CATCHWORDS CORPORATIONS - Deed of Company Arrangement - money due pursuant to statutory levy relating to employees' long service leave entitlements - whether priority over other unsecured creditors - whether amount due was to, or in respect of, employees in respect of leave of absence Construction Industry Long Service Leave Act 1987 (SA) Long Service Leave (Building Industry) Act 1975 (SA) Companies Act 1962 (SA) Corporations Law Re E & L Constructions Pty Ltd (in liq) (1981) 5 ACLR 778 Nowegijick v The Queen (1983) 144 DLR (3d) 193 The Queen v Savage (1983) 83 DTC 5409 Smith v Federal Commissioner of Taxation (1987) 164 CLR 513 Ting v Blanche (1993) 118 ALR 543 State Government Insurance Office (Qld) v Crittenden (1966) 117 CLR 412 Attril v Richmond River Shire Council (1966) Aust Torts Report 81-371 Australian Securities Commission v Marlborough Gold Mines Ltd(1993) 177 CLR 485 No SG 3023 of 1996 JOHN IRVING AS ADMINISTRATOR OF BETTAFORM CONSTRUCTIONS (SA) PTY LTD (SUBJECT TO A DEED OF COMPANY ARRANGEMENT) ACN 060 173 766Applicant - and - CONSTRUCTION INDUSTRY LONG SERVICE LEAVE BOARD Respondent O'Loughlin J Adelaide 20 November 1996 IN THE FEDERAL COURT OF AUSTRALIA) ) SOUTH AUSTRALIA DISTRICT REGISTRY) No SG 3023 of 1996 ) GENERAL DIVISION ) B E T W E E N: JOHN IRVING AS ADMINISTRATOR OF BETTAFORM CONSTRUCTIONS (SA) PTY LTD (SUBJECT TO A DEED OF COMPANY ARRANGEMENT) ACN 060 173 766 Applicant - and - CONSTRUCTION INDUSTRY LONG SERVICE LEAVE BOARD Respondent MINUTES OF ORDER Coram: O'Loughlin J Place: Adelaide Date: 20 November 1996 THE COURT ORDERS THAT: 1. The applicant bring in short Minutes of Order reflecting these reasons. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA) ) SOUTH AUSTRALIA DISTRICT REGISTRY) No SG 3023 of 1996 ) GENERAL DIVISION ) B E T W E E N: JOHN IRVING AS ADMINISTRATOR OF BETTAFORM CONSTRUCTIONS (SA) PTY LTD (SUBJECT TO A DEED OF COMPANY ARRANGEMENT) ACN 060 173 766 Applicant - and - CONSTRUCTION INDUSTRY LONG SERVICE LEAVE BOARD Respondent REASONS FOR JUDGMENT Coram: O'Loughlin J Place: Adelaide Date: 20 November 1996 The question for determination in these proceedings is whether the respondent, the Construction Industry Long Service Leave Board ("the Board") should be admitted to proof as an unsecured creditor enjoying priority over other unsecured creditors in the administration of Bettaform Constructions (SA) Pty Ltd (Subject to a Deed of Company Arrangement) ("the company"). The company entered into voluntary administration on 18 April 1995 and executed a Deed of Company Arrangement on 19 June 1995. Mr John Irving, the applicant and a chartered accountant, was appointed the administrator of the company. The Board is established by s 6 of the Construction Industry Long Service Leave Act 1987 (SA) ("the 1987 Act"). The 1987 Act, which came into operation on 1 April 1988, repealed and replaced the Long Service Leave (Building Industry) Act 1975 (SA) ("the 1975 Act"). The 1987 Act applies to a person's employment if the person is within the ambit of the provisions of s5. Persons who are within that ambit comprise those who work under a contract of service in "the construction industry", a term that is defined in the 1987 Act in a series of steps but which the parties acknowledged would include concrete formwork - that being the business of the company. Part 3 of the 1987 Act is entitled "Long Service Leave Entitlements". It commences with s 14, sub-s 1 of which provides:- "14(1) Subject to this Act, a construction worker's entitlement to long service leave, or payment on account of long service leave, is determined according to his or her aggregate effective service entitlement." Subsequent provisions of s 14 then proceed to formulate how a construction worker's entitlement to long service leave is calculated and how it may be cancelled. Section 16 imposes an obligation on an employer to grant long service leave to a construction worker when the entitlement arises. The same section also imposes an obligation on the Board to pay the worker his or her ordinary weekly pay during the period of leave. A worker will accrue an entitlement so long as he or she is working in the construction industry; the entitlement is not dependent on continuity of employment with the same employer. There can be no doubt that this is beneficial legislation that has been enacted with the dominate purpose of giving aid and benefits to workers in the construction industry. The legislation reflects Parliament's recognition that there is a social and therapeutic need to ensure that such workers have the opportunity to benefit from long service leave. This is made clear by s 19 of the 1987 Act which actually prohibits a construction worker, while on long service leave, from engaging in any other employment as a construction worker. To fund the Board's financial obligations to the workers, employers in the industry are required to pay levies to the Board: ss 20 and 26. The levy is a prescribed percentage of the total remuneration paid to each of the employer's construction workers. The employer when paying a levy must validate it by lodging a return with the Board setting out relevant particulars of its employees, their rates of pay and such other information as may be prescribed. The prescribed levy, as from 1 July 1995, is 1%. Employers' levies are paid by the Board into the Construction Industry Fund ("the Fund") and the Fund (which is augmented by other moneys) is used by the Board to meet the statutory entitlements that arise upon a construction worker dying, leaving the industry or taking long service leave. At all times that are material to this