WORLD BOOK (AUSTRALIA) PTY LTD v FC of T

Judges: Clarke JA
Meagher JA

Sheller JA

Court:
Supreme Court of New South Wales - Court of Appeal

Judgment date: Judgment handed down 7 July 1992

Sheller JA

I have had the advantage of reading the judgment prepared by Meagher JA. His Honour has set out the facts and the relevant provisions of the Act. I agree with the orders his Honour proposes. I shall state my reasons for doing so.


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This matter came by way of stated case from a magistrate to Roden J pursuant to s 101 of the Justices Act 1902 which enables a party, dissatisfied with the determination by any Justice in the exercise of his summary jurisdiction of any information as being erroneous in point of law, to state a case for the opinion of the Supreme Court. The magistrate had dismissed the information laid by the respondent Commissioner against the appellant, World Book. The stated case proceeded under a number of headings, Determination, Facts, Grounds of Determination, and (Commissioner's) Contention and ended by stating:

``The matter to be determined by the Court is whether my determination was erroneous in point of law.''

In his judgment Roden J, said in conclusion:

``I am accordingly of the view that the magistrate erred in law in not concluding that the relevant contract was a contract wholly or principally for the labour of Mr Maiden, and in not concluding that the payment of $85.25 to him by (World Book) ought to have been made subject to a deduction at the applicable rate prescribed in accordance with s 221C (1A) of the Act.''

He ordered that the decision of the magistrate be quashed and the matter remitted to the magistrate for determination in accordance with law having regard to the terms of his judgment. The error of law is difficult to discern but it seems that Roden J considered that the magistrate was bound in law to find that the relevant contract was a contract wholly or principally for the labour of Mr Maiden and that the appellant was bound to make the appropriate deduction from the payment to Mr Maiden. This may have stemmed, as the appellant, in its submission, suggested, from his Honour's conclusion that the services performed by Mr Maiden under his contract with the appellant amounted to ``labour'' within the meaning of the relevant section and that if the payment was made to the person who had or might be expected to have performed the whole or a principal part of the labour, it fell within the definition of ``salary or wages''.

The question the answer to which determines whether the magistrate erred in law is whether it was open to him not to be satisfied that the sum of $85.25 paid by the appellant to Mr Maiden fell within the definition of ``salary or wages'' in s 221A of the Income Tax Assessment Act as in force in 1986. The section defined ``salary or wages'' to mean salary, wages, commission, bonuses or allowances paid (whether at piece- work rates or otherwise) to an employee as such and, without limiting the generality of the foregoing, included, inter alia, any payments made:

``under a contract that is wholly or principally for the labour of the person to whom the payments are made, where -

  • (i) the person making the payments under the contract is not a natural person; or
  • (ii) the payments under the contract are not wholly or principally of a private or domestic nature.''

The general part of this definition was said by the High Court in
Neale (DFC of T) v Atlas Products (Vic) Proprietary Limited (1955) 10 ATD 460 at 461-462; (1955) 94 CLR 419 at 424-425 to be not appropriate to assimilate the remuneration of an independent contractor to the defined term. Their Honours went on to say:

``The question then arises whether the particular provision that the defined term shall include payments made under a contract which is wholly or substantially for the labour of the person to whom the payments are made sufficiently widens the meaning of the term to embrace, at least in some circumstances, the remuneration of an independent contractor.''

Thus to determine the ambit of the definition it is not enough to make the distinction between ``employee'' and ``independent contractor'', a distinction itself described by Deane J as having become ``an increasingly amorphous one as the single test of the presence or absence of control has been submerged in a circumfluence of competing criteria and indicia'';
Stevens v Brodribb Sawmilling Co Pty Ltd (1985-1986) 160 CLR 16 at 49 . It was conceded by the respondent before Roden J that the relationship between the appellant and Mr Maiden was not that of employer and employee.

As the definition in s 221A stood at the time Neale was decided the relevant extension of the definition did not embrace payments unless made under a contract for the labour of the person to whom the payments were made. Their Honours held that the nature of the payment was not affected by the circumstance that the contractor had himself performed the bulk of


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the work under the contract or that it was the expectation of the parties that he would do so if, in truth, the contract did not create the relationship of master and servant. ``It may be, however, that in cases where an independent contractor is required by the terms of his contract to perform the contractual work himself the addition to the general definition may have some application, but it is unnecessary, in the circumstances of this case, to express any concluded view concerning contracts of such a special class.''

