Secretary, Department of Social Security v Thompson

[1994] FCA 879

SECRETARY OF THE DEPARTMENT OF SOCIAL SECURITY v. CHARLES DAVID THOMPSON
No. G167 of 1993
FED No. 879/94
Number of pages - 9
Social Security
(1994) 53 FCR 580

COURT

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION
EINFELD J

CATCHWORDS

Social Security - lump sum compensation settlement - preclusion period for pension - adjustments to period - whether reasons for adjustments must be expressed in terms of the "compensation part of the lump sum".

Social Security Act 1991 (Cth) ss 1165, 1184

Secretary, Department of Social Security v Banks (1990) 23 FCR 416
Secretary, Department of Social Security v a'Beckett (1990) 26 FCR 349
Secretary, Department of Social Security v Smith (1991) 30 FCR 56
Beadle v Director-General of Social Security (1985) 60 ALR 225
Re Ivovic and Director-General of Social Services (1981) 3 ALN N95
Secretary, Department of Social Security v Hulls (1991) 22 ALD 570

HEARING

BRISBANE, 11 August 1994
#DATE 11:11:1994, SYDNEY

Counsel and Solicitor for D. McGill instructed by
the Applicant J. Hewison of the Australian

Government Solicitor

Counsel and Solicitor for the R. Atkinson instructed by
Respondent C. Mullins of the Welfare

Rights Centre Inc.

ORDER

The Court orders that:
1. the application be dismissed.
2. the applicant pay the respondent's costs
Note: Settlement and entry of orders are dealt with in accordance with Order 36 of the Federal Court Rules.

JUDGE1

EINFELD J This is an appeal by the Department of Social Security (the Department) against a decision of the Administrative Appeals Tribunal (the Tribunal) on 17 September 1993 setting aside a decision of the Social Security Appeals Tribunal (SSAT) given on 2 April 1993.

The facts
2. There was no dispute about the facts. On 10 October 1985, when working for Queensland Railways at the age of 20, Mr Thompson fell from a train and lost his left arm, left leg and right foot. He sued for damages. While waiting for his case to be heard, he claimed and received sickness benefits and then workers' compensation by periodic payment until 24 September 1987, at which time he received the balance of his workers' compensation entitlement in a lump sum payment of $28,285.76. From 14 April 1988 he received an invalid pension until February 1989 when in an out-of-court settlement of his damages claim, he received a lump sum payment of $575,000 net of refunds to the Workers Compensation Board of Queensland. Mr Thompson was, however, required to refund a further $5,524.80 to the Department to cover invalid pension payments already received. The settlement arrangements triggered what is known in the Social Security Act 1991 (Cth) (the Act) as a "preclusion period" to last until 14 January 1999, during which time the respondent would be ineligible for certain social security pensions and benefits.

1. It would appear that after legal costs and debts totalling between $50,000 and $70,000, Mr Thompson invested $320,000 of his settlement moneys in property trusts with Morgans, a firm of stockbrokers, and bought a house for his mother in Mackay for $110,000. He also spent $45,000 on cars and lost $20,000 in a failed business venture polishing magnesium alloy wheels.

2. The money invested with Morgans was arranged to provide the respondent with a fortnightly stipend, which would commence six months after the initial investment. While waiting, the respondent redeemed some of his investment to obtain cash, thereby commencing a disastrous course of dissipation of his major asset. As the Tribunal found:
   

(o) This started a pattern of redemptions which accelerated to the point where Mr. Thompson was depleting his investment at a rate which can only be described as reckless. Morgans' records show the following redemptions:

1. 1.90 $10,000.11

5. 1.90 $20,000.00

6. 3.90 $25,872.64

14. 5.90 $20,000.77

30. 7.90 $19,506.65

17. 8.90 $10,000.00

28. 8.90 $ 2,323.13

21.11.90 $10,000.00

23. 1.91 $ 9,145.57

23. 1.91 $ 3,732.78

He spent his money on "friends", alcohol, five or six cars (some "written off"), gambling, prosthetic aids and drugs.

