Browne v Accident Rehabilitation and Compensation Insurance Corporation

IN THE DISTRICT COURT Decision No. 58 /95 AT WELLINGTON DCA No. 116/94 UNDER The Accident Rehabilitation and Compensation Insurance Act 1992 AND IN THE MATTER of an appeal pursuant to 46/94 0578. Section 91 of the Act BETWEEN R.S. BROWNE APPELLANT AND THE ACCIDENT REHABILITATION AND COMPENSATION INSURANCE CORPORATION RESPONDENT Heard at Auckland on: 9 December 1994 Further submissions dated 22 March 1995 and 29 March 1995 The appellant in person N.P. Lucie-Smith as counsel for the respondent Date of Decision: 26 May 1955 RESERVED DECISION OF JUDGE J. W. IMRIE I have decided to revoke the decision of the Corporation and allow the appeal. 2. Introduction: The issue in this appeal is the calculation of the appellant's earnings pursuant to s. 42 of the Act for the period 2 to 29 December 1993. The appellant was injured on 24 November 1993 and was entitled to weekly compensation for a period of incapacity. At the time of the injury the appellant was a self-employed real estate business broker paid commission. He had become self-employed on 1 February 1993. Prior to 1 February 1993 the appellant was an employee of Challenge Realty Limited. His earnings for the year ended 30 November 1993 averaged $749.86 and for the year ended 31 March 1993 averaged $908.84 per week. In assessing weekly earnings the Corporation applied s.42 of the Act which provides a formula for calculation of weekly earnings, where an earner had earnings both as an employee and other earnings during the twelve months before the commencement of the incapacity. The Corporation assessed total average weekly earnings as $315.41. The appellant applied for review of this decision. The Corporation's decision was upheld by the Review Officer. The Review Officer said:- "By virtue of s.40(2)(b) the Corporation has, I believe, correctly calculated the claimant's entitlement and that element of each weekly compensation based on the figure of $11,569.42 divided by 52 and by virtue of s.41(2)(b) the Corporation has also reapplied that section to the claimant's income as a self-employed person. 3. On application of the facts to the legislation, the claimant's earnings as a self-employed person can only be considered within the previous financial year verified by returns to Inland Revenue. Consequently, the Corporation has calculated the claimant's entitlement to weekly compensation correctly and its decision is confirmed." Mr Browne appealed against that decision. In his notice of appeal he said that he was entitled to compensation based on twelve months' earnings but had received compensation based on only four months' earnings. Appeal Hearing: At the hearing of the appeal on 9 December 1994 Mr Browne made verbal submissions. He said the appeal was against the way the Corporation had assessed the amount due to him. He said the assessment was based on four months earnings rather than twelve months. He could not accept that as he said he was earning for a full twelve months before the accident. He said there was no argument as to either the amount of his earnings or the time he was off work. Mr Browne presented the following summary of his earnings:- "Date of accident 24th November 1993 Effective claim 2/12/93 to 29/12/93 (loss of earnings) Earnings 12 months immediately prior to accident Employer Period Gross Earnings Challenge Realty 26/1 1/92 to 31/12/92 $1 1,569.42 4. Clyth Macleod Ltd 1/2/93 to 31/3/93 $ 4,831.60 Clyth Macleod Ltd 1/4/93 to 30/11/93 $22,592.00 Total $38.993.02 Divide x 52 $ 749.86 pw x 80% 599.89 Amount claimed x 4 wks $ 2.399.56 Gross less received Gross $ 1,009.32 Balanced claimed gross $ 1,390.24 Earnings previous year April 1992 to March 1993 $47,259.62 Earnings certificates attached/available Divide 52 = $ 908.84 p.w. x 80% = $ 727.07 x 4 wks = $ 2,908.28 Less rec gross = $ 1,009.32 = $ 1.898.96" Mr Lucie-Smith presented written submissions relating to s.40(2)(b), 41 (2)(b) and 42(2) (b). Following further consideration I had the Registrar write to Mr Lucie- Smith asking him to clarify the following point:- "The Review Officer's decision and your submissions related to the question of Mr Browne's entitlement to compensation under s.40(2) (b), s.41 (2)(b) and s.42(2)(b), that is after the four weeks next following the sixth day after the day on which the incapacity occurred. The incapacity occurred on the day of the accident i.e. 24 November 1993, and the note presented by Mr Browne at the hearing suggests that his claim for loss of earnings covers the period 2 December 1993 to 29 December 1993. 5. That period falls within the four weeks next following the sixth day after the day on which the incapacity occurred. Would you please advise the Judge:- 1. Did the period of incapacity end on 29 December 1993? 2. If so, are ss. 40(2)(a), 41(2)(a) and 42(2)(a) the relevant sections? 