Paul Ross and Comcare
[2014] AATA 476
•15 July 2014
Administrative Appeals Tribunal
ADMINISTRATIVE APPEALS TRIBUNAL )
) No’s: 2012/4919
General Administrative Division ) 2013/0508 2013/0509Re: Paul Ross
Applicant
And: Comcare
RespondentCORRIGENDUM
TRIBUNAL: Mr R G Kenny, Senior Member
DATE: 18 July 2014
PLACE: Brisbane
The Tribunal directs the Registrar, pursuant to subsection 43AA(1) of the Administrative Appeals Tribunal Act 1975 (Cth), to alter the text of the decision in this application as follows:
1.Replace “$1879.10” on the front page of the Decision with “$1889.46”.
2.Replace “July 1998” with “February 1998” in line 1 of paragraph 1.
...............................Sgd.................................
Senior Member
[2014] AATA 476
Division GENERAL ADMINISTRATIVE DIVISION File Numbers
2012/4919
2013/0508
2013/0509
Re
Paul Ross
APPLICANT
And
Comcare
RESPONDENT
Decision
Tribunal Mr R G Kenny, Senior Member
Date 15 July 2014 Place Brisbane The Tribunal sets aside the decisions under review and substitutes its decision that the amount per week that the applicant is able to earn in suitable employment is $1,879.10 per week and remits the matters to Comcare to recalculate the applicant’s compensation entitlements in accordance with these reasons.
.............................Sgd...........................................
Mr R G Kenny, Senior Member
Catchwords
WORKERS’ COMPENSATION – Acceptance of liability under the Safety, Rehabilitation and Compensation Act 1988 (Cth) (“the Act”) for right knee condition – Reviewable decision to revoke determinations relating to incapacity payments from 1 July 2007 until 8 July 2012 (“the relevant period”) – Further reviewable decision that incapacity entitlement in the relevant period was nil – Assessment of ability to earn in suitable employment – Decisions set aside and substituted – Matters remitted to Comcare for recalculation
Legislation
Safety, Rehabilitation and Compensation Act 1988 (Cth), ss 4, 19
CASES
Arbuckle v Comcare [2005] AATA 820
Cage Developments Pty Ltd v Schubert (1983) 151 CLR 584
Comcare v Davies [2008] FCA 393
Hooper v Comcare [2001] AATA 548
J & H Timbers Pty Ltd v Nelson (1972) 126 CLR 625
Leach v Ross and Babes in Paradise Pty Ltd as Trustee for the Babes in Paradise Trust [2013] QSC 333Warnock v Comcare [2008] AATA 567
REASONS FOR DECISION
Mr R G Kenny, Senior Member
15 July 2014
Background
In July 1998, while employed by the Australian Federal Police (“AFP”), Paul Ross
(“the applicant”) suffered a right knee injury for which Comcare accepted liability under the Safety, Rehabilitation and Compensation Act 1988 (Cth) (“the Act”). The applicant’s employment was terminated on 15 February 2005. Between 4 July 2007 and
27 June 2012 (“the relevant period”), Comcare made determinations in relation to the applicant’s entitlement to incapacity payments for the period from 1 July 2007 until
8 July 2012. After a reconsideration of those determinations by own motion, Comcare, on 5 September 2012, made a reviewable decision to revoke them (“September reviewable decision”) [Ref: 2012/4919].
On 11 September 2012, Comcare determined that the applicant had an ability to earn $2,468.05 in suitable employment from 9 July 2012 and, on 19 September 2012, Comcare determined that the applicant was not entitled to incapacity payments during the relevant period. On 12 December 2012, Comcare made a reviewable decision to affirm those determinations (“December reviewable decision”) [Refs: 2013/0508 and 2013/0509].
The applicant seeks review of the September and December reviewable decisions.
Issues and Legislation
The relevant provisions in the Act in this matter read:
Section 19 Compensation for injuries resulting in incapacity
…
(2) Subject to this Part, Comcare is liable to pay to the employee in respect of the injury, for each week that is a maximum rate compensation week during which the employee is incapacitated, an amount of compensation worked out using the formula:
NWE – AE
where:
“AE” is the greater of the following amounts:
(a) the amount per week (if any) that the employee is able to earn in suitable employment;
(b) the amount per week (if any) that the employee earns from any employment (including self‑employment) that is undertaken by the employee during that week.
“NWE” is the amount of the employee’s normal weekly earnings.
…
(4) In determining, for the purposes of subsections (2) and (3), the amount per week that an employee is able to earn in suitable employment, Comcare shall have regard to:
(a) where the employee is in employment (including
self‑employment)—the amount per week that the employee is earning in that employment;
(b) where, after becoming incapacitated for work, the employee received an offer of suitable employment and failed to accept that offer—the amount per week that the employee would be earning in that employment if he or she were engaged in that employment;
(c) where, after becoming incapacitated for work, the employee received an offer of suitable employment and, having accepted that offer, failed to engage, or to continue to engage, in that employment—the amount per week that the employee would be earning in that employment if he or she were engaged in that employment;
(d) where, after becoming incapacitated for work, the employee received an offer of suitable employment on condition that the employee completed a reasonable rehabilitation or vocational retraining program and the employee failed to fulfil that
condition—the amount that the employee would be earning in that employment if he or she were engaged in that employment;
(e) where, after becoming incapacitated for work, the employee has failed to seek suitable employment—the amount per week that, having regard to the state of the labour‑market at the relevant time, the employee could reasonably be expected to earn in such employment if he or she were engaged in such employment;
(f) where paragraph (b), (c), (d) or (e) applies to the employee— whether the employee’s failure to accept an offer of employment, to engage, or to continue to engage, in employment, to
undertake, or to complete, a rehabilitation or vocational
retraining program or to seek employment, as the case may be, was, in Comcare’s opinion, reasonable in all the circumstances; and
(g) any other matter that Comcare considers relevant.
