Secretary, Department of Social Services and Jason Cooper
[2015] AATA 41
•23 January 2015
[2015] AATA 41
Division GENERAL ADMINISTRATIVE DIVISION File Number
2014/2666
Re
Secretary, Department of Social Services
APPLICANT
And
Jason Cooper
RESPONDENT
DECISION
Tribunal G. D. Friedman, Senior Member
Date 23 January 2015 Place Canberra The Tribunal sets aside the decision under review and substitutes a decision that Mr Cooper is subject to a compensation preclusion period from 6 August 2006 to 16 September 2017.
.........................[Sgd]....................................
G. D. Friedman, Senior Member
CATCHWORDS
SOCIAL SECURITY – compensation preclusion period – whether special circumstances exist to shorten period – whether expenditure reasonable – application of the 50% rule – whether costs should be deducted
LEGISLATION
Social Security Act 1991 ss 17(3), 1170(3), 1170(4), 1184K(1)
CASES
Clark v Secretary, Department of Employment and Workplace Relations [2007] FCA 1076
Deacon and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs [2009] AATA 88
Drake v Minster for Immigration and Ethnic Affairs (1979) 46 FLR 409
Fitzgerald and Secretary, Department of Education, Employment and Workplace Relations [2008] AATA 271
Fuller and Secretary, Department of Family and Community Services [2004] AATA 615
Gifford and Secretary, Department of Social Services [2014] AATA 873
Morrison and Secretary, Department of Social Services [2014] AATA 825
Page and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs [2009] AATA 370
Panetta and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs [2009] AATA 996
Pilato and Secretary, Department of Social Services [2014] AATA 775
Re Beadle and Director-General of Social Security (1984) 6 ALD 1
Sard and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs [2011] AATA 106
Secretary, Department of Employment & Workplace Relations v Barrington [2006] FCA 527 Secretary, Department of Families, Housing, Community Services and Indigenous Affairs and Waters [2011] AATA 666
Secretary, Department of Family and Community Services v Chamberlain [2002] FCA 67 Secretary, Department of Social Services and Muir [2013] AATA 831REASONS FOR DECISION
G. D. Friedman, Senior Member
23 January 2015
Jason Cooper was injured in an accident at Canberra Stadium on 6 August 2006. He commenced a claim for damages for personal injury in 2008 in the Supreme Court of the Australian Capital Territory and on 28 January 2014 the proceedings were settled on the basis that Mr Cooper would receive $1,025,000 comprising $800,000 plus costs of $250,000. On 3 March 2014 an authorised review officer of the applicant affirmed a decision to impose a lump sum compensation preclusion period (preclusion period) of 580 weeks from 6 August 1996 to 16 September 2017 during which Mr Cooper would be ineligible to receive income support from Centrelink.
On 17 April 2014 the Social Security Appeals Tribunal (SSAT) set aside the decision and substituted a decision that the preclusion period be reduced to 442 weeks from 6 August 2006 to 25 January 2015 on the basis of reasonableness of Mr Cooper’s expenditure of the settlement amount; the effect of the 50% deeming provision in s 17(3) of the Social Security Act 1991 (the Act) given that the settlement attributed $400,000 to economic loss; and the excessive amount of legal costs actually incurred by Mr Cooper. The applicant seeks review of the decision.
LEGISLATION
Section 17(3) of the Act provides:
Subject to subsection (4), for the purposes of this Act, the compensation part of a lump sum compensation payment is:
(a) 50% of the payment if the following circumstances apply:
(i) the payment is made (either with or without admission of liability) in settlement of a claim that is, in whole or in part, related to a disease, injury or condition; and
(ii) the claim was settled, either by consent judgment being entered in respect of the settlement or otherwise;
…
Section 1184K(1) of the Act provides:
1184K Secretary may disregard some payments
(1) 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 is appropriate to do so in the special circumstances of the case.
