Harrop v NZI Insurance Australia Limited

[1999] NSWSC 723

CITATION:	HARROP & ANOR v NZI INSURANCE AUSTRALIA LIMITED [1999] NSWSC 723
CURRENT JURISDICTION:	Civil
FILE NUMBER(S):	12866/98
HEARING DATE(S):	10 May 1999
JUDGMENT DATE:	23 July 1999
PARTIES :	James Arthur Harrop and Lorraine Joy Graham (Plaintiffs) New Zealand Insurance Australia Limited (Defendant)
JUDGMENT OF:	Adams J at 1

COUNSEL :	Mr J Van Aalst (Plaintiffs) Mr S Habib (Defendant)
SOLICITORS:	Abbott Pardy & Jenkins (Plaintiffs) J N Tully (Defendant)
CATCHWORDS:	Application for declaratory order; insurance policy; meaning of employee; babysitter; nature of control; other relevant factors
CASES CITED:	Connolly v Wells (1994) 55 IR 73 Stevens v Brodribb Sawmilling Company Pty Ltd (1986) 160 CLR 16 Zuijs v Wirth Bros Pty limited (1953) 93 CLR 561 Australian Mutual Providebt Society v Chaplin (1978) 18 ALR 385 BWIU & ors v Odco Pty Limited 99 ALR 735 at 736 Mulhall v Roberts (unreported NSWCA, 19/7/95)
DECISION:	Declaratory order made

