B & L Linings Pty Ltd & anor v Chief Commissioner of State Revenue [2005] NSWCA 96 | Case summary

REASONS FOR DECISION Introduction 1 This is the second judgment to be given by us in the present appeal. The first of our judgments (B & L Linings Pty Ltd & Anor v Chief Commissioner of State Revenue (RD) [2006] NSWADTAP 2 - hereafter 'the first appeal judgment') was delivered on 9 January 2006. It sets out much of the background to the present judgment. 2 The issue of substance raised in the appeal is whether the Tribunal was correct in deciding that 36 'entities' engaged as sub-contractors on various building projects by a building company during a specified tax year were, according to common law principles, the company's employees, not independent contractors. The entities in question were a mixture of companies, partnerships and sole traders. 3 In the course of this judgment, we will continue to use the term 'entity', though in some contexts it will refer to an individual (usually if not invariably a man, it would seem) who was working on one of these building projects, rather than to the company which employed him to do so or to the partnership of which he was a member. 4 The matter came to the Revenue Division of the Tribunal by way of review of a decision by the Respondent, the Chief Commissioner of State Revenue ('the Commissioner'), to disallow objections by the two Appellants, B & L Linings Pty Ltd ('B & L') and L & B Linings Pty Ltd ('L & B') against assessments to pay-roll tax under the Pay-roll Tax Act 1971 ('the Act'). Under s 96 of the Taxation Administration Act 1996, the Tribunal has jurisdiction to review a decision of the Commissioner at the instance of a taxpayer who is dissatisfied with the Commissioner's determination of his/her objection to an assessment. 5 The assessments in question related to the Appellants' liability for pay-roll tax on remuneration paid by them to the 36 entities. The assessments spanned the tax years 2000-2003, but it was agreed between the parties that the 2002 tax year should be treated as a sample year. 6 If the entities were properly to be characterised as employees, the Appellants were indisputably liable for pay-roll tax. The remuneration paid to the entities would be wages, to be included in its tax base in accordance with s 3AA of the Act. If however they were independent contractors, exemptions from this tax would be available if certain further conditions were satisfied. These are set out in s 3A(1) of the Act. 7 The decision of the Tribunal, constituted by Acting Judge J Block, Judicial Member, was delivered on 10 June 2005 (B & L Linings Pty Ltd and L & B Linings Pty Ltd v Chief Commissioner of State Revenue [2005] NSWADT 129 - hereafter 'the Tribunal's judgment'). The Tribunal ruled that the entities were employees of L & B. It therefore did not have to determine whether the further conditions of exemption set out in s 3A(1) had been satisfied. 8 By virtue of directions given before the hearing of the appeal, the first issue to be determined in the appeal was as to the correctness of this ruling. The question whether the exemption provisions in s 3A(1) would apply to any or all of the entities, if they were found to have been independent contractors, has not been argued before us. 9 In the first appeal judgment, we set aside the Tribunal's decision on the ground that it erred in three respects. These errors of law are outlined at paragraphs [81], [98 - 99] and [105 - 109] of our judgment. In broad terms, our conclusion was that the Tribunal, in deciding that the Appellants had failed to discharge an onus of proof imposed on them, had given insufficient consideration to a substantial quantity of documentary evidence adduced by them and had attributed undue significance to their failure to call any of the entities to give oral evidence. The approach that we should now adopt 10 Appeals to an Appeal Panel are subject to s 113(2) of the Administrative Decisions Tribunal Act 1997 ('the ADT Act'). This is in the following terms: - (2) An appeal under this Part: (a) may be made on any question of law, and (b) with the leave of the Appeal Panel, may extend to a review of the merits of the appealable decision. 11 Section 115 of this Act states: - 115 Appeals on the merits (1) If an appeal under this Part extends to a review of the merits of an appealable decision, the Appeal Panel is to decide what the correct and preferable decision is having regard to the material then before it, including the following: (a) any relevant factual material, (b) any applicable written or unwritten law. (2) The Appeal Panel may exercise all the functions that are conferred or imposed by or under any relevant enactment or this Act on the Tribunal at first instance to make the appealable decision concerned. (3) In determining any such appeal, the Appeal Panel may decide: (a) to affirm the decision, or (b) to vary the decision, or (c) to set aside the decision and make a decision in substitution for the decision it set aside. 12 In the first appeal judgment at [111], we indicated in the following terms what should occur in consequence of our decision that the Tribunal's judgment could not stand: - Having regard to observations made by representatives on both sides, we consider that the most appropriate step for us to take in this eventuality is to grant leave under s 113(2)(b) of the ADT Act for the appeal to extend to the merits and to decide for ourselves, under s 115(1), what is 'the correct and preferable decision'. Initially, we will confine this decision to the issue to which this appeal itself was confined, namely, whether in the sample year the 36 entities were properly to be regarded as the employees of L & B, or as independent contractors. 13 In J A & B M Bowden & Sons Pty Ltd v Chief Commissioner of State Revenue [2001] NSWCA 125, at [15 - 17], Ipp JA held that an appellate court should not intervene with regard to a decision at first instance on the issue specifically raised in the present appeal - namely, whether certain persons engaged by an employer were employees or independent contractors - unless it is satisfied that error exists. 'It is not enough,' he said at [17], 'that the appellate court might have come to a different conclusion.' But since we have discerned error in the Tribunal's decision, our function now, under s 115(1), is to 'decide what the correct and preferable decision is', having regard to the material now before us. We should therefore substitute a different conclusion to that of the Tribunal if in our judgment that step is warranted. 14 A further statutory provision of significance in the present context is s 100(4) of the Taxation Administration Act 1996. This states: - If the respondent or applicant appeals against a decision of the Administrative Decisions Tribunal in an application for review to an Appeal Panel of the Tribunal, the applicant in the application for review continues to bear the onus of proving the applicant's case in the appeal if the Appeal Panel grants leave for the appeal to extend to the merits. 15 As stated in the Tribunal's judgment at [22] and confirmed in the first appeal judgment at [98], the Appellants have borne throughout the onus of demonstrating that the entities were independent contractors according to common law principles. This onus, the Tribunal said, was conceded by them to be the same as the onus placed on taxpayers by income tax legislation. By virtue of s 100(4) of the Taxation Administration Act 1996, that onus remains upon them. 16 This is, however, an onus relating only to issues of a factual nature. There are also legal issues to be resolved. We pointed this out in the first appeal judgment at [49]: - … the question whether the entities in this case were employees or independent contractors is a mixed question of law and fact. In resolving it, factual findings must be made, notably in the course of ascertaining the terms of the contracts between the entities and the Appellants. But in arriving at the 'ultimate' finding, the legal principles that may be distilled from the case law to which we have just referred must be put into operation. They must be applied to relevant findings of fact. 17 On the issues of legal principle that must be resolved, there is, strictly speaking, no 'onus'. There is no presumption that the arguments advanced by the Commissioner are correct, and no rule that they must prevail unless they are in some sense 'displaced' by contrary arguments advanced by the Appellants. 18 In discharging the onus that they bear with regard to the relevant factual issues, the Appellants may rely on whatever type or types of evidence, oral or documentary, may achieve this purpose. We explained this in the first appeal judgment at [93]: - The judgment in Allied Pastoral Holdings Pty Ltd v Federal Commissioner of Taxation (1983) 83 ATC 4,015 clearly leaves it open for taxpayers, in challenging an assessment to tax, to bring forward evidence of whatever kind will suffice to discharge the onus of proving the relevant matters on the balance of probabilities. They are not obliged to bring forward all the evidence that is available to them, and there is no general principle requiring that any documentary evidence that they bring forward must be supplemented by oral evidence from relevant third parties. 19 In order to reach 'the correct and preferable decision', it is incumbent on us to conduct our own examination of the documentary evidence that the Tribunal admitted, drawing such inferences from it as we consider to be warranted. The Tribunal also took oral evidence from the Appellants' accountant and from three of their employees who had management responsibilities. We must pay attention to the transcript of that evidence. Since the Tribunal had the opportunity to see and hear these witnesses providing their testimony, its views on their credibility, which were generally unfavourable, must in addition be given weight in our determination. This constitutes the full range of the evidence that we must consider, since no application was made to us to admit new evidence, oral or documentary. The distinction between employees and independent contractors 20 The basic principles. The Tribunal made only brief references to the content of these common law principles (see its judgment at [20] and [96]). For reasons that will become apparent from our review of the evidence, a more extended outline of them is required in order to determine the question before us. 21 It is convenient to commence with a recent High Court case. In Hollis v Vabu Pty Ltd (2001) 207 CLR 21, the Court held that the relationship between Vabu, a company which carried on a courier business, and a number of bicycle couriers whom it engaged to make deliveries for it was that of employer-employee. In the judgment of Gleeson CJ, Gaudron, Gummow, Kirby and Hayne JJ at 33 (para [24]), the following passage appears, immediately following an outline of various provisions of the contract between the parties: - It should be added that the relationship between the parties, for the purposes of this litigation, is to be found not merely from these contractual terms. The system which was operated thereunder and the work practices imposed by Vabu go to establish "the totality of the relationship" ( Stevens v Brodribb Sawmilling Co Pty Ltd (1986) 160 CLR 16 at 29); it is this which is to be considered. 