Compensation Part of Lump Sum
Income cut-out amount.
8 For present purposes it is sufficient to note that any reduction in the compensation payment, and consequently the compensation part of the lump sum payment, will result in a reduction in the preclusion period.
9 Section 1166(1) provides that a person is liable to repay an amount where both lump sum compensation payments and compensation affected payments have been received if:
(a) a person receives a lump sum compensation payment; and
(b) the person receives payments of a compensation affected payment for the preclusion period;
and the Secretary by written notice to the person, determines that the person is liable to pay to the Commonwealth the recoverable amount specified in the notice. Section 1166(3), relevantly, provides that the recoverable amount is equal to the smaller of the compensation part of the lump sum compensation payment or the sum of the payments of the compensation affected payment made to the person for the preclusion period.
10 Sections 1184(1), 1237A(1) and 1237AAD provide for dispensation from the consequences of the strict operation of the statutory scheme. Section 1184(1) provides that the Secretary may treat the whole or part of a compensation payment as not having been made or as not liable to be made if the Secretary thinks it is appropriate to do so "in the special circumstances of the case".
11 Section 1237A(1) provides that the Secretary may waive the right to recover the proportion of a debt that is attributable solely to an administrative error made by the Commonwealth if the debtor received, in good faith, the payment or payments that gave rise to that proportion of the debt.
12 Section 1237AAD appears to relate to impecuniosity in circumstances where waiving, rather than writing off, a debt is more appropriate. The section provides that the Secretary may waive the right to recover all or part of a debt if the Secretary is satisfied that:
(a) the debt did not result wholly or partly from the debtor or another person knowingly:
(i) making a false statement or false representation; or
(ii) failing or omitting to comply with a provision of the Act or the 1947 Act; and
(b) there are special circumstances (other than financial hardship alone) that make it desirable to waive; and
(c) it is more appropriate to waive than to write off the debt or part of the debt.
Background
13 On 24 September 1994 ("the date of incapacity") the applicant was seriously injured when she was struck by a motor car. The injury resulted in incapacity to work. Prior to the accident the applicant had been receiving the Jobsearch and Newstart Allowance payable to her under the Act. After the accident, pursuant to the Act, the applicant received a sickness allowance, commencing from 29 September 1994, until she was granted a disability support pension commencing from 8 February 1996. Disability support payments continued until 22 January 1998, despite the applicant being informed that payments should cease on 24 July 1997.
14 The applicant brought a claim for damages suffered by her by reason of the accident. The claim was governed by the Transport Accident Act 1986 (Vic) ("the TAA") which operated to preclude the applicant from being awarded damages in respect of pecuniary loss (which included loss of earnings and loss of earning capacity) resulting from incapacity to work during the period of 18 months after the accident: see ss 3, 44 and 93(10)(a). On 11 November 1997 the Supreme Court of Victoria made an Order approving settlement of the applicant's claim for $275,000.00. The settlement sum included some damages for pecuniary loss resulting from the applicant's incapacity for work after 24 March 1996 that is, a period commencing 18 months after the accident. The main issue between the parties relates to the consequences of the applicant being precluded by s 93(10)(a) of the TAA from recovering pecuniary loss in the 18 months following the accident and, in particular, whether her circumstances constituted special circumstances for the purposes of s 1184(1).
15 The applicant, who was unemployed prior to the accident did not come within the definition of an "earner" in s 3 of the TAA and was therefore precluded from receiving weekly payments for loss of earnings that incapacitated employees, who were earners, were entitled to receive after an accident: see s 44 of the TAA. In the result, the TAA operated to preclude the applicant from recovering, whether by award or settlement, any damages for pecuniary loss in respect of the period of 18 months following the accident or to be paid for any loss of earnings suffered by reason of her incapacity during that period.
16 Following the settlement of the applicant's damages claim, the respondent reassessed the applicant's social security entitlements under the Act. The sum of $137,500.00, representing 50% of the settlement sum, was required to be taken as the "compensation part" of the lump sum compensation payment (that is, as representing loss of earnings or loss of capacity to earn) pursuant to s 17(3) of the Act.
17 It is common ground that the settlement sum was a compensation payment as defined by s 17(2) of the Act and that, pursuant to ss 1165(8) and (9) of the Act, the effect of assessing $137,500.00 as the compensation part of the lump sum settlement was that the preclusion period totalled 341 weeks from the date of incapacity. Under s 1165 the applicant was not entitled to receive the social security payments she was receiving during the preclusion period unless she could satisfy the Secretary that she was entitled to dispensation from the statutory scheme as a result of "special circumstances" under ss 1184(1) or 1237AAD or of administrative error under s 1237A(1).
