Office of the Director of Public Prosecutions v Olsen

[2009] NSWWCCPD 26

WORKERS COMPENSATION COMMISSION
DETERMINATION OF APPEAL AGAINST A DECISION OF THE COMMISSION CONSTITUTED BY AN ARBITRATOR
CITATION:		Office of the Director of Public Prosecutions v Olsen [2009] NSWWCCPD 26
APPELLANT:		Office of the Director of Public Prosecutions
RESPONDENT:		Craig Millar Francis Olsen
INSURER:		Allianz Australia Insurance Limited
FILE NUMBER:		A1-6210/08
DATE OF ARBITRATOR’S DECISION:		1 December 2008
DATE OF APPEAL DECISION:		11 March 2009
SUBJECT MATTER OF DECISION:		Section 40(2)(b) of the Workers Compensation Act 1987; proper method to adopt when worker is self-employed; application of the principles in Cage Developments Pty Ltd v Schubert (1983) 151 CLR 584
PRESIDENTIAL MEMBER:		Deputy President Bill Roche
HEARING:		On the papers
REPRESENTATION:		Appellant:	McLean Lawyers
Respondent:	Harris Wheeler Lawyers
ORDERS MADE ON APPEAL:		Paragraph one of the Arbitrator’s determination of 1 December 2008 is revoked and the following orders made: “1.     The matter is remitted to a different Arbitrator to re-determine Mr Olsen’s entitlement to weekly compensation, if any, in accordance with the reasons in this decision. 2.      Costs of the first arbitration and costs of the second arbitration are to follow the event of the second arbitration.” Paragraph two of the Arbitrator’s determination of 1 December 2008 is confirmed. Each party is to pay his or its own costs of the appeal.

INTRODUCTION

1. This appeal concerns the proper method to adopt in the calculation of the figure in section 40(2)(b) of the Workers Compensation Act 1987 (‘the 1987 Act’) in circumstances where the worker is now self-employed.

BACKGROUND

1. Mr Olsen started work as a solicitor with the Office of the Director of Public Prosecutions (‘the DPP/the employer’) in April 1990.  He continued in that work until he stopped in September 2003 because of a major depressive and associated anxiety disorder he developed as a result of his employment. 

1. He initially claimed compensation in the Commission in 2004 (proceedings No 11772 of 2004).  That application was discontinued on 10 November 2004 when the insurer agreed to pay voluntary weekly compensation from 26 September 2003 to date and continuing, together with medical expenses on production of accounts or receipts. 

1. In 2004, Mr Olsen came under the guidance of the Commonwealth Rehabilitation Service (‘CRS’), but found them of limited assistance.  He also applied for work, but found the work was either unsuitable or that he was not wanted.  CRS would not assist him in doing a course with a view to becoming self employed, but encouraged him to apply for jobs in Newcastle.  He did so, but did not get an interview. His experience was mainly in criminal law with a little conveyancing.

1. In March 2005, Mr Olsen was deemed medically unfit to continue his employment with the DPP. 

1. Mr Olsen decided that working for himself was the best option for his health.  At his own expense, he paid $1,500 to complete a sole practitioner’s course and in November 2005 he started the business “Advantage Mobile Conveyancing”.  Initially, he worked from his home at Waratah and in the second half of 2006 he moved to an office at Green Hills (East Maitland), where he had the expectation (ultimately, not fulfilled) of a steady flow of work from RAMS Home Loans. 

1. To give the business a more diverse entity, rather than just conveyancing, Mr Olsen changed the name to AMC Lawyers, which incorporated some time in the 2006/7 financial year under the name AMC Lawyers Pty Ltd (‘AMC’).

1. For the financial year ending 30 June 2007, AMC’s gross income was $172,735.  After expenses, its gross operating profit was $362.  For the 2008 financial year, its gross income was $256,255 and its gross operating profit was $3,356.

1. By letter dated 8 April 2008, Allianz Australia Insurance Limited (‘Allianz’), the employer’s workers compensation insurer, declined liability for the claim from 20 May 2008 on the following grounds:

(a)Mr Olsen’s average weekly earnings exceeded the section 35 maximum and he therefore had no entitlement to a section 40 benefit, and

(b)Mr Olsen was no longer totally or partially incapacitated for employment as a result of his alleged psychological condition.

