Wilkes and Secretary, Department of Social Services (Social services second review)

Wilkes and Secretary, Department of Social Services (Social services second review) [2019] AATA 5288 (9 December 2019)
Division:GENERAL DIVISION
File Number: 2019/0279
Re:John Wilkes
APPLICANT

AndSecretary, Department of Social Services
RESPONDENT

DECISION
Tribunal:Member M East
Date:9 December 2019
Place:Perth

The decision under review is set aside and the matter is remitted to the Respondent for reconsideration in accordance with the direction that, for the purposes of calculating the compensation preclusion period, the correct period is from 1 June 2012 until
17 June 2022. However, so much of the compensation paid to the Applicant is to be treated as not having been made such that the lump sum preclusion period concludes on 28 April 2021.
.........................[sgd]...............................................
Member M East
CATCHWORDS
SOCIAL SECURITY – peritoneal mesothelioma – compensation part of lump compensation payment is 50% of the payment – when does preclusion period apply? – how is the preclusion period calculated? – waiving of preclusion period – special circumstances – financial hardship – medical condition – decision set aside and remitted.
LEGISLATION
Social Security Act1991 (Cth) – ss 17(1)(aa), 17(2), 17(3), 1170(1)(a), 1170(1)(b), 1170(4), 1170(5), 1184K
CASES
Bruinger and Secretary, Department of Social Services [2017] AATA 1244
Department of Social Security v Thompson (1994) 53 FCR 580
Re Drake v Minister for Immigration and Ethnic Affairs (No. 2)(1979) 2 ALD 634
Re Beadle and Director-General of Social Security (1984) 6 ALD 1
Secretary, Department of Employment and Workplace Relations v Homewood
[2006]

91 ALD 103
Secretary, Department of Family and Community Services v Chamberlain
(2002) 116 FCR 348
Secretary, Department of Social Security and Galea (1993) 35 ALD 749 Secretary,
Secretary, Department of Social Security and William Ernest Turner [1993] AATA 160

SECONDARY MATERIALS
Guides to Social Policy Law: Social Security Guide
, Version 1.257, released

12 August 2019
Guides to Social Policy Law: Social Security Guide
, Version 1.258, released

11 November 2019
REASONS FOR DECISION
Member M East
9 December 2019
Background

In November 2009, the Applicant, Mr John Wilkes, was diagnosed with peritoneal mesothelioma and became totally incapacitated for work. Having been an ‘insured person’ under an insurance policy by Allianz Australia Insurance Limited (AAIL), he received weekly benefits from June 2010 until June 2012 (Exhibit A1).
The Applicant brought common law proceedings against AMACA Pty Ltd, formerly James Hardie and Coy Pty Ltd, on the basis that he was exposed to asbestos from in or around December 1967 to in or around 1970 whilst renovating a home.
On 16 May 2012 the Applicant’s claim was settled for the lump sum payment of $1,021,038.70 inclusive of costs and disbursements.
The Applicant paid $1,400 to Medicare, $29,044.97 to Global Medical Fund Australia and legal costs and disbursements of $88,149.74. Pursuant to a separate deed dated

12 November 2013, the Applicant settled a claim with AAIL to repay $150,000 in full and final settlement of the $256,547.20 they were claiming for past paid weekly benefits for the period from June 2010 until June 2012.
The Applicant has made two separate applications for age pension; on both occasions the Department of Human Services – Centrelink (the Department) decided that on account of the Applicant receiving the lump sum compensation payment, a preclusion period applied during which he could not be paid the pension. Centrelink calculated the preclusion period to run until 28 April 2021. On 6 September 2018 the Department rejected the Applicant’s claim for age pension due to the application of a preclusion period from

14 April 2011 to 28 April 2021.
The Applicant sought a Departmental review of that decision. The Authorised Review Officer (ARO) affirmed the decision on 19 September 2018, and on 11 October 2018 the Applicant lodged an application with the Social Services and Child Support Division of the Administrative Appeals Tribunal (AAT1). The AAT1 decision affirmed the decision to reject the Applicant’s claim for age pension due to the application of the preclusion period. It also decided there were no special circumstances by reason of which the preclusion period should be reduced.
Material before the Tribunal
The application was heard by the Tribunal on 5 September 2019 (the hearing). The Applicant was represented by Mr McKenna and the Respondent was represented by Mr Defranciscis. The Applicant gave oral evidence at the hearing and was cross-examined.
The Tribunal admitted the following documents into evidence at the hearing:
(a)
Applicant’s Statement of Facts, Issues and Contentions (SFIC), dated

