UNSW Global Pty Ltd v Chief Commissioner of State Revenue

Legislative History and the "Mischief" Addressed

I dealt with the legislative history of s 3A (the relevant contract provisions) and s 3C (the employment agency contact provisions) of the 1971 Act in Freelance at [142]-[149]. As noted above at [18]-[19], a predecessor provision to s 3C (s 3(1)(f) and (4)) was enacted by the Pay-roll Tax (Amendment) Act 1985 together with s 3A. The predecessor provision to s 3C included in the definition "wages" amounts paid by an employment agent as remuneration to a person engaged to perform services for a client of the employment agent for which the employment agent received payment directly or indirectly. An "employment agent" as defined in the 1985 Act meant a person who procured by an arrangement the services of a person (the worker) for another person (the client) under which the worker did not become an employee of either the agent or the client, but carried out duties of a similar nature to those of an employee. As noted above, in introducing the 1985 amending Act the Minister for Employment and Minister for Finance, speaking of both these provisions and the relevant contract provisions in s 3A, said that bona fide independent contractors would not be caught by the legislation.
The 1985 amendments to s 3(1)(f) and (4) were repealed by the Pay-roll Tax (Amendment) Act 1987 (NSW). In his Second Reading Speech the Minister said that this was done in order to switch the liability to the client using the worker's services. The experience to that point must have been that the workers provided by employment agents were employees.
In Drake Personnel Ltd v Commissioner of State Revenue (Vic) (1998) 40 ATR 304; (1998) 98 ATC 4915 the taxpayer provided temporary staff to its clients to work in the clients' businesses. The question was whether those "temporaries" (as they were called) were employees of the taxpayer (Drake). Drake supplied office staff, nurses and medical secretaries, professional people such as accountants, and labourers and tradesmen (at [12]). Balmford J held (at [36]) that the temporaries were not employees "as such" of Drake and that many temporaries would be within the exclusions to the relevant contract provisions (at [46]).
An appeal from that decision was allowed (Drake Personnel Ltd v Commissioner of State Revenue (2000) 2 VR 635). The Full Court of the Supreme Court of Victoria held that each "temporary" was an employee of Drake. However, in the meantime the legislation was amended in both Victoria and New South Wales.
In response to the first instance decision in Drake Personnel the Victorian Parliament amended its Pay-roll Tax Act 1971. In 1998 it introduced a new s 3D. Later in 1998, the NSW Parliament introduced a new s 3C to the 1971 Act. Section 3C to the Pay-roll Tax Act 1971 (NSW) was in broadly similar terms to the Victorian provision (s 3D to the Pay-roll Tax Act 1971 (Vic)), save that under the New South Wales Act the employment agent was taken to be the employer, whereas under the Victorian Act the client of the employment agent was taken to be the employer. Another difference was that the New South Wales provision referred to a "contract worker" rather than a "service provider".
In his Second Reading Speech on the State Taxation (Further Amendment) Bill in the Victorian Parliament, the Treasurer said: "The bill also imposes payroll tax on payments made to employment agents by their client businesses in respect of on-hired workers. This amendment is necessary to overcome the effect of the recent decision handed down by the Supreme Court in the case of Drake Personnel Ltd v Commissioner of State Revenue. In that case the Supreme Court found that on-hired temporary personnel supplied by Drake Personnel to its clients are not common-law employees of Drake and many are not deemed to be employees under s 3C of the Pay-roll Tax Act 1971 [viz. the relevant contract provision equivalent to s 3A of the NSW Act]. As a result, a large percentage of payments by an employment agent for services rendered by its temporary personnel are not taxable. Furthermore, the decision creates an environment that encourages other businesses to structure engagement arrangements simply to avoid payroll tax if they are to remain competitive and undermine the revenue base. The bill meets key government objectives introducing a robust regime which will clarify liability for payroll tax, address inequities that result under the relevant contract provisions in s 3C of the act, and, importantly, will not lead to a broadening of the tax base overall. …"
In his Second Reading Speech on the amendments to the NSW Act 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."
UNSW Global emphasises that the Minister introduced the employment agency contract provisions as being intended to secure "the traditional tax base" and as relating to payments made to "workers" engaged through employment agents.
In both jurisdictions the relevant Minister, in introducing the bill, said in substance, that the provisions were intended to secure and not to broaden the traditional tax base.
