Gentley and Department of Family and Community Services [2000] AATA 66 (4 February 2000)

Last Updated: 4 February 2000

CATCHWORDS - SOCIAL SECURITY - sickness allowance and new start allowance - payments made pursuant to insurance policy - whether payments are "periodic payments of compensation" - decision set aside.

First Home Owners Act 1983

Health Insurance Act 1973

Social Security Act 1991 - Ss 8, 17, 17(2A), 17(3A), 23, 168(3A), 168(3B), 593, 593(1A), 608, 643, 660H, 660L, 666, 670, 674, 677, 709, 710, 710(1A), 728K, 728R, 1068, 1163, 1165, 1165(1A), 1167, 1168, 1168(3A), 1168(3B), 1170, 1170(4A), 1170(4B), 1171, 1184, 1222A, 1226A, Parts 2.13A, 2.17, 2.17AA, 3.14, 3.16A, 5.2

Social Security Act 1947

Social Security (Budget and Other Measures) Legislation Amendment Act 1993

Veterans' Entitlements Act 1986

WorkCover Queensland Act 1996 (Qld)

Great Western Railway Co v Helps [1918] AC 141

Hardie v Hardie [947] VLR 79

Secretary, Department of Social Security v Banks (1990) 20 ALD 19; (1990) 23 FCR 416; (1990) 12 AAR 38; (1990) 95 ALR 605

Whitfield v De Lauret & Co Ltd (1920) 29 CLR 71; (1920) 21 SR (NSW) 398

DECISION AND REASONS FOR DECISION [2000] AATA 66

ADMINISTRATIVE APPEALS TRIBUNAL )

) Q1998/1365

GENERAL ADMINISTRATIVE DIVISION )

Re TERRY GENTLEY

Applicant

And SECRETARY, DEPARTMENT OF FAMILY AND

COMMUNITY SERVICES

Respondent

DECISION

Tribunal Miss S A Forgie (Deputy President)

Date 4 February, 2000

Place Brisbane

Decision The Tribunal:

1. sets aside the decision of the Social Security Appeals Tribunal dated 9 November, 1998;

2. substitutes a decision that:

(1) the lump sum payment which the applicant received under a Group Income Protection Policy held with Australian Family Assurance Ltd was not a payment of compensation within the meaning of the Social Security Act 1991; and

(2) the lump sum payment is not subject to the preclusion period provisions in Division 3 of Part 3.14 of Chapter 3 of the Social Security Act 1991; and

3. remits the matter to reconsider the applicant's entitlements under the Social Security Act 1991 on this basis.

S A FORGIE

Deputy President

REASONS FOR DECISION

On 30 December, 1998, the applicant, Mr Terry Gentley, applied for review of a decision of the Social Security Appeals Tribunal ("SSAT") dated 9 November, 1998. The SSAT's decision affirmed a decision which had been made by a delegate of the respondent, the Secretary of the Department of Family and Community Services ("Secretary") on 30 July, 1998 and which had been affirmed by an Authorised Review Officer on 14 August, 1998. The delegate's decision imposed a preclusion period from 27 July, 1998 to 7 November, 1999.

2. At the hearing, Mr Gentley was represented by Mr Mumford of counsel and the Secretary by his advocate, Mr Letch. The documents lodged pursuant to section 37 of the Administrative Appeals Tribunal Act 1975 ("T documents") were admitted in evidence together with a report by Dr McCombe dated 27 January, 1999 and eight pages of print outs from Centrelink's computer records. Mr Gentley gave oral evidence in support of his case as did Dr McCombe, who is an orthopaedic surgeon.

THE ISSUE

3. The issue in this case is whether payments made by the Australian Family Assurance Ltd ("AFA") to Mr Gentley are "compensation" within the meaning of sub-section 17(2) of the Social Security Act 1991 ("the Act").

BACKGROUND

4. There was no disagreement between the parties regarding many of the facts in this case. In light of that and on the basis of both the oral and written evidence, I have made a number of findings of fact which I will set out in the following paragraphs.

5. At all relevant times, Mr Gentley was insured under a Group Income Protection Policy with the AFA ("the policy").

6. On 26 February, 1996, Mr Gentley was injured in the course of his employment in a motor vehicle accident. Following the accident, he was treated at hospital. Mr Gentley continued to work although he sought further medical treatment in March, 1996. In July, 1996, his injuries prevented him from continuing to work and he has been incapacitated for work since 29 July, 1996.

7. On 2 September, 1996, Mr Gentley advised the then Department of Social Security ("the Department") that he was claiming compensation from his employer in respect of his injuries. He had been in receipt of sickness allowance since 30 July, 1996 and had submitted a claim under the policy on 2 August, 1996. His employer was insured with AFA. The Department wrote to Mr Gentley on 9 September, 1996 advising him that, were he to obtain weekly payments or a lump sum of compensation, some or all of any sickness allowance might have to be repaid to the Department. At the same time, it wrote to AFA advising that, should AFA become liable to pay Mr Gentley compensation, the Secretary might wish to recover an amount equal to all or part of that compensation.