12 April 2019 (Exhibit A1);
(b)Applicant’s statement, dated 27 March 2019 (Exhibit A2);
(c)
a copy of a letter from the Applicant’s representative with attachments, dated

29 August 2019 (Exhibit A3);
(d)a copy of the Applicant’s credit card transactions as at 29 August 2019, received by the Tribunal 5 September 2019 (Exhibit A4);
(e)a copy of the Applicant’s bank account transactions as at 29 August 2019, received by the Tribunal 5 September 2019 (Exhibit A5);
(f)
a copy of payroll advice from the Applicant’s employer from 1 January 2019 to

29 August 2019, received by the Tribunal on 5 September 2019 (Exhibit A6);
(g)the Respondent’s SFIC, dated 7 May 2019 (Exhibit R1);
(h)T documents (T1 – T27, pp 1 – 200) (Exhibit R2);
(i)
a copy of a tax invoice regarding settlement of an Applicant’s property

(Exhibit R3); and
(j)a copy of the Applicant’s immigration movements from 2007 to 2017 (Exhibit R4).
ISSUES
The issues that the Tribunal must determine in this AAT Tier 2 review are:
(a)whether the Applicant’s application for a disability support pension can be allowed when a preclusion period is active;
(b)whether special circumstances apply to allow a reduction in the preclusion period; and
(c)what is the appropriate preclusion period.
When does a preclusion period apply?
If a person receives a lump sum payment, part of which is compensation for lost earnings or earning capacity, the payment is ‘compensation’ within the meaning of s 17(2) of the Social Security Act1991 (Cth) (the SS Act). In such cases, a ‘lump sum preclusion period’ applies during which a ‘compensation affected payment’ is not payable to the person pursuant to s 1169(1) of the SS Act.
The age pension is a ‘compensation affected payment’ pursuant to s 17(1)(aa) of the

SS Act. It follows that once the Applicant received the lump sum compensation payment, a preclusion period applied during which he was precluded from age pension payments.
How is a preclusion period calculated?
Section 17(3)(a) of the SS Act provides that ’the compensation part of a lump sum compensation payment is…50% of the payment’.
Section 1170(1) of the SS Act provides the following:
(1)… if a person receives both periodic compensation payments and a lump sum compensation payment, the lump sum preclusion period is the period that:
(a) begins on the day following the last day of the periodic payments period …; and
(b) ends at the end of the number of weeks worked out under subsections (4) and (5)
As noted in the Deed of Release between the Applicant and AAIL dated

