McMahon; Secretary to the Department of Family and Community Services [2003] AATA 3 (3 January 2003)

Last Updated: 7 January 2003

DECISION AND REASONS FOR DECISION [2003] AATA 3

ADMINISTRATIVE APPEALS TRIBUNAL Nº N2001/1833

GENERAL ADMINISTRATIVE DIVISION

Re: Secretary to the Department of

Family and Community Services

Applicant

And: Vincent Keith McMahon

Respondent

DECISION

Tribunal: P.J. Lindsay, Senior Member

Date: 3 January 2003

Place: Sydney

Decision: The decision under review is set aside. In substitution the Tribunal affirms the decision of the authorised review officer, and accordingly the preclusion period is from 25 April 2001 until 9 September 2003.

(sgd) P. J. Lindsay

Senior Member

© Commonwealth of Australia (2003)

CATCHWORDS

Social security - lump sum compensation received - applicable preclusion period - whether special circumstances exist - whether whole or part of compensation payment should be treated as not having been paid - decision set aside.

Social Security Act 1991, Part 3.14, s.1184K.

Kertland v Secretary, Department of Family Community Services (1999) 95 FCR 64

Department of Family and Community Services v Sammut [1999] FCA 1298

Haidar v Secretary, Department of Social Security (1998) 157 ALR 359

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

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

Secretary, Department of Social Security v Ellis (1997) 46 ALD 1

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

REASONS FOR DECISION

P.J. Lindsay, Senior Member

1. The Secretary to the Department of Family and Community Services has applied for a review of the decision by the Social Security Appeals Tribunal (SSAT) made on 25 October 2001. The SSAT set aside a decision of the Applicant's authorised review officer to impose a preclusion period from 25 April 2001 to 9 September 2003 in respect of disability support pension payable to the Respondent, Mr Vincent McMahon. The SSAT substituted a decision that had the effect of ending the preclusion period on 25 December 2001 and it therefore directed that $100,560, being part of a lump sum compensation payment received by Mr McMahon, be disregarded.

2. At the hearing Mr B. Slattery, a Centrelink advocate, represented the Secretary and Mr C. Colborne of counsel appeared for Mr McMahon. Mr McMahon gave evidence, as did his daughter Ms Kerry McMahon. The Tribunal had before it the documents lodged pursuant to s.37 of the Administrative Appeals Tribunal Act 1975 (T documents) and the exhibits tendered at the hearing.

ISSUE

3. The parties do not dispute that on 18 April 2001, Mr McMahon settled his workers compensation claim for a lump sum payment of $140,000 and that the preclusion period from 25 April 2001 to 9 September 2003 has been correctly calculated. The issue is whether there are special circumstances under s.1184K of the Social Security Act 1991 (the Act) that would allow the whole or part of Mr McMahon's lump sum compensation payment to be disregarded and so reduce or eliminate the preclusion period.

EVIDENCE

4. Mr McMahon is 57 years of age. He left school at age 14. He has been a forklift driver throughout his working life. He married Fay McMahon in October 1966 and they had four children: Kerry now aged 33, Wayne who is 31, and twins Kelly and Melissa who are 23. Mr and Mrs McMahon separated in February 2001. Mr McMahon's statutory declaration made on 15 April 2002 was admitted in evidence as Exhibit R1.

5. In 1988 Mr McMahon and his wife jointly purchased a house at Eschol Park, a suburb near Campbelltown. Prior to that they had lived for about fourteen years in a Housing Commission property near Campbelltown.

6. In around 1991 Mr McMahon began to suffer pain in his shoulders and neck. Bilateral tears to the rotator cuffs were diagnosed. Due to his injuries, Mr McMahon was on and off work from 1991 to 1996. In 1996 his condition necessitated his taking about 13 or 14 months off work. He started workers compensation proceedings. His employment was terminated in November 1998, about 3 or 4 months after his return to work, because he was unable to resume normal duties. He stated in his statutory declaration: "During the time of the operations and when I was on compensation, I could not meet the full amount of my mortgage payments. The amount of mortgage payments have been geared to my income including overtime payments. I was unable to meet these payments and soon fell into arrears. I was forced to give up work in 1998." (Exhibit R1). This was not the first time that he and his wife had fallen behind in their payments. Some years earlier, they had to re-finance their loan. While on workers compensation, Mr and Mrs McMahon came to an arrangement with the mortgagee, the Punchbowl Credit Union Ltd, to adjust the amount of the repayments. The mortgagee agreed to accept $230 a week, leaving very little over out of Mr McMahon's fortnightly compensation of about $495. Household expenses and other day to day costs were paid out of Mrs McMahon's wage. He continued to receive this amount of compensation until he settled his compensation claim in April 2001.

