COMMISSIONER OF STATE REVENUE (WA) v MORTGAGE FORCE AUSTRALIA PTY LTD

Judges: Steytler P

Buss JA
Le Miere AJA

Court:
Supreme Court of Western Australia, Court of Appeal

MEDIA NEUTRAL CITATION: [2009] WASCA 24

Judgment date: 30 January 2009

Buss JA

2. The appellant, the Commissioner of State Revenue (Commissioner), appeals to this court under s 43A of the Taxation Administration Act 2003 (WA) (TAA) against orders made on 14 March 2007 by the State Administrative Tribunal (Tribunal), constituted by its President, Justice M L Barker.

3. Between 1 July 1999 and 21 November 2002, the respondent in CACV 51 of 2007, Mortgage Force Australia Pty Ltd (MFA) as trustee for the MFA Unit Trust paid commissions to certain consultants.

4. Similarly, between 22 November 2002 and 30 April 2003, the respondent in CACV 52 of 2007, Mortgage Force Service Pty Ltd (MFS) as trustee for the MF (WA) Service Trust paid commissions to certain consultants.

5. The issue before the Tribunal was whether the payments made by MFA during the period 1 July 1999 to 21 November 2002, and by MFS during the period 22 November 2002 to 30 April 2003, to their consultants, were " taxable wages " for the purposes of s 6 of the Pay-roll Tax Assessment Act 1971 (WA) ( Pay-roll Tax Act ). If MFA and MFS were, or were deemed to be, employers of the consultants then the payments of commission would constitute " wages " , as defined in s 3(1) of the Pay-roll Tax Act .

6. The Tribunal determined that MFA and MFS were not employers of the consultants and, in consequence, the commissions were not " wages " , and payroll tax was therefore not payable by MFA and MFS in respect of the commissions.

Overview of the facts

7. MFA carried on a finance broking business, and for that purpose held a finance broker ' s licence under the Finance Brokers Control Act 1975 (WA).

8. MFA entered into agreements with financial institutions, including agreements with these financial institutions in relation to the introduction to the institutions of applicants for finance (Mortgage Origination Agreements):

9. Pursuant to the Mortgage Origination Agreements:

10. Between 1 July 1999 and 21 November 2002, MFA engaged consultants either under a deed of appointment (Deed of Appointment), or under an oral contract on the same terms, to act " as its agent for the purpose of seeking and conducting interviews with Consumers,

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receiving applications from Consumers and passing the applications to " MFA for processing by the financial institutions. The consultants identified at [ 22 ] of the Tribunal ' s reasons for decision entered into the Deed of Appointment with MFA, while those consultants identified at [ 24 ] of the Tribunal ' s reasons were engaged under oral contracts.

11. By the Deed of Appointment, the consultant was appointed to:

12. Pursuant to the Deed of Appointment, MFA paid to the consultants:

13. Sometime before 22 November 2002, MFA and MFS agreed that MFS would provide to MFA some or all of the services which MFA had agreed to provide to the financial institutions. MFS entered into contracts with the consultants to enable MFS to provide the services to MFA.

14. Four versions of a consultancy agreement (Consultancy Agreement) were prepared for execution by the consultants and MFS. These were known as: " in-office " , " home office " , " country office " and " remote office " agreements. The differences between these kinds of Consultancy Agreement related to the rate of commission payable to the consultant in schedule D of the agreements and the equipment, services and resources to be provided to the consultant in schedule E of the agreements. The consultants who executed these agreements are identified at [ 30 ] of the Tribunal ' s reasons.

15. Other consultants, identified at [ 32 ] of the Tribunal ' s reasons, did not execute a Consultancy Agreement, and made available their services to MFS under oral contracts on the same terms.

16. Under the Consultancy Agreements, or oral contracts on the same terms, each consultant was appointed to provide " Consultancy Services " to MFS, which were defined to include:

17. MFS made payments to each consultant on the basis of gross fees received by MFA from financial institutions on account of loans approved by the financial institutions which were introduced by the consultant, by reference to a sliding scale percentage of the commission paid by the financial institutions to MFA.

18. On 12 August 2003, the Commissioner assessed MFA ' s liability to pay-roll tax on account of the commission paid to the consultants by MFA and MFS in the period 1 July 1999 to 30 April 2003.

19. The Commissioner proceeded on the basis that all payments made to the consultants from 1 July 1999 to 30 April 2003 were made by MFA.

20. On 4 November 2003, MFA lodged an objection to the assessment. On 19 May 2004, the Commissioner disallowed MFA ' s objection.

21. Between June 2004 and October 2004, the Commissioner discovered that, during the period from 22 November 2002 to 30 April 2003, payments were made to the consultants by MFS rather than MFA.

22.

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On 7 January 2005, the Commissioner issued a reassessment to MFA reducing MFA ' s pay-roll tax liability by $ 68,867.26, being the pay-roll tax liability of MFS during the period 22 November 2002 to 30 April 2003.

23. On 7 January 2005, the Commissioner assessed MFS to pay-roll tax of $ 68,867.26 on account of the commission paid to the consultants by MFS in the period 22 November 2002 to 30 April 2003.

24. On 8 February 2005, MFS objected to the assessment. On 11 May 2005, the Commissioner disallowed MFS ' s objection.

25. On 9 June 2005, MFA and MFS applied to the Tribunal for review of the Commissioner ' s decision to disallow the objections.

26. On 14 March 2007, the Tribunal made orders in each matter that:

The relevant statutory provisions

27. By s 3(1) of the Pay-Roll Tax Act , in the Act, unless the contrary intention appears:

" ' employer ' means any person who pays or is liable to pay any wages … "

" ' wages ' means any wages, salary, commission, bonuses or allowances 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 an employee … "

28. Section 6(1) provides, relevantly, that the wages liable to payroll tax under the Act are wages paid or payable by an employer that are for services performed or rendered wholly in Western Australia, irrespective of where they are paid or payable, and those which are paid or payable in Western Australia, except where they are for services performed or rendered wholly in another State or country.

29. The term " employee " is not defined in the Act. It bears its common law meaning. See
Federal Commissioner of Taxation v Barrett 73 ATC 4147 ; (1973) 129 CLR 395 , 403 (Stephen J).

The Tribunal ' s reasoning

30. The Tribunal summarised its findings as to the proper characterisation of the relationship between each of MFA and MFS, on the one hand, and its consultants, on the other, as follows:

  • • the consultants were the proprietors of their businesses, operated on their own accounts as mortgage originators and in respect of which the applicants provided support services;
  • • MFA was the proprietor of its own business as a mortgage aggregator and supplied " aggregation services " and support services to the consultants;
  • • MFS was the proprietor of its own business and liaised with MFA to supply aggregation services and support services to the consultants [ 9 ] .

31. The Tribunal expressed the view that, in many respects, it was correct to characterise the relationship between each of MFA and MFS (to whom the Tribunal referred collectively as " Mortgage Force " ) on the one hand, and its consultants on the other, as " akin " to a franchise arrangement. The Tribunal said:

" In many respects, I think it is correct to characterise the relationship between Mortgage Force and the consultants as akin to a franchise arrangement and to conclude that, on all the facts, this was not a case of Mortgage Force operating its business through its representatives, but that the representatives conducted their own businesses under constraints necessitated by regulatory and industry requirements and practical business considerations, all of which necessitated that they operate through a mortgage originator like Mortgage Force. In the industry context in which they operated, the consultants needed to be authorised by Mortgage Force to lodge applications with financial institutions or they would not have been able to engage the industry.

