Welch and Secretary, Department of Family and Community Services
[2003] AATA 905
•15 September 2003
Administrative
Appeals
Tribunal
DECISION AND REASONS FOR DECISION [2003] AATA 905
ADMINISTRATIVE APPEALS TRIBUNAL )
) No W2002/389
GENERAL ADMINISTRATIVE DIVISION ) Re BRYCE WELCH Applicant
And
SECRETARY, DEPARTMENT OF FAMILY AND COMMUNITY SERVICES
Respondent
DECISION
Tribunal Mr M Allen, Member Date15 September 2003
PlacePerth
Decision The decision of the Social Security Appeals Tribunal made on 28 August 2002 is set aside and in substitution therefor the Tribunal decides that:
(a) section 17(3)(a) of the Social Security Act 1991 is applicable in this case for the purpose of determining the compensation part of the lump sum payment made to the applicant and for the calculation of the applicable preclusion period; but that
(b) in the special circumstances of the case it is appropriate to treat as not having been made that part of such amount as exceeds $304,174
........…..(sgd. Mr M Allen)....................
Member
CATCHWORDS
SOCIAL SECURITY – compensation payments – preclusion period – compromise of claim by person under a disability approved by court – whether payment made in settlement of a claim – whether claim settled by consent judgment or otherwise – whether section 17(3)(a) of Social Security Act 1991 applicable – whether appropriate to treat all or part of payment as not having been made – whether special circumstances exist – applicant’s catastrophic injuries – total disablement
WORDS AND PHRASES – settlement – settled – compromise
Social Security Act 1991 ss17(1), 17(2), 17(3), 17(8), 1170, 1184K
Motor Vehicle (Third Party Insurance) Act (WA) s 3C(3)
Rules of Supreme Court of Western Australia, Order 70.10
Re Melbourne and Secretary, Department of Social Security 14 ALD 415
R v Moodie and others; ex parte Mithen (1977) 17 ALR 219
Kuswardena v Minister for Immigration & Ethnic Affairs (1981) 35 ALR 186
Re Redmond and Secretary, Department of Social Security (1992) 26 ALD 362
Huddersfield Bank v Lister [1985] 2 Ch 285
Marshall v Barnes and Fitzpatrick [1953] 1 All ER 970
Secretary, Department of Social Security v Banks (1990) 20 ALD 19
Sosa v Carter (1979) WAR 123
Naim Haidar v Secretary, Department of Social Security [1998] 994 FCA
Secretary, Department of Family and Community Services v Chamberlain [2002] FCA 67
REASONS FOR DECISION
15 September 2003 Mr M Allen, Member 1. This is an application made on behalf of the applicant by his parents, who are his joint plenary administrators pursuant to an order made by the Guardianship and Administration Board of Western Australia. In these reasons for decision I will refer to the applicant as Bryce and to his parents as Mr and Mrs Welch. The application seeks review of a decision of the Social Security Appeals Tribunal (SSAT) made on 28 August 2002. In that decision the SSAT set aside a decision made by a delegate of the Secretary on 15 May 2002 to impose a preclusion period on compensation affected payments payable to Bryce from 11 March 1995 to 20 January 2018. The SSAT sent the matter back to the Secretary for reconsideration in accordance with a direction “that s17 (3)(a) of the Social Security Act 1991 [‘the Act’] does not apply and that economic loss and loss of earning capacity of $304,174.00 ordered by the District Court 10 May 2002, is to be used to calculate the preclusion period.” The effect of the SSAT’s decision would be to reduce the preclusion period for payments that could be made to Bryce from 11 March 1995 until 21 January 2005.
2. In addition, the SSAT found that there were no special circumstances in relation to Bryce that would justify a reduction of the adjusted preclusion period.
3. At the hearing of the matter Bryce was represented by Ms Stribling and the Secretary was represented by Ms Hackney, a Centrelink officer. The Tribunal received into evidence the documents produced pursuant to s37 of the Administrative Appeals Tribunal Act 1975 (the AAT Act) (T1 to T36) and also received in evidence documents tendered by the Applicant (A1 and A2) and by the Respondent (R1 to R4). Oral evidence was given at the hearing by Mrs Welch.
Background
4. On 11 March 1995 Bryce (who was then aged 18 years) suffered catastrophic injuries when the motor vehicle he was driving collided with another vehicle. His injuries and the resulting disabilities will be referred to later in these reasons. Proceedings were brought on behalf of Bryce by Mr and Mrs Welch as his next friends against the driver of the other vehicle, and the Insurance Commission of Western Australia (being the compulsory insurer of the other driver) denied liability. By agreement between the parties the liability issue was the subject of a trial as a preliminary issue in the District Court and in December 1997 that Court dismissed Bryce’s claim. A subsequent appeal to the Full Court of the Supreme Court of Western Australia on behalf of Bryce was successful, with the Full Court determining that Bryce was 65% liable for the accident and ordering that the other driver pay 35% of Bryce’s damages to be assessed.
