SBA Foods Pty Ltd v Victorian WorkCover Authority [2001] VSC 276

Supreme Court of Victoria|2001-08-10|Before: Gillard J

JUDICIAL REVIEW - adjustment of premiums payable under employer's insurance

policy - power to do so - power of WorkCover Authority pursuant to statutory instruments. NATURAL JUSTICE - right to be heard - party to review not seeking report - content of fair hearing rule. LEGISLATIVE SCHEME pursuant to Accident Compensation (WorkCover Insurance) Act .

The return of a summons in a proceeding, instituted by originating motion, seeking judicial review of three decisions made in respect of premiums payable under insurance policies.

The case concerns insurance premiums payable by an employer pursuant to WorkCare Insurance Policies for the years 1996-7, 1997-8 and 1998-9. The premiums were calculated on a certain basis but, in late 1998, they were recalculated by the insurer, resulting in the employer being required to pay further premiums totalling $4,506,714.40.

The plaintiff, SBA Foods Pty Ltd ("SBA Foods"), is a company, formed by Japanese interests, to purchase some of the abattoir businesses operated by the well-known Australian group of companies called Gilbertson.

The first defendant, Victorian WorkCover Authority ("the Authority"), is a body corporate established by the Accident Compensation Act 1985 ("A.C. Act").

The objectives of the Authority are set out in s.19 of the A.C. Act, and one of its objectives is to administer, inter alia, the Accident Compensation (WorkCover Insurance) Act 1993 ("the 1993 Act") and the A.C. Act. The functions of the Authority are set out in the A.C. Act in s.20, and its functions include administering the WorkCover Authority Fund, licensing and regulating authorised insurers and ensuring that the scheme of accident compensation is competitive and fully-funded.

By reason of s.7 of the 1993 Act, an employer who employs a worker must obtain and keep a WorkCover Insurance Policy, with an authorised insurer, in respect of all the employer's liability under the A.C. Act and the common law.

The second defendant, HIH Winterthur Workers Compensation (Vic) Ltd ("HIH"), is an insurance company which, at all relevant times, was the holder of a licence issued by the Authority and was an authorised insurer under the 1993 Act. See s.27 (now repealed).

At all relevant times, it was the insurer of the plaintiff under the 1993 Act.

On 22 November 1996, SBA Foods and a number of the Gilbertson companies executed a sale of business agreement pursuant to which SBA Foods acquired a number of the Gilbertson businesses, with effect from 18 November 1996.

Pursuant to the agreement, SBA Foods acquired various equipment, plant and real estate in Kyle Road, Altona; Morrison Avenue, King Island; and Tannery Road, Longford in Tasmania. It did not acquire any of the plant, equipment or real estate of R.G. Gilbertson (Queensland) Pty Ltd or real estate owned by the Group at Caroline Springs in Victoria. The Gilbertson Group retained the Grafton Abattoir and was permitted to compete with SBA Foods in respect of that abattoir.

Prior to 18 November 1996, the Gilbertson Group carried on an abattoir business at Altona and, in accordance with the sale agreement, SBA Foods took over the plant, equipment and business, including the employees employed at Altona. However, some 20 employees remained with and were paid by Gilbertson, but worked for SBA Foods during the following three months, at the Altona premises. SBA Foods paid the Gilbertson Group for these employees. The casual observer would not have observed any change in the operation of the business between 17 and 18 November 1996. The business continued in exactly the same way on 18 November 1996 but with a different owner.

Prior to the execution of the sale agreement, discussions took place between senior employees of HIH and senior employees of Gilbertsons, who were to become the managing director and company secretary of SBA Foods. They were Malcolm Slinger, who is now managing director of SBA Foods, and Douglas Gibson, who is now the company secretary.

An issue arose, concerning the premiums which would have to be paid by SBA Foods to the insurer, for WorkCover. It was put that if SBA Foods was a new start up company and the Gilbertson Group was to continue to employ staff in the workplace for a period of 60 or more days, SBA Foods' WorkCover premium would be calculated using the "industry" premium rate. On the other hand, if SBA succeeded to the business of the Gilbertson Group, then the claims history of the Gilbertson Group would be taken into account in determining the premium. If SBA was assessed as a new business, and not in succession to Gilbertson, it would pay the industry premium rate, which at the relevant time was 7.5% of rateable remuneration, whereas if the Gilbertson Group's claims history was taken into account, SBA would pay considerably more.

After some consideration, the representatives of SBA Foods and HIH came to the conclusion that SBA Foods was not succeeding Gilbertsons, and hence the succession principle did not apply. The circumstances relied upon included the fact that SBA Foods proposed to spend a large sum of money changing the works, plant and equipment.

The premiums were calculated for the years 1996-7, 1997-8 and 1998-9 on the basis of the lower industry premium rate. The premiums were calculated pursuant to an annual Premiums Order.

Some time after 18 November 1996, and most likely at the beginning of 1997, SBA commenced a total refit of the plant's main beef processing operations at Altona, and spent approximately M$14.8 in replacing machinery and re-engineering the plant. A further M$2.6 was invested in training employees. Other works were carried out.

