Terra Firma (Newcastle) Pty Limited t/as “Amber Tiles Newcastle Pty Limited” v Margaret Smith and Philmar Investments (Newcastle) Pty Ltd - [2009] NSWWCCPD 145

WORKERS COMPENSATION COMMISSION
DETERMINATION OF APPEAL AGAINST A DECISION OF THE COMMISSION CONSTITUTED BY AN ARBITRATOR
CITATION:			Terra Firma (Newcastle) Pty Limited t/as “Amber Tiles Newcastle Pty Limited” v Margaret Smith and Philmar Investments (Newcastle) Pty Ltd [2009] NSWWCCPD 145
APPELLANT:			Terra Firma (Newcastle) Pty Limited t/as “Amber Tiles Newcastle Pty Limited”
FIRST RESPONDENT:			Margaret Smith
SECOND RESPONDENT:		Philmar Investments (Newcastle) Pty Ltd
APPELLANT’S INSURER:			QBE Workers Compensation (NSW) Ltd
SECOND RESPONDENT’S INSURER:			Allianz
FILE NUMBER:			A1-7304/08
ARBITRATOR:	Ms C Rimmer
DATE OF ARBITRATOR’S DECISION:			15 July 2009
DATE OF APPEAL DECISION:			13 November 2009
SUBJECT MATTER OF DECISION:			Section 4 of the Workers Compensation Act 1987; Clause 2 of Schedule 1 to the Workplace Injury Management and Workers Compensation Act 1998
PRESIDENTIAL MEMBER:			Deputy President Kevin O’Grady
HEARING:			On the papers
REPRESENTATION:			Appellant:	Gillis Delaney Lawyers
First Respondent:	Shanahan Tudhope Lawyers
Second Respondent:	Ellison Tillyard Callanan Solicitors
ORDERS MADE ON APPEAL:			1. Time to appeal is extended to 13 August 2009. 2. The decision of the Arbitrator dated 15 July 2009 is confirmed. 3. The appellant to pay the costs of this appeal of Mrs Smith and the second respondent.

BACKGROUND TO THE APPEAL

Margaret Smith is the widow of the late Phillip Henry Smith who died on 25 February 2006 as a result of injuries received by him in a tragic accident which occurred at the business premises of Terra Firma (Newcastle) Pty Limited (‘the appellant’) on 24 February 2006. The deceased was on that day, in the company of his son, who was an employee of the appellant, fatally injured when both he and his son received a severe electric shock whilst in the course of erecting an aluminium flag pole which struck overhead electrical wires. Both were transported to hospital for treatment following which Troy Smith survived his grievous injuries however Mr Smith died as a result of his severe burns and other medical complications.

Whilst there is no dispute that the deceased was in the course of his work at the time of injury there existed doubt as to the identity of his employer at that time. This doubt has come about by reason of complex financial arrangements that had been entered into and varied from time to time which involved the participation of the deceased, Mr Smith, the appellant and the second respondent Philmar Investments (Newcastle) Pty Limited (‘Philmar’). Those dealings are more particularly addressed below.

Mrs Smith, following her husband’s death, made a claim pursuant to the Workers Compensation Act 1987 (‘the 1987 Act’) against both the appellant and Philmar in respect of her entitlement to benefits as a dependant of the deceased.

Both the appellant and Philmar declined liability in respect of Mrs Smith’s claim. In the circumstances, by reason of doubt as to the identity of the deceased employer, an Application to Resolve a Dispute was filed by Mrs Smith in the Workers Compensation Commission (‘the Commission’) against both the appellant and Philmar seeking appropriate orders.

Mrs Smith’s application came before an Arbitrator for determination on 12 December 2008 on which day, by reason of procedural difficulties, the matter was adjourned and fixed for hearing on 26 March 2009. The Application was part heard before the Arbitrator on that day and was adjourned for further hearing to 23 June 2009. The hearing concluded on the adjourned date and the Arbitrator reserved her decision. A Certificate of Determination issued on 14 July 2009 and that Certificate was accompanied by a lengthy, detailed and careful statement of reasons (‘reasons’).

THE DECISION UNDER REVIEW

The ‘Certificate of Determination’, dated 15 July 2009 records the Arbitrator’s orders as follows:

“The Commission determines:
1. That the First Respondent pay the Applicant the sum of $307,100.00 pursuant to section 26 of the Workers Compensation Act 1987.
2. That the First Respondent pay the Applicant the sum of $4,073.80 for funeral expenses pursuant to section 27A of the Workers Compensation Act 1987.
3.    Award in favour of the Second Respondent.
4.    I certify this matter as complex.
5.    I certify an uplift of the Applicant’s costs of 45%.
6.    I certify an uplift of the First Respondent’s costs of 45%.
7.    I certify an uplift of the Second Respondent’s costs of 45%.
8.    The First Respondent pay the Applicant’s costs as agreed or assessed.
A brief statement is attached to this determination setting out the Commission’s reasons for the determination.”

ISSUES IN DISPUTE

The issues in dispute in the appeal are whether the Arbitrator erred:

(i)in finding that a contract of service existed at relevant times between the appellant and the late Phillip Henry Smith, and

(ii)in making the alternative finding that the late Phillip Henry Smith was at relevant times a deemed worker in terms of Schedule 1 Clause 2 to the Workplace Injury Management and Workers Compensation Act 1998 (‘the 1998 Act’)

ON THE PAPERS REVIEW

Section 354(6) of the 1998 Act provides:

“(6) If the Commission is satisfied that sufficient information has been supplied to it in connection with proceedings, the Commission may exercise functions under this Act without holding any conference or formal hearing.”

Having regard to Practice Directions Numbers 1 and 6, the documents that are before me, and the submissions by the parties that the appeal can proceed to be determined on the basis of these documents, I am satisfied that I have sufficient information to proceed ‘on the papers’, without holding any conference or formal hearing, and that this is the appropriate course in the circumstances.

LEAVE

Before proceeding to deal with an appeal the Commission must determine whether the application meets the requirements of section 352 of the 1998 Act.

The amount of compensation at issue on the appeal is such that the subject matter of the appeal meets the threshold requirements of section 352(2) of the 1998 Act which must be met before leave to appeal may be granted by the Commission.

Section 352(4) of the 1998 Act provides that:

“(4) An appeal can only be made within 28 days after the making of the decision appealed against.”

The appellant’s application to bring this appeal was filed with the Registry on 13 August 2009 and appears to be one day out of time. That lateness, which is acknowledged by the appellant, was brought to its attention by the Commission on 14 August 2009 at which time a direction was issued requiring the lodgement, by 4pm on 21 August 2009, of submissions seeking an extension of time to bring the appeal. That direction has been complied with. Those submissions include a chronology of events which reveals that the appellant’s solicitors received a copy of the Arbitrator’s Certificate of Determination on 16 July 2009.

The submissions put by the appellant outline various steps taken in preparation of the Application for leave to appeal, which included consultation with counsel, a request for the disk which contained the recording of proceedings before the Arbitrator, preparation of a transcript and briefing of counsel to settle grounds of appeal and submissions in support. The submissions state that the notes compiled by the solicitor who had conduct of the hearing had been lost which required preparation of the transcript. That preparation occupied a total of twelve hours typing time. It is noted in the submissions that initially an error had been made when calculating relevant time limits concerning lodgement of the appeal. The appellant seeks an extension of time for making the appeal pursuant to rule 16.2(11) of the Workers Compensation Commission Rules 2006 (‘Rules’) which provides:

“(11)The Commission constituted by a Presidential member may, if a party satisfies the Presidential member, in exceptional circumstances, that to lose the right to seek leave to appeal would work demonstrable and substantial injustice, by order extend the time for making an appeal.”

The appellant cites a number of authorities in support of its argument seeking an extension of time. Particular attention is given to that which was stated by McHugh J in Gallo v Dawson (1990) 93 ALR 479. It is argued on behalf of the appellant that if proper regard is given to the history of the proceedings, the conduct of the appellant and the nature of the litigation including the appellant’s prospects on appeal, there should be an extension granted concerning time in which the appeal may be brought.

No submission has been put on behalf of Mr Smith concerning the late filing of the Application concerning this appeal.

Submissions have been furnished on behalf of Philmar which oppose the granting of an extension of time. It is asserted that the appellant has provided no reasonable explanation for the delay and that the circumstances are not “exceptional” in terms of the relevant rule. There is no submission that the delay has caused prejudice in any respect.

Having regard to all the circumstances, in particular the absences of any suggestion of prejudice and the very short period of delay in filing the subject application, I am of the view that, in exercise of the Commission’s discretion, the appellant is to be granted dispensation with respect to compliance with the requirements of the Rules. I am satisfied that exceptional circumstances have been made out and, further, that to lose the right to seek leave to appeal would work demonstrable and substantial injustice. Accordingly I order, pursuant to rule 16.2(11) that time for making the appeal be extended to 13 August 2009.

The requirements of section 352(2) have been satisfied and having regard to the above mentioned order with respect to extension of time I order that leave be granted to the appellant to appeal to the Commission.

