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Topp and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs [2010] AATA 99 (11 February 2010)

Last Updated: 11 February 2010

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2010] AATA 99

ADMINISTRATIVE APPEALS TRIBUNAL )

) No: 2009/1352

GENERAL DIVISION )

Re Sven Topp

Applicant

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

Respondent

DECISION

Tribunal Mr P W Taylor SC, Senior Member

Date 11 February 2010

Place Sydney

Decision The decision under review is set aside. In substitution for the decision under review, the Tribunal determines that it is appropriate in the special circumstances to treat the whole of the 10 June 2008 compensation payment of $500,000 as not having been made.


................[sgd]..................

Mr P W Taylor SC

Senior Member

CATCHWORDS

SOCIAL SECURITY – Disability Support Pension – permanent blindness – compensation for loss of earning or loss of capacity to earn – “compensation affected payment” – “lump sum preclusion period” - “compensation part of a lump sum compensation payment” – s 17(3) 50 per cent rule – s 1184K, “special circumstances” discretion – meaning of “special circumstances” - whether statutory purpose is to restrict the scope of discretion under s 1184K.


RELEVANT ACTS

Judiciary Act 1903 (Cth) – s 55ZF

Social Security Act 1991 (Cth) – s 17, s 95, s 117, s 1065, s 1160, s 1161, and ss 1168 – 1181, s 1184, s 1184A, s 1184F, s 1184J, s 1184K, s 1223, s 1235-1237, s 1237AAD


CITATIONS

Arthur Robinson (Grafton) Pty Ltd v Carter [1968] HCA 9; (1968) 122 CLR 649

Beadle v Director General of Social Security [1984] AATA 176; (1985) 7 ALD 670

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

Boscolo v Secretary, Department of Social Security [1999] FCA 106; (1999) 53 ALD 277

Chamberlain v Secretary, Department of Family and Community Services [2002] AATA 487

Clark v Secretary, Department of Employment and Workplace Relations (2007) 131 ALD 129

Dezso and Secretary, Department of Social Security [1993] AATA 494

Graham v Baker [1961] HCA 48; (1961) 106 CLR 340

Groth v Secretary, Department of Social Security [1995] FCA 1708; (1995) 40 ALD 541.

Hanrahan and Secretary, Department of Family and Community Services [2002] AATA 1128

Kertland v Department of Family and Community Services [1999] FCA 1596; (1999) 57 ALD 600; 95 FCR 64

Re Ivovic and Director-General of Social Services [1981] AATA 57; (1981) 3 ALN N95

Jeffrey and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs [2009] AATA 471

Lazarus v Secretary, Department of Family and Community Services [2003] AATA 120

Lee v Secretary, Department of Education, Employment and Workplace Relations [2009] AATA 372

McNay and Secretary, Department of Family and Community Services [2004] AATA 1317

Medlin v State Government Insurance Commission [1995] HCA 5; (1995) 182 CLR 1

Morgan and Department of Family and Community Services [1999] AATA 168; [1999] 56 ALD 579

Re Nadjovska and Secretary, Department of Social Security (1998) 54 ALD 184

O'Brien v McKean [1968] HCA 58; (1968) 118 CLR 540

Parezanovic and Department of Social Security [1993] AATA 174

Philpott v Secretary, Department of Social Security [1998] AATA 150

Robinson v Secretary, Department of Family and Community Services [2002] AATA 1011

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

Secretary, Department of Social Security v a'Beckett [1990] FCA 332; (1990) 21 ALD 79

Secretary, Department of Family and Community Services v Chamberlain [2002] FCA 67; (2002) 116 FCR 348; 68 ALD 357

Re Secretary, Department of Family and Community Services and Cioccia [2002] AATA 759; (2002) 69 ALD 404

Secretary, Department of Family and Community Services v Edwards [2000] FCA 1645; (2000) 65 ALD 200

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

Secretary, Department of Social Security and John Hill (1995) 39 ALD 667

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

Secretary, Department of Social Security v David A Smith (1991) 30 FCR 56; 23 ALD 277

Stern and Department of Family and Community Services [1999] AATA 54

Torda and Secretary, Department of Family and Community Services [2004] AATA 338; (2004) 81 ALD 509

Re Welch and Secretary, Department of Family and Community Services [2003] AATA 905; (2003) 78 ALD 550


REASONS FOR DECISION

February 2010
Mr P W Taylor SC, Senior Member

THE DECISION UNDER REVIEW


  1. Mr Topp contracted meningitis as a young boy. From about 1991 onwards it caused progressive deterioration of his sight and hearing. By 1994 he had lost his hearing and all his sight, other than 5% peripheral vision in his right eye. In March 1994, because of his permanent blindness, the Secretary granted Mr Topp a Disability Support Pension. He was then 16 years of age.
  2. In September 2003 Mr Topp suffered back, neck and shoulder injuries as a result of a rear end accident to a car in which he was a passenger. He settled his damages claim for those injuries on 10 June 2008. The settlement amount was $500,000 and included his legal costs. Three days later the Secretary cancelled Mr Topp's DSP payments and imposed a social security benefit preclusion period. The preclusion period was from the date of the accident in 2003 until 6 January 2010 (a period of over six years). The Secretary also claimed repayment of $74,547 for DSP payments made to Mr Topp after the September 2003 accident.
  3. The Secretary's decision was upheld on internal review. The Social Security Appeals Tribunal decision of 24 February 2009 affirmed the original decision. Mr Topp now pursues his objection in these review proceedings.

Common understandings


  1. The Secretary contends, and Mr Topp does not dispute, that under the Social Security Act 1991 (‘the Act’):

Mr Topp's contentions

  1. Mr Topp contends his case has special circumstances and that the Secretary should exercise the discretion under s 1184K(1) in his favour. The substance of his contentions is as follows:

The Secretary's contentions


  1. The Secretary contentions can be summarised as follows.


The relevant statutory terms


  1. The relevant statutory provisions provide the essential context for evaluating the parties contentions. Those provisions are numerous and complex. I have included the most relevant statutory provisions in the Schedule to these Reasons for Decision. I will refer to them as the need arises. For the sake of convenience and readability, I will sometimes paraphrase the substance of the provision, rather than set it out verbatim. I will, in particular, frequently use the expression “work incapacity” as a shorthand substitution for “lost earnings or lost capacity to earn” and variants of those terms that are used in the provisions of the Act.

Background to Mr Topp’s settlement payment


  1. Mr Topp’s permanent blindness preceded his September 2003 car accident injuries. It established his original DSP entitlement, and maintained it until 13 June 2008. In addition to his permanent blindness, he has other significant disabilities. His aural comprehension is practically nil and he is unsuited to receive a cochlear implant. Deprived of both sight and hearing, and unable to read Braille, his verbal comprehension relies on interpreted tactile finger spelling. Fortunately his oral expression is functional, but it is dysarthric.
  2. Despite his profound disabilities, Mr Topp considers he has prospects of future employment. For some years he has been pursuing a Computer Science Degree. He started that course in 1997 at the University of Western Australia, but interrupted it after 1998 for various reasons, including his obvious learning difficulties. Between 1999 and 2001 he partially completed courses in web design and massage therapy. In February 2003, he returned to his Computer Science Degree course, but at the University of New South Wales. His rate of progress is slow, commensurate with the difficulties imposed by his pre-accident disabilities, and his substantial reliance on tactile interpreters. At the time of the settlement payment he had many subjects to complete before he could obtain his degree.
  3. The evidence shows a considerable disagreement between the respective parties expert medical witnesses in Mr Topp’s compensation proceedings. Dr Davis, the occupational medical consultant retained by Mr Topp, assessed Mr Topp’s whole person impairment at 18% - comprising 11% left shoulder impairment, 5% cervical and thoracic spine impairment and 2% right shoulder impairment. Dr Davis considered the injuries would cause difficulties both in using a computer keyboard and in the posture Mr Topp would have to adopt in order to read the screen.
  4. Dr Davis did not opine about the extent to which the accident related injuries had delayed Mr Topp’s course completion. Instead, the overall implication of Dr Davis’ report was that Mr Topp’s injuries made uncertain both when Mr Topp might complete his studies and whether he would do so at all. Even if Mr Topp completed his course, and secured employment, Dr Davis considered he would still be restricted by difficulties with posture, travelling, lifting hardware and working in confined spaces. Dr Davis considered Mr Topp’s work capacity would be restricted to a maximum of 30 hours per week.
  5. Dr Harvey-Sutton was a consultant occupational physician retained by the defendant in the damages proceedings. Dr Harvey-Sutton doubted Mr Topp had any significant ongoing spinal impairment. She also considered his shoulder difficulties were amenable to appropriate physiotherapy and that he would regain a full range of movement. Dr Harvey-Sutton was of the view that Mr Topp had no continuing incapacity attributable to the 2003 accident.
  6. Dr Harvey-Sutton recounted Mr Topp’s complaints that his shoulder injuries impeded his course study. But she also noted that Mr Topp had determined on his current (2 subjects per semester) workload before the September 2003 accident. He had continued with his studies at that rate after the accident. Seeing that Mr Topp still had 12 subjects to complete, at his intended rate of progress his earliest scheduled completion date was 2010. But Dr Harvey Sutton noted the substantial delays that Mr Topp had already encountered between 1997 and the time of her assessment in March 2008.
  7. This summary, of both the contentious medical opinions and Mr Topp’s pre-accident circumstances, indicates the scope for considerable uncertainty about the true extent of any compensable work incapacity attributable to the September 2003 accident. On Dr Davis’s view, the accident injuries severely jeopardised Mr Topp’s prospects in relation to his intended, and his only realistically achievable, future employment. On Dr Harvey-Sutton’s view, Mr Topp’s relevant work incapacity was substantially unimpaired.
  8. There is no evidence, other than by inference from Dr Davis’ reports, of what Mr Topp claimed in the damages proceedings in relation to either his work incapacity or the other components of his claim. Neither is there any evidence how the settlement amount was actually determined. The substance of Mr Topp’s contention in these proceedings was that the objective facts demonstrated that he had no relevant prospect of work, and thus no potentially compensable work incapacity, until the planned completion of his Computer Science Degree in about 2010.
  9. Consistent with these circumstances, the formal terms of the June 2008 settlement recorded an agreement that the settlement amount did not include any compensation for past economic loss. The terms of settlement did not disclose what, if any, part of the lump sum compensation payment reflected damages for any particular component of the damages claim. Mr Topp says the settlement payment can be broken down into approximately the following components:
Item
Amount
Settlement amount
500,000


Legal costs
170,000
Disbursements associated with the proceedings
30,000
Actual total damages component
300,000

  1. Even if those claims were accepted at face value, there was apparently significant controversy in Mr Topp’s damages proceedings about the extent of his injuries and any ongoing disability to which they might give rise. That controversy confounds any reliable assessment of the precise extent to which his settlement compensation payment reflected compensation for work incapacity. On the one hand, the degree of impairment assessed by Dr Davis was not particularly significant. On the other hand, Dr Davis’s opinion that the impairment gave rise to considerable uncertainty about Mr Topp’s future work capacity could, in the possible length of his working life, have influenced a substantial damages assessment. In reality the circumstances excite a good deal of curiosity about, and provide no means of determining, whether the work incapacity component of the settlement reasonably approximated the “compensation part” determined in accordance with s 17(3)(a) of the Act.
  2. Despite that uncertainty, Mr Topp has the very significant disabilities I have described. There is no evidence he has ever obtained employment, and considerable evidence that he has had difficulties sustaining his studies. Objectively, it is an irresistible conclusion that Mr Topp’s pre-existing disabilities and the barriers they present to effective and efficient communication, have entirely precluded him from employment, and from any other ordinary income generating activities, up to the present time. Given both of those considerations, there is no realistic basis to find his 2003 injuries caused any loss of income, or any compensable loss of earning capacity, other than in connection with his ability to work once he obtains his Computer Science degree. His intended rate of progress with that course indicates that he would not, in any event, have completed it before some time in 2010. Even after he qualified, his pre-accident physical disabilities would have disadvantaged his employment prospects, and would likely have involved a substantial period of job hunting before he obtained appropriate employment. The totality of those circumstances comfortably justifies the conclusion that the work incapacity component of Mr Topps’ settlement payment did not reflect any past loss of income. It related entirely to compensation for the financial loss he was anticipated as likely to suffer after the successful completion of his Computer Science degree.

Special circumstances accepted


  1. In the following headings I set out the substance of my reasons for concluding that special circumstances exist in Mr Topp’s situation. Those reasons draw on various legislative provisions and previous decisions that I also discuss later. The principal basis for my decision merely involves applying the Federal Court’s reasoning in Secretary, Department of Social Security v Smith (1991) 30 FCR 56; 23 ALD 277 (‘Smith’) and Kertland v Department of Family and Community Services [1999] FCA 1596; (1999) 57 ALD 600; 95 FCR 64 (‘Kertland’).
  2. Given that basis for my decision, some of the Secretary’s more general contentions in the present case might be thought of limited relevance in comparison to the direct applicability of Smith and Kertland. However, another view is that the Secretary’s contentions that the provisions of the Act preclude any dissection of a lump sum compensation payment, and that they presume contemporaneity between compensation payment and benefit entitlement, raise issues that indirectly challenge the continued application of the reasoning in Smith and Kertland. For that reason, I have addressed all of the Secretary’s contentions in later parts of these reasons.

The reasoning in Smith, Kertland and Edwards


  1. The decisions in Smith and Kertland involved situations where, during part of a preclusion period, the person had no entitlement to work incapacity compensation. The judgments decided that recovery of the compensation affected payments made during such a part of the preclusion period was contrary to the purposes of the preclusion and benefit recovery provisions in the Act. Consequently it led to an unjust result that constituted “special circumstances”. In each case the s 1184K discretion (more accurately the discretion granted by its then equivalent provision) was exercised to achieve the practical effect of waiving recovery of benefits for the uncompensated period.
  2. In Smith the preclusion period ended after the compensation had been paid, but before the date of the judgment. In Kertland the preclusion period had not ended by the judgment date. In that respect both cases are analogous to Mr Topp’s circumstances, where the preclusion period has expired after the present hearing but before the decision. But those cases are also different, in the respect that the amounts effectively excluded from the “compensation part” of the settlement payment related to past periods of work incapacity. In the present case however, the compensation payment for work incapacity relates, on the finding I have made, only to financial losses likely to be incurred in the future.
  3. The decisions in Secretary, Department of Social Security and John Hill (1995) 39 ALD 667 (‘Hill’), Edwards and Robinson do involve circumstances similar to the present case. None of the applicants in those cases had a quantifiable work capacity at the time they were injured. (Mr Edwards, for example, was a schizophrenic and, like Mr Topp, a long time DSP recipient.) Their compensation payments related to future, but not past, work incapacity. This circumstance was held to give rise to “special circumstances” and the compensation payment disregarded in all three cases. However, a feature of all those cases was that the preclusion period ended before the actual date of the compensation payments.
  4. Despite their factual similarity, none of those five decisions directly expressed the precise basis for a principled extension of their reasoning to Mr Topp’s situation. In the decisions in Hill, Edwards and Robinson, for example, principal reliance was placed on the proposition that the respective compensation and social security benefit entitlements were causally unrelated. Such a causal difference, which also exists in Mr Topp’s case, is a relevant consideration but cannot alone constitute “special circumstances” sufficient to permit exercise of the discretion: ss 1160(2) and 1184K(2) of the Act.
  5. Yet each of those decisions and the present case involve situations where the cause of the social security entitlement both precedes, and is different from, the compensable personal injury. Taking that temporal sequence into account would not contradict the literal scope of s 1168 – because the section only deals with the sequence in which benefits and compensation are claimed or paid, rather than the sequence of events that give rise to the claim. Consequently both the fact, and the nature, of Mr Topp’s pre-injury DSP entitlement are permissibly relevant considerations that could contribute to a finding that “special circumstances” exist. I will return to this aspect of the matter. In the meantime I will explain why it is proper to apply the essential reasoning of the Smith and Kertland decisions to Mr Topp’s circumstances.