The records also indicate that Morgans charged fees of about $6,700 for their services and that the total value of the investments had fallen by $54,500 after interest had been accounted for. Mr. Thompson lost about $61,200 on his Morgans "investment".

(p) At the date of the hearing Mr. Thompson's investment with Morgans was worth about $16,000.

1. He still owns the house, worth about $130,000, and a car worth about $4,000. His mother pays rent on the house in Mackay of $50-$80 per week.

2. The Tribunal received a report about Mr Thompson prepared by Dr Hugh Levien, a psychiatrist. It described Mr Thompson's life before the accident as 'rather carefree' and involving a considerable degree of drug and alcohol abuse. His early life was, according to the report, dominated by his mother, who is described somewhat frighteningly as (page 7 of the Tribunal's decision):
   

a very strong unemotional, hard driven frontierswoman who had a reputation as being something of a fighter in the tow truck industry in Mt Isa.

1. The report went on to describe the psychological trauma of the accident, and the effect it has had upon the respondent, concluding that he suffers from (page 8 of the Tribunal's decision):
   

1. Some aspects of a Post Traumatic Stress Disorder

2. Psychological factors affecting physical injury

3. Mixed personality disorder with strongly avoidant traits

4. A tendency towards alcohol and mixed substance abuse which currently seems somewhat in remission.

1. The respondent lives in Brisbane with a friend, sharing the living expenses. He is not currently receiving any form of financial assistance from the Department.

The law
9. Section 1165(1) of the Act provides that for the period of the preclusion period a disability support pension is not payable to a person, not a member of a couple, who has received a lump sum compensation payment. The preclusion period is calculated by reference to what is called the "compensation part of a lump sum compensation payment". That phrase is relevantly defined in section 17(3) of the Act:

For the purposes of the Act, the compensation part of a lump sum compensation payment is:

(a) 50% of the payment if the following circumstances apply:

(i) the payment is made ... in settlement of a claim that is ... related to a disease, injury or condition; and

(ii) the claim was settled ... on or after 9 February 1988...

1. Once this figure is arrived at, the length of the preclusion period is calculated under subsections (3) and (4) of section 1165:
   

(3) If periodic compensation payments are made in respect of the lost earnings or lost earning capacity, the lump sum preclusion period is the period that:

(a) begins on the day after the last day of the periodic payments period; and

(b) ends after the number of weeks specified in subsection (4).

...

(4) The number of weeks in the lump sum preclusion period is the number worked out under the following formula: compensation part of lump sum average weekly earnings

1. At the relevant time average weekly earnings for the purposes of the Act were $486.20. Under section 1184, the Department is given the discretion to shorten this period:
   

For the purposes of this Part, the Secretary may treat the whole or part of a compensation payment as:

(a) not having been made; or

(b) not liable to be made;

if the Secretary thinks it appropriate to do so in the special circumstances of the case.

1. The effect of such a decision is to reduce the compensation part of the lump sum in section 17(3), and thereby reduce the preclusion period in section 1165.

2. The cases on these matters for the most part concern the corresponding sections of the now repealed Social Security Act 1947 (Cth), the provisions of which are for all relevant purposes identical: see Secretary, Department of Social Security v Banks (1990) 23 FCR 416; Secretary, Department of Social Security v a'Beckett (1990) 26 FCR 349; Secretary, Department of Social Security v Hulls (1991) 22 ALD 570; and Secretary, Department of Social Security v Smith (1991) 30 FCR 56. In Banks at 422, Justice von Doussa quoted from the Second Reading Speech on the Social Security Amendment Act 1988 (Cth) which introduced the scheme:
   

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.

1. In treating 50% of a lump sum paid in settlement of a personal injury claim as referable to economic loss and therefore to be used in limiting or postponing future entitlement to pension payments, the scheme is intended to operate, as Justice von Doussa said in Smith at 61:
   

as a fair balance of 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.

