Supreme Court of WA|2005-04-29|Before: Mr J, Wheeler J

Deputy Commissioner of Taxation for The Commonwealth of Australia v Robinswood Pty Ltd [2005] WASC 67 (29 April 2005)

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : DEPUTY COMMISSIONER OF TAXATION FOR THE COMMONWEALTH OF AUSTRALIA -v- ROBINSWOOD PTY LTD [2005] WASC 67

HEARD : 29 OCTOBER, 1-5, 8-12, 16-18, 22-25, 29 NOVEMBER, 2, 6-8 DECEMBER 2004

BETWEEN : DEPUTY COMMISSIONER OF TAXATION FOR THE COMMONWEALTH OF AUSTRALIA

Taxation - Failure to deduct or remit income tax instalments - Obligations of employers under the Income Tax Assessment Act 1936 Act (Cth) - Pattern of concealment - Failure to keep records - Keeping of false records - Employer - Definition - Person who pays wages

Employment law - Whether individuals were employees or independent contractors - Control and integration - Relevant factors

Evidence - Prima facie evidence - Effect of legislation making documents prima facie evidence

Res judicata - Issue estoppel - Double jeopardy - Whether double punishment

Constitutional law - Validity of general interest charge provisions in A New Tax System (Pay As You Go) Act 1999 (Cth) - Whether law imposing taxation

Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336

Caratti v The Queen [2000] WASCA 279; (2000) 22 WAR 527

Carl Zeiss Stiftung v Rayner & Keeler Ltd (No 2) [1967] 1 AC 853

Collector of Customs (NSW) v Southern Shipping Co Ltd [1962] HCA 20; (1962) 107 CLR 279

Deputy Commissioner of Taxation (Cth) v Robinswood Pty Ltd (2001) 24 WAR 284; [2001] WASC 191

Deputy Commissioner of Taxation for the Commonwealth of Australia v Dyonna Pty Ltd, unreported; SCt of WA; 8 January 1993

Deputy Commissioner of Taxation for the Commonwealth of Australia v Robinswood Pty Ltd [2003] WASC 1

Deputy Commissioner of Taxation for the Commonwealth of Australia v Robinswood Pty Ltd [2004] WASC 229

Deputy Commissioner of Taxation for the Commonwealth of Australia v Robinswood Pty Ltd [2004] WASC 230

Kuligowski v Metrobus (2004) 208 ALR 1; [2004] HCA 34

Leeth v The Commonwealth of Australia [1992] HCA 29; (1992) 174 CLR 455

Mutual Pools & Staff Pty Ltd v The Commonwealth of Australia [1994] HCA 9; (1994) 179 CLR 155

Permanent Trustee Australia Ltd v Commissioner of State Revenue (2004) 211 ALR 18; [2004] HCA 53

Port of Melbourne Authority v Anshun Pty Ltd [1981] HCA 45; (1981) 147 CLR 589

Re Hartland & Hyde Pty Ltd (in liq) (1997) 97 ATC 5114

Re S & N (Nominees) Pty Ltd (in liq) (1984) 68 FLR 441

Safe Sport Australia Pty Ltd v Puma Australia Pty Ltd (1985) 4 IPR 120

Administration of the Territory of Papua New Guinea v Daera Guba [1973] HCA 59; (1973) 130 CLR 353

Air Caledonia International v The Commonwealth of Australia (1988) 165 CLR 462

Airservices Australia v Canadian International Airlines Ltd (1999) 202 CLR 133

Alucraft Pty Ltd (in liq) v Grocon Ltd (No 1) [1996] VicRp 72; [1996] 2 VR 377

Anderson v The Queen (1992) 60 SASR 90

Australian Tape Manufacturers Association Ltd v The Commonwealth of Australia [1993] HCA 10; (1993) 176 CLR 480

BHP Iron Ore Pty Ltd v Westraint Resources Pty Ltd [2002] WASCA 18

Bonython v The Queen (1984) 38 SASR 45

Boranga v Flintoff (1997) 19 WAR 1

Briggs v James Hardie & Co Pty Ltd (1989) 16 NSWLR 549

Browns Transport Pty Ltd v Kropp [1958] HCA 49; (1958) 100 CLR 117

Chamberlain v Deputy Commissioner of Taxation [1988] HCA 21; (1988) 164 CLR 502

Clare & Peach v The Queen [1995] 2 Cr App Rep 333

Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337

Commissioner for Government Transport v Adamcik [1961] HCA 43; (1961) 106 CLR 292

Commonwealth Bank of Australia v Szlazko, unreported; SCt of NSW; 1 October 1997

Commonwealth of Australia v Mewett (1997) 191 CLR 471

Commonwealth of Australia v The Melbourne Harbour Trust Commissioners [1922] HCA 31; (1922) 31 CLR 1

Creasy v Hot Holdings Pty Ltd [2000] WASCA 206

Dennis Willcox Pty Ltd v Federal Commissioner of Taxation (1988) 79 ALR 267

Deputy Commissioner of Taxation of the Commonwealth of Australia v DTR Securities Pty Ltd (1988) 165 CLR 56

Deputy Commissioner of Taxation of the Commonwealth of Australia v Moorebank Pty Ltd [1988] HCA 29; (1988) 165 CLR 55

FAI Traders Insurance Co Ltd v Savoy Plaza Pty Ltd [1993] VicRp 76; [1993] 2 VR 343

Fernandez v Tubemakers of Australia Ltd [1975] 2 NSWLR 190

FGT Custodians Pty Ltd v Fagenblat [2003] VSCA 33

Forstaff v Chief Commissioner of State Revenue [2004] NSWSC 573; (2004) 56 ATR 302

Georgiadis v Australian and Overseas Telecommunications Corporation (1994) 179 CLR 297

Hide and Skin Trading Pty Ltd v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310

Hoyer v United States [1955] USCA8 130; 223 F2d 134 (1995)

James Miller & Partners Ltd v Whitworth Street Estates (Manchester) Ltd [1970] AC 583

