Jarden v Accident Rehabilitation and Compensation Insurance Corporation

IN THE DISTRICT COURT HELD AT NAPIER Decision No. 253/98 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 JENNIFER JARDEN DCA 99/98 Appellant AND ACCIDENT REHABILITATION AND COMPENSATION INSURANCE CORPORATION a body corporate duly constituted under the provisions of the said Act Respondent HEARD on the 29th day of October 1998 APPEARANCES: Mr H R Grayson counsel for appellant Ms J Cheyne counsel for respondent RESERVED JUDGMENT OF JUDGE M J BEATTIE The issue in this appeal is whether the appellant has weekly earnings within the meaning of section 41 of the Act and is thereby entitled to weekly compensation, subject to satisfying the provisions of section 37A of the Act. 2 BACKGROUND The appellant suffered a fractured-tibia on 9 September 1994. She sought weekly compensation based on earnings other than as an employee pursuant to section 41 of the Act. The appellant was incapacitated as a consequence of this injury from that date. At the time of this accident the appellant was a self employed property developer. The appellant had been engaged in this activity since the end of October 1993. Prior to that date she had, for some years, owned and operated a rest home, which business was sold in October 1993. The appellant had a balance date of 31 October and her income for the year ended 31 October 1993 was $130,699.50. That was the amount of income returned for taxation purposes for that year. In the period 1 November 1993 to 9 September 1994 the appellant had earnings but for taxation purposes had recorded a loss. When it came to an assessment of entitlement to weekly compensation the Corporation noted that, having regard to the definition of "earnings other than an employee" as defined in the Earnings Definitions Regulations 1992, such earnings must be (i) dependent upon the personal exertions of the person and (ii) if the person were to suffer any incapacity the person would cease to derive as a consequence of such incapacity. It held that because her income from her rest home did not cease because of incapacity but because she had sold the business she could not be said to have suffered any loss as a consequence of incapacity. That question was taken on review and ultimately on appeal before His Honour Judge Ongley. By an interim decision dated 19 June 1997 His Honour Judge Ongley observed that in many respects both counsel were not addressing the correct issues, and more particularly the correct income year which was to be the basis for calculations. In addition to that, the Judge noted that there had been no evidence to establish what part of the appellant's income for the year ended 31 October 1993 would not have been earned if the appellant had been incapacitated. On that basis the Judge took the more beneficent of the two options open to him and allowed the appeal and referred the matter back to the Review Officer to determine the appellant's earnings other than as an employee in relation to the income year to 31 March 1994 based on accounts for the year to 31 October 1993. It seems as though the matter again got caught in the mire as in fact no further evidence was adduced and the matter came back before a Review Officer largely in the same state as it had been when it had been considered by Judge Ongley. 3 The Review Officer in her subsequent decision stated: "It is my view that Judge Ongley referred the matter back to give the applicant's representative the opportunity to provide evidence and an argument to support the contention that within the $130,699.50 earnings, there were earnings arising from property development which qualified to be considered as "earnings other than as an employee" within the meaning of the Regulations, i.e. which were dependent on the personal exertions of Mrs Jarden and which she would cease to derive as a consequence or any incapacity. It follows that I will not be altering the Corporation's original stance which declined any entitlement to weekly compensation on the basis that it had not been established that there was an actual financial loss in respect of the property development while the applicant was incapacitated. Therefore there was no entitlement to weekly compensation." For the purposes of the appeal to this Court leave was granted to the appellant to introduce further evidence by and on behalf of the appellant in relation to the duties that she personally carried out during the time that she was the proprietor of the rest home, such evidence being intended to establish the level of the appellant's "personal exertion" for the production of her income. Secondly, there was evidence from the principal of a partnership which operates rest homes in the Hawkes Bay and who produced a report prepared by Messrs Coopers & Lybrand which had been prepared for the Central Regional Health Authority covering aspects of rest home pricing in Hawkes Bay and else where. This report determined, inter alia, the cost per bed per day for nursing and other labour for a rest home, and were figures which the Central Regional Health Authority had adopted for the purposes of its payments and subsidies. It was on the basis of the Coopers & Lybrand report that the witness determined that the content of earnings from the appellant's personal exertion would have been $45,633.00 for the year ended 31 October 1993. This Court notes that this was the type of evidence which Judge Ongley had envisaged ought to have been adduced at a resumed review hearing and the fact that it was not done means that the Corporation itself has not had the opportunity of considering that issue. For this reason therefore this Court intends to confine itself to a consideration of whether the Corporation applied the correct statutory provisions and the facts pertaining thereto to determine whether the appellant had an entitlement to weekly compensation during the period of her incapacity. RELEVANT STATUTORY PROVISIONS Section 41 states the following: "41. Calculation of weekly earnings where earnings are solely earnings other than earnings as an employee during the 12 months before commencement of incapacity. 