22 Later in this judgment, at 45 [58], their Honours stated that express terms in the contract between the parties, purporting to indicate whether their relationship is that of employer and employee or employer and independent contractor, 'are not of themselves determinative, as parties cannot deem the relationship between themselves to be something it is not'. 23 In an earlier leading case in the High Court, Stevens v Brodribb Sawmilling Co Pty Ltd (1986) 160 CLR 16, the issues to be resolved included the status of two men who had been engaged by a sawmilling company to deliver trees that had been felled to the company's sawmill. One was a truck driver and the other was both a truck driver and a 'snigger' (i.e. a person responsible for getting the trees onto the trucks). An account given by Mason J of the approach to be adopted when investigating 'the totality of the relationship' between the company and each of these men commenced as follows (at 24): - A prominent factor in determining the nature of the relationship between a person who engages another to perform work and the person so engaged is the degree of control which the former can exercise over the latter. It has been held, however, that the importance of control lies not so much in its actual exercise, although clearly that is relevant, as in the right of the employer to exercise it… 24 In a passage in Glass, McHugh and Douglas, The Liability of Employers in Damages for Personal Injuries, 2nd edn, 1979, at pp 72-73, the learned authors set out reasons why a 'control test' based on actual control by the employer, which was 'the product of a predominantly agricultural society', should have given way to a test which referred to the employer's right of control. These included factors such as 'the invention and growth of the limited liability company, 'the great advances of science and technology' and 'the advent into industry of professional men and other occupations, performing services which by their nature could not be subject to supervision'. This passage is quoted by their Honours in Hollis at 40-41. 25 In Stevens v Brodribb at 24, Mason J indicated that 'the existence of control, while significant' was merely 'one of a number of indicia which must be considered' and that other relevant matters included, though were not limited to, 'the mode of remuneration, the provision and maintenance of equipment, the obligation to work, the hours of work and provision for holidays, the deduction of income tax and the delegation of work by the putative employee'. 26 At 25, his Honour said that factors suggesting that both the men concerned were independent contractors, not employees, were that 'they provided and maintained their own equipment, set their own hours of work and received payments, not in the form of fixed salary or wages, but in amounts determined by reference to the volume of timber which they had been involved in delivering, through the use of their equipment, to the sawmill'. 27 A passage (at 43-44 ([54]) in the joint judgment in Hollis shows, however, that 'payment by results' is not necessarily a factor indicating strongly that the relationship of employer to independent contractor exists. Their Honours observed that Vabu, the courier company, 'superintended the couriers' finances', in so far as it (a) 'produced pay summaries', (b) required that any objections to them should be communicated within a stipulated time, (c) decided whether any claims by couriers were 'unjustified or unsubstantiated' and (d) at the conclusion of any individual courier's engagement, withheld remuneration until any overcharges or insurance claims had been resolved and all of its equipment had been returned in a good condition. Furthermore, 'there was no scope for the couriers to bargain for their rate of remuneration', which had in fact remained unchanged between 1994 and 1998. Having made these observations, their Honours added: - The method of payment, per delivery and not per time period engaged, is a natural means to remunerate employees whose sole duty is to perform deliveries, not least for ease of calculation and to provide an incentive more efficiently to make deliveries. 28 In Stevens v Brodribb at 36-37, Wilson and Dawson JJ, after describing the control test as 'the surest guide' on this matter, said: - The other indicia of the nature of the relationship have been variously stated and have been added to from time to time. Those suggesting a contract of service rather than a contract for services include the right to have a particular person do the work, the right to suspend or dismiss the person engaged, the right to the exclusive services of the person engaged and the right to dictate the place of work, hours of work and the like. Those which indicate a contract for services include work involving a profession, trade or distinct calling on the part of the person engaged, the provision by him of his own place of work or of his own equipment, the creation by him of goodwill or saleable assets in the course of his work, the payment by him from his remuneration of business expenses of any significant proportion and the payment to him of remuneration without deduction for income tax. None of these leads to any necessary inference, however, and the actual terms and terminology of the contract will always be of considerable importance. Having said that, we should point out that any attempt to list the relevant matters, however incompletely, may mislead because they can be no more than a guide to the existence of the relationship of master and servant. The ultimate question will always be whether a person is acting as the servant of another or on his own behalf and the answer to that question may be indicated in ways which are not always the same and which do not always have the same significance. 29 At 38, Wilson and Dawson JJ made this observation with regard to the man (named Gray) who operated both as a truck driver and a snigger: - … there does not seem to be much doubt that in his carting operation Gray was acting as an independent contractor. Apart from anything else, Gray was able to employ his son in the actual performance of his carting operations. An unlimited power of delegation of this kind was viewed as almost conclusive against the contract being a contract of service in A.M.P. Society v Chaplin ((1978) 18 ALR 385 at 391). 30 It is clear from other cases that it is only when the equipment required to perform the relevant tasks is substantial and/or expensive that its provision and maintenance by the person whose status is in question counts as a factor in favour of this person being an independent contractor. In the joint judgment to which we have referred in Hollis , their Honours (at 44 [56]) pointed out that the capital outlay made by the bicycle couriers in obtaining their bicycles was 'relatively small' and that bicycles 'are not tools that are inherently capable of use only for courier work but provide a means of personal transport or even a means of recreation out of work time'. For this reason, they said, 'the situation in respect of tools and equipment … favours, if anything, a finding that the bicycle couriers were employees'. Earlier, at 41 [47], they indicated that 'a different conclusion might, for example, be appropriate where the investment in capital equipment was more significant…' 31 At 31-32 [22], they said that an earlier decision of the Court of Appeal, Vabu Pty Ltd v Federal Commissioner of Taxation (1996) 96 ATC 4,898, involving the same courier company, was distinguishable on this score. The Court of Appeal had ruled that couriers who provided and maintained their own motor vehicles or motor bicycles were independent contractors, attributing significance (see Meagher JA at 4,900) to the fact that they bore the 'considerable' expense of obtaining these items of equipment and paying for 'running repairs, petrol, insurance and registration'. He said that a consideration contributing to this conclusion was, to quote from the judgment of McKenna J in Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance [1968] 2 QB 497 at 526, that - … the ownership of the assets, the chance of profit and the risk of loss in the business of carriage are his and not the company's. 32 Finally, in Hollis at 42-43 ([50] - [52]), in the joint judgment to which we have referred, their Honours treated the fact that the bicycle couriers wore uniforms bearing the logo of Vabu, the courier company, as a factor suggesting that they were employees. The judgment pointed out that this requirement was imposed by Vabu because it wished the couriers to advertise its business, and that the effect of its system of business was 'to encourage pedestrian to identify the couriers' as belonging to Vabu's 'own working staff'. 33 It is useful now to summarise the main points made in these cases. The question whether a person ('the worker') who is engaged to perform work for another person ('the employer') is an employee or an independent contractor is to be resolved by an examination of 'the totality of the relationship' between them. Their own contractual stipulation on the matter is relevant, but not conclusive. An important factor is the nature and extent of such control as the employer exercises, bearing in mind (a) that not only actual control, but also the right to control, is relevant and that (b) control over the place of work and the hours of work, as well as over the method(s) adopted, is also relevant. 34 Further matters to be considered include the following: whether the worker is paid by results, or by reference to the number of hours worked; whether payment by results is the 'natural means' of remuneration for employees in the relevant field of work; whether and if so to what extent the worker has scope to bargain over the rate of remuneration; whether income tax is deducted at source; whether other benefits, such as holiday pay and superannuation contributions, are provided by the employer; whether the worker performs work for others; whether and if so to what extent the worker has power to delegate or subcontract; whether the worker provides his/her own equipment or tools (if they are substantial or expensive); whether the worker acquires the 'chance of profit' (which may be through accumulating saleable assets and/or goodwill) and assumes 'the risk of loss'; and whether the worker is required to wear, or in fact wears, a uniform advertising the business of the employer. A number of these questions form part of a single question: whether the worker carries on a business on his or her own, or operates within the business of the employer. 35 Our response to two submissions on general principles made by the Appellants. This summary of the approach to be adopted and the factors to be taken into consideration is sufficient to demonstrate that two propositions advanced by Mr Eager on behalf of the Appellants cannot be accepted. We will briefly discuss each of these in turn. 36 The first of these propositions was that the choice between a contract of service (employment) and a contract for services (independent contractor relationship) must be resolved by reference to the mutual contractual intention of the parties. This is not correct, because as the High Court said in Hollis (see [21] above), the 'totality of the relationship' between the parties is not to be found merely in the terms of the contract into which they have entered. Other matters, such as the system of work adopted under this contract and any work practices imposed by the employer, must also be considered. 