In June 1998, SBA was informed by Ernst & Young that it was to carry out an audit of the business, at the request of the Authority. Ernst & Young carried out an audit.

The audit commenced on the basis of checking the declarations concerning remuneration and the like, and no suggestion initially was raised concerning succession of businesses. However, on 17 September 1998, Mr Johnson from Ernst & Young forwarded a facsimile to SBA Foods raising the question of succession and indicating the issue had to be resolved.

On 5 October 1998, Ernst & Young, in a letter to SBA Foods, confirmed that the audit was complete and that the result showed that there had been an understatement of the level of remuneration for the year 1996/1997. The letter also stated, "We have recommended that succession be applied from 18 November 1996".

On 13 November 1998, the Authority wrote to HIH directing it to arrange for succession to be applied to the SBA Foods policies and to adjust the premiums for the past.

On 3 December 1998, HIH wrote to SBA Foods and informed it that in addition to the understated remuneration owing, there were additional premiums to pay. The letter stated -

"The audit firm found that succession is applicable to the SBA workplaces, from the predecessor workplaces previously registered against R.J. Gilbertson Pty Ltd (1132650) and R.J. Gilbertson (Southern) Pty Ltd (1132702). The principles of succession have been discussed with you previously, however should you wish to discuss this further, please contact the writer. Acting on the directions of the Victorian WorkCover Authority, HIH Workers Compensation (Vic) Limited has now applied succession with effect from November 1996 and recalculated premiums for all policy periods since that date."

There were three policy periods re-calculated.

The letter then set out a summary, and the difference between the premiums previously assessed and the amended premiums totalled $4,506,714.40.

It is noted that HIH was acting on the directions of the Authority.

The letter went on to state that if SBA Foods objected to the findings, it could lodge a written objection with the Authority within 28 days. In fact the period was extended to 15 February 1999, and on that date, SBA Foods lodged with the authority a very detailed submission of 21 pages with 13 pages of attachments, in support of its objection to the re-calculation of the premiums. The submission addressed the issue of succession, which was the core issue leading to the amended premiums.

In December 1998, SBA Foods requested HIH to supply a copy of the auditor's report, but HIH did not have a copy and suggested that an FOI application be made. In fact, the past experience of HIH had shown that the only way to obtain a copy of the report was through an FOI application. Surprisingly, SBA Foods did not take up the suggestion until 27 July 1999 and, even more surprisingly, it did not make any request to the Authority, between 3 December 1998 and that date, for a copy. It presented its submission without obtaining a copy of the report.

On 19 July 1999, the Authority informed SBA Foods, by letter, that the assessment of rateable remuneration had been reviewed and the Authority was not satisfied that there were any grounds to alter the assessment made in early December 1998.

The FOI application was made on 27 July 1999 for a copy of the auditor's report.

On 15 September 1999, SBA Foods filed an originating motion seeking judicial review of decisions alleged to have been made by HIH and the Authority.

On 16 September 1999, it received a bundle of documents from the Authority pursuant to the FOI request.

SBA Foods contends that decisions made by HIH and the Authority, amending and demanding payment of the premiums, were made contrary to the law and without power or authority and, further, contends that SBA Foods was denied natural justice in the decision-making process used in re-calculating the premiums and reviewing the adjustments to the premiums.

At the outset, it is necessary to identify the decisions made by the Authority and HIH, which SBA Foods complain about, and consider whether they were decisions which adversely affected their interests.

SBA Foods contend that both the Authority and HIH did not have any power or authority to make the decisions about which they complain.

(i) A decision made by the Authority, prior to 13 November 1998, that the principles of succession were to apply to the calculation of the insurance premiums payable by SBA Foods, and a direction by the Authority to HIH to implement the decision, set out in the letter from the Authority to HIH of 13 November 1998.

"In addition, the audit firm has determined that succession should have been applied when the company took over the operations of the business of R.J. Gilbertson Pty Ltd and R.J. Gilbertson (Southern) Pty Ltd on 18 November 1996. The following tables detail the predecessor and successor workplaces: (The tables set out the old and new workplaces with identifying numbers.) Would you please arrange for succession to be applied, as detailed above, effective from 18 November 1996, and adjust remuneration in accordance with the audit result. These amendments are to be made by 30 November 1998 and your advice on completion would be appreciated."

(ii) The alleged decision, made by HIH, whereby it recalculated the premiums pursuant to the direction given by the Authority in its letter of 13 November 1998, conveyed by letter to SBA Foods on 3 December 1998.

"2. The audit firm found that succession is applicable to SBA Foods workplaces, from the predecessor workplaces previously registered against R.J. Gilbertson Pty Ltd (1132650) and R.J. Gilberston (Southern) Pty Ltd (1132702). The principles of succession have been discussed with you previously, however should you wish to discuss this further, please contact the writer. Acting on the directions of the Victorian WorkCover Authority, HIH Workers Compensation (Vic) Limited has now applied succession with effect from November 18 1996 and recalculated premiums for all policies since that date. (A table set out the old and new premiums for the periods 1997, 1997/98 and 1998/99.) For your assistance, we attach a summary of premium details for each individual workplace. An amended premium notice will be issued for each policy period and these will follow shortly. If you wish to object to the audit findings, please lodge your written objection to:- Frank Sanders, Operations Management Division Victorian WorkCover Authority PO 415 Melbourne 3005 This objection must be made within twenty eight (28) days after the date of demand for the revised premium. Should you have any queries or if there is any way in which HIH Workers Compensation (Vic) Limited can be of assistance to you in respect to the audit process, please do not hesitate to contact the writer on (03) 9224 2454". The letter was signed by Miss Caterina Todarello, Premium Supervisor.