18 The applicant continued to receive social security payments from the respondent, totalling $28,746.14, for the period from 24 September 1994 to 24 July 1997. As those payments were assessed by a delegate of the respondent to have been paid during the preclusion period they were required by the Secretary to be repayable by the applicant under s 1165 of the Act. Accordingly, in December 1997 the Transport Accident Commission paid $28,746.14 to the Secretary out of the applicant's lump sum compensation payment.
19 On 28 January 1998 an Authorised Review Officer of the respondent confirmed the delegate's decision that the preclusion period, as defined under s 1165(7) of the Act, commenced on the 24 September 1994 and continued for 341 weeks to 6 April 2001. The Officer also confirmed the Secretary's entitlement to recover the sum of $4,591.60 mistakenly paid to the applicant for the period from 7 August 1997 to 22 January 1998.
20 The decision of the Review Officer was based on findings that the preclusion period commenced on the date of incapacity, that there were no special circumstances pursuant to which the respondent may exercise the discretion under s 1184(1) of the Act to treat any part of the compensation payment as not having been made and that there were no special circumstances under s 1237AAD to waive recovery of the overpayment of benefits made after 7 August 1997.
21 On 12 December 1998 the Social Security Appeals Tribunal affirmed the Review Officer's decisions in respect of the preclusion period and in respect of recovery of the sum paid to the applicant from the date of injury to 24 July 1997 but waived recovery of the overpaid sum by reason of Commonwealth error (s 1237A) and special circumstances (s 1237AAD).
22 On the applicant's application for review of the Tribunal's decision the AAT decided:
1. To set aside the decision to apply a preclusion period from the date of injury to 6 April 2001 and to remit the matter for reconsideration with a direction that the preclusion period should commence from 24 March 1996 and continue for 341 weeks from that date;
2. To set aside the decision to recover an amount of $28,746.14 and remit the matter for reconsideration with a direction to recover an amount of pension paid to the applicant from 24 March 1996 (being the commencement of the preclusion period) to 24 July 1997;
3. To affirm the decision to waive recovery of the overpayment of $4,591.60 due to special circumstances, including administrative error by the respondent.
23 The applicant and the respondent have each appealed against the decisions of the AAT set out in paragraphs 1 and 2. It is common ground that:
· the AAT had no discretion or power under the Act to determine that the commencement date of the preclusion period is any date other than the day on which loss of earnings or loss of earning capacity began in accordance with s 1165(7) of the Act;
· loss of earning capacity began in respect of the applicant on the date of incapacity, being 24 September 1994;
· accordingly, the AAT erred in law in determining 24 March 1996, rather than 24 September 1994, as the commencement date of the preclusion period for the purposes of s 1165.
24 The real dispute between the parties related to whether there were "special circumstances", for the purposes of s 1184(1), which enabled the Secretary to exercise the discretion conferred by the sub-section to ameliorate the adverse consequences to the applicant of the lump sum settlement of her personal injuries claim.
The AAT decision
25 The AAT concluded that it would be "unjust" to preclude the applicant from receiving social security payments, being her sickness allowance (referred to in the decision as "SA") and disability support pension (referred to in the decision as "DSP"), for the 18 months following the accident on the ground that the compensation the applicant received for pecuniary loss under the TAA did not relate to pecuniary loss suffered during the 18 month period. Accordingly, as there was no "double payment" for the 18 month period, the AAT concluded that it was appropriate for the preclusion period to commence at the conclusion of the 18 month period.
26 The AAT expressed its conclusions on this issue as follows:
"In this case Ms Kertland did not receive payments in respect of lost earnings or lost capacity to earn from two sources during the 18 months period between 24 September 1994 and 24 March 1996. She did not receive any periodic payment or lump sum compensation in respect of lost earnings or lost capacity to earn as the result of her claim under the TAA and received only SA/DSP payments from the respondent during this 18 months period. To deprive Ms Kertland of the SA/DSP which was paid to her by virtue of her rightful entitlement to these Social Security benefits during 24 September 1994 to 24 Mach 1996 on the basis that she is to be taken to have been already compensated for it by TAC, when in actual fact she was not, would be unjust. The Tribunal finds this matter should be remitted back to DFCS for reconsideration in accordance with a direction that the compensation payment as defined by section 17(2) of the Act shall be treated as not having been made until 24 March 1996 due to special circumstances. As the result of this finding the applicant is not precluded from receiving SA/DSP benefit payments from the respondent during the 18 months period from 24 September 1994 to 24 March 1996. Therefore, the amount recovered by the respondent from TAC in respect of the 18 months period from 24 September 1994 to 24 March 1996 is to be refunded to the applicant.
