DRAKE PERSONNEL LIMITED & ORS v COMMR OF STATE REVENUE (VIC)Judges:
Supreme Court of Victoria
1. It is convenient to describe these proceedings as follows:
No. 5418 of 1994 the first proceeding No. 4088 of 1997 the second proceeding No. 4613 of 1997 the third proceeding No. 4614 of 1997 the fourth proceeding No. 4019 of 1998 the fifth proceeding
It is also convenient to proceed, except as may be necessary on the final orders, on the assumption that there is one plaintiff only, and to refer to that plaintiff as ``Drake''; and to refer to the defendant, who is sued in his capacity as Commissioner of Pay-roll Tax as ``the Commissioner''. The first and second proceedings are conveniently together referred to as ``the refund cases'' and the third, fourth and fifth proceedings as ``the objection cases''.
2. The relevant business of Drake (it has others) is to provide to its clients the temporary services of people (``temporaries'') who have indicated to Drake that their services are available to be so provided.
3. Speaking very broadly, the principal issue before the Court is whether Drake is required by the Pay-roll Tax Act 1971 (``the Act'') to make payments of pay-roll tax on moneys paid by Drake to temporaries. In the two refund cases, in which additional questions arise, Drake seeks a refund of pay-roll tax paid in respect of moneys paid to temporaries from 1 January 1984 to 30 June 1992 and 1 July 1992 to 30 June 1996 respectively. The objection cases concern objections lodged by Drake against assessments of pay-roll tax in respect of wages paid to temporaries for the years ended 30 June 1992 to 30 June 1996.
The principal issue - legislation
4. The provisions of the Act relevant to the principal issue are sections 3, 3C, 6, 7 and 8, which read as follows so far as relevant:
``3(1) In this Act, except in so far as the context or subject-matter otherwise indicates or requires-
- `employer' means any person who pays or is liable to pay any wages and includes... any person deemed to be an employer by section 3C...;
- `pay-roll tax' means pay-roll tax charge- able under section 7;
- `taxable wages' means wages that, under section 6, are liable to pay-roll tax;
- `wages' means any wages, remuneration, salary, commission, bonuses or allow- ances paid or payable (whether at piece work rates or otherwise and whether paid or payable in cash or in kind) to or in relation to an employee as such or to or in relation to any person deemed by section 3C to be an employee and, without limiting the generality of the foregoing, includes-
- (ba) any amount deemed to be wages by section 3C;
3(2C) A reference in this Act to wages paid or payable by the employer includes wages which are deemed to be paid or payable by the employer.
3C(1) For the purposes of this section, a reference to a relevant contract in relation to a financial year is a reference to a contract under which a person during that financial year, in the course of a business carried on by him-
- (a) supplies to another person services for or in relation to the performance of work;
- (b) has supplied to him the services of persons for or in relation to the performance of work;
- but does not include a reference to a contract of service or a contract under which a person during a financial year in the course of a business carried on by him-
- (e) has supplied to him services for or in relation to the performance of work where-
- (iii) those services are provided for a period that does not exceed 90 days or for periods that, in the aggregate, do not exceed 90 days in that financial year...; [or]
- (v) those services are supplied under a contract to which sub-paragraphs (i) to (iv) do not apply and the Commissioner is satisfied that those services are rendered by a person who ordinarily renders services of that kind to the public generally;
3C(2) For the purposes of this Act-
- (a) a person-
- (i) who during a financial year under a relevant contract supplies services to another person; [or]
- (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;
- shall be deemed to be an employer in respect of that financial year; and
- (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;
- shall be deemed to be an employee in respect of that financial year; and
- (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;
3C(3) Where a contract is a relevant contract pursuant to both sub-sections (1)(a) and (1)(b)-
- (a) the person to whom, under the contract, the services of persons are supplied for or in relation to the performance of work shall be deemed to be an employer; and
- (b) notwithstanding sub-section (2)(a)(i) the person who under the contract supplies the services shall not be deemed to be an employer.
6(1) ... the wages liable to pay-roll tax under this Act are wages that are paid or payable by an employer for services performed or rendered during a month or part of a month and-
- (a) are wages that are paid or payable in Victoria...
7(1) Subject to, and in accordance with, the provisions of this Act, there shall be charged, levied and collected for the use of Her Majesty on all taxable wages pay-roll tax...
8 Pay-roll tax shall be paid by the employer by whom the taxable wages are paid or payable.''
5. Thus, the question before the Court is whether the moneys paid by Drake to the temporaries are ``wages'', so as to be liable to pay-roll tax under section 6, and thus to be ``taxable wages'', subject to tax which is to be paid by Drake in accordance with section 8. That question turns, by virtue of the definition of ``wages'' in section 3(1), on whether a
ATC 4918temporary is ``an employee as such'', that is, an employee according to common law, or is ``deemed by section 3C to be an employee''.
Whether the temporaries are employees as such - the authorities
6. The matters to be taken into account in determining whether a relationship of employer and employee exists were considered by the High Court in
Stevens v Brodribb Sawmilling Co Pty Ltd (1986) Aust Torts Reports ¶80-000; (1985-1986) 160 CLR 16. The question in that case was whether men working as sniggers and truckers delivering felled trees to a sawmill were employees of the sawmilling company so as to render it vicariously liable for their negligence. Mason J, with whom Brennan J agreed, said at Aust Torts Reports 67,445-67,446; CLR 24:
``... A prominent factor in determining the nature of the relationship between a person who engages another to perform work and the person so engaged is the degree of control which the former can exercise over the latter. It has been held, however, that the importance of control lies not so much in its actual exercise, although clearly that is relevant, as in the right of the employer to exercise it...
But the existence of control, whilst significant, is not the sole criterion by which to gauge whether a relationship is one of employment. The approach of this Court has been to regard it merely as one of a number of indicia which must be considered in the determination of that question.... Other relevant matters include, but are not limited to, the mode of remuneration, the provision and maintenance of equipment, the obligation to work, the hours of work and provision for holidays, the deduction of income tax and the delegation of work by the putative employee.''
