Insurance Australia Limited t/as NRMA Insurance v Iskandar
[2024] NSWPICMRP 5
•26 November 2024
| DETERMINATION OF MERIT REVIEW PANEL | |
| CITATION: | Insurance Australia Limited t/as NRMA Insurance v Iskandar [2024] NSWPICMRP 5 |
| CLAIMANT: | Sarkis Iskandar |
| INSURER: | Insurance Australia Limited trading as NRMA Insurance |
| MERIT REVIEW PANEL MEMBERS: | Susan McTegg Elizabeth Medland Anthony Scarcella |
| DATE OF DECISION: | 26 November 2024 |
| CATCHWORDS: | MOTOR ACCIDENTS - Motor Accident Injuries Act 2017; review of decision of Merit Reviewer (MR) Williams; MR Williams determined gross earnings of a self-employed person for the purposes of schedule 1 clause 4(1) was the gross income of the business before the deduction of any expenses; dispute as to what is meant by term “gross earnings” for the purposes of determining the pre-accident weekly earnings (PAWE) under schedule 1 clause 4; meaning of “proceeds of any business carried on by the person either alone or in partnership with another person” as per schedule 1 clause 3(2)(b); Held – where the objects of the Act give rise to range of conflicting or competing purposes as per Griffiths AJA in Allianz Australia Insurance Limited v The Estate of the Late Summer Abawi appropriate to construe schedule 1 clause 4(1) and schedule 1 clause 3(2)(b) by reference to language of the statute construed as a whole as per Project Blue Sky v ABA; clause 3(2)b) of schedule 1 should be read in conjunction with clause 3(1) which defines loss of earnings as “a loss incurred or likely to be incurred in a person’s income from person exertion”; the income from personal exertion refers to the claimant’s share of the proceeds of the business, not the entire proceeds of the business without any deductions; to interpret weekly gross earnings received by the earner by reference to proceeds of business but without deductions but before tax would lead to inconsistent outcomes when assessing entitlement to statutory benefits under sections 3.6, 3.7 and 3.8 and would not give effect to harmonious goals; reading Act as a whole it was not the intention of legislature to provide an entitlement to statutory benefits which have the potential to significantly exceed the amount recoverable by way of economic loss at common law; loss of earnings in schedule 1 clause 3(b) relates to the proceeds of any business resulting from the earners own personal exertion and gross earnings as it appears in schedule 1 clause 4 relates to the gross earnings received by the earner after the deduction of business expenses but before the deduction of tax; decision of MR Williams revoked; Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue, AHS v Allianz Australia Ltd, AGZ v NRMA Insurance Pty Ltd, Carr v The State of Western Australia, Metropolitan Gas Co v Federated Gas Employees’ Industrial Union, St George Bank Ltd v Federal Commission of Taxation; Medlin v State Government Insurance Commission; Husher v Husher cited. |
| DETERMINATIONS MADE: | CERTIFICATE Issued under s 7.13(4) of the Motor Accident Injuries Act, 2017 1. The Panel revokes the decision of Merit Reviewer Williams dated 12 June 2024. 2. The Panel determines for the purposes of Sch 1 cl 4(1) of the MAI Act, the pre-accident weekly earnings are $531.38. 3. The date of effect is 11 March 2024. |
STATEMENT OF REASONS
INTRODUCTION
Mr Sarkis Iskandar, the claimant, sustained injury in a motor vehicle accident on 22 January 2024 (the accident).
Mr Iskandar lodged an Application for Personal Injury Benefits dated 10 February 2024.
Insurance Australia Limited trading as NRMA Insurance is the insurer liable to pay statutory benefits to the claimant under the Motor Accident Injuries Act, 2017 (MAI Act).
On 21 February 2024, the insurer accepted Mr Iskandar’s claim for statutory benefits under the MAI Act for 52 weeks from the date of the accident.
In dispute is the amount of the claimant’s pre-accident weekly earnings (PAWE). At the time of the accident Mr Iskandar was self-employed as a Pest Control Technician.
The insurer concedes Mr Iskandar is an “earner” as defined by Sch 1 cl 2 of the MAI Act.
On 11 March 2024, the insurer determined Mr Iskandar’s PAWE as $531.38. This determination is disputed by the Mr Iskandar who asserts his PAWE should be in the order of $1,500 to $1,600. On 12 March 2024, Mr Iskandar sought a review of this determination and on 26 March 2024, an internal reviewer affirmed the insurer’s PAWE determination.
The dispute centres on what is meant by the term “gross earnings” for the purposes of the MAI Act. Mr Iskandar contends that the gross earnings are calculated by reference to the total business income less the cost of goods whilst the insurer contends that gross earnings is a reference to business income less all deductions including expenses.
Mr Iskandar lodged an application with the Personal Injury Commission (Commission) in respect of the PAWE dispute.
In a certificate dated 12 June 2024, Merit Reviewer Williams set aside the reviewable decision of the insurer and certified Mr Iskandar’s PAWE as $1,197.25.
The insurer has sought a review of the decision of Merit Reviewer Williams.
In a decision dated 23 July 2024, the President’s delegate referred the application for review of the decision of Merit Reviewer Williams to this Review Panel (Panel) pursuant to s 7.15 of the MAI Act.
THE EVIDENCE
The Application for personal injury benefits describes Mr Iskandar as a self-employed Pest Control Technician earning $6,600 a month at the time of the accident.
A certificate of capacity dated 6 February 2024 diagnoses injury to the neck and back caused by the accident. Mr Iskandar was certified unfit for work between 25 January 2024 and 28 January 2024 and capacity for some type of work between 29 January 2024 and 13 February 2024.
