Giuseppa Maugeri v QBE Insurance (Australia) Limited
[2024] NSWPICMR 21
•26 July 2024
| CERTIFICATE OF DETERMINATION OF MERIT REVIEWER | |
CITATION: | Giuseppa Maugeri v QBE Insurance (Australia) Limited [2024] NSWPICMR 21 |
CLAIMANT: | Giuseppa Maugeri |
INSURER: | QBE |
MERIT REVIEWER: | Katherine Ruschen |
DATE OF DECISION: | 26 July 2024 |
CATCHWORDS: | MOTOR ACCIDENTS - Motor Accident Injuries Act 2017 (MAI Act); claim for statutory benefits; dispute about calculation of pre-accident weekly earnings; whether claimant was earning continuously due to impact of COVID-19 on earnings, such that clause 4(2)(a), not clause 4(1), in Schedule 1 of the MAI Act applies; whether prospect of future increase in earnings is a significant change in earning circumstances; appropriate method of calculating business expenses where actual expenses not known; Allianz Insurance Australia Limited v Shahmiri applied; Held – the reviewable decision is set aside. |
DETERMINATIONS MADE: | CERTIFICATE Issued under s 7.13(4) of the Motor Accident Injuries Act2017 DETERMINATION The reviewable decision is about the amount of weekly payments of statutory benefits that are payable under Division 3.3 of the Motor Accident Injuries Act 2017 (the MAI Act) and is therefore a merit review matter under Schedule 2(1)(a) of the MAI Act. 1. The reviewable decision is set aside. 2. The claimant’s pre-accident weekly earnings (PAWE) amount is $378.77. |
STATEMENT OF REASONS
INTRODUCTION
There is a dispute between Giuseppa Maugeri (the claimant) and the insurer about the amount of weekly payments of statutory benefits payable under Division 3.3 of the Motor Accident Injuries Act 2017 (the MAI Act).
The claimant was involved in a motor accident on 26 October 2022.
On or about 23 November 2022 the claimant made an application for personal injury benefits.
On 16 February 2023 the insurer determined the claimant’s pre-accident weekly earnings (PAWE) amount is $236.07.
On 4 May 2023 the claimant requested an internal review of the insurer’s PAWE decision.
On 17 May 2023 the insurer issued their internal review decision in which they affirmed their PAWE decision.
On 7 March 2024 the claimant provided further information to the insurer and requested a further internal review.
On 29 April 2024 the insurer issued their further internal review decision in which they affirmed the claimant’s PAWE amount of $236.07.
On 1 May 2024 the claimant requested a merit review of the insurer’s internal review decision dated 29 April 2024 (the Application).
SUBMISSIONS
A preliminary conference was conducted with the parties followed by interim directions for the provision of further submissions and any further documents. Both parties provided further submissions and documents following the preliminary conference. The claimant’s further submissions do not address grounds one and two below, which are set out in the claimant’s original submissions. However, as these grounds are not expressly withdrawn in the claimant’s further submissions it is assumed they remain in issue and will therefore be addressed in this decision.
The claimant contends the reviewable decision is incorrect on three grounds.
Ground one: the claimant was not employed continuously (cl 4(2)(a))
The claimant submits the insurer failed to consider the nature of the claimant’s work and the reality of the circumstances in connection with the COVID-19 pandemic restrictions and lockdowns. The claimant is a mobile massage therapist who attended corporate offices to provide massage services for staff. The claimant submits that despite easing of restrictions and business as usual after the COVID-19 pandemic, a large number of businesses continued to have employees working from home, which impacted the claimant’s business.
The claimant submits that given the nature of her work, the effects of the pandemic were felt long after restrictions had eased or ceased and, on this basis, she was not employed continuously until on or about 1 May 2022.
On this basis, the claimant submits her PAWE should be calculated over the period
1 May 2022 to 25 October 2022 pursuant to Schedule 1, cl 4(2)(a) of the MAI Act. The claimant submits her PAWE amount under cl 4(2)(a) is $709.52, as set out in the forensic accounting report of Mr Katehos.
