Securecorp (NSW) Pty Ltd v Chief Commissioner of State Revenue

1. [1]

   PAYNE J: This is a case arising under s 37 of the Payroll Tax Act 2007 (NSW). Securecorp (NSW) Pty Ltd (“Securecorp”) is a provider of security services under contracts with, inter alia, Westfield Shopping Centre Management Co Pty Ltd (“Westfield Management Co”) and Jones Lang LaSalle (NSW) Pty Ltd (“JLL”).

2. [2]

   On 29 September 2016, the Chief Commissioner issued Securecorp payroll tax assessments on amounts it paid to its subcontractors under security subcontracts for the financial years ended 30 June 2012 to 30 June 2015 (“the relevant period”). It is not in dispute that the subjects of the review are the assessments as opposed to subsequent decisions on the objection. The proceedings 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 1996 (NSW); the review is a de novo review not limited to the material before the Chief Commissioner: Tasty Chicks Pty Ltd v Chief Commissioner of State Revenue of New South Wales (2011) 245 CLR 446; [2011] HCA 41 at [12]-[22]. The plaintiff bears the onus of proving their case on the balance of probabilities: s 100(3) of the Taxation Administration Act.

3. [3]

   Although there were a number of issues raised in the pleadings, at the hearing before me, Mr Condon SC who appeared with Mr Barlin for Securecorp, pressed only challenges to the assessments as they related to contracts between Securecorp and Westfield Management Co and Securecorp and JLL.

4. [4]

   Concerning Westfield Management Co, the contracts between Securecorp and Westfield Management Co related to eight shopping centres. The owners of those centres, usually a responsible entity under a managed investment scheme, had separate contracts with Westfield Management Co, which were also in evidence before me.

5. [5]

   Concerning JLL, the contracts between Securecorp and JLL related to three office buildings. The owners of those buildings had separate contracts with JLL, which were in evidence before me.

6. [6]

   Securecorp accepted that the contracts it had with Westfield Management Co and JLL all fell within the language of s 41 of the Payroll Tax Act but submitted that the language should be read down. For the reasons that follow that submission should be rejected and the proceedings dismissed with costs.

Relevant facts

1. [7]

   Securecorp read the affidavits of John Keith Orr-Campbell sworn on 24 September 2018 and Andrew White sworn on 11 April 2018. Mr Orr-Campbell was the joint managing director of the Securecorp Group until 17 June 2016. He set out in his affidavit the contractual arrangements between Securecorp, its clients and its subcontractors, the process of engaging subcontractors and the licences and insurance required to provide security services. He annexed to his affidavit Securecorp’s financial reports, company tax returns and the relevant contracts between Securecorp, its clients and its subcontractors. Mr White, solicitor for the plaintiff, annexed to his affidavit notices of assessments for the relevant period, a notice of objection to the assessments and various correspondence between Securecorp and the Chief Commissioner. There was no cross-examination of these witnesses. My findings based on the affidavits and documentary evidence are as follows.

2. [8]

   Securecorp principally provides security services in New South Wales. Some of these security services are provided by Securecorp’s employees. The assessments here in issue do not relate to services performed by Securecorp’s employees. Some of these security services are provided by persons provided by subcontractors. Securecorp engages, via subcontract, other companies who carry out security services for Securecorp’s clients.

3. [9]

   Securecorp engages its subcontractors as follows:

   1. (1)

      the subcontractor must enter into Securecorp’s standard form Security Services Agreement, which includes terms, inter alia, requiring the subcontractor to comply with all of the head contract terms and provisions and certify that all taxes, wages and liabilities (including payroll tax for the subcontractor’s own employees) are paid;

   2. (2)

      the subcontractor is required to sign a Subcontractor’s Statement making a declaration, inter alia, that the subcontractor has paid all payroll tax due in respect of its employees who have performed work for Securecorp; and

   3. (3)

      the subcontractor provides its own employees to Securecorp at an hourly rate.

4. [10]

   The relevant contracts between Securecorp and Westfield Management Co relate to eight shopping centres: Westfield Bondi Junction, Westfield Kotara, Westfield Hornsby, Westfield Liverpool, Westfield Miranda, Westfield Mount Druitt, Westfield Penrith, and Westfield Sydney.

