Secretary, Department of Family and Community Services v Chamberlain

REASONS FOR JUDGMENT 1 This is an appeal pursuant to s44 of the Administrative Appeals Tribunal Act 1975 (Cth) by the Secretary, Department of Family and Community Services ("the Secretary") from a decision of a Deputy President of the Administrative Appeals Tribunal ("the Tribunal") given on 9 March 2001. The Tribunal set aside the decision of the Social Security Appeals Tribunal and remitted the matter to the decision-maker with a direction that an amount of a lump sum compensation payment be disregarded in calculating the "lump sum preclusion period" under the Social Security Act 1991 (Cth) ("the Act"). 2 On 13 January 1999 Mrs Chamberlain was involved in a motor vehicle accident and suffered personal injury. She was 60 years of age. Prior to the accident Mrs Chamberlain had been in receipt of an age pension and she had previously received a disability support pension. On 6 December 1999 Mrs Chamberlain's claim was settled out of court. The total of the compensation was $35,000 plus $4,000 for costs. Of that amount, $31,500 was attributed by the parties to her pain and suffering and medical expenses and $3,500 was for her loss of earnings to the date of the settlement and for any future loss. The parties' calculation of this sum was not put before the Tribunal. Mrs Chamberlain however said that: "The component of $3,500.00 for past loss of income was on the basis of the loss of opportunity for me to teach music theory after the accident in 1999 and up until the date of settlement of the claim". She said that she was able to earn $50.00 per week without affecting her entitlement to a pension. Mrs Chamberlain's evidence suggests that she had not in fact earned monies prior to the accident, but her solicitors, in a letter to the Centrelink Compensation Recovery Team, said that she earned "not more than $50.00 per week" at the time she was injured. 3 Where a compensation payment is paid to a person who is in receipt of certain pensions or benefits a calculation is undertaken to determine, in effect, the amount of time during which that person should not receive, or have received, a pension payment. Any payments which have been made in that period are repayable. Mrs Chamberlain did continue to receive pension payments in the period from the time of the accident. 4 The application of the statutory formulae in Mrs Chamberlain's case produced the result that $7,643.36 was repayable by her. It is not suggested that there was any error in the calculation undertaken in this case. The question before the Administrative Appeals Tribunal was whether a discretion given by the Act, to reduce the effect of the calculation, could be applied in the circumstances of Mrs Chamberlain's case. 5 The relevant provisions under which the "lump sum preclusion period" was calculated were ss 1165 and 1166 of the Act (since amended by Act No. 71 of 2001). 6 Section 1165 (1A) of the Act provided: "If: (a) a person receives or claims a compensation affected payment; and (b) the person is not a member of a couple; and (c) the person receives a lump sum compensation payment (whether before or after the person receives or claims the compensation affected payment) on or after 20 March 1997; no compensation affected payment is payable to the person for the new lump sum preclusion period." 7 A "compensation affected payment" is defined in s 17(1) of the Act to includeboth an age pension and a disability support pension. "Compensation" is defined in the same section as a payment, by damages compensation or otherwise, that is made wholly or partly in respect of lost earnings or lost capacity to earn. 8 Section 1165(7) provided that the "new lump sum preclusion period"is the period that: "(a) begins on the day on which the loss of earnings or loss of earning capacity began; and (b) ends after the number of weeks worked out under subsections (8) and (9)." 9 Sections 1165 (8) and (9) provided: "1165(8) If a compensation lump sum is received on or after 20 March 1997, the number of weeks in the preclusion period is the number worked out under the following formula: compensation part of lump sum income cut-out amount 1165(9) If the number worked out under subsection (4) or (8) is not a whole number, the number is to be rounded down to the nearest whole number." 10 Section 17(3)(a) defines the "compensation part of a lump sum compensation payment" as: "(a) 50% of the payment if the following circumstances apply: (i) the payment is made (either with or without admission of liability) in settlement of a claim that is, in whole or in part, related to a disease, injury or condition;and (ii) the claim was settled, either by consent judgment being entered in respect of the settlement or otherwise, …" 11 A formula is also provided to determine the "income cut-out amount" (s 17(1)), which has regard to a maximum basic rate of pension. It may not reflect what was actually received. 12 In accordance with the statutory formulae fifty per cent of the total gross payment ($17,500) was taken and then divided by $422.90, as representing the "income cut-out amount". The period during which Mrs Chamberlain was taken not to have been entitled to her pension was 41 weeks, which period commenced on the date of the accident, 13 January 1999, and concluded on 26 October 1999. 