5. Following negotiations between the parties a provisional compromise of Bryce’s claims for damages was reached and Counsel retained on behalf of Bryce provided an opinion about the way in which Bryce’s damages should be assessed and whether the terms of the provisional compromise were in Bryce’s interests. That opinion was obtained for the purpose of an application to be made to the Court under Order 70 of the Rules of the Supreme Court for approval by the Court of the compromise. Counsel expressed the opinion that the terms of the proposed negotiated compromise fell within the range of damages likely to be awarded by a Judge at a trial. On 10 May 2002 a Judge of the District Court made an “order to compromise” by consent (T32) and ordered that Bryce have leave to compromise his claim for the sum of $1,408,213.00 – out of which payments were to be made to the Health Insurance Commission and to the Department of Social Security and the balance was to be paid to the Public Trustee to be invested or applied for the benefit of Bryce. In addition to the above the Defendant in the action was also ordered to pay to Mr and Mrs Welch a number of specified amounts and also to pay to the Health Insurance Commission and the Disability Services Commission 35% of any amounts recoverable by those entities. Upon payment of the various amounts the defendant was “discharged from any further liability in respect of [Bryce’s] claim” in the action.
6. In the opinion prepared by Counsel the following items were identified as being in respect of past loss of earnings and future loss of earning capacity:
Lost earnings from 11 March 1995 to 6 May 2002 $216,828.00
Interest on the above amount $ 45,533.00
Future loss of earning capacity $526,711.00
Lost past and future superannuation benefits $ 89,358.00
Total $878,430.00
35% of $878,430.00 $304,174.007. Centrelink recovered out of the settlement amount the sum of $75, 083.58 (being the amount of benefits paid to Bryce from the date of accident to that time) and determined that a preclusion period should end on 12 January 2018 because it considered that Bryce’s claim had been settled by a consent judgement and that s17(3)a of the Act was applicable. As a consequence, 50% of the total amount of the judgement was taken to be the compensation part of the lump sum compensation payment received by Bryce and that 50% amount was the amount to be used for determining the preclusion period. The delegate also considered that no special circumstances existed as would justify treating any part of that amount as not having been received by Bryce.
8. The SSAT took the view that neither s 17(3)(a) nor s 17(3)(ab) applied because there had been no consent and the damages were made pursuant to a “determination, scrutiny and subsequent order of a Court.” The SSAT considered that the sum of $304,174.00 was the amount paid in respect of Bryce’s lost earnings and that amount should be used to calculate the preclusion period. The SSAT also considered that there were no special circumstances that would make it appropriate to treat the whole or part of the compensation payment as not having been made.
9. The application made to this Tribunal and the Statement of Facts and Contentions filed on behalf of Bryce did not raise as an issue to be determined the question of whether or not the SSAT had been correct in concluding that the amount of $304,174.00 was the appropriate amount to use for the purpose of calculating the preclusion period. Rather, the applicant raised only the question of whether special circumstances should be found to exist as would reduce the preclusion period to a date prior to 21 January 2005.
10. Likewise, the Statement of Facts and Contentions filed on behalf of the Secretary stated that the calculation of the preclusion period was not an issue that would be pursued by the Secretary but that the issue to be determined by the Tribunal was whether or not special circumstances exist.
11. However, at the commencement of the proceedings I informed the representatives of the parties that I believed that it would be necessary for me to address the question of whether or not the SSAT had indeed been correct in the view it had taken about the amount to be used for the purpose of calculating the preclusion period. I invited the parties to address that issue at the hearing and to make written submissions on the point after the close of the hearing. In the event the Secretary filed submissions on that point but no submissions were filed on behalf of Bryce.
The issues for the Tribunal
12. The issues for the determination of the Tribunal are:
(a) what is the correct preclusion period applicable to Bryce; and
(b)having regard to (a), whether the whole or part of the compensation payment received by Bryce should be treated as not having been made in the special circumstances of the case.
Legislative Framework
13. Part 3.14 of the Act provides a regime under which certain types of social security benefits (referred to as “compensation affected payments”) are not payable during a period (the lump sum preclusion period) that is calculated according to the provisions of that Part: section 1169.
14. A compensation affected payment is defined in s17(1) of the Act to include both sickness benefits and disability support pensions (“DSP”) Compensation is defined in s17(2) as:
“(a) a payment of damages; or
(b)a payment under a scheme of insurance or compensation under a Commonwealth, State or Territory law, ...; 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.”
15. It is not in dispute that Bryce received a compensation affected payment after 11 March 1995 (ie sickness benefits and DSP) and that he would be eligible in future to claim a DSP by virtue of his injuries suffered in the motor vehicle accident. It is also not in dispute that he received a lump sum compensation payment. Section 1170(3) provides that a lump sum preclusion period is the period that begins on the day on which the loss of earnings or loss of capacity to earn began, and ends at the end of the number of weeks worked out in accordance with a formula that is set out in ss1170(4) and (5). That formula involves dividing what the Act refers to as the “compensation part of the lump sum” by what the Act refers to as the “income cut out amount” and rounding the resulting number down to the nearest whole number. The result is the number of weeks of the preclusion period.
16. Section 17(3) relevantly defines a “compensation part of a lump sum compensation payment” in the following terms:
“(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 last capacity to earn, or both.”
17.
Section 17(8) provides a formula to be used in determining the “income cut out amount”. In essence, this represents the maximum amount of weekly earnings beyond which a pension at the single person rate is no longer payable.
That amount may not bear any relationship to the amount of income that a person actually received (or lost) during the relevant period. The income cut out amount used for the calculation of Bryce’s preclusion period was the amount of $590.50. If the compensation part of the lump sum was taken to be 50% of $1,408,213 (ie. $704,106) then the preclusion period ran until January 2018 (as calculated by the delegate), but if the compensation part of the lump sum was taken to be $304,174 (as determined by the SSAT) then the calculation resulted in the preclusion period ending in January 2005.