Ground two: there was a significant change in earning circumstances (cl 4(2)(b))
In the alternative, the claimant submits there was a significant change in her earning circumstances on or about 1 May 2022 that would have, but for the accident, resulted in her earning a higher income. The significant change is said to be that the claimant’s business started to “pick up in the few months before” the accident when work became available from a number of sources.
On this basis, the claimant submits in the alternative her PAWE amount is $709.52 under cl 4(2)(b).
Ground three: uncertainty in the Procare Report relied on by the insurer
The claimant submits it is unclear how the Procare report calculates gross earnings and submits business expenses should be reduced “to match the period of weeks in which the claimant was in continuous employment”. The claimant submits business expenses calculated by Mr Katehos should be preferred over the Procare report. In her further submissions the claimant submits her own calculation as to business income should be preferred over both Procare and Mr Katehos.
The claimant submits if her PAWE falls under Schedule 1, cl 4(1) the amount is $487.46 based on her calculation of income in the 12 months before the accident less business expenses in that period, as calculated by Mr Katehos.
Alternatively, the claimant submits if her PAWE falls under cl 4(1) but Mr Katehos’ calculation of both business income and expenses is accepted, her PAWE amount is $354.38.
The insurer’s submissions
In relation to ground one above, the insurer submits the applicant’s own financial records provide verifiable evidence that she meets the definition of continuous earnings for 12-months prior to the accident and therefore PAWE must be calculated over the 12 month pre-accident period from 26 October 2021 to 25 October 2022 pursuant to Schedule 1, cl 4(1) of the MAI Act.
The insurer submits that whether the applicant’s business experienced a downturn in income due to lockdowns in response to the COVID-19 pandemic is irrelevant to calculation of the claimant’s PAWE for the 12-month period prior to the accident. The insurer relies on the Supreme Court decision of Allianz Insurance Australia Limited v Shahmiri [2022] NSWSC 481 (Shahmiri), in which it was determined that although the applicant experienced a downturn in work as a result of COVID-19; that did not impact upon calculation of PAWE.
In relation to ground two, the insurer relies on the decision in Jiang v AAI Limited t/as GIO [2023] NSWPICMR 59 and submits that to satisfy cl 4(3), the significant change in earning circumstances must have already occurred before the accident. The insurer submits cl 4(3) does not contemplate potential future changes to earning circumstances that might occur after the accident, even if such circumstances were contemplated before the accident.
The insurer submits the evidence does not establish there was a significant change in earning circumstances before the accident that resulted in the claimant earning, or becoming entitled to earn more on a weekly basis than she was earning before the change occurred, Therefore, cl 4(3) is not triggered such that cl 4(2)(b) does not apply.
As to ground three, the insurer submits the MAI Act does not allow for the discounting or averaging of business expenses so as to create an ideal picture of the claimant’s earnings. Instead, the calculation of income must be true to the income and expenses generated in the 12-month period, as stipulated by cl 4(1).
The insurer submits it is unclear how the claimant arrives at her personal calculation of business income in circumstances where she relies in part on deposits into her personal bank account despite having a business bank account. The insurer identifies a handful of deposits that do not reference an invoice number and points out that the claimant has included some income that was not received by the business until after the accident. The insurer otherwise appears to accept the balance of the claimant’s calculation as likely being income of the business received in the 12 month pre-accident period. Nonetheless, the insurer submits Procare’s calculation of business income and expenses should be preferred over the claimants or that of Mr Katehos.
REASONS
Legislation
The dispute is about the claimant’s PAWE amount under Schedule 1, cl 4 of the MAI Act, which provides:
“4 MEANING OF ‘PRE-ACCIDENT WEEKLY EARNINGS’--GENERAL
(1) ‘Pre-accident weekly earnings’, in relation to an earner who is injured as a result of a motor accident, means the weekly average of the gross earnings received by the earner as an earner during the 12 months immediately before the day on which the motor accident occurred, unless subclause (2) applies.
