Simpson v Accident Compensation Corporation

[2023] NZHC 1661

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV 2022-404-2066

[2023] NZHC 1661

UNDER

The Accident Compensation Act 2001

IN THE MATTER OF

A special leave application pursuant to s 162 of the Act

BETWEEN

ALBERT SIMPSON

Applicant

AND

ACCIDENT COMPENSATION CORPORATION

Respondent

Hearing:

4 May 2023

Appearances:

B Hinchcliff for the applicant

L Hawes-Gandar and F Becroft for the respondent

Judgment:

30 June 2023

JUDGMENT OF CAMPBELL J

This judgment was delivered by me on 30 June 2023 at 11.30 am pursuant to Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar

SIMPSON v ACCIDENT COMPENSATION CORPORATION [2023] NZHC 1661 [30 June 2023]

[1]    The applicant, Mr Simpson, suffered a personal injury in November 2019. He applied for weekly compensation from the Accident Compensation Corporation (the Corporation). The Corporation declined Mr Simpson’s application. Mr Simpson applied for a review of that decision. The reviewer dismissed the application for review.  Mr Simpson appealed to the District Court against the review decision.  On 4 July 2022, Judge C J McGuire dismissed Mr Simpson’s appeal.1

[2]    Mr Simpson wishes to appeal against the decision of Judge McGuire. By s 162 of the Accident Compensation Act 2001 (Act),  he requires leave to appeal.   On     27 September 2022, Judge P R Spiller declined leave to appeal. Mr Simpson now applies for special leave from this Court.

Background

[3]    On 26 November 2019, Mr Simpson suffered a cardiac and wound infection treatment injury. In December 2019, he lodged a claim for cover. The Corporation informed Mr Simpson on 17 February 2020 that he was entitled to cover for the injury.

[4]    Mr Simpson told the Corporation that until his incapacity he was working for a company of which he was a shareholder, Discovery River Cruises Limited (DRCL). DRCL operated river cruises. Mr Simpson said he was a very hands-on shareholder but that he had not had any earnings for some time. He said he had not filed tax returns with the Inland Revenue Department (IRD), because all of income earned by DRCL was used on maintenance of the cruise vessel.

[5]    IRD records confirmed that Mr Simpson had not declared any employment earnings for the period from 2018 to 2020. Mr Simpson’s only income over that period was a pension.

[6]    The Corporation declined Mr Simpson’s application for weekly compensation. It said that because Mr Simpson had not filed any tax returns it had no relevant earnings to assess and calculate for weekly compensation.

1      Simpson v Accident Compensation Corporation [2022] NZACC 128.

[7]    Mr Simpson applied to review the Corporation’s decision. He made an affidavit to support his application. He deposed that he was a 50 per cent shareholder and director of DRCL and had worked an average of 42 hours per week. After explaining the work he had undertaken, he said he would expect reasonable earnings for a person doing his work would be a minimum of $80,000 per year.

[8]    In response to Mr Simpson’s review application, the Corporation’s internal accounting specialist, Ms Roets, analysed DRCL’s financial statements for the years ended 31 March 2016, 2017, 2018 and 2019. These showed that DRCL had annual sales ranging from $7,950 to $54,766 in each of those years. In the year to 31 March 2019, sales were $24,957. DRCL’s expenses were significantly higher than its income, such that the company incurred losses of more than $100,000 in each of those years. DRCL did not pay or allocate any salary to Mr Simpson in those years.

Review decision

[9]    On 14 April 2021, the reviewer dismissed Mr Simpson’s review application. Mr Simpson was a shareholder-employee under the Act.  Weekly  compensation for  a shareholder-employee is calculated under cl 39 of sch 1 of the Act. Clause 39(1) provides a method of calculating the weekly earnings of “a claimant who had earnings as a shareholder-employee immediately before his or her incapacity”.