18. Section 1184K of the Act authorises the Secretary (and hence this Tribunal) to disregard some compensation payments as follows:
“(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.”
The evidence
19. Counsel’s opinion sets out in some detail the injuries suffered by Bryce in the motor vehicle accident and the diagnosis and prognosis for his future life. Bryce suffered a severe closed head injury resulting in immediate loss of consciousness and he remained in a coma for some two months following the accident. He suffered significant head and cerebral injury and was left with the following residual permanent impairments as appears from paragraph 13 of Counsel’s opinion:
“(i)Dense hemiplegia of the right sided limbs (Bryce is right arm dominant).
(ii)Severe generalised dyspraxia causing reduced functioning of even his left sided limbs.
(iii)Generalised spasticity particularly affecting the hemiplegic right side.
(iv)Trunkal ataxia resulting in poor standing and sitting balance.
(v)Significant sensory neglect with the reduction of tactile sensation on the right side and some visual neglect towards his left side.
(vi)It is also clear that Bryce has some severe residual cognitive impairments but the extent of his physical impairment makes it difficult to try and quantify this level of cognitive impairment accurately”.
20. Bryce is wheelchair-bound and has extremely limited capacity for standing. He has no capacity to walk even a few steps without assistance. Bryce’s life expectancy has been reduced to about 60-65 years, and he is incapable of managing his own financial and legal affairs.
21. In her evidence, Mrs Welch said that Bryce had been working as a trainee computer technician for a few months prior to the motor vehicle accident. He was a fun-loving and virile boy with lots of friends and played premier league soccer.
22. After about 18 months in various hospitals, Bryce had transferred to a live-in institution (“Brightwater”) in November 1996 and remained there until March 2003, when he moved into a rented duplex. For some of his time whilst in hospital and after he moved into Brightwater he was able to spend week-ends at his parents’ home. Throughout all this time there had been a great number of expenses and Exhibit A1 is a schedule containing lists of various types of expenses that total approximately $150,000, about 95% of which Mrs Welch said had been paid by she and her husband. Some of these expenses have since been recovered by Mr and Mrs Welch as a result of the settlement of the court action.
23. The Trustee pays the rent on the duplex that Bryce now lives in – being $180 per week – and also pays for a care package that costs $750 per week and which Bryce’s parents regard as the minimum package for his safety. This package involves a carer being at the duplex for three hours each week day and for 3-4 hours each Saturday and Sunday. In addition, Bryce is paid an allowance of $100 per week by the Trustee and his parents are presently negotiating for the Trustee to also pay approximately $120 per week for his groceries and food. Bryce has no other income. All monies earned on his trust fund held by the Trustee are retained by the Trustee. He has been receiving an amount of $66 per fortnight from Centrelink as a mobility allowance, but that is only available if he continues to take the option of attending a programme at a particular institution.
24. At the moment Bryce is managing with the care package described above but he now thinks that he needs someone to live with him on a more- or- less full time basis. This is partly for companionship but also as a protection should he have a fall and need assistance.
25. So far as the future is concerned, Mr and Mrs Welch hope that within the next 12 months it will be possible to build a house for Bryce to live in – which would bring about a whole different set of living circumstances. They expect that such a house would cost about $300,000 or more. They do not expect that Bryce will ever be able to hold a job because he has no concentration span or resilience. It is, however, extremely difficult to say what he is capable of. He will always need care because his parents do not believe that he will ever be able to look after himself. His balance is presently very bad and he is not safe on his own legs. Accordingly, continual physiotherapy is important. As he gets older his physical and mental abilities may deteriorate. Weight will always be a problem because of the time he spends in a wheel chair. If at some stage in the future he needs in-house care to a much greater extent than he presently has then that will become an extremely expensive option. Caring for him in the way that they do is extremely emotionally draining for his parents as well as physically demanding.
26. Mrs Welch said that at the time that agreement had been reached in relation to Bryce’s claim she and her husband understood the basic rules regarding repayment of money to Centrelink and regarding the preclusion period. They knew how the preclusion period arrangement worked but they believed that the assets and income rules that were applicable to social security benefits would mean that there would be no pension payable to Bryce even after a preclusion period ended. At one stage they thought he might get approximately $2 million in total for his claim. At T21 is an estimate provided by Centrelink to Bryce’s solicitors on 8 April 2002 in response to a request from the solicitors for an estimate of the amount repayable to Centrelink and the preclusion period on the basis of a gross lump sum payment to Bryce of $1 million. His solicitors were advised that an amount of $73,528.98 would be repayable and that the preclusion period was estimated to run from 11 March 1995 until 27 May 2011.
27. In the middle of May 2003 the total amount of the trust fund held by the Trustee was $1,325,685. Mrs Welch was unsure as to exactly how that money was invested but she understood that it was earning approximately 4.5% to 5% per annum. Tax is payable on the income of the trust fund. Mrs Welch said that how long the trust fund would last was subject to a number of factors such as what rate of return was generated, what Bryce’s care expenses were in the meantime and what his care needs were at the time – for example, if he was no longer able to live independently then any house that he might own at that time could be sold. At that time it might be necessary for him to move back into some sort of residential care situation.
