Construction Industry Long Service Leave Board v Irving, John

[1997] FCA 425

CATCHWORDS

CORPORATIONS LAW - deed of arrangement - Corporations Law s 556(1)(g)- priority of debts - company in arrears of levies due to the Construction Industry Long Service Leave Board - whether the Board should be admitted to proof as an unsecured creditor enjoying priority over other unsecured creditors under s 556(1)(g) of the Corporations Law - whether levies due "in respect of long service leave".

WORDS AND PHRASES - “in respect of” - whether sufficient connection between two subjects.

Corporations Law, ss 444A, 556(1)(g).
Corporations Regulations, reg 5.3A.06, Schedule 8A.
Construction Industry Long Service Leave Regulations 1988 (SA), reg 11.

Australian Law Reform Commission, Report on General Insolvency (AGPS 1988, Report No 45).

Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485.
Nintendo Company Ltd v Centronic Systems Pty Ltd (1994) 181 CLR 134.
Powers v Maher (1959) 103 CLR 478.
Re E & L Constructions Pty Ltd (in liq) (1981) 28 SASR 154.
Smith v Federal Commissioner of Taxation (1987) 164 CLR 513.
The Trustees Executors & Agency Co Ltd v Reilly [1941] VLR 110.

CONSTRUCTION INDUSTRY LONG SERVICE LEAVE BOARD v
JOHN IRVING AS ADMINISTRATOR OF BETTAFORM CONSTRUCTIONS (SA) PTY LTD
SG 104 OF 1996

Spender, Drummond, Sackville JJ
Sydney (Heard in Adelaide)
23 May 1997

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY     No. SG 104 of 1996
GENERAL DIVISION

ON APPEAL FROM A JUDGE OF THIS COURT

IN THE MATTER OF BETTAFORM

CONSTRUCTIONS (SA) PTY LTD
  (SUBJECT TO A DEED OF COMPANY
  ARRANGEMENT)

BETWEEN:

CONSTRUCTION INDUSTRY LONG

SERVICE LEAVE BOARD

Appellant

AND:

JOHN IRVING AS ADMINISTRATOR OF

BETTAFORM CONSTRUCTIONS (SA) PTY
  LTD (SUBJECT TO A DEED OF COMPANY
  ARRANGEMENT)

Respondent

CORAM:    SPENDER, DRUMMOND, SACKVILLE JJ
PLACE:    SYDNEY (HEARD IN ADELAIDE)
DATE:     23 MAY, 1997

MINUTES OF ORDER

THE COURT ORDERS THAT:

1. The appeal be dismissed.

NOTE:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY     NO. SG 104 OF 1996
GENERAL DIVISION

ON APPEAL FROM A JUDGE OF THIS COURT

IN THE MATTER OF BETTAFORM

CONSTRUCTIONS (SA) PTY LTD
  (SUBJECT TO A DEED OF COMPANY
  ARRANGEMENT) 

BETWEEN:

CONSTRUCTION INDUSTRY LONG

SERVICE LEAVE BOARD

Appellant

AND:

JOHN IRVING AS ADMINISTRATOR OF

BETTAFORM CONSTRUCTIONS (SA) PTY
  LTD (SUBJECT TO A DEED OF COMPANY
  ARRANGEMENT)

Respondent

CORAM:    SPENDER, DRUMMOND, SACKVILLE JJ.
PLACE:    SYDNEY (HEARD IN ADELAIDE)
DATE:        23 MAY 1997

REASONS FOR JUDGMENT

THE COURT:
Introduction
This is an appeal from orders made by a Judge of this Court on an application for directions by the administrator of Bettaform Constructions (SA) Pty Ltd ("Bettaform"), a company subject to a deed of arrangement.  The learned primary Judge identified the question for determination as whether the respondent, the Construction Industry Long Service Leave Board ("the Board"), should be admitted to proof as an unsecured creditor enjoying

priority over other unsecured creditors in the administration of Bettaform. The answer to this question turns on the proper construction of s 556(1)(g) of the Corporations Law.  His Honour answered the question in the negative.  He accordingly directed that the Board's claim as a creditor of Bettaform was to be treated as that of an ordinary unsecured creditor without priority over other unsecured creditors.  The Board appeals against his Honour's orders.