[10]   The reviewer said that cl 39 operated only if the  claimant had  “earnings  as  a shareholder-employee” immediately before his or her incapacity and that the phrase “earnings as a shareholder-employee” is defined in s 15. Section 15 provides:

(1)Earnings as a shareholder-employee, in relation to a person who is a shareholder-employee and any tax year, means—

(a)the amount described in subsection (2) (the subsection (2) amount); or

(b)the amount described in subsection (3) (the subsection (3) amount), if the Corporation decides that the subsection (2) amount is not a reasonable representation of the person’s earnings as a shareholder-employee in the tax year.

(2)The subsection (2) amount is—

(a)all PAYE  income  payments of  the  person   for   the tax year derived from a company of which the person is a shareholder-employee; and

(b)all income of the person that is deemed to be income derived otherwise than from PAYE income payments under section RD 3B or RD 3C of the Income Tax Act 2007.

(3)The subsection (3) amount is an amount determined by the Corporation in the following way:

(a)first, determine each of the following amounts:

(i)an amount that represents reasonable remuneration for the services that the person provides to the company as an employee of the company in the tax year; and

(ii)an amount that represents reasonable remuneration for the services that the person provides as a director of the company in the tax year; and

(b)second, add the amounts described in paragraph (a)(i) and (ii), and the result is the subsection (3) amount.

…

[11]   The reviewer said that under s 15 there are two methods of calculation, with the default being the method in s 15(2). That method required the Corporation to use Mr Simpson’s tax returns. Those tax returns confirmed that no employee or shareholder earnings were received by Mr Simpson.

[12]   The reviewer recorded a submission by Mr Hinchcliff, counsel for Mr Simpson on the review (and in the courts since), that the second method for calculating earnings, under s 15(3), should apply. The reviewer rejected the submission. He said s 15 required the Corporation to look at the earnings within Mr Simpson’s tax return first. It was only if the Corporation decided that that amount was not a reasonable representation of Mr Simpson’s earnings that s 15(3) would apply. The Corporation had not reached such a decision.

[13]   Because Mr Simpson’s tax return confirmed that he had received no earnings in the relevant year (namely, the year to 31 March 2019), the reviewer concluded that Mr Simpson was not entitled to weekly compensation.

Decisions in the District Court

[14]   Mr Simpson appealed against the reviewer’s decision to the District Court. On Mr Simpson’s behalf, Mr Hinchcliff’s main argument was that Mr Simpson’s “earnings as a shareholder-employee” should have been calculated under s 15(3). He said that, in terms of s 15(3)(a)(i), reasonable remuneration for the services provided by Mr Simpson was $80,000 per year.

[15]   Judge McGuire said the intention of the Act so far as weekly compensation is concerned is to compensate for loss of earnings from personal injury2 and that sch 1 of the Act deals comprehensively and in detail with how weekly compensation is to be calculated for earners.3 The Judge said he was unable to find anything in sch 1 or the Act that would allow “for weekly compensation to be paid whether as an employee or as a shareholder employee when the claimant, himself, had earned nothing in the years preceding”.4 The Judge therefore dismissed the appeal.

[16]    Mr Simpson applied for leave, under s 162(1) of the Act, to appeal against Judge McGuire’s decision to this Court on questions of law. Mr Hinchcliff submitted that even though Mr Simpson’s earnings were nil, the Corporation should have accepted a salary of $80,000 as the basis for a calculation of his weekly compensation. He submitted that a High Court decision, Hamilton v Accident Compensation Corporation,5 required the Corporation to look beyond Mr Simpson’s tax records and, instead, consider  what  would have been reasonable remuneration for his work as    a shareholder-employee. He said s 15(1)(b) of the Act stated that s 15(3) applied if the income tax information was not a reasonable representation of the claimant’s earnings as a shareholder-employee.

[17]Mr Hinchcliff advanced two questions of law to be determined by this Court:6

2      At [36] and [37].

3 At [39].

4 At [40].

5      Hamilton v Accident Compensation Corporation [2019] NZHC 3109.

6      As recorded in the leave decision below: Simpson v Accident Compensation Corporation [2022] NZACC 184.

(a)What does  “reasonable  representation  of  the  person’s  earnings  as a shareholder-employee” mean in s 15(1)(b)?

