Singh v Insurance Australia Limited t/as NRMA Insurance
[2023] NSWPICMR 39
•24 July 2023
| CERTIFICATE OF DETERMINATION OF MERIT REVIEWER | |
| Citation: | Singh v Insurance Australia Limited t/as NRMA Insurance [2023] NSWPICMR 39 |
| ClaimanT: | Uma Singh |
| Insurer: | Insurance Australia Limited t/as NRMA Insurance |
| Merit Reviewer: | Katherine Ruschen |
| DATE OF DECISION: | 24 July 2023 |
| CATCHWORDS: | MOTOR ACCIDENTS - Motor Accident Injuries Act 2017; dispute about payment of weekly benefits under Division 3.3; meaning of pre-accident weekly earnings; meaning of earnings; schedule 1 clause 4; self-employment; sole trader versus company; company as separate legal personality; discretionary trust; trust income; trust distribution; rental income; clause 3(3)(b); Held – the reviewable decision is set aside. |
| Determinations made: | CERTIFICATE Issued under s 7.13(4) of the Motor Accident Injuries Act2017 DETERMINATION The reviewable decision is about the amount of weekly payments of statutory benefits that are payable under Division 3.3 of the Motor Accident Injuries Act 2017 (the MAI Act), and is therefore a merit review matter under Schedule 2(1)(a) of the MAI Act. 1. The reviewable decision is: (a) set aside, and (b) the claimant’s pre-accident weekly earnings is $23.46. |
STATEMENT OF REASONS
INTRODUCTION
There is a dispute between Uma Singh (the claimant) and the insurer about the amount of weekly payments of statutory benefits payable under Division 3.3 of the MAI Act.
The claimant was in a motor accident on 31 October 2022.
The claimant made an application for personal injury benefits under the MAI Act.
On 29 March 2023 the insurer issued an internal review decision in which the insurer determined the claimant’s pre-accident weekly earnings (PAWE) in the sum of $280.07.
The claimant requested an internal review of the insurer’s 29 March 2023 decision.
SUBMISSIONS
The claimant is the sole director and shareholder of a company, JUKS Holding Pty Limited (the Company). The company in turn is the trustee for a discretionary family trust, Singh Family Trust (the Trust). As such, all income generated by the Company is held on trust for the beneficiaries in the Trust deed. The beneficiaries include the claimant and two other named persons in addition to various categories of beneficiaries.
The insurer determined the claimant’s PAWE as if the claimant were a sole trader. The claimant submits there are two errors in the insurer’s PAWE determination, as follows:
(a) apportioning two thirds of the Trust income to the two other named beneficiaries (the claimant’s husband and child) in circumstances where the Company would not exercise discretion to pay Trust monies to either person, and
(b) rental income of the Trust is incorrectly calculated by the insurer at $204,972 whereas it is $96,000 per annum and this amount should be included as earnings of the Trust in the pre-accident period.
The insurer:
(a) relies on the report of PKF, forensic accountants pursuant to which the claimant is treated as a sole trader;
(b) submits the claimant’s gross earnings as an earner are that part of the net income of the Trust available for distribution to the claimant, and
(c) submits that as there are two other named beneficiaries in the Trust deed, only one third of the net Trust income is available for distribution to the claimant.
REASONS
Issues
There is no dispute that the claimant is an earner within the meaning of the MAI Act. There also does not appear to be any dispute that the claimant’s PAWE falls under Schedule 1, cl 4(1) of the MAI Act.
The issue for determination is what is the amount of gross earnings received by the claimant as an earner in the 12 month period immediately before the day of the motor accident.
The legislation
Pursuant to Schedule 1, cl 4 of the MAI Act PAWE means:
“(1) ‘Pre-accident weekly earnings’, in relation to an earner who is injured as a result of a motor accident, means the weekly average of the gross earnings received by the earner as an earner during the 12 months immediately before the day on which the motor accident occurred, unless subclause (2) applies.
(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.
…
(4) For the purposes of this clause, an earner earns continuously if he or she obtains earnings from permanent employment or from a source that, on the day of the motor accident, was likely to continue for a period of at least 6 months to provide earnings to the earner on the same, or a similar, basis to the basis on which the earnings were being provided as at that day.”
As noted above, the parties appear to agree cl 4(1) applies to the claimant’s circumstances. In any event, there is no evidence to suggest any of the exceptions in cl 4(2) apply to the claimant, who says she had been earning via the Trust for the 12 month period before the motor accident. Accordingly, the claimant’s PAWE is to be calculated under Schedule 1, cl 4(1).
