WorkCover Authority of New South Wales v Edwin Tucker and George MacDonald

District Court of NSW|2012-09-27|Before: Say-Dee P, Bignold J

Introduction 1This matter involves a question of statutory construction concerning the provisions of the Workers Compensation Act 1987 ('The Act') whereby the WorkCover Authority of New South Wales ('the plaintiff') can recover certain sums from the directors of a corporation in circumstances where the corporation has not complied with its insurance obligations under the Act. 2Before coming to the specific issues for determination, it is necessary to summarise the scheme of the Act dealing with these types of situations. 3Pursuant to s155 of the Act, an employer is required to obtain and maintain in force a defined policy of insurance for, inter alia, the full amount of its liability under the Act in respect of all its employees. A failure to do so carries a maximum penalty of 500 penalty units or six months imprisonment or both. 4In addition to these penalties, pursuant to s156 of the Act, the plaintiff can recover from the employer as a debt in a court of competent jurisdiction a sum up to twice the amount of the premium that would have been payable for the issue of such a policy of insurance to the employer for the period during which it was uninsured. 5Pursuant to s156B(1) of the Act, if the employer is a corporation and the amount sought against it pursuant to s156 is "not recoverable", the plaintiff "is entitled to recover the amount from a person who was a culpable director of the corporation at the relevant time". 6Pursuant to s156B(2) of the Act, an "amount is considered to be not recoverable from a corporation if the (plaintiff) certifies that it will be unable to recover the amount from the corporation by reasonable efforts at recovery, whether because the corporation is being wound up and is unable to pay its debts, or otherwise." 7Pursuant to s156B(3) of the Act, a "person is a culpable director of a corporation at the relevant time if the person was a director of the corporation at any time during the contravention to which the entitlement of the (plaintiff) relates" or, in other words, when it didn't have in place the relevant compulsory insurance. 8Pursuant to s156B(4) of the Act, a "person is not a culpable director of a corporation if the person establishes that: (a)the contravention by the corporation occurred without the person's knowledge, or (b)the person was not in a position to influence the conduct of the corporation in relation to the contravention, or (c)the person, being in such a position, used all due diligence to prevent the contravention by the corporation." 9Provisions also exist within the Act in relation to the recovery of amounts paid by way of workers compensation to an employee of an uninsured employer. The payments in these circumstances are made by the uninsured liability fund set up under the Act and administered by the "Nominal Insurer" against whom the injured worker brings proceedings. 10Pursuant to s145 of the Act, a procedure is established whereby the "Nominal Insurer" may recover from the injured worker's employer at the relevant time, the amounts so paid which includes bringing proceedings in a court of competent jurisdiction. 11Pursuant to s145A(1) of the Act, if the employer is a corporation and the amount sought against it pursuant to s145 is "not recoverable", the Nominal Insurer "is entitled to recover the amount from a person who was a culpable director of the corporation at the relevant time". 12Pursuant to s145A(3) of the Act, an "amount is considered to be not recoverable from a corporation if the Nominal Insurer" certifies that it will be unable or unlikely to recover the amount from the corporation by reasonable efforts of recovery, whether because the corporation is being wound up and is unable to pay its debts, or otherwise." 13Pursuant to s145A(4) of the Act, "a person is a culpable director of a corporation" if the person was a director at the time the corporation contravened s155 in relation to its compulsory insurance obligations. 14Pursuant to s145A(5) of the Act a "person is not a culpable director of a corporation if the person establishes that: (d)the corporation contravened section 155 without the person's knowledge, or (e)the person was not in a position to influence the conduct of the corporation in relation to that contravention, or (f)the person, being in such a position, used all due diligence to prevent the contravention by the corporation." 15Pursuant to s154C of the Act the plaintiff acts for and may exercise all the functions of the Nominal Insurer.

Background Facts 16The first and second defendants became directors of Agrivest Australia Pty Ltd (Agrivest Australia) in December 2007. This company owned apple orchards in Tumet, Batlow and the Murrambidgee Irrigation Area. It was one of a group of associated companies (the Agrivest Group) which had a common board of directors including both defendants. It was registered in Victoria with its registered office being in Melbourne. 17The subject proceedings were originally also brought against another director of Agrivest Australia whom was named as the third defendant but he died prior to the hearing and, by consent, at the outset of the hearing before me the claim against him was dismissed. 18In late September 2008, the chief executive officer of the Agrivest Group, a Mr Neil Steggall, was removed from his position by the board and the first defendant took over his position. In October 2008, the Agrivest Group was restructured which involved, inter alia, all the employees of one of the Agrivest Group, namely Agrivest Management Services Pty Ltd (Agrivest Management) being transferred to Agrivest Australia. Whilst Agrivest Management held appropriate workers compensation insurance in New South Wales, arranged through Willis Insurance Brokers (Willis), it was not transferred to Agrivest Australia nor was any fresh insurance of this nature arranged for these new employees of Agrivest Australia and they were therefore relevantly uninsured. 19As a result, from 17 October 2008 to 30 June 2009, Agrivest Australia failed to have in place appropriate workers compensation insurance in contravention of section 155 of the Act. 20During this period, on or about 15 June 2009, an employee so transferred to Agrivest Australia was injured in the course of his employment and made a claim for workers compensation payments under the Act. 21This claim resulted in the board becoming aware of Agrivest Australia's uninsured status which was quickly remedied. However, as there was no insurance in place at the time of the subject employee's injury, his workers compensation payments came out of the uninsured liability fund. 22Thereafter, Agrivest Australia went into voluntary administration in October 2009 and into liquidation in November 2009. 23In December 2009, the plaintiff issued the relevant notices to Agrivest Australia pursuant to sections 145 and 156 of the Act to recover, respectively, the compensation paid to the injured worker and an amount equal to twice the unpaid premium. Agrivest Australia failed to comply with these notices. 24As a result, certificates were issued pursuant to ss145A and 156B certifying that the relevant amounts were not recoverable from Agrivest Australia, thereby laying the groundwork for such amounts to be recovered from the defendants as culpable directors.

