Hornung and Department of Family and Community Services [2000] AATA 919 (23 October 2000)

Last Updated: 31 January 2001

DECISION AND REASONS FOR DECISION [2000] AATA 919

ADMINISTRATIVE APPEALS TRIBUNAL )

) No N2000/516

GENERAL ADMINISTRATIVE DIVISION )

Re JACQUELINE HORNUNG

Applicant

And SECRETARY, DEPARTMENT OF FAMILY AND COMMUNITY SERVICES

Respondent

DECISION

Tribunal Mr R P Handley

Date 23 October 2000

Place Wollongong

Decision The Tribunal affirms the decision under review.

Mr R P Handley

Senior Member

CATCHWORDS

SOCIAL SECURITY - Sole Parent Pension - compensation settlement - preclusion period - special circumstances.

Social Security Act 1991, ss 17(2) & (3), 1184(1).

Secretary, Department of Social Security v Banks (1990) 23 FCR 416

Secretary, Department of Social Security v Hulls and Others (1991) 22 ALD 570

Re Glass and Secretary, Department of Social Security (1998) 53 ALD 498

Re Eggleton and Secretary, Department of Social Security (AAT 168, 13 March 1998)

Re Secretary, Department of Social Security and Beel (1995) 38 ALD 736

Groth v Department of Social Security (1995) 40 ALD 541

Re Krzywak and Secretary, Department of Social Security (1988) 15 ALD 690

Re Beadle and Director-General of Social Security (1984) 6 ALD 1

Beadle v Director General of Social Security (1985) 60 ALR 225

Secretary, Department of Social Security v Smith (1991) 30 FCR 56

Re Fowles and Secretary, Department of Social Security (1995) 38 ALD 152

Re Sales and Secretary, Department of Family and Community Services [1999] AATA 963

REASONS FOR DECISION

Mr R P Handley

1. This is an application by Jacqueline Hornung for a review of a decision of the Social Security Appeals Tribunal ("the SSAT") made on 23 February 2000 which affirmed a decision of a delegate of the Secretary of the Department of Family and Community Services ("the Department") and an authorised review officer to impose a preclusion period from 19 October 1995 to 21 August 1997 and recover $17,085.10 from Mrs Hornung's compensation settlement in respect of sole parent pension paid during that period.

2. At the hearing, Mrs Hornung represented herself and the Department was represented by Adele Alex of Centrelink. The evidence before the Tribunal comprised the documents lodged pursuant to section 37 of the Administrative Appeals Tribunal Act 1975 ("the T Documents") together with the exhibits tendered by the parties. Mrs Hornung gave oral evidence at the hearing.

background

3. Mrs Hornung, who was born on 27 July 1961 and is aged 39, was injured in a motor vehicle accident on 14 October 1995. On 13 October 1998, her claim for compensation was settled for the sum of $81,000 inclusive of costs.

4. Mrs Hornung separated from her husband on 15 February 1994. She has a daughter, Rachael, who was born on 2 November 1993 and is now aged six. At the time of the accident, Mrs Hornung was receiving sole parent pension which she continued to receive up to and after the settlement of her claim.

5. Pursuant to section 17 of the Social Security Act 1991 ("the Act"), the Department treated 50 per cent of the compensation settlement of $81,000 as being "compensation part of the lump sum". Then, pursuant to section 1165, the Department divided this by average weekly earnings of $412.70 to give a lump sum preclusion period of 98 weeks, beginning on the day that the loss of earning capacity began, which was 14 October 1993, and ending on 29 August 1997.

6. The Department initially determined (on 21 October 1998) that sole parent pension totalling $17,224.50 had been paid to Mrs Hornung during the preclusion period, which the Department was entitled to recover from the compensation settlement. This was the Social Security charge imposed (T22). On 5 February 1999, the charge was reduced to $17,000.90 (T32) and, on 7 June 1999, to $17,085.10 (T37).

7. This decision was affirmed by an authorised review officer and by the SSAT, on 2 July 1999 and 23 February 2000 respectively. On 3 April 2000, Mrs Hornung lodged an application for review by the Tribunal.

8. Mrs Hornung raised two issues: first, whether the compensation recovery provisions apply in her case, and, second, if they do apply, she contends that there are special circumstances to justify exercise of the Secretary's discretion to treat the whole or part of her compensation settlement as not having been made. The relevant provisions of the Act, section 17(2) and (3) and section 1184(1) follow:

"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 of 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 earning or lost capacity to earn; and

(f) made either within or outside Australia

....

