FEDERAL COURT OF AUSTRALIA Lopez v Deputy Commissioner of Taxation [2004] FCA 756 INCOME TAX - tax exempt income - engineer received fee for "consultancy and management" services whilst working in Nigeria over a period of eight months - whether the fee constituted "foreign earnings derived by the person from foreign service" Income Tax Assessment Act 1936 (Cth) ss 23AG(1), 23AG(2)(c), (d), 23AG(7), 27A(1) Income Tax Assessment Amendment Act (No 5) 1980 (Cth) s 3 Taxation Administration Act 1953 (Cth) ss 14ZZ, 14ZZO(b)(i) Taxation Laws Amendment (Foreign Tax Credits) Act 1986 (Cth) s 7 Building Workers' Industrial Union of Australia and Ors v Odco Pty Ltd (1991) 29 FCR 104 cited Chaudhri v Commissioner of Taxation (2001) 109 FCR 416 referred to CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384 cited Commissioner of Taxation v Dalco (1990) 168 CLR 614 cited Commissioner of Taxation v White (1985) 7 FCR 566 cited Commissioner of Taxes (Victoria) v Phillips (1936) 55 CLR 144 cited Federal Coke Co Pty Ltd v Commissioner of Taxation (Cth) (1977) 34 FLR 375 cited Hayes v Commissioner of Taxation (1956) 96 CLR 47 cited Hollis v Vabu Pty Ltd (2001) 207 CLR 21 cited Reuter v Commissioner of Taxation (Cth) (1993) 27 ATR 256 cited Stevens v Brodribb Sawmilling Co Pty Ltd (1986) 160 CLR 16 cited Australia, House of Representatives, Debates, Vol HR 149, 1986, pp 3799–3801 R W Parsons "Income Taxation in Australia" The Law Book Company Limited 1985 FIDENCIANO NAVARRO LOPEZ v DEPUTY COMMISSIONER OF TAXATION W355 OF 2001 W356 OF 2001 LEE J 16 JUNE 2004 PERTH IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY W355 OF 2001 BETWEEN: FIDENCIANO NAVARRO LOPEZ APPLICANT AND: DEPUTY COMMISSIONER OF TAXATION RESPONDENT JUDGE: LEE J DATE OF ORDER: 16 JUNE 2004 WHERE MADE: PERTH THE COURT ORDERS THAT: 1. The "appeal" be dismissed. 2. The applicant pay the respondent's costs. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY W356 OF 2001 BETWEEN: FIDENCIANO NAVARRO LOPEZ APPLICANT AND: DEPUTY COMMISSIONER OF TAXATION RESPONDENT JUDGE: LEE J DATE OF ORDER: 16 JUNE 2004 WHERE MADE: PERTH THE COURT ORDERS THAT: 1. The "appeal" be dismissed. 2. The applicant pay the respondent's costs. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY W355 OF 2001 W356 OF 2001 BETWEEN: FIDENCIANO NAVARRO LOPEZ APPLICANT AND: DEPUTY COMMISSIONER OF TAXATION RESPONDENT JUDGE: LEE J DATE: 16 JUNE 2004 PLACE: PERTH REASONS FOR JUDGMENT LEE J: 1 Pursuant to s 14ZZ of the Taxation Administration Act 1953 (Cth) ("the Administration Act") the applicant "appeals" against "appealable objection decisions" made by the respondent ("the Commissioner"), whereby the applicant's objections to the Commissioner's assessments of the applicant's liability to tax under the Income Tax Assessment Act 1936 (Cth) ("the Act") for the years ending 30 June 1998 and 30 June 1999 were disallowed. 2 The applicant is a chemical engineer who has skill and expertise in applying polyurethane insulation to pipes used for the transportation of liquid gas. The applicant is a director and principal shareholder of Navarro Chemicals Pty Ltd ("Navarro"). After abandoning its original intention of carrying on business as a manufacturer of circuit boards Navarro commenced trading as an importer and distributor of resins used in the plastics industry. Later it became a manufacturer of polyurethane foam. Whilst it carried on the latter enterprise several persons who were not members of the applicant's family contributed to the conduct of that business and held shares in the company and office as directors. By March 1997, however, the applicant, his wife and son were the only shareholders of Navarro and the applicant and his son were the directors. Thereafter the business of Navarro appeared to be restricted to use of the foregoing skill and expertise of the applicant. At material times the activities of Navarro were controlled by the applicant. 3 In about March 1997 Meisei Industrial Co Limited ("Meisei"), a corporation formed in Japan, was requested by the principal contractors ("the joint venturers") of a project for the construction of a liquid natural gas facility and pipeline at Bonny Island in Nigeria ("the Bonny Island Project") to submit a tender for the work of "pre-insulation" of the pipeline. Meisei had no experience in that field and would not have submitted a tender but for the insistence of the joint venturers that it do so. The joint venturers advised Meisei to consult the applicant and Navarro in the preparation of its tender. 4 On 27 March 1997 Meisei asked Navarro to confirm by the following day that it would be available to provide "technical support" and consultancy and supervisory services to Meisei in respect of the planning and operation of a plant to be used to apply polyurethane insulation to the Bonny Island Project pipeline and to provide an estimate of relevant costs. Navarro responded on 28 March 1997 by setting out an estimate of costs as follows: "1. Design, procure and construct plant equipment ) $US 2. Load onto containers for shipment to Nigeria ) 3. Supervise plant set-up and commission ) 4. Provide you with the appropriate method statements and ITP [inspection and test plan] ) 1,200,000.00 ) 5. Supply shear keys and primary guides 470,000.00 6. Plant & Equipment 540,000.00 7. Foam and GRE Materials [glass reinforced epoxy] 1,700,000.00 8. Source expert personnel for foaming operations and glass reinforced epoxy coating of pipes 40.00 per hour 9. Provide experienced plant manager for the duration of the project 100.00 per hour 10. Cost of business class airfares for personnel, accommodation, meals, local transport and other on site costs provided for by Meisei As required Total estimated cost including 'No. 10' $US4,628,000.00 N.B * Included in the plant and equipment will be a suitably sized compressor which will deliver clean, dry air at 150 p.s.i. pressure. * Meisei will provide a building measuring 24 metres by 96 metres with a concrete apron on one end measuring 24 metres by 36 metres for pipe inspection and assembly. The opposite end of the building should have a concrete apron for pipe loading and dispatch. * This estimate does not include provision for local labour. Twenty (20) men will be required for this project." 5 On 27 May 1997 the joint venturers accepted Meisei as sub-contractor for the work of insulating the pipeline and asked it to attend a meeting in Paris with the joint venturers in June 1997 to discuss engineering issues and, in particular, the work of pipe insulation. Meisei was asked by the joint venturers to have Navarro "representatives" present at that meeting. Meisei informed Navarro of the joint venturers' request and arranged for the applicant to travel to Paris. Meisei also advised that following the meeting with the joint venturers there would be a "detailed meeting" between Meisei and Navarro. In Paris the applicant met with Mr Kobayashi, the manager of the Meisei sub-contract, and discussed the terms of a proposed contract to be made between Meisei and Navarro. 6 The estimate supplied by Navarro had indicated that Navarro would be responsible for supervision of the design, procurement and construction of equipment and for the setting-up and commissioning of the plant ("the insulation plant") to be used in Nigeria for insulating the pipes. Navarro would provide personnel to Meisei to be employed by Meisei as Plant Manager and supervisors to assist in the running of the plant. Navarro specified the rate at which the personnel supplied by Navarro were to be remunerated by Meisei. 7 At the meeting in Paris it was agreed between the applicant and Mr Kobayashi that the applicant would perform the duties of Plant Manager after the insulation plant had been commissioned. Before that meeting Navarro had proposed that a former director and shareholder of Navarro, Mr Byrnes, represent Navarro in carrying out that work. 8 Navarro presented a draft agreement which the applicant discussed with Mr Kobayashi at the meeting in Paris. In the draft agreement Navarro agreed to make technology available to Meisei which included, inter alia, the design and specification of equipment and specification of materials. Navarro was to earn a fee of $US1,200,000 for the supply of that technology described as a "Technology and Management Fee". It was provided in the draft agreement that the fee be paid to the applicant. A further fee of $US540,000, described as a "Plant and Equipment Fee", was also said to be payable to the applicant. It was understood from the estimate that it was the cost (with an added margin) of plant and equipment obtained by Navarro for construction of the insulation plant. 