MAFULU PTY LIMITED v MATHER SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL KIRBY P, SAMUELS and MAHONEY JJA 13 December 1988, 13 December 1988 [1988] NSWCA 87 COUNSEL: WORKERS' COMPENSATION — appeal — question of law — stringency of requirement — appeal from Compensation Commissioner (T Reynolds) to the Compensation Court (McGrath J) — company director — whether a worker — whether evidence available to sustain finding that he was — establishment of company payments for director's services paid into company's bank account — director does physical work including shearing held: The evidence of a conversation between family directors and other evidence at the trial was sufficient, if accepted, to sustain the award. Catherine Lee v Lee's Air Farming Ltd [1961] AC 12 applied. APPEAL — question of law — stringency of requirement — Azzopardi v Tasman UEB Industries Limited (1985) 4 NSWLR 139; Soulemezis v Dudley (Holdings) Pty Ltd (1987) 10 NSWLR 247 and Warley Pty Ltd v Adco Constructions Pty Ltd (unreported, CA, 30 November 1988; (1988) NSWJB 212 applied — application to re-argue principle in Azzopardi refused. LAW REFORM — appeal — question of law — observations by Kirby P and Samuels JA concerning the stringency of the principle in Azzopardi v Tasman UEB Industries Limited (1985) 4 NSWLR 139 observations by Samuels JA on the possible need to consider the principle where cases are determined on very flimsy facts. LAW REFORM — workers' compensation — appeal — second appeal — appeal from Compensation Commissioner to Compensation Court on point of law fails — further appeal on a suggested point of law to the Court of Appeal — suggestion (by Kirby P) that leave of the Court of Appeal for second appeal should be required. WORDS AND PHRASES — "deemed". Compensation Court Act 1984, s32. Workers' Compensation Act 1926, s42Q. ORDERS Appeal dismissed with costs. Kirby P This appeal from his Honour, Judge McGrath, Chief Judge of the Compensation Court of New South Wales, is the second appeal in these proceedings. Judge McGrath's decision was given in an appeal from Commissioner Reynolds, a Compensation Commissioner. His Honour heard the appeal pursuant to s42Q of the Workers' Compensation Act, The Commissioner had entered an award in favour of the respondent, the alleged worker, and ordered the appellant, the alleged employer, to pay him compensation. Judge McGrath refused to disturb that award, being of the opinion that no relevant question of law was raised by the appeal, nor any other reason in point of law made out to warrant his disturbance of the award. The stringent requirement of Azzopardi: Appeals lie from an award of a Judge of the Compensation Court to this Court only on points of law. See the Compensation Court Act 1984 s32. The appellant has pressed upon us error of law in the approach which Judge McGrath took to 2 UNREPORTED JUDGMENTS the appellate function which he had to discharge. Perhaps it would be desirable to provide that the leave of this Court was necessary where a second level appeal exists as here. Such a requirement exists in other cases of second appeals. However that may be, this appeal is before us as of right. No leave is required. The dispute below concerned principally - and I put the matter neutrally - whether the Commissioner had erred in holding that the respondent was a worker employed under a contract of service with the appellant. Unless the respondent could prove that such a contract of service existed - the onus being on him - he would fail to establish the prerequisite necessary to attract, the benefits provided by the Workers' Compensation Act. He would not be a "worker" within the Act. He would thus not be entitled to its protection. The stringency of the provision limiting appeals on questions of law has been emphasised in many cases in this Court. The most recent cases include Azzopardi v Tasman UEB Industries Ltd (1985) 4 NSWLR 247, and Warley Pty Ltd v ADCO Constructions Pty Ltd, unreported, Court of Appeal, 30 November 1988, (1988) NSWJB 212. In Warley an application was made to re-argue the principle in Azzopardi. However, the application was rejected by the majority of the Court (Hope and McHugh JJA). A similar application was made in the present case. But as no new ground was advanced and as it was made belatedly and formally it is appropriate, in refusing it, to note it and say no more about it. The holding in Azzopardi binds this Court. Nevertheless, the principle stated in Azzopardi acknowledged that there are (relevantly) two bases upon which a decision such as that of the Compensation Court may be challenged. One is that there was no evidence at all to support a finding of fact made. The other is that the fact in question was "necessarily within or outside a statutory description and a contrary decision had been made." See The Australian Gas Light Company v The Valuer-General (1940) 40 SR (NSW) 126 at 138 and Hope v The Council of the City of Bathurst (1980) 144 CLR 1 at 7. Narrowing of the issues for appeal In the present case the appellant invoked both of these bases to challenge Judge McGrath's conclusion. In its submission there was no basis at all in the evidence to sustain the conclusion reached by his Honour any more than that of the Commissioner. Alternatively, it was claimed his Honour's decision, like that of the Commissioner, necessarily involved a finding of fact which betrayed, in the application of the law, a misunderstanding of the applicable statutory question, namely, the definition of "worker" under the Workers' Compensation Act 1926. The case is one involving a claim by the respondent for compensation benefits for a closed period of total incapacity. The claim arises out of an alleged cerebral vascular accident which, in turn, was said to have arisen out of or in the course of the respondent's employment with the appellant. The alleged incident occurred on 2 November 1983. The respondent was off work from that date until 9 April 1984. That was the period of his claim. Before the Commissioner, the period of incapacity was not in dispute. What was disputed was (in essence) whether the respondent was a "worker" of the appellant and whether the cardiovascular accident was an "injury" within the meaning of the Act, arising out of or in the course of that employment, or otherwise compensable. URJ MAFULU PTY LIMITED v MATHER (Kirby P) 3 The second ground of dispute was vigorously contested before Judge McGrath. It was alleged there was no evidence to sustain the Commissioner's conclusion that trauma, suffered by the respondent from marking lambs, had materially aggravated hypertension and precipitated the cardiovascular accident. However, that challenge has not been pressed before us. It was not alleged that Judge McGrath had erred in law in relation to this question. It can therefore be disregarded. It is in this way that the appeal before this Court is confined to a narrower question. This is whether there was evidence to support the Commissioner's conclusion that the respondent was a "worker" or whether the Commissioner erred in his application to the facts found of the provisions of the statute. At the outset it is appropriate to say that Judge McGrath appears to have approached the task in hand in the correct way. He reminded himself that appeals to him from the Commissioner lay on a point of law only. Decisions on the facts were for the Commissioner. His own opinion on the facts was irrelevant. So was his opinion about the weight of the evidence, so long as some evidence existed, however slight, which would sustain the conclusion reached by the Commissioner. Such evidence would need to address itself in a relevant way to the applicable statutory provision. However, so long as it did, the evaluation of and conclusions upon the evidence were for Commissioner Reynolds; not for his Honour. In his stated approach to his functions, Judge McGrath's analysis was, in my view, impeccable. As his Honour indicated, the evidence in the case was somewhat sparse. Furthermore, the transcript of the evidence before the Commissioner was not an official one. It is in some ways defective. It omits relevant portions of testimony. The "worker" of a new family company The respondent's case was that he was an employee of a family company and that he was employed by it under a contract of service which made him a "worker" for the purposes of the Act. The respondent gave evidence before the Commissioner that for some time prior to 1983 he and his wife were shearing contractors. They carried on their business as such in their own names, apparently in a form of partnership. At that time the respondent would not have been a "worker" within the meaning of the Act. He could not have been a "worker" of himself. He did not claim to be a "worker" of his wife. However, at a time before 1983 - which is not precisely identified in the evidence - the respondent took certain accounting advice. Following that advice, which necessarily was not detailed in evidence, the appellant company was formed on the initiative of the respondent. The evidence about the arrangements leading to, and immediately following, this step is to be found in the following transcript record: [Don't say] what the accountant said. The question wants a yes or no answer, did you get advice? A. Yes. Q. Did you accept that advice? A. I did. Q. Did you and your wife continue to act on that advice? A. We did. Q. And were you the only directors of the company at that time? A. I think my other sons might have been, Robert and John, the two eldest fellows. Q. Were they there at the same time? A. No, they weren't. Q. Did you discuss that with them? A. I did. Q. And did they agree to act on that way? Objection... act on that way... what they thought and what