Editors --- "Compensation preclusion period: special circumstances" [2006] SocSecRpr 1; (2006) 8(1) Social Security Reporter, Article 1

• BARRINGTON and SECRETARY TO THE DEWR
• Background
• The issue
• The facts
• Formal decision

---

Compensation preclusion period: special circumstances

BARRINGTON and SECRETARY TO THE DEWR

Decided: 21st October 2005 by R. J. Groom

Background

Barrington was a 39 year old man, injured at work in 1999, who subsequently claimed compensation. He received weekly compensation until September 2002. In September2002 an action for damages was settled and a consent judgment entered in Barrington’s favour for $285,000 inclusive of legal costs. He received a net sum of $237,500.

Centrelink determined that Barrington would be subject to a compensation preclusion period from 17 September 2002 until 23 April 2007 and his solicitor was advised of this on 20 September 2002.

Barrington confirmed to the Tribunal that he was aware from the outset that a compensation preclusion period would be imposed and that he would have no entitlement to social security payments during that time.

In 15 October2004 Barrington applied for newstart allowance on the basis that he had no income and this claim was rejected on 26 October 2004 because of the compensation preclusion period.

The issue

The issue to be determined was whether or not ‘special circumstances’ existed within the meaning of s.1184K(1) of the Social Security Act 1991 (the Act), and if so, whether it was appropriate to exercise the discretion to treat the whole or part of the compensation payment as not having been made.

The facts

Barrington had moved to Tasmania in 2003 after receiving his lump sum payment and had decided do so because he was aware that housing was less expensive there. His intention was to buy and renovate a house, then to sell it and to buy another property to renovate.

Barrington bought a house for $68,000, spent $3500 on legal fees and stamp duty and had spent about $50,000 on renovations and furniture. The property’s value at the time of the hearing was estimated at $125,000 to $140,000. Barrington had made significant improvements to the house and had receipts for about $35,000 worth of expenditure, but submitted he had probably spent a further $20,000 for which he didn’t have receipts.

Barrington’s other item of major expenditure had been on cars and he had paid $39,000 for a ‘top of the range’ Subaru Outback. This vehicle had a market value at the time of $49,000 and he intended selling it at a profit, however that sale fell through. Barrington kept the car for 18 months and then traded it for a $16,000 Commodore and $10,000 in cash. He had since sold the Commodore and bought a 1987 Subaru for $3000.

Apart from these purchases the rest of the lump sum compensation had been largely spent moving to Tasmania and supporting himself since September 2002.

Barrington had suffered a serious left shoulder injury at work in 1999 and the Tribunal accepted that he continued to have serious problems with both shoulders, lower back pain, kidney problems, high iron levels in his blood and sleeping problems. A malignant melanoma had been removed and he continued to receive treatment from an oncologist and a skin specialist.

Barrington had tried to find casual or part-time work of a suitable kind in the Somerset/Burnie area, but without success. He had no income, funds or liquid assets to pay for the normal expenses of living. He had attempted to access a superannuation fund but was advised the relevant legislation and rules prevented access to it.

At the time of the hearing, his house and car were unencumbered and he had credit card debts totalling about $4500. His immediate intention was to sell his car worth about $3000 to pay most of the credit card debts, although he estimated he would still owe $1500. Barrington also intended to sell other assets valued at $1600, but submitted he might only realise $800 to $1000. He told the Tribunal that he had made attempts to borrow on the security of his house, but without success.

The Tribunal was satisfied that Barrington believed, when he received his compensation payment and made the decision to move to Tasmania, that if at any time in the future he needed income, he would be able to readily find work. When he formed that belief he had not fully understood that his general state of health and the local employment market would together significantly limit his work opportunities.

The Tribunal considered the matter of the legal costs component of the lump sum settlement in deciding whether ‘special circumstances’ were present in this case and considered QX99C and the Secretary, Department of Family and Community Services [1999] AATA 310; Secretary Department of Family and Community Services and Paule [2000] AATA 518; and Fuller and Secretary, Department of Family and Community Services [2004] AATA 615.

The Tribunal considered the amount received by Barrington, being a gross settlement payment of $285,000 and a net amount of $237,500 after legal costs had been deducted, and was satisfied that Barrington paid at least $47,500 for legal costs associated with his claim.

In relation to Barrington’s financial circumstances, the solicitor for the respondent contended that Barrington’s financial circumstances did not go beyond ‘straitened’ according to Krzywak and Secretary, Department of Social Security (1988) 15 ALD 690 because he owned an unencumbered house which he could sell. The Secretary argued that Barrington could buy an even more modest house in the area and then live for the remainder of the preclusion period on the net proceeds of the sale.

The Tribunal was not satisfied that the sale of Barrington’s present home and the purchase of a cheaper property was a realistic option. After deducting legal costs, stamp duty and agent’s commission, unless the house purchased was extremely inexpensive, there would be very little money left to sustain Barrington for the remainder of the preclusion period.

The Tribunal accepted that the house owned by Barrington was relatively modest and close to the bottom end of the general market and also considered that the ownership of this property provided a special opportunity for Barrington to secure his financial future avoiding total dependence on government for future housing and income.

In the Tribunal’s view Barrington was living in exceptionally difficult financial circumstances facing ongoing living costs, debts, medical expenses, car registration, other costs and future liabilities and had no income. The Tribunal considered that Barrington had not been extravagant, unwise or in any sense irresponsible in the way he had spent his money but had been quite frugal and prudent in his spending with perhaps the exception of the car he purchased initially.

The Tribunal found that as a result of a combination of factors that special circumstances existed permitting the exercise of the discretion under s.1184K(1) of the Act. These included:

· The applicant’s state of health, which had deteriorated, combined with the employment market making it more difficult than expected for him to find suitable part-time work.

· He had not been reckless and irresponsible in spending his lump sum compensation payment.

· The house he purchased was modest and near the bottom end of the market.

· A significant portion of his compensation was for legal costs and he did not fully appreciate the size and significance of the legal costs.

The Tribunal found that it was appropriate to treat part of the compensation payment as having not been made. The Tribunal considered that $60,000 of the applicant’s compensation payment should be treated as not having been made and that the preclusion period should be adjusted accordingly.

Formal decision

The Tribunal varied the decision under review by directing that $60,000 of the applicant’s compensation payment be treated as not having been made.

[S.P.]