Employment agent - section 3C of the 1971 Act and s 37 of the 2007 Act
99The critical question under s 3C of the 1971 Act is whether there is a contract under which Freelance (the employment agent) by arrangement procures the services of another (its contractor) for a client of Freelance (the company to which Freelance provides the services of its contractors). Under s 37 of the 2007 Act the question is whether there is a contract (which includes an agreement, arrangement and undertaking) which may be formal or informal, express or implied, under which Freelance (the employment agent) procures the services of another (its contractor) for a client of Freelance (the company to which Freelance provides the services of its contractor).
100Freelance accepted that if its arrangements with its beneficiary contractors constituted employment agency contracts within the meaning of s 3C of the 1971 Act or s 37 of the 2007 Act then:
"1 Freelance would be taken to be an 'employer': s 3C(2)(a) of the 1971 Act and s 38 of the 2007 Act;
2 the beneficiary contractor would be taken to be an 'employee': s 3C(2)(b) of the 1971 Act and s 39 of the 2007 Act;
3 distributions paid to beneficiary contractors would be paid, relevantly, 'to' (in the case of payments during the first period) and 'to or in relation to' (in the case of payments during the second period) such beneficiary contractors 'in respect of the provision of services in connection with' the said employment agency contracts: s 3C(2)(a) of the 197 Act and s 40 of the 2007 Act;
4 during the first period, distributions paid to secondary beneficiaries would be taken to be wages paid by Freelance to the relevant beneficiary contractor by operation of s 3D(1)(b) of the 1971 Act, because those payments would be 'paid or given ... by [Freelance], for [the beneficiary contractor's] services as the employee of [Freelance], to a person other than the [beneficiary contractor]': see paragraphs 47-50 above; and
5 during the second period, distributions paid to secondary beneficiaries would be taken to be wages paid by Freelance to the beneficiary contractor:
(a) by operation of s 40(1)(a) of the 2007 Act, because those payments would be 'paid ... in relation to the [relevant beneficiary contractor] in respect of the provision of services in connection with the employment agency contract'; and
(b) by operation of s 46(1)(b) of the 2007 Act, because those payments would be 'paid or given ... by [Freelance], for [the relevant beneficiary contractor's] services as the employee of [Freelance], to a person other than the [beneficiary contractor]': ..."
101Freelance submitted that it did not procure the services of its beneficiary contractors for its clients. No issue was raised that if it did procure the services of its beneficiary contractors for its clients, it did not do so under a contract, whether formal or informal, within the meaning of s 37 of the 2007 Act, or did not do so under a contract by arrangement within the meaning of s 3C of the 1971 Act.
102Freelance submitted that:
"(a) none of the entities to whom beneficiary contractors' services is a client of Freelance in respect of the supply of services prior to or at the time of the procurement of those services;
(b) the services of the beneficiary contractor are procured by the client itself or by a recruitment agency acting for the contractor independently of and prior to any involvement by Freelance in the facilitation of the provision of those services;
(c) the word 'procure' in s 3C of the 1971 Act and s 37 of the 2007 Act means to obtain or get by care or effort, in the sense of causing or bringing about a state of affairs;
(d) the purpose of the provisions was to address arrangements involving employment agents and labour hire entities whose business involves recruiting or sourcing and then supplying persons, whether employees or independent contractors, to clients of the employment agent or labour hire entity. 'Procure' should be read accordingly. Freelance did not recruit or source the contractors whose services were provided to its clients;
(e) If the verb 'procure' were interpreted so as to apply to the provision by Freelance of the services of its beneficiary contractors, then s 3C of the 1971 Act and s 37 of the 2007 Act would have such a wide-ranging application that the 'relevant contract' provisions in s 3A of the 1971 Act and ss 31-36 of the 2007 Act, including the exceptions to those provisions, would be emasculated. The exceptions to the 'relevant contract' provisions are intended to exclude payments to bona fide independent contractor from payroll tax. If the 'employment agent' provisions have the effect contended for by the Chief Commissioner, bona fide independent contractor arrangements that would be excluded from the operation of s 3A of the 1971 Act or s 32 of the 2007 Act would be caught by s 3C of the 1971 Act or s 37 of the 2007 Act, which was not the legislative intention."
103The Macquarie Dictionary provides the following definitions of the verb 'procure':
"1. to obtain or get by care, effort or the use of special means: to procure evidence
2. to effect; cause; bring about, a specially by unscrupulous or indirect means: to procure a person's death
3. to obtain for the gratification of lust or purposes of prostitution."
