Editors --- "Disability support pension: compensation preclusion period and whether special circumstances exist" [2011] SocSecRpr 34; (2011) 13(4) Social Security Reporter, Article 7

• WATERS and SECRETARY TO THE DFHCSIA
• Background
• Legislation
• Discussion
• Formal Decision

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Disability support pension: compensation preclusion period and whether special circumstances exist

WATERS and SECRETARY TO THE DFHCSIA

(2010/1978)

Decided: 27th September 2011 by the Hon R.J. Groom A.O

Background

Waters suffered serious injuries in a work related accident on 4 April 2006. She initially claimed compensation under Queensland’s WorkCover Scheme and then later commenced common law proceedings for damages.

On 21 December 2009, Waters settled her common law action for the sum of $600,000 (inclusive of relevant statutory refunds) plus legal costs. Waters received a net payment of approximately $377,863. Centrelink for the purposes of calculating a preclusion period determined that Waters had received approximately $527,818 ($600,000 minus $72,186 for repaid periodic compensation payment) with the compensation part being 50% of this figure. The compensation preclusion period commenced on 28 June 2008 and ends 355 weeks later on 17 April 2015.

After receiving the net amount of compensation from her lawyers, Ms Waters proceeded to purchase a house and land for the sum of $340,000. On 29 January 2010, Ms Waters lodged a claim for disability support pension. The claim was rejected by Centrelink. On 15 April 2010, Ms Waters was partially successful on appeal to the SSAT where it was decided that a portion of the compensation payment should be disregarded due to special circumstances. The Secretary then sought review with the AAT.

Legislation

Section 17 of theSocial Security Act 1991 (‘the Act’) provides the basis for calculation of the compensation preclusion period, including definitions of the ‘compensation part’ and ‘income cut-out amount’.

Section 1184K of the Act provides that the Secretary may treat the whole or part of a compensation payment as not having been made or not liable to be made in the special circumstances of the case.

Discussion

It was contended on Ms Waters’ behalf that a number of factors present in this case establish the existence of special circumstances sufficient to enliven the discretion in section 1184K of the Act. They include: misleading information provided by Centrelink indicating that the purchase of a house would be exempt when calculating the preclusion period; the harsh and unreasonable result in applying the 50% rule when the lump sum included statutory refunds; the amount of legal costs, Ms Waters’ continuing ill health and financial circumstances.

The AAT examined each of the factors contended in turn to determine whether they were sufficient individually or in combination to exercise the discretion in section 1184K. In regards to the misleading information she received about the purchase of a house, the AAT accepted that the incorrect advice may have arisen because of misunderstandings or perhaps the wrong questions were asked. In any event, the AAT noted that Ms Waters failed to seek clarification and proceeded to invest almost all of her funds in purchasing a house.

In relation the application of the 50% rule for lump sums inclusive of statutory refunds, the AAT considered the cases of Broad v Secretary DFaCS [2003] AATA 1017, A’ Beckett v Secretary DSS (1990) FCA 332, Kemble v Secretary DFaCS [2003] AATA 1048 and Chamberlain v DFaCS [2002] FCA 67; (2002) 68 ALD 357 and concluded that the inclusion of medical expenses in the lump sum was a commonly adopted approach and did not stand apart from the usual or the ordinary.

In regards to the legal costs, the AAT noted that Ms Waters’ contribution to the legal costs was 6.4% of the lump sum figure and contrasted this to the case of Barrington v Secretary DEWR [2005] AATA 1050 where costs of 19.2% was considered to be ‘significant’. It also noted that both solicitor and counsel involved in the compensation matter had reduced their fees. It therefore decided that the quantum of the legal costs did not give rise to special circumstances.

On the contentions of straitened financial circumstances, the AAT decided that the house that was purchased was a comfortable house and not at the near bottom end of the market as was in the case of Barrington (above). It also noted that Ms Waters continued to receive payments by way of board from a boarder and that her mother occasionally helped her out and these factors in combination were insufficient for a finding of special circumstances. The AAT however noted that Ms Waters further pending compensation claim for a motor vehicle accident which occurred on 14 November 2010 must be disregarded when considering her financial circumstances, notwithstanding that she may have a significant claim.

On the issue of ill health, the AAT considered the case of Zarvalis v Secretary DSS [1989] AATA 603 and decided that Ms Waters continuing ill health did not amount to ‘special circumstances’ within the meaning of that term in section 1184K of the Act.

The AAT concluded that none of the factors individually, nor in combination, were sufficient to establish ‘special circumstances’ which would allow it to exercise the discretion provided in section 1184K of the Act.

Formal Decision

The AAT set aside the decision under review and reinstated the original decision of Centrelink.

C.W.