Guertjens v Accident Compensation Corporation

IN THE DISTRICT COURT AT WELLINGTON DECISION NO. 93/2007 UNDER The Injury Prevention, Rehabilitation and Compensation Act 2001 IN THE MATTER OF an appeal pursuant to section 149 of the Act (Appeal No. AI 343/06) BETWEEN PAUL GUERTJENS Appellant AND ACCIDENT COMPENSATION CORPORATION Respondent Hearing: 8 February 2007 Appearances: Mr N King advocate for appellant Mr S Hill for respondent Judgment: 18 May 2007 at 2:30 pm RESERVED JUDGMENT OF JUDGE D A ONGLEY [1] The issue in this appeal concerns the application of cl 40 of Schedule 1, Part 2 of the Injury Prevention, Rehabilitation, and Compensation Act 2001. The appellant's circumstances satisfied the requirements of cl 40, but not according to the manner in which cl 40 is usually understood and applied by the respondent. The respondent's interpretation of cl 40 involved the excluding of income in the relevant year if the claimant was not receiving income from that particular source immediately before his incapacity commenced. [2] Mr Guertjens was injured on 2 November 2002 when he was working as a plumber and was also occupied, with his wife, in his family farming partnership. Historically he had received income from both sources, but a rearrangement in the year ended 31 March 2002 resulted in his taking no income from his plumbing PAUL GUERTJENS V ACCIDENT COMPENSATION CORPORATION DC WN DECISION NO. 93/2007 18 May 2007 business. The plumbing business was operated by Paul Geurtjens Limited, so there was an ability to retain the 2002 income in order to distribute it in later years by way of dividend to shareholders. That was done for reasons of minimising tax liability and on the advice of the appellant's accountant. [3] The reason for taking that step was that the farming partnership received non- recurring income in the year ended 31 March 2002 when it sold its stock to a family trust. The market value set for the sale of stock achieved a profit for the year that would have caused a personal tax problem if the farming income had been combined with income from the plumbing business. [4] The result was that, in the year ended 31 March 2002, Mr Guertjens had income from self-employment (the farming partnership) but had no income as shareholder employee (the plumbing business). Those factors are crucial in the discussion of cl 40 which will follow. [5] It is also to be noted that in the year ended 31 March 2002 his self-employment income was $39,079.30 and he paid his ACC levy on the basis of that income. [6] By the time of the appellant's injury in November 2002, the farming partnership no longer operated. After selling the stock before 31 March 2002, it had also disposed of the land to the trust in April 2002. Therefore, Mr Guertjens had no self- employment ( farming) income. He did have continuing income from the plumbing business as a shareholder employee, but he did not received that income in the form of "earnings as an employee" subject to source deduction payments, so his plumbing income in the year leading up to the injury was not eligible for calculation of pre-injury earnings. [7] Assessment of pre-injury earnings for calculation of weekly compensation was to be done primarily under cl 39 of Schedule 1, Part 2. That clause was substantially amended in 2005. As clause 39 stood in November 2002, Mr Guertjens' weekly earnings were to be calculated under subclause (4) by reference to his earnings as a shareholder-employee (plumbing) in the relevant year (ended 31 March 2002). The formula for calculation does not matter, the problem was that he had no earnings as a shareholder-employer in the relevant year, because the tax return of Paul Guertjens Ltd contained "nil" income to shareholders. [8] The relevant parts of cl 39 were as follows: 39 Weekly earnings if claimant had earnings as shareholder-employee immediately before incapacity commenced (1) This clause applies to a claimant who had earnings as a shareholder- employee immediately before his or her incapacity commenced (2) The weekly earnings of the claimant are the higher of - (a) his or her earnings calculated under clause 34 or clause 36, whichever is applicable; and b) his or her earnings calculated under subclause (3) or subclause 4), whichever is applicable. (3) . ... 4 ) This subclause applies to any period of incapacity after the 4 weeks described in subclause (3). The claimant's weekly earnings for any such period are the claimant's earnings as a shareholder-employee in the relevant year, divided by - (a) the number of weeks in the relevant year; ... [9] Because of the "relevant year" basis for the calculation, Mr Guertjens had no earnings as a plumber and fell to be paid only minimum weekly compensation. In practical terms, Mr Guertjens was continuously and productively employed with annual income of about $39,000 but the respondent considered that he fell into a gap in the assessment provisions because he had self employed earnings and had to be assessed on his previous years income in which those earnings had been suspended to make room for other more or less equivalent earnings. On that basis Mr Guertjens was assessed for minimum weekly compensation, and to add to this apparent injustice, he had his minimum weekly compensation abated by taking into account earnings from the farming business after 31 March 2002. Clause 40 [10] Clause 40 of Schedule I was as follows: 40 Weekly earnings if claimant as shareholder-employee had earnings as self-employed person in relevant year (1) This clause applies if the claimant - (a) had earnings as a shareholder-employee immediately before the commencement of his or her incapacity; and b) did not have earnings as a shareholder-employee in the relevant year; and c) did have earnings as a self-employed person in the relevant year; and d) had been employed continuously even though the claimant changed from receiving earnings as a self-employed