EVIDENCE

The documentary evidence before the Arbitrator is described by her at [9] of Reasons. In addition to that material sworn oral evidence was given by Mrs Smith. A recording of the proceedings was taken on each of the three days it was listed before the Arbitrator and a transcript of that recording has been produced (‘transcript’). Mrs Smith’s evidence appears between pages 61 and 78 of the transcript of proceedings which occurred on 23 June 2009.

Evidence of Mrs Smith

A written statement dated 11 August 2008 made by Mrs Smith was in evidence before the Arbitrator. She and the deceased were married on 16 November 1979. There were two children of the marriage neither of whom was dependent upon the deceased at the time of his death.

Mrs Smith gave a brief summary of the deceased’s employment history including detail of his being employed for a number of years by BHP following which he was employed by Australia Wide Industries. In 1990 the deceased and Mrs Smith purchased a truck and the deceased was self employed for some indeterminate period operating that vehicle making deliveries, collecting rubbish and carrying out other errands. On an unspecified date Mrs Smith states that the deceased worked for one year exclusively for an organisation described in her statement as “Amber” which was located at Mayfield NSW. At the end of that year that organisation purchased the truck operated by the deceased and employed him as a yardsman. Mrs Smith states that one year later the Mayfield store closed and the deceased was “transferred to a sales position at Amber’s Kotara Store”.

Mrs Smith further states that after working for approximately two years at the Kotara store the deceased was invited by the two partners of that business franchise to become a partner in the business. It is stated that the deceased agreed to that course and over the following three to four years he and Mrs Smith invested money into the business “until he had a 30 per cent share”. Mrs Smith states that the deceased “remained on wages until we had purchased a 20 per cent share of the business. From that point he received a percentage of the store profits, corresponding to the percentage of our investment”.

The statement of Mrs Smith includes some detail relevant to the extent of her dependence upon the deceased which evidence is not directly relevant to the issues raised on this appeal.

Mrs Smith states that, in addition to money that the deceased earned “from the franchise” he “earned around $90 per month working as a consultant for Amber…”.

Mrs Smith states that funds used to invest in the Amber franchise and pay for renovations at its shop were obtained by way of a second mortgage on their home. It was further stated that the deceased and Mrs Smith “…set up a family company called Philmar Investments (Newcastle) Pty Limited”.

A supplementary statement by Mrs Smith was dated 29 January 2009 was in evidence before the Arbitrator. The content of that statement may be summarised as follows:

· In the first years the deceased worked for Amber he was a yardman/salesman. When the deceased “became a franchisee” he had more input into the decisions made concerning conduct of the business. He also had additional duties including preparing rosters and preparing payment of wages.
· The deceased worked set hours at the Amber store which were fixed by the staff roster. His hours were 8am to 5pm weekdays and 8am to 4pm on Saturdays and 10am to 4pm on Sundays. The deceased usually had Mondays and one other day off work, however he would sometimes work six or seven days of the week. The rosters were prepared by either the deceased or Mr Harry Watson another franchisee of the store.

· The deceased duties included serving customers, unloading trucks, preparing customer orders, preparing quotes, visiting customers houses to prepare quotes, preparing staff rosters, ordering stock, cleaning the shop yard, preparing display boards, opening and closing the store, displaying stock on the floor and preparing for sales. The deceased used tools supplied by Amber including a laminator, hot glue gun, forklift, bricks and tile cutter.

· The deceased always wore “the Amber uniform” to work. That was a collared shirt with an Amber logo and a name badge.

· The deceased owned a “ute” which he used for work and daily transport to and from work. The business, Amber, gave the deceased a petrol card and paid for all petrol he required. The business also paid for the vehicles registration, insurance and for signage on the vehicle which advertised Amber.

· The deceased took leave from around mid January 2006 for a period of three to four weeks.

· Mr Harrold Watson had a larger share in the business than did the deceased and as such had the final word on some aspects of the business at Amber. Most of the decisions were made jointly by the deceased and Mr Watson. A third person Mr Bryan Vadas had an interest in the franchise but was living in Queensland and therefore did not have as much input into the day to day conduct of the business.

· Mr Watson had final say on staffing issues, rostering issues, staff working extra time, deciding which bills to pay first and pay rises. The deceased needed to obtain Mr Watson’s approval for extra pay for additional hours of work performed by him.

· The deceased did not receive “payslips” but was paid monthly by way of transfer of funds to a joint account held by him and Mrs Smith. That monthly payment was, at least since June 2004, $4,583.00. The deceased received paid sick and annual leave from Amber.

· Mrs Smith understood that the deceased was “paid through our family company, Philmar Investments (Newcastle) Pty Limited”. That company did not have a separate bank account and any payments to Philmar were made to the joint account. Philmar was registered in 1997.

· Some time before his death the deceased reached agreement with Mr Watson that he should receive “extra wages for the additional hours he was working”. Mrs Smith was not told that that arrangement had come to an end before the date of the subject accident.

The oral evidence given by Mrs Smith at the hearing was largely her response to cross-examination by counsel appearing for the appellant and the second respondent. Detail of relevant evidence appears hereunder.

Evidence of Troy Smith

A written statement by Troy Smith dated 29 January 2009 was in evidence before the Arbitrator. That evidence may be summarised as follows:

· Troy Smith is the son of Mrs Smith and the deceased.
· Troy commenced employment with Terra Firma (Newcastle) Pty Limited at the Amber Kotara store in approximately 2003, initially as a casual, and commenced working fulltime in approximately 2005. He was employed as a yardsman. He was initially paid cash in hand and subsequently was paid weekly by way of transfer to his bank account. His earnings were approximately $500.00 per week.

· Troy resided with his parents before the subject accident and travelled to and from work with his father. The deceased had informed him that a petrol card had been provided by the business. The utility used by his father had signage advertising Amber.

· The deceased had rostered hours like the other staff although he often worked extra hours. Both Troy and his father wore the Amber uniform to work each day. Troy observed his father performing different tasks around the shop including serving customers, working in the office, talking to staff concerning duties, pricing stock, preparing quotes and occasionally driving a forklift. Troy observed his father using tools at work that were provided by Amber.

· The deceased worked over the Christmas and New Year period in 2005/2006 until mid January 2006 at which time he took three or four weeks leave.

· On the morning of 24 February 2006, as Troy and his father were in the process of erecting a flagpole contact was made with electrical wires causing severe injury to both. The injuries suffered by Troy required amputation below the knee of his left leg and amputation of three toes on his right foot and extensive skin grafts.

Evidence of Michael Warden

A statement by Michael Warden dated 27 January 2009 was in evidence before the Arbitrator. The content of that statement may be summarised as follows:

· Mr Warden was at the date of the statement employed as a salesman at the Amber Tiles shop in Kotara NSW, a position that he had held for approximately 15 years. During that time he had worked closely with both the deceased and Mr Harrold Watson.
· Mr Warden was aware of the pay arrangements for both the deceased and Mr Watson. Each was paid a monthly consultancy fee through their own family companies. That consultancy fee was based on a 40 hour week and was paid electronically into their bank accounts on the first or second day of each month.

· The deceased performed numerous tasks including serving customers, keeping the selling floor organised, price tagging, customer quotes, ordering stock, authorising the wages, preparing rosters and “whatever else was required”. The deceased wore an Amber uniform every day.

· In 2004 Mr Warden was present during a conversation between the deceased and Mr Watson where agreement was reached that if either of them worked more than 40 hours in a week they should be paid overtime. The agreement included an arrangement that the payment would be “made to them as individuals, rather than through their family companies”. Mr Warden was aware that that agreement was ongoing as at the time of the subject accident.

A written record of interview between a WorkCover investigator and Mr Warden was tendered in evidence by Mrs Smith. That statement does not have direct relevance to the issues raised on this appeal.

Evidence of Harrold Frank Watson

There were three written statements made by Harrold Frank Watson in evidence before the Arbitrator. The first is a record of interview conducted by a WorkCover NSW investigator dated 13 November 2006. That statement was tendered by the appellant. The second statement is dated 14 June 2007 and was tendered on behalf of Philmar. The third statement is dated 3 February 2009 and was tendered on behalf of Mrs Smith. The content of those statements may be summarised as follows:

· Mr Watson was at relevant times employed by a company that he owned known as Harrlea Pty Limited. He had been so employed since 1996. Mr Watson’s wife Leanne is a director of that company. Mr Watson denied that he was employed by the appellant as at 24 February 2006 but agreed that he was a director of that company. Mr Watson thought that he had held that office of director since 1996. He agreed that he was the managing director of the appellant. His duties involved “looking after the back office and looking after paperwork, invoicing, debtors, creditors and that side of that business.” Mr Watson named the other directors of the appellant company as being Mr Bryan Vadas and the deceased. Mr Watson denied that Mr Vadas and the deceased were employed by the appellant.
· Mr Watson stated that each director had a company and that the three companies were “basically the owners of that business, of Terra Firma, and the three main directors of the company, that’s myself, Bryan and Phil, worked in that business as consultants”. Mr Watson stated that remuneration for his work was paid to his family company and that an invoice was submitted to the appellant every month. Payment was made every month. There was no formal written contract and Mr Watson thought that the arrangement had been in place since “about 96”.