37 Mr Eager's second proposition was based on the following specific aspects of the relationship between L & B (the 'employer' in this case), and the 36 entities (i.e., the 'workers'). L & B made it a condition of engagement of each entity that it had an Australian Business Number (ABN). In addition, all but four of the entities were registered for goods and services tax (GST). They all received remuneration without any deduction of income tax under the 'Pay As You Go Withholding' system (PAYGW) and instead paid their own tax, as enterprises possessing ABNs, under the 'Pay As You Go Instalment' system (PAYGI). The entities that were registered for GST included GST at 10% in the tax invoices that they submitted to L & B. They were obliged to remit the amounts of GST that they received to the Australian Taxation Office. L & B claimed input tax credits for these amounts of GST. 38 Notably since the commencement on 1 July 2000 of the PAYGW and PAYGI systems for income tax collection, alongside the new Commonwealth legislative regime for levying and collecting GST, there was, in Mr Eager's submission, a clear dividing line within Commonwealth tax legislation between employees and independent contractors. Where, as in this case, an employer and a worker had chosen to adopt a number of practices that were appropriate under the legislation for the relationship of employer and independent contractor - specifically, the acquisition of an ABN by the worker; payment by the employer of remuneration without any deductions of tax under PAYGW; payment of tax by the worker under PAYGI; payment (if registered) of GST by the worker, not the employer - this provided strong, virtually irresistible, evidence of a mutual contractual intention to enter into such a relationship. The principal reason why this choice by the two parties was of such strong evidentiary significance was, according to Mr Eager, that if their relationship were instead that of employer and employee, their adoption of these practices would expose them to substantial criminal and tax penalties under the legislation. 39 In making this submission, Mr Eager relied on three cases in the Court of Appeal: Vabu v Commissioner of Taxation 1996 ATC 4,898 (to which we have already referred), Paddison v Ultimate Image Pty Ltd t/as Hawkesbury Plasterworks [2004] NSWCA 410 and Australian Air Express Pty Ltd v Langford [2005] NSWCA 96. Each of them related to situations in which Commonwealth tax law, as it existed before 1 July 2000, required income tax to be deducted from employees' wages or salaries under the Pay As You Earn (PAYE) system and tax deductions to be made from the remuneration paid to independent contractors under the Prescribed Payment System (PPS). 40 In Vabu, at 4,900, Meagher JA (with whom Sheller and Beazley JJA expressed their agreement) said: - The taxation position of the couriers is also important. The couriers were taxed as independent contractors and not as employees. The gross payments to each carrier were subject to deduction of the 20% Prescribed Payment Scheme, which does not apply to employees. In this regard, Mr Trew submitted that the tax documents should be disregarded because they are self-serving declarations by the taxpayer and as such are hardly evidence of anything. This is true, but it misses the point. What is significant is not that the couriers tell the Commissioner that they are employees, but that the Commissioner, presumably after making whatever investigation he deems proper, acquiesces in their description of themselves and taxes them accordingly. 41 In Paddison , the issue of relevance in the present context was whether the plaintiff, who had been engaged as a plasterer by a building company called 'Ultimate' in the judgments, was an employee or an independent contractor. In the course of reviewing the factors bearing on this issue, Sheller JA (with whom Santow JA and Levine J agreed) said at [26]: - The plaintiff's income tax returns for the relevant period show that Ultimate, without deduction for PAYE tax, was making deductions pursuant to the PPS, a system which applied to self-employed persons in particular industries. That favoured the view that the plaintiff was self-employed and not an employee of Ultimate. 42 In the third case, Langford , a delivery company which had the status of a 'Commonwealth authority' under Commonwealth legislation governing workplace safety and workers compensation had engaged a delivery driver, on the basis that he provided and maintained his own truck and was permitted to delegate some of his duties to a substitute driver. It deducted tax from his remuneration under the PPS system. In ruling that he was an independent contractor, the Court of Appeal placed significant emphasis on this last factor. 43 McColl JA, with whom Ipp and Tobias JJA agreed, said at [49] that the authorities had 'not dealt consistently with the significance of a person being treated for tax purposes as if he or she was an independent contractor'. She referred to the passage in the judgment of Wilson and Dawson JJ in Stevens v Brodribb in which this factor is mentioned (see [28] above]), then to a passage in the judgment of McHugh J, dissenting on this particular question, in Hollis. At 49 [69], McHugh J said that the fact that holding the bicycle couriers to be employees 'would be likely to make employers retrospectively guilty of a number of statutory offences' militated against this conclusion. 44 At [50 - 52] in Langford, her Honour discussed the possibility, raised in three earlier cases, that employers, through failing to understand the complexities of the tax system, might mistakenly make PPS deductions from remuneration paid to employees. In these cases, the tax treatment of the workers concerned was held to be of little weight in determining their status. 45 Having described, at [53], Vabu and Paddison as cases in which the deduction of PPS rather than PAYE was instead treated as significant, McColl JA said, at [54]: - For my part I regard the fact that the appellant, a Commonwealth authority, treated the respondent as a PPS taxpayer rather than as a PAYE taxpayer as highly significant. A finding that the respondent was an employee, but that the appellant had not made PAYE tax deductions appropriate to that status, from his income may mean the appellant was in breach of the income tax legislation. That would be a remarkable conclusion to reach in respect of a Commonwealth authority. 46 We agree with Mr Eager that, having regard particularly to these observations by McHugh J and McColl JA, a court or tribunal should not be too hasty to characterise as employees those workers whose remuneration, under present-day tax law, is received free of tax and subject to tax in their hands under the PAYGI system. We agree too that the introduction, in July 2000, of the new legislative regime may have strengthened the case for such workers to be characterised as independent contractors. The reason is that by obtaining an ABN and taking over from the employer the responsibility of paying GST such workers will have further enhanced the range of penalties that may be imposed, both on their employer and on themselves, if they are subsequently held to be employees. 47 In essence, Mr Eager's argument is that workers in this situation cannot be employees because neither they nor their employers could have intended this outcome. But this argument depends on the proposition, which we have already held to be incorrect, that the question of their status is ascertainable by reference only to their mutual contractual intention. It is quite possible that this intention, as so manifested, is at odds with 'the totality of the relationship' between them. If, for instance, it is a relationship in which the employer (a) exercises close and continuing control over all or most aspects of the worker's performance of his/her duties, (b) prohibits any delegation of these duties and (c) pays the worker a weekly wage, there is little doubt that the worker would be held to be an employee, despite the adoption by both of them of tax procedures which are not permitted for the remuneration of employees and which may expose them to liability for criminal or tax penalties. 48 In this connection, we note that while McHugh J in Hollis commented on this particular issue, the majority joint judgment in that case contains no mention of it. Potentially, this decision of the High Court - in which, it must be added, the matter to be resolved did not arise under tax law but under the law of vicarious liability in tort - could have exposed Vabu and the bicycle couriers to penalties under tax law. But they did have the protection of the Court of Appeal's decision in Vabu, in which the issue was whether Vabu fell within the scope of Commonwealth legislation requiring employers to make superannuation contributions for the benefit of their employees. 49 We note also that while McColl JA in Langford regarded the tax treatment of the respondent as 'highly significant', she thought it important in this connection that the appellant was a 'Commonwealth authority'. If this had not been the case, this particular factor might have been accorded less weight in the Court's assessment of the situation. The Appellants' evidence regarding the relationship between L & B and the 'entities' 50 We will now describe the evidence proffered by the Appellants regarding the nature of the work performed by the entities for L & B during the sample year 2001-02 and the circumstances in which they were engaged to do this work. 51 B & L was established in 1987 to supply and install linings made of plasterboard (sometimes called gyprock) and cornices in dwelling houses and apartments. Occasionally, it performs these tasks in an industrial or commercial building. It acts as a principal contractor to home building companies (hereafter called 'contract builders'). Its sole directors and shareholders have at all times been Vasily and Loretta Kirpichnikov. 52 In 1992, Mr and Mrs Kirpichnikov established L & B, again as sole directors and shareholders. Its principal function has been to fulfil B & L's contracts with contract builders by subcontracting with various sole traders, partnerships and companies. It also operates a maintenance/service division. In 2001-02, the people working for it comprised a general manager (Mr Fedor Saraikin), a maintenance manager (Mr Joseph Ierace), six full-time members of its maintenance division, one full-time employee engaged in sanding operations and 53 entities, whom it described as subcontractors. 53 The evidence adduced by the Appellants comprised affidavits by Mr Kirpichnikov, Mr Saraikin, Mr Ierace and Mr John Dickie, who was the Appellants' accountant. These witnesses were all cross-examined. A large number of annexures accompanied their affidavits. The affidavits also contained statements verifying passages in the Objections that the Appellants had lodged to their assessments to pay-roll tax. 54 The principal documentary evidence focusing on the relationships between L & B and the entities in 2001-02 comprised six sets of sample documents, each of which related to a building project completed during this year. One of these sets formed part of the Appellants' Objections. The other five were annexed to one of the three affidavits sworn by Mr Saraikin. The relevant content of this evidence is summarised in the ensuing paragraphs. 