Workers Compensation Nominal Insurer v Brasnovic
[2013] NSWDC 131
•31 July 2013
District Court
New South Wales
Medium Neutral Citation: Workers Compensation Nominal Insurer v Brasnovic [2013] NSWDC 131 Hearing dates: 20, 21, 22 and 25 February 2013 Decision date: 31 July 2013 Jurisdiction: Civil Before: P Taylor SC DCJ Decision: 1. Judgment in favour of the defendant.
2. Plaintiff to pay the defendant's costs.
Catchwords: WORKERS COMPENSATION - workers compensation insurance - uninsured company - culpable director - employee or contractor - knowledge - all due diligence - judicial comity Legislation Cited: Civil Liability Act 2002, s 45
Corporations Act 2001 (Cth)
Firearms Regulations, 1980-1981 (SA), reg 12(2)
Occupational Health and Safety Act 1983, s 50
Trade Practices Act 1974 (Cth), s 75B, s 85
Workers Compensation Act 1987, s 145, s145A, s 155Cases Cited: Adams v ETA Foods Ltd (1987) 78 ALR 611
Australia Air Express Pty Ltd v Langford [2005] NSWCA 96
Baden Delvaux & Lecuit v Societe Generale pour Favoriser le Development du Commerce [1992] 4 All ER 161
Baker-Morrison v State of New South Wales [2009] NSWCA 35
Bloomfield v Williams [1970] Crim LR 292
Bole v Horton (1673) Vaugh 360; 124 ER 1113
Conray v Scotts Refrigerated Freightways Pty Ltd [2008] NSWCA 60
Consul Development Pty Ltd v DPC Estates Pty Ltd [1975] HCA 8; (1975) 132 CLR 373
Dial-An-Angel Pty Ltd v Sagitaur Services Systems (1990) 96 ALR 181
Director-General of National Parks and Wildlife v Schultz (Land and Environment Court of New South Wales, Bignold J, 24 October 1996, unreported)
Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22
Grimaldi v Chameleon Mining NL (No 2); Chameleon Mining NL v Murchison Metals Ltd (2012) 200 FCR 296; (2012) 287 ALR 22; (2012) 87 ACSR 260; [2012] FCAFC 6
Hollis v Vabu Pty Ltd (2001) 207 CLR 21
Holmes v Arato (1983) 32 SASR 106
Keramaniakis v Wagstaff [2005] NSWDC 14
North Sydney Council v Roman [2007] NSWCA 27
On Call Interpreters & Translators Agency Pty Ltd v Commissioner of Taxation (No 3) [2011] FCA 366
Riverstone Meat Co. Pty. Ltd. v. Lancashire Shipping Co. Ltd. [1960] 1 QB 536
Royal Brunei Airlines Sdn Bhd v Tan Kok Ming [1995] 2 AC 378; [1995] 3 All ER 97
State Pollution Control Commission v R V Kelly (1991) 5 ACSR 607
Tara Electrical Services Pty Ltd v WorkCover Authority of New South Wales (Workers Compensation Commission, Faye Robinson, 23 January 2012, unreported)
Westpac Banking Corporation v Bell Group Ltd (in liq) (No 3) (2012) 270 FLR 1; (2012) 89 ACSR 1; [2012] WASCA 157
WorkCover Authority of New South Wales v Edwin Tucker and George McDonald [2012] NSWDC 226
WorkCover Authority of NSW (Insp Dowling) v Barry John Coster [1997] NSWIRComm 154
Yorke v Lucas (1985) 61 ALR 307Texts Cited: W Gummow AC, "Knowing Assistance" (2013) 87 Australian Law Journal 311
Macquarie Dictionary
Oxford English DictionaryCategory: Principal judgment Parties: Workers Compensation Nominal Insurer ABN 83 564 379 108 (plaintiff)
Zlatko Brasnovic (defendant)Representation: Mr A Combe (plaintiff)
Mr R M Sweet (defendant)
Sally Nash and Co (plaintiff)
Stojanovic Solicitors (defendant)
File Number(s): 2012/205981 Publication restriction: No
Judgment
Introduction
Zlatko Brasnovic is the sole director of Tara Electrical Services Pty Limited ("Tara Electrical"). Mr Brasnovic worked with Milorad Samardzic. Mr Samardzic was injured in 2007. At the time Tara Electrical had no workers compensation insurance. Mr Samardzic sought and obtained workers compensation benefits paid by the plaintiff, Workers Compensation Nominal Insurer ("the Nominal Insurer").
In separate proceedings, the Nominal Insurer obtained orders that Tara Electrical reimburse the benefits paid by the Nominal Insurer to Mr Samardzic. The Nominal Insurer now seeks to recover those amounts from Mr Brasnovic. Mr Brasnovic says he is not liable to reimburse those payments because he exercised all due diligence, and the contravention of the obligation on Tara Electrical to obtain workers compensation insurance was without his knowledge. I reject the first argument but I accept the second.
Background
Mr Brasnovic is a qualified electrician. He migrated to Australia from Serbia in 1989, and obtained an electrician's licence.
Initially, Mr Brasnovic obtained work as an employee electrician, but in about 2001 he understood he was retained as a subcontractor. He was paid an hourly rate but largely used his own tools, received no holiday or sick pay or superannuation, paid his own tax and obtained an Australian Business Number ("ABN") in his own name. By about 2003, Mr Brasnovic was working in this way for a company owned by a man known as Mark Paul or Powell.
In 2004 Mr Brasnovic, on the advice of Mr Paul, commenced to operate through a company known as Tara Electrical. Mr Brasnovic was the sole director and shareholder of Tara Electrical.
After the incorporation of Tara Electrical the day-to-day activities of Mr Brasnovic continued largely unchanged. He collected materials each morning from Mr Paul required for the jobs he was assigned, and Tara Electrical rendered invoices to Mr Paul's company, MS Paul Electrical Pty Limited, including for any additional materials that were purchased for the job. Approximately 98 per cent of the work done by Tara Electrical was for MS Paul Electrical Pty Limited.
During 2004 Mr Paul suggested that Mr Brasnovic needed another person to assist. Late in 2004 Mr Brasnovic met Mr Samardzic. According to Mr Brasnovic a conversation to the following effect occurred:
"I said:
'From time to time I need someone to help me. As soon as I need you I will call you. I can take you on as a contractor. I do not pay holiday pay, sick pay or superannuation payments. Because you are not being taken on as an employee, you will not get any long service leave either.'
Milorad said:
'I want to do some electrical work. Do you have a position?'
I said:
'Do you have your own ABN? I cannot take you on unless you have your own ABN. I do not employ people. You will need your one [sic] ABN so you can take your own tax out.'
Milorad said:
'I do not have an ABN, but it is no problem. I'll get one.'"
Mr Samardzic disputes that Mr Brasnovic made reference to him being a contractor, or the absence of holiday pay, sick pay, superannuation or long service leave. In an earlier affidavit Mr Brasnovic gave an abridged version of this conversation, which made no reference to holiday pay, sick leave, superannuation or long service leave.