(2) In the following cases,’pre-accident weekly earnings’ , in relation to an earner who is injured as a result of a motor accident, means--
(a) if, on the day of the motor accident, the earner was earning continuously, but had not been earning continuously for at least 12 months--the weekly average of the gross earnings received by the earner as an earner during the period from when the earner started to earn continuously to immediately before the day of the motor accident,
(a1) if the earner was employed or self-employed during a period or periods equal to at least 26 weeks during the first year of the pre-accident period, but was not obtaining earnings from any source at any other time during the pre-accident period--the average weekly gross earnings received by the earner as an earner during the first year of the pre-accident period,
(b) if subclause (3) applies--the weekly average of the gross earnings the earner received as an earner, or could reasonably have been expected to receive, during the 12 months after the change of circumstance referred to in the subclause occurred,
(c) if the earner is an earner by reason of having entered into an arrangement with an employer or other person to undertake employment or to commence business as a self-employed person--the average weekly gross earnings that the earner could reasonably have been expected to earn, but for the injury, in employment under that arrangement.
(2A) The ‘pre-accident period’ , in relation to a motor accident, is the period of 2 years immediately preceding the motor accident.
(3) This subclause applies if, during the 12 months immediately before the day of the motor accident, there was, as a result of any action taken by the earner, a significant change in his or her earnings circumstances that resulted in the earner regularly earning, or becoming entitled to earn, more on a weekly basis than he or she was earning before the change occurred.
Note : Examples of a change of circumstances to which this subclause would apply include a change of job, a promotion, a move from part-time to full-time employment, or a pay increase arising from the achievement of performance standards.
(4) For the purposes of this clause, an earner earns continuously if he or she obtains earnings from permanent employment or from a source that, on the day of the motor accident, was likely to continue for a period of at least 6 months to provide earnings to the earner on the same, or a similar, basis to the basis on which the earnings were being provided as at that day.”
At the time of the accident the claimant was self-employed, working as a mobile massage therapist. The claimant’s PAWE falls under Schedule 1, cl 4(1), unless one of the exceptions in cl 4(2) applies. The claimant contends either the exception under cl 4(2)(a) or cl 4(2)(b) applies to her pre-accident earning circumstances.
Clause 4(2)(a)
For cl 4(2)(a) to apply the claimant must establish:
(a) on the day of the accident, she was earning continuously; but
(b) she had not been earning continuously for at least 12 months before the day of the accident.
There is no dispute that the claimant satisfies the first limb of cl 4(2)(a) that is, on the day of the accident she was earning continuously, as defined in cl 4(4).
The second limb of cl 4(2)(a) requires an examination of the claimant’s earning circumstances over the 12 months before the accident that is, from 26 October 2021 to 25 October 2022 so as to determine whether, at any time during this period, the claimant was not earning continuously.
The claimant has not identified any specific period during the period 26 October 2021 to 25 October 2022 that she was not earning continuously. The claimant simply states she did not begin to earn continuously until on or about 1 May 2022. Based on this submission, I assume the claimant accepts that she was earning continuously for the purpose of the MAI Act from1 May 2022 until at least the day of the motor accident. As to the period before this, from 26 October 2021 to 30 April 2022, the claimant’s contention she was not earning continuously appears to be based on a contention that in this period, her business was impacted by the COVID-19 pandemic. The claimant states, as a result, she was not in “continuous employment” in this period even though she has not identified any specific period of unemployment. The documents also do not evidence any period of unemployment.
Clause 4(4) of Schedule 1 says that an injured person meets the definition of “earns continuously” if the injured person:
(a) obtains earnings from permanent employment, or
(b) obtains earnings from a source that, on the day of the motor accident, was likely to continue for a period of at least 6 months to provide earnings on the same or similar basis to what was being earned on the day of the accident.
At the time of the accident the claimant was in self-employment and obtaining earnings from that self-employment, being the source of her earnings. The claimant meets the definition in cl 4(4) as a person who was earning continuously at the time of the accident.
As cl 4(4) defines what an earner who earns continuously means. The focus in cl 4(4) is clearly on the “source” of earnings and whether that source was continuous. Clause 4(4) is not concerned with the frequency or amount of earnings that is, cl 4(4) is not concerned with matters such as whether earnings were received, for example, each and every week in the 12 months before the accident or whether the earnings amount was consistent each week. Clause 4(4) only requires that the claimant had a continuous “source” of earnings for her to be considered to have been earning continuously.
