Editors --- "Compensation preclusion period: special circumstances" [2012] SocSecRpr 23; (2012) 14(3) Social Security Reporter, Article 4

• GLENVILLE and SECRETARY TO THE DFHCSIA
• Background
• The submissions
• The law
• Conclusions
• Formal decision

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Compensation preclusion period: special circumstances

GLENVILLE and SECRETARY TO THE DFHCSIA

(2012/335)

Decided: 5th June 2012 by K. Bean

Background

Glenville was severely injured as a result of an accident. He was left a ‘tetraplegic’ and was unable to care for himself. He received a lump sum payment of $10,355,969.60 ($1,000,000 was considered attributed to economic loss). An amount of $5,355,969.60 was paid following settlement in September 2010. A further $5,000,000 was to be paid in September 2015.

Centrelink imposed a lump sum preclusion period from 1 January 2002 until 7 February 2129.

On appeal, the SSAT varied this decision and assessed the preclusion period solely on the first payment made. The Tribunal found there were no special circumstances which would justify a reduction in the preclusion period.

The submissions

The basis of the claim in relation to special circumstances related to the fact that $1,000,000 was for economic loss and it was submitted that the ‘50% rule’ as set out in s.17(3) should not apply as this would result in significant unfairness.

Secondly, it was argued, because of high current and future care needs, that most of the settlement would be expended on these needs (approximately $94,000 per year was being spent in excess of income); that there were very high legal costs (approximately $500,000); and that the settlement figure had been reduced due to contributory negligence.

The submissions on behalf of the Department were that there was no unfairness resulting from the ‘50% rule’ and that there were no other special circumstances.

The law

There is a discretion in the Social Security Act 1991 (the Act) to reduce a preclusion period in special circumstances:

1184K(1) For the purposes of this Part, the Secretary may treat the whole or part of the 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.

At the outset the AAT found that this required factors that gave rise to ‘injustice, unfairness or hardship’. The issues of legal costs and the consideration of contributory negligence did not meet this requirement and therefore could not be take into account.

The AAT then focused on the submission concerning the 50% rule, in particular noting the case of Secretary Department of Family and Community Services v Chamberlain [2002] FCA 67; (2002) 116 FCR 348.

Conclusions

Considering the facts, the Tribunal noted that it was agreed that the economic loss component was $1,000,000, whereas application of the ‘50% rule’ meant that the preclusion period was based on approximately $2,500,000 – this gave rise to the potential for unfairness.

The Tribunal considered this issue further and referring to Keifel J's comments in the Chamberlain case, stated:

As can be seen from her Honour’s discussion of them, the authorities are to the effect that one of the purposes of s.1184K of the Act is to ameliorate the otherwise harsh operation of the 50% rule in circumstances where the ‘true’ circumstances can be ascertained and where amelioration by reduction of the preclusion period would not result in the mischief the statutory scheme seeks to avoid, namely ‘double dipping’ or simultaneous payment of social security entitlements and compensation for economic loss.

It was the Tribunal’s view that where the ‘true’ circumstances were apparent in terms of economic loss, then there was no risk that the economic loss component could be misrepresented. In this case, the amount of $1,000,000 was agreed to by the Department – the 50% rule therefore gave rise to an unjust result and, in addition to factors such as the high care needs of Mr Glenville and that the majority of the settlement would be spent meeting those needs, then these circumstances were sufficiently special to justify reducing the preclusion period so that it should be calculated on the basis of $1,000,000.

For completeness, the Tribunal added that as only half the settlement had been paid there was a question of whether the economic loss component should be reduced to $500,000. The Tribunal noted that this had not been raised and concluded that this was not appropriate.

Formal decision

The AAT set aside the decision of the SSAT and remitted the matter for determination of Mr Glenville’s entitlements on the basis that there were ‘special circumstances’ within the meaning of s.1184K of the Act, such that the preclusion period be recalculated so that for the purposes of s.1170 of the Act, the ‘compensation part’ of the lump sum compensation payment was $1,000,000. [R.P.]