Smith and Secretary, Department of Family and Community Services

[2005] AATA 871

Administrative

Appeals

Tribunal

 

DECISION AND REASONS FOR DECISION [2005] AATA 871

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No S2004/410

GENERAL ADMINISTRATIVE DIVISION		)
Re		MICHAEL WILLIAM SMITH

Applicant

And SECRETARY, DEPARTMENT OF FAMILY AND COMMUNITY SERVICES

Respondent

DECISION

Tribunal Deputy President DG Jarvis
Senior Member L Hastwell

Date7 September 2005

PlaceAdelaide

Decision

The Tribunal sets aside the decision under review, and in place of that decision decides that the respondent was not entitled to recover from the applicant any portion of:

(a)      the lump sum compensation payments received by the applicant; or

(b)      the disability support pension previously paid to the applicant.

D G Jarvis

(Signed)
  Deputy President

CATCHWORDS

SOCIAL SECURITY – pensions, benefits and allowances – disability support pension – one or two lump sum compensation payments – preclusion period – special circumstances – meaning of “in relation to the same event” – decision set aside

Social Security Act 1991 ss 17, 1160, 1169, 1170, 1171, 1184K

Re Allan and Department of Family and Community Services (2002) 69 ALD 724
Re Fuller and Secretary, Department of Family and Community Services (2004) 83 ALD 152
Secretary, Department of Social Security v Banks (1990) 23 FCR 416
Secretary to the Department of Social Security v Cunneen, Federal Court (1997) 78 FCR 576
Secretary, Department of Social Security v Hulls (1991) 22 ALD 570
ReNehme and Secretary, Department of Family and Community Services (2002) 71 ALD 443
Secretary, Department of Social Security v a’Beckett (1990) 26 FCR 349
Re Secretary, Department of Family and Community Services and Goodale (2004) 81 ALD 654
Tooheys Ltd v Commissioner of Stamp Duties (NSW) (1961) 105 CLR 602
Nowegijick v The Queen (1983)144 DLR(3d) 193
ReRobinson and Department of Family and Community Services [1999] AATA 398
Beadle v Director-General of Social Security (1984) 6 ALD 1

REASONS FOR DECISION

7 September 2005   Deputy President DG Jarvis
  Senior Member L Hastwell   

1.          On 8 June 2004 Centrelink made a decision to recover an amount of $13,918.85 from a compensation settlement awarded to the applicant.  An Authorised Review Officer affirmed this decision on 3 September 2004. 

2.          The applicant sought review of that decision by the Social Security Appeals Tribunal (the SSAT), and on 3 November 2004 the SSAT affirmed the decision.  The applicant has applied to this Tribunal for a review of the SSAT’s decision.

3.          The applicant represented himself before the Tribunal with the assistance of his daughter, Ms Kelly White.  Mr Goldie, a Departmental advocate, represented the respondent (the Department).  Various exhibits were received into evidence, including the T documents as exhibit R1 and the supplementary T documents as exhibit R2.  The applicant gave evidence.  The Department did not call any witnesses.

4.          The applicant worked in the Broken Hill Mines (the Mines) from 1968 until he was retrenched in 2002.  During that time he sustained a number of injuries and developed back, shoulder and knee problems.  He did not take time off work as a result of these problems.

5.          In 1984, because of increasing back and shoulder problems, he had been transferred to lighter work in the machine shop.  Thereafter he suffered a reduction in wages and lost the opportunity to do overtime.

6.          The ownership of the Mines changed several times during his employment, and he accordingly had a number of different employers.  He claimed compensation from all of his employers, and in 2004 settled his claim for a total payment of $120,000.

7.          After the hearing, the Tribunal wrote to the solicitors who had represented the applicant in the compensation proceedings, requesting a copy of certain further documents, and to be advised whether the settlement sum of $120,000 was paid in one instalment or in two or more instalments.  The applicant responded to this letter, and a copy of the Tribunal’s letter and of the documents provided in response to the Tribunal’s letter have been admitted in evidence.

8.          It appears from the applicant’s response and from other material before the Tribunal that of the above amount of $120,000, $20,000 was paid in respect of employment-related injuries sustained prior to 30 June 1987 by or on behalf of companies which had employed the applicant prior to that date.  The payment of $20,000 included compensation for lost earnings or lost capacity to earn.  The remainder of $100,000 was paid by or on behalf of Pasminco Limited in respect of injuries arising out of or in the course of his employment by that company subsequent to 24 May 1988.  No part of this payment related to lost earnings or lost capacity to earn.  The liability of Pasminco and of the applicant’s earlier employers for the above amounts arose under two different workers compensation enactments.

9.          Soon after he was retrenched, the applicant commenced to receive a disability support pension (DSP).  It was common ground that the DSP was a compensation affected payment within the meaning of the Social Security Act 1991 (the Act).

