Southern Cross Community Healthcare Pty Ltd v Chief Commissioner of State Revenue

History of the Proceedings

1. On 1 March 2019, the Court gave directions for the filing of affidavit evidence by Southern Cross, which subsequently served four affidavits. On 3 October 2019, the proceedings were set down for hearing on 23 June 2020 with an estimate of three days. However, on 28 and 29 April 2020, the solicitors for Southern Cross forwarded to the Commissioner's solicitors an expert report by Professor Braithwaite together with its annexures. On 21 May 2020, Southern Cross's solicitors served an expert report of Assoc Prof Kewley and a further lay affidavit. The reports and affidavit related to Southern Cross's case in relation to the employment agency contract provisions of the Payroll Tax Act (the EAC issue).
2. On 22 May 2020, the Commissioner's solicitors indicated that they would consent to the granting of leave for Southern Cross to adduce the further evidence, provided that the Court vacated the hearing date and gave the Commissioner the opportunity to adduce evidence in response. The fixture for 23 June 2020 was vacated on 2 June 2020, when the Court granted leave to Southern Cross to rely upon the reports of Professor Braithwaite and Associate Professor Kewley and the further lay affidavit, together with further documentary evidence consisting of agreements with Funders and sample files of Participants, and the Commissioner was granted leave to file and serve opinion evidence. The Commissioner's solicitors subsequently requested the production of further Participant files from Southern Cross for consideration by the expert witnesses engaged on behalf of the Commissioner. That material was intended to respond to Southern Cross's evidence relating to the EAC issue.
3. On 31 July and 9 August 2020, expert reports of Dr Duckett and Mr Preobrajensky respectively were served on Southern Cross. On 6 October 2020, Southern Cross served further reports by Professor Braithwaite and Associate Professor Kewley. On the same day, Southern Cross served three further lay affidavits.
4. Pursuant to directions given by the Court on 11 August 2020, the parties agreed on a list of issues for consideration in conclave by Professor Braithwaite, Associate Professor Kewley, Dr Duckett and Mr Preobrajensky. Each of those witnesses participated in a joint conference and conclave and joint reports of 26 October 2020 and 28 November 2020 were produced as a consequence.
5. On 3 November 2020, the proceedings were listed for hearing commencing on 10 May 2021 with an estimate of five days. Southern Cross was granted leave to file an amended summons and an amended appeal statement and was ordered to pay the Commissioner's costs thrown away by the amendments.
6. On 6 May 2021, Southern Cross served additional documents on the Commissioner, including a further affidavit. On 7 May 2021, the Commissioner's solicitors were provided with access to excerpts from annual reports of the Funders for each of the financial years 2012 to 2016.
7. The proceedings were heard on 10, 11, 12, 13, 27 and 31 May 2021 and 21 June 2021. Set out in Appendix 1 to these reasons is a summary of the hearing.

Effect of the Principal Reasons

1. Southern Cross contends that the Commissioner should pay Southern Cross's costs of the proceedings or alternatively that Southern Cross and the Commissioner should each bear their own costs. The Commissioner, on the other hand, contends that there should be no change to the order proposed on 15 October 2021 or, alternatively, the order should be amended such that Southern Cross pay 80% of the Commissioner's costs as agreed or assessed.
2. The Assessments were issued on the basis that the Support Workers were employees of Southern Cross under the general law and that there should be no remission of interest. The Commissioner did not address the employment agency provisions or relevant contract provisions of the Payroll Tax Act. The Commissioner determined Southern Cross's objection to the Assessments on the same basis. Southern Cross contends that the costs order should reflect the success that it has achieved in the proceedings in relation to the issues of general law employment and partial interest remission and in demonstrating that each of the Assessments was excessive and required withdrawal.
3. Southern Cross asserts that it was necessary to bring the proceedings in order to vindicate its position that the Support Workers were not general law employees and that any interest should be remitted. The Commissioner, on the other hand, continued to contend that Support Workers were general law employees and that no amount of interest should be remitted.
4. Southern Cross accepts that it has been unsuccessful in relation to the EAC issue. While the Commissioner's contentions as to the proper construction of s 32(2)(b)(iii) of the Payroll Tax Act were preferred, the overall result was a reduction in the liability of Southern Cross. The result is that the Assessments for each of the Relevant Tax Years were excessive in that they failed to adopt the exemption in s 32(2)(b)(iii) and include interest that the Court has determined should be remitted.

