Social Security (Budget and Other Measures) Legislation Amendment Act 1993 ss.71, 79

Re Dezso and the Secretary, Department of Social Security (Decision No.8693, 7 May 1993)

Secretary of the Department of Social Security v Smith (1991) 30 FCR 56

Commonwealth of Australia v Daniels (1994) 33 ALD 111

Re Krzywak and Secretary, Department of Social Security (1985) 15 ALD 690

W. EYRE This is an application for the review of a decision of the Social Security Appeals Tribunal ('the SSAT') dated 13 June, 1995. That decision set aside the decision of a delegate of the Secretary, Department of Social Security ('the Secretary'), affirmed by an Authorised Review Officer ('ARO'), that a portion of a compensation payment paid to the respondent was recoverable. The Secretary appealed to the Tribunal submitting that the SSAT wrongly exercised the discretion provided in s.1184 of the Social Security Act 1991 ('the Act') to circumvent the recovery provisions of the Act and therefore erred in law.

2. The Tribunal received in evidence the documents lodged pursuant to s.37 of the Administrative Appeals Tribunal Act, 1975 (T1-T31). The applicant was represented by Mr Roberts of the Department of Social Security and the respondent appeared on his own behalf. The material before the Tribunal also comprised the following documents tendered by Mr Roberts on behalf of the applicant:

(a) a Statement of Agreed Facts;

(b) a Statement of Facts Not Agreed To, namely 'The parties do

not agree that there are special circumstances in this case such

that it is appropriate to disregard the compensation payment

received by (the respondent).';

(c) a Submission from Applicant;

(d) a copy of an extract from a parliamentary explanatory

Memorandum relating to Social Security (Budget and other Measures)

Legislation Amendment Bill 1993, being pages 121, 129 and 130;

(e) a copy of a Bodily Injury Claim Form to State Government

Insurance Commission ('SGIC'), signed by the respondent and dated

27 May 1992;

(f) a copy of a letter to SGIC from Jervis, Smith and Thomas,

('the respondent's solicitors) dated 23 May 1994;

(g) a copy of a letter to SGIC from the respondent's

solicitors dated 19 October 1994.

3. The parties are not in dispute as to the facts of this matter. The Statement of Agreed Facts provides as follows:

'1 (The respondent), while in receipt of Job Search Allowance,

was involved in a motor vehicle accident on 15 May 1992.

2 On 29 June 1992, the respondent advised the Applicant that he

had lodged a claim with the State Government Insurance Office

(SGIC) in respect of injuries received from the motor vehicle

accident (T3 page 24).

3 By letter dated 29 June 1992, the Applicant advised (the

respondent, the respondent's solicitors) and SGIC that the

Applicant had an interest in the matter (T6-T8).

4 On 10 November 1994, SGIC advised the Applicant that the claim

had been settled by payment to (the respondent) of $18,223,70 "all

inclusive by consent" including an amount of $5,000 for future

economic loss (T11 page 34).

5 On 16 November 1994, a delegate of the Secretary from the

applicant Department decided that a lump sum payment period of 17

weeks applied from 15 May 1992 to 10 September 1992, and that Job

Search Allowance of $1,588.02 paid to (the respondent) in that

period was recoverable by the Applicant (T12 pages 35-27).

6 (The respondent's) solicitors and SGIC were advised of this

decision by letter (T13 and T14).

7 (The respondent) sought a review of the decision on 1 December

1994 (T17 page 43).

8 SGIC confirmed by letter dated 5 January 1995 that (the

respondent's) settlement incorporated $3,412 future economic loss

and $1,588.02 for past economic loss (T19 page 48).

9 An Authorised Review Officer (ARO) reviewed the matter and by

letter dated 10 April 1995, notified (the respondent) that he had

affirmed the decision to recover $1,588.02 paid by the Applicant

for the period 15 May 1992 to 10 September 1992 based on 50% of

the awarded figure of $18,223.70 being used to calculate the

preclusion period (T25 pages 54 to 57).

10 On 4 May 1995 (the respondent) appealed to the Social Security

Appeals Tribunal who on 1 June 1995 set-aside the decision under

review and substituted a decision that the compensation component

in (the respondent's) settlement sum should be disregarded and no

preclusion period should be raised (T2 pages 3 to 9).

11 On 12 July 1995, the Secretary of the Department of Social

Security appealed to the Administrative Appeals Tribunal (T1 page

1).'

4. Mr Roberts for the applicant indicated that there was a small correction to be made to in relation to the sum which the Department submits is recoverable from the respondent as the amount should be $1,583.34. Mr Roberts advised that a cheque for this small difference was being sent to the respondent.

