Social Security Act 1991 s1171

Victorian Accident Compensation Act 1985 s5

Family & Community Services Legislation (Simplification and Other Measures) Act 2001

Social Security Legislation Amendment (Budget and Other Measures) Act 1986

Maxwell v Murphy [1957] HCA 7; (1957) 96 CLR 261

Secretary, Department of Social Security v (D A) Smith (1991) 23 ALD 277

Blunn v Cleaver (1993) 119 ALR 65

Kirkbright v Secretary, Department of Family & Community Services (2000) FCA 1876

Beadle v Director-General of Social Security [1984] AATA 176; (1985) 7 ALD 670

Re Gulcan and Department of Family & Community Services (2001) AATA 552

Re Ivovic and Director of Social Services (1981) 3 ALN 95

Re Groth v Secretary, Department of Social Security [1995] AATA 121; (1995) 37 ALD 797

1. The applicant applies to review a decision of the Social Security Appeals Tribunal ("the SSAT") made on 5 May 2003. The SSAT then decided to set aside a decision made by a Centrelink officer on 3 October 2002 who imposed a lump sum preclusion period between 19 January 2002 and 7 November 2003.

2. The SSAT decided that the compensation lump sum received by Mr Kelava should be "taken" as not having been made beyond 9 October 2002 upon which date Mr Kelava had his 65th birthday.

3. The hearing of the application proceeded in Melbourne on 6 August 2003. Ms King appeared on behalf of the applicant and Mr Cooney of Counsel appeared on behalf of the respondent.

4. The circumstances giving rise to the application may be briefly explained as follows.

5. Mr Kelava suffered back injuries in his employment and thereafter received weekly compensation pursuant to the Victorian Accident Compensation Act ("the Victorian Act"). On 27 November 2000 Mr Kelava received a lump sum pursuant to s98 of that Act in the sum of $28,492.00. That payment was made with respect to a physical impairment that he then suffered. Weekly compensation thereafter continued and was paid until 18 January 2002 when Common Law proceedings were settled by a payment to Mr Kelava of $80,000.00 plus costs.

6. The applicant subsequently imposed a preclusion period by reference to s17(3) of the Social Security Act 1991 which permits it to have regard to 50% of the payment made and dividing it by a compensation divisor which, at January 2002, was $576.38.

7. In calculating the period of preclusion the applicant had regard to both payments of compensation. That is to say, the compensation divisor was applied to the sum of $108,492.00 (refer T-8 page 24 and 83).

8. At the commencement of the hearing I sought clarification from Ms King as to whether the computation of preclusion period by regard to both compensation payments was permissible. The query was raised because the payment made pursuant to s98 of the Victorian Act was with respect to impairment only, which is not a payment of "compensation" within the meaning of s17(2) of the Social Security Act. Ms King indicated that the decision-maker had applied s1171 of the Social Security Act which reads as follows:

(a) a person receives 2 or more lump sum payments in relation to the same event that gave rise to an entitlement of the person to compensation (the multiple payments); and

(b) at least one of the multiple payments is made wholly or partly in respect of lost earnings or lost capacity to earn;

the following paragraphs have effect for the purposes of this Act and the Administration Act:

(c) the person is taken to have received one lump sum compensation payment (the single payment) of an amount equal to the sum of the multiple payments;

(d) the single payment is taken to have been received by the person:

(i) on the day on which he or she received the last of the multiple payments; or

(ii) if the multiple payments were all received on the same day, on that day.

1171(2) A payment is not a lump sum payment for the purposes of paragraph (1)(a) if it relates exclusively to arrears of periodic compensation.

9. Section 1171 was introduced to the Social Security Act by the Family & Community Services Legislation (Simplification and Other Measures) Act 2001 (Act No.71 of 2001). It is contained within a number of amendments concerning compensation recipients. Those amendments are found within Schedule 1 of the amending Act which is recorded at s2 as having commenced on 20 September 2001. It follows therefore that when Mr Kelava received his payment under s98, the amending Act was not in force. The Act as amended was in force at the time he received his Common Law lump sum. Had his Common Law claim resolved prior to 20 September 2001, only those monies would have been brought into account in calculating the preclusion period.

10. I have considerable doubt whether the amending Act can operate lawfully in the circumstances of the present application. If it does, it is afforded a retrospective operation which is not apparent by it.

11. In Maxwell v Murphy [1957] HCA 7; (1957) 96 CLR 261 Dixon C J at 267 said:

The general rule of the common law is that a statute changing the law ought not, unless the intention appears with reasonable certainty, to be understood as applying to facts or events that have already occurred in such a way as to confer or impose or otherwise affect rights or liabilities which the law had defined by reference to the past events.