1. It is left to section 1184 and the discretion given to the Secretary to shorten the preclusion period to modify the possible harshness of such a rule in appropriate circumstances.

2. As Justice O'Loughlin observed of section 156, the precursor of section 1184, in Hulls at 579:
   

This provision has the hallmarks of simplicity and certainty, leaving s 156 and its reference to 'special circumstances' to remedy those particular cases where the application of the arbitrary rule would create injustice.

Proceedings before the Tribunal
17. On 23 July 1992 Mr Thompson applied for the Disability Support Pension, but was refused on the basis of the preclusion period. This decision was made on 29 July 1992 and affirmed by a review officer on 14 August 1992. He challenged the decision before the SSAT which on 2 April 1993 found that there were sufficient "special circumstances" in Mr Thompson's case to warrant the disregarding of so much of the lump sum payment as would result in the preclusion period ending on 16 November 1992. In the determination now under review, the Tribunal varied the decision of the SSAT so as to terminate the preclusion period in March 1995. Its decision included the following paragraphs:

10. ... An allowance should be made for imprudent or unlucky investment and an allowance should also be made for money lost due to psychological imbalance and social and intellectual disadvantage at the date of the receipt of the lump sum payment.

11. Out of the money Mr. Thompson set aside to generate income to compensate for lost income or lost income earning capacity he lost $20,000 in a failed business and he lost $61,200 through his investment with Morgans. This amounts to $81,200 which should be deducted from the "compensation part of lump sum" in the formula provided in subsection 1165(4) of the Act set out above. The preclusion period which results from this finding is ((287,500 - 81,200) / 486.20 = 424 weeks =) 8 years 2 months.

12. The Tribunal further decides that it is appropriate in this case to take account of the respondent's background, psychological state and poor management skills to the extent that the preclusion period should be further reduced by a period of twelve months.

13. It is not appropriate to reduce the remaining preclusion period to zero because Mr. Thompson has substantial assets available to him.

14. The Tribunal notes that as a result of a combination of the SSAT decision and a stay order of the Tribunal dated 11 May 1993, Mr Thompson has been receiving a Social Security benefit since 11 May 1993, that is for about four months.

15. Taking all of the above matters into account, it is the Tribunal's decision that any pension benefit or allowance for which Mr. Thompson is qualified under subsection 1165(1)(a) of the Act is not payable to him until 13 March 1995, on which date the preclusion period is to end. The payments pursuant to the stay order have been taken into account in arriving at this date. Therefore, Mr. Thompson does not have to refund these payments.

1. The effect of the Tribunal's decision was therefore to make three adjustments to the preclusion period. First, the period was reduced by eight years and two months by deducting $81,200 from the compensation part of the lump sum as used in the formula in section 1165(4) to calculate the period. Second, the Tribunal reduced the period by another year. Finally, it offset against these reductions an extension of four months to account for the time Mr Thompson had been receiving benefits as a result of the SSAT decision to which, based on the Tribunal's determination, he was not entitled.

The appeal to this Court
19. In its notice of appeal to this Court, the Department challenges the manner in which the Tribunal exercised its discretion. Although included in the notice of appeal, at the hearing the Department withdrew the contention that it was not open to the Tribunal to find that loss had occurred through no fault of Mr Thompson's. The Department did not argue that there was any restriction on the type of consideration that can qualify as a "special circumstance" as might affect the outcome of this case. There was, therefore, no issue in this Court that the Tribunal took into account irrelevant considerations in determining whether there were "special circumstances".

1. The Department argued that by failing to refer specifically to some part of the compensation payment as required by section 1185, the Tribunal failed properly to exercise its discretion in respect of all three adjustments it made to the preclusion period. The Department said that in deciding to subtract $81,200 from the compensation part of the lump sum, the Tribunal effectively treated $162,400 of the compensation payment as not having been made. In reducing the length of the preclusion period by a further year, it similarly treated $50,564.80 (52 x 486.20 x 2). In then extending the preclusion period by four months, it effectively offset against the deemed reductions already made to the compensation sum, a notional $16,854.93 (4/12 x $50,564.80). The net figure thereby deemed by the Tribunal not to have been paid was $196,109.87 ($162,400 + $50,564.80 - $16,854.93).