Report of PKF(NS) Forensic Accountants
The insurer relies on a report of Mr Gwynne of PKF(NS) Forensic Accountants (PKF) dated 5 March 2024. PKF determined that business records provided by Mr Iskandar confirm the claimant receipted $76,963 in business income in the 12 month period prior to the accident.
PKF provided the following summary of the income and expenses of Mr Iskandar’s business for the period 21 January 2024 to 21 January 2024:
· total income $76,963
· cost of goods $14,706
· gross profit $62,257
· expenses $34,625
· earnings from self-employment $27,632
The expenses included advertising, bank fees, computer expenses, depreciation, tax expenses, insurance, motor vehicle expenses, rent, software expenses, subscriptions, telephone and internet costs, tolls, parking and uniforms.
After deducting both the cost of goods and the expenses PKF determined that Mr Iskandar’s earnings in the 52 week period between 22 January 2023 and 22 January 2024 were $27,632.
Averaging the claimant’s earnings from self-employment over 52 weeks PKF assessed Mr Iskandar’s PAWE to be $531.38.
THE RELEVANT LEGISLATION
Division 3.3 of the MAI Act deals with an injured person’s entitlement to weekly payments of statutory benefits.
Sections 3.6 and 3.7 set out an entitlement to weekly payments calculated with reference to the “pre-accident weekly earnings”. These sections relevantly read:
“3.6 Weekly payments during first entitlement period (first 13 weeks after motor accident)
(1) An earner who is injured as a result of a motor accident and suffers a total or partial loss of earnings as a result of the injury is entitled to weekly payments of statutory benefits under this section during the first entitlement period.
Note — Only a person who was an earner when injured is entitled to statutory benefits under this section—see Schedule 1.
(2) A weekly payment of statutory benefits under this section is to be at the rate of 95% of the difference between the person’s pre-accident weekly earnings and the person’s post-accident earning capacity (if any) for the first entitlement period.
...
3.7 Weekly payments during second entitlement period (weeks 14–78 after motor accident)
(1) An earner who is injured as a result of a motor accident and suffers a total or partial loss of earnings as a result of the injury is entitled to weekly payments of statutory benefits under this section during the second entitlement period.
Note — Only a person who was an earner when injured is entitled to statutory benefits under this section—see Schedule 1.
(2) A weekly payment of statutory benefits under this section is to be at the rate of —
(a) in the case of total loss of earning capacity—80%, or
(b) in the case of partial loss of earning capacity—85%,
of the difference between the person’s pre-accident weekly earnings and the person’s post-accident earning capacity (if any) after the first entitlement period.
…”
Section 3.8 details the entitlement to weekly payments after the second entitlement period (after week 78):
“3.8 Weekly payments after second entitlement period (after week 78)
(1) A person who is injured as a result of a motor accident and suffers a total or partial loss of earning capacity as a result of the injury is entitled to weekly payments of statutory benefits under this section after the end of the second entitlement period, but only if the person—
(a) is at least 18 years of age (whether or not the person is an earner), or
(b) is under 18 years of age and is an earner.
Note—
The person’s age after the second entitlement period is relevant to determining entitlement to statutory benefits after the second entitlement period. A person’s age at the date of the motor accident is not relevant. Schedule 1 defines when a person is an earner.
(2) A weekly payment of statutory benefits under this section is to be at the rate of—
(a) in the case of total loss of earning capacity—80%, or
(b) in the case of partial loss of earning capacity—85%,
of the difference between the person’s pre-accident earning capacity and the person’s post-accident earning capacity (if any) or post-accident earnings, whichever is the greater, after the second entitlement period.
…”
Schedule 1 of the MAI Act sets out the definitions relating to “earner” and “pre-accident weekly earnings” for the purposes of statutory weekly payments under Div 3.3.
Schedule 1, cl 2 of the MAI Act provides:
“Meaning of ‘earner’
A person who is injured as a result of a motor accident is an earner if the person is at least 15 years of age and who—
(a) was employed or self-employed (whether or not full-time)—
(i) at any time during the 8 weeks immediately preceding the motor accident, or
(ii) during a period or periods equal to at least 13 weeks during the year immediately preceding the motor accident, or
(iii) during a period or periods equal to at least 26 weeks during the 2 years immediately preceding the motor accident,
and, at the date of the motor accident, had not retired permanently from all employment, or
(b) …”
Schedule 1 cl 3 provides:
“Meaning of ‘loss of earnings’
(1) Loss of earnings means a loss incurred or likely to be incurred in a person’s income from personal exertion.
(2) A person’s income from personal exertion is—
(a) the amount that is the income of the person consisting of earnings, salaries, wages, commissions, fees, bonuses, pensions, retiring allowances and retiring gratuities, allowances and gratuities received in the capacity of employee or in relation to any services rendered, and
(b) the proceeds of any business carried on by the person either alone or in partnership with any other person, and
(c) any amount received as bounty or subsidy in carrying on a business.
3) A person’s income from personal exertion does not include—
(a) interest, unless the person’s principal business consists of the lending of money, or unless the interest is received in respect of a debt due to the person for goods supplied or services rendered by the person in the course of the person’s business, or
(b) rents or dividends, or
(c) any employer superannuation contributions, or
(d) the monetary amount of any annual, sick or other leave entitlement.”
Schedule 1, cl 4 provides:
“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.”
Schedule 1, cl 8(1) defines “post- accident earning capacity” as follows:
“(1) Post-accident earning capacity of an injured person means—
(a) for the first and second entitlement periods—the weekly amount that the person has the capacity to earn in the employment in which the person was engaged immediately before the motor accident, determined on the basis of the person’s fitness for work in that employment, or
(b) for any period after the second entitlement period—the weekly amount the person has the capacity to earn in any employment reasonably available to the person, determined on the basis of the person’s fitness for work in any such employment.”
