Manefield v Association of Quality Child Care Centres of NSW Inc T-as Child Care New South Wales

Manefield v Association of Quality Child Care Centres of NSW Inc T-as Child Care New South Wales - [2010] NSWIRComm 85 - NSWIRComm 2010 case summary — Zoe

[9]

1 On 5 May 2009, Bruce Manefield filed a summons for relief under s 106 of the Industrial Relations Act 1996 claiming that the contract of employment between himself and the Association of Quality Child Care Centres of NSW t/as Child Care New South Wales was unfair. 2 The respondent had employed Mr Manefield as Executive Officer from about 6 February 2006 until his contract was terminated by the respondent on 9 May 2008. 3 On 19 May 2009, the respondent filed a notice of motion asserting that it was a trading corporation for the purposes of s 51(xx) of the Constitution and, therefore, by virtue of s 16 of the Workplace Relations Act 1996 (Cth) ('WR Act') the Industrial Court was without jurisdiction. The respondent sought an order declaring that the Court had no jurisdiction to hear and determine the applicant's summons for relief. These proceedings are concerned with the respondent's notice of motion. 4 There was a significant delay in the hearing of the respondent's motion because it had been agreed between the parties that they should await the outcome of a hearing before the Full Federal Court of Australia regarding an appeal under s 853 of the WR Act from a decision of a Full Bench of the Industrial Court in Hillman v Bankstown Handicapped Children's Centre Association Incorporated [2008] NSWIRComm 64; (2008) 183 IR 376. In that case the Full Bench held that the first respondent (Bankstown Handicapped Children's Centre Association Incorporated) was not a trading corporation for the purposes of s 51 (xx) of the Commonwealth Constitution. 5 In Bankstown Handicapped Children's Centre Association Inc v Hillman [2010] FCAFC 11; (2010) 182 FCR 483, a decision given on 25 February 2010, the Full Federal Court held that the appellant was a trading corporation. In arriving at that conclusion the Court stated: [55] All these matters appear to us to point to a relationship between the Association and DOCS as having been a commercial one involving trade in services. It is, of course, true that it is possible to characterise, as the Industrial Court did, the Association's activities as the provision of public welfare services. However the fact that the acquisition of these services by DOCS was for this purpose does not appear to us to detract from the essentially commercial nature of the relationship. It is properly so described. There may be many incorporated charitable bodies in Australia which are nevertheless trading corporations for the purposes of paragraph 51(xx) of the Constitution. As we have noted above, the terms of the header agreements were negotiated, as were the terms of the renewal header agreement. Ultimately by that process, further negotiation as to price was not then undertaken. Thereafter, DOCS did not have to use the services of the Association at all, and the Association for its part did not have to accept any offer or request by DOCS to provide such services. On the evidence, DOCS selected those entities which it wished to provide services, once the header agreements were negotiated, on the basis of the quality of the service to be provided, but the Association (or others) did not have to agree to provide them. It is distracting to note that the services which the Association and others contracted with DOCS to provide were in the "welfare sector" of the economy, to use an expression used by the Solicitor-General. [56] In our opinion, the Association was a trading corporation in November 2006. The Industrial Court had no jurisdiction to hear and determine Mr Hillman's application filed in November 2006 because he then had no statutory right to make such an application. 6 Of course, I remain bound by the decision of the Full Bench of the Industrial Court and not the decision of the Federal Court. However, that circumstance matters little in these proceedings because in terms of the tests to be applied as to whether an entity is a trading corporation for the purposes of s 51(xx) of the Constitution there was no material difference between the Industrial Court and the Federal Court. The Federal Court appears to simply have taken the view that the appellant's activities were more appropriately to be described as commercial whereas the Industrial Court took the view they were properly to be regarded not as trading activities, but rather welfare activities. Whether motion should be dealt with at this stage

[11]

