BRIDGES FINANCIAL SERVICES PTY LTD v CHIEF COMMISSIONER OF STATE REVENUE (NSW)
Members:Gzell J
Tribunal:
Supreme Court of New South Wales - Court of Appeal
MEDIA NEUTRAL CITATION:
[2005] NSWSC 788
Gzell J
Introduction
1. In the period from 1 July 1995 to 31 March 2000, Bridges Financial Services Pty Ltd was a stockbroker, was duly appointed an agent by various life insurance companies and was authorised to deal in securities. Its shares were listed on the stock exchange.
2. In that period, Bridges authorised 79 people based in New South Wales to act as its representatives. Bridges paid commission and brokerage and some fees with respect to transactions initiated by the representatives. It did not include those amounts in its returns of wages and, in consequence, did not pay pay-roll tax with respect to those amounts under the Pay-roll Tax Act 1971.
3. The Chief Commissioner issued notices of assessment to Bridges on the basis that the amounts were wages paid to employees as such or, alternatively, on the basis that the representatives were deemed to be employees.
4 From an adverse decision of the Chief Commissioner on its notice of objection, Bridges applied to this court for a review of the Chief Commissioner's decision under the Taxation Administration Act 1996, s 97(1)(a).
Liability to pay-roll tax
5. Pay-roll tax was charged on all taxable wages by s 7 of the Pay-roll Tax Act 1971. Section 8 provided that the tax was to be paid by the employer by whom the taxable wages were paid or were payable. Taxable wages were defined in s 3(1) to mean wages that, under s 6, were liable to pay-roll tax. So far as is material, s 6(1)(a) provided that wages liable to pay-roll tax were wages that were paid or payable by an employer for services performed or rendered during a month or part of a month and were wages that were paid or payable in New South Wales. It is not in dispute that the commission, brokerage and fees were paid or were payable in this State.
6. Wages were defined in the Pay-roll Tax Act 1971, s 3(1) to have the meaning given by s 3AA. So far as is material, that section was as follows:
``(1) In this Act,
wages means (subject to this section) any wages, salary, commission, bonuses or allowances paid or payable (whether at piece work rates or otherwise and whether paid or payable in cash or in kind) to an employee as such.
(2) Wages includes:
- ...
- (e) any amount deemed by or under a provision of this Act to be wages.''
7. The Chief Commissioner's primary argument was that the commission, brokerage and fees generated by the representatives were wages paid or payable by Bridges as employer to the representatives as employees. His secondary argument was that the commission, brokerage and fees generated by the representatives were deemed to be wages under s 3A of the Pay-roll Tax Act 1971 because Bridges was provided with work related services by the representatives. Subject to an exception to which I will return, s 3A(1) was in the following terms:
``A reference in this section to a relevant contract in relation to a financial year is a reference to a contract under which a person (in this subsection referred to as the `designated person'), during that financial year, in the course of a business carried on by the person-
- (a) supplies to another person services for or in relation to the performance of work;
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- (b) is supplied with the services of persons for or in relation to the performance of work; or
- ...''
8. The Chief Commissioner argued that Bridges was a designated person. In consequence, Bridges was deemed to be an employer, the representatives were deemed to be employees and the commission, brokerage and fees generated by them were deemed to be wages in terms of s 3A(2) of the Pay-roll Tax Act 1971 which, so far as is material, was in the following terms:
``For the purposes of this Act -
- (a) a person-
- ...
- (ii) to whom during a financial year, under a relevant contract, the services of persons are supplied for or in relation to the performance of work; or
- ...
shall be deemed to be an employer in respect of that financial year;
- (b) a person who during a financial year-
- (i) performs work for or in relation to which services are supplied to another person under a relevant contract; or
- ...
shall be deemed to be an employee in respect of that financial year;
- (c) amounts paid or payable by an employer... during a financial year for or in relation to the performance of work relating to a relevant contract... shall be deemed to be wages paid or payable during that financial year; and
- ....''
9. For the purposes of these provisions a contract was given wide meaning. The Pay-roll Tax Act 1971, s 3A(6)(a) was in the following terms:
``In this section-
- (a) a reference to a contract includes a reference to an agreement, arrangement or undertaking, whether formal or informal and whether express or implied.''
10. The Chief Commissioner argued that the arrangements between Bridges and the representatives under which they generated commission, brokerage and fees constituted a contract under which Bridges was supplied with their services in relation to its performance of work.
11. Against these arguments, Bridges submitted that the representatives were independent contractors and not the employees of Bridges. By reference to the purpose for which the provision was introduced, it was argued that s 3A(1)(b) of the Pay-roll Tax Act 1971 was limited to arrangements under which all the persons in question did was to provide services to a designated person. Since the representatives conducted their own businesses in addition to providing services, it was argued that the provision had no application. Further, it was argued that only amounts paid or payable for or in relation to the performance of work were deemed to be wages under s 3A(2)(c) of the Pay-roll Tax Act 1971, and the labour content was only a modest proportion of the commission, brokerage and fees.
12. The width of the relevant contract provision was cut down by a series of exceptions. Relevant for present purposes was the exception for the performance of work by two or more people. Bridges argued that the representatives, or entities controlled by them, provided the services in conjunction with other persons and the exemption in s 3A(1)(f) of the Pay-roll Tax Act 1971 applied. It was in the following terms:
``A reference in this section to a relevant contract in relation to a financial year is a reference to a contract under which a person (in this subsection referred to as the `designated person'), during that financial year, in the course of a business carried on by the person-
- ...
but does not include a reference to a contract of service or a contract under which the designated person, during a financial year, in the course of a business carried on by the designated person-
- ...
- (f) is supplied by a person (in this paragraph referred to as `the contractor') with services for or in relation to the performance of work under a contract to which paragraphs (d) and (e) do not
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apply, where the work to which the services relate is performed-
- (i) by 2 or more persons employed by, or who provide services for, the contractor in the course of a business carried on by the contractor;
- (ii) where the contractor is a partnership of 2 or more natural persons, by 1 or more of the members of the partnership and 1 or more persons employed by, or who provide services for, the contractor in the course of a business carried on by the contractor; or
- (iii) where the contractor is a natural person, by the contractor and 1 or more persons employed by, or who provide services for, the contractor in the course of a business carried on by the contractor,
unless the Chief Commissioner determines that the contract under which the services are so supplied was entered into with an intention either directly or indirectly of avoiding or evading the payment of tax by any person.''
13. There was no suggestion in this case that the representatives entered into the arrangements with a view to avoiding or evading pay-roll tax.
Corporations Law requirements
14. During the period in question, the Corporations Law, s 780(1) provided that a person must not carry on a securities business or hold out that it carried on a securities business unless the person held a dealers licence or was an exempt dealer. Throughout the period Bridges held a dealers licence.
15. The Corporations Law, s 781 provided that a person must not carry on an investment advice business or hold out that it was an investment adviser unless the person was a licensee or an exempt investment adviser. A licensee was defined in s 9 to mean a securities licensee which was defined in the same provision to mean a person who held a securities licence which was also defined in that provision as a dealers licence or an investment advisers licence. Since Bridges held a dealers licence, the embargo in s 781 did not apply to it.
16. An investment advice business was defined in the Corporations Law, s 77(1)(a) to include a business of advising other persons about securities. Securities were defined in s 92(1) to include debentures, stocks or bonds issued or proposed to be issued by a government, shares in, or debentures of, a body and interests in a managed investment scheme. The representatives gave advice with respect to such interests. The embargo in s 781 therefore had potential operation with respect to the representatives.
17. However, the Corporations Law, s 77(9) provided that an act of a person in connection with an investment advice business carried on by another should be disregarded if the person was employed by, or acted for, or by arrangement with, that other person. It was in the following terms:
``An act that the person does:
- (a) while employed by, or acting for or by arrangement with, another person;
- (b) as employee or agent of, or otherwise on behalf of, on account of, or for the benefit of, the other person; and
- (c) in connection with an investment advice business carried on by the other person;
shall be disregarded.''
18. The exclusion was not limited to employees. If the representatives were independent contractors the exclusion could apply to them.
19. The Corporations Law, s 809 prohibited a body corporate from acting as a representative of a dealer or an investment adviser. Section 807 provided that a natural person should not do an act as a representative of an investment adviser unless the investment adviser was also a dealer and held a dealers licence or held an investment advisers licence and the person held a proper authority from the investment adviser. Section 88(1) defined a proper authority from a securities licensee as a copy of the licence on which was endorsed a statement certifying it to be a true copy of the licence, stating that the representative was employed by, or acted for, or by arrangement with, the licensee and it was signed by the licensee.
20. By agreement between the parties, 10 of the representatives were selected to ground test cases. Each of them held a proper authority. It follows that the selected representatives, in providing investment advice, were not in breach of the Corporations Law, s 781 whether they
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were employees of Bridges or independent contractors.21. I doubt that it could be said of the representatives that they carried on a securities business thus invoking the embargo in the Corporations Law, s 780. A securities business was defined in s 93(1) as a business of dealing in securities. The representatives placed orders for the sale and purchase of securities with Bridges and with others, but they did so on behalf of clients and did not deal in their own right. But even if they did, the acts of the selected representatives were to be ignored under s 93(6) and s 806 as they held proper authorities from Bridges.
22. The legislation cast duties on a dealer or investment adviser with respect to its proper authority holders. The Corporations Law, s 786(1)(a) provided that a licence was subject to such conditions and restrictions as were prescribed. The Corporations Regulations, reg 7.3.02 prescribed training and supervision for proper authority holders. It was in the following terms:
``(1) For the purposes of section 786 of the Corporations Law, a licence is subject to the conditions that the holder of the licence must ensure that each representative of the holder:
- (a) is adequately supervised in the performance of the duties that he or she is required by the holder to perform; and
- (b) is sufficiently trained in relation to those duties before acting as a representative; and
- (c) keeps up to date in relation to those duties by means of continuing training programs.
