Bayliss v Accident Compensation Corporation

IN THE DISTRICT COURT HELD AT WELLINGTON Decision No. 35 /200 8 UNDER The Injury Prevention, Rehabilitation, and Compensation Act 2001 IN THE MATTER of an appeal pursuant to Section 149 of the Act BETWEEN JOHN BAYLISS of Te Awamutu Appellant (Appeal No. AI 75/07) AND ACCIDENT COMPENSATION CORPORATION a body corporate duly constituted under the provisions of the said Act Respondent Heard at Auckland on 21 November 2007 APPEARANCES: Mr R.H. Jerram for the appellant Mr D Tui for the respondent RESERVED DECISION OF JUDGE CADENHEAD THE ISSUE [1] Whether a decision of the Corporation dated 13 June 2006 is correct that the appellant is required to repay to the Corporation an overpayment of weekly compensation amounting to $9,673.16 on the basis that the bar to recovery provided by section 251(2) of the 2001 Act was not satisfied? [2] The Corporation's decision was upheld at review. The review officer in her decision of 15 December 2006 accepted that the overpayment had been received in good faith but that the appellant had not altered his position in reliance of the validity of the payment. Having made that finding the review officer considered it was not necessary to then consider whether it would be inequitable to require the repayment. I:JUDICIAL\CADENHJ\Accident Compensation\Baylissreserveddecision.doc G THE NARRATIVE OF FACTS [3] I substantially set out the narrative of facts provided by the respondent, because a reading of the file shows that it is accurate. [4] The appellant has cover for noise-induced hearing loss. The deemed date of accident is 7 July 2000. [5] The appellant is a shareholder employee with his wife in the company John Bayliss & Co. The business carried on is that of vegetation control contracting which entails the operation of heavy and noisy machinery. The appellant continued in his employment but was not able to undertake all the work he had previously done, by reason of his noise-induced hearing loss and associated tinnitus. (6] In discussions with the appellant it was agreed that he was able to continue with input into the business at a level of 10 percent. In a letter of 23 November 2000 the appellant acknowledged this to be so and he signed the following acknowledgment: As per discussion I, John Bayliss, am able to continue with input into the business at a level of 10 percent. This is for weekly compensation abatement purposes and I realise that the weekly compensation will reflect this current input. [7] The appellant's shareholder salary for the year ending 31 March 2000 was $14,013. As these earnings fall below the minimum rate, the appellant's weekly compensation was calculated on the minimum prescribed rate. The assumed capacity to work at a level of 10 percent meant there was no abatement applied. [8] Shortly prior to the appellant suffering the noise-induced hearing loss his company had entered into a substantial contract with Transit NZ to maintain the verges of some 200 km of state highway. In transpired then that, for the year ending 31 March 2002, Mr Bayliss' shareholder salary was $26,837. The Corporation learnt of this shareholder salary when it obtained the information from the IRD in June 2003. In the result there was an overpayment of weekly compensation in the sum of $9,673.16. baylissreserveddecision.doc 2 [9] This overpayment was established and advised to the appellant in a decision of 21 July 2003. That decision was subsequently upheld at review in a decision dated 20 March 2006. [10] The Corporation was then required to make a decision pursuant to section 251 of the Act. To that end the appellant completed a statement of his assets, debts, income and expenses and his solicitor presented a submission dated 26 May 2006. [11] The Corporation, having considered the evidence and the submission, issued its decision of 12 June 2006 requiring repayment. The decision was founded on both section 251(2)(a) and (b). It was accepted that the appellant did not intentionally contribute to the overpayment but that he did not receive the payment in good faith. It was further considered that an alteration in position such as to make it inequitable to require repayment was not demonstrated. [12] It is noted that the appellant gained vocational independence in April 2003. The assessment disclosed a significant capacity for a range of jobs. LEGISLATION AND LEGAL PRINCIPLES [13] Section 251(2) of the 2001 Act provides: (2) The Corporation may not recover any part of a payment in respect of entitlements that was paid as result of an error not intentionally contributed to by the recipient if the recipient: - (a) received the payment in good faith; and ( 6 ) has so altered his or her position in reliance on the validity of the payment that it would be inequitable to require repayment. [14] A claimant is not entitled to have his