104Similarly, the Oxford English Dictionary provides the following definitions of the verb "procure" when used as a transitive verb:
"2. contrive (an action or proceeding); try to bring about (esp. something harmful)
3. bring about, esp. by care or with effort; cause to be done; arrange that, now rare; manage (to do)
4. obtain especially by care or with effort; gain, acquire, get ... act as a procurer; obtain (women) for prostitution
5. prevail on or persuade (a person) (to do); bribe, suborn ... prevail on (a person) to come; bring, lead
6. try to induce, urge"
105In the R v Castiglione [1963] 63 SR (NSW) 393 Walsh J cited the judgment of Hodgins JA in R v Quinn (1918) 44 DLR 707 as providing useful illustrations of what is meant by procuring an act or event and by procuring someone to do something. Hodgins JA said:
"The expressions 'aid, abet, counsel or procure,' 'procure a miscarriage,' and 'procure a libel to be published,' are well known illustrations of the ordinary meaning of the word in criminal enactments. In the Century Dictionary, quoted by the Court in United States v. Somers [(1908) 164 Fed. Rep. 259, 262], the word 'procure' is defined as 'to bring about by care and pains; effect; contrive and effect; induce; cause; as, he procured a law to be passed.' In The People v. Van Bever [(1911) 248 I11. 136, 141], the Supreme Court of that State held that 'Procure' for the purpose of prostitution meant 'begin proceedings to cause a thing to be done'. In Vogal v. The State [(1909) 138 Wis. 315, 332], The Supreme Court of Wisconsin regarded the word as synonymous with 'aid,' 'abet,' 'obtain by any means,' 'to bring about'. The Imperial Dictionary, quoted in Re Gertie Johnson [(1904) 8 Can. Crim. Cas. 243], gives 'Procure' as meaning 'induces to do something;' and in England in Rex v. DeMarny [[1907] 1 K.B. 388], and in Rex v. Mackenzie [(1910) 6 Cr.App.R. 64], it seems to have been treated as having a meaning such as I have indicated."
106In National Australia Bank Limited v Maher [1995] 1 VR 318 one of the questions was whether the registration of a mortgage had been "procured by fraud" within the meaning of s 44 of the Transfer of Land Act 1958 (Vic). The bank manager had altered an instrument of mortgage after it had been signed by the mortgagor to add title particulars to additional lots of land in the description of the land mortgaged without the knowledge of the mortgagor. The bank argued that although the bank manager had been guilty of forgery, its employees or agents who caused the forged instrument to be registered were innocent of any fraud and hence the registration of the mortgage was not procured by a fraud. That argument was rejected. Fullager J, with whom Southwell J agreed and with whom Ormiston J also agreed on this point, said (at 333):
"In my opinion, however, the word 'procured' in s 44 means 'brought about' or, even at its narrowest, 'brought about by care or pains' - see the fourth meaning of the word 'procure' in the Oxford Dictionary, 2nd ed, (1989), and see also the discussion in R v Castiglione [1962] 63 SR (NSW) 393, especially in the judgment of Walsh J. I think that the registration was brought about by the care and pains of the bank manager: he caused the registration to take place, first by obtaining upon the instrument the signature of the mortgagor of the Clayton land, and then by fraudulently adding the title particulars of the Buchan lands, and then either by handing the forged instrument to the relevant securities clerk or titles clerk or else by otherwise placing the instrument into that chain of bank operations which would in the ordinary course result (and did result) in its being presented to the registrar for registration. The registration was brought about by these steps or 'pains' of the bank manager. Indeed, the sending on the path to registration of this forged instrument, which was uttering continuously its false representation that the mortgagor signed after the insertion of all the title particulars, was the cause (in the sense of sine qua non) of the registration, and the sending out on that path was done with fraudulent intent. The registration was caused by the fraud of the bank's agent in that the fraud of the agent in creating the forged document and setting it upon the path to lodgment was at least a cause of the registration, if not indeed the cause in the sense above stated. In my opinion, whether 'procured' in the section means caused by or brought about by, or brought about by care or pains, the registration was in the present case procured by the fraud of the bank's employee in the course of carrying on the bank's business."
107In Attorney-General's reference No. 1 of 1975 [1975] 1 QB 773, Lord Widgery CJ, speaking for the Court of Appeal said (at 779):
"To procure means to produce by endeavour. You procure a thing by setting out to see that it happens and taking the appropriate steps to produce that happening."
108It was held that an accused who surreptitiously laced his friend's drink knowing that he would shortly drive with an alcohol concentration in excess of the prescribed limit (an offence of strict liability) procured the offence.
109Lord Widgery CJ's statement was cited with approval by the Full Court of the Federal Court in Yorke v Lucas (1983) 49 ALR 672 at 681.
110In In Re Royal Victoria Pavilion, Ramsgate Whelan v FTS (Great Britain) Limited [1961] 1 Ch 581 Pennyquick J said that the word "procure" was defined in the Oxford English Dictionary as meaning "obtained by care or effort" and could be more simply paraphrased as "see to it" (at 587).]
111In R v F; Ex Parte Attorney-General [2003] QCA 70; [2004] 1 QdR 162 the Queensland Court of Appeal construed the word "procure" in a criminal statute dealing with kidnapping. The section provided:
"A person kidnaps another person if the person unlawfully and forcibly takes or detains the other person with intent ... to procure anything to be done or omitted to be done by any person."
112The accused assisted in the forcible detention of a woman with the intention that she be sexually assaulted by another male. The Queensland Court of Appeal by majority (Davies and Williams JJA, Cullinane J dissenting) held that in its context the word "procure" meant no more than "enable" or "facilitate" (at [2], [43]). Davies and Williams JJA said that where the section spoke of procuring an act to be done to someone as distinct from procuring a person to do something, it did not matter that the person procured to do the act was already willing to do the act. Davies JA said (at [5]):
"... an event may be procured in a number of ways. And where that event is the doing of an act of another person who is already willing to do it, the event may be procured by enabling that willing person to do that act."
113The Chief Commissioner submitted that s 3C and s 37 also referred to the procuring of an event or outcome as distinct from procuring a person. Nonetheless, the Chief Commissioner contended that meaning 2 from the Macquarie Dictionary and meaning 3 from the Oxford English Dictionary most closely reflected Parliament's intended meaning of the word "procure" in those sections.
