Bonner v Chief Commissioner of State Revenue

1. [1]

   BASTEN J: The plaintiffs (each for a separate period of time) operated a business, acting as agents for persons seeking work as models in advertising and promotional material. The business also involved entering into contracts with clients to supply the services of such models. The clients involved both major retailers and separate production companies, the latter providing material on contract for other businesses, such as retailers.

2. [2]

   The respondent, the Chief Commissioner of State Revenue, assessed the plaintiffs’ liability for payroll tax under the Payroll Tax Act 2007 (NSW). The assessments covered the financial years 2014, 2015, 2016 and the first five months of the 2017 financial year. Up until 1 July 2016, the business was operated by the first plaintiff, Ms Chelsea Bonner. Thereafter, it was operated by Bella Management Group Pty Ltd (“Bella”) of which Ms Bonner was at the relevant times the sole director.

3. [3]

   Payroll tax is payable by an employer who pays “taxable wages”. [1] Taxable wages are wages paid or payable by an employer for services performed. [2] The term “wages” means not only remuneration, commission, bonuses and allowances, but also “an amount that is included as or taken to be wages by any other provision of this Act”. [3] The “other provision” relied upon by the Chief Commissioner was s 37, which appears in Pt 3, Div 8 of the Payroll Tax Act, a Division entitled “Employment agents”.

4. [4]

   Before the Chief Commissioner, the plaintiffs filed an objection on the basis that their contracts were not covered by s 37. The Chief Commissioner rejected the objection and the plaintiffs sought review of that decision by the Civil and Administrative Tribunal (NSW) (“the Tribunal”). On 15 September 2020 the Tribunal, constituted by Senior Member N S Isenberg, affirmed the decision under review, subject to minor amendments which are of no consequence for present purposes. [4] The assessment so confirmed included amounts for interest and penalty tax.

5. [5]

   On 12 October 2020 the plaintiffs filed a notice of appeal in the Tribunal. The appeal was heard and determined by an Appeal Panel constituted by Principal Member A Britton and Senior Member Dr J Lucy. The Appeal Panel delivered its decision on 22 June 2021, both refusing leave to appeal and dismissing the appeal. [5] The significance of those orders will be noted shortly.

6. [6]

   By summons filed on 20 July 2021 the plaintiffs sought leave to appeal to this Court. Pursuant to ss 82 and 83 of the Civil and Administrative Tribunal Act 2013 (NSW) (“the Tribunal Act”) the appeal is limited to questions of law and leave is required.

Leave to appeal

1. [7]

   The plaintiffs supported their application for leave to appeal on four bases. First, it was submitted that the amount in issue (some $315,000) was not insignificant and that the business would be subject to ongoing liabilities. Secondly, the operation of the employment agency provisions in the Payroll Tax Act involve matters of public importance. Thirdly, at least one aspect of the plaintiffs’ case before the Appeal Panel had not been dealt with at all, namely their liability for penalty tax. Fourthly, the challenge to the decision of the Appeal Panel had sufficient merit, being more than reasonably arguable.

2. [8]

   The Chief Commissioner opposed a grant of leave, primarily on the basis that no arguable error of law had been established on the part of the Appeal Panel.

3. [9]

   The matter having been listed for a concurrent hearing of the leave application and the appeal, it is unnecessary, with one qualification, to address the merits of the arguments presented by the plaintiffs on a preliminary basis. Nor is it necessary to determine whether, as was assumed in the course of submissions, the relevant criteria for a grant of leave are those which have been applied by the Court of Appeal in granting applications for leave to appeal to that Court.

4. [10]

   With respect to the matters set out in grounds 3(a) and (b) in the summons, which address the liability of the plaintiffs under s 37 of the Payroll Tax Act, there should be a grant of leave for the reasons identified by the plaintiffs. With respect to ground 4, dealing with the failure to consider issues relating to penalty tax, leave should be refused. For reasons which will be explained in more detail below, no arguable question of law was raised in that regard. Further, and perhaps consequentially, the ground involved no issue of public importance; the amount of the tax in issue was not relied upon.

5. [11]

   For the reasons set out below, the appeal must be dismissed.

Statutory scheme

1. [12]

   The source of liability relied upon by the Chief Commissioner, s 37 of the Payroll Tax Act, provides:

2. [13]

   There are certain consequential provisions. First, the employment agent under an employment agency contract is taken to be an employer: s 38. The “person who performs the work for or in relation to which services are supplied to the client under an employment agency contract is taken to be an employee of the employment agent”: s 39. Finally, and sufficiently for present purposes, [6] “any amount paid or payable to or in relation to the service provider in respect of the provision of services in connection with the employment agency contract” is taken to be wages paid or payable by “the employment agent” under an employment agency contract: s 40(1)(a).

3. [14]

   Each of ss 37-40 is to be understood as definitional. There are two other provisions in Div 8. Section 41 recognises that there may be more than one person liable for payroll tax on the amounts paid to the service provider, pursuant to Div 8. It precludes double liability. Section 42 is an anti-avoidance provision which operates where “the effect of an employment agency contract is to reduce or avoid the liability of any party to the contract to the assessment, imposition or payment of payroll tax.” The Chief Commissioner is empowered to disregard the contract.

