Samer ElAyoubi v QBE Insurance (Australia) Limited
[2022] NSWPICMR 66
•21 November 2022
| CERTIFICATE OF DETERMINATION OF MERIT REVIEWER | |
| Citation: | Samer ElAyoubi v QBE Insurance (Australia) Limited [2022] NSWPICMR 66 |
| ClaimanT: | Samer El Ayoubi |
| Insurer: | QBE Insurance (Australia) Limited |
| Merit Reviewer: | Katherine Ruschen |
| DATE OF DECISION: | 21 November 2022 |
CATCHWORDS: | MOTOR ACCIDENTS - Merit review; dispute about payment of weekly benefits under Division 3.3 of the Motor Accident Injuries Act 2017; pre-accident weekly earnings (PAWE); meaning of PAWE, schedule 1, clause 4(1) of the 2017 Act; earnings received as an earner; Corporations Act2001 section 1.5.1; distinction between sole trader and company; company separate legal entity; Held – the reviewable decision is set aside. |
| Determinations made: | 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 determined as follows: a) the reviewable decision is set aside; b) the claimant’s PAWE is $769.23; and c) the claimant’s entitlement to costs is nil. |
STATEMENT OF REASONS
introduction
There is a dispute between Samer El Ayoubi (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 5 November 2020.
The claimant made a claim for statutory benefits under the MAI Act.
On 17 May 2021 the insurer determined the claimant’s pre-accident weekly earnings (PAWE) in the amount of $499.53.
The claimant requested an internal review of the insurer’s decision of 17 May 2021.
On 21 June 2021 the insurer issued their internal review decision in which the insurer affirmed their decision that the claimant’s PAWE amount is $499.53.
The claimant has requested a merit review of the insurer’s internal review decision dated 21 June 2021.
SUBMISSIONS
The claimant asserts he is co-director and shareholder with one other of a company known as Top Level Form Pty Limited (the Company) and that through the business operated by the Company he had been earning $3,000 per week at the time of the motor accident through a combination of wage payments, director’s fees and profit distribution to him by the Company. Specifically, the claimant submits:
(a) he is a director and employee within his company and is in effect self-employed;
(b) he has ultimate control over the company, and
(c) the amount of $3,000 gross/per week is based on individual earnings being income the claimant receives from his personal capacity as an employee as well as profits from his company.
In a statement dated 17 September 2021 the claimant identifies documents (which are annexure B to his statement) which he says evidence weekly earnings of $3,127.50 before the accident. However, the documents at annexure B of the claimant’s statement comprise security of payment documents between the Company and another entity, E-Con Group Pty Limited regarding payments by E-Con Group Pty Limited to the Company. The payments evidenced by these documents do not account for outgoings/expenses of the Company and in any event, do not evidence any payments to the claimant.
By directions issues to the parties on 5 September 2022 the claimant was required to set out precisely how he calculates PAWE in the amount of $3,000. The claimant has not done so.
The insurer submits the only reliable evidence of earnings relevant to calculation of PAWE is the claimant’s 2020 tax return in which the claimant declared earnings of $40,000 by way of a director’s fee paid to him by the Company. The insurer has calculated PAWE based on the 2020 tax return and relies on the report of Procare Forensic Services dated 29 April 2021.
ISSUES
There is no dispute that the claimant is an earner within the meaning in the MAI Act. The issue in dispute is calculation of the claimant’s PAWE.
REASONS
Relevant background
Prior to the motor accident the claimant had been working in the construction industry. The claimant’s pre-accident tax returns show the following earnings history:
(a) financial year ending 30 June 2019: the claimant worked as a sole trader under ABN 50107993607 and earned gross income of $42,407;
(b) financial year ending 30 June 2020: the claimant earned gross income of $40,000 paid to him by the Company as a director’s fee, and
(c) financial year ending 30 June 2021: the claimant worked as a sole trader under his sole trader ABN, 50107993607 earning $19,813 in net profit (before tax) after deducting expenses of the business (gross profit of the business was $42,454)[1].
[1] The claimant also received insurance payments from QBE totalling $2,259 in this financial year.
