FEDERAL COURT OF AUSTRALIA

INDUSTRIAL LAW - independent contractors - application to review contract pursuant to s127A Workplace Relations Act

CONSTITUTIONAL LAW - whether Metropolitan Fire and Emergency Services Board (“Board”) is a “constitutional corporation” - whether trading corporation - whether trading activities of Board constitute sufficient proportion of overall activities.

Workplace Relations Act 1996 (Cth) ss 127A, 127B and 127C

Federal Court Rules O 9  r 7

Metropolitan Fire Brigades Act 1958 (Vict)

E v Australian Red Cross Society (1991) 27 FCR 310 followed

R v The Judges of the Federal Court of Australia; ex parte The Western Australian National Football League (1979) 143 CLR 190, applied

State Superannuation Board v Trade Practices Commission (1982) 150 CLR 282, applied

Commonwealth of Australia v The State of Tasmania and Ors (1983) 158 CLR 1, applied

Ovcharuk v Minister for Immigration (Marshall J, 1 April 1998 unreported), referred to

UNITED FIREFIGHTERS’ UNION OF AUSTRALIA & ORS v METROPOLITAN FIRE AND EMERGENCY SERVICES BOARD

VG 720 of 1997

MARSHALL J

MELBOURNE

20 MAY 1998

THE COURT ORDERS THAT:

1.         The respondent’s notice of motion dated 24 February 1998 be dismissed.

2.         The directions hearing in the application be adjourned to 10.15 am on 22 June 1998.

Note:                Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

REASONS FOR JUDGMENT

The matter before the Court is a notice of motion filed by the respondent, Metropolitan Fire and Emergency Services Board (“the Board”) pursuant to Order 9 Rule 7 of the Federal Court Rules in which the Board seeks to set aside the originating process in the proceeding. The Board contended, through its counsel, Mr Simon Marks, that the Court did not have the jurisdiction to entertain the substantive application in the proceeding filed by the applicant, United Firefighters Union of Australia (“the Union”).

THE SUBSTANTIVE APPLICATION

On 17 December 1997 the Union filed an application pursuant to s 127A of the Workplace Relations Act 1996 (“the WR Act”). By its application the Union sought to have set aside certain of the terms of agreements entered into with the Board by certain of its members who are independent contractors engaged in connection with the business of the Board in its fire equipment services (“FES”) section. The application was accompanied by a statement of claim.

THE LEGISLATIVE CONTEXT

Sections 127A, 127B and 127C of the Workplace Relations Act provide as follows:

“127A(1)         “In this section and in section 127B:

“contract” means:

(a)       a contract for services that:

            (i)         is binding on an independent contractor; and

            (ii)        relates to the performance of work by the independent contractor, other than work for the private and domestic purposes of the other party to the contract; and

(b)       any condition or collateral arrangement relating to such a contract.

127A(2)           Application may be made to the Court to review a contract on either or both of the following grounds:

(a)       the contract is unfair;

(b)       the contract is harsh.

127A(3)           An application under subsection (2) may be made only by:

(a)       a party to the contract; or

(b)       an organisation of employees of which the independent contractor is (or has applied to become) a member, if it is acting with the written consent of the independent contractor; or

(c)        an organisation or association of employers of which the person contracting for the services is (or has applied to become) a member, if it is acting with the written consent of the person.

127A(4)           In reviewing the contract, the Court may have regard to:

(a)       the relative strength of the bargaining positions of the parties to the contract and, if applicable, any persons acting on behalf of the parties; and

(b)       whether any undue influence or pressure was exerted on, or any unfair tactics were used against, a party to the contract; and

(c)        (Repealed by No 98 of 1993)

(d)       whether the contract provides total remuneration that is, or is likely to be, less than that of an employee performing similar work; and

(e)        any other matter that the Court thinks relevant.

127A(5)           If the Court forms the opinion that a ground referred to in subsection (2) is established in relation to the whole or part of the contract, it must record its opinion, stating whether the opinion relates to the whole or a specified part of the contract.

127A(6)           The Court may form the opinion that a ground referred to in subsection (2) is established in relation to the whole or part of the contract even if the ground was not canvassed in the application.

127A(7)           The Court must exercise its powers under this section in a way that furthers the objects of this Act as far as practicable.

127B(1)           If the Court records an opinion under section 127A in relation to a contract, it may make one or more of the following orders in relation to the opinion:

            (a)        an order setting aside the whole or part of the contract, as the case may be;

            (b)        an order varying the contract.