55 Initially, B & L submitted a tender for a lining job to a contract builder, based on detailed building plans supplied by the builder. If the tender was accepted, B & L purchased the plasterboard and cornices required for the job and arranged delivery of these materials to the site. In a given year, the cost of plasterboard and cornices so purchased exceeded $2,000,000. 56 The procedure organised by L & B for installing the linings and cornices involved three distinct tasks, to be performed in sequence. First, the walls and ceilings were lined with plasterboard sheets, then cornices were fixed along the lines where the walls and ceilings met, then finally the lined walls and ceilings were sanded. 57 In 2001-02, L & B maintained a list, or 'stable', of 53 entities amongst whom it would subcontract these tasks after its tender had been accepted by the contract builder. Fifteen of these entities were found by the Commissioner to have been independent contractors. Another two were conceded by the Appellants to be employees of L & B. The remaining 36 were the 'contentious' entities with which this litigation is concerned. 58 Out of these 36 entities, 23 were sole traders, nine were partnerships and four were companies. As noted in the Tribunal judgment at [84], the members of three of the partnership entities (they were labelled 'related entities' by the Tribunal) were relatives of Mr Kirpichnikov or of Mr Saraikin. These three partnerships, and at least another four more, comprised a husband who did the relevant work for L & B and a wife who was not involved at all in this work. 59 All of the 36 entities had ABNs and all but three were registered for GST. 60 It was unusual for a single entity to complete all three of the requisite tasks within the same job. Frequently, the same entity carried out the first and third tasks (installation of plasterboard and sanding), while the second (installation of cornices) was entrusted to another entity. When the contractor who had installed the plasterboard was not available to do the sanding, a separate sanding contractor would be engaged. Out of three such sanding contractors engaged during 2001-02, two were conceded to be employees and only the third was in the list of contentious entities. The remaining 35 contentious entities installed either plasterboard or cornices, or (in four instances) carried on both of these trades. 61 A document headed 'Terms of Engagement', in some instances on the letterhead of L & B and containing a signature on its behalf, was signed by or on behalf of each of the entities before it was engaged for the first time by L & B. The dates of 12 such documents, bearing signatures by or on behalf of all but one of 13 entities that were engaged on the six sample projects, ranged between 6 August 1993 and 8 February 2002. If one of these documents signed on an entity's behalf was mislaid, L & B would require another one to be signed. 62 Each of these documents stated as follows: - It is hereby agreed that the engagement of [name of entity] by L & B Linings Pty Limited for the fixing and setting of Plasterboard/Cornices [in some instances, a full stop appeared here] L & B Linings Pty Limited does acknowledge that the subcontractor may employ/engage any appropriately qualified person to perform or assist the subcontractor in the performance of its contractual obligations. 63 L & B played no role in selecting 'appropriately qualified persons' to whom the entities were authorised to delegate performance of their contractual obligations. Sometimes, it engaged one or more entities to carry out specified tasks, in the knowledge that some further subcontracting might occur. Only when the tasks were completed would it be advised of the identity of the subcontractors, in which event it might be asked by the entity or entities concerned to make payments directly to these subcontractors. 64 The entities would telephone L & B from time to time to ask whether any jobs were available for them. Alternatively, L & B would contact individual entities if it had entered into a contract with a contract builder and therefore required the services of one or more entities. 65 A contract price would be determined by negotiation for each task. The entities were paid for completion of the task, not for the number of hours spent on it. The amount paid was primarily calculated by reference to the area of plasterboard or the length of cornice being installed. For plasterboard installations in 2001-02, Mr Saraikin referred to a price between $3 and $3.40 per square metre (representing a range of about 13% above the lower figure) for 'standard jobs'. 'Extras' were taken into account, though the evidence was unclear as to whether this was done in the determination of the price per square metre or through payment of an additional amount. An 'extra' would arise when a room being lined was on an upper floor or when there were particular difficulties associated with the task (for example, the presence of a round arch or a bay window). Mr Saraikin agreed in cross-examination that 'possibly' those entities who worked most for L & B and who therefore wanted to obtain more work from it in the future would generally accept the rate offered by L & B. 66 In its judgment at [74], the Tribunal summed up the evidence regarding determination of the price paid: - … although there was at times some degree of negotiation as to price, the range involved was narrow. The entities generally accepted the price offered…. It must also be remembered that the [Appellants] engaged an entity having previously accepted a tender and so that ( sic ) room for manoeuvre was necessarily limited. 67 During the period when the entities carried out their tasks of installing plasterboard or cornices or sanding the installed lining, they were subject to supervision by a person employed by the building contractor. This supervision was not necessarily full-time: in fact, Mr Saraikin said that sometimes a supervisor employed by a contract builder had as many as 30 sites to supervise. The Appellants' evidence was that generally speaking there was no ongoing supervision by a representative of either of the Appellant companies. But Mr Saraikin said in passing, in the course of his evidence, that a member of L & B's maintenance division could 'go out to the job and report if there's a problem' both 'during' the work and after it was completed. 68 L & B determined when the tasks had to be performed, in order to fit in with the other trades working at the site and the timetable being maintained by the contract builder. According to Mr Saraikin, the entities needed only two or three days to complete most of the jobs, because, as he put it, 'they've got people working for them'. 69 L & B determined the quantities of plasterboard and cornice to be installed and the size of each piece of plasterboard or cornice. The entities themselves supplied the tools and other equipment required for carrying out their work. For plasterboard and cornice installation, these were as follows: a work vehicle, such as a van or utility; light aluminium trestles; one or more generators to provide power for power tools (since electricity was usually not yet connected to the premises); aluminium planks; an aluminium ladder; personal protective equipment; knives and plasterboard saws; a standard set of hand-tools; various mechanical tools; various types of adhesive and cement; tape, nails, screws, internal and external angles etc. For sanders, they were: a work vehicle, such as a van or utility; light aluminium trestles; a vacuum sander, with a generator to provide power for it; personal protective equipment, including a face mask; aluminium planks; an aluminium ladder; a standard set of hand-tools; sanding discs and blocks. On occasions, an entity would buy small amounts of this equipment from B & L, but it was always on strictly commercial terms. 70 Before B & L decided to engage an entity, it ensured that the entity understood the health and safety requirements associated with the task or tasks to be performed. It often did this by sighting a 'green card' in the entity's possession indicating that the entity had attended an appropriate course of instruction. The requirements included making proper use of personal protective equipment and working from properly maintained and installed ladders and trestles. 71 They were also required to ensure that plasterboard sheets and lengths of cornice - which were often of substantial size and weight - were lifted and put in place by not less than two workers. This requirement was corroborated in four items of evidence: (a) a 20-minute CD-Rom, made in 2004 by the Association of Wall & Ceiling Installers, depicting the installation of plasterboard and cornices in suburban residential settings; (b) a 20-minute video entitled 'Your Guide to Safe Handling in the Plasterboard Industry', made by Boral, CSR Gyprock and Lafarge Plasterboard, who are three large suppliers of plasterboard and cornice; (c) two editions (January 2001 and September 2003) of a booklet put out by CSR entitled 'Gyprock - Residential Installation Guide'; and (d) statements by four contract builders for whom the Appellants carried out lining projects, indicating that they insisted on compliance with this requirement. 72 Mr Saraikin and Mr Kirpichnikov were both involved in the making of the CD-Rom. In evidence, Mr Saraikin estimated that the weight of one of the sheets of plasterboard shown in it was between 60 and 80 kilograms. He said that the length of a strip of cornice shown in it was 5.4 metres. He said also that although machines for lifting plasterboard sheets were available for hire, they were not suitable for use in homebuilding because the rooms were not large enough. He added that this was illustrated at one point in the CD-Rom. 73 From time to time, B & L received t-shirts from plasterboard manufacturers which had the manufacturer's name on the front and B & L on the back. B & L supplied them to the entities, who could wear them, if they wished, while working at the site. According to Mr Saraikin, they were not compelled to wear them. He added that they were 'always asking for t-shirts'. 74 Each week, any entity that had completed a task (save for one, which 'saved up' its claims) lodged its claims with L & B for remuneration for the task. It generally did so on a plain sheet of paper or a pro forma tax invoice. The six sample sets of documents tendered by the Appellants did not include any examples of these written claims by entities. 75 L & B, having checked the claim, would pay it out in full or, if a reason existed, in part only. It paid less than the amount claimed if, for instance, it had supplied some of the materials or it did not accept the entity's version of the area of plasterboard installed. 