Aktop v Allianz Insurance

[2021] NSWPICMR 33

CERTIFICATE OF DETERMINATION OF MERIT REVIEWER

Citation:

Aktop v Allianz Insurance [2021] NSWPICMR 33

ClaimanT:

Ferat Aktop

RESPONDENT:

Allianz Insurance

Merit Reviewer:

Kriesen Seeneevassen

DATE OF DECISION:

13 August 2021

CATCHWORDS:

MOTOR ACCIDENTS-  Merit Review; dispute about the amount of weekly payments of statutory benefits that are payable under Division 3.3 of the Motor Accidents Injuries Act 2017; claimant is a self-employed owner operator of a taxi; PAWE calculated based on the claimant’s gross earnings being their income net of all business expenses but before tax; claimant lodged an internal review application requesting that their gross earnings be their total income without any adjustments made for business expenses; claimant self-represented; meaning of term ‘gross earnings’ discussed; Held- the reviewable decision is varied; insurer to pay the claimant statutory benefits based on PAWE derived from gross earnings.

Determinations made: 

1.      The reviewable decision is:

(a)    varied

2.      The insurer to pay the claimant statutory benefits based on pre-accident weekly earnings derived from gross earnings of $65,353.

3.      This decision takes effect on 22 January 2020.

BACKGROUND

1. There is a dispute between Ferat Aktop (the claimant) and the insurer about the amount of weekly payments of statutory benefits that are payable under Division 3.3 of the MAI Act.

2. The claimant is a self-employed owner operator of a taxi who was involved in a motor vehicle accident (MVA) on 6 September 2019. He lodged an application for statutory benefits in respect of that accident on 5 November 2019.

3. In a liability notice dated 22 January 2020, the insurer accepted liability for their claim and determined their PAWE at $183.88. The pre-accident weekly earnings (PAWE) was calculated based on the claimant’s gross earnings being their income net of all business expenses but before tax.

4. The claimant lodged an internal review application on 25 January 2020 requesting that their gross earnings be their total income without any adjustments made for business expenses.

5. The insurer made an internal review decision on 6 February 2020 affirming their original decision

Teleconferences and submissions

First submissions

1. The insurer accepts that the claimant is an earner and submits that the claimant’s PAWE ought to be calculated in accordance with Schedule 1 clause 4(1) because none of the exceptions set out in clause 4(2) of Schedule 1 of the MAI Act apply to the claimant’s circumstances.

2. Based on common law principles, the phrase “gross earnings” in the context of self-employed persons means the income under the control and at the disposal of the person from exercising their earning capacity after accounting for all business or work related expenses but before tax (ACL v CIC Allianz Insurance Limited [2018] NSWDRS MR 064) (ACL).

3. The claimant is self-represented and did not lodge a submission to support their application. Their application says that as the only owner, operator and driver of a single taxi, their business income and individual income cannot be separated since all their earnings are personal exertion earned to offset the very high expenses of operating the taxi.

The first teleconference

1. A first teleconference was held on 16 February 2021 where:

   (a)    The claimant submitted that:

   (i)The taxi industry is unlike other industries. The claimant is a taxi owner who still has business expenses to meet even though their injuries prevent them from driving. Consequently, their gross earnings should not be net of their business expenses.

   (ii)The claimant’s total income, before adjustments for business expenditures, is $110,000. Consequently, the claimant’s PAWE should be $2,115.39 ($110,000 ÷ 52).

   (iii)It is not reasonable for the claimant to just rent his taxi out. The bulk of the income for doing so would go to the taxi driver, with the claimant getting between 5% and 10% of the revenue.

   (b)    The insurer submitted that:

   (i)The crux of their argument is that the phrase “gross earnings” in the context of a self-employed person means the income under the control and at the disposal of the person from exercising their earning capacity after accounting for all business or work-related expenses but before tax.

   (ii)ACL is a case where a claimant taxi driver was in similar circumstances to the claimant in this matter. The Merit Reviewer in that matter found that gross earnings were net of business expenses but before tax.

2. It was noted during the discussions that several merit review matters other that ACL had not interpreted gross earnings as income less all business or work-related expenses but before tax.

Second teleconference

1. A second teleconference was held with the parties on 3 June 2021 where the parties were invited to submit on the following:

   (a)    The relevance of Husher v Husher (1999) 197 CLR 138 [17]-[18] (Husher) and North Sydney Leagues Club v Synergy Protection Agency Pty Ltd (formerly Joseph Merhi Industries Pty Ltd) t/a Synergy Protection Agency [2011] NSWSC 286.

