STEPHEN MCCORMICK and SECRETARY, DEPARTMENT OF FAMILIES, HOUSING, COMMUNITY SERVICES AND INDIGENOUS AFFAIRS

[2013] AATA 36

[2013] AATA 36

Division	GENERAL ADMINISTRATIVE DIVISION
File Number	2012/4637
Re	STEPHEN MCCORMICK
APPLICANT
And	SECRETARY, DEPARTMENT OF FAMILIES, HOUSING, COMMUNITY SERVICES AND INDIGENOUS AFFAIRS
RESPONDENT

DECISION

Tribunal	Dr P McDermott, RFD, Senior Member
Date	24 January 2013
Place	Brisbane

The Tribunal affirms the decision under review.

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Dr P McDermott, RFD, Senior Member

CATCHWORDS

SOCIAL SECURITY – Pensions, benefits and allowances – Disability support payment – Compensation affected payment – Preclusion period – Discretion to reduce preclusion period – No special circumstances – Decision under review affirmed 

LEGISLATION

Social Security Act 1991 (Cth) ss 17, 1169, 1170, 1184K

CASES

Colaiacolo and Secretary, Department of Social Security [1985] AATA 91

Dranichnikov and Centrelink (2003) 75 ALD 147
Najdovska and Secretary, Department of Social Security (1998) 54 ALD 184
Re De Araugo and Secretary, Department of Education, Employment and Workplace Relations [2009] AATA 986
Re Beadle and Director-General of Social Security (1984) 6 ALD 1
Re Ivovic and Director-General of Social Services (1981) 3 ALN N95
Re Secretary Department of Social Security and Winterbotham [1990] AATA 808
Secretary, Department of Family & Community Services v Allan (2001) 66 ALD 147

Secretary, Department of Social Security v Smith (1991) 30 FCR 56

REASONS FOR DECISION

Dr P McDermott, RFD, Senior Member

INTRODUCTION

1. In 1999, Mr McCormick, the applicant, suffered a serious injury while he was a passenger in a car. He became a quadriplegic and wheelchair dependent. He received compensation for that accident. I have to review a decision that disability support pension is not payable to him as he is subject to a lump sum preclusion period from 31 January 1999 to 15 April 2028.

   BACKGROUND

2. On 4 February 1998, Mr McCormick commenced receiving newstart allowance. On 31 January 1999, Mr McCormick was seriously injured in a motor vehicle accident. From 18 February 1999 he was granted disability support pension. On 23 February 1999, Centrelink wrote to Mr McCormick to advise him about the effect compensation would have on his social security entitlements. On 8 August 2000, Mr McCormick settled his compensation claim for $1,657,500: in giving evidence he confirmed that this is the amount of money that he actually received. Centrelink also recovered $13,452.46 from the insurer as the amount of social security benefit paid to Mr McCormick from the period 31 January 1999 to 15 August 2000. On 18 August 2000, Centrelink wrote both to Mr McCormick and his solicitors to advise them that a lump sum compensation preclusion period had been calculated as running from 31 January 1999 to 15 April 2028. Centrelink also cancelled the payment of disability support pension to Mr McCormick.

3. Mr McCormick has sought reviews of the preclusion period on 2 August 2010, 8 June 2011 and 4 July 2012. On 26 July 2012, Mr McCormick applied for disability support pension. On 6 August 2012, an authorised review officer affirmed the decision to impose the preclusion period. On 26 September 2012, the Social Security Appeals Tribunal affirmed that decision. On 10 October 2012, Mr McCormick lodged his application for review of that decision with this Tribunal. 

   COMPENSATION PRECLUSION PERIOD

4. The policy underlining the Social Security Act 1991 (Cth) (“the Act”) is that when a person receives an amount of compensation for economic loss that person should not be granted certain social security payments during a period which is referred to as the lump sum preclusion period. This is achieved by sub 1169(1) of the Act which provides that “compensation affected payments” (which expression is defined by sub 17(1) to include disability support pension) are not payable during a lump sum preclusion period. Under sub 17(1) of the Act, disability support pension is a compensation affected payment and therefore disability support pension cannot be paid during any lump sum preclusion period. The term “compensation” is defined in sub 17(2) of the Act as being an amount which is made, either wholly or partly, for lost earnings or lost earning capacity. There is no issue that the amount of compensation that was received by Mr McCormick included a component for past and future economic loss. As the settlement is “compensation” for the purposes of the Act, then the payment of disability support pension is subject to a preclusion period.

