Chief Commissioner of State Revenue v Elanor Operations Pty Ltd

JUDGMENT

1. MACFARLAN JA: I agree with Griffiths AJA.
2. GLEESON JA: I agree with Griffiths AJA.
3. GRIFFITHS AJA: These proceedings concern the "grouping" and "de-grouping" provisions in the Payroll Tax Act 2007 (NSW). In the judgment below (Elanor Operations Pty Ltd v Chief Commissioner of State Revenue [2022] NSWSC 104 (PJ)), Ward CJ in Eq (as her Honour then was) upheld the respondents' (the then plaintiffs') application for review under s 97(1) of the Taxation Administration Act 1996 (NSW) of the Chief Commissioner of State Revenue's (Chief Commissioner) decision dated 31 August 2018 (which was also confirmed by a letter dated 20 May 2019). The Chief Commissioner determined not to exercise the discretion under s 79(1) of the Payroll Tax Act to exempt each of the now respondent companies from membership of a single and discrete group for the purposes of assessing payroll tax under Pt 5 of that Act.
4. The s 79 applications for exemption by each of the companies were made against the background of two payroll tax assessments issued on 26 May 2017 against the second respondent (193 Clarence Hotel Management Pty Ltd) for periods in the range from 10 October 2014 to 30 June 2016.
5. It was common ground both below and on appeal that each of the 16 respondents (who have a common sole director, Mr Glenn Willis) are part of a single group for the purposes of the Payroll Tax Act and fall into one of five sub-groups. Consequently, each of the respondents is liable for each other's payroll tax liabilities and their liability is calculated as if they are one entity subject to one threshold (which threshold is currently more than $1.2 million).
6. It is (and was) common ground that s 79 of the Payroll Tax Act confers a discretion on the Chief Commissioner to make a determination which has the effect of excluding a company from membership of a single group if (and only if) the Chief Commissioner is satisfied that a business carried on by the applicant is carried on independently of, and is not connected with, the carrying on of a business carried on by any other member of the group. This state of satisfaction under s 79(2) requires the Chief Commissioner to have regard to the nature and degree of ownership and control of the businesses, the nature of the businesses and any other matters the Chief Commissioner considers relevant. The parties were agreed that this necessarily involves matters of judgment. Determinations under s 79 will invariably be fact sensitive.

