Sekuloska v Sekuloski
[2012] NSWWCCPD 10
•5 March 2012
| WORKERS COMPENSATION COMMISSION | ||||||
| DETERMINATION OF APPEAL AGAINST A DECISION OF THE COMMISSION CONSTITUTED BY AN ARBITRATOR | ||||||
| CITATION: | Sekuloska v Sekuloski [2012] NSWWCCPD 10 | |||||
| APPELLANT: | Ankica Sekuloska | |||||
| RESPONDENT: | Goce (George) Sekuloski | |||||
| INSURER: | Employers Mutual NSW Limited | |||||
| FILE NUMBER: | A1-4704/11 | |||||
| ARBITRATOR: | Ms F Robinson | |||||
| DATE OF ARBITRATOR’S DECISION: | 19 October 2011 | |||||
| DATE OF APPEAL HEARING: | 1 March 2012 | |||||
| DATE OF APPEAL DECISION: | 5 March 2012 | |||||
| SUBJECT MATTER OF DECISION: | Deemed worker; Sch 1 cl 2 of the Workplace Injury Management and Workers Compensation Act 1998; whether contract existed between husband and wife; intention to enter legal relations; consideration | |||||
| PRESIDENTIAL MEMBER: | Deputy President Bill Roche | |||||
| HEARING: | Oral | |||||
| REPRESENTATION: | Appellant: | Mr P Stockley, instructed by Edwards Michael Lawyers | ||||
| Respondent: | Mr M Eirth, instructed by Michael Evers & Co | |||||
ORDERS MADE ON APPEAL: | The Arbitrator’s determination of 19 October 2011 is revoked and the following orders made in its place: “1. Award for the respondent. 2. No order as to costs.” Each party is to pay his or her own costs of the appeal. | |||||
INTRODUCTION
This appeal concerns the alleged formation of a contract between a husband and wife for the performance of building work by the husband on their jointly-owned family home. The principal issue in dispute was whether a valid contract existed. That issue depended on whether the agreement made between the husband and wife was supported by real consideration and was intended to create legal relations. The Arbitrator held that the parties had formed a valid contract.
BACKGROUND
The respondent (Mr Sekuloski) and the appellant (Mrs Sekuloska) are husband and wife. They live together at Holsworthy in a home they own as joint tenants. The home was the subject of a mortgage to RAMS Home Loans (RAMS) in their joint names. In about 2003, they began planning to extend and renovate their home. To fund the work, they decided to borrow money against their mortgage.
It was their intention that tradesmen would do most of the work, but Mr Sekuloski and other family members would do some work. Mr Sekuloski was to do some carpentry, the brickwork, wall-panelling and finishing work. Whether Mr Sekuloski was under any contractual obligation to perform that work is disputed and discussed later in this decision.
On 16 March 2005, Mrs Sekuloska obtained an owner/builder permit. The paperwork and dealings with the council were in her name because Mr Sekuloski worked 12–13 hours per day five days per week in his truck-driving business. As holder of the owner/builder permit, Mrs Sekuloska obtained a workers compensation policy with Employers Mutual NSW Ltd (Employers Mutual) on 13 May 2005 to cover family members working on the property.
Mr Sekuloski started work on the property in late May 2005.
On 4 September 2005, Mr Sekuloski injured his right leg while working on the property and claimed compensation. In a statement dated 15 September 2005, he said that he and his wife agreed that he would do some of the work on the renovations, that she would keep a record of the times he worked, and they “would equal that to $200 a day and add that to the disbursements list when the house was finished”. That money would be paid to him out of the loan account.
After conducting an investigation, Employers Mutual denied liability in a letter dated 28 September 2005 on the ground that, as Mr Sekuloski was a joint owner of the property where the injury occurred, he was not a deemed worker under the Workers Compensation Act 1987 (the 1987 Act).
The renovations were completed in early April 2006 or, at the latest, by the time the workers compensation policy was cancelled in September 2006, not in early 2007, as claimed by Mr Sekuloski. Family members who worked on the property were paid on 18 August 2006. Mrs Sekuloska paid money to her husband on 30 April 2007 and 11 May 2007, allegedly pursuant to the agreement.
In 2007, Mr Sekuloski sought a review of the decision by Employers Mutual to deny liability. In a s 74 notice issued on 8 June 2007, Employers Mutual denied liability because the evidence indicated that Mr Sekuloski was not a deemed worker.
In an Application to Resolve a Dispute (the Application) filed with the Commission on 6 June 2011, Mr Sekuloski claimed hospital and medical expenses in the sum of $8,910 and lump sum compensation in respect of a 12 per cent whole person impairment as a result of the laceration to his right leg received while working on the property on 4 September 2005.
The Commission listed the matter for conciliation and arbitration on 9 September 2011. Mr Eirth, of counsel, appeared for Mr Sekuloski and Mr Stockley, of counsel, appeared for Mrs Sekuloska. Neither side sought to call any oral evidence. In a reserved decision delivered on 19 October 2011, the Arbitrator found that, at the time of the accident on 4 September 2005, a valid contract existed between Mr Sekuloski and Mrs Sekuloska and that Mr Sekuloski was a deemed worker under Sch 1 cl 2 of the Workplace Injury Management and Workers Compensation Act 1998 (the 1998 Act).
The Commission issued a Certificate of Determination on 19 October 2011 in the following terms:
“The Commission determines:
1. The claim pursuant to s 66 is remitted to the Registrar for referral to an Approved Medical Specialist for an assessment of the whole person impairment of the right lower extremity due to injury on 4 September 2005.
2. The respondent to pay the medical and related expenses incurred by the applicant pursuant to s 60 of the Workers Compensation Act 1987.
3. The respondent to pay the costs of the applicant as agreed as [sic, or] assessed.”
The appellant has challenged the Arbitrator’s determination.
SUBMISSIONS AT THE ARBITRATION
Mr Stockley submitted that the touchstone for an applicant seeking to invoke the deemed worker provisions was that there be a contract. That was the determination the Arbitrator was called upon to make. He added at T3.37:
“And it is trite to observe that the elements, leaving aside any vitiating or other features – the elements of a contract are an intention to create legal relations, an offer of acceptance and the minimum consideration between the parties.