Analysis of the preclusion period imposed on Mr Topp


  1. The combined effect of ss 17(2), 17(3)(a), 1168 and 1169 is to impose an automatic preclusion period in relation to compensation affected payments whenever a person receives lump sum compensation “in respect of lost income or lost capacity to earn”. The duration of that period is calculated according to an inflexible statutory formula in s 1170(4) and is not amenable to discretionary variation.
  2. Unless the person was also receiving periodic compensation immediately before the lump sum payment, the preclusion period will inevitably have a retrospective effect. It may also have a prospective effect. Whether it has a prospective effect will depend on the compensation amount and the length of time between the personal injury and the payment. The preclusion period will have a retrospective effect because it begins “on the day on which the loss of earnings or loss of capacity to earn” began. This criterion contrasts with the references in ss 1160, 1173(4) and 1184K(2) of the Act to the “event” or the “set of circumstances” that gave rise to the compensation entitlement. At first sight it suggests the possibility that depending on the particular circumstances, the preclusion period could commence later than when the compensable personal injury occurs. However, the disjunctive distinction between “loss of income” on the one hand, and “loss of capacity to earn” on the other, is conceptually problematic for two reasons. First, under Australian law a plaintiff is compensated for loss of earning capacity rather than loss of income. Second, their cause of action for damages for loss of earning capacity is complete “at the time ... injuries are sustained”: Graham v Baker [1961] HCA 48; (1961) 106 CLR 340 (‘Graham’), 346; Arthur Robinson (Grafton) Pty Ltd v Carter [1968] HCA 9; (1968) 122 CLR 649, 658; O'Brien v McKean [1968] HCA 58; (1968) 118 CLR 540, 546; Medlin v State Government Insurance Commission [1995] HCA 5; (1995) 182 CLR 1 (‘Medlin’), 4 and 16.
  3. A pragmatic understanding of the distinction between the two expressions is that “loss of income” describes financial losses that are reasonably capable of being objectively determined at the date of the particular assessment. In contrast, “loss of earning capacity” describes an assessment of the person’s prospective losses: Graham [1961] HCA 48; (1961) 106 CLR 340, 346-7; Hill (1995) 39 ALD 667, 670. But this understanding does not provide any guide as to how the pragmatic distinction could be applied to determine when a preclusion period starts. If a person suffers a loss of income, it will necessarily result from a loss of earning capacity. If a person suffers no historical loss of income but has a diminished earning capacity, that “may be productive of financial loss”: Medlin [1995] HCA 5; (1995) 182 CLR 1, 3; that loss is nevertheless prospectively compensable. The relevant beginning of a “loss of earning capacity” is not postponed until it actually produces financial loss.
  4. Given the established conceptual relationship between “loss of income” and “loss of earning capacity” it is unrealistic to suppose that the disjunctive expression in s 1170(3) of the Act was intended to permit postponement of the beginning of a preclusion period until either the loss of income occurred or the loss of capacity to earn actually became “productive of financial loss”. In the latter case, in particular, such a point could rarely be fixed with any confidence, and almost certainly not by the Secretary. Consistent with these views I note that in Dezso and Secretary, Department of Social Security [1993] AATA 494 the Tribunal rejected an attempt to distinguish between loss of income and loss of capacity to earn. I also note that in Kerltand, the Federal Court rejected the Tribunal’s finding that the preclusion period did not commence until 18 months after the accident when the applicant first became eligible for compensation: see Kertland [1999] FCA 1596; (1999) 57 ALD 600 at [23], [27] and [28].
  5. The conclusion that follows from the preceding analysis is that the statutory preclusion period begins, in Mr Topp’s circumstances, when he was injured in the September 2003 accident. Irrespective of whether his compensation entitlement is primarily characterised as relating to loss of income or loss of earning capacity, the duration of the preclusion period was inflexibly determined by the statutory formula. It had a prospective operation after the compensation payment, but only until 6 January 2010. Consequently, Mr Topp was only precluded from entitlement to compensation affected payments during that period. This is so even though the compensation he received related to a longer period.
  6. Once the parameters of Mr Topp’s preclusion period are fixed and, the nature of the statutory provisions that determine them are understood, it can be clearly seen that his preclusion period is a somewhat arbitrarily fixed period. But it is only during that period that his ineligibility for compensation affected payments applies.
  7. Against this background, the reasoning of the decisions in Smith and Kertland directly apply to Mr Topp’s situation. Like both Mr Smith and Ms Kertland, Mr Topp’s work incapacity began when he suffered his injuries in 2003. Like them his actual compensation did not apply to the whole of the calculated preclusion period. But unlike them, the compensation payment he received did not apply to any part of the statutorily determined preclusion period. In those circumstances, but consistent with the reasoning in those cases, special circumstances apply to his situation. Being quite explicit, the special circumstance is that in the June 2008 settlement, he received no compensation for work incapacity that he suffered during the preclusion period.

Mr Topp’s personal circumstances

  1. In addition, and I take up here the point to which I said I would return, it is appropriate to recognise in the present case both the profound nature of Mr Topp’s pre-existing disabilities and the uncertain work capacity available to him. Later in these reasons, in connection with the Tribunal’s decision in Hanrahan and Secretary, Department of Family and Community Services [2007] AATA 1417; (2007) 47 AAR 1 (‘Hanrahan’), I refer to the particular difficulties that face blind people. Those difficulties relate to the practical exigencies of daily and social life, and the additional costs blind people are likely to incur in dealing with them.
  2. Those inherent difficulties are implicitly recognised by the special position accorded to blind DSP recipients under s 95 of the Act. They require special recognition in Mr Topp’s case for at least three reasons. First, he has very limited sight indeed. Second, his sensory and communication abilities are further comprised by profound deafness. Thirdly, his day to day communication is dependent on tactile finger spelling, a mode of interaction which has in the past restricted his study and which appears particularly onerous on both Mr Topp and the interpreters who assist him. (In that regard I record my observation that during the course of the Tribunal hearing two interpreters assisted Mr Topp. They took sequential turns of about 10 minutes each. During the process of interpretation Mr Topp sat sideways with his left elbow resting on the bar table and his palm raised about 30 cm and facing the interpreter. Unsurprisingly, given this demanding posture and the apparently intense concentration that appeared to accompany it, Mr Topp also required short additional breaks during the hearing.) I would anticipate that if Mr Topp does succeed in completing his course, eventually achieving employment of the kind he intends, and is successful in maintaining both the degree of efficiency and proficiency that would be required of him over time, in meeting all of those contingencies he will encounter costs far in addition to those that would be likely to be encountered by persons with similar technical capacities, but without his profound disabilities.
  3. I also take into account in this context my finding that Mr Topp’s compensated incapacity relates entirely to the future, and that his working future has a potentially considerable extent. This is a relevant consideration because any compensation he received for such an extensive period of potential future loss is inevitably calculated after taking into account a present value discount. On the other hand, if he is required to repay a substantial social security debt, his compensation funds will be diminished to an extent that tends to contradict the basis on which his compensation was agreed and paid. I recognise that this kind of potential disparity will exist in any case where a compensation payment includes a substantial component for loss of earning capacity, and is received after a long period of receiving social security benefits. But it has, to my mind, an additional significance in Mr Topp’s circumstances because of the significant element of futurity to his compensable loss, the absence of compensation for past loss of income, and his personal circumstances.
  4. Mr Topp is a perseverant young man, but one with grossly restricted earning capacity, and particular vulnerabilities. The abstract generality of the complex provisions of Part 3.14 of the Act might be regarded as contemplating the possibility that he should be subject to a preclusion period, because his circumstances could be regarded as foreseeable in the myriad diversity to which the Act applies. However, I consider that his personal circumstances are, in combination, indeed “special”.

The "special circumstances" criterion


  1. The special circumstances criterion in s 1184K(1) of the Act is a common statutory criterion. In Re Beadle and Director-General of Social Security (1984) 6 ALD 1 (‘Re Beadle’), the Tribunal, and subsequently the Full Federal Court, considered the discretionary power conferred by s 105 of The 1947 Act (‘the 1947 Act’), a predecessor of s 1184K(1) of the Act, to permit a particular allowance to be paid "in special circumstances" even though the claim had been made more than 6 months after the entitlement arose. In applying the criterion the Tribunal said, in 6 ALD 1, 3) (I have added an appropriate emphasis):
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 they must have a particular quality of unusualness that permits them to be described as special.

  1. The Full Federal Court in Beadle v Director General of Social Security [1984] AATA 176; (1985) 7 ALD 670 substantially approved what the Tribunal had said. But the Full Court added the following at [1984] AATA 176; 7 ALD 670, 673 and 674 (to which I have added a highlighted emphasis):
Presumably in this context special circumstances must include events which would render the 6 months unfair or inappropriate. For example, where the delay beyond 6 months was due to the claimant's being misled by a departmental officer or was due to the negligence of a third party it might be thought the normal 6 months would be inappropriate; that special circumstances had been shown which warranted a longer period. More difficult would be questions of ignorance, illiteracy, isolation, illness and the like. It would depend upon the circumstances of the particular case whether these constituted special circumstances. We do not think it is possible to lay down precise limits or precise rules. The matter is one for the Director-General bearing in mind the purpose for which the power is given. The phrase ``special circumstances'’, although lacking precision, is sufficiently understood in our view not to require judicial gloss.

  1. The real emphasis of the Full Court's comment is that the "special circumstances" criterion, though it is inherently (and thus intentionally) imprecise, neither requires nor is likely to benefit from exegetical "judicial gloss". Its essential requirement is that the postulated circumstances would make the application of the basic statutory provision "unfair or inappropriate". As a matter or practical reality, that conclusion may be difficult to reach unless the circumstances reveal some "unusual, uncommon or exceptional" quality – as the extract from the Tribunal's reasoning in Beadle suggests. But if the provision produces a result that is apparently “unfair” or “inappropriate”, the likelihood is that the circumstances will have the requisite “special” character. This view is explicit in the way Kiefel J summarised the “special circumstances” criterion in Groth v Secretary, Department of Social Security [1995] FCA 1708; (1995) 40 ALD 541. Kiefel J said at [1995] FCA 1708; 40 ALD 541, 545 (emphasis added):
... it is sufficient to observe that it would require something to distinguish Mr Groth's case from others, to take it out of the usual or ordinary case. That was, I consider, the only inquiry to be undertaken in this 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. The inquiry I have referred to would involve considering what would be the effect, if the provision in question or the principle of liability it creates, is applied.

  1. Any assessment about the “unfair, unintended or unjust” character of particular circumstances, and whether it gives rise to "special circumstances" must be informed by a proper appreciation of the context – both the language and the apparent purpose - of the relevant statutory provisions. This context is a particularly important consideration where the "special circumstances" criterion is the threshold condition permitting a discretionary departure from an otherwise mandated statutory disqualification or sanction. This point was made by O'Loughlin J in Secretary, Department of Social Security v Hulls (1991) 22 ALD 570 (‘Hulls’). His Honour explained that although the discretion must be exercised in conformity with the objects of the Act, it can still be used to alleviate the strict enforcement of statutory provisions if their operation “would be unjust, unreasonable or otherwise inappropriate”: Hulls 22 ALD 570, 581, quoted with approval in a passage from the Reasons for Decision of the Tribunal in Re Ivovic and Director-General of Social Services (1981) 3 ALN N95 (‘Re Ivovic’), N97. Subsequently that particular passage was also approvingly cited by von Doussa J in Smith (1991) 30 FCR 56, 61. It has been similarly cited in many later decisions. The passage, which refers to the interpretation of the "special circumstances" criterion s 115 of the 1947 Act is in the following terms (emphases added):
Whilst it would be unwise, if not impossible, to attempt to lay down any precise delineation of what may amount to ‘special circumstances’ ... the use of the word ‘special’ is .... intended to allow the decision-maker the fullest opportunity to consider the particular circumstances of each case .... . Whilst we agree that hardship is a relevant consideration in the discretion conferred by s 115(4 a), we reject the submission ... that we should ignore the circumstances out of which the alleged hardship is said to have arisen. The reference to special circumstances ‘by reason of which’ a person liable ‘should be released’ requires, in our view, that there must exist in the circumstances of the case, a factor or factors which justify the making of an exception in whole or in part to the principle of liability which the Act otherwise establishes. In the exercise of the discretion which s 115(4 a) confers, the decision-maker must have regard to whether, by exercising the discretion in a particular case, he will be achieving or frustrating ends or objects which are conformable with the scope and purpose of the Social Services Act 1947 ... Thus whilst keeping the dominant principle of s 115 in mind, he must nevertheless be prepared to respond to the special circumstances of any particular case by reason of which strict enforcement of the liability created by the section would be unjust, unreasonable or otherwise inappropriate.

  1. The emphases I have added to the preceding citation, and the rejected submission to which it refers, highlight the proposition that whilst the ultimate categorisation of circumstances as "special" requires a process of discriminating evaluation, it nevertheless permits "the fullest opportunity to consider the particular circumstances of each case". This proposition is important because it retains the intended width of the "special circumstances" discretion, notwithstanding that the particular circumstances under consideration may be regarded as within the range of the foreseeable consequences of the basic statutory provision to which the discretion provides a conditional exception. In Secretary, Department of Social Security v Ellis (1997) 46 ALD 1, for example, the Secretary's argument was that Mrs Ellis' financial hardship (because her workers compensation payments operated to extinguish her benefit entitlement) was a direct, and thus necessarily intended, result of the then equivalent of s 1173 and could not be regarded as giving rise to "special circumstances". Carr J rejected the Secretary's argument and cautioned against any gloss that would restrict the permissible width of the "special circumstances" criterion. In a passage that refers to the predecessors of the current provisions ss 1171 and 1184K(1) (and to which I have again added an emphasis and some indicated changes to aid readability) His Honour said (at 46 ALD 6):
Nor do I consider, as was submitted by the [Secretary], that the tribunal failed to have regard to the legislative policy behind s 1168 of the Act. That policy was said to be one of conserving public moneys by reducing the amount of SPP where the recipient is entitled to payments of compensation from other sources. The tribunal quite clearly recognised that s 1168 was to operate in accordance with its terms unless it found as a matter of fact that ``special circumstances'’ existed. As an alternative argument, the [Secretary] submits that before it is ``appropriate'’ to treat part of the workers’ compensation payments as not having been made, the circumstances have to be ``sufficiently distinctive, extreme, unique, unusual or unfair, when considered in the context of other persons ... receiving periodic compensation payments'’. In my view, to attempt further to fetter the statutory discretion conferred by s 1184(1) in the manner proposed would be to add an unwarranted gloss to the words of that subsection.

  1. In Boscolo v Secretary, Department of Social Security [1999] FCA 106; (1999) 53 ALD 277 French J was concerned with the "special reason" discretionary criterion in SSA s 24 (to treat a cohabiting married person as not being a member of a couple). His Honour summarised the essence of the "special circumstances" criterion in the following way (emphases added) at [18]:
The word “special” conditioning “reasons” or “circumstances” guards the entrance to the exercise of many different statutory discretions. It is generally futile to search for its meaning in terms of other words. It is in essence instrumental, a direction to the decision-maker that the discretion it constrains is not lightly to be enlivened. A full court has spoken of it as having content which is “... sufficiently understood not to require judicial gloss”: Beadle v Director-General of Social Security (1985) 7 ALD 670; 60 ALR 225 at 228. If helpful to speak in terms of its meaning almost all of it comes from context. Thus man may be “special” in relation to animals generally but “ ... when you are speaking of poets, he may need to be a Milton”: Holpitt Pty Ltd v Varimu Pty Ltd (1991) 29 FCR 576 ; 103 ALR 684 at 686 per Burchett J. It is an elastic instruction suitable for application across a range of situations: Jess v Scott (1986) 12 FCR 187; 70 ALR 185 ; 14 IR 341. This is just another way of pointing to its instrumental character. That application is not to be confined by precise limits or rules: Beadle (above) at ALR 228. Circumstances or reasons will not necessarily fall outside the designation of “special” because they fall within a class which is widely defined or because they are circumstances or reasons which can be foreseen before they arise: Re Hutchins; Jarlas Pty Ltd v FCT (1987) 14 FCR 510 ; 74 ALR 455 at 473 ; 18 ATR 987. The core of the requirement for “special circumstances” or “special reasons” is that there be something unusual or different to take the matter the subject of the discretion out of the ordinary course: Minister for Community Services and Health v Chee Keong Thoo (1988) 78 ALR 307 at 324: Burchett J. But that does not require that the case be extremely unusual, uncommon or exceptional: Secretary, Department of Social Security v Hodgson (1992) 37 FCR 32 ; 27 ALD 309 ; 108 ALR 322. In Beadle (above) the full court, having concluded that the term “special” was sufficiently well understood not to require a judicial gloss said the matter was one for the decision-maker, in that case the Director-General of Social Security.

  1. From the analysis of these authorities it is apparent that the essential contrast between “special circumstances” and those that are “usual”, “common”, “ordinary” or “unexceptional” is beguilingly simple to state. But it has particular complexity in the light of the scope of the various legislative provisions to which the s 1184K discretion is potentially relevant.

