Calculating the Compensation Reduction Amount (CRA) to be applied to a Participant’s plan.

The Applicant is a 45-year-old man who previously commenced a personal injury proceeding in the Supreme Court of Victoria for medical negligence. On 27 April 2017, the Court approved settlement of the Applicant’s personal injury proceeding in the sum of $4.0 million plus reasonable costs and disbursements (Luo and National Disability Insurance Agency [2024] AATA 3402 (Lou), at [12]). Out of this settlement sum the Applicant paid over $350,000 in solicitor-client legal costs. This was in addition to the party-party costs which were paid by the Defendants and subject to a separate costs order.

The National Disability Insurance Scheme (Supports for Participants-Accounting for Compensation) Rules 2013 (Cth) (Compensation Rules) provide that if a settlement sum includes an amount that relates to the provision of “supports of a kind that may be funded or provided under the NDIS after the date of the judgement or settlement” a “compensation reduction amount” (CRA) is to be determined and applied to the Applicant’s NDIS plan unless there are “special circumstances”.

On 11 November 2022, the NDIA confirmed that a CRA was to be applied to the Applicant’s future plans in light of his personal injury settlement. The CRA was in the amount of $1,662,366.76 which would be divided over 18 years [14].

The Applicant made an application to the Tribunal for review of the NDIA’s decision as he disagreed with the calculation of the CRA that was applied to his plan. The Applicant’s position included that the Respondent failed to deduct legal costs from the settlement amount when calculating the CRA (Luo, at [17])

The Applicant also sought that approximately $3.15 million of the personal injury settlement sum be disregarded as it was used to purchase land and build a new house for his family (Lou, at [29]). The Applicant explained that as this money was used for the purchase of their home, he has been unable to use the funding for his supports such as attending group activities (Lou, at [30]).

Calculation of CRA and deduction of Legal costs

Notwithstanding the deduction for solicitor-client costs from the CRA, the Tribunal was satisfied that the CRA applied to the Applicant’s plan was correctly calculated and in accordance with the formula provided for in the Compensation Rules. The Tribunal found that the Compensation Rules required the applicable formula be applied to the whole of Mr Luo’s personal injury settlement of $4.0 million. It was noted that there is ‘no provision of the [Compensation] Rules which allows for the exclusion from a compensation lump sum of an amount the participant later pays out of those funds for costs payable to their own solicitor’ (Lou, at [20]). The Tribunal’s decision was in line with section 11 of the National Disability Insurance Scheme Act 2013 in which ‘compensation’ is defined to include payment made by way of settlement of a personal injury action which is ‘wholly or partly in respect of the costs of supports that may be provided to a participant’.

Special Circumstances

With respect to the term ‘special circumstances’ and the calculation of a CRA the Tribunal accepted that ‘that to be “special”, the relevant circumstances must be “unusual, uncommon or exceptional”, and the financial circumstances of a participant alone will not necessarily be sufficient (Lou, at [22]).

In considering whether special circumstances should be taken in consideration in relation to the use of the Applicant’s settlement funds for the purchase of a house the Tribunal stated (Lou, at [33]):

It is clear from the legislative framework that the purpose of a CRA is to “claw back” from settlements and judgements amounts which have been paid to participants with respect to their care and support needs. There is a clear public policy reason for this, since in the absence of such provisions, it would be open to participants to “double dip” by receiving compensation to cover their support costs, but then obtaining their supports though the NDIS, which of course is taxpayer funded. Seen in this context, the Compensation Rules and related provisions in the NDIS Act are an important integrity measure to protect the Scheme from being required to meet expenses for which a participant has already been compensated.

The Tribunal noted that, if it was to accept these circumstances as special, it would be ‘unfair to other participants in similar circumstances who have applied their compensation for its intended purpose’ and would ‘create an incentive for participants in receipt of lump sum compensation amounts to spend that compensation on other things and then seek to have their care and support needs met by the NDIS’. (Lou, at [37]).

The Tribunal further noted that a large amount of the personal injury settlement intended to cover the Applicant’s future care support needs. The Tribunal took into consideration that the settlement funds were not used for the Applicant’s future support needs, and they were instead spent on a house (Lou, at [45]). It was therefore concluded the Applicant’s care and support needs from his personal injury settlement were not being met because the settlement had been spent on a house and it was not open to conclude these circumstances were ‘special’ (Lou, at [38]).

Conclusion

The Tribunal was satisfied that the CRA amount applied to the Applicant’s plan had been correctly calculated and that the decision under review should be affirmed (Lou, at [49]).

This decision confirms that the definition of ‘compensation’ for the purpose of a CRA is the whole of the settlement sum, and legal costs paid are not to be deducted from the settlement sum.

The decision also highlights that spending personal injury settlement funds on things other than future support needs is unlikely to constitute special circumstances for the purpose of calculating a CRA.