17(3) For the purposes of this Act, the 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, on or after 9 February 1988; 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, on or after 9 February 1988; 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."

...

1184(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."

Mrs Hornung's case

9. Mrs Hornung said she did not think that the compensation recovery provisions should apply to her, although she did not challenge the Department's actual calculations. She said it was unfair that the Social Security charge should be applied in her case. The accident was not her fault and, at the time of the accident, she was not working. She was receiving sole parent pension and caring for her daughter who was then not quite two years old. Her compensation claim was for loss of part-time earnings only, which would have been below the threshold for a Social Security benefit to be affected. She was therefore not double-dipping.

10. Mrs Hornung said she had not understood the implications of her solicitor's advice about a Social Security charge being imposed after settlement. She did not realise she would have to pay all the Social Security charge. She thought any charge would only reflect lost part-time earnings.

11. Mrs Hornung produced correspondence from her solicitors, Milicevic Solicitors, dated 18 September 1998 (Exhibit A1), 15 December 1998 (Exhibit A2), 4 February 1999 (Exhibit A3) and 11 March 1999 (Exhibit A4). The letter of 18 September 1998 (Exhibit A1) relates Counsel's advice in respect of the quantum of compensation, including $8,000 for past economic loss and $20,000 for future economic loss. Counsel subsequently advised Mrs Hornung to accept an offer of $81,000 (Exhibit A2). There was some disagreement between the parties as to the terms of the initial settlement (Exhibit A3), with the final outcome being that the settlement of $81,000 was inclusive of costs. Mrs Hornung ultimately received a cheque for $30,177.09 after her solicitors had paid all costs and disbursements and repaid a loan of $3,499.00 to her brother (Exhibit A4).

12. Mrs Hornung said that she stopped working in mid-1993 during the latter part of her pregnancy. At that time, she was working in a cakeshop/bakery, managing the shopfront, organising orders and undertaking some cake decorating. She has tried to obtain work since the accident, applying for light duty jobs. She looks at the job advertisements in the newspapers and at advertisements placed in shop windows. About two months ago, she applied for a job in a cake shop in Kiama - but she did not get the job because the woman intending to leave the job, lost her baby and did not subsequently resign.

13. Mrs Hornung said her health is still not good. She takes Prothiaden because she has difficulty sleeping - she still has nightmares - and gets irritable and depressed. The Prothiaden is prescribed by her General Practitioner, Dr Haider. Mrs Hornung suffers pain in her neck, shoulders, back and legs. Her legs feel as if they are "on fire". She takes Panamax for the pain - on average about 20 tablets a week. She tries to do without them if she can. If she overdoes things, the pain gets worse and then she will take Panadeine Forte. However, Mrs Hornung said she has learned to do things in such a way as to avoid exacerbating her pain and she only needs to take Panadeine Forte about once a week. She finds it hard to cope with her daughter on her own, although her daughter is in reasonable health.

14. Mrs Hornung said vacuuming hurts her back, and washing up gives her pain in the back and shoulders, as does hanging washing on the line. If she has to pick something up, she bends at the knees to take the pressure off her back. She has difficulty walking up hills and on stairs. She avoids public transport because this jolts her back. If she has to use public transport, she uses an inflatable pillow around her neck to provide extra support. Mrs Hornung said she avoids lying on hard surfaces - she has a water bed which also provides extra warmth for her back.

15. Mrs Hornung has a car and drives, but finds that turning her head hurts, and sitting still for long periods is very uncomfortable. She lacks confidence and gets flashbacks of the accident, for example while waiting in a queue at the traffic lights. She also lacks confidence generally and her self-esteem is low.

16. Mrs Hornung continues to receive a sole parent pension, currently amounting to $200.91 per fortnight (Exhibit R1) after a deduction for a $500 advance. She also receives $210 per fortnight maintenance for her daughter. She has no other income and no other savings. She owes about $5000 on her Mastercard. She sometimes needs to use her Mastercard to buy groceries and pay bills because she just does not have enough money.