(iii) The decision made on the review which was conveyed by a letter, dated 19 July 1999, from the Authority to SBA Foods. The letter relevantly provided -

"Dear Mr Slinger RE: REVIEW OF AUDIT REMUNERATION ASSESSMENT AND DEFAULT PENALTY EMPLOYER: SBA FOODS PTY LTD WEN: 6963374 VWA AUDIT REFERENCE: 20 061 I refer to your letters dated 18 December 1998 and 16 February 1999 in which a request was made for a review of the remuneration assessment, and audit default penalty imposed, against the above employer as a result of the audit conducted by Ernst & Young on behalf of the Authority. I understand that the core issues were also discussed at a meeting with the Minister held on 16 June 1999 and attended by you, and other officers of your company, together with officers of the Authority. The Authority has reviewed the assessment of rateable remuneration and the application of Schedule 1, part 6, of the WorkCover Insurance Premiums Order, (Succession), which formed the basis for the adjusted premium notified in the Reconcilation Statement and 1993/94 Confirmed Premium Notice (Audit) issued in December 1998. Additionally the Authority has considered the consequential effect in subsequent premium years. Following the review, the Authority is not satisfied that there are grounds for altering the assessment or the default penalty rate previously imposed. It is the view of the Authority that the operation of SBA Foods Pty Ltd attracts the application of succession according to law. The premium adjustment and audit penalty will therefore stand. Arrangements should now be made to pay any monies that are still outstanding. If you do not agree with the Authority's decision outlined above, you may apply to have the matter determined by a court of competent jurisdiction."

It was signed by Julianne Brennan, Manager, Business Operations of the Authority.

SBA Foods submitted that the Authority and HIH did not have any power or authority to make the decisions.

Mr Tracey QC, who appeared with Ms Tate for SBA Foods, submitted that although there must have been a decision in fact made by the Authority on the review, the decisions which adversely affected the interests of SBA Foods were the two decisions made on 13 November 1998 and 3 December 1998.

There is no doubt that the Authority, prior to 13 November 1998, did make a decision which adversely affected the financial interests of SBA Foods. It had, during the two previous insurance years, paid a premium on a certain basis, and, on or about 13 November 1998, the Authority made a decision that the principles of succession applied, which meant that SBA Foods had to pay a substantially increased premium for each of the years, including the insurance year 1998-9.

The Authority conveyed that decision to HIH by the letter of 13 November 1998, and directed it to apply succession to SBA Foods' policies and adjust the premiums in accordance with the audit result. HIH complied with the instruction, carried out the task of adjusting the premiums and sent a letter to SBA Foods, informing it of the increase in the premiums and stating that a premium notice would be issued for each policy shortly.

There was some debate between the parties as to whether a decision had been made, who made it and the effect of same. Mr Garrett QC, on behalf of HIH, submitted that HIH did not make any decision, and that all it did was comply with a direction to adjust the premiums and make a demand on SBA Foods to pay. The submission was that, all it was doing was carrying out the directions of the Authority which had made the decision.

In my opinion, that is correct. HIH merely carried out the instructions which it was bound to do. According to the terms of the 1993 Act, the adjusted premium stood as the premium and was payable. Hence, the actions of HIH resulted in a notice being given, which affected the financial interests of SBA Foods, on 13 November 1998. But the decision was the one made by the Authority.

Whilst it is clear that a decision was in fact made on the review in 1999, namely, not to interfere with what had already been done, it was a decision which did not adversely affect the financial interests of SBA Foods. The decision under review had, and it was not altered in any way as a result of the review.

That was the submission of SBA Foods, and I did not understand the other parties to disagree with it.

Hence, the real complaint is made in respect of the decision made by the Authority, which was implemented by the authorised insurer.

The proceeding in the Court to judicially review that decision was out of time.

The originating motion was issued pursuant to Order 56 of the Rules of Court on 15 September 1999.

Under Order 56, a proceeding seeking judicial review must be commenced within 60 days after "the date when grounds for the grant of the relief or remedy claimed first arose".

Time, in respect of the decision made on 13 November, expired on or about 13 January. Hence, the period of delay is somewhat in the order of eight months.

Under Rule 56.02(3), the Court is prohibited from extending time "except in special circumstances".

Counsel for both defendants submitted that time should not be extended.

I will defer consideration of the application to extend time until I have considered the grounds relied upon by SBA Foods. This accorded with the views of Counsel for the parties.

The originating motion is a long document, somewhat repetitive and raises a number of grounds. For present purposes, the grounds can be summarised as follows. First, the decision maker did not act within the law, acted without power, took into account irrelevant matters and failed to take into account relevant matters, and denied SBA Foods natural justice, in that SBA Foods was not given all information prior to a decision being made on the review, and secondly, was guilty of pre-judgment of the issues prior to the determination on the review.

