FILSELL v TOP NOTCH FASHIONS PTY LTDJudges:
Full Court of the Supreme Court of South Australia
This is an appeal against the dismissal by a Magistrate sitting in the criminal jurisdiction of the Magistrates' Court of a complaint issued by the appellant, being a person authorised by the Commissioner of Taxation for that purpose, alleging thirty counts of breaches of s. 221C(1A) of the Income Tax Assessment Act 1936 (``the Act''). The breaches were said to be constituted by a failure to make deductions from salary or wages paid to certain alleged employees of the respondent ``at the rate prescribed in accordance with s. 221C(1)'' of the Act. Three alleged employees were named: Trinh Phung (``Phung''), Chau Oanh Nhu Thi (``Chau'') and Quang Minh Tran (``Tran'').
The appellant called Chau and Tran at the hearing. He did not call Phung. Apart from the evidence of Chau and Tran, and some invoices and accounts to which I will refer, the appellant relied on certain averments, together with statements made in the complaint, as proof of the offences (Taxation Administration Act 1953, s. 8ZL).
The allegations in the complaint with respect to each count, including the particulars and averments, were the same except as to the amount of money alleged to have been paid, the date of payment and the identity of the recipient. I set out count 1 as an example:
``1. On about the 27th day of September 1991 at Adelaide in the said State, being an employer paid to an employee salary or wages and did not at the time of paying the salary or wages make a deduction from the salary or wages at the rate prescribed in accordance with Section 221C(1) of the Income Tax Assessment Act 1936; contrary to Section 221C(lA) of the Income Tax Assessment Act 1936.
The defendant paid salary or wages amounting to $1080 to Trinh Phung and did not at the time of such payment make a deduction for income tax:
AND THE COMPLAINANT AVERS PURSUANT TO SECTION 8ZL OF THE TAXATION ADMINISTRATION ACT 1953:
- (a) That at all material times the defendant employed Trinh Phung as an
ATC 4658outworker to carry out work that involved the sewing of garments (hereinafter referred to as the `said work').
- (b) That Trinh Phung carried out the said work for the defendant for which she was paid the sum of $1080.
- (c) That the said work was carried out by Trinh Phung.
- (d) That all material for the said work was provided by the defendant.
- (e) That the amount paid to Trinh Phung for the said work was fixed by the defendant.
- (f) That the time within which the said work was to be carried out was set by the defendant.
- (g) That the agreement between the defendant and Trinh Phung pursuant to which the said work was done was an agreement for Trinh Phung to provide labour for the defendant.''
Chau's evidence was that the work in question was sewing work, which she performed in her own home. She sewed garments, for example, skirts, pants and dresses. To obtain the work she went to the respondent's place of business in the city where she spoke to one Sui Lee Tang, otherwise known as Julie. Julie would give her a sample, that is, a ready- made garment, together with cut-out materials which Chau was expected to sew up according to the sample.
Usually Julie would stipulate the period of time during which the work was to be performed. Chau's evidence was (T30):
``She would suggest an amount of money, and if I agreed, then I took the work home.''
She said that sometimes she thought that the money was not enough and refused the work.
Chau did the work in a small room set aside for that purpose in her home. Sometimes her husband would help. Chau provided two sewing machines, described as an overlock machine and another machine ``with two needles'', and the electricity to run them. She bought and supplied the necessary thread.
When she completed the work, she would bring it back to Julie. If the work was not satisfactory she would have to take it back, unpick the sewing and re-do it. On occasions when that occurred, she sometimes asked her sisters or her mother to help (T34).
There was nothing in writing except that when she brought in the completed work, Julie would give her a document headed ``Purchase Order'' (or in some instances ``Invoice/ Statement'') on which was set out the quantity of the garments which she had assembled, a description of them, the amount per garment, and the total amount for the job.
Chau disclosed the payments as income in her own tax return.