The scope of Part 3.14 of the Social Security Act 1991


  1. Part 3.14 of Chapter 3 of the Act contains many detailed provisions relating to the reduction or recovery of "compensation affected payments" where a recipient is entitled to compensation. The Part contains 6 Divisions and approximately 40 sections. In some instances the "compensation affected payments" to which they apply are benefits to which there is no income related condition. In other instances the benefit rate is subject to various income thresholds or, as in the case of blindness giving rise to a DSP entitlement under s 95 of the Act, is potentially unaffected by a person's income. Nevertheless, the fundamental consideration in relation to the recovery and preclusion provisions in Part 3.14 is the person's entitlement to receive "compensation" – that is damages for personal injury that are at least "partly in respect of lost earnings".
  2. The Part 3.14 provisions are, as even the most accomplished reader soon appreciates, bewilderingly complex. (The many singularities of the operation of Part 3.14 were extensively commented on by the Tribunal in Re Nadjovska and Secretary, Department of Social Security (1998) 54 ALD 184 at [16], [33], [49] – [51] and [58]-[61].) They distinguish between lump sum compensation payments and periodic compensation payments. They also apply to any potential insurance indemnity available to tortfeasors liable to make compensation payments.
  3. Where a person had been receiving benefits which are “compensation affected payments”, and the person receives compensation payments, ss 1169 and 1173 of the Act automatically suspend or reduce their previous social security entitlement. In both cases that disentitlement may be retrospective. Receipt of a lump sum compensation period automatically suspends a person’s entitlement to any “compensation affected payment” during the “preclusion period” calculated in accordance with s 1170. The “preclusion period” starts “on the day the loss of earnings or loss of capacity to earn began”: s 1170(3)(a). (This expression is an elliptical reference back to the defined character of “compensation” as a payment of damages “wholly or partly in respect of lost earnings or lost capacity to earn”: s 17(2).) Therefore, certainly in the case of a lump sum compensation for loss of income, and almost certainly in the case of similar compensation for loss of earning capacity, the s 1169 preclusion period will have a retrospective operation.
  4. So too, in practical reality, will s 1173 of the Act have a retrospective operation in relation to a periodic compensation. Periodic compensation payments, which are typically payments for work incapacity, attract different consequences according to whether the compensable injury occurred before or after the person’s receipt of a social security benefit. Where the injury precedes a person’s social security entitlement, the periodic compensation payments directly reduce the applicable benefit rate even though, if they were ordinary income, they would not have the same effect: s 1173(1)-(3). Where the injury occurs after a person’s social security entitlement, the periodic compensation payments are treated as ordinary income. Depending on the nature of the person’s social security entitlement, they may have only a proportional, or no, effect on its rate of payment: see s 1173(4). If a person elects to receive periodic compensation payments "in the form of a lump sum", 50% of the payment is taken into account as the "compensation part": see s 17(3)(ab). But a payment of periodic compensation arrears is not a lump sum payment, and may effect a direct reduction of the benefit rate: see ss 1171(2) and 1173(2).
  5. In the cases of both lump sum and periodic compensation payments any “compensation affected payments” may be recovered (at least in part) if the Secretary so determines and gives a requisite notice under s 1178 or s 1180 of the Act. Where the Secretary gives such a repayment notice, the amount is a debt to the Commonwealth: see s 1184F. The debt is recoverable in accordance with Chapter 5 of the Act: s 1230C.
  6. Potentially ameliorating all of the provisions of Part 3.14, the Secretary may “treat the whole or part” of any compensation payment as not having been made. The only pre-condition to the exercise of this discretion is that the Secretary considers it is “appropriate to do so in the special circumstances of the case”: s 1184K of the Act.
  7. The debt and discretion provisions of Part 3.14 of the Act have an uncertain relationship with the more general overpayment and debt recovery provisions in Chapter 5. The provisions in ss 1178, 1180 and 1184F provide that benefit payments affected by compensation receipts only give rise to a debt if the Secretary gives a notice. On the other hand, s 1223(1) provides that a debt automatically arises where a person receives the benefit of any social security payment the person “was not entitled for any reason to obtain”. Whatever the precise origin of the liability, any debt can be dealt with under the non-recovery provisions in ss 1235 – 1237AB. Within those provisions the Secretary may write off the debt, in the limited circumstances provided for in s 1236. Alternatively, the Secretary may waive the right to recover a debt if, amongst other things, there are “special circumstances (other than financial hardship alone) that make it desirable to waive”: s 1237AAD.
  8. The discretionary powers conferred by ss 1184K and 1237AAD of the Act could be regarded as primarily directed towards different purposes. They are (i) the preclusion or rate reduction consequences of a compensation payment (in the case of s 1184K) and (ii) the debt consequences (in the case of s 1237AAD). One circumstance offering some support for that view is the conceptual distinction between the preclusion period and the debt. Another is the reality that a preclusion period may be triggered merely where a person has claimed, rather than actually received, a “compensation affected payment”: ss 1169(1)(a) and 1184L. At least in such a case, and also where the preclusion period applies prospectively to periods for which no social security payments have been made, the s 1184K discretion has a somewhat different scope and purpose to the waiver power granted by s 1237AAD.
  9. However the s 1184K discretion is conferred “[f]or the purposes of” Part 3.14 of the Act, and it is a discretion to treat a compensation payment as “not having been made”. The former expression necessarily includes the purpose of the Secretary giving a debt notice under s 1178 or s 1180. The later expression is particularly apt to include that power because s 1170 is worded so as to create a preclusion period that is an automatic consequence of a compensation payment, rather than one dependent on, or even amenable to, the Secretary’s satisfaction or decision. Moreover, since any debt can only arise if a preclusion period applies and, at least in the case of lump sum payments, a preclusion period will almost inevitably have a retrospective operation, the s 1184K discretion is necessarily concerned with the practical waiver of debt obligations. Indeed it may very well be that the initially apparent incongruence between the ss 1178 and 1180 pre-conditions (requiring the Secretary to have first given a debt notice) and the more general “automatic” debt provided for in s 1223(1), is deliberate. Its purpose is to confirm that the s 1184K discretion is intended to permit consideration of the “debt” issues that potentially arise from the existence of a preclusion period. It is also intended to confirm that the s 1184K discretion, unlike the waiver discretion conferred by s 1237AAD, may be exercised in “special circumstances” that are, amongst other things, constituted by financial hardship alone.

The purpose of the lump sum compensation provisions in the Social Security Act 1991


  1. The diversity of the provisions within Chapter 3 Part 3.14 of the Act lends some support to the generality of the Secretary's contention that the relevant statutory intention is to require those who are compensated for work incapacity to support themselves without resort to social security benefits. But a greater degree of discrimination is required. It is readily available from the compensation provisions within the Act, the history of ss 17(3) and 1184K, and a number of Federal Court decisions.
  2. A fundamental point is that only the “compensation part” of a lump sum compensation payment is taken into account for the purposes of Part 3.14. If the payment follows a deliberative judgment, the “compensation part” is formally the part of the payment the Secretary considers was “in respect of lost earnings or lost capacity to earn, or both”: s 17(3)(b), and in practice, the amount determined in the judgment: Secretary, Department of Social Security v Banks (1990) 23 FCR 416 (‘Banks’), 421. In other cases, the “compensation part” is 50% of the payment: s 17(3)(a). But in both cases the s 1184K discretion potentially applies.
  3. The legislative history of s 1184K and its predecessors, particularly in relation to compensation settlement payments, was discussed in Banks (1990) 23 FCR 416; Secretary, Department of Social Security v a'Beckett [1990] FCA 332; (1990) 21 ALD 79 (‘a'Beckett’); [1990] FCA 332; Hulls (1991) 22 ALD 570, 580 and 581; Smith (1991) 30 FCR 56, 61; and Edwards [2000] FCA 1645; (2000) 65 ALD 200. These cases concerned some or all of the provisions ss 152, 153 and 156 of the 1947 Act. (The substance of those provisions was subsequently reflected in ss 17(2), 17(3) and 1184K of the Act.) Regarding these provisions, the decisions in Banks, a'Beckett and Hulls respectively determined that
  4. Neither the Banks nor the a'Beckett case involved any consideration of the "special circumstances" criterion – but in each there are remarks about the purpose of the "lump sum compensation" provisions. In Banks von Doussa J identified the 1988 amendments to s 152(2)(c) of the 1947 Act as the origin of what is now the "compensation part" definition in s 17(3)(a) of the Act. His Honour said the purpose of the amendment was to overcome the administrative difficulties encountered under the earlier provisions, which required the Secretary to form an opinion about the work incapacity component of settlements. The difficulties, noted in the Minister's second reading speech, related to experience that settlements, particularly in the workers compensation jurisdiction, were being manipulated to obscure the work incapacity component of lump sum compensation payments. Von Doussa J said that this was the mischief the new provision was intended to overcome. His Honour then observed, at 23 FCR 416, 424:
The wide language ... is a recognition by Parliament that unless every component part of a lump sum payment made in settlement of a claim which has the prescribed characteristics is brought to account the mischief to which [it] is directed will not be remedied. The scope for manipulation by inflating some heads of loss and diminishing or excluding others, without altering the total amount of the lump sum, would otherwise remain. The prescribed percentage (50 per cent) of the lump sum payment made in settlement of a claim which ... is deemed to be the “compensation part of a lump sum payment by way of compensation” should be viewed as a broad attempt to balance the interests of the recipient of the payment with the competing interests of others in the community whose needs must be met as far as possible from a finite budget allocation for social security measures. The paragraph seeks to eliminate double dipping in a practical way which operates effectively in a straightforward manner. In the very nature of an arbitrary provision, sub-para (i) could possibly entail a degree of unfairness in a particular case ...

  1. The circumstances in Banks certainly did not involve any manipulation of the settlement amount – because, apart from the medical expenses component, the payment related to periodic compensation and was virtually wholly attributable to work incapacity. Similarly the circumstances in a'Beckett involved genuine controversy about any actual work incapacity, rather than manipulation of the settlement amount. In rejecting the claimant's contention that the settlement payment was not "in respect of" work incapacity, von Doussa J said at [1990] FCA 332; 21 ALD 79, 88:
In cases of periodical payments by way of compensation, the scheme for preclusion and recovery operates only in relation to payments of pension made “during the period during which the periodical payments are made”: [the judge referred to the predecessors of s 1173 of the Act]... Clearly the object of the scheme in relation to periodical payments is to prevent a person having an entitlement to receive payments from 2 sources for the same inability to work.
In cases of lump sum payments by way of compensation the scheme for preclusion and recovery is no longer conditioned on there being established an actual coincidence between a period during which pension payments were or are to be made and a period during which the pensioner is entitled to receive damages or compensation for an incapacity for work. In these cases the scheme introduces what may be described as a concept of presumed coincidence in time by applying an arbitrary formula which appears in [the judge referred to the predecessor of s 1170 of the Act] ... to fix a “lump sum payment period”. [The] section ... determines the day on which a lump sum payment period shall commence. The scheme for preclusion and recovery then operates only during the lump sum payment period as if the pensioner were receiving periodical payments sufficient to eliminate the pension entitlement. The notion that there must be a temporal matching of pension payments to payments by way of compensation is in this way applied to lump sum payments by way of compensation. Once “the relevant incapacity” referred to in s 152(3)(a) [of the 1947 Act] is identified the scheme for preclusion and recovery operates to prevent an entitlement to double payments during the period of presumed entitlement to payments by way of compensation for that incapacity for work.
That the legislation should embody a notion of matching periods during which payments from the 2 different sources are made or to be made is a reflection of the object of the legislation to avoid double payments for an inability to exercise an earning capacity. It would be contrary to this object to deprive a person otherwise entitled to a pension during a period when there was no coincidence (or presumed coincidence) between payments from the 2 sources. In such cases there would be no overlapping of benefit.

  1. It is obvious that von Doussa J's comments, in the earlier part of the second of the cited passages, are the source of the Secretary's contention in the present case that s 17(3)(a) of the Act presumes a "coincidence in time" between the compensation period entitlement and the benefit period. But, as the last part of the cited passage indicates, the contention actually misapplies von Doussa J's comments. “Presumed coincidence” was an expression the judge coined to explain how the calculation of a lump sum preclusion period provided a parallel to the disentitlement period that applied to the receipt of periodic compensation payments. His Honour was not saying, nor did he intend to convey, that s 17(3)(a) made any presumption about the actual work incapacity period to which the compensation related.
  2. That no such presumption applies is evident both from the terms of s 17(3)(a) and from the subsequent decision in Smith (1991) 30 FCR 56. I will return to deal with this decision later, in response to the Secretary's contentions about the indivisibility of a lump sum settlement amount. It is sufficient for the immediate purpose to note that in Smith, von Doussa J was confronted with a submission that his earlier decision in a'Beckett accorded to the "compensation part" definition a presumed "coincidence in time" between the lump sum compensation payment and the relevant DSP entitlement. But in Smith His Honour rejected the contention. He characterised it as a misapplication of his previous remarks. Referring to the then statutory equivalent of s 1184K(1), His Honour said at [19]:
The operation of the scheme for preclusion and recovery discussed in a'Beckett must be understood as being subject to the exercise of the discretion vested in the decision-maker under s 156 [of the 1947 Act]. If the operation of the scheme, apart from s 156, would bring about special circumstances in the particular case which make it appropriate to exercise the discretion, the operation of the scheme is modified accordingly.

  1. The decision in Smith concerned ss 152, 153 & 156 of the Social Security Act 1947. Subsequently, the substance of those provisions was reflected in ss 17(2), 17(3) & 1184K of the Social Security Act 1991. In Kertland [1999] FCA 1596; (1999) 57 ALD 600; 95 FCR 64, Merkel J dealt with the application of those provisions to a court approved settlement. His Honour said at [6] that the 50% compensation part provision was an arbitrary prescription intended “to prevent parties adjusting their settlement calculations to understate the amount of the settlement sum attributable to loss of earning capacity and thereby minimising the loss of a claimant’s social security benefits”. He explicitly agreed with the reasoning in the earlier decision in Smith – that the purpose of the legislative scheme in relation to lump sum compensation payments for economic loss was to avoid "double payment". He continued with the following passage, which involves rejection of any "presumed coincidence in time" operating to restrict the "special circumstances" criterion:
[43] In the present case, it was open to the AAT to find that no part of the compensation the applicant received related to a period during which social security payments were payable with the consequence that, as there has been no “double payment”, there were “special circumstances” for the purposes of s 1184(1). In such circumstances the exercise of the discretion under s 1184(1) would not be inconsistent with the policy and purpose of the statutory scheme. As was noted by von Doussa J in Smith (at 61–2) the very purpose of the ameliorating provisions of s 156 (and now s 1184(1)) is to enable the discretion to be exercised where it is appropriate to do so because the circumstances of the particular case will give rise to an unreasonable or unjust result under the scheme.

  1. Some years before the decision in Kertland, the substance of what is now s 1160(2) and 1184K(2) were introduced through the Social Security (Budget and Other Measures) Legislation Amendment Act 1993 No. 121, 1993. These amendments sought to include the limitation that the existence of discrete causes for social security benefit and personal injury compensation entitlements "does not alone constitute special circumstances". The significance of these amendments was considered in Edwards [2000] FCA 1645; (2000) 65 ALD 200.
  2. Mr Edwards suffered from schizophrenia and was a long standing DSP recipient. Like Mr Topp he was subsequently injured in a car accident and received a settlement compensation payment. Because of his chronic illness, and his lack of employment, the settlement included nothing for work incapacity, other than a small allowance for future economic loss. But s 17(3) applied to the settlement amount, and the Secretary contended that no "special circumstances" justified favourable exercise of the s 1184 discretion in the Act. The Secretary specifically contended (in reliance on the amended provisions) that the different causes of the compensable injuries on the one hand, and the pre-existing disability, on the other, were not relevant to the exercise of the "special circumstances" discretion.
  3. The Tribunal in Edwards held that special circumstances justified treating the whole of the compensation payment as not having been made. The three essential reasons for that finding were (i) the different causes of the disability and compensation payments (ii) the minor component of the settlement compensation payment that could be attributed to work incapacity, and only related to the future in any event, and (iii) the uncertainty that the person would actually suffer any loss of earnings in any event. On appeal, the Federal Court held that the Tribunal’s decision did not involve any error of law. Drummond J noted that the relevant statutory provisions (now s 1160(2) and 1184K(2) of the Act) precluded the different underlying payment causes from alone constituting "special circumstances". His Honour held that nevertheless, the different causes were a relevant consideration to take into account in the exercise of the discretion. His Honour said at [2000] FCA 1645; 65 ALD 200, 208 (emphases added):
The circumstance referred to in s 1184(2) is that there is no causal relationship between the facts giving rise to the partner's receipt of compensation and the facts giving rise to the pensioner's receipt of the social security payment. If such a circumstance exists in the particular case, then s 1184(2) directs the secretary that it “does not in itself constitute special circumstances for the purposes of subsection (1)” (emphasis added). The words in emphasis give the lie to the secretary's submission that the existence of such a circumstance is always, and in all cases, an irrelevant consideration for the secretary when considering whether to apply s 1184(1) in favour of the person. This provision, in the clearest of terms, acknowledges that such a circumstance is relevant for the secretary to take into account. But, if, in the circumstances covered by s 1184(2), that is the only factor relied on by the pensioner to claim exemption from the pension reduction provisions of Pt 3.14 that is not, by itself, sufficient to warrant the application of s 1184(1) in the pensioner's favour. There must be some other circumstance in the case, as well. This is not, of course, to say that the absence of a causal relationship is always necessary, only that if it does exist it is, by itself, not sufficient to justify the application of s 1184(1). That it may be a relevant consideration is supported by the fact that the legislation requires compensation to affect a pension entitlement only if the compensation includes some component for past or future lost earnings. Given this, it might be thought that, in a case where the particular pension entitlement is based on an incapacity wholly unrelated to that attracting compensation, there may be no “double dipping” of the kind which precursors to Pt 3.14 sought to prevent. It has been said of precursors to Pt 3.14:
The object of the legislation [is] to avoid double payments for an inability to exercise an earning capacity. It would be contrary to this object to deprive a person otherwise entitled to a pension during a period when there was no coincidence (or presumed coincidence) between payments from the two sources. In such cases there would be no overlapping of benefit.
See Secretary, Department of Social Security v a'Beckett [1990] FCA 332; (1990) 26 FCR 349 at 359 ; 21 ALD 79.

