Second and third periods: the application of the de-grouping provisions in ss 16C(3) and 16C(4)
45Section 16B provided during the second and third periods:
"16B(1) The Chief Commissioner may, by order in writing, determine that a person who would, but for the determination, be a member of a group is not a member of the group."
Section 16C(3) provided during the second period:
"16C(3) The Chief Commissioner must not make a determination under s 16B unless satisfied that the person who is the subject of the determination has continuously carried on the business concerned, and will continue to carry on that business, substantially independently of the other members of the group."
In respect of the third period s 16C(3) provided:
"16C(3) The Chief Commissioner must not make a determination under s 16B unless satisfied that the business carried on by the person the subject of the determination has been continuously carried on, and will continue to be carried on, substantially independently of the other members of the group."
Section 16C(4) provided during the second and third periods:
"16C(4) In determining whether a person carries on business substantially independently of the other member or members of a group, the Chief Commissioner is to have regard to the nature and degree of ownership or control of the business of each member of the group, the nature of each of those businesses and any other matter that the Chief Commissioner considers relevant."
46It was common ground that whether the primary judge erred in being satisfied of the "substantially independently" condition involves an appeal from a discretionary decision in the sense that the Chief Commissioner (and the Court on a review) was required to be "satisfied" about a matter which involves some degree of subjectivity: Coal and Allied Operations v Australian Industrial Relations Commission at [19], [21]; Perpetual Trustee Company Ltd v Khoshaba [2006] NSWCA 41; 14 BPR 26,639 at [35]-[39], [108]; New South Wales Crime Commission v Vu [2009] NSWCA 349 at [9]-[12]. Accordingly, the Chief Commissioner must establish error of the kind described in House v The King [1936] HCA 40; 55 CLR 499 at 505. See also Avon Downs at 360; Norbis v Norbis at 518-519; Coal and Allied Operations v Australian Industrial Relations Commission at [21].
47The Chief Commissioner, in oral argument, identified the respects in which it maintained that the primary judge had erred in being satisfied of the "substantially independently" condition by reference to the observations of Handley AJA in the earlier decision of this Court at [109], [111] and [112]. During the course of argument, the Chief Commissioner was given leave to amend the grounds of appeal so as to specify those errors. That was done by ground 12A of the further amended notice of appeal. That ground identified those errors by reference to paragraphs of the primary judge's reasons:
"(a) at [126], he erroneously restated the statutory test in terms only of "ownership, control and nature of the businesses".
(b) in [125]-[142], he failed to take into account that s.16C(4) required or allowed the decision-maker to take into account any other matter that the decision-maker regarded as relevant.
(c) in [125]-[142], he failed to take into account the cumulative effect of factors relied upon by the Chief Commissioner in determining whether he ought to have been satisfied of "substantial independence"."
48In its earlier decision, this Court approached this issue on the basis that the Chief Commissioner had to establish error on the part of the primary judge when determining an appeal from a discretionary decision of the Chief Commissioner to which those same principles applied: [2010] NSWCA 326 at [110], [113]. The High Court held ([2011] HCA 41 at [22]) that this approach was wrong because of the nature of the jurisdiction and powers conferred by s 97. Nevertheless, at [109] and [111], Handley AJA did consider whether the primary judge had addressed the correct question as follows:
[109] Gzell J considered the factors relied upon by the Commissioner one by one and, with respect, explained them away or treated them as of little weight without considering whether, in combination, they brought the group within s 16C(3). In addition, with respect, he asked himself the wrong questions. In [126] he said with reference to s 16C(3):
"The independence of the person or the business conducted by the person required by the statute is to be judged in terms of ownership, control and [the] nature of the businesses."
[111] Moreover the test in s 16C(3) is whether the taxpayer "has continually carried on the business concerned ... substantially independently of the other members of the group". The ownership and control of the business is not the test. They must be considered but the test is whether the relevant business has been carried on substantially independently of the group.
49Although ground 12A(a) describes the error as wrongly restating the statutory test, the argument also asserted the application of the wrong test. The respondents addressed the Chief Commissioner's argument understood in this way. It was submitted that the primary judge erred in formulating and applying the test in two ways. First, he confined his consideration to matters concerning the ownership, control and nature of the businesses and did not give effect to s 16C(4) which required attention to "any other matter" considered relevant. Secondly, the relevant question was not whether the businesses were independent judged in terms of ownership, control and their nature, but whether the relevant business had been carried on substantially independently of the other members of the group.