9 Prior to the meeting in Paris it was understood between Navarro and Meisei that the applicant would attend on site at the Bonny Island Project to set-up the insulation plant and after the insulation plant was commissioned would remain there for a period of three months, at no cost to Meisei, to supervise the production of insulated pipes. It was anticipated that the insulation plant would be installed and commissioned between late October and the end of November 1997 and that production would start at the beginning of December 1997. 10 Subsequently Meisei produced a draft agreement which provided that the "Technology and Management Fee" would be paid to Navarro. The draft stated that Navarro would "make available [the applicant] in both the positions of Plant Manager and Coordinator/Consultant to Meisei [and] the technology". The "Technology and Management Fee" was said to be payable for that service in addition to the previously identified elements. 11 Navarro advised Meisei that it agreed with the foregoing draft save that it had altered Meisei's responsibilities under the draft by providing that "in consideration of Navarro providing the technology" Meisei would pay the "Technology and Management Fee" to the applicant. In response, Meisei requested that the draft be re-amended to provide that the Technology and Management Fee be paid to Navarro. 12 Navarro then sought advice from its accountant. The accountant suggested that the draft agreement be altered to include the applicant as a party and to provide for the applicant to perform certain duties and receive the "Technology and Management Fee". 13 Navarro then advised Meisei that its "Accounting Division" required changes to be made to the draft "to minimise our tax liabilities". It stated that a "revised edition " would be forwarded shortly. The reference to an "Accounting Division" was one of a number of statements in Navarro's communications with Meisei that provided an inflated account of the size and commercial substance of Navarro. 14 As a result of the accountant's advice Navarro made further amendments to the draft agreement. The draft was returned to the accountant for perusal with the comment that Navarro had "tried to account for most of [Navarro's] duties under the Plant & Equipment Fee and [had] changed the Technology & Management Fee to Consultancy & Management Fee". The fee was payable to the applicant. The services for which the "Consultancy and Management Fee" was said to be payable required the applicant "to supervise plant set-up and commission as a Consultant in Nigeria" and "to make his consultancy services/knowledge available to Meisei in Nigeria for the duration of the pre-insulation project including field joints, bellows and anchors". 15 Navarro then forwarded the "revised" draft to Meisei stating that it had been prepared by Navarro's "Legal and Financial Division". Navarro stated that Navarro's and the applicant's responsibility to Meisei had been maintained and that "[i]n this way Meisei is assured access to both, [Navarro] and [the applicant] as a Consultant, for the duration of the contract". The draft provided for the applicant to be a party to the agreement as a "Professional Consultant" and recited that Navarro and the applicant had "design and process knowledge and experience of pre-insulating pipe spools for LNG Offsite installations". 16 The draft provided that the applicant would "make himself available in both the positions of Plant Manager and Coordinator/Consultant to Meisei" and that Navarro would make "the technology" available. "[T]he technology" remained as described in previous drafts and included: the design, procurement and construction of plant and equipment; loading onto containers for shipment to Nigeria; and provision of method statements and operational procedures. The sum payable for these services was now absorbed within the "Plant and Equipment Fee" of $US540,000. 17 The fee previously payable for the foregoing services, namely $US1,200,000, was now described as a "Consultancy and Management Fee" and was payable to the applicant. The fee was said to be payable for the applicant "as a Consultant in Nigeria", supervising the set-up and commissioning of the insulation plant and making available "services/knowledge...to Meisei in Nigeria for the duration of the pre-insulation project". The first of those duties was formerly a service to be performed by Navarro for the "Technology and Management Fee" and the second was also part of the "responsibility" to be discharged by Navarro under the draft. Navarro submitted this further draft to its accountant for further advice. 18 Meisei agreed with the amended draft but sought further amendments to make it clear that the applicant was making himself available as Plant Manager "of Navarro" as well as a "Technical and Production Consultant". Navarro agreed to the request but added the words "employed by Meisei" to the words "of Navarro". Added to the draft at that point was a further service to be performed by the applicant for the "Consultancy and Management Fee", namely, that the applicant "act as Plant Manager of Navarro employed by Meisei during shop pre‑insulation application in Nigeria". 19 Between 1-7 July 1997 the final form of the Agreement ("the Agreement") was executed by Meisei, Navarro and the applicant. 20 The description of the applicant as a party to the Agreement was "in his personal capacity as a Professional Consultant and also as a Plant Manager of Navarro employed by Meisei". The salient points of the Agreement read as follows: "It is hereby agreed For Navarro's part ... A3. Post award [the applicant] will make himself available in both positions of a Plant Manager and coordinator/Consultant to Meisei and Navarro will make the technology available in the form of – · making the benefits of the technology available to Meisei · design and specification of equipment · specification of materials · method statements and operational and procedures · QA/QC procedures · Any other relevant documentation and procedures to enable Meisei to execute the work in accordance with client requirements. This is defined as the engineering phase. The fee for the above services as addressed in the Attachment – 1 Section (III) as "Plant & Equipment Fee". A4. On completion of the engineering phase Navarro personnel and [the applicant] will make themselves available in Australia and Nigeria. [The applicant] will make himself available to Meisei as technical and production consultant as well as plant manager of Navarro employed by Meisei in Nigeria to enable Meisei to execute the work in accordance with client requirements. A5. Navarro understand that at all times on the project, its' (sic) relationship to Meisei shall be as a subcontractor on an exclusive basis and it shall not enter into any contractual relationship with any third party and shall maintain complete confidentiality on all matters related to Meisei's contract. A6. Any development in the technology arising from executing the work shall be considered the property of Navarro and Meisei, and shall not be made available to any parties without the agreement of Navarro and Meisei. A7. Navarro accepts that in performing their (sic) obligations under this agreement, they (sic) are not empowered to give undertakings or make commitments on behalf of Meisei without its written confirmation. Navarro's and [the applicant's] responsibility will be limited to the specification of equipment and materials necessary for the execution of the work and for providing services as a Plant Manager and Coordination/Consultant, respectively. Navarro's responsibility is as follows 1. Design of shop and plant equipment which maintain the required capacity and quality. 2. Provision of material information as per specification and previous projects MLNG and others. 3. Provision of instruction to Navarro's nominated Supervisors to execute the project. 4. Provision of the professional activities to execute pre-insulation. 5. Responsibility to perform the work in order to satisfy the quality required in the specification. 