Silcar Pty Ltd v Victorian WorkCover Authority

[2012] VSC 357

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IN THE SUPREME COURT OF VICTORIA		Not Restricted

AT MELBOURNE

COMMON LAW DIVISION
MAJOR TORTS LIST

No. SCI 4627 of 2011

SILCAR PTY LTD	Plaintiff
v
VICTORIAN WORKCOVER AUTHORITY	Defendant

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JUDGE:	Pagone J
WHERE HELD:	Melbourne
DATE OF HEARING:	2, 3 August 2012
DATE OF JUDGMENT:	24 August 2012
CASE MAY BE CITED AS:	Silcar Pty Ltd v Victorian WorkCover Authority
MEDIUM NEUTRAL CITATION:	[2012] VSC 357

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EMPLOYMENT – Identification of employer – Whether there was transfer of employees from pre-restructure entity to post-restructure entity – Existence of a formal contract of employment between employees and pre-restructure entity – Victorian WorkCover Authority – Entitlement to indemnity – Accident Compensation Act 1995 (Vic) s 138 - Employment not transferred from pre-restructure entity to post-restructure entity.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr G A Lewis S.C. with Mr A T Schlicht	Wotton & Kearney
For the Defendant	Mr J J Gleeson S.C. with Ms G F Gray	Corrs Chambers Westgarth

HIS HONOUR:

1. The question for determination in this proceeding is whether the plaintiff was the employer of five individual employees at the time when each suffered death or injury.  There is no dispute about the individuals being employees but the defendant contends that they were not employees of the plaintiff at the time of the relevant events.  The orders sought by the plaintiff is that it is entitled to the indemnity under a WorkCover policy in respect of the five incidents and that the defendant cannot maintain proceedings against the plaintiff as a third party under s 138 of the Accident Compensation Act 1995 (Vic).

1. The question arises in the context of a WorkCover insurance policy and the provisions of the Accident Compensation Act 1995 (Vic).Clause 4 of the plaintiff’s WorkCover insurance policy for the 2006-2007 policy period gave it an indemnity for all liability in respect of all injuries arising out of or in the course of or due to the nature of “all employment with [the plaintiff]”.  Section 138 of the Act, however, entitles the defendant to be indemnified by a “third party” when a compensable injury or death has occurred in circumstances which include those creating a liability in the third party in respect of the death or injury.  Five compensable incidents occurred during the relevant insurance period which the plaintiff contends are covered by the WorkCover insurance policy as having occurred to persons employed with the plaintiff, and, therefore, which the plaintiff also contends does not permit a claim by the defendant to be brought under s 138 against the plaintiff as a third party. 

1. There is no dispute between the parties that the five individuals were not employed with the plaintiff before 1 July 2005.  Until then the individuals had been employed with Siemens Ltd and Thiess Pty Ltd as joint venturers of a joint venture business (“the Silcar joint venture”) providing maintenance services at two sites in the Latrobe Valley, namely the Yallourn Open Cut Mine and the Loy Yang Power Station.  The joint venturers sold the assets of the joint venture business to the plaintiff by agreement with effect from 1 July 2005.  The Asset Sale Agreement provided for the plaintiff to receive the benefit and to assume the burden of various contracts and agreements and included provisions for the assumption by the plaintiff of the employment of the employees.

1. Two deaths and three other injuries occurred after 1 July 2005.  The plaintiff contends that it had become the employer of the relevant joint venture employees, including the five individuals in question, from 1 July 2005.  On 31 October 2006 an incident occurred at Yallourn which caused the death of Richard Gauci.  On 9 December 2006 an incident occurred at Loy Yang which caused the death of Scott Thorburn and has resulted in claims for injury by Murray Wood, Kevin Bakes and Alan Buhagiar.

1. The Asset Sale Agreement effected a sale and purchase between the plaintiff and the joint venturers which included an assignment of the benefits and the assumption of the burdens of the relevant business assets from the joint venture parties to the plaintiff.   Clause 12.1 provided:

12.1Assignment   

(a)Subject to the Vendors at their cost obtaining all necessary consents, the Vendors assign and the Purchaser accepts an assignment of the benefit and assumes the burden of the Business Contracts, Equipment Leases, Silcar Intellectual Property Licences and Property Lease (“Material Contracts”) with effect from Completion.

(b)If, despite their reasonable endeavours, the Vendors are unable to procure all necessary consents to the novation of the contracts referred to in clause 12.1(a), then this will not be a breach of the Vendors’ obligations hereunder.

