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Mead Packaging (Aust.) Pty. Limited v. Commissioner of Pay-roll Tax (N.S.W.).

Judges:
Rath J

Court:
Supreme Court of New South Wales

Judgment date: Judgment handed down 20 April 1978.

Rath J.: This is an appeal pursuant to sec. 33 of the Pay-roll Tax Act, 1971 against the disallowance by the Commissioner of Pay-roll Tax of an objection to a decision made by the Commissioner under sec. 16H(1) of the Act.

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Pay-roll tax is imposed on all taxable wages (sec. 7), and is to be paid by the employer by whom the taxable wages are paid or payable (sec. 8). Taxable wages are defined in sec. 3 to mean wages that, under sec. 6, are liable to pay-roll tax, and they fall into two categories. The first category comprises wages (a) that are paid or payable in New South Wales (not being wages so paid or payable in respect of services performed or rendered wholly in one other State); (b) that are paid or payable elsewhere than in New South Wales in respect of services performed or rendered wholly in New South Wales; or (c) that are paid or payable elsewhere than in Australia in respect of services performed or rendered mainly in New South Wales (subsec. (1)). ``Australia'' is defined in sec. 3 to mean the States of the Commonwealth. The second category comprises certain wages deemed to be payable in New South Wales (subsec. (2)). Section 17 provides that every employer liable to pay pay-roll tax shall pay the tax within the time within which he is required by the Act to lodge the return of the wages in respect of which the pay-roll tax is payable. Section 12 provides for the registration of employers. By sec. 13 employers who are registered or required to apply for registration are obliged to lodge monthly returns within seven days after the close of each month (subsec. (1)); but where the Commissioner is of opinion that it would be unduly onerous to require an employer to furnish returns within that time, or relating to each month, he may vary the time, or authorise the employer to furnish such returns for such periods as may be specified (subsec. (2)). If the Commissioner is of opinion that tax will not be payable by an employer, or, if paid, would be refunded, he may issue a certificate to that employer exempting him from furnishing monthly returns; but unless the contrary is expressed in the certificate, the employer shall furnish a return relating to each financial year twenty-one days after the close of that financial year (sec. 14(1)). Such a certificate may be either unconditional or subject to such conditions as are prescribed or as the Commissioner thinks fit (sec. 14(2)). The Commissioner may revoke the certificate (sec. 14(2A)); and the issue of a certificate does not exempt an employer from paying pay-roll tax (sec. 14(3)).

Section 18(1) provides that where the Commissioner finds in any case that pay-roll tax or further tax is payable by any employer, he may assess the amount of taxable wages or, where relevant, interstate wages paid or payable by the employer, and calculate the tax or further tax. ``Interstate wages'' means wages that are taxable wages within the meaning of a corresponding law of another State (sec. 3). In certain events (for example, where the Commissioner is not satisfied with a return, or where he has reason to believe or suspect that an employer is liable to pay pay-roll tax), the Commissioner may cause an assessment to be made of the amount upon which, in his judgment, pay-roll tax or further tax ought to be levied, and the person so assessed shall be liable to pay the tax on that amount, except in so far as he establishes on objection or appeal that the assessment is excessive (sec. 18(2)). I was informed in a written analysis of the Act handed up in Court on behalf of the Commissioner that, in practice, a notice of assessment will rarely be issued (presumably because the employer normally forwards a cheque for the tax with his monthly return).

Sections 9A and 9B provide for a deduction from the taxable wages of an employer who is not a member of a group. They provide that for the purpose of ascertaining the pay-roll tax payable by an employer who does not pay interstate wages, there shall be a monthly deduction of the prescribed amount reduced by two-thirds of the difference between the taxable wages and the prescribed amount. Where an employer pays or is liable to pay taxable wages and interstate wages during a monthly return period, he may nominate, by notice in writing to the Commissioner, an amount not exceeding the prescribed amount, as the deduction he claims, and (subject to review by the Commissioner) that amount may be deducted from the taxable wages (sec. 9A(5), (6); sec. 9B(5), (6)). The Commissioner may, on application made by an employer who pays or is liable to pay taxable wages and interstate wages, or of his own motion, make a determination specifying the amount that may be deducted (sec. 9A(7), sec. 9B(7)). Sections 11A, 11B, and 11C provide for the calculation of an annual amount of pay-roll tax, or total amount of pay-roll tax in a prescribed period, and for the payment of additional tax by the employer, or for a refund from the Commissioner, as a result of that calculation. The formula for the calculation is set out in sec. 11A(2) and (2A).

