Liu v QBE Insurance (Australia) Limited
[2024] NSWPICMR 65
•22 August 2024
| CERTIFICATE OF DETERMINATION OF MERIT REVIEWER | |
CITATION: | Liu v QBE Insurance (Australia) Limited [2024] NSWPICMR 65 |
CLAIMANT: | Mengye Liu |
INSURER: | QBE |
MERIT REVIEWER: | Katherine Ruschen |
DATE OF DECISION: | 22 August 2024 |
CATCHWORDS: | MOTOR ACCIDENTS - Motor Accident Injuries Act 2017 (MAI Act); Division 3.3; dispute about payment of weekly benefits; meaning of pre-accident weekly earnings; meaning of earnings; clause 4 in Schedule 1 to the MAI Act; self-employment; sole trader versus company; company as separate legal personality; rental income; clause 3(3)(b); Held– the reviewable decision is set aside. |
DETERMINATIONS MADE: | CERTIFICATE Issued under s 7.13(4) of the Motor Accident Injuries Act2017 DETERMINATION The reviewable decision is about the amount of weekly payments of statutory benefits that are payable under Division 3.3 of the Motor Accident Injuries Act 2017 (the MAI Act) and is therefore a merit review matter under Schedule 2(1)(a) of the MAI Act. 1. The reviewable decision is set aside. 2. The claimant’s pre-accident weekly earnings (PAWE) amount is $576.55. |
STATEMENT OF REASONS
INTRODUCTION
There is a dispute between Mengye Liu (the claimant) and the insurer about the amount of weekly payments of statutory benefits payable under Division 3.3 of the Motor Accident Injuries Act 2017 (the MAI Act).
The claimant was involved in a motor accident on 11 April 2023.
On 4 July 2023 the insurer determined the claimant’s PAWE amount is $326.15.
The claimant requested an internal review of the PAWE decision and on 19 July 2023 the insurer issued their internal review decision in which they affirmed their original PAWE decision.
The claimant has requested a merit review of the insurer’s internal review decision dated 19 July 2023 (the Application).
SUBMISSIONS
The claimant submits at all material times he derived earnings from R&J Timber Floor Pty Ltd (the Company). He submits in the 2023 financial year (until the accident on
11 April 2023) the Company derived total gross “sales” in the sum of $139,304 as declared in the Company’s business activity statements (BAS). The claimant submits PAWE should be based on the weekly average of Company sales in the 2023 financial year and therefore his PAWE is $2,678.92 (total sales of $139,304 divided by 52 weeks).The insurer submits that relying on sales of the business is not the correct method to calculate PAWE and that the claimant’s PAWE should be calculated based on the income received by the claimant from the business that is, the net profit of the business after deducing business expenses. The insurer also submits that insufficient information has been provided by the claimant to enable proper assessment of PAWE.
IINTERIM DIRECTIONS
Prior to this merit review the insurer requested various additional documents from the claimant in order to determine PAWE. The majority of those documents were not provided.
On 21 June 2024 interim directions were issued requiring the claimant to provide various outstanding documents.
The claimant is legally represented. The claimant has only partially complied with the interim directions. Accordingly, whilst I do not consider all of the documents called for by the insurer to be necessary, there remains some deficiency in the claimant’s evidence.
REASONS
Issues
The claimant has not made any submission that his PAWE assessment falls under any of the exceptions to cl 4(1) in cl 4(2) and his own calculation is based on a weekly average over 52 weeks pursuant to cl 4(1). Accordingly, it is understood the parties agree the claimant’s PAWE is to be assessed under Sch 1, cl 4(1) of the MAI Act.
The issue to be determined is whether the claimant’s PAWE amount under cl 4(1) is to be assessed on the basis of total gross sales of the Company, or the net profit of the Company, or the claimant’s personal/individual earnings received from the Company that is, the amount paid to him by the Company as director fees, wages, profit distribution or similar payments.
The legislation
Pursuant to Schedule 1, cl 4 of the MAI Act PAWE means:
“(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.
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.
…
(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.”
As noted, it is understood the parties agree cl 4(1) applies to the claimant’s circumstances. The claimant has not made any submission to the contrary and says he has been earning as either a sole trader or director of a company, conducting a timber floor installation business, for the 2022 and 2023 financial years up until the accident. Accordingly, the claimant’s PAWE is to be calculated under Schedule 1, cl 4(1).
What is the claimant’s PAWE under cl 4(1)?
Under Sch 1, cl 4(1) the claimant’s PAWE is the weekly average of the gross earnings received as an earner in the 12 month period before the day of the motor accident.
The motor accident occurred on 11 April 2023. Accordingly, under cl 4(1) the pre-accident period is 11 April 2022 to 10 April 2023.
Clause 4(1) provides that the claimant’s PAWE is “the weekly average of the gross earnings received by” the claimant in this 12 month period. Accordingly, only earnings received by the claimant in the period 11 April 2022 to 10 April 2023 are included in PAWE. Earnings received before or after this period are excluded, including earnings received after 10 April 2023 even if they represent work carried out prior to this date. Further, monies received by the Company are excluded from PAWE, if the claimant as an individual earner did not receive the earnings from the Company in the pre-accident period.
The parties have approached PAWE as if the claimant were self-employed running a business as a sole trader for the whole of the 12 month pre-accident period. However, the evidence establishes that for only part of the 12 months before the accident, prior to 1 July 2022, the claimant operated as a sole trader and thereafter, he incorporated the Company to operate the business.
Accordingly, for most of the pre-accident period the claimant was not operating the business as a sole trader. Instead, the relevant business was operated by the Company. Pursuant to section 1.5.1 of the Corporations Act 2001 (Cth):
“As far as the law is concerned, a company has a separate legal existence that is distinct from that of its owners, managers, operators, employees and agents. A company has its own property, its own rights and its own obligations. A company's money and other assets belong to the company and must be used for the company's purposes. A company has the powers of an individual, including the powers to: * own and dispose of property and other assets * enter into contracts * sue and be sued. Once a company is registered, its separate legal status, property, rights and liabilities continue until ASIC (Australian Securities and Investments Commission) deregisters the company.”
Accordingly, the entity that carries on the business (the Company), as a registered corporation, is therefore a separate legal personality from the claimant and monies received by the Company are not monies received by the claimant unless and until the Company passes on those monies to the claimant by making payment to the claimant. This might be by way of wages, director fees or distribution of the Company’s net profits to its shareholders. .
Clause 4(1) is concerned only with monies received “by the earner” that is, the claimant. It is therefore incorrect to calculate PAWE based on the income (before or after business expenses) received by the Company, as the Company and the claimant are separate legal personalities and income received by the Company is not income received by the claimant. Accordingly, I do not accept that calculation of the claimant’s PAWE by working out the weekly average of the Company’s gross (or net) sales is correct or permitted by cl 4(1).
There are other difficulties with the claimant’s position that his PAWE is the weekly average of the gross sales of the Company in the financial year from 1 July 2022 to
30 June 2023. Firstly, cl 4(1) does not permit assessment of PAWE based on the nearest financial year. The clause is specific in that PAWE is to be calculated over the 12 month period before the day of the accident. That period, for the claimant, is
11 April 2022 to 10 April 2023.Secondly, even if the claimant’s PAWE were to be assessed based on income of the Company regardless of whether any payments were made by the Company to him, the gross sales figure relied on by the claimant in the BAS is inclusive of GST. The GST component of monies received by the Company is not income or earnings of the Company. It is a tax collected by the Company on behalf of the Australian Government, which is then remitted to the Australian Taxation Office (ATO), as set out in the BAS. The gross sales figure of $138,457 relied on by the claimant for the purpose of cl 4(1) is the gross sales of the Company, including GST. Gross sales, net of GST, are $125,870.
Lastly, the claimant has not accounted in any way for expenses of the business. The gross sales figure relied on by the claimant based on the Company BAS is not only inclusive of GST but also inclusive of all expenses of the business. The BAS, bank statements of the Company and Company tax returns demonstrate the business had significant expenses, including cost of materials and regular payments to subcontractors. The 2023 Company tax return records that after accounting for business expenses the Company made a net loss of $94,629.