At the hearing of the appeal, Mr Wicks QC appeared with Mr Ross-Smith for the Board.  Ms Mitchell appeared on behalf of the administrator, but only for the purpose of informing the Court that the administrator did not propose to make submissions on the appeal.

The Facts
From 1 January 1995 until 18 April 1995, Bettaform carried on business as a concrete formworker in the construction industry in South Australia. Bettaform employed a number of construction workers and was therefore liable to pay levies to the Board pursuant to s 26 of the Construction Industry Long Service Leave Act 1987 (SA) (the "Long Service Act").  It failed to make payments required by the legislation.  On 18 April 1995, the Board was an unsecured creditor of Bettaform in the sum of $3,973.24.

On 18 April 1995, Bettaform appointed the present respondent as administrator, pursuant to s 436A(1) of the Corporations Law. 
On 30 May 1995, a meeting of Bettaform's creditors convened by the administrator resolved, pursuant to Corporations Law, s 439C(a), that the company execute a deed of arrangement. The deed of arrangement was duly executed on 19 June 1995. Under its terms, Bettaform made available all of its assets, other than plant and equipment, for the benefit of its creditors. One of the company's principals was to contribute a further $170,000 and another principal deferred payment of a debt due to him. The proceeds from the available assets and the contribution were to be distributed to proving creditors rateably, after payment of expenses and meeting the claims of priority creditors.

The administrator was and is prepared to admit the Board to proof as an ordinary unsecured creditor. However, the Board has maintained that it is entitled to priority, pursuant to s 556(1)(g) of the Corporations Law, the terms of which are incorporated in the deed. The administrator filed an application under s 447D(2) of the Corporations Law, seeking directions on whether the Board should be admitted to proof as a priority creditor.  It was that application which the primary Judge determined.

The Corporations Law
Division 10 of Part 5.3A of the Corporations Law deals with the execution and effect of deeds of company arrangement. Section 444A applies where, as in the present case, the company's creditors resolve, at a meeting convened under s 439A, that the company execute a deed of arrangement: s 444A(1). Section 444(4) provides that the instrument setting out the terms of the deed must specify a number of matters. Section 444(5) states that the instrument is taken to include the "prescribed provisions", except insofar as it provides otherwise. The deed of arrangement in the present case specifically contemplated that the prescribed provisions would apply (cl 8.1).

The prescribed provisions are to be found in Schedule 8A to the Corporations Regulations: see reg 5.3A.06.  Paragraph 4 of Schedule 8A provides that the administrator must apply the property of the company under his or her control under the deed in the order of priority specified in s 556 of the Corporations Law.

Section relevantly 556 provides as follows:

1. Subject to this Division, in the winding up of a company the following debts and claims must be paid in priority to all other unsecured debts and claims:

...

(g)... - next, all amounts due:

(i)on or before the relevant date; and

(ii)because of an industrial instrument; and

(iii)to, or in respect of, employees of the company; and

(iv)in respect of leave of absence".

The expression "industrial instrument" is defined (s 9) as follows:

"`industrial instrument' means:-

(a)a contract of employment; or

(b)a law, award, determination or agreement relating to terms or conditions of employment".

"Leave of absence" is defined (s 9) to include a variety of entitlements, one of which is long service leave.  There was no dispute before the primary Judge that, in considering the application of the Corporations Law, s 556(1)(g) in the present case, the "relevant date" was 18 April 1995.

