BRINKLEY v FC of TJudges:
BJ McCabe M
Administrative Appeals Tribunal (sitting as the Small Taxation Claims Tribunal)
MEDIA NEUTRAL CITATION:
 AATA 218
1. Mr Roderick Brinkley has objected to a decision of the Commissioner of Taxation. The Commissioner said that Mr Brinkley failed to make superannuation contributions in respect of his employees. The employees in question were crewmembers on a fishing boat owned by Mr Brinkley. The Commissioner raised a superannuation charge under s 16 of the Superannuation Guarantee Administration Act 1992 (``the SGAA'') in respect of the years ended 30 June 1995 and 30 June 1996. Mr Brinkley says he is not liable to pay the charge, nor was he obliged to make superannuation contributions, because he was not in an employment relationship with the crew.
2. In order to make a decision in this case, I must determine whether Mr Brinkley is an employer and the crew-members were his employees within the meaning of s 12 of SGAA.
The background facts
3. The applicant owned The Jolene, a commercial fishing boat. Prior to purchasing the boat in 1993, he had limited experience in operating a commercial fishing boat. In his evidence, Mr Brinkley said he had been employed by Telecom and occasionally crewed on a fishing boat while on leave from his principal job, or on day trips. When he left Telecom in 1993, he decided to enter the commercial fishing business and purchased The Jolene.
4. Mr Brinkley realised he could not operate the boat himself. He decided to retain an experienced fisherman to captain the vessel. He also employed a deckhand. He entered into an agreement with a skipper, and then a second when the first captain moved on. When the second captain left sometime in the first half of 1994, he approached Mr Brian Taggart. Taggart was an experienced fisherman. Mr Brinkley wanted Taggart to work for him and operate his boat. The applicant said that Taggart commenced employment as skipper of The Jolene in July 1994.
5. When Taggart joined The Jolene, there was no dispute that he was an employee. His remuneration was calculated according to a formula that was apparently common in the industry: as captain, he was entitled to receive 20% of the catch. His deckhand was ordinarily entitled to a 10% share. The applicant accepted there was an obligation to make superannuation contributions on top of that amount, and he enrolled Taggart and the deckhand in a Sunsuper plan and began to make contributions.
6. The applicant was aboard The Jolene for the first trip. There was some trouble: Mr Brinkley's brother had been a deckhand but there was some sort of friction with Taggart, and the applicant put his brother off the vessel when it reached port.
7. During this trip, the applicant said he had a conversation with Mr Taggart. The applicant says Taggart told him of his marital problems. Taggart is also alleged to have said that his wife was in receipt of a deserted wife's benefit. During the course of the discussion, the applicant told Taggart of the danger of his wages being subjected to a garnishee order should he become liable to pay maintenance to his wife. The applicant says that he and Taggart thought it might be best for Taggart if they restructured their relationship to make Taggart's pay less accessible to his wife.
8. The applicant described the details of the new arrangement in his evidence and in documents tendered before the Tribunal. The agreement itself was undocumented: Mr Brinkley said it was a gentleman's agreement. I did not take him to mean the agreement was intended to be binding in honour only. I assumed he meant it was an oral agreement marked with a handshake between men of honour. Mr Brinkley said his two previous captains had worked under the same arrangement, and there was no problem. The agreement provided that Taggart would have charge of the boat, and would choose where and when to fish. When he returned to port after a trip, Taggart would sell the catch to a specified supplier. Taggart would take 20% of the catch for himself, 10% for the deckhand and 3% in respect of superannuation. Apparently it was understood that the deckhand only received so much of the 10% share as the skipper thought appropriate. The costs of the voyage (principally fuel) would be paid for out of the balance and the net amount would be paid into Mr Brinkley's account. There was a side agreement too. Where 'by-product' (ie, anything caught in the nets other than the fish or other product they were actually seeking) was sold, the captain and Brinkley would split the proceeds in half.
9. Mr Taggart disputed the applicant's version of events. He said he did not discuss restructuring the relationship for any reason. He claims he was employed throughout the relevant period, and that he did not retain any money in respect of superannuation. He also claimed the agreement provided for him to receive more than 20% of the catch. When asked to review the reconciliations referred to in the ``T- documents'', it was clear his recollection on this last point was flawed. He appeared to take 20% of the catch, and that was all. The ``missing'' 3% was never accounted for.
