Director-General of Social Security v Hales.47 ALR 281

The respondent spent $71,000 on a property described as Lot 2036 Girraween Road, Howard Springs ("the property"). This amount increased to $100,000 due to improvements which had to be made to allow him to cope adequately. A valuation report of 21 March 1989 states that the current market value of the property is $85,000, while the approximate value of stock would not exceed $2,000. The valuer who prepared this report gave evidence before the Tribunal to the same effect as the reported observations and estimations contained in his written report.

It appears that the respondent also owns an 8 hectare property described as Lot 38 Scrutton Road, Livingstone, purchased on 16 February 1988 for $32,000. A valuation undertaken on 11 April 1989 indicates that the realisable market value of the property does not exceed $25,000. Evidence was again given at the hearing to the same effect as the written valuation.

The respondent spent $22,000 on a motor vehicle which was fitted with a hand-operated clutch to suit his disability.

1. The respondent said that at the time of purchase of the property he had intended to become self-sufficient thereon, and that he disliked the city. He reasonably believed that he could cope with the work on the property provided that he paid people to perform the more difficult physical activities.
2. Subsequent to the purchase of the property, the respondent's condition deteriorated. He has been diagnosed as having heart trouble and tuberculosis, with the result that he has found managing the property extremely difficult. In consequence he applied for the invalid pension on 19 March 1988.
3. On 26 September 1988 the respondent was advised that due to his lump sum compensation payout he was precluded from payment of invalid pension until 12 October 1992, this period being later altered to 20 January 1992 due to the correction of an arithmetic error. It seems that the respondent had not been advised by his solicitors that the compensation payout could prevent his being able to claim a pension for some years.
4. The relevant provisions of the Social Security Act 1947 ("the Act") as amended by the Social Security and Veterans' Entitlements Amendment Act 1987 No.130 of 1987 and the Social Security Amendment Act 1988 No.58 of 1988 ("the 1988 Amendment Act") are ss.152, 153(1) and 156. These are set out as follows:

(a) An invalid pension (including any allowance under section 31);

(b) ...

(c) ...

Being a pension, benefit or allowance that commenced to be paid on or after 1 May 1987, or a rehabilitation allowance under Part XVI that became payable in lieu of such a pension, benefit or allowance;

(a) a reference to a payment by way of compensation is a reference to -

(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) ...

• (c) a reference to the compensation part of a lump sum payment by ay 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;

(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.

(3) The reference in paragraph (2)(e) to the first day of the period in respect of which a lump sum payment was or is to be made is a reference to -

(a) ...

(b) in a case where periodical payments by way of compensation were made in respect of the incapacity - the day after the day on which the last of those payments was made.

153. (1) Where a person or the spouse of a person, who is qualified to receive a pension receives or has received (whether before or after becoming so qualified)

(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."

"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."

10. Section 153(1) originally commenced with the words:

"Where a person who is receiving a pension receives ... (b) a lump sum payment...".

This created an anomaly, being that considered in Re Tallon and Director-General of Social Security (1988) 15 ALD 6 and in Re Hajar and Secretary, Department of Social Security (Decision No.4859, 23 December 1988). The effect was that the provisions in question would not have applied to the respondent given that he was not receiving an invalid pension when he received his lump sum payment.

11. Section 46 of the Social Security and Veterans' Entitlements Amendment Act (No 2) amended s.153 (1) so that from 16 December 1987 it read -

"Where a person, or the spouse of a person, who is qualified to receive a pension receives ... (b) a lump sum payment ...".

In Re Tallon the Tribunal said that the provision, not being retrospective, would catch only those persons who were qualified to receive a pension as from the date the provision came into effect if that person had received a lump sum payment after that date, that is to say after 16 December 1987. It is possible that the amendments to ss.152 and 153 made by the 1988 Amendment Act were designed to remedy the lack of retrospectivity. Section 19 of the 1988 Amendment Act amended s.153 (1), and s.2 (1) stated that s.19 was to be taken to have commenced on 1 May 1987. Thus as between 1 May 1987 and 15 December 1987 s.153 (1) read:

"Where a person who is receiving a pension receives or has received (whether before or after becoming so qualified) ...

