Secretary, Department of Social Security v Banks (1990) 95 ALR 605

Secretary, Department of Social Security v a'Beckett (1990) FCA 332; (1990) 21 ALD 79, 12 AAR 212

Secretary, Department of Social Security v Hulls (unreported - O'Loughlin J., 28.2.91)

Ivovic and Director-General of Social Security [1981] AATA 57; (1981) 3 ALN N95

Beadle v Director-General of Social Security [1984] AATA 176; (1985) 60 ALR 225

NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

This appeal brought under s.44 of the Administrative Appeals Tribunal Act 1975 raises questions concerning the interpretation of s.156 of the Social Security Act 1947 ("the Act").

2. Before the Tribunal the facts were not in dispute. On 7 July 1987 the respondent suffered a back injury in the course of his employment with Associated Grocers Co-operative Limited ("the work injury"). He received weekly payments of compensation under the Workers Compensation Act 1971 (S.A.) until 25 March 1988 when he returned to work on light duties.

3. On 8 May 1988 the respondent became totally incapacitated for work as the result of contracting hepatitis and remained so incapacitated until 31 October 1988. It was an agreed fact that during this period the respondent's incapacity for work was unrelated to the work injury.

4. The hearing before the Tribunal proceeded on the footing that during this period the respondent had no entitlement to weekly compensation from his employer, and on appeal the appellant has not sought to disturb this assumption.

5. The respondent's employment was terminated on 17 August 1988 whilst he was absent from work with hepatitis.

6. Commencing from 8 May 1988 the respondent received sickness benefits pursuant to the provisions of the Act. Sickness benefits were continued until 1 January 1989. From 2 January 1989 until 23 February 1989 he was paid unemployment benefits.

7. The respondent brought proceedings in the Industrial Court of South Australia claiming compensation for the work injury. These proceedings were settled on 12 October 1988 and an award by consent was entered in his favour for a lump sum payment of $80,000. It is common ground that this payment was in part in respect of incapacity for work resulting from the work injury.

8. A delegate of the appellant then determined that the respondent was precluded by the settlement from receiving or being entitled to receive a pension for a period of 77 weeks. The last periodic payment of compensation was made on 25 March 1988. It was an agreed fact that the preclusion period determined by the delegate operated from 26 March 1988 to 15 September 1989. The delegate also determined that the sum of $4,900.20 being the sickness benefit and unemployment benefit paid between 8 May 1988 and 23 February 1989 was repayable. This sum was paid direct to the Department from the lump sum settlement money by the employer under the provisions of s.155.

9. The determinations of the delegate were made under sub.ss.153(1) and (2) which relevantly provide:

"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) ...

(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.

(2) Where -

(a) a person has received a lump sum payment by way of

compensation;

(b) the person received payments of pension during the lump sum

payment period; and

(c) sub-section (1) did not apply to the lump sum payment,

the Secretary may, by notice in writing given to the person,

determine that the person is liable to pay to the Commonwealth an

amount specified in the notice, being an amount equal to the

amount of pension paid to the person during the lump sum payment

period..."

Definitions of terms used in s.153 appears in s.152. "Pension" includes sickness benefit and unemployment benefit. Para.152(2)(a) defines "payment by way of compensation", and the definition includes a payment in settlement of a claim under a scheme of compensation provided for by a law of a State. Paragraph 152(2)(c) defines "the compensation part of a lump sum payment by way of compensation". Paragraph 152(e) then provides a formula for ascertaining "the lump sum payment period" by dividing the compensation part of the lump sum payment by way of compensation by a "total weekly earnings" factor identified in accordance with the provisions of the paragraph. The commencing date of the lump sum payment period is ascertained in accordance with sub.s.152(3).