6. Following documentation shall be provided. - Shop design including utilities and layout drawings - Equipment drawing for pipe handling units - Operation manual, Installation Procedure, Data Sheet for equipment supplied by Navarro. - Application Procedure and Method statement for shop pre-insulation - QA/QC documents including ITP 7. Assistance service for the field works. 8. Coordination/negotiation with client, if Meisei require ... For Meisei's part B1. Meisei will work exclusively with Navarro and [the applicant] on the Bonny Island LNG Project at the tender stage and post award and will no (sic) seek or utilize the services of any third party having the knowledge or experience of the technology. B2. Meisei will be solely responsible for the payment of the specified equipment and materials necessary to execute the work. B3. In consideration of Navarro providing the technology as defined under 'A3' above, Meisei will pay Navarro the fee as specified in the following manner: Plant & Equipment Fee - 50% of Plant & Equipment Fees (sic) as a deposit/working capital - Balance of Plant & Equipment Fee payable on progressive claims by Navarro Refer to Attachment – 1 Item (III). In addition to this, a further fee will be paid to [the applicant] in the following manner: Consultancy & Management Fee - 25% Deposit of Consultancy and Management Fee to nominated account - 25% of Consultancy and Management Fee immediately after commissioning - The balance of Consultancy and Management Fee to be paid on final acceptance of pre-insulated pipe by TSKJ [the joint venturers] Refer to Attachment – 1 Item (II). Ancillary Material and Consumable Fee - Against presentation of invoice and evidencing shipping documents, within 30 days after the date of Bill of Lading. Refer to Attachment –3 All other expenses incurred by Navarro and/or of its' (sic) nominated personnel in carrying out these duties, will be met by Meisei. B4. As compensation for Navarro appointed personnel carrying out duties in Nigeria, Meisei shall pay to them the hourly fee as stated in the Attachment – 1 Item (I), such fees to exclude the cost of travel, accommodation, food and all other on site expenses, the provision of which will be the responsibility of Meisei. .... B7. In the unlikely event of default due to force majeure, (riot, war, revolution etc.) that causes the work to be stopped indefinitely, Meisei will pay wages up to stopping point. The amount outstanding from the total "Consultancy and Management Fee" will also be paid in full to [the applicant]. This agreement shall remain in existence until such time as all works associated with the Pipe Pre-insulation on the Bonny Island LNG Project are complete. All disputes between Meisei, Navarro and [the applicant] are to be resolved amicably. ATTACHMENT – 1 Contract Price (I) Rates of pay ($US) for [the applicant] and key personnel sourced by Navarro, employed by Meisei: Mr. Fidenciano Lopez :Plant Manager : 100.00 per hour Mr. Thomas Ashman :Foam Supervisor: : 40.00 per hour Mr. Diminic Spina :GRE Supervisor : 40.00 per hour Plus AIU Insurance Fee (Max US$166,000) premium US$400-500/year (II) Consultancy and Management Fee includes: [The applicant] to supervise plant set-up and commis[s]ioning as a Consultant to Meisei in Nigeria. [The applicant] to make his consultancy service/knowledge available to Meisei in Nigeria for the duration of the pre-insulation project including field joints, bellows and anchors. [The applicant] to act as Plant Manager of Navarro employed by Meisei during shop pre-insulation application in Nigeria. Total Consultancy Fee – US$1,2000,000 (III) Plant & Equipment Fee US$540,000 (Values shall be adjusted later as per agreed supply scope of work in Attachment-2) Design, procure and construct plant and equipment. Load onto containers for shipment to Nigeria. Provide Meisei with the appropriate method statement and ITP. (IV) Ancillary Material & Consumable Fee Approximate estimated Value:AUD $348,068.50 (To be adjusted later) Payment shall be made against presentation of invoice and evidencing shipping documents, with 30 days after the date of Bill of Lading. ..." 21 Immediately after execution of the agreement Meisei, at the request of its financial department which had concerns about "Tax office...inspection", asked Navarro to explain why the "Consultancy and Management Fee" was to be paid to the applicant and not to Navarro. Navarro informed Meisei that earnings by the applicant as an employee of Meisei would be tax exempt in Australia provided he was out of the country for at least 91 days whereas all monies paid to Navarro would be subject to tax. 22 On 6 August 1997 the applicant and Meisei executed a further contract described as "Australian Staffs Employment Contract" ("the Employment Contract") it provided as follows: "1. PERIOD OF EMPLOYMENT - Start of the employment will be around October 1st 1997 - End of the employment will be around May 1st, 1998 - The employment period and start/end date will be adjusted according to the developed Pre-insulation schedule. 2. WORKING TIMES - The official working time for BONNY LNG PROJECT is 6 working days a week and 10 working hours a day. - Sunday is holiday. 3. SALARY (BASIC HOURLY SALARY) 3-1) Employees' (sic) consolidated salary based on 10 working hours a day and 6 working days a week is US$100.00 – an hour, including all allowances taken into account the works circumstance surrounding Bonny Island. The above hourly rate will be paid from time of start for actual production to end of contract. Services before actual productions such as se[t]-up, trial and commissioning shall be scope of contract for consultant and management fee. 3-2). Even though fluctuated values of any currencies to convert from US Dollar would occurred (sic) the salary is fixed by the end of this contract. 3-3). In case employees request MEISEI INDUSTRIAL CO., LTD. (hereinafter called Meisei) to receive local currency from a part of their salaries for the daily living cost at job site Meisei can convert U.S. Dollar to local currency at official rate. 4. PAYMENT OF SALARY 4-1). Salary is paid once every month on or before the 10th of the following month. 4-2). Salary is paid in U.S. Dollar. 4-3). Salary is paid to your bank account in Australia by bank transfer or other payment methods agreed by both party. (sic) 5. NATIONAL HOLIDAY National holiday for employees working for NIGERIA LNG PROJECT will be unified Nigerian national holiday regardless (sic) Australian national holidays. 6. PAYMENT FOR SUNDAY AND NATIONAL HOLIDAY WORKS (sic) Basic hourly salary for the above works (sic) shall be same as para,3. 7. PAYMENT FOR OVER-TIME Basic hourly salary for the above works (sic) shall be same as para,3. 8. TRAVELLING COSTS FOR START/END OF CONTRACT AND LEAVE During the period of this contract employees are entitled to have 14 days leave including Sunday every three months but number of days required for travelling are not included in 14 days. Flight cost of the travel from home to Nigeria for start of the contract and leaves are paid by Meisei and the flight tickets are Business class for each way. When your employees move into job site at start of the contract and return to their home country they will be granted 8 hours normal working day for each way. Conditions (sic) to be able to take the leave every three months is that minimum period staying at job site should be 6 months. 9. IMMIGRATION EXPENSIVES ARISEN BETWEEN AUSTRALIA (sic) These actual costs arisen in above both countries on lodging immigration procedure will be paid by Meisei. 10. DEDUCTION MONTHLY SALARY BY ABSENCE In case employees were absent from their works (sic) due to sickness other than injuries during routine works (sic) for this project their salaries will be deducted as per following calculation. a). Basic hourly salary x Number of absent = Deducted amount b). With regard to the above matters, in case employees were especially approved not to deduct their salaries by Meisei, the above calculation of deduction is not applied. 11. ACCOMMODATION Meisei build camp facilities for all employees on Bonny Island, based on the standard specification taken into account living standards for Australia nationality contracted with Meisei. These facilities are furnished all employees free of charge during period. 