Editors --- "Compensation preclusion period: whether claim settled; whether special circumstances" [2009] SocSecRpr 31; (2009) 11(3) Social Security Reporter, Article 9

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Compensation preclusion period: whether claim settled; whether special circumstances

SECRETARY TO THE DFHCSIA and HORSNELL

(2009/519)

Decided: 9th July 2009 by D. G. Jarvis

Background

On 18 April 1999 Horsnell was injured when struck by a security control officer outside a tavern. He suffered severe brain damage. He issued proceedings against various parties and on 3 August 2006 the court approved a settlement whereby Horsnell recovered the sum of $1,406,000. Centrelink then decided to impose a lump sum compensation preclusion period of 1010 weeks, from 18 April 1999 to 25 August 2018. The matter was reviewed by an authorised review officer (ARO), who affirmed the decision. On 8 September 2008 the SSAT (in a split decision) set aside the decision of the ARO and remitted the matter for reconsideration in accordance with the direction that only the amount of $330,384 was to be used to calculate the compensation preclusion period. The Secretary applied to the Tribunal for review of the decision of the SSAT.

The issues

The relevant issues were:

a) whether Horsnell’s claim for damages was ‘settled’ within the meaning of s.17(3) of the Social Security Act 1991 (the Act); and if so

b) whether special circumstances existed which made it appropriate to treat the whole or part of the payment as not having been made.

The evidence

The Tribunal heard evidence that Horsnell was 37 years of age. He had completed year 10 and then entered the workforce. Before his injury he had worked intermittently. As a result of his injury he suffered executive dysfunction and short-term memory loss. His behaviour was aggressive and he suffered from depression.

Horsnell’s mother, Mrs Brown, gave evidence that she was his principal carer providing three to five hours of care each day. She stated that she was finding the level of care she was providing too much for her. Apart from limited help provided by Horsnell’s father and by a paid carer who came to the house for three hours per week, she was receiving no help with his care. Other family members were unable to contribute to his care, financially or otherwise. He was violent towards her and frequently shouted at her. She said that she was suffering from depression, had high blood pressure and also had back injuries after being assaulted by him. She had right knee problems and suffered from migraines and anxiety. She would soon have to reduce the hours that she spent caring for him, which would mean increasing the time spent at the house by a paid carer.

Horsnell’s solicitor gave evidence that he had been in practice for 20 years, was in charge of civil litigation at his firm and supervised 300 to 500 personal injury matters at any given time. He said that it was rare for a matter to require Court approval of a settlement reached by the parties, and this only occurred when the plaintiff was under 18 or did not have the capacity to reach a compromise. When a settlement required Court approval, any agreement reached by the parties had no legal effect until that approval was given.

The legislation

Part 3.14 of the Act provides for the effect of compensation recovery on certain social security benefits. Section 1160(1) of the Act provides:

This Part operates in certain specified circumstances to do the following:

...

(b) render a person’s compensation affected payment not payable;

...

because of the receipt of compensation by the person ...

Section 1169(1) of the Act provides in effect that a compensation affected payment is not payable during a lump sum preclusion period.

Section 17(2) of the Act defines ‘compensation’. This includes a payment of damages ‘that is made wholly or partly in respect of lost earnings or lost capacity to earn resulting from personal injury’.

Section 17(1) of the Act defines ‘compensation affected payment’, and a disability support pension (DSP) is included in that definition.

Subsection 1170(3) provides that the lump sum preclusion period begins on the day on which the loss of earnings or loss of earning capacity began, and ends at the end of the number of weeks worked out pursuant to the statutory formula referred to in ss.1170(4) and (5). That formula refers to the ‘compensation part of lump sum’.

Section 17(3) of the Act provides a formula for determining the ‘compensation part of a lump sum compensation payment’. It provides:

... 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 judgment being entered in respect of the settlement or otherwise; or ... .

Section 1184K(1) of the Act authorises the Secretary (and the Tribunal standing in the shoes of the Secretary) to disregard the whole or part of a compensation payment if it thinks it appropriate to do so in the special circumstances of the case.

Discussion

The Secretary contended that Horsnell’s preclusion period was correctly calculated because the compromise was a settlement and so under s.17(3)(a) of the Act the compensation part of the payment was 50% of the total payment. Further there were no special circumstances to enliven the discretion contained in s.1184K of the Act.

