Zhang and Secretary, Department of Social Services (Social services second review)
[2015] AATA 668
•4 September 2015
Zhang and Secretary, Department of Social Services (Social services second review) [2015] AATA 668 (4 September 2015)
Division
GENERAL DIVISION
File Number
2014/2835
Re
CongShong Zhang
APPLICANT
And
Secretary, Department of Social Services
RESPONDENT
DECISION
Tribunal Regina Perton, Member
Date 4 September 2015 Place Melbourne The Tribunal sets aside the decision under review and exercises its discretion under section 1184K of the Social Security Act 1991 to treat part of the compensation as not having been made due to special circumstances. The Tribunal remits the matter to the Secretary for recalculation of the preclusion period in accordance with the direction that $43,742.00 in tax on weekly payments and $201,100.00 in legal costs should be treated as if it has not been paid to the applicant.
[sgd]........................................................................
Regina Perton, Member
SOCIAL SECURITY – lump sum compensation – preclusion period – whether special circumstances – tax on weekly payments – costs of litigation
Legislation
Social Security Act 1991 ss 17, 1184K
Cases
Fuller and Secretary, Department of Social Services [2004] AATA 615
Legal Services Commissioner v Bektas (Legal Practice) [2013] VCAT 2142
Ryde v Secretary, Department of Family and Community Services [2005] FCA 866
Zhang v Golden Tape Constructions Pty Ltd and The Intercon Group Pty Ltd [2009] VCC548 (20 May 2009)
REASONS FOR DECISION
Regina Perton, Member
4 September 2015
Mr Congsheng Zhang was seriously injured in a workplace accident on 6 June 2002. He lodged proceedings in the County Court of Victoria to obtain compensation. Following a nine day hearing with two respondents, both of whom denied liability, a judgment was delivered on 20 May 2009 determining that Mr Zhang was entitled to $275,000.00 in general damages and $702,292.00 in economic loss damages. Mr Zhang’s solicitors deducted over $200,000.00 in costs and disbursements from the amount paid to him.
On 11 June 2009 and 8 April 2010 Centrelink wrote to Mr Zhang advising him that he was subject to a compensation preclusion period from 21 May 2009 to 10 June 2026. Mr Zhang has indicated that he did not receive those letters although he appears to have known there would be a preclusion period.
On 18 September 2013 Mr Zhang applied for disability support pension (DSP). On 10 December 2013 Centrelink advised Mr Zhang that his claim for DSP had been rejected on the basis that he was subject to the compensation preclusion period.
Mr Zhang sought internal review of Centrelink's decision to refuse DSP. On 25 February 2014 a Centrelink authorised review officer (ARO) affirmed the decision to refuse DSP on the basis of the preclusion period.
Mr Zhang then applied to the Social Security Appeals Tribunal (SSAT). On 5 May 2014 the SSAT set aside the decision under review and substituted a decision that Mr Zhang was subject to a shorter preclusion period which would run from 21 May 2009 to 27 May 2019. The SSAT calculated the preclusion period using a different method to the original decision maker and the ARO.
Mr Zhang hoped for an earlier end to the preclusion period and lodged an application for review of the SSAT decision with this Tribunal on 3 June 2014.
The issue before the Tribunal is whether there are grounds to waive part or all of the preclusion period that Mr Zhang had been subject to due to special circumstances. Mr Zhang was made aware prior to the start of the hearing that the outcome could be a restoration of the original preclusion period but he decided to proceed with the review.
SHOULD PART OR ALL OF THE PRECLUSION PERIOD BE WAIVED?
Section 17(1) of the Social Security Act 1991 (the Act) provides that compensation affected payments includes DSP. Sections 17(2) and 17(3) of the Act at the relevant date stated:
Subject to subsection (2B), 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 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.
…
Compensation part of a lump sum
(3)Subject to subsection (4), for the purposes of this Act, the compensation part of a lump sum compensation payment 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)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 lost capacity to earn, or both.
Section 1184K(1) of the Act gives the decision maker discretion to treat the whole or part of a compensation payment as not having been made or not liable to be made, if the decision maker thinks it is appropriate to do so in the special circumstances of the case.