· The company structure concerning the appellant had been set up in 1996 however in 1989 Mr Watson had been an employee of the business which was then owned by a company described as “Amber Holdings”.

· The appellant was a seller of tiles, paving, retaining wall blocks, timber floors and all accessories concerning such products. Mr Watson stated that, “Ultimately I was responsible, yes, but Phil generally looked after the staffing and the forklift and that sort of thing”. In response to the question “…did Phil Smith report to you in that respect?” Mr Watson replied “yes”.

· Mr Watson stated that he let the deceased “…basically do his own thing there because it was, I couldn’t really control him because he sort of, as a director of the business wanted to sort of be the boss with that sort of thing.”

· The statement made by Mr Watson in 2007 included a statement that there were arrangements made for the provision of services by the deceased to the appellant but Mr Watson could not specify whether that arrangement was made with the deceased or with Philmar. Mr Watson did not believe there was any clear differentiation as the deceased represented Philmar.

· There was no written contract between the appellant on the one hand and either the deceased or Philmar concerning the provision of services by the deceased to the appellant.

· Tax invoices had been issued by Philmar to the appellant “…when we took over the business in 1996…” Mr Watson stated that there were probably up to six invoices issued covering a period of six months following which the three directors agreed as to a fixed monthly amount. The issue of individual invoices was no longer required.

· Mr Watson did not believe there were ever any directions issued by either the deceased or Philmar concerning manner of payment for the provision of services to the appellant. Payments were initially made by cheque and then later by direct debit. Mr Watson did not have those details. In the statement dated 3 February 2009 which was tendered on behalf of Mrs Smith, Mr Watson stated that the deceased was employed to work at the Amber store and it was because of that that he was paid by Amber each month. The money the deceased received was “not paid to him for being a director of Terra Firma.” He would not have been paid if he ceased performing his duties. When Mr Vadas moved to Queensland he ceased receiving any payment from Amber “as he was merely a director and not performing any work for the store.”

· Arrangements concerning payment was set up by Mr Vadas. When Mr Watson first joined the business the directors were paid a percentage of the store profit. After some time that arrangement changed and the directors were paid a fixed monthly amount. Both the deceased and Mr Watson “…set up family companies and were paid a ‘consultancy fee’ through our respective companies. The arrangement of being paid through family companies was part of the set up arrangements put into place by Bryan Vadas. I’m not sure why he chose to set up the arrangements in this way and to account for payments to us as ‘directors fees’ rather than wages although I suspect it was to increase the ‘bottom line’ of the store.”

· Mr Watson and the deceased agreed in 2004 that they should each be paid additional wages if they worked more than 40 hours per week. Mr Watson was aware that the deceased received overtime pay in 2004 and 2005 but could not recall whether the deceased worked any extra hours in the two and a half month period leading up to the accident. Mr Watson considered that the agreement concerning overtime was “ongoing at the date of the accident”.

Evidence of Bryan Vadas

A copy of a record of interview between a WorkCover investigator and Mr Vadas was tendered in evidence by the appellant. The content of that interview as recorded may be summarised as follows:

· Mr Vadas was a director of the appellant company and had been appointed as such in 1996. The appellant company was a trustee for Terra Firma Newcastle unit trust. The directors of the trust at the time of the subject accident were the deceased, Mr Watson and Mr Vadas. It was stated, “But the entity, which is the employer is in fact the trust. So the trust would have the ABN. The ABN that applied to the employer would in fact be the trust. The trust was operated by the trustee which is the company. The unit holders of the trust were the three family companies. It is a bit complicated but it is mainly for tax purposes. And for, for the sake of workers comp for the occupational health and safety legislation, the employer is in fact the trust through the trustee. So the trustee, Terra Firma Newcastle Pty Limited is the employer on behalf of the trust.”
· The appellant trades under the name “Amber Newcastle”. The directors of that company were the deceased, Mr Watson and Mr Vadas. Mr Watson’s role was primarily general management of the business and the deceased reported to Mr Watson. The deceased’s role and responsibilities were concerned with the sales floor and showroom management and the occupational health and safety of the business. Mr Vadas was not involved in the day to day operation as he was based in Queensland.

· The nature of the business conducted by the appellant was the retail sales of tiles, pavers and retaining walls.

· When questioned as to whether the deceased was an employee of the company on the day of the subject accident Mr Vadas stated, “Phillip Smith was contracted as a contractor under Philmar Investments Proprietary Limited, and that was his usual way of contracting the business whenever he did days over and above the number of days that he was contracted to do in a month, he performed that role as an employee. So he hadn’t, he hadn’t performed that role as employee for about three months prior to the accident.”

· The deceased had been engaged at the “contract site” since 1996 and he reported to Harrold Watson.

· The directors were not direct employees of the appellant but the directors each had a company that would contract for the provision of services. In the case of the deceased it was Philmar Investments. The payment sheets indicate payments to Philmar not to the deceased. Invoices would be presented through the company. Mr Vadas agreed that the arrangement was set up for taxation purposes.

· It was agreed by Mr Vadas that the deceased, as a subcontractor to the organisation, answered to Mr Watson. The deceased was “pretty independent”, knew what he had to do and was fairly experienced but the deceased would consult with Mr Watson and Mr Watson would be “maestro”.

A statement by Mr Bryan Vadas dated 30 January 2007 was tendered on behalf of the second respondent. The content of that statement may be summarised as follows:

· Mr Vadas was a director of the appellant which is a trustee of the unit trust and he was one of the three directors of the company at the time of the subject accident. Mr Watson was the general manager of the Newcastle store.
· Mr Vadas had very little to do with the business in Newcastle following his move to Queensland in 1999. He understood that the deceased company Philmar Investments Pty Limited was paid by the appellant for the performance of his normal duties and the hours at Amber Tiles Newcastle. Any time worked over and above the agreed hours was paid directly to the deceased by the appellant “as an employee”.

· The deceased was working his normal duties at the time of the subject accident and at that time he was an employee of Philmar Investments consulting to the appellant company.

Evidence of Brenda Staples

A statement by Brenda Staples dated 25 February 2007 was tendered on behalf of the second respondent. The following is a summary of that statement:

· Ms Staples was engaged as an accounts supervisor with the appellant whose duties included attending to accounts payable and payroll.
· The deceased was engaged by the appellant as a consultant at their Amber Tiles Newcastle store from the inception of the company up until his death. The deceased’s consultancy duties involved the general management of the Newcastle store and sales duties.

· The deceased’s consultancy fee at the time of his death was $4,583.00 per month including GST. That fee was paid to Philmar Investments Pty Limited and was paid directly to a bank account but Ms Staples was unaware as to whether that was the deceased personal account or Philmar Investments account.

· The deceased was part owner of the Newcastle Amber Tiles franchise in partnership with Mr Vadas and Mr Watson. Mr Watson was paid as a consultant in a manner similar to the deceased but payment was made to a different company. Mr Vadas worked at the Brisbane store and was not paid a consultancy fee. Ms Staples was unaware as to whether there were any written agreements or contracts.

· In 2004 the deceased was working more hours than Mr Watson and he wanted to be paid extra. He was placed on the appellant’s books as a casual employee on 1 July 2004 and remained as such up until 15 December 2005. A tax declaration form was provided by the deceased together with his tax file number. He was paid as a casual employee and payment was made to his account. Ms Staples was not aware as to whether that was a personal account or the account of Philmar. There was no written agreement concerning this arrangement but was all verbal and arranged at instruction of the deceased.

· The payments for extra hours continued until the deceased’s last overtime payment on 14 December 2005. In the period from 1 July 2005 to 14 December 2005 he worked a total of 78 hours and was paid $1147.80 gross.

· No overtime payments were paid to the deceased after 14 December 2005 given that Mr Watson began to work longer hours leading up to that time and the deceased was satisfied that there was equal input between himself and Mr Watson and did not request further payments for extra hours.

Company records

An extract from the records of the Australia Securities and Investments Commission (‘ASIC’) records that the appellant company was registered on 13 June 1996. That company’s registered office was 148 Charlestown Road Kotara South NSW 2289. The principal place of business was recorded as being cnr Charlestown Road and Myal Road Kotara NSW. The directors were named as the deceased, Mr Vadas and Mr Watson. Members of the company were named as Capember Pty Limited (50 ordinary shares), Harrlea Pty Ltd (50 ordinary shares) and Margaret Smith together with Phillip Henry Smith noted as jointly holding 30 ordinary shares. That search records that Mrs Smith and her late husband had acquired shares from time to time commencing on 1 December 1996. Subsequent acquisitions are noted as occurring in November 1998, July 1999, August 2000, August 2001. Mr Vadas had been appointed a director in June 1996 and Mr Watson and the deceased were appointed in August 1996.

An extract from ASIC records relating to Philmar Investments (Newcastle) Pty Limited records that the company was registered on 30 June 1997. Detail of that organisation includes a description that it is limited by shares and was of a subclass “Superannuation trustee propriety company”. The deceased was sole shareholder and sole director, having been been appointed on 30 June 1997.

