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Accident Compensation Cases

TECHNIC GROUP LTD v FITZROY ENGINEERING GROUP LTD (HC, 09/07/98)

Judgment Text

ORAL JUDGMENT OF ANDERSON J 
N C Anderson J
This is an application for a declaratory judgment pursuant to the Declaratory Judgments Act 1908 as to the effect of an indemnity provision in an agreement for the sale of a business, in respect of the purchaser's liability for levies under the Accident Rehabilitation and Compensation Insurance Act 1992. 
An aspect of the legislation and regulations concerning Accident Rehabilitation and Compensation Insurance is that in relation to many employers the premium liability will have regard to that employer's claim history. Levies might be loaded or rebated in the light of such histories. A legislative mechanism exists for attributing to a new employer who takes over an existing business the qualifying claims paid out in the relevant year in respect of work related injuries occurring in that business prior to its transfer to the new employer, although not more than five years before the relevant year. Section 104 of the Accident Rehabilitation and Compensation Insurance Act 1992, as operative from 1 July 1992, included the following provisions:— 
“(1)
The basic premium payable under section 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 subsection (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. 
(4)
Without limiting the basis of or procedure for adjusting the basic premium that may be prescribed, the regulations may provide for all or any of the following matters: 
(c)
The attribution of claims, and the costs to the Corporation of such claims, associated with one employer to another employer where all or part of an 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. ”
Regulation 7 of the Accident Compensation (Accident Experience) Regulations 1992, made under s 104 as operative prior to 1 July 1992, provided as follows:— 
“Notwithstanding that a qualifying claim is attributable to an employer (referred to in this regulation as the first employer), if that qualifying claim related to a personal injury by accident that occurred in the course of any activity or part thereof carried on by the first employer, and that activity or such part thereof was carried on at any time after the claim date by another employer (referred to in this regulation as the second employer), the Corporation may, in its discretion, for the purposes of these regulations deem that qualifying claim to be attributable to the second employer. ”
Regulation 6 of the Accident Rehabilitation and Compensation Insurance (Experience Rating) Regulations 1993 extended the scope of the power to attribute claims to employers whilst still permitting attribution to a new employer as permitted under the Accident Compensation (Accident Experience) Regulations 1992. 
On 14 July 1992 Fitzroy Engineering Limited (“Fitzroy”), a subsidiary of the first named plaintiff, Technic Group Limited, entered into an agreement with a Mr White-Robinson as agent for a company to be formed for the sale of the whole of the business assets and goodwill of Fitzroy. Pursuant to that agreement the said business assets and goodwill were transferred to and carried on by the defendant, Fitzroy Engineering Group Limited (“FEGL”) on and from 31 August 1992. 
Pursuant to the above-mentioned 1992 and 1993 Experience Rating Regulations, the qualifying claims in respect of work related accidents occurring during the business of Fitzroy prior to FEGL's takeover on 31 August 1992 have been attributed by the Accident Rehabilitation and Compensation Insurance Corporation (“the Corporation”) to FEGL, with the result that the latter's liability in respect of insurance premiums payable to the Corporation has been increased by the extent of such attribution. FEGL has responded to this increased liability by withholding from the rent due by it to Technic as its landlord and as the parent company of Fitzroy the proportion of the loading referable to Fitzroy but attributed to FEGL. The present proceeding does not traverse the question of the entitlement of FEGL to set off claims by it in respect of Fitzroy against the rent it owes Technic. Rather, the proceeding is concerned with whether and to what extent FEGL may rely on clause 11.2 of the agreement for sale and purchase with Fitzroy in relation to the re-attribution of Fitzroy's qualifying claims. 
The relevant part of clause 11.2 of the agreement for sale and purchase is in the following terms:— 
“Subject to the provisions of this Agreement the Vendor shall be liable for any and all claims or contingent liabilities in respect of the operation of the Business and in respect of the Business Assets and any other Assets being transferred to the Purchaser in accordance with this Agreement arising out of or in respect of activities up to the Settlement Date (whichever is appropriate) …  ”
The issue in the case is simply one of construction of clause 11.2, and in particular whether that part of the premium loading referable to the re-attribution of Fitzroy's qualifying claims are “claims or contingent liabilities” in terms of the clause. 
In the course of her helpful submissions counsel for the plaintiff raised the following issues:— 
1.
The purchaser warranted that it was fully aware of the financial position of the vendor. 
2.
The application of the regulations is not a claim. 
3.
The application of the regulations is not a contingent liability. 
2 and 3 above are arguments in relation to interpretation. The question whether the increased liability is a claim may be moot, but the defendant can invoke the clause if the increased liability is a relevant contingent liability, even if not a claim. As to the argument that the purchaser warranted that it was fully aware of the financial position of the vendor, I do not think this can assist the plaintiff. The defendant is not breaching that warranty by invoking another clause for its benefit. Furthermore, the warranty could only relate to those matters which could be known, whereas the future liability in respect of premium loadings depended upon future events which could not be known at the time. In short, the defendant's warranty was a warranty as to knowledge of existing fact, not future occurrences. 
I accept the argument of counsel for the defendant that the expression “claims or contingent liabilities” envisages claims against or contingent liabilities of FEGL in respect of the operation of the business arising out of or in respect of activities up to the settlement date. I think it is clear that the proportion of the loading that could be re-attributed to FEGL as at the date of the agreement is a contingent liability within the meaning of clause 11.2. Such liabilities would be contingent for all or any of the following reasons:— 
1.
Liability would require the occurrence of the contingency of a decision of re-attribution in a particular year. 
2.
Liability would require the occurrence of the contingency of a qualifying claim in respect of a pre transfer work related accident being paid in the relevant year. 
3.
The quantum of liability was contingent on the quantum of any qualifying claim which might be paid. 
At the time the agreement was entered into liability contingent in these respects was possible but not inevitable in terms of liability or the quantum of it. I therefore determine and declare that FEGL is entitled, by virtue of clause 11.2 of the agreement for sale and purchase entered into between Fitzroy Engineering Limited and the defendant on 14 July 1992, to recover from Fitzroy Engineering Limited that proportion of its Accident Rehabilitation and Compensation Insurance Corporation premium loading which is referable to the re-attribution to the defendant of the Experience Rating of Fitzroy Engineering Limited by virtue of the legislation and statutory regulations providing for such liability on the part of the defendant. 
Counsel both ask that costs be reserved. I think such approach may be influenced by the commercial relationship of the parties. They may recognise that this decision is of benefit to each and could themselves consider letting costs lie where they fall, but that is a matter for them. 

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