1. The insurer based its decision on:

(a)Mr Olsen’s tax return for the financial year ending 2007, from which it estimated his average weekly earnings to be $1,630.09 per week;

(b)the gross annual earnings of Mr Olsen’s law firm for the financial year ending 2007 of $173,735, and

(c)a report from Dr Snowden, consultant psychiatrist, dated 19 January 2007.

1. By an Application to Resolve a Dispute (‘the Application’) filed in the Commission on 8 August 2008, Mr Olsen sought weekly compensation in the sum of $631.80 per week (the rate for a worker with a dependent spouse and two dependent children) from 21 May 2008 to date and continuing.

1. The DPP filed a Reply on 1 September 2008 in which it confirmed that the issues in dispute were as per the dispute notice attached to the Application (the letter of 8 April 2008).

1. The Commission listed the matter for arbitration on 10 November 2008.  No oral evidence was heard and the matter proceeded with submissions by counsel.  In a reserved decision delivered on 1 December 2008, the Arbitrator found that Mr Olsen’s probable earnings but for his injury exceeded the maximum under section 35 of the 1987 Act (‘the cap’), and that the amount that he was earning, or was able to earn, in suitable employment was $800 per week.  The difference between the cap and $800 per week exceeded the maximum compensation payable for a worker with a dependent spouse and two dependent children and that was the amount the Arbitrator awarded. 

1. The Certificate of Determination dated 1 December 2008 records the Arbitrator’s orders as follows:

“1.The respondent is to pay the applicant weekly compensation from 21 May 2008 at the maximum statutory rate for a worker with a dependent spouse and 2 dependent children to date and continuing in accordance with the provisions of the Act.

2.Pursuant to section 56 the applicant is to provide the insurer with medical certificates as to his incapacity for work every 3 months.”

1. By an appeal filed on 23 December 2008, the DPP seeks leave to appeal the Arbitrator’s determination.

LEAVE TO APPEAL

Monetary Threshold

1. Before proceeding to deal with an appeal the Commission must determine whether the application meets the requirements of section 352 of the Workplace Injury Management and Workers Compensation Act 1998 (‘the 1998 Act’).

1. There is no issue that the thresholds in section 352(2) are satisfied.

Time

1. The appeal was lodged within 28 days of the Arbitrator’s decision in compliance with section 352(4) of the 1998 Act.

1. I grant leave to appeal.

ON THE PAPERS

1. Section 354(6) of the 1998 Act provides:

“(6)If the Commission is satisfied that sufficient information has been supplied to it in connection with proceedings, the Commission may exercise functions under this Act without holding any conference or formal hearing.”

1. Having regard to Practice Directions Numbers 1 and 6, the documents that are before me, and the submission by the parties that the appeal can proceed to be determined on the basis of these documents, I am satisfied that I have sufficient information to proceed ‘on the papers’, without holding any conference or formal hearing, and that this is the appropriate course in the circumstances. 

ISSUES IN DISPUTE

1. The issues in dispute in the appeal are whether the Arbitrator erred in:

(a)misdirecting himself as to the extent of “matters well within the general knowledge and experience of the Commission”;

(b)finding Mr Olsen was able to earn $800 gross per week as equivalent to a graduate solicitor in a small firm in the Newcastle/Hunter area, and

(c)entering an award on that basis.

THE ARBITRATOR’S REASONS

1. The Arbitrator made the following findings:

(a)he agreed with the evidence from Dr Wade, the treating psychiatrist, that going into private practice was the only option for Mr Olsen to be able to use his skills and qualifications as a lawyer and was the best option in the circumstances (Statement of Reasons for Decision (‘Reasons’), paragraph 12 and 13);

(b)Mr Olsen remains partially incapacitated for work and that his present self employment is the only realistic avenue for him to use his qualifications as a lawyer (Reasons, paragraph 19);

(c)the DPP’s submission that Mr Olsen had obtained no expert evidence as to the value of “his current earning”, and should therefore fail in his claim, ignored the comments by Barwick CJ in J & H Timbers v Nelson (1972) 126 CLR 625 at 633 (‘Nelson’) that the “value of described work in the labour market is a matter well within the general knowledge and experience of this Commission” (Reasons, paragraph 26);

