Post 78 week payments under MAIA to be calculated on basis of pre-accident net weekly earnings

Motor Vehicle Directions

Allianz Australia Insurance Ltd v Jenkins [2020] NSWSC 412 (decision of Adamson J)

Background

The proceedings concerned a decision by the DRS Review Panel as to the payment of statutory weekly benefits for economic loss payable to the claimant under section 3.8 of the Motor Accidents Injuries Act 2017 (MAIA).

The insurer determined statutory benefits payable in the so called third entitlement period (post 78 weeks from accident date) should be payable on the basis of net indexed pre-injury earnings. There was no dispute those earnings reflected the claimant’s post 78 week ‘earning capacity’.

The claimant disputed this decision, asserting the statutory benefits payable in the third entitlement period should be calculated on the basis of gross indexed pre-injury earnings.

The claimant applied to the DRS for a merit review which was determined by
Mr Davidson. He concluded the statutory benefits payable in the third entitlement period should be calculated by reference to gross pre-injury earnings.

The insurer applied to DRS for a review of that decision. Albeit for different reasons, the Review Panel affirmed Mr Davidson’s decision that the claimant was entitled to be paid by reference to her pre-accident gross weekly earnings.

The insurer sought judicial review of the Review Panel’s decision. The matter was referred to Adamson J for a determination in chambers.

Dispute

The dispute pertained to whether, under s3.8 of MAIA and from 79 weeks post-accident, the claimant was entitled to statutory benefits calculated on the basis of her pre-accident gross weekly earning capacity, or rather, her pre-accident net weekly earning capacity.

The insurer relied upon an advice from the ATO, which distinguished between payments made in the first and second entitlement periods (ss3.6 and 3.7) on the one hand (which were measured by reference to ‘loss of earnings’) and payments in the third entitlement period (s3.8) (which were measured by reference to ‘loss of earning capacity’) on the other. The ATO determined that amounts for loss of earnings bore the character of income (which was taxable), whereas, the amount for loss of earning capacity bore the character of capital (which was not taxable).

The insurer argued it was inherently illogical for payments to be made on the basis of gross pre-accident weekly earning capacity in the third entitlement period as, in circumstances where no tax was payable, the claimant would receive more in the third entitlement period than that received in the prior 78 weeks. This outcome was inconsistent with the very essence of the Act.

Decision

Adamson J determined the Review Panel was in error in its construction of s3.8
of MAIA.

Her Honour noted that the Panel had taken it upon itself to decide that the ATO advice was wrong. To the contrary, she determined that:

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.

On the basis of the ATO’s decision, Adamson J accepted that it followed that if the claimant were to receive the tax component of weekly earnings in the third entitlement period (by being entitled to be paid a gross figure) but was not subject to pay that amount in tax to the ATO, the claimant would be in receipt of a windfall. She did not accept that this consequence could have been intended by Parliament, and emphasised that when interpreting a legislative provision, a construction which promotes the purpose of the legislation must be preferred.

Accordingly, Adamson J found that the Review Panel had erred in its construction of s3.8 of MAIA, that being that post 78-week payments should be calculated on the basis of pre-accident gross weekly earnings. The decision of the Review Panel was set aside and the matter remitted back for a determination according to law.

Implications

The payment of statutory benefits in the third entitlement period (post-78 weeks) are to be calculated on the claimant’s pre-accident net weekly earnings, and not their pre-accident gross weekly earnings.

Further information / assistance regarding the issues raised in this article is available from the authors, Frances Allen – Partner and Alexandra Garnham – Lawyer or your usual contact at Moray & Agnew.


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