Now even in business sometimes the formalities of intention to create legal relations and an offer of acceptance can be blurred because of the customary way in which people deal with each other. They don’t sit down and say, I wish to make a contract with you and form legal relations, here is my offer, do you accept it. We acknowledge that even in an arms-length commercial setting that is not the way contracts are formed. So it is sometimes difficult to isolate and identify the precise events that might support each of those components of the contract. Nevertheless, in my submission, given the issue that is raised, they are matters that the Applicant is meant to satisfy you of.”
He then referred to the third component of his submission, that of consideration, as the “one that will create the matters of impediment to you being satisfied that there was a contract” (T3.58). He raised a question as to why Mr Sekuloski disclosed in his tax return that he received money for work done on the property (T5.15). In response to the Arbitrator’s statement that it was unfair to raise that matter, Mr Stockley said it “underscores that this is not a typical commercial arrangement” (T5.33).
On the question of the formation of a contract, Mr Stockley submitted that the appropriate time to determine that question was at the time of formation, which was prior to 4 September 2005, and that “[i]f the work has been performed pursuant to a contract, the evidence should point to the formation of that contract before that date” (T5.45).
He added that it was important to look at what the promise was, but corrected himself for using that expression because “it’s not a contract” (T6.4), and said it was the intention of the parties that payment would be made to Mr Sekuloski from funds drawn down from the lender (RAMS). So, if there was a contract, Mr Sekuloski would perform work “on his own house” and, for the days that were recorded, he would be reimbursed at the amount of $200 a day. Ultimately, when the house was finished, he would be paid out of the loan account. He said that the appellant’s proposition was simply that there was “no consideration because [Mr Sekuloski] was paying himself out of his own money” because the loan account was money advanced to the joint tenants under the joint loan application (T6.45).
Mr Stockley repeated (at T7.29) that there was no consideration, and added:
“That is consistent with the nature of the work that he was going to perform. The man would perform the work to improve his own property. He was in a different position from the other workers that the Applicant and the Respondent tell you were to be paid in a similar fashion in two ways.
One was that the other workers, who I understood from the evidence to be I think relatives of Mrs Sekuloska, they weren’t having any benefit from the work that they were performing because they weren't in charge of the improvement of the asset that they owned, so that distinguishes them from the Applicant.
Moreover, the funds – whatever funds they were being paid from – they didn’t own. So the arrangements of those other people who were identified [unclear 0:18:12.3] are distinct from the Applicant himself.”
He then said that this was his “primary submission”.
In response, Mr Eirth said (at T9.31) that Mr Stockley had “rightly indicated in terms of if there is a contract, there’s an intention to create legal relations” and then referred the Arbitrator to the statements by the appellant and respondent that evidenced an agreement to do work and be paid for it. He added at T9.48:
“So there was clearly the intention to create legal relations and there was – when you cross-reference between the two Statements, an optimum acceptance of that.”
He said (at T12.57) there was an offer that was accepted “as a clear intention of the parties to enter into a commercial arrangement” where Mr Sekuloski would do work on the property and be paid. It was submitted, by an unidentified male, (at T15.49) that Mrs Sekuloska “took money from the loan account, put it into her own account and then she paid [Mr Sekuloski]”.
Responding to the Arbitrator’s statement that Mr Stockley’s primary submission was never raised at the teleconference, Mr Stockley said (at T18.41) “what we’ve always signalled is putting the Applicant to proof of the elements of deemed worker”.
Last, Mr Eirth said (at T22.28):
“I think critical to our position is that the Statements that were taken from the Applicant and the Respondent clearly indicate that that was taken some 12 to 13 days after the initial incident before they’d obtained any further legal advice. It clearly talks about an agreement, offer and acceptance, intention to create well a commercial arrangement, he wished to be paid and the flow on effect from the bank statements of what’s in the bank statements. And his taxation return is consistent with that.”
THE ARBITRATOR’S DECISION
After setting out the background facts, the Arbitrator said (at [11]) “the primary matter for determination is the validity of the contract between the parties and, in particular, the issue of ‘consideration’”. She summarised Mr Stockley’s submissions at [17]:
“Mr Stockley stated it was essential that the parties intended to create legal relations and a valid contract of employment, between the applicant and the respondent, was necessary. He submitted there was no consideration and therefore no valid contract. He stated the promise, of payment on completion of the renovations, from the loan funds did not constitute “consideration”. He maintained:
(a) the agreement between the parties was not a typical commercial arrangement, and
(b) an intention to pay on completion and when all the loan funds had been made available
were not sufficient to ground the formation of a contract.”
The Arbitrator said (at [18]) that these submissions were not “detrimental” to Mr Sekuloski’s cause. She accepted that the arrangement was unusual but that did not, in itself, assist the appellant. She added that:
“considering the nature of the building work, the arrangement is reasonable and has a sound economic basis. The agreement to receive payment, for the work done, upon completion of the building work is an acceptable practice in many industries/professions. Further it is not unusual, in some industries/professions, for payment to be made when funds became available.”
The Arbitrator summarised Mr Eirth’s submissions (at [20]) as follows:
“Mr Eirth for the applicant noted the arrangement between the applicant and the respondent was on the following terms:
(a) The applicant would perform certain work from time to time on the building site;
(b) The respondent would keep ‘a ledger’ of the days/hours worked by the applicant;
(c) The applicant would be paid at the rate of $200 a day, and
(d) The applicant would be paid on completion of the renovations from the funds held in the joint loan account.”
She added that Mr Eirth submitted that, though the arrangement was unique, there were no inconsistencies in the parties’ statements. The loan funds borrowed to pay for the renovations were advanced in stages and payments were made by Mrs Sekuloska and monitored by the lender.
The Arbitrator set out her conclusions at [22]–[28]:
“22. Goce Sekuloski and Ankica Sekuloska were the joint owners of property 7 Artillery Cres Holsworthy. They borrowed funds to carry out extensive renovations. Ankica Sekuloska was the authorised builder and obtained all the required consents and approvals from the Council. Ankica Sekuloska, as the builder, authorised payment to the building contractors and any workers. Mrs Sekuloska had two separate and distinct identities; namely that of co-owner of the property and that of builder. In her capacity as builder she was also the employer of any workers on site.
