Divadeus Pty Ltd v Victorian WorkCover Authority

[2014] VSC 578

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE

COMMON LAW DIVISION

JUDICIAL REVIEW AND APPEALS LIST

S CI 2013 05521

IN THE MATTER of an appeal under s 36J of the Accident Compensation (WorkCover Insurance) Act 1993

DIVADEUS PTY LTD	Appellant
v
VICTORIAN WORKCOVER AUTHORITY	Respondent

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JUDGE:	McMillan J
WHERE HELD:	Melbourne
DATE OF HEARING:	10–11 November 2014
DATE OF JUDGMENT:	5 December 2014
CASE MAY BE CITED AS:	Divadeus Pty Ltd v Victorian WorkCover Authority
MEDIUM NEUTRAL CITATION:	[2014] VSC 578

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Insurance — WorkCover insurance — Premiums calculated by reference to WorkCover industry classification — Meaning of the term ‘labour hire’ — Accident Compensation (WorkCover Insurance) Act 1993, ss 7, 15–17, 36J — WorkCover Insurance Premiums Order (No. 20) 2012/13, cls 4–6, 10, schedules 1, 4

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APPEARANCES:	Counsel	Solicitors
For the Appellant	Mr S Stuckey	Moores
For the Respondent	Ms G Gray	Corrs Chambers Westgarth

HER HONOUR:

1. The appellant, Divadeus Pty Ltd (‘Divadeus’) appeals to this Court against the determination of the Victorian WorkCover Authority (‘the VWA’) dated 27 August 2013.  The VWA determined that Divadeus’ WorkCover premiums for the policy period 2012/13 should be assessed on the basis that the workplace industry classification that most closely corresponded with Divadeus’ predominant activity conducted at Unit 11/114 Canterbury Road, Kilsyth (‘the Kilsyth workplace’) was ‘O77120 Investigation and Security Services’ (‘Security Services’). 

1. This appeal, brought pursuant to s 36J of the Accident Compensation (WorkCover Insurance) Act 1993 (‘the Act’), was initiated by notice of appeal filed 21 October 2013. In this appeal, Divadeus contends that the correct workplace industry classification is ‘N72120 Labour Hire Services’ (‘Labour Hire’).  The appeal predominantly concerns the meaning of the term ‘labour hire’.

1. For the reasons that follow, the appeal should be allowed.  The premiums payable by Divadeus for the relevant policy periods should be reassessed on the basis that the work conducted at the various imputed workplaces is that which most closely corresponds to the predominant activity of the particular client, but that the workplace industry classification that most closely corresponded to Divadeus’ predominant activity at the Kilsyth workplace is to remain ‘O77120 Investigation and Security Services’.

The procedural history

1. Divadeus was incorporated on 23 September 2011 for the purpose of acquiring a business, known as ‘Makesafe Security Solutions’ from Makesafe Security Solutions Pty Ltd (‘the vendor’).  That business was acquired on 11 November 2011.  Divadeus did not acquire the vendor.  It did receive the benefit of almost all of the then current clients of the business.  Divadeus is wholly owned by its sole director, Mr David McNamara, who had been the general manager of the vendor for the five years prior to that acquisition.  The nature and activities of the business acquired by Divadeus are at issue in this proceeding.

1. The parties agreed that Divadeus carries on business providing security services, and maintains premises at the Kilsyth workplace.  In broad terms, Divadeus’ business involves the provision of qualified security personnel to various clients, who the parties agreed include tertiary institutions and residential apartment buildings.  Divadeus also sells security related products, contracts for mobile patrols to client property, installs and advises on the installation of electronic security systems, and monitors and responds to alarms on client property.  The service to each client is dependent on the particular contract.

1. The parties agreed that Divadeus is required to obtain insurance under the Act. Without delving into the relevant provisions of the Act, the insurance premium payable by an employer is calculated, in part, by reference to the workplace industry classification (‘industry classification’) that most closely corresponds to the predominant activity conducted at a workplace. In general terms, the more dangerous the predominant activity, the higher the premium assigned by reference to the industry classification. The industry classification previously assigned to the business when owned by the vendor was Security Services. Following the sale of the business to Divadeus, the industry classification assigned was Security Services.

1. On 8 January 2013, Divadeus submitted a request for a review of their classification to CGU Worker’s Compensation (Vic) Ltd (‘CGU’), the relevant worksafe agent responsible for assigning the industry classification.  On 7 March 2013, Divadeus was notified by CGU that the currently assigned industry classification, Security Services, was applicable.

1. On 17 June 2013, Divadeus submitted a further request for a review on the grounds that the assigned industry classification, Security Services, was not applicable, and that Labour Hire would be more appropriate.  On 27 August 2013, that request was also denied, and Security Services was confirmed as the correct industry classification.  A detailed Premium Review Determination set out the reasons for that decision.

1. On 21 October 2013, Divadeus lodged a notice of appeal in this Court pursuant to s 36J(1)(a) of the Act. The succinctly stated grounds of appeal are:

1.In the premium year 2012/13, from its workplace at Unit 11/114 Canterbury Road, Kilsyth, the Appellant supplied the labour of numerous contractors engaged by it to third parties, to perform work at those parties’ premises as directed by the third parties from time to time.

2.The predominant activity of the Appellant at the workplace was the provision of labour hire services by security personnel.

3.The workplace classification that most closely corresponded to that predominant activity at the workplace was N72120 Labour Hire Services.

4.The workers supplied to the third parties were employed at imputed workplaces consisting of the areas of land occupied by the third party clients where the contractors worked (‘the imputed workplaces’).

5.The predominant activity of the Appellant at each of imputed workplaces was the activity of the relevant client at that workplace that contributed or was likely to contribute more than any other activity of the client to the value of goods or services produced or provided by operations carried on in that workplace.

1. In effect, paragraphs [1]–[3] and paragraphs [1], [4] and [5] operate as two separate appeals, the first relating to the industry classification of the Kilsyth workplace and the second relating to the question of whether the workers supplied by Divadeus work at imputed workplaces.

The legislative provisions

1. The relevant legislative provisions applicable to the present case were repealed by s 623(1) of the Workplace Injury Rehabilitation and Compensation Act 2013, but continue to have effect for the purposes of this appeal pursuant to ss 623(2) and (3) of that Act and, should there be any doubt, s 14 of the Interpretation of Legislation Act 1984.[1]

   [1]See also Mallee Transport Logistics Pty Ltd v VWA [2014] VSC 572 (13 November 2014) [5]–[12].

1. Any employer who employs a worker within the meaning of s 5(1) of the Accident Compensation Act 1985 must obtain and keep in force a WorkCover insurance policy with the VWA indemnifying the employer against the employer’s liability to pay compensation or damages in respect of workplace injury: s 7(1)(a).[2]  The premium payable by an employer for a WorkCover insurance policy must be calculated in accordance with the relevant premiums order: s 17.  The Governor in Council may, on the recommendation of the VWA, by order in council make a premiums order specifying the method to be used in calculating premiums payable: ss 3, 15(1)(a).

   [2]References to sections are references to sections of the Accident Compensation (WorkCover Insurance) Act 1993 except where otherwise indicated.

1. The premiums order for the 2012/13 policy period, the WorkCover Insurance Premiums Order (No. 20) 2012/13 (‘the premiums order’) was made by the Lieutenant-Governor in Council on 13 June 2012,[3] and was published in the government gazette on 14 June 2012, in accordance with the Act: s 16(1)(a). Pursuant to the premiums order, the premium payable is calculated by multiplying the remuneration paid to workers by the applicable premium rate, and then subtracting certain deductible amounts, in accordance with the calculations set out in Part 2 of the premium order: cls 5–6(2); schedule 1, item 4.[4]  The applicable premium rate is determined, in part, by the relevant industry rate: cl 6(3).  The relevant industry rates, which do not need to be set out, are determined by the industry classification of the workplace: cl 4(2); schedule 1, item 8.  The applicable premium rate is calculated differently depending on whether a workplace is an actual workplace or an imputed workplace: cl 6(3)(a), (c); cl 10(1).

   [3]Note the effect of the definition of ‘Governor in Council’ and ‘Governor’ in s 38 of the Interpretation of Legislation Act 1984 and s 6B of the Constitution Act 1975.

   [4]References to clauses and schedules are references to clauses and schedules of the WorkCover Insurance Premiums Order (No. 20) 2012/13 except where otherwise indicated.

1. Item 7 of schedule 1 relevantly provides:

(1)The industry classification of a workplace is the WorkCover industry classification … to which the predominant activity at that workplace corresponds or most closely corresponds.

(2)For the purposes of determining the industry classification in accordance with sub-item (1):

(a)regard must be had to the introduction to, and all relevant elements of, schedule 4;

(b)consideration must be given to the industrial characteristics of the predominant activity without regard to the risk of injury associated with the predominant activity or with any of the occupations of or functions performed by workers engaged in operations at the workplace; and

(c)the predominant activity at a workplace does not correspond or most closely correspond to a WorkCover industry classification if workplaces predominantly engaged in that activity are expressly excluded from that classification in any of the elements of schedule 4.

1. Predominant activity is defined in item 3(1), which relevantly provides:

(1)(a)       Predominant activity, in relation to a period of coverage at an actual workplace of any employer, means the activity of the employer which during that period contributes, or is likely to contribute, more than any other activity of the employer to the value of goods and/or services produced or provided by operations carried on in that workplace.

(b)Predominant activity, in relation to a period of coverage at an imputed workplace, means the activity of the labour hire client which during that period contributes, or is likely to contribute, more than any other activity of the client to the value of goods and/or services produced or provided by operations carried on in that workplace.

1. Pagone J in Emu (Aus) Pty Ltd v Victorian WorkCover Authority[5] considered that the determination of the ‘predominant activity’ requires:

(a)first, the identification of the goods and services produced or provided by operations in a workplace;

(b)secondly, the identification of the value of those goods and services;

(c)thirdly, the identification of a causal link between the activities of the employer and the value of the goods and services; and

(d)fourthly, the identification of which of those activities contributes, or is likely to contribute, more than any other activity to the value of the goods or services.[6]

[5][2012] VSC 610 (12 December 2012).

[6]Ibid [4] (lettered paragraphs added).

1. Workplace is defined in item 2(1), which relevantly provides:

(1)Workplace, in relation to an employer, means:

(a)an area, or two or more contiguous areas, of land in Victoria occupied by the employer where workers employed by the employer work, or through which such workers pass in the course of their employment … (‘actual workplace’); and

(b)an area, or two or more contiguous areas, of land in Victoria occupied by a labour hire client of the employer where workers employed by the employer work, or through which such workers pass in the course of their employment … (‘imputed workplace’).

1. Item 2(3) is a catch-all provision that ensures workers employed by an employer in circumstances that do not fit precisely within the definition of actual or imputed workplace are still deemed to have a workplace:

(3)… if workers employed by an employer are working in a place that is not a workplace of that employer within the meaning of sub-item (1), those workers shall be deemed to be working at the workplace of the employer from which that work is managed or controlled or, if there is no such workplace, the place determined by the Authority to be the workplace of the employer in respect of that work.