5. The duration of the preclusion period is determined by a number of provisions in the Act. The “compensation part” of a lump sum which is made in settlement of an injury related claim is, by the operation of sub 17(3) of the Act, deemed to be 50% of the settlement amount. Therefore, the “compensation part” of Mr McCormick’s lump sum is $828,750. The duration of the preclusion period is calculated by dividing the “compensation part” by a fixed amount being the income cut-out amount which at 8 August 2000 was $543.63 (subs 1170(4) and (5) of the Act).

6. I am satisfied that the duration of the compensation preclusion period has been correctly calculated by dividing the compensation amount ($828,750) by the income cut-out amount ($543.63), giving a period of 1524 weeks. Mr McCormick did not receive weekly compensation so the Act provides that his preclusion period starts from the day of his loss of earnings or loss of capacity to earn (sub 1170(3)(a)). Accordingly, the compensation preclusion period is from 31 January 1999 until 15 April 2028, a period of 1524 weeks. The representative of the applicant is also satisfied that the compensation preclusion period has been correctly calculated.

   SPECIAL CIRCUMSTANCES

7. I now have to consider whether there are any special circumstances that make it appropriate to treat some, or all, of the compensation payment as not having been made.

8. Where there are “special circumstances” in a particular case, sub 1184K(1) of the Act allows the Secretary to treat part or all of the compensation monies as having not been made, thereby reducing the length of the preclusion period. This Tribunal can exercise the powers vested in the Secretary to reduce the length of the preclusion period.

9. I have formed the view that the circumstances of the applicant are not such as to cause me to exercise the discretion to treat the whole or part of the settlement as not having been paid. I do not consider that there is any unfairness or unintended consequence arising from the application of the compensation provisions in this case, and so the discretion available under s 1184K of the Act ought not to be exercised.

10. While the Act does not define “special circumstances”, it has been generally accepted by this Tribunal as being circumstances which are “unusual, uncommon or exceptional” which make the case “markedly different from the usual run of cases”.[1] The Federal Court of Australia in Dranichnikov and Centrelink[2] remarked, at [66]: “There will be a requirement that the circumstances are such that takes the case out of the ordinary”. In Secretary, Department of Family & Community Services v Allan[3] Heerey J remarked, at [17]: “It is not sensible to lay down precise limits or precise rules as to what may constitute special circumstances”.

    [1] Re Beadle and Director-General of Social Security (1984) 6 ALD 1 at 3.

    [2] (2003) 75 ALD 134.

    [3] (2001) 66 ALD 147.

11. The discretion to treat all or part of the compensation monies as having not been received, under s 1184K of the Act, should be considered in the context of the scope and purpose of the compensation provisions of the Act and ought not be exercised in a manner calculated to frustrate the legislative intention:[4] the intention is that those who receive a lump sum compensation payment for lost earnings or lost capacity to earn are expected to support themselves from their own available resources for a period before seeking support from the taxpayer. In Re Secretary, Department of Social Security and Winterbotham,[5] a Presidential member of this Tribunal observed, at [19]:

    This particular piece of legislation ... was aimed specifically at preventing those people receiving compensation for loss of income because of incapacity for work, from being able also to receive benefit from the public purse ... Primary responsibility for the payment of such compensation lies at the feet of those responsible for the compensable injury. Once that responsibility has been met, by way of a settlement sum agreed to by both parties, it is inequitable for the recipient to seek supplementary funds from the tax-payer.

    [4] Re Ivovic and Director-General of Social Services (1981) 3 ALN N95 at [45].

    [5] [1990] AATA 808.

12. In Secretary, Department of Social Security v Smith[6] von Doussa J remarked, at 61, that the scheme is intended to operate to provide:

    a fair balance of the interests of the recipient of the payment with the competing interests of others in the community whose needs must be met as far as possible from a finite budget allocation for social security measures.

    [6] (1991) 30 FCR 56.

