Groavac v Pearce McMaugh Homes Pty Ltd and Anor Matter No 20557/97 [1998] NSWSC 66 (19 March 1998)

Last Updated: 8 April 1998

MICHAEL MOMIR GRAOVAC v PEARCE McMAUGH HOMES PTY LTD AND ANOR

20557/97

19 March 1998

Howie AJ

The Supreme Court of New South Wales Common Law Division

JUDGMENT

HIS HONOUR: The plaintiff has brought an action for damages for personal injuries suffered by him as a result of an accident which occurred at a building site where he was working. The issue which I am to determine is a very limited one, although no doubt an important one in the resolution of the plaintiff's action. The parties have requested that under Part 31 rule 2 of the Supreme Court Rules I determine, as a separate and distinct issue, whether or not the plaintiff was employed by the first defendant company at the time of the incident which gives rise to the plaintiff's action. This question is to be determined according to common law principles and it was ultimately accepted that the provisions of the Workers Compensation Act were not applicable.

The first defendant made no appearance before me because shortly prior to the hearing it had been de-registered. The legal representative of the first defendant gave notice of ceasing to act the day before the proceedings commenced before me. However, by notice of motion filed in court without objection, the two cross-defendants to the action, who have appeared and are legally represented, were added as defendants. The plaintiff, through his counsel Mr Toomey QC with Mr Dooley, has argued that he was in the employ of the first defendant at the time he was injured. The contradictor in the proceedings before me was the second defendant, an insurance company. On its behalf Mr Finnane QC has contended that the plaintiff was working on the site as an independent contractor engaged by the defendant. The third defendant, also an insurance company, has argued in support of the plaintiff on the issue with which I am concerned.

The resolution of this issue is not in this case achieved simply by the proper characterisation of the relationship between the plaintiff and the defendant, however difficult such a characterisation may be. It is necessary that I resolve issues of fact which have arisen on the evidence before me. The evidence relied upon by the plaintiff was oral evidence by him and various documents which came into being before and after his accident. The second defendant similarly relied upon the oral evidence of a single witness, Mr McMaugh, and a number of documents. Mr McMaugh was one of the principals in the first defendant company, and the person responsible for engaging the plaintiff to do work for the defendant over a number of years. Although there was a large area of common ground within the evidence, there were also substantial conflicts between the two witnesses which I must of necessity resolve.

The plaintiff was a carpenter and joiner by trade. In carrying out that trade over the relevant period he operated through a partnership with his wife under the name of M & S Graovac. The partnership lodged income tax returns in relation to the income derived through the plaintiff carrying out his trade. The plaintiff has two sons both of whom have followed his trade and at various times the plaintiff worked with one or other of them. One son worked occasionally with the plaintiff in the course of an apprenticeship and later as a qualified tradesman. The defendant company was involved principally in the construction of homes. Mr McMaugh, a builder, was to all intents and purposes the alter ego of the company in so far as obtaining, managing and supervising building work for the company was concerned. He had been involved in the building trade since 1966 and the first defendant was the second building company in which he was involved as a principal. It was common ground that almost continuously from 1990, apart from a period of five or six months in 1992, the plaintiff was involved in doing work for Mr McMaugh's companies. That work was not exclusive and he at times worked for other persons including his elder son.

The plaintiff was chiefly engaged by McMaugh to carry out carpentry work in the construction of homes. However, on many occasions he did general work around the building sites not necessarily involving carpentry. It is clear that the plaintiff was used by Mr McMaugh as a general hand and at times was asked by him either to help other tradesmen or to perform odd jobs such as fencing, tiling, and putting the final finishing touches to the house in course of construction after the other tradesmen had finished. There is no dispute that in relation to his construction work the plaintiff was normally paid on a piecework basis calculated on a pre-determined square-metre rate. Payments for this work were made as the work reached certain pre-determined stages. Nor is there any dispute that as to the other work which he did, being other than carpentry work in the construction of houses, he was paid at a rate of $20 per hour. The arrangement between the plaintiff and Mr McMaugh as to the work to be carried out by the plaintiff and the rate of payment was by an informal oral agreement between them.