Makita (Australia) Pty Ltd v Sprowles [2001] NSWCA 305; (2001) 52 NSWLR 705

Markovina v The Queen (1996) 16 WAR 354

Massey v Crown Life Insurance Co [1977] EWCA Civ 12; [1978] 1 WLR 676

Matthews v Chicory Marketing Board (Vic) [1938] HCA 38; (1938) 60 CLR 263

McDaniel v United States [1965] USCA5 337; 343 F2d 785 (1965)

Morgan v Banning (1999) 20 WAR 474

Nationwide News Pty Ltd v Wills [1992] HCA 46; (1992) 177 CLR 1

Nesterczuk v Mortimore [1965] HCA 60; (1965) 115 CLR 140

Northern Suburbs General Cemetery Reserve Trust v The Commonwealth of Australia [1993] HCA 12; (1993) 176 CLR 555

Osborne v The Commonwealth of Australia [1911] HCA 19; (1911) 12 CLR 321

Paric v John Holland (Constructions) Pty Ltd [1985] HCA 58; (1985) 59 ALJR 844

Posgold (Big Bell) Pty Ltd v Placer (Western Australia) Pty Ltd (1999) 21 WAR 350

Pownall v Conlan Management Pty Ltd (1995) 12 WAR 370

Purkess v Crittenden [1965] HCA 34; (1965) 114 CLR 164

Quick v Stoland Pty Ltd [1998] FCA 1200; (1998) 87 FCR 371

R v Hally [1962] Qd R 214

R v Simmonds [1969] 1 QB 685

R v Tucker [1907] SALR 30

R v Turner [1975] 1 QB 834

Re Malley; Ex Parte Gardner [2001] WASCA 29

Re Montecatini's Patent Application (1973) 47 ALJR 161

Re The Corporations Law and Tricorp Pty Ltd (1991) 91 ATC 5016

Reardon Smith Line Pty Ltd v Hansen-Tangen [1976] 1 WLR 989

Ritz Hotel Ltd v Charles of the Ritz Ltd (No 7) (1987) 14 NSWLR 104

Ritz Hotel Ltd v Charles of the Ritz Ltd (No 20) (1988) 14 NSWLR 124

Roy Morgan Research Centre Pty Ltd v Commissioner of State Revenue (Vic) (1996) 33 ATR 361

Salomon v A Salomon & Co Ltd [1897] AC 22

Schellenberg v Tunnel Holdings Pty Ltd [2000] HCA 18; (2000) 200 CLR 121

SFJ Pty Ltd v Brady Constructions Co Pty Ltd [2001] VSC 487

Sharrment Pty Ltd v Official Trustee in Bankruptcy [1988] FCA 179; (1988) 18 FCR 449

Southern Group Ltd v Smith (1997) 37 ATR 107

Sportsvision Australia Pty Ltd v Tallglen Pty Ltd (1998) 44 NSWLR 103

State Chamber of Commerce and Industry v The Commonwealth of Australia [1987] HCA 38; (1987) 163 CLR 329

State Rail Authority of New South Wales v Earthline Constructions Pty Ltd (in liq) [1999] HCA 3; (1999) 73 ALJR 306

Stevens v Brodribb Sawmilling Co Pty Ltd (1986) 160 CLR 16

Trade Practices Commission v Arnotts Ltd (1990) 21 FCR 324

Vabu Pty Ltd v Federal Commissioner of Taxation (1996) 33 ATR 537

Value Engineering (Australasia) Pty Ltd v State Commissioner of Taxation (1985) 16 ATR 296

Weldon v Neal (1887) 19 QBD 394

White v Australian and New Zealand Theatres Ltd [1943] HCA 6; (1943) 67 CLR 266

World Book (Australia) Pty Ltd v Federal Commissioner of Taxation (1992) 27 NSWLR 377

Zurich Australian Insurance Ltd v AMEC Services Pty Ltd & FAI General Insurance Co Ltd, unreported; FCt SCt of WA; Library No 980139; 31 March 1998

1 There are six actions before the Court concerned with recovery of allegedly unremitted and undeducted group tax instalments, penalties and interest. By order made 20 December 2001 they have been consolidated, with Robinswood being the lead action. The same issues arise in each action, although in respect of Maddeliene Caratti an additional issue arises from her defence. All the defendants save Maddeliene Caratti are companies; Maddeliene Caratti is sued as the surviving member of what is alleged to have been a partnership between herself and Sergio Caratti.

2 The three companies Grangefield, Excelco Mining and Mine Exc Pty Ltd are unrepresented. Shortly before trial a liquidator was appointed in respect of those companies. The plaintiff applied to proceed against them notwithstanding that they were in liquidation, and by communication with the solicitors for the plaintiff, the liquidator advised that he did not object to that course. For reasons published on 4 November 2004 I granted leave to proceed against those companies (Deputy Commissioner of Taxation for the Commonwealth of Australia v Robinswood Pty Ltd [2004] WASC 229).

3 The allegations in respect of the various entities will be more easily understood if some brief statutory background is given. At the relevant time, the Income Tax Assessment Act 1936 (Cth) ("the Act") provided that an employer who ordinarily had in his employment 10 or more employees from whose salary or wages he was required to make deductions, was to be registered as a group employer. The Commissioner was able to register as a group employer any employer or any person acting on behalf of two or more employers; the evidence was that it was sometimes convenient for one of a group of related companies to be responsible for the liabilities of all, in respect of all employees of that group. The responsibilities of group employers included the making of deductions of income tax from wages paid to employees, remitting those deductions on a monthly basis to the Commissioner, and the issuing to each employee of a group certificate setting out the total amounts of deductions made during a financial year.

4 All employers, other than group employers, who paid salary or wages from which a deduction was required to be made, were required to keep a tax deduction sheet in a form authorised by the Commissioner, to enter the details of salary and wages paid and deductions made on that sheet, and to purchase tax stamps of a value equal to the amount of the deductions made during the relevant period. The stamps were to be purchased on effectively a four weekly basis, and at the end of the financial year such an employer was required to deliver prescribed documents both to the employee and the Commissioner; the precise details do not need to be set out, but the purpose was to provide to both the employee and the Commissioner a summary of the year's wages and deductions.