8 The applicant tendered an affidavit in the proceedings. Objection was taken to the affidavit by the respondent, it being claimed that significant parts of the affidavit were hearsay and/or opinion. The applicant claimed that as the executive officer of the respondent he had direct knowledge of the matters to which he deposed. The applicant was not required for cross-examination. 9 In my view the affidavit was deficient. For the applicant to assert he had first hand knowledge of the operations, activities and finances of the respondent is one thing, but then, for example, to depose that the respondent did not lodge tax returns or pay tax, without more information, was unsatisfactory. A number of bald assertions were made in the affidavit without it being explained how the applicant had direct knowledge of such matters; the fact he had 'first hand knowledge' of finances, etc, does not say, in precise terms, how it was he knew the respondent did not lodge tax returns or how he knew the respondent did not attempt to make a profit beyond providing services to members. In relation to the applicant's affidavit, I have decided I will have regard to it, but it will be question of what weight I should give to those aspects that are relevant to my consideration of the matter. 10 Also tendered by the applicant was a letter dated 23 December 2004 from the respondent to the ANZ Bank indicating it was a non-profit organisation that was not required to file an income tax return; a form of the Australian Taxation Office entitled 'Australian resident investor' that had been completed by the respondent purporting to claim it had tax exempt status and the Constitution and Rules of the respondent, it being a registered organisation of employers under the Industrial Relations Act. In that respect it may be noted that the respondent is registered as a 'separate organisation' (see s 217(1)(c) of the Industrial Relations Act) and not as a 'State organisation' and, therefore, is not incorporated under the Industrial Relations Act and is not required to comply with the requirements that apply to a State organisation incorporated under the Industrial Relations Act. 11 The respondent tendered four affidavits: two from Ms Lyn Connolly, the President of the respondent, one from Ms Christine Giles, a child care consultant with the respondent, and one from Mr Ian Peter Weston a Consultant Regulation Analyst and Adviser who provided services to the respondent. None of the deponents were required for cross-examination. 12 Child Care NSW is incorporated under the Associations Incorporations Act 1984 (NSW). It is, therefore, a corporation. Its members include private child care centres, community based child care centres, which are centres usually run by an association of community members, as well as church run or based centres and council run centres. 13 According to Ms Connolly's evidence, the aim of the respondent is essentially to:

[28]