(2) The Commission may, by notice in writing, require a holder of a licence to satisfy it that the conditions referred to in subregulation (1) have been met by the holder.''
23. A person who held a proper authority from a securities licensee was a securities representative in terms of the Corporations Law, s 94(2). A securities representative fell within the definition of a securities adviser in s 9. A securities recommendation was defined in the same section to mean a recommendation with respect to securities or a class of securities whether made expressly or by implication. Under s 849(2), the duty of a security adviser when making a securities recommendation to a client who might reasonably be expected to rely on it, was to provide particulars of any commission or fee, or any other benefit or advantage, whether pecuniary or not and whether direct or indirect, that was received or might be received in connection with the making of the recommendation, or a dealing by the client in securities as a result of the recommendation and any other pecuniary or other interest, whether direct or indirect, that might reasonably be excepted to be capable of influencing the security adviser in making the recommendation.
24. In addition, s 851(1) of the Corporations Law provided that a securities adviser who made a securities recommendation to a person who might reasonably be expected to rely on it, and who did not have a reasonable basis for making the recommendation, contravened the section. Section 851(2) provided that a securities adviser did not have a reasonable basis for a recommendation unless the securities adviser had given such consideration to, and had conducted such investigation of, the subject matter as to be reasonable in all the circumstances.
25. Bridges had the obligation to train its representatives with respect to these duties and, adequately, to supervise their performance.
26. Bridges was bound by the rules of Australian Stock Exchange Ltd. ASX rule 1.2.1 required it to maintain records in sufficient detail to show particulars of, amongst other things, all orders received for the purchase or sale of securities including details of the identity of the person receiving the order, the date and time the order was received, the name of the person placing the order, the name of the client, the description and number of securities to be bought and sold, the price limits or price related instructions, the time limit on the order, if any, and any other relevant instructions.
27. Since the representatives placed orders with persons other than Bridges on behalf of clients, it was incumbent upon Bridges to ensure that a system was in place to enable it to discharge this duty.
28. During the relevant period, the Australian Securities Commission's then practice note 17 on referrals to securities advisers commented upon the obligation of a securities adviser under the Corporations Law, s 851(2) to give such consideration to, and conduct such investigation
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of, the subject matter of a recommendation as was reasonable. In par 15, the ASC stated that advisers could either carry out research and analyse investment products themselves, or use research and analysis generated from external sources.29. In the course of the relevant period, the Australian Securities and Investments Commission issued policy statement 117 entitled: ``Investment advisory services: acting as a representative''. In that context the policy statement gave ASIC's interpretation of the Corporations Law, s 93(5). In PS_117.55 it was stated that where a licensee carried out an act on behalf of another licensee, the first licensee would be carrying out the act under its own licence. ASIC went on at PS_117.58 to state that it was important for investor protection that a representative clearly disclosed to investors that it acted in a representative capacity and that it disclosed the identity of its principal or principals. ASIC stated that the disclosure must be easy to understand and should not mislead or confuse investors. In PS_117.63, ASIC stated that a representative must disclose his or her capacity and the identity of the principal in key business documents and all promotional material. Key business documents were letterheads, financial plans and business cards.
30. Again, it was incumbent upon Bridges to ensure that the representatives complied with these requirements.
The contractual documents
31. Early in the relevant period, there were no pro forma written agreements between Bridges and the representatives. In 1996, the representatives formed a representative forum to provide a collective voice for the representatives with Bridges. A number of draft agreements were presented to the forum and, after several meetings and discussions, a final version of a representatives and agents agreement was reached. In early 1997, it was circulated to the representatives, most of whom executed it, but some did not. The evidence was that none of the arrangements between the representatives and Bridges changed with the execution of the agreement.
32. The agreement was a tripartite one between Bridges, a representative and an agent. Most representatives did not have an agent and they signed the agreement both as representative and agent.
33. The agreement contained the following recitals:
``A. BRIDGES holds an unrestricted dealers licence, is licensed to carry on the business of dealing in securities, acts as Agent for and is authorised to sell life insurance products for various life insurance companies and conducts a business under the registered business name Bridges Personal Investment Services.
B. The Representative and the Agent each desire to conduct a financial planning business including the giving of financial planning advice and the sale of various Securities and life insurance products approved by BRIDGES from time to time.
C. BRIDGES together with its other Representatives and Agents, has built up considerable reputation and goodwill in its and their businesses and through its association with various credit unions and other referral sources has access to markets and clients connected with those credit unions and referral sources.
D. The Representative and the Agent:
- (i) acknowledge and recognise the considerable reputation and goodwill of BRIDGES and its valuable client referral sources; and
- (ii) wish to establish an independent business operating from the Office premises which will rely upon and take advantage of BRIDGES' reputation, goodwill, credit union and other Referral Source relationships.
E. The Representative and the Agent have each represented to BRIDGES that they:
- (i) are skilled (or will quickly become skilled) in the business of recommending and dealing in securities and life insurance products and in marketing these services; and
- (ii) have adequate qualifications and experience to conduct their BRIDGES Business co-operatively with BRIDGES; and
- (iii) will be able to achieve the high level of ethical and technical standards required by BRIDGES in the conduct of their BRIDGES Business.
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F. Pursuant to the Regulatory Laws BRIDGES is directly responsible for the actions of its Representatives and Agents and so as to protect the reputation and goodwill of BRIDGES and of its other Representatives and Agents and to ensure compliance with the requirements of the Regulatory Laws, BRIDGES requires the duties, responsibilities and obligations of the Representatives in the conduct of the Representative's Securities Business and the Agent, in the conduct of the Agent's Life Business to be specified in this Agreement.
G. In reliance upon representations to it, BRIDGES by this Agreement appoints the Representative as one of its authorised Representatives and appoints the Agent as its Agent.
H. By this Agreement and for the benefit of all its Representatives and Agents BRIDGES seeks to regulate certain aspects of the conduct of the Representative's and Agent's conduct of their BRIDGES Business.''
34. By cl 2.1, Bridges appointed the representative and the agent to conduct their respective businesses co-operatively with Bridges. It was in the following terms:
``Each of BRIDGES, the Representative and the Agent agree to co-operatively conduct their respective businesses for their mutual benefit and in this context BRIDGES appoints the Representative with a Proper Authority to act as its authorised Representative to conduct the Representative's Securities Business, and appoints the Agent to act as its Agent to conduct the Agent's Life Business with the Office on the terms and subject to the conditions of this Agreement.''
The Office was defined to in cl 1 to be the entity responsible for the premises from which the representative conducted his or her business and to which Bridges assigned the representative.
35. Clause 2.4 provided that the representative and agent were authorised to arrange contracts of life insurance, continuous disability insurance, superannuation and such other insurance as approved by Bridges and to act as an insurance intermediary in terms of the Insurance Contracts Act 1984 (Cth) and the since repealed Insurance (Agents and Brokers) Act 1984 (Cth). They were authorised to provide securities recommendations and to seek and place investments in products approved by Bridges and advised to the representative through the recommended product list and they were to place investments in products in accordance with the procedures declared by Bridges from time to time.
36. Clause 2.5(a) provided that the relationship between Bridges and the representative and the agent was that of independent business contractors. Clause 2.5(b) provided that nothing in the agreement prohibited or limited the right of a representative or agent to carry out and conduct such other business, employment or undertaking as they saw fit, provided it did not compete with the business conducted by Bridges, it was not conducted using the Bridges' name, it was not conducted from the Office without the prior written consent of Bridges, and it would not bring into disrepute, harm or affect the reputation or goodwill of Bridges or any of its referral sources or other representatives or agents.
37. Pursuant to cl 2.5(d), the representative and agent were responsible for all costs, charges and expenses in the conduct of their businesses in acting for Bridges other than such as might be agreed.
38. The power to delegate was set forth in cl 2.6. It was in the following terms:
``(a) The Representative must not in the course of carrying on their BRIDGES Business permit or allow any other person to advise on or arrange or hold himself out as entitled to advise on or arrange investment contracts or securities on behalf of or in respect of BRIDGES unless such person is authorised in writing by BRIDGES to do so.
(b) Nothing contained in this clause prevents the Representative or the Agent from using sub-contractors or employees in the conduct of their BRIDGES Business provided each of the sub-contractors or employees sign a confidentiality agreement in a form approved by BRIDGES prior to their engagement.''
39. Provided that a location did not cause damage to the reputation of Bridges or other representatives or agents, cl 2.7 allowed a representative or an agent to operate its
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Bridges' business from more than one location other than the Office.40. Citing regulatory laws, cl 3.1 required the representative and agent to conduct their businesses in accordance with procedures, guidelines and a Compliance Manual issued by Bridges with power to Bridges to inspect their business premises and conduct an audit of books and records. It was in the following terms:
``The Representative and the Agent acknowledge and agree that BRIDGES must ensure compliance with the Corporations Law and all other Regulatory Laws and other statutory requirements and protect the reputation and goodwill of BRIDGES and each of its other Representatives and Agents. The BRIDGES Business will be conducted from the Office at all times in accordance with the Procedures and guidelines established by BRIDGES from time to time and the Representative and the Agent hereby covenant and agree that their duties and obligations are appropriate and that they must at all times strictly observe all the requirements listed in the Compliance Manual for the conduct of their BRIDGES Businesses. It is acknowledged and agreed that for the purposes of the foregoing BRIDGES may at any reasonable time and without notice inspect the premises from which the Representative conducts their Representative Securities Business and the Agent conducts their Agent Life Business and conduct an audit of the accounts, books and records.''
