Patton v Allianz Australia Insurance Limited (No 1)

CERTIFICATE OF DETERMINATION OF MERIT REVIEWER
Citation:	Patton v Allianz Australia Insurance Limited (No 1) [2022] NSWPICMR 45
ClaimanT:	Jason Patton
Insurer:	Allianz Australia Insurance Limited
Merit Reviewer:	Katherine Ruschen
DATE OF DECISION:	26 July 2022
CATCHWORDS:	MOTOR ACCIDENTS - Merit review; dispute about payment of weekly benefits under Division 3.3 of the Motor Accident Injuries Act 2017 (2017 Act); pre-accident weekly earnings; meaning of pre-accident weekly earnings under clause 4(1) of schedule 1 to the 2017 Act; whether significant change in earning circumstances under clause 4(3) and clause 4(2)(b) of schedule 1 to the 2017 Act; earnings received as an earner; distinction between sole trader and company under section 1.5.1 of the Corporations Act 2001; company separate legal entity; Held — the reviewable decision is remitted back to the insurer.
Determinations made:	Issued under s 7.13(4) of the Motor Accident Injuries Act2017 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 remitted back to the insurer for re-determination pursuant to the following directions: (a) by on or before 12 August 2022 the claimant is to provide to the insurer the following documents: (i) his personal income tax returns, income statements/payment summaries and notices of assessment for the financial years ending 30 June 2019, 30 June 2020 and 30 June 2021; (ii) if any of the wages expense of the Company represent wages paid to the claimant, the payslips issued to the claimant by the Company or other records of the Company evidencing the date(s) and amount(s) paid to the claimant by the Company for wages in the period 11 December 2019 to 10 December 2020; (iii) any other information or documents upon which the claimant relies as evidence of his personal pre-accident earnings in the period 11 December 2019 to 10 December 2020; (b) the insurer may request all or any of the above documents and any other information or documents reasonably required directly from the Company’s or the claimant’s accountant pursuant to the claimant’s authority in the application for personal injury benefits. The claimant is not to obstruct or otherwise interfere with the provision of documents by the accountant directly to the insurer; (c) upon receipt of further information and documents pursuant to the above directions the insurer is to re-determine the claimant’s pre-accident weekly earnings (PAWE) by: (i) determining whether the claimant’s PAWE calculation falls under Schedule 1, cl 4(1) of the Motor Accident Injuries Act 2017 or one of the exceptions under cl 4(2); and (ii) calculating PAWE based on earnings received by the claimant as an individual earner, distinct from income of the Company that is, based on wages or other earnings paid to the claimant by the Company and any other employer during the relevant pre-accident period.

STATEMENT OF REASONS

BACKGROUND

There is a dispute between Jason Patton (the claimant) and the insurer about the amount of weekly payments of statutory benefits that are payable under Division 3.3 of the MAI Act.
The claimant was involved in a motor accident on 11 December 2020.
The claimant made an application for personal injury benefits under the MAI Act.
On 4 March 2022 the insurer determined the claimant’s PAWE in the sum of $3,721.67.
The claimant requested an internal review of the insurer’s 4 March 2022 decision.
On 12 April 2022 the insurer issued their internal review decision in which the claimant’s PAWE amount was determined to be $3,755.
The claimant has requested a merit review of the insurer’s internal review decision dated 12 April 2022.