127B(2)           An order may only be made for the purpose of placing the parties to the contract as nearly as practicable on such a footing that the ground on which the opinion is based no longer applies.

127B(3)           While the application is pending, the Court may make an interim order if it thinks it is desirable to do so to preserve the position of a party to the contract.

127B(4)           An order takes effect from the date of the order or a later date specified in the order.

127B(5)           A party to the contract may apply to the Court to enforce an order by injunction or otherwise as the Court thinks fit.

127B(6)           This section does not limit any other rights of a party to the contract.

127C(1)           Sections 127A and 127B apply only as follows, namely:

            (a)        in relation to a contract to which a constitutional corporation is a               party;

            (b)        in relation to a contract relating to the business of a constitutional corporation;

            (c)        in relation to a contract entered into by a constitutional corporation for the purposes of the business of the corporation;

            (d)        in relation to a contract relating to work in trade or commerce to which paragraph 51(i) of the Constitution applies;

            (e)        in relation to a contract so far as it affects matters that take place in or are otherwise connected with a Territory;

            (f)        in relation to a contract to which the Commonwealth or a Commonwealth authority is a party.

            127C(2)           In this section:

            “constitutional corporation” means a corporation to which paragraph 51(xx) of the Constitution applies;

            “contract” has the same meaning as in section 127A.”

THE JURISDICTIONAL ISSUE

The short point to be determined in this matter at this stage of the proceeding is whether the Board is a “constitutional corporation” within the meaning of s 51(xx) of the Constitution. That paragraph refers to:

“foreign corporations, and trading or financial corporations formed within the limits of the Commonwealth.”

Counsel for the Union, Mr Warren Friend, contended that the Board is a trading corporation. He also submitted in the alternative that the Board is a financial corporation. Mr Marks made submissions to the contrary. Critical to the determination of what is a short but important jurisdictional point is the evidence before the Court concerning the Board’s activities. It is to that evidence that I now turn.

BACKGROUND FACTS

The Board is a statutory corporation established pursuant to the Metropolitan Fire Brigades Act 1958 (Vic), (“MFB Act”). The functions of the Board are set out in s 7 of the MFB Act which provides as follows:

“(1)     The functions of the Board are -

            (a)        to provide for fire suppression and fire prevention services in the metropolitan fire district; and

            (b)        to provide for emergency prevention and response services in the metropolitan fire district; and

            (c)        to carry out any other functions conferred on the Board by or under this Act or any other Act.

(2)       The Board has all powers necessary to carry out its functions.

(3)       The functions of the Board extend to any vessel berthed adjacent to land which by virtue of section 4(2) is part of the metropolitan fire district.”

In the performance of its functions the Board is subject to Ministerial control. Additionally the relevant Minister in the Victorian Government “may from time to time give written directions to the Board”. See s 8 of the Metropolitan Fire Brigades Act. The Board consists of up to seven members appointed by the Governor in Council one of whom is its President.

Apart from establishing the Board the other main purpose of the MFB Act as provided in s 2(a) thereof  is:

“to provide for fire safety, fire suppression and fire prevention services and emergency response services in the metropolitan fire district.”

An affidavit in support of the Board’s notice of motion was sworn by the President of the Board, Mr John Brian Parry. Mr Parry testified concerning the types of emergency service response provided by the Board to fires, accidents, explosions and hazardous material incidents. He also gave evidence about other functions undertaken by the Board including advisory, investigative and maintenance, servicing and inspection functions. Mr Parry identified “five directorates” as being responsible for the overall activities of the Board. Those directorates are:

·      Emergency Response

·      Fire and Hazard Safety

·      Finance and Administration

·      Technical Services, and

·      Human Resources

The Emergency Response directorate employs 1,396 employees who comprise 81.82% of the Board’s total employee workforce of 1,706 employees. The primary role of this directorate is to respond to fire and other emergencies where there is likely to be danger to the health and safety of the public or threats to property and/or the environment. In the main the services of this directorate are without charge to the public. Funding is provided from the Board’s operating revenue. Some costs are recouped as a result of levied charges pursuant to the Board’s powers to do so and the MFB Act. Only approximately 3% of the Board’s total revenue is recouped in that way apart from revenue received by the FES section or from the Transport Accident Commission. Recouped costs arise as a result of services performed in relation to salvage calls, road traffic accidents, false alarms, certain hazardous materials incidents and attendance at fires of uninsured buildings. Fee generating activities undertaken by the directorate comprised a very small sum in comparison to the total revenue of the Board, i.e. 2.97%.