5. The Tribunal accepts the Statement of Agreed Facts and the recalculation referred to in paragraph 4 and finds accordingly.

6. The Tribunal also finds, on the basis of the material before the Tribunal and the applicant's submission, that the respondent's Job Search Allowance payments ceased on 10 July 1992. The respondent was not in receipt of any other benefit under the Act after that date.

7. The SSAT in its decision stated 'His (the respondent's) solicitor advised him throughout that he had no claim for past economic loss'. Mr Roberts for the applicant referred to the letter of the respondent's solicitors to SGIC dated 23 May 1994 where, at page 4, a resolution was proposed which included the following:

'2. Past loss of earnings (loss of chance) $5,000.00.

3 Loss of earning capacity $5,000.00.'

8. The Tribunal notes that the respondent's solicitors in their letter dated 23 May 1994, also claimed $11,645 for pain and suffering. In their letter dated 19 October 1994 the respondent's solicitors reduced this claim to $10,275 and omitted any claim for past loss of earnings.

9. Before this Tribunal, Mr Roberts for the applicant stated 'the parties agree that the lump sum compensation payment included a component of $5000 for future loss of earning capacity'. Mr Roberts also indicated that there was no suggestion that the settlement was in any way contrived. In the circumstances, the Tribunal does not consider it necessary to determine whether or not the SSAT was correct in finding that 'negotiation of (the respondent's) claim proceeded on the basis that he had no entitlement to any past economic loss as he was unemployed at the time of the accident and he would have difficulty arguing that the accident caused such loss'. The Tribunal finds that the lump sum compensation includes $5000 for future loss of earning capacity and that there is no other sum for lost earnings or lost capacity to earn within the settlement figure.

10. There is no dispute that the respondent received 'compensation' within the meaning of s.17(2)(b) of the Act. Nor did the respondent argue that the payment was not 'made wholly or partly in respect of lost earnings or lost capacity to earn'. The Tribunal finds on the material before it that $5,000 of the payment was made '... in respect of ... lost capacity to earn' as provided for by s.17(2)(e).

11. Section 17(3) of the Act provides:

'For the purposes of this Act, the compensation part of a lump

sum compensation payment is:

(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 judgement being

entered in respect of the settlement or otherwise, on or after

February 1988.'

There is no dispute that there was a lump sum compensation payment in respect of the respondent's road accident injury. Nor is there any dispute that payment was made in settlement of the claim related to his injury. Reference is made to paragraph 3 above, to the respondent's claim to SGIC, his solicitors' letters to SGIC and the Release signed by the respondent on 3 November 1994 (T30/66).

12. Mr Roberts for the applicant referred in his written and oral submissions to Re Dezso and the Secretary, Department of Social Security (Decision No. 8693, 7 May 1993). That case did not involve a consideration of s.17(3)(a) of the Act but rather s.17(3)(b). The applicant in that case submitted that an amount awarded by the District Court for future loss of earning capacity should not be taken into account in determining the relevant preclusion period. That case also involved recovery. It is noted that in that case the applicant received Unemployment Benefits for about eleven months after his accident, then claimed and was granted Sickness Benefits, and then Unemployment Benefits from about 18 months before the District Court's decision and that he continued to receive these until about six months after the District Court's decision when he obtained employment.

13. The Tribunal rejected Mr Dezso's submission. At paragraph 10 of his reasons, Deputy President Burns stated:

'The legislation does not draw a distinction between compensation

awarded for past or future loss of earning capacity in determining

the compensation component of a lump sum. The Tribunal finds that

the lump sum compensation payment in question is the amount of the

District Court judgment namely, $74,975.14, and the compensation

part of that lump sum is $42,600, being the two amounts awarded by

the District Court regarding past loss of earnings and loss of

earning capacity namely, $12,600 and $30,000.'

There is no basis for confining the phrase 'or lost capacity to earn' in s.17(2)(e) of the Act to any particular future date or event. The legislation does not draw a distinction between compensation awarded for past or future loss of earning capacity in determining the compensation component of a lump sum.

14. Accordingly, the only way in which the respondent could avoid the consequences of the calculation of the lump sum preclusion period under s.1165(4) of the Act would be by the application of s.1184(1) of the Act. This provides:

'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 appropriate to do so in the special

circumstances of the case.'

15. The SSAT in its decision, referred to the Federal Court's decision in Secretary of the Department of Social Security v Smith (1991) 30 FCR 56. It is useful to repeat the passage referred to by the SSAT:

'The "50% rule" ... 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. ... it is in the very nature of an arbitrary

provision that it can entail a degree of unfairness in a

particular case. This 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 a 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. ... By its terms the discretion given by s156

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 wide words

intended ... to allow the decision-maker the fullest opportunity

to consider the particular circumstances of each case.'