76 At the time of making a payment to an entity, L & B issued a numbered document bearing the heading 'To: L & B Linings Pty. Ltd. The Plasterboard Contractors'. Although this document was also headed 'Tax Invoice', it was prepared by L & B, not by the entity concerned. It set out the following information: a date, the name and ABN of the relevant entity, the address of the premises and the name of the building contractor for each task being remunerated, the total sum paid and the amounts of its various components. When the entity was registered for GST, one of these components was a 10% charge for GST. Sometimes, there would be a deduction for materials sold to the entity. The Appellants' evidence included an almost full set of duplicates of these documents for 2001-02. 77 Although the normal practice was to make payments to entities only after they had completed the agreed task or tasks and submitted their claim, L & B did sometimes make progress payments on request. It might do so when the entity indicated that it had an immediate need for cash. 78 Members of L & B's maintenance division would inspect premises in which tasks had been completed, usually a short while after the task had been paid for. They would conduct inspections after plasterboard and cornices had been fixed and again after they had been sanded. On occasions, their inspection was in response to advice from the site supervisor (who was employed by the contract builder) that the work was unsatisfactory. Sometimes - specifically, it would seem, when a plasterboard fixer was a relative newcomer to L & B's 'stable' - L & B would have held back 10% of the amount due until this inspection had occurred. 79 After carrying out an inspection, the inspector would fill in a form headed 'Quality Report/Maintenance'. This set out the initials of the inspector, the name of the contract builder, the date of the inspection, the address of the premises, the nature of any extra work and/or material required to complete the job satisfactorily, the quality of the plasterboard and cornice that had been installed (graded 'good', 'fair' or 'poor') and whether or not the lining had been sanded. 80 In cases where work had been found defective or incomplete, the maintenance division had two further functions. One was to ensure that the work was completed and any defects remedied, either by the entity originally involved or by one or more members of the maintenance division. The other was to 'back-charge' the entity for the cost of rectification and/or completion. This would be achieved by making an appropriate deduction from the remuneration paid on a future job. 81 During 2001-02, the numbers of tax invoices and the total amounts of remuneration received by individual entities varied widely. By way of illustration, two entities at the top end of the scale were Sara Linings and M J Ceilings & Partitions Pty Ltd. Sara Linings, which carried out plasterboard installation, was a partnership between a brother of Mr Saraikin and his (the brother's) wife. It was paid a total of $102,831 on 48 invoices. M J Ceilings & Partitions Pty Ltd, which installed both plasterboard and cornices, was paid $83,818 on 31 invoices. By contrast, Max Rodionov, a sole trader and the only sander among the 36 contentious entities, was paid only $140, on one invoice, and Allan R & Norma L Ball, a partnership carrying out cornice installation, was paid $378 on one invoice. 82 To put these figures into context, it is useful to add that the total amount paid to the 36 contentious entities during 2001-02 was $1,002,443.40. The average amount paid was therefore $27,846. 83 There was also wide variation in the weekly amounts paid to individual entities. This is illustrated in the record of payments (which were near the top end of the range) made to the partnership of Fred & Marina Kirpichnikov. This was another husband-and-wife partnership, in which the husband was a relative of Mr Vasily Kirpichnikov, one of the Appellants' two shareholders and directors. It was engaged to install both plasterboard and cornices, in return for which it received $82,737 on 33 invoices. In 19 out of the 52 weeks in the year, it received no payment at all. In the remaining 33 weeks, the amounts paid to it ranged between $231 and $5,976. 84 Mr Saraikin estimated that during any one week in 2001-02 about 15 of the 53 entities making up B & L's 'stable' would have been working for it. But the number of projects being completed in any week varied widely. In the week ending 3 August 2001, for instance, only four projects were completed, but the equivalent figure for the week ending 17 August was 23. 85 In relation to eight of the contentious entities, there was evidence of significant quantities of work performed by them for employers other than B & L during this year. 86 Mr Eager argued that we should draw the following inferences from this evidence: (a) that L & B exerted no significant control over the manner in which the contentious entities carried out their tasks; (b) that, as permitted by the 'Terms of Engagement', these entities would engage suitably qualified workers to assist them in the performance of their contractual obligations, without any prior notice to L & B; (c) that this was often essential because the plasterboard sheets and lengths of cornice being installed were very heavy and/or unwieldy; and (d) that even though L & B could determine unilaterally, within a narrow range, what rates of payment should apply and always prepared the tax invoices on which the payments were made, the contentious entities nonetheless maintained their own separate businesses, which were independent of L & B. The Commissioner's claim that this evidence was inadequate 87 The Commissioner tendered virtually no evidence to the Tribunal. Counsel for the Commissioner, Mr Latham, relied on the proposition, which Mr Eager did not dispute, that the Appellants, as taxpayers, have borne throughout the onus of proving, on the balance of probabilities, that the relationship between L & B and the contentious entities was such as to support the conclusion that the entities were independent contractors according to common law principles. He submitted that they had failed to discharge this onus, advancing three general contentions in support of this submission. 88 Gaps and deficiencies in the documentary evidence. Mr Latham's first contention was that the Appellants' documentary evidence was clearly insufficient in a number of ways to prove all relevant aspects of the relationship between L & B and each of the individual entities. 89 He pointed out that there were no written documents or sets of documents setting out all the terms of the agreements between L & B and the contentious entities. Many aspects of their contractual relationships were determined instead by discussions or, it would seem, by mutual understanding, based on their past dealings with each other and/or their familiarity with building industry practices. 90 He further submitted that it could not be inferred that the documents headed 'Terms of Engagement' genuinely reflected the intentions of the parties. They were produced by L & B, and there was no evidence that the entities who signed them either understood them or freely consented to their contents. He pointed out that one of the tendered examples was signed in a language that was clearly not English and that in another context, to which we will refer shortly, counsel for the Appellant had told the Tribunal that many of the entities could not speak English. He also argued that there was no proof that the Terms of Engagement were signed by all of the contentious entities at the relevant times. 91 Similarly, Mr Latham argued that the tax invoices accompanying B & L's payments to the entities did not fully reflect the financial dealings between the parties. As an example, one invoice forming part of one of the sample sets of documents tendered by the Appellants clearly did not indicate the status of progress payments that had been made to the entity concerned. Furthermore, since the invoices were prepared by B & L, not by the relevant entity claiming payment for work done, they did not constitute genuine invoices, either for the purposes of tax law or in any other sense. 92 Mr Latham observed that the only other documents bearing upon the relationships between the entities and B & L were in fact the quality/maintenance reports. He suggested that the forms of documentary evidence that the Appellants should have tendered in order to make out their case included the following: income tax returns of the entities, receipts for their purchases of tools and materials, insurance policies, material advertising their businesses and invoices showing that they had been engaged by other contract builders. 93 Mr Latham's final criticism of the Appellants' documentary evidence was that it did not relate specifically to the one-to-one relationships that arose between each of the entities and L & B. Because it chiefly took the form of sample sets of documents, it provided no more than a generalised picture of such relationships. This was insufficient to discharge the Appellants' burden of proving their case with respect to each individual entity. 94 Unreliable oral testimony. Mr Latham's second general contention was that we should not depart from the Tribunal's finding that the testimony of three of the Appellants' witnesses - specifically, Mr Dickie, Mr Saraikin and Mr Kirpichnikov - was unsatisfactory and unreliable (see the Tribunal's judgment at [43], [74] and [84]). He did not elaborate on this contention. 95 The absence of any evidence from the entities themselves. Mr Latham's third contention stemmed from the fact that the Appellants had chosen not to call any of the entities as witnesses or to subpoena documents in their possession (for example, documents of the type mentioned above at [92]). He argued that they were clearly in a position to adopt these measures and that the reasons that they gave for not doing so were contradictory and unconvincing. It followed, he said, that we should infer that any testimony from them or documents produced by them would not have assisted the case of the Appellants, and should also draw inferences adverse to the Appellants that are otherwise open upon the evidence and which the entities might have been expected to contradict. 96 Mr Latham relied here on the well-known decisions in Jones v Dunkel (1959) 101 CLR 298 and Manly Council v Byrne [2004] NSWCA 123. He implicitly acknowledged, as he had done at the first hearing of this appeal, that we were not bound to draw these inferences merely on being satisfied that the Appellants could have called the entities as witnesses and/or subpoenaed documents from them (see the first appeal judgment at [105]). But he submitted that we could and should do so. 97 By way of illustrating the impact of this approach to the evidence, Mr Latham referred to some concessions made by Mr Saraikin during cross-examination, to the effect that workers engaged in installing cornices or sanding could operate alone and that plasterboard-lifting machines were available for hire. It followed, he said, that it had not been proved that more than one person was regularly if not invariably engaged on the tasks that the entities performed. An alternative possibility was that, when an entity required assistance to perform a task, it would be provided by another entity. There was, he said, no evidence on this matter either. 98 Mr Latham claimed that, for all of these reasons, this appeal could and should be determined by reference only to the issue of onus of proof. Our conclusion, he said, should be that the Appellants had failed to discharge the onus imposed on them to prove the factual matters needed to establish that the entities were independent contractors, not employees. 