The Fire and Hazard Safety Directorate includes FES and several other sections which are:

·      community safety

·      fire investigation and analysis

·      fire prevention

·      fire safety

·      training and consultancy

·      dangerous goods, and

·      structural fire safety

Mr Parry’s affidavit contains the following description of the FES Department:

“90      The Fire Equipment Services department (“FES”) is involved in carrying out the commercial servicing of portable and fixed fire equipment for commerce, industry and the domestic market. FES enters into agreements with external clients for the provision of these services, which are carried out on behalf of FES by 37 on-road contractors. On-road contractors also sell, on behalf of the Board, parts and equipment. Payment to on-road contractors is normally 50% of the maintenance revenue earned, and 50% of any profit from the sale of equipment.

91        In addition to maintenance services in respect of portable and fixed fire equipment, should the client wish other systems, such as sprinkler systems or fire alarm panels to be serviced, FES may provide this service to the customer through the use of additional independent contractors.

92        15 staff are engaged in the activities undertaken by FES. These staff are involved in the following functions:

            (1)        administration and co-ordination of the on road contractors’ agreement, obligations and work;

            (2)        sales and marketing of services provided by FES;

            (3)        financial control and recording of work performed and sales made; and

            (4)        auditing work performed by the on-road contractors.

93        Revenue generated from the activities undertaken by FES constitute the largest proportion of revenue generated by the Board from the sale of goods and services. In the financial year ending 30 June 1997 activities undertaken by FES generated $8,010,000, comprising 5.11% of the Board’s total revenue.”

The Board’s funds are, in the main, determined by the MFB Act. The relevant Minister is required to determine the funding which the Board requires. One-eighth of that amount is provided from Consolidated Revenue. A further one-eighth is paid by municipal councils located within the metropolitan fire district. Three-quarters of the total amount set by the Minister is paid by insurance companies which insure property situated within the metropolitan district against fire. The Board receives 92.2% of its operating revenue in this way. As indicated in that section of Mr Parry’s evidence which dealt with FES, revenue derived from the activities of FES account for 5.11% of the Board’s total revenue, attracting about $8,000,000 in income as a result of what are conceded by the Board to be trading activities. In the 1996/1997 Annual Report of the Board FES was described in the following way:

“Fire Equipment Services (FES) is a quality accredited organisation carrying out the commercial servicing of portable and fixed fire equipment for commerce, industry and the domestic market. It is the largest servicer of portable appliances in Melbourne and has introduced comprehensive service agreements covering everything from sprinklers to fire doors.

During the past year there has been an increase in the number of contracts with large customers. The need is being met for a quality accredited service company with the capacity to service their full range of fire equipment.

FES achieved satisfactory trading results for the year. This was despite a drop in sales following conclusion of the halogenated hydrocarbon extinguisher replacement program.

From 1 July 1997 a bar-code based asset management system will be offered to all customers at no extra cost.

1997-98 will be a year of growth, particularly for comprehensive service contracts. FES is determined to stay on top of market trends in pursuit of its mission to become the pre-eminent service provider of fire protection service to all facets of industry - at a State and National level.”

IS THE BOARD A TRADING CORPORATION?

The latest judicial examination of what constitutes a “trading corporation” for relevant purposes was that undertaken by Wilcox J in E v Australian Red Cross Society (1991) 27 FCR 310, 340-345. In E Wilcox J was required to determine whether the Australian Red Cross Society (“the Society”), the New South Wales Division of the Society and the Prince Alfred Hospital (“the hospital”) were trading corporations for the purposes of s 5 of the Trade Practices Act 1974. Wilcox J noted that the Society earned over $2,000,000 in 1984-1985 from the sale of goods and observed in respect of the New South Wales Division of the Society at 343 that “trading was plainly a major contributant to the Division’s income”. His Honour went on to say (also at 343) that:

“The scale of the Division’s trading activities amply meets any of the tests enunciated in Adamson. It is true that the trading activities were not motivated by the hope of private gain but purely to earn the revenue which the Division needed for its charitable activities. But as Mason, Murphy and Deane JJ made clear in State Superannuation Board motive does not matter.”