The purchaser assumed substantial obligations by cl 12.2 after completion, including the obligation to indemnify the joint venture partners against liabilities arising as a result of any breach, non-performance or non-observance of any of the terms and conditions of any Material Contract (as defined) after completion.  Clause 12.4 dealt specifically with the performance of Material Contracts, and in cl 12.4(b)(i), provided that the vendor was to “hold the benefit of each Material Contract for the Purchaser” from completion.

1. The Asset Sale Agreement had contemplated a specific process for the transfer of the employment of employees from the joint venturers to the plaintiff.  Employees of the joint venture parties were employed under enterprise agreements (“EBAs”) which had been negotiated between the Silcar joint venture parties and various Unions.  The five employees in question were employed under an EBA that was under the name of the Silcar joint venture.  Clause 14.1 provided an agreed mechanism between vendor and purchaser for the substitution of the plaintiff for the joint venture parties as the employer:

14.1     Offer letters

(a)On or before the Employment Termination Date, the Vendors and the Purchaser must jointly issue to each Employee a letter under which the Purchaser offers, subject to Completion, to employ that Employee from the Employment Commencement Date on terms no less favourable than the terms of employment under which the Employee is employed by the relevant Vendor at the Employment Termination Date.

(b)The offer will specify that, for all purposes of employment (including for the purpose of calculating Employee Entitlements), the period of continuous service that each Employee has with a Vendor will be deemed to be service with the Purchaser.

14.2     Vendors’ obligations

Upon an Employee accepting an offer of employment made by the Purchaser under clause 14.1, the Vendors must on the Employment Termination Date:

(a)release the Transferring Employee from his or her employment with the relevant Vendor;

(b)ensure that all employer superannuation contributions for which the relevant Vendor is liable in respect of the Transferring Employee have been made;

(c)pay to each Transferring Employee any wages payable to them as at the Employment Termination Date, or pay a sum representing those wages to the Purchaser to pay to the Transferring Employee; and

(d)allow to the Purchaser, the Leave Adjustment on the basis that is [sic] it is “netted off”, that is, no payment will be made in respect of the Leave Adjustment by the Vendors.

14.3     Purchaser’s obligations

(a)On and from the Employment Commencement Date the Purchaser will be responsible for all Employee Entitlements of each Transferring Employee.

(b)The Purchaser acknowledges that, for the purposes of calculating Employee Entitlements, the period of continuous service that each Transferring Employee had with a Vendor immediately before the Employment Commencement Date is deemed to be service of that Transferring Employee with the Purchaser.

By these provisions what was contemplated was that the plaintiff would be substituted for the joint venture parties as the employer of the employees, including the five individuals relevant to this proceeding, by implementing a particular process.  That process contemplated formal offer letters being sent to each employee but the process had not been undertaken at the time the deaths and injuries occurred.  The legal rights as between purchaser and vendor (namely, as between the plaintiff and the Silcar joint venture parties) was not adversely affected, however, even though the formal transfer had not been effected because of such provisions as those found in cl 12 referred to above.  The non-performance of cl 14 would not affect the rights of the plaintiff as against the joint venturers who, by force of cl 12.4(b) of the Asset Sale Agreement, would hold the benefit of any contracts for the plaintiff.

1. The failure to transfer employee contracts as contemplated by cl 14 was an intentional decision made by the plaintiff and was not the result of inadvertence.  Briefing documents to the plaintiff’s Board described dealing with the transition of employees during “EBA renewal” as “a significant distraction” and was not thought necessary.  The position of the employees as regards WorkCover and entitlements under the EBAs was not prejudiced by the plaintiff taking that position and no criticism was made of the plaintiff’s commercial decision not to proceed formally with the steps contemplated by cl 14 of the Asset Sale Agreement.  The WorkCover position of those working at the work sites was effectively protected by keeping on foot the insurance policy of the joint venture parties and by the plaintiff obtaining an additional policy for itself.  There is no suggestion that this process resulted in the defendant receiving less premium than it would have received had cl 14 been performed with the plaintiff formally becoming the employer of each of the employees including the five individuals in question.