114Freelance submitted that a construction of s 3C and s 32 that the sections were intended to apply to the activities of employment agents and labour hire entities involving the recruitment, vetting and supply of persons to clients was supported by s 3A(1B) and s 32(3). Those provisions exclude from the relevant contract provisions an employment agency contract under which services are supplied by an employment agent or a service provider (or contract worker) is procured by an employment agent. The sections refer to the procurement of a person, not the procurement of the services of a person. Freelance submitted that this threw a light on what was meant in s 3C and s 37 by procuring the services of a person, in other words, that the sections were intended to have the same meaning and operation. I do not agree. The difference in language rather suggests a different operation. Moreover, s 3A(1B) and s 32(3) also exclude from the operation of s 3A and s 32 a contract under which services are supplied by an employment agent as well as one under which the employment agent procures the contract worker or service provider. This would be otiose if the reference to procuring the services of a person in ss 3C and 37 meant the same as procuring a person.
115I think the better view is that "procure" when used in s 3C and s 37 means more than facilitate or enable and requires that the employment agent cause the services of a contract worker (or service provider) to be provided to the employment agent's client, with the expenditure of care or effort by the employment agent. I do not accept that this can only be done if the employment agent recruits the contract worker or service provider for the client.
116Mr Kelson spoke of Freelance's providing services to facilitate the provision of the services of the beneficiary contractors to their clients. Nonetheless, Freelance did not contend that the contracts with its clients were shams, that is to say, that they were not intended to operate according to their tenor. The structure established by Freelance's contracts with its clients and its engagement of beneficiary contractors is that the relevant services are provided by Freelance to its clients through its admitting the contract workers or service providers as beneficiaries of the Freelance trust and there being an agreement or understanding between them and Freelance that they will perform Freelance's obligation to its clients.
117Freelance submitted that whilst Freelance accepted the obligation to provide services to its clients, it was a common understanding between it and its clients that it did not itself have the capacity to provide those services. When asked what Freelance did to discharge its commitment to undertake and complete an assignment, Mr Kelson said, "absolutely nothing". His reason for saying that was that:
"We are not, in the substance sense, we are not part of the arrangement. The arrangement is categorically formed between the contractor and the client. We're never aware that such arrangements are in fact being undertaken until subsequently, after they have been agreed upon, either the contractor or the corporate client gets in touch with us. I think, really, because they're insistent on a corporate structure, and obviously on a commercial agreement, yes, the commercial agreement must be in the name of Freelance because it is Freelance who is the corporate entity. But the reality is that the contractor is the individual, it is the contractor who negotiated the assignment and all its peripheral arrangements, and it is the contractor who executes the assignment."
118This is one passage in which Mr Kelson went close to saying that the contracts between Freelance and its clients were not intended to operate according to their tenor. But that is not Freelance's case. It is true that the contractor and the client will have agreed upon the principal terms of engagement prior to Freelance's being advised of those terms and a contract being drawn up. Often the contractor will have embarked on work prior to contracts being signed. But it is not true to say that Freelance was not part of the arrangement. Both the contractor and the client intended that the contractual arrangement would oblige Freelance to provide the services to the client, albeit that the services would be provided by the individual contractor who would usually be nominated as the preferred operator. Freelance discharged its commitment to undertake and complete the assignment by providing the services of the beneficiary contractor. Freelance effectively secured the contractors' services by admitting them as beneficiaries of the Freelance trust and by being the party with whom the client contracted for the provision of the services. There was an arrangement and understanding between Freelance and its contractors that they would provide the services which it contracted to provide to its clients, even though there was no express contractual term to that effect. In respect of those contractors to whom Freelance paid a fixed income distribution, Freelance also secured their agreement to provide consultancy services as Freelance might reasonably request during the financial year in which the fixed distribution was paid. Freelance caused the services of the "contract workers" or "service providers" to be provided to Freelance's clients and it did so with the provision of care and effort, being the structure within which the contractor services are provided.
119In my view, Freelance procured the services of its contractors to its clients by producing them by endeavour. It set out to see that the services were provided and took the appropriate steps to produce that happening by means of:
(a) its arrangements with its contractors for them to be admitted as beneficiaries of the Freelance Trust, and to receive distributions from that trust, which as a matter of practice and expectation, were in the amount of the remuneration received by Freelance by its clients less its management fee;
(b) its securing its contractor's agreement to the terms on which they were admitted as beneficiaries;
(c) in many cases, by making fixed distributions of income that were paid on terms that the contractors would provide services as reasonably requested by Freelance;
(d) by having an understanding and arrangement with its contractors for them to supply the services Freelance agreed to supply to its clients; and
(e) by entering into its contracts with its clients for the provision of services by its contractors.
120It is not essential that Freelance's efforts be the sole cause of the provision of services by the beneficiary contractors to its clients.
121This conclusion is consistent with such authority as there is on similar provisions in payroll tax legislation. The judgment of the Full Court of the Supreme Court of Western Australia in Value Engineering (Australasia) Pty Ltd v Commissioner of State Taxation (WA) (1985) 16 ATR 296; 85 ATC 4152 was relied on by the Chief Commissioner, but is not directly in point. The Pay-roll Tax Assessment Act 1971-1982 of Western Australia was payable on payment by an employer of "wages" as defined in s 3(1)(a) of the Act. "Wages" was defined to mean:
"(f) any wages ... paid or payable to an employee as such and, without limiting the generality of the foregoing, includes -
... any amount paid or payable by way of remuneration by an employment agent directly or indirectly to a person who is engaged to perform services for a client of the employment agent, or to some other person in respect of those services, as the result of which engagement the employment agent received directly or indirectly payment, ... during or in respect of the period when the services are provided by that person to the client."