ISSUE
There was no dispute between the parties that the preclusion period had been calculated correctly under s 1170 of the Act. The only issue before the Tribunal is whether special circumstances exist under s 1184K(1) of the Act to treat all or part of the lump sum compensation payment as having not been made, which would reduce the length of the preclusion period. This requires consideration of the following:
· Was Mr Cooper’s expenditure of the settlement money reasonable in the circumstances?
· Does the operation of the 50% rule in s 17(3) of the Act constitute special circumstances?
· Does the inclusion of legal costs paid to Mr Cooper as part of the settlement money constitute special circumstances?
WAS MR COOPER’S EXPENDITURE OF THE SETTLEMENT MONEY REASONABLE IN THE CIRCUMSTANCES?
Mr Cooper told the Tribunal that after leaving school he worked in a number of labouring jobs before becoming a ceramic tiler. He began a relationship with his former partner in 1985 and they had two daughters, born in 1990 and 1992 respectively. In 2002 he and his former partner purchased a house in Canberra and he made the mortgage repayments from his wages as the primary provider. He said that in August 2006 he fractured his neck at a rugby league match when he was participating in a promotional competition during the half-time interval. He has since developed complex regional pain syndrome and depression and stated that he will never work again.
Mr Cooper explained that after the accident his former partner had to work full-time to support the family and make the mortgage repayments, as he had no income. His daughters also helped by securing part-time work after school, but the family faced financial difficulty. As a result of the stress of the situation his relationship with his former partner ended in 2008 and he remained in the family home although separated. He borrowed money from friends. He stated that in 2010 he moved to his mother’s house and commenced receiving a disability support pension. In 2014 he reached agreement with his former partner to transfer his interest in the former family home to her in full, for no payment to him, as a means of leaving his assets to his children.
In respect of his legal action following the accident Mr Cooper stated that the proceedings took a long time and settlement occurred in January 2014. He said that he received a net amount of $516,236.65 from the settlement money after disbursements, consisting of $440,000 from the settlement itself and a Medicare refund of $76,236.65. When he received the settlement money in February 2014 he decided to secure his future by purchasing a house near Bateman’s Bay, New South Wales, and his mother lives with him. He told the Tribunal that he decided on a three-bedroom house so that his children and grandchildren would have a place to stay when they visit from Canberra. He also decided to purchase new furniture and appliances because he did not wish to use his mother’s old items.
Mr Cooper said that during the four-month period from February 2014 the major items of expenditure from the settlement were:
$
Purchase of house
(including stamp duty and legal fees) 409,000
Ride-on lawn mower 2,990
Household items 2,887
Haberdashery 575
Television and telephone connection 410
Blinds 690
Microwave oven 350
Ramps for lawn mower 296
Car accessories 95
Food 594
Blinds 473
Computer accessories 179
Mobile telephone 199
Gas connection 240
Electricity (3 months) 509
Home and contents insurance 1464
Car insurance 887
Mobility scooter 5,500
Fishing equipment 825
Vacuum cleaner and steamer 859
Mobility aid 850
Trailer for lawn mower 199
Outdoor setting 900
Barbeque and gas cylinder 319
Clothes and electrical appliances 1,200
Pool table 1,025
Computer 900
Glass cabinet 200
Plants and pots 335
Garden hose 80
Fire pit 280
Coffee table 250
Security system 790
Linen, bedding, kitchen items 2,500
Beds (2) 5,000
Whitegoods 2,500
Removalist 2,100
Computer parts 469
Televisions (2) and stereo system 4,500
Car 9,500
Repayment of loan (Ms K Ward) 4,000
Repayment of loan (Mr D Gill) 20,000
Solar power installation 5,700
Total 492,619
He said that in addition to the items listed above he gave his younger daughter $14,500 in March 2014 to assist her boyfriend with the purchase of a motor vehicle. He said that this was a gesture of his appreciation for his daughter’s efforts to helping the family financially after his accident when he could no longer work. He also stated that he made additional online purchases such as model cars (up to $2000) and items of memorabilia.
