Jarden v Accident Rehabilitation and Compensation Insurance Corporation

IN THE DISTRICT COURT Decision No. 12 6 197 HELD AT NAPIER 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 JENNY JARDEN Appellant (Appeal No. DCA 142/95) AND ACCIDENT REHABILITATION AND COMPENSATION INSURANCE CORPORATION a body corporate duly constituted under the provisions of the said Act Respondent HEARD on the 18th day of April 1997 D Johnson for appellant F M Patterson for respondent INTERIM DECISION OF JUDGE D A ONGLEY This is an appeal against the review officer's decision refusing weekly compensation on the ground that the appellant had no weekly earnings within the meaning of s 41 of the Accident Rehabilitation and Compensation Insurance Act 1992. The appellant suffered a fractured right tibia on 9 September 1994. Section 41(2) of the Act defines weekly earnings (after the first four weeks of incapacity) as the earnings of the claimant in the most recent year (as defined in s 2 of the Income Tax Act 1976) 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. The appellant did not claim to have earnings as an employee, and the only assessment to be made was under s 41 of the Act. Incapacity commenced at the time of the injury, so that the most recent income year had to be determined as at 9 September 1994. Section 41 of the Act provides as follows: - 2 - 41. Calculation of weekly earnings where earnings are solely earnings other than earnings as an employee 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 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 four weeks next following the sixth day after the day on which the incapacity first commenced ... (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 2 of the Income Tax Act 1976) 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. . . ... "Income year" and "year" are defined in s 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 3 1st day of March, both of these days being included. In accordance with those definitions, the year to be taken in order to establish weekly earnings under s 41 of the Accident Rehabilitation and Compensation Insurance Act 1992, was the year ended 31 March 1994. The appellant had a balance date of 31 October, so the financial accounts showing her income for the year ended 31 March 1994 were her accounts for the year to 31 October 1993. The Corporation had been provided with those accounts and they showed an income of $130,699.50 being the appellant's taxable income for the year in question. 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 Regulations under this Act. "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 - 3 (b) If the person were to suffer any incapacity, the person would cease to derive as a consequence of such incapacity, - after deducting 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. During the income year to 31 October 1993, the appellant was engaged in the business of operating a rest home or retirement home and also received some rental income. That business was sold before the appellant's accident refurbishing and selling residential property for profit. She informed the Corporation that she did a good deal of manual work in the latter business and she submitted that she received earnings which qualified for assessment under the Earnings Definitions Regulations 1992. The Corporation refused to make any assessment of weekly earnings on the basis of the new business. There is a good deal of material on the file dealing with an argument as to whether the business was merely property speculation with no input by personal exertion, or whether it was property development dependent on personal exertion. The Corporation did not investigate the question of personal exertion in relation to the property business because it was not carried on during the year ended 31 October 1993 and was not relevant to calculation of weekly earnings. The year to be taken into account is clearly defined under s 41 and there is no basis for the Corporation to take account of any subsequent period during which the appellant may have received earnings which were partially dependent on personal exertion. The appellant's assessable income for her tax year to 31 October 1994 cannot be used for computation of weekly earnings for earnings related compensation. The evidence at the review hearing related to the income year to 31 October 1994, even though it was irrelevant, and the appellant's advocate proceeded with the same argument on the hearing of the appeal. On the appeal, counsel for the respondent dealt with the statutory and regulatory provisions and, in relation to the accounting year to 31 October 1993 submitted that the appellant's income was not based on her personal exertions, except perhaps to the extent that she might have had to employ replacement labour at the rest home, which would now be an unreal exercise in view of the fact that the rest home was sold 11 months before the appellant's incapacity. Because the appellant was still focusing on the wrong year, I invited the parties to provide further written submissions to enable the appellant to refer to any qualifying income during the accounting year to 31 October 1993. A further brief submission has now been received from the appellant's representative, but it is of no help, because it still relates to the wrong year. A difficulty in this case is that the appellant's real argument has been put to one side and ignored. Her solicitors, who did not represent her on the appeal, advanced her claim on the basis of the correct year of assessment and on the basis that she derived assessable income from personal exertions from the rest home business. Corporation staff then noted the file: - 4 - "March 1994 is most recent year which will include rest