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Accident Compensation Cases

Erceg v Accident Rehabilitation and Compensation Insurance Corporation (DC, 21/07/00)

Judgment Text

RESERVED JUDGMENT OF JUDGE M J BEATTIE 
Judge M J Beattie
There are several issues potentially “alive” in this appeal. 
1.
The primary substantive issue is whether the Corporation has correctly calculated the appellant's entitlement to weekly compensation in its revised decision of 18 August 1995. 
2.
Underlaying that issue is the question of whether the Corporation had the power to revise its earlier decision of 27 September 1993, by that decision of 18 August 1995. 
3.
Underlaying that again, is whether the Corporation can now appeal its decision of 27 September 1993 if the Court were to rule in issue (2) above against the respondent. 
The facts which are relevant to the determination of these issues, as I find them to be, are as follows: 
On 21 November 1992 the appellant suffered multiple fractures of his left leg and ankle in a fall. He was wholly incapacitated from the date of this accident and thereafter for the whole of the period that this Court is concerned with. 
At the time of his accident the appellant was a shareholder/employee of a private company named Force Four New Zealand Limited. He was also a partner in a partnership carrying on under the name of Erceg and Erceg. Force Four was a manufacturing business in which the appellant had a hands-on role and Erceg and Erceg was an investment partnership. To quote the appellant's accountant: 
“The partnership of Erceg and Erceg is an investment partnership and the partnership holds shares in the Erceg companies. The partnership also pays for imports on behalf of the Erceg companies as a significant part of the Erceg activity is involved in importation of goods. The reason for this is that Erceg and Erceg have the letters of credit established and property owned by the Erceg's is used as security. All that happens then is that the partnership on invoices the companies for the actual goods for each company. The partnership also charges interest on advances made to the various companies and in turn pays out interest in respect of borrowing against partnership property. ”
Because of his incapacity the appellant sought weekly compensation and for the purposes of assessment of his entitlement the appellant provided information which established that he had received a salary as a shareholder/employee of Force Four Limited of $65,000 for the year ending 31 March 1992, and that he had suffered a loss in that same year in the partnership of $54,247. On the basis of that information the Corporation initially determined the appellant's pre-accident earnings to be $10,752, being his salary with Force Four less his loss from the partnership. The appellant sought a review of that determination. 
A review hearing was convened on 9 July 1993. At that hearing the Review Officer had a letter of 18 May 1993 from the appellant's accountant, Mr Gauld of Messrs Hart & Co, Chartered Accountants which, inter alia, explained the position regarding the partnership as I have recited it above and the details of his income. There was also a second letter dated 8 July 1993 from Mr Gauld to Mr Erceg confirming that the IRD accepted that the losses from the partnership would not be applicable to calculating the level of income. It gave the name of the person at the IRD that the Review Officer could contact to confirm this. This letter concluded with the statement: 
“The position then simply is that you are entitled to accident compensation based on your salary of $65,000 from Force Four Limited. ”
That review hearing was adjourned and the Review Officer wrote to the appellant on 16 July confirming the circumstances of that adjournment, that letter stating as follows: 
“This is to confirm that you attended at the Anzac Avenue offices of the Corporation on Friday 9 July for a review hearing which however was adjourned by me with your agreement. You presented me with a letter of 8 July 1993 from Hart & Co, Chartered Accountants of Howick which I am passing on to the Corporation's Henderson Office together with a copy of this letter as it may be that the information now available could persuade the Corporation to reconsider the matter under review. 