28. Mrs Welch said that the priority of she and her husband was to make sure that Bryce was well cared for in the meantime and to make the trust fund last as long as possible. Accordingly, if the preclusion period should be shortened to such an extent that all or part of the $75,000 recovered by Centrelink could be returned to the trust fund, that would help keep the trust fund going for longer than it otherwise would.
29. None of Mrs Welch’s evidence was challenged in any meaningful way and I accept all of her evidence.
Applicant’s contentions
30. No submissions were made on behalf of Bryce at the hearing or subsequently in relation to the applicability of s17(3)(a). In relation to the issue of whether there were special circumstances that would justify the exercise of the discretion available in s1184K, Ms Stribling contended that the whole of the payment received by Bryce should be disregarded because of the special circumstances. The particular special circumstances that were identified were as follows:
(a)Bryce’s injuries and disabilities were very severe. Section 3C(3) of the Motor Vehicle (Third Party Insurance) Act of Western Australia provides that “the maximum amount of damages that may be awarded for non-pecuniary loss is [the prescribed amount], but the maximum amount may be awarded only in a most extreme case.” Non-pecuniary loss is defined to mean non-economic loss such as pain and suffering, loss of amenities of life, loss of enjoyment of life, curtailment of expectation of life, and bodily or mental harm. The prescribed amount is the sum of $232,000 and Counsel expressed the opinion that it was highly likely that in Bryce’s circumstances the maximum amount would be awarded to Bryce by a court. To be in that category his injuries and disabilities must be considered extreme and much worse than the usual case. Accordingly, that would constitute a special circumstance in light of the approach to that concept adopted in cases such as Re Beadle and Director General of Social Security (1983) 60 ALR 225;
(b)As a result of the accident Bryce and his parents had experienced financial hardship. His parents had to make very substantial payments on expenses that were incurred prior to the settlement of his claim and the majority of benefits received from Centrelink were taken in his living expenses in Brightwater. At Brightwater 60% of his DSP payments had been taken, initially leaving him with about $100 a fortnight but that had increased to about $200 a fortnight. He had never been able to meet all his own expenses and his parents had subsidised him at the rate of between $25-50 per week;
(c)Although the full extent of Bryce’s past and future economic loss had been calculated as $878,430, the contributory negligence involved had reduced his entitlement to 35% of that amount ie. $304,174, which was much less than the $704,102 that was taken to be the compensation amount of the lump sum under the 50% rule in s17(3)(a). Accordingly, the application of the arbitrary statutory formula resulted in Bryce being treated unfairly and harshly;
(d)Because of the application of the income and assets test regarding eligibility for DSP, Bryce cannot expect to receive a DSP in January 2005 or in the foreseeable future. At present a person will receive no DSP if he has assets of more than $398,500 or income of $1,231 a fortnight. It is most unlikely that Bryce would qualify for DSP in 2005 and he may not qualify even in 2018;
(e)Bryce’s actual economic loss between the date of the accident and the date of finalisation of his claim had been assessed at $283,319 and 35% of that sum was $99,161. This amount represented approximately $267 per week, whereas Bryce had actually been earning at the time of the accident approximately $400 per week after tax. Accordingly, the amount of compensation he had received for past loss of earnings was less than the actual amount lost by him in that time.
Respondent’s contentions
31. I will refer to the Secretary’s submissions regarding s17(3) at [33] below. In relation to special circumstances Ms Hackney contended that:
·All of the factors that are applicable to Bryce must be considered cumulatively rather than in isolation, taking a whole view of his circumstances.
·As regards Bryce’s current medical conditions, it is clear that health may be a relevant circumstance but must be considered in context. The extent of a person’s injuries would normally not be regarded as special because compensation cases often involve persons with major injuries. Disabilities that a person may have would not normally, of themselves, distinguish the person from others similarly afflicted.
·The fact that contributory negligence was involved and reduced the amount Bryce received should not be regarded as a special circumstance. Although it has the effect of reducing the total amount of compensation received, that is in itself taken into account in the calculation of the preclusion period. Social security benefits based on income support are not intended to be insurance against one’s own negligence at the expense of the public purse.
·Although the amount eventually recovered was less than 100% of the assessed damages, the amount actually recovered was still a substantial sum and the intent of Part 3.14 of the Act is that persons who receive a lump sum should support themselves from it.
·Because Bryce had recovered $99,000 for the period from the date of accident to the settlement date, and Centrelink had recovered only $75,000 for that period, there could be said to be an element of “double-dipping” to the extent of the difference.
·For financial hardship to be a special circumstance it must be beyond “straitened financial circumstances” and be truly exceptional.
·Whether or not Bryce may be eligible for a DSP in future will depend on the income and asset tests applicable at the time, including any provisions that allow some assets to be disregarded on hardship grounds. It would be open to Bryce to seek to establish that special circumstances existed at any time in the future, should Bryce’s circumstances change.
Consideration of the Issues
32. As foreshadowed at [12] above, the first issue to be determined is what is the appropriate compensation part of the lump sum received by Bryce. As noted above, the SSAT determined that s17(3)(a) and s17(3)(ab) were not applicable – and pursuant to s17(3)(b) the SSAT considered the amount to be $304,174.00. It is well established that the role of this Tribunal is to “stand in the shoes” of the decision maker and make the correct or preferable decision on the relevant issue in the light of all the material before the Tribunal. The Tribunal cannot rely on concessions made by the parties and “.... must endeavour to reach a correct conclusion as to all issues involved in the determination of the application before it…”: Re Melbourne and Secretary, Department of Social Security 14 ALD 415 at 418 per Senior Member Dwyer; see also R v Moodie and Others; Ex parte Mithen (1977) 17 ALR 219 at 225 per Stephen, Murphy and Aickin JJ; Kuswardena v Minister for Immigration and Ethnic Affairs (1981) 35 ALR 186; Re Redmond and Secretary, Department of Social Security 26 ALD 363 at [7].
