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Accident Compensation Cases

Accident Compensation Corporation v Williamson (HC, 14/08/81)

Judgment Text

JUDGMENT OF DAVISON C.J. 
Davison CJ
The point in issue in both these appeals was the same, and by arrangement both were heard together. 
The point is whether post-accident assessable income accepted by the Inland Revenue Department determines post-accident earnings for the ascertainment of earnings-related compensation after the first week. 
Section 113 of the Accident Compensation Act 1972 providing for such earnings-related compensation provides: 
“113(1)
Where as a result of incapacity due to personal injury by accident a person who has cover in respect of the injury suffers any loss of earning capacity as determined under the provisions of this section [or section 114 of this Act] during any period after the expiration of the working week comprising the day of the accident and the 6 days thereafter, the Commission shall pay him earnings related compensation in accordance with this section in respect of that loss - 
(a)
Subject to subsection 13 of this section until an assessment has been made under section 114 of this Act of the amount to be paid in respect of his permanent loss of earning capacity, at the rate of 80 percent of the amount of his loss of earning capacity due to the injury for the time being as determined by the Commission. ”
A formula for the determination of such earnings-related compensation is then provided in subs (2) which provides: 
“(2)
For the purposes of paragraph (a) of subsection (1) of this section, a person's loss of earning capacity due to the injury for any period while he remains incapacitated on account of the injury shall, subject to the provisions of this section, be determined by deducting from the amount of his relevant earnings for a like period the aggregate of the amount of his earnings as an employee (if any) and the amount of his earnings as a self-employed person (if any) during the period. ”
The formula is a simple one. The loss of earnings capacity is determined by deducting from a person's relevant earnings as determined under s 104 (pre-accident earnings) his earnings as an employee or as a self-employed person. 
Earnings as a self-employed person are defined in s 103(3) to mean: 
“So much of the assessable income (as determined under and for the purposes of the Land and Income Tax Act 1954) of that person as is beneficially derived by him from the carrying on by him of a business …  ”
Then follow certain excepted business incomes which are not relevant to the present cases. 
Simply then, the self-employed person's income would on the face of it appear to be his taxable income. But the appellant, whilst accepting that such will in fact commonly be the case, argues that it should not, however, always be so. 
To illustrate the types of case which the appellant says may arise where the taxable income should not be the true yardstick, it is necessary to refer briefly to the facts of the two cases under appeal. 
Williamson's Case 
Mr Williamson, who was a farmer, suffered an accident to his back on 18 November 1977 and was left with a significant permanent disability which reduced his ability to carry on many of the usual physical tasks of a farmer. In addition to his farm work, Mr Williamson also operated a contract spraying business, but gave that up following the accident. He thought of selling the farm. After advice, however, he decided to diversify his farming operations and to plant blackcurrants. This involved capital expenditure. Two items of such expenditure alone in 1979 amounted to $8,683 - irrigation $8,010 and cuttings $673. Mr Williamson, in the calculation of his assessable income for 1979, because of taxation procedures was allowed as a deduction an item of $8010 for the capital cost of installation of the irrigation system. This deduction produced a loss for the year of $4,936,18. 
Mr Nines for the appellant, submitted that the reduction in post-accident income to the extent of $8,010, which was an item of capital expenditure on the new blackcurrant farming project could hardly be said to be due to the accident or caused by incapacity and that to accept Mr Williamson's taxable income for the purpose of calculating accident compensation in such circumstances could not be justified. 
The Corporation did not accept Mr Williamson's taxable income as his post-accident earnings but made its own assessment by writing back some of the tax deductions. 
Mr Williamson appealed to the Appeal Authority. He allowed the appeal and held that on the true interpretation of the Act the taxable income governed the calculation. From that decision of the Appeal Authority, appeal is brought to this Court. 
Schollum's Case 
Mr Schollum, who also was a farmer, was injured by accident in May 1976. He is permanently partially disabled and prevented from carrying out full farming activities. 