12. FOOD 3 meals (Breakfast/Lunch/Dinner) for Japanese or European styles are provided by Meisei at camp site, free of charge, however, 3 meals cost during employee's leaves should be paid by themselves. 13. TRANSPORTATION BETWEEN CAMP AND SITE OFFICE All employees will be provided daily transport from camps to site office by Meisei. 14. TRANSFER COST BETWEEN BANK TO BANK AND CONVERT COST FROM U.S. DOLLAR TO AUSTRALIAN CURRENCE (sic) FOR SALARY Employee's salaries paid from Meisei in Japan will be transferred to your bank account in Australia The transfer cost arisen between the above banks will be paid by Meisei and commissions for conversion from U.S. Dollar to Australian Dollar after remittance to bank in Australia will be paid by you. 15. INSURANCE During contract period Meisei will proivde insurance undermentioned with the cost for employees so as to be able to cover employee's compensations. ITEM INSURANCE AMOUNT 1) Death by injury Meisei Insure for insurances, Itemized 1 to 5 so as to be able to indemnify employees sufficiently 2) Remedy by injury 3) Death by disease 4) Remedy by disease 5) Sequel by injury and desease (sic) 6) Others 16. TAXATION FOR EMPLOYEE Personal Income tax occurred (sic) in Nigeria will be paid by Meisei in accordance with the tax assessment based on Nigerian government. However, any taxies (sic) arisen in Australia during employees work in Nigeria should be paid by their own cost. 17. FIRST AID AT SITE During contract period with Meisei, in case your employees suffered from disease or injured etc., they can use medical facility provided by Meisei (First aid facility) at site. The medical costs spend for characteristic disease such as Malaria etc., in Nigeria and injuries during works will be paid by Meisei however chronic disease suffering before contract with Meisei shall be paid by the employee themselves. 18. EMPLOYEE'S DEATH When employee passed away at job site, in principle Meisei performs procedures required for the death in Nigeria with Meisei's cost and activities to cope with family of the death should be also performed by Meisei. Whole costs required in Australia shall be borne by Meisei. And Airfreight cost for corpse etc., shall be born by Meisei. 19. TERMINATION BY MEISEI Notwithstanding the provisions of clauses 1 and 22 (sic) Meisei may terminate employee's services on the ground of misconduct, negligence, inefficiency, carelessness or inattention to their (sic) duties. Meisei will issue warning letters to employee in the event of disobedience, misconduct, carelessness, keeping away from work without leave granted etc., and with the issuing of the third warning letter employee's services will be terminated without notice or payment of any compensation. Meisei also reserves the right to terminate your services if you are medically unfit for duty. 20. EAR[L]Y TERMINATION This job, which will normally be as specified in clause 1, could terminate earlier, in the event that he contract between Meisei and our client would be terminated earlier by reason of an expected occurrence. 21. SUSPENSION BY RIOT AND WAR BROKEN OUT IN NIGERIA By reasons of riots or [war] broken out in a part or whole area in Nigeria it become impossible to continue activities this project will be suspended for certain period or closed forever. In the event of the above all employees are also suspended or terminated according to the above situations. The employees' salary with transportation costs etc., until they back to Australia after leaving job site will be borne by Meisei. In the above case their salaries will be made by following manner. Basic hourly salary x Number of hours up to Australia = Amount of salary to be received." 23 The Employment Contract contemplated that the applicant would be paid an hourly rate as Plant Manager after the insulation plant became operational and that services provided by the applicant before production commenced, for example, in respect of set-up, trial and commissioning of the insulation plant, would be services provided for the "Consultancy and Management Fee". The insulation plant did not become operational until sometime in February 1998, however, payments under the Employment Contract commenced from 1 January 1998 and continued until 30 June 1998 when the applicant's services were terminated. In respect of that period Meisei paid the applicant $US194,067.50. 24 In due course Meisei paid Navarro $US518,000 for the "Plant and Equipment Fee". That sum represented, as always intended by the parties, payment for invoices rendered by Navarro for the cost (with a margin) of plant and equipment acquired by Navarro for construction of the insulation plant. 25 In respect of the "Consultancy and Management Fee" Meisei paid $US1,111,180 to the applicant on invoices rendered by Navarro. Of that amount $US858,104 was paid to the applicant in the year ending 30 June 1998 and $US253,076 in the year ending 30 June 1999. 26 In May 1999 the applicant lodged an income tax return for the year ending 30 June 1998 which declared a sum of $287,311 to have been received by the applicant as foreign employment income exempt from tax. In October 1999 the applicant amended the return by increasing the amount of tax exempt income to $2,042,591 and by making adjustments to certain claimed deductions. On 28 October 1999, based on that amended return, the Commissioner assessed the taxable income of the applicant to be $32,342 and the tax payable thereon $15,054.24. 27 In May 2000 the applicant lodged an income tax return for the year ending 30 June 1999. No tax exempt foreign employment income was included in that return. On 17 May 2000, based on that return, the Commissioner issued a notice of assessment of liability to income tax of $1,166.40 on a taxable income of $11,232. 28 In March 2001, after further enquiry, the Commissioner amended the assessments of the applicant's liability for income tax for the years ending 30 June 1998 and 30 June 1999. The amended assessments added to the taxable income for the respective years the amounts of $1,296,991 and $402,794 as amounts received by the applicant on account of the "Consultancy and Management Fee". The amended assessment for the year ending 30 June 1998 assessed the tax payable to be $621,081.36 on a taxable income of $1,329,333. The amended assessment for the year ending 30 June 1999 assessed the tax payable to be $185,194.22 on a taxable income of $414,026. Additional tax for late returns, penalties for understatement of income and interest were included in each amended assessment. 29 According to the "Statement of Facts, Issues and Contentions", (at [19]), filed by the Commissioner, the amended assessment for the year ending 30 June 1998 included in the taxable income a sum of $1,296,991 as the amount received by the applicant in that year on account of the "Consultancy and Management Fee". It is accepted that the amount received by the applicant on account of that fee in that year, $US858,104, converted to $1,257,295. The Commissioner added to that sum an amount of $27,093 paid to the applicant from monies paid to Navarro on account of "Consumables". An unexplained difference of $12,603 remained between those two items and the total amount added to the taxable income by the Commissioner. 30 With regard to the year ending 30 June 1999 it is accepted that the amount received by the applicant in that year as the "Consultancy and Management Fee", $US253,076, converted to $402,794, the amount by which the taxable income of the applicant was increased in the amended assessment for that year. 31 In April 2001 the applicant filed notices of objection to the amended assessments. 32 On 11 June 2001 the Commissioner notified the applicant that the objection to the amended assessment for the year ending 30 June 1998 had been allowed in part by reducing the taxable income by $12,603 but had been disallowed as to the remainder of the objection. Notice of an amended assessment giving effect to the foregoing was issued in August 2001. On 11 June 2001, the Commissioner also notified the applicant that the applicant's objection to the amended assessment for the year ending 30 June 1999 had been disallowed. 