Niautou and Secretary, Department of Family and Community Services [2002] AATA 1169 (15 November 2002)

Last Updated: 19 November 2002

DECISION AND REASONS FOR DECISION [2002] AATA 1169

ADMINISTRATIVE APPEALS TRIBUNAL )

) No Q2002/443

GENERAL ADMINISTRATIVE DIVISION )

Re CHARLES NIAUTOU

Applicant

And SECRETARY, DEPARTMENT OF FAMILY AND COMMUNITY SERVICES

Respondent

DECISION

Tribunal Mr R G Kenny, Member

Date 15 November 2002

Place Brisbane

Decision The Tribunal affirms the decision under review.

..................(Sgd).......................

R G Kenny

Member

CATCHWORDS

SOCIAL SECURITY - lump sum compensation payment - lump sum preclusion period and calculation thereof - whether special circumstances exist

Social Security Act 1991 ss 17(1)-(4); 1165(1A), 1166(1), 1170(4)-(5), 1184(1)

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

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

Haidar v Secretary, Department of Social Security (1998) 28 AAR 288

Re Beadle and Director-General of Social Security (1984) 1 AAR 362

Secretary, Department of Social Security v Ellis (1997) 24 AAR 535

REASONS FOR DECISION

15 November 2002 Mr R G Kenny, Member

Background

1. Charles Naiutou (the applicant) was injured in his workplace in July 1999 and in March 2000 for which he received periodic workers compensation payments until 2 August 2000 and then income support payments from Centrelink in accordance with the Social Security Act 1991 (the Act). On 28 September 2001, he received a lump sum in settlement of claims for compensation for his injuries. On 22 October 2001, a Centrelink officer, on behalf of the Department of Family and Community Services (the respondent), made a decision to preclude the making of social security payments to the applicant for the period from 3 August 2000 until 5 March 2003 and also to recover an amount of $13,026.77 from WorkCover on the basis that this was the amount that had been paid by Centrelink to the applicant in that preclusion period.

2. Centrelink's calculations of that preclusion period were made on the application of the formula as provided for in the relevant provisions of the Act (see below) and were based on the sum $155,813.39, this amount comprising the lump sum of $184,333.55 less WorkCover payments of $28,520.39 that the applicant had received on a periodic basis.

3. The initial decision was affirmed by an authorised review officer on 9 April 2002 and, in turn on 2 May 2002, by the Social Security Appeals Tribunal. On 20 May 2002, the applicant sought review of that decision by the Administrative Appeals Tribunal (the Tribunal).

Appearances

4. The applicant attended the hearing but was not represented. Ms H Wallis-Dunn appeared on behalf of the respondent.

5. Documentary evidence before the Tribunal comprised:

* exhibit 1 the T documents (T1-T33) prepared in accordance with section 37 of the Administrative Appeals Tribunal Act 1975;

* exhibit 2 a screen printout of the compensation divisor (income cut-out amount);

* exhibit 3 a summary of new start allowance payments made to the applicant;

* exhibit 4 a statement from the applicant;

* exhibit 5 a medical report, dated 17 October 2002, from Dr G Kleinschmidt; and

* exhibit 6 a Westpak bank statement for October 2002.

Issues and Legislation

6. The Act makes provision for Centrelink to impose a period of preclusion from receipt of certain income support payments in situations where a person has received a lump sum compensation payment for injury. The provision relevant to the determination of a preclusion period in this case reads:

"1165(1A) 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."

7. Where income support has been given during the period of preclusion, that amount may be recovered in accordance with sub-section 1166(1) of the Act which reads:

"1166(1) If:

(a) a person receives a lump sum compensation payment; and

(b) the person receives payments of a compensation affected payment for the lump sum preclusion period;

the Secretary may, by written notice to the person, determine that the person is liable to pay to the Commonwealth the amount specified in the notice."