[44] In any event, whether or not the Association "trades" in the sense that word is used in the Associations Incorporation Act, the critical issue was whether it is a corporation to which the WR Act applies, so as to exclude the application of the NSW IR Act to its activities at the relevant time. As explained in [2] above, that in turn depends in this matter on whether it is a trade corporation to which paragraph 51(xx) of the Constitution applies: see the remarks of Wilcox J in E v Australian Red Cross Society [1991] FCA 20; (1991) 27 FCR 310 at 345 ("Red Cross")…. 21 I take the same approach in this matter. 22 In addition to the foregoing, the relevant facts that I draw from the evidence are as follows: (a) Income for the year ending 30 June 2007 was $729,877.75 made up as follows: (i) membership fees $92,304.55 (ii) referral fees $391,459.92 (iii) commissions $2,146.18 (iv) grants $33,300.00 (v) sponsorship $140,340.88 (vi) consultancy $4,068.52 (vii) conference registrations $60.00 (viii) seminar registrations $29,014.69 (ix) advertising $15,249.97 (x) publications $7,219.44 (xi) subscriptions $14,713.60 (b) Income for the year ending 30 June 2008 was $836,676.80, made up as follows: (i) membership fees $110,245.08 (ii) referral fees $417,202.57 (iii) commission $4,553.55 (iv) grants $54,807.50 (v) sponsorship $7,562.73 (vi) consultancy $8,126.09 (vii) conference registrations $149,869.32 (viii) advertising $27,377.27 (ix) publications $2,205.36 (x) subscriptions revenue $16,277.27 (xi) seminar registrations $38,450.06 (c) The draft profit and loss statement for the year ended 30 June 2009 showed estimated income as $731,210.90 made up as follows: (i) membership fees $120,360.87 (ii) referral fees $475,792.79 (iii) commissions $5,383.36 (iv) grants $54,183.60 (v) consultancy $2,411.25 (vi) publications (one off) $963.59 (vii) subscriptions revenue $38,052.74 (viii) seminars registrations $34,062.70 (d) In the financial year ending June 2007, income from member fees was approximately 12.5 per cent of income. In the financial year ending June 2008, income from membership fees was approximately 13 per cent of income. In the financial year ending June 2009, according to the draft statement, estimated income from membership fees was approximately 16.5 per cent; (e) The respondent's largest single source of income for the years 2007, 2008 and 2009 was from Guild Insurance Limited and Guild Financial Services (these payments are reflected in the income under 'referral fees'). Under formal agreements, the respondent provides services to Guild Insurance Limited and Guild Financial Services, which involves promoting and advertising their products including by telephone, through publications, at member meetings. These products are advertised not only to members, but also to non-members. In return for providing these services to Guild Insurance Limited and Guild Financial Services, Guild Insurance Limited provides the respondent with a 10 per cent commission on all income Guild Insurance receives from premiums sold to members. Additionally, Guild Financial Services provides the respondent with a fixed payment of $40,000 per annum. (f) The respondent provides consultants to assist both members and non-members with matters such as licensing, accreditation preparation, regulation compliance and programme development. These services are charged at $110 per hour for members and $150 per hour for non-members. (g) The respondent offers online occupational health and safety training at a cost of $35 for members and $55 for non-members. The respondent also sells precedent material such as precedent policy documents. These policy documents are sold to members for $460 and non-members for $990. This income is identified under 'subscriptions'. (h) The respondent conducts seminars. These include, for example, a professional development seminar which is charged to members at $150 per participant and $200 to non-members and a new owners seminar at $550 per person. This income is identified under 'seminar registrations'. Ms Connolly deposed that: The intention of running these seminars is to make a profit and thus provide Child Care NSW with funds to provide better services to members. For example, we propose to use these funds to hire a research consultant. The profits from the seminars are also necessary for meeting the costs associated with paying external providers to represent our interests, lobbying government and other bodies and generally advancing the interests of both our members and child care generally in New South Wales. (i) The respondent sells sponsorship of certain seminars and conferences as well as advertising at these seminars and conferences eg, banners, promotional material. This is sold to external product providers to the industry. This income is identified under 'sponsorship'. (j) The respondent sells advertising in its publications. This income is identified under 'advertising'. (k) The respondent arranges conferences with the intention of deriving income through registration fees and sponsorships, such as stalls for product providers, sponsorship of speaking positions, sponsorship of lunches and dinners. This income is identified under 'conference registrations' and 'sponsorship'. (l) The respondent produces occupational health and safety laminated posters, which are sold through some seminars. This income is identified under 'publications'. (m) The respondent receives "commissions" from a company that produces a magazine and various products. The company provides the respondent's members with product samples and a magazine for families ('Family Pack'). In return for the respondent providing member details, it is paid $0.08 per Family Pack distributed by the company to its members. This income is identified under 'commissions'. (n) The 'Grants' referred to in the profit and loss statement in the respondent's audited accounts are received from the WorkCover Authority of NSW. These grants are for the respondent to provide training and coordinate occupational health and safety workshops in various regions of New South Wales. The respondent charges an additional fee to members and non-members for these regional workshops. (o) The respondent has tax exempt status. (p) The respondent is an industrial organisation. However, it does not employ industrial advisers or industrial lawyers and does not act in a representative role for individual members. Members with an industrial problem, other than seeking basic wages information, are referred to a solicitor. Where a representative role is required in proceedings before an industrial tribunal, the respondent engages external representation. (q) The respondent's 'financial' spend on legislative, regulatory and other political matters on behalf of the industry at large exceeds the respondent's 'spend' on industrial matters. The respondent permanently engages an outside consultant, Mr Weston, to assist in legislative, regulatory and other political matters. The respondent's 'spend' on consultant fees, including Mr Weston and relating to matters at large, was in the vicinity of $130,426.07 in 2008/2009. The respondent's expenditure on industrial relations matters was $21,562.47 in the same period. What constitutes a trading corporation

[37]

