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ADN v NRMA Insurance Ltd [2019] NSWDRS MR 091

Overview

Jurisdiction: Merit reviews

Catchwords: Pre-accident weekly earnings – two jobs – self employed PAWE – director- spouse – wife’s earnings – legal costs  – riding bicycle

Legislation cited: Motor Accident Injuries Act 2017: Sections 3.11; 3.28; Schedule 1

Parties:

  • ADN – claimant
  • NRMA Insurance Australia Limited – insurer

Disclaimer: This decision has been edited to remove unique personal identification information 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 ADN
InsurerNRMA Insurance Australia Limited
Claim Number NWRTP1802201
The Reviewable Decision
Reviewable decision‐maker Mark Tang
Date of Reviewable decision5 December 2018
Nature of Reviewable decision The amount of Pre-Accident Weekly Earnings
The Merit Review
Our Reference10073704
Merit Reviewer Tajan Baba
Date of this Certificate19 February 2019

Determination

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

My determination of the Merit Review is as follows:

● The reviewable decision is affirmed

● The amount of ADN’s Pre-Accident Weekly Earnings is $1,064.00.

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

Tajan Baba
Merit Reviewer, Dispute Resolution Service

Reasons for decision

Background

1. ADN was injured in a collision with a motor vehicle accident on 4 September 2018 while riding his push bike. He was employed as a Lifeguard with City of 123 at the time of the accident and also self-employed as a project manager.

2. The Insurer accepted ADN’s claim under the Motor Accidents Injuries Act 2017 (“the Act”). On 5 December 2018, it made a decision that the amount of ADN’s Pre-Accident Weekly Earnings (“PAWE”) is $1,064.00, comprising of $839.56 for his project management role and $224.44 for his Lifeguard work.

3. ADN sought an internal review of the Insurer’s determination about the amount of his PAWE. On internal review dated 20 December 2018, the insurer affirmed the original decision of $1,064.00. ADN has advised that he received notice of the internal review on the same date.

4. ADN lodged an application for merit review with the Dispute Resolution Service (“DRS”) on 8 January 2019. The application was accepted by the DRS.

5. ADN disputes the component of PAWE related to his earnings from the project management role but accepts the amount determined in relation to his Lifeguard work. The Insurer’s decision about PAWE affects the amount of weekly payments of statutory benefits payable to ADN. It is a reviewable decision under Schedule 2(1)(a) of the Act.

Documents and information

6. I have considered the documents provided in the application and the reply and any further information that has been provided and exchanged between the parties.

Submissions

7. ADN makes the following submissions in his application for merit review:

a. He does not dispute the Insurer’s decision about his income from his Lifeguard position.

b. The Insurer has deducted expenses from his project management income.  

c. For his services as a Project Manager, he receives the gross amount before expenses. If he is not available to provide these project management services, then the company receives no income at all, as was the case after the injuries. That meant for his full absence (5 September 2018 to 5 October 2018 inclusive) he was without $6,000.00 per month for his project management services and $1,200.00 down in allowances. From 6 October 2018 to 19 October 2018, he was on a quarter of his normal rate as he was restricted to two hours each day in the office.

d. He has attached a table showing the affect to his net income if he was to be paid the amount the Insurer is suggesting. The company would run at a loss if he was only receiving the amount the Insurer is suggesting.

e. How he spends his project management income is his business and is decided by him based on his gross income.  

f. He also attaches the relevant invoices which were paid to ABC by XYZ Unit Trust for my services. 

g. He maintains that he should receive payments based on the full “total income” of $99,200.00 (which is what he was being paid at the time of the collision) at a weekly rate without the deduction of expenses which are totally unrelated to the $99,200.00 earned.

h. Therefore, he claims the full amounts of the invoices for September as he has been paid nil for that month when he could not work. That is $6,000.00 (Pay Claim 180914 Inv. NPUT1809 1 ABC Project Management Services) and $1,200.00 (Pay Claim 180914 Inv. NPUT1809 2 ABC Three Allowances).

i. He further claims the difference between the full normal charges for October and the amount he received for October 2018 from XYZ Projects. This amount in on the invoices in red and was due to his incapacity brought on by the collision and subsequent injuries. The relevant invoices are $2,862.97 (Pay Claim 181014 Inv. NPUT1810 1 ABC Project Management Services) and $572.59 (Pay Claim 181014 Inv. NPUT1810 2 ABC Three Allowances). All figures are excluding GST.


8. The Insurer makes the following submissions in its reply to ADN’s application:

a. The Insurer relied on a forensic accountant assessment done by PKF Forensic Accountants on 27 November 2018.

b. The claimant requested an internal review of the decision, which was carried out on 20 December 2018.

c. The claimant has lodged a dispute with DRS on the basis that his expenses should not have been deducted from his annual income of $99,200.

d. The claimant has not provided any further evidence since the last determination made by the Insurer to merit a new calculation of his weekly income.

e. Therefore, the Insurer maintains its original decision.