DECISION OF MERIT REVIEWER WILLIAMS
Merit Reviewer Williams issued a certificate and reasons for decision dated 12 June 2024.
Merit Reviewer Williams reviewed earlier decisions and noted there has been a divergence in the approach taken by various Merit Reviewers in determining the PAWE of self-employed earners.
This Panel does not propose to canvass all the earlier decisions reviewed by Merit Reviewer Williams, other than to refer to two specific decisions to demonstrate the prevailing divergent approaches.
In Aktop v Allianz Insurance[1] the Merit Reviewer determined the claimant’s PAWE on the basis that the ordinary meaning of gross earnings is income adjusted for the cost of revenue, and the cost of revenue includes variable costs but not fixed costs. The Merit Reviewer stated:
“[33] …the ordinary means 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.”
[1]Aktop v Allianz Insurance [2021] NSWPICMR 33
In Walker v QBE Insurance (Australia) Limited[2] the Merit Reviewer determined that all business expenses, fixed and variable, are to be deducted from the gross income of the business for the purpose of calculating the PAWE. The Merit Reviewer stated:
“[22] I do not agree with the claimant’s contention that only ‘variable costs’ should be deducted, being only those expenses that would be incurred as part of the immediate supply of services. Regardless of the nature of the business expense, the claimant’s gross earnings as an ‘earner’ can only be the net (but before tax) income of the business, after deducting all of the business expenses. That is to say, all business expenses must be deducted in order to calculate the claimant’s individual earnings from the business. Whilst there may be ongoing administrative, maintenance or other ‘fixed’ expenses despite no work being carried out, this is irrelevant as PAWE is calculated based on pre-accident earnings, when the business was an ongoing concern and all expenses had to be paid to run the business.”
[2]Walker v QBE Insurance (Australia) Limited [2022] NSWPICMR 47.
Merit Reviewer Williams noted the following comment made in Walker about Aktop (and other decisions that followed the same approach):
“[26] It may be that the Merit Reviewer in Aktop was attempting to cure what might be perceived as an unfair position for small business owners on the face of the legislation where they continue to pay certain business expenses in order to hold on to a business even though they are not actively trading. However, as stated by Harrison AsJ in [Shahmiri] at [70], ‘one cannot construe an Act to accommodate a particular circumstance, no matter how unfair that circumstance may be’”.
Furthermore, in Walker the Merit Reviewer went on to say that:
“[30] …the quarantining of fixed costs from other business expenses for the purpose of calculating PAWE in relation to self-employment is likely to give rise to enrichment and is therefore inconsistent with the objects of the MAI Act.”
Merit Reviewer Williams reported the parties agreed the summary of income and expenses for the period 21 January 2023 to 21 January 2024 in the PKF report was accurate.
He noted it was agreed Mr Iskandar’s PAWE should be determined in accordance with Sch 1 cl 4(1) of the MAI Act. This means the PAWE is the weekly average of the gross earnings received by Mr Iskandar during the 12 months immediately before the day on which the accident occurred.
Whilst Merit Reviewer Williams noted the importance of comity to decision makers, he also noted previous decisions do not establish any principle and are not binding, although they may be of persuasive authority as to the interpretation of any legislative provision.
Merit Reviewer Williams referred to Project Blue Sky v Australian Broadcasting Authority at [69][3] where the High Court said:
“The primary object of statutory construction is to construe the relevant provision so that it is consistent with the language and purpose of all the provisions of the statute. The meaning of the provision must be determined by reference to the language of the instrument viewed as a whole. In Commissioner for Railways (NSW) v Agalianos, Dixon CJ pointed out that the context, the general purpose and policy of a provision and its consistency and fairness are surer guides to its meaning than the logic with which it is constructed. Thus, the process of construction must always begin by examining the context of the provision that is being construed.” (citations omitted)
[3] Project Blue Sky v Australian Broadcasting Authority [1998] HCA 28 at [69].[3]
Merit Reviewer Williams noted that there is no definition of “earnings” or “gross earnings” in the MAI Act. He relied on the Macquarie Dictionary definition of “earn” as meaning “to gain by labour or services” and “earnings” as the term is used in Sch 1 cl 4(1) to mean income gained in return for labour or services provided by an earner.
Merit Reviewer Williams notes ss 3.6 and 3.7 which provide an entitlement to weekly payments of statutory benefits give effect to one of the stated objects of the Act, that is, to provide early and ongoing financial support for people injured in motor accidents. He referred to s 1.3(4) of the MAI Act which states that in the interpretation of the Act a construction that would promote the objects of the Act or the provision is to be preferred to a construction that does not.
Where Sch 1 cl 4(1) includes the word “gross” Merit Reviewer Williams refers to the Macquarie Dictionary definition of gross as follows:
“…whole, entire, or total, especially without having been subjected to deduction, as for charges, loss etc,: gross profits”.
Merit Reviewer Williams determined at [69]:
“Having regard to the context, the general purpose and policy of the provision, the gross earnings received by the earner as an earner during the 12 months immediately before the day on which the motor accident occurred means the whole of the income without any deduction received by an earner in return for labour or services provided by them as an earner during the 12 months immediately before the day on which the motor accident occurred.”
