Toll Holdings Ltd v Victorian WorkCover Authority
[2023] VSC 567
•21 September 2023
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
JUDICIAL REVIEW AND APPEALS LIST
S ECI 2022 04761
| TOLL HOLDINGS LIMITED | Plaintiff |
| v | |
| VICTORIAN WORKCOVER AUTHORITY | Defendant |
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JUDGE: | Kaye JA |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 15 September 2023 |
DATE OF JUDGMENT: | 21 September 2023 |
CASE MAY BE CITED AS: | Toll Holdings Ltd v Victorian WorkCover Authority |
MEDIUM NEUTRAL CITATION: | [2023] VSC 567 |
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ADMINISTRATIVE LAW – Judicial review – Decision of defendant to revoke its approval of plaintiff as a self-insurer under the Workplace Injury Rehabilitation and Compensation Act 2013 (Vic) – Whether decision unreasonable – Whether defendant’s process of reasoning unreasonable – Claim dismissed.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr P. Solomon KC and Ms M. Norton | Colin Biggers & Paisley |
| For the Defendant | Ms P. Neskovcin KC and Mr M. Hoyne | Maddocks |
HIS HONOUR:
The plaintiff, by originating motion, seeks an order in the nature of certiorari to quash the decision of the defendant, made on or about 25 October 2022, to revoke the plaintiff’s approval as a self-insurer. That decision was made on the basis that the defendant was not satisfied that the plaintiff is fit and proper to be a self-insurer pursuant to s 379(4)(a) of the Workplace Injury Rehabilitation and Compensation Act 2013 (‘the Act’).
Circumstances
The plaintiff carries on a logistics business in Victoria. On 7 November 2003, the defendant approved the plaintiff as a self-insurer under Part 5 of the Accident Compensation Act 1985 (Vic), which was the statutory predecessor to the Act. That approval was renewed from time to time, the most recent of which was on 31 January 2019. On that date, the plaintiff was approved as a self-insurer for a period of four years from 13 February 2019.
By a letter dated 8 December 2020, the defendant advised the plaintiff that, in light of its concerns concerning the plaintiff’s financial performance, the defendant would shortly commence an initial assessment as to whether it was satisfied that the plaintiff continued to meet the statutory requirement that it be fit and proper to remain a self‑insurer. The letter further stated that in the event that the defendant was not so satisfied, a formal review would be conducted under s 384(3)(c) of the Act, the outcome of which might result in the defendant revoking the plaintiff’s approval as a self‑insurer. The letter attached an executive summary of the plaintiff’s self‑insurance performance report for the financial year ending 30 June 2020.
Subsequently, on 30 March 2021, the defendant forwarded a further letter to the plaintiff stating that it had conducted the initial assessment of the plaintiff’s approval, and that, based on the result of that assessment, the defendant had determined to undertake a formal review of the plaintiff’s approval as a self-insurer under s 384(3)(c) of the Act. The letter stated that the review would be conducted in accordance with ‘External Guideline #19 ( Review of a self-insurer’s approval)’.
On 4 June 2021, representatives of the plaintiff and the defendant met. In the course of the meeting, the defendant informed the plaintiff that it was compiling a brief recommending that the plaintiff’s approval as a self-insurer be revoked. The plaintiff was invited to put forward any further material that it wished the defendant to consider, before the defendant finalised its recommendation.
Accordingly, on 29 June 2021, the plaintiff’s solicitors wrote a letter to the defendant on behalf of the plaintiff, containing detailed submissions as to why the plaintiff remained a fit and proper self-insurer.
In the letter, the solicitors advised that the plaintiff would be willing to establish a trust account into which would be paid a sum of money which would be available for payment of its WorkCover liabilities. Specifically, it was proposed that the plaintiff would ensure that the balance of the trust account was at least an amount that equated to 125 per cent of the actuarial estimate, as at 31 March of that year, of the WorkCover liabilities of the plaintiff. The plaintiff further undertook to conduct a mid-year review by 31 October of each year to ensure that the balance of monies in the trust account was sufficient to meet the estimate of provision required for the balance of the 12-month period. The solicitors also noted that the plaintiff had the full backing of its parent company, Japan Post Holdings Company (‘JPH’), which had provided multiple parent company guarantees to the plaintiff’s bankers.
On 27 April 2022, the defendant notified the plaintiff, by letter, that its formal review of the plaintiff’s approval as a self-insurer had identified that the plaintiff was not fit and proper to continue as a self-insurer in accordance with s 379(4) of the Act, as the defendant was not satisfied that the plaintiff was, and would be likely to continue to be, able to meet its liabilities as and when they fell due pursuant to s 379(4)(a). Accordingly, the defendant proposed to revoke the plaintiff’s approval as a self-insurer in accordance with s 385(1)(a) of the Act.
In the letter, the defendant stated that notwithstanding the additional protections associated with the trust account proposed by the plaintiff, that account would be assessed in the same manner as other forms of cash, and accordingly it would not materially impact the outcome of the assessment. The letter further stated:
The financial benchmarks do not currently allow for a trust account to be considered as a separate or special consideration as part of an assessment, and to do so would be inconsistent with how a self-insurer is assessed in terms of its financial viability.
