Editors --- "Compensation preclusion period: when does period begin; special circumstances" [2007] SocSecRpr 42; (2007) 9(3) Social Security Reporter, Article 16

• CLARK v SECRETARY TO THE DEWR
• Background
• Special circumstances
• Formal decision

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Compensation preclusion period: when does period begin; special circumstances

CLARK v SECRETARY TO THE DEWR

(Federal Court of Australia)

Decided: 25th July 2007 by Lindgren J.

Background

Clark was born on 29 April 1939and hence was due to become entitled to age pension upon reaching the retirement age of 65 years on 29 April 2004.

On 31 October 2000, Mr Clark ceased working due to his suffering compensable lead and chemical poisoning arising out of his work. He began to receive periodic compensation payments under the Workers Compensation Act 1987 (NSW) (the WC Act) from the date of the injury to 29 April 2005, totalling $88,082. Payments stopped on 29 April 2005 because the WC Act provided that if a person received an injury before reaching the retiring age, being the age at which the person would be eligible to receive an age pension under the Social Security Act 1991 (the Act), a weekly payment of compensation under the WC Act was not to be made in respect of any resulting period of incapacity for work occurring after the first anniversary of the date on which the person reached the retiring age.

Clark sued his employer for damages at common law; the action was settled on 10March 2005 for $280,000. Clark’s common law claim included a claim for loss of earning capacity, and the insurer deducted and retained for itself the sum of$88,082.18, leaving Mr Clark with $191,917.82. In substance, the compensation that Mr Clark received for loss of earnings and loss of earning capacity thus came to reside in the lump sum payment of $280,000 alone.

Clark applied for age pension but was rejected on the basis of a preclusion period of 146 weeks extending from the day after his periodic compensation payments ceased. The compensation part of the lump sum was determined by reference tos.17(4) of the Act which provides that, if a person has received periodic compensation payments but these have been repaid, the amount of lump sum compensation for the purposes of the relevant formula is the total lump sum less the repaid amount. This meant that the compensation part of the lump sum was 50% of $191,917.82.

The commencement date of the preclusion period

The primary question of law raised by the appeal turned on the construction of ss.1169 and 1170 of the Act:

1169(1) If:

(a) a person receives or claims a compensation affected payment; and

(b) the person receives a lump sum compensation payment;

the compensation affected payment is not payable to the person in relation to any day or days in the lump sum preclusion period.

1169(2) In this section:

lump sum compensation payment does not include a lump sum payment:

(a) to which section 1164 applies; or

(b) that relates only to arrears of periodic compensation payments.

1170(1) Subject to subsection (2), if a person receives both periodic compensation payments and a lump sum compensation payment, the lump sum preclusion period is the period that:

(a) begins on the day following the last day of the periodic payments period or, where there is more than one periodic payments period, the day following the last day of the last periodic payments period; and

(b) ends at the end of the number of weeks worked out under subsections (4) and (5).

1170(2) If a person chooses to receive part of an entitlement to periodic compensation payments in the form of a lump sum, the lump sum preclusion period is the period that:

(a) begins on the first day on which the person’s periodic compensation payment is a reduced payment because of that choice; and

(b) ends at the end of the number of weeks worked out under subsections (4) and (5).

1170(3) If neither of subsections (1) and (2) applies, the lump sum preclusion period is the period that:

(a) begins on the day on which the loss of earnings or loss of capacity to earn began; and

(b) ends at the end of the number of weeks worked out under subsections (4) and (5).

Clark posed the following question for the Court’s consideration:

1. Whether on the proper construction of s.1170(1) of the Act, in determining the commencement date of the preclusion period, it is to be implied in the words “receives both ...” that “periodic compensation payments” are retained.

The Department submitted that Clark’s circumstances fell within ss.1170(1) because, as a matter of historical fact, Clark received both periodic compensation payments totalling $88,082.18in respect of the period from 31 October 2000 to 29 April 2005, and (on 10March 2005) a lump sum compensation payment of $280,000. On this basis, ss.1170(1) provides that the preclusion period of 146 weeks began on the day following the last day of the periodic payments period, that is 30 April 2005.

Clark, on the other hand, submitted that upon its proper construction, ss.1170(1)applies only where a person receives and retains the benefit of both the periodic compensation payments and a lump sum compensation payment. Clark submitted he did not satisfy this description, and that the applicable provision was ss.1170(3). According to ss.1170(3), the lump sum preclusion period began on the day on which Clark’s loss of earnings or loss of earning capacity began, namely 31 October 2000. On this basis, the preclusion period of 146 weeks expired well before Mr Clark’s 65th birthday on 29 April2004, and any entitlement he had to an age pension was unaffected.