5 All of the defendant companies, and some other entities I will shortly mention, were members of what could be called the "Caratti Group" ("the Group"). I use that expression loosely to refer to a number of entities carrying out a variety of businesses (and in some cases apparently carrying out no business at all) which were controlled by members of the Caratti family. Most were solely owned by members of that family.

6 The Caratti family until 23 May 1992 consisted of Sergio Caratti, his wife Maddeliene, and his sons John (the elder) and Allen. Sergio died on 23 May 1992. He was also known as "Mick". Although Sergio was described by numerous witnesses as having a very strong or dominant personality, and although it is clear from the evidence that he had some involvement in the operations of the Group entities at various times (for example, there is evidence that he was responsible for the engaging of various workers from time to time, and there is evidence of his involvement in the setting up of Excelco (WA)), his formal role in relation to the Group appears to have been limited. He was a director of some of the defendants for a very short period in the early part of 1989, and for another short period in the early part of 1991. He was a shareholder for a short period in Mine Exc, Venetian and Robinswood from November 1991. So far as the documentary record is concerned, his name appears on only two of the many thousands of documents in this case; one of those is an employment agency document which refers to him as the contact person, and the other is a record relating to a workers' compensation claim.

7 Maddeliene had extensive involvement with the keeping of the books and records of the company, and the authorisation and writing of cheques. She appears to have worked principally at the Group offices at 515-517 Great Eastern Highway in Redcliffe ("the Redcliffe office"). She had direct and indirect shareholdings in a number of companies in the Group, and was a director of Robinswood and of Venetian. In addition, it is alleged that she was a member of the S & M Caratti partnership.

8 Allen appears to have been most actively involved in the running of certain farm businesses at Howick and Warriup. He appears to have had direct and indirect shareholding at various times in the majority of the companies of the Group.

9 John was directly and indirectly a shareholder of almost all of the Group companies, and was also a director of all save for the "sham" company Keystyle Holdings, and a company not of importance in this action called Zel Nominees. It is clear that he had an active role over a wide range of the Group's enterprises. For example, he was often named on documents as the contact person in relation to the engagement of workers; he was the person to whom enquiries about the issuance of group certificates were often directed; and after his father's death he appears to have been the person to whom enquiries about the activities of the companies in the Group were usually directed.

10 At the Redcliffe office there were three staff. They were Cedric Raphael, an accountant, who died in 1993; Isaac Ellison, also an accountant; and Wendy Bottcher, a receptionist/secretary. They appear to have been the only people, apart from members of the Caratti family, with overall responsibility for the books and records of the Group. Members of the family and those three staff members comprised the administrative centre of the Group's businesses.

11 There were a variety of businesses carried on by entities in the Group. They fell broadly into the categories of mining, farming, earthmoving and land development. There was also a workshop at Redcliffe which provided a service in relation to the many types of vehicles required for such enterprises.

12 The farms were called Yuna, to the east of Geraldton; Bullfinch and Marvel Loch, between Perth and Kalgoorlie; Mount Barker, at Mount Barker; and Esperance, Mount Ney, Warriup and Howick, located in the areas surrounding Esperance. The land development was at Malaga, a little to the north of Perth. Earthmoving took place on the railway project to the north of Perth, and in areas generally north of Kalgoorlie. Mining activities took place broadly in an area from Leinster in the north, to areas a little to the south of and outside Kalgoorlie, and additionally at Hatters Hill outside Mount Barker.

13 Of the many hundreds of workers engaged in these various enterprises between July 1988 and June 1994, a significant number received payments from more than one of the Group entities (and often from more than two of them; for example, Wendy Bottcher received payments from five different Group entities over that period). Sometimes that appears to have been a matter of deliberate policy, as in instances where normal time payments were made by one entity and overtime payments were made by another. Sometimes it appears that the worker moved from one of the various businesses I have referred to, to another of them. At other times, there seems to have been no obvious system or reason for payments being made in that way.

14 The Group entities relevant to an understanding of these reasons are summarised below. I begin with those which are not defendants to this action.

15 Dyonna Pty Ltd was registered with the Australian Taxation Office ("the ATO") as a group employer from 1989 to 1992. Workers engaged by Dyonna were initially paid from what was designated a "contract paying services" account, but were later paid by Robinswood. Over time, amounts remitted to the ATO for Dyonna were insufficient to cover tax deducted from apparent wages paid directly by that company. Dyonna was wound up by order of this Court on the petition of the Deputy Commissioner of Taxation in 1992. Its income tax returns from 1989 through to 1992 showed it as not trading, having no income, no expenses and no employees.

16 Dyonna is of relevance in these proceedings for three reasons. One is that the provision of a group certificate to Dyonna employees by those controlling the Group is alleged to constitute an admission that those persons to whom group certificates were given were in fact employees rather than independent contractors, and that the payments they received were net payments of wages from which tax had been deducted. I do not understand that allegation to be seriously contested.

17 It is also submitted by the defendants that, in respect of any worker to whom Dyonna issued a group certificate, Dyonna is to be regarded as the sole employer. That is not so, for reasons I develop later.

18 The other relevance of Dyonna is that it is put by the defendants that the order of this Court winding up Dyonna for the non-remittance of tax gives rise to an issue estoppel between the ATO and the present defendants. It is said that the earlier order establishes that certain individuals were Dyonna employees and not employees of any of the present defendants. I will return to that issue later.

19 Keystyle Holdings Pty Ltd was incorporated in May 1992. It was registered as a group employer. It issued group certificates and made remittances to the ATO. Its bank statements indicate that it made no wage payments and never had funds with which to make payments in the nature of salary and wages. It had no income and no assets and never carried on any operation. The remittances made by it to the ATO used funds deposited into its account shortly before the cheques were written. Remittances of group tax "on behalf of" Keystyle were also made directly by Robinswood or by other Group entities (exhibit 14911). Those workers who received group certificates from Keystyle generally received all of their remuneration from Robinswood.