Section 4 Interpretation
…
“suitable employment”, in relation to an employee who has suffered an injury in respect of which compensation is payable under this Act, means:
(a) in the case of an employee who was a permanent employee of the Commonwealth or a licensee on the day on which he or she was injured and who continues to be so employed—employment by the Commonwealth or the licensed corporation, as the case may be in work for which the employee is suited having regard to:
(i) the employee’s age, experience, training, language and other skills;
(ii) the employee’s suitability for rehabilitation or vocational retraining;
(iii) where employment is available in a place that would require the employee to change his or her place of residence—whether it is reasonable to expect the employee to change his or her place of residence; and
(iv) any other relevant matter; and
(b) in any other case—any employment (including self‑employment), having regard to the matters specified in subparagraphs (a)(i), (ii), (iii) and (iv).
Evidence
Many of the factual matters in this case are not in dispute. In 1974, after year 10 at school, the applicant was variously employed as a tool-making apprentice, a service station mechanical assistant and a sales assistant. He then served in the Australian Army for six years during which time he completed a certificate of education which was equivalent to the New South Wales High School Certificate. He was then employed with the AFP from 1984 in Sydney where he undertook general duties including dog handling, bomb squad work, VIP protection and drug investigation. He suffered a minor injury to his right knee in 1997 for which he consulted a doctor who assured him that it was “[nothing] out of the ordinary to be concerned about”. He made no compensation claim at that time and had no time off work. His compensable knee injury occurred on
10 February 1998 when moving furniture. Thereafter, he was located in an operations centre where his duties included updating data bases in the AFP computer system.
Because of his knee condition, the applicant has difficulty walking or standing for long periods, performing domestic duties and driving. He underwent rehabilitation in Sydney under the supervision of Jenny Thompson, head of rehabilitation in the AFP based in Canberra.
At the end of 2000, the applicant took accrued leave. He intended to return to work in March 2001 but did not do so until 9 July 2001. He purchased an investment unit at the Gold Coast in 2001. He relocated to the Gold Coast between 2003 and 2005 where he reassociated with a former partner who was able to provide domestic assistance to him. His rehabilitation program continued there with Working Well Australia under the supervision of Mr Tony de Ambrosis, who assisted him in obtaining work from 2005. This included a placement in the Centrelink Compliance Unit in which he engaged for
40 hours per week. However, this was not a permanent position.
In 2001, the applicant was questioned about certain irregularities in the use of his AFP Diner’s Card while he was on leave. There was an investigation and he was interviewed in February 2001 and on the day he returned to work in Sydney on 9 July 2001. Thereafter, he was on sick leave and did not return to work with the AFP until 2002. No charges were made against him as a result of the investigation and he was not the subject of formal counselling in relation to it. Those matters were not responsible for his cessation of working for the AFP.
In 2003, the applicant applied to the Queensland Prostitution Licensing Authority (“PLA”) for a brothel licence. This was granted in December 2005. He purchased premises on the Gold Coast and these were fitted out as a brothel by June 2006. Earlier, in January 2006, he registered the company Babes in Paradise Pty Ltd (“the company”) of which he is the sole director and shareholder. On the same day, the Babes in Paradise Trust (“the trust”) was established and the company was appointed as trustee thereof. The applicant and his children are specified beneficiaries of the trust. In July 2006, the trust began trading as a brothel in the name of Utopia in Paradise (“the business”). His position with the AFP was terminated in February 2005 because of his application for the brothel licence.
During the relevant period, the applicant’s normal weekly earnings (“NWE”) with the AFP were:
1 July 2007 to 30 June 2008: $2,007.35 per week or $104,382.20 per year
1 July 2008 to 30 June 2009: $2,091.65 per week or $108,765.80 per year
1 July 2009 to 30 June 2010: $2,179.49 per week or $113,333.48 per year
1 July 2010 to 30 June 2011: $2,242.69 per week or $116,619.88 per year
1 July 2011 to 30 June 2012: $2,327.92 per week or $121,051.84 per year
1 July 2012 to 8 July 2012: $2,414.05 per week or $125,530.60 per yearThe incapacity payments made to the applicant by the respondent during the relevant period comprised the difference between those NWE figures and his salary from the business of $30,000 per year.
The applicant funded the construction and fitting out of the brothel premises with loans from the Police Credit Union secured against his residential property at the Gold Coast. These were in the amounts of $206,000 and $63,000 in February 2006 and July 2006, respectively; $90,000 borrowed from an associate, Mr Craig Leach; and $120,000 of his own funds. The applicant’s evidence was that those borrowed monies comprised loans by him to the company. Ultimately, Mr Leach was successful in proceedings in the Supreme Court against the applicant and the company, who have been required to pay Mr Leach an amount equal to half the value of the business as well as costs.[1] The valuation process in respect of those proceedings has not yet been completed. In expectation of being liable in those proceedings, certain funds generated by the business have been set aside in the accounts of the trust in each year of its operation.
[1] Leach v Ross and Babes in Paradise Pty Ltd as Trustee for the Babes in Paradise Trust [2013] QSC 333 and exhibit 32.
Marilyn Munro is the applicant’s partner and also the general manager of the business which operates 24 hours per day, seven days per week. There are four managers who work on rotation through the week in accordance with a roster which Ms Munro prepares. There are 23 staff members. Ms Munro has been responsible, from 2006 onwards, for the day to day operation of the business. She provides the applicant with details for payment of employer superannuation contributions, details for activity and BAS statements and stock requirements. She also deals with the financial aspects of the business including the data required for MYOB documentation; the training of new managers; the preparation of service provider rosters; the monitoring of cash floats; and workplace health and safety matters. She is on call 24 hours per day and regularly takes phone calls from managers. She deals with problems or complaints that arise. She also provides the MYOB and business records to the accountant of the business,
Luke Bradley, who then completes the annual tax returns and financial statements from the MYOB computer database. Ms Munro also matches all invoices/receipts to monthly American Express (“Amex”) card statements and reconciles bank statements with MYOB entries. She notes the expense items that have been marked by the applicant as personal, rather than business, and enters these as “personal” expenses into MYOB for deduction from the applicant’s loan account. She said that some 95-98% of Amex expenditure was for advertising and other business purchases. Her annual earnings were $42,281.25 in 2007, increasing each year to $71,236.00 in 2012.