The structure and operations of the Elanor Group

1. The structure and operations of the Elanor Group may be summarised as follows (drawing heavily on PJ[9] to [24], which I understand not to be controversial). The ultimate holding company of all the respondents is Elanor Investors Ltd, which is a publicly listed company. Through its associated companies, Elanor Investors manages and invests in a portfolio of businesses, including those in the tourism and leisure sector. Its essential business model involves acquiring investment assets (such as a hotel business and its land); improving the assets; selling interests in those assets to a newly established fund which sells units in that fund to sophisticated third-party investors; retaining at least a minority interest in those assets; and managing those assets for an ongoing fee.
2. Initially, Elanor Investors acquires and holds a business in a special purpose company, and the associated land is held in a corresponding property trust. The shares in the company are stapled to the units in the property trust. The companies that own those businesses are known as "incubator companies". Those incubator companies are wholly owned by Elanor Management Pty Ltd, which itself is wholly owned by Elanor Investors. The incubator companies are included in payroll tax sub-group 1, together with various other entities which performed administrative or business development functions, including Elanor Operations Pty Ltd.
3. When Elanor Investors is ready to sell the incubator business and its associated land, it creates a new managed fund. Each such managed fund consists of one or more companies which owns a business or businesses, and corresponding property trusts which own the land on which the business operates. With one exception, the trustee of all the property trusts is Elanor Funds Management Ltd (EFML), which holds an Australian Financial Securities Licence (as required under the Corporations Act for the management of a managed investment scheme). EMFL is not a member of the payroll tax group. Elanor Investors Nominees Pty Ltd is the trustee of the other fund.
4. During the relevant period there were four managed funds, each of which was a member of the registered Elanor Investors Fund but none of which is itself a registered management investment scheme. There is the Elanor Hospitality and Accommodation Fund (EHAF Fund) (corresponding with sub-group 2); Bell City Fund (corresponding with sub-group 3); 193 Clarence Hotel Fund (corresponding with sub-group 4); and Elanor Metro and Prime Regional Hotel Fund (EMPR Fund) (corresponding with sub-group 5) (PJ[15]). The structure of the five sub-groups is described at PJ[34] to [50].
5. Third party investors in these four funds purchase shares in the company that operates the business, together with "stapled" units in the trust that owns the land. The investor shareholders of the respective companies own the same proportionate number of units in the associated unit trust; and the shares and units cannot be sold separately. With respect to the EHAF Fund and EMPR Fund, which both hold multiple assets, investors purchase shares in a holding company stapled to units in a holding trust. The holding company owns all of the shares in the companies that operate the businesses. In all cases, Elanor Investors retains at least a minority interest in both the businesses and the land held by the managed fund (PJ[16]).
6. The managing director of Elanor Investors (Mr Willis) is the sole director of all of the companies in sub-groups 1-5. Mr Willis is also the sole director of the trustee company (EMFL), which has legal title to all the properties on which the corresponding businesses operate. The Chief Financial Officer and Company Secretary of Elanor Investors (Mr Symon Simmons) is the company secretary of all the respondent companies.
7. Each of the managed funds pay management and performance fees to EFML. As stated above, EFML is one of Elanor Investors' subsidiaries and is the trustee of all but one of the property trusts within each managed fund. There are three types of fees. First, the funds pay a one-off acquisition fee equivalent to 1% of the purchase price of the assets. Secondly, the funds pay an ongoing management fee of 1% per annum of the gross asset value of the fund (comprising the value of the property-owning trust and the value of the stapled company which owns and manages the relevant business). Finally, the funds pay a performance fee of up to 20-25% of total fund returns upon the end of the managed fund (PJ[24]). The terms governing the fee arrangements for each fund are set out in the relevant syndicate constitution, including, for example, the Bell City Accommodation Syndicate Constitution at cll 19.1-19.11.
8. In the proceedings below, the Chief Commissioner submitted that there were material connections between the companies and that they did not carry on their businesses independently from each other. The Chief Commissioner claimed that each company under the ultimate holding company (Elanor Investors) was connected to all the other entities in the group through a common board of directors, the same registered address and principal place of business (apart from two companies which had a different principal place of business) and that each of the companies that operated a tourism business was also connected to each other because they all shared key personnel. Particular emphasis was placed upon the fact that one company (Elanor Operations, which acted as EMFL's agent) employed all the staff who managed the business of all the other respondent companies, made decisions about hiring and termination key staff, reviewed and approved budgets and business plans, ensured compliance with those plans, oversaw marketing, approved capital works proposals and signed off on contracts above a particular value. In addition, the Chief Commissioner claimed that Elanor Operations assisted in operating the bank accounts owned by the other companies in the group.
9. Notably, the Chief Commissioner acknowledged in his decision letter dated 31 August 2018 that the application for exemption presented "a unique set of facts".