In reaching this conclusion Merit Reviewer Williams considered that both classes of earner, that is, employed or self-employed may incur expenses in deriving their earnings, such as insurance, the operational costs of a vehicle, software, subscriptions, tolls, parking, uniforms and other working from home expenses. Where the gross earnings of an employed earner are not reduced on account of expenses when determining gross earnings under Sch 1
cl 4(1) he argues it is not clear why a different approach would be taken to determining the gross earnings of a self-employed earner where the same statutory test applies to both classes of earner.Merit Review Williams refers to the separate definition of “pre-accident weekly earnings for self-employed people” included in the Transport Accident Act, 1986 (VIC) and argues that if Parliament intended that the gross earnings of self-employed earnings was to be determined by a different methodology, provisions to that end could have been included in the MAI Act.
Where the task of statutory construction must begin with a consideration of the text itself, as per Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue,[4] Merit Reviewer Williams notes the language used in Sch 1 cl 4(1) does not support determining the PAWE of a self-employed earner on the basis of gross earnings less all expenses where the provision specifically refers to “gross earnings”.
[4] Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue [2009] HCA 41.
Merit Reviewer Williams declined to follow those decisions where the gross earnings of a self-employed person for the purposes of Sch 1 cl 4(1) have been found to be the gross income of the business less all expenses.
Merit Reviewer Williams noted Mr Iskandar conceded it was appropriate to assess his gross earnings based on the income of his business less the cost of goods. He found the income earnt during the 12 months immediately before the day on which the accident occurred was $76,963. The cost of goods during the same period was $14,706. Accordingly, the gross earnings received by Mr Iskandar during the 12 months immediately before the day on which the accident occurred were $62,257 and the weekly average of the gross earnings in the same period were $1,197.25. Merit Reviewer Williams found the claimant’s PAWE was $1,197.25.
SUBMISSIONS
Insurer’s submissions, 1 May 2024
The insurer provided submissions in respect of the dispute before Merit Reviewer Williams.
The insurer noted that “gross earnings” is not defined in the MAI Act. Whilst the MAI Act does not refer to “gross business income” (before expenses) or “net business income” (after expenses), the insurer relies on the certificate of Merit Reviewer Boyd-Boland in AHS v Allianz Australia Ltd[5] and the certificate of Merit Reviewer Sofoulos in AGZ v NRMA Insurance Pty Ltd,[6] where the phrase “gross earnings” was interpreted to mean the net profit/income earned by a self-employed claimant after accounting for all business expenses incurred to run a business but before tax.
[5] AHS v Allianz Australia Ltd [2019] NSWSIRADRS 206.
[6] AGZ v NRMA Insurance Pty Ltd [2019] NSWDRS MR 184.
The insurer submits that as the claimant is self-employed, his gross earnings refer to his net profit after accounting for business expenses but before tax, as evidenced in the following cases: ACL v CIC Allianz Insurance Limited;[7] ABQ v NRMA Insurance;[8] AGZ v NRMA Insurance Pty Ltd;[9] Brewer v Insurance Australia t/as NRMA;[10] and Glover v GIO.[11]
[7] ACL v CIC Allianz Insurance Limited [2018] NSWDRS MR 064.
[8] ABQ v NRMA Insurance [2018] NSWDRS MR 043.
[9] AGZ v NRMA Insurance Pty Ltd [2019] NSWDRS MR 184.
[10] Brewer v Insurance Australia t/as NRMA [2021] NSWPICMR 14.
[11] Glover v GIO [2022] NSWPICMR 7.
Insurer’s submissions in support of the review
The insurer provided undated submissions in support of the application for review and further submissions also undated were uploaded to the portal on 12 September 2024.
Meaning of “gross earnings earned by the earner”
The insurer agrees the relevant provision is cl 4 of Sch 1 which refers to the gross earnings received by the earner as an earner during the 12 months immediately before the day on which the accident occurred.
The insurer agrees that “gross earnings” is not defined although loss of earnings is defined in cl 3 of Sch 1.
The insurer does not cavil with the suggestion that the word “gross” should be afforded its ordinary meaning but says it would be accepted that there are effectively two ordinary interpretations of “gross” – one being pre-tax and the other being pre-deductions.
The insurer submits a construction of the word “gross” must either be a reference to taxation or deductions but cannot logically be with reference to certain deductions only. It is argued this would create uncertainty.
The insurer submits Merit Reviewer Williams erred in proceeding on the basis that a definition of earnings could be arrived at without reference to Sch1 cl 3 of the MAI Act. The insurer submits Merit Reviewer Williams failed to interpret the relevant provision in a manner internally consistent with the Act in its entirety, consistent with ordinary principles of statutory construction.
Schedule 1 cl 3 (2)(b) defines income from personal exertion to be the proceeds of any business carried on by the person either alone or in partnership with any other person. The insurer submits Merit Reviewer Williams failed to consider whether the definition of “gross earnings” he adopted was consistent with the definition in Sch 1 cl 3(2)(b) and had he done so, it would have followed that gross earnings in the context of a self-employed person was his pre-tax business earnings and not his pre-deduction business revenue.
The insurer notes that the claimant’s position was that fixed expenses should be treated differently to the cost of goods where he continued to incur those expenses despite not working for a period.
However, the insurer’s position is that there is nothing in the Act which suggests some expenses should be dealt differently to other expenses.
Indeed, the insurer argues a claimant may be entitled to payments for the entire 78 week period but may have ceased to pay those fixed expenses during that period. The insurer submits the cost of goods approach fails to account for other discretionary expenses which may be job specific, such as the cost of contract labour, goods and services tax (GST) revenue or mileage expenses.
The insurer submits it is not always the case that the costs of goods are incurred when a person is actively working whilst other expenses may be incurred despite a person being off work for a time. In respect of Mr Iskandar, the insurer submits the “cost of goods” may relate to goods purchased prior to each job or goods purchased in bulk quantities.
