cent) of the lump sum payment made in settlement of a claim which by sub-para 152(2)(i) is deemed to be the "compensation part of a lump sum payment by way of compensation" should be viewed as a broad attempt to balance the interests of the recipient of the payment with the competing interests of others in the community whose needs must be met as far as possible from a finite budget allocation for social security measures. The paragraph seeks to eliminate double dipping in a practical way which operates effectively in a straight forward manner. In the very nature of an arbitrary provision, sub-para (i) could possibly entail a degree of unfairness in a particular case, but the present case is not an example. Here, by the terms of the order, almost all of the lump sum was paid in respect of incapacity for work, actual or potential, yet only 50 per cent of the lump sum is treated as the compensation part of the lump sum for the purposes of calculating the exclusion period.

6. It follows from what I have said that I consider the Tribunal was in error in holding that the lump sum payment made in settlement of the respondent's claim was $34,000. The additional amount of $1,000 specified in the order as a redemption of future medical expenses formed part of the lump sum payment. The appeal should be allowed and the original decision of the delegate reinstated. As the applicant does not seek costs there will be no order as to costs.