(b)Can a person be an earner as a shareholder-employee if the company has earnings based on the person’s services, but the person does not receive income from the company?

[18]   Judge Spiller declined leave to appeal.7 The Judge noted that s 15(3) governed the assessment of earnings as a shareholder-employee “if the Corporation decides that section 15(2) amount is not a reasonable representation of the person’s earnings”.8 His Honour said the clear intention of the Act is that weekly compensation is to compensate for loss of earnings brought about as a result of personal injury.9 Judge McGuire had applied a clear line of judicial authority that, where a claimant had no earnings as an employee, there is no loss of earnings as a result of incapacity.

[19]   Judge Spiller concluded that Mr Simpson had not established that Judge McGuire made an error of law capable of bona fide and serious argument. Judge Spiller also found that, even if an arguable error of law had been made out, he would not have granted leave as he was not satisfied the proposed questions had any wider importance.

Application for special leave

[20]Mr Simpson applies under s 162(3) of the Act for special leave to appeal.

[21]   Leave may only be granted on a question of law.10 In his application for special leave, Mr Simpson proposed the same two questions of law as in his leave application in the District Court.

[22]   Mr Hinchcliff’s written submissions proposed four questions of law, which differed from and expanded on those in the application. They were:

7      Simpson v Accident Compensation Corporation [2022] NZACC 184.

8      At [32] (emphasis added).

9 At [35].

10     Accident Compensation Act 2001, s 162(1).

(a)When are earnings defined in s 15(2) not a reasonable representation of earnings as a shareholder-employee?

(b)Does the Hamilton decision assert a principle that where the appellant has received no earnings from the company he owns, he is nevertheless entitled to weekly compensation during the period of his incapacity?

(c)Does the Act allow for weekly compensation to be paid to a shareholder employee when the claimant had no declared personal earnings from the company that they own in the previous 52 weeks?

(d)If weekly compensation is unable to be calculated under s 15(3) and the shareholder-employee earnings are calculated as less than the minimum amount under cl 42, are they entitled to weekly compensation as determined under cl 42(3)?

[23]   At the hearing there was a change of tack. Rather than pursuing the questions of law posed in the application and in his written submissions, Mr Hinchcliff proposed two other questions:

(a)Did the Corporation act reasonably in declining to exercise its discretion, under s 15(1)(b), to determine Mr Simpson’s  earnings as  a shareholder-employee under s 15(3)?

(b)Does cl 42 of sch 1 (which adjusts earnings of low earners in certain circumstances) apply in Mr Simpson’s case?

Principles governing applications for special leave to appeal

[24]   The purpose of requiring leave for certain appeals is to ensure that scarce judicial time is allocated sensibly.11 Special leave will be granted only where the

11     Kenyon v Accident Compensation Corporation [2002] NZAR 385 (HC) at [15] citing Sandle v Stewart [1982] 1 NZLR 708 (CA).

question of law is “capable of bona fide and serious argument”.12 The question must arise “squarely” from the challenged decision.13 It will normally be necessary that there is an issue of principle at stake or that a considerable amount hinges on the decision.14 That “special” leave is required is significant. As leave has already been refused in the District Court, “there will normally have to be some extraordinary factor which has not been properly taken into account”. 15

Provisions of the Act governing entitlement to weekly compensation

[25]   To determine whether special leave should be granted, it is first necessary to outline relevant provisions of the Act governing entitlement to weekly compensation.

[26]   The purpose of the Act is to enhance the public good by providing for a fair and sustainable scheme for managing personal injury that has, as one of its overriding goals, minimising the impact of injury on the community.16 Section 3(d) says that one way this is done is by “ensuring that … claimants receive fair compensation for loss from injury, including fair determination of weekly compensation …”.