20 The directors of Keystyle were Mr Kitenbergs and Mr Drayton. Each of them was by occupation a farmhand, and a long-term worker for the Group. Each of them became a director because Sergio Caratti asked him to do so. Mr Kitenbergs was told that for some reason Sergio himself was not able to become a director; Mr Drayton was told nothing about Mr Caratti's reasons. Mr Kitenbergs was told that the purpose of Keystyle was something to do with group tax, while Mr Drayton found out some time after he had become a director that that was the purpose of the company. No directors' meetings were held; indeed, neither man ever talked to the other about the company and each became aware of the other's existence as a director some time into his own directorship. Neither was issued with any shares in the company.

21 Each man from time to time received in the mail (Mr Kitenbergs through mail directed to his father's house, which was the registered address of Keystyle, Mr Drayton at the farm) a variety of blank documents. These included group certificate forms which were completely blank and cheques which were completely blank. They arrived with no covering letter and with some form of post-it note attached indicating where each man was to sign. The post-it notes were themselves unsigned and the handwriting was not known to either man. Each simply signed where he was requested to do so, and returned the forms to the Redcliffe office by post. Neither was aware of whether Keystyle had any employees, although Mr Kitenbergs assumed that that was the case once he had been asked to sign group certificate forms. Neither man appeared to know whether there was any money in the account when he signed cheques. Mr Kitenbergs knew that there was a Keystyle account because on one occasion when he was in Rivervale with Sergio Caratti, Sergio had instructed him to open an account for Keystyle at the Westpac Bank there. He had done so and had left the various forms and cheque books given to him by the Bank at the Redcliffe office.

22 The plaintiff submits that the existence of Keystyle is explicable only on the basis that its purposes were to create an illusion that members of the Group were making some attempt to comply with their responsibilities under the Act, and to direct attention away from those members of the Group which actually employed large numbers of workers (in respect of whom no or inadequate amounts of tax had been deducted and remitted). I accept that submission. The creation of Keystyle appears to be part of a deliberate pattern of concealment, other elements of which I will deal with later.

23 Since some amounts were remitted by Keystyle in purported compliance with the obligations of a group employer, those amounts should be credited to the Group so as to reduce any liability which would otherwise exist. In the plaintiff's calculations those amounts have been applied to the debt of Robinswood. I accept that course as being appropriate, since it was Robinswood that principally paid those persons who were provided with group certificates by Keystyle.

Excelco (WA) Pty Ltd and Excelco Mining Pty Ltd

24 A company called Excelcon Pty Ltd commenced operations in June 1988. In May 1991 its name changed to Excelco (WA) Pty Ltd. It was a registered group employer. It engaged in contract mining work. The initial directors were a Mr Morris, a Mr Hall and a Mr Ash. Some time after the middle of 1991, Sergio Caratti was approached for financial support and after a variety of discussions the Group became involved, and John Caratti became a director in September 1991. For most of the relevant period the directors were Mr Morris and John Caratti, and the shares were held equally by Mr Morris and a Group company, the directors of which were John and Maddeliene Caratti. Because of developing financial problems, Excelco (WA) was unable to continue with its contractual work, as a result of which John Caratti formed Excelco Mining Pty Ltd in October 1992. John Caratti and Mr Morris were the two shareholders and directors of that company. It took over contractual work which had been performed by Excelco (WA), using the same workers and the same equipment as had been used by Excelco (WA). Excelco (WA) and its successor Excelco Mining paid those involved in mining and earthmoving to the north, west and east of Kalgoorlie, and sometimes paid those in the Redcliffe office.

25 Robinswood Pty Ltd paid a larger number of workers, in more diverse areas of employment, than any of the other Group entities. It was the entity which primarily paid all of the workers on the various farms. In addition, it paid workers on the northern railway, some earthmoving workers at Coolgardie, some workers involved in land development at Malaga, and workers in the Redcliffe office and at the Redcliffe workshop.

26 Next in terms of volume seems to have been Mine Exc Pty Ltd which, as its name suggests, paid a significant number of workers in mining and earthmoving activities, in the vicinity of Kalgoorlie/Boulder. It also made payments to those in the Redcliffe office and workshop. S & M Caratti and Venetian Nominees Pty Ltd paid those involved in the Malaga development. Grangefield Holdings Pty Ltd paid workers at the mine in Leinster and in the Redcliffe office and workshop.

27 For the purpose of this action, a broad summary of relevant activity is that Robinswood effectively ran the farms (and, the defendants suggest, Malaga); S & M Caratti and Venetian ran, or at least paid, the workers in Malaga; while Mine Exc, both Excelcos, and Grangefield ran a variety of mining and earthmoving operations, Grangefield being effectively confined to the one mining operation at Leinster.

28 There are a number of unusual features of both the pleadings and the evidence in this case. I turn to the pleadings first. A claim of this kind necessarily rests in the majority of cases - this being no exception - upon a very large number of relatively small payments to a number of individuals. In the present case, there were some 704 individuals who were said to be employees in respect of whom the correct amounts of tax had either not been deducted or, if deducted, not remitted. Their employment took place over a period of some six years. Although many were not employed continuously for the whole period, some being employed for only a matter of weeks or even days, there were obviously a very large number of payments in issue. Further, as I have noted, payments in respect of one individual might be received from a number of different entities over that period of time. The case was pleaded in a way which identified each of those payments, in a manner I will shortly describe.

29 An additional factor in the present case which was of relevance both to the pleadings and the evidence was the fact that John, Allen and Maddeliene Caratti had been tried on an indictment alleging that between 1988 and 1994 they conspired with each other and with the deceased Sergio Caratti to defraud the Commonwealth. The conspiracy alleged in that proceeding was essentially that there was a continuing agreement to deprive the Commissioner of Taxation of tax instalment deductions. The Crown sought to prove in the criminal proceedings that, in pursuance of the conspiracy, various Group entities had engaged in failure to deduct or remit the correct amounts of tax instalments in relation to workers engaged by them. The payments in respect of which that conduct occurred were alleged to be, in effect, the payments the subject of the present action. There was not complete identity between the allegations, but the schedules sought to be proved before me in the present case, which I will shortly describe, are very largely identical with the schedules used in the criminal trial.

