High Court of Australia Toohey, Gaudron, McHugh JJ Federal Commissioner of Taxation v Vabu Pty Ltd Toohey J Mr Trew. Mr J L Trew, QC: If your Honours please, I appear with my learned friend, Mr S W GIBB, for the applicant (instructed by the Australian Government Solicitor). Mr J N West, QC: Your Honours, I appear with my learned friend, Mr B R Pape, for the respondent (instructed by Toomey Pegg & Drevikosky). Mr Trew: The first two points in the applicant's summary of argument for special leave we will deal with together and I will call those the employment points and I will deal with those first and leave the third point, the construction point, until after I have dealt with those. In the Court of Appeal the complaint that the applicants make on this issue is that the court really heard the proceedings de novo. It did not consider the trial judge's judgment and as whether he was wrong and, if so, why. The main judgment on the employment issue is the judgment of Mr Justice Meagher in which Mr Justice Sheller substantially agreed with. Both of those two members of the Court of Appeal said that either the issue that was raised was difficult or it was finely balanced and, in those circumstances, it points up as a matter of principle the great importance of identifying where precisely in principle the trial judge was wrong. There are two particular aspects of this, in our submission, that had the effect of causing the appeal process to miscarry, with the consequence that this issue raises an important question as to the way in which appeals are disposed of. The two matters in that context that arise are, firstly, that nearly half of the courier fleet were push bikes and motor cycles and the second point was that the terms of engagement stated in terms that the couriers, and this bit I am quoting, "agreed to work under conditions … that were stated". The trial judge referred to both of those issues in his reasoning and in the Court of Appeal none of the judges referred to those terms precisely. It is true that Mr Justice Meagher, on the first point about the courier fleet, said, first of all, he gave weight to the courier's expenses and said that they are very considerable. There were three witnesses only who gave evidence in the case and they drove motor vehicles. About them it might have been possible to say that the expenses were very considerable. However, the context in which that should be considered was properly identified, we submit, by the trial judge and not referred to in this respect by the Court of Appeal, namely, that the context was that nearly half of the couriers would not have had very considerable expenses because they had push bikes or motor bikes. The failure to determine whether the judge was wrong in his reasoning in relation to that, in our submission, caused the appeal process to miscarry. The second issue where it miscarried, in our submission, is on the question of control. Mr Justice Meagher did refer to aspects of the contract documents but he did not refer to the specific terms of engagement which, in this court, Wilson and Dawson JJ; in the Brodribb case (Stevens v Brodribb Sawmilling Co Pty Ltd (1986) 160 CLR 16), said that the actual terms and terminology will always be important. The omission in the Court of Appeal to specifically refer to that, and then look at the way and deal with the way in which the trial judge did it, in our submission caused the appeal process to miscarry. There are three other matters, I think, that we refer to in the way that the Court of Appeal actually determined. First of all, Mr Justice Meagher said that the control test was superseded which, in our submission, is wrong. In Brodribb the members of the court — that is at p 56 line 1 his Honour said that. In Brodribb it was described as prominent or significant and it is true that Mason J, who said those were the tests or described the control test in those terms, also said it was one of a number of indicia but the emphasis that he gave to it was not given by the Court of Appeal and, further, Wilson and Dawson JJ said that: In many, if not most, cases it is still appropriate to apply the control test in the first instance because it remains the surest guide to whether a person is contracting independently or serving as an employee. Toohey J But these situations have been worked over time and time again by courts. What is the principle for which you contend in this case that would warrant special leave? Mr Trew: In the first place, the way in which the trial judge's reasoning was not dealt with. The error of principle there was that the Court of Appeal simply dealt with the case de novo … McHugh J It is a rehearsing. They are entitled to. Mr Trew: They are indeed, your Honour, but this court has said only recently in the case that we referred to that it also cannot ignore the fact that the trial judge's judgment is a fact and it must be identified as to where it is wrong. That has not been done in this case. So that is the first principle on this employment issue. The second principle of which this example, which is one of three examples which I was giving, was the wrong test was applied by the court. They … McHugh J That is not a special leave ground; they applied the wrong test. Mr Trew: Well, it is, your Honour … McHugh J When did that become, we would never be out of work if that was the test. This court, and the bar has got to understand this, is not just another Court of Appeal. It is to determine no more than 100 cases a year at the most and before the court can entertain a case it must be convinced, not only that it is wrong, but there is something special about the case that takes it outside the general run of cases. And unless you can satisfy that criterion, you do not get leave. Now, what is special about this case? Mr Trew: Our second example of Brodribb laid down a test, your Honour, which we submit the Court of Appeal did not apply, that first example. The second way in which it was not applied was that Mr Justice Meagher reintroduced the organisation test which this court condemned in the Brodribb case when he said: … that each courier conducts his own operation, permitting himself for his own economic advantage to be supervised by the company. And that brings back, we submit, the organisation test. The third way in which an important error of principle occurs on this employment point is the way in which Mr Justice Meagher again dealt with the taxation position at p 57. In that respect, he mistook the significance of the self assessment system of taxation. It has never before, in our submission, been suggested that if the Federal Commissioner of Taxation does not challenge the method of tax treatment by taxpayers, he is thereafter to be taken as acquiescing in the particular status of the taxpayer, which was what his Honour said at the page we challenge. Toohey J But his Honour did not treat any of those matters as conclusive in themselves, did he? You can quarrel with perhaps the emphasis placed on organisation or you can quarrel with the failure to give further weight to some other aspect of the relationship between these parties, but these matters are for the Court of Appeal. Mr Trew: In our submission, the effect of that decision in the multiple litigation the Commissioner is involved in almost continuously in that courts will now fasten upon those considerations, and I emphasise in this respect the tax consideration question, in determining these questions. That is all I want to say on the employment point. Can I move to the construction issue? It is our submission that, irrespective