Furthermore, Toll has already provided a bank guarantee in WorkSafe’s favour as required by the WIRC Act, so the addition of a trust account does not offer added value in terms of Toll being able to meet its claim liabilities.
On 25 May 2022, the plaintiff’s solicitors wrote a letter in response. In the letter, they requested that the defendant identify any feature of the proposal, to establish a trust account, which caused concern, and to afford the plaintiff a short period of time to attend to it. In addition, the solicitors asked that the defendant evaluate the proposal on its merits and not merely by reference to the considerations of the Guidelines. The letter maintained that the plaintiff’s trust proposal afforded ‘significantly greater protection’ to the defendant than cash held by the plaintiff, and it also offered greater protection than the existing bank guarantee. Finally, the letter noted that the plaintiff’s financial performance continued to improve, and it set out details of the plaintiff’s liquidity as of 31 March 2022.
Subsequently, on 8 August 2022, the plaintiff emailed to the defendant a copy of its financial statements for the year ended 31 March 2022.
Finally, by letter dated 25 October 2022, the defendant notified the plaintiff that it had determined to maintain the ‘proposed determination’ to revoke the plaintiff’s approval as a self-insurer on the basis that the defendant was not satisfied that the plaintiff is fit and proper to be a self-insurer pursuant to s 379 (4) (a) of the Act. The letter stated that the revocation of approval would take effect on and from 4 pm on 23 February 2023.
The letter stated:
Specifically, WorkSafe is not satisfied that Toll is, and is likely to continue to be, able to meet its liabilities as and when they fall due pursuant to sub-s 379(4)(a) of the WIRC Act, having regard to the financial benchmarks which are published and made available in WorkSafe’s External Guidelines (External Guideline #2 — assessment of initial application for approval as a self‑insurer and External Guideline #3 — assessment of application for renewal of approval as a self-insurer) issued pursuant to s 410 of the WIRC Act.
The applicable legislation
Part 8 of the Act provides for ‘employers’ to seek approval from the defendant to operate as a self-insurer. Section 379(3) provides that the defendant must refuse to approve an employer as a self-insurer if the defendant is not satisfied that the employer is ‘fit and proper’ to be a self-insurer. Section 379(4) specifies five matters which must be considered by the defendant when considering whether an employer satisfies that test. Those considerations include:
(a)whether the employers is, and is likely to continue to be, able to meet its liabilities as and when they fall due.
Section 384 of the Act provides that the defendant may, at any time, review the approval of an employer as a self-insurer. Specifically, s 384(3) specifies when the defendant must undertake a review of such an approval:
(3)The Authority must review the approval of an employer as a self-insurer if —
(a)the Authority is of the opinion that the employer is no longer capable of meeting its claim liabilities as and when they fall due; or
(b)the employer becomes the subsidiary of another body corporate (other than a foreign company within the meaning of the Corporations Act that is not a registered foreign company within the meaning of that Act); or
(c)having regard to the matters specified in section 379(4), the Authority is no longer satisfied that the employer is fit and proper to be a self-insurer.
Section 385(1)(c) provides that the defendant ‘may’ revoke the approval of the employer as a self-insurer if (inter alia) having regard to the matters specified in s 379(4), the defendant is not satisfied that the employer is ‘fit and proper’ to be a self-insurer. Section 385(2) provides that the defendant may revoke the approval if, on the basis of a review conducted under s 384, the defendant is of the opinion that the approval should be revoked. Section 385(3) provides:
(3)The Authority must not revoke the approval of an employer as a self-insurer unless the Authority has given not less than 28 days notice in writing to the employer stating—
(a)the Authority's intention to revoke the approval; and
(b)the reasons for the intended revocation; and
(c)that the employer may, within 28 days after receiving the notice, make a written submission to the Authority.
Section 385(5) provides that if within the time allowed under sub-s (3), the defendant receives a written submission from the employer, the defendant must consider that submission before deciding whether or not to revoke approval of the employer as a self-insurer.
Section 410 provides that the defendant may make guidelines to provide guidance to self-insurers about matters to which the self-insurers should have regard. Section 410(2)(b) provides that the guidelines may indicate the way in which a discretion of the defendant under the Act would be exercised.
The plaintiff’s claim
The plaintiff, by its originating motion, claims that, in determining to maintain this proposed decision to revoke the plaintiff’s approval as a self-insurer, the defendant acted in a manner that was ‘irrational and/or legally unreasonable’ in the following respects:
7.In making the Decision, WorkSafe acted in a manner that was irrational and/or legally unreasonable in determining that:
(a)notwithstanding that WorkSafe accepted that there were additional protections associated with the Trust Account Proposal, the Trust Account Proposal would be assessed in the same manner as other forms of cash and, accordingly, did not materially impact the outcome of WorkSafe’s assessment; and/or
(b) WorkSafe’s External Guidelines did not provide for this type of alternative arrangement to be considered separately, and, as such, the Trust Account Proposal did not mitigate WorkSafe’s concerns regarding Toll’s ongoing financial performance against the published Financial Benchmarks; and/or
(c) in circumstances where Toll already had in place a bank guarantee, the Trust Account Proposal did not offer added comfort in terms of Toll being able to meet its claims liabilities.