Constraints supplied by judicial interpretation

1. [15]

   In 2016, in dealing with assessments which had been made some 25 years after the commencement of s 37, the Court held that the intended scope of s 37(1), and in particular the words “procures the service of another … for a client of the employment agent”, was limited to “a contract under which a person procures the services of another person in and for the conduct of the business of the employment agent’s client.” [7] The italicised words are a gloss on the statute. They have acquired a label – the “in and for” test.

2. [16]

   The justification for this gloss on the statutory language will be considered below. [8] However, uncertainty as to the intended scope of the additional words has led to a proliferation of glosses upon the gloss. Each additional phrase relied on for the purpose of limiting the statute has, on occasion, been applied as a matter of generality, without regard to (i) the circumstances in which it arose, (ii) the absence of textual support, and (iii) the other sections in Div 8.

3. [17]

   In Banfirn Pty Ltd v Chief Commissioner of State Revenue, [9] Payne J noted a number of constraints on the operation of Div 8 which had been identified in earlier cases. Payne J identified “[a] number of verbal formulations [which] have been offered [in the cases] about the identity of the contracts to which s 37(1) applies”. They were: [10]

4. [18]

   I read Payne J’s reasons in Banfirn, and in the earlier decision in Securecorp (NSW) Pty Ltd v Chief Commissioner of State Revenue, [14] as guarded acceptance of these formulations, no contrary view having been argued. Each of the formulations lacks a basis in the statutory text, and, significantly, in each case the focus of the proposed qualification is upon the operation of the client’s business, not on the contract to which s 37(1) applies.

5. [19]

   In Bayton Cleaning Co Pty Ltd v Chief Commissioner of State Revenue, [15] Ward CJ in Eq also qualified her application of the judicial glosses. As summarised in Banfirn, [16] she held that “the question of whether a service provider is working ‘in and for’ the conduct of the client’s business can involve a fact-sensitive analysis with a focus on the manner in which the services are provided for the client.” [17] On the analysis set out above, it is an error to focus on the manner in which the services are provided for the client, unless such material would in some way assist in the characterisation of the contract. However, that was not the purpose of the proposed analysis, which turned on acceptance of the “in and for” test, but sought to limit the use of the cases as governing precedents.

6. [20]

   It will be necessary to return to the reasoning in Bayton, which was said to have given rise, in direct contravention of the stated need for a “fact-sensitive analysis”, to a set of “Bayton factors”, which the plaintiffs contended should not have been applied by the Appeal Panel.

7. [21]

   The legislative history need not be rehearsed, except to the extent that commentary based on earlier provisions has been repeated in disregard of changes in the statute.

8. [22]

   In 1985 the Pay-roll Tax Act 1971 (NSW) was amended to include as “wages” “any amount paid or payable by way of remuneration by an employment agent … to a person who was engaged to perform services for a client of the employment agent”. [18] At the same time s 3(4) was introduced:

9. [23]

   There was a patent lack of clarity in identifying a worker as someone who does not become an employee but does “carry out duties of a similar nature to those of an employee”. That language was apt to focus attention on the business of the client in many cases, and, although it has long since been removed from the statute, the underlying concept continues to find reflection in the case law. The plaintiffs said the service provided must be “akin to an employee” and the models must work “in the same way as would an employee of the client”. [19]

10. [24]

    The 1985 amendments included two other provisions of limited direct relevance. The first was s 3A which introduced the concept of a “relevant contract”. That concept included a contract under which a person supplied services to another person, subject to some substantial exclusions, including an exclusion of services of the kind “not ordinarily required” by the other person where the supplier “renders services of that kind to the public generally.” Secondly, s 3B conferred broad powers on the Chief Commissioner to disregard an agreement, transaction or arrangement which had the effect of the reducing or avoiding the liability for payroll tax.

11. [25]

    An explanatory note to the Bill identified the main relevant purpose as “to combat certain avoidance practices in relation to pay-roll tax”. That description aptly caught s 3B; however, it was also intended to refer to s 3A, the explanatory note stating that the definition of “relevant contract” was “directed to capture several means of disguising the employer-employee relationship”.

12. [26]

    The concept of services “not ordinarily required” by the client has also continued to find reflection in the discussion of later provisions which do not contain that language.

13. [27]

    The Parliament vacillated as to whether the employment agent or the client should be responsible for payment of payroll tax. Amendments by the Pay-roll Tax (Amendment) Act 1987 (NSW), Sch 1, changed the structure of the legislation, and made the clients of employment agents liable for payroll tax on wages paid to workers who performed services for them. (The identification of the party responsible had particular significance for the calculation of the threshold under which tax was not payable.)

14. [28]

    The last of the significant amendments to the 1971 Act was effected in 1998. [20] Relevantly for present purposes, s 3A was amended to exclude from the category of “relevant contracts” employment agency contracts, which were in turn separately defined in s 3C. Section 3C was ultimately restructured in the 2007 Act as Pt 3, Div 8. It also identified the employment agent as the deemed employer liable to pay tax on the amounts paid to the contract worker by the employment agent. Section 3C used the term “contract worker” to refer to the person undertaking the work, rather than the current use of “service provider”.