of how the court may deal with the employment position, the applicant presses the construction of s 12(3) of the Superannuation Guarantee (Administration) Act 1992 (Cth) as being a question suitable to have special leave granted. Your Honours, the provision is set out at the end of that book of cases that both parties prepared and it appears on p 118. As I am going to have to take the court to Neale's case (Neale v Atlas Products (Vic) Pty Ltd (1955) 94 CLR 419) in a little while, it is probably important that your Honours see that this section which appears on p 118, not the application book, your Honours, the book of cases that … Gaudron J It is p 58 of the application book. Mr Trew: It does not set it out fully, your Honour. That is why I was going to the other book. Page 58 certainly sets out subs (3), but it is important, and this is why I went to the other one, to realise that this is an extended definition of "employee". Perhaps it is sufficient if I say that and move on. A similar question arose in the Neale case that I will come to shortly. That, of course, arose in the Income Tax Assessment Act 1936 (Cth) and it was slightly differently structured in that it dealt with the extended definition of "salary or wages", whereas this concentrates on the definition of "employee" and instead of the word "principally" in the Neale case, the legislation at that stage was "substantially". The approach of the Court of Appeal in this case in relation to the construction point was that Mr Justice Meagher said that: … is he working for himself or is he providing his labour in the service of another? That appears at p 59 of the application book. Mr Justice Sheller said if the contract is "to produce a given result" and the person "is paid for that result" he is not "working under a contract wholly or principally for the labour". That appears at p 66. Both of the judges refer to the World Book case (World Book (Aust) Pty Ltd v FCT (1992) 27 NSWLR 377; 23 ATR 412) which was an earlier decision dealing with the provisions of the Income Tax Assessment Act 1936 (Cth). Perhaps I could identify what each of the justices said in that case about the test. Mr Justice Meagher said in the World Book case that the words "a contract that is wholly or principally" for a person's labour is not satisfied when the contract permits that person to delegate the task. The World Book case concerned booksellers who were able to work when they like, who were able to not even do the work themselves or not even produce the result. They court have somebody else doing it. Mr Justice Sheller in the same case said that Neale's case distinguished: … between a contract for labour and a contract … "whereby the contractor has undertaken to produce a given result . . ." I have to take your Honours to Neale's case because it is our submission that is not what Neale's case has said. It is our submission that what has happened as a result of the Court of Appeal's decision is that it has limited very considerably the statutory words that appear in the Superannuation Guarantee (Administration) Act 1992. The Neale case appears at p 1 and the passages that I would like to take the court to are, first of all, to identify on p 8, at about point 8 or 9, the statutory provision dealt with salary or wages and then are the words: … under a contract which is wholly or substantially for the labour of the person … There were tilers there who again could refuse work, who did not have to actually do the work themselves and in relation to that the court said, on p 9 of this document, there was a discussion about salary or wages and in the middle of it there was a suggestion made, at about point 5: … if the contract leaves the contractor free to do the work himself or to employ other persons to carry it out the contractual remuneration when paid is not a payment made wholly or at all for the labour of the person to whom the payments are made. It is a payment made under a contract whereby a contractor has undertaken to produce a given result and it becomes payable when, and only when, the contractual conditions have been fulfilled. And it is those words that Mr Justice Sheller has fastened upon in the Court of Appeal. It is our submission that that sentence is not the test. All their Honours are facing there is the application of the words "wholly or substantially for labour" and simply saying, in the particular case there it was different and it was different in that respect. They then go on and make it clear that the words of the statute are important, a bit further down on the page at about point 7: It may be, however, that in cases where an independent contractor is required by the terms of his contract to perform the contractual work himself the addition to the general definition may have some application, but it is unnecessary, in the circumstances of this case, to express any concluded view concerning contracts of such a special case. Then over on p 10, in about the middle of it, there is about seven or eight lines that I wish to take the court to: In many such cases the payments stipulated for may be said to be payments made under a contract wholly or substantially for the labour of the person to whom the payments are made, though it is a simple matter to conceive examples of the former class where remuneration might be said to be substantially for the hire of plant or equipment. In any such cases, however … and this is the part we wish to emphasise: …the critical question will be one of fact, but no such question arises in the present case for if the tradesmen, in any of the instances under review, were free to carry out the contractual work themselves or to engage others to perform it for them, either in whole or in part, the payments received by any particular tradesman were in no sense made under a contract for his labour. Now, this particular case is which this application is now being made throws up the issue very starkly because the contract of engagement contains the words that the contractor "will work in accordance with the conditions that a specified thereafter". Irrespective of whether the decision on employment or not stands, the question still arises, in a contract where there is a requirement to do work in accordance with certain conditions, is it caught by the statute? The result of the Court of Appeal's decision, in our submission, is that almost any contract could be described as a contract to produce a given result. In our submission the statute does not warrant the test going that much further. Finally, there is a criticism made in the respondent's outline of argument that the World Book case was the subject of a special leave application. The reason why special leave was not given there seems to be that there was a prosecution, the defendant had been acquitted by the magistrate and the issue that the Court of Appeal really had to deal with was whether the evidence before the magistrate was such that he could not be right. In those cases, that is quite different to the present case. In out submission, the application should be granted. Toohey J We need not trouble you, Mr West. This application raises little more than questions of fact and the application of settled principles to those facts. It does not warrant a grant of special leave to appeal. Accordingly, the application is refused. Mr West: May it please the court, I ask for costs and I note our learned friend's submissions as to that question where it is agreed that we should have our costs. Toohey J Very well. Special leave is refused with costs. At 10.51am the matter was concluded.