The Long Service Act
The Long Service Act, which came into force on 1 April 1988, repealed and replaced the Long Service Leave (Building Industry) Act 1975 (SA) (the "1975 Act"): Long Service Act, s 3. The 1975 Act, which commenced operation on 1 April 1977, established a Long Service Leave (Building Industry) Fund (the "LSL Fund") under the control and management of the Long Service Leave (Casual Employment) Board (the "LSL Board"). A worker who had a "total effective service entitlement" exceeding 120 months was entitled to a payment from the LSL Board equal to 13 times the worker's ordinary pay: s 33. The benefit was to be paid out of the LSL Fund: s 16(3).

The Long Service Act applies to a person's employment if the person works in the "construction industry" and meets the criteria specified in s 5.  It was not contested before the primary Judge, and his Honour found, that the Long Service Act applied to the employment of the workers employed by Bettaform during the period 1 January 1995 to 18 April 1995.
Part 3 of the Long Service Act (ss 14-19) is headed "Long Service Leave Entitlements".  Section 14(1) provides as follows:

"(1)Subject to this Act, a construction worker's entitlement to long service leave, or payment on account of long service leave, is determined according to his or her aggregate effective service entitlement."

In general, a worker's "aggregate effective service entitlement" is the aggregate of the number of days he or she works as a construction worker: s 14(2).  As the primary Judge pointed out, a worker accrues an entitlement to long service leave so long as he or she is working in the construction industry; the entitlement is not dependent on continuity of employment with a single employer. 

Subject to other provisions in the Act, a construction worker who has an effective service entitlement of 2,600 days is entitled to 13 weeks long service leave: s 16(1).  Long service leave must be granted by the employer by whom the construction worker is employed as soon as practicable after the entitlement arises, unless the employer and worker agree otherwise in accordance with the Act: s 16(2),(3).  Where a construction worker takes long service leave, the Board, which is established by s 6 of the Act, must pay the person his or her ordinary weekly pay during the period of leave: s 16(4).  Section 16(4) also provides that the amount the Board is required to pay is calculated by multiplying the worker's ordinary weekly pay by the period of leave.  A construction worker, while on long
service leave, must not engage in any other employment in place of his or her employment as a construction worker: s 19(1).

The Act provides a formula for ascertaining a person's "ordinary weekly pay".  If at the relevant date (the date the person's ordinary weekly pay is to be determined) the person is being paid under an award for work in the construction industry, the ordinary weekly pay will generally be the weekly base rate of pay for ordinary hours prescribed by the award for work of the kind performed by the person as a construction worker: s 4(3)(a).  In other cases it will generally be an amount determined by averaging the person's weekly earnings as a construction worker over the 52 weeks immediately preceding the relevant date: s 4(3)(b).

Part 4 of the Long Service Act deals with funding.  The Act combines and continues two funds into a single Construction Industry Fund (the "Fund"), which is to be administered by the Board: s 20(1), (2).  The Fund consists of a variety of components, including moneys standing to the credit of the existing funds, levies received by the Board from employers, income and accretions produced by investments and penalties and fines recovered by the Board: s 20(3).  Section 20(4) provides as follows:

"(4)There will be paid from the Construction Industry Fund -

(a)any long service leave benefits that the Board is liable to pay under this Act; and

(b)the costs incurred by the Board in performing its functions under this Act; and

(c)other money authorised to be paid from the Fund under this Act."

Section 22 empowers the Board, with the approval of the Minister and the Treasurer, to lend money to an industrial organisation for approved group training schemes for the construction industry.  The loans are to be subject to such terms and conditions as the Minister and Treasurer think appropriate, but may be free of interest: s 22(2).