Sections 9A, 9B, 11A, 11B and 11C do not apply to an employer who is a member of a

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group. A ``group'' means a group constituted under Part IV A, which was introduced into the Act by Act No. 87, 1975. Two corporations constitute a group if they are, by reason of sec. 6(5) of the Companies Act, 1961, to be deemed, for the purposes of that Act, to be related to each other (sec. 16B). Where an employee of an employer performs duties solely or mainly for a business carried on by the employer and another person, or where the employer has in respect of the employment of, or performance of duties by, an employee, an agreement with another person relating to a business carried on by that other person, whether alone or together with another person or other persons, the employer and the other person or persons constitute a group (sec. 16C). Where the same person or persons has or have a controlling interest in two businesses, the persons who carry on those businesses constitute a group (sec. 16D(2)). The same person or persons has or have a controlling interest in each of two businesses if that person has or those persons have a controlling interest under the same or another of para. (a) to (e) in sec. 16D(3). Paragraph (a) deals with the case of a person whose directions, instructions or wishes are followed by the directors of a corporation. Paragraph (c) deals with the case of a person owning 50% of the capital of a partnership, or entitled to 50% of its profits. Paragraph (d) deals with a business carried on under a trust. Paragraphs (b) and (e) are of particular relevance to the facts of this case. They read as follows: -

``(b) a person has, or persons have together, a controlling interest in a business, being a business carried on by a corporation that has a share capital, if that person or those persons acting together may (whether directly or indirectly) exercise, control, or substantially influence the exercise of, 50 per centum or more of the voting power attached to voting shares issued by the corporation;

(e) a person has a controlling interest in a business if, whether or not he is a trustee of a trust, he is the sole owner of the business or persons, being two or more trustees of a trust, have a controlling interest in a business if they are the owners of the business.''

Subsections (4), (5) and (6) deal with cases where a corporation or person is deemed to have a controlling interest in a business. By sec. 16E(1), where a person is a member of two or more groups, all the members of those groups constitute one group, and by sec. 16E(2) the smaller groups cease to be groups. The members of a group may designate one of its members to be the designated group employer, and may nominate a deduction not exceeding the prescribed amount defined in sec. 9A and 9B (sec. 161(1)). For the purpose of ascertaining the pay-roll tax payable by a designated group employer, there shall (subject to review by the Commissioner) be deducted from the amount of the taxable wages in his return the amount so nominated (sec. 161(3)). The Commissioner may, on the application of a member of a group, or of his own motion, make a determination of the amount of the deduction from the taxable wages included in a return made by an employer specified in the determination who was a member of the group (sec. 16I(4)). Sections 16J, 16K and 16L are provisions corresponding in the case of a group to sec. 11A, 11B and 11C.

It is the construction of sec. 16H(1) that is the particular problem of the present case. It reads as follows: -

``16H. (1) Where the Commissioner is satisfied, having regard to the nature and degree of ownership or control of the businesses, the nature of the businesses and any other matters that he considers relevant, that a business carried on by a member of a group is carried on substantially independently of, and is not substantially connected with the carrying on of, a business carried on by any other member of that group, the Commissioner may, by order in writing served on that first-mentioned member, exclude him from that group.''

By sec. 32 a person who is dissatisfied with any decision, determination or assessment made by the Commissioner, by which his liability to pay pay-roll or further tax is affected may lodge an objection stating the grounds on which he relies. The Commissioner shall consider the objection, and may either disallow it, or allow it, either wholly or in part (subsec. (3)). By sec. 33 a person who is dissatisfied with a decision of the Commissioner on an objection made by that person may appeal to the Supreme Court. On appeal the objection is limited to the grounds stated in his objection, and the

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burden of proving that any assessment objected to is excessive lies on the objector (subsec. (3)). There is no other provision dealing with the nature of an appeal.