10. The operation of ss.152 and 153 has been discussed in several decisions of this court: see Secretary, Department of Social Security v Banks (1990) 95 ALR 605; Secretary, Department of Social Security v a'Beckett (1990) FCA 332; (1990) 21 ALD 79, 12 AAR 212, and Secretary, Department of Social Security v Hulls (as yet unreported, O'Loughlin J., 28 February 1991). It is not in dispute in the present case that the strict application of the relevant provisions of ss.152 and 153 led to the result that under sub.s.153(2) the benefits received by the respondent, including the sickness benefit paid during the period 8 May 1988 to 31 October 1988, are repayable. However on appeal by the respondent from the delegate's determinations the Social Security Appeals Tribunal invoked s.156 of the Act and determined that the sickness benefit paid from 8 May 1988 to 31 October 1988 was not recoverable. Section 156 reads:

"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."

11. The appellant appealed to the Tribunal which held that there were special circumstances which justified the exercise of discretion in s.156 "so as to treat, as not having been made, such part of the lump sum payment by way of compensation that would result in the amount of sickness benefit paid to the respondent for the period 6 May 1988 to 31 October 1988 (inclusive) not being recoverable". The Tribunal substituted a differently worded determination to give effect to its conclusion, but in effect upheld the determination of the Social Security Appeals Tribunal.

12. The appellant contends that the Tribunal erred in law in the construction which it placed on the words "special circumstances" in s.156.

13. The meaning of the words "special circumstances" which appeared in the former s.115 of the Act was considered by the Tribunal in Re Ivovic and Director-General of Social Security [1981] AATA 57; (1981) 3 ALN, N95. Sub-section 115(4A) invested the Director-General with a power to release a person who received a payment by way of compensation from a liability otherwise arising under s.115 to repay benefit received in respect of the same period if satisfied that "special circumstances" existed. The Tribunal said:

"It is, in our view, the plain intention of s 115 of the Act that

in cases such as the present the amount of the liability properly

determined in accordance with sub-s (4) of that section must be

paid unless the Director-General (or on review this Tribunal) is

satisfied that special circumstances exist by reason of which the

person should be released in whole or in part from that liability

(s 115(4A)). Whilst it would be unwise, if not impossible, to

attempt to lay down any precise delineation of what may amount to

'special circumstances' for the purpose of s 115(4A) (cf, Re

Norman (1886) 16 QBD 673 at 677 per Lopes L.J.), the use of the word

'special' is, we think, intended to allow the decision-maker the

fullest opportunity to consider the particular circumstances of

each case (cf Ex parte Bucknell [1936] HCA 67; (1936) 56 CLR 221 at 224). Whilst

we agree that hardship is a relevant consideration in the

discretion conferred by s 115(4A), we reject the submission by Mr

Watkins (for the applicant) that we should ignore the

circumstances out of which the alleged hardship is said to have

arisen. 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. In the exercise of the discretion which s 115(4A)

confers, the decision-maker must have regard to whether, by

exercising the discretion in a particular case, he will be

achieving or frustrating ends or objects which are conformable

with the scope and purpose of the Social Services Act 1947: cf

Water Conservation and Irrigation Commission (NSW) v Browning

[1947] HCA 21; (1947) 74 CLR 492 at 505 per Dixon J. Thus whilst keeping the

dominant principle of s 115 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.'"

In Beadle v Director-General of Social Security [1984] AATA 176; (1985) 60 ALR 225, 7ALD 670, the Full Court considered the meaning of "special circumstances" in sub.s.102(2) of the Act which empowered the Director-General to extend time for lodging a claim for family allowance. The court said at 60 ALR p 228, 7 ALD p 673-674:

"As we have seen the Director-General in acting under s 102(1) is

concerned with the period between the date a claimant became

eligible and the time when the claim was lodged. The legislature

has indicated that six months latitude is sufficient in the normal

case. The Director-General has power to fix a longer period in

special circumstances. Presumably in this context special

circumstances must include events which would render the six

months unfair or inappropriate. For example, where the delay

beyond six months was due to the claimant's being misled by a

departmental officer or was due to the negligence of a third party

it might be thought the normal six months would be inappropriate;

that special circumstances had been shown which warranted a longer

period. More difficult would be questions of ignorance,

illiteracy, isolation, illness and the like. It would depend upon

the circumstances of the particular case whether these constituted

special circumstances. We do not think it is possible to lay down

precise limits or precise rules. The matter is one for the

Director-General bearing in mind the purpose for which the power

is given. The phrase 'special circumstances', although lacking

precision, is sufficiently understood in our view not to require

judicial gloss."