Each of the four managers, when rostered on duty, is responsible for ensuring that
PLA regulations are complied with, cleaning, testing of security alarms, coordinating the service providers, conducting inductions of new service providers, greeting customers, recording bookings and processing payments. They are paid in the order of $40,000 per year.
Though he denied it initially, the applicant accepted that he had described himself as the “managing director” when he applied for a platinum Amex card on 16 January 2008. In his court proceedings,[2] he identified himself as a “company director”. The applicant has no role in bookkeeping or dealing with MYOB data and attends the brothel when needed, perhaps once per week or once each three weeks. In her evidence, Ms Munro agreed that he could have been there for 47 days from January to March 2008. He does not work as a manager because male managers are not appropriate in a brothel business. He is responsible for the fortnightly payment of wages, quarterly superannuation payments, and purchasing stock, grocery items and disposable items such as paper cups and towels for the brothel every one or two weeks. He also purchases items online for use in brothel services, undertakes minor repairs and arranges professional assistance for more difficult repairs. He ensures there is cash on hand in useful denominations and for payment of accounts such as electricity, gas, telephone and laundry expenses. He sits in on interviews for new managers and attends when the PLA has announced that it will conduct an audit of the business. The applicant estimated that he spends 40 hours each week on brothel work, mostly at home, with breaks between periods of work. Also, much of his working time is spent perusing web material in relation to other brothels to enable him to keep up with current practices. His annual earnings amount to $30,000. His evidence was that this salary level was determined by him on the basis that it was all he was worth for the work he did.
[2] See paragraph 11 (above).
The business has a kitchen which is convenient for the managers to use on their 12 hour shifts during which they are not permitted to leave the premises. The applicant’s purchases are made with his Amex card. This includes grocery items for the managers’ needs. Snack food is available and, sometimes, a meal is cooked. The applicant also purchases items, with the Amex card, for his personal use and he advises Ms Munro which purchases are of a personal nature and which are business items.
Luke Bradley
Mr Bradley is an accountant and director of Bradley Accounting & Management.
He gave evidence and provided statements dated 27 March 2013, 9 September 2013 and 22 January 2014. Mr Bradley has completed income tax returns for the applicant since 2009. He distinguished the applicant’s income from that of the company/trust which he described as the business. His summary was that, in each year from 2008, the business made a profit but not all of this was paid to the applicant as income. Rather, the business retained some of the profit and a cash balance to ensure that it would have sufficient funds to meet the legal costs associated with the litigation involving Mr Leach. In his first report, he noted that profits for 2008 were recorded in the accounts as having been distributed to the applicant. He said that this was done by mistake, that the monies were meant to be retained by the business and that the amount was not actually paid to the applicant.
Mr Bradley described the applicant’s $30,000 annual salary as being commensurate to his level of involvement and what the business could sustain. The profits withheld were used to pay down the loan which the business owed to the applicant since the business commenced. Mr Bradley was referred to certain holiday and restaurant expenses incurred by the applicant which were paid by the business. He said that these would not necessarily be personal in nature as their characterisation would depend on the circumstances in which they occurred. He said that anything which was private expenditure would come off the applicant’s loan account. Mr Bradley stated that the business had made paper profits but that these had to be retained for future needs, including legal costs.
In the report of 27 March 2010, Mr Bradley referred to the following outcomes in the financial years 2007 to 2012:
2007: business ran at a loss with a taxable loss of $36,274 carried forward to the following year;
2008: business made a profit of $159,569.58. This was distributed to the applicant. He paid tax on that but his cash distribution was retained in his loan to the business. This was not meant to be distributed to the applicant because of legal proceedings with Mr Leach. The 2008 profit was offset with the 2007 loss;
2009: business made a profit but outlays of $170,000 were made in relation to the legal proceedings;
2010: business made a profit of $39,850.64 and more legal fees were paid;
2011: business made a profit and more legal fees of $22,000 were paid;
2012: business made a profit of $38,959.81 and legal fees of $74,000 were paid.
Mr Bradley provided the following table:
Financial Year Payments to [applicant] from Babes in Paradise Interest Expense brought to account re applicant’s borrowed funds Principal repayment/ increase Notes re applicant’s loan 2008 $21,684.00 $21,684.00 nil Nil change 2009 $21,684.00 $29,158.61 $7,474.61 increase 2010 $19,387.69 $26,202.72 $6,815.03 increase 2011 $21,983.52 $29,232.78 $7,249.26 increase 2012 $21,911.00 $21,911.00 nil Nil change
In his second report, Mr Bradley confirmed withdrawals by the applicant from the cash draw which he also called the “float drawer”. It comprised business income and withdrawals which were treated as business expenses. These were $48,500 on
12 October 2008 and $20,000 on 20 January 2009. The applicant also withdrew, on
10 November 2008, $2,000 from his S1 Easy Access account and $148,000 from his
S8 Online Supersaver account. Of those amounts, $170,000 was paid to Mr Leach.
A receipt signed by Mr Leach for that amount, attached to Mr Bradley’s report, recorded that this was an ex-gratia payment for monies spent by Mr Leach preparatory to the establishment of the brothel. Mr Bradley confirmed that the cash sums paid to Mr Leach were treated as loan repayments to the applicant.
In his evidence, Mr Bradley denied that the allocation of business earnings to the applicant’s loan was done to reduce the appearance of the applicant’s income so that he would be paid a higher level by Comcare to match his NWE. He confirmed that the applicant had an Amex card which he used for personal and business purchases. The expenditure was apportioned as between private and business use with the allocation of usage apportionment being noted by Ms Munro. Mr Bradley relied on that apportionment although, from time to time, an audit was undertaken. Mr Bradley also confirmed that the applicant had the use of a Toyota Land Cruiser which had been purchased by the company and that the logbook method was utilised for dealing with it for taxation purposes. He said this was the preferred method because of the low kilometreage travelled by the applicant. By that method, he said, there was an apportionment between private and business use. Again, items identified as personal were treated as repayments to the applicant’s loan. Mr Bradley conceded that he had not done any assessment of the applicant’s assets to see whether they had increased in value.