By a letter dated 3rd February, 1977 the accountants for the plaintiff (Bentley, Wheeler, Cartledge & Co.) applied for an order under sec. 16H(1) excluding the plaintiff from a group on the basis of the following circumstances: -

  • 1. Fifty per cent of the issued capital is owned by Leigh-Mardon Pty. Limited (a company incorporated in Victoria) and fifty per cent is owned by The Mead Corporation (a company incorporated in the United States).
  • 2. It is not a related company by virtue of sec. 6(5) of the Companies Act, 1961.
  • 3. The board of directors consists of six directors, of whom three are appointed by each shareholder. The directors appointed by each shareholder are not entitled to exercise a majority in voting power at meetings of directors either individually or collectively.
  • 4. The management of, the staff employed and the premises occupied by the company are independent of the operation of any other business.

In reply the Commissioner asked for the following information: -

  • (a) The names of the directors of the three companies, and whether they were governing director, managing director or working director.
  • (b) The nature of the business conducted by each of the business and whether any business is conducted between the companies.

The Commissioner also asked for production of the memorandum and articles of association of the plaintiff.

From the accountants' reply of 11th March, 1977 it appears that two of the directors of the plaintiff are directors of Leigh-Mardon Pty. Limited. None of its other directors is a director of either Leigh-Mardon Pty. Limited or of The Mead Corporation. All the directors were said to be working directors. The nature of the business was stated as follows: -

  • (i) Mead Packaging (Australia) Pty. Limited -
  • The principal activities of the company are sale of paper board packaging products and lease of packaging machines for these products.
  • (ii) Leigh-Mardon Pty. Limited -
  • The principal activities of the company are manufacture and sale of printed wrapping and packaging material and converting of paper, board, film and foil.
  • (iii) The Mead Corporation -
  • The principal activity of the corporation is as a holding company. The principal activities of the corporation's subsidiaries are timber, wood products, paper and packaging products, coal, pipes and castings.

The business conducted between the companies was described as follows: -

  • (i) Mead Packaging (Australia) Pty. Limited and The Mead Corporation -
  • Mead Packaging (Australia) purchases paper board and machines from subsidiaries of The Mead Corporation. Equivalent paper board is not available in Australia and the machines are designed specifically for the type of paper board products sold by Mead Packaging (Australia) Pty. Limited. The paper products are sold by Mead Packaging (Australia) under licence and royalties are paid to a subsidiary of The Mead Corporation.
  • (ii) Mead Packaging (Australia) Pty. Limited and Leigh-Mardon Pty. Limited -
  • Mead Packaging (Australia) Pty. Limited sells paper board to Leigh-Mardon Pty. Limited for converting into paper board products sold by Mead Packaging (Australia) Pty. Limited. Leigh-Mardon Pty. Limited is not the only company to whom Mead Packaging (Australia) Pty. Limited sells paper board for converting.
  • (iii) The Mead Corporation and Leigh-Mardon Pty. Limited -
  • No business is transacted between these two companies.

Article 17 of the plaintiff's articles of association provides that no share in the plaintiff company shall be transferred by The Mead Corporation or Leigh-Mardon Pty. Limited to a person who is not a member

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without such share having been first offered to The Mead Corporation or Leigh-Mardon Pty. Limited. By art. 77 each of The Mead Corporation and Leigh-Mardon Pty. Limited shall be entitled to appoint three directors, and to remove one or more of the directors at will. Article 79(e) provides for the office of a director being vacated by a notice under art. 77. It was submitted on behalf of the Commissioner that these articles were typical in a joint venture company, and this proposition did not appear to be in dispute.

The Commissioner replied by a letter of 29th April, 1977. This letter, so far as material, reads: ``Reference is made to your letter of 11th March, '77. Your application that I exclude the above corporations from the grouping provisions of the Pay-roll Tax (Amendment) Act, 1971 has been considered and having due regard to the nature and degree of ownership or control of the businesses, it is not considered that the exercise of my discretion vide section 16H is warranted''. The plaintiff lodged an objection dated 16th January, 1978. The grounds of objection are as follows: -

1. That the Commissioner has acted on the ground set out in letter to Messrs. Bentley, Wheeler, Cartledge & Co. and has not exercised his discretion as required by sec. 16H.

