FEDERAL COURT OF AUSTRALIA Secretary to the Department of Family & Community Services v Allan [2001] FCA 1160 SOCIAL SECURITY – appeal from Administrative Appeals Tribunal – preclusion period for beneficiary in respect of lump sum compensation – relevance of GST – relevance of compensation divisor Social Security Act 1991 (Cth) s 1184(1) Beadle v Director General of Social Security (1985) 60 ALR 225 at 228 followed Kirkbright v Secretary, Department of Family and Community Services (2000) 32 AAR 120 at 123, 127 followed Kertland v Secretary, Department of Family and Community Services (1999) 95 FCR 64 at 71 followed SECRETARY TO THE DEPARTMENT OF FAMILY AND COMMUNITY SERVICES V THOMAS ALLAN V 317 OF 2001 HEEREY J 23 AUGUST 2001 MELBOURNE IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY V 317 OF 2001 BETWEEN: SECRETARY TO THE DEPARTMENT OF FAMILY AND COMMUNITY SERVICES APPLICANT AND: THOMAS ALLAN RESPONDENT JUDGE: HEEREY J DATE OF ORDER: 23 AUGUST 2001 WHERE MADE: MELBOURNE THE COURT ORDERS THAT: 1. The appeal is dismissed. 2. The applicant pay the respondent's costs, including reserved costs. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY V 317 OF 2001 BETWEEN: SECRETARY TO THE DEPARTMENT OF FAMILY AND COMMUNITY SERVICES APPLICANT AND: THOMAS ALLAN RESPONDENT JUDGE: HEEREY J DATE: 23 AUGUST 2001 PLACE: MELBOURNE REASONS FOR JUDGMENT 1 This appeal from the Administrative Appeals Tribunal (the Tribunal) concerns the application of provisions of the Social Security Act 1991 (Cth) (the Act) which deal with the suspension ("preclusion") of social security benefits where recipients have received compensation for loss of earnings by awards under workers compensation legislation or damages at common law. The basic policy, understandably enough, is that there should not be "double dipping". People should not receive social security payments for loss of earnings where they have received compensation for that same loss of earnings from another source. 2 Relevantly for present purposes, under s 1165(1A) of the Act if a person is in receipt of a "compensation affected payment" and that person also receives a "lump sum compensation payment" no compensation affected payment is payable to the person for the "new lump sum preclusion period". 3 By s 17(1) "compensation affected payment" is defined to mean various benefits, pensions and allowances under the Act including a disability support pension (DSP). 4 "New lump sum preclusion period" is, for present purposes, defined in s 1165(7) to (9). 5 The period begins on the first day on which the person's loss of earnings or loss of earning capacity began and ends after the number of weeks worked out under subss (8) and (9). 6 The number of weeks is worked out by dividing the "compensation part of lump sum" by the "income cut-out amount" (subs (8)). (As will be seen, the Tribunal used the expression "compensation divisor" which I take to be the same thing as the "income cut-out amount"). The "compensation part of lump sum" is defined in s 17(3) and (4). For present purposes it is enough to say that it is 50 per cent of the lump sum compensation payment. Typically compensation awards will include compensation for loss of earnings and also non-economic loss such as pain and suffering and loss of enjoyment of life. The policy revealed by the Act is to avoid a detailed analysis of the loss of earnings component in each case but rather to take an arbitrary figure of 50 per cent. The "income cut-out amount" is worked out according to a formula prescribed by s 17(8). It is not necessary to go into the detail of this; the important element in the formula is the "maximum basic rate" which is a sum which will vary from time to time. Apparently it is normally recalculated every March and September following CIP reviews but may also be recalculated if one of the other variables in the formula changes. 7 The Act recognises that circumstances may change over the preclusion period in a way which will result in hardship. The method adopted to ameliorate this is the substitution of a reduced amount, or a nil amount, for the compensation payment. Section 1184(1) 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." Mr Allan's case 8 Mr Allan is an unmarried 42 year old former furniture removalist and truck driver. He injured his lower back in a work related injury on 2 August 1993. Thereafter he received WorkCover weekly payments. On 1 March 1998 he received a common law lump sum compensation payment of $250,000 inclusive of costs. 9 On 28 September 1998 Centrelink advised Mr Allan that his preclusion period would commence on 28 February 1998 and end on 6 February 2004. 10 With the compensation money Mr Allan purchased a twelve acre property at Muskvale near Ballarat for $145,000 in the hope of becoming self-sufficient by growing vegetables and producing eggs. By 12 December 1999 Mr Allan had spent monies on living expenses, a car, house extensions, solicitors' fees, the establishment of a business and other items. Together with the purchase price of the property, his expenditure amounted to $330,000. 