Walker v QBE Insurance (Australia) Limited
[2023] NSWPICMR 40
•24 July 2023
| CERTIFICATE OF DETERMINATION OF MERIT REVIEWER | |
| Citation: | Walker v QBE Insurance (Australia) Limited [2023] NSWPICMR 40 |
| ClaimanT: | Jason Walker |
| Insurer: | QBE Insurance (Australia) Limited |
| 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; the meaning of pre-accident weekly earnings (PAWE); meaning of earnings; schedule 1, clause 4; self-employment; fixed versus variable business expenses; whether fixed costs are deducted from gross business profit for PAWE; whether earnings as an earner are the gross profit or net income of the business; whether PAWE can be adjusted for poor weather, flooding or COVID-19 restrictions; Allianz Insurance Australia Limited v Shahmiri considered; 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 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 determination is as follows: (a) the reviewable decision is set aside, and (b) the claimant’s pre-accident weekly earnings amount is $733.77. |
STATEMENT OF REASONS
INTRODUCTION
There is a dispute between Jason Walker (the claimant) and the insurer about the amount of weekly payments of statutory benefits payable under Division 3.3 of the Motor Accident Injuries Act 2017 (the MAI Act).
The claimant was involved in a motor accident on 22 December 2022.
On 2 May 2023 the insurer issued their internal review decision in which the claimant’s pre-accident weekly earnings (PAWE) amount was assessed at $613.72.
The claimant requested a merit review of the insurer’s internal review decision dated
2 May 2023.
SUBMISSIONS
There is no dispute that the claimant is an earner for the purpose 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 dispute is about the amount of gross earnings received by the claimant in the 12 month pre-accident period under Schedule 1, cl 4(1).
The claimant is a self-employed carpenter.
The claimant submits the insurer failed to give adequate weight to his earnings in the three month period immediately before the motor accident. The claimant contends he received “a considerable amount of earnings” in this period, which he says is a “true reflection” of his pre-accident weekly earnings. The claimant submits prior to this three month period his earnings had been impacted by flooding, poor weather, and COVID-19 restrictions.
The claimant further contends only variable business expenses should be deducted from gross profit of the business for the purpose of PAWE pursuant to the decision of Aktop v Allianz Insurance [2021] NSWPICMR 33 (13 August 2021) (Aktop).
On this basis the claimant contends his PAWE is $1,899.52.
The insurer submits:
(a) all business expenses must be deducted from gross profit of the business for the purpose of PAWE;
(b) only bank deposits readily identifiable as business income should be included in gross earnings of the claimant received in the relevant pre-accident period, and
(c) there is no evidence of significant earnings in the three month period immediately before the accident, as contended by the claimant.
REASONS
The issue
The issues to be determined are:
(a) the gross earnings received by the claimant in the 12 month pre-accident period;
(b) whether a greater allowance can be made for earnings received in the three month period prior to the accident in comparison to earnings received in the balance of the 12 month pre-accident period, and/or
(c) whether any adjustment can be made to PAWE to account for a downturn in business due to flooding, poor weather and/or COVID-19 restrictions.
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.”
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. 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 22 December 2022. Accordingly, under cl 4(1) the pre-accident period is 22 December 2021 to 21 December 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 22 December 2021 to 21 December 2022 are included in PAWE. Earnings received before or after this period are excluded, including earnings received after 21 December 2022 even if they represent work carried out prior to this date.
Business expenses
The claimant is self-employed. Accordingly, business expenses must be deducted from the gross income of the business to produce the net profit of the business. The net profit of the business is in turn the claimant’s gross earnings as an individual earner from the business. This is because PAWE concerns earnings received by the claimant as an individual earner. Expenses of the business are outgoings, incurred by the business in order to generate profit. Expenses are not profit which makes it into the claimant’s hands as an individual earner.
The claimant contends only variable business expenses should be deducted and contends that the only variable business expense is a motor vehicle expense. The claimant contends this is consistent with the decision in Aktop.