15. [29]

    Significance has been placed in the cases on aspects of the Second Reading speech for the 1998 Bill. The Bill included amendments to seven separate statutes, of which the Pay-roll Tax Act 1971 was only one. Relevantly the Second Reading speech stated: [21]

16. [30]

    Subsequent cases have treated the Minister as stating that the provisions relating to employment agents are “anti-avoidance provisions” which address persons “performing duties similar to those of employees.” [22] In fact, that statement expressly referred to the “relevant contract” provisions from which category the Bill expressly excluded employment agency contracts. But even if s 3C were an anti-avoidance provision, the concept of anti-tax avoidance is inherently imprecise. It operates at the boundaries of tax liability and provides no substitute for close attention to the language adopted by the legislature. While it is not language which can readily be “substituted for the text of the law”, [23] it is even less acceptable to treat such a provision as providing carte blanche to the courts to read down the effect of the statutory language. Such a reading down is, in effect, an attempt to limit or contradict the declared statutory purpose.

17. [31]

    It is, accordingly, important to focus upon the statutory language in the present case.

18. [32]

    It is clear that the concept of procuring services of another person “for a client” is language of significant generality. It is clearly wide enough to encompass procurement which results in the client employing the service provider: so much is recognised by s 37(2) which excludes that case from the operation of subs (1). Nevertheless, language used in some cases, embraced by the plaintiffs, suggests that subs (1) must be read down to include only “employee-like” arrangements between service provider and client. Such a gloss finds no foothold in the statutory language; nor is it clear what it means. The most obvious example of such an arrangement is an independent contractor, but the plaintiffs sought to exclude such a possibility, which might be thought to include them. In their anxiety to limit s 37(1), agents tend to propose constraints which would eviscerate it.

19. [33]

    The implication of an “employee-like” relationship between the service provider and the client is not consistent with the statutory language. For example, the taxable “wages” include amounts payable “by” the employment agent to the service provider. Further, the service provider is taken to be (for the purposes of the Act) an employee of the employment agent. The implication of an “employee-like” relationship between service provider and client is irrelevant to this structure.

20. [34]

    A similar idea may have underlain the plaintiffs’ submission that models were not, as a class, “homogenous”, meaning that one could not necessarily or automatically replace another. Factually that may be so; however, its relevance to the construction of s 37(1) was obscure.

21. [35]

    Again contrary to factors considered significant in some cases, there is no necessary implication that the work is to be performed “at” the workplace of the client, or that it be integral to or part of the “core business” of the client. For example, there is no reason to exclude a chauffeur obtained by an employment agency to drive the managing director of a client from the director’s home to business premises, or between sites, or to meetings offsite. There is no room under the statutory scheme to impose some geographic limitation on where the work may be performed, nor to dissect the elements of the client’s business to identify its “core”. In defining an “employment agency contract” the statute focuses on the arrangement between service provider and employment agent.

22. [36]

    The plaintiffs submitted that the Payroll Tax Act had to be construed by reference to the constraints and protections provided by the Entertainment Industry Act 2013 (NSW). That Act assumes that “performers” are independent contractors in relation to “a performer representative”, a person having similar functions to that of an employment agent. Nothing in the Pay-roll Tax Act seeks to negate that assumption. There is no inconsistency requiring adjustment to render the legislative provisions harmonious. To derive some element of inconsistency from the deemed employment under s 39 would be to give s 39 too broad an effect. The deeming provision operates only for the purposes of the Pay-roll Tax Act. It has no more general consequence.

23. [37]

    Next, the plaintiffs sought to draw a distinction between the “work” performed by the service provider and the “services” supplied by the employment agency to the client. The submission took different forms, but relied upon two propositions. The first was that the term “services” excluded the provision of a “result”. Thus it was submitted that the models were engaged to provide “a result, not labour.” [24] This distinction was said to follow from the definition of “services” for the purposes of the relevant contract provisions which stated that “services includes results (whether goods or services) of work performed”: s 31. The absence of a similar provision in Div 8 was said to give rise to the inference that the provision of a “result” was excluded.

24. [38]

    It is difficult to give meaning to this submission. Indeed, it is difficult to understand, except in a deliberately expansive sense, the intention of the definition in s 31. Division 8 must be construed according to its own language.

25. [39]

    Secondly, the plaintiffs relied upon the linking term “for” in s 37, namely that the agency procures the services of the performer “for” a client of the agent. The plaintiffs submitted that the phrase “for a client” meant “in the business of a client”. [25]

26. [40]

    Neither of these submissions finds support in the language of the Division 8. Section 37(1) refers to a contract under which the employment agent “procures the services of” a model, in this case, “for a client of the employment agent.” The service provided by the agency to the client is that of procurement of the model or service provider. The service provided by the model or service provider to the client is a different service. However, it is the service for which he or she was procured. Thus s 37(1) envisages that the service provider is a person who performs work “for and in relation to which” services are supplied to the client: there is no equation of work and services and the connection is expressed in terms permitting a significant degree of flexibility. The same point is articulated in s 40(1), referring to the amount paid “to or in relation to” the service provider, “in respect of” the provision of services, the services being rendered “in connection with” the employment agency contract.

27. [41]

    Because the present case was dealt with by both parties in the Tribunal and before the Appeal Panel on the basis that the “in and for” test was correct, this appeal must be dealt with on that basis. However, it is also apparent from the above analysis that, properly construed, the same result (namely dismissing the appeal) should be upheld on a textual basis.

