Plexvon Pty Ltd (In liq) v Brophy

CATCHWORDS: DAMAGES - economic loss - total incapacity - work related expenses saved - onus of proof - MASTER & SERVANT - whether contractor company or individual - Court acts on real arrangement - D

Husher v Husher (1999) 197 CLR 138 CASES CITED: Medlin v State Government Insurance Commission (1995) 182 CLR 1 Reg v Foster Ex parte Commonwealth Life (Amalgamated) Assurances Limited (1952) 85 CLR 138

PARTIES: Plexvon Pty Ltd (In liq) (Appellant) John William Brophy (Respondent)

COUNSEL: P Greenwood SC/J Dodd (Appellant) H Kelly SC/T McKenzie (Respondent)

SOLICITORS: Dibbs Abbott Stillman (Appellant) Graham Jones (Respondent)

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40097 of 2006 DC 9132 of 2000

HANDLEY JA BEAZLEY JA BRYSON JA

23 OCTOBER 2006 PLEXVON PTY LTD (In liq) v JOHN WILLIAM BROPHY CATCHWORDS

DAMAGES - economic loss - total incapacity - work related expenses saved - onus of proof

MASTER & SERVANT - whether contractor company or individual - Court acts on real arrangement FACTS

The respondent was injured while working on a building site. The trial Judge found that, at the time of the incident, the respondent was a common law employee of the appellant and assessed damages in accordance with Pt 5 of the Workers Compensation Act. On appeal the appellant contended that the true contractual relationship was between the appellant and a company controlled by the respondent. In that event the damages would have been substantially reduced. HELD: (1) Courts must act on the realities of the relationship rather than an arrangement that is ignored in practice: Reg v Foster Ex parte Commonwealth Life (Amalgamated) Assurances Limited (1952) 85 CLR 138; (2) The real relationship was that of employee and employer and damages were correctly assessed under Pt 5 of the Workers Compensation Act; (3) The plaintiff was entitled to damages for the loss of his earning capacity to the extent to which the loss of capacity has been or will be productive of financial loss: Medlin v State Government Insurance Commission (1995) 182 CLR 1; (4) The defendant had the evidentiary onus of showing that the prima facie measure for total incapacity should be reduced because work related expenses were no longer incurred; (5) The evidentiary onus had not been discharged; (6) The appeal should be dismissed. ORDERS (1) Appeal dismissed with costs. (2) The appellant is to pay the respondent's costs on an indemnity basis from 7 July 2006 the date of the offer of compromise, and his costs on the ordinary basis prior to that date.

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40097 of 2006 DC 9132 of 2000

HANDLEY JA BEAZLEY JA BRYSON JA

23 OCTOBER 2006 PLEXVON PTY LTD (In liq) v JOHN WILLIAM BROPHY Judgment 1 HANDLEY JA: This is an appeal by the defendant from the judgment of Shadbolt DCJ. The respondent was injured on 14 November 1997 while working on a building site. The Judge found that he was injured as a result of the negligence of the appellant and he assessed the plaintiff's damages. 2 An important question the Judge had to determine was whether the plaintiff was a worker of the appellant, the builder, at common law, or whether his services were being provided by a company he controlled. His Honour found that the real relationship between the builder and the plaintiff was that of employer and employee at common law and he assessed damages on that basis. The appellant contends that the real relationship was between the builder and the plaintiff's company, Bamoragreen Pty Ltd, which contracted with the builder to provide his services. 3 The Judge found a verdict for the plaintiff for $1,050,181. This exceeded the applicable jurisdictional limit of the District Court at that time which was $750,000 and the verdict was reduced to that amount. He then deducted workers compensation payments made to or in respect of the plaintiff and, after allowing a further amount for interest, he entered judgment for $732,779. 4 His Honour assessed damages on the basis that Pt 5 of the Workers Compensation Act 1987 as amended governed that assessment. 5 The defendant has appealed seeking to reduce the judgment and the issues in this Court are relatively narrow. Fundamental to the appeal is the appellant's claim that its contractual relationship was with Bamoragreen Pty Ltd and not with the plaintiff. If this ground of appeal were to succeed damages would have to be calculated in accordance with the general law and not Pt 5 of the Workers Compensation Act. The net result would substantially reduce the verdict and the ultimate judgment. 6 An associated issue concerned the expenses which the plaintiff would have incurred working as a builders labourer which he has not incurred because of his incapacity and inability to work in the industry. This turned on the income tax returns submitted by the plaintiff and his company during the years prior to his accident. 7 The first question relates to the nature of the contractual relationship under which the plaintiff was working for the builder at the time of his injury. The judge said: "Whatever the initial intention of the defendant's site manager, Mr Mack, was, once the plaintiff had commenced work he, that is Mr Mack, treated him in every respect as an employee. He provided tools for him, stipulated the hours of work, caused him to bundy on and bundy off, directed him on a daily basis on the work he was to do, oversaw that work, and insured him under the Workers Compensation Act while he was there." 8 He concluded by saying: "I am satisfied on balance that the plaintiff was never treated from the moment that he commenced work to the moment that he ceased as an independent contractor but as an employee." 9 The evidence relating to the formation of a contract is in a very narrow compass and is to be found on pp 16-25 of the black book. On p 16 the plaintiff said that Tom Mack said "that I could work for him". Later on he said: "I was told, I rang Tom Mack anyway, and he suggested 'come work for me in two weeks' time when you're finished' and the next thing with that I had to have a - I had to have first thing was I had me own company … I said I did and the next thing we discussed about money how much an hour I was to get and plus Tom Mack said that I'd get paid every month back then.

