Editors --- "Compensation preclusion period: special circumstance" [2010] SocSecRpr 29; (2010) 12(2) Social Security Reporter, Article 15

• BLIZNAKOVSKI and SECRETARY TO THE DFHCSIA
• Background
• Facts
• The submissions
• The law
• Conclusions
• Formal decision

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Compensation preclusion period: special circumstance

BLIZNAKOVSKI and SECRETARY TO THE DFHCSIA

(2010/159)

Decided: 5th March 2010 by Dawe J. and K. Bean

Background

Bliznakovski was injured as a result of a work accident. He received a lump sum payment of $650,000 (including $5000 for medical costs). He had earlier received payment under state legislation of $171,855 for non-economic loss.

Centrelink imposed a lump sum preclusion period from 10 August 2001 until 9 July 2015.

On appeal, the SSAT affirmed this decision.

Facts

Bliznakovski received two lump sum payments - the first, an amount of $171,855 and second, an amount of $650,000. After he received the first payment, he built a house to meet his needs. He funded this through the first lump sum payment and his superannuation.

Bliznakovski was given legal advice in relation to the second lump sum payment, including the social security implications of this payment. He claimed however, that the advice did not reflect the potential implications of the two lump sum payments added together. He believed that he would be able to apply for age pension from 2011.

Bliznakovski’s health had significantly deteriorated in recent years and he had ongoing medical costs as a result. He acknowledged that he gave his wife $250,000 out of the lump sum payment of $650,000 to contribute to her superannuation. He said he was advised to do this by his accountant and that if he did, then he could receive age pension in 2011. He also viewed this payment as some form of compensation for his wife who was required to give up her business to care for him.

Bliznakovski engaged in share trading with mixed results. His wife had $400,000 in superannuation and he had no savings. The value of the house was $570,000.

The submissions

The basis of the claim in relation to special circumstances related to financial hardship, legislative change, incorrect legal advice, ill-health and unfairness.

It was argued that the global financial crisis affected Bliznakovski’s ability to be self-sufficient. Also, medical costs significantly exceeded the amount allowed in the second lump sum. It was argued that Bliznakovski did not feel he could ask his wife to return the $250,000 as this might ‘impact on his marital relationship’.

It was submitted that s.1171 of the Social Security Act 1991 (the Act) had effectively had a retrospective operation in respect of the first lump sum payment and that Bliznakovski could not have foreseen the social security ramifications at the time this payment was made.

It was argued that Bliznakovski had not behaved irresponsibly and that he had acted on the basis of incorrect legal advice. It was submitted that the preclusion period should be reduced to end in August 2012.

The submissions on behalf of the Department were that it was unclear whether incorrect legal advice had been given and also that Bliznakovski and his wife owned their home outright. It was pointed out that if Bliznakovski and his wife separated he may be entitled to a portion of the superannuation.

It was also argued that Bliznakovski had a share portfolio and engaged in share trading which undermined his claim that he was suffering from financial hardship.

Written legal arguments were provided in relation to ss.1164 and 1171.

The law

This case involved consideration of ss.1164, 1171 and 1184K as follows: 1164 Certain lump sums to be treated as though they were received as periodic compensation payments

If:

(a) a person was entitled to periodic compensation payments under a law of a State or Territory; and

(b) the person’s entitlement to the periodic payments was converted under the law of the State or Territory into an entitlement to a lump sum; and

(c) the lump sum was calculated by reference to a period;

this Part applies to the person as if:

(d) the person had not received:

(i) the lump sum; or

(ii) if the lump sum was to be paid in instalments—any of the instalments; and

(e) the person had received in each fortnight during the period a periodic compensation payment equal to:

Lump sum amount

Number of fortnights in the period

where:

lump sum amount is the amount of the lump sum referred to in paragraph (b);

number of fortnights in the period is the number of whole fortnights in the period referred to in paragraph (c).

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.

1184K(1) For the purposes of this Part, the

Secretary may treat the whole or part of the 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.

Conclusions

The Tribunal concluded that s.1164 applied in this case, ‘providing that redemption has been calculated by reference to a period’ (Reasons, para. 51).

Considering the facts, the Tribunal concluded that the amount paid to Bliznakovski by way of redemption was calculated by reference to the period starting when he entered the redemption agreement and ending when he turned 65.

The Tribunal then noted that if s.1164 applied then this was the end of the matter, however for completeness the Tribunal considered ss.1171 and the special circumstances provision.

In respect of s.1171, the Tribunal accepted that the enactment of this section did not change the law as it affected Bliznakovski. Therefore the legislation did not operate retrospectively.

In respect of special circumstances, the Tribunal found that on balance there was no element of Bliznakovski’s personal situation which constituted ‘special’ circumstances. The Tribunal focused on Bliznakovski’s overall financial situation and that his current situation was in part due to his decision to give $250,000 to his wife.

However the Tribunal did consider that the operation of the legislation, such that he would be precluded from receiving age pension although his compensation payment was intended to compensate him only to age 65 was unusual and resulted in significant injustice. The Tribunal accepted that there was no element of double dipping.

The Tribunal therefore concluded that there were special circumstances which justified that the amount of the lump sum payment should be treated as having not been made such that the preclusion period ended on his 65th birthday, 12 January.

Formal decision

The AAT set aside the decision of the SSAT and remitted the matter for determination of Bliznakovski’s entitlements on the basis that:

Section 1164 applied to the economic loss component of the lump sum payment of $645,000.

This amount was to be calculated by reference to the period commencing when Bliznakovski entered into the redemption agreement and ending on his 65th birthday.

[R.P.]