[2014] AATA 775

Division	GENERAL ADMINISTRATIVE DIVISION	
File Number(s)	2013/5820	
Re	Agostino Pilato	
	APPLICANT	
And	Secretary, Department of Social Services	
	RESPONDENT	
Decision

Tribunal	Mr D Letcher, QC, Senior Member	
Date	24 October 2014	
Place	Sydney	
The decision under review is set aside and remitted to the respondent to recalculate the preclusion period in accordance with the direction that pursuant to section 1184K of the Social Security Act 1991 the amount of $129,978.86 should be treated as though it has not been paid to or for the applicant.
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Mr D Letcher, QC, Senior Member

Catchwords
SOCIAL SECURITY – pensions – preclusion period – special circumstances – non-recoverable legal costs – decision set aside

Legislation
Social Security Act 1991 ss 17, 1169, 1170, 1184K

Cases
Re Fuller and Secretary, Department of Family and Community Services (2004) 83 ALD 152
Groth v Secretary, Department of Social Security (1995) 40 ALD 541
Re Kezchek and Secretary, Department of Education, Employment, Workplace Relations (2009) 108 ALD 618
Re Nathan and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs [2009] AATA 263
Re Sard and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs [2011] AATA 106
Secretary, Department of Social Security v Banks (1990) 23 FCR 416