Even if that position were correct, the claimant’s suggestion that only a motor vehicle expense is a variable expense is clearly incorrect. The claimant is a carpenter. Accordingly, his expenses would include, as an example of other variable costs, the costs of purchasing materials and the cost of subcontracted labour/other trades. Such expenses would be variable depending on the extent to which work was to be done. For example, if there are no cabinets to be built in any given week the claimant would not need to purchase materials to make the cabinets. Similarly, if a particular job did not involve an electrician, plumber, or additional labour the claimant would not incur these expenses for that job. Accordingly, there are no doubt a number of other variable business expenses.
In any event, Aktop is not a binding decision and is a decision with which I do not agree.
I do not agree with the claimant’s contention that only “variable costs” should be deducted, being only those expenses that would be incurred as part of the immediate supply of services. Regardless of the nature of the business expense, the claimant’s gross earnings as an “earner” can only be the net (but before tax) income of the business, after deducting all of the business expenses. That is to say, all business expenses must be deducted in order to calculate the claimant’s individual earnings from the business. Whilst there may be ongoing administrative, maintenance or other “fixed” expenses despite no work being carried out, this is irrelevant as PAWE is calculated based on pre-accident earnings, when the business was an ongoing concern and all expenses had to be paid to run the business.
Accordingly, I conclude that all business expenses, fixed and variable, are to be deducted from the gross income of the business for the purpose of calculating PAWE in the circumstances of self-employment. This view is consistent with numerous other merit review decisions, including ABQ v NRMA (Merit Review) [2018] NSWSIRADRS 43 (17 October 2018). AJQ v NRMA (Merit Review) [2020] NSWSIRADRS 44 (8 April 2020), APD v AAI Limited trading as GIO (Merit Review) [2020] NSWSIRADRS 198 (24 August 2020), APL v GIO (Merit Review) [2020] NSWSIRADRS 207 (16 September 2020), Mula v NRMA [2022] NSWPICMR 9, Hayes v GIO [2022] NSWPICMR 17, Le v Insurance Australia Ltd t/as NRMA Insurance [2022] NSWPICMR 47 and Shqau v AAMI [2022] NSWPICMR 6.
The claimant may be continuing to incur certain business expenses on a maintenance or administrative basis to preserve the business ready for operation once he is fit to return to his pre-injury work. However, there is no provision within the legislation that allows such ongoing expenses to be taken into account so as to increase PAWE. If this were the case and an injured person, for example, wound up their business following a motor accident meaning they no longer incur any business expenses, payment of weekly benefits calculated on PAWE that accommodates ongoing fixed costs of a business would amount to a windfall to that person.
The purpose of Division 3.3 of the MAI Act is to compensate an injured person who was an earner for “loss of earnings”. Loss of earnings is a discreet kind of economic loss. Division 3.3 compensates for loss of earnings only and not for economic loss at large. Aktop is against the weight of other merit review decisions involving the same issue some of which are cited above.
It may be that the Merit Reviewer in Aktop was attempting to cure what might be perceived as an unfair position for small business owners on the face of the legislation where they continue to pay certain business expenses in order to hold on to a business even though they are not actively trading. However, as stated by Harrison AsJ in Allianz Insurance Australia Limited v Shahmiri [2022] NSWSC 481 at [70], “one cannot construe an Act to accommodate a particular circumstance, no matter how unfair that circumstance may be”.
As noted in Le v Insurance Australia Ltd t/as NRMA Insurance:
“The difficulty with [Aktop and any other decision following that approach] is that they proceed on the basis of various assumptions including assumptions that the claimant would still need to meet fixed costs after the injury.”
There is no evidence that the claimant continues to pay business expenses post-accident whilst not trading at all or that any such payment is mandatory even if the claimant were not trading. Presumably, the claimant will seek to carry over any ongoing expenses incurred whilst he is unable to work as a business loss for tax purposes, subject of course to the advice of his accountant. If the claimant is totally incapacitated and expects to remain so for some time, he may need to make decisions about what to do with the business. Whilst the claimant might contend he is required to continue to pay “fixed” costs he can choose to take other steps in the circumstances.