1. Although item 2(3) resolves the circumstance where a worker is employed at a location that is neither an imputed nor an actual workplace, item 2(1) does not resolve the circumstance where a worker is employed both at an actual workplace and an imputed workplace.  There is no tiebreaker provision.  That is because the premium payable is determined in part by the remuneration paid to workers, which in turn is allocated to each of the workplaces at which a worker is employed.  The allocation is on a proportionate basis in accordance with schedule 1, item 4(3):

(3)… if a worker is engaged in operations at two or more workplaces of an employer and the remuneration paid or payable to the worker in respect of operations in each workplace is not identified, the proportion of the remuneration attributable to each workplace is the same proportion as the number of hours during which the worker is engaged in operations in that workplace bears to the total number of hours during which the worker is or was engaged in operations at those workplaces.

1. Labour hire client is defined in cl 4(2) of the premiums order:

labour hire client, in relation to an employer, means a person at whose workplace (or, if the person is not an employer, a place that would be a workplace of the person if the person was an employer) a worker provided by the employer under a labour hire arrangement works, whether or not the person is a party to a labour hire arrangement with the employer.

1. The term ‘labour hire arrangement’ and the term ‘labour hire’ are defined:

labour hire arrangement, in relation to an employer, means an arrangement, whether oral or in writing and whether formal or informal, for labour hire.

labour hire, in relation to an employer, means the supply, whether directly or indirectly, of the labour of one or more workers employed by the employer, not being a supply of labour determined by the Authority to be a supply of labour in connection with:

(a)the performance of a specified task;

(b)the discharged by the employer of a specified function; or

(c)the achievement by the employer of a specified outcome.

1. Schedule 4 contains the industry classifications, organised into broad divisions, narrower subdivisions, and specific titles.  The general introduction to schedule 4 sets out the manner in which the industry classifications are to be determined, and includes a flowchart setting that out.  That flowchart provides:

Schedule 1

Schedule 4

No

 

Yes

 

 

1. The general introduction relevantly provides:

1.The General Introduction to Schedule 4 provides essential information, definitions and instructions that apply across more than one division or across all divisions of Schedule 4.  These must be considered as part of the process under this schedule for allocating workplaces to specific WorkCover industry classifications (abbreviated to ‘classes’ within this schedule) based on the workplace’s predominant activity.

2.In addition, each division has an introduction that provides essential information about the nature of activities included within that division.  All definition and instructions in the introductions must be considered as part of the process for allocating workplaces to specific classes within Schedule 4, based on the predominant activity of the workplace.

…

4.Classes, which are denoted by a single letter and a five digit numeric code, are organised within broad divisions (each identified by a single letter), subdivisions (each identified by a two digit code) and groups (each identified by a three digit code).  The classes are based on the Australian and New Zealand Standard Industrial Classification 2006 (ANZSIC) developed by the Australian Bureau of Statistics (ABS) in collaboration with Statistics New Zealand and accessible via the ABS Website at classification of a workplace to a class is a two step process.  The first step is to determine the predominant activity at the workplace in accordance with item 3 of Schedule 1.  It is only after that step has been completed that schedule 4 is considered, in step two.  Step two is to identify the class in Schedule 4 to which the predominant activity corresponds or most closely corresponds.

6.For this purpose, regard must be had to all elements of this schedule, i.e. the general introduction, headings, the general provisions, introduction to divisions, industry descriptions, exclusions/references and the listed activities.

1. In schedule 4, the industry classification N72120 Labour Hire Services is contained within ‘Division N: Administrative and Support Services’.  The introduction to that division relevantly provides:

1.The Administrative and Support Services Division includes workplaces predominantly engaged in performing routine support activities for the day-to-day operations of arm’s length entities and for domestic (or personal) use on a contract or fee basis.

2.Workplaces providing administrative services are predominantly engaged in activities such as:

a)office administration;

b)hiring and placing personnel

c)preparing documents;

d)taking orders for clients by telephone

e)providing credit reporting or collecting services; and

f)arranging travel and travel tours.

1. The introduction to the Division also provides the following clarification:

Classification Issue: Labour hire services

Issue

Some employers are predominantly engaged in labour hire, that is supplying workers to labour hire clients.  A labour hire client (and labour hire) in relation to an employer are defined in Part 1, clause 4 of the Premiums Order.  Employers predominantly engaged in supplying labour hire will generally have an actual workplace (pursuant to item 2(1)(a) of schedule 1) from which the labour hire business administered and imputed workplaces (pursuant to item 2(1)(b) of schedule 1) that are classified according to the predominant activity of the place where workers of the employer work.  This raises the question of the correct classification of these workplaces.

Rule

The employer’s actual workplace, that is predominantly engaged in administering the labour hire business, will be classified in this Division.

The employer’s imputed workplaces, where the workers of the employer work, will be classified according to the predominant activity at the imputed workplace.

1. It is clear from the words of the general introduction to schedule 4, as well as the flowchart, and the words of the clarification, that this clarification does not provide an invitation to reverse the process of investigation, and determine the predominant activity by reference to the industry classifications.  The premiums order unambiguously mandates that the predominant activity must be determined prior to any consideration of the industry classifications.

1. N72120 Labour Hire Services sits within ‘Subdivision 72 — Administrative Services’ (within Division N) and is relevantly defined as follows:

This class consists of workplaces predominantly engaged in administering the supply of workers to labour hire clients on a fee or contract basis.

This class includes workplaces of group training employers predominantly engaged in employing apprentices and/or trainees and placing them with arm’s length host employers.

Activities

Contract labour service, administration	Labour supply service, administration
Group training operation, administration	Temporary labour hire service, administration
Labour on-hiring service, administration
Labour staffing service, administration

1. The definition contains two exclusions.  The second is not relevant to this appeal.  The first provides:

Workplaces predominantly engaged in

a)listing employment vacancies and referring or placing applicants for permanent employment are included in class N72110 Employment Placement and Recruitment Services.

1. The industry classification O77120 Investigation and Security Services is contained within ‘Division O: Public Safety and Administration’.  The introduction to that Division relevantly provides:

1.The Public Administration and Safety Division includes workplaces predominantly engaged in … providing physical, social, economic and general public safety and security services.

…

3.Physical, social, economic and general public safety and security services, and enforcement activities, include:

a)police services;

b)investigation and security services;

c)fire protection and other emergency services;

d)correctional and detention services;

e)regulatory services;

f)border control; and

g)other public order and safety services.

1. O77120 Investigation and Security Services sits within ‘Subdivision 77 — Public Order, Safety and Regulatory Services’ (within Division O) and is relevantly defined as follows:

This class consists of workplaces predominantly engaged in investigation (except police or insurance investigation) and security services (except police).

Activities

Alarm monitoring service

Locksmith service

Armoured car service

Night watchman service

Body guard service

Protection service

Burglary protection service

Security alarm monitoring or response service

Security guard service

Detective agency service

Enquiry agency service

Investigation service (except police or insurance investigation)

1. The definition contains five exclusions, relevantly including:

Workplaces predominantly engaged in

…

b)selling security systems such as locking devices, safes and vaults, without installation or maintenance services, are included in the appropriate classes of Division G — Retail Trade; [and]

…

d)installing alarms are included in class E32340 Fire and Security Alarm Installation Services.

1. The appeal to this Court is an appeal by way of rehearing de novo,[7] and is brought pursuant to s 36J of the Act:

   [7]United Petroleum Pty Ltd v Victorian WorkCover Authority; Emu (Aust) Pty Ltd v Victorian WorkCover Authority [2011] VSC 570 (10 November 2011) [111] (Osborn J).

36J.     Appeals

(1)Despite anything to the contrary in section 39(1) of the Accident Compensation Act 1985, if an employer—

(a)is not satisfied with a determination made by the Authority under section 36F (including a deemed determination under section 36I); or

(b)has received notice that the Authority has decided not to conduct a review under section 36B—

the employer may appeal against that determination or decision to the Supreme Court.

1. Section 36K provides:

36K.    Hearing of appeal by Supreme Court

(1)On the hearing of an appeal by the Supreme Court, the Court may make any order it thinks fit and may by order confirm, reduce, increase or vary the premium.

1. The effect of the above provisions in the present case is as follows.  If the service provided by Divadeus to its clients is the supply of labour hire, the premium payable by Divadeus in respect of that work is to be calculated by reference to the industry rate of the particular client.  If the particular client’s industry classification is not Security Services, the appeal would then succeed on the basis of paragraphs [1], [4] and [5] of the grounds of appeal. Divadeus’ payable premium would be reassessed on the basis that the industry classification s is that which most closely corresponds to the predominant activity of the particular client.

1. If the appeal is unsuccessful in respect of the labour hire point, and the service provided by Divadeus to its clients is not the supply of labour hire, the workplace applicable to the security personnel is, by virtue of item 2(3) of schedule 1, the Kilsyth workplace, and the premium payable by Divadeus is to be calculated by reference to the industry classification that most closely corresponds to the predominant activity provided by operations at the Kilsyth workplace.  If that industry classification is not Security Services, the appeal would then succeed on the basis of paragraphs [1]–[3] of the grounds of appeal.

1. Not all of Divadeus’ workers are security personnel operating offsite.  It follows that, irrespective of the success of the appeal in respect of the labour hire point, it will be necessary to determine whether the industry classification that most closely corresponds to the predominant activity conducted at the Kilsyth workplace is Security Services.  That question is related to whether the service provided by Divadeus to its clients is the supply of labour hire, but is not answered determinatively by the resolution of that question.  Notwithstanding a finding that Divadeus is engaged in the supply of labour hire, Security Services may nevertheless more closely correspond to the predominant activity of Divadeus provided by operations at the Kilsyth workplace.

The evidence

1. Before setting out the evidence, I note that this appeal is from the assessment of the premium payable by Divadeus in the 2012/13 premium period.  Evidence was led concerning the activities of Divadeus prior to that premium period, and also from well after that period.  No objection or submissions were directed to how that evidence could or should be used to determine the premium payable in respect of the year in question.  For the purpose of this appeal, I have assumed that evidence of Divadeus’ activities after the relevant premium year are relevant to the determination of the premium payable in the 2012/13 premium period.

The Kilsyth workplace

1. Prior to the Makesafe business being acquired by Divadeus, the business was conducted from an office in Vermont. However, the workplace the subject of the assessment, Unit 11/114 Canterbury Road, Kilsyth, which the parties agreed constituted an actual workplace under the Act, is an office located in a 378 square metre bulk goods warehouse with retail frontage. The retail show room occupies the front portion of the Kilsyth workplace, and approximately 25 per cent of the total floor space at the Kilsyth workplace. The workplace also comprises five offices, an equipment room, and a toilet and kitchen facilities. The remainder of the workplace, being warehouse space, is occupied by Araman Corporate Management Pty Ltd.