3. If so, and you wish to make further submissions, would you please file and serve them within fourteen days. 4. If not, when did the period of incapacity end? Please send a copy of your reply direct to Mr Browne. I enclose a copy of the letter I have sent to Mr Browne." At the same time I had the Registrar write to Mr Browne as follows:- "I enclose a copy of a letter I have sent to Mr Lucie-Smith, solicitor for the Corporation. You will see that Mr Lucie-Smith is to send to you a copy of his reply. If you wish to reply to Mr Lucie-Smith's letter or submissions, would you please reply to me in writing within ten days of receiving them and send to Mr Lucie-Smith a copy of your letter to me." Mr Lucie-Smith filed further submissions dated 22 March 1995 and sent a copy to Mr Browne. 6. In his further submissions Mr Lucie-Smith said:- "1. Your Honour has issued a minute inviting further submissions to the following - 'Did the period of incapacity end on 29 December 1993?' The answer appears to be that the period of incapacity ended on 30 December 1993. It is not entirely clear, but the last medical certificate on the respondent's file is dated 16 December 1993 and certifies the appellant unfit for work for 14 days 'from end of last certificate'. Whilst it is not clear, it appears the date of the last certificate takes effect from 16 December 1993. 2. As a consequence, the correct provisions for assessing the appellant's 'earnings as an employee' and 'earnings other than as an employee' fall to be determined under $40(2)(a), $41 (2)(a) and $42(2)(a) as the appellant was only incapacitated for the period 4 weeks immediately following the 6th day after the day on which incapacity first commenced. 3. Dealing with those provisions where an earner has earnings as an employee and earnings other than as an employee, $42(2)(a) requires the respondent to have regard to the appellant's: (a) earnings as an employee during the 4 weeks immediately before incapacity commenced as calculated under $40(2) (a) of the Act, and (b) earnings calculated under s41 of the Act. 4. In the 4 weeks immediately before incapacity commenced, the appellant had no earnings as an employee and therefore s40 becomes irrelevant. 5. In order to determine the appellant's earnings other than as an employee, $41 (2) provides: 7. 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 6th day after the day on which the incapacity first commenced, the greater of (i) 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; or (ii) The amount of $245 a week, or $196 a week in respect of any period before the earners 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 this Act;' 6. The appellant's earnings other than as an employee in the year ending 31 March 1993, being the most recent income year (as defined in s2 of the Income Tax Act 1976) last ended before the commencement of the period of incapacity as shown in the income tax return is $4,831.60. 7. Section 41 (2)(a)(i) requires that total income to be divided by 52, being the number of weeks in the income year, giving rise to an average of $92.92. Because this is less than the deemed minimum of $245 per week set out in $41(2) (a)(ii), then it is accepted the appellant's weekly earnings must be $245 per week. The $245 minimum figure had been increased to $248.36 pursuant to Regulations 4 of the Accident Rehabilitation and Compensation Insurance Indexation Regulations 1992. 8 . 8. In all other respects the respondent relies on submissions presented at the hearing regarding the meaning of 'income year' as defined in the Income Tax Act. 9. The appellant's weekly earnings entitlement was assessment at the minimum of $248.36 as updated for the period 2 December to 29 December 1993 and therefore the respondent's original assessment of weekly earnings is correct and the appellant has no further entitlement to a greater sum of weekly earnings." It is appropriate to set out some of Mr Lucie-Smith's submissions made at the hearing on 9 December relating to ss. 40(2)(b), 41(2)(b) and 42(2)(b) because they are also relevant to ss. 40(2)(a), 41(2)(a) and 42(2)(a). In respect of s.40(2)(b) Mr Lucie-Smith said that as regards the appellant's earnings as an employee in the previous twelve months, the Corporation is required to take account of those earningss and average them over the 52 weeks. Even if an employee works only one month out of twelve, it is his earnings as an employee divided by 52 that are taken into account. In respect of s.41 (2)(b) Mr Lucie-Smith said:- "Income year" is defined in the Income Tax Act to mean:- "... In respect of the income of any person, means the year in which that income has been derived by him." "Year" is also defined in the Income Tax Act to mean:- 9. "...A year commencing on the Ist day of April and ending on the 31st of March, both of these days being included." The most recent income year before the period of incapacity for the appellant was the year ended 31 March 1993. The Corporation has spread the earnings other than as an employee of $4,831.60 over the 52 weeks of the income year. He submitted that the number of weeks of the income year amounts to 52 for Mr Browne. Mr Lucie-Smith examined the reasoning of the Court in ARCIC v Tarr [1994] NZAR 393 and submitted that it was invalid for three reasons:- "( i) First the effect of the provision is to deem the person's weekly earnings to be annual income divided by the number of weeks in the income year; (It