Mr Samardzic worked for Tara Electrical from December 2004 until January 2007. Mr Brasnovic gave evidence that he regarded Mr Samardzic as a subcontractor. Mr Samardzic rendered tax invoices to Tara Electrical and was paid by cheque. He had his own ABN, was not employed on a full-time basis, and did not get paid sick pay, holiday pay or superannuation. He provided his own work clothing. No tax was deducted from payments made by Tara Electrical and Tara Electrical obtained no workers compensation insurance. Tara Electrical claimed credit for Goods and Services Tax ("GST") paid to Mr Samardzic and other contractors.
These matters provide some support Mr Brasnovic's account of the conversation with Mr Samardzic set out above. So also do Mr Brasnovic's past practices in working for Mr Paul. In general I accept Mr Brasnovic's account of the conversation with Mr Samardzic, although I am not persuaded that Mr Brasnovic mentioned the absence of all of the employee entitlements quoted above.
Other circumstances point against Mr Samardzic being an independent contractor. Tara Electrical provided tools to Mr Samardzic, who would usually travel with Mr Brasnovic to work. Mr Brasnovic directed Mr Samardzic about the work to be performed. Mr Samardzic regarded himself as an employee.
Mr Samardzic's invoices to Tara Electrical were numbered consecutively with no break in numbering. Mr Brasnovic told Mr Samardzic when to send invoices and what to write on them. Mr Brasnovic assisted Mr Samardzic to write the invoices.
Mr Brasnovic and Tara Electrical had an accountant named Thomas Zhou. Mr Zhou prepared the tax returns and Business Activity Statements ("BAS") for Tara Electrical. Mr Zhou did not advise Mr Brasnovic of the need for Tara Electrical to have workers compensation insurance.
On 20 January 2007 Mr Samardzic was injured whilst working. Tara Electrical denied liability although Mr Brasnovic paid for some of Mr Samardzic's medical expenses. Mr Samardzic received workers compensation after he made a demand on the WorkCover Authority of New South Wales ("WorkCover").
On 19 March 2007 Mr Brasnovic obtained a workers compensation insurance policy.
As at 4 April 2011 the Nominal Insurer had paid Mr Samardzic $172,491.06 in compensation benefits. On 8 March 2011 WorkCover served a statutory notice requiring Tara Electrical to reimburse that amount. The matter was disputed and the Workers Compensation Commission ("Commission") determined that Mr Samardzic was a "worker", or alternatively a "deemed worker" under the Workers Compensation Act 1987 ("the Act") and that Tara Electrical was liable to reimburse WorkCover (Tara Electrical Services Pty Ltd v WorkCover Authority of New South Wales (Workers Compensation Commission, Faye Robinson, 23 January 2012, unreported)).
The statutory provisions
The Nominal Insurer seeks to recover that same amount of $172,491.06 from Mr Brasnovic pursuant to s 145A of the Act.
The relevant provisions of the Act are as follows:
"145 Employer or insurer to reimburse Insurance Fund
(1) The Nominal Insurer may serve on a person who, in the opinion of the Nominal Insurer, was:
(a) in respect of an injured worker to or in respect of whom a payment has been made by the Nominal Insurer in respect of a claim under this Division, an employer at the relevant time, or
(b) an insurer under this Act of such an employer,
a notice requiring that person, within a period specified in the notice, to reimburse the Insurance Fund an amount (not being an amount exceeding the amount of the payment made) specified in the notice.
(2) The Nominal Insurer may, by instrument in writing, waive the liability of an employer under subsection (1) to reimburse the Insurance Fund an amount, if the Nominal Insurer, in respect of the amount, is satisfied that:
(a) the amount is beyond the capacity of the employer to pay,
(b) the employer could not reasonably have been expected to regard himself or herself as an employer at the relevant time,
(c) the employer, not being a corporation, is bankrupt and the liability under this section is not provable in the bankruptcy,
(d) the employer, being a corporation, is being wound up and the liability under this section is not provable in the winding up,
(e) the employer, being a corporation, has been dissolved, or
(f) it would not be commercially feasible for the Nominal Insurer to attempt to recover the amount.
(3) A person on whom a notice has been served under subsection (1) in respect of an injured worker may, within the period specified in the notice, apply to the Commission for a determination as to the person's liability in respect of the payment concerned.
(4) The Commission may hear any such application and may:
(a) make such determination in relation to the application, and
(b) make such awards or orders as to the payment of compensation under this Act to or in respect of the injured worker concerned,
as the Commission thinks fit.
(4A) The Commission is not authorised to make a determination that waives the liability of an employer under subsection (1) to reimburse the Insurance Fund or that limits or otherwise affects any function of the Nominal Insurer to decide whether or not any such liability should be waived.
(5) In any proceedings under subsection (4), a certificate executed by the Nominal Insurer and certifying that:
(a) the payments specified in the certificate were paid to or in respect of an injured worker named in the certificate, and
(b) a person named in the certificate was, in the opinion of the Nominal Insurer, liable at the relevant time to pay to or in respect of the injured worker compensation under this Act or work injury damages,
is (without proof of its execution by the Nominal Insurer) admissible in evidence in any proceedings and is evidence of the matters stated in the certificate.
(6) The Nominal Insurer may recover an amount specified in a notice served under subsection (1) (being a notice in respect of which an application has not been made under subsection (3)) from the person to whom the notice was given as a debt in a court of competent jurisdiction.
(7) An order by the Commission that the Nominal Insurer is to be reimbursed by a person named in the determination concerned may be enforced under section 362 of the 1998 Act."
"145A Recovery from directors of corporations liable to reimburse Insurance Fund
(1) If a corporation is liable to reimburse the Insurance Fund an amount for a payment made in respect of a claim under this Division and the amount is not recoverable from the corporation, the Nominal Insurer is entitled to recover the amount from a person who was a culpable director of the corporation at the relevant time.
(2) A corporation is considered to be liable to reimburse the Nominal Insurer an amount for such a payment if the Nominal Insurer is entitled to recover the amount either under section 145 or under an order of the Commission made on application under that section, even if the corporation has ceased to exist.
(3) An amount is considered to be not recoverable from a corporation if the Nominal Insurer certifies that it will be unable or unlikely to recover the amount from the corporation by reasonable efforts at recovery, whether because the corporation is being wound up and is unable to pay its debts, or otherwise.
(4) A person is a culpable director of a corporation at the relevant time if:
(a) the corporation contravened section 155 (Compulsory insurance for employers) in respect of a policy of insurance that would have covered the corporation for the liability to which the payment made in respect of the claim under this Division related (whether or not the corporation has been proceeded against or convicted of an offence for the contravention), and
(b) at the time of the contravention the person was a director of the corporation.
(5) A person is not a culpable director of a corporation if the person establishes that:
(a) the corporation contravened section 155 without the person's knowledge, or
(b) the person was not in a position to influence the conduct of the corporation in relation to that contravention, or
(c) the person, being in such a position, used all due diligence to prevent the contravention by the corporation.
