Allianz Australia Insurance Ltd v Jenkins

The relevant legislation

1. This Court's jurisdiction derives from s 69 of the Supreme Court Act. A summons is required to be filed within 3 months of the date of the decision: Uniform Civil Procedure Rules 2005 (NSW), r 59.10. The summons was filed within time.
2. A person such as the Claimant is entitled to receive statutory benefits under the Act in respect of loss of earnings and loss of earning capacity. The Act provides for three separate periods of entitlement. The first period is the first 13 weeks after the accident. The second period is from weeks 14 to 78. The third period is from week 79.
3. Clause 7 of Schedule 1 defines pre-accident earning capacity as follows: "7 Meaning of 'pre-accident earning capacity' (1) Pre-accident earning capacity of an injured person means the weekly amount a person had the capacity to earn before the motor accident concerned in employment reasonably available to the person in view of the person's training, skills and experience. (2) If the amount of an injured person's pre-accident earning capacity cannot be determined, the amount is deemed to be the amount that is equal to 80% of the average weekly total earnings of adults in full-time employment in New South Wales last published by the Australian Statistician."
4. Section 3.6 relevantly makes provision for the first period in the following terms: "3.6 Weekly payments during first entitlement period (first 13 weeks after motor accident) (1) An earner who is injured as a result of a motor accident and suffers a total … loss of earnings as a result of the injury is entitled to weekly payments of statutory benefits under this section during the first entitlement period. (2) A weekly payment of statutory benefits under this section is to be at the rate of 95% of the difference between the person's pre-accident weekly earnings and the person's post-accident earning capacity (if any) for the first entitlement period. …" [Emphasis added.]
5. Section 3.7 relevantly makes provision for the second period in the following terms: "3.7 Weekly payments during second entitlement period (weeks 14-78 after motor accident) (1) An earner who is injured as a result of a motor accident and suffers a total … loss of earnings as a result of the injury is entitled to weekly payments of statutory benefits under this section during the second entitlement period. (2) A weekly payment of statutory benefits under this section is to be at the rate of - (a) in the case of total loss of earning capacity - 80% … of the difference between the person's pre-accident weekly earnings and the person's post-accident earning capacity (if any) after the first entitlement period. …" [Emphasis added.]
6. Section 3.8 relevantly makes provision for the third period in the following terms: "3.8 Weekly payments after second entitlement period (after week 78) (1) A person who is injured as a result of a motor accident and suffers a total … loss of earning capacity as a result of the injury is entitled to weekly payments of statutory benefits under this section after the end of the second entitlement period… (2) A weekly payment of statutory benefits under this section is to be at the rate of - (a) in the case of total loss of earning capacity - 80%... of the difference between the person's pre-accident earning capacity and the person's post-accident earning capacity (if any) after the second entitlement period. …" [Emphasis added.]
7. Section 3.9 relevantly provides: "3.9 Maximum weekly statutory benefits amount (1) For the purposes of this Division, the maximum weekly statutory benefits amount is $3,853. (2) If that amount is adjusted by the operation of this section, the applicable maximum amount is the amount as at the date the statutory benefit is payable. (3) The Authority is, on or before 1 October 2017 and on or before 1 October in each succeeding year, to declare, by order published on the NSW legislation website, the amount that is to apply, as from the date specified in the order, for the purposes of subsection (1). (4) The amount declared is to be the amount applicable under subsection (1) (or that amount as last adjusted under this section) adjusted by the percentage change in the amounts estimated by the Australian Statistician of the average weekly total earnings of adults in full-time employment in New South Wales over the 4 quarters preceding the date of the declaration for which those estimates are, at that date, available. …"
8. Part 7 of the Act, entitled "Dispute resolution" contains Division 7.3, which is entitled "Internal review". Section 7.9 entitles a claimant to request an insurer to conduct an internal review of a "decision about a merit review matter". In such circumstances, the insurer is obliged to conduct an internal review and notify the claimant of the results within 14 days of receipt of the request. Section 7.15 provides that a claimant or an insurer may apply to the proper officer of SIRA to refer the decision of a reviewer to a Merit Review Panel. Such a panel is obliged to review the decision and either confirm it or set it aside and make a decision in substitution for the original decision. Such a referral is subject to the "gateway" set out in s 7.15(3), namely, that the proper officer is to refer the decision to a panel only if the proper officer is satisfied that that there is reasonable cause to suspect that the decision determining the review was incorrect in a material respect having regard to the particulars set out in the application.
9. Pursuant to s 7.13(1), the merit reviewer, that is, the panel, is to decide what the correct and preferable decision is having regard to the material then before the reviewer. Section 7.13(4) requires the panel to issue a certificate to the parties setting out its determination and is to attach a brief statement to the certificate setting out the reasons for the determination.
10. Because of the reliance placed by the Panel on s 4.6(2) of the Act, it is also necessary to refer to Part 4 of the Act, which is entitled "Award of damages". Division 4.2 of the Act, entitled "Damages for economic loss", contains s 4.6, which relevantly provides: "4.6 Maximum for loss of earnings etc (1) This section applies to an award of damages - (a) for past or future economic loss due to loss of earnings or the deprivation or impairment of earning capacity, or (b) for the loss of expectation of financial support. (2) In the case of such an award, the amount (if any) by which the injured or deceased person's net weekly earnings would (but for the injury or death) have exceeded the maximum weekly statutory benefits amount under Division 3.3 is to be disregarded (even though that maximum weekly statutory benefits amount is a maximum gross earnings amount). …"

