Unwin v Accident Rehabilitation and Compensation Insurance Corporation

IN THE DISTRICT COURT Decision No. 21 197 HELD AT WELLINGTON IN THE MATTER of The Accident Rehabilitation and Compensation Insurance Act 1992 AND IN THE MATTER of an Appeal pursuant to Section 91 of the Act BETWEEN ARTHUR UNWIN Appellant (Appeal No. DCA 51/96) AND ACCIDENT REHABILITATION AND COMPENSATION INSURANCE CORPORATION a body corporate duly constituted under the provisions of the said Act Respondent HEARD on the 21st day of November 1996 Counsel: H F Woods for appellant Dane Tui for respondent DECISION OF JUDGE D A ONGLEY The question in this appeal concerns the obligation of the respondent to pay interest under s 72 of the Accident Rehabilitation and Compensation Insurance Act 1992 which is as follows: 72. Payment of interest where Corporation or exempt employer makes late payment of compensation based on weekly earnings - Where any payment of compensation based on weekly earnings to which a claimant is entitled is not paid by the Corporation or exempt employer within 1 month after the Corporation or exempt employer has received all information necessary to enable calculation of the payment, interest shall be paid on the amount payable by the Corporation or exempt employer at the rate for the time being prescribed by or for the purposes - 2- of section 87 of the Judicature Act 1908 from the date on which payment should have been made to the date on which it is made. The appellant was employed as a real estate agent when he suffered injuries in a motor vehicle accident on 7 September 1990. He was paid weekly compensation on the basis of 80% of his earnings at the time of the accident. On 1st May 1992 the respondent notified him of a change in calculation. The change was made with reference to a specific provision in s 52(2)(b) of the Accident Compensation Act 1982 as follows: "For the purposes of this Act, the expression "earnings as an employee" includes - (a) Any wages, salary, allowances, ... or remuneration of any kind paid or payable (whether in cash or otherwise) to any person in respect of or in relation to the employment of that person as an employee ... b) An amount equal to 80% of the total amount paid or payable (whether in cash or otherwise) to any person who is deemed to be an employee under subsection (2) of section 2 of this Act, by any person who under that subsection is deemed to be the employer of that person." Section 2(2) provides as follows: "For the purposes of this Act a salesman ... or other person who derives commission in the course of his occupation ... from a person with whom he has not entered into a contract of service (whether or not he also derives a retainer or any other amount whatsoever in cash or otherwise), in this section referred to as a "field agent", shall be deemed to be an employee employed by the person from whom the commission is derived and that last mentioned person shall, to the extent that their commission ... is derived from him by the field agent, be deemed to be the employer of the field agent." The relevant wording is emphasised in bold type. Section 2(2) distinguishes between persons deriving commission who enter into a contract of service and those who do not. Those who have a contract of service are ipso facto employees but those who do not have a contract of service are "deemed to be an employee" and such persons fall to have their relevant earnings at the time of an accident calculated as only 80% of the total amount paid or payable. Those provisions were applied to the appellant and his payments were accordingly reduced after the advice of Ist May 1992. The appellant made representations on his own behalf to the Corporation in December 1992 on the basis that for tax purposes he was simply treated as an employee. He considered that he should not be treated as a "field agent" under s 2(2) of the Accident Compensation Act 1982. The Corporation advised him on 11th January 1993 and on 5th July 1993 that it would not review its decision. On 23rd November 1993 the appellant's solicitor wrote to the Corporation suggesting that the appellant's employee status was governed by the law as it was applied in Challenge Realty v CIR [1990] 3 NZLR 42. The Corporation reviewed the case but affirmed its decision once again. - 3 - The question was then taken on statutory review. The Corporation wrote to the appellant on 22nd December 1993 in the following terms: "Dear Mr Unwin Re: Review No: 45/94/407 Your Review Application has been accepted under late notice, however the original decision cannot be changed administratively regarding your weekly compensation. Would you please consider whether you wish to proceed to a formal hearing (explanation attached) or allow the review to be withdrawn. Please indicate your intention by completing and return the enclosed forms. If no reply is received within fourteen days, your application will be referred to our Review Section." By that time, the Corporation had obtained advice concerning the taxation treatment of real estate salespersons. The source of the advice was a copy of a 1991 Master Tax Guide