1. The parties agreed that one of the five offices is used as a control room, which houses computer equipment used for incident reporting and rostering purposes.  The control room operates between 3.00pm and 8.00am daily.  It is staffed by four rostered employees, who deal with requests from clients of the business for additional labour, other client enquiries, and contract staff enquiries, including rostering and staff placement.  The control room staff work eight hour shifts on a seven day basis, rotating shifts.  On weekdays, the control room is unoccupied during business hours, as the permanent staff are able to access the room as required.  The cost of operating the control room is not separately charged to clients.

1. The parties also agreed that retail sales of security related products, the installation of electronic security systems and the provision of advice on security solutions also occur from the workplace.  Installation of security and surveillance equipment is subcontracted to outside contractors.

1. Three of the other offices were previously occupied by Divadeus’ full-time employees, Mr David McNamara, Mr Luke Starecki, and Ms Monica McNamara.[8]  Ms McNamara left the company in July 2014, and her role is now performed by an external accounting firm.  Their roles encompassed the following.

   [8]It was unclear from the evidence how the fifth office was used.

1. Mr McNamara, the sole director and manager of Divadeus, was responsible for financial matters, business planning, marketing and human resources.  He estimated that half of his time was spent dealing with financial work, a third was spent managing the retail side of the business, and five per cent of his time was spent liaising with clients.[9]  Under many of Divadeus’ contracts, Mr McNamara is the nominated contact, and is responsible for preparing and providing monthly reports of an administrative nature concerning the general conduct of each site, including changes to personnel, and the state of equipment and vehicles.  Mr McNamara served in the army from 1979–1992, and in the franchising industry from 1992–2006.  He has a security advisor’s licence issued by the Licensing and Regulation Division of Victoria Police, and a private security business licence under which Divadeus operates.

   [9]The remaining 12% of his time was not accounted for in the evidence.

1. Mr Starecki, the operations manager, was estimated to spend close to 80 per cent of his time offsite, visiting clients, conducting safety analyses at new sites, and meeting security staff on site.  When at the office, Mr Starecki was the primary point of contact for clients, and reviews and respondents to incidents and complaints.  Although not obliged under the contracts to review incident reports, Mr Starecki did so to ensure he was aware of any issues with services provided to clients.  Finally, Mr Starecki was responsible for procuring equipment and uniforms for security staff.  His office is used to train security staff when training is required.  A separate room, the equipment room, contains uniforms, personally protective equipment, stationary, high visibility vests, hard cats, eye goggles, ear muffs, ear plugs, and other assorted equipment.  It was, and remains, the responsibility of Mr Starecki.

1. Ms McNamara, the finance and administration manager, handled administrative, superannuation and payroll matters, and banking and similar activities for the retail side of the business.  Divadeus had another, part-time, employee who assisted with payroll and accounting enquiries.

The income

1. Other than the provision of security personnel, Divadeus does a small amount of other security work, including retail sales of security equipment, operating a control room to monitor alarms, contracting mobile patrol services from Advance Security Pty Ltd and Southern Cross Protections Pty Ltd, and providing general security advice.  The breakdown of Divadeus’ income, obtained from the MYOB business accounting software used by Divadeus, was as follows:

Product / Services	1/07/2012 — 30/06/2013		1/07/2013 — 30/11/2013
	Amount	Percentage	Amount	Percentage
Provision of security officers and supervisors	$8,492,676	98%	$3,677,800	96%
Retail sales of security related products	$42,865	0.4%	$68,374	1.8%
Mobile patrols	$61,316	0.7%	$26,003	0.06%
Installation and advice on security systems	$442	Negligible	None	None
Operating the control room service[10]	$260	Negligible	$140	Negligible

[10]Mr McNamara was unable to explain adequately why, given the cost of operating the control room was not separately charged to clients, there was a small amount of income allocated to that item.  Given the minimal amount under that heading in proportion to the overall income, that is of no consequence.

1. The details of this table were deposed to in paragraph [8] of Mr McNamara’s affidavit sworn 20 December 2014.  At paragraph [33] of the same affidavit, Mr McNamara deposed that $9,436,703.67 of income was derived from the provision of security personnel, representing 98.72% of Divadeus’ income.  At paragraph [6] of the same affidavit, Mr McNamara exhibited Divadeus’ accounts for the year ended 30 June 2013, showing total income of $8,618,791.99, making the $9,436,703.67 figure unlikely.  At paragraph [34] of the same affidavit, Mr McNamara exhibited a list of clients to whom security personnel are provided, together with the value of each contract for the 2012/13 financial year.  The total value of the contracts was $8,145,491.87.  On the basis of the total income figure in Divadeus’ accounts, that amount is the equivalent of 94.5% of Divadeus’ income.  The affidavit therefore refers to three different amounts constituting the income derived from the provision of security personnel.  Mr McNamara was unable to explain this discrepancy.  In any case, the difference is immaterial for the purpose of the questions to be decided in this appeal, and little turns on it.  It can be accepted that over $8 million, representing over 94% of Divadeus’ income, was derived from the provision of security personnel.

1. A further point clarified in cross-examination is that the $8,492,676 figure in the table, although noted as referable to the provision of security personnel, includes the cost of those security personnel conducting mobile patrols on certain university campuses for Divadeus clients, and also for the supply of vehicles for security personnel on those campuses.  Therefore, the figure in the above table is not strictly referable to the personnel alone.  The mobile patrol income listed is mostly earned from MICM Property, a client of Divadeus that manages a number of residential apartment buildings.  Any mobile patrols provided to other clients are subcontracted for a minimal margin to Advance Security Pty Ltd or Southern Cross Protections Pty Ltd.

1. One of the services provided in a number of Divadeus’ contracts is electronic alarm monitoring.  That service is not represented in the income breakdown set out above.  Mr McNamara explained in cross-examination that this is because alarm line monitoring is conducted by a third party supplier, a separately licensed organisation, known as a monitoring centre.  If necessary, the monitoring centre contacts either a mobile patrol or security staff on site, depending on the arrangement with the client.  The service provided by the monitoring centre was distinct from the control room, a generic industry term for a coordination centre.  Mr McNamara explained in re-examination that the control room at the Kilsyth workplace does not actively monitor any client sites, and in relation to some clients, does not have any role in co-ordinating or monitoring the site.  Monitoring centres must be separately licensed and are graded by Victoria Police.  They are required to have certain facilities, including independent power supplies and in the case of the highest ranked facilities, the ability to withstand certain attacks.  As it is generally an expensive exercise to transfer between monitoring centres, because of physical lines that must be installed, Divadeus generally subcontracts monitoring to the client’s existing monitoring centre, with the client’s consent.

The security staff

1. Divadeus has a pool of around 160 security officers that it employs and supplies to clients, of whom 120–130 are employed in any one week.  The majority are employed to work at a specified client on a full-time basis.  They are employed under a Collective Employment Agreement made in 2009 that expired in June 2014, and paid on an hourly rate.  They submit timesheets to Divadeus.  Divadeus also employs supervisors who are allocated to clients employing more than five security officers, inclusive of the supervisor.  Supervisors oversee the work of security officers for the particular client.

1. Divadeus rarely advertises for staff, and most often finds new staff by word-of-mouth from existing employees, and from training organisations.  Prospective security officers go through an induction process at the Kilsyth workplace, and occasionally, due to time constraints, at the client’s premises.  They are issued with a staff handbook and instructions on the business’ standard operating procedures.  Mr Starecki meets all prospective security officers to assess their suitability.  All prospective security officers must hold  Certificate II in Security Guarding Unarmed, a first aid certificate and a drivers licence.  Mr McNamara agreed in cross-examination that staff did not necessarily have any prior experience as security staff.  Once approved, the client is then presented with a panel of security officers, and the client’s security manager, an employee of the client, controls the recruiting process from there, including making the final decision as to whether the client will agree to accept a particular security officer.  Some clients have further requirements, including English language proficiency and presentation.  The client’s security manager also conducts the training of new officers, a cost borne by Divadeus.

1. Mr McNamara’s evidence was that although all staff are issued with a staff handbook, only the key elements are verbally outlined, and the handbook is not read ‘chapter and verse’.  The handbook, which runs to some 49 pages,[11] covers ethics, discipline and conduct, client and public relations, operational responsibilities and procedures, some specific operational duties and responsibilities, emergency procedures, and employee policies and procedures.  Relevantly to the issues at hand, cl 1.14 of the staff handbook, contained within the chapter on discipline and conduct, provides:

   [11]The version provided to the Court, exhibited to Mr McNamara’s affidavit sworn 20 December 2013, indicates at the contents pages that it runs to some 61 pages, but the contents page does not accurately reflect the pagination of the actual content and I will assume that the whole handbook, or as much as was relevant, has been provided.

1.14     Work as Directed

Security Officers will accept any work assignment offered and be prepared to work at any Makesafe of Client’s premises, sites or places of duty as may be directed by Makesafe management provided they are qualified and trained to perform such duties.  The Security Officer has the right to report to Makesafe management any safety concerns they have, which may impact on their ability to perform the required duties.  The Security Officers are also required to work reasonable overtime when requested as determined by Makesafe management.  Failure to abide by these SOPs could result in disciplinary action.

1. Generally, Divadeus’ security officers are assigned to work for one client, on one site only, and the officers contact Divadeus only in relation to pay issues.  Their instructions come directly from the client or from the relevant supervisor who obtains instructions from the client.  The relationships between Divadeus and the clients are governed by individual contracts that set out the terms on which the security officers are employed.  The contracts provide the payment rates on which the client pays Divadeus, on a per-officer per-hour basis, and that that security personnel are to work on the instructions of the client.

1. Mr McNamara explained in cross-examination that although cl 1.14 indicates that Divadeus’ management may direct work assignments at client premises, operationally that power refers to assignments in a broad sense.  For instance, where a client operates a number of different apartment buildings, Divadeus might assign a particular guard from one apartment building to another.  Their specific duties at the site would then be assigned by the client. 

1. Although cl 3.2 of the staff handbook requires staff to report to Divadeus’ control room at the beginning and end of each shift, Mr McNamara gave evidence in cross-examination that in fact that obligation varied depending on the site.  At sites where security staff worked under a supervisor, they instead filled in a logbook and only the supervisor made contact with Divadeus.  Security personnel who work alone at a client were required to report to the control room to log in and log off.  Mr McNamara noted that the control room also periodically contacted individual guards for occupational health and safety purposes and, in some instances (depending on the client), staff were required to contact the control room when incidents occured.  Incidents are also logged on an intranet, which in turn generates PDF reports that are e-mailed directly to clients.  His evidence was that the incident logging is for quality assurance purposes, so he was able to ensure the service being provided to clients was satisfactory.  For some clients, such as Deakin University, there is an internal incident log and neither Mr McNamara nor anyone at the Kilsyth workplace would be informed unless there was a particular reason for them to be told.