Submissions
Counsel for the plaintiff noted that, in determining to revoke the plaintiff’s approval as a self-insurer, the defendant provided three reasons for rejecting the proposal by the plaintiff to establish a trust account, that would at all times have a funds balance greater than the full amount of the plaintiff’s WorkCover liabilities and claim expenses for the year ahead. Counsel submitted that those explanations, do not constitute an evident and intelligible justification for the defendant’s rejection of the trust account proposal.
First, it was submitted, the treatment by the defendant, of the proposed trust account, in the same manner as cash, necessarily ignored the real protections offered by the trust account structure, which would prevent the plaintiff from using the trust funds for any purpose other than to meet its current and future WorkCover claims liabilities. Similarly, it was submitted, the assertion by the defendant, that the trust account proposal did not offer benefits in addition to the bank guarantee provided by the plaintiff’s parent company, lacked evident and intelligible justification. It was submitted that the quarantining of funds by the plaintiff on trust must necessarily provide additional protection.
Secondly, it was submitted that although s 379(4)(a) of the Act refers to the employer’s liability to meet its liabilities, the defendant’s stated expectation, contained in its published External Guideline, was more narrow, requiring that the employer have the financial strength to meet its current and future claims liabilities. Thus, it was submitted that while the trust account proposal did not fit within the defendant’s ‘standard set of financial indicators’, it was clearly directed to providing assurance that the plaintiff could satisfy the defendant’s requirement that it had the financial strength to meet is current and future claims liabilities.
Thirdly, counsel submitted that although the trust account proposal was not contemplated by the defendant’s External Guidelines, those guidelines did not purport to be an exclusive code for the assessment of whether an employer is, or would be likely to be, able to meet its liabilities as and when they fell due. Further, it was submitted, the fact, that the external guidelines did not provide for the trust account proposal to be monitored on an ongoing basis, did not explain why that proposal failed to address the defendant’s concerns.
Counsel accepted that the ultimate question, under s 379(4)(a), was whether the applicant is, and is likely to continue to be, able to meet its liabilities as and when they fall due. However, he submitted, in the context of the applicable provisions of the Act, and the correspondence between the parties, the capacity of the plaintiff to meet its claims liabilities is an important subset of the question whether it is and will remain able to meet its liabilities in general. Counsel submitted that the applicant’s proposal to establish a trust account was designed to address any concern that there might be as to its capacity to meet its claims liabilities. It was submitted that it was unreasonable and irrational for the defendant to treat the proposed trust account as equivalent to cash, and as not providing any additional or greater protection, than the existing bank guarantees, in respect of the plaintiff’s claims liabilities.
Accordingly, it was submitted, the process of reasoning undertaken by the defendant, on which it determined to revoke the plaintiff’s approval as a self-insurer, was vitiated by a legal error in that it was an irrational and unreasonable process.
In response, counsel for the defendant commenced by noting that the review by the defendant, of the plaintiff’s approval as a self-insurer, was made by reference to s 384(3)(c), and not by reference to s 384(3)(a). Likewise, the decision of the defendant, to revoke the plaintiff’s approval as a self-insurer, was made pursuant to s 385(1)(c), and not s 385(1)(a), of the Act. In other words, the defendant did not review or revoke the approval of the plaintiff as a self-insurer on the basis that the plaintiff was no longer capable of meeting its claims liabilities; rather, the defendant did so on the basis that it was not satisfied that the plaintiff was fit and proper to be a self-insurer. In doing so, the defendant was required to take into account, and have regard to, the matters specified in s 379(4), and in particular, s 379(4)(a).
Counsel noted that s 379(4)(a) of the Act does not limit the defendant’s consideration to determining whether the employer is likely to meet its ‘claims liabilities’ as and when they fall due. Rather, it requires the defendant to have regard to whether the employer can, and is likely to continue to be able to, meet its ‘liabilities’ as and when they fall due. The guidelines, which are published by the defendant under s 410 of the Act, do not override or replace the provisions of the Act or affect the construction of its provisions. Further, it was submitted, the guidelines provide that the expectation is that self-insurers will have the financial strength and viability to meet their current and future claims liabilities as assessed by a standard set of financial indicators. Those indicators, which are specified, include primary and secondary indicators that are directed to the general financial health of the employer, and are not confined to its capacity to meet claims.
In that context, counsel noted that, based on the material provided by the plaintiff to the defendant, the plaintiff’s financial position was objectively dire. Those materials demonstrated that the plaintiff was only able to continue as a going concern due to the support of its parent company, JPH. Thus, when the defendant undertook its financial analysis of the plaintiff against the criteria set out in the guidelines, the plaintiff failed almost all of them. Accordingly, it was submitted, the decision by the defendant, that it was not satisfied that the plaintiff was, and would be likely to continue to be, able to meet its liabilities as and when they fell due, was based on a proper application by the defendant of the financial benchmarks contained in the guidelines.