122Paragraph (2)(a) provided that for the purposes of para (f) of the definition of 'wages' in subs (1),:
"'employment agent' means a person (in this definition referred to as the agent) who by an arrangement procures the services of a person (in this definition referred to as the worker) for another person (in this definition referred to as the client) under which arrangement -
(a) the worker does not become the employee of either the agent or the client but carries out duties of a similar nature to those of an employee; and
(b) remuneration is paid directly or indirectly by the agent to the worker or to some other person in respect of the services provided by the worker,
..."
123The taxpayer in Value Engineering provided engineering and related services to clients. For that purpose it entered into contracts with the clients to supply the services or work of engineers, draftsmen and similar personnel. It contracted with partnerships, companies or trustees for discretionary or unit trusts (subcontractors) to supply the services or work. The work done was physically performed by personnel on behalf of the subcontractors, some of whom were employees of the subcontractors, but none was an employee of either Value Engineering or its clients. The agreements between Value Engineering and the subcontractors recited that Value Engineering acted as agent in obtaining the temporary services of professional engineering consultants and other professional independent consulting contractors for third parties. Thus Freelance submitted that in Value Engineering the taxpayer carried on a business of an employment agent or labour hire company as that is generally understood because it sourced the subcontractors to perform work for its clients.
124In Value Engineering the taxpayer submitted that it was not an "employment agent" within the definition in subs (2)(a) because it did not procure the individuals who performed the work, but rather procured the provision of their services from the subcontractors, either companies or partnerships, who in turn procured the services of the individuals. There was no direct arrangement between the taxpayer and the individual performing the relevant services. The majority of the Full Court, Burt CJ and Kennedy J, held that the fact that the taxpayer dealt only with the subcontractors, not with the individuals who performed the services, did not mean that the taxpayer did not procure their services to be provided to their clients (at 299, 308). Kennedy J said (at 308):
"In my opinion, the contracts tendered by consent [viz. the contracts between the taxpayer and its subcontractors] constituted arrangements whereby the appellant procured the services of workers for the client. Under those contracts ... the subcontractor undertook, for the present purposes, to supply the professional services of another person or persons for the client and in my opinion the appellant relevantly procured those services which were eventually rendered. The use of the term 'procure' does not, in my view, require there to be a direct contractual relationship between the appellant and the person providing the services."
125The issue raised in the present case is quite different. I do not think Value Engineering is of assistance.
126However, the decision of Ginnane J in CXC Consulting Pty Ltd v Commissioner of State Revenue [2013] VSC 492 is in point. In that case, the taxpayer, CXC Consulting, conducted a business in the IT industry. It provided what it called "contractor management services" including "structuring and taxation advice, administration and accounting services in relation to the establishment of a contractor business 'structure'" (at [22]). It administered the payment of a contractor's remuneration. CXC Consulting was approached by a contractor after the contractor had agreed to provide services to the end user. The commercial terms were negotiated between the contractor and the end user. As in the present case, the contract with the end user for the provision of the relevant IT services was made between the end user and CXC Consulting. Sometimes the contractor was also a party to the contract. Sometimes the contract was made only between CXC Consulting and the end user. CXC Consulting agreed to provide the end user with consultancy services and agreed to allocate the nominated consultant to perform such consultancy services on its behalf.
127CXC Consulting also entered into a "Subcontracting Agreement" with the contractor. The agreements provided that the contractor (called the Specialist) was engaged by CXC Consulting in the capacity of a computer specialist and would be paid consultancy fees calculated from the revenue received by CXC Consulting from third parties. The Specialist authorised it to deduct from those fees a management fee, premium for professional indemnity insurance and premiums for workers' compensation. The Specialist agreed to abide by the terms and conditions of the contracts which CXC Consulting would sign with agencies and with clients on the Specialist's behalf and with the Specialist's permission.
128CXC Consulting submitted that there was a prior arrangement between the contractors and the end users who procured the contractor services. It contended that it did not procure the provision of the contractor services to the end users and its contracts were not the means, or the only means, by which the services were procured.
129The Victorian Civil and Administrative Tribunal confirmed the assessment of payroll tax (CXC Consulting Pty Ltd & Ors v Commissioner of State Revenue [2012] VCAT 1992).
130Sections 37-40 of the Pay-roll Tax Act 2007 (Vic) are in materially the same terms as the New South Wales Act. The Tribunal said that s 37(1) used the word "procure" in a sense functionally equivalent to supply, obtain or make available (at [43]).
131An appeal lay to the Supreme Court of Victoria on a question of law by leave. Ginnane J granted leave but dismissed the appeal. His Honour said (at [68]) that in his opinion the Tribunal's conclusions were correct and did not involve any error of law. However, his Honour approached the matter somewhat differently from the Tribunal. After referring to the dictionary definitions of the word "procure", and to R v F; Ex Parte Attorney-General (Qld) and Value Engineering, his Honour noted that CXC Consulting had presented little evidence as to antecedent negotiations between contractors and end users (at [83]). That was not the ground of decision. His Honour assumed that most, if not all, of the CXC Consulting contracts were preceded by discussions and often agreements between the end user and the contractor about the work the contractors would do, the rate they would be paid and the length of their engagement (at [84]).
132His Honour then said:
"[85] No party suggested that the CXC Consulting contracts were not intended to have legal force. Nor was there any evidence that the three forms of written contracts and the rights and obligations that they created were not intended by the parties to be given their ordinary meaning.