The insurer submits that a definition of gross earnings as the income of the business without any deductions ignores the balance of cl 4(1) which requires the assessed amount to be earned as an earner. The insurer provided the following examples:
(a) if a business received funds for a job which was then directed to other employees or contractors then this would be business income but not the earnings of the claimant as an earner, and
(b) if a business for the sale of goods purchased goods for $1 and sells the same goods for $2 the claimant had not earned $2 simply because it was receipted into his business account.
The insurer submits on this approach income would also include GST collected by the business but directed to the government. Further, the insurer argues this approach would add to the cost of the scheme by artificially placing persons in top income brackets where their income is artificially inflated by the cost of materials charged to clients.
The insurer’s position is that pre-accident earnings must be the income derived less all expenses but before taxation where it is only the definition which is consistent with the MAI Act.
The insurer submits that Merit Reviewer Williams failed to provide proper reasons including the legislative foundation for the proposition that the definition of “income” is pre-deduction business revenue and not pre-tax earnings.
The insurer submits, whilst Merit Reviewer Williams defined earnings as income gained in return for labour or services provided by an earner, he did not define income. Whilst he concluded that the term “profit” is not used and should not be interpolated into the provision in place of earnings, the insurer submits “income” is similarly not utilised in cl 4.
Objects of the MAI Act
The insurer agrees the correct approach to statutory construction is that a construction that would promote the objects of the Act or the provision is to be preferred to a construction that would not promote those objects.
The insurer submits Merit Reviewer Williams confined his reference to the objects of the Act set out in s 1.3(2)(b) and did not engage with how the construction adopted would interact with the balance of the objects.
The insurer submits Merit Reviewer Williams failed to engage with s 1.3(2)(g) which is primarily concerned with the early resolution of claims. The insurer submits the approach of Merit Reviewer Williams would likely result in payments made in the first two entitlement periods significantly exceeding the claimant’s entitlement to damages for past economic loss and complicate the assessment of common law damages.
The insurer submits the approach proposed does not promote the objects of the Act. The Motor Accidents Injuries Bill 2017 was introduced into parliament by The Hon Victor Dominello on 9 March 2017. In the Second Reading Speech it was said that:
“… income benefits will be paid for up to two years for injured people not mostly at fault. However, if an injured person has continuing needs beyond two years and has made a common law claim, income benefits will be paid for up to three years. Income benefits will be subject to the injured persons capacity to earn income.”
The insurer submits one of the objects of the Act was to pay injured people the same type of benefits they might have previously received as a delayed lump sum at an earlier stage. The transition from a common law damages scheme with ongoing wage payments had tax implications necessitating a claimant being paid weekly benefits pre-tax. When read with reference to the objects of the MAI Act and the nature of the scheme, the insurer submits the consistent interpretation would be that gross was a reference to payments being pre-tax only. The insurer submits this is consistent with the fact that from 78 weeks post-accident weekly payments are paid nett of tax and deductions.
Interaction between ss 3.6 and 3.7 of the MAI Act and the definition of gross earnings
The insurer submits the claimant’s entitlement to statutory benefits is governed by ss 3.6 and 3.7 of the MAI Act. The payments are required to be assessed with reference to the difference between the claimant’s pre-accident weekly earnings and his/her post-accident earning capacity.
The insurer submits Merit Reviewer Williams did not address either ss 3.6 or 3.7 or how those sections interact with the definition of earnings he proposed.
The insurer submits that where a person has a residual earning capacity, an absurd result may follow from an interpretation of PAWE that did not account for deductions because of the way the definition interacts with assessments of earning capacity within the MAI Act.
Specifically, ss 3.6(2) and 3.7(2) provide that a claimant is entitled to a percentage of the difference between the person’s pre-accident weekly earnings and the person’s post-accident earning capacity.
The insurer refers to the definition of post-accident earning capacity as defined in cl 8 of Sch 2 (more correctly, cl 8 of Sch 1). The insurer submits that earning capacity is not the same as business income where a claimant’s assessed earning capacity would ordinarily be significantly less than “business income including expenses”. The insurer submits a builder’s business might receipt $3,000 per week of which $1,000 was spent on materials and post-accident he commences full-time work with an employer who can accommodate his accident created restrictions, earning $2,000 gross per week. Taking a gross of expenses approach, the builder would be entitled to $1,000 per week in statutory benefits (subject to the statutory reduction) being the difference between his pre-accident gross business earnings and his post-accident earning capacity. Such an outcome would result in the builder being over compensated by $1,000. The insurer submits this cannot be the intention of the compulsory third party (CTP) scheme.
Claimant’s submissions
Mr Iskandar submits that gross earnings in an accounting definition does not mean net profit.
Mr Iskandar provided submissions which are undated. Mr Iskandar submits that his PAWE should be determined by reference to the gross income of his business. He submits that his business incurs fixed expenses that are not dependent on his turnover, namely, accounting costs, depreciation, rent, software expenses, subscriptions, telephone and internet. These expenses are payable even if he had no work. Mr Iskandar submits that gross earnings are determined by business income less the cost of goods sold.
Mr Iskandar provided an article titled MYOWNBUSINESS INSTITUTE of Santa Clara University My Own Business Institute 2020 which describes fixed costs and variable costs. Fixed costs include rent and lease costs, salaries, utility bills, insurance and loan repayments and some taxes like business licenses. Variable costs include costs that change such as raw materials, piece-rate labour, production supplies, commissions, delivery costs and packaging supplies. This article is written for an American audience.