23. The [appellant], as builder, is liable to pay all contractors and workers on site. Any contractor or worker on site would be entitled to sue Mrs Sekuloska for any contractual breach and/or work related injury. Mr Sekuloski, in my view, had the same rights.
24. Mr Sekuloski was working on the site and entitled to payment, from the loan funds, for the days worked. There was an expectation of payment. This expectation was realised on completion of the work.
25. Mrs Sekuloska authorises payments out of the loan funds. Mrs Sekuloska stands between Mr Sekuloski and the loan funds. Mrs Sekuloska, in her capacity as builder, therefore pays Mr Sekuloski. Mr Sekuloski would not be paying himself out of the loan account. In the event the respondent did not pay the applicant for work done, on completion of the project and when the loan funds were available, then the applicant would be entitled to sue the [appellant].
26. There was, on the evidence, an intention to create a legally binding contract. I note Mr Sekuloski:
(a) performed work exceeding $10 in value;
(b)was a truck driver by trade, and
(c) did not sublet the contract nor employ any worker.
27. I am unable, for the reasons above, to accept the submission, of the [appellant], that Mr Sekuloska ‘was paying himself’ and therefore the contract was void for lack of consideration. The parties, on the objective evidence, demonstrated an intention to create legal relations and mutuality or contractual consensus.
28. For the reasons above I find the applicant, at the time of injury on 4 September 2005, a deemed worker as defined by Schedule 1 clause 2 of the 1998 Act and is entitled to workers compensation benefits pursuant to the 1987 Act.”
ISSUES ON APPEAL
The issues in dispute in the appeal are whether the Arbitrator erred in:
(a) finding that a contract had been entered into between Mr Sekuloski and his wife in respect of the work being undertaken at the time of the injury;
(b) finding that there had been a necessary intention to create legal relations sufficient to give rise to a relevant contract;
(c) finding that the contract was made for valuable and sufficient consideration;
(d) finding that true and valuable consideration existed in circumstances where Mr Sekuloski had an expectation of payment out of loan funds in circumstances where he was a joint borrower and was jointly or severally liable to repay the loan;
(e) finding that Mr Sekuloski was a deemed worker within the meaning of Sch 1 cl 2 of the 1998 Act, and
(f) failing to give any or any sufficient reasons for her decision.
As there is an overlap between the issue of intention to create legal relations and the issues of agreement and consideration (Horton v Jones [1935] HCA 7; 53 CLR 475; Ryan v Textile Clothing & Footwear Union of Australia [1962] 2 VR 235), it is convenient to deal with those issues together.
SUBMISSIONS
Mrs Sekuloska’s submissions
The appellant has submitted that, for a worker to be a deemed worker within the meaning of Sch 1 cl 2 of the 1998 Act, it is necessary to establish that there was a contract between the parties to perform the work. This requires that all the legal ingredients or preconditions to there being a contract must be made out, with the onus being on the party seeking to bring themselves within the provision (Scerri v Cahill (1995) 14 NSWCCR 389 (Scerri)).
One essential ingredient to the formation of a contract is that there must be an intention to create legal relations and a mutuality or contractual consensus, which must be determined objectively (Lindebottom v Goodwin (2000) 21 NSWCCR 297; Teen Ranch Pty Ltd v Brown (1995) 11 NSWCCR 197 (Teen Ranch)).
In a family and domestic situation, an intention to create legal relations between the appellant wife and the respondent husband in relation to the performance of work forming part of the renovation of a property jointly owned by them would “not normally give rise to binding contracts because the parties lack the necessary intention” (Handley JA, Mahoney and Powell JJA agreeing in Teen Ranch at 201D). That is particularly so where the source of the funds with which it was the intention of the parties that Mr Sekuloski would be paid, was a loan for which he and his wife were jointly liable.
The position of Mr Sekuloski can be distinguished from that of other family members who worked on the property. The work being done was to improve the property for Mr Sekuloski’s benefit as joint owner of the property and the intended source of the funds from which he would be paid was, in effect, his own money, because it came from funds drawn down from the loan which he and his wife were jointly liable to repay and which was in fact being repaid from Mr Sekuloski’s earnings as a truck driver.
It was the intention of the appellant and respondent that the building works were to be undertaken as a joint project as husband and wife. Mrs Sekuloska undertook the day-to-day management of the building works because Mr Sekuloski was usually engaged in his normal employment as a truck driver.
Mr Sekuloski inspected and supervised work done by contractors, decided what work he would do and when, and directed the work to be undertaken by other family members. Neither Mr Sekuloski’s wife nor anybody else supervised his work. Mr Sekuloski did not regard himself as an employee of Mrs Sekuloska or obliged to undertake any work at her request, direction or supervision. As joint owner, borrower and supervisor of the works, Mr Sekuloski could choose what work he did and when he did it.
The Arbitrator erred when she concluded (at [22]) that Mrs Sekuloska had two distinct identities, namely, one as co-owner of the property and one as builder. Mrs Sekuloska was the owner/builder for reasons of convenience because she was available to be on site while Mr Sekuloski was at work. It was their intention that she would “take care of the paperwork”. The renovation work was a joint venture over which the appellant and respondent had equal supervisory powers. Mr Sekuloski was not subject to the direction and control of Mrs Sekuloska.
At [23], the Arbitrator said that, as builder, Mrs Sekuloska was liable to pay all contractors and workers on site, and any contractor or worker on site would be entitled to sue her for any contractual breach and/or work related injury, and that “Mr Sekuloski had the same rights”. The appellant submits that this misstates the issue and is irrelevant to the issue of the parties’ intentions objectively discerned. It could hardly be suggested that Mr Sekuloski would have sued his wife for payment in relation to the work done by him.
