Sheehan and Secretary, Department of Employment and Workplace Relations
[2006] AATA 785
•13 September 2006
Administrative
Appeals
Tribunal
DECISION AND REASONS FOR DECISION [2006] AATA 785
ADMINISTRATIVE APPEALS TRIBUNAL )
) No N2005/1421
GENERAL ADMINISTRATIVE DIVISION ) Re RICHARD SHEEHAN Applicant
And
SECRETARY, DEPARTMENT OF EMPLOYMENT & WORKPLACE RELATIONS
Respondent
DECISION
Tribunal Senior Member, Mrs Josephine Kelly Date of decision 13 September 2006
PlaceSydney
Decision The decision under review is affirmed.
[Sgd] Senior Member, Mrs Josephine Kelly
CATCHWORDS
SOCIAL SECURITY – preclusion period – compensation payment – settlement –– no special circumstances found – decision under review affirmed.
LEGISLATION
Ss 17, 1169, 1184K of the Social Security Act 1991
CASES
Fuller v Secretary, Department of Family & Community Services (2004) 83 ALD 152
REASONS FOR DECISION
Senior Member, Mrs Josephine Kelly
Introduction
1.Mr Richard Sheehan had a history of back injuries before he slipped and injured his back in a shopping mall on 10 June 1998. At that time he was operating his business as an insurance investigator and computer support. He suffered a further back injury a year later when he fell at a recreation area. He commenced legal proceedings for damages in relation to the injuries at the shopping mall and the recreation area, which were settled by consent orders on 18 August 2004 for $550,000 plus costs to be agreed or assessed (T29). Costs of $350,000 were paid later (T35). The total sum arising from the proceedings was $900,000.
2.Consequently Centrelink determined a preclusion period in respect of receipt of social security benefits from 10 June 1998 to 20 September 2011. A debt of $49,538.63 was also raised for social security payments made to Mr Sheehan during the period 8 June 1999 to 3 November 2004 when he was receiving disability support pension before he received his compensation payment (T36). The determination was based on a total compensation amount of $900,000. On review, the Social Security Appeals Tribunal (the SSAT) set aside the decision with a direction that the costs of $350,000 to be disregarded, and a recalculation be done on the basis of a lump sum compensation payment of $550,000. The re-calculation resulted in the preclusion period ending on 25 July 2006. Mr Sheehan sought review of the SSAT’s decision in this Tribunal.
Issues
3. The Respondent Department did not seek to disturb the SSAT’s decision in respect of the costs component of the payment Mr Sheehan received. This concession was made because the SSAT exercised its discretion pursuant to section 1184K of the Social Security Act 1991 (“the Act”) and applied paragraph 4.12.2.30 of the Guide to the Social Security Law which directs delegates not to include costs that are not ascertained at date of settlement. The SSAT also took into account the matters Mr Sheehan had put to them in exercising the discretion. Therefore, only the payment of $500,000 was the subject of argument before me.
4.The issues that arise in this appeal are:
i) Whether or not Mr Sheehan received a compensation payment, and if so,
ii) Whether there are any special circumstances in his case such that all or some part of his compensation payment should be disregarded so as to shorten the preclusion period.
Mr Sheehan’s Circumstances
5.Following is a summary of the material put forward by Mr Sheehan as establishing special circumstances within the meaning of section 1184K of the Act. It also contains material relied upon to support an argument that the payment was not relevantly a compensation payment as defined in section 17 of the Act.
Mr Sheehan’s Family Circumstances
6.Mr Sheehan is married. His wife is his carer and therefore she cannot work. She receives carer’s allowance. He depends on her a great deal. He believes that the stress on her will is enormous. He has five children. One is an adult who is working and one is 19 and studying at the University of NSW. Another child is 16 and Mr Sheehan pays some limited child support for him. He has two dependent children living at home. They are 11 and 9.
Mr Sheehan’s Health
7.Mr Sheehan has a history of back injuries apart from the two referred to above which occurred in 1998 and 1999. His first injury was in 1976 on the HMAS Penguin, but benefits have been denied by the department of defence. This injury caused significant problems to his back. In 1978 he injured his back while serving as a Police Officer and he further injured his back in 1992 when he fell backwards on some stairs while he was carrying some papers. Up until 1998 he describes the pain in his back as episodic and he was only disabled for limited periods.
