Betta Industries Pty Limited v Chief Commissioner of State Revenue

Court of Appeal (NSW)|2013-03-13|Before: Gzell J

The Application 1This is an application by the Chief Commissioner of State Revenue (the Respondent) to adjourn the substantive proceedings, pending the Court of Appeal's decision in The Smith's Snackfood Company Limited Ltd v Chief Commissioner of State Revenue (NSW), Supreme Court of New South Wales proceedings, case number 2012/29641 (Smith's Appeal): an appeal from the decision of Gzell J in The Smith's Snackfood Company v Chief Commissioner of State Revenue (NSW) [2012] NSWSC 998 (Smith's). The application is made on the basis that there is a risk that the Tribunal's decision will be inconsistent with the subsequent decision of the Court of Appeal and that there may be an impact upon the evidence to be adduced by Betta Industries Pty Limited (the Applicant) in the Tribunal. 2The Applicant does not oppose the adjournment and did not appear at the hearing of the adjournment application. 3The issues concerning adjournment are the same as those in Complete Wardrobes & Showerscreens Pty Ltd v Chief Commissioner of State Revenue heard 13 February 2013 (Complete Wardrobes) and the Respondent's submissions are effectively the same in each case.

The underlying proceedings 4The proceedings in the Tribunal concern a payroll tax dispute. The Applicant claims that it is entitled to greater deductions from amounts deemed to be wages, in calculating its payroll tax liability, than was allowed by the Respondent for the non-labour costs associated with payments to independent contractors. 5The proceedings in the Administrative Decisions Tribunal were commenced in July 2012. The Respondent has filed documents pursuant to s 58 of the Administrative Decisions Tribunal Act 1997 (NSW) (ADT Act). Neither party has filed evidence or submissions. The proceedings are accordingly at a very early stage and there is, as yet, no hearing date.

Evidence on the Application 6The Respondent relied upon two affidavits of Nicholas Martin, a Graduate Solicitor employed in the Office of I.V. Knight, Crown Solicitor. The first dated 30 January 2013 annexed the decision of Gzell J in Smith's, the Notice of Appeal and the Notice of Cross-Appeal filed by the present Respondent. The second affidavit of 15 March 2013 annexed the Respondent's submissions on the Cross-Appeal and the Appeal and also some supplementary submissions on the adjournment application. The Smith's Appeal is listed for hearing on 9 July 2013. 7I have also had regard to the application filed on 20 July 2012 in the substantive proceedings (the Application), which annexes a copy of the letter notifying the objection decision dated 21 May 2012 (the Objection Decision).

Legislation 8In the substantive proceedings s 32 and sub-s 35(2) of the Payroll Tax Act 2007 (NSW) (PT Act) are relevant. They provide as follows: 32What is a relevant contract? (1) In this Division, a relevant contract in relation to a financial year is a contract under which a person (the designated person) during that financial year, in the course of a business carried on by the designated person: (a) supplies to another person services for or in relation to the performance of work, or (b) has supplied to the designated person the services of persons for or in relation to the performance of work, or (c) gives out goods to natural persons for work to be performed by those persons in respect of those goods and for re-supply of the goods to the designated person or, where the designated person is a member of a group, to another member of that group. (2) However, a relevant contract does not include a contract of service or a contract under which a person (the designated person) during a financial year in the course of a business carried on by the designated person: (a) ... (d) [relating to specific exemptions] (3) For the purposes of this section, an employment agency contract under which services are supplied by an employment agent, or a service provider is procured by an employment agent, is not a relevant contract. 35Amounts under relevant contracts taken to be wages (1) For the purposes of this Act, amounts paid or payable by an employer during a financial year for or in relation to the performance of work relating to a relevant contract or the re-supply of goods by an employee under a relevant contract are taken to be wages paid or payable during that financial year. (2) If an amount referred to in subsection (1) is included in a larger amount paid or payable by an employer under a relevant contract during a financial year, that part of the larger amount which is not attributable to the performance of work relating to the relevant contract or the re-supply of goods by an employee under the relevant contract is as determined by the Chief Commissioner. (3) An amount paid or payable for or in relation to the performance of work under a relevant contract is taken to include: (a) any payment made by a person who is taken to be an employer under a relevant contract in relation to a person who is taken to be an employee under the relevant contract that would be a superannuation contribution if made in relation to a person in the capacity of an employee, and (b) the value of any share or option (not otherwise included as wages under this Act) provided or liable to be provided by a person who is taken to be an employer under a relevant contract in relation to a person who is taken to be an employee under the relevant contract that would be included as wages under Division 4 if provided to a person in the capacity of an employee. 9The Commissioner has a seemingly broad discretion under sub-s 35(2) to determine the amount that is not attributable to the performance of work related to the relevant contract. The Commissioner has promulgated Revenue Ruling No. PTA018 (the Ruling) titled "Contractor Deductions". In it he has identified deductions for non-labour components of relevant contracts where the contractor provides equipment and/or materials. The percentages range from 5% for architects to 37% for resilient floor layers/vinyl layers. Further, the Commissioner states that if a particular professional trade is not listed in the ruling, an employer may apply to the Chief Commissioner for a determination. The Ruling provides as follows: Please note that rulings do not have the force of law. Each decision made by the Office of State Revenue is made on the merits of each individual case having regard to any relevant ruling. 10The ruling is said to be effective from 1 July 2007 though it was issued 11 January 2008.