The claimant’s “source” of earnings was her business. There is no evidence that the business closed down at any time before the accident and then reopened on or about
1 May 2022. There is no evidence that the business was not a continuous source of earnings for at least 12 months before the accident.The claimant has provided two tables summarising business income in the 12 months before the accident, received into two bank accounts which include identification of the date(s) on which payments were received. These tables are informative regarding whether the claimant had a continuous source of earnings before 1 May 2022. The tables demonstrate the claimant’s business remained an ongoing concern throughout the 12 months before the accident and was therefore a continuous source of earnings for the claimant both before and after 1 May 2022.
In each month of the 12 months before the accident the claimant received regular earnings through her business. For example, in April 2022 (when the claimant says she was not earning continuously) the business received 14 payments of income. It is irrelevant that the amount of income fluctuated from month to month, which is to be expected of most small businesses. Regardless of any fluctuation in earnings the bank statements show the business was a continuous source of earnings in April 2022 and in the balance of the 12 month period before the accident.
I am therefore not satisfied that at any time in the 12 months before the accident the claimant was not “earning continuously” within the meaning of cl 4(4). The claimant may not have received earnings, or consistent earnings in each and every week of that 12 month period. However, in the circumstances of having an ongoing business, I agree with the decision of Merit Reviewer Cassidy in Wei v Allianz Australia Insurance Limited [2024] NSWPICMR 12 (Wei) at [65] that:
“…there is a definition of ‘earns continuously’ in cl 4(4) which is not, in my view, dependent on the receipt of pay or income. The claimant was earning continuously for the purposes of the PAWE calculation even though he was not being paid continuously in that period.”
In so far as the claimant’s submission appears to be a more general submission that PAWE should be adjusted by being calculated from the later date of 1 May 2022 rather than over the whole of the 12 months before the accident because of the impact of COVID-19 prior to 1 May 2022 it is useful to consider the claimant’s pattern of earnings in the six years before the accident.
The claimant’s tax returns from 2017 to 2022 show the claimant generated income through employment, self-employment, investments and jobseeker payments. Income from investments and jobseeker payments are not earnings received as an earner from employment or self-employment and are therefore excluded from earnings received as an earner for the purpose of PAWE.[1] I have therefore excluded investment income and jobseeker payments in the table below. Where there is a variation between the earnings figure below and the taxable income in the relevant notice of assessment it is accounted for by investment income (sometimes a loss) and/or jobseeker payments included in the notice of assessment figure but excluded from the table below.
[1] This is accepted by the claimant in her submissions/further submissions.
The claimant’s tax returns show gross earnings from employment or self-employment as follows:
Year
Employment earnings
Self-employment earnings[2]
Total earnings
Weekly average over 52 weeks
2017
$395
$16,136
$16,531
$317.90
2018
$190
$8,707
$8,897
$171.09
2019
$3,589
$8,656
$12,240
$235.38
2020
Nil
$4,661
$4,661
$89.63
2021
Nil
$11,713
$11,713
$225.25
2022
Nil
$7,893
$7,893
$153.51
[2] Gross profit less business expenses
It is clear from the above that including in the years before the COVID-19 pandemic, the claimant’s earnings fluctuated as is expected from self-employment. In 2018 and 2019, for example, before the pandemic, the claimant’s earnings averaged $171 per week and $235 per week respectively.
The first NSW Government direction to stay home (lockdown) occurred on
31 March 2020. Even accepting the claimant’s business was significantly impacted by this by accepting all of the 2020 financial year income was earned from 1 July 2019 to 30 March 2020 (that is, before the 31 March 2020 lockdown) the claimant’s weekly average income over this 39 week period would be $119.51.As set out by Merit Reviewer Cassidy in Wei at [50 to 55] in relation to Shahmiri:
“50. In the case of Allianz Insurance Australia Limited v Shahmiri Associate Justice Harrison determined a matter concerning a gentleman who was injured in an accident on 24 October 2020. He had worked from 23 October 2019 to 10 May 2020 (a period of 29 weeks) but had been unemployed in the 23 weeks after 10 May 2020 until the time of his accident (due to the pandemic).