Before the accident he was farming in partnership with his wife. They shared the farming income 55.5 percent to Mr Schollum and 44.5 percent to his wife. After the accident, because of the greater responsibilities which the wife assumed, the shares of profits were varied to provide for Mr Schollum to receive only 28 percent and his wife 72 percent. Returns prepared on that basis were accepted by the Inland Revenue Department. 
The Corporation challenged the new profit-sharing arrangement and also considered that an item of capital development expenses - $4,426 - should be excluded from the accounts when calculating the nett profit of the partnership in calculating assessable income. 
Mr Schollum appealed to the Appeal Authority. The Authority held that the Corporation was obliged to accept for calculation purposes under s 113, Mr Schollum's assessable income as returned for tax purposes. Against that decision the Corporation appeals to this Court. 
Appellant's Case 
Mr Mines for the appellant made lengthy and detailed submissions and I am indebted to him for his industry, but in the end result the whole issue under consideration falls to be resolved by the interpretation of the provisions of the statute itself. 
The appellant's case was based on the following main propositions: 
1.
The right to earnings-related compensation under s 113 is based on loss of earning capacity resulting from incapacity due to personal injury by accident and not to loss of earnings in the case of a self-employed person created by that self-employed person's own acts of volition. 
2.
The automatic deduction of assessable income to determine compensation under s 113 is not obligatory in all cases as such would not give effect to the requirement of subs (1) of that section that the loss of earning capacity must be the result of incapacity due to personal injury by accident. A voluntary reduction of assessable income is not the result of such incapacity but the application of accounting methods and results from another cause outside the provisions of s 113. 
3.
To allow a self-employed person to use his assessable income as defined in s 103(2) for the purposes of calculation of compensation is to allow a claimant, by adjusting his assessable income, to determine his own entitlement to accident compensation with no power in the Corporation to question the amount of such compensation. 
4.
The proviso to s 113(2) applies to enable the Corporation to adjust a person's post-accident earnings where a self-employed claimant reduces his post-accident assessable income below a figure which could fairly be expected to reflect his existing capacity to earn. 
5.
Parliament can never have intended the absurd result for which the respondents contend and which is the result of the Appeal Authority's findings in both cases. 
Cases of Respondents 
Both respondents contend that the true interpretation of s 113 of the Act in the ordinary meaning of its words is that found by the Appeal Authority. 
Decision 
In interpreting s 113 of the Act it is important to appreciate that it deals with two separate and distinct situations. It deals first with earnings-related compensation on an interim basis before permanent incapacity can be assessed under s 114. 
It deals, second, with compensation after an assessment of permanent incapacity has been made under s 114. 
The parts of s 113 dealing with the interim situation before assessment of permanent incapacity are subss (1) (a), (2) and (3). The part dealing with compensation after the assessment of permanent incapacity is subs (1) (b). 
For self-employed persons in interim (or pre-assessment of permanent incapacity) cases, the provisions of s 113 applicable, when expressed in simplified form, provide: 
First: That where as a result of incapacity due to personal injury by accident, a person suffers loss of earning capacity, the Corporation shall pay him earnings-related compensation - (subs (1)). 
Second: That such payment shall be at the rate of 80 percent of the amount of loss of earning capacity as determined by the Corporation - (subs 1(a)). 
Third: That the amount of loss shall be determined by the Corporation by deducting from the person's pre-accident relevant earnings, his post-accident earnings as a self-employed person (subs 2), which mean his assessable income as determined for the purposes of the Land and Income Tax Act 1954. 
(Dragicevich v Accident Compensation Commission High Court, Wellington, M 570/79, 12 August 1980, Mahon J. - p 7 and 8). 
