Glover v GIO
[2022] NSWPICMR 7
•7 February 2022
| CERTIFICATE OF DETERMINATION OF MERIT REVIEWER | |
| CITATION: | Glover v GIO [2022] NSWPICMR 7 |
| CLAIMANT: | Benjamin Glover |
| INSURER: | GIO |
| MERIT REVIEWER: | Kriesen Seeneevassen |
| DATE OF DECISION: | 7 February 2022 |
| CATCHWORDS: | MOTOR ACCIDENTS- Dispute about the amount of weekly payments under Division 3.3 of the Motor Accident Injuries Act 2017; self-employed; Held - the claimant’s gross earnings is their gross profits; being their gross receipts less their immediate cost of production. |
| DETERMINATIONS MADE: | The reviewable decision is about the amount of weekly payments of statutory benefits that are payable under Division 3.3 of Motor Accident Injuries Act2017 (the Act), and is therefore a merit review matter under Schedule 2(1)(a) of the Act. 1. The reviewable decision is set aside. 2. In accordance to schedule 1 clause (4)(1) the amount of the claimant’s Pre-Accident Weekly Earnings is determined at $471.43. 3. The amount of the claimant’s costs assessed in accordance with the Motor Accident Injuries Regulation 2017 is $ NIL. |
Background
Mr Benjamin Glover (the claimant) is self-employed as a Service Technician at Aquatam Waste who was involved in a motor vehicle accident (MVA) on 7 January 2021.
The insurer calculated the claimant’s pre-accident weekly earnings (PAWE) based on their gross earnings being their earnings before tax. That is, deducting all the claimant’s expenses from their gross earnings. On that basis, the insurer determined the claimant’s gross earnings at $46,100, and their PAWE at $441.77
On 22 April 2021 the claimant requested the insurer to conduct an internal review of their weekly benefits. According to them, their total income was $66,841 and after the deduction of the cost of sales they received gross earnings of $47,599.
On 6 May 2021, the insurer advised the claimant that they affirmed their original decision.
The claimant disputes the amount of PAWE calculated by the insurer. They say that the insurer has calculated the PAWE from the net profits of the business, and this is not a fair method of assessing gross income.
Submissions and directions
The claimant’s first submission
The claimant was self-employed at the time of the MVA.
Referring to several past merit review decisions, the insurer subtracted all of the claimant’s operating expenses from their gross profits, leaving net profit as the basis for calculating PAWE. Using that restrictive interpretation of gross earnings, the insurer calculated the claimant’s PAWE as $441.31.
Such a restrictive interpretation does not give effect to the legislation’s purpose of putting a claimant back to their economic position as best it can.
The correct approach for determine a self-employed claimant’s PAWE is to deduct only variable expenses from the claimant’s total income to arrive at gross earnings.
The claimant’s profit and loss statement for the period 1 January 2020 to 6 January 2021 (the profit and loss statement) show that their business income was $66,841. After deducting the cost of sales, their gross profit was $47,599. The claimant’s only variable expense to be deducted from their gross profits is the bad debt of $1,494. Their gross earnings using his approach was $46,100, being their gross profit of $47,599 less the bad debt variable expense deduction of $1,494.
The claimant’s PAWE should be $867.51, being $46,100 divided by 53.14 weeks.
The insurer
At the time of the MVA the claimant was self-employed, and was an earner as defined in the Motor Accident Injuries Act2017 (the MAI Act).
The applicable principles for determining their PAWE are set out in the following published decisions:
(a) AHS v Allianz Australia Ltd [2019] NSWDRS MR 206 establishes that whilst the MAI Act does not provide a definition of gross earnings, it is accepted to mean income after the deduction of all business and/or work-related expenses before tax;
(b) ADP v CIC Allianz [2019] NSWDRS MR 093 establishes that in respect of self-employed workers, the term gross earnings in schedule 1 clause 4, subclause (1) of the MAI Act refers to the net profit or the personal proceeds received by the self-employed earner after deducting business expenses and before taxation, and
(c) ACT v AAI Limited trading as GIO [2018] NSWDRS MR 072 establishes that for a self-employed claimant, their PAWE is their gross earnings from personal exertion. This excludes GST receipts and any business expenses in connection with their self-employment.