33. I have noted at [10] above the Secretary’s original position in relation to the SSAT’s decision on the application of s17(3). In the event, in the final written submissions made on behalf of the Secretary, it was submitted that orders made under Order 70 do come within s17(3)(a) – at least insofar as the Court does not vary the settlement terms reached by the parties. Where the Court affirms the terms of agreement reached by the parties then s17(3)(a) would apply. Although the Secretary’s final submissions do not go so far as asserting expressly that the SSAT’s decision on this point in the present case was incorrect (with the resulting consequences for the calculation of the preclusion period) I can only interpret the final submission as being implicitly to that effect.
34. I must, therefore, consider whether s17(3)(a) is applicable to Bryce’s case – there being no dispute that s17(3)(ab) is not applicable because no issue arises concerning periodic compensation payments that have been received in the form of a lump sum. Section 17(3)(b) will only apply if s17(3)(a) does not apply.
35. In terms of s17(2), there is no doubt that Bryce had a claim for damages that was in part in respect of lost earnings and lost capacity to earn resulting from personal injury. Likewise, it is clear that a payment was made. Similarly, in my opinion, in terms of s17(3)(a), Bryce’s claim was, at least in part, related to an injury or condition. The questions to be answered, therefore, are:
(a)whether the payment was made “in settlement of” Bryce’s claim: s17(3)(a)(i); and
(b)whether “the claim was settled, either by consent judgement being entered in respect of the settlement or otherwise:” s17(3)(a)(ii).
36. Before attempting to answer those questions I note that there was at no time any admission of liability by or on behalf of the other driver. The Supreme Court determined liability by adjudging that the other driver was 35% liable for Bryce’s claim.
37. Following that decision the parties prepared for a hearing in the District Court on the issue of quantum of damages, which was scheduled to take place commencing on 6 May 2002. Counsel records (para 5 of T27) that all necessary preparations had been made for the trial by the time the “provisional compromise” was reached. Counsel’s opinion is dated 8 May 2002. The Order eventually made by the District Court was entitled “Order to Compromise Plaintiff’s Claim”.
38. Order 70.10 of the Rules of the Supreme Court of Western Australia is as follows:
“[70.10] Compromise of Action by Infant or Patient
10(1)No settlement or compromise, and no acceptance of money paid into Court, whenever entered into or made, in any cause or matter (other than an appeal to the Full Court) in which there is a claim by or on behalf of or against a person under disability, shall be valid unless it is approved by the Court”.
The Rule goes on to provide that an application for approval is to be made to a Judge in Chambers and is to be supported by an affidavit and by the opinion of an independent counsel, and that the word “settlement” includes an acceptance of an offer to consent to judgment.
39. It is to be noted that Order 70 distinguishes between a “settlement” and a “compromise” whereas s17(3)(a) refers only to a “settlement” of a claim and to a claim being “settled”. Are these distinctions of significance and was there a “settlement” of Bryce’s claim even though the terminology employed by Counsel and the Court was “compromise”?
40. The New Shorter Oxford English Dictionary (1993) relevantly defines “settle” as to “arrange matters in dispute, come to terms or agreement with a person .... bring to an end (a dispute) by agreement or intervention” and defines “settlement” as “the settling or payment of an account; the action of satisfying a claim or demand; the action of coming to terms (with a person)”. The same dictionary relevantly defines “compromise” as “be agreed by mutual concession ... come to terms by mutual concessions .... settle (a matter in dispute between others) ... settle (a difference with or with another) by mutual concession; come to terms about.”
41. In Huddersfield Bank v Lister [1895] 2 Ch 285 Kay LJ said that:
“a compromise takes place when there is a question of doubt, and the parties agree not to try it out but to settle it between themselves by a give-and-take arrangement.”
42. Pearson J in Marshall v Barnes and Fitzpatrick [1953] 1 All ER 970 at 977 observed that:
“I understand ‘compromise’ to mean an agreement to settle an action or threatened action. It may be an agreement to apply for a consent judgment, and effect is given to it by applying for and obtaining the consent judgment. Or it may be an agreement that the dispute shall be settled on certain terms and that application shall be made for an order that the action be stayed with liberty to apply and such order is applied for and made: in that case the action merely becomes dormant, and the stay may be removed if the terms are not carried out. Or it may be an agreement to avoid a threatened action, and, if the agreement is not carried out, the action may still be brought. The parties have not reached finality or fully disposed of the proceedings or intended proceedings when they make their compromise agreement: further steps are required to effectuate the compromise and to give it finality. On the other hand, a judgment has finality, fully and effectively terminating the action.”