Given the Company and the claimant are separate legal personalities and cl 4(1) is only concerned with monies received by the claimant from the Company I do not need to undertake any exercise in determining the expenses of the Company or which expenses should be deducted for the purpose of PAWE.
What earnings did the claimant receive in the period 11 April 2022 to 10 April 2023?
The evidence
The claimant has provided the following documents:
(a) application for personal injury benefits in which the claimant declared annual gross earnings of $96,000 as a “self-employed” floor installer. (however, the claimant did not operate a business as a sole trader. The relevant business was operated by an incorporated company);
(b) an ASIC record showing the claimant is the sole director and shareholder of the Company and that the Company was first registered on 9 May 2024;
(c) tax invoices said to have been issued by the Company in the period 17 June 2022 to 13 April 2023 (although it would appear from other information that not all of these invoices were paid before the day of the motor accident);
(d) the claimant’s individual tax return and notice of assessment for the 2021 tax year showing the claimant received gross income of $18,181 solely from government allowances and payments and not from any employment or business;
(e) the claimant’s individual tax return and notice of assessment for the 2022 tax year recording gross taxable income in the sum of $18,000 as a sole trader;
(f) the claimant’s 2023 individual tax return and notice of assessment showing total income of $36,303 made up of weekly payments of $6,394 from the insurer in respect of the motor accident, $27,400 as “small business income” and net rental income of $2,509;
(g) the Company’s 2022 tax return showing nil income;
(h) the Company’s 2023 tax return showing gross profit $156,344, cost of sales $71,214, cost of subcontractors $27,400; depreciation expenses $129,482 and motor vehicle expenses $15,298 leaving a net loss of $94,629 for the Company;
(i) the Company BAS showing nil sales from April to June 2022, $51,859 in sales including GST from July to September 2022; $45,586 including GST in sales from October to December 2022 and $41.012 including GST in sales from January 23 to March 2023 (total $138,457 including of GST; $125,870 net of GST);
(j) the Company bank statements for the period 23 May 2022 to 31 May 2023, and
(k) the claimant’s bank statements for the period 29 August 2022 to 1 March 2023.
The claimant’s and the Company bank statements show the Company made (and the claimant received from the Company) payments to the claimant as “installer” payments in the 12 months before the accident from 11 April 2022 to 10 April 2023, as set out in the below table. The dates for corresponding transactions in the statements vary in some instances because from time to time payment by the Company took 1 to 2 days to reach the claimant’s bank account. Given cl 4(1) is concerned with earnings “received” by the claimant in the 12 months before the accident I have taken the dates from the claimant’s bank statements, as these are the dates on which the payments were received by the claimant.
Date
Amount
31 July 2022
$6,500
4 August 2022
$1,500
5 August 2022
$500
8 August 2022
$1,200
10 August 2022
$700
8 September 2022
$1,400
23 September 2022
$2,150
7 November 2022
$1,300
1 December 2022
$1,100
5 December 2022
$700
19 December 2022
$1,650
6 February 2023
$2,300
9 February 2023
$3,000
20 February 2023
$2,000
TOTAL
$26,000
Sole trader income 11 April 2022 to 30 June 2022
The claimant declared gross earnings (after business expenses) in his 2022 tax return in the sum of $18,000 via a sole trader business.
The interim directions required the claimant to provide source documents in respect of his 2022 tax return to enable a determination of how much of the claimant’s income in the period 1 July 2021 to 30 June 2022 was received in that part of the 12 month pre-accident period from 11 April 2022 to 30 June 2022. The claimant failed to provide any further documents. Accordingly, it is not known precisely how much of this income was received on or after 11 April 2022.
The insurer complains that there is insufficient information upon which to calculate PAWE over the precise pre-accident period because of the lack of source documents in respect of the 2022 financial year and that the onus is on the claimant to establish his earnings in the relevant period.