Cassandra Michie
Ms Michie is a chartered accountant and partner with PricewaterhouseCoopers (“PWC”). She completed reports on 27 August 2012 and 3 June 2013.
The first report was completed to identify any income or other benefits or payments made to the applicant and his associates, including the company and the trust or business. These related to the 2010, 2011 and 2012 financial years except for credit card transactions which were considered in the 2012 financial year only. Ms Michie identified the following potential benefits:
Category of benefit
2009/10
2010/11
2011/12
Salary from the business $29,423 $29,999 $28,846 Interest from the business $20,122 $20,267 $18,615 Trust distribution from the business $29,978 nil n/a Dividends from the company nil nil nil Credit card transactions charged to the business n/a n/a $17,140
Ms Michie noted that profits from the business were not distributed to the applicant but to the company and retained in the trust balance sheet. She wrote that, as the applicant was the only shareholder, these could have been distributed to him. She also noted that the applicant used a vehicle owned by the company.
Ms Michie prepared her second report for the purpose of reporting on the applicant’s income earning activity through the company and the trust or business. She advised the following in relation to the trust for the financial years 2007-2012:[3]
[3] This table contains entries selected from Tables 1, 2, 3 and 17 in Ms Michie’s 2013 report.
2007 2008 2009 2010 2011 2012 Total income 538,146 748,074 784,381 751,853 864,893 856,024 Net profit/(loss) (24,716) 159,570 136,557 39,851 85,389 38,960 Loan from the applicant 399,594 411,252 466,700 510,856 519,386 473,745[4] Trust’s liability to the applicant 399,594 411,252 466,700 510,856 519,386 493,745 Closing balance of net assets 666,326 608,485 741,767 800,774 799,888 Amex expenses charged to applicant’s loan account 3,565
4%
8,105
11%
5,510
7%
2,161
3%
1,467
3%
1,511
3%
Amex expenses charged to trust 84,027
96%
68,884
89%
78,444
93%
71,104
97%
86,069
98%
81,292
98%
[4] Elsewhere, this was identified as being $493,745: see Exhibit 4 at Tables 4 and 18.
During the 2011/12 financial year, Ms Michie found that 98% of the Amex expenditure was expended to the trust with the remaining 2% being allocated to the applicant’s loan. However, in that period, she identified $17,140, or 21%, of the Amex expenditure as potentially personal in nature but which was attributed to the business. Three broad categories of expenses were identified: groceries, travel, and restaurants. Travel was not listed by him as one of his required duties. She said that fuel expenses were properly expended to the trust from when the business purchased the vehicle in 2009 but that this was a fringe benefit which should be assessed as income. She attributed the taxable value of the vehicle at $20,968 in the financial years 2010 and 2011 and at $16,130 in the financial year 2012.
Ms Michie noted that the liability to the applicant had risen each year until it fell in 2012 which, she wrote, appeared to be related to unexplained reconciling amounts. As for the annual increases, Ms Michie wrote that this was because the applicant lent money to or paid expenses of the trust and/or that the loan had increased as a result of unpaid profit distribution by the trust to the applicant. In relation to the Amex expenses, Ms Michie identified 116 potentially personal transactions expensed to the trust in the 2012 financial year which were not marked by the applicant as being personal in nature. In summary, these expenses comprised:
Item $ Petrol 231 Restaurant 4,655 Retail 2,471 Supermarket 5,275 Travel – accommodation 2,588 Travel – airfares 1,696 Travel – car rental 226 Total 17,140[5] [5] This was the total in Ms Michie’s report.
In her first report, Ms Michie provided more detail in relation to those transactions and advised that each monthly statement identified each item as either related to the trust or as personal to the applicant. From 2007 to 2012, she said, the average breakdown was 95% to the trust and 5% to the applicant.
In evidence were statements relating to the applicant’s Amex card from August 2006 to March 2007, from August 2009 to March 2010 and from May 2011 to March 2012. Attached to some of those statements were original receipts relating to some of the recorded transactions at supermarkets and in relation to travel arrangements. As noted above, Ms Michie’s evidence was that, on average, 95% of these types of transactions were expended to the trust. In his evidence, the applicant agreed with the proposition that, from late 2009, all of his travel costs were charged to the trust.[6] When questioned about some of his individual travel arrangements in that time, the applicant agreed that they were not for business purposes but were holidays, usually with Ms Munro. That was the case with travel to Cairns in November 2011,[7] to Mantra resort at Kingscliff in March 2011, to Toukley in New South Wales in October 2011,[8] to Brighton in November 2011[9] and to Malaysia in April 2012.[10] The applicant flew his daughter from Sydney to the Gold Coast in March 2012.[11] Other travel occurred to Thailand in September 2011 and New Zealand in October 2010. Several supermarket receipts were also identified by
Ms Elenne Ford, who represented the respondent. She put to the applicant that these were examples of personal purchases which were expended against the trust. The applicant agreed that some of these were for his personal use but that many others were for the business. The applicant was extremely vague in his responses in relation to those questions. For example, he was unable to recall the kinds of items he had purchased in the previous week. The applicant noted that some of the entries recognised by Ms Michie as being personal in nature were business-related and, in that regard, he referred to transactions at Coles Express which he used for the purchase of fuel rather than grocery items.
Arnold Shields
[6] See transcript of proceedings dated 3 February 2014 at p 71.
[7] Travel documentation was attached to the statements in exhibit 24.
[8] Transcript (supra) at p 73.
[9] Transcript (supra) at p 73.
[10] Travel documentation was attached to the statements in exhibit 24.
[11] Transcript (supra) at p 73 and exhibit 24.