5. [11]

   The registered proprietor of each relevant shopping centre is usually a responsible entity of a managed investment scheme (within the meaning of Ch 5C of the Corporations Act 2001 (Cth)). Each Responsible Entity is responsible, within that shopping centre, as the owner of the land. The owner of each shopping centre engaged Westfield Management Co to provide security services at the shopping centre. In evidence before me were the Property Management Agreements for:

   1. (1)

      Westfield Bondi Junction between Westfield Management Co, Westfield Management Ltd and RE1 Ltd, Westfield Ltd, and Westfield Management Ltd dated 20 December 2010. Westfield Management Ltd (as trustee for the Westfield Sub Trust F) and RE1 (as responsible entity of the Westfield Retail Trust 1) are together the unitholders. Westfield Management Ltd (as responsible entity of the Bondi Junction Trust) is the property owner;

   2. (2)

      Westfield Kotara between Westfield Management Co, Westfield Management Ltd and RE1 Ltd, Westfield Ltd, and Westfield Custodian Pty Ltd dated 20 December 2010;

   3. (3)

      Westfield Hornsby between Westfield Management Co, Westfield Management Ltd and RE1 Ltd, Westfield Ltd, and Perpetual Trustees WA Ltd dated 20 December 2010;

   4. (4)

      Westfield Liverpool between Westfield Management Co, Kent Street Pty Ltd and Westfield Management Ltd, Westfield Holdings Ltd, and Westfield Ltd dated 7 December 2001;

   5. (5)

      Westfield Miranda between Westfield Management Co, National Mutual Life Association of Australasia Ltd, Didus Pty Ltd, and PT Ltd dated 3 April 1990;

   6. (6)

      Westfield Mount Druitt between Westfield Management Co, Westfield Management Ltd and DB RREEF Funds Management Ltd, Stonehenge Pty Ltd, and Westfield Holdings Ltd dated 23 December 2004;

   7. (7)

      Westfield Penrith between Westfield Management Co, GPT RE Ltd and Westfield Management Ltd, Westfield Holdings Ltd, and Westfield Ltd dated 21 December 2005; and

   8. (8)

      Westfield Sydney between Westfield Management Co, Westfield Management Ltd and RE Nominee Co Pty Ltd, and Westfield Ltd dated 20 December 2010.

6. [12]

   Westfield Management Co engaged Securecorp to provide security services to it to enable Westfield Management Co to provide security services to the owner of the shopping centre. In evidence before me were the Security Services Agreements between Securecorp and Westfield Management Co for:

   1. (1)

      Westfield Bondi Junction dated 1 July 2012;

   2. (2)

      Westfield Kotara dated 1 July 2012;

   3. (3)

      Westfield Hornsby dated 1 July 2012;

   4. (4)

      Westfield Liverpool dated 1 July 2014;

   5. (5)

      Westfield Miranda dated 1 July 2014;

   6. (6)

      Westfield Mount Druitt dated 1 July 2014;

   7. (7)

      Westfield Penrith dated 1 July 2013; and

   8. (8)

      Westfield Sydney dated 1 July 2010.

7. [13]

   It was common ground that the Property Management Agreements and the Security Services Agreements were relevantly identical for each shopping centre, and that the agreements for Westfield Bondi Junction contained identical terms with the other agreements. Accordingly I will set out the relevant clauses of the Westfield Bondi Junction agreements and treat them as relevant to all of the Westfield agreements.

8. [14]

   In relation to Westfield Bondi Junction, there is a Property Management Agreement dated 20 December 2010 between Westfield Management Co (referred to as the Manager), Westfield Management Ltd (as trustee for the Westfield Sub Trust F) and RE1 Limited (as responsible entity of the Westfield Retail Trust 1) (together referred to as the Unitholders), Westfield Ltd, and Westfield Management Ltd (as responsible entity of the Bondi Junction Trust) (referred to as the Property Owner).

9. [15]

   Clause 1.1 relevantly defines the following terms:

10. [16]

    Clause 2.1 states:

11. [17]

    Clause 2.3.1 states:

12. [18]

    Clause 2.3.14 states:

13. [19]

    Clause 3.1 sets out the Manager’s obligations which relevantly include:

14. [20]

    Clause 3.2 sets out the Manager’s powers which relevantly include:

15. [21]

    Clause 4.6(b) states:

16. [22]

    Clause 8.1 states:

17. [23]

    Clause 8.5 states:

18. [24]

    In relation to Westfield Bondi Junction, there is a Security Services Agreement for Westfield Bondi Junction dated 1 July 2012 between Securecorp (referred to as the Contractor) and Westfield Management Co (referred to as the Manager).

