Editors --- "Compensation: 'multiple' lump sum compensation payments; exercise of discretion in determining proportion for lost earnings" [2008] SocSecRpr 2; (2008) 10(1) Social Security Reporter, Article 2

• SECRETARY TO THE DEEWR and GUILD
• Background
• The issue
• Legislation
• Discussion
• Formal decision

---

Compensation: ‘multiple’ lump sum compensation payments; exercise of discretion in determining proportion for lost earnings

SECRETARY TO THE DEEWR and GUILD

(2008/0092)

Decided: 5th February 2008 by R. Hunt

Background

Guild aged 64 had worked in the mining industry since the age of fifteen. Guild received two compensation payments, the first in 2004 and a second amount of $50,000 in December 2005.

The first payment was made in accordance with a court judgment which had set out the precise injuries or ‘events compensated’ and detailed the amount of compensation awarded for each injury or incident. The whole of the compensation was awarded for the injuries and related costs such as medical expenses and legal costs. There was no award for lost earnings or lost capacity to earn. The second sum being the final award was agreed a year later and was set out in a consent to redemption document and short minutes of order. Whilst the first payment had covered several events, the last accident in 2000 was the only event common to both payments.

The Secretary consequently imposed a preclusion period which was based on the total of the two lump sum payments. On review the SSAT decided that the first payment was not relevant to the calculation of the preclusion period and applied the usual 50% compensation rule to the second payment.

The DEEWR sought review of the SSAT’s decision by the AAT.

The issue

The issue for determination by the AAT was whether the second of two compensation payments made to Guild gave rise to a lump sum preclusion period calculated on the whole of that sum or on 50%of that sum or some other proportion of the payment.

Legislation

Section 17(2) of the Social Security Act 1991 (the Act) defines compensation to include a payment in settlement of a claim for damages whether in the form of a lump sum or series of payments where the payment is made wholly or partly in respect of lost earnings or lost capacity to earn. If a person receives a lump sum compensation payment, under s.1169(1), that person is not entitled to receive compensation affected social security payments for a period known as the lump sum preclusion period.

In assessing the preclusion period, the compensation part of a lump sum is determined by s.17(3).Relevantly, it provides:

17(3) Compensation part of a lump sum

17(3) Subject to subsection (4), for the purposes of this Act, the compensation part of a lump sum compensation payment is:

(a) 50% of the payment if the following circumstances apply:

(i) the payment is made... in settlement of a claim, that is, in whole or in part, related to a disease, injury or condition; and

(ii) the claim was settled, either by consent judgement being entered in respect of the settlement or otherwise; or

(ab) 50% of the payment if the following circumstances apply:

(i) the payment represents that part of a person’s entitlement to periodic compensation payments that the person has chosen to receive in the form or a lump sum; and

(ii) the entitlement to periodic compensation payments arose from the settlement......; and

(iii) the claim was settled, either by consent judgement being entered in respect of the settlement or otherwise; or

(b) if those circumstances do not apply – so much of the payments is, in the Secretary’s opinion, in respect of lost earnings or lost capacity to earn, or both.

Section 1171 provides that if a person receives two or more lump sum payments in relation to the same event giving rise to entitlement to compensation, the person is taken to receive one lump sum. Relevantly, Subsection 17(5A) explains that the term ‘event’ for the purposes of Part 3.14 of the Act means:

...the event that gives rise to a person’s entitlement to compensation for a disease, injury or condition is:

(a) if the...injury or condition was caused by an accident – the accident’...

Discussion

The AAT agreed with the concession that the DEEWR had made by the time of the tribunal hearing that the first payment should not be aggregated with the second. The AAT noted that the first payment had been made in accordance with a court order and as it had not included any award for lost earnings or lost capacity to earn, the amount did not come within s.17(2) and did not give rise to a preclusion period unders.1169(1).

The AAT then went on to consider DEEWR’s submission that s.1171(1) should be applied to the lump sum payment before deciding how much of the payment was in respect of lost earnings or lost capacity to earn. DEEWR argued that the subsection applied because there had been two payments in relation to the same event and at least one of these, being the $50,000 payment was wholly or partly for lost earnings. The Secretary argued that it was irrelevant that one of the multiple payments may have been in relation to several events not covered by the second payment. The AAT decided that because there was at least one component of compensation set out in the judgment dealing with the accident in 2000 and the same incident was part of the redemption statement of claim, s.1171(1)applied so that Guild was taken to have received one lump sum compensation payment of an amount equal to the sum of the multiple payments.

Having made the finding thats.1171(1) applied, the AAT then considered DEEWR’s contention that the whole of the lump sum payment of $50,000 should be taken as compensation for the purpose of calculating the preclusion period. The AAT accepted DEEWR’s contention that the Tribunal was required to determine the compensation part of the lump sum under s.17(3)(b)because s.17(3)(a) and (ab) did not apply due to part of the deemed single payment resulting from a judgment, not from a settlement. However, the AAT disagreed with the Department’s contention that the order was entirely in respect of lost earnings, deciding that it also included redemption of liability for such matters as injuries arising out of employment and medical expenses pursuant to the Workers’ Compensation Act 1926 (NSW).

In the absence of evidence to assist in reaching a precise calculation or apportionment related to the various factors leading to the redemption, the AAT decided that the most apt apportionment was that usually applied under s.17(3)(a) and (ab) to settlement payments. In exercising its discretion under s.17(3)(b), the AAT accordingly determined 50% of the lump sum payment to be the compensation part of the payment for the purposes of calculating the number of weeks in the preclusion period. Whilst the AAT had disagreed with the findings of the SSAT about the application of s.1171(1), its decision to determine 50% of the lump sum payments the compensation component meant that the same amount was to be taken in calculating the preclusion period under s.1170(4).

Formal decision

The decision of the SSAT was varied as to the effect of s.1171(1) of the Act and affirmed to the extent that Guild was precluded from receiving a compensation affected payment from 16December 2005 to 1 September 2006.

[G.B.]