Issues

10.        The issues for the Tribunal to determine are as follows:

·Has the applicant received a lump sum compensation payment within the meaning of s 1169(1)(b) the Act, or two lump sum compensation payments?

·If the applicant has received two lump sum compensation payments, are they “in relation to the same event” that gave rise to the compensation entitlement within the meaning of s 1171(1)(a) of the Act?

·What, if any, is the compensation part of the lump sum or sums received by the applicant?

·What is the length of the preclusion period, if applicable?

·When does the preclusion period commence, and what, if any, is the “recoverable amount”?

·Are there any special circumstances in this case that would allow the Secretary to disregard some or all of the compensation payment in calculating the preclusion period and the recoverable amount under s 1184K(1) of the Act?

Findings of fact

11.        The applicant was a straightforward witness, and presented his case well.  The Tribunal accepts the accuracy of his evidence as to events during his years at the Mines and surrounding the settlement of his claim.

12.        From the evidence of the applicant and the documents received in evidence, the Tribunal makes the following findings.

12.1    The applicant was employed in the Mines between 1968 and 31 May 2002.

12.2    The applicant’s employment at the Mines remained constant throughout that period, although from time to time his role changed.  He worked in the machine shop in the Mines until 1970.  He then worked in the zinc mill until 1984.  Because of physical difficulties he was experiencing in managing tasks in the zinc mill, and in particular, increasing back and shoulder problems, he requested a voluntary transfer to a lighter job and was transferred to the machine shop in 1984.  Thereafter he remained in the machine shop.

12.3    As a result of the 1984 transfer he suffered a reduction in his wage of $3 per hour, and he lost the opportunity of doing 12 hours overtime per week that he had been regularly offered in the zinc mill.  He sustained a reduction in earnings at that point in time.  There is no evidence as to how long that reduction in earnings continued.  There is no doubt that the applicant was a hard worker who continued to work despite increasing physical problems, but his earning capacity ceased the day after he left his employment in 2002.

12.4    His employment remained constant from 1968 until 2002.  The identity of the Mines’ owners and therefore his employers changed on a number of occasions over the years as the Mines were taken over by new proprietors.  Each employer was a separate legal entity.  The applicant’s employers were as set out in exhibit A7.

12.5    The applicant did not take any time off from his employment for work-related injuries during the many years that he was working at the Mines.  He first sought medical advice for his increasing back, shoulder and knee problems in 1999.

12.6    The applicant was retrenched from his employment, and he ceased employment on 31 May 2002. 

12.7    The applicant immediately applied for and was assessed as being eligible for a DSP, which became payable to him from 3 June 2002.  He remains on a DSP.

12.8    The applicant sustained various injuries throughout his working history as outlined at T23/57.  Some injuries were more specific than others.  During the period 1968-1984 he suffered a gradual worsening of back and shoulder problems that resulted in a move to lighter duties, and a resultant reduction in income in at least the short-term.

12.9    Towards the latter part of his employment with the Mines, he suffered further deterioration in his back, shoulders, wrist and knees. 

12.10  The applicant made a single application for compensation for work-related injuries.  There were six respondents to his claim, which comprised seven different companies.  These respondents were the Mines’ owners and his employers throughout his years at the Mines. 

12.11  The Workers Compensation Act NSW 1926 (the 1926 Act) was repealed with effect from 30 June 1987.  It was replaced by the Workers Compensation Act 1987(NSW) (the 1987 Act), which came into force on 1 July 1987.  At the time of the change in the law the applicant’s employer was AM&S Mining Limited and they remained the employer until 24 May 1988, when Pasminco took over the Mines.

12.12  The applicant’s entitlement to workers’ compensation arose under two different enactments, being the 1926 Act and the 1987 Act (as amended in 2001).  A consent agreement was achieved after negotiations. There are four documents that evidence the terms of settlement.

12.13  Consent orders were made by the Workers Compensation Tribunal on 4 May 2004 and recorded the agreement as against all respondents (exhibit R1, T5, pages 24-25).  A “Certificate of Determination - Consent Orders” was subsequently issued from the Tribunal dated 17 September 2004 (exhibit A9).  The consent orders included an award “in favour of all respondents with respect to the applicant’s claim for weekly compensation”.

12.14  The orders were made in the one action and recorded the terms of a settlement as against all respondents.  Notations to the order, which refer to the settlement sum as being $120,000, indicate the contributions to be made by three parties.  The notations read as follows (see exhibit A9, R1, T5, pages 24-25):

“RioTinto                   $20,000         including costs

Pasminco (Self)        $60,000         plus pro rata costs

Pasminco (Vero)        $40,000         plus pro rata costs

$120,000”

The identification of the contributors does not accord with the names of the various respondents, but represented contributions by three entities on behalf of all respondents.  The Tribunal assumes that one or more of the applicant’s pre 30 June 1987 employers were taken over by, or sold their interest in the Mines to, Rio Tinto.