Despite being required to do so by the interim directions the claimant has not marked up any bank statements to indicate any payments received into his bank account as representing earnings received by him or the business during the sole trader period.
Whilst the bank statements assist in calculating gross earnings received by the claimant in the 12 months before the accident from when the Company commenced earning, the claimant has failed to provide evidence as to how much of his earnings in the 2022 tax year were received in the pre-accident period from 11 April 2022 to
30 June 2022. All that is known is that from 1 July 2021 to 30 June 2022 the claimant received gross earnings (net of business expenses) as a sole trader in the sum of $18,000.Whilst it is correct that the claimant has the onus of proof, the test is the balance of probabilities. Having regard to the following I am satisfied on balance that the claimant likely earned $18,000 as a sole trader over the whole of the 2022 financial year:
(a) in submissions, the claimant states he received this income in the 2022 financial year that is, over a period of 12 months;
(b) in the 2021 tax year the claimant’s sole income was from government allowances whereas the 2022 tax return does not record income from any source other than as a sole trader, and
(c) the cessation of government allowances upon the commencement of the 2022 tax year indicates the claimant had likely commenced as a sole trader from the beginning of the 2022 financial year.
As merit reviewer my role is to determine the correct and preferrable decision. Whilst the insurer is correct in that cl 4(1) requires PAWE to be calculated over a precise period, in this case there is some evidence upon which to determine likely earnings over the precise period, consistent with the application of the balance of probabilities test. Given the above, I consider it reasonable to conclude on balance that the claimant likely generated gross earnings as an earner in the amount of $18,000 over the whole of the 12 months of the 2022 financial year. This equates to a weekly average of $346.15.
Accordingly, assuming a weekly average of $346.15 the claimant’s gross earnings in the relevant period from 11 April 2022 to 30 June 2022 (11.5 weeks) were $3,980.75.
There is no evidence of any earnings as a sole trader after 30 June 2022.
Earnings via the company from 1 July 2022 to 10 April 2023
The evidence establishes that for the balance of the 12 month period before the accident the claimant moved his business from a sole trader business to a company structure, by incorporating the Company and running the business through the Company. For the reasons set out above, I do not accept that the gross sales of the Company, or indeed the income of the Company generally, represents the gross earnings received by the claimant as an earner. Where the business is carried on by a company, which is a separate legal entity, the claimant’s earnings are the earnings he receives from (that is, monies paid to him by) the Company.
I have reviewed the bank statements from the claimant and the Company in detail and I am not satisfied on balance that any other payments received into the claimant’s account represent payment of earnings from the Company or any other source, other than those payments by the Company set out in the above table. Of note, by interim directions the claimant was given an opportunity to mark up the bank statements to identify the payments he says represent earnings. However, the claimant did not attend to this exercise.
I note Procare state in their report that payments from the Company in the 12 months before the accident total only $15,600. However, Procare has not set out their calculation or provided any further detail in their report as to how they reached this figure. Accordingly, I am unable to reconcile their calculation.
I am satisfied on the balance of probabilities that the sum of $26,000 paid by the Company to the claimant, as listed in the above table, represents earnings received by the claimant from the Company.
The claimant declared earnings from the Company as “small business income” in his 2023 tax return in the sum of $27,400. It is unclear why the claimant’s accountant declared the income as “small business income” in the circumstances of a company. However, where the bank statements show payment by the Company to the claimant from time to time as “installer” payments I am satisfied on balance that these payments are akin to a form of wages or director fees paid by the Company to the claimant and are therefore the claimant’s earnngs.
As this sum is reasonably consistent with the amount I have calculated from the bank statements and there is no evidence of any income tax being deducted by the Company before payment to the claimant (in fact, the 2023 tax return expressly records no tax withheld) I am satisfied that the sum of $26,000 paid by the Company to the claimant represents gross earnings of the claimant and is not net/after tax income.
Absent any evidence from the claimant to the contrary, I conclude on balance that the difference ($1,400) between the figure declared as business earnings in the 2023 tax return and total payments in the bank statements is likely because the claimant received an additional payment of $1,400 from the Company on or after the date of the accident. As such, it cannot be included in PAWE as cl 4(1) only concerns earnings received by the claimant before the day of the accident.