13 Section 1166 relevantly provided: "(1) If: (a) a person receives a lump sum compensation payment; and (b) the person receives payments of a compensation affected payment for the lump sum preclusion period; the Secretary may, by written notice to the person, determine that the person is liable to pay to the Commonwealth the amount specified in the notice. (2) Subject to subsection (5), the amount specified in the notice is the 'recoverable amount' and is worked out under subsections 5(3), (4), (4A), (4B) and (4C). (3) If the person is not a member of a couple, the 'recoverable amount' is equal to the smaller of the following amounts: (a) the compensation part of the lump sum compensation payment; (b) the sum of the payments of the compensation affected payment made to the person: (i) if the lump sum compensation payment is received before 20 March 1997 - for the old lump sum preclusion period; or (ii) if the lump sum compensation payment is received on or after 20 March 1997- for the new lump sum preclusion period." 14 Section 1184(1) however provided: "(1) For the purposes of this Part, the Secretary may treat the whole or part of a compensation payment as: (a) not having been made; or (b) not liable to be made; if the Secretary thinks it is appropriate to do so in the special circumstances of the case." 15 The Tribunal accepted that prior to the accident Mrs Chamberlain had taught music and earned about $50 per week for her services. The amount of $3500 in the settlement was, it considered, "a token amount to compensate for the loss of her ability to teach due to her loss of concentration as a result of the accident." The result of applying the statutory formulae, the Tribunal observed, resulted in Mrs Chamberlain repaying Centrelink more than double the amount she actually received for economic loss. The Tribunal expressed some concern that the legislation might operate as a disincentive to people to settle their cases, given that the "50 per cent rule" applied in those circumstances but did not where a Court set the amount for economic loss. The critical part of the Tribunal's reasoning was as follows: "17. … Where a settlement is specifically itemised and a genuine amount has been set for economic loss, the discretion to disregard some or all of the compensation payment in order to ameliorate the effect of the 50% rule is at least opened up. 18. This is not a case where there was an attempt to hide compensation for economic loss or to double-dip on the social security system. This is a case where an elderly lady was given a token figure in her compensation payment to cover what was effectively her "play money" - the little extra she earned above her pension to make life that bit easier. 19. Mr Foster, for the respondent, submitted that when considering whether Mrs Chamberlain's circumstances were special, the Tribunal should keep in mind that she is now over $17,000 better off as a result of her compensation payment. 20. In this particular case that is not the point. $31,500 was given to her specifically for her pain and suffering and for her medical expenses. By having to pay money to Centrelink out of that figure she is in fact in a worse position than that which the payment intended to put her. This is a case where Centrelink has in effect double-dipped and that can not have been the intention of the legislature. 21. It was submitted by the applicant that this is a case where the Tribunal should exercise the discretion so as to disregard the whole of the compensation payment. It is not a submission with which I agree. The legislation is designed to ensure that a person does not receive compensation for economic loss both from the defendant in their personal injuries case and from Centrelink. It is important to ensure that this aim of the legislation is upheld." 16 The Tribunal considered that "special circumstances" were present in Mrs Chamberlain's case and that $28,000 of the $35,000 should be disregarded in calculating the "lump sum preclusion period". 17 The Secretary submits that the Tribunal has treated the application of the "50 per cent rule" as itself having an unjust result. The result following the strict application of the statutory calculation cannot be equated with the "special circumstances" referred to in s 1184(1), it is contended. The comparison of what was intended by the parties as the economic loss component, with the amount to be repaid to Centrelink, was not valid since it was clear that the statute did not intend that the component parts of a settlement be taken into account. 18 What has been referred to as the "50 per cent rule" was introduced by the Social Security Amendment Act 1988 (Cth) (Act No 58 of 1988). Sections 152, 153 and 156 were the predecessors of ss 1165, 1166 and 1184 and for present purposes may be regarded as having a similar operation. The 1988 amendments were considered by von Doussa J in Secretary, Department of Social Security v Banks (1990) 23 FCR 416, 421 to have been inserted to overcome the administrative difficulties which confronted the Secretary under the earlier provisions. The Secretary had been required to form an opinion about economic loss in each case. His Honour had regard to the Second Reading Speech on the Bill which showed, his Honour considered (at 422), that the mischief identified was "the abuse of the earlier provisions which had come about through settlements being manipulated to obscure the economic loss component in the compensation payment". The passages to which his Honour referred are as follows: "This Bill contains measures to improve the administration and integrity of compensation recovery provisions. Where a person receives personal injury compensation that