12.15  On the following day, 5 May 2004, a Deed of Release was entered into between the applicant and the various respondents that recorded a settlement of $120,000 in respect to his claim (exhibit R1, T6, pages 26-27).  The respondents were collectively referred to as “the employers” in that Deed, and the settlement was for all injuries sustained in the course of the applicant’s “employment”.  Paragraph 6 of the Deed of Release was drafted in very broad terms and would preclude amongst other claims a common law claim in damages by the applicant against any of the respondents.

12.16  Two further documents were signed to complete the documentation of the settlement.  This was apparently required as the claims arose under the two different Acts.  The first such document was a Redemption Agreement entered into under s 87H of the 1987 Act to redeem the employer/insurer’s liability (exhibit R2, pages 1-9).  The respondents to that agreement were Zinc Corporation Pty Limited and Hamersley Resources Limited.  There was an economic loss component in that agreement, in that the agreement redeemed all the worker’s potential claims under the relevant legislation, which included redemption of any of his rights under ss 9 and 11 of the 1926 Act for weekly payments for partial or total incapacity.  That agreement was dated 5 May 2004.

12.17  The second document was an application under s 66A of the 1987 Act to register an agreement under ss 66 and 67 of the 1987 Act.  It contained particulars of the agreement to redeem for $100,000 the applicant’s lump sum rights for permanent impairment of the applicant’s back, left arm and legs, and pain and suffering.  That document (exhibit R1, T23, pages 61-65) was also dated 5 May 2004.  The agreement does not relate to lost earnings or lost capacity to earn.  The employer named in that agreement was Pasminco.

12.18  A total settlement package was negotiated for the applicant by his solicitor.  This package comprised contributions by three different entities.  The redemption payment under the 1926 Act of $20,000.00 was paid by QBE Insurance on behalf of Rio Tinto Limited, and of the $100,000 referred to in the second agreement, $40,000 was paid by Vero Workers Compensation (NSW) Limited on behalf of Pasminco, and $34,081.15 (being the balance of $60,000 less deductions of $12,000 refunded to Medicare and $13,918.85 paid to Centrelink) was paid by a firm of accountants on behalf of Pasminco.  The three payments were made on different dates by cheques in favour of the applicant.

12.19  The solicitors for Pasminco, in a letter dated 24 June 2004 (exhibit R1, T14, page 37) to Pasminco Workers Compensation, advised that the “contributions towards settlement (by each employer/insurer) were contingent upon each other, and as such, the claims would not have resolved without each and every contribution being made”.

12.20  Because of the inability to point to specific dates when injuries occurred and because of the generality of the applicant’s claim, the Tribunal finds that the settlement was an all or nothing settlement in that the applicant could choose to either settle with all respondents or proceed to a hearing against all respondents. 

12.21  The preclusion period as calculated by the Department commenced on 1 June 2002, and resulted in the sum of $13,918.85 being repaid to the Department out of the total settlement sum of $120,000.

12.22  The remainder of the settlement sum was paid to the applicant after the repayment to the Department of their charge over the settlement funds.

12.23  The applicant continues to suffer from his employment-related injuries, and knee replacements may become necessary at some stage in the future.  The costs of the knee replacements will be substantial, and the applicant is concerned that he may not be able to claim those costs against his private medical insurers because they may argue that he has received compensation, and therefore should pay for the operations privately.  He has not, however, canvassed this issue with his insurers or his solicitor.

12.24  The applicant’s wife also receives the DSP, and works one day a week as a librarian.  The applicant and his wife own a freehold home, worth approximately $180,000.  The applicant has a small sum of cash at bank, and has reasonable superannuation entitlements.  His wife also has superannuation.  They are not in financial difficulties, and have sufficient resources at their disposal to enjoy a reasonable standard of living.

12.25  Incorrect advice was initially given to the insurers by the Department to the effect that there would be no charge in favour of Centrelink on the compensation payable to the applicant.  The advice was later withdrawn, and although this was confusing and distressing to the applicant, it caused no practical detriment to the applicant.

Legislation

13. Part 3.14 of the Act provides for the effect of compensation recovery on certain social security benefits. Section 1160(1) of the Act provides for the general effect of that Part of the Act. It provides as follows.

“1160(1)This Part operates in certain specified circumstances to do one or more of the following:

(a)      reduce a person’s compensation affected payment;

(b)      render a person’s compensation affected payment not payable;

(c)require the repayment of some or all of a person’s compensation affected payment;

because of the receipt of compensation by the person or the person’s partner.”

14. Section 1169(1) of the Act provides in effect that a compensation affected payment is not payable during a lump sum preclusion period. It provides as follows.