or her debt remitted unless the following criteria stipulated under section 251 are satisfied: [a] The debt did not arise as a result of an error intentionally contributed to by the claimant; [b] The claimant received the debt in good faith; baylissreserveddecision.doc 3 [c] The claimant altered his or her position in reliance on the validity of the overpayment; and [d] It would be inequitable to require repayment. [15] The onus is on the appellant to establish, on a balance of probabilities, that the above criteria under section 251, has been satisfied. Karl (CIV 2004 - 485-800) held that because of the statutory scheme the wider Lipkin Gorman principle is not available. The respondent does not need to seek an obligation to repay in the law of restitution. The statute creates the obligation and the overpayment is described as a debt. The legislation clearly delineates the scope of the defence, which is set out in the four elements above. Intentional contribution to the error [16] I find that the appellant did not intentionally contribute to the occurrence of the overpayment. Good faith [17] In Restitution - Commentary and Materials, Grantham and Rickett pp 434- 437 reference is made to Mercedes-Benz (NSW) Pty v National Mutual Royal Savings Bank Lid (unreported May 1992, Supreme Court of NSW 50549/90), where Palmer J said: It follows that, upon the principles which I have enunciated, the only basis upon which MB could succeed in its attack on NMRB's change of position defence is if NMRB received or disposed of the relevant payments with knowledge of facts which would reasonably have raised the suspicion that the payments had been made by fraud or mistake, so that it was put upon enquiry. ... Those considerations in the case of fraudulent or mistaken payment include, firstly, whether there is any part of the payment transaction known to the recipient which, on its face, calls into question whether the payment is fraudulent or mistaken; and secondly, whether the recipient , in the light of the surrounding circumstances of the payment transaction known to him, is reasonably required to investigate, the questionable factor, or is reasonably justified in failing to investigate, the questionable factor. [18] Palmer J's analysis was upheld by the Court of Appeal (NSWCA 40583/90). baylissreserveddecision.doc [19] Similarly, in Niru Battery Manufacturing Co v Milestone Trading Lid [2002] EWHC 1425 Moore-Bick J analysing the meaning of "good faith" thought that it was capable of embracing a failure to act in a commercially acceptable way and could be sharp practice of a kind that falls short of outright dishonesty or dishonesty itself. He did not think that a person who has, or thinks that he has, good reason to believe that the payment was made by mistake would often be found to have acted in "good faith" if he pays money without further making enquiries of the person he received it from. 20] This type of reasoning can be seen in the case of Gear v ACC (250/03) where the claimant was overpaid weekly compensation for a period of years. The amount, which appeared in his bank account, far exceeded that which he had been notified of in decision letters. At paragraph 17 of the judgment Barber DCJ sets out:- "The appellant must have been aware that he was receiving compensation payments in excess of his entitlements. The overpayment was about 25% more than net entitlement. A reasonable person in the appellant's position should have realised that he was not entitled to that and should have contacted the respondent's office and inquired about the matter...." [21] Similarly, Restitution- Commentary and Materials pp 434 identifies another area of lack of "good faith" as where the defendant has paid or acted upon the amount received with knowledge that the plaintiff is putting the overpayment in question. On the facts of this case the reviewer has held that the appellant acted at all material times in good faith. Generally, the issue of good faith will be one that goes to credibility and in this appeal that is the case. Altered position in reliance on the validity of the overpayment 22] The respondent submits that the appellant has not established that for the period he received the overpayment, he altered his position in reliance on the validity of the overpayment. There is no evidence that the appellant committed himself to any financial transactions in the relevant time period, on the basis of receipt of the payments. It is actual reliance on the validity of the overpayment that is important. Further, that reliance must be reasonable. However, section 251 is specific that the reliance that causes an alteration of position must be connected to the validity of the overpayment. baylissreserveddecision.doc 5 Inequitable to require repayment [23] In Karl (supra), an issue was whether the appellant had available to