43. The commentary on Order 70 by the editors of the Civil Procedure Western Australia Service (Butterworths) at 13,265 contains the following in regard to the compromise of claims by persons under a disability (with citations omitted”):
“[10.10.3] Purpose of Approval
The need for court approval of any compromise is that if the next friend does anything in the action beyond the mere conduct of it, it must be for the benefit of the person under disability and if it is not so the person under disability will not be bound… The purpose of the requirement for leave to compromise is to ensure that the settlement is fair and reasonable, to provide a means by which the defendant can obtain a valid discharge and to ensure that the solicitors for a person under disability are paid their proper costs and no more. This last purpose is to avoid any overcharging of the plaintiff and to remove any temptation that a solicitor might recommend an unfavourable settlement because of an unduly favourable offer to agree to his or her costs … The court cannot itself induce a compromise which an infant accepts but to which his or her next friend and legal advisers are opposed … Furthermore, the solicitors for the next friend cannot bring an application for compromise contrary to the wishes of the next friend …”
44. The mischief that s17(3) and Part 3.14 of the Act (and their predecessor provisions) was intended to address is well known: see Secretary, Department of Social Security v Banks (1990) 20 ALD 19 per von Doussa J at [13]. At [18] von Doussa J said (in relation to a previous, but corresponding, version of s17(3)):
“A notion of finality is introduced in s 152(2)(c)(i) by the requirement that the lump sum payment be one “in settlement of a claim…”.. The expression “the lump sum payment…made…in settlement of a claim” is apt to describe the total amount which is payable as the monetary consideration passing from the party on whose behalf the payment is to be made to the recipient in exchange for a release from the claim. The reference to a judgment by consent in cl (A) of subpara (i) provides a further guide to the broad meaning of the expression “the lump sum payment”. Where a judgment is entered, the underlying claim or cause of action merges in the judgment. The judgment sum in the case of a payment by way of damages on a claim that includes a claim related to disease or injury, will usually be a once and for all amount paid in discharge of all legal liability of the defendant. In sub para (i) a “lump sum payment…in settlement of a claim” is a compendious expression encompassing the total amount paid in settlement of the claim. However the expression “settlement of a claim” in s 152(2)(a)(i) does not necessarily require that the payment be in settlement of all claims between the recipient of the payment and the party on whose behalf it is made.”
45. In light of the above, in my opinion the words “settlement” and “settled” in s17(3)(a)(i) and (ii) should be given a wide meaning so as to cover the general concept of an arrangement that involves the agreement of terms upon which a claim or dispute is to be satisfied and brought to an end. The emphasis is on agreement and resolution of the dispute or claim and there is no implication about whether any party to the resolution is to get everything that has been claimed or has abandoned part of the claim or had to accept something less than was originally sought. A compromise can be seen as one type of way in which a claim can be settled – and carries an implication that one or all parties modified their original position so as to arrive at agreed terms. That may well be the case in most situations involving negotiated settlement. In that sense a compromise can be regarded as a sub-set of the broader concept of settlements and I consider that is the way in which Order 70 uses the terms.
46. It seems to me that it would require a considerable torturing of the language to arrive at a conclusion other than that the payment that was made to Bryce was made “in settlement of a claim” as required by s17(3)(a)(i). Once the Supreme Court had established the percentage of liability to be used in the calculation of Bryce’s damages claim, his claim was thereafter the subject of negotiation between Bryce’s representatives and the representative of the insurer of the other driver. A provisional agreement about the amount of damages to be awarded to Bryce (and also about other amounts to be paid to other persons) was arrived at. It is clear that Bryce personally played no part in those negotiations but his parents obviously did. Counsel, in his Opinion at paragraph 83, records that “I am given to understand by the solicitor for [Bryce] that his parents do in fact support the proposed compromise”. All concerned were, of course, aware that Bryce’s claim could not actually be validly finalised without the Court’s approval.
47. Although described as a compromise in counsel’s opinion and in the order of the Court, the process that lead to the payment was in every real sense a settlement of Bryce’s claim. In my opinion the requirements of s17(3)(a)(i) are satisfied.
48. There having been a settlement of Bryce’s claim, it follows that the claim was “settled”. von Doussa J in Banks (supra) at [15] observed that: “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 [the predecessor of s17(3)(b)].”
49. Although the issue of liability involved such a curial determination on the merits by a court, the issue of quantum was not resolved in that way. It was resolved by an agreement reached between the parties but subject to approval by the Court under Order 70. That approval process does not involve the Court independently determining the total quantum or its allocation under the various heads of damages. As counsel noted in his opinion, the Court must satisfy itself that all the relevant facts are considered, consider counsel’s opinion and the reasons for it, and be slow to disagree with the opinion if it appears all aspects of the case has received proper consideration: Sosa v Carter (1978) WAR 123.
50. In the end, in my opinion, the claim was settled by a consent judgment being entered that gave effect to the terms of the compromise that had been negotiated. The Court’s order records that it was made by consent and ordered that the defendant make various payments, including the payment to the Trustee of the amount to be paid under the compromise agreement. It contains an order that upon payment of the various amounts the defendant is to be discharged from further liability. Such an order is a consent judgement, in my opinion, and it was entered into in respect of the agreed settlement terms. Even if it could be said that the order of the court was not a “consent judgement”, in my opinion the agreed compromise followed by the Court’s approval of it constituted the claim being settled “otherwise”.
51. It follows that, in my opinion, the requirements of s17(3)(a)(ii) are satisfied in this case. The consequence is that s17(3)(a) as a whole applies and s17(3)(b) cannot apply. The compensation part of the lump sum payment received by Bryce was, therefore, 50% of that payment – as calculated by the delegate and the preclusion period was to run from 11 March 1995 to 20 January 2018.