2. That the Commissioner in arriving at his decision did not determine whether the business carried on by the company is carried on substantially independently of, and is not substantially connected with, the carrying on of a business carried on by any other member of the group.

3. That the Commissioner should have been satisfied that the business carried on by the company is carried on substantially independently of and is not substantially connected with the carrying on of a business carried on by any other member of the group.

4. That there is no basis upon which the Commissioner could lawfully not be satisfied that the business carried on by the company is carried on substantially independently of and is not substantially connected with the carrying on of a business carried on by any other member of the group.

5. That there is no basis upon which the Commissioner could lawfully be satisfied that the business carried on by the company is not carried on substantially independently of and is substantially connected with the carrying on of a business carried on by any other member of the group.

6. That the Commissioner should by order in writing served on the company have excluded it from the group.

The Commissioner acknowledged receipt of the objection in a letter dated 6th July, 1977 addressed to the solicitors for the plaintiff. This letter reads as follows: -

``Mead Packaging (Australia) Pty. Limited.

I have received your letter dated 16th June, 1977, enclosing a notice of objection under section 32 of the Pay-roll Tax Act, 1971, concerning the grouping for pay-roll tax purposes of the above company with Leigh-Mardon Pty. Limited and The Mead Corporation. This objection is being considered.

The decision not to exclude Mead Packaging (Australia) Pty. Limited from this group was based on the information set out in the letters dated 3rd February, 1977 and 11th March, 1977, from Messrs. Bentley, Wheeler, Cartledge & Co.

In the light of this information it was not considered that the business of Mead Packaging (Australia) Pty. Limited is carried on substantially independently of the business carried on by other members of the group or that the business carried on by Mead Packaging (Australia) Pty. Limited is not substantially connected with the carrying on of the business carried on by that group.

However, if you have any further information which in your opinion would establish that Mead Packaging (Australia) Pty. Limited should be excluded from the group under the provisions of section 16H of the Act, I would be pleased to consider this information before making any decision on the objection lodged.''

In a letter dated 12th September, 1977 the solicitors for the plaintiff said that the only evidence which they wished to present in support of the objection was contained in the letters dated 3rd February, 1977 and 11th March, 1977 from Messrs. Bentley, Wheeler, Cartledge & Co. In a notice dated 15th September, 1977 the Commissioner informed the plaintiff that he had disallowed the

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objection. The summons (amended to conform with Part 51A rules 12 and 13 of the Supreme Court Rules) claims that the objection be allowed.