her an equitable change of position defence. [24] His Honour Justice Miller held that expenditure on daily living may be an alteration of position for the purposes of s.372(2)(b) of the Act, depending on the circumstances. That issue was referred back to the District Court, for the hearing of further evidence. [25] Miller J did make some comments as to the question of whether repayment is inequitable for the purposes of s.372(2)(b). [26] Miller J noted: (53] I find that the question whether the payment is then equitable for purposes of s.372 may involve balancing of the equities (54] It does not follow that the Court is required to navigate some formless void, for two reasons. First, the statute requires a direct connection between the receipt of the overpayment and the matter relied on to show repayment is inequitable. The defendant must establish an alteration of position such that it would be inequitable to order repayment. [55] It follows that considerations such as relative wealth and the defendant's poverty (unless connected to overpayment) are irrelevant: Grantham and Rickett Enrichment and Restitution in New Zealand (Hart Publishing, 2000) at p. 337-9. In the ordinary way, a defendant relying on the statutory defence must show that to order repayment would leave the defendant in a worse position than if payment had never been made: MacMillan Builders (above at p17), Scottish Equitable (above at p. 832, [56] Second, fault is unlikely to be a significant consideration. It is the alteration of position that must make repayment inequitable. On the defendant's ride, the Court reaches the point of balancing the equities only if the defendant received the money in good faith and did not intentionally contribute to the error. On ACC's side, the usual explanation is likely to be mundane clerical error, as in this case. There was a tendency in the appellant's argument to attach fault to ACC because repayment is burdensome, which is to confuse the error and its consequences. (57] I observe that I see no reason to exclude ACC's subsequent proposals for repayment when balancing the equities. ACC should have appropriate incentives to compromise. In some cases, ACC could recover the overpayment over time by deduction from future payments. In others, ACC may be willing to compromise, or to delay recovery until an asset is sold or an estate is wound up. baylissreserveddecision.doc 6 [27] The principles may be summarised as follows: [a] The appellant must establish an alteration of position such that it would be inequitable to order repayment. [b] Considerations such as relative wealth and the defendant's poverty (unless connected to overpayment) are irrelevant. [c] The appellant must show that to order repayment would leave the appellant in a worse position than if payment had never been made. [d] Fault is unlikely to be a significant consideration. It is the alteration of position that must make repayment inequitable. [e] There is no reason to exclude ACC's subsequent proposals for repayment when balancing equities. [28] There has been one decision in the District Court following Karl that being Cossey (32/05). In that case, which did involve expenditure for day to day purposes, Judge Ongley determined that the question to be answered was whether the appellant's position is so changed that she will suffer an injustice if called upon to repay (paragraph 14). He noted that the question called for only a limited consideration of financial ability to repay. Ultimately he held that there was no evidence of actual hardship connected with the circumstances of repayment. When it was found that the payment was made in error she was returned to her position of pre-existing indebtedness, together with a new debt arising entirely from living expenses. There was a lack of evidence as to her resources. The appeal was dismissed. THE SUBMISSION OF THE APPELLANT [29] At the hearing Mr Bayliss confirmed that his understanding was that provided he was medically certified as being incapacitated he would continue to receive weekly compensation. At no time was he advised that if he earned money in excess of his weekly compensation he would not be entitled to receive such weekly compensation. [30] Mr Bayliss had no way of knowing what the company's financial position was until the accounts for the year ending 31 March 2002 were prepared. Had he baylissreserveddecision.doc 7 been aware that he may be required to refund weekly compensation if earnings exceeded weekly compensation then he would have instructed his accountant to provide regular information which could have been forwarded to ACC. [31] In good faith Mr Bayliss obtained medical certificates, received weekly compensation paid into the company account. [32] Throughout the financial year ending 31 March 2002 Mr Bayliss' injury caused him immense problems. He suffered