[86] CXC Consulting's contracts provided the legal mechanism for the contractor or worker to provide services to the end-user. The evidence suggested that if the contractor commenced work before the CXC Consulting contract was signed, the contract was expressed to apply from the commencement of that work.
[87] CXC Consulting by its contracts engaged the contractors to provide services to its clients. Under the contracts made with each of the contractors, they were engaged by CXC Consulting as computer specialists and paid consultancy fees from the revenue received by CXC Consulting from clients for whom the contractors provided services. Under the three-party contracts, CXC Consulting agreed to provide consultancy skills and services to the client by the contractors. Contracts made between CXC Consulting and the end-users had a similar effect. Clause 3.1 provided that CXC Consulting was engaged by the end-user to provide services to the client through a Key Person - that is, the contractor or service provider.
[88] I do not consider that the terms of cl 14 of the three-party contract, whereby the client acknowledged that it had selected the Nominated Consultant ie the contractor, affects the analysis of the contracts that I have attempted in the previous paragraph. As I have stated, the written contract with the contractor provided that CXC Consulting engaged the contractor as a computer specialist.
...
[90] I accept CXC Consulting's submission that these cases are to be decided by applying the terms of the statute and not principles of contract law that may restrict the weight that can be given to pre-contract discussions. However, the provisions of the statute are to be applied to the terms of the contract and not just to antecedent negotiations. The contracts are to be taken as meaning what they say and as thereby binding the parties to their legal terms upon which the contractors provided services to the end-users.
[91] The three-party contract between CXC Consulting, the end-user and contractor procured the contractor's services on behalf of CXC Consulting for the end-user.
[92] The two-party contract between CXC Consulting and the contractor required the contractor to supply services to the end-user and authorised it to receive payments from the end-users on the contractor's behalf. It also provided that contractors were bound by contracts that CXC Consulting signed with clients on their behalf and with their permission.
[93] The two-party contract between CXC Consulting and the end-user procured the supply of the contractor's services to the end-user in exchange for payment of the contractors' fees to be made to CXC Consulting.
[94] The existence of the written contracts supports the conclusion that CXC Consulting brought about or obtained and, applying the dictionary definitions, procured the provision of the contractors' services to its clients on terms contained in the written contracts. It entered into contracts with the contractors and the end-users which obligated the contractors to provide specified services to end-users for an agreed rate of payment. It, therefore, by its own actions in arranging for the entry into the written contracts, brought about, obtained and procured the provision of services by contractors for its clients.
[95] The Tribunal's task was to decide whether the provision of services under the written contracts came within the definition of 'employment agency contract' in ss 4(1) and 37(1). I consider that the Tribunal correctly decided that CXC Consulting procured the services of the contractors for its clients under the contracts. It follows that ss 4(1) and 37(1) applied to the provision of the services under the contracts, so that CXC Consulting was an employment agent and the contracts were employment agency contracts. The fact that there had been previous arrangements between the contractors and end-users for the provision of the services does not prevent that conclusion.
[96] There was nothing in the extrinsic materials, ie the Parliamentary debates and Explanatory Memoranda, relating to the 1971 and the 2007 Acts that suggests that effect that I have given to ss 4(1) and 37(1) on the facts presented by these proceedings was not intended by Parliament.
[97] It does not alter my conclusion that the contractors' services might still have been provided if they had not entered into the CXC Consulting contracts. The parties to those contracts became bound by their terms upon their execution. Those contracts regulated the provision of the services by the contractors for CXC Consulting's clients.
...
[101] For the above reasons I consider the Tribunal applied the correct interpretation of ss 4(1) and 37(1) in concluding that CXC Consulting did procure the service providers' services under the contracts for its clients. The Tribunal was correct to find that the written contracts were the means of procuring the contractors' services for the end-users because they contained the terms upon which the services were provided. The Tribunal did not find that the written contracts were the only steps that brought about the provision of the services, but rather that CXC Consulting had procured the services of the contractors for the clients under those written contracts."
133Freelance sought to distinguish the decision in CXC Consulting on the ground that in that case it was found (at [94]) that the subcontractor agreements between CXC Consulting and its contractors, or the three party contracts, obliged the contractors to provide specified services to the end users. Freelance contended that there was no term in its agreements with its clients, nor in the application for a contractor to become a beneficiary of the Freelance Trust, nor in the "package summary" document provided to contractors, by which the contractors were engaged, required or obliged to provide services to clients.
134Freelance submitted that because of the absence of a term that its contractors were required or obliged to provide services to clients or were engaged to do so, there was no causative link in the sense described by Ginnane J in CXC Consulting between Freelance's entry into the contract with its client and the contractor's provision of his or her services to the client. This was reflected by evidence that frequently contractors commenced to provide services to the client prior to the execution of the client contract.
135Freelance also submitted that there was no contractual obligation whereby Freelance, the client and the contractor agreed to replace what Freelance asserted to be the contractor's prior bilateral agreement with the client to provide the contractor services. I do not accept this submission. Freelance has not established that there were binding agreements between its contractors and the clients prior to the client entering into its agreement with Freelance. In any event, if there were any such agreement it was replaced by Freelance's agreement with its client.
136So far as appears from the reasons in CXC Consulting, the only express term whereby a contractor became obliged to perform work for the client was clause 3.1 of the Subcontracting Agreement whereby the Specialist agreed "to abide by the terms and conditions of the various contracts which the Company will sign with the agencies and Clients on the Specialist's behalf and with the Specialist's permission."