7. At Aust Torts Reports 67,447; CLR 26ff his Honour considered the ``organisation test'', namely the relevance of considering whether ``A is part of B's business organisation''. His view was, that it was legitimate to have regard to that fact in drawing an inference as to B's control of A, rather than as a separate test. He said at Aust Torts Reports 67,448; CLR 27: ``Of the two concepts, legal authority to control is the more relevant and the more cogent in determining the nature of the relationship.''
8. Wilson and Dawson JJ, after referring to the control test, said at Aust Torts Reports 67,453; CLR 36-37:
``The other indicia of the nature of the relationship have been variously stated and have been added to from time to time. Those suggesting a contract of service rather than a contract for services 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. Those which indicate a contract for services include work involving a profession, trade or distinct calling on the part of the 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.
Having said that, we should point out that any attempt to list the relevant matters, however incompletely, may mislead because they can be no more than a guide to the existence of the relationship of master and servant.''
9. The question in
Roy Morgan Research Centre Pty Ltd v Commr of State Revenue (Vic) 97 ATC 5070 was whether persons engaged to obtain answers to questionnaires were employees or independent contractors. Winneke P, with whom JD Phillips and Kenny JJA agreed, after referring to Stevens v Brodribb and other authorities said at 5074:
``... The exercise is not, as Tadgell, JA observed in
Green v Victorian Workcover Authority  1 VR 364 at 375 `a mechanical one'. Rather it is a matter of obtaining the overall picture from the accumulation of detail. Tadgell JA described the exercise by citing, with approval, a passage from the judgment of Mummery J in the case of
Hall (Inspector of Taxes) v
ATC 4919Lorimer  1 WLR 939 at 944 where his Lordship said of a determination whether a person was a servant or independent contractor:
`This is not a mechanical exercise of running through items on a check list to see whether they are present in, or absent from, a given situation. The object of the exercise is to paint a picture from the accumulation of detail. The overall effect can only be appreciated by standing back from the detailed picture which has been painted, by viewing it from a distance and by making an informed, considered qualitative appreciation of the whole. It is a matter of the overall effect of the detail, which is not necessarily the same as the sum total of the individual details. Not all details are of equal weight or importance in any given situation. The details may also vary in importance from one situation to another.'
These views appear to me to be correct.... The task was aptly described by Gray, J in
Commr of Pay-roll Tax (Vic) v Mary Kay Cosmetics Pty Ltd 82 ATC 4444 at 4451; [ 1982] VR 871 at 879 in the following terms:
`As with most cases in this area of the law, there is a good deal which can be said on each side of the argument. A court is usually faced with a large collection of relevant facts and circumstances, some pointing this way and some the other. The resolution of the problem usually comes down to a very subjective matter of individual impression. It all depends on where the emphasis is laid.'''
10. It is to be noted that the manner in which the parties have chosen to characterise the relationship is, while relevant, not determinative of the question. Winneke P said in Roy Morgan at 5077:
``... Although it is true that a clear statement in a contract between the parties that the person engaged is to be regarded as an independent contractor is a matter which might, in some circumstances, be regarded as important in defining their relationship, it is also true that if the evidence otherwise shows that the relationship is one of master and servant, the parties cannot alter the truth of that relationship by putting another label on it.''
11. I now turn to consider the evidence before me in the light of the passages I have cited, noting that here the question is not, whether the temporaries were the employees of Drake, independent contractors to Drake, or the employees of anyone else; but simply, whether or not they were the employees of Drake. It is not necessary to define the relationship other than in those terms. The position is analogous to that in
Construction Industry Training Board v Labour Force Ltd  3 All ER 220 where Cooke J, with whom Lord Parker CJ and Fisher J agreed, said at 224:
``... the sole question which the tribunal had to determine in this case was whether the contracts in question were contracts of service. If they were not, then it followed that the board must fail on a crucial point, and it mattered not whether the contracts in question were contracts for services or some third variety of contract which was neither a contract for services nor a contract of service.''
Whether the temporaries are employees as such - the evidence
12. Drake operates its business in four divisions. They are Drake Overload, concerned with office staff, Drake Medox, concerned with nurses and medical secretaries, Drake Executive, concerned with professional people such as accountants, and Drake Industrial, concerned with labourers and tradesmen. Evidence was given on behalf of Drake by one permanent staff member from each division at the level of consultant (see paragraph 14 below) or higher, by four or five temporaries from each division, and by senior executives of Drake. Large numbers of documents were tendered in evidence as indicating the nature of the relationship between Drake and the temporaries. It is clear that, with minor variations, all divisions operate in the same way. And it is not in issue that, while matters of detail have changed over the period with which these proceedings are concerned, essentially the operations have been the same.
13. It was tacitly assumed that the Court would be able to form a proper view of the relationship between Drake and the temporaries from the material before it. Save as to one matter, considered in paragraph 46 below, no issue was taken by Mr Berglund for the
ATC 4920Commissioner as to whether the situations described by the witnesses were typical, and were an appropriate basis upon which to characterise the relationship as a whole. I can only characterise the relationship as a whole if I assume that to be the case. Mr Smith, regional controller of Drake for the Pacific Rim, said that Drake would have over 5,000 temporaries on its books. The consultant staff members of Drake, who also described the relationship, were in a better position to generalise than the individual temporaries.
14. A person seeking to be placed on Drake's books as available to provide services on Drake's terms will apply to the appropriate division and will be interviewed and assessed as to such matters as qualifications and personality, before acceptance and induction. Such a person may well be on the books of other similar agencies, or, having been placed on Drake's books, may later apply to and be accepted by, other such agencies. In any case, the person is completely at liberty, so far as Drake is concerned, to be on the books of, and to accept work from, those other agencies. Drake does not train its temporaries, although they may attend, as may other people, at courses conducted by Drake as another aspect of its overall business. The temporary completes various documents, including a health assessment form, an agreement as to confidentiality and a general agreement as to the terms of the arrangement. The title and detailed terms of this document have varied over the years. The substance of it is incorporated in these findings as to the nature of the relationship.