33 In August 2001 the applicant commenced these proceedings. The issue in the "appeals" is whether the sums received by the applicant an account of the "Consultancy and Management Fee" were earnings to which s 23AG(1) of the Act applied being "foreign earnings" derived by the applicant from "foreign service", namely, service in Nigeria in the capacity of an employee. It was not in issue that the remuneration paid to the applicant under the Employment Contract was tax exempt income under s 23AG(1). 34 Section 23AG of the Act provides for certain income earned by a natural person engaged in "foreign service" to be exempt from income tax. 35 The relevant provisions read as follows: "23AG. (1) Where a resident, being a natural person, has been engaged in foreign service for a continuous period of not less than 91 days, any foreign earnings derived by the person from that foreign service is exempt from tax. (2) An amount of foreign earnings derived in a foreign country is not exempt from tax under this section if the amount is exempt from income tax in the foreign country only because of any of the following: (a) a law of the foreign country giving effect to a double tax agreement; (b) a double tax agreement; (c) provisions of a law of the foreign country under which income covered by any of the following categories is generally exempt from income tax: (i) income derived in the capacity of an employee; (ii) income from personal services; (iii) similar income; (d) the law of the foreign country does not provide for the imposition of income tax on one or more of the categories of income mentioned in paragraph (c); (e) a law of the foreign country corresponding to the International Organizations (Privileges and Immunities) Act 1963 or to the regulations under that Act; (f) an international agreement to which Australia is a party and that deals with: (i) diplomatic or consular privileges and immunities; or (ii) privileges and immunities in relation to persons connected with international organisations; (g) a law of the foreign country giving effect to an agreement covered by paragraph (f). … (7) In this section: 'double tax agreement' means: (a) double tax agreement within the meaning of Part X; or (b) the Timor Gap treaty; 'employee' includes: (a) a person employed by a government or an authority of a government or by an international organisation; or (b) a member of a disciplined force; 'foreign earnings' means income consisting of earnings, salary, wages, commission, bonuses or allowances but does not include any payment, consideration or amount that: (a) is included in assessable income under Subdivision AA of Division 2; or (b) is excluded from the definition of 'eligible termination payment' in subsection 27A(1) because of paragraph (ja), (k), (ka), (m), (ma), (n), or (p) of that definition; 'foreign service' means service in a foreign country as the holder of an office or in the capacity of an employee; 'income tax', in relation to a foreign country: (a) in all cases - does not include a municipal income tax; and (b) in the case of a federal foreign country - does not include a State income tax." 36 The applicant paid no tax to Nigerian authorities in respect of the monies received by him on account of the "Consultancy and Management Fee". In respect of the "salary" of $US100 per hour paid by Meisei to the applicant as an employee, namely, Plant Manager, it was a term of the Employment Contract that Meisei pay "personal income tax [in]curred in Nigeria" as assessed by Nigerian authorities in respect of those earnings. 37 There was no provision in the Agreement for Meisei to pay any income tax payable in Nigeria in respect of the "Consultancy and Management Fee" if the applicant were liable to pay tax in Nigeria in respect of the fee as an amount paid for services performed by the applicant in Nigeria. 38 If the applicant paid no tax in Nigeria on the monies received on account of the "Consultancy and Management Fee" perhaps it could be inferred that the amounts received were not liable to income tax in that country, raising the possibility that subss 23AG(2)(c) or (d) may have excluded those monies from the exemption provided by subs 23AG(1). 39 The Commissioner did not seek to raise that argument nor to submit that by reason thereof the applicant had failed to discharge the onus placed upon him by subs 14ZZO(b)(i) of the Administration Act toshow that the Commissioner's assessment of the applicant's liability to tax was excessive. (See: Commissioner of Taxation v Dalco (1990) 168 CLR 614). 40 On their face the words "foreign earnings derived" referred to in subs 23AG(1) would not be confined to wages and salary paid to an employee, and would include earnings by way of fees or other payments derived by a person engaged under a contract for services as a consultant or independent contractor. Subsections 23AG(2)(c) and (d), support that construction in that they provide that foreign earnings derived in a foreign country are not exempt from tax under the section if the law of the foreign country where the earnings are derived generally exempts "income derived in the capacity of an employee", "income from personal services" or "similar income" from income tax or does not provide for the imposition of income tax thereon. 41 The definition of "foreign earnings" in subs 23AG(7) suggests that the words "income consisting of earnings, salary, wages, commission, bonuses or allowances" have broad coverage given that "earnings" is a word of wide meaning and that it was thought necessary to limit the apparent scope of the definition by specifying exclusions thereto. The payments, considerations or amounts excluded from the definition of "foreign earnings" may be broadly described as "superannuation, termination of employment and kindred payments" included in assessable income by subdiv AA of Pt 2 of the Act (which, it may be noted, are also within the definition in subs 6(1) of "income from personal exertion" or "income derived from personal exertion"), and certain other payments, considerations or amounts that are of the operation of subdiv AA of Pt 2 being specified exclusions from the definition of "eligible termination payment" set out in subs 27A(1). Several of those specified exclusions include payments, considerations or amounts that are not income derived from service in the capacity of an employee. (See: subs 27A(1) "eligible termination payment" – pars (k), (ka), (m), (ma), (n)) and include an "exempt resident foreign termination payment" received by a natural person who is a resident of Australia "engaged in the performance of personal services" who derived "eligible foreign remuneration" attributable to the performance of those services. "Eligible foreign remuneration" is defined to include income consisting of salary, wages, commission, bonuses or allowances derived in the capacity of an employee and income derived under a contract for personal services. It is to be noted that where the expression "engaged in the performance of personal services" is expressly defined to include both services performed in the capacity of an employee and services performed under a contract for personal services, the word "earnings" is not used as a descriptor of income derived by a person engaged in the performance of personal services in the capacity of an employee. (See: subs 27A(1) – "eligible foreign remuneration", "exempt resident foreign termination payment", "qualifying service"; subs 23AF(1); subs 23AF(3)(a); subs 23AF(18) – "eligible foreign remuneration"). 42 Section 23AG replaced a provision of the Act, subs 23(qa), that had also been regarded as equivocal in meaning. (See: Commissioner of Taxation v White (1985) 7 FCR 566 per Lockhart J at 571-574). Section 23(qa) read as follows: "23. The following income shall be exempt from income tax: (qa) ....income consisting of earnings, salary, wages, commission, bonuses or allowances derived from sources in Papua New Guinea from any office or employment (including employment by a Government or an authority of a Government or as a member of the Defence Force) where the income is not exempt from income tax under the income tax laws of Papua New Guinea and, if there is a liability for payment of income tax under those laws, the Commissioner is satisfied that the tax has been or will be paid." 43 Whilst s 23(qa) was a specific provision dealing with income derived from sources in Papua New Guinea which, historically, had not been treated as "foreign income", (see: White per Lockhart J at 573), no rationale was obvious in the Act as to why s 23(qa) did not extend to income derived from the performance of personal services in Papua New Guinea. (See: White per Fox J at 568). 