Re Glenn Ronald Cook and Secretary, Department of Social Security [1992] AATA 293; (1992) 28 ALD 602 (30 September 1992)

ADMINISTRATIVE APPEALS TRIBUNAL

Re: GLENN RONALD COOK
And: SECRETARY, DEPARTMENT OF SOCIAL SECURITY
No. Q91/375
AAT No. 8310
Social Security
[1992] AATA 293; (1992) 28 ALD 602 (extract)

COURT

ADMINISTRATIVE APPEALS TRIBUNAL
GENERAL ADMINISTRATIVE DIVISION
D.W. Muller(1) (Senior Member)

CATCHWORDS

Social Security - Preclusion period - paraplegic - 16 year preclusion period - allowance made for special circumstances of the case.

Social Security Act 1947: S.152, 153(1), 156

HEARING

BRISBANE
30:9:1992

ORDER

The Tribunal affirms the decision under review.

DECISION

On 28 March 1985 Glenn Ronald Cook, the applicant, was injured in a motor vehicle collision. He was so severely injured that he became a paraplegic. Following his release from hospital Mr Cook applied for and received, the invalid pension. In September 1987 Mr Cook began work as a telephonist at Bankstown Hospital. His invalid pension was cancelled. He worked for about three months but he was unable to cope. He re-applied for, and was re-granted, the invalid pension. In August 1988 he received a lump sum damages payment of $800,000. His invalid pension was cancelled on 27 September 1988. By mid-1990 Mr Cook had spent all of his money and had nothing to live on. Mr Cook re-applied to the Department of Social Security (DSS) for the invalid pension on 19 June 1990. His claim was rejected. It was determined that a preclusion period applied to Mr Cook and that he should not receive any Social Security pension or benefit till 16 May 2001.

2. Mr Cook applied to the Social Security Appeals Tribunal (SSAT) for a review of the DSS decision. By decision dated 3 June 1991 the SSAT, in effect, reduced the preclusion period so that it would end on 16 July 1997. The SSAT determined that a sum of $190,000 of the lump sum payment should be disregarded in the calculation of the preclusion period. Mr Cook seeks a review of that decision. He claims that he has no source of income and that because all of his money is gone he is experiencing serious hardship. He asks the Tribunal to exercise its discretion in his favour to disregard so much of the lump sum payout that would result in an immediate eligibility for him for pension or benefit.

3. This matter was heard at Coffs Harbour on 30 June 1992. The applicant was represented by Mr Miller of Counsel and the respondent was represented by its advocate Mr Walsh.

4. In a letter from Mr Cook to the DSS which was undated, but probably written in late 1990, he attempted to explain how he had disposed of the $800,000. The figures were as follows:
a. Legal, medical and associated expenses

Solicitor $ 51,863.01
Paraplegic Assoc, NSW $ 19,799.05
State Govt Employees
Credit Union $ 6,000.00
Dr. Watson Kitchener $ 72.70
$ 77,734.76
b. Expenses associated with purchase of
Unit 1,133 Victoria Street, Coffs Harbour
Purchase Price $344,500.00
Stamp Duty $ 10,994.00
Conveyancing costs $ 2,115.00
Conveyancing costs $ 235.16
Modifications for wheelchair $ 15,000.00
Industrial carpet for wheelchair $ 5,700.00
Furniture $ 22,000.00
Door opener system $ 2,956.09
Remote controlled security system $ 3,160.00
$406,660.25
c. Special expenses associated with paraplegia
3 different purpose wheelchairs $ 9,000.00
1 Nippi scooter (holds a wheelchair) $ 5,550.00
Hand controls for car $ 1,000.00
Computer and software $ 3,500.00
$ 19,050.00
d. Repayment of loans
To mother $ 20,000.00
To sister $ 5,000.00
To R. Lowe $ 20,000.00
$ 45,000.00
e. Purchase of car, boat and trailer
Modified car $ 32,000.00
Kevlacat boat $ 30,000.00
Boat trailer $ 2,350.00
$ 64,350.00
f. Living Expenses
Withdrawals Bananacoast Credit
Union $ 62,100.00
Withdrawals from ANZ, Toormina $ 71,390.00
Unit maintenance $ 7,600.00
Body Corporate $ 1,406.00
$142,496.00
g. Attempts to invest in income
producing ventures
To J.H. Autos $ 70,000.00
To R. and J. Gay (building
contractors) $ 20,000.00
$ 90,000.00
The total comes to $845,291.00. Clearly there is a
discrepancy of just over $45,000. Perhaps some of the
accounts generated interest. Perhaps some of the
withdrawals from the Bananacoast Credit Union were placed in
the ANZ account and then subsequently withdrawn, creating a
situation where the same amount may have been counted twice.
The applicant was unable to explain the discrepancy.