Clearly the 50% rule and related provisions are arbitrary. The question is whether there are special circumstances in the respondent's case which make it appropriate to treat the whole or part of the compensation payment as not having been made.

'The rationale behind the 50% is to prevent double dipping. Ie.

if the person is compensated for a period during which they cannot

earn income and during that period they were a recipient of Social

Security benefits then it is inappropriate that they be paid twice

for that period, hence the preclusion period operates and the

Social Security monies are repayable. There is no logic in

applying this rule where it is manifestly clear that there could

not have been a claim for past economic loss in the award. There

is no causative connection between the compensation component that

(the respondent) ultimately received and the unemployment benefits

that he received shortly after the accident.'

The Tribunal carefully considered the provisions of section 1184

and the decision on that section and felt that there was special

circumstance in this case and (sic) made it unjust to apply the

strict terms of the legislation in this case.

In the Tribunal's view it is unjust, harsh and unreasonable to

expect (the respondent) to repay unemployment benefits received

from the Department when he clearly made no claim for past

economic loss and would not in law would have been able to do so.

In the Tribunal's view the legislation was not intended to have

that consequence. In all the circumstances the Tribunal felt that

the discretion in section 1184 should be exercised and the

compensation component of his settlement sum should be

disregarded. There is therefore no preclusion period and the

Department must repay to (the respondent) monies that had been

paid to them from his settlement sum.'

17. Before this Tribunal the respondent did not dispute the 'calculation or the mechanics of the preclusion period'. He submitted however that a more discretionary approach should be adopted. He submitted that people's attitudes to dealing with government departments would alter to the detriment of the community if cases like his were dealt with as his had been. He pointed to the relatively small amount involved in his case. He also stated that 'most of third party accident type settlements (are) done in a fairly regulated environment' and distinguished such claims from common law claims. He argued that the legislation was clearly directed at contrived settlements. He stated that he understood that 'they are not talking about not having a direct causative connection' but stated he still did not believe that any 'legislation of this kind would be enacted without the rationale behind it being aimed at avoiding the DSS being disadvantaged on it by virtue of a contrived settlement'. The respondent stated further:

'What I am really saying is that if you put in a claim for future

economic loss and you have a DSS payment for a very short period

of time which does not overlap that claim, either by nature or by

time, that it is probably harsh and unreasonable to try and

reclaim amounts that are not directly correlated.'

18. Mr Roberts for the applicant drew the Tribunal's attention to the decision of the Federal Court in Commonwealth of Australia v Daniels (1994) 33 ALD 111. In that case the Administrative Appeals Tribunal found special circumstances to exist because of two factors, namely:

'(1) the complete lack of causative connection between the

compensation payment for incapacity to work and the applicant's

present unemployment status which arose from retrenchment; and

(2) the undue delay between the accidents (1980) and (1982) and

the payment of the lump sum payment in 1989. This is further

emphasised by fact that the applicant became unemployed on 10

August 1990.'

The Federal Court upheld the Tribunal's decision. Neave J took the view that it was 'not an irrelevant matter that the unemployment was totally unconnected either with the injuries or with any incapacity arising from them'.

19. Mr Roberts submitted that Daniels (supra) and similar cases are clearly distinguishable because of the amendments effected by the Social Security (Budget and Other Measures) Legislation Amendment Act 1993 ('the amendment Act'). He referred in particular to the amendment to s.1163(9) of the Act. The amendment Act also introduced a new subsection to s.1184 of the Act, namely subsection (2) which provides:

'If:

a person is qualified for a compensation affected payment; and

the person's partner receives compensation; and

the set of circumstances giving rise to the compensation are not

related to the set of circumstances that give rise to the person's

qualification for compensation affected payment;

the fact that those 2 sets of circumstances are unrelated does not

in itself constitute special circumstances for the purposes of

subsection (1).'

It seems clear that Parliament, by the amendment to s.1163(9), re-inforced or clarified that there need be no connection between eligibility for benefit under the Act and the circumstances which give rise to a compensation payment. But that is not in dispute in this case. It also seems clear that the enactment of s.1184(2) (above) does not assist the applicant's case. Section 1184(2) does not affect the discretion given by s.1184(1) except in situations where compensation is received by the partner of a social security recipient. Section 1184(1) remains fully operative so that the Secretary and now this Tribunal are not in any way precluded from looking at large at the question whether 'special circumstances' exist in this case. The Tribunal considers the 1993 amendment, referred to above, irrelevant to the question under consideration, namely whether 'special circumstances' exist.

