|NSW DISPUTE RESOLUTION SERVICE (NSWDRS)|
|Jurisdiction||Merit Review Panel|
|Catchwords||Panel Review – PAWE – weekly payments – pre-accident gross weekly earnings – pre-accident net weekly earnings – pre-accident earning capacity – earner – loss of earnings – loss of earning capacity –ATO ruling – post accident earning capacity – statutory interpretation – beneficial legislation|
Motor Accident Injuries Act 2017 (NSW) ss 1.3(2), 1.32(a), 1.32(b), 3.6(1), 3.7(1), 3.8(1), 3.8(2), 3.22, 4.5(d), 4.6(2), 7.15(3), 7.15(4), Div 3.3, Schedule 1 Clause 3(1), Schedule 1 Clause 4, Schedule 1 Clause 7(1) & (2), Schedule 1 Clause 8(1)|
Motor Accident Injuries Regulation 2017
Motor Accident Guidelines 2017 (as amended on 15 January 2019) cl 4.55, 4.56, 4.59
AQO v Minister for Finance and Services  NSWCA 248
AFE – Claimant
Allianz Insurance Limited – Insurer
This decision has been edited to remove all Unique Personal Identification including the name of the Claimant.|
Note: This case is currently the subject of an appeal to the NSW Supreme Court.
Merit Review Panel Certificate
Panel Review of the Single Merit Review Decision
Certificate issued under section 7.15(4) of the Motor Accident Injuries Act 2017 (the Act)
- The Review Panel confirms the decision of the single merit reviewer dated 26 August 2019.
1. The single merit review decision determined by Merit Reviewer Leigh Davidson on 26 August 2019 was referred to this Review Panel for determination under section 7.15(3) of the Act.
2. Review Panel Conference
Merit Review Decision under Panel Review
3. Merit Reviewer Leigh Davidson had determined the following:
2) To substitute in lieu:-
Disputes identified by the Parties
4. The Review Panel considered the Application for Review and the submissions made by each party and noted the following aspects of the single merit review decision were in question:
- Whether the Claimant’s post 78-week entitlements should be calculated on the basis of her pre-accident gross weekly earnings or her pre-accident net weekly earnings.
- Whether Merit Reviewer Davidson was in error in determining that the Claimant’s pre-accident earning capacity is to be calculated with regard to her gross income when he provided the following reasons:
- Whether Merit Reviewer Davidson was in error in arriving at this conclusion because:
5. The Review Panel considered the reply to the Application for Review and noted that:
- The respondent opposed the application
Summary of documents considered
6. The Review Panel members confirmed that they had received and considered the following documentation:
- The single merit review decision issued by Merit Reviewer Leigh Davidson on 26 August 2019.
- Application for review and attached documents
- Reply and attached documents
- The Statement of Reasons issued by the Proper Officer referring this matter to a Review Panel
- All the documents which were provided to Merit Reviewer Leigh Davidson prior to the assessment under review.
Legislation and Guidelines
7. In making our decision the Panel has considered the following legislation and guidelines:
- Motor Accident Injuries Act 2017 (the Act)
- Motor Accident Injuries Regulation 2017
- The Motor Accident Guidelines 2017 (the Guidelines)
- Caselaw as noted below.
Matters Considered and Decided by the Review Panel
8. The Review Panel considered afresh all aspects of the decision under review.
A. Evidence Considered
9. The Review Panel considered all the documentary material and did not require any additional information and evidence.
B. Panel Deliberations
10.The Motor Accidents Injuries Act 2017 (“the Act”) relevantly provides (section 1.3(2)):-
(b) To provide early and ongoing financial support for persons injured in motor accidents.
(c) To keep premiums for third-party policies affordable by ensuring that profits achieved by Insurers do not exceed the amount that is sufficient to underwrite the relevant risk and by limiting benefits payable for minor injuries.
(e) To promote competition and innovation in the setting of premiums for third-party policies and to provide the Authority with a role to ensure the sustainability and affordability of the compulsory third-party insurance scheme and fair market practices.
… (4) In the interpretation of the provision of this Act… a construction that would promote the objects of this Act or the provision is to be preferred to a construction that would not promote those objects.”
11. Division 3.3 of the Act provides for weekly payments of statutory benefits during 3 entitlement periods.
12. Section 3.6(1) provides:
13. Section 3.7(1) provides:
“An earner who is injured as a result of a motor accident and suffers a total or partial loss of earnings as a result of the injury is entitled to weekly payments of statutory benefits under this section during the second entitlement period.”
14. Section 3.8(1) provides:
(a) is at least 18 years of age (whether or not the person is an earner), or
(b) is under 18 years of age and is an earner. Note : The person's age after the second entitlement period is relevant to determining entitlement to statutory benefits after the second entitlement period. A person's age at the date of the motor accident is not relevant. Schedule 1 defines when a person is an earner.