Tran's evidence was to much the same effect as Chau's. He too came to the city premises of the respondent and obtained work from the lady known as Julie. He would ring up first to see if work was available. They would negotiate a price. If agreement was reached, Julie would give to Tran a sample and the cut out material. In his case, Julie supplied the thread. Sometimes but not always, a time was set for completion of the work.
He had a special room set up at home in which to do the work. This was equipped with two sewing machines which he owned. He described the machines (T41) as ``an industrial sewing machine and an overlocker''. He paid for the electricity for the machines, and for light and heat. He regarded himself as entitled to get in others to help with the work. Indeed, Julie had asked if he wanted someone to help. He preferred to do the work himself, but had at times received some very slight assistance from one of his nieces.
Even when a time was set, he felt free to do the work when it suited him, within that time. He regarded himself as his ``own boss''. Payment was by cheque. At the time of payment, he was given a ``receipt'' or ``invoice''. It appears that he brought the payments to account in his own tax return. He set off a proportion of the cost of electricity, and of the costs of maintaining the machines.
The relevant sections of the Act, for present purposes, are as follows:
``221C(1A) Where an employer pays to an employee salary or wages, the employer shall, at the time of paying the salary or wages, make a deduction from the salary or wages at such rate (if any) prescribed...''
The words ``employer'', ``employee'' and ``salary or wages'' are defined in s. 221A, the relevant parts of which are as follows:
`employee' means a person who receives, or is entitled to receive, salary or wages;
`employer' means a person who pays or is liable to pay any salary or wages...
`salary or wages' means salary, wages, commission, bonuses or allowances paid... to an employee as such, and, without limiting the generality of the foregoing, includes... any payments made-
- (a) under a contract that is wholly or principally for the labour of the person to whom the payments are made...
221A(2) For the purposes of the definition of `salary or wages' in subsection (1)-
- (b) a payment made to a person under a contract that is wholly or principally for the labour of any person shall be taken to be a payment made under a contract that is wholly or principally for the labour of the person to whom the payment is made if-
- (i) in the case of a payment that is made in respect of labour that has been performed, in whole or in part, before the time when the payment is made - the whole or principal part of the labour that was performed before the time when the payment is made was performed by the person to whom the payment is made; and
- (ii) in the case of a payment that is made in respect of labour the whole of which is to be performed after the time when the payment is made - the person making the payment can reasonably be expected to believe that the person to whom the payment is made will perform the whole or principal part of the labour in respect of which the payment is made;''
Section 221A of the Act was considered by the High Court in
Neale v Atlas Products (Vic) Pty Ltd (1955) 10 ATD 460; (1955) 94 CLR 419.
That case concerned payments made to tilers engaged by a company which carried on the business of supplying and fixing roofing tiles. When a tiler completed one job, the company informed him that another job was available which he or she was free to accept or decline. On completion of each job, the tiler concerned would sign a written form of contract. The contract provided that the tiler would ``supply the necessary labour and/or materials including wire and colour for roof tiling jobs'', and further provided that the tiler would make the necessary income tax deductions in respect of both his own earnings and those of any other person engaged by him. The contract expressly contemplated that the tiler was free to engage other persons in respect of the work, in that it contained the express statement ``I/we will be employing other persons in respect to this work''.
At the time that case was decided, s. 221A defined ``salary or wages'' to mean
``... salary, wages, commission, bonuses or allowances paid (whether at piece-work rates or otherwise) to an employee as such...,''
and included, inter alia, any payments made
``... under a contract that is wholly or substantially for the labour of the person to whom the payments are made,...''
The Act did not at that time include the extended definition of salary or wages which now appears in s. 221A(2)(b).
In Neale v Atlas Products, Dixon CJ, McTiernan, Webb, Kitto and Taylor JJ in their joint judgment said (ATD 461; CLR 424):
``It is clear that monies paid to an independent contractor in satisfaction of a contractual obligation do not, in the ordinary legal sense, represent salary or wages.''
