Editors --- "Compensation preclusion period: special circumstances to reduce preclusion period; effect of split lump sum payments and special circumstances" [2011] SocSecRpr 16; (2011) 13(2) Social Security Reporter, Article 5

• McLELLAN and SECRETARY TO THE DFHCSIA
• Background
• Discussion
• Formal decision

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Compensation preclusion period: special circumstances to reduce preclusion period; effect of split lump sum payments and special circumstances

McLELLAN and SECRETARY TO THE DFHCSIA

(2011/125)

Decided: 25th February 2011 by DP Hack

Background

McLellan badly injured his back at work in November 2001. In August 2004 he received a lump sum of $55,000.00 and then in November 2009 he received a further lump sum of $285,000.00 when his ongoing compensation payments were commuted into a lump sum Centrelink cancelled McLellan’s disability support pension (DSP) following receipt of the second lump sum on the grounds that he was precluded from payment until April 2014 unders.1169 (1) of the Social Security Act 1991 (the Act).

On 3 August 2010, McLellan sought review of the decision on ‘severe urgent compassionate grounds’. The original decision-maker explicitly declined to exercise the discretion available under s.1184K of the Act to waive the preclusion period on the grounds of special circumstances. This decision was affirmed by the authorised review officer and by the Social Security Appeals Tribunal (SSAT).

McLellan sought review of the SSAT decision of 16 December 2010.

Discussion

It was accepted by McLellan that where a person receives a lump sum compensation payment, half of the payment will be deemed under the Act as a payment for economic loss. A preclusion period where, in this case, DSP is not payable, is then established by way of a formula.

Section 1171(1) of the Act deals with the aggregation of lump sum payments. In summary, where multiple lump sum payments are received in relation to the same event and at least one, or part thereof, relates to economic loss, then both payments are aggregated into a single payment. The person is then taken to have received the single payment on the date that the last of the multiple payments is received. Centrelink correctly applied s.1171(1) in this case and combined the two payments received by McLellan to determine the preclusion period.

The AAT then considered whether there were special circumstances in McLellan’s case to treat some or all of the lump sum payment as not having been received. The words of Keifel J in Groth v Secretary, Department of Social Security (1995) 40 ALD 451, were adapted by the AAT to find that ‘something to distinguish Mr McLellan’s case from others, to take it out of the usual or ordinary case is required’.

McLellan argued that his medical condition and his destitution, being reliant on charitable organisations for himself and his son, were special circumstances. The AAT found that these did not on the evidence provided amount to special circumstances. It was accepted that McLellan had no capacity to work but the AAT found that that circumstance did not distinguish McLellan from others who are qualified for DSP because they are, ‘by definition, unable to engage in employment’ (Reasons, para. 14). While McLellan argued that he had spent his lump sums on gambling and substance abuse, the AAT was unable to determine whether his decisions were ‘lifestyle’ choices or as a result of addictions.

While there was evidence that McLellan had spent considerable sums on gambling, the AAT believed that he had not been ‘frank or fulsome in presenting evidence about his financial circumstances.’ McLellan did not appear to have provided bank statements to Centrelink to demonstrate the dissipation of the $270,000.00 of the second lump sum that he received in the hand. McLellan also gave evidence that he and his son were about to be evicted, when it appeared that the notice to terminate was issued at his request after he told the real estate agency he wished to terminate the agreement so that he could live with a relative. McLellan also spent between $5,000.00 and $6,000.00 on a holiday with his former partner and children in September 2010 just after he wrote to Centrelink in August 2010 seeking a review of the preclusion period on urgent and compassionate grounds.

The AAT found, however, that special circumstances existed with respect to the split payment of the lump sum. The payments were more than five years apart. There was evidence that McLellan had been told by Centrelink prior to and around the time of the second lump sum payment of $285,000.00 that he would be precluded from receiving DSP if he received a lump sum. However, the AAT found it very likely that he had not been similarly advised by Centrelink or his own solicitors at the time he received the first lump sum of $55,000.00 which had been paid for ‘pain and suffering’. The AAT found the long period between payment of the instalments coupled with the likelihood that McLellan was not advised of the potential consequences of the award, amounted to special circumstances which warranted the first payment of compensation of $55,000.00 as not having been made.

The AAT also pointed out that it was open to McLellan to renew his request to Centrelink to exercise the discretion to treat more of the compensation as not having been paid and that more evidence with regard to whether his gambling and substance abuse arose from addictions would be helpful.

Formal decision

The decision under review was set aside and a decision substituted that $55,000.00 of the compensation payment received be treated as not having been made.

[M.O’H.]