15. Schedule 1 sets out a number of definitions relating to earnings for the purposes of weekly payments of statutory benefits under Division 3.3.
16. In clause 3(1), “loss of earnings” is defined as:
17. In clause 4, pre-accident weekly earnings are defined as:
18. In clause 7(1), pre-accident earning capacity is defined as:
19. Clause 7(2) provides:
20. In clause 8(1), the meaning of “post-accident earning capacity” is defined as:
(a) for the first and second entitlement periods-- the weekly amount that the person has the capacity to earn in the employment in which the person was engaged immediately before the motor accident, determined on the basis of the person's fitness for work in that employment, or
(b) for any period after the second entitlement period--the weekly amount the person has the capacity to earn in any employment reasonably available to the person, determined on the basis of the person's fitness for work in any such employment.”
21. Section 4.5(d) of the Act provides:
(1) The only damages that may be awarded for economic loss are (subject to this Division):
(d) damages by way of re-imbursement for income tax paid or payable on statutory benefits or workers compensation benefits arising from the injury that are required to be repaid on an award of damages to which this Part applies.
22. Section 4.6(2) of the Act provides:
(2) In the case of such an award, the amount (if any) by which the injured or deceased person's net weekly earnings would (but for the injury or death) have exceeded the maximum weekly statutory benefits amount under Division 3.3 is to be disregarded (even though that maximum weekly statutory benefits amount is a maximum gross earnings amount).
23. The Review Panel briefly summarises the submissions of the Review Applicant and of the Review Respondent.
24. The Review Panel briefly sets out the Insurer’s submissions at A1:
ii. The decision was contrary to the long-standing common law principles.
iii. Merit Reviewer Davidson was in error in setting out his reasons for his conclusions at A4. Such reasons which are set out under the heading ‘Error of Law’ are submitted to be an entirely incorrect application of the law and an implausible approach to statutory interpretation. The Insurer submits that to decide that something bears its meaning because there is nothing indicating that it means contrary, is submitted to be absurd.
iv. The Merit Reviewer was in error in basing her presumption that “earning capacity” and “weekly earning amount” in Schedule 1 Clause 7(1) of the Act equates to “gross earning capacity” and “gross weekly amounts” because neither is explicitly referred to as to be “net of tax” was in error. There was no basis for such a presumption in the Act, nor anything in the Explanatory Note or Second Reading Speech which would justify such a conclusion.
v. The Insurer submits that the relevant wording in sections 3.6 and 3.7 is “loss of earnings” compared to the third entitlement period where section 3.8 refers to “loss of earning capacity”. The Insurer submits that the deliberate use of the words “loss of earning capacity” were introduced by parliament to instruct that payments in the third entitlement period be made on a net basis as opposed to “earnings”.
vi. The Insurer refers to the ATO Ruling of 30 November 2017 that payments in respect of “loss of earning capacity” have the character of capital as opposed to income, and are therefore not taxable, while payments in respect of loss of earnings have the character of income.
vii. The Insurer submits that, if no tax is payable on weekly payments made after week 78 and Merit Review Davidson’s decision was to stand, then in the third entitlement period payments would be made based on gross pre-accident earnings, an amount which no longer would be payable as in the previous two entitlement periods, and the amount paid directly to the Claimant would actually increase.
viii. The Insurer submits that this would be “nonsensical” because:
b. The courts in Australia have adopted the use of net after tax earnings as the most common basis for assessing future loss of earning capacity. The Insurer refers to decisions which reflect the common law intent that the purpose of compensation is to put the person in the same position as the person would have been in had the injury not happened.
c. The Insurer refers to the decision of the High Court of Australia in Cullen v Trappell (1980) 146 CLR 1.
d. If payments were made based on gross weekly earnings, this would create an inconsistency between section 3.6, 3.7 and 3.8 of the Act.
e. If weekly payments in the third entitlement period are not susceptible to tax, either to the ATO or in the hands of the Claimant, continuing to make payments on a gross payment would see statutory benefits increase following the commencement of the third period creating an inconsistency between section 3.6, 3.7 and 3.8 in so far as, in the first two periods, the Claimant would receive a net amount, whereas in the third entitlement period, a gross amount.
x. The Insurer refers to an example of practical inconsistency if Merit Reviewer Davidson’s determination were to hold [at the bottom of page 5].
xi. The Insurer relies on Thiering v Daly  NSWSC 1348 per Garling J at [50 (g) and (f)].
xii. The Insurer emphasises the importance of the Objects of the Act at subss 1.3(2)(a) and (g) and criticises the determination as having had only limited regard to section 33 of the Interpretation Act 1987:
In the interpretation of a provision of an Act or statutory rule, a construction that would promote the purpose or object underlying the Act or statutory rule (whether or not that purpose or object is expressly stated in the Act or statutory rule or, in the case of a statutory rule, in the Act under which the rule was made) shall be preferred to a construction that would not promote that purpose or object.”