50Before considering those arguments it is necessary to identify the relevant "group". Section 106K of the Administration Act provides that if a person is a member of two or more primary groups, the members of all the groups together constitute a primary group. The effect of s 106K, which applied in the second and third periods, is that Tasty Chicks and Angelo Transport were members of the larger primary group comprised of M&J Chickens and any entities in smaller primary groups of which M&J Chickens was also a member. Section 106K does not in terms provide that on its application, the smaller primary groups cease to be groups and s 106L provides that a person may be a member of more than one primary group. However, s 16C(1) states that a determination under s 16B may only be made in respect of a person who would, but for the determination, be a member of a group arising under s 106H. Accordingly, the question whether s 16C(3) applies must be determined by reference to the smaller primary groups comprised of Tasty Chicks and M&J Chickens and Angelo Transport and M&J Chickens.
51Having set out s 16C(3) and (4), the primary judge noted at [126] that the question of independence "is to be judged in terms of ownership, control and nature of the businesses". The words "is to" are used in s 16C(4) to require that regard be had to those three specified matters. In relation to his findings as to those matters, the primary judge observed at [130]:
"Those matters to be taken into account suggest that the businesses are carried on substantially independently of each other and there is no suggestion other than that they will continue to be so."
52The primary judge's description of those matters as ones "to be taken into account" is correct as a statement of specifically described matters required to be considered: see R v Hunt; Ex parte Sean Investments Pty Ltd [1979] HCA 32; 180 CLR 322 at 329. It would be incorrect if it was also understood to be a statement that those were the only matters to be considered. The primary judge then dealt with the ten further matters relied on by the Chief Commissioner. He dealt with each, expressly or implicitly, by reference to whether it suggested or demonstrated a lack of independence and was to that extent relevant to the question he had to address. A number of those matters did not, on their face, involve questions of ownership, control or the nature of the businesses: for example, the existence of inter-entity loans, the use of the same commercial bank and the retainer of the same external accountant. Because the primary judge gave consideration to these other matters and rejected them as not relevant, it cannot be said that he only had regard to matters concerning ownership, control or the nature of the businesses or that he failed to take account of s 16C(4).
53This conclusion makes it unnecessary to consider, other than briefly, the respondents' argument that the words "any other matter" in s 16C(4) are limited by the application of the ejusdem generis rule to matters said to be of the same kind as the "nature and degree of ownership or control" or "nature" of the businesses. Additionally, the respondents submit that the phrase "any other matter" should be construed as limited to those matters having regard to the purpose of the legislation which is said to be to avoid the "splitting" of business activities among separate employers. These arguments were made in response to the first way in which it was said that the primary judge had misapplied the relevant test.
54The ejusdem generis rule is one of a number of guides which may be used in the process of interpreting a statutory provision. That process directs attention to the provisions being construed and its context as well as the scope and purpose of the statute: Project Blue Sky v Australian Broadcasting Authority [1998] HCA 28; 194 CLR 355 at [69], [70], [78]. The rule provides a grammatical justification for reading general words down so as to limit their operation. For its application it requires that there be an enumeration of things of a particular kind or class so that the general words might then be read as applying only to things of the same kind or class as those enumerated: Cody v JH Nelson Pty Ltd [1947] HCA 17; 74 CLR 629 at 648-649; Deputy Commissioner of Taxation v Clark [2003] NSWCA 91; 57 NSWLR 113 at [125]-[130].
55The ejusdem generis rule cannot be applied in relation to s 16C(4) because the specific matters referred to do not possess any common feature which enables a single genus to be identified. Nor is it necessary to resort to that rule in circumstances where the words "that the Chief Commissioner considers relevant" provide the limitation by reference to which the otherwise general words "any other matter" are to be read down. They require actual persuasion of relevance to the question to be determined arrived at reasonably. So construed, the provision gives the Chief Commissioner a discretion to look beyond the specifically enumerated matters to any other matters bearing on the question of substantial independence.
56The second way in which it is said that the primary judge applied the wrong test emphasises that the Chief Commissioner is required to determine whether the business of the person sought to be excluded is carried on substantially independently of other members of the group. That directs attention to the conduct of the activities of that business and its inter-relationship, if any, with the conduct of the activities of the businesses of the other members of the group. The ordinary meaning of independent includes not depending on the existence or actions of others and not being influenced by others in matters of conduct. A business may not be carried on independently of another business if its existence or continued operation depends upon the existence or custom of that other business. The primary judge did not address whether the businesses of Tasty Chicks and Angelo Transport were carried on substantially independently of that of M&J Chickens in this sense. Instead, his Honour focussed upon the ownership and control of each of the three businesses, and the fact that their business activities were separate and distinct in the narrow sense that the activities of each were different and distinct: [2009] NSWSC 1007 esp at [126]-[130]. Significantly, he concluded at [129]:
[129] The nature of the businesses are separate and distinct. M & J Chickens processes chicken meats. Tasty Chicks provides administrative services. Angelo Transport provides the services of a fleet of refrigerated vehicles and drivers.