The evidence shows the following income history of the Company:
(a) financial year ending 30 June 2019: the Company made a nominal profit of $1,649 but made no shareholder distribution;
(b) financial year ending 30 June 2020: the Company made a loss of $35,030, and
(c) financial year ending 30 June 2021: the Company made a loss of $26,440.
Meaning of PAWE
Clause 4(1) of Schedule 1 sets out the meaning of PAWE as follows:
“(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 earnerduring the 12 months immediately before the day on which the motor accident occurred, unless subclause (2) applies.
(2) In the following cases, ‘pre-accident weekly earnings’ , in relation to an earner who is injured as a result of a motor accident, means--
(a) if, on the day of the motor accident, the earner was earning continuously, but had not been earning continuously for at least 12 months--the weekly average of the gross earnings received by the earner as an earner during the period from when the earner started to earn continuously to immediately before the day of the motor accident,
(a1) if the earner was employed or self-employed during a period or periods equal to at least 26 weeks during the first year of the pre-accident period, but was not obtaining earnings from any source at any other time during the pre-accident period--the average weekly gross earnings received by the earner as an earner during the first year of the pre-accident period,
(b) if subclause (3) applies--the weekly average of the gross earnings the earner received as an earner, or could reasonably have been expected to receive, during the 12 months after the change of circumstance referred to in the subclause occurred,
(c) if the earner is an earner by reason of having entered into an arrangement with an employer or other person to undertake employment or to commence business as a self-employed person--the average weekly gross earnings that the earner could reasonably have been expected to earn, but for the injury, in employment under that arrangement.
(2A) The ‘pre-accident period’ , in relation to a motor accident, is the period of 2 years immediately preceding the motor accident.
(3) This subclause applies if, during the 12 months immediately before the day of the motor accident, there was, as a result of any action taken by the earner, a significant change in his or her earnings circumstances that resulted in the earner regularly earning, or becoming entitled to earn, more on a weekly basis than he or she was earning before the change occurred.
Note : Examples of a change of circumstances to which this subclause would apply include a change of job, a promotion, a move from part-time to full-time employment, or a pay increase arising from the achievement of performance standards.
(4) For the purposes of this clause, an earner earns continuously if he or she obtains earnings from permanent employment or from a source that, on the day of the motor accident, was likely to continue for a period of at least 6 months to provide earnings to the earner on the same, or a similar, basis to the basis on which the earnings were being provided as at that day.”
(emphasis added).
There is no evidence to suggest any of the exceptions under cl 4(2) apply to the claimant’s circumstances. Accordingly, the claimant’s PAWE falls for assessment under cl 4(1).
Under cl 4(1) PAWE is the weekly average of the gross earnings received by the claimant as an earner in the 12 month period immediately before the day on which the motor accident occurred. The motor accident occurred on 5 November 2020. Accordingly, the claimant’s PAWE is the weekly average calculated over the 12 month period from 5 November 2019 to 4 November 2020.
As discussed further below, the claimant did not earn in the capacity of an employee. Accordingly, there are no traditional wage records such as weekly, monthly or fortnightly payslips. The absence of payslips makes assessment of the claimant’s PAWE over the precise pre-accident period from 5 November 2019 to 4 November 2020 difficult and the available documents do not enable calculation of PAWE over this period. In the circumstances, the best available evidence of the claimant’s PAWE is his 2020 tax return. This tax return represents the claimant’s earnings for a complete 12 month pre-accident period nearest to the 12 month pre-accident period under cl 4(1). I therefore consider it appropriate to take the weekly average of the claimant’s earnings in the period 1 July 2019 to 30 June 2020 for the purpose of cl 4(1).
Legal personality of the Company
What is relevant under cl 4(1) are the earnings received by the claimant as an individual earner during this 12 month 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.
In so far as the Company is concerned, the claimant did not operate the business as a sole trader but is a director and shareholder (with one other) of the Company, which operates the business. There is a legal distinction between a sole trader and a company. The claimant and the Company are not one in the same, as the claimant’s submissions suggest.
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 the 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 legal position that a company is a separate legal entity.
