Pacific Door Systems Limited v Accident Rehabilitation and Compensation Insurance Corporation

IN THE DISTRICT COURT HELD AT WELLINGTON Decision No. 262 / 97 UNDER The Accident Rehabilitation and Compensation Insurance Act 1992 AND IN THE MATTER of an appeal pursuant to section 91 of the Act BETWEEN PACIFIC DOOR SYSTEMS LIMITED of Seaview, Lower Hutt Appellant (Appeal No. DCA 113/97) AND ACCIDENT REHABILITATION AND COMPENSATION INSURANCE CORPORATION a body corporate duly constituted under the provisions of the said Act Respondent HEARD on the 7th day of November 1997 APPEARANCES P R W Chisnall with L M C Campbell for appellant S Condie for respondent DECISION OF JUDGE A W MIDDLETON The issue in this appeal is the attribution of claims for experience rating under regulation 6 of the Accident Rehabilitation and Compensation Insurance (Experience Rating) Regulations 1993. The Regulations were made by Order in Council on 27 September 1993 but were deemed to come into force on 1 April 1993. 2 In order to put the issues in perspective it is necessary that I should record the chronology relating to the appellant company and its business as provided by the appellant: 1. Prior to June 1992 Winstone Specialty Products operated as a manufacturing company producing doors and other products. 2. In May 1992 the assets and business activities of Winstone Specialty Products were sold to Giblaw Formations Limited. The sale involved the assets of the business only and not the company. 3. Giblaw Formations Limited was granted the right to use the name Winstone Specialty Products Limited for a short time but later changed its name to Winstone Specialty Products then later changed its name to Pacific Door Systems Limited. On 14 September 1994 the respondent issued an experience rating assessment to Winstone Specialty Products for the 1993 year but on 8 December 1994 Winstone Specialty Products Limited advised the appellant that it did not accept the assessment which should have been sent to Winstone Wall Boards, Auckland. On 16 February 1995 the respondent advised Winstone Specialty Products that the Experience Rating Regulations provided that the company remains responsible for claims for five years. On 22 May 1995 the appellant's solicitors notified the respondent that they did not agree with the experience rating assessment. This was followed by a letter from the respondent on 3 July 1995 in which it was explained that where an activity carried on by an employer is transferred as a going concern to a second employer, the respondent is able to reattribute qualifying payments to the second company pursuant to regulation 6 of the Experience Rating Regulations. Further correspondence took place between the parties until the appellant's solicitors wrote to the respondent on 28 February 1996 requesting the respondent to establish the criteria taken into account when it exercised its discretion to reattribute the claims of Winstone Specialty Products Limited to the appellant On 21 March 1996 the respondent notified the appellant's solicitors that its assessment was in error and that a decision should have been made under regulation 6(2)(a) of the Experience Rating Regulations as the appellant was a new employer. The respondent therefore revoked its original decision and substituted a new one. The letter also advised the appellant that the respondent would reconsider the circumstances of the transfer of the business activity to the appellant and issue a new decision. The respondent also noted that decisions under regulation 6(2)(a) were usually made on a case by case basis after considering all relevant circumstances and the requirements of the legislation. On 3 May 1996 the appellant's solicitors confirmed that the appellant had acquired the business activity of the company formally known as Winstone Specialty Products Limited and that it was therefore appropriate for the respondent to consider whether to exercise its discretion to deem a qualifying claim of the first employer to be 3 attributable to the appellant. The letter submitted that as a matter of natural justice and fairness, the decision should be made having regard to the safety record of the new employer. On 6 November 1996 the respondent notified the appellant's solicitors that as the appellant was not an employer until 20 May 1992 and had not paid liable earnings between 1 April 1991 and 31 March 1992, a basic premium was not payable on 31 May 1992 and no experience rating assessment should have been issued. It followed that the loading for 1992 was therefore reversed. A new decision was then issued reattributing experience rating for the years 1994 and beyond. On 3 December 1996 the appellant's solicitors requested a copy of the respondent's policy in regard to the Experience Rating Regulations and in particular, any information in relation to the respondent's decision with regard to this appellant. After that information was provided on 20 December 1996, the appellant applied for a review of the decision. The application for review was on the grounds that the respondent had failed to take into account the improved safety record of the appellant since it had purchased the business activity from Winstone Specialty Products Limited. In a decision issued on 4 April 1997, declining