Miss S.A. Forgie(1) (Deputy President), K.L. Beddoe(1) (Senior Member) and J.D. Horrigan(1) (Member)

Superannuation - Applicant in receipt of compensation payments under Commonwealth Employees' Rehabilitiation Act - whether such compensation payments constituted "salary or wages" - meaning of "salary" - meaning of "wages" - scheme of compensation considered - Decision affirmed - compensation payments not able to be characterised as salary or wages.

Practice and Procedure - Distinction between judicial review and Tribunal's function noted.

Supperannuation Act 1976 - Sections 5, 5(1), 5(2), 78, 78(1), 154, 154(4), 154(6)

Administrative Appeals Tribunal Act 1975 - Sections 29, 29(1)(c), 37

Compensation (Commonwealth Government Employees) Act 1971

Commonwealth Employees' Rehabilitation and Compensation Act 1988 - Section 14(1)

Pay-roll Tax Act 1971 (NSW) - Section 3

Income Tax Assessment Act 1936

Maintenance Act 1928 (Vic) - Section 3

Cahill and Commissioner for Superannuation (1988) 9 AAR 492

Drake v. Minister for Immigration and Ethnic Affairs (1979) 2 ALD 60

Re Rennie and Defence Force Authority Retirement and Death Benefit's Authority (1979) 2 ALD 424

Eastman and Commissioner for Superannuation (1987) 6 AAR 518

Commissioner for Superannuation v. Carpenter [1983] FCA 148; (1983) 48 ALR 230

230 Commissioner for Government Transport v. Kesby [1972] HCA 64; (1972) 127 CLR 374

Graham v. Baker [1961] HCA 48; (1961) 106 CLR 340

The Halcyon Skies (1977) 1 QB 14

Federal Commissioner of Taxation v. Thompson (J Walter)(Aus) Pty Ltd [1944] HCA 23; (1944) 69 CLR 227

Re Shine; Ex parte Shine (1892) 1 QB 522

Greater London Council v. Minister of Social Security (1971) 2 All ER 285

London County Council v. Henry Boot and Sons Ltd (1959) 3 All ER 636

Pereira v. Hotel Jayapuri BHD and Anor (1986) 1 WLR 449

Terry Shields Pty Ltd v. Chief Commissioner of Pay-roll Tax (1989) 17 NSWLR 493

Mutual Acceptance Co Ltd v. Federal Commissioner of Taxation [1944] HCA 34; (1944) 69 CLR 389

Automatic Fire Sprinklers Pty Ltd v. Watson (1946) 72 CLR 452

T.C. Whittle Pty. Ltd. v. T. and G. Mutual Life Society Ltd (1977) 52 ALJR 173

Commissioner of Taxation v. Inkster (1989) 20 ATR 1516

Great Western Railways v. Helps (1918) AC 141

Joyce v. Australasian United Steam Navigation Co Ltd [1939] HCA 31; (1939) 62 CLR 160

Hardie v. Hardie [1947] VicLawRp 9; (1947) VLR 79

Thompson v. Armstrong and Rayser Pty Ltd [1950] HCA 46; (1956) 81 CLR 585

Arnotts Snack Products Ltd v. Yacob [1985] HCA 2; (1985) 155 CLR 171

Steggles Pty Ltd v. Vanderberg [1987] HCA 35; (1987) 163 CLR 321

Federal Commissioner of Taxation v. Slaven (1984) 52 ALR 81

Federal Commissioner of Taxation v. Smith (1981) 147 CLR

Tinkler v. Federal Commissioner of Taxation [1979] FCA 88; (1979) 10 ATR 411

On 26 March, 1990 the delegate of the Commissioner for Superannuation ("the Commissioner") reviewed, pursuant to section 154 of the Superannuation Act 1976 ("the Act") a reviewable decision made by another delegate and decided to

"VARY the decision of a delegate taken on 23 May 1988,

pursuant to sub-section 78(1) of the Act, that the annual

rate of salary applicable to Mr McLennan decreased on 1 Feb

1988 under such circumstances that the decrease can

properly be regarded as attributable to physical or mental

incapacity, and hence, that he was entitled to partial

invalidity pension, by SUBSTITUTING for that decision a

decision that Mr McLennan's annual rate of salary decreased

under such circumstances on 30 Oct 1988, and hence that he

was entitled to partial invalidity pension with effect from

that date." (T2, page 4)

2. By his application dated and lodged on 26 April, 1990, the applicant, Mr Peter Roland McLennan, sought review of the decision of which he had been notified in a letter dated 27 March, 1990. In the absence of any evidence that Mr McLennan received notice of the decision at a date earlier than twenty-eight days before 26 April, 1990, and in the absence of any objection by the Commission, we are satisfied that he lodged his application to this Tribunal within the time allowed by section 29 of the Administrative Appeals Tribunal Act 1975 ("the AAT Act").

3. At the hearing, Mr McLennan was represented by Mr Daubney of Counsel and the Commissioner by Mr Vitali of Counsel, The documents lodged pursuant to section 37 of the AAT Act were admitted in evidence ("the T documents"). No oral evidence was called. There was no dispute as to the facts in this case and it was agreed that they were correctly stated in the reasons given by the delegate of the Commissioner for his decision at T2 of the T documents. It was also agreed between the parties that the issue for determination in this case is whether payments of compensation which Mr McLennan has received may properly be described as "salary".

4. Mr McLennan was born on 13 October, 1944, and became an "eligible employee" for the purposes of the Act on 21 July, 1983, by virtue of his employment as an air traffic controller with the then Department of Aviation. In June 1984, he was promoted to the position of Air Traffic Controller, Grade 3 ("ATC3") in which he performed continuous shiftwork. He was paid an allowance for that shiftwork. From 22 July, 1985 to 12 January, 1986, he performed higher duties as an Air Traffic Controller Grade 5 ("ATC5") and was not required to perform shiftwork.

5. At a routine medical examination, Mr McLennan was found to be suffering from hypertension and he was then absent on sick leave (at first on full pay and then on half pay), leave from his employment without pay and, finally, recreation leave until 29 January, 1988. During his period of absence, Mr McLennan was medically examined by a number of doctors and he was found to be suffering from a stress reaction in addition to hypertension. Their reports ultimately led to his returning to work on 1 February, 1988 at his classification of an ATC3 while performing the duties of a position with a lower classification. His substantive classification was subsequently reduced from that of an ATC3 to an Administrative Service Officer Grade 5 ("ASO5") with effect from 30 October, 1988.

6. On 1 February, 1988, Mr McLennan applied for a partial invalidity pension under the Act. In that application, he stated that he had been an ATC3 and that the date of effect of the salary decrease was 1 February, 1988. A delegate decided that the partial invalidity pension payable following his

"reclassification from ATC Class 3 with shift allowance to

ATC Class 3 without shift allowance and consequent

reduction in salary, ... (was) at the rate of $1791.70 per

annum with effect from 1 February 1988" (T2, page 8).