51. The insurer had calculated the amount of Mr Shahmiri’s earnings received in the 12 months before the accident and then averaged that sum over the 52-week period before the accident to determine his PAWE at $462.73. The claimant in that case said the insurer should have averaged the total earnings over the 29 week period when he was working and not the 52 week period which would have resulted in a PAWE of $829.72.
52. Associate Justice Harrison said (emphasis added):
[61] The wording of cl 2, in my opinion, makes it plain that once it is established that a claimant fits within the definition of an earner, they are to be considered an earner at all material times during the pre-accident period, even if they are not earning for the entirety of that period.
53. As Mr Wei has correctly identified, Shahmiri was a case concerning the interpretation of cl 4(1) and not cl 4(2)(a). If cl 4(1) is applied in the current proceedings, Mr Wei remained as an “earner” for the whole of the 12 month period (for the purposes of the calculation of his PAWE) even though he was not actually earning any income (that could be included in the calculation) for some part of it.
54. Associated Justice Harrison also said in Shahmiri (emphasis added):
[67] For completeness’ sake, regard should also be had to the other subclauses in sch 1 cl 4 of the MAIA. None of the subclauses 4(2)(a)-(c) suggest there should be an adjustment made to the period specified within those clauses to accommodate periods where the claimant was not earning.
55. Her observations concerning the interpretation of cl 4(2)(a) may not be binding upon me, are a considered judicial opinion that I should consider.”
Applying the above analysis of Shahmiri, with which I agree I conclude that despite any continuing impacts of the COVID-19 pandemic on the claimant’s business in the period 26 October 2021 to 25 October 2022, the claimant was earning continuously for at least 12 months before the accident. On this basis, cl 4(2)(a) does not apply.
Clause 4(2)(b) and 4(3)
The claimant says her business began to pick up on or about 1 May 2022 and that this amounts to a significant change in earning circumstances under cl 4(3), triggering cl 4(2)(b).
The claimant relies on a letter from one of her business client’s, Absolute Corporate dated 6 December 2022 in which Absolute Corporate states in the 2020 financial year they made gross payments to the claimant’s business of $9,470. The letter then states that in the financial year ending 2023 the claimant “could earn $9,740 to $15,000”.
Firstly, the Absolute Corporate statement is speculation only, and not evidence that a “significant change” had occurred before the motor accident that is, before
26 October 2022, as a result of which the claimant began to “regularly earning, or become entitled to earn, more” than she was earning before the change occurred.Further , the range of earnings speculated by Absolute Corporate for the 2023 financial year, at one end, is the same as the amount they say the claimant received from them in the 2020 financial year. Accordingly, at best, the letter simply indicates that the claimant could have expected, but for the accident, to generate income through Absolute Corporate in an amount similar to the amount she received in 2020 with a possibility that it may have been more. Accordingly, there is no change to earning circumstances for the purpose of cl 4(3) and in turn, cl 4(2)(b) in connection with any business arrangement with Absolute Corporate.
The claimant also relies on a letter from another client, Corporate Bodies dated
1 December 2022. Corporate Bodies states the claimant had been providing services to them since March 2021 and that “in the months before the accident” the claimant was paid on average for 12 hours per week at $50 per hour (that is, $600 per week). Corporate Bodies then states that as they were “getting increasingly busier in the lead up to Christmas [the claimant] also had the potential of earning a great deal more through [Corporate Bodies] through other bookings”.There are three difficulties with the Corporate Bodies’ letter in so far as the claimant relies on it as evidence of a significant change in earning circumstances for the purpose of cl 4(3) and cl 4(2)(b). Firstly, like the Absolute Corporate letter, it is in speculative terms, referring only to a “potential” to earn. The speculative nature of the statement by Corporate Bodies falls short of the requirement in cl 4(3) that there must have been a significant change that resulted in the claimant “regularly earning, or becoming entitled to earn, more on a weekly basis than he or she was earning before the change occurred”.