4 1) This section applies only to earners who are earners immediately before the commencement of the incapacity and-who had earnings other than earnings as an employee and who did not have earnings as an employee during the 12 months immediately preceding the commencement of the period of incapacity. (2) The weekly earnings of any person to whom this section applies shall be,- (a) In respect of each of the 4 weeks next following the sixth day after the day on which the incapacity first commenced, the greater of - (1) The earnings of that person, other than earnings as an employee, in the most recent income year (as defined in OB 1 of the Income tax Act 1994) last ended before the commencement of the period of incapacity as shown in an income tax return, divided by the number of weeks in that income year; or (ii) The amount of $245 [265.41] a week, or $196 [212.33] a week in respect of any period before the earner attains the age of 20 years. If, in either case, the person is liable to pay the minimum annual earner premium imposed by regulations made under the Act: b) In respect of any period of incapacity after the period referred to in paragraph (a) of this subsection, the earnings of that person other than earnings as an employee in the most recent income year (as defined in section OB 1 of the Income Tax Act 1994) last ended before the commencement of the period of incapacity as shown in an income tax return, divided by - I) The number of weeks in that income year; or ii) If the most recent income year (as so defined) last ended before the commencement of the period of incapacity) was the first year during which the person received earnings other than as an employee, such number of weeks as the Corporation considers fairly and reasonably represents the number of weeks or part weeks in that income year during which the person earned those earnings other than as an employee, but in no case shall that number be less than 13:" "Income year" and "year" are defined in $2 of the Income Tax Act 1976 as follows: "Income year", in respect of the income of any person means the year in which that income has been derived by him. "Year" means a year commencing on the Ist day of April and ending with the 31st day of March, both of these days being included." Section 3 of the Act provides: "Earnings", "earnings as an employee" and "earnings other than as an employee" each has the meaning assigned to it in Regulation under this Act. 5 "Earnings other than an employee", are defined in the Earnings Definitions Regulations 1992 as follows: 2. Interpretation - (1) In these regulations, unless the context otherwise requires . . ... " Earnings other than as an employee", in relation to any person and any income year, means the amount of assessable income (if any) derived by the person in the income year for the purposes of the Income Tax Act 1976 which - (a) Is dependent on the personal exertions of the person; and b) If the person were to suffer any incapacity, the person would cease to derive as a consequence of such incapacity,- after deduction all amounts allowable as deductions to the person for the purposes of the Income Tax Act 1976 which are allowable by virtue of the person deriving the income referred to in this clause; but does not include any earnings as an employee." SUBMISSIONS: Mr Grayson, counsel for the appellant, submitted that Judge Ongley had referred the matter back to the Review Officer for her to consider the income that the appellant received for the year ending 31 October 1993 from her rest home business and not from her property development business and to consider whether any of that income could be considered to be the result of her personal exertion which would have ceased as a result of her injury had it occurred when the appellant was still operating the rest home. In terms of section 41 of the Act counsel submits that for determining the appellant's weekly earnings the income she earned for the year ended 31 March 1994 needs to be considered and that, as the appellant had a balance date of 31 October, her financial accounts showing income for the year ended 31 March 1994 were her accounts for the year to 31 October 1993, that is her income of $130,699.50. Counsel submitted that for the purposes of section 41(2) it was the appellant's income from her rest home business that required consideration, not the income which she received from her property development business. Counsel submitted that the Review Officer was incorrect to focus on section 41(1) and look at her earnings for the 12 months immediately preceding the commencement of the period of incapacity. Counsel submitted that the definition in Regulation 2 of the Definitions Regulations applied only to section 41(2) and not to 41(1). He submitted that the reference to "earnings other than as an employee" in section 41(1) is for classification purposes only and its purpose is to indicate that it excludes earners whose entitlements are determined under section 40 or 42. Counsel submitted that if that interpretation is adopted, section 41(2) is applied to determine the claimant's weekly earnings entitlement and for that calculation her income for the year ended 31 October 1993 is used. Once that point has been reached the appellant needs to satisfy the requirements of Regulation 2 of the Earnings Definition Regulations and show that her income from the rest home business was derived from personal exertions and that she would have ceased to derive this income as a consequence of her incapacity. Counsel submitted that it is irrelevant that by the time of her incapacity the appellant had sold her rest home business. He submitted that the appellant need only show that had she suffered her incapacity at the time she was