1. Similarly, although cl 3.12.3(a) indicates that the ‘Makesafe control room’ is in charge of the network, and (d) requires that officers must conduct radio checks with ‘Makesafe control’ in accordance with the standard operating procedures, Mr McNamara’s evidence was that staff must instead be in constant radio communication with their own radio group.  For large clients, such as universities, there is little to no radio interaction between the Kilsyth workplace and the security officers, while for smaller clients such as apartment buildings, there is more direct radio contact with the Kilsyth workplace.

1. Mr McNamara deposed that Divadeus does not supervise the day-to-day work of the security officers or the supervisors, who report to the client’s security manager.  The VWA challenged that evidence, relying on the terms of Divadeus’ contracts with its three major clients: Deakin University, Swinburne University, and MICM Property, as well as, to a lesser extent, the terms of contracts with a number of smaller clients, including the Box Hill Institute, Holmesglen TAFE, Freshwater Place, and John Holland Pty Ltd.  Those contracts were produced by the Court by way of subpoena, and Mr McNamara was cross-examined on the relevant terms.

The Deakin contract

1. The Deakin contract was entered into between Deakin University and Makesafe Security Solutions Pty Ltd on 20 January 2008.  Subsequent to Divadeus acquiring the Makesafe business, an agreement was made that the services were to be provided by Divadeus.  Clause 1.0 of the Deakin contract provides the following relevant definitions:

‘Contractor’ means the person or persons, individuals or partnerships corporation or corporations whose Tender for the work has been accepted.

‘Security Services’ shall mean the provision of Security Officers for University properties and services as described in Schedule 1.

‘Security Manager’ shall mean the officer at the time being appointed as Security Manager, Facilities Management Services Division of Deakin University, or his/her representative.

‘Security Client Services Manager’ shall mean the person nominated by the Contractor as having the authority and responsibility in ensuring Security Services are provided in accordance with the specifications of this contract.

‘Security Supervisor’ shall mean the person engaged by the Contractor to supervise all day-to-day Security Services on all campuses on a full-time basis.

‘Senior Security Officer / Security Officers’ shall mean an employee of the Contractor having been trained in security guarding and patrolling to the satisfaction of the University and who is the legitimate holder of a Victorian Private Security Individual License.

1. The operative clause of the contract, in combination with Schedule 1, is cl 2.1.1 which requires Divadeus to ‘provide 24-hour Security Services 365 days per year at all campuses according to Schedule 1’.  The general obligations in item 1 of schedule 1 are broad, including the preservation of life and order, first response in the event of an emergency, patrol campus buildings and grounds, investigation of security incidents on campus and the provision of safety escorts for campus users after hours.  Amongst other things, the Deakin contract provides that the University may vary the scope of services at any time:

5.0VARIATION

5.1The University may, at any time, by notice in writing, increase or decrease the scope for services required under the terms and conditions of the Contract.  In the event of such variation the amount payable to the Contractor shall be varied by an amount agreed upon between the Contracts Manager, Facilities Management Services Division, and the Contractor using rates and schedules provided.

1. The contract provides the details of the minimum skills that security staff must possess: cl 8.5.  It provides that all security guard staff must be formally inducted by authorised personnel from the university: cl 10.1.  Security staff must wear a ‘clean, pressed and approved working uniform’: cl 25.1.  Security staff must use the university’s existing two-way radio system, with the radio base unit and radios supplied by the university: cl 33.1–33.3.  The Senior Security Officer at each campus must conduct weekly security audits, which are reported to the Security Manager (a Deakin employee): cl 34.1. 

1. Relevantly for this appeal, cl 31.1 provides:

31.0THE WORKS TO BE SATISFACTORY

31.1All work under this specification shall be carried out to the entire satisfaction of the Security Manager, Facilities Management Services Division, or otherwise appointed representative.

1. Mr McNamara gave evidence in cross-examination that he was the Security Client Services Manager.  Item 3.0 in Schedule 1 sets out the obligations of the Security Client Services Manager, which relevantly include the following:

3.1.2The Security Client Services Manager will:

3.1.2.1Be the University’s primary contact for the duration of this Contract and shall manage and co-ordinate the security operations across all campuses to ensure the standard of service and contractual obligations are met.

3.1.2.2Ensure compliance with all Occupational Health and Safety systems, quality systems and risk management systems are up to date and adhered to.

…

3.1.2.7Provide an up to date and accurate Contract Management Plan detailing all staff training, site visits, audits, meeting, etc.

3.1.2.8Promoting and encouraging a safe working environment for contractor and University personnel.

…

3.1.2.18Manage and perform other duties as and when requested by the Security Manager, Facilities Management Services Division.

1. The Security Supervisor under the Deakin contract, again on the evidence that Mr McNamara gave in cross-examination, is Mr Ryan Orchard, a Divadeus employee provided to Deakin University on a full-time basis.  He wears a Deakin uniform and reports to the Security Manager at Deakin.  The obligations of the Security Supervisor are contained in item 4.0, including:

4.3Typical duties of the Security Supervisor are as follows:

4.3.1Supervising the day-to-day Security Services on each campus to ensure continued customer and client satisfaction.

4.3.2Promoting and encouraging a safe working environment for contractor’s staff and the University community and facilities.

4.3.3Ensuring all Occupational Health and Safety systems, quality systems and risk management systems are adhered to.

…

4.3.6The Security Supervisor shall visit each campus as a minimum on a weekly basis and shall provide an annual plan of such visits at the beginning of each year.  This plan shall be approved by the Security Manager, Facilities Management Services Division prior to implementation.  During these visits the Security Supervisor shall visit the local Facilities Management Services Division staff and the Contractor’s staff.

…

4.3.10The Security Supervisor is to be familiar with operations on all campuses and make recommendations for improvements including updating of procedures.

…

4.3.16The Security Supervisor will be responsible to control all Annual Leave, Sick Leave, additional work requests, Uniform / Equipment requests from Security Officers.

4.3.17The Security Supervisor shall have authority in enforcing disciplinary and termination procedures of all Contractors’ staff.

4.3.18A system of auditing of all Security Officers on all sites and preparing annual written performance evaluations, monitoring and reporting Key Performance Indicators will be implemented by the Security Supervisor.

…

4.3.20The Security Supervisor is not limited to the above duties and may be required to perform other duties when requested by the Security Manager, Facilities Management Services Division.

1. The obligations of a Senior Security Officer are detailed in item 5.0, and broadly reflect the obligations of both the Security Client Services Manager and the Security Supervisor.  In cross-examination, Mr McNamara referred to them as a form of ‘lead guard’ or ‘team leader’, who are physically on the ground at each of the university campuses and receive their daily instructions from the client.

1. Clause 7.0 of the Deakin contract governs the relationship between Deakin University, Divadeus and the Divadeus staff working at Deakin University.  It reserves to Deakin a discretion to determine whether Divadeus staff members may enter the premises, a right to remove Divadeus staff members from the premises, and to require that Divadeus cease to engage a staff member in respect of the Deakin contract.  It provides, in cl 7.2 that Divadeus indemnifies Deakin University for any claim to damages or lost wages brought by Divadeus staff.  Clause 7.4 then provides:

7.4The Contractor shall be responsible for the good and proper conduct of the persons engaged by the Contractor while carrying out security services.  When the Contractor’s Manager / Supervisor is not personally in charge of the Security Services of the University, the Contractor shall ensure that a responsible representative is at all times supervising the Security Services on all campuses.

1. It was put to Mr McNamara that the terms of the contract require ongoing, day-to-day supervision of staff by Divadeus.  He agreed that was what the contractual terms provided, but denied that was in fact how the contract operated.  The Security Supervisor and Senior Security Officers are responsible for carrying out the actual tasks as instructed by the client, and his involvement (and that of other staff and the Kilsyth workplace) was limited to administrative procedures, such as leave and equipment requests from Security Officers.  He agreed that the requirement in cl 7.4 to provide a responsible representative was not complied with by Divadeus.

1. The terms of the Deakin contract, immediately following Schedule 1b, also provide an organisational chart.  It appears that the chart is included as a guide to the operation of the contract, although it was not referred to specifically in any parts of the contract that were drawn to the Court’s attention:

Organisational Chart

1. Mr McNamara also deposed to an alternate organisational chart for Divadeus’ operations at Deakin University:

Deakin University Security Functional Hierarchy

1. It was put to Mr McNamara that the organisational chart provided in the contract differed from the organisational chart that he had exhibited to his affidavit, in that his affidavit left out his role.  Instead, he deposed that the ongoing supervision of staff was conducted by the supervisors who, as previously described, reported directly to the client security manager.  He said his role was limited to administrative tasks, such as managing sick leave.  Mr McNamara agreed that the charts were different, but he noted that in both charts, the Deakin Security Manager (or, as it is described in the second chart, Security Co-ordinator) was responsible for directing the Security Supervisor, Ryan Orchard.  His explanation for the difference was that the chart that he had deposed to was the ‘functional hierarchy’ — that is, how it physically works, and how the daily tasks of the guards on the ground are directed.  The contractual chart reflected the responsibility for the administrative tasks such as annual leave, sick leave and rostering, as well as the day-to-day supervision.  Finally, it was also suggested in cross-examination that the differing form of the arrows in the contractual chart suggested only communication with rather than control by the Deakin Security Manager,.  Mr McNamara did not agree with that suggestion.

1. Item 9.0 of Schedule 1 to the Deakin contract requires Divadeus to provide a control room:

9.0      CONTROL ROOM

9.1The Contractor shall provide a 24-hour per day, 7 days per week Control Room.  The Control Room shall be able to communicate with the Security Officers on all University campuses at all times.

1. When Makesafe initially began providing services to Deakin, Deakin did not have its own control room, but it now does, operated by Divadeus’ security staff.  The control room was not itemised in the financial schedule of rates contained in Schedule 2(a) to the Deakin contract.

1. Schedule 2(a) does itemise the cost of the different officers at each campus, as well as the cost of vehicles, equipment, uniforms, and materials.  Mr McNamara, on being referred to that schedule, agreed that Divadeus does not merely provide labour to Deakin.  An integral part of the contract includes those itemised services provided to assist the security staff.

1. Counsel for Divadeus also drew the Court’s attention to, and relied upon, Schedule 3 to the Deakin contract which sets out the key performance indicators  ‘used as a record to ascertain the Contractors performance’ and ‘to assist the University in determining whether to extend the contract’: Schedule 3, item 1.0.  In respect of the administrative tasks to be completed by Divadeus, those indicators include:

(a)whether Divadeus maintains contract staffing levels as per the contract;

(b)whether Divadeus maintains a current security firm certificate;

(c)whether Divadeus has a current occupational health and safety plan;

(d)whether officers hold current security qualifications and are sufficiently trained;

(e)whether invoicing is carried out correctly; and

(f)whether additional work requests are met.

1. In respect of the tasks completed by Divadeus security staff, only compliance with the standard operating procedures, response to duress alarms, incident reporting and incident investigation are included in Schedule 3.

