Court rules social security benefits exempt from a damages assessment

The Supreme Court of Victoria recently settled the issue of whether common law damages for economic loss, owed by a wrongdoer, should be diminished by social security payments received by the injured party beyond the 'preclusion period'. The Court determined, in that regard, that damages are not to be reduced.

This ruling holds significant implications, especially in the context of historical sex abuse claims, where the typical social security payback formula extends over an extended duration.

In issue

• In a recent decision, the Supreme Court of Victoria was asked by the parties to determine whether social security payments received by the plaintiff should be considered when calculating damages for past economic loss, and especially in a situation where payments are not subject to repayment to the Commonwealth.

The background

The plaintiff initiated legal proceedings, seeking compensation from two defendants. The action was based on psychological injuries resulting from abuse which allegedly occurred between 1959 and 1961.

The proceedings settled on certain terms. It was in this context that the Court was asked by the parties to determine the issue of whether social security payments received by the plaintiff should be taken into account in the calculation of damages for past economic loss in circumstances where they are not repayable to the Commonwealth. Relevantly, the plaintiff had received a Newstart Allowance (via Centrelink) from June 1992 to August 1997 and a Disability Support Pension (via Centrelink) from September 1997 to at least October 2015. These payments were made in accordance with the Social Security Act 1991 (Cth). The Act includes provisions that, under certain conditions, allow benefits received to be repaid to the Commonwealth from a damages settlement. However, the Newstart Allowance and Disability Support Pension received by the plaintiff are exempt from repayment under these provisions (albeit that the preclusion period did apply).

It was agreed by the parties that the plaintiff had received $245,529.00 in Newstart Allowances or as a Disability Support Pension since the preclusion period expired many years ago. It was also agreed that those payments were ‘compensation affected payments’.

With that in mind the Court enunciated relevant principles as follows:

• It is a fundamental principle governing the assessment of compensatory damages that the injured party should receive compensation in a sum that will put that party in the same position he or she would have been in if the wrong had not been committed, and that, as a corollary, the injured party cannot recover more than he or she has lost. That principle would suggest that the social security payments that the plaintiff has received, which operated as a form of income, should be taken into account in the assessment of the damages required to compensate him for the loss of his earning capacity. Otherwise, the plaintiff would be, in the language used by the defendants, ‘double dipping’. This principle, however, is not absolute. Occasions arise where it would be wrong to reduce the amount that a wrongdoer is obliged to pay because the injured party has received a benefit from a third party in amelioration of the effects of an injury caused by the wrongdoer. This will be the case, for example, where an injured party has paid for their own insurance or has received money from family and friends or some other benevolent organisation. In those circumstances, to reduce the damages payable would, in the language of the plaintiff, result in a ‘windfall’ to the wrongdoer: the wrongdoer would benefit from the generosity of the Commonwealth as if the Commonwealth had made the payment to it. The question, at heart, is whether the injured party should benefit from the retention of the additional moneys in addition to the damages awarded or the wrongdoing party should benefit from the prudence or generosity of others.

The decision at trial

Having regard to these principles, and having heard submissions from both sides, the Court ultimately held that:

1. The terms of the Social Security Act 1991 (Cth), read in context, indicate an intention by the legislature to replace the prior intricate and uncertain common-law stance with a unified framework governing the treatment of social security payments when a recipient receives a damages award;
2. This scheme prevents the inclusion of 'compensation affected payments' in the evaluation of damages and outlines a relatively simple formula for their repayment, either in full or in part, to the Commonwealth; and
3. In that context social security payments paid to the plaintiff in the relevant period should not be taken into account in the calculation of damages for past economic loss.

Implications for you

This decision provides useful clarification as to whether receipt of social security payments by a plaintiff needs to be taken into consideration when calculating damages for past economic loss.

Updated on 3 June 2024: On 23 May 2024, the Victorian Court of Appeal dismissed an appeal in this matter, determining that, although the proposed appeal was sufficiently arguable to justify a grant of leave to appeal, the appeal was dismissed because the trial judge did not err when he concluded that the disputed payments were to be enjoyed independently of, and cumulatively upon, the plaintiff’s right to damages.