44 Subsection 23AG(7) defines the meaning of "foreign service" in limited and not inclusive terms, apparently for the purpose of limiting the exemption provided by subs 23AG(1). "Foreign service" as defined in that subsection means service in a foreign country "as the holder of an office or in the capacity of an employee". The collocation of the expressions "holder of an office" and "in the capacity of an employee" may suggest that the word "employee" is not to be given a narrow meaning and that it may refer to a person engaged in "employment" where that word is used in a broad sense encompassing work performed under a contract for services as well as under a contract of service. Such a possibility was acknowledged in White where the meaning of s 23(qa) was considered to be ambiguous. On balance the application of the more restricted meaning of the word "employment" was held to be necessary for the proper construction of the subsection. 45 At the time of introduction of s 23(qa) there existed a provision of long-standing, s 23(q), which made exempt from tax, income derived by an Australian resident from sources outside Australia and Papua New Guinea that was otherwise assessable under subs 25(1) of the Act and not exempt from income tax in the country where it was derived. Plainly s 23(q) was not confined to income derived as salary or wages by an employee of an employer. 46 In addition, in 1980 s 23AF had been inserted in the Act, (see: s 3, Income Tax Assessment Amendment Act (No 5) 1980 (Cth)), to exempt from tax income derived by a natural person who was an Australian resident that was attributable to "the performance of personal services" outside Australia in respect of an "approved project". An "approved project" was a project declared by the Minister for Trade to be in the national interest. Section 23AF made it clear that exemption from tax applied whether the income was directly attributable to "the performance of personal services" in the capacity of an employee or under a contract for personal services. 47 In 1986, subss 23(q), (qa) were removed from the Act and replaced by s 23AG. (See: s 7, Taxation Laws Amendment (Foreign Tax Credits) Act 1986 (Cth)) ("the Amending Act"). In Chaudhri v Commissioner of Taxation (2001) 109 FCR 416 the legislative history and purpose of s 23AG was considered, it being accepted by the Court that the mischief to which amending legislation is directed and the purpose of Parliament in enacting such an amendment form an important part of the context in which the new provision is to be construed. 48 The Explanatory Memorandum (Explanatory Memorandum, Taxation Laws Amendments (Foreign Tax Credits) Bill 1986, 13 June 1986) (at 2, 9) and the speech of the Treasurer on the second reading of the Bill as responsible Minister (Australia, House of Representatives, Debates, Vol HR 149, 1986, pp 3799–3801) made it clear that the purpose of s 23AG was to remove the general exemption from tax provided by s 23(q) and replace it with a general liability on an Australian resident to pay tax on earnings derived from foreign sources, offset by a credit for tax paid abroad. Thereafter, exemption from tax for income derived abroad by a natural person who was an Australian resident was to be limited, save for s 23AF, to income derived as salary or wages. Again the rationale for that exemption is not made clear by the Act or its context. However, if the purpose of Parliament is given due consideration as part of the context in which the Amending Act is to be construed, the definition in subs 23AG(7) of "foreign service" as service in a foreign country "as the holder of an office" or "in the capacity of an employee", should be taken to be a restrictive provision rather than distributive and the words "holder of an office" not to add any breadth of meaning to the words "in the capacity of an employee". That is to say, to be such an employee a relationship of employer and employee is required and it is not sufficient for a person to be engaged in employment in a broad sense. If that approach is correct, it may be thought to be odd that Parliament used the words "in the capacity of an employee" instead of the expression "as an employee". The word "capacity" can connote "possibility" or "capability" and the words "in the capacity of an employee" may suggest that the words extend to a person who is employed in the broad sense of that word, the argument that was considered and rejected in White. 49 Although the words used by Parliament did not dispose in authoritative terms of the ambiguity referred to in White, it is plain from the secondary material to which the Court has been referred that it was the intention of Parliament to limit the exemption from tax to persons who derived earnings abroad as salary or wages and it was not Parliament's intention to adopt the alternative construction referred to and rejected in White by applying to the words "in the capacity of an employee" a concept of employment that was wider than that accepted in White. 50 Regard must be given to the stated purpose of Parliament in enacting the Amending Act. As Brennan CJ, Dawson, Toohey and Gummow JJ stated in CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384 at 408: "...the modern approach to statutory interpretation (a) insists that the context be considered in the first instance, not merely at some later stage when ambiguity might be thought to arise, and (b) uses "context" in its widest sense to include such things as the existing state of the law and the mischief which, by legitimate mean such as those just mentioned, one may discern the statute was intended to remedy. Instances of general words in a statute being so constrained by their context are numerous. In particular, as McHugh JA pointed out in Isherwood v Butler Pollnow Pty Ltd (1986) 6 NSWLR 363 at 388, if the apparently plain words of a provision are read in the light of the mischief which the statute was designed to overcome and of the objects of the legislation, they may wear a very different appearance. Further, inconvenience or improbability of result may assist the court in preferring to the literal meaning of alternative construction which, by the steps identified above, is reasonably open and more closely conforms to the legislative intent." 51 It is appropriate, therefore, to treat the meaning of the words "in the capacity of an employee" as used in s 23AG, to be confined by the meaning of "employee" in its strict sense and to construe the provision in terms that are consistent with the stated purpose of Parliament. Insofar as subss 23AG(2)(c) and (d), and the exclusionary words in the definition of "foreign earnings" in subs 23AG(7), apply to income derived by a person other than in the capacity of an employee, exclusions that would be unnecessary if the restrictive construction is correct, it must be taken that those measures have been included in s 23AG through abundance of caution. 52 It was not contended by the applicant that the applicant received the "Consultancy and Management Fee" for service in Nigeria in the capacity of an employee of Navarro as director, or Managing Director, and it was not submitted by the applicant that those monies were derived by the applicant from services performed in Nigeria as holder of the office of director, or of the office of "Managing Director", of Navarro. The Commissioner did not submit that Navarro, in the course of a business of providing the services of the applicant as an employee or consultant, made the services of the applicant available to Meisei and that the monies paid to the applicant by Meisei on account of the "Consultancy and Management Fee" represented income of the business of Navarro. Nor was it submitted by the Commissioner that the applicant was in business on his own account providing his services under contracts of employment or under contracts for the provision of services as a consultant and that amounts received on account of the "Consultancy and Management Fee" were income of that business. (See: R W Parsons "Income Taxation in Australia", The Law Book Company Limited 1985, 2.34, 2.392-2.395; Commissioner of Taxes (Victoria) v Phillips (1936) 55 CLR 144 per Starke J at 151-152). 