REASONS FOR DECISION

Mr D Letcher, QC, Senior Member

24 October 2014

1.	Mr Agostino Pilato was born in 1947 and was aged 62 when he suffered very severe permanent injuries in a motor vehicle accident. Before injury he was employed as an electrician, ran a home renovation business with his wife, had an investment property in Wollongong and lived on a 10 acre rural property at Menangle. The accident ended his working life and his business. He was physically and financially unable to continue to live at Menangle. He sold that property, purchased a large house which he refurbished and later sold it and moved to a three bedroom home unit with ocean views at Kiama.
2.	On 5 April 2013, almost four years after his accident, the applicant’s claim for accident compensation was decided by a CARS (Claims Assessment and Resolution Service) assessment. The applicant was awarded $1,071,091.72 plus costs of $72,252.58. Mr Pilato had received workers compensation payments and some advances on treatment expenses before the award was made.
3.	On 12 April 2013 Centrelink notified the applicant that he was subject to a preclusion period of 296 weeks from 14 February 2013. Pursuant to section 1169 of the Social Security Act 1991 (“the Act”) a compensation affected payment (which includes age pension) is not payable to a person while they are subject to a lump sum preclusion period. Section 1170 includes a formula for calculating the length of a lump sum preclusion period. That period is calculated by dividing the “compensation part of a lump sum compensation payment” by the maximum pension rate payable at the time the compensation was received. This is known as the “income cut-out amount”. Section 17 defines “compensation part of a lump sum compensation payment”. In most cases the compensation part of a lump sum compensation payment amount is deemed to be half of the total compensation. Sections 17(3)(a) and (ab) deal with circumstances where there are agreements between the parties as to the compensation amount. Section 17(3)(b) reads:
(b)	if those circumstances [that is, agreements between the parties] do not apply – so much of the payment as is, in the Secretary’s opinion, in respect of lost earnings or lost capacity to earn, or both.
4.	The effect of section 17(3)(b) is to give the respondent a discretion as to how much of the assessment should be regarded as the compensation part of the lump when the lump sum is not agreed between the parties.
5.	Generally, where there is a settlement between the parties, the respondent will deem the earnings compensation to be half of the total amount but where there is a decision of a court or tribunal specifying the amount of the earnings compensation the respondent will adopt that amount for the purpose of calculating a preclusion period (Secretary, Department of Social Security v Banks (1990) 23 FCR 416, in reference to the equivalent provision in the Social Security Act 1947). Re Kezchek and Secretary, Department of Education, Employment and Workplace Relations (2009) 108 ALD 618 and Re Nathan and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs [2009] AATA 263 both held that a CARS assessment was equivalent to a court judgment.
6.	On 27 May 2013 the applicant, then aged 66, applied for age pension. Centrelink rejected the claim on 5 June 2013 because the claim was made within the preclusion period. On review the authorised review officer decided the compensation preclusion period could not be waived and would continue to apply until 17 October 2018. The Social Security Appeals Tribunal affirmed that decision. The applicant seeks review in this Tribunal.
7.	In Mr Pilato’s case, the CARS assessment of the relevant components of the claim was:
Past loss of earnings	$182,804	
Future loss of capacity to earn (including superannuation)	$188,368	
	$371,172	
Less weekly payments and care received	$108,699	
	$262,472.80	
8.	Centrelink adopted the last figure as the compensation part of the lump sum compensation payment and divided it by the “income cut-out amount” of $884.40 to produce a figure of 296.64 which it rounded down to 296 weeks.
9.	Section 1184K of the Act allows all or some of the amount to be treated as though it has not been paid to the person. The section reads:
(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.
10.	This section gives the respondent a further discretion as to how much of the compensation should be used in calculating the preclusion period. It is based on a finding of “special circumstances”, a term not defined in the Act but given a wide range of application in the decided cases. Findings of “special circumstances” have been made where there has been wrong and misleading advice given, severe financial hardship, substandard housing requiring urgent repair, imminent loss of a mortgaged house, intellectual disabilities and many more varied and unusual situations. The requirement is for a case out of the ordinary, not necessarily unique but with features that set it aside from the ordinary (Groth v Secretary, Department of Social Security (1995) 40 ALD 541 at 545).
11.	This Tribunal has the same discretions as those given to the respondent in sections 17(3) and 1184K of the Act as the Tribunal stands in the shoes of the Secretary respondent.
12.	The applicant has sought review of the decision that he is subject to a preclusion period of 296 weeks which prevents him being granted age pension. He has claimed “special circumstances” including:
(a)	he was not advised before his claim was decided that a preclusion period could apply. The applicant gave this evidence, but in cross-examination he conceded that this was not correct and that he had in fact been informed.
(b)	he has and will incur considerable medical, pharmacy and other treatment cost for health conditions, some arising from his accident and some not. He stated that triple cardiac bypass surgery had cost him about $10,000 and current pharmacy expenses were some $320 per month.
(c)	he incurred heavy expenses in relocating from his home property at Menangle to another house and then to a home unit. He claimed refurbishing costs, maintenance, insurance, legal, insurance and renovation fees.
(d)	he had incurred heavy legal costs in pursuing his injury claim through the CARS system.
13.	As to (a), this was not pressed. As to (b), the CARS ruling included specific amounts for future treatment $55,333.02, future paid care $103,636.94 … future vehicle modification costs $8,413.00”. These are considerable amounts. All people expect medical expenses as they age, whether injured or not and the applicant’s health conditions and additional expenses, I believe, are not so unusual as to disclose special circumstances.