57In John French Pty Ltd v Commissioner of Pay-roll Tax (Qld), McPherson J (with whom Campbell CJ and Matthews J agreed) considered (at 141-142) that an inquiry as to whether a business was carried on substantially independently, and was not substantially connected with another business, made it necessary to consider the inter-relation of the activities of the businesses and the ability of a principal of one business to influence the management and decision-making of the other. The provision there under consideration was in the same terms as s 16H(1) of the Pay-roll Tax Act as it applied in the first period. Notwithstanding the absence in s 16C(3) of the "substantially connected" consideration in s 16H(1), the matters referred to were said to be relevant to each part of s 16H(1) and to prevent a conclusion that the relevant business was carried on substantially independently of the other business. The same approach was adopted by Doyle CJ in Garrett F Hunter (at 285). He concluded that the corporate trustee providing the secretarial and other services to the three medical practice companies could not be said to be carried on "substantially independently of" the business of each medical practice company. That was because each was one of only two or three clients of the corporate trustee and because its business was so closely connected with that of each practice that decisions by the practice company as to the manner in which its business would be conducted necessarily influenced the conduct of the trustee's business of providing services to the practice (at 285-286).
58In failing to address in this way whether the Tasty Chickens and Angelo Transport businesses were carried on substantially independently of M&J Chickens, the primary judge applied the test too narrowly and as a result did not take into account matters which he was bound to consider with respect to the "nature" or activities of the various businesses.
59Therefore this Court must address that question. The following matters, as found by the primary judge, are relevant to whether the Tasty Chicks business was being carried on substantially independently of M&J Chickens. First, the businesses were carried on from the same premises and were closely integrated. The activities undertaken by Tasty Chicks employees for M&J Chickens were activities which had to be undertaken for or by M&J Chickens as part of its business of processing and supplying chicken meat products to wholesale customers. Those activities involved secretarial, accounting, sales and marketing functions which would often, if not ordinarily, be undertaken by employees of the business. Secondly, 75 per cent of Tasty Chicks' income was generated from services provided to M&J Chickens in New South Wales and Victoria. Only one per cent of its overall revenue was provided by customers independent of the broader M&J Chickens group. This meant that the continuance of Tasty Chicks' business as then conducted was dependent on the custom of M&J Chickens. Thirdly, M&J Chickens was in a position to influence the ongoing conduct of the business of Tasty Chicks as well as give directions as to how Tasty Chicks' employees were to carry out their duties and how Tasty Chicks' services were provided from day to day. In the conduct of the business, Tasty Chicks had to take close account of decisions made by M&J Chickens. Ultimately the nature and extent of the services provided from year to year, and the number of Tasty Chicks staff and the duties they would perform, depended on the outcome of the budgetary and other decisions made by M&J Chickens: see Garrett F Hunter at 286.
60In these circumstances, although the businesses were separately owned and controlled, the business of Tasty Chicks was not carried on substantially independently of M&J Chickens and its business. The analysis and outcome is the same in respect to Angelo Transport. Ninety-nine per cent of its revenue was generated from services provided to M&J Chickens. The transportation and other activities undertaken by Angelo Transport as part of its business were also closely integrated with the business of M&J Chickens and the latter was able to influence decisions made in the conduct of the business of the former in the same ways.
61The Chief Commissioner also argues that the primary judge did not consider whether there were other matters which should be taken into account as relevant. That argument should be rejected. Section 16C(4) required that the primary judge address whether there were other matters which he considered relevant. If there were matters which he considered relevant he was bound to take them into account. The primary judge considered the ten additional matters identified by the Chief Commissioner: [2009] NSWSC 1007 at [131]-[141]. He did so by reference to whether they suggested any lack of independence between the businesses and concluded that they did not. Either he dismissed them as irrelevant or had regard to them as relevant.
62Finally, the Chief Commissioner argues that the primary judge did not consider the cumulative effect of those ten additional matters. The Chief Commissioner's submissions do not identify what that cumulative effect was or why it was significant other than by reference to the argument as to the application of the wrong test and consequent failure to have regard to relevant matters. That argument has been addressed. I do not understand this argument to raise any other questions of substance.