C40/2005 Treatment of legal costs when applying the compensation offset/recovery provisions in the VEA

Purpose of Instruction

To advise the appropriate treatment of legal costs incurred by recipients of disability pension and income support pension who receive lump sum compensation payments when applying the compensation offset and recovery provisions in Parts II, IIIC and IV of the Veterans' Entitlements Act 1986 (VEA).

Background –Commission decision to disregard legal costs

In 2003 the Repatriation Commission agreed to a policy whereby legal costs incurred in connection with a claim for compensation and damages are not to be included as "compensation" for the purposes of sections 5NB, 30B and 74 of the VEA.

Differing State Office practices

Administrative practices between the State Offices differ in respect of what costs are being excluded from lump sum compensation payments received by recipients of disability and/or service pension.

Clarification has been sought from the Legal Services Group concerning the above Repatriation Commission decision.

Difference between party-party legal costs and solicitor-client legal costs

Two terms are used when describing costs incurred by an individual who pursues a compensation or damages claim.  The first being "party-party" costs and the second "solicitor-client" costs.

"Party-party" costs include all amounts specifically included in any Court judgement, settlement or other compensation payment as "costs".

"Solicitor-client" costs are separate from "party-party" costs and include all other costs that are not specifically included in a settlement or judgement.  These costs are a private arrangement between the solicitor and the client and must not be excluded from the compensation payment.

Party-party legal costs only to be excluded

The Repatriation Commission policy decision refers only to “party-party” costs.  The Commission decision is that "party-party" costs are not to be regarded as being in the scope of the definition of compensation.  Therefore specified "party-party" legal costs only can be excluded from a lump sum compensation payment received by an income support pensioner, disability compensation pensioner or war widow/er.

Where costs are not specifically noted (often where there has been a settlement), advice should be sought as to the amount included to cover costs.  In seeking this advice a clear distinction must be made between “party-party” and “solicitor-client” costs.

Assessing compensation payment

For compensation recovery purposes, the party-party legal costs are subtracted from the lump sum compensation payment.  The 50% rule is then applied to the balance to calculate the lump sum preclusion period, during which the compensation recipient's income support pension is not payable.

For compensation offsetting purposes the party-party legal costs are subtracted from the lump sum compensation payment.  The fortnightly equivalent of the balance is then calculated, based on the instructions and tables provided by the Australian Government Actuary.

Contacts

Please refer any questions on this matter to Lyn Daffurn in Veterans' Compensation Branch on (07) 3223 8673 or Kirrily Williams in Income Support Policy on (02) 6289 6525.