is a deeming provision, it does not involve a discretion.) ( ii) Secondly the precise effect of section 40 in respect of an employee is to reach a result which will often be an injustice if the full year is not worked, regardless of the reason . If the employee takes time off work, or is unemployed for any part of an income year, the earnings as an employee are still averaged over the 52 weeks immediately before commencement of incapacity. It is therefore clear that the legislature did have in mind that result as far as employees are concerned. (ili) It is submitted that 'income year' in the Income Tax Act means 52 weeks except, as contended for by the appellant in Tarr, where in the case of a person in business on their own account the Commissioner of Inland Revenue has a discretion to allow a tax payer to have an income year that 10. is longer or shorter than 52 weeks. (There is no such provision in the Accident Rehabilitation and Compensation Insurance Act 1992)." Mr Lucie-Smith said that clearly the scheme of the 1992 Act and the Earnings Regulations is to look at income on an annual basis and get away from the problems endemic in ascertaining "average weekly earnings". To do this the 1992 Act imports the Income Tax Act in order to determine what is income on an annual basis for the purposes of assessing entitlement for long term incapacity. Mr Browne replied to Mr Lucie-Smith's further submissions by letter dated 29 March 1995 which reads:- "I have received a copy of Mr Lucie-Smith's further submission in reply to your letter dated 15th March 1995. I wish to confirm that the period of incapacity claimed for is from the 2nd December 1993 to 29th December 1993, a period of 28 days following the 6th day after the day of the accident as acknowledged and accepted by the A.C.C. My lack of understanding of the Accident Rehabilitation and Compensation Insurance Act 1992 leaves me to rely on Mr Lucie-Smiths and the Courts interpretation, however it is still my belief that it was the intention of the Act to provide a fair system to minimise hardship when incapacitated, by accident, by allowing compensation based on 80% of average weekly earnings. The hardship caused by my unfortunate accident may have been small by degree however it has been maximised by the shortfall of the compensation previously paid and the past 16 months to date of anxiety, seeking a fair result." 11. Consideration and Decision: I have considered delaying this decision until the High Court has heard the appeal against the decision in ARCIC v Tarr but I understand that no date has been fixed in the High Court yet. Accordingly, I will give my decision now and if need be it can be taken on appeal too. The assessment of the Corporation dated 7 January 1994 is as follows:- Earnings as an employee for the 52 weeks before incapacity Challenge Realty earnings 26.11.92-31.12.92 11,569.42 divided by 52 = $222.49 Earnings as an employee for the financial year ended 1993 $4,831.60 divided by 52 = $ 92.92 $315.41 Weekly compensation 80% of total $252.33 Section 42 reads in part:- "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. (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: 12. (A + B) = the number of weeks or part weeks during the 4 weeks immediately before the incapacity commenced during which those weekly earnings were earned - where - A is the person's earnings as an employee calculated under section 40(2)(a) of this Act multiplied by the number of weeks or part weeks during the 4 weeks immediately before the incapacity commenced during which those weekly earnings were earned: B is the weekly earnings of the person calculated under section 41 of this Act multiplied by the number of weeks or part weeks during the 4 weeks immediately before the incapacity commenced during which weekly earnings were earned other than as an employee: (b) In respect of any period of incapacity after the period referred to in paragraph (a) of this subsection, the total of Mr Browne comes within s.42(1) as he was an earner immediately before the commencement of the incapacity and had both earnings as an employee and earnings other than as an employee during the twelve months immediately preceding the commencement of incapacity. Mr Browne's case also comes within s.42(2)(a) because the period in question, 2 December to 29 December, comes within the four weeks next following the sixth day after the date on which the incapacity first commenced. 