they... it goes further than that. 4 UNREPORTED JUDGMENTS Q. Did you ever have any strictly formal meetings of directors of the company in which formal motions were passed, minutes were prepared and recorded or otherwise? A. No, we didn't. Q. Did you have directors of the company? A. Yes. Q. And from time to time did directors of the company meet? A. Yes. Q. At the outset was there discussion between you, your wife and your two sons all as directors of the company as to whether or not you were to be employees of the company? A. There was. Q. And what was decided? A. That my wife and myself, we run the company and that we were deemed as employees. Q. And did you continue to act on that basis throughout? A. We have. Q. Now from year to year did you keep wages books in respect of work on the shearing? A. At all times. Q. And did you deduct in respect of that taxation in respect of people who worked at the shearing other than yourself? A. I did. Q. With regards yourself was that left until the end of the year to be adjusted by the accountant according to the overall earnings of the business from both shearing and the store? A. It was. Q. And was your own taxation then adjusted according to the return as prepared for you by your accountant? A. Yes. Ignorance of the intricacies of company law In cross-examination the respondent showed a certain ignorance of the niceties of company law, not uncommon in the community and sometimes even evident in the legal profession. He appeared to be quite unaware of the brilliant development of English law, which we have copied in Australia, by which the corporation secures a legal personality separate from the corporators. See Aron Salomon (Pauper) v A Salomon and Company Limited [1897] AC 22 at 30. This is what he said: Q. Back in 1979 how did you hire people? A. Same way as I do today. Q. What is that? A. Well, you ring up the shearers that you know that have generally worked for me for a while and see if they are working. If they are not working then you offer them a job, same as your shed hands, your wool presser. Q. And in 1979 you worked in the partnership physically yourself? A. Yes, always have. Q. And that continued to be the same in 1979 up until today? A. That is correct. Q. Did your role function never change? A. No, that is right. Q. Now, you formed the company on the advice of the accountant? A. That is correct. Q. And you formed it for tax reasons, didn't you? A. I suppose that was one of the reasons. Q. When you spoke about this meeting of yourself, your wife and your two sons, when was that? A. I, God, it was just after Porteus formed the company and I told the boys about it, and then we had a discussion about it. The boys said would it be good or would it be bad, you know, like a family generally does, have you done the right thing, have you done the wrong thing. Q. Anybody take any notes? A. No. Q. Were the boys directors? A. Yes. Q. Was there a motion passed and a vote taken? A. Yes. Q. So when you say it was decided your wife and yourself would run the company, who made that decision? A. I did. Q. And you say everybody agreed with that? A. Yes. Q. You never at any stage had any agreement with Mafulu, did you? A. No. Q. And you continued to work in the business in exactly the same way as you had done? A. That is correct. Q. When the boys were directors did they work physically as well? A. Yes, I have still got my two youngest ones working for me now. URJ MAFULU PTY LIMITED v MATHER (Kirby P) 5 Q. Who were the two who worked for you when they were directors, what are their names? A. Robert and John. I also had another boy working for me. Q. And were they paid wages, Robert and John? A. They were. Q. And did they appear in the wage records? A. They should appear there somewhere, they were working with me all the time but from odd shed they would be. Q. And that was because you considered them employees of the company? A. Yes, when they were working for me, yes. Q. You would agree, wouldn't you, that with all these wages produced here your name doesn't appear in any of them? A. That is correct. Q. But that in the cheque butts there are references to cash payments? A. That is correct. Q. And those cash payments were by yourself? A. That is right. Q. On Mafulu No 17 A. Yes. Q. Signed by yourself? A. Or my wife. Q. In the capacity as director and paid to yourself? A. That is right. Q. There is no tax deducted from it? A. That is correct. Q. But not on a regular basis? A. That is right. A family meeting of directors and their decision The appellant argued before Judge McGrath, and repeated before this Court, that the effect of this evidence was that the respondent was not a "worker" for the appellant company. According to the appellant, the arrangement was either a sham or one effected for taxation purposes only. The respondent did not appear in the wages records of the company as an