A document was tendered on behalf of the second respondent which appears to be a print out from the Australian Government ABN records concerning Australian business number 24 689 462 046. That document indicates that the ABN number had been active since March 2000, that the entity name was “The Trustee for Terra Firma Newcastle unit trust”. The trading name is noted as “Amber Newcastle”.

Financial records

Copies of the deceased’s individual tax returns for the years 2003, 2004 and 2005 were in evidence. The deceased’s income was stated in the return for the year ending 30 June 2005 to have comprised $6,157.00 received from Amber Newcastle (ABN 24 689 462 046), the sum of $17,549.00 from Woolworths Limited and director’s fees in the sum of $26,000.00. Total income was stated to have been $49,706.00. Where relevant detail of the earlier returns is noted hereunder.

A financial report for the year ending 30 June 2005 of Philmar was in evidence. Income noted on the profit and loss statement for that year is stated as being in the sum of $49,996.00 and is described as “consultancy fee”. The expenditure was noted in that statement as totalling $50,211.00. That sum included the sum of $26,000.00 being “directors fees”. The description of the main business activity in an accompanying company tax return for that year was noted as “retail tile and paving outlet”.

Copies of minutes of a meeting of Philmar said to have occurred on 30 June 2005 records the resolution that remuneration of the director for the year ending 30 June 2005 was in the order of $26,000.00. There is also a copy of a director’s resolution concerning the operations of Philmar, that being by the deceased, recording “that director’s fees of $26,000.00 were paid to me in my capacity as sole director of the company during the year ending 30 June 2005”. That resolution was dated 30 June 2005.

A document in evidence appears to be on the letterhead of the business conducted by the appellant being Amber Kotara. It is headed “Payroll Activity [Detail]”. The dates 1.7.2005 to 30.11.2006 appear. An employee’s name is recorded being the deceased, payment is recorded as being $1,147.80 being for 72 hours at base rate and six hours at overtime rate. A document tendered on behalf of the second respondent records payments from the appellant to “Philmar Investments” between 1 July 2005 and 2 March 2006 as totalling $41,437.00. Of that amount the sum of $3,767.03 is nominated as being GST. The origin of this document is not apparent on its face.

A number of “direct payments file detail report” documents were in evidence before the Arbitrator. These appear to be records of the National Australia Bank relating to Terra Firma Newcastle P/L. The file name appears as P Smith in each of those documents. Each of those documents records a transfer of the sum of $4,583.00 each month, the account name is nominated as “Philmar” and the account number is noted as xxx 451. That account number is that of the account held by the deceased and Mrs Smith jointly at the National Australia Bank Hamilton NSW and is described as a “FlexiPlus Mortgage Choice Package” account xxx451. The record of payment made on 31 January 2006 records payment of $3,000.00 into the last mentioned account and the sum of $1,583.00 is recorded as having been paid to “Philmar” and the account number is xxx386.

There was a copy of a letter dated 30 November 2006 from Mr Vadas to Mrs Smith’s solicitors. That correspondence was signed by Mr Vadas on behalf of Terra Firma (Newcastle) Unit Trust. That correspondence records payments made to “Phillmar Pty Ltd” for the period 1 July 2005 “to date” as being gross $41,437.00 less GST $3,767.03. Also recorded were payments to the deceased from 1 July 2005 of the gross sum of $1,147.80 together with superannuation payments of $82.70 paid to Retail Employees Superannuation Trust. Mr Vadas states in that correspondence that there is no letter of offer of employment to the deceased nor is there any record concerning the engagement of services provided by “Phillmar Investments” from 1 July 2005 to date.

The bank statements of the account held jointly by the deceased and Mrs Smith for the period 30 June 2005 to 31 January 2006 were in evidence and were carefully described by the Arbitrator at [59] of Reasons. I gratefully adopt that summary which I set out hereunder:

“The records of the joint National Flexiplus Mortgage account ([xxx451]) of the Applicant and the deceased for the period 1 July 2005 to 31 January 2006 show that during the period 1 July 2005 to December 2005 the account was credited with a payment from the [appellant], identified as Amber Newcastle, of $4,583.00 each month and from time to time there were further payments from the [appellant] (identified Amber Newcastle) in respect of ‘wages’ for smaller sums such as $92.96 on 23 November 2005 and $93.32 on 7 December 2005. I note that the last payment from the First [appellant] appeared to have been made on 1 February 2006 although the transfer appeared to be for the sum of $3,000.00 and not $4,583.00. The NAB internet banking records for the joint account for the period 11/10/2005 to 1/12/2005 listed payments from the [appellant] on 01/11/2005 as “Salary” in the sum of $4,583.00, on 14/12/2005 as “salary” in the sum of $93.32, on 7/12/2005 as “salary” in the sum of $93.32, on 30/11/2005 as “Salary” in the sum of $4,583.00, on 30/11/2005 as “salary” in the sum of $93.32, on 23/11/2005 as “salary” in the sum of $92.96.”

SUBMISSIONS BEFORE THE ARBITRATOR AND THE ARBITRATOR’S FINDINGS

It was argued on behalf of Mrs Smith that as at the date of his death the deceased was a worker employed by the appellant. This submission was founded upon the suggested “control” that the appellant had over the deceased as he worked, as well as the presence of a number of other indicia which would, on balance, demonstrate the existence of a contract of service. In the alternative it was argued that the deceased was a deemed worker employed by the appellant by reason of the operation of Schedule 1 Clause 2 to the 1998 Act. As a further alternative it was argued that the deceased was at the relevant time employed by the second respondent.

The appellant argued that there was at no relevant time a contract of service between it and the deceased. It was also put that the evidence permitted a finding that there was no contract of employment between the deceased and the second respondent. The primary submission put in defence of the claim was that the evidence supported the existence of the contract between the appellant and the second respondent which provided for the provision of services by the second respondent in return for payment. The person who performed the work on behalf of the second respondent was the deceased. In support of this argument counsel relied upon a number of authorities including Stephan v Pacesetter Cleaning Services Pty Ltd and another (1995) 12 NSWCCR 19 and Boral Roof Tiles Ltd v O’Brien (1994) 15 NSWCCR 1. Counsel further relied upon the decision of the High Court of Australia in Andar Transport Pty Ltd v Brambles Limited (2004) 217 CLR 424 (‘Andar’) in support of his argument that notwithstanding his argument that Mr Smith was the sole director of Philmar both he and the company were distinct and separate entities and that the fact that the contractual capacity of the company can only be exercised by the deceased does not prevent the creation of legal relations between the appellant and Philmar.

The second respondent submitted that an assessment of “the reality of the situation” (Plexvon Pty Limited (in liq) v Brophy [2006] NSWCA 304 (‘Plexvon’) reveals the existence of a contract of service between the deceased and the appellant.

THE ARBITRATOR’S DECISION

The Arbitrator identified the principal issue before her as being the proper characterisation of the relationships between the deceased and the appellant and the second respondent. The Arbitrator identified the need to determine the reality of the circumstances to enable a determination of the true relationships between the parties. The Arbitrator at [83] of reasons made a number of findings of fact following which reference was made to the evidence of dealings between the directors and the appellant company. The Arbitrator was satisfied that a contract was entered into in 1996 which provided that the directors of the appellant, including the deceased, were to provide their labour or services to the appellant as “consultants”. Following an analysis of the evidence and the sequence of events the Arbitrator made reference to the decision of Pitcher v Langford (1991) 23 NSWLR 142 (‘Pitcher’) and Plexvon and proceeded to conclude that she was not satisfied that there was a change in the identity of the contracting party following registration of and commencement of payments in the name of the second respondent. Reference was made by the Arbitrator to evidence of control of the deceased by the appellant with respect to his work as well as the evidence of negotiation relating to payment of overtime. The Arbitrator inferred the continuing existence of an “employment contract’ following an examination of the reality of the relationship and arrangements between the deceased and the appellant.

The Arbitrator, on the basis that her conclusion as to the continuing relationship between the deceased and the appellant may be wrong, proceeded to consider whether there was an implied contract between the deceased and the appellant. Following consideration of the evidence and a number of authorities the Arbitrator concluded that there was an implied contract between the deceased and the appellant, and that such implication could be drawn from the evidence of the other two directors of the appellant and that such contract arose also by implication from the acts of the deceased and the appellant. The evidence concerning the overtime performed by the deceased and paid for by the appellant was considered by the Arbitrator and the conclusion was reached that “It is more consistent with reality to conclude that during all of his working hours in the [appellant’s] business, he was working under a contract with the [appellant], and that for the reasons given below such contract was one of employment.”

The Arbitrator proceeded to consider whether the contract which existed was one of service or a contract for services. Following consideration of the evidence a number of factual findings were made and noted at [125] of reasons. At [127] the Arbitrator made the following finding – “Considering all the indicia outlined above, the contract in this case is best categorised as a contract of service between the [appellant] and the deceased.”

Having reached the conclusion as above noted the Arbitrator proceeded in the interests of completeness, to consider whether the deceased was at the relevant time a deemed worker. Her finding at [138], was – “…if deceased was not a worker, he was a deemed worker of the [appellant] under the provisions of Schedule 1 of the 1998 Act.”

