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Legislative Assembly for the ACT: 2002 Week 5 Hansard (9 May) . . Page.. 1501 ..

Lump sum payouts

(Question No 151)

Mr Cornwell a sked the Attorney-General, upon notice, on 7 May 2002:

In relation to a recent lump sum payout of $700 000 to a terminally ill Victorian:

(1) Do procedures exist in the ACT to pay out such money, for example, as a monthly annuity for the life of the sufferer instead of a lump sum.

(2) What happens in the ACT to residue of such monies awarded, either as lump sum or annuities, upon the death of the recipient.

(3) If the residual goes to the deceased estate, is this not a windfall gain to the beneficiaries.

(4) If the reply to (3) is affirmative, why is this so, particularly in cases where the pay out is funded via public monies.

(5) Do these lump sum pay outs and windfall gains add to the increasing costs of compensation insurance.

Mr Stanhope: The answer to the member's question is as follows:

I do not comment on the case referred to by the member. Instead my comments are directed to the policy issues raised by the member.

(1) In the ACT it is not permissible at common law to order a defendant to pay the plaintiff an annuity until death (Fournier v Canadian National Railway Co [1927] AC 167, Paff v Speed (1961) 105 CLR 549 at 559). The Supreme Court of Canada has recently reaffirmed this rule observing that, if considered necessary, it is for the legislature to change the rule (Watkins v Olafson [1989] 2 SCR 750). Note that the Supreme Court of Papua New Guinea has held that it is open to make such awards (Kupil v Independent State of PNG [1983] PNGLR 350).

Even if a state or territory allowed for the payment by way of an annuity, they have not been regarded as an attractive possibility because, under Commonwealth law, such payments would be taxable (diluting the effect of an award). For example, if an ongoing payment of $X per week was ordered, this would be regarded as taxable for income tax purposes, whereas a lump sum is a non taxable capital gain.

Recently, the Commonwealth announced its intention to provide tax relief for certain 'structured settlements' (annuities purchased by the defendant after a court made a lump sum award). The Commonwealth scheme seems to contemplate process where a defendant may, at their discretion, invest part of a lump sum in a structured settlement. The details of the Commonwealth scheme have not yet been released but, at this stage, it does not seem to require a change to state or territory law to allow the court itself to award an annuity.

(2) Upon the death of the recipient any unexpended portion of a lump sum award held by the recipient would become part of the deceased person's estate and would be distributed according to law.

(3) The unexpected early death of a recipient may amount to a windfall gain. Similarly, the unexpected longevity of a recipient may represent a shortfall in the amount awarded. In the past, this mismatch between awards and needs has tended to be dismissed as a 'swings and roundabouts' issue. The Government believes that there may be more appropriate ways of managing large lump-sum awards - typically those that involve long-term care. For example, the ACT is presently considering an innovative scheme whereby long term care costs would be removed from common law damages awards in favor of the provision of adequate long term

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