Banfirn Pty Ltd v Chief Commissioner of State Revenue

1. [1]

   PAYNE J: This is a case commenced by Banfirn Pty Ltd (“Banfirn”) challenging the following assessments of payroll tax, penalties and interest issued by the Chief Commissioner under the Payroll Tax Act 2007 (NSW): [1]

   1. (1)

      1 July 2012 to 30 June 2013 in the amount of $38,151.79; [2]

   2. (2)

      1 July 2013 to 30 June 2014 in the amount of $107,125.77; [3] and

   3. (3)

      1 July 2014 to 30 June 2015 in the amount of $151,954.14. [4]

2. [2]

   Banfirn applied for a review of the respective assessments pursuant to s 97(1)(a) of the Taxation Administration Act 1996 (NSW). The proceedings in this Court are an “appeal” for the purposes of s 19(2) of the Supreme Court Act 1970 (NSW) and s 97(4) of the Taxation Administration Act. An appeal under these provisions is a de novo review not limited to the materials before the Chief Commissioner: Tasty Chicks Pty Ltd v Chief Commissioner of State Revenue (2011) 245 CLR 446; [2011] HCA 41 at [12]-[22]; Grain Growers Ltd v Chief Commissioner of State Revenue [2015] NSWSC 925 at [7].

3. [3]

   Banfirn bears the onus of proving its case on the balance of probabilities: Taxation Administration Act, s 100(3).

Relevant facts

1. [4]

   Banfirn was a group member, pursuant to the provisions in Part 5 of the Payroll Tax Act, with each of Linsari Pty Ltd (“Linsari”) and Kalnosa Pty Ltd (“Kalnosa”). [5] No challenge is made to that grouping decision. Banfirn accepts that the consequence of ss 81(1) and 81(3)(a) of the Payroll Tax Act is that in the event the assessments based on the contracts with Linsari and Kalnosa are correct, the assessments are unpaid and Banfirn is jointly and severally liable to pay the amounts identified in the assessments to the Chief Commissioner.

2. [5]

   Banfirn advances a single ground of challenge to the assessments. That challenge is that neither Linsari nor Kalnosa was liable to pay payroll tax under s 37 of the Payroll Tax Act and hence there is no liability to attach to Banfirn via the joint and several liability provision in s 81(1) of the Payroll Tax Act.

3. [6]

   Banfirn carries on business providing “formwork” on construction projects. Examples of the head contracts, and works pursuant to which contracts Banfirn performs, were contained in Exhibit A. [6] The contracts between Banfirn and the head contractors required the performance of work by Banfirn to detailed standards and specifications. Linsari and Banfirn entered into a Labour Hire & Sub-Contract Agreement and a Management Labour Agreement. Kalnosa and Banfirn entered into two identical agreements. These are what the Chief Commissioner identified as the “employment agency contracts” for the purposes of s 37 of the Payroll Tax Act at the heart of these proceedings.

4. [7]

   The evidence before me was contained in a five-volume Court Book, which was marked Exhibit A. [7] Neither party took me in any detail to the vast majority of documents contained in Exhibit A. The only affidavits read were filed by the Chief Commissioner. Those affidavits essentially exhibited the relevant documents and explained the history of the assessments and the objection process. Banfirn read no affidavit evidence and relied in particular upon the terms of the contracts between Linsari and Banfirn and the identically worded contracts between Kalnosa and Banfirn. It is to the provisions of those contracts I now turn.

5. [8]

   The Labour Hire & Sub-Contract Agreement between Banfirn and each of Linsari and Kalnosa provides, relevantly:

6. [9]

   Matters contained in that contract relevant to the decision I am asked to make are:

   1. (1)

      Recitals A and B record, respectively, that Banfirn trading as “Nuform Constructions (NSW)” (“Nuform”) has secured and will continue to secure formwork sub-contracts [8] and Linsari/Kalnosa is capable of supplying labour to Banfirn to enable it to complete such sub-contracts.

   2. (2)

      Clause 2.1 provides that Linsari/Kalnosa agrees to supply labour to Banfirn in such numbers and with workers possessing such necessary skills so as to enable Banfirn to meet its obligations under its sub-contracts.