Levies are dealt with in Part 5 of the Long Service Act. All employers in the construction industry are liable to pay a levy to the Board: s 26(1). The levy payable, generally speaking, is the prescribed percentage of the total remuneration paid to each of the employer's construction workers during the period to which the levy relates: s 26(2). No levy is payable by an employer in respect of a construction worker employed by the employer for fewer than three days in a month: s 26(3)(a). The regulations may declare payments made to or for the benefit of a construction worker that will or will not be taken as constituting remuneration for the purposes of the section: s 26(6). Section 26(7) provides as follows:

"For the purposes of this section, if an employer pays a construction worker at a rate that exceeds the rate that applies to the construction worker under this Act for the purpose of determining his or her ordinary weekly pay, the amount of the excess may be disregarded for the purpose of calculating the remuneration paid by the employer."

Every employer in the construction industry must, within 21 days after the end of each return period prescribed in the regulations, pay the levy and lodge a return setting out the prescribed information: s 27(1),(2).  During the period 1 January 1995 to 18 April 1995, the prescribed levy was 1.25%: Construction Industry Long Service Leave Regulations 1988 (SA), reg 11, as amended by Regulations, No 199 of 1993.  The prescribed rate was reduced to 1% on 1 July 1995: Regulations, No 122 of 1995.

The Judgment Below
The primary Judge held that the Board had failed to establish its claim to priority, for two reasons, either one of which in his view would have been sufficient to defeat the claim. First, the money due by Bettaform to the Board was not an amount due "to, or in respect of, employees of the company" within the meaning of s 556(1)(g)(iii). The debt owing by Bettaform to the Board was not the amount payable to a worker if he or she were to exercise a right to take long service leave. It was a statutory levy calculated at the prescribed rate. The levy was made to a "blended fund", which was augmented from other sources. His Honour considered that the decision of the Full Court of the Supreme Court of South Australia, in Re E & L Constructions Pty Ltd (in liq) (1981) 28 SASR 154, although dealing with the 1975 Act and the Companies Act 1962 (SA) (the "Companies Act"), was directly in point.  That decision supported the conclusion that the amounts due to the Board were not “in respect of any employee".
Secondly, the amounts due by Bettaform to the Board by way of levies were not "in respect of leave of absence", within the meaning of s 556(1)(g)(iv) of the Corporations Law.  Rather, they were due in respect of statutory levies.  Again his Honour followed the conclusion reached by the Full Court in E & L Constructions, which he considered to be correct.  Even if he had thought the decision was incorrect, the desirability of a consistent approach to the construction of uniform national legislation (see Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485, at 492) would have led him to follow the decision of the Full Court.

Re E & L Constructions
Since Re E & L Constructions played such an important part in the reasoning of the primary Judge, it is convenient to consider the decision here.  The company, which was engaged in the building construction industry, was insolvent and shareholders resolved that it be wound up voluntarily.  At the date of liquidation, the company was in arrears to the extent of $2,121 in contributions due to the LSL Fund established under the 1975 Act.  The liquidator admitted the proof of debt as proof of an unsecured debt.  The Commissioner of Stamps, the collecting agency under the 1975 Act, claimed to be a preferential creditor entitled to the preference set out in s 292(1)(d) of the Companies Act, as it stood at the date of commencement of the winding up. Section 292(1)(d) provided as follows:

"292(1)   Subject to the provisions of this Act, in a winding up there shall be paid in priority to all other unsecured debts-

...

(d)fourthly, all amounts due or accruing due on or before the relevant date to or in respect of an employee of the company (whether remunerated by way of salary, wages, commission or otherwise) by virtue of-

(i)a contract of employment; or

(ii)a law of the Commonwealth or a State or Territory of the Commonwealth,

relating to long service leave, extended leave, annual leave, recreation leave, or sick leave;..."

Zelling and Jacobs JJ each delivered judgments dismissing appeals from the Master's judgment rejecting the Commissioner's claim to be a preferential creditor.  King CJ in substance agreed with both Zelling and Jacobs JJ.