  1. S 1184K(2) of the Act, which reflects a relatively minor change from the terms of s 1184(2) considered in Edwards, was inserted in 2001. It fell for consideration in McNay and Secretary, Department of Family and Community Services [2004] AATA 1317 (‘McNay’). That was a case where, having returned to work after 5 month’s incapacity caused by a serious neck injury, Mr McNay was diagnosed with unrelated leukemia. He was granted a disability support pension. Two years later, after his DSP entitlement arose and not having resumed work, Mr McNay received a compensation settlement payment for his work place injury. It was assumed that the settlement included compensation for work incapacity. But there was no specific evidence to permit differentiation (i) between the injury and the leukemia diagnosis, or (ii) between diagnosis and the compensation payment, or (iii) between those two periods and the period after the payment. However, because leukemia treatment exigencies precluded Mr McNay from working during the second of these periods, it would have been fairly arguable that no component of the settlement payment related to that period.
  2. The absence of an objective basis for determining the work incapacity component of the settlement in McNay, or apportioning it between the distinct loss periods, precluded any quantified application of the reasoning in Smith. Nevertheless, the Tribunal implicitly accepted that the settlement payment could not realistically have included work incapacity compensation for the whole of the leukemia treatment period. The Tribunal determined that the cause of the disability payments made during Mr McNay’s leukemia treatment was unrelated to his work injury, and that this absence of a causal similarity was a relevant consideration. The Tribunal considered that ss 1160 and 1184K(2) of the Act did place some limitations on the exercise of the discretion in s 1184K(1) but did not "preclude consideration of the absence of a connection between workers compensation payments and the social security payments as part of a set of circumstances that are, together, special." The set of circumstances the Tribunal considered special were the combination of different causes of his injury and his DSP entitlement and Mr McNay’s “4 years of extreme medical trauma”. In the end result, even though finding that Mr McNay's financial situation was far better than that of most DSP recipients, and in the exercise of what it described as "intuitive justice", the Tribunal reduced Mr McNay's repayment liability by about one third.
  3. The decisions in Smith, Kertland, Edwards and McNay are all consistent with the proposition that the absence of a causal connection between the circumstances giving rise to the two entitlements (compensation and social security benefit) is a relevant consideration in the exercise of the “special circumstances” discretion. They are also consistent with the view that the s 1184K discretion is an integral provision that informs the true scope of the legislative intention of the lump sum compensation provisions in the Act. More specifically, the circumstances in Edwards and McNay (as well as Smith and Kertland to which I will shortly refer again) evidence the materiality of an enquiry as to whether or not the compensation payment and the social security entitlement relate to the same period. That enquiry is rather more precise than the causal connection criterion referred to in either s 1160(2) or 1184K(2) and is not precluded by either of those provisions.


Rejection of the Secretary’s general contentions regarding the statutory purpose


  1. Neither the terms of ss 17(2) and 17(3), nor the statutory discretion in s 1184K of the Act, have changed in material substance so as to alter the apparent statutory purpose, as determined in the decisions in Banks, a'Beckett, Smith and Edwards. That purpose records (i) elements of administrative and practical convenience in determining the "compensation part" of a lump sum compensation payment relating to work incapacity (ii) a concern to avoid "double dipping" in relation to relevant contemporaneous periods of benefit and compensation entitlement and (iii) a deliberate use of a "special circumstances" discretionary exemption from the operation of the compensation recovery and preclusion provisions of the Act.
  2. These features of the Act do not justify, and indeed they are inconsistent with, the generality of the Secretary's contention in the present case. The Secretary contended that the relevant compensation provisions of the Act were intended to require those who are compensated for work incapacity to support themselves without resort to social security benefits – or at least those, such as a Disability Support Pension, that are a "compensation affected payment" for the purpose of the Act. This contention is overstated – for the two principal reasons that

Rejection of the Secretary’s contention that the statutory purpose restricts the "special circumstances" criterion


  1. The Secretary's third contention was that the statutory discretion must be exercised in a way that does not frustrate the apparently intended statutory purpose. If this contention was merely intended to repeat that the s 1184K(1) discretion is conditioned on satisfaction that "special circumstances" apply, it would not require much, if any, consideration. But it is apparent that the real purpose of the Secretary's contention is to accord priority to the SSA 1991 s 17 definitions of "compensation" and "compensable part" so as to restrict the scope of the circumstances that might otherwise qualify for consideration as "special". In this section I will illustrate how these kinds of submissions have been made in the past and have been unequivocally rejected.
  2. The decision of Smith (1991) 30 FCR 56, to which I referred earlier, is one of the clearest rejections of the Secretary's underlying contention. Mr Smith had suffered a temporarily incapacitating workplace injury. During the period of his incapacity he also contracted hepatitis from an unrelated cause. He received sickness benefits because of that condition. Those payments continued for some months after his recovery. Then, because his employment had been terminated in the interim, he received unemployment benefits for a short period. While he was still being paid sickness benefits he received a lump sum compensation settlement payment for his workplace injury.
  3. In Smith it was an agreed fact that he had no entitlement to any employment compensation during the period of his hepatitis illness. The only contentious issue was his liability to repay the sickness benefits he had received in that period. (It was not contested that he should repay the later sickness and unemployment benefits he had received.) The Tribunal had concluded that “[t]o continue to deprive Mr Smith of that which was paid to him by virtue of his entitlement to sickness benefit on the basis that he is to be taken to have been compensated for it when in actual fact he was not, would ... be unjust”.
  4. The Tribunal’s characterisation of the result as “unjust” was obviously an allusion to the last part of the extract from the Tribunal’s decision in Re Ivovic (1981) 3 ALN N95 that I set out earlier in these Reasons and which has often been relied on in subsequent cases. A paraphrase of that reasoning is that if the circumstances of the case produce an “unjust” result, then one can confidently conclude the circumstances are “special” so as to enliven the relevant statutory discretion. This reasoning raised the fundamental point at issue in the Smith case – whether a statutorily required result, obtained by calculating the “compensation part” as prescribed by the Act, could nevertheless be characterised as relevantly “unjust”. The Secretary contended it could not.
  5. The Secretary’s argument was that for the purposes of the 1947 Act, the circumstances concerning the calculation of the “compensation part” of any lump sum payment under the “50% rule” prescribed by sub. para. 152(2)(c)(i) could not be relevant to an enquiry whether special circumstances exist under s 156. (Those provisions were equivalent to respectively ss 17(3)(a) and 1184K of the Act.) The enquiry must be confined to circumstances “external to the operation of the scheme [for the calculation of the compensation part” (see paragraph [18] of Smith (1991) 30 FCR 56). These might include, so the Secretary contended, circumstances such as financial hardship, or possibly theft, demonstrating that the person had not actually received the compensation payment. It could not include circumstances that were, at least conceivably, within the contemplated scope of the basic provision. This contention, in so far as it rests on the proposition that foreseeable circumstances could not be “special”, is contrary to authority (as I have indicated in an earlier section of these Reasons).
  6. Von Doussa J of the Federal Court rejected the Secretary’s contention. In cogent reasoning, his Honour said at [15]- [18] (emphases added):
[15] ... The fallacy of the argument lies in its failure to read s.156 as part of the overall scheme enacted ... to provide for cases where a person becomes eligible to payments both under the Act and from an independent source by way of compensation that is in whole or in part in respect of an incapacity for work. The purpose of the scheme ... is discussed in Banks and Hull. The scheme was intended to avoid a person receiving double payments for an inability to exercise an earning capacity. ....
[16]. To eliminate difficulties which had arisen under earlier enactments which required the Secretary to form an opinion about how the amount of a payment by way of compensation was made up ... an arbitrary formula was adopted in sub.para.152(2)(c)(i). This formula enables the compensation part of a lump sum payment made in settlement of a claim to be fixed with administrative ease. ....

...

[17]. The arbitrary nature of the provisions of s.152 would have been quite apparent to the legislature. The "50% rule" in para.152(2)(c)(i), and the other provisions to which I have referred, are intended to operate together as a fair balance of the interests of the recipient of the payment with the competing interests of others in the community whose needs must be met as far as possible from a finite budget allocation for social security measures. As I observed in Banks, at 95 ALR p 613, 12 AAR 46, it is in the very nature of an arbitrary provision that it can entail a degree of unfairness in a particular case. The scheme of Part XVII recognises that perfect matching of eligibilities by dollar amounts or by periods of time for pension and for payments by way of compensation in respect of an incapacity for work is impracticable. At the same time the legislature must have recognised that from time to time a case may arise where the degree of unfairness to a recipient of a payment by way of compensation would bring about as unreasonable and unjust a result which was outside that which could be justified by the practical expediency of the arbitrary nature of the provisions in ss.152 and 153. Section 156 was enacted as part of the scheme under Part XVII before the "50% rule" was introduced by the Social Security Amendment Act 1988 (Cth), but this is no reason to construe s.156 as having no operation in respect of a case where the "50% rule" produces a clearly unjust result. Before the 1988 amendment there were other provisions in Part XVII the strict application of which could operate in an arbitrary way. By its terms the discretion given by s.156 may be exercised where the Secretary (or a body standing in the place of the Secretary on appeal) "considers it appropriate to do so in the special circumstances of the case". These are wide words intended, as the Tribunal in Ivovic (supra) pointed out, "to allow the decision-maker the fullest opportunity to consider the particular circumstances of each case".
[18] ... I do not think a distinction can meaningfully be drawn between matters external to the operation of the scheme, and matters which are the product of the strict application of ss 152 and 153. The facts peculiar to a particular person cannot be considered in isolation from the operation of the provisions of ss 152 and 153. The operation of those sections in the light of the facts surrounding the person concerned is part of the circumstances of the case. The circumstances of a particular case will give rise relevantly to an unreasonable or unjust result only if the operation of Pt XVII, apart from the ameliorating provisions of s 156, produces that result.

  1. Subsequently In Kertland [1999] FCA 1596; (1999) 57 ALD 600, the Secretary unsuccessfully relied on substantially the same arguments in relation to ss 17(3) and 1184 of the Act. (Those provisions are equivalent to ss 17(3) and 1184K under consideration in the present case.) In Kertland, an unemployed Victorian was injured in a motor vehicle accident. As a result of her injuries she first received social security benefits (sickness allowance and disability support pension) and thereafter a lump sum compensation under the Victorian Transport Accidents Act 1986 (VIC). However the latter did not include any incapacity compensation for the first 18 months after the accident – because the legislation precluded such compensation to people whose work incapacity arose during a period of unemployment. Once again, the Federal Court rejected the Secretary's argument that "special circumstances" were confined to an applicant's personal circumstances, and excluded considerations that were inherent in the potential operation of s 17(3) of the Act. Merkel J agreed with the reasoning in the earlier decision in Smith:
[34] In Smith ... von Doussa J rejected a contention put on behalf of the secretary that “the circumstances of the case” should be confined to matters which are external to the operation of the statutory scheme. His Honour made the point, with which I respectfully agree, that a distinction cannot meaningfully be drawn between matters external to the operation of the scheme and matters which are the product of the strict application of the scheme. 

  1. The fundamental point made by the Federal Court in Smith and Kertland was that the arbitrary formula in s 17(3)(a) of the Act, and the ameliorating discretion in (what is now) s 1184K(1) are part of the same legislative scheme. And on one view, the most important part of the reasoning in the Smith decision was the passage in paragraph [17] of the judgment that I have emphasised in the extract set out above. That passage, far from embracing the conclusion that the “administrative expediency” of the s 17(3)(a) provision precluded disparity (between the “compensation part” of a settlement payment and the amount that actually represented compensation for work incapacity) from being relevant to an assessment of “special circumstances”, favoured the view that a particular result may be unfair because “it could not be justified by the practical expediency of the arbitrary nature of the provisions”. Von Doussa J returned to this sentiment in the penultimate paragraph of the decision, where he said (emphasis added):
[20] In my opinion it was open to the Tribunal in the circumstances of this case to find “special circumstances” and to exercise the discretion ... in favour of the respondent for the reasons which it did. I do not regard the exercise of the discretion as unreasonable having regard to the purpose and object of Pt XVII. Allowing that the object and purpose is one of practical expediency at the expense in some cases of perfect fairness it was open to find, as the Tribunal did, that the operation of Pt XVII would otherwise be unjust in the circumstances of this case.

  1. The actual decision in Smith involved a factual finding that the compensation settlement payment and the social security incapacity payments did not relate to the same cause. More importantly, as von Doussa J recorded, the critical aspect of the case was the uncontentious fact “that the period of eligibility (for social security benefits) was unrelated to the compensable injury”: 23 ALD 277, 282. That fact positively established that Mr Smith had not received any compensation for work incapacity for the period of his hepatitis illness. The decision in Kertland turned on a factual finding that although the two kinds of payments had a common cause, they again related to different periods: [1999] FCA 1596; 95 FCR 64 at [41]. In both cases the difference in the periods to which the respective entitlements related demonstrated that the compensation payment did not in fact overlap with social security entitlement. That difference constituted special circumstances.
  2. The essential reasoning in Smith and Kertland has been influential in subsequent decisions. One example is provided by Torda and Secretary, Department of Family and Community Services [2004] AATA 338; (2004) 81 ALD 509 (‘Torda’). Mrs Torda obtained a substantial compensation judgment for a work related injury. The judgment amount included past economic loss but, because of a factual finding that she would have ceased work at 60 in any event, it included no component for future loss of earnings. Between her injury and the compensation payment Mrs Torda had (i) received periodic compensation payments and (ii) become entitled to the age pension. Because of the periodic compensation payments, the preclusion period prescribed by s 1170 of the Act extended beyond her 60th birthday – and thus into the period for which she had not been awarded any compensation for work incapacity.
  3. The Tribunal decided that the extension of the preclusion period beyond Mrs Torda's contemplated working life, despite the fact that the compensation payment did not include any damages for loss of work capacity in that period, constituted "special circumstances" and justified the exercise of the s 1184K(1) discretion. The Tribunal determined that the whole of the compensation payment should be treated as not having been made. In exercising the discretion the Tribunal said:
[21] .. the strict application of the Act has resulted in an outcome which is unfair and unjust to the applicant. ... the applicant was not awarded damages for future economic loss in the judgement of 30 June 2002, ... damages for past economic loss were awarded up to applicant’s 60th birthday, ... age pension payment commenced on 6 January 2000 ... any issue of double payment does not exist in this matter, as a consequence of the explicit terms of the damages award in the judgement of 30 June 2002. Further as a consequence of the imposition of a preclusion period of 124 weeks commencing 6 January 2000 pursuant to a strict application of the Act, the applicant has been deprived of 124 weeks of age pension payments, during a period for which she received no compensation by virtue of the judgement of June 2002. This the tribunal finds to be unfair and unjust.

[22] In the light of the tribunal’s findings that the set of circumstances that gave rise to the claim for compensation was not related to the set of circumstances that gave use to the applicant’s receipt of compensation affected payments and the finding that strict application of the Act has resulted in an outcome which is unfair and unjust in the circumstances detailed in this matter, the tribunal concludes that for these reasons the circumstances outlined in this matter constitute special circumstances.

[23] The tribunal ... determines to treat the whole of the compensation payment as not having been made. In exercising the nominated discretion within s 1184K(1), the tribunal noted again the particulars as to the date and quantum of the damages award for economic loss, the absence of payment for future economic loss and the date on which age pension payments commenced, the absence of any double payment in effect, and a financial detriment resulting to an individual as a consequence of a strict application of the Act, otherwise where indeed there has been no “double payment”.