Whilst the claimant may ultimately derive 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 the 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 evidenced by annexure B to the claimant’s statement, become the Company’s money regardless of whether the claimant physically carried out the work. If the money is received by the Company and either held by the Company or paid elsewhere (for example for expenses or dividend payments to shareholders other than the claimant) or retained in assets, they are not monies received by the claimant and therefore not earnings received by the claimant.
What earnings did the claimant receive in the period 1 July 2019 to 30 June 2020?
In the circumstances of a company operating the business, as is the case here, the Company’s income or profit are not earnings of the claimant. Accordingly, other than providing a basis upon which to reconcile or verify payments by the Company to the claimant the financial records of the Company are irrelevant to assessment of the claimant’s PAWE.
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 cl 4(1) is limited to payment of a director’s fee by the Company to the claimant.
The claimant declared payment of a director’s fee of $40,000 as earnings in his 2020 tax return. There is a corresponding entry in the Company’s profit and loss statement for the financial year ending 30 June 2020 and in the Company’s tax return for salary and wage expenses of the Company. Having regard to the declaration required of the claimant in his tax return and the corresponding Company records I am satisfied the claimant received this payment from the Company.
There does not appear to be any dispute that payment of the director’s fee represents earnings for the purpose of cl 4(1).
The evidence establishes the claimant did not receive earnings in the capacity of employee of the Company or as employee of any other business or entity during the period 1 July 2019 to 30 June 2020 (or at any other time in the two years prior to the date of the accident).
The claimant submits that in addition to being a director and shareholder, he was also an employee of the Company and was paid wages by the Company. However, this submission is not supported by any documents. Other than a director’s fee payment there is nothing in the financial records of the Company to suggest wage payments were also made to the claimant. The Company declared in its tax return for the financial year ending 30 June 2020 that “total salary and wage expenses” were limited to $40,000 which corresponds with the director’s fee paid to the claimant. If wages were paid in addition, one would expect this figure in the Company’s tax return to be higher. The claimant also did not declare any wages from the Company (or from any other source) in his 2020 tax return. If the claimant had been paid wages by the Company one would expect to see the payments declared by the claimant in his tax return, given his legal obligations under the tax legislation.
Based on the following I am not satisfied the claimant received wages from the company:
(a) the claimant is legally obligated to declare all income to the Australian Taxation Office (ATO) and is required to declare that the information in his tax returns is true and correct;
(b) the claimant did not declare any wages from the Company in his 2020 tax return, other than the director’s fee;
(c) the financial records of the Company include details of the Company’s expenditure and do not show payment of any wages to the claimant other than the director’s fee, and
(d) the Company also did not declare any wage expenses in its 2020 tax return other than the director’s fee.
Questions arise regarding the veracity of the claimant’s assertions about his pre-accident earnings. Indeed, if the claimant’s contentions he earned $3,000 per week in his individual capacity from the Company through director’s fees, wages and profit were true, serious questions and legal implications for the claimant would arise in circumstances where this is not declared in his tax return, which only declares approximately 25% of the claimant’s contended income.
The claimant has obligations under both tax legislation and the MAI Act to provide truthful information. The claimant cannot assert on the one hand to the ATO that he only earned $40,000 in the financial year ending 30 June 2020 and assert under the MAI Act on the other hand that he earned over $150,000 based on income of $3,000 per week. In any event, the latter is not supported by the documents.
There is no evidence of any dividend payments by the Company to the claimant in his capacity as shareholder. Indeed, in the financial years ending 30 June 2020 and 30 June 2021 the Company declared a loss in its tax returns and accordingly, there was no profit in these years from which dividend, or any other, payments could be made to the claimant.
For the reasons set out above I am satisfied the total earnings received by the claimant in the period 1 July 2019 to 30 June 2020 were $40,000 by way of a director’s fee paid by the Company. This earnings amount is reasonably consistent with earnings in the previous 12 months in respect of which there are pre-accident complete records, being the period 1 July 2018 to 30 June 2019. In that year, the claimant declared gross earnings of $42,407, being a similar amount to the financial year ending 30 June 2020.
