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Merit review MA06/18

Determination and reasons on Merit Review MA06/18 issued under section 7.13(4) of the Motor Accident Injuries Act 2017.

Nature of the decision: The weekly payments of statutory benefits to injured persons.

Our reference: MA06/18

Merit Reviewer's Determination

This determination relates to a merit review matter, which is a reviewable decision under Schedule 2(1)(a) of the Motor Accident Injuries Act 2017, about weekly payments of statutory benefits to injured persons.

My determination of the Merit Review is as follows:

  • The reviewable decision is set aside and the following decision is made in substitution for the reviewable decision:
    • The Claimant's PAWE is $870.17.
  • Effective Date: The review decision referred for merit review by the Claimant is about the amount of their PAWE and the decision covers weekly payments of statutory benefits payable by the relevant Insurer to the Claimant from the date of accident. It is the function of the Dispute Resolution Service on merit review to arrive at the correct and preferable outcome in respect of the weeks covered by the reviewable decision that is referred for review. Accordingly, this determination has effect from December 2017. The Insurer is to pay the Claimant the difference between what they have been paid and was entitled to be paid in accordance with the decisions above.

A brief statement of my reasons for this determination are attached to this certificate.

Merit Reviewer
Merit Reviewer, Dispute Resolution Service

Background

  1. The Claimant is a fisher who operates a trawler. They were injured in a motor vehicle accident on XXXXXXXXX. The Insurer accepted their claim for weekly payments of statutory benefits under the Motor Accidents Injuries Act 2017 ("the Act").
  2. The dispute is about the calculation of the Claimant's pre-accident weekly earnings ("PAWE"). The amount of PAWE affects the amount of weekly payments of statutory benefits.
  3. The Insurer's internal review decision of May 2018 decided the amount of the Claimant's PAWE was $666.32.
  4. The Claimant applied for a merit review by DRS in June 2018.

Documents and information

  1. I have considered the documents provided in the application and the reply and any further information provided by the parties.

Submissions

The Claimant submits:

  1. The primary basis for the Insurer's decision is a forensic accountant's report which relies on some source documents and figures made up or estimated.
  2. They are a fisher who operates a trawler and sells their catch in its entirety to the local Co-Op. The Co-Op deducts fess, taxes, and fuel and other expenses and the remainder, being profit, is deposited into their account.
  3. The Insurer had a complete print out of their bank statements which indicated income they had received before it made its decision.
  4. The income in their bank statement included deposits from the ATO before refunds of GST and fuel expenses (income) and deposits from the Co-Op. The amounts over the 12 months prior to the accident totaled $61,365.52 which equals $1,180.11 gross per week.
  5. Sub-clause 4(2) of Schedule 1 has no application as they are self-employed.
  6. These figures are close to the amount determined by the Claimant's accountant who estimated the profit and loss for the period XX December 2016 to XX December 2017 as $66,580.72 which equates to $1,280.40 gross per week.
  7. The figures arrived at by their accountant should be preferred as they have the relevant documentation and greater understanding of the business.
  8. Some costs continue to be incurred by them whilst the trawler is not being operated such as licences, mooring costs, insurance and the like. If these are not added back into the calculations as done by the accountant, a significant injustice will occur as they will be required to pay these despite not receiving income to pay them, thus reducing their income. This cannot by the intention of the scheme. If it was, this would require self-employed persons to dispose of their business as soon as they are injured.
  9. The fixed costs should be added back into the calculations in order to avoid that injustice.
  10. If that argument is not accepted then the figure should be based on the Claimant's accountant's figures $45,372.39 or $872.55 gross per week or $206.22 greater than the Insurer's calculation.

The Insurer submits:

  1. The source of the calculation of the Claimant's pre-accident weekly earning was the forensic accountant's report provided by the accounting firm. The reason for estimating certain figures was essential as the Business Activity Statement for the first quarter of 2017 was not available.
  2. It had in its possession the Claimant's bank statements but whilst these were helpful to calculate the Claimant's business income, it does not assist or provide information in relation to the business expenses incurred in the period.
  3. It notes the email correspondence from the Claimant's accountant with 12 months profit and loss statement for the period XX December 2016 to XX November 2017. It concedes that the Claimant's own accountant would have better insight into their business but it submits that the profit and loss statement provided as an excel spreadsheet with no additional information or explanations should not be preferred to the accounting firm's report.
  4. Further information should be required relating to the "Other Miscellaneous Income" before taking such income into consideration in calculating PAWE.
  5. There is no provision in the Act to "add back expenses that are still going to be incurred even without the trawler in operation" when calculating the Claimant's pre-accident weekly earnings under Schedule 1, Part 4(1) and 2.
  6. The forensic accountant's report should be accepted when calculating the Claimant's PAWE, as it provides a complex and logical estimation of the business profits/expenses based on available information.

Legislation

  1. In conducting my review, I have considered the following legislation and guidelines:
  2. Motor Accident Injuries Act 2017 (NSW) ("the Act")
  3. Motor Accident Guidelines effective from 30 April 2018 ("the Guidelines")
  4. Motor Accident Injuries Regulation 2017 (NSW) ("the Regulation")

Pre-accident weekly earnings

  1. PAWE is defined by clause 4 of Schedule 1 of the Act. Sub-clauses 1 to 2 states:

4 Meaning of "pre-accident weekly earnings" - general

(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 (other than a self-employed person) who is injured as a result of a motor accident means:

(a) if, on the day of a motor accident, the earner was earning continuously, but had not been earning continuously for at least 12 months - the weekly average of the gross earning 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 - 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 earning received by the earner as an earner during the period from when the change of circumstance referred to in that subclause occurred to immediately before the day of the motor accident,

(c) if the earner is an earner by reasons of having entered into an arrangement with an employer or other person ot 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.

