Secretary, Department of Social Security v Cunneen
[1997] FCA 1033
•3 OCTOBER 1997
FEDERAL COURT OF AUSTRALIA
SOCIAL SECURITY - payment made in settlement of a claim brought under Workers’ Compensation Act 1987 (NSW) - whether payment a “lump sum compensation payment” for the purposes of s 17(3) Social Security Act 1991 (Cth) - whether payment “income” for the purposes of s 8(1) Social Security Act 1991 (Cth) - effect of s 17(4A) Social Security Act 1991 (Cth).
Social Security Act 1991 (Cth) - ss 8(1), 17(1), 17(2), 17(3), 17(4A), 1165(1), 1165(4), 1184(1)
Workers’ Compensation Act 1987 (NSW) - ss 40, 66, 67
Social Security Amendment Bill 1988 (Cth)
Social Security Amendment Bill 1992 (Cth)
Re Hungerford and Repatriation Commission (1989-1990) 21 ALD 568
Secretary, Department of Social Security v Banks (1990) 23 FCR 416
Read v The Commonwealth (1988) 167 CLR 57
SECRETARY TO THE DEPARTMENT OF SOCIAL SECURITY v RITA ROBERTA CUNNEEN
No QG 110 OF 1996
FOSTER J 3 OCTOBER 1997 BRISBANE
IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
No QG 110 of 1996
On appeal from the General Administrative Division of the Administrative Appeals Tribunal constituted by a Senior Member
BETWEEN:
SECRETARY TO THE DEPARTMENT OF SOCIAL SECURITY
APPLICANTAND:
RITA ROBERTA CUNNEEN
RESPONDENTJUDGE:
FOSTER J
DATE OF ORDER:
3 OCTOBER 1997
WHERE MADE:
BRISBANE
THE COURT ORDERS THAT:
The decision under review be set aside.
The matter be remitted to the Tribunal for reconsideration in accordance with these reasons.
There be no order for costs.
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
No QG 110 of 1996
On appeal from the General Administrative Division of the Administrative Appeals Tribunal constituted by a Senior Member
BETWEEN:
SECRETARY TO THE DEPARTMENT OF SOCIAL SECURITY
APPLICANTAND:
RITA ROBERTA CUNNEEN
RESPONDENT
JUDGE:
FOSTER J
DATE:
3 OCTOBER 1997
PLACE:
BRISBANE
REASONS FOR JUDGMENT
This is an appeal pursuant to s 44 of the Administrative Appeals Tribunal Act 1975 (Cth) brought by the applicant (“the Secretary”) from a decision of the Administrative Appeals Tribunal ("the Tribunal") constituted by a senior member. The appeal is, of course, restricted to questions of law.
The Tribunal gave an interim and final decision which must be read together in order to ascertain its reasons. In its final decision, given on 26 June 1996 at Brisbane, it set aside a decision of the Social Security Appeals Tribunal which had affirmed, in part, a decision given by an authorised review officer of the Department of Social Security. The altered decision had determined that certain social security benefits payable to the respondent, Rita Roberta Cunneen ("Ms Cunneen"), pursuant to the Social Security Act 1991 (Cth) ("the Act") should not be payable during a "lump sum preclusion period" of fifty-two weeks commencing on 25 March 1994.
It is necessary, before considering the questions raised by the appeal to refer to the background facts, appearing from the findings of the Tribunal, the relevant legislative provisions and the decision of the Tribunal.
As indicated, the Tribunal made two decisions, an interim decision on 16 November 1995 and the final decision on 26 June 1996. It dealt with the facts of the case in the interim decision. It referred to the evidence before it as follows:-
"The documents filed pursuant to section 37 of the Administrative Appeals Tribunal Act 1975 were placed before the Tribunal (Documents T1-T27). The applicant also relied on her statement of facts and contentions and outline of submissions and the attachments to that document which were accepted into evidence and marked as Exhibit A."
It appears that these documents are included in the appeal book. The Tribunal said in paragraphs 17 and 18 of the interim decision:-
"17. There is no dispute about the facts for present purposes of this case. In essence they are as follows. The applicant was employed at the Canterbury District Hospital until 18 August 1988. She worked in the methadone unit having completed a post graduate course in rehabilitation counselling at the Cumberland Institute. Her initial expectations in relation to this employment were not realised and she eventually came to the conclusion that she was not in a friendly working environment. It was a back condition which became the cause for her being unable to continue her employment at Canterbury Hospital and the consequential workers compensation claim.