The intersection of issues 11Smith's concerned the operation of s 35 of the PT Act and the quantum of deductions allowable for the non-labour component of payments by Smith's to independent contractors. In that case, the payments were made to independent contractors to, inter alia, store, transport and restock Smith's vending machines. The Commissioner had allowed a 25% deduction for the non-labour component of payments to those contractors. Having regard to evidence that suggested a figure of 35% was a better estimate of non-labour costs in the particular case, his Honour revoked the assessments and remitted the matter to the Chief Commissioner for determination: at [87] and [88] of Smith's. 12Smith's also concerned the operation of s 32 of the PT Act, which exempts a contract under which the person is supplied with services for or in relation to the performance of work that are ancillary to the supply of goods or the use of goods that are property of the person by whom the services are supplied. The particular sub-paragraph primarily under consideration in Smith's was s 32(2)(d)(i) of the PT Act (services ancillary to the conveyance of goods by a vehicle), a sub-paragraph with which the Tribunal proceedings are not concerned. His Honour at [79] of Smith's noted that to the extent that the agreement between Smith's and the contractors provides for an exempt service, it is not a relevant contract: see too [81]. His Honour construed s 32 as providing a mechanism for apportioning contracts into taxable and non-taxable parts. 13Section 32 is the starting point for the apportionment determination under sub-s 35(2). His Honour noted at [82] that the question for determination in relation to s 35, is to be looked at only in relation to so much of the contract as renders them relevant contracts (i.e., the result of the s 32 analysis). 14The Cross-Appeal in the Smith's Appeal raises the following issues submitted to be relevant to the Tribunal proceedings (at [13] of the Respondent's submissions): The Chief Commissioner has sought to cross appeal. The notice of Cross Appeal states relevantly that: 1.The trial judge erred in holding that section 3A(2)(d) of the 1971 Act and section 35(2) of the 2007 Act only applied to what the trial judge had identified as the assessable part of a relevant contract (see judgment at [81]). [(the First Issue)] 2. The trial judge erred in not holding that section 3A(2)(d) of the 1971 Act and section 35(2) of the 2007 Act were only engaged if there were two amounts particularised under the relevant contract (see judgment at [84]). [(the Second Issue)]

The First Issue 15The particular exemption in s 32 relied upon by Smith's is not relevant to the Applicant here. I was informed that there is no claim to apportion the relevant contract in this case, but that it was an open question whether such a contention could be made. The Application does not refer to s 32. As the matter presently stands, I am not satisfied the First Issue arises in the Tribunal.