12 November 2013, the Applicant received periodic compensation payments until

June 2012 (Exhibit R2, T9, p 52).
Subsection 1170(1)(b) of the SS Act states that the lump sum preclusion period ends at the end of the number of weeks calculated under subsections (4) and (5). Subsection 1170(4) of the SS Act states:
The number of weeks in the lump sum preclusion period in relation to a person is the number worked out using the formula:
Compensation part of lump sum
Income cut - out amount
‘Compensation part of a lump sum’ is defined in subsection 17(3) of the SS Act. It essentially provides that the compensation part of the lump sum is 50% of the compensation payment.
Based on the calculations provided, the Tribunal accepts that the Applicant is subject to a preclusion period of 524 weeks commencing on 1 June 2012. This means that the preclusion period runs until 17 June 2022, and not from 14 April 2011 to 28 April 2021 as previously calculated by the Department.
This issue was raised with the Applicant and his representative by the Tribunal and his representative conceded that the calculation was correct.
The Tribunal therefore finds that the Applicant is subject to a preclusion period of 524 weeks commencing on 1 June 2012 and ending on 17 June 2022.
Are there special circumstances by reason of which the preclusion period should be reduced or waived?
Section 1184K of the SS Act provides that:
(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.
Accordingly, the Tribunal is required to determine whether the evidence discloses ‘special circumstances’ which would allow it to disregard part or all of the lump sum payout, thereby shortening the preclusion period.
‘Special circumstances’ is not defined in the SS Act but it has generally been accepted that ‘special circumstances’ are ‘unusual, uncommon or exceptional’ per Toohey J and Members Wilkins, and Billings in Re Beadle and Director-General of Social Security (1984) 6 ALD 1 at [3]. The discretionary nature of the ‘special circumstances’ provision requires a consideration of the particular facts and merits of each case.
In Secretary, Department of Employment and Workplace Relations v Homewood [2006] 91 ALD 103, His Honour French J (as he then was) outlined how the Tribunal should address the question of whether special circumstances in the context of s 1184K exist at [34]:
The decision before the tribunal in this case arose under s 1184K of the Act. It was necessary to the exercise of the power conferred by that section that the tribunal identified ‘special circumstances of the case’ in which it thought it “appropriate” to treat the whole or part of the relevant compensation payment as not having been made. In giving its reasons for a decision under that section to treat the whole or part of a compensation payment as not being made it would be expected, consistently with s 43, that the Tribunal would:
1. Identify the circumstances of the case which it found to be “special” and the reasons for which it arrived at that finding.
2. Explain why, in the special circumstances so found, it thought it appropriate to treat the whole or part of the compensation payment as not having been made.
3. Explain why it selected the particular quantum (that is the whole or part) of the compensation payment as not having been made.
The Applicant provided a statutory declaration dated 27 March 2019 (Exhibit A2), which together with his oral evidence (which was subject to cross examination), explained the basis of his claim for special circumstances. These are outlined below.
The Applicant was diagnosed with peritoneal mesothelioma in 2009. In July 2015 he was admitted into hospital with a bowel obstruction due to adhesions and was discharged

three days later (Exhibit R2, T12, p 59). The same discharge summary notes a diagnosis of mesothelioma in 2010, initial peritonectomy and ileostomy in 2010, ileostomy reversal in 2011 and recurrence of mesothelioma and repeat peritonectomy in 2014. The discharge notes state a gradual resolution of symptoms from the bowel obstruction. In his oral evidence, the Applicant said he had had an obstructed bowel in October 2018 and October 2019. He said at some stage he was undertaking chemotherapy but decided to discontinue, instead opting for alternative therapies.
A review of the decision of the AAT1 dated 30 March 2016 (Exhibit R2, T19, p 93), indicates that evidence given at that time was that he discontinued chemotherapy in 2014, opting for alternative therapies from the United States of America (Exhibit R2, T19, p 100). During that hearing, the Applicant said he had a third operation in December 2015 to remove two tumours from the left side of his stomach.
The Applicant’s evidence to this Tribunal was that he was feeling ‘much better’. He said he had recently had a colonoscopy and it revealed no blockage in his bowel. He credits the alternative medicine he is taking as the reason for the improvement in his health. He said in the last 12 months he has had a ‘twinkle in his eye’. When giving his

