Walker and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs [2010] AATA 609 (17 August 2010)

Last Updated: 3 September 2010

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2010] AATA 609

ADMINISTRATIVE APPEALS TRIBUNAL )

) 2009/1706

GENERAL ADMINISTRATIVE DIVISION		)
			John Walker

Applicant

And

Secretary, Department of Families, Housing Community Services and Indigenous Affairs

Respondent

DECISION

Tribunal

Senior Member A K Britton

Date 17 August 2010

Place Sydney

Decision

The decision under review is set aside, and a decision substituted that so much of the compensation payment received by Mr Walker be treated as not having been made, so as to entitle him to be paid the age pension from 26 March 2011.

......................[SGD]...............
Senior Member

CATCHWORDS

SOCIAL SECURITY – Disability Support Pension – lump sum compensation payment preclusion period – special circumstances favouring shortening of that period.

Social Security Act 1991 — ss 17, 1169, 1170, 1184K

Drake v Minister for Immigration and Ethnic Affairs (1979) 2 ALD 60

Secretary to the Department of Family & Community Services v Allan [2001] FCA 1160

Secretary Department of Social Security v Hodgson (1992) 37 FCR 32

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

Boscolo v Secretary, Department of Social Security (1999) 90 FCR 531

Fischer v Secretary, Department of Families, Housing, Community Services & Indigenous Affairs [2010] FCA 441.

Beadle v Director-General of Social Security [1984] AATA 176

Adams and Secretary, Department of Education Employment and Workplace Relations [2007] AATA 2114

Moran and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs [2008] AATA 951

REASONS FOR DECISION

17 August 2010

Senior Member A K Britton

1. In 2005 Mr John Walker was seriously injured at work and is now permanently incapacitated. After the injury he received weekly workers compensation payments until November 2007, and then the age pension. He also received lump sum payments in settlement of claims bought against his former employer and a third party, totalling $153,000(net). On 25 September 2008 Centrelink notified Mr Walker that because of these payments, his age pension would be cancelled on 19 September 2008; he was required to repay the amount he had received in age pension ($12,128.42); and, furthermore, that he was ineligible to receive the pension until 7 May 2011. Mr Walker seeks review of that decision which was affirmed on review by the Social Security Appeals Tribunal.
2. By the operation of s 1169 of the Social Security Act 1991 (Cth) (“the Act”), if a person is in receipt of the age pension — a "compensation-affected payment" — and receives a “lump sum compensation payment”, the age pension is not payable to the person throughout the "preclusion period". The "preclusion period" is calculated by applying the statutory formula set out in ss 17 and 1170 of the Act. It is not in issue that the preclusion period — 25 November 2007 to 7 May 2011 — was correctly calculated. Having reviewed the calculations made by the SSAT, I am satisfied that the statutory formula was correctly applied.
3. The key issue to be decided in this review is whether “special circumstances” exist and, if so, whether the discretionary power conferred by s 1184K of the Act to treat some or all of Mr Walker’s compensation payments as not having been made, should be exercised. The effect of a decision to exercise that discretionary power would be to reduce the length of the preclusion period.
4. Mr Walker was represented in these proceedings by his daughter, Ms de Percy. She contended that special circumstances exist, and that the discretionary power to treat some or all of the lump sum compensation paid to her father as not having been made should therefore be exercised in his favour. The respondent Secretary disagrees.

BACKGROUND

5. Before considering the arguments put for the parties, it is useful to outline Mr Walker’s circumstances since the date of injury.
6. At the time of injury, Mr Walker was receiving a net income of around $1400 per fortnight. On his account, he had no savings, assets or debts at this point.
7. Prior to the cancellation of the age pension Mr Walker had received lump sum compensation totalling $375,000 (gross) made up as follows:

$128,000 (net) received in September 2008
$25,000 (net) received in February 2007

8. According to Mr Walker after receiving those settlements he spent a total of about $36,000 on the following “extraordinary expenditure”:

$5,000 Trip to Scotland for his mother
$4,000 Purchase of a car
$2,400 Gift to daughter
$25,000 Gift to landlady
$36,400 TOTAL

9. He said he gave his landlady $25,000 as she had provided him with support in the past and was a very good person.
10. In these proceedings, he estimated his regular fortnightly commitments to be:

