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ACK v QBE Insurance Australia Limited [2018] NSWDRS MR 063

NSW DISPUTE RESOLUTION SERVICE (NSWDRS)
JurisdictionMerit Review
CatchwordsPre-accident weekly earnings – PAWE – weekly payments of statutory benefits – employed by three companies – director's wages – business profit – shareholder – earner
Legislation cited                    Motor Accidents Injury Act (NSW) ss 3.6, 3.9, 7.13, Schedule 1 cl 4, Schedule 2(1)(b)
Motor Accident Injuries Regulation 2017
Motor Accident Guidelines effective 30 April 2018
Cases cited

N/A

Text citedN/A
Parties ACK - Claimant
QBE Insurance Australia Limited - Insurer
DisclaimerThis decision has been edited to remove all Unique Personal Identification including the name of the Claimant.

Merit Review Certificate

View the certificate

Issued under section 7.13(4) of the Motor Accident Injuries Act 2017

The Claim
Claimant ACK
Insurer QBE Insurance Australia Limited
Claim Number 360005335001
The Reviewable Decision
Date of decision                                          24 September 2018
Nature of decision The amount of pre-accident weekly earnings
The Merit Review
Our Reference 10040465
Merit Reviewer Terence O'Riain
Date of Merit Review Certificate 13 September 2018

Merit Reviewer's Determination

The reviewable decision is the decision of the Insurer about ACK’s pre-accident weekly earnings. This is a decision that affects the amount of weekly payments of statutory benefits and is therefore a merit review matter under Schedule 2(1)(a) of the Motor Accident Injuries Act 2017.

The 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:
o  ACK’s pre-accident weekly earnings (PAWE) is $3,666.94 per week.
  • Effective Date: This decision is to take effect on and from the date of the Insurer’s initial decision, being 9 August 2018.

Jeremy Lum
Dispute Resolution Service Merit Reviewer

Reasons

Background

1.  ACK was injured in a motor accident on 20 April 2018.

2.  On 9 August 2018, Allianz Insurance wrote to ACK and advised that he was entitled to weekly payments of statutory benefits, which would be calculated on the basis that his PAWE is equal to $2,392.57. That decision covered the weekly payments of statutory benefits payable by Allianz Insurance to ACK from the date of accident.

3.  The claim was transferred to QBE Insurance (the Insurer).

4.  ACK applied for an internal review by Allianz Insurance. On 24 September 2018, the Insurer gave ACK written notice that they had adopted Allianz’s PAWE calculation of $2,392.57 and affirmed Allianz’s decision.

5.  ACK states that he received the internal review decision on 28 September 2018.

6.  ACK disputes the Insurer’s decision and lodged an application for merit review with the Dispute Resolution Service on 26 October 2018. I am satisfied the application was made within 28 days of ACK receiving the Insurer’s internal review decision in accordance with clause 7.190 of the Motor Accident Guidelines (the Guidelines).

Documents and information

7.  I have considered the documents provided in and submitted with the application and the reply

Submissions

ACK

8.   ACK submits that the Insurer’s calculation of his PAWE is incorrect for the following reasons:

XXXX Healthcare Pty Ltd

  • Despite ACK’s wife being a 50% shareholder in XXXX Healthcare, she has never worked in the business and has never been paid by the business. As she is ACK’s wife and a dependent, any benefit she enjoys from the financial proceeds of the business is income from ACK’s personal exertion, as defined in Schedule 1(3)(2) of the 2017 Act. Accordingly, ACK disagrees with the Insurer’s assumption that he is entitled to 63% of the business profits in the period 1/07/2017 to 19/04/2018. He is entitled to 100% of the profits and the $30,000 made to his wife should be included in his Director’s Payments. Reference is made to the Vincents report (page 2, paragraph 1.11.1 and page 6 paragraph 2.7.2) and the letter from his accountant.
  • In the profit/loss statement for XXXX Healthcare, the Insurer failed to add back a number of expenses which should replace the net loss of $4,634 with a net profit of $44,249. The “add backs” are as follows:
i.  Depreciation (supported by Vincents report p6, 2.7.3)

ii.  Donations (supported by Vincents report p6, 2.7.4)

iii.  Home office

iv.  Interest (excluded from income calculation under Schedule 1(3)(3)(a))

v.  Motor vehicle expenses

vi.  Superannuation (supported by Vincents report p6, 2,7,5)