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In that same practical commercial sense, I also accept that while Mortgage Force is properly described as a mortgage originator in its dealings with financial institutions, in its business arrangements with consultants

Mortgage Force effectively acted as a mortgage aggregator and provided technical advice and information and practical support services to the consultants who acted as mortgage originators.

In the end, I do not think that the ' clients ' were exclusively the clients of the consultants or Mortgage Force. I think that, for different purposes, the clients had appropriate relationships with both consultants and Mortgage Force. Such clients at the end of the day had a contractual relationship with financial institutions by whom their applications are accepted. Of course, consultants and Mortgage Force itself plainly had obligations in law to do the things they undertook to do for the clients, such as giving reliable advice and preparing and lodging applications with financial institutions. In these circumstances I find that consultants were entitled to lay claim to their own client lists, even though Mortgage Force may also have held similar information [ 834 ] - [ 836 ] . "

32. After reviewing the evidence and the submissions of the parties at great length and with significant repetition (the reasons occupied 152 pages and 846 paragraphs), the Tribunal expressed its ultimate conclusion in these terms:

" While there plainly are a number of factors, as I have noted earlier in these reasons, that point to the consultants being classed as employees for the purposes of the Pay-roll Tax Assessment Act 1971 , after considering the totality of the relationship, I have concluded that the consultants were independent contractors. While the consultants were plainly important to the realisation of [ Mortgage Force ' s ] own business goals, I do not consider that Mortgage Force in substance ran its business through the consultants. Rather, I consider the consultants were effectively franchisees of Mortgage Force who operate their own businesses which may, in the longer term have developed into saleable assets - albeit assets that did not include a transferable right to trailing commission [ 844 ] . "

The relevant provisions of the Deed of Appointment

33. In the Deed of Appointment, MFA is referred to as " Mortgage Force " and the consultant as " the Agent " .

34. The recitals to the Deed of Appointment read:

  • " A. Mortgage Force acts as agent for various Product Providers in Western Australia in procuring the provision of the Products from Product Providers to approved Consumers.
  • B. Mortgage Force desires to appoint the Agent as its agent for the purpose of seeking and conducting interviews with Consumers, receiving the applications from Consumers and passing the applications to Mortgage Force for processing by Product Providers on the terms and conditions hereinafter set out.
  • C. The Agent desires to be appointed as agent for Mortgage Force in carrying out its operation on the terms and conditions hereinafter set out. "

35. The substantive provisions of the Deed of Appointment provide, relevantly:

" 1. DEFINITIONS AND INTERPRETATION

In this agreement except to the extent where the context otherwise requires:

  • …
  • 1.13 ' Agency ' means the Agency granted to the Agent by Mortgage Force in accordance with this Deed.
  • 1.14 ' Agency Services ' means the services provided by the Agent to Mortgage Force as Mortgage Force ' s agent which services include but are not limited to:
    • 1.14.1 Sourcing potential Consumers for the Products as agent for and on behalf of Mortgage Force;
    • 1.14.2 Interviewing Consumers with a view to such consumers applying for any or all of the Products;
    • 1.14.3 Completing Applications;

    • ATC 9373

      1.14.4 Passing on Applications to Mortgage Force or, in the event that the Product concerned is an insurance product, to a party nominated by Mortgage Force;
    • 1.14.5 Processing Applications;
    • 1.14.6 Using his best endeavours, as agent for Mortgage Force, to promote as many of the Products as is possible;
    • 1.14.7 Using his best endeavours to promote the business of Mortgage Force, Mortgage Force Insurance Services or any other business or company in which Mortgage Force has an interest.
  • 1.15 ' Agent ' means the person named and described as the agent in Item 2 of the Schedule.
  • 1.16 ' Applications ' means applications by Consumers for any or all of the Products which applications:
    • 1.16.1 May in respect of each of the Products take a different written and/or oral form;
    • 1.16.2 Shall be in the form required by Mortgage Force, Mortgage Force Insurance Services or the Product Providers from time to time.
  • …
  • 1.21 ' Consumers ' means all persons, companies, firms or entities of any kind that are potential consumers of the Products.
  • …
  • 1.26 ' Mortgage Force Confidential Information ' means all confidential information of Mortgage Force and includes:
    • 1.26.1 List of clients;
    • 1.26.2 Lists of Agents and Sub-Agents of Mortgage Force;
    • 1.26.3 Lists of Product Providers;
    • 1.26.4 Manuals and statements of procedure;
    • 1.26.5 Computer programs;
    • 1.26.6 Methods of operation and modes of procedure of Mortgage Force;
    • 1.26.7 Other confidential information which is circulated or disseminated from time to time by Mortgage Force to Agents for the purposes of the Agency.
  • …
  • 1.30 ' Product Providers ' means the banks, financial institutions and insurance companies whose financial or insurance products Mortgage Force or Mortgage Force Insurance Services are legally able to offer to the public from time to time.
  • 1.31 ' the Products ' means the loan finance, insurance and other products which Mortgage Force or Mortgage Force Insurance Services are lawfully able to offer to Consumers as agent for the Product Providers from time to time including but not limited to:
    • 1.31.1 Housing, commercial, personal and other loans to Consumers from the Product Providers;
    • 1.31.2 Insurance products of all kinds.
  • 1.32 ' Service Fees ' means the fees payable pursuant to clause 6.
  • 1.33 ' Services ' means the services provided by the Agent to Mortgage Force and the Lenders pursuant to clause 3.
  • 1.34 ' Sub-Agent ' means the sub-agent appointed pursuant to clause 13.
  • 1.35 ' Gross Fees ' means only the Up-front payments made by the Lender and specifically excludes any Trailer or Other Special Payment which may be made from time to time to Mortgage Force.

2.0 APPOINTMENT OF AGENT

  • 2.1 The Agent is hereby appointed to provide the Services to Mortgage Force in accordance with the terms of this Deed.
  • 2.2 The Agency hereby granted to the Agent shall operate from the date stipulated in item 3 of the Schedule as the Commencement Date and shall end on the date stipulated in item 4 of the Schedule as the Expiry Date.

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3.0 SERVICES TO BE PROVIDED BY AGENT

  • 3.1 The Agent shall provide the following Services to Mortgage Force:
    • 3.1.1 To act as Agent on behalf of Mortgage Force in its capacity as agent of the Product Providers to conduct interviews with Consumers of the Products;
    • 3.1.2 To receive Applications for the Products from the Consumers;
    • 3.1.3 To process Applications in accordance with instructions or guidelines issued from time to time by Mortgage Force or by the Product Providers;
    • 3.1.4 To do all that is required by Mortgage Force and the Product Providers to have the Applications considered and if satisfactory have provision of the Product approved by the Product Providers;
    • 3.1.5 To ensure that Applications are processed expeditiously.

4.0 TIME FOR CARRYING OUT SERVICES

  • 4.1 The Services will be provided by the Agent at such times and on such days as the Agent may decide on.
  • 4.2 Provided the Agent complies with this Deed the manner in which he provides the Services is entirely in his discretion.