5. Mr Cook told the Tribunal that his money is all gone. He is now living on the charity of his parents. He wasted his money on drugs, alcohol, "friends", a car, a boat and other things too numerous to itemise. His car was smashed by a "friend". His boat was wrecked by a "friend". He invested in two business ventures (see paragraph 4 g. above) which cost him a total of $90,000.00 (all lost). J.H. Autos was an automotive repair business run by John Halgarth. Mr Halgarth has been made bankrupt and is currently having his financial affairs investigated. The building adventure involved the construction of a dwelling on speculation. There was a loss of $20,000 on the deal. The only property left of any value is his home unit which he estimates to be currently worth about $250,000. The unit is not readily saleable because of the numerous modifications made throughout the unit to allow for the fact that he has to do everything from a wheelchair. The bathroom is significantly different to a normal bathroom. The doorways are wider than normal.

6. The Tribunal also heard from James David Haines who is community corrections officer with the NSW Department of Courts Administration, supervising criminal offenders in the Coffs Harbour district. Mr Haines told the Tribunal (inter alia):

a. Mr Cook had become a heavy drinker as a teenager.
He later took drugs, including heroin. He had a
limited education and he earned a living as a
bricklayer.
b. Following his injury and hospitalisation Mr Cook
tried to convince himself that life went on as normal
by drowning himself in alcohol, and returning to drug
abuse, rather than working through the stages of
rehabilitation.
c. The large amount of money he received gave him the
power to convince himself that life went on, not only
as normal, but better even than before.
d. He gathered about him a large circle of friends whom
he could supply with drugs and alcohol.
e. In early 1991 Mr Cook was charged with a series of
offences:
(i) 2 charges of drink driving;
(ii) 3 charges of assaulting police (he ran over a
policeman's foot among other things);
(iii) menacing driving;
(iv) dangerous driving;
(v) resisting an officer
f. Mr Cook was ordered to be placed under supervision
and receive treatment for "substance" abuse. He was
also ordered to do community service until May 1992.
He completed 490 hours of community service at the
Coffs Harbour Community Village. He worked the
switchboard and did clerical work.
g. Mr Cook is now banned from driving till January
1996.
h. Mr Cook has reacted well to the rehabilitation
process. He realises that he has been incredibly
foolish and irresponsible.

7. The social welfare legislation of this country is committed to the proper and responsible conduct of and control over the very large allocations to the welfare systems of public moneys. Social welfare legislation is designed to help the needy. It is the intention of the legislation that if a person receives a lump sum compensation payment for loss of future income earning capacity then that person should use the compensation to live on and not seek to be supported by Social Security benefits. The legislation takes into account the fact that some of a lump sum payment may go towards legal expenses, compensation for pain and suffering, loss of amenities and other expenses arising out of the injuries. It sets a figure of 50% of the lump sum payment as being that amount which should be allowed for legal costs, other expenses and loss of amenities, and it sets a figure of 50% of the lump sum payment as being that amount which should be used to compensate for future loss of income. The period during which no Social Security benefits are payable (the preclusion period) is worked out by taking the average weekly earnings of all male employees in Australia (as published by the Australian Statistician for the month) and dividing that rate of income into the sum allowed for loss of earnings. The average weekly earnings of all male employees in Australia in August 1988 was $474.90. Hence the preclusion period in Mr Cook's case (in weeks) -

= 50% of $800,000
$474.90
= 842.28 weeks (just over 16 years)
From the point of view of the DSS it was expected that the
$800,000 would have been apportioned as follows:
a. $400,000 to pay legal expenses and medical expenses; to
compensate for the need to buy special equipment; to
compensate for pain and suffering; to compensate for loss
of amenities and loss of enjoyment of life.
b. $400,000 for day to day living expenses until 16 May
2001.

