Somerville Retail Services Pty Ltd v Victorian WorkCover Authority [2011] VSCA 166

1 The Victorian WorkCover Authority ('the Authority') brought a proceeding in the County Court claiming sums for premiums and penalties alleged to be payable to it (on behalf of the authorised workers' compensation insurer) by an insured employer, namely, Somerville Retail Services Pty Ltd ('the appellant'), pursuant to the provisions of the Accident Compensation (WorkCover Insurance) Act 1993 (Vic) ('the Act'). The Authority succeeded at trial and obtained judgment on 30 March 2010 in the sum of $1,765,185.50 (inclusive of interest). On 2 June 2011 this Court dismissed the appellant's appeal and these are our reasons for so doing.

2 In the proceeding, the Authority had claimed an amount of some $1.5M on the basis that the WorkCover Industry Classification ('WIC') of the appellant was WIC C2115L and, in the alternative, an amount of some $900,000 on the basis that the WIC of the appellant was F4761T. WIC C2115L under the applicable WorkCover Insurance Premiums Order[1] ('the Premiums Order') was 'Meat Products Manufacturing' whereas WIC F4761T under the Premiums Order was 'Meat Wholesalers'.

3 By its defence, the appellant admitted that it was obliged to pay a premium in accordance with the Premiums Order but contended that the relevant classification was F4761T (meat wholesalers), and that it had paid the premiums in accordance with that classification. By an amendment to the defence, for which leave was granted in the course of the trial, the appellant alleged that, as F4761T was the correct classification, no penalties were payable and, in the alternative, that neither classification C2115L nor classification F4761T was applicable to it. At trial, and also on appeal, the appellant abandoned the contention that classification F4761T (meat wholesalers) was applicable. At trial, the appellant relied upon its amended pleading to the effect that neither of the suggested classifications was applicable and did not contend that there was any other classification under the Premiums Order that ought to have been applied by the Authority.

4 Before considering the reasons of the learned trial judge and the appellant's grounds of appeal, it is convenient to refer to the statutory foundation for the Authority's claim. Section 26(1) of the Act provides that the premium payable by an employer for a WorkCover insurance policy is payable in accordance with the relevant premiums order. Section 26(4) of the Act provides that the Authority may, by notice in writing to the employer, adjust the amount of the premium so that it is calculated in accordance with the relevant premiums order. Section 27(1) of the Act provides that the Authority may review the amount calculated as a premium in respect of one or more policy periods. There are a number of other provisions relating to the adjustment of premiums but they are not relevant to the present appeal. By s 15(1) of the Act, the Governor in Council is empowered, on the recommendation of the Authority, by Order in Council to make a premiums order specifying the methods to be used in calculating premiums and s 16 contains general provisions relating to the making of and the permissible contents of premiums orders. Section 17 of the Act provides that the premium payable by an employer for a WorkCover insurance policy must be calculated in accordance with the relevant premiums order.

5 It is unnecessary to set out a complete explanation of the somewhat complex provisions of the Premiums Order and its mode of operation. It is sufficient for the purposes of the appeal to note that one of the key provisions is item 7(1) of Schedule 1 to the Premiums Order which provides that:

... the industry classification of a workplace is the WorkCover Industry Classification in Schedule 4 to which the predominant activity at that workplace corresponds or most closely corresponds.

6 Item 7(2) of Schedule 1 to the Premiums Order goes on to provide that, in determining the industry classification under item 7(1), regard must be had to the Introduction and all relevant elements of Schedule 4 and consideration must be given to the industrial characteristics of the predominant activity without regard to the risk of injury associated therewith.

7 Item 3(1)(a) of Schedule 1 to the Premiums Order provides that:

'Predominant activity', in relation to a period of coverage at an actual workplace of an employer, means the activity of the employer which during that period contributes, or is likely to contribute, more than any other activity of the employer to the value of goods and/or services produced or provided by operations carried on in that workplace.