(d)the insurer’s estimate of Mr Olsen’s average weekly earnings of $1,630.09 was flawed and facile.  It failed to take into account AMC’s business costs and the billings of other fee earners (Reasons, paragraph 29);

(e)it was reasonable and appropriate for Mr Olsen to start his own law practice (Reasons, paragraph 34);

(f)Mr Olsen’s capacity to earn was akin to a graduate solicitor or paralegal.  Despite his qualifications, he has had no practical experience in areas of law that prospective employers would be looking for (Reasons, paragraph 36), and

(g)Mr Olsen’s ability to earn is in the region of $800 per week, equivalent to a graduate solicitor in a small firm in the Newcastle/Hunter Valley area (Reasons, paragraph 39).

SUBMISSIONS

1. It is submitted on behalf of the DPP that:

(a)the Arbitrator misdirected himself as to the limits to the Commission’s “expertise” and “knowledge of wage rates in general”.  Reliance is placed on Marcus v Ready Workforce Pty Ltd [2007] NSWWCCPD 199 at [33] (‘Marcus’);

(b)whilst the Commission is entitled to use its general knowledge concerning conditions of employment and rates of pay, it is not permissible for it to use that knowledge for the purpose of completing evidentiary gaps by reliance upon expertise acquired as a member of a specialist tribunal;

(c)Mr Olsen did not present any evidence regarding rates of pay or conditions of employment relevant to his employment as a solicitor in the Newcastle/Hunter Valley areas.  He produced his business records for the financial years ending June 2007 and June 2008.  Those records did not demonstrate a basis for the Arbitrator’s conclusion that Mr Olsen was only able to earn $800 per week;

(d)the Arbitrator should have calculated the value of Mr Olsen’s work to his business (Nelson and Cage Developments Pty Ltd v Schubert (1983) 151 CLR 584; [1981] 2 NSWLR 227 (‘Schubert’).  There is no evidence of the value of Mr Olsen’s labour to the business, and

(e)in the alternative, the Arbitrator should have found that the measure of Mr Olsen’s value to the business was measured by the quantum of the fees Mr Olsen was able to generate and earn for the business, namely, $172,735 in 2007 and $256,000 in 2008.

1. It is submitted on behalf of Mr Olsen that:

(a)the submission relying on Marcus is misconceived and ignores the context in which the statement was made;

(b)it is well recognised in decisions such as ICI Australia Operations Pty Ltd v WorkCover Authority of NSW [2004] NSWCA 55 (‘ICI’) that the Commission is a specialist tribunal able to assess wage rates and ability to earn;

(c)the Arbitrator’s findings that Mr Olsen remains partially incapacitated and that his present self-employment is the only realistic avenue for him to use his qualifications and skills as a lawyer is not challenged;

(d)the Arbitrator’s finding that Mr Olsen has been unable to find employment as a solicitor in a legal firm in the labour market reasonably accessible to him is not challenged, and

(e)having regard to Schubert and Nelson, it was open to the Arbitrator to access Mr Olsen’s ability to earn in the way he did and there is no error in that approach.

DISCUSSION AND FINDINGS

1. I agree that the DPP’s reliance on Marcus is misconceived and misleading. In that case I dealt with a submission that the Arbitrator should have taken judicial notice of the submission that the Fairfield/Liverpool area has a high rate of unemployment. In response to that submission, I said (at [33]):

“33. I do not accept Ms Marcus’ submission that the Arbitrator should have taken judicial notice of the fact that the Fairfield/Liverpool area has a high unemployment rate.  Whilst the Commission is an expert tribunal and is taken to have some knowledge of wage rates in general (see Akawa Australia Pty Ltd v Cassells (2003) 25 NSWCCR 385 at 392 and ICI Australia Operations Pty Limited v WorkCover Authority of New South Wales [2004] NSWCA 55; (2004) 60 NSWLR 18 at [219] - [232]), that does not extend to making assumptions about a specific and limited labour market which may or may not have different levels of employment to the rest of the Sydney metropolitan area. The question of the availability of the suitable work identified by Mr Hiscox was addressed in his reports where he said at page two of his report of 31 October 2006 that:

‘The above occupations have been determined to exist within a geographical area accessible by Ms Marcus by car (eg Liverpool, Fairfield, Parramatta, Smithfield and Wetherill Park). Job availability for these types of jobs are [sic] between medium and high, with the high staff turnover rate and seasonal factors combining to enhance job prospects in the retail industry.’”