(6) If there is a right of recovery against more than one director of a corporation in respect of the same amount, the right is a right against all those directors jointly and severally.
(7) A director from whom an amount is recovered under this section is entitled to recover the amount from the corporation."
"155 Compulsory insurance for employers
(1) An employer (other than a self-insurer) shall obtain from a licensed insurer, and maintain in force, a policy of insurance that complies with this Division for the full amount of the employer's liability under this Act in respect of all workers employed by the employer and for an unlimited amount in respect of the employer's liability independently of this Act (but not including a liability for compensation in the nature of workers compensation arising under any Act or other law of another State, a Territory or the Commonwealth or a liability arising under the law of another country) for any injury to any such worker.
Maximum penalty: 500 penalty units or imprisonment for 6 months, or both.
(1AA) An employer must not at any one time maintain in force more than one policy of insurance for the purposes of subsection (1) (ignoring any policy of insurance effected by the employer for the purposes of compliance with section 31 of the Coal Industry Act 2001).
Maximum penalty: 500 penalty units.
(1A) In subsection (1), injury includes a dust disease as defined in the Workers' Compensation (Dust Diseases) Act 1942 and the aggravation, acceleration, exacerbation or deterioration of a dust disease as so defined.
(1B) A policy of insurance (whether issued before, on or after the commencement of this subsection) does not, subject to the regulations, insure an employer's liability for GST payable on the settlement of a claim and the employer's uninsured liability for GST in these circumstances is not a liability to which subsection (1) applies.
A regulation made for the purposes of this subsection may apply to a policy of insurance whether issued before, on or after the commencement of this subsection, as the regulation may provide.
In this subsection, employer, in relation to a worker, includes a principal within the meaning of section 20 who is liable to pay compensation to the worker.
Note. An employer may incur liability for GST on the settlement of a claim if the employer has failed to notify the insurer of the employer's entitlement to an input tax credit for a premium paid by the employer for the policy of insurance issued by the insurer.
(2) Where several persons may become liable in respect of an injury to the same worker:
(a) it shall be sufficient to obtain a joint policy of insurance in respect of that liability, and
(b) the premium chargeable in respect of the policy shall not exceed the current rates for insurance of an employer's liability in respect of workers engaged in the same industry, trade or business.
(3) In any proceedings for an offence against subsection (1), proof:
(a) that an employer, not being a self-insurer, who has been served pursuant to section 161 (1) with a notice requiring the employer to produce for inspection (or to supply particulars, specified in the notice, of) a policy of insurance obtained by the employer and in force at a specified date or between specified dates has not so produced (or so supplied specified particulars of) any such policy so in force, and
(b) that the time for compliance with the notice has expired,
shall be sufficient evidence, unless the contrary is proved, that at that date or between those dates the employer had failed to comply with subsection (1).
(3A) It is a defence to a prosecution for an offence under this section concerning an employer's liability in respect of a worker if the court is satisfied that at the time of the alleged offence:
(a) the employer believed on reasonable grounds that the employer could not be liable under this Act in respect of the worker because under section 9AA the worker's employment was not connected with this State, and
(b) the employer had workers compensation cover in respect of the worker's employment under the law of the State or Territory with which the employer believed on reasonable grounds the worker's employment was connected under section 9AA.
(3B) In subsection (3A), workers compensation cover means insurance or registration required under the law of a State or Territory in respect of liability for statutory workers compensation under that law.
(4) The Authority may undertake not to prosecute a person for an offence under this section in respect of a failure by the person to obtain or maintain in force a policy of insurance on condition that the person pays to the Authority the amount that the Authority is entitled to recover under section 156 in respect of the failure or such lesser amount as the Authority may determine to accept. If the person pays the amount in compliance with any terms and conditions of the undertaking, the person is not liable to be proceeded against or convicted for an offence under this section in respect of the failure concerned.
(5) The regulations may make provision for or with respect to an amnesty for contraventions of this section, such that a person who satisfies the conditions of the amnesty is not liable to be prosecuted for an offence under this section in respect of such a contravention and is not liable to recovery under section 156 in respect of such a contravention."
The issues
Section 145(1)(a) entitled the Nominal Insurer, by notice, to require Tara Electrical as an employer of Mr Samardzic to reimburse the Insurance Fund the amount paid to Mr Samardzic.
Although Tara Electrical disputed that Mr Samardzic was an employee, it accepted, as it must, the decision of the Commission that it was required to have workers compensation insurance for Mr Samardzic under s 155 of the Act. Mr Brasnovic also accepts that liability of Tara Electrical for the purposes of these proceedings. It is common ground that Tara Electrical contravened s 155. It is also common ground that Mr Brasnovic is a culpable director unless he can establish a defence under s 145A of the Act. In these proceedings Mr Brasnovic relied on two paragraphs of s 145A, namely paragraphs 5(a) and 5(c).
Therefore, the issues in the proceedings are:
1. whether Tara Electrical contravened s 155 of the Workers Compensation Act 1987 without Mr Brasnovic's knowledge (s 145A(5)(a)); and
2. whether Mr Brasnovic used all due diligence to prevent the contravention by the corporation (s 145A(5)(c)).
Other issues were pleaded in the defence but they were not pressed at trial.
Both of these defences are concerned with "the contravention by the corporation". The contravention is of s 155 of the Act. Section 155 required Tara Electrical to have a policy of insurance "in respect of all workers employed".
Further, s 145A(4) requires that the contravention be "in respect of a policy of insurance that would have covered [Tara Electrical] for the liability" to Mr Samardzic. Thus, the relevant contravention of Tara Electrical is not the failure to have workers compensation insurance at the time of Mr Samardzic's injury, but the failure to have workers compensation insurance (at that time) that extended to Mr Samardzic.
I turn to the issues in dispute.
All due diligence
Section 145A(5)(c) provides a defence for Mr Brasnovic if he used "all due diligence to prevent the contravention".
In Dial-An-Angel Pty Ltd v Sagitaur Services Systems (1990) 96 ALR 181, Wilcox J (at p 195) said:
"I am not aware of any authority on the meaning of the words 'with due diligence'. I think that the words must be given their ordinary English meaning."
In Riverstone Meat Co. Pty. Ltd. v. Lancashire Shipping Co. Ltd. [1960] 1 QB 536, Willmer LJ (with whom Morris and Ormerod LJJ agreed) stated (at p 581):
"An obligation to exercise due diligence is to my mind indistinguishable from an obligation to exercise reasonable care - a concept not unfamiliar in English law".
Similarly, in Conray v Scotts Refrigerated Freightways Pty Ltd [2008] NSWCA 60, the Court of Appeal dealt with a case concerning an extension of time pursuant to the Limitation Act 1969 where McColl JA considered the meaning of diligence (at [95]).
In that case the appellant sought leave to appeal from the decision of Naughton DCJ who had refused to extend time to join the respondent.