operating the rest home business she would have ceased to derive income. He submits that the words "if" and 'would" postulate a hypothetical, not actual test. Ms Cheyne, counsel for the respondent, submitted that the appellant's claim for weekly compensation must be looked at in two stages. The first stage is whether the appellant can satisfy section 41(1), that is, was she an earner immediately before her incapacity and did she have earnings other than as an employee during the 12 months immediately before her incapacity. Counsel submits that Reg.2 of the Earnings Definitions Regulations does apply to section 41(1) as well as 41(2). Counsel submitted that the appellant needed to establish that she had earnings other than as an employee during the 12 months prior to incapacity which were dependent on her personal exertion and were earnings which she would have ceased to derive if she had suffered an incapacity. Counsel submits that if that classification is applied to the facts of this case and the appellant's income for the 12 months from 19 September 1993 to 19 September 1994 is considered, the facts indicate that no income was derived as the only earnings came through her property development which produced a loss. Counsel submitted that if it be determined that the appellant can satisfy section 41(1), then whilst the Corporation accepts that some part of the appellant's income was attributable to her personal exertions and was income she would have ceased to derive if she had been incapacitated while running the rest home, nevertheless it has not been established what is an appropriate figure for such income. Counsel contends that the affidavit evidence is imprecise and inconsistent and that it would require further investigation and analysis. She submitted that this issue cannot be the subject of a decision by this Court in this appeal. DECISION The issue raised by this appeal requires an interpretation of the meaning of section 41 (1) of the Act. On one interpretation of that provision the appellant could not bring herself within that section by reason of her not having earnings other than as an employee during the 12 months immediately preceding the commencement of the period of incapacity but who nevertheless was an earner before the commencement of incapacity. 7 Section 41 is one of three provisions of the Act which cover the categories of earners and which set out the formulae for the calculation of weekly earnings of those three categories of earners: Section 40 sets out the formula for calculating weekly earnings of persons who were earners immediately before the commencement of incapacity and who had earnings as an employee and who did not also have earnings other than as an employee. That is the category of persons who have earnings as an employee only for the 12 months preceding incapacity. Section 41 covers the position of earners who have only earnings other than as an employee during the 12 months before incapacity, and section 42 covers the position of persons who have both earnings as an employee and other than as an employee during the 12 months before commencement of incapacity. To be a person to whom section 40 applies the criteria required are: i) To be an earner immediately before the commencement of incapacity ii) During the 12 months immediately preceding the commencement of incapacity to have only earnings as an employee. To be a person to whom section 41 applies the criteria are (i) To be earner immediately before the commencement of incapacity. (ii) During the 12 months preceding the commencement of incapacity to have only earnings other than as an employee (iii) To not have had any earnings as an employee during the 12 months immediately preceding the commencement of the period of incapacity. To be a person to whom section 42 applied, a person required: (i) To be an earner immediately before the commencement of incapacity (ii) To have had both earnings as an employee and earnings other than as an employee during the 12 months immediately preceding the commencement of incapacity. An analysis of these three sections determines that the various categories have quite distinct criteria. For whatever reasons all earners are not provided for in the same way in the method of calculation of weekly earnings to determine weekly compensation entitlements. For the sake of clarity the provisions of section 40(1) and 42(1) are as follows: "40. Calculation of weekly earnings where earner had earnings solely as an employee during the 12 months before commencement of incapacity --- (1) 8 This section applies only to earners who are earners immediately before the commencement of the incapacity and who, during the 12 months immediately preceding the commencement of the period of incapacity, had earnings as an employee and who did not also have earnings other than as an employee." "42. Calculation of weekly earnings where earner had both earnings as an employee and other earnings during the 12 months before commencement of incapacity --- (1) This section applies only to earners who are earners immediately before the commencement of the incapacity and who had both earnings as an employee and earnings other than as an employee during the 12 months immediately preceding the commencement of incapacity. From the text of section 40 I find that the period of 12 months which is referred to is there to further particularise the type of earner as being one who did not have any other form of earnings other than earnings as an employee during that period. I find this to be the meaning by virtue of the commas which appear after the words "who" and "incapacity" respectively. Section 42 particularises its category as requiring earnings in the 12 months preceding incapacity both as an employee and other than as an employee. The words "both", "and" determine that that is the meaning of that provision. By way of contrast section 41, which is the provision which this appeal is concerned