Diane Greville v KM Elsegood Smith & BK Elsegood & DK Elsegood & DS Elsegood & SM Elsegood & Elsegood Holdings Pty Ltd & Falconcrest Holdsing Pty Ltd T/A Combined Metal Industries

[2016] FWC 114

[2016] FWC 114

FAIR WORK COMMISSION

DECISION

Fair Work Act 2009
s.365—General protections

Diane Greville
v
KM Elsegood Smith & BK Elsegood & DK Elsegood & DS Elsegood & SM Elsegood & Elsegood Holdings Pty Ltd & Falconcrest Holdsing Pty Ltd T/A Combined Metal Industries
(C2015/3837)

DEPUTY PRESIDENT KOVACIC CANBERRA, 7 JANUARY 2016

Application to deal with contraventions involving dismissal – not a national system employer - application dismissed.

[1] Ms Diane Greville (the Applicant) made an application which was received by the Fair Work Commission (the Commission) on 5 May 2015 under s.365 of the Fair Work Act 2009 (the Act) alleging that she had been dismissed by KM Elsegood Smith & BK Elsegood & DK Elsegood & DS Elsegood & SM Elsegood & Elsegood Holdings Pty Ltd & Falconcrest Holdings Pty Ltd T/A Combined Metal Industries (CMI - the Respondent) on 15 April 2015 in contravention of the general protections provisions in the Act. The Respondent contends that it is not a national system employer and that the Commission therefore lacks jurisdiction to deal with the matter.

[2] The Commission issued Directions on 2 July 2015 regarding the Respondent’s jurisdictional objection, with the jurisdictional objection the subject of a telephone hearing on 11 August 2015. At the hearing, Mr Vince Pelligra appeared with permission for the Applicant, while Mr Graham McCorry appeared with permission for the Respondent. Witness statements were provided by the Applicant and on behalf of the Respondent by Mr Stephen Cross, a partner in the accounting firm of Douglas Cross & Chamberlain which is responsible for the preparation and maintenance of the accounting records of CMI, and by Mr Darren Elsegood, one of the partners in CMI.

[3] For the reasons set out below I have concluded that the Respondent is not a national system employer and that the application is therefore incompetent. Accordingly, the application is dismissed.

The Relevant Legislation

[4] Sections 337, 338 and 339 of the Act set out the application of Part 3-1 – General protections of the Act in the following terms:

“Division 2—Application of this Part

337 Application of this Part

This Part applies only to the extent provided by this Division.
Note: Sections 30G and 30R extend the operation of this Part in a referring State.

338 Action to which this Part applies

(1) This Part applies to the following action:

(a) action taken by a constitutionally-covered entity;
(b) action that affects, is capable of affecting or is taken with intent to affect the activities, functions, relationships or business of a constitutionally-covered entity;
(c) action that consists of advising, encouraging or inciting, or action taken with intent to coerce, a constitutionally-covered entity:

(i) to take, or not take, particular action in relation to another person; or
(ii) to threaten to take, or not take, particular action in relation to another person;

(d) action taken in a Territory or a Commonwealth place;
(e) action taken by:

(i) a trade and commerce employer; or
(ii) a Territory employer;
that affects, is capable of affecting or is taken with intent to affect an employee of the employer;

(f) action taken by an employee of:

(i) a trade and commerce employer; or
(ii) a Territory employer;
that affects, is capable of affecting or is taken with intent to affect the employee’s employer.

(2) Each of the following is a constitutionally-covered entity:

(a) a constitutional corporation;
(b) the Commonwealth;
(c) a Commonwealth authority;
(d) a body corporate incorporated in a Territory;
(e) an organisation.

(3) A trade and commerce employer is a national system employer within the meaning of paragraph 14(d).

(4) A Territory employer is a national system employer within the meaning of paragraph 14(f).

339 Additional effect of this Part

In addition to the effect provided by section 338, this Part also has the effect it would have if any one or more of the following applied:
(a) a reference to an employer in one or more provisions of this Part were a reference to a national system employer;
(b) a reference to an employee in one or more provisions of this Part were a reference to a national system employee;
(c) a reference to an industrial association in one or more provisions of this Part were a reference to an organisation, or another association of employees or employers, a purpose of which is the protection and promotion of the interests of national system employees or national system employers in matters concerning employment;
(d) a reference to an officer of an industrial association in one or more provisions of this Part were a reference to an officer of an organisation;
(e) a reference to a person, another person or a third person in one or more provisions of this Part were a reference to a constitutionally-covered entity;
(f) a reference to a workplace law in one or more provisions of this Part were a reference to a workplace law of the Commonwealth;
(g) a reference to a workplace instrument in one or more provisions of this Part were a reference to a workplace instrument made under, or recognised by, a law of the Commonwealth;
(h) a reference to an industrial body in one or more provisions of this Part were a reference to an industrial body performing functions or exercising powers under a law of the Commonwealth.”

