Willis; Secretary to the Department of Family and Community Services

[2002] AATA 267

DECISION AND REASONS FOR DECISION [2002] AATA 267

ADMINISTRATIVE APPEALS TRIBUNAL

Nº  W2001/353

GENERAL ADMINISTRATIVE  DIVISION

Re:            SECRETARY TO THE

DEPARTMENT OF FAMILY AND
  COMMUNITY SERVICES

Applicant

And:         LYNETTE WILLIS

Respondent

DECISION

Tribunal:       Mr B.H. Pascoe, Senior Member
Date:             18 April 2002
Place:            Perth

Decision:The Tribunal sets aside the decision under review and in its stead remits the matter to the applicant with a direction that the preclusion period is to be calculated on the basis that the compensation part of the lump sum was $15,482.27.

(sgd) B.H. Pascoe
  Senior Member
  SOCIAL SECURITY — receipt of lump sum in settlement of claim – compensation part of lump sum – calculation of preclusion period – economic loss component specified by parties – whether 50 per cent of lump sum should apply – whether special circumstances – whether part of payment should be treated as not having been made
Social Security Act 1991
Secretary, Department of Social Security v Hulls (1991) 22 ALD 570
Re Fowles and Secretary, Department of Social Security (1995) 38 ALD 152
Re Secretary, Department of Social Security and Beel (AAT 10346, 7 August 1995)

REASONS FOR DECISION

18 April 2002  Mr B.H. Pascoe, Senior Member

1. This is an application to review a decision of the Social Security Appeals Tribunal ("SSAT") of 31 August 2001 which set aside a decision of the applicant made on 8 June 2002. In the original decision the applicant assessed the compensation part of lump sum compensation received by the respondent as $16,362.27 and calculated a preclusion period commencing 3 August 1998 and ending 28 February 1999. As a result of this preclusion period, the respondent recovered $6420.90 being disability support pension ("DSP") paid during such preclusion period. The SSAT decided to exercise the discretion under s.1184 of the Social Security Act 1991 ("the Act") to disregard so much of the lump sum as exceeds $6680.00 and calculate the preclusion period using $6680.00 as the compensation part of the lump sum.

2. At the hearing the applicant was represented by Mr S. Ellis, an advocate with Centrelink, and the respondent, Mrs Willis, was assisted by a friend Ms J. Johnson. There was no dispute as to the facts of this matter. The sole question for the Tribunal was whether it was appropriate to exercise the discretion in s.1184 of the Act.

3. Mrs Willis had been in receipt of DSP for diabetes and asthma prior to being involved in a motor vehicle accident on 3 August 1998.  She had been receiving $40.00 per week also as a regular baby-sitter for a family which ceased as a result of further disabilities arising from the accident.  She received significant injuries in the accident and, subsequently, developed heart problems, renal failure, a stroke and depression.  She no longer drives, has problems with public transport, can no longer assist the family with whom she had developed a close relationship and believes that she is suffering considerable personal hardship.  She does not complain of any current significant financial hardship.

4. On 29 August 2000 Mrs Willis received a lump sum settlement of $30,964.55 in respect of the 1998 accident.  The details provided to the applicant by the Insurance Commission of Western Australia showed the amount as a negotiated settlement, costs of $3000.00 and an advance of $1760.00.  An amount of $6680.00 was shown as the economic loss component of the settlement being $2520.00 for the past and $4160.00 for the future.  The advance of $1760.00 was shown on the statement as being additional to the settlement but Mrs Willis was adamant that the advance was repaid out of the settlement amount.  Mrs Willis maintained that her solicitor acting in relation to the accident had not informed her adequately of her rights and the effect of a preclusion period, and that the view of others was that the settlement sum had been inadequate considering her injuries.  It was clear that she had little knowledge or understanding of the legal processes and was simply requested by her solicitor to sign the settlement agreement.