THE SUPREME COURT
OF NEW SOUTH WALES
COMMON LAW DIVISION

ADAMS J

FRIDAY 23 JULY 1999

12866/98

HARROP & ANOR v NZI INSURANCE AUSTRALIA LIMITED

JUDGMENT

1    HIS HONOUR: In May 1996 the plaintiffs obtained the services of a Ms Ruth Exmann as a babysitter for their two young children, who were then about six months and two and a half years old. In January 1997, whilst at the plaintiff’s home, Ms Exmann slipped over and injured herself. At this time the plaintiffs were insured with the defendant under a home and personal insurance policy which indemnified them against their legal liability to pay compensation for personal injury, except to any employee. The plaintiffs seek a declaration, in effect, that they are indemnified by the policy in respect of the liability arising from Ms Exmann’s injury at their home. If Ms Exmann was, in all the circumstances, employed by the plaintiffs, they are not indemnified whilst if, on the other hand, Ms Exmann was not an employee (or, as the conventional language has it, was an independent contractor) then they are indemnified. 2    The plaintiffs were employed at the University of New England in Armidale where they lived at the relevant time. They advertised for the services of a babysitter for their two children. At the interview, Ms Exmann was informed that the plaintiffs could afford to pay about $180 to $200 a week but could pay a little more if she was registered with Medicare as they then would be entitled to a child care rebate. Ms Exmann replied by saying that she wanted everything to be “above board”. She said that she would register with Medicare and made it clear that she would declare to the income tax authorities any money which she was paid. She said that she had a problem with the taxation office on her last job and asked the plaintiffs to take the tax out of her payments to make it easier for her. Ms Exmann wanted regular hours and would not work for less than $50 a day or $250 a week. The plaintiffs told Ms Exmann that they intended to go away at Christmas with the children and that this would enable Ms Exmann to “take a break” and they said that they would pay her whilst they were away. Shortly after this interview Ms Exmann commenced babysitting. Mr Harrop became registered as a group employer so that Ms Exmann’s income tax could be paid as she had stipulated. It appears that the plaintiffs had agreed also to pay Ms Exmann superannuation although this never eventuated. 3    As the plaintiffs were absent at work during the day, it is obvious that they needed to leave their children under the care and control of a responsible person able to look after them without any supervision. Amongst the communications between the plaintiffs (mostly Ms Graham) and Ms Exmann, were messages between them written in a notebook kept for that purpose and which was used because it was sometimes difficult, having regard to the busy work schedules of the plaintiffs, to maintain regular and sufficient contact. It is clear from the evidence of Ms Graham and the messages in the notebook, part of which was tendered, that the plaintiffs did not, in fact, seek to exercise any supervisory functions over the performance by Ms Exmann of her duties. This was at all events unnecessary, since it is evident that Ms Exmann was exemplary in her care of the children. Ms Graham said, and I accept, she relied upon Ms Exmann to use her skill, knowledge and experience as a babysitter to exercise her discretion, without reference to her or her husband, as to what she should do to entertain the children, when and how they should be fed and, if necessary, to exercise appropriate discipline. It also appears that Ms Exmann was given a wide discretion as to when and where she took the children whilst they were under her control. They might stay at home or she could look after them in her home or her mother’s home and, indeed, looked after them at the home of a friend on occasions. Ms Graham had never met either Ms Exmann’s mother or the other friend but clearly trusted Ms Exmann in this regard. Sometimes, Ms Exmann’s children or her mother looked after the plaintiffs’ children. She took them to outside activities on her own initiative. On occasions, Ms Exmann was unable to look after the children and the plaintiffs had to make alternative arrangements. The evidence does not say so, but it seems that Ms Exmann was not paid on these occasions. In addition to taking care of the children, Ms Exmann quite voluntarily undertook household tasks, such as cleaning and ironing, work which the plaintiffs did not expect her to undertake and for which, as the communications book makes clear, they were both surprised and grateful. 4    Of course, in the circumstances, it is obvious that the plaintiffs could not actually supervise Ms Exmann’s work. Such matters as the right of the plaintiffs to give directions as to how Ms Exmann was to look after the children was, perhaps not surprisingly, not the subject of specific agreement. Certainly, the plaintiffs were generally aware of the activities that she undertook. Ms Graham thought that although Ms Exmann looked after the children most of the time at their house, as I have mentioned, she would often go to her own home and sometimes to her mother’s. Although in cross-examination Ms Graham said that she would have felt able to direct Ms Exmann not to carry out a form of discipline or to instruct her that she did not wish the children to undertake any particular activity, I do not think that she was describing the nature of the relationship with Ms Exmann. When Mr Harrop was asked whether he would expect Ms Exmann to do what she asked of her, he answered, “There were a couple of things coming up like that and we did try to, yes, and she just, would just do it her way . . .she did things her own way and in the way she felt like doing them and we didn’t have very much to do with it, there were no occasions we had to worry about it”. When he was asked whether the nature of the relationship was such that they had the power to order Ms Exmann to do this or that, Mr Harrop answered, and I have no doubt that this was truthful, “I have never thought about it before”, although he said that he assumed that, “like any other babysitter, she would do what I requested”. Ms Graham’s evidence was to the same effect. When it was suggested to her that she felt herself able to tell Ms Exmann what matters she was happy with and what matters she was not happy with she answered, “I feel we would discuss it rather than tell her . . .[and] I think we would have a discussion until we did agree”. On the evidence as a whole, it is clear that the plaintiffs had not abdicated their ultimate control over their children and, if they became concerned about any matter affecting their welfare, would have exercised their authority as parents but this does not mean that they had or understood they had authority over Ms Exmann. Ms Exmann had a very considerable degree of discretion and responsibility, determined by her own judgment and good sense. The nature of the plaintiffs’ relationship with Ms Exmann more closely fits the description of delegate than of agent. 5    In considering the appropriate characterisation of the relationship between the plaintiffs and Ms Exmann, the observations in Connelly v Wells (1994) 55 IR 73 of Gleeson CJ at are apt -

“Where the relationship between two persons is founded in contract, the character of the relationship depends upon the meaning and effect of the contract. In the absence of a suggestion that a contract was varied after it was originally made, its meaning and effect must be determined as at the time it was entered into. If the contract is in writing, then the court which is considering the nature of the relationship between the parties is directed to an examination of the terms of the written agreement in the light of the circumstances surrounding its making. ( Narich Pty Limited v Commissioner of Payroll Tax [1983] 2 NSWLR 597 at 601.)
“In some cases, of which the present is an example, the contract may have been entered into without writing, and in circumstances of considerable informality. This may mean that it is more difficult to reach a conclusion as to when a contract was entered into, and as to the terms of the agreement which the parties made. The conduct of the parties may need to be examined for the purpose of reaching a conclusion as to their common intention as to the terms and conditions on which they were contracting with one another. However, the basic principles remain the same.”

6    In the same case, Kirby P analysed the creation, evolution and qualification of a number of supposed litmus tests for resolving disputed cases of employment. In particular, his Honour pointed out that the traditional test relying on the distinction between the authority of the putative employer to direct the putative employee not only as to what he or she did but also as to how he or she did it, evolved into a search “not for actual but for the ultimate authority to control the work involved, employment lying in the latter” (ibid at 81). However, as his Honour pointed out, this test did not provide sound guidance in all cases since the employment relationship was accepted as established even where the asserted employee was not and could not be subject to effective control, for example, where he or she worked in isolated places or was involved in highly specialised or technical activities. 7    The present law requires a consideration of the whole of the nature of the relationship between the protagonists and the weighing of a number of indicia of which none may be determinative: Stevens v Brodribb Sawmilling Company Pty Limited (1986) 160 CLR 16. In that case Mason J said (at 24) -

“ . . . the existence of control, whilst significant, is not the sole criterion by which to gauge whether a relationship is one of employment. The approach of this Court has been to regard it as merely one of a number of indicia which must be considered in the determination of that question . . .Other relevant matters include, but are not limited to, the mode of remuneration, the provision and maintenance of equipment, the obligation to work, the hours of work and the provision for holidays, the deduction of income tax and the delegation of work by the putative employee.”