17. Mrs Hornung lives in a rented unit in Kiama paying $135 per week. She has other normal expenses including electricity, telephone, contents insurance ($170 per annum), third party insurance ($204 per annum) and comprehensive insurance ($450 per annum) for her car, and auxilliary medical cover ($25 per month).

the department's case

18. Ms Alex, for the Department, submitted that the compensation settlement of $81,000 was "compensation" within the definition in section 17(2) of the Act because part of the claim was in respect of loss of earnings. Ms Alex referred to von Doussa J's judgment in Secretary, Department of Social Security v Banks (1990) 23 FCR 416 where he discussed the rationale for the "50 per cent rule" (section 17(3)) which was to eliminate double dipping in a practical and straightforward way. Similarly, in Secretary, Department of Social Security v Hulls and Others (1991) 22 ALD 570, O'Loughlin J, whilst acknowledging the arbitrariness of the rule, said that it was in keeping with the intention of Parliament.

19. Ms Alex cited Re Glass and Secretary, Department of Social Security (1998) 53 ALD 498, where the Tribunal noted that it was necessary to determine the actual quantum of any economic loss component of a compensation payment. Moreover, as in Re Eggleton and Secretary, Department of Social Security (AAT 168, 13 March 1998), the Tribunal held that a repayment to the Department did not of itself produce an unfair or unjust result, notwithstanding that economic loss might have been suffered. Thus, Ms Alex submitted that the decision to impose the 50 per cent rule (under section 17(3)) was correct.

20. Ms Alex noted that Mrs Hornung's settlement did not identify a specific amount in respect of economic loss and thus the Tribunal's decision in Re Secretary, Department of Social Security and Beel (1995) 38 ALD 736 could not be relied on, and it was not appropriate to attempt to dissect the settlement figure. The application of the 50 per cent rule in Mrs Hornung's case was neither unreasonable nor unfair.

21. Ms Alex submitted there were no special circumstances which justified disregarding either the whole or part of the compensation settlement. Mrs Hornung's circumstances did not have the quality of unusualness required for them to be considered "special". In this case, to disregard all or part of the compensation payment would frustrate the intention of the Act which was to prevent "double-dipping" (Groth v Department of Social Security (1995) 40 ALD 541).

22. Ms Alex noted that financial hardship alone is not sufficient to qualify as special circumstances. In any event, Mrs Hornung's circumstances, although straitened, are not so exceptional as to warrant exercise of the section 1184(1) discretion. Ms Alex also contended that Mrs Hornung's ill health was not, of itself, sufficient to establish special circumstances. There was nothing in the evidence to date about Mrs Hornung's financial circumstances or health which set her apart from other income support recipients in a similar situation. Thus, even though, as stated in Re Krzywak and Secretary, Department of Social Security (1988) 15 ALD 690, the effect of a legislative provision may be harsh, the Tribunal is bound by the clear intention of Parliament. The SSAT's decision should be affirmed.

consideration of law and findings

23. The first issue which Mrs Hornung asked the Tribunal to determine is whether the compensation recovery provisions of the Act apply. This turns on whether the compensation settlement received by Mrs Hornung is within the definition of "compensation" in section 17(2). The definition includes a payment in settlement of a claim for damages "made wholly or partly in respect of lost earnings or lost capacity to earn" (paragraph (e)).

24. There is no dispute that Mrs Hornung received a compensation settlement of $81,000 inclusive of costs. The statement of claim (T14) includes a component for economic loss in respect of lost earnings and diminution of earning capacity. The advice from Mrs Hornung's solicitors setting out Counsel's advice as to quantum (Exhibit A1), also clearly states components in respect of past and future economic loss.

25. The Tribunal therefore finds that Mrs Hornung's compensation settlement falls within the definition of compensation in section 17(2). As a result, the 50 per cent rule in section 17(3) applies so that 50 per cent of the compensation payment is treated as being the "compensation part of the lump sum" for the purpose of calculating the preclusion period.

26. The second issue is whether, under section 1184(1), there are special circumstances which make it appropriate to treat the whole or part of the compensation payment as not having been made. Although the Act provides no guidance as to the meaning of "special circumstances", this has been the subject of statutory interpretation by the Federal Court and the Tribunal.

27. The leading case law is probably Beadle v Director General of Social Security (1985) 60 ALR 225, a decision of the Full Federal Court. In Beadle the Court did not think it possible to lay down precise limits or precise rules. It would depend on the circumstances of a particular case as to whether they constituted special circumstances. Moreover, even though the phrase "special circumstances" lacks precision, it "is sufficiently understood in our view not to require judicial gloss" (at 228).