A. We did, at first we didn't because I wanted to use my tools and he said no, use my tools and I could be a lesser rate. That was the discussion we had.

A. Twenty dollars an hour." 10 Although there was a reference to the need for the plaintiff to have a company the contractual arrangements relate to a contract between him and the builder. The mere reference, almost as an afterthought, to the need for Mr Brophy to have a company cannot alter the prima facie effect of the oral contract. It cannot convert a contract between the builder and the plaintiff into a contract between two companies. 11 It is clear from the plaintiff's evidence that in his daily work he was subject to the detailed control of the builder exercised through Mr Mack or his deputy and that the plaintiff accepted such control which extended to the manner in which his work would be done. 12 In these circumstances I have not been persuaded that the trial Judge erred in concluding that the contractual arrangements between the parties took the form of a contract between Mr Brophy and the builder. 13 It is hardly necessary to refer to authority but the discussion in Reg v Foster Ex parte Commonwealth Life (Amalgamated) Assurances Limited (1952) 85 CLR 138 at 151 in the joint judgment of Dixon, Fullager and Kitto JJ establishes that the court is bound to act on the reality of the relationship rather than any arrangements that are ignored in practice. The Court said: "For if in practice the company assumes the detailed direction and control of the agents in the daily performance of their work and the agents tacitly accept the position of subordination to authority and to orders and instructions as to the manner in which they carry out their duties a clause [in a written contract] designed to prevent the relation receiving the legal complexion which it truly wears would be ineffectual." 14 I therefore conclude that the real relationship between the builder and the plaintiff was that of employer and employee at common law. Accordingly, the plaintiff's damages fell to be assessed in accordance with Pt 5 of the Workers Compensation Act 1987 in force at the date of his injury and not under the general law, and this part of the appeal must fail. 15 The income tax returns of Bamoragreen Pty Ltd were in evidence for the years 1995/1996 and 1996/1997, and the personal returns of the plaintiff were in evidence for the years 1994/1995, 1995/1996 and 1996/1997. The company's returns claimed as allowable deductions substantial amounts allegedly paid for business expenses. 16 The appellant has argued as an alternative submission that if the plaintiff's damages are to be assessed on the basis that he was an employee of the builder they should be reduced by the amount of these expenses or by some amount based on the company's tax returns. 17 The principles which govern the assessment of damages for loss of earning capacity are stated in Medlin v State Government Insurance Commission (1995) 182 CLR 1, and in particular at p 16 in the judgment of McHugh J. The principles are well known and there is no need for me to repeat them. The Court's function is not to assess damages for lost earnings either pre-trial or post-trial, but to assess the plaintiff's damages referable to his loss of earning capacity. 18 The principles apply if, at the time of his injury, the plaintiff was working under arrangements such as a partnership, a trading trust or a company. This is clear from Husher v Husher (1999) 197 CLR 138, 148 where the joint judgment states: "Deciding what value is to be ascribed to the loss of future earning capacity of an injured plaintiff requires close attention to the facts of each case. The task is not one to be undertaken by seeking to classify cases as concerning 'sole traders' or 'partnerships' or 'wage earners' or 'trading trusts' and then attempting to deduce some rule of general application to all cases falling within the classification thus devised. Rather, the inquiry is about what could the plaintiff have done in the workforce but for the accident and what sum of money would the plaintiff have had at his or her disposal. Only when these inquiries are pursued can a judgment be made about what capital sum to allow as damages for the impairment of the plaintiff's earning capacity." 