1. ICI does not support the submissions advanced by the DPP. In that case, McColl JA (Mason P and Meagher JA agreeing) undertook (at [219] to [223]) a detailed review of the authorities dealing with the circumstances in which a member of a specialised tribunal, such as the current Commission, might rely upon knowledge acquired as a member of that tribunal. In particular, her Honour referred to Bryer v Metropolitan Water Sewerage & Drainage Board (1939) 39 SR (NSW) 321 (‘Bryer’) where Jordan CJ (with whom Halse Rogers and Bavin JJ concurred) held (at 330) that the Workers’ Compensation Commission (established in 1926) was entitled to use general knowledge acquired in “investigating ... thousands of cases in which evidence is given as to conditions of employment and rates of pay” “not only for the purpose of supplying gaps in the evidence given before it as to matters which it is required by statute to determine ... but also for the purpose of weighing and testing any evidence that may actually be tendered.” Her Honour also observed (at [222]) that in Nelson Barwick CJ and Gibbs J expressly approved Jordan CJ’s conclusion in Bryer concerning the Workers Compensation Commission’s ability to draw on its general knowledge and experience. 

1. The current Commission is also a specialized tribunal that has the same power to use its general knowledge of conditions of employment and rates of pay as that used by the Compensation Court or the previous Commission before it.  The current Commission has even greater flexibility in its proceedings in that it is not bound by the rules of evidence and may inform itself on any matter (section 354(2) of the 1998 Act).  In addition, the current Commission is to act according to equity, good conscience and the substantial merits of the case without regard to technicalities or legal forms (section 345(3) of the 1998 Act).  

1. Therefore, whilst it would have been extremely helpful if Mr Olsen had tendered evidence as to the rates of pay for solicitors in the Newcastle region, the failure to do so did not prevent the Arbitrator from making a determination on that issue, provided it was otherwise appropriate.  I now turn to consider that question.

1. Whilst the authorities of Nelson and Schubert make it clear that more than one approach is open to the calculation of post injury earnings under section 40(2)(b) of the 1987 Act when a worker is engaged in his or her own business, the Arbitrator erred in his approach to this issue.

1. The first method requires a determination of the net remuneration being received by the worker for his or her labour.  This is done by examining the business accounts and making all proper allowances for overhead expenses, costs of materials and other labour, maintenance and depreciation of plant, return on capital invested and the like (Glass JA (Reynolds JA agreeing) at 230G in Schubert in the Court of Appeal, citing Gibbs J at 652 and Windeyer J at 643 in Nelson). 

1. The second method requires a calculation of the worth of the worker’s labour to the business, but without reference to the business accounts.  This second method has three possible approaches.  First, a determination may be made of the cost to the business of employing someone to do the reduced work the worker is performing (Glass JA (Reynolds JA agreeing) in Schubert at 231A). In the alternative, it may be determined by reducing from the cost of employing someone whose work capacity is unimpaired the cost of supplementing the reduced efforts of the applicant so as to produce for the business the services of one fully capable worker (Glass JA in Schubert at 231, citing Barwick CJ in Nelson at 631-632). The third method is to “determine what his work would have been worth in wages if he had been employed by another to do the work” (per Barwick CJ in Nelson at 631).

1. The High Court endorsed these approaches when it unanimously dismissed the employer’s appeal in Schubert, and added (at 587) that:

“As Glass and Mahony JJA pointed out in the Court of Appeal, there is no single way in which actual or potential earnings of such a former worker must be determined. The circumstances of the particular case will indicate what way or ways are open and what evidence is relevant for that purpose and it is undesirable to confine the Commission within the strict limits of artificial rules laid down in advance by an appellate court. Thus, there may well be cases in which the actual earnings of a business either represent the actual or potential earnings of a former worker during a period of partial incapacity. Where, for example, a business consists essentially of the provision of personal services by the former worker (e.g. a business of a sole plumber or casual gardener) and no significant investment of capital is involved, the actual net earnings of the business might properly be seen as representing the actual ‘reward for (the) labour’ of the former worker (see J. & H. Timbers Pty. Ltd. v. Nelson (1972) 126 CLR, at p 652) during a period of partial incapacity. In such a case, if the former worker is carrying on business solely on his own account, the net earnings of the business might properly be seen as representing the ‘amount he is earning’ in a business; if he is carrying on business in partnership or as an employee of a family company, the net earnings might properly be seen as representing the ‘amount he ... is able to earn’ either in employment or in a business. (at p588).”