8. In a letter dated 18 September, 1996, AFA advised the Department that it had paid Mr Gentley a benefit amounting to $372.51 for the period commencing 29 July, 1996 to 18 August, 1996. Further payments were dependent upon a medical certificate. On 23 September, 1996, Mr Gentley advised the Department that he had received a payment of $372.51 on 20 September, 1996. An officer of the Department contacted AFA on 26 September, 1996 and was advised that Mr Gentley was to be paid a further payment in respect of the period 19 August, 1996 to 22 September, 1996 and that payments would continue.

9. In a letter dated 30 September, 1996, the Department sought recovery of the sum of $1,469.51 paid as sickness allowance to Mr Gentley in respect of the period 29 July, 1996 to 25 September, 1996. It did so on the basis that he had received periodic payments of compensation amounting to $3,203.58 in respect of the same period. Recovery was sought from AFA which sent a cheque for that amount on the same day.

10. On 12 June, 1997, Mr Gentley lodged a claim for sickness allowance and, on 17 June, 1997, a claim for newstart allowance. He did so after AFA considered a report of a medical examination carried out on 6 May, 1997 and concluded that he was no longer totally disabled as a result of his injuries. AFA ceased to pay him weekly payments of compensation from 2 May, 1997. Mr Gentley was granted newstart allowance with effect from 3 June, 1997. Later, on 20 August, 1997, Mr Gentley telephoned the Department and advised that he had lodged an appeal against AFA's decision to decline to pay him further benefits under the policy.

11. Mr Gentley's solicitors then wrote to the Department on 22 October, 1997 requesting an estimate of the charge and preclusion period upon the basis of a settlement figure of $45,000.00 and upon the basis the preclusion period commenced on 29 July, 1996 and ended on 17 August, 1997. His solicitors advised him that he would be required to pay the sum of $2,001.78 to the Department.

12. On 15 December, 1997, the General Insurance Claims Review Panel decided to restore Mr Gentley's benefit with effect from 6 May, 1997. At Mr Gentley's request, his payments of newstart allowance were stopped with effect from 1 January, 1998. In a letter dated 14 January, 1998, Centrelink (which had been given the Department's role in matters of administration under the Act) advised Mr Gentley of the effect of his receiving the sum of $10,653.78 in respect of the period 30 June, 1997 to 14 January, 1998. As he had received the sum of $4,964.68 as social security payments in that period, Mr Gentley was advised that he was required to repay that sum to Centrelink. AFA paid that sum to Centrelink under cover of a letter dated 20 January, 1998. Its receipt was acknowledged by Centrelink in a letter dated 18 February, 1998. Centrelink went on to advise Mr Gentley that the sum was "in full payment of our charge, for injuries sustained ... on 26 February 1996" and that "therefore, there is no further payment required by you, or the Australian Family Assurance Ltd., in relation to this matter, and the file has now been finalised." (T documents, page 129)

13. On 1 April, 1998, Mr Gentley's solicitors requested an estimate of the social security charge and preclusion period were he to receive a lump sum of $52,500.00 on 6 April, 1998 and no periodic payments of compensation had been made since Mr Gentley became incapacitated for work on 29 July, 1996. The estimated charge amount was $4,927.61 and the preclusion period began on 1 July, 1997 and ended on 21 September, 1998. A further estimate was requested by Mr Gentley's solicitors on 2 April, 1998 when they advised that the date to which the periodic compensation was last paid was 14 January, 1998. The estimated preclusion period began on 15 January, 1998 and ended on 7 April, 1999.

14. In a letter dated 2 April, 1998, his solicitors advised him that his matter had settled. The basis of the settlement was that AFA would pay $55,000.00 to Mr Gentley together with party and party costs excluding the costs of an adjournment. Mr Gentley was to receive a minimum of $28,760.00. His solicitors also advised him that the preclusion period would not expire until 7 April, 1999 and that, until that time, he would not be entitled to any benefits from Centrelink. Also on 2 April, 1999, his solicitors advised Centrelink of the settlement and that economic loss was a component in it.

15. On 9 April, 1998, Centrelink wrote to Mr Gentley advising him that the preclusion period would start from 15 January, 1998 and end on 28 April, 1999. During that time, neither he nor his partner would be able to receive social security payments other than those made for children. The method of calculating the preclusion period was set out on the back of the letter. His solicitors were informed of the preclusion period in a letter from Centrelink dated 14 April, 1998. They were also advised that no charge was recoverable for the period 15 January, 1998 to 28 April, 1999.

16. On 20 April, 1998, Centrelink wrote again to Mr Gentley and said that his matter had been reconsidered at his request. The preclusion period set out in its letter of 9 April, 1998 was incorrect and a 67 week preclusion period should have applied with effect from the day after weekly compensation payments ceased. A similar letter was sent to Mr Gentley's solicitors on the same day.