   3. (3)

      Clause 2.3 provides that Linsari/Kalnosa will ensure that all employees undertaking work will do so in a competent and tradesman-like manner and in accordance with the requirements of the sub-contract between Banfirn and the builder. Mr Hale SC emphasised that this obligation required Linsari/Kalnosa to perform the formwork required by the head contract to the standard required by that head contract. Linsari/Kalnosa were each liable to indemnify Banfirn for damages and delays arising from work performed which was not in accordance with the requirements of the head contractor.

   4. (4)

      Clause 3.1 provides the method by which payment from Banfirn to Linsari/Kalnosa will be calculated. Mr Hale SC emphasised that the payment formula is that Banfirn will pay to Linsari/Kalnosa $39.00 (plus GST) per square metre of formwork (surface contact area) formed on specific or special projects, or any such other rate that may be agreed from time to time.

7. [10]

   The Management Labour Agreement between Banfirn and each of Linsari and Kalnosa provides, relevantly:

8. [11]

   Matters contained in that contract relevant to the decision I am asked to make are:

   1. (1)

      Recitals A and B record, respectively, that Banfirn trading as Nuform has secured and will continue to secure formwork sub-contracts and Linsari/Kalnosa is capable of supplying Banfirn with management and administrative services to enable it to complete its sub-contracts.

   2. (2)

      Clause 2 provides that Linsari/Kalnosa agrees to supply management and administrative services to Banfirn with professional staff possessing such necessary skills so as to enable Banfirn to meet its obligations under its sub-contracts.

   3. (3)

      Clause 2.3 provides that Linsari/Kalnosa will ensure that all employees undertaking work will do so in a competent and professional manner and in accordance with the requirements of the sub-contract between Banfirn and the builder.

   4. (4)

      Clause 3.1 provides the method by which payment from Banfirn to Linsari/Kalnosa will be calculated. Mr Hale SC emphasised that the payment formula is that Banfirn agrees to pay to Linsari/Kalnosa $9.00 (plus GST) per square metre of formwork (surface contact area) formed on specific or special projects, or any other such rate that may be agreed to from time to time.

9. [12]

   Linsari’s and Kalnosa’s only income, in the periods the subject of the assessments, was earned from their respective relationships with Banfirn.

Banfirn’s submissions

1. [13]

   Banfirn’s central proposition is simple to state. It was submitted that each agreement between Banfirn on the one hand, and Linsari and Kalnosa on the other, essentially concerned the provision and delivery of a “specific good” [9] rather than the provision of labour, thereby taking the contracts outside of s 37(1) of the Payroll Tax Act.

2. [14]

   Banfirn submitted that the correct characterisation of each agreement with Linsari and Kalnosa was as one requiring provision of formwork paid for on a per metre basis. Linsari and Kalnosa were not, it was submitted, required by the contracts to procure the services of contractors for Banfirn.

3. [15]

   Banfirn accepted that labour was procured by Linsari and Kalnosa under the agreements but characterised that as “ancillary to the provision of the formwork”. It was said that by reason of the absence of control by Banfirn of staff provided by Linsari and Kalnosa it should be concluded that Linsari and Kalnosa did not procure the services of contractors “for” Banfirn within the meaning of s 37 of the Payroll Tax Act.

Legislative provisions

1. [16]

   Division 8 of Part 3 of the Payroll Tax Act 2007 (NSW) provides, relevantly: [10]

2. [17]

   The legislative background to the employment agency contract provisions of the previous legislation (the Pay-roll Tax Act 1971 (NSW)) was considered by White J in Freelance Global Ltd v Chief Commissioner of State Revenue [2014] NSWSC 127 at [143]-[148]. Relevantly, his Honour there set out, at [146], what was said by the Minister for Employment and Minister for Finance in 1985 when introducing the Bill that became the Payroll Tax (Amendment) Act 1985 (NSW): [11]

3. [18]

   With effect from 1 January 1988, the legislation was amended (see the Payroll Tax (Amendment) Act 1987 (NSW)), such that the liability for payroll tax for workers engaged through an employment agent (as defined) was borne by the client “using the worker’s services”, rather than by the employment agent. However, there was a subsequent amendment introduced by the State Revenue Legislation (Miscellaneous Amendments) Act 1998 (NSW). The change in 1988 in NSW again placed liability for payroll tax on the employment agent rather than the client. At the time, the Minister said: [12]

Consideration

1. [19]

   Neither party addressed the appropriate principles of statutory construction. I propose to proceed on the principles identified in Federal Commissioner of Taxation v Consolidated Media Holdings (2012) 250 CLR 503; [2012] HCA 55 at [39], by the High Court, quoting Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (2009) 239 CLR 27; [2009] HCA 41 at [47] (Hayne, Heydon, Crennan and Kiefel JJ):

2. [20]

   I will proceed on the basis that, although statutory construction must begin with a consideration of the text, the statutory text must be considered in its context and that context includes legislative history and extrinsic materials.

