Bartrom Estate v Accident Compensation Corporation

• Jurisdiction: New Zealand
• Judge: Allan J
• Judgment Date: 05 August 2011
• Neutral Citation: [2011] NZHC 848
• Docket Number: CIV-2011-404-887
• Court: High Court
• Date: 05 August 2011

UNDER the Injury Prevention, Rehabilitation, and Compensation Act 2001

In The Matter Of An Appeal Against A Decision Of Beattie Dcj in the District Court, No.72 (2010) NZACC

BETWEEN

Bartrom Estate

Appellant

and

Accident Compensation Corporation

Respondent

[2011] NZHC 848

CIV-2011-404-887

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

Appeal against District Court decision with regard to application of s15(3) Accident Compensation Act 2001 (“ACA”) (earnings as a shareholder-employee) and c139 schedule 1 ACA (weekly earnings if claimant had earnings as shareholder-employee immediately before incapacity commenced) – deceased claimant shareholder-employee of company when became incapacitated – company had been set up for sideline business over 10 years earlier and claimant had received income about that time — company later used as vehicle for different business – whether earlier earnings meant that claimant's weekly earnings to be assessed as a shareholder-employee under formula in c139(2)(c) ACA (all other claimants) or c139(2)(a) (claimant first commenced receiving earnings as a shareholder-employee in the tax year in which the incapacity commenced) –whether s15(3) allowed these earnings to be excluded from consideration for the purposes of the cl.39 calculation.

Counsil:

A Fisher for Appellant

A D Barnett for Respondent

Antonia Fisher, P O Box 1752 Auckland 1140

JUDGMENT OF Allan J

1 This is an appeal from a decision given on 19 May 2010 by Judge Beattie sitting in the District Court, following special leave given by Judge Barber on 17 January 2010 pursuant to s 162(1) of the Accident Compensation Act 2001 (the Act). The appeal is concerned with overlapping questions of fact and law concerning the proper application of s 15(3) and clause 39 of Schedule 1 of the Act, and in particular the relationship between these provisions.

2 There are two principal issues. The first concerns the interpretation of clause 39 Schedule 1, which provides a formula for the determination of “weekly earnings” of a claimant who was a shareholder-employee before incapacity commenced. The second is as to the interpretation of the application of s 15 which defines the expression “earnings as a shareholder employee”.

Factual background

3 The material facts are not in dispute. Mr Bartrom (now deceased) suffered an injury by accident, with resultant incapacity for the purposes of the Act, on 5 December 2002. At the date of the incapacity he was a shareholder-employee of Alexander Bartrom Communications Limited (ABCL). That company was incorporated in 1992. Mr Bartrom held 999 of the 1000 issued shares.

4 Down to 2002, the business of the company consisted of insurance broking, income being earned by way of commission. It appears that the company was something of a side-line business for Mr Bartrom.

5 A modest income was received in the 1993 and 1994 years. There was a paucity of evidence as to the company's earnings during the period 1995 to 2001 but the evidence (although inconclusive) suggests that the company probably earned modest ongoing brokerage fees during that period. In the end, nothing turns on the existence or the extent of the company's earnings over that intervening period.

6 For the greater part of the financial year ending 31 March 2002, Mr Bartrom was a full-time employee of a business known as Botica Conroy & Associates Limited, which ran a public relations business. Mr Bartrom was made redundant on 21 February 2002. In the period between 1 April 2001 and 21 February 2002 he earned a salary of $107,604 from that employment. Following his redundancy he commenced a full-time consultancy business of his own. For that purpose, he used the existing structure provided by ABCL. That business commenced from the date of his redundancy, that is, from late February 2002. In the brief period between late February and 31 March 2002, ABC earned a net profit of $7402 but no shareholder-employee earnings were credited to Mr Bartrom in that financial year.

7 In the following financial year, that is, to 31 March 2003, ABCL made a net profit of $50,044 after deduction of expenses which included a PAYE deducted salary to Mr Bartrom of $6100.

8 In August 2005, Mr Bartrom made an application for weekly compensation under the Act. The accounts for the year ended 31 March 2002 disclosed no shareholder-employee earnings in that year, while the accounts for 31 March 2003 disclosed the figure of $6100 referred to above. On that basis, the respondent decided on 22 February 2006 that the deceased would be entitled only to weekly compensation of the full-time minimum rate. That was because in the relevant year, namely to 31 March 2002, Mr Bartrom had no earnings as a shareholder-employee.