Under cross-examination Mr Cooper stated that his spending was justified because he was confident that the preclusion period would be reduced after he was assured by the Presiding Member of the SSAT during an unrelated application in about 2010 that any financial settlement following his accident would not include legal costs in the calculation, although at the time he did not know the length of any preclusion period. He agreed that many items he purchased were not necessities but stated that as he was unable to work he needed a good quality stereo system and television (he now has four television sets in the house), a pool table and games machine to help occupy his time. He said that as a matter of principle he believed that he was obliged to repay the debts to Ms Ward and Mr Gill as soon as he received the settlement money, and he felt a moral obligation to repay $20,000 to his mother for money that she had lent him.
Mr Cooper agreed further that he was aware that he had an obligation to ensure that the settlement money would last until the end of the compensation preclusion period, but he did not have a financial plan. However he maintained that purchases such as solar panels and a ride-on lawn mower with trailer would save money in the longer term. He said that his decision to purchase a modest house was sensible because of the high cost of renting. He said that he did not have access to internet banking and was unable to monitor his spending. Mr Cooper admitted that some of his spending decisions had not been wise in the circumstances but were not irresponsible. He said that he wanted to be generous towards his children, and emphasised that he did not wish to retain his mother’s old furniture, so he purchased new items.
In respect of his decision to transfer his share of the family home to his former partner, Mr Cooper said that he believed that this was fair because his former partner had made mortgage repayments after his accident when he was unable to work. He added that he wanted to leave his share of the house (estimated by him to be $20,000) to his children, and he was confident that his former partner would ensure that this occurred. Under cross-examination he agreed that he had not sought or received advice from his solicitor about the consequences for his preclusion period of transferring his equity in the house. He agreed that his share of the house might be closer to $100,000 than $20,000, and that he could leave an inheritance (including his newly-purchased house) to his children by including them in his will.
Consideration
The term special circumstances is not defined in the Act. In Re Beadle and Director-General of Social Security (1984) 6 ALD 1 the Tribunal held that the term referred to circumstances that are unusual, uncommon or exceptional. In Clark v Secretary, Department of Employment and Workplace Relations [2007] FCA 1076 Lingren J referred to circumstances which make the case unusual or out of the ordinary run.
There is no doubt that when he received his settlement money Mr Cooper was aware that the sum had to last until September 2017. His belief that the preclusion period would be reduced was based on a comment he said was made at an unrelated hearing of the SSAT some four years earlier, and there is no record of the comment or the context in which it was made, although the Tribunal accepts the assurance from Mr Cooper’s solicitor, who was present when the comment was made, that the Presiding Member of the SSAT did in fact make such a comment. In any event, when Mr Cooper received the settlement money and purchased the house and other items in the following four-month period, the authorised review officer of Centrelink had affirmed the decision that the preclusion period would last until 2017, and there was no guarantee that any future appeal by Mr Cooper to the SSAT would succeed in reducing the preclusion period. He did not seek legal advice or clarification from Centrelink before relying on the comment by the SSAT Presiding Member and before assuming that the preclusion period would end in January 2015.
By his own admission Mr Cooper purchased items such as new furniture, a pool table, games machine, solar panels and a ride-on lawn mower and trailer that were not necessities. He repaid loans to friends in full and gave his daughter $14,500 to help her boyfriend to purchase a motor vehicle. He chose to transfer his equity in the former family home to his former partner, apparently without seeking legal advice, instead of using his share of the value of the property to ensure that he had sufficient funds to last until the end of the preclusion period, or even until January 2015 when he believed the period would end.
In all the circumstances the Tribunal finds that Mr Cooper’s financial situation, in which he spent most of the settlement money in a four-month period commencing in February 2014, was a result of his own choices. He made unwise, irresponsible and unnecessary decisions in a situation where he was aware of the necessity to use the settlement money in a sensible manner and to set aside sufficient funds to meet his living costs during the preclusion period. The Tribunal concludes that the expenditure of the settlement money was not reasonable and his circumstances, including his financial situation, do not give rise to special circumstances. Therefore the discretion in s 1184K(1) of the Act should not be exercised as a result of Mr Cooper’s expenditure of the settlement money.