The Tribunal finds that due to the abovementioned special circumstances Ms Kertland lost her capacity to earn and to receive a pension from 24 March 1996. Accordingly, the lump sum preclusion period as determined by section 1165 of the Act begins from 24 March 1996 and continues for a period of 341 weeks from that date. DSP payments received by Ms Kertland from 24 March 1996 to 24 July 1997 are compensation affected payments to be repaid to the Commonwealth pursuant to section 1166 of the Act."
27 The difficulty with the AAT's conclusion, as the parties correctly point out, is that there is no discretion or power under the Act to determine that the preclusion period began on any date other than 24 September 1994, being the day on which loss of earnings or loss of earning capacity began: see s 1165(7), Secretary, Department of Social Security v Thompson (1994) 53 FCR 580 at 588 and Secretary, Department of Social Security v a'Beckett (1990) 26 FCR 349 at 358-359.
28 The AAT appears to have confused the date prescribed by s 1165(7) for determining loss of earnings or earning capacity with the date on which the applicant first became entitled to be awarded damages in respect of pecuniary loss under s 93(10)(a) of the TAA. Accordingly, as paras 1 and 2 of the decision of the AAT are founded on its erroneously determined preclusion period, the decisions in those paragraphs should be set aside.
29 The question remains whether the AAT erred in law in finding that there were "special circumstances". The applicant contends that, if the AAT did not err in law in that regard, on a remission of the matter to the AAT the applicant is entitled to apply for the exercise of the discretion under s 1184(1) by the AAT treating part of the compensation payment as not having been made, thereby reducing the preclusion period that would otherwise apply to the applicant. The respondent contends that, if the AAT did err in law in finding "special circumstances", on a remission the AAT would have no power or discretion under s 1184(1) to reduce the preclusion period directly or indirectly as the circumstances relied upon by the applicant are not capable, in law, of constituting special circumstances.
Special circumstances
30 The respondent submitted that special circumstances must relate to some circumstance outside of the statutory scheme and not a circumstance provided for by the scheme. It was also contended that special circumstances must be specific circumstances applicable to the applicant. Thus, so it is said, as the applicant's preclusion period is determined by the operation of the TAA and the Act, she has not been singularly placed in a category or situation that is unique, unusual, uncommon or out of the ordinary. If her circumstances were able to be treated as "special" it was contended that this would undermine the purpose of the relevant provisions because it is tantamount to dissecting the lump sum payment to relate it to the "real" amount of the pecuniary loss component. It was said that that outcome is inconsistent with the purpose of the provisions which was to prevent any such dissection.
31 The applicant contends that special circumstances are not so limited and can arise from any circumstance that is out of the ordinary. In particular, it is contended that any circumstance which results in the statutory scheme operating unfairly, unjustly or harshly in respect of a particular applicant can constitute "special circumstances of the case" for the purposes of s 1184(1). The applicant further contends that the circumstances that are special are not limited to external circumstances and include injustice or unfairness brought about by reason of the operation of the relevant statutory provisions or any other outcome that is contrary to the intention of those provisions.
32 The manner in which the discretion under s 1184(1) of the Act is to be exercised, and the circumstances which may appropriately be characterised as "special" for that purpose, has been considered in a number of decisions of the Court in relation to the section or its predecessor (s 156 of the Social Security Act 1947 (Cth)). The operation of the statutory scheme under the 1947 Act was considered by von Doussa J in Banks, a'Beckett and Smith. His Honour observed in Banks (at 421 and 423) that it was understandable that the legislature adopted an arbitrary formula in respect of lump sum payments made in settlement of a claim, but not where there is a curial determination of the claim, as in the latter case the determination will be accompanied by reasons for decision which can be expected to disclose the pecuniary loss component of the award. However, his Honour added that it was in the very nature of an arbitrary provision that it could possibly entail "a degree of unfairness in a particular case".