with, has a requirement of having only earners with earnings other than as an employee and of not having any earnings as an employee during the twelve months proceeding incapacity. If a person did have earnings as an employee during that period, section 41 would not apply to that person but rather section 42 would be the appropriate provision. Thus, the common thread which determines which of the three sections applies in any case is what was the type of earnings at the commencement of incapacity and whether or not that type of earnings or mix of types had occurred during the 12 months proceeding incapacity. Accordingly I find that the plain and ordinary meaning of the provisions of section 41(1) is that it applies to any person who was an earner immediately before the commencement of incapacity and whose type of earnings was that of earnings other than as an employee and who did not have any other type of earnings in the period of 12 months before the commencement of the incapacity. I agree with counsel for the appellant's submission that s.41(1) is for classifying purposes and that s.41 (2) is the substantive provision. For the purposes of S.41(1) it is conceded by counsel for the respondent that the appellant was an earner immediately before the commencement of incapacity and it is not disputed on the facts that the appellant did not have any other type of earnings than earnings other than as an employee during the 12 months immediately preceding the commencement of incapacity. Therefore I rule as a matter of law that the appellant is a person to whom section 41 applies and in respect of whom a calculation of her weekly earnings must be made by considering section 41(2). 9 In his interim decision in this matter, His Honour Judge Ongley determined that the appellant's accounts for her financial year ended 31 October 1993 were the relevant accounts for -the purposes of section 41(2). The Learned Judge noted that the appellant's claim could not be established merely by identifying business costs which she incurred because of her injury. He stated that she would need to identify income falling within the Earnings Definitions Regulations and that this would require an analysis of the income earned in the year in question and evidence would need to establish what part of the income would not have been earned if the appellant had been incapacitated. He observed that the factual questions would be difficult but that the appellant had not, to that point, provided any material whatsoever to establish a claim of that kind. It was for that reason that he referred the matter back to the Review Officer and it was unfortunate that this aspect was not further investigated by the providing of evidence on the appellant's behalf and of the consideration of same in the making of a ruling by the Review Officer as Judge Ongley had envisaged. It has already been noted that the Review Officer contented herself with interpreting section 41(1) in such way that it excluded the appellant from being a person to whom that section applied and therefore she simply ruled that there was no entitlement to weekly compensation. In this decision, I have ruled that as a matter of law that decision was wrong and that the provisions of section 41(2) do apply and that the relevant income is that for the period ending 31 October 1993. In that regard I am simply confirming the decision already made by His Honour Judge Ongley. Whilst this Court has had produced to it evidence which can be considered to be on the issues which His Honour Judge Ongley had raised and directed be investigated, the fact of the matter is that they have not been so and it is not open to this Court in its appellate jurisdiction to make a primary decision on the quantum of earnings which the appellant may have made in that financial year which comes within the definition of "earnings other than as an employee" in the Earnings Definitions Regulations 1992. Accordingly this matter must once again be referred back to the Review Officer for the purposes of conducting that inquiry and for a consideration of the evidence which has been produced. The Review Officer should make a decision as to such quantum. The Court notes that counsel for the Corporation accepted that some part of that income would have been attributable to the appellant's personal exertions but the evidence given by Mr Yates encompassing the Coopers & Lybrand report may require further analysis to arrive at a true and correct figure. For the avoidance of doubt this Court confirms the preliminary observation of His Honour Judge Ongley in the interim decision that the appellant's earnings are not excluded from coming within the definition of earnings other than as an employee by reason of the fact that at the time of incapacity she was not actually engaged in the production of the assessable income in respect of which the calculation of her weekly earnings was to be made. The exercise to be undertaken is to determine what would have been the loss of earnings if the personal exertion content had been lost by reason of incapacity during the time that that assessable income was being produced. I therefore rule that the decision of the Review Officer, and the Corporation before her, were wrong and that the appellant is a person to whom sections 41(1) and (2) apply. The decision of the Review Officer made on the 17" of February 1998 is hereby revoked. In accordance with Rule 16(2) of the Appeals Regulations I remit this matter back to the Review Officer for consideration of the quantum of the appellant's earnings other than as an employee as defined in the Earnings Definition Regulations 1992 and for a calculation of any entitlement to weekly compensation that may thereafter arise following that determination. This appeal being largely successful I award the appellant the sum of $700.00 costs. DATED at WELLINGTON this 4th day of December 1998 M J Beattie District Court Judge Jardin.doc(gm)