“1169(1)        If:

(a)       a person receives or claims a compensation affected payment; and

(b)       the person receives a lump sum compensation payment;

the compensation affected payment is not payable to the person in relation to any day or days in the lump sum preclusion period.”

15.        Section 17(2) of the Act defines “compensation”.  This includes a payment under a scheme of workers compensation under a State law “that is made wholly or partly in respect of lost earnings or lost capacity to earn resulting from personal injury”.

16. Section 17(1) of the Act defines the expression “compensation affected payment”, and a disability support pension (DSP) is included in that definition.

17. Section 17(3) of the Act provides an artificial statutory formula for determining the “compensation part of a lump sum compensation payment”.  It provides as follows.

“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; or

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

(i)the payment represents that part of a person’s entitlement to periodic compensation payments that the person has chosen to receive in the form of a lump sum; and

(ii)the entitlement to periodic compensation payments arose from the settlement (either with or without admission of liability) of a claim that is, in whole or in part, related to a disease, injury or condition; and

(iii)the claim was settled, either by consent judgment being entered in respect of the settlement or otherwise; or

(b)if those circumstances do not apply—so much of the payment as is, in the Secretary’s opinion, in respect of lost earnings or lost capacity to earn, or both.”

18. Section 1170 of the Act provides for the meaning of the expression “lump sum preclusion period”.  It provides relevantly as follows.

“1170(3) … the lump sum preclusion period is the period that:

(a)begins on the day on which the loss of earnings or loss of capacity to earn began; and

(b)ends at the end of the number of weeks worked out under subsections (4) and (5).

(4)The number of weeks in the lump sum preclusion period in relation to a person is the number worked out using the formula:

Compensation part of lump sum

Income cut-out amount

(5)If the number worked out under sub-section (4) is not a whole number, the number is to be rounded down to the nearest whole number.”

19.        The expression “income cut-out amount” is defined in s 17(2) of the Act in terms which require reference to s 17(8) and Table B. It is not necessary in the present matter to unravel that definition.

20. Section 1171 of the Act provides in effect that if a person receives two or more lump sum payments in relation to the same event that gave rise to an entitlement of the person to compensation, and at least one of those payments is made wholly or partly in respect of lost earnings or lost capacity to earn, the person is deemed to have received one lump sum compensation payment equal to the sum of the payments received. The section reads as follows.

“1171(1)If:

(a)a person receives 2 or more lump sum payments in relation to the same event that gave rise to an entitlement of the person to compensation (the multiple payments); and

(b)at least one of the multiple payments is made wholly or partly in respect of lost earnings or lost capacity to earn;

the following paragraphs have effect for the purposes of this Act and the Administration Act:

(c)the person is taken to have received one lump sum compensation payment (the single payment) of an amount equal to the sum of the multiple payments;

(d)      the single payment is taken to have been received by the person:

(i)on the day on which he or she received the last of the multiple payments; or

(ii)if the multiple payments were all received on the same day, on that day.

(2)A payment is not a lump sum payment for the purposes of paragraph (1)(a) if it relates exclusively to arrears of periodic compensation.”

Submissions

21.        The applicant’s position was that he received two separate lump sums, and not one lump sum, and that only the first of the two awards, namely the Redemption Agreement, contained a compensation component.  Although his employment remained consistent, his employer changed identity on a number of occasions between the date that he commenced employment and the date that he ceased employment. 

22. There were a number of respondents to the applicant’s claim, being all his employers, during his years of employment at the Mines. The applicant submitted that he had pursued his claims under separate enactments, and that the settlement is contained in two separate agreements. He argued that the contributions from each employer were not contingent upon each other, in the true sense of the word. He submitted that s 1171(1) of the Act could not apply because the compensation payments for injuries sustained prior to 1987 could not be in relation to “the same event” as the compensation he received for injuries sustained after 1987.  The lump sum settlements were for different time periods from different employers who had separate legal representatives.  He submitted that the second lump sum could not contain an economic component because of the legislative provision under which it was awarded.  He claimed to have preserved his right to claim future economic loss as against the employers from 1987 onwards.

23.        As the Redemption Agreement payment of $20,000 was for injuries sustained and loss of income during the period 1968 to 30 June 1987, then applying the appropriate formula he submitted that only 50 per cent of that sum could be used to calculate the preclusion period.

24.        In assessing the commencement date of the preclusion period he relied on the decision in Re Allan and Department of Family and Community Services (2002) 69 ALD 724. He submitted that his group certificates were evidence of reduced earning capacity within a time frame up until 1987, and so he proposed a commencement date of 1 July 1987. If that were accepted, then any applicable preclusion period would have ended long before he ceased employment and became a recipient of a compensation affected payment, namely DSP. Therefore there would not be any charge on his lump sum payment.