3. [21]

   The question before me is whether the Labour Hire & Sub-Contract Agreements and Management Labour Agreements were “employment agency contracts” within the meaning of s 37 of the Payroll Tax Act. Expressed another way, were the Labour Hire & Sub-Contract Agreement and the Management Labour Agreement contracts under which Linsari and Kalnosa procured the services of another person for a client of Linsari and Kalnosa, namely Banfirn?

4. [22]

   The effect of the provisions in Division 8 of Part 3 of the Payroll Tax Act is to impose payroll tax on “employment agents” who provide the services of third parties to their “clients”.

5. [23]

   Banfirn’s proposition that each agreement essentially concerns the provision and delivery of a “specific good” as distinct from the provision of services, thereby taking the contracts outside of s 37(1) of the Payroll Tax Act, should be rejected.

6. [24]

   In Securecorp (NSW) Pty Ltd v Chief Commissioner of State Revenue [2019] NSWSC 744 I addressed the history of s 37(1) of the Payroll Tax Act at some length. The relevant provisions were also considered by White J in Freelance Global Ltd v Chief Commissioner of State Revenue [2014] NSWSC 127 and UNSW Global Pty Ltd v Chief Commissioner of State Revenue [2016] NSWSC 1852, by Kunc J in JP Property Services Pty Limited v Chief Commissioner of State Revenue [2017] NSWSC 1391 and by Ward CJ in Eq in both H R C Hotel Services Pty Ltd v Chief Commissioner of State Revenue [2018] NSWSC 820 and Bayton Cleaning Co Pty Ltd v Chief Commissioner of State Revenue [2019] NSWSC 657.

7. [25]

   The relevant propositions which emerge from the text of the statute in its context, that context including legislative history and extrinsic materials, have earlier been identified in other decisions of this Court:

   1. (1)

      The employment agency provisions were not intended to apply only to employment agents or labour hire firms as those expressions are said to be generally understood. That appears from the text of s 3C (the statutory predecessor to s 37) and s 37 and from the language used in other legislation at the relevant times regulating the licensing of employment agents. [13]

   2. (2)

      The word “procure” in s 37(1) of the Payroll Tax Act means more than facilitate or enable and requires that the employment agent cause the services of a contract worker (or service provider) to be provided to the employment agent’s client, with the expenditure of care or effort by the employment agent.

   3. (3)

      Section 37(1) of the Payroll Tax Act should be construed as referring to a contract under which a person (the employment agent) procures the services of another person “in and for the conduct of the business of the employment agent’s client”. [14]

   4. (4)

      A number of verbal formulations have been offered about the identity of the contracts to which s 37(1) applies as being contracts:

   5. (5)

      I agree with Ward CJ in Eq 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. [18]

8. [26]

   In the present case I have come to a clear view that the Labour Hire & Sub-Contract Agreement and the Management Labour Agreement are each contracts under which Linsari and Kalnosa procured the services of qualified people to complete formwork for a client, namely Banfirn.

9. [27]

   Each of those contracts was an “employment agency contract” within the meaning of s 37(1) of the Payroll Tax Act. This is for the following reasons:

   1. (1)

      each contract clearly provided for Linsari and Kalnosa to supply labour (cl 2.1 of the Labour Hire & Sub-Contract Agreement) or staff (cl 2 of the Management Labour Agreement) to work in the business of Banfirn;

   2. (2)

      Linsari and Kalnosa procured, in the sense of caused, the supply of labour and staff to Banfirn at Banfirn work-sites and caused those labourers and staff to provide services “in and for the conduct of the business of [Banfirn]”;

   3. (3)

      those labourers and staff supplied by Linsari and Kalnosa to Banfirn carried out an essential function of Banfirn’s business by completing the formwork Banfirn had contracted with the various head contractors to supply; and

   4. (4)

      those labourers and staff comprised the workforce of Banfirn for the conduct of Banfirn’s business. On the evidence before me, the labourers worked on Banfirn work-sites, the work was performed with apparent regularity and continuity and the work was of a kind done in the ordinary conduct of Banfirn’s business.