The primary judge's reasons for judgment summarised

1. The respondents relied upon an amended summons filed on 19 July 2019 in which they sought review of the Chief Commissioner's exemption determination dated 31 August 2018 and confirmed in a letter dated 20 May 2019. The review was successful. The primary judge revoked the Chief Commissioner's exemption determination dated 31 August 2018 and, consequentially, ordered that the payroll tax assessments issued to 193 Clarence Hotel Management (prepared on the basis that the companies were to be grouped) be remitted to the Chief Commissioner to be redetermined on the basis that sub-groups 1 to 5 do not constitute a "group" under Pt 5 Div 2 of the Payroll Tax Act.
2. In brief, the primary judge's reasons for upholding the s 97 review application may be summarised as follows.
3. First, her Honour noted at PJ[56] that the High Court in Tasty Chicks Pty Ltd v Chief Commissioner of State Revenue of the State of NSW (2011) 245 CLR 446; [2011] HCA 41 at [8] had described the grouping provisions as being designed "to counter tax avoidance through the splitting of business activities by the use of additional entities, each attracting a threshold". The High Court added there that the "de-grouping" provisions were available for application by the Chief Commissioner "upon determination, in broad terms, that it would be unreasonable to apply the 'grouping' provisions". Her Honour noted at PJ[81] that in Seovic Engineering Pty Ltd v Chief Commissioner of State Revenue [2015] NSWCA 242 at [22], Meagher JA (with whom Beazley P and Macfarlan JA agreed) said that while the broad purpose of the power to exclude is to allow the Chief Commissioner to relieve against the operation of the grouping provisions, regard must also be had to s 79(2). This means that, while the purpose of the provision is plainly relevant, for the exemption power to be exercised the Chief Commissioner has to be satisfied that the business sought to be exempted is not connected with the carrying on of another relevant business.
4. Secondly, the primary judge noted at PJ[151] the importance of the "strict regulatory scheme" under which managed investment funds operate. The Corporations Act 2001 (Cth) requires priority to be given to the interests of the members of those funds. That legislation also prohibits control being exercised in one business that would be to the detriment of another business outside the managed investment fund.
5. In these proceedings, each of sub-groups two to five corresponded to a discrete managed investment fund, with different groups of both members and ultimate owners of the businesses. Under the regulatory regime, EFML (as trustee and fund manager, with Mr Willis as delegate) could not lawfully influence or exert control over one business (or fund) to the benefit of another because of the duties owed to each member of the scheme. At PJ[29] and [30], her Honour said: 29 As adverted to above, the plaintiffs attach significance to the fact that managed investment schemes are regulated by the provisions of Part 5C of the Corporations Act and must be registered (s 601ED and s 601EB of the Corporations Act); and holders of AFSLs are regulated by Part 7.6 of the Corporations Act. Relevantly, Elanor Funds Management, as the responsible entity and manager of the registered management scheme is subject to a range of fiduciary and statutory duties in the operation of the scheme and the carriage of the functions conferred upon it by the Constitution of the relevant fund (s 601FC(1)). 30 In particular, ss 601FC and 912A impose strict fiduciary responsibilities and duties on the management and operation of managed investment schemes and the exercise of rights under AFSLs. Those obligations require the strict separation of interests between the responsible entity and the investors in the scheme. The responsible entity (here, Elanor Funds Management) owes a fiduciary duty to each "member" of the scheme, which incorporates an obligation to ensure that the interests of the responsible entity and members, and the interests of different members (i.e., between different members) do not conflict.
6. Her Honour relied upon those provisions to find at PJ[155] that Mr Willis, although the sole common director of the respondent companies, was much constrained in his capacity legitimately to control the businesses of other companies in the payroll tax group because, once the businesses of incubator companies were sold off to investor syndicates, those businesses were required to be run in the interests of members of the particular discrete fund.
7. The primary judge also noted at PJ[63] the general law and specific provisions of the Corporations Act which empowered members of particular funds to remove EFML as trustee if dissatisfied with its performance or fees charged. The primary judge relied upon these provisions in concluding at PJ [159] that the fact that there was no written agreement between EFML and Elanor Operations with respect to the fees charged by Elanor Operations for its services was not determinative of the issue whether the various businesses operated at arm's length.