The amount of his partial invalidity pension was calculated

on the basis that it was 46% of $3895.00 being the

difference between his annual salary as an ATC3 with shift

allowance as at 21 July, 1985 ($36,571.00) and his annual

salary as an ATC3 without shift allowance as at 1 February,

1988 ($32,676.00).

7. Mr McLennan sought review of that decision but the details are not relevant as the extent to which allowances for overtime should be taken into account in determining his partial invalidity pension is not in issue before us. We do note that, in seeking the review, Mr McLennan advised the Commissioner that he had an outstanding claim for compensation for the period commencing on 25 July, 1986.

8. On 18 August, 1988, the following decision was made by consent in this Tribunal:

"BY CONSENT the Tribunal sets aside the decision under

review and remits the matter to the respondent for

calculation of the amount of and payment of compensation in

accordance with the Tribunal's following directions that at

all relevant times:-

(a) the applicant's employment with the Department of

Aviation was a contributing factor to the applicant

contracting a psychiatric disorder, namely an adjustment

disorder with anxious mood, resulting in total incapacity

for work from 25th July 1986 up to and including 17th

December 1987 entitling the applicant to receive

compensation payment pursuant to Section 45 of the

Compensation (Commonwealth Government Employees) Act 1971

for that said period;

(b) As a result of and directly attributable to the

aforesaid psychiatric disorder, the applicant is, and has

since the 1st February 1988 been partially incapacitated

for work resulting in the applicant's redeployment from the

position of Air Traffic Controller Class 3 (Arrivals Radar

- Brisbane Airport) to Administrative Service Officer Class

5 (clerical duties) entitling the applicant to receive

compensation payments pursuant to Section 46 of the

Compensation (Commonwealth Government Employees) Act 1971"

(T2, pages 10-11).

9. The Commissioner wrote to Mr McLennan on 20 September, 1988 advising him that the

"determination of your entitlement from 1 February 1988 is

based on the difference between the total of your actual

salary together with the partial superannuation pension and

the amount of your former average weekly earnings" (T2,

page 11).

10. In reconsidering the original decision of 23 May, 1988, the delegate of the Commissioner took account of a decision of this Tribunal in Cahill and Commissioner for Superannuation (1988) 9 AAR 492 (Senior Member Balmford, Mr Wilson and Mr Brewer, Members) as well as an opinion from the Attorney-General's Department.

11. On behalf of Mr McLennan, Mr Daubney argued that the delegate's decision should be set aside on three grounds. First, that the delegate wrongly disregarded a decision of this Tribunal in Cahill's case. Second, that the delegate wrongly sought to apply reasoning propounded by the Commonwealth Attorney-General's Department in an unrelated case. Third, he wrongly applied some form of subjective analysis in reaching his conclusion.

12. As we observed during the course of the hearing, this Tribunal reviews a decision upon it merits and, in doing so, is not restricted by any requirement that, before setting aside or varying a decision, it must find that the decision-maker has or has not acted reasonably. In this, the review differs from the review which is conducted by a superior court by way of prerogative writ or by the Federal Court under the Administrative Decision (Judicial Review) Act 1977. The role of the Tribunal in reviewing decisions was expressed by Smithers J in Drake v. Minister for Immigration and Ethnic Affairs (1979) 2 ALD 60 who said at pages 77-78:

"It might be thought that it would be open to the

Administrative Appeals Tribunal not to decide for itself

whether a decision made by an administrator was the right

decision which ought to have been made in the circumstances

but rather to satisfy itself that the decision of the

administrator was one which an administrator acting

reasonably might have made. But to do this would be to

review the reasons for the decision rather than the

decision itself. It is the actual decision which by virtue

of s25(1) and (4) of the Administrative Appeals Tribunal

Act the Tribunal is authorized and required to review. The

duty of the Tribunal is to satisfy itself whether a

decision in respect of which an application for review is

duly instituted is a decision which in its view, was

objectively, the right one to be made. Merely to examine

whether the administrator acted reasonably in relation to

the facts, either as accepted by him or as found by the

Tribunal may not reveal this. In this connection the

observations of Sheppard J in Horne v. Locke (1978) 2 NSWLR

88 at 98-100 are in point. It is to permit implementation

of the function of the Tribunal, as so understood, that

there has been conferred upon the Tribunal extensive powers

of investigation. Those powers are conferred so that the

Tribunal may equip itself to make an appropriate

recommendation or affirm the decision; see s43 of the

Administrative Appeals Tribunal Act and Pt XXII of the

Schedule thereto."

13. It follows that we have had regard to Mr Daubney's second and third submissions in so far as they relate to the interpretation which we should give to the sections of the Act which are relevant to the decision. However, we have not considered those submissions from the point of view of whether the decision-maker did or did not take the particular cases into account.

14. At the outset of the case, and in his written submission, Mr Vitali submitted that Mr McLennan's grounds for seeking review of the decision

"appear to be that as a consequence of not including such

compensation payment as part of his salary it may have the

effect that upon retirement his superannuation entitlements

which are dependant on his salary might be reduced."

He went on to say that Mr McLennan appeared to have overlooked a statement in the delegate's reconsideration that if his salary did include his compensation payment, then it might reduce the amount of his invalidity pension. As he assumed that Mr McLennan is not seeking to have his pension entitlement reduced, he could not understand the point of his making the application for review.

15. As the decision of 26 March, 1990 is a reviewable decision which has been varied pursuant to sub-section 154(4) of the Act, Mr McLennan is entitled to make an application to this Tribunal for its review (see sub-section 154(6)). Pursuant to paragraph 29(1)(c) of the AAT Act, he is required to set out, among other information, the reasons for his making an application. That he has done in his application (T1, pages 1-3). While he is required by the Act to give his reasons, there is nothing in the Act that requires this Tribunal, to review whether those reasons have any merit. Whether or not it is in his interests is a matter for Mr McLennan's judgement taken after he has obtained whatever advice he considers appropriate. Once Mr McLennan has made an application in accordance with sub-section 154(6) of the Act and with the AAT Act, we are bound to review it.

16. Mr Vitali further argued that we were being called upon to consider a hypothetical situation. In his application, Mr McLennan had expressed as his major concern

"that ... accepted liability for my unfitness, by virtue of

the conditions of my employment, I am to be further

penalised by my employer by a marked reduction in

superannuation entitlements upon retirement. Since the

compensation payments are made as a salary top-up, and

because of the reasons for which they are being made, I

believe that there is every reason to regard those payments

as constituting salary in determining superannuation

entitlements."