evidence-in-chief, the Applicant stated that he had ‘another spot on [his] stomach’ but he was not intending to undertake any further chemotherapy. The Applicant did not produce any medical evidence supporting his statement of a ‘further spot’ and told the Tribunal that the specialist told him to come back in January to see if it was anything serious.
In the Applicant’s SFIC (Exhibit A1), at [27(f)], it is stated that:
Unlike most other recipients of lump sum compensation payments Mr Wilkes is terminally ill and he has no prospect of recovery. His health is on a downward trajectory and it is likely that he will die of pleural mesothelioma within the next few years. He is under stress because of his financial difficulties, has trouble sleeping and he believes that this is adversely affecting his health. Mr Wilkes has been admitted to hospital twice in the past year for bowel obstructions.
This contention is neither supported by contemporaneous medical evidence nor is it supported by the Applicant’s own evidence. The Tribunal does not wish to minimise the severity of the Applicant’s condition; however, by all accounts he has survived far longer than originally expected and by his own admission is feeling better than he has for many years. The Tribunal is unable to determine the Applicant’s prognosis and it is not required to do so for the purposes of this application. There is certainly no evidence of pleural mesothelioma as an expected prognosis.
The primary contention of the Applicant is that his financial hardship, in conjunction with his medical condition, should amount to special circumstances. The Tribunal will deal with each contention in turn.
Case authority demonstrates that for financial hardship to qualify as a special circumstance it must be beyond ‘straitened financial circumstances’.
Senior Member Sosso in Bruinger and Secretary, Department of Social Services [2017] AATA 1244 at [62] stated:
The many cases and determinations do not require the Tribunal to find that special circumstances exist simply because an applicant is in straitened financial circumstances.
Whilst it is open for a Tribunal member to find that special circumstances exist in such a circumstance, there is no obligation to do so. The Tribunal is required to consider all matters, and straitened financial circumstances is one factor, albeit an important one, but certainly not the sole one.
As noted above at [3], the Applicant received a substantial lump sum payment in 2012.
The Applicant produced bank statements at the hearing (Exhibits A4 and A5) indicating he owes just over $7,000 on his credit card and has approximately $1,500 in his Westpac bank account. In the Applicant’s oral evidence, he said of that $1,500, he had repaid his daughter $1,000, and therefore has $500 remaining.
The Tribunal asked the Applicant how he had spent his money.
The Applicant said that after separating from his wife he paid her $100,000 as part of their settlement. He said he did this without legal advice or otherwise, and felt that she was entitled to the payment. The Applicant submitted in his SFIC that the settlement deed had made provision for the payment of $70,000 to his wife for her gratuitous services (Exhibit A2, para [4(b)]). The Tribunal finds no evidence of such a provision being made as part of the settlement and also notes the evidence recited in the AAT1 in 2016 and 2018 as not referring to this payment as a component of the settlement. The Tribunal therefore finds that the payment is part of his settlement sum.
The Applicant said in his oral evidence that he paid his mortgage of $439,000 on his primary residence to ‘clear his debts’. He also bought a Winnebago for about $95,000 (Exhibit A1, para [27(h)]), a trailer for $5,000 and a small car for $6,000. He said he tows the trailer with his car behind his motor home when he’s travelling to Karratha so that he has a vehicle to drive around town when he is there.
The Applicant also gave evidence that he went to Tamworth in 2017 for a music festival as this had been on his ‘bucket list’. Evidence led at the AAT1 hearing in 2018 is that he spent approximately $10,000 on that trip (Exhibit A2, para [4(b)]).
The Applicant sold his house in October 2015 and received $405,057.53 (Exhibit R3). Counsel for the Respondent, Mr Defranciscis, questioned the Applicant what he spent the money on. Unfortunately the Applicant’s recollection of where the money went was a bit hazy. He said he paid off some debts and had other expenses as detailed in the 2018 AAT1 hearing.
The Applicant said he travels between Karratha and Perth about four times per year. When in Karratha he stays with his daughter and when in Perth he parks his motor home on his ex-wife’s property. Because he had recent damage to his motor home, the Applicant is living with his ex-wife while he is in Perth. He said he prefers to live in Karratha but travels back to Perth when the weather becomes too hot.
The Applicant had estimated his weekly expenditure at approximately $900 per week. However, when questioned by the Tribunal at the hearing, he said that was far in excess of what he spends. The Applicant’s evidence was that his ‘alternative medicines’ cost approximately $150 per month. Altogether, he said his expenses are more likely to be in the region of $300 per week.
The Applicant also provided evidence of pay-slips (Exhibit A6) which demonstrate he was able to obtain some work in May and July 2019. The Applicant’s oral evidence was that during those periods he worked 12 hour shifts in Karratha and spent most of that shift on his feet. He said he was hoping that the work would become regular because his
brother-in-law had arranged the work for him. When asked why he was working he stated one of the main things that had stopped him from working before was his worry about his bowel blockage. He said this would cause him discomfort and urgency in needing to visit the bathroom making it difficult for him to work. He credits alternative medicine as clearing the blockage as evidenced by his recent colonoscopy. He said without the fear of consequences from a blockage he felt free to work and felt healthy enough to work.
The Applicant in his statutory declaration (Exhibit A2) also gave evidence of other miscellaneous expenses such as repairs to his motor home and car, dental work, hearing aids and organic food.
Despite best efforts, the Tribunal is unable to discern from either the evidence-in-chief, the cross examination or by its own examination where the Applicant has spent the entirety of his money. By his own admission, his weekly living expenses are relatively low and nowhere near the $900 originally estimated. He has paid off various debts but was unable to give evidence as to how those debts arose in the first place. The Tribunal accepts that he paid $100,000 to his ex-wife and has purchased various assets such as his
motor-home and other vehicles.
The Tribunal does not find that the Applicant is suffering from financial hardship. It also notes that the Applicant still owns various assets such as his motor home, a vehicle and his trailer that he would be able to sell if necessary. Furthermore, the Applicant has given evidence that he has the expectation of regular work which he is willing and able to do.