10. The applicant also gave evidence (the detail of which was disputed by Mr Taggart) about a decision to fish in Moreton Bay in August-September 1994. The applicant says he did not have the appropriate nets and equipment for fishing in the bay. He said Taggart volunteered to obtain the right equipment. Mr Taggart managed to obtain second-hand nets and boards; the applicant says he learned the equipment was owned by Mr Fred Reid. Mr Reid was an acquaintance of Mr Taggart, and Mr Reid's son later served on board The Jolene as a deckhand. The equipment was recovered from the boat and returned to Mr Reid in May 1995 when it was decided to move the boat to Mackay.
11. The vessel was refitted in Mackay. Mr Brinkley produced evidence of legal action being commenced by the chandler/supplier against both he and Taggart. The applicant said it was evidence that he and Taggart were in business together. The account was in both names and Taggart contributed towards repayment of the debt. A number of other account documents included in the material before me were in the applicant's name alone.
12. The months following May were unhappy ones for Mr Brinkley, it seems. The boat moved to Cairns. He said he was concerned about the extent of his reliance on Taggart. He also became concerned about what appeared to be a high turnover in deckhands. He heard complaints that superannuation was not being paid. The applicant had John Deacon, a trusted acquaintance, appointed as deckhand to keep an eye on things. The applicant said that he would have sacked Taggart if Deacon gave an unsatisfactory report. In any event, the applicant decided to take back control of the finances and resume paying superannuation himself. He said Taggart's records were a mess. He said it took him some time to sort them out. About this time, he decided to sell the boat.
13. While trying to sort out the accounts, the applicant looked into the group tax liability. He says he asked Taggart what he thought should be done, given that the applicant said he thought Taggart was looking after those matters. Taggart allegedly said he could not deal with group tax in his name. There were dark references to earlier disputes between Mr Taggart and the Commissioner. The applicant said he agreed to put the group certificates in his name in order to avoid any complications with the Commissioner.
14. I was particularly interested in hearing the evidence about the extent of Brinkley's control over Taggart's operations. There was some difficulty in divining the true position because the relationship between the two men has subsequently deteriorated. Mr Brinkley said during cross-examination that he relied on Taggart ``up to a point'', indicating that he retained residual control over the operations of
ATC 2056the vessel. Mr Taggart said he believed the applicant was the boss - he gave an example where a relative had died and he asked permission of the applicant, who was on board at the time, to return to port early. The applicant remembered the incident and did not dispute the account. Taggart said he spoke with the applicant by phone almost every night when on a trip. Interestingly, the applicant says he reimbursed Taggart for the calls. Ken Francis, one of the deckhands, said in his evidence that ``Brian was the boss at sea; Rod hired and fired''. That evidence is consistent with the applicant's evidence that he had fired his brother and appointed John Deacon as a deckhand. It is also consistent with the applicant's determination to fire Taggart if Deacon made a seriously adverse report. One would also expect the captain of a vessel to have a considerable degree of autonomy when at sea, if only for safety reasons.
15. The applicant appeared to retain control over where the ship went each season, even if he consulted Taggart and relied on his advice. Taggart apparently decided on a day-to-day basis where he fished, but that is consistent with him being retained as a manager of the vessel's operations. Mr Brinkley pointed out that Taggart ``lived and died'' by those decisions, given that the amount of his remuneration depended on the size of the catch.
16. Mr Brinkley cross-examined Mr Taggart. The tension between the two men was palpable. When the applicant asked Mr Taggart about whether he was aware of plans to sell the vessel around December 1995, Taggart responded angrily that he was unaware that ``my business was on the line.'' In the face of Mr Brinkley's gleeful cries from the bar table of ``See! He admitted it!'', Mr Taggart sought to clarify his remarks. He indicated he was using the expression ``my business'' loosely.
The relevant law
17. The law imposing an obligation to make a superannuation contribution in respect of employees is found in the SGAA and the Superannuation Guarantee Charge Act 1992 (``SGCA''). Where there is a shortfall in an employer's contribution, a charge is raised under s 16 SGAA which is levied on the employer.