18. The applicant has not worked since 18 August 1988. Payment of Social Security benefits apparently commenced on 13 September 1988 (T6)."
Ms Cunneen made a claim against her employer under the provisions of the Workers Compensation Act 1987 (NSW). This claim was settled and an award was made by the Compensation Court of New South Wales on 24 March 1994. The Tribunal dealt with this as follows:-
"The terms of settlement may be summarised as follows:
(a)$2,500 in total for weekly compensation payments for the period 18 August 1988 to 24 March 1994 pursuant to section 40 of the Workers' Compensation Act;
(b)$12,510 pursuant to section 66 of the Workers' Compensation Act in relation to a 25% permanent impairment of the back;
(c)$9,382.50 also pursuant to section 66 for a 15% loss of use of right leg at or above the knee;
(d)$9,382.50 also pursuant to section 66 for a 15% loss of use of left leg at or above the knee;
(e)$15,000 in respect of pain and suffering pursuant to section 67 of the Workers' Compensation Act;
(f)$6,000 interest on the section 66 lump sums;
(g)$2,725 interest on the section 67 lump sum;
(h)$10,000 for section 60 expenses; and
(i)the respondent to pay the applicant’s costs as agreed or taxed.
It was accepted before me that the applicant was not in receipt of weekly compensation prior to the settlement on 24 March 1994. She had, in fact, been in receipt of income support benefits paid by the respondent.”
Amongst the T documents is a copy of the relevant award of the Compensation Court of 24 March 1994 which indicates that the Court, “having clearly considered the matters submitted”, made orders and awards “by and with the consent of the parties”. The orders and awards were in similar terms and for the same amounts. The amount of $2,500 was for “weekly compensation on the basis of partial incapacity” for the period stated. The amount to be paid under ss 66 and 67 were payable as “lump sum compensation” under these sections.
The total of the ascertained amounts thus payable to Ms Cunneen was $58,775.
It is now necessary to refer to the provisions of the Act relevant to this case. The benefits received by Ms Cunneen under the Act fall within the definition of “compensation affected payments” (see s 17(1)).
Section 1165(1) of the Act provides, relevantly for present purposes, that where a person is qualified for a compensation affected payment and the person receives compensation in the form of a lump sum the benefit referred to is not payable to the person for “the lump sum preclusion period”.
It may be noted that the term “compensation in the form of a lump sum” is not defined in the Act. “Compensation”, however, is defined in s 17(2) which provides:-
“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 the whole or part of a lump sum or in the form of a series of periodic payments) that is:
(e)made wholly or partly in respect of lost earnings or lost capacity to earn ...”
For present purposes it is accepted that the payments received by Ms Cunneen as a result of the Compensation Court award may be regarded as received within the meaning of the section in settlement of a claim under a scheme of insurance under a State law or simply a compensation payment. I do not accept that it was in settlement of a claim for damages. I shall return later to other provisions of the section and submissions made in respect of them.
Section 17(4A) provides that, for the purposes of the Act, a payment of arrears of periodic compensation payments is not a lump sum compensation payment. Submissions have been made as to the scope of application of this section to which I shall refer later.
Section 1165(4) of the Act provides a formula for determining the number of weeks in a lump sum preclusion period. This number is the quotient derived by dividing a figure for “average weekly earnings”, arrived at in accordance with s 17(1) of the Act, into the figure for the “compensation part of the lump sum compensation payment”. This latter figure is computed in accordance with s 17(3) and is an arbitrary figure arrived at by taking 50 per cent of a lump sum compensation payment where the payment was made in settlement of a claim related to an injury or condition and it was settled (as in the present case) by consent judgment or otherwise after 9 February 1988. It is convenient to state now that, in my opinion, the section must be read with s 17(2) with the result that the payment must also be made “wholly or partly in respect of lost earnings or lost capacity to earn”.