[5] Section 14 of the Act defines a national system employer as follows:

“14 Meaning of national system employer

(1) A national system employer is:

(a) a constitutional corporation, so far as it employs, or usually employs, an individual; or
(b) the Commonwealth, so far as it employs, or usually employs, an individual; or
(c) a Commonwealth authority, so far as it employs, or usually employs, an individual; or
(d) a person so far as the person, in connection with constitutional trade or commerce, employs, or usually employs, an individual as:

(i) a flight crew officer; or
(ii) a maritime employee; or
(iii) a waterside worker; or

(e) a body corporate incorporated in a Territory, so far as the body employs, or usually employs, an individual; or
(f) a person who carries on an activity (whether of a commercial, governmental or other nature) in a Territory in Australia, so far as the person employs, or usually employs, an individual in connection with the activity carried on in the Territory.

Note 1: In this context, Australia includes the Territory of Christmas Island and the Territory of Cocos (Keeling) Islands (see paragraph 17(a) of the Acts Interpretation Act 1901).
Note 2: Sections 30D and 30N extend the meaning of national system employer in relation to a referring State.”

[6] Section 12 of the Act defines a constitutional corporation as “a corporation to which paragraph 51(xx) of the Constitution applies.”

The Respondent’s case

[7] The Respondent submitted that it was a partnership of five natural persons and two corporations, with the directors and shareholders of the two corporations being the natural person partners. The Respondent further submitted that the corporations are not engaged in any trading or financial activities in their own right and were not formed for the purpose of either. In this regard, the Respondent highlighted that the corporations are expressly excluded by the terms of the Partnership Deed from taking any part in the management or operations of CMI or having the power to bind the partnership. Specifically, the Partnership Deed states at clause 16 that:

“Elsegood Holdings and Falconcrest Holdings shall not take part in the management or operations of the Partnership business or purport to have power to bind the Partnership but may inspect the books and examine the state and prospects of the business.” 1

[8] The Respondent contended that Part 3-1 of the Act only applies to actions taken by a person who is a constitutionally covered entity, adding that the partnership is not a constitutionally covered entity. The Respondent further contended that the Applicant’s employment was terminated by the natural person partners in the partnership and not by either of the corporations.

[9] Mr Cross deposed in his witness statement 2 that the corporate partners of CMI were passive investment companies whose shareholders are the natural person partners. Mr Cross further deposed that the companies do not engage in any trading or financial activities in their own right and their principal income is from receipt of profit distributions from CMI. Attached to Mr Cross’ witness statement were Detailed Profit and Loss Statements for Elsegood Holdings Pty Ltd3 and Falconcrest Holdings Pty Ltd4 for the year ending 30 June 2014. Those Statements indicate that Elsegood Holdings Pty Ltd received over 90% of its income from the distribution of profits from the CMI partnership, with the remainder of its income stemming from dividends and capital gain on share sales. For Falconcrest Holdings Pty Ltd, its entire income came from the profit distribution from the CMI partnership.

[10] In his witness statement 5 Mr Elsegood deposed that the corporate partners of CMI are passive investment companies whose shareholders are the natural person partners. Mr Elsegood further deposed that the companies do not engage in any trading or financial activities in their own right and are expressly precluded from taking any active part in the business of CMI by the terms of the Partnership Deed, adding that their purpose is only to receive some of the profit distribution from CMI. Mr Elsegood also attested that CMI has for many years had enterprise based agreements with the Australian Manufacturing Workers Union that are registered in the West Australian Industrial Relations Commission.

[11] At the hearing, the Respondent reiterated that neither of the corporate partners were trading or financial corporations in their own right and that they were both established as a repository of the profit distribution of the partnership. In support of its submissions, the Respondent relied on the decision in Aboriginal Legal Service of WA Inc v Lawrence [No 2](ALS) 6 and the decision of Commissioner Bissett in Benjamin Williams v Goldendays Pty Ltd & D Kolichev & L Kolichev T/A Stirling Aluminium and Glass (Goldendays)7. The Respondent further submitted that the Applicant would have been aware of the Partnership Deed in 2011 and that the Deed formalised CMI’s pre-existing structure.