41. Subject to those limitations, a representative and an agent were free to conduct their businesses as they saw fit. Clause 3.2(a) was in the following terms:
``Unless otherwise specified in this Agreement or the Compliance Manual and such other policies, procedures or guidelines which are issued from time to time, BRIDGES may not interfere with, control, direct or determine the manner in which the Representative and the Agent conduct their BRIDGES Business.''
42. Clause 3.3 contained a number of prohibitions. The representative and agent acknowledged and agreed that they should not occur. Clause 3.4 contained a number of warranties by the representative and agent, including the following warranties: to maintain a thorough and up to date knowledge of all relevant legislation, policies and products in par (d), not to issue letterheads, business cards, office signs or any other promotional material unless the same had been approved by Bridges in par (f), to hold all client lists and details of investments, documents, computer hardware and software and all items supplied or obtained from Bridges and to return such items upon termination of the agreement under par (h) and to obtain the authority of Bridges for all advertisements, promotional material, signs or slogans that referred to Bridges under par (m).
43. Under cl 3.5(a), Bridges was required, from time to time, to publish a recommended products list and the representative and agent were strictly to adhere to the procedures and guidelines in the compliance manual for the recommendation of only those products in the list.
44. Clause 4 contained a number of warranties by Bridges including the following: to use its best endeavours to maintain current and foster more referral sources in par (c), to provide access to competent and continuous research of the markets generally and suitable products specifically in par (d), to maintain portfolio checking procedures and client ongoing review service in par (e), to maintain adequate levels of professional indemnity insurance cover for all activities of the representative and agent conducted in accordance with the agreement under par (g) and to seek to regulate the conduct of all representatives and agents in the interests of all representatives and agents under par (h).
45. Clause 5.1 provided for a sharing of brokerage and commissions between Bridges and the representative and agent. Any fee for service charged by a representative or agent to a client was to be paid direct to Bridges to be shared between Bridges and the representative or agent under cl 5.2.
46. Clause 5.3 provided that all brokerage, commission and fees due by Bridges would be paid to the Office which would receive such amounts on account of and for the benefit of the representative or agent. After deducting such other amounts as might be agreed between the Office and the representative or agent, the Office would pay the agreed balance to the representative or agent.
47. Clause 6.1 provided that a representative or agent might sell their Bridges business or any
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part to any third party, provided that the third party was or became the holder of a proper authority issued by Bridges and entered into a representatives and agents agreement. Clause 6.2 provided for the sale of the business of a representative or agent upon death or total permanent disability with Bridges appointed agent for sale and Bridges to become purchaser of last resort.48. Clause 9.1 provided for termination without notice for failure to observe or perform any representation, covenant, warranty, undertaking, prohibition or obligation under the agreement and if the representative or agent failed to meet, satisfactorily, minimum service standards, amongst other events. Termination with notice was provided by cl 9.2 and cl 9.5 controlled contact with clients consequent upon termination. Clause 9.5(c) required the representative and agent to join with Bridges in issuing a letter in a specified form to all clients on the representative's or agent's private client lists and to make no further contact or invite or initiate such clients to make contact with them for a period of 30 days. The restraint as to communication otherwise remained binding on the representative and agent for a period of 15 months following termination under cl 9.5(f).
49. Bridges executed office agreements with the person or entity providing accommodation and services to representatives. In it, Bridges appointed the office with authority to exploit parts of Bridges' intellectual property. Permission was given to display the business name, stylised logo and trademarks of Bridges and the agreement dealt with the office providing services to representatives, maintaining the premises in a fit and proper condition and the grant of an option to Bridges to take up any renewal of any lease.
50. Clause 6.1 of the office agreement stated that the relationship between Bridges and the office was that of independent business contractors both of which had entered into separate contractual relations with certain of Bridges' representatives and agents. Clause 6.4 provided that the office would receive brokerage, commission payments, fees and other amounts due by Bridges to any representative or agent on account of and for the benefit of the representative or agent and after deducting such other amounts as might be agreed between the office and the representative or agent, the office would promptly pay the agreed balance to the representative or the agent. It was provided that the amount to be deducted was entirely a matter as between the office and the representative or agent.
Compliance manual
51. The compliance manual contained a number of sections: introduction, legislative framework, summary guide to legislation, legal requirements - ASC an overview, the role of the ASC, Australian Stock Exchange business rules, the role of the ASX, financial planning association standards, licensing requirements - dealers: an ASC perspective, supervision of representatives, the advisory process, policy statements and circulars and summary list of statutory and proforma forms.
52. In the section dealing with supervision of representatives, cl 10.3 drew attention to the Corporations Regulations, reg 7.3.02 and contained a suggested short list of office procedures for implementation by represent- atives.
53. Citing the above regulation and the Corporations Law, s 817, cl 10.6.1 stated that a licensee must ensure that its representatives are made aware of the conditions under which they are required to operate and, in addition, a licensee was also required to ensure that the person was sufficiently trained in the duties the representative would be required to perform before commencing to act as a representative. Clause 10.7.1 discussed the need for on-going training of representatives and cl 10.7.2 stated that Bridges provided an annual programme of on-going professional development for all authorised representatives.
54. Clause 10.11 stated that a vital and ongoing process was the supervision of recommendations made by representatives. It stated that Bridges required all representatives to be conversant with the legislation and that in every instance, copies of proposed recommendations and reports were to be forwarded to Bridges for approval prior to presentation to clients.
55. Clause 10.12.A stated that any public statement made by an authorised representative of Bridges exposed the company to potential undesirable commercial and legal consequences. It stated that prior to any public statement being issued, it was to be checked by the managing director, the general manager
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(operations) or the marketing manager of Bridges.56. In the section explaining the advisory process, cl 11.1 stated that because Bridges was fully responsible for actions taken by authorised representatives, it required the representatives to follow the detailed procedures for providing financial planning advice outlined in the section.
57. Representatives were required to follow a six step process of data gathering, goal setting, identification of financial problems, preparation of written alternatives/recommendations, implementation of the agreed upon recommendations and review and revision of the plan under cl 11.4.
58. Having indicated that it was mandatory for representatives to obtain sufficient information from a client to be able to make appropriate recommendations, cl 11.4.2 stated that it was policy that a client questionnaire be completed for each client unless the nature of the service was such that the representative deemed the completion of the form to be unnecessary.
59. Under step four, cl 11.7.1 stated that investment recommendations were generally to be limited to Bridges' recommended list of investments and that authorised representatives were not permitted to recommend products outside the list without special permission. Where a client specifically requested a particular product that was outside the recommended list of investments, a special disclaimer was to be issued or an appropriate letter was to be sent to the client confirming such action. It was stated that where a client's needs could not be filled by products available on the recommended list, Bridges' policy was to refrain from giving advice rather than recommending products on which insufficient research information was held. Clause 11.7.3 stated that the preparation of financial plans was the responsibility of the representative.
60. The manual contained a pro forma financial plan produced by software called portfolio writer.
Policy statements
61. Bridges issued policy statements from time to time. For example, the ASC issued practice note 41 which discussed the reasonable basis for recommendations required by the Corporations Law, s 851 and concentrated on the level of research necessary to satisfy that requirement. Bridges responded with a policy statement on 8 March 1994 dealing with the question of recommendations of investments outside the approved list. It focused on the need to have a reasonable basis for making a recommendation and highlighted the research activities conducted by Bridges and the recommended list of investments that emanated from it. As a general policy, representatives were restricted to the authorised investments in the approved recommended products list. The specific policy with respect to representatives who wished to recommend products outside the list was stated as a mandatory requirement to seek the written approval of the joint managing director of Bridges prior to a written recommendation to a client. A suggested form of request for approval was attached.
Recommended products list
62. Bridges' recommended products list contained a range of products such as cash management trusts, term deposits and term annuities, mortgage trusts, local and international bond investment trusts, conservative diversified trusts, capital stable funds, managed diversified trusts, property trusts/securities funds, Australian equity funds, either direct equities, listed investment companies, or unlisted equity trusts and international share market funds, listed and unlisted.
63. The recommended products were extensive. For example, a list of approved investments for a retirement fund, superannuation plan or retirement income plan of 15 December 1998, listed 39 approved Australian shares regarded as leaders with further shares in smaller companies together with managed share funds and listed investment companies.
Personal assistants procedures manual
64. In February 1997, Bridges issued a personal assistants procedures manual. It dealt with company profile, minimum service standards, operational structure, compliance, reception standards, personal assistant's telephone manner, initial client contact, preparation and presentation of investment portfolio, preparation and execution of paper work, the portfolio service procedures, retail investments, stockbroking procedures, trust account, receipting an investment, portfolio
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watch, portfolio watch billing, bulk update, associate reporting, seminar follow ups, client/ customer complaints and operating policy/ procedures, commonly used abbreviations, training and helpdesk contacts, AREV keystrokes, personal assistant's flowchart, and Bridges paper supply.65. While the document was directed to personal assistants, it contained reference to requirements of representatives. Under the heading field audits, reference was made to the responsibility of representatives to maintain their on-going education throughout each year. The manual continued that although the timing of regular training would be brought to the representative's attention, the personal assistant was to understand the necessary nature of complying with this minimum training and was to assist the representative in being able to attend.
66. Likewise, under the heading setting up a client file, reference was made to the representative completing a client information questionnaire form during the client interview. The manual went on to say that the questionnaire should be signed by the client and the assistant should ensure that the acknowledgment form was attached to each questionnaire used by the representative.
67. Under the heading setting up a client in AREV, it was stated that this was to be done immediately after the initial client interview and that it was essential that the insertion of this data be entered in order that the personal assistant maintained and updated the representative's administration system.