25.        As against these matters the Department submitted that the applicant was in continuous employment in the same location from 1968 until 2002 albeit with a number of companies owning the Mine throughout those years.  The Department’s position was that the real outcome of the applicant’s compensation claim was that the parties agreed to settle for a sum of $120,000, which was made up of contributions by the various employers/insurers.  This was in reality one lump sum settlement negotiated in the context of one claim.  The Department submitted that the information provided by the insurer supported their assertion that the $120,000 paid was in settlement of a single claim made either wholly or partially with respect to the applicant’s lost capacity to earn.  The Department noted that there was no reference to periodic compensation payments in the settlement documents.

26. In relation to s 1171(1)(a) of the Act, the Department’s position was that if the Tribunal did find that two lump sums were awarded, then they were “in relation to the same event”, and should be added together in accordance with the provisions of s 1171(1) of the Act for the purposes of calculating the compensation component and the preclusion period. The Department argued that the lump sums are with respect to “the injuries sustained over his working life”. 

27. The Department accordingly contends that the $120,000 becomes subject to the formula contained in s 17(3) of the Act, and 50 per cent of the payment is thereby deemed to be the compensation part of the lump sum payment, with a preclusion period commencing on the day after the applicant left his employment in June 2002.

28.        The Department conceded that the applicant may have faced a reduction in earnings when he moved to the machine shop, but that he had nevertheless demonstrated that he could continue to work for the entire period of his working life, and therefore the preclusion should commence when he ceased his working life.

Consideration

29.        The Act provides that recipients of a lump sum compensation payment are not entitled to receive a “compensation affected payment” during any “lump sum preclusion period”.

30.        In the case of Re Fuller and Secretary, Department of Family and Community Services (2004) 83 ALD 152 at [6], President G Downes J sets out the analysis that is required in cases such as this:

“6.       The Act requires the following sequential issues to be resolved:

(i)Has the applicant received or claimed a compensation affected payment (par 1168(1)(a))?

(ii)Has the applicant received a lump sum compensation payment (par 1169(1)(b))?

(iii)Alternatively to (ii), is the applicant deemed to have received one lump sum compensation payment (subs 17(3))?

(iv)If yes to (i) and either (ii) or (iii), what is the compensation part of the lump sum compensation payment (subs 17(3))?

(v)What preclusion period is derived from applying the sum representing the lump sum compensation payment to the formula prescribed in s 1170?”

31.        In the present case, as mentioned above, both parties agree that the DSP is a “compensation affected payment” within the meaning of s 17(1) of the Act.

32.        The applicant acknowledges that he has received “compensation” within the meaning of s 17(2) of the Act, and he acknowledges that it is a lump sum to which the formula set out in s 17(3) of the Act applies. He contends that lump sum is the sum received under the Redemption Agreement only, namely the $20,000 sum.

Did the applicant receive one lump sum payment?

33. The first issue for the Tribunal is whether the $120,000 settlement amount comprised one lump sum payment, to which the provisions of s 17(3) of the Act apply in determining the compensation part of that lump sum, or whether there were two separate lump sum payments, being one payment under the 1926 Act and a second payment under the 1987 Act.

34.        The notion of what comprises a “lump sum” for the purposes of social security legislation has been considered in a number of cases.

35.        The leading authority is Secretary, Department of Social Security v Banks (1990) 23 FCR 416. Von Doussa J had to consider the meaning of the term “lump sum payment made … in settlement of a claim”. In that case a consent settlement specifically delineated a component of future expenses. The order provided first for a payment of $34,000 with respect to the injury, and second for a payment of $1,000 for future expenses. The component for future expenses did not contain an incapacity component. The issue was whether the two components were to be treated as one lump sum. This involved a consideration of s 152(2) (c) of the Act as it then stood, which is now largely reflected in s 17(3) of the Act.

36.        His Honour concluded that both the components of the settlement should be taken together as being the one lump sum.  He looked at why these provisions had been included in the Act by reference to the Second Reading Speech when amendments to the Act to introduce those provisions were being proposed.  He quoted the following extract from the Second Reading Speech at (422.2).

“This Bill contains measures to improve the administration and integrity of compensation recovery provisions. Where a person receives personal injury compensation that makes up for lost income the Social Security Act provides that pension or benefit may be reduced or recovered. This is one way in which social security expenditures are directed to those most in need.

Settlements of lump sum compensation particularly in the workers compensation jurisdiction are being manipulated to obscure the economic loss component and to avoid recovery of social security payments. To prevent this abuse the Minister announced on 8 February 1988 that, for future personal injury settlements made by agreement or by consent order, 50 per cent of lump sum compensation will be deemed to be in respect of economic loss. This Bill gives effect to that proposal. Where, on the other hand, a court has made an order after a contested hearing specifying the economic loss component, the Secretary to the Department will continue to have regard to the characterisation given to the award by the court.”