8 The introduction to Schedule 4 to the Premiums Order repeats that, in accordance with item 7 of Schedule 1, the industry to which a workplace is classified for an employer is the WorkCover Industry Classification in Schedule 4 to which the predominant activity in that workplace corresponds or most closely corresponds. The introduction provides that the predominant activity in the workplace is determined in accordance with item 3 of Schedule 1 without regard to Schedule 4 and '[i]t is then necessary to identify the WorkCover Industry Classification in this Schedule to which that predominant activity corresponds or most closely corresponds'. The introduction to Schedule 4 also contains a flow chart showing the process for identifying the appropriate WorkCover Industry Classification. This flow chart confirms, inter alia, that the predominant activity must first be determined and then a number of steps are set out for identifying the appropriate industry classification applicable to the given predominant activity.

9 Having regard to the way in which the issues arose on appeal, it is necessary only to set out the provisions dealing with the industry classification relating to the manufacturing of meat products. The introduction or preamble to the division dealing with manufacturing relevantly provides:

1. This Division includes all workplaces predominantly engaged in manufacturing the various categories of products summarised below.
2. The term 'manufacturing' is used here in the broad sense to relate to the physical or chemical transformation of materials or components into new products, whether the work is performed by power-driven machines or by hand...

...

4. Broadly, then, this Division includes all workplaces predominantly engaged in manufacturing:

(a) food, beverages or tobacco products (Subdivision 21).

10 Schedule 4 then deals with the particular classification which includes food manufacturing as follows:

DIVISION C : MANUFACTURING

SUBDIVISION 21 : FOOD, BEVERAGES AND TOBACCO

GROUP CLASS TITLE AND DESCRIPTION

211 MEAT PRODUCTS

C2115L MEAT PRODUCTS MFG ...[2]

This class consists of workplaces predominantly engaged in slaughtering animals..., boning, freezing, preserving or packing meat...,[3]

Predominant Activities

11 Under the above heading of 'Predominant Activities' a considerable number of activities are listed, including 'buffalo meat mfg', 'kangaroo or wallaby meat mfg', 'meat mfg', 'meat packing' and 'meat products mfg'.[4]

The trial and the judge's reasons for judgment

12 At trial, the Authority relied upon the provisions of s 71 of the Act concerning the evidentiary effect of the production of a certificate by the Authority and the evidentiary effect of the production of a Notice of Assessment (and certain other documents) by the Authority. The issues under s 71 were determined adversely to the Authority and the Authority did not on appeal seek to contend against the conclusions reached by the trial judge.

13 The evidence led at trial concerning the appellant's operations at the workplace was not the subject of any significant dispute. The evidence showed that the appellant processed meat pursuant to a contract with its only customer Coles Supermarkets Australia Pty Ltd. The contract was contained in a written agreement entitled 'Value Add Supply Agreement'. The Agreement defined 'Processed' to mean 'produced and/or processed and packaged as required by Coles' and defines 'Products' to mean 'meat products specified by Coles and Processed by the [appellant]'. Under cl 2 of the Agreement the appellant acknowledged that the Products Processed by it were intended for sale as meat for human consumption and that Coles agreed that the appellant would be Coles' preferred company to construct and operate a facility to produce 'modified atmosphere packaged product', inter alia, in Victoria and, further, that Coles would in each week or at other intervals instruct the appellant as to the type and quantities of Products to be Processed, provide the appellant with the specifications for the production of the Products, provide the appellant with instructions for packaging of the Products and provide the appellant with instructions for delivery of the Products. The Agreement further provided that property in the raw materials in the Products remain with Coles at all times.[5]

14 The evidence at trial showed that the appellant's operation involved the receipt of 'primal cuts'[6] of meat from abattoirs, the 'processing'[7] of the meat primarily[8] by cutting, trimming or in some cases mincing it into sliced, diced or minced meat,[9] its packing for the purpose of retail sale at Coles' supermarkets and the delivery of the packages to Coles' various distribution centres.