In so far as the Absolute Corporate letter (and the Corporate Bodies letter) might be arguably read as concerning a change that occurred before 26 October 2024 regarding future earnings, cl 4(3) requires that the change results in the claimant becoming “entitled” to earn more. Having an entitlement is having a right to something in this case, a right to receive a certain amount of work or payments from Absolute Corporate or Corporate Bodies. However, both letters are speculative in nature about only the potential to earn, or possible availability of work. Having the potential to earn or availability of work is not an entitlement to receive any minimum amount of work or payments. There is no evidence of a contract, for example, with Absolute Corporate or Corporate Bodies agreed before the accident, pursuant to which the claimant was guaranteed a certain amount of work creating an “entitlement” (that is, a right) to earn more than she was earning before such agreement.
Secondly, the increased earning potential is said by Corporate Bodies to be tied to the lead up to Christmas, indicating it is only a transient potential to earn more, over the months leading up to Christmas on the basis this is a busier period. It is not unusual for a business to experience busier periods each year, often tied to holiday periods, or the lead up to holiday periods, depending on the nature of the business. Clause 4(3) requires that the increase in earnings as a result of a significant change amounts to the claimant “regularly” earning more or being entitled to earn more. Even if I were to accept the Corporate Bodies letter as evidence of an entitlement to earn more rather than speculation, I do not think an entitlement to earn more over a busy, transient period in the weeks leading up to Christmas satisfies the requirement of cl 4(3) that the claimant became entitled to “regularly” earn more.
The Corporate Bodies letter is dated 1 December 2022 and states “… we have been getting increasingly busier in the lead up to Christmas”. This indicates there is a brief, busy period in the first few weeks of December before, presumably, a quieter period over the Christmas and New Year holiday period meaning that the potential increase in earnings would likely be short lived, for the duration of the busy period leading up to Christmas only.
Lastly, the Corporate Bodies letter (like the Absolute Corporate letter) does not evidence that a significant change had in fact occurred before the accident. Clause 4(3) requires that the significant change must have occurred before the accident. The Corporate Bodies’ letter post dates the date of the accident. It does not identify any event as having occurred before 26 October 2022 that might amount to a “significant change in earning circumstances”, for example, execution of a contract setting out an agreement to provide additional work to the claimant. Instead, the letter is in prospective terms that is, after the accident, on 1 December 2022 Corporate Bodies observed that they were getting busier in the lead up to Christmas, as a result of which the claimant may have been able to earn more in this period. Even if additional work was likely to come about, this does not satisfy the requirement of cl 4(3) that there was a significant change before the accident giving rise to an “entitlement” (that is, a right) to earn more. Clause 4(3) does not accommodate potential, possible, or even likely or probable changes to earning circumstances, however likely there were to come about but for the accident. There must be an actual “entitlement” to earn more.
Of note, cl 4(3) lists examples of what may be considered a significant change in earning circumstances. The examples such as a promotion, a change of job or a move from part-time to full-time employment are all specific, tangible events. In this case, however, there is no evidence that a specific event had occurred before the accident that resulted in the claimant regularly earning or becoming entitled to earn more than she had been earning before the specific event occurred. Accordingly, cl 4(3) is not triggered and in turn cl 4(2)(b) does not apply to the claimant’s PAWE.
What is the claimant’s PAWE under cl 4(1)
As neither of the exceptions to cl 4(1) in cl 4(2)(a) and cl 4(2)(b) apply the claimant’s PAWE; falls under cl 4(1).
I have considered the parties’ positions regarding calculation of gross profit of the claimant’s business. I am satisfied that the deposits into two bank accounts identified by the claimant in two tables represent business income.
The insurer queries the claimant’s calculation of business income because some of it is said to have been received into a “personal” bank account rather than the business bank account. However, it is clear from many of the deposits into the personal account that reference an invoice number and/or identify the payer as an obvious client such as Corporate Bodies that from time to time the claimant received business income into her personal account, in addition to the business account. This is also adequately explained in the claimant’s statement.