Consequently, it was submitted, the plaintiff’s proposal to put monies into trust did not engage with the statutory question posed by s 379(4)(a) or with the issues raised by the guidelines issued under s 410 of the Act. In particular, counsel submitted, the proposal did nothing to improve the likelihood that the plaintiff would be able to meet its liabilities as and when they fell due. In those circumstances, the decision by the defendant was not irrational or legally unreasonable.
Counsel for the defendant further submitted that there was no error, or unreasonableness, in the process adopted by the defendant, as submitted by counsel for the applicant. In particular, counsel submitted that at all times the defendant had made it clear to the plaintiff that its focus was not just on the sufficiency of the trust account proposal to enable the plaintiff to meet its claims liabilities, but, rather, its focus was on the capacity of the plaintiff to continue to meet its liabilities in total. In that respect, counsel referred to the letter by the defendant to the plaintiff dated 22 April 2022, in which the defendant advised the plaintiff that its financial performance was to be assessed against the defendant’s published financial benchmarks, constituted by the External Guidelines 2 and 3. Counsel noted that each of those guidelines are directed to the general financial viability of the self-insurer, and not simply to its capability to continue to meet claims liabilities. Counsel further noted that in their letter of response dated 25 May 2022, the plaintiff’s solicitors went further than proffering a proposal for the establishment of the trust account. The solicitors also discussed, and provided detail about, the plaintiff’s general financial performance, noting that it had continued to improve following the divestment by the defendant of a section of its business, and its recovery from the COVID-19 pandemic.
Accordingly, counsel submitted that there was no error by the defendant, in its decision contained in its letter dated 25 October 2022, focussing on the capacity of the plaintiff to meet its liabilities as and when they fell due, and noting that that requirement was broader than focussing only on the capacity of the plaintiff to meet its claims liabilities. In that context, it was submitted, there was no error in the treatment by the defendant of the trust proposal as being equivalent to a form of cash. Further, counsel referred to the requirements for a bank guarantee contained in s 393 of the Act, and noted that by reference to those requirements, there was no error in the defendant concluding that the trust account proposal did not provide any additional comfort in terms of the plaintiff being able to meet its claim liabilities.
Counsel submitted that in any event the trust account proposal proffered by the plaintiff was not without risk. First, in the event of insolvency, there was a prospect that the proposed trust might be challenged by a liquidator or other creditors. Secondly, while the plaintiff proposed to undertake an assessment of its liabilities and then place 125 per cent of that liability into trust, there was always a possibility that the estimates could be erroneous.
For those reasons, it was submitted that the plaintiff failed to demonstrate that the defendant’s decision, to revoke the approval of the plaintiff as a self-insurer, was unreasonable or irrational.
In reply, counsel for the plaintiff submitted that the requirement under s 379(4)(a) that the defendant consider whether the employer can, and is likely to continue to be able to, meet its liabilities, necessarily involved a consideration whether the employer is likely to meet its claims liabilities as and when they fall due. In that respect, counsel noted that the defendant’s consideration of an employer’s ability to meet its liabilities is to be undertaken in the context of a broader assessment of whether the employer is ‘a fit and proper insurer’ in respect of its WorkCover claims. Thus, it was submitted, the statutory focus is on the status of the employer as an insurer, and not on the employer’s solvency at large.
Further, counsel for the plaintiff noted that the defendant’s submissions raised two justifications for its conclusion that the plaintiff’s trust account proposal did not materially impact the outcome of its assessment, namely, that the trust structure might have been ineffective if the plaintiff became insolvent, and, secondly, that the plaintiff’s estimate of future liabilities might be wrong. Counsel contended that those justifications should play no part in the Court’s consideration of the application for two reasons. First, neither of those justifications were referred to in the defendant’s letters dated 27 April 2022 or 25 October 2022. Secondly, in any event, neither of those justifications meant that the trust account proposal would be ineffective. In particular, it was submitted, it is most doubtful that a transfer of funds, based on an auditor’s assessment of future claims liabilities, and to be held on trust for a cohort of creditors, would constitute a transaction made with the intent to defraud creditors.
Legal principles
The requirement, that a statutory authority act reasonably in any decision-making process undertaken by it, is based on a presumption of law that the legislature intended that the power reposed in the authority will be exercised reasonably.[1] The standard of reasonableness is that which has been described as the ‘Wednesbury Corporation’ test stated by Lord Greene MR in Associated Provincial Picture Houses Ltd v Wednesbury Corporation.[2] Based on the implied intention of the legislature that a power be exercised reasonably, the courts hold invalid an exercise of power which is so unreasonable ‘that no reasonable repository of the power could have taken the impugned action or decision’.[3]
[1]Attorney-General (NSW) v Quin (1990) 170 CLR 1, 36 (Brennan J) (‘Quin’); Minister for Immigration and Citizenship v Li & Anor (2013) 249 CLR 332, 362 [63] (Hayne, Kiefel and Bell JJ) (‘Li’).