At 344-5 Wilcox J dealt with whether the hospital was a trading corporation. He held that it did not matter that the hospital was incorporated by statute and publicly owned. In that context he relied upon certain statements contained in various judgments of members of the High Court in Tasmanian Dam (1983) 158 CLR 1, 155-157, 179-180, 240 and 269-270. At 345 his Honour said as follows:

“If the question be asked whether the scale of the corporation’s trading activities was “substantial”, “a sufficiently significant proportion of its overall activities” or “not insubstantial” - to apply the tests adopted in Adamson - it is relevant to note that, in the financial year ended 30 June 1985 it received $14,584,456 in patients’ fees in return for services rendered by it. It also received $3,736,662 from “business activities”. It is true that these amounts were dwarfed by its State government subsidy of $112,127,706. But that does not matter. Trading activities yielding some $18 million per year can only be described as substantial. It seems to me that the scale of the hospital’s trading activities in 1984-1985 was such that it should be regarded as then being a trading corporation.”

Mr Marks submitted that in finding that the hospital was a trading corporation having regard to the substantial profits it made from trading that Wilcox J erred in his approach to the resolution of the issue before him. I do not accept that submission. In my view, Wilcox J correctly applied the trilogy of relevant High Court cases which governed the resolution of that issue. It is to these cases which I now turn.

(a)        Adamson

In R v The Judges of the Federal Court of Australia; ex parte The Western Australian National Football League (“Adamson”) (1979) 143 CLR 190 the High Court examined whether a football club and a football league were trading corporations for the purposes of the Trade Practices Act 1974.

At 207 in Adamson, Barwick CJ said that:

“In conformity with the principles of constitutional construction, the description ‘trading corporation’ in s 51(xx) must be given its full content, generously rather than restrictively construed.”

At 208 his Honour said:

“I remain of the firm conviction that for constitutional purposes a corporation formed within the limits of Australia will satisfy the description “trading corporation” if trading is a substantial corporate activity. Its activities rather than the purpose of its incorporation will designate its relevant character. ...But once it is found that trading is a substantial and not a merely peripheral activity not forbidden by the organic rules of the corporation, the conclusion that the corporation is a trading corporation is open.”

The activities of the Board in the instant case, undertaken by the FES department (and putting to one side all other revenue generating activities of the Board) in my view constitute a substantial corporate activity. The Board is thereby involved in trading as a “substantial and not a merely peripheral activity”. The observations of Barwick CJ in Adamson applied to the Board support the Union’s submissions in this matter.

At 239 Murphy J said that:

“Even though trading is not the major part of its activities, the description, “trading corporation” does not mean a corporation which trades and does nothing else or in which trading is the dominant activity. A trading corporation may also be a sporting, religious, or governmental body. As long as the trading is not insubstantial, the fact that trading is incidental to other activities does not prevent it being a trading corporation. For example, a very large corporation may engage in trading which though incidental to its non-trading activities, and small in relation to those, is nevertheless substantial and perhaps exceeds or is of the same order in amount as the trading of a person who clearly is a trader. Such a corporation is a trading corporation and is the subject of the legislative power in s 51(xx.). That power is subject to the Constitution and may be limited by other provisions, for example, s 116 would protect a religious body which was a trading corporation from laws which would prohibit the free exercise of religion. The corporations power may be used not only to protect persons who trade with trading corporations, but also to protect trading corporations in regard to those who deal with them.”

The test devised by Murphy J is even more generous than that devised by Barwick CJ and is also supportive of the Union’s case on the motion.

The other members of the majority in Adamson were Mason and Jacobs JJ. At 234 Mason J (with whom Jacobs J agreed) said that:

“Not every corporation which is engaged in trading activity is a trading corporation. The trading activity of a corporation may be so slight and so incidental to some other principal activity, viz. religion or education in the case of a church or school, that it could not be described as a trading corporation. Whether the trading activities of a particular corporation are sufficient to warrant its being characterized as a trading corporation is very much a question of fact and degree.”

His Honour held that the relevant corporations were substantially involved in trading. There is nothing in Mason J’s approach which contradicts the views of Barwick CJ.  Consequently Adamson supports the Union’s position on the motion.

(b)        State Superannuation Board

In State Superannuation Board v Trade Practices Commission (1982) 150 CLR 282, the High Court examined whether the appellant Board was a financial corporation. The Court split 3-2 on that issue. The majority, Mason, Murphy and Deane JJ delivered joint reasons for judgment in which they referred to Adamson. At 304-305 their Honours said:

“.....that there is nothing in Adamson which lends support for the view that the fact that a corporation carries on independent trading activities on a significant scale will not result in its being properly categorized as a trading corporation if other more extensive non-trading activities properly warrant its being also categorized as a corporation of some other type.