In evidence is an invoice book maintained by the plaintiff and made up of carbon copies of invoices which he had sent to Mr McMaugh in the later period of their working relationship. This book has been supplemented by the tender of a large number of photostat copies of invoices prepared by the plaintiff over the same period. This material, which covers the period from May 1990 to April 1995, contains many examples of invoices for sums claimed by the plaintiff and determined at a square-metre rate, being either a progress payment or the final payment for carpentry work in the construction of houses at different sites. It also includes examples of invoices for amounts calculated at an hourly or daily rate where the particular work carried out by the plaintiff is itemised together with the number of hours it took to complete the task. There are also a small number of invoices containing claims calculated by reference to both the square-metre and the hourly rates depending upon the nature of the work for which payment was being sought. There are also three invoices in 1993 where claims were made for both the plaintiff and his son Mark. On all of the copies of invoices a sum equal to 20% of the amount claimed has been deducted by Mr McMaugh prior to payment being made to the plaintiff. This sum represents the prescribed payment for taxation. The evidence was that payment to the plaintiff was invariably made by a cheque drawn by Mr McMaugh made out to M & S Graovac.

It appears that the general arrangement between the plaintiff and Mr McMaugh from about the middle of 1992 was that in respect of the construction of a basic house payment for the plaintiff's carpentry work was calculated on a square metre basis after consideration of the plan of the house to be built. Any work additional to that arising from the construction work on the plan would be charged at the hourly rate, regardless of the nature of the work. The plaintiff was used by Mr McMaugh frequently to assist other tradesmen and to do minor jobs which arose during the course of the construction of a particular house. In early 1994 building work became scarce and in order to keep the plaintiff working Mr McMaugh took on minor jobs, such as insurance repairs. The plaintiff was paid to do this work at the rate of $20 an hour. There is little doubt that Mr McMaugh was keen to keep the plaintiff as part of a team of reliable tradesmen which he had established and which he wished to have available should he obtain more building work. As home construction work became harder to find Mr McMaugh used the plaintiff increasingly in other types of work

The plaintiff's case is that the general arrangement under which he performed worked for Mr McMaugh changed in July 1994 after Mr McMaugh suffered an injury as a result of a work-site accident. This accident occurred shortly before they were to commence work on a project at Holbrook. The plaintiff's evidence was that he visited Mr McMaugh in hospital and was asked by him to take on a supervisory role at the site. He says that it was agreed he would be paid at the rate of $20 an hour rather than the normal square-metre rate. The plaintiff said that under this arrangement he was to purchase building materials on the company's account and could use Mr McMaugh's utility which would be supplied with petrol.

According to the plaintiff the Holbrook job finished in March 1995 and the plaintiff was then involved at another site called Dick Road. At this time there was a further change in the work arrangements because Mr McMaugh decided to "go back on the tools", that is he was going to take an active role in the actual construction of the house being built at that site. The plaintiff's evidence was that because of the involvement of Mr McMaugh in the building work, it was decided to continue the payment to the plaintiff at the rate of $20 per hour. It was at the Dick Road site that the appellant suffered his injuries.

The effect of the plaintiff's evidence is that from the time of Mr McMaugh's accident in 1994, the relationship between him and Mr McMaugh changed and the plaintiff became an employee of the first defendant company. He says that from that time he was bound to follow Mr McMaugh's instructions as to the way he should carry out his work. He maintains also that Mr McMaugh determined what work he would perform and his hours of work. He says further that at the Holbrook job and thereafter he was paid at the rate of $20 per hour for all his work regardless of the nature. Finally the plaintiff gave evidence that when in April 1995 he went to assist his son George at another work site, Mr McMaugh was very annoyed and threatened to sacked him for "undermining his business".