13. Mr McCormick has significant health problems. This has been accepted by Centrelink. However, I decline to find that the applicant’s injuries for which he received compensation are itself a special circumstance which would cause me to exercise the discretion under s 1184K. In Najdovska and Secretary, Department of Social Security,[7] the Tribunal found that Mrs Najdovska's ill health could not be considered to be a special circumstance when it remarked, at [57]:

    Mrs Najdovska does have health problems which are the reason for her receipt of disability support pension and for her husband's receipt of carer's pension. There is no evidence which would allow me to find that her health problems are special or unusual in the context of people receiving disability support pensions whose spouses also receive carer's pension.

    [7] (1998) 54 ALD 184.

14. Mr McCormick also raises the issue of financial hardship. This Tribunal has found that financial hardship alone cannot qualify as special circumstances. In Colaiacolo and Secretary, Department of Social Security[8] the Tribunal stated, at [20]:

    It is surely correct, on the basis of the evidence, that the applicant and those members of his family still dependent on the combined incomes are by no means well off financially. However, I cannot escape the conclusion that straitened as the financial circumstances are, they are not exceptional. Even if they were, the Tribunal has previously ruled that the financial position of an applicant would not ordinarily constitute a "special circumstance" (See Re Beadle and Director-General of Social Security (1984) 6 ALD 1…

    [8] [1985] AATA 91.

15. In considering this issue it becomes necessary to consider the nature of expenditure of the lump sum. It is not possible on the evidence before me to see how the funds from the compensation payment have been dispersed. The authorised review officer who interviewed the applicant stated that the applicant had mentioned that he had given $100,000 to his spouse who it seems had denied receiving such funds. The applicant asserts that most of the compensation which has been paid to him has been gambled away. He also admits to spending money on drugs. I have reviewed the bank records of the expenditure of the applicant and found instances where he has repeatedly paid sums into online gambling sites. There is no documentary evidence before me of how those funds have been expended once they have been deposited in the online gambling sites. There are withdrawals of funds at various clubs which the representative of the applicant conceded may have been dissipated in poker machines.

16. The case that was put by the applicant was that his spouse would manage his finances if he were to receive a disability support pension. The spouse of the applicant gave evidence that she would assist in managing his finances. However, at the hearing I remarked that the applicant would be free to expend the pension without any restraint.  It is a matter of concern that the applicant has apparently spent funds on online gambling and gambled at clubs while he has been living with his spouse. There is evidence that the applicant may have a psychological addiction to gambling and this may be a special circumstance. The applicant informed a psychologist that “if I had money I would gamble it”.[9] If the applicant is paid disability support pension, I am not satisfied that his spouse can ensure the proper expenditure of any funds in view of the fact that he has gambled funds whilst in her care.

    [9] Exhibit A, T-documents, p. 154.

17. Dr Gee, a psychologist, considers that the applicant has “ongoing impulse control issues … that would made it necessary to appoint a trustee to manage his funds in the event that Centrelink were to provide him with a disability pension”.[10] The psychological reports were obtained for the purposes of seeking payment from Centrelink. There is no evidence that the applicant has taken any concrete steps to address his gambling addiction. A psychological report discloses that the applicant has lower than average motivation to engage in treatment and views his difficulties as having been the result of others actions.[11] There is a recent report from a registered nurse but there is no recent report from a psychiatrist on the condition of the applicant.

    [10] Exhibit A, T-documents, p. 157.

    [11] Exhibit A, T-documents, p. 152.

18. The applicant has made no arrangements to ensure that any funds would be properly managed. Even if I was to find that there are special circumstances, I would be reluctant to exercise the discretion under s 1184K of the Act in these circumstances.

19. The conduct of the applicant has been reckless and he has not prudently managed his finances. The tenor of what the applicant said was that he gave no thought to his future as he thought that he would not have a long life expectancy. He has made undocumented loans to his friends which have not been repaid. At one time he owned two properties, one in Victoria and one in Queensland. I have reviewed the bank accounts of the applicant which are in Volume 2 of the T-Documents.[12] During the hearing I mentioned to the parties that the bank accounts did not contain any reference to any deposit of funds from the sale of the Victorian property in 2008. After a short adjournment the applicant was able to produce some missing bank account records which recorded a deposit in one account of $228,679.92 on 16 January 2009. However, on 20 January 2009 there was a withdrawal of $201,679.22 and it is not apparent how these funds have been applied.[13] Certainly $100,000 was deposited into another account to generate higher interest.[14] However, it is not apparent how the sum of $101,679.22 has been applied. Apart from expenditure on gambling and drugs, there is a considerable amount of extravagant expenditure, such as payments made for rodeos and entertainment parks. The actions of the applicant in disposing of his compensation monies are extravagant.[15]  

    [12] Exhibit A.

