John Ian Hagar and Repatriation Commission
[2013] AATA 557
[2013] AATA 557
| Division | VETERANS' APPEALS DIVISION |
| File Number | 2012/3696 |
| Re | John Ian Hagar |
| APPLICANT | |
| And | Repatriation Commission |
| RESPONDENT |
DECISION
| Tribunal | G. D. Friedman, Senior Member |
| Date | 8 August 2013 |
| Place | Melbourne |
The Tribunal sets aside the decision under review and substitutes a decision that Mr Hagar is eligible to receive disability pension at the special rate from 24 April 2009.
...............................[sgd].........................................
G. D. Friedman, Senior Member
VETERANS' AFFAIRS – veterans’ entitlements – special rate of pension – self-employed builder - whether incapacity from war-caused injuries alone prevented the veteran from undertaking remunerative work –- whether loss of salary or wages or earnings of own account – whether payments received from income protection insurance constitute earnings
Veterans’ Entitlements Act 1986 s 24(1)(a), (b) and (c)
Cavell v Repatriation Commission (1988) 9 AAR 534
Counsel v Repatriation Commission [2002] FCAFC 201
Flentjar v Repatriation Commission (1997) 48 ALD 1
Forbes v Repatriation Commission (2000) 101 FCR 50
Re Bayford and Repatriation Commission [2011] AATA 913
Re Fahey and Repatriation Commission [1986] AATA 244
Re Howieson and Repatriation Commission [2002] AATA 1258
Re Jones and Repatriation Commission [2011] AATA 631
Re Nelson and Repatriation Commission [2007] AATA 1597
Re Thurlow and Repatriation Commission [2002] AATA 723
Repatriation Commission v Connell [2011] FCAFC 116
Repatriation Commission v Greenwood (1990) 22 ALD 289
Smith v Repatriation Commission [2012] FCA 1043
Thomas v Repatriation Commission (1994) 50 FCR 112
REASONS FOR DECISION
G. D. Friedman, Senior Member
8 August 2013
John Hagar is receiving disability pension at 100 per cent of the general rate and he now seeks the higher loss-of-earnings related payment known as special rate. He worked as a teacher in building disciplines from 1972 until 1995, then as a self-employed builder until 1999 when he suffered a stroke.
The special rate of pension requires, among other things, that a person is prevented from continuing to undertake remunerative work, and cannot work more than eight hours per week, by reason of war-caused disability. The respondent says that Mr Hagar is not entitled to special rate because there were reasons other than his war-caused disabilities of spondylolysis, recurrent otitis externa, intracerebral haemorrhage and sensorineural hearing loss that account for him not working during the assessment period that commenced in 2009, and that he has not suffered a loss of wages, salary or earnings by no longer working.
LEGISLATIVE BACKGROUND
Section 24 of the Veterans’ Entitlements Act 1986 (the VE Act) makes provision for payment at rates higher than 100 per cent of the general rate of pension:
24(1) This section applies to a veteran if:
…
(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…
…
(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…
…
(2) For the purpose of paragraph (1)(c):
(a)a veteran who is incapacitated from war-caused injury or war-caused disease, or both, shall not be taken to be suffering a loss of salary or wages, or of earnings on his or her own account, by reason of that incapacity if:
(i) the veteran has ceased to engage in remunerative work for reasons other than his or her incapacity from that war-caused injury or war‑caused disease, or both; or
(ii) the veteran is incapacitated, or prevented, from engaging in remunerative work for some other reason; and
(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.
ISSUE
There was no dispute that Mr Hagar satisfies s 24(1)(a) and s 24(1)(b) of the VE Act. The issue before the Tribunal is whether he satisfies s 24(1)(c) of the VE Act.
DOES MR HAGAR SATISFY S24(1)(C) OF THE VE ACT?
In Flentjar v Repatriation Commission (1997) 48 ALD 1 the Full Federal Court described the test in s 24(1)(c) as:
(1) What was the relevant “remunerative work that the veteran was undertaking” within the meaning of s 24(1)(c) of the Act?
(2) Is the veteran, by reason of war caused injury or war caused disease, or both, prevented from continuing to undertake that work?
(3) If the answer to question 2 is yes, is the war caused injury or war caused disease, or both, the only factor or factors preventing the veteran from continuing to undertake that work?
(4) If the answer to questions 2 and 3 are, in each case, yes, is the veteran by reason of being prevented from continuing to undertake that work, suffering a loss of salary, wages or earnings on his own account that he would not be suffering if he were free of that incapacity?