the application for review, the Review Officer found that reattribution could occur prior to the 1993 Experience Rating Regulations coming into force and that this did not breach the general legal presumption against retrospectivity. He found that the respondent had not rigidly applied the policy in relation to the appellant's claim and that the decision was consistent with the intent of reattribution set out in regulation 6(1) of the Experience Rating Regulations. The Review Officer also found that the respondent had taken into account all relevant considerations when making its decision. The appellant has appealed against that decision. The grounds for the appeal are stated to be that the Review Officer had misconstrued regulation 6(2)(a) of the Experience Rating Regulations in purporting to apply the discretion contained in that Regulation retrospectively and without legislative authority. A further ground of appeal was that the respondent had rigidly applied a predetermined policy without taking into account the merits of the trading activity undertaken since it had been taken over by the appellant from Winstone Specialty Products Limited. Mr Chisnall submitted: 1. That the Review Officer misunderstood the issues involved. That six issues were presented to the Review Officer for consideration being: " a. That the decision of the Corporation dated 7 November 1996 is retrospective without the requisite legislative authority and is therefore ultra vires. 4 b. In the alternative, that the Corporation has rigidly applied a predetermined policy without regard to the individual merits of the Appellant's case; c. In the alternative, that the Corporation has acted under a mistake of law and for an improper purpose; d. In the alternative, that the Corporation had failed to take into account mandatory relevant consideration; e. In the alternative, that the Corporation has failed to give reasons for its decision; f. The decision is patently unfair given the Appellant's work safety record." 3. That in relation to reattribution: (a) that while the appellant does not dispute that the qualifying claims in question are covered by the 1993 Regulations and that the retrospective application is clearly provided for in the definition of "qualifying claim" in regulation 2. That the Review Officer failed to address the question whether the respondent may have applied the discretion to attribute qualifying claims where the trading activity has been transferred as a going concern to a second employer prior to the Regulations coming into force. (b) that the discretion in regulation 6 cannot be exercised to reattribute qualifying claims where the trading activity was transferred from one employer to another employer prior to the Regulations coming into force. (c) that accordingly, the decision is ultra vires. 4. That while the Regulations permit the respondent to search back for five years for qualifying claims, there is no express or implied authority in regulation 6 which authorises the exercise of that discretion in respect of the transfer of a trading activity as a going concern which took place before the 1993 Regulations came into force. 5. That that is a breach of the fundamental rule of law that legislation shall not have retrospective operation unless it is clearly spelt out in the legislation itself. 6. That in relation to the argument that the respondent has rigidly applied a predetermined policy without regard to the individual merits of the case: (a) that the respondent's policy regarding attribution does not permit any wider discretion than has been made in this case; 5 (b) that by reference to the "Employer's Guide to Experience Rating 1994" a pamphlet published by the respondent has expressly stated "so in the interests of fairness, ACC will transfer claims from the old employer to the new employer." That that demonstrates the nature of the appellant's rigid application of policy. 7 . That in relation to the fact that the respondent failed to take in to account mandatory relevant considerations: (a) that the appellant's actual accident experience was not considered in reaching a decision. That the decision failed to recognise the efforts made by the appellant to improve the safety record in the business activity; (b) that had those issues been taken into account, the rating from time to time would have substantially lower. 8 . That the Court should have regard to numerous judgments, copies of which were submitted with the casebook supplied by the appellant in relation to the particular headings, under which the appellant made foregoing submissions. 9. That as the appellant's original submissions were issued prior to the decision of the Court in Sanford (South Island) Limited v ARCIC (160/97) and P & Q Services (NZ) Limited (161/97), Mr Chisnall made additional submissions in relation to the decision in Sanford. Mr Chisnall disputed the finding of Judge Ongley in relation to the retrospectivity of the Regulations. He submitted that it was clear from the Sanford decision that the Regulations give provision for retrospective authority in looking to claims on employers back to the 1982 Act, which he accepted but he submitted that the issue is whether the Regulations apply to cases where transactions between employers occurred before the enactment of the Regulations. Mr Condie submitted: 1. That while there is a general prohibition on retrospectivity there are also exceptions to the general rule. That the decision in Sanford found that the Experience Rating Regulations have a partly retrospective effect which is contemplated and authorised by the Act. 2. That in Sanford Judge Ongley found that the plain words of the statute encompass reference to past accident experience. 