He said that this ground was irrelevant in that he has not retired, has not made an application for retirement benefits, let alone there having been any determination of his retirement benefits. Mr Vitali submitted that it is a matter of conjecture that the delegate will treat as "salary" at the time of Mr McLennan's retirement and that the matter should be reviewed at that time.

17. We agree with Mr Vitali in so far as he submits that the question of what may be regarded as his salary for the purposes of his retirement benefits is a matter for consideration at a later time and that it cannot be in issue in this case. However, we are not being asked to consider that issue here. We are not being asked to review a hypothetical situation but a decision which we have jurisdiction to review (see paragraph 15 above). Whether the reasons which we give in reviewing that decision has relevance to any other aspect of Mr McLennan's entitlements or obligations in the future is not something which can concern us on this occasion. The facts in this case differ from those in Re Rennie and Defence Force Authority Retirement and Death Benefit's Authority (1979) 2 ALD 424 (Mr Todd, then Senior Member, Mr Hutchinson and Mr Oxley, Members) in that the Tribunal found in Re Rennie that there had been no decision made at all and so there was nothing to review. The principles which we have applied are the same as those in Re Rennie in that we have first identified a decision and, having done that, a decision which may be reviewed.

18. Mr Daubney submitted that we should follow the interpretation of the word "salary" adopted by the Tribunal in Cahill's case. He specifically referred particularly to pages 507-510. He said that underlying its reasons was an analysis of the meaning of "salary" and that salary is payable in accordance with the terms of a contract of employment. He submitted that the essential point in that case was whether the entitlement to and receipt of compensation payments formed part of the conditions of employment and could properly be described as salary. He referred also to Eastman and Commissioner for Superannuation (1987) 6 AAR 518 (Neaves, Beaumont and Ryan JJ), Commissioner for Superannuation v. Carpenter [1983] FCA 148; (1983) 48 ALR 230 (Bowen C.J., Woodward and Fitzgerald JJ), Commissioner for Government Transport v. Kesby [1972] HCA 64; (1972) 127 CLR 374 (Gibbs, Menzies, Walsh and Mason JJ) and Graham v. Baker [1961] HCA 48; (1961) 106 CLR 340 to which the Tribunal referred and which it discussed in Cahill's case. Mr Daubney submitted that Mr McLennan's case came squarely within the parameters of Cahill's case.

19. Mr Vitali, set out the relevant provisions of the legislation in some detail and concluded that all of the allowances which the regulations provide are to be treated as "salary" relate to payments associated with duties, qualifications and other inconveniences associated with the terms of employment.

20. He dealt with each of the cases to which the Tribunal referred in Cahill's case. He distinguished Graham v. Baker on the basis that it dealt with whether sick pay to which the plaintiff was entitled under an industrial agreement should be taken into account in assessing damages for personal injuries payable to a plaintiff who was compulsorily retired because of such injuries. The High Court decided that sick pay constituted wages in every sense of the word. Mr Vitali distinguished the judgement on two bases. First, he said, it was concerned with the question of assessing damages and not the interpretation of a particular statutory provision such as section 5 of the Act. Second, he distinguished the case on the basis that it dealt with sick pay rather than compensation payments with which this case is concerned. He said that Graham v. Baker decided that sick leave, although paid when work was not performed was covered by the conditions of employment and was paid by the employer. Compensation payments are generally not paid by an employer but by an insurer and usually have their foundation in legislation.

21. Mr Vitali went on to refer to Carpenter and Kesby to which the Tribunal referred in Cahill's case and said

"The tribunal in Cahill quoted from the Commissioner for

Superannuation v Carpenter [1983] FCA 148; (1983) 48 ALR 230 where the

Full Court of the Federal Court found that "salary and

wages" in sub-section 5(1) "covers everything within the

ordinary meaning of salary and wages" (p 232 and 238). The

annual rate of salary was to be determined (according to

sub-section 5(2)):

"... by examining the employees terms of employment as at a

given day and calculating the amount of salary he would

have earned in the following year on the assumption that no

changes occurred in those terms of employment".

In that case the salary of the respondent was prescribed

by an industrial award. They also quoted from Commissioner

for Government Transport v Kesby [1972] HCA 64; (1972) 127 CLR 374 at

388 where the Court held:

"The question of what is the salary in a particular case is

purely one of fact. It does not simply depend on the

terminology to describe the amount payable .. a payment

referred to as a `shift penalty' or as `overtime' could be

said to constitute part of the `salary' of bus-drivers if

in fact it was amount payable to bus-drivers generally as

remuneration for the services that bus-drivers generally

are regularly required to perform."

In light of the authorities as relied upon in Cahill case

it is difficult to see how compensation payments can be

described as remuneration for the services that a person is

regularly required to perform. In Cahill's case the

tribunal then quoted from T.C. Whittle Pty. Ltd. v T. and G.

Mutual Life Society Ltd (1977) 18 ALR 431 where His

Honour Murphy J. said:

"In my opinion the Workers' Compensation benefits were also

subject to rise and fall. Although they rose under statute

they were a condition of employment in the sense of the

provisions."

Barwick C.J., with whom Mason J. agreed, said at p 442:

"The change in the amount of compensation payable under the

Workers' Compensation Act raises quite different problems

to those attendant on the other list of changes. Granted

my interpretation of the expression `conditions of

employment', the changes in the Workers' Compensation Act

do not, in my opinion, qualify as changes in the conditions

of employment of any of the classifications of employees

used in the computation of the average wage. They are, of

course, changes in the conditions which are consequential

upon the employment of workers: but the obligation to pay

workers' compensation does not, in my opinion, the increase

of the amounts of compensation under the Workers

Compensation Act is not a change in conditions of

employment within the operation of the clause."

It is apparent from the decisions in Whittle and in Eastman

that the question to be determined is whether a particular

payment is made pursuant to a term of a contract of

employment. Those cases show that a clear distinction

ought to be drawn between sick pay which is an integral

part of employment and compensation which is not part of

the contract."

22. Mr Vitali argued that compensation provisions found in the Compensation (Commonwealth Government Employees) Act 1971 ("the 1971 Act") or the Commonwealth Employees' Rehabilitation and Compensation Act 1988 ("the 1988 Act") which repealed it are merely part of the overall statutory conditions of employment which regulate the entitlement of persons not employed by the Commonwealth as well as those who are. That Act is similar to State Workers' Compensation legislation and provides compensation in certain circumstances for people who are incapacitated for work to some degree. Such payments are not remuneration for services and it is purely coincidental that the Commonwealth, in one guise or another, is the employer and the source of any compensation payments. Sick leave is paid pursuant to a contract of employment and it is possible to say that it is payable for services rendered in the past and in the future although no service is actually rendered during the period to which the payment relates.