The plaintiff, SBA Foods, invokes the common law jurisdiction of this Court to review decisions of an administrative nature. The jurisdiction is subject to the procedure set out in Order 56 of the Rules of Court. The jurisdiction of the Court to review administrative decisions is indeed limited. It is supervisory and does not entitle the Court to canvass matters that it would on an appeal. The jurisdiction is different to an appeal.

The judicial review jurisdiction is concerned with the legality of what was done by the administrative body, and is not concerned with the merits of the decision under review. This is to be contrasted with an appeal where the question usually is whether the decision is right or wrong, whereas the question on a judicial review is whether the decision is in accordance with the law. Judicial review is not concerned with whether the decision was fair or correct.

Order 56 is concerned with procedure. It abolishes the remedies in the nature of the old prerogative writs but, nevertheless, preserves the jurisdiction of the Court to make prerogative writ-type orders. It is clear the rules do not affect the common law jurisdiction, and it is equally clear that this Court has jurisdiction to make an order in the form similar to the old prerogative writ of certiorari, namely, quashing the decision under review.

The scope of the jurisdiction was discussed by the High Court in Craig v South Australia [1995] HCA 58; (1994) 184 CLR 163 at 175-76.

In Chief Constable of North Wales Police v Evans [1982] UKHL 10; (1982) 1 WLR 1155, Lord Brightman, at p.1173, said -

"Judicial review is concerned, not with the decision, but with the decision making process. Unless that restriction on the power of the court is observed, the court will in my view, under the guise of preventing the abuse of power, be itself guilty of usurping power."

See also R v District Court; ex parte White [1966] HCA 69; (1966) 116 CLR 644 at 655.

The High Court in Craig's case, supra, at p.179, identified the most important established grounds. The Court said -

"If such an administrative tribunal falls into an error of law which causes it to identify a wrong issue, to ask itself a wrong question, to ignore relevant material, to rely on irrelevant material or, at least in some circumstances, to make an erroneous finding or to reach a mistaken conclusion, and the tribunal's exercise or purported exercise of power is thereby affect, it exceeds its authority or powers. Such an error of law is jurisdictional error which will invalidate any order or decision of the tribunal which reflects it."

However, it must be emphasised that, as a general rule, this Court is not concerned with the correctness of a decision if the tribunal complies with the law.

The point is made by Lord Reid in Anisminic Ltd v Foreign Compensation Commission [1968] UKHL 6; (1969) 2 AC 147 at 171 -

"It may have given its decision in bad faith. It may have made a decision which it had no power to make. It may have failed in the course of the enquiry to comply with the requirements of natural justice. It may in perfect good faith have misconstrued the provisions giving it power to act so that it failed to deal with the question remitted to it and decided some question which was not remitted to it. It may have refused to take into account something which was required to be taken into account. Or it may have based its decision on some other matter which, under the provision setting it up, it had no right to take into account. I do not intend this list to be exhaustive. But if it decides the question remitted to it for decision without committing any of these errors it is as much entitled to decide that question wrongly as it is to decide it rightly." (Emphasis added).

The main relief sought by SBA Foods is declaratory relief in relation to the three alleged decisions, and it also seeks an order in the nature of certiorari to quash the alleged decision made prior to 3 December 1998 (i.e. 13 November 1998) as well as the alleged decision made on or about 19 July 1999.

In considering the various statutes, the relevant date is 13 November 1998.

In 1914, the Victorian Parliament passed a revolutionary piece of legislation. It was the Workers' Compensation Act 1914.

This Act introduced into this State, for the first time, a no-fault liability scheme to compensate employees who suffer injury in the course of employment. The legislation made the employer, the insurer of workmen against injury by accident. The legislation was indeed revolutionary. It was based on the English legislation of 1897.

Since then, there have been a number of statutes concerning the no-fault scheme. The present legislation is the A.C. Act, which was passed in 1985.

A feature of the legislation, ever since 1914, is the requirement that the employer must be insured against liability to pay compensation to his employee.

In the scheme relevant to this case, insurance is the subject of the 1993 Act, the A.C. Act, WorkCover Insurance Premiums Orders and an approved WorkCover Insurance Policy.

The 1993 Act introduced into Victoria, on 30 June 1993, a new scheme which came to an end on 30 June 1999. A feature of the new scheme was the introduction of authorised insurers who were required to hold a licence under Part 3 of the 1993 Act. From 30 June 1999, insurers ceased to be authorised insurers and merely became agents for the Authority. However, during the relevant period the scheme involved an insurer, which in this case was HIH. Under the new scheme, the payment of levies, formerly paid under the A.C. Act and its regulations, was replaced by a requirement that the employer obtain and maintain a policy of insurance, with premiums to be calculated in accordance with Premiums Orders.

The 1993 Act has been amended from time to time, and it is necessary to consider the provisions of the Act at each relevant date. The insurance year is from 1 July to 30 June of the following year - see s.7 and definition in s.3.

