Editors --- "Compensation: preclusion period; whether special circumstances" [2010] SocSecRpr 6; (2010) 12(1) Social Security Reporter, Article 6

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Compensation: preclusion period; whether special circumstances

TOPP and SECRETARY TO THE DFHCSIA

(2010/99)

Decided: 11th February 2010 by P. W. Taylor

Background

Topp was granted disability support pension (DSP) in 1994 at the age of 16 years, on the basis that he was permanently blind and deaf.

In September 2003, Topp suffered back, neck and shoulder injuries as a result of a car accident. He settled his damages claim on 10 June 2008 for $500,000 (inclusive of legal costs). Three days later, the Secretary cancelled his DSP payments and imposed a social security benefit preclusion period from September 2003 until early January 2010.

Topp sought a review of Centrelink’s decision, which was affirmed by the SSAT. Topp then sought a review before the AAT made it appropriate to treat the whole or part of the payment as not having been made; and, if so, how much of the settlement sum should be treated as not having been made.

Discussion

The AAT considered the circumstances of the settlement of De Araugo’s claim for damages. Counsel for De Araugo had advised that the claim should include, with the 50% reduction for contributory negligence, $274,950.50 for economic loss.

Negotiations prior to settlement proceeded on the basis of arriving at an overall figure. Therefore, the parties did not agree on the quantification of any item.

The outcome was that De Araugo’s claim of $2,276,947.38, which included a 50% reduction for contributory negligence, was reduced by another 37% to the final settlement figure of $1,429,148.10.

A settlement report dated 31 January 2008 from the insurer’s solicitors to their client set out a ‘reasonable breakdown’ of the settlement amount. Their breakdown showed the same amount of economic loss as in De Araugo’s original claim except for a small difference in the interest on past economic loss. The most significant difference between the breakdown and the formulated claim was the item of future care. The breakdown also had five additional items not included in De Araugo’s claim.

Special circumstances/ factors

The AAT found that there were a number of factors suggesting special circumstances within the meaning of

s.1184K (1) of the Act.

De Araugo had extremely severe permanent disabilities described by one witness as ‘catastrophic’.

The AAT had evidence as to the proper assessment of De Araugo’s loss of earning capacity and there was no suggestion of this assessment being unreliable or self-serving.

There was a significant disparity between the amount of the economic loss component claimed at the time of settlement, being $274,950.50, and the amount resulting from the statutory formula, being $714,890.55. The statutory formula resulted in a figure which was more than two and a half times the amount claimed.

The total amount received by De Araugo included an unusually high component for future care and treatment which helped produce the significant disparity when the statutory formula was applied.

De Araugo agreed to a reduction of his claim by 50% for contributory negligence. This reduction was another reason for the disparity between the amount recovered for economic loss and the amount resulting from the statutory formula.

De Araugo’s settlement also had another significant reduction of 37% in the quantum finally agreed. Evidence was given that De Araugo was affected by ongoing delay in the case and said he was considering ‘suicide’. He said he wanted to put an end to the matter.

The AAT noted that the statutory formula disadvantaged recipients who received very large amounts of compensation. Over the lengthy preclusion period no adjustments were made for inflation or cost of living increases. The denominator used in the formula was the income cut off amount at the time of calculation.

On behalf of the Secretary it was contended that special circumstances were negated because De Araugo had financial resources that would provide support beyond the expiration of the preclusion period. It was argued that potential inequity would result among persons who had recovered compensation if special circumstances were found to exist where a recipient of compensation had significant financial resources.

Further, it was not uncommon for the 50% statutory formula used to determine the preclusion period to be more, even substantially more, than the amount recovered for loss of earnings. Clark v Secretary, Department of Employment and Workplace Relations [2007] FCA 1076 at [75] was said to suggest that even a gross disparity between the statutory formula and the amount actually recovered for loss of earnings cannot be a special circumstance at all. The AAT, however, found that Lindgren J in Clark expressly agreed with the approach of Kiefel J in Secretary, Department of Family and Community Services v Chamberlain [2002] FCA 67; (2002) 116 FCR 348 at para.33 where it was said that the relevant disparity could not ‘by itself’ amount to special circumstances.

The issues

The issue before the AAT was whether there were any special circumstances that would justify the exercise of the discretion under s.1184K(1) of the Social Security Act 1991 (the Act) in Topp’s favour. In considering this issue, the AAT conducted a thorough review of the existing case law in this area.