1. Whilst it is clear that there is “no single way” in which actual or potential earnings of a self-employed worker must be determined, whichever approach is adopted, in circumstances where a worker is engaged fulltime in his or her own business, it would not be appropriate to ignore altogether the worker’s labour (physical and mental) in the business, as the Arbitrator appears to have done.

1. The Arbitrator does not seem to have followed any of the approaches sanctioned by Schubert and Nelson.  He assessed Mr Olsen’s ability to earn to be akin to a graduate solicitor or paralegal earning $800 per week. 

1. The fact that Mr Olsen is currently working means that his actual earnings are prima facie evidence of his ability to earn (per Jordan CJ in Aitkin v Goodyear Tyre & Rubber Co (Aust) Ltd (1945) 46 SR (NSW) 20 (‘Aitkin’) at 22). Jordan CJ added (at 23):

“If, however, it is proved that his actual earnings are not a proper test, because there is some reason unconnected with his earning power which makes them lower than they should be, the other alternative, what he is ‘able to earn’, must be adopted.  This is so where it is shown that he is deliberately taking lower-paid work than he could get, or is idling and on this account receiving less than he could be reasonably expected to obtain, or where his actual earnings have been compulsorily reduced by something unconnected with his injury or general earning power: Jones v Amalgamated Collieries; but, if the compulsory outside influence, instead of reducing, increases his actual earnings beyond what his injury would make him otherwise capable of earning, his actual earnings must be taken as the basis: Heaney v B A Collieries.  If, however, he is not earning anything, or, for some good reason, what he is earning cannot be treated as a proper basis, regard must be had to the alternative basis provided by the section – what he is ‘able to earn’.”

1. The Court of Appeal considered and applied Aitkin in Pira Pty Ltd t/as Langdon & Bartley v Tucker (1996) 14 NSWCCR 26 (‘Tucker’) where Beazley JA said (at 31 and 32):

“In Aitkin, Jordan CJ held that the test to be applied in determining the rate of compensation to be awarded under section 11 for partial incapacity was, prima facie, the person’s actual earnings unless it is proved that the worker’s actual earnings are not a proper test, because there is some reason unconnected with the worker’s earning power which makes them lower than they should be.
Jordan CJ stated at 22 that this will occur where a worker is ‘deliberately taking lower paid work than he could reasonably be expected to get, or is idling...or if his actual earnings are compulsorily reduced by something unconnected with his injury or general earning power’. These are instances, or examples, only and do not represent an exhaustive list of the circumstances in which it will be inappropriate to apply the ‘prima facie’ test.

It is clear, not only from the statement of Jordan CJ but also from the manner in which this Court applied the test in Ludowici, that as a first step, one has to approach the matter on a prima facie basis and only move from that basis if the evidence establishes that the actual earnings are not, in the circumstances of the case, a proper test.”

1. The reference to Ludowici is a reference to JC Ludowici & Son Ltd v Cutri (1992) 26 NSWLR 580. In that case, Kirby P (as his Honour then was) held (at 593):

“Where the worker is earning, the average weekly amount produced thereby is normally to be taken as the paragraph (b) component of the equation. It is only otherwise where the decision maker concludes that the worker is able to earn more than that sum in some suitable employment. Then, but only then, is a notional sum taken into account.”

1. Whilst there is no suggestion that Mr Olsen has deliberately taken lower paid work or that he is idling, the fact that he has set up his own business has resulted in his actual earnings being difficult to calculate.  The only income disclosed in his personal tax return for 2007 is from his superannuation and from workers compensation payments.  However, before determining whether it is appropriate to look outside Mr Olsen’s earnings with AMC, it is necessary, “as a first step” (per Beazley JA in Tucker), to determine what his earnings are with that company. The appropriate method/s to adopt in determining the section 40(2)(b) component in the present case are as discussed in Schubert and Nelson. 