It was significant that Mr Sekuloski was not paid until 30 April 2007 and 11 May 2007, at which time it could be inferred that he had received legal advice in relation to his compensation claim and the difficulties confronting him in establishing he was a “worker” under the legislation. The Arbitrator’s conclusion that Mr Sekuloski had the right to sue his wife for payment begs the question at issue, namely, whether there had been an intention to create legal relations giving rise to the contract from which the “right” to sue for payment derived.
The Arbitrator’s statement (at [24]) that Mr Sekuloski had an “expectation of payment” did not give rise to an inference that a contractually binding promise for such payment had been entered. The expectation of payment was not the basis of Mr Sekuloski’s willingness to undertake the work in question and did not invest him with an obligation to do the work. His motivation was to perform work for his own benefit as a joint owner of the property and he was under no obligation to perform any work in particular or to do so at the direction or under the supervision of his wife. The source of the funds from which the “expectation of payment” was to be realised were, in practical terms, Mr Sekuloski’s own money in the sense that it was to be drawn from a loan which he was liable to repay. The Arbitrator erred in finding that there was any real “expectation of payment”.
The Arbitrator also erred at [24] in regarding the fact that payment was ultimately made as being relevant, particularly having regard to the timing and circumstances of the payment. Nor is it relevant that the payment was out of Mrs Sekuloska’s funds. At the time of entering into the arrangement, it was the parties’ intention that payment was to come out of the joint loan funds.
The Arbitrator erred (at [25]) in finding that, in her capacity as builder, Mrs Sekuloska stood “between Mr Sekuloski and the loan funds”. Mrs Sekuloska’s status as an owner/builder did not alter the nature of her relationship with her husband, the arrangements into which they had entered, or their intentions in that regard. On the issue of intention to enter legal relations, the Arbitrator erred in regarding it as relevant that Mrs Sekuloska held the owner/builder permit.
The clear inference from the evidence is that the appellant and respondent, as husband and wife, engaged in a joint building project for their mutual benefit and did not evidence an intention to create legal relations as between them.
On the issue of the lack of consideration, the appellant submitted that the consideration must move from the “promisor” to the “promisee”, and that there was no promise in any event. Consideration depends upon some benefit being conferred upon the promisor for the promise and some detriment being suffered by the promisee in reliance on the promise to be enforced.
Mr Sekuloski was not doing the work in reliance on a promise made by Mrs Sekuloska that he would be paid, but rather the work was undertaken as part of the joint arrangement between husband and wife as joint owners of the property and joint beneficiaries of the improvement to the property. In the absence of any reliance by Mr Sekuloski on the promise of payment, no real consideration passed which was sufficient to found a contract.
It was further submitted that Mrs Sekuloska got no benefit from the arrangement to pay money to Mr Sekuloski for work he did, as he would have undertaken that work in any event. She suffered no detriment because the source of the funds out of which the payment was made was the loan monies which she was jointly liable to repay with Mr Sekuloski and which were in practice paid out of Mr Sekuloski’s earnings as a truck driver.
It follows, so the appellant submitted, that no true consideration existed and no legally recognisable contract came into existence.
It was also submitted that the Arbitrator’s conclusion that Mr Sekuloski was entitled to sue his wife for payment in respect of the work done by him and that he had an “expectation of payment” were all findings as to the legal consequences that would flow from there being an enforceable contract, rather than findings that addressed the essential issue in dispute, namely, whether an enforceable contract existed. Further, the Arbitrator gave no reasons as to why it was relevant that Mrs Sekuloska held the owner/builder permit.
Mr Sekuloski’s submissions
Mr Eirth submitted that the only issue in dispute before the Arbitrator was whether the contract between the appellant and respondent was supported by valuable consideration because the funds to pay Mr Sekuloski came from the joint loan account. The issue of whether the appellant and respondent had an intention to create (legal) relations was not raised before the Arbitrator. If the appellant seeks to rely on these propositions, they should have been raised at the arbitration and Mr Sekuloski should have been cross-examined on them.
Dealing with the merits of the appellant’s arguments, Mr Eirth submitted that there was clear uncontested evidence of an intention to enter legal relations and that the onus of establishing the contrary rested with the appellant. He referred to the evidence from Mr Sekuloski and Mrs Sekuloska. In Mr Sekuloski’s statement of 15 September 2005, given before he obtained legal advice, he said:
“From the beginning Ankica and I agreed I would do some of the work on the extensions and renovations, like carpentry, bricking, digging (preparing footings) wall panels. I decided what work I would do and when. I was responsible for preparing the work to the stage where the tradesmen could do their job.”
Mr Sekuloski said he took some time off from truck driving to work on the house, “a week or so in June and a week or so in July 2005”. He also worked most weekends for full days. He said it was intended that he would do around 10 to 20 per cent of the work. He and his wife agreed that she would do the paperwork and that dealings with the Council would be in her name because she would be available during the day and he was working 12 to 13 hours five days per week truck-driving, except when he took time off to work on the house when his brother and his wife’s brothers were working on the house. He told them what to do.
He added:
“Ankica and I agreed she would keep a record of the times I worked on the house and we would equal that to $200 a day and add that to the disbursements list when the house was finished and that money would be paid to me out of the loan account. I didn’t receive any money for the work I did.”
The mortgage payments came out of a joint account held by Mr Sekuloski and his wife with Westpac.
Mrs Sekuloska said in her statement of 15 September 2005 that the renovations were estimated to cost around $180,000. With respect to her arrangement with her husband, Mrs Sekuloska said, “Goce was to do some carpentry, the brickwork, wall panelling and finishing work”. She obtained an owner/builders licence on 28 January 2005 and a workers compensation policy on 13 May 2005 “to cover people doing the work who weren’t tradesmen/contractors, such as Goce, his brother Zivko and my two brothers, Ted and Jordan”. The plan was to wait until the renovations were finished “to include work done by Goce and Zivko, Ted and Jordan when listing all the work done on the house and payments to be made by RAMS out of the loan funds”.
Mrs Sekuloska kept a progressive record of the times her husband, Zivko, Ted and Jordan worked on the house. She said that it “was agreed that they’d get $200 before tax for each day they worked”.