23. Section 78 of the Act provides that an eligible employee is entitled to a partial invalidity pension where his or her salary decreases for health reasons. Sub-section 78(1) provides:

"(1) Where the annual rate of salary of an eligible

employee who has not attained his maximum retiring age and

is not entitled to partial invalidity pension in accordance

with section 77 decreases under such circumstances that the

Commissioner is satisfied that the decrease can properly be

regarded as attributable to physical or mental incapacity

and -

(a) the number of complete years included in the period

that would have been his period of contributory service if

he had ceased to be an eligible employee on the day

immediately preceding the day on which that rate decreases

is not less than 8 years; or

(b) where the number of complete years included in that

period is less than 8 years -

(i) a benefit classification certificate is not in force

in respect of him immediately before that last-mentioned

day; or

(ii) a benefit classification certificate is so in force

in respect of him but the Commissioner is of the opinion

that the physical or mental incapacity was not caused, or

substantially contributed to, by a physical or mental

condition or conditions specified in the certificate or a

physical or mental condition or conditions connected with

such a condition or such conditions,

he is entitled to a partial invalidity pension in

accordance with this section."

The remaining provisions of section 78 provide for the calculation of the partial invalidity pension, for variations in the annual rate of salary and for the time at which the annual rate of salary is to be determined. That section does not deal with the meaning of the expression "annual rate of salary" or the meaning of "salary".

24. The meaning to be ascribed to each of these is set out in section 5 of the Act. In this case, we are concerned only with the meaning to be given to the word "salary" and, in so far as it is relevant to that issue, section 5 provides:

"(1) In this section, "salary" means salary or wages and

includes any allowance, or the value of any allowance, or

any fee, that is an allowance or fee of a kind that, under

the regulations, is to be treated as salary for the

purposes of this Act, but does not include any part of any

salary or wages that, under the regulations, is not to be

treated as salary for the purposes of this Act.

(2) ...

(3) ...

(3A) ...

(3B) ...

(3C) ...

(4) ..."

25. The relevant provisions of the Superannuation (Salary) Regulations ("the Regulations") are found in Part I. Part I sets out those allowances which are to be treated as salary for the purposes of the Act and those which are not to be treated as salary in certain circumstances. There was no submission by either party that the compensation payments were allowances within the meaning of the Regulations. We have considered those Regulations and, as we have formed the view that the compensation payments are not sick allowances, we have not set out those regulations as they are not relevant to the issue before us.

26. The compensation payments which Mr McLennan receives do not come within the allowances or fees that are, under the regulations, treated as salary for the purposes of the Act. Nor are they dealt with in those regulations which provide that certain payments, which would otherwise be regarded as salary, are not to be treated as salary for the purposes of the Act (see sub-section 5(1)). The issue is simply whether those compensation payments are "salary or wages" within the meaning of sub-section 5(1).

27. In view of the comments to which we shall refer later (see paragraph 46 below) that the words "salary and wages" should be given their ordinary meaning, we have looked first at some of the older authorities and overseas authorities before turning to Cahill's, case and those cases to which it refers.

28. There has been a number of cases, both in Australian and overseas, which have considered the meaning of these terms as they are used in a variety of legislation. Some do not assist us as they are concerned with law and interpretations peculiar to the admiralty jurisdiction (see, for example, The Halcyon Skies (1977) 1 QB 14 (Brandon J)).

29. The submissions which have been made in this case have centred on whether we should, or should not, adopt the interpretation of the Tribunal of the word "salary" in Cahill's case. They have also centred on the cases referred to in Cahill's case. Cahill's case is the only case we have found in the Tribunal in which the nature of compensation payments has been considered and as we were in danger of becoming too narrowly focused upon it, we have considered the issue afresh.

30. The terms "salary" and "wages" have long been used in legislation other than the Act with which we are concerned. There has, in the past, been a distinction drawn between the two terms in that the term "salary" was ordinarily used to denote the remuneration paid "where the engagement is for a period, is permanent or substantially permanent in character, and is for other than manual or relatively unskilled labour, the remuneration is generally called a salary" (Federal Commissioner of Taxation v. Thompson (J Walter) (Aus) Pty Ltd [1944] HCA 23; (1944) 69 CLR 227 per Latham C.J. at 233.

31. The term "wages" was also used to denote remuneration but only that remuneration for labour. So in Stroud's Judicial Dictionary, it is said that "Though this word might be said to include payment for any services, yet, in general, the word `salary' is used for payment of services of a higher class, and `wages' is confined to the earnings of labourers and artisans" (per Grove J, Gordon v. Jennings 51 LJQB 417)."

"The term `wages' is not applied to the remuneration of a

high or important officer of the state or a company, for

instance, but to that of domestic servants, labourers or

persons of similar description".

32. We do not wish to linger on the difference in the use of the two terms too long for, as Latham C.J. said in the J Walter Thompson (Aus) Pty Ltd case, "no precise line can be drawn between wages and salary" (pages 233-234). In any event, the distinction is of no interest in this case other than to set the historical background. As both salary and wages are encompassed within the meaning of salary we have looked at both terms and found the distinction is blurred.

33. What may be described as the "essential features" of a salary were considered in Re Shine; Ex parte Shine (1892) 1 QB 522 where the Court of Appeal (Lord Esther M.R., Bowen L.J. and Fry L.J.) was considering a provision in the Bankruptcy Act 1883 (UK) enabling a court to order that any part of a bankrupt's salary or income be paid to the trustee in bankruptcy who would then apply it in accordance with the Court's direction. Bowen L.J. said that "`salary', I think, must mean a definite payment for personal services arising under some contract, and (to borrow an expression of my brother Fry) computed by time" (page 529).

Fry L.J. was more expansive when he said at page 531

"Whenever a sum of money has these four characteristics -

first, that it is paid for services rendered; secondly,

that it is paid under some contract or appointment;

thirdly, that it is computed by time; and fourthly, that it

is payable at a fixed time - I am inclined to think that it

is a salary, and not less so because it is liable to

determination at the will of the payer, or that it is

liable to deductions. I do not mean to say that that is a

complete definition of "salary", or that it includes every

kind of salary; but I think that, whenever these four

circumstances concur, the payment is a salary."

34. The passage from Fry L.J's judgement was quoted with approval by Mackenna J in Greater London Council v. Minister of Social Security (1971) 2 All ER 285. He was considering the provisions of the National Insurance Act 1946 under which a dentist wholly or mainly engaged in certain employment and who was remunerated by salary was to be treated as if he were a person employed under a contract of service. The dentist's terms of employment were that his engagement was to continue indefinitely until terminated by notice, that he was to attend at the treatment centre six times a week at stated hours except during school holidays and he was to be paid monthly at a fixed rate for each session actually worked. Each session which the dentist worked was for three hours only. Mackenna J said at page 288:

"Where, as here, the unit of time is a short period of

three hours actually worked, there must, I think, be added

to Fry L.J's four characteristics, a fifth, that the

contract should provide for the recurrence of the sessions

of work throughout the contract period, whether that period

is fixed or indefinite. If the contract provided only for

a single session of three hours' work, the payment, though

computed with reference to time, would not be described as

`salary'. It would be more aptly described as a `fee'."