His Honour pointed out that the common law had shifted the emphasis in the control test from the actual exercise of control to the right to exercise it, “so far as there is scope for it” even if it be “only in incidental or collateral matters” (ibid 28-29), citing Zuijs v Wirth Bros Pty Limited (1953) 93 CLR 561, which concerned employment of a trapeze artist in a circus, where the necessity for entirely independent action was obvious in the performance of the act but where this occurred in a general setting of control over his participation in the circus undertaking.

8    Whilst making the same point, Wilson and Dawson JJ said (at 36) -

“But in some circumstances it may even be a mistake to treat as decisive a reservation of control over the manner in which the work is performed for another. That was made clear in Queensland Stations Pty Limited v Federal Commissioner of Taxation (1945) 70 CLR 539 at 552, a case involving a droving contract, in which Dixon J observed that the reservation of a right to direct or superintend the performance of the task cannot transform into a contract of service what in essence is an independent contract.
“The other indicia of the nature of the relationship have been variously stated and have been added to from time to time. Those suggesting a contract of service rather than a contract for services include the right to have a particular person do the work, the right to suspend or dismiss the person engaged, the right to the exclusive services of the person engaged and the right to dictate the place of work, hours of work and the like. Those which indicate a contract for services, include work involving a profession, trade or distinct calling on the part of the person engaged, the provision by him of his own place or work or his own equipment, the creation by him of goodwill or saleable assets in the course of his work, the payment by him from his remuneration of business expenses of any significant proportion and the payment to him of remuneration without deduction for income tax. None of these leads to any necessary inference, however, and the actual terms and terminology of the contract will always be of considerable importance.
“Having said that, we should point out that any attempt to list the relevant matters, however incompletely, may mislead because they can be no more than a guide to the existence of the relationship of master and servant. The ultimate question will always be whether a person is acting as the servant of another or on his own behalf and the answer to that question may be indicated in ways which are not always the same and do not always have the same significance.”

Although there was an arrangement that Ms Exmann would continue to receive payment whilst not working because the plaintiffs were away on holidays with their children, it was clearly not a term of the agreement that she was entitled to any particular period of annual leave or indeed, any leave at all, and this was made clear by the holiday arrangements that actually occurred in late 1996 - early 1997. Ms Graham came back from holidays early because she did not wish to pay Ms Exmann for five weeks for no service, which would have been the result of her remaining with the children on the north coast rather than returning to Armidale. There was no agreement for sick leave. The deduction of income tax was, as I have mentioned, requested by Ms Exmann as a convenience to herself and was agreed to on that basis, which indicates that the parties assumed that Ms Exmann would be otherwise responsible for her own income tax payments. Taking these matters together, they signify a mutual intention that Ms Exmann should not be regarded as an employee: Australian Mutual Provident Society v Chaplin (1978) 18 ALR 385, applied in BWIU & ors v Odco Pty Limited 99 ALR 735 at 736. Whilst Ms Exmann was directed as to the time for commencement and conclusion of her duties, this was in reality merely a reflection of the plaintiffs’ work hours; she was not directed as to the place of work: cf Mulhall v Roberts (unreported NSWCA, 19 July 1995). The weekly payments were calculated at a daily rate which did not assume any particular number of hours and paid by bank transfer at the request of Ms Exmann.

9    Taking all these considerations into account, even though the plaintiffs retained their ultimate responsibility for the proper care of their children, and this was an essential element of their relationship with Ms Exmann, I conclude that she was not their employee within the meaning of the contract of insurance. 10    For obvious reasons, the declarations sought are inappropriate having regard to the way in which this matter was litigated before me. However, the plaintiffs are entitled to a declaration that clause 3.10.3 of the policy of insurance between them and the defendant does not operate to exclude the latter’s obligation to indemnify the plaintiffs in respect of bodily injury to Ms Ruth Exmann which may have occurred on or about 30 January 1997. The defendant must pay the plaintiffs’ costs.

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