1. The plaintiff acted as the employer of the five individuals for practical purposes.  As and from 1 July 2005 it was the plaintiff which had the responsibility to provide the services previously provided by Siemens Ltd and Thiess Pty Ltd as joint venture parties trading as Silcar Maintenance Services.  The plaintiff also entered into an agreement in July 2005 styled an “Alliance Agreement” with Siemens Ltd, Thiess Pty Ltd (as the participants of the Silcar joint venture) and the participants of another joint venture (the Roche Thiess Linfox Joint Venture) under which the plaintiff undertook all of the duties and obligations previously to be performed by the Silcar joint venture.  The plaintiff thereupon assumed the whole of the employment responsibilities for the employees and was the source of payment of all premiums payable for the employees, whether they were formally employed by the plaintiff or formally employed under EBAs by the Silcar joint venture parties.  The plaintiff’s 2006 Annual Report stated that it had accepted the benefit and had assumed the burden of all business contracts previously held by the Silcar joint venture parties, and its financial statements disclosed the assumption of those benefits and those burdens.  Notes to the financial statements for the 2006 Annual Report of the plaintiff, for example, disclosed the carrying value of net assets at the acquisition date from the Silcar joint venture parties and included provisions for employee benefits, including annual leave and long service leave.  The oral evidence of Mr Atkinson, the Financial Controller of the plaintiff since 1 July 2005 (and prior to that of the Silcar joint venturers), was that the Silcar joint venture parties had no practical role to play, and played no practical role, at the work sites after 1 July 2005 other than that created by the legal fiction of corporation law in respect of the employees.  The Silcar joint venture parties had no bank accounts and made no payments to the employees.  However, the Silcar joint venture parties did continue to exist in legal form as the formal legal employer and appeared as the employer on payroll slips received by the employees.

1. The plaintiff contended that the legal criterion for the identification of the employer required an evaluation of the facts, and in particular the identification of the person exercising control over the workers, rather than upon what was described as “the paper work”.  The cases relied upon by the plaintiff for establishing the legal criteria of employment were, however,  almost all directed to a different question from that raised in this case.  The plaintiff relied upon cases concerned with having to determine whether a person was engaged to work in an employment relationship[1] rather than upon cases concerned with the identity of the employer where there was no issue about whether the worker was otherwise an employee.  A practical consideration of who exercises, and the degree of, control over the activities of a worker is important where the nature of the relationship is the focus of inquiry.  In that context it may readily enough be accepted that determining the nature of a relationship is a matter of “obtaining the overall picture from the accumulation of detail”[2] by reference to an objective assessment of the relationship looking “beyond contractual descriptions” to “the substance or truth of the relationship”;[3] or, indeed, that determining the nature of an employment relationship may be like describing an elephant, namely an animal which is too difficult to define but easy to recognise when you see it.[4]  But, the issue in this case is not whether the five individuals were employees but, rather, who was their employer.  Cases providing guidance on the existence of an employment relationship may be of some assistance to that question but it needs to be kept in mind that the question to be asked in this proceeding is a different one.  A consideration of control of the worker may be less significant in determining the identity of the employer (as distinct from determining the nature of the relationship) because the person exercising control may be exercising it as agent for another.

   [1]Humberstone v Northern Timber Mills (1949) 79 CLR 389, 404 (Dixon J); Stevens v Brodribb Sawmilling Co Pty Ltd (1985) 160 CLR 16, 24 Mason J); RePorter (1989) 34 IR 179, 181-5 (Gray J); Pitcher v Langford (1991) 23 NSWLR 142, 148, 155 (Kirby P); Roy Morgan Research Centre Pty Ltd v Commissioner of State Revenue(Vic) (1997) 37 ATR 528, 533 (Winneke P, Phillips and Kenny JJA); Hollis v Vabu Pty Ltd (2001) 207 CLR 21; Shaw v Bindaree Beef Pty Ltd [2007] NSWCA 125 [55], [60] (Giles JA); Commissioner of State Taxation v Roy Morgan Research Centre Pty Ltd (2004) 90 SASR 12; On Call Interpreters & Translators Agency Pty Ltd v Commissioner of Taxation (No 3) (2011) 279 ALR 341, 376-80 (Bromberg J).

   [2]Green v Victorian WorkCover Authority [1997] 1 VR 364 cited with approval in Roy Morgan Research Centre Pty Ltd v Commissioner of State Revenue (1997) 37 ATR 528, 533 (Winneke P, Phillips and Kenny JJA).

   [3]On Call Interpreters & Translators Agency Pty Ltd v Commissioner of Taxation(No 3) (2011) 279 ALR 341, 377 [193] (Bromberg J).

   [4]Lord Wedderburn, The Worker and the Law (3^rd ed, 1986), 116 cited in On Call Interpreters & Translators Agency Pty Ltd v Commissioner of Taxation (No 3) (2011) 279 ALR 341, 380 (Bromberg J).