makes up for lost income the Social Security Act provides that pension or benefit may be reduced or recovered. This is one way in which social security expenditures are directed to those most in need. Settlements of lump sum compensation particularly in the workers compensation jurisdiction are being manipulated to obscure the economic loss component and to avoid recovery of social security payments. To prevent this abuse the Minister announced on 8 February 1988 that, for future personal injury settlements made by agreement or by consent order, 50 per cent of lump sum compensation will be deemed to be in respect of economic loss. This Bill gives effect to that proposal. Where, on the other hand, a court has made an order after a contested hearing specifying the economic loss component, the Secretary to the Department will continue to have regard to the characterisation given to the award by the court." (Hansard, 13 April 1988, p 1497). 19 The words "special circumstances" are not so imprecise as to require judicial gloss: Beadle v Director-General of Social Security (1985) 60 ALR 225, 228. In Groth v Secretary, Department of Social Security (1995) 40 ALD 541, 545 I expressed the view that the words require something which distinguishes a person's case from others, something that sets it apart from the usual or ordinary case. 20 The question whether the strict application of the Act can result in unfairness or inappropriateness and therefore qualify as a "special circumstance" has been considered in a number of cases. In Beadle the statute treated the period of six months for the back-dating of a payment as generally sufficient, but the Director-General had power to fix a longer period if "special circumstances" existed. In that context it was held (at 228) that "special circumstances" included events which would make the application of the six month limit unfair or inappropriate. Examples given were of misleading advice or the negligence of a third party. The Full Court however cautioned against attempts to lay down any fixed rule. 21 In Beadle the statutory provisions made it necessary to consider the reason for the delay in lodging the application, in connexion with the question whether there were special circumstances. In that context the answer would often lie in the circumstances personal to the applicant. In Groth the argument advanced on behalf of Mr Groth depended upon a view as to his personal circumstances. 22 The argument advanced for the Secretary treats the application of the statutory formulae as an exercise distinct from the following question, under s 1184, whether the effect of their application should be ameliorated. Pursuant to such an argument the firstmentioned exercise would be complete before the circumstances personal to the recipient of the benefit or pension were considered. In neither case can the state of affairs, which the legislation creates or assumes by reference to the formulae, be altered. 23 It may generally be accepted that the statutory provisions here in question were intended to operate upon factual bases which were assumed and were not intended to reflect the true position. This is so with respect to the figure of fifty per cent taken of the lump sum compensation payment; the amount of basic rate of pension used to divide it; the period during which double payment is assumed to have occurred; and perhaps even the commencement of the period when the loss of earning capacity arose, which would normally be taken to be the date when the compensable injury was occasioned to the person. 24 Unlike a presumption, which may be rebutted by evidence, the purpose and effect of a deeming provision is to prevent any attempt, by either party, to prove the truth: Actors and Announcers Equity Association of Australia v Fontana Films Pty Ltd (1983) 150 CLR 169, 214, Murphy J; a facility to put to rest the disputes which would otherwise arise concerning the facts: Macquarie Bank Ltd v Fociri Pty Ltd (1992) 27 NSWLR 203, 227, Kirby P. Whether a provision has this effect is determined principally by having regard to the purpose for which it is used: Macquarie Bank v Fociri, 207-208, Gleeson CJ; Muller v Dalgety & Co Ltd (1909) 9 CLR 693; Rheem Australia Ltd v Collector of Customs (NSW) (1988) 78 ALR 285, 301. 25 Here the factual assumptions upon which the calculations are based, including that which treats fifty per cent of the total compensation payment as representing the economic loss component, could not have been intended to be subject to rebuttal in the process of applying the formulae. The statutory purpose is to overcome the need in each case to determine what part of a lump sum compensation payment in truth represents economic loss. Although the assumptions to be made and the result reached are necessarily arbitrary, it is a course which has been taken for administrative simplicity: Secretary, Department of Social Security v Hulls (1991) 22 ALD 570, 579; Secretary, Department of Social Security v Smith (1991) 30 FCR 56, 61. 26 These observations do not however conclude the matter, since s 1184 was inserted to ameliorate the harshness of the arbitrary provisions: Haidar v Department Social Security (1998) 157 ALR 359, 367, Hill J. Pursuant to it the decision-maker is entitled to treat the compensation payment, or part of it, as if it had not been made, which is to say in a manner different from that required by the formulae. This is undertaken only if the requisite opinions are formed, namely that "special circumstances" exist and it is considered appropriate to treat the compensation payment such that there will either be no period when double payment is assumed to have been made, or there will be a shorter period. 