5.0 PAYMENT FOR SERVICES

  • 5.1 Payment for Services will be by Service Fees as set out in item 5 of the Schedule for each type of Service.
  • 5.2 The Service Fees will be inclusive of and in satisfaction of all moneys due to the Agent howsoever arising and will be the total fees payable to the Agent in respect of the Services.
  • 5.3 The Agent acknowledges that the entitlement to the Service Fee will only arise after the Services to which the fee relates have been fully and properly performed to the satisfaction of Mortgage Force.
  • 5.4 The method of payment of the Service Fees is set out in item 6 of the Schedule.
  • …

6.0 OBLIGATIONS OF AGENT

  • 6.1 The Agent will use his best endeavours to ensure that information provided to Mortgage Force in the course of providing Services pursuant to this Deed is accurate and that Consumers are provided with prompt, efficient and courteous service.
  • 6.2 The Agent will at all times promptly and efficiently provide the Services and shall use all reasonable care and skill in doing so.
  • 6.3 The Agent will not during the course of this Deed or after termination of this Deed in respect of the Services or this Deed:
    • 6.3.1 Engage in misleading or deceptive conduct or conduct which is likely to mislead or deceive;
    • 6.3.2 Make any warranty or representation in relation to any Services supplied by Mortgage Force in excess of the authority conferred pursuant to the provisions of this Deed;
    • 6.3.3 Commit a breach of any provision of the Finance Brokers Act;
    • 6.3.4 Use any advertising or promotional material in relation to this Deed or in carrying out the Services except as may first be approved in writing by Mortgage Force;
    • 6.3.5 Solicit or receive any commissions from a Consumer for performing the Services except as approved from time to time by Mortgage Force;
    • 6.3.6 Refer any Application which is not approved by a Product Provider to any other person, firm or corporation without prior written consent of Mortgage Force.
  • 6.4 The Agent has no authority to enter into legal relations with third parties on behalf of Mortgage Force.
  • 6.5 The Agent acknowledges that he is aware that Mortgage Force in acting as the Agent for Product Providers in respect of the Products may be taken to be a credit provider within the meaning given by the Privacy Act to that term and may be subject to the same obligations as other credit providers under the Privacy Act and that accordingly:
    • 6.5.1 The Agent shall not call upon a Consumer at the Consumer ' s place of business or residence without the Consumer ' s prior request and consent;
    • 6.5.2 The Agent shall not canvass at the place of residence or business of a Consumer with a view to inducing the Consumer to apply for or to obtain credit under a contract regulated by the Credit Act;
    • 6.5.3 The Agent shall not use or disclose to any third person information contained in or derived from a credit report on a Consumer for any purpose other than in furtherance of an Application.

  • ATC 9375

    6.6 The Agent shall obtain and keep up to date, read and abide by the terms of:
    • 6.6.1 The Finance Brokers Act;
    • 6.6.2 Privacy Act and Credit Act;
    • 6.6.3 The Finance Brokers Supervisory Board Code of Conduct;
    • 6.6.4 Mortgage Force operational guidelines for Housing Loan Agents;
    • 6.6.5 The Mortgage Force ' SERVICE ' Statement, and;
    • 6.6.6 All other sales and information material circulated from time to time to Agents by Mortgage Force.

7.0 INDEMNITY

The Agent for himself, his heirs and assigns hereby indemnifies and holds harmless Mortgage Force against all or any loss or damage suffered by Mortgage Force and against any claim, demand, action, proceeding, suit or proceedings arising from or in relation to the operation of this Deed as a consequence of the Agent failing to observe the provisions of this Deed, written instructions from Mortgage Force, the Finance Brokers Act, the Privacy Act, the Credit Act, or any other applicable legislation or statutory instrument or as a consequence of any failure on the part of the Agent to exercise reasonable care and skill in performing the Services under this Deed.

8.0 TERM OF AGENCY

  • 8.1 Subject to clauses 8.2 and 8.3, the Agency shall continue for the term set out in clause 2.2.
  • 8.2 This Deed and the Agency may be terminated by Mortgage Force at any time:
    • 8.2.1 Without notice if the Agent commits a breach of any of the obligations set out in clause 6;
    • 8.2.2 Upon the Agent becoming bankrupt or entering into a deed or arrangement with creditors pursuant to the Bankruptcy Act;
    • 8.2.3 Upon two (2) weeks written notice of termination to the Agent.
  • 8.3 This Deed and the Agency may be terminated by the Agent giving four (4) weeks written notice of termination to Mortgage Force at any time.
  • 8.4 If the Agent fails to give notice of termination in accordance with clause 8.3 the Agent will forfeit all monies due to him from Mortgage Force at the date of termination.

9.0 TRADE SECRETS AND CONFIDENTIAL INFORMATION

  • 9.1 The Agent shall not at any time, either during the Agency or thereafter, disclose to any person (other than in the proper performance of his duties) the Mortgage Force Confidential Information without first obtaining the written permission of Mortgage Force.
  • 9.2 The Agent must not use or attempt to use the Mortgage Force Confidential Information in a manner which may cause or be calculated to cause injury or loss to Mortgage Force.
  • 9.3 Upon termination of the Agency, the Agent shall return to Mortgage Force all documents and other materials embodying the Mortgage Force Confidential Information.
  • 9.4 The Agent shall not for any reason either for himself or any other party appropriate, copy, memorise or in any manner reproduce any of the Mortgage Force Confidential Information.
  • 9.5 The Agent acknowledges that the Mortgage Force confidential information is private and confidential to Mortgage Force and has a substantial value to Mortgage Force in carrying out its operations.

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    9.6 The Agent ' s obligations under this clause continue after the termination of the Agency or this Deed.
  • …

12.0 STATUS OF AGENT

  • 12.1 By executing this Deed the Parties acknowledge that:
    • 12.1.1 There is no relationship of employer and employee between Mortgage Force and the Agent;
    • 12.1.2 Mortgage Force and the Agent do not intend that there will be any relationship of employer and employee;
    • 12.1.3 The Agent is engaged under this Deed or otherwise solely in the capacity of an independent contractor;
    • 12.1.4 As an independent contractor the Agent is not entitled to annual leave or sick leave from Mortgage Force and shall make his own provision in relation thereto;
    • 12.1.5 The Agent will provide at his own expense subject to clause 5.6 his own motor vehicle, mobile phone and pager.

13. APPOINTMENT OF SUB-AGENT

  • 13.1 The Agent may subject to clause 13.2 with the written approval of Mortgage Force appoint a Sub-Agent in his place.
  • 13.2 The Sub-Agent appointed pursuant to clause 13.1:
    • 13.2.1 Shall be a person accepted in writing as Sub-Agent by Mortgage Force;
    • 13.2.2 Shall not be appointed for a period exceeding six (6) months without the prior written consent of Mortgage Force;
    • 13.2.3 Shall be a reputable, responsible and solvent person;
    • 13.2.4 Shall comply with all obligations of the Agent under this Deed and any breach of the provisions of this Deed shall entitle Mortgage Force to terminate this Deed.
  • 13.2 The Service fee shall be paid by Mortgage Force during the term of the Sub-Agent ' s appointment to the Agent who shall be responsible to make all payments pursuant to his agreement with the Sub-Agent to the Sub-Agent.
  • …

SCHEDULE

…

ITEM 5 PAYMENT FOR SERVICES

Fifty Five Percent (55 % ) of the Gross Fees received by Mortgage Force for up to nine (9) loan approvals obtained by the Agent in any one calendar month.