(h) whether the trading activities of a corporation are sufficient to warrant it being characterised as a "trading corporation" is a question of fact and degree: see Adamson at 234; State Superannuation Board at 304; Quickenden at 277; Orion Pet Products at 216 and Fencott at 589. Whether respondent is a trading corporation 24 The respondent may not have originally been established to trade and trading activities do not form the predominant part of the overall activities of the respondent corporation. The predominant activity is, according to Ms Connolly's evidence, 'political, particularly related to legislation and regulation of the industry as a whole'. However, there is no doubt, on the authorities, that the respondent engages in trading activities and it is the activities of the corporation that must be examined, not its purpose. 25 The trading activities of the respondent include the arrangement with Guild Insurance Limited and Guild Financial Services, which involves promoting and advertising their products. That is to say, in exchange for a fixed annual payment and commission based on products sold to the respondent's members, the respondent promotes and advertises the insurance and financial products. Other trading activities include the sale of consultancy services, the sale of training packages, conducting seminars for which a charge is made, the sale of advertising by way of sponsorships and in the respondent's newsletters and the receipt of commissions for allowing access to member information. 26 By far the greater part of the respondent's revenue comes from its trading activities and not from membership subscriptions. That the bulk of this trading revenue may come from members of the respondent does not seem to me to alter the fact that it is revenue from a trading activity. There is nothing in the Rules of the respondent obliging it to provide (as opposed to promote) seminars or consultancy services to members other than perhaps in relation to industrial relations and no obligation on members to buy those services. The sale and purchase of such services to both members and non-members represent purely commercial transactions. 27 As it was observed in Bankstown Handicapped Children's Centre Association Inc v Hillman at [48], the making of a profit is not an essential prerequisite to trade and, further, that 'trading' is not given a narrow construction. It extends beyond buying and selling to business activities carried on with a view to earning revenue and includes trade in services. The evidence was that the respondent engaged in trading activities to earn revenue to provide services to members and the childcare industry as a whole. 28 The next question is whether the respondent's trading activities constitute a substantial or a sufficiently significant proportion of its overall activities. Certainly, using revenue as the yardstick, trading is a very substantial part of the respondent's activities. Further the evidence was that the respondent sought to 'make as much profit as it can'. Indeed, it was Mr Weston's evidence and that of Ms Connolly that the applicant was engaged 'to focus on deriving revenue for the Respondent'. Although it was not quantified, the respondent's evidence suggests a substantial proportion of the staff's time and effort was spent on commercial activities aimed at increasing revenue through the provision of consultancy services, conducting seminars and seeking to expand its trade and commercial relationships with third parties. Despite the respondent being an industrial organisation the expenditure on industrial relations/legal was small and it would appear that the basic service the respondent provided in this respect was covered by the membership subscription fee. 29 The applicant sought to downplay the significance of any commercial activity. For example, it was stated that: In my time with the Respondent Association, none of my own time or the time of the other Association staff was spent on commercial activities. The entire focus of our day-to-day endeavours was to provide services, resources and representation for our members. 30 Ms Connolly disputed this evidence. The respondent targeted its services to both members and non-members. The services, as I have said, have a commercial flavour; they involve the sale of services such as consultancy, seminars, advertising, sponsorships and commercial relationships with third parties. That members may be targeted for the sale of these services makes them no less trading activities. 31 By far the biggest single source of income from trading activities is the arrangement with Guild Insurance Limited. The applicant described this as 'passive income earned with very little effort on behalf of the Respondent'. Ms Connolly's evidence in this respect was as follows: It is not correct to suggest this is passive income. There are competitors to Guild Insurance in the market and the Respondent actively promotes Guild's product as the Respondent is required to do under its commercial agreement with Guild. The success of that promotion is, in my opinion, reflected in the significant revenue the Respondent derives from the Respondent's activities in that regard…. Some of the work the Respondent does to fulfil the Respondent's obligations under this commercial agreement includes: (i) …advertising and articles… in the Respondent's publications…. Guild Financial Services provided the article and the Respondent formatted it and included it in the Respondent's publication. (ii) When prospective investors or new businesses contact us the Respondent actively promotes Guild Insurance and ask them questions about insurance. (iii) Previously the Respondent have (sic) included information about Guild Insurance in packages sent out to members, and the Respondent will continue to include reference to Guild Insurance in the Respondent's new newsletters. 32 Whether one regards the income from these arrangements as passive or otherwise, it is still income derived from a commercial agreement between Guild and the respondent that the respondent will promote Guild's products and in return the respondent will receive a commission: a classic commercial transaction. 33 Whilst it is only one transaction that is the largest source of the respondent's income, that transaction cannot be taken in isolation. It was part of an overall strategy to generate income from trading activities without which the respondent would be unable to function as a viable organisation able to meet its objects.

[41]

s Make future conferences profitable. 36 I understand these initiatives were intended to be implemented, in particular by the applicant, but how successful that was is not apparent. Nevertheless, it does indicate the importance to the respondent of identifying ways of generating and attracting more revenue in order that it might increase its services to members and the industry generally. 37 In Hillman the Industrial Court held that the activities of the first respondent were properly characterised as 'social welfare activities' and not trading activities. The Full Bench found that the first respondent provided welfare in the form of accommodation and support services for the benefit of the disabled and young people (at [19]). At [21] the Full Bench observed that the majority of the monies received by the first respondent in connection with its welfare activities were provided in accordance with contractual arrangements with two New South Wales government departments, DADHC and DOCS. The monies were provided on a non-acquitted and an acquitted basis. Acquitted funds consisted of monies that, if they were not expended on an activity, had to be returned to the government department. Non-acquitted income was not subject to those requirements and became the property of the respondent once it was received, albeit that it is required to be allocated to a specific end. 38 There is no parallel between Hillman and the present case. The respondent did not receive funding in the sense the first respondent did in Hillman to carry out welfare activities. 39 The applicant in this case, nevertheless, contended that the activities of the respondent are not trading activities and rather: The respondent is a tax exempt employer industrial association registered under state industrial law which derives the vast bulk of its revenue from servicing its own members either in registration fees, membership fees, or commissions. 40 The respondent is not a 'State organisation' in that it is not incorporated under the Industrial Relations Act, but it is, nevertheless, an industrial organisation of employers registered under the State Act. The respondent provides a basic industrial service to members but its other activities, described as 'political, particularly related to legislation and regulation of the industry as a whole', predominate. 41 In order to fund all of its activities, the respondent sells certain services and products to both members and non-members. The sale of these products and services are commercial transactions, which provide the respondent with the largest proportion of its annual income. 42 I am satisfied the respondent is a trading corporation. Operation of the Workplace Relations Act