The Court rejected the construction suggested by Clark and concluded that it was not supported by the legislative policy that underlies the provision. The Court accepted the Department’s interpretation that was consistent with the plain meaning of the statute. The Court noted Clark’s contention that such an interpretation resulted in an unfair outcome in his case, but accepted that the legislature intended the statutory formula to apply to individuals placed as Clark was.

The provisions reflect a policy decision to treat that which remains after any repayment of any periodic compensation payments as relating, as to 50 percent, to loss of earnings or of earning capacity, in respect of the period after the expiry of the period covered by those payments. The provisions reflect an acceptance by the legislature that it is not practicable to achieve complete justice attuned to the circumstances of each individual case.

It may well be that in Mr Clark’s case, because of his age, the sum of $280,000 included no component, or only a very small component, for loss of his capacity to earn beyond age 65 (29 April2004) and the statutory formula produces a result that is unfair to him, but if so, that result flows from a deliberate policy decision of the legislature favouring simplicity and efficiency of administration and reduction in administrative costs over attaining a fair result in each case considered on its individual merits.

(Reasons, paras. 43-44)

Special circumstances

Clark also raised two questions in relation to s.1184K of the Act, which provides:

1184K. For the purposes of this Part [Pt 3.14], 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.

Clark asked the Court to consider:

1. Whether in the exercise of its discretion unders.1184K of the Act to determine that special circumstances exist, the Tribunal is bound to consider:

i. evidence concerning the unusual unfair or unjust consequences of applying s.1170(1);

ii. the expressed intention of s.17(4) that consideration of the total amount of ‘periodic compensation payments’ is to be deducted from the ‘lump sum compensation’;

iii. that the object of the legislation to prevent ‘double dipping’ is not necessarily achieved on an equitable basis and whether the appellant has been subject thereby to an unintended ‘double preclusion’;

iv. whether there was any unfairness resulting from the Appellant’s inability to claim economic loss compensation beyond his 65th birthday when coupled with the requirement that ‘period compensation payments’ be ‘repaid’ with respect to that period.

2. Whether in the exercise of its discretion under s.1184K of the Act to find that special circumstances exist, the Tribunal failed to provide sufficient reasons for not including relevant considerations in its determination.

In its reasons, the AAT referred to Clark’s financial circumstances and health, the fact that he had been legally represented during his settlement negotiations, and that advice had been sought from, and given by, Centrelink.

Clark complained that the AAT failed to address the true nature of the ‘special circumstances’ on which he relied, namely, that the very provision in s.1170 for a preclusion period worked unjustly in his case. The Court found that the AAT did not omit to consider the alleged unfairness, as Clark’s arguments were referred to in its reasons for decision. Evidence had been led about how loss of earnings was calculated for the purposes of Clark’s statement of claim and subsequent settlement and that economic loss was only calculated until age 65. The Court observed that ‘evidence of the present kind represents an inquiry of the very kind against which the Parliament set its face in adopting the 50 percent rule’ (Reasons, para.68). The Court referred to the decision of Secretary, Department of Family and Community Services v Chamberlain [2002] FCA 67; (2002) 116 FCR 348 where Kiefel Jsaid:

The basis for the Tribunal’s view [that ‘special circumstances’ were established] was its acceptance of what the parties to the settlement said had been offered and accepted for the economic loss component. It was far less than the statute assumed to be the case in applying the formulae. Again, however, this will be so in many, if not most, cases to which the Act applies. Further, the extent of the difference from the basis upon which the parties acted could not provide the necessary ‘special circumstance’. The statute has selected a figure which may operate in an arbitrary way.

The statutory objectives in utilising the formulae, referred to above, must also be borne in mind. It is not intended that a decision-maker be required to consider contentions about what part of the compensation reflected the economic loss component. That is so whether one has regard to the application of the formulae or the discretion under s 1184. The latter does not alter the objective and must be read in light of it.

The Court agreed with the approach taken by Kiefel J and said:

The expression ‘special circumstances ‘in s.1184K does not embrace the circumstance that the 50 percent rule will yield a preclusion period beginning on a certain date that will or may be excessive, even grossly excessive, having regard to the component included in a lump sum settlement for loss of earnings or of earning capacity, to the age of the injured person, and perhaps to other circumstances.

Once one embarks on an inquiry of the kind that would be required in such a case, one is defeating the legislative intention. The Parliament must be taken to have contemplated as ‘usual’ or ‘ordinary’ the circumstances of people placed as Mr Clark is. In effect, by adopting the rough and ready 50 percent rule, the legislature has faced such people with a choice: not sue at all and to rely, instead, on such other entitlements as maybe available; litigate to trial so that the Court will identify a figure for loss of earnings and of earning capacity; or settle subject to the operation of the 50 percent rule.

(Reasons, paras. 75-76)

The Court also considered that the AAT had provided adequate reasons for its decision and that Clark’s submission on this issue was in fact on the merits of the Tribunal’s decision.

Formal decision

The application was dismissed with costs.

[A.T.]