"Where a person, or the spouse of a person, who is qualified to receive a pension receives or has received (whether before or after becoming so qualified) ...

In any event, the respondent, having received a lump sum payment after 1 May 1987, is caught by the amended provision: see Re Cristallo, (Decision No.4663, 1 October 1988), and Re Hajar.

1. As judgment was obtained before 9 February 1988, the expression "lump sum payment by way of compensation" is stated in s 152(2)(c)(ii) to be a reference to "so much of the lump sum payment as is, in the opinion of the Secretary, in respect of an incapacity for work" - that is to say the economic loss component which was, in this case, an amount of $102,900. This amount is not in issue.
2. The expression "lump sum payment period" as defined in s152(2)(e) is, for present purposes, calculated as follows:

1. The date of the respondent's last compensation payment was 14 September 1987. The lump sum payment period is thus from 14 September 1987 to 20 January 1992, and the respondent is therefore precluded from receiving a pension until 20 January 1992.
2. Section 156 of the Act however provides for a "let out" "in the special circumstances of the case". Do "special circumstances of the case" exist here? The Social Security Appeals Tribunal ("the SSAT") sitting in Darwin on 30 November 1988 decided that a special circumstance existed. It considered the respondent's considerable expenditure on, the Howard Springs property; the repayment of loans etc; his reasonable belief that he would be able to cope physically with the work on the property; his intention to become self-sufficient; and the frustration of his intentions by his declining health. The SSAT accepted that the respondent had not been informed by his solicitor that he would be precluded from receiving an invalid pension for some years due to the compensation payout, but said that the respondent should have been aware of the possibility of preclusion. It found that the respondent, having no income, could not afford to employ labour for the property. Despite the fact that the respondent would be precluded from receiving a pension by s.153 of the Act, applying s.156 the SSAT was satisfied that a special circumstance existed in this case to reduce the preclusion period by 75 per cent. The special circumstance found to exist was the dramatic change in the respondent's health that was not reasonably foreseeable by him at the time of his purchase of the property. As a result of this decision the respondent would have been entitled to receive an invalid pension from 1 November 1988.
3. The Department of Social Security lodged an application for review of the SSAT decision on the grounds that the SSAT had erred in determining that the respondent's deteriorating health constituted "special circumstances" and in determining that the preclusion period should be reduced by 75 per cent.
4. On 10 February 1989, at a telephone directions hearing, the Department of Social Security sought a stay order pursuant to the provisions of s.41(2) of the Administrative Appeals Tribunal Act 1975 ("the AAT Act") in respect of the period 1 November 1988 to date, on the basis that the respondent still had sufficient moneys remaining out of his compensation payout. The respondent stated quite specifically that he would not wish to receive payments of invalid pension pending a decision in the matter if, in the event of the Department succeeding in its application for review, he would have to pay the money back. On this basis I granted the order for a stay. I would however emphasise that if the Department is opposed to implementation of the decision the subject of the review, it must move promptly pursuant to s.41 (2) of the AAT Act. Section 41(1) is quite specific. The mere fact that there is a firm intention on the part of a decision maker to apply for review is not enough. A submission was made that asserted that it would in any event take some little time for the decision to have been implemented administratively. That may be, but that affords no justification for delay in making the application under s.41 (2).
5. At the hearing it was stated that the Department had in fact started paying the invalid pension to the respondent as a result of the respondent's informing it that he had no money with which to carry on. Mr McCarthy, on behalf of the applicant, made it clear that in the circumstances the applicant would not seek repayment of the amounts paid by the applicant to the respondent up to the date of the decision if the Department were ultimately successful.
6. At the hearing the respondent gave evidence that he had no money left out of his compensation payout. He stated that he had intended to live on the property but that when his health declined he could not keep it up. He had recently been diagnosed as having tuberculosis and heart trouble, and had spent time in hospital in December 1988. He is required by his medical condition to make several trips to Palmerston during the week. As a result he now needs help around the property, and he has taken on a person who does the physical labour on the property in return for meals. Under cross-examination he said that up to mid 1988 he could manage the property with some help, but that he now cannot manage. He estimated his weekly personal expenses to be $100 plus, and that $50 per week was spent on animal feed and $20 on petrol. As regards the Livingstone property, he said that he would like to keep it but that he will sell, and that in fact he had received an offer of $25,000 which he had refused due to the somewhat strange terms of payment that had been offered.
7. Mr McCarthy submitted that "special circumstances of the case" did not exist here, and that no matter how the respondent perceived his medical condition, the property was never a commercial viability. He could not, even at an early stage, cope without help. All that had occurred was that the situation became worse. The evidence given by the valuer of the poor soil and many restrictions on the use of the property, added to the poor prospect that the property had held even at the time of purchase, and now still held, of allowing the respondent to achieve self-sufficiency. It was also submitted that the SSAT had wrongly decided that the additional conditions of tuberculosis and heart trouble constituted a special circumstance when the respondent was already 85 per cent incapacitated.
8. The decision of Mrs J.R. Dwyer (Senior Member) in Re Krzywak and Secretary to the Department of Social Security, (1988) 15 ALD 690 was referred to as providing a classic exposition of the phrase "special circumstances". In this decision Mrs Dwyer, in a passage cited in the recent decision of Mrs. R.A. Balmford (Senior Member) in Re Vuckovic and Secretary to the Department of Social Security, (Decision No.5112, 26 May 1989) said at pp.698-699:

