WARREN SCHELL and SECRETARY, DEPARTMENT OF FAMILIES, HOUSING, COMMUNITY SERVICES AND INDIGENOUS AFFAIRS

[2009] AATA 665

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2009] AATA 665

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No 2009/2002

GENERAL ADMINISTRATIVE  DIVISION		)
Re		WARREN SCHELL

Applicant

And SECRETARY, DEPARTMENT OF FAMILIES, HOUSING, COMMUNITY SERVICES AND INDIGENOUS AFFAIRS

Respondent

DECISION

Tribunal Mr S. Webb, Member

Date2 September 2009

PlaceYoung NSW

Decision The decision under review is affirmed.

................[sgd]..............................

Mr S. Webb, Member

CATCHWORDS

SOCIAL SECURITY - compensation affected payment - lump sum preclusion period - period reduced on review - straitened financial circumstances - further reduction not justified in the circumstances - decision affirmed

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

REASONS FOR DECISION

2 September 2009 Mr S. Webb, Member         

1.      Warren Schell suffers from incapacitating back pain and depression. He made a claim under an income protection insurance policy. Initially the claim was accepted and he was paid periodic income support payments. Subsequently the insurer decided to reject further liability and ceased payments to Mr Schell. Litigation ensued. During this period Mr Schell had no income on his own account and was unable to maintain repayments on his mortgage at that time. He was forced to sell the family home. He successfully claimed a disability support pension (DSP). Ultimately the disputed claim was settled by consent in Mr Schell’s favour; he accepted the amount of $305,000 in settlement. A lump sum preclusion period was determined. Mr Schell was not happy with that determination and requested review. The duration of the preclusion period was reduced. Mr Schell was still unhappy and requested review by the Social Security Appeals Tribunal (SSAT). The preclusion period was reduced again. He remains unhappy and applied for review by this Tribunal.

2.      I heard the matter in Young. At the outset, Mr Schell informed me that he did not dispute the correctness of the preclusion period calculations in respect of the lump sum he accepted in settlement of his claim; nor did he dispute the amount of DSP that he was required to repay. His case, he informed me, was simply directed to the existence of special circumstances and a plea for compassionate consideration.

3.      Having carefully considered all of the material placed before me, I will proceed on the basis of the facts as agreed. Mr Schell settled his claim against Tower Australia Ltd in the amount of $305,000.[1] Applying the formulae at s 17, 1169 and 1170 of the Social Security Act 1991 Mr Schell was subject to a lump sum preclusion period commencing on 2 January 2005 and concluding on 3 January 2009.[2] A debt was raised against him in the amount of $19,870.82, being the amount of DSP he was paid during the preclusion period.[3] On review by an authorised review officer, the preclusion period was varied to end on 22 October 2008.[4] On further review by the SSAT the preclusion period was again varied to end on 30 June 2008.[5]

[1] T9 folio 63.

[2] T11 folio 67.

[3] T11 folio 67.

[4] T28 folios 106-109.

[5] T2.

4.      The only issue remaining for determination is whether there are special circumstances that render it appropriate to treat all or part of Mr Schell’s lump sum payment as not having been made,[6] thereby reducing the period of the resulting preclusion period.

[6] Section 1184K of the Social Security Act 1991.

5.      Mr Schell informed me that his circumstances were special. In his submission the settlement of his claim was insufficient and it did not satisfy his expectations in relation to the income protection cover he had purchased. He expected to receive income protection payments until the age of 65, but that did not eventuate. He asserted that he was the victim of an unscrupulous industry operator. He told me that he and his wife had worked very hard for many years to accumulate assets, including the family home they purchased at Leumeah in 1991. They attempted to plan for the future and protected themselves against the risk of losing income as a result of ill health. They assisted their children financially and borrowed against the family home to do so. At the time they were both in well-paid employment and felt secure in the insurance arrangements they had made. Unfortunately, Mr Schell experience back problems in 1998 and subsequently suffered total incapacity from July 2001. He successfully claimed against his income protection policy with Tower Australia. Mr Schell told me that his wife was still earning and with her income and his periodic income protection payments they could continue the lifestyle to which they had been accustomed. Unfortunately, however, Mrs Schell suffered a stroke in or about February 2004 and suffered periods of incapacity, during which she, too, claimed against an income protection insurance policy with Tower Australia.