litigation, the company carried on business as a concrete formworker in the construction industry. In the course of carrying on its business it employed a variety or workers whose full details are set out in the papers and agreed by the parties. It was not disputed that all such employees were "construction workers" within the meaning of that term in the Act. It is accepted that, in the period immediately preceding administration, the company failed to pay levies to the Board as required by the 1987 Act. The Board has calculated that the company was liable to the Board in the sum of $3,973.24 as at 18 April 1995, the date on which the administration of the company began. That figure has been accepted by the applicant who is prepared to admit the Board to proof as an ordinary unsecured creditor. However, the Board seeks more, it claims priority in payment over all other unsecured creditors. Under the terms of the Deed the company made available all its assets (other than "its plant and equipment") for the benefit of its creditors. An additional amount of $170,000.00 was contributed to the creditors' fund by one of the company's principals and another deferred payment of his debt. The proceeds of the available assets and the contribution of $170,000.00 was then to be distributed to proving creditors rateably after payment of expenses and priority creditors. Part 5.3A of the Corporations Law ("the Law") deals with Deeds of Company arrangement. Sub-section 444A(1) of the Law, which is found in that Part, states that the section applies where, at a meeting convened under s 439A, a company's creditors resolve that the company execute a Deed of Company Arrangement. In any such case, the administrator of the Deed must prepare an instrument setting out the terms of the Deed. Sub-section 444A(4) details certain subject matters that must be addressed in the instrument and sub-s 444A(5) then provides:- "The instrument is taken to include the prescribed provisions, except so far as it provides otherwise." The "prescribed provisions" are found in Schedule 8A of the Corporations Regulations: see reg 5.3A 06. It may be assumed for the purpose of these reasons, that the conditions set out in s 444A of the Law were complied with and that none of the prescribed provisions were varied. Paragraph 4 of the "prescribed conditions", entitled "Priority", reads as follows:- "4. The administrator must apply the property of the company coming under his or her control under this deed in the order of priority specified in Section 556 of the Corporations Law." Section 556 forms part of Subdivision D - "Priorities" - of Part 5.6 - "Winding up generally". It lays out a priority of payments in the winding up of a company. Paragraph 556(1)(g) is the provision that is to be considered in this application. It calls for the priority payment of all amounts due:- "(i) on or before the relevant date; and (ii) because of an industrial instrument; and (iii) to, or in respect of, employees of the company; and (vi) in respect of leave of absence." In considering the question of the application of par 556(1)(g) of the Law to the facts of this case, it was accepted by the parties that "the relevant date" was 18 April 1995, the date on which the administration began. The term "industrial instrument" is defined in s 9 of the Law as follows:- "'industrial instrument' means:- (a) a contract of employment; or (b) a law, award, determination or agreement relating to terms or conditions of employment." "Leave of absence" is defined in the same section as meaning a variety of entitlements, one which is long service leave. I do not understand there to be any dispute about the classification of the individuals whose employment with the company led to the calculation of the gross figure of $3,973.24. I will treat them all as employees of the company. It is clear that no such employee was a creditor of the company in respect of the amount that had been allocated by the Board to him or her. The worker's entitlement to payment was an entitlement against the Board: see sub-s 16(4) of the 1987 Act. The corollary to that proposition is that it was only the Board, not the employee, that was the creditor of the company. The applicant contended that the Board could only succeed in establishing itself as a priority creditor if it could overcome three hurdles. It had to satisfy the Court that the amount due to it was due:- (a) because of "an industrial instrument" as the term is defined in the Law and (b) to, or in respect of, employees of the company and (c) in respect of leave of absence. Initially, the applicant argued that the Board failed on all three issues. First, he submitted that the provisions of the 1987 Act that created the liability to pay levies did not constitute a liability under an industrial instrument; those provisions, so he submitted, were neither a contract of employment nor a law, award, determination or agreement relating to terms or conditions of employment. Secondly, the applicant claimed that no amount was due to or in respect of employees of the company; it was his case that the amount was due in respect of the establishment of a fund for recipients who may receive payments from the Fund. Finally, the applicant submitted that the amounts due to the Board by way of levies were not due in respect of leave of absence, but rather they were due in respect of a statutory levy for all the many purposes for which the Fund is established. An Industrial Instrument The contention that the 1987 Act was not an industrial instrument was withdrawn by counsel during his submissions. In my opinion counsel was