8. At PJ[149], the primary judge identified the relevant test under s 79 as whether, and to what extent, "the business carried on by each plaintiff is carried on independently of, and not in a way that is connected with the carrying on of, … a business carried on by another plaintiff". Her Honour described this as involving a question of fact and degree which had to be determined having regard (among other relevant matters) to: 1. the nature of the ownership and control of the respective businesses and the nature of those businesses; 2. the fact that there are connections between the businesses is not determinative; 3. the requirement that the connections be material connections; 4. the need to make an assessment against the background that the grouping provisions are designed to counter tax avoidance through the splitting of business activities by the use of additional entities each attracting a threshold.
9. I did not understand the parties to dispute her Honour's identification of the relevant test, nor her Honour's statement at PJ[57] that it is not the case that any connection between businesses will disentitle an applicant from de-grouping. Rather, the connection must be material and not insignificant or inconsequential. The connection must affect the business in some real or practical sense (citing with approval Lombard Farms Pty Ltd v Chief Commissioner of State Revenue [2013] NSWADTAP 42; (2013) 96 ATR 315). The Chief Commissioner complains, however, that the primary judge erred in her assessment of some of the relevant factors, having regard to the evidence.
10. The primary judge noted at PJ[155] that, in the present circumstances, the various factors which had to be taken into account pointed in various directions.
11. It is well to set out PJ[155], [156], [159] and [160] of her Honour's reasons for judgment as these are the particular paragraphs which the Chief Commissioner claims reveal error. 155 Having regard to the factors of which account must be taken (and which in the present case point in various directions), I am of the following view. As to the degree of control, there is certainly common directorship of the various entities but, ultimately, there is not a majority shareholding of Elanor Investors in any of the entities in the underlying funds. I accept that there is a capacity to influence (through the common directorship of the relevant companies) and that capacity to control is relevant. However, it is significant in my view that the capacity legitimately to control the businesses of other companies in the Payroll Tax Group is much constrained. This case can in my view be distinguished from the position in Port Augusta Medical Centre. There, two doctors were found to have capacity to control the taxpayer entity (a medical practice) by reason of their sole directorship and sole shareholding of the taxpayer, and the fact that "all employees, both legally and practically, were subject to the directions of [the said doctors] in relation to matters of importance to the long-term interests of [the said doctors]" (Port Augusta at [63]; Port Augusta Medical Centre at [68]). The same cannot be said, in my opinion, in the present case. Mr Willis is constrained in his ability lawfully to control the direction or conduct of the businesses of incubator companies once they are sold off the investor syndicates; and those businesses are required to be run in the interests of members of the particular discrete fund. 156 As to the commonality of ownership it is significant that the respective funds largely have discrete groups of investors - and there is much force in the submission that investors in one managed investment scheme would not expect to be liable for payroll tax liabilities of discrete managed investment scheme entities. … 159 There is not the same level of connection between the businesses of the respective companies in the present case. As to the suggestion that the arrangements for the charging of fees are not on an arms-length basis (being not documented in any written agreement and arguably arbitrarily levied), I accept that this is a factor that tends towards a finding of connection. I accept that no written agreement existed between Elanor Operations and the plaintiff companies with respect to the management services provided on behalf of Elanor Funds Management, and that Mr Willis' evidence suggests that the plaintiff companies may not have investigated alternative providers for these services, but I note that the fees for the services are rendered by Elanor Operations to the trustee (in most cases Elanor Funds Management) under separate arrangements (unwritten as they may be) not by Elanor Operations direct to the companies in question. Further, I note that there remains power for the members of each fund to remove Elanor Funds Management as trustee if they are dissatisfied with its performance or the fees it charges as trustees. I therefore place relatively little weight on the factors that the Chief Commissioner points to as evidence that the businesses did not operate at arm's length. 160 To my mind, the businesses of the plaintiff companies within each of sub-groups 2-5 respectively, are relevantly carried on independently of, and not connected sufficiently in a material sense with the businesses carried on by any other sub-group or by the companies in sub-group 1.