What is the claimant’s PAWE under cl 4(1)?
Under Schedule 1, cl 4(1) the claimant’s PAWE is the weekly average of the gross earnings received as an earner in the 12 month period before the day of the motor accident.
The motor accident occurred on 31 October 2022. Accordingly, under cl 4(1) the pre-accident period is 31 October 2021 to 30 October 2022.
Clause 4(1) provides that the claimant’s PAWE is “the weekly average of the gross earnings received by” the claimant in this 12 month period. Accordingly, only earnings received by the claimant in the period 31 October 2021 to 30 October 2022 are included in PAWE. Earnings received before or after this period are excluded, including earnings received after 30 October 2022 even if they represent work carried out prior to this date. Further, monies received by the Trust are excluded from PAWE, if the claimant as an individual earner did not receive the earnings from the Trust in the pre-accident period.
The parties have approached PAWE as if the claimant were self-employed running a business on a sole trader basis. However, the evidence establishes the claimant is not a sole trader. Instead, the relevant business is operated by the Company as trustee for the Trust. The Company generates income through the business which it then holds in trust for the beneficiaries of the Trust. The Company, not the claimant, controls the Trust.
The parties’ approach ignores the fact that the claimant does not carry on business as a sole trader and ignores the fact the claimant does not, in her own personal legal capacity, control the Trust. The Company controls the Trust. The parties ignore the legal position that the entity that carries on the business and controls the Trust (the Company) is a registered corporation and is therefore a separate legal personality from the claimant.
Clause 4(1) is concerned only with monies received “by the claimant”. As the claimant and the Company have separate legal personalities monies received by the Company (and then held on trust) are not monies received by the claimant unless and until the Company makes a trust distribution to the claimant as a beneficiary.
As the Trust is a discretionary trust the beneficiaries, including the claimant, do not have a fixed entitlement or fixed interest in the Trust funds. The trust deed defines the potential beneficiaries of the Trust. The Company, as trustee, has complete discretion to determine which of these persons are to receive income of the trust and how much each of them can receive. As sole director of the Company the decision as to how to distribute trust income would effectively be made by the claimant (who may resolve on behalf of the Company to distribute 100% of any available income to herself). However, because the trustee Company holds the Trust income the claimant and any other beneficiaries are not technically beneficiaries of the Trust until the trustee has exercised its discretion to distribute income to them. Until that time, the claimant is an “object” of the Trust that is, merely a potential beneficiary (among others) until the discretion is exercised in her favour.
In the circumstances, any income received from the business and held in trust by the Company is not earnings received by the claimant unless and until the Company has resolved to distribute all or any part of that income to the claimant.
It is therefore incorrect to calculate PAWE based on the income received from the business, which is held in trust by the Company as the Company and the claimant are separate legal personalities and income received by the Company is not income received by the claimant. As noted, cl 4(1) only concerns earnings received by the claimant. The claimant only receives earnings in her own personal capacity to the extent the Company makes payments to her (for example wages), or she receives a distribution of Trust income.
What earnings did the claimant receive?
There is evidence the Company, as trustee for the Trust paid gross wages to the claimant in the period 1 October 2021 to 31 December 2021 in the sum of $3,660. The total net wages (that is, after withholding income tax) paid to the claimant in this period was $3,300 paid as follows:
(a) $1,100 paid on 8 October 2021;
(b) $1,100 paid on 22 October 2021, and
(c) $1,100 paid on 10 November 2021.
The first two payments above were received by the claimant before the pre-accident period under cl 4(1) commenced on 31 October 2021 and are therefore excluded from PAWE. Accordingly, total gross wages paid to the claimant in the 12 month pre-accident period from 31 October 2021 to 30 October 2022 were $1,220 being the gross wages in respect of the net payment made on 10 November 2021.
The evidence establishes no further wages were paid by the Company during the 12 month period before the day of the motor accident.
There is no evidence the Company made any other payments to the claimant.
There is no evidence of any distribution of Trust income to the claimant in the 12 months before the accident. The records of the Trust confirm there was no distribution of Trust income to the claimant or any other beneficiary. The records show no Trust income available for distribution due to significant losses carried over from previous years. The claimant has also confirmed there was no Trust distribution to any beneficiary in 2021 or 2022 due to previous losses that had been incurred meaning there was no Trust income available for distribution.
Accordingly, the total gross earnings received by the claimant as an earner in the period 31 October 2021 to 30 October 2022 were $1,220.
Did the claimant receive any other earnings as an earner?