Section 1.3 sets out the objects of the MAI Act, which relevantly include:
(a) benefiting all members of the motoring public by keeping the overall costs of the scheme within reasonable bounds so as to keep premiums affordable, and
(b) promoting the recovery and return to work or other activities of those injured in motor accidents.
Section 1.3(4) requires a construction of the MAI Act that would promote the objects of the MAI Act to be preferred to a construction that would not promote those objects. The second reading speech for the Motor Accident Injury Bill noted the reasons for insurers being able to regularly assess a person’s earning capacity under the MAI Act as being “to ensure that injured people who have the capacity to return to employment stay off work only as long as is necessary to support their recovery”. The quarantining of fixed costs from other business expenses for the purpose of calculating PAWE in relation to self-employment is likely to give rise to enrichment and is therefore inconsistent with the objects of the MAI Act.
Accordingly, the claimant’s gross earnings as an earner for the purpose of PAWE are the net income of the business after deducting all business expenses that is, after deducting fixed and variable business expenses.
What is the net profit of the business in the period 22 December 2021 to 21 December 2022?
The claimant has provided the following evidence of business income and expenses in the period 22 December 2021 to 21 December 2022:
(a) profit and loss statement for the period 22 December 2021 to 30 June 2022 showing gross profit of $40,206.07 and expenses of $11,243.28 which gives a net business profit of $28,962.79, and
(b) profit and loss statement for the period 1 July 2022 to 21 December 2022 showing gross profit of $18,114.79 and expenses of $3,035.41 which gives a net business profit of $15,079.38.
According to the profit and loss statements net business income in the 12 month pre-accident period totalled $44,042.17. However, insufficient source documents have been provided to verify the veracity of the profit and loss statements which are to be taken to have been prepared solely for the purpose of the claim given the periods do not correspond with traditional accounting periods but instead, reflect the12 month pre-accident period under Schedule 1, cl 4(1) of the MAI Act.
Business activity statements (BAS) show the following:
(a) sales excluding GST from 1 January 2022 to 31 March 2022: $21,180 ($23,297 less $2,117 received as GST);
(b) sales excluding GST from 1 April 2022 to 30 June 2022: $17,455 ($19,200 less $1,745 received as GST);
(c) sales excluding GST from 1 July 2022 to 30 September 2022: $3,745 ($4,119 less $374 received as GST), and
(d) sales excluding GST from 1 October 2022 to 31 December 2022: $8,720 ($9,591 less $871 received as GST.
Total sales, exclusive of GST declared by the claimant in the BAS to the Australian Taxation Office (ATO) in the 12 month period from 1 January 2022 to 31 December 2022 is $51,100.
Sales, exclusive of GST declared in the BAS for the period 1 January 2022 to
30 June 2022 are $38,635 compared to $40,206.07 in the profit and loss statement covering the slightly different period from 22 December 2021 to 30 June 2022. This is a difference of $1,571 which can be accounted for by two transactions shown in the sales transaction summary in the period 22 December 2021 to 31 December 2021 which is captured in the profit and loss statement period but not the BAS period, as follows:
(a) 22 December 2021: $1,029 which equates to $935 excluding GST, and
(b) 23 December 2021: $700 which equates to $636 excluding GST.
These December 2021 transactions appear to be supported by the bank statements, although the insurer’s forensic accountant has not accepted one of them on the basis the description in the transaction does not readily identify carpentry work.
Given the claimant’s obligations to the ATO and the lack of any incentive for the claimant to declare a greater amount for sales than actual sales (increased GST and income tax would become payable) and that the BAS reasonably aligns with the relevant profit and loss statement, I accept the BAS as reliable evidence of the gross earnings of the business from 1 January 2022 to 30 June 2022. I also accept on balance the two payments identified in the sales transaction summary in December 2021 were received as gross income of the business.