Further evidence was placed before the Court by the plaintiff. Mr. Everett, an alternate director of the plaintiff, deposed as follows: ``The business of the plaintiff is the leasing to persons in Australia of packaging machines acquired from subsidiaries of The Mead Corporation, which provide for a multipackaging concept, that is, for example, the packaging together of four bottles of drink. In addition to the lease of the machinery, the plaintiff undertakes to supply to the lessee packaging `blanks' which are the cut to shape and printed material in flat which the machine will form into a box or package for the lessee's product. The paper board hereinbefore referred to is purchased from subsidiaries of The Mead Corporation as they are the manufacturers of the type of paper board for which the machines hereinbefore referred to are designed. The plaintiff operates in its own leased premises situate at 33 Warraba Road, North Narrabeen. The plaintiff has its own accountants and legal advisers''. Mr. Horton, the general manager of the plaintiff, deposed that the plaintiff has three employees including himself; that the plaintiff has the Australian rights to packaging machines and systems patented by Mead Packaging of Atlanta, Georgia, which are basically for the production of cluster packs of bottles; that the customers of the plaintiff are primarily large soft drink and beer manufacturers who lease packaging machines and purchase packaging material from the plaintiff; that when the company which leases packaging machines from the plaintiff places an order for packaging materials the plaintiff orders those materials from a division of The Mead Corporation in the United States and then arranges for the material to be printed in Australia; that the procedure is to obtain quotations from various printing companies including Leigh-Mardon Pty. Limited; that during this financial year Leigh-Mardon Pty. Limited has printed approximately 20.1% of the packaging material supplied by the plaintiff; that after the material is printed it is kept in stock and the plaintiff's customers then draw upon that stock as their needs require; that the day to day affairs of the plaintiff are conducted by Mr. Horton with no direct supervision; that, however, there is a monthly management meeting which is attended by Mr. Everett acting on behalf of The Mead Corporation, Peter Becker and George Mallory who are executives of Leigh-Mardon Pty. Limited and Mr. Horton; and that apart from this meeting the only other contact which the plaintiff has with Leigh-Mardon Pty. Limited is at an administrative level when the plaintiff is seeking quotations for printing or placing orders or enquiring about delivery of orders. The financial year referred to in Mr. Horton's affidavit (which was sworn on 30th March, 1978) ends on 31st October, 1978, so that the 20.1% of printing by Leigh-Mardon Pty. Limited covers a period of five months. Messrs. Becker and Mallory are directors both of the plaintiff and Leigh-Mardon Pty. Limited. Mr. Harrison, the secretary of Leigh-Mardon Pty. Limited deposed that Leigh-Mardon Pty. Limited is a wholly owned subsidiary of Amatil Limited; that it carries on business of general printers and packaging manufacturer in Queensland, New South Wales, South Australia, Victoria and Western Australia; that it has approximately 1500 employees and is engaged in producing printing and packaging products to the commercial and industrial community generally and certain Amatil subsidiaries; that apart from the shareholding in the plaintiff company held by Leigh-Mardon Pty. Limited and the fact that a number of directors of the plaintiff are executives of Leigh-Mardon Pty. Limited, Leigh-Mardon Pty. Limited does not play any part in the management of the plaintiff; that the only contact between Leigh-Mardon Pty. Limited and the plaintiff is at an administrative level where the plaintiff obtains a quotation from Leigh-Mardon Pty. Limited for the carrying out of printing work and if those quotes are accepted then Leigh-Mardon Pty. Limited carries out that work and delivers the goods as printed to the plaintiff.

Counsel for the Commissioner objected to the whole of this further evidence, on the ground that the question for the court (at least initially) is whether the Commissioner has properly exercised his discretion having regard to the facts that were before him. But it was conceded that if the court should find that the Commissioner's decision was not a proper exercise of power then the cases would tend to establish that the court is entitled to look at all the evidence, including this further evidence (see:
Kolotex Hosiery (Australia) Pty. Limited v. F.C. of T. 132 C.L.R. 535 at 568, 576;

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75 ATC 4028 at 4048-4049, 4053-4054). It was submitted on behalf of the Commissioner that the court should apply the same principles in this case as are applied by a court in reviewing the exercise of a discretion vested in the Commissioner of Taxation under Federal taxing Acts. In
Avon Downs Pty. Limited v. F.C. of T. ((1949) 78 C.L.R. 353) the Court (Dixon J., as he then was) was concerned with a subsection under which no loss was an allowable deduction unless a certain matter was established to the satisfaction of the Commissioner. His Honour said (at p. 360):

``But it is for the Commissioner, not for me, to be satisfied of the state of the voting power at the end of the year of income. His decision, it is true, is not unexaminable. If he does not address himself to the question which the subsection formulates, if his conclusion is affected by some mistake of law, if he takes some extraneous reason into consideration or excludes from consideration some factor which should affect his determination, on any of these grounds his conclusion is liable to review. Moreover, the fact that he has not made known the reasons why he was not satisfied will not prevent the review of his decision. The conclusion he has reached may, on a full consideration of the material that was before him, be found to be capable of explanation only on the ground of some such misconception. If the result appears to be unreasonable on the supposition that he addressed himself to the right question, correctly applied the rules of law and took into account all the relevant considerations and no irrelevant considerations, then it may be a proper inference that it is a false supposition. It is not necessary that you should be sure of the precise particular in which he has gone wrong. It is enough that you can see in some way he must have failed in the discharge of his exact function according to law.''