30 During the course of that criminal trial the Crown called witnesses who fell into a number of groups. The largest group was that of individual workers who described the details of their work for one or more of the Group entities. There were 66 of those. There were some persons who were involved in the organisation or business of one or more of the relevant Group entities. There were officers employed by the plaintiff. In addition there were Australian Federal Police officers and bank officers who proved large numbers of documents, including large numbers of original and copy cheques. There were in excess of 7,500 exhibits in all, largely documentary. The trial occupied some four months.

31 Allen Caratti was acquitted by direction of the learned trial Judge; Maddeliene Caratti was acquitted; and John Caratti was convicted. John appealed against conviction and his appeal was dismissed (Caratti v The Queen [2000] WASCA 279; (2000) 22 WAR 527). Certain observations of the Court of Criminal Appeal in that case are of relevance to objections to the admissibility of evidence in the present trial and I deal with those matters later.

32 In its statements of claim in these proceedings, the plaintiff pleaded that the defendants were at all material times employers, other than group employers (save for Mine Exc which was a group employer). The obligations of employers are pleaded. The pleading then proceeds in terms of different schedules. In respect of Sch A, it is pleaded that at material times the relevant defendant deducted an amount from the salary or wages paid to employees listed in Sch A but refused or failed to affix tax stamps of a face value equal to each amount so deducted ("non-remission"). Schedule A is a lengthy schedule, divided into lines referring to individual defendants, and listing very large numbers of individual payments. Each payment is given a line number. The date of the payment is identified and the details then provided are: name of payee; gross amount; deduction; allowance (if any - usually there are none); and the cheque by which the payment is made (where identifiable - most are). There is then a "document number"; and against each individual line under this heading there is a list of the documents which are alleged to be relevant to the allegations in the other columns. The documents are listed by means of image numbers, with each document being imaged and provided by CD Rom accompanying the pleading. Unusually, then, it can be seen that the pleading discloses not only the allegations of material fact but also a very significant portion of the evidence upon which the plaintiff relies. Similar allegations, modified to reflect the obligations of a group employer, are made about Mine Exc.

33 Schedule B then, in relation to each relevant four week period for the remission of tax stamp amounts, sets out the total of the principal amounts alleged to be owing for each of those periods, together with the total of relevant penalty amounts calculated for those periods. It is further pleaded (although as a matter of law the pleading is probably strictly unnecessary) that additional amounts continue to accrue on the unpaid principal and penalty amounts pursuant to s 221G(4A)(d)(ii) of the Act. Again, the allegations in respect of Mine Exc are modified to reflect its different status.

34 It is then pleaded in the statements of claim that during the relevant period the defendants paid salary or wages to employees particularised in Sch C but wrongly refused or failed to deduct the full amounts from those salaries or wages as required by the Act ("non-deduction"). Schedule C is in a form very similar to Sch A. However, it contains columns for "gross pay" and for "additional pay" (some workers being alleged to have received more than one payment on a relevant date), a column for the amount of "tax deducted" (if any), a column for the "net pay" and further columns showing the amount of tax which should have been deducted, with the difference between that amount and the amount, if any, actually deducted. As in Sch A, relevant evidentiary documents are identified.

35 In Sch C there is also a column which records, in respect of each employee, whether or not the person had filled out an employment declaration. An employment declaration was a document which could be filled out by an employee wishing to claim the tax free threshold. Where it had been provided, the employer could deduct tax at a lower rate than was required in respect of employees who had not furnished such declarations.

36 Schedule D sets out, in relation to each four-week period, the total amounts which it is alleged each defendant failed to deduct, together with the relevant penalty pursuant to s 221EAA.

37 There is, in the statements of claim, a global pleading that all of the persons referred to in the schedules were employees, and various indicia of employment are pleaded; for example, it is pleaded that the relevant defendant directed and controlled those persons in relation to the type of work they carried out, where they carried it out, and the manner in which they carried it out. Rather than pleading these matters individually with respect to each of the 704 alleged employees, the statements of claim make no distinction between any of those employees and the global pleading to which I have referred is to be taken as applying to each of them. It is the plaintiff's contention that the employment relationship of the type pleaded is proved by reference to the documents identified in respect of each alleged employee, in the context of the other evidence I shall later describe.

38 I come to describe the documents in more detail later. However, they fall into a number of categories. Some are documents which prove an employment relationship directly; for example, in respect of some of the persons named, there are documents unambiguously demonstrating that in respect of the particular person, one or more of the Group entities paying that person has deducted amounts of tax from the payments. Such deductions are required only in respect of employees, so that (unless there were reason to believe the document was issued inadvertently) such documents constitute an admission on the part of the paying entity, that the person is an employee. Documents of this kind include group certificates, and payslips which, in respect of an individual, identify a calculation of tax or a deduction of an amount in respect of tax. Other documents are more ambiguous in nature. In respect of some of the persons named, it is also the plaintiff's contention that evidence which was given either by that person or about that person, at the criminal trial, demonstrates that an employment relationship existed between that person and a Group entity.

39 Although the defendants had a variety of objections to the pleadings in the form which I have described, I was of the view, for reasons which I gave on 3 August 2001 (Deputy Commissioner of Taxation (Cth) v Robinswood Pty Ltd (2001) 24 WAR 284; [2001] WASC 191) that this form of pleading adequately informed the defendants of the case which they were required to meet.

40 Also on 3 August 2001 (ibid), I gave my reasons for granting the plaintiff's application in respect of the evidence at the criminal trial. That application was that, pursuant to O 29 of the Rules of the Supreme Court 1971 (WA), large portions of the transcript of the evidence from the criminal trial be received as the evidence in these proceedings, and that certain documentary evidence tendered at the criminal trial be received as evidence in these proceedings.

41 The orders which I in due course made, were to the effect described above, together with orders that each defendant notify the plaintiff on or before a specified date in relation to any witness for the plaintiff (including those witnesses whose evidence was to be received in the manner I have described) if the defendants wished to have the witness produced for cross-examination at trial. No such notification was given.