[27]Entitlement to weekly compensation is governed by s 100. This provides:

(1)A claimant who has cover and who lodges a claim for weekly compensation—

(a)is entitled to receive it if the Corporation determines that the claimant is incapacitated within the meaning of section 103(2) and the  claimant  is  eligible  under clause  32, 44,  or 44A of Schedule 1 for weekly compensation:

…

[28]   The Corporation has determined that Mr Simpson was incapacitated within the meaning of s 103 of the Act. The issue is whether Mr Simpson is eligible under cl 32

12 Chalmers v Accident Compensation Corporation [2023] NZHC 925 at [39] citing Impact Manufacturing Ltd v Accident Rehabilitation and Compensation Insurance Corporation HC Wellington AP266/00, 6 July 2001 at [4].

13 YZ v Accident Compensation Corporation [2020] NZACC 160 at [19] citing O’Neill v Accident Compensation Corporation DC Wellington 250/2008, 8 October 2008 at [24]–[26].

14 Kenyon v Accident Compensation Corporation [2002] NZAR 385 (HC) at [15].

15 Kenyon v Accident Compensation Corporation [2002] NZAR 385 (HC) at [15] citing Brown v Chow Mein Fashions Ltd (1993) 7 PRNZ 43.

16 Accident Compensation Act 2001, s 3.

of sch 1 for weekly compensation (there being no suggestion that cls 44 or 44A could apply).

[29]   Clause 32(1) provides the Corporation is liable to pay weekly compensation for “loss of earnings” to claimants who are incapacitated by a covered personal injury and who were earners immediately before the incapacity started. By cl 32(3), the weekly compensation payable is 80 per cent of the claimant’s “weekly earnings”, as calculated under cls 33 to 45 and 48 (subject to exceptions that do not apply).

[30]   The only clauses referenced in cl 32(1) that could apply to Mr Simpson are cls 39 (which deals with claimants who had earnings as shareholder-employees) and 42 (which provides uplifts for earners in full-time employment who were low earners). Clause 39(1) provides:

(1)The weekly earnings of a claimant who had earnings as a shareholder- employee immediately before his or her incapacity commenced are the higher of—

(a)the relevant amount calculated under clause 34 or clause 36, whichever is applicable; and

(b)the relevant amount calculated under subclause (2).

[31]   Clause 42 permits weekly earnings to increase to a minimum rate in certain circumstances. Clause 42 applies where, among other things, a claimant had weekly earnings calculated under cl 39 of less than the minimum weekly earnings determined under cl 42.

[32] Returning to cl 39(1), it uses the phrase “earnings as a shareholder-employee”. That phrase is defined in s 15, the relevant parts of which are quoted at [10] above. Under s 15(1), there are two methods by which “earnings as a shareholder-employee” can be determined. The first, set out in s 15(2), depends on PAYE income payments. The second, set out in s 15(3), is used “if the Corporation decides that the subsection

(2) amount is not a reasonable representation of the person’s earnings as a shareholder- employee in the tax year”.17

17     Accident Compensation Act 2001, s 15(1)(b).

[33]   In short, the s 15(2) method is the default. It applies unless the Corporation decides that the amount produced by that method is not a reasonable representation of the claimant’s earnings, in which case the method in s 15(3) applies. The choice of method for determining “earnings as a shareholder-employee” therefore depends on whether the Corporation makes such a decision.

[34]   A similar decision may be made by the Corporation under cl 31 of sch 1. This provides that in determining earnings in relation to a shareholder-employee, the Corporation must take an income tax return into account if the claimant has given the return to the IRD and the Corporation considers the return, and any related accounts, “have not been unreasonably influenced by … the facts of the claimant’s incapacity”.

Should special leave be granted?

First proposed question of law

[35]   The first question of law originally proposed by Mr Hinchcliff was: What does “reasonable representation of the person’s earnings as a shareholder-employee” mean in s 15(1)(b)? This assumed it was for the Court, rather than the Corporation, to make the decision under s 15(1)(b) and thereby determine which of the two methods in s 15 should be used.