2. None of these figures appear anywhere in the Tribunal's reasons for judgment but it is true that they represent the effect of the judgment expressed in terms of the formula in section 1184. The question in this case is whether by framing its decision in terms of reductions in the compensation part of the lump sum and in the length of the preclusion period, rather than going through the procedure of calculating or specifying the deductions from the compensation payment to justify or explain its conclusions, the Tribunal's discretion miscarried.

The 12 month reduction
22. It is convenient to deal first with the 12 month reduction in the preclusion period. In Beadle v Director-General of Social Security (1985) 60 ALR 225 a Full Court of this Court (Bowen CJ, Fisher and Lockhart JJ) considered the meaning of "special circumstances" in a different context at 228:

More difficult would be questions of ignorance, illiteracy, isolation, illness and the like. It would depend upon the circumstances of the particular case whether these constituted special circumstances. We do not think it is possible to lay down precise limits or precise rules. The matter is one for the Director-General bearing in mind the purpose for which the power is given. The phrase 'special circumstances', although lacking precision, is sufficiently understood in our view not to require judicial gloss.

1. In Smith, Justice von Doussa applied this dictum to the predecessor of section 1184, noting that Justice O'Loughlin in Hulls had done the same. His Honour went on to describe the scope of the discretion at 61:
   

By its terms the discretion given by s 156 may be exercised where the Secretary (or a body standing in the place of the Secretary on appeal) "considers it appropriate to do so in the special circumstances of the case". These are wide words intended, as the Tribunal in Ivovic pointed out, "to allow the decision-maker the fullest opportunity to consider the particular circumstances of each case".

1. The decision of the Tribunal to which his Honour referred is Re Ivovic and Director-General of Social Services (1981) 3 ALN N95.

2. The width of the discretion under the section clearly extends to all the circumstances of the case, including circumstances not specifically related to a particular portion of the compensation payment. It is not therefore outside the section for the Tribunal to consider the general factors such as the mental health and social conditioning of the individual in concluding that the preclusion period should be shortened. Indeed it was not suggested by the Department that the Tribunal erred in so doing in this case.

3. This conclusion has significance here. In some cases the special circumstances identified by the Tribunal will direct attention to a specific part of the compensation payment that ought to be treated as not having been made. One example, referred to in Smith, is where a payment is not received by the intended recipient because of a defalcation by an agent to whom the money is paid on his behalf. In such a case the decision-maker might treat that payment as not having been made.

4. But when a special circumstance relates not to a specific element of the compensation award, but to the general circumstances of the recipient, the decision-maker (in this case the Tribunal) would rather direct its mind to the effect on the recipient of any reduction in the preclusion period. It may be that after such consideration the Tribunal decides on some time by which the period should be reduced. If so, and having determined on a time, accepting the Department's argument would mean that the Tribunal must then go through the mechanical process of justifying the reduction by working back to or from a decrease in the compensation sum. According to this argument the Tribunal must at least include in any reasons for judgment a formula to the effect that, for example, "the compensation payment be reduced by such an amount as will have the effect of reducing the preclusion period by" whatever time has been decided.

1. To invalidate a decision of the Tribunal for failure to engage in this process would in my opinion take legalism and bureaucratic pedantry too far, especially in a socially beneficial legislative framework where intuitive justice will often be as fair a criterion and as faithful to the legislative intention as any other approach. In this case there was no suggestion that the Tribunal was guided by improper considerations, or arrived at other than a fair and proper result. The only criticism is that in failing to address the formula to arrive at a deemed reduction in the compensation payment, the Tribunal erred in law. That proposition I entirely reject. A Tribunal might err if its reduction is so inconsistent with its findings of fact or other determinations as to be unable to stand consistently with them, or is so gross as to be absurd. But, in the absence of such an occurrence, a Tribunal that decides that it is appropriate in light of accepted and acceptable "special circumstances" to reduce the length of the preclusion period, may express that opinion in terms of the length by which the period should be reduced, without specifying the corresponding reduction in the compensation sum.

