Trans Power New Zealand Ltd v Accident Rehabilitation and Compensation Insurance Corporation

IN THE DISTRICT COURT AT AUCKLAND Decision No. 217 /97 IN THE MATTER of The Accident Rehabilitation and Compensation Insurance Act 1992 AND IN THE MATTER of an Appeal pursuant to Section 91 of the Act BETWEEN TRANS POWER NEW ZEALAND LTD DCA 127/97 Appellant AND ACCIDENT REHABILIATION AND COMPENSATION INSURANCE CORPORATION a body corporate duly constituted under the provisions of the said Act Respondent HEARD on the 30th day of September 1997 APPEARANCES Mr J Roberts for appellant Mr MG Colson for respondent DECISION OF JUDGE M J BEATTIE The issue in this appeal is whether the Corporation was correct to reclassify the appellant's employment premium classification for the years 1992 to 1996 in accordance with s.103 of the Act. 2 Background Facts For the purposes of the Accident Rehabilitation and Compensation Insurance (Employment Premiums) Regulations the appellant had classified its industrial activities as " 'Engineering (civil or consulting services), business of" for the period 1992 to 1994 and for the period 1995 to 1996 the appellant had used the classification unit "business management services." On the 6th June 1996 the Corporation informed the appellant that it was in the process of reassessing premium classification units for the years 1992 to 1996 and reclassifying employers who if considered were incorrectly classified. The Corporation requested a description of the appellant's activities during these years together with details of the basis used by the appellant to classify its activities. On the basis of the information provided by the appellant the Corporation reassessed the appellant's premiums classifications. In its letter dated 11 September 1996 the Corporation informed the appellant that it was reclassifying the appellant's industrial activities to "Electric power supplies - (d) Power lines (distribution only)" for the period 1992 to 1994 and "electricity distribution" for the period 1995 to 1996. It is that decision which the appellant sought to review and with the Review Officer's decision confirming that classification the appellant now appeals to this Court. WHAT IS TRANS POWER NEW ZEALAND LIMITED? At the review hearing considerable evidence was adduced by Trans Power both oral and documentary and I encapsulate that evidence as follows. 3 Trans Power is the State-Owned Enterprise which owns and operates New Zealand's national grid. In addition to managing transmission services, it provides, as a neutral transparent and independent service a range of information to wholesale market participants which facilitates effective competition. Its shareholders are the Minister of Finance and the Minister for State-Owned Enterprises. Trans Power's principal functions are: To build and maintain the transmission system; To operate the transmission system and provide ancillary services such as voltage and frequency control; To provide scheduling and dispatch services for the electricity market; To provide information to the electricity market. Trans Power contracts the Grid's operational, maintenance and construction requirements to specialist contractors. The company's staff set and manage these contracts to ensure adherence to strict standards. The National Grid comprises the network of transmission lines, substations, switch yards and two control centres. It is the Grid that connects the power stations, which generate electricity, to the power companies that in turn supply domestic users. Trans Power coordinates New Zealand's electricity supply through the Grid. This is achieved by scheduling and dispatching electricity according to rules set by the New Zealand electricity market. Trans Power also provides essential support for the operation of the wholesale electricity market. 4 The two core businesses of Trans Power are firstly the responsibility for transmission services between electricity generators and electricity distributors and secondly the provision of wholesale market services to bulk buyers and sellers of electricity. All maintenance and development of the National Grid are carried out by contractors contracted to Trans Power and not by Trans Power employees. Trans Power employs approximately 429 employees. Almost all employees work at desks or at computers in control centres. A substantial number have high qualifications in the engineering and other scientific disciplines and no employees save for possibly six person engaged in training could be regarded as carrying on a function which could be described as involving a risk connected with being in an electrical environment. It should be mentioned that Trans Power is a monopoly provider of transmission services. It has been stressed that Trans Power employees are no more at risk than any other desk bound employee and that any high risk activities for which Trans Power are responsible are carried out by contractors specifically contracted for those purposes. Trans Power's customers are the various power companies such as Mercury Energy. Electricity is delivered to them from Trans Power substations and then distributed by the various power companys to domestic users. The responsibility for faults, failures etc at that stage rest with the power companies not Trans Power. It is against that factual background that the appellant made its submissions. 5 Appellant Submissions The appellant's submissions in effect "take on" the Corporation's interpretation of the relevant provisions of the Act and the various employment premium regulations which have been made pursuant to the Act over the past five years. It is submitted by the appellant that the Review Officer and the Corporation have misinterpreted the purpose of the Act in so far as it provides for the classification of employers for the assessment of employment premiums. Counsel for the appellant submits that by an analysis of sections 100 to 107 of the Act and adopting well settled principles of statutory interpretation relating to considerations of the scheme and objects of the Act, it is thereby clearly established that the employment premium is inextricably linked to employment. The employer is required to pay a premium with respect to each and every employee. Section 100 of the Act states that the funds derived from premiums payable by employers pursuant to s.101 and premiums payable by earners who are not employees pursuant to s.102 are to be used to finance all costs in respect of work injuries and non-work injuries of earners. It is contended that the purpose of this fund is abundantly clear, namely, to provide for payment for accidents to employees. Counsel submits that sections 101 and 103 of the Act have a clear purpose and clear object. Section 103 provides the power to make regulations for the purposes of s.101. The purpose of s.101 is for each employer to pay a premium with respect to each employee. The purpose of s.103 is to provide a method of grouping employers with respect to the premium payable for each employee and for the purpose of calculating the basic premium. 