1. The defendant, in contrast, relied upon cases emphasising the importance of the formal contract of employment between employer and employee in determining the identity of the parties to such a contract.  In Nokes v Doncaster Amalgamated Collieries Ltd[5] Lord Atkin had observed that the services of an employee could not be transferred without the employee’s knowledge and agreement.[6]  That case was referred to by the High Court in Minister for Employment and Workplace Relations v Gribbles Radiology Pty Ltd[7] when observing that “no employee is an asset in the employer’s balance sheet to be bought or sold”.[8]

   [5][1940] AC 1014.

   [6]Ibid 1026.

   [7](2005) 222 CLR 194.

   [8]Ibid 214 [48] (Gleeson CJ, Hayne, Callinan and Heydon JJ).

1. A similar question arose for consideration in Andonovski v Park-Tec Engineering Pty Ltd[9] where the question, like that in this proceeding, was “not whether” a person was an employee or an independent contractor but, rather, “which of two companies” was that person’s employer.[10]  In that case the court observed that:

ascertaining which entity has entered into a contract of employment is to be determined on an objective assessment of the state of affairs relating to the contract.  The subjective intention of the parties is not material to the inquiry.[11]

In that regard it is important to bear in mind that what is to be determined is the existence of a contractual relationship between the parties to a contract.  The facts and realities of the situation are no doubt significant to such a determination, but the inquiry is one to determine the identity of the contracting parties. 

[9](2009) 191 IR 250.

[10]Ibid 259 [57] (Sackville AJA).

[11]Ibid 260 [58] (Sackville AJA).

1. The facts in this case lead me to conclude that the plaintiff was not the employer of the five individuals on the date of the incidents leading to the deaths or injuries.  It may be true that the plaintiff and the Silcar joint venture parties acted as if the plaintiff was the employer but the legal contract of employment by the Silcar joint venture parties was knowingly maintained.  I accept that the plaintiff had assumed, as between the plaintiff and the joint venture participants of both joint ventures involved in the sites, all of the burdens and benefits connected with the employment of the five individuals.  I also accept that the plaintiff’s continued use of the joint venture stationery was for the benefit of the plaintiff after 1 July 2005 as were the formal entitlements of the Silcar joint venture parties as expressly provided for in the Asset Sale Agreement.  However, that is consistent with the plaintiff wishing to maintain the contractual relations that were in place as between the employees and the Silcar joint venture participants.  The plaintiff did assume the benefits and obligations of those employment arrangements as between itself and the joint venture parties but it intended, and did, maintain the legal employment contract as between the employees and the Silcar joint venture parties, whatever the position was as between the plaintiff and the joint venture parties themselves.  Mr Atkinson accepted that there “was no commercial or business imperative to transfer the employment”, and that the documentation of the employment in the 2006-2007 period (which showed the Silcar joint venture parties as the employer) was not an error.  The employees were employed under EBAs with the Silcar joint venture parties.  A conscious decision was made by the plaintiff that the EBAs would not be prematurely brought to an end.  The issuing of payslips for each of the five workers concerned was not erroneously printed on the joint venture parties’ stationery but done so correctly since they were the relevant contracting party as employer.

1. The evidence in respect of each of the five individuals is consistent with their employer continuing to be the Silcar joint venture parties after 1 July 2005.  In a letter dated 14 February 2007 Mr Simon Hart, the HSE Risk Manager for the plaintiff, informed the insurer that Mr Gauci “was in fact employed under the Siemens Thiess joint venture”.  The letter specifically asked the insurer to review the matter and to “re-allocate Mr Gauci’s claim under the correct employer and workplace numbers”.  Correspondence between lawyers in October 2009 relating to Mr Gauci accepted that the employers were the joint venture parties.  Mr Gauci had been employed under a contract of employment dated 30 May 2002 on letterhead of “Silcar Maintenance Services” being the trading name (as stated on the letterhead) of Siemens Ltd and Thiess Pty Ltd.  Payslips received by Mr Gauci identified “Silcar Maintenance Services” as the employer rather than the plaintiff and there was no evidence that Mr Gauci knew, let alone agreed to, a substitution of employer.

1. Mr Thorburn was similarly employed by a formal contract of employment dated 17 February 2005.  The contract of employment was on “Silcar” stationery which described Silcar as an “unincorporated joint venture between Siemens Ltd and Thiess Pty Ltd”.  Payslips received by Mr Thorburn similarly continued to identify the joint venture parties as the employer.