The appeal and the Chief Commissioner's submissions summarised

1. In the amended notice of appeal filed on 10 June 2022, the Chief Commissioner claimed that the primary judge made four errors in concluding the businesses of all the respondents were carried on independently of, and were not sufficiently connected with, any of the businesses carried on by any of the other respondents. The Chief Commissioner acknowledged in his submissions that to succeed in the appeal he had to identify an error of the kind described in House v The King (1936) 55 CLR 499; [1936] HCA 40. This is because the decision under s 79 involves the exercise of discretion (neither party contended that the power in s 79 is truly in the nature of a duty, as to which see Finance Facilities Pty Ltd v Federal Commissioner of Taxation (1971) 127 CLR 106; [1971] HCA 12).
2. The Chief Commissioner emphasised that it is the trusts (and not the companies inside the four managed funds) which constitute the unregistered managed investment schemes. It was submitted that, therefore, the managed investment scheme provisions in the Corporations Act have little bearing on the governance of the respondent companies. Further, he submitted that the statutory managed investment scheme provisions in Pt 5C of the Corporations Act have little bearing on how EFML exercises its duties as trustee of the unregistered managed investment schemes because many of the provisions in Pt 5C do not apply to such a scheme. The Chief Commissioner was critical of the primary judge's alleged reliance on various statutory provisions in Pt 5C in supporting her finding that those obligations constrained Mr Willis' directorship of Elanor Operations when it performed functions as agent for EFML. The Chief Commissioner emphasised that s 601FC only imposed duties on the management of registered managed investment schemes.
3. The first error alleged in the amended notice of appeal relates to the primary judge's analysis at PJ[156] (see at [26] above). The Chief Commissioner claims that the primary judge erred in giving "much force" to the submission that investors in one managed investment scheme would not expect to be liable for payroll tax liabilities of discrete managed scheme entities. The Chief Commissioner claims that there was no evidence about their expectations and, in any event, he says that any such expectations were an irrelevant matter.
4. The second claimed error relates to the primary judge's finding at PJ[155] to the effect that it was significant that the capacity of Mr Willis as the common sole director of each of the respondents to control those companies was "much constrained" by the legal requirement to run the businesses in the interests of each fund in the group. The Chief Commissioner contended that the director's obligation to act in a company's best interests is not significant in this context. In his written submissions, the Chief Commissioner expanded on this ground, contending that a director is able to influence the direction and operations of each of the businesses, so that they are connected and not independent, even if the businesses have different shareholders. Additionally, the Chief Commissioner contended that one business is not independent from another business if, as here, the first business is managed by the employees of the second business (in this case, Elanor Operations).
5. Thirdly, the Chief Commissioner challenged on the following grounds the primary judge's finding at PJ[159] that relatively little weight was placed on the factors which the Chief Commissioner claimed demonstrated that the businesses did not operate at arm's length: 1. It was either an error of law or fact to find that the Elanor Operations rendered fees for its services to the trustee of the trusts (EFML) stapled to the other respondents and there was no basis in the evidence for that finding. 2. It was an error of law for the primary judge to take into account an irrelevant matter in applying s 79, namely that the members of a scheme could remove EFML as trustee of that scheme if dissatisfied with the fees or Elanor Operations' performance. The Chief Commissioner did not deny the existence of that power (s 601NE(1)(b) of the Corporations Act) but said that it was irrelevant to the inquiry under s 79 as to whether Elanor Operations is connected with (and not independent from) the other respondents. 3. The primary judge should have found that the business of Elanor Operations did not operate at arms-length from the businesses of the other respondents having regard inter alia to the fact that Elanor Operations had no written agreement with the other respondents regarding the provision of its management services; it charged no fee for those services and the other requirements did not investigate alternative service providers.
6. Finally, the Chief Commissioner claimed that because of these three errors, the primary judge erred in concluding at PJ[160] that the businesses of the respondents within each of sub-groups 2 to 5 were carried out independently of, and not sufficiently connected in a material sense with, the businesses carried on by any other sub-group. He contended that the primary judge should have found that the businesses carried on by the second to sixteenth respondents were not carried on independently of and were materially connected with the carrying on of, the business of, Elanor Operations. That is precisely because: 1. Elanor Investors owned a share of all the respondents; 2. all of the respondents (including Elanor Operations) were controlled by Mr Willis, as their sole director; 3. the nature of Elanor Operations' business was to manage the business of the other respondents; 4. Elanor Operations' arrangement with the other respondents was not on an arm's length basis.
7. The Chief Commissioner urged this Court to re-exercise the s 79 discretion.