Sixty Percent (60 % ) of the Gross Fees received by Mortgage Force for Ten (10) or more loan approvals obtained by the Agent in any one calendar month.

Sixty Five Percent (65 % ) of the Gross Fees received by Mortgage Force for Fifteen (15) or more loan approvals obtained by the Agent in any one calendar month.

For loans approved in conjunction with or which are referred by another Mortgage Force agent the payment will be half (50 % ) of the amounts referred to in the preceding paragraph. For loans approved whilst the Agent is on leave and has arranged for another Mortgage Force Agent to handle his enquiries the payment will be one fifth (20 % ) of the amounts referred to in the preceding paragraph.

Amounts due to the Agent under the provisions of this clause (item 5) will be reduced by any liability Mortgage Force has now or in the future under the Superannuation Guarantee (Charge) Bill [ sic ] of 1992.

In addition to any monies payable under the provisions of this clause the Agent may, whilst this contract remains in force, receive additional monies by way of a fifty percent (50 % ) share of trailing commissions received by Mortgage Force.

Such additional monies will only be paid whilst

  • 1. The Agent is actively involved in providing the Agency Services as defined in Clause 1.14 on Pages 4 and 5 of the Deed of Appointment and
  • 2. Is not carrying out such services whether solely or jointly with or as a director, manager, agent or servant for any person or corporation engaged or interested in any business of the nature of the business conducted by Mortgage Force.

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The percentage share of such trailing commissions may be varied by mutual consent.

ITEM 6 METHOD OF PAYMENT OF SERVICE FEES

Service fees will be paid within seven (7) days after payment of the relevant Fees by the Product Provider to Mortgage Force.

… "

The relevant provisions of the Consultancy Agreement

36. For the purposes of these appeals, the relevant provisions of the Consultancy Agreement are not materially different from those of the Deed of Appointment.

37. I should, however, refer to some provisions of cls 5, 11 and 12 of the Consultancy Agreement.

38. By cl 5, unless otherwise agreed between the parties, the consultant was obliged, at its sole cost and expense, to provide all equipment necessary for the provision of the consultancy services including a motor vehicle, a mobile telephone and a laptop or personal computer. Clause 5 also required the consultant, at its sole cost and expense, to provide its own premises to operate from and to pay all costs and expenses which it may incur in providing the consultancy services, except as otherwise agreed in writing with MFS.

39. By cl 11, the parties acknowledged that the consultant was an independent contractor, and was not entitled to any of the following from MFS:

40. By cl 12.1, the consultant was entitled, subject to cl 12.2 and with the prior written approval of MFS, to appoint a sub-agent in its place. Clause 12.2 provided, relevantly, that a sub-agent appointed under cl 12.1 must be approved in writing by MFS, but MFS ' s approval must not be unreasonably withheld where certain specified conditions were satisfied.

The Westpac Agreement

41. In the Westpac Agreement, Westpac Banking Corporation is referred to as " Westpac " and MFA as " the Broker " .

42. In the Westpac Agreement it is recited:

  • " A. The Broker operates a business of arranging finance on behalf of potential Applicants.
  • B. Westpac and the Broker have agreed that they will work together with a view to Westpac becoming a preferred supplier of products which the Broker is able to offer to Applicants, and to the Broker receiving, for the benefit of Applicants, industry leading service standards for the origination and servicing of loan products.
  • C. If an Application is successful (as determined under clause 3.2) Westpac will, in consideration of the referral from the Broker, pay to the Broker a commission as described in this Agreement.
  • D. The Broker acknowledges that certain of the functions, rights and obligations of Westpac under this Agreement may be performed or exercised by TMC as the agent of Westpac. "

43. In cl 1.1, the following terms are defined, relevantly:

" ' Applicant ' means an applicant for residential finance from Westpac and, where the context allows, includes a potential applicant for such finance;

" ' Application ' means an application made by an Applicant to Westpac for the provision of residential finance …

" ' TMC ' means The Mortgage Company Pty Ltd … a wholly owned subsidiary of Westpac; "

44.

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Clause 2.2 provides:

" The Broker:

  • (a) represents Applicants and in that capacity may refer Applicants to Westpac; and
  • (b) becomes entitled to commission from Westpac when an Application is successful. "

45. By cl 3.1:

" When an Application is successful, Westpac will pay the Broker a commission with respect to that Application, determined in accordance with the GST exclusive rates and at the times set out in Schedule A and the Reference Schedule, subject to any adjustment calculated in accordance with clause 3.5. The criteria for establishing whether or not an Application is successful [ are ] set out in clause 3.2. "

46. Clause 6.1 provides, relevantly:

" The Broker must (and must ensure as applicable that its employees, agents and independent contractors, and any approved sub-contractors or their employees, agents and independent contractors as applicable, who provide the services to Applicants):

  • …
  • (d) not assign or sub-contract any of the work to be performed under this Agreement without the prior written consent of Westpac. Westpac may consider giving its consent in specific cases to permit the Broker to use the services of its own sub-contractors where for reasons of location, local knowledge or efficient management practice use of such sub-contractors is reasonably required to ensure effective and efficient services;
  • … "

The relevant provisions of the other Mortgage Origination Agreements

47. For the purposes of these appeals, the relevant provisions of the other Mortgage Origination Agreements are not materially different from those of the Westpac Agreement.

The Commissioner ' s ground of appeal

48. The Commissioner ' s ground of appeal reads:

" The Tribunal erred in law and fact by finding that the consultants engaged by Mortgage Force Australia Pty Ltd as trustee of the MFA Unit Trust (MFA) and Mortgage Force Service Pty Ltd as trustee of the MF (WA) Service Trust (MFS) were independent contractors, rather than employees, of MFA and MFS and in particular erred in law and fact in:

  • (a) finding that the consultants were effectively franchisees of MFA and MFS who operate their own business; and
  • (b) failing to find that MFA and MFS in substance ran their businesses through the consultants having regard to the contractual arrangements between MFA, MFS, the consultants and the relevant financial institutions. "

Section 43A of the TAA

49. By s 43A(1) of the TAA, an appeal from a decision of the Tribunal can be brought on a question of law, of fact, or mixed law and fact, without having first obtained leave to appeal.

The Commissioner ' s submissions in relation to the Tribunal ' s findings that MFA/MFS were mortgage aggregators and the consultants were mortgage originators

50. Counsel for the Commissioner referred to the Tribunal ' s findings at [ 844 ] (which I have set out at [ 32 ] above) and submitted that the Tribunal found that the business of the consultants appears to have been the business of introducing applicants for finance to financial institutions. Counsel also referred, in this connection, to the Tribunal ' s reasons at [ 834 ] , which I have set out at [ 31 ] above.

51. The Tribunal also found that MFA and MFS, in their business arrangements with the consultants, acted, in effect, as mortgage aggregators. They provided technical advice and information, and practical support services, to the consultants who acted as mortgage originators [ 835 ] . Further, the Tribunal found that clients had ' appropriate relationships ' with MFA/MFS and the consultants [ 836 ] .