The insurer identifies a handful of deposits (nine deposits totalling $640) that do not reference an invoice number. However, having considered the claimant’s statement including the use of two bank accounts, examined the pattern of these payments (including the amounts in the context of similar payments from other payers who reference an invoice number) I am satisfied on balance these amounts are likely income of the business. Of note, most of the payers regarding these payments isolated by the insurer are recorded elsewhere in the statement with an invoice number indicating the payers are likely clients of the claimant’s business.
The insurer contends it is unclear how the claimant arrived at a different calculation of gross profit to that of Mr Katehos. However, I consider the method of calculation used by the claimant can be clearly understood as being a calculation of actual payments received into her bank accounts rather than a calculation based on invoices issued. However, I agree it is unclear how Mr Katehos arrived at his calculation. Mr Katehos does not appear to have had the benefit of the claimant’s bank statements. It can probably be assumed he relied only on the Practitioner Revenue Report generated by the Cliniko bookings and account software. Nonetheless, Mr Katehos’ report lacks detail as to his methodology or reasoning process for his conclusions and it is left to the reader to make such assumptions based on the source information listed in section 4 of the report.
Mr Katehos simply states at 5.1 of his report:
“Based on Attachment C, the claimant’s gross business income… for the period 23 November 2021 to 30 October 2022 was $24,591.42… Accordingly, I have assumed the claimant’s gross business income … was $24,591.42.”
There is a difficulty with Mr Katehos reaching an “assumed” conclusion rather than stating his expert opinion, with reasoning. Further, when one turns to Attachment C of the report it provides no insight into how Mr Katehos came up with the calculation set out in Attachment C. It does not state the source of the figures, or the methodology used. Attachment C, in so far as pre-accident earnings is concerned, is nothing more than a bare calculation of figures said to be monthly income without the source of the figures identified.
Given the above, I consider Mr Katehos’ report to be somewhat unreliable. However, assuming Mr Katehos relied on the Practitioner Revenue Report rather than bank statements, I do not think the difference between the claimant’s calculation and that of Mr Katehos should be considered unusual or unexpected in the circumstances. It would not be unusual for there to be some discrepancy where different source documents are used. In any small business there may be a difference because one method relies on payments received and the other on invoices issued. Perhaps
Mr Katehos excluded invoices issued before 26 October 2021, for example, even if payment for those invoices was received after 26 October 2021 noting his approach of including invoices paid on or after 26 October 2022 because the invoices were issued on or before 25 October 2022. There may have also been occasions when the claimant overlooked issuing an invoice, or an accurate invoice record was not kept (which to some extent is explained by the claimant in her statement). Given such variables, some discrepancy is often to be expected with small business record keeping when income is calculated using different source documents.Having regard to the above, together with my conclusion about the reliability of Mr Katehos’ report and that bank records likely show actual income received, I prefer the claimant’s calculation of business income over that of Mr Katehos and Procare (which also does not appear to calculate income based on actual payments received, as evidenced by the bank statements). I therefore conclude the claimant’s calculation likely represents the business income.
The insurer correctly points out that the claimant’s calculation includes payments received by the claimant after the 12 month pre-accident period which ends on
25 October 2022 (the day before the accident). Clause 4(1) is only concerned with earnings “received” before the day of the accident. It is not concerned with when the work was carried out. Accordingly, as deposits relied on by the claimant as business income received into her accounts on 26 October 2022 ($56 – NAB), 27 October 2022 ($30 – NAB) and 1 November 2022 ($888.50 -CBA), were not received on or before
25 October 2022 I have excluded them from PAWE.For the above reasons I conclude the gross profit of the business in the period
26 October 2021 to 25 October 2022 is $30,536.57 being the claimant’s calculation less those deposits received after 25 October 2022.The claimant accepts the gross earnings she received from her business as an earner is equal to the gross profit of the business less business expenses. The difficulty in this matter is that the claimant has not provided adequate evidence of actual business expenses in the relevant period.