28. In Beadle, the Court affirmed the decision of the Tribunal under review in that case, Re Beadle and Director-General of Social Security (1984) 6 ALD 1, in which the Tribunal, whilst acknowledging that the phrase "special circumstances" is "incapable of precise and exhaustive definition," said, nevertheless, that the circumstances "must have a particular quality of unusualness that permits them to be described as special" (at 3).

29. In Groth (supra) at 545, Kiefel J, after referring to the Federal Court's decision in Beadle (supra,1985), observed that special circumstances:

"would require something to distinguish Mr Groth's case from others, to take it out of the usual or ordinary case...it would of course follow that if one were to conclude that something unfair, unintended or unjust had occurred that there must be some feature out of the ordinary."

30. The Tribunal then considered relevant authorities relating to the application of section 1184(1). The Tribunal noted that the 50 per cent rule was intended to prevent manipulation of compensation settlements "to obscure the economic loss component and to avoid recovery of Social Security payments". (The Honourable Mrs Kelly MP, Second Reading Speech on the relevant amendment Bill (Hansard, 13 April 1988, p1497), cited by von Doussa J in Banks (supra) at 442.)

31. While it is clear from von Doussa J's judgment in Secretary, Department of Social Security v Smith (1991) 30 FCR 56, that section 1184(1) can be used to address an injustice arising out of the application of the 50 per cent formula, the issue is one of degree and the section 1184(1) discretion will not be exercised where no component for lost earnings or lost capacity to earn was identified in the settlement. In Re Fowles and Secretary, Department of Social Security (1995) 38 ALD 152, Presidential Member Bulley J said, at 163, that an:

"approach of seeking to dissect the lump sum into components by disguising it under the phrase 'special circumstances' pursuant to section 1184 should not be countenanced."

32. In Mrs Hornung's case, the compensation settlement did not specify a component for lost earnings or lost capacity to earn. The Tribunal notes, however, that the Counsel's advice obtained by Mrs Hornung's solicitors (Exhibit A1) advised, in relation to an offer made by the Respondent insurance company, a quantum of $8,000 in respect of past economic loss and $20,000 in respect of future economic loss, as part of a total of $85,910. Even had such a breakdown been included in the compensation settlement, the decision of the Tribunal in Re Sales and Secretary, Department of Family and Community Services [1999] AATA 963 indicates that the section 1184(1) discretion should not be exercised. That case involved a compensation settlement of $35,000 which, under the 50 per cent formula, resulted in a compensation part of the lump sum, used to calculate the preclusion period of $17,500. The actual economic loss component of the settlement was $10,000. The Tribunal decided that this and other circumstances were not sufficiently "special" to warrant exercise of the section 1184(1) discretion. The degree of inequity, which was relatively slightly greater than in Mrs Hornung's case, was not sufficient.

33. The Tribunal therefore concluded that no account could be taken of the relative quantum of the unidentified component of past and future economic loss in Mrs Hornung's settlement in considering whether the section 1184(1) discretion should be exercised.

34. The other matters raised by Mrs Hornung which may be taken into account in a consideration of special circumstances are her financial circumstances and ill-health. The Tribunal finds that while Mrs Hornung's financial circumstances are straitened, she is not in severe financial hardship. She continues to receive sole parent pension and receives child maintenance payments in respect of her daughter. She may be able to find suitable light duty work in the future which takes account of the limitations on her physical ability following the accident. For the moment, Mrs Hornung has a debt of approximately $5,000 but this, and her limited income, are not in themselves sufficient to establish severe financial hardship.

35. The Tribunal finds Mrs Hornung's health is still affected by her memory of the accident and the consequent physical injuries. Clearly, this imposes limitations on her day to day life. However, in the Tribunal's view, neither Mrs Hornung's straitened financial situation nor ill-health are sufficiently unusual to amount to "special circumstances" of the kind required for exercise of discretion in section 1184(1).

36. Thus the Tribunal, whilst acknowledging Mrs Hornung's difficult situation, concludes that her circumstances are not "special" in the sense required to justify exercise of the discretion in section 1184(1). It follows that the decision of the SSAT must be affirmed.

I certify that the preceding 36 paragraphs are a true copy of the reasons for the decision herein of Mr R P Handley.

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

Associate

Date of Hearing 1 September 2000

Date of Decision 23 October 2000

Self-represented Applicant

Advocate for the Respondent Ms Adele Alex