I accept the plaintiff's submission that the mischief against which the employment agency contract provisions was directed was the avoidance of payroll tax through the interposition of an agent to give the appearance of a contractor relationship where one did not exist in substance. The mischief to which the provisions were directed was not where the service provider was a genuine independent contractor whose services were provided to a client through an intermediary. Although the legislation did not use the language of the Pay-roll Tax (Amendment) Act 1985 which defined an employment agent as one who procured the services of a person for another under an arrangement where the worker, although not becoming an employee of either the agent or the client, carried out duties of a similar nature to those of an employee, that was the very mischief to which the 1998 provisions were directed, namely to address the consequences of the first instance decision in Drake Personnel. That this was the mischief sought to be remedied is apparent from the events that led to the amendments and the Second Reading speeches.
It does not follow that the text of the employment agency contract provisions admits of an interpretation that they do not apply where the service provider is a genuine independent contractor.
On a literal construction of the employment agency contract provisions all of the payments to consultants engaged by UNSW Global are taken to be wages paid by it under an employment agency contract. For all but one month the relevant provisions are ss 37-41 of the Payroll Tax Act 2007. In terms of s 37, in a literal sense, it is clear that UNSW Global entered into agreements and arrangements under which it (being a person) procured the services of another person (the expert consultant) for its client. In this case, in contrast to Freelance and CXC Consulting Pty Ltd v Commissioner of State Revenue [2013] VSC 492, there is no issue that UNSW Global procured the services of consultants it engaged for its clients. In relation to the one month between 1 June and 30 June 2007, UNSW Global had entered into a contract with its client under which it by arrangement procured the services of expert consultants on its books for its client. In all cases the services of the experts were procured by means other than a contract of employment between the expert and the client, and in all cases UNSW Global received payment in respect of the services provided by the expert to the client (Pay-roll Tax Act 1971, s 3C(1) and Payroll Tax Act 2007, s 37).
These conclusions follow if the "services" of "another" (within the meaning of s 3C(1)) or "another person" (within the meaning of s 37) include any services including those of an independent contractor rather than services akin to the service that would be provided by a worker who was an employee, and also, provided that the services can be regarded as being provided "for" the client merely if they are provided for the client's benefit. On a literal construction, the amounts paid by UNSW Global to its consultants are taxable wages.
In Alcan (NZ) Alumina Pty Ltd v Commissioner of Territory Revenue (2009) 239 CLR 27; [2009] HCA 41, the plurality (Hayne, Heydon, Crennan and Kiefel JJ) said (at [47]): "[47] This court has stated on many occasions that the task of statutory construction must begin with a consideration of the text itself. Historical considerations and extrinsic materials cannot be relied on to displace the clear meaning of the text. The language which has actually been employed in the text of legislation is the surest guide to legislative intention. The meaning of the text may require consideration of the context, which includes the general purpose and policy of a provision, in particular the mischief it is seeking to remedy." (Citation of authority omitted.)
In this case, unlike Alcan (see Alcan at [45]), giving the provisions their natural and ordinary, or literal, meaning does lead to an absurd or unreasonable result.
In Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355; [1998] HCA 28 the majority said (at [78]) that ordinarily the grammatical or literal meaning of a provision will be the meaning that the legislature is taken to have intended the provision to have. But that is not always so. The legal meaning may be different from the grammatical or literal meaning of a provision having regard to its context, using that term in its widest sense as including the mischief intended to be remedied. Moreover, as is said in Bennion on Statutory Interpretation, 6th ed (2013) at pp 901-904, the Court will seek to avoid a construction that cures the mischief the enactment was designed to remedy only at the cost of setting up a disproportionate counter-mischief. The learned author observes (at 903-904): "Often it is reasonable to assume that the counter-mischief that has arisen was quite unforeseen by Parliament. Enacted law suffers by comparison with unwritten law in that it involves laying down in advance an untried remedy. … ... As interpreters of legislation, it is the function of the courts to mitigate this defect of the legislative process so far as they properly can. Where an unforeseen counter-mischief becomes evident it may be reasonable to impute a remedial intention to Parliament. This would be an intention that, if such an untoward event should happen, the court would modify the literal meaning of the enactment so as to remedy the unexpected counter-mischief. This is one aspect of consequential construction. …"
A "consequential construction" as explained by Bennion (at 783) is that: "It is presumed to be the legislator's intention that the court when considering, in relation to the facts of the instant case, which of the opposing constructions of the enactment corresponds to its legal meaning, should assess the likely consequences of adopting each construction, both to the parties in the case and (where similar facts arise in future cases) for the law generally. If on balance the consequences of a particular construction are more likely to be adverse than beneficent this is a factor telling against that construction."