8.He has had six operations. He had spinal manipulation in 1998, an injection in 1999, and a test to check whether a morphine intrathecal pump would work. In March 1999 he had a minor procedure. In June 1999 Dr Blum inserted the intrathecal pump. Dr Santoraj inserted another in 2004 in two procedures. Dr Brown carried out a colonoscopy and anal tear repair in 2004. Mr Sheehan attempted to return to work after the pump’s insertion in 1999, but could not devote the appropriate amount of time.
9.In 2000, he required a wheelchair for transport except for short distances. He also said that in 2001 he went from canes, to crutches to wheelchair over a period of six months.
10.Mr Sheehan states that he is in extreme pain and is on extensive medication. He has needed dental work because of the oral morphine which last year cost $6,000. He has lost bladder function and needs catheterisation several times daily. He has lost bowel control and must rely on chemicals. He referred to the cost of various drugs and products he requires.
11.He has referred pain in his legs and lower body and limitations on the movement of his legs. He suffers from permanent headaches and skin conditions due to the medication he is taking. He claims he has been in hospital over 200 times in seven years.
12.For about 3 years he has spent 90% of his time in bed. He suffers chronic depression and pain. He has attempted to commit suicide twice. He saw his psychiatrist every three weeks, but the psychiatrist retired in 2002. He is supposed to see a psychologist once a month but he says that it is too hard to get there. Since his psychiatrist told him that committing suicide was very bad for everyone else, he has kept his mental health under control. He is taking an anti-depressant.
13.He says his physical and mental condition has worsened. He said that he has been told he needs in-service rehabilitation which would cost $35,000. He needs medication that he cannot afford. He has no sexual function and is supposed to use medication that costs $80 per dose. He needs a muscle relaxant for leg contractions that costs $102 a tablet. If he had got a reasonable award he says he would have been able to afford these things.
14.He mentioned a $300 physiotherapy bill received three months ago and a $19,000 ambulance service bill received four months after his settlement, which he said was resolved by a token payment.
15.He can still stand and walk but often falls over causing further injuries. He described falls which caused transient quadriplegia for which he was admitted into hospital. He said that he was told he needed an operation to put rods in his neck but he said it is not available in the public health system. He also referred to an operation being done in Britain to destroy areas of the brain that sense pain but which would make him a paraplegic and would cost $120,000.
16.He lives in a two-storey house. He negotiates the single flight of stairs slowly. He slides down if his leg cramps are bad. He tries to manage one hour out of bed in his office downstairs. In his house he uses a Canadian crutch. Outside he uses a wheelchair. The doctor told him to walk up the driveway but apparently he does not.
17.He needs relatively inexpensive hand rails but he cannot install them as he is living in a rented house. He said that there is no public housing for disabled people. He applied last August or September but received no reply.
Financial Circumstances
18.A document was created at T50 which indicates how the compensation money was spent from August 2004 to April 2005:
Business Expense $4,143.53
Cash Withdrawal $12,655.00
Claim Related (Hotels) $953.75
Computer Parts $7,636.60
Computer Software $1,413.43
Computer – Other $6,469.13
Debt Repayment (mainly to parents) $71,376.00
Direct Saver Account Withdrawals $37,500.00
Spending on his Disability $58,555.30
Education Costs $1,712.32
Holidays/ Travel $44,069.41
Household Costs $20,359.39
Living Expense $31,879.68
Miscellaneous (Car) $32,527.57
Personal $3,985.68
Recreational $1,376.60
St George Investment (T44) $50,000.00
Total $386,613.39
19.Mr Sheehan had $100,000 left from his payment in May 2005, and $77,000 left at the time of the SSAT hearing on 13 October 2005. At the time of the hearing before me he had approximately $50,000 in two bank accounts. He said that it will be zero within a year or 8 months.
20.Mr Sheehan said he has 2 wheelchairs. He repaired one and has bought a second hand one. A suitable wheelchair costs $20,000. He gave evidence that they are expensive to repair and maintain, and have a life of 4 years.
21.He purchased 2 wheel-chair capable vehicles, one new and the other eight years old, and a second-hand trailer. He said that he had to make choices about expenditure. He said that they have to last 20 or 30 years. He said that at the time of purchase he had medical appointments that conflicted with his wife’s transporting children in a choir and sports teams. At the time he did some computer work but apparently his condition has changed a lot since then.