7. Mr McMahon told the Tribunal that he had had a personal loan from the finance company AGC. He used his superannuation money of about $38,000 net of tax, received after his employment ended in November 1998, to pay off the debt to AGC and loans from friends, and to buy furniture and new tiles for the bathroom, kitchen and laundry. He agreed that the statement of financial circumstances (Exhibit R3) accurately sets out his fortnightly income and expenditure. He receives $435 in disability support pension and, after paying for food, transportation, newspapers, medicines and allowing for rates and insurance, he is left with only $18. He again has a debt owing to AGC. Although not referred to in his statement of financial circumstances (Exhibit R1), Mr McMahon said he pays AGC $40 a month on a loan he took out three years ago. It is not clear from Exhibit R3 how he can afford the AGC repayment, as that document shows a surplus of about $18 a fortnight.

8. Mr McMahon said he suffers from diabetes, high blood pressure and stress attacks. He takes panadeine forte for the pain in his shoulders and neck, but has not had physiotherapy since he settled his court action, as he cannot afford the treatment.

9. Mr McMahon said his wife left their Eschol Park home in February 2001. He thought the main reason for their marital difficulties was his inability to work during the past few years. They had separated a few times previously, the longest separation being for approximately three months. His evidence at the hearing was that he simply could not say if they would resume living together. His wife remains in contact with him. She rings him up to see how he is getting on. Neither of them has taken any formal action to effect a division of their property and other financial affairs. Mr McMahon's son Wayne has lived with him in the family home since around June or July 2001. Wayne, who is separated from the mother of his three children, receives workers compensation of about $800 a fortnight. Mr McMahon said he has not asked Wayne to pay board, but Wayne contributes to the household by paying the electricity, telephone and water bills. When the Respondent runs short of money, Wayne helps him out.

10. The solicitors who acted for Mr McMahon in his compensation proceedings wrote to him (T9) on 8 May 2001 enclosing a cheque for $123,465.40, being part payment of his settlement money. Centrelink's records show that Mr McMahon telephoned Centrelink on 9 May 2001 (T10) to find out if they had sent him any correspondence about his claim. In cross-examination Mr McMahon could not remember making that call. On 11 May 2001, the day on which Mr McMahon said he received the cheque from his solicitors, he paid out the balance of the mortgage on the Eschol Park property, a sum of $100,560. The mortgagee, Punchbowl Credit Union Ltd wrote a letter dated 16 May 2001 addressed 'To whom it may concern' as follows (T15):

Re Vincent Keith McMahon and Fay Lynette McMahon

We wish to advise that your home loan against 24 Eschol Park Drive, Eschol Park was cleared on 11^th May 2001. The Credit Union are still holding the deeds on your behalf.

In answer to a question by his counsel about how he thought he would cope financially after paying out so much to the credit union, Mr McMahon said he hoped his wife would come back home.

11. Mr McMahon said that it was on the day of settling his case, 18 April 2001, that he first heard about a 'preclusion period'. His solicitor or barrister mentioned it to him, but he did not understand what the term meant. Mr McMahon wrote to Centrelink on 22 May 2001 (T16) about the disability pension as follows:

In reference to a letter received on the 9^th May, 2001, Centrelink advised me that I cannot claim any benefits, due to a lump sum compensation settlement, until the end of the preclusion period which would be not until the 9^th September, 2003. [Emphasis added]

My wife and I have since separated, and have come to a settlement in which I have paid her $20,000.00, with $10,000.00 still to be paid when my Health money comes through, also paying the final house payment, this leaves me with nothing to live on. ...