15. Ms Beazley, the operational supervisor of Drake Overload, said that Drake devotes substantial resources to trying to generate some form of loyalty in the temporaries, by the tone and style of the material handed to them, by monitoring their performance to enable the giving of awards, by organising happy hours and film nights, and by sending out newsletters and birthday cards. They are told that they must be punctual in attendance at the client's workplace, must introduce themselves as coming from Drake, must dress in a manner appropriate to the assignment, must perform the assignment as directed by the client in all respects, and must complete the assignment which has been undertaken. It is emphasised that in the client's workplace they will be perceived as coming from Drake, and that Drake will be judged by their behaviour and performance.
16. Temporaries are told that if they are likely to be late or absent they should ring Drake and not the client; Drake would notify the client. However, a number of the temporaries said that in an assignment where they had been working for some time they would, in such a situation, ring the client, rather than Drake. One temporary said that there had been an occasion when he had rung Drake, who had not notified the client of his potential absence, and since then he had always notified the client rather than Drake.
17. Many temporaries stay with Drake for periods of less than one year. Individual temporaries do not have any cause to visit Drake's premises after the initial interviews, although occasionally might do so to collect a cheque. (There was no evidence as to the attendance at the happy hours and film nights referred to by Ms Beazley in paragraph 15 above.) Their contact with Drake is through the consultant, with whom they deal by telephone. One temporary commented that in his field consultants changed frequently, and he had found it necessary to ring regularly so as to establish contact with new consultants. Temporaries would ring and enquire about available work, and in Drake Medox and Drake Industrial are encouraged to ring each morning and advise of their availability for the day. It appears that the work of Drake Medox is largely the provision of nurses for single shifts, rather than for longer periods. In the other divisions, while assignments of one day or even less do not appear to be unusual, an assignment might last as long as a year or even more. In Drake Overload the average length of an assignment would be three to four weeks.
18. A client in need of the services of a temporary will approach an officer of the appropriate division of Drake, who is referred to as a ``consultant'' and explain what kind of person is required, what services are to be performed, and for what period, and agrees to pay Drake. The consultant will undertake to provide an appropriate person from those people currently on Drake's books as able to provide relevant services. The consultant will then contact temporaries on its books by telephone to offer them the assignment.
19. No person so contacted is obliged to accept the assignment, and there is no embarrassment in refusing. Nor is Drake bound to contact any individual temporary. Drake cannot compel a temporary to accept an assignment, and a temporary cannot compel Drake to provide an assignment. Thus there is no ongoing relevant legal relationship between Drake and the temporaries. Whatever the legal relationship may be, it is established at the time when a temporary is offered and accepts an assignment with a client of Drake, and continues only for the actual period of that assignment (which may be longer or shorter than was anticipated at the outset).
20. When a temporary accepts an assignment, that person will be told by the Drake consultant what kind of work is involved, where to go and when, and the expected duration of the assignment. The temporary may not delegate the assignment. Normally the temporary will not be required to supply any equipment, although some nurses prefer to carry their own stethoscopes and other equipment, and one accountant temporary who gave evidence said that he found it convenient to use his own computer.
21. The consultant will ring the client during the first four hours of the assignment to ascertain whether all is going well or whether there are any problems, and will make a similar call at the end of each week and at the end of the assignment. Responses from clients are recorded on the temporary's file with Drake.
22. During the assignment, the temporary fills in a weekly time sheet of hours actually worked, and this is countersigned by the client and sent by the temporary to Drake. There is no payment in respect of meal breaks, public holidays, or time absent through illness. If the assignment is terminated early by the client, the temporary is not paid for the time which would have been worked had the assignment run to full term. The time sheet must be submitted by Tuesday, and the temporary is paid by Drake on the next Friday. Drake bills the client, but the temporary is paid before the fee is received from the client. The temporary is paid by Drake at the appropriate casual worker's rate, fixed by award, enterprise agreement or otherwise, that being a rate intended to compensate for the absence of holiday pay, sick pay and the like for casual workers.
23. The fee paid by the client to Drake in respect of each week of the assignment is made up of the amount paid to the temporary, and an amount to cover Drake's profit as well as income tax instalment deductions, WorkCover premiums, the superannuation guarantee charge and pay-roll tax in respect of the temporary, all of which are paid by Drake to the relevant authorities. Mr Shaw for the plaintiffs submitted that paragraph (a) of the definition of ``salary or wages'' in section 221A of the Income Tax Assessment Act 1936 (Cth); paragraph (e) of the definition of ``employer'' in the Accident Compensation Act 1985 (Vic); and the expansion of the definition of ``employee'' in section 12(3) of the Superannuation Guarantee (Administration) Act 1992 (Cth); together with other provisions of those several enactments, respectively require the payment by Drake of income tax instalment deductions, WorkCover premiums and the superannuation guarantee charge in respect of the temporaries. Accordingly, he submitted, the fact that Drake makes those payments is of less significance in the present context than it otherwise would be. As to pay- roll tax, see paragraph 62 below.
24. I accept that those payments are made by Drake because of its understanding as to the specific requirements of the legislation referred to, and that accordingly the fact that Drake makes those payments is of less significance for present purposes than it might otherwise be. It is not necessary for me to decide whether Drake is in fact required by those provisions to make those several payments and I do not do so.
25. Some of the professional people who deal with Drake Executive provide their services through contracts made with companies which they control and which in turn supply their services. Drake has not been paying pay-roll tax in respect of the services of such people.
26. If a difficulty arose between the temporary and the client, most temporaries said that they would attempt to resolve it directly with the client. An example was a nurse required to operate a piece of equipment with which she was unfamiliar. If a dispute arose, the client would normally contact Drake, and the Drake consultant would adopt a mediating role. If the client asked for the temporary to be withdrawn and replaced, this would be done. As a supervisor from Drake Overload said, the aim of the consultant in that situation would be for
ATC 4922the client to be ``100% satisfied''. The ultimate sanction is for the temporary to be taken off Drake's books altogether.