1. Mr Buhagiar was employed after the incorporation of the plaintiff, and after the Asset Sale Agreement, but pursuant to a written contract on letterhead identifying “Silcar” as an “unincorporated joint venture between Siemens Ltd and Thiess Pty Ltd”.  There was no evidence that this contract was a mistake.  Rather, the evidence suggests that the plaintiff clearly intended the formal employer to be the party with the EBA rather than to bring about different employment under arrangements not yet then in place.  The incident notification for the injury he sustained identified the employer as the Silcar joint venture parties and not the plaintiff.  Indeed, Mr Buhagiar was subsequently offered a Transfer/Offer of Employment to the plaintiff by formal letter dated 13 July 2008 which he appears to have accepted.  There would have been no need for this to have occurred if he had already been employed by the plaintiff as was contended in this proceeding.

1. Mr Bakes was initially employed by the joint venture parties and there is no evidence that his employment with them was brought to an end and new employment with the plaintiff entered into.  On 6 April 2006 Mr Bakes attended a training induction course recorded on stationery of the joint venture parties.  His payslips also showed his employer as the joint venture parties.

1. The position of Mr Wood is essentially the same.  The fixed term employment contract he entered into on 7 April 2006 was on stationery headed “Silcar” which was described as an “unincorporated joint venture between Siemens Ltd and Thiess Pty Ltd”.  Mr Wood’s Workers Claim for Impairment Benefits Form identified the name and address of the employer as “Silcar (Siemens Ltd & Thiess P/L) Bartons Lane (Loy Yang A Power Station Traralgon South)”.  A WorkCover Top-Up Claim Form for Mr Wood dated 3 January 2008 described the plaintiff as his employer on page one, but in Section C “Silcar Maintenance Services” (being the trading name of the joint venture parties) was shown as the employer.  The WorkCover claim form for Mr Wood disclosed that the claim was made under the WorkCover  number of the Silcar joint venture parties rather than the separate number of the plaintiff.  Despite the reference in one place to the plaintiff as the employer the person completing the claim plainly referred to the Silcar joint venture parties as the employer and made the claim under their policy.

1. The trial judge in McCluskey v Karagiozis[12] warned of the dangers of corporate restructure being implemented in disregard of the existing employee entitlement rights.  In that case, like this one, it was contended that employment had been transferred “without the express or implied assent of the employees”.[13]  In that case the trial judge concluded:

In those circumstances it must follow that, insofar as their contractual relationship with their employer was concerned, their employment with their pre-restructure employer did not cease and their employment with their post-restructure employer did not commence.[14]

The absence of a formal “transfer” of employees, or perhaps more accurately described as a formal “substitution” of contractual relations with the employees, may not always be conclusive but it will be significant in determining whether there has been a change to the person by whom an employee is employed.  In some cases the facts may show that employees have become aware of facts and circumstances from which the employees must be assumed to have accepted that the party employing them (and with whom they have a contract) had changed.  An employee should not, however, be assumed to have agreed to a change of employer (that is, to have accepted the substitution of the counterparty to a contract) just because that may have been intended by the employer and by a proposed substitute employer where the intended change was uncommunicated to the employee.[15]

[12](2002) 120 IR 147.

[13]Ibid 149 [13] (Merkel J).

[14]Ibid.

[15]Ermogenous v Greek Orthodox Community of South Australia Inc (2002) 209 CLR 95, 105-6 (Gaudron, McHugh, Hayne and Callinan JJ).

1. My conclusion may, on one view, provide an unexpected bonus to the defendant in the sense that it might have a claim against the plaintiff under s 138 which could have been avoided if the plaintiff had formally contracted with the employees.  Counsel for the defendant accepted that the amounts received in premiums under the arrangements as they existed were not less than they ought to have been had cl 14 been performed.  There is no suggestion of any attempt to avoid or reduce the amount payable in premiums from the economic enterprise constituted by the plaintiff and the Silcar joint venture parties.  The fact is, however, that the employment was intentionally not transferred from the joint venture parties to the plaintiff, and the five individuals concerned did not become employees of the plaintiff.  Such claims as they had against the plaintiff arose through their contractual arrangements, as employees, with the joint venture parties, as employers.  Those arrangements were deliberately left in place and were intended to be legally effective.  The practical effect of the contractual arrangements as between the plaintiff and the joint venture parties was that the former took over the employment of employees from the latter for all intents and purposes except, for present purposes, the contractual employment of the employees.

1. Accordingly I will dismiss the proceedings but will hear the parties on costs.