99 He submitted also that, when such evidence has the Appellants had tendered was given close consideration, it in fact showed that the entities were employees, not independent contractors. Our conclusions on the Commissioner's challenge to the Appellants' evidence 100 The principal evidentiary material lodged by the Commissioner was the file of documents that s 58 of the ADT Act required to be made available to the Tribunal. None of this material dealt with factual aspects of the relationships between B & L and the contentious entities. Except with regard to the content of two small-scale exhibits tendered during the hearing (see [116] below), we therefore do not have to resolve conflicts between differing versions of relevant factual matters put to us by or on behalf of opposing parties. Our main task is instead to decide (a) what parts of the evidence adduced by the Appellants should be treated as credible and (b) most importantly, what inferences we should draw from this evidence, either supporting or tending to disprove the Appellants' claim. 101 It is convenient to commence our discussion by considering the three contentions by Mr Latham that we have just outlined. 102 Gaps and deficiencies in the documentary evidence. His first contention, that the Appellants' documentary evidence fell clearly short of proving all relevant aspects of the relationship between L & B and each of the individual entities, is clearly correct, in so far as it drew attention to the failure of the parties to commit to writing many important features of this relationship. In proving these features, the Appellants could therefore rely only on the accounts given by the witnesses whom they called and on inferences to be drawn from these accounts, considered in conjunction with such documentary material as did exist. 103 Up to a point, we agree also with Mr Latham's argument that the Appellants, through relying significantly on six sample sets of documents, did not sufficiently show what was the relationship between each individual entity and L & B. We say 'up to a point' because on many important matters - for example, the requirement that each entity sign the 'Terms of Agreement', the procedures used by L & B in remunerating the entities and the methods adopted to check whether work was properly done - the Appellants' evidence was that L & B had developed standard practices, which it applied more or less uniformly. If we accepted this evidence, it would be open to us to infer, without requiring specific proof from the Appellants, that in every case where L & B had dealings with an entity, these practices were followed. From a practical point of view, this approach to reaching conclusions on this evidence may be the only feasible approach. 104 Mr Latham's argument on this question derives support from the consideration that, in ascertaining 'the totality of the relationship' between L & B and an entity, a number of matters not covered by L & B's standard practices are relevant. An example is whether the entity whose status is being determined carried out work for other employers. 105 Despite Mr Latham's criticisms of the 'Terms of Engagement' and the tax invoices issued by L & B, there is in our judgment no material evidence before us to suggest that these documents lack authenticity or fail to reflect the true intentions of the parties. 106 We would point out that the 'Terms of Engagement' are not lengthy or complicated. The fact that many of the entities who signed them did not speak English is not enough of itself to support a finding that they did not form part of the agreements between the entities and L & B. They are drafted in a formal style that is entirely consistent with this intention 107 With regard to the tax invoices, which purport to have been rendered by the entities to L & B, the fact that L & B, rather than the entities, prepared them is similarly not enough in itself to support a finding that they were in some sense bogus documents. On their face, they genuinely reflected the payments made by L & B as remuneration for tasks completed, with GST being charged where the entity was registered for GST and with deductions, in some instances, on account of other contemporaneous transactions between the parties (for example, the sale of a small quantity of materials from L & B to the entity). The content of the tax invoices that form part of the six sample sets of documents is in each case compatible with the other documents in the set. 108 In so ruling, we differ from a finding in the Tribunal's judgment, at [57], that 'the tax invoices (prepared by the Second Applicant [i.e., B & L]) did not always accord with the letter of the law'. The Tribunal apparently based this finding on a passage (which it quoted) in the transcript of the examination in chief of Mr Saraikin. In that passage, Mr Saraikin agreed that two copy documents headed 'tax invoice', forming part of the sample set of documents included in the Appellants' Objections, were respectively a quotation by a subcontractor (QWS Interior Linings Pty Ltd) and the same subcontractor's notification of acceptance of a counter-offer by L & B. There were no grounds, however, for the finding that these two documents were prepared by B & L. Each of them bore the letterhead of QWS Interior Linings Pty Ltd and notations at the top of the page indicate that this company sent them by fax to L & B. 109 Unreliable oral testimony. We turn now to Mr Latham's second contention. This requires us to consider the implications of the Tribunal's conclusion that the testimony of Mr Dickie, Mr Saraikin and Mr Kirpichnikov was unsatisfactory and unreliable. 110 We have conducted our own review of the transcript of this testimony, though of course we have not had the benefit of seeing and hearing these witnesses in the witness box. We would agree with the Tribunal that, judging from the transcript alone, each of these witnesses was evasive at times, not wishing to provide straightforward answers to questions posed either by Mr Latham or by the Tribunal itself. 111 We note, however, that many of the questions with which the three witnesses appeared uncomfortable or unconvincing did not bear upon any factual aspect of the relationships between L & B and the contentious entities. They related instead to quite distinct matters, notably the following: (a) the efforts made by the Appellants until relatively shortly before the Tribunal hearing to persuade the Commissioner that even their full-time employees, such as Mr Saraikin and Mr Ierace, were independent contractors; (b) the reasons why there existed two companies - B & L and L & B - where apparently one would suffice to conduct the business in which they engaged; (c) the reasons why the Appellants chose not to call on any of the entities to give evidence; and (d) the tax advantages of partnerships. Passages from the transcript where these witnesses gave unconvincing or evasive answers to questions on these topics are quoted in the Tribunal's judgment in the following paragraphs: [37 - 40], [42] (Mr Dickie); [53], [65], [73] (Mr Saraikin); [79], [80], [82] (Mr Kirpichnikov). 112 We have just indicated (at [108]) that in our view a series of answers given by Mr Saraikin to questions relating to tax invoices did not justify a negative comment by the Tribunal. In the first appeal judgment (see [27 - 28], [75] and [80]), we pointed out, having had the benefit of submissions on the matter from Mr Eager, that further negative comments of the Tribunal (see its judgment at [58]), relating to another passage in the transcript of Mr Saraikin's evidence, appeared also to lack justification. This passage was concerned with the circumstances in which L & B made progress payments to entities. 113 These observations by us provide grounds for placing less emphasis than the Tribunal did on what it believed to be unsatisfactory elements in the testimony of these three witnesses. But we agree with the Tribunal that in other parts of their testimony these witnesses did not give entirely satisfactory answers on topics of direct relevance to the question whether the contentious entities were employees or independent contractors. The topics in question were: (a) the degree to which the entities were supervised by L & B; (b) the incidence of progress payments; and (c) the possibility that entities might perform tasks entirely on their own. 114 In general terms, what the Appellants claimed with regard to supervision was that it was confined to checking whether an entity who had sought and been paid for a job had in fact completed it satisfactorily. But in a passage quoted in the Tribunal's judgment at [57], Mr Saraikin said during examination in chief that a member of L & B's maintenance division could 'go out to the job and report if there's a problem', both 'during' the work and after it was completed. 115 With regard to progress payments, Mr Saraikin provided relatively coherent evidence (see the Tribunal's judgment at [61]), to the effect that these might be made when an entity 'needed money to complete' a job or was 'desperate'. But Mr Kirpichnikov (see the judgment at [81]) first denied that progress payments were ever made, then said under pressure that '90%, 99% of the time' the entities were paid 'when they finish the job' and that in exceptional circumstances 'progresses' were paid. 116 In a passage which the Tribunal quoted in part at [72], Mr Saraikin displayed considerable reluctance to concede that entities could, in some circumstances, work alone or that he himself had actually observed individual entities (specified in the questions) doing this. He made what appears to be a legitimate point, namely, that it would be more feasible for a sander than for someone installing plasterboard or cornice. But under pressure he then admitted that while it was 'impractical' for cornice workers, it was not impossible. When Mr Latham showed him two documents (which were then admitted into evidence), indicating that machinery for lifting and installing sheets of plasterboard was available for hire, his response was that using such machinery to line a residential home was not 'practical' because the spaces were too small. He referred rather vaguely to the prospect of 'a lot of mucking around' if their use was attempted. 117 When Mr Kirpichnov was asked whether a particular sander (Mr John Kirpichnikov), who was in fact his brother, worked alone, he first said 'I presume so'. But he then endeavoured to qualify this by saying that 'as far as we know he works on his own but sometimes he may engage others'. Mr John Kirpichnikov was, it should be added, one of the two entities who were conceded by the Appellants to have been employees. 118 The comment may be made that the questions on this matter appeared to confront Mr Saraikin, in particular, with a dilemma. He would, it seems, have liked to be able to say that he knew from his own observation that the entities who installed plasterboard or cornices never worked alone. But an assertion such as this would have contradicted his earlier claim that neither he nor anyone else on L & B's behalf engaged in continuing supervision of the entities while they worked. 