27. In various of the documents addressed to temporaries and to clients, the temporaries are described as ``employees'' of Drake. Various explanations were given for the use of this expression. It is, in any case, only one factor to take into account in the overall task of characterisation of the relationship (see the passage from Roy Morgan cited in paragraph 10 above).
28. Mr Berglund pointed out that pay-roll tax is payable primarily on returns made by an employer, and is thus self-assessed. He submitted that the fact that Drake had paid pay- roll tax for a number of years indicated that Drake perceived itself to be liable to pay pay- roll tax and thus must have considered the temporaries to be ``employees as such'' and that this was a relevant factor. My own view is that too much cannot be made of this circumstance. The evidence of Mr Urwin, the managing director, who was sent to Australia from Canada in 1966 to start up the Drake organisation in this country, was:
``I am unable to explain why Drake commenced to pay pay-roll tax in respect of payments it made to temporaries it engaged to provide services for clients of Drake. Pay- roll tax did not exist as a tax in Canada. When Drake commenced operations in Australia in 1966 we were assisted by a firm of accountants, Berg Coleman. I assume we were advised by Berg Coleman to pay pay- roll tax or, alternatively, a member of our staff made a decision to pay pay-roll tax.... Once the payment of pay-roll tax was commenced, it simply became entrenched as a mandatory item of expenditure governed by statute.''
29. While it is apparent from copies of correspondence before the Court that Drake did later question its liability to pay pay-roll tax, the understandable inertia described by Mr Urwin does not necessarily imply any significant perception by Drake as to the nature of the relationship with the temporaries.
30. Ms Beazley and Mr Urwin explained that Drake Overload is registered by Quality Assurance Services Pty Limited under a quality system complying with the requirements of the model for quality assurance in production, installation and servicing of the International Organisation for Standardisation (``ISO''). This model requires Drake to document its policy for quality, the policy being related to its organisational goals and the expectations and needs of its clients. The model states that the policy must be understood, implemented and maintained at all levels of the organisation to ensure the product (which may include a service) conforms to specified requirements. Drake has adopted the ISO standard to ensure that it maintains a high standard of service to its clients. Standards are set out in the ISO manuals, and those standards are expected to be met by relevant, specified members of the permanent staff of Drake. Mr Berglund's submission was that it would not be possible to meet those standards, to which Drake had committed itself, unless Drake had control over the temporaries at all times. However, I accept the submission of Mr Shaw that the thrust of the ISO manuals is that the specified staff are to do the best they can to ensure that the temporaries sent on assignments are competent and capable of giving satisfaction, not that the work of the temporaries will be controlled by Drake whilst they are with the client.
31. The ISO manuals do not impose obligations on the temporaries. It is apparent from the structure of the manuals that they have been prepared on a form drafted for an organisation which produces or supplies something which can be described as a ``product''. For Drake, the ``product'' which it supplies to its clients is the services of the temporaries, who are human beings, and thus may be subject to control. But the form, having been prepared with a view to a product which is inanimate, and not subject to control, does not allow for control of the product; only for the control of those Drake staff members whose duty it is to arrange for the supply of the product. I note that when it was put to Mr Urwin in cross-examination that he would expect the consultants to be able to ensure that the temporaries maintained the standards set out in the manual, he replied, ``Yes we would like to think that they would, but we have very limited control in the final analysis in my opinion''.
32. On 28 September 1994 the Australian Industrial Relations Commission certified an agreement between unions and an employer organisation in the metal trades industry to ``regulate the rates of pay and define the
ATC 4923conditions of employees of Drake Industrial... engaged in maintenance, modification, shutdown work and labour hire in the Metal and Engineering Industry in Victoria''. Drake was not a party to that agreement, and no witness was called who had any knowledge of it. Mr Berglund submitted that the agreement would have nothing to operate on if the temporaries were not employees of Drake, as Drake was not itself engaged in the metal and engineering industry. That may well be so; but it is not for the metal trades industry to characterise the relationship between Drake and the temporaries.
BWIU v Odco Pty Ltd (1991) 29 FCR 104 at 124, a case about the supply by ``Troubleshooters'' of labour to the building industry, Wilcox, Burchett and Ryan JJ said:
``... it could not truly be said that, even after acceptance of an offer from Troubleshooters of work at a particular site on a given day, the worker was subject to Troubleshooters' control or directions.''
And later at 125:
``... In our view there was no reservation of a power in Troubleshooters to require one of its workers to move from one site to another, or to work beyond the initial agreed day, sufficient to permit the imputation of a right to control that worker which would satisfy the test enunciated by Mason J in Stevens v Brodribb.''
Those two passages, in my view, accurately describe the relationship between Drake and the temporaries.
34. It was said by a number of the witnesses that the overriding principle was that the temporary should do what was required by the client. The temporary should do the work which the client requires, in the way in which the client requires it to be done. That overriding principle ensures that the day by day control of the work being carried out rests with the client, and not with Drake. If the client is dissatisfied, it will request Drake to remove the temporary, and if the client so desires, to provide a replacement. That sanction of removal is performed by Drake, but only at the request of the client. Drake would not remove a temporary who was giving satisfaction, although if the temporary was needed in a specific situation elsewhere it might on a rare occasion request the client to make that temporary available elsewhere and accept a replacement. In such a case it would abide by the decision of the client.
35. While the ultimate sanction, as between Drake and the temporary, is the decision by Drake to remove the temporary from its books, that power does not connote any day to day control over the way in which the temporary performs whilst with a client. As Mr Shaw pointed out, that is the same sanction as a householder has if a plumber engaged as an independent contractor to carry out work on the house proves unsatisfactory; the householder will, next time, engage a different plumber. But the householder has had no control over the manner in which the plumber performs the work.
36. Endeavouring, as I must, to consider all of the matters to which I have referred in the light of the observations of Mummery J in Hall v Lorimer and of Gray J in Mary Kay Cosmetics which are cited in paragraph 9 above, they lead me to the conclusion that the temporaries are not employees ``as such'' of Drake.