His letter referred to medical advice that he would not be able to return to work. He informed Centrelink that the monthly cost of his medication is $90 and urged Centrelink to reverse its decision to impose a preclusion period which would not expire until September 2003.

12. In cross-examination, he denied receiving Centrelink's letter of 9 May 2001 on that day, contradicting the very words of his own letter of 23 May 2001. He said he did not think to contact Centrelink to find out what his lawyer meant about a preclusion period. However, Mr McMahon also said that the lawyer had explained that he would not be able receive sickness benefit or unemployment benefit for two years after settling his case, but did not tell him that he was not entitled to a pension in that period. Mr McMahon maintains that, in deciding to pay out the mortgage, he was misled by that advice. When he was in court on the day his action was settled, he said his solicitor told him "Vince, the most we can get you is $140,000. You should pay off your mortgage and you'll be laughing." He said he chose to pay off the whole mortgage rather than say half of it, because he said the money was there, why pay off half.

13. About a week after paying off the mortgage, Mrs McMahon contacted him. She told him she would not be coming back to him and asked for $20,000. He said he paid her the $20,000 because she had supported him while he was receiving compensation. Mr McMahon said he gave her the money without expecting anything in return. Later, in June 2001 after he had received the balance of his compensation settlement, Mrs McMahon again contacted him and asked for $12,000. Mr McMahon said that he had no idea why she had asked him for the money. He paid it to her, without any obligation, on her part. Both payments to his wife were part of a "settlement" (T16) that they had reached after he received the first instalment of his lump sum compensation. Mr McMahon did not obtain legal advice prior to paying either of the two sums to his wife. In his statutory declaration (Exhibit R1) he explained these payments: "I hoped it may resolve problems between me and my wife. At this time my wife was threatening to sell the house and take part of the proceeds".

14. After his wife left in February 2001, Mr McMahon had only his compensation payment of $490 a fortnight from which to pay all his expenses and the mortgage. Following settlement of the court action in April 2001, he did not begin to receive a disability support pension until January 2002 because of the preclusion period. He had about $8,000 in the bank, which he said was partly some money left over from the settlement and partly some other money he had in a bank account. From April to December 2001 he used that money and also relied on financial assistance from his children. He had Wayne's contribution. In addition, he said that his three daughters each paid him $50 a week. In her evidence, Kerry said she did the housekeeping for her father during this period.

15. Wayne's children were living at the Eschol Park home from November 2001 to February 2002. Wayne's partner in Newcastle now has custody of the children, but they spend every weekend with their father and grandfather.

16. Every school day at 8 o'clock in the morning, Kerry drops off her daughter Riahnon at Mr McMahon's and picks her up around 5 o'clock. On weekends, Mr McMahon's twin daughters will often visit and bring their children. Mr McMahon said that, when they bought the house, he and his wife agreed they would never sell it. They agreed it would be their children's inheritance. A report by Ms. Carol Tingate, social worker, dated 7 June 2002 was admitted in evidence as Exhibit R2. Ms Tingate interviewed Mr McMahon, Wayne and Kerry. In her opinion, if Mr McMahon was forced by a change in financial circumstances to move from the family home because it had to be sold, " ... relocation elsewhere would have a negative impact on him and other individual family members and could irreparably damage the fabric of the family."

17. During the hearing, Mr Slattery informed the Tribunal that he wished to verify from banking records that the Respondent had paid the amounts of $20,000 and $12,000 to his wife. Mr McMahon had been requested immediately prior to the hearing to provide these records but could not comply due to the cost. Mr Colborne informed the Tribunal at the conclusion of the hearing, that the Respondent had no objection to the Applicant's approaching the financial institutions for access to Mr McMahon's banking records. The Tribunal gave the parties liberty to apply in relation to any matters arising from the financial statements. Subsequently, a statutory declaration made by the Respondent's wife Fay McMahon on 7 August 2002 was submitted by the Respondent. It explained entries in the Punchbowl Credit Union's records of Mr and Mrs McMahon's joint special savings account that Centrelink had obtained. The account recorded regular deposits throughout 2001 which Mrs McMahon said were direct deposits made by her employer from her wages. She declared:

2. The S10 Special Savings Account at Punchbowl Credit Union was originally opened by my husband and I to pay the utility bills for our house at Eschol Park. There were regular direct payments from my employer Kimberley Clark P.L. into this account. I would use this money to pay the bills, such as water, electricity and telephone.