15 The trial judge, in his reasons, said that the Authority had submitted that the appellant was predominantly engaged in the manufacturing of food products, using manufacturing in the broad sense to relate to the physical or chemical transformation of materials or components and that the Authority submitted that the activity of cutting meat had contributed more than any other activity of the appellant to the value of the meat products produced. The Authority submitted that the appellant was not engaged in wholesaling because it did not trade in or engage in ownership of the meat. The judge said that the appellant submitted that its predominant activity was the provision of retail services to Coles as specified in the contract and that the appellant ultimately submitted that its operations did not fit into any of the classifications contained in the Premiums Order and did not suggest to the Court that any classification contained in the Premiums Order should be considered by the Court other than those pleaded.

16 The judge said that the key issue was what was the appropriate description of the central activity at the workplace. The judge said that the appellant physically cut[10] and transformed the great majority of the meat that it received into new products for sale to consumers. The predominant activity at the workplace was the turning of primal meat cuts into meat cuts that were readily usable by purchasers at Coles' supermarkets. The judge said that these functions of the transformation of the meat fitted within the definition of manufacturing in Division C of Schedule 4. The judge said that the fact that the appellant was, at its workplace, performing its contractual obligations to Coles did not mean that such a description would identify its principal activity for the purposes of the Premiums Order and for the purposes of that Order it was necessary to identify the predominant activity at the workplace by reference to the kind of work performed. The judge concluded that the appropriate classification was meat manufacturing within Division C, Subdivision 21, Group Class 211 of the Premiums Order.

17 The notice of appeal contained five grounds but the appellant abandoned grounds 4 and 5. The essential point of ground 1 was the contention that the judge should have concluded that the appellant's predominant activity was the provision of retail services to Coles. However, as will appear below, the appellant did not seek to maintain that argument. The substance of ground 2 was that the judge minimised the significance of the contract between the appellant and Coles but, as will appear below, the appellant was unable to support this ground. Ground 3 related to an alleged error of the judge with respect to the significance of the boning of meat at the appellant's workplace but, again, as will appear below, this ground was of no importance. It may be that the grounds of appeal, strictly speaking, did not cover the essential submissions advanced by the appellant but no objection was raised by the Authority and in the circumstances it is unnecessary to consider this aspect further.

18 The appellant submitted that the predominant activity at its workplace was 'the rendering of meat into merchantable units for sale in Coles supermarkets'. The appellant submitted that the contract with Coles was 'the starting point in determining what the predominant activity of the appellant's operation' was. However, when asked how the nature or terms of the contract was relevant to the determination of the relevant predominant activity or the relevant Classification, senior counsel for the appellant did not identify any basis for such relevance other than the point that, because the contract retained the property in the products in Coles at all times, the characterisation of the activity or its classification as 'wholesaling' could probably not be sustained. Insofar as the appellant's written outline contained any contention that the predominant activity of the appellant was to be characterised as the provision of retail services to or for Coles, the appellant, in oral submissions, expressly disclaimed any reliance on this contention.

19 In argument, the appellant submitted that the predominant activity at the workplace (i.e. the rendering of meat into merchantable units for sale in Coles supermarkets) did not constitute meat manufacturing because 'meat was meat'. The appellant further submitted that the appropriate classification under the Premiums Order was not the manufacturing of meat products because the description contained in WIC C2115L did not refer to cutting but only to a number of other activities, such as slaughtering, boning and packing, none of which were the predominant activity of the appellant at its workplace. The appellant submitted that 'near enough was not good enough'. Senior counsel for the appellant accepted, when it was put to him by the Court, that the predominant activity at the workplace had to be given some classification under the Premiums Order and that the Premiums Order required that classification to be assigned to the predominant activity to which that activity corresponded or 'most closely' corresponded. The Court asked senior counsel for the appellant to identify any classification under the Premiums Order that corresponded more closely to the predominant activity of the appellant at the workplace than that of meat manufacturing but none was identified. The appellant simply maintained that the classification found by the trial judge was incorrect without suggesting that there was any viable alternative under the Premiums Order.