This passage was referred to with approval in
F.C. of T. v. Brian Hatch Timber Co. (Sales) Pty. Limited ((1972) 128 C.L.R. 28 at 30, 45, 57, 59; 71 ATC 4093 at 4095, 72 ATC 4001 at 4002, 4010, 4012). Counsel for the defendant Commissioner said that the court should, if it found that Commissioner's decision was vitiated by some such matter as his Honour referred to, remit the case back to the Commissioner to be dealt with according to the principles stated in the judgment of the court. As an example of this course being followed, he cited another Federal tax case,
Duggan v. F.C. of T. 72 ATC 4239; (1973) 47 A.L.J.R. 44. But even in the Federal tax field it appears that once the court has entered on a review of the Commissioner's decision, it must form its own opinion of what should have been the Commissioner's conclusion (Kolotex Hosiery (Australia) Pty. Limited v. F.C. of T. above, C.L.R. p. 576; ATC pp. 4053-4054; and see also C.L.R. p. 568; ATC pp. 4048-4049). If this is the proper course under the Pay-roll Tax Act, 1971, there seems little point in remitting the case to the Commissioner. The form of sec. 32, and the provisions of Part 51A rule 13(2), seem to indicate that the court decides whether the objection should be allowed. If the court decides that the objection should be allowed, then nothing more would remain to be done than the making of the order under sec. 16H(1); and it would be of little moment whether the court made the order, or remitted the matter to the Commissioner to make the order.

Counsel for the plaintiff submitted that the appeal is a rehearing, in effect a rehearing de novo, so that, in this case, the court would form its own opinion on the material placed before it as to whether the order under sec. 16H(1) should be made. He referred to observations of Dixon C.J. to the effect that the Federal tax cases are anomalous (
MacCormick v. F.C. of T. (1945) 71 C.L.R. 283 at 307;
Denver Chemical Manufacturing Co. v. C. of T. (N.S.W.) (1949) 79 C.L.R. 296 at 313-314). Decisions on appeals under some other taxing statutes have taken a different turn (
Commr. of S.D. for Queensland v. Beak (1931) 46 C.L.R. 585;
Commr. of S.D. v. Pearse (1953) 89 C.L.R. 51). The last mentioned case was an appeal under sec. 124 of the Stamp Duties Act, 1920 (New South Wales), and related to the review by the court of the Commissioner's discretion under sec. 127(1)(c) of that Act. The High Court has more recently considered the nature of an appeal to a court from an administrative authority (
Builders' Licensing Board (N.S.W.) v. Sperway Constructions (Sydney) Pty. Limited (1977) 51 A.L.J.R. 260). As was said in that case the question is primarily one of elucidating the legislative intent (p. 262). The observation made by the Judicial Committee as to there being no right of appeal to a board of review would be relevant (Commr. of S.D. v. Pearse, above, p. 63). In that case the

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Judicial Committee approved of the following statement of Williams J.: - ``There can be no question that if a statute intends that a discretion shall be exercised by a particular person and not by the Court, the jurisdiction of the Court is confined to supervising its exercise so as to ensure that it is exercised according to law'' (pp. 60-61). Some guidance in the construction of the Pay-roll Tax Act, 1971 might be found by an examination of some of its provisions referred to earlier in this judgment. Section 33 provides for an appeal on the Commissioner's decision on an objection, and by sec. 32 objections may be made not only in respect of assessments but also any decision or determination of the Commissioner. ``Determination'' is the word used to describe the Commissioner's function in the deduction provisions (sec. 9A(7), 9B(7), 161(4), 18(4)). In sec. 18(2) there is a reference to the Commissioner's ``judgment'', but the context seems to suggest that on appeal there would be a full review. The Act vests discretions in the Commissioner in a variety of ways. Examples are: sec. 14(1) (``If the Commissioner is of opinion that''); sec. 21(1) (``in such cases as he thinks fit''); sec. 21(2) (``for reasons which in his discretion he thinks sufficient''); sec. 28(3) (``in his judgment''); and sec. 36(2) (``for reasons which he thinks sufficient''). The context of sec. 21(2) and sec. 36(2) is markedly different from sec. 16H(1). Because of the view I have taken of the facts of this case, it is not necessary to express any opinion on the jurisdiction of the court to review the Commissioner's finding under sec. 16H(1), but the matter was fully argued before me, and it seemed proper to record in this judgment what the nature of the arguments was.

