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Accident Compensation Cases

Whitaker v Accident Compensation Corporation (DC, 12/06/03)

Judgment Text

RESERVED JUDGMENT OF JUDGE J. CADENHEAD 
Judge J. Cadenhead
The Review Decision Appealed 
“I have carefully considered the arguments made by the applicant's counsel at the hearing. However, in reaching my decision, I must consider whether the Corporation has properly applied the relevant provisions of the Act. From the evidence before me, I am satisfied that it has done so. 
Mr Vlatkovich takes issue with the Corporation's calculations on the basis that the earnings of the applicant are not correctly reflected. He has submitted that the applicant was a shareholder-employee for one month in March 2001, then from 31 March 2001 until his death in December 2001, during which time his earnings were approximately $66,000.00. 
In terms of weekly compensation, Clause 5 to Schedule 1 defines the ‘relevant year’ as the most recent income year last ended before the commencement of the period of incapacity. The applicant commenced shareholder employment on or about 1 March 2001. Therefore the 2001 tax year is the relevant year and the Corporation cannot consider the following months of 2001 as they are outside the relevant period for calculation of compensation. 
In calculating the compensation due, the Corporation has applied Clause 16, which is the appropriate clause for shareholder-employees. In particular Clause 16(4) is relevant as it concerns the period of incapacity after the first four weeks. Clause 16(4)(b)(i) determines that the calculation is based on the insured's earnings as a shareholder-employee in the relevant year. These in turn are divided by the greater of the divisor 13, or the number of weeks the Corporation considers fairly represents the time in that year ‘during which the insured earned as a shareholder-employee, if the relevant year was the first year which the insured received earnings as a shareholder-employee.’ In the applicant's case, the 5 weeks of his 2001 earnings were correctly rounded up to 13. 
Clauses 67 and 70 provide for the calculation of weekly compensation for the surviving spouse and children of the applicant. Mr Vlatkovich argued that the formula contained within Clause 67(2)(b) allows for an assessment of loss of potential earnings and that there is clear evidence of monies received by the applicant or potentially would have been received. While this argument is reasonable, the Act makes it clear under Section 13, that a ‘potential earner’ would not include the applicant who was over 20 years at the time and was earning in excess of $280.00 per week. 
While I have the utmost sympathy with Mrs Whitaker, there is no evidence to show that the Corporation have incorrectly applied the relevant legislation. 
Accordingly this application for review is dismissed. ”
The Issue 
[1]
The issue in this case is whether or not the respondent has calculated correctly the entitlements under the Act due to be received by the appellant and her dependent children? 
The Background of Facts 
[2]
The appellant is the widow of the late Michael Whitaker (“the deceased”). She brings the present appeal on behalf of herself and her dependent children in respect to a decision of the respondent dated 25 February 2002, and confirmed by a review decision dated 2 July 2002 as to the way that her allowance, and her dependent children's allowances, have been calculated pursuant to the relevant statutory provisions under the 1998 Accident Insurance Act legislation. 
[3]
On 17 December 2001 the deceased accidentally fell from a building during the course of his work as a builder. He sustained serious head injuries. The deceased died on 20 December 2001 as a result of those head injuries. 
[4]
It is common ground that the deceased commenced employment as a shareholder-employee on or about 1 March 2001. As a shareholder-employee his earnings for the relevant year, namely, to 31 March 2001 were over a period of five weeks and totalled $6,300. Again, from 1 April 2001 until the date of his death the company accounts show that the deceased would have earned a salary of approximately $66,000. 
[5]
The appellant has submitted that the loss of earnings to which the insured would have been entitled at the end of five weeks of incapacity, had he or she lived but had been totally incapacitated in this regard, would have averaged $1,260 per week ($6,300 ÷ 5). The appellant submits that these average earnings should provide the basis for the calculation of benefits. 