A document which regulated the relationship between HIH, an authorised insurer licensed pursuant to Part 3 of the 1993 Act, and the Authority, was a licence agreement executed by the Authority and HIH. It was dated 27 June 1997 and was varied by a written agreement executed on 26 June 1998.

By reason of s.82 of the A.C. Act, if a worker suffers injury under certain circumstances, he is entitled to compensation under the Act and does not have to prove fault on the part of the employer.

The A.C. Act imposes the liability to pay compensation on the employer.

Section 7(1) of the 1993 Act obliged an employer to obtain and keep in force a WorkCover insurance policy, with an authorised insurer, in respect of all the employer's liability under the A.C. Act and the common law.

Unlike earlier legislation, the 1993 Act and regulations do not prescribe a statutory policy. But s.9(1) provides that the policy must only contain such provisions as are prescribed by the Act "and any other provisions that are approved by the Authority".

It was accepted by the parties that a standard form policy had been approved by the Authority, and was used by all authorised insurers.

HIH was the authorised insurer of SBA Foods, and the form of policy admitted in evidence was accepted by the parties as being the same as the policy in force between SBA Foods and HIH, at all relevant times.

Part 3 of the 1993 Act deals with licensing of WorkCover insurers. A licence, when issued, was for a period of not less than 12 months and not exceeding 24 months - see s.31(1).

Section 32 provided that a licence was subject to conditions prescribed by the Act and conditions imposed by the Authority - see s.32(1). The latter could, by notice, impose or vary conditions - see s.32(2).

Importantly, "an authorised insurer must comply with any condition to which the licence is subject". See s.32(4).

Section 33 dealt with conditions and s.33(2)(d) permitted a condition -

"(d) for the purpose of the efficiency or effectiveness of the WorkCover system generally;"

At all relevant times, HIH was a licensed insurer.

The licence agreement between the Authority and HIH provided, in condition 2.2, the following -

"2.2 In carrying out its obligations, functions and powers under the licence, the insurer must comply with these conditions and with any guidelines directions or advisory notes issued by the Authority from time to time."

The Authority and HIH submit that this sub-condition gave the Authority power to require HIH to adjust the premium after the auditor's report.

Turning to the policy, which was a contract between HIH and SBA Foods and which was subject to the statutory provisions, it provided for the payment of premium which was stated in the notice appended to it. The amount of the premium was the amount calculated in accordance with the Insurance Premiums Order, in force for the relevant period. It is noted that the Authority was not a party to the contract.

The policy provided, inter alia, for interest to be paid on an overdue premium and contained terms concerning adjusted premiums, penalty for non-payment of adjusted premiums, prohibition against any act to avoid payment of premiums, and disputes concerning premiums.

As is noted on the front page of the policy, it was subject to the A.C. Act, the 1993 Act and the Regulations and Orders made under the Acts.

The 1993 Act dealt with premiums and their calculation.

Section 15 provided -

"The Governor-in-Council may on the recommendation of the Authority by Order in Council make a premiums order -

(a) specifying the methods to be used in calculating premiums payable by an employer for a WorkCover insurance policy; and

(b) prescribing or specifying any matter or thing required or permitted by this Act to be prescribed or specified by a premiums order."

Premiums Orders were made for each of the insurance years 1996/1997 (No. 4), 1997/1998 (No. 5) and 1998/1999 (No. 6). The relevant provisions are the same in each Order, and it is convenient to consider Order No. 6 for the insurance year from 30 June 1998 to 30 June 1999. It was during this year that the decision under review was made.

That order came into operation on 30 June 1998 (clause 2).

The premium was to be calculated in accordance with clauses 4-11, 14 and 15, and Schedules 1-9 (clause 3).

Clause 4 dealt with the basic formula, and clause 5 provided -

"5. WorkCover Premium The WorkCover Premium of an employer is the sum of the premium for all periods of coverage of all workplaces of the employer where the premium payable for a period of coverage of a workplace is determined in accordance with the following formula:" (A formula was set out.)

"6. WorkCover Premium Rate (1) The WorkCover Premium Rate for the workplace in respect of the period of coverage is calculated -

(a) if the workplace is a startup workplace, as IR; or

(b) in all other cases,

(i) in accordance with the following formula: (formula set out) or

(ii) as 10% of IR -

whichever is the greater."

(Emphasis added).

IR is the industry rate, within the meaning of item 8 of Schedule 1, for the workplace in question.

It is noted that the formula in relation to all other cases was to include, what was described as, the E-factor, which was the "experience factor, calculated in accordance with Schedule 3".

SBA Foods' premium was calculated on the basis that it was a startup workplace and accordingly, the premium was calculated in accordance with the industry rate.

After the auditor's report, the premiums were adjusted to take into account the experience factor; that is, the experience of Gilbertsons.

Clause 11 dealt with determinations and calculations and provided -

"11. Determinations and calculations (1) Unless otherwise expressly stated, any determination or calculation required to be made for the purposes of calculating a premium under this Order is to be made by the authorised insurer. (2) An employer may, in accordance with the policy, apply to the Authority for review of, or the Authority may of its own volition review, a determination or calculation made by an authorised insurer under sub-clause (1) and on review the Authority may make any determination or calculation that the authorised insurer may make."