The Issues 25There is no issue that the applicable statutory procedures have been validly undertaken to enable the plaintiff to bring these proceedings. The sums in question are also not disputed and these are agreed at $26,272.27 in respect of workers compensation payments and $211,661.90 in respect of a sum equal to twice the unpaid premium, making a total claim of $237,934.17 plus interest. 26It is also common ground that the defendants are liable for such total claim as culpable directors unless they can discharge their onus under the essentially identical provisions of ss145A(5) and 156B(4) of the Act as set out above. In this regard, the defendants relied only upon the first subparagraph of each section being ss 145A(5)(a) and 156B(4)(a) and accordingly each need to establish that the failure to obtain and maintain in force the relevant compulsory insurance "occurred without (their) knowledge". In saying this, I appreciate that the parties have based some of their arguments as to the proper construction of these words upon a reading of the two sections as a whole, including subparagraphs (b) or (c) of each. Further, their submissions included references to other sections of the Act as well as to numerous other legislative provisions across a broad range of Acts. 27The primary issue that arises is a question of statutory construction, namely the meaning of the word "knowledge" as it appears in both sub-sections. There is also an issue as to what the evidence establishes was the nature and extent of each defendant's "knowledge" of the relevant circumstances, however such word is to be construed.

The Parties' Primary Positions 28On the behalf of the defendants, Mr Robinson of counsel, submitted that the meaning of the word "knowledge" within both sections "means actual knowledge and does not include any concept of constructive or imputed knowledge". Alternatively, he submitted that "it was not established that either (defendant) was aware of any circumstances which would have suggested to them that there was no insurance." 29On behalf of the plaintiff, Mr Price of counsel, submitted that "the word knowledge ought to be construed to give it all meanings that the word can bear" and that "a person can have knowledge of something if it is a matter that an ordinary honest and reasonable person would deduce from the primary facts." On that basis, he submitted that the evidence established that the defendants knew that Agrivest Australia did not have any employees before all of the employees of Agivest Management were transferred to it and that these "were matters that would have indicated to an honest and reasonably competent director that (Agrivest Australia) did not have workers compensation insurance" and therefore they had the requisite "knowledge". Mr Price further argued that, alternatively, the defendants were in breach of their duty of care as directors and should have made appropriate enquiries and are to be considered as "knowing" what those enquiries would have revealed, namely that there was a lack of relevant insurance. 30In response, Mr Robertson argued, inter alia, that the directors were not in breach of any of their duties as directors and, even if they were, knowledge that would be gained from making reasonable inquiries is not a form of knowledge recognised by Australian law and/or is not relevant when considering the sections in question.

The Onus 31 It is clear from the terms of ss 145A(5) and 156B(4) that each defendant bears the onus in establishing that the relevant contravention occurred without their respective "knowledge" regardless of how that word is to be construed and the argument before me was conducted on this basis. However, some statements contained within Mr Robinson's written submissions seem to suggest that the plaintiff bears an onus of establishing knowledge in the defendants of circumstances which would put an honest and reasonable man on enquiry "as to whether Agrivest Australia has workers compensation insurance" if "knowledge" is to be construed to mean, contrary to his primary submission, more than actual knowledge (see paragraphs 12 and 14 of MFI 4). 32Whether or not the subject word is construed to include all forms of knowledge as understood in ordinary everyday usage including all legal usage, as argued for by Mr Price, or is limited to actual knowledge as argued for by Mr Robinson, ss 145A(5) and 156B(4), as stated, clearly place an individual onus on each defendant to show that he did not possess such knowledge. If they can do so on the balance of probabilities, they succeed in this action. If they cannot, they fail. This, of course, means that if the evidence is such that I cannot determine whether they didn't have the relevant knowledge, they also fail. 33However, as a result of my factual findings, my decision in this matter would have been the same regardless of which party bore the onus.

The Evidence 34The evidence presented on behalf of the plaintiff came from a Mr Michael Butcher, a "Recoveries Coordinator", employed by the plaintiff. His evidence in chief was contained in 2 affidavits sworn by him on 26 March and 27 September 2012, which became exhibits A and B respectively. He was briefly cross-examined thereon by Mr Robinson. 35Mr Butcher's evidence was largely of a formal nature, going to the procedural steps required to be undertaken to bring an action of this sort. 36In cross-examination, Mr Butcher conceded that an audit conducted on behalf of the plaintiff concluded that Agrivest Australia had "overlooked the legislative requirement to effect a New South Wales workers compensation insurance policy" apparently when it became the "successor" of Agrivest Management. 37On behalf of the defendants, an affidavit of the second defendant sworn 6 June 2012 became exhibit 1 and an affidavit of the first defendant sworn 2 July 2012 became exhibit 2. A bundle of documents with a chronological index became exhibit 3. These documents, inter alia, provide some background as to what occurred in relation to workers compensation insurance within the Agrivest Group over the relevant period. Finally, a "Complaint Report" in relation to the plaintiff's investigation of the circumstances surrounding this matter and upon which Mr Butcher was briefly cross-examined became exhibit 4. This document establishes, inter alia, that Agrivest Management had first taken out New South Wales workers compensation insurance in January 2008 in relation to "320 workers for apple and pear growing" with such policy expiring on 30 June 2009. These would appear to be the workers transferred to Agrivest Australia in October 2008. 38Both defendants were cross examined before me. Mr Price did not submit that they were in any way untruthful in their evidence and I found them to be generally honest witnesses although some parts of their recollection of events had no doubt been affected by the lapse of time. However, they were both somewhat defensive when it came to explaining why the relevant insurance issue had escaped their direct attention. 39In exhibit 2, the first defendant deposed that shortly after Mr Steggall's departure in late September 2008, he and "the Board" became aware that at some earlier time Mr Steggall had moved all the employees of the Agrivest Group into Agrivest Management which had no assets. The board then made the decision to move all staff so employed by Agrivest Management to Agrivest Australia which owned the orchards. Agrivest Management was then placed in to liquidation. The first defendant further deposed that when Mr Steggall departed, the landlord of Agrivest Australia's offices in Melbourne who was owed rent refused access, meaning that the company's records could not be obtained for a period of about 1 month. When they were obtained the first defendant "came to understand that (they)....were incomplete". 40 The first defendant also deposed that prior to Mr Steggall's departure he is "unable to recall" any discussion with him at a board meeting or otherwise "in which insurance and, in particular, workers compensation insurance was discussed" and that if asked he "would have assumed that such matters would have been dealt with by Mr Steggall". Prior to his departure, the first defendant also deposed to it becoming apparent to him and the board that Mr Steggall "had been running the orchard business in a cavalier fashion" and that the board "became increasingly dissatisfied with (his) performance." 