[6]
The respondent assessed the deceased's weekly compensation by applying Clause 16(4)(b)(i) and taking as his earnings for the relevant year $6,300 and dividing that amount by 13 weeks ($6,300 ÷ 13) giving a figure of $484.62. 80% of this sum is $387.69 of which 60% was payable to the widow and 20% payable to each of the two children. This calculation was made on the basis of Clause 16(4)(b)(i) of the relevant legislation. 
Relevant Statutory Provisions 
67.
Weekly compensation for surviving spouse — 
(1)
The insurer is liable to pay weekly compensation to a surviving spouse of a deceased insured. 
(2)
Weekly compensation payable under this clause is payable from the date of the insured's death at the rate of 60% of — 
(a)
The weekly compensation for loss of earnings to which the insured would have been entitled at the end of 5 weeks of incapacity, had he or she lived but been totally incapacitated; or 
(b)
The weekly compensation for loss of potential earning capacity to which the insured would have been entitled at the end of 6 months of incapacity, had he or she lived but been totally incapacitated. 
This subclause is subject to clause 74. 
70.
Weekly compensation for child — 
(1)
The insurer is liable to pay weekly compensation to a child of a deceased insured. 
(2)
Compensation payable under this clause is payable from the date of the insured's death at the rate of 20% of — 
(a)
The compensation for loss of earnings to which the insured would have been entitled at the end of 5 weeks of incapacity, had he or she lived but been totally incapacitated; or 
(b)
The compensation for loss of potential earnings capacity to which the insured would have been entitled at the end of 6 months of incapacity, had he or she lived but been totally incapacitated. 
This subclause is subject to clause 74. 
74.
Maximum payments — 
(1)
The total amount of weekly compensation payable under clauses 67 to 73 must not exceed — 
(a)
The weekly compensation for loss of earnings to which the insured would have been entitled at the end of 5 weeks of incapacity, had he or she lived but been totally incapacitated; or 
(b)
The weekly compensation for loss of potential earning capacity to which the insured would have been entitled at the end of 6 months of incapacity, had he or she lived but been totally incapacitated. 
(2)
The insurer may reduce all weekly compensation calculated under those clauses pro rata, and may readjust it from time to time, if the insurer considers the reduction and readjustment is necessary for the purposes of subclause (1). 
Clause 16Weekly earnings if insured had earnings as a share-employee before incapacity commenced — 
(1)
This clause applies to an insured who had earnings as a shareholder-employee immediately before his or her incapacity commenced. 
(2)
The weekly earnings of the insured are the higher of — 
(a)
His or her earnings calculated under clause 9 or clause 11, whichever is applicable; and 
(b)
His or her earnings calculated under subclause (3) or subclause (4), whichever is applicable. 
(3)
This subclause applies to each of the 4 weeks after the week of incapacity. The insured's weekly earnings for each of the 4 weeks are calculated using the following formula: 
where — 
‘a’ is the insured's earnings as a shareholder-employee in the 4 weeks immediately before his or her incapacity commenced. 
‘b’ is the number of full or part weeks during which the insured earned those earnings as a shareholder-employee in those 4 weeks. 
(4)
This subclause applies to any period of incapacity after the 4 weeks described in subclause (3). The insured's weekly earnings for any such period are the insured's earnings as a shareholder-employee in the relevant year, divided by — 
(a)
The number of weeks in the relevant year; or 
(b)
If the relevant year was the first year during which the insured received earnings as a shareholder-employee, the greater of — 
(i)
13; or 
(ii)
The number of weeks that the manager considers fairly and reasonably represents the number of weeks or part weeks in that year during which the insured earned those earnings as a shareholder-employee. 
5.
‘Relevant year’ — 
In this Part, ‘relevant year’ means the most recent income year (as defined in section OB 1 of the Income Tax Act 1994) last ended before the commencement of the period of incapacity. 