home income to October 1993. But as per Regs this income did not cease because of the incapacity but because she sold the business. Therefore what is the actual financial loss incurred because of the incapacity which should be compensated for." On 16 December 1994 the Corporation wrote to the solicitors noting that the appellant's income did not cease because of the incapacity but because the business was sold. The solicitors replied to that letter and disputed the Corporation's view. On 6 January the appellant's accountants wrote to the Corporation, agreeing with the view of the Corporation and stating: ... we consider the personal exertions of Mrs Jarden in the year immediately preceding the accident to he relevant in determining compensation under Section 41 of the Act. We do no consider that there can be a loss of earnings where a person does not render personal exertions to a business at the time of the accident as any reduction in business earnings could not be related to incapacity." Surprisingly, that view of the regulations has determined the outcome of the appellants claim until now. On the appeal no argument was addressed concerning a different interpretation of the regulations, except to advance the general submission that the result is unfair to the appellant. The appeal proceeded on the basis that there was no evidence of income dependent on personal exertions in the accounting year to 31 October 1993 On examining the file more closely, it seems to me that the appellant has never accepted that there was no income dependent on personal exertions in the year in question, but has only acquiesced in an interpretation of reg 2 that excludes the rest home income because the income did not cease by virtue of incapacity. The application for review was filed by the appellant's solicitors who apparently took no further part in the review. The question on review as they put it was: "The decision of the Corporation ... was wrong in fact and law in that it failed to assess the claimant's Earnings Related Compensation on the basis of her earnings for the last income year being the year ended 31 October 1993. That is the relevant year for the claimant. That income year also represents her usual income derived from her personal exertions. We attach as evidence a copy of that letter from the claimant's accountant dated 30 January 1995. Seek the following result as a consequence of this Review: A reassessment of the claimant's Earnings Related Compensation so that it is based on her income for the relevant income year being the year ended October 1993." The transcript and the Review Officer's decision indicates that the review was not argued on the basis of the ground stated in the review application, that is to say on the basis that the factual issue concerned the income to 31 October 1993. Obviously there is an argument that the test to be applied by virtue of the words "if the person were to suffer any incapacity, the person would cease to derive [the income] as a consequence of such incapacity" is a test that can be applied independently of any supervening reasons for the claimant ceasing to derive the income. It is a test that is capable of being applied to the nature of the income when it was being derived. In the course of this appeal the respondent has not advanced the argument that was adopted by the Corporation. The interpretation question has not been raised at all because of the way in which the claimant's representatives had advanced her claim. - 5- While there is a viable interpretation of the regulations that is favourable to the claimant in this case, it does not automatically follow that proof of the claim is straightforward. The claim cannot be established merely by identifying business costs that the claimant incurred because of her injury. The claimant would need to identify income falling within the Earnings Definitions Regulations. That would probably require an analysis of the income earned in the year in question and evidence to establish what part of the income would not have been earned if the appellant had been incapacitated. The factual questions would undoubtedly be difficult. The appellant has provided no material whatever to establish a claim of that kind. This appeal could be disposed of in either of two ways: 1. By dismissing the appeal on the basis that the appellant has not shown the Review Officer's decision to have been wrong. 2. By allowing the appeal and referring the matter back to the Review Officer to determine the question raised in the application for review relating to the year to 31 October 1993. The first course might be justified on the basis that the appellant has never provided any evidence to enable the Corporation to assess earnings other than as an employee and has neglected to address the issues on review or on appeal. The second course may be necessary in order to avoid an injustice by refusing the claimant a remedy that might be available to her. In either case, this Court is not in a position to decide on the correct interpretation of the regulations because the point has not been argued. It should not be overlooked that the Corporation has adopted a view of the regulations which might be incorrect. Counsel for the respondent may be prepared to concede that the interpretation formerly adopted by the Corporation was wrong, otherwise the matter still requires argument. Before disposing of the matter I invite counsel for the respondent and the advocate for the appellant to file a joint memorandum within 28 days from receiving this decision. If that is not possible, then each party can file a separate submission as to the manner in which the appeal should be determined. DATED at WELLINGTON this lat day of June 1997 D A Ongley District Court Judge