They went on to say (ATD 461; CLR 425):
``In the argument addressed to this court there may have been a suggestion that if in the case of any independent contractor it appeared that the parties contemplated that the contractual work would be substantially performed by the independent contractor himself, although the terms or conditions of the contract, whether express or implied, did not actually require it, the particular extension of the defined term would be sufficient justification for characterising his remuneration as salary or wages for the purposes of s. 221C. This suggestion, however, is without validity, for if the contract leaves the contractor free to do the work himself or to employ other persons to carry it out the contractual remuneration when paid is not a payment made wholly or at all for the labour of the person to whom
ATC 4660the payments are made. It is a payment made under a contract whereby the contractor has undertaken to produce a given result and it becomes payable when, and only when, the contractual conditions have been fulfilled.''
They said further on the same page: (ATD 461-462):
``It may be, however, that in cases where an independent contractor is required by the terms of his contract to perform the contractual work himself the addition to the general definition may have some application, but it is unnecessary, in the circumstances of this case, to express any concluded view concerning contracts of such a special class.''
The High Court in that case further found that the circumstances of the engagement of the tradesmen did not constitute the latter servants of the company. In reaching that conclusion, the Court said (ATD 462; CLR 426):
``It was not, however, established that the respondent had the right to direct the tradesmen to any particular new job and the reasonable inference from the evidence was that there was nothing in their legal relationship to oblige any particular tradesman to undertake or to prevent him from declining any new job.''
They also observed (ATD 463; CLR 428):
``Nor was there anything to establish that any form or degree of control appropriate to the relationship of master and servant was ever exercised.''
While it must be accepted that the appellant in Neale v Atlas Products conceded that if the written contract governed the relationship of the parties, it could not be suggested that the relationship of master and servant was established, it is clear from the judgment of the Court that the Court would have reached that conclusion in any event.
The applicability of the reasoning of the High Court which finds expression in Neale v Atlas Products to the extended definition of ``salary and wages'' which is now to be found in s. 221A(2) of the Act, was considered by the Court of Appeal of the Supreme Court of New South Wales in
World Book (Australia) Pty Ltd v FC of T 92 ATC 4327; (1992) 27 NSWLR 377. That case concerned a commission agent engaged to sell books.
In the course of his judgment, Sheller JA, with whose reasons Clarke JA agreed, said (after referring to the new section) (ATC 4333; NSWLR 384):
``This amounts to no more than saying that if the payment is not `to an employee as such' but to an independent contractor it may fall within the definition even though it is not made under a contract for the labour of the person to whom the payment is made. It may be enough that it is made under a contract that is for the labour of some other person if, in the circumstances described, the labour was performed by the person to whom the payment is made or the person making the payment could reasonably be expected to believe that the person to whom the payment was made would perform the labour in respect of which it was made. Despite this change of definition there must, to satisfy the definition, be a contract wholly or principally for the labour of a person under which the payment is made.''
His Honour then went on to consider the question whether the contract in issue in that case should properly be characterised as a contract for services rather than a contract of services. Sheller JA said further (ATC 4334; NSWLR 385):
``In my opinion by retaining the description of contract wholly or principally for the labour of a person the legislature has maintained a distinction between a contract for labour and a contract, to use the expression of the High Court in Neale at ATD 461; CLR 425, `whereby the contractor has undertaken to produce a given result and [the amount to be paid] becomes payable when, and only when, the contractual conditions have been fulfilled'. Undertaking the production of a given result has been considered to be a mark, if not the mark, of an independent contractor: see, for example,
Queensland Stations Pty Ltd v FC of T (1945) 8 ATD 30 at 31 and 33; (1945) 70 CLR 539 at 545 and 548. It may be that there are contracts for services which are wholly or principally for the labour of a person and which are not undertaken by the contractor to produce a given result. To the rewards of such contracts the definition may apply. But a contract which is undertaken by the contractor to produce a given result is
ATC 4661not, in my opinion, a contract wholly or principally for the labour of a person for reason that the labour is undertaken not for the principal but for the contracting party himself to produce the result he has contracted to produce.''