extract under cover of a minute from Inland Revenue Department dated 22.6.93. The extract is as follows: "3.325 Real estate salespersons The Commissioner considered the position of a real estate salesperson (and other commission agents in similar positions) and effectively classified real estate agents as "employees" with effect from 1 April 1989. This meant commission earnings of these taxpayers were subject to deductions at PAYE rates instead of rates appropriate to withholding payments. Consequently, real estate salespersons fall into three groups for the purposes of GST, deductibility and accident compensation: - salesperson: classed as an employee; - branch manager: usually an employee, but the contract with the real estate licensee may prove otherwise; and - individual/company licence: self-employed. Although the cost of vehicles, petrol and other business expenses are still deductible to companies and for people who are clearly self-employed (such as an owner of a real estate firm), an agent who works for a firm, but does not own it, even if the agent uses his or her own car and pays for his or her own petrol, will have the right to deduct these and other expenses against income removed." The classification of real estate agents as "employees" with effect from 1st April 1989 was a consequence of the Challenge Realty judgments culminating in a judgment of the Court of Appeal delivered by Bisson J. on 19 July 1990. The salespersons in that case included salesmen employed by Harcourts under a written agreement specifically recording that the salesman was in all respect an independent contractor and not a - 4- servant or employee. Other salespersons employed by Challenge and Simes did not have written contracts but had been regarded as being independent contractors. The question that gave rise to the proceedings was whether the employer or principal was required to deduct PAYE from commissions paid to the agents. In the High Court and the Court of Appeal the same conclusion was reached in respect of all the agents concerned, and the question whether the commission or agency agreement was in writing was not determinative. The Court considered the features of the relationship pointing to an independent contractual relationship or an employee relationship. Bisson J. said: "The fact that salesmen, because they have been approved as fit and proper persons to work for a real estate agent, and because of their knowledge and ability, need little supervision, does not remove them from being under the control of their employer should occasion arise for this control to be exercised in the effective operation of the business. We have no hesitation in reaching the conclusion in this case that the salesmen are employed under contracts of service to work for their specific licensed real estate agent in carrying on the business of that real estate agent being in a subordinate position under the control of that agent but as an integral part of that business and not as independent contractors in business on their own account." In this case the appellant argues that the relationship discerned by the Court in the Challenge Realty case was the same, for practicable purposes, applying to all real estate salespersons in the ordinary run of employment. It was submitted that the appellant, along with any other real estate agent was truly an employee and was not a "field agent" deemed to be an employee by virtue of's 2(2) of the 1982 Act. In a review decision delivered on 16 August 1994 the review officer referred to the Challenge Realty decisions but considered that the point on review turned on a different question, namely whether or not the appellant had entered into a contract of service with his real estate firm. In other words, while the appellant was regarded as an employee for taxation purposes, the basis of calculation of his relevant earnings under the Accident Compensation Act 1982 depended instead on whether he had entered into a contract of service. There was no discussion of whether a contract was to be implied from the conduct of the parties within the context of the usual relationship between a real estate agent and a commissioned salesperson. The review decision appears to have overlooked the point that the appellant's solicitor was urging upon the Corporation, that is to say that the appellant had entered into a contract of service whether it was recorded in writing or not. The review officer said: "I have had regard not only to the High Court and Court of Appeal decision in Challenge Realty but also to Accident Compensation Appeal Authority's decisions Simunovich Fisheries Ltd (53/92), Imlach (196/92), Ellis (154/93) and Kirk (121/94). All of these relate to the specific issue of the actual relationship that existed (independent contractor or employee)." The position was finally resolved when under cover of a letter of 4 April 1995, the appellant's solicitor sent to the respondent an affidavit by the appellant enclosing - 5 - specimen forms of contract used by his employer. In the affidavit he claimed to have signed an employment contract. He said that he