Nature of contracts

1. [42]

   Evidence before the Tribunal included a document described as “an example management agreement between the models and Bella dated 2016.” The first page included the name and address of the model, tax file number, superannuation details and bank account details. The terms covered a further two and a half pages. The first term read as follows:

2. [43]

   The agreement was said to continue for three years. Under the heading “Manager’s functions and duties” was the following:

3. [44]

   Under the heading “Manager’s remuneration” the agreement read:

4. [45]

   The agreement also provided for the manager to deduct the model’s expenses incurred by the manager on the model’s behalf. There was an agreement by the model for the manager to assign the benefit of the contract for the purposes of “corporate reconstruction or as part of a sale of all or any part of our business.” The clause with respect to payment provided:

5. [46]

   The agreement was not an employment contract with the models: it was, as it said, a management agreement for the purposes of obtaining work for the models with clients of the agency. The agency was required to negotiate contracts between the model and the client, administer the contract, receive payment from the client and, having deducted a commission and expenses, pay the balance to the model.

Issues on appeal

1. [47]

   As stated in the plaintiffs’ written submissions, apart from the appeal with respect to penalty tax, this was “a statutory construction case”. [26] That engaged the condition for an appeal to this Court, an error on the part of the Appeal Panel in deciding a question of law. Although the plaintiffs’ grounds of appeal contended that the Appeal Panel’s decision to refuse leave to appeal and dismiss the appeal was “vitiated by error of law”, it was not clear that the refusal of leave to reconsider factual findings was said to involve an error of law.

2. [48]

   Paragraphs 1 and 2 under the heading “Grounds” in the Summons identified questions raised, not grounds.

3. [49]

   Paragraphs 3 and 4 identified two relevant grounds which were structured as follows:

4. [50]

   The thrust of the plaintiffs’ case was identified in written submissions as follows: [27]

5. [51]

   It is convenient then to set out in full ground 3a from the summons, including its particulars, to identify the relevant errors.

6. [52]

   The final reference to “AP … [59]” raised a challenge to the refusal of the Panel to grant leave to challenge a particular finding of fact, though ground 3a did not identify any error of law in that refusal.

7. [53]

   The errors of law engaged by this ground remained obscure. Implicit in particular (iv) are two propositions, namely (i) the defined term in s 37 is to be given its “commonly understood” meaning, (ii) which catches an individual who is performing “employee-like functions” albeit by contracting through an agent rather than “via an employment contract”. However, (i) was a proposition squarely rejected in UNSW Global and was not pursued in submissions, while to succeed on (ii) it was necessary to identify it as a legal criterion of liability, and one rejected by the Appeal Panel.

8. [54]

   It is possible that the application of a legal principle may reveal an error of law in cases where the principle is correctly stated; however, application is more likely to involve a factual error than a legal question. Thus, particular (v), stating that the arrangements could not be an employment agency contract, purported to identify an error of law, but was an empty proposition without identifying the relevant established factual basis.

9. [55]

   The written submissions for the plaintiffs did not focus on the particulars, but rather set out general propositions about the construction of the Payroll Tax Act. Discussion of the Appeal Panel’s reasons was sparse and muted. The over-arching submission, as crystallised in writing and as pursued in oral argument, was stated in writing as follows:

10. [56]

    In order to demonstrate error of law on the part of the Panel, it is necessary to give close attention to the legal which the Panel was required to address, or which underlay its reasoning. [28] The internal appeal from the Tribunal to the Appeal Panel was an appeal as of right on a question of law and, with leave, on any other ground. [29] It is convenient to start with the grounds of the internal appeal.

11. [57]

    The grounds of appeal before the Appeal Panel were identified in a notice of appeal filed on 12 October 2020 and read as follows:

12. [58]

    These grounds were unsatisfactory. Ground 1 did not identify an error of law, nor was it clear that the matters identified in ground 2 involved errors of law. However, the plaintiffs were permitted to reformulate their grounds before the Appeal Panel, which they did immediately following the hearing. Because there was a dispute as to whether the ground concerning penalty tax was pursued before the Appeal Panel, it is convenient to record the reformulated grounds, as they appear in the document filed on 22 January 2021:

13. [59]

    Whether any of grounds 1-3 involved a question of law remains obscure. The Appeal Panel stated:

14. [60]

    At [59], in refusing leave to appeal, the Appeal Panel stated:

15. [61]

    Because the Panel, favourably to the plaintiffs, did not reject particular grounds as not involving any question of law, challenges to the Panel’s findings can only be undertaken in this Court by first undertaking that task. The starting point is the Appeal Panel’s reasons.

Challenges to reasoning of Appeal Panel

1. [62]

   The first issue identified by the Appeal Panel was the finding that the models worked “on site” for the clients. In the amended grounds of appeal to the Panel, the finding which was challenged was that “the end client’s ability to choose a location … where the location was not the usual place of business of that end client, supported the conclusion” that the Senior Member erred in “finding that the model was working ‘in and for’ the end client.”

2. [63]

   The relevant conclusion of the Appeal Panel challenged in the summons was that set out at [33] of the Panel’s reasons. It is convenient, however, to set out the reasoning which led to that conclusion.