The Arbitrator proceeded to consider the question as to whether the deceased was a worker employed by Philmar. Following a discussion of the relevant authorities and the evidence the Arbitrator concluded that there was insufficient evidence to support a finding that there was a contract of service between the deceased and Philmar and a finding was made accordingly.

SUBMISSIONS ON THIS APPEAL

The appellant seeks a review and “reconsideration” of the Arbitrator’s decision and the following is stated to be its “ground” of appeal:

“Terrafirma (sic) submits that the decision is wrong and, on the evidence, the deceased’s employer or deemed employer at the time of his death was Philmar Investments Newcastle Pty Ltd (‘Philmar’)”.

Reference is made by the appellant to the decision of the High Court of Australia in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] 219 CLR 165 (‘Alphapharm’) in support of a submission that much of the evidence before the Commission to which attention was given was, as stated in Toll “…largely irrelevant information about the subjective understanding of the individual participants in the dealings between the parties.” It is put that attention should have been paid and consideration given to the objective evidence. It is put that the absence of a written contract is of no consequence with respect to the manner in which evidence is to be assessed.

The appellant submits that the parties concerned and who were “interacting” as at the date of the deceased’s death were the appellant, Philmar and the deceased. It is put that there is “no contract of services (sic)” in existence between the appellant and the deceased as at that date. It is argued that Mrs Smith had the onus of proving the existence of a contract of service between the deceased and the appellant and that that onus had not been discharged. It is put that the deceased was neither a worker nor a deemed worker as at the date of his death.

It is argued that the evidence concerning the “creation” of Philmar by the deceased was a “crucial part” of the evidence. The purpose of Philmar’s existence was performance of “the contracted duties for Terra Firma”. It is argued that – “The existence of this entity, interposed between Terra Firma and the deceased, is the strongest indication against the relationship between Terra Firma and the deceased being construed as a contract of service.”

The appellant makes reference to the decision of the High Court of Australia in Andar in support of its argument that the Arbitrator has erred when determining the nature of the relationship between the parties. That authority was cited in support of the proposition that the deceased “may act both as a director of a company and that company’s employee without unduly affecting the company’s legal capacity.” (Andar at [45]). It is argued that Philmar was “duly registered” and is not to be seen as being a “sham” in any sense. It is argued that Philmar “properly conducted its relevant business affairs with legal force and effect through its director a natural person, the deceased.”

The appellant, in support of its argument that there was a contract between Terra Firma and Philmar “for the provision of services by Philmar to Terra Firma” makes reference to particular portions of the evidence including that of Mr Vadas and Mr Watson as recorded in the WorkCover interviews and statements made by those witnesses which are before the Commission.

The appellant makes detailed reference to the documentary evidence at [15] of written submissions upon which reliance is placed as supporting a conclusion that payment was made “from Terra Firma to Philmar in respect of that contract.” That evidence includes the financial report dated June 2005 prepared by Philmar, the National Australia Bank statements relating to the joint account held by Mrs Smith and her late husband, the evidence of Mr Vadas and Mr Watson as well as the content of the “spreadsheet” attached to the statement of Ms Staples.

The evidence of Mr Vadas and Mr Watson is again relied upon as demonstrating that “…it was the deceased who performed the contract on behalf of Philmar in compliance with its contractual agreement with Terra Firma.”

The appellant argues that there is a distinction to be drawn between the contract for the provision of services between itself and Philmar and the contract of service that existed between the appellant and the deceased in respect of his performance of overtime “between July 2004 and 14 December 2005”. That distinction it is argued, is demonstrated by the evidence of the tax file number declaration, the deceased’s payroll activity statement, the superannuation contributions made on behalf of the deceased, the PAYG payment summary for the year ending 30 June 2006 and the statements of Ms Staples and Mr Vadas.

Reference is made by the appellant to the evidence concerning the existence of a workers compensation policy taken out by Philmar and issued by Allianz Workers Compensation. The nature of Philmar’s business is noted in documents as “tile retailing”. The submission is made that “…as Philmar engaged no other employees, the obvious inference is that the insurance was taken out to provide cover for the employment of the deceased.”

The relief sought by the appellant is revocation of the orders made against it and substitution with orders in similar terms against Philmar.

In support of the Arbitrator’s conclusions Mrs Smith argues that proper consideration was given to the objective evidence before the Commission. The Arbitrator’s reasons for determination are examined and it is noted that attention was given to the identification of the contractual arrangements which existed between the parties. Reference is made to the various findings made by the Arbitrator concerning the nature of the relationship between the appellant, the deceased and the second respondent. It is put that the Arbitrator’s conclusion that there had been no change in the identity of the contracting parties at the time that the second respondent came into being was one open to the Arbitrator on the evidence and was a correct finding. Mrs Smith reviews the evidence relied upon by the Arbitrator, including the agreement between the deceased and Mr Watson concerning payment of overtime, and argues that the conclusion that there existed a contract of service was open on the evidence and that such conclusion was correct.

It is put that the Arbitrator’s alternative finding, namely that such a contract was in existence, which may be implied from the conduct of the parties and all surrounding circumstances, was both open on the evidence and a correct conclusion.

Mrs Smith further argues that the Arbitrator’s reasoning as expressed at [125] – [127] of reasons demonstrates no error in the approach to her determination as to the question whether the relationship between the appellant and the deceased was a contract of service.

The second respondent in written submissions on this appeal seeks to support the Arbitrator’s conclusions and determination however it is put that should there be a finding on this appeal that the deceased was not either a worker or a deemed worker of the appellant “…it does not follow that [the deceased] was an employee or deemed employee of the second respondent.”

The second respondent makes reference to the decision of Plexvon in support of the proposition that the Commission is required to look at the reality of the situation that existed between the parties to determine the nature of the contractual relationship that may exist between them. It is argued that the Arbitrator’s conclusions were available on the evidence and that such were correct.

It is further argued on behalf of the second respondent that the evidence concerning payment of director’s fees by the second respondent to the deceased, being the only evidence of payment from the second respondent, “…does not go to balancing the indicia in favour of there being a contract of employment between the deceased and the second respondent.”

DISCUSSION AND FINDINGS

The evidence establishes that the deceased commenced working at the business known as Amber Tiles Newcastle which was located at Kotara NSW on some unspecified date in the 1990s. It appears from the evidence of Mrs Smith that the deceased had earlier worked with an Amber Tiles outlet at Mayfield as a yardsman until its closure on a date which, again, was unspecified. Mrs Smith’s evidence is that the deceased was “then transferred to a sales position at Amber’s Kotara store.” Mrs Smith states that the deceased was invited “to become a partner of the franchise” approximately two years after commencing at Kotara. The extract from the records of ASIC tendered on behalf of the second respondent concerning historical details of the appellant company reveals that the deceased and Mrs Smith first acquired an interest as joint shareholders in the appellant company in December 1996. It may be inferred, and I so find, that the deceased commenced working at Amber Kotara on a date late in 1994.

The evidence of Mrs Smith is that, following the agreement to “become a partner” she and her late husband invested money in the business over the next three to four years ultimately acquiring a 30 per cent share of the business. It is again revealed in the ASCI historical extract that additional shares were acquired by the deceased and Mrs Smith on 31 October 1998, 31 July 1999, 31 August 2000 and 30 August 2001. As at the latter date the Smiths held 25 of the 100 issued ordinary shares of that company. That extract reveals that by September 2004 the Smiths were the holders of 30 such shares. At that time the balance of the shares were held by Harrlea Pty Ltd (50 shares) and Capember Pty Ltd (20 shares).

Mrs Smith’s evidence, which has not been challenged, was that the deceased “remained on wages until we had purchased a 20 percent share of the business”. The ASIC records indicate that the Smiths acquired a 20 percent holding on 31 August 2000. Mrs Smith stated in evidence that “From that point [the deceased] received a percentage of the store profits, corresponding to the percentage of your (sic) investment.”

The appellant company had been first registered on 13 June 1996. On that date Mr Bryan Vadas was appointed a director of the company. On 16 August 1996 the deceased and Mr Harrold Watson were each appointed directors of the company.

The only evidence as to the identity of the proprietor of the business trading at the Kotara address prior to registration of the appellant company is that of Mr Watson who, unhelpfully, identifies that entity as “Amber Holdings”. The evidence is that the deceased worked in that business “for wages” and I infer that the deceased was a worker in terms of the Acts and that his position with the business was that of yardsman/salesman. The evidence establishes that, notwithstanding the registration of the appellant company and its acquisition of the business, the deceased’s performance of his work continued in a seamless manner.

Mrs Smith, in her supplementary statement date 29 January 2009, states that – “When Phillip became the franchisee he had more input into the decisions made in the running of the business. He also had additional duties such as preparing the rosters and preparing payment of wages. Otherwise, his duties were very similar to before he was a franchisee.” It is reasonable to infer that Mrs Smith’s reference to the term “franchisee” is a reference to the status of her late husband upon first acquiring a joint shareholding in the appellant company in December 1996. As noted above the unchallenged evidence is that the deceased at that time “remained on wages”. The question as to whether the relationship between the deceased and the appellant at that time was one of worker and employer is addressed hereunder.