employee. There were - so it was claimed - none of the usual indicia of the contract of service as has been explained in many cases, including Humberstone v Northern Timber Mills (1949) 79 CLR 389. By the appellant's case, the respondent was, on his own acknowledgment, simply continuing to run his business as he had before. He was performing his work not as an employee but pursuant to some other form of arrangement, such as a contract for services. Judge McGrath acknowledged the force of these submissions, as must I. How then did his Honour come to the contrary conclusion? His Honour said this: "There is some evidence that a meeting, so described, took place between all the people who could have entered into an arrangement which could be described as a contract between Mr Mather and the company, so that, even though it might be said that it was somewhat vague, it would seem to me that there was some evidence that some agreement was come to between Mr Mather as an individual, and the corporate entity, the appellant company. The crucial issue, of course, is, if there was evidence that an agreement had been entered into, whether or not there is sufficient evidence upon which the Commissioner could find that there was a contract of service." The appellant latched on to the use of by the respondent in the conversation there recorded of the word "deemed", "The members of the family would be 'deemed' employees." It was said that this assertion fell short of discharging the onus on the respondent that the company had engaged the members of the family, including the respondent himself, as an employee as such, i.e., as an employee in fact. Indeed, according to the appellant, the word "deemed" merely reinforced the conclusion that the arrangements were a sham, or that the alleged employment relationship was a notional one only, i.e., that they were employees not in actuality but for some dimly explained and barely understood purpose which the accountant had advised and which the respondent and his family had passively acceded to. It was for the law to determine the status of the family members, including the respondent, not for the family members themselves. 6 UNREPORTED JUDGMENTS Judge McGrath concluded his judgment by holding: "However that may be the case, and however much I may feel that the weight of the evidence is much against the existence of a contract of service, [...] it seems to me that there was some evidence, however slight, upon which the Commissioner could conclude that a meeting was held, of persons with power to enter into contracts and that an agreement was come to, in that context, under which both Mr Mather and his wife, when running the company, would run it as the employees of the company." Company director workers and Lee's case Following Catherine Lee v Lee's Air Farming Service [1961] AC 12, which was a New Zealand Privy Council appeal, there is no room for doubt that a director of a company may be an employee of the company and a "worker" for the purposes of the Workers' Compensation act. Even a managing director may be so. He may be so even in a "one person company" such as was described in Salomon by Lord Macnaghten (above) at p 53. Lee's case has been applied many times in Australian courts. The holding in that case makes it plain that, sham apart, there is no reason why a contractual obligation in the nature of a contract of services cannot be entered between a company and its directors, including its managing director. Someone has to do the work on behalf of the inanimate company. To adapt the words of Lord Morris of Borth-y-Gest in that decision (at 26): "There is no reason, therefore, to deny the possibility of a contractual relationship being created as between the [worker] and the company. If this stage is reached then their lordships see no reason why the range of possible contractual relationships should not include a contract for services, and if the [worker] as agent for the company could negotiate a contract for services as between the company and himself there is no reason why a contract of service could not also be negotiated. It is said that therein lies the difficulty, because it is said that the [worker] could not both be under the duty of giving orders and also be under the duty of obeying them. But this approach does not give effect to the circumstance that it would be the company and not the [worker] that would be giving the orders. Control would remain with the company whoever might be the agent of the company and exercise it. The fact that so long as the [worker] continued to be governing director, with amplitude of powers, it would be for him to act as the agent of the company to give the orders does not alter the fact that the company and the [worker] were two separate and distinct legal persons. If the [worker] had a contract of service with the company then the company had a right of