In Secretary, Department of Social Security O'Loughlin J. at p 27 considered that these observations applied with equal force to the expression "special circumstances" in s.156. I agree.

14. The Tribunal referred to the statements of principle in Ivovic and Beadle, and after discussing the scheme of Part XVII of the Act (of which ss.152, 153 and 156 form part) expressed its conclusions:

"23. In my opinion special circumstances do exist which justify

making such an exception for the following reasons. As previously

indicated, the scheme for recovery embodied in Part XVII of the

Act operates as if the pensioner were receiving periodic payments

by way of compensation throughout the lump sum period. The object

of the legislation is 'to avoid double payments for an inability

to exercise an earning capacity' a'Beckett (supra) per von Doussa

J. at p 21. The facts clearly show in this case that Mr Smith

never received any compensation for incapacity for work for the

period when he received sickness benefit for hepatitis (i.e. 6 May

1988 to 31 October 1988). His unusual situation meant that for

this part of the lump sum payment period, he could not be said to

be in receipt of double payments for an inability to exercise an

earning capacity. The factual situation was that he received only

one payment i.e. sickness benefit. The major reason for

qualifying for the benefit (i.e. hepatitis) was the very reason he

was precluded from being compensated for it (the hepatitis was not

work related). There never was, in fact, any double payment.

24. I consider the factual situation in this case to be unusual to

say the least. Mr Smith was never in fact, compensated during the

period when he received income support from the taxpayer for his

incapacity due to hepatitis. The Act presumes that he was

however, and therefore the amount paid by way of sickness benefit

is recoverable, even though it was for an unrelated cause. To

continue to deprive Mr Smith of that which was paid to him by

virtue of his rightful entitlement to sickness benefit 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."

The appellant contends that the Tribunal exercised the discretion under s.156 in a way which is inconsistent with ss.152 and 153. The obligation to repay imposed on the respondent necessarily flowed from the term of ss.152 and 153, and for this reason the result cannot be alleviated under s.156. It is argued that s.156 cannot have been intended to "re-write" the earlier provisions of Part XVII so as to permit an apparently unjust result reached under the earlier provisions to be overridden as the apparent injustice is the product of the legislation itself.

15. I am unable to accept this argument. The fallacy of the argument lies in its failure to read s.156 as part of the overall scheme enacted in Part XVII to provide for cases where a person becomes eligible to payments both under the Act and from an independent source by way of compensation that is in whole or in part in respect of an incapacity for work. The purpose of the scheme in Part XVII is discussed in Banks and Hull. The scheme was intended to avoid a person receiving double payments for an inability to exercise an earning capacity. I discussed the way in which the provisions of ss.152 and 153 seek to achieve this object in a'Beckett at pp 222-223.

16. To eliminate difficulties which had arisen under earlier enactments which required the Secretary to form an opinion about how the amount of a payment by way of compensation was made up (see Banks at 95 ALR p 610, 12 AAR p 43) an arbitrary formula was adopted in sub.para.152(2)(c)(i). This formula enables the compensation part of a lump sum payment made in settlement of a claim to be fixed with administrative ease. O'Loughlin J. observed in Hull at pp 22-23:

"This provision has the hallmarks of simplicity and certainty,

leaving s.156 and its reference to 'special circumstances' to

remedy those particular cases where the application of the

arbitrary rule would create injustice."

I agree with that observation. And para.152(2)(c)(i) is not the only arbitrary step in the scheme enacted in Part XVII. The formula in para.152(2)(e) by which the lump sum payment period is ascertained may utilise a weekly earnings factor which bears no resemblance to the rate at which compensation for incapacity for work would be payable. Furthermore, sub.s.152(3) may also operate in an arbitrary way. The present case may be used as an example. The agreed facts leave open as a real possibility that when the respondent ceased to be incapacitated by hepatitis on 31 October 1988 he was partially incapacitated by his back injury. Had the employer made one or more further payments of compensation after 31 October 1988 the lump sum payment period would have commenced after the period when sickness benefit was paid in respect of the incapacity for work resulting from hepatitis, and no question of recovery of those payments would have arisen.