27 The question then is what can be taken into account as a "special circumstance". The Secretary's argument is that the decision-maker can never take into account what was actually received by way of compensation for economic loss in considering the circumstances of the particular case. Counsel for Mrs Chamberlain relies upon two decisions of this Court in support of an argument that one may have regard to the true facts of a case: Kertland v Secretary, Department of Family Services (1999) 95 FCR 64 and Secretary, Department Social Security v Smith, referred to above. In each case it was held that there was no error in the Tribunal's view that special circumstances existed. 28 In Smith (at 61-62) an argument was advanced for the Secretary that the circumstances of a case should be confined to matters which arise external to the operation of the scheme. Von Doussa J summarised it as follows: "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 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." 29 Mr Smith had suffered a work-related injury but he had returned to light duties when he contracted hepatitis, as a result of which he received sickness benefits. He thereafter received a payment compensating him for his injuries and loss. It may be inferred from the facts there stated that it could not be said that it contained a payment for economic loss for the period when he received sickness benefits, because that entitlement operated to disentitle him from compensation payments. His Honour concluded (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 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 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." 30 His Honour also went on to reiterate his view, earlier expressed in Secretary, Department Social Security v a'Beckett (1990) 12 AAR 212, 222-223, which had regard to the statutory assumption that there was an actual coincidence between a period during which pension payments were made and the period during which the pensioner received compensation for an incapacity to work. It was of some importance to his Honour's opinion that the object of the legislation, to prevent double payments for an inability to earn income, was not cut across by applying s 1184 in that case. The situation which was of concern to the statute was not present. 31 In Kertland there could have been no dispute that the applicant had not been compensated for economic loss in the settlement, since legislation (the Transport Accident Act 1986 (Vic)) precluded a person, who had been employed at the time of injury, from recovering compensation for economic loss for a period of eighteen months. His Honour likewise found the circumstances upon which the statute was predicated, namely compensation for economic loss in that period, not to be present. 32 In each of Smith and Kertland it may be said that their Honours took into account the true position. The facts of those cases were unusual. It does not follow that the true facts in every case will have that quality. In those cases it could be seen, objectively, that there could not have been a double payment. In such a circumstance it might be concluded that the statutory assumption operated unjustly. This would not seem to me a situation which would often arise and sets these cases apart from the usual. 33 In the present case the Tribunal considered that the application of the formulae was unfair to the applicant because she would have to pay more than she had received by way of compensation for economic loss, indeed twice as much. That factor will however be present in most cases and is an aspect of the application of the formulae. In my view it cannot, by itself, amount to a special circumstance, one out of the ordinary. 34 The basis for the Tribunal's view was its acceptance of what the parties to the settlement said had been offered and accepted for the economic loss component. It was far less than the statute assumed to be the case in applying the formulae. Again, however, this will be so in many, if not most, cases to which the Act applies. Further, the extent of the difference from the basis upon which the parties acted could not provide the necessary "special circumstance". The statute has selected a figure which may operate in an arbitrary way. 35 The statutory objectives in utilising the formulae, referred to above, must also be borne in mind. It is not intended that a decision-maker be required to consider contentions about what part of the compensation reflected the economic loss component. That is so whether one has regard to the application of the formulae or the discretion under s 1184. The latter does not alter the objective and must be read in light of it. 36 In my view the Tribunal was in error in its assessment of "special circumstances" and its decision must be set aside. The Tribunal does not however appear to have considered the facts put forward as personal to the applicant, which were the subject of earlier decisions. It seems to me necessary that the Tribunal reconsider the question of "special circumstances", in light of that information. 37 The decision of the Tribunal will be set aside and the matter remitted to it for further consideration of the application of s 1184. I certify that the preceding thirty-seven (37) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Kiefel.