The respondents' submissions

1. The respondents' submissions are substantially reflected in the reasons given below for dismissing the appeal.
2. Before explaining why the appeal should be dismissed, it is convenient to first address the objection to competency raised by Elanor Operations.

Elanor Operations' objection to competency

1. By notice of motion filed on 8 June 2022, Elanor Operations claimed that the appeal is incompetent under s 101(2)(r)(i) of the Supreme Court Act 1970 (NSW). The effect of that provision is that no appeal lies to this Court, except by leave of this Court, from a final judgment or order of the Supreme Court other than an appeal that involves "a matter at issue amounting to or of the value of $100,000 or more". The first respondent claims that the total amount in issue in the Court below was $65,858.02 (including interest) and thus leave is required.
2. It is desirable to set out the terms of s 101(2)(r) of the Supreme Court Act: (2) An appeal shall not lie to the Court of Appeal, except by leave of the Court of Appeal, from - (r) a final judgment or order in proceedings of the Court, other than an appeal - (i) that involves a matter at issue amounting to or of the value of $100,000 or more, or (ii) that involves (directly or indirectly) any claim, demand or question to or respecting any property or civil right amounting to or of the value of $100,000 or more.
3. It may be interpolated at this point that, subsequent to the filing of the motion on 8 June 2022, the Chief Commissioner filed a summons on 28 July 2022 seeking leave to appeal.
4. In opposing the competency motion, the Chief Commissioner contended that the respondents had failed to appreciate the effect of the orders made by the Court below (see at [16] above). The Chief Commissioner contended that Elanor Operations took an unduly narrow view of the orders when it asserts that the issue between the parties is simply the value of the two payroll tax assessments (including interest) which were set aside by the primary judge in the total amount of $65,858.02. The full effect of those orders was to require the Chief Commissioner to issue new tax assessments to 193 Clarence Hotel Management, which increased the payroll tax liability of the Elanor entities by a further $65,847.38. The result, therefore, is that the total amount in issue is $131,705.40, which comfortably satisfies the jurisdictional threshold.
5. The Chief Commissioner's submissions on the challenge to competency should be accepted. The appeal is not incompetent.
6. In any event, if leave were required, it should be granted because the appeal raises a question of public importance, namely what matters may be taken into account by the Chief Commissioner in exercising the discretion to exempt an entity from a group under s 79 of the Payroll Tax Act.

Consideration and determination of the appeal

1. Before addressing the four alleged errors in turn it is necessary to explain why the Chief Commissioner's criticisms of the primary judge's references to Pt 5C of the Corporations Act are misplaced.
2. It is evident from paragraphs such as PJ[27] to [29] and [69] that (unsurprisingly) the primary judge was well aware of the distinction between a registered and an unregistered managed investment scheme. Indeed, at [100], her Honour expressly noted that "the obligations imposed by Part 5C of the Corporations Act apply only to [EFML] (as the responsible entity of the registered scheme and the holder of the AFSL), its officers and employees; without more, these obligations have no relevance to the management of the plaintiff companies in the Payroll Tax Group as assessed (of which [EFML] does not form part)".
3. After adding that EFML had the power to appoint an agent (in this case, Elanor Operations), her Honour said at PJ[100] that this resulted in the obligations under Pt 5C operating "to inform and constrain Mr Willis' directorship of Elanor Operations as well as the actions of the Senior Executive Team employed by Elanor Operations, insofar as they both were to perform functions for [EFML]".
4. Fairly read, when the primary judge stated at PJ[155] that Mr Willis was constrained in his ability lawfully to control the direction or conduct of other companies or businesses, her Honour was referring not only to the constraints imposed by Pt 5C on Mr Willis insofar as his directorship of EFML is concerned, but also to the constraints imposed by Mr Willis' fiduciary and statutory obligations which require strict protection of the respective interests of the individual groups of investors/shareholders. Mr Willis plainly appreciated the significance of his fiduciary duties as was acknowledged by him several times in cross-examination, including in his description of investors expecting him to be the "ultimate steward" of their funds. He said that his "role is to ensure that we have the right structure and the right people to, firstly, comply by the law and secondly, execute our funds management and fiduciary responsibilities".
5. Having regard to these parts of the primary judge's reasons for judgment, there is no substance in the Chief Commissioner's criticism that the primary judge misapplied Pt 5C of the Corporations Act.
6. Against that background, I shall now address each of the four specific alleged errors raised by the Chief Commissioner.