   (b)    Whether ACL stands for a general proposition that a self-employed claimant’s earnings should be adjusted for all their business expenses, given that there were several other Merit Review decisions (AOL v QBE Insurance [2020] NSWSIRADRS 179, ABZ v QBE Insurance (Australia) Ltd [2018] NSWDRS MR 052, Merit Review MA01/18) where the gross earnings of self-employed claimants had been determined differently.

Second submission

The insurer

1. The term “gross earnings” is not defined in the MAI Act. Husher establishes the common law principle that loss of earnings is assessed by considering the loss of what (if there had been no accident) the injured plaintiff would (as opposed to could) have expected to have had under his or her control and at his or her disposal by exercising that capacity. Thus gross earnings in the context of "self-employed" claimants is income under the control and at the disposal of the person from exercising their personal exertion after accounting for all business or work-related expenses but before taxation.

2. In Allianz Australia Insurance Ltd v Jenkins [2020] NSWSC 412 (Allianz), Adamson J found that the weekly payments made in the first and second entitlement periods are taxable. It follows that the claimant's pre-accident taxable income may be reflective of the claimant's pre-accident weekly earnings for the purposes of the MAI Act.

3. The claimant's “income from personal exertion” is self-employed income less any business and work-related expenses.

4. The business expenses shown on the claimant's tax returns are presumed to be a correct representation of the claimant's business expenses.

5. PAWE requires a prospective (as opposed to retrospective) inquiry of the claimant's earnings.

6. Previous Merit Review decisions are not binding, but the decisions of ACL, ACT v AA1 Ltd tas GIO (Merit Review) [2018] NSWSIRADRS 72 (19 December 2018), AEC v NRMA Insurance Ltd (Merit Review) [2019] NSWSIRADRS 106(21 March 2019) , and APK v NRMA (Merit Review) [2020] NSWSIRADRS206 (15 September 2020) are relevant because they all involve self-employed taxi drivers where the Merit Reviewers found gross earnings to be income adjusted for all business expenses but before tax.

7. To include variable expenses in the claimant's income from personal exertion would put the claimant in a better position than he had been in prior to the accident. This is because the claimant was not receiving the amount paid for expenses prior to the accident and would now be.

8. The claimant, being the owner and operator of a licensed taxi in NSW, continues to have the benefit of selling the taxi business or leasing the taxi license/plate despite being involved in the MVA. The claimant would remain able to sell or lease the taxi plate and profit from the taxi plate despite any injuries sustained.

9. Proposed governmental changes to taxi licenses are not relevant to the assessment of the claimant's PAWE.

The claimant

1. In response to the insurer’s second submission, an email from the claimant dated 2 July 2021 notes that their physical capacity to work is the only determinant in coming up with the revenue shown on their business tax return. The insurer seems to want to use the exact same model that applies to every other business. In most businesses, the owner stepping out due to injury, makes very little difference to the operation of the business. No other industry has had this level of regulative change since the CTP reforms of 2017. The point to point reforms have pretty much destroyed the taxi industry. The dispute is their PAWE, not alternative arrangements.

Reasons

1. It is undisputed that:

   (a) The claimant meets the definition of an earner under clause 2 of Schedule 1 of the MAI Act.

   (b) The claimant is entitled to weekly payment of statutory benefits under Division 3.3 of the MAI Act.

   (c)    The dispute is limited the inclusion of cost adjustments to the claimant's gross earnings.

   (d) The claimant is self-employed for the purposes of the MAI Act.

2. The claimant’s PAWE ought to be calculated in accordance with Schedule 1, clause 4(1).

3. Sections 3.6 and 3.7 of the MAI Act (the first and second entitlement periods) prescribe that an earner who is injured as a result of an accident and suffers a total or partial loss of earnings is entitled to weekly payments of statutory benefits at a prescribed rate of the difference between the person's pre-accident weekly earnings (PAWE) and the person's post-accident earning capacity (if any).

4. Section 3.8 of the Act provides for weekly payments after the second entitlement period to be a percentage of the claimant’s earning capacity, depending on whether the claimant has suffered a partial or total loss of capacity.

Gross earnings

1. The term "gross earnings" is not specifically defined in the MAI Act. According to the Macquarie dictionary:

   (a)    The ordinary meaning of “Earning” is money earned, wages, profits (emphasis).

   (b)    “Profit” means pecuniary gain resulting from the employment of capital in any transaction: a. gross profit, gross receipts less the immediate cost of production. b.net profit, amount remaining after deducting all costs from gross receipts (emphasis).