However, Mr McMaugh's evidence was to the effect that there was no change in the relationship he had with the plaintiff at any time up until the plaintiff's accident. He maintained that the plaintiff was always paid at the square-metre rate by way of progress payments for carpentry work in the construction of houses and $20 per hour for additional work not included in the construction plan. According to Mr McMaugh the only change in the work practice was that after January 1994, because of a down-turn in the building trade, Mr McMaugh was forced to take on smaller jobs, usually for insurance companies. The plaintiff was involved in this work and paid at the rate of $20 per hour as invoiced. Mr McMaugh's evidence was that the plaintiff determined both the number of hours he would work and the hours in which he would work. He said that he generally allowed the plaintiff to perform his work as the plaintiff saw fit provided that it met the standards required.

Mr McMaugh stated that although there was an arrangement between him and the plaintiff as to looking after the work site after Mr McMaugh had broken his leg, that only related to the job which was in progress at the time and this was not the Holbrook job. According to Mr McMaugh, the plaintiff never held a supervisory role. He said that he was only off the site for 7 days and that there was no change in the method by which the plaintiff was paid for his work as a result of this arrangement. He said the next job after he was injured was at Randall's at Seville Road and on that job the plaintiff was paid at a square-metre rate and was paid only $20 an hour for additional work in the final fit out of the property. Although he agreed that the plaintiff was paid at $20 an hour for the Holbrook job, according to Mr McMaugh this was because of the unusual nature of the work at that site, which was not construction but renovation. His evidence was that this rate was agreed to by the plaintiff because he was unable to give a quote in square-metre terms. According to Mr McMaugh the rate of pay was the only significant change in his relationship with the plaintiff on this job.

As to the Dick Road job, that being the site where the plaintiff suffered his injuries, Mr McMaugh's evidence was that the plaintiff was to be paid generally at a square-metre rate. According to him the only difference about that job from previous construction jobs was that, he (Mr McMaugh) was going to actually work in the site on the construction of the house being built. As a result of this involvement, he says the plaintiff agreed to make an allowance for the work actually completed by Mr McMaugh so that there would be a reduction in the payment made to the plaintiff. However he steadfastly maintained there was no change to the rate at which the plaintiff was to be paid being the usual square-metre rate.

In support of these two competing versions of the plaintiff's relationship with Mr McMaugh at the time of the plaintiff's injuries, the parties relied upon particular invoices sent by the plaintiff to Mr McMaugh. As I have already indicated, the invoices normally stated whether the amount claimed was a progress payment or whether it was for hours worked in completion of specific, itemised tasks. There were two invoices in particular which became the subject of much evidence and debate. The first is invoice No 69 dated 10 April 1995. This invoice related to the job at Dick Road at a time when, according to the plaintiff, he was being paid at an hourly rate. The amount claimed is $550. Written next to that amount, although not in the handwriting of the plaintiff, are the words "Progress for frame windows up to above date". The plaintiff denied that the sum was calculated at a square-metre rate even though it was put to him that the sum of $550 was the equivalent of 27 and a half hours work at a rate of $20 per hour. He stated that he had made a mistake in some way when submitting that invoice.

The second invoice which was the subject of particular attention was invoice No 70 dated 26 April 1995. This invoice was prepared after the plaintiff had suffered his injuries at the Dick Road site and when he was no longer able to work. It was the last invoice he submitted to Mr McMaugh. It is a claim for a sum of $830. Written alongside that sum, in the plaintiff's hand writing, are the words "FOR FRAME 411/2" followed by a symbol which the plaintiff used to indicate "hours". Mr McMaugh was cross-examined at some length about this invoice and why he had paid the amount claimed, if the arrangement was, as he contended, that the plaintiff was to be paid at the square-metre-rate for Dick Road. Mr McMaugh gave what appeared to me to be unsatisfactory and to some degree inconsistent explanations for paying this invoice. At first he stated that the invoice was paid because, by the time the invoice was presented to him, he was aware that there was an unjustified claim being made for workers' compensation by the plaintiff and he did not wish to become involved in any argument about the matter. He suggested, somewhat darkly, that the plaintiff's daughter, who worked for the company, had misrepresented the dates on which the invoice had been received by the company in order to support her father's claim. The invoice has a stamp which shows it was received on 28 April 1995. The invoice does indicate that the amount claimed was paid on 27 April 1995 although a cheque was in fact drawn to pay the claim on 23 May 1995. Mr McMaugh later said he paid the claim because he liked the plaintiff.