As a review application has been made it is a legal requirement for me to issue a decision but I believe it may save everyone a good deal of further inconvenience if the matter can be administratively reconsidered first. As soon as I have any further comment from ACC Henderson I will be back in touch with you. ”
The IRD duly confirmed the position as was asserted by Mr Gauld and on that basis a memorandum was issued by ACC Henderson stating: 
“FLC 16 confirms income at $65,000 as a shareholder and IP has advised (letter 18/8/93) that he is unable to provide 12 months income on financial accounts as his accounts run from March to March. Recommend revise weekly compensation and base that on the $65,000 as per the FLC 16. ”
Then under that in the handwriting of the Client Services Supervisor are the words: 
“admin revision of this decision can be made under section 67. Please advise review, claimant — follow section 67 procedures. ”
There then follows a memorandum from the appellant's Client Officer dated 1 September 1993 to the Review Officer stating: 
“Following your letter of 16-7-93, an administrative review has been made in the claimant's favour. Please formalise. ”
The Review Officer, Mr Smith, responded to the Client Officer as follows: 
“This is okay in a way — but I would be happier 
(a)
to have more detail of what you've decided 
(b)
to have it confirmed that Mr Erceg is happy with the new decision — preferably by him. However I don't want to hold things up so I will issue a decision that preserves his right of review if he still wants to exercise it. ”
The next step was for the Review Officer, Mr Smith, to promulgate a document headed up “Application for Review by Ivan Erceg”
HELD AT: 
AUCKLAND 
DATE: 
9 JULY 1993 
BEFORE: 
H W SMITH, REVIEW OFFICER 
PRESENT: 
THE APPLICANT 
DECISION 
Mr Erceg seeks a review of the rate of which his weekly compensation has been set. He attended the review hearing and presented me with fresh evidence from Hart & Company, Chartered Accountants of Howick which I passed on to the Corporation's Henderson Office as I believed it might persuade them to revise their original decision. 
Subsequent to this the Corporation's Henderson Office advised me that they were prepared to review their decision and base Mr Erceg's weekly compensation on a earnings rate of $65,000, which presumably will have the effect of increasing his compensation. 
I understand that Mr Erceg is satisfied with this and therefore I formally record that the application for review has been successful. If however, the outcome of the administrative revision should later prove to be unsatisfactory to the claimant I believe he should still be able to exercise his review rights in the matter. 
H W SMITH 
REVIEW OFFICER 
DATE OF DECISION: 27th September 1993. ”
On 28 September 1993 the Review Clerk wrote to the appellant forwarding a copy of that decision. 
The letter forwarded by the Review Clerk was a standard form letter and advised the addressee that he had a right of appeal which must be filed within 28 days of being notified of the review decision. It is to be noted that that letter was sent from the Panmure office of the respondent, being the office where the Review Officer was located whereas the appellant's file was being administered by the Henderson office. 
The appellant began receiving weekly compensation calculated on the basis of his income of $65,000 and that is where this matter rested until mid 1994 when the respondent again sought to look into the financial affairs of the appellant, particularly his pre-accident earnings as it had not, hitherto had details of his income for the year ending 31 March 1993. 
The respondent obtained particulars from IRD of the appellant's income as returned for taxation purposes for that year in April 1994 and it was certified by the Commissioner of Inland Revenue that the appellant's income as returned for the year ended 31 March 1993 was (a)$7,782 being earnings as a self-employed person, and (b) earnings as a shareholder/employee $10,000. 
Following receipt of that advice the respondent wrote to the appellant seeking further details of his business accounts. After some delay in supplying those accounts, they were provided and the appellant's case manager referred all the information on to Messrs Bryant & Co Chartered Accountants for its advice. A report was provided to the respondent by Bryant & Co on 19 December 1994 but it was some months later, not until August 1995 that there was a meeting between the appellant and his accountant and the appellant's case manager, Mr Vale and Mr Bryant of Bryant & Co. 
Whilst matters were discussed there was no agreement reached but this meeting did lead on to the respondent making a decision which is recorded in its letter of 18 August 1995. That decision letter states as follows: 
“Dear Mr Erceg, 
Thank you for coming in the see us at the Auckland Office with Mr Gauld on Tuesday 15. 
I believe I must first point out that entitlement to weekly compensation is based on loss in relation to historical earnings. Compensation cannot be based on a claimants perception of their future loss. Although you were not willing to have questions asked of you and recorded, we did manage to have a discussion of the issues. 