3. That the Sanford decision is clear authority for the respondent's position that the operation of the Act and Regulations in regard to reattribution of claims does have retrospective effect and that reattribution can clearly be considered even though the transfer of the appellant's business took place before the coming into force of the Act and Regulations. 6 4. That contrary to the appellant's submission that the appellant has rigidly applied a predetermined policy, the correspondence between the parties indicates that the respondent is prepared to take into account all relevant circumstances as required by the legislation. 5. That the P & O Services case demonstrates that the onus is on the appellant to show a reason why the respondent should exercise its discretion against reattribution of claims to the appellant. That while the appellant contends that the respondent should take into account the improved safety record of the appellant, such a consideration is not valid for the purpose of the exercise of the discretion not to reattribute the claims to the appellant. That the judgment in P & O Services demonstrates that the discretion is only exercisable in cases where there are special circumstances relating to qualifying claims and where a manifest injustice would result. That in this case, the appellant has failed to show that the improved accident record is a special circumstance such that a manifest injustice would result if reattribution was made despite it. 6. That while the appellant will ultimately benefit from the improved safety record by a reduction in claim costs, the respondent correctly exercised its discretion as the appellant has not shown that the previous employer was grossly negligent and that there were circumstances that would then justify exercise of the discretion. 7. That the respondent took into account all the mandatory relevant considerations when exercising its discretion. The particular Regulations are 6(1) and 6(2)(a) of the Accident Rehabilitation and Compensation Insurance (Experience Rating) Regulations 1993 which in so far as they apply state: "6. Reattribution of claims to another employer--(1) The purpose of this regulation is to enable the Corporation to attribute as many qualifying claims associated with one employer as possible to another employer where all or part of an activity or another activity carried on by that first employer has subsequently been carried on by that other employer or where the 2 employers are or were related or connected, to the intent that the financial costs to the Corporation of such claims are borne by that other employer and not by all employers generally. (2) Notwithstanding that a qualifying claim is, or is deemed to be, attributable to an employer or, in the case of a company which is a member of a specified group would, but for the application of regulation 12(1)(c) of these regulations, be or be deemed to be attributable to that employer (referred to in this regulation as the first employer), the Corporation may deem that qualifying claim to be attributable to one or more other employers, or to such other employers and the first employer (together referred to in this regulation as the second employer), with effect from such time as the Corporation may specify, if the qualifying claim related to a personal injury 7 by accident or work injury that occurred in the course of employment which-- (a) Was in respect of an activity carried on by the first employer where all or part of that activity has been transferred as a going concern to the second employer; or As Mr Condie submitted the issue in Sanford raised the same issues as are now raised in this appeal, in that case the appellant had purchased a fishing operation in March 1991. The experience rating reassessment was introduced by the 1992 Act but was not then in operation and could not have been contemplated by the parties when entering into the contract for purchase of the business. Subsequently the respondent adjusted that appellant's employer premium with qualifying claims referable to three employees of the original owner and related to accidents in May 1988 and 1989 which was well before the acquisition of the business by the appellant and well before the commencement of the 1992 Act. Judge Ongley in Sanford held that there was no foundation for the Court to interpret the definition in Regulations of "qualifying payment" to exclude the cost of claims that were made under the 1982 Act. He said: "The extended definition of "work injury claim" which expressly includes claims made under the 1982 Act puts the question beyond dispute. It is clear that the statute and regulations intended that the costs of those claims would be assessed for experience rating. To that extent the regulations have a partly retrospective effect and that