I think that it is more likely that the arrangement for payment in respect of Dick Road was at the rate of $20 per hour as the plaintiff says it was. This conclusion is not based upon invoice No. 70 alone. I was more impressed generally by the plaintiff as a witness than I was by Mr McMaugh. Also I have considerable difficulty in accepting Mr McMaugh's account of the arrangement he had with the plaintiff to take into account the fact that he was also working on the site at Dick Road. On Mr McMaugh's version, payment was to be made to the plaintiff on a square-metre rate but an allowance was made by the plaintiff for Mr McMaugh's contribution according to an estimate of the hours worked by Mr McMaugh. This was an informal "gentleman's agreement" and no record was kept of the actual hours worked by Mr McMaugh. I find such an arrangement to be highly unlikely. The working relationship between the plaintiff and Mr McMaugh, although lengthy, had not been without its problems. I do not believe that they would have left this matter to be determined without any record at all being kept as to the time Mr McMaugh had spent on the job, particularly as Mr McMaugh's participation varied from day to day.

I conclude that the arrangement at Dick Road was that the appellant would be paid at the rate of $20 per hour regardless of the nature of his work.. That arrangement provides for the fact that Mr McMaugh was also working on the site and is consistent with the approach adopted by them in respect of the building of Mr McMaugh's own home on which they both worked. I accept that it would have been a more costly exercise to pay at an hourly rate than a square-metre rate, but this was offset by the fact that Mr McMaugh himself was working as a builder.

The determination of this issue of fact does not itself lead to a conclusion that the plaintiff was working at Dick Road as an employee rather than as an independent contractor, even though the payment at an hourly rate is not consistent with the plaintiff working as an employee rather than as an independent contractor. It is clear that no single factor will determine that question but the court is to have regard to all of the circumstances surrounding the relationship between the persons involved including (but not limited to) the ability of the principal to control the person doing the work, the way in which the work is remunerated. the provision and maintenance of equipment, the obligation to work, the determination of hours of work, the provision of holidays, the arrangements in regard to taxation and the delegation of work: Stevens v Brodribb Sawmilling Co Pty Limited [1986] HCA 1; (1986) 160 CLR 16 per Mason J at 24, 29, per Wilson and Dawson JJ at 35-36; Connelly v Wells (1994) 10 NSWCCR 396 per Gleeson CJ at 398, per Kirby P at 408-410, per Clarke JA at 424.

As in many cases, or at least those which come before a court for a determination, there are competing indicia as to the nature of the relationship that existed between Mr McMaugh and the plaintiff at the time of the plaintiff's accident. I must consider all the facts which I find proved and then determine the essential relationship between the plaintiff and Mr McMaugh. There is no mechanical application of a test that can be applied and little assistance can be gleaned from other cases where a particular factual conclusion has been made by a court on the evidence before it. The plaintiff has relied in particular upon the decision in Articulate Restoration v Crawford (1994) 10 NSWCCR 751 and submitted that the facts in this case indicate more strongly a relationship of employment than did the facts in that case. But I must form my own judgment on the facts before me and any attempt to determine the issue by a comparison of the facts in this case with those in decided cases seems to me to be a perilous and inappropriate way to proceed.