Zelling J held that the liability of an employer to make payments under the 1975 Act did not answer the description of "all amounts due or accruing due...to or in respect of an employee of the company...by virtue of...a contract of employment...relating to long service leave".  His Honour accepted that the words "in respect of" are of wide import.  However, he reasoned as follows (at 157):

"That, however, does not give the payment of way of flat rate percentage of an employee's earnings to build up the fund the characteristics of an amount due in respect of an employee of the company by virtue of a contract of employment relating to long service leave.  The amounts payable by the employer do not accrue due by virtue of the long service leave entitlement in the contract of employment.  They accrue due by reason of a statutory levy which is intended (inter alia) to build up a fund against which the employee can claim.  The Commissioner might possibly have had an arguable case if the employer was required to pay to the fund the exact amount due from time to time in relation to a particular employee for
long service leave benefits so as to build up a credit which would be credited to that particular employee which he would be paid when his entitlement to long service leave accrued.  That, however, is not the scheme of this Act.  The Act exacts the payment of the specified percentage not only to pay long service leave entitlements but also to pay the expenses of the administration of the Act: see s 41.

Accordingly the fund is a mixed or blended fund which consists of the contributions of employers under s 16(3), income derived from investments or activities of the Board under s 16(4), and also possibly the results of borrowing under s 18.  From that must be paid out from time to time the long service leave entitlements of employees, which may be more than, less than, or coincidentally the same as, the total amount of the employer's payments in.  Out of the fund must also be paid the reasonable costs of the administration of the Act, so that the fund is not wholly appropriated in any event to the payment of long service leave entitlements.

The purpose of the Long Service Leave (Building Industry) Act is no doubt praiseworthy to protect itinerant workmen in the building industry, as Mr Prior stressed, but the fact is that the scheme of that Act does not fit the words of s 292(1)(d) of the Companies Act."

Jacobs J said that he understood the Commission's case to rest on "placitum" (i) of s 292(1)(d), and not on placitum (ii). The issue was therefore whether the amount was "due...in respect of an employee...of the company...by virtue of a law of...the State...relating to long service leave". His Honour continued (at 159-160):

"If that placitum is divorced from its full context, and stated in the abbreviated language of the appellant's claim, as set out above, it may be conceded that the amount is due by virtue of a law of the State relating to long service leave.  But is it an amount due `in respect of an employee'?  The appellant, giving a wide and unrestricted meaning to the words `in respect of', says that it is, but he can say so only upon the footing that the payment made to the Commission is calculated as a prescribed percentage of the total wages paid to all employees

during a specified period (s 24).  But the employer might well have had a high turnover of labour in the relevant period, with some workers on the pay roll for the whole period, others for only a part of the time.  One has only to state the appellant's case in that way to observe its fallacy, for it is quite impossible to identify even any part of the lump sum, let alone the lump sum itself, as a payment `in respect of an employee'.

...

There is nothing about the payment now in issue which brings it within this scheme of priorities [established by s 292].  Even if the Board is an instrumentality of the Crown, it is not within the specified categories of payments to the Crown.  Neither is it a payment which is enjoyed directly or vicariously by an employee.  Any payment or benefit to the employee in lieu of long service leave is made by the Board out of a composite or common fund, and his right to payment is independent of his employer's obligation to contribute to that fund.  the payment or contribution, for which priority is claimed, as already explained, is a lump sum payment to and for the benefit of the fund, and it has none of the social, moral or policy claims to priority which characterise the group of priorities in which it is said to fall."

The Appellant's Argument
The appellant's contentions were straightforward. There was no dispute before the primary Judge that subparagraphs (i) and (ii) of s 556(1)(g) were satisfied in this case and his Honour so found. The phrase "in respect of", used in Corporations Law, s 556(1)(g)(iii) and (iv), has the widest possible meaning of any expression intended to convey some connection or relationship between two subject matters. The purpose of the scheme established by the Long Service Act is to benefit employees in the construction industry. In considering the application of s 556(1)(g), the scheme should be viewed as a whole. When seen this way, the levy should be regarded as being "in respect of" employees. Since the primary purpose of the Fund is to provide the source of long service leave payments for construction workers, the amount due by the company to the Board was in respect of long service leave.