The fundamental issue for determination, which has been addressed by the Arbitrator following a very careful summary of the evidence, concerned the characterisation of the relationship between the deceased and the appellant company once the second respondent, Philmar, came into being. The evidence establishes that that company was first registered on 30 June 1997. The sole director of Philmar was the deceased whose appointment occurred on the same date. It is the appellant’s contention that, upon establishment of Philmar, the legal relations between the parties to this litigation fundamentally changed. The difficulty confronting the Arbitrator and the Commission on this appeal is that, whilst there is a vast amount of documentary material in evidence, the substance of that evidence lacks precision and the statements relied upon by each party fall short of directly addressing the real issues that are raised and which require resolution. This deficiency is best illustrated by the absence of any acknowledgement in the evidence of Mr Vadas and Mr Watson that there was an interval during which the deceased was engaged in work at the Amber franchise conducted by the appellant company of at least ten months duration before Philmar came into existence. The only evidence, as noted above, is that Mr Smith remained working at the franchise “on wages” and that such was the case until a change in remuneration, being a share of profits, which occurred in August 2000.

The Arbitrator’s approach to the matters raised for determination involved an analysis of the dealings between the parties with a view to establishing the existence or otherwise of contractual relationships. Her consideration of the evidence led her to make a number of preliminary findings which are summarised at [83]. Subject to noting that the 2005 financial report of the second respondent records a loss, I respectfully agree with the conclusions reached by the Arbitrator. They were as follows:

“I am satisfied that the evidence in this matter established that:
·The First Respondent applied for registration as a proprietary company on 13 June 1996.
·Bryan Vadas was appointed as a director of the First Respondent on 13 June 1996.
·The deceased was appointed a director of the First Respondent on 16 August 1996.
·Harold Watson was appointed as a director of the First Respondent on 16 August 1996.
·The deceased and the Applicant acquired a joint holding in the First Respondent in 1996.
·As at 20 November 2008 ASIC records showed current shareholdings in the First Respondent as held by Capember Pty Ltd (20), by Harrlae Pty Ltd (50) and by the deceased and the Applicant in a joint holding (30).
·The Second Respondent applied for registration as a proprietary company on 30 June 1997.
·The deceased was appointed a sole director of the Second Respondent on 30 June 1997 and was the only shareholder in the Second Respondent.
·At the time of deceased’s injury and death and for the year preceding his death the First Respondent, according to its records, paid $4,583.00 to the Second Respondent (identified as Philmar) each month, but the money was electronically transferred into the joint account of the deceased and Applicant. GST was paid on those consultancy fees.
·The Second Respondent had no bank account in its name and did not itself receive payments directly from the First Respondent, as the payments made by the First Respondent went into the joint account of the deceased and the Applicant.
·When the deceased worked hours/days which exceeded the total number of hours, based on 40 hours a week that he was contracted to do in a month, he worked those additional hours as an employee and was paid for those additional hours as an employee on an hourly rate under the PAYG system, with the First Respondent deducting tax.
·The only income from the Second Respondent reported in the tax return of the deceased for the year 2004-5 was $26,000 for director’s fees.
·The only income reported in the Second Respondent’s tax return for the year 2004-5 was $49,996.
·The Financial Report of the Second Respondent for the “Year ended 30 June 2005” reports income of $49,996 in consultancy fees and expenditure including director’s fees of $26,000.00. No wages were listed in the expenditure column.”

The evidence does not reveal the date upon which the appellant company commenced conduct of the business Amber Tiles Newcastle. The evidence of Mr Vadas and Mr Watson suggests that this occurred in about 1996. It seems reasonable to infer that the business was being conducted by the appellant by the time the deceased and Mr Watson were appointed as directors on 16 August of that year. I respectfully agree with the Arbitrator’s finding at [86] that the evidence supports the conclusion that a contract was entered into between the directors of the appellant and that company in respect of the provision of the directors’ labour or services to the appellant as “consultants”. With respect to the provision of the deceased’s labour or services at that time I conclude, as did the Arbitrator, that the agreement was between the deceased personally and the appellant company. The question as to whether such contract was one of service or for services as addressed below.

The dispute between the parties centres upon the question whether, upon registration of the second respondent, there was a change in the contractual relationship which had, until that time, been in place as between the deceased and the appellant company. I respectfully agree with the Arbitrator’s analysis when it was stated by her at [90] of reasons that it was “…necessary to consider whether and if so to what extent, there was really a change in the identity of the contracting parties…”

It is the appellant’s argument that the existence of Philmar, and that company’s interposition between the appellant and the deceased “…is the strongest indication against the relationship between the [appellant] and the deceased being construed as a contract of service.” It is implicit in that submission that the agreement in place concerning the provision of labour or services by the deceased was one between the appellant and Philmar. Reliance is placed upon the decision of the High Court in Andar in support of the proposition that “…Philmar properly conducted its relevant business affairs with legal force and effect through, its director a natural person, the deceased.”

In the course of resolving this issue the Arbitrator made reference to the decision of the Court of Appeal in Pitcher. In that matter there was documentary evidence that a wool grower (Langford) had assumed the role of employer of a gang of shearers usually employed by Pitcher and provided to Langford on a seasonal basis. The arrangement was made with the object of cost savings with respect to insurance premiums. The shearers and Langford signed a standard form of employment contract, the shearers were added to Langford’s insurance declaration and were paid directly by Langford. At least one of the shearers was described by Langford as his “employee”. The decision by the former Compensation Court of New South Wales that the shearers remained workers in the employ of Pitcher was upheld by the Court of Appeal. That conclusion was reached having regard to the reality of the situation. In the course of his judgment Kirby P observed (at 146):

“Notwithstanding the unusual or special arrangement which was made just prior to the shearing upon which the worker was engaged when he was injured, there were a number of features of his alleged ‘employment’ with Mr Langford which were unusual. They were features which indeed suggested the continuance of a relationship which had certainly pre-existed, between the worker and the Pitchers.”

His Honour proceeded to summarise those features referred to which included payment by Pitcher for “hand pieces” used by the worker, acceptance by the Pitchers of payment of an adjusted sum to the worker and the provision of rations for the worker. His Honour concluded that there was evidence to support the conclusion reached by the Compensation Court. The “reality of the situation” in the present case is that, whilst Philmar came into existence on 30 June 1997, there is no evidence of a written agreement between the appellant and Philmar concerning the provision of the services of the deceased as a consultant. There is some evidence that “invoices” were provided at some inexact time for some indeterminate period with respect to the provision of the services. No such invoices are in evidence and I am not, as the Arbitrator was not, persuaded that invoices were issued by the deceased or Philmar in respect of monthly consultancy fees in respect of the deceased’s services.

The Arbitrator, at [94] of reasons, makes reference to that evidence that may support the existence of an oral contract between the appellant and Philmar concerning provision of the deceased’s services. That evidence was noted by the Arbitrator as follows:

“Mr Watson confirmed that arrangements were made for the provision of services, but could not specify whether it was with the deceased or (Philmar). Mr Watson wrote: ‘I do not believe that there was any clear differentiation, as Phillip represented Philmar.’ Mr Vadas gave evidence that the deceased was contracted as a contractor under the second respondent, and “that was his usual way of contracting to the business.”

The evidence relied upon by the appellant in support of its contention that there existed a contract between the appellant and Philmar for the provision of services is summarised at [14] of written submissions on this appeal. Reliance was placed upon the evidence of Mr Vadas to be found at page 13 of the WorkCover interview conducted on 27 October 2006. That evidence, in part, was noted by the Arbitrator. In response to an enquiry during the course of that interview as to whether the deceased was an employee of the appellant on the day of the incident Mr Vadas stated – “Phillip Smith was contracted as a contractor under Philmar Investments Pty Limited, and that was his usual way of contracting to the business whenever he did days over and above the number of days that he was contracted to do in a month, he performed that role as an employee. So he hadn’t, he hadn’t performed that role as an employee for about three months prior to the accident.”

Mr Vadas proceeded to state that the deceased was contracted for “five days a week” and that he had done so “since 1996”.

It appears from her reasons that the Arbitrator was not assisted by the evidence of Mr Vadas when considering the existence or otherwise of contractual relations as suggested by him. The evidence when examined is a bare assertion of the existence of a contract and there is not to be found any detail of negotiations or other exchanges between the appellant and the deceased acting on behalf of the second respondent that would tend to point to the probability that there was a contract in place. The probative value of Mr Vadas’ evidence, such as it is, has to be assessed having regard to his assertion that the deceased had been “engaged at the contract site” since 1996. As highlighted by the Arbitrator in her reasons it is of significance that the second respondent did not come into being until July 1997.

The appellant relies upon the evidence of Mr Watson to be found in the WorkCover interview between the pages 10 – 12, at page 18 and at pages 20 and 21. It is to be noted that at page 10 Mr Watson was somewhat equivocal as to the existence of an employment contract between the deceased and the appellant company. It was in that interview that Mr Watson made reference to the submission of an invoice. Mr Watson stated that the “contractual arrangement” was “…basically just an understanding that the three of us had.” Mr Watson, as did Mr Vadas, suggested that the “arrangement” started “…about 96”.

