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Social Security Reporter |
Lump sum compensation preclusion periods: treatment of arrears payments of periodic compensation; payments made to settle claims for more than one injury
(2012/701)
Decided: 11th October 2012 by K. Bean.
Walters suffered numerous work related injuries while working for different employers. The injuries relevant to this appeal were suffered on 6 April 2005, 6 September 2006 and 11 March 2008. Walters made compensation claims in respect of each of these injuries.
Walters also received social security benefits for periods of time between May 2005 and the date of the Tribunal’s decision.
A decision was made by a Centrelink officer that Walters was subject to certain preclusion periods as a result of the compensation payments he received, during which he was not entitled to receive social security payments. This decision also resulted in a decision that he was liable to repay some of the social security payments he had already received. Walters appealed this decision to an Authorised Receive Officer (ARO). The ARO decided that Walters was subject to two preclusion periods, commencing on 16 June 2005 and 1 February 2007. Walters appealed to the Social Security Appeals Tribunal (‘SSAT’).
The SSAT decided that Walters was subject to one preclusion period of 59 weeks from 15 May 2010 to 2 July 2011. The Department appealed to the Tribunal.
Both parties agreed that the following compensation payments were made, and that they were made as a result of the settlement of work-related compensation claims.
1. The first settlement was made in July 2006 and related to a neck injury suffered on 6 April 2005, as well as a claim for depression made on 1 January 2005. The total amount payable to Walters as a result of this settlement was $30,209.44. This included arrears of weekly payments of compensation from 6 April 2005 to 6 April 2006 totalling $18,802.46 plus interest of $1,230.98, and a lump sum payment of $10,176.00. The lump sum payment was made pursuant to s.43 of the Workers Rehabilitation and Compensation Act 1986 (SA)(‘the State Act’) based on an assessment of a ten per cent loss of function in the neck and cervical spine. Walters only received payment for his medical expenses in relation to the claim for depression.
2. The second settlement was entered into in May 2008. It related to a claim for dermatitis caused by exposure to chemicals at work, and was made on 12 September 2006. Walters received a total amount of $66,998.23 in this settlement. This was made up of weekly payments and medical expenses from 6 September 2006 to 1 February 2008 totalling $54,682.35 and a lump sum payment for impairment and disfigurement of $8,315.88, and costs fixed at $4000 plus disbursements.
3. The third settlement was entered into in April 2010. According to the claim documents, this settlement related to a number of injuries, including the back and neck injury sustained on 6 April 2005 that was also compensated by the first settlement. The total amount of this payment was $70,000, plus the amount of weekly payments to be paid to Walters between the date of the settlement and the date that his entitlements to weekly payments were ‘redeemed’ according to the State Act. The amount of $70,000 was made up of $69,500 for future income maintenance and $500 for future medical expenses.
4. The fourth settlement was also reached in April 2010. This settlement related to a lower back strain at work on 8 March 2008. Walters received weekly payments in respect of this injury, however, at the settlement proceedings in April it was agreed that Walters was only entitled to compensation for medical expenses. As a result Walters agreed to repay the weekly payments received in respect of that injury, totalling $10,785.65.
There were four main issues before the Tribunal.
1. Whether the payments of arrears of periodic compensation should have been included in the calculation of ‘lump sum compensation payments’ relating to the first, second and third settlements;
2. Whether the payment relating to the third settlement was properly assessed as relating only to the 6 April 2005 back and neck injury;
3. How the refunded amount of $10,785.65 was to be treated; and
4. Whether any amount of the compensation should be disregarded under s.1184K of the Social Security Act 1991.
This decision revolved around the proper interaction of ss.17, 1170, 1171 and 1164 of the Social Security Act (‘the Act’).
Section 17 provides, among other things, the definition of the ‘compensation part of a lump sum compensation payment’ and relevantly states:
17(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;
...
(5A) For the purposes of subsection (2B) of this section and Part 3.14, the event that gives rise to a person's entitlement to compensation for a disease, injury or condition is:
(a) if the disease, injury or condition was caused by an accident--the accident; or
(b) in any other case--the disease, injury or condition first becoming apparent;
and is not, for example, the decision or settlement under which the compensation is payable.
Section 1171 is relevant to situations where a person receives more than one lump sum in relation to the same injury:
1171 Deemed lump sum payment arising from separate payments
(1) If:
(a) a person receives 2 or more lump sum payments in relation to the same event that gave rise to an entitlement of the person to compensation (the multiple payments); and
(b) at least one of the multiple payments is made wholly or partly in respect of lost earnings or lost capacity to earn;
the following paragraphs have effect for the purposes of this Act and the Administration Act:
(c) the person is taken to have received one lump sum compensation payment (the single payment) of an amount equal to the sum of the multiple payments;
(d) the single payment is taken to have been received by the person:
(i) on the day on which he or she received the last of the multiple payments; or
(ii) if the multiple payments were all received on the same day, on that day.
