SJP Formwork (NSW) Pty Limited v Workcover Authority of New South Wales

[1999] NSWSC 941

CITATION:	SJP Formwork (NSW) Pty Limited v Workcover Authority of New South Wales [1999] NSWSC 941
CURRENT JURISDICTION:	Administrative Law Division
FILE NUMBER(S):	30011/99
HEARING DATE(S):	16-17 June 1999
JUDGMENT DATE:	17 September 1999
PARTIES :	SJP Formwork (NSW) Pty Limited (ACN 003 957 391) (Plaintiff) Workcover Authority of New South Wales (Defendant)
JUDGMENT OF:	Dunford J

COUNSEL :	BW Rayment QC / B De Buse (Plaintiff) RA Conti QC / J Griffiths (Defendant)
SOLICITORS:	Heaney Richardson & Nemes, Solicitors (Plaintiff) Blake Dawson Waldron, Solicitors (Defendant)
CATCHWORDS:	ADMINISTRATIVE LAW - workers compensation insurance premiums - assessment of appeal to Workcover Authority - grounds on which determination of Workcover Authority subject to judicial review; INSURANCE - workers compensation - assessment of premium - acquisition of business - gradual acquisition - wages and claims experience of former employer; WORDS & PHRASES - acquire, business, predecessor.
ACTS CITED:	Workers Compensation Act 1987, ss 168, 169, 170. Insurance Premiums Order 1994 Schedules 1, 4, 5.
CASES CITED:	Buck v Bavone (1976) 135 CLR 110, Hope v Bathurst City Council (1980) 144 CLR 1, Minister for Immigration and Ethnic Affairs v Respondent A and Ors (1995) 130 ALR 48, Comcare Australia (Defence) v O'Dea (1997) 150 ALR 318, Allina Pty Limited v Commissioner of Taxation (1991) 28 FCR 203, Congreve v Inland Revenue Commissioners [1947] 1 All ER 168, Commissioner of Taxation v Murry [1998] HCA 42, (1998) 155 ALR 67.
DECISION:	See para 24.

THE SUPREME COURT
OF NEW SOUTH WALES
ADMINISTRATIVE LAW DIVISION
DUNFORD J
17 SEPTEMBER 1999
30011/99 - SJP Formwork (NSW) Pty Limited -v- Workcover Authority of New South Wales
JUDGMENT

1 HIS HONOUR: This is an application by the plaintiff for judicial review of a determination made by the defendant on 20 March 1999 dismissing an appeal by the plaintiff pursuant to s 170 of the Workers Compensation Act 1987 (the Act) against the assessment by its insurer, MMI Workers Compensation NSW Pty Limited, of its premiums for the years 1996/97 and 1997/98 by taking into account the wages paid by and claims history of SJP Formwork (Aust) Pty Limited (SJP Aust) as the "predecessor" of the plaintiff (SJP NSW) within the meaning of clause 1(2) of Schedule 1 of the relevant Insurance Premiums Orders (the Orders) for the relevant years. 2 Division 2 of Part 7 (ss 165-175) of the Act is concerned with the calculation and recovery of insurance premiums. The Governor, by Order made on the recommendation of the Workcover Authority (the Authority), may fix the manner in which premiums shall be calculated (s 168), premiums payable by an employer are to be calculated in the manner fixed by such Order (s 169), and if an employer claims that an insurer has demanded a premium which is in breach of an Order, the employer may apply to the Authority for a determination of the premium to be charged (s 170). 3 On 22 June 1994, an Insurance Premium Order pursuant to s 168 was gazetted for the premium year commencing 1 July 1994, and subsequent Orders were made for the ensuing premium years commencing 1 July 1995, 1996, and 1997 respectively. The Orders were, so far as is material to these proceedings, in identical terms. Schedule 3 of the Order related to the "Base Tariff Premium" ("T"), Schedule 4 to the "Experience Adjustment Factor" ("S") and Schedule 5 to the "Experience Premium" ("E"). 4 In calculating the Experience Adjustment Factor (Schedule 4) and the Experience Premium (Schedule 5), both of which were relevant to the calculation of the premium payable, account was to be had of the claims experience (Schedule 4) and the wages and cost of claims (Schedule 5) of the employer, and where during the relevant period (two years in Schedule 4 and a number of variable periods in Schedule 5) a predecessor of the employer was insured, regard was to be had to the particulars of claims and the cost of claims and wages, respectively, not only of the employer but of such predecessor of the employer during the relevant period. Schedule 1 cl 1(2)was as follows:

"For the purposes of this Order, a person is the predecessor of an employer if the employer has acquired the business of the person. This subclause applies whether the business acquired is the whole or main part of the business of the person or is the whole or main part of a separate and distinct business of the person, and whether or not the business acquired is carried on at the same location."