Reference should also be made to s 1184(1) as it was the subject of submissions. That section enables the Secretary, as a matter of discretion, to treat the whole or part of a compensation payment as not having been made if he or she thinks it appropriate to do so in the special circumstances of the case.
Against this background I turn to the reasoning of the Tribunal in reaching the decision to set aside the earlier decision of the Social Security Appeals Tribunal which had set a lump sum preclusion period of fifty-two weeks to commence from the date of the Compensation Court award.
The Tribunal first considered the payment of $2,500 for partial incapacity from 18 August 1988 to 24 March 1994 made pursuant to s 40 of the Workers’ Compensation Act 1987 (NSW). It held that the payment was, in effect, a payment in arrears of $8.60 per week periodical compensation. Accordingly, s 17(4A) of the Act precluded a finding that it was a lump sum compensation payment. Therefore, although it was paid in respect of “lost earnings or lost capacity to earn” (s 17(2)(e)) it was proper to exclude it from the total amount received by Ms Cunneen under the Compensation Court award for the purpose of considering whether she had received “compensation” within the meaning of s 17(2) or whether the payment to her contained a “compensation part” in accordance with s 17(3).
Having made this exclusion, the Tribunal held that the remaining components of the total amount awarded could not qualify as payments wholly or partly in respect of lost earnings or lost earning capacity. The payments made pursuant to ss 66 and 67 of the Workers Compensation Act 1987 (NSW) respectively for permanent injuries in accordance with a table of maims and for pain and suffering could not so qualify, nor could the amounts awarded for medical expenses (pursuant to s 60 of that Act) nor the awards for interest and costs.
Accordingly, s 1165 was not brought into operation and no lump sum preclusion period should have been set, as Ms Cunneen’s lump sum payment did not include amounts for lost earnings or lost earning capacity.
These conclusions were reached by the Tribunal in an interim decision and were confirmed in its final decision on 26 June 1996. Additionally, in the latter decision, the Tribunal rejected a submission on the part of the Secretary that the total amount actually received by Ms Cunneen, as set out in paragraph 11 of the interim reasons referred to above, should be regarded as “income” in accordance with s 8(1) of the Act.
Section 8(1) of the Act provides relevantly as follows:-
“‘income’, in relation to a person, means:
(a)an income amount earned, derived, or received by the person for the person’s own use or benefit; or
(b)a periodical payment by way of gift or allowance; or
(c)a periodical benefit by way of gift or allowance;
but does not include an amount that is excluded under subsection (4), (5) or (8);”
Income amount is also defined in this subsection:-
“‘income amount’ means:
(a)valuable consideration; or
(b)personal earnings; or
(c)moneys; or
(d)profits;
(whether of a capital nature or not);”
The exclusions referred to are not applicable. The Tribunal held that as a matter of construction the amounts in question were not caught by this section. It followed an earlier decision of the Tribunal in Re Hungerford and Repatriation Commission (1989-1990) 21 ALD 568 in which consideration was given to the meaning of “income” in s 35(1) of the Veterans’ Entitlements Act 1986 (Cth), the definition of which was expressed in the same terms as s 8(1). The Tribunal in that case concluded:-
“... that the words personal earnings, moneys, valuable consideration, and profits ‘relate to “gains derived by a person as a result of the provision by that person of consideration in the form of personal exertion or other services or the disposition of property”’.”
Accordingly, the Tribunal held that the present payments were not within the definition of “income amounts” and consequently were not “income” within the meaning of s 8(1).
The Tribunal set aside the decision under review and substituted the following decision:-
“(a) the amount of $2 500 is arrears of periodical compensation payments;
(b) the amount of $56 275 is not compensation as defined; and
(c) the amount of $56 275 is not income as defined.”
On appeal to this Court, counsel for Ms Cunneen has adopted the reasoning of the Tribunal and has submitted that it is correct, with the result that its decision should not be interfered with.
Counsel for the Secretary has contested both aspects of that decision. She has submitted that the amounts received were “compensation” and also “income” within the meaning of the Act. I shall deal first with the submission relating to “compensation”.