33 In that context von Doussa J considered the precise role of the discretion under s 156 in Smith where he referred, with approval, to a number of decisions. One was in Re Ivovic and Director-General of Social Services (1981) 3 ALN 95 where the Tribunal stated that use of the word "special" is intended to allow the decision-maker the fullest opportunity to consider the particular circumstances of each case. His Honour also referred to the decision of the Full Court in Beadle v Director-General of Social Security (1985) 60 ALR 225 where, in a different context, the Full Court observed (at 228) that the phrase "special-circumstances" although lacking precision, is sufficiently understood so as "not to require judicial gloss". The Full Court also noted that special circumstances would usually include events that rendered the operation of the statute in a particular case "unfair or inappropriate". von Doussa J also referred to the decision of O'Loughlin J in Secretary, Department of Social Security v Hulls (1991) 22 ALD 570 where (at 581) O'Loughlin J considered that the remarks in Beadle and Ivovic applied with equal force and effect to "special circumstances" in s 156.
34 In Smith, to which I will later return, von Doussa J rejected a contention put on behalf of the Secretary that "the circumstances of the case" should be confined to matters which are external to the operation of the statutory scheme. His Honour made the point, with which I respectfully agree, that a distinction cannot meaningfully be drawn between matters external to the operation of the scheme and matters which are the product of the strict application of the scheme. In that regard, his Honour stated (at 62):
"The facts peculiar to a particular person cannot be considered in isolation from the operation of the provisions of ss 152 and 153. The operation of those sections in the light of the facts surrounding the person concerned is part of the circumstances of the case. The circumstances of a particular case will give rise relevantly to an unreasonable or unjust result only if the operation of Pt XVII, apart from the ameliorating provisions of s 156, produces that result."
35 Under the Act, ss 1165 and 1166 and the definitions in s 17 in the 1991 Act are the statutory counterparts to ss 152 and 153 in the 1947 Act and s 1184 is the current counterpart to s 156.
36 In Smith his Honour (at 63) rejected an argument that s 156 does not empower an exercise of the discretion that defeats the operation of the "50% rule" in ss 152 and 153 and observed:
"The operation of the scheme for preclusion and recovery discussed in a'Beckett must be understood as being subject to the exercise of the discretion vested in the decision-maker under s 156. If the operation of the scheme, apart from s 156, would bring about special circumstances in the particular case which make it appropriate to exercise the discretion, the operation of the scheme is modified accordingly."
37 More recently in Haidar v Secretary, Department of Social Security (1998) 28 AAR 288, Hill J considered the operation of the discretion in s 1184(1). After referring to the purpose of the scheme as being the avoidance of a situation where a claimant is entitled both to social security benefits and compensation benefits in the nature of income through lump sum payments, Hill J said (at 297):
"However, the legislature was conscious of the possible harshness of a rule structured in an arbitrary way. Section 1184, therefore, provided the means whereby the Secretary or, in the event ultimately of an appeal to the Administrative Appeals Tribunal, that Tribunal, could alleviate the harshness of the statutory provision in an appropriate case but only where there were special circumstances. The question of what constitutes special circumstances has been the subject of a number of decisions of this Court. It suffices here to say no more than that something is required which would take the matter out of the usual ordinary case: Groth v Secretary, Department of Social Security (1995) 40 ALD 541 at 545 per Kiefel J, Secretary Department of Social Security v Ellis (1997) 46 ALD 1 at 5 per Carr J."
38 In Smith, the AAT exercised the discretion under s 156 in favour of a recipient of sickness benefits on the grounds that the benefits had been paid over a period when the recipient worker was incapacitated by hepatitis. As hepatitis was not a work-related injury the worker was not entitled to worker's compensation in respect of that period. Accordingly, the award by consent for a lump sum payment of $80,000 for worker's compensation did not relate to the period during which the worker received sickness benefits as a result of the hepatitis. von Doussa J stated (at 62):
"In my opinion the Tribunal did not fall into error by taking into account an irrelevant consideration when it said:
'To continue to deprive (the respondent) of that which was paid to him by virtue of his rightful entitlement to sickness benefits on the basis that he is to be taken to have been compensated for it, when in actual fact he was not, would in my view be unjust.'