Schedule 1 dealt with, inter alia, industry classification, workplace predominant activity and industry rate. It will be necessary to refer to Schedule 1 later.

Schedule 9 dealt with WorkCover industry classification and was divided into divisions.

When the premium was first calculated for SBA Foods for the year 1996-7, division C sub-division 21 of Schedule 9 dealt with a slaughtering of animals workplace, and the Premiums Order prescribed an industry rate of 7.5%.

Schedule 7 deals with, what is called, "Revised Premium".

"1. Where the authorised insurer or the Authority becomes aware of any new information affecting the calculation of the premium after the premium payable is calculated, the authorised insurer or the Authority may recalculate the premium in accordance with this order and the difference must be met by a further payment by the employer or by a refund to the employer, as the case requires."

SBA Foods, at the time it instituted the proceeding, was of the view that it was pursuant to item 1 of Schedule 7 that the premiums were adjusted. Its contention was that it could not apply because, at all relevant times, both the authorised insurer HIH and the Authority were aware of all information and hence, there was no information.

Section 16(1) of the 1993 Act provided that the Premiums Order applied to the policy which was in force, in respect of the policy period commencing on and after the date of the Premiums Order.

Section 17 provided that the premiums were to be calculated in accordance with the Order. Section 17(1) provided -

"(1) The premium payable by an employer for a WorkCover insurance policy must be calculated in accordance with the method specified in the relevant premiums order."

The determination of the amount of the premium commences with an estimate of the rateable remuneration that the employer will be liable to pay to workers during the policy period. Section 8 defines what is "rateable remuneration".

Section 18 sets out the procedure, whereby the insurer sends a notice to the employer stating an estimate of rateable remuneration, and that estimate is deemed to be the estimate provided by the employer unless, the employer, within 28 days of receiving the notice, provides to the insurer another estimate. Alternatively, if the employer receives a notice from the insurer, which does not include an estimate of the rateable remuneration, then the employer must, within 28 days, provide an estimate of the remuneration. Section 20 obliges the employer to inform the insurer if there is any change in the rateable remuneration.

The premium is calculated on the rateable remuneration and depends upon an accurate rateable remuneration.

Section 21 permits the adjustment of the premium by the Authority or the insurer. The power under that section is confined to the circumstances specified in s.20(1) or (2), which deal with revised estimates and rateable remuneration because of changed circumstances.

Section 22 permits an application by the employer to the insurer for the premium to be adjusted. This right is exercisable "subject to and in accordance with the premiums order".

If one goes to the Premiums Order Schedule 7, item 2 sets out the circumstances under which an employer may seek to have the premium adjusted.

Section 23 is concerned with the power of the insurer to require an employer to provide a certified statement of rateable remuneration. In addition, the Authority may require an employer to provide a certified statement of rateable remuneration. The failure to comply with the requirement is a criminal offence.

Section 24 empowers the Authority, where an employer fails to provide an estimate of rateable remuneration under s.18 or the Authority considers that the estimate is incorrect, to assess the amount of rateable remuneration, calculate the premium and serve a notice on the employer specifying the amount of premium payable.

Section 26 is concerned with payment of premiums. The heading to the section is -

It is noted, in sub-s.(1), that the premium is due and payable by the employer at the commencement of the policy period, and sub-ss.(2) and (3) permit an employer to elect to pay premiums due by monthly instalments or an authorised insurer may defer payment.

Section 26(4) is important in the resolution of the issues in this case. Much time and argument was spent in considering its interpretation and application.

"26. Payment of premiums (1) ... (2) ... (3) ... (4) The Authority or the authorised insurer may by notice in writing to the employer at any time after the commencement of a policy period adjust the amount of premium in accordance with the premiums order and the adjusted amount is the premium for the purposes of this Act."

Counsel for SBA Foods submitted that this sub-section did not authorise the adjustment of the premiums, which took place by the letter of 3 December 1998. It was submitted that the only right to adjust the premiums was to be found in Schedule 7 item 1 of the Premiums Order, and then only on becoming aware of new information affecting the calculation. If the new information came to the attention of either the insurer or the Authority during the insurance year, then the other had no power to revise the premium when it later ascertained the position. In other words, it was submitted that the clause could not have retrospective operation so as to adjust premiums for previous years. In addition, it was argued that the question of knowledge was to be determined by ascertaining which employee of the insurer or Authority first became aware of new information, and once that date was fixed, the Authority or the insurer could not thereafter adjust the premiums in respect of previous years; only in that year.

It was also submitted that s.26(4) was not a separate and distinct power or authority, in either the Authority or the insurer, to adjust premiums in respect of previous years.

The legislative scheme established by the 1993 Act was discussed by the Court of Appeal in Victorian WorkCover Authority v I.R. Cootes Pty Ltd (2001) VSCA 85.

Phillips JA, with whom Charles JA agreed, described the scheme thus -

"... as I see it, that scheme was in substance a scheme of private insurance. It is true that the scheme was overlaid with and subject to, a number of statutory requirements, but in essence, it was designed to bring the employer and an insurance company into direct contractual relations over the liability of the employer in respect of work-related injury or death." (Emphasis added).