In his statement dated 17 February 2011, Mr Sekuloski said that he agreed with his wife in or about April or May 2005 “to [do] some of the work on the extensions and renovations to our home, which I was to be paid for”. He said that the Westpac account (from which the mortgage payments were made) was a joint account held by him and his wife, which he used “predominantly” for professional and personal use. He received payments of $700 and $800 on 30 April 2007 and 11 May 2007 respectively from his wife for “wages earned renovating and extending the house”.
Mrs Sekuloska said in her statement of 5 May 2011 that in or about April or May 2005, she agreed with her husband that “he would perform some of the work on the extensions and renovations to our home which he would be paid for”. She also reached similar agreements with her brothers-in-law and her brother. The funds for the renovations were borrowed from RAMS and transferred to Mrs Sekuloska’s bank account and then disbursed.
Attached to her statement is a document headed “Payments for Contractors and Uninsured Workers Other Than Policy Holder (my self) Ankica Sekuloska”. This document has a list of names and dollar amounts. Mrs Sekuloska said that she prepared the document “at the commencement and progressively maintained [it] during the course of the building works”. There are no dates on the list. Against Mr Sekuloski’s name is the figure $1,480.00 with the words “I pay him $1500” written in hand writing in the left margin.
Also annexed to Mrs Sekuloska’s statement is a document headed “Pay for Goce Sekuloski during building of properties at 7 Artillery Cr Holsworthy 2173”. This document is hand written and lists various dates from 10 May 2005 until 4 September 2005. The document is set out as follows:
“May 05 HOURS $ PAY
10.05.05 = 2 $ 40 )
20.05.05= 2 $ 40 )
14.05.05 ) weekends $ )15.05.05 ) = 2 $ 40 ) $200
21.05.05 ) = 2 $ 40 )
22.05.05 ) = $ )
28.05.05 ) = $ )
29.05.05 ) = $ 40 )”
Similar entries are made for June, July, August and September 2005. At the end of the document it was recorded that, on 4 September 2005, an ambulance took Mr Sekuloski to hospital and “ALL UP TO BE PAID $1,460.00 WILL BE PAID ON: 30.07.06”.
Mrs Sekuloska’s bank statement records, among other transfers, internet bank transfers on 30 April 2007 for $700 and on 11 May 2007 for $800. Mrs Sekuloska said, “[t]hese amounts were the payment of wages to the Applicant”. The 11 May 2007 payment has a hand written note against it as follows “From my Acc to His. ZA Goce payment to his acc”.
Mrs Sekuloska also attached her bank statement for July to September 2006, which she said recorded a payment of $1,900 on 18 August 2006 as “wages to my brother and brother in-laws [sic] for building works”.
Mr Eirth also relied on Mr Sekuloski’s tax return for 30 June 2007, in which he declared wages paid to him by his wife of $1,480.
Mr Eirth submitted that the courts will hold that there is an intention to enter legal relations if the employer’s acceptance (of the offer of services by the worker) was on the basis that payment would be made for the work even if the employer understood the offer to be one of gratuitous services (Crowe v Tumut Turf Club [1958] WCR 50 (Crowe).
Mr Eirth made the following additional points:
(a) the fact that Mr Sekuloski benefited from the renovations was of no consequence. The funds borrowed were loaned for the purpose of the renovations;
(b) the point that the building works were to be undertaken as a joint project as husband and wife was not raised in the s 74 notice and not raised as an issue at the arbitration;
(c) the point that Mr Sekuloski undertook the inspection and supervision of work undertaken by contractors and he decided what work he would do and when was not raised in the s 74 notice and not raised as an issue at the arbitration. Part of the agreement was that Mr Sekuloski could determine the works he would undertake. In the process of undertaking those works, he was injured. The fact that he may have supervised contractors has no relevance to what the Arbitrator had to determine;
(d) the Arbitrator correctly identified that Mrs Sekuloska was “for intents and purposes” the authorised owner/builder. The appellant’s submissions about the alleged error at [22] of the Arbitrator’s decision are immaterial and have no relevance. The appellant’s submissions were not raised at the arbitration;
(e) the submission that Mr Sekuloski would not sue his wife was not raised at the arbitration nor put to him in cross-examination. The inference that Mrs Sekuloska only paid her husband upon receiving legal advice because it would support his claim was not raised at the arbitration, nor was Mrs Sekuloska cross-examined on it;
(f) the Arbitrator correctly determined there was an expectation of payment because the agreement between the parties indicated that Mr Sekuloski would receive at the conclusion of all building work payment for work he performed. Mr Sekuloski received payment and declared that payment in his tax return. The Arbitrator was not required to draw any inferences that a contractually binding promise for payment had been made. This issue was not raised at the arbitration. The case can be distinguished from Teen Ranch because the work was not of a voluntary nature and the parties had a clear intention to create legal relations. A number of propositions derived from the authorities (by the appellant) were not raised at the arbitration and Mr Sekuloski was not cross-examined;
(g) the funds borrowed were not Mr Sekuloski’s own money. They were borrowed to pay for materials, contractors and workers. The Arbitrator did not err in finding that there was a real expectation of payment. The appellant’s submissions raise issues that were not raised at the arbitration and on which Mr Sekuloski was not cross-examined;
(h) the making of the payment to Mr Sekuloski supports the view that he offered his services for reward and was paid for those services. It is immaterial that the funds to pay Mr Sekuloski were obtained from the loan account. The appellant’s submission as to the timing and circumstances of the payment was not raised at the arbitration;
(i) the Arbitrator did not err in finding that Mrs Sekuloska stood between Mr Sekuloski and the loan funds because she was an owner/builder. The evidence supports the conclusion that Mrs Sekuloska was an owner/builder and, in that capacity, entered into a contract with Mr Sekuloski to perform certain works. The submission that there was a joint approach to the renovations was not raised at the arbitration nor were the appellant or respondent cross-examined on it, and
(j) the evidence is uncontested that the parties had a clear intention to create legal relations. The onus was on the appellant to satisfy the Arbitrator that there was no intention to create legal relations. This issue was not raised at the arbitration. The issue of whether or not the Mr Sekuloski would sue his wife was not raised at the arbitration nor was he cross-examined about it.
