SOCIAL SECURITY - pensions, benefits and allowances - Disability Support Pension - preclusion period - lump sum compensation - whether redemption payments are compensation - special circumstances - health - financial circumstances - state of mind

Social Security Act 1991

Workers' Rehabilitation and Compensation Act 1986 (SA) s.42

1. This is an application by Mr Robert Hill (the applicant) for review of a decision of the Social Security Appeals Tribunal (SSAT) dated 7 December 1998 (T2) which affirmed a delegate of the respondent's decision dated 21 August 1998 (T12 and T13) as affirmed by an authorised review officer (ARO) on 14 October 1998 (T20) to reduce and preclude payment of Disability Support Pension (DSP) due to the receipt of a compensation payment.

2. The Tribunal received into evidence the documents lodged pursuant to s.37 of the Administrative Appeals Tribunal Act 1975 (T1-T24), together with 9 exhibits, 8 lodged by the applicant (Exhibits A1-A8) and 1 lodged by the respondent (Exhibit R1). In addition, the Tribunal heard evidence from the applicant, who also called Dr K. Cameron, general practitioner. The applicant was represented by Ms P. Dean, a Disability Action advocate, and the respondent was represented by Mr J. Underwood, a departmental advocate.

3. The issue before the Tribunal is whether the lump sum settlement of the applicant's compensation proceedings is compensation for the purposes of the Social Security Act 1991 (the Act) and if so, whether there are special circumstances such that part or all of that payment should be treated as not having been made.

4. The applicant received Disability Support Pension (DSP) from 20 August 1998 until 31 May 1999. Following an injury at work in June 1990, the applicant received various payments in respect of loss of earning capacity (LOEC) for the period up to and including 31 May 1999. In July 1998 the applicant was paid a number of "top-up" LOEC payments representing arrears. He also received a lump sum of $115,000, pursuant to s.42 of the Workers' Rehabilitation and Compensation Act 1986 (SA), $110,000 of which was for redemption of future loss of earning capacity payments, and $5,000 for medical expenses.

5. A delegate of the respondent determined that the $115,000 was compensation and calculated a lump sum preclusion period accordingly. This decision was affirmed upon review by an ARO and the SSAT, the latter of whom stated (inter alia) (T2):

The Tribunal considers that Mr Hill's LOEC payments are payments under a scheme of insurance under a state law and are therefore covered in the definition of compensation at 17(2)(b). The Tribunal also considers that the payments were made wholly or partly in respect of Mr Hill's lost earnings or lost capacity to earn and that they were made within Australia, therefore also satisfying subsections (e) and (f) of 17(2).

... Centrelink correctly included the $5,000 for future medical expenses in the $115,000 settlement amount used to calculate the lump sum preclusion period.

6. The applicant gave evidence that at the time he accepted the redemption payment, he was under pressure of reduced income and threats of further court action. He described to the Tribunal his circumstances at the time, including heavy Morphine use and severe depression. He told the Tribunal that it was his understanding that redemption payments were not compensation.

7. In respect of disposal of the monies, he stated that he is estranged from his wife and that earlier this year his wife and children were "in strife" and needed to move from their rental accommodation. As a result, he offered them $2,000 deposit money and a further $86,000 for a house, which has been put in his wife's name. He told the Tribunal that at the time of making this offer, he had an expectation that it might settle things down, and that reconciliation with his wife might be possible. He also told the Tribunal of the difficulties he has had with his son, Adam, and the trip to New Zealand that flowed as a consequence of the difficulties.

8. He explained to the Tribunal the reasons behind various other expenditure, including buying a car in order to see his children.

9. He stated that he is currently living with his family, but remains separated from his wife, who would prefer him not to be living at the property. He further stated that he did receive advice that there would be a preclusion period and also received the delegate's, ARO's and SSAT's decisions, but commented that he lives in a haze most of the time and didn't read the decisions properly. He believed and continues to believe that the redemption payments are not compensation.

10. He stated that he is simply trying to live "day to day" and concentrates on daily tasks.

11. Dr K. Cameron, General Practitioner, has been the applicant's treating doctor for five years, and also counsels the applicant. He prepared a written report dated 21 July 1999 (Exhibit A5) in which he stated (inter alia):

He is in my opinion capable of rational decision making although his cognitive functioning is impaired by his medication and his depression. ..."

12. He stated, in oral evidence, that the applicant is capable of making decisions and living independently, but has trouble thinking rationally. He stated that the applicant exhibits confusion and difficulty with decision making, and that in his opinion, the marriage difficulties were the main issue that required counselling attention.