I refer to the underlined portion and add that the statutory provisions also placed obligations and duties on the employer, the insurer and the Authority, and, more importantly, empowered the Authority to do certain things and enforce them.

The various powers, rights, duties and obligations of the three parties before the Court are to be found in the contracts between them and the A.C. Act, the 1993 Act and the Premiums Orders. The powers, rights, duties and obligations arise out of a combination of the common law of contract and the various statutory provisions. The latter override the former if there is conflict.

No argument was put by any party that the Authority did not have the power to engage an auditor to examine the financial records of SBA Foods, to determine whether the correct premium had been paid in the past. Indeed, no argument could have been mounted by reason of s.239 of the A.C. Act.

The audit report recommended that succession applied to SBA Foods' insurance and that the premiums which had been calculated for the years commencing 30 June 1996, 1997 and 1998 be recalculated.

Some time prior to 13 November 1998, the Authority made a decision to apply succession to the premiums payable by SBA Foods in respect of those years, and on that date, directed HIH to arrange for succession to be applied, effective from 18 November 1996, and to adjust the premiums (Exhibit CT6).

It is clear, from the letter, that the Authority accepted the auditor's determination that succession applied.

The Authority's decision was made without any opportunity being given to SBA Foods to be heard on the issue of succession, although the evidence does establish that SBA Foods was aware of the auditor's investigation into the issue, and that an invitation to discuss the issue was extended and declined by SBA Foods.

The issue, at present, is the legal authority of the Authority and HIH to do what each did.

The first question for consideration and determination is, did the Authority have the authority to direct HIH to recalculate premiums payable by SBA Foods?

There are two issues in this question. First, the authority to direct HIH to recalculate the premiums. It is clear from the provisions of the licence agreement that the Authority had the power to direct HIH to perform the task. See clause 2.2.

The second and important question is, did the Authority have the power to determine that succession was to apply and to recalculate the premiums for the past? In considering this issue, it will be necessary to differentiate between previous insurance years, which had already expired, and the premium fixed for the year commencing 30 June 1998, which was to apply for the year ending on 30 June 1999. Mr Tracey QC, on behalf of SBA Foods, argued that what power there was, had to be exercised in the particular insurance year, and was not available in respect of the premiums paid in former years.

Mr Garrett QC, on behalf of HIH, submits that it made no decision when it calculated the premiums, but merely did as it was directed and issued adjusted premium notices. It makes a point that the actual amount of the recalculated premium has never been challenged.

In my opinion, HIH did not make the decision that succession was to apply or that the premiums had to be recalculated for the previous three years. Both decisions were made by the Authority, which directed HIH, pursuant to the licence, to implement the decisions.

However, what HIH did was not devoid of legal effect. Once done, assuming the power was there to adjust the premiums, the adjusted premiums were payable by SBA Foods to the insurer.

Mr Uren QC, who appeared with Mr Fleming for the Authority, submitted that the Authority had the power to make the decision and to enforce same, by directing HIH to recalculate the premiums. Their argument was supported by Mr Garrett QC, on behalf of HIH.

The premium payable under the policy must be calculated "in accordance with the methods specified in the relevant premiums order" - s.17(1) of the 1993 Act.

It is noted that the calculation is to be in accordance with the methods set out.

By reason of s.16(1) and the provisions of the Orders, a Premiums Order operates for a period of one year, and applies to the policy in respect of the period commencing on or after the date of commencement of the Order. Hence, Premiums Order No. 6 commenced on 30 June 1998 and continued until 4.00 p.m. on 30 June 1999.

Order No. 4 operated from 30 June 1996 to 30 June 1997, and Order No.5 operated from 30 June 1997 to 30 June 1998.

The Authority submitted that the power to adjust the amounts of premium for past years is found in s.26(4) of the 1993 Act, which is set out above.

Mr Uren QC submitted that the sub-section gave a general power, which could be exercised at any time and was not confined to the particular policy year operating at the time when the power was exercised. It followed that the power could be exercised at any time and in respect of premiums payable in previous years, after the expiration of the insurance periods.

Mr Tracey QC submitted that s.26(4) was not an independent head of power, but was limited in its application to the particular year in which the premium was to be adjusted, and then only to be exercised in accordance with Schedule 7 of the Premiums Order. Schedule 7 is concerned with re-calculating the premium after the insurer or the Authority became aware of new information which affected the previous calculation. Mr Tracey QC also drew attention to s.26(1) and emphasised that it required the premium to be paid at the commencement of the policy period. He submitted that there was no power in the Authority or the insurer, under s.26(4), to adjust premiums in respect of previous years when the policy periods had expired.

Mr Tracey QC referred the Court to a decision of His Honour Judge Meagher delivered on 27 October 1999 in the case of I.R. Cootes Pty Ltd v Victorian WorkCover Authority and Anor. His Honour held that s.26(4) did not give the Authority or the insurer power to adjust premiums after the expiration of the policy year, and that the sub-section was concerned with the payment of adjusted premiums which had been adjusted pursuant to ss.21, 22 and 23(4) of the 1993 Act. The latter provisions were not relevant to the present matter.

The case went on appeal and was argued on 19 February 2001. The Court delivered its reasons on 6 June 2001, and this explains some of the delay in delivering these reasons.