What was the relevant “remunerative work that the veteran was undertaking” within the meaning of s 24(1)(c) of the Act?
Mr Hagar told the Tribunal that he was born in 1945 and left school after the equivalent of Year 8. He completed an apprenticeship in carpentry and began work as a self-employed carpenter before being called up for national service from 29 September 1965 to 28 September 1967. After discharge he resumed his carpentry business and undertook studies to obtain a Diploma of Building, a Teacher’s Certificate in Building and Diploma of Technical Teaching. In 1972 he commenced employment with the Victorian Education Department in the evenings as a teacher in technical schools, where he taught carpentry, building construction, quantity surveying, estimating and building mathematics. From about 1974 or 1975 he also commenced his own building business through a family company and he worked in this business during the day. In 1995 he ceased teaching to concentrate on his business, which he continued until he suffered a stroke in 1999.
The answer to question (1) is carpenter/builder.
Is the veteran, by reason of war caused injury or war caused disease, or both, prevented from continuing to undertake that work?
Mr Hagar stated that he worked at least 60 hours each week, the family building business was profitable, and he intended to continue working until at least the age of 65 years and probably longer because he enjoyedit. However after suffering the stroke he required rehabilitation for six months. He said that he has been prevented from continuing this work because of his impaired concentration, memory and decision-making ability.
Mrs L Hagar told the Tribunal that she and Mr Hagar were married on 25 May 1967 and she confirmed that Mr Hagar operated the business on a full-time basis until his stroke in 1999. She explained that after the stroke she took over the management of the business with the assistance of employees and contractors because of Mr Hagar’s stroke-related impairments.
The answer to question (2) is yes.
If the answer to question 2 is yes, is the war caused injury or war caused disease, or both, the only factor or factors preventing the veteran from continuing to undertake that work?
Mr Hagar stated that the stroke he suffered was the only factor preventing him from continuing to perform his longstanding role in the company. He had been in good health and the business was successful. Mr Hagar explained that at the time of his stroke he intended to develop a number of vacant blocks of land owned by his company. He said that at the beginning of the assessment period in 2009 he was aged 64 years and would have had no difficulty working as a carpenter/builder despite his age and time out of the work force, because of his skills and experience in the building industry and his continuing desire to work.
Mrs Hagar maintained that if not for the stroke Mr Hagar would still be working, and that former clients sometimes contact her with a request for him to undertake building work. She said that he had never contemplated retirement, even though they had a number of grandchildren and had looked forward to some leisure activities such as travel. She also said that Mr Hagar has expressed envy because a friend aged 70 years is still working.
Dr A Sillcock, occupational physician, stated in a report dated 2 February 2013 that Mr Hagar’s accepted conditions were the only factors preventing him from continuing to undertake his previous work.
The Tribunal takes into account the evidence from Mr Hagar, Mrs Hagar and Dr Sillcock and accepts that Mr Hagar would have continued to work as a carpenter/builder in the business but for the stroke. The Tribunal also accepts that his age and time out of the work force during the assessment period would not have affected his ability to work, given his interest in working, his skills and his experience in the building industry. Therefore the Tribunal finds that the accepted conditions were the only factors preventing him from continuing to undertake that work, so the answer to question (3) is yes.
If the answer to questions 2 and 3 are, in each case, yes, is the veteran by reason of being prevented from continuing to undertake that work, suffering a loss of salary, wages or earnings on his own account that he would not be suffering if he were free of that incapacity?
Mr Hagar told the Tribunal that since ceasing work in 1999 he has been suffering a loss that he would not have suffered if he were free of the accepted conditions. He produced personal tax records from 1993 to 2012 and tax records for the Hagar Family Trust (the business) for the same period. He said that at the time of the stroke the business had been profitable and the records show that he was paid a nominal salary of $6000 per year, although he did not receive this amount and he and his wife used the company’s accounts to meet their day-to-day living expenses. Mr Hagar told the Tribunal that an architect had prepared drawings for the construction of several dwellings to be built by the company. After his stroke Mrs Hagar began operating the business, aiming to complete outstanding projects until about 2009 when the business ceased trading and the profits were distributed to him and his wife through the family trust. Financial records show that the business had a trading profit of $206,036 in 1998 and a decline to $185,980 in 2001. It had a trading loss of $82,606 in 2004. Mr Hagar said that the business had ceased to be profitable because he was not able to contribute to the completion of existing projects or to obtain additional work.