There is a profit and loss statement for the period 1 July 2022 to 21 December 2022 and a BAS for 1 July 2022 to 31 December 2022. If anything, one would expect sales declared in the BAS to be greater than sales in the profit and loss statement given BAS covers an additional 10 day period from 22 December 2022 to 31 December 2022 inclusive. However, gross sales excluding GST in the profit and loss statement for the period 1 July 2022 to 21 December 2022 are $18,114.79 whereas gross sales excluding GST declared in the BAS for the period 1 July 2022 to 31 December 2022 are only $12,465. This is a difference of $5,649.79 allegedly received in sales (excluding GST), which if accepted has not been declared to the ATO.
The onus is on the claimant to establish on the balance of probabilities that the profit and loss statement should be preferred over the BAS. I am not comfortably satisfied on balance that the profit and loss statement should be preferred over the BAS in the following circumstances:
(a) there are insufficient source documents to verify the profit and loss statement, which was prepared for the purpose of the claimant’s motor accident claim, and
(b) the BAS on the other hand was prepared independently of this claim pursuant to tax obligations, including that the claimant must declare all information provided to the ATO is true and correct.
I therefore consider the BAS to be the more reliable evidence and is to be preferred over the profit and loss statement.
BAS for the period 1 October 2022 to 31 December 2022 includes an additional 10 days after the end of the pre-accident period under cl 4(1). I have therefore reconciled the sales transaction summary for sales received on or before 21 December 2022 with the BAS.
The sales transaction summary records the following amounts received in the period
1 October 2022 to 21 December 2022 inclusive of GST:
Date
Amount Inclusive of GST
31 October 2022
$575
$877
$1,634
$1,320
$1,750
30 November 2020
$810
$40
$181
$360
$50
$55
$1,680
Total
$9,332
Total sales inclusive of GST in the sales transaction summary for the period
1 October 2022 to 21 December 2022 are $9,332 which equates to $8,483.64 exclusive of GST as compared to sales excluding GST in the BAS of $8,720 which includes the additional period from 22 December 2022 to 31 December 2022.
Given the intervening accident date and the likelihood of limited sales leading up to and/or over the Christmas holiday period from 22 December 2022 to 31 December 2022 I accept on balance that the majority of sales in the BAS were likely received on or before 21 December 2022. The difference between the BAS and the sales transaction summary is $236.36 (exclusive of GST). On balance, I conclude this sum was received after the end of the pre-accident period given it cannot be accounted for in the sales transaction summary as having been received on or before 21 December 2022.
Accordingly, I conclude on balance that gross profit of the business in the period
1 October 2022 to 21 December 2022 is $8,483.64 as per the sales transaction summary, which is largely supported by the BAS, allowing for the difference in periods that the two documents cover.
I therefore conclude on balance that total gross income of the business in the period
22 December 2021 to 21 December 2022 is $52,434.64 calculated as follows:
(a) $1,571 being the GST free sum for deposits received in the pre-accident period on 22 and 23 December 2021;
(b) $21,180 excluding GST in sales received 1 January 2022 to 31 March 2022 per the BAS;
(c) $17,455 in sales excluding GST received 1 April 2022 to 30 June 2022 per the BAS;
(d) $3,745 in sales excluding GST received 1 July 2022 to 30 September 2022 per the BAS, and
(e) $8,483.64 being the GST free sum for sales from 1 October 2022 to the end of the pre-accident period on 21 December 2022 per the sales transaction summary.
The only evidence of expenses incurred from 22 December 2021 to 21 December 2022 is as set out in the profit and loss statements, which total $14,278.69. Accordingly, the claimant’s gross earnings as an individual earner in the period 22 December 2021 to 21 December 2022 are $38,155.95 ($52,434.64 less $14,278.69) which equates to a weekly average of $733.77 over the 12 month pre-accident period under cl 4(1). The claimant’s PAWE is therefore $733.77.