  1. It is clear from these, and earlier passages in the Tribunal's Reasons for Decision in Torda, that it emphasised the basic object of the compensation payment recovery provisions of the Act was to address the problem of "double dipping" – i.e. the receipt of both compensation and social security benefits for the same period of disability or entitlement. In addition, the Tribunal noted that in Kirkbright v Secretary, Department of Family and Community Services [2000] FCA 1876; (2000) 32 AAR 120 (‘Kirkbright‘) Mansfield J had added his voice to those of von Doussa J in Smith and Merkel J in Kertland, in specifically rejecting the Secretary's contention that "special circumstances" could only be found outside the circumstances relating to the effect of the operation of the basic statutory provisions and in the personal circumstances of the particular applicant.
  2. One of the Tribunal's basic finding in Torda was that "the set of circumstances that gave rise to the claim for compensation was not related to the set of circumstances that gave use to the applicant’s receipt of compensation affected payments". A finding in those terms cannot alone justify a conclusion that special circumstances exist, because of the explicit declaration to that effect in ss 1160(2) and 1184K(2) of the Act. But it is equally important to appreciate that the substance of the "special circumstances" findings in Smith, Kertland, Edwards and Torda was that the compensation and disability entitlements related to different periods of incapacity. Sometimes those findings merely stated the lack of relationship between the events giving rise to the social security entitlement and the compensable injury. But the more substantial reason for the finding of "special circumstances", and the real point of distinction, is that the lump sum did not provide compensation for a particular period. Because it did not, no social security disentitlement or recovery was appropriate for that period.

The Secretary's contention that the settlement payment is indivisible


  1. According to the Secretary, once a compensation settlement payment falls within s 17(3) it is "inappropriate to dissect the lump sum" for the purpose of applying the “special circumstances” criterion. The Secretary cites a selection of cases as justifying this proposition, in particular: Hulls 22 ALD 570, 578 and 590: "once the mischief at which the amended legislation has been so clearly identified, it becomes apparent that the legislation prevents any dissection of the lump sum"; Secretary, Department of Family and Community Services v Chamberlain [2002] FCA 67; (2002) 116 FCR 348; 68 ALD 357 at [35]: "it is not intended that a decision maker be required to consider contentions about what part of the compensation reflected the economic loss component"; Chamberlain v Secretary, Department of Family and Community Services [2002] AATA 487: "the real lesson from Chamberlain .... "seems to be that once the .... statutory formula was correctly applied, the Tribunal is not otherwise interested in the formula and whether or not it accurately reflects the "true" position. The logic of the legislative scheme removes the need for that investigation".
  2. The decision in Hulls rejected a contention that legal costs could not be excluded from a lump sum – either on the basis that it was not itself a component of the damages, or because its inclusion in the settlement amount involved “special circumstances”. Properly understood, in the light of the matters in issue in that case, Hulls does not support the Secretary's more general contention in the present case.
  3. But support does appear to be provided by parts of the reasons in Chamberlain [2002] FCA 67; 116 FCR 348; (2002) 68 ALD 357 and Clark v Secretary, Department of Employment and Workplace Relations (2007) 131 ALD 129.
  4. Mrs Chamberlain was a 60 year old age pensioner when she was injured in a car accident. She obtained a lump sum compensation settlement payment of $35,000. The parties attributed $31,500 to pain and suffering and $3,500 for past and future loss of earnings. That loss was supposedly attributable to her occasional activities as a music teacher. In the Tribunal proceedings there was only very equivocal, and somewhat contradictory, evidence whether she had, or was likely to have, any such earnings. Mrs Chamberlain contended that the “compensation part” of her settlement payment was excessive if it was calculated as 50% of the total payment.
  5. In rejecting Mrs Chamberlain’s claim the Federal Court characterised s 17(3)(a) of the Act as a deeming provision that precluded any factual enquiry into the true extent to which the settlement payment represented compensation for work incapacity. That characterisation was initially, and explicitly, confined to the effect of s 17(3)(a) itself. But later the Federal Court went on to conclude that the practical effect of the provision was to limit the scope of any relevant factual enquiry in the exercise of the s 1184K(1) discretion. The relevant findings are expressed in the following passages of the reasons.

[24] Unlike a presumption, which may be rebutted by evidence, the purpose and effect of a deeming provision is to prevent any attempt, by either party, to prove the truth: Actors and Announcers Equity Association of Australia v Fontana Films Pty Ltd [1982] HCA 23; (1983) 150 CLR 169 at 214 ; [1982] HCA 23; 40 ALR 609 at 642 per Murphy J; a facility to put to rest the disputes which would otherwise arise concerning the facts: Macquarie Bank Ltd v Fociri Pty Ltd (1992) 27 NSWLR 203 at 227 ; 7 ASCR 553 at 556 per Kirby P. Whether a provision has this effect is determined principally by having regard to the purpose for which it is used: Macquarie Bank v Fociri at NSWLR 207– 8; ASCR 557 per Gleeson CJ; Muller v Dalgety & Co Ltd [1909] HCA 67; (1909) 9 CLR 693 ; 16 ALR 17; Rheem Australia Ltd v Collector of Customs (NSW) (1988) 14 ALD 786 ; 78 ALR 285 at 301.

[25] Here the factual assumptions upon which the calculations are based, including that which treats 50% of the total compensation payment as representing the economic loss component, could not have been intended to be subject to rebuttal in the process of applying the formulae. The statutory purpose is to overcome the need in each case to determine what part of a lump sum compensation payment in truth represents economic loss. Although the assumptions to be made and the result reached are necessarily arbitrary, it is a course which has been taken for administrative simplicity: Secretary, Department of Social Security v Hulls (1991) 22 ALD 570 at 579; Secretary, Department of Social Security v Smith (1991) 30 FCR 56 at 61 ; 23 ALD 277 at 282.

[26] These observations do not, however, conclude the matter, since s 1184 was inserted to ameliorate the harshness of the arbitrary provisions: Haidar v Secretary, Department of Social Security [1998] FCA 994; (1998) 52 ALD 255 at 263 ; 157 ALR 359 at 367 per Hill J. Pursuant to it the decision-maker is entitled to treat the compensation payment, or part of it, as if it had not been made, which is to say in a manner different from that required by the formulae. This is undertaken only if the requisite opinions are formed, namely that “special circumstances” exist and it is considered appropriate to treat the compensation payment such that there will either be no period when double payment is assumed to have been made, or there will be a shorter period.

...

[35] The statutory objectives in utilising the formulae, referred to above, must also be borne in mind. It is not intended that a decision-maker be required to consider contentions about what part of the compensation reflected the economic loss component. That is so whether one has regard to the application of the formulae or the discretion under s 1184. The latter does not alter the objective and must be read in light of it.


  1. The terms of s 17(3)(a) do not in fact indicate that it is a “deeming provision” in the sense in which that expression is used in paragraph [24] in the passage set out above. The section simply operates on the dual contingencies that the compensation payment (i) is at least partly “in respect of” damages for loss of income or loss of earning capacity, and (ii) has been quantified by settlement or consent judgment. If those contingencies are met, the compensation part is 50% of the settlement payment. That result follows directly from the express words of the definition, not because the definition "deems" 50% of the payment to have been made for work incapacity. Rather than operating as a deeming provision, it is more the case – and one itself recognised in paragraph [25] of the reasons – that the “compensation part” calculations are based on arbitrary factual assumptions made for the purpose of achieving administrative simplicity.
  2. Following on from its characterisation of the effect of s 17(3)(a), the Chamberlain judgment noted the Secretary’s contention about the limited matters that could be taken into account in the exercise of the s 1184K(1) discretion. The Secretary’s argument was “that the decision-maker can never take into account what was actually received by way of compensation for economic loss in considering the circumstances of the particular case”. In dealing with this argument the judgment referred to the decisions in Smith and Kertland. The Court said at [32] (emphasis added):
In each of Smith and Kertland it may be said that their Honours took into account the true position. The facts of those cases were unusual. It does not follow that the true facts in every case will have that quality. In those cases it could be seen, objectively, that there could not have been a double payment. In such a circumstance it might be concluded that the statutory assumption operated unjustly. This would not seem to me a situation which would often arise and sets these cases apart from the usual.

  1. This passage in Chamberlain endorses the essential reasoning in the Smith and Kertland decisions. That acceptance was qualified by the view, which von Doussa J had himself expressed in Smith (1991) 23 ALD 277, 282 that it was only in “unusual” cases where the “true position” might permit “objective” satisfaction that no double payment or entitlement could occur. Nevertheless, Chamberlain involves an explicit approval of the potential materiality of the “true” facts concerning the components of a compensation lump sum payment, and a consequential permissibility of an enquiry as to whether those facts were capable of “objective” determination. This approval in the Chamberlain judgment of the potential materiality of the “true” facts necessarily involves a rejection of the Secretary’s submission that s 17(3)(a) of the Act actually forecloses enquiry into that subject matter for the purpose of the exercise of the s 1184K discretion.
  2. In the light of the necessary consequence of Chamberlain’s explicit approval of the decisions in Smith and Kertland, and the reason for that approval, it is important to understand paragraph [35] of the reasons (which I have set out above) in the context of the whole judgment. Taken out of context, the paragraph might convey the idea that the s 1184K(1) discretion had to be exercised without enquiry into the true component parts of a settlement payment, and was restricted by the effect of s 17(3)(a). But an important part of the context is the judgment’s earlier reference to the decision in Hulls. In Hulls O’Loughlin J had held that it was an error of law to apply the statutory discretion “as a matter of course” (see Hulls 22 ALD 570, 580) merely because it was possible to identify some component of the settlement payment as unrelated to work incapacity (in that case, legal costs). This rejection of any “matter of course” resort to the s 1184K discretion best reflects the intended meaning of paragraph [35] of the judgment. Any broader emphasis on the importance of the compensation part formula in s 17(3)(a), in these sense contended for by the Secretary, is inconsistent with the previous Federal Court decisions in Banks, a’Beckett and Smith itself. Those decisions had recognised the “double dipping” objective of the legislation, and decided that there was no statutory justification for reading the s 1184K(1) discretion as subject to any implied limitation because of a supposed primacy of the 50% “compensation part” provision in s 17(3)(a).
  3. The real basis of the decision in Chamberlain was partly that there was no objective basis for determining the “true facts” in relation to the compensation for “economic loss” (i.e., the work incapacity) component of the settlement payment. It was also partly that disparity between the asserted work incapacity component, and the statutorily determined “compensation part” could not “by itself” amount to special circumstances. This appears from the Court’s earlier observations on the inadequacy of the evidence about the composition of the settlement payment components (see paragraph [2] of Chamberlain [2002] FCA 67; (2002) 116 FCR 348; 68 ALD 357), and from the following passages of the Reasons (emphases added):
[33] In the present case the tribunal considered that the application of the formulae was unfair to the applicant because she would have to pay more than she had received by way of compensation for economic loss, indeed twice as much. That factor will, however, be present in most cases and is an aspect of the application of the formulae. In my view it cannot, by itself, amount to a special circumstance, one out of the ordinary.
[34] The basis for the tribunal's view was its acceptance of what the parties to the settlement said had been offered and accepted for the economic loss component. It was far less than the statute assumed to be the case in applying the formulae. Again, however, this will be so in many, if not most, cases to which the Act applies. Further, the extent of the difference from the basis upon which the parties acted could not provide the necessary “special circumstance”. The statute has selected a figure which may operate in an arbitrary way.
...
[36] In my view the Tribunal was in error in its assessment of "special circumstances" and its decision must be set aside. The Tribunal does not however appear to have considered the facts put forward as personal to the applicant, which were the subject of earlier decisions. It seems to me necessary that the Tribunal reconsider the question of "special circumstances", in light of that information.

  1. These passages evidence a concern to preserve the effectiveness of the administrative facility intended by s 17(3)(a) of the Act. That facility was obviously intended to discourage parties from providing argumentative contentions about the actual extent of their work incapacity compensation. If parties provided contentions, and they tended to establish disparity between that compensation and the statutorily calculated “compensation part”, the disparity was not something that the Secretary was necessarily required to assess and act upon. The Secretary was not required to do so because frequent disparities of that kind have to be regarded as an unavoidable, and a legislatively acceptable, consequence of such an administrative procedure.
  2. Nevertheless the s 1184K discretion is also part of the administrative procedure. It evidences a legislative recognition that cases may arise where the degree of unfairness produced by inflexible application of the “compensation part” formula is “outside that which could be justified by the practical expediency of the arbitrary nature of the provisions”: Smith, 23 ALD 277, 281 (von Doussa J). The “special circumstances” discretion has the amplitude and generality set out earlier in these Reasons. Furthermore, it is a discretion that permits disregard of either the whole or part of a compensation payment. Those two considerations are inconsistent with uncritical acceptance of the Secretary’s contention that compensation payments are indivisible. That inconsistency is emphasised by the decisions in Smith and Kertland, and their endorsement in Chamberlain, that the “true facts” of the work incapacity component of a compensation payment are not only relevant, but may be decisive, considerations in the exercise of the discretion.
  3. The amplitude of the “special circumstances” discretion and the actual decisions in Smith and Kertland, suggest an element of overstatement in the proposition that “the extent of the difference from the basis upon which the parties acted could not provide the necessary “special circumstance”: see Chamberlain [2002] FCA 67; (2002) 116 FCR 348; 68 ALD 357 at [34]. At the least it should be understood as subject to the “by itself” qualification expressed in paragraph [33] of the judgment. That qualification invites a consideration of the other circumstances of the particular case, and in that consideration the extent of the difference may well be material.
  4. The potential complexity involved in applying the “special circumstances” criterion is readily apparent. Maintaining the intended balance between giving effect to the intended efficacy of the “compensation part” formula, and proper application of the discretion requires informed, but ultimately, impressionistic assessment. The stated reasons for such an assessment are likely to be nuanced to the individual circumstances, and require discrimination in their application to another. It is perhaps easy to understand why the decision in Chamberlain [2002] AATA 487, given its particular facts and parts of the reasoning, should have led to the view that in exercising the s 1184K(1) discretion the Tribunal "is not ... interested in the formula and whether or not it accurately reflects the "true" position. The logic of the legislative scheme removes the need for that investigation.": see Chamberlain [2002] AATA 487 at [20]. But, as I have endeavoured to show, that view is not entirely consistent with either the Chamberlain decision's “by itself” qualification or its qualified approval of the potential determinative relevance of the "true facts" involved in the compensation payment. Neither is it really consistent with the earlier decisions in Smith, Kertland and Edwards.
  5. In Clark (2007) 131 ALD 129, the Applicant had been disabled by work related hazards that entitled him to receive workers compensation payments. Almost five years later he settled a related damages claim against his employer and received a settlement payment of $280,000 (from which $88,082 in past workers compensation payments were deducted). By the time of the settlement Mr Clark was 66 years of age, and potentially qualified for the age pension. However, because of the workers compensation payments he had received, and the terms of s 1170(1), the (almost 3 year) social security preclusion period attributable to the settlement payment was held to operate from the date of his last compensation payment, rather than from the much earlier date when his work incapacity arose.
  6. Mr Clark’s appeal disputed the commencement date of the preclusion period. He alternatively contended that “special circumstances” justified the exercise of the s 1184K discretion. The two contentions were conceptually distinct, but they became merged in Mr Clark’s argument that the literal interpretation of s 1170(1) commencement date provision produced such an unfair result (at least in his circumstances) that it could not have been the legislative intention. Lindgren J rejected this argument. His Honour said:
[43] The provisions reflect a policy decision to treat that which remains after any repayment of any periodic compensation payments as relating, as to 50%, to loss of earnings or of earning capacity, in respect of the period after the expiry of the period covered by those payments. The provisions reflect an acceptance by the legislature that it is not practicable to achieve complete justice attuned to the circumstances of each individual case.
[44] It may well be that in Mr Clark’s case, because of his age, the sum of $280,000 included no component, or only a very small component, for loss of his capacity to earn beyond age 65 (29 April 2004) and the statutory formula produces a result that is unfair to him, but if so, that result flows from a deliberate policy decision of the legislature favouring simplicity and efficiency of administration and reduction in administrative costs over attaining a fair result in each case considered on its individual merits.

  1. Mr Clark contended he was precluded from recovering compensation for work incapacity after age 65 because of the limitations in the damages claim he had pleaded and particularised in the settled proceedings. Mr Clark’s legal advisers provided some evidence of their intentions about the scope of the damages claim. But Lindgren J dismissed the relevance of this evidence for three reasons in paras [65] – [67]:
  2. Lindgren J then went on to refer, with approval, to the decision in Chamberlain. His Honour set out paragraphs [34] and [35] of the Reasons in that case (both of which I have also set out earlier). He then continued:
[75] I respectfully agree with the approach that was taken by Kiefel J. The expression “special circumstances” in s 1184K does not embrace the circumstance that the 50% rule will yield a preclusion period beginning on a certain date that will or may be excessive, even grossly excessive, having regard to the component included in a lump sum settlement for loss of earnings or of earning capacity, to the age of the injured person, and perhaps to other circumstances.
[76] Once one embarks on an inquiry of the kind that would be required in such a case, one is defeating the legislative intention. The Parliament must be taken to have contemplated as “usual” or “ordinary” the circumstances of people placed as Mr Clark is. In effect, by adopting the rough and ready 50% rule, the legislature has faced such people with a choice: not sue at all and to rely, instead, on such other entitlements as may be available; litigate to trial so that the Court will identify a figure for loss of earnings and of earning capacity; or settle subject to the operation of the 50% rule.
[77] In the present case, Mr Clark must be taken to have decided against the former two courses. I do not know why he did so. In one sense, it seems unfair that Mr Clark should suffer a preclusion period until 15 February 2008, but I do not think that this constitutes “special circumstances” in the light of the legislative intention.
[78] If the position were otherwise, the régime that was introduced in 1988 would be defeated because it would be again open to parties to a settlement to attribute an artificially low figure to loss of earnings and earning capacity, and to the injured person, through s 1184K of the SS Act, to initiate the very kind of investigation that it was the intention of the 1988 amending Act to eliminate.
[79] For the above reasons, I do not think that the AAT erred in law in failing to exercise the discretion given by s 1184K of the SS Act.

