Lynch and Department of Family and Community Services [2002] AATA 80 (11 February 2002)

Last Updated: 13 February 2002

DECISION AND REASONS FOR DECISION [2002] AATA 80

ADMINISTRATIVE APPEALS TRIBUNAL )

) No V2001/538

GENERAL ADMINISTRATIVE DIVISION )

Re CRAIG LYNCH

Applicant

And SECRETARY, DEPARTMENT OF FAMILY & COMMUNITY SERVICES

Respondent

DECISION

Tribunal Mr J. Handley, Senior Member

Date 11 February 2002

Place Melbourne

Decision The Decision under review is affirmed.

..........Sgd. Mr J. Handley.........

Senior Member

CATCHWORDS

SOCIAL SECURITY - preclusion period - whether applicant received or made claim for compensation affected payment - whether jurisdiction - whether special circumstances apply - decision under review affirmed.

Secretary, Department of Social Security and Banks (1990) 20 ALD 19

Re Beadle & Director General Social Security 1984 6 ALD 1

Re Secretary, Department of Social Security and VYS (AAT, unreported,15 December 1995)

Re Secretary, Department of Social Security and Gardiner (AAT, unreported, 5 June 1991)

Secretary, Department of Family & Community Services and Hall [2001] AATA 664

Re Minos and Secretary, Department of Family & Community Services [2000] AATA 1104

Kelso and Secretary, Department of Family & Community Services [2001] AATA 4

Secretary, Department of Family & Community Services and Bullock [2001] AATA 1016

Secretary, Department of Family & Community Services and Alman [2001] AATA 1017

Stephens and Secretary, Department of Family & Community Services [2001] AATA 108

Director-General of Social Services v Hales (1983) 47 ALR 281 at 321

Social Security Act 1991

Social Security (Administration) Act 1999

REASONS FOR DECISION

11 February 2002 Mr J. Handley, Senior Member

1. The applicant applied to review a decision of the Social Security Appeals Tribunal ("SSAT") made on 11 April 2001. The SSAT then decided that it had no jurisdiction to hear the appeal. A Centrelink officer had previously made a decision on 1 July 1998 to impose a compensation preclusion period from 27 June 1998 to 24 June 2005. That decision was made following receipt of a lump sum payment for $300,000 by Mr Lynch in settlement of a claim against his former employer. This decision was reconsidered and affirmed by the original decision maker on 15 November 2000 and an authorised review officer on 7 December 2000.

2. The application was heard in Bendigo on 23 January 2002. Mr Lynch was accompanied by his wife and appeared without representation. Ms King, a departmental advocate, appeared on behalf of the respondent.

3. Mr Lynch is 39 years of age and resides in Rochester with his wife and young daughter. He sustained an injury during the course of his employment on 7 June 1996 and was in receipt of weekly compensation payments until 26 June 1998. Mr Lynch settled his claim on 15 May 1998 for the sum of $300,000.

4. At the hearing, the applicant gave an estimate of how the settlement funds were expended. However, he confirmed a document found at T11 records the details of his expenditure more accurately. According to this document, Mr Lynch purchased an investment property for $63,000 and invested $70,000 in a two year fixed term investment account that currently earns interest at 5.5% per annum. He also spent $46,500 on renovations of his home, $30,000 towards the discharge of a mortgage, approximately $30,000 in legal fees, $30,000 towards the purchase of a new car, $9,000 on a holiday, $8,000 in living expenses, $2,600 for a new computer and the remainder on household goods and miscellaneous expenses.

5. The applicant and his wife have a joint income of approximately $1740 per month. Mr Lynch receives approximately $900 per month in income from the rental property and interest from his invested savings, and his wife receives $420 per fortnight by way of parenting payment and family allowance.

6. The Department's position was that the preclusion period has been correctly calculated. Further to this, Mrs King submitted that when the relevant case law and the applicant's circumstances are taken into account, there is no basis for disregarding any part of the compensation payment on the ground of special circumstances. Ms King acknowledged that the applicant invested the money wisely to provide for his family given the prospect of being unable to find employment. However, she submitted that as a matter of policy, a person cannot claim a Social Security payment from the Commonwealth after receiving compensation with respect to the same injury under a scheme of compensation.

The Legislation

Social Security Act 1991

Definitions

17(1) In this Act, unless the contrary intention appears:

.....

compensation has the meaning given by subsection (2);

Note: See also section 1163B.

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

(da) * * * * *

(e) a disability support wife pension; or

(f) a carer payment; or

(fa) * * * * *

(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;

compensation part, in relation to a lump sum compensation payment, has the meaning given by subsections (3) and (4);

.....

income cut-out amount, in relation to a person who has received a compensation payment, means the amount worked out using the formula in subsection (8), as in force at the time when the compensation was received.

.....