41In addition, the first defendant deposed that he was "unable to recall" any board meeting "where workers compensation was discussed" even after Mr Steggall's departure and prior to the subject contravention coming to light. He then goes on to state that in "October 2008 and until June 2009 it was my belief that all insurance premiums had been paid and that all policies of insurance were current" and, further, that he "had no reason to believe, and was not aware, that Agrivest (Australia) did not have a policy of workers compensation insurance." He confirmed being aware "that it is compulsory for all employers to maintain a policy of workers compensation insurance" and that in his "experience an insurance broker is usually retained to arrange all necessary insurance for a company." In this regard, he mentions earlier in exhibit 2 that Willis were the brokers for the Argivest Group and that Mr Steggall's wife worked for Willis and that "she had arranged insurance for the Agrivest Group for some time prior to my involvement." 42As to other forms of insurance, the first defendant deposed to receiving an "Insurance Renewal Report" prepared by Willis and headed "Agrivest Australia Pty Ltd Insurance Renewal Report" on 18 December 2008 and "may have discussed" it with Mrs Steggall or another employee of Willis the following day. However he goes on to state that he has "no recollection of reading the report at the time and no recollection of the nature of any discussion (he) may have had with (them) concerning the Renewal Report or insurance generally." 43The said report, which is contained at pages 96-136 of the bundle of documents annexed to exhibit A and marked "MB1", deals with the renewal of the companies' insurances for, inter alia, "Industrialised Special Risks", "Motor Vehicle" and "Management Liability" but not with any insurance relating to workers compensation. 44The first defendant deposed that he also received various invoices from Willis dated 22 December 2008 in relation to the insurances to be renewed and discussed them with, inter alia, the second defendant after which an agreement was reached to accept them by email. Such invoices are annexure C to exhibit 1 with the notation as to acceptance being in the first defendant's handwriting. 45In cross examination, the first defendant stated that he and the board were dissatisfied with Mr Steggall's performance before he was removed and then gave the following evidence (T.34.38-35.9): Q. When the board made that decision to transfer the staff to Agrivest Australia, you personally didn't make any inquiries of any officer or employee of Agrivest Australia as to whether that company had workers compensation insurance in place, did you? A. Which, which company are you referring to? Q. Agrivest Australia. A. No, I did not make any specific inquiries. Q. And no employee or other officer of Agrivest Australia told you that that company had workers compensation insurance in place when you made the decision to transfer workers into that company, did they? A. No, I had no conversations about workers compensation at all, no. HIS HONOUR Q. Why didn't you make any specific inquiries? A. In, in the day to day running after Mr Steggall left, there was a very, a large pile of issues with a highly distresses group of companies, and cash flow was the main problem, and all the creditors were crushing in terms of their desires to move in, so mainly it was just overlooked and it was not top of my list of priorities as a director at that time. At the conclusion of his cross-examination before me I asked the first defendant a number of further questions which elicited the following evidence (T36.16-38.26): HIS HONOUR Q. Mr Tucker, just help me a little. Were you aware of the obligation of the company to have workers compensation insurance? A. Yes. Q. What was the system within the company as to how it was arranged? A. Really upon renewal, we were relying on the insurer to come back and say, "It's, it's up for renewal," and, "What do you want to do about that?" Q. Was that something that came before the board, generally? A. I can't recall specifically. In, in the time the board was convened, it would've only been - the whole group insurances would've only been renewed once, and we didn't have any other contact with the insurance company or the broker to suggest that anything was not in place. Q. If something wasn't renewed, how would the board become aware of it? A. By a claim being made. Q. By whom? A. By, in this case, one of the workers, Raymond Flew, put in a workers comp claim. We're alerted to the fact we didn't have current cover, it had been overlooked. Q. Because you were contacted by WorkCover. A. Yeah Q. But on renewals, where did the renewal notices go? A. To - part of the problem was all of the renewal notices would've gone to the Melbourne office which was run by Mr Steggall, the previous CEO. Pardon me. All the renewal notices would've gone to Melbourne. He had been handling all the insurance matters through his ex wife who was the broker in Willis. He had grouped all the insurances together there, so any of the notices would've come in historically there. When their office closed and then we were locked out for quite a while, any of the records were moved to Batlow and then renewals would've gone into Batlow. I was always Sydney based, so the only way I would be alerted is through Carol Regan, the office manager, sending any notice to me or alerting me or the board that something needed to be attended to. Q. So unless the staff of the company brought it to the board's attention, the board didn't know whether the company had such insurance or not, is that right? A. Well, normally it would've been the renewal notice would've triggered us renewing it, or the broker saying it's not in place, or a claim being made. Q. But by "triggered us", you mean triggered Mr Steggall. A. Initially before he's removed. And then at the end of June 2009, we would've got a renewal notice sent presumably to Batlow. Q. I'm just trying to understand, within the company, how the board knew whether or not they had workers compensation insurance. A. There, there, there was no systematic review at every board meeting, and we didn't discuss it in every meeting, "Have we got workers compensation insurance?" So there wasn't a follow up were on foot. Q. So if Mr Steggall or someone within the company staff didn't pay the cheque or whatever, the board wouldn't become aware until something else triggered a problem. A. Yeah, yes. The, the board had set up an appropriate management structure to take care of these things, and presumed it, it had happened. In this case, it had fallen through the cracks and we only were alerted when contacted, and then immediately renewed. Q. What do you say was the appropriate management structure that you'd set up? A. The office manager in Batlow to receive the insurance renewals, do all the payroll, do anything relating to the staff, and insurances, and then when she needed higher authority, to send it to myself or the board for renewal. Q. And had that happened on other occasions? A. It happened when the group insurances were renewed, so all the rest of industrial special risks and other things, they're immediately renewed for the year, and that was a calendar year. So this policy would've rolled, I presume, in June, and we hadn't been alerted that it, it had not been taken out in the new company. Q. Why do you say it fell through the cracks? A. Only that there was so many things happening to try and save the company. We had moved all employees to an asset rich company so that they could be looked after. Under, under the pressure of just trying to keep the company alive, it was overlooked. Certainly nothing deliberate in it. Q. Did the company have the money to pay the premium? A. Yes. The - as you see with the group insurances, the, the quantum is premium funded, it's paid off every month under a debt scheme. This would've been premium funded the same way, so there was never any concern that we wouldn't pay it, we, we - sorry - we did not have the ability to pay it. Q. So what actually occurred? Mr Steggall