19. [25]

    Clause 1.1 relevantly defines the following terms:

20. [26]

    Clause 3.1 states:

21. [27]

    Clause 4.3 states:

22. [28]

    Clause 6 states:

23. [29]

    Clause 11.3 states:

24. [30]

    Clause 14.3 states:

25. [31]

    Part A of Sch 2 provides security specifications and operational standards. Clause 1 therein defines the following terms:

26. [32]

    Clause 2 states:

27. [33]

    Clause 3.6.1 states:

28. [34]

    Part B of Sch 2 sets out “Guard Training and Induction” and the “Westfield Standard Wardrobe Specifications”, which relevantly states:

29. [35]

    The relevant contracts between Securecorp and JLL relate to three office buildings: 175 Liverpool Street, 161-167 Castlereagh Street and Legion House, and Chifley Tower and Plaza.

30. [36]

    The owners of those buildings engaged JLL to provide security services at the office buildings. Those contracts were in evidence before me:

    1. (1)

       175 Liverpool Street – Managing Agency Agreement between JLL and Sicard Pty Ltd dated 16 December 2014, and Property Management Agreement between JLL and Sicard Pty Ltd dated 13 January 2011;

    2. (2)

       161-167 Castlereagh Street and Legion House – Managing Agency Agreement between JLL and GPT Funds Managements Ltd and The Trust Company (RE Services) Ltd dated 30 July 2011; and

    3. (3)

       Chifley Tower and Plaza – Property Management Agreement between JLL and Reco Bathurst Pty Ltd dated 1 August 2014.

31. [37]

    JLL then engaged Securecorp to provide security services to it to enable JLL to provide security services to the owners of those buildings. Those contracts were in evidence before me:

    1. (1)

       175 Liverpool Street – Specialist Services Agreement for Manned Security Services between JLL and Securecorp dated 2 July 2013;

    2. (2)

       161-167 Castlereagh Street and Legion House – Building Services Contract for Manned Security Services between JLL and Securecorp dated 20 February 2013; and

    3. (3)

       Chifley Tower and Plaza – Specialist Services Agreement for Manned Security services between JLL and Securecorp dated 1 August 2013.

32. [38]

    I will set out the relevant clauses using the agreements for 175 Liverpool Street as an example, noting that it was common ground before me that the agreements for 161-167 Castlereagh Street and Legion House, and Chifley Tower and Plaza reflect a relevantly identical arrangement.

33. [39]

    In relation to 175 Liverpool Street, there is a Managing Agency Agreement dated 16 December 2014 between JLL and Sicard Pty Ltd (referred to as the Client). Clause 2.1 states:

34. [40]

    Schedule 2 sets out the scope of management services, which includes “Security and patrol services”.

35. [41]

    There is also a Property Management Agreement dated 13 January 2011 between JLL and Sicard Pty Ltd. Clause 1.1 provides:

36. [42]

    Clause 3.1 states:

37. [43]

    Clause 4 states:

38. [44]

    Schedule 1 sets out the scope of services, including at cl 2.5(a), “security”.

39. [45]

    In relation to 175 Liverpool Street, there is a Specialist Services Agreement for Manned Security Services dated 2 July 2013 between JLL (referred to as agent for the Owner) and Securecorp (referred to as the Specialist Supplier).

40. [46]

    Clause 4.1(a) states:

41. [47]

    Clause 6.6 states:

42. [48]

    Clause 14.9 states:

43. [49]

    Schedule 1 sets out the scope of services under the contract which includes “Security and Safety” and provides specific requirements for “Security Personnel” relating to, inter alia, “Morale”, “Staff Behaviour”, and “Minimum Service and Duties” such as “Adherence to the approved Standing Orders of the Property”.

Securecorp’s submissions

1. [50]

   Securecorp submitted that the relevant contractual agreements should be characterised as a “chain” of contractual relationships with the following characteristics:

   1. (1)

      Securecorp sources “service providers”, being people who actually perform cleaning and security services (the “providers”);

   2. (2)

      Securecorp contracts with other entities (the “contractors”), being, the Westfield managers, who themselves have contracts (either directly or via other contract(s)) to provide services to others (the “end users”), being the responsible entities; and

   3. (3)

      there are no direct contracts between Securecorp and the end users with respect to the provision of providers.

2. [51]

   Securecorp submitted that the end user is the entity which takes the ultimate benefit of the workers’ services. It was submitted that the emphasis is on the employment agent closest to the end user. It was submitted that the contractors, in the present case, readily can be, and should be, seen as the employment agent vis-à-vis the end users. They procure the services of the service provider to the benefit of the end user.

3. [52]

   It was submitted that the expression “end user”, while not contained in the relevant provisions, was used in the second reading speech (as quoted at [76] below) to the State Revenue Legislation (Miscellaneous Amendments) Bill 1998 (NSW) that introduced the precursor to s 37.