22.In relation to the computer software he said that it was for ongoing computer work. He earned a few thousand dollars until he could not do it any more. He will try anything to avoid being useless.
23.He purchased a hydrotherapy spa because he was told he should have it. It helps him. He uses it every day. Later in evidence, he also said that he sometimes does not go downstairs, where the spa is located, for three or four days.
24.He said putting “Holiday” in the list was a “big mistake”. One trip was travelling to Melbourne to collect a second car and wheelchair. The majority of the $44,000 was spent on a business attempt when he went to Germany, Hong Kong and China. He could not go alone. Because George Bush was in Paris he had to spend time in Amsterdam which cost $6,000. He said he had a business offer in writing and it was worth the risk of pursuing it. However, the CEO of the company backed out. Travelling was a nightmare. He could not fly directly and had to stop in Singapore for 2 days. All sorts of breaks had to be made. This evidence was at odds with his note in a letter to Centrelink dated 12 April 2005 in which he acknowledged that some of his expenditure might have been better used and gave the example: “I had promised a family holiday and found Europe fares to be very inexpensive. It was the other costs that keep accumulating that made the holiday a major cost.”
25.At the end of the hearing Mr Sheehan said that whether expenditure was a waste of money was a matter for him. The psychological effects on his family have to be taken into account, including keeping his wife happy to make sure she does not leave. Economically the second she leaves, the cost to the Federal Government will be enormous. His wife was close to giving up several times. She said over and over that they would go on a holiday because they had had none. There were dual requirements for the overseas trip – his wife’s state of mind and the business opportunity. The same applied to paying the rent on the house.
26.He said that the household costs and living expenses in the above list included medical expenses. In addition, he had electricity and Optus bills that were months old. So the living expenses were not just for 14 months.
27.He went bankrupt on 2 August 2004, just before the hearing in the Supreme Court. He described how he lost his own house through a ‘fraud’ related to his mortgage, and which involved four years of proceedings in the Supreme Court. He and his wife thought it was a litigation mortgage, but in fact it was an ordinary mortgage. He also attributed the loss of his home to his injury. He said he would have had substantial equity in his home but for the injury. Statements of Account show that the loan commenced on 18 January 2001 for the amount of $459,000. The loan maturity date was 15 October 2028. By June 2001 payments had been missed and the loan value was now $469,256.42 (T23). By June 2002 more repayments had been missed and the loan value was $519,457.00 (T24). Further repayments were missed and by December 2004 the loan was $929,614.53 (T45). Penalty interest rates were being charged. He said that the mortgage cost $1.3 million by the end including costs but the matter was settled on the basis that the house was taken. There is a possibility that the mortgage insurer may pursue an outstanding claim for around $600,000 against his wife.
28.Mr Sheehan said that if the house was disregarded, at the time the statement of affairs was prepared in 2004 in relation to the bankruptcy, their other debts totalled $100,000, including the debt to his parents. In relation to the repayment of loans of $71,356, Mr Sheehan said that his mother is gravely ill, his parents have no assets, and although he is bankrupt and has no legal obligation to repay it, he had a moral obligation to do so.
29.He and his family moved into a rental property in March 2005. He pays rent of $550 for a large two-storey house. His wife wanted to stay in the area where their home was to be near friends and where she is involved in various activities. He is concerned about her fragile mental state. He said that they cannot continue to stay there as he will run out of money and have to go to a nursing home to get medication which he will not be able to afford. He fears that if they moved she would leave him.
30.In his 12 April 2005 letter to Centrelink, Mr Sheehan stated that before the settlement he had provided to Centrelink a detailed account with receipts of all expenses relating to his medical condition showing that the year average had been greater than $700 for a couple of years and still was more than $150 in “our very best week without any provision of larger costs such as wheelchair replacements”.
The circumstances relating to the settlement of the legal proceedings
31.Mr Sheehan described a number of difficulties with his legal proceedings which contributed to their being settled. They included adverse publicity, the proceedings running for longer than expected, and an argument that he had suffered little economic loss because his income was very low in some income tax returns. He explained that that was so because he was using a company structure but that he was responsible for 95% of the earnings of the company. The costs of the case were increasing and the solicitors could not afford to run it. They also feared that if he was awarded $2 million, costs would swallow up that amount. There were also difficulties arising from the number of previous injuries he had suffered. In a letter to Centrelink dated 12 April 2005 Mr Sheehan stated that a difficulty was that he had not worked for much of 1992 and into 1993 because of an injury and still suffered the effects in 1998.