5    The facts which were before the Delegate of the defendant and which appear in the Determination included the following. SJP Aust was incorporated on 25 June 1986 with two shareholders, Steve Pejkovic and his wife, Lydia. It was trustee for the Pejkovic Family Trust and operated as a formwork, steel fixing and concreting contractor. Its director was Steve Pejkovic and its registered office and principal place of business was 653 Darling Street, Rozelle. It started to lay off its staff in June 1995, but continued to trade in its own right until December 1995 when it retrenched all its staff. On 23 May 1996 an administrator was appointed and about the same time a receiver-manager was appointed by the Commonwealth Bank who held security over all its assets. Ultimately on 10 July 1996 the company went into liquidation and the administrator became the liquidator. 6    The plaintiff was formerly known as SJP Constructions Pty Limited and was incorporated on 20 March 1990 and its name changed to its current name on 16 December 1993. The purpose for the incorporation of the plaintiff and the change of name was that various developers, principals and contractors with whom SJP Aust was negotiating for contracts took exception to entering into a contract for construction works with a company acting as trustee. The plaintiff commenced a project at the Prince of Wales Hospital in January or February 1995 and sub-contracted its staff from SJP Aust, not employing any workers itself; and at this time SJP Aust was experiencing a considerable downturn in its work. In January 1996, the plaintiff started work on the IMAX Theatre at Darling Harbour and in relation to that building it directly employed its own workers. 7    The issued shares in the plaintiff are held by Tony Pejkovic and John Pejkovic (brothers), who were originally the directors, but at the time of change of name they resigned and their parents Steven and Lydia Pejkovic became directors. Both companies had the same registered office, same business address and the same telephone number, and both companies hired equipment from another company owned by the Pejkovic family interests, namely CSPR Pty Limited. An examination of the employees of the two companies showed that of the 36 employees of SJP Aust in its last payroll period of significant operations, being the week ended 13 December 1995, 31 of such employees were employed by the plaintiff in the year ended 30 June 1996; and of the 119 employees of the plaintiff for the year ended 30 June 1996, 52 thereof were previously employed by SJP Aust within the period 1 July 1995 to 13 December 1995. 8    All directors and members of the plaintiff and SJP Aust were from the same immediate family, and all key positions in the plaintiff were filled by staff who held similar positions with SJP Aust, although some middle management positions were not transferred from SJP Aust to the plaintiff. The plaintiff voluntarily made payments to employees of SJP Aust relating to their leave entitlements following the appointment of a receiver of that company. 9    In making his Determination, the Delegate also found (p 17 of Determination) that both companies carried out similar work in the same market, the company names were similar and the name "SJP Formwork" was widely known in the market and of value in obtaining contracts. He concluded that from the perspectives of both companies (and for that matter from most external perspectives) the two companies were essentially represented as the same business. He noted that the report of the administrator of SJP Aust to creditors dated 3 July 1996 indicates that tangible assets of the company were restricted to plant and equipment with an estimated value of $25,000, but he considered that the prime asset of that company was its name, the goodwill associated with that name and the expertise of its skilled staff. 10    He held that "acquired" as used in the Order was a wider term than transfer, sale or purchase and meant "to gain by any means, to come to have"; and that "business" included "commercial activity engaged in for gain or livelihood". He therefore held that the formwork business operations of SJP Aust had been acquired by the plaintiff and that the premium payable by the plaintiff was to be experience adjusted, based on the claims and wages history of SJP Aust, and that for premium calculation purposes as at 30 June 1997 and 1998 respectively, the experience adjusted premiums utilised by the Insurer were correct as issued. 11    The grounds on which the determination of an administrative tribunal can be reviewed by the courts are very limited. Apart from cases of jurisdictional error or denial of natural justice, such decisions can only be reviewed if there has been an error of law, which includes taking into account irrelevant matters or failing to take into account relevant ones. As Gibbs J said in Buck v Bavone (1976) 135 CLR 110 at 118-119:

"It is not uncommon for statutes to provide that a board or other authority shall or may take certain action if it is satisfied of the existence of certain matters specified in the statute. Whether the decision of the authority under such a statute can be effectively reviewed by the courts will often largely depend on the nature of the matters of which the authority is required to be satisfied. In all such cases the authority must act in good faith; it cannot act merely arbitrarily or capriciously. Moreover, a person affected will obtain relief from the courts if he can show that the authority has misdirected itself in law or that it has failed to consider matters that it was required to consider or has taken irrelevant matters into account. Even if none of these things can be established, the courts will interfere if the decision reached by the authority appears so unreasonable that no reasonable authority could properly have arrived at it."