Mr Shields is a chartered accountant with and a director of Dolman Bateman & Co Pty Ltd. In his evidence, he said that his expertise was in advising businesses and in doing business valuations. He listed his qualifications as a Bachelor of Arts (Accountancy) from Sydney University, Graduate Diploma Accounting from UTS, Chartered Accountant and Diploma in Financial Services. He listed his work profile as including:
·business valuations for the purposes of family law, commercial litigation and business purchase/sale and stamp duty matter;
·superannuation valuations for the Family Court of Australia;
·special investigations for commercial and insurance purposes;
·fraud risk assessment and prevention;
·due diligence reports; and
·preparation of reports for commercial litigation.
Mr Shields conceded that he was not a remuneration expert but that he dealt with such matters in family law disputes in which such experts relied on the survey which he utilised in this matter. This was the Australian Institute of Management Small Companies Salary Survey for the years 2007 to 2012 (“AIM survey”). He said that this was the only report available in relation to managing directors. Mr Shields has also had experience with at least two other brothels and described the difficulty in obtaining data about brothel earnings.
Mr Shields provided reports evaluating the earning capacity of the applicant in the business during the relevant period. He noted that the company had retained earnings of $187,779 and franking credits of $69,010 which were available for distribution to the applicant. Mr Shields relied on the AIM survey in forming his opinions. He concluded that a business owner who carries out the duties undertaken by the applicant for 40 hours per week would attract a salary package which would include superannuation, a company car, subscriptions, mobile phones, laptops, medical insurance and other benefits subject to and not subject to fringe benefits tax. Considering the turnover of the company,
Mr Shields adopted the figures applicable to the smallest entities considered in the AIM survey. This was for companies with a turnover of less than $3 million. He concluded that the annual salary for each year in the relevant period was:
Year $ 2007 111,108 2008 116,412 2009 138,060 2010 137,880 2011 151,696 2012 140,803
The AIM survey included a summary of a managing director’s position under the headings: Role; General Functions and Tasks; Relationships and Authority; and Qualifications and Experience. Part of the role is to act “in accordance with the authority delegated by the Board of Directors”, to “report to a Board of Directors” and to manage “executive staff”. Also, Qualifications are summarised as: “preferably tertiary and postgraduate experience in an appropriate discipline or equivalent formal studies in management”. Experience is summarised as “proven successful experience in fields relevant to the business or the company”.
Mr John Dwyer, who represented the applicant, put to Mr Shields that those factors imply a larger concern than the applicant’s business and that the applicant did not satisfy either the qualification or experience criteria. Mr Shields acknowledged that the applicant was a sole director of the company but considered that did not change his role from that set out in the AIM survey. Mr Shields said that the listed qualifications and experience were not essential and that he had seen a number of clients who did not have commercial, post graduate or tertiary qualifications. Mr Shields said that he did not consult data from the Australian Bureau of Statistics (“ABS”) for his report but also said that he had done so on previous occasions and considered that this would not be of assistance in assessing the applicant’s salary level.
Mr Shields was referred to the four turnover ranges in the AIM survey. These were for companies with a turnover of less than $3 million; $3-6 million; $6-10 million; and over $10 million. He agreed that the salary range of a managing director reduced for each lower category and that the turnover of the applicant’s business was well below the
$3 million threshold in the category he was in. He conceded that the AIM survey, in the category of turnover of less than $3 million, relied on data from 29 companies when he estimated that there were approximately 1 million such companies in Australia. He also conceded that the AIM survey included adjustments for each Australian state and for different industry groups.
In his evidence, Mr Shields advised that the average wage of all full time employees in Australia was $70,000 and that this was without any managerial responsibility. He said that, if the person was also running a business, an increment of “say” 20% would be added and that, if the person had overall management for securing the survival of the business, another such increment would be added. In the case of the applicant who was on call 24 hours per day, seven days per week to deal with any issues that arise at the brothel, his opinion that he would be paid $70,000 plus two increments of 20% or a total in the order of $102,000 per year.
After the hearing, Mr Shields completed a supplementary report, dated 11 February 2014. He had been provided with data from the ABS entitled “Occupation by Methods of Setting Pay”. He responded in the report to a series of questions about it. He advised that he had not seen that particular set of data though he had seen other ABS tables to determine the open market earning capacity of persons by reference to average weekly earnings. Relevant in the hearing were the following entries:
Table 1 ALL EMPLOYEES, Average weekly earnings–Occupation by Method of setting pay
Award only Collective agreement Individual arrangement Owner manager of incorporated enterprise All methods of setting pay AVERAGE WEEKLY TOTAL CASH EARNINGS ($) 1111 CEOs and managing directors
-
-
3,485.20
1,566.50
2,553.40
1112 general managers
-
2,839.50
2,443.00
-
2,384.10
1491 amusement, fitness and sports centre managers
879.20
1,540.10
1,470.30
669.30
1,260.10
1399 other specialist managers
812.10
1,966.00
2,682.20
1,399.60
2,309.10
Mr Shields’ opinion was that the information on which the data was based in that table included only the salary component and omitted superannuation, salaries paid to spouses, income splitting arrangements, fringe benefits such as a motor vehicle and profits retained in a company and distributed as dividends. Also, he was unaware of the number of workers on which the ABS data was based. He noted that the “owner manager” component of the 1111 category was $1,566 per week but said that this would not be applicable to the applicant because of the omissions noted above. In category 1111, he noted that the average of all methods of setting pay was higher at $2,553.40 and that, higher still, at $3,485.20 per week or $180,230.40 per year, was the salary set by individual arrangement. He commented that the average weekly earnings in the
1112 category of General Managers were $2,384.10 or $123,973.20 per year. He wrote that he would not change the opinions he gave in his first report or in his oral evidence because of the omissions from the ABS data.
Amex card
In evidence was a copy of the applicant’s application form, dated 16 January 2008, for a platinum Amex credit card. Therein, he described himself as a self-employed managing director in the hospitality industry trading as Utopia in Paradise.
Dr David Fitzgerald
Dr David Fitzgerald is an occupational physician. He completed an assessment report of the applicant’s right knee condition on 26 March 2013. He diagnosed meniscal damage, meniscectomy and degenerative changes in the right knee. Dr Fitzgerald was aware of the nature of the business in which the applicant is engaged and the nature of his responsibilities in relation to it. He described the applicant’s physical limitations as preventing him from doing significant weight bearing and mobilisation or doing anything more than sedentary work. In particular, his opinion was that the applicant is able to undertake clerical or managerial roles provided he is seated and is able to stretch out his right leg. Also, he concluded that the applicant was fit to work as a finance and operations manager in a business with an annual turnover of circa $850,000 and to assume responsibility for compliance operations, staffing, financial stability and success of the business.