[2][1948] 1 KB 223, 230, 234.
[3]Quin, 36; Li, 350 (French CJ); Minister for Immigration and Border Protection v SZVFW & Ors (2018) 264 CLR 541, 573–4 [83] (Nettle and Gordon JJ) (‘SZVFW’).
Expressed in that way, the test of unreasonableness is, necessarily, to some extent circular. However, the terms, in which the test is posited, underlines the narrow scope of review afforded by it. The courts have emphasised that the test is stringent, and that it is not an avenue by which a merits review of a decision of an administrative body may be undertaken by the courts.[4]
[4]Minister for Immigration and Citizenship v SZJSS & Ors (2010) 243 CLR 164, 176–7 [34]–[35]; Li, 363 (Hayne, Kiefel and Bell JJ); SZVFW, 551 (Kiefel CJ), 556–57 (Gageler J).
In the present case, the plaintiff has sought to impugn the decision of the defendant, on the ground that the process of reasoning, by which the defendant reached that decision, was irrational or legally unreasonable.
It is well-accepted that the legal requirement of reasonableness is not confined solely to an examination of the ultimate outcome or determination of the statutory authority. It may also apply to the line of reasoning by which the authority reached the particular decision which is under review. Nevertheless, it has been emphasised by the courts that the test of reasonableness is no less narrow or stringent when applied to the process of reasoning engaged in by the statutory authority than in its application to an examination of reasonableness the decision of the authority.
In Minister for Immigration and Citizenship v Li, Hayne, Kiefel and Bell JJ stated the principles in the following terms:
Whether a decision-maker be regarded, by reference to the scope and purpose of the statute, as having committed a particular error in reasoning, given disproportionate weight to some factor or reasoned illogically or irrationally, the final conclusion will, in each case be that the decision-maker has been unreasonable in a legal sense.
…
Even where some reasons have been provided, as is the case here, it may nevertheless not be possible for a court to comprehend how the decision was arrived at. Unreasonableness is a conclusion which may be applied to a decision which lacks an evident and intelligible justification.[5]
[5]Li, 366–7 [72], [76]; see also ABT17 v Minister for Immigration and Border Protection (2020) 269 CLR 439, 450-1 [19]-[20] (Kiefel CJ, Bell, Gageler, and Keane JJ), 489-90 [122]-[125] (Edelman J).
In Minister for Immigration and Citizenship v SZMDS & Anor,[6] Crennan and Bell JJ stated:
Not every lapse in logic will give rise to jurisdictional error. A court should be slow, although not unwilling, to interfere in an appropriate case.
What was involved here was an issue of jurisdictional fact upon which different minds might reach different conclusions. The complaint of illogicality or irrationality was said to lie in the process of reasoning. But, the test for illogicality or irrationality must be to ask whether logical or rational or reasonable minds might adopt different reasoning or might differ in any decision or finding to be made on evidence upon which the decision is based. If probative evidence can give rise to different processes of reasoning and if logical or rational or reasonable minds might differ in respect of the conclusions to be drawn from that evidence, a decision cannot be said by a reviewing court to be illogical or irrational or unreasonable, simply because one conclusion has been preferred to another possible conclusion.[7]
[6](2010) 240 CLR 611.
[7]Ibid, 648 [130]–[131].
In similar terms, in Minister for Immigration and Border Protection v SZVFW & Ors,[8] Nettle and Gordon JJ (with whom Kiefel CJ agreed) both emphasised that in assessing the reasonableness of a decision made by a statutory authority, the court does not undertake a ‘merits review’ but, rather, the court is determining whether the decision‑maker’s purported exercise of power was beyond power because it was ‘legally unreasonable’. Their Honours stated:
Moreover, legal unreasonableness is invariably fact dependent and requires a careful evaluation of the evidence. That is, assessment of whether a decision was beyond power because it was legally unreasonable depends on the application of the relevant principles to the particular factual circumstances of the case, rather than by way of an analysis of factual similarities or differences between individual cases. Where reasons are provided, they will be a focal point for that assessment. It would be a rare case to find that the exercise of a discretionary power was unreasonable where the reasons demonstrated a justification for that exercise of power.[9]
[8]SZVFW (2018) 264 CLR541, 573–4 [83].
[9]Ibid, 574 [84].
The stringent nature of the test of unreasonableness, when applied to the reasoning of a statutory authority, was described by the Full Court of the Federal Court in Djokovic v Minister for Immigration, Citizenship, Migrant Services and Multicultural Affairs,[10] in the following terms:
The characterisation of a decision (or a state of satisfaction) as legally unreasonable because of illogicality or irrationality is not easily made…
The task in assessing illogicality is not an exercise in logical dialectic. ‘Not every lapse of logic will give rise to jurisdictional error. A Court should be slow, although not unwilling, to interfere in an appropriate case’: SZDMS 240 CLR at 648 [130]. It is the ascertainment, through understanding the approach of the decision-maker and characterising the reasoning process, of whether the decision (or state of satisfaction) is so lacking a rational or logical foundation that the decision (or relevant state of satisfaction) was one that no rational or logical decision-maker could reach, such that it was not a decision (or state of satisfaction) contemplated by the provision in question. Some lack of logic present in reasoning may only explain why a mistake of fact had been made which can be seen to be an error made within jurisdiction… [T]he evaluation of whether a decision was made within lawful boundaries is not definitional, but one of characterisation and whether the decision was sufficiently lacking in rational foundation, having regard to the terms, scope and purpose of the statutory source of power, that it cannot be said to be within the range of possible lawful outcomes.[11]
[10](2022) 289 FCR 21.