3. [64]

   First, the Appeal Panel accepted the test of work being done “in and for the conduct of the business of the employment agent’s client”, derived from UNSW Global. The Panel then identified what were described as the “Bayton factors” which the plaintiffs accepted that the Tribunal had applied but which they now say it should not have applied. (There was an element of approbation and reprobation in this approach.) The reasoning of the Appeal Panel was as follows:

4. [65]

   It follows that the present challenge to the Panel’s reliance on the “Bayton factors” was misconceived: to the (limited) extent the factors were adopted and with reservations as to how they should be approached in quite different factual circumstances, that approach involved no legal error. The fact that they were addressed at all was, as the Panel explained, an unavoidable consequence of the way the plaintiffs ran their case in the Tribunal and before the Panel. That explanation was not controverted in this Court.

5. [66]

   The Panel’s conclusions as to the alleged legal error were as follows:

6. [67]

   On the hypothesis that the UNSW Global test was applicable, two propositions were correctly accepted by the Appeal Panel, based on the reasoning of Ward CJ in Eq in Bayton Cleaning. The first was that the test was to be applied having regard to what might be “the more meaningful factors” in the circumstances of the particular case. That in turn required a “fact-sensitive analysis” which would depend on the service provided, the business of the client and the connection between the two. In relation to cleaning services, the question whether the services were to be provided “on site”, that is at the usual place of business of the client, was a meaningful consideration. In other circumstances, it may be less relevant or even patently irrelevant. There is no purpose in giving examples. There was no legal error identified in the reasoning of the Appeal Panel in this respect.

7. [68]

   The second impugned finding addressed by the Panel was whether or not the models were “continuously or regularly” employed by the client. The summons identified the challenged findings as those at [41]-[42] of the Appeal Panel reasons.

8. [69]

   The concept of services being provided “with a degree of continuity or regularity” was language derived from the judgment in Bayton. How it was deployed by the plaintiffs in the present case appears from the submission noted by the Appeal Panel:

9. [70]

   However, the submission that there was “no expectation of future or further work” was precisely the issue addressed by the Tribunal, as a factual matter, at [50]-[51]. The findings of the Appeal Panel under challenge were as follows:

10. [71]

    This was self-evidently the rejection of a challenge to a factual finding. The precise error of law revealed by the finding was not articulated. Indeed, the discussion occurs in a passage of the written submissions which accepted that “the indicia arising from the cases that followed UNSW Global are only ever a guide and not a substitute for the text of the statute.” [30] So much may be accepted, but the next step was to state the proposed “in and for” test at a high level of generality: [31]

11. [72]

    If the question of law raised in this Court were that the Appeal Panel misunderstood the question of law raised before it, that was not exposed by the grounds in the summons, nor in the course of submissions. The ground of appeal before the Appeal Panel was that the Tribunal had erred in holding that “there was no evidence supporting the models’ engagement being ad hoc or on call”. The finding of the Appeal Panel in that regard was twofold. First the question before the Tribunal was whether the evidence supported a conclusion that there was “no continuity of work” and “no expectation” of future or further work. The Tribunal rejected that submission, on the basis that the evidence demonstrated that there was a degree of continuity and an expectation of further work in some cases.

12. [73]

    The plaintiffs’ case before the Tribunal appears to have been run on the basis that no contracts constituted employment agency contracts for the purposes of s 37. One might have thought that that could only be determined by looking at the nature of the contracts with the service providers. It was difficult to understand how the criterion of taxation depended upon individual expectations. In any event, the Appeal Panel’s conclusion turned on the proposition that all the Tribunal had done was to reject a particular criterion put forward by the plaintiffs as not established on the evidence. It is not possible to derive an error of law from that reasoning.

13. [74]

    The challenge to the decision of the Tribunal was that “the end client or their staff had the ability to direct or control the performance of the modelling”. The correct conclusion was said to be that “the end client did not have such ability”. The finding in the reasoning of the Tribunal at [58], the subject of the challenge in the ground of the appeal to the Appeal Panel, followed the setting out of three passages from the reasons of Ward CJ in Eq in Bayton. The Senior Member continued:

14. [75]

    The Appeal Panel considered that the challenge to these findings conflated two questions, namely “whether the models were subject to the supervision and direction of the client”, and whether the models were “effectively added to the workforce of the client for the conduct of the client’s business”. There was then said to be a dispute as to whether or not the models had “creative input” into the work. The Tribunal had accepted the plaintiffs’ submissions that the models did have creative input. [32] However, it found the evidence “unclear” as to where the demarcation lines of creative control lay. The Tribunal concluded:

15. [76]

    With respect to whether the models were “effectively added to the workforce of the client”, the Appeal Panel set out the findings of the Tribunal at [58] and [59], noting that the final conclusion was based on the three impugned findings. The Panel then noted the submission that David Jones’ workforce comprised shop assistants and that celebrities used to promote the retailer could not reasonably be considered as having been “added to” David Jones’ workforce: at [56].

16. [77]

    The Panel stated that the Tribunal “could have expanded on the reasons for its findings at [58]”, but the Panel was not persuaded that the finding “was against the weight of evidence or evidenced a misapplication of a legal principle”: at [57].

17. [78]

    Two comments may be made about that conclusion, although neither of them favours the plaintiffs. The first relates to the apparent attempt to treat language found in judicial decisions as if it were language in the statute. Factual considerations which might be useful in one context may or may not be useful in another, or may be useful in a different way. To identify factors which may assist in knowing whether the amounts payable to a service provider under an employment agency contract are taxable or not depending on whether the service provider ends up in an “employee-like” relationship with the person for whom the services are provided, or undertakes the work “as if” added to the client’s workforce, is to employ language with no precise application and no precise legal meaning, so that its misapplication could not constitute an error of law.