6.      Mr Schell explained that in December 2004 when Tower Australia decided to cease his periodic income protection payments. Protracted litigation followed. He successfully claimed a DSP in May 2005. Mrs Schell was certified unfit for work and ceased paid employment in July 2006. She did not return to paid employment and applied for a DSP in September 2006. Mr Schell told me that they had been struggling to meet the mortgage repayments on their home and sold it in or about July 2006; the transaction settled in December 2006. By Mr Schell’s account the proceeds from the sale were applied to the family’s accumulated debts, and the amount remaining was used to cover legal costs, living expenses (including rent) and a deposit on the purchase of 170 Smiths Road Wirrimah NSW in July 2007 (purchase price $170,000).[7] Their children did what they could to assist but had very little capacity. Mr Schell informed me that Tower Australia settled his claim in September 2007. The settlement monies were expended within months of the settlement, in the following manner:

[7] T10.

Legal costs$60,000

Purchase of 170 Smiths Road Wirrimah      $158,951

Mediator$2,117

Centrelink charge  $19,870

2004 taxation debt  $20,925

St George Bank debt  $20,763

Purchase of a tractor  $6,500

House painting  $3,500

Fencing$1,500

Plumbing and electrical works  $5,000

Purchase of entertainment equipment         $7,500

Airconditioner  $1,200

TOTAL$307,826

As can be seen the total expended exceeds the amount of the settlement. It is probable that excess amount of $2,826 was drawn against Mr Schell’s credit card.

7.      Additionally Mr Schell told me that subsequently he purchased a Mitsubishi Canter truck (registered in Mrs Schell’s name) ($2,000), a commercial freezer and cool room ($3,500) and a rotary hoe ($1,280). In all likelihood these purchases were made using his credit card. Nevertheless, Mr Schell asserts that he and Mrs Schell are in exceptionally difficult financial circumstances, with a credit card debt that has increased from approximately $9,000 in 2008 to over $25,000 presently.[8] He told me that they cannot make ends meet: their monthly expenses exceed their combined income by well over $600 per month. In Mr Schell’s submission these are special and unusual circumstances, well out of the ordinary course.

[8] My Card Card Services Statement, August 2009, Exhibit A 2.

8.      In Mr Schell’s submission the fact that he was forced to sell the family home at a difficult time also renders his case worthy of special consideration. He told me that he was the victim of a downturn in the Sydney real estate market and he was compelled to sell the property at a discount to its true value. No evidence of comparative property prices or values was adduced however.

9.      Mr Schell asserted that he and his wife are both victims of health problems that are uncommon and unusual at their age (dates of birth are 18 January 1949 and 22 November 1949 respectively), that are beyond their control. Mr Schell informed me that he suffers from a variety of health problems, the most disabling are a degenerative lumbar spine condition, chronic back pain and depression. Mr Schell informed me that his health has deteriorated since he was examined by Dr G. Barold in 2005.[9] He gave evidence that his wife is unable to work as a result of the stroke she suffered in 2004, but otherwise is in reasonable health. Mr Schell told me that his mother and his wife’s mother suffer health problems and require care. He stated that his eldest son suffered a back problem following a motor vehicle accident and needed occasional assistance with his young children. In Mr Schell’s submission these health issues in his family constitute circumstances that are out of the ordinary course and are special.

[9] Exhibit A3.

10.     In sum,[10] Mr Schell urged me to accept that his financial, health and familial circumstances are special circumstances that justify waiving the preclusion period in its entirety.

[10] See T21 folios 85 and 86.

11.     I do not agree.

12.     Exercise of the discretion to treat all or part of a ‘compensation payment’ (which includes an insurance payment such as that paid to Mr Schell)[11] as not having been made is preconditioned only by special circumstances that render such action appropriate.[12] Further guidance may be found in the leading authoritative cases to which reference was made during the hearing. Plainly enough, special circumstances are circumstances that are out of the usual course, being unusual, uncommon or exceptional, or arising where something unfair, unintended or unjust has occurred.[13]

[11] Subsection 17(2), Social Security Act 1991.