4. [53]

   It was submitted that, for the reasons given by White J in UNSW Global Pty Limited v Chief Commissioner of State Revenue [2016] NSWSC 1852; 104 ATR 577, a literal reading of s 37 would yield an outcome far beyond the mischief to be addressed.

5. [54]

   Securecorp submitted that White J, in UNSW Global at [49], noted that the provisions should be construed so as not to apply to all arrangements that could fall within their literal terms. Rather, the provisions should be construed in accordance with the legislative intent as ascertained from the statutory context, including the juxtaposition of the employment agency contract provisions with the relevant contract provisions, the legislative history, and the extrinsic materials.

6. [55]

   Securecorp submitted that the issue is how the Court should mitigate defects in the legislation. It was submitted that the provisions were intended to “secure the traditional tax base”, and not broaden it: UNSW Global at [40].

7. [56]

   Securecorp submitted that in H R C Hotel Services Pty Ltd v Chief Commissioner of State Revenue [2018] NSWSC 820 at [114]-[116], Ward CJ in Eq considered sufficient that the procurement of the services of the service provider be something that is done in order to perform the obligations contained in the asserted employment agency contract. At [152], her Honour stated:

8. [57]

   Alternatively, Securecorp submitted that it was not procuring the services of the service provider in and for the conduct of the business of the contractors, in the sense that the providers did not help the contractors conduct their business in the same way (or much the same way) that the contractors employees would. It was submitted that the relationship between the contractors and the end users (with respect to the providers) was at least one-step removed.

9. [58]

   Securecorp submitted that, if more than one employment agent in the chain could be liable for payroll tax in respect of the same services, then arbitrary consequences would follow: an agent who causes workers to be provided to the end user might not be assessed or would be assessed only for such additional amounts as they themselves pay which constitute “wages”; more than one agent might pay payroll tax referable to the same corpus of wages payable under the arrangement or undertaking; and the Act does not provide a mechanism by which one agent in the chain can ascertain whether another agent has paid payroll tax.

10. [59]

    Securecorp submitted that the words “arrangement” and “undertaking” in s 37(3) deliberately permit recourse to schemes which extend beyond the scope of a particular contract. A “contract” for the purposes of s 37(3) can thus include an “arrangement” by which the responsible entity contracts with the centre manager on terms which contemplate, permit and authorise the latter to provide security from its own resources or via resources sourced elsewhere.

11. [60]

    Securecorp submitted that s 41 does not dictate a different conclusion. Section 41 proceeds upon the assumption that there may be more than one person who is liable to pay payroll tax, and does not identify the “other person” as being another employment agent for the purposes of the arrangement. It deals with the unexceptional situation, where, as here, the plaintiff would, in the ordinary course, be otherwise liable to payroll tax on wages paid to its employees (for reasons unrelated to the operation of Div 8), and it excuses the plaintiff from that liability.

12. [61]

    It was submitted that the reasoning of White J in UNSW Global is at least consistent with the construction for which Securecorp contended. It was submitted that this construction gives effect to the purpose of s 37 because it fixes liability on the entity most proximate to the end user, is consistent with Div 8 of the Act as a whole, and most closely accords with Parliament’s intention as articulated by the Minister in the second reading speech. Securecorp acknowledged that, in UNSW Global, White J was not invited, or required, to consider the present issue.

13. [62]

    Securecorp submitted that White J considered the relevant question to be whether:

    1. (1)

       the service provider is procured to help the client conduct its business in the same way (or much the same way) as the client would through its employees, in which case s 37(1) is engaged; or

    2. (2)

       the service provider is not procured to work in the client’s business (as its employees would ordinarily do), notwithstanding that the services are for the client’s benefit, in which case s 37(1) would not be engaged.

14. [63]

    Securecorp submitted that, here, the plaintiff provides services for the benefit of the contractor, to allow the contractor (or others that contract above the contractor) to provide the providers services to the end user. In that regard, whether the provider is being used “for the client” must be determined by reference to the closest “employment agent” to the end user, of which the plaintiff is not.

15. [64]

    Securecorp submitted that White J in UNSW Global considered that the question is whether the relevant services are procured by the taxpayer “in and for the conduct of the business” of the taxpayer’s client. It was submitted that the providers (who may be procured by the plaintiff) do not provide services “for” the contractors, but rather, “for” the end users. Whilst the providers providing the services may be for the benefit of the contractors, the relevant test is whether they are enabling the end user (who is not a client of the plaintiff) to conduct its business in the same way (or much the same way) as the end user would have through its employees.