68. Under the heading preparation and presentation of investment portfolio, the personal assistant was informed that the representative would write a portfolio and make recommendations using portfolio writer. Mention was made of the portfolio being sent to a checker who would send back a checking sheet with corrections or suggestions. The manual stated that the personal assistant might be responsible for minor changes but should be aware that each representative had his or her own way of working and the assistant's work responsibilities would differ according to the representative's needs and requirements.
69. Under the heading seminar follow up, it was stated that a seminar questionnaire was to be handed out to clients to complete and hand back to representatives at the conclusion of a seminar. The personal assistant was told that prospective clients must be telephoned to arrange appointments within 72 hours and a suggested form of words was set out.
70. Under the heading Bridges paper supply, the personal assistant was told that it was very important to ensure, when copying documentation onto letterhead, that the correct letterhead was used and details of each type of letterhead was given.
Minimum service standards
71. Bridges issued a minimum service standards document based on a need for timeliness, accuracy and communication. The sections of the document dealt with initial contact by telephone, seminars or internal and external correspondence, prospective clients by telephone, referred and cold called, seminars, advertising, mail outs, promotion and reputation, initial interview, portfolio preparation, portfolio presentation, work in progress, portfolio placement of investments and receipts and ongoing reporting.
72. Much of the document was directed to administrative staff. But portions applied to representatives. For example, the section on the initial interview set out the minimum material that should be provided to a prospective client and instructions on how to conduct the interview.
73. Bridges executed office agreements with the person or entity providing accommodation and services to representatives. In it Bridges appointed the office with authority to exploit parts of Bridges intellectual property. Commission was given to display the business name, stylised logo and trademarks of Bridges and the agreement dealt with office providing services to representatives maintaining the premises and fit and proper condition the grant of an option to Bridges to take up any renewal of any lease.
74. Clause 6.1 stated that the relationship between Bridges and the office was that of independent contractors both of which had entered into separate contractual relations with certain of Bridges representatives and agents. Clause 6.4 provided the office would receive brokerage commission payments, fees and other amounts given by Bridges to any representative or agent on account of and for the benefit of the representative or agent and after deducting such other amounts as might be agreed between the
ATC 4747
office and the representative or agent the office would promptly pay the agreed balance to the representative or the agent the amount to be deducted was entirely a matter as between the office and the representative or agent.Head office
75. Through its head office, Bridges provided a number of services to the representatives: the grant of a proper authority under the Corporations Law; compliance systems and services including on-going training and education; research, product analysis and other related technical services; reporting; information storage systems and accounting techniques; a referral source emanating from Bridges' relationship with credit unions; a portfolio service; access to corporate transactions through the corporate services division and other financial products; stockbroking and marketing and sales techniques assistance.
76. Compliance services were necessary to ensure regulatory requirements were met. Bridges conducted an induction programme for new representatives and conducted on-going training three to four times annually. There was an annual conference of three to four days together with quarterly training sessions. Representatives were expected to complete 20 hours professional development each year.
77. Throughout the relevant period, senior and experienced representatives checked all new financial plans and any financial plan involving a change in strategy. A checking sheet with a checking number was attached to the file and a representative could not put a plan to a client unless a checking number had been obtained.
78. And there was a regular audit inspection of representatives' files to ensure that regulatory requirements had been met.
79. In this regard, the compliance manual contained mandatory requirements although there was some leeway. Not all representatives filled out the client questionnaire. They recorded the necessary information otherwise. Oral requests for additions to the recommended products list were also made from time to time. The personal assistants procedures manual was not a document to which representatives had recourse on a regular basis. Some of the selected representatives were unaware of its existence or had not read it.
80. Alexander Paul Hutchinson, the chief executive officer of Bridges, had been compliance manager in the relevant period. He had never heard minimum service standards mentioned at any induction or otherwise. His activities as compliance manager were directed towards statutory requirements.
81. Bridges employed a specialised team of research analysts who collected and entered data onto the computer system of all listed managed investments. This material was accessible to the representatives. They researched and analysed fund managers, managed investments and their performance. They prepared and updated the recommended products list and a prohibited products list. They co-ordinated the quarterly portfolio watch reports and they responded to enquiries from the representatives about particular products.
82. Mr Hutchinson said the reason for the general policy that only products on that list be recommended by the representatives, was to ensure that the representatives, in relying upon the research activities of the analysts, had a reasonable basis for making a securities recommendation and did not fall foul of the Corporations Law, s 851(1).
83. Bridges was involved in the underwriting or sub-underwriting of financial products. Persons in head office undertaking these activities held proper authorities but did not carry out the activities of the representatives who, alone, gave investment advice. Bridges practise was to offer these securities to the existing clients of the representatives before offering them to the general public. There was no direction from head office to the representatives to promote these products.
84. Likewise, there was no direction to the representatives to utilise the services of Bridges' stockbroking department.
85. Bridges' head office left marketing to the individual representatives. Bridges did not pay for any marketing activities conducted by the representatives. Some representatives spent more time than others in marketing.
86. Bridges' head office conducted a portfolio service. Throughout the relevant period there were financial products that were only available to large investors called wholesale investments. The average investor was unable to access these products. Through a master trust structure, individual retail investors
ATC 4748
pooled their funds, thereby gaining access to wholesale investments. Most of the representatives had clients who utilised the portfolio service.87. By and large, Bridges did not provide financial assistance to the representatives. However, it made loans to some representatives and granted advances against commission and brokerage. And it reimbursed portion of the expenses of some offices in the circumstances described below.
88. AREV and portfolio writer were computer software programmes that Bridges' head office made available to the offices to maintain client data and to assist in writing a financial plan.
The offices
Oxford Financial Securities Pty Ltd
89. Andrew Forbes McLaren was a selected representative. He lived in Tasmania and held a proper authority from one dealer and then another in that State.
90. Investments placed with fund managers were often the subject of trail commissions, that is a commission payable annually by the fund manager rather than a lump sum commission upon the introduction of a new client. Mr McLaren was in receipt of trail commissions from his Tasmanian clients.
91. A Mr Thomas held a proper authority from Bridges. He conducted a financial planning business and a taxation advice business from Kent Street, Sydney. His company employed Ms Preobrajensky, know as Ms Preo. When Mr Thomas became ill, he arranged for Bridges to issue Ms Preo with a proper authority and she then had full responsibility for running the two businesses.
92. Mr McLaren wished to acquire the businesses from Mr Thomas. He sought a loan from Bridges. It was declined. A Mr Menzies was prepared to advance the funds and it was agreed that they would jointly purchase Mr Thomas's businesses.
93. Mr McLaren and Mr Menzies incorporated Oxford Financial Securities Pty Ltd and it became the trustee of the Oxford unit trust, the units in which were owned equally by Mr McLaren's family trust and Mr Menzies.
94. Mr McLaren negotiated a price for both businesses, the financial planning business being sold at 2.5 times annual trail commissions. Mr McLaren was the purchaser under each contract. He had obtained a proper authority from Bridges and the fund managers were notified that he retained his Tasmanian clients under his new authority and they were instructed to pay trail commissions to Bridges.
95. All brokerage, commissions and fees generated by representatives were paid to Bridges in the first instance. In documents lodged by representatives, the name of Bridges appeared in or was stamped on the documentation as the authorised dealer. The name of, or a code identifying, the representative was also included in the documentation. When Bridges paid an office, it forwarded to the office and to each of the representatives a break down of the commission, brokerage and fees attributable to each.
96. Bridges did not receive any share of the fees from the tax advice business. It was considered a separate business to that of financial planning.
97. Mr McLaren executed a representatives and agents agreement and Oxford executed an office agreement towards the end of the relevant period. Ms Preo and her assistants became employees of Oxford. Ms Preo had a personal assistant as well as a taxation assistant both of whom were employed by Mr Thomas's company and later by Oxford. They continued to conduct the businesses at Kent Street. Mr McLaren lived either in Launceston or in Melbourne. He may have provided limited financial planning advice and insurance advice to Tasmanian client.
98. Bridges identified the commissions and brokerage generated by Mr McLaren and those generated by Ms Preo. The bulk of the earnings of Mr McLaren, treated as wages paid to him by Bridges by the Chief Commissioner, were trail commissions generated from his Tasmanian clients. Likewise, a large proportion of the income attributed to Ms Preo, which the Chief Commissioner treated as wages paid to her by Bridges, were trail commissions generated by her as an employee of Mr Thomas' company
99. Oxford was a 70/30 office. That meant that of all the commissions and brokerage and fees generated by Ms Preo and Mr McLaren, and paid directly to Bridges, it withheld 30% and made a lump sum payment to Oxford representing 70% of the income generated by Ms Preo and 70% of the income generated by
ATC 4749
Mr McLaren. Bridges sent summaries to the office and to the representatives identifying the commissions, brokerage and fees attributable to each representative.100. A 70/30 office was responsible for all expenses incurred in the conduct of the financial planning activities. Having deducted those expenses, Oxford paid a salary to Ms Preo and her assistants and the balance was available for distribution to the unit holders.
101. Under the office agreement, Oxford like the other offices utilised Bridges' logos and trademarks. The office issued its correspond- ence on various Bridges' letterheads as did all the offices. The business was listed in the telephone directory under Bridges Financial Services, as a branch along with the other offices. A telephone call made to head office could be transferred directly to the office telephone number. Business cards were issued in the name of Bridges.
102. Mr McLaren had never seen the personal assistants procedures manual. He knew that Ms Preo had a copy in the office and he expected her to be familiar with its contents.