(2) A payment is not a lump sum payment for the purposes of paragraph (1)(a) if it relates exclusively to arrears of periodic compensation
Section 1164 provides that lump sums representing an arrears of what would otherwise have been an entitlement to periodic payments, are to be treated differently:
1164 Certain lump sums to be treated as though they were received as periodic compensation payments
If:
(a) a person was entitled to periodic compensation payments under a law of a State or Territory; and
(b) the person’s entitlement to the peri-odic payments was converted under the law of the State or Territory into an entitlement to a lump sum; and
(c) the lump sum was calculated by reference to a period; this Part applies to the person as if:
(d) the person had not received:
(i) the lump sum; or
(ii) if the lump sum was to be paid in instalments—any of the instalments; and
(e) the person had received in each fortnight during the period a periodic compensation payment equal to:
Lump sum amount Number of fortnights in the period
where:
lump sum amount is the amount of the lump sum referred to in paragraph (b);
number of fortnights in the period is the number of whole fortnights in the period referred to in paragraph (c).
Section 1184K(1) was also briefly considered in this decision. It provides as follows:
1184K Secretary may disregard some payments
(1) 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.
In this matter the Secretary contended that the decision of the ARO was correct, and should not have been varied by the SSAT.
In respect of Walters’ back and neck injury of 6 April 2005, the ARO decided that the compensation payment of $30,209.44 received on 25 July 2006 and the payment of $71,625.96 received on 16 April 2010 should be added together, as they related to the same injury, pursuant to the provisions in s.1171 of the Act.
The ARO also decided that the amount of $10,785.65 which had been repaid to WorkCover in respect of the 2008 back injury should be deducted from this total, giving a total lump sum of $91,049.75. The resulting preclusion period, to be worked out according to s.17(3) of the Act, was to commence on 15 June 2005, being the date after the last payment of periodic compensation was made.
In respect of Walters’ second settlement relating to the injury of dermatitis on 6 September 2006, the ARO concluded that Walters was paid a total compensation amount of $66,998.23, and that the preclusion period arising from this injury was to start on 1 February 2007, being the day after the payments of periodic compensation ceased.
In relation to Walters’ injury of 11 March 2008, the ARO found that no preclusion period arose, as Walters was subsequently found to be entitled to medical expenses only.
Walters argued that the decision of the SSAT should be allowed to stand. The SSAT decided that the two payments of arrears of periodic compensation should not have been included in the part of the lump sum payments received by Walters. The SSAT referred to ss.1064(2) and 1068-G8A of the Act. The latter pro-vision states that for the purpose of the income test for newstart allowance, arrears payments of income maintenance are only treated as ‘income’ if the person is receiving newstart allowance at the time of the injury that gave rise to the entitlement. On this basis, the SSAT concluded that Walters should be treated as having received one lump sum consisting of the payment of $70,000, the two s.43 lump sums of $10,176 and $8,315.88, and the $4,000 in legal costs. The amounts paid as arrears of periodic compensation payments were therefore ignored, resulting in a shorter preclusion period.
The Tribunal noted that s.17(4A) of the Act provides that a payment of arrears of periodic payment is not a lump sum compensation payment. The Tribunal then considered the interaction between the relevant provisions in the Act, particularly ss.17(3) and 1171, and relevant case law on this point. In particular, the Tribunal considered the Federal Court’s decision inSecretary to the Department of Social Security v Cunneen [1997] FCA 1033; (1997) 78 FCR 576. In that decision the Court observed in relation to s.17(4A):
The purpose of the provision was to ensure that where a payment was simply a total of previously unpaid periodic payments it would not, thereby, acquire the characterisation of a “lump sum compensation”. The section, in my view, was not intended to apply where a payment of arrears of periodic compensation did not stand alone but was included as a component in a larger “lump sum” payable as “compensation” within the meaning of s.17(2).
Having regard to the reasoning of the Court in Cunneen, the Tribunal decided that, although the first and second settlements clearly included components that were attributed to arrears of weekly payment, they also contained other components. Accordingly, s.17(4A) did not have the effect that they should not be regarded as part of a ‘lump sum compensation payment’. The Tribunal found that the SSAT erred in its characterisation of the arrears as stand-alone payments, and that the ARO was correct to include each of the periodic payment lump sums as part of the compensation lump sums resulting in compensation preclusion periods under s.1169 of the Act.
