Mills v Accident Compensation Corporation

[2012] NZHC 1055

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV 2011-485-2334 [2012] NZHC 1055

IN THE MATTER OF      an intended appeal under s 162 of the Injury Prevention, Rehabilitation and Compensation Act 2001

BETWEEN  DAVID THOMAS MILLS Appellant

ANDACCIDENT COMPENSATION CORPORATION

Respondent

Hearing:         17 May 2012

Counsel:         A Beck for Appellant

I G Hunt for Respondent

Judgment:      29 May 2012

This judgment of Justice Williams was delivered on 29th May 2012 at 11.00am under r 11.4 of the High Court Rules.

JUDGMENT OF WILLIAMS J

DAVID THOMAS MILLS V ACCIDENT COMPENSATION CORPORATION HC WN CIV 2011-485-2334 [29 May 2012]

Introduction

[1]      In  a  reserved  decision  dated  20 August 2009  His  Honour  Judge  Beattie dismissed   Mr Mills’  appeal   against   two   related   decisions   of   the   Accident Compensation Corporation (ACC).  The first decision was that Mr Mills had been overpaid by $27,636.42 for the period from 29 March 2004 to 29 June 2005.   The second was ACC’s decision to recover that overpayment as a debt due.   Mr Mills sought leave to appeal to this court and in a further decision dated 21 October 2011

His Honour Judge Ongley refused leave.   Mr Mills now applies to this court for special leave pursuant to s 162(2) of the Accident Compensation Act 2001.

[2]      The  facts  are  fully  and  separately set  out  in  the  respective  decisions  of

Judge Beattie and Judge Ongley.  I need only summarise their work.

The facts

[3]      Mr Mills is a sole trader.  He runs a pest control business.  He had a contract with the Animal Health Board to trap possums.   He tore his left rotator cuff in April 2002.  The injury prevented him from continuing with his trapping work. ACC found that he was entitled to cover.  He received weekly compensation benchmarked against his 2003 income of $45,829.

[4]      Mr Mills’ possum  trapping  business  continued  after  the  injury  –  indeed flourished.  He employed others to do the physical work he could no longer do.  In the year ending 31 March 2005 he had six trappers working as subcontractors to him. His wife, he said, did much of the administration duties.

[5]      ACC became aware of the upturn in Mr Mills’ fortunes.   Particulars of his income were sought with a view to considering whether some or all of his weekly compensation should be abated under cl 51(2) of the First Schedule of the Act.  Such particulars were not initially forthcoming, but when weekly payments were suspended,  Mr Mills  complied  with  ACC’s  request.    It  transpired  that  taxable

earnings from his business for the year ending 31 March 2005 had increased by more than 150 per cent from $45,829 to $120, 557.

[6]      ACC,  as  I  have  said,  eventually  took  the  view  that  Mr Mills  had  been overpaid.   It relied primarily on s 14 of the Act in reaching that view.  Section 14 provides that Mr Mills’ earnings are to be calculated (for the purpose of abatement) by subtracting all allowable income tax deductions from that part of his income attributable to his “personal exertions”.  Clause 31 of the First Schedule to the Act provides that ACC must take into account Mr Mills’ income tax return in calculating his  earnings.    By  the  terms  of  cls 51  and  38  of  the  First  Schedule,  weekly compensation is to be abated completely once Mr Mills’ income, while a client of ACC, exceeds his pre-injury income of $45,829.  ACC found that ceiling had been reached.

[7]      ACC found the overpayment was $27,636.42.  ACC could have decided to remit the overpayment under s 251(2) of the 2001 Act if satisfied of two things: that the payment had been received in good faith; and that Mr Mills had altered his position in reliance on the validity of the payments such that it would be inequitable to seek repayment.   ACC was not so satisfied and refused to remit the debt.   It wanted the money back.