35. Although the case of Re Shine does not seem to have been cited in later authorities, similar principles seem to have been applied by those authorities. The first two cases with which we shall deal are concerned with "wages" rather than "salary" but for the purposes of this case, the distinction is not relevant. The first, London County Council v. Henry Boot and Sons Ltd (1959) 3 All ER 636 dealt with a building contract which provided that if wages payable for labour increased above, or decreased below, the rates in force at the date of the tender, the amount payable to the contractor would increase or decrease correspondingly. Under an annual holidays scheme and a public holidays scheme operated under agreement between the associations of employees and the trade unions each workman was credited by his employer (in this case the contractor) with a weekly sum. He was not credited with any money but by having a card stamped with stamps which the contractor purchased from a management company. The amount credited to a person would be paid by whoever was his employer (whether or not it was the contractor) at the time he took his holidays and the management company would reimburse that employer. During the term of the building contract, the credits were increased and the contractor claim this as an increase in wages and so payable as an additional amount under the contract.

36. Viscount Simonds, with whom Lords Radcliffe, Cohen and Keith of Avonholm agreed, said that there was "no doubt that what the workman gets from the operation of the holidays agreements is a benefit to him. It might, perhaps, be loosely called part of his remuneration. But to me it seems an essential element in a "wage" that it should be paid to the workman for work done by him, and it is just this element which is lacking in the holiday credit. It is neither paid by the employer to him nor related to the work which he does for the employer. I would say emphatically that it would not occur to an employer, being asked what wages he paid his workmen, or to a workman, being asked what wages he was paid, to refer in his answer to the holiday credits. They might, indeed, say that, in addition to his wage, he got the benefit of the holiday credits. But that would no more be a wage than would the benefit of a payment by the employer to a pension, superannuation, or sick fund."

"The case turns on the meaning of the phrase in the

rise-and-fall clause: "the rates of wages payable for any labour

employed in the execution of the works." Some things are

clear enough. This phrase includes the standard rate of

3s. an hour (or whatever the figure may be) payable for

work done by the men. If that is increased, the builder

can get the increased cost from the appellants. So, also,

it includes the rates payable to apprentices, youths and

women for their work. And it includes the rates payable

for overtime. But it does not include such payments as

tool allowances, travelling allowances or the employer's

contribution to an insurance fund or a superannuation fund.

The reason is because those are not payments "for labour".

They are, it is true, payments to or for the benefit of a

workman - and maybe they are payments made under the

contract of service - but they are not payments for work

done by him. The phrase "labour employed" in the clause

does not, to my mind, mean "labourers employed". It means

"labour done by workmen" employed in the execution of the

works. So interpreted, it is clear to my mind that the

phrase does not include the cost of these holiday stamps.

They are not payable for work done."

38. The word "wages" was considered by the Privy Council in Pereira v. Hotel Jayapuri BHD and Anor (1986) 1 WLR 449. A trade union and the employer had reached an agreement governing the terms of employment of the union's members. The employer charged its customers a compulsory ten per cent of their total bills as a service charge. The agreement provided for this to be distributed to the employees. Mr Pereira and the employer both paid contributions to an Employees Provident Fund established under the Employees' Provident Fund Act 1951 in respect of his basic monthly salary and food allowance but not his share of the service charges which were paid each month. The issue was whether Mr Pereira's share of the service charges were wages and, consequently, whether contributions were payable to the Fund in respect of them. "Wages" were defined in section 2 of the Employees' Provident Fund Act 1951 as meaning "the remuneration in money due to an employee under his contract of service ... whether agreed to be paid monthly, weekly, daily or otherwise - (a) in respect of the normal periods of work to be performed by the employee; ..."

39. The Privy Council said at pages 454-455 "In substance, both arguments advanced for the employer and the board amount to saying that the service charge is payable simply because a person has the status of an employee, whereas the salary is payable in respect of work done. Neither the basic salary nor the service charge are expressly said to be payments in respect of the work which the employee under the contract undertakes to perform, but their Lordships consider that, where a contract provides that an employee is bound to work for a certain period and provides for two distinct payments to which he shall be entitled as an employee, the proper conclusion to draw is that both payments are due to the employee in respect of the work which he has bound himself to perform. Where, as in this employee's contract of service, there is a provision for additional remuneration if he does work over and above that which he has bound himself by his contract to perform, the additional amount he receives in consequence of an application of that provision will not be wages within the meaning of the Act of 1951, but all remuneration to which he is entitled in terms of his contract if he performs only the work which he is bound to perform must, in the absence of special provisions, be properly regarded as remuneration in respect of the normal periods of work to be performed by him."

40. It went on to consider an argument that the money was never the employer's money but that the employer simply acted as an agent to distribute the customer's money. It said that

"Even if this be a correct analysis of the position, it is

plain that the employee's entitlement to his share of the

service charges collected by the employer arises under his

contract of service with the employer and therefore, even

if the employer in terms of that contract is acting as his

agent to collect for him and the other employees from the

hotel's customers, the services charges which they pay to

the employer, that money is due to them by the employer

under their contracts of service as a reward for the

service which the employees render under their contracts of

service to the employer itself. Accordingly, the share of

service charge is properly to be regarded as due to the

employee under his contract of service as remuneration and

for the reasons already given it is in respect of the

normal periods of work."

41. In a more recent Australian case, Terry Shields Pty Ltd v. Chief Commissioner of Pay-roll Tax (1989) 17 NSWLR 493, Lee CJ considered section 3 of the Pay-roll Tax Act 1971 (NSW) which defined wages upon which pay-roll tax is payable as "... any wages, salary, commission, bonuses or allowances ... paid or payable in cash or kind". The issue in the case was whether the provision by an employer of the use of a motor vehicle for the use of the employee was within the definition of "wages" and "salary", Lee CJ said at page 501

"... I am of the view that the definition of "wages" in the

Act is not intended to attribute to the words of "wages,

salary" used in the definition a meaning other than their

ordinary meaning and that the meaning is one which

contemplates an agreement between employer and employee

that an agreed amount of money shall be paid as wages. The

definition of "wages", as I have said, in using the words

"paid or payable (... in cash or in kind)" in no way alters

the meaning of the remuneration for the work done by the

employee."

42. In both Pereira's case and the Henry Boot and Sons' case in relation to "wages", the courts looked at whether there was a contract, whether the payments were made under that contract and whether they were for work done by the employee. There was no need for the courts to consider the characteristic of regularity referred to as the fourth characteristic in Re Shine. This approach is consistent with that taken in the Terry Shields' case and Greater London Council v. Minister for Social Security.