just didn't write the cheque, is that what ultimately happened, or don't you know? A. No. What happened is we moved the employees and entitlements from the management services company into Agrivest Australia, which was where all the assets, the orchards and everything were. Up until that time, that company either didn't have any employees or virtually no employees. Q. So insurance was never arranged for that company. A. It was never, it was never arranged because we, we were, we had, someone had contemplated that it would be registered for workers comp, I presume. We were trying to do the right thing by the staff, and then when alerted to the fact we didn't have cover, we took out cover. And I wrote to the workers comp authorities to say, "What do we do about this now?" as soon as we were alerted. Q. And then you took out cover. A. Yeah. From 1 July we then took out the cover. A few days after Raymond Flew, his inquiry being bubbled through Carol Regan, the office manager, and then to me, there was lots of phone calls, emails, saying, "What do we do?" 46As to the second defendant's evidence, in exhibit 1 he deposed to being aware that the restructure of the business of the Agrivest Group in October 2008 included "the employees of the business, who had previously been employed by Agrivest Management "being.... transferred to Agrivest Australia" and that this "transfer was intended to protect the staff in particular by ensuring they were employed by a company with assets." 47The second defendant also deposed as to his "recollection that insurance for the Agrivest Group was arranged with (Willis)" whom he understood "were reputable insurance brokers." He further deposed being unable to recall "that at any time the board of Agrivest Australia received any report or communication regarding workers compensation insurance or any issues concerning workers compensation insurance." Specifically, he deposed to not seeing at any relevant time the abovementioned insurance report. Finally, he deposed as to his understanding "that it was the responsibility of management to arrange insurance" (by which statement I believe he was referring to management staff and not directors) and that at "all times when I was a director of Agrivest Australia I assumed that appropriate insurance had been arranged." 48In cross examination, the second defendant confirmed that in September or October 2008 the board (T39.28-31) "made a decision to transfer all staff employed by Agrivest Management Services to Agrivest Australia..." As to the arrangement of workers compensation he gave the following evidence at T40.28-42.44: Q. At the time the board made the decision to transfer staff from Agrivest Management Services to Agrivest Australia, you personally didn't make any inquiries of any staff within the Agrivest group as to whether Agrivest Australia had workers compensation insurance, did you? A. No, I did not. HIS HONOUR Q. Why not? A. I was aware that - your Honour would be aware that, that a business has a suite of - there are a suite of insurances, going from directors liability insurances to public liability insurance, in the case of the, the apple operation, there was frost insurance, hail insurance, a suite - and, and I was aware - and I, I tried - I was - in, in thinking about this, I was trying to remember when the, when it was the case, but in, in 2007, 2008, I was certainly aware that that insurance, that suite of insurances was being managed by Willis, the insurance brokers, and I was comfortable that that was the case. You know, I wasn't concerned that - it wasn't concerned that individual insurances might not have been taken out, because I simply assumed they were, on the basis that we had a reputable insurance broker in, in the sense that we had an operational manager, and, you know, we've been - in the, in the case of Margaret Hardy who I didn't note, and in the case of Ms Regan, Mrs Regan, and subsequently David Puller(?). There was operational management who, you know, were charged with that responsibility. Q. So you'd assumed the persons who were charged with that responsibility undertook it, is that correct? A. That's correct. PRICE Q. You never gave any direction to any employee or officer of an Agrivest company to ensure that workers compensation insurance had been obtained, did you? A. I did not. HIS HONOUR Q. Did it ever cross your mind? A. Your Honour, in, in the, in the, in the context of overall insurances and operations of business, as I said, yeah, the, the, the, the insurance package was certainly something that I was aware of and I had asked - or, or, or I was, I was aware - I can't recall if I asked but I was certainly aware of the engagement of, of Willis as the broker for the, the operation. Q. But did it ever cross your mind, when the staff was transferred from one company to another, something like, "We're going to make sure the new company's got workers compensation insurance"? A. No, the, the - no, the - no, the focus at the time was to make sure that these employees had a job and that the business survived and that, you know, we were - the Agrivest business was a state, you know, it's a very important business in that district and, you know, there were, you know, the, the, the issue of survival and, you know, creating a good business was essentially the only issue in which I was involved at my level as a non executive director. The, the, the, the, the, the, the context of the continuation of insurance, I assumed, was being managed properly at a, at an operational level. Q. Had it ever before been not so managed in your involvement in the company? A. I'm, I'm not quite sure of your Honour's question. Before, before the time of the transfer? Q. Yes. Well, in the Agrivest group of companies, was there ever a problem, when you're on the board, with insurance slipping between the cracks? A. No, there was not. And in all my experience, I've never had a problem with insurance. It's always been an operational, an operational issue. HIS HONOUR: Yes, Mr Price. PRICE Q. It was the position, wasn't it, that at the time the employees were transferred from Agrivest Management Services to Agrivest Australia that Agrivest Australia at that stage did not have other or any substantial number of employees, is that correct? A. Sorry Q. I withdraw that, I'll start again. In September 2008 and October 2008, when the decision was made to transfer the employees who at that stage were all employed by Agrivest Management Services into Agrivest Australia, is it the position that Agrivest Australia did not otherwise have employees? A. I'm not even sure I can answer that question. I'm, I'm not, I'm, I'm not sure that I, whether I considered whether Mr Steggall and the, the head office type personnel were not already employees of Agrivest Australia. I simply - I don't - I, I simply don't know the answer for that. All, all I know, you know, my memory of what was happening, which was a very good commercial argument for me, was that in order to save the business, make it more efficient, allow for financing, give employees the proper protection, they were being transferred to the company which had clear title to the assets and, you know, therefore it was a very good, an appropriate commercial decision to be made. Q. It would be correct then to say that at the time the employees were transferred into Agrivest Australia, you simply didn't know whether Agrivest Australia had any employees. A. I'm not sure how to - well, the answer is did I, did I know or didn't, didn't I know? I didn't know. I didn't know whether they did or not. Q. And you didn't know whether the company had workers compensation insurance. A. I didn't give it - you know, the company operated as a group, I didn't give it any consideration at all. HIS HONOUR Q. But you assumed it did, did you, or you just never even thought about it? A. Well, you know, it was - again, it was, it, it was not an issue which I considered at the time, your Honour. I - it was - you know, I, I had - as I said, my awareness, when I, when I think about it, was that I was aware prior to that time that there was an insurance broker, I was aware that it was being managed at an operational level- Q. But you thought the insurance broker and the company staff were managing this. A. Yeah, absolutely.