On the issue of lack of consideration, Mr Eirth submitted that Mr Sekuloski relied on the promise that he would be paid if he undertook the works that he and his wife agreed upon. The payment was made and he received benefit for the promise he made to Mrs Sekuloska and she suffered detriment as the loan funds were drawn down. He submitted that this issue was never raised at the arbitration and Mr Sekuloski was not cross-examined on it.
Mrs Sekuloska’s submissions in response
It was submitted that the question of intention to enter legal relations was argued at the arbitration and the arguments presented on appeal are legal issues that do not raise matters that would require Mr Sekuloski to call additional evidence (Coulton v Holcombe [1986] HCA 33; 162 CLR 1 at 7).
As to the failure to cross-examine, it was submitted that the facts were not controversial and it probably would have been impermissible to obtain leave to cross-examine in any event. There were no propositions that warranted cross-examination: the test was whether, on the accepted evidence, there was an objective intention to enter legal relations.
DISCUSSION AND FINDINGS
The issues before the Arbitrator
Mr Eirth’s submission that the intention to create legal relations issue was not raised at the arbitration is incorrect.
The above summary of the submissions at the arbitration demonstrates that the appellant put Mr Sekuloski to proof of the elements of deemed worker. In the present case, the critical element was whether Mr Sekuloski was a party to a legally enforceable contract with Mrs Sekuloska to perform work renovating their jointly-owned property. That required the Arbitrator to consider the principles of contract law. While Mr Stockley’s “primary submission” was that there was no consideration for any contract, he added that intention to enter legal relations was also an issue that Mr Sekuloski had to establish. Mr Eirth addressed that issue and, after referring to the statements in evidence, submitted there was an intention to enter legal relations.
The Arbitrator acknowledged (at [17]) Mr Stockley’s submission that it was essential that the parties intended to create legal relations and determined (at [26]) that there was an intention to create a legally binding contract. It follows that I do not accept that the intention to create legal relations was not an issue before the Arbitrator.
General principles
The principle stated in Teen Ranch that family or domestic arrangements do no normally give rise to binding contracts, and that there is a presumption of fact that such parties do not intend to form legal relations, is based on Balfour v Balfour [1919] 2 KB 571 (Balfour), which was applied in Jones v Padavatton [1969] 2 All ER 616 (Padavatton).
Balfour and Padavatton have been cited with apparent approval in recent appellate decisions in New South Wales (Baird v Smee [2000] NSWCA 253; Shortall v White [2007] NSWCA 372; Northern Rivers Charity Racing Association v Lloyd [2002] NSWCA 129). They were also cited and applied (along with Teen Ranch) by Brereton J in Ashton v Pratt (No 2) [2012] NSWSC 3. However, in a matter concerning the engagement of a minister of religion, the High Court expressed doubt about the “utility of using the language of presumptions” in the context of intention to create legal relations (Gaudron, McHugh, Hayne and Callinan JJ in Ermogenous v Greek Orthodox Community of SA Inc [2002] HCA 8; 209 CLR 95 (Ermogenous) at [26]).
In Tadrous v Tadrous [2010] NSWSC 1388, Pembroke J suggested (at [5]) that, in light of Ermogenous, the use of presumptions “no longer represents a correct analysis”. Though this decision was overturned in part on appeal, his Honour’s observations on this point were not the subject of comment (Tadrous v Tadrous [2012] NSWCA 16).
In Padavatton, Salmon LJ observed (at 621) that courts must consider “what the parties said and wrote in light of all the surrounding circumstances and then decide whether the true inference is that the ordinary man and woman … would have intended to create a legally binding agreement”. Whether parties intend to create contractual relations requires an objective assessment of the state of affairs between those parties (Ermogenous at [25]).
Citing Balfour, Padavatton and Cohen v Cohen [1929] HCA 15; 42 CLR 91, Heydon J observed (at [202]) in Magill v Magill [2006] HCA 51; 226 CLR 551 that “[t]he law does not treat agreements between spouses in the same way as it treats commercial dealings”.
The observations of Windeyer J in South Australia v The Commonwealth [1962] HCA 10; 108 CLR 130 at 154 (South Australia), referred to in Ermogenous, are also relevant:
“An agreement deliberately entered into and by which both parties intend themselves to be bound may yet not be an agreement that the courts will enforce. The circumstances may show that they did not intend, or cannot be regarded as having intended, to subject their agreement to the adjudication of the courts. The status of the parties, their relationship to one another, the topics with which the agreement deals, the extent to which it is expressed to be finally definitive of their concurrence, the way in which it came into existence, these, or any one or more of them taken in the circumstances, may put the matter outside the realm of contract law.”
After citing Windeyer J in South Australia, the majority in Ermogenous added (at [25]) that:
“Because the inquiry about this last aspect may take account of the subject-matter of the agreement, the status of the parties to it, their relationship to one another, and other surrounding circumstances, not only is there obvious difficulty in formulating rules intended to prescribe the kinds of cases in which an intention to create contractual relations should, or should not, be found to exist, it would be wrong to do so. Because the search for the ‘intention to create contractual relations’ requires an objective assessment of the state of affairs between the parties (as distinct from the identification of any uncommunicated subjective reservation or intention that either may harbour) the circumstances which might properly be taken into account in deciding whether there was the relevant intention are so varied as to preclude the formation of any prescriptive rules. Although the word ‘intention’ is used in this context, it is used in the same sense as it is used in other contractual contexts. It describes what it is that would objectively be conveyed by what was said or done, having regard to the circumstances in which those statements and actions happened. It is not a search for the uncommunicated subjective motives or intentions of the parties.” (footnotes omitted)
In Australian Woollen Mills Pty Ltd v The Commonwealth [1954] HCA 20; 92 CLR 424 (Australian Woollen Mills), the High Court held (at 457) in a unanimous decision that “[i]t is of the essence of a contract, regarded as a class of obligations, that there is a voluntary assumption of a legally enforceable duty”. To be legally enforceable, there must be, among other things, real consideration for the agreement (Ermogenous at [24]).