There is one matter which does not seem to me to indicate one way or another how the relationship should be characterised. This is the fact that the plaintiff operated through a partnership with his wife. Of course in some cases the fact that the worker is part of a company or a business not involving the principal may be an indication that he or she is not an employee. However, the evidence was that this was a scheme for taxation purposes only and was a practice carried on by a large percentage of persons employed in the building industry. It was put by Mr Finnane QC that the plaintiff was in effect stopped from asserting that his relationship with Mr McMaugh was a personal one because he chose to operate as a member of a partnership. I do not accept that submission in relation to the matter before me although in other cases it may be a relevant consideration, cf Vabu Pty Limited v Commissioner of Taxation (CA(NSW), 6 September 1996, unreported) per Meagher JA at 4. I believe I am entitled to look at the real situation behind the facade created for the financial benefits which the plaintiff might have derived from such a scheme.

There seems to me to be little doubt that at the outset of the working relationship between the plaintiff and Mr McMaugh the plaintiff was an independent contractor working for Mr McMaugh on a job by job basis. But I think that the situation started to gradually change as the plaintiff was used more and more by Mr McMaugh to do general work in addition to his contract work as a carpenter. Up until 1993 there are only two occasions where the plaintiff claimed payment at an hourly rate and both of those are in connection with carpentry work additional to that in relation to the construction of a house. But from the middle of 1993 there are more and more invoices for work claimed at a daily or hourly rate and fewer claims on a progress payment basis. This of course accords with the evidence that there was less and less construction work available and Mr McMaugh turned to other work. But it indicates what I perceive to be the changing nature of the relationship between the plaintiff and Mr McMaugh. The fact that this change was a result of the economic climate and the scarcity of construction work does not seem to me to reflect on the nature of the relationship but merely explains why the relationship may have changed over this period of time.

I have no doubt that over the years they worked together, Mr McMaugh came to see the plaintiff not only as a dependable tradesman but also as an honest, diligent and valuable worker who could be relied upon as a general hand about the construction site. He was used by Mr McMaugh in different ways: to help other contractors when necessary; to perform specific tasks during the course of the construction of a dwelling house whether or not that type of work fell within his general trade as carpenter and joiner; to carry out jobs unconnected with house construction; and, on one occasion while Mr McMaugh was injured, to look after the building site. Although Mr McMaugh denied that he saw the plaintiff as "his man", I think that this is an apt description of how ultimately he came to view their relationship. The independence, which the plaintiff enjoyed initially, evaporated over time with a change in the nature of the work available. The result was that at the Dick Road site, where the plaintiff was injured, the plaintiff was working with Mr McMaugh virtually as his off-sider.

Because on my view of the facts there was over time a marked change in the relationship between Mr McMaugh and the plaintiff, it can be misleading to consider matters early in the relationship as showing what the relationship was at the time the plaintiff was injured. Also some aspects of their relationship continued notwithstanding that there was a fundamental change in that relationship and, in my view, they do not properly indicate the nature of the relationship as it finally existed. So for example, the fact that Mr McMaugh continued to take tax out of the payments made by him at the prescribed payment rate does not have the same force that it may have in another case. In my view the situation was that, even though the actual working relationship between the two men had changed, the method by which the plaintiff was paid continued unaltered simply because that is how it had always been done. However, on my finding of facts, the manner in which payment was calculated did alter and this was a reflection of the change in the nature of their relationship from principal and contractor to employer and employee. Similarly the fact that the plaintiff used his own vehicle and his own equipment also lacks the significance in this case that it may have had in another case.

As I have already indicated, I believe that the nature of the relationship between the plaintiff and Mr McMaugh started to change as construction work became increasingly difficult to find and as Mr McMaugh used the plaintiff for non-building work such as insurance jobs. Although this is explicable on the basis that Mr McMaugh did not want to lose the services of the plaintiff as a contractor, in my view it blurred their once clear relationship of principal and contractor. The nature of the work at the Holbrook site contributed to the change in their working relationship. That was an unusual job in that it was a renovation and it was the first time that the plaintiff was to be paid solely by an hourly rate. On this job the plaintiff starts to look more like an employee: he has the use of the company utility and is able to purchase building materials on the company account. This may have made good sense from a practical point of view because of the distance of the job from the base in Albury, but I think it was significant in what I perceive to be a movement from principal and contractor to employer and employee.