[12] Section 1184K, Social Security Act 1991.

[13] Dranichnikov v Centrelink [2003] FCAFC 133 at [9]; Brian Lewis Groth v Secretary Department of Social Security (1995) 37 ALD 797; Re Beadle and Director General of Social Security (1984) 6 ALD 1.

13.     I accept that Mr Schell’s expectations in relation to his former income protection insurance policy with Tower Australia were not realised, and he has not been able to continue the lifestyle to which he and Mrs Schell were accustomed. Nevertheless, Mr Schell’s complaints about the inadequacy of the terms of settlement must be considered in the light of the agreement to which he was a party. Any unfairness he perceives as a result of that settlement of his claim is a matter for him; it was his decision to accept the terms offered in settlement.

14.     Mr Schell’s assertion that he was the victim of an unscrupulous industry operator is not supported by evidence. His submission that he was the victim of a downturn in the Sydney real estate market is similarly lacking any reasonable basis in evidence.

15.     It can readily be accepted that since mid 2007 Mr Schell has found himself in straitened financial circumstances. Noting the evidence in Exhibits A1 and A2 and at T21, I accept his evidence that he and his wife are experiencing increasing difficulty making ends meet. In his oral evidence Mr Schell demonstrated a tendency to underestimate expenses and it appears to me that he may experience difficulty managing his finances. In his submission the main problem is that there is an increasing credit card debt. On his evidence, the debt has increased from approximately $9,000 in January 2008 to over $25,000 presently. Mr Schell informed me that his credit card debt had increased because he and his wife were using the card to cover their monthly living cost deficit. That may be so, but Mr Schell has spent significant sums of money acquiring, inter alia, a commercial freezer and cool room facility ($3,500), a rotary hoe ($1,280) and a Mitsubishi Canter truck ($2,000), and he has expended monies repairing the truck ($1,000). In Mr Schell’s submission these expenditures were part of a plan to develop a more sustainable lifestyle, reducing food costs by producing and storing more food on their property. That may be so, but Mr Schell was not in a financial position to be able to afford the purchases he made.

16.     I am satisfied that Mr and Mrs Schell have the following assets and liabilities:

ASSETS

House on 3 acres at 170 Smiths Road Wirrimah NSW        cost $170,000

Mitsubishi Verada car  stated value $6,000

Mitsubishi Canter truck  cost $2,000

Kubota tractor  cost $6,500

Rotary hoecost $1,280

Commercial freezer and cool room  cost $3,500

Home entertainment system  cost $7,500

LIABILITIES

My Card Credit Card  $25,100

17.     Having carefully examined Mr and Mrs Schell’s living expenses in oral evidence, I am reasonably satisfied that the following amounts are reasonable estimates of Mr and Mrs Schell’s monthly expenses:

Food and groceries  $600

Medical and pharmaceutical treatment  $170

Specialist/Dental treatment  $78

Fuel$400

Motor vehicle running costs  $250

Motor vehicle insurances  $140

Home and contents insurance  $88

Life insurance  $206

Electricity$150

Cowra Shire Council water charges  $88

Young Shire Council rates  $16

Telephone and internet charges  $215

Credit Card repayments  $503

TOTAL MONTHLY EXPENSES  $2,904

Mr and Mrs Schell are both dependant on DSP payments for their income: resulting in a total monthly income of approximately $2,200. As can be seen, Mr and Mrs Schell’s monthly expenses exceed their monthly DSP income by approximately $700.

18.     Mr Schell gave evidence that his present expenses do not include chiropractic or massage treatment for his back condition, which he estimated would cost $45 per month. By his account he experienced difficulty finding a suitable practitioner in his locality but this circumstance has recently changed; he presently expects to obtain such treatment at ‘mates rates’ from a suitably qualified personal friend.