3. This account continued following my separation from Vincent McMahon in February 2001.

4. My son Wayne brought me the utility bills. I paid the bills at the Post Office or I sent them directly to the Credit Union for payment. Wayne would give me the cash to cover the appropriate amount.

5. I did this as I knew that Wayne was responsible for the payment of the bills. Sometimes he hid not have the money to pay the bills as they fell due. I did this to help Wayne.

6. The system of payment of bills ended in December 2001. I then decided that I would no longer be responsible for any payment. Wayne is now fully responsible for paying all the bills. ...

It was submitted that Mr McMahon was unaware of this arrangement until production of the credit union's financial records. To the contrary Mr Slattery submitted that, although the arrangement may have been between Mrs McMahon and her son, nonetheless the deposits were made into an account in the Respondent's name not Wayne's. Funds in that account were used to pay utility and phone bills, and direct debits were made to pay for Foxtel cable TV. He also submitted that the level of support by Mrs McMahon, which was $80 a week from January to July 2001 and $100 a week from July to December 2001 militates against a finding of special circumstances.

18. The Eschol Park home has three bedrooms and a swimming pool. An estate agent estimates the property's market value on 14 March 2002 to be $210,000 (Exhibit R1). Mr McMahon thought that if the property had to be sold, he would receive about $90,000 - $100,000. He stated "If I am forced to sell my house, I would have to look for rental accommodation in the same area. I would be forced to rent a house. Preferably, I want it to be three bedrooms for my children and grandchildren. Because of my grandchildren I would not be able to live in a flat" (Exhibit R1).

CONSIDERATION AND FINDINGS

19. Mr Slattery submitted that the prompt and deliberate manner in which Mr McMahon spent his compensation settlement does not warrant a finding of special circumstances. Mr McMahon quickly spent his compensation in discharging the mortgage and then asked Centrelink for assistance. In his submission, Mr McMahon wished to protect his compensation payment by presenting Centrelink with a fait accompli. Mr Slattery emphasised that there are no dependent children living with the Respondent at the Eschol Park home and Kerry's dropping off her daughter at the property each day is a matter of convenience only. He noted that Mr McMahon had not approached charities for assistance and submitted that Mr McMahon had been supported by his family until December 2001 and could also earn an income from taking in a boarder.

20. For the Respondent, Mr Colborne submitted that Mr McMahon has not acted wastefully or unreasonably in paying out the mortgage because he aimed to secure accommodation in the future for himself and his family. Mr Colborne accepted that the payment of $32,000 to Mrs McMahon should not be disregarded in the exercise of the discretion. If the property at Eschol Park were sold, Mr Colborne submitted that the Respondent would be in greater financial hardship than he is at present since he would have to pay a minimum $200.00 per week to rent a three bedroom house in the Campbelltown area. The Respondent's children and grandchildren would suffer financially and emotionally if the home had to be sold.

21. Mr Colborne noted that the term special circumstances in s.1184K of the Act should be interpreted widely to allow decision-makers to consider the particular circumstances of each case (Kertland v Secretary, Department of Family Community Services (1999) 95 FCR 64). If the Tribunal finds special circumstances, it must then consider whether to exercise its discretion (Secretary, Department of Family and Community Services v Sammut [1999] FCA 1298). It was submitted that the special circumstances are the emotional and financial hardship Mr McMahon and his family would suffer if he had to sell the family home, his only asset, which would result in his having to move from the Campbelltown area where he has close family ties and most of his social contacts. He would then have lost his job, his wife and his house.