13. One of the difficulties in sections 40, 41 and 42 is that s. 42 endeavours to use in combination ss. 40 and 41. However, as will be seen s.40(1) says that section does not apply to persons who had earnings other than as an employee and s.41 (1) says that section does not apply to persons who had earnings as an employee during the twelve months immediately preceding the commencement of the period of incapacity. Those provisions indicate that the sections might not work together. Section 40 and 41 use different periods for the calculation of weekly earnings. This creates difficulties when an attempt is made in s.42 to combine them. It is not necessary to give examples of those difficulties. They have arisen and will arise case by case. In the formula in s.42(2)(a) A requires reference to s.40(2)(a) and B requires reference to s. 41 (2)(a). Section 40 reads in part:- "40. Calculation of weekly earnings where earner has earnings solely 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, 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. (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 commenced, the earnings as an employee during the 4 weeks immediately 14. before the commencement of the incapacity divided by the number of full or part weeks of remunerated employment as an employee during that period: (b) In respect of any weekly period of incapacity after the period referred to in paragraph (a) of this subsection ..." Mr Browne had no earnings as an employee during the four weeks immediately before the commencement of the incapacity. He was self- employed at that time. According A in the formula in s. 42(2)(a) is nil. Section 41 reads in part:- "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 4 weeks next following the sixth day after the day on which the incapacity first commenced, the greater of - ( i) 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) 15. 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 a week, or $196 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 this Act: (b) In respect of any period of incapacity after the period referred to in paragraph (a) of this subsection, . . . (3) For the purposes of this section, an income tax return shall not be taken into account and shall have no effect unless the return has been filed with the Inland Revenue Department and the return, and any related accounts, have not been influenced by the fact of the incapacity or the effects or likely effects of the incapacity on the income or business activities of the person." Mr Lucie-Smith advised in his further submissions that the sum of $245 should be $248.36 for the purposes of this case and I will use the sum of $248.36 from now on. With reference to s.41 (2)(a)(i) the most recent income year as defined by s.2 of the Income Tax Act 1976 last ended before the commencement of the period of incapacity i.e. before 24 November 1993, was the income year ended 31 March 1993. During the income year ended 31 March 1993 Mr Browne had earnings other than earnings as an employee only for the period 1 February 1993 to 16. 31 March 1993 because up to 1 February 1993 his earnings were as an employee (of Challenge Realty Lid). The case for the Corporation is that his earnings for this period of two months, i.e. $4, 831.60 should be divided by 52 i.e. the number of weeks in a income year giving a figure of $92.92. (Mr Lucie-Smith in his submissions at the appeal hearing pointed out that Mr Browne's net earnings were less than $4,831.60 for this two month period. I will refer to that later, but for present purposes it is sufficient if I refer to the figure of $4,831.60 as Mr Lucie-Smith did in his further submissions.) If the sum of $4,831.60 is divided according to s.41 (2)(a)(i) by the number of weeks in that income year which according to the Corporation was 52 the result is $92.92. Section 41(2)(a) provides that weekly earnings are the greater of $92.92 and $248.36 so the weekly earnings for B in the formula are $248.36. The result of the calculations under s.41 can be absurd. The calculations in this case mean that the appellant's income over only about eight weeks i.e. 1 February 1993 to 31 March 1993 (s.41) is divided by 52. To assess Mr Browne's entitlement to compensation on that basis is not fair. In ARCIC v Tarr the Court resolved the difficulty by using as the divisor for the purposes of s.41(2) the number of weeks worked to produce the earnings in question. The Court said at p.4:- 17. "The purpose of the section is to ascertain the figure which represents the earner's weekly earnings for the year preceding the year of incapacity. If, as in some cases, it is established that the earnings were the result of only 41 weeks work and the appellant requires the divisor to be 52, that would, in my view, create an injustice. The legislature would surely not have contemplated that the weekly earnings over a year preceding an injury should be anything less than the average actual earnings. To take the proposition to an absurdity, if an applicant for earnings related compensation had only been self-employed for a period of one month in the income tax year preceding an accident, could it be said that 1/52nd of these earnings constituted his weekly earnings in that year. I do not consider that the legislature intended such a proposition and, in my view, the correct interpretation of the section in this case is that the proper divisor is 41." I have already set out Mr Lucie-Smith's criticisms of the Tarr decision and it appears that the definition of "income year" was not referred to the Court. However, the Court's conclusion that the Corporation's case was unjust cannot be denied even having regard to the provision in s. 41(2)(a) for a minimum of $245 for weekly earnings. I do not overlook that there are other provisions in the Act and the regulations that produce unjust results, nor do I overlook that s.41 (2)(a)(ii) and s.43 provide for a minimum payment, but the Legislature cannot have intended to produce the result contended for by the Corporation. Before I turn to resolving that difficulty it is convenient to return to the formula in s. 42(2)(a) to point to another difficulty. 