12. If Mr Kelava had received a s98 payment only, no preclusion period would be imposed. This is because it would not be a payment of compensation within the meaning of s98. However, when a second payment of "compensation" is made, the s98 payment has taken on a different character, because the preclusion period is calculated by regard to the sum of both payments. This surely is an unintended consequence.

13. For reasons which follow, I have decided the preclusion period should end on 9 October 2002. It is not necessary to pursue the above issue because if the preclusion period was calculated against the sum of $80,000 only, it would have expired on 18 May 2003. That is, the same result would occur ($80,000 @ 50% - 40,000 ÷ $576.38 = 69 weeks).

14. The issue of significance in the present application was the characterisation of the compensation received by Mr Kelava when he resolved his Common Law application on 21 January 2002. He submitted to the SSAT and it was accepted that the monies then received were limited by a prohibition under the Victorian Act from receipt of weekly compensation beyond the age of 65. It was submitted that the lump sum he accepted was calculated by reference to weekly compensation entitlement up to 9 October 2002, being the date of Mr Kelava's 65th birthday. The effect of the imposition of a preclusion period until 7 November 2003 was to deny Mr Kelava payment of age pension beyond his 65th birthday and for a period of time during which he also had no entitlement to accident compensation. These circumstances were submitted as being "special" and permitting the exercise of the discretion available under s1184K of the Social Security Act.

15. In her submissions lodged prior to the commencement of the hearing, Ms King acknowledged that the Tribunal had made a decision on a similar fact scenario in Re Gulcan and Department of Family & Community Services (2001) AATA 552. However it was submitted that there was no evidence of Mr Kelava having achieved his Common Law settlement by regard to the prohibition of receipt of weekly compensation beyond the age of 65.

16. On that basis, Mr Garsa, the respondent's solicitor gave evidence in these proceedings. Mr Garsa said that he had been in practise for 40 years as a personal injuries lawyer and acted for Mr Kelava in his County Court application. He agreed that his client had received weekly compensation for work caused injuries until 18 January 2002 when his Common Law claim was settled. He said the negotiations and the ultimate settlement sum was structured to have regard to his client's entitlement to weekly compensation up to age 65 only. Mr Garsa relied on s93F of the Victorian Act which provides that a worker "is not entitled to weekly payments under this Part after attaining retirement age".. He also drew my attention to the definition of "retirement age" which is found at s5 of the Victorian Act and which reads as follows:

"retirement age", in relation to a worker, means-

(a) if there is a normal retiring age for workers in the occupation in which the worker was employed at the time of the injury-that age; or

(b) the age of 65 years-

whichever is the earlier, and, for the purposes of determining whether there is a normal retiring age for workers in an occupation, regard may be had to any retiring age in any industry or establishment where that occupation is carried on.

17. Mr Garsa said that the age of 65 was the compulsory retiring age imposed upon employees of the company which employed Mr Kelava at the time of his injury. He said that none of the Common Law settlement included any component for economic loss beyond the age of 65 and said that if such a component did exist it would be a "fraud" upon the legislation. He said that had Mr Kelava been a younger person it was likely he would have attracted a greater lump sum settlement. Mr Garsa also relied on a letter that he received from the solicitor's representing the employer in the Common Law proceedings which was received into evidence. That letter - dated 6 June 2003- apparently in response to a letter forwarded by Mr Garsa, recorded that the assessment of the quantum of damages as made by the insurers on behalf of the employer "did not make any allowance for your client working beyond the age of 65".

18. Mr Kelava gave evidence. He said that the settlement negotiations concerned his entitlement to weekly compensation to the age of 65. He said that he had no entitlement to weekly compensation beyond that age and was mindful that when he achieved 65 years he would qualify for an age pension.

19. He said that "everyone finishes at 65 at the factory" in reference to the compulsory retirement policy of his former employer. He said he had no intention of working beyond the age of 65 with any other employer or in self-employment and had always intended to seek age pension at his 65th birthday.

20. Maria Kelava, the respondent's daughter gave evidence. She said that she recommended to her father that he accept the Common Law lump sum offer of $80,000 because he was "stressed" and she wanted him to "move forward". She said that she understood from the settlement negotiations that her father had an entitlement to weekly compensation to the age of 65 only and that the lump sum contained a component for economic loss calculated upon an entitlement to the age of 65 only.

21. Ms King submitted that including age pension as a "compensation affected payment" was a clear indication that Parliament intended that age pensioners would be precluded from pension if they had previously received a payment of compensation as defined by s17.

22. Ms King also submitted that the introduction of the "50% rule" was to overcome compensation settlements being manipulated by persons intending to receive compensation in effect for the same period that Social Security payments would subsequently be made.