from continual dizziness, ringing of the ears and headaches. It was a real effort for him to be involved in his business but he had no choice other than to try to be on site to oversee and administrate and make sure contracts were adhered to, to customer satisfaction. [33] Mr Bayliss deducted $800.00 per month for groceries and day to day living expenses, he and his wife lived frugally and were heavily involved in that year in the health of their daughter aged 32 who had major health problems requiring hospitalisation. [34] Mr Bayliss allowed the income from ACC to be incorporated into the company account and the income formed part of the money available for weekly expenses. ACC payments were relied on to meet day to day living expenses involved in his daughter's care and his position was altered to the extent that reliance was placed on receipt of such weekly compensation. [35] Mr Bayliss was open and frank with ACC about what he was doing in terms of overseeing work involved with his company and the fulfilment of contracts that had been entered into prior to weekly compensation being received. The decision of the review hearing was the Corporation was not entitled to make a decision pursuant to s.251 until it had requested information from Mr Bayliss and properly considered his circumstances against the criteria set out in s.251(2). The ACC decision to require overpayment was quashed. [36] Mr Bayliss was given the opportunity to make submissions in respect of the matters set out in s.251 and a new decision was to be issued within four weeks of receiving Mr Bayliss' submission. baylissreserveddecision.doc 8 DECISION 12 SEPTEMBER 2006 BY ACC NOT TO CHANGE ITS DECISION [37] By letter dated 12 September 2006 to Mr Bayliss, ACC advised that it had decided not to change its decision. This occurred after a consideration of a submission from Mr Bayliss. [38] An application for review of this decision was filed. The application for review was dismissed. However, there was a finding that Mr Bayliss had received the overpayment in good faith but the view of ACC that Mr Bayliss had not altered his position in reliance on the validity of the payments made to him was upheld. GROUNDS FOR APPEAL AGAINST REVIEW DECISION 5 DECEMBER 2006 [39] The review decision accepted that ACC documents signed by Mr Bayliss were not sufficiently detailed to alert him to advise ACC of the contract price. Nowhere in the documents was it pointed out to Mr Bayliss of the need to advise ACC of any increase in income only an increase in his capacity to work. (There was no evidence that he did increase his capacity to work.) [40] Having made the above finding the review officer should have allowed the appeal because of the lack of knowledge of the Appellant stated in the preceding paragraph. [41] It is submitted that the application of s.251 is conditional upon the claimant having knowledge of the particular requirements under the Act. A review of the cases show that it is incumbent that the claimant has knowledge in a situation such as this of the requirements under the Act or it is presupposed that the claimant has such knowledge. Neither is the case here. [42] Not only did Mr Bayliss receive the payments in good faith but there is a specific finding that Mr Bayliss was not made aware by ACC that he was required to advise the Corporation of any increase in income nor advise ACC of the actual contract price. [43] Furthermore, the evidence of the appellant was that he relied on ACC weekly payments to meet his day to day grocery and expenses, that he altered his affairs on baylissreserveddecision.doc the basis of the income received which was incorporated into the income position of the company. [44] At the time ACC payments were commenced, Mr Bayliss and his wife were insolvent. They had lost everything due to financial problems caused by the disability and other factors. [45] The payments from ACC and the securing of the contract with Transit combined to allow the appellant to progress out of the financial difficulties he was in. ACC payments were used to meet day to day living expenses associated with the family including Mr Bayliss' very ill daughter and the rest of income declared by him at the end of the financial year was used for repayment of debt. [46] Mr Bayliss's position was altered to the extent outlined in reliance of the validity of payments and it would inequitable in the circumstances to require any repayment if in fact the Court goes as far as to consider this issue bearing in mind the failure of ACC to bring to Mr Bayliss' attention any requirement to advise the Corporation of an increase in income. THE SUBMISSION OF THE RESPONDENT [47] The requirements of section 251(2)(a)(b) are conjunctive. The Corporation may not recover the overpayment if the recipient has received the payment in good faith and has so altered