137Clause 6 of the conditions on which a beneficiary contractor was admitted as a beneficiary of the Freelance Trust did not contain an express term requiring the contractor to provide services, although it did contain a term whereby the beneficiary contractor acknowledged that any services provided to Freelance's clients would be provided as an independent contractor of Freelance and would be provided at the contractor's own expense and in accordance with Freelance's duties, representations, contractual obligations to the client. Where a beneficiary contractor of Freelance has received a fixed distribution of income the contractor has agreed to provide services to Freelance's reasonable satisfaction.
138The absence of an express contractual obligation by the contractor to perform the services that Freelance agreed to provide to its clients is not critical to a conclusion whether Freelance procured the services of its contractors for its clients by entering into the contracts that it did. Freelance did not need an express contractual obligation on the part of its contractors in order for it to provide the services that it agreed to provide to its various clients. There was a clear arrangement and understanding that they would provide the services Freelance contracted to provide.
139In my view, the critical reasoning in CXC Consulting was that CXC Consulting's contracts provided the legal mechanism for the contractor or worker to provide the services to the end user and that by entering into the written contract, CXC Consulting brought about, obtained and procured the provision of services by contractors for its clients. The fact that prior arrangements had been made by the contractors with the clients for the contractors to carry out work on terms agreed between those parties did not mean that CXC Consulting did not procure the services of the contractor for its clients. That conclusion is directly applicable to the present case.
140Freelance also submitted that Ginnane J did not have the advantage of detailed submissions dealing with the relevant legislative history that disclose that the legislature used the term "procure" in the sense of "obtained by care or effort", revealing that the legislature intended that the employment agent provisions apply to entities engaged in the business of "procurement" as that term is commonly used to describe the activities of labour hire entities.
141Ginnane J did address the legislative history to s 37 of the Pay-roll Tax Act 2007 (Vic). I deal with that below. In substance Freelance's submission was that I should not adopt the same approach as was taken in CXC Consulting as to the importance of the contractual arrangements to a determination of whether or not Freelance "procured" the provision of its contractor services to its clients. However, it is important that there be a consistent interpretation of uniform State taxation legislation. In my view, I would only be justified in not following a construction adopted by the Supreme Court of Victoria if I were satisfied that the interpretation adopted was clearly wrong. That is not my view. Rather, I agree with the approach adopted by Ginnane J in CXC Consulting to the construction of the legislation.
142I do not accept Freelance's submissions that the legislative history of the provision supports its construction. In CXC Consulting, Ginnane J noted that the 1971 Victorian Pay-roll Tax Act was amended in 1998 to introduce the "employment agency contract" provision following the decision of Balmford J in Drake Personnel Limited v Commissioner of State Revenue (1998) 98 ATC 4915. That case concerned the liability of an employment agent (as that expression is usually understood) to payroll tax. Balmford J found that the temporary workers whom Drake Personnel supplied to its clients were not its employees, but except for individual temporary staff who gave evidence, they were deemed to be employees pursuant to s 3C of the Victorian Act (the equivalent of s 3A of the Payroll Tax Act 1971 (NSW)). Balmford J found that there would be many temporary staff who were registered with other employment agencies and who would ordinarily render services to the public generally, such that moneys paid to those temporary staff would be exempt from the liability to payroll tax, but the evidence did not enable any finding to be made whether or not any individual temporary staff, other than those who gave evidence, in fact met that description (at [46]). The conclusion that the temporary staff were not employees of Drake Personnel was overturned by the Court of Appeal (Drake Personnel Limited v Commissioner of State Revenue [2000] VSCA 122; [2000] 2 VR 635). The amendment to the Victorian legislation was prompted by the first instance decision of Balmford J.
143A predecessor provision to s 3C of the 1971 New South Wales Act was first enacted in New South Wales by the Payroll Tax (Amendment) Act 1985, well before the decision in Drake Personnel. That Act amended the definition of "wages" in s 3(1) to include in "wages":
"(f) any amount paid or payable by way of remuneration by an employment agent (as described in subsection (4)) directly or indirectly to a person who is engaged to perform services for a client of the employment agent, or to some other person in respect of those services, as the result of which engagement the employment agent receives directly or indirectly payment, whether by way of a lump sum or an ongoing fee, during or in respect of the period when the services are provided by that person to the client."
144Subsection 3(4) provided that:
"A person is an employment agent for the purposes of para (f) of the definition of 'wages' if 'the person procures by an arrangement the services of a person' (in this subsection referred to as the 'worker') for another person (in this subsection referred to as the 'client'), under which arrangement -
(a) the worker does not become the employee of either the agent or the client but does carry out duties of a similar nature to those of an employee; and
(b) remuneration is paid directly or indirectly by the agent to the worker or to some other person in respect of the services provided by the worker."
145These amendments were introduced at the same time as the introduction of s 3A to the 1971 Act (that is, the "Relevant Contract" provisions).
146In introducing the 1985 amendments, the Minister for Employment and Minister for Finance said:
"I turn now to the subject of tax avoidance. It is a most unfortunate fact that in every walk of life there is a small minority of people who, by their unscrupulous behaviour, spoil things for everyone else. Thus it is that there has been a significant increase over the years in the use of artificial schemes and contrived arrangements by taxpayers attempting to avoid their liabilities to taxation. This has occurred in the area of pay-roll tax, just as it has in other more celebrated fields such as income tax.