The Swinburne contract

1. The Swinburne contract was entered into between Swinburne University and Makesafe Security Solutions Pty Ltd on 20 December 2010, and subsequently taken over by Divadeus.  Clause 1.1 contains a number of relevant definitions, including:

‘Contractor’ means the party so identified in Item 1 of Schedule 1 and shall, where the context so admits, include the employees, subcontractors and agents of the Contractor;

‘Services’ means the services described in the Specifications which are to be provided by the Contractor pursuant to this Agreement;

‘Specification’ means specifications of functional, operational, performance or other characteristics required of the Services, as set out in Schedule 3;

‘Swinburne Representative’ means a person appointed by Swinburne to be responsible for the day oversight of the performance of the Services who has the authority to make any request or give any direction in relation to the Services for and on behalf of Swinburne and to receive and sign notices and written communications for and on behalf of Swinburne under this Agreement, and includes any delegate or representative of the Swinburne Representative.

1. The operative clause is cl 4.2(a), under which ‘the Contractor must comply with the terms and conditions of this Agreement, including the Specifications’.

1. Item 6.1 of schedule 3 provides:

6.1      Client Contract Manager

It is an expectation of the University that the Contractor will provide at no additional cost to the university a dedicated Client Contract Manager.  This person shall liaise with the Swinburne Responsible Officer.

1. Mr McNamara’s evidence in cross-examination was that he was also the Client Contract Manager.  Somewhat curiously, the terms ‘Swinburne Responsible Officer’ and ‘Responsible Officer’, used throughout Schedule 3, are not defined terms.  The obligations of the Client Contract Manager are set out in item 6.2:

6.2      The Client Contract Manager will:

(a)Be the University’s primary contact for the duration of this contract and shall manage and co-ordinate the security operations across campuses to ensure the standard of service and contractual obligations are met.

(b)Ensure compliance with all occupational health and safety systems and risk management systems are up to date and adhered to

(c)Attend contract review meetings as determined by the University.

(d)Ensure adequately trained personnel are available to fulfil the contracted roster and any additional shifts as requested by the University.

…

1. Similar to the Deakin contract, the Swinburne contract provides, in item 6.3, for a Security Supervisor, who is a Divadeus employee.  The duties of the Security Supervisor are set out in item 6.4, and include:

6.4      The Security Supervisor will perform the following core duties.

(a)Supervise the day to day operations of all Officers on all Swinburne campuses.

…

(d)Data collection and timely reports.

(e)Daily liaison with University staff.

1. The conduct of security staff at Swinburne is governed by a set of standard operating procedures.  The standard operating procedures are expressed in the introduction to be the property of Makesafe Security Solutions, although each page includes, in the footer, an express statement that the document ‘remains the property of Swinburne University’.  Mr McNamara’s evidence was that it was essentially Swinburne’s document, to which Divadeus could recommend changes.  ‘Makesafe’ was included in the document because at the time of issue Makesafe was the provider, an exercise Mr McNamara described as ‘co-branding’.  The code of ethics contained in the standard operating procedures is identical to the code of ethics contained in Divadeus’ staff handbook, as was the guidance on client and public relations.  Mr McNamara explained in cross-examination that although the document is not produced by Divadeus, Divadeus provide information to clients on the security industry.

1. In respect of a breach of orders and instructions, the standard operating procedures provide:

Instances where there is a breach of orders given by the Security Supervisor or the senior officer and officers are unable to satisfactorily explain the breach disciplinary action will be taken.  If an officer disagrees with an order they have received they may lodge a complaint with their senior officer, Security Supervisor and if appropriate the Makesafe after hours contact.  Any disagreements with standing orders or set tasks should be put in writing and a copy provided to the Security Supervisor and the senior officer.  On recept [sic] of any amendments to the SOP, employees are required to note and adhere to the new instructions.  All obsolete pages or documents are to be removed and destroyed.

1. The Security Supervisor and senior officer are Divadeus employees, and the Makesafe after hours contact is the Kilsyth workplace control room.

1. Counsel for Divadeus, by way of example, took the Court to the ‘Burwood running sheet’ within the standard operating procedures.  That document sets out specific doors and buildings to be unlocked by certain officers at certain times,  logs to be completed, keys to be collected, lights to be switched on, and duties such as the issue of infringement notices in the car park.  Another part of the standard operating procedures sets out in great detail the ‘Animal House Alarm Procedures’, including where access to the building should be confined and who should be contacted.  There is also a section on the duties of security officers at student residences at the Geelong campus, which sets out how parties, alcohol and noise curfews are to be dealt with, at what times lockouts should be imposed; the procedure for identifying students, and the restrictions on students having guests at the residence.

1. Mr McNamara agreed that, as the contract provides, the Security Supervisor supervises the day to day work of all of the security guards at Swinburne campuses, and also agreed that the Security Supervisor is a Divadeus employee.  He disagreed with the characterisation, put to him by counsel for the VWA, that this amounted to Divadeus, rather than the client, supervising the security guards.  Rather, he said the Security Supervisor is a uniformed Swinburne security officer who liaises daily with contract managers at Swinburne.  The contract manager in turn direct the tasks the Security Supervisor and the guards must complete.  He accepted that this operating hierarchy was not set out in the contract.  Mr McNamara denied that the Security Supervisor is required to report back to Divadeus, save in respect of administrative matters, and characterised the disciplinary procedure set out in the standard operating procedures as an administrative matter.

1. Item 15 of Schedule 3 to the Swinburne contract requires Divadeus to provide a control room:

15.      Control Room

15.1The Contractor will provide 24-hour per day, 7 days a week Control room.  The Control room must be able to communicate with the Security Officers on University campuses at all times.

15.2The Control room will keep records of all emergency transmissions with Officers on all campuses and said records will be provided to the Swinburne Responsible Officer upon request.

1. Unlike at Deakin, Divadeus does not provide a control room at Swinburne University, but rather provides a control room service from the Kilsyth workplace.

1. The Swinburne contract also contains a schedule of prices, which refers to the price of static guards at the Hawthorn, Prahran and Lilydale campuses, and static guards and mobile patrols at the Croydon and Wantirna campuses.  Mr McNamara agreed that mobile patrols were included in the price invoiced to Swinburne.

1. On giving evidence that the services provided were not precisely in accordance with the contracts, Mr McNamara was further cross-examined as to the ‘seriousness’ with which the contract was treated.  Two examples were put to him.  First, on 29 October 2012, the security manager at Swinburne wrote to Mr McNamara advising that Divadeus had failed to comply with the contract:

Your firm has failed to meet the following requirements:

Contract, item 7.1 Contractor’s Obligations. (d) The contractor must ensure that it has sufficient reserve of personnel acceptable to Swinburne available to it, to enable it to provide the Services in accordance with this Agreement and the specification at all times.  This default has occurred on Friday 26 October 2012 and is currently ongoing.  Divadeus Pty Ltd is currently not providing a supervisor due to insufficient trained staff.

1. Secondly, on 8 May 2014 the director of Swinburne’s Facilities and Services Group wrote to Renee Di Carlo and John Kukolovski, the joint and several administrators of Divadeus, advising:

The attached ASIC company extract dated 8 May 2014 indicates that Divadeus has entered external administration.  We understand you have been appointed as Divadeus’ joint and several Administrators.

Under Clause 16.3, Swinburne may terminate the Contract immediately by giving notice to Divadeus if Divadeus is the subject of an Insolvency Event.  The definition of Insolvency Event in clause 1.1 of the Contract includes:

1.Being in liquidation or provisional liquidation or under administration;

2.Having a controller or analogous person appointed to it or any of its property; and

3.Taking any step that is reasonably likely to result in the person becoming an insolvent under administration (as defined in section 9 of the Corporations Act 2001 (Cth)).

So, by entering voluntary administration, Divadeus is clearly the subject of an Insolvency Event giving Swinburne the right to terminate the Contract.

This letter constitutes notice that Swinburne wishes to exercise its right under clause 16.3 to terminate the Contract.

1. It was put to Mr McNamara that this strict compliance with the terms of the contract was contrary to his evidence that the contracts were not strictly adhered to.  Mr McNamara agreed that Swinburne in those instances had insisted on strict compliance with the terms of the contract, noting that although the same term was contained in the Deakin contract,[12] Deakin had not similarly terminated the contract.

The MICM Property contract

[12]In clause 40.2.7.

1. The MICM Property contract was entered into between Melbourne Inner City Management trading as MICM Property, and Makesafe Security Solutions Pty Ltd, on 15 September 2011, shortly before the Makesafe business was acquired by Divadeus.  Although the contract has now expired, Mr McNamara’s evidence was that Divadeus continues to provide services to MICM Property in accordance with the ‘general concept’ of the contract.  For the relevant premium year, the contract was in force, and Divadeus provided services to 25–6 residential apartment buildings managed by MICM Property.  Divadeus now provides services to 28–33 buildings.

1. Divadeus is referred to throughout the contract as the Contractor, and MICM as the Manager, as defined in cl 1.1.  The contract also refered to persons variously described as Building Managers, Concierges or Caretakers; terms which are not defined, but which refer to a list of persons for each building set out in Annexure 1.

1. Clause 1.1 relevantly defines the services provided under the contract:

Services means the provision of Security Services set out within Annexure 3 and Annexure 4 to this Agreement, as may be varied from time to time by the Parties which includes:

i.both an on-going security presence and regular external and internal patrols of MICM Buildings or Complexes.  MICM reserves the right to vary the routes and duties of static/site patrol Security Officers from time to time;

ii.a regular external mobile patrol during the evening to various Owners Corporation premises;

iii.provision of Security Patrol in response to Security Alarm events at various MICM properties as requested by MICM from time to time;

iv.implement and maintain an After Hours Security and Maintenance Response Centre (AHSMRC), to receive calls from MICM representatives and building tenants and to arrange responsive call outs.  This call centre shall be dedicated to the operations of MICM and the buildings listed.

Specifications means the specifications attached to this Agreement within Annexure 3 to this Agreement.

1. The operative clause requiring Divadeus to discharge its obligations and duties under the contract is cl 3.1.  Clause 3.5 provides:

3.5      Communication

Where possible, the Contractor will liaise with the Building Managers, Concierge and Caretakers of each site prior to entry to the premises.  The Contractor shall appoint a competent person to be responsible for the day to day performance of the Services and who will liaise with the Manager on all matters including Performance Measure reporting as specified herein.

1. As with the Deakin contract, the MICM Property contract contains an indemnification clause, cl 4.6, although the clause in the latter contract is expressed in much broader terms:

4.6      Contractor Indemnifies Manager and Owners Corporations

The Contractor indemnifies and agrees to keep indemnified the Manager and Owners Corporations (and its members) covered under this Agreement from any claims, suits, demands, causes or actions of any nature or kind that may arise directly or indirectly or which may be brought by any corporation, person or persons, as a consequence of or arising from the Services carried out by the Contractor or its servants or employees under this agreement.