    [13] Exhibit K, p. 2 of 7.

    [14] Exhibit I.

    [15] Cf., Wilson and Director-General of Social Services (1981) 4 ALN No 94.

20. In deciding not to exercise the discretion under s 1184K of the Act I am mindful that the applicant still has an interest in an unencumbered acreage property in the country and his wife is in receipt of a regular carer payment. The household also receives varying amounts of board from children. The representative of the applicant has pointed out that the applicant has relatively good use of his arms. To his credit Mr McCormick has done job retraining and does have a capacity to do some work and has a part-time job. The home of the applicant is, however, some distance from his employment and the school that one child will attend. While there is a local school bus, the applicant says that he is unable to use the bus with his wheelchair. The household incurs considerable expenses in petrol as a trip to the nearest town is a round-trip of more than 120kms. There is considerable expenditure on electricity for water pumps. There is also an element of what could be seen to be discretionary expenditure in the household budget as funds are spent on Pay TV and a rented TV. The applicant stated that digital television is available in his locality. I have examined the household budget that was put forward by the applicant and the spouse of the applicant conceded that some elements of income are understated. I appreciate that the acreage property was purchased for the purpose of raising horses as the family enjoys attending rodeos and has been modified to meet the needs of the applicant. However, it may not be viable to maintain such a property on a long-term basis on a limited budget.

21. At the hearing I referred to the increase in the cost of living since the applicant received his compensation payment. This Tribunal has recognised that the denominator used in calculating the preclusion period is based upon an income cut off amount at the time of calculation and that this is disadvantageous to compensation recipients who receive very large amounts of compensation. This formula produces a lengthy preclusion period during which the income cut off will increase over time with adjustments for inflation and cost of living increases.[16] While there has not been the element of inflation in this period there certainly has been an increase in the cost of living. The income cut-out amount has increased by more than 50% since the applicant received his compensation payment. The application of a lengthy preclusion period has the potential to cause unfairness in a case even where there has been the prudent management of a large compensation payment. It is difficult to frame legislation to deal with all cases where a social security recipient has been paid compensation. In Secretary, Department of Family & Community Services v Allan[17] (Allan) Heerey J, at [17], recognised that “the unfairness of a strict application of the Act … may in an individual case, constitute special circumstances”.

    [16] Re De Araugo and Secretary, Department of Education, Employment and Workplace Relations [2009] AATA 986.

    [17] (2001) 66 ALD 147.

22. I appreciate that the compensation preclusion period was correctly calculated in accordance with s 17 of the Act having regard to the “income cut-out amount" that was “in force at the time the payment was received”. It is still open to the applicant (if he wishes after obtaining advice) to make a submission to the Secretary to disregard part of the compensation payment which would enable the amendment of the compensation preclusion period. Any submission would necessarily have to be based upon making a case that there are special circumstances present. The applicant may not obtain an immediate benefit if such an application was successful. However, any new compensation preclusion period that may be set would, as a matter of justice, have regard to the increase in the cost of living. In Allan, Heerey J remarked, at [22], that such a calculation is “not a matter for precise arithmetical calculation

23. As Mr McCormack lives in a remote area, I would recommend that Centrelink arrange for a social worker to provide assistance to the applicant and his family. Centrelink has already advanced funds to the household to ensure that essential bills are paid. He has recently been given a low income health care card.

24. I wish to acknowledge my appreciation of the assistance provided to the applicant by Welfare Rights Centre Inc.

    DECISION

25. I affirm the decision under review.

I certify that the preceding 25 (twenty-five) paragraphs are a true copy of the reasons for the decision herein of Dr P McDermott, RFD, Senior Member

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Associate

Dated 24 January 2013  

Date of hearing	11 January 2013
Solicitors for the Applicant	Mr Andrew Davidson
Advocate for the Respondent	Mr Rick McQuinlan