This bill includes a number of measures which will catch schemes designed to avoid liability for pay-roll tax by severing the employer-employee relationship. Such arrangements have included the use of so-called contractors to replace wages staff. Typical of the situations that are known to exist and are the target of the legislation is the employer who, by arrangement with an employee, enters into a contract for service with the employee's family trust, partnership or company for the provision of the employee's services. The employee then performs the services for the employer but his salary is paid to the trust, partnership or company, resulting in the avoidance of pay-roll tax by the employer. Certain contracts will be exempted from liability for pay-roll tax, including contracts in excess of $500,000 where the contractor would need to hire staff and would therefore be liable for pay-roll tax. Bona fide independent contractors will not be caught by the legislation.
A second are of avoidance that is dealt with by this bill is the use of employment agents. Such agents are being used increasingly by employers, particularly in the recruitment of professional people and also for temporary staff. In some cases it has been claimed, by virtue of the arrangements entered into, that the person whose services are provided is employed by neither the contract agent nor the client. The arrangements entered into have sometimes also involved the use of trusts, partnerships or companies. The legislation will confirm that payments by an employment agent made in respect of the provision of services to a client of the agent are liable for payroll tax."
147The legislation was amended with effect from 1 January 1988 by the Payroll Tax (Amendment) Act 1987. The effect of the amendment was that a person who was an employment agent for the purposes of para (f) of the definition of "wages" in s 3(1) was omitted from the definition of "employer". The effect was that the liability for payroll tax for workers engaged through an employment agent (as defined) was borne by the client. In explaining the amendments, the Minister said:
"The bill also will make an adjustment to the liability to payroll tax of employment agents. Under amendments introduced in 1986, payroll tax on remuneration paid by an employment agent to a worker who performs services for the agent's client was paid by the agent. This move was necessary because a number of employers had found that contracting their workforce from a third party made light work of their payroll tax bill. ... Most employment agents operate with only a small staff and a payroll which would fall within the exemption level. With the addition of the payments to their contract staff, however, they are required to pay tax on the combined payroll. The bill before the House will maintain the liability but switch it from the agent to the client using the worker's services."
148Following the introduction of the employment agent provision in Victoria after the decision in Drake Personnel, the New South Wales Act was again amended. Liability for payroll tax in respect of moneys paid for the services of contractors procured by an employment agent was again put back onto the employment agent rather than the client. In introducing the amendment the Minister said:
"The Pay-roll Tax Act currently provides that wages paid to temporary staff provided through employment agents are taxable in the hands of the end user of the labour services. An administrative arrangement allows the agent to take responsibility for the tax but only if the end user agrees. Traditionally, the majority of temporary staff have been accepted as common law employees of the end user. Some are deemed to be employees under the relevant contract provisions. The relevant contract provisions are anti-avoidance provisions designed to bring to tax wages paid to persons who are, for all intents and purposes, performing duties similar to those of employees. Recent judicial pronouncements in other jurisdictions have confused the issue of liability to the point that employers and employment agents are unsure of their obligations. The uncertainty has prompted refund claims by employment agents which are likely to reach some $200 million in New South Wales alone. Those claims represent windfall gains for employment agents as the payroll tax would already have been passed on to the clients.
To secure the traditional tax base and make taxpayers obligations and point of liability absolutely clear, the bill introduces specific provisions relating to payments to workers engaged through employment agents. The agent will now be liable for payroll tax, bringing New South Wales into line with Victoria, Western Australia, South Australia and Queensland. The other jurisdictions do not have specific agency provisions."
149Freelance submitted that this legislative history demonstrates that it was Parliament's intention that the employment agents provision should apply only to employment agents or labour hire firms as that expression is commonly understood, meaning, it was said, persons who source, vet and supply persons, whether employees or independent contractors, to clients of the employment agent or labour hire entity. Undoubtedly it was Parliament's intention that the amendments should apply to such persons. It does not follow that that was the only intended application of the provision.
150In my view, the provisions were not intended to apply only to employment agents or labour hire firms as those expressions are said to be generally understood. That appears from the text of s 3C and s 37 and by the language used in other legislation at the relevant times regulating the licensing of employment agents.
151If s 3C (or s 37) were intended to apply only to the activities of the employment agents, as that expression is said to be commonly understood, subs (1) would not have defined an "employment agent" for the purposes of the Act by reference merely to any person who by arrangement procured the services of another for a client of the employment agent etcetera. The section could simply have provided that an employment agency contract was one under which an employment agent procured the services of another for a client of the employment agent etcetera. If Parliament thought that there was not a common understanding of what an employment agent is, then there was a definition readily to hand in s 702 of the Industrial Relations Act 1991 (NSW) (and formerly in s 145B of the Industrial Arbitration Act 1940 (NSW)) which provided that a person carried on the business of a private employment agent if he acted as an agent for the purpose of finding or assisting to find a person to carry out work for a person seeking to have work carried out, or finding or assisting to find employment for a person seeking to be employed, whether pursuant to a contract of employment or otherwise (see later s 60P introduced to the Fair Trading Act 1987 in 2002).
152I do not consider that the fact that the activities of employment agents or labour hire firms was an intended focus of the provisions justifies the conclusion that it was the only intended focus of the provisions such that the word "procure" should be construed as applying only to the activities of employment agents or labour hire entities in sourcing, vetting and supplying persons to clients. Freelance carries on the last activity, that is, supplying persons' services to clients on Freelance's behalf. It procures those services by arranging or causing the performance of work by the contractors for the client to occur through the contracts it enters into with its clients and the business structure provided to its contractors.