Compensation

17 (2) Subject to subsection (2B), for the purposes of this Act, compensation means:

(a) a payment of damages; or

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

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

(d) any other compensation or damages payment;

(whether the payment is in the form of a lump sum or in the form of a series of periodic payments and whether it is made within or outside Australia) that is made wholly or partly in respect of lost earnings or lost capacity to earn resulting from personal injury.

Note: Under section 1163B, a person may be treated as having received compensation that the person would have received but for the effect of a State or Territory law.

.....

Compensation part of a lump sum

17 (3) Subject to subsection (4), for the purposes of this Act, the compensation part of a lump sum compensation payment is:

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

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

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

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

(i) the payment represents that part of a person's entitlement to periodic compensation payments that the person has chosen to receive in the form of a lump sum; and

(ii) the entitlement to periodic compensation payments arose from the settlement (either with or without admission of liability) of a claim that is, in whole or in part, related to a disease, injury or condition; and

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

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

.....

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

.....

17(8) For the purposes of the definition of income cut-out amount in subsection (1), the formula is as follows:

[lbracktop]Maximum Pharmaceutical amount [rbracktop] Ordinary

2.5 [lbrackmid]basic rate + for a single person [rbrackmid] + free area limit

* [rbrackbot]

52

where:

maximum basic rate means the sum of the amount specified in column 3 of item 1 in Table B in point 1064-B1 and the amount of pension supplement worked out under point 1064-BA2 for a person who is not a member of a couple.

Note: Point 1064-BA2 refers to maximum basic rate. Maximum basic rate depends on a person's family situation. The rate used here is the rate for a person who is not a member of a couple.

ordinary free area limit means the amount specified in column 3 of item 1 in Table E-1 in point 1064-E4.

pharmaceutical amount for a single person means the amount specified in column 3 of item 1 in the Pharmaceutical Allowance Amount Table in point 1064-C8.

1169 Compensation affected payment not payable during lump sum preclusion period

(1) If:

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

(b) the person receives a lump sum compensation payment;

the compensation affected payment is not payable to the person in relation to any day or days in the lump sum preclusion period.

.....

1170 Lump sum preclusion period

.....

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

Compensation part of lump sum

Income cut-out amount

.....

1184K Secretary may disregard some payments

(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.

.....

Social Security (Administration) Act 1999

142 Application for review by SSAT

(1) Subject to section 144, if:

(a) a decision has been reviewed by the Secretary, the CEO or an authorised review officer under section 126 or 135; and

(b) the decision has been affirmed, varied or set aside;

a person whose interests are affected by the decision of the Secretary, the CEO or the authorised review officer may apply to the SSAT for review of that decision".

Conclusion and Reasons for Decision

7. For reasons which follow, I am satisfied that there is no jurisdiction to hear the appeal.

8. Mr Lynch gave evidence that he attended the Centrelink office at Echuca to enquire about any benefits he may be entitled to and was advised by a Centrelink officer that he would not be eligible for payment of any benefits due to the imposition of a preclusion period. Upon receiving this advice, Mr Lynch left the Centrelink office without formally lodging a claim for any social security benefits.

9. Section 1169(1) of the Act provides that a compensation affected payment is not payable during a lump sum preclusion period. It applies to a person who (a) receives or claims a compensation affected payment and (b) receives a lump sum compensation payment. Despite the fact that the damages paid to the applicant in settlement of his claim are "compensation" as defined in s.17(2) of the Act, the provision does not come into operation because Mr Lynch never claimed or received a "compensation affected payment". Consequently, there is no jurisdiction to review the decision to impose a preclusion period because there is no basis upon which to calculate and apply one.

10. Further to this, the SSAT determined there was no jurisdiction to review the decision to impose a preclusion period because pursuant to s.142(1) of the Social Security (Administration) Act 1999, until Mr Lynch makes a claim, he is a person whose interests in relation to a payment are unaffected by the decision to impose a preclusion period.

11. In the alternative, if Mr Lynch's enquiry at Centrelink could be regarded as a claim for a compensation affected payment, thereby invoking the operation of s.1169, the duration of the preclusion period is calculated by reference to the formula prescribed in s.1170(4). The "compensation part of a lump sum" in this instance is 50% of $300,000 ($150,000) and the relevant "income cut-out amount" (at 15 May 1998), as calculated by the formula prescribed in s.17(8), is $410. When the compensation part of the lump sum is divided by the income cut-out amount, the resultant preclusion period is correctly calculated to have effect from 27 June 1998 until 24 June 2005.

12. Section 1184K permits the Secretary to regard the whole or part of the compensation payment as not having been made, or not liable to be made if it is appropriate in the special circumstances of the case. The purpose of this provision is to introduce flexibility where the circumstances warrant it. In deciding whether to exercise this discretion, regard must be had to whether the decision will achieve or frustrate the broader scope and purpose of the Act. The preclusion provisions are a recognition by the legislature that the object of the scheme is to prevent a person having an entitlement to receive payments from two sources for the same inability to work. As noted by His Honour Von Doussa J in Secretary, Department of Social Security and Banks (1990) 20 ALD 19, it is an attempt by the legislature to balance the competing interests of members of the public who are dependent on a limited public purse, with persons who have received a compensation lump sum which is intended to represent lost future income.