43. We turn now to Cahill's case and the cases to which it refers. In Carpenter's case, Bowen C.J. and Woodward J, said that the words, "salary and wages" are to be read in their ordinary sense (page 233). They referred also to the judgement of Gibbs J, with whom Menzies, Walsh and Mason JJ agreed, in Kesby's case where he said at page 388

"The question what is the `salary' in a particular case is

purely one of fact. It does not simply depend on the

terminology used to describe the amount payable. Thus in

the present case it can hardly be doubted that the

increments and the margins form part of the `salary' of bus

drivers. Similarly a payment referred to as `a shift

penalty' or as `overtime' could be said to constitute part

of the `salary' of bus drivers if in fact it was an amount

payable to bus drivers generally as remuneration for the

services that bus drivers generally are regularly required

to perform." (page 233)

44. The majority of the Full Court referred also to the

"separate but concurring judgement, Barwick C.J., (in Kesby's

case) at 378, referred to `the sense of regularity and

uniformity which is, in my opinion, implied in the concept

of a salary payable to an officer'." (page 233)

45. They went on to refer to the case of Mutual Acceptance Co Ltd v. Federal Commissioner of Taxation [1944] HCA 34; (1944) 69 CLR 389 where Latham C.J. said at 397

"Expense allowances, travelling allowances, and

entertainment allowances are payments additional to

ordinary wages made for the purpose of meeting certain

requirements of a service. Tropical allowances, overtime

allowances, and extra pay by way of "dirt money" are

allowances as compensation for unusual conditions of

service.

The latter class of allowances represents higher wages paid

on account of special conditions, and may fairly be

described as part of wages in the ordinary sense."

46. In the case before the Full Court, Mr Carpenter earned shift allowances which were prescribed under an industrial award. That industrial award also prescribed the basic rate of pay. He worked on a four week roster, partly during ordinary hours and partly during hours attracting shift allowances. His earnings varied from week to week but were constant when looked at on a monthly basis. The majority concluded that the allowances would be covered in that situation by the ordinary meaning of "salary or wages". Fitzgerald J, who also concluded that the words should be interpreted in their ordinary sense, was slightly more expansive as to why the shift allowances were "salary or wages" when he said that they

"were regularly payable to him and his colleagues as an

element of remuneration received by them in respect of

their ordinary employment". (page 238)

47. Neither Carpenter's case nor Kesby's case specifically focus on what could be described as the general characteristics of "salary" or "wages" referred to in Re Shine. From those two cases, however, it is possible to conclude that both considered that there must be an element of remuneration. Kesby's case expressed that remuneration as being in respect of services which are generally required to be performed by the employee and Carpenter's case as being in respect of their employment. Barwick CJ in Kesby also considered that it was necessary for there to be some sense of "regularity and uniformity".

48. Eastman's case does not take the matter further. The Full Court (Neaves, Beaumont and Ryan JJ) was considering whether higher duties allowances came within the meaning of the Act. They referred to Barwick CJ's judgement in Kesby where he referred to the need for payments to have regularity before they qualified as salary. They were inclined to think that the higher duties allowances with which they were concerned did not but that, in any event, regulations 4, 5 and 6 of the Regulations deprived them of regularity required in order to qualify them as salary.

49. The case of Graham v. Baker to which the Mr Daubney and Mr Vitali referred was a decision of the High Court. The Tribunal in Re Cahill referred to the High Court's judgement in the following passage at page 507 of its decision:

"We have already referred in a different context to the

decision of Dixon CJ, Kitto and Taylor JJ in Graham v.

Baker (supra), to the effect that payment of sick pay to

which the plaintiff was entitled under an industrial

agreement should be taken into account in assessing damages

for personal injuries payable to a plaintiff who was

compulsorily retired because of such injuries: on the basis

that the sick pay "constituted wages in every sense of the

word". In that case (at 345), their Honours referred to

authorities which established "that wages, in every sense

of the word may become payable according to the terms of a

contract of employment even though the employee is not

called upon to, and does not, in fact, render service".

It thus becomes necessary to consider whether the

provisions of the Compensation Act form part of the terms

of employment of an employee of the Commonwealth."

50. The Tribunal then went on to consider that question and then said at pages 509-510

"On balance, and not without some hesitation, we have

formed the view that the authorities to which we have

referred lead to the conclusion that the payments received

by Mr Cahill under the Compensation Act were paid in

accordance with the conditions of his employment and are

therefore `salary' for the purposes of s.5(1) of the Act

...".

51. After careful consideration, we find that we do not agree with the Tribunal's analysis of the High Court's judgement in Graham v. Baker. We will, therefore, set out the reasoning in that case in some detail. In assessing the damages which should be payable for personal injuries, the High Court decided that account should be taken of payments made by the plaintiff's employer during the period of sick leave to which he was entitled under an industrial agreement. This conclusion depended on the High Court's basic premise that "sick pay" amounted to wages. A single judge of the Supreme Court of New South Wales and the Full Court below had both concluded that sick pay could not be wages and it was implicit in their reasons that the "performance of services called for by a contract of employment is a condition precedent to a right to wages arising and that since the respondent did not, and was not required to, work during the relevant period the remuneration which he received could not be characterized as wages" (Page 344).

"generally, no doubt, the performance of services is a

condition precedent to the right to wages and it is for

this reason that it is said, as no doubt their Honours were

aware, that a servant who has been wrongfully dismissed

cannot wait till the determination of the period for which

he was hired and then sue for the whole of his wages. But

this, as Jordan C.J. pointed out in Watson v. Automatic Fire

Sprinklers Pty Ltd (1946) 46 SR (NSW) 336; 63 WN 107, is

not universally true. It is, as he says, "correct only in

cases in which, by the contract of employment, the actual

doing of work is made a condition precedent to the right of

wages" (1946) 46 SR (NSW), p342; 63 WN at p110." (page 345)

53. It followed that a servant who has been wrongfully dismissed cannot wait until the end of the period for which he was hired and then claim the whole of the wages due under the contract. However, the High Court went on to say that pursuant to some contracts this is not necessarily so. It referred to the case of Automatic Fire Sprinklers Pty Ltd v. Watson (1946) 72 CLR 452 at 465

"to illustrate that wages, in every sense of the word may

become payable according to the terms of a contract of

employment even though the employee is not called upon to,

and does not, in fact, render service." (page 345)

54. The High Court was not concerned with such a contract, however, as the contract of employment it was considering, generally speaking, bound the employee to work for his wages. It went on to say at pages 345-346

"But the contract contemplates the possibility that

circumstances of a defined character may arise and prevent

the employee from performing his duties. In those

circumstances he is to be entitled to absent himself on

sick leave and, subject to specified limits, to receive

"full pay" whilst on leave. In our view the respondent's

contract says no more and no less than that, if he becomes

unable by reason of sickness or other specified causes to

perform his ordinary duties, nevertheless his right to

"full pay" or, in other words, his ordinary wages, shall

continue to be payable, subject to the limits specified,

during the period of his absence. If, therefore, the claim

be made, as it was, that the respondent lost the whole of

his wages between the date of the accident and the date of

trial then the appellant was entitled to receive his full

wages.