8. The legislation also contemplates that special circumstances may arise in a case in which the general formula may be inappropriate. In such a case the Secretary has a discretion to treat the whole or a part of a payment by way of compensation as not having been made. If the discretion is so exercised it has the effect of reducing the preclusion period.

9. The legislation relevant to the circumstances of this case is contained in the Social Security Act 1947 (the Act).

PART XVII - PAYMENTS BY WAY OF COMPENSATION
Interpretation
152.
(1) In this Part -
"pension" means:
(a) an invalid pension;
(2) In this Part -
(a) a reference to a payment by way of compensation is
a reference to -
(i) a payment by way of damages;
(ii) a payment under a scheme of insurance or
compensation provided for by a law of the Commonwealth
or of a State or Territory, including a payment under a
contract entered into pursuant to such a scheme;
(iii) a payment, whether with or without admission of
liability, in settlement of a claim under such a scheme
or of a claim for damages; or
(iv) any other payment in the nature of compensation or
damages, other than a payment for which the recipient
has made contributions, whether made within or outside
Australia, being a payment received on or after 1 May
1987 that is, in whole or in part, in respect of an
incapacity for work;
(b a reference to the receipt by a person of a payment
includes a reference to the receipt of the payment by
another person on behalf of or at the direction of the
first-mentioned person;
(c) a reference to the compensation part of a lump sum
payment by way of compensation is a reference to:
(i) if the lump sum payment was made (whether with or
without admission of liability) in settlement of a
claim that is, in whole or in part, related to disease
or injury and:
(A) in a case where a judgment by consent was entered
in respect of the settlement - the judgment was entered
on or after 9 February 1988; or
(B) in any other case - the settlement was made or
entered into on or after 9 February 1988;
50% of the lump sum payment; or
(ii) in any other case - so much of the lump sum
payment as is, in the opinion of the Secretary, in
respect of an incapacity for work;
(e) a reference to the lump sum payment period, in
relation to a lump sum payment by way of compensation,
is a reference to the number of weeks, beginning on the
first day of the period in respect of which the payment
was or is to be made, ascertained by dividing the
compensation part of the lump sum payment by the
estimate last published by the Australian Statistician
before the lump sum became payable of the average total
weekly earnings of all male employees in Australia for
a particular month.
Reduction in rate of pension
153.
(1) Where a person receives or has received -
(a) a payment forming part of a series of periodical
payments by way of compensation; or
(b) a lump sum payment by way of compensation,
then
(c)......
(d) in a case to which paragraph (b) applies - a
pension is not payable to the person and, if the person
is a married person, a spouse's pension is not payable
to the person's spouse at any time during the lump sum
payment period.
Secretary may disregard certain payments
156.The Secretary may, for the purposes of this Part,
treat the whole or a part of a payment by way of
compensation that has been, or that will be, made as
not having been made or as not likely to become liable
to be made if the Secretary considers it appropriate to
do so in the special circumstances of the case.
(now S.1184 of the Social Security Act 1991).

10. Mr Miller, for the applicant, submitted that the following matters amount to "special circumstances" within the meaning of that term in s.156:

a. A preclusion period of sixteen years is far too long.
It would be almost impossible for a poorly educated young
person to plan for the future sixteen years in advance.
b. Mr Cook had a long standing drug and alcohol problem
at the time he received the large settlement.
c. The alcohol and drug problem combined with the
after-effects of the accident created an unusual
psychological state.
d. Mr Cook had no knowledge of how to handle large
amounts of money.
e. If Mr Cook is forced to sell his home unit to survive
he will have difficulty in finding accommodation which will
be suitable for a paraplegic. Any other home that he could
afford would have to have substantial and expensive
modifications made to it.
f. The money spent on the house should be taken into
account when assessing whether it is appropriate to find
that 50% of the lump sum was available for future living
expenses.
g. Mr Cook is suffering severe financial hardship.

11. Mr Walsh, for the respondent, submitted that the approach taken by the SSAT was extremely generous to the applicant but he would not seek to upset that decision.

The SSAT found that there were special circumstances and
treated the following payments as not having been made, for
the following reasons:
a. $90,000 invested in business enterprises (and lost)
because there was an attempt to plan for the future and to
secure an income;
b. $100,000 wasted while not in a fit state to properly
appreciate what he was doing.