Whilst claimant’s 2023 tax return records gross earnings of $36,303, the balance of these earnings comprises weekly payments of $6,394 from the insurer in respect of the motor accident and net rental income of $2,509.
The weekly payments made by the insurer are clearly excluded from PAWE.
Rental income is also excluded from “earnings” for the purpose of the MAI Act and therefore excluded from PAWE. This is because pursuant to cl 4(1) PAWE means “the weekly average of the gross earnings received by the earner as an earner…” in the relevant 12 month pre-accident period. “Gross earnings” is not defined in the MAI Act. “Earnings” is also not defined. However, “loss of earnings” is defined in Schedule 1, cl 3 to mean “a loss incurred or likely to be incurred in a person's income from personal exertion”. It is clear from this definition that the word “earnings” in the phrase “loss of earnings” means “income from personal exertion”. Relevantly, pursuant to cl 3(3)(b) “income from personal exertion” does not include “rents”.
Whilst the word “earnings” on its own is not defined in the MAI Act it is a word used throughout the MAI Act. Pursuant to principles of statutory interpretation it must be taken to have the same meaning throughout the MAI Act. Accordingly, “earnings” should be given the same meaning when used in phrases such as “gross earnings” and “earnings as an earner” as it is given in the definition of “loss of earnings” in Schedule 1, cl 3. On this basis, rental income is excluded from PAWE as it is not considered “income from personal exertion” for the purpose of the MAI Act.
PAWE calculation
I have concluded above that on balance, the claimant likely received the following gross earnings as an earner in the 12 month period before the day of the accident that is, in the period 11 April 2022 to 10 April 2023:
(a) sole trader earnings from 11 April 2022 to 30 June 2022: $3,980.75, and
(b) earnings paid to him by the Company from 1 July 2022 to 10 April 2023: $26,000.
The claimant’s total gross earnings received as an earner in the 12 month period before the accident are therefore $29,980.75.
The claimant’s PAWE under cl 4(1) is therefore $576.55 ($29,980.75 divided by 52 weeks).
COSTS
In initial submissions the claimant sought costs pursuant to s 8.3(4) of the MAI Act. However, during the teleconference the claimant withdrew that part of the application.
During the teleconference the insurer’s solicitor mentioned the question of the insurer’s costs. Passing comment was made on the basis it was not understood that the insurer was making any application for costs in this merit review. However, in supplementary submissions the insurer’s solicitor seeks payment (by their insurer client) of their costs pursuant to s 8.3(4) by seeking an order from the Commission permitting payment of their costs in circumstances where such costs are not permitted by the regulations.
Section 8.3(4) provides:
“An Australian legal practitioner is not entitled to be paid or recover legal costs for any legal services provided to a party to a claim for statutory benefits (whether the claimant or the insurer) in connection with the claim unless payment of those legal costs is permitted by the regulations or the Commission”.
Relevantly, s 8.3(4) only provides for costs to be permitted by the “Commission”. As Merit Reviewer, I am not the Commission and therefore do not have jurisdiction to consider whether costs outside costs permitted by the regulations should be permitted by the Commission pursuant to s 8.3(4). Accordingly, the insurer would need to make a separate application to the Commission for any determination on the question of costs under s 8.3(4).
CONCLUSION
For the reasons set out above I have concluded on balance that the claimant’s PAWE amount under Sch 1, cl 4(1) of the MAI Act is $576.55.
Accordingly:
(a) the reviewable decision is set aside, and
(b) the claimant’s PAWE amount is $576.55.
There is no jurisdiction as part of this merit review to determine the question of the insurer’s (or the claimant’s) costs under s 8.3(4). Separate application would need to be made to the Commission.
LEGISLATION AND GUIDELINES
In making this decision, I have considered the following:
· The Application, Reply and supporting documentation;
· Corporations Act 2001 (Cth);
· MAI Act;
· Motor Accident Guidelines, and
· Motor Accident Injuries Regulation 2017.
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