After going on to deal with what seemed in that case to be relevant indicia as to the characterisation of the contract, Sheller JA concluded (ATC 4335; NSWLR 386):
``In my opinion, it was open to the magistrate to find that the Independent Agent's agreement made on 16 May 1983 between the appellant and Mr Maiden did not fall within the description in s 221A of `a contract... wholly or principally for the labour of' Mr Maiden.''
In this case, Mr Hayes QC for the appellant sought to distinguish the World Book (Aust) Pty Ltd case.
Of course, no two cases are alike, and in a context such as this it would be wrong to regard the factual decision in one case as being determinative of another.
However, it does seem to me that the approach identified by the reasoning of Sheller JA in that case is helpful.
In my opinion, the evidence in this case was sufficient to displace whatever prima facie effect should be given to the averments relating to the payments to Chau and Tran. Their work was essentially to produce a given result in accordance with the sample, which they had to re-do if it was not. They bargained for their remuneration, and were not obliged to take on any particular job. Within the confines of any time which might have been set, and a time was not always set, they were entitled to do the work in their own time, with their own equipment. No real or effective control was exercised over them by the respondent as to the manner in which they went about the work.
Importantly, although the evidence as to the terms of the contracts of engagement was scant, it was sufficient to establish that it was open to each of them to engage others to do the work, wholly or in part. Of course, it would not be right to imply a term of the contract to that effect merely because they in fact utilised the services of others from time to time, or even from the fact that they considered themselves free to do so. But it seems clearly to be right to conclude from the evidence that the respondent was indifferent as to who did the work. That circumstance, and the other proven circumstances surrounding the engagement of Chau and Tran, are sufficient to support a conclusion that it was an implied term of the contracts under which the work was performed by them and that it was open for them to engage others to perform or contribute to the performance of the work.
It seems to me that the appropriate conclusion in this case is that the contracts between the respondent and Chau and Tran were not contracts ``wholly or principally for the labour of any person'' within the meaning of s. 221A(2)(b). Neither did the evidence establish that the parties were in the relationship of master and servant at common law.
Mr Kavanagh for the respondent advanced a further argument in support of the dismissal of the complaint. This was not an argument which was put in the court below.
The charges in question assert a breach of s. 221C(1A) of the Act. I repeat the relevant words of that section:
``Where an employer pays to an employee salary or wages, the employer shall, at the time of paying the salary or wages, make a deduction from the salary or wages at such rate (if any) prescribed in accordance with subsection (1) or (1AA) as is applicable.
Section 221C(2) provides in part:
``For the purposes of this section and of the regulations made for the purposes of this section, where an employee receives from an employer salary or wages, he shall-
- (a) if the salary or wages is or are paid inrespect of piece-work performed by the employee, or in respect of services rendered under a contract which is wholly or substantially for the labour of the employee - be deemed to be entitled to receive that salary or those wages in respect of the period of time from the commencement of the performance of the work or services until the completion of the work or services;''
Section 221C(1) provides:
``For the purpose of enabling the collection by instalments from employees of income tax, the regulations may prescribe rates of deductions to be made by employers from
ATC 4662payments of salary or wages that employees receive or are entitled to receive in respect of a week or part of a week.''
Schedule 3 of the Income Tax Regulations prescribes the rate of deduction from salary or wages in accordance with a sliding scale, depending on the quantum of weekly earnings. In cases where there is what is described as a ``tax free threshold'', the obligation to make a deduction does not commence until the weekly earnings reach the amount of $99, at which stage the instalment deduction is 10 cents.
Although the statements and averments in the complaint refer to the payment to the alleged employee of a sum, for example, in count 1, $1,080, there is no allegation of a period of time as representing the period between the commencement of the performance of the work until the completion of the work within the meaning of s. 221C(2)(a). Neither was there any evidence as to the time taken to produce the work the subject of any of the averred payments.
In those circumstances, so the argument went, it is impossible to say whether there was a liability to make a deduction or not, with the result that the evidence (including the averments) was not sufficient to make out a conviction.