THE POLICY

17. The policy stated that it:

"... provides for the payment of benefits if an Insured Person becomes disabled, dies or suffers from certain conditions in accordance with the Terms and Conditions of this Policy. ... All cover is subject to the payment of premiums and the terms, conditions, provisions and exclusions of the Policy which includes the current Schedule and Benefit Certificate." (T documents, page 24)

18. It went on to provide that:

"In consideration of the payment of all premiums due under this Policy we [AFA] will pay the Insured the Benefit referred to in the Schedule upon the happening of an event specified in the Benefit Schedule." (sub-clause 2(i), T documents, page 25)

An insured's cover under the policy ceased immediately upon his or her attaining the age of 65 years or of discontinuing service with the Principal named in the Policy Schedule (Sub-clause 2(iv), T documents, page 25).

19. The Benefit Schedule set out seventeen specific events and prescribed whether 100% or some lesser percentage of the Capital Benefit was payable. It then went on to specify the weekly benefits payable as a result of an injury for temporary total disablement and temporary partial disablement as a result of an injury. In the case of the former, the amount payable was the Schedule weekly benefit or 75% of the person's gross earnings, whichever was the lesser. In the case of the latter, 40% of the amount payable for the former was payable. A similar range of payments was prescribed as the weekly benefit in cases of permanent total loss of sight of both eyes or permanent paralysis of any two limbs and for temporary total and temporary partial disablement as a result of sickness. (T documents, page 28)

20. The policy defined the various types of disablement for which it made payments:

"'Temporary Total Disablement' means disablement which entirely prevents the Insured by reason of Injury or Sickness from engaging in an occupation for which the Insured is suitably qualified by education, training or experience." (T documents, pages 24-25)

21. The first annual premium, or instalment of an annual premium, was due and payable in advance and calculated from the commencement date of the policy. No benefits were payable in certain situations prescribed in clause 3 of the policy.

22. Clause 4 of the policy set out the circumstances in which benefits would be paid while clause 5 set out that:

"(i) The Weekly Benefit for Temporary Total or Temporary Partial Disablement of an Insured shall be reduced by:

(a) the amount of any worker's compensation payment or any other statutory benefits which the Insured receives or is entitled to receive;

(b) any salary, wage or other payment receivable from any employer or principal;

(c) any entitlement under any policy of insurance, cover for which includes contingencies relating to any form of disability, permanent and total or partial disablement, injury, accident, sickness or absence from work rendering the Insured unable to carry out duties normally undertaken in connection with an Insured's usual occupation or business;

(d) amounts to the value of an Insured receives or is due to receive as a consequence of letting out, hiring or sub contracting the business and/or plant and equipment of the business." (T documents, page 27)

LEGISLATIVE FRAMEWORK

Qualifications for sickness allowance and newstart allowance

23. There is no question that Mr Gentley was qualified for a sickness allowance under the Act and, later, a newstart allowance. Among the qualifications for a sickness allowance, as they were prescribed in 1996 at the time at which he received it, are:

"(a) the person is incapacitated for work throughout the period because of sickness or an accident; and

(b) the incapacity is caused wholly or virtually wholly by a medical condition arising from a sickness or accident; and

(c) the incapacity is, or is likely to be, of a temporary nature; and

(d) either:

(i) the person satisfies the Secretary that the person has suffered, or is likely to suffer, a loss of salary, wages or other income of a similar nature because of the incapacity; or

(ii) the person satisfies the Secretary that, if the person were able to work, the person would have, or would be likely to be, qualified for job search allowance, youth training allowance or newstart allowance in respect of the period; or

(iii) the person was receiving, or is likely to be receiving, a social security pension immediately before the beginning of the period; and

(e) before the period begins the person has turned 16; and

(f) before the period ends the person has not turned, or is not likely to turn, pension age; and

(g) the person is an Australian resident throughout the period; and

(h) the person is in Australia throughout the period." (sub-section 666(1)).

For the purposes of this case, there are no significant differences between the section as reproduced and as it now operates.

24. In general terms, "work" was defined by sub-section 666(2) to mean any work which the person was contracted to perform or, if he or she had no such contract, any work of a kind which he or she could reasonably be expected to perform. Subject to certain exceptions, a person ceased to be qualified for a sickness allowance if he or she received it in respect of the immediately preceding 52 weeks (sub-section 670(1)). Exceptions included situations in which the Secretary was satisfied that the person's incapacity would end within the following 52 weeks, it was caused by a chronically relapsing medical condition and the person was undergoing certain drug or alcohol abuse rehabilitation programmes (sub-section 670(2)).

25. Subject to exceptions that are not relevant in this case, the qualifications for a newstart allowance provide:

"(a) the person satisfies the Secretary that throughout the period the person is unemployed; and

(b) throughout the period, or for each period within the period, the person either:

(i) satisfies the activity test; or

(ii) is not required to satisfy the activity test; and

(c) if subsection 604(1) applies to the person, at all times (if any) during the period when the person is not a party to a Newstart Activity Agreement, the person is prepared to enter into such an agreement; and

(d) if subsection 604(1) applies to the person, at all times during the period when the person is a party to a Newstart Activity Agreement, the person is prepared to enter into another such agreement instead of the existing agreement; and

(e) if the person is required by the Secretary to enter into a Newstart Activity Agreement in relation to the period, the person enters into that agreement; and

(f) while the agreement is in force, the person satisfies the Secretary that the person is taking reasonable steps to comply with the terms of the agreement; and

Note: See subsection (2A) on taking reasonable steps.