Clause 9Weekly earnings if earner had earnings as an employee in permanent employment before incapacity commenced: calculations — (1) This subclause applies to each of the 4 weeks after the first week of incapacity. The insured's weekly earnings for each of the 4 weeks are calculated using the following formula: 
where — 
a
is the insured's earnings as an employee (from that permanent employment) he or she had in the 4 weeks immediately before his or her incapacity commenced 
b
is the number of full or part weeks during which the insured earned those earnings as an employee in those 4 weeks. 
(2) This subclause applies to any weekly period of incapacity after the 4 weeks described in subclause (1), if the insured was in permanent employment with the particular employer for less than 52 weeks immediately before his or her incapacity commenced. The insured's weekly earnings for any such weekly period are calculated using the following formula: 
where — 
a
is the insured's earnings as an employee (from employment with that employer) that he or she had immediately before his or her incapacity commenced 
b
is the number of full or part weeks during which the insured earned those earnings as an employee. 
(3) This subclause applies to any weekly period of incapacity after the 4 weeks described in subclause (1), if the insured was in permanent employment with the particular employer for 52 weeks or more immediately before his or her incapacity commenced. The insured's weekly earnings for any such weekly period are calculated using the following formula: 
where — 
a
is the insured's earnings as an employee (from employment that was not permanent employment) he or she had in the 52 weeks immediately before his or her incapacity commenced 
b
is 52 (not including any full or part weeks during which the insured was on unpaid leave). 
Clause 17Aggregation of calculations for multiple employment situations — (1) If an insured would have more than 1 amount of weekly earnings from different employment situations because of the operation of any of clauses 9, 11, 13, 15, or 16, the insured's weekly earnings are calculated by doing the relevant calculations under those clauses separately and then aggregating the results. 
(2) However, an insured's weekly earnings calculated under clause 9 or clause 11 must not be aggregated with the insured's weekly earnings under clause 16, if the insured's weekly earnings under clause 16 are his or her earnings under clause 9 or clause 11. 
(3) Nothing in subclause (1) affects the obligations of an insurer or the manager to provide any part of the aggregated amounts. 
Clause 20Estimation of weekly earnings that cannot be ascertained — (1) This clause applies to an insured who, immediately before his or her incapacity commenced, — 
(a)
Had earnings as a self-employed person; or 
(b)
Had earnings as a shareholder-employee. 
(2) This clause applies when the insurer cannot readily ascertain the insured's actual earnings during a particular period, whether before incapacity or, for abatement purposes, after incapacity. 
(3) In order to calculate the insured's weekly earnings under this Part, the insurer may estimate an amount that represents reasonable remuneration for the insured during the period. 
(4) The insurer must have regard to — 
(a)
The evidence available of the insured's earnings; and 
(b)
The nature of the insured's employment immediately before his or her incapacity commenced; and 
(c)
Any employment, whatever its nature, that the insured has while suffering the incapacity. ”
Respondent's Submissions 
[7]
I set out the relevant submissions of the respondent: 
“5.1
Clauses 67 and 70 of Schedule One of the Act provide for the payment of weekly compensation to surviving spouses and children of a deceased. Weekly compensation to a surviving spouse is payable at a rate of 60% of the weekly compensation to which the deceased would have been entitled (refer to Clause 67(2)(a)). Weekly compensation to surviving children is payable at the rate of 20% of the compensation that would have been payable (Refer to Clause 70(2)(a)). 
5.2
Clause 16 of Schedule One provides the amount of weekly earnings payable to shareholder employees. Clause 16(3) applies to the first four weeks following incapacity. It prescribes the insured's weekly earnings as ‘a’, where a is the insured's earnings in the four weeks immediately before the incapacity, divided by ‘b’, where b is the number of full or part weeks during which the insured earned those earnings. 
5.3
Clause 16(4) applies to the period of incapacity after those first four weeks. It provides that the rate of weekly compensation will be the insured's weekly earnings as a shareholder employee in the relevant year, divided by the number of weeks in the relevant year or if the business has been operating less than a year the greater of 13 or a number at the discretion of the Corporation. 