1. Adopting the first approach discussed in Schubert and Nelson (see [31] above) requires a determination of the net remuneration received by Mr Olsen from his labour after making a proper allowance for overheads.  The profit and loss statements for 2007 and 2008 suggest that the company’s operating profit was $362 and $3,356 respectively.  These figures do not properly reflect Mr Olsen’s earnings as a worker.  This approach requires an analysis of AMC’s financial records, which has not been undertaken.  Those records include a reference to “Fees” paid to Mr Olsen of $79,096 in the 2008 financial year and to payments to his wife of about $37,000 in the same period.  Assuming that Mrs Olson is not engaged in the income producing activities of the business, it would seem that Mr Olsen generates at least part of the money paid to her.  These matters, together with other aspects of the financial records, need to be properly explained before the first approach suggested in Schubert can have any meaningful application. 

1. The second method (see [32] above) is to calculate the worth of Mr Olsen’s labour to the business.  Of the three alternative approaches to the second method, it seems that the first and third are the simpler to calculate and apply.  Notwithstanding his injury, the evidence is that Mr Olsen is a senior solicitor who started his business as a sole practitioner working from his home in 2006 and has since moved to commercial premises.  The business’s gross income increased by about 48% between 2007 and 2008.  That suggests, as one would expect, that the business is expanding.  No doubt that is largely, if not wholly, due to Mr Olsen’s hard work.  He is putting in long hours, 45 to 50 per week.  As is usual for a solicitor, especially in a small practice, not all of his hours are “billable”, but that is not to say they are of no value to the business.  In these circumstances, it was unrealistic to calculate the value of his labour to the business, if that is what the Arbitrator did, by reference to a graduate solicitor or paralegal, as such a figure does not reflect Mr Olsen’s experience, his duties and responsibilities, or his hours of work. 

1. The proper valuation of Mr Olsen’s labour, if this is the approach that is ultimately adopted, requires an assessment of the cost of employing someone to do the work that Mr Olsen does, or an assessment of the value of his work if another solicitor employed him.  A graduate solicitor or paralegal could not do that work and the assessment of $800 does not reflect the value of Mr Olsen’s labour to the business.  It is only if Mr Olsen is able to earn more than the figure given by this valuation, or the valuation in the first method, that it would be appropriate to consider his theoretical or “notional” (per Kirby P in Ludowici) ability to earn. 

1. In the absence of more detailed evidence and submissions on these issues, the appropriate course is for this matter to be remitted for re-determination before a different Arbitrator.  It is clear from the above discussion that further evidence will need to be tendered in order to properly apply either of the methods suggested in Schubert.  That evidence will include an analysis of the financial records (if method one is adopted) or evidence of the value of Mr Olsen’s labour (if the second method is adopted).  It is a matter for the parties to determine what evidence is called at the re-determination.  I note that the wage rates for employed solicitors are readily available from the Law Society of NSW and the parties may find it helpful to consider obtaining and tendering that information. 

CONCLUSION

1. Having conducted a review on the merits (per Spigelman CJ in State Transit Authority of New South Wales v Fritzi Chemler [2007] NSWCA 249; (2007) 5 DDCR 287 at [28]), I am of the view that the Arbitrator erred in his approach to Mr Olsen’s entitlement to compensation under section 40 of the 1987 Act. Therefore, Mr Olsen’s entitlement under section 40, if any, must be re-determined.

DECISION

1. Paragraph one of the Arbitrator’s determination of 1 December 2008 is revoked and the following orders made:

“1.The matter is remitted to a different Arbitrator to re-determine Mr Olsen’s entitlement to weekly compensation, if any, in accordance with the reasons in this decision.

2.Costs of the first arbitration and costs of the second arbitration are to follow the event of the second arbitration.”

1. Paragraph two of the Arbitrator’s determination of 1 December 2008 is confirmed.

COSTS

1. Each party is to pay his or its own costs of the appeal.

Bill Roche
Deputy President

11 March 2009

I, MELANIE CURTIN, CERTIFY THAT THIS IS A TRUE AND ACCURATE RECORD OF THE REASONS FOR DECISION OF BILL ROCHE, DEPUTY PRESIDENT OF THE WORKERS COMPENSATION COMMISSION.

ASSOCIATE