42 As preparation for the trial proceeded, the plaintiff also sought to adduce in evidence a number of additional statements and affidavits. These largely identified documents, additional to those tendered in evidence at the criminal trial, which the plaintiff sought to prove. A process of negotiation between the parties ensued in respect of those documents, and in the end the affidavits and the additional documents were received by consent. The only evidentiary issue remaining related to the evidence of Mr Sutherland, which I describe shortly.

43 To the extent that it is necessary to refer to the transcript of the evidence in the criminal trial in the course of these reasons, I do so by use of the abbreviation "CT", while the abbreviation "T" refers to evidence or submissions in the course of this trial proper. All of the many documents on the database received exhibit numbers which reflect their numbers in the database. A variety of additional documents were tendered during the course of these proceedings, and they have received consecutive exhibit numbers with the prefix "T" identifying them as documents tendered in that way.

44 Two defences were filed, being a composite defence of Robinswood and the other corporate defendants, and a defence of Maddeliene Caratti. They are almost identical. As noted earlier, there is an additional defence upon which Maddeliene Caratti seeks to rely.

45 It is admitted that the plaintiff is the Deputy Commissioner of Taxation. It is also admitted that certain sums were paid to the plaintiff by the various defendants and that the defendants are entitled to credit for those sums. Otherwise, the defences contain a blanket denial of all of the assertions in the statements of claim. More detailed denials follow. The defendants do not admit that the names listed in the various schedules are the names of natural persons, or that the relevant defendant was an employer of any of them, or that any payment made to them (if they existed) was in the nature of salary or wages. There is a positive assertion that, assuming that the persons named do exist, and were paid by the defendants, that the persons were independent contractors, and so not employees within the meaning of the Act. There are further specific pleas of res judicata and/or issue estoppel, a plea relating to s 221Q(1) of the Act, and certain constitutional defences, with which I deal later.

46 In a late amendment to the composite defence and to the defence of Maddeliene Caratti, shortly prior to trial, it was asserted that, in any event, if the individuals, or any of them, had been engaged, they had been engaged by Sergio Caratti and that they were independent contractors of Sergio. There was no evidence which could have supported this pleading. Although it does not appear to have been formally abandoned during the course of the trial, no reliance was placed upon it in the submissions of the defendants.

47 For present purposes, it is enough to note that the plaintiff is put to proof of all of the allegations in the statements of claim, save for the plaintiff's existence and ability to bring this action. As the trial developed, the defendants' counsel accepted that the names in the schedules were the names of natural persons. That part of the defence was expressly abandoned in closing.

48 At trial, the way in which it was submitted that the plaintiff had failed to establish its case, leaving aside the positive defences which I have noted, seems to me to have fallen into a number of broad, related, categories. First, it was submitted that there was such a diversity of documentation and evidence in relation to the various individuals that it was not possible to determine the case as it were by "sample". It was asserted that it would be necessary for me to consider each individual line, and to consider whether on the balance of probabilities the person there named had been proved to be an employee to whom salary or wages were paid, and in respect of whom there had been a failure to deduct or remit income tax instalments. It was submitted that the fact that names of a number of individuals appeared in Group records together, permitted no inference that they were paid on the same basis. It was submitted that, at least in relation to a very large number of entries, there was nothing to suggest that it should be concluded on the balance of probabilities that the persons were employees rather than independent contractors. In a related submission, it was submitted that in a significant number of cases where the plaintiff asserted that payments had been made net, that I should find that they had been made gross or that, at least, there was no reason to infer that they were net rather than gross.

49 It was submitted that, because of the particular nature of the plaintiff's claims, the standard of proof required of the plaintiff, while it was the balance of probabilities, was also such as to require that "exactness of proof" described in Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336. I am not persuaded that that is so. However, I should add that, for reasons which I now turn to explain, I am very firmly of the view that the plaintiff has established that those persons named in the schedules were employees of the relevant defendants and, conversely, that the relevant defendants were employers. I am also firmly persuaded that the amounts calculated have been calculated on a correct basis (save for certain calculations I note during the course of these reasons, in which, because assumptions favourable to the defendants have been made, the amounts calculated as owing may be somewhat less than those which would be lawfully due to the plaintiff).

50 It is to the general question of the way in which the plaintiff has proved that the relevant persons are employees and that tax was or should have been deducted and remitted in respect of them, in particular amounts, that I now turn.

51 Although Mr Sutherland gave evidence at the criminal trial, his evidence at that trial was not relied upon by the plaintiff. Instead, he gave evidence in the present proceedings, both orally and by means of a number of affidavits (the most voluminous being a three volume affidavit of March 2002). His evidence occupied approximately 12 days of hearing, with the majority of that being cross-examination.

52 Mr Sutherland commenced work in the Inspections Section of the ATO in June 1986, initially working as a Clerical Assistant Grade 1. He has no formal professional training, although he has had in-house training in the ATO. He was promoted and rotated through a variety of positions. By November 1989, he had been promoted to an Inspector in the Inspections Section. In that capacity he conducted field inspections in Perth and many regional areas of Western Australia, approximately 230 in total. That involved examination and analysis of the business records of the relevant business so as to identify discrepancies and irregularities, if any. If any discrepancies were identified, he would discuss those with the proprietor of the business in question and determine whether there had been compliance with the relevant statutory provisions.

53 In August 1990 he became a Source Deduction Auditor, with duties similar to those of the Inspector position but somewhat broader. He was at that stage one of a team of auditors looking at compliance by individuals and in industry groups. In that capacity he conducted approximately 150 audits, again in Perth and regional areas, including retail and wholesale businesses of various kinds. Those businesses included building and construction, earthmoving, mining and agricultural and horticultural businesses. From early 1994 - that is for approximately 10 years now - he has worked almost exclusively on matters connected with these proceedings.