52. Counsel for the Commissioner submitted that those findings by the Tribunal are inconsistent with the terms of the Mortgage Origination Agreements and also with the terms of the agreements between MFA or MFS, on

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the one hand, and the consultants on the other. The financial institutions had a contractual relationship with MFA, but not with MFS or the consultants.

The Commissioner ' s submissions in relation to the franchise analogy

53. It was submitted on behalf of the Commissioner that an important part of the Tribunal ' s reasoning was its characterisation of the relationship between MFA or MFS and the consultants as " akin to a franchise arrangement " [ 834 ] , and its conclusion that " the consultants were effectively franchisees of Mortgage Force " [ 844 ] .

54. Counsel for the Commissioner argued that an agreement for the provision by a consultant of services to MFA or MFS in consideration of payment by MFA or MFS for those services is not an agreement which places MFA or MFS in a position akin to that of a franchisor.

The Commissioner ' s submissions in relation to the absence of a right to trailing commission beyond the term of a consultant ' s engagement

55. Counsel for the Commissioner submitted that the arrangements between MFA or MFS and each consultant as to the consultant ' s entitlement to trailing commission demonstrate that the commission payable to MFA was not, in effect, being assigned to the consultants, with the deduction of a service fee by MFA or MFS. By the Deed of Appointment with MFA, the consultant was only entitled to a trailing commission during the period in which he or she was actively involved in providing services to MFA. This was also the position under the Consultancy Agreement with MFS, except in the limited circumstances identified in Schedule A to the agreement.

56. The Tribunal found that " while in theory the consultant may have had something to sell, it is not clear exactly what it would have been and what it would have been worth in the market " [ 807 ] .

57. In
Bridges Financial Services Pty Ltd v Chief Commissioner of State Revenue 2005 ATC 4735 ; [ 2005 ] NSWSC 788 ; (2005) 222 ALR 599 [ 216 ] , the court recognised that the ability of representatives in that case to sell a business and make payments to acquire existing businesses was " a highly significant factor telling against a common law employment relationship " .

58. According to counsel for the Commissioner, that feature of the relationship in Bridges was absent in the present case.

The Commissioner ' s submissions as to the disposition of the appeals

59. Counsel for the Commissioner contended that the basis on which the Tribunal determined whether the consultants were employees or not involved a mischaracterisation of the business of the consultants and their relationship with MFA, MFS, the financial institutions and the applicants for finance. It was submitted that the considerations identified and relied upon by the Commissioner make it apparent that the finance broking business was being conducted by MFA, and MFS and the consultants were providing services to MFA for the purpose of assisting it in the conduct of that business. The Tribunal was in error in finding that the consultants were carrying on a business of finance broking in their own right. According to the Commissioner, the appeals should be allowed, and the orders of the Tribunal made on 14 March 2007 should be set aside.

The submissions on behalf of MFA and MFS

60. Counsel for MFA and MFS submitted that the Tribunal ' s analogy with " a franchise arrangement " was " entirely appropriate " , as was its observation that " the consultants were effectively franchisees of " MFA and MFS " who operate their own businesses " .

61. It was also submitted that, in any event, the Tribunal arrived at the correct conclusion. At common law, the consultants were independent contractors and not employees, and therefore the payments of commission were not " taxable wages " for the purposes of s 6 of the Pay-roll Tax Act .

The distinction between an employee and an independent contractor: applicable legal principles

62. The determination of whether a person is an employee or an independent contractor is a question of fact. See
Zuijs v Wirth Brothers Pty Ltd (1955) 93 CLR 561, 568 - 569 (Dixon CJ, Williams, Webb and Taylor JJ). A question of

ATC 9380

law may also be involved, however, where the person is retained under a written agreement and it is necessary to construe the agreement. It is true, no doubt, that each case turns on its own facts.

63. In
Queensland Stations Pty Ltd v Federal Commissioner of Taxation (1945) 70 CLR 539 , Latham CJ said:

" If the work to be done by one person for another is subject to the control and direction of the latter person in the manner of doing it, the person doing the work is a servant and not an independent contractor, and prima facie his reward would be wages. An independent contractor undertakes to produce a given result, but is not, in the actual execution of the work, under the order or control of the person for whom he does it (
Performing Right Society Ltd v Mitchell and Booker (Palais de Danse) Ltd (1924) 1 KB 762 ) - and cf.
Federal Commissioner of Taxation v J Walter Thompson (Aust) Pty Ltd (1944) 69 CLR 227 , at p 229) (545). "

64. In the application of the control test, it is the right to exercise control (rather than actual control) which is of fundamental importance, although actual control is plainly relevant. See
Federal Commissioner of Taxation v J Walter Thompson (Aust) Pty Ltd (1944) 69 CLR 227 , 232 (Latham CJ); Zuijs , 571 - 573.

65. A different approach, usually referred to as the organisation or integration test, was formulated by Denning LJ in
Stevenson Jordan & Harrison Ltd v Macdonald & Evans [ 1952 ] 1 TLR 101 :

" One feature which seems to run through the instances is that, under a contract of service, a man is employed as part of the business, and his work is done as an integral part of the business; whereas, under a contract for services, his work, although done for the business, is not integrated into it but is only accessory to it (111). "

66. In
Co-operators Insurance Association v Kearney [ 1965 ] SCR 106 , the Supreme Court of Canada approved the organisation test. Spence J, who delivered the reasons of the court, cited this passage from Fleming, The Law of Torts , 2nd ed, page 328:

" Under the pressure of novel situations, the courts have become increasingly aware of the strain on the traditional formulation [ of the control test ] , and most recent cases display a discernible tendency to replace it by something like an ' organization ' test. Was the alleged servant part of his employer ' s organization? Was his work subject to co-ordinational control as to ' where ' and ' when ' rather than ' how ' , [ citing Lord Denning in
Stevenson, Jordan & Harrison Ltd v Macdonald [ 1952 ] 1 TLR 101 at 111. ] "

67. Both the control test and the organisation test have been criticised. See, for example, AN Khan, " Who is a Servant? " (1979) 53 ALJ 832:

" However, the ' integration ' or ' organisation ' (see
Bank voor Handel en Sheepvaart NV v Slatford [ 1953 ] 1 QB 248 ;
London General Cab Co Ltd v Inland Revenue Commissioners [ 1950 ] 2 All ER 566 ) test if applied in isolation can lead to as impractical and absurd results as the control test. The courts, therefore, came to the conclusion that a ' multiple ' test should be applied, in that all the factors should be taken into account. Thus in
Morren v Swinton & Pendlebury Borough Council ( [ 1965 ] 1 WLR 576 ; see also
Short v J and W Henderson Ltd (1946) 62 TLR 427 ) Lord Parker CJ stated that the control test was perhaps an over-simplification. His Lordship added that: ' clearly superintendence and control cannot be the decisive test when one is dealing with a professional man, or a man of some particular skill and experience ' . Thus the courts started modifying and transforming the test into ' common sense ' test, (Somervell LJ in
Cassidy v Minister of Health [ 1951 ] 2 KB 343 ) or ' multiple ' test (See Mocatta J in
Whittaker v Minister of Pensions & National Insurance [ 1967 ] 1 QB 156) (834) . "

68.

