Editors --- "Disability support pension: compensation preclusion period; meaning of 'lump sum compensation payment'" [2010] SocSecRpr 55; (2010) 12(4) Social Security Reporter, Article 10

• SECRETARY TO THE DFHCSIA and WHITLOCK
• Background
• Legislation
• The SSAT’s decision
• Discussion
• Special circumstances
• Decision

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Disability support pension: compensation preclusion period; meaning of ‘lump sum compensation payment’

SECRETARY TO THE DFHCSIA and WHITLOCK

(2010/811)

Decided: 25th October 2010 by B. H. McPherson and M. J. Carstairs

Background

Whitlock was injured at work in 2006 and made claims under theWorkers’ Compensation and Rehabilitation Act 2003 (Qld) and Personal Injuries Proceedings Act 2002 (Qld). Whitlock was paid weekly ‘WorkCover’ payments of compensation until some time in April 2008. He commenced receiving social security payments on 17 April 2008.

Whitlock settled his workers’ compensation claims on 7 August 2009 for a gross payment of $352,776.85. The settlement deed provided that the gross figure was made up of the following components:

1. The sum of $200,000 to be paid to Whitlock; and

2. Acknowledgement that WorkCover was not entitled to a refund of the statutory benefits already paid to Whitlock, totalling $152,776.85. This was made up of an amount of $117,013.11, being the total weekly workers’ compensation payments paid to Whitlock before his social security payments began, and an amount of $35,763.74, being the amounts paid by WorkCover for Whitlock’s hospital, medical, rehabilitation and other related costs.

On 10 September 2009 Centrelink decided that Whitlock was to serve a compensation preclusion period of 149 weeks and cancelled his disability support pension. This meant that he was precluded from receiving income support payments until 23 February 2011 and Centrelink recovered the disability support pension already paid to him. Centrelink calculated the preclusion period using the figure of $235,736.74, being the amount left over once the total weekly workers’ compensation payments of $117,013.11 were deducted from the gross settlement figure of $352,766.85.

There was no dispute that the total of the weekly WorkCover payments of $117,013.11 was required to be deducted from the gross settlement figure before the preclusion period could be worked out. The only dispute in this case was whether the amount of $35,763.74 representing the cost of medical and other expenses should also have been deducted.

Legislation

The definition of ‘compensation’ is provided in s.17(2) of theSocial Security Act 1991 (‘the Act’):

17(2)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 a 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 process for working out the ‘compensation part of a lump sum compensation payment’ is set out in

s.17(3):

(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 (either with or without admission of liability) 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

(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 of a lump sum; and

(ii) the entitlement to periodic compensation payments arose from the settlement (either with or without admission of liability) of a claim that is, in whole or in part, related to a disease, injury or condition; and

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

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

Section 1169 of the Act provides that compensation affected payments are not payable during lump sum preclusion periods.

Section 1170 of the Act sets out the provisions for the start date and calculation of a lump sum preclusion period. It relevantly provides that the length of a lump sum preclusion period is worked out using the formula in s. 1170(4), which relies on the amount of the ‘compensation part of the lump sum’, as worked out according to s.17(3), above:

(4) The number of weeks in the lump sum preclusion period in relation to a person is the number worked out using the formula:

Compensation part of lum sum Income cut-out amount

Section 1184K of the Act provides that the Secretary may disregard the whole or part of a compensation payment in some circumstances:

1184K. Secretary may disregard some payments

For the purposes of this Part, the Secretary may treat the whole or part of a compensation payment as:

(a) not having been made; or

(b) not liable to be made;

if the Secretary thinks it is appropriate to do so in the special circumstances of the case.

The SSAT’s decision

The SSAT decided that the payments made towards Whitlock’s medical and other expenses were to be excluded from the ‘compensation part of the lump sum’, together with the amount of weekly compensation payments. The SSAT applied the Tribunal’s decision in Secretary, Department of Family and Community Services and Nolan (2000)

[2000] AATA 361; 31 AAR 175, which dealt with a similar compensation settlement under the Queensland Act. In Nolan’s case the Tribunal reasoned that amounts paid in settlement of a claim could only include monetary compensation, and could not encompass the waiver of a payment. The SSAT’s decision to apply the reasoning in Nolan’s case to Whitlock’s circumstances resulted in a preclusion period of 126 weeks, rather than the 149 weeks calculated by Centrelink.