BXXX Clinic Management Pty Ltd

  • Any profit or loss from this company should be excluded from the calculation of PAWE. This is because the company essentially operates as cash-flow neutral and ACK does not derive any income from this company as acknowledged in the Vincents report on page 7, 2.14.3 and 2.14.4.
  • ACK did not derive any income from “personal exertion” from physiotherapy consultations. His earning capacity was $0 before the accident and remains as $0 after the accident.

PXXX Clinic Management Pty Ltd

  • No issue with the calculation of PAWE.

9.  ACK submits that his PAWE should be calculated as follows:

$197,776.19 + $31,633.04 - $0.00 = $229,563.72

PAWE = $229,563.72 divided by 52 = $4,414.69.

The Insurer

10.  The Insurer does not specifically address ACK’s submissions instead relying on the findings of the internal review decision which found ACK’s PAWE as $2,808.17 in accordance with schedule 1, clause 4 (sic) of the Act.

Legislation

11.   In conducting my review, I have considered the following legislation and guidelines:

  • Motor Accident Injuries Act 2017 (NSW) (the Act)
  • Motor Accident Guidelines effective 30 April 2018 (the Guidelines)
  • Motor Accident Injuries Regulation 2017 (NSW) (the Regulation)

Pre-accident weekly earnings

12.  Clause 4(1) of Schedule 1 of the Act applies to ACK and defines pre-accident weekly earnings as:

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…

13.  As ACK was employed by three companies at the time of the motor accident, it is necessary to examine his earnings for each company as follows:

XXXX Healthcare Pty Ltd

14.  There is no dispute that the 12-month period is from 20 April 2017 to 19 April 2018 which, according to the Vincents report, divided into the following two periods:

  • 20 April 2017 to 30 June 2017 (72 days)
  • 1 July 2017 to 19 April 2018 (293 days)
20 April 2017 to 30 June 2017

15. ACK submits various expenses be “added back” as total income.

16. I note that the definition of PAWE refers to “gross earnings received by the earner as an earner” during the 12 months immediately before the accident.

17.  While I have considered the Vincents report, particularly in relation to expenses of depreciation, donations and superannuation which were expressly referred to in the report, I do not consider these amounts as earnings received by ACK as an earner. They are clearly expenses borne by the company during the relevant period (72 days) before the accident. I therefore do not agree with ACK’s submission that the expenses should be added back as total income.

18. In relation to the business loss of $4,634.00 for this period, I do not consider net losses should be taken into account in the calculation of PAWE. Losses are not earnings and are excluded from consideration under the definition of PAWE. I therefore find $nil gross income for this period.

19.  There is no dispute that director’s wages for this period amount to $11,835.62 and ACK received 100% of that amount.

20. Therefore, the calculations for the period 20 April 2017 to 30 June 2017 are:

Business Profit: $0.00 x 72/365 x 100% share = $0.00
Director’s Wages: $60,000.00 x 72/365 x 100% share = $11,835.62
Total income in period $11,835.62 + $0.00 = $11,835.62.
1 July 2017 to 19 April 2018

21.  The disputes for this period relate to the apportionment of business profits and various expenses which ACK says should be considered as “add backs” to the company as income.