18. The obligation to make a contribution only arises in respect of employees. The expression is defined broadly in s 12. Section 12(1) says the expressions ``employer'' and ``employee'' bear their ordinary meaning but sub-sections (2)-(11) expand the meaning of the terms and clarify where doubt might arise in relation to particular situations.
19. The common law definition of an employee has been considered by the High Court on many occasions. One of the leading cases is
Stevens v Brodribb Sawmilling Company Pty Ltd (1986) Aust Torts Reports ¶ 80-000; (1986) 160 CLR 16. In that case, the Court indicated it would consider the extent to which an individual had control (or the capacity to exercise control) over the work of another when deciding whether or not those individuals were in an employment relationship. But Mason J in that case emphasised that the ``control'' test was much less important than it had been in the past. His Honour stressed that the presence of control (or its potential) is just one of the factors to which the court will have regard when characterising the relationship.
20. More recently, in
Hollis v Vabu Pty Ltd (t/a Crisis Couriers) 2001 ATC 4508;  HCA 44, Gleeson CJ, Gaudron, Gummow, Kirby and Hayne JJ confirmed in their joint judgment that control was a much less important factor than before as the nature of work changed. The Court appeared to prefer a more pragmatic assessment of the nature of the relationship. The inquiries were directed in part to answering the question: is the individual in substance running his or her own separate business and contracting as an independent party with the person who would otherwise be considered to be the employer? But it is clear from the cases that control remains a relevant consideration.
21. The applicant expressed the view that he was in business with Mr Taggart, who in turn was responsible for remunerating and supervising the deckhands. But this relationship fell short of a partnership. Section 5 of the Partnership Act 1891 (QLD) says that a partnership is the relation subsisting between persons carrying on a business in common with a view of profit. Section 6 of the Act and the common law refer to various indicia of partnership. For example, one would expect to see a sharing of profits and losses. Here, Mr Taggart took his share out of the gross and did not bear the costs. While he did not get paid if a trip was unsuccessful, he did not have to bear the costs associated with the trip. Those costs
ATC 2057were born by the applicant. The absence of an agreement to share losses is a relevant factor: see
Canny Gabriel Castle Jackson Advertising Pty Ltd v Volume Sales (Finance) Pty Ltd (1974) 131 CLR 321. Mr Taggart did have some authority to bind the applicant with respect to the sale of the catch and purchases, for example, but no more than one would expect of a manager in the circumstances. Taggart and Brinkley were not agents for each other, as one would expect in a partnership: see
Cox v Hickman (1860) 8 HLC 302 at 304 per Lord Cranworth LC; see also
Lang v James Morrison (1911) 13 CLR 1 at 11 per Griffith CJ.
22. Even if I accept Mr Brinkley's version of events - and I found him to be a credible witness who is genuinely mystified by the Commissioner's interest in his affairs - it seems clear that he was in an employment relationship with Mr Taggart and the various deckhands. I reach that conclusion because I am satisfied in particular that the applicant had the capacity to control Mr Taggart and the others who worked on his boat. The evidence from the applicant, Mr Taggart and Ken Francis that I have already discussed confirms that Mr Brinkley retained the power to exercise control, although he allowed Taggart great latitude - perhaps too much.
23. I have had regard to other features of the relationship as well, as the High Court indicated in Vabu. I am satisfied that Mr Taggart or the deckhands were not conducting their own business as principals, independent of the applicant. Their efforts were an integral part of the applicant's business, and subject to his direction.
24. If there is any doubt as to the conclusion at common law, the effect of s 12(3) of the SGAA appears to put the issue beyond doubt. The sub-section provides:
``If a person works under a contract that is wholly or principally for the labour of the person, the person is an employee of the other party to the contract.''
25. While I am conscious that the applicant relied to some extent on Mr Taggart's experience and judgement, the nature of the relationship (most obviously the retention of the right to control the operations of the vessel over time, if not on a particular voyage) suggests the relationship here was in substance a contract for the supply of labour. Mr Brinkley was not acquiring a package of services and/or goods. He was simply contracting Taggart to work for him as a skipper.
26. I accept the applicant thought he was ``in business'' with Taggart. He thought he had discharged his obligation to make superannuation contributions by delegating responsibility to Mr Taggart. But the relationship is properly characterised as one between an employer and employee. In those circumstances, the responsibility for making the contribution falls on the employer. It follows that Mr Brinkley is liable to pay the charge.
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