6 It is further submitted that not only does the Act point clearly to an assessment of employment as the basis of classification but also the method used by the Corporation to calculate a premium with each classification is an actual calculation of claims and earnings. These can only possibly be employee claims. This is the "risk". The risk can only be the possibility of employment-related claims. It is further submitted that having regard to regulations 5 and 6 (which have not changed materially over the years we are concerned with) it is clear that the whole of the basic premium calculated for each class is risk weighted on the basis of the functions of its employees. The grouping of employers must be based on an assessment of risk in a similar class of employment. The regulations cannot be read or interpreted in any other way. It is contended that the regulations are subordinate legislation and can only be applied in terms of the Act. The Act is clearly to classify employers by risk of accident to their employees. This cannot be separated from employment. The "industry trade business profession or undertaking of an employer" must be considered in the light of that employer's activity as an employer. That is in relation to employment and in relation to its employees. The classification unit or employer activity in so far as it relates to Trans Power must have consideration for the activities which its employees are carrying on. Thus counsel for the appellant submits that the employer should be classified in an appropriate risk category for its employment. It is that which is contended to be the clear object of the Act and regulations, and by classifying Trans Power in a high risk grouping the Corporation has not correctly applied the principles of the Act. 7 To encapsulate the appellant's submissions, it contends that classification for employments premium purposes must be based on the activities of its employees as it is those activities which establish the risk and it is the risk on which the weighting of a premium is calculated. Counsel for the appellant contends because Trans Power has no employees engaged in the activities of electricity distribution it cannot be so classified. The employment functions of Trans Power provide quality assurance services to customers and provide market information for participants in the market. It is submitted that the services of quality assurance and information services do not fit the description electricity distribution but do fit the management services type of classification under which Trans Power originally classified itself. The appellant seeks the re-instatement of those types of classification or for the appellant's classification to be reconsidered taking into account the employee activities. It is on the basis of that submission that counsel for the appellant submits that the use of NZSIC and latterly ANZSIC classification systems as part of the classification process are not appropriate as those systems classify industries rather than employers. Respondent Submissions Counsel for the respondent submits that having regard to the meaning of "industrial activity" as contained in the Employment Premium Regulations 1992, 93 and 94 and the definition of "classification unit" which replaced the term "industrial activity" in 1995 but which retained the same meaning, it is patently clear that the focus for classification purposes is on the nature of the goods or services produced or rendered by the employer. The nature of the work carried out by the employees (if any) is not relevant to this classification except to the extent that it produces the goods or services. 8 It is further contended that it is clear from the proviso to the definition of "industrial activity" that the possibility of determining industrial activity from "the nature of employment" was considered but was not chosen to be a consideration unless no goods or services are produced or rendered by the employer. Thus the line is clearly drawn between appellant and respondent. Classification is not to be considered with regard to the activity of employees but rather having regard to the nature of the goods or services produced or rendered by the employer. Counsel for the respondent submits that the correct classification is that based on the description of industrial activity set out in the schedule to the regulations which most "accurately describes" Trans Power's industry, trade, business or undertaking as determined by the services it renders . Using that as its basis, the respondent contends that the appellant's industry, trade, business or undertaking is not "engineering (civil or consulting services) business of". It does not provide this service whereas the description which most accurately describes its industrial activity is "electrical power supplies - power lines distribution only". Furthermore, the respondent observes that the appellant is not being treated as an operator or maintainer of electrical power lines. A separate category exists for "electric power supplies - (a) construction and maintenance of transmission lines" which carries a higher premium. In so far as the re-classification in 1995 the respondent contends that "electricity distribution" is the appellant's industry, trade business or undertaking as most accurately described. By virtue of its electricity transmission activities it is involved in the distribution of electricity from an electricity generator to consumers. 