In respect of income protection insurance, Mr Hagar stated that the company had taken out an income protection insurance policy on his behalf and had received total incapacity payments under the policy until he reached the age of 65 years. Mr Hagar said that the company, through its accountant, had used the payments to assist with the operation of the business, and he did not receive the income personally.
Mrs Hagar told the Tribunal that she took over the business in 1999 in the expectation that Mr Hagar would recover sufficiently to resume his previous role of arranging quotes, client liaison, engaging contractors and performing some hands-on tasks. However this did not eventuate and she made alternative arrangements to complete existing projects and home renovations. She said that without Mr Hagar’s involvement the company was not able to pursue new projects or undertake projects away from the Melbourne metropolitan area, leading to a reduction of the company’s activities until 2009, when the final project was completed. Mrs Hagar said that the company will be wound up as soon as an investment property in Queensland is sold.
In Cavell v Repatriation Commission (1988) 9 AAR 534 Burchett J said that decisions regarding s 24(1)(c) should be made with an eye to reality and that common sense is the proper guide. This principle was supported in Forbes v Repatriation Commission (2000) 101 FCR 50 and re-stated in Smith v Repatriation Commission [2012] FCA 1043.
In respect of …earnings on his own account the Tribunal notes that in Re Fahey and Repatriation Commission [1986] AATA 244 the Tribunal held at [11] in respect of a self-employed farmer that earnings for the purposes of the VE Act constitute earnings from personal exertion:
...It seems to us that the question is not one of loss of income, that is to say of reduced support, but rather of loss of (a) salary, (b) wages, or (c) earnings on the veteran's own account, that the veteran would not be suffering if he or she had been free of the incapacity. And it is all in the context of being "prevented from continuing to undertake remunerative work". The phrase here relevant, namely "earnings on his or her own account", was in our opinion clearly inserted to cover the case of a person who derived not salary or wages, but rather the earnings of a business, profession or trade as a result of remunerative work. There is a loss of salary or wages, or of earnings on one's own account, when one does suffer a loss of remuneration properly so described.…It would have been very easy for the legislature to have said "loss of income" if that was what was meant. Instead the legislature has used a more lengthy formula which, on a fair reading, is more restrictive in its scope. It would not be correct to subvert the legislative intent by giving "earnings on his own account" an interpretation so expansive that it, together with "wages and salary", adds up to mean "income"…It is reasonable to conclude that, not having used that term in s.24, it was not intended to cover all that is covered by the term "income".
In Repatriation Commission v Greenwood (1990) 22 ALD 289 Davies J agreed with the approach taken in Re Fahey and stated at 295:
…The company was set up in 1977 to perform a commercial function, that of carrying out building and associated activities. By the end of 1986, that substratum of purpose of the company had gone, because of Mr Greenwood’s ill health…The [T]ribunal correctly took the view that the winding up of the company was not a matter independent of Mr Greenwood’s emphysema but was a matter caused by his emphysema as his medical condition precluded him from working in the building industry through the instrument of the company.
In Thomas v Repatriation Commission (1994) 50 FCR 112 Beazley J agreed with the reasoning in Re Fahey.
In Counsel v Repatriation Commission [2002] FCAFC 201 the appellant was involved in a farming business in partnership with his wife and had contributed significantly to the business before his incapacity. The Full Federal Court held that he had suffered a loss of earnings because he no longer had access to the cash flow or earnings of the business. At [81] Goldberg J referred to:
…the requirement that the entitlement to a special rate pension depends on establishing not only that war-caused injury or disease has prevented the veteran from undertaking the remunerative work he or she has been undertaking, but that it has also brought about a cessation of the generation of an income stream which hitherto existed. Put another way, the appellant's efforts of personal exertion no longer produce money.
At [20] Gray J referred to the beneficial nature of the legislation stated that he agreed with Goldberg J. He said:
…In the case of a partner, such as the appellant, whose physical and mental labour produced or contributed to the generation of that income, it is appropriate to regard that income as “earnings on his or her own account”…
In Re Howieson and Repatriation Commission [2002] AATA 1258 the Tribunal held that an earthworm farmer’s business never returned a profit, but after ceasing work the farmer lost access to the cash flow that the business generated and which he used to pay expenses, and that this was held to be a loss of wages, salary or of earnings on his own account.
In Re Thurlow and Repatriation Commission [2002] AATA 723 the Tribunal applied Re Fahey and Greenwood in connection with a scrap metal merchant who received rental income from his son in the business but this was not considered to be earnings on his own account.