The Department appealed to the Tribunal.

Discussion

The Tribunal considered numerous Federal Court decisions discussing the definition of the term ‘lump sum compensation payment’. The Tribunal noted that the Act provides a definition of ‘compensation’, but does not define the term ‘lump sum’. The Tribunal referred to von Doussa J’s remarks in the case of Department of Social Security v Banks (1990) 23 FCR 416:

...The words ‘lump sum’ are not defined. They are not words of art. In the Macquarie Dictionary a ‘lump sum’ is defined as a sum ‘including a number of items taken together or in the lump’. In my opinion the words bear that meaning in the section.... A ‘lump sum’ payment is simply one which includes a number of items. Where a payment by way of compensation consists of the aggregate of several amounts which could have been paid separately or at different times the payment is one of a lump sum. A payment the total of which is arrived at by adding amounts for different heads of loss would also be a lump sum payment. (at 422-423)

The Tribunal discussed Nolan’s case in detail. It also considered a number of later Tribunal decisions, which chose not to follow Nolan’s case in their treatment of payments covering miscellaneous expenses under the Queensland Act. The Tribunal discussed and followed the approach in Vecchio and Secretary, Department of Education, Employment and Workplace Relations [2008] AATA

97. In that case the Tribunal considered a deed of settlement much like that in Whitlock’s case, in that it included a provision that WorkCover waived its entitlement to a refund of statutory benefits. The Tribunal in Vecchio concluded that it was immaterial that a component of the total lump sum may have been notionally attributable to a particular head of loss. What was determinative in the characterisation of an amount as a part of the lump sum was that the component was attributable to the settlement of a claim that was wholly or partly related to the injury.

The Tribunal referred to authorities for the proposition that a ‘payment’ can also be deemed to have occurred where two parties both have a present liability or legal obligation to the other, and they make an agreement to set off the liabilities against each other. In Whitlock’s case there was an amount of $35,763.74, which represented the value of medical and other expenses received by him after his injury. WorkCover was entitled to recover this amount, but agreed not to do so as part of the settlement. Unlike the amounts of periodic compensation paid to Whitlock through WorkCover, there was no provision in the Social Security Act that meant that this amount had to be deducted from the ‘compensation part of the lump sum’ as it was an amount that clearly formed part of the settlement. A different result may occur in cases where the decision not to recover medical and other expenses does not form part of the settlement.

The Tribunal essentially decided that just because this amount was not ‘paid’ to Whitlock by way of a direct monetary payment, it did not mean that it was not a compensation ‘payment’ that formed part of the compensation lump sum. As such, Centrelink was correct to include it in the calculation of Whitlock’s compensation preclusion period according to ss.17(3) and 1170.

Special circumstances

The Tribunal further considered whether there were circumstances in Whitlock’s case, such that made it desirable to disregard any of his compensation under s.1184K of the Act. It began its consideration of s.1184K by noting at paras. 38 and 39:

One of the evident objects of the legislation is to require compensation recipients to provide for their own support during preclusion periods. The discretion for special circumstances should be exercised with that in mind... It is importance to appreciate that the ‘special circumstances’ discretion exists in a legislative setting intended to relieve hardship that might otherwise arise. Clearly some sensible balance needs to be struck between the two - sometimes competing - legislative provisions.

Whitlock argued that his circumstances were special, when taking into account the sudden death of his wife, the family breadwinner, soon after his compensation was settled. Whitlock was also able to account for his expenditure of his compensation funds.

The Tribunal, however, noted Whitlock’s reasonably good financial position, including $60,000 in available funds and the fact that he owned his home outright. Although the Tribunal noted that a person’s financial circumstances will not entirely determine whether special circumstances exist, it concluded that Whitlock’s circumstances were not ‘special’ in the sense required for the exercise of the discretion in s.1184K.

Decision

The decision of the SSAT was set aside and the original decision reinstated that the compensation part of the lump sum was $117,881.87 and that Whitlock’s preclusion period was 149 weeks.

[D.A.]