I agree with the Tribunal that the facts of this case are unusual. By virtue of the agreed facts it is established that during the period from 6 May 1988 to 31 October 1988 the incapacity for work was unrelated to the work injury. In the common run of cases it will not be possible to conclude that during a period of eligibility for a pension which follows a compensable injury attracting a payment by way of compensation within the meaning of s 152(2)(a) that the period of eligibility is unrelated to the compensable injury. The admitted absence of any relationship was a relevant circumstance of the case."
39 His Honour dismissed the application for review of the decision by the Tribunal. The decision, in effect, treated as not having been made such part of the lump sum payment by way of compensation as would result in the amount of sickness benefits paid to the worker, for the period during which he was incapacitated for hepatitis, not being recoverable from the worker.
40 In the present case an analogous situation has arisen. By reason of the provisions of the TAA, the settlement of the applicant's damages claim necessarily precluded any part of the compensation from relating to pecuniary loss for the period of 18 months following her accident. Accordingly, as in Smith, there could be no double payment of social security payments and compensation for pecuniary loss.
41 Counsel for the respondent sought to distinguish Smith on the basis that the hepatitis suffered by the worker in that case was unrelated to the injury giving rise to the worker's compensation payable pursuant to the settlement whereas, in the present case, the injury giving rise to the social security benefits was the same injury which gave rise to the compensation payable pursuant to the settlement. In my view the distinction sought to be drawn is not relevant to the policy or purpose for which the discretion has been given under s 1184(1). As has been explained, that purpose is to avoid "double payment" of social security benefits and compensation for loss of earnings or loss of earning capacity. In Smith, double payment did not occur because the incapacity for work was unrelated to the work injury which was the subject of the workers compensation claim. In the present case double payment did not occur because the TAA operated to prevent it, notwithstanding that the same incapacity gave rise to the entitlement to social security benefits and damages.
42 Contrary to the respondent's contention, absence of a double payment has not arisen solely by reason of the operation of the TAA or the Act. Rather, it has arisen by reason of the operation of the TAA in the context of the particular circumstances of the applicant. Relevantly, those circumstances were that she was not an "earner" for the purposes of the TAA in the period prior to her accident. The consequence was that, for the period of 18 months following the accident, her personal circumstances were such that she was not entitled under the TAA to weekly payments in lieu of lost earnings, or to any other compensation as a result of loss of earnings or loss of earning capacity.
43 In the present case, it was open to the AAT to find that no part of the compensation the applicant received related to a period during which social security payments were payable with the consequence that, as there has been no "double payment", there were "special circumstances" for the purposes of s 1184(1). In such circumstances the exercise of the discretion under s 1184(1) would not be inconsistent with the policy and purpose of the statutory scheme. As was noted by von Doussa J in Smith (at 61-62) the very purpose of the ameliorating provisions of s 156 (and now s 1184(1)) is to enable the discretion to be exercised where it is appropriate to do so because the circumstances of the particular case will give rise to an unreasonable or unjust result under the scheme.
44 It follows from the foregoing that it was open, as a matter of law, to the AAT to conclude that the circumstances of the applicant's case were "special" for the purposes of s 1184(1) and that the discretion under the sub-section was able to be exercised by it in the applicant's favour in order to protect her social security benefits for the period during which she was precluded from receiving compensation.
45 However, the AAT erred in the manner it exercised its discretion by altering the preclusion period rather than by determining to treat part of the compensation payment as not having been made. Whilst it would have been open to the AAT to exercise its discretion by treating part of the compensation as not having been made, so as to ensure that the applicant is entitled to retain the social security payments paid for the period in respect of which she was not entitled to receive compensation for pecuniary loss, the AAT did not do so. Although the statutory scheme only allows that result to be arrived at indirectly, provided the discretion is exercised in the manner provided for by s 1184(1), it is open to the AAT to do so in a manner that achieves that result. A similar award, to achieve a similar result, was made by the Tribunal in Smith. Whether the AAT determines to exercise its discretion in that, or in some other manner, in the present case is a matter for it, rather than the Court, to decide.
Conclusion
46 For the above reasons the appeal and the cross-appeal are to be allowed and the matter is to be remitted to the AAT to be determined in accordance with law. As the AAT only erred in relation to the manner in which the discretion under s 1184(1) was to be exercised there is no reason why the matter should be remitted to a differently constituted AAT. The applicant has succeeded on the main issue in dispute. Accordingly, it is appropriate that the respondent pay the applicant's taxed costs of and incidental to the appeal.
I certify that the preceding forty-six (46) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Merkel.