was unable to locate it but that it would have been in one of the forms. Specifically he recalled a time when all the sales staff were being required to sign written contracts. The matter was then taken up by a solicitor in the respondent's Head Office, and she delivered an opinion, including the following observations: "The Review Officer did not investigate whether a contract of service was in existence. He merely found that: "There was no suggestion of there having been a contract of service in this case." It has been clearly established by the authorities (Challenge Realty v CIR [1990] 3 NZLR 42) that real estate salesmen are employed under contracts of service. It was said in the Challenge Realty case: "... The salesmen were employed under contracts of service to work for their specific licensed real estate agent in carrying on the business of that real estate agent being in a subordinate position under the control of that agent but as an integral part of that business and not as independent contractors in business on their own account.' In that case three real estate companies bought the matter to hearing. In only one case was there a written agreement. In respect of the other two companies it was simply established that the employers "regarded their salesmen as being independent contractors".... Accordingly, it must be recognised that a contract of service can either be a written contract or implied from the circumstances of the case. Further, it does not go without saying that just because there is no written contract of service in existence that, therefore, the relationship between the parties is one of a contract for services (or an independent contractor)." She referred to the affidavit and expressed that she was initially of the view that the blank document was not relevant to the case because it was not signed, but that, on reflection, it established the terms under which the appellant was in all probability employed. The appellant's argument is that the terms of the employment were not important. The essence of the matter was in the last paragraph quoted above, that a contract of service can be written or implied from the circumstances. It was submitted that the Corporation was in possession of all the relevant material when it made its adverse decision in May 1992, and it had mis-applied the law. On that basis the appellant asked for payment of interest under s 72 of the 1992 Act on the basis that payment should have been made in full at the time of each of the abated payments that the Corporation had paid to the appellant. The Corporation refused. The refusal itself went to review and in a decision dated 22nd December 1995 the review officer said: "The Corporation's basis for revising the decision was the further information supplied by Mr Unwin (the affidavit). Mr Woods argues that the affidavit added - 6 - little further to the case. However, it was the only further information supplied after the Review Officers decision, and it must therefore be accepted that this was the information that allowed the Corporation to calculate payment. I cannot see that Section 72 can be applied before that affidavit was available." That approach to the matter cannot withstand examination because the review officer did not consider whether the new information was necessary to enable calculation of the payment. I am obliged to conclude that the review officer was wrong. For the reasons stated above, the question at issue was a point of law which had not been taken into account correctly by the Corporation. All the accounting and other information was available to the Corporation. The affidavit was helpful but it was not necessary, and the Corporation should have made full payments instead of the abated payments that it made after 1st May 1992. On the appeal, counsel for the appellant pursued the argument that the Corporation did not have necessary information until the affidavit was lodged with it. He submitted that a distinction is to be made between a contract of service and a contract for services, the former being necessary to remove the appellant from the classification under s 2(2) of the 1982 Act. The basis of that argument must be that, although the Challenge Realty decision classifies real estate salespersons ordinarily as employees, there is somehow still a distinction to be drawn. I reject that argument. The conclusion reached by Bisson J. and referred to above is that the salesmen were employed under contracts of service. There has been no attempt to differentiate the Challenge Realty situation from that of the appellant and it is clear that the law in Challenge Realty is of general application in the real estate agency profession; at least it was until remedial legislation was later introduced. I find that the payments should have continued from 1 May 1992 without a 20% reduction. As a second and alternative argument, the respondent relies on an interpretation of s 72 of the 1992 Act which was apparently accepted by this Court in S B 105/96. The respondent submitted in that case, as it does in the present case, that the appellant's entitlement