"The classic passages as to the meaning of the term special circumstances are in Re Ivovic and Director-General of Social Services [1981] AATA 57; (1981) 3 ALN N95. Re Beadle and Director-General of Social Security (1984) 6 ALD 1 and Beadle v Director-General of Social Security [1984] AATA 176; (1985) 7 ALD 670; 60 ALR 225 (Beadle's case). In Re Ivovic the Tribunal said: '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 ... Thus whilst keeping the dominant principle of sll5 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.' (emphasis added)

In Re Beadle the Tribunal said: '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.'

This passage was approved by the Federal Gourt in Beadle's case. The court said: 'While we would place less emphasis on one dictionary definition of special we are in broad agreement with the approach of the Tribunal and are in agreement with its conclusion.'

I must therefore ask whether in this matter there are special or unusual circumstances which justify making an exception to the principle that Mrs Krzywak should be deprived of pension throughout the lump sum payment period, because of the receipt by her of a lump sum award of compensation. Another way of looking at the matter is to consider whether they are circumstances which make it unjust, unreasonable or otherwise inappropriate for Mrs Krzywak to be without pension from mid-1987 to October 1988. A number of factors appear relevant to the exercise of the discretion in this matter. They may be broadly grouped under the following headings, financial hardship, legislative changes, incorrect legal advice, ill health. Each requires further consideration."

In view of these factors, particularly that of especially severe financial hardship, it was found that special circumstances existed.

22. In Director-General of Social Security v Hales [1983] FCA 81; 47 ALR 281 the respondent's pension was overpaid due to her non-disclosure of salary increases. The Tribunal had found, inter alia, that there would be hardship to the respondent if she had to repay the moneys, and the applicant appealed to the Federal Court. The Federal Court dismissed the appeal on the basis of the finding of hardship. At 321 Sheppard J agreed with the following statement made by Davies J in Re Gee and Director-General of Social Services (No 2) (1981) 4 ALD 376 at 383:

"Whatever be the correct interpretation of the sub-section, we think that any action for recovery taken under ss 7 and 140(1) must be taken pursuant to the exercise of a discretion on the part of the director-general who, in recovery actions, should have regard to the total circumstances of the case. He is administering social welfare legislation and properly should have regard, inter alia, to any financial hardship which may result from an action for recovery".

However, the facts in that case were different from the case at hand, where there is no overpayment and consequently no need for recovery nor any question of non-disclosure on the respondent's part.