Board	$260
Medicals	$20
Car	$40
Phone	$15
Electricity	$25
Total	$360

11. In addition, Mr Walker testified that he spends about $400 per fortnight on cigarettes and alcohol, and an indeterminate amount on gambling.
12. As at the date of hearing, Mr Walker had $40 cash in hand and $10,000 in a term deposit which was due to mature in about three weeks. When questioned, he said he did not know how he would support himself in the period before that money became available.
13. When Mr Walker’s application for review came before the SSAT in March 2009, he had approximately $75,000 in savings and no other assets. Eighteen months later, when his application for review came before the AAT, that sum had reduced to just over $10,000. This means he has spent on average about $835 per week since March 2009.

SECTION  1184K OF THE ACT

14. Section 1184K(1) of the Act provides that a decision-maker may treat the whole or part of a compensation payment as “not having been made” if they think it is appropriate to do so in the special circumstances of the case.
15. The term “special circumstances” has been the subject of exhaustive consideration by the AAT and the Federal Court. The Federal Court has declined to adopt a prescriptive formula about the meaning of the term. (See for example Beadle v Director-General of Social Security [1984] AATA 176; French J in Boscolo v Secretary, Department of Social Security (1999) 90 FCR 531 at 535). Nonetheless, the Court has emphasised that the term denotes a requirement that there be “something which distinguishes [the claimant’s] case from others, to take it out of the usual or ordinary case”: per Kiefel J in Groth v Secretary, Department of Social Security (1995) 40 ALD 541 at 545. This, however, is not to be interpreted as a requirement that the claimant’s circumstances be “extremely unusual, uncommon or exceptional”: per Hill J in Secretary Department of Social Security v Hodgson (1992) 37 FCR 32 at 42. There is no requirement that the circumstances be unique to the individual — circumstances might be special though they apply to more than one person or to a class of persons, provided they are not of universal application: per Katzmann J in Fischer v Secretary, Department of Families, Housing, Community Services & Indigenous Affairs [2010] FCA 441.
16. In Secretary to the Department of Family & Community Services v Allan [2001] FCA 1160 Heerey J observed at [1] that the “basic policy” underlying those provisions which suspend social security benefits due to the receipt of compensation for loss of earnings is to avoid "double dipping" — that is, “people should not receive social security payments for loss of earnings where they have received compensation for that same loss of earnings from another source”.
17. The Guide to Social Security Law (the Guide) provides direction to decision makers on the application of the “special circumstances” discretion (see s 4.13.4.20). The Tribunal is not bound to apply the policy expressed in the Guide, but may do so and, indeed, will usually do so unless there are cogent reasons in a particular case for not doing so. (see Drake v Minister for Immigration and Ethnic Affairs (1979) 2 ALD 60)

DO SPECIAL CIRCUMSTANCES EXIST?

18. Ms de Percy contends that the following factors, separately and in combination, constitute “special circumstances”:

First, the relatively small proportion of the lump sum settlement, actually received by Mr Walker
Second, Mr Walker’s permanent inability to work and significant impairment
Third, Mr Walker’s lack of understanding of the operation of, and rationale for, the preclusion period
Fourth, Mr Walker’s financial circumstances.

19. Small proportion of the lump sum settlement actually received: The following costs and disbursement were deducted from Mr Walker’s settlement of $350,000:

Centrelink Payment $12,128.42
Workers Compensation Payback $115,455.43
Senior Counsel’s Fees $23,375.00
Counsel’s Fees $5,476.90
Solicitors Fees $64,342.69
Solicitors – Reimbursement of advance $1,140.00