This is not a case in which a literal construction fails to address the mischief that Parliament was concerned to address, but rather a case in which the literal words used to address that mischief go far beyond the mischief intended to be addressed. To the extent the text of the legislation permits (Federal Commissioner of Taxation v Consolidated Media Holdings Ltd (2012) 250 CLR 503; [2012] HCA 55 at [39]; Taylor v The Owners - Strata Plan 11564 (2014) 253 CLR 531; [2014] HCA 9 at [39]), the provisions should be construed so as not to apply to all arrangements that could fall within their literal terms, but should be construed in accordance with the legislative intent as ascertained from the statutory context, including the juxtaposition of the employment agency contract provisions with the relevant contract provisions, the legislative history, and the extrinsic materials. This may mean that the legal meaning to be given to the provisions differs from their literal meaning (Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355; [1998] HCA 28 at [78]; Park Trent Properties Group Pty Ltd v Australian Securities and Investments Commission [2016] NSWCA 298 at [74]-[77], [82]).
As noted above, the Chief Commissioner ultimately accepted that a literal interpretation would have far-reaching and unintended consequences. He submitted that in s 37 of the Payroll Tax Act 2007 the words "an employment agent" were an "adjectival description that brings into the notion of the person referred to someone having the characteristics of the ordinary qualities of an employment agent and thereby preserves an in tandem operation of both the relevant contract provisions and the employment agent provisions". The Chief Commissioner accepted that on this construction the scope of the employment agency contract provisions were both defined and confined by the notion that it applied only to a person who could otherwise be regarded as an employment agent, that is to say, could be regarded as an employment agent otherwise than merely from the fact that he or she or it procured the services of another person for a client.
This argument was propounded by the taxpayer in Freelance. I there rejected the argument. I said (at [151]-[152]): "151 If 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). 152 I 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."
UNSW Global did not endorse the construction for which the Chief Commissioner contended. Even if it had, a court is not bound to adopt a construction of the legislation that both parties might urge.
Section 37 is a definition section. Section 3 of the Payroll Tax Act 2007 provides that: "employment agency contract has the meaning given in section 37. employment agent has the meaning given in section 37."
Section 3C(1) of the 1971 Act also defined what in that section the expressions "employment agency contract" and "employment agent" meant.
In Wacal Developments Pty Ltd v Realty Developments Pty Ltd (1978) 140 CLR 503 Gibbs J said at 507: "… it is impermissible to construe a definition by reference to the term defined. The expression is given by the statute a special meaning which must be applied, whether or not it accords with the ordinary meaning."
However, as UNSW Global submitted, the ordinary meaning of a defined expression can influence the meaning to be given to the definition (Delaney v Staples [1992] 1 AC 687 at 692; Manly Council v Malouf (2004) 61 NSWLR 394; [2004] NSWCA 299 at [8]). Nonetheless, on the Chief Commissioner's submission (and on the submission of the taxpayer in Freelance) there would be no need for a definition at all. I do not think that the construction propounded by the Chief Commissioner is available on the text of the legislation.
However, it is significant that in the definition of "employment agency contract" in s 3C of the 1971 Act the person whose services are procured for a client of the employment agent is defined as a "contract worker". "Contract worker" is not otherwise defined. The Victorian legislation that was enacted shortly before the 1998 amendment to the Pay-roll Tax Act 1971 that prompted the introduction of s 3C had not used that description. It had referred to the person whose services were procured as a "service provider", the same description as contained in s 37 of the 2007 Act. "Work" is often a term that, like "service", is used in contradistinction to the provision of services.
Neither party submitted that the 2007 legislation effected a change in substance to the operation of the provisions. The definitions in s 3C of the 1971 Act and s 37 of the 2007 Act merge the concepts of work, service and services in an ill-defined way. However, I do not accept that s 3C and s 37 were intended to apply only to those who provided services to a client of the employment agent as an employee. There would have been no need for such a provision. (The Chief Commissioner argued (unsuccessfully) in Health Service Pty Ltd v Chief Commissioner of State Revenue [2014] NSWCATAD 83 that s 37 applied only where there was no contract of employment between the service provider and the employment agent. It is not necessary to decide if that decision was correct.)
An harmonious relationship between Divisions 7 and 8 of Pt 3 of the 2007 Act and between ss 3A and 3C of the 1971 Act could have been reached if the legislation had provided that an employment agency contract did not include a contract that resulted in the provision of services by the service provider to the client which, if not procured by the employment agent, but provided directly, would fall within any of the exceptions to the relevant contract provisions (s 32(2) or s 3A(1)(d)-(f)).
But that construction is not open because of s 32(3) of the 2007 Act and s 3A(1B) of the 1971 Act. Those sections provide that an employment agency contract under which services are supplied by an employment agent, or a service provider is procured by an employment agent, is not a relevant contract.