22. The relevant legislation is found in the Act at Part 3.14: Compensation Recovery. Sub-division B of the Part contains provisions dealing with recovery from the recipient of a compensation affected payment. Merkel J in Kertland's case described the object of Part 3.14 as follows (at 65):

The Social Security Act 1991 (Cth) (the Act) provides for the Secretary, Department of Family and Community Services (the secretary), to reduce and, where appropriate, recover certain social security benefits payable under the Act to a person who receives personal injury compensation which includes payment for loss of earnings or earning capacity. The statutory scheme is designed to prevent a person from being entitled to receive social security benefits in respect of a period during which the person receives, or is entitled to receive, personal injury compensation for loss of earnings or earning capacity. The relevant provisions operate to prevent "double payment" by depriving a person of an entitlement to social security benefits payable under the Act during the relevant period (the preclusion period).

Both parties agree that the potential application of s.1184K of the Act is the main issue to be resolved in this matter. It provides:

1184K(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.

The provision ameliorates any unfairness or harshness that could result from a strict application of Part 3.14: Haidar v Secretary, Department of Social Security (1998) 157 ALR 359, 367, Hill J.

23. The Tribunal must determine, therefore, whether there are special circumstances applicable in this case. The following passage from a decision of the Tribunal comprising Toohey J, Mr I.A Wilkins and Dr J.G Billings (members) has been cited with approval in many subsequent cases:

An expression such as "special circumstances" is by its very nature incapable of precise or exhaustive definition. The qualifying adjective 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. This is not to say that the circumstances must be unique but that they must have a particular quality of unusualness that permits them to be described as special. (Re Beadle and Director-General of Social Security (1984) 6 ALD 1 at 3).

More recently, Kiefel J in Groth v Secretary, Department of Social Security (1995) 40 ALD 541 (at 545) has said of the expression special circumstances that:

... it would require something to distinguish [an applicant'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.

24. In coming to its decision in this matter, the Tribunal has taken into account the oral and written evidence, the material furnished by both parties subsequent to the hearing, and the submissions regarding the application of the Act as interpreted by the courts.

25. The Tribunal was not impressed with Mr McMahon as a witness. It is difficult to accept his evidence that Mrs McMahon made no financial contribution to the household after she left in February 2001 since the credit union records show she made weekly payments into their joint account of $80 and later $100 from January until December 2001. Their joint account was used for payment of telephone, power and water bills, as well as cable TV, in periods both before and after Wayne moved in, and the account was used for home banking transactions. His statement of financial circumstances (Exhibit R3) was incomplete and misleading because it did not refer to expenditure on the AGC loan or cable TV, and implied there was very little money available for clothes, home repairs or physiotherapy.

26. The Tribunal makes the following findings:

* Mr McMahon was aware, through his lawyer, at the time of settling his workers compensation matter that he would not be entitled to some social security benefits for two years thereafter. Centrelink wrote to him to explain how the preclusion period operates and is worked out, and the Tribunal finds that, as he stated in his letter of 22 May 2001, Mr McMahon received Centrelink's letter on 9 May 2001 advising of the imposition of a preclusion period. The Tribunal finds that Mr McMahon paid out the mortgage on 11 May 2001 knowing that he would be subject to a period of more than two years during which he would not be entitled to social security support.

* Mrs McMahon left the family home in February 2001 but continued to contribute to the household's budget until December 2001. She did so by way of regular pay-roll deposits into a joint account with the Respondent. The deposits were made at a time, the period prior to June 2001, when Wayne was not living with the Respondent. From February 2001 and until January 2002, Mr McMahon received $50 a week from his daughters in financial assistance. Wayne also contributes to the household's weekly budget.

* Mr McMahon has no dependants.

* From February 2001 until the mortgage was paid out in May 2001, the Respondent managed to pay $230 a week to the credit union from his compensation of $495 a fortnight.

* Mr McMahon is regularly visited by his children and grandchildren. He sees his grandaughter Rhiannon each school day under an arrangement which is no doubt beneficial to the Respondent and to the child, but also as a matter of convenience for his daughter Kerry.