  1. These paragraphs, and particularly paragraph [76], do support the Secretary’s contentions in the present case. However, there are a number of reasons to refrain from acquiescing in those contentions, rather than adhering to the principles that emerge from the previous decisions and that were endorsed in Chamberlain [2002] FCA 67; (2002) 116 FCR 348; 68 ALD 357.
  2. First of all, paragraph [75] does not explicitly repeat the “by itself” qualification contained in the Chamberlain judgment. It may be that a similar qualification was intended by the words “and perhaps to other considerations”. But if that is so, they operate as a very important qualification that does, at least potentially, permit the “dissection” of the lump sum payment components in connection with “other circumstances”.
  3. Second, paragraph [76] implies that because something must be taken to have been contemplated by a statutory provision, it must be regarded as “usual” or “ordinary”. However, as I set out earlier in these Reasons, the potential for one’s circumstances to be regarded as “unusual” or “extraordinarily” so as to qualify as “special circumstances” is not precluded by the fact that they may have been contemplated, or must be taken to have been contemplated by the scheme of s 17(3).
  4. Third, the hypothesis in paragraph [76] about the legislative policy of facing plaintiffs with the three choices described conveys a tone of ultimatum that is difficult to reconcile with the views expressed by von Doussa J in Smith 23 ALD 277, 281 that the legislature must have recognised that cases could occur where the degree of unfairness was beyond what could be justified by the practical expediency achieved by the arbitrary provision. Furthermore, the argumentative hypothesis that social security beneficiaries have an idiosyncratic ability to pursue or neglect compensation rights appears to overlook the Secretary’s powers to require a person to pursue compensation claims, and to withhold their benefit entitlements unless they comply: see ss 1166 and 1167 of the Act. Similarly, the hypothesis of a legislative intention to require plaintiffs to pursue their compensation litigation to deliberative judgment appears to overlook a number of potentially important considerations. The first of those is that all civil litigation proceedings are confined to the claims made. A plaintiff cannot pursue proceedings to a deliberative judgment against a defendant who submits to the claim. The second consideration is that many current court statues and rules require parties to limit disputes to the real matters in issue. In addition, many corporate and government litigants profess to be bound by model litigant procedures that have a similar purpose of limiting proceedings to matters of genuine contest. I note in particular that in the case of the Commonwealth, there is a statutory basis for model litigant procedures: see Judiciary Act 1903 (Cth), s 55ZF. Finally, modern court rules also commonly contain formal offer of compromise procedures. Under these procedures, parties who fruitlessly pursue litigation and fail to obtain a deliberative judgment that betters a formal settlement offer can suffer very significant cost penalties.
  5. Finally in relation to paragraph [76], the hypothesis that the legislative intention was to face plaintiffs with a choice between settlement or acceptance of the compensation part definition does not appear to sufficiently recognise the potential application of the “special circumstances” discretion to the extent that its scope has been applied in Smith, and emphasised in the other cases to which I referred earlier in these reasons. This restriction of the potential scope of the “special circumstances” is more readily apparent from the dichotomy suggested in paragraph [78] of the judgment – which is that no “special circumstances” enquiry into the actual work incapacity component of compensation is permissible, because allowing such an enquiry would permit parties to contrive their initiation by attributing artificially low amounts to such a component. That dichotomy is consistent with the view expressed in Hulls, that individual settlement components required to be amalgamated for the purpose of the “compensation part” definition cannot thereafter be taken into account, merely as a “matter of course”, in the “special circumstances” discretion. But the width of the “special circumstances” discretion requires the conclusion that the matter is one of degree and discretion in the individual circumstances of particular cases. In each of the earlier decisions in Smith, Kertland and Kirkbright the Federal Court rejected the contention that the relevant statutory intention and purpose was sufficiently derived in a way that could be used to control or limit the s 1184K discretion (or its predecessors), from the 50% rule that applied in determining the “compensation part” of a lump sum settlement payment.

The Secretary’s contention in relation to Robinson’s case


  1. In Robinson [2002] AATA 1011 the applicant was receiving unemployment benefits when he was hit by a car. He subsequently obtained a compensation judgment payment that included a $40,000 "buffer" for future economic loss. The judgment included nothing for past loss of earnings – because Mr Robinson had a history characterised by chronic drug and alcohol problems, but not employment.
  2. The Secretary determined that the compensation part of Mr Robinson's judgment payment was the $40,000 "buffer" for future economic loss. This resulted in 17 month preclusion period that operated retrospectively, and ended before the judgment date. The Secretary sought to recover $11,508 in relation to benefit payments made in the preclusion period. Echoing submissions that had been rejected in Smith, the Secretary contended that no injustice sufficient to give rise to “special circumstances” could follow from applying the s 17(3) formula. The Tribunal rejected the Secretary's submissions. It referred to the Federal Court's decision in Edwards as permitting enquiry into the actual nature of the compensation part payment and the damages to which the compensation itself related. The Tribunal then concluded, at [20]:
.... The Tribunal is satisfied that neither the sickness allowance, nor the Newstart allowance that he received during the preclusion period was causally related to the injuries suffered in the February 1997 accident, the incapacity arising therefrom or the compensation awarded in December 2000. The Tribunal is mindful that [the] verdict did not include any assessment for a component of special damages being earnings lost as a result of the injuries received in the accident, as opposed to the $40,000 awarded for diminution in future earning capacity. As there is no causal relationship between the social security payments and the incapacity for which the compensation was awarded, there is no double dipping."

  1. The Secretary contends the Robinson decision is distinguishable because it involved a judgment, not a settlement payment. S 17(3)(b) of the Act permits the Secretary to determine the compensation part of such a payment, and the arbitrary formula in that provision does not apply to a deliberative judgment. But this distinction is immaterial. In Robinson the Secretary determined that the "compensation part" was the $40,000 “buffer” for future economic loss. The point in issue was not the amount of the “compensation part” but rather whether "special circumstances” existed and whether the s 1184K(1) discretion should be applied. Contrary to the Secretary’s contention in the present case, the Tribunal’s reasoning in Robinson on that issue is not distinguishable.
  2. The Secretary contends that the reasoning in Robinson is also flawed because the Tribunal impermissibly relied on the absence of a causal connection between the compensation payments and the social security benefit entitlements. This is a superficially plausible contention, having regard to the terms of s 1184(K)(2) of the Act, and its declaration that such an absence "does not alone constitute special circumstances". But the substantial reality of the Tribunal's reasoning in Robinson was that the compensation and disability entitlements covered different periods of work incapacity, and were unrelated in that sense. That was the same basic reasoning that was applied in Smith and Kertland. Those decisions establish that such a difference could constitute "special circumstances" sufficient to enliven the s 1184K(1) discretion.

“Special” v “Ordinary” circumstances and blind DSP recipients


  1. In an earlier section of these reasons I discussed various authorities which, whilst eschewing exhaustive definition of the conceivably permissible extent of “special circumstances”, described its essence as requiring an impressionistic contrast between the particular circumstances in question and those that were “usual’ or “ordinary” within the contemplation of the Act. I also pointed out the diversity of the Act’s provisions to which the “special circumstances” criterion could be relevant. Their diversity highlights the potential difficulties involved in any supposition about what was “usual” or “ordinary”.
  2. Those potential difficulties have a particular resonance in the present case because of Mr Topp’s permanent blindness. Permanent blindness is regarded as a severe disability for the purposes of the Act: see s 23(4B). It is, in practical terms, an automatic DSP qualification: see s 95. The DSP rate payable to a blind person is determined by the Pension Rate Calculator B as set out in s 1065. Part of that rate calculation process requires an assessment of the notional DSP rate to which he would be entitled, if he had a different qualifying disability. The basic DSP rates are the same, but a blind person who is DSP qualified under s 95 is not directly subject to either an assets or income test. Rather, their DSP rate is the maximum of the “notional rate” and the rate determined after various adjustments including a pension supplement, remote area allowance and any deduction for advance payments made under Parts 3.16A and 3.16B of the Act. In practice, a blind DSP recipient who is not subject to any deductions for advance payments, may not have their DSP payment rate reduced by reason of any employment income.
  3. Despite the special considerations that determine a blind person’s entitlement to DSP, and the rate at which it is paid, DSP is nevertheless a “compensation affected payment” for the purpose of Part 3.14 of the same Act. That circumstance is a general indication that permanent blindness, despite its otherwise special social security entitlements, may not constitute a “special circumstance” sufficient to justify the exercise of the s 1184K discretion. Where the disentitlement provisions of ss 1169 and 1170 apply to a blind DSP recipient - because of their receipt of lump sum “compensation” - the 1184K discretion necessarily arises for determination against the background of that contrast between the ordinary case where the DSP rate may not be affected by other income, and the statutory requirement to take compensation payments into account. This is particularly the case where the person’s blindness is actually the result of the compensated injury – as was the case in both Parezanovic and Department of Social Security [1993] AATA 174 and Morgan and Department of Family and Community Services [1999] AATA 168; [1999] 56 ALD 579. Even people who have pre-existing permanent blindness may be faced with a preclusion period following receipt of unrelated compensation: see Lazarus v Secretary, Department of Family and Community Services [2003] AATA 120.
  4. On the other hand, both the fact of a pre-injury disability and a person’s blindness remain relevant considerations. In the case of pre-injury disability, if a person was receiving a DSP when they suffer a compensable injury, any periodic compensation they later receive is treated as ordinary income: see s 1173(4). Consequently, if their pre-existing social security benefit qualification was permanent blindness, the periodic compensation may not affect their DSP payment rate. If such a person receives lump sum compensation however, the applicable provisions ss 1168, 1169 and 1170 are different in wording and substance. Under s 1168 the lump sum preclusion provisions of Part 3.14 apply, and as a result suspend the DSP entitlement during the preclusion period “regardless of whether the ... compensation payment was received before or after the person received or claimed” DSP. But, unlike the specific provision that applies to the receipt of periodic compensation, SSA s 1169 does not deal explicitly with the situation where the social security entitlement precedes the compensable injury.
  5. Permanent blindness may have a particular relevance because of its impact on the particular person. Blindness has an inherent capacity to isolate – because it can significantly impede mobility, social interaction and the mundane imperatives of daily life. Depending on the extent of the particular person’s blindness, overcoming those difficulties can impose financial demands, just to enable the blind person to maintain an acceptable quality of life: see Hanrahan [2007] AATA 1417; (2007) 47 AAR 1 especially at paras [21]–[25], [29]. If the blindness either pre-exists, or is causally unrelated to, the compensable injury, those additional costs will not be reflected in the amount of any compensation payments, and must be met from other sources. And if such a blind DSP recipient has no other income or assets their blindness may, in conjunction with other considerations, justify a finding that “special circumstances” exist. This is so notwithstanding that (i) the same circumstances might not do so in the case of sighted person and (ii) that significant financial hardship is a foreseeable consequence of Part 3.14’s ordinary application to persons who receive DSP payments: Hanrahan [2007] AATA 1417; (2007) 47 AAR 1 at paras [32] and [43]-[47].

“special” v “ordinary” circumstances and the “compensation part” of settlement payments


  1. The circumstances and reasoning in Chamberlain demonstrate that a disparity between the asserted economic loss component of a settlement payment, and the statutorily determined "compensation part" of such a payment is unlikely “by itself” to establish "special circumstances". But there is a degree of opacity about the precise reason for that conclusion, and its real content. In relation to the content of the conclusion, Chamberlain itself permitted consideration of the applicant’s “personal circumstances”. And that consideration necessarily permits enquiry about the operation of the arbitrary provisions, for the reason von Doussa J gave in Smith (1991) 23 ALD 277, 281: “the facts peculiar to a particular person cannot be considered in isolation from the operation of the provisions ... The operation of those sections in the light of the facts surrounding the person concerned is part of the circumstances of the case.”
  2. As to the reasons for the restrictions on the finding of “special circumstances”, at least three following possibilities exist:
  3. Where the circumstances involve mere assertion, including genuine consensual assertion by the otherwise contesting parties, about the extent of any work incapacity, it is unsurprising that the assertion is insufficient to satisfy the “special circumstances” requirement. That requirement has to be satisfied by the objectively established facts, rather than the partisan interests of the compensation recipient. That need to identify objective relevant facts, also points to the difficulty of making any reliable assessment of the work incapacity component of a settlement payment where the amount reflects a genuine and substantial compromise. This is the case especially where the settlement amount evidences a substantial compromise on liability issues. Particularly in these cases, there is unlikely to be any real basis on which an accurate assessment of the work incapacity component of the settlement payment could be made: a ‘Beckett [1990] FCA 332; (1990) 26 FCR 349, 361.
  4. But the situation is different where the information that is necessary to consider (even if only to achieve satisfaction that the matter actually involves a payment “in respect of” work incapacity: see Philpott; Secretary, Department of Social Security [1998] AATA 150; Stern and Department of Family and Community Services [1999] AATA 54; Re Secretary, Department of Family and Community Services and Cioccia - [2002] AATA 759; (2002) 69 ALD 404) reveals the true position in relation to the extent of the work incapacity compensation. It is also different in cases such as Smith and Kertland.
  5. The diversity of the situations potentially involved in a settlement compensation payment highlights a significant ambiguity about the question what is “ordinary” or “common” in attempting to apply the s 1184K “special circumstances” discretion to lump sum compensation payments. Is the “usual” and “ordinary” case one where there is no objective basis to make a realistic assessment of the “true” work incapacity component of the settlement payment? Is the “usual” or “ordinary” case one where, by virtue of the arbitrary nature of the “compensation part” definition, even large proportionate and absolute disparities between the actual component of work incapacity and the “compensation part” should be viewed as an expected outcome and cannot be “special”? In any of these circumstances, does the enquiry about what is “usual” or “ordinary” operate as a gloss, and restrict the proper scope of the “special circumstances” criterion?
  6. The resolution of the question about what is the contemplated “usual” or “ordinary” case is provided partly by the nature of the SSA s 17(3)(a) definition as a measure of “practical expediency” (See Smith (1991) 30 FCR 56 per von Doussa J at para [17],) and partly by the statutory context. The statutory context indicates that the primary connotation of “compensation” is that it represents payments “wholly or partly” in respect of work incapacity. The primary purpose of the “compensation part” definition is to identify the part of the compensation payment that is “in respect of lost earnings or lost capacity to earn”. That purpose is explicit where the payment has been made pursuant to a deliberative judgment. S 17(3)(b) contemplates the Secretary will ordinarily accept an adjudicated determination of the judgment amount that represents compensation for loss of income or earning capacity. This tends to demonstrate that the fundamental legislative intention is to have the compensation recovery provisions operate by reference to the actual amounts awarded for losses of that kind, where they can be reliably and practicably determined.
  7. That intention is implicit in the case of settlement compensation payments, because of the characterisation of s 17(3)(b) as a measure of administrative or practical expedience. That characterisation itself assumes both an ultimate purpose of the administrative determination, and practical difficulty in otherwise fulfilling that purpose efficiently and reliably. It is implicit in the occasional references to s 17(3)(b) as if it was a deeming provision that “treats 50% of the total compensation payment as representing the economic loss component”: Chamberlain [2002] FCA 67; (2002) 116 FCR 348; 68 ALD 357 per Kiefel J at para [25]; see also Banks (1990) 23 FCR 416, 424 per von Doussa J. It is implicit because, apart from achieving a pragmatic administrative mechanism, there is no evident statutory purpose in applying different measures for determining the “compensation part” of judgment compensation payments, on the one hand, and settlement payments, on the other.
  8. The pragmatic administrative mechanism must be allowed to operate, and its operation will inevitably involve proceeding in circumstances of ignorance, contention or sometimes credible evidence, about the “true” extent of the work incapacity component in a compensation payment. In all those cases the purpose of the mechanism is to obviate the need for deliberative decision making. The risk of some disparity is inherent. Its occurrence in particular cases is, as it were, the contribution exacted from individual applicants towards the public good. But, for the reasons suggested in the preceding paragraph, there is a more fundamental legislative purpose than effectuating administrative simplicity. Consistent with the decisions in Smith, Kertland, Edwards, and Chamberlain itself, characterisation of the circumstances as “usual” or “ordinary”, no matter what the degree of disparity between the compensation part of a settlement payment and the objectively likely actual work incapacity component, ought not to be regarded as necessarily foreclosing evaluation of the “special circumstances” criterion. The point up to which foreclosure is appropriate is not amenable to bright line differentiation, but it is described well enough, in von Doussa J’s words, as the point where applying the s 17(3)(a) formula would produce a result that was “unreasonable and unjust ... [and] outside that which could be justified by the practical expediency of the arbitrary nature of the provisions”: Smith (1991) 30 FCR 56 per von Doussa J at [17]. This is an important and additional aspect of the proper application of the “special circumstances” criterion, and one that may not be adequately addressed merely by characterising the general circumstances as “ordinary” or “usual”.
  9. This aspect of the “special circumstances” discretion has a particular relevance to the present case, both as a matter of principle and in the light of other Tribunal decisions.
  10. In Jeffrey and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs [2009] AATA 471 (‘Jeffrey’), the Applicant had been receiving DSP because of incapacity attributable to depression and personality disorder. He was later injured in a motor vehicle accident. He suffered such serious brain damage that he was legally incapable of controlling his own affairs. His claim was ultimately settled for $1.3m, in accordance with a court approved settlement. The approval recorded $182,750 as the work incapacity component of the settlement. As a result of the $1.3m payment the Secretary applied s 17(3)(a) and imposed an almost 18 year preclusion period (until January 2020). The Secretary also sought to recover $75,640 in past DSP payments.
  11. The Applicant contended the $182,750 work incapacity component of the total court approved settlement related only to future economic loss. The basis of this contention was that his pre-existing history and disability effectively precluded recovery of any compensation for past economic loss. The Applicant also contended that most of the compensation payment would be required for Mr Jeffrey’s ongoing care. That need was the more acute because the final amount recovered already reflected a 15% reduction for contributory negligence.
  12. In Jeffrey the Tribunal observed that the evidence about the settlement amount pointed to an available inference that it had been structured deliberately to avoid any compensation for past work incapacity. The Tribunal did not however make a positive finding to that effect – noting merely that the very purpose of the “compensation part” definition in s 17(3) was to preclude reliance on any such manipulation of the components of the compensation payment. The Tribunal then concluded:
[48] I do not consider that there are special circumstances in this case. There is nothing before me to indicate that Mr Jeffrey’s case is unusual, uncommon or exceptional or markedly different from the usual run of such cases (see Re Groth v Secretary, Dept of Social Security [1995] FCA 1708; (1995) 40 ALD 541; Re Beadle v Director-General of Social Security [1984] AATA 176; (1985) 60 ALR 225). In coming to this conclusion, I have taken into account the medical evidence before me. It seems to me that the complaint in this case is that strict application of the statute gives rise to an unjust result. As Kiefel J pointed out in Secretary, Dept of Family and Community Services v Chamberlain [2002] FCA 67; (2002) 116 FCR 348 at 354–355, that, by itself, cannot amount to “special circumstances”.

