Hamilton v Accident Compensation Corporation - [2019] NZHC 3109

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2018-404-002521

[2019] NZHC 3109

UNDER the Accident Compensation Act 2001

BETWEEN

SANDY JUNE HAMILTON

Appellant

AND

THE ACCIDENT COMPENSATION CORPORATION

Respondent

Hearing: 24 September 2019

Counsel:

J A Farmer QC and B M Cunningham for the Appellant S M Bisley and O C Gascoigne for the Respondent

Judgment:

27 November 2019

JUDGMENT OF EDWARDS J

This judgment was delivered by me on 27 November 2019 at 11.30 am pursuant to r 11.5 of the High Court Rules.

Deputy Registrar

Counsel: J A Farmer QC, Auckland
B M Cunningham, Auckland

Solicitors: Dyer Whitechurch, Auckland
Buddle Findlay, Wellington

HAMILTON v ACCIDENT COMPENSATION CORPORATION [2019] NZHC 3109 [27 November 2019]

[1] Mrs Hamilton appeals a District Court decision1 upholding a review of an Accident Compensation Corporation (Corporation) decision regarding the calculation of Mrs Hamilton’s weekly compensation payments.

[2] At issue in the appeal is the way in which reasonable remuneration for a shareholder-employee is to be calculated. The appeal proceeds on a question of law.2 Leave to appeal was granted by Jagose J on the following question:3

Did Judge Walker err in law by allocating 75 per cent of the employer’s net profits as the claimant’s ‘reasonable remuneration’ for the purposes of s 15 of, and/or clause 50 of Schedule 1 to, the Accident Compensation Act 2001?

[3]That question has two aspects:

(a)First, how is reasonable remuneration for shareholder-employees to be assessed under s 15 and/or cl 50 of Schedule 1 of the Act?

(b)Second, did the District Court err in law by assessing reasonable remuneration at 75 per cent of the employer’s net profits?

[4]Both aspects are addressed below.

What happened?

[5] In 1999, Mrs Hamilton suffered a medical misadventure during the delivery of her child. She lodged a claim for cover with the Corporation in 2001 and became eligible for weekly compensation payments. Mrs Hamilton was employed as a full- time hairdresser when she suffered her medical misadventure. After the misadventure she was only able to work part-time due to her incapacity.

[6] In January 2001, Mrs Hamilton set up her own hairdressing business and incorporated Olette Ltd (Olette). Mrs Hamilton and her husband are Olette’s directors. The shareholders in Olette are Mr and Mrs Hamilton who each own one share, and their family trust (Trust) which owns the remaining 998 shares. The trustees of the

1      Hamilton v Accident Compensation Corporation [2018] NZACC 30.
2      Accident Compensation Act 2001, s 162.
3      Hamilton v Accident Compensation Corporation [2019] NZHC 1337 at [20].

Trust are Mr and Mrs Hamilton and Trustee Management Ltd. Mr and Mrs Hamilton are beneficiaries of the Trust and their son is a residuary beneficiary.

[7] From 2001 to 2004, Mrs Hamilton received PAYE earnings and a shareholder- employee salary. In February 2004, Mrs Hamilton and the Corporation agreed that her weekly compensation payments were to be made on the basis of PAYE earnings calculated according to…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2019] NZHC 3109
Decision Date: 27 November 2019

CaseChat Overview and Summary

The appeal in Hamilton v Accident Compensation Corporation concerns the calculation of weekly compensation payments for Mrs Sandy June Hamilton, a shareholder-employee who suffered a medical misadventure during childbirth in 1999. Mrs Hamilton had established her own hairdressing business, Olette Ltd, and became eligible for weekly compensation payments. The Accident Compensation Corporation (ACC) re-assessed Mrs Hamilton's earnings for the 2004-2014 income years, determining her reasonable remuneration at 75 per cent of Olette's net profits. This resulted in the abatement of her weekly compensation payments and the Corporation's intention to recover overpayments amounting to $655,286.03. The District Court upheld the ACC's re-assessment decision, which Mrs Hamilton appealed on a question of law.

The central legal issue in the appeal was whether the District Court erred in law by assessing Mrs Hamilton's reasonable remuneration at 75 per cent of Olette's net profits. This issue has two aspects: (a) how reasonable remuneration for shareholder-employees should be assessed under s 15 and/or cl 50 of Schedule 1 of the Accident Compensation Act 2001, and (b) whether the District Court erred in law by assessing reasonable remuneration at 75 per cent of the employer's net profits.

The Court found that the District Court did err in law by adopting the 75 per cent of net profits formula as reasonable remuneration. The Court held that s 15(3) requires the Corporation to first determine the services provided by the claimant as an employee and as a director, and then to assess the reasonable remuneration for those services. The Court emphasised that profitability may only be relevant to the assessment of reasonable remuneration for a director's services if there is a factual link between the services provided and the company's profitability. The Court also held that the distinction between "dividends" and reasonable remuneration drawn in s 15(6) must be preserved in any assessment made by the Corporation. The Court found that the ACC's approach in this case overlooked the purpose and effect of s 15(3) and diverted the Corporation from the proper enquiry under the Act.

In conclusion, the Court quashed the District Court decision, finding that the Corporation's assessment of reasonable remuneration was not in accordance with s 15 or cl 50, and that the 75 per cent of profits formula was the result of an error of law. Mrs Hamilton is the successful party and is entitled to an award of costs on at least a schedule 2B basis. If costs in this Court cannot be agreed, then Mrs Hamilton may file submissions in support within 15 working days of this decision, and the Corporation shall file submissions in response within 10 working days thereafter. Costs shall be determined on the papers unless the Court orders otherwise.

Orders