1. Annexure 3 describes the services to be provided to buildings listed in Annexure 1.  Item 1.1 refers to static guards and site patrols, item 1.2 to mobile patrols, and item 1.3 to alarm responses:

1.1                 STATIC GUARDS/SITE PATROLS

1.1.1              General

This service includes both an on-going security presence and regular external and internal patrols of MICM Buildings or Complexes.

MICM reserves the right to vary the routes and duties of static/site patrol Security Officers from time to time.

1.1.2              Staff and Times

The static/site patrol will be conducted by uniformed guard(s).  The Contractor shall equip the Security Officers with communication equipment to allow conversation between themselves, the Police and Emergency Services and the Contractor’s Control Centre.

…

1.1.4              Duties

·     Static duties will be outlined for each site however will include maintaining an obvious uniformed presence at predetermined positions;

·     Assist occupants, caretakers and others as required;

·     Maintain a log of incidents and running sheet of general duties for each shift;

·     Check permitter doors, ensuring all is safe and secure;

·     Walk through internal floors and/or areas;

·     Establish and record the identity and bona-fide’s [sic] of persons found on the premises after hours;

·     Escort unauthorised persons from Owners Corporation premises;

…

1. The general hours to be worked at each different building are set out in Annexure 4 to the MICM Property contract, although as Mr McNamara agreed in cross-examination, given the scope of the contract it would be too difficult to specify particular duties on any given occasion.  Instead, the contract operates to set out only the general scope of what duties might be during those hours.  For buildings near nightclubs and other surrounds, more staff and regular mobile patrols are allocated for weekends.  The rates charged by Divadeus for the provision of static guards, mobile patrols and alarm responses are set out in Annexure 2.

1. Mr McNamara insisted in cross-examination that security staff operating under the MICM Property contract were not required to report to Divadeus on a daily basis, and no provision of the MICM Property contract requiring that was put to him.  He agreed that the indemnity clause, which is in broad terms, would leave Divadeus liable for the conduct of the security staff and explained that there is an element of trust that the security staff, working independently but under the guidance of the building manager, would adhere to requirements.

The Box Hill Institute contract

1. The Box Hill Institute contract was entered into between the Box Hill Institute of Technical and Further Education and Makesafe Security Solutions Pty Ltd, on 15 September 2011, the same date that the MICM Property contract was entered into.  It commenced on 1 October 2011 and expired on 30 September 2014.  It was not extended.  Not unlike the structure of the Deakin and Swinburne contracts, the Box Hill Institute contract obliged Divadeus to provide the ‘Services’, a defined term referring to the services set out in Schedule 2 to the contract: cls 1.1, 3.1. 

1. Under item 3 to Schedule 2, the scope of the obligations of the security guards were set out, and that Divadeus was to provide a motor vehicle, and was responsible for responding to alarms outside of the hours when guards were on duty.  In cross-examination, Mr McNamara explained that the income earned from responding to those out of hours calls was allocated to the ‘mobile patrols’ row of the income table.  Under item 3.2, Divadeus was responsible for monitoring the security alarm systems, a responsibility it then subcontracted to a licensed monitoring centre.  In cross-examination, Mr McNamara’s evidence was that consent by the Box Hill Institute to subcontracting that service was provided either by e-mail or in the minutes of a meeting, as required under cl 18.1 of the contract.  He did not produce a copy any evidence consent, and it was not called for by the VWA.

The Holmesglen TAFE contract

1. The Holmesglen TAFE contract was entered into between Holmesglen Institute of TAFE and Makesafe Security Solutions Pty Ltd in 2008, and was renewed twice,[13] and finally expired on 31 December 2012. The document produced to the Court appears to be a tender document adopted as a contract, and was unsigned and undated, but it was not contested that a contract was entered into with Holmesglen TAFE. The ‘contract’ is a four page document contained partway through the overall document, and refers to definitions contained in ‘Section B (Conditions of Contract)’, an earlier component of the document that does not contain a definitions section. Under cl 2, Divadeus agrees to provide the ‘Services’, a term that is undefined. Nevertheless, it appears to have been assumed that the obligations contained in ‘Section C: (Part A) Standard Conditions of Contract’ and ‘Section C: (Part B) Service Specifications’ had effect as binding terms, and I will proceed on that assumption.

   [13]Pursuant to cl 4 of the contract.

1. Under cl 8.2 to ‘Section C: (Part A) Standard Conditions of Contract’, Divadeus was required to appoint a Contract Manager, who was obliged either personally or by way of an authorised supervisor to conduct monthly inspections of sites, meet institute representatives, and consult on the provision of the work provided in accordance with the contract: cl 8.2(d).  Under cl 9.7 to ‘Section C: (Part B) Service Specifications’, Divadeus was required to provide sufficient staff, and has an obligation to employ existing Holmesglen TAFE staff over new employees: cl 9.7(a), (b).  Holmesglen TAFE retained the right to have a security officer cease working on campus: cl 9.7(g), (h).  All staff were required to receive training from the Holmesglen TAFE security officer at Divadeus’ expense: cl 9.7(f), to have communication equipment supplied by Divadeus: cl 9.11, and to wear Holmesglen TAFE uniforms:  cl 9.15(b).  Mr McNamara explained in cross-examination that the obligation in cl 9.13 to ‘Section C: (Part B) Service Specifications’ for a security officer at Chadstone or Moorabin to attend the Waverley and Dingley campuses if necessary was by way of a pool vehicle provided by Holmesglen TAFE, which arrangement was at no extra charge or cost.  The contract price was an annual sum, with additional fees payable for extra services: ‘Section D: (Part A) Security Services — Schedule of Prices’.

The Freshwater Place contract

1. The Freshwater Place contract was entered into between Freshwater Place Residential Apartments and Divadeus on 1 July 2012, and expires on 30 June 2015.  Under the contract, Divadeus must provide two guards from 11pm to 7am, 7 days a week: sch 1, item 2.  The guards are expressly considered ‘part of the concierge team and therefore expected to carry out similar duties’ and responsibilities: sch 1, item 3, and they report to the Concierge Supervisor: sch 1, item 5.

1. The sum payable to Divadeus under that contract is a lump sum, calculated by reference to the hours required to be worked and the rates payable to the security guards.  Although not expressly referred to in the terms, the Schedule refers to rates payable in respect of mobile patrols and alarm responses.  Mr McNamara’s evidence was that income in respect of those two obligations would be outside the contract and would be recorded in a separate column in the income table produced earlier.

The John Holland contract

1. The John Holland contract was entered into between John Holland Pty Ltd and Divadeus on 2 August 2013, although it was stated to commence on 25 June 2013, and expired on 31 March 2014.  The contract related to security staff for the project offices and sites for the Mitcham Road and Rooks Road Rail Alliance Project concerning the Mitcham and Rooks Road level crossings.  The contract was in a standard form, and the substantive obligations were contained in Schedule 2, concerning the scope of works.  The sites requiring services were included in the contract, but were subject to weekly reviews: sch 2, item 2.2.5, and security officers on night shifts were required to complete an activity report after each shift to be submitted to the project superintendendent: sch 2, item 2.2.6.  The contract includes options for patrol services and alarm monitoring: sch 2, items 2.2.7–8.  Divadeus is obliged to ensure  that security personnel ‘comply with MRRA representative directions when they are on site’: sch 2, item 2.7.

1. As with the other sites staffed by Divadeus’ security guards, the conduct of Divadeus staff at the Mitcham Rail Project was governed by a set of standard operating procedures.  Unlike the Swinburne standard operating procedures, these were authored and prepared by Mr Starecki on behalf of Divadeus.

The VWA’s determination

1. In the VWA’s Premium Review Determination dated 27 August 2013 (‘the determination’), the VWA (a) determined that the predominant activity undertaken at the Kilsyth workplace was the provision of security services; (b) determined that the industry classification that most closely corresponded to the predominant activity was Security Services; and (c) rejected the industry classification submitted by Divadeus (namely, Labour Hire).

1. To some extent, the procedure adopted in the determination appears to reverse the proper consideration because in determining the predominant activity and industry classification of the Kilsyth workplace first, the VWA did not identify  the workplace of the employees.  Although the appeal to this Court is a hearing de novo,[14] it is of assistance to set out the relevant parts of the determination.

   [14]United Petroleum Pty Ltd v Victorian WorkCover Authority; Emu (Aust) Pty Ltd v Victorian WorkCover Authority [2011] VSC 570 (10 November 2011) [111] (Osborn J).

1. In respect of the predominant activity, the determination held:

Based on the information provided, MakeSafe provide a range of security services tailored to meet the requirements of each individual client. …

Sample contracts provide further verification as to the types of services MakeSafe are contracted to supply.  Relevant points extracted from the contracts are as follows:

·Various agreements are described as being ‘to provide security services’;

·Multiple contracts contained a section devoted to the ‘scope of services (works)’ which lists and describes the licensing requirements, expectations related to professional conduct and specific service deliverables which may include onsite security presence providing continuous patrols during operating times, and vehicle patrol able to respond to alarm/assistance occurring outside campus operating hours;

·Multiple contracts contain the requirement for supply of a Security Supervisor to supervise the day-to-day security services provided on site.

It can be determined from the above mentioned facts that the service provided by operations at MakeSafe is security.

The proportion of income associated with the provision of static guards aligns with the contractual commitments MakeSafe has with tertiary institutions to provide security personnel.

… the provision of security services (mainly security guards) is the main source of income for MakeSafe.  Therefore, this review considers that the fees received by MakeSafe are derived as a direct result of MakeSafe providing security services to the client.

Based on the above, it is the provision of security services delivered on the site of the client that derive the primary source of income (i.e. value) for the workplace.  Hence it is these services that contribute more than any other activity to the value of services undertaken from the workplace.

Therefore, this review has determined that the predominant activity of MakeSafe is the provision of security services.

1. In respect of the industry classification, the determination held:

The introduction to Division O includes, inter-alia [sic], workplaces predominately [sic] engaged in providing physical, social, economic and general public safety and security services.  Additionally, the introduction to Division O also states that physical, social, economic and general public safety and security services and enforcement activities include: investigation and security services.

1. Given the expert report sought to be filed in this case, and given the approach adopted in the determination, it is also necessary to dispel a certain misapprehension as to this definition.  The expert report, which is not in evidence, approached the question of whether the supply of labour was labour hire by contrasting labour hire with contracting.  If the supply in the case at hand was contracting, it was said that it could not be labour hire.  The determination approached the question of whether the supply of labour was labour hire by contrasting labour hire with security services.  If the supply in the case at hand was security services, it was said that it could not be labour hire.  Both approaches are incorrect.  An agreement to supply labour may be a form of contracting, and may also constitute labour hire.  An agreement to supply labour may be a form of security service, and may also constitute labour hire.  For the purpose of determining the industry classification that most closely corresponds with the predominant activity at the workplace, it is correct that it cannot be both.  But for the purpose of determining whether the employees should be assigned an imputed workplace, those dichotomise are incorrect and unhelpful.