Deduction from the "compensation part of the lump sum"
29. The decision of the Tribunal to deduct $81,200 from the compensation part of the lump sum in the section 1165(4) formula, and reduce the preclusion period accordingly, presents a slightly more complicated problem. If the Tribunal had done no more than identify an amount that ought to be treated as not having been paid and then deducted it from the compensation part of the lump sum before applying section 1165, the implication might be available that the Tribunal did not understand or properly address its discretion.

1. However, that is not this case where the special circumstance was that through no fault of his own, Mr Thompson lost some of that part of the lump sum set aside for income replacement. The Tribunal specifically indicated that the $81,200 was significant for this reason, and that it was appropriate to deduct that amount directly from the amount deemed by the Act to be for economic loss and used in the calculation of the preclusion period. It was argued that it was not open to the Tribunal to dissect the lump sum in this way, and to determine that a certain part of it be treated as being solely for economic loss. This argument was based on the decision of Justice O'Loughlin in Hulls where his Honour concluded at 578 that:
   

Once the mischief at which the amending legislation was aimed has been so clearly identified, it becomes apparent that the legislation prevents any dissection of the "lump sum". Although those words are not defined, I respectfully agree with what von Doussa J said of them in Banks' case: "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".

1. In that case his Honour decided that it was not open to the Secretary of the Department under section 1184 to discount the lump sum by the amount for legal costs for the purpose of calculating the preclusion period. A similar decision was made by Justice von Doussa in a'Beckett. Their Honours decided that by the 50% rule the legislation has dictated how a lump sum payment is to be treated, and that section 1184 does not provide a mandate for adjusting that balance.

2. The problem in this case is entirely different. The $81,200 was not identified on a separate basis from that on which it was originally awarded, but because of what subsequently happened to it, and the specific purpose to which it was put. The fact that it was put to income replacement, and lost through no fault of Mr Thompson's, raised the "special circumstances" necessary for section 1184. The Tribunal attempted to tailor its order specifically to the nature of the circumstance upon which it was acting, by ensuring that the amount had a direct and proportional impact on the preclusion period. To engage in this kind of decision-making is, in my view, to better inform the parties, especially the applicant for the benefits, how the length of the preclusion period was reached. It is to be encouraged, not criticised or curtailed. Clearly the Tribunal could have made the same order and achieved the same result by deducting $162,400 from the lump sum compensation payment, and presumably would do so if the matter was remitted for further consideration. The law should not encourage decision-makers to engage in theoretical mathematical exercises that only distort the true nature of and reasons for their decision. This decision was a proper exercise of the discretion under section 1184.

The additional four months
33. The final adjustment to the preclusion period made by the Tribunal was to extend it by four months. In fact, there is no power to extend the preclusion period, and this part of the decision is best characterised as an offset against the other two adjustments made. The Department appealed against this aspect of the decision as well, notwithstanding that it was actually in its favour. This is presumably explained by the fact that had the order not been made, the Department could and presumably would recover the four months payments from Mr Thompson under section 1166 of the Act. The effect of the order was not, therefore, to change the preclusion period, but to offset four months of pension payments already, albeit wrongly, received with a four month period during which no payments would be received. Mr Thompson did not apply to have this decision set aside, so the Department did so in a formal sense, on the ground that if I were to uphold its submissions on the other two grounds I should also set the Tribunal straight on this ground. I see no basis for remitting the entire matter on the basis of this one aspect, which itself does not adversely affect the interests of either party and where in substance as distinct from form the Tribunal did not err.

Conclusion
34. I dismiss the appeal with costs.