ATC 9381

Professor P S Atiyah, Vicarious Liability in the Law of Torts , 1967, addressed the difficulty of formulating a single test for distinguishing between an employee and an independent contractor:

" [ I ] t is exceedingly doubtful whether the search for a formula in the nature of a single test for identifying a contract of service any longer serves a useful purpose. … The cases cited in this book are a sufficient demonstration of the extraordinary variety of relationships which have come before the courts at one time or another, and it is now clear that it is impossible to define a contract of service in the sense of stating a number of conditions which are both necessary to, and sufficient for, the existence of such a contract. The most that can profitably be done is to examine all the possible factors which have been referred to in these cases as bearing on the nature of the relationship between the parties concerned. Clearly not all of these factors will be relevant in all cases, or have the same weight in all cases. Equally clearly no magic formula can be propounded for determining which factors should, in any given case, be treated as the determining ones. The plain fact is that in a large number of cases the court can only perform a balancing operation, weighing up the factors which point in one direction and balancing them against those pointing in the opposite direction. In the nature of things it is not to be expected that this operation can be performed with scientific accuracy (38). "

69. The more modern approach, at least in Australia, requires an examination of all of the circumstances including the totality of the relationship between the parties, the identification of factors which are in favour of or against the characterisation of the relationship as an employment or not, and the attribution of relative weight to the various factors (some of which may actually or potentially conflict). The nature and extent of any right to control and the applicable organisational structure are factors to be taken into account and they may, in a particular case, be decisive.

70. In
Stevens v Brodribb Sawmilling Co Pty Ltd (1986) 160 CLR 16 , Mason J (with whom Brennan J was in general agreement) said:

" 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:
Zuijs v Wirth Bros Pty Ltd (1955) 93 CLR 561 , at p 571;
Federal Commissioner of Taxation v Barrett 73 ATC 4147 ; (1973) 129 CLR 395 , at p 402;
Humberstone v Northern Timber Mills (1949) 79 CLR 389 , at p 404. In the last-mentioned case Dixon J said:

' The question is not whether in practice the work was in fact done subject to a direction and control exercised by an actual supervision or whether an actual supervision was possible but whether ultimate authority over the man in the performance of his work resided in the employer so that he was subject to the latter ' s order and directions. '

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:
Queensland Stations Pty Ltd v Federal Commissioner of Taxation (1945) 70 CLR 539 , at p. 552; Zuijs ' Case;
Federal Commissioner of Taxation v Barrett (1973) 129 CLR , at p 401;
Marshall v Whittaker ' s Building Supply Co (1963) 109 CLR 210 , at p. 218. 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 (24). "

ATC 9382

Wilson and Dawson JJ noted, to similar effect:

" The classic test for determining whether the relationship of master and servant exists has been one of control, the answer depending upon whether the engagement subjects the person engaged to the command of the person engaging him, not only as to what he shall do in the course of his employment but as to how he shall do it:
Performing Right Society Ltd v Mitchell and Booker (Palais de Danse) Ltd [ 1924 ] 1 KB 762 . The modern approach is, however, to have regard to a variety of criteria. This approach is not without its difficulties because not all of the accepted criteria provide a relevant test in all circumstances and none is conclusive. Moreover, the relationship itself remains largely undefined as a legal concept except in terms of the various criteria, the relevance of which may vary according to the circumstances (35). "

Also see
Hollis v Vabu Pty Ltd (2001) 207 CLR 21 .

71. Where there is a written agreement between the parties, the agreement is the primary, but not the only, source of information as to the nature of the relationship between them. See
Australian Mutual Provident Society v Allan (1978) 52 ALJR 407, 409 .

72. In Allan , the appellant appointed the respondent as one of its representatives, upon terms set out in a written agreement. The Privy Council made a detailed examination of the written agreement and concluded that it provided for a contract of agency and not of service (411). Lord Fraser of Tullybelton, who delivered the advice of the Board, said it was possible that the written agreement may have been amended or varied by the subsequent conduct of the parties, and it was therefore proper to consider the subsequent conduct for the limited purpose of ascertaining whether it had the effect of varying the written agreement (411).

73. In
Narich Pty Ltd v Commissioner of Pay-roll Tax 84 ATC 4035 ; [ 1983 ] 2 NSWLR 597 , the Privy Council held that Allan is authority for the following principle of law, applicable to cases where there is a dispute as to the proper characterisation of a person as an employee or an independent contractor:

" [ S ] ubject to one exception, where there is a written contract between the parties whose relationship is in issue, a court is confined, in determining the nature of that relationship, to a consideration of the terms, express or implied, of that contract in the light of the circumstances surrounding the making of it; and it is not entitled to consider also the manner in which the parties subsequently acted in pursuance of such contract. The one exception to that rule is that, where the subsequent conduct of the parties can be shown to have amounted to an agreed addition to, or modification of, the original written contract, such conduct may be considered and taken into account by the court: see the AMP case (1978) 18 ALR 385, at 392; 52 ALJR 407, at 411 (601). "

Compare Stevens , where Wilson and Dawson JJ stated that ' the actual terms and terminology of the contract will always be of considerable importance ' in determining whether a person is an employee or an independent contractor (37).

74. Sometimes a written agreement will include a clause which asserts that the relationship between the parties is that of employer/employee or principal/independent contractor, as the case may be. Where the parties have defined their relationship in this manner, their expressed intention is significant and will be accorded weight (if it is not a sham), but will not be conclusive as to the true nature of the relationship. See Allan (407); Narich (601);
Personnel Contracting Pty Ltd t/as Tricord Personnel v The Construction Forestry Mining and Energy Union of Workers [ 2004 ] WASCA 312 [ 24 ] (Steytler J). A deeming clause in relation to a person ' s status as an employee or an independent contractor will not be given effect, according to its terms, if it contradicts the effect of the agreement as a whole. See Allan (409); Narich (606).

The nature and characteristics of a franchise arrangement

75. In Chitty on Contracts , 30th ed, vol II, the nature and characteristics of a franchise arrangement are described, as follows:

" Franchise agreements are those whereby the proprietor of a trade mark, business name or other distinctive marketing presentation (the franchisor) grants one or

ATC 9383

more parties (the franchisees) the rights to use the mark or other marketing format in the supply of goods or services and to present their premises in accordance with the distinctive layout or format associated with the franchisor. Each franchise remains an independent trader bearing his own financial risk but he benefits from the goodwill associated with the franchisor ' s business. To the outside observer the franchisees ' premises look uniform and sell products of the same appearance and quality. The franchisee normally undertakes to pay a royalty on sales from his premises and to buy at least part of his stock from the franchisor or from suppliers nominated by the franchisor. The franchisor provides know-how which may include staff training and guidance as well as allowing the franchisee to use the marketing image which usually has proven customer appeal [ 42-057 ] . "

The merits of the ground of appeal: were the consultants effectively franchisees of MFA and MFS who operated their own businesses?