(g) throughout the period the person:

(i) subject to subsection (2B), is at least 21 years of age and has not reached the pension age; and

(ii) is an Australian resident; and

(iii) subject to subsection (1A), is in Australia; and

Note: see subsection (3).

(i) the person was not in receipt of a youth allowance during the period." -(sub-section 593(1)).

26. Both a sickness allowance and a newstart allowance remain payable for a three month period if a person is temporarily absent from Australia in order to seek medical treatment of a kind not available in Australia (section 674 and sub-section 593(1A)).

Payability of sickness allowance and newstart allowance

27. The Act distinguishes between qualification for an allowance and the payability of an allowance. Sub-section 677(2) provides that a sickness allowance is not payable if a person's sickness allowance rate would be nil. Sub-section 608(2) makes the same provision in relation to the payment of a newstart allowance. The rate of payment of a sickness allowance is calculated according to section 709 and the rate of payment of a newstart allowance is calculated according to section 643. In the case of both allowances, the rate is calculated according to Benefit Rate Calculator B at the end of section 1068 of the Act.

28. Benefit Rate Calculator B requires that a person's maximum basic rate be worked out using Module B. Added to that is the amount of any pharmaceutical allowance calculated according to Module D and any rent assistance using Module F. The total is the maximum payment rate. Once the amount of income reduction is calculated using Module G, that amount is deducted from the maximum payment rate. The resulting figure is the provisional payment rate. The rate of sickness allowance or newstart allowance is the difference between the provisional payment rate and any advance payment deduction under Part 3.16A together with any amount calculated under Module J as remote area allowance.

29. Module G sets out how to calculate the effect of a person's ordinary income, and that of his or her partner, on a person's maximum payment rate. The first step is to work out the person's ordinary income on a fortnightly basis. "Ordinary income" is "... income that is not maintenance income or an exempt lump sum" (sub-section 8(1)). There are various qualifications to the notion of ordinary income but they are not relevant in this case.

30. If a person receives a payment which is a "compensation affected payment", then regard must be had to Part 3.14 of the SS Act. Sub-section 1163(1) provides that:

"If a person is or may be entitled to or receives compensation, payments of a compensation affected payment to the person or the person's partner might be affected under this Part."

31. A "compensation affected payment" means:

"(aa) an age pension; or

(a) a disability support pension; or

(b) a parenting payment; or

(c) a social security benefit; or

(e) a disability support wife pension; or

(f) a carer payment; or

(g) a special needs disability support pension; or

(h) a special needs disability support wife pension; or

(i) mature age allowance; or

(j) mature age partner allowance; or

(k) a former payment type." (sub-section 17(1)).

32. A "social security benefit" is defined in sub-section 23(1) to mean:

"(aa) widow allowance; or

(aab) youth allowance; or

(aac) austudy payment; or

(a) newstart allowance; or...

(c) sickness allowance; or

(d) special benefit; or

(e) partner allowance; or

(ea) a mature age allowance under Part 2.12B; or

(f) benefit PP (partnered); or

(g) parenting allowance (other than non-benefit allowance)." (sub-section 23(1))

33. Sub-section 17(2) of the Act provides that, for its purposes, "compensation" relevantly 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."

34. Sub-section 17(2A) provides that:

"Paragraph (2)(d) does not apply to a compensation payment if:

(a) the recipient has made contributions (for example, by way of insurance premiums) towards the payment; and

(b) the agreement under which the contributions are made does not provide for the amounts that would otherwise be payable under the agreement being reduced or not payable because the recipient is eligible for or receives payments under this Act that are compensation affected payments."

Provisions relating to periodic compensation payments

35. Sub-section 1168(1) provides that, subject to sub-sections 1168(4), (5), (6) and (7), the rate of a person's compensation affected payment is to be reduced, in accordance with section 1168, for the periodic payments period if:

"(a) a person, or the person's partner, receives a series of periodic compensation payments; and

(b) the person receives or claims a compensation affected payment for the periodic payments period; and

(c) the person was not, at the time of the event that gave rise to the entitlement of the person, or the person's partner, to the compensation receiving a compensation affected payment referred to in paragraph (b)".

36. Note 2 provides that:

"if a person, or a person's partner, was, at the time of an event that gave rise to the entitlement of the person, or the person's partner, to compensation, receiving a compensation affected payment, the compensation is treated as ordinary income."

37. The "periodic payments period" means, in so far as it is relevant:

"(a) in relation to a series of periodic payments - the period in respect of which the payments are, or are to be, made; and

(b) in relation to a payment of arrears of a series of periodic payments - the period in respect of which those periodic payments would have been made if they had not been made by way of arrears payment.

..." (sub-section 17(1))

38. Sub-sections 1168(3), (3A) and (3B) are to be used to work out a person's reduced rate if the rate of that person's compensation affected payment is to be reduced under sub-section 1168(1). That is the effect of sub-section 1168(2). Sub-section 1168(3) applies in cases in which a person is not a member of a couple. In those cases, the person's fortnightly rate of the compensation affected payment is reduced by the fortnightly rate of periodic compensation.

