Editors --- "Compensation: special circumstances; GST, ill health, test case" [2006] SocSecRpr 19; (2006) 8(2) Social Security Reporter, Article 8

• QX05/10 and SECRETARY TO THE DEWR
• Background
• The issues
• Formal decision

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Compensation: special circumstances; GST, ill health, test case

QX05/10 and SECRETARY TO THE DEWR

Decided: 1st March 2006 by P. McDermott and G. Maynard

Background

QX05/10 contracted HIV from her partner. She sued the medical practitioner who advised them and settled the claim for $825,000,inclusive of costs.

From the $825,000.00 sum, amounts totalling $388,506.60 were deducted: ($8966.10, HIC; $32,281.90,Centrelink; $347,258.60, legal costs).

The Department calculated a compensation period ending in 2010 using the ‘50% Rule’ whereby the compensation component of the lump sum that was used to calculate the preclusion period was assessed at $412,500.00.

The SSAT varied the decision and on the grounds of special circumstances decided that $100,000 should be taken as not having been made. The basis of the decision reflected the increase in costs of living since the GST.

The issues

Subsection 1184K of the Social Security Act 1991deals with circumstances where a whole or part of a compensation payment may be treated as not having been made or not liable to be made if the Secretary thinks it is appropriate to do so in the special circumstances of a case.

The AAT considered the issue of special circumstances, in particular the effect of GST, the applicant’s state of health and the significant legal costs.

Special circumstances

The AAT found that there were special circumstances inQX05/10’s case for the purposes of section 1184K of the Act.

The Tribunal accepted that the expenditure of the settlement monies by QX05/10 had not been extravagant. It rejected the Department’s view that the expenditure was discretionary. As at the date of the hearing QX05/10 had purchased a home for $145,000. She spent a further $50,000 on renovations; she purchased a car for $30,500 and installed air-conditioning costing $2747.00. She had a current bank balance of$42,000.00.

The AAT considered the case of Fuller and Secretary, Department of Family and Community Services (2004)83 ALD 152 where special circumstances was argued on the basis of unusually high legal costs and the Tribunal in that case based the preclusion period on the net amount received by Fuller. The AAT endorsed the view put in Fuller that there was an anomaly in the practice of the Department when assessing the effect of legal costs. This was so because if a settlement was reached inclusive of costs, whether those costs were separately identified or not, the practice was for the total figure to be treated as the lump sum compensation payment. However, if a matter was settled on the basis that costs were to be paid subsequently, after being assessed, then the preclusion period was calculated without reference to the costs. In Fuller, the Tribunal considered this unequal treatment could be a special circumstance unders.1184K.

It was put to the Tribunal on behalf of QX05/10 that a consequence of test litigation was high legal costs. In this case the action for negligence had been vigorously defended over lengthy period of time.

The Tribunal also heard medical evidence about QX05/10’s physical and mental health.

The Tribunal accepted thatQX05/10 could no longer work and was suffering from ill health as well as depression and anxiety.

The Tribunal also found that the calculation of the preclusion period did not take into account GST and thatQX05/10 therefore faced increased costs of living.

The Tribunal considered that it was not necessary to make a decision which referred to the length by which the preclusion period should be shortened (Secretary, Department of Social Security v Thompson [1994] FCA 1477; (1994) 53 FCR 580) and concluded, for the above reasons, that the preclusion period should end on the date of the decision. The Tribunal noted that QX05/10 still had available funds but considered that it was undesirable that a person who was not in immediate financial hardship should be reduced to long-term financial difficulties if special circumstances were not found.

Formal decision

The AAT set aside the decision and substituted a new decision that on the grounds of special circumstances, the compensation paid toQX05/10 should be treated as not having been made to allow the preclusion period to end on the date of the Tribunal’s decision.

[R.P.]