20. Ms de Percy points out that if the preclusion period had been calculated by applying the 50% divisor to the amount of compensation her father actually received, and not the gross figure as required by s 17(3) — he would have been eligible to receive the age pension in July 2008 not May 2011. This, she contended, would have been a fairer outcome given what she describes as the excessive amounts deducted from the settlement monies[1], which resulted in her father receiving only 40% of the total compensation payment.
21. Ms de Percy cites Moran and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs [2008] AATA 951 and Adams and Secretary, Department of Education Employment and Workplace Relations [2007] AATA 2114 as authority for the proposition that receiving a net compensation payment equivalent to less than half the gross amount constitutes a “‘special circumstance”. In Moran the applicant received less than half of the gross settlement amount. Centrelink considered this to be an unusual circumstance, warranting the application of the discretion pursuant to s 1184K(1). While the Tribunal implicitly endorsed that approach, it found that special circumstances existed for other reasons.
22. In Adams, Deputy President Hack commented that legal costs of $32,564.77 when the gross settlement was $126,790.51 in proceedings that had not been commenced, seemed “unusually high”. In combination with other factors, he determined that the level of legal costs constituted “special circumstances”.
23. Mr Walker’s inability to work again and significant impairment: Ms de Percy contends that her father expected that he would continue to work past retirement age to support himself. She points out that because of his injuries he is now significantly impaired, and unable to undertake various activities such as golf which he previously enjoyed. She also points out that that he is socially isolated, has no close friends and almost no contact with members of his family. She argues that his drinking and gambling habits must be seen in the context of a once usefully employed person who now lives a marginalised and isolated existence.
24. Mr Walker’s lack of understanding of the operation of, and rationale for, the preclusion period: According to Mr Walker, his solicitor told him that he would be subject to a preclusion period of about two years. He contends that had he known that the preclusion period would in fact run for just under five years he would have held out for a higher settlement figure. Ms de Percy contends that her father lacks any understanding of the preclusion period and the reason it has been applied to him.
25. Mr Walker’s current financial circumstances: Ms de Percy contends that once her father’s remaining $10,000 — his sole asset — is exhausted, he will be effectively destitute. She points out that he currently boards in a house owned by an elderly and frail woman and that his tenure is entirely dependent on her health and ability to live independently.
26. Conclusion I am satisfied that “special circumstances” exist in this case because of Mr Walker’s current financial circumstances. The amount available to him to live on for the remainder of the preclusion period, $248 per week, is lower than the current rate of age pension. He has no asset buffer to assist him in meeting any expenses outside his regular costs of living. Nor can he turn to family or friends for assistance.
27. There can be no argument that Mr Walker’s perilous financial position is the direct result of his own financial mismanagement. While his regular living expenses are extremely modest, his expenditure on alcohol, cigarettes and gambling can only be described as profligate. It is apparent that were it not for that expenditure, he would not now be left with only $10,000 to live off for the balance of the preclusion period.
28. While Mr Walker’s poor financial position is self–inflicted, it must nonetheless be seen in context. At the time of injury, he had been receiving a regular (albeit modest) weekly wage and was living within his means. He had no debts. He has limited education; is plainly financial illiterate; and has no experience in dealing with large sums of money. Together with his social isolation and what can only be described as serious drinking and gambling problems, contributed to Mr Walker almost exhausting his lump sum compensation payments. Since the SSAT proceedings, he has made some efforts to budget by investing some money in term deposits. These steps have, however, proved to be inadequate, and he now has only $10,000 to last until the age pension is reinstated in eight months time.
29. In reaching my decision that special circumstances exist, I have had regard to the Guide to Social Security Law which provides guidance on the factors to consider when determining whether special circumstances exist in an individual case (see s 4.13.4.20). The Guide instructs the decision-maker to ask, among other things, whether the “the person deliberately deprived themselves of their means of support or recklessly or inappropriately spent their lump sum”.
30. Under the heading “general principles“ the Guide states:

Generally, where people choose to wantonly/irresponsibly spend all of their compensation proceeds and do not set aside sufficient funds to meet their living costs during the preclusion period, decision makers should NOT find special circumstances exist unless there are truly compelling reasons to do so.