See also: Avon Downs Pty Limited v Federal Commissioner for Taxation (1949) 78 CLR 353, Minister for Immigration and Ethnic Affairs v Liang (1996) 185 CLR 259, Bruce v Cole (1998) 45 NSWLR 163 at 183 et seq. Aronson and Dyer: Judicial Review of Administrative Action (1996) at 232-3.

12    Although the meaning of words in a statute or statutory instrument used in their common understanding or with no special or technical meaning is a question of fact, the question whether the facts found by the tribunal come within the meaning of words and expressions in such statute or statutory instrument is a question of law: Hope v Bathurst City Council (1980) 144 CLR 1, Minister for Immigration and Ethnic Affairs v Respondent A and Ors (1995) 130 ALR 48, Comcare Australia (Defence) v O'Dea (1997) 150 ALR 318. 13 It was agreed between the parties that the words "acquire" and "business" in the Order are used in their ordinary colloquial and not in any technical sense, and that the meaning of an ordinary English word is generally regarded as a question of fact and not as a matter of law. However, as the authorities referred to above indicate, the real issue is whether the facts found by the Delegate came within the ordinary meaning of those expressions. This is the question of law. 14    On behalf of the plaintiff it was submitted that the Delegate erred in law in his construction of the phrase "acquire the business", took irrelevant matters into account, and failed to take into account relevant matters in reaching his determination. 15    The term "to acquire" was defined by the Court in Allina Pty Limited v Commissioner of Taxation (1991) 28 FCR 203 at 209:

"The verb "to acquire", according to its ordinary and natural meaning, connotes in our view to obtain, gain or get something. The first meaning given in the Oxford English Dictionary (2nd ed, 1989), is:
"1. To gain, obtain or get as one's own, to gain the ownership of (by one's own exertions or qualities)."
The second meaning is:
"2. To receive, or get as one's own (without reference to the manner), to come into possession of."
The Macquarie Dictionary gives a similar definition. There must be something in existence that can be obtained or gained . . ."
and later (at 211) the Court quoted with approval what was said by Cohen LJ in Congreve v Inland Revenue Commissioners [1947] 1 All ER 168 at 173:
" . . . as used by lawyers the work "acquired" has long covered transactions of a purely passive nature and means little more than receiving. Indeed that is the second ordinary meaning given in the Shorter Oxford Dictionary".