Whether the temporaries are deemed by section 3C of the Act to be employees
37. It is not in issue that this Court is bound by the decision in
Accident Compensation Commission v Odco Pty Ltd (1990) 64 ALJR 606 to find that the agreement between Drake and the temporaries is a ``relevant contract'' in terms of section 3C of the Act, and thus that the temporaries are deemed by section 3C to be employees. However, payments are exempt from pay-roll tax by virtue of sub-paragraph 3C(1)(e)(iii) where they are made under:
``... a contract under which a person during that financial year, in the course of a business carried on by him [that is, the client, in the course of his business]-
- (e) has supplied to him services for or in relation to the performance of work where-
- (iii) those services are provided for a period that does not exceed 90 days or for periods that, in the aggregate, do not exceed 90 days in that financial year...''
38. It is not in issue that this provision is to be interpreted as exempting from the payment of pay-roll tax, moneys paid to a temporary
ATC 4924who provides services to Drake's clients for a period not exceeding 90 days in the financial year. The ``contract'' referred to is the contract between Drake and the client for the supply of services of one individual temporary.
39. The next question which arises is whether payments to any of the temporaries by whom services are provided for a period or periods exceeding 90 days in a given financial year are exempt by virtue of sub-paragraph 3C(1)(e)(v) of the Act on the basis that:
``... a person during that financial year, in the course of a business carried on by him [ that is, the client, in the course of his business]-
- (e) has supplied to him services for or in relation to the performance of work where-
- (v) those services are supplied under a contract to which sub-paragraphs (i) to (iv) do not apply and the Commissioner [ or here the Court] is satisfied that those services are rendered by a person who ordinarily renders services of that kind to the public generally...''
40. Mr Berglund submitted that the exception contained in paragraph (v) should not be widely interpreted, because there were already a number of exceptions to the legislative requirement that pay-roll tax be paid. The traditional approach to the interpretation of taxing statutes, giving the taxpayer the benefit of any doubt as to the meaning of the provision, is generally regarded as having less force than in the past (see the extensive discussion in paragraphs 9.25ff of DC Pearce and RS Geddes Statutory Interpretation in Australia fourth edition Butterworths Sydney 1996). However, I am not aware of any authority for the proposition advanced by Mr Berglund, and he provided none.
41. Sub-paragraph 3C(1)(e)(v) was considered by Presiding Member Pagone in the Victorian Administrative Appeals Tribunal in
Behmer & Wright Pty Ltd v Commr of State Revenue (Vic) 94 ATC 2067. At 2073-2074 Mr Pagone said:
``Paragraph (v) seems to be concerned to exempt from the net of liability services provided by a contractor [in the terms of the present case, a `temporary'] who is genuinely independent from the person whose liability would be affected by the broadening of the ambit of the Act [in the terms of the present case, Drake]. The test the legislature has chosen to determine that independence is one which requires a factual inquiry into the rendering of services by the contractor to others. That the rendering be `to the public generally' means no more than that the Commissioner (and on review the Tribunal) is able to exercise the power if the contractor renders services to other members of the public apart from the person otherwise liable to tax. The words do not confine the exercise of the power to those cases where there is a large class of the public to whom the services are either provided or offered. The requirement that the services to the public generally be `ordinarily rendered' does no more than require the Commissioner or Tribunal to look at the contractor's business and to be satisfied that the ordinary course of that business is to render services to whoever will contract on like terms. The composite phrase conditioning the exercise of the power in paragraph (v) thus requires the Commissioner or Tribunal to be satisfied that the contractor is engaged in an independent business and that in that business the contractor will, as an ordinary incident, deal with persons other than the one whose liability will otherwise be increased.
In the end I am satisfied on the limited facts available in this case that the proper conclusion is that Stubbs do ordinarily render their services to the public generally. They are not tied to the Applicant but seek its work when invited to tender. The Applicant is not the sole consumer of the Stubbs' services and they have at least one other significant client.
In the event I should set aside the Respondent's decision referred to the Tribunal and remit it back to the Respondent to assess the Applicant by excluding payments made by the Applicant to Stubbs.''
I would, with respect, adopt Mr Pagone's interpretation of sub-paragraph (v).
42. The High Court in Accident Compensation Commission v Odco Pty Ltd (paragraph 37 above) was concerned with a similar provision in section 9 of the Accident Compensation Act 1985 (Vic). What was said in the joint judgment at 613 may be paraphrased by substituting the circumstances of the present proceedings to read:
``By attending [at the premises of the client] and doing work, [the temporary] supplies services to [Drake] for the purposes of its business, notwithstanding he also at the same time supplies the same services to the [ client] for the purposes of its business.''
43. The services with which sub-paragraph (v) is concerned are the services which the temporary supplies to the client. Thus a nurse, for example, supplies nursing services to a client hospital for the purposes of its business, in that she attends to its patients. She also supplies those services to Drake, for the purposes of its business, in that she is prepared to make those services available to its clients. But sub-paragraph (v) is not concerned with the services which she supplies to Drake.
44. There is ample evidence that many of the temporaries are also on the books of other agencies. Miss Williams, the account manager for Drake Medox, said that most of the nurses on Drake's books were registered with other agencies. She herself, as a registered nurse, was on the books of seven agencies, and this was not unusual. The same applied to medical secretaries. Ms Beazley estimated that over ninety per cent of the temporaries registered with Drake Overload would be on the books of other agencies. Several of the temporaries indicated that they were registered with other agencies. Where a person is registered with a number of other agencies for the supply of the same services as that person is registered with Drake to supply, it would, in my view, be difficult to deny that that person ``ordinarily renders services of that kind to the public generally''. There is no evidence before me that Drake or the other agencies do not supply the services of their temporaries to the public generally, and it was not suggested that the expression ``the public generally'' was inappropriate to describe the clients of Drake and the other agencies.
45. Further, there is no evidence from which I could find that any of the temporaries who gave evidence would provide their services only to clients of Drake. The evidence indicates that they are registered with Drake as a means of obtaining work, not because of any particular quality applicable to the kind of work available through Drake, as opposed to any other kind of relevant work. Not only are many of them registered with other agencies, but some, at least, indicated that they also rendered services, of the same kind as they rendered to the clients of Drake, to people to whom they had become known directly, rather than through the intervention of any agency.