1. The next observation that may be made relates to the purpose of including a limitation, in the definition of ‘labour hire’, on the basis of whether the task assigned to the labour supplied is ‘specified’ or not.  The supply of labour, in a general sense, could cover an enormous array of industries and services.  A plumbing business offers the service of fixing a sink, by supplying the labour of plumbers.  A school offers the service of teaching children, by supplying the labour of teachers.  A law firm offers the service of legal advice, by supplying the labour of lawyers.  But the insurance premium payable in respect of the supply of that labour would not, one would expect, be calculated by reference to the occupation of the person with the leaking tap, the uneducated child or the legal dilemma.  On the other hand, where an employer outsources their need for employees to an external contractor — say, labourers on a construction site, a temporary teacher to cover a staff member on long service leave, or seasonal farm employees — one would expect that the insurance premium payable would be calculated by reference to the outsourcing employer.  Although the premiums order is framed in a manner that deliberately simplifies the premium calculation without breaking down the actual work and risks faced by employees, it cannot be intended to operate entirely divorced from the reality of the particular workplaces.

1. In my view, the purpose of excluding labour supplied for ‘specified’ tasks, functions and outcomes is to exclude labour supply relationships that are in truth transactions between businesses.  Businesses will always seek specified tasks, functions or outcomes from employees.  The relevant question is whether they do so by seeking another company achieve it, or they do so by seeking, in effect, employees who they then direct to complete those tasks, functions or outcomes.  Where one business (‘the first business’) seeks to complete that task by obtaining the service of another business (‘the second business’), who in turn supplies that service by supplying the labour of the second business’ employees to provide that service, and the second business directs the conduct of the employees in order to supply that service, the parties are not in a labour hire relationship.  On the other hand, where the first business seeks to complete that task by obtaining labour from the second business, which in turn merely supplies that labour by supplying employees, and the first business directs the conduct of the employees, the parties are in a labour hire relationship.

1. To the extent that the parties made submissions in respect of the definitions of each limb of the exclusion to the definition, I consider it appropriate that the three exclusions be generally read together.  Adopting a purposive interpretation, the three exclusions have been written to ensure that the supply of labour intended to be excluded is not avoided by overly prescriptive technical arguments about the meaning of the words ‘task’, ‘function’ and ‘outcome’.  A plumbing company may be asked to fix a leaking tap.  Whether that is construed as a ‘task’ (the act of fixing), a ‘function’ (acting as a plumber to fix the tap), or an ‘outcome’ (preventing the tap from leaking) is not to the point.  The point relates to the specificity of the task, function, or outcome.  A plumber supplied to provide ongoing plumbing services, as and when they arise and as directed by the client, is unlikely to fall within the exclusion irrespective of which of the three exclusions is sought to be applied.

1. If it matters, and for the sake of completeness, I consider, in respect of the specific points about those definitions which the parties sought to contest, that Divadeus’ suggestion that specificity be limited by temporal element, is artificial and unhelpful,[19] and the limitation of function to statutory or similar functions seems similarly not to the point. Neither of those proposed limitations can be explained by reference to the purpose of the definition, which is to distinguish the supply of labour in a general sense from labour hire, the defined term.

   [19]I note in passing that the submission of the VWA on this point was contrary to the initial determination, and contrary to the expert report the VWA sought to rely upon.

1. The parties in this case were partly at cross-purposes throughout much of the trial in respect of the control exercised by Divadeus over the security guards.  The various contracts provided that Divadeus was to supervise the security guards, which suggests that the guards were under Divadeus’ control.  However, Divadeus was also to exercise that supervision by supplying more labour, being supervisors.  Those supervisors reported directly to the particular clients.  The effect of that arrangement is that the labour supplied by Divadeus, being the security guards and supervisors, work under the direction and control of the particular clients, not of Divadeus.  To use a practical example, if a client wishes for a security guard to be posted to a particular site at a particular time — say, to deal with unrest in the university library — the client does not contract with Divadeus to provide a security guard to deal with that particular issue.  Rather, the client, which has already contracted for the labour of a trained, qualified security guard, simply directs the security guard to attend the library and resolve the issue.  That the particular direction happens through the intermediary of a Divadeus-supplied supervisor does not change the characterisation.

1. The further point of some confusion throughout the trial falls foul of the error identified above, raising the spectre of false dichotomies not present in the terms of the legislation.  The contracts for services provided by Divadeus contain a number of incidental obligations relating to security, including for the provision of a control room and, by way of subcontract, monitoring services and mobile patrols.  Divadeus also provided a number of other services to contracted clients either expressly agreed or otherwise, including conducting monthly reviews of the labour supplied, supplying information in respect of standard security procedures and, in the case of the Mitcham Rail Project, preparing specific standard operating procedures.  The fact of those extra services being provided by Divadeus to the same clients who were being supplied with security guards, was said by the VWA to have the effect that the arrangement was incompatible with a contract for labour hire services.

1. That submission conflates what are otherwise separate issues in this proceeding.  The fact that Divadeus supplies security services to certain clients is not relevant to the question of whether the security guards are provided pursuant to a labour hire arrangement.  Rather, it goes to the predominant activity of Divadeus, a question that does not arise until later in the proper consideration of the premiums order.  That the contract for the provision of labour also provides for other services which are not the provision of labour is not relevant to whether the labour provided is labour hire or some other supply of labour.  Counsel for the VWA appeared to concede as much in closing submissions, revealingly (but I suspect unintentionally), when submitting that the contracts provide ‘not only labour hire’ but also other security services.

1. The VWA’s case predominantly relied on what had been contractually agreed between Divadeus and Divadeus’ major clients for two purposes: first, to challenge the evidence given by Mr McNamara, by way of affidavit, as to the relationship between Divadeus, the client, and the security staff; and secondly, to establish by reference to the terms of the contract the content of that relationship.  I have some difficulty with that approach.  The question, in determining whether the labour supplied falls into the relevant exclusions, concerns the labour actually supplied pursuant to an arrangement ‘whether oral or in writing and whether formal or informal’.  The terms of the contract may assist the evidence, but the better evidence is what Mr McNamara says occurs, and if they had been called, what the security staff and the clients would have said occurred.  If a party agrees to supply labour in one fashion, but actually supplies it in another, it is the arrangement under which it is actually supplied that will determine whether the labour supplied constitutes labour hire.

1. Further, I am not satisfied that the terms of the contracts on which the VWA relied relevantly establish specified tasks, functions or outcome within the meaning of the exclusion clauses.  The obligations on Mr McNamara in item 3 to schedule 1 of the Deakin contract, for example, are requirements that he be contactable, and ensure staff comply with occupational health and safety requirements and are well trained.  Those are specific requirements.  But they are not specified tasks, functions, or outcomes for which the labour is supplied.  Deakin University does not hire security guards for the purpose of their complying with occupational health and safety standards, or for the purpose of their being contactable — it hires them to watch over entrances and exits, ensure student safety, attend disruptions, and the like.  The obligations singled out in item 6 to schedule 3 of the Swinburne contract suffer from the same defect.

1. It was open, as the VWA sought to do, to challenge Mr McNamara’s credit on the basis that he had agreed in the contract to provide one thing, and in fact said he had supplied another.  However, I found Mr McNamara to be a reliable witness.  He did not, as was suggested by counsel for the VWA, selectively rely upon the terms of the contract — in fact, he rarely if ever made reference to the terms.  The focus of his evidence, and his response to questions in cross-examination, was the manner in which the business was actually conducted.  He was frank in agreeing that at no point had Divadeus complied with cl 7.4 of the Deakin contract, for example, requiring ongoing onsite supervision. In fact, the VWA more so than Mr McNamara was open to criticism for relying selectively on the terms of the contract, and failing to acknowledge clauses that plainly gave the final say as to the allocation of tasks to the clients, such as item 4.3.20 to schedule 1 of the Deakin contract.

1. The most unreliable component of Mr McNamara’s evidence concerned the breakdown of Divadeus’ income, which he was not able to explain properly.  But I am satisfied that the evidence he gave was sufficient to establish the only fact concerning the income necessary for the disposition of this case, that the income from the provision of security staff represented by far the largest portion of Divadeus’ income.  That factor goes to the predominant activity at the Kilysth workplace, not the nature of the labour supplied.

1. In that context, I consider it would be artificial to characterise the labour supplied by Divadeus within any of the three exceptions to the definition.  To the extent that the security guards and supervisors are required to perform specific tasks, they do so at the direction of the clients and not at the direction of Divadeus.  The same applies to the discharge of specific functions and the achievement of specific outcomes.  The task, function or outcome put forward by the VWA — security services — is too broad to fall within the exclusions nominated by the definition.  To read the word ‘specified’ as broadly as the VWA proposes would be to render the definition of labour hire almost meaningless, a tension not addressed by the VWA in its submissions.  While it is true to say that the security guards are supplied, in a general sense, for the specified purpose of providing security services, the ‘who, where, when, why and how’ of the practical operation of those security services on a day-to-day basis are not specified in the sense intended by the exclusions to the definition.

1. That Divadeus advised clients on how their security staff might operate, including providing general industry information and assisting or preparing standard operating procedures, does not bring the specific conduct of the security guards under the direction of Divadeus.  Whether to adopt those procedures, how to conduct them, and when to complete them, remained at the discretion and direction of Divadeus’ clients, and the reservation of that power of direction was apparent both from Mr McNamara’s evidence of how the service was in fact provided as well as from the terms of the contracts.  The actual standard operating procedures were highly detailed and contained client-specific instructions, such as the examples drawn out by counsel for Divadeus in the Swinburne standard operating procedures.  Those standard operating procedures show plainly that the instructions for the specific tasks, functions and outcomes completed by security staff were at the direction of Swinburne directly to the security guards, and were not tasks specified to Divadeus in connection with the supply of labour.

1. The VWA submitted that even if these tasks were directed to the security guards by Swinburne, any sanction for their failure to be completed would, under the contracts, ultimately be borne by Divadeus and so it was artificial and incorrect to separate the work of the security guards and the obligations of Divadeus.  Again, that submission fails to address a tension inherent in the definition of labour hire.  Every supplier of labour agrees, expressly or implicitly, to supply labour that will adequately complete the task, function or outcome for which the labour is being supplied, and will be liable for some form of breach if the supply is not satisfactory, whether because of incompetence or a more deliberate failing.  If that were the test for whether the labour supplied is labour hire, no labour could fall within the definition.  That cannot be how the definition is intended to operate.

1. I have considered the role of the security staff at each of Divadeus’ clients collectively, rather than separately, because Mr McNamara’s evidence was broadly the same in relation to the direction and control exercised by Divadeus over security guards supplied to each client, and no relevant differences were elicited in cross-examination or extracted in submissions.  The only security staff for which it was unclear whether they may have been supplied to perform specified tasks were the MICM Property staff.[20]

   [20]Although the evidence was limited, it appears to have been assumed that the staff operating under the Freshwater Place contract operated in a similar fashion, and my remarks in respect of the MICM staff are intended to include the Freshwater Place staff insofar as they are applicable.