17. The arbitrary nature of the provisions of s.152 would have been quite apparent to the legislature. The "50% rule" in para.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 95 ALR p 613, 12 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 Part 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 as unreasonable and unjust a 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 Part 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 Part 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".

18. It is contended on the appellant's behalf that "the circumstances of the case" should be confined to matters which arise external to the operation of the scheme. An example of such a matter given in argument is where the payment by way of compensation is not received by the plaintiff because of a defalcation by an agent to whom the money is paid on his behalf. I do not think a distinction can meaningfully be drawn between matters external to the operation of the scheme, and matters which are the product of the strict application of ss.152 and 153. The facts particular 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 Part XVII, apart from the ameliorating provisions of s.156, produces that result.

19. 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 benefit 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 8 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 para.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. In a'Beckett at pp 222-223 I said:

"The scheme for preclusion and recovery applies both in the case

of periodical payments by way of compensation and to lump sum

payments by way of compensation.

In cases of periodical payments by way of compensation, the scheme

for preclusion and recovery operates only in relation to payments

of pension made 'during the period during which the periodical

payments are made': see para.153(1)(c), and sub-ss.153(3), 154(1)

and 155(1) insofar as those sub-sections relate to periodical

payments by way of compensation. Clearly the object of the scheme

in relation to periodical payments is to prevent a person having

an entitlement to receive payments from two sources for the same

inability to work.

In cases of lump sum payments by way of compensation the scheme

for preclusion and recovery is no longer conditioned on there

being established an actual coincidence between a period during

which pension payments were or are to be made and a period during

which the pensioner is entitled to receive damages or compensation

for an incapacity for work. In these cases the scheme introduces

what may be described as a concept of presumed coincidence in time

by applying an arbitrary formula which appears in para.152(2)(e)

to fix a 'lump sum payment period'. Sub-section 152(3) determines

the day on which a lump sum payment period shall commence. The

scheme for preclusion and recovery then operates only during the

lump sum payment period as if the pensioner were receiving

periodical payments sufficient to eliminate the pension

entitlement. The notion that there must be a temporal matching of

pension payments to payments by way of compensation is in this way

applied to lump sum payments by way of compensation. Once 'the

relevant incapacity' referred to in para.152(3)(a) is identified

the scheme for preclusion and recovery operates to prevent an

entitlement to double payments during the period of presumed

entitlement to payments by way of compensation for that incapacity

for work.

That the legislation should embody a notion of matching periods

during which payments from the two different sources are made or

to be made is a reflection of the object of the legislation to

avoid double payments for an inability to exercise an earning

capacity. It would be contrary to this object to deprive a person

otherwise entitled to a pension during a period when there was no

coincidence (or presumed coincidence) between payments from the

two sources. In such cases there would be no overlapping of benefit."

Counsel for the appellant stresses the penultimate sentence of this passage. It is pointed out that here the operation of the scheme presumes a coincidence between pension payments made during the lump sum payment period including those made between 8 May 1988 and 31 October 1988 and the compensation part of the lump sum payment. It is agreed that s.156 does not empower an exercise of the discretion which defeats the operation of the presumed coincidence. In my view this is simply another way of putting the argument of the appellant which I have already discussed. 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.

20. In my opinion it was open to the Tribunal in the circumstances of this case to find "special circumstances" and to exercise the discretion under s.156 in favour of the respondent for the reasons which it did. I do not regard the exercise of the discretion as unreasonable having regard to the purpose and object of Part XVII. Allowing that the object and purpose is one of practical expediency at the expense in some cases of perfect fairness it was open to find, as the Tribunal did, that the operation of Part XVII would otherwise in the circumstances of this case.