11 On 8 November 1999 Mr Allan applied for DSP. This was refused on the basis of the existence of the preclusion period. After unsuccessful internal reviews Mr Allan sought review by the Social Security Appeals Tribunal (SSAT). On 2 February 2000 the SSAT affirmed the decision. On 11 July 2000 Mr Allan sought review by the Tribunal of the decision of the SSAT. In the meantime, on 22 May 2000, in the course of a further application for benefits, Mr Allan advised Centrelink that he suffered from chronic lower back pain, hepatitis C and heroin addiction. 12 On 18 December 2000 Mr Allan sold his Muskvale property for $147,000. After repaying a bank loan of $83,000 he was left with net receipts of approximately $59,000. Tribunal decision 13 On 4 April 2001 the Tribunal varied the SSAT decision and made a decision that "that part of Mr Allan's lump sum compensation payment which would end his preclusion period on 1 July 2003 is to be treated as not having been made". The Tribunal was satisfied that Mr Allan's heroin addiction was contributed to by his compensable injury. He had become dependent on opiate based pain killers which led to him experimenting with heroin and developing an addiction. 14 The Tribunal said: "22. It appears to the Tribunal that Mr Allan will continue to depend on Mr Weidner [a community welfare worker] and medical practitioners to assist him with the control of his addiction, an addiction the Tribunal is satisfied was contributed to by his compensable injury (paragraph 12 above). His addiction is a factor which makes Mr Allan's circumstances uncommon. Having lost his home, the decision under review provides that he must find food and shelter through his own resources, including the funds he has following the sale of his house and land, to survive until 20 February 2004. It is important that he be given some hope for the future. The compensation divisor used to determine Mr Allan's preclusion period was $403.20, which came into effect on 1 July 1997. Three years later the compensation divisor became $543.63. That figure will, doubtless, rise between now and February 2004. One of the special circumstances the Tribunal took into account in Re Stephens, under subsection 1184(1) of the Act, was the effect of the GST on the cost of living after 1 July 2000. Unlike Mr Stephens, Mr Allan made claims for a compensation affected payment under the Act (8 November 1999 and 22 May 2000 for DSP), by which time the compensation divisors were for $417.80 and $428.40. The Tribunal has decided that a generous construction of the Act would enable it to accept the figure of $59,000.00, referred to by Ms Cunningham [on behalf of the Department] in her submission, with respect to the remaining funds Mr Allan has which should be available to him for his support following the sale of his property on 18 December 2000. Doubtless, Mr Allan had some other expenses, as well as the repayment of his loan to the bank to meet following the sale of his property and the Tribunal has decided that it should exercise its discretion under subsection 1184(1 ) of the Act. 23. The Tribunal has calculated how long Mr Allan would be precluded from being entitled to be paid a compensation affected payment using the compensation divisor in effect when he claimed DSP on 22 May 2000 (approximately 138 weeks) and the compensation divisor in effect on 18 December 2000 when Mr Allan sold his house on (approximately 107 weeks). These calculations point to Mr Allan being precluded from being paid a compensation affected payment until some time between January and August 2003. In light of Mr Allan's special circumstances, the Tribunal will exercise its discretion by varying the decision under review such that Mr AIlan is precluded from being paid a compensation affected payment under the Act until 1 July 2003. This decision may give him some hope for the future, it reflects the increase which has occurred in the cost of living and which may rise in the future and acknowledges the chronic pain, the treatment of which has unfortunately led to his addiction." Secretary's argument on the appeal 15 On the hearing of the appeal counsel for the Secretary abandoned the ground of appeal that Mr Allan's heroin addiction was not a relevant factor. However, she contended that GST was an irrelevant consideration because it was not "special" in the sense of being unusual or out of the ordinary. The GST was, counsel said, a taxation or fiscal measure with universal application which affects the entire community. Mr Allan's circumstances were not unusual or out of the ordinary by virtue of him having to bear the burden of the GST. "Special circumstances" could not as a matter of law extend to taxation of fiscal matters. Further, counsel contended that the Tribunal erred in applying a compensation divisor to the task of determining when the preclusion period should end. Alternatively, the proper compensation divisor was that in force at the date at the date of settlement of Mr Allan's claim, that is 1 March 1998, when the amount was $403.20. Conclusions on the appeal 16 In exercising the discretion conferred by s 1184(1) the Tribunal had to have regard to all the