That is to say, the relevant contract provisions (s 3A and ss 32-36) do not apply where the employment agency contract provisions apply. I observed in Freelance (at [160]) that one cannot read down the operation of the employment agency contract provisions by making assumptions about the intended operation of the relevant contract provisions because they operate in different fields and 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.
That is not to say that the scope of the employment agency contract provisions should not be confined by a purposive construction if the text of the provisions so permits. The argument advanced by UNSW Global was not advanced in Freelance nor CXC Consulting. Applying a purposive construction, as mandated by s 33 of the Interpretation Act, I think that the definition of an employment agency contract as being a contract under which a person (the employment agent) "… procures the services of another … for a client of the employment agent" can be read as meaning a contract under which a person procures the services of another person in and for the conduct of the business of the employment agent's client. That was the intended scope of the provisions. It does not do too much violence to the text (Taylor v The Owners - Strata Plan 11564 at [40]) to confine the operation of the phrase "for a client" in that way, rather than as meaning for the client's benefit.
Whether the worker is to be characterised as an employee or a contractor, the employment agency contract provisions were intended to apply to cases where the employment agent provided individuals who would comprise, or who would be added to, the workforce of the client for the conduct of the client's business. The mischief apprehended by the legislature following the first instance decision in Drake Personnel was that the supply of temporary personnel by a labour hire company resulted in the avoidance of payroll tax because it muddied the waters as to whether the individuals concerned might be classified as independent contractors, although they would be serving the same function for the client as its employees.
One of the hallmarks of an independent contractor is that he or she carries on his or her own business. But sometimes that is done, or is said to be done, by the individual, in substance, working for the client in the same way as would an employee of the client. Where the services of the individual are provided through the intermediary, that is, the employment agent, to help the client conduct its business in the same way, or much the same way, as it would do through an employee, then the arrangement is within the intended scope of the section.
But where the services, although provided for the client's benefit, are not provided by the service provider working in the client's business, the arrangement does not fall within the intended scope of the provision. In substance, when the Chief Commissioner's oral submissions are read with his contentions referred to at [26] above, this was conceded by the Chief Commissioner.
It follows that in my view none of the payments made by UNSW Global to consultants who provided opinions or appeared as expert witnesses in the line of business called Expert Opinion Services, are taxable wages. In none of those cases could it be said that the work done by the consultant was being done in the conduct of the client's business. The same is true of the moneys paid to the experts for undertaking testing in the laboratory facilities of the University of New South Wales.
As noted at [28], the Chief Commissioner disputed that this was so in relation to UNSW Global's domestic consulting project line of business. But the evidence as to the work done by experts retained by UNSW Global for clients in the domestic and international consulting project service lines is that the work done by such experts is provided for the benefit of the client's business, but is not carried out in the client's business. A Professor Greg Leslie, a professor in the school of chemical engineering, acted as an expert consultant on the development of a water recycling and desalination plant. This involved his visiting the site, participating in conference calls, attending meetings and the like and led to the production of a report on what he called the influent water quality envelope. Emeritus Professor Robin Fell was engaged to provide consulting work on dam projects in Australia and overseas. The work involved visits to site, attendance at meetings with the client's employees and other experts, the making of a presentation to management and the provision of reports. Associate Professor David Cohen specialises in geochemistry. He was retained by UNSW Global on a project undertaken for the government of Cyprus involving the compilation of a geochemical atlas of Cyprus. The work ultimately resulted in the production of the atlas. The largest expense of the project was the carrying out of geochemical analysis by another party. Associate Professor Cohen was paid for his time, much of which involved travel to Cyprus apparently for the purposes of sample collection.
None of the witnesses called by UNSW Global was cross-examined. It was not suggested that the clinical trial conducted for a pharmaceutical company referred to at [8] was work that would otherwise have been done by the pharmaceutical company's employees. In none of the cases of which specific evidence was given of particular projects could it be said that the work of the experts whose services were procured by UNSW Global involved the carrying out by those experts of work in the client's business, as distinct from for the client's benefit.
I do not accept the Chief Commissioner's contention that in its domestic consulting service line UNSW Global's consultants provided services in the ordinary conduct of the client's business.
For these reasons I have concluded that the assessment issued by the defendant dated 7 May 2013 should be revoked. The defendant should pay the plaintiff's costs. I will stand the matter down to a convenient time for counsel for the plaintiff to bring in short minutes of order in accordance with these reasons. The short minutes should deal with any consequential orders to be made, including for the making of refunds.

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