For the Tribunal to use the discretion provided in s 1184K it must be satisfied that there is something to make the case stand out from the usual or the ordinary. The term special circumstances is not defined in the legislation. However, many court cases have discussed the term. In those cases, it has generally been defined as requiring a departure from the norm. For example, in Ryde v Secretary, Department of Family and Community Services [2005] FCA 866 Branson J stated (at paragraph 26) that the circumstances of a particular case must give rise to hardship or unfairness sufficient to justify departure from the general rule.
The existence of special circumstances needs to be considered on a case-by-case basis. In considering this concept, the Tribunal must maintain a balance between the circumstances and difficulties of the individual involved and the purpose of the legislation, which is to prevent people being paid by two sources for the same period.
The Tribunal accepts that Mr Zhang has serious medical problems which he will face for the rest of his life. The circumstances in which the injury occurred and the stress caused by the court case, with two companies fighting over responsibility for the scaffolding collapse, have no doubt added to Mr Zhang’s difficulties. However he was compensated by a large sum of money and made aware that it was to sustain him for the next 15 years or so after the court’s decision.
One of the possible special circumstances raised by this matter is the amount of legal costs incurred in obtaining damages. Mr Zhang received an award for only after a lengthy case in the County Court. He was represented by a QC and a junior barrister, as were the two competing defendants. Mr Zhang was a plasterer who sustained his injuries when, owing to inadequate scaffolding, he fell into a void that was to be the stairwell. The court found both the main contractor and a subcontracting company liable. Both had denied liability and there were many witnesses . The court case ran for nine days. A number of medical witnesses who testified that Mr Zhang had suffered severe damage to his legs and foot and was unlikely to ever work again. Since that time he has also had heart and other problems. In the end, the judge praised Mr Zhang’s honesty.
It was outside Mr Zhang’s control to be involved in a nine day hearing to determine who would pay his compensation and how much it would be. While the compensation awarded was substantial, the amount claimed for costs by Mr Zhang’s solicitors was also considerable. On 20 June 2009 the solicitor acting for Mr Zhang, Sam Bektas of Victorian Compensation Lawyers gave a letter by hand to Mr Zhang together with two cheques totalling $528,737.20 which were described as:
Settlement sum (plus retention of benefits paid: $729,837.20
Less Centrelink repayment $ nil
Less Solicitor/Client Costs (excluding GST): $140,090.91
Less GST on solicitor/client costs $ 14,090.91
Less QC/client costs $ 28,090.91
Less GST on QC/Client costs $ 2,809.09
Less Barrister/Client Costs (excluding GST): $ 13,818.18
Less GST on barrister/client costs $ 1,381.82
Amount to you (a tax free capital sum): $528,737.20
Mr Zhang told the Tribunal that his solicitor had not told him what the level of costs he would incur. He said that he relied on the advice of the solicitor in relation to the nature of the representation he should have. He was shocked and upset at the amount taken out for costs. He went in to the solicitor’s office to collect the cheques and resolved to have no more dealings with that solicitor.
The Tribunal notes that at the end of the judgment handed down by Judge Saccardo in the County Court on 20 May 2009, the judge stated that he …will hear submissions from the parties as to the form of the judgment which is to be entered in the proceeding and as to costs. The Tribunal has searched the County Court’s records to no avail. Mr Zhang knows nothing of any costs orders. The Tribunal is therefore not in a position to know if there were costs orders against the two responsible parties that may have ameliorated the amount Mr Bektas charged Mr Zhang.
On 19 December 2013 the following article appeared in The Age newspaper:
Lawyer Sammy Bektas stripped of licence for breaches
…
A Melbourne lawyer has been stripped of his practising licence for four years after he was found guilty of professional breaches.
Sammy Bektas, principal of Victorian Compensation Lawyers, was charged after 10 of his clients made formal complaints relating to ''grossly excessive'' legal fees and being bullied into paying his bills.
The state's legal services commissioner, Michael McGarvie, said the ''seriousness and the scale'' of Mr Bektas' professional misconduct, ranging from overcharging fees, improper pressure on clients and dealing with trust money in breach of statutory requirements, warranted a strong response. ''The regulator was bound to take this comprehensive action in the face of overwhelming evidence of wrongdoing.''
Judge Pamela Jenkins, of the Victorian Civil and Administrative Tribunal, cancelled Mr Bektas' practising certificate for four years from January 31, 2014.
Mr Bektas declined to comment.