Mr Wicks accepted that, although the terms of s 556(1)(g) of the Corporations Law are not identical to those of s 292(1)(d) of the Companies Act, considered in E & L Constructions, the differences in language are not substantial.  He submitted, however, that the decision should not be followed, because the members of the Full Court of the Supreme Court of South Australia had ascribed too narrow a meaning to the phrase "in respect of".

Reasoning
The general principle in the law of insolvency is that creditors should rank equally unless there is some good reason to accord particular creditors or classes of creditors priority over the general body of unsecured creditors.  That principle is embodied in the Corporations Law, s 555, which states that, except as otherwise provided

"all debts proved in a winding up rank equally and, if the property of the company is insufficient to meet them in full, they shall be paid proportionately".

The principle of proportionate distribution has been described as "fundamental to the whole statutory scheme of winding up":  McPherson, The Law of Company Liquidation (3rd ed. 1987), at 393; RM Goode, Principles of Corporate Insolvency Law (1990), at 59.  As we have noted, the deed of company arrangement executed by Bettaform in the present case accepts the principle of proportionate distribution among unsecured creditors, subject to the provisions for priority contained in the prescribed provisions (cl 8.1).

In construing s 556(1)(g) of the Corporations Law, it should be borne in mind that insolvency legislation commonly accords special treatment to entitlements due to employees.  The rationale for that special treatment is important.  The Australian Law Reform Commission, Report on General Insolvency Inquiry (AGPS 1988, Report No 45) (the "Harmer Report") observed (vol 1, para 721) that the

"reason generally put forward to support the priority given to debts due to employees is that they are in a particularly vulnerable position if their employer becomes bankrupt or is wound up.  The priority was first introduced into insolvency legislation for social welfare reasons `to ease the financial hardship caused to a relatively poor and defenceless section of the community by the insolvency of their employer'." (Footnote omitted.)

The Harmer Report expressed the view that the rationale for employee priority had been significantly diminished by the development of a "sophisticated social welfare system" (para 722).  Moreover, the priority has the effect of depriving other unsecured creditors, including some who may be as vulnerable as employees, of their claim to a share of available assets.  The ALRC thought that the interests of employees could best be protected by the creation of a wage-earner protection fund, but in the end accepted that there was strong support for the
retention of "the existing priority accorded to employees" (para 727).

The scope of the "existing priority accorded to employees" by s 556(1)(g) of the Corporations Law must be ascertained by reference to the statutory language. In order for an amount due to receive priority under the sub-section, it must satisfy both sub-paragraphs (iii) and (iv).  Accordingly, it must be an amount due -

•to, or in respect of, employees of the company; and

•in respect of leave of absence.

The section gives priority not only to amounts due "to" employees but also to amounts due "in respect of" employees, that is, to amounts due to persons other than the employees themselves. So long as amounts due to others who are not employees are still due in respect of employees and in respect of "leave of absence" (a term defined by s 9 of the Corporations Law to include long service leave), they are entitled to the priority provided for by the section.

It may be accepted that the words "in respect of" ordinarily have a wide meaning.  In The Trustees Executors & Agency Co Ltd v Reilly [1941] VLR 110, Mann CJ (at 111) said that the words

"are difficult of definition, but they have the widest possible meaning of any expression intended to convey some connection or relation between the two subject- matters to which the words refer."

These observations, or similar comments, have often been cited: Powers v Maher (1959) 103 CLR 478, at 484-485, per Kitto J; Smith v Federal Commissioner of Taxation (1987) 164 CLR 513, at 533, per Toohey J. But the fact that the words have a wide scope does not mean that they are satisfied by any connection at all between two subject matters, regardless of the statutory context or the objectives of the particular legislation: Nintendo Company Ltd v Centronic Systems Pty Ltd (1994) 181 CLR 134, at 145-148.