The claimant’s solicitor submission that only variable expenses needs to be taken from gross profits to calculate a self-employed claimant’s gross income is in error because:
(a) it does not accord with previous Personal Injury Commission (the Commission) decisions, and
(b) there is no discretion in the MAI Act to only consider variable deductions in calculating PAWE.
The claimant’s profit and loss statement shows the claimant’s net profits to be $23,451.
The profit and loss statement covers 372 days or 53.14 weeks, so that the claimant’s PAWE is $441.31 ($23,451.00 ÷ 53.14).
Directions
On 1 November 2021, I issued directions that by close of business 12 November 2021, and for the items of operating expenses in AQUATAM’s profit and loss statement, the claimant was to:
(a) provide me with a breakdown of the item labelled general expenses broken down into its components and associated values;
(b) characterise each item (including the components of the general expenses item) as either fixed or variable and provide a detailed enough description of each to validate their fixed/variable status, and
(c) identify whether any of the items (including but not limited to the motor vehicle expenses) contain any depreciation components. If so, how much.
Response to directions
On 15 November 2021, the claimant lodged the following documents in response to my directions:
(a) a second submission;
(b) an amended profit and loss statement for the period 1 January 2020 to 1 January 2021 (amended profit and loss statement);
(c) a letter from the claimant’s accountants explaining that the amended profit and loss statement differed from the original because some of the claimant’s income and expenditure items had been recoded, and
(d) a detailed list of the claimant’s general expenses with each item identified as either variable or fixed costs.
The claimant’s second submission
The claimant relied on their amended profit and loss statement showing their total income to be $67,225. After deducting the costs of sales their gross profit was $48,285.
The total variable amounts from the claimant’s amended profit and loss statement are bad debt of $1,494 and the variable expenses’ component of the general expenses of $401.68.
The claimant’s gross earnings after the deduction of all variable expenses was $46,389.32; divided by 53.14 weeks gives a PAWE of $872.96 per week.
The claimant makes no claim for depreciation.
Reasons
It is undisputed that:
(a) the claimant is entitled to weekly payments under division 3.3 of the MAI Act;
(b) a profit and loss statement is the proper basis for determining the claimant’s gross earnings, and
(c) the relevant profit and loss statement covered a period of 372 days or 53.14 weeks.
Pre-accident weekly earnings is defined by Clause 4, Schedule 1 of the Act in the following terms:
“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 received by the earner as an earner during the period from when the change of circumstance referred to in that subclause occurred to immediately before the day of the motor accident,
(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.”
It is also undisputed that the claimant’s PAWE is to be determined according to Schedule 1 clause (4)(1) of the Act because none of the exceptions in Schedule 1 clause (4)(2) apply.
Methodology
I need to calculate the claimant’s gross earnings in order to determine their PAWE.
The merit review matters quoted by the insurer may have found that gross earnings for a self-employed claimant is the net profit after expenses but before tax, but merit review matters are not binding decisions. In any case, other review matters have found otherwise. They include:
(a) AOL v QBE Insurance (Merit Review) [2020] NSWSIRADRS 179 (AOL) where the insurer was found to have erroneously relied on a net profit figure (before tax) rather than gross profit. The claimant’s gross earnings were taken to be total sales less the cost of goods sold, and
(b) ABZ v QBE Insurance (Australia) Ltd [2018] NSWDRS MR 052 (ABZ) where the merit reviewer found that the claimant’s gross profit of $30,409, reflected their gross earnings for the purposes of calculating their average weekly earnings.
The term gross earnings is not defined in the MAI Act, so that it is to be given its ordinary meaning unless that 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]).
According to the Macquarie dictionary:
(a) Earning means money earned: wages, profits.
(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 (emphasis) b.net profit, amount remaining after deducting all costs from gross receipts.
Expenses
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) less the immediate cost of production, or variable cost. It appears to me that gross earnings in the context of the self-employed is not net profit after accounting for all business expenses but before tax, as the insurer contends. In my view, this ordinary meaning of gross earnings supports the claimant’s submission that gross earnings should be interpreted as gross receipts less variable costs, or the immediate cost of production.
Such an interpretation does not conflict with the underlying object or purpose of the MAI Act because section 1.3(2) includes the early and ongoing financial support for persons injured in motor accidents as one of its objects.
In my directions of 1 November 2021, I requested the claimant to provide me each item of their operating expenses characterised as either a fixed or variable expense.