37.        His Honour went on to comment at (422.4):

“The mischief is clearly identified as the abuse of the earlier provisions which had come about through settlements being manipulated to obscure the economic loss component in the compensation payment.

…

Section 152(2)(c) is concerned with lump sum payments. Subparagraph (i) introduces an arbitrary formula to be applied if the lump sum payment was made in settlement of a claim. What stands in contrast with a lump sum payment made in settlement of a claim is a lump sum payment made pursuant to a curial determination of a claim on the merits according to law. Determinations of this kind are dealt with by subpar (ii). It is understandable with this class of lump sum payment that the Secretary is still required to form an opinion as to the amount of a lump sum payment that is in respect of an incapacity for work, as a curial determination will be accompanied by reasons for decision which can be expected to disclose the component parts of the award, which constitutes the lump sum payment.”

38.        He then went on to consider the meaning of the term “lump sum” (at 422.8):

“… 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.

…

The wide language of subpar (i) is a recognition by Parliament that unless every component part of a lump sum payment made in settlement of a claim which has the prescribed characteristics is brought to account the mischief to which par (c) is directed will not be remedied. The scope for manipulation by inflating some heads of loss and diminishing or excluding others, without altering the total amount of the lump sum, would otherwise remain. The prescribed percentage (50 per cent) of the lump sum payment made in settlement of a claim which by s 152(2)(i) is deemed to be the "compensation part of a lump sum payment by way of compensation" should be viewed as a broad attempt to balance the interests of the recipient of the payment with the competing interests of others in the community whose needs must be met as far as possible from a finite budget allocation for social security measures. …” (at 424.3)

39.        In Secretary to the Department of Social Security v Cunneen (1997) 78 FCR 576, Foster J had to consider whether a consent settlement, which contained a number of delineated components could be treated as one lump sum. His Honour was specifically dealing with s 17(2) of the Act. In that case, an award was made by the Compensation Court of New South Wales by consent, and the terms of settlement were summarised as being eight separate components, each delineated as to what that component represented, and some of which clearly did not contain an incapacity component. Foster J endorsed the reasons of von Doussa J in Banks in finding at (581.6):

“… 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 …”.

40.        Subsequent decisions have also endorsed this approach.  It is established by a line of authorities for instance that legal costs, whether included in a costs inclusive lump sum payment or whether quantified, are to be included in the lump sum.  See Secretary, Department of Social Security v Hulls (1991) 22 ALD 570, ReNehme and Secretary, Department of Family and Community Services (2002) 71 ALD 443 and Secretary, Department of Social Security v a’Beckett (1990) 26 FCR 349.

41.        In Re Fuller (supra) President G Downes J considered whether a settlement which had clearly delineated components, one of which did not contain an incapacity component, could be treated as one lump sum.  In that case, the issue was whether a separate amount of $13,500 agreed as legal costs should be included in the lump sum.  The legal cost payment was made by way of a cheque made payable in the sum of $13,500 to the solicitors for the applicant.  There were four separate cheques paid on account of the components of the claim.  One cheque was sent directly to the applicant’s solicitors for costs, and of the other three cheques, at least one was for impairment only.

42.        His Honour considered the prior authorities and commented at [15] that he was not initially attracted to the submission that a payment, which clearly represented a number of separate payments, should be described as a lump sum payment.  He pointed out that if a claim is settled early, costs will be small and the impact on the lump sum preclusion period slight, but if a claim is prolonged and substantial costs are incurred, the applicant is penalised by facing a longer preclusion period because of the inclusion of a costs component in a lump sum, even though the amount of compensation might be the same.  He also felt some disquiet at the admitted practice of the Department to not bring costs to account in calculating the preclusion period where costs are to be assessed at a later date.

43.        His Honour made the following observations:

“[18]     … 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.  The latter would be easier to achieve than the former because the applicant is intended to receive the whole of the compensation while the ultimate recipient of the costs is the applicant’s legal representative.  However, this is a matter of degree.  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. …”

He went on to say:

“[19]     … 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”. …

[20]     I have set out above the observations made by von Doussa J, agreed in by Foster J, as to what is “a lump sum”. I must say that when I first came to this matter I had in mind the Oxford English Dictionary meaning of lump sum, namely “a sum which covers or includes a number of items” where the noun “lump” has its primary sense of “a compact mass of no particular shape; a shapeless piece or mass”, the essence of the lump sum being a total amount known to be made up of components where those components are not identified. If this is the meaning of “lump sum” in the legislation then there was no lump sum in the present case. First, there was no single payment. Secondly, the separate payments were not made to the same person. Thirdly, the terms of settlement separately identified the components. It is difficult for me to see how the four payments identified in the letter of 5 April 2004 can together be described as a lump sum payment.