The Tribunal has considered whether the Applicant’s health could be considered a ‘special circumstance’.
The Tribunal accepts that the Applicant received a potentially terminal diagnosis in 2009 and has exceeded the life expectancy he was given. In no way does the Tribunal seek to minimise the severity of the Applicant’s condition. Balanced against this however is the Applicant’s own evidence that he is feeling well and the lack of medical evidence regarding the Applicant’s current prognosis.
In previous Tribunal decisions ill health has been an important consideration where the effect of enforcing a full preclusion period would have deleterious effects on a person’s health (Secretary, Department of Social Security and Galea (1993) 35 ALD 749
Secretary, Department of Social Security and William Ernest Turner [1993] AATA 160).
The Tribunal in reaching its decision can have regard to the policy advice contained in the Guides to Social Policy Law: Social Security Law (the Guide). Whilst not binding, government policy is intended to maintain consistency in decision making (Drake v Minister for Immigration and Ethnic Affairs (No. 2)(1979) 2 ALD 634) and should only be departed from where there are cogent reasons for doing so.
It is noted by the Tribunal, that the version of the Guide has changed since the hearing on 5 September 2019 from version 1.257 to the date of this decision, being
9 December 2019, to version 1.258. This being so, the content of the relevant applicable parts of the Guide to the decision making process to this set of facts have not changed between the different versions and do not affect the final decision.
The Guide at 4.13.4.20 states that ill health for which the Applicant has already received compensation cannot of itself amount to a special circumstance. If the Tribunal had been in possession of evidence which demonstrated that the Applicant had a significantly reduced life expectancy it may have been prepared to regard his health as a special circumstance. Particularly if it was shown that the Applicant would be required to significantly alter his lifestyle, not travel to Karratha, and be close to hospital facilities. In that case, the Tribunal could envisage that full enforcement of the preclusion period would have a negative, immediate effect on the Applicant’s health. Counsel for the Applicant submitted the Tribunal could take ‘judicial notice’ of life expectancy with this diagnosis by doing its own research.
A cursory examination of the literature available indicates the Applicant has far exceeded initial expectations, however without any probative evidence as to the Applicant’s current diagnosis and prognosis, the Tribunal cannot simply make its own opinion. This is particularly so in light of the Applicant’s own evidence that he has been feeling significantly better lately. The Applicant was very open with the Tribunal that he intended to keep working where it was available and continue to travel between Perth and Karratha.
The Tribunal therefore is unable to find that his medical condition amounts to a special circumstance, either in its own right or when viewed in the context of the consequences of not receiving the pension.
The Applicant contended at para [27] of his SFIC that there are a number of factors that make the application of the 50% rule “unfair to the extent that his circumstances are special circumstances”. Namely, the amount settled for was based on a much shorter life expectancy and the future economic loss was based on an expected working life of up to 67 years.
It is not open to the applicant to challenge the efficacy of the 50% rule. Justice Kiefel
(as she then was) in Secretary, Department of Family and Community Services v Chamberlain (2002) 116 FCR 348 at 353 – 354 (Chamberlain) stated:
Here the factual assumptions upon which the calculations are based, including that which treats 50% 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.
(References omitted.)
The decision of the Federal Court in Chamberlain is authority for the proposition that the mere fact that the actual amount received by an applicant is less than the deemed economic loss (50%) is not a special circumstance per se. Investigations were made in this matter as to what component constituted economic loss. Correspondence from Maurice Blackburn dated 20 August 2019 (Exhibit A3) indicates the future economic loss component of the Applicant’s settlement was approximately $375,000. In this case, the calculation which treated 50% of the total compensation payment as representing the economic loss component is higher than that figure. The Tribunal finds however that the weight of Federal Court authority weighs against a finding of special circumstances merely on the basis that the deemed economic loss component of the total compensation payment is higher than the amount actually received as part of the settlement.