Propeq Services Pty Ltd
103. Anthony John Frank was a selected representative. Throughout the relevant period he gave financial planning advice from the Kent Street premises. Propeq Services Pty Ltd was incorporated and appointed the trustee of the Propeq services unit trust. Mr Frank's interest in the trust was held by Vanodo Pty Ltd as trustee of the Tony Frank family trust. Subsequently, Mr Frank, together with other representatives, formed the Propeq financial services partnership to share operating expenses of the premises.
104. Propeq was a scale office that earned 40%, 45% or 50% of commissions and brokerage, depending upon the level of monthly earnings. But Bridges contributed to some of the expenses of operation. Mr Hutchinson said that no new scale office was established during his time at Bridges.
105. Having discharged the expenses not reimbursed by Bridges from contributions from the partnership, Propeq distributed net income to the unit holders.
106. Four personal assistants, an office junior and a receptionist were employed at the office. As well as work done by his personal assistant, Mr Frank had work done by Wendy Smith, who held a proper authority, when he became busy.
107. At the beginning of the relevant period, Mr Frank estimated he had funds under management of about $10 million and this rose to approximately $44 million at the end of the relevant period. He estimated trail commissions to be about 10% to 15% of his gross income at the beginning of the period and that this percentage rose to 65% to 75% at the end of the period.
108. Mr Frank sold his business to Mr McLaren at the end of the period. The agreed price was 2.5 times annual trail commissions.
Sykim Pty Ltd
109. Suzanne Baldry was a selected representative. She was, initially, an employee of Community First Credit Union and a representative of Bridges. When told she could not continue to be both, she became an employee of Sykim Pty Ltd, the company associated with her husband's financial planning and small accounting business.
110. Most of her Community First clients followed her and trail commissions were paid to Bridges under her proper authority.
111. Sykim traded under the name Baldry & Associates providing general business services including tax advice. At the same time, Phillip and Suzanne Baldry were employed by Sykim to provide financial planning advice as Bridges' representatives.
112. If a client sought both types of advice, separate client files were opened. Clients were invoiced for business advisory services directly by Sykim.
113. Portfolio watch was a service provided as part of the financial planning activities. Clients were charged for this service. An invoice was raised in the name of Bridges and clients were instructed to pay Bridges direct.
114. Mrs Baldry received a salary from Sykim and was entitled to a distribution of its profits as a shareholder.
115. During the relevant period, Sykim employed Kevin Goodson who brought with him clients from the New South Wales Police Credit Union. Payments by Sykim for his benefit were made to his company, Moss Rose Pty Ltd. John Saunders also joined Sykim with a proper authority from Bridges. The office was a 70/30 one.
ATC 4750
116. Mrs Baldry did not sign a representatives and agents agreement as she wished to become a licensed dealer. That she did. Bridges proper authorities for the four employees of Sykim were then revoked and Baldry Financial Services Pty Ltd issued new proper authorities.
117. By agreement with Bridges, no contact was made with former clients for three months. However, almost all Mrs Baldry's previous clients came over to her business under her dealers licence.
118. When she received that licence, Mrs Baldry estimated that she had funds under management through Bridges' portfolio service of approximately $83 million and she was responsible for funds under management elsewhere of $40 million. Trail commissions were then in excess of 50% of her gross income and that percentage increased over time.
119. As well as employing Messrs Goodson and Saunders, Sykim employed an office manager and accounting and administrative staff and trainees.
120. Mrs Baldry said she did not read the personal assistants procedures manual. She had developed her own best practices for activities that did not raise a regulatory issue. She ensured that she complied with any requirements of Bridges that related to legal requirements. Mrs Baldry did not recall ever seeing a minimum service standards document.
Compim Pty Ltd
121. Compim Pty Ltd owned or leased premises at Hurstville where a number of financial planners conducted their activities. One of them was Peter Lesniak, a selected representative. He conducted his activities as a representative of Bridges in his individual capacity and under a separate agreement that he concluded before the representatives and agents agreements issued. It provided that the goodwill with respect to his existing clients belonged to him. Mr Lesniak introduced approximately 60% of the clients of his previous proper authority holding with Bleakleys Financial Services to the Hurstville office from which trail commissions continued to be generated. The agreement provided that up to 70% of gross brokerage and commission received by Bridges would be paid to Compim.
122. By arrangement with Compim, 40% to 50% was to be retained to cover office expenses. When he joined the Hurstville office, Mr Lesniak had approximately $13 million under management. That figure rose to $20 million by March 2000. Mr Lesniak estimated that 70% to 75% of his gross income then came from trail commissions.
123. Mr Lesniak incurred additional expenditure over and above the retentions by Compim. He had motor vehicle, mobile telephone, insurance, subscriptions and stationery expenses.
124. On two days a week, Mr Lesniak worked in Wollongong for Mr Jakeman. Initially, Mr Lesniak carried out para-planning activities but subsequently his duties extended to seeing and advising Mr Jakeman's clients direct. The arrangement was that Mr Jakeman would pay Mr Lesniak 30% of all commissions received by him.
125. Mr Lesniak did not sign a representatives and agents agreement.
126. Mr Lesniak operated in accordance with the compliance manual and could recall minimum service standards being referred to during his induction. He was not cross examined about the personal assistants procedures manual.
127. Mr Lesniak was assisted by his personal assistant and by three administrative and support staff employed by Compim.
128. Carl Lao was another selected representative. He was employed by his company Kizhill Pty Ltd. From the payment to Compim from Bridges, Compim retained between 40% and 55%, depending on the volume of commissions generated by Mr Lao.
129. Mr Lao also prepared income tax returns on behalf of clients, fees for which were not shared with Bridges. Those fees were paid to Compim which paid Kizhill 70%.
130. Kizhill employed an administrative assistant in addition to the support staff employed by Compim.
131. Kizhill also operated a solar energy consulting business with respect to which it employed Mr Lao's brother, Anthony Lao, as solar energy consultant. Rosetta Lao was also employed by Kizhill on a casual basis to perform administrative and secretarial work. Wendy Smith was a para-planner who subsequently held a proper authority and who assisted in the large number of financial plans
ATC 4751
written by Mr Lao. Kizhill paid L Smith & Associates Pty Ltd for her work.132. Mr Lao signed a representatives and agents agreement. He considered that it did not alter any of the arrangements already in place. Later in the relevant period, Mr Lao moved from Hurstville to an office in Parramatta. He brought his financial planning and tax clients with him.
133. Marwell Pty Ltd was a company associated with Mr Jones. Commission payments on behalf of Mr Lao were then made to Marwell. The expenses of Marwell were shared equally by Mr Lao and Mr Jones.
134. In recognition of the contribution that Compim had made leading up to his departure from Hurstville, Mr Lao continued to pay Compim 50% of the commissions received by Marwell in respect of his clients.
135. Mr Lao and Mr Jones formed a joint accounting practice that lasted until June 2000 when Mr Lao moved to premises shared by other planners in Parramatta.
136. In addition to the expenses incurred by Compim, Kizhill incurred further expenditure with respect to the financial planning business.
137. Mr Lao was aware that a personal assistants procedures manual was held in the office but he never saw his personal assistant refer to it. He did not always follow Bridges' procedures.
138. As with the other representatives, Mr Lao said his hours of work varied and were determined by him. He saw clients outside the office. He rarely took holidays and informed clients when he did.
139. Stephen Raymond Wilson was another selected representative who worked from the Hurstville office. Having accepted redundancy from Bridges' head office, he commenced working at Hurstville where he was employed by his company Redorgio Pty Ltd.
140. Initially, Mr Wilson provided services to Compim up-dating client records, writing or editing financial plans at the request of the planners in the office. Additionally, by arrangement with Mr Moore, any off-the-street clients who contacted the Hurstville office were referred to Mr Wilson. He was also allocated a number of credit unions to service by Mr Moore and Mr Stone, other representatives working out of the Hurstville office.
141. Mr Wilson worked for other financial planners for which Redorgio invoiced Compim and was paid by it.
142. Later, Mr Wilson ceased providing services to Compim and operated as a financial planner in his own right through Redorgio. Commissions generated by him were included in the payments by Bridges to Compim after retention of the 30%. Compim retained a percentage of Mr Wilson's commissions to cover his office expenses.
143. Mr Wilson did not sign a representatives and agents agreement.
144. Mr Wilson was aware that a personal assistants procedures manual had been generated while he was at head office. He said the manual was not utilised in Hurstville when he was there. Mr Wilson was aware that a compliance manual existed. He could not recall any document entitled minimum service standards.
145. Mr Wilson was not assisted by a personal assistant. The Compim receptionist, however, took his calls.
146. Bridges made a loan to Mr Wilson which was repaid by Bridges deducting an agreed percentage of commissions. Likewise, Mr Wilson received advances on commissions that were repaid by deduction from later commission payments.
Darmark Pty Ltd
147. Darren John Madge was another selected representative. He reached an agreement with another Bridges representative, Mr Barlow, who operated from premises in Nowra and they formed Darmark Pty Ltd.
148. Calculated at 2.5 times annual trail commission, a figure was established for the value of the clients to be introduced by Mr Barlow and Mr Madge agreed to invest that amount in the company. It employed Mr Barlow and Mr Madge as well as a receptionist and a para-planner, Deborah Mitchell.
149. It was a 70/30 office. Mr Madge and Mr Barlow agreed to share all commissions and all expenses equally.
150. Mr Madge was involved in the negotiations between the representatives forum and Bridges with respect to the representatives and agents agreement. He signed the agreement.
151. Ms Mitchell assisted both Mr Madge and Mr Barlow in the preparation and writing of
ATC 4752
financial plans. She also implemented clients' instructions to invest in a retail fund or buy and sell shares, albeit under Mr Madge's supervision.152. Mr Madge confirmed that the office held a compliance manual but he had not read it in its entirety. He did not recall going through a minimum service standards document. He believed that there was a personal assistants procedures manual in the office.