39. Sub-sections 168(3A) and (3B) are concerned with situations in which a person is a member of a couple. Sub-section 1168(3A) provides for the situation in which a person is a member of a couple but the person's partner does not receive or claim certain payments including a compensation affected payment. Sub-section 1168(3B) provides:

"If:

(a) the person is a member of a couple; and

(b) the person's partner receives or claims a compensation affected payment, a youth training allowance or a compensation affected pension under the Veterans' Entitlements Act;

the person's fortnightly rate of the compensation affected payment is reduced by half the fortnightly rate of the periodic compensation."

40. If a person's fortnightly compensation affected payments are reduced under section 1168 because of a series of periodic compensation payments,

"... those payments are not to be regarded as ordinary income of either the person or the person's partner for the purposes of this Act (apart from section 710, and section 5B of the Health Insurance Act 1973).

Note 1: For ordinary income see section 8.

Note 3: Section 710 deals with limitations on the amount of sickness allowance payable.

Note 4: Section 5B of the Health Insurance Act 1973 deals with the Disadvantaged Persons Health Scheme." (section 1171)

41. Up until 20 March, 1997 when it was repealed, section 710 of the Act provided that, subject to sub-section 710(1A) which is not relevant in this case:

"... if a person is qualified for sickness allowance through subparagraph 666(1)(d)(i) or 666(1A)(e)(i) (loss of salary, wages or other income of a similar nature), the rate per fortnight of the person's allowance is not to exceed the rate that, in the Secretary's opinion, is the rate per fortnight of the salary, wages or other income that the person has lost because of the person's incapacity for work."

42. Section 1170 provides for the situation where periodic compensation payments have been received, payments of a compensation affected payment have been made for the periodic payments period and the latter have not been reduced under section 1168. Provided the person was not, at the time of the event that gave rise to the entitlement of the person to the compensation, receiving a compensation affected payment, the Secretary may give the person a written notice. In that notice, the Secretary may determine that the person is liable to pay the Commonwealth the amount specified in the notice. The amount which may be specified in the notice is described as the "recoverable amount" and is calculated according to sub-sections 1170(3), (4), (4A) and (4B).

43. Of these, only sub-section 1170(3) is relevant. It provides:

"(4) If the person is not a member of a couple the recoverable amount is equal to the smaller of the following amounts:

(c) the sum of the periodic compensation payment; and

(d) the sum of the payments of the compensation affected payment made to the person for the periodic payments period."

44. If a person is paid sickness allowance at a rate greater than that provided by the Act, the Secretary must determine that the rate is to be reduced. He does so in accordance with section 728K. The date of effect of that determination is ascertained according to section 728R where a determination adverse to the interest of the individual is made.

45. A debt under section 728R is a "compensation arrears debt" for a "compensation arrears debt" is defined in sub-section 23(1) to mean, in so far as it is relevant, "an amount that a person is liable to pay to the Commonwealth because of an adverse determination under section 146E, 185, 234, 408PB, 589, 660L, 660XJQ, 728R, 771NS, 821 or 951U." As such, it is a debt under section 1226A due to the Commonwealth.

46. Similar provisions found in sections 660H and 660L, when read with section 1226A, provide that the Secretary must reduce the rate of newstart allowance paid to a person if it is being paid at a rate greater than that provided by the Act. The date of his determination may be a date earlier than the determination and any debt. It is also a compensation debt for the purposes of section 1226A.

47. Section 1226A falls within Part 5.2 of the SS Act. Part 5.2 provides for the amounts which are recoverable under the legislation. An amount has been paid by way of a social security payment (including a sickness allowance and a newstart allowance), only becomes a debt due to the Commonwealth if, among other situations, a provision of the Act expressly provides that it is a debt (section 1222A). Section 1226A is one such provision.

Provisions relating to lump sum payments

48. Lump sum payments of compensation are dealt with differently from periodic compensation payments. Except in very limited circumstances, it is not treated as income (section 1167). In general terms, where a person is qualified for a compensation affected payment and either receives or has received compensation in the form of a lump sum, then the compensation affected payment is not payable for the lump sum preclusion period (section 1165).

49. Sub-section 1165(1A) is relevant in this case and provides:

"If:

(a) a person receives or claims a compensation affected payment; and

(b) the person is not a member of a couple; and

(c) the person receives a lump sum compensation payment (whether before or after the person receives or claims the compensation affected payment) on or after 20 March 1997;

no compensation affected payment is payable to the person for the new lump sum preclusion period."

50. As periodic compensation payments were made to Mr Gentley in respect of his lost earnings or lost earning capacity, the "new lump sum preclusion period" is the period that:

(a) begins on the day after the last day of the periodic payments periods; and

(b) ends after the number of weeks worked out under subsections (8) and (9)."