control. The manner of its exercise would not affect or diminish the right to its exercise. But the existence of a right to control cannot be denied if once the reality of the legal existence of the company is recognised. Just as the company and the [worker] were separate legal entities so as to permit of contractual relations being established between them, so also were they separate legal entities so as to enable the company to give an order to the [worker]. Significance of statement that "deemed" a worker The attack on the use of the word "deemed" in the conversation of the respondent and his family appears to me to be misconceived. The Court was taken to a parade of dictionaries and definitions of this word, including the well known definition offered by Viscount Cave in R v The Council of the City of Norfolk (1981) 60 LJ QB 379 at 380. We were also referred to the decision of Windeyer J in the High Court of Australia in Hunter Douglas Australia Pty Limited v Perma Blinds (1969- 1970) 122 CLR 49 at 65. It seems doubtful that it is a proper approach to the interpretation of the conversation to which so much importance is attached in this case to have regard to judicial elaborations of the word "deemed", offered usually for the purposes of a particular statute. Nothing could have been further from the minds of this family of shearers, including the respondent, when the word "deemed" was uttered than the Queen's Bench Division, Law Journal or the Commonwealth URJ MAFULU PTY LIMITED v MATHER (Kirby P) 7 Law Reports. Slightly more relevant is it to have regard to what the dictionaries say is the normal way in which the word is to be understood when used in everyday speech. According to those dictionaries, the word can mean "considered as" or "classified as". That is the way in which I assume the word was used by the respondent. It was suggested in argument that the respondent would not have said the word "deemed" at all. However, such a suggestion was not put to him at the trial. Whether or not the respondent used the word is a question of fact. It is a word which he claimed was used. To my mind, it cannot be challenged here. It could in fact have been fixed in his mind when the unusual word was used in conversation with his accountant who set him upon the course of establishing the appellant company. Upon one view of it, the evidence which it was open to the Commissioner to accept, showed an intention on the part of the directors at the informal meeting which they had, to settle the future relationship between them and the company. Where there is ambiguity in such a relationship, as the appellant by its argument suggests there to be, the parties' agreement, whilst not binding as a matter of law, can be taken as an indication that the arrangement eventually made was that which the parties declared themselves to be entering. See Australian Mutual Provident Society v Chaplain and Another (1978) 18 ALR 385 at 389. Suggested invalidity of the contract of service During argument, and snatching at judicially offered straws, the appellant suggested that the respondent should not as a director have voted in support of a contract which, it was suggested, was for his own benefit. It was argued that this would affect the validity of the contract. However this too was not put to Mr Mather at the trial. The point was not run before the Commissioner. It was not argued before Judge McGrath. It was not raised in the notice of appeal. When this was pointed out, an application was made to amend the notice of appeal. That application was denied by the Court. I do not believe that the appellant should now be allowed to raise such a contention as a point of suggested invalidity of the contract which the respondent had with the company. Had the point been put to the respondent at the trial it might have been answered by evidence. See Coulton and Ors v Holcombe and Ors (1986-1987) 162 CLR 1 at 7. Conclusion: The decision is immune from disturbance In the end, in my view, the appeal comes down to the two points stated at the outset. The first question was whether it was open to Judge McGrath to conclude that there was some evidence upon which the Commissioner's decision was open to him. If so, the Commissioner's conclusion was insusceptible to disturbance in an appeal limited to one on a point of law. In my opinion there was such evidence. Accordingly, the first point in the appeal fails. There was evidence that advice was received from the accountant, necessarily unspecified. There was then the formation of the company. There was evidence of meetings of persons who were the directors. There was evidence of the agreement by the directors concerning the future relationship which they were to have with the appellant. That agreement included the respondent himself. The respondent then continued to perform physical work consistent with the actions of a person performing work for the appellant. The rewards for his labour were paid not to him, but to the company. He drew on the company for regular payments. 