In the present case, the amount due by Bettaform to the Board represented the unpaid levy imposed by the Long Service Act. Under s 26(2) of the Act, the levy payable by an employer is the prescribed percentage of total remuneration paid to each of the employer's construction workers during the relevant period. The levy is calculated by reference to the actual remuneration paid to the workers, subject to disregarding the excess above the worker's ordinary weekly pay: s 26(7). The levy is payable regardless of whether any of the employer's construction workers are presently entitled to any payments on account of long service leave or, indeed, regardless of whether any of them ultimately qualify for any such payments. The levy is simply a flat percentage of the total remuneration paid by the employer to its construction workers.

Nor is it the case that payment of the levy relieves an employer from an obligation to pay amounts to a worker who is entitled to long service leave.  The employer is under no such obligation. It is the Board which is under a statutory obligation to pay construction workers who take their entitlement to long service leave:  s 16(4).  The Board is obliged to make the payments to a worker who takes long service leave, regardless of whether the worker's current or previous employers have paid the statutory levy.  The current employer of a construction worker is required by the Long Service Act to grant the worker the appropriate period of leave when the entitlement arises:  s 16(2).  But that employer is under no obligation to pay the worker any amount by reason of the worker's entitlement to leave.

The remoteness of the connection between the levy payable by a particular employer and the entitlement of a worker to receive a payment from the Board is further demonstrated by the nature of the Fund.  In E & L Constructions, at 157, Zelling J described the LSL Fund established under the 1975 Act as a "blended fund". Similarly, the Fund created by the Long Service Act consists not only of levies paid by employers, but other components, including interest on investments and fines and penalties.  Thus, levies are not the sole source of payments to workers entitled to long service leave.  Moreover, the Fund is not applied exclusively to the payment of amounts due to workers entitled to long service leave.  Apart from the costs incurred by the Board in performing its functions (s 20(4)(b)), the Fund can be applied to interest-free loans to industrial organisations wishing to establish or operate group training schemes (s 22).

In our view, the effect of the scheme established by the Long Service Act may well be that levies due to the Board by employers in the construction industry are "amounts due ... in respect of employees of the company".  The levy is payable because an employer employs construction workers and the amount of the levy is assessed by reference to total remuneration paid by the employer to employed construction workers.  There is, therefore, a clear connection between the liability to pay the levy and the amount of the levy, on the one hand, and (in the case of a company) the employees of the company, on the other.

We appreciate that Jacobs J in E & L Constructions concluded that the levy imposed by the 1975 Act was not an amount due "in respect of an employee", within the meaning of s 272(1)(d) of the Companies Act. Section 556(1)(g) of the Corporations Law is in a slightly different form, since it refers to amounts due "in respect of employees of the company". The present form of s 556(1)(g) derives from s 105 of the Companies and Securities Legislation (Miscellaneous Amendments) Act 1985 (Cth), which substituted a new s 441(g) of the Companies Act 1981 (Cth). Neither the Explanatory Memorandum, nor the second reading speech, suggests that any change of substance was intended by the apparently minor redrafting of the provision: Explanatory Memorandum to the Companies and Securities Legislation (Miscellaneous Amendments) Bill 1985, paras 452-456; Cth Parl Deb, HR, 11 October 1985, at 1923. Whether or not a change was intended, if s 556(1)(g) of the Corporations Law were drafted so as to retain sub-paragraph (iii), but not sub-paragraph (iv), there would be much to be said in favour of the view that amounts due by way of unpaid levy under the Long Service Act are caught by the provision.

However, we do not think that any amounts of unpaid levy can be described as "in respect of [long service leave]", within the meaning of s 556(1)(g)(iv). As we have explained, the levy is neither imposed on an employer by reason of, nor calculated by reference to, any obligation on that employer to make payments to construction workers entitled to long service leave. Neither the levy nor the Fund of which it forms part is directed exclusively to discharging the Board's obligation to make payments to construction workers entitled to long service leave. As Jacobs J observed in Re E & L Constructions, at 160, any payment or benefit to a construction worker who takes long service leave is made by the Board out of a composite or common fund and the worker's right to payment is independent of his employer's obligation to contribute to that fund.  In these circumstances, the relationship between any unpaid levy and long service leave entitlements of construction workers is too remote to justify holding that the amounts due are "in respect of [long service leave]".