Relevant Principles

1. Under s 101(1)(e) of the Administration Act, the Court has power to make any such order as to costs as it thinks fit. Section 98(1) of the Civil Procedure Act 2005 (NSW) gives the Court a wide discretionary power to order costs, subject to the rules of the Court. Under the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) r 42.1, costs are to follow the event, unless it appears to the Court that some other order should be made. While the characterisation of the relevant "event" turns on the individual circumstances of the case, the "event" is generally the "practical result" of the particular claim that has been made. [2]
2. Where the plaintiff succeeds in demonstrating that a tax assessment is excessive, it can be said that the plaintiff has been successful in the "event". [3] Nevertheless, costs remain in the discretion of the Court where there has been a mixed outcome and it is open to the Court to engage in an apportioning exercise in relation to dominant or separable issues. Where there is a mixed outcome and it is appropriate to engage in the apportioning of costs as between different issues, the exercise should be carried out on a relatively broad-brush basis, as a matter of impression and evaluation by the Court. [4]
3. Unless a particular issue or group of issues is clearly dominant or separable, it will ordinarily be appropriate to award the costs of the proceedings to the successful party without attempting to differentiate between issues on which a party succeeded and issues on which it failed. Where issues upon which a party was unsuccessful have taken up a significant part of the trial, it may be appropriate to deprive that party of costs or a proportion of costs even though it was ultimately successful. . A separable issue might relate to a disputed question of fact or a disputed question of law. Where there is a mixed outcome and apportionment is appropriate, the question of apportionment is a matter of discretion and any attempt at precision is illusory. The exercise of discretion depends upon matters of impression and evaluation. [5]

The Appropriate Costs Order

1. Southern Cross contends that the costs order proposed by it [6] is appropriate in circumstances where:

• it has been successful in respect of the significant issue of whether Support Workers are employees or independent contractors as well as in respect of a remission of 4% of the premium component interest;
• there were only two issues that were the subject of the Commissioner's objection decision, which the Commissioner continued to contest throughout the proceeding; and
• the Assessments were found to be excessive by a total of 23.11% and needed to be revoked and replaced.

1. Alternatively, Southern Cross contends that, if the Court considers that the issues in the proceedings are capable of severance, each party should bear its own costs of the proceedings. It asserts that the majority of the time in the trial and in the preparation of evidence and submissions was devoted to the question of whether Support Workers were general law employees and the remission of interest. While Southern Cross accepts that some of the cross-examination was relevant also to the EAC issue, it says that it was dually relevant to the question of general law employment.
2. The primary contention advanced on behalf of Southern Cross at the trial of these proceedings was that it was an employment agent for the purposes of s 37 of the Payroll Tax Act and that 94% of its payments to Support Workers were exempt, irrespective of whether they were employees or independent contractors. Southern Cross led considerable evidence in support of that contention including opinion evidence and extensive documentary evidence. However, Southern Cross was wholly unsuccessful in relation to that contention.
3. The alternative position of Southern Cross was that Support Workers were independent contractors and that it was entitled to an exemption in respect of some 20 to 25% of payments made to Support Workers on the basis that many of them satisfied the "90-day rule" in s 32(2)(b)(iii) of the Payroll Tax Act. While Southern Cross was successful in establishing that Support Workers were not employees under the general law, its interpretation of the 90-day rule was rejected. The Commissioner did not dispute the construction accepted by the Court.
4. Southern Cross sought to have interest remitted entirely, both the market rate and premium rate components. While Southern Cross was partially successful in relation to the premium rate component, it was wholly unsuccessful in relation to the market rate component.
5. The Commissioner contends that, while it may be correct to say that Southern Cross has been successful in relation to "the event", that success, from a practical point of view, has been minimal and is far outweighed by the aspects in respect of which it has been unsuccessful. The Commissioner contends that, from a practical perspective, he has been substantially and overwhelmingly successful in the proceedings.
6. The Commissioner contends that Southern Cross largely failed on an issue-by-issue evaluation of the proceedings. Thus, it failed to establish that it was an employment agent and that the clause 8 exemption applied even if it were an employment agent. It failed to establish that it was exempt under s 40(2) of the Payroll Tax Act, regardless of not having obtained declarations. It failed in its contention as to the construction of the 90-day rule. Finally, it failed to establish that it was entitled to a remission of the market rate component of interest and of the whole of the premium rate component of interest. In the circumstances, the Commissioner asserts, it is appropriate to depart from the prima facie rule that costs follow the event notwithstanding that Southern Cross has been successful in having the Assessments set aside.
7. Nevertheless, Southern Cross has achieved a measure of success that is not insignificant. I consider, therefore, that this case is an appropriate one for the apportionment of costs between the parties based on the issues in the proceedings.
8. The EAC issue is fairly characterised as dominating the proceedings. The majority of the Principal Reasons related to the EAC issue. The Commissioner succeeded on the dominant and separable EAC issue. The Commissioner was also successful, in substance, on the issue relating to the 90-day rule. The EAC issue was Southern Cross's primary case and had by far the greatest significance in money terms. The EAC issue was the basis for prayers 1,4,5 and 6 of the relief sought in the amended summons and added a significant degree of complication to the proceedings both evidentiary and legal. The EAC issue occupied the majority of time both in relation to pre-hearing procedures and the hearing itself.
9. The Court was required to consider the circumstances of and Southern Cross's relationship with eight different Funders. The material concerning the operation of the contractual arrangements, activities, annual reports and particular Participants in respect of the eight Funders made up a substantial part of the documentary evidence before the Court. The opinion evidence was referable wholly to the EAC issue and consisted of eight reports, involving two joint conferences and the preparation of two joint reports. One day of the hearing was occupied with objections to evidence and the giving of concurrent evidence by those who gave opinion evidence. The decision of Southern Cross to rely upon the opinion evidence for the first time shortly before the original hearing dates resulted in vacation of the hearing listed for three days in June 2020 and a fixture listed for five days in May 2021. The affidavits of Ms Merran of 14 May 2020 and 5 May 2021 and the affidavit of Mr Chaperon of 6 October 2020 related solely to the EAC issue.
10. The Commissioner also contends that he was successful on the interest issue to a greater extent than Southern Cross. On the other hand, I did not understand Southern Cross to press strongly its contention that there should be no interest. The real issue in relation to interest concerned the premium rate component. The result in relation to interest was reasonably evenly divided.
11. Clearly enough, Southern Cross was successful on the question of whether Support Workers were employees under the general law. Even so, only a relatively small proportion of the payments to Support Workers in the Relevant Tax Years satisfied the 90-day rule so as to be exempt from payroll tax.
12. Taking a broad-brush approach to the question of costs, I consider that it would be appropriate to order that Southern Cross pay 60% of the Commissioner's costs of the proceedings. I therefore propose to make the following order: 1. The order for costs made on 15 October 2021 be varied to provide that the plaintiff pay 60% of the defendant's costs of the proceedings.