The conclusion that the respondent's so-called "sick pay"

constituted wages in every sense of the word is completely

in accord with a long line of authority concerning the

right of an employee to receive his ordinary wages in

respect of a period during which he is unable, by reason of

sickness or accident, to perform his duties. We refer

particularly to Cuckson v. Stones (1859) 1 E and E 248 (120

ER 902); Warren v. Whittingham (1902) 18 TLR 508; R v.

Islip (Inhabitants) (1721) 1 Stra 423 (93 ER 611); Niblett

v. The Midland Railway Co (1907) 23 TLR 240; Petrie v. Mac

Fisheries Ltd (1940) 1 KB 258; O'Grady v. M Saper Ltd

(1940) 2 KB 469 and Orman v. Saville Sportswear Ltd (1960)

1 WLR 1055. This line of authority, in spite of some

differences of expression on matters with which we need not

concern ourselves, clearly shows that where, by virtue of

an implied term of the contract of employment, "wages" are

payable to an employee who, by reason of illness, is absent

from work, the amounts which he receives during the period

of his absence are his ordinary wages and not something

additional thereto or of any different character. The

position is, of course, precisely the same where, as here,

the matter is not left to implication and the contract of

employment provides expressly for `sick leave on full pay'."

55. The High Court has focussed on the contract. There was no need for it to consider the aspects of regularity of payment and payment itself as both those were present. While it has said that "sick-pay" might be wages even though he was unable to perform his duties, it was not saying that any payment received under the contract of employment during a period of absence was to be regarded as wages. It was only, the High Court said, if "wages" were payable during that period he was unable to work. It follows from the High Court's judgement that there are two steps to be taken when determining whether a payment for a period of sickness or injury during which the employee is unable to work is properly characterised as "wages". First, the payment must be made pursuant to a term of the contract of employment. Second, that payment must be "wages" payable to a person absent from work. Those steps were easily completed in Graham v. Baker as the contract of employment expressly provided for sick leave on full pay.

56. The Tribunal in Cahill's case focussed on the first aspect (ascertaining whether the payment was made in accordance with the terms of a contract) but not, it seems to us, on the second (ascertaining that the payment were wages). The Tribunal spent some time looking at whether the entitlements of a Commonwealth employee under Commonwealth compensation legislation are part of the terms of his or her employment. It referred to the judgement of Murphy J in T.C. Whittle Pty. Ltd. v. T. and G. Mutual Life Society Ltd (1977) 52 ALJR 173 in support of its view that the employee's entitlements to compensation were part of the terms of his or her employment.

57. It distinguished the judgements of the majority (Barwick C.J. with whom Mason J agreed) who had found that the obligation to pay workers' compensation did not fall within the terms of the contract of employment. They did so on the basis that the High Court was considering, not the situation of a Commonwealth employee but of an employee in the private sector. Since Cahill's case was decided in 1988, the Full Court of the Federal Court has (on 12 October, 1989) handed down a decision in Commissioner of Taxation v. Inkster (1989) 20 ATR 1516 (Pincus, Gummow and Lee JJ). That case concerned an employee of the State railways and the nature of compensation payments made under the Workers' Compensation and Assistance Act 1981 (WA) in the context of the Income Tax Assessment Act 1936. The Full Court was concerned with whether the payments were in the nature of income. It did not need to consider whether the entitlements were part of the terms of employment but Lee J, with whom Gummow J agreed said at page 1536 "Quite simply, payments of compensation in replacement of loss of earning capacity occasioned to an employee by virtue of his or her employment cannot be regarded as a perquisite of employment in the nature of benefit or allowance. Such compensation was not a discretionary payment which, upon receipt, had the effect of enhancing the employee's remuneration and it is to that form of "compensation" to which sub-s.26(e) is directed. The payments made under the Compensation Act were not "compensations allowed, given or granted" to the respondent in respect of his employment. The payments represented the recovery of an entitlement under the Compensation Act. The employer did not make such payments as a matter of discretion. The employer was under a statutory liability to make such payments in the same way that an employer may have been liable at common law to pay damages to an employee. (See Constable v. Federal Commissioner of Taxation [1952] HCA 64; (1952) 86 CLR 402 per Dixon C.J., McTiernan, Williams and Fullagar JJ at p418)."

58. In view of our conclusions with regard to the second of the two issues set out in paragraph 53 above, we do not need to consider this issue further but need to consider whether compensation payments are "wages".

59. Apart from the case of Cahill, we have found several other cases which touch upon the nature of compensation payments. The first is a decision of the House of Lords in Great Western Railways v. Helps (1918) AC 141. In that case, the issue was whether gratuities or "tips" paid to a railway porter were included in his earnings and so to be taken into account in assessing the compensation payable under the Workmen's Compensation Act 1906 (UK). Lord Dunedin said at page 144

"My Lords, it was only a few weeks ago that I had occasion

in this House, in the case of the Woodilee Coal Co, to

point out that compensation which is directed to be paid by

the employer to a workman who is injured by accident

arising out of and in the course of his employment under

s.1 of the Workmen's Compensation Act has its natural

meaning - that is to say, something that is to be paid

which makes up for the loss that the man has sustained. It

is quite true that the full measure of the compensation is

afterwards cut down by several rules, because the

compensation which is directed to be paid under the first

section is not compensation in general, but is compensation

in accordance with the First Schedule ...".

60. In Joyce v. Australasian United Steam Navigation Co Ltd [1939] HCA 31; (1939) 62 CLR 160 the High Court considered sub-section 5(2) which provided that "a seaman shall not be entitled to recover compensation both independently of and also under this Act; but subject to this paragraph this Act shall not affect any civil liability of an employer under any other law". Latham C.J. said at pages 165-166

"The first contention of the plaintiff is that the word

"compensation" in sec.5(2)(b) refers only to compensation

in the sense of worker's compensation, that is, to a

pecuniary remedy awarded irrespective of any default in the

employer. The provision is of a character which is common

in workers'-compensation Acts in both Australia and

England. The provision assumes various forms, but it is

directed towards the protection of an employer against

double proceedings or double recoveries in respect of the

same injury of an employee. In a State statute there is

hardly any room for doubt that the word "compensation"

would be construed as covering a remedy in damages in

respect of an injury suffered by a worker. I can see no

reason for limiting the meaning of the term in a Federal

statute. The word is wide enough in its ordinary

significance to include compensation by way of damages for

the injury suffered by the seaman, whether or not some

default by the employer is part of the seaman's cause of

action."