19 The trial Judge took as his starting point a figure for the plaintiff's earning capacity based on the hourly rate he was receiving from the builder and he had regard to award rates in force at the time of the trial. If, as he held and I would affirm, the plaintiff was in truth an employee of the builder there can be no criticism of the figures which the trial judge adopted as his starting point. The remaining question concerns the relevance of so-called business expenses shown in the tax returns of Bamoragreen for the year ended 30 June 1996 and 30 June 1997. The point is sufficiently illustrated by the schedule of expenses to be found at p 253 of the blue book for the year ended 30 June 1997. 20 In principle an injured plaintiff who is unable to work and as a result has been saved expenses that he otherwise would have incurred in order to work, such as fares or the cost of maintaining tools and protective clothing and the like, then these amounts, if proved, should be deducted from the net earnings after tax of the plaintiff subject to any adjustments that may have to be made if the expenses would have been tax deductible. 21 The question is whether it has been established that there are saved expenses which ought to have been deducted in assessing the plaintiff's damages and if so their amount. 22 The schedule of business expenses at p 253 of the blue book includes items which could not, on the face of it, be business deductions or costs of working incurred by the plaintiff when he was working on the two building sites at Gordon and Marsfield. Expenses of this character included accommodation of $650, accounting charges of $2100, depreciation of $48, electricity of $80, equipment of $100, income protection of $1392. The latter was a tax deduction for the plaintiff personally and was not a cost of working. It was deductible because it was a cost of earning the proceeds of the policy if and when he became injured. There was an amount claimed for meals of $1375, motor vehicle expenses of $14,537, printing and stationery of $35, and subcontract $4750. The plaintiff said he was not allowed to subcontract the work, he had to do it personally. Then expenses were claimed for supplies of $1840, and telephone of $2418. The plaintiff reported for work at either of the building sites referred to or possibly at the company's permanent office and no basis appears in the evidence for treating a telephone account of this size as a working expense. Finally there was an amount of $854 for tools. The plaintiff was required to use the builder's tools and was not allowed to use his own and this cost was not an expense which the plaintiff incurred while working for the builder. It may have been a cost he would have incurred if he worked under other arrangements but that was not explored. 23 There is no reason for doubting that the plaintiff would have incurred some expenses in connection with working for the builder but the quantum is totally undefined and the figures in the tax returns, such as those I have mentioned, manifestly were not a true reflection of the real level of working expenses the plaintiff has been saved. 24 This makes it necessary to consider the onus of proof. Medlin's case establishes that the plaintiff is entitled to damages for loss of his earning capacity to the extent to which that loss of capacity has been or will be productive of financial loss. In my judgment the plaintiff made a prima facie case by proof of his hourly rate paid by the builder, and the award rate in force at the time of the trial. If this prima facie amount was to be cut down there was an evidentiary onus on the defendant to do so. The defendant attempted to discharge this evidentiary onus by relying on the tax returns but these, for the reasons I have already given, did not establish any firm basis for a reasonably precise calculation of the plaintiff's true level of working expenses. 25 The result, in my judgment, was that this evidentiary onus was not discharged, and the prima facie measure established in the plaintiff's case remained undiminished. 26 The various grounds of appeal that have been argued fail and I would propose that the appeal be dismissed with costs. 27 BEAZLEY JA: I agree. 28 BRYSON JA: I agree. 29 HANDLEY JA: The order of the Court is appeal dismissed with costs. The appellant is to pay the respondent's costs on an indemnity basis from 7 July 2006 the date of the offer of compromise, and his costs on the ordinary basis prior to that date. **********

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