9 That first decision was replaced by a further decision on 22 June 2006 in which the Corporation accepted that Mr Bartrom was entitled to have any earnings as an employee earned in the 52 weeks prior to 4 December 2002 factored into the weekly compensation calculation. In other words, that part of his salary earned with that company between 4 December 2001 and 21 February 2002, amounting to $25,123, could be taken into account; 4 December 2001 was the date 12 months prior to the accident and 21 February 2002 was the date on which his employment ceased by reason of redundancy.

10 On 13 May 2008, the Corporation issued the decision which forms the foundation of the present appeal. The decision reads as follows:

At the date of Mr Bartrom's deemed date of accident, 4 December 2002, Mr Bartrom was a shareholder-employee, in Alexander Bartrom Communications Ltd (“the company”), working an average of 40 hours of work per week in this position.

Information received from Inland Revenue Department (“IRD”) indicates that Mr Bartrom had shareholder-employee earnings in the 1993 and 1994 financial years. Please find enclosed IRD's 22 April 2008 to this effect.

The legislation governing the calculation of weekly compensation for shareholder-employees is clause 39 of schedule 1 to the Injury Prevention, Rehabilitation and Compensation Act 2001 (“the Act”). ACC considers that this section applies to the late Mr Bartrom's claim in its form as amended from 1 July 2005. This is because it was not until after that date, on 23 August 2005, that Mr Bartrom applied for his weekly compensation entitlement.

Because Mr Bartrom had earnings as a shareholder-employee in the 1993 and 1994 tax years, his weekly compensation entitlement falls to be assessed under clause 39(2)(c) i.e. based on any earnings as a shareholder-employee in the income year ended 31 March 2002 combined with any earnings as an employee in the 52 weeks prior to 4 December 2002.

Shareholder-employee earnings in the 2002 tax year

ACC accepts Mr Hussey's advice that the company's accounts for the 2002 tax year were not competently drafted. For this reason, ACC has invoked the provisions of section 15(3) of the Act, and determined for itself the amount of Mr Bartrom's earnings as a shareholder-employee for the year ended 31 March 2002. ACC considers that the whole amount of $7,402.38 being the company's surplus before taxation in the 2002 tax year, represents reasonable remuneration for Mr Bartrom's services in that tax year. …

Earnings as an employee in the 52 weeks prior to incapacity

(i) In the 52 weeks prior to 4 December 2002, Mr Bartrom earned the following amounts from Botica Conroy & Associates:

As redundancy payments are not earnings as an employee under ACC legislation, only the amounts of $25,123.16 ($19,730.77 plus $5,392.39) can be factored into the formula at clause 39(2)(c).

(ii) Mr Bartrom received a payment from the company of $6,100.00 in or about the month of September 2002, which was subject to PAYE tax. As the payment was a source deducted payment, ACC has treated this amount as earnings as an employee.

This means that Mr Bartrom's total earnings as an employee in the 52 weeks prior to 4 December 2002 were $31,223.16.

The resulting weekly earnings amount is $742.80. Weekly compensation, payable at 80% of this amount, is $594.24.

Even though case law has confirmed that the July 2005 Amendment was not to apply for periods prior to 1 July 2005, because ACC considered at the

time of our decision on 22 June 2006 that it could apply to Mr Bartrom's circumstances, ACC has made the decision to apply it to his case for the whole period of 11 December 2002 to 30 June 2005.

11 Weekly compensation was payable at 80 per cent of Mr Bartrom's weekly earnings. The Corporation's decision was concerned with the calculation of those weekly earnings. The effect of the decision of 13 May 2008 was to include within the ambit of his weekly earnings the following amounts:

• (a) $7420.38, being the whole of ABCL's surplus before taxation in the year ended 31 March 2002.

• (b) $25,123.16, representing earnings derived by Mr Bartrom from his employment with Botica Conroy & Associates Limited between 4 December 2001 and 21 February 2002.

• (c) $6,100, being a source deducted payment made by ABCL in September 2002 in respect of Mr Bartrom's status as an employee of that company.

12 That outcome was not...