Appendix 1: Summary of hearing commencing 10 May 2021

Day 1: 10 May 2021 21 On Day 1, Ms Collins SC made opening submissions for [Southern Cross] for approximately 1.5 hours that summarised the issues in dispute; provided an outline of [Southern Cross's] clients; and took the Court through one of the relevant agreements. The majority of [Southern Cross's] opening submissions were directed to the EAC issue, including the exemption in clause 8 of Schedule 2 of the Payroll Tax Act and the requirement for client declarations in s 40(2). 22. Mr Mitchell of counsel then made opening submissions for [the Commissioner] for approximately 30 minutes which, after briefly taking the Court to a summary map of the issues, were directed to the EAC issue. 23. Following that, the Court dealt with objections to Ms Merran's affidavits, after which she was cross-examined by Mr Mitchell for approximately two hours until the hearing was adjourned for the day.

Day 2: 11 May 2021 24. On Day 2 the cross examination of Ms Merran continued for approximately three hours until that witness withdrew. The matters covered in the course of her cross-examination on days 1 and 2 related to all issues in dispute including the EAC issue, general law employment and the remission of interest. 25. Ms Dubos was then cross-examined by Mr Mitchell for approximately two hours after which the hearing was adjourned for the day.

Day 3:12 May 2021 26. Mr Mitchell continued his cross-examination of Ms Dubos for approximately two hours, covering topics related both to the EAC issue and the general law employment issue. 27. Ms Preece was then cross-examined by Ms Woods for approximately one hour. That cross-examination related specifically to [Southern Cross's] calculations of the extent to which the payments made to Support Workers related to public hospital discharges or referrals. 28 After the cross-examination of Ms Preece was complete, Ms Collins provided an overview of the expert reports for approximately one hour. The hearing was then adjourned for the rest of the afternoon to allow the Court to read the expert evidence, which related solely to the EAC issue.

Day 4:13 May 2021 29. Day 4 commenced with the Court determining objections to the expert reports. Following that, Ms Collins and Ms Seiden SC cross-examined the four expert witnesses, who gave their evidence concurrently, for approximately two hours. 30. Following the joint evidence of the experts, the hearing was adjourned to 27 May 2021 for closing submissions.

Day 5: 27 May 2021 31. For [Southern Cross], Ms Collins made closing submissions that dealt with the EAC issue for approximately three and a half hours. Ms Burnett SC then made closing submissions relating to the general law employment issue, the 90-day rule and the interest issue for approximately one hour. 32. Ms Seiden then commenced the [Commissioner's] closing submissions for approximately 15 minutes in relation to the EAC issue, following which the proceedings were adjourned to 31 May 2021.

Day 6: 31 May 2021 33 The matter was listed for its sixth day of hearing. Ms Seiden continued the [Commissioner's] closing submissions for approximately three and a half hours, the majority of which was spent addressing the EAC issue. The proceedings were then adjourned to 21 June 2021.

Day 7: 21 June 2021 34 The matter was listed for its seventh (and final) day of hearing. Ms Collins commenced [Southern Cross's] closing submissions in reply for approximately one and a half hours in relation to the EAC issue. Ms Burnett then made the closing submissions in reply in relation to the general law employment, 90-day rule and interest issues for approximately 30 minutes. The proceedings were adjourned and judgment was reserved.

Endnotes

1. See [2021] NSWSC 1317.
2. See Warner Brothers Feature Productions Pty Ltd v Kennedy Miller Mitchell Films Pty Ltd (No 2) [2018] NSWCA 177.
3. See SPIC Pacific Hydro Pty Ltd v Chief Commissioner of State Revenue (2021) 20 BPR 41,275; [2021] NSWSC 395; and [2021] NSWSC 486.
4. See Ryde Developments Pty Ltd v Property Investors Alliance Pty Ltd (No 2) [2018] NSWCA 40 at [6].
5. See Bostik Australia Pty Ltd v Liddiard (No 2) [2009] NSWCA 304 at [38].
6. See [13] above. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 02 December 2021