Any doubt that there was a change in the relationship between the two men is dispelled by the time the Dick Road job commences in March 1995. Mr McMaugh is now actively engaged in construction with the plaintiff and is taking part in the very work the plaintiff would normally have performed by himself. The plaintiff is now paid hourly because he is no longer solely and independently responsible for the carpentry work in the construction of the house. A conflict arises from the fact that the appellant leaves the site for a few days in April to assist his son and Mr McMaugh believes he is being disloyal and threatens to sack him. Significantly Mr McMaugh actually exercises more control over the way the work is carried out at this site than he has done on prior occasions.

The fact that one person has the ability to exercise control over another in the manner in which work is carried out is a very significant matter in the characterisation of a work relationship although it does not determine how that relationship should be characterised: Stevens v Brodribb Sawmilling Co Pty Limited at 29 per Mason J, 36-37 per Wilson and Dawson JJ. Considerable attention was paid to the matter in this case. The fact that a person requires that a certain standard be achieved in the carrying out of the work or that a particular result should be accomplished would not normally amount to such control as to indicate that the person is an employer rather than a principal. At the initial phase of the relationship between the plaintiff and Mr McMaugh this was the only control Mr McMaugh exercised, or sought to exercise, over the plaintiff's work. But I perceive that this changed and, certainly by the time they worked together at Dick Road, Mr McMaugh was actually directing the plaintiff in the manner in which they would carry out their work together. There is evidence of a dispute between them at that site as to how the frame should be set on the slab. Mr McMaugh's view prevailed.

It also seems to me to be significant that on this site a problem arose as to the absence of the plaintiff from that site while he was helping one of his sons at Beechworth. There are conflicting accounts as to this matter but I tend to accept the version of the plaintiff. The plaintiff, use to his independence, left the site to work with his son for a few days, but Mr McMaugh was incensed by what he saw as disloyalty and threatened to sack him. There was an earlier incident in January of the same year in relation to the Holbrook job where Mr McMaugh was annoyed that the plaintiff had left the site and sought out the plaintiff to require him to return. Again these incidents seems to me to be indicative of a changed relationship where the plaintiff was considered by Mr McMaugh to be under his control and part of his organisation.

I accept that at the time of the plaintiff's accident there are a number of matters which would on their face indicate that there was a contract for services rather than a contract of service. These include: the plaintiff received no holiday pay, sick pay or annual leave; he supplied his own tools and some equipment; and the deduction of tax under the prescribed payment scheme. But as I have already indicated, these are, in my view, the remnants of the relationship as it started out and they remained notwithstanding a clear change in the actual working relationship. Similarly the fact that Mr McMaugh described the plaintiff as a contractor in the report of the plaintiff's injury to his insurance company does not represent the true situation. He also stated in that report that the plaintiff was a permanent worker, rather than part-time or casual, and this seems to me to be more significant. But as was made clear by the Chief Justice in Connelly v Wells, above, at 398-399, the view of the parties as to the legal characterisation of their relationship may not be particularly helpful to the task facing the court.

On behalf of the defendant it was submitted that the plaintiff had employed his son, Mark, from time to time and this was indicative of the fact that he was not an employee. It seems to me that there are two answers to that submission. The occasions when this occurred were well before the Holbrook job. Further, the claims in the invoices for work by the son were set out as separate and discrete claims from those of the plaintiff and were calculated on an hourly basis per day worked. Because the amounts claimed by the plaintiff and his son were paid by a single cheque to M & S Graovac in his tax returns, the plaintiff indicated the amount received by his son as wages paid. I do not think that it would be accurate to conclude that the plaintiff or the partnership was employing the son to carry out work for Mr McMaugh.

I am of the opinion that at the time that the plaintiff was injured he was an employee of the second defendant and I determine the issue before me accordingly. The costs of this proceeding are to be costs in the cause.