8. Where income support has been given during the period of preclusion, as in this case, the charge monies are able to be recovered directly from the insurer, in this case WorkCover, pursuant to the operation of the provisions in Part 3.14 of the Act. The term compensation affected payment is defined in sub-section 17(1) of the Act and includes social security payments and that term is defined in section 23 of the Act to include newstart allowance. The term lump sum compensation payment is not defined in the Act but the term compensation is defined in sub-section 17(2) which, in so far as relevant, reads:

"17(2) ... for the purposes of this Act, compensation means:

(a) a payment of damages; or

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

(c) a payment (with or without admission of liability) in settlement of a claim for damages or a claim under such an insurance scheme; or

(d) any other compensation or damages payment;

(whether the payment is in the form of a lump sum or in the form of a series of periodic payments 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 resultingfrom personal injury."

9. Where periodic payments have been made and then a lump sum is paid, sub-section 17(4) of the Act applies to remove the periodic payments from the calculation of the preclusion period. It reads:

"17(4) Where a person:

(a) has received periodic compensation payments; and

(b) after receiving those payments, receives a lump sum compensation payment (in this subsection called the LSP ); and

(c) because of receiving the LSP, becomes liable to repay an amount (in this subsection called the Repaid Periodic Compensation Payment -- RPCP ) equal to the periodic compensation payments received;

then, for the purposes of subsection (3), the amount of the lump sum compensation payment is:

LSP - RPCP"

10. The component of the lump sum that may be taken into account is referred to as the compensation part of a lump sum. This term is defined in sub-section 17(3) of the Act which, in so far as relevant, reads:

"17(3) ... 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."

11. Pursuant to sub-section 1170(1) of the Act, where periodic compensation payments have been made, a lump sum preclusion period begins on the day following the last day of the periodic payment period. The length of that preclusion period is determined in accordance with the formula in sub-sections 1170(4) and (5) of the Act which read:

"1170(4) The number of weeks in the lump sum preclusion period in relation to a person is the number worked out using the following formula:

Compensation part of lump sum

Income cut-out amount

1170(5) If the number worked out under subsection (4) is not a whole number, the number is to be rounded down to the nearest whole number."

12. The term income cut-out amount is defined in sub-sections 17(1) and (8) of the Act.

13. There is provision for part of a compensation payment to be disregarded where sub-section 1184(1) of the Act applies. It reads:

"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."

14. In this case, the issues for consideration are whether the respondent utlised the correct amount when applying the formula to calculate the preclusion period and whether there are special circumstances that make it appropriate to treat part of the compensation as not having been made.

Applicant's Case

15. The applicant accepted that he had received $13,026.77 in newstart allowance payents in the period from 3 August 2000 and also that a preclusion period was applicable under the Act. He conceded that his solicitor's letter nominated the gross amount of his settlement as being $189,325.15 but said that this had been eroded by the substantial costs that he had for medical treatment and for legal fees and that the amount that he received was considerably less that the gross amount.

16. He also said that the medical treatment had not been successful in that he was left with a significant problem with his leg, which required him to use a crutch to improve his mobility, and also the effects of a post traumatic stress disorder. He said that he takes medication for pain relief and to assist with sleeping but that, because he has a health care card, these are not expensive items.

17. He said that he had spent the money that he had received, in large part, in repaying his creditors with whom he had incurred substantial debts. He had an oral agreement with them to the effect that he was released from the obligation of his commitments to repay the loans pending the receipt of his settlement provided he repaid them in full by 1 November 2002. He could not recall the names of those with whom the agreements had been made but said that he had endeavoured to have the various agreements reduced to writing but that the officers in the respective financial institutions had refused to do this.

18. He said that he made the following payments: $54,000 (Rock Building Society); $3,200 (Westpak); $4,500 (Avco credit card); $5,500 (AGC credit card); and $5,900 (ANZ credit card). He said that he had been told that, if he had not done this, he would have been forced into bankruptcy. He was also concerned that his parents might lose their house as it had been used as security for the loan from the building society. He said that these loans had been taken out by him from 1991 with a repayment time-frame of 20 years. He said that there had been various consolidations of his loans over that time and that money had been used for the purchase of such items as a car and a boat. He had also invested in a friend's business but said that the enterprise had failed. He conceded that much of his spending had been "unwise".