Chief Commissioner’s submissions

1. [65]

   The Chief Commissioner submitted that the fundamental issue is whether the relevant contracts were “employment agency contract” under s 37 of the Act. It was submitted that Securecorp’s case was put on a narrow basis which touched only one aspect of the definition of employment agency contract. That aspect is whether Securecorp procured the services of its subcontractors “for a client” (or for the clients) of Securecorp.

2. [66]

   The Chief Commissioner submitted that the effect of Div 8 of the Payroll Tax Act is to impose payroll tax on employment agents who provide the services of third parties to their clients.

3. [67]

   It was submitted that s 37(1) was interpreted by White J in UNSW Global to refer 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”: UNSW Global at [62]. It was submitted that White J’s construction was adopted by Kunc J in JP Property Services Pty Limited v Chief Commissioner of State Revenue [2017] NSWSC 1391 at [46], and by Ward CJ in Eq in HRC at [118]. The following propositions were said to be established by those cases about the correct interpretation of s 37:

   1. (1)

      “[T]he employment agency contract provisions were intended to apply to cases where the employment agent provided individuals who would comprise, or who would be added to, the workforce of the client for the conduct of the client’s business”: UNSW Global at [63];

   2. (2)

      “[The issue of whether individuals are working ‘in and for the conduct of the business of the employment agent's client’] will be determined by asking whether or not the individuals provided by the employment agents comprise, or are added to, the workforce of the client for the conduct of the client’s business. … [A]re the individual’s services provided to help the client conduct its business in the same way, or much the same way, as it would through an employee, or are they services which, although provided for the client’s benefit, are not provided by the service provider working in the client’s business?”: JP Property Services at [72], cited in HRC at [107].

4. [68]

   The Chief Commissioner submitted that previous cases suggest the following indicia for working in and for the conduct of a business:

   1. (1)

      the location of the work performed. Working on site is an indication of working in and for the client’s business;

   2. (2)

      whether the work is of a kind done “in the ordinary conduct of the client’s business”: UNSW Global at [69]. Services are more likely to be provided in and for the conduct of a business if they are necessary for the business, are provided on a regular basis, and/or are provided by a continuous workforce (that is, with reasonable continuity of staff); and

   3. (3)

      whether the work “would otherwise have been done by the [client’s] employees”: UNSW Global at [68].

5. [69]

   The Chief Commissioner submitted that the issue in this case turns on whether the security staff placed by Securecorp at its clients’ businesses worked “in and for the conduct” of those businesses. If they did, then the remainder of the s 37(1) definition is satisfied, because Securecorp clearly procured the services of its subcontractors to help perform its obligations under the security contracts.

6. [70]

   The Chief Commissioner submitted that Securecorp’s argument that its arrangements involved a “chain” of contractual relationships and employment agents should be rejected for the following reasons:

   1. (1)

      the word “client” should be given its ordinary meaning. The focus should be on whether Securecorp’s security staff were working in its clients’ businesses. This accords with the approach in UNSW Global at [62]-[65], whereas Securecorp’s focus on “end users” does not;

   2. (2)

      this Court has warned against “the vice of using the language of the second reading speech ... in substitution for the language of the statutory provision under consideration”: Norrie v NSW Registrar of Births, Deaths and Marriages (2013) 84 NSWLR 697; [2013] NSWCA 145 at [82] (Beazley ACJ, Preston CJ of LEC agreeing). Securecorp’s argument not only substitutes the Minister’s term “end user” for “client” in s 37 of the Act, but also construes the term “end user” by reference to Securecorp’s own definition, which appears neither in the Act nor in the second reading speech. This approach is divorced from the text of s 37 and goes well beyond the permissible use of extrinsic material under ss 34(1) and 34(2)(f) of the Interpretation Act 1987 (NSW);

   3. (3)

      second reading speeches are rarely, if ever, of assistance in elucidating the meaning of particular words: Waugh Hotel Management Pty Ltd v Marrickville Council [2009] NSWCA 390 at [140]-[145] (Campbell JA, Hodgson JA agreeing). Here, there is no warrant for taking “client” in s 37 of the Act to mean “end user” in the sense Securecorp uses the term;

   4. (4)

      there could be any number of entities taking the “ultimate benefit” of Securecorp’s services. On Securecorp’s own evidence, its services are provided “for the ultimate benefit of any (or all of) the responsible entity, the tenants and the public at large”. Other beneficiaries could include staff and contractors working at the premises. The construction of s 37 of the Act should not be governed by a nebulous term such as “ultimate benefit” that appears nowhere in the Act;