76. By cl 2.1 of the Deed of Appointment, the consultant was appointed to provide " the Services " to MFA in accordance with the Deed. The term " Services " was defined in cl 1.33 to mean the services provided by the consultant to, relevantly, MFA pursuant to cl 3. Clause 3 stipulated that those services included, relevantly:

  • (a) acting as agent on behalf of MFA in its capacity as agent of the financial institutions to conduct interviews with prospective applicants for financial and insurance products;
  • (b) to process the applications in accordance with instructions or guidelines issued from time to time by MFA or the financial institutions;
  • (c) to do all that is required by MFA and the financial institutions to have the applications considered and, if satisfactory, have provision of the financial and insurance products approved by the financial institutions; and
  • (d) to ensure that the applications are processed expeditiously.

In the definition of " Agency Services " in cl 1.14, reference is made to the services to be provided by the consultant to MFA as MFA ' s agent. The services enumerated in the definition include using the consultant ' s best endeavours to promote the business of MFA, Mortgage Force Insurance Services or any other business or company in which MFA has an interest. The Consultancy Agreement contains similar provisions to those in the Deed of Appointment which I have mentioned.

77. The consultants did not sell or market the financial or other products of MFA or MFS to the clients. They sold or marketed the financial or other products of the financial institutions to the clients.

78. Also, the consultants did not use a system of MFA or MFS to sell or market the financial or other products of the financial institutions to the clients. Rather, each consultant decided on the procedures to be used in obtaining work, including how to liaise with clients, the documents and other materials to be used for this purpose, how to liaise with the financial institutions, and what, if any, assistance to provide to clients after loan documentation was produced by the financial institutions. Further, each consultant determined which products to recommend to clients, without any recommendation or involvement from MFA or MFS.

79. Pursuant to the Mortgage Origination Agreements, MFA operated a business of arranging finance on behalf of clients. No consultant entered into any Mortgage Origination Agreement with a financial institution and, in consequence, no consultant was entitled to receive any commission from a financial institution. Any entitlement of a consultant to payment for his or her services arose only under the terms of the agreement between the consultant and MFA or MFS.

80. The only income which the consultants received was commission from MFA or MFS. By the Deed of Appointment or the Consultancy Agreement (or the oral agreements in those terms), the commission was payable in respect of services provided by the consultants to MFA or MFS.

81.

ATC 9384

The Mortgage Origination Agreements treated the applicants for finance as clients of MFA. The commission payable by the financial institutions under the Mortgage Origination Agreements was payable to MFA. The consultants carried out the work that was necessary for MFA to earn its commission from the financial institutions. They performed this function in MFA ' s name and on its behalf, rather than on their own account.

82. The consultants were engaged to provide services to MFA or MFS. They did not obtain assistance from MFA or MFS for the purpose of carrying on their own broking businesses. The only business that each consultant could have had was a business of providing services to MFA or MFS. None of the consultants had a business which involved or included the provision of services to the financial institutions or the applicants for finance. The consultants obtained assistance from MFA or MFS for the purpose of facilitating their provision of services to MFA or MFS. The performance of those services enabled the consultants to derive income under their agreements with MFA or MFS, and advanced MFA ' s business of arranging finance on behalf of clients.

83. It is true that MFA and MFS supplied the consultants with business cards depicting the " Mortgage Force " name and logo, an email address with the " mortgageforce " domain name, and notepads bearing the " Mortgage Force " name and logo, to be provided to clients, potential clients and real estate agents. MFA and MFS advertised the " Mortgage Force " name and logo in the " Yellow Pages " of the telephone directory. Each consultant used stationery and advertising with the " Mortgage Force " name and logo.

84. However, MFA ' s and MFS ' s grant to the consultants of the right to use the " Mortgage Force " name and logo and an email address with the " mortgageforce " domain name, in connection with the provision by the consultants of services in consideration of payment by MFA or MFS for those services, did not place MFA or MFS in a position " akin " to that of a franchisor or make the arrangements between MFA, MFS and the consultants analogous to a franchise arrangement. Critically, none of the consultants was carrying on his or her own business of arranging finance on behalf of clients. The services of the consultants were conducive to the carrying on of such a business by MFA.

85. In my opinion, there is merit in that part of the ground of appeal which contends that the Tribunal made an error in:

  • (a) finding that the consultants were effectively franchisees of MFA and MFS who operated their own businesses; and
  • (b) failing to find that MFA and MFS in substance ran their businesses through the consultants, having regard to the contractual arrangements between MFA, MFS, the consultants and the relevant financial institutions.

The merits of the ground of appeal: were the consultants employees or independent contractors?

86. It does not follow from the Tribunal ' s mischaracterisation of the relationship between MFA or MFS and the consultants as " akin to a franchise arrangement " or its failure to find that MFA and MFS in substance ran their businesses through the consultants, that the consultants were employees of MFA or MFS and not independent contractors. It remains necessary to determine that issue upon an examination of all the circumstances including the totality of the relationship between the parties, the identification of factors which are in favour of or against the relationship being an employment or not, and the attribution of relative weight to the various factors. There were no issues of credibility in relation to the witnesses who gave evidence before the Tribunal. In the circumstances, this court may evaluate and weigh the evidence and make the necessary determination.

87. A number of features of the relationship between the parties point to the consultants being independent contractors. Other features point to the consultants being employees. Some features are neutral.

88. I turn now to those aspects of the relationship between the parties which suggest that the consultants were independent contractors.

89.

ATC 9385

First, the consultants were not required by the Deed of Appointment or the Consultancy Agreement (or the oral contracts in those terms):
  • (a) to work from a particular place;
  • (b) to work a specified number of hours or any particular hours; or
  • (c) to obtain a specified or minimum number of applications for finance from clients within a particular period or at all.

The consultants were not promised a minimum volume of work or, indeed, any work.

90. Secondly, by cl 4 of the Deed of Appointment (and cl 4.1 of the Consultancy Agreement) the consultants were entitled to provide the services at such times and on such days as they may decide and, subject to the consultants complying with the Deed of Appointment (and the Consultancy Agreement), they were entitled to provide the services in a manner entirely within their discretion.

91. Thirdly, by cl 12.1 of the Deed of Appointment (and cl 11.1 of the Consultancy Agreement) the parties agreed that the consultants would be independent contractors and not employees.

92. Fourthly, by cl 12.1.4 of the Deed of Appointment (and cl 11.1(d) of the Consultancy Agreement) the consultants were not entitled to annual leave or sick leave. Further, by cl 11.1(d) of the Consultancy Agreement, the consultants were not entitled to long service leave, paid overtime, superannuation (including superannuation pursuant to the Superannuation Guarantee (Charge) Act 1992 (Cth)), worker ' s compensation coverage or other insurance coverage of any kind, paternity or maternity leave or any similar leave, or any remuneration or emoluments for providing the consultancy services other than the agreed remuneration. Also, the Deed of Appointment did not confer on the consultants any right to any of those benefits.

93. Fifthly, by cl 12.1.5 of the Deed of Appointment (and cls 1.1.5 and 5 of the Consultancy Agreement) the consultants were obliged, at their own expense, to provide their own motor vehicles, mobile telephones and pagers, subject to any agreement which may be made in a particular case between a consultant and MFA or MFS for reimbursement of expenses legitimately incurred in providing the services. By cls 1.1.5 and 5 of the Consultancy Agreement, the consultants were also obliged, at their own expense, to provide their own laptop or personal computer.