[36]   At the hearing, Mr Hinchcliff acknowledged it was for the Corporation to make the  decision  under  s  15(1)(b)  but  submitted  the  Corporation’s  decision  was      a discretionary one and that an unreasonable decision could be challenged on an appeal. He therefore proposed a different question: Did the Corporation act reasonably in declining to exercise its discretion, under s 15(1)(b), to determine Mr Simpson’s earnings as a shareholder-employee under s 15(3)?

[37]   I consider it would be wrong to grant special leave to appeal on this question. First, the question  is  not  one  that  arises  from  Judge  McGuire’s  decision.  That is because it was never argued, until this hearing, that the Corporation’s decision was unreasonable. Secondly, the proposed question is not a question of law, since the reasonableness of the Corporation’s decision will depend on the particular circumstances. It follows there is no issue of principle at stake. Thirdly, the question

is not capable of serious argument. The Corporation only had to turn to s 15(3) if it decided the amount produced under s 15(2) was not a reasonable representation of Mr Simpson’s earnings as a shareholder-employee. Mr Simpson had not been paid anything by DRCL for the previous four years. Over that period, and notwithstanding it did not pay Mr Simpson anything, DRCL lost more than $100,000 each year, and for the most part had only modest sales. In these circumstances, it would have been surprising for the Corporation to think that the amount determined under s 15(2)   was not a reasonable representation of Mr Simpson’s earnings as a shareholder- employee.18

Second proposed question of law

[38]   As proposed at the hearing, the second question of law was: Does cl 42 of sch 1 (which  adjusts  earnings  of  low  earners   in   certain   circumstances)   apply   in Mr Simpson’s case? This was really just another way of expressing the last of the proposed questions of law set out in Mr Hinchcliff’s written submissions: If weekly compensation is unable to be calculated under s 15(3) and the shareholder-employee earnings are calculated as less than the minimum amount under cl 42, are they entitled to weekly compensation as determined under cl 42(3)?

[39]   Mr Hinchcliff’s argument is that if the Corporation is right that the method in s 15(2) applies, this will produce a calculation of zero under cl 39. He says that, in turn, this will engage cl 42, which applies if a claimant “had weekly earnings calculated under [cl 39] of less than the minimum weekly earnings as determined under [cl 42(3)]”. Clause 42(2) then dictates that Mr Simpson is deemed to have had, immediately before his incapacity, the minimum weekly earnings determined under cl 42(3).

[40]   Mr Hawes-Gandar, counsel for the Corporation, disagreed. He submitted cl 39 applied only where a claimant “had earnings as a shareholder-employee”. He said the result of applying s 15(2) was that Mr Simpson did not have earnings as a shareholder-

18     To be clear, I make no determination as to whether the reasonableness of a decision is a matter for appeal (rather than judicial review). I heard no argument on that point.

employee. This meant that cl 39 did not apply and no calculation was made under it. It followed that cl 42 was not engaged.

[41]   I accept that this is a question of law. However, it is not one that arises from Judge McGuire’s decision. The Judge did not refer to cl 42. Mr Hinchcliff does not appear to have advanced the argument before Judge McGuire. It is not generally appropriate to grant special leave on a question that is proposed to be raised for the first time on appeal. Further, I consider the question is not seriously arguable. I agree with Mr Hawes-Gandar that cl 39 is quite plain: it refers to a claimant who had earnings as a shareholder-employee. Mr Hinchcliff’s argument is inconsistent with the purpose of the Act. Relevantly, s 3(d) says the Act’s purposes are to be achieved by ensuring that claimants receive fair determination of weekly compensation for loss from injury. Where a claimant did not have any earnings as a shareholder-employee prior  to  being  incapacitated  by  injury,  I  consider  there  is  no  relevant  loss  as   a shareholder-employee.19

Result

[42]I decline Mr Simpson’s application for special leave to appeal.

[43]   I did not receive any submissions on costs. If any issues as to costs arise, memoranda may be filed.

Campbell J

19     The same view was reached in Pratley v Accident Compensation Corporation [2010] NZACC 42 at [39].