You were made aware that ACC have conducted an investigation with regard to your pre accident earnings. This investigation was conducted in order the determine your pre accident earnings. 
I have now considered the information provided by your Accountant and yourself and sought advice from the Branch' s Accounting Advisor. 
Section 67A of the Accident Rehabilitation Compensation and Insurance Corporation Act 1992 allows me to revise any decision made under this act. I now revise the decision made in determining your pre accident earnings for the purposes of weekly compensation. These pre accident earnings are now deemed to be $10,752.50 for the 1991/92 year. As you had earnings in the 1992/93 year of $17,782.00 I must conclude that you did not suffer a financial loss and therefore do not have an entitlement for weekly compensation. 
There therefore exists an overpayment of $99,665.13. Please forward this to the branch immediately, or contact me to arrange repayment. 
This decision is made under Section 77 of the Accident Rehabilitation Compensation and Insurance Corporation Act 1992. 
If you are not satisfied with this decision, or if there is something you do not understand, you should contact us immediately and discuss your concerns. We will explain the decision and will explain your right to ask that the decision be reviewed. ”
It is that decision which the appellant sought to review and which has led to this appeal. 
The appellant sought a further explanation of how and why the respondent had changed its position from that which had been determined by its decision of September 1993 and Mr Vale wrote to the appellant on 14 November 1995 giving an explanation stating, inter alia, as follows: 
“The powers available to the Corporation in respect of assessment of the income of shareholder/employees. are set out in Regulation 10 of the Accident Rehabilitation Compensation and Insurance (Earnings Definitions) Regulations 1992 (SR 1992/64) The Corporation has power to fix your ‘earnings as an employee’ under the regulations despite what the IRD have done. 
Mr Smith did not make a decision on your application for review. He left it for the Branch to change its earlier decision. and his ‘decision’ of 27 September 1993 records that. The Branch did in fact change its earlier decision in your favour. This was a further primary decision of which (if you had so wished} you could have sought review. Now, that primary decision has been changed again. In my view, the current decision is correct. 
This Section gives authority for the Corporation to do what it has done. 
The position, therefore is that the Corporation' s decision of 18 August 1995 stands. You take a different view. You have been advised that you can have the difference resolved at a review hearing. ”
It seems that weekly compensation for the appellant was suspended on or about 31 March 1994 because at that time he had failed to provide the financial information which had been requested and weekly compensation was never reinstated. 
A review hearing took place on 7 March 1996 and a decision was issued on 4 April 1996. It was the Review Officer's decision that the respondent had the power to amend the September 1993 decision pursuant to the powers given to it by section 67A and that the Corporation was right to so amend the appellant's entitlement. The Review Officer elected to disregard the salary provided to the appellant for the year ending March 1992 and he found that he had no earnings during the relevant period and therefore there was no entitlement to compensation. The Review Officer also seems to have confirmed the Corporation's entitlement to recover the overpayment that his decision thereby created but the decision did not include any consideration of the provisions of section 77(2) of the Act, which gave a right to apply for remission of the overpayment. 
It is from that decision that the appellant has now appealed to this Court. 
For the purposes of this appeal, the appellant obtained leave to introduce further evidence being affidavit evidence from himself, Bryan James Gauld, his Accountant, and Mr Gerald Rea, a Chartered Accountant, who qualified for and gave evidence as an expert. 
Mr Erceg stated in his affidavit that he was a shareholder employee of Force Four New Zealand Ltd and he gave details of his hands-on management of that company down to the date of his accident in November 1992. He went on to state that after his accident, the company required to employ a General Manager in his place and paid him a salary of some $70,000 - $75,000. He also confirmed the statements made in Mr Gauld's affidavit about the fixing of his salary for the previous year and that it was in effect the company's first year of trading. 
Mr Gauld stated in his affidavit that he considered that the salary of $65,000 given to Mr Erceg for the financial year ending March 1992 was appropriate and even modest for the amount of work that Mr Erceg did for the company. He stated that after the accident Mr Erceg was unable to continue with his work for Force Four NZ Ltd. He went on to state that given the drastic consequences of his accident that it was not appropriate from that time on for him to be paid a salary until he was able to get back and work. 