18. In the formula B is the weekly earnings calculated under s.41 i.e. $248.36 multiplied by the number of weeks or part weeks during the four weeks immediately before the incapacity commenced during which weekly earnings were earned other than as an employee. Mr Browne had earnings other than as an employee during all four of those weeks. He was a self- employed real estate business broker. Accordingly, B is $248.36 x 4 = $993.44. The formula then reads ASO + B$993.44 = $993.44 divided by "the number of weeks or part weeks during the four weeks immediately before the incapacity commenced during which those weekly earnings were earned." There were no weeks or part weeks during the four weeks immediately before the incapacity commenced during which the weekly earnings in question were earned. All the earnings which the Corporation wants to take into account in Mr Browne's case were earned during the income year ended 31 March 1993. On that basis the sum of $993.44 is divided by 0 that gives a figure for weekly earnings which is very high indeed and would entitle Mr Browne to compensation at the maximum rate. The Corporation might consider that unjust. There are a number of ways of resolving the difficulty that arises in this case. One course is to follow the course in the Tarr case, that is to use as the divisor the number of weeks over which the income was in fact earned. On that basis the total earnings of $4,831.60 would be divided by the total number of weeks in which that income was earned, that is eight. That gives a weekly figure of $605.30. 19. In fact as Mr Lucie-Smith pointed out at the hearing on 9 December 1994 the figure of $4,831.60 appears from information on the file to be incorrect because the appellant had expenses of $1,384.03 which reduced his net earnings to $3, 447.57. Divided by eight that gives weekly earnings of $430.94. The question of deduction of expenses was not argued before me but appears to be consistent with, for example, the definition of "earnings other than as an employee" for the purposes of the Earnings Definition Regulations (1992/64). However, the factual situation in the Tarr case differed from Mr Browne's case and it was concerned with s.41, whereas I have to consider s.42 as well. Another way of resolving the difficulty is simply by taking the appropriate figure as far as possible under s. 40(2)(a) or s. 41 (2)(a). It may be that ss. 40, 41 and 42 are designed to ensure that an earner who has not worked a full year does not receive compensation at a rate which is higher than his weekly earnings averaged over a year. However, the circumstances of Mr Browne differed from those of Mr Tarr. Mr Browne worked full years both up to the time of his incapacity and up to the end of the last income year before his incapacity. Accordingly, there is no reason why his entitlement to compensation should not be based on one of those periods. In his case there is no need for a sophisticated calculation to fix a fair basis for compensation. 20. To arrive at a fair basis for compensation I have considered which course most closely follows the legislation. An adaption of s.40(2)(a) to provide a fair result is difficult in Mr Browne's case because he had no earnings as an employee during the four weeks immediately before the commencement of the incapacity. His gross weekly earnings as a self-employed person for those four weeks averaged in excess of $1,900 and the Corporation might consider it unfair if his entitlement to compensation was based on that figure. Section s.40(2)(b) which deals with earnings after the period referred to in s.40(2)(a) also refers to earnings as an employee and Mr Browne had not had earnings as an employee since 1 February 1994. However, if all his earnings were taken into account for the twelve month period before the commencement of the incapacity, say on the figures available up to 30 November 1993, the average weekly earnings would be $749.86 as I have already set out. An adaption of s.41(2)(a) to provide a fair result would mean taking all Mr Browne's income for the year ended 31 March 1993 and dividing it by 52. That gives average weekly earnings of $908.84 as I have previously set out. That adaption of s.41 (2)(a) might be closest to the literal meaning of the legislation. However, the result fairest to both sides is achieved by using the figure of $749.86 as Mr Browne's average weekly earnings. That is arrived at simply by dividing his earnings for the year ended 30 November 1993 by 21. 52. That covers the period closest to the commencement of the incapacity. Mr Browne has indicated he would accept compensation on that basis. Conclusion: The decision of the Corporation is revoked. It should calculate Mr Browne's entitlement to compensation for the four weeks from 2 to 29 December 1993 on the basis of average weekly earnings of $749.86 ............. J.W. Imrie DCJ)