circumstances of Mr Allan's case and decide whether they amounted to special circumstance. I agree with counsel for the Secretary that there remains a further discretion as to whether the power under s 1184(1) should be exercised and, if so, how. But I do not see that element of the process as having any significance in the present case. 17 It is not sensible to lay down precise limits or precise rules as to what may constitute special circumstances: Beadle v Director General of Social Security (1985) 60 ALR 225 at 228. Ill health, financial circumstances and the unfairness of a strict application of the Act are some matters which may in an individual case, constitute special circumstances: Kirkbright v Secretary, Department of Family and Community Services (2000) 32 AAR 120 at 123, 127; see also Kertland v Secretary, Department of Family and Community Services (1999) 95 FCR 64 at 71. 18 The impact of the GST on Mr Allan was but one of a number of circumstances which, in total, the Tribunal regarded as special. A factor which applies to all, or a substantial part of, the community need not necessarily be excluded in considering the range of circumstances which affect an individual and whether those circumstances in total can be said to be "special". Regard needs to be had to the purpose of s 1184(1) which is to ameliorate what would otherwise be harsh and unfair application of a rigid formula. With a very large compensation sum the preclusion period might be very long. The longer the period, the greater the potential for unforeseen circumstances to create hardship. For example it is conceivable that Australia might enter into a phase of hyper inflation of the order of twenty per cent or more. The fact that inflation affects everybody in the community would not, I think, rule it out as a relevant consideration. In the present case the Tribunal noted that the compensation divisors operative on 20 March 2000 and 1 July 2000 were $428.40 and $543.63 respectively. The Tribunal regarded this marked increase as being compensation for those on low incomes for the introduction of GST and its effect on their cost of living. Thus the Tribunal took a different view from that of the Secretary in the contentions on appeal already mentioned, namely that the GST "is a tax which affects the entire community, pensioners and wage earners alike". Whether the Tribunal's view is in fact correct as a matter of economic analysis is not to the point. It seems to me a rational view which the Tribunal was able to take, based as it was on the increase in the figures mentioned. 19 Section 1184(1) is silent as to the method to be applied in notionally reducing or eliminating the compensation payment. The method adopted by the Tribunal may not be the only method, but it is a rational one and consistent with the evident purpose of the section. 20 It is apparent from pars 22 and 23 of the Tribunal's reasons quoted above that the starting point of its calculations was $59,000, the net proceeds of sale of Mr Allan's property and thus his remaining capital sum. This sum seems appropriate as it is that sum which he must rely on until benefits under the Act can resume. I did not understand counsel to attack the relevance of this sum. 21 I do not see anything wrong in principle in dividing this sum by a compensation divisor. The purpose of a compensation divisor is to work out a period for which a capital sum should last. It seems rational to use, as the Tribunal did, a compensation divisor applicable at the time of the change in circumstances which warrants the exercise of the s 1184(4) discretion rather than, as counsel for the Secretary argued, that applicable when the preclusion period commenced. The latter figure (as in the present case) might be well back in the past and not relevant to the present needs of the applicant. 22 In the present case the Tribunal looked at the compensation divisor as at two dates, each of which could arguably be characterised as a point in time at which Mr Allan's circumstances changed for the worse. They were not arbitrarily or capriciously selected. The Tribunal fixed on a period which was closer to the longer of the two periods arrived at by dividing $59,000 by the respective compensation divisors (and thus more favourable to the Department). This was not a matter for precise arithmetical calculation. The discretion was lawfully exercised. 23 Finally, I should note that I did not understand counsel to attack the form of the Tribunal's decision insofar as it did not fix a dollar sum. There seems to be no suggestion that the form of the decision will create any difficulties in implementation. 24 The appeal will be dismissed. There will be an order that the appellant pay the respondent's costs, including reserved costs. I certify that the preceding twenty-four (24) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Heerey. Associate: Dated: 23 August 2001 Counsel for the Applicant: E Cooke Solicitor for the Applicant: Sparke Helmore Counsel for the Respondent: I Fehring Solicitor for the Respondent: Ryan Carlisle Thomas Date of Hearing: 3 August 2001 Date of Judgment: 23 August 2001