20. It is clear that in this case the categories of special circumstances as referred to in Re Krzywak and Secretary, Department of Social Security (1985) 15 ALD 690 do not exist.

21. In Smith (supra), von Doussa J rejected the argument that the 'circumstances of the case', referred to in the equivalent of s.1184(1) of the Act, were confined to matters which arose external to the operation of the legislative scheme. As stated above the Tribunal does not consider that the 1993 amendments affect this discretion, except as now provided for in cases to which s.1184(2) applies. It is apparent that the Tribunal can look to whether the strict enforcement of the liability (a liability which the respondent does not dispute) would in the special circumstances of the particular case be unjust, unreasonable or otherwise inappropriate.

22. After careful consideration the Tribunal is satisfied that special circumstances do exist in the respondent's case which make it appropriate to treat the whole of the compensation payment as not having been made. It is important to note that the Act does not require repayment of a benefit whenever a recipient or former recipient's financial situation improves. The provisions under consideration do not concern assets or income, nor do they concern moneys paid or payable as a result of any legal claim, only those claims where payment is in respect of 'lost earnings or lost capacity to earn'. The scheme is arbitrary in a number of respects and no doubt there are many situations where its application may not achieve a particularly fair result. Parliament has taken the precaution of providing a means to ameliorate its operation in 'special circumstances'. As stated above Parliament has not, in any way relevant to this case, restricted the availability of s.1184(1) of the Act. That provision does require that it be 'appropriate' 'in the special circumstances of the case' to treat the whole or part of a compensation payment as not having been made. In the Tribunal's view the degree of anomaly between the purpose of Part 3.14 and related provisions of the Act and the respondent's situation is so great that there are 'special circumstances' in this case which render it appropriate to treat the compensation payment as not having been made.

23. There is no element in this case of the respondent having been compensated in any way for loss of earnings or lost earning capacity while he was in receipt of Job Search allowance, while he was off Job Search but still unemployed or indeed for anything, characterisable as being for lost earnings or lost earning capacity, other than economic loss future to 3 November 1994, the date of settlement of his road accident claim. That settlement took place some 27 months after the respondent's Social Security (Job Search Allowance) payments had ceased and some 29 months after his road accident. The road accident had occurred at a time when the respondent was already in receipt of Job Search Allowance payments.

24. There is nothing to suggest that the settlement process was prolonged. Mr Roberts for the applicant acknowledged that there was 'no suggestion that this was a contrived settlement in any way'. The parties agreed that the lump sum compensation payment included a component of $5,000 for future loss of earning capacity. Mr Roberts acknowledged that despite the respondent's original claim (which had included a claim for past loss) 'it appears to have been settled on the basis of $5,000 for the future earnings'. There is no element in this case that the respondent should, retrospectively as it were, be living from the compensation received rather than from benefits paid under the Act.

25. The Tribunal is mindful of the problems of 'double dipping' and the administrative undesirability of having to go behind a lump sum settlement to characterise and expose any manipulation of heads of loss. In this case however there appears to be no doubt that the only 'lost earning capacity' was from a date well in future of the date of the injury and the date on which payment of benefits ceased. Furthermore, there is no reason to think that settlement should have occurred at an earlier date considerably more closely related to the date the respondent ceased to receive benefits. On the facts of this case there is no element of double payment nor even any concern that there has in reality been an element of double payment.

26. Where there is a settlement and the '50% rule' applies and where that liability is contested, it appears to the Tribunal that if further factors are present suggestive of manipulation of heads of loss or manipulation of the timing of the prosecution of the claim (including its settlement), those further factors would weigh very heavily against there being 'special circumstances' under s.1184 of the Act. However, no such factors are present in this case.

27. The Tribunal is also mindful that it does not appear that the respondent's current situation is one of financial difficulty. However s.1184 of the Act does not confine 'special circumstances' to any particular categories of special circumstances such as poverty. The scheme of the Act is not one where liability for repayment arises when a beneficiary's financial situation has improved: in these circumstances the Tribunal considers it doubtful that an improvement in a person's financial circumstances should operate to negate what would otherwise be special circumstances.

28. As to whether 'the whole or part' of the compensation payment should appropriately be treated as not having been made, there is in this case no logical justification for disregarding the $5,000 component of the payment for the purposes of the calculation under s.1165(4) of the Act or for treating it as if it were, in effect, a payment made under s.17(3)(b). On the material before the Tribunal, the Tribunal is satisfied that special circumstances exist in this case which make it appropriate to treat the whole of the respondent's compensation payment as not having been made.

29. Accordingly, for the reasons given above, the Tribunal affirms the decision under review.