[11]Ibid, 27–28 [33]–[34] (Allsop CJ, Besanko and O’Callaghan JJ); see also Minister for Immigration and Border Protection v Haq (2019) 267 FCR 513, 522 [36]–[37] (Griffiths J), 536 [95]–[96] (Colvin J).
Analysis and conclusion
The question is whether the process of decision making by the defendant was unreasonable in the sense discussed in the authorities to which I have referred. Specifically, the question is whether, as contended on behalf of the plaintiff, the defendant’s decision process was unreasonable or irrational, because the defendant did not, as a discrete consideration, address the question whether the trust account proposal would be a sufficient means by which the plaintiff would be able to continue to meet its claims liabilities.
In order to address that issue, it is necessary to traverse, in a little detail, the correspondence and dealings between the plaintiff and the defendant, leading up to and including its decision on 25 October 2022 to revoke its approval of the plaintiff as a self-insurer under the Act.
On an examination of the relevant correspondence, and of the applicable legislation, three conclusions necessarily follow. First, it is clear that at all times the issue raised and addressed by the defendant in its dealings with the plaintiff, and in its decision of 25 October 2022, concerned the capacity of the plaintiff to meet its liabilities as a whole. Secondly, there was nothing in the legislation, or indeed in the guidelines, or in the communications between the plaintiff and the defendant, which required the defendant to address, as a discrete issue, the capacity of the trust account proposal to ensure that the plaintiff would be able to continue to meet its claims liabilities. Thirdly, it has not been demonstrated, and indeed the plaintiff did not seek to contend, that there was any irrationality or unreasonableness in the reasons given by the defendant for its determination that the trust account proposal did not affect its assessment that the plaintiff was not capable of meeting its liabilities as and when they fell due.
As I have noted, the relevant correspondence between the parties commenced with the letter dated 8 December 2020 from the defendant to the plaintiff. In that letter, the defendant advised the plaintiff that, in light of its concerns about the financial performance of the plaintiff, the defendant would shortly commence an initial assessment as to whether it was satisfied that the plaintiff would continue to meet the requirements of being ‘fit and proper’ to remain as a self-insurer. The letter specifically referred to the plaintiff’s ‘self-insurance performance summary’, which, according to the letter, demonstrated a deterioration in the financial results of the plaintiff whereby it had failed all six of the defendant’s primary indicators. The letter specifically stated that if the defendant was not satisfied as to the capacity of the plaintiff to continue to meet the statutory requirement that it be fit and proper to remain as a self-insurer, a formal review would be conducted under s 384(3)(c) of the Act.
It is significant that the defendant, by that letter, specified that the issue, with which it was concerned, was that to which s 384(3)(c) pertained, namely, whether the plaintiff was ‘fit and proper to be a self-insurer’. Relevantly, the letter did not foreshadow a review directed to s 384(3)(a) of the Act, which involves the question of whether the defendant was of the opinion that the plaintiff was no longer capable of meeting its ‘claim liabilities’ as and when they fell due.
Consistent with that approach, three months later the defendant, by its letter dated 30 March 2021, informed the plaintiff that, having conducted the initial assessment of its approval, it had determined to undertake a formal review of the plaintiff’s approval as a self-insurer under s 384(3)(c) of the Act. The letter noted that under that provision, the defendant must review the approval of an employer as a self-insurer if, having regard to the matter specified in s 379(4), the defendant was no longer satisfied that the employer was fit and proper to be a self-insurer.
It is in that context that the letter of the plaintiff’s solicitors dated 29 June 2021 falls to be considered. In submissions, counsel for the plaintiff relied on that letter in support of the proposition that the parties, in some way, identified, as a subset of the plaintiff’s deliberations, the discrete question as to whether the plaintiff would be able to meet its claims liabilities.
Certainly at the commencement of the letter the solicitors set out, in some detail, the trust account proposal which was made on behalf of the plaintiff. As noted, the proposal involved the plaintiff setting aside, in a separate trust account, a sum equivalent to at least 125 per cent of the actuarial estimate, as at 31 March of the year of the plaintiff’s WorkCover liabilities. It was proposed that the plaintiff would pay an initial amount of $17,310,000 into such a trust account, and that by 31 October of each year, the plaintiff would review of the adequacy of the funds in the account as against the mid-year actuarial assessment of the provision for that year. The letter also noted that the plaintiff had the full backing of its parent company, JPH, which provided to it multiple parent company guarantees.