  1. One must recognise the difficulty that has been encountered in the many attempts to formulate and apply a principled and consistent approach to the exercise of the s 1184K discretion. The difficulty is readily apparent by the contrast between the passage I have just cited from the decision Jeffrey and the earlier passages from the reasoning in Smith. In the passage just cited the proposition apparently implemented is that the strict application of the legislation cannot give rise to an unjust result and therefore the postulated injustice cannot amount to “special circumstances”. Even though it has been stated with the “by itself” qualification, it retains a rigidity that contrasts with the earlier decisions in Smith and Kertland. In the former, von Doussa J explicitly contemplated that the s 17(3)(a) formula could produce a result that was so unfair as to be beyond what could be justified by the arbitrary nature of the provision: see Smith (1991) 30 FCR 56 at [17].
  2. The possibility recognised by von Doussa J seems particularly realistic in the case of a catastrophically injured person. In the ordinary course of events their general damages, special expense needs and care costs, will likely dwarf any work incapacity compensation. This will certainly be the case where the person already had a limited work capacity at the time of the injury. If, in such a situation, the settlement payment is also affected by a liability risk discount, or a reduction for contributory negligence, the prospect of the “compensation part” formula causing real unfairness is not difficult to appreciate. Even without discounts of those kinds, all of their compensation for future loss will have been compensated on the basis of discounted present values. If the person is required to fund substantial social security repayments from a discounted compensation amount, there is again a real scope for consequential unfairness.
  3. The prospect of unfairness is not confined to the catastrophically injured. In Lee v Secretary, Department of Education, Employment and Workplace Relations [2009] AATA 372 the Applicant was a student who had been injured in a motor vehicle accident. She subsequently received youth allowance, during her college course, and Newstart allowance (during a brief period of unemployment unrelated to her injuries). Her claim for past economic loss was $22,000. It most likely related only to the period after completion of her studies. Her claim for future economic loss was between $300,000-$537,000. These claims were disputed (save to the extent of $875 for loss of income). In the end result she settled the damages claim for $150,000.
  4. In the Tribunal review proceedings the only matter in issue was the Secretary’s claim to recover benefit payments totalling $11,660 (the calculated preclusion period having expired in any event). The Tribunal found that the settlement sum included a small component for lost earnings and some small sum for future economic loss. The balance, and thus the preponderance, of the settlement payment was required to meet her ongoing medical expenses. Nevertheless, in rejecting the claim for favourable exercise of the s 1184K discretion the Tribunal said:
[21] So far as the Applicant’s personal circumstances are concerned, while I acknowledge that she has ongoing and not insubstantial expenditure as a result of the injuries she suffered in the motor vehicle accident, her circumstances could not be described as “special” in the sense that they are in some way out of the ordinary or unusual.
[22] What I do agree is unusual and unfair is the effect of the arbitrary imposition of a 50% calculation figure in this particular Applicant’s case. ...
[23] As pointed out by Kiefel J in Chamberlin supra, any disparity between the 50% formulae and the Applicant’s actual economic loss cannot amount to a special circumstance. Free of that authority, I would hold that it did.

  1. An important part of the reasoning in Chamberlain was the “by itself” qualification. If the bulk of a compensation settlement payment has in fact been paid or is required for medical expenses that cannot otherwise be met, that might possibly be a foreseeable consequence of the arbitrary s 17(3)(a) definition of the “compensation part”. But the mere foreseeability of such a possibility does not foreclose enquiry about “special circumstances”. Such a demonstrable need might well contribute towards a conclusion that “special circumstances” did indeed exist in the particular case.
  2. A case that illustrates that possibility is Welch and Secretary, Department of Family and Community Services, Re [2003] AATA 905; (2003) 78 ALD 550. The case involved a claim arising out of a catastrophic motor vehicle accident. The Applicant, who had been gravely injured, compromised his claim for $1.4m. That amount had been determined after giving effect to a 65% reduction for contributory negligence. The reduction indicated that his total potential damages were close $4m. The compromise was given effect by a court approved settlement. The approval was informed by a counsel's opinion that isolated the compensation components for past and future economic loss. That opinion assessed his total work incapacity losses as $878,000 and the settlement component of those losses (after the reduction for contributory negligence) as $304,000. This was very substantially below the $704,000 "compensation part" determined in accordance with s 17(3)(a) of the Act. In relation to this evidence the Tribunal said:
[56] In the present case there is no doubt that Bryce was compensated for the loss of past and future income. In the period between the date of accident and the date of settlement the lost income was assessed (after taking into account the contributory negligence) as approximately $99,000 and Centrelink recovered approximately $75,000 of that amount. For that period, at least, it cannot be said that the Part 3.14 regime has operated unfairly or unjustly. However, when the situation as a whole is considered, it can be seen that Bryce recovered a total of $304,174 for past and future economic loss (or approximately 21.6% of the total compensation amount) whereas the statutory formula required 50% of the total amount to be taken to be in respect of past and future economic loss.
[57] Chamberlain (above) is authority for the proposition that the fact that the statutory formula operates in that way — to result in a large difference between what was offered and accepted by way of the economic loss component and the amount that the statute assumed to be the case — can not, of itself, provide the necessary special circumstance. The difference between the agreed economic loss component and the statutory amount in the present case cannot, therefore, be considered as a special circumstance.

  1. The Tribunal then went on to consider Mr Welch’s particular needs, and the extent to which he would depend in the future on the adequacy of the compensation amounts awarded in the Court approved settlement. The Tribunal said:
[62] In my opinion, having regard to Bryce’s medical conditions (which I consider to be exceptional and out of the ordinary), his complete inability to provide for himself physically or financially (other than through the trust fund), his parent’s age and declining ability to care for him (physically and financially), and his probable need for increasingly expensive care arrangements, Bryce’s situation can indeed be described as out of the ordinary and exceptional. It would, therefore, be appropriate, in my opinion, to treat some part of the compensation payment as not having been made. The question is what proportion of the amount should be so treated?
[63] Although, for the reasons set out above, the difference between the amount Bryce actually received for past and future economic loss and the statutory amount could not be regarded, of itself, as a special circumstance, the fact remains that in this case Bryce’s advisers, with the assistance of counsel, carefully considered what amount could reasonably be expected to be awarded by a Court as economic loss had there been a trial on the question of quantum. The Court clearly must have been satisfied that all the relevant factors had been considered and that the amounts were within the range of what a court would have awarded.
[64] In that sense the amount of the past and future economic loss component in the agreed settlement is the best estimate available to me of what Bryce’s loss actually was. In my opinion a preclusion period that reflects that reality would be, in the special circumstances of the case, a fair outcome. It would mean that the length of the preclusion period did match the amount actually received. In that sense it would, as far as practicable, give effect to the objective that there should be no double-dipping by those who receive compensation payments and then seek social security benefits.

  1. The result in Welch’s case, properly understood, reflects a situation in which the “by itself” qualification in the Chamberlain reasoning, permits careful regard to the Applicant’s personal circumstances and to the “true facts” (i.e., the best assessment) of the actual amount of the compensation payment that represented the compensation component for work incapacity.

Exercise of the S 1184K discretion in Mr Topp’s circumstances


  1. The remaining question for determination, having regard to my earlier findings that special circumstances do exist, is whether it is appropriate to treat any part of the compensation payment as not having been made.
  2. The principal basis for my finding that “special circumstances” apply to Mr Topp’s settlement payment is that it does not include compensation for any part of his statutory preclusion period. For that reason, consistent with the decisions in Smith and Kertland, the s 1184K discretion should be exercised so as to treat the whole of his compensation payment as not having been made.
  3. I would exercise the discretion in the same way in relation to the additional basis on which I consider that special circumstances apply to Mr Topp. His June 2008 settlement payment can now be regarded as having the following components:
Item
Amount
Settlement amount
500,000


Legal costs since paid but partly disputed
170,000
Disbursements
30,000
Subsequent personal disbursements
20,000
Net settlement proceeds
280,000


Compensation part
250,000
Centrelink charge
74,547
Balance after Centrelink repayment
205,453
Notional investment income (at say 5%)
10,273

  1. Mr Topp has ongoing expenses related to his disability, and his study. Expressed as annualised expenses they include the following.
Item
Amount
Home care assistance
2,600
Analgesic medication
2,080
Physiotherapy (weekly)
unaffordable
Travel (up to)
5,200
Internet access fees
1,080
Adaptive computer equipment
10,000
Total
20,960

  1. Mr Topp’s notional investment income is calculated on a payment balance that includes components for general damages, and costs associated with any ongoing care and treatment particularly related to his September 2003 injuries. Even so, on the basis of the financial analysis reflected in the preceding details, Mr Topp’s income, confined to the notional income he presumably derives from the settlement fund balance currently invested on term deposit, is quite insufficient to meet his special disability needs. It is inadequate to meet in addition, his other ordinary expenses. Even though he lives alone in a rent free house provided by his parents, his other living expenses must be substantial. They include contributing to the costs of maintaining his infant son. There is no evidence that Mr Topp has any significant assets and, having regard to the nature, extent and duration of his disabilities, I would infer he has none.
  2. Up until 6 January 2010 (the end of the exclusion period imposed by the Social Security Act 1991) the only way apparently available to Mr Topp to fund this expenditure shortfall was to apply part of the settlement balance to his current needs. The fact that he did so presumably accounts for the approximate amount of $20,000 for subsequent disbursements, in the table I have set out earlier.
  3. Mr Topp’s financial situation will improve with the end of his exclusion period. However, in the additional special circumstances I have described, and taking into account his financial situation, I consider the preferable exercise of the discretion in his circumstances is to treat the whole of the compensation payment as not having been made.


DECISION


  1. The decision under review is set aside. In substitution for the decision under review the Tribunal determines that it is appropriate in the special circumstances of Mr Topp to treat the whole of the 10 June 2008 compensation payment of $500,000 as not having been made.

I certify that the 141 preceding paragraphs are a true copy of the reasons for the decision herein of Mr P W Taylor SC, Senior Member.


Signed: ......[sgd]...............................................................

Associate


Date of Hearing: 24 November 2009

Date of Decision: 11 February 2010

Solicitor for the Applicant: Mr Niall Connolly, Niall Connolly Lawyers

Solicitor for the Respondent: Mr Mark Nicoletti, Centrelink Legal Services

SCHEDULE


SOCIAL SECURITY ACT 1991


17  Compensation recovery definitions

...

      (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.


Compensation part of a lump sum

             (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.


95  Qualification for disability support pension—permanent blindness

             (1)  A person is qualified for a disability support pension if:

                     (a)  the person is permanently blind; and

                     (b)  the person has turned 16; and

                     (c)  the person:

                              (i)  is an Australian resident at the time when the person first satisfies paragraph (a); or

                             (ii)  has 10 years qualifying Australian residence; or

                           (iia)  has a qualifying residence exemption for a disability support pension; or

                            (iii)  is born outside Australia and, at the time when the person first satisfies paragraph (a), the person:

                                        (A)  is not an Australian resident; and

                                        (B)  is a dependent child of an Australian resident;

                                   and the person becomes an Australian resident while a dependent child of an Australian resident.

Note:          for Australian resident and qualifying Australian residence see section 7.

Person not qualified in certain circumstances

             (2)  A person is not qualified for a disability support pension on the basis of blindness if the person brought about the blindness with a view to obtaining a disability support pension or a sickness allowance or with a view to obtaining an exemption, because of the person’s blindness, from the requirement to satisfy the activity test for the purposes of job search allowance, newstart allowance, youth training allowance, youth allowance or austudy payment.


Division 5—Rate of disability support pension

117  How to work out a person’s disability support pension rate

                   A person’s disability support pension rate is worked out:

                     (a)  if the person is not permanently blind and paragraph (b) does not apply to the person—using Pension Rate Calculator A at the end of section 1064 (see Part 3.2); or

                     (b)  if the person is not permanently blind, has not turned 21 and does not have any dependent children—using Pension Rate Calculator D at the end of section 1066A (see Part 3.4A); or

                     (c)  if the person is permanently blind and paragraph (d) does not apply to the person—using Pension Rate Calculator B at the end of section 1065 (see Part 3.3); or

                     (d)  if the person is permanently blind, has not turned 21 and does not have any dependent children—using Pension Rate Calculator E at the end of section 1066B (see Part 3.4B).

Note:          For dependent child see section 5.


Chapter 3—General provisions relating to payability and rates

Part 3.3—Pension Rate Calculator B

1065  Rate of age and disability support pension and of disability wage supplement (blind people)

             (1)  The rate of:

                     (a)  age pension payable to a person who is permanently blind; and

                     (b)  disability support pension payable to a person who:

                              (i)  is permanently blind; and

                             (ii)  has turned 21; and

                     (c)  disability support pension payable to a person who:

                              (i)  is permanently blind; and

                             (ii)  has not turned 21; and

                            (iii)  has one or more dependent children;

is to be calculated in accordance with the Rate Calculator at the end of this section.

Note 1:       Module A of the Rate Calculator establishes the overall rate calculation process and the remaining Modules provide for the calculation of the component amounts used in the overall rate calculation.

Note 2:       For dependent child see section 5.


Part 3.14—Compensation recovery

Division 1—General

1160  General effect of Part

             (1)  This Part operates in certain specified circumstances to do one or more of the following:

                     (a)  reduce a person’s compensation affected payment;

                     (b)  render a person’s compensation affected payment not payable;

                     (c)  require the repayment of some or all of a person’s compensation affected payment;

because of the receipt of compensation by the person or the person’s partner.

             (2)  This Part applies whether or not there is any connection between the circumstances that give rise to the person’s qualification for the compensation affected payment and the circumstances that give rise to the receipt of compensation by the person or the person’s partner.

1161  Application of Part

             (1)  Subject to subsections (2) to (7), payments of a compensation affected payment are affected under this Part if:

                     (a)  whether the compensation was received before or after the commencement of this Part, the compensation affected payment is:

                              (i)  a newstart allowance in relation to which, under Subdivision BA of Division 1 of Part 2.12, the recipient of the allowance is not required to satisfy the activity test; or

                             (ii)   a sickness allowance; or

                            (iii)  a sickness benefit under the 1947 Act; or

                            (iv)  a rehabilitation allowance under the 1947 Act payable in place of sickness benefit under the 1947 Act; or

                     (b)  in the case of any other kind of compensation affected payment, the compensation was received on or after 1 May 1987 and the claim for the compensation affected payment was made on or after 1 May 1987.