54 In April 1994 search warrants were executed by Australian Federal Police officers over Caratti related premises, and he studied documents seized as a result of those. He has, over the years, studied and analysed many thousands of documents. He was the person responsible for compiling the various schedules to which I have referred, and the documents identified in those schedules are documents which he has considered to be relevant to the individuals against whose names those documents are listed. As well as compiling the schedules, he has also put data derived from many of the documents referred to in the schedules into spreadsheets and computer programs which are designed to calculate deductions and remittances which should have been made by employers in respect of gross payments of a given amount. He has, in addition, manually calculated, by reference to tables compiled by the ATO, what gross payment must have been made in respect of any given individual, in order to arrive at a known net figure (an activity often referred to as "grossing up"). This latter task was undertaken in respect of those persons who Mr Sutherland considered to have been paid net, but in respect of whom no record was maintained by the relevant entity as to the gross amount paid or payable to that person. He has also calculated the amounts of penalties payable in respect of the various amounts either not deducted or not remitted.

55 It is submitted on behalf of the plaintiff that Mr Sutherland's consideration of the vast number of documents in evidence in these proceedings has enabled Mr Sutherland to have a detailed knowledge of them. That submission was demonstrated, during the course of Mr Sutherland's evidence, to be correct. Mr Sutherland's grasp of the detail of this case was extremely impressive. It became evident that, without recourse to notes or other aids, he knew, in respect of most of the 704 employees, which entity was the relevant employer alleged and which documents or categories of documents were relevant to that individual. During the course of cross-examination, he often suggested, in answer to a question about some aspect of the work or remuneration of a particular individual, that it would be useful to "open document XYZ", selecting one document out of the very many documents in evidence in respect of particular persons. He was almost invariably correct in his prediction that a document would prove to be relevant to the question asked. Although, as would be expected, there were times when he paused to reflect upon questions put to him, in the general run of cases his response to any given question was swift, confident, and, as could be ascertained by reference to the relevant documents, accurate. My impression of his responses in cross-examination was that he was at pains to be both accurate and fair.

56 In addition to compiling the schedules to the statements of claim, Mr Sutherland also compiled a number of other schedules, collectively referred to at trial as the "Sutherland Schedules", putting the results of his examination of documents and his conclusions into a somewhat different form. The Combined Hyperlink Schedule includes all payments in alphabetical order by name of payee, containing hyperlinks to relevant documents. It contains a list of the workers who are alleged to have been employees of one or more of eight Group entities within the relevant periods. Two entities included in that schedule, which are not part of the present actions, were Dyonna and Excelco (WA). Those entities were included for the same reasons as non-defendant entities were included in the Relevant Transactions Schedule.

57 The Relevant Transactions Schedule includes all other transactions which are considered to be relevant in calculating failure to deduct amounts or tending to establish the status of payees. Although those are payments made by entities not defendants to this action, they are relevant for a number of reasons. Some, for example payments made by Excelco (WA), are relevant because they go to showing continuity of employment. For example, an M Richards in the 1992 financial year received payments from time to time from Robinswood, and if regard were had only to those payments, it would appear that he worked for Robinswood only sporadically. However, the inclusion of Excelco (WA) payments made to M Richards shows that his employment by Group entities was of a more continuous nature. Further, the inclusion of such payments allows for the reconciliation of the total of wages paid to him with Group records such as group certificates, which purport to cover the full financial year.

58 In other cases, payments by non-defendant entities are relevant to calculate the amount of tax which should have been deducted in respect of a person. For example, an N Gobby was paid normal time wages by Dyonna, and received a cash payment, apparently for overtime, from Robinswood, on the same date. Because of the progressive nature of the tax scale, the total amount paid to an individual on a particular date is required to be known in order to calculate the total amount which should be deducted by way of tax. The Dyonna payment is therefore necessary to be included in order to calculate the amount of tax attributable to the sum paid by Robinswood.

59 The Master Schedule includes all transactions made by the particular Group entities which are the defendants in this action. It includes details of payments to individuals only where a defendant is considered to be the individual's employer. Those payments, too, are in alphabetical order of payee.

60 There were also certain spreadsheets produced by Mr Sutherland demonstrating his calculations of late payment penalty interest and of the general interest charge, including the making of allowances for certain sums actually remitted by Group entities from time to time. I do not understand any issue to be taken with these calculations, assuming that Mr Sutherland's other schedules are admissible.

61 Mr Sutherland also swore a variety of affidavits, and produced witness statements, which were the subject of objection. The most substantial of the affidavits, with his oral evidence generally, was the subject of an objection which was in principle the same as the objection which was made to the admissibility of the Sutherland Schedules, and I deal with that matter in a moment. I turn first to more limited objections to some documents.

62 So far as the third witness statement of Mr Sutherland dated 21 August 2003 is concerned, there was an objection on the basis of relevance in relation to a number of matters. Essentially, this witness statement identifies workers paid by Dyonna in the period 1 July 1988 to 30 April 1992, some 20 in all. It also identifies those issued group certificates by Dyonna and not by any other Group entity, but who were also paid by other Group entities, some 12 in all; and those persons issued group certificates by Dyonna, but not paid by it (being paid by other Group entities), some 21 in all. It identifies and explains the ATO account for Dyonna. The relevance of all of this material is that it is directed towards the res judicata/issue estoppel argument which the defendant makes in relation to Dyonna, and with which I deal later.

63 There were objections to the fourth and fifth witness statements of Mr Sutherland of 29 January 2004 and 3 February 2004. It appears to me that it is probably necessary to review the question of the admissibility of those statements based upon the course taken at trial. They were largely responsive to written statements of John Caratti and Isaac Ellison which were filed by the defendants. At all times between the filing of those statements and the close of the plaintiff's case, it was anticipated that those persons would be called to give evidence on behalf of the defendants and it was appropriate for the plaintiff, not wishing to split its case, to give such rebutting evidence as might be considered necessary. However, neither John Caratti nor Ellison gave evidence.

