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ARE COUNCILS “TRADING CORPORATIONS”?

Whether a Local Government Council is a trading corporation under section 51(xx) of the Constitution has been an ongoing issue since the introduction of WorkChoices in March 2006.

On 20 July 2007, Senior Commissioner Smith of the Western Australian Industrial Relations Commission handed down her decision in Jacqueline Ann Bysterveld v Shire of Cue where she found that the small Local Council was not a trading corporation as it did not engage in sufficient trading activities.

The question of what is ‘trading’ was considered in depth in Commissioner Smith’s decision. She found that trading must be ‘substantial’ and a simple percentage calculation of trading income was insufficient in determining whether or not it was a trading organisation. In forming her decision, the Commissioner relied upon the 3 stage test which Toohey J devised in Western Australian Cricket Association¹, being:

1. identify the activities;

2. properly determine which activities are trading and non-trading; and

3. evaluate the extent of the trading activities against the total activities of the organisation.

The Commissioner also referred to the fact that it was established in Adamson² that ‘whether a corporation is a trading corporation is ultimately a matter of fact and degree’.

The CEO of the Council for the Shire of Cue gave evidence that 10% of the Council’s revenue over the last three years was from trading activities. However, Commissioner Smith found that the trading activities amounted to 3.68% of operating revenue in 2005/2006; 10.19% in 2004/2005 and 5.77% in 2003/3004. She found that the majority of the annual revenue for the Council came from rates and grants (of which some may involve trading). The annual revenue was $2+ million.

The Commissioner’s finding that this did not amount to sufficient trading activities is in contrast to the finding in Firefighters³ where the Metropolitan Fire and Emergency Services Board were found to be a trading corporation based on trading activities equivalent to 5% of total revenue. However, it was 5% of substantially greater annual revenue of $8+ million.

Over the years, ‘trading’ has been defined in various decisions of the High Court, the Federal Court and State Industrial Relations Commissions to include:

an exchange for value;
provision of goods or services for value;
commerciality;
revenue or income;
a sale;
an exchange of good or service e.g. a barter;
a tripartite arrangement;
the act of buying and selling; and
it does not always require profit.

What about Council Services?

The Local Government Act of Western Australia charges Local Councils with the responsibility of “good governance of persons in its district and directs it to take a liberal approach in the construction of the scope and general function of a local government.”

Commissioner Smith found the fees for garbage collection and fire services and other provisions covered by the payment of rates were not trading activities as they are a public welfare service.

The Commissioner also noted there was no agreement of exchange in dealing with rate payers and Council’s services were not bought and sold.⁴ The argument that rubbish collection services and the like constituted a trading activity was also rejected in Rockdale Municipal Council⁵ when the Federal Court considered how the charges for the service were levied and said:

‘The imposition of a charge contained in a statutory rate notice to a rate payer without an application, or request by a ratepayer for a service or some other transaction does not constitute trading’

Can money obtained through Government grants be considered trading?

In Pellow⁶ and Australian Red Cross the courts considered whether obtaining government grants could be considered trading. These decisions suggest that the gratuitous provision of a public welfare service, where the money to engage in the service is supplied by government funding, is not trading. However, this is an arguable stance and inconsistent with some other High Court decisions.

In Lawrence⁷ the Full Bench of the Western Australian Industrial Relations Commission considered whether the Aboriginal Legal Services of Western Australia Incorporated (‘ALSWA’) was a trading corporation. The Full Bench found that the express terms of the three year contract with the Federal Government for the provision of funds for legal services to indigenous Australians in Western Australia constituted “trading”. However, because the use for the monies (which was specified by the Federal government) was for the provision of legal services without charge, the activity of the ALSWA was not trading. Therefore, they were not a trading organisation.

The Full Bench in Lawrence said the following issues are relevant when assessing whether a corporation receiving government funds is a trading corporation:

whether the basis on which the funds are provided constituted trading;
the use made of the funds;
specific purpose of the funds;
how the corporation ultimately uses the funds;
links between provision of funds and use of funds;
proportion of government funds to the total of the funds of the organisation; and
size of the amount of funds received.

What about the purpose of the organisation?

Lawrence also considered whether the purpose of the organisation impacted upon whether it was a trading organisation and said:

“It is immaterial if a corporation has a non-profit, benevolent or charitable object; if its trading activities are nevertheless substantial then it will be a trading corporation.’

Decision for the Shire of Cue

Commissioner Smith considered all of the above cases when making her decision. In doing so she reviewed the activities of the Council for the Shire of Cue and found that activities that included fees for services provided were trading activities. These included: airport fees, cemetery fees, bus charges, office charges, sales of souvenirs, sale of books and brochures, hire of festival stalls, rent from council housing, sale of sand gravel and water. However, Commissioner Smith concluded by saying that:

“Although the [Council> engages in activities which are of a trading nature and some of these activities are activities which could be carried out as a business, such as the provision of a caravan park, contract private works and hire of equipment, I do not regard the trading activities of the [Council> as a whole to impose on the [Council> the character of a trading corporation. The reason I have reached this view is that none of the trading activities when considered collectively are carried out on a significant scale.”

The Commissioner commented in her decision that this position could change in the future if the Council was to engage in more significant trading activities. However, during the period the Applicant was employed by the Council, the Council was not engaged in sufficient trading activity to be considered a trading corporation. The unfair dismissal case was referred to the Western Australian Industrial Relations Commission for hearing.

Main implications of the decision in Jacqueline Ann Bysterveld v Shire of Cue:

There is no black and white answer as to whether Councils are constitutional corporations (i.e. trading and financial corporations for the purpose of WorkChoices.
This decision clearly demonstrates the need for each Council to be considered individually as no two Councils will have the same degree of trading activities.
This decision also shows that a Council’s standing as a trading corporation may change from year to year depending upon the degree of trading activity.
The process used by Commissioner Smith in reaching her decision would also apply to any other organisation needing to determine whether they are a trading corporation or not, for example, not-for-profit organisations; private schools; sporting clubs, etc.

If you would like further information in relation to the information provided in this Employment Update please contact Aitken Legal.

1 Hughes v Western Australian Cricket Association (Inc) and Ors (1986) 69 ALR 660

2 R v Judges of the Federal Court of Australia and Another; Ex parte The Western Australian National Football League (Inc) and Another (1979) 143 CLR 190

3 United Firefighters’ Union of Australia and Ors v Metropolitan Fire and Emergency Services Board (1998) 83 FCR 346

4 R v Trade Practices Tribunal and Ors; Ex parte St George County Council (1974) 130 CLR 533

5 Mid Density Developments Pty Ltd v Rockdale Municipal Council (1993) 39 FCR 579

6 Pellow v Umoona Community Council Inc (PR973365)

7 Aboriginal Legal Services of Western Australia Incorporated v Lawrence (2007) WAIRC 00435