person to receiving earnings as a shareholder-employee. (2) The claimant's weekly earnings must be calculated under clause 39(3) and (4) using the claimant's earnings as a self-employed person in the relevant year. [11] The commentary in Brookers Accident Compensation, states that this clause explains how to calculate weekly earnings for a person who had been employed continuously but had changed from receiving earnings as a self-employed person to receiving earnings as a shareholder-employee. That is also the view taken by the respondent, but with the important qualification that "employed continuously" means employed continuously in the same mode of employment, and the "change" from earnings to shareholder income is a change occurring in the same employment. Clause 41 [12] In the nature of things a continuing mode of employment would be the area in which clause 40 is most obviously to be applied, but that is implied rather than expressly stated in clause 40. There may be problems where claimants have more than one self-employed occupation. The difficulty of multiple sources of income was covered by clause 41 as follows: 41 Aggregation of calculations for multiple employment situations (1) If a claimant would have more than 1 amount of weekly earnings from different employment situations because of the operation of any of clauses 34, 36, 38, or 39, the claimant's weekly earnings are calculated by doing the relevant calculations under those clauses separately and then aggregating the results. (2) However, a claimant's weekly earnings calculated under clause 34 or clause 36 must not be aggregated with the claimant's weekly earnings under clause 39, if the claimant's weekly earnings under clause 39 are his or her earnings under clause 34 or clause 36. 13] Clause 41 applied where there would be more than one amount of weekly earnings "from different employment situations". Those "different employment situations " appeared to refer to the statutory situations described in clauses 34, 36, 38 or 39, that is to say different categories rather than different jobs. Clause 34 referred to "employment with that employer", while clause 36 referred to "all employment that was not permanent employment", and clause 38 referred to "total of the claimant's earnings as an employee". It can be seen that some clauses contained their own aggregations and some depended on clause 41 for aggregation. Clause 40 income was not included for aggregation. 14] Self-employment is not so easily cast into separate calculations as is permanent employment with a single employer. By way of contrast, for permanent employment clause 33 required "the weekly earnings of the claimant, in respect of each permanent employer he or she had at that time, [to be] calculated separately under clause 34 and aggregated under clause 41". For claimants not in permanent employment, the corresponding clause 35 looks at "earnings as an employee (from all employment that was not permanent employment)". Clauses 37 and 38 relating to self-employed claimants do not contain any indication for separation of employment types. There is therefore no theme to be found in these provisions referring to separating out different types of employment. In one way or another, all relevant employment income is aggregated. [15] Returning to clause 39 which applies in the present case, there is no indication for separate employment types. The clause applied to "a claimant who had earnings as a shareholder-employee". The provision does not apply to earnings, but to a claimant who had those earnings. There is no formula equivalent to clause 33 requiring separate calculation and aggregation under clause 41. Clause 39 therefore appears to contain its own aggregation, by using one formula containing all earnings as a shareholder-employee. [16] This view of clause 39 would result in a claimant who received earnings as a shareholder-employee at the time of injury, having his weekly earnings assessed with reference to earnings as a shareholder-employee in the relevant year even where the income sources were from different forms of endeavour. That would have a result similar to the application of the self-employment provisions in clauses 37 and 38 and would seem logical and fair. A shift of dominant earnings from one endeavour to another would usually balance out. [17] Clause 40 is a provision modifying clause 39. It appears designed to avoid the unfairness that could result when a shareholder-employee has no equivalent shareholder-employee income in the "relevant year". Such a claimant is then treated in a similar way to a self-employed claimant, by applying the formula to self- employment income in the relevant year. Consistency would be achieved by applying clause 39 and clause 40 globally to earnings of the kind described, rather than compartmentally according to types of work. The respondent puts some reliance in interpretation on the words "even though the claimant changed from receiving earnings as a self-employed person to receiving earnings as a shareholder-employee", to suggest that clause 40 applies only to a change in the structure of earnings in a single job. The words can also be read to include the appellant's situation, where he changed from receiving earnings as a self-employed person in farming to receiving earnings as a shareholder- employee in plumbing. The section refers to change by the claimant, not a change in the character of the earnings. There is no compelling reason to read it in a narrow sense requiring the change to occur within the same kind of work. Furthermore, such an interpretation would invite difficulties when deciding whether the kind of work remained the same or not. [19] The weekly compensation provisions in Schedule I are designed to cover a variety of situations, sometimes resulting in clear unfairness. But the Court is not likely to sanction an unfair result where it is not clearly brought