Discussion

Topp contended that there were special circumstances in this case that warranted the exercise of the discretion under s.1184K(1) to treat all of the compensation received by him as having not been made. Topp contended that:

(a) the DSP payments he had received after September 2003 were in no way attributable to the injuries he sustained in the accident;

(b) any compensation for loss of earning capacity included in the settlement amount only related to the impairment of whatever earning capacity he might otherwise have had after the successful completion of his current computer science degree course;

(c) he was unlikely, given his pre-accident conditions, to gain employment before he completed his studies, and those studies were unlikely to be completed before 2010;

(d) no part of his compensation settlement payment duplicated a DSP benefit entitlement period;

(e) his circumstances were different from the usual circumstances in which the statutory preclusion period was intended to apply.

In contrast, the Secretary contended that:

(a) the purpose of the ‘compensation part’ definition in s.17(3) of the Act was to presume that social security and compensation entitlements relate to the same period of time, and therefore overlap, so as to attract the statutory purpose of requiring primary reliance on the compensation payments;

(b) the statutory intention was fundamentally important, and required an enquiry as to whether the exercise of the discretion would frustrate the statutory intention;

(c) as Topp’s settlement payment was at least partly in respect of lost earnings or lost capacity to earn resulting from personal injury, s.17(3)(a) of the Act applied such that 50% of the payment was the ‘compensation part’ for the purposes of the Act. No further enquiry into the settlement payment components was permissible;

(d) the discrete causes of Topp’s social security benefit entitlement, on the one hand, and his compensation payments, on the other, were the only potentially relevant considerations in the present case. However the terms of ss.1160(2) and 1184K(2) of the Act precluded those discrete causes from constituting special circumstances in the present case. Those provisions seek 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”.

In rejecting the majority of the Secretary’s contentions, the AAT conducted a thorough review and analysis of existing case law, and placed significant reliance on the decisions of Secretary, Department of Social Security v Smith [1991] FCA 280; (1991) 23 ALD 277 and Kertland v Department of Family and Community Services (1999)

[1999] FCA 1596; 57 ALD 600.

The AAT found that:

(a) the economic loss component of Topp’s settlement payment did not reflect any past loss of income and related entirely to compensation for the financial loss he was anticipated as likely to suffer after the successful completion of his computer science degree;

(b) the circumstances of this case were similar to those in Smith; Kertland; Re Secretary, Department of Social Security and John Hill (1995) 39 ALD 667; Secretary, Department of Family and Community Services v Edwards [2000] FCA 1645; (2000) 65 ALD 200 and Re Robinson and Secretary, Department of Family and Community Services [200] AATA 1011. Each of these cases involved situations where, during part of a preclusion period, the recipient had no entitlement to economic loss compensation. Their compensation payments related to future, but not past, work incapacity. Each case, including the present case, involved situations where the cause of the social security entitlement both preceded, and was different from, the compensable personal injury. The AAT considered that taking that temporal sequence into account would not contradict the literal scope of s.1168 (whereby 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) - as that 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;

(c) the compensation payment Topp received did not apply to any part of the statutorily determined preclusion period. In those circumstances, consistent with the reasoning in Smith and Kert-land, special circumstances applied to his situation. The special circumstances being that, in the June 2008 settlement, Topp received no compensation for work incapacity that he suffered during the preclusion period;

(d) 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 apparent purpose - of the relevant statutory provisions;

(e) the ‘special circumstances’ discretion permits ‘the fullest opportunity to consider the particular circumstances of each case’, 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;

(f) whilst the relevant statutory provisions (ss.1160(2) and 1184K(2)) preclude the different underlying payment causes (for the compensation and the social security entitlements) from alone constituting ‘special circumstances’, nevertheless the different causes were a relevant consideration to take into account in the exercise of the discretion;

(g) the fundamental point made in the decisions in Smith and Kertland is that the arbitrary formula in s. 17(3)(a) and the ameliorating discretion in s. 1184K(1) are part of the same legislative scheme.

Formal decision

The Tribunal set aside the decision under review and in substitution determined that it was appropriate in the special circumstances of the case to treat the whole of the compensation payment of $500,000 received by Topp as having not been made.

[S.O.]