The Applicant’s case

[12] The Applicant contended that the Commission ought to find that the corporate partners are engaged in trade for a number of reasons including that:

(i) the recitals of the Partnership Deed indicate that all parties intend to carry on the business of sheet metal fabrication;
(ii) a finding that some, but not all, of the partners trade would be inconsistent with s.7(1) of the Partnership Act 1985 as there cannot be a true partnership if all the partners are not engaged in carrying on business together;
(iii) while the Partnership Deed may place a restriction on the power of the corporate partners to bind the partnership, the restrictions on the corporate partners post-dated the Applicant’s employment and the Respondent did not advise the Applicant of those restrictions either in her letter of appointment or through her payslips;
(iv) the Applicant could commence legal action against the Respondent, including the corporate partners, for a breach of contract and enforce a judgement against the corporate partners; and
(v) given the scale of the Respondent’s business, the corporate partners have a considerable commercial responsibility arising from the trade engaged in by CMI and as such are engaged in trade to a substantial degree.

[13] The Applicant also relied on the decision in ALS and preferred the decision of Deputy President Gooley in Pierina McInnes v North Perth Vet Centre (McInnes) 8 to the decision in Goldendays.

[14] In her witness statement 9 Ms Greville set out some background to her employment with CMI and the nature of CMI’s business. Attached to her witness statement was a copy of one of her payslips10 which contained the Respondent’s Australian Business Number (ABN) and also attached a copy of a business search report11 regarding that ABN. That business search report described CMI as a family partnership.

[15] At the hearing, the Applicant submitted, among other things, that there was no evidence before the Commission which made it clear that the corporate partners were not involved in running part of the business.

Consideration of the Issues

[16] In McInnes, Deputy President Gooley found as follows:

“[16] As one of the partners is a trading corporation, because of its role as a partner in the NPVC, I find that the employer in this case is a national system employer.”

[17] In Goldendays, Commissioner Bissett determined that:

“[14] A partnership between two or more persons is not, by definition, a corporation.

[15] In Pierina McInnes v North Perth Vet Centre Gooley DP found that the employer was a national system employer as one of the partners was a trading corporation.

[16] The case before me is not materially different in that respect. If Goldendays Pty Ltd is a trading corporation then the Respondent is a national system employer.

[17] D Kolichev and L Kolichev is a partnership – it is not disputed that that part of the extended partnership is not a trading corporation. It is only if Goldendays Pty Ltd itself is a trading corporation that the partnership will take on that characteristic of a trading corporation and will therefore be a national system employer for the purpose of the Act. That is, it will only be if one of the constituent partners is a trading corporation that the partnership can be a national system employer.

[18] Goldendays Pty Ltd is a corporation. The question is whether it is a trading corporation. For Goldendays Pty Ltd to be a 'trading corporation' a substantial portion of its activities would have to be trading activities. Trading is generally accepted, in this context, to mean an activity that involves some notion of buying and selling something or some service.

[19] The Respondent has provided me with the tax returns for the 2012/13 and 2013/14 financial years for Goldendays Pty Ltd. These returns indicate that the only income of Goldendays Pty Ltd is that received from the partnership distribution. In all other respects there is nothing in the returns to indicate that Goldendays Pty Ltd is engaged in any buying or selling of goods or services or that it generates any revenue. In fact its tax returns indicate that it generates no revenue.

[20] On this basis I am satisfied that Goldendays Pty Ltd is not a trading corporation.” (Citations not included)

[18] What is apparent from the above extracts is that whether or not a corporate partner is a trading corporation is critical in determining whether or not the partnership is a national system employer.

[19] In ALS the West Australian Court of Appeal examined a number of High Court decisions which dealt with the test to be applied in determining whether or not a corporation should be categorised as a trading corporation for the purposes of s.51(xx) of the Constitution. In ALS the Court summarised the principles that might be drawn from those and other cases as follows:

“68. The more relevant (for present purposes) principles that might be drawn from these and other cases are as follows:

(1) A corporation may be a trading corporation even though trading is not its predominant activity: Adamson at 239; State Superannuation Board at 303-304; Tasmanian Dam case at 156, 240, 293; Quickenden at [49]-[51], [101]; Hardeman at [18].
(2) However, trading must be a substantial and not merely a peripheral activity: Adamson at 208, 234, 239; State Superannuation Board at 303-304; Hughes v Western Australian Cricket Association (Inc) (1986) 19 FCR 10 at 20; Fencott at 622; Tasmanian Dam case at 156, 240, 293; Mid Density at 584; Hardeman at [22].
(3) In this context, “trading” is not given a narrow construction. It extends beyond buying and selling to business activities carried on with a view to earning revenue and includes trade in services: Ku-ring-gai at 139, 159-160; Adamson at 235; Actors and Announcers Equity Association of Australia v Fontana Films Pty Ltd (1982) 150 CLR 169 at 184-185, 203; Bevanere Pty Ltd v Lubidineuse (1985) 7 FCR 325 at 330; Quickenden at [101].
(4) The making of a profit is not an essential prerequisite to trade, but it is a usual concomitant: St George County Council at 539, 563, 569; Ku-ring-gai at 140, 167; Adamson at 219; E at 343, 345; Pellow at [28].
(5) The ends which a corporation seeks to serve by trading are irrelevant to its description: St George County Council at 543, 569; Ku-ring-gai at 160; State Superannuation Board at 304-306; E at 343. Consequently, the fact that the trading activities are conducted is the public interest or for a public purpose will not necessarily exclude the categorisation of those activities as “trade”: St George County Council at 543 (Barwick CJ); Tasmanian Dam case at 156 (Mason J).
(6) Whether the trading activities of an incorporated body are sufficient to justify its categorisations as a “trading corporation” is a question of fact and degree: Adamson at 234 (Mason J); State Superannuation Board at 304; Fencott at 589; Quickenden at [52], [101]; Mid Density at 584.
(7) The current activities of the corporation, while an important criterion for determining its characterisation, are not the only criterion. Regard must also be had to the intended purpose of the corporation, although a corporation that carries on trading activities can be found to be a trading corporation even if it was not originally established to trade: State Superannuation Board at 294-295, 304-305; Fencott at 588-589, 602, 611, 622-624; Hughes at 20; Quickenden at [101]; E at 344; Hardeman at [18].
(8) The commercial nature of an activity is an element in deciding whether the activity is in trade or trading: Adamson at 209, 211; Ku-ring-gai at 139, 142, 160, 167; Bevanere at 330; Hughes at 19-20; E at 343; Fowler; Hardeman at [26].” (Underling added)

[20] I turn now to the material before the Commission. Specifically, the evidence in this case indicates that:

(i) the corporate partners derive their income either exclusively or almost entirely from the distribution of CMI’s profits; and
(ii) the Partnership Deed precludes either of the corporate partners from taking part in the management or operations of the business or having the power to bind the partnership.

[21] Further, it is significant in my view that there is no evidence before the Commission which supports a finding that either of the corporate partners carries on trading activities in any form whatsoever. While I note the Applicant’s submission that there was no evidence before the Commission which made it clear that the corporate partners were not involved in running part of the business, I also note that conversely there was no evidence before the Commission that they were involved in running part of the business.

[22] With particular regard to the principles set out in ALS, there is no evidence before the Commission to suggest that trading is even a peripheral activity for either of the corporate partners or that the intended purpose of either of the corporate partners was trade.

[23] As to the Applicant’s submission regarding s.7(1) of the Partnership Act 1985 which deals with the meaning of partnership and provides that a “Partnership is the relation which subsists between persons carrying on a business in common with a view of profit”, a literal reading of the provision is that it does not require each partner to be an active participant in the business as submitted by the Applicant. At a practical level, an extension of the Applicant’s submission in this regard would be that the existence of a partner who solely contributed capital but who took not active role in the running of the business (irrespective of whether they were a natural person or a corporation), i.e. a silent partner, would be inconsistent with s.7(1). I consider it unlikely that this would have been the legislature’s intent.

[24] In summary, the evidence in this case together with the decisions in ALS, McInnes and Goldendays supports a finding that the corporate partners are not trading corporations.

Conclusion

[25] For all the above reasons I find that the corporate partners are not trading corporations, that the Respondent is a partnership and not a constitutional corporation and that therefore the Respondent is not a national system employer. As a result, Ms Greville’s application is incompetent.

[26]
Accordingly, the application is dismissed. An order to that effect will be issued in conjunction with this decision.

Appearances:

V. Pelligra for the Applicant.

G. McCorry for the Respondent.

Hearing details:

2015.

Canberra and Perth (telephone):

August 11.

 1   Exhibit MC2 at Annexure A

 2   Exhibit MC1

 3   Ibid at Annexure A

 4   Ibid at Annexure B

 5   Exhibit MC2

 6 (2008) 252 ALR 136

 7   [2015] FWC 4200

 8   [2015] FWC 2720

 9   Exhibit P1

 10   Ibid at Attachment DG2

 11   Ibid at Attachment DG3

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