DOES THE OPERATION OF THE 50% RULE IN S 17(3) OF THE ACT CONSTITUTE SPECIAL CIRCUMSTANCES?
The preclusion period is calculated using the formula in s 1170(4) of the Act: the compensation part of the lump sum payment divided by the income cut-out amount. Under s 17(3) of the Act the compensation part of the lump sum is 50% of the lump sum payment and is known as the 50% rule, which is a deeming provision.
The terms of settlement for Mr Cooper in the amount of $800,000 plus costs of $250,000 included a notation that $400,000 of the overall settlement was referrable to his claims for economic loss and loss of superannuation. Mr Cooper submitted that the preclusion period should be calculated by reference to the sum of $400,000 rather than $525,000 (50% of the total lump sum payment and costs) because the amount of $525,000 is significantly more than the amount of $400,000 allowed for economic loss. The SSAT accepted this argument and held that application of the 50% rule would be unfair. It also found that Mr Cooper was compensated for more than seven years of lost earnings prior to the settlement, so the application of the 50% rule to the amount of $525,000 still produces a preclusion period extending almost four years into the future.
In Secretary, Department of Family and Community Services v Chamberlain [2002] FCA 67 Keifel J noted that the 50% rule was introduced in 1988 to prevent manipulation of settlements to obscure the economic loss component of compensation payments and avoid recovery of social security payments. She stated at [25]:
…The statutory purpose is to overcome the need in each case to determine what part of a lump sum compensation payment in truth represents economic loss. Although the assumptions to be made and the result reached are necessarily arbitrary, it is a course which has been taken for administrative simplicity…
Her Honour stated at [35]:
The statutory objectives in utilising the formulae, referred to above, must also be borne in mind. It is not intended that a decision-maker be required to consider contentions about what part of the compensation reflected the economic loss component. That is so whether one has regard to the application of the formulae or the discretion under s 1184. The latter does not alter the objective and must be read in light of it.
In Clark v Secretary, Department of Employment and Workplace Relations [2007] FCA 1076 Lindgren J stated at [42] to [44]:
[42]…In a perfect world, the preclusion period would run from the date of injury until the sum of $1,400,000 was exhausted, and in Mr Clark’s case from 31 October 2000 until whatever amount was included in the sum of $280,000 for loss of earnings and of earning capacity was exhausted. But in an imperfect world in which settlement figures were being manipulated so as to understate the component for loss of earnings and of earning capacity, the legislature has solved the problem by the rough and ready 50 percent rule.
[43] The provisions reflect a policy decision to treat that which remains after any repayment of any periodic compensation payments as relating, as to 50 percent, to loss of earnings or of earning capacity, in respect of the period after the expiry of the period covered by those payments. The provisions reflect an acceptance by the legislature that it is not practicable to achieve complete justice attuned to the circumstances of each individual case.
[44] It may well be that in Mr Clark’s case, because of his age, the sum of $280,000 included no component, or only a very small component, for loss of his capacity to earn beyond age 65 (29 April 2004) and the statutory formula produces a result that is unfair to him, but if so, that result flows from a deliberate policy decision of the legislature favouring simplicity and efficiency of administration and reduction in administrative costs over attaining a fair result in each case considered on its individual merits.
Consideration
The Tribunal considers that the legislative intent of the 50% rule has been explained in Chamberlain by Keifel J and followed in Clark by Lindgren J as a clear and deliberate policy that will not necessarily achieve complete justice in each case. Consequently the Tribunal finds that, despite the notation in the settlement document that $400,000 of the settlement money was for economic loss and loss of superannuation, application of the 50% rule in this case does not constitute special circumstances that would justify exercise of the discretion in s 1184K(1) of the Act.