SUBMISSIONS

The claimant is said to operate a business through a company, BluJay Nominees Pty Ltd atf BluJay Investment Trust. I have not been provided with any evidence such as an Australian Securities and Investment Commission (ASIC) extract, which would confirm whether the claimant is the sole director and sole shareholder of BluJay Nominees Pty Ltd (the Company) and/or the sole beneficiary of BluJay Investment Trust. The available documents indicate the claimant is not the sole beneficiary of the trust[1]. Whether there are other directors of the Company is not known.
[1][1] The Company’s annual report shows trust distributions to more than one beneficiary of the trust.
The Company is the registered proprietor of the business trading name, BlueJay Services.
The claimant submits the insurer’s PAWE calculation is incorrect on the basis that:
(a) the insurer has calculated PAWE under Schedule 1, cl 4(1) instead of under Schedule 1, cl 4(3) and in turn, cl 4(2)(b);
(b) business expenses of the company have been calculated incorrectly, and
(c) if PAWE falls under cl 4(1) the insurer has failed to include wages paid to him as an employee of another entity during the relevant pre-accident period.
The insurer submits:
(a) clause 4(3) is not triggered as there is no change in circumstances that resulted in the claimant regularly earning or becoming entitled to regularly earn more than he had been earning before the change occurred;
(b) expenses of the business to be deducted from the gross earnings of the business are as calculated by independent expert accountant, Lance Kahler, and
(c) wages received from the previous employer were in respect of work performed prior to commencement of the pre-accident period under cl 4(1) and therefore are excluded from PAWE.

REASONS

Issues

There is no dispute that the claimant is an earner within the meaning in the MAI Act.
The issues in dispute are:
(a) whether Schedule 1, cl 4(1) applies or alternatively, whether cl 4(3) and in turn cl 4(2)(b) applies to the claimant’s circumstances;
(b) the amount of earnings received by the claimant in the relevant pre-accident period, and
(c) whether wages received by the claimant from Grow Super on 12 December 2019 are included in PAWE.

Other issues

The claimant raises other issues in his submissions, some of which were put to the insurer during the internal review process, including:
(a) calculation of his post-accident earnings, and
(b) whether weekly payments under Division 3.3 are to be paid at the rate of 80% or 85%.
However, there has been no internal review decision regarding these other issues. It is clear the insurer’s internal review decision of 12 April 2022 determines only the amount of the claimant’s PAWE.
Pursuant to s 7.11 of the MAI Act a merit review application may not be made in relation to a reviewable decision until the decision has been the subject of an internal review by the insurer, unless an insurer fails to complete an internal review (if requested) or has declined to conduct an internal review or unless one of the exceptions in cl 10 of the Motor Accident Injuries Regulation (the Regulation) applies. None of the exceptions in cl 10 of the Regulation apply in this matter. There is no evidence before me that the claimant has requested an internal review regarding calculation of post-accident earnings or issues relevant to whether the payment rate is 80% or 85% and no evidence before me of an internal review of these issues.
Accordingly, the claimant is not entitled to make an application for a merit review about the amount of his post-accident earnings or whether weekly payments should be made at the rate of 80% or 85% as there has not yet been an internal review in respect of any dispute about these matters. As there is no entitlement to a merit review of such matters absent an internal review, I do not have jurisdiction to conduct a merit review of any of the other issues raised by the claimant. If the claimant disputes any decision by the insurer on any other issue the claimant must first request an internal review by the insurer.
Accordingly, this merit review will address only those issues impacting calculation of the claimant’s PAWE under Schedule 1, cl 4 of the MAI Act.

