Sladen and Secretary, Department of Family and Community Services
[2004] AATA 792
•29 June 2004
Administrative
Appeals
Tribunal
DECISION AND REASONS FOR DECISION [2004] AATA 792
ADMINISTRATIVE APPEALS TRIBUNAL )
) No A2004/70
GENERAL ADMINISTRATIVE DIVISION )
RE CAROLE SLADEN
Applicant
AND SECRETARY, DEPARTMENT OF FAMILY AND COMMUNITY SERVICES
Respondent
DECISION
| Tribunal | Mr G A Mowbray |
Date29 June 2004
PlaceCanberra
DecisionFor reasons given orally at the conclusion of the hearing the Tribunal
1.sets aside the reviewable decision being the decision of Centrelink as affirmed by the Social Security Appeals Tribunal on 10 February 2004, and
2.remits the matter to the Respondent for reconsideration with a direction that the sum of $13,393.85 be treated as not having been made in calculating the compensation part of the lump sum and the lump sum preclusion period.
.SGN Mowbray.............................
Member
CATCHWORDS
SOCIAL SECURITY – NewStart Allowance – lump sum payment – accrued employment entitlements – compensation – preclusion period – special circumstances – unfairness – decision set aside
Social Security Act 1991 sections 17, 1184K
Re Fuller and Secretary, Department of Family and Community Services [2004] AATA 615 Secretary, Department of Social Security v Banks (1990) 23 FCR 416
Secretary, Department of Social Security v Cunneen (1997) 78 FCR 576
Secretary, Department of Social Security v Hulls (1991) 22 ALD 570
Re Kottakis and Great Barrier Reef Marine Park Authority [2001] AATA 807
Secretary of the Department of Family and Community Services v Sammut (1998) 58 ALD 691
REASONS FOR DECISION
| 28 July 2004 | Mr G A Mowbray |
Summary
Ms Carole Sladen suffered a work-related injury between October 2001 and March 2002 while working for the Advertising Standards Bureau (ASB)
she became increasingly incapacitated for work until March 2002
she finally stopped work on 13 March 2002
she received worker’s compensation until 17 May 2002
she is no longer incapacitated and has applied for unemployment benefits.
The work-related injury is not in question here. The issue relates to Ms Sladen’s claim for NewStart Allowance in May 2002
Ms Sladen started receiving NewStart Allowance from 18 May 2002
she was paid NewStart Allowance until 28 October 2003
on 3 November 2003 she settled a claim for workers compensation with ASB for a lump sum of $150,000 including lost earnings, legal costs and employment entitlements
the settlement of the compensation claim was conditional on Ms Sladen resigning from her position and therefore employment entitlements were included
Centrelink advised Ms Sladen on 7 November 2003 that because she received the lump sum payment, she would not be eligible for Centrelink payments until 19 November 2004 through the activation of the preclusion period.
The relevant proceedings in this matter can be summarised as follows
- on 8 December 2003 Ms Sladen requested a review of Centrelink’s decision to apply the preclusion period
- on 16 December 2003 a determination was made that the original decision was incorrect and that costs were added on to the settlement, whereas they were in fact part of the settlement
- the preclusion period was re-calculated to end on 20 August 2004
- on 12 January 2004 the authorised review officer decided that the determination of 16 December 2003 was correct
- on 15 January 2004 Ms Sladen applied for a review of this decision in the Social Security Appeals Tribunal (SSAT)
the SSAT affirmed the decision under review on 10 February 2004.
On 24 February 2004 Ms Sladen lodged an application in this Tribunal. The application was heard on 29 June 2004. Ms Sladen was represented Mr Allan Anforth of counsel instructed by Mr David Lander of Lander & Co. Mr John Kenny of the Centrelink Service Recovery Team represented the Secretary. Oral reasons were given on 29 June 2004 setting aside the decision under review and remitting the matter to the Secretary for reconsideration.
On 2 July 2004 the Tribunal received a request for written reasons for the decision from Ms Sladen pursuant to section 43(2A) of the Administrative Appeals Tribunal Act 1975. Accordingly these reasons have been prepared based on the oral reasons with appropriate minor editing.
Issues
The basic facts which I have outlined briefly above are not in dispute. Importantly on 3 November 2003 Ms Sladen settled the workers compensation claim for payment of a sum of $150,000 including a component for economic loss - lost earnings and lost capacity to earn. The $150,000 also included $16,000 costs and an amount for “employment entitlements”. According to Ms Sladen’s employer these “employment entitlements” totalled $13,393.85.