19. The applicant said that, in addition to the repayment of his loans, he incurred the following post-settlement expenditure: $4,000 (car); $950 (registration and insurance); $5,200 (computer and software); $1,800 (digital camera); $3,500 (holiday); $1,330 (outboard motor repair); $2,240 (rent); $550 (residential and mobile phone); $450 (electricity); $180 (internet); and $400 (loan from parents).

20. He described these as necessary outgoings. The car was to assist his mobility; the holiday was recommended by his doctor to assist his recovery from the effects of his post traumatic stress disorder; the computer and camera equipment were to enable him to establish a business in web site design. In relation to the last of these, he said that he had been told by his doctor that he would not be able to work on a full-time basis and he saw web design as a part-time option that would enable him to provide for himself financially. He conceded that he had not sought any professional assistance in establishing such a business or in financial management and that he had not been successful with his business aspirations although he said that this was partly due to the return of his health problems in early 2002.

21. The applicant said that he was in difficult financial circumstances as indicated by the negative balance of $50 in his bank account with Westpak (exhibit 6). He had been living in a granny flat for about two years before he received his settlement monies. He had been paying $100 per week in rent and this had been reduced by the landlord to $80. However, he had been unable to pay rent by August 2002 and his tenancy was terminated. He now lives with his parents in a spare room. They provide for his living expenses but have made it clear to him that they do not want the arrangement to continue for the long term and he said that he doubted if he would be permitted to stay until the end of the preclusion period in March 2003.

22. The applicant conceded that he was aware that there would be a preclusion period and that his settlement monies would be needed to sustain him during that time. He said that he felt that he had to make the payments that he did and had believed that he would generate sufficient income from web site design to enable him to meet his expenses. He also said that he now expected that he should be supported by the Australian taxpayer through social security payments.

Respondent's Case

23. Ms Wallis-Dunn referred to the letter of the applicant's solicitor (see T12) where the gross settlement figure of $189,325.15 is given. She also referred to another set of notations which were made in the process of deciding the preclusion period (see T16 at 63 and 64) where a lesser sum of $184,333.55 was relied on. She submitted that the utilisation of this figure already bestowed a benefit on the applicant. She also submitted that the formula had been correctly applied and that the appropriate preclusion period was that determined by the respondent.

24. Ms Wallis-Dunn also submitted that there were no special circumstances in this case which would justify the disregarding of any further component of the settlement monies received by the applicant. This was because the applicant was well aware of the need to preserve his fund for the preclusion period and that his profligate expenditure should not result in his being supported by the taxpayers of Australia. She noted the absence of any evidence to support the applicant's contentions that he had entered into agreements with the various financial institutions about the repayment of his loans and she also noted the absence of any attempt by the applicant to obtain any form of professional assistance in the setting up of a business which he hoped would sustain him into the future after his capital had been expended.

Consideration

25. It is not disputed that the applicant received periodic compensation payments from WorkCover from the time of his work-place injuries until 2 August 2000 in the amount of $28,520.39; that he received income support in the form of newstart allowance from Centrelink in the amount of $13,026.77 thereafter or that these payments were continuing as at the time when he received his lump-sum compensation payment. Also, it is not disputed that, on 28 September 2001, the applicant's solicitor advised Centrelink that the gross settlement amount was $189,325.15; that the gross amount for periodic payments was $28,520.39 or that Centrelink calculated a preclusion period on a gross settlement amount of $184,333.55.