I received an itemised list of the claimant’s general expense that had been characterised as such, but not the other items of their operating expenses.The claimant submits that their only variable costs are bad debts and the variable cost component of their general expenses. Regarding the claimant’s amended profit and loss statement, it seems to me that their variable expenses would also include the following expenses that are dependent on the extent to which the claimant engages in income producing activities:
(a) motor vehicle expenses;
(b) printing, postage and stationary;
(c) telephone and internet, and
(d) travel, accommodation and meal expenses.
The relevant variable expenses are therefore:
Bad Debts
$1,494
General Expenses
$401
Motor Vehicle Expenses
$8,097
Printing, postage and stationery
$3,501
Telephone and internet
$1,675
Travel, accommodation and meals
$819
TOTAL
$15,987
Income
It is not all of a claimant’s income that is gross earnings. According to Schedule 1 clause 4 gross earnings is only what is received by an earner as an earner. The MAI Act does not define the word earn, but the expression earner is defined in clause 2, Schedule 1.
The Macquarie dictionary defines to earn as to gain by labour or service.
In my view, the term ‘…received by the earner as an earner…’ only includes what a claimant who is an earner by virtue of clause 2 Schedule 1 of the MAI Act, receives by labour or service.
I accept that the claimant’s gross profits are to be included as a component of gross earnings because it was derived by the claimant by labour or service. The claimant’s amended profit and loss statement show the claimant’s gross profits as $30,654, and not $48,285 as the claimant asserts in their second submission. I will allow $30,654 as a contribution to the claimant’s gross earnings.
The claimant’s amended profit and loss statement also includes other revenue of $13,500. From the information available to me, I am unable to directly ascertain whether any of that income can be included in the claimant’s gross earnings for having been earned as an earner.
The claimant’s tax return for the 2019/20 financial year show that, other than their business-related income, the claimant’s other income was as follows:
Salary and Wages
$2,246
Australian Govt Allowances
$550
Interest
$26
Trusts
$67
Foreign source income
$32
TOTAL
$2,921
In my view, only the claimant’s salary and wages component of their other income was earned by labour or service, so that I will allow 77% (2,246 ÷ 2,921 x 100) of the claimant’s other income, or $10,385 ($13,500 x 77%), as a contribution to their gross earnings.
Gross earnings and PAWE
The claimant’s gross earnings for the period 1 January 2020 to 6 January 2021 is:
Income
Gross profits
$30,654
Other income
$10,385
Sub Total
$41,039
Less:
Expenses
$15,987
Gross Earnings
$25,052
Since the period covering the amended profit and loss statement covers a period of 53.14 weeks from 1 January 2020 to 6 January 2021, the claimant’s PAWE is $471.43 ($25,052 ÷ 53.14).
Other Matters
The insurer submits that there is no specific discretion in the MAI Act to only consider a variable deduction in determining gross earnings. As I pointed out in paragraph 31, the term gross earnings is not defined in the MAI Act, so that it needs to be given its ordinary meaning. In my view, that ordinary meaning includes only variable costs.
I do not agree with the claimant’s submission that the purpose of the legislation should be to put a claimant back to his economic position as best it can with their PAWE based statutory payments. This is inconsistent with the object of the MAI Act.
Legal coats
The are no submissions as to legal costs.
Section 8.10(3) of the MAI Act provides that necessary and reasonable costs are recoverable in respect to disputes in connection with statutory benefits only if it is permitted by the Regulations or by the Commission. Subsection (4) of 8.10 provides that DRS can permit legal costs if the claimant is under a legal disability or there are exceptional circumstances to justify payment of legal costs.
The Regulations do not permit costs for disputes related to the amount of PAWE. On the information before me I do not find that the claimant is under a legal disability, nor am I satisfied of exceptional circumstances.
I find that legal costs are not recoverable in accordance with section 8.10(3) of the Act.
Conclusion
The reviewable decision is set aside.
In accordance to schedule 1 clause (4)(1) the amount of the claimant’s PAWE is determined at $471.43.
The amount of the claimant’s costs assessed in accordance with the Motor Accident Injuries Regulation 2017 is $ NIL.
Legislation and Guidelines
In making this decision, I have considered the following:
· The application, reply and supporting documentation
· the MAI Act
· Motor Accident Guidelines
· Motor Accident Injuries Regulation 2017
Kriesen Seeneevassen
Merit Reviewer
Personal Injury Commission
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