Review

[8]      Mr Mills took the matter to internal review pursuant to s 140 of the Act.  The Reviewer, Mr Greene, heard evidence from Mr Mills and submissions from his legal counsel together with those of Ms Hamilton for ACC.  Mr Mills’ case was that his role  in  the  company  had  been  completely  taken  over  by  contractors  as  to  the trapping, and largely taken over by his wife as to company administration.  His role, he said, was reduced to the completion of minor tasks amounting to about two and half hours’ work a week. The Reviewer was sceptical:

I found Mr Mills’ evidence to be unconvincing.  He essentially said that he does very little, and in fact need do nothing at all, in order for his business to receive income.   I found him particularly evasive when Ms Hamilton attempted to ask him how tenders for the business were organised and who found the contracts.  His response was that the Animal Health Board “just

sent them” to his address.  When Ms Hamilton asked Mr Mills whether he received a share of the income from the business, he said his wife received the income.  As I have noted, he trades as a sole trader and the income was returned in his name only.

I, too, asked Mr Mills questions.  He said that the contracts for his business were between him and the Animal Health Board and that his sub-contractors used his name because he had credibility.   He confirmed that he signed cheques for payment of the sub-contractors and that as the business owner he sometimes needed to sign a document or read a contract, none of which took very long.

The impression I gained from Mr Mills’ evidence is that he very much minimised his role in his own business.  The telling evidence, though, was that his credibility and name and reputation appear to be essential for the success of his business, which has been considerable since the year before his incapacity commenced.  In my view, those matters properly fall within the phrase “personal exertions” and ACC correctly found that Mr Mills’ income for the 2005 year should be taken into account as it was returned to Inland Revenue. As a result of that, the overpayment arose.

[9]      Mr Mills’ application for review was dismissed accordingly.

District Court appeal

[10]     Mr Mills was, as I have said, equally unsuccessful before Judge Beattie on appeal. Appeals to the District Court are heard de novo.  Mr Mills called evidence to demonstrate that the $120,000 should be divided between exertion and investment income.  Abatement would relate only to the portion properly described as exertion income.  Mr Mills called a chartered accountant named Hollebon.  Mr Hollebon said that a 30 per cent return on Mr Mills’ capital in trade of $163,000 would produce an investment income of $49,000.  He admitted that the figure of 30 per cent was very subjective but offered it nonetheless as a useful starting point.   Mr Hollebon also estimated what Mr Mills could reasonably have earned on an hourly basis for his administration contribution to the business.  He (interestingly) estimated eight hours (not Mr Mills’ two and a half hour figure) a week at $40, giving an annual total income  of  $14,720.     Ms  Moore,  Mr  Mills’  tax  consultant,  provided  a  letter suggesting alternative hours and hourly rate.   Her suggestion was 10½ hours per week at $75 per hour – an annual total of $38,587.50.  Counsel for Mr Mills (after some encouragement, it seems, from the Judge) took a middle-way between the two estimates.  He suggested the court should adopt 10½ hours per week at $40 per hour, a grand total of $20,580.

[11]     Judge  Beattie  found  that  it  was  a  “complete  nonsense”  to  suggest  that Mr Mills’ contribution to the business (that is his personal exertion) was limited to a few hours a week at $40 an hour.  The Judge joined common cause with Mr Greene, the  Reviewer,  in  disbelieving Mr Mills’ minimisation  of his  contribution  to  the business. The Judge said:[1]

[1] Paragraphs [24]-[25].

The evidence which came from the appellant, his wife, and from findings at review, was that the appellant was the “name” and it was he who submitted the tenders and it was he who engaged the subcontractors to carry out the field work that those various pest control tenders required.

Whilst it was the appellant’s contention that he did not carry out any supervision of those subcontractors, this seems at odds with the evidence contained in pages 28 and 29 of the review evidence where a report to the respondent from the appellant’s physio-therapist recorded what he was able to do, and it was said to involve erecting poison signs on fences and gaining farmers’ signatures for permission to access.  The appellant described his job as a “pencil pusher and organiser” and a person who issues the orders.