The background to the claim

1. The Claimant was born in 1958. On 8 January 2018, she was involved in a motor vehicle accident, as a result of which she suffered serious injuries. At the time of the accident she was working as a full-time cleaner in a nursing home. Her pre-tax (gross) weekly earnings were $893. This amount increased as a result of indexation to a weekly amount, as at the date of the merit review conducted by the Panel, of $918 gross, or $764 after tax (net). It was common ground that the claimant's earnings were equivalent to her earning capacity and that the accident has rendered the claimant totally incapacitated for work.

The first two periods of entitlement

1. In the period up to and including week 78 after the accident, the Insurer made payments to the Claimant of her net, that is, post-tax, earnings. The insurer withheld the amounts of PAYG tax, which it remitted to the Australian Taxation Office (ATO).

The dispute about the Claimant's entitlement in the third period

The issue in dispute

1. A dispute arose between the Insurer and the Claimant about whether the Claimant was entitled, under s 3.8 of the Act, to be paid 80% of her gross earnings (as contended by the Claimant) or whether her entitlement was limited to her net earnings (as contended by the Insurer). This question turned on the definition of "pre-accident earning capacity" in cl 7 of Schedule 1.

The ATO advice

1. On 30 November 2017, the Insurance Council of Australia obtained a written advice from the ATO as to whether weekly benefits paid in respect of the third period (week 79 and following) were taxable. The ATO advised that although payments made in respect of the first two periods were taxable, payments made in respect of the third period were not. The rationale for this distinction is plain from the following extract from the ATO advice: "Noting that periodicity of payments is not determinative, these distinct treatments reflect the underlying differing character of the statutory benefits under sections 3.6 and 3.7 versus section 3.8 of the Act, being that between income ("loss of earnings") and capital ("loss of earning capacity"). Considering the purpose and character of the statutory payments under section 3.8 of the Act and the method of calculation it is concluded that they are not of an income character."
2. Accordingly, it followed that the Insurer was obliged neither to withhold tax in respect of payments made in the third period, nor to remit monies to the ATO.

The internal review by Mr Davidson

1. As there was a dispute between the Insurer and the Claimant, the Insurer conducted an internal review as required by Division 7.3 of the Act. The internal review was conducted by a single merit reviewer, Mr Davidson, who published his decision on 26 August 2019. Mr Davidson reasoned that, as the word "net" did not appear in the Act or the extrinsic materials: "[The Claimant's] pre-accident earning capacity is to be calculated with regard to [her] gross income."

The referral to the Panel

1. The Insurer applied to the Dispute Resolution Service of SIRA for a review of Mr Davidson's decision by a Merit Review Panel under s 7.15(1) of the Act. A proper officer of SIRA accepted the application and referred the matter to the Panel.