his position in reliance on the validity of the payment that it would inequitable to require repayment. Good faith [48] The review officer found that the appellant had received the overpayment in good faith and hence section 251(2)(a) was satisfied. Notwithstanding that finding, the Corporation takes issue with it. However, I am satisfied with the findings of the review officer, who accepted the appellant's explanation and had not issue with the credibility of the appellant. He found that the appellant was not aware that he had an obligation to tell the respondent of the actual contract price. The review officer accepted that while the appellant may have known the contract price each month, he would not know for sure what his income was until the end of the year. baylissreserveddecision.doc 10 [49] I note the submissions of the Corporation but in the face of the credibility findings by the reviewer I reject those submissions on this issue. The reviewer had had the advantage of seeing and hearing the witnesses. I do consider the submissions are sufficient to show me that this finding was erroneous. Alteration of position and equity [50] As to the second limb, section 251(2)(b), the review officer applied it on the basis that it entailed two separate considerations, namely, first, whether there had been an alteration in position and if so, second, whether it would be inequitable to require repayment. Generally, however, the alteration of position and the claimed inequity should be applied as one. [51] Section 372(2)(b) of the Accident Insurance Act 1998, which is in the same terms as section 251(2)(b) of the 2001 Act, was considered by the High Court in The Estate of Karl v ACC (CIV 2004-485-800 Miller J 9 September 2004). The following propositions arise from The Estate of Karl. [52] The claimed inequity must arise from a change of position in reliance on the validity of the payment. The broader approach in Lipkin Gorman (applying the common law) that there need not necessarily be a change of position, does not apply under section 251 (refer paragraphs 25 and 27 Estate of Karl). [53] Expenditure on daily living may involve an alteration of position (refer paragraph 47 Estate of Karl) [54] However, such a change in position would not generally give rise to an inequity: "It is not ordinarily inequitable to order repayment of money spent on daily living if that is all the defendant can point to: . . . in such a case the defendant has enjoyed the full benefit of the overpayment". (Refer paragraph 33 Estate of Karl.) [55] Section 251(2)(b) is not divided into two constituent parts but provides a single test. (Refer paragraph 34 Estate of Karl.) baylissreserveddecision.doc 11 [56] The essence of an alteration of position is a deliberate course of conduct following receipt of the payment which course of conduct the recipient would not have undertaken but for receipt of the money. (Refer paragraph 46 Estate of Karl.) [57] Whether the repayment is inequitable may involving a balancing of the equities but this does not require the Court to navigate some "formless void" for two reasons: [a] First; the Act requires a direct connection between the receipt of the overpayment and the matter relied on to show payment is inequitable, thus for example considerations as to the relative wealth of the parties is irrelevant. The recipient must show that he or she is in a worse position than if payment had never been made. [b] Second; the question of fault is unlikely to be a significant consideration. (Refer paragraphs 53 to 57 Estate of Karl. ) [58] The appellant's claimed alteration of position is summed up at paragraph 31 of the appellant's solicitor's submission of 26 May 2006. (This submission, although intituled as a review submission, was presented to ACC prior to making the primary decision.) It is said that the compensation payments were used to meet day-to-day living expenses associated with the family including Mr Bayliss' very ill daughter and that the rest of the income was used for the repayment of debt. [59] There is no evidence that there is any increase in expenditure on day-to-day living - such evidence as there is suggests there was no such increase; indeed, the appellant submits that he lived frugally. There is no evidence of increased payments in respect of the appellant's daughter that were made in reliance on the payment. And there is no evidence that if such increased payments were made, this was a deliberate course of action taken in reliance on the validity of the overpaid weekly compensation. [60] It follows then that if the day-to-day living expenses remained the same, then the receipt of the weekly compensation payments meant that the appellant was able to repay more debt than would have otherwise been the case without the compensation payments. baylissreserveddecision.doc 12 [61] In