Legislation

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

a. Motor Accident Injuries Act 2017 (NSW) (“the Act”)
b. Motor Accident Guidelines effective from 30 April 2018 (“the Guidelines”)
c. Motor Accident Injuries Regulation 2017 (NSW) (“the Regulation”).

Pre-Accident Weekly Earnings

10. PAWE is defined under clause 4 of Schedule 1 of the Act. Subclause (1) of clause 4 provides:

"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.

11. I note that none of the exceptions under subclause (2) apply in ADN’s case. The issue that is in dispute between the parties is “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”.

12. At the time of the accident, on 4 September 2018, ADN was employed as a Lifeguard with City of 123 and self-employed as a project manager.

13. The Insurer determined the amount of ADN’s PAWE at $1,064.00, being the total of $224.44 in respect to his earnings as a Lifeguard and $839.56 for his project management work.

14. ADN accepts the Insurer’s decision about the component of his PAWE relating to his work as a Lifeguard however disputes the amount of $839.56 determined by the Insurer in respect to his project management work.

15. Accordingly, when reviewing the decision in respect to ADN’s PAWE, I accept that $224.44 is the weekly average of the gross earnings ADN received for his work as a Lifeguard, during the 12 months immediately before the accident.

16. It is the component of ADN’s PAWE related to his project management work (“Project Management PAWE”) that is the subject of this review.

17. The Insurer accepts that ADN is an “earner” within the meaning under clause 2 of Schedule 1 of the Act. Having regard to this definition and the information before me, it appears to be an accepted fact that ADN is self-employed in relation to his project management work.

18. The information before me indicates there are a number of entities that ADN is associated with related to the provision of project management services.

19. The Insurer engaged PKF(NS) Forensic Accountants Pty Limited (“PKF”) to assist in the determination of PAWE. PKF produced a report dated 27 November 2018 (“PKF’s report”) that assessed ADN’s Project Management PAWE at $839.56.

20. PKF’s report notes that a review of ASIC discloses that ADN is the director of a number of companies, including MV Pty Limited (which acts as trustee of ABC) and XYZ Limited (which is the trustee of XYZ Trust). The report notes that the invoices provided by ADN record that services are provided by ABC to XYZ Trust and that ADN has clarified this, advising that ABC provides project management services to XYZ Trust and that ADN provides services to ABC.

21. PKF’s report states:

Therefore in considering the Claimant’s earnings we have considered the earnings of ABC the entity through which he [ADN] provides his services.

We have summarised the Profit and Loss Statement of ABC for the period 4 September 2017 to 4 September 2018. We note that the income received by ABC is from a related party being XYZ Trust. We have been provided with a copy of the Agreement between the unitholders of XYZ Trust which discloses that the project manager for the activity being undertaken by it is ABC. It also discloses the payment terms to ABC for acting as the project manager which are consistent with the invoices provided.

22. PKF relied on a number of documents from ADN in preparation of its report. DRS obtained a copy of these reports from the parties including the Profit and Loss statement of ABC Trust (“ABC”), the entity through which ADN provides his services, for the period 4 September 2017 to 4 September 2018 (“the Profit and Loss Statement”). I note the period that is covered by this statement is the assessable period when determining ADN’s PAWE, being the 12 months immediately before the date of injury of 4 September 2018.

23. The figures relied upon in PKF’s report were cross-checked with the financial documents obtained, revealing no discrepancies or miscalculation in PKF’s report.

24. The Profit and Loss Statement of ABC Trust (“ABC”), the entity through which ADN provides his services, indicates that the total income of the entity was $99,200.00 and that the total expenses of the business was $90,817.00 (including $35,274.00 paid in superannuation to ADN and his wife). In determining ADN’s PAWE, PKF deducted the total expenses of the entity from the total income and then added the superannuation expenses back, resulting in a net profit of $43,657.00. PKF then divided this amount by 52 to obtain $839.56 per week as ADN’s PAWE.

25. There is no dispute between the parties in relation to the figures used in determining ADN’s PAWE or the documents relied upon by PKF. As noted above, there is also no dispute that ADN was self-employed. ADN’s dispute, outlined in his submissions and a number of correspondence before me, is in respect to the methodology adopted by PKF in deducting the expenses of ABC from the total income of the entity.

26. ADN submits, and the information before me supports, that the income produced by ABC is solely through ADN’s project management services. ADN does not believe that the expenses of ABC should be deducted from the total income of the business because if he is unable to provide project management services, as was the case following his accident, ABC does not produce any income.

27. ADN has submitted a table he has prepared showing the effect that the Insurer’s calculated PAWE would have on his income if he were to receive a total of $43,657.00 in weekly payments per year ($839.56 per week) and his expenses remain the same. The effect being that ABC would have a net profit loss of $47,160.00 per year. ADN has also submitted copies of invoices for the project management services he provided and four invoices showing the amounts he believes he should have been compensated for following his accident.