51. The number of weeks in the new lump sum preclusion period is calculated by dividing the compensation part of the lump sum by the "Income cut-out amount". The compensation part of the lump sum compensation payment is determined according to sub-section 17(3). Fifty per cent of the lump sum compensation payment is taken to be the compensation part of that payment if:

"(a) 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

(b) the claim was settled, either by consent judgement being entered in respect of the settlement or otherwise, on or after 9 February 1988; ...".

52. Sub-section 17(3A) is also relevant for it provides:

"Paragraph (3)(d) does not apply to a compensation payment if:

(a) the recipient has made contributions (for example, by way of insurance premiums) towards the payment; and

(b) the agreement under which the contributions are made does not provide for the amounts that would otherwise be payable under the agreement being reduced or not payable because the recipient is eligible for or receives payments under this Act that are compensation affected payments."

53. I note that sub-section 17(3A) refers to "paragraph (3)(d)" and did so when it was inserted by the Social Security (Budget and Other Measures) Legislation Amendment Act 1993. As far as I can ascertain, there never has been a paragraph 17(3)(d) in the Act. Taken in its context and having regard to sub-section 17(2A) it seems to me that reference must have intended to be made to sub-section 17(3).

54. The provisions of the 50% rule in section 17 may appear to be quite arbitrary but their rationale was explained by von Doussa J in Secretary, Department of Social Secretary v Banks (1990) 20 ALD 19. His Honour, speaking in relation to a similar provision included in the Social Security Act 1947 said:

"... The prescribed percentage (50%) of the lump sum payment made in settlement of a claim which by s152(2)(c)(i) is deemed to be the compensation part of a lump sum payment by way of compensation should be viewed as a broad attempt to balance the interests of the recipient of the payment with the competing interests of others in the community whose needs must be met as far as possible from a finite budget allocation for social security measures. The paragraph seeks to eliminate double dipping in a practical way which operates effectively in a straightforward manner ..." (page 26)

55. Finally, I note that sub-section 1184(1) provides that the Secretary may disregard the whole or part of a compensation payment for the purposes of the compensation recovery provisions as not having been made or not liable to be made. He may only do so if he thinks it appropriate to do so in the special circumstances of the case.

CONSIDERATION

56. There is no question in this case that, in receiving sickness allowance and newstart allowance, Mr Gentley received compensation affected payments as that expression is defined in sub-section 17(1) of the Act.

57. Were Mr Gentley's payments from AFA "compensation" within the meaning of the definition in sub-section 17(2)? The term "compensation" is defined by reference to itself and to "damages". A distinction has been drawn between the notions of compensation and of damages. In general terms, compensation is paid to "make up for the loss that the ...[person] has sustained" (Great Western Railway Co v Helps [1918] AC 141 at 145 per Lord Dunedin). In making up for the loss, compensation may go some way towards indemnifying a person for various losses including his or her pecuniary loss by reason of the loss of his or her ability to earn.

58. The notion "damages" generally includes that of compensation but may extend to exemplary damages. As Isaacs J said in Whitfeld v De Lauret & Co Ltd (1920) 29 CLR 71:

"Damages are, in their fundamental character, compensatory. Whether the matter complained of be a breach of contract or a tort, the primary theoretical notion is to place the plaintiff in as good a position, so far as money can do it, as if the matter complained of had not occurred (see per Lord Blackburn in Livingstone v. Raywards Coal Co. (1) 5 App. Cas., 25, at p.39." (page 80)

59. Isaacs J described damages of this type as "compensatory damages" (page 81) but also referred to "exemplary damages" which may be awarded in some instances with the intention that they "...be punitive for reprehensible conduct and as a deterrent." (page 81) (see also Knox CJ at page 77).

60. While the notions of "compensation" and of "damages" may overlap in practice, payments under workers' compensation legislation have always been regarded as compensation. That is so as it is paid to make up for the loss of a person's ability to earn (see, for example, Hardie v Hardie [1947] VLR 79 at 81 per Gavan Duffy J).

61. The payments that Mr Gentley received under the policy are more properly described as compensation than as damages. Those payments are prescribed as to their amount and payment. They are not "at large" requiring assessment and determination by the verdict of a jury or judgement of a court as could be expected if they were damages and not compensation. The payments are made in respect of the specific losses referred to in the policy and set out above (see paragraph 18 above). Taking these factors into account, I have concluded that the payments which Mr Gentley received under the policy are not "a payment of damages" within the meaning of paragraph (a) of the definition of "compensation" in sub-section 17(2).

62. The payments are payments which have been made under a contract of insurance but there is no evidence either in the policy or in the evidence generally that the contract was entered "... under a scheme of insurance or compensation under a Commonwealth, State or Territory law" (paragraph (b) of the definition of "compensation"). There is no requirement in the WorkCover Queensland Act 1996 (Qld) requiring an employee to enter such a contract of insurance. That legislation places the obligation to insure against injury sustained by a "worker" upon the worker's employer and not upon the worker. It follows that the payments made to Mr Gentley are not compensation within the meaning of paragraph (b) of the definition of "compensation". As the payments neither come within that paragraph nor have the character of damages, they do not come within paragraph (c).