9 Furthermore specifically excluded from that classification is "construction, repair or maintenance of electricity transmission towers or lines". That activity is featured elsewhere and contains a significantly higher premium than that for electricity distribution. Counsel for the respondent submits that the scheme of the Act is not as contended by counsel for the appellant but in so far as sections 100, 101, 102 and 103 are concerned, it is to classify employers and earners into industry classes for the purposes of levying premiums in respect of that class. It is that which the regulations which have been promulgated thereunder do. Counsel for the respondent submits that if the interpretation which the appellant contends (classification by employee activity) were adopted absurd consequences would flow. It would be necessary for every employer in New Zealand to consider all activities carried out by its various employees. It is for this reason that it is contended that the much simpler and more logical system of focusing on the employer's activities, as determined by its output of goods and services, is correct. Relevant Statutory Provisions "100. Source and application of funds- 1. for the purposes of financing treatment, services, rehabilitation, related transport, compensation, grants and allowances provided under this Act in respect of personal injury of the kind described in subs.(3) of this section, the Corporation shall derive its funds from the following services: (a) Premiums payable by employers pursuant to section 101 of this Act and (6) Premiums payable by earners who are not employees pursuant to section 102 of this Act. 2. Funds derived under subs. (1) of this section shall be held in an account to be known as the Employer's Account. 10 3. The Corporation shall apply the funds in the employer's account in- (a) Paying the Crown for goods, services, and facilities provided or arranged by the Crown under any contract or agreement or arrangement under s.29A of this Act and (6 ) Paying for treatment, services, rehabilitation, related transport, compensation, grants, and allowances provided for under this Act and (c ) Making appropriate payment to the Subsequent Work Injury Account - in respect of work injury and non-work injury (other than motor vehicle injury) suffered by an earner on or after the Ist day of April 1974 and for the Ist day of July 1992, work injury other than motor vehicle injury suffered on or after the Ist day of July 1992 and personal injury caused by the gradual process, disease or infection that is covered by s.11 of this Act. 101. Premiums payable by employers - (1) There shall be payable by every employer, in accordance with this Act and regulations made under this Act, a basic payment at such rate or rates as are prescribed on the amount of earnings paid or deemed to have been paid by that employer to its employees. 102. Premiums payable by earners who have earnings other than as an employee - There shall be payable by every earner who has earnings other than as an employee in accordance with this Act and regulations made under this Act a basic premium at such rate or rates as are prescribed on the amount of earnings (other than earnings as an employee) derived or deemed to be derived by that earner. 103. Classification of industries - (1) Employers and earners who are not employees shall be classified into industry classes defined in regulations made under this Act for the purposes of setting premiums payable under sections 101 and 102 of this Act. (2) Premiums set under sections 101 and 102 of this Act shall be determined for each industry class defined under subs.(1) of this section. 11 (3) Subject to this Act the Corporation shall decide which classification of industry is appropriate in relation to any employer or earner who has earnings other than as an employee by whom a premium is payable. (4) Separate accounts shall be kept of the amounts collected from each industry class under sections 101 and 102 of this Act and the amounts expended for the purposes of s. 100(3) of this Act in respect of earners within each industry class. 104. Experience rating of employers - (1) the basic premium payable under s.101 of this Act by an employer may be adjusted by reference to the accident experience of or attributed to that employer. (2) The adjustment referred to in subs. (1) of this section shall be by way of a premium loading being imposed on the employer or a premium discount being allowed to the employer. (3) The basis of and procedure for adjusting the basic premium shall be that prescribed by regulations made under this Act." The relevant regulations which have been promulgated pursuant to, and for the purposes of sections 100 to 104, are each respectively described as the Accident Rehabilitation and Compensation Insurance (Employment Premiums) Regulations 1992, 1993, 1994, 1995 & 1996. For the years 1992, 1993 and 1994 the relevant regulations were as follows: "3 . Classification of earners for premium purposes - For the purposes of calculation and payment for premiums under the Act- (a) Earners shall be classified into their respective categories of - (i) Persons who have earnings other than as an employee; and (ii) Employees; and (b) Except as provided in clauses 4 and 6 of this order, employees shall be also classified according to the description of industrial activity, as set out in the Schedule to this order, which most accurately describes their employer's industrial activity, or where, because of the nature of the employee's work within a particular 12 description of an industrial activity of an employer, more than one division is prescribed in relation to that particular description, shall be classified in the division within that description which is appropriate to the nature of their work; and (c) Except as provided in clauses 5 and 7 of this order, persons who have earnings other than as an employee shall be also classified according to the description or division of industrial activity, as set out in the Schedule to this order, which most accurately describes their industrial activity." In the interpretation section "industrial activity" means: "Industry activity" means the industry, trade, business, profession, or undertaking of an employer or a person who has earnings other than as an employee as determined by the nature of the goods or services produced or rendered by that employer or person who has earnings other than as an employer; or if no goods or services are produced or rendered, as determined by the nature of the employment. For the year 1995 the term "classification unit" replaced "industrial activity" but the meaning remained the same. In the regulations promulgated for the 1996 year the wording was changed from "classification unit" to "activity" which was defined as follows: "Activity means the industry, trade, business, profession, or undertaking of an employer or a person who has earnings other than as an employee; and for that purpose, functions which are ancillary or subservient to an activity (including but without by way of limitation administration, marketing and distribution, technical support, maintenance, product development or other like functions) shall comprise part of that activity and shall not form a separate activity." 