[12]     The Judge placed great  weight on both the newly increased income  and Mr Mills’ own efforts in winning tenders for the business.  He adopted the $49,000 investment income suggested by Mr Hollebon and used that against Mr Mills.  The logic was that if return on investment was deducted, around $70,000 was still left to be attributed to personal exertion even on the evidence given on behalf of Mr Mills. Income  of  $70,000  would  produce  a  100 per  cent  abatement  anyway.    Thus, His Honour concluded:

…the great majority, if not all, of the earnings returned by the appellant for income tax purposes for the 2005 year were derived from personal exertion associated with his business.

[13]     On the question of whether the debt, even if it existed, should be remitted, the Judge found that there was no evidence advanced by Mr Mills to support remission. He found that it was open to the Reviewer, Mr Greene, to conclude that the overpayment resulted from the appellant’s failure to provide information, and to infer that the appellant must have known that the overpayment scenario would arise. For that reason the Judge too concluded that Mr Mills intentionally contributed to the

overpayment in terms of s 251(2).

Application for leave to appeal

[14]     Mr Mills then applied to the District Court for leave to appeal to the High Court.   His Honour Judge Ongley heard the appeal.   Before that Judge, Mr Mills submitted that the decision of Judge Beattie revealed four errors of law.  These were:

(a)      first, having accepted an inference from the high income of Mr Mills’ business as revealed by his tax return that a sufficient amount was obtained by personal exertion, the Judge wrongly placed the onus on the applicant to prove his tax return did not represent his correct earnings for ACC purposes;

(b)second, both ACC and Judge Beattie had failed to identify the correct proportion  of  Mr  Mills’ income  that  was  derived  from  “personal exertion”.  This determination was central to the case.  Both ACC and the Judge ought to have separated out investment income as not relevant.      Both   ought   to   have   conducted   their   own   factual investigation into the figure;

(c)      third, Judge Beattie wrongly rejected the evidence of Mr Hollebon and Ms Moore without explanation;

(d)fourth, Judge Beattie simply endorsed the Reviewer’s conclusions on intentional  contribution  per  s 251(2)  without  conducting  his  own investigation.

[15]     Judge Ongley rejected all four grounds.

[16]     On the first ground, the Judge pointed out it was “inescapable” that Mr Mills had a tactical onus to provide information about income deriving from personal exertion to rebut his tax return, and Judge Beattie was entitled to emphasise that fact.

[17]     On the second ground, the Judge found that ACC did not need to further

investigate Mr Mills’ income.   Both parties gave evidence before the Reviewer.

Mr Mills was heard on the issue of his contribution to the business claiming it could be represented in terms of hours worked.   The Reviewer could have found that Mr Mills’ contribution by “personal exertion” was minimal or that ACC had erred in the manner by which it calculated that figure, but the Reviewer did not.  Instead, he found that the entire income was obtained by personal exertion.   The Judge concluded:[2]

Questions about what elements of income from a business are to be regarded as personal exertion income, may well raise questions of law. But they are not raised in this case because the positions of the parties turned on simple propositions of division into investment income and other income, and value of hours worked.   Had there been a full investigation of the structure and management of the business, the review and appeal may have involved more complex questions of fact and law.

[2] At [26].

[18]     On the third ground, Judge Ongley found Judge Beattie had not wrongly rejected the evidence of Mr Hollebon and Ms Moore.  Rather, he had considered it but  found  it  unreliable  and  insufficient  to  establish  the  lower  level  of  personal exertion income being claimed by the plaintiff.

[19]     On the fourth and final ground, the Judge found that Judge Beattie had not simply endorsed the Reviewer’s view on the s 251(2) issue, but rather came to his own (similar) conclusion on the merits.   The question was simple (knowledge of contribution to error/overpayments) and able to be resolved on simple evidence (the amount of Mr Mills’ taxable income).

Submissions

[20]     Before this court, the applicant essentially makes the same submissions as before Judge Ongley, namely that Judge Beattie erred in:

(a)       placing the onus on the appellant to show that a tax return did not reflect the correct earnings for ACC purposes;

(b)failing to determine what proportion of the appellant’s income was investment income, and what was personal exertion income;

(c)       rejecting the evidence of Mr Hollebon and Ms Moore without any rational basis for doing so;

(d)endorsing  the  Reviewer’s  comments  on  intentional  contribution without proper investigation.