63. The payments are, however, compensation. It is clear from the policy that payments were to be made to Mr Gentley if he was prevented by injury or sickness from carrying out all or some of the duties he normally undertook for his employer. He was to receive those payments to make up, in part at least, for the loss of the salary or wages. The payments fall, therefore, within the catch-all provision in paragraph (d) of the definition of "compensation". They are "periodic compensation payments" in that they are payments of compensation made periodically and Mr Gentley has received a series of them.

64. Does the compensation payment made to Mr Gentley come within the exception to paragraph (d)? That exception is provided for in sub-section 17(2A) (see paragraph 34 above). It was agreed between the parties, and I am satisfied, that Mr Gentley, who is the recipient of the compensation payment, paid the insurance premiums for the policy. Consequently, he has made contributions towards the compensation payment he received within the meaning of paragraph 17(2A)(a).

65. The resolution of the issue in this case turns upon whether Mr Gentley satisfies paragraph 17(2A)(b). That paragraph requires that the agreement under which the payments were made to him (i.e. the policy) not provide for amounts being reduced or not payable because "the recipient is eligible for or receives payments under this Act that are compensation affected payments" if the payment made to Mr Gentley was not to be treated as compensation by virtue of paragraph 17(2)(d). Does this mean that the agreement must refer specifically to the expression "compensation affected payments" or to payments of the same type as compensation affected payments? If the latter, does it mean that the agreement must not provide for any reduction in payments under the policy in respect of payments of all of the same types of all of the compensation affected payments or is it enough that it only make that provision in relation to some of them?

66. The specific provisions of the Act do not provide a clear resolution of these questions on their face. When regard is had to the purpose of the provisions relating to compensation as set out by Von Doussa J in Banks' case, it seems to me that sub-section 17(2A) should be read as not requiring that the agreement not provide for payments to be reduced because the recipient is eligible for, or receives payments specifically described as compensation affected payments under the Act. It is enough that the agreement not make such provision for payments that may be identified as compensation affected payments under the Act however those payments are described. In this case it is not necessary to address the further questions I have raised.

67. That brings me to the policy held by Mr Gentley and, in particular, to sub-paragraph 5(i)(a) of the policy. Do the words "or any other statutory benefits which the Insured receives or is entitled to receive" encompass compensation affected payments under the Act and, in particular, payments of sickness allowance and newstart allowance under the Act? Sub-paragraph 5(i)(a) provides that Mr Gentley's weekly benefits were to be reduced by such benefits or by the amount of any worker's compensation payment he received or was entitled to receive.

68. If, on the interpretation I have reached of sub-section 17(2A), those words are intended to encompass payments of sickness allowance and of newstart allowance, Mr Gentley's periodic compensation payments would not be excluded from the definition of "compensation" by virtue of sub-section 17(2A). The effect of sub-sections 1168(1) and (3) would be that Mr Gentley's compensation affected payment would have to be reduced by the total amount of the payment he received under the policy. He could not then be said to have been entitled to receive that compensation affected payment and, when regard is had to the fact that he had to repay the compensation affected payment which he did receive, has not received that payment. In my view AFA would not, therefore, have been entitled to deduct any amount which Mr Gentley received as compensation affected payments. Indeed, it did not do so even though it later wrote on 15 June, 1999 that it did deduct such payments.

69. Returning to the words of sub-paragraph 5(i)(a) of the policy, the ordinary meaning of the word "benefit" includes "... a payment or other assistance given by an insurance company, mutual benefit society, or public agency. ..." (The Macquarie Dictionary, 2nd edition, 1991). If that meaning is adopted, it would mean that a payment under the policy would be reduced by any payment which the person were entitled to receive from a Commonwealth or State agency. Such payments would include Medicare payments such as benefits paid under the Health Insurance Act 1973, financial assistance under the First Home Owners Act 1983, pensions paid under the Veterans' Entitlements Act 1986, education entry payments under Division 8A of Part 2.13A of the Act, family allowances under Division 1 of Part 2.17 of the Act and a family tax payment under Division 4 of Part 2.17AA of the Act as well as payments of compensation affected payments under the Act.

70. Whether or not the ordinary meaning of the expression with its wide compass is to be adopted depends upon the context of the policy in which it is used. Sub-paragraph 5(i)(a) specifically refers to worker's compensation payments which, in general terms, are payments which an employer is required to pay to a person who is injured and whose injury arises out of or in the course of his employment. They are intended to "make up" in some measure for the losses incurred as a result of that injury be they losses by way of, for example, permanent physical impairment or salary or wages foregone. The remaining provisions of paragraph 5(i) go beyond worker's compensation payments to other types of income. In general terms, those remaining provisions are concerned with income from that person's employer in the form of salary or wages (sub-paragraph 5(i)(b)), income from that person's letting out the business or plant or equipment of the business (sub-paragraph 5(i)(d)) and payments made in respect of the person's being unable to carry out his or her usual occupation or business. Those provisions do not extend to any form of income received by the person regardless of the nature of that income. They do not, for example, extend to income received from investments such as term deposits or shareholdings, gifts, prize winnings, income from the person's spouse or partner or, in the case of a business owned by the person, income from the ongoing operation of that business.