27. The Tribunal is mindful of Mr Colborne's submission about Mr McMahon's limited educational background and potential difficulty in understanding his lawyer's advice about there being a period of ineligibility for certain social security benefits. Whether or not the advice was inadequate, bearing in mind the additional advice to use the settlement money to pay off the mortgage, the Tribunal notes that it is open to him to pursue legal remedies. At any rate the Tribunal is not persuaded on the evidence in this matter and the finding that he had received Centrelink's written advice about the preclusion period on 9 May 2001, that the nature of the legal advice constitutes special circumstances within the meaning of that term in s.1184K.

28. The Applicant did not dispute that Mr McMahon is unlikely to return to paid employment. His medical conditions and resultant incapacity, however, do not in themselves differentiate him from others similarly afflicted and who must rely on social security support. The Tribunal is satisfied that his ill health, pain and incapacity for work, are not circumstances that can be considered unusual or harsh.

29. There was no evidence that the mortgagee was taking action to enforce its security. The Tribunal finds that Mr McMahon's action in paying out the mortgage in full was reckless. Having regard both to that action, and to the manner in which he disbursed all his superannuation lump sum in paying debts owed to AGC and friends but also to buy new furniture, without saving any part of it, suggests to the Tribunal that Mr McMahon is unable and unwilling to conserve his financial resources.

30. Mr McMahon's failing marriage and its financial consequences are matters that have a direct bearing on his financial circumstances. Whether the Respondent and his wife will reconcile and co-habit, or formalise their separation and divide the matrimonial property, are matters of conjecture. However, had Mr McMahon not paid out the mortgage, he and his wife would have remained jointly liable for the repayments. Mr McMahon told the Tribunal that he supposed his wife would have made the mortgage repayments if she had to. But even if she had refused to pay her share, he would have been able to make the repayments out of the income earnt from investing the settlement sum and resorting in part to the capital. By the end of the preclusion period in September 2003, although the settlement would be depleted, a substantial part would remain. There would be a larger surplus if Wayne contributed his share of the household's food bill. Having to employ the settlement amount to meet day to day living expenses during the preclusion period should not be regarded as unintended or something to be avoided if at all possible.

31. Mr McMahon chose, instead, to pay out the mortgage because he was worried about his security of ownership. He now co-owns an unencumbered asset worth $210,000, which the Tribunal observes must be a very conservative estimate for a three bedroom house with a pool in metropolitan Sydney. There can be instances where a claimant's "quite desperate" financial circumstances are so out of the ordinary as to amount to special circumstances, see for example Secretary, Department of Social Security v Ellis (1997) 46 ALD 1 at 5. If a preclusion period were imposed, Mr McMahon's financial circumstances would be assisted by any additional contribution that Wayne would make to the household budget, receiving financial assistance from his daughters as occurred during 2001, income from a boarder and a reduction in his discretionary expenses. The Tribunal does not accept that Mr McMahon would have to rent a three bedroom house if the Eschol Park property had to be sold. He is a single man without dependants. There is nothing in the facts of the current case that are so unusual that set Mr McMahon apart from other pension claimants " ... who will usually have one thing in common; they will be impecunious and in straitened circumstances": Director-General of Social Services v Hales (1983) 47 ALR 281 at 321, Sheppard J.

32. The Tribunal is not satisfied that setting aside the SSAT's decision and re-instating the preclusion period as determined by Centrelink's authorised review officer would inevitably lead to sale of the sale of the family property. Assuming, however, that the property would have to be sold, the Tribunal is mindful of Kerry's evidence that she sees her mother about three times a week. There is the ready opportunity, it would seem, for the children and grandchildren to visit their grandmother on a regular basis. Whether they would see their grandfather as regularly as they have in the past would depend on the location of his new accommodation. A forced sale, for whatever reason, would not warrant in the circumstances of this matter a finding of special circumstances.

decision

33. The Tribunal therefore sets aside the decision under review and affirms the decision of the authorised review officer, and accordingly the preclusion period is from 25 April 2001 until 9 September 2003.

I certify that the preceding 33 paragraphs are a true copy of the decision and reasons for decision herein of P.J. Lindsay, Senior Member:

Signed:

............................................................................

(Associate)

Date of Hearing 19 June 2002

Date of Decision 3 January 2003

Applicant's Representative Centrelink

Counsel for Respondent C. Colborne