20 It is unnecessary to refer to the Authority's outline of submissions which in substance supported the trial judge's reasoning and conclusions. The Court did not call upon the Authority's counsel.

21 In our opinion the appellant failed to identify any material error in the reasons of the trial judge. We consider that his Honour's conclusion was correct. This was not a case in which it was necessary to identify amongst a number of activities at a workplace that activity which was the 'predominant activity'. Neither party contended either at trial or on appeal that it was necessary to perform that exercise. Rather it was a case where there was one integrated operation carried on at the workplace that constituted the predominant activity for the purposes of the Premiums Order. Nor was there any dispute about the nature of that operation. If there was any real issue as to the activity at the workplace, it related to the appropriate characterisation of that activity. The judge concluded that it was to be characterised as meat manufacturing. The appellant contended that it was to be characterised as the rendering of meat into merchantable units for sale in Coles supermarkets. In our opinion, the processes performed by the appellant were appropriately characterised as 'manufacturing', in the natural and ordinary meaning of that word and the manufacturing was of meat or meat products.[11]

22 Even if the arguably more 'neutral' characterisation of the predominant activity advanced by the appellant were to be adopted, we do not think that the result can be any different. In the light of the nature of the process in this case, the rendering of meat into merchantable units for sale constitutes the manufacturing of meat and meat products in ordinary parlance.

23 The only remaining question then is to which classification in the Premiums Order the predominant activity, whether characterised one way or the other, corresponds or most closely corresponds. In our opinion there is only one answer and, indeed, the appellant suggested no alternative. The appellant's activity fell within the definition of the term 'manufacturing' contained in the preamble to Division C - as 'used here in the broad sense to relate to the physical ... transformation of materials ... into new products ...'. That the classification of meat products manufacturing was intended to cover an activity such as that of the appellant is demonstrated by the list in C2115L of such predominant activities as meat manufacturing, meat packing and meat products manufacturing. We conclude that the predominant activity at the workplace of the appellant corresponded with WIC C2115L (meat products manufacturing).

24 Even if anything can be made of the omission of the activity of 'cutting' from the description of the class in a context where such activities as slaughtering, boning, freezing and packing are all expressly mentioned, we consider that the conclusion is inescapable that WIC C2115L most closely corresponds to the predominant activity at the appellant's workplace, that is to say, there is no other classification which more closely corresponds to that activity.

[1] The text of the WorkCover Insurance Premiums Order (No 15) 2007/2008 was referred to and relied upon by both parties for the purpose of the proceeding and for the appeal. The trial judge noted that the relevant provisions of the premiums orders for the relevant years in issue were in the same terms.

[2] There follows a number of irrelevant exclusions.

[3] There again follows a number of irrelevant exclusions.

[4] Again, there are a number of exclusions which are, for present purposes, irrelevant.

[5] This particular provision of the Agreement was, no doubt correctly, seen by the appellant as preventing the appellant's activity from being classified as 'food wholesaling' - hence the abandonment of the contention both at trial and on appeal. As to the relevance of title to goods to a classification of wholesaling, see generally the discussion in Victorian WorkCover Authority v IR Cootes Pty Ltd [2001] VSCA 85.

[6] The average weight of a carcass was 240kg whereas the average weight of a carton containing the 'primal cut' of such carcass was 15kg.

[7] The processing operations were partly mechanical and partly manual.

[8] Other activities also involved in the overall operation included storing, weighing, labelling and product despatch.

[9] The appellant in the main produced steaks, cuts, roasts and mince and, of the 350 to 450 tonnes of meat produced per week, the quantity of minced meat varied from about a quarter to a half of that production.

[10] The judge made a reference to the 'boning of meat' by the appellant - what the judge said was probably incorrect or at least an overstatement but nothing turns on it.

[11] The Macquarie Dictionary (5th ed) defines the verb 'manufacture' as including 'to make or produce by hand or machinery, especially on a large scale; to make in any manner; to work up (material) into form for use'.