53 It was not in issue that the applicant was engaged in service in a foreign country, Nigeria, in the capacity of an employee for a continuous period of not less than 91 days, in respect of the service rendered by the applicant as Plant Manager under the Employment Contract. It was not contended by the Commissioner that the documents recording the terms of the agreements made between Meisei and the applicant were shams and it was not submitted by the applicant that the amounts received by the applicant were other than the product of revenue earning activity on the part of applicant that bore the character of income. (See: Hayes v Commissioner of Taxation (1956) 96 CLR 47 per Fullagar J at 57-58). 54 The principal issue in the "appeals" is whether the monies paid to the applicant on account of the "Consultancy and Management Fee", were derived by the applicant from service in Nigeria "in the capacity of an employee", assuming, which is contested by the Commissioner, that those monies constituted "foreign earnings" as defined in s 23AG(7). The parties submitted that the question was to be answered by determining whether the applicant provided services for the fee as an employee or as an "independent contractor". That approach may understate the import of the word "derived" in s 23AG(1). 55 To determine for the purpose of s 23AG(1) the source or activities from which the amounts received by the applicant may be said to be derived it is necessary to look to the agreements made between the applicant and Meisei to see if they describe how those sums "came home" to the applicant. If the terms of the agreements are not consistent with the relevant facts surrounding the payments then it will be necessary to have regard to more than the terms of those documents (see: Federal Coke Co Pty Ltd v Commissioner of Taxation (Cth) (1977) 34 FLR 375 per Brennan J at 404; Reuter v Commissioner of Taxation (Cth) (1993) 27 ATR 256 at 262). 56 As noted above, the Agreement recited that Navarro and the applicant had "design and process knowledge and experience of pre-insulation pipe spools for LNG for Offsite insulation...(herein referred to as the "Technology") and are desirous of entering into a working relationship with Meisei for the Bonny Island LNG project". The terms of the Agreement provided that the applicant would "make himself available in both positions of a Plant Manager and Coordinator/Consultant to Meisei" and that "Navarro will make the [T]echnology available in the form of - · making the benefits of the technology available to Meisei · design and specification of equipment · specification of materials · method statements and operational and procedures · QA/QC procedures · Any other relevant documentation and procedures to enable Meisei to execute the work in accordance with client requirements." 57 In respect of the services to be provided by Navarro as described above and in respect of the further services, in which Navarro would "· Design, procure and construct plant and equipment. · Load onto containers for shipment to Nigeria. · Provide Meisei with the appropriate method statement and ITP." the Agreement specified no additional fee to be paid to Navarro therefor over and above the "Plant and Equipment Fee". The amount anticipated to be paid to Navarro for the Plant and Equipment Fee for plant and equipment obtained by Navarro for construction of the insulation plant was a reducible sum according to the extent to which Meisei made purchases of such plant and equipment on its own account. 58 In the first draft agreement prepared by Navarro the services described above, and the setting-up and commissioning of the insulation plant, were to be performed by Navarro to earn a "Technology and Management Fee" to be paid to the applicant. Pursuant to the terms of the Agreement, Navarro's undertaking to perform those services remained unchanged save for supervision of the setting-up and commissioning of the insulation plant in Nigeria which became a service to be performed by the applicant. The final form of the Agreement may be said to reflect the understanding of the parties that the applicant was the controller of Navarro and was the organic source of the skill and expertise to be made available to Meisei by Navarro and the applicant under the Agreement and that the applicant would be the organic personality through which the services offered by Navarro would be performed. 59 In particular cl A7 of the Agreement provided that Navarro would be responsible for: "1. Design of shop and plant equipment which maintain the required capacity and quality. 2. Provision of material information as per specification and previous projects MLNG and others. 3. Provision of instruction to Navarro's nominated Supervisors to execute the project. 4. Provision of the professional activities to execute pre-insulation. 5. Responsibility to perform the work in order to satisfy the quality required in the specification. 6. Following documentation shall be provided. - Shop design including utilities and layout drawings - Equipment drawing for pipe handling units - Operation manual, Installation Procedure, Data Sheet for equipment supplied by Navarro. - Application Procedure and Method statement for shop pre-insulation - QA/QC documents including ITP 7. Assistance service for the field works. 8. Coordination/negotiation with client, if Meisei require." 60 The applicant, whether acting as "Professional Consultant", "Coordinator/Consultant" or "technical and production consultant", was the means by which those responsibilities of Navarro were to be discharged either prior to or contemporaneously with his employment by Meisei as "Plant Manager of Navarro". 61 Under the Agreement the "Consultancy and Management Fee" of US$1,200,000 to be paid to the applicant was a consultancy fee payable for services which included the following: "[The applicant] to supervise plant set-up and commis[s]ioning as a Consultant to Meisei in Nigeria. [The applicant] to make his consultancy service/knowledge available to Meisei in Nigeria for the duration of the pre-insulation project including field joints, bellows and anchors. [The applicant] to act as Plant Manager of Navarro employed by Meisei during shop pre-insulation application in Nigeria." 62 Insofar as services performed by the applicant in conjunction with employment by Meisei as Plant Manager also met the responsibilities of Navarro under Items 3, 4, 5 set out above, they were services provided by Navarro through the applicant. 63 The terms of the Employment Contract were consistent with the foregoing. Although the Employment Contract did not state that the applicant was employed as Plant Manager it did provide that the duties for which the salary, or wages, would be payable were to commence from the start of production. In fact the applicant commenced duties, and received remuneration, as Plant Manager, some weeks in advance of the commencement of production. For the period of seven weeks prior to the commencement of the payment of remuneration under the Employment Contract the applicant had been performing the services he had undertaken to provide as "Coordinator/Consultant" or as "technical and production consultant" and the services that Navarro had undertaken to provide by way of provision of technology and supervision and instruction. 64 As the Employment Contract recognised the services provided by the applicant in the setting-up, trial and commissioning of the insulation plant were services for which the applicant was to be paid the "Consultancy and Management Fee". Insofar as the Employment Contract referred to a period of "employment" it was a variable period "according to the developed pre-insulation schedule". That is to say, according to the schedule for the commencement of the pre-insulation work or "actual production". 65 The applicant arrived in Nigeria in mid November 1997 and commenced performing the services he had contracted to provide under the Agreement, namely, as a consultant to supervise the set-up and commissioning of the insulation plant. The control of the worksite exercised by the joint venturers to protect the safety and security of all personnel engaged on the site made it both necessary and convenient for the applicant to render his services within the hours worked by employees on site and subject to similar conditions and restrictions in respect of access to the site, transport, accommodation and meals. 