Staging Connections Pty Ltd v Workcover Authority of NSW

[2004] NSWSC 86

CITATION:	Staging Connections Pty Ltd v Workcover Authority of NSW [2004] NSWSC 86
HEARING DATE(S):	9 February 2004
JUDGMENT DATE:	9 February 2004
JURISDICTION:	Common Law
JUDGMENT OF:	Adams J at 1
DECISION:	Summons dismissed. Plaintiff to pay defendant's costs.
CATCHWORDS:	Workers' compensation insurance - premium - classification of employer's business - relevant criteria - relevance of claims history - error of law
LEGISLATION CITED:	Insurance Premiums Order 2001-2002 Workers Compensation Act 1987 s168
CASES CITED:	Collector of Customs v Pozzolanic (1993) 43 FCR 280 Minister for Immigration and Ethnic Affairs v Wu Shan Liang (1996) 185 CLR 259
PARTIES :	Staging Connections Pty Limited (Plaintiff) Workcover Authority of New South Wales (Defendant)
FILE NUMBER(S):	SC 30056/03
COUNSEL:	Mr J Smith (Plaintiff) Ms M Allars (Defendant)
SOLICITORS:	Somerville & Co (Plaintiff) I V Knight (Defendant)

Ex tempore - revised

THE SUPREME COURT

OF NEW SOUTH WALES

COMMON LAW DIVISION

ADAMS J

MONDAY 9 FEBRUARY 2004

30056/03 - STAGING CONNECTIONS PTY LIMITED ACN 006 668 702 v WORKCOVER AUTHORITY OF NEW SOUTH WALES

JUDGMENT

1 HIS HONOUR: This is a matter in which I have been much assisted by submissions of counsel. It ultimately depends on an interpretation of the Insurance Premiums Order 2001-02 (the Order) made pursuant to s168 of the Workers Compensation Act 1987. I do not think that long reflection will improve the analysis which the case requires and, accordingly, although I think this judgment does less than justice to the careful and comprehensive submissions of counsel, I consider that it is sensible to determine the matter immediately.

2 The plaintiff runs what may fairly be described as an events management business, amongst other activities, for clients who wish to have an event conducted and leases or hires out a broad range of equipment for the purpose of the event. Whatever the precise revenue stream may be said to be derived from the rental element of the plaintiff’s business, this comprises an undoubtedly substantial part. The plaintiff is obliged to pay workers’ compensation insurance. The premium is determined by reference to the Order, which provides a complicated process of determining the applicable premium. The explanatory note of the Order states –

“Section 168 of the Workers Compensation Act 1987 provides that the Governor may, by order made on the recommendation of the WorkCover Authority and published in the Gazette, fix the manner in which the premium payable by an employer (or a person who proposes to become an employer) for a policy of insurance under the Act is to be calculated.
The object of this Order is to fix the manner in which such a premium is to be calculated in respect of policies of insurance that are to be or have been issued or renewed so as to take effect on or after 4 pm on 30 June 2001.”

3 In my view, it is important to interpret the Order in the context that it is designed to enable the calculation of appropriate premiums to cover the obligation of the insurer to pay the sums required to be paid under the scheme of the Act to injured workers. The calculation of risk is crucial to the operation of the scheme. It is obvious that various businesses carry with them varying levels of risk of injury and any fair system must distinguish between businesses which have a high risk of injury to employees and those which have less risk, otherwise the latter businesses subsidise the former. The Order, not surprisingly therefore, makes provision for the classification of the employer’s business. It does this, essentially, by describing a large number of businesses and then requiring the insurer or here, because of the events that have happened, WorkCover, to place the business in question in the category which most accurately describes it. It is clear, therefore, that the descriptions are exemplifications only, and it is assumed that some businesses may well fall into more than one of the categories in respect to different aspects of their activities and that there might not be a precise fit. On the other hand a business may not fall fairly into any of the categories and there is therefore provided a residual category for such a business.

4 The crucial test specified in the Order is contained in clause 2 of schedule 1 in the following terms –

“Classification of employer’s business
(1) For the purposes of this Order, the classification applicable to an employer is the class in Column 2 of Table A (NSW WorkCover Industry Classification System) to which the employer’s business corresponds.
(2) An employer’s basic tariff premium is determined having regard to the classification applicable to the employer’s business. An employer’s business means the employer’s business or industrial activity.
(3) An employer may carry on a single business or more than one business at the same time.
(4) If an employer carries on a single business, the classification applicable to the business is that which most accurately describes the entire business of the employer. The entire business includes not only the operations and activities directly involved in the conduct of the business, but also all operations and activities incidental to the conduct of the business.”