64 So far as the fourth statement was concerned, I took the view that only par 19, in which Mr Sutherland referred to an examination of documents and his failure to find any document which appeared to require any individual to take responsibility for deducting or remitting their own income tax, was a matter of evidence. In relation to the other paragraphs, it appeared to me that they were argumentative, as asserted by the defendants. In effect, they directed attention to particular documents which, in Mr Sutherland's view, controverted various assertions made by John Caratti. I said that I would accept them as submissions. It seems to me that the documents pointed to are relevant, notwithstanding the failure of John Caratti to give evidence, to a number of issues raised by the defendants and, in particular, to the issue of whether persons named in the schedules, or any of them, were engaged as employees or independent contractors. I have referred to that witness statement in order to ascertain what documents the plaintiff might rely on in relation to that issue, but have otherwise not had regard to its contents. Similarly, to the extent that the fifth statement refers to documents relevant to the activities of individual workers, I considered those documents, but have not relied upon Mr Sutherland's characterisation of them.

65 Apart from these more limited objections, there arises, then, the general question of the admissibility of the Sutherland Schedules and the other affidavits and witness statements of Mr Sutherland. As I understand it, the objections are on broadly the following grounds. First, it is said that Mr Sutherland is not an expert in any relevant field. Further, it is objected that the schedules contain opinions and draw conclusions regarding matters such as employment status, which are for the Court rather than the witness. There is, in addition, objection taken to Mr Sutherland speaking of his understanding of aspects of taxation law. That objection is, I think, linked to the objection in relation to the drawing of conclusions by Mr Sutherland.

66 It seems to me that there was no real dispute about the proposition that, by virtue of his training and experience, Mr Sutherland was a person who had expertise in the field of the selection and operation of computer programmes, and in the use of spreadsheets, tables and other aids in order to perform the task of calculating the amount of tax payable on any particular amount of income, the amount of gross income required to produce a particular payment net of tax, and penalties and interest. I would unhesitatingly accept those aspects of his evidence.

67 So far as any broader basis of expertise is concerned, it seems to me that the objections face two principal difficulties. One is that they are inconsistent with the relevant law as explained by the Court of Criminal Appeal in Caratti v The Queen (supra), to which I turn in a moment. The second is that they involve a misapprehension, as I see it, of Mr Sutherland's task. He is presented as the person able to express an opinion on any ultimate, or even intermediate, conclusions of fact. For example, where Mr Sutherland refers to a person as an "employee", while that is in form an expression of opinion, it is, as was explained in his evidence, a conclusion which rests upon the presence of one or another of a variety of identifiable factors.

68 The description "employee" is Mr Sutherland's shorthand expressing, in effect, his conclusion formed as a result of his examination of documents that one or another of a variety of factors is present. Those factors are explained in his evidence. They include, for example, the existence of a group certificate for that person issued by a Group entity, or the existence of business records of a relevant entity showing a calculation of tax in respect of that person or (probably most contentiously) the existence of an entry for that person on a business record of a Group entity which appears in form identical to entries made in the same business records in respect of persons who are described as "known" employees (that is, persons in respect of whom some more explicit record of their employment status, such as a group certificate, exists).

69 It is accepted by the plaintiff that I may or may not form the view that any of the documents of the type described might lead to a conclusion that a person is an employee. If I accept that every such document leads to that conclusion, then I would be able to characterise a person as an "employee" simply by reference to the schedules. If, however, it seems to me in respect of any document or class of documents that such a conclusion does not flow from them, then it would be necessary for those persons to be excluded from the list of employees.

70 I understand from submissions made by the plaintiff that, as a general rule, if I were able to describe particular classes of documents which it seemed to me would not lead to a conclusion that a person was an employee, it would be possible to search the database for persons so classified only because of the existence of such documents, and to remove them. Similarly, it is plainly the case that if by reason of other evidence I formed the view that a particular person or persons were not employees, their names would be required to be removed from the list in the schedules. I could form that view based upon evidence given at the criminal trial, for example. Had there been witnesses called on behalf of the defendant, I might have also reached that view by reference to such evidence.

71 It can be seen, then, that Mr Sutherland's expertise amounts essentially to his being the person who has a very close familiarity with a very large number of documents and who, by reason of his training, his experience in other taxation matters, and his familiarity with these documents, is able to classify them and organise them in a way which may well be of assistance to the Court. In my view, the training and experience of Mr Sutherland, to which I have already referred, together with his study of the documents involved in this case for a period of approximately 10 years, clearly enables him to be considered an expert in that respect.

72 In relation to objections which were couched in very similar terms to the objections in this case, which were made in respect of Mr Sutherland's evidence at the criminal trial (which evidence was in very similar terms to the evidence given before me), the Court of Criminal Appeal in Caratti v The Queen was of the view that Mr Sutherland's evidence, including the Sutherland Schedules, was admissible. The relevant reasons commence at [300] of the reasons of the Chief Justice, with whom Kennedy and Anderson JJ agreed. In my view, it is necessary only to quote from [347], in which his Honour sets out his conclusion about the evidence of Mr Sutherland. It reads as follows:

"For these reasons, the fact that the evidence given by Mr Sutherland did not constitute expert evidence in the traditional sense, but was more in the nature of use of a person's skill in working with accounts to prepare and present schedules of assistance to the jury, constituted no valid objection to the admissibility of the Schedules. Likewise, I do not consider that there was any substance in the objection that the Schedules contained conclusions which were based upon assumptions of fact which were the sole and exclusive preserve of the jury. As will appear, the learned judge made it clear to the jury that it was for them to be satisfied of the existence of the facts assumed by Mr Sutherland before they could act on the Schedules themselves."

73 Save that the role of fact-finder in this case is mine, and not that of a jury, it is my view that those observations are appropriate to be applied to Mr Sutherland's evidence in this case. It was therefore my view that that material is admissible, and it was for that reason that I accepted it as evidence.

Deputy Commissioner of Taxation for The Commonwealth of Australia v Robinswood Pty Ltd [2005] WASC 67

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (438 paragraphs)

Deputy Commissioner of Taxation for The Commonwealth of Australia v Robinswood Pty Ltd [2005] WASC 67 (29 April 2005)

Excelco (WA) Pty Ltd and Excelco Mining Pty Ltd

Should the payments be assumed to be gross?

Liability for the General Interest Charge

Parties

Legislation Cited (4)

Cases Cited (69)