correct in making that concession. To or in respect of employees The applicant submitted that the Board was not entitled to a priority payment because the money that was due to the Board was not an amount that was due "to, or in respect of, employees of the company". Obviously the applicant is correct in submitting that the amounts are not due "to" employees but could it be said that they are monies that are due "in respect of" employees? As to this, the applicant argued that the debt that was owing by the company to the Board was not the amount that would be payable to a worker if he or she were to exercise a right to take long service leave. Rather, the applicant maintained that the debt that was owing was a statutory levy calculated at the prescribed rate of the relevant worker's ordinary weekly pay: Sub-ss 26(1)(2) and (7) of the 1987 Act. But, said the applicant, the worker's entitlement to long service leave was a different figure; see par 16(4)(a) which provides:- "(4)Where:- (a) a construction worker takes long service leave; or (b) ... the Board must pay to the person an amount calculated by multiplying his or her ordinary weekly pay by the period of leave referred to in par (a) or (b) (as the case may be)." Thus, so it was submitted by the applicant, the calculation of the levy (being the debt in respect of which priority was claimed) differed materially from the amount that might be due from the Board to the various workers. The applicant further submitted that the levy was a contribution to a blended fund thereby differentiating it from a worker's entitlement. This assertion is correct. Although it might be said that levies account for the greater part of the Fund, the Fund is augmented from other sources. It includes additional monies such as income from investments, accretions produced by its investments, advances made to the Board and penalties and fines that the Board is empowered to impose. In support of these propositions, the applicant relied upon the decision of the Full Court of the Supreme Court of South Australia in Re E & L Constructions Pty Ltd (in liq) (1981) 5 ACLR 778. That case dealt with the 1975 legislation and the Companies Act 1962 (SA) ("the 1962 Act"). The comparable priority provision that dealt with long service leave was found in s 292 of the 1962 Act. Paragraph (d) of sub-s (1) of that section was in the following terms at the time that was material to the Full Court's decision:- "(1)Subject to the provisions of this Act, in a winding up there shall be paid in priority to all other unsecured debts:- (a) ... (b) ... (c) ... (d) sixthly, all amounts due on or before the relevant date to or in respect of an employee of the company (whether remunerated by way of salary, wages, commission or otherwise) by virtue of:- (a) a contract of employment; or (b) a law of the Commonwealth, or of a State, or of a Territory of the Commonwealth, relating to long service leave, extended leave, annual leave, recreation leave or sick leave." The structure of the priority provisions in the 1962 Act and the Law is different in some important respects, but despite those differences, the core issues remain, in my opinion substantially the same. Both provisions commence by referring to "amounts due on or before the relevant date"; in each case the amounts are those that are due "to, or in respect of, ..." employees. The 1962 Act relates the entitlement to a contract of employment or "a law" of the Commonwealth or a State or Territory "relating to long service leave" whereas the Corporations Law connects it to "an industrial instrument" in respect of leave of absence. But, "an industrial instrument" means various things, one of which is "a law ... relating to terms or conditions of employment" and "leave of absence" includes long service leave. I have therefore come to the conclusion that, although decided on different legislation, the decision of the Full Court in E & L Constructions (supra) is relevant to a determination of this application. In that case the principal judgment was delivered by Zelling J with whom King CJ agreed. In concluding that there was no priority in favour of the Commissioner of Stamps (the authority to which levies were paid under the 1975 legislation) Zelling J said:- "The Commissioner might possibly have had an arguable case if the employer was required to pay to the fund the exact amount due from time to time in relation to a particular employee for long service leave benefits so as to build up a credit which would be credited to that particular employee which he would be paid when his entitlement to long service leave accrued. That however is not the scheme of this Act. The Act exacts the payment of the specified percentage not only to pay long service leave entitlements but also to pay the expenses of the administration of the Act: see s 41. Accordingly the fund is a mixed or blended fund which consists of the contributions of employers under s 16(3), income derived from investments or activities of the Board under s 16(4), and also possibly the results of borrowing under s 18. From that must be paid out from time to time the long service leave entitlements of employees, which may be more than, less than, or coincidentally the same as, the total amount of the employer's payments in. Out of the fund must also be paid the reasonable costs of the administration of the Act, so that the fund is not wholly appropriated in any event to the payment of long service leave entitlements. The purpose of the Long Service Leave (Building Industry) Act is no doubt praiseworthy to protect itinerant workmen in the building industry, as