13. The words "special circumstances" are not defined in the Social Security Act 1991, however in Re Beadle & Director General Social Security 1984 6 ALD 1 at p.3, the Tribunal held that:

"An expression such as "special circumstances" is by its very nature incapable of precise or exhaustive definition. The qualifying objective looks to circumstances that are unusual, uncommon or exceptional. Whether circumstances answer any of these descriptions must depend upon the context in which they occur. For it is the context which allows one to say that the circumstances in one case are markedly different from the usual run of cases. That is not to say that the circumstances must be unique but they must have a particular quality of unusualness that permits them to be described as "special" ".

14. The applicant submitted that the preclusion period is unfair and should be reassessed. He said that the Act is written in such a way as to make it impossible to meet the criteria, which requires circumstances to be "unusual", "uncommon" or "exceptional". Mr Lynch claimed that the criteria ensures nobody can succeed on the grounds of special circumstances and recited the Oxford Dictionary definition of these words, namely; "rare", "not usual" or "extraordinary" and "out of the ordinary".

15. There have been many decisions of the Tribunal since Beadle was decided where the words "special circumstances" have been considered. Factors that are commonly taken into account when determining whether special circumstances exist include financial hardship (Secretary, Department of Family & Community Services and Hall [2001] AATA 664), existing assets (Re Minos and Secretary, Department of Family & Community Services [2000] AATA 1104, Kelso and Secretary, Department of Family & Community Services [2001] AATA 41), nature of expenditure of the lump sum (Secretary, Department of Family & Community Services and Bullock [2001] AATA 1016), illness (Secretary, Department of Family & Community Services and Alman [2001] AATA 1017, Stephens and Secretary, Department of Family & Community Services [2001] AATA 108), the failure of legal representatives to advise of a preclusion period (Re Secretary, Department of Social Security and VYS (AAT, unreported, 15 December 1995)) and failure by the Department to advise of the preclusion period promptly and accurately (Re Secretary, Department of Social Security and Gardiner (AAT, unreported, 5 June 1991)).

16. When asked why his circumstances should be regarded as being "special", Mr Lynch gave evidence that he felt disadvantaged by investing the settlement funds in such a way as to generate income. He said that he and his wife battle to keep their "heads above the water". Mr Lynch indicated that a further $200 per month would improve his financial position. However, he did not consider the possibility of increasing the rent on his investment property and/or increasing the return from his investment as feasible options to increase his income.

17. Mr Lynch has attempted rehabilitation and his efforts to secure employment have been unsuccessful. He acknowledged that his employment prospects are low having regard to his age and his back injury.

18. The applicant could not recall whether or not he was advised about the imposition of a preclusion period or the likely duration of any preclusion prior to his settlement. He said it is possible he may have been advised but that "he had everything going on at the time" and he "just wanted to get out of the system".

19. Mr Lynch also felt he has been discriminated against in relation to the calculation of the preclusion period. This allegation was based on the apparent discrepancy between the duration of his preclusion period and that of a female acquaintance who had a more favourable preclusion period imposed after she received a similar compensation lump sum at about the same time as he settled his claim. I can make no findings in relation to this matter. Each case is assessed on its own merits and the circumstances particular to the individual.

20. In many cases that involve appeals against the imposition of a preclusion period after a person has received a compensation lump sum, applicants "usually have one thing in common; they will be impecunious and in straitened circumstances" (Sheppard J in Director-General of Social Services v Hales (1983) 47 ALR 281 at 321). While extreme financial hardship is not a prerequisite, it is evident the applicant in this case has substantial assets. I note that Mr Lynch purchased the investment property with a view to provide long-term income and I acknowledge his employment prospects may be low. Nevertheless, Mr Lynch has two unencumbered assets, one in the form of his home and that other an investment property, $70,000 in an investment account and a new car which he purchased from the settlement funds. From the evidence, it appears the applicant is in a more secure financial position now than he was prior to settlement.

21. In all of these circumstances, I am not satisfied Mr Lynch's circumstances are "special" within the meaning of s.1184K of the Act to permit me to disregard any part of the compensation payment for the purpose of reducing or eliminating the preclusion period.

22. I affirm the decision under review.

I certify that the 22 preceding paragraphs are a true copy of the reasons for the decision herein of Mr J. Handley, Senior Member

Signed: ..C. Irons ....................................

Secretary

Date/s of Hearing 23 January 2002

Date of Decision 11 February 2002

Counsel for the Applicant self represented

Solicitor for the Applicant

Counsel for the Respondent Mrs E. King

Solicitor for the Respondent