   5. (5)

      Securecorp’s case appears inconsistent with HRC and JP Property Services. The end users of housekeeping services in HRC were arguably the hotel guests (who pay for accommodation including room cleaning), and the end users of cleaning services in JP Property Services were arguably the supermarket customers (who walk on the cleaned floors). On Securecorp’s analysis, it would appear to follow (contrary to HRC at [153] and JP Property Services at [80]) that an employment agency contract could not possibly exist in such cases, because the HRC housekeepers and JP Property Services cleaners were not working in businesses operated by the “end users” (hotel guests or supermarket customers);

   6. (6)

      it is doubtful that the Westfield property managers are employment agents. The Westfield property management agreements appoint the property managers as sole managers and agents for the purposes of leasing, managing, operating, promoting, maintaining and administering the shopping centres. Thus the Westfield property managers were the operational entities with day to day employees and staff, including security staff, while the Westfield responsible entities were simply owners and lessors. If a choice must be made, it is more accurate to say Securecorp’s security staff were working in the managers’ businesses, not those of the responsible entities; and

   7. (7)

      a choice, however, need not be made, because a person can clearly work in more than one business at the same time: see JP Property Services at [54(5)], [69] citing Freelance Global v Chief Commissioner of State Revenue [2014] NSWSC 127 at [173]; HRC at [143]-[144]. Thus, one can say Securecorp’s staff worked in the businesses of the Westfield managers and of the Westfield responsible entities. There may be more than one client, and more than one employment agent, within a “chain” of contractual relationships.

7. [71]

   The Chief Commissioner submitted that the effect of ss 37-41 of the Act is that all employment agents in the chain are liable to pay payroll tax, but under certain circumstances, liability is excused under s 41. The intent of s 41 is to ensure that, in the circumstances it describes, double taxation is not imposed on the same set of wages. It was submitted that s 41 does not specify that any particular employment agent is liable to pay the payroll tax, but rather, assumes that, absent that section, multiple employment agents may be liable to pay payroll tax for the same set of wages. It was submitted that the words in parentheses – “any other person engaged to procure the services of the service provider for the employment agent's client as part of the arrangement” – clearly contemplate that the arrangement may involve more than one employment agent (by reason of more than one person procuring the same services). The Chief Commissioner submitted that, if only the employment agent closest to the end user is liable for payroll tax (as Securecorp contends), then the words in parentheses in s 41 would be unnecessary, as there would be no possibility of more than one employment agent being liable. It was submitted that this shows the plaintiff’s construction of s 37 is incorrect, and, that the language of s 41 contemplates multiple employment agents and not simply liability arising under different Divisions of the Act. The Chief Commissioner submitted that a similar argument, that only the employment agent “closest” to the end user is liable to payroll tax, was considered and rejected in Knight Watch at [38]-[61].

8. [72]

   The Chief Commissioner submitted that s 41 addresses the alleged “arbitrary consequence”, that more than one agent might pay payroll tax in respect of the same services. As for the alleged “arbitrary consequence”, that the Act does not provide a mechanism by which one agent in the chain can ascertain whether another agent has paid payroll tax, the Chief Commissioner submitted that ss 8-9 of the Act creates a self-assessment scheme where the obligation is on taxpayers to ascertain and pay their payroll tax liability. It was submitted that, consistent with that scheme, if taxpayers wish to be exempt under s 41, they may enter into commercial arrangements which ensure some other entity pays payroll tax in respect of the relevant services.

Relevant legislation

1. [73]

   Division 8 of Pt 3 of the Payroll Tax Act 2007 (NSW) provides:

Legislative history

1. [74]

   The employment agency contract provisions were considered 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; 104 ATR 577 by White J and more recently in JP Property Services Pty Limited v Chief Commissioner of State Revenue [2017] NSWSC 1391 by Kunc J, 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.

2. [75]

   The legislative background to the employment agency contract provisions of the previous legislation (the Pay-roll Tax Act 1971 (NSW)) was considered in Freelance Global 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):

3. [76]

   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). This followed the introduction in Victoria of comparable legislation, after the decision in Drake Personnel Ltd v Commissioner of State Revenue (Vic) (Supreme Court (Vic), Balmford J, 23 June 1998, unrep). The change in NSW again placed liability for payroll tax in respect of amounts paid for the services of contractors procured by an employment agent on the employment agent, rather than the client. At the time, the Minister said: [1]

Consideration

1. [77]

   The relevant principles of construction were not controversial in this case. In Federal Commissioner of Taxation v Consolidated Media Holdings (2012) 250 CLR 503; [2012] HCA 55 at [39], 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), stated:

2. [78]

   The fundamental issue is whether the relevant contracts were employment agency contracts under s 37 of the Act. That is, whether the contracts between Securecorp and Westfield Management Co and between Securecorp and JLL were contracts under which Securecorp (an employment agent) procures the services of another person (a service provider) for a client of Securecorp.