A considerable amount of the balance of his affidavit details the pattern of the discussions that went on between he and the Corporation, his criticism of Mr Bryant's evidence at the review hearing, and further details of the various financial ventures with which Mr Erceg was concerned and of the separateness and distinctness of them. 
Mr Gerald Rea, a Chartered Accountant and formerly a principal of KPMG Peat Marwick, gave evidence as an expert and his evidence was to the point of whether or not the appellant's salary of $65,000 for the year ending 31 March 1992 was fair and reasonable for the work done by the appellant having regard to the state of the company at the time and all other circumstances. It was Mr Rea's opinion that the salary paid to the appellant was appropriate, consistent with the market, and in his opinion modest. 
Submissions 
Mr Carden, counsel for the appellant, noted that if the respondent's submissions to this Court were included, there had now been four separate and distinct attempts by the respondent to get right the basis for calculation of the appellant's earnings related compensation. It was his submission that the primary section for consideration of the appellant's entitlement is section 42, being the section which provides for the calculation where the injured person is an earner with earnings as an employee and earnings other than as an employee during the twelve months preceding the commencement of incapacity. He submitted that in respect of the component of earnings as an employee, the calculations is to be made pursuant to section 40(2)(a) and (b)(i). 
Counsel then submitted that the $65,000 salary for the previous year should be used as the benchmark and that this should be continued from 1.4.92 until the date of the accident 21.11.92. 
Counsel submitted that the figures submitted by the respondent, being earnings of $10,000 as shareholder/employee and $7,782 self-employed earnings, should not be the figures used. He submitted that it was now accepted that the $7,782 purported self-employed earnings was in fact the ACC payments that the appellant had received and which had been returned to the IRD. 
Mr Carden then submitted that the decision of 27 September 1993 created issue estoppel and it was not open to the Corporation to revise its own decision under section 67A. He submitted that the only way in which the Corporation could question that decision was by an appeal pursuant to section 91 of the Act, brought within 28 days or later with leave. Counsel submits that that decision should stand and the matter be left as it was at that time. 
Mr Barnett, counsel for the respondent, submitted that the prime issue for consideration in this appeal is what was the correct level of entitlement to weekly compensation of this appellant. Counsel then asserted that all previous attempts by the parties to deal with the matter had been done incorrectly and on the wrong basis. 
He submitted that as the appellant had the status of both employee and self-employed, his pre-accident earnings are to be determined pursuant to section 42(2), which provisions provides for a calculation which combines the calculations made under section 40(2)(Employee Earnings) and section 41(2)(Self-employed Earnings). He submitted that the employee earnings are those derived in the twelve months immediately preceding the date of incapacity and the self-employed earnings are those derived in the financial year immediately preceding the date of incapacity. He submitted that as the appellant did not have self-employed earnings in the financial year immediately preceding the accident, as in fact he had returned a loss, it followed that in applying the formulation of section 42(2) the self-employed component for earnings is nil. 
Counsel then submitted that calculation of the appellant's employee earnings required consideration of the twelve months immediately preceding the date of incapacity, i.e. 21 November 1991 to 20 November 1992, which period took into account two financial years. Counsel submitted that the evidence established that the appellant had a salary for the year ending 31 March 1992 of $65,000 and for the year ended 31 March 1993, of $10,000. By applying those figures to the formula in section 42(2) counsel submitted that the weekly earnings figure which should form the basis of the appellant's weekly compensation is $538.09. 
On the question of issue estoppel, counsel submitted that the decision of 27 September 1993 was not in fact a review decision and that the matter had been determined by a primary decision following an administrative review by the Henderson Branch Office and that it was that decision which would have carried rights of review and that is recognised in the “decision” stated by the Review Officer. 