Division 3—Receipt of compensation

1168  Application

                   A provision of this Division that refers to a person receiving or claiming a compensation affected payment and receiving a lump sum compensation payment has effect regardless of whether the lump sum compensation payment was received before or after the person received or claimed the compensation affected payment.

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.

             (2)  In this section:

lump sum compensation payment does not include a lump sum payment:

                     (a)  to which section 1164 applies; or

                     (b)  that relates only to arrears of periodic compensation payments.

1170  Lump sum preclusion period

             (1)  Subject to subsection (2), if a person receives both periodic compensation payments and a lump sum compensation payment, the lump sum preclusion period is the period that:

                     (a)  begins on the day following the last day of the periodic payments period or, where there is more than one periodic payments period, the day following the last day of the last periodic payments period; and

                     (b)  ends at the end of the number of weeks worked out under subsections (4) and (5).

             (2)  If a person chooses to receive part of an entitlement to periodic compensation payments in the form of a lump sum, the lump sum preclusion period is the period that:

                     (a)  begins on the first day on which the person’s periodic compensation payment is a reduced payment because of that choice; and

                     (b)  ends at the end of the number of weeks worked out under subsections (4) and (5).

             (3)  If neither of subsections (1) and (2) applies, the lump sum preclusion period is the period that:

                     (a)  begins on the day on which the loss of earnings or loss of capacity to earn began; and

                     (b)  ends at the end of the number of weeks worked out under subsections (4) and (5).

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

SSA91Vol03_10681361A_Sch1A1B_WD02_image037

             (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.


1171  Deemed lump sum payment arising from separate payments

             (1)  If:

                     (a)  a person receives 2 or more lump sum payments in relation to the same event that gave rise to an entitlement of the person to compensation (the multiple payments); and

                     (b)  at least one of the multiple payments is made wholly or partly in respect of lost earnings or lost capacity to earn;

the following paragraphs have effect for the purposes of this Act and the Administration Act:

                     (c)  the person is taken to have received one lump sum compensation payment (the single payment) of an amount equal to the sum of the multiple payments;

                     (d)  the single payment is taken to have been received by the person:

                              (i)  on the day on which he or she received the last of the multiple payments; or

                             (ii)  if the multiple payments were all received on the same day, on that day.

             (2)  A payment is not a lump sum payment for the purposes of paragraph (1)(a) if it relates exclusively to arrears of periodic compensation.


1172  Lump sum compensation not counted as ordinary income

                   If an amount of a compensation affected payment is not payable to a person under section 1169 because the person has received a lump sum compensation payment, that lump sum compensation payment is not to be regarded as ordinary income of either the person or the person’s partner (if any) for the purposes of a provision of this Act, other than point 1071A-4.


...

1173  Effect of periodic compensation payments on rate of person’s compensation affected payment

             (1)  If:

                     (a)  a person receives periodic compensation payments; and

                     (b)  the person was not, at the time of the event that gave rise to the entitlement of the person to the compensation, qualified for, and receiving, a compensation affected payment; and

                     (c)  the person receives or claims a compensation affected payment in relation to a day or days in the periodic payments period;

the rate of the person’s compensation affected payment in relation to that day or those days is reduced in accordance with subsection (2).

             (2)  The person’s daily rate of compensation affected payment is reduced by the amount of the person’s daily rate of periodic compensation.

             (3)  The reference in subsection (2) to a daily rate of periodic compensation is a reference to the amount worked out by dividing the total amount of the periodic compensation payments referred to in paragraph (1)(a) by the number of days in the periodic payments period.

             (4)  If:

                     (a)  a person receives periodic compensation payments; and

                     (b)  at the time of the event that gave rise to the entitlement of the person to compensation, the person was qualified for, and was receiving, a compensation affected payment; and

                     (c)  the person receives or claims a compensation affected payment in relation to a day or days in the periodic payments period;

the periodic compensation payments are to be treated as ordinary income of the person for the purposes of this Act.


1175  Rate reduction under both income/assets test and this Part

                   If the rate of a person’s compensation affected payment is reduced under this Part, the reduction applies to the person’s rate as reduced under the ordinary income test Module or the assets test Module of the relevant Rate Calculator.

1176  Periodic compensation not counted as ordinary income

                   If an instalment of a compensation affected payment payable to a person is reduced under section 1173 because of the receipt of periodic compensation payments, those payments are not to be regarded as ordinary income of the person for the purposes of a provision of this Act, other than point 1071A-4.
 

Division 4—Recoverable amounts

Subdivision A—Preliminary

1177  Interpretation

                   If:

                     (a)  a person is liable to make a compensation payment to another person; or

                     (b)  an authority of a State or Territory has determined that it will make a compensation payment to another person, whether or not it is liable to make the payment;

then, for the purposes of this Division, in relation to the person to whom the compensation is payable or is to be paid, the following paragraphs have effect:

                     (c)  a reference to the lump sum preclusion period is a reference to the period that would represent the lump sum preclusion period if the compensation were paid in accordance with the liability or determination;

                     (d)  a reference to the periodic payments period is a reference to the period that would represent the periodic payments period if the compensation were paid in accordance with the liability or determination.

Subdivision B—Recovery from recipient of compensation affected payment

1178  Repayment of amount where both lump sum and payments of compensation affected payment have been received

             (1)  If:

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

                     (b)  the person receives payments of a compensation affected payment in relation to a day or days in 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.

             (2)  The amount to be specified in the notice is the recoverable amount under section 1179.

1179  The section 1178 recoverable amount

                   The recoverable amount under this section is equal to the smaller of the following amounts:

                     (a)  the compensation part of the lump sum compensation payment;

                     (b)  the sum of the payments of the compensation affected payment made to the person in relation to a day or days in the lump sum preclusion period.

1180  Repayment where both periodic compensation payments and payments of compensation affected payment have been received

             (1)  If:

                     (a)  a person receives periodic compensation payments; and

                     (b)  the person was not, at the time of the event that gave rise to the entitlement of the person to the compensation, qualified for, and receiving, a compensation affected payment; and

                     (c)  the person receives payments of a compensation affected payment in relation to a day or days in the periodic payments period; and

                     (d)  the payments referred to in paragraph (c) have not been reduced to nil as a result of the operation of section 1173;

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.

             (2)  The amount to be specified in a notice for the purpose of subsection (1) is the recoverable amount under section 1181.

1181  The section 1180 recoverable amount

             (1)  Subject to subsection (2), the recoverable amount under this section is equal to the smaller of the following amounts:

                     (a)  the sum of the periodic compensation payments;

                     (b)  the difference between:

                              (i)  the sum of the compensation affected payments made to the person in relation to a day or days in the periodic payments period; and

                             (ii)  the sum of the compensation affected payments that would have been made to the person in relation to any such day or days had those payments been made at the rate to which the payments were reduced as a result of the operation of section 1173.

             (2)  If:

                     (a)  a person is a member of a couple; and

                     (b)  the person’s partner receives a compensation affected payment in relation to a day or days in the periodic payments period;

the recoverable amount under this section is equal to the smaller of the following amounts:

                     (c)  the sum of the periodic compensation payments;

                     (d)  the difference between:

                              (i)  the sum of the compensation affected payments made to the person and the person’s partner in relation to a day or days in the periodic payments period; and

                             (ii)  the sum of the compensation affected payments that would have been made to the person and the person’s partner in relation to any such day or days had those payments been made at the rates to which the payments were reduced as a result of the operation of sections 1173 and 1174.


Subdivision C—Recovery from compensation payers and insurers

...

1184  Secretary may send recovery notice to compensation payer or insurer

             (1)  If:

                     (a)  a person (the compensation payer):

                              (i)  is liable to pay compensation to a person (a claimant); or

                             (ii)  where the compensation payer is an authority of a State or Territory, has determined that a payment by way of compensation is to be made to a claimant; and

                     (b)  the claimant has received a compensation affected payment in relation to a day or days in the periodic payments period or the lump sum preclusion period, as the case may be;

the Secretary may give written notice to the compensation payer that the Secretary proposes to recover from the compensation payer the amount specified in the notice.

             (2)  If:

                     (a)  an insurer is liable, under a contract of insurance, to indemnify a compensation payer against any liability arising from a person’s claim for compensation; and

                     (b)  the person has received a compensation affected payment in relation to a day or days in the periodic payments period or the lump sum preclusion period, as the case may be;

the Secretary may give written notice to the insurer that the Secretary proposes to recover from the insurer the amount specified in the notice.

             (3)  If a compensation payer or insurer is given notice under subsection (1) or (2), as the case may be, the compensation payer or insurer is liable to pay to the Commonwealth the amount specified in the notice.

             (4)  The amount to be specified in the notice is the recoverable amount under section 1184A.

             (5)  A notice under this section must contain a statement of the effect of section 1184D so far as it relates to such a notice.

             (6)  This section applies to an amount payable by way of compensation in spite of any law of a State or Territory (however expressed) under which the compensation is inalienable.

1184A  The section 1184 recoverable amount

             (1)  If a person receives compensation affected payments in relation to a day or days in a lump sum preclusion period, the recoverable amount under this section is equal to the smallest of the following amounts:

                     (a)  the sum of all compensation affected payments made to the person that relate to a day or days in a lump sum preclusion period;

                     (b)  the compensation part of the lump sum payment;

                     (c)  in the case of a compensation payer—the maximum amount that the compensation payer is liable to pay to the person in relation to the matter at any time after receiving:

                              (i)  a notice under section 1182 in relation to the matter; or

                             (ii)  if the compensation payer has not received a notice under section 1182—the notice under section 1184 in relation to the matter;

                     (d)  in the case of an insurer—the maximum amount for which the insurer is liable to indemnify the compensation payer in relation to the matter at any time after receiving:

                              (i)  a notice under section 1182 in relation to the matter; or

                             (ii)  if the insurer has not received a notice under section 1182—the notice under section 1184 in relation to the matter.

             (2)  Subject to subsection (4), if:

                     (a)  a person receives compensation affected payments in relation to a day or days in a periodic payments period; and

                     (b)  either:

                              (i)  the person is not a member of a couple; or

                             (ii)  the person’s partner neither receives nor claims a compensation affected payment in relation to any day in the periodic payments period;

the recoverable amount under this section is equal to the smallest of the following amounts:

                     (c)  the difference between:

                              (i)  the sum of all compensation affected payments made to the person that relate to a day or days in a periodic payments period; and

                             (ii)  the sum of all compensation affected payments that would have been made to the person in relation to any such day or days had those payments been reduced in accordance with section 1173;

                     (d)  the sum of the amounts of the periodic compensation payments;

                     (e)  in the case of a compensation payer—the maximum amount that the compensation payer is liable to pay to the person in relation to the matter at any time after receiving:

                              (i)  a notice under section 1182 in relation to the matter; or

                             (ii)  if the compensation payer has not received a notice under section 1182—the notice under section 1184 in relation to the matter;

                      (f)  in the case of an insurer—the maximum amount for which the insurer is liable to indemnify the compensation payer in relation to the matter at any time after receiving:

                              (i)  a notice under section 1182 in relation to the matter; or

                             (ii)  if the insurer has not received a notice under section 1182—the notice under section 1184 in relation to the matter.

             (3)  Subject to subsection (4), if:

                     (a)  the person claiming compensation is a member of a couple; and

                     (b)  compensation affected payments received by the person were received in relation to a day or days in a periodic payments period; and

                     (c)  the person’s partner receives a compensation affected payment in relation to a day or days in the periodic payments period;

the recoverable amount under this section is equal to the smallest of the following amounts:

                     (d)  the difference between:

                              (i)  the sum of all compensation affected payments made to the person and the person’s partner in relation to a day or days in the periodic payments period; and

                             (ii)  the sum of all compensation affected payments that would have been made to the person and the person’s partner in relation to any such day or days had those payments been reduced as a result of the operation of section 1173 or 1174;

                     (e)  the sum of the amounts of the periodic compensation payments;

                      (f)  in the case of a compensation payer—the maximum amount that the compensation payer is liable to pay to the person in relation to the matter at any time after receiving:

                              (i)  a notice under section 1182 in relation to the matter; or

                             (ii)  if the compensation payer has not received a notice under section 1182—the notice under section 1184 in relation to the matter;

                     (g)  in the case of an insurer—the maximum amount for which the insurer is liable to indemnify the compensation payer in relation to the matter at any time after receiving:

                              (i)  a notice under section 1182 in relation to the matter; or

                             (ii)  if the insurer has not received a notice under section 1182—the notice under section 1184 in relation to the matter.

             (4)  If:

                     (a)  at the time of the event that gave rise to the entitlement of a person to compensation, the person was qualified for, and was receiving, a compensation affected payment; and

                     (b)  the person or the person’s partner received or claimed a compensation affected payment in relation to a day or days in the periodic payments period;

the recoverable amount is the amount determined by the Secretary to be the total amount by which the person’s, or the person’s partner’s, compensation affected payment in relation to a day or days in the periodic payments period would have been reduced if a determination had been made under Division 7 of Part 3 of the Administration Act because of point 1064-E3, 1066A-F2A, 1067G-H25, 1067L-D24, 1068-G8A, 1068A-E13 or 1068B-D21 of this Act.


Division 5—Recoverable debts

1184F  Debts resulting from notices under section 1178 or 1180

                   If the Secretary gives a person a notice under section 1178 or 1180 determining that the person is liable to pay to the Commonwealth the amount specified in the notice, the amount so specified is a debt due by the person to the Commonwealth.

...

Division 6—Miscellaneous

1184J  Secretary may give recovery notice either to compensation payer or to insurer but not to both

             (1)  The Secretary is not to give a notice to an insurer under section 1184 about a matter if there is a notice to a compensation payer under section 1184 in force in relation to the same matter.

             (2)  The Secretary is not to give a notice to a compensation payer under section 1184 about a matter if there is a notice to an insurer under section 1184 in force in relation to the same matter.

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.

             (2)  If:

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

                     (b)  the person receives compensation; and

                     (c)  the set of circumstances that gave rise to the claim for compensation is not related to the set of circumstances that gave rise to the person’s or the person’s partner’s receipt of, or claim for, the compensation affected payment;

the fact that those 2 sets of circumstances are unrelated does not alone constitute special circumstances for the purposes of subsection (1).

Chapter 5—Overpayments and debt recovery

...Part 5.2—Amounts recoverable under this Act

...1223  Debts arising from lack of qualification, overpayment etc.
             (1)  Subject to this section, if:

(a) a social security payment is made; and
(b) a person who obtains the benefit of the payment was not entitled for any reason to obtain that benefit;

the amount of the payment is a debt due to the Commonwealth by the person and the debt is taken to arise when the person obtains the benefit of the payment.

...

Part 5.4—Non-recovery of debts
  

1235  Meaning of debt

                   In this Part, debt means:

                     (a)  a debt recoverable by the Commonwealth under Part 5.2; or

                     (b)  a debt under the 1947 Act; or

                     (c)  a debt due to the Commonwealth under a scheduled international social security agreement; or

                     (d)  a debt under the Social Security (Fares Allowance) Rules 1998.

Note:          Overpayments under section 1228 are not debts for the purposes of Part 5.2.

1236  Secretary may write off debt

             (1)  Subject to subsection (1A), the Secretary may, on behalf of the Commonwealth, decide to write off a debt, for a stated period or otherwise.

          (1A)  The Secretary may decide to write off a debt under subsection (1) if, and only if:

                     (a)  the debt is irrecoverable at law; or

                     (b)  the debtor has no capacity to repay the debt; or

                     (c)  the debtor’s whereabouts are unknown after all reasonable efforts have been made to locate the debtor; or

                     (d)  it is not cost effective for the Commonwealth to take action to recover the debt.

...

1237  Power to waive Commonwealth’s right to recover debt

Secretary’s limited power to waive

             (1)  On behalf of the Commonwealth, the Secretary may waive the Commonwealth’s right to recover the whole or a part of a debt from a debtor only in the circumstances described in section 1237A, 1237AA, 1237AAA, 1237AAB, 1237AAC or 1237AAD and, if the debt is an assurance of support debt, subject to section 1237AAE.

...

1237AAD  Waiver in special circumstances

                   The Secretary may waive the right to recover all or part of a debt if the Secretary is satisfied that:

                     (a)  the debt did not result wholly or partly from the debtor or another person knowingly:

                              (i)  making a false statement or a false representation; or

                             (ii)  failing or omitting to comply with a provision of this Act, the Administration Act or the 1947 Act; and

                     (b)  there are special circumstances (other than financial hardship alone) that make it desirable to waive; and

                     (c)  it is more appropriate to waive than to write off the debt or part of the debt.


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