5. Under s.1165 of the Act, the number of weeks in a preclusion period is calculated by dividing the compensation part of a lump sum by average weekly earnings. Section 1166 provides that a person in receipt of DSP must repay such amounts received during the preclusion period. Section 17(2) provides a definition of compensation as:

   17(2)       For the purposes of this Act, compensation means:

   (a)a payment of damages; or

   (b)a payment under a scheme of insurance or compensation under a Commonwealth, State or Territory law, including a payment under a contract entered into under such a scheme; 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)that is:

   (e)made wholly or partly in respect of lost earnings or lost capacity to earn; and

   (f)made either within or outside Australia.

Section 17(3) provides:

17(3)       For the purposes of this Act, the compensation part of a lump sum is:

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

(i)the payment is made (either with or without admission of liability) in settlement of a claim that is, in whole or in part, related to a disease, injury or condition; and

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

(ab)…

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

Apart from the question of whether the advance of $1760.00 was part of or additional to the lump sum of 29 August 2000, there was no dispute that the lump sum fell within s.17(3) and that 50 per cent of that lump sum was compensation for the purposes of calculating the preclusion period under s.1165. The sole issue remaining was whether there were special circumstances of this case to allow the discretion under s.1184 to be exercised to treat part of the compensation payment as not having been made.

1. In the SSAT decision it was properly recognised that for special circumstances to exist they must be "unusual, uncommon and exceptional such that the strict application of the Act would result in an outcome that was unjust unreasonable or inappropriate". Initially, the factors taken into account in relation to Mrs Willis included the failure of her solicitors to advise of the preclusion period, financial hardship and ill health. However, the SSAT finally concluded that the application of the formula under s.17(3) would be unfair where the loss of income component was clearly stipulated to be $6680.00 and that this figure was not a manipulated figure to minimise the loss of pension. The SSAT followed a decision of this Tribunal in Re Secretary, Department of Social Security and Beel (AAT 10346, 7 August 1995) in which similar facts were involved.  There the Tribunal concluded that it was "unfair, unjust and quite inappropriate" to apply s.17(3) where it was "perfectly clear that … the amount that was paid for loss of income or income earning capacity was $10,500".

2. In Secretary, Department of Social Security v Hulls (1991) 22 ALD 570, O'Loughlin J said (at p.578):

   …
   The history of this legislation and, in particular, the reasons for using an arbitrary formula of 50% were traced in detail by von Doussa J in Secretary, Department of Social Security v Banks (1990) 20 ALD 19, 23 FCR 416. His Honour referred to the minister's second reading speech when the "50% rule" was introduced into the legislation. The relevant passage from that speech is (at 422): "Settlements of lump sum compensation particularly in the workers' compensation jurisdiction are being manipulated to obscure the economic loss component and to avoid recovery of social security payments. To prevent this abuse the minister announced on 8 February 1988 that, for future personal injury settlements made by agreement or by consent order, 50% of lump sum compensation will be deemed to be in respect of economic loss. This Bill gives effect to that proposal: Hansard, 13 April 1988, p 1497".
   Once the mischief at which the amending legislation was aimed has been so clearly identified, it becomes apparent that the legislation prevents any dissection of the "lump sum".  Although those words are not defined, I respectfully agree with what von Doussa J said of them in Banks' case:  "They are not words of art.  In the Macquarie Dictionary a 'lump sum' is defined as a sum 'including a number of items taken together or in the lump'.  In my opinion the words bear that meaning in the section. 

In another decision of this Tribunal in Re Fowles and Secretary, Department of Social Security (1995) 38 ALD 152, Bulley J, sitting as a presidential member, said (at pp.162-163):

…

(58) In the final analysis the only matter relied on by the applicant through her solicitor is the fact as alleged, that Ms Fowles received a significantly lower component for economic loss in the lump sum settlement than that calculated by the department pursuant to the relevant sections of the Act. In any event I am not satisfied that any other matter in Ms Fowles's case amounts or could be regarded as amounting to "special circumstances."