1. The MICM Property security staff operated under the greatest degree of supervision from the Kilsyth workplace owing to the smaller number of guards supplied at each site.  However, I am satisfied, as Mr McNamara deposed, that the directions for what they might do on any given shift ultimately came from the building manager, concierge and caretaker staff at each site.  The communications with the control room at the Kilsyth workplace appear to have been concerned primarily with ensuring that staff did indeed attend the site, so that Divadeus complied with its obligation to supply staff, and to ensure Divadeus complied with its ultimate obligations towards staff members as their employer for occupational health and safety purposes.  That degree of supervision from the labour supplier does not amount to supplying staff for a specified task, function or outcome.

1. A further concern in respect of the MICM Property staff is that the duties specified in item 1.1.4 to annexure 3 of the MICM Property contract resemble specific tasks within the meaning of the definition.  However, I am again satisfied, as was put to Mr McNamara in cross-examination, that it would be impossible to outline the specific duties of security staff for a contract stretching over four years, when on any given day those obligations may change, and the duties outlined in item 1.1.4 represent only the scope of the duties that guards may be asked to complete at the client’s direction.

1. Accordingly, the staff members provided by Divadeus are supplied pursuant to a labour hire arrangement, and the imputed workplace of those staff members is the workplace of the particular client to which they have been supplied. 

1. The appeal brought on the basis of paragraphs [4] and [5] of the grounds of appeal should therefore be allowed.

1. While some submissions were put in closing by Divadeus in respect of what those particular workplaces are and how they ought be classified, the matter was not fully articulated before this Court and nor was it the subject of evidence directed to resolving that question.  I consider it appropriate, pursuant to the power granted to the Court under s 36K to ‘make any order it thinks fit’, that the question as to the correct industry classification to be applied to those workplaces be remitted to the appropriate decision-maker at the VWA to be determined on the basis that Divadeus’ staff members work at a workplace occupied by labour hire clients of Divadeus pursuant to a labour hire arrangement.

Consideration — The industry classification

1. The only question then remaining is to determine the industry classification applicable to those staff members working at the Kilsyth workplace.[21]  That involves determining first the predominant activity, pursuant to the steps set out by Pagone J in Emu (Aus) Pty Ltd v Victorian WorkCover Authority,[22] and then determining the industry classification that mostly closely corresponds to the predominant activity.  Again, for convenience, I set out the definition of predominant activity:

the activity of the employer which during that period contributes, or is likely to contribute, more than any other activity of the employer to the value of goods and/or services produced or provided by operations carried on in that workplace.

[21]Strictly speaking, there is no determination about an industry classification applying to particular staff members, only particular workplaces, but that is the effect of the premium payable calculation.

[22][2012] VSC 610 (12 December 2012) [4].

1. As with the definition of labour hire, applying the test for predominant activity is partially an interpretive exercise that involves adding further limbs to expressions that, on their face, could be read broadly or narrowly.  ‘Activity’, if taken broadly, might mean the ultimate activity conducted as a result of the operations carried on in the workplace — for example, an office-based finance operation that funds mineral exploration could arguably have ‘mining’ as the activity that contributes more than any other activity.  On the other hand, ‘activity’, if taken narrowly, might mean the physical activity leading to that ultimate result — for example, a law firm could arguably have ‘typing’ as the activity that contributes more than any other activity.  In my view, the definition should be read sensibly, adopting an approach that is neither too abstractly broad nor too literally narrow.  The guidance provided by the authorities is that the exercise should be conducted by examining the activities undertaken in ‘an integrated way’ by asking what ‘according to ordinary terminology, is the appropriate designation’.[23]

   [23]United Petroleum Pty Ltd v Victorian WorkCover Authority [2012] VSC 51 (23 February 2012) [28] (Osborn JA) citing ACC v John Valves [1993] 2 VR 10, 18 (Ashley JA, with whom Crockett and Smith JJ agreed) and Shire of Perth v O’Keefe (1964) 110 CLR 529, 535 (Kitto J)

1. The VWA urged that determining the question of predominant activity in an integrated way meant examining the service provided by Divadeus as a whole, without separating it into component parts.[24]  On that submission, the questions of the goods and services provided by the company, the activities that contribute to those services, and the industry classification, roll neatly into one — Divadeus supplies security services, its activities are security services, the classification is security services.  But as identified by Pagone J, that is not the test.  It is important to address each stage separately, because that is how the premiums order is structured.  The VWA’s submissions also pressed the overall policy of the Accident Compensation Act 1985, a submission that ignores the express requirement, in item 7(2)(b) of schedule 1, to determine the industry classification:

without regard to the risk of injury associated with the predominant activity or with any of the occupations of or functions performed by workers engaged in operations at the workplace.

[24]Although nominally the submissions accepted the test laid down by Pagone J in Emu (Aus) Pty Ltd v Victorian WorkCover Authority [2012] VSC 610 (12 December 2012) at [4], that was not their effect.

1. However, neither party in submissions addressed sufficient attention to the precise words of the definition, and in particular the connection between the various actions (‘activity’, ‘contribute’, ‘service’, ‘produced or provided’, ‘operation’), the actor (‘employer’) and the location (‘carried on in that workplace’).  Nothing in the definition ties the activity, in physical terms, to the workplace being assessed.  The test ‘does not call for a factual inquiry into a predominant activity at an employer’s actual workplace’.[25] Instead, the activity is specifically tied not to the workplace but to the employer, provided the activity is provided by operations that are carried on at the workplace.  That is of significance in this case.

   [25]Emu (Aus) Pty Ltd v Victorian WorkCover Authority [2012] VSC 610 (12 December 2012) [4] (Pagone J).

1. Applying the steps set out by Pagone J, I conclude as follows.

(a)The identification of the goods and services produced or provided by operations in a workplace.

1. The goods and services produced or provided by operations in the workplace are the security products retailed, the subcontracting of monitoring and mobile patrols, the control room, security advice, and the provision of security staff.

(b)            The identification of the value of those goods and services.

1. While there is some debate about the value of those goods and services, it is apparent that over 94 per cent of the company’s income is produced by the provision of security staff, some 2 per cent is provided by the retail arm, and the remaining services provide negligible income.

(c)The identification of a causal link between the activities of the employer and the value of the goods and services

1. The activities undertaken by the employer are the activities undertaken by the security guards as outlined in the contracts, and the activities undertaken by the administrative staff at the Kilsyth workplace, including subcontracting.  There is a causal link between the activities undertaken at the Kilsyth workplace and each of the goods and services provided, including, and not limited to, the activities undertaken in support of the provision of security staff such as tendering, attending to clients, and finance and payroll responsibilities.  There is also a causal link between the activities undertaken by the security guards and the service they provide by undertaking those activities.  The monitoring and mobile patrols services, which are subcontracted, are not activities undertaken by the employer, although the subcontracting of those activities is, and there is a causal link between the administrative subcontracting work conducted at the Kilsyth workplace and the income produced from the subcontracts.

(d)The identification of which of those activities contributes, or is likely to contribute, more than any other activity to the value of the goods or services.

1. Of those activities, the actual tasks conducted by the security staff contribute more than the administrative activities at the Kilsyth workplace to the value of the service provided.  The various clients are paying, primarily, for the security guards to attend their premises.  They are also paying for the administrative work done at the Kilsyth workplace, which saves each client the expense of having to deal with the costs of acquiring, training and maintaining a security guard staff.  As identified in the cross-examination of Mr McNamara by the VWA, it is apparent that they are also paying for a number of other consequential services, including the control room provided at the Kilsyth workplace.  But on any understanding, the work done by those security staff members contributes more than the administrative work to the value of the services provided by the company.

1. This case is distinct from the decision of Pagone J in Emu (Aus) Pty Ltd v Victorian WorkCover Authority.[26]  In that case, footwear was manufactured by other companies in China, and arranged, managed and administered by Emu (Aus) Pty Ltd (‘Emu’) in Geelong.  Although the actual manufacture of footwear may have contributed the most value to the product produced by Emu, the actual manufacture was not an ‘activity of the employer’, because it was subcontracted to another company.[27]  In this case, had Divadeus subcontracted the employment of the security guards, such that they became a middleman (as Emu effectively was), it would be accurate to say that their administrative activities contributed more than any other activity to the value of the service provided, because the work of the security staff would not be an activity of the employer.  But as that is not the structure of Divadeus’ business, the activities of the security guards are activities of Divadeus.  If the monitoring and mobile patrols, activities conducted by subcontractors, were the most valuable services provided by operations at the Kilsyth workplace, the subcontracting of those services would be the predominant activity.

   [26]Ibid.

   [27]Ibid [14].

1. Once it is accepted that the predominant activity is the activities of the security staff, the determination of the industry classification by reference to schedule 4 becomes relatively straightforward, and does not need to be set out in any great detail.  The only division in the index to Schedule 4 that likely corresponds to the activity of the security guards is Public Administration and Safety.  The preamble to Division O refers to general public safety and security services.  The heading to subdivision 77 refers to public order, regulatory and safety services, and the heading to 077120 refers to investigation and security services.  The activities listed in that industry classification include night watchmen services, protection service, and security guard service supplied by Divadeus.  The relevant exclusions do not apply to the security guard staff.  The industry classification that mostly closely corresponds to the activity undertaken by the security guard staff is O77120 Investigation and Security Services.

1. Although I have some hesitation in so concluding, that analysis remains the better analysis notwithstanding the clarification in the introduction to the division concerning Administrative and Support Services that in respect of employers whose predominant activity is labour hire services, ‘the employer’s actual workplace, that is predominantly engaged in administering the labour hire business’ is to be classified in that Division.  That is because the premiums order, and in particular schedule 4, sets out in a very particular fashion the order in which the relevant definitions are to be considered, and mandates that the predominant activity must be considered first, without reference to the industry classifications in schedule 4.  Once the predominant activity is determined, following the steps set out in the general introduction to schedule 4, a person seeking to determine the relevant industry classification will never get to the introduction to Administrative and Support Services, where the clarification is contained.  The result of considering the relevant definitions in the required order leaves the clarification in the introduction to Administrative and Support Services with little work to do, which may be unfortunate, but on my reading of the premiums order appears inescapable.

1. The appeal brought on the basis of paragraphs [2] and [3] of the grounds of appeal should therefore be refused.

Orders

1. Accordingly, I shall hear the parties as to the form of order reflecting my findings that:

(a)the appeal should be allowed on the basis of paragraphs [1], [4] and [5] of the grounds of appeal;

(b)the premiums payable by Divadeus for the relevant policy period should be reassessed on the basis that industry classification applicable to various imputed workplaces is that which most closely corresponds to the predominant activity of the particular client;

(c)the question as to the predominant activity at the workplaces of the particular clients should be remitted to the appropriate decision-maker, and

(d)the workplace industry classification that most closely corresponded to Divadeus’ predominant activity at the Kilsyth workplace is to remain ‘O77120 Investigation and Security Services’.

1. I shall also hear the parties as to costs.

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