What is the claimant’s PAWE?
For the reasons set out above I have determined that the claimant’s PAWE is to be calculated based on earnings in the period 1 July 2019 to 30 June 2020. I have concluded above that total earnings in this period were $40,000.
The insurer has calculated PAWE on a pro rata basis, based on the number of days in the period 1 July 2019 to 30 June 2020 that occur after commencement of the pre-accident period on 5 November 2019 and then dividing the pro rata amount by 52 weeks. This is said to be on the basis there is no evidence of the date or dates on which the claimant received payment of the director’s fee.
In the circumstances of this matter, I do not agree with this methodology. It potentially distorts the claimant’s pre-accident earnings, as it ignores income that may have been received after 30 June 2020 but still within the 52 week period up to 4 November 2020 over which the insurer has taken the average.
It is common practice for companies to make director and shareholder payments at the end of the financial year, once the profit or loss status of the company for the financial year is known. The probability therefore exists that the claimant received the payment between 5 November 2019 and 30 June 2020. PAWE is based on the weekly average of earnings “received” in the relevant period. It is irrelevant that payment may represent the performance of work prior to commencement of the relevant pre-accident period.
It is true that there is no evidence of the date or dates on which the claimant received payment of the director’s fee and some payments may fall outside the specific pre-accident period dictated by cl 4(1). For this reason, there is some force in the insurer’s submission that the amount should be calculated on a pro rata basis. However, if the weekly average is then taken over a full 52 week period but on the reduced, pro rata amount, there would need to be consideration of any other earnings received in that 52 week period, which the insurer has not taken into account.
The claimant’s 2021 tax return shows earnings as a sole trader. The extent to which these earnings were received between 1 July 2020 and 4 November 2020, however, is not known. As noted, the evidence does not permit a calculation of the claimant’s PAWE over the pre-accident period specified by cl 4(1) being 5 November 2019 to 4 November 2020. For these reasons I have concluded above that the correct and preferable position in this matter is to adopt the nearest 12 month pre-accident period in respect of which there are complete records. This period is 1 July 2019 to 30 June 2020. The fact the claimant received similar earnings in the previous year suggests on balance that the weekly average in the financial year ending 30 June 2020 reasonably represents the claimant’s PAWE for the purpose of cl 4(1).
The claimant’s earnings in the period 1 July 2019 to 30 June 2020 totalled $40,000. Accordingly, the claimant’s PAWE amount is $769.23, being gross earnings of $40,000 divided by the number of weeks (52) in this period.
CONCLUSION
For the reasons set out above the profit or loss (earnings) of the Company does not represent the claimant’s earnings. In any event, the Company made a loss in the relevant year and there is no evidence of any payments to the claimant other than a director’s fee in calculation of the Company’s loss (or otherwise).
I am comfortably satisfied on balance that the evidence establishes the claimant’s PAWE amount is $769.23 for the reasons set out above.
The claimant seeks costs under s 8.10 of the MAI Act based on exceptional circumstances.
As a merit reviewer, I do not have jurisdiction to allow costs based on exceptional circumstances. Pursuant to s 8.10(4)(b) of the MAI Act only the Personal Injury Commission (Commission) can permit payment of legal costs if the Commission is satisfied there are exceptional circumstances. Pursuant to s 8 of the Personal Injury Commission Act 2020 the Commission consists of the President, Deputy President and non-presidential members, and does not include merit reviewers. In any event, I consider that no exceptional circumstances exist in this matter that would justify payment of legal costs.
As to the costs of this merit review, Sch 1 of the Regulation does not permit costs in connection with a dispute under Sch 2, cl 1(a) of the MAI Act. Accordingly, the claimant’s entitlement to costs of this merit review is nil.
Accordingly:
(a) the reviewable decision is set aside;
(b) the claimant’s PAWE is $769.23, and
(c) the claimant’s entitlement to costs is nil.
LEGISLATION AND GUIDELINES
In making this decision, I have considered the following:
· The application, reply and supporting documentation;
· MAI Act,
· the Motor Accident Injuries Regulation, and
· the Motor Accident Guidelines.
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