3. [79]

   The effect of Div 8 is to impose payroll tax on employment agents who provide the services of third parties to a “client”. Securecorp’s submission is that, on the proper construction of the employment agency contract provisions of the Payroll Tax Act, where there is a chain of contractual arrangements, it is only the “employment agent”, closest in that chain to the “end user” of the services of the person providing the services, who is the “client” upon whom liability for payroll tax arises.

4. [80]

   In the present case, so the argument goes, as the services of the person supplied by Securecorp are on-supplied under a separate contract by Westfield Management Co and JLL, relevantly, to the owners of the Westfield shopping centres or the owners of the JLL managed buildings, liability for payroll tax is imposed, if at all, on Westfield Management Co and JLL and not upon Securecorp. I have concluded, for the following reasons, that Securecorp’s contention is not correct.

5. [81]

   Securecorp’s argument relies heavily upon two related limbs. The first is the use of the term “end user” used by the Minister in the second reading speech quoted at [76] above. The second is an attempt to apply the “end user” concept to the language used by White J in UNSW Global of “the business” of the employment agent’s client.

6. [82]

   That is, the suggested construction provides that the focus in the section is upon the business of the employment agent’s client and that, in identifying the relevant business subject to payroll tax, it is the contract under which services are provided to the “end user” which is subject to payroll tax.

7. [83]

   As to the first part of the argument, the term “end user” in this context derives from the explanation given by the Minister in circumstances where he was explaining the legislative change that was intended to deal with the effect of the first instance decision in Drake Personnel. The Minister’s use of the term “end user” was, in context, a shorthand explanation for the decision to place liability for payroll tax once again on the employment agent rather than the client of the employment agent. The “client” for this purpose was referred to by the convenient shorthand as the “end user”.

8. [84]

   Relevant context in construing s 37 of the Payroll Tax Act includes the legislative history and extrinsic materials, including the second reading speech upon which Securecorp places so much reliance. The second reading speech to the State Revenue Legislation (Miscellaneous Amendments) Bill 1998 (NSW) identified the taxing rationale of the provisions as being that “[t]he relevant contract provisions are anti-avoidance provisions designed to bring to tax wages paid to persons who are, for all intents and purposes, performing duties similar to those of employees”. Mr Condon SC accepted in argument that this was the taxing rationale of the provisions. This is an important aspect of context.

9. [85]

   The term “end user” used by the Minster in the second reading speech is, however, being asked to do too much work by Securecorp. To construe the words in s 37 “the services of another person (a service provider) for a client” as intending to identify an “end user” of the services, who is not a client of the service provider, does violence to the provision. The suggested construction reads into s 37 an irrelevant enquiry, which provides a limitation upon the operation of the section inconsistent with its language and statutory purpose.

10. [86]

    In any event, care needs to be taken not to read into the legislation (by reference to extrinsic materials) words that one considers that the legislature might have intended. See, for example, Mason CJ, Wilson and Dawson JJ in Re Bolton; Ex parte Beane (1987) 162 CLR 514 at 518; [1987] HCA 12.

11. [87]

    As to the second limb of Securecorp’s argument, s 37(1) was interpreted by White J in UNSW Global to refer 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”: UNSW Global at [62]. I have proceeded on the basis, which was common ground before me, that the test described in UNSW Global was the correct one.

12. [88]

    In Bayton Cleaning Co Pty Ltd v Chief Commissioner of State Revenue [2019] NSWSC 657, Ward CJ in Eq explained:

13. [89]

    Care needs to be taken to ensure that White J’s construction of s 37 in UNSW Global is not over-read. In particular, I do not understand his Honour to have decided that s 37 introduced, as a relevant enquiry, a search for the ultimate “business” where services provided by an employment agent to a client are actually performed. It is a mistake, as Securecorp attempts here, to take one word used by White J in UNSW Global, “business”, and to use that word out of the context in which it was used to read down the meaning of the word “client” used by the statute.

14. [90]

    Adopting the construction of s 37 identified in UNSW Global, in the way I understand it should be read, provides no support for the suggestion that s 37 requires a search for the “business” of a client in the sense of the ultimate end user of the services provided.