153. At the commencement of the period in question, the funds under management referable to Mr Madge were less than $1 million. At the end of the period the figure had risen to between $12 and $15 million. Less than 25% of gross revenue were trail commissions at the beginning of the relevant period and that percentage had increased to approximately 50% at its end.
154. Mr Madge said that in advertising they very much focused on the individuals with Bridges very much a smaller component of an advertisement.
Nancracken partnership
155. Kenneth Geoffrey Jones was another selected representative. He had been an authorised representative of Pembroke Financial Planners. He and Ms Lyn Hiscox- Price formed the Nancracken Partnership which provided the premises in Albury from which their activities were conducted. Mr Jones' interest in the partnership was represented by Effkay Nominees Pty Ltd as trustee for the Jones family trust.
156. Costs were shared equally but income was shared in proportion to the business written by each. The office was a 70/30 office. Bridges paid commissions and brokerage to the Nancracken Partnership which met all operating expenses. From time to time the partnership employed various persons to assist in running the businesses. Mr Jones was paid a salary by Effkay. Mr Jones brought most of his clients from Pembroke Financial Planners to his Bridges approved authority. They generated trail commissions.
157. Mr Jones signed a representatives and agents agreement. He said nothing changed after the agreement was executed.
158. Neil Mackay commenced operations from the premises as a Bridges' representative. Of the 70% of commissions generated by Mr Mackay that Bridges paid to the Nancracken partnership, it retained 5/7th to cover expenses.
159. At the commencement of the relevant period, funds under management attributable to Mr Jones stood at about $7 to $8 million. By the end of the period they had grown to $20 to $21 million. Trail commissions constituted about 30% of gross income for Mr Jones at the beginning of that period and the percentage had risen to between 60% and 70% by its end.
Rylego Pty Ltd
160. Albert Noordhuis was another selected representative. He had worked as a salaried financial planner with St George Bank Ltd and he brought clients with him to Bridges. He entered into an agreement with Bridges that set out a sliding scale of commissions and the expenses he was expected to meet himself. He also provided, under a separate arrangement, training of representatives and presentation of seminars for Bridges and he was one of the three checkers of financial plans. His financial plans were checked by Derek Boult. The third checker was Wendy Smith.
161. Mr Noordhuis was employed by his company Ashlite Pty Ltd. It held a 50% interest in Debal Pty Ltd which provided premises for the planners in Parramatta. The other shares were held by a company associated with Deborah Kent who conducted a financial planning business from the same premises.
162. Debal was a scale office. It received between 40% and 50% of the commissions generated by the activities of Mr Noordhuis and Ms Kent. On the first of each month, Bridges paid to Debal what was termed a commission override. It was the estimated amount of the expenses for which Bridges was responsible. At the end of the month, the contribution was reconciled against expenses actually paid and the commission override next month would be increased or deceased accordingly.
163. When Debal had discharged the expenses of the office, payments were made to Ashlite and to Ms Kent's company referable to the commissions generated by their activities.
164. Ms Kent moved to another office in Parramatta. All commissions and brokerage referable to Mr Noordhuis were then paid to Ashlite.
165. Mr Noordhuis moved to other premises in Parramatta with other Bridges' financial planners, John Gow and Mr Boult. The office
ATC 4753
was Rylego Pty Ltd, a company associated with Mr Boult.166. Ashlite also employed other persons as administrative assistants and Mr Geoff McAllary in a marketing role. Sandra Noordhuis, who held a proper authority, was employed as a para-planner to assist in preparing financial plans and providing technical support with on-going reviews. Commissions and brokerage attributable to her clients were also received by Rylego and passed on to Ashlite. She was paid a fixed salary by Ashlite.
167. Ashlite also provided administrative support to Mr Gow and invoiced him for those services.
168. Mr Noordhuis signed a representatives and agents agreement. He considered that it did not alter the nature of the arrangement he had with Bridges.
169. Ashlite purchased the business of another financial planner, Kathy Oakes, at a price based on 2.2 times annual trail commissions.
170. Mr Noordhuis was aware of the personal assistants procedures manual with which he made himself familiar in order to supervise the activities of his personal assistants.
171. In July 1999, Mr Noordhuis said that funds under his management stood $9.3 million and the percentage of trail commissions to gross revenue was 57.2%. By the end of the relevant period, funds under management had grown to $62 million and trail commissions to 72%.
172. In the early days Mr Noordhuis elected to receive what were also termed commission overrides. They were advances against commissions to be paid. They were deducted from later commission payments. Mr Noordhuis ceased this practice when his cash flow increased.
173. Randolph Nott was the final selected representative. He joined the Rylego office with messrs Boult, Gow and Noordhuis. Initially he was employed by Rylego at an annual salary as an advance until he started earning an income through commissions. In his first six months as a financial planner he primarily provided administration and computer services to Rylego. As he commenced to service his own clients, Bridges included commissions and brokerage generated by him in its payment to Rylego. These amounts were credited to a running account by Rylego, reconciled annually. If the total of Mr Nott's running account exceeded his salary, he was paid the balance by way of bonus.
174. Mr Nott signed a representatives and agents agreement.
175. When Mr Nott commenced his financial planning activities he was assisted by Mr Boult and Ms Smith.
176. Mr Nott worked in accordance with Bridges' policies and procedures. He was not cross examined about the personal assistants procedures manual.
Common law employment
177. The definition of wages in the Pay-roll Tax Act 1971, s 3AA(1) applies to amounts paid or payable to an employee as such. Those words simply mean as an employee or in the character of an employee (
Murdoch (Trustee of the will of the late George Adams) v Commr of Pay-roll Tax (Vic) 80 ATC 4424 at 4426; (1980) 143 CLR 629 at 635).
178. In
Colonial Mutual Life Assurance Society Ltd v Producers and Citizens Co- Operative Assurance Co of Australia Ltd (1931) 46 CLR 41 at 48 Dixon J highlighted identification and representation in distinguishing between an employee and an independent contractor, thus:
``The work, although done at his request and for his benefit, is considered as the independent function of the person who undertakes it, and not as something which the person obtaining the benefit does by his representative standing in his place and, therefore, identified with him for the purpose of liability arising in the course of its performance. The independent contractor carries out his work, not as a representative but as a principal.''
179. In
Hollis v Vabu Pty Ltd (t/a Crisis Couriers) 2001 ATC 4508 at 4518 [40]; (2001) 207 CLR 21 at [40] the High Court said that this passage merited close attention because it indicated that the circumstance that the business enterprise of a person said to be an employer is benefited by the activities of the person said to be an employee, cannot be a sufficient indication that the person is an employee. The Court pointed out that Dixon J fixed upon the absence of representation and of identification with the alleged employer as indicative of a
ATC 4754
relationship of principal and independent contractor.180. An important factor in determining the nature of the relationship is the degree of control that a putative employer can exercise over a putative employee. It is not the degree of control that is important but, rather, the capacity to do so. In
Humberstone v Northern Timber Mills (1949) 79 CLR 389 at 404, Dixon J said:
``The question is not whether in practice the work was in fact done subject to a direction and control exercised by an actual supervision or whether an actual supervision was possible but whether ultimate authority over the man in the performance of his work resided in the employer so that he was subject to the latter's order and directions.''
181. That passage was cited by Mason J in
Stevens v Brodribb Sawmilling Co Pty Ltd (1986) Aust Torts Reports ¶80-000 at 67,446; (1985-1986) 160 CLR 16 at 24. But his Honour went on to say that the existence of control, while significant, was not the sole criterion to determine the relationship. It was but one of a number of indicia, others being the mode of remuneration, the provision and maintenance of equipment, the obligation to work, provision for holidays, deduction of income tax and the delegation of work by the putative employee.
182. Wilson and Dawson JJ at Torts 67,452-67,453; CLR 36-37 considered that the right to control was still appropriate in many, if not most, cases. Their Honours went on to indicate that other indicia of employment include the right to have a particular person do the work, the right to suspend or dismiss the person engaged, the right to the exclusive services of the person engaged and the right to dictate the place of work, hours of work and the like. Their honours also indicated that indicia suggesting an independent contractor include work involving a profession, trade or distinct calling on the part of the person engaged, the provision of one's own place of work or of one's own equipment, the creation of goodwill or saleable assets in the course of the work, the payment from remuneration of business expenses of any significant proportion and the payment of remuneration without deduction of income tax.
183. The control test is of limited utility where the putative employee carries out highly skilled tasks (
FC of T v Barrett & Ors 73 ATC 4147 at 4149-4150; (1973) 129 CLR 395 at 401-402).
184. It is necessary to assess all the facts and have regard to the whole picture, but not as a mechanical exercise of listing and running through items held to be relevant in other cases (
Boylan Nominees Pty Ltd v Sweeney (2005) Aust Torts Reports ¶81-780 at 67,218 [52]; [2005] NSWCA 8 at [52]).
Analysis of relationship
185. The Chief Commissioner laid emphasis on the level of control that Bridges was entitled to exercise over the representatives. They were required to comply with the compliance manual and such other policies, procedures or guidelines as Bridges issued from time to time. The detailed content of the compliance manual, the minimum service standards and the personal assistants procedures manual represented a high level of control of the way in which the representatives conducted their activities.
186. In
Narich Pty Ltd v Commr of Pay-roll Tax 84 ATC 4035; [1983] 2 NSWLR 597 a franchisee of Weight Watchers International engaged a lecturer who was, rigidly, required to apply a handbook when giving her lectures. The handbook contained lengthy, detailed and specific instructions as to how each of the 28 subjects covered by it was to be taught or handled by the lecturer. The Privy Council concluded that the lecturer was an employee notwithstanding a provision of the contract that asserted that she was not an employee but an independent contractor.