23. Mr Cooney submitted that the interpretation of the legislation as applying in the present circumstance would produce an unfair result to Mr Kelava. He said that it was not fair that a person should be denied weekly compensation beyond the age of 65 by a State based compensation scheme and also be precluded age pension beyond the age of 65.

24. He submitted that the Social Security Act since the mid-1980's had been amended on a number of occasions to reflect changes in the written language and terms of compensation settlements to prevent persons "double dipping". He said that it was not appropriate that a person should receive compensation redeemed with respect to a future entitlement by payment of a lump sum and then qualify for a pension from the public purse. In the present circumstance however the respondent had not received any compensation in respect of any period beyond his 65th birthday, yet the applicant was denying him an age pension beyond that date.

25. Evidence was heard as to Mr Kelava's interest in real estate, his assets, and his income from other sources. Evidence of this type is frequently heard in challenges to the imposition of a preclusion period, to determine the financial circumstances of pension claimant. For reasons which follow, it is not necessary to consider this issue.

26. I am satisfied that the respondent, Mr Kelava and his witnesses are persons of truth. I am satisfied that the lump sum compensation payment was structured to take account of his entitlement to weekly compensation to the age of 65 only. This is consistent with the evidence heard, the legislative prohibition under the Victorian Act of entitlement beyond that age, and the letter received from the insurers solicitor referred to earlier.

27. It follows therefore that the payment of lump sum compensation in the sum of $80,000.00 included a component representing (by redemption) an entitlement to weekly compensation to the age of 65 only.

28. The history of amendments to the Social Security Act in so far as those amendments affect compensation recipients since the 1980's have concentrated on prohibiting persons receiving a Social Security benefit at or during periods of time for which compensation has been paid or is being paid. The expression "double dipping" is frequently used by this Tribunal and by the Federal Court when hearing appeals against the imposition of preclusion periods. It is an expression clearly referable to payments of Workers Compensation and Social Security during the same period of time. By reason of the applicant in the present circumstance being of the view that the "50% rule" applies, irrespective of the characterisation of the payment, it challenges by this appeal the decision made by the SSAT. It is the applicant's case that the 50% rule was in effect introduced to avoid inquiry into the nature of compensation payments and to provide a standard and uniform methodology.

29. The intent of the Parliament to prohibit payment of Social Security benefits to persons who have received a payment of "compensation" as defined at s17 can be found also by the Second Reading speeches of Ministers when legislation has been amended, by the submissions of Counsel representing the Commonwealth in Federal Court appeals and by the decisions of members of the Federal Court when hearing appeals of which the following three circumstances arise by way of example.

30. In Secretary, Department of Social Security v (D A) Smith (1991) 23 ALD 277 von Doussa J at page 281-282 said the following:

The arbitrary nature of the provisions of s 152 would have been quite apparent to the legislature. The "50% rule" in s 152 (2) (c) (i), and the other provisions to which I have referred, are intended to operate together as a fair balance of the interests of the recipient of the payment with the competing interests of others in the community whose needs must be met as far as possible from a finite budget allocation for Social Security measures. As I observed in Banks (at ALR 613; AAR 46), it is in the very nature of an arbitrary provision that it can entail a degree of unfairness in a particular case. The scheme of Pt XVII recognises that perfect matching of eligibilities by dollar amounts or by periods of time for pension and for payments by way of compensation in respect of an incapacity for work is impracticable. At the same time the legislature must have recognised that from time to time a case may arise where the degree of unfairness to a recipient of a payment by way of compensation would bring about an unreasonable or unjust result which was outside that which could be justified by the practical expediency of the arbitrary nature of the provisions in ss 152 and 153. Section 156 was enacted as part of the scheme under Pt XVII before the "50% rule" was introduced by the Social Security Amendment Act 1988 (Cth), but this is no reason to construe s 156 as having no operation in respect of a case where the "50% rule" produces a clearly unjust result. Before the 1988 amendment there were other provisions in Pt XVII the strict application of which could operate in an arbitrary way. By its terms the discretion given by s 156 may be exercised where the secretary (or a body standing in the place of the secretary on appeal) "considers it appropriate to do so in the special circumstances of the case". These are wide words intended, as the Tribunal in Ivovic_, supra, pointed out, "to allow the decision-maker the fullest opportunity to consider the particular circumstances of each case"._

31. In Blunn v Cleaver (1993) 119 ALR 65 at 78 the Full Court recorded the submissions of Counsel for the Department of Social Security in the following terms:

Counsel for the applicant, the Secretary to the Department of Social Security, contended that the manner in which, or the method by which, the compensation was paid was not the relevant criterion. In her submission, the appropriate criterion for characterising a compensation payment for the purposes of any of the provisions of Div 4 of Pt 3.14 of the Act was the nature of the payment and the circumstances which gave rise to the entitlement. To adopt the criterion contended for by the respondent would, it was submitted, open the way for manipulation as to the manner in which, or the method by which, the compensation was to be paid and, in any event, would lead to the result that the amount to be recovered could not be ascertained until after payment had, in fact, been made. This would not reflect, so it was said, the intention of the legislature as ascertained from a consideration of the provisions as a whole. In so far as the language of the provisions is ambiguous, the construction of the provisions which would more closely give effect to that intention should be adopted so as to further the obvious purpose and object underlying Pt 3.14 of the Act, namely to prevent ``double dipping".