Mr Iskandar also relies on an article titled “Gross Income vs Earned Income: What’s the Difference?, by Melissa Horton” published by Investopedia. This article is aimed at understanding the difference between gross income and earned income before filing a tax return. Gross income is defined as everything an individual earns for one year, both as worker and as an investor, whilst earned income only includes wages, commissions, bonuses and business income minus expenses if the person is self-employed. The article refers to the Internal Revenue Service (IRS) and is clearly written for an American audience.
Mr Iskandar provides a link to an article titled “Accounting Tools” published on The article dated 27 December 2023 defines gross earnings as the total earnings of an individual prior to deductions for income taxes and other taxes, as well as any deductions imposed by the employer.
In response to a Direction from the Panel, Mr Iskandar uploaded further submissions on 3 October 2010 including an article headed “What are Gross Earnings” from The definition of gross earnings for a business is defined as the total revenue less the cost of goods sold. This article references the IRS and clearly refers to the American market. He draws attention to the notion that “in the corporate world, it’s an accounting convention that refers to a public company’s gross profit or the amount left from total revenues over a specified time period once the cost of goods sold is deducted”.
Whilst the Panel understands Mr Iskandar’s submission, that his PAWE should be determined by reference to the gross income of his business, the documents he has provided to support his submissions are, by and large, designed for an American audience and are not persuasive in determining how the Panel should construe the words “gross earnings received by the earner” as they appear in sch 1 cl 4 of the MAI Act.
SUMMARY OF INCOME AND EXPENSES
On 4 September 2024, Mr Iskandar confirmed the accuracy of the summary of income and expenses contained in the PKF report, although he did not agree with their conclusion as to the PAWE.
PANEL FINDINGS
The parties agree the relevant provision for consideration is cl 4 of Sch 1 which refers to 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 accident occurred.
Statutory construction
The objects of the MAI Act
The Panel notes that s 1.3(4) and (5) of the MAI Act state:
“(4) In the interpretation of a provision of this Act or the regulations, a construction that would promote the objects of this act or the provision is to be preferred to a construction that would not promote those objects.
(5) In the exercise of a discretion conferred by a provision of the Act or the regulations, the person exercising the discretion must do so in a way that would best promote the objects of this Act or of the provision concerned.”
Section 33 of the Interpretation Act 1987 (NSW) provides:
“In the interpretation of a provision of an Act or statutory rule, a construction that would promote the purpose or object underlying the Act or statutory rule (whether or not that purpose or object is expressly stated in the Act or statutory rule or, in the case of a statutory rule, in the Act under which the rule was made) shall be preferred to a construction that would not promote that purpose or object.”
In Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (Northern Territory),[12] Hayne, Heydon, Crennan and Kiefel JJ observed:
“This court has stated on many occasions that the task of statutory interpretation must begin with a consideration of the text itself. … Historical considerations and extrinsic materials cannot be relied on to displace the clear meaning of the text. … The language which has actually been employed in the text of legislation is the surest guide to legislative intention. … The meaning of the text may require consideration of the context, which includes the general purpose and policy of a provision … , in particular the mischief … it is seeking to remedy.” (Citations omitted)
[12] Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (Northern Territory) [2009] HCA 41; (2009) 239 CLR 27; 260 ALR at [47].
Whilst it is true that the correct approach to statutory construction is that a construction that promotes the objects of the MAI Act is to be preferred to a construction that does not promote those objects, the Panel notes the recent comments of Griffiths AJA in Allianz Australia Insurance Limited v The Estate of the Late Summer Abawi where he described the objects of the MAI Act as reflecting “a range of conflicting or competing purposes”.[13]
[13] Allianz Australia Insurance Limited v The Estate of the Late Summer Abawi [2024] NSWSC 1245.
The objects of the MAI Act as set out in s 1.3(2) of the MAI Act, are as follows:
(a) to encourage early and appropriate treatment and care to achieve optimum recovery from injuries sustained in motor accidents and to maximise their return to work or other activities;
(b) to provide early and ongoing financial support for persons injured in motor accidents;
(c) to continue to make third-party bodily insurance compulsory for all owners of motor vehicle registered in New South Wales;
(d) to keep premiums for third-party policies affordable by ensuring that profits achieved by insurers do not exceed the amount that is sufficient to underwrite the relevant risk and by limiting benefits payable for soft tissue injuries and psychological or psychiatric injuries that are not recognised psychiatric illnesses;
(e) to promote competition and innovation in the setting of premiums for third-party policies, and to provide the Authority with a role to ensure the sustainability and affordability of the compulsory third-party insurance scheme and fair market practices;
(f) to deter fraud in connection with compulsory third-party insurance;
(g) to encourage the early resolution of motor accident claims and the quick, cost effective and just resolution of disputes, and
(h) to ensure the collection and use of data to facilitate the effective management of the compulsory third-party insurance scheme.
In Abawi Griffiths AJA commented:
“…given that all the stated objects reflect a range of conflicting or competing purposes, it is important to avoid permitting a purposive approach to dominate and drive the task of statutory construction, at the expense of the considerations of text and context”.
Those comments accord with what was said by Gleeson CJ in Carr v The State of Western Australia[14] at [5]:
“In the interpretation of a provision of an Act, a construction that would promote the purpose or object underlying the Act is to be preferred to a construction that would not promote that purpose or object. ... That general rule of interpretation, however, may be of little assistance where a statutory provision strikes a balance between competing interests, and the problem of interpretation is that there is uncertainty as to how far the provision goes in seeking to achieve the underlying purpose or object of the Act. Legislation rarely pursues a single purpose at all costs. Where the problem is one of doubt about the extent to which the legislation pursues a purpose, stating the purpose is unlikely to solve the problem. ...”