12. In deciding whether or not to treat financial hardship as a matter of special circumstance such that it would be appropriate to treat the whole or part of the payment as not having been made, the Tribunal is assisted by the discussions and the decisions contained in numerous cases which have been heard by the Tribunal and the Federal Court. The following principles (among others) have emerged:

a. It is the plain intention of the Act that those
persons who receive compensation payments in respect of lost
earnings or lost earning capacity should not receive social
security payments for the period during which the
compensation payments are received.
b. If the compensation is in the form of a lump sum, a
pension, benefit or allowance ceases to be payable for a
period during which it would be expected that the person
would be able to support themselves from the compensation
payment. The period during which no Social Security
payments are to be made depends on the quantum of the lump
sum payment. The purpose of the relevant provisions is to
guard against applicants obtaining the benefit both of
payments made under the Act and of payments provided by way
of compensation for the same period.
c. In the exercise of the discretion which the Act
confers, the decision-maker must have regard to whether, by
exercising the discretion in a particular case, he or she
will be achieving or frustrating ends or objects which
conform with the scope and purpose of the Social Security
Act.
d. Whilst keeping the dominant principle of the Act in
mind, the decision-maker must nevertheless be prepared to
respond to the special circumstances of any particular case
by reason of which strict enforcement of the provisions of
the Act would be unjust, unreasonable or otherwise
inappropriate.
e. Hardship is a relevant consideration in the exercise
of the discretion.
f. The circumstances out of which any alleged hardship is
said to have arisen should be taken into consideration.
g. In order for financial hardship to be a special
circumstance under the Act it is necessary for it to be
unusual or severe hardship in the context of the Act.

13. It seems to me that there are at least four standard ways of dealing with cases such as these:

a. Strict adherence to the letter of the Act with no
concessions.
This approach would probably be the one favoured by most
members of the public. It has been frequently applied by
the Tribunal. It contains an element of punishment and an
element of deterrence.
b. An allowance made for imprudent or unlucky investment
and an allowance made for money lost due to psychological
imbalance.
This was the approach taken by the SSAT and I can find no
fault in it. It resulted in the preclusion period ending in
mid-1997.
c. An assessment of exactly how much money was really
available to the applicant to live on from his compensation
payment.
Such an approach would involve a calculation of the money
left after he had paid out all of his expenses, borrowings
and whatever he needed to set himself up to keep him from
being a burden on the Social Security system. This involves
an investigation as to whether or not the formula set out in
the Act is appropriate in the circumstances of the
individual case. In Mr Cook's case the investigation would
show that a large amount of the $800,000 was not available
to him to live on because it had been spent on such things
as legal expenses, purchase of a home with special
modifications, repayment of loans incurred prior to the
payout and special expenses associated with his medical
condition. The payments listed in paragraphs 4 a., b., c.
and d. above were reasonably necessary expenditure items.
He had to pay his legal expenses. He had to
have somewhere to live and to be self-sufficient. The total
of the items listed comes to $548,445. This would have left
a sum of $251,555 to live on. If that sum is divided by
$25,000 per year as a reasonable sum to be allocated for
living expenses it can be seen that Mr Cook should have
been able to survive quite comfortably from the date he
received the payout (August 1988) until at least mid-1998.
d. Look at his current situation and ignore how he
arrived there.
This is sometimes called the "hardship is hardship no matter
how it occurred" approach. In simple terms Mr Cook is
living in a unit said to be worth $250,000. If he sold it
and bought a more modest dwelling he would have money left
over to live on. Whilst it is true that the economic
climate is not good for selling units it is equally true
that it is good for purchasing. I would have thought that
a very acceptable dwelling could be purchased in the Coffs
Harbour area for $150,000. This would leave Mr Cook
approximately $100,000 to live on. If he managed
it carefully and collected interest from time to time he
should be able to live on it for at least five years from
now. Such an approach would result in the preclusion
period ending in mid-1997.

14. Although I believe that approach 13a. is commonly the correct approach in these cases, it would not be appropriate in Mr Cook's case. The lump sum was unusually large, resulting in an unusually long preclusion period and Mr Cook was in no condition to handle it. In Mr Cook's case there is not much to choose from approaches 13 b., c. or d. Coincidentally they would all result in the preclusion period ending at about the same time (mid-1997 to mid-1998).

15. All in all I see no reason to disturb the decision of the SSAT. The decision under review will be affirmed. The preclusion period will end on 16 July 1997.