DOES THE INCLUSION OF LEGAL COSTS PAID TO MR COOPER AS PART OF THE SETTLEMENT MONEY CONSTITUTE SPECIAL CIRCUMSTANCES?
Centrelink included the amount of $250,000 for legal costs in its calculation of the compensation preclusion period. Mr Cooper submitted that this amount should be deducted from the total amount of $1,025,000 because its inclusion amounts to special circumstances. He produced evidence indicating that his total legal costs were between $319,835.56 and $384,835.56.
In Fuller and Secretary, Department of Family and Community Services [2004] AATA 615 Downes J held that a payment for legal costs, where it forms part of the lump sum, is to be included in the lump sum for the purposes of calculating the lump sum preclusion period. However he referred to the unfairness of Centrelink’s practice of including legal costs in the amount of compensation where the settlement was inclusive of costs but not where the settlement was plus costs and stated at [27]:
I have referred above to the anomaly which arises from the way in which the respondent treats settlements which provide for costs to be subsequently assessed. It excludes the costs from the calculation of the lump sum preclusion period. It does this because of the hardship that would result from delay. In adopting this approach the respondent must be exercising a discretion relating to the application of the Act. It is presumably the discretion conferred by s 1184K. If hardship is a basis for the exercise of such a discretion it seems to me that unfairness must also be a basis for the exercise of that discretion. Section 1184K is not confined to hardship. Moreover, being treated unequally can be a hardship. Where the costs agreed in a settlement are a genuine assessment of those costs it seems to me that there is an unfairness arising out of the different way in which applicants are treated. I do not see any reason why in a case in which an agreed sum of costs is a genuine assessment of those costs the applicant should not be treated in the same way as an applicant who is a party to a settlement where costs are to be subsequently agreed or assessed. Indeed, well advised applicants would probably seek to negotiate a figure with costs to be agreed on assessed in the future even if those costs were agreed very shortly after the settlement was reached.
Downes J went on to recommend at [29]:
…that consideration be given to the question of whether, by parity with its practice of calculating preclusion periods without regard to the amount of costs to be paid when those costs are not agreed at the time of settlement, a decision should be made in the present and all similar cases, where there is no reason to doubt the genuineness of the assessment of costs, by which those costs are not taken into account in calculating the lump sum preclusion period. Where there is any doubt as to the genuineness of the assessment of costs the legal representatives of the applicant can be required to verify the fact that the total amount of the costs has in fact been paid to them.
In a number of decisions the Tribunal has excluded legal costs, relying on Fuller. In Deacon and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs [2009] AATA 88 the Tribunal concluded that the unfairness arising from the inclusion of legal costs amounted to a special circumstance enlivening the discretion in s 1184K of the Act. The Tribunal treated the amount of costs received as having not been made and deducted this sum from the compensation amount, resulting in a reduction of the preclusion period. Similar conclusions were reached in Page and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs [2009] AATA 370; Panetta and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs [2009] AATA 996 and Gifford and Secretary, Department of Social Services [2014] AATA 873.
The approach in Fuller has not been adopted in a number of cases. In Pilato and Secretary, Department of Social Services [2014] AATA 775 the Tribunal noted that Fuller has not been adopted in decisions where the costs were a small proportion of the amount received (for example Sard and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs [2011] AATA 106) or were non-recoverable. The Tribunal did not apply the Fuller approach but treated the non-recoverable part of the legal costs (excess of solicitor-client costs over the amount allowed for party-party costs) as if it had not been paid. In Morrison and Secretary, Department of Social Services [2014] AATA 825 the Tribunal did not apply the Fuller approach but deducted a portion of legal costs which it found to be excessive.
In Secretary, Department of Social Services and Muir [2013] AATA 831 the Tribunal found that the payment of solicitor-client costs in the settlement agreement did not constitute special circumstances. In Secretary, Department of Families, Housing, Community Services and Indigenous Affairs and Waters [2011] AATA 666 the Tribunal found that the legal costs did not appear to be out of the ordinary and did not give rise to special circumstances. In Fitzgerald and Secretary, Department of Education, Employment and Workplace Relations [2008] AATA 271 the Tribunal found that legal fees were largely unavoidable and were not unusual or uncommon so did not constitute special circumstances.