[21]     In Banks von Doussa J ultimately concluded (at  FCR 422; ALR 612; ALD 24): “A ‘lump sum’ payment is simply one which includes a number of items.” In that case the item in issue was separately identified. Accordingly, von Doussa J, O’Loughlin J and Foster J rejected the argument that I have put in the previous paragraph. While I have real concerns about the correctness of these views as to the meaning of the phrase “lump sum” I do recognise that the meaning they gave to the phrase did accord with the apparent purpose of the legislation. Although they were concerned with components which all related to compensation there is no reason why the vice which led to the legislation did not extend to provisions for costs.”

44.        These authorities support a wide definition of the term “lump sum” even when such an interpretation causes some injustice to the recipient in the calculation of the preclusion period.  (Injustice may go to the issue of special circumstances in some instances, but the Tribunal will deal later with this aspect.)

Did the applicant receive two or more lump sum compensation payments?

45.        As mentioned in paragraph 12.18 above, the total amount of compensation due to the applicant was paid in three instalments.  One instalment was the sum of $20,000 due by Rio Tinto in respect of the claim under the 1926 Act for compensation when that company was the applicant’s employer.  The two other instalments were the amounts paid by Pasminco and its insurers, which (after allowing for the deductions for the claims by Centrelink and Medicare) amounted to the sum of $100,000, being the compensation payable under the 1987 Act by Pasminco when that company was the applicant’s employer.

46.        As also mentioned above, each of the payments of $20,000 and the sum of the other two payments (after allowing for deductions) of $100,000 was made up of certain components, but on the authorities to which the Tribunal has referred, that is immaterial; each such payment was a lump sum compensation payment.

Were the two lump sum payments made in relation to the same event?

47.        On the face of it, the applicant received at least two lump sum payments, of $20,000 and $100,000 (less deductions).  The question then arises as to whether the payments were “in relation to the same event that gave rise to an entitlement of the (applicant) to compensation” within the meaning of s 1171(1) of the Act. If so, the two lump sum payments can be added together and treated as one lump sum compensation payment for the purposes of determining the compensation component under s 17(3) of the Act.

48.        Section 7(1)(a) of the 1926 Act provided that “a worker who has received an injury … shall receive compensation from his employer in accordance with this Act.”  The word “injury” was defined in s 6 of the 1926 Act to mean “personal injury arising out of or in the course of employment …”.  The event that gave Mr Smith an entitlement to the agreed lump sum compensation payment by Rio Tinto’s insurers of $20,000 was his suffering an injury which arose out of or in the course of his employment by that company (or by another employer whose liabilities for compensation Rio Tinto had agreed to meet).  The payment did not relate to any period after Mr Smith’s employment by the relevant employer had ceased, and he had no entitlement to compensation from Rio Tinto (or such other employer) for any work-related injury he may have sustained after that date. 

49.        Similar provisions apply under s 9 of the 1987 Act.  Under s 9 of that Act, a worker who has received an injury is entitled to receive compensation from the worker’s employer, and the word “injury” is defined in s 4 to mean personal injury arising out of or in the course of employment.  It follows from those sections that Pasminco was not liable for a work-related injury suffered by an employee before Pasminco became the employer of that employee.  In the present matter, Pasminco agreed to meet the applicant’s claim against it to the extent of making a lump sum payment of $100,000.  It must therefore be taken to have acknowledged that the applicant sustained personal injury arising out of or in the course of his employment by Pasminco.  The Tribunal finds that that was the event in relation to which the lump sum payment of $100,000 was made, and it was not the same event as gave rise to the lump sum payment of $20,000 made by Rio Tinto’s insurers.

50.        As regards the payment of $20,000 made by Rio Tinto, it is clear from the application to register a redemption agreement (exhibit R2, pages 1-9) that the lump sum settlement paid by Rio Tinto was confined to injuries sustained prior to 30 June 1987.  In any event, Rio Tinto had no liability to the applicant for any injury which he may have sustained after 24 May 1988, when Rio Tinto ceased to be his employer, and Pasminco became his employer.

51.        It is true that the compensation payments were made to the applicant as a result of his having claimed compensation against all of his former employers, that he made one such claim, and that the settlement from the three parties who contributed to the total payment of $120,000 was conditional upon each party making its separate contribution.  However, the events that gave rise to the applicant’s entitlement to compensation occurred during his employment by different employers, and arose from his entitlement under the two enactments to which we have referred above.  The Tribunal considers that the payments were made in relation to different events.