19.     As it appears to me, Mr Schell’s financial position is in poor shape, but it is not parlous. By his own account he has the option of taking out a mortgage over his property at 170 Smith’s Road Wirrimah, which is presently unencumbered, and using those funds to repay his credit card debt. That will go some way to addressing his monthly cash flow difficulties. The greater difficulty is that Mr and Mrs Schell’s monthly expenditures would, in all likelihood, still exceed their combined income. In those circumstances one must question the wisdom of operating, maintaining and insuring a truck as well as a car, and retaining the current level of life insurance. Those are matters of choice for Mr and Mrs Schell. Plainly enough, Mr and Mrs Schell are expending money on non-essential items as a matter of choice. Those choices may have a reasonable basis, but I am not persuaded that their financial circumstances are special when compared to the financial circumstances that arise in the usual run of cases concerning people who rely on social security pensions for their sole income. In that context the financial pickle in which Mr and Mrs Schell find themselves does not constitute a special circumstance for present purposes.

20.     But that is not the end of the matter. One must also consider and take into account Mr and Mrs Schell’s health and other circumstances, about which there is no factual dispute. It is unfortunate for Mr and Mrs Schell that they have been afflicted by the medical conditions from which they suffer, and at a young age. Nevertheless, these circumstances of ill-health and disability are not unusual or exceptional in the context of persons who receive disability support pensions; on the contrary, ill-health and disability are common factors for such people. It can be accepted that Mr and Mrs Schell’s medical conditions may deteriorate over time as they age, but their present health status does not constitute a special circumstance for present purposes.

21.     Considering the evidence concerning Mr and Mrs Schell’s aged mothers, there is nothing to distinguish this case from so many others. Mr Schell’s mother resides in a nursing home in Young, 35 kilometres from Mr Schell’s residence. Mrs Schell visits her mother, who resides in Campbelltown, on a regular basis. Mr Schell submitted that this increases their fuel bill and Mrs Schell may experience difficulty driving such distances in the future. Those submissions do not render this circumstance special, however. On the contrary, Mr and Mrs Schell moved from Campbelltown to their present residence in 2006. That move was a matter of choice and, on Mr Schell’s evidence, it was contrary to financial advice he obtained at the time. Furthermore, many are those who incur the minor cost and inconvenience of travelling to visit aged relatives on a regular basis. These are not special circumstances.

22.     I accept that Mr and Mrs Schell’s eldest son was injured in a motor vehicle accident and I accept that Mrs Schell visits to assist with her grandchildren from time to time. I do not accept, however, that this is a special circumstance that distinguishes this case from so many others.

23.     In sum, considering the totality of Mr Schell’s circumstances, I am not persuaded that any special circumstances exist that render it appropriate to treat any additional part of his lump sum payment as not having been made. In all of the circumstances the interests of taxpayers must also be considered. I am not satisfied that it is appropriate to require taxpayers to provide further relief to Mr Schell. Mr Schell is indubitably unfortunate in that he suffers from debilitating and painful medical conditions, and his financial position is in a poor state. Nevertheless, unlike many others who rely on social security pensions for their sole income, he has assets and options that may assist him to improve his financial circumstances. By his own account he is benefiting from the massage treatment provided by a suitably qualified friend. If Mr Schell has experienced difficulty as a result of the global financial crisis or the downturn in economic activity and real estate prices in recent time, he is like so many other Australians.

24.     Previous decision makers have decided to treat part of Mr Schell’s lump sum payment as not having been made, effectively reducing the length of the preclusion period that applies. The Respondent Secretary did not press for those reductions to be set aside in these proceedings, although that option was open. Even though there is little compelling evidence to support Mr Schell’s case concerning special circumstances, I accept the Secretary’s position and I will not set aside the decision under review in order to reinstate the full duration of the preclusion period.

25.     Despite Mr Schell’s submissions, this is not a case in which destitution is a factor. Mr Schell described himself as sometimes having his head in the sand when it comes to financial matters. That is a matter for him to address when taking control of his finances with his wife, and one can only urge him to do so. There is no evidence that taking such action is beyond his capacity. On the contrary, Mr Schell has a professional background in the motor vehicle industry and he has experience of business and financial management.

I certify that the 25 preceding paragraphs are a true copy of the reasons for the decision herein of Member S. Webb.

Signed:  ..............................................................
  J. Lakin, Associate

Date of Hearing  28 August 2009
Date of Decision  2 September 2009

Applicant self-represented
Advocate for the Respondent       Ms J. Furner, Centrelink Legal Services