to earnings related compensation flows from the date of his accident or incapacity which, in either case, pre-dated the 1992 Act. It was submitted that the responsibility for payment is governed by s 138, the relevant parts of which are set out below: 138. Weekly compensation - (1) Where, any person is, immediately before the Ist day of July 1992, in receipt of or would have been entitled to be in receipt of compensation calculated under any of the provisions of sections 113, 114, 116, 117, and 118, of the Accident Compensation Act 1972 or of sections 59, 60, 61, 62, 63, 64, and 88 of the Accident Compensation Act 1982, that compensation shall continue to be payable or be paid as if it had been calculated under this Act; and the personal injury by accident suffered by that person shall be deemed to be personal injury within the meaning of this Act. . . ..... (2) Notwithstanding subsection (1) of this section, adjustments to the calculations referred to in that subsection that are to be made other than pursuant to an Order 7- in Council or regulations shall be made under the Accident Compensation Act 1972 or the Accident Compensation Act 1982, as appropriate. In S B the Court was dealing with a reassessment of earnings related compensation for a period from Ist April 1984. The Court held that the assessment of earnings related compensation was made under the 1982 Act under which there was no provision for interest comparable with s 72 of the 1992 Act. It does appear from that decision that the same result was reached in relation to earnings related compensation for a period after the commencement of the 1992 Act. It is not evident whether that point was argued in the course of the appeal. With respect, I reach a different conclusion in respect of payments of earnings related compensation after the commencement of the 1992 Act. It is true that the ongoing scheme reflected in the transitional provisions requires adjustments to calculations, other than pursuant to an Order in Council or regulations, to be made under the 1982 Act. Section 138(2) applies to adjustments to "the calculations referred to in [subs (1)]" which appears to mean adjustments under the specified sections of the former Acts. In other words adjustments to the primary calculations are to be made under the former Acts. The authority for continued payments now flows from the 1992 Act. Payment of interest is not an adjustment to the primary calculation of compensation. It is an additional payment to be made in respect of late payment. Section 72 came into force on 1st July 1992, and it applied from that date onwards to payments which should have been made and were not made within one month after the time when respondent received all necessary information. If a claimant is entitled to a payment which should have been made but has not been, the entitlement itself will have been based on a calculation made under the former Acts. The 1992 Act then governs the manner in which the payment is to be made after July 1992 and accrual of interest should be determined by the amounts payable and the dates on which payment should have been made. It is of course significant that s 72 refers to "compensation based on weekly earnings". "Weekly earnings" is an expression defined in the 1992 Act and it is not found in the 1982 Act where the equivalent expression comprised in s 53 of the 1982 Act is "relevant earnings". It could follow that s 72 does not apply to compensation based on "relevant earnings". Against that, s 138(1) states that the compensation shall continue to be payable or to be paid as if it had been calculated under this Act. Therefore, it continues to be paid as if it is based on weekly earnings. Both of the expressions in question deal with the income sample which is used to calculate earnings compensation. While pre-1992 earnings compensation was based on "relevant earnings", it is not inappropriate, once it is preserved under the 1992 Act, to then include it in a global description of compensation based on weekly earnings. Under ss 47 and 140 of the 1992 Act the abatement calculations are the same whether the calculation of compensatable earnings loss had been made under either Act. The Indexation Regulations SR 1992/277 dealt with a similar problem of definition and addressed it by defining "weekly earnings" to have the same meaning as in the Act and to include relevant earnings as calculated under the earlier Acts where relevant earnings were used as the basis for earnings related compensation for the purposes of's 138 of the 1992 Act. Indexation is authorised by s 70 of the Act which - 8 - employs the expression "compensation based on weekly earnings" just as it is used in s 72. I reach the conclusion that the evident intention of s 72 is to confer a right to payment of interest on late payments of compensation whether the compensation is based on weekly earnings or on relevant earnings under the earlier Acts. The appeal is therefore allowed. The appellant is legally represented and will have costs of $800. DATED at WELLINGTON this |4th day of February 1997 D A Ongley District Court Judge ..