[42]

43 As the respondent submitted, these proceedings were, at the time they were filed, subject to the provisions of s 16 of the WR Act. That provision came into effect on 27 March 2006. The question of whether the respondent was a trading corporation falls to be decided at the time the summons for relief was filed: Brolrik at 223. 44 It must be accepted that if the respondent is a trading corporation, it is a constitutional corporation for the purposes of s 51(xx) of the Constitution (see the definition of 'constitutional corporation' in s 4 of the WR Act) and, therefore, it is an employer within the meaning of s 6 of the WR Act. Further, the applicant is an employee within the meaning of s 5 of the WR Act. 45 Unless there is some intervening consideration (for example, see Brolrik) the Court would not have power to hear the applicant's summons for relief under s 106 by operation of s 16(1) of the WR Act. 46 In the present case, the applicant contended there was such an intervening consideration and that was s 16(3)(m) of the WR Act. That provision is to the effect that s 16(1) does not apply to a law of a State or Territory so far as the law deals with any non excluded matter, which in the case of s 16(3)(m) is: (m) regulation of any of the following: (i) associations of employees; (ii) associations of employers; (iii) members of associations of employees or of associations of employers. 47 It was the applicant's submission that the word 'regulation' in s 16(3)(m), although not defined, should not be read down. It was submitted 'regulation' contemplated the regulation of internal affairs of the relevant industrial organisation and that the decision in Transport Workers' Union of New South Wales v Australian Industrial Relations Commission [2008] FCAFC 26; (2008) 171 IR 84 did not suggest otherwise. 48 The applicant submitted that he was employed by the respondent as an 'Executive officer' and took part in Executive committee meetings and in high level management of the Association. As such, it was submitted, he was an 'officer' within the meaning of both the Dictionary to the Industrial Relations Act and Schedule 1 - Registration and Accountability of Organisations, of the WR Act. 49 The applicant referred to s 781 of the WR Act and submitted it defined 'office' very broadly and included any office holder entitled to participate in the management of the affairs of the association. 50 It was submitted: These provisions show that the state and federal Acts regulate industrial organisations to an extent that includes the regulation of their internal industrial relations. As such, when an officer of a NSW State industrial organisation has recourse to the provisions of Section 106 of the Industrial Relations Act 1996 (NSW) there is jurisdiction to entertain that claim, which is a "non-excluded" matter within the meaning of s 16(3) of the Workplace Relations Act. 51 The respondent submitted that the WR Act did not have the effect that the affairs of a State registered organisation stood outside the WR Act. All that s 16(3)(m) accomplished was to leave in operation the provisions of the laws of the various States that regulated the registration, the rules and the conduct of affairs of State registered organisations: Transport Workers' Union of New South Wales v Australian Industrial Relations Commission at 102. 52 I am unable to accept the applicant's submissions regarding s 16(3)(m) of the WR Act. First, I am not satisfied the applicant was an 'officer' of an organisation as defined in the Dictionary to the Industrial Relations Act. More importantly, however, as the respondent submitted and as it was held in Transport Workers' Union of New South Wales v Australian Industrial Relations Commission, all that s 16(3)(m) accomplished was to leave in operation the provisions of the laws of the various States that regulated the registration, the rules and the conduct of affairs of associations. In New South Wales those laws are in Chapter 5 of the Industrial Relations Act. The provisions of Chapter 5 do not purport to regulate the employment relationship between an Association and its employees. Until the introduction of the WorkChoices legislation in 2006, s 106 of the Industrial Relations Act was available to an employee of an industrial organisation seeking relief from an unfair contract. That may continue to be the case in respect of industrial organisations that are not constitutional corporations. However, with the passage of s 16(1) of the WR Act, the Industrial Court was deprived of jurisdiction to deal with unfair contract matters in respect of constitutional corporations and their employees. The respondent is a constitutional corporation. Orders and directions

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