61. The question of what is workers' compensation was also considered by the Supreme Court of Victoria in Hardie v. Hardie [1947] VicLawRp 9; (1947) VLR 79. Gavan Duffy J was considering whether periodical payments of compensation were "earnings" within the meaning of section 3 of the Maintenance Act 1928 (Vic). He said at page 81 "Compensation paid under the Workers' Compensation Acts is not "earnings" in the popular sense, or in any other sense of which I am aware. The worker indeed is compensated because he has lost his ability to earn. He neither does, nor promises to do, anything in return for what his employer pays him. As Schutt J. explained the scheme of the Act, speaking for the Full Court in Dunstone v. Ferrari [1926] VicLawRp 19; (1926) VLR 155, at p 159; [1926] VicLawRp 19; 47 ALT 141: `The compensation is given to the dependants because the deceased has been deprived by the accident of the power of earning that upon which they depended, and being a `worker' at the time of the accident, it is assumed by the Legislature that, but for the accident, he would have continued in that capacity and exercised his earning capacity for the benefit of his dependants'."

62. Now we note that Gavan Duffy J has referred to "earnings" rather than to "salary" and "wages" with which we are concerned. We also note that he has referred to the fact that the employee has neither done nor promised to do anything in exchange for what his employer pays him. In the context of a sick leave payment, the High Court in Graham v. Baker (as we have said in paragraphs 49-52 above) said that the performance of services is not necessarily a condition precedent to his having a right to wages. To that extent Gavan Duffy J may be said to be out of step with the later decision of the High Court in Graham v. Baker. However, this does not, in our view, take away from his essential proposition that workers' compensation is compensation for the loss of the ability to earn. In this, it accords with the cases of Joyce and Helps to which we have referred.

63. In Inkster the majority (Gummow and Lee JJ) of the Federal Court found that there was, in certain circumstances, an entitlement to compensation for an incapacity for work resulting from a disability. The Court referred to a number of cases which have considered the meaning of "incapacity for work". These cases were Thompson v. Armstrong and Rayser Pty Ltd [1950] HCA 46; (1956) 81 CLR 585, Arnotts Snack Products Ltd v. Yacob [1985] HCA 2; (1985) 155 CLR 171, Steggles Pty Ltd v. Vanderberg [1987] HCA 35; (1987) 163 CLR 321, Federal Commissioner of Taxation v. Slaven (1984) 52 ALR 81, Federal Commissioner of Taxation v. Smith [1981] HCA 10; (1981) 147 CLR 578 and Tinkler v. Federal Commissioner of Taxation [1979] FCA 88; (1979) 10 ATR 411. They concluded that

"Although the payments made to the respondent were not in

substitution for wages lost, the payments were intended to

be a supplement to whatever income the respondent enjoyed

and, furthermore, each payment as it was made was intended

to operate as a weekly amelioration of any realization of

his impaired capacity to earn a weekly income. (See Tinkler

v. Federal Commissioner of Taxation [1979] FCA 88; (1979) 10 ATR 411 per

Brennan J at page 414)." (paragraph 54)

64. Pincus J referred to the same authorities but concluded that

"Reading the relevant provisions together, it seems to me

that one cannot accurately say that the Compensation Act

describes the compensation to which the respondent was held

to be entitled as being for loss of earning capacity. It

is true that, not only in this particular case, but

generally, compensation may be payable under the statute in

amounts not truly representative of lost earnings. However,

the provisions in schedule 1 (in particular clauses 7 and

11 referred to above), seem on their face to be designed to

compensate for lost earnings: the idea appears to be that

the worker should be paid the difference between what he

would have got from doing the work which brought about his

disability, and the lesser sum he is in fact able to earn."

(paragraph 17)

65. All of the judges went on to conclude that the compensation payments and income within the meaning of the Income Tax Assessment Act.

66. Although Pincus J preferred to characterise the compensation payments as compensation for lost earnings and the majority as an amelioration of any "realization of his impaired capacity to earn a weekly income", none of the Judges has characterised the payments as being wages or salary.

67. We turn to consider the 1988 Act and whether they give any indication of the nature of the payments made under it. Compensation payments are made to Commonwealth employees by virtue of legislative provision. Mr McLennan's entitlement to those payments was originally determined pursuant to the 1971 Act. That Act was repealed by the 1988 Act. That Act continues the relevant authority's (on this occasion the Commonwealth Employees' Rehabilitation and Compensation Commission's (Comcare's)) liability to make the payment assessed under the 1971 Act.

68. The 1988 Act is expressed to relate to the rehabilitation of Commonwealth employees and to provide workers' compensation for them as well as certain other persons. Comcare is liable to pay compensation in accordance with the Act in respect of an injury suffered by an employee if the injury results in his or her death, incapacity for work, or impairment (sub-section 14(1)).

69. The measure of weekly compensation is determined in accordance with formula set out in the Acts (see sections 19 to 22). So, for example, an employee is entitled during the first 45 weeks of his incapacity to his normal weekly earnings less any amount he or she was able to earn during that week in suitable employment. After those first 45 weeks the amount payable is calculated according to specified percentages of normal weekly earnings (section 19). That, however, is not an end of the matter for sub-section 19(5) provide for the amount of compensation calculated under sub-section 19(3) to be reduced if it exceeds 150% of the "Average Weekly Ordinary Time Earnings of Full-Time Adults" as published by the Australian Statistician. Where the amount calculated in accordance with paragraph 19(3)(a) is less than the minimum earnings (calculated in accordance with sub-section 19(7)) the amount calculated under that paragraph is increased to the amount of the minimum earnings. Allowances are also prescribed in section 19 for dependants.

70. A person is also entitled to receive compensation in respect of damage to property in certain circumstances and expenses connected with medical treatment and rehabilitation.

71. On the scheme that we have outlined, there seems to us to be no distinction of substance to be drawn between the scheme in this case and that in Inkster. The amount of the compensation payments may or may not bear some relationship to the amount of the employees' actual weekly salary or wages. His entitlements however, is not determined by reference to the amount of his or her loss or whether he or she has in fact lost salary or wages. Comcare's liability to pay is dependant upon the person suffering from an injury or disease in certain circumstances. A person's entitlement is determined by his or her suffering from an incapacity and the amount of compensation is determined by the application of a formula, one of the constituents of which is a sum representing his normal earnings. The fact that his earnings play some part in calculating the amount of payment does not change the nature of the payment from a payment which is effectively given for an incapacity to a payment which may be characterised as salary or wages. In this regard, a compensation payment is distinguishable from the payment received by an employee during periods of sick leave. In our opinion, there is nothing in the 1988 Act which takes it outside the principles referred to in the cases we have considered above. It follows that the compensation payments cannot be characterised as salary or wages.

72. Consequently, we affirm the decision under review.