119 In our judgment, the unconvincing or evasive elements in the answers given by these witnesses do not justify the conclusion that their evidence must be treated as generally unreliable with regard to the specific issues to be resolved in determining the status of the contentious entities. We say this for three reasons in particular. 120 First, as we have already pointed out, most of the unsatisfactory answers related to other issues. One of these issues was L & B's practice, over a number of years, of claiming that the members of its full-time staff (including Mr Saraikin) were all independent contractors, not employees. The witnesses may well have felt themselves to be vulnerable to challenge by the Commissioner on this topic. 121 Secondly, although (as we have said) some of the witnesses' answers to questions relating directly to the issues to be resolved were unsatisfactory, these represented a small proportion of all the answers that they gave with reference to these issues. 122 Thirdly, if we were to treat the unsatisfactory elements in their answers as a ground for disbelieving their testimony generally, we would be making a number of findings, directly contrary to this testimony, that they had not had the opportunity to contradict while in the witness box. 123 By way of example, we were asked by Mr Latham to find that there was insufficient evidence to show that all the entities signed 'Terms of Engagement'. We might be tempted to do so if we had concluded that Mr Saraikin's evidence was wholly unreliable. This finding would be directly contradictory to a statement made by Mr Saraikin in one of his affidavits. But it was not put to Mr Saraikin at any time while he was in the witness box that this statement in his affidavit was untrue. 124 The same applies to the evidence regarding a number of other issues of importance in determining the status of the entities. It was not put to any of the Appellants' witnesses, for instance, that any of the following allegations made in their evidence was inaccurate (whether deliberately or unintentionally): (a) that B & L had no advance knowledge of who the entities selected, pursuant to the 'Terms of Engagement', to be 'suitably qualified' persons to assist them; (b) that Mr Saraikin would ensure that each entity was sufficiently well-informed on occupational health and safety matters, often through sighting a 'green card' indicating that the entity had attended an appropriate course of instruction; (c) that the 'progress payments' which Mr Saraikin and Mr Kirpichnikov admitted making were genuine payments in advance of part of the amount that would become payable on completion, as opposed to payments of wages or salary in disguise; and (d) that the normal practice was for two inspections only to be carried out by members of the maintenance division, namely, after installation of the plasterboard and cornice and after sanding. 125 This last allegation was specifically made in Mr Ierace's affidavit. Although Mr Saraikin referred in passing to inspections made 'during' the work, in order to 'report if there's a problem' (see [114] above), it was not put either to him or to Mr Ierace that such inspections occurred so frequently as to render Mr Ierace's account misleading. 126 The absence of any evidence (documentary or oral) from the entities themselves. In the first appeal judgment, we made a number of observations on this topic, which we will now summarise. 127 We held at [93] that there was no rule of law requiring that where taxpayers or other parties to proceedings wished to prove that persons working for them were independent contractors, not employees, they must necessarily call one or more of those persons as witnesses. We noted at [94] a case dealing with this issue (Roy Morgan Research Centre Pty Ltd v Commissioner for State Taxation [2003] SASC 342) where, in similar fashion to the present proceedings, the only witnesses called by the taxpayer were employees who had management responsibilities. 128 We pointed out at [104 - 106] that pursuant to the rule in Jones v Dunkel (1959) 101 CLR 298, the Tribunal, on being satisfied that the Appellants could have called the entities as witnesses and/or subpoenaed documents from them, may, but is not obliged to, draw inferences to the effect that (a) their evidence would not have assisted the Appellants and (b) their evidence would in fact have been adverse to the case of the Appellants. We added at [107] that it should only draw such inferences after have carefully assessed the evidence that the Appellants did adduce. Finally, at [109] we agreed with the Tribunal at first instance that it was the Appellants, not the Commissioner, who might be expected to call the entities as witnesses, and that the Appellants' explanations for their failure to call the entities were contradictory and unconvincing. 129 In returning to this issue now, we will deal first with oral evidence. It is highly likely that the entities would have furnished oral evidence that was directly relevant to the determination of their status. They could have testified, for instance, as to (a) the nature and extent of any supervision exercised over them by L & B while they were carrying out their tasks; (b) the circumstances, if any, in which they had recourse to the power of delegation conferred on them by the Terms of Engagement; (c) the extent to which the procedures that they adopted in installing plasterboard or cornice necessarily required them to obtain assistance from other qualified people; and (d) the extent, if any, to which they wore the t-shirts that L & B made available to them. 130 We are prepared to rule with little hesitation that in these circumstances we should draw what might be called the lesser of the two inferences permissible under Jones v Dunkel, namely, that if the entities had been called or their business records subpoenaed, the evidence obtained thereby would not have assisted the Appellants. In this case, the primary basis on which the Respondent Commissioner seeks to resist the Appellants' case is not through adducing evidence in reply but to claim that the evidence of the Appellants falls short of discharging the onus that lies upon them. It would be totally illogical in these circumstances to give a 'boost' to the Appellants' case by assuming that evidence which they could have obtained but chose not to obtain would have been favourable to them 131 The more difficult question is whether we should take the more drastic of the two steps available to us under Jones v Dunkel and draw inferences adverse to the Appellants which are otherwise open upon the evidence and which the entities might have been expected to contradict. 132 The rule in Jones v Dunkel does not go so far as to permit the drawing of an inference that the witness, if called, would have exposed facts unfavourable to the party who failed to call that witness: see the judgment of Campbell J, with whom Beazley JA and Pearlman AJA agreed, in Manly Council v Byrne [2004] NSWCA 123 at [50]. The furthest that the court or tribunal may go is to 'draw with greater confidence any inference unfavourable to the party who called that witness, if that witness seems to be in a position to cast light on whether that inference should properly be drawn' (ibid at [51]). But the unfavourable inference in question 'must first be available to be drawn, on the evidence which has been admitted' (at [52]). 133 In his written submissions, Mr Latham defined as the inference that we might draw 'with greater confidence' the proposition that the entities 'were common law employees'. But this proposition is one of mixed fact and law. As the foregoing outline of the relevant legal principles demonstrates, the ultimate conclusion on this matter depends on numerous specific findings of fact. If we are to apply Jones v Dunkel in this more drastic way, it must be so as to draw inferences, relating to one or more of these specific factual questions, that are already 'available to be drawn, on the evidence which has been admitted'. Potentially, these questions could include the four questions set out above at [129], since these are questions on which the entities might have been expected to give oral evidence. 134 A major problem faced by Mr Latham in identifying any such questions is that, except only on the availability of machines for lifting plasterboard sheets, the Commissioner did not adduce any evidence on relevant aspects of the relationships between L & B and the entities. The Commissioner relied instead on the existence of alleged gaps and deficiencies in the Appellants' documentary evidence and on unsatisfactory elements in the testimony of three of their witnesses. We agree that there are significant gaps in the documentary evidence, but do not think that Mr Latham's challenges to the authenticity of specific documents and their capacity to reflect the true intentions of the parties were made out (see [105], [107] above). We agree also that the testimony given by the witnesses in question was at times unconvincing and/or evasive, but not that their evidence on the specific range of issues that are relevant in determining the status of the entities should for this reason be disbelieved (see [119] above). 135 With regard to the particular question on which the Commissioner did adduce evidence, we consider that that evidence - indicating as it did that machines for lifting plasterboard sheets were available for hire - provided grounds for doubting Mr Saraikin's contention that it was impossible for only one person to lift the plasterboard sheets that were installed by the entities. But Mr Saraikin's responded, both in his affidavit and in cross-examination, by claiming that these machines were too large and unwieldy to be used in a practical way in residential dwellings. This was an effective response, which was not countered by further evidence or argument on the Commissioner's behalf. The Commissioner indeed produced no evidence at all to suggest that the entities did in fact use such machines during 2001-02 136 For these reasons, in the absence of any submissions on the Commissioner's behalf identifying specific factual inferences that are both available on the evidence and adverse to the Appellants and asking us to draw them pursuant to Jones v Dunkel, our conclusion is that we should not take any step of this nature on account of the failure of the Appellants to call any of the entities to give oral evidence. 137 We turn now to the relevant documentary evidence that the entities might have been expected to produce, if the Appellants had sought their assistance in this regard. As Mr Latham pointed out, this could have included their income tax and GST returns, receipts for their purchases of tools and materials, insurance policies, material advertising their businesses and invoices showing that they had been engaged by other contract builders. 138 We agree, however, with a contention by Mr Eager that it was not necessary for the Commissioner to, in effect, rely on the Appellants to obtain this evidence. If the Commissioner believed that any of these business records maintained by the entities would or might have disproved, or at least cast doubt on, the Appellants' claim that the entities managed their tax affairs and performed other activities as independent business enterprises, the Commissioner could have requested the Tribunal to issue appropriate summonses to one or more of the entities to produce documents, pursuant to s 84 of the ADT Act. As far as we aware, this was not done. 139 For this reason, the Appellants' failure to seek to obtain documentary evidence from any of the entities does not, in our view, provide a sufficient basis for the application of the rule in Jones v Dunkel. 