28. ADN has also submitted a letter from his accountant, Mr Jason Ginns of Lambourne Partners dated 15 February 2019 to himself which states:

I believe that the PAWE should be based on the gross income of the ABC Trust without any adjustments for any expenses, and not be calculated as above on the adjusted net profit.

The income received by the ABC Trust is primarily in relation to the personal services that you provide to the trust. Without your personal services the trust would receive no income.



If the trust receives no income it is unable to pay its costs, which are predominately fixed costs and related to the personal services that you provide. These fixed costs continued to be incurred, and if the abovenamed report [PKF’s report] is relied upon the trust would incur net losses based on their calculation of PAWE.  

The purpose of the calculation of the PAWE is to compensate you so that your income position remains at a similar level to what it was prior to the injury. This is not the case if you are receiving PAWE at $839.56 when prior to the injury your PAWE was approximately $1,674 ($7,200/month/4.3 weeks/month).

29. An email before me from ADN’s accountant to PKF dated 6 November 2018 states:

The only individual providing services to ABC Trust is ADN. This entity was established for asset protection and tax minimisation purposes, and the services provided by ABC Trust are project management fees in relation to development activities of other entities, and these services provided are the personal services of ADN.

30. Having regard to the email above and the information provided by ADN, I accept that the income generated by ABC is solely as a result of the services that ADN provides through project management work.

31. I also acknowledge ADN’s submissions and the information submitted by him in relation to the effect of him not being able to work has on the income of ABC and what he believes he should be compensated for.

32. I note however that in relation to earners who are self-employed, the words ‘gross earnings’ refers, in my view, to the net profit or the personal proceeds received by a self-employed earner after deducting business expenses and before taxation.

33. I acknowledge the opinion of ADN’s accountant put forward in the letter dated 15 February 2019 however note that ‘PAWE’ has a particular meaning under the Act (outlined above). That meaning specifically states that PAWE relates to “gross earnings received [emphasis added] by the earner”. The information before me indicates that ADN never “received” the expenses he submits should be included in his PAWE. The expenses were received by ABC and then paid to cover costs and expenses of the business including accounting costs, bank charges, bookkeeping expenses...etc.

34. I note that the purpose of statutory benefits of weekly payments to injured persons under the Act is a form of personal compensation. It is not a form of business insurance.

35. ADN’s accountant submits that the purpose of the calculation of PAWE is to compensate ADN so that his income position remains at a similar level to what it was prior to the injury and that this would not be the case if he was receiving PAWE at $839.56 when prior to the injury his PAWE was approximately $1,674.00. As noted above however, the information before me does not support that ADN’s “income position” was that he was receiving $1,674.00 per week. The information indicates that that was the income of ABC and a large portion of that amount was paid in expenses of the business. Given that ADN did not actually “receive” the expenses, ABC did, ADN is not at a loss for these earnings and if this argument is accepted, ADN does not require to be personally compensated for such amounts for his income position to remain at a similar level, as he never received these amounts.

36. In line with the above, I note that the invoices ADN submitted to DRS for his project management services, were issued by ABC and do not make any reference to him personally.

Calculation of project management PAWE


37. As noted above, there is no dispute between the parties that the total income of ABC, in the 12 months immediately before the injury, was $99,200.00 and that the that the total expenses of the business was $90,817.00, resulting in a net profit of $8,383.00. Of the expenses totalling $90,817.00, an amount of $35,274.00 was paid in superannuation to ADN and his wife.

38. An email before me from ADN’s Business Advisor to PKF dated 26 November 2018, in relation to the superannuation payments, reads:

However I would like to point out that the contributions for P [ADN’s wife] are not market salary package based on any services she may have provided to the trust, and are part of the overall tax planning strategy for ADN and his related entities. The contributions for P may also be backed out of the trust and claimed personally by P, and this will result in a corresponding increase in the net profits of the trust.

39. In response to a request for further information from DRS regarding the superannuation payments made, ADN advised in an email dated 14 February 2019 that of the total amount of $35,274.00 paid in superannuation, no amounts were paid into a superannuation fund in accordance with the Superannuation Guarantee (Administration) Act 1992 and all amounts were accountable voluntary superannuation.  

40. In determining the net profit that ADN received, PKF added the total amount of $35,274.00 of superannuation back to the net profit and came to total proceeds of $43,657.00. I also accept, given the email and the information above, that the superannuation contributions paid to ADN’s wife are ADN’s “earnings” for the purposes of determining his PAWE under the Act as the contributions are remuneration earned by ADN in return for his services, which he received and directed to be paid in superannuation to his spouse.

41. Accordingly, I accept that the net profit or personal proceeds of ABC that ADN received in the 12 months immediately before the injury was $43,657.00. This amount divided by 2 weeks is $839.56 per week. 

42. I find that ADN’s Project Management PAWE is $839.56.  

43. ADN’s PAWE is $1,064.00.

Determination

44. The reviewable decision is affirmed.

Tajan Baba
Merit Reviewer, Dispute Resolution Service