McColI JA stated (at [95]):
"Subsequently, in Blackburn v Allianz Australia Insurance Ltd [2004] NSWCA 385; (2004) 61 NSWLR 632 (at [14]), another s 52(4) case, Sheller JA (Mason P and Hodgson JA agreeing) held that in speaking of 'forensic diligence' and the diligence or lack of diligence shown by a plaintiff or a plaintiff's representatives in ascertaining or asserting the plaintiff's rights in Salido, Gleeson CJ was 'speaking of diligence in the sense given to that word in the Macquarie Dictionary namely, 'constant and earnest effort to accomplish what is undertaken', accompanied by the exercise of reasonable care'."
In State Pollution Control Commission v R V Kelly (1991) 5 ACSR 607, a
corporation was found to have contravened the Environmental Offences and Penalties Act 1989. Section 10(1) of that Act provided as follows:
"If a corporation contravenes, whether by act or omission, any provision of this Act, each person who is a director of the corporation or who is concerned in the management of the corporation is taken to have contravened the same provision unless the person satisfies the court that:
(a) the corporation contravened the provision without the knowledge actual, imputed or constructive of the person; or
(b) the person was not in a position to influence the conduct of the corporation in relation to its contravention of the provision; or
(c) the person, if in such a position, used all due diligence to prevent contravention by the corporation."
In State Pollution Control Commission, Mr Kelly, the director of the corporation, argued that he "used all due diligence to prevent the contravention by the corporation".
Hemmings J determined (at pp 608-609):
"A defendant has the onus to prove not only diligence, but all due diligence. This requires that everything properly regarded as due diligence should be done. However, in a similar context requiring the taking of 'all reasonable precautions', a standard of perfection was rejected: Homes v Arato (1983) 32 SASR 106. I respectfully agree and am of the opinion that in s 10, while 'all' must have its proper connotation, similar stress must be given to 'due'.
Due diligence, of course, depends upon the circumstances of the case, but contemplates a mind concentrated on the likely risks. The requirements are not satisfied by precautions merely as a general matter in the business of the corporation, unless also designed to 'prevent the contravention'.
Whether a defendant took the precautions that ought to have been taken must always be a question of fact and, in my opinion, must be decided objectively according to the standard of a reasonable man in the circumstances. It would be no answer for such person to say that he did his best given his particular abilities, resources and circumstances. This particularly applies to activities requiring experience and acquired skill for proper execution."
In Holmes v Arato (1983) 32 SASR 106, Zelling J dealt with a case involving alleged contravention of regulation 12(2) of the Firearms Regulations, 1980-1981 (SA), which provided:
"Any person who has a firearm in his possession shall take all reasonable precautions to ensure the safe-keeping of the said firearm."
Mr Arato, a member of a pistol club, used a revolver for target shooting at a range. On completion he placed the revolver and holster in a calico bag, put it under the seat of his motor vehicle and placed rags on top of the bag to give the impression that there was only a bundle of rags under the seat. He drove home and parked and locked his vehicle outside his house. During the night the motor vehicle was forced open and the revolver stolen.
Mr Arato was charged with contravention of regulation 12(2) of the Firearms Regulations, 1980-1981 (SA) but acquitted. On appeal the Crown submitted that Mr Arato should have placed the firearm in a locked receptacle.
Zelling J stated (at p 109):
"In my opinion, this argument is a counsel of perfection. It is important that the word 'all' be given its proper connotation but then a similar stress should be placed on the word 'reasonable'. The holder of a firearm is not an insurer against people who break into his car and find a carefully hidden firearm, and whilst it is true...that a car is a less secure receptacle than premises such as those wherein the respondent resided, nevertheless people who use firearms for sport do frequently take them in cars to various places and it is obvious that whilst they are in cars the degree of security used can only be that appropriate to the circumstances in which the firearm is being housed."
In Adams v ETA Foods Ltd (1987) 78 ALR 611, the defendant was prosecuted under the Trade Practices Act 1974 (Cth) for falsely representing that its pies were beef pies. Unknown to the defendant, its supplier of meat, in breach of contract supplied mince containing sheep mince.
At the time of the prosecution, section 85(1) of the Trade Practices Act 1974 (Cth) relevantly provided:
"In a prosecution under this part in relation to a contravention of a provision of part V it is a defence if the defendant establishes [that the contravention in respect of which the proceeding was instituted was due to]:
(a) ... reasonable mistake;
(b) ... reasonable reliance on information supplied by another person; or
(c)(i) ... the act or default of another person, to an accident or
to some other cause beyond the defendant's control; and
(ii) the defendant took reasonable precautions and
exercised due diligence to avoid the contravention."
Gummow J concluded (at pp 627-628):
"Although Eta checked the meat for freshness, fat, gristle and moisture levels, it did not test for meat species, but that was a reasonable omission on its part. In the event, Eta used beef mince with not insignificant amounts of sheep meat in the production of what it marketed as its beef pies.
In these and the other circumstances I have outlined, I find that the contraventions were due to reasonable mistake and that the defence under s 85(1)(a) has been established.
...
That brings me to para (c)(ii). Even if it could satisfy para (c)(i), Eta also would have to show it took reasonable precautions and exercised due diligence, not as a general matter in its business, but 'to avoid the contravention'. The precautions and diligence must be directed at a result, the avoidance of a state of affairs. The defendant need not have in specific prospect the terms of the TP Act, but a party in the position of Eta could not be said to have taken precautions and exercised due diligence to avoid the perils of species substitution in raw mince supplied to it to fill orders for minced beef when it had no cognisance of any such peril. It had procedures to deal with fat and gristle content and excessive moisture levels. But, one cannot, in my view reason from that to decide that Eta took reasonable precautions and exercised due diligence to avoid the contraventions.
I conclude that Eta has not made out the defence under para (c)."
In WorkCover Authority of NSW (Insp Dowling) v Barry John Coster [1997] NSWIRComm 154 (21 November 1997), Mr Coster, a director of Ypes Pty Limited, was alleged to have breached s 50(1) of the Occupational Health and Safety Act 1983. At that time, s 50(1) contained a defence that the defendant "used all due diligence to prevent the contravention by the corporation".
Although the Court did not find a contravention, Maidment J concluded that:
"Additionally, I am of the view that Mr Coster has demonstrated that he used all due diligence to prevent any such contravention by the company. He was at the peak of a hierarchical system which was responsible to ensure the safety of the project and, as such, had to rely upon the activities of others. The evidence discloses that he quickly responded to concerns of Mr Barry and was an active and receptive participant in the affairs of the site safety committee. He had full time safety personnel of whom he required vigilance. He took it upon himself to inspect the fencing from time to time to ensure its adequacy."
The decision in State Pollution Control Commission is perhaps the most analogous to the particular circumstances of Mr Brasnovic. That decision establishes that it is not enough to do one's best according to one's own knowledge. Mr Brasnovic needed to take the steps that would be taken by a reasonable man in the circumstances.
Mr Brasnovic submits that he used all due diligence to prevent the contravention because he "took a number of steps to ensure...that Mr Samardzic was retained as an independent contractor", namely ensuring that Mr Samardzic:
(a) had his own ABN;
(b) would be responsible for his own tax;
(c) would submit invoices for work done, detailing the hours and adding GST;
(d) would make his own arrangements for superannuation;
(e) would not be entitled to sick pay, holiday pay or long service leave; and
(f) could take time off work according to timing of his own choosing.