94. Sixthly, by cl 13 of the Deed of Appointment (and cl 12 of the Consultancy Agreement), the consultants were entitled, subject, relevantly, to the written approval of MFA or MFS, to appoint a ' sub-agent ' in his or her place. If a sub-agent was appointed, the service fee payable by MFA or MFS during the term of the sub-agent ' s appointment would continue to be made by MFA or MFS to the consultant, and the consultant would be responsible for remunerating the sub-agent in accordance with the arrangements between them. Clause 12.2(b)(iii) of the Consultancy Agreement provides that the consultant is liable to MFS for any failure by a sub-agent to comply with the covenants and obligations of the consultant under the agreement. (The Deed of Appointment does not, however, contain an express provision to that effect.) Both the Deed of Appointment and the Consultancy Agreement contemplate that a sub-agent may be appointed for a significant period. By cl 13.2.2 of the Deed of Appointment, a sub-agent may be appointed for up to six months, but an appointment for a term exceeding six months requires the prior written consent of MFA. By cl 12.2(a)(i) of the Consultancy Agreement, a sub-agent may be appointed for up to 12 months.

95. Seventhly, the Deed of Appointment (and the Consultancy Agreement) contemplated that a consultant may be a natural person, a corporation, a partnership or a trustee.

96. Eighthly, the Deed of Appointment (and the Consultancy Agreement) did not make any provision for the manner in which the consultants should locate clients or generate applications for finance, did not specify the manner in which the consultants should liaise with the financial institutions or with clients or potential clients, and did not specify the manner in which the consultants should determine which loan products to recommend to clients.

97.

ATC 9386

Ninthly, subject to the restrictive covenant in cl 11 of the Deed of Appointment, the Deed of Appointment (and the Consultancy Agreement) did not relevantly prohibit or restrict the consultants from carrying on any other work or business activity.

98. Tenthly, the Deed of Appointment (and the Consultancy Agreement) did not specify the manner in which the consultants should advertise for business or otherwise solicit applications for finance.

99. Eleventhly, the Deed of Appointment (and the Consultancy Agreement) did not make any provision for MFA or MFS to deduct income tax from the commissions payable to the consultants.

100. Twelfthly, the manner in which the parties observed and performed their respective obligations under the Deed of Appointment (and the Consultancy Agreement) was consistent with the provisions of those documents. This is apparent from various findings of fact made by the Tribunal. In particular, the Tribunal found, relevantly:

Neither the Deed of Appointment nor the Consultancy Agreement was varied, in any material respect, by the subsequent conduct of the parties.

101.

ATC 9387

I turn now to those aspects of the relationship between the parties which suggest that the consultants were employees.

102. First, for the reasons I have given at [ 75 ] - [ 85 ] above, in the context of considering whether the consultants were effectively franchisees of MFA and MFS who operated their own businesses:

103. Secondly:

must be evaluated in the context of cls 1.14.6 and 1.14.7 of the definition of " Agency Services " in the Deed of Appointment (and para (e) of the definition of " Consultancy Services " in the Consultancy Agreement) and cl 6.2 of the Deed of Appointment (and cls 3.1, 3.2 and 3.3 of the Consultancy Agreement). Clause 1.14.6 of the definition of " Agency Services " provides, in substance, that a consultant will use his or her best endeavours, as agent of MFA, to promote as many of the financial and insurance products as is possible. Clause 1.14.7 of the definition provides, in substance, that the consultant will use his or her best endeavours to promote the business of MFA or any other business or company in which MFA has an interest. Clause 6.2 provides that the consultant will at all times promptly and efficiently provide the services and will use all reasonable care and skill in doing so.

104. Thirdly, several provisions of the Deed of Appointment (and the Consultancy Agreement) confer on MFA or MFS the capacity to control the consultants and their activities. For example, capacity to control is apparent from cl 1.16.2 of the Deed of Appointment (which states that applications for finance must be in the form required by MFA, Mortgage Force Insurance Services or the financial institutions from time to time), cl 6 (which enumerates various detailed obligations of the consultant), cl 7 (which requires the consultant to indemnify MFA against any and all loss or damage suffered by MFA arising from or in relation to any failure by the consultant to observe, relevantly, any written instructions from MFA) and cl 8 (which permits MFA, at any time, to terminate the Deed and the consultant ' s agency upon two weeks ' written notice to the consultant, even though the consultant has not breached or failed to observe any of the provisions of the Deed). Also see, to similar effect, cl 8.3 of the Consultancy Agreement which entitles MFS to terminate the agreement, at any time, upon giving four weeks ' written notice to the consultant.

105. Fourthly, the definition of " Mortgage Force Confidential Information " in cl 1.26 of the Deed of Appointment read with cl 9 (which is concerned with trade secrets and confidential information), cl 10 (which is concerned with the obtaining of injunctive relief) and cl 11 (which contains a restrictive covenant) make plain that any intellectual property or " know how " embodied in or derived from the information which is used to generate applications for finance to the financial institutions (and, as a result, generate commissions for MFA under the Mortgage Origination Agreements and commissions for the consultants under the Deeds of Appointment and the Consultancy Agreements) is an entitlement of MFA or MFS and not the consultants. Also see, to similar effect, the definition of " Mortgage Force Confidential Information " in cl 1.1.13 of the Consultancy Agreement and cls 9 and 10 of the agreement.

106.

ATC 9388

Fifthly, the weight to be given to some of the consultants being corporations or partnerships is diminished by the powers conferred on the Commissioner by s 11E of the Pay-roll Tax Act . Section 11E(1) provides:

" Where any person enters into any agreement, transaction, or arrangement, whether in writing or otherwise, whereby a natural person performs or renders, for or on behalf of another person, services in respect of which any payment is made to some other person related or connected to the natural person performing or rendering the services and the effect of such agreement, transaction, or arrangement is to reduce or avoid the liability of any person to the assessment, imposition, or payment of pay-roll tax, the Commissioner may -

  • (a) disregard such agreement, transaction, or arrangement;
  • (b) determine that any party to such agreement, transaction, or arrangement shall be deemed to be an employer for the purposes of this Act; and
  • (c) determine that any payment made in respect of such agreement, transaction, or arrangement shall be deemed to be wages for the purposes of this Act. "

107. Sixthly, the absence of any fixed working time or fixed number of applications for finance which the consultant must obtain, the absence of any guarantee of a minimum volume of work for the consultant, and the consultant ' s entitlement to provide services at such times and on such days as he or she may decide and, in general, to provide the services in a manner within his or her discretion, must be considered in the context of the remuneration structure under which the consultants were paid only by way of commission. The remuneration structure provided an effective financial incentive to encourage the consultants to work diligently. Compare the observations of Stephen J in Barrett , 404 - 405.

108. I turn now to aspects of the relationship between the parties which are, in essence, neutral in determining whether the consultants were independent contractors or employees. These include:

109. In my opinion, when all of the competing and, in some instances, conflicting features of the relationship between the parties are viewed and weighed in their totality they militate decisively in favour of the conclusion that the consultants were independent contractors and not employees. The following factors are of particular significance in arriving at this conclusion:

Conclusion

110. At all material times, the consultants were independent contractors and not employees. The commissions paid to them were not ' taxable wages ' , within s 6 of the Pay-roll Tax Act .

111. I would dismiss the appeals.

 

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