The addition, nearly thirty years after that decision, of the new subs 221A(2) was said in the Explanatory Memorandum of the Minister for Finance to have been introduced with a view to correcting technical deficiencies in para (a) of the ``salaries or wages'' definition exposed by Neale and DFC of T v Bolwell (1967) 1 ATR 862. It means that for the purposes of the definition of ``salaries or wages'' a payment made to a person under a contract that is wholly or principally for the labour of any person shall be taken to be a payment made under a contract that is wholly or principally for the labour of the person to whom the payment is made if -

(i) in the case of a payment that is made in respect of labour that has been performed, in whole or in part, before the time when the payment is made - the whole or principal part of the labour that was performed before the time when the payment is made was performed by the person to whom the payment is made; and

(ii) in the case of a payment that is made in respect of labour the whole of which is to be performed after the time when the payment is made - the person making the payment can reasonably be expected to believe that the person to whom the payment is made will perform the whole or principal part of the labour in respect of which the payment is made.

This amounts to no more than saying that if the payment is not ``to an employee as such'' but to an independent contractor it may fall within the definition even though it is not made under a contract for the labour of the person to whom the payment is made. It may be enough that it is made under a contract that is for the labour of some other person if, in the circumstances described, the labour was performed by the person to whom the payment is made or the person making the payment could reasonably be expected to believe that the person to whom the payment was made would perform the labour in respect of which it was made. Despite this change of definition there must, to satisfy the definition, be a contract wholly or principally for the labour of a person under which the payment is made.

As was observed by Wilson and Dawson JJ in Brodribb Sawmilling at 36-37 amongst the indicia suggesting a contract of service rather than a contract for services is ``the right to have a particular person to do the work''. Their Honours went on to say:

``Those which indicate a contract for services include work involving a profession, trade or distinct calling on the part of a person engaged, the provision by him of his own place of work or of his own equipment, the creation by him of goodwill or saleable assets in the course of his work, the payment by him from his remuneration of business expenses of any significant proportion and the payment to him of remuneration without deduction for income tax. None of these leads to any necessary inference, however, and the actual terms and terminology of the contract will always be of considerable importance.''

It might have been said prior to the 1983 amendment of the definition that the right to have a particular person do the work was the decisive factor in determining whether payments to an independent contractor were salary or wages within the meaning of s 221A. But in Neale the High Court did not regard this as so. Their Honours no more than acknowledged that it may be that in cases where an independent contractor is required by the terms of his contract to perform the contractual work himself the addition to the general definition may have some application. No doubt the 1983 amendment of the definition was intended to widen its application.

But the question remains whether the contract under which the payment was made is one wholly or principally for the labour of a person. This was recognised and addressed as a separate question by Lush J in Bolwell at 872. In Case V158,
88 ATC 1030 the Administrative Appeals Tribunal (Mr PM Roach) said that despite the breadth of words chosen by the Parliament to express its desire to extend the scope of the obligation in payers to deduct tax from payments due to payees ``I am not


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persuaded that the Parliament intended to abolish the distinction between a contract for services and contracts of service''. Earlier he had said:

``Were it not so, an extraordinarily wide range of persons who have contracted with individuals for work to be done by such individuals where the work involves the personal skills and labour of the individual to the exclusion of nearly all else would fall within the definition. The engagement for a specific purpose of a distinguished portrait painter; of a champion jockey; of a gifted surgeon; and of a skilled barrister would be examples.''

One of the problems in understanding the scope of the expression is that it has long been recognised that a contract can be a contract of service even though it involves the exercise by the party obliged to perform it of a particular art or special skill or individual judgment or action which the other party cannot in fact control; see for example
Zuijs v Wirth Brothers Pty Ltd (1955) 93 CLR 561 at 570. In any event the definition reaches beyond the limits of the contract of service, beyond the distinction described by Windeyer J in
Marshall v Whittaker's Building Supply Co (1963) 109 CLR 210 at 217 as ``rooted fundamentally in the difference between a person who serves his employer in his, the employer's, business, and a person who carries on a trade or business of his own''. To the difficulty of determining whether a contract is one of service or for services by reference to cases, which have been described by Mr Rod Powe in his article ``Two Bob Each Way; Employee or Independent Contractor'' (1986) 28 Journal of Industrial Relations 86 at 100 as ``a series of judicial assessments of fortuitous criteria by a yardstick of variable content'', is added another, to distinguish, with penal consequences for one contracting party if the decision made turns out to be wrong, between contracts which are wholly or principally for the labour of a person, and contracts which are not.