Special leave

[21]     Appeals  to  the  High  Court  may  only  be  on  a  question  of  law.[3]      With Judge Ongley refusing leave in the District Court, Mr Mills’ pathway is by way of special leave.  The general principle is that special leave should only be granted if a material error of law is shown as capable of bona fide and serious argument.[4]   Thus the alleged error must have materially affected the challenged decision.   The appellant’s case must not be just arguable, but well arguable.

[3] Accident Compensation Act 2001, s 162(1).

[4] L v K [2010] NZCA 618.

[22]     The many cases addressing the question – some making it across the line, some not – tend to focus on the arguability of the orthodox judicial review grounds in various guises.  But the cases also point to broader considerations including the wider importance of the question or questions raised and whether the interests of justice are served by allowing the appeal to go forward.[5]    Although the classes of consideration are clearly not closed, it will usually be necessary for the prospective appellant to show that there is an issue of principle at stake or that a considerable amount hinges on the decision, and that there is a reasonable prospect of success.

Analysis

[5] See for example, Sandle v Stewart [1983] 1 NZLR 708 (CA), Jackson v ACC (HC Auckland,

AP 404-96-01, Priestley J, 14 February 2002, Kenyon v ACC [2002] NZAR 385, McLean v ACC (HC Auckland, CIV 2007-485-2653, Stevens J, 2 May 2008), Avery v No. 2 Public Service Appeal Board [1973] 2 NZLR 86 (CA).

[23]     I consider that no question of law arises in this case.

[24]     On the question of personal exertion, Mr Mills’ minimisation of his role was just not believed.  And with good reason it seems – his own experts contradicted his

estimate of the hours he worked a week and Judge Beattie pointed to the leading role Mr Mills  took  in  drawing  tenders  and  organising  the  work.    In  effect,  this  led Mr Greene in the review, and Judge Beattie on appeal to conclude that all of the income from this business was due to the application by Mr Mills’ of his knowledge of the industry and his use of his networks and nous.

[25]     Judge  Beattie  went  a  step  further.    He  said  that,  even  if  he  accepted Mr Miller’s evidence, Mr Hollebon’s analysis suggested that the investment aspect of his income was too low to make a difference to the result anyway.

[26]     It was not that Judge Beattie cast an onus on Mr Mills to disprove that his income as submitted in his tax return was not his exertion income.  It was simply that his story – that his contribution to the business had been reduced to nearly nil – was not believed.

[27]     The foregoing also rendered the task of dividing Mr Mills’ income between investment and exertion income irrelevant.  It was irrelevant for two reasons.  First, because  even  accepting  Mr  Mills’ case,  the  best  view  of  Mr  Mills’ investment income did not set it high enough to reduce the 100 per cent abatement. And second, because it was just as tenable to conclude that all of the business’ income was attributable to Mr Mills’ personal exertion.   Either way, it was not necessary to calculate the proportions.

[28]     It  follows,  in  terms  of  Mr  Mills’  third  argument,  that  the  evidence  of Mr Hollebon and Ms Moore was not rejected.   It was simply found, on its own terms, to be insufficient to make the difference claimed.

[29]     As to the intentional contribution argument under s 251, Mr Mills’ problem was that there was no evidence (or indeed submission) to indicate that he had altered his position in reliance on the validity of the payments received so as to make it inequitable to require repayment.  Judge Beattie endorsed the Reviewer’s conclusion that the appellant would in the circumstances have known that overpayments had been received.  The Reviewer inferred this from Mr Mills’ initial refusal to engage with ACC on that issue, and from the significant increase in his earnings in 2005.

These are findings of fact and the inferences were there to be drawn in the absence of probative evidence pointing the other way. There was no countervailing evidence.

[30]     Application for special leave to appeal is dismissed accordingly.

Williams J

Solicitor:

A Beck, Barrister, Wellington, email:  [email protected]

I G Hunt, Barrister, Wellington