Hicks and Repatriation Commission

[2002] AATA 288

DECISION AND REASONS FOR DECISION [2002] AATA 288

ADMINISTRATIVE APPEALS TRIBUNAL              Nº V2001/329

VETERANS'      APPEALS      DIVISION

Re:            PETER DARYL HICKS

Applicant

And:         REPATRIATION COMMISSION

Respondent

DECISION

Tribunal:       Mr B.H. Pascoe, Senior Member
Date:             24 April 2002
Place:            Melbourne

Decision:The Tribunal sets aside the decision under review and in its stead decides that the applicant satisfies the requirements of s.24 of the Veterans' Entitlements Act 1986 and is entitled to pension at the special rate with effect from 22 February 1999.

(sgd) B.H. Pascoe
  Senior Member
  VETERANS' AFFAIRS — application for pension at special rate – whether suffered loss of salary, wages or earnings – whether result of war-caused incapacity – purchase of hotel business – hotel operations at a loss – whether loss caused by veteran's incapacity – whether profitable if not incapacitated
Veterans' Entitlements Act 1986 s.24

REASONS FOR DECISION

24 April 2002  Mr B.H. Pascoe, Senior Member

1. This is an application to review a decision of the Veterans' Review Board ("the VRB") of 29 January 2001 which affirmed a decision of the respondent of 26 June 1999 to refuse an increase in disability pension beyond the 100 per cent to which the applicant was then entitled.

2. At the hearing the applicant, Mr P. Hicks, was represented by Mr D. De Marchi, a solicitor, and the respondent by Mr K. Rudge, an advocate with the Department of Veterans' Affairs.  Evidence was given by Mr Hicks and his wife.  In addition the parties tendered a work history statement by Mr Hicks, together with financial statements relating to a hotel operations (exhibit A1), a report from Dr J. Holland, a rehabilitation physician, (exhibit A2), clinical notes of Dr J. Maher, the veteran's local medical officer (exhibit R1), transcript of the VRB hearing (exhibit R2) and a report from Dr R. Horsley, an occupational physician (exhibit R3). 

3. Mr Hicks was born on 19 April 1948, making him 53 years of age at the date of the hearing. He has accepted war-caused disabilities of cardiomyopathy, hypertension, atrial fibrillation, alcohol abuse, bilateral sensorineural hearing loss, anxiety disorder with depression and chronic bronchitis. Pension at 100 per cent of the general rate has been payable from 20 January 1998. On 22 February 1999 an application for increase in pension was made. Although not referred to specifically, it is assumed that the claim sought a special rate of pension under s.24 of the Veterans' Entitlements Act 1986 ("the Act").

4. After operational service in Vietnam and in the Australian Army from April 1970 to November 1971, Mr Hicks commenced work as an electrical fitter at the Government Ordnance Factory in Maribyrnong.  In 1993 he was made redundant as a result of privatisation.  He was later requested to return to the factory to assist in its decommissioning and worked there for two years until 1995.  Some time thereafter, Mr Hicks and his wife decided to purchase an hotel with the proceeds of his redundancy package and the sale of their Melbourne home.  The hotel in a small country town was purchased in the name of a company, Radar Hotels Pty Ltd.  The actual date of purchase could not be provided but the first financial statements for the company were for the year ended 30 June 1997 and the gross sales shown in these statements were equal to some two months of sales achieved in prior years according to financial statements of the vendor company.  It is assumed, therefore, that the new owner commenced trading in approximately April 1997.

5. Mr Hicks said that the stress of the transactions involved in purchasing the hotel and the prior redundancy caused problems with his existing heart condition and this, together with his anxiety disorder, prevented him from active involvement in the running of the hotel.  He said that, apart from very occasionally serving a customer, he does nothing at the hotel.  He said that he is unable to lift anything and generally sits around leaving the running of the hotel to his wife.  Mr Hicks maintained that the hotel was profitable in the hands of the previous owners and that he had the knowledge and ability to run the hotel profitably if he was fit to take an active role.  He believed that the hotel had incurred losses since acquisition as a result of the need to hire staff to do the work that he would have done if not for his disabilities.  Mr Hicks had little understanding of the financial statements produced for the hotel operations.  He said that they had been attempting to sell the hotel without success.