The Second Issue 16Once the scope of the relevant contract is ascertained, the enquiry moves to s 35 where the Commissioner has a discretion to determine an amount which is not attributable to the performance of work relating to the relevant contract. 17In Smith's, Gzell J rejected the Commissioner's determination in relation to what are appropriate deductions from gross payments to contractors. The Commissioner had applied the methodology set out in the Ruling, yet his Honour preferred an approach that reflected a qualitative and case specific analysis. In Smith's there was evidence comparing non-labour costs to total costs and comparing the time taken to drive as a percentage of the time to provide the services, which was inconsistent with the percentage specified in the Ruling. 18The Commissioner, in this case, submitted that whether the Tribunal was bound by the Ruling and therefore bound to apply the percentages in the Tribunal's ruling or free to apply some other qualitative analysis was an issue that would be decided in the Smith's Appeal. However, it does not seem to me that his Honour in Smith's was for all purposes rejecting the Ruling: it was simply not binding and in the circumstances not to be preferred over the case specific approach. Different considerations might arise in different cases. Further, I do not apprehend the Commissioner's Notice of Cross-Appeal or the submissions to squarely raise the issue that the Court is bound by the Ruling in every case concerning s 35 of the PT Act. I pause here to note that I was not taken through the Commissioner's case to be propounded before the Court of Appeal, nor would that have been appropriate. I was provided with a copy of the submissions so that I could form a view as to whether the Court of Appeal was likely to decide an issue that also arose in this case. 19As I apprehend the submissions in the Smith's Appeal, the "binding" nature of the Ruling arises not directly but because, on the Commissioner's contention, s 35 was not enlivened: the Court (or Tribunal) has no discretion at all, so is powerless to disturb the Commissioner's determination. The Assessment could not be shown to be excessive because no allowance was available at all, so the allowance the Commissioner gave under the Ruling could not be increased: see for instance at [110] of the Commissioner's submissions in the Smith's Appeal where it is said: "[Smith's] cannot support a submission that the 25% allowance had produced an assessment that is excessive because ... the [contract] has no larger and smaller amounts ..." In other words, s 35 was not enlivened. 20The submissions on the Cross-Appeal at [53] to [57] provide that sub-s 35(2) is only engaged if there are "two amounts" under the relevant contract. For instance, if there was a separately identified payment for labour. If there is no separately identified amount, so the submission goes, there is no warrant for the Court to make any determination under sub-s 35(2) and the Taxpayer must be satisfied with the Commissioner's determination under the Ruling. No reduction beyond that allowed by the Commissioner is permissible: not because the Ruling is binding, but because the assessment could not be shown to be excessive in the circumstances. His Honour found in Smith's that the section did not require the amount to be separately identified. It was therefore open to the Court to substitute its own determination or, as happened in that case, direct the Commissioner to reconsider on a basis other than the basis set out in the Ruling. 21During the course of argument, I invited the Respondent's counsel to direct my attention to the ground of appeal that squarely raised the question of whether the Ruling was binding in every case (i.e., even where s 35 was enlivened). I granted leave for the respondent to file supplementary submissions on this issue. Those submissions, dated 15 March 2013, directed my attention to various paragraphs of the submissions on the Smith's Appeal where the Ruling was referred to by a shorthand reference to an allowance of 25% (the amount allowed under the Ruling). It was plain that those paragraphs were in fact referring to the Ruling. Nevertheless, those paragraphs did not alter my view of the nature of the case to be put to the Court of Appeal. 22As noted, it does not appear to me that Gzell J went so far as to say the Ruling was inapposite in all cases. The Commissioner in the Smith's Appeal does not appear to me to be contending that the Ruling is binding in all cases. Consequently, it does not follow from the mere fact that Gzell J rejected the Ruling in Smith's, that the same will be the case in these proceedings. Unless the Ruling was binding in every case, the Applicant could always choose to support it or refute it and the Smith's Appeal would not affect the Tribunal's decision. Even if I have misunderstood the Commissioner's case to be made to the Court of Appeal, I have decided that there is another reason why the Second Issue arises (or might arise) in the Tribunal. 23It was not submitted to me that the issue, whether there are two amounts such that s 35 is enlivened, arises in these proceedings. Further, the submissions on the Cross-Appeal note, at [49] that there was an: ... admission by Smith's ... [that] one entire sum was paid for the performance of work with no contribution directly or indirectly to the provision of a vehicle by the contractor. 24I was not directed to a similar admission in this case. On the other hand, whilst the Objection Decision impliedly proceeds on the basis that sub-s 35(2) is in fact enlivened in respect of installers, in respect of salespersons it states that "there is no non labour component to the relevant contracts for the salespeople and thus no entitlement to any deduction." This is similar to the Objection Decision in Complete Wardrobes. I noted in that case that the formulation is another way of saying that s 35 is not engaged. Accordingly, there is a real prospect that the Second Issue arises in the Tribunal. 25The case for adjournment was put on the basis that the Commissioner wished to contend the Ruling was binding in all cases, rather than s 35 was not enlivened. Yet it appears to me that the Objection Decision raises (or at least possibly raises) the issue of whether s 35 is engaged. 26Therefore a factor in favour of granting the adjournment is the prospect that the Second Issue arises in this case.