32.He said that when the offer of settlement was made the barrister said it was a contribution to medical expenses, and he believed that.
Large claims are rare
33.Mr Sheehan emphasised that his claim, the subject of the legal proceedings, and settlement was a large medical claim. He referred to ongoing medical costs, costs of modifications to four houses in a lifetime each costing $120,000, increasing cost of nursing, and the cost of motor vehicles and cars. The economic loss component was minor he said.
34.He argued that there would be few cases worth $1 million dealt with by Social Security. The larger the claim, the less likely it is based on economic loss because ongoing medical costs are fixed, legislation limits general damages and economic loss, and although it is not retrospective, judges tend to follow it. In any substantive award the award of a pension would not be an issue. He also said that the smaller the real loss the better the 50% rule works.
35.Mr Sheehan said that a document headed “Schedule of Damages” (T32) in which his future economic loss was set out as $3,100,000 had been prepared in a hurry when his proceedings were transferred from the District Court to the Supreme Court. The figures were just to show that the claim exceeded the $750,000 jurisdictional limit of the District Court. He said the medical expenses were understated and the economic loss overstated. Those figures did not reflect what happened in the Supreme Court he said.
Other matters
36.Mr Sheehan said that he had been assured during an interview with Centrelink which occurred around the time of settlement, that the preclusion period would be eight years, that is, it would end two years after the settlement.
37.He said that any other social security recipient would be permitted assets to $350,000 and allowed a reasonably generous income before the DSP was affected. He also referred to a winner of lotto or to people who receive an inheritance and said that that would not affect their pension. They would buy a house and in a few weeks they would be entitled to a pension. If his award had been split over 8 years he would not have lost his pension and would not have had to pay any money back. He referred to the amount he had had to pay back to the HIC and additional legal costs of $26,000 to a firm who had acted for him initially. In short, his position was unfair by comparison with others. In this context, I understood his argument to be in part that the $550,000 or part of it was the equivalent of the value of a house, and as he has lost his house because of the injury, this amount should be considered as an asset in the same way as a house.
Cross-examination
38.Mr Sheehan was cross-examined about various matters. Relevantly, he said that for 1998/1999, the budget for his company was $212,000. He was also offered a job for $400,000 that year. When he tried to commit suicide twice, his psychiatrist recommended he have an activity. From about 2002 he pursued an interest in model trains. He bought from deceased estates in the main. He purchased $35,000 worth of trains which was funded from selling his first purchase and reselling. Later he said that he borrowed $35,000 from a friend to buy samples.
39.His train venture required putting advertisements on the internet site E-bay, including photographs. That required enormous expertise which he had. As his condition deteriorated he could do less and less. He is currently holding stock. The reason he swapped to model aeroplanes was because they could be sold to stores which involved fewer transactions. He sold the rights to the trains to an old friend who gave him the licence for the aeroplanes.
40.He went to Germany and Asia in relation to his Hobbies Galore venture concerning the aeroplanes. He went to Neuremberg to show his commitment to the venture but the other party reneged on the agreement. It is the biggest toy fair in the world. He took his wife and three of his children. His daughter, who is at university, was going to work in the business. He said that he got a hotel cheaply and his children’s fairs were inexpensive.
41.He bought a shipping container from China which was funded by a friend. The friend wanted legal rights against that stock and the train stock. There were 5,500 products which are stored in his garage and a room in his house. He has no idea how much they are worth.
42.He said that he paid a lot for his son who lives in Brisbane when the money came through because he had not got a lot of money for years. He also pays $320 a year through the Child Support Agency.
43.He was questioned about various items of expenditure particularly before the date of settlement. Various amounts during 2001 to 2004 related to his train venture. He said that he spent about $10,000 on trains. He said that all his income since 1999 had been spent. Income returns for the company have not been lodged for the 2001 to 2004 tax years.
44.Mr Sheehan said that he spends $300 per week on medical expenses in excess of what Medicare pays and has the receipts. They were not in evidence.