The Nature and Extent of Each Defendant's Knowledge 49 I am comfortably satisfied on the evidence that the defendants have established that they did not have actual knowledge in the sense of being consciously aware that Agrivest Australia did not have the relevant insurance in place. In fact, Mr Price did not submit otherwise. 50Whilst Mr Price also made some submissions that the defendants' behaviour supported or equalled that which could be described as "wilful blindness" or shutting one's eyes to the obvious, I am satisfied that both defendants have established on the evidence that they did not act in this way. Indeed, the suggestion that they behaved in such a manner was not put to them. Further, in my view, there is no evidence of any such behaviour or "knowledge" based on it. 51What Mr Price did strongly submit was that the defendants were in breach of both their common law and statutory duties under the relevant companies legislation to exercise their powers and obligations as directors with the reasonable care and diligence expected of them as described in the modern case law which is usefully summarised in Deputy Commissioner of Taxation v Clark [2003] NSWCA 91 esp at [93] - [109]. In this regard he submitted that the evidence established: 52Workers compensation insurance for companies in the Agrivest group had, until late September 2008 been arranged by Mr Steggall, the former CEO of the group; 53The board of directors had been dissatisfied with Mr Steggall's performance as CEO; 54Shortly after Mr Steggall ceased employment with the Agrivest group in late Septermber 2008, the board of directors transferred all the employees of Agrivest Management Pty Limited to Agrivest Australia; 55The first defendant was aware of the need to have workers compensation insurance; 56The first defendant knew that prior to such transfer of employees Agrivest Australia "didn't have any employees or virtually no employees" 57Neither defendant: 58had been told that Agrivest Australia had workers compensation insurance; 59made any enquires to ascertain whether Agrivest Australia had workers compensation insurance before the decision was made to transfer the employees to it; and 60gave any evidence that he had directed any officer or employee of Agirvest Australia to arrange workers compensation insurance. 61 In my view, the evidence clearly establishes each of the propositions contained within paragraphs (a) to (f) as submitted by Mr Price in the last paragraph and I so find. 62In addition, it is an overwhelming inference from his evidence that the second defendant was aware of the need to have workers compensation and I find so. He also stated in evidence that "he didn't give any consideration at all" to whether Agrivest Australia had workers compensation. I accept this evidence. 63As to whether Agrivest Australia had any employees prior to the transfer to these from Agrivest Management, the second defendant said he "didn't know whether they did or not." I accept this evidence. In addition he clearly knew that whether or not Agrivest Australia had any employees prior to such transfer, after it occurred, the number of employees of Agrivest Australia increased very significantly (see, for example, paragraph 9 of exhibit 2) and I so find. The same applies in relation to the first defendant (see, for example, paragraphs 21 and 22 of exhibit 1) and I make a similar finding. 64As to this point, the Willis "Insurance Renewal Report" establishes (see p111 of MB1) that prior to any such transfer Agrivest Australia had 28 employees. It is unclear but would seem likely that these 28 employees were based in Victoria. In the relevant period of uninsurance between 17 October 2008 and 30 June 2009, the auditor's report and associated "Payroll Activity Summary" (see pp 60-68 of MB1) the number of uninsured workers as 216. Whether such number includes the 28 earlier employees is not clear. 65 In these circumstances Mr Price submitted that both defendants were clearly in beach of their duties as directors as explained in Deputy Commissioner of Taxation v Clark (supra) in not realising or discovering the lack of relevant insurance. 66Mr Robertson, whilst disputing that the evidence established that either defendant was negligent or failed to comply with their duties as directors, submitted that the "question for the purposes of s145A(5)(a) and s156B(4)(a) is whether the failure of the company to take out insurance occurred without their knowledge and that even on the broadest interpretation of the word knowledge, it is not established by negligence or breach of duty alone." 67In my view, both defendants were clearly in breach of their duty as directors in not realising that the transfer of all of the employees from Agrivest Management into Agrivest Australia would result in Agrivest Australia having inadequate New South Wales workers compensation insurance and in failing to ensure that this was remedied. If prior to such transfer it had no employees, then any decision to make it a New South Wales employer of approximately 200 employees should involve any reasonable director raising the need to arrange insurance. If it already had 28 employees, increasing that number by almost 200 should cause any reasonable director to realise that whatever policy may have been in place would no longer be adequate. In making this finding, I emphasise that the defendant's breach of duty as directors includes but goes well beyond a failure to make appropriate enquiries. In my view, the evidence establishes a breach in failing to conclude, on the information they both had and without the need to make further enquiries, that inadequate insurance would exist once such transfer took place. 68However, the fact that I have found each defendant in breach of their director's duties as described does not determine the nature in law of any knowledge that either may have possessed. 69As mentioned above, Mr Price argued that the word "knowledge" within the 2 subsections in question includes any type of knowledge as understood in normal everyday use together with all form of constructive knowledge as known to the law. In this regard, whilst accepting that the 5 categories of knowledge mentioned in Baden v Societe Generate [1993] 1 WLR 509 at 575 - 576 arise in a different context, he submitted that "by analogy" they are relevant here and that the defendants must establish that the didn't possess knowledge falling into any of those categories to avoid liability as culpable directors. This, of course, is a different but related question to the primary question of construction argued between the parties, namely whether "knowledge" within the sub-sections in question is limited to actual knowledge. 70Mr Price submitted, in effect, that based on the defendant's negligence, they had a form of knowledge as understood in normal everyday use. As he put it in his written submissions in reply at par. 21 and 23: "Dictionary definitions of "knowledge" include "acquaintance with facts, truths or principles", "the fact or state of knowing", "mental apprehension", "awareness" and "familiarity gained by sight, experience and report". As such, the concept includes information derived from reasoning" and.... "that a person can have knowledge of something if it is a matter that an ordinary honest and reasonable person would derive from the facts." 71Mr Price submitted that this form of knowledge is akin to the fourth category of knowledge referred to in Baden and is a form of knowledge recognised in law. He further argued that both defendants had knowledge akin to that described in the fifth category, being knowledge of circumstances which would put a reasonable man on enquiry and that the defendants would also have to establish that they didn't possess that form of knowledge. 72In his written submissions on this point, Mr Robertson argued (see paragraph 13 and footnote 12 thereto) that "knowledge of circumstances which would put an honest and reasonable man on enquiry" being the fifth category of knowledge mentioned in Baden is not a category of knowledge recognised in Australian law and in this respect he relied upon what was said in Farah Constructions v Say-Dee P/L (2007) 230 CLR 89 at [175] - [178]. Further, in oral submissions he argued that the five categories of knowledge referred to in Baden are irrelevant to the matters currently under consideration and only apply to matters involving a breach of fiduciary duty as discussed in Barnes v Addy (1874) LR 9 Ch App 244. 