Editors --- "Family tax benefit: establishing pattern of car" [2005] SocSecRpr 25; (2005) 7 Social Security Reporter, Article 25

• SMITH and SECRETARY TO THE DFaCS
• Background
• The issues
• The law and discussion
• Formal decision

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Compensation: whether one or two lump sums; meaning of 'in relation to the same event'; start date of preclusion period

SMITH and SECRETARY TO THE DFaCS

(2005/871)

Decided: 7th September 2005 by D.G. Jarvis and L. Hastwell

Background

Smith worked in the Broken Hill Mines (‘the Mines’) from 1968 until he was retrenched in 2002. During that time he suffered a number of injuries and developed back, shoulder and knee problems. In 1984, because of increasing back and shoulder problems, he was transferred to lighter work in the machine shop. He suffered a reduction in wages and lost the opportunity to do overtime. The ownership of the Mines changed several times during his employment. He claimed compensation from all of his employers, and in 2004 settled his claim for a total payment of $120,000.

Of the total amount, $20,000was paid, in respect of employment-related injuries sustained prior to 30 June1987, by Rio Tinto on behalf of companies which had employed Smith prior to that date. The payment of $20,000 included compensation for lost earnings or lost capacity to earn. The remaining $100,000 was paid by or on behalf of Pasminco Ltd in respect of injuries arising out of employment subsequent to 24May 1988. No part of this payment related to lost earnings or lost capacity to earn. The liability of Pasminco and of the earlier employers arose under two different workers compensation enactments, the Workers Compensation Act 1926 (NSW) (the 1926 Act) and the Workers Compensation Act 1987 (NSW) (the 1987 Act).

Smith began to receive disability support pension (DSP) from 3 June 2002.

Centrelink recovered$13,918.85 from the compensation settlement on the basis that one lump sum payment was received, and that a preclusion period commenced on 1 June 2003,when Smith was retrenched.

The issues

The AAT was required to decide whether there was one compensation lump sum or two. If there were two, the issue it then had to decide was whether the lump sum compensation payments were “in relation to the same event”. A final issue was what date should the preclusion period commence.

The law and discussion

The AAT formed the view that the$120,000 settlement amount comprised at least two separate lump sum payments, being one payment under the 1926 Act and a second payment under the 1987 Act.

The AAT then turned to consider whether these lump sum payments were “in relation to the same event that gave rise to an entitlement of the person to compensation” within the meaning of s.1171(1) of the Social Security Act1991 (the Act). If so, the two lump sums could be added together and treated as one lump sum compensation payment for the purposes of determining the compensation component under s.17(3) of the Act, which is then used to determine the length of any preclusion period. Section 1171 states:

1171. (1) If:

(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.

The AAT determined there were separate events that gave rise to Smith’s claims under the 1926 Act and the1987 Act. The AAT found that the $20,000 compensation lump sum paid by RioTinto was confined to injuries sustained prior to the introduction of the 1987Act on 30 June 1987. Further, Rio Tinto had no liability to Smith for injuries sustained after 24 May 1988, when Rio Tinto ceased to be his employer, and Pasminco became his employer.

The AAT considered the cases Re Fuller and Secretary, Department of Family and Community Services (2004) 83ALD 152,Secretary, Department of Social Security v Banks (1990) 23 FCR416 and Secretary to the Department of Social Security v Cunneen (1997)78 FCR 576. The AAT stated:

The Federal Court authorities as to the meaning of lump sum, to which we have referred above, are distinguishable on their facts from the present matter, where the two payments concerned were made by or on behalf of different employers and in respect of liabilities arising under different enactments and at different periods of time. Further, it is clear that the Courts sought to interpret the words in question in s.1171(1) so as to avoid the vice which led to the inclusion in the Act of the deemed 50 per centre part of a lump sum compensation payment. In the present matter, however the parties which made the two payments were at arm’s length teach other; and one of those parties (Pasminco) was not in any event liable fora lump sum compensation payment in respect of lost earnings or lost capacity to earn. This is not therefore a matter where there was some risk that the parties might vary their respective contributions to the total compensation payment so as to maximise the applicant’s entitlement to social security benefits.

(Reasons, para. 52)

Preclusion period

The AAT then turned to consider when the preclusion period should commence. The AAT rejected the DFaCS’ argument that it should commence on the day after Smith was retrenched. In providing for when the preclusion period commences, s.1170(3)(a)of the Act does not refer to the date when a person ceased earning, but rather to the date when “the loss of earnings or loss of capacity to earn began”. The AAT found that the loss of earnings began in 1984, as is evidenced by the award of $20,000 which included a component for lost earnings or lost capacity to earn. Smith’s earnings were reduced and he lost the opportunity for overtime work, when he began working in the machine shop in 1984. The AAT found that having regard to s.1170(3) of the Act, the preclusion period began on the date Smith began working at the machine shop. Therefore the preclusion period ended before Smith began to receives.

Formal decision

The AAT set aside the decision under review and substituted a decision that the Department was not entitled to recover any portion of the lump sum compensation or DSP previously paid to Smith.

[J.F.]