6. Mrs Hicks said that her husband has become short tempered and frustrated at his inability to work.  She said that, while she had been involved in catering, she had not been familiar with the operations of a hotel and had not intended to be responsible for running the hotel at the time of purchase.  She believed that Mr Hicks had been an astute person who could have managed the hotel and its paperwork but his disabilities had prevented him from doing those things.  She said that, if Mr Hicks was available to work, she could reduce present staff by two.  Mrs Hicks acknowledged that she takes approximately $250 per week from the hotel for personal expenses and personal use food and drink from hotel stock.  She had little understanding of the financial results but assumed that the cost of hotel supplies had increased as a result of an increase in freight costs since they had acquired the hotel.

7. Financial statement of the vendor of the hotel, Balnain Pty Ltd, for the years ended 30 June 1992 to 1996 inclusive were tendered, together with financial statements of the purchaser, Radar Hotels Pty Ltd, for the years ended 30 June 1997 to 2000 inclusive.  These statements show that the gross sales of the hotel have been relatively consistent over the nine years.  However, the significant difference between the results of the two owners is that the vendor consistently derived a gross margin, being the difference between purchases as adjusted for stock carried forward and sales, of 35 per cent of sales or higher, whereas the purchaser, in the three full years ended 30 June 2000 derived a gross margin progressively reducing from 21.4 per cent in 1998 to 17.5 per cent in 2000.  On the gross sales achieved, this produces a reduction in profit of approximately $170,000 per annum.  Wages costs of the new owner have never exceeded those of the previous owner and, in 1999 and 2000, were less than that of the vendor in its last full year of ownership.

8. Section 24(1) of the Act provides:

   24(1)       This section applies to a veteran if:

   (aa)the veteran has made a claim under section 14 for a pension, or an application under section 15 for an increase in the rate of the pension that he or she is receiving; and

   (aab)the veteran had not yet turned 65 when the claim or application was made; and

   (a)either:

   (i)the degree of incapacity of the veteran from war-caused injury or war-caused disease, or both, is determined under section 21A to be at least 70% or has been so determined by a determination that is in force; or

   (ii)the veteran is, because he or she has suffered or is suffering from pulmonary tuberculosis, receiving or entitled to receive a pension at the general rate; and

   (b)the veteran is totally and permanently incapacitated, that is to say, the veteran's incapacity from war-caused injury or war-caused disease, or both, is of such a nature as, of itself alone, to render the veteran incapable of undertaking remunerative work for periods aggregating more than 8 hours per week; and

   (c)the veteran is, by reason of incapacity from that war-caused injury or war-caused disease, or both, alone, prevented from continuing to undertake remunerative work that the veteran was undertaking and is, by reason thereof, suffering a loss of salary or wages, or of earnings on his or her own account, that the veteran would not be suffering if the veteran were free of that incapacity; and

   (d)section 25 does not apply to the veteran.

Clause (b) of subsection (2) of s.24 qualifies s.24(1)(c) in the following terms:

(2)       …

(b)where a veteran, not being a veteran who has attained the age of 65 years, who has not been engaged in remunerative work satisfies the Commission that he or she has been genuinely seeking to engage in remunerative work, that he or she would, but for that incapacity, be continuing so to seek to engage in remunerative work and that that incapacity is the substantial cause of his or her inability to obtain remunerative work in which to engage, the veteran shall be treated as having been prevented by reason of that incapacity from continuing to undertake remunerative work that the veteran was undertaking.

1. It was submitted for the applicant that he satisfies the requirements of s.24 of the Act. It was said that considerable resources were contributed by Mr and Mrs Hicks to purchase the hotel and, if it were not for his accepted disabilities resulting in his inability to work and if he had been able to contribute a full measure of time and effort into the running of the hotel, the business would have been able to provide an adequate remuneration to him. It was argued that his inability to work forced the hiring of other staff and a loss of earnings to him.

2. For the respondent, it was contended that the requirements of s.24(1)(c) were not met by the applicant. It was said that, at no stage of the ownership of the hotel by Radar Hotels Pty Ltd had the hotel been profitable and that there was no evidence that the veteran's accepted disabilities had affected the inherent unprofitability of the business. Mr Rudge argued that an examination of the figures showed that wages and other operating expenses were no greater than those incurred by the former owner but the gross profit was significantly lower indicating that a loss would have been incurred whether the veteran was working or not. It was suggested that Mr and Mrs Hicks had no experience in running a hotel and were unable to generate the profit expected. The respondent conceded that the veteran satisfied clauses (aa), (aab) (a), (b) of subsection (1) of s.24.