5.4
Clause 5 of Schedule One defines the relevant year as the most recent income year last ended before the period of incapacity commenced. 
5.5
Finally, Section 13 of the Act defines potential earner as a person who, inter alia, is younger than 18, or engaged in study which commenced before the claimant turned 18, at the time of the incapacity. 
Application to the facts 
5.6
The first question to consider is what constitutes the relevant year for the purposes of calculating entitlements under Clause 16. It is submitted that the relevant year in the present case must be the year ending 31 March 2001, being the most recent income year last ended before the deceased's death on 20 December 2001. The Appellant was earning a weekly rate during that year of $484.62 
5.7
The following reflects the calculations made by the Corporation pursuant to the legislation:- 
Spouses's Entitlement 
 
 
$484.62 x 80%= 
$387.70 x 60%= 
$232.62 
Children's Entitlement 
 
 
$484.62 x 80%= 
$387.70 x 20%= 
$77.54 
5.8
It is the Corporation's submission that these calculations are correct and in accordance with the legislation, further, the Corporation has no discretion to award an amount that does not reflect the formulas provided under the legislation. ”
Literally Construing the Statute 
[8]
In construing Clause 16 the following two points should be noted: 
(i)
Clause 16 applies to an insured who had earnings as a shareholder employee immediately before the commencement of the incapacity. 
(ii)
In the context of Clause 16(2) those weekly earnings are the highest of the calculations under Clause 9 or Clause 11 or those earnings calculated under subclause (3) or (4). 
(iii)
The basis of the calculation pursuant to Clause 9 is to divide the earnings of the insured that he/she had as a permanent employee in the 52 weeks immediately before the incapacity by 52 (not including any full or part time weeks which the insured was on unpaid leave). In the case of employment less than 52 weeks then the earnings less the number of weeks during which those earnings were earned. 
[9]
This method of calculation is “fair and reasonable” as it divides the earnings by the actual weeks in which they were earned. In my view, the purpose of the legislation is to provide a fair and reasonable calculation of the insured's earnings, so as to provide a proper basis of entitlement to benefits. I interpret Clause 16(2) as requiring that the method of calculation provided by Clause 9 or 11 should first be carried out, on the basis that this type of calculation expressly applies to shareholder employee earnings. This type of interpretation is necessary to cater “for a calculation under Clause 9” as provided by the legislation. In other words a calculation is made of the earnings of the deceased for 52 weeks after his death, which would aggregate his shareholder/employee earnings to his permanent employee's earnings for a period of 52 weeks immediately before his death. 
[10]
The present calculation based upon Clause 16(4)(a)(i) produces the grotesque and unfair result of the $6,300 earned for five weeks immediately before 31 March 2001 being divided by 13, which equals $484.62. If the amount of $6,300 was divided by 5, that is the number of weeks that earned that amount, the weekly average would be $1,260. It should, also be noted that the deceased from 1 April 2001 to the date of his death earned as a shareholder employee a salary of approximately the sum of $66,000. The figure of $484.62 is neither fair nor reasonable. 
[11]
It cannot have been the purpose of this part of the legislation to have provided such an unfair method of calculation. Further Clause 16(4)(b)(ii) specifically provides the insured's weekly earnings for a period in the first year being the number of weeks that the manager “fairly and reasonably represents the number of weeks … during which the insured earned those earnings as a shareholder-employee”. This concept of “reasonable remuneration” is reflected in the calculation of “estimated earnings” under Clause 20, where “estimate earnings” cannot be estimated. In this clause the evidence of the insured's earnings must be taken into account in estimating what is reasonable. If necessary, in order to reflect the purpose of the statutory scheme, I would have interpreted the words “greater of” referring to Clause 16(4(b)(i) and (ii) as not relative to the number of weeks or devisor, but rather “the greater of” weekly earnings derived from a comparison of a devisor of 13 and such number of weeks that the manager considered fair and reasonable reflecting the yield of the insured's earnings. 