Occupational evidence
David Morris, an occupational therapist with Advantage Injury Management Services, provided a report, dated 21 May 2013.[12] Mr Morris noted the applicant’s physical limitations described by Dr Fitzgerald. With those in mind, he recommended that the following types of employment would be suitable for the applicant: administration officer, receptionist, accounts clerk, call centre operator, data entry officer, loss adjustment officer and court officer. He considered that the applicant’s limitations in driving and travel would confine him to work in the Gold Coast area. Mr Morris set out the likely salary that the applicant would receive in those positions in each year from 2006 to 2013. In 2012, these ranged from $39,936 to $59,800. He concluded that the applicant would earn less that he was earning with the AFP.
[12] Exhibit 5. He also completed a short supplementary report on 7 June 2013 (exhibit 6).
Tony de Ambrosis is a rehabilitation consultant and a physiotherapist with Working Well Australia (“WWA”). Georgia Blackwell is a rehabilitation consultant and a psychologist with that organisation. They completed a report on 20 May 2013.[13] They denied that WWA had advised the applicant to allocate himself a salary of $30,000 per year. They wrote that such a level was below his AFP salary but was also lower than any which had been identified in suitable vocations in the local labour market. Mr de Ambrosis had advised the applicant several times that, if his salary did not match his pre-injury wage, he would be required to look elsewhere for work. Ms Blackwell and Mr de Ambrosis, noting the applicant’s limitations, considered that he would be suited to work as an administrative assistant, a customer service advisor, a call centre operator and a compliance/investigation officer. They concluded that such positions were available at the Commonwealth government level and, to a lesser degree, with the State government on the Gold Coast. The City Council was considered to have reasonable availability of work. They also reported that some such positions were available in the private sector. Their labour market research led them to conclude that, with the Department of Human Services, a customer service advisor in a Tweed Heads Call/Smart Centre would earn from $54,435 to $60,671, and at a Customer Service Centre the level would be from $60,672 to $67,222. With the Gold Coast City Council, the level was $43,000 to $62,000. They reported that private sector earnings were $20 to $24.99 per hour and that a Customer Service Advisor or Compliance / Investigations Officer with the
Department of Human Services received a salary in the range of $60,672 to $73,017.
[13] Exhibit 30. They also completed a short supplementary report on 29 July 2013 (exhibit 31).
Submissions
Mr John Dwyer
For the applicant, Mr Dwyer submitted that Comcare had overestimated the applicant’s ability to earn during the relevant period and that there was no evidence that he had the ability to earn more than $50,000 per annum in the relevant period. He submitted that no regard should be had to the evidence of Mr Shields because of his reliance on the
AIM survey. He submitted that this was unreliable because it was too narrowly focused, with only a small sample from which data was drawn, and because the turnover of the business was considerably short of the threshold of the lowest turnover bracket in the survey. He submitted that, in any event, turnover should not be the basis of assessing earning ability.[14] He submitted that the more reliable data was that of the ABS but that, in applying it, regard should not be had to categories 1111 (CEOs and managing directors) or 1112 (general managers). This was because of the nature of the duties that the applicant performed which, he submitted, were minor in nature and limited to menial tasks as the owner/manager in the business. He likened it more to category 1491 (amusement, fitness and sports centre managers) in the ABS data for whom the weekly wage is $669.30 which equated to $34,803.60 per year. He accepted that the ABS data had omissions such as superannuation and provision for a vehicle but submitted that, with those factors added as well as the travel and dining benefits enjoyed by the applicant and Ms Munro, the ability of the applicant to earn was approximately $50,000 per year. He submitted that this was supported by the physical limitations imposed on the applicant from his accepted knee injury, as set out in Dr Fitzgerald’s report.
[14] Citing Hooper v Comcare [2001] AATA 548 at [36]; Comcare v Davies [2008] FCA 393; Warnock v Comcare [2008] AATA 567 at [41]; Cage Developments Pty Ltd v Schubert (1983) 151 CLR 584; Arbuckle v Comcare [2005] AATA 820 at [95]; J & H Timbers Pty Ltd v Nelson (1972) 126 CLR 625.
While conceding that profits, which may have been payable to the applicant, were retained in the accounts of the trust, he submitted that these should not be treated as income of the applicant. He submitted that the retention was a prudent measure to meet the payments which will be necessary to settle the liability resulting from Mr Leach’s court proceedings and for which the company would also be liable. He submitted that, if this were not done, the monies would be properly used to repay the loan, made by the applicant initially and on which the business was based or, perhaps, to finance future needs of the business.
Mr Dwyer accepted that the applicant’s Amex credit card was used by him for both business and personal expenditure. However, he submitted that the costs of any personal items should not be treated as income of the applicant as it was used to reduce the indebtedness of the business to him. He submitted that the evidence was unclear on many items alleged by the respondent to be personal in nature. Alternatively, he submitted that whatever level of benefit there was from this would also be comfortably absorbed into a salary of $50,000.
He submitted that it was not open to the respondent to make submissions that the evidence of the applicant’s actual earnings was so unclear that regard should only be had to what he was able to earn in suitable employment. This was because such an approach had not been part of the respondent’s case as set out in its statement of facts and contentions.
Accordingly, Mr Dwyer submitted that the reviewable decisions should be set aside; that the applicant’s entitlement to incapacity payments should be restored based on an ability to earn $50,000 per year in the relevant period and thereafter; and that the matters should be remitted to the respondent to make the appropriate calculations.