2. If earning equates to profit, then the term “gross earnings” has the same ordinary meaning as gross profits. That is, gross earnings are gross receipts (or income) adjusted for the immediate cost of production.

Cost adjustments

1. According to Investopedia[1]:

   (a)    Gross profit is the profit a company makes after deducting the costs associated with making and selling its products, or the costs associated with providing its services. Gross profit…can be calculated by subtracting the cost of goods sold (COGS) from revenue (sales).

   (b)    The metric mostly considers variable costs.

   (c)    As generally defined, gross profit does not include fixed costs (that is, costs that must be paid regardless of the level of output). Fixed costs include rent, advertising, insurance, salaries for employees not directly involved in the production and office supplies.

   [1] >

   According to Adam Hoeksema[2], COGS is only used for product-based businesses, and doesn’t make sense when it comes to a service business. Rather than using the term cost of goods sold, a similar term — “Cost of Revenue” is more appropriate for a service business. The expenses incurred whether or not the service delivered is not to be included in the cost of revenue. That is, the cost or revenue excludes fixed costs.

   [2] >

   I find that:

   (a)    the ordinary meaning of gross earnings is income adjusted for the cost of revenue, and

   (b)    the cost of revenue includes variables costs but not fixed costs.

2. The ordinary meaning of a statutory provision is to be applied to give effect to the purpose of a legislation unless it does not promote the underlying purpose or object of the Act (Saraswati v The Queen [1991] HCA 21; (1991) 172 CLR 1); McHugh J at [21]-[22]).

3. The purpose of the statutory benefits provisions of the MAI Act is to provide compensation for economic loss (Allianz Australia Ltd v Jenkins [2020] NSWCD 412; Adamson J at [31]).

4. I find that the ordinary meaning of gross earnings is to be applied to the claimant because it gives effect to the purpose of compensating them for their economic loss. To interpret the expression as either of the parties have submitted do not do so because:

   (a)    The claimant would receive less than their economic loss if their income included adjustments for their fixed costs as the insurer submits. This is because the claimant would still be required to meet those fixed costs out of the statutory benefits that they receive from the insurer.

   (b)    The claimant would receive more than their economic loss if, as the claimant submits, no adjustments were made to their income. In this regard, I accept the insurer’s submission that not to adjust the claimant’s income for their variable expenses would leave the claimant in a better position than they would have been but for the accident. The statutory benefits that the claimant receives from the insurer would include an amount for variable costs that they would not have to meet.

5. I find that the ordinary meaning of gross earnings is applicable in this matter because it results in the statutory benefits paid to the claimant compensating them for their economic loss.

6. The insurer presumes that the claimant’s 2018/19 tax return, as reflected in the claimant’s profit and loss statement for the same period, is a correct representation of their business expenses. That profit and loss statement show total income of $110,399 and total expenses of $100,335. The breakdown of those expenses, their descriptions, and whether they are variable of fixed, are as follows:

Claimant Cost Reference	Cost Item	Cost Description	Variable/Fix Status	Amount
290	Radio Fees	Payment made to the network to access account bookings, phone bookings, online bookings and application bookings.	Fixed	$3,858
291	Invoice Fee	Payment made to the accountant for preparing an individual tax return.	Fixed	$42
292	Radio License Fee	Administration fee to access the network's support for operators.	Fixed	$35
293	RCD Inspection	Inspection payment to the network to ensure radio, camera and alarm are operational for the taxi.	Fixed	$219
294	VAP Marketing Levy	Payment to the network as a result of the vehicle age and condition.	Fixed	$300
295	Camera Rental	Rental payment for the installed camera system located inside and outside the vehicle.	Fixed	$294
296	Network Fee	Payment made to the network to use network branding, support, facilities and utilities.	Fixed	$4,290
297	NSW Gov Levy	Payment made to the NSW Government depending on the quantity of bookings completed.	Variable	$5,920
300	Accounting Fees	Payment made to the accountant for preparing a business tax return	Fixed	$455
309	Bank Charges	Payment made to the bank for administering bank account.	Fixed	$751
315	Computer Expenses	Expenses relating to electronic devices used in the home office	Fixed	$495
320	Consultancy Fees	Charges for consulting with a business advisor.	Fixed	$128
330	Depreciation	Depreciation expense of the motor vehicle and equipment used as part of the taxi business.	Fixed	$7,387
380	Home Office Expenses	Stationary, paper and minor item expenses used in the home office.	Fixed	$600
383	Interest Paid	Interest charges on the taxi licence loan.	Fixed	$3,913
390	Licence & Permits	Driver licence and driver accreditation renewal.	Fixed	$318
40001	Petrol & Oil	Fuel expenses for the motor vehicle.	Variable	$14,446
40002	Registration & Insurance	CTP insurance, registration and comprehensive insurance for the motor vehicle.	Fixed	$18,502
40003	Repairs & Maintenance	Servicing and repairs done on the motor vehicle	Variable	$10,665
40005	HP Charges	Interest charges on the motor vehicle loan.	Fixed	$495
414	Postage, Printing & Stationery	Stationary, paper and minor item expenses used in the motor vehicle.	Fixed	$66
416	Uniform	Expenses relating to attire required to drive for the network	Fixed	$1,843
427	Rent and Outgoing	The rent of the home office used for the taxi business	Fixed	$10,400
445	Staff Amenities	The power and water charges for the home office	variable	$5
448	Staff Training and Welfare	Fees for the training provided by the network	Fixed	$220
455	Sundry Expenses	Charges by the accountant for preparing paperwork not related to the individual and business tax returns.	Fixed	$467
460	Telephone & Internet	Expenses relating to the home office internet, home office phone line, work mobile internet and work mobile calls/texts.	Fixed	$202
461	Toll & Parking	Charges for tolls and parking borne by the taxi driver.	Variable	$14,020
TOTAL				$100,335