In my opinion by retaining the description of contract wholly or principally for the labour of a person the legislature has maintained a distinction between a contract for labour and a contract, to use the expression of the High Court in Neale at ATD 461; CLR 425, ``whereby the contractor has undertaken to produce a given result and [the amount to be paid] becomes payable when, and only when, the contractual conditions have been fulfilled''. Undertaking the production of a given result has been considered to be a mark, if not the mark, of an independent contractor, see for example
Queensland Stations Pty Ltd v FC of T (1945) 8 ATD 30 at 31 and 33; (1945) 70 CLR 539 at 545 and 548. It may be that there are contracts for services which are wholly or principally for the labour of a person and which are not undertaken by the contractor to produce a given result. To the rewards of such contracts the definition may apply. But a contract which is undertaken by the contractor to produce a given result is not, in my opinion, a contract wholly or principally for the labour of a person for reason that the labour is undertaken not for the principal but for the contracting party himself to produce the result he has contracted to produce. In this respect a useful comparable distinction has long been perceived between contracts for the sale of goods and contracts for work and labour; see
Atkinson v Bell (1828) 8 B & C 277 at 284-285; 108 ER 1046 at 1049;
Lee v Griffin (1861) 1 B & S 272 at 276; 121 ER 716 at 717;
Deta Nominees Pty Ltd v Viscount Plastic Products Pty Ltd (1979) VR 167 at 183; Bullen and Leake , 3rd edition, at 40. In Queensland Stations the payment made to the drover who contracted to the owners of cattle to drove them to a destination, finding all men and plant horses and rations necessary and sufficient for the safe droving of the cattle and paying all wages in connection therewith, could be described by Latham CJ at ATD 32; CLR 547 as representing much more than a payment for his work. At ATD 33; CLR 548 Rich J said: ``The facts I have referred to appear to me to show that the drover undertook to produce or bring about a specified result employing his own means to accomplish that result''. At ATD 34-35; CLR 551 Dixon J, as he then was, described the contract as one for the performance of a service for one party by another who is to employ men and plant for the purpose and is to be paid according to the result.

In the present case it could be said that Mr Maiden contracted by use of his own resources and the resources of others and worked to achieve a given result, namely the sale of the appellant's books. He was by the terms of the agreement, amongst other things, authorised to act by himself or through his approved


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employees as a selling agent for the appellant's products, he was entirely free to choose the areas in which and the times at which he solicited purchasers for the product, he was free to employ whatever legal style or method of selling he deemed suitable and the appellant agreed that it should not have any right to direct or control him in any respect whatsoever.

The magistrate found, according to the stated case, that Mr Maiden from time to time:

  • (i) canvassed door-to-door;
  • (ii) canvassed friends and acquaintances;
  • (iii) responded to inquiries made to him;
  • (iv) represented the Defendant's products at school fetes and shopping centres;
  • (v) maintained minor office facilities at his home and, in the course of carrying out his functions pursuant to the agreement, incurred incidental expenses for which he was personally responsible by way of advertising, travelling expenses, telephone expenses, postage expenses, and cost of acquiring a sample encyclopaedia of the kind for which he was seeking to negotiate sales on behalf of the Defendant.

In my opinion, it was open to the magistrate to find that the Independent Agent's agreement made on 16 May 1983 between the appellant and Mr Maiden did not fall within the description in s 221A of ``a contract... wholly or principally for the labour of'' Mr Maiden.

The task which confronted Roden J was to decide whether the magistrate had erred in law. The magistrate would have erred if, not being satisfied that the contract was wholly or principally for the labour of Mr Maiden:

  • (a) he misdirected himself in that he defined otherwise than in accordance with law the ultimate question of fact he had to answer; or
  • (b) the primary facts necessarily brought the payment within the definition in s 221A.

For the purpose of this appeal it is sufficient to say that for the reasons I have given the conclusion which the magistrate arrived at was, in my opinion, open to him on the facts. The primary facts did not necessarily bring the payment within the definition in s 221A nor do I think the magistrate misdirected himself as to the law. Accordingly, in my opinion, he did not err in law. Roden J's conclusion that the services performed by Mr Maiden could be described as ``labour'' or that the existence of a right to delegate was no longer conclusive did not of themselves determine the matter. Nor did his view that on the facts the contract was principally for labour if the opposite view was open to the magistrate.

As I have said I agree that the appeal should be upheld and the orders made as proposed by Meagher JA.

THE COURT ORDERS:

1. Appeal upheld.

2. Decision of Roden J set aside.

3. Appeal by way of stated case to Roden J dismissed with costs.

4. Decision of the magistrate, Mr Wall, confirmed.

5. Respondent to pay the appellant's costs of appeal and to have a certificate under the Suitor's Fund Act in respect of the costs of the appeal.


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