The power to adjourn 27The Tribunal has power pursuant to s 73(5)(f) of the ADT Act to adjourn proceedings. The discretion is unconfined save with respect to the subject matter, scope and purpose of the statutory regime: Water Conservation and Irrigation Commission (NSW) v Browning (1947) 74 CLR 492 at 505.2 per Dixon J; Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 67 ALJR 170. 28Other relevant statutory provisions of the ADT Act include the following: (1)Section 3(b) provides that the objects of the Act include to ensure that the Tribunal is accessible, its proceedings are efficient and effective and its decision are fair. (2)Section 3(c) provides that another object is to enable proceedings before the Tribunal to be determined in an informal and expeditious manner. (3)Section 73(5)(a) provides that the Tribunal is to act as quickly as is practicable. 29The Commissioner highlighted three competing interests. These included: (a)The interest of the Chief Commissioner to have the issues in this case determined in a way that will be consistent with any future decision of the Court of Appeal: City of Sydney Council v Satara [2007] NSWCA 148 (8 June 2007) at [32]; (b)The interest of the Applicant to have its claims heard and determined as quickly as possible; and (c)A general public interest in the administration of justice: Aon Risk Services Australia Limited v Australia National University (2009) 239 CLR 175 at 211. 30Whilst a Court (or Tribunal) deals with the law as it is, rather than speculates about changes in the law, there may be circumstances where it is appropriate to consider the impact of the outcome of an appeal in an unrelated case: City of Sydney Council v Satara [2007] NSWCA 148 (8 June 2007) at [19], [20] and [32]. 31Here, the adjournment application is not contested. Furthermore, it was submitted, by the Commissioner that the Applicant's interests were furthered if it was not required to finalise its evidence until the Smith's Appeal was determined because the decision might affect the evidence it was to rely upon. I return to this below. 32The Commissioner says that his interest, to have cases determined in a way consistent with any future decision of the Court of Appeal is aligned to the general public interest. At [16] he stated: The Chief Commissioner submits that should the Tribunal not adjourn this case, there is a real possibility that the Tribunal will reach conclusions that may be in conflict with a later decision of the Court of Appeal. That would almost inevitably result in the aggrieved party seeking to appeal and relying upon the later decision in the Court of Appeal. Were the appeal to be successful, there is a real possibility that the matter could be remitted back to the Tribunal to determine afresh. That course would not enable the proceedings before the Tribunal to be determined in an expeditious manner. 33The Commissioner submitted that it was accordingly necessary to consider the level of certainty that the issues raised will be addressed in the Court of Appeal and when that is likely to occur: Meggitt Overseas Ltd v Grdovic (1998) 43 NSWLR 527.

Level of certainty that the issues will be addressed in the appeal 34I accept it is likely the Court of Appeal will consider the construction of s 32 and whether it is appropriate to apportion the contract and further that the Court of Appeal will consider whether sub-s 35(2) was enlivened in that case and accordingly whether the allowance under the Ruling could (or should) be disturbed. However, I am not satisfied that the Court of Appeal will necessarily determine the broader question of whether the Ruling is binding in all cases.

Length of adjournment 35The Smith's Appeal will be heard in July 2013. The length of the adjournment sought is therefore not insubstantial. The Application before the Tribunal was filed in July 2012. If the adjournment is granted there can be no resolution within a year of the filing of the Application. This poses a significant delay.

Inconvenience to the Tribunal 36The matter is in early stages of preparation and it does not yet have a hearing date. The inconvenience to the Tribunal is therefore minimal.

Impact on the Evidence 37The Commissioner submitted that the Applicant would be prejudiced if it had to finalise its evidence at this stage. As the Applicant did not appear, it was not possible to obtain its views on this issue. Nevertheless, logically the question of whether the Ruling is binding in the circumstances may have an impact on the evidence. As I said in Complete Wardrobes this alone would not justify the adjournment and here, with the absence of any corroboration from the Applicant, this factor has less force than it had in that case.