5 In this case it is undisputed that the plaintiff carries on a single business. The dispute between the plaintiff and WorkCover is which of the classifications set out in the order “most accurately describes the entire business” of the plaintiff. WorkCover has determined that the appropriate description is 774310, which is as follows –

“Plant and Machinery Hiring and Leasing Without Operator
This class includes employers engaged in leasing, renting or hiring industrial machinery, plant or equipment (except transport equipment) without operators, from stock physically held for that purpose.
Exclusions and References:
Employers mainly engaged in leasing machinery, plant or equipment purely on a financial service basis (ie without physically handling the goods are included in Subdivision 73 Finance).
Primary Activities:
Agricultural machinery leasing
Amusement machines, coin operated, hiring
Construction machinery leasing
Leasing of plant or equipment (from own stocks; without operators; except transport equipment)”

6 The plaintiff unsuccessfully endeavoured to persuade WorkCover that the appropriate category is 786900 –

“Business Services nec
This class includes employers engaged in providing business services not elsewhere classified, such as auctioning or valuing services (except in the case of real estate, wool or livestock), translation services, call centres and telephone answering services. Also included in this class are employers engaged in debt collecting, or in mercantile or consumer credit reporting.”

7 As a matter of fact much can be said for both contentions. Fortunately, that particular dispute does not have to be decided by this Court. The problem is for WorkCover to resolve and, providing it does so by properly taking into account the statutory regime and the terms of the Order, the Court cannot interfere with its decision.

8 Having reflected on WorkCover’s decision, the plaintiff engaged in correspondence to enlighten it as to the correct decision. Not surprisingly the correspondence between the parties covered a number of varying possibilities, most of which are not presently germane. The plaintiff submits, however, that, at the end of the day, WorkCover wrongly stated the statutory regime which it was obliged to apply and that this vitiated its decision. It submitted that letters by WorkCover to it demonstrated this error. The plaintiff first referred to the letter from WorkCover of 18 June 2002, which correctly paraphrased cl 2(4) (wrongly ascribed to Table A, but nothing turns on this) but conveyed its first determination in the following terms –

“After carefully considering all the available information provided in this matter, Workcover is satisfied that the predominant business activity of Staging Connections (Australia) Pty Limited is that of hiring and leasing of equipment with operators.”

9 The defendant protested and Workcover responded on 21 June 2002 in a letter which confirmed its previous determination and contained the following paragraph (repeating the mistaken ascription to Table A) –

“Table A of the Insurance Premiums Order specifies that an employer’s basic tariff premium rate is determined having regard to the employer’s entire business or industrial activity. Table A further prescribes that the entire business activity includes not only the operations and activities directly involved in the conduct of the business, but also all operations and activities incidental to the conduct of the business. Table A does not advise that the basic tariff premium is based upon claims experience.”

This paraphrase of cl 2(4) is essentially correct.

10 Following further letters from the plaintiff, the final determination of WorkCover was communicated in the letter of 28 March 2003, which stated in part as follows –

“While the ANZSIC system was used as the base model for the formulation of the WorkCover Industry Classification system, these are separate and distinct classification systems. WorkCover has carefully examined the nature of work carried out by Staging Connections and acknowledges that while some of the activities of the company may be characterised as falling under this classification, the predominant activity of Staging Connections is hiring equipment to business for the purpose of staging events. WorkCover has formed this view on the basis that:

· the most significant source of turnover is equipment hire (45%)

· the majority of staff are associated with equipment hire (hire, storage, transport, operations, etc)

· a substantial majority of the claims arising from handling / use of equipment.

Accordingly, the Authority has determined that WorkCover Industry Classification Plant and Machinery Hiring and Leasing Without Operators – WIC774310 (4.73%) is to be used to calculate the basic tariff premium in the determination of the premium for the period of insurance 30 June 2001 to 30 June 2002.
Allianz Australia Workers Compensation (NSW) Limited has been advised of WorkCover’s decision.
This concludes WorkCover’s review and our file has now been closed.”

11 The plaintiff’s first point is that clause 2(4) does not refer to “predominant activity” of the employer but to the “entire business” and, accordingly, that the wrong test was applied by WorkCover in determining the classification. Mr Smith, counsel for the plaintiff, concedes that the predominant activity carried on by the business is a relevant consideration and it might in some cases be decisive but submits that it is not the test: it is but a sign post to the test. In confining itself to determining the predominant activity of the plaintiff, Mr Smith submits that WorkCover erred in law. Mr Smith, submits that “primary” has a qualitative content. It refers to what is the essential character of the business or what is crucial to the undertaking of the business. He cited the example of Dickens – was he a mere placer of symbols on lots of pieces of paper or was he an author? What was his “primary activity”? Obviously, authorship.

12 Ms Allars of counsel for the defendant submits, on the other hand, that it is necessary to consider cl 2(4) together with the descriptions from which WorkCover must make its choice. When that is done it will be seen that the description refers to the “primary activities” undertaken by the employer as directing the way in which the clause is to be considered. She submits that the reference to primary activity is readily and rightly paraphrased as “predominant activity”, namely, what is mainly or mostly done. This may fairly be described as a quantitative approach to the employer’s activities. Ms Allars submits that a quantitative approach is appropriate when one considers the purpose of the order, namely, to classify purposes broadly speaking according to risk for the purposes of determining fairly what premium should be paid to indemnify them from the requirement to compensate injured workers.