The Purposive Approach to Interpretation 
[12]
The long title of the Act indicates that the purpose of the Act is to maintain a no fault, comprehensive, insurance-based scheme to rehabilitate and compensate in an equitable and financially affordable manner those persons who suffer personal injury and to provide opportunities for the scheme to be managed and delivered in different ways. 
[13]
Section 13 of the Act defines “earnings as an employee”, “earnings as a self employed person” and “earnings as a shareholder-employee”
[14]
Earnings as a shareholder-employee has the meaning the set out in s 21. 
[15]
Section 21 of the Act provides that earnings as a shareholder-employee in relation to a person who is a shareholder-employee and any income year, means — 
“(a)
The amount described in subsection (2); or 
(b)
The amount described in subsection (3) … if the insurer decides that the subsection (2) amount is not a reasonable representation of the person's earnings as a shareholder-employee in the income year. ”
[16]
Subsection (2) of s21 provides — 
“(2)
The subsection (2) amount is — 
(a)
All source deduction payments of the person for the income year derived from a company in which the person is shareholder-employee, and 
(b)
All income of the person that is deemed to be income derived otherwise than from source deduction payments. ”
[17]
Subsection (3) is an amount determined by the insurer in the following way: 
“(a)
First, determine each of the following amounts: 
(i)
An amount that represents reasonable remuneration for the services that the person provides to the company as an employee of the company in the income year; and 
(ii)
An amount that represents reasonable remuneration for the services that the person provides as a director of the company in the income year; and 
(b)
Second, add the amounts described in paragraph (a)(i) and (ii). The result is the subsection (3) amount. ”
[18]
Section 5 of the Interpretation Act 1999 provides that the meaning of an enactment must be ascertained from its text and in the light of its purpose. This approach rests upon the twin pillars of the section, namely, consideration of the text and its relevant objectives. 
[19]
In R v Pora [2001] 2 NZLR 37 the judgments of Elias CJ and Tipping J at p.43 said that the Courts must give effect to the will of Parliament as expressed in the legislation. The first step was to understand the meaning of the Act, as ascertained from its text, and in the light of its purpose (s 5(1) of the Interpretation Act). The organisation and format of the enactment is an indication as to its meaning: s 5(3) of the Interpretation Act. Both the text and the purpose of the Act must be read in context. In construing that legislation the Court of Appeal had regard to the long title of the Act that was under consideration. 
[20]
In a comprehensive decision relative to statutory interpretation, the majority of the Court of Appeal, Thomas and Blanchard JJ in Frucor Beverages Ltd v Rio Beverages Ltd [2001] 2 NZLR 605 laid down the following principles: 
(i)
In respect to the statute being considered a purposive construction was required. In the circumstances of that case a literal reading of the particular section clashed with the clear intention that Parliament had intended. 
(ii)
In that case an attempt to provide a rational basis for the literal meaning of the words failed. The Court of Appeal thought it was always attractive to seek to rationalise a basis for the grammatical or literal meaning of a statutory provision. However, care must be taken to ensure that in the process an intent was not attributed to Parliament which was demonstrably not its intent. 
(iii)
Once the Court had garnered from the legislation its intent, then the Court should strive to arrive at a meaning which gave effect to that intention. Principles of interpretation which assist the Courts are well established, and they reflect common sense propositions and should be applied sensibly. It would be less than sensible to presume that Parliament intended to legislate in a manner which is absurd. Indeed, it would be uncharitable, if not presumptuous, for the Courts to approach the task of interpreting Parliament's legislation on any other basis. Thus, the Courts have come to give the concept of “absurdity, a wide meaning, using it to include virtually any result which was unworkable or impracticable, inconvenient, anomalous or illogical, futile or pointless, artificial, or productive of a disproportionate amount of mischief. 