73I do not intend to attempt within this judgment to determine all the categories of knowledge, especially constructive knowledge, that are recognised in Australian law. Whilst Baden and Farah Constructions deal with different circumstances, it seems to me that some guidance can be gained from the categories of knowledge mentioned therein. Further, I intend to use them as a way of categorising the type of each defendant's knowledge in the current circumstances prior to construing whether that type of knowledge falls within the meaning of the sections in question. 74The first such category is "actual knowledge", which I am, as stated, not satisfied arises in the present case. 75The second such category is "wilfully shutting one's eyes to the obvious", which I have also found does not arise. 76The third such category is "wilfully and recklessly failing to make such inquiries as an honest and reasonable man would make". On the evidence, I am satisfied that each defendant has established that, if the relevant sections are to be construed as including such knowledge, they were not so wilful or reckless. These terms require, in my view, higher level of culpability than the evidence herein establishes. 77The fourth such category is "knowledge of circumstances which would indicate the facts to an honest and reasonable man". 78In the present case, I am not satisfied that either defendant has established that, if the relevant sections are to be construed as including such knowledge, they did not possess it. Indeed, I have already found on the evidence that each did possess such knowledge. They both knew that, inter alia, the relevant board decisions which they were involved in resulted in Agrivest Australia becoming an employer of, at least, a far greater number of employees. As stated above, these circumstances alone would indicate to an honest and reasonable man that the subject company was either uninsured or underinsured for New South Wales workers compensation insurance purposes. 79The fifth such category is "knowledge of circumstances which would put an honest and reasonable man on enquiry". I have already found that the defendant's breach of duty includes, but goes well beyond, a failure to make appropriate enquiries. Accordingly, if I am wrong as to the defendants possessing the fourth category of knowledge or failing to establish that they did not possess such knowledge, I am not satisfied that either has established that, if the sections are to be construed as including the fifth category of knowledge, they did not possess it. Indeed, I would in those circumstances be comfortably satisfied that each did in fact possess such knowledge. 80Therefore, the remaining question is whether the relevant sections are to be construed so as to include the types of knowledge that I have found each defendant possessed. If it does, the plaintiff must succeed against each defendant.

The Construction Question 81 In support of his submission that the word "knowledge" within the subsections in question "ought to be construed to give it all meanings that the word can bear" and should not be limited to actual knowledge, Mr Price relied upon a number of arguments which can be summarised as follows: 82The sub-sections are not limited by their express terms to actual knowledge and if Parliament had so intended to so limit them it would have used language to make that intention plain: Province of Bombay v Municipal Corporation of Bombay [1947] AC 58 at 63. In short, he argued nothing would have been simpler than to insert the word "actual" into each subsection. 83As a corollary to (i), a court should not imply or insert words into legislation unless there is a clear necessity to do so or in order to make the relevant provision intelligible: Thompson v Goold & Co [1910] AC 409 at 420; Wills v Bowley [1983] 1 AC 57 at 783; Marshall v Watson [1972] 124 CLR 640 at 649 and R v Young (1999) 46 NSWLR 681 at [5]. 84The modern approach to statutory construction requires the context of the legislation be taken into account in the first instance and such context includes the existing state of the law and the mischief that one may discern the statute was intended to remedy: CIC Insurance Limited v Bankstown Football Club Limited (1997) 187 CLR 384 at 408. In this regard, Mr Price pointed to a number of matters including the compulsory nature of workers compensation insurance, the Explanatory Note to the WorkCover Legislation Amendment Bill, 1995 by which ss 145A was added to the Act evidencing an intention to increase the effectiveness of such compulsory insurance and the broad nature of the modern duties imposed upon company directors as described in Deputy Commissioner of Taxation v Clark (supra). He also pointed to ss 145A(5)(b) and (c) and 156B(4)(b) and (c) as directing attention to whether the conduct of the director was reasonable. In that context he argued that the court should not embrace a construction that permits either the legislative objects of the Act to be avoided or which would allow directors to avoid liability "in circumstances where they have not exercised reasonable care to ensure that the company complied with its obligations". 85 In response and in support of his argument that the meaning of the word "knowledge" within the subsections should be construed as being limited to "actual" knowledge, Mr Robertson also relied upon a number of arguments which can be summarised as follows: "In ordinary parlance the word "knowledge" encompasses only (that) which one knows, it does not include that which one is capable of finding out." 86By relevance to its ordinary meaning, the context in which it is used, the "penal character" of the relevant sections and the legislative history of the Act and of the other Acts incorporating similar provisions, in the present circumstances the word "knowledge....does not incorporate any concept of constitute or implied knowledge." 87The use of the term "culpable directors" gives "colour to the exclusions in subsections 145A(5) and 156B(4) and indicate an intention "to impose liability only upon directors who are culpable, in the sense that they: (i)actually knew that the company did not hold and insurance party (and) (ii)were in a position to have done something about it; and (iii)failed to exercise due diligence in order to ensure that a policy was obtained." 88The fact that the sections reverse the onus of proof indicates "that it is actual knowledge that must be disproved" as it is impractical to require a party to establish "the contrary of the proposition that one ought to have known something." 89An interpretation of the word "knowledge" as "including constructive knowledge would tend to equate sub-paragraphs (a) to (c) of ss145A(5) and 156B(4), rendering one or other of those sub-paragraphs otiose." 90Constructive knowledge "is a concept developed in equity and in relation to a penal provision it is inappropriate to extend the meaning of the word by reference to equitable concepts which have no place in the common law." 91Whilst there is "no ambiguity or obscurity in the relevant provisions which would permit reference to Explanatory Memoranda or Second Reading Speeches pursuant to s34(1)(b)(i) of the Interpretation Act", it is nevertheless permissible to use such material pursuant to s34(1)(a) "to confirm that the meaning of the provisions is the ordinary meaning conveyed by the text, that is that "knowledge" means "actual knowledge" and some undefined form of constructive or implied knowledge . 92If contrary to (vii) such materials may be used more broadly they should include the Second Reading Speech in relation to the Workers Compensation Legislation Amendment Bill 2000, by which, inter alia, s156B was inserted into the Act pursuant to Schedule 10, wherein the relevant Minister stated: "Schedule 10 will provide that directors of companies re personally liable for any unpaid premium where they were aware that false or misleading information was provided to an insurer, or they failed to obtain a policy of insurance." 