Editors --- "Compensation: lump sum not 'compensation'" [2007] SocSecRpr 5; (2007) 9(1) Social Security Reporter, Article 5

• SECRETARY TO THE DEWR v SANDARS
• Background
• The issues
• The legislation
• The evidence
• Findings
• Formal decision

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Compensation: lump sum not 'compensation'

SECRETARY TO THE DEWR v SANDARS

Decided: 4th January 2007 by S.D. Hotop

Background

Sandars was injured when she accidentally fell at a shopping centre in 1996. At the time she was receiving sole parent pension. Damages were claimed with a final settlement payment of$65,000 (including costs) paid on 16 December 2004.

On 10 March 2005 Centrelink calculated a preclusion period on the basis of the lump sum figure of $65,000and raised a debt of $8021.60 in relation to sole parent pension payments. This decision was affirmed by an ARO, but set aside by the SSAT which decided that the lump sum payment was not ‘compensation’.

The issues

The issue was whether part or all of the lump sum payment is ‘compensation’ and caught by the ‘compensation recovery’ provisions of the Social Security Act 1991 (the Act).

The legislation

The word ‘compensation’ is defined in s.17(2) as:

‘Subject to subsection (2B), for the purposes of this Act, compensation means:

(a) a payment of damages; or

(b) a payment under a scheme of insurance or compensation under a Commonwealth, State or Territory law, including a payment under a contract entered into under such scheme; or

(c) a payment (with or without admission of liability) in settlement of a claim for damages or a claim under such an insurance scheme; or

(d) any other compensation or damages payment;

(whether the payment is in the form of a lump sum or in the form of a series of periodic payments and whether it is made within or outside Australia) that is made wholly or partly in respect of lost earnings or lost capacity to earn resulting from personal injury’.

The critical issue in this case was whether the payment was made ‘wholly or partly in respect of lost earnings or lost capacity to earn resulting from personal injury.’

The evidence

Evidence was presented on behalf of Sandars by way of the statement of claim, and correspondence between the solicitors involved in the personal injury litigation.

While the statement of claim included particulars for loss of earning capacity, the correspondence indicated that in fact the final payout did not comprise a component for pecuniary loss. Evidence was provided that although this was part of the initial claim, as the circumstances unfolded, legal advice was that a claim for pecuniary loss was likely to be unsuccessful and was not pursued.

The only evidence contrary to this was a letter from the third parties solicitor to Centrelink indicating that the settlement amount included a sum for pecuniary loss.

Ms Sanders also gave evidence about her personal situation. Prior to the injury she was unemployed and had no recent work experience or qualifications. In 1999 she obtained employment as a teacher’s assistant and continued this employment. She told the Tribunal that her legal advice was that it would be difficult for her to establish past economic loss because of her employment history and the fact that she was currently working.

Findings

The Tribunal found Ms Sanders to be a credible witness and considering her employment history, it was satisfied that the reference in the claim to a loss of earning capacity was part of an ambit claim and nothing more.

The Tribunal accepted that Ms Sanders was advised not to pursue a claim in relation to pecuniary loss and that the lump sum payment consequently did not contain a component for this loss.

The Tribunal considered the statement by the third parties solicitor but noted that the solicitor was not present at the pre-trial conference when the final lump sum was negotiated. The AAT also noted that the correspondence referred to an amount of $85,000 rather than the actual lump sum payment.

As a consequence of these findings, the Tribunal concluded that the lump sum payment of $65,000 was not ‘compensation’ (as defined in s 17(2) of the Act), and not caught by the ‘compensation recovery’ provisions in Pt 3.14 of the Act.

Formal decision

The AAT affirmed the decision of the SSAT.

[R.P.]