13 Regulation 5 of the 1995 regulations provides that employees shall be classified in the classification unit as set out in the schedule to these regulations which most accurately describes their employer's activity. Thus although in the 1995 Regulations for the 1996 year there is no longer in the regulations the statement that the classification of an employer is to be determined by the nature of the goods or services produced or rendered as was previously the case, the juxtaposition of the definition of "activity" with the phrase "classified in the classification unit which most accurately describes the employer's activity" in my view does not change the intention of the regulations any way whatsoever. "Activity" must have regard to the goods or services produced or rendered for the purposes of classification. Decision Having regard to the provisions of s.103 of the Act and in particular the use of the terminology "industry classes", it being that which is required to be defined by regulations, and then turning to the classification criteria laid down in definition section of the regulations for the successive years, namely, "industrial activity", "classification unit" and "activity" I find it is clear that the determining factor for classification in an industry class is an assessment of the goods or services rendered or produced by the employer. It is only when no such goods or services are produced that regard is had to the nature of employment. I find the latter is clearly subordinate to the former. While sections 101 and 102 provide for the payment of premiums at a prescribed rate on the amount of earnings of employees, I find that those sections are the funding sections and the expressions "employer", "employee" and "earner" are considered only in the light of those relationships as they are defined for liability for funding and, not for any wider purpose of being the basis for classification of industrial activity as the appellant would have. 14 The classification provision is s.103 and the regulations made pursuant to s.103. Industry classes under s. 103 progress to determination by reference to the nature of the goods or services produced or rendered. The question to be asked is "What is the activity of the employer? not "What are the activities of the employees? Having activity of employer as the basis for classification I find that from 1992 to 1994 the appellant's industry, trade, business or undertaking cannot be said to be "engineering (civil or consulting services) business of". It does not provide such a service. The appellant must be classified according to the description in the Schedule which most accurately describes its industrial activity and I find that the activity which was ascribed it by the Corporation of "electrical power supplies - (d) power lines (distribution only)" is clearly the most accurate and I observe has the lowest rating of all classifications under "electric power supplies". I find that the foregoing classification is applicable to the appellant for the 1992, 93 and 94 years. In so far as the 1995 year is concerned, as has previously been stated the term "classification unit" was used instead of the term "industrial activity" but the definition remained the same. The Schedule was modified and classification units set out in that Schedule were "electricity distribution" and "electricity generation". The Australian and New Zealand Standard Industrial Classification (ANZSIC) on which the schedule of classifications were based and which have a co-relating reference state: "Electricity Supply" This class consists of units mainly engaged in the generation, transmission or distribution of electricity. Exclusions/ references Units mainly engaged in the construction, repair or maintenance of electricity transmission towers or lines, power station buildings, or water storage dams are included in class 4122 non-building construction. 15 The inclusion of "activity" within the phrase "employees shall be classified in the classification unit as set out in the schedule to these regulations which most accurately describes their employers activity" in Regulation 5 clearly indicates that it is employer activity not employee activty which is the determining factor for classification. For it to be otherwise, as the appellant contends, in my view would require the clearest of expression to that effect in both the Act and Regulations, as the whole emphasis would be required to change. As I have found these Regulations are consistent with its predecessors. The question is whether that classification is more appropriate to that which the appellant classified itself namely business management services. That classification is contained in ANZSIC which states: "This class consists of units mainly engaged in providing business management services, including business analysis, efficiency or organisation and method studies, personnel management, public relations consultancy or statistical services." I find as a fact that this appellant is not engaged in business management services as that classification is described in ANZSIC. If one scans through the Schedule to the regulations and notes the classifications commencing with the figures 78, being the ANZSIC subdivision for business management, all units described under that number are providing services totally different from that of the appellant. It's service is clearly the distribution and supply of electricity. Its other services are all ancillary or subservient to that activity. Accordingly I rule that the classification unit "electricity distribution" most accurately describes the appellant's industry, trade, business or undertaking for the 1995 year. 16 In so far as the 1996 year is concerned, the term "industrial activity" has been replaced by the word "activity" in the regulations. That change of wording and definition in my view does not change the purpose or intent of the regulations namely, that the classification or industrial activity is to be determined by the employer's output. Accordingly the correct classification for the 1996 year is similarly "electricity distribution" The decision of the Review Officer is upheld and this appeal is dismissed. DATED at AUCKLAND this 3ist day of October 1997 Death M J Beattie District Court Judge Transpow.doc KD