Further, I accept that Mr Brasnovic adopted in respect of Mr Samardzic the same arrangements that governed his own work for Mr Paul.
Mr Brasnovic also relies upon a file note dated some years before Mr Samardzic's injury. It records some advice received by Mr Brasnovic from Branka Maricic, a qualified accountant. The note contains the entry "WC/NA". I accept that the proper inference I should draw, and which Ms Maricic accepted, is that the entry means "workers compensation insurance not applicable".
However, no witness was able to recall the terms of the conversation that led to the entry. Devoid of context, the words are not probative. They might indicate a concern by Mr Brasnovic, but that does not establish whether Mr Brasnovic exercised "all due diligence". Even if Ms Maricic stated these words, they may, for example, have been a response to Mr Brasnovic's instruction that he had no employees. In that event, the words would not be relevant advice about Mr Brasnovic's obligations to secure workers compensation insurance.
Mr Brasnovic also relied upon the advice of Mr Zhou, another qualified accountant. But again, Mr Zhou's advice to Mr Brasnovic (to the extent any advice was given) is not recounted in evidence by either Mr Zhou or Mr Brasnovic. Mr Zhou gave evidence as follows:
"On the basis of the instructions provided to me by Zlatko Brasnovic, that the Company had no employees but only engaged subcontractors, I accepted his instructions. The question of workers compensation insurance did not arise".
"I also did not raise the issue of workers compensation insurance with Zlatko Brasnovic, because the Company was incorporated before I started to act for the Company".
In cross-examination Mr Zhou confirmed that he was not asked by Mr Brasnovic and did not provide to Mr Brasnovic advice about whether Tara Electrical should obtain workers compensation insurance. Mr Brasnovic did not dispute this and gave the following evidence:
"109. No advice was ever received by me from that accountant that it was necessary for Tara Electrical Services Pty Limited to have workers compensation insurance cover for Milorad Samardzic.
110. In my capacity as a director of Tara Electrical Services Pty Limited, I relied on the advice of that accountant to advise me as to all matters necessary to have the affairs of Tara Electrical Services Pty Limited comply with its obligations.
111. Tara Electrical Services Pty Limited regularly paid a fee, charged by that accountant, for work that he did for Tara Electrical Enterprises Pty Limited and advice that he provided.
112. At no time did that accountant give me advice that it was necessary for Tara Electrical Services Pty Limited to have workers compensation insurance cover for either myself or Milorad Samardzic".
The mere contact with an accountant of itself is not probative of whether Mr Brasnovic exercised all due diligence. Mr Brasnovic's contact with Mr Zhou indicates that Mr Brasnovic may have said that he had no employees but only retained subcontractors. There is expressly no advice from Mr Zhou. Even if there were, it would not assist Mr Brasnovic since he has effectively asked Mr Zhou to assume that only subcontractors are retained. The evidence may indicate that Mr Brasnovic believed that he had taken sufficient steps to render Mr Samardzic outside the ambit of the workers compensation insurance, but it says nothing of the reasonableness of that view.
The Nominal Insurer submits that a reasonable man in Mr Brasnovic's position would ask Mr Zhou about his obligations and would make enquiries of a solicitor, the WorkCover Authority or an insurer as to whether Tara Electrical would require workers compensation insurance.
Mr Brasnovic submits there is no evidence that WorkCover would have informed him of the meaning of "deemed worker". I do not think this is material. A reasonable person would, in my opinion, regard WorkCover as an appropriate organization to consult about workers compensation insurance obligations. Whether a WorkCover enquiry would have informed Mr Brasnovic about his need for insurance is a separate question from whether Mr Brasnovic should have made the enquiry as part of exercising "all due diligence".
In the present case there is no evidence that Mr Brasnovic consulted anyone (be they an accountant, a solicitor, WorkCover or anyone else) and explained the circumstances of Mr Samardzic's retainer, the details of Mr Samardzic's position, and asked whether workers compensation insurance would be required. Had Mr Brasnovic done so the response might have been equivocal. WorkCover, the solicitor or accountant, if asked, might have indicated that the position is not clear, and that the distinction between employees or deemed employees on the one hand, and independent contractors on the other, is not a bright line. Sometimes the location of the line is only resolved by a High Court decision (see eg Hollis v Vabu Pty Ltd (2001) 207 CLR 21). But had Mr Brasnovic been informed that the position with Mr Samardzic was uncertain, and if Mr Brasnovic nevertheless failed to obtain workers compensation insurance covering him, it is difficult to see how Mr Brasnovic could be said to have used all due diligence to prevent the contravention. The position is even less arguable if Mr Brasnovic had been informed of the need for insurance.
Mr Brasnovic submitted that he sought professional advice from both Ms Maricic and Mr Zhou. Speaking generally that may be so. But as I have found, the evidence of the content of that advice is unsatisfactory and unhelpful to Mr Brasnovic in relation to his defence under s 145A(5)(c). At the very least, Mr Brasnovic would need to ask questions of his accountant that called for advice about workers compensation. There is no evidence that Mr Brasnovic sought any advice about that subject, even in general terms.
Nor is it significant that "had the Defendant known that it was necessary to take out a policy covering Mr Samardzic, he would have done so" or that he "took his role seriously", as the defendant submits. The test of "all due diligence" requires Mr Brasnovic not merely to act reasonably with the knowledge that he has, but to exercise all reasonable diligence in informing himself about what actions are required.
Ultimately, the resolution of this issue depends upon whether the steps Mr Brasnovic took to ensure Mr Samardzic was an independent contractor were sufficient to satisfy the "all due diligence" requirement. I do not doubt that Mr Brasnovic did all he could to ensure Mr Samardzic was not an employee or deemed employee under the Workers Compensation Act 1987. That may be the same thing as doing all he could to ensure workers compensation insurance was not payable by Tara Electrical for Mr Samardzic. But Mr Brasnovic was obliged to use all due diligence not merely to avoid an insurance liability. He was also required to make all reasonable enquiries as to whether the steps he had taken were effective, and if not, to obtain insurance.
In my view, in order to exercise all due diligence in avoiding a contravention, Mr Brasnovic needed to seek professional advice about his insurance obligations, he needed to recount the details of his own and Mr Samardzic's work arrangements, and he needed to follow the advice received, acting cautiously if the advice was equivocal. As Gummow J stated in Adams at p 627 "The precautions and diligence must be directed at a result, the avoidance of a state of affairs". In this case, the state of affairs to be avoided was to be without insurance when insurance was required. Mr Brasnovic never requested advice about whether insurance was required. Mr Brasnovic could not rely upon his own ignorance of the legal requirements for insurance if he had taken no steps to become informed.
In my view, Mr Brasnovic has not "used all due diligence" to avoid the relevant contravention and the defence under s 145(5)(c) must fail.