13. The Tribunal received a written report of Dr G. Wright, Occupational Physician, dated 30 March 1998 (Exhibit A4). Dr Wright was not required for cross-examination. In the report he quoted Dr Z. Lukacs, Psychiatrist, as follows (inter alia) at p3:

"It is the impression that Mr Hill's current meaning in life and sense of identity is significantly influenced by issues of dependency and a survival theme. ..."

14. Ms P. Dean submitted, on behalf of the applicant, that redemption payments under s.42 of the Workers' Rehabilitation and Compensation Act 1986 (SA) are not compensation pursuant to sub-s.17(2) of the Act, which requires strict interpretation in her submission. She further submitted that sub-s.17(d) colours sub-ss.17(a)-(c) such that they must be read as referring only to payments of damages or compensation.

15. She submitted that the applicant's circumstances were special, in that his cognitive function was significantly effected at the time of the expenditure of the lump sum, and that he is not capable of rational thinking. She further submitted that he cannot sell the house as it is in his wife's name, and that he is in financial hardship. She also submitted that the Tribunal should take into account the serious emotional problems the applicant has, and the difficulties with his son during the relevant time.

16. Mr Underwood submitted, on behalf of the respondent, that sub-s.17(2) of the Act is intended to be exhaustive and that s.42 payments under the State workers' compensation legislation are intended to be included.

17. He submitted that the respondent had already disregarded an amount of the compensation monies on equity grounds, and that it was inappropriate to disregard any more because of the inappropriate expenditure of the applicant at a time when he knew (as a result of receiving the decisions and advice) that there would be a preclusion period. He further submitted that the applicant's beliefs about redemption not being compensation and his ill health were not such so as to constitute special circumstances.

18. In relation to the applicant's financial circumstances, he submitted that although the applicant was in financial hardship, he had minimal expenses and that in any event it was Parliament's intention that compensation recipients spend their money wisely, and the applicant's expenditure should preclude him from any special consideration.

19. In relation to the first issue of whether redemption payments made pursuant to s.42 of the Workers' Rehabilitation and Compensation Act 1986 (SA) are "compensation" as per the definition in sub-s.17(2) of the Act, the Tribunal has given careful attention to the submissions put by the applicant, but considers that the scope of sub-s.17(2) is broad enough to encompass the types of payments received under s.42, if such payment includes a component for loss of earning capacity or loss of earnings.

20. In this case, the applicant received redemption in respect of "future loss of earning capacity" (T3) and such payment must be said to fall within the scope of sub-s.17(2)(b) of the Act, being 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" and the Tribunal so finds.

21. In considering whether or not there are "special circumstances" such that part or all of the compensation moneys should be treated as not having been received as allowed, pursuant to s.1184 of the Act, the Tribunal has given consideration to the following relevant circumstances:

applicant's health, state of mind and expenditure of the lump sum

22. The applicant gave evidence as to the confused and "hazy" state he currently lives in, and was living in at the time of the various expenditures of the lump sum. There is enough material before the Tribunal, in terms of Dr Cameron's direct evidence, Dr Wright's indirect evidence and the Tribunal's own observations of the applicant, to conclude that he is not a well man, and will have ongoing severe medical problems.

23. The Tribunal accepts Ms Dean's submission as being reasonable, that whilst the applicant is capable of day to day activities, he is not capable of great feats of rational thought and has impaired cognitive functions. The Tribunal must bear this in mind therefore when looking at whether the expenditure of the lump sum was reasonable.

24. A rational person approaching the question of how to spend such a sum of money would clearly not spend it in the way the applicant has, in particular the gifting of the money for a house. The Tribunal must be mindful of this applicant however, and take into account his peculiar state of mind at the time of the expenditure. In the applicant's mind, he was the cause of the family's problems, and therefore saw the compensation money as being his family's, and in particular, his wife's. It is clear that this thought process was overriding any rational thoughts that the applicant would need such monies to survive the preclusion period.

25. Whilst the applicant's beliefs that the monies were not compensation are not a special circumstance, his state of mind that allowed such a conclusion to arise and impair rational thought is. The applicant blamed himself for all the family's problems He was clearly not thinking of himself, but motivated to give the $88,000 to his wife hoping to affect a reconciliation, and also to provide for his children. The applicant's children must not be forgotten in this scenario. They faced eviction so it was therefore understandable and indeed incumbent upon the applicant to act in such a way as to ensure they had accommodation and would be reasonably provided for. This obligation was discharged by his gifting the money to his wife to purchase a house.