It is to be noted that whilst it is correct as Mr Mines states that the loss of earning capacity must be the “result” of incapacity due to personal injury by accident, once it is decided that a claimant has such a loss of earning capacity then the amount of it is to be determined simply by the application of the formula given in subs (2). There is no room to take into account whether the whole of the loss of earnings as determined by the formula results from the incapacity due to personal injury by analysing the post-accident earnings and reaching a conclusion that some part is the result of loss of earning capacity due to the accident and another part is due to accountancy procedures which have been adopted and accepted by the Inland Revenue Department in arriving at a claimant's assessable income. The method of determination of the post-accident earnings is tied by statute to the formula therein provided. 
It has been argued that such causes anomalies and apparent injustices in so far as it enables a claimant in effect to determine his own compensation by lowering his post-accident earnings figure by accountancy or other practices acceptable to the Inland Revenue Department. That may well be. But there may be a very good reason why such a course has been adopted by the Legislature of providing a simple and ready means of assessment of post-accident earnings of the self-employed. It provides a ready method of assessment of what is only interim earnings-related compensation which is payable until permanent incapacity can be assessed. When earnings-related compensation on such permanent basis is assessed then s 113(1)(b) applies and the compensation is calculated under s 114. 
The apparent anomalies and inequities arising from the interim assessment under s 113(1)(a), (2) and (3) have been accepted by the Legislature in favour of providing a simple and speedy resolution of interim compensation payments by tying post-accident earnings to a readily obtainable figure which cannot be disputed apart from challenging the Inland Revenue assessment except in the circumstances covered by s 113(3) which are not relevant to the two cases under consideration. 
It was contended further by Mr Mines that if his primary argument was not accepted then the proviso to s 113(2) enabled the Corporation to adjust a self-employed person's post-accident earnings from the figure of assessable income accepted for tax purposes. 
The proviso states: 
“Provided that, if the Commission considers, having regard to the medical and other evidence available to it, that the person is, in any such period, not endeavouring to work in paid employment to the extent of his capacity or not working in paid employment to the extent to which he would be able to do so if the only factor affecting his ability to work in paid employment were his incapacity due to the injury, the commission may fix the amount to be deducted, in accordance with the foregoing provisions of this subsection, at such figure as, having regard to that evidence, it considers appropriate. ”
Although on the face of it that proviso where it refers to a person “not endeavouring to work in paid employment” relates only to an employee, it does in fact refer also to the case of a self-employed person. The word “employment” as used covers not only employment as an employee but “includes self employment” (s 2(1) of the Act). 
But having recognised that the proviso does cover the self-employed, it should then be noted that it refers to not working to the extent of his capacity - it does not refer to not earning to the extent of his capacity. 
Whilst therefore it may be applied to adjust the incomes of a self-employed person who does not work to his capacity, it cannot be invoked to adjust the income of a self-employed person who has worked to his capacity but who through accounting procedures or otherwise does not earn to the capacity (as shown by assessable income) that the Corporation considers he should. 
Mr Mines then pointed to s 113(3) which he said, quite correctly, gives the Corporation the power in the circumstances therein referred to, to reduce the amount of the earnings of a self-employed person. As the power to reduce is given specifically then it was said that there should also be the power to increase the amount of such earnings and the other parts of s 113 should be so interpreted to allow that to be done. I cannot accept that argument. Section 113 is, in my view, clear and unambiguous in its ordinary meaning and must be so interpreted. I cannot accept, as Mr Mines says, that such an interpretation may provide an injustice or an absurdity or anomaly. Once one accepts that a simple interim method of assessment of compensation was aimed at, then the reason for the provisions of s 113 become plain. This is not a case, as was suggested, of legislative error but rather a case of the legislation implementing a clear design. 
If the Corporation considers that it is necessary for the proper operation of the Accident Compensation Scheme that further discretion should be given to the Corporation to adjust the earnings of a self-employed person then it will have to endeavour to persuade the Legislature to pass an appropriate amendment to the Act. 
In effect, the result of my consideration of both cases has confirmed the conclusions as to the interpretation of the statute arrived at by the Appeal Authority. 
Both appeals are dismissed. No order is made as to costs, counsel for the appeliant having advised the Court that whatever the result of these appeals, appropriate arrangements would be made with both respondents regarding costs. 

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