8 UNREPORTED JUDGMENTS It is true that there are other indications which point to a contrary conclusion. However, as Azzopardi points out, even perverse findings of fact may not be disturbed in an appeal such as this. By the authority of the decision Judge McGrath was right to refuse to disturb the award of the Commissioner. We should likewise refuse to disturb the award by Judge Mcgrath. The second question was whether the facts found necessarily indicated a misunderstanding or wrong application of the statute to the facts. It was here said that the question was whether the respondent was working under a contract of service for the company or some other arrangement. I cannot, for the same reasons, see any error which would entitle this Court to intervene in the decision reached by the Commissioner which Judge McGrath declined to disturb. The evidence was there which, if accepted, properly attracted the statute. It authorised the finding that a contract of service with the respondent had been proved. In my opinion, the two points in the appeal fail. The appeal should therefore be dismissed with costs. Samuels JA I agree. There is a certain irony it seems to me in this appeal which reminds me of one of the stories told in that splendid account of the Irish Bar called "The Old Munster Circuit". It will be recalled that the Mother Superior of a convent of nuns, not of a contemplative order, but who went into the world, was sued for the price of goods sold. The purchasing Sister gave evidence, and in her evidence in chief said that she had made clear to the seller the purpose for which she required the goods, and in doing so relied upon his skill and judgment. In cross-examination it was suggested to her that it was very strange that the good nuns were so familiar with the Sale of Goods Act. She responded "We talk of little else." In this case the worker, as he was entitled to do and on the advice of his accountant, endeavoured to set up a means by which he would be relieved from income tax and by which the same advantage could be provided to members of his family. Unfortunately, the advice seems to have stopped at an earlier and formal stage, and left the family in a morass of insecurity and legal ignorance. But the Commissioner was asked to believe that the worker and his family talked of little else but the affairs of the company established to achieve the lightening of their fiscal burdens. The case presents only one short point and I think it unnecessary to refer to authority concerning it. The point is whether there was any evidence before the Commissioner which could justify his concluding that there was a contract of service between the company and the worker. The only material which is relied upon for this purpose is contained in the account of a conversation between the worker, his wife and two of his sons, all of whom, it was said, were directors of the company. I might add that no documents, as far as I know, of any kind relating to the formation or constitution of the Company were ever produced, either to the Commissioner or to Judge McGrath. However, the conversation was admitted and in answer to the question "And what was decided?", the worker said "That my wife and myself, we run the company, and that we were deemed as employees." I want to make it clear that I am not attempting to make any pejorative criticisms of the want of legal knowledge, which neither the worker nor the members of his family, could have been expected to have possessed. But that is the evidence upon which the whole case turned. It seems to me that applying, as I firmly believe we must, cases such as Azzopardi and that line of authority, the URJ MAFULU PTY LIMITED v MATHER (Samuels JA) 9 conversation, as Judge McGrath rightly said, does constitute some evidence upon which the finding could rest, and some evidence, in this field, is evidence enough. If I may say so, the evidence before the Commissioner was not only scanty but, to my mind, extremely implausible, and wholly unpersuasive. Appellate courts should cling hard to Azzopardi and decisions of that kind, which I think embody a correct view of the law. But it may be desirable to consider the possibility of statutory exceptions, for example, appeal on questions of fact by leave to take account of determinations based on very flimsy grounds. However, as the President has said, Judge McGrath approached the matter impeccably, with the result that in my veiw also the appeal should be dismissed. KIRBY P: The order of the Court is appeal dismissed, with costs. Counsel for the appellant: G F Little / C J Barkell Counsel for the respondent: R E Hotchkiss SOLICITORS for the appellant: Nevill and Edwards Solicitors for the respondent: Carroll and O'Dea