In light of the current state of the authorities, I intend to approach the present case on the basis of the statement of principle in Teen Ranch, namely, that family and domestic arrangements do not normally give rise to binding contracts because the parties lack the necessary intention to create legal relations and, in the alternative, without reference to presumptions. On whichever approach is taken, Mr Sekuloski carries the onus of establishing that a legally binding contract existed. To establish that, he had to prove, as Mr Stockley submitted at the arbitration, an intention to enter legal relations and an agreement supported by real consideration.
The Arbitrator’s approach
The Arbitrator found (at [27]) that she was unable to accept that Mr Sekuloski was paying himself. She added that, on the objective evidence, the parties “demonstrated an intention to create legal relations and mutuality or contractual consensus”. Her reasoning was that, as the builder, Mrs Sekuloska was liable to pay all contractors and workers on site and that, because a contractor had the right to sue Mrs Sekuloska, Mr Sekuloski “had the same rights”.
This analysis did not answer the critical question of whether Mr Sekuloski was a contractor. It assumed, without explanation or reasoning, that Mr Sekuloski was a contractor who had the same rights as other contractors. That was the very issue in dispute. Similarly, the Arbitrator’s statement at [22] that, in her capacity as builder, Mrs Sekuloska was the employer of any workers on site did not address whether there was a contract between Mrs Sekuloska and her husband.
The Arbitrator assumed that, because Mr Sekuloski worked on the site, there was an expectation of and an entitlement to payment, which was realised on completion of the work. Whether there was an expectation of payment depended on whether there was a valid contract, which depended on whether there was an intention to enter legal relations supported by real consideration. The assumption that Mr Sekuloski had an expectation of payment was the very issue in dispute and the Arbitrator failed to deal with that issue.
In summary, the Arbitrator erred in failing to expose her reasons for resolving the point critical to the contest between the parties (North Sydney Council v Ligon302 Pty Ltd (1995) 87 LGERA 435 (at 442) per Kirby ACJ; Soulemezis v Dudley (Holdings) Pty Ltd (1987) 10 NSWLR 247 (at 259) per Kirby P, (at 270) per Mahoney JA, (at 280) per McHugh JA). For the reasons explained more fully below, the Arbitrator’s approach and conclusions were wrong. The parties agree that, if I found the Arbitrator had erred in her approach, I should re-determine the matter.
The correct approach
It is trite contract law that consideration must move from the “promisee” (Carter, Peden and Tolhurst, Contract Law in Australia, 5th ed, 2007 [6]–[19], citing Coulls v Bagot’s Executor & Trustee Co Ltd [1967] HCA 3; 119 CLR 460). The “promisee” is the person to whom a contractual promise was made. In the present case, the argument is that Mr Sekuloski, the promisor, promised to do work for Mrs Sekuloska, the promisee, in return for payment by her of $200 per day. That argument is fundamentally flawed because Mrs Sekuloska never agreed to pay Mr Sekuloski. She only agreed to drawn down on an account for which Mr Sekuloski had a joint liability. In no sense could it be said that any consideration moved from Mrs Sekuloska. Mr Stockley’s primary submission was correct, Mr Sekuloski was paying himself, and the Arbitrator erred in finding to the contrary.
To prove a contract, it must be established that the “statement or announcement which is relied on as a promise was really offered as consideration for doing the act, and that the act was really done in consideration of a potential promise inherent in the statement or announcement” (Australian Woollen Mills at 456). In other words, there must be a quid pro quo. That is missing in this case. Other than the bald assertion that it was “agreed” that Mrs Sekuloska would keep a record of the times Mr Sekuloski worked on the house and that they “would equal that to $200 a day”, there was no quid pro quo. On any objective view of the arrangement, Mr Sekuloski did not do the work in consideration of a payment of $200 per day. He did the work to improve an asset that he jointly owned with his wife. Mrs Sekuloska offered nothing in return for the work Mr Sekuloski was to do and did not in fact pay anything. The consideration did not come from her but from a loan account for which Mr Sekuloski and Mrs Sekuloska were jointly liable, and which Mr Sekuloski repaid from his earnings as a truck driver.
Applying Teen Ranch, family and domestic arrangements do not normally give rise to binding contracts because the parties lack the necessary intention. That presumption is rebuttable, depending on the circumstances of the case. There are numerous cases where the courts have found the requisite intention to create legal relations in a domestic or family setting. However, such cases have turned primarily on “the objective gravity of a step taken by one of the parties in anticipation of the agreement (Wakeling v Ripley (1951) 51 SR (NSW) 183) and those where the arrangements were performed within a legal context, including the use of language favouring an intention to be bound (Southlink Holdings Pty Ltd v Morerand Pty Ltd [2010] VSC 214)” (Sarkis v Moussa [2011] NSWSC 1172 (Moussa) at [38]). None of those factors is present in the matter before me. Mr Sekuloski has not come close to rebutting the presumption that, in a family or domestic setting, parties do not intend to create legal relations.
The evidence establishes that Mr Sekuloski performed vaguely defined work on his home on irregular occasions when he had time. He clearly did not do that work in the expectation of receiving payment from his wife and did not receive any “payment” until about one year after the completion of the work. The source of his “payment” was not Mrs Sekuloska, but was a joint account which he financed from his work as a truck driver. There was no obligation on him to perform any work on the property. I accept the appellant’s submission that Mr Sekuloski engaged in a joint building project with his wife for their mutual benefit. The arrangements between the appellant and respondent were quintessentially domestic and did not evince “some clear positive indication” that legal relations were contemplated (per Handley JA in Teen Ranch at 202B).
Viewing the matter without regard to the presumption referred to in Teen Ranch and Balfour, in determining whether the parties intended to enter into legal relations, it is open to take into account the subject matter of the agreement, the status of the parties to it, their relationship to one another, and the surrounding circumstances (Ermogenous at [25]). The subject matter of the agreement was the family home, an asset owned jointly by the appellant and respondent. The parties are husband and wife. These two factors strongly suggest, ignoring any presumptions, that it is unlikely the parties intended to enter legal relations. Though it is not determinative, it is difficult to imagine that Mrs Sekuloska would have tried to sue her husband for the cost of re-doing work defectively done by him.