The evidence establishes the claimant also received $9,869 in taxable income in the period 1 July 2021 to 30 June 2022. This period includes some of the pre-accident period under cl 4(1). However, an Australian Business Number (ABN) search on the payer demonstrates the claimant received this amount from Centrelink. The documents demonstrate the payments represent parental leave payments by Centrelink. Accordingly, this amount is not earnings received by the claimant as an earner, as she was not in any employment relationship with Centrelink but merely in receipt of government benefits.
Rental income
Rental income of the Trust is not earnings received by the claimant as an earner as it is income generated by the Company and held on trust by the Company. For the reasons set out above, unless the Company resolves to make a trust distribution to the claimant, she does not receive this income as an earner or otherwise.
Regardless, rental income is excluded from “earnings” for the purpose of the MAI Act and therefore excluded from PAWE. This is because pursuant to cl 4(1) PAWE means “the weekly average of the gross earnings received by the earner as an earner…” in the relevant 12 month pre-accident period. “Gross earnings” is not defined in the MAI Act. “Earnings” is also not defined. However, “loss of earnings” is defined in Schedule 1, cl 3 to mean “a loss incurred or likely to be incurred in a person's income from personal exertion”. It is clear from this definition that the word “earnings” in the phrase “loss of earnings” means “income from personal exertion”. Relevantly, pursuant to cl 3(3)(b) “income from personal exertion” does not include “rents”.
The principles of statutory interpretation are set out by the High Court in Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28; 194 CLR 355; 72 ALJR 841; 153 ALR 490 and relevantly require that:
(a) the words in the statute must be interpreted in a way that is consistent with the language used in that statute;
(b) words of a statutory provision are given the meaning that the legislature is taken to have intended them to have, and
(c) the same wording used throughout the statute carries the same meaning.
Whilst the word “earnings” on its own is not defined in the MAI Act it is a word used throughout the MAI Act. Pursuant to principles of statutory interpretation it must be taken to have the same meaning throughout the MAI Act. Accordingly, “earnings” should be given the same meaning when used in phrases such as “gross earnings” and “earnings as an earner” as it is given in the definition of “loss of earnings” in Schedule 1, cl 3.
Under cl 3 “loss of earnings” means a loss of “income from personal exertion”. It follows that the word “earnings” is intended to mean “income from personal exertion” wherever the word appears in the MAI Act. As noted, pursuant to Schedule 1, cl 3(3)(b) “income from personal exertion” does not include “rents”. Accordingly, rental income whether in respect of commercial or residential premises and whether generated by an individual property owner or through property owned through a business (operated by a company or otherwise) is not “earnings” for the purpose of the MAI Act.
The MAI does not distinguish between the different kinds of rent that might be received. Instead, all rental income, however generated or received, is excluded from earnings under Schedule 1, cl 3(3)(b). The rental income in question is therefore not earnings received by the claimant (or the Company) for the purpose of PAWE under Schedule 1, cl 4. The rental income is therefore excluded from PAWE, regardless.
Given there was nil Trust income distributed to the claimant, as a result of losses carried over from previous years and I have determined the claimant’s earnings for the purpose of PAWE comprise only payment of wages by the Company and Trust distributions received by the claimant (and there were no Trust distributions) it is not necessary for me to determine whether PKF’s calculation of rental income is incorrect, as contended by the claimant.
Calculation of PAWE
It follows from the above reasons that the claimant’s PAWE is the weekly average of the gross earnings paid by the Company in her capacity as employee of the Company and any Trust income distributed to the claimant in her capacity as beneficiary in the period 31 October 2021 to 30 October 2022. In this regard the claimant:
(a) received total gross wages from the Company in the sum of $1,220, and
(b) received nil Trust income distribution.
Accordingly, gross earnings received by the claimant as an earner in the relevant pre-accident period are $1,220 which equates to PAWE in the sum of $23.46.
CONCLUSION
For the reasons set out above the Trust income is not income received by the claimant unless and until it is distributed to the claimant. The claimant only earns in her own capacity that is, in her capacity as an individual earner having a separate legal personality to that of the Company (as trustee for the Trust) to the extent the Company pays wages or distributes Trust income to the claimant.
Total gross payments received by the claimant from the Company and/or as Trust income distribution in the 12 month pre-accident period under cl 4(1) are $1,220. Under Schedule 1, cl 4(1) of the MAI Act this is to be averaged over the 52 week period from 31 October 2021 to 30 October 2022. The weekly average of $1,220 is $23.46.
The reviewable decision is therefore:
(a) set aside, and
(b) the amount of the claimant’s PAWE is $23.46.
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.
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