PAWE

Relevantly, cl 4(1) of Schedule 1 sets out the meaning of PAWE as follows:
“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...”
(emphasis added).
If PAWE is assessed under Schedule 1, cl 4(2)(b) in the alternative, on the basis cl 4(3) applies, PAWE is also calculated based on the weekly average of the gross earnings “received by the earner as an earner” during the relevant pre-accident period.
Accordingly, what is relevant under both cl 4(1) and cl 4(2)(b) are the earnings received by the claimant as an individual earner during the relevant pre-accident period. For the reasons set out below, the earnings of the Company are not the earnings received by the claimant in his separate capacity as an individual earner.
The claimant does not operate as a sole trader. The parties’ respective submissions and the expert accountant overlook that there is a legal distinction between a sole trader and a company. They are not one in the same, as suggested in the accountant’s reports and submissions of the parties.
Pursuant to s 1.5.1 of the Corporations Act 2001 the Company is a separate legal entity with separate legal existence distinct from the claimant as director and/or shareholder and/or employee of the Company. As a matter of law, a company business structure is a separate legal entity, unlike a sole trader or a partnership structure. Pursuant to corporations law a company has a separate legal existence that is distinct from that of its owners, managers, operators, employees, agents, directors and shareholders. Pursuant to the Corporations Law a company’s money and other assets belong to the company and must be used for the company’s purposes. There is nothing in the definition of “earner” or elsewhere in the MAI Act that displaces the position of a company as a separate legal entity as a matter of law.
Whilst the claimant ultimately derives income from the Company’s business, the “business” is operated by the Company, a registered corporation and separate legal entity. The business is not operated, or carried on, by the claimant. The Company, not the claimant, carries on the business. Any benefit received by the claimant as a result of the business carried on by the Company is either in the form of wages paid to him by the Company in his capacity of employee or director of the Company and/or dividends paid to him by the Company in his capacity as a shareholder of the Company.
Accordingly, income received by the Company is not income or earnings of the claimant. Payments to the Company, including payments by clients for services rendered, become the Company’s money. If the money is received by the Company and either held by the Company or paid elsewhere (for example in payment of expenses or dividend payments to shareholders other than the claimant), they are not monies received by the claimant and therefore not earnings received by the claimant.

What earnings did the claimant receive from the Company?

As noted, the methodology adopted by the parties and Mr Kahler ignores the fact that the claimant does not operate, or carry on, the business of BlueJay Services as a sole trader and ignores the legal position that the entity that operates, or carries on, the business is a corporation which is a separate legal personality from the claimant. In the circumstances of a company, the Company income or profit is not the earnings of the claimant and therefore it is incorrect to calculate PAWE based on the income of the Company.
As set out above, as a matter of law the claimant is not the Company, and the claimant only earns from or through the company to the extent the Company makes payments to him. On the current evidence, the extent to which the claimant received payments from the Company during the relevant pre-accident period under either cl 4(1) or cl 4(2)(b) is not known.
There are profit and loss statements for the Company, which record “wages” paid by the Company as a business expense. However, whether the amount shown as a wages expense represents, all or in part, wages paid to the claimant is not known.
There is an annual report for the Company showing that in the financial year from 1 July 2019 to 30 June 2020 the Company had a net profit of $29,809 and that of this sum a distribution payment of $6,000 was made to “JHBP” in the pre-accident period on 30 June 2020. It is understood JHBP are the claimant’s initials and therefore presumably, this was a payment to the claimant. A further distribution payment of $59,367 was paid to “JHBP” on 30 June 2021 from the net profits of the Company in the financial year ending 30 June 2021. However, this payment date is after the end of the relevant pre-accident period under both cl 4(1) and 4(2)(b), which is 10 December 2020 and is therefore excluded from PAWE.
There is no evidence the Company made any payments to the claimant during the pre-accident period other than potentially, wages shown in the profit and loss statement and a trust distribution on 30 June 2020 shown in the Company’s annual report.
The claimant has not provided any payslips issued by the Company to him. He has not provided any income statement or payment summary in respect of wages paid to him by the Company, if any. The claimant has not provided his personal income tax returns or notices of assessment issued by the Australian Taxation Office which would assist in determining the claimant’s actual pre-accident earnings from the Company in his capacity as an individual earner, distinct from the Company as a separate legal entity. Such documents ought to be readily available to the claimant through his MyGov account and/or from his accountant.
As I do not have any evidence of the claimant’s earnings as distinct from the earnings of the Company, I cannot calculate PAWE. As noted, it is possible that the wages expense of the Company recorded in the business activity statements and profit and loss statements of the Company are, all or in part, wages paid to the claimant. The only other payment by the Company to the claimant in the pre-accident period appears to be the trust distribution payment of $6,000 on 30 June 2021. However, the current material is insufficient to determine to what extent the wages expense of the Company includes wages paid to the claimant during the relevant pre-accident period. There is also insufficient evidence to confirm the trust distribution to JHBP was a payment to the claimant, although this seems likely based on the claimant’s initials.
Although I do not have sufficient information to determine the claimant’s PAWE, given the Company’s net profit in the financial years ending 30 June 2020 and 30 June 2021[2] it is not plausible that the claimant received payments from the Company representing earnings (or any other kind of payment for that matter) anywhere near the amount calculated as PAWE by the insurer. The total amount for the wages expense of the Company combined with the Company’s net profit falls well short of sufficient funds to allow for payments to be made to the claimant by the Company in an amount representing the weekly average calculated by the insurer, which exceeds $3,000.
[2] As evidenced by the Company’s annual report and other documents.
The parties’ current PAWE calculations appear to be the result of manipulation of the Company’s expenses and assets, which creates an artificial appearance that the Company had a greater profit, which in turn benefited the claimant. However, how the Company assets and expenses are dealt with is irrelevant to calculation of the claimant’s PAWE. Indeed, even if the Company had a greater profit but chose to keep the funds as working capital or for investment in assets rather than make dividend payments, the claimant derives no benefit in his capacity as earner under the MAI Act. It is not necessary to analyse the Company’s business expenses or to distinguish between gross, operating and net profit of the Company. For the reasons set out above, all that is relevant when determining an earner’s PAWE in the circumstances of a business run by a company are the payments actually made by the company to the earner.
The onus is on the claimant to provide sufficient evidence to satisfy the insurer of the claim, including the amount of his PAWE. In the case of a business carried on by a company rather than by the claimant as a sole trader, evidence of the income of the Company is insufficient. The claimant must provide evidence of the earnings he received from the Company, such as evidence of wages paid to him by the Company in the capacity of employee and/or director’s fees paid to him as a director and/or dividend payments made to him as a shareholder of the Company. Typically, this would involve providing personal income tax returns, notices of assessment, income statements or payment summaries, payslips and/or records of the Company which show the breakdown of the wages expense recorded in the profit and loss statements, including whether any of those wages were paid to the claimant and if so, on what date(s).
The matter is therefore remitted back to the insurer for re-determination of the claimant’s PAWE upon receipt of further documents from the claimant.