We should add that the words "in respect of", as used in s 556(1)(g)(iv) of the Corporations Law have some work to do.  For example, payments may be due to an employee or to his or her dependants, under legislation or an award, in lieu of long service leave.  In these circumstances, the payment by the employer to the employee or the dependants would aptly be described as "in respect of [long service leave]".  However, the payments due by the employer to the Board in the present case have a different character.

In our view, the conclusion we have reached is consistent with the policy underlying the priority provisions of the Corporations Law. Section 556(1)(g) forms part of a group of provisions designed to protect individual employees, or their dependants, by according priority to their entitlement. Sub-paragraph (e) of s 556(1) covers wages and superannuation contributions payable by the company; sub-paragraph (f) covers injury compensation; and sub-paragraph (h) covers retrenchment payments. Mr Wicks was not able to point to any convincing reason why a statutory corporation, which is able to spread the financial responsibility for making long service leave payments across the construction industry as a whole, should be held to enjoy priority over the general body of unsecured creditors.

Even if, contrary to our view, the levies could be described as amounts due in respect of long service leave, in our opinion, they still would not come within s 556(1)(g)(iv). Since the Board is empowered to disburse moneys from the Fund that is constituted, in part, from levies payable by employers for a purpose entirely unrelated to the provisions of long service leave benefits, it follows, in our opinion, that the levies are not accurately described as being due in respect of long service leave. They are properly characterised as due in respect of long service leave and in respect of the other unrelated purposes to which the Board is also empowered to apply the Fund. That the bulk of the Fund moneys might be expected to be disbursed in long service leave benefits cannot alter this fact. The phrase "in respect of" may be capable, in an appropriate context, of describing a connection between subject matters A and B notwithstanding that A is also connected with one or more other subject matters. But s 556(1)(g) contemplates that priority will be accorded only to amounts which are due in respect of long service leave and in respect of nothing else.

The context in which it is found shows why there is no justification for interpreting s 556(1)(g)(iv) as giving priority to amounts that are due not only in respect of long service leave, but also in respect of other quite different subject-matters. Section 556 is in that Division of Part 5.4 of the CorporationsLaw governing winding up in insolvency, which deals with the payment and ranking of creditors' claims. As we have said, s 556 qualifies the fundamental principle of proportional distribution in insolvency embodied in s 555 and reduces the entitlements of the general body of creditors by giving priority to amounts due to creditors whose claims fall within a relatively small number of categories. Even if the section is to be given a purposive interpretation, as counsel submits it should be, it would not be consistent with the purpose of the legislation to construe s 556(1)(g)(iv) to confer priority on amounts which are not for the benefit of the only interests intended to be protected, thereby imposing an unintended detriment on the general body of creditors.
Conclusion
In the result, we have reached the same conclusion as the Court in E & L Constructions.  We therefore decline Mr Wicks' invitation not to follow that decision.  The primary Judge was correct in making the orders he did. The appeal should be dismissed. Since the respondent did not play any active part in the appeal, no order for costs should be made.

I certify that this and the preceding 22 pages are a true copy of the Reasons for Judgment of the Court.

Associate:

Dated: 22 May 1997   

Heard:8 May, 1997

Place:  Sydney (Heard in Adelaide)

Decision:23 May, 1997

Appearances:             Mr D F Wicks QC and Mr R D Ross-Smith, instructed by Thomsons, Barristers and Solicitors, appeared for the appellant.

Ms C A Mitchell, Solicitor, Cowell Clarke, appeared for the respondent.