46. Thus I find that there will be many temporaries of whom it can be said that that individual ``ordinarily renders services [of the kind which that temporary renders to clients of Drake] to the public generally'' and thus that moneys paid to those temporaries will be exempt from the liability to pay-roll tax. However, I accept Mr Berglund's submission that the evidence before me does not enable me to make any finding as to whether or not any individual temporary, other than those who gave evidence, in fact meets that description.
The refund cases
47. In the refund cases Drake claims refunds of pay-roll tax paid by it in respect of moneys paid to those temporaries who provide services for less than 90 days in any financial year and those who provide services to the public generally. It is submitted for Drake that that tax was paid under a mistake, in the belief that tax was payable in respect of temporaries who came within the exclusions in section 3C(1)(e)(iii) and (v). The findings I have made above establish that the tax was not payable in respect of those temporaries and that it was paid under a mistake (as to which see paragraphs 28 and 29 above).
The first proceeding - limitation periods
48. The first proceeding was commenced by a writ issued on 11 April 1994 and relates to tax paid between 1 January 1984 and 30 June 1992. The relevant applications for a refund were made on 30 June 1992 in respect of the period from 1 January 1984 to 30 June 1991 and 21 July 1992 in respect of the period 1 July 1991 to 30 June 1992. The Commissioner claims that that proceeding was issued out of time and that consequently no refund is payable thereunder. The relevant legislation is complex.
49. Section 20A of the Limitation of Actions Act 1958 (``the Limitation Act'') was
ATC 4926introduced in its present form by the Limitation of Actions (Amendment) Act 1993 and commenced on 15 October 1993. Section 6 of the latter Act provides:
``6 Section 20A of the Principal Act, as substituted by this Act, applies to payments made before, on or after the commencement of this section, other than payments in respect of which proceedings have been brought before that commencement.''
50. Section 20A of the Limitation Act provides, so far as relevant:
``20A(1) ... a proceeding for the recovery of money paid by way of tax or purported tax under a mistake (either of law or of fact) must be commenced-
- (a) within 12 months after the date of payment; or
- (b) in the case of a proceeding in accordance with another Act that provides for the refund or recovery of the money within a longer period, within that longer period.
20A(5) In this section-
- `proceeding' includes-
- (a) seeking the grant of any relief or remedy in the nature of certiorari, prohibition, mandamus or quo warranto, or the grant of a declaration of right or an injunction; or
- (b) seeking any order under the Administrative Law Act 1978 ;
- `tax' includes fee, charge or other impost.''
51. Mr Berglund submitted that the tax which Drake sought to be refunded had not been paid under a mistake, but that if (as I have found) it had, the proceeding for a refund had to be commenced in accordance with paragraph 20A(1)(a) or (b). The question then was whether there was another Act falling within the description in paragraph (b).
52. Turning to consider the provisions of the Act in order to ascertain the answer to that question, one begins with section 19 of the Act as in force at 30 June 1992, the date of making of the application for a refund which led ultimately to the first proceeding (``the original section 19''). That provision read:
``19 Where the Commissioner finds in any case that tax has been overpaid he may refund to the employer who paid the tax the amount of tax found to be overpaid.''
However, the original section 19 was repealed and replaced, with effect from 15 August 1992, by the State Taxation (Amendment) Act 1992 (``the 1992 Amendment Act'') and the new provision (``the old section 19'') read:
``19 If the Commissioner-
- (a) receives an application for a refund of overpaid tax not more than 3 years after the overpayment; and
- (b) finds that tax has been overpaid by the applicant-
the Commissioner must-
- (c) refund the amount of the overpaid tax; or
- (d) apply the amount of the overpaid tax against any liability of the applicant to the Crown, being a liability arising under, or by virtue of, an Act of which the Commissioner has the general administration, and refund any part of the amount that is not so applied.''
The old section 19 was in its turn repealed and replaced by the State Taxation (Further Amendment) Act 1993 (``the 1993 Amendment Act'') with effect from 15 October 1993 and section 36 of that Act provided:
``36 Section 19 of the Principal Act, as in force immediately before the com- mencement of this section, continues to apply in relation to tax paid before that commencement if, before that commencement-
- (a) proceedings for the recovery of the tax had been begun; or
- (b) a person had made an application in writing for a refund of the tax and-
- (i) the Commissioner had not informed the applicant whether he or she had found the amount to have been overpaid; or
- (ii) the Commissioner had informed the applicant that he or she had not found the amount to have been overpaid and, within the period of 12 months preceding that commence- ment, the applicant had disputed that
ATC 4927finding in writing to the Commissioner.''
53. Mr Berglund submitted that paragraph 36(a) did not apply to the first proceeding, because that proceeding was not commenced until 11 April 1994, which was after 15 October 1993. Sub-paragraph 36(b)(i) did not apply, because, although Drake had made application on 30 June 1992 for a refund, the Commissioner had advised Drake on 26 July 1993 that that application had been refused. Sub-paragraph 36(b)(ii) applied, however, because the Commissioner had informed Drake that he had found the amount applied for not to have been overpaid, and Drake had disputed that finding in writing on 3 September 1993. Accordingly, he submitted, the old section 19 ``continues to apply in relation to'' the tax the subject of the first proceeding, which had been paid before 15 October 1993.
54. That being so, he submitted that the Act, by the old section 19, is ``another Act that provides for the refund or recovery of the money within a longer period'' than 12 months after the payment, in terms of paragraph 20A(1)(b) of the Limitation Act. Accordingly, that paragraph required the proceeding for the recovery of that money to be commenced within that longer period. However, the old section 19, while it provided for the refund of the money within a longer period, did not provide for the institution of proceedings to recover such a refund if the Commissioner refuses to repay it. Mr Berglund contrasted the provisions of Part 4 - Refunds of Tax of the Taxation Administration Act 1997 (``the Administration Act''). Section 21, contained in that Part, provides, in summary, that if the Commissioner refuses a refund for which a taxpayer has applied, the taxpayer may within three months of the refusal, bring proceedings for the recovery of that amount. No such provision appears in the old section 19.