Ms Elenne Ford
For the respondent, Ms Ford conceded that the applicant suffered an injury which was compensable under the Act. However, she submitted that the nature of his duties in his role as the managing director of the business was such that his injury had negligible impact on him. His evidence was that he worked 40 hours each week with frequent breaks over and above that time allocation. Ms Ford disputed the suggestion that his contribution to the business was minor and related to menial tasks only. She submitted that he was the “brains” behind the entire enterprise from its commencement and that he also bore ultimate responsibility to the PLA for the conduct of the brothel with its
23 staff members. While he undertakes tasks such as shopping, paying bills and wages and conducting minor repairs, the applicant also spends time using the internet to research changing practices in the industry and to ensure that the business’ website is updated. She noted that the applicant styled himself as the managing director of the enterprise in his application for an Amex credit card and she submitted that this was his appropriate title.
Ms Ford submitted that evidence of the applicant’s actual earnings was quite unclear but that it was certainly more than the notional $30,000 he had been paying himself. It included, she submitted, the personal items for which he used the Amex card, such as the costs of travel and restaurant dining with Ms Munro, as well as the costs associated with grocery items and the company car. Ms Ford submitted that it also included the business profits retained in the accounts of the trust to which he was entitled, even if he did not receive them. She referred to the “mistaken” distribution to him of $89,681 in 2007 as evidence of this.
Ms Ford submitted that there were concerns with the applicant’s evidence that personal expenditure by him with the Amex card was credited to the loan he made to the business. This was because, as revealed in the PWC evidence, the loan amount throughout the relevant period did not reduce but continued to increase thereby enabling the level of the applicant’s assets to increase whilst he was on a modest salary of $30,000.
Because of this lack of clarity in the material concerning the actual earnings of the applicant, Ms Ford submitted that the “AE” reference in s 19(2) of the Act should be the amount per week that he is able to earn in suitable employment.
In her submission, Ms Ford said that preference should be given to the evidence of
Mr Shields in adopting the AIM survey rather than the ABS data for assessing the amount that the applicant had the ability to earn. She noted that, for 2012, the relevant figure was $140,803 per year but submitted that the amount as determined in the decision under review ought be adopted. This was $2,468.05 per week or $128,338.60 per year. Accordingly, Ms Ford submitted that each of the September and December reviewable decisions ought be affirmed.
In the alternative, Ms Ford submitted that the applicant had an ability to earn $50,000 per year during the relevant period as an employee in other suitable employment.
Consideration
Under s 19(4)(a) of the Act, where the employee is in employment, including
self-employment, regard must be had to the amount per week that the employee is earning in that employment. I am satisfied that the applicant’s actual earnings from the business are not reflected in his annual salary of $30,000. This was agreed by Mr Dwyer and Ms Ford. The applicant received additional benefits by means of items of personal expenditure being attributed to the business. This included certain grocery items, travel costs and restaurant costs. Prior to the business’ purchase of the vehicle in 2009 for the applicant to use, it also included fuel costs. Ms Michie’s evidence was that the applicant’s personal expenditure met by the business amounted to $17,140 in 2012.[15] Payment of the applicant’s personal items by using them to reduce the level of the applicant’s loan to the business was equivalent to treating them as capital owed by the business to the applicant. The evidence is far from clear as to the precise amounts of personal expenditure which were dealt with in that way. Indeed, the evidence is that the amount of his loan actually increased over the years and no explanation was provided by the applicant in that regard. Ms Michie also gave the taxable value of the vehicle supplied to the applicant as being $20,968 in the financial years 2010 and 2011 and $16,130 in the financial year 2012.[16] The structure of the company and the trust would have enabled the applicant to receive the profits of the business but his evidence was that he chose not to do so because of the need to accumulate a capital sum with which to discharge any future obligations the applicant and/or the company may have to Mr Leach as a result of the Supreme Court proceedings. It seems, from the Court’s decision, that this may have proved to be a prudent approach. However, the applicant’s involvement with Mr Leach should bear no relationship to what constitutes income to the applicant.
[15] See paragraphs 23, 26 and 27 (above).
[16] See paragraph 26 (above).
Reference has been made to the turnover and the profits of the business. On Ms Michie’s evidence, this was as high as $864,893 in 2011 and averaged in the order of $750,000 per year from 2007 to 2012. Annual profits were reported by Ms Michie to average in the order of $92,000 from 2008 to 2011. However, I accept the submissions of both counsel that the measure of the applicant’s earnings should be:
the remuneration [of the] fruit of his labour, his wages or equivalent. It should not be measured by the profits he derives by embarking his capital in a business or by his usual capital equipment in earning money.[17]
[17] J & H Timbers Pty Ltd v Nelson (1972) 126 CLR 625 at 643. See also Hooper v Comcare [2001] AATA 548 at [36]; Comcare v Davies [2008] FCA 393; Warnock v Comcare [2008] AATA 567 at [41]; Cage Developments Pty Ltd v Schubert (1983) 151 CLR 584; Arbuckle v Comcare [2005] AATA 820 at [95].
I accept Ms Ford’s submission that, because of the unreliability of the evidence in respect of what the applicant was actually earning, the matter must be determined on the basis of what he would be able to earn in suitable employment. Mr Dwyer submitted that this was not appropriate because it was not an approach raised in the respondent’s statement of facts, issues and contentions. However, I am satisfied that it was always an inevitable outcome because of the nature of the evidence led about the applicant’s earnings.
It is not in dispute that the work that the applicant is currently undertaking satisfies the definition of “suitable employment” in s 4 of the Act. This extends to self-employment and the undoubted success of the business demonstrates his suitability to it. Significantly, his position is adapted to take account of the physical limitations described by
Dr Fitzgerald who concluded that the applicant was fit to work as a finance and operations manager in such a business. It is also consistent with the types of work identified as being appropriate by Mr Morris, Mr de Ambrosis and Ms Blackwell.
In her submission, Ms Ford held the applicant to the job description he gave himself in his Amex application form. This was a managing director. Subsequently, in his court proceedings, he described his position as company director. Neither of those terms is completely inaccurate in that he is a director of the company and has certain management responsibilities. I do not accept Mr Dwyer’s submission that the duties performed by the applicant were only minor in nature and limited to menial tasks. Some limitations were imposed on the applicant because of the need for male management personnel not to be present in the business premises. While some of his tasks may have been of a minor nature, he was also responsible for making wage and superannuation payments, ensuring repairs were carried out, purchasing items for the business and conducting internet related activity but, more significantly, he carried the burden of responsibility for meeting PLA licensing requirements and was in attendance for scheduled PLA audits.