(a) Ground 1

1. This ground focuses upon the primary judge's statement in PJ[156] that she saw "much force" in the respondents' submission that investors in one managed investment scheme would not expect to be liable for payroll tax liabilities for other managed investment scheme entities (see at [26] above). This passage implicitly refers back to PJ[70], where her Honour summarised the respondents' submission that to group the respective businesses would make one syndicate of investors liable for the payroll tax payable by another completely separate and independent syndicate. For example, investors in 193 Clarence Hotel Management (operating a hotel business in Sydney) would be liable for payroll tax payable by Cradle Mountain Lodge Management (which operates a hotel business in Tasmania), in circumstances where the investors have no financial or commercial interest or right of control in the other business.
2. I accept the respondents' submission that the passage at PJ[156] does not contain a finding of fact which lacks any supporting evidence. Rather, it is an inference drawn from the character of the Elanor Group's managed fund structure, including the relevant fact that there are discrete groups of investors. The separate business activities carried on here, under the stapled arrangements, constitute separate enterprises. They are far removed from the mischief to which the grouping provisions are directed, namely the artificial splitting of business activity so as to take advantage of the threshold. The primary judge's reference at PJ[156] to the respective funds largely having "discrete groups of investors" served to underline the lack of artificiality in the arrangements here. Indeed, it should be noted that senior counsel for the Chief Commissioner made explicit in the appeal that there was no suggestion of artificiality in Elanor's arrangements.

(b) Ground 2

1. The Chief Commissioner claims that her Honour erred in law in holding at PJ[155] that it was significant for the purposes of s79 that Mr Willis' capacity (as sole director of the companies in the payroll tax group) to control those companies was "much constrained" by a purported requirement to run the businesses in the interests of the members of each fund in the group. The Chief Commissioner says that this involved an irrelevant consideration.
2. This ground overlaps to some extent with ground 1. As noted above, in a review of a s 79 determination under s 97 of the Taxation Administration Act, the primary judge is to have regard inter alia to the nature and degree of control of the businesses and any other matters which she considered to be relevant. It was plainly relevant for the primary judge to have regard to legal constraints imposed upon Mr Willis in his capacity lawfully to control the direction or conduct of businesses, as well as the constraint imposed by the requirement that, once an incubator company was sold off to investor syndicates, it had to be run in the interests of members of the particular discrete fund.
3. In assessing the degree of control Mr Willis had over the respondent businesses in sub-groups 2-5, the primary judge was correct to find that, as a matter of law Mr Willis was "constrained" (where relevant) by Pt 5C of the Corporations Act, as well as by the fiduciary and statutory duties he owed as a director, to act so that those businesses were run in the interests of the members of the particular fund of which those businesses were part and not in the interests of Elanor Investors, EFML, Elanor Operations or any of the other managed funds. Her Honour's analysis was correct as a matter of law and involved findings on a relevant and material consideration bearing on the question of control of the respondent businesses.
4. For these reasons, ground 2 is rejected.