Accordingly, the Tribunal does not accept that there is any unfairness in the application of the 50% rule such that amount to special circumstances.
The Applicant’s representative made further submissions to the effect that part of the settlement received included payment for legal costs on which GST was paid. He said in effect the Commonwealth was recovering taxes from the Applicant and then denying him a pension. The Tribunal is unable to find any authority which would suggest this is a special circumstance. In fact, legal costs are regarded as part of the total compensation payment, the fact that there are taxes levied on those costs is not relevant for these purposes.
Conclusion
The Tribunal finds that except insofar as referred to in paragraph [63] of this decision special circumstances do not exist in this matter. The Tribunal accepts that the Applicant received a difficult diagnosis of peritoneal mesothelioma in 2009. He has had multiple surgeries, undergone chemotherapy and also pursued alternative remedies. He has suffered from bowel blockages but believes he has been cured of that in the past 12 months.
The Tribunal has carefully considered the Applicant’s financial circumstances and whilst he does not appear to have much cash on hand, he still owns several assets and has relatively low living expenses as stated in his oral evidence at hearing. The Applicant’s evidence at hearing was that he could sell those assets if he needed to, even though he would not recover what he had paid for them.
Even if the Tribunal is wrong in this conclusion, it has concerns about how the Applicant’s money has been spent over the past seven years. Whilst not necessarily forming a conclusion that the Applicant has been reckless in his spending habits, his evidence was unclear and vague about where he has spent his money. He frequently said he was paying off debts but was unable to say how those debts arose and why he had borrowed the money off various family members. As noted in the two previous Tribunal decisions, the Applicant has been well aware of his preclusion period and the need to preserve his savings until its expiry.
The Tribunal does not consider the Applicant’s ill health of itself to be a special circumstance and furthermore does not consider at this time that the full enforcement of the preclusion period will have future negative effects on his health.
The Tribunal finds that the application of the 50% rule is not unfair in the circumstances of this matter.
The Tribunal further finds that the preclusion period was calculated incorrectly and the correct preclusion period is from 1 June 2012 and ends on 17 June 2022. The Tribunal however accepts that the Applicant has always expected the preclusion period would end on 28 April 2021 and the Secretary incorrectly calculated the preclusion period. Accordingly, the Tribunal considers this to be a special circumstance to limit the operation of the preclusion period so that it ceases on 28 April 2021.
DECISION
The decision under review is set aside and the matter is remitted to the Respondent for reconsideration in accordance with the direction that, for the purposes of calculating the compensation preclusion period, the correct period is from 1 June 2012 until

17 June 2022. However, so much of the compensation paid to the Applicant is to be treated as not having been made such that the lump sum preclusion period concludes on 28 April 2021.

I certify that the preceding 64 (sixty-four) paragraphs are a true copy of the reasons for the decision herein of Member
M East

...........................[sgd].............................................
Associate
Dated: 9 December 2019

Date of hearing: 05 September 2019

Counsel for the Applicant: Dominic McKenna

Counsel for the Respondent: Kelvin Defranciscis

Solicitors for the Respondent: Department of Human Services

[2019] AATA 5288

9 December 2019

Key Legal Topics

Areas of Law

Administrative Law

Statutory Interpretation

Legal Concepts

Appeal

Judicial Review

Procedural Fairness

Remedies

Statutory Construction

Date of hearing:	05 September 2019
Counsel for the Applicant:	Dominic McKenna
Counsel for the Respondent:	Kelvin Defranciscis
Solicitors for the Respondent:	Department of Human Services