The Panel's decision

1. On 4 December 2019 the Panel confirmed Mr Davidson's decision that the Claimant was entitled to be paid 80% of the gross indexed amount of her pre-accident earnings but did not adopt his reasoning. The Panel's decision is the subject of the Insurer's application for relief in this Court.
2. The Panel found that cl 7(2) of Schedule 1 was significant because average weekly earnings published by the Australian Statistician were expressed as "taxable gross weekly earnings". The Panel reasoned that if pre-accident earning capacity could not be determined, cl 7(2) would have the effect of deeming pre-accident earning capacity to be an amount equal to 80% of gross weekly earnings. The Panel considered that this "showed a clear intention of Parliament" that pre-accident earning capacity would be calculated on the basis of a claimant's pre-accident gross weekly earnings.
3. The Panel also found that Division 4.2 of the Act was consistent with statutory benefits being paid on a gross basis. It can be inferred that the basis for the Panel's reasoning was s 4.6(2), which makes reference to the "maximum weekly statutory benefits amount" prescribed by s 3.9 as being a gross earnings amount.
4. The Panel referred to Cullen v Trappell (1980) 146 CLR 1; [1980] HCA 10 (discussed below) and found: "Statutory benefits are not by way of compensation for loss of earning capacity. That is a matter to be determined later if the Claimant has an action for damages at common law."
5. Notwithstanding the ATO advice, the Panel said: "59. Because such statutory benefits are income in nature, the Claimant will be liable for the payment of taxation to the extent that there is a tax liability. 60. If payments in the third entitlement period were calculated on the basis of net earnings, the Claimant would be financially worse off in the third entitlement period than she was in the first and second entitlement periods. This would be inconsistent with the intention of section 3.8 which is either to maintain or increase weekly payments. 61. The Merit Review Panel expects that those receiving payments in the third entitlement period will probably have more significant injuries and potentially be less likely to return to their pre-accident injury earnings. Providing a lesser income in the third entitlement period is arguably inconsistent with the objectives of the Act and, in particular, 1.32(a) and (b), in that payments made at 80% of the net are not likely to provide adequate financial support for people more seriously injured and less likely to get back to the workforce at pre-injury hours. 62. Section 3.8 is only inconsistent with section 3.6 and 3.7 if you accept the ATO determination. If payments made under section 3.8 are subject to income tax, the Claimant will be in the same position as she was in the first or second entitlement periods. There is no inconsistency. 63. The Merit Review Panel considers that the Insurer is interpreting the legislation in the light of the ATO ruling, which is not law. It may or may not be incorrect, though the Merit Review Panel tends to the view that it is probably incorrect as it is getting itself mixed up with an entitlement to damages for loss of earning capacity. 64. If the statutory benefits in the third entitlement period are taxable, then most of the Insurer's arguments fall away." [Emphasis added.]