There are two issues therefore before the Tribunal
whether the employment entitlements are “compensation” for the purposes of section 17(2) of the Social Security Act 1991 (Cth) (the Act). In other words can they be excised from the lump sum for the calculation of a lump sum preclusion period under the Act, and
if the employment entitlements are compensation, whether there are special circumstances which allow the amount received to be disregarded pursuant to section 1184K.
Are the Employment Entitlements Compensation
Section 17(2) of the Act relevantly provides
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.
Paragraph 17(2)(c) is the pertinent part of this provision. Mr Anforth, counsel for Ms Sladen, argued that I should look to the purpose behind the legislative provisions. Mr Anforth contended that the legislation was designed to prevent double-dipping in compensation payments. In this matter, however, the accrued employment entitlements were not compensation and therefore Ms Sladen could not be accused of double-dipping.
Mr Anforth suggested the Tribunal should look to the substance and not the form of the settlement. The employment entitlements were in fact only included with the lump sum compensation for convenience and normally they would have been divided into different entitlements. Therefore they should be regarded as separate for the purposes of determining the preclusion period.
In her contentions Ms Sladen said
10. “Compensation” awards in general can be composed of various heads of damages, including heads of damage relating to economic loss, pain and suffering, medical costs, rehabilitation, future medical costs, domestic assistance, property damage arising from the injury and legal costs. Whilst they each represent compensation for different losses, some of an economic nature and some not, they have in common that they each attempt to compensate the injured party for some loss arising from the injury in question.
…
12. In order for a sum of money to answer the description of “the compensation part of the lump sum” it must first answers [sic] the description of being “compensation” whether for economic loss or otherwise. The definition of “compensation” in section 17(2) makes it plain that “compensation” is limited to payments in the nature of “damages” of this kind. A payment which is not made to compensate the Applicant for any loss sustained does not answer the description of “compensation”.
…
15. In the present case the payments of accrued annual leave, service leave and other employment entitlements have no relationship to the injury suffered. They are payable whether the Applicant is injured or not, and irrespective of the reason for the termination of her employment. The inclusion of these sums in the workers compensation settlement is purely a matter of convenience for the parties.
16. The 50% deeming rule only operates to aggregate various heads of compensation payments. It does not operate to catch any and all payments made by the employer to the injured employee. For example, if the employer found that the injured employee had been under paid for periods of work prior to any injury, as a result of a previous award increase, and then paid those wage arrears to the injured employee in the same cheque in which the compensation payments were paid. Would this mean that the previous wage arrears are then to be characterised as compensation for the later injury?
The Secretary contends that the $150,000 was paid as compensation in total and was so characterised in the settlement documents. He says in his contentions
19. Subsection 17(2) identifies the kinds of payments which are compensation. But it neither contains nor implies any rules for adjusting mixed lump sums – that task is left to subsection 17(3). And the sole criterion for deciding whether or not a payment of one of the kinds set out in paragraph (a), (b), (c) or (d) of subsection 17(2) is compensation is whether or not it is “made wholly or partly in respect of lost earnings or lost capacity to earn resulting from personal injury”. It is common ground that Ms Sladen’s $150,000 was made partly in respect of lost earnings or lost capacity to earn resulting from personal injury.
20. The applicant' [sic] contentions necessitate an unwarranted reading down of the plain language of subparagraph 17(3)(a)(i) which identifies the compensation part of a lump sum compensation payment. The issue is not what categories of entitlement are included in the same cheque but what amounts, however categorised, are included in any lump sum “settlement of a claim that is in whole or in part, related to a disease, injury or condition”. Nothing in subsection 17(3) authorises the excision of components of the lump sum settlement that cannot be related to a disease, injury or condition.
…
28. In the present case, the employment entitlements would not have been paid in the manner and at the time when they were paid but for the compensable incapacity and injury for which a claim was made and compensation was paid. Within a global settlement, employers commonly extract incidental benefits such as resignations and admissions of recovery and may well have to provide some additional arbitrary financial consideration for doing so, the identity of which will be lost in the lump sum. There is no reason to treat an incidental component differently just because it can be quantified.
29. Compensation claims are made in the context of a larger employment relationship and practical financial settlements may address multiple issues together. In the submission of the respondent, all that is necessary for such payments to become subject to the 50% rule is their inclusion in a lump sum paid at least partly in respect of lost earnings or lost capacity to earn resulting from personal injury in the context of a claim which relates at least partly to a disease, injury or condition.