The facts can be briefly summarised. The employer conducted a road freight transporting business, and had done so since 1985. The freight business was a tanker operation involving bulk loading, carrying and unloading of petroleum products. Its customers were the petroleum products suppliers, and the employer delivered to service stations and the like.

Since 1985, the employer's workers' compensation levy payments were calculated under the industry classification of F4741J - Petroleum Products Wholesaler.

As stated above, on 1 July 1993, the scheme for payment by employers changed. In accordance with the 1993 Act, the employer was required to obtain and maintain a statutory policy of insurance with an authorised insurer, and the premiums were calculated in accordance with annual Premiums Orders.

The employer appointed an authorised WorkCover insurer and it continued with the same industry classification. Each premium was calculated in accordance with that calculation.

The premiums were paid for the years 1993-4 and 1994-5.

In August 1995, the Authority appointed a firm of accountants to conduct a premium audit, and it reported to the Authority that the employer's classification was incorrect and that the correct one should have been Classification G5111J - "Long Distance Intrastate Road Transport". The change in classification resulted in a higher premium.

The insurer for the 1995-6 year issued an "initial premium" in accordance with the new classification. The insurer followed this document with a letter, which stated that the employer's classification had changed "effective from 1995-6 financial year only".

The Authority instructed the insurer to amend the classification back to 1 July 1993, and demand was made on the employer to pay a revised premium for each of those years ending 1994, 1995 and 1996. The employer paid the amounts of the adjusted premium, totalling $107,262.72, under protest. It sued for the recovery of the said sum paid under protest, pursuant to a common law money count of moneys had and received.

* The employer had paid annual premiums from 1985 on the same classification;

* The employer had received visits from officers of the Authority and there was no suggestion that the classification was wrong;

* The employer had not been deceptive or misleading in registering its classification;

* The employer was initially informed that the adjustment was for the year 1 July 1995 to 30 June 1996.

There were two main issues in the proceeding. First, what was the correct classification, and secondly, if the classification was incorrect, did the insurer have the power to adjust the premiums for previous years?

The trial Judge decided each issue in favour of the employer. On appeal, the Court was divided in respect of the first issue. The President held that the classification was correct, whereas Phillips and Charles JJA held it was not.

The three Judges all held that there was no power in the insurer, in the circumstances, to adjust the premiums for the years 1993-4 and 1994-5, and the majority Judges held that the insurer was entitled to adjust the premium for the year 1995-6.

Phillips JA considered the powers of the authorised insurer, and Charles JA agreed with his reasoning. I turn to his reasoning, which can be summarised as follows -

(i) Did the insurer have the power under the various Acts, including the Premiums Order and policies, to adjust the amount payable for premium for the three policy periods from 1993 to 1996?

(ii) If the insurer had the power to adjust, was it exhausted when notice was given that the re-classification was "effective from the 1995-6 financial year only"?

* That under the legislative scheme established by the 1993 Act, the scheme was, in substance, one of private insurance, i.e. a contractual relationship between the employer and the insurer.

* That the form of the policy supported this conclusion.

* That the policy was expressly subject to the A.C. Act, the 1993 Act, and the regulations and orders made under the Acts.

* That s.15 of the 1993 Act authorised the Governor-in-Council to make a Premiums Order "specifying the methods to be used in calculating premiums payable by an employer".

* That clause 10 of the Premiums Order and condition 10 of the policy emphasised the nature of the scheme as private insurance, and the authorised insurer was bound to determine the rate of the premium.

* That s.17 of the 1993 Act did not permit the insurer to adjust the premiums retrospectively, and to give this construction would lead to an absurdity because the insurer could review the classification at any time and an employer would never know its obligations. The section did not provide for an adjustment.

* The right to adjust premiums depended upon the terms of the relevant policy when read and understood in the context of the legislative scheme.

* The contract of insurance is a contract and cannot be re-made without agreement by all parties. His Honour did observe that his finding was subject always to statute. Once the premium is struck and paid it cannot be altered.

* Unless there was some provision justifying it for the past, there was no basis for adjusting the premium.

* Neither Schedule 7 of the Premiums Order nor s.26(4) justified the power to revisit past years.

* Section 26(4) gave a power to adjust in accordance with the Premiums Order - one had to go to the Premiums Order.

* Schedule 7, which is headed "Revised Premium", did not authorise the insurer, well after the expiry of a policy period, to revisit the situation and adjust the premium.

* The words in Schedule 7 did not require it, and nothing in principle justified it.

I have some difficulty with the reasoning. First, because of the emphasis on the legislative scheme, resulting in a private contract between the insurer and the employer which cannot be changed. The contract is not a statutory contract. It is a contract made as required by statute, and in a form approved by the Authority. It is subject to the legislation. Statute law must override a private contract. The policy in any event is made subject to the statutes, and the legislation and the contract both expressly provide that the premium is to be determined in accordance with the Premiums Order.

Relevantly, for the present case, the Authority is not a party to the contract. Its rights do not depend upon the terms of the contract.

At a glance

Court

Decision date

Before

Source

Judgment (364 paragraphs)

Parties

Legislation Cited (2)

Cases Cited (7)