52. I should record that shortly before the hearing in this case I became aware that the SSAT in five other (unreported) cases had taken a contrary view about the applicability of s17(3)(a) in the context of cases involving the approval of the Supreme Court of Victoria to compromises under the Victorian provision equivalent to Order 70: see Booth, “Centrelink preclusion periods: interpreting the 50 per cent rule” in Plaintiff, Issue 55, February 2003. My examination of the SSAT’s reasons in those of the decisions I have been able to peruse has not, with respect to the various Members of the SSAT concerned, caused me to change the conclusions I have set out above.
Special Circumstances
53. Having arrived at the conclusion set out in [51] above, I must turn to consider whether, in the special circumstances of the case, it is appropriate to exercise the discretion available pursuant to s1184K of the Act to treat all or part of the compensation payment received by Bryce as not having been made. I have set out above the contentions made by the parties on this point.
54. As Hill J observed in Naim Haidar v Secretary, Department of Social Security [1998] 994 FCA at 10, “the discretion under [a predecessor of s1184K] is expressed in wide terms untrammelled by specificity.” His Honour referred to the history of the provision and continued:
“So, as von Doussa J observed in Secretary, Department of Social Security v Smith (1991) 30 FCR 56, in a passage quoted by Einfeld J in Secretary, Department of Social Security v Thompson (1994) 53 FCR 580 at 583-4, an attempt was made to balance on the one hand finite budgetary allocations against the interests of the recipient of the payment. Without putting too fine a point upon it, the purpose of the basic thrust of the legislation was to avoid a claimant being entitled both to social security benefits and benefits in the nature of income through lump sum payments.
However, the legislature was conscious of the possible harshness of a rule structured in an arbitrary way. Section 1184, therefore, provided the means whereby the Secretary or, in the event ultimately of an appeal to the Administrative Appeals Tribunal, that Tribunal, could alleviate the harshness of the statutory provision in an appropriate case but only where there were special circumstances. The question of what constitutes special circumstances has been the subject of a number of decisions of this Court. It suffices here to say no more than that something is required which would take the matter out of the usual ordinary case: Groth v Secretary, Department of Social Security (1995) 40 ALD 541 at 545 per Kiefel J, Secretary Department of Social Security v Ellis (1997) 46 ALD 1 at 5 per Carr J.”
The unfair or arbitrary operation of the 50% rule
55. It has been argued on behalf of Bryce that the operation of s17(3)(a), by “deeming” that 50% of the total amount received is to be treated as being in respect of lost earnings or lost capacity to earn is unfair and arbitrary – and hence a special circumstance. The point has been considered in a number of decisions of the Federal Court, one of the most recent being that of Keifel J in Secretary, Department of Family & Community Services v Chamberlain [2002] FCA 67. Her Honour observed as follows:
“19 The words "special circumstances" are not so imprecise as to require judicial gloss: Beadle v Director-General of Social Security (1985) 60 ALR 225, 228. In Groth v Secretary, Department of Social Security (1995) 40 ALD 541, 545 I expressed the view that the words require something which distinguishes a person's case from others, something that sets it apart from the usual or ordinary case.
20 The question whether the strict application of the Act can result in unfairness or inappropriateness and therefore qualify as a "special circumstance" has been considered in a number of cases. …
…
23 It may generally be accepted that the statutory provisions here in question were intended to operate upon factual bases which were assumed and were not intended to reflect the true position. This is so with respect to the figure of fifty per cent taken of the lump sum compensation payment; the amount of basic rate of pension used to divide it; the period during which double payment is assumed to have occurred; and perhaps even the commencement of the period when the loss of earning capacity arose, which would normally be taken to be the date when the compensable injury was occasioned to the person.
24 Unlike a presumption, which may be rebutted by evidence, the purpose and effect of a deeming provision is to prevent any attempt, by either party, to prove the truth…
25 Here the factual assumptions upon which the calculations are based, including that which treats fifty per cent of the total compensation payment as representing the economic loss component, could not have been intended to be subject to rebuttal in the process of applying the formulae. The statutory purpose is to overcome the need in each case to determine what part of a lump sum compensation payment in truth represents economic loss. Although the assumptions to be made and the result reached are necessarily arbitrary, it is a course which has been taken for administrative simplicity: Secretary, Department of Social Security v Hulls (1991) 22 ALD 570, 579; Secretary, Department of Social Security v Smith (1991) 30 FCR 56, 61.
26 These observations do not however conclude the matter, since s 1184 was inserted to ameliorate the harshness of the arbitrary provisions: Haidar v Department Social Security (1998) 157 ALR 359, 367, Hill J. Pursuant to it the decision-maker is entitled to treat the compensation payment, or part of it, as if it had not been made, which is to say in a manner different from that required by the formulae. This is undertaken only if the requisite opinions are formed, namely that "special circumstances" exist and it is considered appropriate to treat the compensation payment such that there will either be no period when double payment is assumed to have been made, or there will be a shorter period.
…
33 In the present case the Tribunal considered that the application of the formulae was unfair to the applicant because she would have to pay more than she had received by way of compensation for economic loss, indeed twice as much. That factor will however be present in most cases and is an aspect of the application of the formulae. In my view it cannot, by itself, amount to a special circumstance, one out of the ordinary.