Having set out those matters, the solicitors, in their letter, then discussed the financial position of the plaintiff. That part of the letter was contained in some six pages. It set out in some detail, with the assistance of graphs and charts, the financial performance of the plaintiff, including its performance against the defendant’s ‘benchmarks’.
Pausing there, it is quite clear, from the foregoing, that the correspondence between the parties, and in particular the letter by the plaintiff’s solicitors dated 29 June 2021, did not confine the issues between the parties to the question of the capability of the plaintiff to meet its claims liabilities. Nor did the parties set aside, as some discrete or separate issue, that question, as a necessary step which must be addressed by the defendant in determining the question posited by it, namely, whether it was no longer satisfied that the plaintiff was fit and proper to be a self-insurer pursuant to s 384(3)(c) of the Act.
It was in that context that the defendant, by its letter dated 27 April 2022, stated that it had identified that the plaintiff was not fit and proper to continue as a self-insurer. Specifically, in that letter, the defendant stated:
WorkSafe’s formal review of Toll’s approval as a self-insurer has identified that Toll is not fit and proper to continue as a self-insurer in accordance with s 379(4), as WorkSafe is not satisfied that Toll is, and is likely to continue to be, able to meet its liabilities as and when they fall due pursuant to sub-s 379(4)(a) of the WIRC Act.
The letter then continued by noting that the plaintiff’s financial performance had been assessed against the defendant’s published financial benchmarks which were contained in External Guideline #2 and External Guideline #3. The letter noted that the plaintiff had failed to meet the financial benchmarks for many years, with the vast majority of results falling more than 20 per cent below the respective benchmarks.
The letter further noted that in conducting its assessment in accordance with those benchmarks, the defendant considered that, notwithstanding the additional protections associated with the proposed trust account, it would be assessed in the same manner as other forms of cash, and accordingly would not materially impact the outcome of the assessment.
Quite clearly, that assessment was correct, and unassailable, in respect of question of the capacity of the plaintiff to meet its financial liabilities as a whole. The establishment of the intended trust account could not enhance the overall liquidity, or net asset position, of the plaintiff.
The letter further noted that the plaintiff had already provided a bank guarantee in the defendant’s favour as required by the Act, so that the addition of a trust account would not offer added value in terms of the plaintiff’s capacity to meet its claim liabilities.
That proposition, also, could not of itself be regarded as unreasonable or irrational. As counsel for the respondent pointed out, s 393(1) and (2) of the Act require that a self-insurer must have at all times a guarantee in respect of liabilities incurred by it under the Act, such guarantee securing payment of amounts not less than one and one half times (that is, 150 per cent) of the assessed liabilities of the employer. In that context, it could not be maintained that the proposition by the defendant, that the trust account did not provide further additional value beyond that provided by the bank guarantee, was unreasonable or irrational.
As I have noted, the letter by the defendant dated 27 April 2022 stated that the plaintiff’s financial performance had been assessed against the defendant’s published ‘financial benchmarks’ that were contained in the two External Guidelines referred to. An examination of those guidelines demonstrates that they go well beyond a consideration whether a self-insurer has sufficient financial capacity to meet its claims liabilities as and when they fall due.
Section 1.4 of the relevant Guideline, entitled ‘Expectation of self-insurers’, notes (correctly) that the Act requires self-insurers to demonstrate sufficient financial strength and viability to meet ‘their claims liabilities as and when they fall due and that they are fit and proper to be a self-insurer in accordance with sub-s 379(4) of the WIRC Act’. That is, the expectation of the defendant was that self-insurers would be able to meet claims liabilities, and also that they would be fit and proper to be a self-insurer. An important aspect of the latter consideration, under s 379(4) of the Act, was a determination by the defendant whether the employer was, and would be, able to meet ‘its liabilities’ as and when they fell due.
The section of the Guideline, headed ‘Overview of the assessment process’, stated that the defendant assessed applications, for approval as a self-insurer, in accordance with s 379 of the Act. In a further sub-section of the Guideline, it specifically referred to s 379(4)(a) of the Act.
The Guideline did state as an ‘expectation’ that the employer would have the financial strength and viability to meet current and future claims liabilities, but it then proceeded to state that an employer’s financial strength would be assessed using a set of ‘primary indicators’, and that secondary indicators might also be considered. Those indicators and benchmarks were outlined in a table appended to the Guideline. Significantly, the table contained eight ‘primary financial indicators’, seven of which were directed to the overall financial position of the employer, namely: balance sheet test; current liquidity; interest coverage; gearing ratio; cash flow margin; bad debt ratio; and excess capital. The only indicator, that was directed to the capacity of the self-insurer to meet claims liabilities, prescribed a maximum percentage of such liabilities to the amount of the net assets of the employer.
That, then, was the context in which the plaintiff’s solicitors, by the letter dated 25 May 2022, addressed the review undertaken by the defendant of its approval of the plaintiff as a self-insurer.