[14] Carr v The State of Western Australia [2007] HCA 47
The Panel notes Merit Reviewer Williams placed emphasis on s 1.3(2)(b) but did not otherwise engage with the balance of the objects, including those competing objects which are designed to ensure the sustainability and affordability of the scheme. Indeed, in s 1.3(3)(a) of the MAI Act it is acknowledged:
“That participants in the third-party insurance scheme have shared and integrated roles with the overall aim of benefiting all members of the motoring public by keeping the overall costs of the scheme within reasonable bounds so as to keep premiums affordable and of promoting the recovery and return to work or other activities of those injured in motor accidents”.
The Panel concurs with the obiter comments of Griffiths AJA in concluding that a purposive approach is of limited value in a statutory framework such as the CTP scheme which has competing objects and purposes. As in Abawi, the task of statutory construction cannot be undertaken solely by reference to the objects of the MAI Act where they lack a common purpose meaning it is necessary to ascertain the meaning of the provision “by reference to the language of the instrument viewed as a whole”.[15]
[15] Allianz Australia Insurance Limited v The Estate of the Late Summer Abawi [2024] NSWSC 1245.
Statutory construction requires the MAI Act to be read as a whole as per Metropolitan Gas Co v Federated Gas Employees’ Industrial Union[16] and the task is to construe the language of the statute, not individual words (St George Bank Ltd v Federal Commission of Taxation).[17]
[16] Metropolitan Gas Co v Federated Gas Employees’ Industrial Union (1924) 35 CLR 449 at [455].
[17] St George Bank Ltd v Federal Commission of Taxation (2009) 176 FCR 424 at [28].
The Panel considers it appropriate to construe Sch 1 cl 4(1) and Sch 1 cl 3(2)(b) by reference to the language of the statute construed as a whole with the aim of achieving “that result which will best give effect to the purpose and language of those provisions while maintaining the unity of all the statutory provisions”.[18]
[18] Project Blue Sky v Australian Broadcasting Authority [1998] HCA 28 at [70].
Gross earnings received by the earner
Clause 4 of Sch 1 refers to the “gross earnings received by the earner,” whilst cl 3(2)(b) of Sch 1 defines income from personal exertion as the proceeds of any business carried on by the person either alone or in partnership with another person.
The term “gross earnings” as it appears in Sch 1 cl 4 of the MAI Act gives rise to three possible interpretations:
(a) that gross earnings refers to the income of the business without any deductions;
(b) that gross earnings refers to the income of the business after deduction of all expenses but before deduction of tax, and
(c) that gross earnings refers to the income of the business after deduction of the cost of goods but before the deduction of other expenses and tax.
The Panel has already commented on the divergent approaches taken by Merit Reviewers in interpreting the meaning of “gross earnings received by the earner”.
The Panel notes the insurer agrees the word “gross” should be given its ordinary meaning but does not consider the Macquarie Dictionary definition relied upon by Merit Reviewer Williams of “whole, entire, or total, especially without having been subjected to deduction” can be relied upon to conclude that gross income refers to the income of the business without any deductions.
Whilst Merit Reviewer Williams assessed the gross earnings based on income less the cost of goods, he did so having regard to the consent of Mr Iskandar that it was appropriate to deduct the cost of goods but not fixed expenses, which Mr Iskandar submitted he would incur whether his business was trading or not. The Panel finds the approach taken by Merit Review Williams has created uncertainty.
Whilst the Panel agrees with Merit Reviewer Williams that determining the weekly average of the gross earnings of a self-employed earner is a question of fact to be determined on a case by case basis, the Panel does not agree that a differing approach should be adopted because of the type of self-employment in which an earner was engaged. Merit Reviewer Williams considered a different approach to the determination of the PAWE may be applied where the earner was self-employed in a partnership or where an earner was employed through a company structure. The Panel considers the current lack of comity demonstrated by the various decisions referred to by Merit Reviewer Williams demonstrates the uncertainty such an approach may engender.
The Panel is troubled by the idea that income from personal exertion as defined by Sch 1 cl 3(2)(b) means the proceeds of any business carried on alone or in partnership and not solely the personal income of the claimant from his personal exertion in the business.
Whilst Mr Iskandar was a sole trader, the provision also relates to the proceeds of any business carried on by a person in partnership. Partnerships can involve multiple partners who earn income for the business, albeit the business is conducted as a partnership. The proceeds of a business with one or more partners may be significant and the Panel finds it unlikely that the legislature intended that the proceeds of such a business without any deductions could constitute a person’s “income from personal exertion”. Indeed, it would be the proceeds of a business arising from the personal exertion of two or more persons.
Much has been said about fixed costs. Whilst it may be the case that a sole trader such as Mr Iskandar may be disadvantaged where he continued to incur fixed costs which are not dependent on his turnover such as accounting costs, depreciation, rent, software expenses, telephone, internet and like expenses, a partnership of two or more people may continue to operate and incur those fixed costs, notwithstanding the incapacity of one member of the partnership.
Clause 3(2)(b) of Sch 1 should be read in conjunction with cl 3(1) of Sch 1 which defines loss of earnings as “a loss incurred or likely to be incurred in a person’s income from personal exertion”. The Panel is of the view the income from personal exertion refers to the claimant’s share of the proceeds of the business, not the entire proceeds of the business without any deductions.
This interpretation of Sch 1 cl 3(2)(b) is consistent with the wording of Sch 1 cl 4 which refers to the “weekly average of the gross earnings received by the earner as an earner” (emphasis added) and not the weekly average of the proceeds of any business carried on by the earner.