55. Thus, he submitted, the old section 19 did not provide for the commencement of proceedings beyond the limitation period established by paragraph 20A(1)(a) of the Limitation Act, and section 20A applied to the money sought to be recovered by the first proceeding. Section 20A required that proceedings for the recovery of money paid by way of tax under a mistake of law or fact must be commenced within 12 months after the date of payment, by virtue of paragraph 20A(1)(a).
56. The first proceeding had been commenced on 11 April 1994, relating to tax paid between 1 January 1984 and 30 June 1992. Thus, he submitted, it was commenced more than 12 months after the date of any of the relevant payments, and was out of time.
57. He pointed out that although section 20A in its present form had only been introduced in 1993, the previous section 20A, enacted by the Limitation of Actions (Recovery of Imposts) Act 1961, had provided for the same relevant limitation period. The present form made clear that it covered payments made under a mistake of law or fact, and had been introduced following the decision of the High Court in
Commr of State Revenue (Vic) v Royal Insurance Australia Limited 94 ATC 4960; (1994) 182 CLR 51 to the effect that the previous provision did not cover such payments.
58. Mr Shaw, in reply, referred to the second reading speech on the Bill for the 1992 Amendment Act which introduced the old section 19 (Hansard, Legislative Assembly 6 November 1992 page 566). The Treasurer concluded:
``The amendments in the Bill will operate from 15 August 1992, the date of the former Treasurer's announcement that the former government would make amendments to the refund provisions. Applications lodged before 15 August 1992 will be governed by the existing refund provisions.''
Mr Shaw pointed out that the application in respect of the first proceeding had been lodged on 30 June 1992, before 15 August 1992, and therefore should not be subject to the old section 19. The operative provision should be the original section 19 (see paragraph 52 above).
59. He referred also to the second reading speech on the Bill for the 1993 Amendment Act, which replaced the old section 19 (Hansard, Legislative Assembly, 21 October 1993, page 1254-5). The Treasurer said:
``The provisions will apply from 15 October 1993, the date the government announced it would make the amendments. However, the amendments will not affect the rights of persons who, prior to that date, had lodged written claims for refunds with the State Revenue Office which are still current or
ATC 4928who had commenced legal proceedings seeking a refund.''
On that basis also, Mr Shaw submitted that the original section 19 should apply to the lodging of the first proceeding.
60. Section 35 of the Interpretation of Legislation Act 1984 permits the consideration of relevant reports of proceedings in any House of Parliament in the interpretation of a provision of an Act. However, where, as here, the meaning of the provision is clear (albeit complex), the interpretation cannot be determined by what was said in Parliament. I accept the submissions of Mr Berglund and accordingly find that the first proceeding was brought out of time.
The second proceeding - windfalls
61. As to the second proceeding, Mr Berglund referred to section 22 of the Administration Act which, so far as relevant, reads, under the heading ``Windfalls - refusal of refund'':
``22(1) The Commissioner must not make a refund of tax unless satisfied that the person to whom the refund is payable (in this section called ` the applicant ')-
- (a) has not charged to, or recovered from, and will not charge to, or recover from, any other person any amount in respect of the whole or any part of that tax; or
- (b) if the applicant has so charged or recovered any such amount, will reimburse, or will take all reasonable steps to reimburse, each other person for the amount charged or recovered.''
Sub-section (2) provides for the manner of such reimbursement to the other person, and for refunding to the Commissioner of any amount not reimbursed. sub-section (4) provides that in that section ``charge'' includes ``pass on''. Section 23 applies section 22 to proceedings in Court. Sections 22 and 23 replace sections 19A and 19B of the Act which were inserted in the Act by the 1992 Amendment Act and which came into operation from 15 August 1992.
62. As set out in paragraph 23 above, the fee paid by the client to Drake in respect of each week of the assignment includes an amount to cover Drake's profit as well as various payments including pay-roll tax in respect of the temporary, all of which are paid by Drake to the relevant authorities. That being so, Drake clearly falls within the provisions of section 22(1)(b). There is no evidence before me from which I could find that Drake will reimburse, or take reasonable steps to reimburse, its clients for the amount charged to or recovered from them in respect of pay-roll tax.
63. Mr Shaw submitted that as the definition of ``charge'' as including ``pass on'' was only added to section 19A by the 1993 Amendment Act, that section and its successor, section 22 of the Administration Act, did not apply to amounts paid by Drake by way of pay-roll tax before 15 October 1993. However, there is nothing in the relevant legislation to indicate that those successive provisions do other than provide a direction to the Commissioner which is to operate in respect of any refund to be made after the coming into operation of section 19A, regardless of the time when the tax in question was paid. On that basis, I find that the Commissioner (and by virtue of sections 19B and 23, this Court) is precluded from making any refund to Drake of amounts charged to or recovered from its clients in respect of pay-roll tax.
The first proceeding - the correspondence
64. Certain issues arise as to the effect of correspondence between the parties in 1993. In view of the conclusions I have already reached it is not necessary for me to decide those questions, and they were, indeed, not argued at any length by the parties. However, it is perhaps appropriate that I indicate my views, on the basis of the submissions which were made to me.
65. On 25 March 1993 Mr Richard Reinisch, then an investigator on the staff of the Commissioner, wrote to Drake. Mr Reinisch's evidence was that he had then been for some months engaged in an investigation into the affairs of Drake to determine its entitlement, if any, to a refund of pay-roll tax. He calculated amounts of tax which would be refundable on certain assumptions as to the status of certain temporaries. In the letter he enclosed extensive calculations for the period from 1 January 1983 to 30 June 1992 described as relating to ``discrepancies detected in regard to pay-roll tax'' and stated ``A refund of pay-roll tax will be issued in due course''.