In the absence of such evidence, Mr Katehos’ prima facie relies on expenses for the 2022 financial year, which were $6,009, but makes some adjustments to that amount and comes up with a slightly higher figure of $6,163 for the relevant pre-accident period.
The insurer, through the Procare report, relies on the mid-range of the Australian Taxation Office (ATO) benchmark for business expenses, which is approximately 43%.
However, I agree with the claimant that whilst the ATO benchmark may provide some guidance, it may not be appropriate to adopt the benchmark in circumstances where it is derived from businesses with a turnover of $75,000 or more. The claimant’s business is clearly a very modest business with an even lower income in the range of only $5,000 to $30,000 (approximately) per annum. I do not think this can readily be compared to businesses with an annual turnover of $75,000 or more. Further, the benchmark has a range of 36% to 55% for what is considered low turnover businesses ($75,000 to $240,000) for the purpose of the benchmark. In the circumstances, I consider it would be more appropriate to distinguish the claimant’s much lower turnover rom this by adopting a percentage at the lower end of the benchmark range rather than the mid-point.
Some guidance as to the claimant’s expenses can be obtained from previous years, as follows:
Year
Gross profit
Business expenses
Business expenses – percentage of profit
2018
$12.051
$3,344
27.75%
2019
$20,194
$11,338
56.14%
2020
$13,248
$8,587
64.82%
2021
$16,244
$4,531
27.89%
2022
$13,902
$6,009
43.22%
It is apparent that both the claimant’s business income and business expenses fluctuated from year to year, with expenses representing between 27.75% and 64.82% of income depending on the year.
I accept it is probable that the claimant’s business expense percentage of income was likely higher in 2020 because of the impacts of COVID-19. It is likely the claimant had continuing operating costs but generated little or no income from about 31 March 2020 to 30 June 2020. I consider the 2018 and 2019 years somewhat removed from the period in question to have any significant relevance to business expenses in the 12 months before the accident.
In conducting a merit review, my role is to determine the correct and preferrable decision on the evidence before me. I am not expected to conduct a forensic accounting exercise into the claimant’s business expenses. That is a matter for the experts, who cannot agree, and I have some difficulty with the approach taken both experts. Accordingly, doing the best I can on the evidence before me I consider the preferrable approach is to adopt the average of the business expense percentage of income for the two financial years closest to the 12 months before the accident, which are the 2021 and 2022 financial years. Business expenses represented 27.89% of income in 2021 and 43.22% in 2022 which gives an average of 35.5%.
Of note, the average expenses percentage for the 2021 and 2022 financial years aligns with the lower range (36%) in the benchmark, which I have stated above is probably more appropriate in the circumstances of the claimant’s very low turnover. Given this alignment I am comfortably satisfied on balance that 35.5% of business income, being the average over the 2021 and 2022 financial years, is the appropriate measure of the claimant’s business expenses.
I therefore conclude the claimant’s gross earnings from the business (being the business’ net profit) in the period 26 October 2021 to 25 October 2022 were $19,696.09 calculated as follows:
(a) gross profit per the claimant’s calculation less deposits received after
25 October 2022: $30,596.57, and(b) less 35.5% ($10,840.48) for business expenses.
The claimant’s PAWE amount is therefore $378.77 ($19,696.09 divided by 52 weeks).
CONCLUSION
For the reasons set out above I conclude that:
(a) neither exception to Schedule 1, cl 4(1) of the MAI Act in cl 4(2)(a) or 4(2)(b) apply to the claimant’s circumstances;
(b) the claimant’s PAWE calculation therefore falls under cl 4(1), and
(c) the claimant received gross earnings as an earner in the 12 month period from 26 October 2021 to 25 October 2022 in the sum of $19,696.09, which equates to PAWE in the sum of $378.77.
Accordingly:
(a) the reviewable decision is set aside, and
(b) the claimant’s PAWE is $378.77.
LEGISLATION AND GUIDELINES
In making this decision, I have considered the following:
· the Application, Reply and supporting documentation;
· MAI Act;
· Motor Accident Guidelines, and
· Motor Accident Injuries Regulation 2017.
Katherine Ruschen
Merit Reviewer
Personal Injury Commission
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