26. It would have been more rational for the applicant to provide for his children in some other way, and make sure that he could survive the preclusion period, but again, the Tribunal must consider this applicant's state of mind.

27. It is evident to this Tribunal that the applicant received entirely inadequate financial advice. As the Tribunal sees in many other like cases, there are often situations whereby applicants should simply not be left with large amounts of money. It appears to this Tribunal that serious attention need be given to ways and means to ensure lump sum compensation recipients, at the very least, receive adequate advice on investment options, if not actually receiving the money in instalments instead of a lump sum. Some recipients are capable of managing money wisely, but equally, there are many who are entirely incapable of managing such large sums of money.

28. In this case, the applicant will continue to have ongoing severe health problems, although they are currently being managed. He also has the responsibility of three children, the eldest of whom, Adam, requires special attention, and is a cause of great concern to the applicant. It was not reasonable, in the circumstances, for the applicant to send his son to New Zealand, but certainly reasonable to buy a car to travel to and from the children's home.

29. The expenditure on the fax machine, computer and donations may have well been inappropriate, but the Tribunal is satisfied that the other expenses detailed by the applicant (Exhibit A3) were reasonable. What remains at large is the $88,000 given to his wife. Whilst not rational and reasonable expenditure, the Tribunal can be satisfied that for the above reasons, including the blame the applicant felt for the family's problems, wanting to reconcile with his wife and ensuring his children have a home, given the applicant's state of mind, this expenditure has been reasonably explained. It further results that the applicant must be given special consideration as a result of the state of mind that led him to such expenditure.

30. The applicant is currently living with his estranged wife and family, albeit under the sufferance of his wife. It is not clear that this situation will continue indefinitely, and in that event, the applicant will be faced with the financial burden of independent living, with absolutely no means of support. His continued reliance upon his wife is clearly a source of tension, and the Tribunal is concerned that the apparent increase in household tension will only serve to exacerbate the applicant's health problems.

31. It is not reasonable to inflict the burden of supporting the applicant on his estranged wife, who has the primary care of their three children already, including the eldest son, Adam, who requires much attention and care on the evidence presented.

32. Mr Underwood submitted that Parliament expects compensation recipients to reasonably expend their money, and this is certainly a reasonable expectation. The question remaining is what this Tribunal is to do in the circumstance where a person presents with a long preclusion period in front of them, and no realistic means of support? If a person has spent the compensation money recklessly or irresponsibly then the Tribunal may take a dim view of such a circumstance, but in a matter such as the present, where the Tribunal has recognised that the applicant was not capable of rationally thinking about how to dispose his money, it surely cannot be Parliament's expectation that such a man be left out in the cold.

33. All to often, these preclusion period cases come before the Tribunal, and it is in effect, after the horse has bolted, for the money has already been spent. Where an applicant's expenditure can be reasonably explained, as in the present matter, and there is no visible means or assets from which the applicant can support himself, this Tribunal must exercise compassion. To not do so would be to abandon one of those people in the community most in need of support.

34. The combination of the applicant's state of mind during the expenditure, his continued ill-health, difficult family circumstances and financial hardship make it such that it would be unfair, unjust or otherwise unreasonable on this applicant to leave in place a preclusion period until February 2002. The Tribunal is concerned that such a preclusion period has the potential to cause a deterioration of the applicant's health, increase the family's not insubstantial problems, including putting a greater burden upon the applicant's already overburdened, estranged wife. It will also force the applicant into abject poverty. These eventualities would also impact on the three children, and the Tribunal must be mindful of their welfare.

35. In these circumstances, it is appropriate, pursuant to s.1184 of the Act, to treat a further $57,250 (or one half) of the lump sum compensation money as not having being paid, such that there will be a consequent reduction in the preclusion period, and the Tribunal so finds.

36. For the reasons given, and pursuant to s.43 of the Administrative Appeals Tribunal Act 1975, the Tribunal sets aside the decision under review, and in substitution therefor remits the matter for reassessment of the preclusion period with the direction that one half ($57,250) of the payment of $115,000 received by the applicant be treated as not having been made for the purposes of calculating the preclusion period.

I certify that the 36 preceding paragraphs are a true copy of the reasons for the decision herein of Senior Member J.A. Kiosoglous MBE

Signed: .....................................................................................