32. In the Second Reading Speech introducing amendments in 1986 (the Social Security Legislation Amendment (Budget and Other Measures) Act) the Minister said to the Parliament:

The rationale for the provision is that a person who receives a lump sum compensation that contains an amount for economic loss, should use part of the payment to provide for himself or herself for a period before turning to the Australian taxpayer, through the Social Security system for additional support.

33. Despite the intention of the Parliament to implement a regime of preclusion from Social Security entitlements when persons have received compensation payments, the opportunity to consider a compensation recipients' circumstances under s1184K, nonetheless permits reduction or elimination in the period of preclusion by disregarding all or part of the compensation payments. This provision may be invoked if it is found that the circumstances giving rise to the application are "special".

34. The references by His Honour von Doussa J above in Smith to s152 and s156 are referable to s1165 and 1184 as presently found within the Social Security Act.. Nonetheless His Honour recognised that the "50% rule" may produce an "unjust result". His Honour followed an earlier decision of the Tribunal in Re Ivovic and Director of Social Services (1981) 3 ALN 95 where it was decided that consideration of whether a persons circumstances were special allows "the decision maker the fullest opportunity to consider the particular circumstances of each case".

35. Recently, Mansfield J in Kirkbright v Secretary, Department of Family & Community Services (2000) FCA 1876 decided that strict application of legislative policy influenced the Tribunal into error by "excluding from consideration unfairness in the strict application of the legislation as possibly demonstrating that special circumstances exist in the applicant's case. Indeed in my view s1184 is designed specifically to enable the respondent and on review the Tribunal to ameliorate such unfairness or injustice when it appears by virtue of strict application of the Act". His Honour then recited the above passage from Smith in support of his decision.

36. In the present case, to uphold the contentions advanced by the applicant would produce an unfair and unjust result.

37. Mr Kelava was subject to the operation of the Victorian Act which prohibited any entitlement to compensation beyond the age of 65. It was by reason of that legislation that his solicitors negotiated a settlement which was calculated to take account of entitlement to weekly payments up to the age of 65. At that date Mr Kelava reasonably assumed an entitlement to age pension upon him achieving 65 years. That expectation was reasonably held by reason also of him not having being paid compensation as a lump sum in redemption of entitlement beyond the age of 65.

38. The legislative prohibition upon "double dipping" is sound but as Mr Cooney submitted, it is not intended that an injured worker in the circumstances of Mr Kelava be not permitted to "dip at all". That is to say, it cannot reasonably and fairly be expected that Mr Kelava be disqualified from both accident compensation and Social Security benefits beyond the age of 65.

39. I am satisfied that his circumstances are "special" within the meaning of Beadle v Director-General of Social Security [1984] AATA 176; (1985) 7 ALD 670 (whether the circumstances are "unusual, uncommon or exceptional") and within the meaning of Re Groth v Secretary, Department of Social Security [1995] AATA 121; (1995) 37 ALD 797 (special circumstances "would require something to distinguish Mr Groth's case from others- to take it out of the usual or ordinary case").

40. In conclusion Mr Kelava is not seeking to be paid from two different sources for the same period of time. His entitlement to weekly compensation ceased at his 65th birthday. His expectation of receipt of age pension commenced only at that date. To deny him age pension from his 65th birthday would be unreasonable, unjust and inappropriate.

41. In regard of the provisions of s1184K I am satisfied that so much of the compensation that has been paid which would otherwise permit a preclusion period beyond 9 October 2002 should be disregarded and from that date Mr Kelava be paid age pension.

42. The legislative objective of the Social Security Act 1991 also can be found in the "Guide to Social Security Law" as published by the applicant in its website (www.facs.go v.au/guide/ssguide/) where under the subheading of "Rationale for the lump sum preclusion period" it is recorded that "lump sum compensation payments are treated on the basis that people who cannot work because of a compensable injury should not receive income support for the same period from both the Social Security system and compensation payments".

43. The decision made above reflects the legislative intention by preserving a preclusion period up to 9 October 2002 but not beyond having regard to the special circumstances of this application.

44. The decision therefore of the SSAT under review in these proceedings will be affirmed.

I certify that the 44 preceding paragraphs are a true copy of the reasons for the decision herein of Mr J Handley