I accept Mr Dwyer’s submission that the applicant does not meet the qualifications and experience listed in the AIM survey for a managing director. As Mr Shields noted, these may not be strictly necessary and that would seem to be supported by the success of the business. However, I am satisfied that the applicant is only able to carry out his responsibilities in the manner that he does because he is, in effect, the owner of the business. His 40 hours of work are spread over a longer time frame because of the frequent breaks he takes to accommodate the limitations described by Dr Fitzgerald. This has relevance to the AIM survey and ABS data referred to in evidence. It is doubtful that the salary levels for managing directors in the AIM survey would be applicable to a person with the physical limitations that the applicant has. I am satisfied that a more appropriate title for him in his business is as an owner manager. That is a classification used in the ABS data.
I have some doubts about the weight to be attached to the AIM survey in this matter. One of these relates to the broad band in which the applicant’s business was located and the small sample of businesses in that survey. The band extended to businesses with a turnover of up to $3 million dollars, which is substantially higher than the turnover of the applicant’s business. Also, the data was drawn from only 29 businesses out of a total, on Mr Shield’s evidence, of approximately 1 million Australian businesses of that size. The AIM survey also has variations to the income based on its location in Australia and the type of industry in which it sits. Mr Shields relied on the AIM survey and he conceded that he was not a remuneration expert but that he had dealt with such matters in family law disputes in which such experts relied on the AIM survey. There is no evidence of the size of those businesses. Mr Shields has also had experience with at least two other brothels and described the difficulty in obtaining brothel earnings. He was critical of the ABS data but only on the basis that it omitted certain aspects of remuneration such as superannuation, salaries paid to spouses, income splitting arrangements, fringe benefits such as motor vehicles, and profits retained in a company and distributed as dividends. However, it is not clear that those aspects of remuneration were included in the
AIM survey. I am satisfied that clearer guidance about the applicant’s salary is found in the ABS data rather than the AIM survey, provided consideration is given to the factors identified by Mr Shields as missing from the salary levels in that data.
Mr Dwyer relied on the ABS data and submitted that the appropriate category for the applicant was as an owner manager of an amusement, fitness and sports centre (category 1491) for which average weekly total cash earnings is $669.30, or $34,803.60 per year. Mr Dwyer submitted that, when increments are added to that figure to represent the matters identified by Mr Shields as being missing from the ABS data as well as the matters for which the applicant received a benefit from the business other than as income, the figure increased to $50,000. He submitted that this was the amount that the applicant was able to earn in suitable employment.
I accept Mr Dwyer’s analysis in that it relies on the ABS data and identifies the applicant as an “owner manager of an incorporated enterprise”. As an owner manager, the applicant is well placed to control his mode of work, for example, by taking frequent rest breaks during a shift. However, I do not accept that category 1491 correctly describes the applicant’s business as it differs materially from an amusement, fitness or sports centre. The business is not specifically identified in the ABS data, but I am satisfied that the appropriate categorisation is “1399 Other specialist managers”. This is noted in the table above.[18] This identifies average weekly total cash earnings of $1,399.60 or $72,779.20 per year. As noted above, Mr Dwyer considered that it was appropriate to increase the basic salary of $669.30 per week or $34,803.60 per year for the category of owner manager of an amusement, fitness and sports centre managers. I accept that contention and consider that to be a factor to which regard may be had under s 19(4)(g) of the Act. I am satisfied that such an approach must also be applied to the salary for category 1399 of the ABS data. The increase Mr Dwyer applied was sufficient to take the salary from $34,803.60 to $50,000 per year. As I understand his calculations, this represents an increase of $15,196.40 or 43%.
[18] See paragraph 36 (above).
Ms Michie’s estimate of personal expenditure paid by the business was $17,140 in 2012; her valuation of the benefit to the applicant for use of the vehicle was $16,130 in 2012; and superannuation at 9.25% on a salary of $72,779.20 per year amounts to $6,732.10. Those items total $40,002.10 per year or $769.27 per week. That constitutes 55% of the salary for category 1399 of the ABS data. As I have noted above, there was dispute about the extent to which the business paid the personal expenses of the applicant. With the 2012 figure of $17,140 omitted, the total is $22,862.10, which constitutes 31% of the category 1399 salary. However, I am satisfied that some of the personal items listed by Ms Michie were paid by the business and I am satisfied that the appropriate increment, to represent the matters identified by Mr Shields as being missing from the ABS data as well as the matters for which the applicant received a benefit from the business other than as income, is 35%. This is less than the increment added by Mr Dwyer in his calculations. That amounts to $1,889.46 per week or $98,251.92 per year.
I am satisfied that the AE value in the formula in s 19(2) of the Act is to be assessed under the ABS data[19] of owner manager of an incorporated enterprise in category 1399 “Other specialist managers” with an additional increment of 35%. For 2012, this is $1,889.46 per week. The ABS data for the previous years will need to be applied to other years in the relevant period.
[19] Exhibit 28.
DECISION
The Tribunal sets aside the decisions under review and substitutes its decision that the amount per week that the applicant is able to earn in suitable employment is $1,889.46 per week and remits the matters to Comcare to recalculate the applicant’s compensation entitlements in accordance with these reasons.
I certify that the preceding 64 (sixty -four) paragraphs are a true copy of the reasons for the decision herein of Mr R G Kenny, Senior Member ..............................Sgd..........................................
Associate
Dated 15 July 2014
Dates of hearing 3, 4 & 5 February 2014 and 22 May 2014 Counsel for the Applicant Mr John Dwyer Solicitors for the Applicant Mr Justin Matthews, QBM Lawyers Counsel for the Respondent Ms Elenne Ford Solicitors for the Respondent Ms Thena Kyprianou, Australian Government Solicitor
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