Mr Zhang was not one of the complainants but the comments made about the overcharged clients portray a strong similarity to his circumstances. In Legal Services Commissioner v Bektas (Legal Practice) [2013] VCAT 2142 (16 December 2013), Judge Jenkins, Vice President of VCAT stated the following:
6. Each of the clients consulted Mr Bektas and the practice in relation to a claim for damages or other entitlements relating to a personal injury or injuries. None of the clients had great experience in legal matters, each of them was injured and each of them was dependent on his or her lawyer to advise them on legal matters.
…
98 …the circumstances of the current case clearly present grave examples of misconduct…:
…
(b) The majority of the complainants did not have English as their first language and had either poor verbal skills and/or an inability to comprehend legal documentation.
…
The Tribunal is not in a position to determine if Mr Zhang was overcharged by Mr Bektas. However the Tribunal accepts Mr Zhang’s description of his relationship with his solicitor and his lack of knowledge of the level of costs. Mr Zhang’s English is poor, his understanding of the legal system was negligible and he relied on his lawyer for advice. The Tribunal accepts Mr Zhang’s evidence which appears to follow a pattern of behaviour by the solicitor.
There have been a number of decisions where the costs were deducted from the compensation amount in relation to calculation of the preclusion period. In Fuller & Secretary, Department of Family and Community Services [2004] AATA 615, the then President of the Tribunal, Justice Garry Downes, determined that where the amount of costs had not been agreed on prior to settlement, it would be appropriate in relevant matters to exclude the costs from the calculation of the preclusion period. Downes J’s reasoning has been followed in a number of subsequent cases, all of which involved settlements. In the present case, there was no settlement but rather a judgment. Had the respondents in the compensation case not been attempting to sheet blame on each other in relation to the scaffolding collapse and on Mr Zhang himself in terms of classifying him as a contractor and contributing to his fall through his own negligence, there would have been significantly lower costs or possibly negligible costs. The Tribunal is satisfied that the costs incurred in obtaining the compensation in this matter constitute special circumstances. The Tribunal finds that it is appropriate in this particular case to discount the compensation payment by the $201,100.00 amount of costs as set out in the letter from Mr Bektas and Victorian Compensation Lawyers on 20 June 2009. The Tribunal notes that Mr Zhang provided invoices from the lawyers for a higher amount but there is no evidence of him paying the higher amounts specified.
The Secretary submitted that $43,742.00 as reimbursement of tax paid, which was included in the economic loss component of the judgment, should not be included in the calculations of the length of preclusion period. The Department’s policy guidelines are in accord with that submission which the Tribunal accepts.
Mr Zhang gave evidence about how his money was spent. He stated that he had reimbursed friends from whom he had borrowed in the seven years between his accident and the award of compensation. He estimated the total amount he paid to personal debtors as $170,000. Mr Zhang said that weekly compensation payments of $543.00 he received from CGU Insurance were the only income he and his son had for seven years. Bank records provided by Mr Zhang indicate the payments were actually $636.00 but it was still difficult to pay the mortgage repayments of $1600 per month and other car and living expenses. He told the Tribunal that his then teenage son had helped care for him after his first wife had left him. His son is now married with a child of his own.
Mr Zhang provided a list of names of eleven persons from whom he had borrowed money and repaid in 2009. The amounts borrowed ranged from $7,000 to $22,000. When he was questioned about those loans, he denied they were repayments of gambling debts or the like and just said that they were generous friends who knew he needed help.
Mr Zhang stated that he paid off the balance of his mortgage of around $200,000 after the compensation award. He paid his ex-wife $60,000 to have her name removed from the property which they had bought a short time before the injury. The County Court found that the …break-up of the plaintiff’s marriage was in a large part related to his inability to work by reason of the injuries he suffered. This was one of the factors the judge considered in assessing the amount set for Mr Zhang’s damages for pain and suffering and loss of enjoyment of life. In a foot-note (119) the judge stated:
Whilst there can never be any certainty as to whether the plaintiff’s marriage would have survived absent the happening of the incident, the fact that the plaintiff is firmly of the belief that it was the incident which caused the breakup of his marriage is in any event a factor which I consider to be of considerable relevance.
In the Tribunal’s experience, it is not unusual for relationships to fall apart following serious injury and a lengthy loss of income. Mr Zhang indicated that the marriage had already effectively ended before the compensation award. A payout to the estranged or ex-partner following the compensation award as part of the divorce settlement is not unusual. Accordingly, the Tribunal is not satisfied that the $60,000.00 paid to the ex-wife should be classified as special circumstances.