Other issues
In so far as the insurer has determined gross sales, excluding GST of the business in the relevant period based only on those transactions in the bank statements that can be either matched to the sales transaction summary or easily identified as relating to carpentry work by the description of the transaction for example “deck” I do not consider this to be a reliable method in circumstances where the insurer’s forensic accountant has:
(a) excluded some transactions in the bank statements even though they can be reconciled with the sales transaction summary and even though the body of their report suggests they are included;
(b) potentially excluded transactions that are sales because the payer did not properly describe the transaction when making payment so as to be readily identifiable as being payment for carpentry work, and
(c) ignores the BAS which is reconcilable to some extent with the sales transaction summary.
As to the claimant’s contention that his business had significantly higher sales in the three month period from October to December 2022 this is not supported by the evidence. In fact, the evidence shows that whilst sales were up from 1 October to
31 December 2022 as compared to 1 July to 30 September 2022, earnings in previous quarters were greater. In the period 1 October 2022 to 31 December 2022 total sales declared in the BAS (excluding GST) were only $8,720 whereas sales in previous quarters were significantly higher at $21,180 (January to March 2022) and $17,455 (April to June 2022).
The varying quarterly sales amounts in the BAS are consistent with the nature of a sole trader business, which typically fluctuates from week to week, month to month, etcetera.
In any event, even if the claimant were able to demonstrate a substantial increase in earnings in the last quarter of the pre-accident period by reason that previous quarters were impacted by flooding, poor weather and/or COVID-19 restrictions the MAI Act does not permit any adjustment to PAWE. Schedule 1, cl 4(1) is clear in its terms that the claimant’s PAWE must be taken as the weekly average over the 52 week pre-accident period.
There are no provisions under the MAI Act, Motor Accident Injuries Regulation or the Motor Accident Guidelines that permit adjustment of PAWE to account for the impact of matters such as those raised by the claimant on pre-accident earnings. The reasons for this are set out by Harrison AsJ in the Supreme Court decision in Allianz Insurance Australia Limited v Shahmiri [2022] NSWSC (Shahmiri). In Shahmiri Harrison AsJ held that pursuant to Schedule 1, cl 4(1) PAWE is to be “calculated by taking … earnings over the whole of the 12-month period immediately before the day of the accident and dividing it by 52 reflecting the number of weeks during the whole 12-month period” and that the MAI does not allow any adjustment to this by reason of the COVID-19 pandemic or other break or reduction in employment or earnings.
Accordingly, the claimant’s PAWE cannot be adjusted under cl 4(1) to account for interruption or reduction in earnings due to flooding, poor weather and/or COVID-19 restrictions.
CONCLUSION
For the reasons set out above I have concluded that:
(a) the gross earnings received by the claimant as an earner for the purpose of PAWE are the net income of the business after deducting all (fixed and variable) business expenses from gross profit;
(b) gross profit of the claimant’s business in the period 22 December 2021 to 21 December 2022 under Schedule 1, cl 4(1) is $52,434.64;
(c)
business expenses incurred in the period 22 December 2021 to
21 December 2022 to be deducted are $14,278.69;
(d)
gross earnings received by the claimant as an earner in the period
22 December 2021 to 21 December 2022 are therefore $38,155.95 ($52,434.64 less $14,278.69 for business expenses);
(e) there can be no adjustment to the formula under cl 4(1) to account for the impact of flooding, poor weather and/or COVID-19 restrictions on earnings during the pre-accident period, and
(f) the claimant’s PAWE is therefore $733.77 being gross earnings of $38,155.95 divided by 52 weeks.
LEGISLATION AND GUIDELINES
In making this decision, I have considered the following:
· the application, reply and supporting documentation;
· the MAI Act;
· the Guidelines, and
· Motor Accident Injuries Regulation 2017.
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