The surrounding circumstances were that the renovations would mostly be done by tradespeople and that Mr Sekuloski would do “some of the work on the extensions and renovations, like carpentry, bricking, digging (preparing footings) wall panels”. What carpentry work was it agreed that Mr Sekuloski would do? What bricking would he do? Those “terms” were vague in the extreme. I do not believe any householder would reach such an uncertain agreement with a tradesperson regarding work to be done in an extensive renovation project. The vagueness of the terms strongly suggests that the parties did not intend to enter legal relations.
Another surrounding circumstance is the apparently unlimited discretion as to performance by Mr Sekuloski. This is interconnected with the lack of quid pro quo discussed above. If Mr Sekuloski had failed to perform any work under the arrangement with his wife, would she have been able to recover from him the additional cost of having someone else do the work, if that person had charged more than she had agreed with her husband? Again, on any objective assessment, the answer is no.
If follows that, looking at the facts objectively, and without regard to any presumptions, the appellant and respondent did not intend their arrangement to create a legally enforceable contract.
Mr Sekuloski’s further submissions
The above reasons dispose of the matter. However, in deference to Mr Eirth’s further submissions, I make the following observations.
There are no similarities between the present matter and Crowe. In that case, it was held that the worker had offered his services for reward and, whatever may have been in the mind of the respondent’s official, the respondent behaved in such a manner that it was reasonable to infer an agreement that the worker would do the work as a paid employee. No such inference is available in the present case because, assessed objectively, no contract came into existence, because of a lack of real consideration and a lack of intention to enter legal relations.
Mr Eirth submitted that several of the appellant’s arguments had not been raised as issues in the s 74 notice. I accept that the s 74 notice was poorly drafted in that it identified several matters that were clearly not in issue. It would not be a model to be followed in the future. However, the initial letter denying liability dated 28 September 2005 made it clear that liability was denied because, as a joint owner of the property, Mr Sekuloski was not a deemed worker. That was essentially repeated in the s 74 notice in June 2007. The s 74 notice gave sufficient notice of the reason the insurer disputed liability.
Mr Eirth took no issue with the matters argued by Mr Stockley at the arbitration and, as I noted above, those issues included the consideration issue and the intention to create legal relations issue. Mr Eirth’s written submissions at the arbitration dealt with those issues and there can be no question of unfairness or prejudice to Mr Sekuloski. The submissions on appeal addressed those issues and, though the submissions were more detailed than those put at the arbitration, they did not go outside the parameters of the issues argued at the arbitration and did not raise new issues. They raised legal issues as to the consequences of the accepted facts and did not raise issues that could be met by the tendering of further evidence from Mr Sekuloski.
Mr Eirth submitted that part of the agreement was that Mr Sekuloski could determine the works he would undertake. This merely highlights the vagueness of the arrangement and supports the conclusion that there was no intention to enter legal relations. The fact that Mr Sekuloski supervised other contractors when he was under no contractual obligation to do so also supports the conclusion that he did the work because he was a joint owner of the property, not because of any contractual obligation.
I do not accept Mr Eirth’s submission that the Arbitrator’s error at [22] was immaterial. It involved a failure to determine the issue in dispute. The Arbitrator assumed that, because Mrs Sekuloska was the authorised builder, she was “the employer of any workers on site”. That was not the issue. The issue was whether Mrs Sekuloska had contracted with Mr Sekuloski.
It is correct that the submission that Mr Sekuloski would not sue his wife was not raised at the arbitration and not put in cross-examination. However, that was not a matter that had to be put in cross-examination. The point argued on appeal was that, on an objective view of the undisputed evidence, there was no intention to create legal relations. That is a conclusion open on the evidence tendered and involves no unfairness to Mr Sekuloski and no breach of the rule in Browne v Dunn (1894) 6 R 67. The existence of a contract was in issue and was a matter on which the parties were entitled to make legal submissions without the need for cross-examination (New South Wales Police Force v Winter [2011] NSWCA 330).
The submission on appeal that an inference should be drawn that Mrs Sekuloska only paid her husband after getting legal advice was a matter that was not raised at the arbitration. As it was a matter on which the parties could have led evidence, it cannot be raised on appeal and I have had no regard to it. However, in circumstances where it was said that Mr Sekuloski would be paid on completion of the work, the unexplained delay between the completion of the work in April 2006 and the payment of Mr Sekuloski in April and May 2007 suggests that the parties did not intend their arrangement to create legal relations.
The expectation of payment at the completion of the work does not assist Mr Sekuloski because it was not fulfilled. Mr Sekuloski did not receive any money until well into 2007, one year after the work had been completed. The declaration in Mr Sekuloski’s tax return does not overcome the deficiencies noted above.
Mr Eirth’s submission that the evidence is uncontested that the parties had a clear intention to create legal relations misses the point. The test is not what the parties subjectively believed, but what it is that would be “objectively conveyed by what was said or done, having regard to the circumstances in which those statements and actions happened” (Ermogenous at [25]).
CONCLUSION
Given the nature of the work being done on a jointly-owned asset (the family home), the vagueness of the terms, the lack of any quid pro quo (that is, the lack of any obligation to do the work on the part of Mr Sekuloski and the lack of any obligation to make any payment on the part of Mrs Sekuloska), the marital relationship, and the lack of any real consideration, I am comfortably satisfied that, leaving aside any presumptions, there was no intention to enter legal relations and the Arbitrator erred in finding to the contrary. Factors that might have indicated an intention to enter legal relations, such as the presence of a commercial element and the expectation that the arrangement would reap a profit (Moussa at [38]), are conspicuously absent in the present case.
DECISION
The Arbitrator’s determination of 19 October 2011 is revoked and the following orders made in its place:
“1. Award for the respondent.
2. No order as to costs.”
COSTS
Each party is to pay his or her own costs of the appeal.
Bill Roche
Deputy President
5 March 2012
I, PENELOPE FLEMING, CERTIFY THAT THIS IS A TRUE AND ACCURATE RECORD OF THE REASONS FOR DECISION OF BILL ROCHE, DEPUTY PRESIDENT OF THE WORKERS COMPENSATION COMMISSION.
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