66. At the conclusion of paragraph 23 of the plaintiff's outline of submissions it is submitted as to that letter that ``the Commissioner cannot rely on Mr Reinisch's lack of authority (if he did lack authority) because he has permitted Mr
ATC 4929Reinisch to make and communicate the decision in the Commissioner's name''. The letter of 23 March 1993, while written on the letterhead of the State Revenue Office (``SRO''), is signed by Mr Reinisch personally, over the signature block ``Richard Reinisch. Investigator''. It is apparent on the face of it that it was not written ``in the Commissioner's name''.
67. In his witness statement Mr Reinisch stated:
``The letter of 25 March was adapted by me from a standard letter. At the time I sent the letter I had not received formal approval that a refund of pay-roll tax had been given.
As a result of my discussions with representatives with Drake I had informed them that the ultimate decision for making a refund was not mine, and that it had to go through the system with on going scrutiny in the [SRO] prior to the refund being approved and made.
I submitted the material in support of the refund to my superior but believe on a review of that material the application for a refund was refused.''
In his oral evidence he said that his belief was that he was there to verify the figures and that the actual refund, if payable, would be authorised by his superiors, in accordance with procedure.
68. A letter of 18 June 1993 from another officer of the SRO to Drake's accountants read so far as relevant:
``the following amounts of refund based on the findings of the initial investigation is [ sic] provided without prejudice:$ Drake Personnel Ltd 3,292,000 Office Overload Pty Ltd 139,700 Hartmann & Associates Pty Ltd 19,400
The above refund amounts relate to the period from 1 January 1984 to 30 June 1992...
The refund amounts are estimated amounts which are still subject to further investigation...''
69. By a letter of 26 July 1993 the Commissioner advised Drake's accountants that he had received legal advice that the relevant temporaries were employees at common law, and concluded ``It follows that I cannot make the refund requested''.
70. Mr Shaw submitted that the letter of 25 March 1993 from Mr Reinisch embodied a decision of the Commissioner to pay a refund, the amount of the refund was quantified by the letter of 18 June, and the Commissioner was not empowered to change his mind.
71. Mr Berglund submitted that there was no evidence that Drake had acted to its detriment on the basis of the letter of 25 March, so as to found an estoppel against the Commissioner. Further, the Commissioner was not bound by the statement of one of his officers that a refund was payable. He submitted that if the tax was properly payable, so that there was no entitlement in the taxpayer to a refund, the incorrect advice in the letter did not oblige the Commissioner to pay the refund.
72. I accept the submissions of Mr Berglund and find that the Commissioner was not in any way bound by the letter of 25 March 1993.
73. In any case, Mr Berglund submitted, there was no entitlement in a taxpayer to object to a decision refusing to grant a refund. He referred to section 32 of the Act, as in force before the coming into operation of sections 96 and 138 of the Administration Act on 1 July 1997. Section 32 read, so far as relevant:
``32(1) A person who is dissatisfied with any decision made by the Commissioner under this Act, by which his liability to pay tax is affected, or with any assessment or determination, made by the Commissioner under this Act, may... lodge with the Commissioner an objection in writing...''
The Commissioner's letter of 26 July 1993, he submitted, did not embody a ``decision... by which [Drake's] liability to pay tax is affected'', and nor was it an assessment or a determination. Thus it did not give rise to a right to lodge an objection. He referred to the expressions ``the Commissioner may determine'' and ``the Commissioner determines'' in sections 3B, 3C(1)(f), 3C(4) and 13(3B) of the Act as it presently stands, and submitted that, in the absence of a definition of ``determination'' in the Act, the word ``determination'' in section 32(1) must refer to a decision made under a power so expressed. A decision to refuse a refund was not such a decision.
74. Mr Shaw submitted that in what he referred to as ``the old Act'', by which I took him to refer to the Act appearing in the fifth
ATC 4930reprint, as it stood prior to the enactment of several relevant pieces of legislation including the Administration Act, there were very few uses of the word ``determine'' or ``determination'', and accordingly the word ``determination'' in section 32 must be given its natural meaning, which was effectively the same as ``decision'', and the letter of 26 July 1993 embodied a decision. However, I note that the passages cited above from sections 3C(1)(f), 3C(4) and 13(3B) appear in the fifth reprint.
75. I accept the submission of Mr Berglund and find that section 32 of the Act did not confer on a taxpayer a right to object to a decision refusing a refund of pay-roll tax paid. The position is not the same under section 96 of the Administration Act, which permits an objection to ``a decision of the Commissioner under the Pay-roll Tax Act 1971''.
For the reasons which I publish, I make the following findings:
``the temporaries are not employees `as such' of Drake; see paragraph 36 of the reasons
the temporaries are deemed by section 3C of the Pay-roll Tax Act 1971 to be employees; see paragraph 37
moneys paid to a temporary who provides services to Drake's clients for a period not exceeding 90 days in the financial year are exempt from the payment of pay-roll tax; see paragraph 38
there will be many temporaries of whom it can be said that that individual `ordinarily renders services [of the kind which that temporary renders to clients of Drake] to the public generally'; see paragraph 46
the evidence before me does not enable me to make any finding as to whether or not any individual temporary, other than those who gave evidence, in fact meets that description; see paragraph 46
proceeding No. 5418 of 1994 was brought out of time; see paragraph 60
the Commissioner is precluded by section l9A of the Pay-roll Tax Act and section 22 of the Taxation Administration Act 1997 from making any refund to Drake of amounts charged to or recovered from its clients in respect of pay-roll tax. This Court is similarly precluded by virtue of section 19B of the Pay-roll Tax Act and section 23 of the Taxation Administration Act; see paragraph 63
the Commissioner was not in any way bound by the letter from Mr Reinisch of 25 March 1993; see paragraph 72 and
section 32 of the Pay-roll Tax Act did not confer on a taxpayer a right to object to a decision refusing a refund of pay-roll tax paid, although the position is not the same under section 96 of the Taxation Administration Act, which permits an objection to `a decision of the Commissioner under the Pay-roll Tax Act 1971'; see paragraph 75.''
As agreed at the conclusion of the hearing, I await further submissions as to the orders to be made as a result of these findings.