Interests of Justice 38In addition to the interests of the parties there is a public interest in the efficiency of the legal system. 39In Aon Risk Services Australia Limited v Australian National University (2009) 239 CLR 175 (Aon), the Court was considering an application, made on day three of a four week trial, to adjourn and make amendments to the statement of claim. Prejudice to the defendant was plain and the High Court noted that costs orders were no longer considered a panacea. Prejudice to the other party was not however the Court's only concern. As French CJ noted at [5]: ...the time of the court is a publicly funded resource. Inefficiencies in the use of that resource, arising from the vacation or adjournment of trials, are to be taken into account. So too is the need to maintain public confidence in the judicial system. 40At [23] -[24] the Chief Justice further noted: In this respect, however, the adversarial system has been qualified by changing practices in the courts directed to the reduction of costs and delay and the realisation that the courts are concerned not only with justice between the parties, which remains their priority, but also with the public interest in the proper and efficient use of public resources... ...Undue delay can undermine confidence in the rule of law. To that extent its avoidance, based upon a proper regard for the interests of the parties, transcends those interests. Another factor which relates to the interests of the parties but transcends them is the waste of public resources and the inefficiency occasioned by the need to revisit interlocutory processes, vacate trial dates, or adjourn trials either because of non-compliance with court timetables or, as in this case, because of a late and deliberate tactical change by one party in the direction of its conduct of the litigation. 41No question of deliberate tactical change or tardy behaviour by a litigant arises in this case. However, the interests of justice are plainly served by the timely disposition of maters in the Tribunal. As stated by the Chief Justice in Aon, at [27]: However, the mischief engendered by unwarranted adjournments and consequent delays in the resolution of civil proceedings goes beyond their particular effects on the court in which those delays occur... the public interest in the efficient use of court resources is a relevant consideration in the exercise of discretions to amend or adjourn. 42Unnecessary delay risks eroding the public confidence in the legal system. As stated by the Chief Justice in Aon, at [30]: Also to be considered is the potential for loss of public confidence in the legal system which arises where a court is seen to accede to applications made without adequate explanation or justification, whether they be for adjournment, for amendments giving rise to adjournment, or for vacation of fixed trial dates resulting in the resetting of interlocutory processes. 43As the Plurality in Aon, (Gummow, Hayne , Crennan, Kiefel and Bell JJ) noted (at [98]): a "just resolution" is to be understood in light of the purposes and objectives stated. Speed and efficiency, in the sense of minimum delay and expense, are seen as essential to a just resolution of proceedings. 44Rules of court (and of the Tribunal) minimising delay recognise the "ill-effects" of delay not only on the parties, but to litigants generally (Aon at [101]). 45These concepts are given application in the Tribunal's objects referred to above. As Heydon J noted in Aon (at [156]). The Court (and by analogy a Tribunal) has a duty to achieve its objects. 46To grant an adjournment at this stage because there is a mere suggestion that the Tribunal will deliver a decision that turns out to be inconsistent with a subsequent Court of Appeal decision would not pay due regard to the important concepts the High Court emphasised in Aon and before that decision, in Sali v SPC Ltd (1993) 67 ALJR 841 at 843-844 (Brennan, Deane, McHugh JJ) and at 849 (Toohey, Gaudron JJ). This is so despite the fact that both parties say they are not prejudiced by the adjournment and support it. It does not further the interests of justice to delay proceedings in the absence of clear grounds. 47However, the combination of factors tips the balance in favour of granting the adjournment: there is a real prospect that the Second Issue will arise in the Tribunal; it is likely that the Second issue will be determined by the Court of Appeal; there is a possible impact upon the evidence and the Applicant's burden; and finally the inconvenience to the Tribunal is minimal. 48The interests of justice in this case are finely balanced, but I am satisfied that they favour granting the adjournment. I reiterate my comments in Complete Wardrobes at [49] that parties ought not to assume that they will be granted an adjournment, even a short one, merely because there is consent between them.

Decision 49The application for adjournment is allowed. The matter is to be listed on 17 July 2013 at which time the Respondent is to update the Tribunal as to the progress of the Smith's Appeal and whether the Second Issue was ultimately pressed and in light of the hearing, whether it is still contended that the Court of Appeal is likely to make a determination that affects the issues in the Tribunal. In the meantime, the Respondent is to notify the Registry if, for any reason, the Smith's Appeal is not going ahead in July 2013. The matter will then be listed for directions at an earlier time.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 02 April 2013

Administrative Decisions Tribunal Act 1997(NSW)

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