14.	As to (c), these relocation expenses were claimed by him in the CARS case but the assessor was not satisfied that he was entitled to any claim in respect to the costs associated with relocation from Menangle (paras 78-86 of the assessor’s decision). He held that those costs arose from the applicant’s parlous financial position before his accident rather than as a result of his injuries.
15.	Mr Pilato gave evidence to the Tribunal that he and his wife were forced to sell the Menangle property when he was unable to work after his accident. They then bought a large four double-bedroom house, expensively furnished and revised, but were forced to sell that because he could neither maintain it himself nor afford the $390 per week required for cleaning and maintenance. They then sold that house and an investment property and purchased a three bedroom, two car space, top floor Kiama apartment with ocean views for $585,000. The applicant described the apartment as “modest” but agreed it was not encumbered and that two of the bedrooms would be used by family visitors.
16.	The applicant did not accept the assessor’s view that the documents showed that the applicant was struggling and “‘juggling’ between accounts” to meet his financial commitments before his injury. The assessor held that the forced sale of Menangle was not as a result of the injury, and I agree with that decision. The applicant made a series of choices after his accident. He chose to retain an investment property and to allow the sale of Menangle, then to purchase a large house which was too expensive to maintain, further to give his son $50,000 and daughter $20,000 and then to buy a very comfortable home unit. My view is that the “relocation costs” arose from a series of unwise and expensive choices made by the applicant.
17.	Turning to the applicant’s current financial position, generally, I note the applicant now has no debt. He has personal investments of over $185,000, his wife $25,000 and she receives a Disability Support Pension and Carer’s Allowance (for the care of the applicant). Mr Pilato could spend over $50,000 per year to the end of the present preclusion period before the couple’s current capital investment was exhausted (that is, $205,000 divided by four years, approximately the remaining time). This does not take into account any income from the investment nor weekly contributions from his wife. This does not show severe hardship.
18.	The applicant says that he is concerned about possible future surgery expense and pharmacy costs for himself and his wife. His best estimate of knee surgery costs was $10,000 (and that is no more than a possibility). He has private health insurance.
19.	Mr Pilato is not in a parlous financial position. He was asked if he believed that the social security system was designed to enable him to return to his pre-accident lifestyle and he replied: “Not to the full extent but to some extent”. The respondent put to the applicant that he was now better off than before injury. The applicant did not agree.
20.	I do not believe that the applicant’s financial position, his likely expenses and his health problems constitute “special circumstances” within the meaning of section 1184K of the Act.
21.	As to (d), the Tribunal notes that the CARS assessor allowed party-party costs to the applicant of $72,252.58 but in fact the costs deducted by his solicitor were $207,056.04 leaving a balance to be paid by the applicant of $134,803.46. Those legal costs included $4,824.60 in respect of mortgage default on the Menangle property but the relevant balance of $129,978.86 was the non-recoverable expense incurred by the applicant to obtain his compensation. The large amount and the fact that the applicant expended an amount equivalent to almost half of the compensation part of the lump sum compensation payment of $262,472.80 makes the case unusual and out of the ordinary.
22.	The respondent questioned the applicant as to why he had not challenged the large costs figure. The respondent did not put that the amount was excessive or inappropriate and indeed there was no evidence that it was not a proper bill. The applicant said that there had been three adjournments and four days of hearing or negotiation.
23.	I find that the balance of the costs of $129,978.86 was incurred to obtain the applicant’s compensation and none of that costs amount is recoverable or available for the support of the applicant. It was necessary to pursue the CARS matter to a hearing to obtain a result.
24.	I believe that this situation constitutes special circumstances and in the exercise of the discretion given by section 1184K of the Act all of that non-recoverable amount should be treated as though it has not been paid. I believe to do otherwise would give rise to an unfair and unjust result in that the applicant would be substantially penalised when he has not derived any benefit or support from the amount involved. In Re Fuller and Secretary, Department of Family and Community Services (2004) 83 ALD 152 Downes J, as President of the Tribunal, recommended that legal costs should be uniformly excluded from the calculation and this view has been adopted in a number of cases although not in some other cases where the costs were a small proportion of the amount received (Re Sard and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs [2011] AATA 106).
25.	I do not accept that the applicant is in severe financial hardship. His health conditions are not special circumstances in themselves and nor is the fact that he will never be able to return to work. However, hardship and inability to work are not factors necessary to a finding of special circumstances.
CONCLUSION
26.	The decision under review is set aside and remitted to the respondent to recalculate the preclusion period in accordance with the direction that pursuant to section 1184K of the Act the amount of $129,978.86 should be treated as though it has not been paid to or for the applicant.

I certify that the preceding 26 (twenty-six) paragraphs are a true copy of the reasons for the decision herein of Mr D Letcher, QC, Senior Member	
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Associate
Dated 24 October 2014

Date of hearing	29 August 2014	
Applicant	In person	
Solicitors for the Respondent	Mr G Lozynsky, Department of Human Services