Contravention without knowledge
Mr Brasnovic also alleges that Tara Electrical contravened s 155 "without his knowledge".
There is no dispute that this issue requires an assessment of Mr Brasnovic's knowledge as at 20 January 2007 when Mr Samardzic was injured. It is also not disputed that the relevant knowledge is whether workers compensation insurance was required for Mr Samardzic, since the contravention is "in respect of a policy of insurance that would have covered the corporation for the liability" related to Mr Samardzic (see 145A(4)(a)).
This issue raises the meaning of the phrase "without knowledge", and in particular whether Mr Brasnovic can be said to be "without knowledge" of the contravention if he ought to have known of the contravention or in some other respect had "constructive knowledge" of the contravention.
The Nominal Insurer urged me to adopt the construction of my judicial brother, Judge Letherbarrow SC, in WorkCover Authority of New South Wales v Edwin Tucker and George McDonald [2012] NSWDC 226.
In that decision, Letherbarrow DCJ considered such matters as the absence of the word "actual" in the provision (see [82] in Tucker), that the Court should not imply words into legislation without necessity (see [83]), the mischief the provision was intended to remedy (see [84]), the reversal of the onus of proof (see [88]), the need for paragraph (a) to have utility (see [89] and [103]), the use of the word "culpable" in describing a director (see [87]), the use of the equitable concept of constructive knowledge in construing legislation (see [90]), the reference in the second reading speech to "awareness" where a similar provision, s 156B, was spoken of, (see [91]-[93] and [106]), the legislative history of the Act (see [94]), the penal nature of s 145A (see [94]-[96], [100] and [101]) and the use of the term "actual knowledge" in North Sydney Council v Roman [2007] NSWCA 27, especially at [53] (see [99] and [109]).
The absence of the word "actual" (at [112]), the object of the legislation ([113]-[114] and [118]) and the extrinsic material (at [115]), notwithstanding the penal nature of the provisions (at [116]), led Letherbarrow DCJ to conclude as follows ([120]-[121]):
"[120] Accordingly, I find that the word 'knowledge' as it appears in s 145A(5) and s 156B(4) of the Act is not limited to actual knowledge and includes, at least, knowledge of the type referred to in the first four categories described in Baden v Societe Generale (above), the fourth category of which I have already found that both defendants in this matter actually possessed. If follows that neither has discharged their onus under the sections and both are therefore liable for the agreed amounts claimed.
[121] I express no concluded view as to whether knowledge of the type which would be gained by the exercise of reasonable care and/or is within the fifth category described in Baden, also falls within the sections mentioned, not because it is to be excluded as a matter of construction but because it may be a form of knowledge not recognised under Australian law. Indeed, if it is so recognised, it would be my view that it too would fall within the sections discussed." [Underlining in original].
His Honour appeared to conclude that the first four categories of knowledge are "recognised under Australian law" (see [121]), although his Honour did not attempt "to determine all the categories of knowledge, especially constructive knowledge, that are recognised in Australian law" (see [73]). His Honour's conclusion seems to be based on an acceptance that Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22 at [175]-[178] determined the categories of knowledge recognised under Australian law (see Tucker at [72]). His Honour recognised that Farah dealt with different circumstances, but concluded that it nevertheless provided guidance.
In these circumstances, the correctness of this approach in Tucker depends upon the applicability of the decision in Farah.
In what is conventionally referred to as the second limb of Barnes v Addy, a defendant is liable if the defendant assists a trustee or fiduciary with knowledge of a dishonest and fraudulent design on the part of the trustee or fiduciary (see Farah at [111], [160]).
In Farah at [162] (see also [164]-[165]), the High Court recognised that the second limb may have been superseded by "accessory liability" espoused by the Privy Council in Royal Brunei Airlines Sdn Bhd v Tan Kok Ming [1995] 2 AC 378 at p 392, where the test of the assistant or participant was one of "dishonesty" rather than "knowledge"; the Privy Council stating, "'[k]nowingly' is better avoided as a defining ingredient of the principle". Notwithstanding this recognition, the High Court (at [163]) directed Australian courts to apply the second limb of Barnes v Addy given its acceptance in Consul Development Pty Ltd v DPC Estates Pty Ltd [1975] HCA 8; (1975) 132 CLR 373. Accordingly, "knowledge" remains a "defining ingredient", so far as this Court is concerned in respect of assisting in a dishonest and fraudulent design on the part of trustees.
The High Court in Farah recognised (at [174]) that it was:
"customary to analyse the requirement of knowledge in the second limb of Barnes v Addy by reference to the five categories agreed between counsel in Baden v Société Générale pour Favoriser le Dévelopment du Commerce et de l'Industrie en France SA"
namely (at [174]):
"(i) actual knowledge; (ii) wilfully shutting one's eyes to the obvious; (iii) wilfully and recklessly failing to make such inquiries as an honest and reasonable man would make; (iv) knowledge of circumstances which would indicate the facts to an honest and reasonable man; (v) knowledge of circumstances which would put an honest and reasonable man on inquiry."
Although the Privy Council in Royal Brunei doubted the utility of the categorisation, the High Court found that these categories "assist" on the question of "knowledge" for the second limb of Barnes v Addy (cf the Full Federal Court decision in Grimaldi v Chameleon Mining NL (No 2); Chameleon Mining NL v Murchison Metals Ltd (2012) 200 FCR 296; (2012) 287 ALR 22; (2012) 87 ACSR 260; [2012] FCAFC 6 at [259]-[260] and Westpac Banking Corporation v Bell Group Ltd (in liq) (No 3) (2012) 270 FLR 1; (2012) 89 ACSR 1; [2012] WASCA 157.
Importantly for present purposes, Peter Gibson J in Baden Delvaux & Lecuit v Societe Generale pour Favoriser le Development du Commerce [1992] 4 All ER 161 at p 232 [241] appeared to accept the submission that "Lord Selborne LC's statement of the principle should not be treated as though it were the words of a statute". The consequences of so doing explored in Royal Brunei [1995] 3 All ER 97 at p 103:
"Their Lordships venture to think that the reason is that ever since the Selangor case highlighted the potential uses of equitable remedies in connection with misapplied company funds, there has been a tendency to cite, interpret and apply Lord Selborne LC's formulation as though it were a statute. This has particularly been so with the accessory limb of Lord Selborne's apothegm. This approach has been inimical to analysis of the underlying concept. Working within this constraint, the courts have found themselves wrestling with the interpretation of the individual ingredients, especially 'knowingly' but also 'dishonest and fraudulent design on the part of the trustees', without examining the underlying reason why a third party who has received no trust property is being made liable at all."
A similar point was made by the Hon William Gummow AC in (2013) 87 ALJ 311 at 311.5.
I do not think it can be disputed that I should avoid treating Lord Selborne's statement as if it were the words of a statute. The same might be said of counsel's categorisation recorded by Peter Gibson J in Baden. But in this case I am asked to treat these judicial pronouncements on a particular area of equity as governing the words of this statute, the Workers Compensation Act 1987.