16    The ordinary meaning of "business" is a commercial enterprise carried on for the purpose of profit on a continuous and repetitive basis: Hope v Bathurst City Council at 8-9, which is not inconsistent with the Delegate's description "commercial activity engaged in for gain or livelihood." It means its undertaking, its management, workers, equipment, business expertise, experience, procedures and goodwill (which in turn includes its reputation, location, telephone number and, particularly in the type of business here involved, its personal contacts). 17 If a business (formwork, concreting, etc) is carried on by a company with a name known in the trade, and the principals of that company form another company with a very similar name (SJP Formwork (Aust) / SJP Formwork (NSW)) which one may reasonably infer will be identified in the trade as having the same principals, competency, expertise and business practices, and either promptly or over a period of time, the first company ceases to carry on its business, and the second company starts to carry on business of the same nature, from the same premises, with the same telephone number, using the same management team, and to a large extent the same workers, and employing the same business practices, working for the same or similar customers acquired through the same or similar contacts, the second company may fairly be said to have "acquired" the business of the first company. This is even more so when it hires equipment from the same hire company which is closely related by shareholding and directors to both the other companies and operates out of the same premises. 18    Such a result is consistent with the purposive construction of acts and statutory rules directed by the Interpretation Act 1987, s 33, and see Saraswati v The Queen (1991) 172 CLR 1 at 21. Workers compensation premiums are traditionally assessed on the number of employees and claims history because these are the factors most likely, so far as human ingenuity can assess, to predict the level of future claims and therefore the level of future payouts and need for premium income. Therefore, if the second entity is doing the same type of work for the same type of clients and has substantially the same employees or a substantial proportion of the employees of the previous entity and the same management team, who are responsible inter alia for safety procedures, then the former entity is in a very real sense for the purposes of assessing premiums the "predecessor" of the later entity. 19    Mr Rayment QC on behalf of the plaintiff submitted that there needed to be some identifiable transaction which passed the business from the alleged predecessor company to the plaintiff, that a distinction was to be drawn between acquiring a business and succeeding to the trade of another entity, that there must be something identifiable as the business of the first employer which was subsequently, but not prior to the acquisition, enjoyed by or owned by the second employer and that for the provisions of the Order to apply, acquisition must be complete by an identifiable date which must be the cut-off date in that there cannot be a period when the wages and claims experience of the two companies overlap. 20    In my opinion, none of these submissions are valid. There is nothing in the meaning of "acquire the business" which requires an identifiable transaction and I can see no difference between acquiring a business and succeeding to the trade of another business. In many cases the second entity will succeed to the trade of another by purchasing the latter's business, but this is not necessarily so. An example was proffered of a country town with two hotels where one closes down (e.g. where the licence is removed to the city). Whether one talks of the remaining hotel acquiring the business, or succeeding to the trade of the closed hotel, the effect is the same; most, if not all, of the customers of the closed hotel will take their custom to the remaining one, and it can, I believe, fairly be said to have acquired the business of the former. 21    Reference was made to the duties of the liquidator of SJP Aust to ascertain whether a proper price had been paid by the plaintiff for the business and particularly for the goodwill, and Commissioner of Taxation v Murry [1998] HCA 42, (1998) 155 ALR 67 was referred to. But this ignores the reality of the nature of the business and goodwill involved. The business was not acquired by the plaintiff by the assignment of any existing contracts and a transfer of workers but, having regard to the nature of the business involved, by a gradual running down of one business and building up of another. The business was a succession of sub-contract jobs on building sites and the plaintiff acquired the business by the process of SJP Aust ceasing to tender for and obtain fresh contracts and the plaintiff doing so instead; similarly (except for the overlapping period when the plaintiff hired workers from SJP Aust) the workers employed by SJP Aust ceased to be employed by that company as its projects came to an end and they were subsequently freshly engaged by the plaintiff as its projects got started and its need for staff grew. 22 The acquisition was a gradual process and I can see nothing in the Order which excludes from its terms such a gradual process; and it follows that although it is necessary for there to be something indentifiable as the business of the first employer which is subsequently enjoyed or owned by the second employer, it is not necessary for there to be an identifiable date after, but not before, which the total enjoyment or ownership of the whole of the business passes from one employer to another. 23 Finally it was submitted that there could not be a gradual or overlapping transfer period because prior to the date which needs to be identified as the date of acquisition, the wages and claims experience to be taken into account must be those of the first employer, and after that date the relevant wages and claims experience must be those of the second employer, which may or may not exist prior to the relevant date; and it was submitted that it was not permissible to amalgamate the post acquisition wages and claims experience of the former employer with those of the later employer. This may be so, but it is because after the relevant business of the former is acquired (whether it be the whole or main part of the business or of a separate and distinct business) it no longer has any wages and claims experience of that business; that is, in the case of a gradual acquisition, after the completion of the acquisition. Both schedule 4 cl 3 and schedule 5 cl 1(3) use the word "includes", and there is no reason why in the case of a gradual acquisition there cannot be an overlapping period during which the wages and claims experience of both the former and the later employers are taken into account. It is not correct to say, and the Delegate did not say, that the plaintiff acquired the business of SJP Aust in January 1995 when it commenced work on the Prince of Wales Hospital; at that time and until January 1996 the plaintiff did not directly employ its own workers whereas SJP Aust did not retrench its staff until December 1995 and went into liquidation on 10 July 1996. What was in issue in the Delegate's Determination was the appropriate premiums payable for the years 1996/97 and 1997/98, and on any view of the facts the acquisition of the business by the plaintiff was complete by 30 June 1996. 24 For these reasons I am not satisfied that the Delegate misdirected himself in law, that he failed to take into account any relevant considerations or took into account any irrelevant ones; and accordingly I direct the entry of judgment for the defendant and order the plaintiff to pay the defendant's costs of the proceedings.

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Last Modified: 09/21/1999