26. The first matter for determination is whether, in accordance with sub-section 1184(1) of the Act, there are special circumstances that make it appropriate to treat part of the compensation lump sum as not having been made. The Act provides no guidance as to the meaning of the term special circumstances. In Beadle v Director-General of Social Security (1985) 60 ALR 225, the Full Federal Court stated that it was not possible to lay down precise limits or precise rules for the meaning of the term as it is used in the waiver provisions of the Act. The Court indicated that its application would depend upon the circumstances of each particular case but commented that, even though the term lacks precision, it was sufficiently understood "not to require judicial gloss" (at 228). There, the Court affirmed the decision of the Tribunal (Re Beadle and Director-General of Social Security (1984) 1 AAR 362) where (at 364) the Tribunal had acknowledged that the term was "incapable of precise or exhaustive definition" and that, to be special, the circumstances must have a particular quality of unusualness that permits them to be described as special. In Groth v Secretary, Department of Social Security (1995) 40 ALD 541 at 545, Kiefel J observed that special circumstances would require something to distinguish the case from others, to take it out of the usual or ordinary case; see also Secretary, Department of Social Security v Ellis (1997) 24 AAR 535 at 539-540 and Haidar v Secretary, Department of Social Security (1998) 28 AAR 288 at 297.

27. The lump sum that the applicant received has been exhausted and he is now living in circumstances of financial hardship and is surviving through the benevolence of his parents. In the main, this situation has arisen because of his repayment of debts incurred by him over a period of some ten years. He said that he was obliged to make those payments, which amounted to $73,100, immediately on receipt of the lump sum. There was no evidence of any agreement to that effect; and he made no attempt to reach accommodation with the lending agencies through the consolidation of his debts in a manner that would have enabled him to make some payments over time and to preserve some of his capital.

28. In themselves, most of the other expenses that he incurred can not be described as extravagant. However, given that he had already used the bulk of his lump sum in repaying his loans, one must question the wisdom of continuing to run down his remaining capital. Some of the outlays were made in a manner calculated to justify the repayment of the loans. In particular, these related to the purchase of computer equipment for the purpose of establishing a business related to web site design. The applicant was not successful in generating income from that activity and the evidence is that he made no attempts to gain insight into the operation of such a business by obtaining professional advice or undertaking specialist courses. I agree with the observation of the Social Security Appeals Tribunal that the applicant "gambled" that he would be able to make a living from starting a new business in circumstances where he had significant existing health problems and where he faced a period of preclusion from income support. His gamble was unsuccessful but, because it was consciously undertaken, his lack of success does not make his situation one that enables him to avoid the underlying purpose of provisions relating to the imposition of a preclusion period.

29. The applicant has continuing health problems; but that is not an uncommon state of affairs in matters where sub-section 1184(1) of the Act is raised because the provision will always arise in circumstances of injury or illness.

30. I am satisfied that the circumstances of the applicant do not have a particular quality of unusualness that permits them to be described as special and that the amount relied on by Centrelink, $184,333.55, should remain as the basis of calculation. That amount is the lump sum compensation payment received by the applicant for the purposes of sub-sections 17(2) and 1165(1A) of the Act.

31. In accordance with sub-section 17(4) of the Act, the amount of periodic payments, in this case $28,520.39, is to be deducted from the lump sum before determining the compensation part of the lump sum in accordance with sub-section 17(3) of the Act. That results in an amount of $155,813.16. On the application of the 50% reduction required by sub-section 17(3) of the Act, this reduces to $77,906.58. I am satisfied that this is the sum which must be subjected to the formula in sub-section 1170(4) of the Act. The income cut-out amount in that formula is $576.38 (see exhibit 2) and that leads to a preclusion period of 135 weeks. Pursuant to sub-section 1170(1) of the Act, the preclusion period commences on the day after the last day of periodic payments which, in this case, was 2 August 2000. The preclusion period, therefore, runs from 3 August 2000 until 5 March 2003.

Decision

32. The Tribunal affirms the decision under review.

I certify that the preceding 32 paragraphs are a true copy of the reasons for the decision herein of Mr R G Kenny, Member

Signed: Denise Burton

Administrative Assistant

Date of Hearing 4 November 2002

Date of Decision 15 November 2002

The Applicant Appeared in Person

Solicitor for the Respondent Ms H Wallis-Dunn, Departmental Advocate