There is no basis to support this approach. In my view, it is an unwarranted extension of the doctrine in Farah, for it is clear that the High Court regarded the tests of knowledge it adopted in Farah as applicable only to assistance in a fraudulent beach of trust:
"the five categories found in Baden assist in an analysis of that for which Consul provides authoritative guidance on the question of knowledge for the second limb of Barnes v Addy" (at [175], emphasis added)
and "the categorisation was often helpful...for the purposes of a knowing assistance case" (at [174]).
The High Court recognised that Lord Selborne's statement was not exhaustive in respect of participants in a breach of trust (see Farah at [161]). This militates against applying it as the governing principle in an unrelated area involving the construction of s 145A(5)(a) of the Workers Compensation Act 1987.
In my view, the Farah decision is not concerned with the knowledge mentioned in s 145A and any other statutory reference to knowledge. The decision is altogether more limited in scope. It is concerned with the meaning of knowledge in the second limb of Barnes v Addy (see [171]), with the level of knowledge of dishonest conduct by a trustee or fiduciary that is sufficient to ground liability. It does not enter at all into the arena of statutory construction. The High Court recognised that the first limb might be limited to trustees (Farah at [113]) whereas the second limb extends to breaches of fiduciary duty (Farah at [179]). There is no suggestion in Farah, and no authority that I can find, that supports the extended meaning of knowledge in the second limb of Barnes v Addy as being the meaning of knowledge in all statutes or in the Workers Compensation Act 1987, or in s 145A thereof.
In this case I am concerned with the proper meaning of "knowledge" in the context of an absence of knowledge of a certain fact (namely, a particular contravention). It seems to me to be circuitous and unhelpful to assess this by means of "knowledge" of other facts.
It follows that I think the High Court decision in Farah has no application to the present case.
The Macquarie Dictionary lists the following definitions of knowledge:
"knowledge
...
noun 1. acquaintance with facts, truths, or principles, as from study or investigation; general erudition.
2. familiarity or conversance, as with a particular subject, branch of learning, etc.
3. acquaintance; familiarity gained by sight, experience, or report: a knowledge of human nature.
4. the fact or state of knowing; perception of fact or truth; clear and certain mental apprehension.
5. the state of being cognisant or aware, as of a fact or circumstance.
6. that which is known, or may be known.
7. the body of truths or facts accumulated by humankind in the course of time.
8. the sum of what is known.
9. cognisance of facts, or range of cognisance: this has happened twice within my knowledge.
10. Archaic sexual intercourse, now preserved in the legal term carnal knowledge.
-phrase 11. to one's knowledge,
a. according to one's certain knowledge.
b. (with a negative) so far as one knows: I've never seen her, to my knowledge.
[Middle English knowleche, from know]".
The Oxford English Dictionary includes such definitions as:
"1. Acknowledgment or recognition."
"2. Law (orig. and chiefly SC.). Legal cognizance;"
"The apprehension of fact or truth with the mind, clear and certain perception of fact or truth; the state or condition of knowing fact or truth."
"The fact or state of having a correct idea or understanding of something; the possession of information about something."
"out of (a person's) knowledge.
a. Out of all recognition; (so as to be) unrecognizable."
"to a person's knowledge: (a) as far as a person is aware; = to the best of a person's knowledge"
When used in the context of knowledge of a fact or circumstance, it seems to me the closest meaning is awareness, in this case awareness of a contravention. There is some support for awareness in the Tucker decision at [92] where the similar test created by s 156B(4) was described as creating a liability where directors "were aware" of certain matters.
I do not see any strength in the argument that if actual knowledge was intended the word "actual" would have been used. That argument would equally support the submission that if constructive knowledge was intended, the word "constructive" would have been included.
In Yorke v Lucas (1985) 61 ALR 307, the meaning of the words in s 75B of the Trade Practices Act 1974 (Cth), including the phrase "knowingly concerned" were considered. Although this is a different grammatical form of knowledge, I consider that it gives some assistance. "Knowingly concerned in...the contravention" required actual knowledge of the essential elements constituting contravention and intentional participation in it: Yorke at p 313. Applied to this case, Mr Brasnovic would be "without knowledge of the contravention" if he did not have actual knowledge of the essential elements constituting the contravention, namely, the absence of insurance covering Mr Samardzic and the obligation to have insurance covering Mr Samardzic. Mr Brasnovic took no issue with the first element. He knew he did not have insurance covering Mr Samardzic. But he says he did not know that he was obliged to have insurance covering Mr Samardzic because he believed Mr Samardzic to have been an independent contractor.
Similarly, knowingly authorised or permitted the contravention in s 175B of the National Parks and Wildlife Act 1974 required actual knowledge: Director-General of National Parks and Wildlife v Schultz (Land and Environment Court of New South Wales, Bignold J, 24 October 1996, unreported) cited in Tucker at [94]).
In State Pollution Control Commission, the Land and Environment Court considered a provision similar to the present case, save that paragraph (a) concluded with the words, "without the knowledge actual, imputed or constructive of the person" [my underlining]. This provision also dealt with the liability of a director for the contravention by the company, a situation similar to the present case. The inclusion in the provision of the additional words is some support for the proposition that if Parliament had intended to impose the same liability in this case, the same words could and would have been used.
It may be said that North Sydney Council v Roman [2007] NSWCA 27 at [51] indicates the contrary position. That case concerned the use of the adjective "actual" in s 45 of the Civil Liability Act 2002. But that provision affected the existing law which countenanced constructive knowledge, and thus the circumstances demanded the express mention of "actual knowledge". That case was not concerned with the liability of a director for a contravention by a company and the terms of the provision are quite different from those in s 145A(5).
I have not been referred to any decision, apart from Tucker, where the use of "knowledge" simpliciter in a statute has been read as including constructive knowledge or constructive notice. For a contrary example, see Bloomfield v Williams [1970] Crim LR 292, where signing a false document without reading it was held not to fall within the phrase "which to his knowledge is false".
Moreover, I respectfully agree with Tucker at [116] that the liability imposed upon the director under s 145A is "of a penal nature". This is an additional reason why it is appropriate to be cautious in construing s 145A as extending beyond actual knowledge.
In assessing what is meant by "knowledge" Basten JA, in a judgment agreed to by the other members of the Court of Appeal, stated in Baker-Morrison v State of New South Wales [2009] NSWCA 35 at [45]:
"s 50D refers, somewhat simplistically, to whether the person 'knows' (or ought to 'know') the identified facts. It is rare that facts will be known in any absolute sense: rather, as a practical matter, the person will have a belief that certain matters can be established, usually on the balance of probabilities, which is sufficient for the purposes of legal proceedings. Such a belief may be held on firm grounds or on shaky grounds. The belief is likely to involve an assessment of various matters, none of which can be readily quantified. Questions involving causation, fault and assessment of damages are all susceptible to these kinds of uncertainty. Nevertheless, the chapeau of the subsection refers to knowledge of identified facts, and not to an assessment of prospects of success in the prospective proceedings".
This passage supports the view that in assessing the "knowledge" of Mr Brasnovic, it is his subjective belief that is important.