Counsel’s basic submission was that the Tribunal had erred in law in determining what was a “lump sum compensation payment” for the purpose of the application of s 17(3). As a matter of construction, it should not have approached the question by first excluding the amount of $2,500 paid for arrears of weekly compensation and then considered whether the other items of the award could each properly be characterised as compensation within the meaning of s 17(2). The term “lump sum compensation payment” connoted the total sum paid under the Compensation Court award pursuant to the settlement. I was not, at first, attracted to this submission as it seemed not inappropriate to characterise each of the items making up the award as being in themselves lump sum compensation payments. If this were so then it was arguable that the Tribunal, insofar as it had available to it the T documents, had, at least implicitly, found as a fact that the amounts payable under each item other than the first were not paid “wholly or partly in respect of lost earnings or lost capacity to earn”. In these circumstances, it would not be open to this Court to re-open these factual findings even if, as put in an alternative submission for the applicant, the T documents demonstrated that this was not in truth the correct position. However, I have come to the conclusion that this is not, as a matter of construction, the correct view of the effect of the legislation and in particular of the term “lump sum compensation payment”. I am satisfied, as a result of a submission put to me by counsel for the Secretary, to which I shall now make reference, that this term must be taken as referring to the total amount paid to the respondent under the terms of settlement expressed in the award.
I should state, at the outset, that I am satisfied that s 17(4A) should not be given the extended meaning accepted by the Tribunal. Reference to the Explanatory Memorandum in relation to the Social Security Legislation Amendment Bill 1992 (Cth) which introduced the section into the legislation makes it sufficiently clear in my opinion that the legislative intention was to address a situation of confusion which had resulted from conflicting approaches taken in the Tribunal. The purpose of the provision was to ensure that where a payment was simply a total of previously unpaid periodic payments it would not, thereby, acquire the characterisation of a “lump sum compensation”. The section, in my view, was not intended to apply where a payment of arrears of periodic compensation did not stand alone but was included as a component in a larger “lump sum” payable as “compensation” within the meaning of s 17(2).
I have accepted the primary submission made by counsel for the Secretary, namely that it was an error of law on the part of the Tribunal to have, in effect, regarded each component of the total sum payable as being “lump sum compensation payments” in themselves. The proper construction of the legislation required that it characterise the total sum payable not the individual parts. If, having done so, the total sum qualified for the legislative description of a “lump sum compensation payment” then the provisions of s 17(3) would be applicable.
I have accepted this submission after considering the reasoning of von Doussa J in Secretary, Department of Social Security v Banks (1990) 23 FCR 416, a case relied upon by the Secretary. I am in respectful agreement with his Honour’s reasoning and consider it to be determinative of the present case. His Honour was considering an earlier version of the sections under consideration in the present case but, in my opinion, there is no relevantly significant difference between the provisions.
In Banks the respondent had received weekly payments of workers’ compensation for an injured back. In November 1988 his compensation entitlements were settled through the making of a consent order in the Industrial Court of South Australia which required the employer to pay $34,000, being an assessment of compensation payable under the Workers’ Compensation Act 1971 (SA) for injuries which had resulted in total or partial incapacity. Additionally, the employer was required to pay $1,000 in redemption of liability to pay future medical expenses. Under s 153 of the Social Security Act 1947 (Cth) Banks was precluded from receiving benefits under that Act for a period calculated in the same manner as provided for by ss 17(3), 1165(1) and 1165(4) of the present legislation. Consequently, a determination was required of “the compensation part of the lump sum payment by way of compensation”. This was 50 per cent of the “lump sum payment”.
The Department of Social Security calculated the “compensation part” by taking the whole of the $35,000 as being the “lump sum payment”. On appeal to the Administrative Appeals Tribunal the $1,000 for future medical expenses was excluded from the lump sum. On appeal to this Court, von Doussa J restored the original decision holding that the “lump sum payment” embraced the total amount paid in settlement of the claim, even though it clearly included amounts for heads of loss which were unrelated to capacity for work. Such heads were for pain and suffering, disfigurement and future medical expenses.
In reaching this decision his Honour had regard to part of the history of the legislation, which I shall not repeat in detail here. It is clear that problems had arisen as a result of settlements in workers’ compensation jurisdictions obscuring the fact that payments were being received in respect of lost earnings or earning capacity. Where social security benefits conditioned upon such incapacity were also being received, undesirable “double-dipping” was resulting, with the consequence that social security benefits were being misapplied. His Honour had regard to the Second Reading Speech for the Bill introducing the Social Security Amendment Act 1988 (Cth) which introduced the sections in question in order to identify the mischief which it was intended to rectify. The relevant passage read as follows (Hansard, House of Representatives, 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.”