The Secretary relied on a decision of Welch and Secretary, Department of Family and Community Services [2003] AATA 905; (2003) 78 ALD 550, where it was found that a Court approved compromise was a payment made ‘in settlement of a claim’.

Horsnell’s solicitor contended that the compensation payment received by him was not a settlement under s.17(3)(a) of the Act because it could have no legal effect without the approval of the Court. Counsel contended that in Horsnell’s case the District Court reviewed and approved his settlement and the figure attributed to economic loss must therefore be taken to have been correct. In the alternative, it was submitted that special circumstances existed, and that the preclusion period should be reduced in accordance with the decision of the SSAT.

Consideration

The Tribunal accepted Horsnell’s argument that the compromise had no legal effect without the approval of the District Court and as it was reviewed and approved by a judicial officer of the court it could not be suggested that the economic loss component of the amount recovered had been artificially reduced. However, the Tribunal concluded that a proper analysis of what occurred was that the claim was ‘settled’ within the meaning of s 17(3)(a)(ii) of the Act. The 50% formula in s.17(3)(a) therefore applied to the calculation of Horsnell’s

preclusion period.

The Tribunal then considered whether special circumstances existed and set out the usual authorities concerning what constitutes ‘special circumstances’ including Beadle and Director-General of Social Security (1984) 6 ALD 1 where at first instance Toohey J said (at page 3):

‘An expression such as ‘special circumstances’ is by its very nature incapable of precise or exhaustive definition. The qualifying adjective looks to circumstances that are unusual, uncommon or exceptional. Whether circumstances answer any of these descriptions must depend upon the context in which they occur. ..’

The Tribunal accepted that Horsnell was not suffering from financial hardship when his situation was compared with that of many other recipients of social security benefits but noted that the extent of financial hardship was only one of many considerations that should be taken into account when considering whether special circumstances exist.

Counsel for Horsnell submitted he had only recovered $330,384 by way of compensation for loss of past and future earnings, significantly less than $703,000 which was the figure resulting from the statutory formula.

The Tribunal noted that this could not of itself constitute special circumstances (and referred to the decision of Kiefel J inSecretary, Department of Family andCommunity Services v Chamberlain [2002] FCA 67)

The Tribunal stated that when considering whetherspecial circumstances exist, it is necessary to have regard to the combination of all relevant circumstances, and not to disregard particular aspects simply because they cannot by themselves constitute special circumstances. It noted that in cases such as this where:

(a) there is a significant disparity between an applicant’s economic loss because the arbitrary statutory formula takes into account other elements of the lump sum compensation amount (due, for example, to substantial compensation for future medical and carer expenses, or unusually high legal costs);

(b) the disparity is further increased by a reduction in the compensation recovered by reason of contributory negligence, or an allowance for the risks of litigation; and

(c) the applicant had been left with grave permanent disabilities and would require significant financial support to meet future medical and carer expenses;

the combination of those matters might properly lead a decision-maker to conclude that the applicant’s position were sufficiently unusual to constitute special circumstances (the Tribunal referred to Secretary, Department of Employment and Workplace Relations and Donald [2006] AATA 920; (2006) 92 ALD 791).

The Tribunal considered that there were a number of features of Horsnell’s situation that made it ‘unusual’. It referred to his significant permanent disabilities; his violent and inappropriate behaviour; that he required the assistance of a carer for three to five hours per day; that he was incapacitated for work and was unlikely to be able to work again. The Tribunal noted that his mother’s own health problems meant that she was unlikely to be able to continue to provide the level of care he needed which would make it necessary for his needs to be met by a paid carer. In addition, he had no prospect of receiving financial assistance from his immediate family. In addition to these matters, the Tribunal considered Horsnell’s case to be unusual in that he issued the proceedings that resulted in his recovering compensation by his next friend, and the compromise of the proceedings was approved by the District Court. The Tribunal considered that the court’s approval was an indication that this was clearly not a case where the extent of economic loss might have been reduced artificially, so as to enable the claimant to engage in ‘double dipping’. The Tribunal concluded that in these circumstances a finding that special circumstances existed would not be inconsistent with the purpose sought to be achieved by the enactment of s.17 of the Act.

The Tribunal then had to determine how much of the compensation payment should be treated as not having been made. In this case, the Tribunal decided that there was good evidence that $330,384 represented a reasonable assessment of the amount of compensation for economic loss included in the settlement. It considered that $745,232 should be treated as not having been paid.

Formal decision

The decision under review was affirmed

. [C.E.]