The Claimant’s Submissions
25. I briefly summarise the Claimant’s submissions adopting the same numbers:
 Questions of taxation does not arise.
- Section 3.7 and 3.8 of the Act both refer to the weekly amount a person had or has the capacity to earn before and after the accident without reference to any distinction between gross or net payments.
- The Insurer submits that payments are not for loss of earnings but for loss of capacity. In those circumstances, tax does not arise and the Claimant should be paid 80% of her pre-accident earning capacity which was $918.00 per week.
 The Act is beneficial legislation and should be construed beneficially. If Parliament had intended payments to be subject to tax, it would have said so. There is nothing in the section, Schedule 1 or in the Explanatory Note, nor in the Second Reading Speeches, which indicates that there was an intention that tax be deducted.
 The Claimant is entitled to $734.40 per week, being 80% of $918.00 and if there is any ambiguity in beneficial legislation, it should be construed beneficially – Bull v AG (NSW)  17 CLR 370.
 The Bull v AG interpretation was applied in Kajic v Hawker De Havilland Aerospace Pty Ltd  NSW WCCPD 136. Judge Keating said at :
26. The Merit Reviewers decision is consistent with fundamental principles of statutory interpretation discussed above. Particularly, the principles referred to below.
27. McColl JA said in AQO v Minister for Finance and Services  NSWCA 248  that:
28. McColl JA then referred to the majority in Project Blue Sky v Australian Broadcasting Authority (1998) 194 CLR 355:
29.McColl JA continued  that the Court was required to undertake the exercise of statutory construction with a view to promoting the purpose or object underlying the Act.
30.McColl JA continued :
31. At :
32. At :
33. The Explanatory Memorandum states that:
34. The Merit Review Panel firstly notes that the change in wording from “loss of earnings” in the first and second entitlement periods to “loss of earning capacity” in the third entitlement period should not be taken to have been a vagary of drafting but to be deliberate.
35. It is reasonable to conclude that the parliamentary draftsmen must have considered the distinction and have intended to change the meaning of the different provisions.
36. The issue is – what is the meaning of the changed words? This approach is consistent with the fundamental principle of statutory interpretation that legislative provisions are to be interpreted according to their natural and ordinary meaning [AQO v Minister for Finance and Services  NSWCA 248 77].
37. Section 3.8 provides that after the second entitlement period, weekly payments of statutory benefits are to be at the rate of 80% of the difference between the person’s pre-accident earning capacity and the person’s post-accident earning capacity (if any) after the second entitlement period.
38. Pre and post-accident earning capacity are defined in Schedule 1. In the first two entitlement periods, an injured person is entitled to weekly benefits based on a proportion of the difference between the person’s pre-accident weekly earnings (as defined) and the person’s post-accident earning capacity. For this first 78 weeks, post- accident earning capacity is only measured by reference to the employment in which the injured person was engaged immediately before the accident (clause 8(1)(a) of Schedule 1).
39. After 78 weeks, benefits are determined based on a proportion of the mathematical difference between the person’s pre-accident earning capacity and the post-accident earning capacity. During this entitlement period, the assessment of the injured person’s post-accident earning capacity is based on the weekly amount the person has the capacity to earn in any employment reasonably available determined on the basis of the persons fitness for work in such employment. The persons fitness for employment is determined by the method set out in clause 8(2).
40. The assessment of the person’s pre-accident working capacity is set out in Schedule 1 clause 7 and means the weekly amount the person had the capacity to earn before the accident in employment reasonably available to the person in view of the person’s training, skills and experience.
41. If the amount of an injured person’s pre-accident earning capacity cannot be determined, the amount is deemed to be the amount that is equal to 80% of the average weekly total earnings of adults in full-time employment in NSW, last published by the Australian Statistician.
42. Statutory benefits after 78 weeks are intended to take into account the possibility of an increase in pre-injury earnings, taking into account changes in circumstances over the longer term.
43. Clause 7(2) is significant in assisting the Merit Review Panel to arrive at a proper interpretation of whether the weekly statutory benefits are intended to reflect the gross or net amount.
44. Average weekly total earnings of adults in full-time employment in NSW as last published by the Australian Statistician are expressed by the Australian Statistician as “ordinary time earnings” (“OTE”). Average weekly total earnings are calculated by the Australian Statistician as follows:
[Australian Bureau of Statistics, ‘6302.0 – Average Weekly Earnings, Australia, May 2014: Average Weekly Earnings and Wage Price Index – What do they measure?’]
45. Accordingly, if pre-accident earnings cannot be determined, section 3.8 requires a calculation of 80% of gross average weekly total earnings of adults in full-time employment in NSW.