His Honour said of the relevant section that it introduced “an arbitrary formula to be applied if the lump sum payment was made in settlement of a claim” (p 422). He went on to say (at 422-423):-
“Section 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 s 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 Pt XVII of the Act to distinguish ‘lump sum payments by way of compensation’ from ‘periodical payments by way of compensation’: see, for example, ss 152(2)(d), (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 aggregate 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.”
His Honour also said (at pp 423-4):-
“The provisions of subpar 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 subpar (i) is further emphasised in the definition in par (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 subpar (i) to determine ‘the compensation part of the lump sum payment by way of compensation’. Thus, subpar (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 medial 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.
The wide language of subpar (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 par (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 s 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.”
His Honour was, accordingly, of the opinion that the amount of $1,000 which was part of the settlement should have been included in the calculation of the “compensation part of the lump sum payment”.
I am of the opinion that the same reasoning applies in respect of the sections under consideration in this case, as they would appear to be no more than a recasting without substantial alteration of the sections considered by his Honour. As I respectfully agree with his Honour’s reasoning, it follows that I must hold that relevant error has been disclosed in the Tribunal’s approach. I should add that if the application of what is an essentially arbitrary rule produces genuine hardship, then, clearly, the Secretary may act under s 1184 to alleviate that hardship. In the application of that section, no doubt, consideration could properly be given as to whether there had not in fact been anything in the nature of manipulation of the component items of the settlement resulting in the mischief referred to. This matter is not before me and I express no concluded view about it.
In the present case, insofar as the initial payment of $2,500 clearly related to lost earnings or earning capacity, the total sum should have been regarded as a “lump sum” compensation payment and the Act applied accordingly.
As the question of whether the payment should also have been regarded as “income” under s 8 has been raised, I shall briefly deal with the submissions made in respect of it. The Secretary’s counsel submits that the Tribunal should not have followed in Re Hungerford in that the section should not have been read down as it was in that case. Reliance was placed upon the wide words of the definition of income in the section which did not require, it was submitted, the introduction of any additional element of exchange or reward. Reliance was placed upon what Brennan J (as his Honour then was) said in Read v The Commonwealth (1988) 167 CLR 57 at 69. His Honour said of the definition of income in s 18 of the Social Security Act 1947 (Cth), which is relevantly indistinguishable from the definition in s 8(1) of the present Act:-
“The definition is exhaustive: the term ‘income’ means what it is defined to mean; it does not mean what ‘income’ would be understood to mean if the definition were not in the Act. The definition is couched in the widest terms, presumable to ensure that public expenditure is directed to those who stand in actual need of the periodic support which income-related pensions provide. The definition is wide enough to embrace receipts of a capital nature as well as receipts of income, for ‘income’ is defined to mean, inter alia, any moneys, valuable consideration or profits irrespective of the means by which or the source from which those moneys, etc. are received.”
His Honour was in dissent, but I do not read the other judgments in the case as differing from this construction of the section. Accordingly, I am of the opinion that the Tribunal also erred in law in following in Re Hungerford and accepting a narrower definition of “income” in s 8(1). The amounts received under the settlement should properly have been regarded as income.
For these reasons I set aside the decision of the Tribunal under review and remit the matter to the Tribunal for reconsideration in accordance with these reasons.
I should add that, as a result of my reasons in this case, I have not found it necessary to consider whether the amounts said to be payable under s 66 of the Workers’ Compensation Act 1987 (NSW) could properly be regarded as containing an element for lost earning capacity.
As the applicant does not seek costs, I make no order for costs.
I certify that this and the preceding eleven (11) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Foster.
Associate:
Dated: 3 October 1997
Counsel for the Applicant: Ms C E Holmes Solicitor for the Applicant: Australian Government Solicitor Counsel for the Respondent: Mr J Houston Solicitor for the Respondent: Gilshenan & Luton Date of Hearing: 29 September 1997 Date of Judgment: 3 October 1997
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