45.He tried to keep his insurance liability business going from 1999 but he fell further and further behind, and had to stop in 2001. He continued to do computer work off and on until a year ago. He works very slowly. He builds about eight computers a year. He said that his expenditure on the computers after settlement was for a good reason. It was his only chance to be productive in the longer term. He has to have some hope.
46.Mr Sheehan said that the company, now owned by his wife, earned $8,000 to $9,000 during the 2005 financial year which has been declared to Centrelink. He said that to get the mobility allowance you have to show you are doing work.
The Law
47.Section 1169 of the Act provides that where a person receives a lump sum which includes compensation for lost earnings or lost capacity to earn, compensation affected payments may not be paid to social security claimants during a lump sum preclusion period Section 1171 deems 2 or more lump sum payments received in relation to the same event that gave rise to an entitlement to compensation relevantly as a single payment.
48.Section 17 relevantly provides:
17(2) Subject to subsection (2B), 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 a lump sum or in the form of a series of periodic payments and whether it is made within or outside Australia) that is made wholly or partly in respect of lost earnings or lost capacity to earn resulting from personal injury.
17(3) 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 provides:
49.1184K(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.
Consideration
1. Did Mr Sheehan receive a compensation payment?
50. I find that the settlement payment Mr Sheehan has received was compensation within the meaning of sub-section 17(2)(c) of the Act. It was made in part in respect of lost earnings or lost capacity to earn resulting from a personal injury. That was an aspect of his claim. Although there were other heads of damage, including medical expenses, the provision applies. Mr Sheehan’s attempt to minimise the loss of earnings aspect was not persuasive. The settlement was a compromise of his claims under all heads of damage. I note the authorities referred to comprehensively by the SSAT.
51.Further I find that the settlement payments including those in respect of costs, was a lump sum compensation payment to which sections 17(3), 1169 apply and s 1171 apply.
2. Are there special circumstances in his case such that all or some part of his compensation payments should be disregarded so as to shorten the preclusion period?
52.I agree with the SSAT that the Guideline permitting the excision from the lump sum of costs subsequently assessed, is an application of the discretion conferred by s 1184K of the Act (see Fuller Secretary, Department of Family & Community Services (2004) 83 ALD 152). I note that in exercising its discretion pursuant to that section, the SSAT took into account the significant portion of the lump sum payment in respect of costs and all the other matters which Mr Sheehan has put before me.
53.I find Mr Sheehan’s evidence somewhat unreliable and exaggerated. For example, his evidence about the overseas holiday being for business reasons first arose at the hearing before me. His emphasis on that being the purpose was inconsistent with earlier evidence.
54.I accept that his and his family’s circumstances have been difficult because of his incapacity and the legal proceedings resulting in losing their home. However, as Mr Sheehan said, he has made choices in relation to his expenditure, such as the expenditure on holidays, on motor vehicles, one of which is now rarely used, on computer equipment which he cannot now utilise, on a risky business venture which he cannot pursue and on rent for a large home unsuited to his condition at a relatively high rent in order to stay in the area of his former home. Objectively these choices might be considered to have been unwise in the circumstances of his financial means and his medical condition.
55.I accept that Mr Sheehan suffers from continuing incapacity with consequential expenses, although I am not persuaded that they are as high as he has asserted.
56.I take into account that the purpose of the provisions relevant in this case is to prevent ‘double dipping’. A person who receives a compensation payment should utilise the compensation payment to live during the period determined in accordance with the legislation before qualifying for a social security benefit.
57.The costs component of $350,000 represents approximately 39% of the lump sum payment. The SSAT’s decision had the effect that the preclusion period was calculated on the basis of 50% of $550,000, that is $275,000, or 30% of the lump sum payment rather than on the basis of $450,000 or 50% of $900,000. Consequently, the preclusion period was to end approximately one week after this matter was heard. In my opinion, the disregarding of the costs component of $350,000 is appropriate in the circumstances of Mr Sheehan’s case. I am not persuaded that a larger portion of his compensation payment should be disregarded pursuant to section 1184K of the Act.
58.Accordingly, I affirm the decision under review.
I certify that the 58 preceding paragraphs are a true copy of the reasons for the decision herein of
Mrs Josephine Kelly, Senior MemberSigned: Ms Preethi Nimmagadda
AssociateDate of Hearing 19 July 2006
Date of Decision 13 September 2006
Solicitor for the Applicant Unrepresented
Advocate for the Respondent Mr John Kenny
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