10. [28]

    In the case of the Labour Hire & Sub-contract Agreement, by cl 2.1 of that agreement, each of Linsari and Kalnosa agreed to and did “supply labour to [Banfirn] in such numbers and with workers possessing such necessary skills so as to enable [Banfirn] to meet its obligations under its sub-contracts”. The contract could scarcely be clearer in demonstrating that the Labour Hire & Sub-contract Agreement was a contract “under which [Linsari/Kalnosa] procures the services of another person … [the labourers] … for a client [Banfirn] of… [Linsari/Kalnosa]”.

11. [29]

    In the case of the Management Labour Agreement, by cl 2 of that agreement, each of Linsari and Kalnosa agreed to “supply management and administrative services to [Banfirn] with professional staff possessing such necessary skills so as to enable [Banfirn] to meet its obligations under its sub-contracts”. I am satisfied that the Management Labour Agreement was a contract “under which [Linsari/Kalnosa] procures the services of another person … [the professional staff] … for a client [Banfirn] of … [Linsari/Kalnosa]”.

12. [30]

    I reject Banfirn’s reliance on the mechanism adopted in each contract for determining the amount payable by Banfirn to Linsari and Kalnosa (cl 3.1 in each agreement) as demonstrating that each agreement essentially concerned the delivery of a “specific good”.

13. [31]

    The premise of Banfirn’s submission is not correct. Clause 2.1 of the Labour Hire & Sub-contract Agreement and cl 2 of the Management Labour Agreement identify what Linsari and Kalnosa agreed to supply to Banfirn, namely, the labour and services of people to enable Banfirn to complete its obligations to supply formwork to the head contractors. The mechanism adopted in each contract for determining the amount payable by Banfirn to Linsari and Kalnosa does not have the consequence that each of Linsari and Kalnosa did not agree to and “supply labour to [Banfirn] in such numbers and with workers possessing such necessary skills so as to enable [Banfirn] to meet its obligations under its sub-contracts”. To the contrary, the payment mechanism underlines my conclusion that Linsari and Kalnosa were contractually obliged to supply sufficient skilled labour to Banfirn to permit Banfirn to meet its formwork obligations to the relevant head contractor.

14. [32]

    These conclusions are sufficient to deal with Banfirn’s case. As I have earlier explained, that case was limited to the proposition that the contracts essentially concerned the provision and delivery of a “specific good” rather than the provision of labour.

15. [33]

    An argument indistinguishable from the one put by Banfirn in this case has been rejected in two earlier decisions of the Court: Bayton at [105] and HRC Hotel Services at [153]. [19] Contrary to Mr Hale SC’s formal submission that her Honour’s decisions were wrong and should not be followed, I regard the decisions of Ward CJ in Eq as plainly correct.

16. [34]

    In HRC Hotel Services, the plaintiff (who had cleaning contracts with some major hotel groups) paid fees to Platinum Group and Platinum for the provision of additional staff to assist it to procure the services it had agreed to supply to those major hotel groups. It was argued that payments to Platinum Group and Platinum were based on the number of rooms cleaned and thus the contract was one to produce the required result rather than a contract for the supply of services.

17. [35]

    After a detailed consideration of the evidence and the parties’ submissions Ward CJ in Eq concluded:

18. [36]

    To like effect, Kunc J in JP Property Services described an argument very similar to the one advanced here as involving a distinction which was “not exclusively binary”:

19. [37]

    In Bayton at [105] Ward CJ in Eq held:

20. [38]

    Banfirn accepts that I would follow Ward CJ in Eq in HRC Hotel Services and Bayton. Mr Hale SC, however, submitted that those cases were distinguishable from this case. Mr Hale SC very properly accepted that this was a difficult argument for him to succeed on. I agree. Banfirn’s case is founded on the same factual premises as were rejected in HRC Hotel Services and Bayton. As in Bayton and HRC Hotel Services, payment under the relevant contracts was structured by reference to results, here formwork completed. For reasons relevantly indistinguishable from those given at [27] in the present case, the contracts in HRC Hotel Services and Bayton were held to be “employment agency contract(s)” within s 37(1) of the Payroll Tax Act. Banfirn does not rely on any other challenge to the assessments.

Orders

1. [39]

   It follows that the orders of the Court are:

   1. (1)

      Summons dismissed.

   2. (2)

      Plaintiff to pay the costs of the defendant as agreed or assessed.