140 The only inference, therefore, that we can draw under this rule is that the oral evidence given by any entity who testified would not have assisted the Appellants. It is worth noting, perhaps, that an entity's evidence would mostly be relevant only to the entity's individual status. Only when this evidence concerned procedures or practices regularly adopted by the entities or by L & B - for example, procedures for installing plasterboard or cornice - would it be clearly capable of application to the other entities. Our conclusions on the evidence 141 In our opinion, having regard to the limited evidence put on by the Commissioner and the other considerations that we have just discussed, the Appellants' evidence sufficiently establishes a number of matters that are specifically relevant to determining the status of the 36 contentious entities (or of some of them) during 2001-02. In the ensuing list of these matters, reference is implicitly made to the 'indicators' governing this issue, summarised above at [33 - 34]: - Out of these 36 entities, 23 were sole traders, nine were partnerships and four were companies. The nine partnerships included at least seven husband-and-wife partnerships in which the wife did not participate in the work carried out for L & B. L & B did not routinely supervise the entities, or otherwise control the manner in which they worked, though it inspected the work that they had completed in order to ensure that it was of a sufficient standard. L & B determined the place at which they worked and the time within which they completed the tasks carried out by them, but did not determine the specific hours when they worked. The entities received remuneration from L & B only on completion of one or more specified tasks, though sometimes progress payments, representing a proportion of the total agreed amount, would be made before completion. There was no evidence as to whether or not this form of payment by results was the 'natural means' of remuneration for work within this field. The entities had some scope to negotiate with L & B over the amount of their remuneration, but it was within a moderate range only (the evidence suggested a range of about 13% for plasterboard installation) and frequently the entities accepted the amount offered by L & B. All the entities had ABNs and were paid remuneration in accordance with tax invoices that L & B prepared and issued. L & B did not deduct income tax before making payment and where (as in all but three cases) the entity was registered for GST, the tax invoice included GST at 10%. L & B did not provide paid annual leave or sick leave and did not make superannuation contributions for the entities. During the year, the numbers of tax invoices and the total amounts of remuneration received by individual entities varied widely. There was also wide variation in the weekly amounts paid to individual entities. At least eight of the contentious entities performed significant quantities of work for employers other than B & L. The entities were required to be aware of relevant occupational health and safety practices, and L & B assumed no responsibility for ensuring that they put those practices into operation. Without being required to consult or notify L & B in advance, the entities were contractually entitled to engage appropriately qualified persons to perform, or assist them in performing, their contractual obligations. For practical reasons, and to ensure personal safety, some of the operations associated with installing plasterboard or cornices (notably bringing large plasterboard sheets or substantial lengths of cornice to the room where they were to be installed and lifting them to the appropriate place on a ceiling or a wall) could not be performed by one person alone. This did not apply, however, to the task of sanding. L & B supplied the requisite plasterboard sheets and lengths of cornice. The entities supplied moderately expensive tools and other equipment, including a van or utility, a generator and some power tools. The entities acquired no significant 'chance of profit' (for example, through accumulating assets or goodwill), but assumed the risk of loss, in so far as the cost of rectifying defective work was 'back-charged' to them. From time to time, L & B would give an entity a t-shirt that it had received from a plasterboard supplier. The t-shirt displayed the logos of the supplier and L & B. The entities wore them, though L & B did not require them to do so. 142 In our judgment, the overall conclusion to be drawn, having weighed up all these factors, is that the entities were independent contractors, not employees. The generalised factors suggesting the status of employee are (a) that L & B determined the place at which the entities worked and the time within which they completed their tasks; (b) that in practice the entities had limited scope, or no scope at all, to negotiate about the rate of remuneration; (c) that L & B prepared the tax invoices, even though they were notionally 'rendered' to it by the entities; (d) that except in eight cases, the entities were not shown to have worked for other employers; (e) that the entities acquired no significant 'chance of profit'; and (f) that they often wore (but were not required to wear) a t-shirt displaying L & B's logo. 143 Even allowing, however, for the significance attached to some of these matters in Hollis v Vabu Pty Ltd (2001) 207 CLR 21, we consider them insufficient to outweigh the numerous indicators tending in the opposite direction. In brief terms, these include the following: absence of continuing supervision by L & B; lack of control over working hours; payment by results (without any evidence that this was the 'natural means' of remuneration); absence of any provision for annual or sick leave; wide variation in the amounts paid to an entity each week; treatment of income tax, GST and superannuation matters in ways that were lawful and generally appropriate for contracts between independent businesses; responsibility for occupational health and safety taken by the entities; an express power to appoint others to perform duties or assist in their performance, without any requirement of prior consultation or notification; working conditions in which individual entities regularly required assistance; provision by the entities of moderately expensive tools and equipment; and assumption of risk of loss by the entities, through the process of back-charging. 144 It appears to us that there are at least five specific factors differentiating the relationship between Vabu (the courier company) and the bicycle couriers who were held by the High Court to be employees in Hollis (as to which, see the majority judgment at 41 - 46 ([46 - 60]) and paragraphs [21, 27, 30 - 32] above) from the relationship between L & B and the entities. These are as follows: (a) the couriers had 'little control over the manner of their work'; (b) there was no evidence to suggest that they could delegate performance of their tasks, and their task was inherently not one in which they could engage assistants to work alongside them; (c) they were required, not merely permitted, to wear Vabu's 'livery'; (d) Vabu 'superintended the couriers' finances' to an extent significantly greater than merely preparing tax invoices; (e) the equipment provided by each courier, being limited to a bicycle, was considerably less expensive or significant than the motor vehicle and other items provided in this case by the entities. 145 As pointed out at [31] above, the last of these five factors was specifically identified by the High Court (see the majority judgment at 22 [32]) as providing grounds for distinguishing the situation of bicycle couriers from that of the motor vehicle or motor bicycle couriers dealt with by the Court of Appeal in Vabu v Federal Commissioner of Taxation (1996) 96 ATC 4,898. On this particular issue - which is of course only one of many to be considered - the present case is clearly to be aligned with the Court of Appeal case. 146 Mr Latham argued that since neither L & B nor B & L performed lining operations in their own right, but relied entirely on the entities to perform them, the role of the entities was the same as that attributed to the bicycle couriers in the following passage in the majority judgment in Hollis (at 45 [57]): - It was not the case that the couriers supplemented or performed part of the work undertaken by Vabu or aided from time to time; rather, as the two documents relating to work practices suggest, to its customers they were Vabu and effectively performed all of Vabu's operations in the outside world. 147 We do not think, however, that the facts of the two cases justify equating the roles of these two groups of workers in this way. To do so would be to leave out of account at least two important features of the present case: (a) that contract builders and other 'trades' working on the same building contracts as the entities would have been well aware that some at least of the entities were engaged by employers other than L & B; and (b) that the employees of L & B who comprised its maintenance division performed significant tasks at the work-sites, and were seen by others to do so, after the entities had completed their work (see above at [78 - 80]). 148 With regard to some individual entities, the case for independent contractor status is strengthened by particular factors not applying generally: for example, that an entity was one of the four companies, or one of the eight entities in relation to whom there was evidence of work for other employers. For others - notably the sole sanding entity, for whom work without the assistance of others was quite feasible - the case is weaker. But we do not believe that this differentiating factor warrants a different conclusion with regard to the status of this entity. 149 As indicated above at [6], our conclusion that the 36 contentious entities were independent contractors, not employees of L & B, during 2001-02 does not of itself determine the extent to which the Appellants should be liable for pay-roll tax under the assessments that they have challenged. Exemptions from this tax are only available to them to the extent, if any, that they can also satisfy certain conditions set out in s 3A(1) of the Act. In fulfilment of our functions under s 115(1) of the ADT Act (see [11] above), it remains for us to decide this further issue. Our orders 150 For the foregoing reasons, the Appeal Panel determines, for the purpose of assessing the liability of the Appellants to pay-roll tax pursuant to the decision of the Respondent under review, that the 36 contentious entities were independent contractors engaged by L & B during the year ended 30 June 2002. 151 In order to make arrangements for resolution of the issues remaining in this case, the appeal is set down for further directions at 9.30 a.m. on Friday 28 July 2006.

B & L Linings Pty Ltd & anor v Chief Commissioner of State Revenue

At a glance

Court

Decision date

Catchwords

Source

Catchwords

Judgment (10 paragraphs)

Parties

Cases Cited (8)

Cited By (7)