18. [79]

    Secondly, the Panel’s apparent assumption that a finding which was “against the weight of evidence” involved an error of law was mistaken. It is sufficient to refer to the well-known statement of Glass JA in Azzopardi v Tasman UEB Industries Ltd [33] dealing with the limits of an appeal for error of law:

19. [80]

    There may be a qualification to be made with respect to this reasoning in relation to a manifestly unreasonable finding or a finding for which there is no probative material which would support it. However, as Glass JA further noted, the party bearing the onus of proof cannot rely on such a ground because “alleged insufficiency of evidence to prove a fact always raises a question of law but alleged sufficiency of evidence to the point of conclusiveness cannot, since it assumes that the evidence has been accepted. The party not bearing the onus puts an argument, which assumes against himself that the evidence has been accepted, but submits that it is not capable of establishing the fact. The party saddled with the onus on the other hand cannot assume in his favour that the evidence is or ought to be accepted since this trenches upon the liberty of the tribunal of the fact to accept or reject any evidence.” [34]

20. [81]

    Whatever the weight of that authority, it is difficult to identify any error of law in the reasoning of the Appeal Panel. None was identified by the plaintiffs.

21. [82]

    For these reasons, ground 3a, in so far as it challenged specific findings of the Appeal Panel, must be rejected. To the extent that the particulars extended beyond any specific ground, they cannot establish error in the Appeal Panel on any question of law presented to it or which was implicit in submissions made to it.

22. [83]

    Although this ground may be rejected on a limited basis, it is appropriate to set out the ground in full with its particulars:

23. [84]

    The Entertainment Industry Act was referred to but briefly in the plaintiffs’ written submissions. The thrust of the analysis of the Entertainment Industry Act was that the industry is regulated “on the basis that the performers are not employees of the performer representative or the client and it is not envisaged that an employment relationship exists between these entities.” [35] It was then stated that “the Appeal Panel did not have regard to the terms and operations of the Entertainment Act” in interpreting s 37 of the Payroll Tax Act.

24. [85]

    There were three problems with this submission. First, the Entertainment Industry Act post-dated s 37 of the Payroll Tax Act by 15 years. It was not explained how the meaning of s 37, properly construed, should be affected by such later legislation. For reasons already explained, the two Acts covered entirely different territory. Nothing in the Payroll Tax Act affected the relationship of the parties for other purposes.

25. [86]

    Secondly, while it is true that the Appeal Panel did not consider the operation of the Entertainment Industry Act, it did not do so because it was not raised as a ground of appeal before it. The Panel did not err on any relevant question of law by failing to take the Entertainment Industry Act into account.

26. [87]

    Thirdly, and no doubt unsurprisingly given the first difficulty, no error was identified in the reasoning of the Tribunal, which might in some way have been implicit in the reasoning of the Appeal Panel. The plaintiffs relied upon the Entertainment Industry Act to establish that “the models are not their employees”. [36] However, that Act was not identified by the parties as giving rise to any issue for determination. [37] To the extent that the discussion at [125]-[128] took the matter any further, it was merely to note that the Tribunal rejected the submission that “because the industry is regulated on the premise that there is no employment, or wage, relationship between the applicants and the talent”, that supported “the applicants’ contentions otherwise set out in these submissions”. [38] As a matter of fact, the Tribunal did not accept that the plaintiffs operated under the Entertainment Industry Act as they conceded that “income derived from work by models was paid by the [the plaintiffs] into a Bella Management general account” and that “no trust account was operated by [the plaintiffs]”. [39]

27. [88]

    The proposition in ground 3b(vi) that the models were not the plaintiffs’ employees for the purposes of the Entertainment Industry Act may be accepted, if that Act applied to their operations at the relevant time. However, as explained above, that has no consequence for the construction and application of s 37 of the Payroll Tax Act. Accordingly, there is no substance in the ground: ground 3b must be rejected.

28. [89]

    Ground 4 stated that the revised grounds of appeal filed after the hearing included a challenge to the imposition of penalties and the failure to accept an application for remission of penalties. The failure to consider the ground was said to constitute procedural unfairness to the plaintiffs.

29. [90]

    There is no dispute that issue 7 before the Tribunal asked whether penalty tax should be remitted. Section 33 of the Taxation Administration Act 1996 (NSW) provides for the Chief Commissioner to remit penalty tax “in such circumstances as the Chief Commissioner considers appropriate”. The plaintiffs bore the onus of demonstrating grounds upon which the tax should have been remitted. The plaintiffs’ submission was based on the proposition that they “took reasonable care to comply with the taxation law”. They accepted that they bore the onus of establishing that they had done so. [40] The Tribunal found there was “no evidence … that [the plaintiffs] sought relevant professional internal or external advice before 14 March 2016.” [41] The Tribunal was therefore not satisfied that the plaintiffs took reasonable care to comply with the tax law. [42] (The Chief Commissioner had accepted that the plaintiffs obtained relevant advice on 14 March 2016 and no penalty tax was levied thereafter.)