effect, then, the appellant has substituted one debt for another, that is to say, he has reduced his debt to the bank or other creditors and in its place has a debt to the Corporation. This is not a change in position. [62] It cannot be said that the recipient is in a worse position than if payment had never been made. Indeed appellant would be better off with the ACC interest free debt of $9,673.16 than having a bank debt of that sum incurring interest, or an IRD debt of that sum incurring penalties and interest. [63] It would seem that a considerable tax liability the appellant had has been discharged - it is not shown in the statement of assets and liabilities. In this context it is noted also that the statement discloses secured and unsecured debt to the bank. Seemingly, the bank debt is in fact company debt secured against the home and yet the statement does not disclose the company as an asset. The company's financial statements show an increased net equity (taking into account bank debt) from $6,055 in the 2001 year to $63,090 in the 2002 year. [64] Even if the appellant did make increased payments on day-to-day living, it is not demonstrated that this was done in reliance on the overpayment. [65] Finally, even if it were demonstrated that there was a change in position in reliance on the payment, it is not shown that it would be inequitable to require repayment. As observed in Estate of Karl, ordinarily there will be no inequity in this circumstance. And any inequity must have a direct connection with the overpayment. DECISION [66] The core submission of the appellant was that that the application of s.251 is conditional upon the claimant having knowledge of the particular requirements under the Act. It is submitted that not only did Mr Bayliss receive the payments in good faith but there is a specific finding that Mr Bayliss was not made aware by ACC that he was required to advise the Corporation of any increase in income nor advise ACC of the actual contract price. [67] I accept the submission of the respondent that the requirements of section 251(2)(a)(b) are conjunctive. The Corporation may not recover the overpayment if the recipient has received the payment in good faith and has so altered his position in baylissreserveddecision. 13 reliance on the validity of the payment that it would inequitable to require repayment. [68] I find that the appellant did not alter his position on reliance on the validity of the payments made so that it would be inequitable to require payment. [69] A change in position would not generally give rise to an inequity: "It is not ordinarily inequitable to order repayment of money spent on daily living if that is all the defendant can point to: . . . in such a case the defendant has enjoyed the full benefit of the overpayment". (Refer paragraph 33 Estate of Karl.) [70] The essence of an alteration of position is a deliberate course of conduct following receipt of the payment which course of conduct the recipient would not have undertaken but for receipt of the money. (Refer paragraph 46 Estate of Karl.) [71] The appellant submits that that the compensation payments were used to meet day-to-day living expenses associated with the family including Mr Bayliss' very ill daughter and that the rest of the income was used for the repayment of debt. [72] There is no evidence that there is any increase in expenditure on day-to-day living - such evidence as there is suggests there was no such increase; indeed, the appellant submits that he lived frugally. There is no evidence of increased payments in respect of the appellant's daughter that were made in reliance on the payment. And there is no evidence that if such increased payments were made, this was a deliberate course of action taken in reliance on the validity of the overpaid weekly compensation. [73] It follows then that if the day-to-day living expenses remained the same, then the receipt of the weekly compensation payments meant that the appellant was able to repay more debt than would have otherwise been the case without the compensation payments. In effect, then, the appellant has substituted one debt for another, that is to say, he has reduced his debt to the bank or other creditors and in its place has a debt to the Corporation. This is not a change in position. [74] It cannot be said that the recipient is in a worse position than if payment had never been made. Indeed appellant would be better off with the ACC interest free debt of $9,673.16 than having a bank debt of that sum incurring interest, or an IRD debt of that sum incurring penalties and interest. baylissreserveddecision.doc 14 [75] For the reasons that I have given the appeal is dismissed. There is no order as to costs. DATED at We!! Wellington . this. ! ! . . day of february.. 2008 (J Cadenhead) District Court Judge baylissreserveddecision.doc 15