Mr Zhang re-partnered after the award of compensation. He sponsored his now wife to come to Australia from China. He estimated that the cost of doing so was around $20,000.00. The couple were married on 28 December 2011. The Tribunal notes that at the time Mr Zhang applied for DSP in September 2013, his wife would not have been eligible for social security benefits such as carer payment as she had not been in Australia for the requisite period. Persons sponsoring a spouse from overseas are expected to support that partner for the first two years without being eligible for social security benefits (newly arrived resident’s waiting period). Ms Gao arrived in Australia in December 2012 on a subclass 300 spouse visa and was granted permanent residency over a year later, as is the standard process. Centrelink notes indicate she has been receiving a social security benefit since January 2014. While it is difficult to live only on one social security benefit, it does provide some income. Ms Gao has been able to get only a little sporadic work given language difficulties, her age and the need to care for her husband. However, the Tribunal is not satisfied that the decision to sponsor and provide for a partner constitutes special circumstances.
Mr Zhang made an unwise investment in a fish and chip business that failed. His son was working in the business and Mr Zhang hoped that he, too, might be able to be of a little assistance. Mr Zhang took out a business loan with a mortgage on his home. He provided a copy of the lender’s offer of a loan dated 29 November 2010. The business was not actually as the representations prior to purchase had indicated. Mr Zhang said that a newer, up-market shop opened nearby and took away some of the regular clients. Mr Zhang’s son told the Tribunal that lengthy road works which limited access also impacted detrimentally on the business. After a while they were unable to meet the repayments on the business loan and ceased trading. Mr Zhang said that he sold his home as a result. The Tribunal explored whether the loan had been taken out with Mr Zhang failing to understand the implications due to language or comprehension difficulties but there was no evidence to suggest that. Apart from the lender’s offer cited above, no other documentation was provided concerning the purchase of that business and the aftermath when Mr Zhang and his son decided to abandon it.
Mr Zhang stated that after the compensation was paid, he purchased cars for his son and himself. He estimated the expenditure as being $70,000.00 in total. He could not recall what make the cars were but said that his son still had his car and the one Mr Zhang bought for himself had belonged to a friend and was now old.
The Tribunal notes that while Mr Zhang’s financial position is difficult, it is a situation shared by many others who spent much of their compensation moneys on cars, businesses and the like. He has made choices that have resulted in his expenditure over five years being a sum equivalent to the amount compensated to keep him in reasonable circumstances for three times that period, namely 15 years.
The Tribunal is not satisfied that the divorce settlement, the moneys spent on sponsoring his current wife, the repayment of debts, the purchase of a business that went sour and the car for his son constitute special circumstances. The Tribunal notes that there is also a large amount of money unaccounted for given the proceeds of the sale of his house. Mr Zhang told the Tribunal that he and his wife now rent accommodation due to their impecunious circumstances.
After considering all relevant matters and viewing Mr Zhang's case in its entirety, the Tribunal is satisfied that the preclusion period should be shortened by taking into account the taxation component of some $43,742.00 and the legal costs of $201,100.00.
Therefore, it is appropriate for the Tribunal to exercise the discretion under section 1184K(1) of the Act to disregard some of the compensation received. The preclusion date for DSP or other benefits calculated by the Department taking the tax reimbursement of $43,742.00 into account was 14 May 2025. Taking the additional $201,100.00 off the total will reduce the preclusion period by some years. However it will not result in present eligibility for DSP.
DECISION
The Tribunal sets aside the decision under review and exercises its discretion under section 1184K of the Social Security Act 1991 to treat part of the compensation as not having been made due to special circumstances. The Tribunal remits the matter to the Secretary for recalculation of the preclusion period in accordance with the direction that $43,742.00 in tax on weekly payments and $201,100.00 in legal costs should be treated as if it has not been paid to the applicant.
I certify that the preceding 33 (thirty-three) paragraphs are a true copy of the reasons for the decision herein of Regina Perton, Member [sgd]........................................................................
Administrative Assistant
Dated 4 September 2015
Date of hearing 17 November 2014, 13 January 2015 & 20 April 2015 Date final submissions received
20 April 2015
Applicant In person Advocate for the Respondent Mr Tim de Uray - Department of Human Services
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