23. In the Tribunal's decision in Re Hajar, Mr B.J. McMahon (then a Senior Member), applying the factors set out in Re Krzywak;

found that the applicant's financial circumstances were not special - his daily expenses were small, he did not support his family, and he had no pressing creditors.

As for misleading legal advice constituting a special circumstance, pointed out that the applicant had means of redress against his solicitor, and that the applicant had continued to worsen his financial position even after he became aware of the problem.

Considered that there was no evidence of ill health constituting a special circumstance and no other circumstances which could be regarded as special, and that there was therefore no room for exercising the discretion under s.156 of the Act.

24. In the various decisions which turn on this question, the Tribunal has consistently searched for circumstances which are "unusual, uncommon or exceptional" to ascertain whether strict application of s.153 is "unjust, unreasonable or otherwise inappropriate": Re Venables and Secretary to the Department of Social Security, (1988) 15 ALD 180, where the Tribunal applied Re Beadle. In very few cases have "special circumstances", in this sense, been found to exist. It appears that the useful guidelines for the exercise of the discretion set out in Re Krzywak have been followed by the Tribunal in later decisions. The factors to be considered are thus financial hardship; legislative changes; incorrect legal advice; and ill health. I deal with these in turn:

This factor alone is not sufficient, and if hardship exists it must be "exceptional": Re Colaiacolo and Secretary to the Department of Social Security, Decision No.2109, 24 April 1985. In Re Hajar at paragraph 43 Mr McMahon said:

"Financial hardship has been considered as a possible component of special circumstances in a number of decisions. It is clear, however, that standing by itself, it would not amount to a 'special circumstance' (Re Beadle, 6 ALD 1 at 4). Furthermore the financial circumstances must be more than straitened. They must be 'exceptional' (Re Colaiacolo, Decision No.2109, 24 April 1985 at paragraph 19)".

Later at paragraph 45 he says: "... I find it impossible to ignore the existence of the house ...". He went on to refer to how the asset could be liquidated by a property settlement or a sale and concludes: "It is inequitable for the applicant to claim financial hardship when he owns such a valuable asset and does nothing to realise on it ...". In that case the applicant had received at settlement an amount of $55,000 in November 1987 and was precluded from receipt of unemployment benefit until 20 December 1989, although this period was later reduced to 20 June 1989. He had applied for unemployment benefit on the same day as the payout.

An example of such "exceptional" financial hardship is in Re Krzywak, where the applicant had no income or savings at all and was forced to obtain food vouchers or borrow from friends in order to buy food. Her award was all used up repaying debts incurred prior to her injury and which she reasonably thought she could repay, and she had no other source of income.

In Re Venables, which concerned the old s.115B(3) of the Act which allowed the Department to recover benefits where compensation had been awarded in respect of the same injury, and the discretion given by S.115E to the Secretary to treat the whole or part of the compensation payment as not having been made or likely to become made in terms very similar to s.156, the Tribunal again found special circumstances to exist in terms of financial hardship, but this was in conjunction with other matters peculiar to the facts of that case. In situations where persons are in receipt of some income, for example as in Re Colaiacolo, or have a substantial unencumbered asset, as for example in Re Hajar, the Tribunal has been reluctant to find special circumstances. It has also been so reluctant in circumstances where the financial situation of the applicant is no more than "straitened".

Here, the respondent's financial position is certainly straitened but it remains a question whether it is "exceptional". The respondent expended most of his compensation award in setting up an intended farm and in purchasing a second property and a specially equipped motor vehicle; repaying debts including $75,000 to the Bank in loan repayments; and in, according to the SSAT decision, fulfilling a guarantee of $6,000 of a friend. Due to his worsened medical condition his outgoings are over $100 per week including petrol needed to drive to Palmerston for medical appointments. He cannot afford to pay for labour which is now needed. He said that he has no money left from his award and has no income. There are, however, two unencumbered properties owned by him. He will not consider mortgaging the Howard Springs property as he does not believe that he could repay the loan, nor does he wish to sell as he does not have anywhere else to live. The SSAT regarded this as reasonable. It did not, however, have before it evidence of the Livingstone property. This was through no fault of the respondent. This property, while worth considerably less than the price paid by the respondent, would still realise $25,000. The respondent gave evidence that he would sell this property if necessary. On this basis, financial hardship would not seem to be a factor so significant as to be crucial.