A similar point was taken in Neale v Atlas Products (supra). After referring to s. 221C(2)(a), the Court went on to say (10 ATD 464; 94 CLR 429):
``It is clear from these provisions that if the tilers in question should be regarded as employees who were engaged on piece- work it would be necessary for the prosecution to establish in each instance the period of time taken for the completion of the work for which payment was made. This difficulty was fully appreciated by counsel for the appellant and he sought to meet it by pointing to the fact that more or less regular weekly payments had been made to each of the tilers concerned. But, even if regular weekly payments were made - and this was a matter of some dispute - it by no means ollows that any of the payments which are in question in this appeal were made, or should, by reason of the statutory provisions referred to, be deemed to have been made, in respect of a period of one week. It is, we think, impossible to ascertain from the evidence what period of time was occupied by the tilers in performing any of the work for which the payments in question were made and this being so there is an additional reason why the appeal should fail.''
In my opinion, the situation in this case in that respect is indistinguishable from that referred to in that passage in Neale v Atlas Products. That reasoning applied to the facts as averred in this case gives rise to another reason why the decision of the learned Special Magistrate dismissing the complaint should be upheld.
The conclusions which I have reached so far would be sufficient to lead to the dismissal of the appeal as to all three alleged employees. But given the fact that Phung did not give evidence, before parting with the matter, I would wish to say something as to the adequacy of the case against Phung.
In the absence of evidence from Phung, and in the absence of any evidence from the respondent, in considering the counts relating to the payment to Phung, the Magistrate was left with nothing but the evidentiary effect of the statements or averments contained in the complaint.
Section 8ZL of the Taxation Administration Act 1953 provides in part:
``(1) In a prosecution for a prescribed taxation offence, a statement or averment contained in the information, claim or complaint is prima facie evidence of the matter so stated or averred.
(2) This section applies in relation to any matter so stated or averred although-
- (a) evidence in support or rebuttal of the matter stated or averred, or of any other matter, is given; or
- (b) the matter averred is a mixed question of law and fact, but, in that case, the statement or averment is prima facie evidence of the fact only.
(3) Any evidence given in support or rebuttal of a matter so stated or averred shall be considered on its merits, and the credibility and probative value of such evidence shall be neither increased nor diminished by reason of this section.
(4) This section-
- (a) does not apply to an averment of the intent of a defendant; and
- (b) does not lessen or affect any onus of proof otherwise falling on a defendant.''
It follows from that section that the statements or averments may only be received as prima facie evidence to the extent that they refer to matters of fact and not as to questions of law. Where there is an allegation or averment of a mixed question of law and fact, that allegation is prima facie evidence of the fact only (s 8ZL(2)(b)). (See, for example,
Brady v Thornton (1947) 8 ATD 269; (1947) 75 CLR 140 per Latham CJ at ATD 270; CLR 146.)
With those distinctions in mind, the moment one starts to read the complaint and summons, difficulties arise.
The opening words of the complaint identify it as a complaint of the Commissioner of Taxation:
``by John Charles Filsell, an officer of the Australian Taxation Office stationed at Adelaide in the State of South Australia, the person authorised by the said Commissioner to lay this complaint on his behalf...''
The allegation that the complainant is a ``person authorised'' is, I would have thought, in one sense a pure conclusion of law, but the better view is that it is probably a mixed question of law and fact.
Be that as it may, I doubt whether the authority of the complainant to lay the complaint is proved by the bald allegation that he is so authorised.
Likewise, averment (g):
``That the agreement between the defendant and Trinh Phung, pursuant to which the said work was done, was an agreement for Trinh Phung to provide labour for the defendant''
is the averment of a mixed question of law and fact. That the agreement should properly be characterised as one for the provision of labour is a conclusion of law.
Bearing in mind that the matters to which I have just referred were not the subject of argument by counsel on the hearing of the appeal, I do not go further to reach any final conclusion as to the adequacy of the statements and averments to sustain the conviction in the case of Phung.
For the other reasons which I have given, the appeal must be dismissed as to all of the counts.