31. Other relevant factors listed by the Guide are whether the person: sought financial advice; own realisable asset/s that could be used to solve their current financial dilemma; is likely to face financial hardship in the near future; and/or has available any other avenues of support, e.g. family/friends until the preclusion period expires.
32. I accept that as a general rule, a cautious approach should be taken to making a finding that special circumstances exist where a person’s straightened financial circumstances are the result of their own irresponsible actions. I also accept, as argued for the respondent, that there is no medical evidence to support a finding that Mr Walker suffers from a cognitive impairment which impedes his decision making capacity, or that his drinking and gambling problems are psychiatric in nature.
33. Nonetheless, in my opinion, this is not a case of a person who has deliberately and consciously expended his settlement monies with the expectation that they will be able to turn to the tax payer for support. Mr Walker presented as genuinely being at a loss to explain how he had managed to spend a relatively large sum of money given his modest living costs. It was apparent from his testimony that until he did not fully appreciate the amount he had been spending on alcohol, smoking and gambling. His testimony also revealed that he had limited understanding of his current financial position. For example he could not: recall the amount of money available to him at the time of the SSAT proceedings; provide an estimate of his expenditure since that time or the amount he had to live on for the balance of the preclusion period. These factors have led me to conclude that Mr Walker is a person who is genuinely financially illiterate.
34. In the interest of completeness, I will briefly address the other factors relied on by Mr Walker in support of his “special circumstances” argument.
35. The argument put by Ms de Percy regarding the application of the 50% divisor to the gross (not net) settlement figure — central to the statutory formula used to calculate the preclusion period — is in truth an argument about the fairness of the legislative provisions governing the payment of social security benefits to persons who have received “compensation” as defined by the Act. Whether the offending provisions are fair or otherwise, is a matter for Parliament, and not relevant to deciding whether special circumstances exist.
36. I do not accept that the amount of legal fees paid by Mr Walker which on the face appear excessive, constitutes special circumstances. Throughout the preclusion period, Mr Walker had available to him an amount of $715 per week. While this amount was less than the “income cut off figure” of $759, in my view, this does not of itself constitute special circumstances.
37. Nor do I accept that the allegedly incorrect advice provided by Mr Walker’s lawyers about the length of the preclusion period constitutes special circumstances. The contention that he would have “held out” had he been given correct advice rests on the factual assumption that had he done so he would received a higher settlement figure. There is simply no evidence that the settlement amount was at the low end of the range. But in any event, in my view, the amount available to Mr Walker from his settlement monies to live off throughout the preclusion period was not of such a level of itself to give rise to special circumstances.
38. While most unfortunate that Mr Walker is incapacitated for employment and now significantly restricted in his activities of daily living, in my opinion this does not constitute special circumstances. Self evidently, the preclusion period only applies to a person who suffers from, or has suffered from, some level of incapacity for employment because the relevant provisions of the Act are only triggered where a component of the lump sum compensation received is for past or future lost earnings.

SHOULD SOME OR ALL OF THE COMPENSATION PAYMENT BE TREATED AS NOT HAVING BEEN MADE?

39. Having found that special circumstances exist, it is necessary to decide whether all or part of Mr Walker’s compensation payment should be treated as not having been paid.
40. I have decided that it is appropriate in the circumstances of this case to treat a small part of the compensation payment received by Mr Walker as not having been made — namely, so much of it so as to entitle him to be paid the age pension from 26 March 2011. The effect of this decision is to provide Mr Walker with about the equivalent of the relevant age pension rate per week for the balance of the revised preclusion period. It has been calculated by dividing the amount held in the term deposit due to mature on 19 August 2010 (see Respondent’s Statement of Facts and Contentions, Attachment A) by the current age pension rate for a single person — $10,090 ÷ $322.10 = 31.32 weeks.
41. I have decided not to further reduce the preclusion period as urged by Mr Walker. In my view, it would be inappropriate to do so because his present financial situation is at least partly self-inflicted, and the revised preclusion period provides him with a reasonable (albeit modest) income.
42. For these reasons I have decided to set aside the decision under review and substitute a decision that so much of the compensation payment received by Mr Walker be treated as not having been made, so as to entitle him to be paid the age pension from 26 March 2011.
    

I certify that the 42 preceding paragraphs are a true copy of the reasons for the decision herein of Senior Member A K Britton.

Signed: .................................[SGD].......................................

Associate to Senior Member Britton

Date of Hearing: 28 July 2010

Date of Decision: 17 August 2010

The applicant was represented by his daughter, Ms L de Percy.

Solicitor for the Respondent: Centrelink Advocacy Branch

---

[1] In addition to those costs, Mr Walker’s lawyers received costs in the proceedings in the NSW Workers Compensation Commission. These were not paid by Mr Walker but by his former employer’s insurer.