In a recent decision in Re Fuller and Secretary, Department of Family and Community Services [2004] AATA 615 the question arose as to whether separately quantified legal costs could be excised from the total lump sum. The President of this Tribunal, Justice Downes, considered the decisions of Secretary, Department of Social Security v Banks (1990) 23 FCR 416 and Secretary, Department of Social Security v Cunneen (1997) 78 FCR 576 and said
11. An important consideration is what is the meaning of compensation in the phrase “lump sum compensation payment”. Applying the relevant definition in par 17(2)(c), which is accepted by both parties to be applicable, the phrase becomes “lump sum payment … in settlement of a claim for damages … that is made wholly or partly in respect of lost earnings or lost capacity to earn …” Once a component is included in the lump sum it does not matter whether it relates to non economic loss compensation, to costs, or to anything else. It is its quality as part of the lump sum not how it is characterised which matters. All that is required is that part of the sum relates to economic loss.
…
16. The meaning of the provisions of the Act relating to the imposition of a lump sum preclusion period has been considered in a number of decisions of the Federal Court and this Tribunal. The leading decision is the decision of von Doussa J in Secretary, Department of Social Security v Banks (1990) 23 FCR 416 which was followed by Foster J in Cunneen. In Cunneen Foster J analysed Banks, before agreeing with it. Although the decision in Banks related to the legislation in an earlier form, Foster J did not consider that there was any relevant difference. Foster J (at 581-584) wrote as follows:
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.
…
His Honour [Justice von Doussa in Banks] 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’ (at 422). He went on to say (at 422-423):
‘Section 152(2)(c) applies where there is “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 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 paragraph seeks to eliminate double dipping in a practical way which operates effectively in a straight forward manner.’
Justice Downes in Fuller also referred to Justice O’Loughlin in Secretary, Department of Social Security v Hulls(1991) 22 ALD 570 and considered Justice Foster in Cunneen and Justice O’Loughlin’s approaches to the decision in Banks
18. Two things should be said about the observations of Foster J and O’Loughlin J following the remarks of von Doussa J. First, it is apparent that the underlying object of the legislation was to neutralise the advantage of obscuring the economic loss components of workers compensation settlements. That obscuring effect could be achieved by loading provisions for costs as well as by loading provisions for non-economic loss. … Secondly, the whole amount of the payment is to be included not because it is characterised as compensation but because it is paid in a lump sum. …
19. “Compensation” is relevantly, as agreed by both parties, defined in subs 17(2) of the Act as “a payment … in settlement of a claim for damages … that is made wholly or partly in respect of lost earnings or lost capacity to earn resulting from personal injury.” Once a payment partly covers lost earnings or lost capacity to earn then the whole of that payment is “compensation”. The question, therefore, is not whether a component of a payment is or is not compensation but whether the component is to be treated as part of the payment. The answer to that question does not depend upon the definition of compensation but upon the meaning of the phrase “lump sum compensation payment”. The emphasis is on the requirement for “a lump sum” rather than the requirement for “compensation”.
In determining whether the employment entitlements are compensation for the purposes of section 17(2) in the matter before me, I note the terms of settlement of the dispute between Ms Sladen and the ASB in the Magistrates Court. Clause 1 of the terms of settlement provides
The respondent agrees to pay to the applicant the sum of $150,000.00 including costs of $16,000.00 and employment entitlements in full and final settlement of the applicant's entitlements for all injuries sustained to all parts of the body whilst employed with the respondent pursuant to the Workers’ Compensation Act 1951 (ACT) including all entitlements pursuant to Sections 10 and 11 of the Act.
The deed of settlement of 3 November 2003 at recital C provides
[I]t has been agreed between the parties, without any admission of liability on the part of the ASB, that the parties will settle all issues, claims and matters between them arising out of Sladen's Employment and/or the Proceedings and/or the Injury on the terms set out in this Deed.
The actual terms of the settlement can also be found at clause 2.1 of the deed of settlement
Without any admission of liability on the part of the ASB, the ASB will pay Sladen the Agreed Amount to compensate Sladen for the Injury on the terms set out in Annexure “A” to this Deed [emphasis added].
Annexure A to the deed sets out a schedule for five payments by instalments the first on 1 December 2003 and the last on 1 December 2005, the total amount being $150,000. And clause 1 of the deed of settlement defines the words used in the terms of settlement
“Agreed Amount” means the sum of one hundred and fifty thousand dollars ($150,000);
…
“Injury” means the personal injury alleged to have been suffered by Sladen affecting her ability to earn an income and alleged in the Proceedings to have been caused by her Employment...
A letter from the ASB's solicitors to Ms Sladen's solicitor dated 9 February 2004 further states
We refer to your letter dated 5 February 2004 and confirm that included in the settlement monies of $134,000 was the amount of $13,393.85 representing the value of your client's accrued employee entitlements.