93Mr Robertson emphasised the words "where they were aware...." As supporting his position. 94 As to the legislative history of the Act referred to in Mr Robertson's second argument, his written submissions include reference to the fact that neither s145A nor 156B were part of the Act as originally enacted which only imposed liability for unpaid premiums or uninsured liabilities on uninsured employers but not on directors. He also points out that s277 of the Act as originally enacted imposed secondary criminal liability on directors in respect of contraventions of the Act by corporations where a director "knowingly authorised or permitted the contravention". He then referred to Director General of National Parks and Wildlife v Schultz (unreported, Land and Environmental Court of NSW, Bignold J, 24 October 1996) which held that that phrase when used in s175B of the National Parks and Wildlife Act, 1974 required actual knowledge. 95Mr Robertson goes on to note that when s145A was inserted into the Act, s277 was amended to reverse the onus of proof contained therein which was accomplished by utilising the same wording as now appears in s145A. The amended version of s277 was considered by Finnane AJ in Workcover Authority v Angelucci (Unreported, Supreme Court of NSW, 16 June 1997) who held that it did not operate to impose liability on directors of an employer corporation for the double premiums which were imposed upon the employer corporation by virtue of s175(4) of the Act. During the course of so holding, His Honour concluded that a section imposing double premiums was of a penal nature. 96Mr Robertson further points out that s145A was inserted into the Act at the same time that s277 was amended "to impose criminal liability on directors in identical terms" and that it should be considered that each should have the same meaning and that because s277(1) imposed criminal liability on directors any concept of constructive notice was foreign to both sections. 97As to reference to legislation incorporating similar provisions "whilst accepting that this is only useful to "a limited extent", Mr Robertson refers to numerous other Acts imposing criminal liability upon culpable directors "in relevantly identical terms" in support of his argument that the subject provisions are penal in nature and must therefore be read to only apply to circumstances of "actual knowledge". 98After initially reserving my decision, I referred both parties to the Court of Appeal decision in North Sydney Council v Roman (2007) 69 NSWLR 240 where the use of the term "actual knowledge" as used in ss45(1) and (2) of the Civil Liability Act is discussed, particularly of paragraph 51 where McColl JA stated: "The use of the expression "actual knowledge" in s 45 was plainly intended to prevent a roads authority being found civilly liable merely because it had constructive knowledge of a risk. This had been the outcome in Brodie v Singleton Shire Council (2001) 206 CLR 512, decided the year before the introduction of the Civil Liability Act" 99 In addressing that decision in his written submissions, Mr Robertson argued that there are "reasons of history why that term is used "in the Civil Liability Act and as no such reasons can be identified in the present matter, the Court should not "draw any inference" from the fact that the word "knowledge" instead of the words "actual knowledge" is the term used. 100 In response to Mr Robertson's arguments, Mr Price in his written submissions in reply argued that Mr Robertson has specifically misstated the content and grammatical structure of the sections in his argument summarised at paragraph 74(iii) above and therefore it should be accepted. 101Mr Price further submitted that s156B is not penal in nature as it permits, pursuant to s156B(6), a director from whom an amount is recovered under s156B to recover that amount in turn from the corporation. He argued that this "markedly distinguishes these proceedings from the facts in Workcover Authority v Angelucci......". He made the same submission in relation to s145A where s145A(7) permits a director to recover any monies for which they are found liable under that section from the company. He further argued that no similar provisions were contained in s277 or in s175 and that the existence of a right to seek recovery of such liabilities by a director from the company is "entirely inconsistent with the provisions being criminal in nature...." He further submitted, in effect, that the subject proceedings are clearly not criminal proceedings and at their highest impose a civil penalty. 102As to the reversal of the onus, Mr Price submitted that the legislation's "starting point....is that all directors of companies who fail to obtain workers compensation insurance are culpable directors" and it is "then a matter for the director to show that" they are not to be so categorised. In these circumstances, it is argued that the fact that the onus is placed on the defendants does not assist them in their argument. 103As to Mr Robertson's submission that the construction sought by the plaintiff would render subparagraphs (b) and (c) of ss145A(5) and 156B(4) otiose. Mr Price argued that whilst "there may be some interaction, each of the paragraphs has different work to do "and in this regard it must be remembered that the legislation is intended to deal with corporations ranging from single to "multiple directors, shareholders and employee entities." 104As to the relevance of constructive knowledge being a concept born of equity, he submitted that Parliament is not bound only to enact common law principles. 105As to the assistance from the Second Reading Speech to the 2000 Bill referred to, Mr Price submits that it is not only permissible in the current circumstances but that a proper reading of the full paragraph, only part of which was quoted by Mr Robertson, is consistent with the construction argued for by the plaintiff. Such paragraph in full reads: 106Schedule 10 will provide that directors of companies are personally liable for any unpaid premium where they were are that false or misleading information was provided to an insurer or they failed to obtain a policy of insurance. The authority is aware of numerous instances where companies have incurred significant debts from failing to take out a policy of insurance of have deliberately underestimated their wages to obtain a cheaper premium. In some cases the directors of the company are aware of the breach. Schedule 10 contains amendments to assist the authority to recover unpaid premiums where the employer has failed to keep adequate records of wages. 107As to the Explanatory Memorandum to the WorkCover Legislation Amendment Bill, 1995 Mr Price reminded the court at page 15 of same it is stated: "....where that Fund has to pay compensation to injured employees (other than directors who are excluded) the WorkCover Authority may recover the debt owning to the Fund personally against a director. The director is then entitled to recover the amount back from the company. Procedural improvements are made to make the current civil penalty for non-insurance (twice the avoided premium recoverable by the Authority as a debt) more effective against defaulting employers." 108 Mr Price submitted that a construction of the word "knowledge" as sought for by the plaintiff "plainly advances the purposes disclosed" in that part of the Explanatory Memorandum. 109As to the statutory provisions, Mr Price submitted that they are of limited use and those imposing criminal sanctions are not relevant. As to those statutes which include words such as "actual knowledge" or "ought to have known", he submitted that in the "absence of objective reasons as to why a particular phrase was used in particular legislation, this court does not gain any practical assistance." Nevertheless, he went on to submit that the passage referred to from North Sydney Council v Roman (supra) "provides dived support for the plaintiff's argument in these proceedings" and the fact that in that piece of legislation "Parliament was directly concerned to exclude constructive knowledge and so chose to use the phrase "actual knowledge" is a powerful factor pointing to "knowledge" bearing a meaning that includes all types of knowledge."