  1. As the Claimant's motor vehicle accident occurred on XXXXXXXX, "the 12 months immediately before the day on which the motor accident occurred" is the period from XX December 2016 to XX December 2017 (XX December 2017 being excluded see section 36(1), Interpretation Act 1986).
  2. There is no dispute that the Claimant is "an earner who is injured as a result of a motor accident". The issue here is the weekly average of the gross earning received by the Claimant as an earner during the 12 months immediately before the day on which the accident occurred.
  3. There are three pieces of information relied on by the Claimant and the Insurer, being:
  4. Pre-Accident Earning Assessment report by the accounting firm dated XX April 2018;
  5. The bank statements of the Claimant, and
  6. The profit and loss statement for the period XX December 2016 to XX November 2017 prepared by the Claimant's accountant.
  7. For the reasons explained below, I prefer the information provided by the Claimant's accountant.

Profit and loss statements

  1. Although the period covered by the profit and loss statement is not exactly for the period XX December 2016 to XX December 2017, it covers the period XX December 2016 to XX November 2017. The Claimant was self-employed and does not have payslips or an employment contract. I believe that as the profit and loss statements are only seven days different to the 12 month period and is a period not including a period after the subject motor vehicle accident, they are the best records I am able to rely on.
  2. I believe the figures provided by the Claimant's accountant in the profit and loss statement should be preferred as the accountant has the relevant documentation for the Claimant and a greater understanding of the business.
  3. The Insurer has submitted that I should seek more information regarding the "Other Miscellaneous Income". However, I accept the profit and loss statement for income and expenses as a whole as a reflection of the "gross earnings received by the earner as an earner."
  4. However, for the reasons explained below, I cannot include the amounts for the "add back expenses" set out at the bottom of the profit and loss statement.
  5. I therefore accept the Claimant's PAWE to be:

$101,288.95 - $55,915.84 = $45,373.11

$45,373.11 / 52.14286 (12 months being 365 days) = $870.17

Bank statements

  1. The Claimant has provided a copy of their bank statements which include the period from XX December 2016 to XX December 2018. These statements include deposits from the ATO and the Co-Op. However, the figure arrived at by the Claimant's accountants and what is displayed in the bank statements differ significantly. As submitted by the Insurer, there is no breakdown of business expenses incurred.
  2. Without being able to breakdown expenses noting a number of debits by cheque with no other information, and having accepted that the Claimant's accountants have a better understanding of the income and expenses of the business, I am unable to accept these bank statements as the most correct information regarding the Claimant's earnings as an earner.

Report of the accounting firm

  1. The Insurer has relied on the report of the accounting firm regarding the estimation of the Claimant's earnings. I note on pages 6 and 7 of that report, the accountant, has set out a number of assumptions as to how they arrived at the PAWE of $666.32, being:
  2. The average weekly earning for the 12 months ended XX December 2017 based on the sum of (a) the Claimant's net profit for the nine months ended XX December 2017 estimated from the BAS for those nine months, and (b) the estimate of the net profit for the period from XX December 2016 to XX March 2017.
  3. The calculation of the estimated net profit for the period from XX December 2016 to XX March 2017 based on the difference between assumed income and estimated expenses for that period.
  4. Assumed income for the 16.2 week period from XX December 2016 to XX March 2017 estimated based on the average weekly income reported in the Claimant's BAS for the quarter ended 30 June 2017 noting that the reported sales for the 12 months ended 30 June 2017 would suggest that the Claimant's income for the quarter ended XX March 2017 was likely to have been materially higher than the Claimant's reported average quarterly income for the six months ending XX December 2017.
  5. Estimated expenses for the period from XX December 2016 to XX March 2017 is based on the average quarterly expenses incurred by the Claimant during the nine months ended XX December 2017.
  6. Although I accept the expertise of the accountant, I note the number of assumptions and estimates which have been included, and that the period included in the calculation also includes the period from the date of the subject motor vehicle accident to XX December 2017. The Claimant's solicitor advised on XX July 2018 that the Claimant only worked in the period from the date of the accident to XX December 2017 for 3 hours on XX December 2017 and XX December 2017.
  7. For these reasons and the reasons set out above, I prefer the profit and loss statement of the Claimant's accountant due to the accountant's better understanding of the business and knowledge of the records of the Claimant.

Add back expenses

  1. In relation to the Claimant's submissions that some costs continued to be incurred by them whilst the trawler is not being operated, the Insurer submits that there is no provision in the Act to "add back expenses that are still going to be incurred even without the trawler in operation".
  2. Whilst I acknowledge that the Claimant must still incur these costs, there is no provision within the legislation which allows these expenses to be included as part of the Claimant's PAWE.

Determination

My determination of the Merit Review is as follows:

  1. The reviewable decision is set aside and the following decision is made in substitution for the reviewable decision:
  2. The Claimant's PAWE is $870.17.
  3. Effective Date: The review decision referred for merit review by the Claimant is about the amount of their PAWE and the decision covers weekly payments of statutory benefits payable by the relevant Insurer to the Claimant from the date of accident. It is the function of the Dispute Resolution Service on merit review to arrive at the correct and preferable outcome in respect of the weeks covered by the reviewable decision that is referred for review. Accordingly, this determination has effect from XX December 2017. The Insurer is to pay the Claimant the difference between what they have been paid and was entitled to be paid in accordance with the decisions above.

Merit Reviewer
Merit Reviewer, Dispute Resolution Service