(59)        Further Mr Jeffery submitted that there were difficulties in practical terms in pursuing her claim for damages.  He submitted that it was virtually essential that the case be settled because there were difficulties in proving economic loss and the problems associated with contributory negligence and the like.  These sorts of problems are to my mind not unusual in the run of cases in the personal injuries field.  Those sorts of issues arise day in, day out, and commonly form the reason why at the end of the day matters are settled, because those sorts of risks are taken on board and a value judgment is made.

(60)        Further if one acceded to Mr Jeffery's argument on "special circumstances" as set out in the initial part of C1 58 of these reasons, one would in a back door fashion be giving credence to the sort of approach the amending legislation sought to prevent.  That approach of seeking to dissect the lump sum into components by disguising it under the phrase "special circumstances" pursuant to s 1184 should not be countenanced in the circumstances.

(61)        I therefore conclude that it is not appropriate to apply s 1184 in the circumstances of this case.  The circumstances are not special in my view.  

1. The difficulty in following the course taken by the SSAT and (with the greatest respect to my colleague) the Tribunal in Beel (supra), is that it allows an attempt at a dissection of the lump sum to find the proportion applicable to lost income and to enter into the consideration necessary to find that such proportion identified either by the parties or the Tribunal was a correct calculation and not a manipulated figure.  By their very nature lump sums paid in settlement of claims represent a compromise and an amalgam of the various components of losses alleged in a claim.  The course chosen by the legislation in s.17(3) is, by its very nature, arbitrary and is unlikely to produce a proper qualification of the amount for loss of income.  For some recipients such as Mrs Willis, it may well produce a figure in excess of the real value of loss of income.  For others, it may well produce a figure considerably below that real value.  I am unable to see that, in cases where the applicant or the Tribunal believes the position is the overstatement of such value, it represents "special circumstances".  It cannot be unusual, uncommon or exceptional where the legislation requires an arbitrary 50 per cent of lump sum to be the compensation part.  It can be expected that, in the majority of cases, the calculation will produce an unfair result either for the pension recipient or the taxpayers generally.  The applicant submitted that the approach of the SSAT in this case, if to be followed, would render s.17(3) nugatory.  While not accepting that there can never be special circumstances requiring a modification of the operation of that section, I am unable to find that they are present in this case.  Any failure of the legal advisor to Mrs Willis or subsequent ill health cannot, in my view, justify a finding of special circumstances to justify the exclusion of any part of the 50 per cent of the lump sum.  While it is noted, by coincidence, that the amount recovered in respect of the preclusion period was marginally less than the amount said to have been received in respect of lost income, I do not place any significance on this.  Neither should I be taken as suggesting that the figure of $6680.00 is not a reasonable and likely correct amount for loss of past and future income.

2. The remaining issue is a dispute between the parties as to the actual amount of the lump sum and whether the amount of $30,964.55 is inclusive or exclusive of the advance of $1760. The form provided by the Insurance Commission of Western Australia was a standard form used in the provision of information requested under s.196 of the Social Security (Administration) Act 1999.  Against the heading "Advances" was an amount of $1760.00 with the word "additional" circled rather than the word "included".  The applicant had added the advance and calculated the 50 per cent on $32,724.55 to produce a compensation part of $16,362.27.  Mrs Willis was quite firm in her evidence that the advance of $1760.00 was included in the $30,964.55.  In the circumstances, I am prepared to accept her evidence so that the compensation part of the lump sum should be $15,482.27. The matter should be remitted to the applicant for re-calculation of the preclusion period.

3. The result of the foregoing is that the decision under review should be set aside and in its stead the matter remitted to the applicant with a direction that the preclusion period is to be calculated on the basis that the compensation part of the lump sum was $15,482.27.

   I certify that the ten [10] preceding paragraphs are a true copy of the reasons for the decision herein of
   Mr B.H. Pascoe, Senior Member

   (sgd)       Catherine Thomas
                 Clerk

   Date of Hearing:  22 March 2002
   Date of Decision:  18 April 2002
   Solicitor for the Applicant:           Nil — Mr S. Ellis, Advocate with Centrelink

   Solicitor for the Respondent:       Nil — Self-represented