13 This distinction arises also in connection with the controversy between the parties over the correct interpretation of cl 2(4), Ms Allars submitting that the “entire business” is simply what the employer does, that is to say, “its operations and activities” whether directly or incidentally involved in the conduct of the business. Mr Smith contends that the phrase “entire business” looks at what the business is, not only what the business does. He submitted that even if one looked at only what the business does that is not the same: one must look at the entire business, which is more than merely adding up the individual activities of the employees.

14 I have not found this question easy to resolve. It seems to me that much can be said on both sides of the argument.

15 Guided by what I see as the purpose of the legislation and the classification scheme in the Order, I consider that the defendant’s argument that it is necessary to import into cl 2(4) the terms of the descriptions used in the classification table is correct.

16 In this case the reasoning of WorkCover, as disclosed in the correspondence, is that it determined that the entire business is most accurately described in class 323774 because of the extent to which its activities predominantly fall within that description. It does not seem to me that the plaintiff has made good the complaint that WorkCover equated the predominant activity with “entire business” but, in determining whether the business fell within the specified classification, it considered that, because its predominant activity did so in terms, that is connected one way or another with the leasing of equipment, that classification best described its entire business. I repeat that many businesses will not fit precisely into any classification. The mere reference by Workcover to the predominant activities of an employer did not mean that all the activities of the employer were not considered. It simply means that the predominance of those activities, as it were, clinched the matter.

17 It will be seen from the quotation from the letter of 28 March 2003 that the defendant specified three elements which WorkCover relied on for forming its view as to classification. The third of these elements concerned the substantial majority of claims against which the plaintiff was indemnified in the course of its workers’ compensation insurance. The reference to claims experience is surprising in light of the last sentence in the passage quoted above from the letter of 21 June 2002 which rejects, as I read it, the relevance of such a consideration in determining the relevant classification.

18 In the letter dated 27 June 2002 to a member of Parliament seeking her assistance concerning the classification, the plaintiff said, amongst other things –

“WorkCover insist that our Claim’s history cannot be taken into account when establishing an appropriate classification for our business, yet their own publications (pp 15 & 56 “Review of Employers’ Compliance”, available on the WorkCover website) insist that the true reason why a company must be classified correctly is so that their claims risk is reflected in the tariff charged.”

The plaintiff then went on to dispute that the tariff rate then proposed by WorkCover fairly reflected the risk of the business. It was argued by Ms Allars that it is not surprising in light of this submission (a copy of which was forwarded to WorkCover by the plaintiff) that WorkCover would look at the plaintiff’s claim’s history. However, it seems to me obvious that the plaintiff’s submission directed attention to the company’s claims risk by comparison to other classifications and did not suggest that its classification should be affected by the nature of the claims which had been made. I think the submission in the plaintiff’s letter is correct. However, the mention of the claims history would reasonably have provoked Workcover into examining the subject, despite its previous intimation that it was irrelevant.

19 Ms Allars argued that the reference to the claims history was a mere incidental observation designed to demonstrate the reasonableness of WorkCover’s approach to the classification. Even if this were so, I do not see how an assessment of the predominance of equipment hire in the business activities of the plaintiff is informed in any respect by a consideration of the claims history, making all allowances for the vagaries of communication: see Brennan CJ, Toohey, McHugh and Gummow JJ in Minister for Immigration and Ethnic Affairs v Wu Shan Liang (1996) 185 CLR 259 at 271 to 272 approving a passage in the judgment of the Full Federal Court in Collector of Customs v Pozzolanic (1993) 43 FCR 280.

20 I have concluded that WorkCover did indeed regard the claims history as a relevant factor when it derived its characterisation of the predominant activity of the plaintiff and placed it within class 774310 and I consider that this constitutes an error of law.

21 The question arises, nevertheless, whether the relief sought ought to be granted. I take the rule to be that relief in a case such as this should be granted unless the defendant can show that the error was in substance immaterial. In this regard Ms Allars has pointed to a letter from WorkCover to the plaintiff on 4 December 2002 referring to the plaintiff’s business and, in particular, to a site inspection carried out at the plaintiff’s invitation and concluding –

“After carefully considering all the available information provided in this matter WorkCover is satisfied that the predominant business activity of Staging Connections (Australia) Pty Ltd is that of hiring and leasing of equipment without operators.”

The author of the letter, having asserted this conclusion, added that the claims history had been examined and noted that there was a significant number of claims as a result of manual handling incidents. It seems to me that this observation was merely by way of comment on the decision already made and brought to the attention of the plaintiff, although it clearly reflected the author’s view that the consistency of the claims history with the description of the predominant business activity of the plaintiff justified the classification and was a factor that was relied on to support it. It seems to me that this consistency is merely incidental and could not reasonably or logically be considered to give support to the classification which had been made. However, I am satisfied that the classification did not depend upon the claims history and that the determination would have been the same had the claims history been left out of account and that is so although it appears from the letter of 28 March 2003 that it was a factor in determining the classification.

22 I am, therefore, satisfied that, though a mistake of law, it was substantially immaterial to the decision. In those circumstances, it seems to me that the relief should be refused.

23 In the result the summons is dismissed. I award costs to the defendant.

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Last Modified: 03/01/2004