Counsel submitted that the letter of 28 September 1993 from the Review Clerk must be looked at in the context of what it was enclosing and that it was not a review decision which gave rights to appeal even though the standard form letter stated it did. Counsel submitted that at all stages the decision to calculate the appellant's weekly compensation on the basis of earnings of $65,000.00 was a primary decision and as such was subject to revision pursuant to section 67A if grounds for same existed. 
Counsel did advise, as a last resort and as a fall back position that it had lodged a Notice of Appeal in January 2000 with an oral application for leave to extend time for filing same against the “decision” of 27 September 1993. 
Decision 
A reading of the file in this matter gives one the clear impression that thus far this matter has generated a great deal of heat but very little light. On the question of the amount of entitlement to weekly compensation that the appellant may be eligible for, everyone seems to have been mesmerised by the fixing of the appellant's salary of $65,000 for the financial year ending 31 March 1992, that salary being fixed by a meeting which occurred some two or three days before the appellant's accident. I get the impression that that coincidence created a climate of suspicion and has somewhat coloured the actions of the parties and their dealings with each other since. 
Having stated that, I find that this issue is very simple and can be determined quite readily by having regard to the correct statutory provisions which apply. 
At the time of his accident the appellant was clearly an employee of Force Four NZ Ltd and he must also be regarded as being a person who had received earnings other than as an employee by reason of his activities with Erceg and Erceg the partnership. However at the end of the day his losses exceeded any earnings received from that source and therefore whilst the appellant must be given the status of a person who has had earnings other than as an employee, in fact he had no earnings which could be put forward into the calculation to determine the quantum of entitlement for weekly compensation. 
Having found the appellant's status as I have, the question of his entitlement at first instance is to be governed by the provisions of section 42 of the Act. Leaving aside the assessment of compensation for the first month after incapacity which is governed by section 42(2)(a), the long term entitlement is governed by the provisions of section 42(2)(b)(i) and (ii). 
Section 42(2)(b)(i) requires the calculation referred to in section 40(2)(b) in this case as (c) is not applicable as the appellant was in permanent employment immediately before the commencement of incapacity. 
Section 40(2)(b)(i) requires a calculation of the appellant's earnings for the 52 weeks immediately before the commencement of incapacity divided by the number of weeks during which the person earned those earnings as an employee during that 52 week period. 
The evidence discloses that for part of that 52 week period the appellant was in receipt of a salary calculated at $65,000 per annum and I agree with the calculations made by Mr Barnett into his written submissions that this requires a calculation of a pro rata amount of that annual salary for the period 21 November 1991 to 31 March 1992, which is 17 weeks. Thus the calculation is $65,000 / 52 x 17 = $21,250. 
It is in the calculation of that sum that I find that the appellant's salary for the year ending 31 March 1992 is relevant and only for that calculation. 
For the period 1 April 1992 to 20 November 1992, the appellant earned a further $10,000 as an employee, as returned for his income for the following year to 31 March 1993 and evidenced in the FLC 16 form provided by IRD. That period of income is for the balance of the 35 weeks of that pre-incapacity 52 weeks and therefore that $10,000 is required to be divided by 35. 
It is at this point that I disagree with counsel for the respondent's calculation that the figure of $10,000 must be divided by 52 and then multiplied by 35. Such a calculation assumes that the appellant continued working after the date of the accident and was earning income for the full year. That is clearly not the case from the evidence and I reject that basis of calculation. 
Accordingly then, the calculation of the appellant's weekly earnings pursuant to section 42 for the 52 weeks preceding the commencement of incapacity was $31,250, being $21,250 for the 17 weeks which were in the appellant's previous financial year and $10,000.00 for the further 35 weeks in the financial year in which the injury occurred. It is that figure which is to be divided by 52 giving a weekly earnings figure of $600.96. 
Mr Carden submitted that the salary allocated to the appellant for the year ending March 1992 could be taken to have continued in the next financial year and that the appellant's income be calculated using that figure. Such submission would have force if indeed that is what did occur but the plain fact of the matter is that for whatever reasons the appellant was not accorded that same salary for the financial year ending 31 March 1993, rather he was allocated a salary of $10,000. No doubt that figure reflected the more difficult financial times that the company was going through without the appellant's hands-on presence and the need to employ staff to take-over the duties he formerly carried out. 