If there be any difference in the comments made by the majority in Adamson it is one of emphasis only. And it is important to note that they were all directed to the issue as it arose for decision, an issue relating to a sporting club and the league with which it was affiliated; they were not aimed at the corporation which has not begun, or has barely begun, to carry on business. It might well be necessary to look to the purpose for which such a corporation was formed in order to ascertain whether it is a corporation of the kind described.

Like the expression “trading corporation”, the words “financial corporation” are not a term of art; nor do they have a special or settled legal meaning. They do no more than describe a corporation which engages in financial activities or perhaps is intended so to do. The nature and the extent or volume of a corporation’s financial activities needed to justify its description as a financial corporation do not call for much discussion in the present case. A finance company is an obvious example of a financial corporation because it deals in finance for commercial purposes, whether by way of making loans, entering into hire purchase agreements or providing credit in other forms, and this activity is not undertaken for the purpose of carrying on some other business. However, just as a corporation may be a trading corporation, notwithstanding that its trading activities are entered into in the course of carrying on some primary or dominant undertaking, so also with a corporation which engages in financial activities in the course of carrying on its primary or dominant undertaking. Thus a corporation which is formed by an employer to provide superannuation benefits for its employees and those of associated employers may nevertheless be a financial corporation if it engages in financial activities in order to provide or augment the superannuation benefits.”

There is nothing inconsistent in State Superannuation Board in the judgment of the majority with the approach of Barwick CJ in Adamson.This case is of no assistance to the Board in this matter.

(c)        Tasmanian Dam

In Commonwealth of Australia v The State of Tasmania & Ors (1983) 158 CLR 1 (Tasmanian Dam), Mason J said at 156 that:

“The majority judgment in State Superannuation Board pointed out that the case decided that a trading corporation whose trading activities take place so that it may carry on some other primary or dominant undertaking (which is not trading) may nevertheless be a trading corporation.”

That passage is supportive of the Union’s case in this matter as the FES activity of the Board involves trading activities on a very large scale producing multi-million dollar revenue.

See also to similar effect the observations of Deane J at 293:

“We went on to express the view that the fact that a trading corporation carries on extensive non-trading activities which might properly warrant its being categorized as a corporation of some other type will not prevent it from being properly categorized as a trading corporation by reason of its trading activities. In that regard, we referred to a comment of Mason J in Adamson that the expression “trading corporation” is essentially “a description or label given to a corporation when its trading activities form a sufficiently significant proportion of its overall activities as to merit its description as a trading corporation.”

CONCLUSION

The activities of the Board, undertaken through its FES Division in the “commercial servicing of portable and fixed fire equipment for commerce, industry and the domestic market (see 1996/97 Annual Report) and in which it generates substantial income for the Board, are activities sufficient to constitute the Board as a trading corporation with s 51(xx) of the Constitution.

It is not to the point that the Board is a statutory corporation subject to Ministerial control. It is also not to the point that the overwhelming majority of its funds are derived from insurance companies, municipal councils and the State Government. None of those matters contradict the fact that the Board is involved in a major way in trading through its FES arm. Any contrary view simply defies reality. The trading activities of FES in my view form a significant proportion of the Board’s overall activities to warrant it being a trading corporation for relevant legal purposes.

Mr Marks contended to the effect that to take such an approach as I have taken to the issue of what a trading corporation would be repeating the error committed by Wilcox J in E. I strongly disagree. The views of Wilcox J in E are consistent with the approach of the High Court majorities in Adamson, State Superannuation Board and Tasmanian Dam. They are views which were developed in a well reasoned and considered judgment in E. I consider that I should take the same approach to the resolution of the issue in the instant matter unless it can be demonstrated that such approach was wrong or not open to Wilcox J. See eg: Ovcharuk v Minister for Immigration, Marshall J, 1 April 1998.

Mr Friend also contended that the Board was a “financial corporation” within the meaning of s 51(xx) of the Constitution. I do not find it necessary to decide that issue.

Consequently I will order that the notice of motion be dismissed. The matter will be adjourned for directions on 22 June 1998 to be dealt with at the same time as a related matter which is listed for directions on that day.

Associate:

Dated:              20 May 1998