30. [91]

    The plaintiffs’ notice of appeal to the Appeal Panel did not mention the finding with respect to penalty tax in the statement of grounds. The plaintiffs did seek relief from penalty tax and interest, but presumably on the basis that they were not otherwise liable for payroll tax.

31. [92]

    In these circumstances, it is necessary to go to the proceedings before the Appeal Panel to note how the issue arose and came to be included in the revised statement of grounds of appeal filed after the hearing in the Appeal Panel.

32. [93]

    In written submissions dated 25 November 2020, the plaintiffs stated, under the heading “Penalties”:

33. [94]

    In written submissions in response filed on 15 December 2020, the Chief Commissioner noted his concession (accepted by the Tribunal) that the plaintiffs took reasonable care to comply with the taxation law from 14 March 2016 because they had received advice on that date from a registered tax agent, to the effect that they were not liable for payroll tax. The Chief Commissioner also agreed that the penalty tax would fall away if the primary tax were not payable. Otherwise he submitted that there was “no reason to revisit the issue of penalty tax. The appellants’ attempt … to reopen the issue based on new evidence should be rejected. No explanation has been given for failing to adduce that evidence at first instance.” [43]

34. [95]

    The plaintiffs’ written submissions before the Appeal Panel had identified three critical findings in par 17, namely that the models (a) worked on site for the client, (b) were continuously or regularly employed, and (c) were akin to the client’s staff.

35. [96]

    Early in the course of the hearing on 22 January 2021, counsel for the plaintiffs summarised the issues in dispute by reference to the three matters noted above. [44] The Principal Member then took him to the three errors set out in par 17 of the written submissions and went through each of (a), (b) and (c) with him. [45] It then appeared that there had been some difficulty in identifying the footnotes in the document provided to the Appeal Panel and counsel offered to provide a further copy, an offer accepted by the Principal Member, who continued: [46]

36. [97]

    After counsel for the plaintiffs (Mr Bennett) had completed his submissions, the following exchange took place: [48]

37. [98]

    It was clear from these exchanges that no further evidence was read with respect to the remission of penalty tax. There was no challenge to the finding of the Tribunal that there was “no evidence” to warrant remission of tax before the conceded date, namely 14 March 2016. No submissions were made in respect of penalty tax, other than the Chief Commissioner’s objection to the claims noted at [94] above, made without evidence. Finally, the leave granted to reformulate the grounds patently related to the three grounds discussed earlier in the passages from the transcript noted above. These did not include any challenge in relation to penalty tax.

38. [99]

    There are two possible ways in which the inclusion of ground 4 (penalty tax) in the reformulated grounds may be addressed. First, because no leave was given to rely upon such a ground the inclusion of it in the document provided after the hearing was an abuse of process. If so, there was no need for the Appeal Panel to address it in its reasons for decision.

39. [100]

    Alternatively, if it were permissible to include the additional ground, there was no evidence to support it, no application for leave to rely upon new evidence to challenge a factual finding, and no submissions in support of the ground other than the statement that certain facts existed, contrary to those found by the Tribunal. Again, there being nothing material to support the ground, the Appeal Panel was not required to address it.

40. [101]

    The preferable view is that the inclusion of ground 4 was an abuse of process. However, on either view, there was no obligation on the Appeal Panel to address the ground. It could not, therefore, be said that there was some constructive failure to complete the task on which the Appeal Panel was engaged. Ground 4 in the summons must be rejected.

Determination of appeal

1. [102]

   For these reasons, the appeal must be dismissed with costs.

A textual construction of s 37

1. [103]

   The range of implied constraints on the statutory language proposed in the case law has already been addressed: it was suggested at [41] above that, absent the impermissible glosses, the appeal would founder on a textual approach to s 37. In 1960, in a case involving the meaning of the phrase “in the course of his employment” in workers’ compensation legislation, Windeyer J stated: [49]

2. [104]

   The temptation besets the construction of s 37. In UNSW Global, with which the analysis of the parties in this case commenced, White J declined to give the provision its natural and ordinary, or literal, meaning because that would lead to “an absurd or unreasonable result.” [52] Examples were given of “far reaching and unintended consequences.” [53]

3. [105]

   White J noted that the Chief Commissioner “accepted”, or “ultimately accepted”, that the scope of the employment agency contract definition should be “confined by the notion that it applied only to a person who could otherwise be regarded as an employment agent, that is to say, could be regarded as an employment agent otherwise than merely from the fact that he or she or it procured the services of another person for a client.” [54] White J continued:

4. [106]

   The judge ultimately abandoned the approach adopted in Freelance Global, [55] preferring a “purposive construction” advanced by UNSW Global which was not advanced in Freelance Global. [56]

5. [107]

   With respect, this reasoning is not altogether persuasive, for several reasons. First, the difference between the argument propounded by the taxpayer and rejected in Freelance Global and that advanced by UNSW Global appeared to be more a matter of degree than novelty. Secondly, there was no consideration of the extent to which a single judge of the Court is bound by an earlier judgment on precisely the same legislation in similar circumstances, whether or not it was given by the same judge. Arguably the test which applies to earlier judgments of intermediate courts, namely that there must be “compelling reasons” to depart from the earlier decision, should apply in principle to single judges of the Supreme Court. [57]

6. [108]

   As to the substance, the starting point for the change in reasoning was a submission that, were the Chief Commissioner’s contentions to be accepted, “many like arrangements would attract payroll tax which could not have been contemplated by Parliament.” [58] Examples were given: it suffices to consider two. The first was said to be “barristers engaged by a law firm for clients of that firm … [which] would be liable to pay payroll tax on the payments made by the law firm to a barrister chosen by the law firm, for the services provided by the barrister to the client of the law firm.” A second example was identified as “[p]ayments to an interior designer engaged by an architect to design the interiors of the architect’s client’s home”. The assumption was that each of these examples would be caught by s 37 if the language of that section were given its ordinary and literal meaning. It was then concluded that that outcome would be “absurd and unreasonable” and that the text must therefore be “read down” so as to avoid that conclusion.