The Panel agrees with the insurer that to assess the gross earnings as the income of the business without any deductions fails to take into consideration the requirement that the earnings be “received by the earner as an earner”. As submitted by the insurer, if a business received funds for a job which was then directed to other employees or contractors then this would be business income but not the earnings of the claimant as an earner.
Further, business income may include GST collected by the business but directed to the government. Clearly, the recovery of GST as business income cannot be “gross earnings received by the earner as an earner”.
Sections 3.6, 3.7 and 3.8 of the MAI Act and the definition of gross earnings
In Project Blue Sky, McHugh, Gummow, Kirby and Hayne JJ observed at [70] that a legislative instrument must be construed on the prima facie basis that its provisions are intended to give effect to harmonious goals.[19]
[19] Project Blue Sky v Australian Broadcasting Authority [1998] HCA 28.
An injured person’s entitlement to weekly payments of statutory benefits under ss 3.6 and 3.7 of the MAI Act is calculated by reference to PAWE which are determined in accordance with Sch 1 cl 4(1).
The Panel agrees with the insurer that any interpretation of the phrase “pre-accident weekly earnings” must be applied consistently to any earner.
During the first entitlement period (s 3.6(2)) and the second entitlement period (s 3.7(2)), the weekly payment of statutory benefits is calculated by reference to the difference between the pre-accident weekly earnings (Sch 1 cl 4(1)) and the person’s post-accident earning capacity.
The Panel agrees that pre-accident weekly earnings and a person’s post-accident earning capacity may differ and the difference between those figures may be artificially inflated if the weekly gross earnings received by the earner are calculated by reference to the proceeds of a business without deductions but before tax.
However, after week 78 under s 3.8 of the MAI Act, the entitlement to weekly statutory payments is not assessed by reference to pre-accident weekly earnings but by reference to a loss of earning capacity. If the statutory payments for the first 78 weeks are calculated by reference to the proceeds of a business without deductions but before tax, those payments may be much greater than the entitlement to statutory payments after the first 78 weeks which would be assessed as a loss of earning capacity. The Panel considers this approach would lead to inconsistent outcomes in assessing an entitlement to statutory benefits for those more seriously injured persons with continuing needs after the first 78 weeks.
Such an outcome would not accord with what was said in the Second Reading Speech when the Motor Accidents Injuries Bill 2017 was introduced into parliament by The Hon Victor Dominello on 9 March 2017 referred to in paragraph 70 above; nor would it give effect to harmonious goals.
Interaction with common law rights
It is apparent from the MAI Act and the Second Reading Speech that, statutory benefits for injured persons may be paid up to three years and thereafter, an injured person may have an entitlement to common law damages.
An entitlement to common law damages is governed by Part 4 of the MAI Act. Under s 4.5 of the MAI Act damages are payable for past or future economic loss due to loss of earnings or the deprivation or impairment of earning capacity. In cases such as Medlin v State Government Insurance Commission[20] and Husher v Husher,[21] the High Court has confirmed that the fundamental question to be determined when assessing damages for economic loss at common law are whether the claimant has sustained a loss or diminution in his earning capacity and, if so, whether that loss or diminution will result in economic loss.
[20] Medlin v State Government Insurance Commission (1995) HCA 5.
[21] Husher v Husher (1999) 197 CLR 138.
If statutory payments received by a person injured in a motor accident were calculated by reference to the proceeds of a business without deductions but before tax, it would lead to an absurd outcome where the amount received by way of statutory payments under ss 3.6 and 3.7 of the MAI Act may significantly exceed the amount of past economic loss recoverable at common law.
Section 3.40(1)(b) of the MAI Act requires the amount of any statutory benefits already paid in respect of the injury to be deducted from any damages to be paid to the injured person.
The Panel finds that, reading the MAI Act as a whole and with the aim of achieving harmonious goals, it was not the intention of the legislature to provide an entitlement to statutory payments which have the potential to significantly exceed the amount recoverable by way of past economic loss at common law.
CONCLUSION
The Panel considers business expenses should be deducted from the business income for the purposes of a PAWE calculation. The Panel follows the reasoning of Merit Reviewer Ruschen in the matter of Hayes v GIO[22] where at [18] she stated:
“…the earnings of the claimant as an individual as distinct from the business, are the profits of the business after expenses of the business are paid. In other words, the ‘proceeds’ of the business the claimant receives as an earner is the net profit of the business after accounting for all business expenses incurred to run the business, but before tax. Business expenses are not ‘proceeds’ of the business that make it into the claimant’s hands as his individual gross earnings.”
[22] Hayes v GIO [2022] NSWPICMR 17
The Panel finds that, loss of earnings in Sch 1 cl 3(b) relates to the proceeds of any business resulting from the earners own personal exertion and therefore, the term gross earnings as it appears in Sch 1 cl 4 relates to the gross earnings received by the earner after the deduction of business expenses but before the deduction of tax.
Calculation of PAWE
Mr Iskandar’s business earned income totalling $76,963 during the 12 months immediately before the day on which the accident occurred.
The business incurred the cost of goods totalling $14,706 and expenses totalling $34,625 during that 12 month period.
The income of Mr Iskandar as a self-employed earner during the 12 months immediately before the day on which the accident occurred was $27,632.
The weekly average of the gross earnings received by Mr Iskandar as an earner during the 12 months immediately before the day on which the accident occurred was $531.38.
PANEL DETERMINATION
The Panel revokes the decision of Merit Reviewer Williams dated 12 June 2024.
The Panel determines for the purposes of Sch 1 cl 4(1) of the MAI Act, the PAWE are $531.38.
The date of effect is 11 March 2024.
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