Wages paid by Grow Super on 12 December 2019

If the claimant’s PAWE is calculated under cl 4(1) the pre-accident period is 11 December 2019 to 10 December 2020. The insurer argues that whilst a wages payment was made to the claimant by Grow Super during this period (on 12 December 2019), the payment was in respect of work carried out prior to the relevant 12 month period that is, between 2 and 8 December 2019. However, Schedule 1, cl 4(1) is clear in its terms that earnings “received” in the 12 month pre-accident period are included in PAWE. Whilst the work may have been performed before commencement of the pre-accident period what is relevant is whether the earnings were “received” by the claimant in the pre-accident period. In this case, as the payment was made to the claimant on 12 December 2019, one day after commencement of the pre-accident period under cl 4(1) it is included in PAWE, if the claimant’s PAWE falls for assessment under cl 4(1). However, the payment would be excluded if PAWE falls for assessment under cl 4(2)(b) as it pre-dates the commencement of the pre-accident period under cl 4(2)(b).
Similarly, if the claimant performed work or provided services to the Company or any other employer during the pre-accident period but did not receive payment for such services until after 10 December 2020 (the end of the pre-accident period) such earnings would be excluded from PAWE as they were not “received” by the claimant during the pre-accident period.

Does cl 4(3) apply?

The claimant submits that his PAWE should be assessed under cl 4(2)(b) on the basis cl 4(3) applies. The claimant submits cl 4(3) is triggered on the basis there was a significant change in his earning circumstances from 15 April 2020 such that the relevant pre-accident period under cl 4(2)(b) is 15 April 2020 to 10 December 2020. The change relied upon by the claimant is the act of the Company entering into a contract on 15 April 2020 with Manpower Services (Australia) Pty Limited (Manpower) to supply services to Westpac Group.
However, the contract is between Manpower and the Company, not Manpower and the claimant. It is therefore only relevant to assessment of the Company’s earning circumstances. As noted above, as a matter of law the Company is a separate legal entity.