In Re Nelson and Repatriation Commission [2007] AATA 1597 the Tribunal considered whether payments received under an income protection insurance policy represented earnings for the purposes of s 24(1)(c). The Tribunal stated at [5]:
While I accept the veterans’ legislation is beneficial legislation and ambiguities should be resolved in favour of the veteran, the meaning of the word earnings is clear enough. The legislation is intended to provide a safety net to veterans who are worse-off after being forced to leave work because of their service-related condition(s). If a veteran receives payments under an insurance policy explicitly intended to replace payments he would otherwise receive, the replacement payments must be treated in like the original payments.
The Tribunal applied the reasoning that was expressed in two tax cases and found that the payments made under the insurance policy should be treated as income and taken into account for the purposes of the VE Act.
In Repatriation Commission v Connell [2011] FCAFC 116 the Full Federal Court stated at [28]:
…Being able to perform work without restriction because of illness or injury is a situation far removed from being able to perform the same work, but with restrictions due to illness or injury. Each is remunerative work of the same type, in this case, painting. But it is not the same remunerative work considering the nature and quality of the work. If one is performing full-time work without any health related restrictions that reduce one’s hours on account of such restrictions it cannot be sensibly said that the later work is a continuation of the work previously undertaken. It is of an entirely different nature and quality, although identical in terms of describing the relevant occupation.
In Re Jones and Repatriation Commission [2011] AATA 631 the Tribunal stated at [83]:
…for the purposes of s 24(1)(c) of the VE Act, I am only concerned of earnings derived by MrJones through his personal exertion. MrJones made it clear in his evidence, which is supported by all of the financial records in question, that the company’s earnings which were due in substantial part to his personal exertion declined substantially in 2007, eventually reaching zero in 2009. He admitted that he continued to receive dividends as a result of monies invested by the company, some rental income until the factories were sold and the distribution of monies following the sale of the factories by the partnership. None of these earnings were the result of his personal exertion…
In Re Bayford and Repatriation Commission [2011] AATA 913 the Tribunal held that dividends received by the applicant from a company operated by him and his wife did not constitute earnings from his personal exertion for the purposes of an application for special rate.
The only authority directly relevant to income protection insurance policy payments is Re Nelson. However in that decision the Tribunal referred to earnings but found the insurance payments were income which had to be taken into account. In addition, there was no reference to relevant decisions under the VE Act, and the two cases cited referred to income under the taxation legislation, which differs from the VE Act. For these reasons the Tribunal chooses not to follow the reasoning in Re Nelson.
The Tribunal is satisfied that although Mr Hagar’s building business has been conducted through a company, the arrangements were similar to a partnership operated by him and his wife. The reasoning in Re Fahey and Greenwood, as followed in later decisions of the Federal Court and the Tribunal, is applicable. Consequently the Tribunal finds that the amounts of income received by the company on Mr Hagar’s behalf under the terms of the income protection insurance policy after he ceased work in 1999 were used by the company to conduct its affairs and do not represent financial rewards from his personal exertion. They are not earnings on his own account.
Similarly the Tribunal follows the reasoning in Counsel that after Mr Hagar ceased work he was unable to contribute to the operation of the business and was unable to generate an income stream that had existed previously. For this reason Mrs Hagar assumed control in order to complete existing projects. Without Mr Hagar’s contribution new projects were not undertaken or opportunities pursued. This resulted in the decline in profitability of the business to the stage where in 2009 the business had in effect ceased trading. Consequently the Tribunal finds that Mr Hagar suffered …a loss of salary, wages or earnings…There is no requirement that a loss be measured by reference to profit and loss accounts of the business, which may fluctuate from year to year.
For these reasons the Tribunal finds that the answer to question (4) is yes.
CONCLUSION
As Mr Hagar satisfies the test in Flentjar the Tribunal finds that he satisfies s 24(1)(c) of the Act and he meets the criteria for disability pension at the special rate.
DECISION
The Tribunal sets aside the decision under review and substitutes a decision that Mr Hagar is eligible to receive disability pension at the special rate from 24 April 2009.
| I certify that the preceding thirty-six (36) paragraphs are a true copy of the reasons for the decision of G. D. Friedman, Senior Member |
......................[sgd]..................................................
Associate
Dated 8 August 2013
| Date of hearing | 1 August 2013 |
| Counsel for the Applicant | Ms F Spencer |
| Solicitors for the Applicant | Williams Winter |
| Counsel for the Respondent | Mr K Rudge |
| Solicitors for the Respondent | Department of Veterans' Affairs |
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