Earlier in this judgment I noted that there was no bright line distinction between employees and independent contractors. In deciding that Tara Electrical was liable to reimburse WorkCover for compensation paid to Mr Samardzic, the Commission's reasons (Tara Electrical Services Pty Ltd v WorkCover Authority of New South Wales (Workers Compensation Commission, Faye Robinson, 23 January 2012, unreported)) refer to the decision of On Call Interpreters & Translators Agency Pty Ltd v Commissioner of Taxation (No 3) [2011] FCA 366, where Bromberg J stated that "the totality of the relationship" is to be considered and a "range of indicia may be examined".
Bromberg J also noted (at [219]) that:
"Whether or not income tax has been withheld and whether annual, long service or sick leave is afforded are often also used as relevant indicators"
and that there "are differing views as to the inference which should be drawn from such arrangements".
The Commission referred to passages in Hollis v Vabu Pty Ltd (2001) 207 CLR 21 as follows:
"...the distinction between an employee and an independent contractor is rooted fundamentally in the difference between a person who serves his employer in his, the employer's, business, and a person who carries on a trade or business of his own"
and to the comment in Australia Air Express Pty Ltd v Langford [2005] NSWCA 96 at [55] where the fact that the person was not a PAYG employee was a significant factor in favour of a conclusion that the person was an independent contractor.
These comments do not suggest that Mr Samardzic's position as an employee rather than an independent contractor was at all times obvious and unarguable.
Ultimately, the Commission determined that Mr Samardzic was a worker, alternatively a deemed worker. The Commission's decision included a finding that:
"it is not disputed that Mr Brasnovic imposed these conditions of employment as a facade to enable him to allege that Mr Samardzic was an independent contractor and not an employee. In other words he was endeavouring to disguise the relationship" (at [29]).
The plaintiff did not rely on this finding as creating some form of estoppel or that it carried any weight in the matters to be decided by me. Neither party before me was a party in the Commission's proceedings and it is doubtful whether that finding is sufficiently fundamental to the decision so as to give rise to an estoppel in any event. The context of this finding, or any concession by Mr Brasnovic, was not explored in the evidence. In those circumstances, I do not propose to give this finding any weight.
The question for determination is whether in January 2007 Mr Brasnovic believed Mr Samardzic to be an independent contractor because of the conditions on his retainer which Mr Brasnovic had imposed, or alternatively whether Mr Brasnovic believed Mr Samardzic to be a worker or deemed worker, notwithstanding those conditions, which were imposed only as a facade to hide the true position of Mr Samardzic as an employee.
The Nominal Insurer submitted that actual knowledge of the contravention is established by Mr Brasnovic's failure to obtain workers compensation insurance for himself. I do not think this is probative. It may be a contravention, but it is not the relevant contravention that enables recovery for the compensation paid to Mr Samardzic. In any event, I accept Mr Brasnovic's evidence that as at January 2007 he did not believe, as a sole proprietor of Tara Electrical, that he needed workers compensation insurance for himself.
The Nominal Insurer also relied upon the payment of some of Mr Samardzic's medical bills by Mr Brasnovic, and the nature of the work provided by Mr Samardzic. The payment of the medical bills may indicate a belief of some moral responsibility in Mr Brasnovic, but I do not think it constitutes an admission of knowledge that workers compensation insurance was necessary. The nature of the work done by Mr Samardzic is, for the purposes of these proceedings, accepted by both parties as requiring Tara Electrical to obtain workers compensation insurance to cover Mr Samardzic. But that does not establish that Mr Brasnovic had such a belief at the time of Mr Samardzic's injury.
In my opinion, the steps Mr Brasnovic took to have Mr Samardzic regarded as an independent contractor is some evidence that he believed these steps were sufficient. If he did not so believe, there would be little purpose in taking them: for they could not prevent his company from suffering the consequences of contravening the Act.
It was established that Mr Brasnovic never sought advice about whether Mr Samardzic was a subcontractor. This supplies some limited support that Mr Brasnovic believed this to be so. If he believed to the contrary, he would be more likely to seek advice about the consequences of his relationship with Mr Samardzic, especially on the two occasions that he consulted accountants.
In my view, as at January 2007, and without the benefit at that time of the Commission's decision, the employee status of Mr Samardzic was not altogether clear. The different judgments in Hollis at trial in the Court of Appeal and in the High Court indicate that reasonable minds might differ as to whether, in particular circumstances, a person is an employee or an independent contractor. I have found that Mr Brasnovic is entitled to the benefit of s 145A(5)(a) if he believed that Mr Samardzic was an independent contractor in respect of whom no workers compensation insurance was required. That belief did not need to be reasonable, only honest. Mr Brasnovic gave evidence of this belief. I am not persuaded that his evidence on this matter was false, and I accept it.
Mr Brasnovic is not a learned man and while he has some experience as an electrician, I accept his evidence that he believed that the steps he took meant that Mr Samardzic was an independent contractor outside the ambit of workers compensation insurance. He was ultimately found to be wrong in this belief, but having found that that belief exists, it follows that in my view that Mr Brasnovic has made out a defence under s 145A(5)(a). The contravention of Tara Electrical in not having workers compensation insurance covering Mr Samardzic was a contravention not known to Mr Brasnovic at the time it occurred.
This decision represents a departure from the decision of Letherbarrow DCJ in Tucker. I am not bound by that decision (see Keramaniakis v Wagstaff [2005] NSWDC 14) but if in a position of doubt I should follow it for reasons of judicial comity. I may be wrong but I am not in doubt. As that decision is recent and not binding I propose to accept the long ago counsel of Vaughan CJ in Bole v Horton (1673) Vaugh 360 at 383; 124 ER 1113 at 1124, that if one judge thinks another to be in error:
" [H]e...in his own conscience ought not to give the like judgment, for that were to wrong every man having a like cause, because another was wronged before."
If I am wrong on the test of knowledge, that is, if the five categories of knowledge recorded in the Baden decision are relevant to whether Mr Brasnovic had knowledge under s 145A(5)(a), I would conclude that Mr Brasnovic had knowledge of circumstances that would put an honest and reasonable man on inquiry (category five) but not the actual knowledge, wilful blindness or reckless failure to make inquiries which comprise categories one to three. As to category four, Mr Brasnovic was aware of facts which the Commission found required workers compensation insurance, but I am reluctant to find that a reasonable man, as distinct from perhaps an experienced lawyer, would know from those facts that insurance was required. In my view, the matter remained in at least some degree of uncertainty until the determination by the Commission against Tara Electrical.
I should note that no argument was advanced that Mr Brasnovic bore responsibility for the liability of Tara Electrical because he was a director who acted in breach of director's duties under the Corporations Act 2001 (Cth). This decision makes no findings in that regard. The issues before me were limited to those identified earlier in this judgment.
Accordingly, the orders of the Court are:
1. Judgment in favour of the defendant.
2. Plaintiff to pay the defendant's costs.
**********
Decision last updated: 08 August 2013
14
6