is contemplated and authorised by the Act." Judge Ongley then went on to hold: "In my view, reg 6(1) (a) is not intended to exclude transactions occurring before the enactment of the statute or regulations. There is nothing in the wording of the statute or regulations that points to such an exclusive construction. The argument rests on adopting a construction that avoids retrospective effect. To exclude past transactions as a matter of interpretation would have sweeping consequences and would be going too far. It would be equivalent to deciding that the statute did not intend the process of reattribution (as distinct from experience rating) to have any retrospective effect on prior transactions at the commencement of the regulations. It would mean that a transfer of an activity immediately before the enactment could result in a nil experience rating for the new employer while the former employer may have ceased to pay or provide any earnings at all. By contrast a transfer after the enactment would have an effect of preserving to the Corporation the premium loading for a period of five years. I prefer the respondent's submission that the regulations should be given a construction to accord with the evident purpose of funding the Employers' Account and that the attribution of claims was intended to be related to an activity, so that they would be attributed to another employer where the activity has passed from one employer to another." 8 With respect to the extensive search of submissions made by Mr Chisnall, I consider that the analysis of the Regulations provided by Judge Ongley in Sanford correctly interprets the legislation and I adopt his findings and consider them to be applicable to the facts of this case which are comparable with the facts in Sanford. I therefore find that in relation to the submission on retrospectivity, that while historical events can be used for the assessment of experience rating, this does not amount to the Regulations themselves having a retrospective effect. Again, it was somewhat fortuitous that Judge Ongley, at the time of the issue of Sanford decision, also issued the decision in P & O Services which again related regulation 6(2)(a) and the proper exercise by the respondent of its discretion. Judge Ongley noted: "In the present case, so long as the terms of reg 6(2) (a) apply to the transaction it is difficult to envisage circumstances in which the Corporation may be called upon to exercise a discretion not to apply the experience rating to the new employer, except perhaps in cases where there are special circumstances relating to qualifying claims and where a manifest injustice would result. Discretionary decisions may well arise in other kinds of cases, for example, where material cannot be clearly ascertained. ... AS Mr Brown has correctly submitted, the considerations to be taken into account are those relating to the purpose and intention of Part VII of the Accident Rehabilitation and Compensation Insurance Act 1992 and of the Experience Rating Regulations." With respect, I adopt Judge Ongley's findings with the result that I accept Mr Condie's submission that while the appellant may have improved the safety record in the business, the discretion under the Regulation is only exercisable where special circumstances relating to the qualifying claims would result in a manifest injustice. This is supported by the statement of Judge Ongley in Sanford where he said: "There must be circumstances where a manifest unfairness may occur when, for example, an activity was acquired by a conscientious employer from an employer with a deplorable accident history, before enactment of s 104 of the Act when the impact of the new legislation was not known or understood. The accident history may include accidents brought about by gross negligence of the employer, and may have significant ongoing costs to the Employers' Account. The exercise of the discretion to reattribute premium loading should involve the application of the policy of the Act and take account of the circumstances of the qualifying claim, the attitude of the former employee to its responsibilities and balance the effects of the burden that the claim would place on the new employer or on the former employer or on the Employers' Account." It follows from my adoption of Judge Ongley's findings that the submission of a rigid application of predetermined policy is not sustained. While the appellant referred to the brochure "Employer's Guide to Experience Rating 1994" as a demonstration of a 9 hard line policy, I do not accept that as being authoritative and is only put out in order to assist some understanding of the Regulations. The respondent is bound to comply with the provisions of the Act and Regulations in exercising its discretion and the manner of that exercise has been clearly identified by Judge Ongley in the decisions to which I have referred. I also accept Mr Condie's submission that the appellant has failed to demonstrate any area in which the respondent has not taken into account the mandatory relevant conditions when exercising its discretion. For the reasons I have given the appeal must therefore fail. DATED at WELLINGTON this 16th day of December 1997 weunddata A W Middleton District Court Judge dc113-97.doc (nr)