187. There is force in the Chief Commissioner's submission. But there are countervailing issues. Much of the control was directed to matters the subject of regulatory restriction under the Corporations Law, ASX requirements and ASC and ASIC pro- nouncements.
188. Key restrictions of this regulatory regimen applied to the representatives as securities representatives. That term was defined in the Corporations Law, s 94(1) to mean a person employed by, or who acted for, or by arrangement with, another person, in this case Bridges. Of a similar definition, Rogers J said a more loose legal relationship was hard to imagine (
Siu v Brick Securities Ltd & Ors (1987) 5 ACLC 714 at 715). Since the obligations applied to relationships other than that of master and servant, a level of control,
ATC 4755
even if high, was just as much required in a principal - independent contractor relationship as it was in an employer - employee relationship.189. Bridges was bound to exercise a degree of control commensurate with the regulatory requirements cast upon it. Those requirements required a high degree of control. Such a level of control, in these circumstances, is not inconsistent with a relationship of principal and independent contractor.
190. The representatives and agents agreement did not deal with matters that one would have expected to be covered in a contract of employment. The representatives were not required to provide services to clients. They could select clients they wished to serve. The representatives were not required to attend the office premises during specified hours. They could determine what hours they chose to work and they could determine whether and when they took holidays or other leave. They were paid no sick leave, holiday leave, or long service leave. Nor did Bridges have any obligation to provide work or refer clients to the representatives. It is a usual feature of a contract of employment that there be a mutuality of obligation to provide work and to perform it (Boylan Nominees at Torts 67,218 [ 56]; NSWCA [56]). That feature is absent in this case.
191. The representatives were free to choose how much time they would devote to their financial planning activities and how much time they would devote to other business operations such as income tax advice or general business advice.
192. A representative was free to delegate the work, subject to the requirement that if financial advice was to be provided by the delegate, the delegate had to hold a proper authority from Bridges. The evidence established that the selected representatives, with the exception of Mr Wilson, delegated portions of their work to personal assistants and other administrative staff and some of the selected representatives delegated work to proper authority holders.
193. Since the contract of employment calls for personal service, a power to delegate the performance of the work tells against an employment relationship (
Australian Mutual Provident Society v Allan (1978) 52 ALJR 407 at 410,
Australian Air Express Pty Ltd v Langford [2005] NSWCA 96 at [64]).
194. While the format for a representative's presentation to a client was constrained, there was still a wide area of judgment left to the representative. While a financial plan was required to address specified matters, the way in which the matters were addressed was left to the financial planner. It was the financial planner who recommended the structure of the investment plan and it was the planner who chose the product from the broad choices in the recommended products list.
195. It was up to the individual representative whether a client would be charged a fee for services, such as portfolio watch, and the level of that fee.
196. In Narich, a rigid adherence to constraints was imposed. Bridges did not require the same level of adherence. Mrs Baldry emphasised that she complied with the requirements in the compliance manual that reflected legal obligations. She developed her own best practice procedures in other respects. The selected representatives were generally aware of the personal assistants procedures manual but none, with the possible exception of Mr Noordhuis, evinced any close familiarity with it.
197. While an initial financial plan for a client was required to be checked by Messrs Boult and Noordhuis or Ms Smith, any variation in the plan or transposition of investments was not required to be checked unless it contained a new strategy.
198. Advertising material was checked by Bridges. But that was because of ASC practice note 117. Bridges needed to ensure that a representative was not portrayed as a licensed dealer.
199. Audits were directed at compliance matters and not at general office procedures. There was some variation in the way in which representatives collected data. For compliance reasons again, it was necessary for the representatives to ensure that data was entered into the computer system using the AREV software.
200. Much of the cross examination was directed to establishing that the representatives operated under the banner of Bridges. The telephone listings were of the offices as branches of Bridges. The ability to transfer a call to an office enhanced this relationship. The use of Bridges' letterheads and its name on
ATC 4756
business cards were designed to give the appearance to clients that the representatives operated with the stamp of approval of Bridges and as Bridges' representatives. But the representatives brought their talents to their activities such that most of the selected representatives were able to bring clients developed under earlier proper authorities with them when they became proper authority holders from Bridges. It does not follow, in my view, that the appearance created in the minds of clients was consistent only with Bridges conducting its business through the financial planners as its employed representatives.201. The skill and training of which each of the selected representatives gave evidence was not challenged by Chief Commissioner. Some also brought skill and training in accountancy or tax advice to the relationship with Bridges.
202. While the representatives did not bring expensive physical assets to their activities, a most significant aspect of this matter was the level of capital, valued as a factor of trail commissions, that were brought into the relationship with Bridges and in which Bridges benefited to the extent of 30% in a 70/30 office and to the extent of 50% less expenses in a scale office. Thus, Mr McLaren brought his Tasmanian clients to the new relationship. Mrs Baldry brought Community First clients. Mr Frank had built up clients in Sydney well before the commencement of the relevant period. And so had Mr Lao, Mr Noordhuis and Mr Jones. Mr Lesniak brought 60% of his Bleakleys' clients with him.
203. The evidence was that the representatives could sell their entitlement to trial commissions and the build up in the capital value of those rights was reflected in the significant increases in funds under management during the relevant period. Mr Madge contributed an agreed amount to Darmark to match the value of trail commissions introduced by Mr Barlow.
204. Another aspect that tells against an employment relationship, was the freedom of the representatives to choose the business structure in which the financial planning activities were to be conducted. They varied from the individual capacity in which Mr Lesniak conducted his activities to the family companies and the corporate trustees of family trusts that employed other selected representatives. And there was variation in the manner in which offices were structured. There was the Nancracken partnership between Mr Jones and Ms Hiscox-Price. Sykim, Darmark, Compim and Rylego were companies while Oxford and Propeq were trustees of unit trusts.
205. Another significant factor that tells against an employment relationship was the significant ratio of business expenses to which the representatives were subject. This was demonstrated by retentions by the offices of portions of the commissions, brokerage and fees generated by the representatives and by additional expenditure by the representatives themselves or by their family companies or trusts.
206. The representatives were free to employ the services of others or to cause a family company or trust to employ others. There was no challenge to the proposition that all income tax and, where appropriate, all workers' compensation payments were the responsibility of the representative or the representative's company or trust.
207. In Allan at 409, the Privy Council endorsed a statement by Lord Denning in an unreported case:
``The law, as I sees it, is this: if the true relationship of the parties is that of master and servant under a contract of service, the parties cannot alter the truth of that relationship by putting a different label upon it... On the other hand, if their relationship is ambiguous and is capable of being one or the other [that is, either service or agency], then the parties can remove that ambiguity, by the very agreement itself which they make with one another. The agreement itself then becomes the best material from which to gather the true legal relationship between them.''
208. The representatives and agents agreement stated the relationship to be that of principal and independent contractor.
209. In Barrett, Stephen J concluded that commission salesmen retained by a firm of land agents were employees. There were some similarities of fact to the instant circumstances. The salesmen were not required to work set hours; they could take extended leave without permission; they were required to adhere to the code of ethics and rules of the Real Estate Institute and the Multiple Listing Bureau with respect to each sale; they were required to
ATC 4757
complete sales documents and a questionnaire providing the land agents with detailed knowledge of the circumstances of the sale. But there were points of distinction. By legislation, they could not act as salesmen for any other agents nor act in any way in connection with land dealings on their own account. They were expected to report on their whereabouts each working day and they were expected to attend at the office of the land agents for about one day a week in accordance with a roster.210. The statutory limitation on their activities means that, unlike the representatives in this case, they could not generate goodwill nor sell a business.
211. In
D & D Tolhurst Pty Ltd v Commr of State Revenue (Vic) 97 ATC 2179, the Victorian Administrative Appeals Tribunal was constituted by Mr Nettle, as he then was. The case had many similarities to the instant circumstances. The taxpayer was a stockbroker and licensed dealer. It engaged investment advisers who perceived that they had their own clients and conducted an investment business with them. They held proper authorities from the stockbroker. Business was written in the name of the stockbroker and it retained up to 60% of brokerage and fees earned by the advisers. The advisers were free to work as they saw fit. Neither holiday pay, nor superannuation was provided. The advisers were required to operate in accordance with a compliance manual directed towards the restrictions in the Corporations Law and ASX rules. While they could work from any location they chose, they had access to a desk, telephone, computer screen and the broker's administrative facilities and research. By law, all transactions were required to be conducted in the broker's name. The stockbroker employed a compliance officer whose duties were to ensure that each adviser was fully aware of the regulatory requirements.
212. Mr Nettle concluded, at 2187, that while the investment advisers perceived themselves to be conducting their own businesses, the fact, like the position at law, was that the business that each investment adviser transacted with his or her clients was the business of Tolhurst:
``... If a client enters into a contract, the client enters into a contract with Tolhurst. If the adviser enters into a contract, the adviser so enters as the agent of Tolhurst. The adviser is the conduit through which the investment advisory services of Tolhurst are delivered by Tolhusrt to prospective buyers and sellers of securities. The adviser is Tolhurst's factotum.''
213. Mr Nettle concluded that the advisers were employees.
214. In my view, Tolhurst is distinguishable from the instant case. First, each of the advisers in Tolhurst had been an employee of the stockbroker for at least four years prior to the date in question. They did not have trail commissions in their own right that could be transferred to a new proper authority and, in consequence, they had no goodwill with respect to clients that could be sold. Secondly, there was no power of delegation in the advisers in Tolhurst. Thirdly, the advisers were relieved of the need to provide working capital costs by the provision to them of access to an office, staff, electronic equipment and furniture and fittings. Fourthly, the advisers in Tolhurst were required to attend a morning meeting at 8.45 am, regularly attended by the compliance officer. Fifthly, by arrangement with the advisers, PAYE deductions were made from their share of brokerage and fees in many cases. Sixthly, the investment advisers in Tolhurst had no business beyond their activities with Tolhurst.