3. On all of the evidence, including the medical reports tendered, it is clear that Mr Hicks satisfies all the requirements of s.24(1) other than ss.(1)(c). It is clear, also, that he satisfies the first limb of s.24(1)(c) in that he is prevented from undertaking remunerative work by reason of his incapacity from war-caused conditions alone. The difficulty is whether that incapacity has caused the veteran to suffer a loss of salary or wages, or earnings on his own account that he would not be suffering if he were free of that incapacity. If the hotel was being operated by Mr Hicks as an individual owner and operator or by a partnership of Mr and Mrs Hicks it would seem likely, on the basis of the figures provided, that the business would have made a loss at all times since its acquisition. Even if Mr Hicks was fit and able to work full time, it would be necessary to employ some outside staff and a loss would have been incurred without any proprietors' salary if outside salaries had exceeded $27,000 approximately in 1998, $15,400 approximately in 1999 and $15,300 approximately in 2000. However, the business is owned by a separate legal entity and, if Mr Hicks was not incapacitated, it may well have been possible, even at the expense of incurring a loss, to have paid him some small salary. A further complication in this case is that it would appear likely that the financial statements of Radar Hotels Pty Ltd are an incorrect reflection of the true financial results. First, there is no reflection in the statements of the provision of food, drink or other supplies taken for personal use by Mr and Mrs Hicks. In the statements of the previous owner for the year ended 30 June 1996 an amount of $10,400 was taken as the value of board and quarters from the purchases expense. Further, Mrs Hicks acknowledged that approximately $250 per week was taken from the hotel for personal expenses. There is no evidence as to how this amount was treated in the books of the hotel. The very low gross profit margin derived under the new management may be the result of poor management, the mix of sales between food and drink changing, inaccurate accounting or a mix of all three. It was clear that neither Mr nor Mrs Hicks had an understanding of the figures, which leads to a conclusion also, that they had little experience or knowledge of managing the hotel.

4. The major difficulty with the submissions by both parties in this case is that both require an estimate or hypothesis of what would have been the position if Mr Hicks had not been incapacitated.  On one hand, it is suggested that the business would have been profitable and, on the other hand, that it would have suffered a loss in any event.  On the evidence it is impossible to be satisfied either way.  Neither submission takes into account the fact that a separate entity, a company, legally owns and operates the hotel and that any earnings on his own account by Mr Hicks, if not for his incapacity, would have come from salary and/or dividends from that company.  On balance, given the beneficial nature of the legislation and the requirement to decide the matter to the Tribunal 's reasonable satisfaction, I am prepared to find that, at the date of acquisition of the hotel, Mr Hicks had an expected ability to undertake remunerative work as an employee of the hotel owner but his accepted conditions made him incapable of so doing.  There was a reasonable possibility and expectation that he would derive a salary or other earnings but, as a result of the incapacity, he suffered the loss of such salary or earnings.  I accept that it could be said that he did derive some earnings by way of cash, food and drink notwithstanding his incapacity but, on balance, I am prepared to be of the view that, in addition to such benefits, he would have derived some salary from the company, albeit necessarily small, if able to work.  It is not possible for me to hypothesise an identical result to that actually accomplished if he had not been incapacitated by his accepted conditions.

5. It follows that the decision under review should be set aside and in its stead substitute a decision that Mr Hicks satisfies the requirements of s.24 of the Act and qualifies for a pension at the special rate with effect from 19 February 1999.

   I certify that the thirteen [13] preceding paragraphs are a true copy of the reasons for the decision herein of
   Mr B.H. Pascoe, Senior Member

   (sgd)       Catherine Thomas
                 Clerk

   Date of Hearing:  12 December 2001
   Date of Decision:  24 April 2002
   Solicitor for the Applicant:           Mr D. De Marchi, De Marchi & Associates

   Solicitor for the Respondent:        Nil - Mr K. Rudge, Advocacy Section, Department of
     Veterans' Affairs