It is to be remembered that initially the respondent only had the previous year's income to work on and the file discloses that on several occasions there is reference to the fact that the Corporation had not been provided, as at the particular date, with particulars of his income to 31 March 1993. Unfortunately that aspect of it seems to have been lost when the discussions and negotiations took place between the appellant's case manager and his accountant. Similarly the provisions of the Act were also lost sight of and somehow it was believed that the salary of $65,000 for the previous financial year came to be the figure to be used as the definitive figure for calculation of weekly earnings when clearly it was not and could not be. 
I turn now to deal with the decision that was made by the respondent in September 1993 to accept and calculate weekly compensation based on that salary of $65,000. Firstly, it is clear that that salary was only accepted as being bona fide for that financial year. At no stage is it accepted as being the position for the financial year ending 31 March 1993. 
As I have previously noted and found, the respondent was not applying the Act correctly as if it had been it would not have come to the arrangement that it did because it would have insisted on being provided with details of the appellant's income for the 35 weeks of the 1992/1993 financial year to the date of accident and incapacity. 
Having considered the evidence and the circumstances which surrounded the dealings between the parties in 1993 I am satisfied that the Henderson Branch of the respondent, which was administering the appellant's file, carried out an administrative review after being assured by the IRD and the appellant's accountants about the bona fides of the salary of $65,000 for the 1992 financial year and the respondent agreed to revise its calculation of weekly compensation entitlements accordingly. That decision was a further primary decision of the respondent. 
As a matter of law, I find that the “decision” of Mr Smith the Review Officer dated 27 September 1993 was not a review decision within the meaning of those words as contained in sections 90 and 91 of the Act. The document was simply informative and confirmed the primary decision made by the respondent's Henderson office that it had acted pursuant to section 67A and revised its original decision on the quantum of weekly compensation to which the plaintiff was entitled. 
I find the wording of Mr Smith's “decision” quite clear on its face and I further find that the pro-forma standard form letter of 28 September that emanated from the review office clerk cannot alter what the facts of the matter clearly disclosed simply by it stating that the decision gave a right of appeal. If that clerk had turned his mind to it he would no doubt not have allowed the pro-forma letter to go out without deleting those words relating to rights of appeal. 
It follows on from that finding that it was within the power of the respondent to again invoke section 67A of the Act when it believed, albeit mistakenly as I now find, that the administrative review decision of September 1993 was incorrect based on subsequent information that the respondent had obtained about the appellant's income and the advice from Mr Bryant that it had received. 
The conclusion from the foregoing is that whilst the respondent was correct and entitled to exercise its powers under section 67A of the Act and revise the earlier decision made in September 1993, both that earlier September 1993 decision and the decision made on 18 August 1995 were wrong in fact and in law, and further, the Review Officer was wrong in his decision when he confirmed the respondent's primary decision for the reasons he gave. 
The essence of the respondent's primary decision of 18 August 1995 was that the appellant was not and had never been entitled to weekly compensation and that it required a repayment of all the monies so paid. 
The decision in this appeal is that the appellant did have an entitlement to weekly compensation, that entitlement being based on a calculation of the appellant's weekly earnings of $600.96. The Court can say no more than that about the appellant's weekly compensation as it was not part of the issues in this appeal to determine the period of the appellant's incapacity or whether there are any financial considerations outside the period this Court has been concerned with which might affect the amount of compensation for the duration of the appellant's incapacity. 
Accordingly, the respondent's decision of 18 August 1995 is hereby revoked and the respondent is directed to calculate the appellant's entitlement to weekly compensation based on the weekly earnings of $600.96 for the period of his incapacity. 
The result of this decision is that the appellant has been successful in large measure and costs to the appellant are appropriate. I fix the sum of $2,000 as being reasonable in the circumstances of this appeal. 

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