15. [91]

    Another reason for rejecting the plaintiff’s argument that the only “client” within the meaning of s 37 is the “end user” is that there may be many users of particular services. In Knight Watch Security Services Pty Ltd v Chief Commissioner of State Revenue [2017] NSWCATAD 223 at [84]-[88], Senior Member Isenberg correctly held that security guards whose services the taxpayer procured were working in the businesses of the taxpayer’s clients (or, at least, the taxpayer had failed to show they were not working in those businesses). The same conclusion follows here. The “client”, for the purposes of s 37, is the recipient of services – Westfield Management Co and JLL – even if those firms were not the so-called “end users” of those services.

16. [92]

    In any event, Westfield Management Co and JLL were “end users” of the plaintiff’s security services because they were the operational entities providing security services to the shopping centre owners and the office building owners in the course of their businesses. Even if I were not satisfied of that matter, Securecorp has failed to prove the relevant contractors were not working in the businesses conducted by Westfield Management Co and JLL.

17. [93]

    It remains to deal with Securecorp’s submission that, unless its construction of s 37 is adopted, the legislation would give rise to double taxation, inconvenience or even absurd results. The construction I prefer does not produce absurd or even inconvenient results. Section 41 clearly addresses the “arbitrary consequences” identified by Securecorp. Section 41 contemplates that there might be more than one person liable to pay payroll tax and that more than one agent might pay payroll tax in respect of the same services. Otherwise the words in parentheses – “(including any other person engaged to procure the services of the service provider for the employment agent’s client as part of the arrangement)” – in s 41 would not have been necessary. Under the conditions s 41 identifies, liability for payroll tax is then excused. The suggested possibility of double taxation, much less absurdity, does not arise.

18. [94]

    In any event, as Sackville AJA said in Smith’s Snackfood Company Ltd v Chief Commissioner of State Revenue (NSW) [2013] NSWCA 470:

19. [95]

    I agree.

20. [96]

    There is nothing surprising about a taxing Act which contains a self-assessment scheme where the obligation is on taxpayers to ascertain and pay their payroll tax liability, and there is nothing about the statutory language in s 37 which, in context, leads to unreasonable or unforeseen consequences. Rather, the mischief to which s 37 is addressed is accommodated by leaving it to the Chief Commissioner’s discretion, where there is a situation of multiple employment agents, as to where the imposition of payroll tax should lie. If a taxpayer in such a case who is otherwise subject to payroll tax wishes to protect itself from the payment of that payroll tax, it is, of course, free to enter into commercial arrangements which ensure some other entity pays payroll tax in respect of the relevant services, as Westfield Management Co apparently did here: see cl 6.4 quoted at [28] above. It is unprofitable to speculate, as Securecorp invited me to, about any possible incentives created in structuring arrangements through a series of intermediate contractual arrangements which might have the effect of avoiding payroll tax liability.

21. [97]

    Before leaving this case, the Chief Commissioner submitted that, while not crucial to the present case, one aspect of the decision of Kunc J in JP Property Services is problematic. At [79]-[80] and [92], Kunc J appeared to suggest that if “incidental” services are provided outside of ordinary business hours, then they are not provided “in and for the conduct of a business”. I am unable to agree. The introduction of a requirement that services provided not be “incidental” to a client seems, with respect, to involve an impermissible gloss on the statute. An accountant providing after-hours technical support is, in my view, working in and for the conduct of the accounting firm. It is an irrelevant enquiry to ask, in addition, whether the services provided are provided outside normal trading hours. Much less is it relevant to enquire whether the services provided are “incidental” services. Nothing in s 37(1) or in White J’s construction of s 37 refers to “core” or “incidental” services and the enquiry suggested is not one that I would adopt.

Conclusion and orders

1. [98]

   I have concluded that Securecorp’s challenge to the assessments based on what I have termed the “closest to the end user” argument does not succeed. Applying the test articulated in UNSW Global and applied in JP Property Services and HRC to the present facts, I am satisfied that Securecorp’s respective contractual arrangements are arrangements “under which” it (as an employment agent) procures the services of security staff for a client of Securecorp. There is the requisite connection between the contractual arrangements and the provision of services in and for the conduct of the respective clients’ businesses.

2. [99]

   For the foregoing reasons Securecorp’s application to revoke the relevant assessments should be dismissed.

3. [100]

   The orders of the Court are:

   1. (1)

      Summons dismissed.

   2. (2)

      The plaintiff to pay the defendant’s costs.