Consideration

1. The Insurer seeks relief on the following three grounds: first, that the Panel was legally in error in its construction of s 3.8 of the Act; second, that the Panel took into account irrelevant considerations; and third, that the Panel failed to take into account relevant considerations.
2. For the reasons given below, I am satisfied that ground 1 has been made out. In these circumstances, it is not necessary to address grounds 2 and 3.
3. The Insurer submitted that the Panel's decision ought be set aside since it proceeded on the basis of an erroneous construction of s 3.8. It argued that it would be inherently illogical for the Claimant to receive more in week 79 than she did in week 78. The Insurer contended that cl 7(2) had no other purpose than to provide a monetary amount to be used as the claimant's pre-accident earning capacity if it could not be determined and that it had no role in the construction of s 3.8. Further, the Insurer contended that the sole purpose of s 4.6(2) was to provide a cap on the maximum amount that could be paid for maximum statutory benefits and it did not assist in the construction of s 3.8. The Insurer also submitted that the ATO advice ought be accepted as correct.
4. The Panel's error is evident from its reasons. Its reasons form part of the record: s 69(4) of the Supreme Court Act. Accordingly, the Insurer has established an error on the face of the record.
5. In construing the Act, it is important to recall that the purpose of the provisions referred to above is to provide compensation, albeit partial, for economic loss. The ATO distinguished between payments in the first and second period on the one hand (which were measured by reference to "loss of earnings") and payments in the third period (which were measured by reference to "loss of earning capacity") on the other. It reasoned that the amounts for loss of earnings bore the character of income, which was, accordingly, taxable, whereas the amount for loss of earning capacity bore the character of capital, which was not taxable. It follows that if a claimant were entitled to receive the tax component of weekly earnings (by being entitled to be paid a gross figure) but was not subject to an obligation to pay that amount in tax to the ATO, the claimant would plainly be in receipt of a windfall.
6. Such a consequence cannot have been intended. When interpreting a legislative provision, a construction which would promote the purpose of the legislation is to be preferred: s 33 of the Interpretation Act 1987 (NSW). The compensatory purpose of damages at common law was the basis of the decision of the High Court in Cullen v Trappell where the majority (Gibbs, Stephen, Mason and Wilson JJ) decided that, in assessing damages for personal injuries, the court should take into account the income tax which the plaintiff would have had to pay on the earnings of which his injuries had deprived him. Gibbs CJ later explained Cullen v Trappell in Fox v Wood (1981) 148 CLR 438 at 440; [1981] HCA 41 as follows: "To assess damages on the basis that the plaintiff has lost his gross earnings, when in fact the earnings would have been subject to tax, and the award of damages is not subject to tax, would give the plaintiff more than he had really lost, and would depart from the fundamental principle referred to in British Transport Commission v. Gourley [1956] AC 185, at p 197, 'that the tribunal should award the injured party such a sum of money as will put him in the same position as he would have been in if he had not sustained the injuries.'"
7. While Divisions 3 and 4 of the Act provide for a different regime than applies in the assessment of damages at common law, the principles of compensation are nonetheless relevant to the assessment of a claimant's entitlement to weekly benefits under, relevantly, Division 3 of the Act.
8. I accept the Insurer's submission that the reference to "average weekly total earnings" (which is accepted to be a gross figure) in cl 7(2) does not affect the true construction of s 3.8. The purpose of cl 7(2) is to impose a cap on entitlements. Its significance does not extend to the present question.
9. The Panel's reliance on s 4.6(2) was misplaced. The effect of s 4.6(2) is to place a cap on recovery under Division 4. The provision requires the amount by which the claimant's net weekly earnings exceed the "maximum weekly statutory benefits amount under Division 3.3" to be disregarded. It is of significance that the legislature added the following words in parenthesis, "(even though that maximum weekly statutory benefits amount is a maximum gross earnings amount)". These additional words indicate, in my view, that Parliament appreciated that it was requiring a comparison to be made between a net figure (the claimant's net weekly earnings) and a gross figure, being the maximum weekly statutory benefits amount under s 3.9, which is derived from the average weekly total earnings of adults in full-time employment in New South Wales (s 3.9(4)). There is no reason in principle why Parliament could not provide that any excess of a claimant's net earnings above that gross figure ought be disregarded. Parliament evinced its intention in s 4.6(2) with sufficient clarity to produce this result. It does not follow from the use, for specific purposes, of a gross figure, that s 3.8 ought be construed as a reference to a gross figure. Indeed, had that result been intended, it can be assumed that Parliament would have evinced its intention expressly.
10. It appears that the Panel misled itself by distinguishing the entitlement to weekly benefits under Part 3 of the Act from the entitlement to damages under Part 4. Although there are differences between the entitlements under these Parts, these differences do not deprive the statutory benefits of their essential compensatory character. Further, the Panel took it upon itself to decide that the ATO advice was wrong. Having regard to the ATO's standing and the rationale for the distinction drawn between the loss of earnings being treated as income and the loss of earning capacity being treated as capital, there would appear to be no reason for the Panel's conclusion. The Panel also appears to have been influenced by its supposition in paragraph 60 of its reasons that "the intention of section 3.8 [was] either to maintain or increase weekly payments." No basis for this supposition has been identified.

Conclusion

1. For the reasons given above, the Insurer has made out its claim to have the Panel's decision set aside. It is entitled to have the matter remitted to SIRA to be determined according to law. It has sought an order that the matter be remitted to a differently constituted Panel. I am not persuaded that such an order is required. The error was one of law and does not reflect on the capacity of the Panel to determine the matter correctly, the error having been identified and made out in this Court. It is not clear from the submissions whether any order for costs is pressed by the Insurer. For this reason, I propose to grant liberty to apply in the event that the Insurer seeks its costs of the proceedings from one or more of the defendants.

Orders

1. For the reasons given above, I make the following orders: 1. Set aside the decision of the third defendant made on 4 December 2019. 2. To the extent necessary, set aside the decision which was the subject of review by the third defendant. 3. Remit the matter to the second defendant for determination according to law. 4. Grant liberty to the plaintiff to apply in writing to my associate within 7 days in the event that an order for the costs of the proceedings is sought.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 16 April 2020