22.  Dealing firstly with the issue of apportionment, a necessary pre-requisite to the calculation of PAWE is for the injured person to be an earner. The relevant definition of “earner” is contained in section 2(a) of Schedule 1 of the Act:

“A person who is injured as a result of a motor accident is an earner if the person is at least 15 years of age and who:

(a) was employed or self-employed (whether or not full-time)

23.  Although ACK’s wife is a 50% shareholder and named as a director, she is not a registered physiotherapist and therefore cannot be an “earner” at XXXX Healthcare Pty Ltd. As ACK is the only other shareholder and as a working director, I find that 100% of the profits generated by XXXX Healthcare Pty Ltd to be as a result of ACK’s earnings and received by him. This finding is consistent with Vincents report (p2, 1.11.1).

24.  I therefore agree with ACK’s submission that he is entitled to company profits (as earnings) totalling $47,212.

25.  In relation to the $30,000 paid to ACK’s wife, the definition of PAWE states that gross earnings are to be “received by the earner as an earner”. On page 58 of the Vincents report, there is a table which shows a transaction of $30,000 from XXXX Healthcare Pty Ltd paid directly to ACK’s wife as a director and payee. While I have no doubt that ACK earned this money, the information before me indicates that the $30,000 was not received by ACK as an earner.

26.  I have also considered the letter from ACK’s accountant dated 26 October 2018. In this letter, the accountant advised ACK to amend his and ACK’s wife’s 2017/18 PAYG summaries to show the $30,000 being re-allocated to ACK. In my view, while ACK may wish to pursue this advice at some future date, it does not change the fact that ACK did not receive the $30,000 at the time the money was earned in the 12 months before the motor accident.

27.  I therefore find that ACK is not entitled to the $30,000 being added to his director wages of $55,000.00.

28.  In relation to the Director Payment of $55,000 being subject to pro-rata, I am of the view it should not because the amount was the subject of two discrete payments ($3,333.33 and $51,666.67) that were made to ACK and accepted by the Insurer as money earned before the accident. Although the period covers 293 days, there is no information to suggest the earnings were not solely earned in this period (i.e. from 1 July 2017 to 19 April 2018).

29.  I note that the pro-rata only applied to the director’s wage of $60,000 for the previous period because the earnings from that period covered an entire financial year of 1 July 2016 to 30 June 2017 and accordingly, it was appropriate to pro-rata the earnings for 72 days only.

30.   I therefore find ACK is entitled to director payments totalling $55,000.

31.  The calculations for the period 20 April 2017 to 30 June 2017 are:

Business Profit: $47,212 x 100% = $47,212.
Director’s Wages: $45,000
Director’s Payments: $55,000
Total income in period: $47,212 + $45,000 + $55,000 = $147,212.00.
Total income from XXXX Health Care Pty Ltd:
$11,835.62 + $147,212.00 = $159,047.62
BXXX Clinic Management Pty Ltd

32. Consistent with my findings above in paragraph 18, net losses should not be taken into account in the calculation of PIAWE. I therefore find there was $nil gross earnings for this company.

PXXX Clinic Management

33. There is no dispute regarding the calculation of the PAWE for this company. The total earnings from PXXX Clinic Management is agreed as $31,633.04.

Findings on pre-accident weekly earnings

34. The total earnings from all sources is:

$159,047.62 + $nil + $31,633.04 = $190,680.66

35. ACK’s PAWE is the weekly average of the gross earnings received by him as an earner during the 12 months immediately before the day on which the motor accident occurred. There was 365 days or 52.14 weeks in that 12 months.

36.  I therefore find the amount of ACK’s PAWE is (rounded to the nearest cent), calculated as follows: total earnings received $190,680.66 / 52.14 weeks = $3,657.09

37. Accordingly, ACK’s PAWE as $3,657.09 per week.

Determination

My determination of the Merit Review is as follows:

  • The reviewable decision is set aside and the following decision is made in substitution:
o  ACK’s PAWE is $3,666.94 per week.
  • Effective Date: This decision is to take effect on and from the date of the Insurer’s initial decision, being 9 August 2018.

Jeremy Lum
Dispute Resolution Service Merit Reviewer