215. In my view, in this case the representatives and agents agreement stated the relationship, correctly, as that of principal and independent agent. In the 70/30 offices, the representatives bore the entirety of the expenses of their activities. In the scale offices, Bridges bore some of the expenses but at the expense of a lower share of the commissions, brokerage and fees generated by the representatives. They benefited from the success of their activities and bore the risk of failure. It was they who determined the extent to which their operations required the services of others. They determined whether they should act entirely as financial planners or provide other services as well. It was they who generated a saleable asset to the value of which they alone were entitled. Trail commissions formed a significant part of the earnings of the representatives. Those trail commissions, established while the representatives were proper authority holders from other dealers, could not, properly, be characterised as wages paid by Bridges to an employee as such.
216. The fact that representatives were able to sell a business and make capital payments to acquire existing businesses is, to my mind, a
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highly significant factor telling against a common law employment relationship.217. Rather than this being a case of Bridges operating its business through the representatives, it franchised them to conduct their businesses under constraints necessitated by regulatory requirements and provided such services as research, a portfolio service and initial and on-going training.
Deemed employment
218. The Pay-roll Tax Act 1971, s 3A had its origins in the Pay-roll Tax Act 1971 (Vic) which was introduced by the Pay-roll Tax (Amendment) Act 1982 (Vic). In introducing the bill to the Victorian Legislative Assembly, the Treasurer, in his second reading speech, stated the object of the legislation to be to catch relationships where a subcontractor worked exclusively, or primarily, for the one person and the object of the contract was to obtain his labour. At Hansard, Legislative Assembly, 27 October 1983 at 1581 the Treasurer said:
``In essence, the legislation is intended to catch those relationships where the sub- contractor works exclusively or primarily for the one person and where the object of the contract between the parties is to obtain the labour of the sub-contractor.''
219. Section 3A of the Pay-roll Tax Act 1971 was introduced by the Pay-roll Tax (Amendment) Act 1985. In his second reading speech, the Minister for Employment and the Minister for Finance said that bona fide independent contractors would not be caught by the legislation (Hansard, Legislative Assembly, 13 November 1985 at 9558).
220. It was submitted on behalf of the plaintiff that s 3A(1)(b) of the Pay-roll Tax Act 1971 should be confined to circumstances in which nothing other than the supply of services to the designated person was involved. It was submitted that in this way the purpose of the legislation, as recorded in the second reading speeches, would be achieved. It was submitted that on this basis the provision did not apply to the representatives because the arrangements between Bridges and them achieved more than the mere provision of the services of the representatives and amounted, in effect, to a joint venture between Bridges and the representatives under which each conducted a business co-operatively or, alternatively, a joint venture under which the representatives introduced capital assets represented by their interests in trail commissions from previous clients.
221. I reject that submission. The structure of the Pay-roll Tax Act 1971, s 3A is to define, in broad terms, a relevant contract. If an arrangement answers that description, the second step is to determine whether any of the exceptions apply. It is because of the exceptions, that the legislation does not catch bona fide independent contractors. It is because of the non-application of an exception that the object of taxing the putative subcontractor who works exclusively, or primarily, for one person under a contract whose object is to obtain the labour of that person, is achieved. If s 3A(1)(b) were confined in the manner submitted on behalf of Bridges, there would be little scope for the operation of the exceptions.
222. It was also submitted that the provision did not apply because the contract with the representatives did not oblige them to provide any financial advice on behalf of Bridges to any clients. They could do so if they chose. I reject that submission. Once a representative chose to supply Bridges with services, those services were provided under the contractual arrangements between the representative and Bridges.
223. Having concluded that the advisers in Tolhurst were employees, there was no need for Mr Nettle to consider the Pay-roll Tax Act 1971 (Vic), s 3C because of the exclusion of a contract of service. Nonetheless, Mr Nettle concluded that the advisers supplied Tolhurst with services under a contract. At ATC 2194 [ 41] he said:
``... There can be no doubt that there was an agreement or arrangement or understanding between Tolhurst and each of the advisers that the advisers would render services to clients as the agent of Tolhurst, at the client's request. In my view it follows, as a matter of plain language, that the advisers supplied services to Tolhurst by servicing the needs of the clients. By so doing they supplied services to Tolhurst for the purpose of its business, notwithstanding that they also at the same time supplied services to the clients.''
224. Notwithstanding the differences between the advisers in Tolhurst and the representatives in this case, I am of the view
ATC 4759
that the broad language of the Pay-roll Tax Act 1971, s 3A(1)(b) is satisfied in this case.225. The reference to services for or in relation to the performance of work in the Pay- roll Tax Act 1971, s 3A(1)(b) is no more than a requirement that the services be work-related (
Accident Compensation Commission v Odco Pty Ltd (1990) 64 ALJR 606 at 612).
226. When a representative chose to recommend a financial plan to a client and, upon the client's instructions, lodged documentation to buy or sell securities in the name of Bridges as the authorised dealer, the representative supplied Bridges with services and that was done in terms of the representatives and agents agreement or in terms of the arrangements that the agreement recorded. And the services were work-related and Bridges was supplied with them in the course of carrying on its business.
227. It was submitted that the services were provided by the office rather than the representative. I reject that submission. In each of the agreements for sale of a business that were in evidence, the relevant parties were the individual representatives and neither the office to which they were related nor any family company or trust. The business that was brought by a representative to a new proper authority with Bridges, was brought by the individual representative and not any corporate structure that might have been established, nor the office to which the representative then became attached. The activities that gave rise to the provision of services were the activities of the individual representatives.
228. It was further submitted on behalf of Bridges that the Pay-roll Tax Act 1971, s 3A(1)(f) was attracted in favour of each of the selected representatives with the exception of Mr Wilson, because each delegated to personal assistants and administrative staff and, in some cases, to persons holding a proper authority, part of the tasks of providing a financial planning service.
229. It was submitted on behalf of the Chief Commissioner that the relevant service was the recommendation that led to the purchase of a security, because that activity gave rise to the brokerage or commission. Since the only person who could make the recommendation was the representative, the Chief Commissioner argued that the work was carried out by the representative alone and the Pay-roll Tax Act 1971, s 3A(1)(f) was not attracted.
230. In Odco, the High Court took the view that there was no necessary separation between the supply of services and the performance of work. But that was in the context of a tradesman, in agreeing to perform work for a client of a labour agency, doing so as much for the benefit of the agency and its business under his contract with the agency, as for the benefit of the client and its business, where the tradesman had no contract with the client. It does not follow, however, that there cannot be a separation between the supply of services and the performance of work. After all, s 3A(1)(f) of the Pay-roll Tax Act 1971 speaks of the performance of work to which the services relate.
231. The submission of the Chief Commissioner fastens upon the service to the exclusion of the performance of work to which it relates. And, furthermore, it is too narrow an approach to the exception. If correct, it would mean that bona fide independent contractors, performing a service for which they alone were licensed, would not be excluded from the operation of the provision.
232. In my view, the work to which the services provided by the selected representatives other than Mr Wilson related, was performed by the selected representative and one or more persons who provided services for the selected representative in the course of a business carried on by the selected representative in terms of s 3A(1)(f)(iii) of the Pay-roll Tax Act 1971.
233. In the case of Mr Jones, who was in partnership with Ms Hiscox-Price, the work related to his services, was performed by one or more of the members of the Nancracken partnership and one or more persons who provided services for Mr Jones in the course of his business in terms of s 3A(1)(f)(ii) of the Pay-roll Tax Act 1971.
234. Where work was carried on for a selected representative by more than one person, such as a personal assistant and administrative staff, I am of the view that that work was performed by two or more persons who provided services for the selected representative in the course of a business carried on by that representative in terms of s 3A(1)(f)(i) of the Pay-roll Tax Act 1971.
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235. Mr Wilson did not fall within the Pay- roll Tax Act 1971, s 3A(1)(f) because the only other person who performed any work for him was the receptionist who took his telephone calls and the performance of that work was de minimis with respect to the services Mr Wilson supplied to Bridges.
236. Bridges raised an alternative submission that the deemed wages under the Pay-roll Tax Act 1971, s 3A(2)(c) were limited to so much of the commission, brokerage and other fees payable to the representatives as represented their labour content. Except in relation to Mr Wilson, it is unnecessary for me to determine this issue.
237. The Pay-roll Tax Act 1971, s 3A(2)(c) speaks in terms of amounts payable for or in relation to the performance of work relating to a relevant contract. As a matter of plain language, the provision is limited to the labour content of the commissions and brokerage received on behalf of a representative. I did not understand the Chief Commissioner to submit to the contrary.
238. The labour content of the amounts payable to Mr Wilson in the relevant period were calculated by Bridges at $37,180.00.
239. In
Affinity Health Ltd v Chief Commissioner of State Revenue [2005] NSWSC 663, I concluded that, in an appropriate case, the court may make an assessment in the place of the assessment to which an application to the court for review relates, under the Taxation Administration Act 1996, s 101(1)(b).
Conclusion
240. I will revoke the assessments made by the Chief Commissioner in so far as they treat payments made by Bridges to the selected representatives other than Mr Wilson as wages. I will hear the parties on whether I should make an assessment in place of that made by the Chief Commissioner with respect to payments made by Bridges to Mr Wilson confined to the labour content of those payments. I will hear the parties on the appropriate terms of orders and I will hear the parties on costs. I direct the parties to bring in short minutes of orders reflecting these reasons.
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