It is clear that by its letter dated 25 May 2022, the plaintiff’s solicitors did not confine their response to the question whether the trust account proposal by the plaintiff sufficiently addressed the question whether the plaintiff would be able to continue to meet its claims liabilities. The first part of the letter did address that question, and specifically asked that if any aspect of the proposal caused concern, the plaintiff sought to understand what that particular feature is. However, the letter then proceeded to discuss the plaintiff’s overall financial position, and, in particular, its liquidity. The letter specifically addressed the plaintiff’s performance against the defendant’s benchmarks and it noted that its performance in that respect continued to improve.
Relevantly, on 8 August 2022, the plaintiff then forwarded its financial statements for the period ending 31 March 2022. The notes to the consolidated financial statements recorded, under the sub-heading ‘Going concern’, that as at 31 March 2022 the plaintiff’s current liabilities exceeded its current assets by $2.78 million, which (it stated) was ‘reflective of the group’s short-term debt maturity profile’. It also reported a net asset deficiency of $958.4 million.
As I have noted, the final decision of the defendant was contained in its letter to the plaintiff dated 25 October 2022. The foregoing analysis of the correspondence and transactions between the parties, that preceded that decision, makes it clear that the defendant had not at any point undertaken to treat the issue, of the capacity of the plaintiff to meet its claims liabilities, as a discrete issue, or as an essential consideration, in formulating its decision as to whether the plaintiff was ‘fit and proper’ to be a self-insurer pursuant to s 379(4)(a) of the Act. The issue, that the defendant had raised at the outset, and which it kept under consideration in its correspondence with the plaintiff, was whether, pursuant to s 379(3) of the Act, the plaintiff was fit and proper to be a self-insurer. Specifically, the question, which the defendant focussed on, in determining that issue, was whether, pursuant to s 379(4)(a) of the Act, the plaintiff was and would be likely to continue to be able to meet its ‘liabilities’ as and when they fell due.
In addressing that question, the defendant, in the letter dated 25 October 2022, noted that an assessment of the audited financial report, which the plaintiff had submitted on 8 August 2022, indicated that the plaintiff had continued to fail to meet the defendant’s financial benchmarks, that is, the indicators contained in the guidelines. There was appended to the letter, as attachment number 1, a summary of the defendant’s consideration of the submissions that had been made by the plaintiff, and, in particular, the plaintiff’s proposal to establish a trust account devoted to its claims liabilities under the Act. In the column headed ‘WorkSafe’s response’, it was noted that the question under s 379(4)(a) — as to whether the plaintiff would be likely to be able to meet its liabilities as and when they fell due — was ‘broader than just claims liabilities, which is all that Toll is referencing in this proposal’. The response noted that the guidelines did not provide for alternative arrangements, such as the trust account proposal, to be considered separately or to be monitored on an ongoing basis. It also noted, as discussed, that the bank guarantee from the parent company did not offer added comfort in terms of the plaintiff being able to meet its claim liabilities. The response, by reference to a table that was ‘Attachment 2’ to the letter, again noted that the plaintiff had continued to fail to meet the financial benchmarks set by the defendant, which included its ‘claim liability’.
It is thus clear, from the forgoing review of the communications between the parties, that at no time did the defendant divert from considering the issue whether the plaintiff was and remained fit and proper to be a self-insurer, and, specifically, whether for that purpose the plaintiff was, and was likely to continue to be, able to meet its liabilities as and when they fell due pursuant to s 379(4)(a) of the Act.
At no point, in its communications with the plaintiff, did the defendant identify to the plaintiff, as a discrete subset of that issue, the question whether the plaintiff would be able to meet its claims liabilities as and when they fell due. Certainly, the trust account proposal put forward by the plaintiff was addressed to that issue, but, as I have noted, the plaintiff had in each of its relevant communications with the defendant, clearly understood that it was obliged to address the broader question as to its financial capacity to meet its liabilities as and when they fell due.
It was a matter for the defendant, and not the plaintiff, to specify and address the particular issue on the basis of which it was giving consideration to the revocation of the plaintiff’s approval as a self-insurer. At all times, the defendant made it clear that the critical issue, which it was considering, was whether, pursuant to s 379(4)(a) of the Act, the employer was, and was likely to continue to be, able to meet its liabilities as and when they fell due. It was that issue, specifically identified by the defendant, which it raised in determining whether it concluded that the plaintiff was ‘fit and proper’ to be a self-insurer. The defendant did not raise, or undertake to address, the separate question as to the capacity of the plaintiff to meet its claims liability, as some step in its determination of that issue.
The plaintiff has not sought to demonstrate — nor indeed could it — that there was any relevant error by the defendant in its consideration of the issue whether the plaintiff was, and was likely to continue to be, able to meet its liabilities as and when they fell due, pursuant to s 379 (4) (a) of the Act. The plaintiff, quite correctly, did not seek to submit that the conclusion by the defendant, as to that issue, was unreasonable or irrational in accordance with the principles that I have discussed.
It follows that the plaintiff has not demonstrated that, in making the decision, on 25 October 2022, to maintain its proposed determination to revoke the plaintiff’s approval as a self-insurer, the defendant acted in a manner that was irrational and/or legally unreasonable as pleaded in the grounds relied on in the originating motion.
It follows that the proceeding must be dismissed.
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