In Secretary, Department of Employment & Workplace Relations v Barrington [2006] FCA 527 Heerey J stated at [37] that:
…It may be doubted…that much would be gained by analysis of other Tribunal decisions where costs components of varying proportions to the gross compensation figure either did or did not result in a finding of special circumstances; each case must turn on an assessment of all its own facts and circumstances.
Consideration
Part 4.13 of the Guide to Social Security Law (the Guide) recognises that it may be appropriate to disregard all or part of legal costs in the exercise of the discretion under s 1184K of the Act. The Guide states at paragraph 4.13.4.20 that a relevant factor in determining whether special circumstances exist is whether there are excessive legal costs involved in the settling of a claim for compensation, and the decision-maker is to consider the extent to which the costs are excessive and to decide what excess cost (or part thereof) is to be treated as a special circumstance.
The policy contained in the Guide is not binding on the Tribunal, but if the policy is consistent with the legislation the Tribunal must have regard to the policy and follow it unless there is cogent reason not to do so (Drake v Minster for Immigration and Ethnic Affairs (1979) 46 FLR 409). In this case the Tribunal considers that there are no cogent reasons to depart from the policy, and the Tribunal takes into account that the recommendations by Downes J in Fuller have not been implemented. If Parliament had intended that legal costs be excluded in calculating the preclusion period in all cases, it could have legislated accordingly, and this has not occurred.
For these reasons the Tribunal does not adopt the approach recommended in Fuller and agrees with the approach suggested by Heerey J in Barrington that the matter under review should be decided on its own circumstances. Therefore the payment of legal costs is, in itself, not a special circumstance and should not automatically be excluded from the settlement amount, and if the particular amount of legal costs is so excessive to be out of the ordinary, this may give rise to special circumstances.
Mr Cooper’s litigation in the Supreme Court of the Australian Capital Territory was complex; it lasted six years and involved numerous counsel. It resulted in a settlement amount of $1,025,000 including costs of $250,000. The evidence before the Tribunal indicates that Mr Cooper’s total legal costs were between $319,835.56 and $384,835.56. As he received $250,000 in the settlement for legal costs he was required to contribute a further amount of between about $70,000 and $130,000, or between 8.75% and 16.25% of the settlement amount of $800,000.
It is not uncommon or unusual for solicitor-client (or actual) costs to exceed party-party (or agreed) costs in any settlement of a claim for compensation. In the circumstances the Tribunal considers that the amount included for legal costs, although high, was not excessive or out of the ordinary in the context of a total settlement of $1,025,000 (similar to the outcome in Waters and Muir) in a complex Supreme Court matter, and the Tribunal concludes that the inclusion of the amount of legal costs has not resulted in any substantial unfairness to Mr Cooper. Consequently the Tribunal finds that the inclusion of the legal costs does not justify the exercise of the discretion in s 1184K(1) of the Act.
Conclusion
As a result of its findings the Tribunal concludes that under s 1184K(1) of the Act there are no special circumstances in Mr Cooper’s situation to justify treating all or part of the compensation payment as having not been made.
DECISION
The Tribunal sets aside the decision under review and substitutes a decision that Mr Cooper is subject to a compensation preclusion period from 6 August 2006 to 16 September 2017.
I certify that the preceding thirty-seven (37) paragraphs are a true copy of the reasons for the decision of G. D. Friedman, Senior Member ...............................[Sgd]....................................
Associate
Dated 23 January 2015
Date of hearing 26 November 2014 Date final submissions received 9 January 2015 Advocate for the Applicant Mr L Zangari Solicitors for the Applicant Australian Government Solicitor Advocate for the Respondent
Solicitors for the respondent
Mr R Montagnino
United Legal
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