Mr Prior stressed, but the fact is that the scheme of that Act does not fit the words of s 292(1)(d) of the Companies Act. Under those circumstances, on general principles, as the arrears of levy do not answer the description of the preference given in s 292(1)(d), these appeals must be dismissed." (pp781-782) In my opinion the remarks of Zelling J have equal application to the provisions of the 1987 Act. Jacobs J, the remaining member of the Full Court, also discussed whether the amounts due could be said to be "in respect of any employee". As to this his Honour said:- "The appellant, giving a wide and unrestricted meaning to the words "in respect of", says that it is, but he can say only upon the footing that the payment made to the Commission is calculated as a prescribed percentage of the total wages paid to all employees during a specified period (s 24). But the employer might well have had a high turnover of labour in the relevant period, with some workers on the pay roll for the whole period, others for only a part of the time. One has only to state the appellant's case in that way to observe its fallacy, for it is quite impossible to identify even any part of the lump sum, let alone the lump sum itself, as a payment "in respect of an employee". "(p783) In respect of leave of absence The third contention of the applicant also relied on the decision in E & L Constructions (supra). Based upon the distinction between that which an employer must contribute to the Board and that to which a worker may become entitled as explained by Jacobs J, the applicant submitted that the amounts due by employers to the Board arising from the liabilities to pay levies are not due in respect of leave of absence. Rather, they are due in respect of statutory levies for all of the purposes for which the Fund is established. Jacobs J pointed to the independence of the worker's entitlement from the employer's obligation when he said:- "Any payment or benefit to the employee in lieu of long service leave is made by the Board out of a composite or common fund, and his right to payment is independent of his employer's obligation to contribute to that fund."(p784) The case for the Board rested primarily on the undoubted width to be given to the words "in respect of". In Nowegijick v The Queen (1983) 144 DLR (3d) 193 at 200 Dickson J said:- "The words "in respect of" are, in my opinion, words of the widest possible scope. They import such meanings as "in relation to", "with reference to" or "in connection with". The phrase "in respect of" is probably the widest of any expression intended to convey some connection between two related subject-matters." This passage was endorsed by the Supreme Court of Canada in The Queen v Savage (1983) 83 DTC 5409 at 5414 and adopted by Toohey J in Smith v Federal Commissioner of Taxation (1987) 164 CLR 513 at 533. It has also been quoted with approval by Hill J in Ting v Blanche (1993) 118 ALR 543 at 553. Relying upon such authorities as State Government Insurance Office (Qld) v Crittenden (1966) 117 CLR 412 at 416 per Taylor J and Attril v Richmond River Shire Council (1966) Aust Torts Report 81-371, counsel for the Board submitted that such words "are traditionally words of very wide connection". Hence, it was submitted that payments made by way of levies in the circumstances described above can and should be categorised as payments made in respect of employees and in respect of leave of absence. These submissions were, in my opinion, contrary to the conclusions reached by the members of the Full Court in E & L Constructions (supra) in the passages that I have quoted above. As to that, counsel for the Board submitted that I was not bound to follow the Full Court of a State Supreme Court and, in any event, he submitted that the decision of the Full Court was wrong. I do not agree. I am, with respect, of the view that the decision was correct. But even if I was of a contrary persuasion, the decision in E & L Constructions (supra) has applied in company insolvencies for the last fifteen years and it would be bold for a single judge to depart from such established authority. As the members of the High Court said in their unanimous judgment in Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485 at 492:- "(U)niformity of decision in the interpretation of uniform national legislation such as the Law is a sufficiently important consideration to require that an intermediate appellate court - and all the more so a single judge - should not depart from an interpretation placed on such legislation by another Australian intermediate appellate court unless convinced that that interpretation is plainly wrong." Although the language of the legislation has changed, I do not believe that the changes have brought about such a departure that I am able to distinguish the decision in E & L Constructions (supra). The Board is not entitled to priority as an unsecured creditor and there should be an appropriate order and direction as sought by the applicant. The Board should also pay the applicant's costs which are to be taxed in default of agreement. I order the applicant to bring in short Minutes of Order reflecting the orders and directions contained in these reasons. I reserve to the Board liberty to speak to the minutes. I certify that this and the preceding pages are a true copy of the reasons for the Judgment of the Honourable Justice O'Loughlin Associate: Dated: Counsel for the Applicant : Mr CJ Townsend Solicitor for the Applicant : Cowell Clarke Counsel for the Respondent : Mr R Ross-Smith Solicitor for the Respondent : Thomsons Date of Hearing : 8 July 1996