For cl 4(3) to be triggered the claimant would need to establish that the contract between Manpower and the Company in turn resulted in a “significant” change to his personal earning circumstances, which resulted in him “regularly” earning more on a weekly basis than he had earned before the change occurred. There would need to be, for example, evidence that as a result of entering into the contract with Manpower the Company began paying increased wages to the claimant on a regular basis.
Even if the claimant operated the business as a sole trader the mere fact the business gained a new contract is unlikely to be a “significant” change, as required by cl 4(3). A fluctuation in earnings is expected with any business. It is expected that in some weeks a business will earn more and in others, less. In particular, any business operated by a sole trader or through a company with a sole director is expected to have decreased earnings over holiday periods, such as Christmas and New Year. As to whether the change resulted in “regularly” earning more the contract appears to be for a specified term. However, various contract particulars including the contract term have been redacted in the copy of the contract provided for this merit review. If the contract is for a closed period or is otherwise a short term contract, it is unlikely to meet the requirement under cl 4(3) that the change has resulted in “regularly” earning more or becoming entitled to “regularly” earn more.
In any event, the claimant is not a sole trader. Instead, the business is carried on by the Company and the claimant would need to establish in this circumstance that the contract entered into by the Company in turn, resulted in the claimant regularly earning more than he did before the Company entered into the contract.
As I do not have sufficient information regarding the claimant’s individual earnings, including that I do not have sufficient information as to earnings received prior to 15 April 2020 such that any comparison with earnings after this date could be made, I am unable to form any conclusive view on whether cl 4(3) applies.

CONCLUSION

For the reasons set out above the profit or loss (earnings) of the Company does not represent the claimant’s earnings and it does not automatically follow that a change to the Company’s circumstances is also a change to the claimant’s earning circumstances under cl 4(3).
There is insufficient information upon which to determine the claimant’s PAWE, including whether cl 4(3) applies.
Accordingly, the matter is remitted back to the insurer for re-determination of the claimant’s PAWE pursuant to the below directions.
The reviewable decision is remitted back to the insurer for re-determination pursuant to the following directions:
(a)    by on or before 12 August 2022 the claimant is to provide to the insurer the following documents:
(i)his personal income tax returns, income statements/payment summaries and notices of assessment for the financial years ending 30 June 2019, 30 June 2020 and 30 June 2021;
(ii)if any of the wages expense of the Company represent wages paid to the claimant, the payslips issued to the claimant by the Company or other records of the Company evidencing the date(s) and amount(s) paid to the claimant by the Company for wages in the period 11 December 2019 to 10 December 2020, and
(iii)any other information or documents upon which the claimant relies as evidence of his personal pre-accident earnings in the period 11 December 2019 to 10 December 2020;
(b)    the insurer may request all or any of the above documents and any other information or documents reasonably required directly from the Company’s or the claimant’s accountant pursuant to the claimant’s authority in the application for personal injury benefits. The claimant is not to obstruct or otherwise interfere with the provision of documents by the accountant directly to the insurer;
(c)    upon receipt of further information and documents pursuant to the above directions the insurer is to re-determine the claimant’s PAWE by:
(i)determining whether the claimant’s PAWE calculation falls under Schedule 1, cl 4(1) of the MAI Act or one of the exceptions under cl 4(2); and
(ii)calculating PAWE based on earnings received by the claimant as an individual earner, distinct from income of the Company that is, based on wages or other earnings paid to the claimant by the Company and any other employer during the relevant pre-accident period.

LEGISLATION AND GUIDELINES

In making this decision, I have considered the following:
· the Application, Reply and supporting documentation;
· MAI Act;

· Motor Accident Guidelines, and
· Motor Accident Injuries Regulation 2017

[2022] NSWPICMR 45

26 July 2022