It was common ground that if the Commissioner was satisfied of the matter referred to in sec. 16H(1), then he would be obliged to make the order excluding the plaintiff from the group. I was referred (on the construction of the word ``may'') to
Finance Facilities v. F.C. of T. ((1971) 127 C.L.R. 106 esp. at 134, 138; 71 ATC 4225 at 4229, 4231);
Re Fettell (52 S.R. 221) and
Smith v. Watson ((1906) 4 C.L.R. 802 at 827).

Counsel for the plaintiff made his submissions firstly on the assumption that the court's jurisdiction was limited to ensuring that the Commissioner acted in accordance with the law. He referred to the Commissioner's letter of 29th April, 1977 where the Commissioner said ``having due regard to the nature and degree of ownership or control of the businesses, it is not considered that the exercise of my discretion vide section 16H is warranted''. The argument was that this statement showed that the Commissioner had not addressed his mind to the relevant questions, namely whether a business carried on by the plaintiff was carried on substantially independently of, and was not substantially connected with the carrying on of, a business carried on by any other member of the group. It was argued that the Commissioner's statement in this letter was inconsistent with what he said in the third paragraph of his letter of 6th July, 1977. It was said that the paragraph did not purport to state the result of any fresh consideration by the Commissioner; it only purported to be an interpretation of what he had previously done. Thus, on this argument, the Commissioner had never addressed his mind to the relevant question. In answer to this argument counsel for the Commissioner said that there was no inconsistency, because in the first letter the Commissioner was not purporting to state all the matters that exercised his mind, but only one of the factors that he took into consideration.

In my opinion it has not been established that the Commissioner misdirected himself. The statement complained of in his letter of 29th April, 1977 is capable of being taken (and should be taken) as referring to the matters the Commissioner considered decisive on the question for his determination. It is true that the Commissioner expressed those matters grammatically in the alternative (``ownership or control''), but I think the meaning is that he regarded the facts disclosed to him as to ownership and control as failing to satisfy him that the business carried on by the plaintiff was carried on substantially independently of, and was not substantially connected with the carrying on of, a business carried on by another member of the group. Even if the Commissioner did misdirect himself in arriving at his original decision, he was under a statutory duty to reconsider the matter upon the objection being lodged, and there is no evidence that he failed in that duty. The statement in the third paragraph of his letter of 6th July, 1977 should not be read as merely his recollection of his former state of mind. That statement shows that the Commissioner, upon his consideration of the objection, was

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appreciative of the matter for decision, and it should be read as expressing his view upon that consideration. Even if the Commissioner did misdirect himself in arriving at his earlier decision, the error could be corrected after the objection was taken. In saying this I am not overlooking what was said by Barwick C.J. in Kolotex Hosiery (Australia) Pty. Ltd. v. F.C. of T. (above, at C.L.R. p. 541; ATC p. 4031), namely that it is the Commissioner's relevant state of mind at the point of assessment which is determinative. I think his Honour there was dealing with the process of assessment, not with the Commissioner's function in consideration of an objection.

If the Commissioner did not misdirect himself in the way counsel for the plaintiff submitted, then it is not shown that his decision was otherwise not according to law. Having regard to the material that was before him, his decision is not unreasonable. It cannot be said of it (to use the language of Latham C.J. in MacCormick v. F.C. of T., above, at p. 299) ``that the discretion exercised or the opinion formed was so irrational as to be not a discretion or an opinion of the character contemplated by the statute''. However, I do not agree with a submission made on the Commissioner's behalf that he was entitled to be dissatisfied because of the paucity of the information before him. Although on his consideration of the objection he invited the plaintiff to put further material before him, there is no suggestion in the correspondence that the Commissioner considered the original factual material to be inadequate for his purpose. He was given the information that he sought.