46. The Merit Review Panel considers this showed a clear intention of Parliament that the pre-accident earning capacity is to be calculated on the basis of the injured person’s pre- accident gross weekly earnings.
47. The Merit Review Panel refers to section 3.22 – Indexation of Weekly Statutory Benefits. In subsection (2):
48. The Merit Review Panel notes that the Act continues to use the said calculation with respect to determining an injured person’s future ongoing benefits in the third entitlement period and in particular in the application of indexation.
49. Section 3.8 provides that weekly payments should be at the rate of 80% of the difference between the person's pre-accident earning capacity and the person's post-accident earning capacity (if any) after the second entitlement period.
50. It is agreed the claimant has a total loss of earning capacity.
51. The Review Panel considers the above interpretation of section 3.8 is consistent with sections 4.5 and 4.6(2) which deal with “damages” for economic loss, as distinct from statutory benefits. The wording of these provisions in relation to damages suggests it is intended by the Act that statutory benefits under Division 3.3 are payable on a gross earnings basis, regardless of whether they are payable under section 3.6, 3.7 or 3.8 and that an assessment based on net earnings is only relevant to an assessment of damages.
52. The Review Panel considers that the ATO determination is problematic.
53. The ATO has crossed over into a situation where a person is compensated by way of damages for loss of earning capacity. Conventionally, and at common law, a person does not pay tax on such damages and this has been the case for decades (refer to Cullen v Trappell [op cit].
54. Statutory benefits are not by way of compensation for loss of earning capacity. That is a matter to be determined later if the Claimant has an action for damages at common law.
55. Cullen v Trappell is distinguishable on the facts, as it deals with assessing damages for future economic loss in circumstances where the recipient of the damages will not be reassessed thereafter. On the other hand, an injured person being paid statutory benefits under section 3.8 remains subject to the requirements of the Act and Guidelines in relation to ongoing fitness for work (see for example Guidelines 4.55, 4.56 and 4.59). Unlike damages or compensation for loss of earning capacity, the insurer is entitled to vary, suspend or cancel payments under section 3.8 to accommodate a change in circumstances during the period in which payments are being made. The ability for payments to be varied by direct reference to a change to the claimant’s fitness for work or available employment, for example, suggests payments under section 3.8 are not capital in nature. This also gives effect to the objects of the Act, in a particular to maximise a return to work.
56. Loss of earning capacity is only a pre-condition to the entitlement to continuation of statutory benefits after 78 weeks. Prior to the period of 78 weeks, it was sufficient that a person had in fact lost earnings which may be the result of a temporary situation but not permanent.
57. Loss of earning capacity requires something in the order of permanence and, if that is the case, then it triggers an entitlement to a continuation of statutory benefits.
58. The intention of section 3.8 with respect to continuation of statutory benefits after 78 weeks is to replace, substitute or supplement weekly earnings for a prescribed period which are income in nature, rather than to compensate for the loss of the injured persons ability to earn income which are generally capital in nature.
59. Because such statutory benefits are income in nature, the Claimant will be liable for the payment of taxation to the extent that there is a tax liability.
60. If payments in the third entitlement period were calculated on the basis of net earnings, the Claimant would be financially worse off in the third entitlement period than she was in the first and second entitlement periods. This would be inconsistent with the intention of section 3.8 which is either to maintain or increase weekly payments.
61. The Merit Review Panel expects that those receiving payments in the third entitlement period will probably have more significant injuries and potentially be less likely to return to their pre-accident injury earnings. Providing a lesser income in the third entitlement period is arguably inconsistent with the objectives of the Act and, in particular, 1.32(a) and (b), in that payments made at 80% of the net are not likely to provide adequate financial support for people more seriously injured and less likely to get back to the work force at pre-injury hours.
62. Section 3.8 is only inconsistent with section 3.6 and 3.7 if you accept the ATO determination. If payments made under section 3.8 are subject to income tax, the Claimant will be in the same position as she was in the first or second entitlement periods. There is no inconsistency.
63. The Merit Review Panel considers that the Insurer is interpreting the legislation in the light of the ATO ruling, which is not law. It may or may not be incorrect, though the Merit Review Panel tends to the view that it is probably incorrect as it is getting itself mixed up with an entitlement to damages for loss of earning capacity.
64. If the statutory benefits in the third entitlement period are taxable, then most of the Insurer’s arguments fall away.
65. In conclusion, the Merit Review Panel considers that the Merit Reviewer’s determination that the Claimant’s entitlement to weekly payments under section 3.8(2) amounts to $734.40 is correct.
Review Panel Certification
This certificate has been viewed by Merit Reviewer Terence Stern, Merit Reviewer Jeanette Woollacottt and Merit Reviewer Katherine Ruschen who have confirmed that they are in agreement.
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