52. The Federal Court authorities as to the meaning of lump sum, to which we have referred above, are distinguishable on their facts from the present matter, where the two payments concerned were made by or on behalf of different employers and in respect of liabilities arising under different enactments and at different periods of time. Further, it is clear that the Courts sought to interpret the words in question in s 1171(1) so as to avoid the vice which led to the inclusion in the Act of the deemed 50 per cent part of a lump sum compensation payment. In the present matter, however, the parties which made the two payments were at arms length to each other; and one of those parties (Pasminco) was not in any event liable for a lump sum compensation payment in respect of lost earnings or lost capacity to earn. This is not therefore a matter where there was some risk that the parties might vary their respective contributions to the total compensation payment so as to maximise the applicant’s entitlement to social security benefits. The reasons which led President Downes J (as the Tribunal infers, reluctantly) to agree with earlier decisions of the Federal Court do not apply on the facts of the present matter.

When should the preclusion period commence?

53.        The applicant submits that the preclusion period should commence on 1 July 1987, but the respondent says that it should commence on the first day after the applicant was retrenched.

54.        The Tribunal has evidence, based on the applicant’s own account, and based on his group certificates (exhibit A5), that he requested lighter duties in 1984 because of his increasing level of disability, and he thereafter sustained a reduction in income because of his move to the machine shop.  He did not lodge any claim at that time, and he did not at that time receive any compensation for the move to lighter duties.  Nevertheless, the move to lighter duties was necessitated by the extent to which his work-related injuries were impinging on his ability to work.  His group certificates show a reduction in earnings for the financial years ending 30 June 1984, 1985 and 1986.  He remained in the machine shop thereafter. There was no improvement in his ability to do heavy work thereafter.  In the lump sum settlement the applicant acknowledges that there was a component that specifically compensated him for earnings lost before 30 June 1987.  In that regard, the Tribunal refers to the Redemption Agreement (exhibit R2, pages 1-9).

55.        The Department in its submission conceded that the applicant probably did suffer some economic loss at that time, but said it was not relevant. 

56. In providing for when the preclusion period commences, s 1170(3)(a) of the Act does not refer to the date when a person ceased earning, but rather to the date when “the loss of  earnings or loss of capacity to earn began”.  The loss of earnings began in 1984 and was subsequently compensated for in the lump sum settlement as evidenced by the Redemption Agreement.

57.        In ReRobinson and Department of Family and Community Services [1999] AATA 398, a worker was forced to take sick leave for various periods after the incident which gave rise to his compensable incapacity. The Tribunal found that he had suffered a loss of earnings notwithstanding that he had received such leave payments and that the preclusion period should commence the day after the date of the incident.

58. Earnings represent income from work. In this case on the evidence before the Tribunal the applicant’s loss of earnings, as well as loss of the opportunity for overtime work, commenced in 1984, when he began working in the machine shop. The Tribunal therefore finds that having regard to s 1170(3) of the Act, the preclusion period began on that date. The present matter differs from Allan (supra), where the applicant suffered a loss of earning capacity, but no loss of earnings, following his injury.

59.        It is accepted by both parties that if the preclusion period commenced on 1 July 1987 (as the applicant had contended) it will have ended while the applicant was still employed, and before he began to receive DSP.  This must, of course, also be the position if the preclusion period commenced in 1984.

Are there special circumstances?

60. Section 1184K(1) gives the Department a discretion to treat the whole or part of a compensation payment as not having been made if the Department thinks there are special circumstances that make it appropriate to do so. The section provides as follows.

“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.”

61. The applicant submitted alternatively that s 1184K of the Act applied, and that there are special circumstances in his case. He pointed to the possibility of future surgery on his knees and the cost of the same. He is concerned that his medical insurer may not cover this cost. He pointed to his modest financial position, and also to the error made by the Department when they sent an incorrect letter to QBE indicating there would be no charge on the lump sum compensation payments he received.

62.        In view of the Tribunal’s above conclusions it does not need to consider the issue of special circumstances.  However, for the sake of completeness, the Tribunal finds that special circumstances do not exist in this case.  The applicant does not suffer financial hardship, and there was nothing exceptional, unusual or special about this case that distinguishes it from other cases.  In that regard the Tribunal has considered the criteria as set out in the case of Beadle v Director-General of Social Security (1984) 6 ALD 1.

Decision

63.        For the above reasons The Tribunal sets aside the decision under review, and in place of that decision decides that the respondent was not entitled to recover from the applicant any portion of:

(a)      the lump sum compensation payments received by the applicant; or

(b)the disability support pension previously paid to the applicant.

I certify that the 63 preceding paragraphs are a
true copy of the reasons for the decision herein of
Deputy President DG Jarvis and Senior Member L Hastwell

Signed:         .....................................................................................
           J MacIntyre  Associate

Date/s of Hearing  2 May 2005
Date of Decision  7 September 2005

Counsel for the Applicant         In Person

Advocate for the Respondent   Mr A Goldie
Solicitor for the Respondent     Centrelink Legal Services Branch