If the true position is that in this appeal the court should form its own opinion on the whole of the evidence before it, the result is the same. Section 16H(1) requires two findings to be made, namely (1) that a business carried on by the plaintiff (as a member of a group) is carried on substantially independently of a business carried on by any other member of that group; and (2) that the business is not substantially connected with the carrying on of the business carried on by the other member of the group. The first limb appears to relate to the independence of the businesses, and requires an examination of the connection between the business activities. The second limb appears to relate to connection in management. At all events the composite expression used in the subsection requires a consideration of the businesses and their control, and a finding of substantial independence and substantial absence of connection. Where, as here, there are three members of a group, one of them will not be entitled to exclusion by an order under the subsection unless the requisite satisfaction is had in respect of each of the other members of the group. Though no argument was addressed to me on the point, it would appear that a non-Australian corporation (such as The Mead Corporation here) may be a member of a group, even though it does not carry on business in Australia. Under sec. 16C one member of the group is an employer (as defined in sec. 3); but it does not appear that the other members must be such employers. The other members are described as ``persons''. An employer is defined to mean any person who pays or is liable to pay any wages. ``Person'' includes a company; and ``company'' is defined to include all bodies and associations (corporate and unincorporate) and partnerships. In sec. 16D the criterion for membership of a group is the existence in ``persons'' of a controlling interest in two businesses. The steps which led the Commissioner to group the plaintiff, Leigh-Mardon Pty. Limited and The Mead Corporation are briefly as follows. By virtue of sec. 16D(3)(b) Leigh-Mardon has a controlling interest in the business of the plaintiff. Being the sole owner of its business Leigh-Mardon Pty. Limited has a controlling interest in that business by virtue of sec. 16D(3)(e). Leigh-Mardon Pty. Limited accordingly has a controlling interest in two businesses, and by virtue of sec. 16D(2) Leigh-Mardon Pty. Limited and the plaintiff constitute a group. By a parity of reasoning The Mead Corporation and the plaintiff constitute a group. The plaintiff is thus a member of two groups; and by virtue of sec. 16E(1) all members of those two groups constitute a group. By the operation of sec. 16E(2) the two groups (consisting of two members each) cease to be groups, thus leaving one group of three members. There was no challenge to this line of reasoning. It is complicated, but appears to be correct. The result is that the plaintiff is not entitled to an order excluding it from this group of three members unless the requisite satisfaction is had in relation to its business and that of Leigh-Mardon Pty. Limited, and also in relation to its business and that of The Mead Corporation. The facts that The Mead

ATC 4173

Corporation does not carry on business in Australia, and pays neither taxable wages nor interstate wages, are irrelevant.

If the only members of the group were the plaintiff and Leigh-Mardon Pty. Limited, the plaintiff's case, on a full review of the evidence, would be stronger than it in fact is. I do not think that I should express any opinion as to what the result of the appeal should be on that hypothesis. Upon a review of the whole of the evidence I am not satisfied that the business carried on by the plaintiff is carried on substantially independently of, and is not substantially connected with a business carried on by The Mead Corporation. The degree of ownership is not in itself particularly significant, for it is the minimum to constitute a controlling interest under sec. 16D(3)(b). The evidence suggesting that the plaintiff's business is a joint venture of Leigh-Mardon Pty. Limited and The Mead Corporation could be significant, either because it goes to control, or is itself a relevant matter on independence and lack of connection. But I do not in this case base my opinion on this joint venture element, partly because the evidence is not strong, and partly because I entertain some doubt, on the construction of sec. 16H(1), as to the relevance of a joint venture situation. On one possible view a joint venture business might be thought to be independent of, and unconnected with the carrying on of, the business of the joint venturers, as the expression ``business carried on by a member'' is used in the subsection. The point was not dealt with in any detail in argument. On the aspect of management and control, Mr. Everett, for The Mead Corporation, attends what was called a monthly management meeting. No evidence was given as to the business done at these meetings. As to business activities, it appears that the plaintiff leases packaging machines ``acquired'' from subsidiaries of The Mead Corporation, and supplies to the lessees packaging material, purchased from those subsidiaries, for use in conjunction with the machines. The Mead Corporation is a holding company, but I think that the question of the independence of the plaintiff's business, and connection with the carrying on of The Mead Corporation's business, requires an examination of the relationship between the business of the plain-tiff and the business or businesses of the subsidiaries of The Mead Corporation. The evidence to my mind shows that the plaintiff is in substance the vehicle in Australia for the carrying on of the packaging business of The Mead Corporation; and, if the Court's opinion on the question raised by sec. 16H(1) is relevant, the question must be answered against the plaintiff.

For these reasons the appeal fails, and the Commissioner's decision on the objection is upheld. The plaintiff is to pay the defendant's costs.


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