Having regard to the authorities to which I have referred, especially Banks, Cunneen and Fuller, although these cases concerned different factual situations, I am satisfied that I cannot excise Ms Sladen's accrued employee entitlements of $13,393.85 from her lump sum compensation payment. In my view the total figure of $150,000 is properly characterised in terms of section 17(2) (c) of the Act as
(c) a payment (with or without admission of liability) in settlement of a claim for damages or a claim under such an insurance scheme …
…
… that is made wholly or partly in respect of lost earnings or lost capacity to earn resulting from personal injury.
I therefore find that the total figure of $150,000 is compensation for the purposes of the Act. It is the lump sum compensation payment.
Are There Any Special Circumstances
The second issue is whether there are any special circumstances which would allow for part of the compensation payment to be disregarded. Section 1184K(1) provides
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.
In Re Kottakis and Great Barrier Reef Marine Park Authority [2001] AATA 807 when examining consideration of the concept of special circumstances in certain fisheries cases the Tribunal said
40. … . In these cases, the Tribunal’s emphasis sought to ensure that application of the special circumstances exception would not defeat the legitimate objectives of the management regime (e.g. Daff [Re Daff and Secretary, Department of Primary Industry (1987) 19 ALD 369] at paragragh [sic] 56 – 57) and would be limited to “special unfairness to the applicant” (Bromley [Re Bromley and Secretary, Department of Primary Industry (AAT 5536, 6 December 1989)] at paragraph 16).
41. The Tribunal notes the Federal Court decision in Groth v Department of Social Security (1995) 40 ALD 541, where Kiefel J observed, at 545, that special circumstances:
would require something to distinguish Mr Groth’s case from others, to take it out of the usual or ordinary case….…. it would of course follow that if one were to conclude that something unfair, unintended or unjust had occurred that there must be some feature out of the ordinary.
42. Earlier cases have emphasised that special circumstances “is incapable of precise and exhaustive definition”: Re Beadle and Director – General of Social Security (1984) 6 ALD 1 at 3. What constitutes special circumstances depends on the circumstances of that particular case: Beadle v Director General of Social Security (1985) 7 ALD 670.
43. The Tribunal also notes recent cases with regard to the Social Security Act 1991 where the Federal Court has said that special circumstances provisions may be used to “ameliorate such unfairness or injustice when it appears by strict application of the law”: Kirkbright v Secretary, Department of Family and Community Services (2000) 106 FCR 281, Mansfield J at para 22; see also, Kertland v Secretary, Department of Family and Community Services (1999) 57 ALD 600, Merkel J at 609.
In Fuller Justice Downes stated
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.
In Secretary of the Department of Family and Community Services v Sammut (1998) 58 ALD 691 at 695, Justice Branson said
Section 1184(1) of the Act plainly calls for a two stage decision-making process. First, does the case have “special circumstances” within the meaning of the subsection. Second, if it does, should the secretary (or other relevant decision-maker) in the exercise of his or her discretion, treat either the whole or some part of the compensation payment as not having been made or as not liable to be made …
In the matter before me both parties accept that there is no evidence pointing to special circumstances by way of straightened circumstances.
But in my view there are circumstances that take this case out of the ordinary and make it exceptional. Indeed the payment of the lump sum including the employment entitlements may well be characterised as unfair to Ms Sladen and may justly be regarded as leading to an arbitrary result
the $13,393.85 was included in the settlement to cover accrued employment entitlements
these entitlements were a matter of right for Ms Sladen, not a matter of discretion
in many if not most circumstances such entitlements would have been dealt with quite separately from compensation for an injury, and
therefore, in those circumstances they would not have been considered by Centrelink in determining a lump sum preclusion period.
For the above reasons I conclude that
there are special circumstances in this case under section 1184K(1) of the Act
in the exercise of my discretion the $13,393.85 in total should be treated as not having been made.
Decision
The Tribunal sets aside the reviewable decision and remits the matter to the Respondent with a direction to disregard the sum of $13,393.85 when calculating the compensation part of the lump sum and the lump sum preclusion period.
.
I certify that the 28 preceding paragraphs are a true copy of the reasons for the decision herein of Mr G A Mowbray.
Signed: ...........Kelisiana Thynne...
Associate
Date of hearing 29 June 2004
Date of decision 29 June 2004
Date of written reasons 28 July 2004
Counsel for the Applicant Allan Anforth
Solicitor for the Applicant David Lander
Lander & Co
Advocate for the Respondent John Kenny
Service Recovery Team, Centrelink
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