The 1988 Amendment Act is retrospective, as discussed above. At the time the respondent made his application for invalid pension he would not have been caught by s. 153(1) as it then stood. However, this is not unusual or uncommon. In Re Krzywak the change in the provision was considered a relevant factor because the Department had previously wrongly denied a pension by straining the words "who is receiving" in the original s.153(1) to mean "qualified to receive", which was the phrase used by the amendments made by No.130 of 1987. Here, however, the respondent's application was made in March 1988.

This is a largely irrelevant consideration given that such a matter is generally capable of redress by the client against a negligent solicitor. The Tribunal decisions in Re Venables, Re Zito and Re Jerkin are authorities for this view. In Re Krzywak the Tribunal said that the position was not quite so clear and should be taken into account, but that it was not necessary to express a final view on the matter. It is notable, however, that the situation as at September 1987, when this payout was made, was that the original opening words of s.153(1) applied, namly, "where a person who is receiving a pension ...". No doubt if the present respondent had been properly advised as to his potential preclusion from receiving a pension for some years he may not have gone ahead with buying and renovating the property nor with purchasing the Livingstone property. Overall, this factor is not persuasive or determinative and the best view is that the matter is one, if at all, as between solicitor and client.

This factor is very prominent here. The respondent's condition has considerably deteriorated since his accident in 1984 and award in 1987. In Re Walsh the applicant's deteriorating health was as a result of an exacerbated work-related injury apparently operated upon successfully but requiring further operative treatment in 1988. Thus the facts are different from the present case, where the respondent's illness is not linked to work-related injury. The respondent is indeed a very sick man, and requires almost daily blood tests, although these have now been reduced, and has had to spend much time in hospital. He cannot cope with the work on the property at all now and requires help to feed the animals and do the manual work. At the hearing Mr McCarthy submitted that at the time of the compensation payment in November 1987 the respondent was 85 per cent incapacitated, and could never have run a farm to the extent of achieving self-sufficiency, so that the SSAT's finding of a special circumstance arising from his new conditions was in error. This is possibly correct, although a rather harsh conclusion for the respondent. However, given the existence of the $25,000 realisable property at Livingstone the consequences for him would not be so drastic.

25. Ultimately it is not just a matter of simply taking each of the factors discussed above separately, important as it is to do so. It is essential to keep an overview of the whole matter. If it were simply a matter of feeling sympathy for a battling working man who has had more than his share of trouble I would have no difficulty in finding for the respondent in this case. But given in particular the extent of his assets, especially the Livingstone property, I cannot do so. No special circumstances exist here to justify exercising the discretion given by s.156 of the Act. The topic of special circumstances has been thoroughly analysed in the decisions of the Tribunal and of the Federal Court discussed above, and consistently with the principles therein set out I am unable to give paramountcy, as did the SSAT, to the decline in the respondent's health. My decision must be to set aside the decision of the SSAT dated 12 December 1988, and in substitution therefor to decide that the invalid pension to which the respondent is otherwise entitled is not payable until 20 January 1992, being the termination of the preclusion period arising in terms of s.153 of the Act by virtue of the lump sum payment received by him.

26. There was discussion at the hearing between the Tribunal and Mr McCarthy as to whether it might be possible to decide, if the decision went against the respondent, that payment of pension should nevertheless continue after the date of the decision but on the footing that the amounts so paid be recovered from the respondent after the sale of the Livingstone property. I do not on reflection consider that such a decision should be made, even if I had power to do so. It would be administratively very difficult, and would offer no incentive to the respondent to dispose of the Livingstone property, rather the reverse.