about by application of the statute. The purposes of the statute and the need for a generous rather than a niggardly interpretation, lean against a claimant being excluded when his claim for assessment of weekly earnings falls within the literal words of clause 40 as this case does. There is no clear indication in the Act that clause 40 should be read narrowly so as to apply only to one ongoing type of employment. It applies to a claimant whose earnings arrangements have changed. Clause 40 applies literally to the appellant whose earnings arrangements were that he had self-employment earnings in the relevant year, changing to shareholder-employee earnings by the time of his injury. [20] The fairness of such a result is reinforced by the points advanced by Mr King, that the appellant paid his ACC levy on his farming income, and that farming income appears to have been the source of two payments that were later applied in abatement of weekly compensation. The result does not confer any unfair advantage on the appellant. The reason for structuring his income was to avoid a peak in 2002 caused by non-recurring income. If he had not done so, his weekly earnings for calculation of weekly compensation might well have been more rather than less. [21] The respondent submitted that, for the purposes of calculating his weekly compensation, Mr Geurtjens was not employed continuously because by the end of 2002 the farm was operated by the Trust and he was not receiving any earnings as a result of self employment. The evidence of his 2002 self-employed income of $39,079 is uncontradicted. The closing transaction involved only the sale of stock while the shell of the farming business remained. The increased market price for sale of stock was part of the ordinary expectation of profit from the labours of farming. He continued working as a plumber. Clearly he was employed continuously, regardless of the restructuring arrangements. The argument that he was not self employed at the end of 2002 misses the point that cl 39 requires only that he had been employed continuously. It did not require him to be employed continuously specifically in the farming business, nor to be continuously receiving income in either of the businesses. [22] The respondent also submitted that if the Corporation took into account the farming income Mr Guertjens would receive entitlements based on a source that had ceased to provide him with income 7 months before the date of his incapacity. It was submitted that if the farm income were used to calculate weekly compensation, his loss through incapacity as a plumber would be misrepresented. That argument places unnecessary importance on the nature of the work producing income. It would require the division of a claimant's productive work into compartments, with a result that income from any discontinued compartment would have to be taken out of a relevant year calculation. That approach is narrow and unnecessary. In the case of a continuously self employed person there could be no justification for saying that his work had changed so that his relevant year income should not be used to calculated weekly earnings. [23] There is no need to put a shareholder-employee in a worse position. The same approach logically applies in the case of a shareholder-employee who had self- employment earnings. Clause 40 states that "weekly earnings must be calculated under clause 39(3) and (4) using the claimant's earnings as a self-employed person in the relevant year". A person who has income as a shareholder employee is subject to the calculation of relevant year income under cl 39(4). The same person, also having self-employment earnings, once again has earnings calculated under cl 39(4). There is no aggregation for multiple employment situations under cl 41. Therefore the calculation is to be done only once. The result is consistent in cases of shareholder employees or self-employed persons. 24] A problem is presented when the earnings provisions are regarded in light of the incapacity provisions. Mr Hill submitted that if, in the context of this clause, a claimant could rely on two different earning sources as the basis for determining weekly compensation, then a claimant could be compensated for a source of earnings for which the claimant still has capacity. In my view, that is an incidental by- product of applying the rules and should not affect interpretation of the clauses discussed above. The concept of incapacity concerns ability to engage in the work that a claimant was doing at the time of suffering personal injury. There are many situations in which the work at the time of personal injury might not be the same work that produced most of the claimant's assessable weekly earnings. In some cases the outcome might well favour the claimant. [25] There was a subsidiary question in this case concerning the abatement of weekly compensation by two payments received from the Trust. Apparently Mr Guertjens received the payments as a conduit for an employee. There was a dispute about whether the respondent could point to documentation identifying the payments. It now appears that there are relevant IRD records and Mr King was not able to advance the argument very far. The appellant's real complaint was that it would be manifestly unfair to exclude farm income for assessment of weekly compensation and then to include it for abatement. In view of my earlier findings, that problem has been overcome. I find that the appellant is caught with the consequences of structuring his affairs by receiving payments that purport to be in the nature of remuneration for work. [26] The appeal is allowed with the effect that all of the appellant's earnings as a self-employed person in the relevant year are to be taken into account in assessing his weekly earnings. [27] The appellant will have costs of $1,500 and reasonable disbursements Judge D A Ongley District Court Judge