(c) Ground 3

1. This ground reflects the Chief Commissioner's claim that the primary judge should have found that the respondent businesses did not operate at arm's length, erred in finding that Elanor Operations rendered fees for its services to EFML and took into account an irrelevant matter in relying on the fact that the members of a fund could remove EFML as trustee of the fund (see PJ[159]).
2. Again, like the other appeal grounds, this ground proceeds on the assumption that the context provided by the managed investment scheme structure is somehow irrelevant and should not be taken into account for the purposes of the exercise of the discretion in section 79(2) of the Payroll Tax Act.
3. In addressing these claims, it is important to bear in mind that, under s 79(2) of the Payroll Tax Act, the Chief Commissioner (or the primary judge in a review under s 97 of the Taxation Administration Act) is empowered to take into account "any other matter" which he or she considers relevant (in addition to the nature and degree of ownership and control of the businesses and the nature of the businesses).
4. The Chief Commissioner's first complaint relating to PJ[159] concerns the primary judge's statement that "the fees for the services are rendered by Elanor Operations to the trustee (in most cases [EFML]) under separate arrangements (unwritten as they may be) not by Elanor Operations direct to the companies in question". The evidence was clear that none of the respondents paid fees to Elanor Operations for its services, but they did pay management fees to EFML. It was also undisputed that Elanor Operations was a wholly-owned subsidiary of EFML, whose function was to provide EFML's services as trustee to the other respondent businesses. It is true that there was no evidence of any formal written agreements regarding fees paid to Elanor Operations, but that is not to say that there was no evidence that Elanor Operations rendered fees for its services to EFML. As the respondents pointed out, in cross-examination Mr Willis referred several times to EFML hiring experts and "the right people" to execute the strategy for each fund. That evidence was well capable of covering the services provided by Elanor Operations to the various businesses on behalf of EFML.
5. As to the Chief Commissioner's second complaint under ground 3, it is difficult to see why it was an irrelevant consideration for the primary judge to note the existence of the power of the members of each fund to remove EFML as trustee, assuming that they were dissatisfied with the performance of EFML or its agent, Elanor Operations. As noted above, the Chief Commissioner did not deny the existence of the power in s 601NE(1)(b) of the Corporations Act.
6. Moreover, it may be noted that the primary judge made clear in her conclusion at PJ[159] that she placed "relatively little weight" on the matters relied upon by the Chief Commissioner in support of his claim that the businesses did not operate at arm's length. The language of "little weight" serves to highlight the need for the Chief Commissioner to establish an error of the kind described in House v The King for the appeal to succeed. The Chief Commissioner did not contend that the primary judge's conclusion was one to which no reasonable judge considering the evidence could have come.
7. The third element of ground 3 adds little to the first two elements. The Chief Commissioner has failed to establish any House v The King error in the primary judge's failure to find that Elanor Operations did not operate at arm's length from the businesses of the other respondents. Merely because Elanor Operations provided various services (as EFML's agent) to the different businesses does not mean that its business was connected with and not independent from those other businesses. This can be illustrated by the following example in a different context. It is not unusual for businesses who are otherwise in competition with each other to obtain services from a common service provider. This is the case, for example, with restaurants which obtain food or beverages from the same supplier. Another example is where competing or separate businesses, such as city law firms, obtain cleaning services from the same service provider. Such arrangements do not indicate that the businesses are connected with and not independent of each other.
8. Finally, it is important to note that the Chief Commissioner does not complain that the primary judge failed to take into account a relevant consideration, being any of the matters relied upon by him in support of his claim that the businesses were not conducted at arm's length. Rather, the primary judge made clear at PJ[159] that, having considered those matters, she placed relatively little weight on them. Her Honour's approach was entirely consistent with the evaluative exercise required under s 79 of the Payroll Tax Act which, invariably, will involve matters of fact and degree. To establish an error of the kind in House v The King, it will generally be insufficient to demonstrate that another decision-maker may have come to a different conclusion.
9. For these reasons, ground 3 is rejected.

(d) Ground 4

1. The respondents correctly pointed that, having accepted that the House v The King principles apply, it is insufficient for the Chief Commissioner to establish that another judge, taking into account all of the factors considered by the primary judge, would have come to a different decision. Rather, for this Court to re-exercise the s 79 discretion, the Chief Commissioner must first demonstrate an error of the kind described in House v The King. No such error has been established.

Conclusion

1. For these reasons, the objection to competency should be dismissed, with costs. If leave to appeal had been required, such leave would have been granted. The appeal should be dismissed, with costs.

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