Consideration 110 In my view, the arguments advanced on behalf of the plaintiff have considerably more force than those advanced on behalf of the defendants. 111Courts should not add or imply words into legislation unless there is a clear necessity to do so. In my view, no such necessity has been demonstrated here. 112Further, Parliament could easily have included the word "actual" if it wished to so limit the meaning of the word "knowledge". 113In addition, the context of the legislation as explained in CIC Insurance Limited is very important and must be had regard to in the first instance as must its purpose or objects (see also s33 of the Interpretation Act 1987; Wilson v State Rail Authority of New South Wales [2010] NSWCA 198 at [12]-[14]; Axiac v Ingram [2012] NSWCA 311 at [57]-[58] ). This includes, in my view, a need to ensure that companies and their directors take out the relevant compulsory workers compensation. Such an interpretation is also in line with the modern broadly based duties imposed upon directors. 114The reversal of the onus is also consistent with such an interpretation as is the scheme which the relevant sections establish. 115As to the use of extrinsic material, pursuant to s34(1)(b)(i) of the Interpretation Act 1987, I am of the view that the meaning of the sub-sections in question is sufficiently ambiguous or obscure that consideration may be given thereto. Whilst of somewhat limited use, the Second Reading Speech to the 2000 Bill and Explanatory Memorandum to the 1995 Bill are also, in my view, more consistent with the interpretation argued for by Mr Price rather than that argued for by Mr Robinson. It should be noted at this point that the Second Reading Speech to the 1995 Bill does not address this section. 116In my view, the subject provisions clearly cannot be categorised as criminal. However, they are of a penal nature. Nevertheless, I do not accept that this feature, especially when the relevant context is taken into account, means that they are to be construed as suggested by Mr Robertson. 117The lengthy history of the legislation referred to by Mr Robertson, is, I find, of limited use in interpreting the subject provisions as is reference to what phraseology is contained in other Acts. 118Whilst the interpretation which I favour may, at first blush, seem to present an otherwise "culpable director" with a practical problem of convincing a court on the balance of probabilities that he did not possess knowledge of circumstances which would indicate the facts to an honest and reasonable man, such a task, upon reflection, can be achieved by the "culpable director" giving evidence as to what he or she did know which can then be scrutinised by the court. It is an even simpler task in relation to actual knowledge or that which may flow from any concept of wilful blindness. Indeed, if "knowledge" as it is known in law includes that which one "ought to know", this too is something which a "culpable director" could establish he or she did not possess by giving evidence as to all the circumstances and again leaving the matter to the court to determine after hearing appropriate submissions. 119Whilst it is hardly determinative, there is also some force in an additional argument mounted by Mr Price, being that if the term was limited to actual knowledge a culpable director's desire to avoid the relevant liability would encourage, in effect, a head in the sand approach which is entirely at odds with the legislation's purpose as well as the duties imposed upon directors of companies in modern times. 120Accordingly, I find that the word "knowledge" as it appears in s145A(5) and s156B(4) of the Act is not limited to actual knowledge and includes, at least, knowledge of the type referred to in the first four categories described in Baden v Societe Generale (supra), the fourth category of which I have already found that both defendants in this matter actually possessed. If follows that neither has discharged their onus under the sections and both are therefore liable for the agreed amounts claimed. 121I express no concluded view as to whether knowledge of the type which would be gained by the exercise of reasonable care and/or is within the fifth category described in Baden, also falls within the sections mentioned, not because it is to be excluded as a matter of construction but because it may be a form of knowledge not recognised under Australian law. Indeed, if it is so recognised, it would be my view that it too would fall within the sections discussed. 122Before making the appropriate orders I will hear the parties as to the questions of interest and costs.

Orders (1)Verdict and judgment for the plaintiff against the 1st and 2nd defendants in the sum of $244,674.79 inclusive of interest agreed in the amount of $6,790.62 (2)By consent, pursuant to 6.24 of the Uniform Civil Procedure Act, Mr Gregory White is joined to the proceedings as executor of the estate of Mr Geoffrey White, the former 3rd defendant (3)By consent, the plaintiff is to pay Mr Gregory White, in his capacity as executor, the sum of $5,000 in relation to the costs incurred by the former third defendant (4)The 1st and 2nd defendants are to pay the plaintiff's costs on the usual basis up until 21 June 2011 and thereafter on an indemnity basis (5)I grant a stay of the judgment on condition that the defendants file a notice of intention to appeal within 28 days and any notice of appeal by 31/1/2013

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 18 January 2013

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