1. The breakup of variable and fix costs are:

Cost Status	Amount ($)
Fixed	$55,279
Variable	$45,056
Total	$100,335

1. Since,

   Gross Earnings = Income – Variable Cost

I find that the claimant’s gross earnings = ($110,399 –$45,056) = $65,353.

Other matters

1. Regarding the insurer’s submissions:

   (a)    Merit Review decisions are not binding precedents. That said, I shall comment on the Merit Review matter decision of ACL, given the heavy reliance that the insurer has place on it. The Merit Reviewer in ACL may have found the gross earnings of a taxi driver to be income adjusted for all business expenses, but I do not accept it as a proposition generally applicable to self-employed claimants. Other Merit Review matters involving self-employed claimants have found differently. For example, in AOL the Merit Reviewer found that in determining a self-employed claimant’s gross earnings, the insurer had erroneously relied on a net profit figure (before tax) rather than gross profit. The claimant in AOL may have been engaged in the trade of goods rather than delivering a taxi service, but the MAI Act does not prescribe different approaches for determining gross earnings depending on the type of self-employment.
   
   

   (b)    I do not find that Husher is applicable to this matter. In that case, Gleeson CJ Gummow, Kirby and Hayne considered the impairment or loss of earning capacity and what financial loss was occasioned by that impairment or loss. It is gross earnings, not earning capacity, that is the relevant consideration for determining PAWE in the first and second entitlement periods.
   
   

   (c) According to clause 3 Schedule 1 of the MAI Act, "Loss of earnings" means a loss incurred or likely to be incurred in a person's income from personal exertion. Loss of earnings goes towards determining a claimant’s eligibility for statutory benefits in the first and second entitlement periods. It is not a relevant consideration for determining gross earnings.
   
   

   (d)    “Taxable income” under section 4.15 of the Income Tax Assessment Act 1997 (Cth) means assessable income less allowable deductions. I cannot find any reference to that expression in Allianz. In that case Adamson J referred to an ATO advice that statutory benefits for the first and second entitlement periods are taxable. In my view the ATO was referring to statutory benefits in the first and second entitlement periods falling within the ambit of the Australian income tax regime, and not that such statutory benefits constituted taxable income.
   
   

   (e) Clause 4(1) of Schedule 1 requires a claimant’s PAWE to be based on their gross earnings received during the 12 months immediately before the day on which the MVA occurred. In my view this requires a retrospective view of the claimant’s circumstances starting from the day of the MVA, not a prospective view as the insurer submits. The claimant’s potential to generate income by leasing their taxi, or proposed changes to the taxi industry are not relevant considerations for determining gross earnings because they are events prospective to the MVA.

Conclusion

1. The reviewable decision is:

   (a)    Varied.

2. The insurer to pay the claimant statutory benefits based on PAWE derived from gross earnings of $65,353.

3. This decision takes effect on 22 January 2020.

Legislation and Guidelines

1. In making this decision, I have considered the following:

   ·        The Application, Reply and supporting documentation

   ·        Motor Accident Injuries Act 2017 (NSW) (the MAI Act).

·        Motor Accident Guidelines.

·        Motor Accident Injuries Regulation 2017 (NSW) (the Regulation).

·        Income Tax Assessment Act 1997 (Cth).

Kriesen Seeneevassen

Merit Reviewer

Personal Injury Commission