7. [109]

   However, White J in UNSW Global, as he had done in Freelance Global, rejected a contention that weight should be placed on the ordinary meaning of “employment agency”, in place of, or as a constraint on, the defined term. The rejection of the submission was undoubtedly correct. The submission disregarded clear statements in the High Court dismissing such an approach, as in Owners of the Ship ‘Shin Kobe Maru’ v Empire Shipping Co Inc, [59] and noting the potential circularity of such reasoning, as in Independent Commission Against Corruption v Cunneen. [60]

8. [110]

   Rather, UNSW Global placed weight on the intended “mischief” addressed by the amending legislation of 1998, as derived from the Second Reading speech set out at [29] above. As has been noted, it is by no means clear, (i) that the Minister was referring to employment agency contracts as opposed to “relevant contracts”, and (ii) what was being identified as “tax avoidance”. Division 8 is not expressly an anti-avoidance measure; rather, it has an anti-avoidance measure within it, namely s 42. The definitional provisions in Div 8 contain no requirement of a tax avoidance intention or effect. Nor have the glosses on the statutory language expressly adopted such a criterion. Indeed, it is not possible to define an implied limitation by reference to such an indefinite criterion.

9. [111]

   Thus, supposing Div 8 is a set of tax avoidance provisions, it may be doubted whether significant assistance as to the boundaries of its operation may be gleaned from statements at high levels of generality. On occasion the High Court has placed significant emphasis on such extrinsic material, as in The Queen v A2, [61] but less often in tax cases. As Gleeson CJ said in Carr v Western Australia: [62]

10. [112]

    It is true that the Minister asserted that amendments would not affect “genuine independent contractors”. But again, it is difficult to be sure to what he was referring. It may have been to the practice of a small trader, such as a licensed electrician, operating through a company. There the tradesperson initiates contact with the client and performs the services. It would be artificial to describe the sole trader company as procuring the services of its employee and controller for a customer. That arrangement is not caught by s 37. However, where an agent provides services of another person to a customer, the service provider must be an independent contractor of the customer or s 37(2) would exclude the arrangement (no doubt because the customer would be liable to pay tax under other provisions).

11. [113]

    It is not necessary to decide whether each of the examples of “absurd” results identified in UNSW Global required the reading of words into the definition. Indeed, that exercise could not properly be undertaken without reference to the specific contractual arrangements between the agent and the service provider. However, when one examines the contractual arrangements in the case of barristers, it is clearly arguable that there is no relevant arrangement between the solicitor (the putative agent) and the barrister (the putative service provider) which would result in the payment made to the barrister by the solicitor to be taken as wages paid by the solicitor under the terms of Div 8. To focus on the relationship between the barrister and the client is to disregard the element of the arrangement to which the tax liability attaches.

12. [114]

    Furthermore, to rely on examples which do not arise on the facts under consideration to construe a statute risks “[t]he text becom[ing] submerged in the illustrations.”

13. [115]

    This is a case where it is not possible to say that the drafter has made a mistake, or achieved an absurd and unintended result, where an alternative construction is reasonably clear. It follows that the general principles espoused, but departed from, in Cooper Brookes (Wollongong) Pty Ltd v Commissioner of Taxation [63] should be applied. As stated by Gibbs CJ: [64]

14. [116]

    It is not an acceptable construction of the statute to adopt language which has been used in the past but removed and replaced. The existing case law warrants appellate review.

Conclusions

1. [117]

   Counsel for the plaintiffs disclaimed reliance on the so-called “Bayton factors”, referring to the approach identified in Bayton v Chief Commissioner. He submitted that the Court should uphold the appeal by construing s 37(1), and that the Appeal Panel was in error in addressing the case on the basis of the Bayton factors. However, he did not embrace the alternative construction suggested above.

2. [118]

   Counsel for the Chief Commissioner, while focusing on the matters which had been presented in submissions to the Appeal Panel, and on which it decided the case, acknowledged that the Court was not bound to adopt the readings of the statute proposed by the parties.

3. [119]

   Nevertheless, the issues raised above should not, and cannot, be resolved in this case. An assessment of the correctness of the approach of various judges of the Court, some more cautious than others, should await a case where it is directly addressed. It is sufficient that, whether on the arguably conflicted construction of the Act it was asked to apply, or on a different approach following more closely the text of Div 8, the appeal must be rejected.

Orders

1. [120]

   The Court makes the following orders:

   1. (1)

      Grant the plaintiffs leave to appeal.

   2. (2)

      Dismiss the appeal.

   3. (3)

      Order that the plaintiffs pay the Chief Commissioner’s costs in this Court.