The parties took different positions on the characterisation of the final settlement of $70,000. Walters argued that this settlement related to multiple injuries, rather than being assigned only to the 2005 injury. This being the case, it should have been broken down and attributed to each of the compensable events to which it related, even if one lump sum payment was eventually made in relation to all of the compensable events.
The Secretary did not dispute this proposition, but argued that on the proper construction of the evidence, the $70,000 was paid solely in respect of the April 2005 accident.
The Tribunal considered the decision of the Federal Magistrates Court in Sav-age v Department of Employment and Workplace Relations [2008] FMCA 32; (2008) 216 FLR 78. In that decision the Court noted that s.17(5A) of the Act requires a specific nexus between the event giving rise to a claim, and the entitlement to compensation. In that case the Court stated:
Simply because there is one settlement amount does not mean that there is necessarily only one lump sum payment for the purpose of s.1170. Section 17(5A) draws a distinction between the settlement and the event giving rise to the compensation. It follows, in my opinion, that there can be one settlement of two claims for compensation arising from two events.
The Tribunal adopted the reasoning in Savage’s case, but ultimately did not need to move on to the difficult exercise of apportioning the lump sum to different compensable events. The Tribunal considered all of the information relevant to the payment of $70,000, including the formal orders of the South Australian Workers Compensation Tribunal, the relevant insurer’s records, and information provided to Centrelink by the insurer and by Walters. While noting that the information was not easy to reconcile, the Tribunal concluded that, as a matter of formal legal liability, the payment was paid in respect of the back and neck injuries suffered by Walters on 6 April 2005. In reaching this conclusion the Tribunal placed weight on the formal orders of the Workers Compensation Tribunal.
The Tribunal decided that the ARO was therefore correct to treat the lump sum of $70,000 as having been paid only in respect of the back and neck injuries suffered as a result of the 6 April 2005 accident.
Although not requested by the parties to do so, the Tribunal also considered the proper date of commencement for the preclusion period relating to this injury. The Tribunal decided that the ARO was in error in deciding that the preclusion period arising from the 6 April 2005 injury should commence from 16 June 2005. As the first and third settlements related to the same event, they should have been added together, and the total amount of the two payments received should have been taken to have been received on the day the last lump sum was received, pursuant to s.1170 of the Act. The Tribunal found that, on the proper construction of the facts, the day after the last relevant periodic payment was made was 16 May 2010.
While not requested to do so by the parties, the Tribunal also considered the correctness of the ARO’s treatment of Walters’ refund of $10,785.65 to the insurer. The Tribunal concluded that the ARO was in error in deducting this amount from the compensation Walters received in respect of the 6 April 2005 injury. This was because the payments of $10,785.65 worth of periodic compensation related to a different injury altogether, being the injury on 11 March 2008.
The Tribunal declined to make a decision in relation to s.1184K of the Act, as to whether any amount of the compensation received by Walters should be taken as not having been made. The Tribunal noted that, as a result of its findings in relation to the calculation of the preclusion periods, it was likely that any preclusion periods would be in the past and that they would give raise to debts that Walter would be required to repay. The Tribunal further noted that it did not have any reliable information about the likely amount of these debts.
The Tribunal noted the evidence before it describing Walters’ difficult circumstances, but also noted that a long period of time had elapsed between the hearing in December 2011 and this decision, and his circumstances may have changed. While stating that the Tribunal had the jurisdiction to consider whether any part of the compensation should be treated as not having been paid, it concluded that in all the circumstances, it was more appropriate to remit the question to the Secretary.
The Tribunal set aside the decision under review and in substitution for that decision decided that:
(a) the compensation preclusion period arising from Walters’ receipt of a compensation lump sum arising from his injury sustained on 6 September 2006 was 44 weeks commencing on 1 February 2007;
(b) the compensation preclusion period arising from Walters’ receipt of lump sum compensation payments attributable to his injuries sustained on 6 April 2005 was to be re-determined on the basis that the “compensation part” of the relevant lump sum was $51,242.89, and the compensation preclusion period commenced on 16 May 2010; and
(c) the questions of whether the discretion conferred by s1184K of the Social Security Act 1991 should be exercised, and whether any debt owed by Walters as a consequence of this decision should be waived or written off, were remitted to the Department to be reconsidered in accordance with the Tribunal’s Reasons.
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URL: http://www.austlii.edu.au/au/journals/SocSecRpr/2012/32.html