Mr Watson, when questioned as to the identity of any employees of the appellant company, nominated at page 18 of the WorkCover interview five individuals, which group did not include the deceased. At page 20 of the interview Mr Watson states concerning his dealings with the deceased “…I let him basically do his own thing there ‘cause it was, I couldn’t really control him ‘cause he sort of, as a director of the business wanted to sort of be the boss with that sort of thing.” It is this evidence that the appellant relies upon in support of its contention that the deceased worked as a consultant not for the appellant but as an employee of the second respondent.

The appellant relies upon paragraphs 4 and 5 of Mr Vadas’ statement dated 13 January 2007. That evidence is similar to that which appears in the WorkCover interview and may be described as an assertion of the existence of an agreement between the deceased’s “personal company” (Philmar) and the appellant with respect to payment by Terra Firma to Philmar “…for the performance of [the deceased’s] normal duties and hours at Amber Newcastle…”. It was acknowledged by Mr Vadas that “…any time worked over and above the agreed hours was paid directly to Phillip by [the appellant] as an employee.” Mr Vadas said that, having regard to the time of the deceased’s injury “…he was working in the course of his normal duties at the time, it is clear to me that he was an employee of Philmar (the second respondent) at the time.”

The appellant further relied upon the evidence of Mr Watson to be found at [6] of his statement made on 14 June 2007. That is the evidence referred to by the Arbitrator as noted above at [32].

The appellant further relies upon the evidence of Mr Watson contained in his statement dated 3 February 2009 in particular that which is stated at [6]:

“The arrangement for paying directors was set up by Bryan Vadas. When I first joined the business we were paid a percentage of the store profit however this changed after some time and we were paid a fixed monthly amount. I can not recall how the amount of your (sic) pay was calculated. I was paid slightly more than Phillip as I was the Manager. Both Phillip and I set up family companies and were paid a ‘consultancy fee’ through our respective companies. The arrangement of being paid through family companies was part of the set up arrangements put into place by Bryan Vadas. I am not sure why he chose to set up arrangements in this way and to account for payments to us as ‘director’s fees’ rather than wages although I suspect it was to increase the ‘bottom line’ of the store.”

The appellant argues that the financial records in evidence establish that there was payment from the appellant to Philmar in respect of the contract concerning provision of the deceased’s services.

The arguments advanced by the appellant on this appeal are in a form similar to that which was put to the Arbitrator in argument at the hearing. At [95] of reasons the Arbitrator stated her view that she was “…not satisfied that there was really a change in the identity of the contracting party, nor am I satisfied that with the formation of the second respondent and commencement of payments in the name of the second respondent rather than the deceased, this converted the contract into a contract only between the first respondent and the second respondent, that is, into a contract into which the deceased was no longer a party.” The Arbitrator proceeded to state her reasons for so concluding and they appear between [95] and [104]. I respectfully agree with the Arbitrator’s reasoning as expressed in those paragraphs and with her conclusion. The Arbitrator made reference to the evidence of Mr Warden concerning the agreement between the deceased and Mr Watson relating to payment of overtime. The Arbitrator accepted the evidence of Mr Watson that the arrangement as to overtime was ongoing as at the date of the deceased’s death and that acceptance was made notwithstanding the evidence of Ms Staples. The Arbitrator noted that this matter of overtime was negotiated between the two directors, Mr Watson and the deceased, and proceeded to make the following observation with which I respectfully agree:

“…If in fact the only contracts at that time were between the first respondent and the family companies of the deceased and Mr Watson, one would have expected the family companies to be involved in those negotiations and the extra payments to have been made to the family companies. Separation of the payments in my view illustrates the artificiality of the arrangement.”

Whilst not expressly stated by the Arbitrator as demonstrating “artificiality”, reference is made in the course of her reasons to the appellant’s payment of the monthly consultancy fees by way of deposit into the account of the deceased and Mrs Smith. The Arbitrator earlier noted that the evidence was that the second respondent did not hold a banking account. The Arbitrator further observed that there was “…no actual payment to (the deceased) of any director’s fee by the second respondent…”.

The appellant submits that regard should be had to the evidence regarding the existence of a workers compensation policy of insurance issued by Allianz Workers Compensation (NSW) Ltd. The argument is advanced that “…as Philmar engaged no other employees the obvious inference is that the insurance was taken out to provide cover for the employment of the deceased.” The difficulty with such argument is that the existence of the policy is not evidence of any contract of service between Philmar and any employee. The inference that may be drawn, having regard to the evidence as a whole and in particular the financial records such as they are, of Philmar, is that it may have been intended to formalise contractual arrangement between the respective companies concerning the provision of the services of the deceased and that such intention was at the behest of Mr Vadas. Whatever the intention may have been there is no evidence that such arrangement was embarked upon nor, more importantly concluded by way of agreement. I have earlier indicated my agreement with the Arbitrator’s conclusion that there had been no change in the identities of the parties contracting with respect to the provision of the deceased’s services. The deceased was and remained a ‘working director’ employed by the appellant.

The Arbitrator, in the context of assessing “the reality of the relationship and arrangements between the deceased and the first respondent” stated at [103] and [104] of reasons:

“103. In my view, it is necessary to infer the continuing existence of the employment contract in order to give effect to the reality of the relationship and arrangements between the deceased and the First Respondent. Further, it could be seen as necessary to infer the existence of an employment contract in order to establish the enforceable obligations that one would expect to see in these circumstances. Before 30 June 1997, there were enforceable obligations between the deceased and the First Respondent. After that date it cannot be said that those obligations had disappeared. The setting up of the Second Respondent and payment of fees in the name of the Second Respondent, in my view, had not affected them. If the Second Respondent had for some reason ceased to function, that would not have brought the relationship between the deceased and the First Respondent to an end. Their mutual obligations to each other would have continued and the First Respondent would either have had to pay the deceased itself or make some other arrangement for payment.
104. The circumstances surrounding the formation of the contract should also be considered. The contract between the deceased and the First Respondent came into existence because he was employed by the business that the First Respondent took over in 1996 and because he was a director and shareholder in the First Respondent, not as a result of a successful tender to obtain the contract to provide consultancy services or as a result of advertising his services to the public in the ordinary course of carrying on a business.”

Whilst I respectfully agree generally with the matters as stated by the Arbitrator quoted immediately above I have reached the view that “payment of fees in the name of the second respondent” as evidenced by the notation of the word “Philmar” in bank statement and other financial records constitutes a fiction. The appellant paid the agreed monthly sum to the account held jointly by the deceased and Mrs Smith. They, not the second respondent, were the recipients of remuneration in respect of the work performed by the deceased. Had, as postulated by the Arbitrator, the second respondent ceased to exist for some reason there would be no need for any change in arrangements concerning payment. The suggestion in the evidence that payment had been made to the second respondent by the appellant is a fiction, as is the suggestion in the evidence that the deceased received director’s fees from the second respondent. These circumstances, in my view, add weight to the inference that the contractual outcome hoped for by arrangements put in train by Mr Vadas had never come to fruition.

The Arbitrator, at [105] of reasons determined it necessary to state:

“It I am wrong about there being no change in the identity of the contracting party, the next matter to consider is whether there was an implied contract between the deceased and the respondent.”

The Arbitrator proceeded to examine those authorities relevant to the matter in dispute concerning the existence or otherwise of an implied contract for the supply of services or labour (reasons [106] – [110]). The Arbitrator at [111] concluded that there was an implied contract between the deceased and the first respondent. Her reasons for so concluding are expressed between [112] and [118]. This finding, which the Arbitrator has reached by way of an alternative conclusion per chance she had erred in relation to her principal finding as to the nature of the relationship between the deceased and the appellant, has not been the subject of specific submissions by the appellant.

I have considered the Arbitrator’s reasons which led her to conclude that an implied contract had come into being and respectfully agree with her conclusions. As confirmed by the decision in Dacas v Brook Street Bureau (UK) Ltd [2004] EWCA (Civ) 217 (‘Brook Street Bureau’) a contract of service may be implied from the parties conduct and from the surrounding circumstances and from the work done. In the present matter the evidence affords a sound basis for argument that such a contract came into existence between the deceased and the appellant and remained on foot until the date of his death.

Contract for services or contract of service?