(iv)
Where the main legislative purpose of the statute was clear, legislation should not be reduced to a nullity by a literal adherence to the language, unless the language is intractable. The Court would strive for an interpretation which would make the Act work in the manner that the Court presumed Parliament must have intended. 
[21]
The Courts will endeavour to avoid an interpretation of a section where that interpretation would lead to unworkable or inconvenient consequences. To sum up, a purposive interpretation was required to give effect to Parliament's will. 
[22]
On the issue of intractability the Court thought that issues sometimes could be solved by making necessary implications. It would frustrate Parliament's intended purpose not to give effect to necessary implications, merely because there were no particular words or phrases that were ambiguous or obscure to which the purpose of interpretation could be attached. The finding of a proper implication within the express words of an enactment is a legitimate and, indeed, necessary function of the interpreter. The question whether an implication should be found depends on whether it is proper or legitimate to do so having regard to the accepted guides to legislative intention. Similarly, the Court would imply words where that is necessary to “fill a gap” in the legislation. This principle was exemplified in Northland Milk Vendors Association Inc. v Northern Milk Ltd [1988] 1 NZLR 530
[23]
It is, of course, acknowledged that the Courts must be able to discern the intention of Parliament. They cannot make policy or usurp policy making function, which rightly belongs to Parliament. 
[24]
There is something artificial in restricting the purposive approach to cases where the statutory provision contains particular words or phrases which are ambiguous or obscure, when the intention of the legislation is otherwise ascertainable. The Court should be slow to frustrate the clear intent of Parliament. 
[25]
The Northland Milk Vendors Association Inc v Northern Milk Ltd (supra) was also an authority for the fact that the long title may be used by the Court as an aid to establishing the appropriate statutory intent. 
[26]
Pursuant to s 21 of the Act, the concept of “reasonable remuneration for the services that the person provides to the company as an employee of the company in the income year” is a prime consideration. Similarly, under Clause 16 Schedule 1 the concept used is “fairly and reasonably”, represents a number of weeks in that year or part weeks during which the insured earned those earnings as a shareholder-employee. 
[27]
A consideration of Clause 9 and 11 and 16, in my opinion, shows that the statutory intent was to assess “fair and reasonable remuneration” — in most cases this would be established by taking the insured's actual earnings over a period divided by the number of weeks that gave rise to those earnings. 
[28]
It should be noted that Clause 20 relates to an insured who, immediately before his or her incapacity had earnings as a shareholder-employee. This clause applies when the insurer could not readily ascertain the insured's actual earnings during the particular period. Pursuant to Clause 21(3) the insurer might estimate the insured's weekly earnings. That estimate was to be an amount that represented the reasonable remuneration of the insured during the period. In making that estimation the insurer must have regard to the insured's earnings and the nature of the insured's employment immediately before his or her incapacity commenced. 
[29]
In my view, the clear legislative intention is that the weekly earnings of the insured must fairly represent what his reasonable remuneration was over the period. In the circumstances of this case, to divide the amount of $6,300 by 13 does not fairly and reasonably reflect the reasonable remuneration of the deceased. If that figure of $6,300 was in fact divided by the number of weeks worked to produce it, namely, five, it would more accurately reflect the intention of the legislation. By applying a divisor of 13 the intention of the legislation is frustrated, and produces an illogical, futile, artificial and disproportionate result. 
[30]
If I am wrong in my interpretation of Clause 16 and the application of Clause 9 to it, or in respect to my interpretation of Clause 16(b)(1) and (2) then I would have thought Clause 16 in the circumstances of this case should not apply. In that case resort could be had to Clause 20 to make a reasonable estimation of what the deceased was entitled to by way of weekly earnings. 
Conclusion 
[31]
I would allow the appeal for the foregoing reasons. The calculation formulation should be that predicated by Clause 9 of Schedule 1 of the Accident Insurance Act 1998. I allow costs at $1,000 plus disbursements. 

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