153Freelance also submitted that so to construe s 3C and s 37 would give those provisions an operation that was so far reaching that it could not have been intended and would practically render otiose the exceptions to the operation of s 3A and s 32 that were intended to ensure that genuine independent contracting arrangements were not the subject of payroll tax. The exceptions to the relevant contract provisions (s 3A and s 32) are intended to exclude bona fide contracting arrangements from the scope of payroll tax liability.
154In its opening submissions, Freelance contended that if the mere interposition of an entity was sufficient to engage the employment agent provisions, the relevant contract provisions would have no work to do as common situations of an entity that engages in a business of providing the services of its sole shareholder or employee would be caught by the employment agents provisions.
155One could take the hypothetical example of a plumber whose business was carried on through a company of which he was the sole director and shareholder. It could be said that the company would procure the provision of his services to the clients with whom it contracted.
156However, three things can be said about such a case. First, there would be a question whether the proper analysis is that the company procured the services of its director/shareholder or whether the better analysis is that the director/shareholder procured the company to enter into the contract with its client. Secondly, if the proper analysis is that the company procured the services of its director/shareholder for its client, no qualification to the sense of what is involved in procuring services would avoid the application of the provision. If the company did the relevant procuring, then it not only stood as an intermediary between the doing of work by the director/shareholder and its client, but it also sourced, vetted and supplied its director/shareholder. Thirdly, in any event, the wages on which payroll tax would be levied are not the moneys paid by the client to the company, but moneys paid by the company to the director/shareholder in respect of the provision of the director/shareholder's services. In a usual case, such payments would be made by the company to the director/shareholder as wages and would be taxable in any event assuming that the payroll tax threshold was reached. If not paid as wages and the payment could be identified as being paid "in respect of the provision of services in connection with an employment agency contract" then the levying of payroll tax would not clearly be an unintended consequence.
157Other hypothetical examples of the possible reach of s 3C and s 37 were raised during the course of oral submissions. They included the case of a building contractor who arranges the services of subcontractors and receives payment from the principal which includes payment in respect of the services provided by the subcontractors. Would a contractor be required to include in its taxable wages the amounts paid by the contractor to the subcontractors? Would a solicitor who retains counsel for the solicitor's client, and as a result receives from the client payment of counsel's fees which are then paid to counsel, be obliged to include the amount of counsel's fees in the solicitor's taxable wages? Would a supplier of brochures who engaged a printer to print the brochures and was reimbursed for the expense by its customer be obliged to include the payment made to the printer in its taxable wages?
158The Chief Commissioner submitted that because the Act imposes taxes upon "employers" in respect of "wages" payable to an "employee" (or, under the 1971 Act, to "an employee as such") the subject of the tax is remuneration for work done. The effect of the deeming provisions is to extend the scope of the Act to a broader range of contracts and arrangements under which, or whereby, work is performed. The Chief Commissioner submitted that an agreement between a building owner and a builder for the construction of a building could not be characterised as a contract for the performance of work, but rather for the delivery of a result, namely the completed building. Similar reasoning would apply to the example of a customer who engaged a person in the business of providing brochures who procured the service of a printer. The contract to provide brochures would not be a contract whereby the contractor performed work.
159I have some difficulty with this analysis, but for the reasons below it is not necessary to resolve those difficulties. Assuming that to be taxable the remuneration in question must be in respect of the performance of work, it is not clear to me why the focus should be on the contract between the landowner and the builder in one example, and the customer and the supplier of brochures in the other, rather than on the contracts between the builder and its subcontractors, or on the contract between the supplier and the printer. Moreover, it is not clear to me why the building contract would not be characterised as a contract for work, labour and materials and thus include a contract for the performance of work (Hewett v Court (1983) 149 CLR 639).
160There may be other answers to the hypothetical questions raised in argument. But even if there are not, I do not think it legitimate to read down s 3C and s 37 in order to preserve a wider scope for s 3A and s 32 including the exceptions in those sections. That is because s 3A(1B) and s 37(3) expressly exclude from the operation of s 3A and s 32 contracts under which services are supplied by an employment agent under an employment agency contract, or a contract worker or service provider is procured by an employment agent under an employment agency contract. The relevant contract provisions (s 3A and ss 32-36) do not apply where the employment agency contract provisions apply. Accordingly, one cannot read down the operation of the employment agency contract provisions by making assumptions about the intended operation of the relevant contract provisions. The employment agency contract provisions and the relevant contract provisions operate in different fields. The boundary of those fields is marked out by the terms of the employment agency contract provisions, not by assumptions as to the operation of the relevant contract provisions.
161This is so notwithstanding that s 3A(1B) and s 32(3) do not engage the terms of s 3C and s 37 exactly. The sections do not provide simply that an employment agency contract is not a relevant contract. Nonetheless, the separate field of operation of the provisions is established by those provisions.
162In the present case, the effect of s 3A(1B) and s 32(3) is to exclude the potential operation of s 3A and s 32. I do not think that the "contract worker(s)" or the "service providers" were procured by Freelance under the employment agency contracts, as distinct from their services having been procured by Freelance within the meaning of s 3A(1B) and s 32(3). Nonetheless, Freelance supplies services to its clients pursuant to its agreements with its clients and provides services to its contractors pursuant to its arrangements with them so as to exclude the relevant contracts provisions in s 3A and s 32.
163Accordingly, the relevant contract provisions do not apply. However, in case I am wrong in my conclusions concerning the employment agency contract provisions I will deal with the separate questions raised concerning the operation of s 3A and s 32.