66 The applicant referred to the fact that in performing the services of setting-up and commissioning the insulation plant he was governed by the same regime and routines as employees of Meisei and was subject to direction from time to time by Mr Kobayashi, and by several other officers of Meisei, as to what services he was required to perform and where and when he was to perform them. It was submitted, therefore, that at all material times the applicant served Meisei in the capacity of an employee. 67 I am unable to accept that submission. Those circumstances did not make the applicant an employee of Meisei and it was not contemplated by the Agreement that the applicant would become an employee of Meisei save for the period in which the applicant would be the "Plant Manager of Navarro employed by Meisei". The Employment Contract gave effect to that intention. The terms of the Agreement and the Employment Contract made a clear distinction between the services to be provided by Navarro and the applicant as consultants and the work to be performed by the applicant in the capacity of an employee of Meisei. The latter was defined by a period of employment for which a salary was to be paid. The former were services involving the provision of know-how, advice and supervision by Navarro, or the applicant on behalf of Navarro or on his own account, as consultants. The duties under the Employment Contract were limited to supervising the "day-to-day running" of the insulation plant and the desired level of production. As the applicant insisted in cross-examination other services provided by the applicant for the "Consultancy and Management Fee" for the duration of the pre-insulation project, including advice to Meisei in respect of its field operations, were not services provided as Plant Manager under the Employment Contract. 68 The worksite was subject to strict control by the joint venturers in the interests of the security and safety of the personnel brought to work there. Personnel were transported between the site and a residential compound at set times. In that setting there was little scope for the applicant to perform services on his own account, or on behalf of Navarro, as a consultant free of that control. Being subject to that control, however, did not make the applicant an employee of Meisei whilst he performed services for Navarro, or those he had undertaken to perform as a consultant under the Agreement, whether in the course of setting-up and commissioning the insulation plant or services performed under the Agreement in addition to the duties of Plant Manager under the Employment Contract. 69 The parties understood that the lump sum "Consultancy and Management Fee", which the Agreement provided was to be paid in three instalments, was not remuneration for employment of the applicant as an employee of Meisei but for technical skill and expertise to be provided by the applicant and Navarro as consultants to Meisei. In respect of those services the applicant contracted with Meisei on the same manner as Navarro. 70 It follows that the amounts of "Consultancy and Management Fee" received by the applicant were not earnings derived by the applicant from service in Nigeria in the capacity of an employee. The payments were derived from an arrangement for the delivery of advice and technology pursuant to contractual obligations not part of, or subject to, a relationship of employer and employee between Meisei and the applicant. 71 The applicant sought to explain the items of "Navarro's responsibility" to be performed in Nigeria as set out in cl A7 of the Agreement, as a "mix-up" in that "it was impossible for Navarro to be in Nigeria". The applicant had in mind restrictions under Nigerian law upon foreign entities carrying on business in Nigeria. That circumstance did not prevent Meisei, Navarro and the applicant executing the Agreement in its terms and it was not contended by Meisei that Navarro failed to perform any of its obligations under the Agreement. 72 It was submitted by the applicant that the Agreement contemplated that the applicant would provide services borne as a consultant and as a Plant Manager as an employee and that examination of the circumstances in which the applicant provided his services confirmed that at all material times the applicant was an employee of Meisei. 73 The terms of the Agreement do not support that submission and the terms of the Employment Contract demonstrate clearly that the status of employee would only arise when the applicant commenced duties as Plant Manager. In fact, by accord between Meisei and the applicant that position commenced before the insulation plant began production but that was for reasons related to delays for which Meisei accepted responsibility and not for any need to recognise that the applicant was performing services as an employee of Meisei in respect of the provision of advice and consultation in the exercise of his skill and expertise. 74 In respect of the circumstances in which the applicant provided his services prior to and separately from his employment as Plant Manager, any directions the applicant received from officers of Meisei spoke equally of Meisei, having contracted for the use of the applicant's services as a consultant, directing the applicant as to what services were required and the time and place at which they were to be provided. 75 The history of negotiation of the Agreement and the content thereof; the level of skill possessed by the applicant; the lump sum fee agreed to be paid for the provision of consultancy services and advice, and the absence of deduction therefrom or provision for income tax; were all consistent with the absence of an employer/employee relationship. In the particular circumstances of the case the delivery of consultancy services within a framework of the hours and conditions applicable to employees said little, if anything, of the relationship between the applicant and Meisei after the applicant arrived in Nigeria in mid November 1997. As the applicant agreed in cross-examination sub-contractors and other independent personnel were all subject to the same conditions on site. 76 Both the applicant and the Commissioner referred to indicia that assist in determining whether a relationship between parties is that of a contract of service or a contract for services that have been set out in the well-known authorities of Stevens v Brodribb Sawmilling Co Pty Ltd (1986) 160 CLR 16 and in Hollis v Vabu Pty Ltd (2001) 207 CLR 21. In addition to those authorities regard may be given to the remarks of the Full Court of this Court in Building Workers' Industrial Union of Australia and Ors v Odco Pty Ltd (1991) 29 FCR 104. In the end, each case must turn on its own facts. The overwhelming weight of material in the present matter shows that insofar as the applicant received instalments of the lump sum "Consultancy and Management Fee" he did so under an agreement for the provision of his services as a consultant and advisor and also, in part, in performance of responsibilities undertaken by Navarro, and not in the capacity of an employee of Meisei. 77 The applicant's position as an employee of Meisei was limited by Meisei and the applicant to the provision of service as a Plant Manager. Services provided by the applicant prior to or outside that employment were in the exercise of the high level of skill and expertise that the applicant possessed and was able to exercise on his own behalf or on behalf of Navarro. Access to that degree and skill of expertise was the linchpin of Meisei's ability to perform its obligations under the sub-contract with the joint venturers and was made available to Meisei by the Agreement. The Agreement was a contract for the provision of services to Meisei by Navarro and the applicant. 78 The "appeals" must be dismissed. I certify that the preceding seventy-eight (78) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lee. Associate: Dated: 15 June 2004 Counsel for the Applicant: MJ Buss QC, PF Fletcher Solicitor for the Applicant: Solomon Brothers Counsel for the Respondent: EM Corboy SC, JJC Kirkwood Solicitor for the Respondent: Australian Government Solicitor Date of Hearing: 24, 25 June 2003, 31 July 2003 Date of Judgment: 16 June 2004