71. Sub-paragraphs 5(i)(b)-(d), when read together indicate an intention that the insured person not benefit from both AFA and from money payable by the employer or from money from another source of income available to him or her as a result of the happening of the event for which he or she is insured. Both aspects of that intention are not evident in each paragraph, however, for each deals with payments of a specific character. Paragraph 5(i)(a), for example, is limited to any payment by the person's employer while paragraph 5(i)(b) is concerned with an entitlement under another policy of insurance.

72. In view of the structure and intention of the policy, I have concluded that each paragraph is intended to deal with payments of a particular type. In view of that, the words "any other statutory benefits which the Insured receives or is entitled to receive" in sub-paragraph 5(i)(a) must be read in the context of both the worker's compensation to which specific reference is made and the policy's intention as I have identified it in the previous paragraph. They must, therefore, be limited to those statutory benefits which the insured person receives as compensation for the loss which he or she has incurred as a result of the happening of the event prescribed in the schedule to the policy. They cannot be extended to any statutory benefits regardless of the reason for their being paid to the insured person.

73. Sickness allowance and newstart allowance are both benefits paid under a statute. Are they payments which compensate a person for his or her loss as a result of the happening of the event prescribed in the schedule to the policy? Taking first the sickness allowance, it is essential that the person's incapacity be wholly caused by a medical condition arising from sickness or accident (paragraph 666(1)(b)). There is no requirement that the sickness or accident arose out of or in the course of a person's employment. Although one of the qualifying criteria for a sickness allowance is predicated upon a person's having been employed prior to the incapacity and being able to return to that employment after the incapacity (sub-paragraph 666(10(ca)(i)), the person claiming sickness allowance need never have been employed at all. The person need only have been receiving AUSTUDY or ABSTUDY prior to his or her incapacity, have been engaged in qualifying or full-time study and be committed to resuming those studies (sub-paragraphs 666(1)(ca)(ii) and (iii)). Having regard to all of the qualifications required to obtain a sickness allowance, I have concluded that a sickness allowance is not intended to compensate a person whether as a result of the happening of the event prescribed in the schedule to the policy or otherwise. A sickness allowance is intended to maintain a person's income at a certain level temporarily when that person's income, whether it be from employment which has been temporarily interrupted or from AUSTUDY or ABSTUDY payments, has been temporarily interrupted. There is no element of "making good" or compensating for any loss which the worker has suffered. There is no element of the payments being made to compensate a person for losses suffered as a result of his or her being injured in the course of his or her employment. It matters not how the person's injury or sickness came about.

74. A newstart allowance also falls outside paragraph 5(i)(a) of the policy as I understand it. That allowance is predicated upon a person's being unemployed and not upon any incapacity. It has none of the characteristics of a payment of compensation. An examination of the remaining compensation affected payments under the Act shows that none of them has those characteristics.

75. It follows that the policy under which Mr Gentley made contributions does not provide for the amounts that would otherwise be payable to him to be reduced or not payable because he is eligible for, or receives, payments under the Act that are compensation affected payments. The periodic payments of compensation made to Mr Gentley were made under a policy coming within the parameters of sub-section 17(2A) and so are not compensation payments within the scope of paragraph 17(2)(d). They are not compensation for the purposes of sub-section 17(2). It also follows that the provisions of sub-section 17(3) relating to the compensation part of a lump sum compensation payment do not apply to the payment which Mr Gentley received.

76. In view of the decision I have reached on this matter, the question of whether there are special circumstances within the meaning of section 1184 is not relevant to consider.

77. The decision under review in this case is limited to the imposition of a preclusion period as a result of the lump sum payment to Mr Gentley. As the payment is not compensation within the Act, that preclusion period should not have been imposed. The earlier decisions to recover amounts of sickness allowance and newstart allowance paid to Mr Gentley were made on the basis that he had received compensation. It would follow from my decision that those decisions should be re-considered on the basis that the payments under the policy were income but not compensation. As they are not under review, I do not have power to make a decision to that effect. As my powers are limited to the decision under review and for the reasons I have given, I:

1. set aside the decision of the Social Security Appeals Tribunal dated 9 November, 1998;

2. substitute a decision that:

(1) the lump sum payment which the applicant received under a Group Income Protection Policy held with Australian Family Assurance Ltd was not a payment of compensation within the meaning of the Social Security Act 1991; and

(2) the lump sum payment is not subject to the preclusion period provisions in Division 3 of Part 3.14 of Chapter 3 of the Social Security Act 1991; and

4. remit the matter to reconsider the applicant's entitlements under the Social Security Act 1991 on this basis.

I certify that the seventy-seven preceding paragraphs are a true copy of the reasons for the decision herein of Miss S A Forgie (Deputy President)

Signed: ............................................

M Martinez Associate

Date of Hearing 29 September, 1999

Date of Decision 4 February, 2000

Counsel for the Applicant Mr B Mumford

Solicitor for Applicant Welfare Rights

Advocate for Respondent Mr S Letch