The Arbitrator addressed the question as to whether the contract between the appellant and the deceased was one of service or one for services between [119] and [128]. In the course of her reasons the Arbitrator cited a number of relevant authorities including Stevens v Brodribb Sawmilling Co. Pty Ltd (1985-1986) 160 CLR 16 (‘Stevens’); Australian AirExpress Pty Limited v Langford [2005] NSWCA 96 (‘Langford’) and Wesfarmers Federation Insurance Ltd v Stephen Wells trading as Wells Plumbing [2008] NSWCA 186 (‘Wesfarmers’). The Arbitrator proceeded to record her findings relevant to a determination of the nature of the contract. Those findings, which appear at [125] of reasons were as follows:

“I am satisfied that the evidence in this matter established that:
·The deceased’s duties with the First Respondent involved general management of the Newcastle store and sales duties and included stock movement, serving customers, marketing, banking and opening and closing the store.
·The deceased had performed these duties for the First Respondent since 1996.
·Mr Watson’s role was primarily the administrative side of the business and general management of the business.
·The deceased reported to Mr Watson but did not need instructions in relation to his work day to day.
·The deceased worked a 40 hour week based on 5 days of work per week from 8am to 5pm as set out in a roster.
·Since 2004 the deceased was paid for any extra hours of work performed for the First Respondent, such payments having PAYG tax installments deducted and payments made for superannuation.
·Wages for extra hours worked were paid to the joint account of the deceased and Applicant.
·The deceased wore an “Amber” uniform to work at the First Respondent’s premises every day.
·The First Respondent paid $4,583.00 as consultancy fees to the Second Respondent each month and that these fees were deposited into the joint account of the deceased and Applicant. PAYG tax installments were not deducted from these fees.
·The consultancy fees included a payment for GST.
·The deceased did not employ anyone or delegate the duties he performed for the First Respondent.
·The deceased took holidays and sick leave and was paid consultancy fees at the same rate during these periods.
·The deceased had to seek approval from Mr Watson in order to take any leave or holidays.

·The First Respondent provided equipment for the deceased to use in his work.
·The deceased drove his own vehicle.
·The Amber tiles signs were attached to the deceased’s vehicle.
·The deceased usually worked at the First Respondent’s place of business.
·The only fees paid to the Second Respondent were the fees paid by the First Respondent for the services of the deceased.
·Neither the Deceased nor the Second Respondent carried on a trade or business or enterprise.”

The summary of findings as appears above has not been the subject of any direct submission put on behalf of the appellant. As earlier noted the appellant’s challenge to the Arbitrator’s ultimate determination is founded upon the proposition that the only relevant contract entered into was one between the appellant and the second respondent which was said to concern the provision of consultancy services.

On this review I generally agree with the conclusions as summarised by the Arbitrator at [125]. I have earlier in these reasons (at [98]) expressed my view that the suggestion in the evidence that payments, being consultancy fees, were paid to the second respondent cannot be accepted. Mrs Smith in her statement dated 11 August 2008 gave the following evidence (at [19]):

“After we were married, Phillip and I opened a joint back [sic, bank] account in both our names. Neither Phillip nor I have individual bank accounts. The income from both our jobs went into the joint account and money was drawn from that account to pay all our expenses. We paid for all our expenses equally.”

I infer from the evidence of Mrs Smith that earnings of the deceased were at all relevant times paid directly into the joint account. That is the account held with the National Australia Bank numbered xxx451. Such direct payment, I infer, occurred both before and after the incorporation of the second respondent. The evidence does not establish the existence of any contractual relationship between the first and second respondents and, as earlier observed, any assertion that there has been payment of consultancy fees to the second respondent is fictitous. The only suggestion of any such payments is founded upon notations in records of the appellant where “Philmar” is noted. Other than the bare assertions concerning payment to the second respondent made by Mr Vadas and Mr Watson there is no evidence detailing agreement relating to such payments having been reached between the appellant and the deceased acting as a director or other representative of the second respondent. I have earlier observed that the entry concerning receipt of consultancy fees to be found in the second respondent’s annual return represents a fiction. It is my view that payments made into the joint account both before and after the registration of the second respondent were made by way of remuneration to the deceased for the work performed by him at the Amber Kotara premises.

It follows from my last observations that I respectfully disagree with the Arbitrator’s conclusions that “the first respondent paid $4,583.00 as consultancy fees to the second respondent each month…” and “ the only fees paid to the second respondent were the fees paid by the first respondent for the services of the deceased.” Whilst it is correct that there is evidence that the monthly sum paid into the joint account included an allowance in respect of GST and that such sum has apparently been taken into account in the second respondent’s Profit and Loss Statement (2005, stated income $49,996.00), it is significant, in my view, that there is no evidence concerning formal accounting with respect to a suggested GST amount by the second respondent.
Subject to the qualification expressed immediately above, I agree with those matters of fact determined and expressed by the Arbitrator at [125]. Those matters and her subsequent findings remain sound and logical and address those matters to which attention is drawn by the High Court of Australia in the course of its reasons expressed in Stevens. A determination as to whether a contract is one of service or for services requires not only an examination of the question of “control” (see Zuijs v Wirth Bros Pty Ltd (1955) 93 CLR 561 and Humberstone v Northern Timber Mills (1949) 79 CLR 389) but also an examination of the “indicia” which characterised the relationship as is expounded in Stevens. As was stated by Mason J at 24:

“But 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 merely as one of a number of indicia which must be considered in the determination of that question: Queensland Stations Pty Ltd v. Federal Commissioner of Taxation (33); Zuijs’ Case; Federal Commissioner of Taxation v. Barrett (34); Marshall v. Whittaker’s Building Supply Co. (35). 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 provision for holidays, the deduction of income tax and the delegation of work by the putative employee.”

The Arbitrator, at [126] of reasons, examines the evidence concerning the day-to-day relationship between Mr Watson and the deceased. I agree with the Arbitrator’s conclusion that Mr Watson exercised a “right of control” over the work activities of the deceased as there described.

In addition to the “control” by Mr Watson on behalf of the appellant I again agree with the Arbitrator’s conclusion that an examination of the indicia of the relationship between the deceased and the appellant establishes, on balance, that the contract is one of service and that the deceased must be taken to have been a “worker” within the meaning of the Acts at the date of his injury which resulted in his death. Having so concluded it is important to note that, having regard to the state of the evidence, I cannot agree with those matters as stated by the Arbitrator at [128]. The evidence does not support, in my view, a conclusion that the deceased’s services were provided to the appellant through the second respondent.

The Arbitrator proceeded to consider the question as to whether at the date of his death the deceased was a “deemed worker” of the appellant as provided by Clause 2 of Schedule 1 to the 1998 Act. That task was embarked upon by her in the interests of “completeness” and allowing for the possibility that she may have erred in her conclusion as to the existence of a contract of service. The Arbitrator’s consideration of this question is to be found between [130] and [138] of reasons.

Should I be in error in agreeing with the Arbitrator’s conclusion that at relevant times the deceased was a worker I consider it appropriate to briefly address those matters relevant to the operation of Clause 2 of the Schedule having regard to the facts as proven. The Arbitrator recites the provisions of Clause 2 of the Schedule in its form as amended effective 1 January 2006 and makes reference to the guiding principles as stated by the Court of Appeal in Scerri v Cahill and anor (1995) 14 NSWCCR 389 (‘Scerri’). Adopting what was stated in Scerri the Arbitrator summarised the matters requiring proof by an applicant who places reliance upon that provision as follows:

“(a)   that he was a party to a contract with the respondent to perform work; and
(b)   that work exceeds $10.00 in value; and
(c)   that the work is not work incidental to a trade or business regularly carried on by the applicant in his own name or under a business or firm name; and

(d) that the applicant has neither sublet the contract nor employed workers in the performance of it.”

The Arbitrator proceeds to cite relevant authority (at [133] – [136]). Subject to one matter which I note hereunder I respectfully agree with the Arbitrator’s reasoning as it appears at [137] and [138]. I conclude, as did the Arbitrator, that if the deceased was not a worker he was a deemed worker of the appellant by operation of the provisions of Schedule 1, Clause 2 to the 1998 Act. The only element in the Arbitrator’s reasoning with which I differ is to be found at [138] were reference is made to the “performance of [the deceased’s] consultancy work with the first respondent”. As I have earlier found the deceased provided his labour or services to the appellant and there has, on the evidence, been no proof of any arrangement between the deceased and the second respondent concerning the provision of “consultancy work”.

It follows that, given my findings concerning a suggested arrangement between the deceased and the second respondent, that I reject the appellant’s argument that there existed a contract of service between those two parties at the relevant time. The Arbitrator addressed this issue between [139] and [147] of reasons. The Arbitrator has considered relevant authority and the evidence before the Commission and concluded, as I have, that there was no contract of service between the deceased and the second respondent. Excluding those matters appearing at [145] relating to the suggested interposition of the second respondent and the suggested provision of “consultancy” services by the second respondent, I agree with the Arbitrator’s statement of principle and her analysis of the relevant evidence and her conclusions.

No challenge has been raised on this appeal to the Arbitrator’s findings with respect to the questions of dependency nor concerning her determination of quantum of entitlement. Given my conclusion, following a review on the merits, that the appellant has failed to establish error on the part of the Arbitrator concerning her finding that the deceased was at relevant times a worker employed by the appellant, the appeal must fail and the Arbitrator’s award is to be confirmed.

DECISION

Time to appeal is extended to 13 August 2009.

The Arbitrator’s orders contained in the Certificate of Determination dated 15 July 2009 are confirmed.

COSTS

The appellant is to pay the costs of this appeal of Mrs Smith and of the second respondent.

Kevin O’Grady
Deputy President
13 November 2009

I, MARIE JOHNS, CERTIFY THAT THIS IS A TRUE AND ACCURATE RECORD OF THE REASONS FOR DECISION OF KEVIN O’GRADY, DEPUTY PRESIDENT OF THE WORKERS COMPENSATION COMMISSION.

ASSOCIATE