34 The basis for the Tribunal's view was its acceptance of what the parties to the settlement said had been offered and accepted for the economic loss component. It was far less than the statute assumed to be the case in applying the formulae. Again, however, this will be so in many, if not most, cases to which the Act applies. Further, the extent of the difference from the basis upon which the parties acted could not provide the necessary "special circumstance". The statute has selected a figure which may operate in an arbitrary way.
35 The statutory objectives in utilising the formulae, referred to above, must also be borne in mind. It is not intended that a decision-maker be required to consider contentions about what part of the compensation reflected the economic loss component. That is so whether one has regard to the application of the formulae or the discretion under s 1184. The latter does not alter the objective and must be read in light of it.
56. In the present case there is no doubt that Bryce was compensated for the loss of past and future income. In the period between the date of accident and the date of settlement the lost income was assessed (after taking into account the contributory negligence) as approximately $99,000 and Centrelink recovered approximately $75,000 of that amount. For that period, at least, it cannot be said that the Part 3.14 regime has operated unfairly or unjustly. However, when the situation as a whole is considered, it can be seen that Bryce recovered a total of $304,174 for past and future economic loss (or approximately 21.6% of the total compensation amount) whereas the statutory formula required 50% of the total amount to be taken to be in respect of past and future economic loss.
57. Chamberlain (supra) is authority for the proposition that the fact that the statutory formula operates in that way – to result in a large difference between what was offered and accepted by way of the economic loss component and the amount that the statute assumed to be the case – can not, of itself, provide the necessary special circumstance. The difference between the agreed economic loss component and the statutory amount in the present case can not, therefore, be considered as a special circumstance.
Bryce’s personal circumstances
58. I must, therefore, consider the circumstances that are pertinent to Bryce personally. Those circumstances are set out above, and I accept all the evidence given by Mrs Welch.
59. Bryce is now 26 years old and sufferers from major disabilities such that he is quite incapable of every looking after himself or earning a living in future. He has intellectual disabilities and requires constant care. Notwithstanding this he has a life expectancy of a further 35-40 years. His parents, who have taken on themselves the major part of Bryce’s care since his accident, are both in their mid to late 50s and both work. Their ability to contribute to Bryce’s physical and financial well-being in future will diminish over time. Although they personally received $40,000 in the compromise, that did not cover the amount of approximately $150,000 they had expended up to that time.
60. Undoubtedly Bryce’s future care needs, including accommodation and personal caring, will become increasingly expensive – although much depends on what Bryce can do for himself and how his condition may deteriorate over time. How long his trust fund can support his financial needs is impossible to say and depends, for example, on whether major capital amounts (such as for a house for Bryce) are expended, Bryce’s paid carer needs, and the earning rate of the fund. According to Exhibits R1-R3 the Trustee received a total of $1.329 million between May and July 2002 for investment on behalf of Bryce and, as noted at [27] above, at May 2003 the fund remained at approximately the same amount.
61. Confronted with uncertainty about how long the fund will last it is readily apparent that any income that Bryce can generate in future from social security benefits or otherwise that can help defray his expenses will reduce the drawings on the trust fund and extend its life.
62. In my opinion, having regard to Bryce’s medical conditions (which I consider to be exceptional and out of the ordinary), his complete inability to provide for himself physically or financially (other than through the trust fund), his parent’s age and declining ability to care for him (physically and financially), and his probable need for increasingly expensive care arrangements, Bryce’s situation can indeed be described as out of the ordinary and exceptional. It would, therefore, be appropriate, in my opinion, to treat some part of the compensation payment as not having been made. The question is what proportion of the amount should be so treated?
63. Although, for the reasons set out above, the difference between the amount Bryce actually received for past and future economic loss and the statutory amount could not be regarded, of itself, as a special circumstance, the fact remains that in this case Bryce’s advisers, with the assistance of counsel, carefully considered what amount could reasonably be expected to be awarded by a Court as economic loss had there been a trial on the question of quantum. The Court clearly must have been satisfied that all the relevant factors had been considered and that the amounts were within the range of what a court would have awarded.
64. In that sense the amount of the past and future economic loss component in the agreed settlement is the best estimate available to me of what Bryce’s loss actually was. In my opinion a preclusion period that reflects that reality would be, in the special circumstances of the case, a fair outcome. It would mean that the length of the preclusion period did match the amount actually received. In that sense it would, as far as practicable, give effect to the objective that there should be no double-dipping by those who receive compensation payments and then seek social security benefits.
65. I conclude, therefore, that the amount of $304,174 is the amount that should be used to calculate the preclusion period for Bryce. This was, of course, the outcome reached by the SSAT, but for quite difference reasons.
66. My decision is that the decision of the SSAT made on 28 August 2002 is set aside and in substitution therefor the Tribunal decides that:
(a)Section 17(3)(a) of the Act is applicable in this case for the purpose of determining the compensation part of the lump sum payment made to the applicant and for the calculation of the applicable preclusion period; but that
(b)in the special circumstances of the case it is appropriate to treat as not having been made that part of such amount as exceeds $304,174.00.
I certify that the 66 preceding paragraphs are a true copy of the reasons for the decision herein of Mr M Allen, Member
Signed: ...............….(sgd. R Morgan).............................
AssociateDate/s of Hearing 20 May 2003
Date of Decision 15 September 2003
Counsel for the Applicant Ms J Stribling
Solicitor for the Applicant Messrs Leonard Cohen & Co.
Counsel for the Respondent Ms K Hackney
Solicitor for the Respondent
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