Allianz Australia Insurance Ltd v Jenkins

By summons filed on 26 February 2020, Allianz Australia Insurance Limited, the plaintiff (the Insurer), sought relief pursuant to s 69 of the Supreme Court Act 1970 (NSW). The first defendant, Karen Jenkins, has claimed compensation, including weekly payments, under the Motor Accident Injuries Act 2017 (NSW) (the Act) (the Claimant). The second defendant is the State Insurance Regulatory Authority (SIRA). The third defendant is a Merit Review Panel appointed by SIRA (the Panel). SIRA and the Panel have filed submitting appearances. The Claimant filed an appearance on 6 March 2020. On 10 March 2020, her solicitors filed a submitting appearance.

The relief sought is that the Panel’s decision made on 4 December 2019 under s 7.15(4) of the Act be set aside as legally erroneous and that the matter be remitted to SIRA for determination by a differently constituted panel according to law.

The Claimant does not oppose the orders sought by the Insurer. It is common ground between the Insurer and the Claimant that the matter can be determined on the papers.

All references to legislation in these reasons are references to the Act, unless otherwise stated.

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.

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.

Clause 7 of Schedule 1 defines pre-accident earning capacity as follows:

Section 3.6 relevantly makes provision for the first period in the following terms:

Section 3.7 relevantly makes provision for the second period in the following terms:

Section 3.8 relevantly makes provision for the third period in the following terms:

Section 3.9 relevantly provides:

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.

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.

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:

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.

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).

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.

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:

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.

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 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.

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.

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.

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.

The Panel referred to Cullen v Trappell (1980) 146 CLR 1; [1980] HCA 10 (discussed below) and found:

Notwithstanding the ATO advice, the Panel said:

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.

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.

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.

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.

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.

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:

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.

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.

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.

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.

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.

For the reasons given above, I make the following orders: