Court of Appeal Supreme Court New South Wales Medium Neutral Citation: Chief Commissioner of State Revenue v E Group Security Pty Ltd (No 2) [2022] NSWCA 259 Hearing dates: 19 October 2022 Date of orders: 13 December 2022 Decision date: 13 December 2022 Before: Brereton JA at [1] Simpson AJA at [24] Griffiths AJA at [25] Decision: (1) The appeal is allowed, with costs. (2) The costs order made below on 13 October 2021 is set aside and in lieu thereof the defendant is ordered to pay 50% of the plaintiff's costs of the proceeding. (3) The parties have leave to apply within 14 days hereof if they seek a variation of the costs orders in orders (1) or (2) above. (4) The matter is remitted to the appellant to reassess the respondent's payroll tax liability for the 1 July 2015 to 30 June 2018 payroll tax years in conformity with the reasons of the Court. Catchwords: TAXES AND DUTIES – Payroll tax liability – Employment agents – Whether arrangements between related entities engaged "employment agency contract" provisions in the Payroll Tax Act 2007 (NSW) for the purposes of assessing payroll tax liability Legislation Cited: Corporations Act 2001 (Cth) Industrial Relations Act 1996 (NSW) Payroll Tax Act 2007 (NSW) Security Industry Act 1997 (NSW) Taxation Administration Act 1996 (NSW) Taxation Administration Bill 1996 (NSW) Workers Compensation Act 1987 (NSW) Cases Cited: Adams Bidco Pty Ltd v Chief Commissioner of State Revenue [2019] NSWSC 702 Antegra Pty Ltd v Chief Commissioner of State Revenue [2021] NSWSC 107 Australian Competition and Consumer Commission v J Hutchinson [2022] FCA 98 Chief Commissioner of State Revenue v E Group Security Pty Ltd [2022] NSWCA 115 Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd [2022] HCA 1; (2022) 96 ALJR 89 CXC Consulting Pty Ltd v Commissioner of State Revenue [2013] VSC 492; (2013) 96 ATR 796 E Group Security Pty Ltd v Chief Commissioner of State Revenue [2021] NSWSC 1190 Freelance Global Ltd v Chief Commissioner of State Revenue [2014] NSWSC 127 Re Day [2017] HCA 2; (2017) 340 ALR 368 Securecorp (NSW) Pty Ltd v Chief Commissioner of State Revenue [2019] NSWSC 744 Southern Cross Group Services Pty Ltd v Chief Commissioner of State Revenue [2019] NSWSC 666 UNSW Global Pty Ltd v Chief Commissioner of State Revenue [2016] NSWSC 1852; 102 ATR 577 Winston-Smith v Chief Commissioner of State Revenue [2018] NSWSC 773 Category: Principal judgment Parties: Chief Commissioner of State Revenue (Appellant) E Group Security Pty Ltd (Respondent) Representation: Counsel: S Balafoutis SC, A Byrne and N Gollan (Appellant) J Hmelnitsky SC and D Lewis (Respondent) Solicitors: Crown Solicitor's Office (Appellant) Lionheart Lawyers (Respondent) File Number(s): 2021/00295739 Publication restriction: Nil Decision under appeal Court or tribunal: Supreme Court of NSW Jurisdiction: Equity Citation: [2021] NSWSC 1190 Date of Decision: 22 September 2021 Before: Ward CJ in Eq File Number(s): 2019/00047367 [Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.] HEADNOTE [This headnote is not to be read as part of the judgment] During the period 1 July 2015 to 30 June 2018 (Relevant Years), the respondent, E Group Security Pty Ltd, provided security services to its customers. The security guards who delivered those services were procured from unrelated subcontracting companies. Those subcontractors were paid by three related entities of the respondent, namely E Group Protective Services Pty Ltd, Vital Hospitality Group Pty Ltd and E Group Events Australia Pty Ltd. The appellant, the Chief Commissioner of State Revenue, assessed the respondent's payroll tax liability for the Relevant Years on the basis that it and its three related entities were party to "employment agency contracts" within the meaning of s 37 of the Payroll Tax Act 2007 (NSW). The respondent sought a review of the appellant's decision in the Supreme Court pursuant to s 97 of the Taxation Administration Act 1996 (NSW). The review focused on the true nature of the relationship between the unrelated subcontracting companies which supplied the security guards, E Group Security and its three related entities, and the clients to which the security services were ultimately provided. The primary judge allowed the respondent's review and revoked the relevant payroll tax assessments. Relevantly, her Honour concluded that the related entities did not "procure" security guards for the respondent as contemplated by the definition of "employment agency contract". Rather, the respondent entered into contracts with subcontractors directly and the related entities served only to pay the subcontractors on the respondent's behalf. In reaching this conclusion, the primary judge primarily relied upon an analysis of the terms and conditions of Group Payroll Agreements which existed between the respondent and its related entities. The Chief Commissioner of State Revenue appealed from that decision. Grounds 1 to 3 of its amended notice of appeal, which related to its primary claim below, were dismissed by the Court in Chief Commissioner of State Revenue v E Group Security Pty Ltd [2022] NSWCA 115. The remaining grounds of appeal, grounds 4 and 5, related solely to the issue whether the "employment agency contracts" provisions in the Payroll Tax Act applied so as to make the respondent liable to pay payroll tax on that basis. In the event the appeal succeeded, the respondent asked the Court to remit the interest on the tax liability on the basis of an alleged representation made by an officer of the Office of State Revenue in January 2015 that "Just engage corporate contractors and you'll be okay. They have to have at least 2 or 3 employees". It contended that, relying on this representation, it terminated all its sole traders and only engaged corporate contractors. The Court held, upholding grounds 4 and 5 of the amended notice of appeal: Whether the "employment agency contract" provisions of the Payroll Tax Act applied The respondent was liable to pay payroll tax on the basis that its related entities procured for it the services of security guards and it was thus subject to the "employment agency contract" provisions of the Payroll Tax Act. Per Brereton JA: The question is not whether there was an "employment agency contract" between E Group Security and its related entities, but whether those payments were made under a contract under which the related entities (as employment agent) procured the services of security guards (service providers) for E Group Security (client): [7]. The evidence (described at [9]–[19]) comprising various invoices and statements; a Group organisational chart; master licences belonging to each related entity; financial statements and income tax returns of the related entities and those of E Group Security; and affidavits filed by E Group Security indicated that the related entities did so procure the services of security guards: [20], [22]. Per Griffiths AJA (Simpson AJA agreeing at [24]): The principal issue was whether the arrangements between E Group Security and its clients (or, alternatively, the arrangements between E Group Security and its related entities) were "employment agency contracts": [26]. Various documents (described at [78]–[94]) indicated that the related entities did more than simply perform a payroll function during the Relevant Years. Rather, there was an arrangement that operated during the Relevant Years whereby the related entities procured security guards for their client, E Group Security: [96]. Whether interest on the payroll tax liability should be remitted Per Griffiths AJA (Brereton JA agreeing at [23], Simpson AJA agreeing at [24]): Even if the representation was made in the terms alleged, it is more probable than not that it related to the effect of Div 7 of Pt 3 of the Payroll Tax Act (which relates to contractors) as opposed to Div 8 (which deals with employment agents): [103]. There were no special circumstances justifying the remission of interest: [99], [104]–[107]. JUDGMENT 1. BRERETON JA: Section 40(1) of Payroll Tax Act 2007 (NSW) provides that any amount paid to or in relation to a service provider in respect of the provision of services in connection with an employment agency contract is deemed to be wages paid by the employment agent under the employment agency contract, and thus liable to payroll tax. During the period 1 July 2015 to 30 June 2018, the respondent E Group Security Pty Ltd ("E Group Security") provided security services to its customers which were chiefly hotels, clubs, commercial offices, hospitals and schools ("Customers"). The security guards who delivered those services were sourced from unrelated security companies ("Subcontractors"). The Subcontractors were paid by three related companies of E Group Security, namely E Group Protective Services Pty Ltd, Vital Hospitality Group Pty Ltd and E Group Events Australia Pty Ltd ("the Related Entities"). As will appear, in this appeal, the question is whether, as the appellant Chief Commissioner of State Revenue ("Commissioner") contends, the payments made by the Related Entities to the Subcontractors were made in respect of the provision of services in connection with an employment agency contract under which the Related Entities procured the services of the security guards for their holding company, E Group Security. If so, those payments are deemed wages paid by the Related Entity under an employment agency contract, and it is not in dispute that E Group Security is, pursuant to the "grouping provisions",1 liable to pay payroll tax in respect of them. 2. The primary judge, having rejected the Commissioner's primary argument that the guards were engaged in the business of E Group Security's customers (that is, the hospitals, schools etc) and finding that they were engaged "for and in" the business of E Group Security, also rejected the alternative contention that their services were procured for E Group Security by the Related Entities under an employment agency contract. In this respect, her Honour reasoned: [1] "[341] However, this argument ultimately turns on whether the Related Entities "procured" the services of the security guards for E Group Security within the meaning articulated by White J in Freelance Global. I am not persuaded that there was an agreement between E Group Security and its subsidiaries to procure the workers. I consider that the Group Payroll Agreements were a contract or agreement for the subsidiaries to perform a payroll function. That is because I accept that (poorly drafted as they may have been) the intent was that the payroll functions be performed by the subsidiaries but that the security guards (though paid via the subsidiaries) were procured as such by E Group Security. I accept that the footer of the invoices that refers to services having been "supplied" by E Group Protective Services raises concern in relation to this point. However, considering the invoices as a whole that discrepancy does not seem to me to warrant a conclusion contrary to E Group Security's position (particularly since I consider that the re-structure or re-branding of the companies in the group does not appear to have been consistently implemented in the documentary arrangements). On the whole, I am of the view that the Related Entities did not procure the security guards for E Group Security in the relevant years but, rather, facilitated E Group Security's provision of services to its clients." 1. I have had the benefit of reading in draft the judgment to be delivered by Griffiths AJA. I gratefully adopt his Honour's account of the facts, legislation, primary judgment, issues and submissions. Subject to what follows, I agree with his Honour's reasons. As will appear, I take a slightly different approach in respect of identification of the relevant employment agency contracts. However, this does not affect the conclusion that the evidence demonstrates that the Related Entities indeed procured the services of the security guards for E Group Security. 2. Section 40(1) of the Payroll Tax Act is as follows: 40 Amounts taken to be wages (1) For the purposes of this Act, the following are taken to be wages paid or payable by the employment agent under an employment agency contract— (a) any amount paid or payable to or in relation to the service provider in respect of the provision of services in connection with the employment agency contract, (b) the value of any benefit provided for or in relation to the provision of services in connection with the employment agency contract that would be a fringe benefit if provided to a person in the capacity of an employee, (c) any payment made in relation to the service provider that would be a superannuation contribution if made in relation to a person in the capacity of an employee. 1. The ultimate question in this appeal is, therefore, whether the services provided by the guards in respect of whom payments were made by the Related Entities to the Subcontractors were "in connection with [an] employment agency contract" (s 40(1)(a)). An "employment agency contract" is defined by s 37, as follows: 37 Definitions (1) For the purposes of this Act, an employment agency contract is a contract, whether formal or informal and whether express or implied, under which a person (an employment agent) procures the services of another person (a service provider) for a client of the employment agent. (2) However, a contract is not an employment agency contract for the purposes of this Act if it is, or results in the creation of, a contract of employment between the service provider and the client. (3) In this section— Contract includes agreement, arrangement and undertaking. 1. Thus the question depends on whether the services of the guards (as service providers) were procured by the Related Entities (as employment agent) for E Group Security (as their client) (s 37(1)). 2. In my opinion, this directs attention not to the arrangements made between the agent and the client, but those between the agent and the service provider, who is in effect deemed to be an employee of the agent for payroll tax purposes. This construction is supported by the specific identification of agent and provider in s 37; the requirement that the contract be one under which the agent procures the services of a service provider; and the reference in s 40 to wages paid or payable by the employment agent to the service provider. An employee agency contract is a contract under which the agent procures the services of a service provider for a client. The client is the person for whom the employment agent procures the services of a service provider – that is, the person who receives the services. [2] In the context of this case, the relevant payments are those made in relation to the guards (service providers) in respect of the provision of their services to E Group Security (client). The question is not whether there was an "employment agency contract" between E Group Security and the Related Entities, but whether those payments were made under a contract under which the Related Entities (as employment agent) procured the services of the guards (service providers) for E Group Security (client). The focus is not the arrangements between the employment agent and the client, but those between the employment agent and the service providers. Here, that directs attention to the arrangements between the Related Entities and the Subcontractors. 3. The following evidence, most of which is more fully described by Griffiths AJA, compellingly demonstrates that the arrangements between the Related Entities and the Subcontractors were of that character. 4. First, the subcontractor invoices and statements, issued by the Subcontractors to the Related Entities in respect of the guards provided by the Subcontractors, [3] establish that it was the Related Entities and not E Group Security that were invoiced by the Subcontractors, and contain declarations by the Subcontractors that they contracted with the relevant Related Entity. The purpose of such a declaration – which is to exonerate the head contractor (here, the relevant Related Entity) from potential derivative liabilities for workers compensation, remuneration and payroll tax that would otherwise be incurred by a head contractor in respect of a subcontractor's obligations in respect of the subcontractor's employees – is only achieved if the declaration is true; and there are substantial penalties for false declarations. [4] These documents thus provide substantial evidence that the Subcontractors contracted with the Related Entities, not with E Group Security. The absence of cross-examination of E Group Security's principal, Mr Chamoun, on these documents is of slight significance, given that what matters is the objective evidence, not his subjective intent or understanding. In any event, although the respondent submitted that these documents were prepared by the Subcontractors in accordance with Mr Chamoun's directions, the orders were placed with subcontractors not by Mr Chamoun but by the rostering coordinator. [5] The respondent referred to the proforma Terms and Conditions said to apply to all subcontracts, but they are standard terms and conditions, which apply to any contract resulting from an order to which they are attached, so that if it is a Related Entity that places the order, then it is the Related Entity that is the contracting party, because "Contractor" is defined as "E Group Security … each of its related bodies corporate … and the employees, agents and subcontractors of any of them". [6] 5. Secondly, a Group Organisation Chart stated, under the heading "Function in the Group", that E Group Security manages the cash flow of the group, issues all client invoices, holds all client contracts, and employs no staff or contractors. [7] The chart also states that E Group Protective Services (one of the Related Entities) "employs and pays all the management and accounting staff across the entire group [and] also employs and pays all security guards and contractors [as well as] all marketing and advertising expenses for the entire group", and that E Group Events (another of the Related Entities) "employs and pays all security guards and contractors that operate in the events sector". Mr Chamoun's initial account, in his affidavit of 23 September 2019 to which the chart was annexed, was consistent with this: "19 At Tab 6, page 10 of the Exhibit is an organisational chart of the group and list of directors and shareholders showing E Group as 100% owner. Include [sic] is also company extracts form [sic] ASIC for each company. 20 The Group is made up of the following companies: E Group Security: This is the Group's parent company. This company's responsibility is to hold all national security licences as required by the various State and Federal governing bodies to operate a security service. E Group enters into contracts with clients and invoices the clients and manages the cash flow. It provides the cash to its subsidiaries. … EGroup Protectives Services (EPS): This company was previously called E-Security Group Pty Ltd and did not start trading until 1st July 2015 (2016 financial year). … Since EPS began trading it employs all executive and management staff for the Group. It also employs and engages all guards and contractors (except for those within the Events and Hospitality sectors). … … EGroup Events Australia: This company's purpose is to employ and engage all guards and contractors in the events market. It holds a NSW Master License. The events market is mainly made up of clients that require crowd control services and that attract large crowds, such as the National Rugby League (NRL) fixtures and Local council festivals, carols and gatherings. … Vital Security Group: This company was incorporated on 22/07/2015. It is a wholly-owned subsidiary of E Group. It invoices E Group's clients in the hospitality sector. Also this company has entered into hospitality sector contracts since July 2017. The reason E Group is transitioning all of its hospitality contracts to this company is that hospitality is a high-risk sector. … E Group wishes to maintain a separate brand in relation to this sector so that any liability and, in particular, reputational impact from its involvement in the sector does not hurt the overall E Group brand. Vital Security holds a NSW Master licence. … Vital Hospitality Group: This company was formerly part of the Group. E Group sold the company on 11 July 2017. Prior to this date it was used to employ and engage all guards and contractors in the hospitality sector. … … 26. E Group currently employees over 40 full-time managers, including the following positions: … 27 Each of the managers listed above are employed by EPS but work across the entire Group as one business." 1. However, he later attempted to resile from this position, stating in his second affidavit dated 11 March 2020: 36 My affidavit sworn 23 September 2019 does not correctly identify the employer of E Group's employees. I swore that affidavit without giving sufficient attention to paragraph 20(b) – (h) and (j) and paragraph 27 in which it is stated that E Group Security's wholly-owned subsidiaries employ E Group's employees. I was aware that employees were paid by E Group's subsidiary companies and on that basis had mistaken the identity of the payer with that of the employer at the time of swearing my September affidavit. 37 As I describe in more detail below at paragraph 49, E Group Security contracts with subcontractor companies for those subcontractor companies to supply the services of security guards. Each contract with a subcontractor is in writing and is between E Group Security and the relevant subcontractor company. None of E Group Security's subsidiaries are party to any of these contracts with subcontractor companies. 38 Similarly, it has always been my understanding that all of E Group's employees are employed by E Group Security, not by any of E Group Security's subsidiaries (with the exception of the arrangements with Vital Security Group Pty Ltd and Vital Hospitality Group Pty Ltd referred to below …) … 41 The role of each of the wholly-owned subsidiaries has always been as a payroll company – that is, a company that receives money from E Group Security and then pays the wages of E Group Security's employees and E Group Security's expenses of engaging subcontractors …" 1. Cross-examined about this change of position, he gave this evidence: [8] "Q. …I want to take you to paragraph 20, which you've clarified or added to in your subsequent affidavit of 11 March 20 and in that later affidavit you refer to the payroll agreements. But I want to suggest to you that what you have said here originally, which, I highlight, you have moved away from in your subsequent paragraph, but I want to suggest to you that what you have set out here at paragraph 20 is in fact correct. So for instance, paragraph 20(b), at the middle of the paragraph it says, "Since EPS began trading, it employs all executive and management staff. It also employs, engages all guards", that's correct, is it not? A. That's not correct, no. What it, what it is meant to say was pays the staff and we've had that fixed in the previous - in the following affidavit. Q. And the next page (c), "This company's purpose is to engage and employ all guards and contractors in Victoria", that's the position? A. Same, it's the same for all of them, for all my companies in every State, they just pay the staff. So E Group Security does everything else." 1. However, on 12 October 2017, the Group's accountant sent an email to the Commissioner in response to questions raised in the course of a tax audit, in which questions pertaining to the Related Entities were answered in a manner which was entirely consistent with what was in the Organisational Chart and in Mr Chamoun's first affidavit, and inconsistent with his revised position. The accountant stated that "the entities that provided services for E Group Security provided all labour requirements including employees"; that each entity had a specific purpose and use; that E Group Security, "deals specifically with the public and third party customers" and did not engage any staff directly but "is the main trading entity of the Group"; that E Group Protective Services operated exclusively in NSW and "engages all staff and contractors for the commercial and retail sectors"; that Vital Hospitality Group engaged all staff and contractors for the hospitality sector; and that E Group Events engaged all staff and contractors for the events sector. 2. Thirdly, each Related Entity held a master licence, which it needed only if it was engaging in security work and employing security guards, and did not need if it was merely paying for workers on behalf of its holding company. [9] 3. Fourthly, the financial statements and income tax returns of the Related Entities, [10] and those of E Group Security, showed the Related Entities receiving income and paying wages and subcontractor fees in their own right, and incurring taxation liabilities accordingly, thus reflecting the Related Entities engaging employees and subcontractors on their own account. These documents are not consistent with the Related Entities acting as a mere agent for payment on behalf of E Group Security. 4. Fifthly, invoices were rendered by the Related Entities to E Group Security for "labour hire services". [11] Thus E Group Security was billed for labour hire services provided by the Related Entities. This powerfully shows that the Related Entities were being paid to procure service providers for E Group Security. 5. Sixthly, invoices rendered by E Group Security to its customers (the hospitals, schools etc) contained a statement that the subject security services were supplied by one of the Related Entities, and provided details of that Related Entity's master licence. [12] This was evidently to comply with Security Industry Act 1997 (NSW), s 38A(1), which relevantly provides as follows: 38A Prohibition on unauthorised subcontracting (1) A master licensee (the principal) who enters into a contract to provide persons to carry on any relevant security activity with a person (the client) on or after the commencement of this section must not engage another master licensee (the subcontractor) to provide those persons on behalf of the principal unless— (a) the client has expressly agreed in the contract to the provision of the persons by a subcontractor, and (b) the principal provides the requisite subcontracting particulars in relation to any subcontractor engaged by the principal to the client before requiring payment by the client for the work of such a subcontractor. Maximum penalty— (a) in the case of a corporation—200 penalty units, or (b) in the case of an individual—100 penalty units or imprisonment for 6 months, or both. … (4) In this section— relevant security activity does not include the provision of a restricted security keying system. requisite subcontracting particulars, in relation to a subcontractor or further subcontractor, means— (a) the name and master licence number of the subcontractor or further subcontractor, and (b) any other particulars prescribed by the regulations. 1. The primary judge characterised these notations on these invoices as a "discrepancy", perhaps associated with failure to reflect a rebranding. However, such invoices – of which there are in excess of 18,000 – precede as well as succeed the rebranding, and the relevant annotation is not about the brand, but provide the identity, ABN and master licence particulars of the entity that delivered the security services in question. They are clear statements to the effect that the services were provided by guards engaged by the Related Entities. 2. Seventhly, in affidavits filed by E Group Security to refute the Commissioner's primary case that the guards were engaged "for and in" the business of the customers, employees deposed that they were engaged by the Related Entities. 3. Against all that evidence which paints a consistent picture that it was the Related Entities, not E Group Security, that engaged the guards, the respondent invoked the Group Payroll Agreements, which had been relied upon by the primary judge. [13] However, the Group Payroll Agreements are arrangements between E Group Security (relevantly the client) and the Related Entities (relevantly the agent), and as I have endeavoured to explain, it is not the arrangements between the client and the agent that matter for the purposes of s 37(1), but the arrangements between the agent and the service provider. Moreover, the Group Payroll Agreements are inconsistent with the actual structure and arrangements as evidenced by the matters referred to above. Further, the Group Payroll Agreements themselves leave less than clear what is a "payroll function": while clause 1.1 says that the payroll company "must only performance (sic) a payroll function", and clause 1.1(b) says that it is "Not to provide any services externally and maintain its sole payroll purposes as part of the group", clause 2 requires it to pay staff and also all contractors and suppliers, and clause 7 requires it to hold insurance, including public liability, workers compensation and employers' liability insurance, which is indicative that the Related Companies were to do more than merely pay workers or subcontractors. 4. The respondent also referred to certain minutes of Related Entities which similarly stated that the relevant company was "solely to administer and pay all the staff, contractors and any other expenses for E Group Security" and that its sole purpose was to provide a payroll function for E Group Security. However, these are self-serving internal documents, which do not reflect the actual arrangements, and they too are equivocal, as they refer to administering as well as paying staff and other expenses, indicating that they had more than a merely payroll function. [14] 5. In my view, the objective evidence overwhelmingly favours the view that it was the Related Entities that contracted the Subcontractors, and thereby procured the services of the guards. Only Mr Chamoun's subjective evidence is to the contrary. While his evidence may have reflected his genuine understanding, it is incompatible with the objective facts. It is unfortunate that the primary judge was not favoured with the analysis of the objective evidence that was presented to us. Conclusion 1. For the foregoing reasons, I agree with Griffiths AJA that the Commissioner's appeal succeeds. I also agree with what his Honour has written in respect of remission of interest, and costs. I agree with the orders proposed by his Honour. 2. SIMPSON AJA: I agree with Griffiths AJA. 3. GRIFFITHS AJA: This appeal is from a judgment and orders dated 22 September 2021 by Ward CJ in Eq (as her Honour then was). The decision is reported as E Group Security Pty Ltd v Chief Commissioner of State Revenue [2021] NSWSC 1190 (PJ). Her Honour upheld the application for review under s 97 of the Taxation Administration Act 1996 (NSW) made by the now respondent (E Group Security). The review related to E Group Security's liability to pay payroll tax for the financial years in the period 1 July 2014 to 30 June 2018. The assessments related to the provision by E Group Security of security services to clients. 4. As noted by the primary judge at PJ[4], the principal issue was whether the arrangements between E Group Security and its clients (or, alternatively, the arrangements between E Group Security and its related entities) are "employment agency contracts" as defined in s 37 of the Payroll Tax Act 2007 (NSW). In brief, the dispute focused on the true nature of the relationship between, on the one hand, various unrelated subcontracting companies which supplied security services and, on the other hand, E Group Security and three related companies (Grouped Entities) and various other entities to which the security services were ultimately provided. Those entities included licensed venues (such as sports clubs and hotels), commercial office buildings, schools and hospitals. The three Grouped Entities are E Group Protective Services Pty Ltd (prior to 18 October 2016 this company was called E Security Group Pty Ltd), Vital Hospitality Group Pty Ltd and E Group Events Australia Pty Ltd. 5. The primary legal issue was whether E Group Security should be deemed to have paid assessable wages to security guards for the purposes of: 1. the grouping provisions of the Payroll Tax Act; and 2. provisions in Div 8 of Pt 2 of that Act concerning employment agents. 1. The primary judge gave comprehensive reasons for allowing the review. Most of her Honour's reasons related to her rejection of the Chief Commissioner's primary contention that the arrangements between E Group Security and its clients were "employment agency contracts". In brief, this issue principally turned on the proper construction of s 37(1) of the Payroll Tax Act and, more specifically, whether the relevant services were procured "in and for" the conduct of the business of the clients. The primary judge applied the construction of "employment agency contract" as formulated by White J in UNSW Global Pty Ltd v Chief Commissioner of State Revenue [2016] NSWSC 1852; 102 ATR 577 at [62]. The primary judge found that the security guards were not integrated into the workforce of the various entities which obtained the security services. 2. The Chief Commissioner appealed unsuccessfully against that aspect of the primary judgment (see Chief Commissioner of State Revenue v E Group Security Pty Ltd [2022] NSWCA 115 (AJ)). In dismissing the appeal (which related only to grounds 1, 2 and 3 of the amended notice of appeal), the Court held that there should be no departure from the construction of the definition in s 37 of "employment agency contract" in UNSW Global and as applied by the primary judge here. This was in circumstances where the Payroll Tax Act had been reviewed and amended regularly since UNSW Global had been decided and the Chief Commissioner had himself consistently propounded the construction which was approved in that decision. 3. The present appeal relates solely to grounds 4 and 5 of the amended notice of appeal filed on 10 May 2022, both of which relate to the primary judge's rejection of the Chief Commissioner's alternative claim. That claim was to the effect that, if E Group Security was not an employment agent in respect of the provision of security services by sub-contractors for clients, the arrangements between E Group Security and the Grouped Entities in the relevant period were such that each Grouped Entity was an employment agency and E Group Security was the client. Consequently, E Group Security was jointly and severally liable for the unpaid payroll tax of the Grouped Entities. It should be noted that the Chief Commissioner does not seek to appeal from the decision below in respect of the financial year 1 July 2014 to 30 June 2015. Thus the relevant period is 1 July 2015 to 30 June 2018 (Relevant Years). 4. The secondary nature of this alternative claim is reflected not only in the relatively little attention given to it in the parties' oral closing submissions below, but also in the relative brevity of the primary judge's reasons for rejecting the alternative claim (which for convenience are set out at [41] below). 5. In the event that the appeal succeeds, there is also an issue whether interest on the payroll tax liability should be remitted. The primary judge did not have to deal with this issue. 6. For the following reasons the appeal will be allowed, with costs. There should be no remission of interest on the payroll tax liability. 7. These reasons are structured as follows: 1. Relevant legislative regime summarised. 2. Primary judge's reasons for judgment on the alternative claim. 3. The two relevant grounds of appeal. 4. The parties' submissions summarised. 5. Consideration and determination of the appeal. 6. Should interest on the payroll tax liability be remitted? 7. Costs. 8. Conclusion. Relevant legislative regime summarised 1. The effect of ss 3, 6, 7 and 11 of the Payroll Tax Act is to oblige employers to pay payroll tax for wages paid for services performed by employees and also to oblige persons to pay payroll tax for payments made to workers who are not their employees (such as independent contractors in some circumstances). Relevantly, one of those circumstances is where the person is an "employment agent" and the worker is provided to the person's client under an "employment agency contract". In that situation, any amounts paid with respect to the worker are deemed wages and liable to attract payroll tax. 2. Section 37 is a critical provision for present purposes. It provides: 37 Definitions (1) For the purposes of this Act, an employment agency contract is a contract, whether formal or informal and whether express or implied, under which a person (an employment agent) procures the services of another person (a service provider) for a client of the employment agent. (2) However, a contract is not an employment agency contract for the purposes of this Act if it is, or results in the creation of, a contract of employment between the service provider and the client. (3) In this section— contract includes agreement, arrangement and undertaking. 1. Reference should also be made to s 40(1): 40 Amounts taken to be wages (1) For the purposes of this Act, the following are taken to be wages paid or payable by the employment agent under an employment agency contract— (a) any amount paid or payable to or in relation to the service provider in respect of the provision of services in connection with the employment agency contract, (b) the value of any benefit provided for or in relation to the provision of services in connection with the employment agency contract that would be a fringe benefit if provided to a person in the capacity of an employee, (c) any payment made in relation to the service provider that would be a superannuation contribution if made in relation to a person in the capacity of an employee. … 1. Section s 81(1) imposes joint and several liability to pay payroll tax in the circumstances specified therein: 81 Joint and several liability (1) If a member of a group fails to pay an amount that the member is required to pay under this Act in respect of any period, every member of the group is liable jointly and severally to pay that amount to the Chief Commissioner. … 1. Finally, on the issue of remission of interest, s 25 of the Taxation Administration Act provides: 25 Remission of interest The Chief Commissioner may, in such circumstances as the Chief Commissioner considers appropriate, remit the market rate component or the premium component of interest, or both, by any amount. Primary judge's reasons for judgment on the alternative claim 1. The primary judge summarised the submissions of the respective parties in relation to the alternative claim at PJ[204] to [234] and [264] to [278] respectively. E Group Security's submissions in reply are summarised at PJ[310] to [315]. It should be noted that only three paragraphs in the Chief Commissioner's 22 page written opening submissions were devoted to that aspect of his alternative claim concerning the alleged "arrangement". The three categories of documents upon which the Chief Commissioner relied on this issue were described in broad and brief terms and the Chief Commissioner's senior counsel stated that this and other related evidence "will be addressed further at the close of evidence, in closing submissions". In fact, that did not occur to the extent that might reasonably have been expected. It is therefore perhaps unsurprising that the primary judge dealt with the alternative claim as briefly as her Honour did. 2. As noted above, the primary judge's reasons for rejecting the alternative claim are relatively brief. I shall set out PJ[340] to [342] in full: 340 As to the alternate proposition that the contracts between E Group Security and its subsidiaries were themselves employment contracts, I am also not satisfied that a payroll tax liability has arisen. First, as to the meaning of "client" in s 37(1), I do not accept that it is necessary to show that there was some goodwill arising from the contractual arrangement in order to bring it within the client/employment arrangement. I consider that "client" (which is not defined in the legislation) should be given its ordinary (common parlance) meaning – as someone with whom there is some form of relationship whereby (for reward or otherwise) one party does something on behalf of or at the request of another at least where that is in a professional or business context (and I consider that this accords with Payne J's analysis in Securecorp). In that sense, it might be said that E Group Security is the client of the Related Entities insofar as the Related Entities perform an invoicing service for E Group Security but that does not make E Group Security a client for the purpose of procuring of workers. However, more likely to my mind is that the payroll arrangements were not "client" arrangements but were instances of compliance by the subsidiary with a direction from the parent company. 341 However, this argument ultimately turns on whether the Related Entities "procured" the services of the security guards for E Group Security within the meaning articulated by White J in Freelance Global. I am not persuaded that there was an agreement between E Group Security and its subsidiaries to procure the workers. I consider that the Group Payroll Agreements were a contract or agreement for the subsidiaries to perform a payroll function. That is because I accept that (poorly drafted as they may have been) the intent was that the payroll functions be performed by the subsidiaries but that the security guards (though paid via the subsidiaries) were procured as such by E Group Security. I accept that the footer of the invoices that refers to services having been "supplied" by E Group Protective Services raises concern in relation to this point. However, considering the invoices as a whole that discrepancy does not seem to me to warrant a conclusion contrary to E Group Security's position (particularly since I consider that the re-structure or re-branding of the companies in the group does not appear to have been consistently implemented in the documentary arrangements). On the whole, I am of the view that the Related Entities did not procure the security guards for E Group Security in the relevant years but, rather, facilitated E Group Security's provision of services to its clients. 342 Therefore, I consider that E Group Security's application for review should be allowed. 1. In brief, the primary judge's key findings to which the two present grounds of appeal relate are as follows: 1. The term "client" in s 37(1) should be given its ordinary meaning. Payroll arrangements between E Group Security and the Grouped Entities were not "client" arrangements, but rather were instances of a subsidiary complying with its parent company's direction. 2. More significantly, however, the Grouped Entities did not procure the security guards. Rather, E Group Security entered into the contracts with the sub-contractors directly and the Grouped Entities served only to pay the sub-contractors on E Group Security's behalf, ie they merely had a payroll function. This is to be contrasted with the Chief Commissioner's position, namely that the Grouped Entities entered into contracts or "arrangements" with the sub-contractors, thereby procuring them to work in E Group Security's business, so as to constitute an "employment agency contract" for the purposes of s 37(1). The Group Payroll Agreements should properly be characterised as a contract or agreement for the subsidiaries to perform a payroll function whereas the security guards were procured by E Group Security even though they were paid by the subsidiaries. Although noting the statement at the footer of invoices that the services had been supplied by one or other of the Grouped Entities her Honour viewed this as not determinative and as explicable on the basis of the restructuring or rebranding of the companies in the Group which may not have been consistently reflected in the documentation. Relevant grounds of appeal 1. The two remaining grounds of appeal are as follows: 4 In the alternative to appeal grounds 1-3 above, the primary judge erred by finding that the respondent's grouped entities (EGroup Protective Services Pty Ltd, EGroup Events Australia Pty Ltd and Vital Hospitality Group Pty Ltd) (Grouped Entities) did not procure the services of security guards for their client, the respondent, in the Relevant Years. 5 The primary judge should have found that the Grouped Entities procured the services of security guards for their client, the respondent, in the Relevant Years and that, accordingly: (a) the Grouped Entities entered into arrangements that were employment agency contracts within the meaning of s 37 of the Payroll Tax Act; (b) the Grouped Entities were taken to be the employers of the security guards under s 38 of the Payroll Tax Act and liable to pay payroll tax on amounts paid or payable for the services of the security guards; and (c) the respondent is jointly and severally liable, pursuant to s 81 of the Payroll Tax Act, for the payroll tax not paid by the Grouped Entities. The parties' submissions summarised Chief Commissioner 1. The Chief Commissioner contended that the primary judge erred in finding as a fact that the Grouped Entities did not 'procure' the security guards. It contended that the true position is that the Grouped Entities entered into contracts – or "arrangements" – with the subcontractors and thereby procured them to work in E Group Security's business, in a way that satisfies the definition of "employment agency contract" in s 37(1). He submitted that the primary judge's conclusion was founded on the evidence of the Group Payroll Agreements alone, but that on the totality of the evidence, strong inferences support his claims. 2. The Chief Commissioner emphasised that an "arrangement" may exist in circumstances falling short of a formal contract, including that it may be informal or implied, and that it may even be contrary to the terms of a written contract. He submitted that an arrangement may be an unenforceable set of terms of which there is only some adoption (Re Day [2017] HCA 2; (2017) 340 ALR 368 at [73]), and that an inference that an arrangement exists may be drawn from circumstantial evidence of the conduct of the parties (Australian Competition and Consumer Commission v J Hutchinson [2022] FCA 98 at [328]). 3. The Chief Commissioner acknowledged that the Group Payroll Agreements (which are agreements between E Group Security and each of the Grouped Entities) support the primary judge's conclusion that the Grouped Entitles performed a payroll function. He contended however, that a separate "arrangement" existed as well which was inconsistent with the terms of the Group Payroll Agreements and under which the Grouped Entities "procured" security guards. Three arguments were advanced in support. 4. First, the Chief Commissioner contended that the Group Payroll Agreements only reveal the parties' intentions at the time they were executed, and that much of the relevant period was subsequent to those dates. Secondly, he claimed that insofar as the Group Payroll Agreements stated that E Group Security was the sole shareholder of the Grouped Entities, they were incorrect: Mr Sami Chamoun (E Group Security's managing director) was the shareholder at the time. Consequently, the primary judge's description of the Grouped Entities as "wholly-owned subsidiaries" was therefore said to be incorrect. Thirdly, he submitted that the statutory task is not purely to construe the terms of any written agreement, but also to determine whether the evidence (including the Group Payroll Agreements, but also the three categories of documents summarised at [48] below) discloses a contract or "arrangement" within the terms of s 37. In that regard, he also noted that at least one employment contract provided that the employer was one of the Grouped Entities, and that many of the employees' own evidence was that they understood a Grouped Entity to be their employer. 5. The Chief Commissioner submitted that, despite the Group Payroll Agreements, the evidence as a whole gives rise to compelling inferences that an "arrangement" existed between the Grouped Entities and E Group Security, which went beyond a mere payroll function and in fact involved procuring the supply of security guards. The following three categories of documents were relied upon: 1. Documents (primarily invoices) issued by the sub-contractors to the Grouped Entities which indicated that their contracts were with the Grouped Entities and not E Group Security. 2. Various internal documents of the Grouped Entities, including an organisational chart, security licences held by the Grouped Entities and financial statements and taxation returns prepared by the Grouped Entities. 3. Documents and correspondence (primarily invoices) from E Group Security which stated that the Grouped Entities supplied security guards. 1. The Chief Commissioner also submitted that there should be no remission of interest due on E Group Security's payroll tax. It is convenient to summarise the Chief Commissioner's submissions on this topic under the heading "Chief Commissioner's reply" at [61] below. E Group Security 1. E Group Security contended that the Chief Commissioner failed to identify any appellable error in the primary judge's reasoning. 2. It submitted that the Group Payroll Agreements were only one of four matters which supported the conclusion that the Grouped Entities merely performed a payroll function. It pointed to: 1. the minutes concerning E Group Security and the Grouped Entities in which their payroll function is discussed; 2. the contracts for the provision of security guards (which were between E Group Security and its subcontractors); and 3. the evidence of Mr Chamoun as to the functions of the Grouped Entities (ie, that he directed funds via E Group Security to the Grouped Entities, to be paid to subcontractors, as well as wages paid to employees). 1. E Group Security submitted that the Group Payroll Agreements governed the relationship between it and the Grouped Entities, and that the Chief Commissioner's submission that a separate and "inconsistent" arrangement also existed, was not consistent with the evidence or the way the Chief Commissioner ran his case below. E Group Security claimed that the Chief Commissioner's argument must suggest either that the Group Payroll Agreements were not intended to take effect according to their terms, or that they were somehow varied by conduct. Neither argument was put below. E Group Security submitted that such an argument was also contrary to the evidence, including the additional categories of evidence (referred to at [51] above), none of which was sought to be contradicted below, including by cross-examination of Mr Chamoun. 2. E Group Security defended the primary judge's reliance on the Group Payroll Agreements because, absent a contention of sham, variation, waiver, estoppel etc, those Agreements should be seen as governing the relationship between the parties (Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd [2022] HCA 1; (2022) 96 ALJR 89). CXC Consulting Pty Ltd v Commissioner of State Revenue [2013] VSC 492; (2013) 96 ATR 796 at 816-817 was also relied upon, where for the purposes of the Victorian equivalent of s 37, a written contract was the basis for characterising the relationship (see also White JA in Freelance Global Ltd v Chief Commissioner of State Revenue [2014] NSWSC 127 at [132]). 3. E Group Security submitted that the Grouped Entities were not parties to the subcontracts. It relied on various documents entitled "Terms and Conditions for the Provision of Services". The Chief Commissioner claimed that these documents had little utility to the relevant issue because of their wide definition of "Contractor", which encompassed "employees, agents and subcontractors". In any event, they were not complete contracts but rather standard form purchase order forms. In response, E Group Security claimed that these documents were contracts, and that the contracting party did not include the Grouped Entities. It submitted that the broadly defined term "Contractor" did not accurately describe the parties' relationship or functions in the transaction. Moreover, E Group Security claimed that several nonsensical outcomes would arise under the contract if that broad definition were applied. For example, it would result in E Group Security warranting that all of its staff held security licences, and intended to vest in them E Group Security's intellectual property. To support its claim that the documents were contracts, E Group Security relied on Mr Chamoun's evidence that the documents were contracts and also pointed to the fact that they were signed by both E Group Security and the subcontractor. 4. As to the subcontractor invoices, which were addressed to the Grouped Entities, E Group Security again relied on Mr Chamoun's evidence. That was to the effect that he decided which of the Grouped Entities would pay a particular subcontractor from time to time, just as he decided which entity paid a particular employee. E Group Security submitted that the primary judge did not err in accepting this evidence and finding that the Grouped Entities carried out a payroll function. 5. E Group Security responded as follows to the Chief Commissioner's reliance on the three categories of internal documents outlined at [48] above: 1. As to the organisational chart, E Group Security claimed that the document "erroneously refers to [E Group Security] not employing staff and the Grouped Entities instead employing staff". Mr Chamoun gave evidence that that was a mistake. 2. As to the Grouped Entities holding security licences, E Group Security submitted that Mr Chamoun's unchallenged evidence was that he understood that this was necessary in order for them to pay the security guards. 3. As to the Grouped Entities' financial statements, E Group Security submitted that they provided the usual commercial record of revenues and payments, and that it was not apparent how they were inconsistent with the Group Payroll Agreements or the primary judge's findings. The documents were also unsigned, unaudited and were not put to any witness. 4. As to the footer in the invoices to clients which stated that the security services were being provided by one of the Grouped Entities, E Group Security relied on Mr Chamoun's evidence that he understood it to be a regulatory requirement that an invoice identify the company that paid the guards. The primary judge found this to be corroborated by Mr Gould's evidence. 5. As to the Chief Commissioner's claim that the primary judge's finding regarding these invoices must be a "discrepancy" because there were over 18,000 invoices which identified the contracting party as a Grouped Entity, E Group Security submitted that the number of invoices is of no probative significance as they were all in common form, computer-generated from a template, and that the primary judge made clear that she did not overlook the number of these documents or their significance (PJ[341]). 1. Simply expressed, E Group Security defended the primary judge's decision on the basis that her Honour found at PJ[63] that Mr Chamoun was a credible witness and, notwithstanding any indications to the contrary which are reflected, for example, in the invoices, Mr Chamoun had a genuine understanding and intention as to how the Group's payroll arrangements should operate. It emphasised that Mr Chamoun was the "guiding mind" of each of the Grouped Entities. 2. Finally, E Group Security urged the Court to find that, in the event the appeal succeeded and the relevant assessments were restored, interest on the tax should be remitted. The effect of ss 21 and 22 of the Taxation Administration Act is to impose a liability on a taxpayer to pay interest on unpaid tax, which has two elements: 1. the market rate component (which equals the Bank Accepted Rate published by the Reserve Bank and is currently about 0.07%), and 2. the premium component (which is currently 8% per annum). 1. E Group Security relied upon the reference in the second reading speech to the Taxation Administration Bill 1996 (NSW) to the power providing for remission applying where there are "special circumstances". It submitted that there were special circumstances here because of a representation made to Mr Chamoun by an auditor working for the then NSW Office of State Revenue (Mr Eric Blazek) in January 2015, in the context of an audit of E Group Security and entities other than the Grouped Entities for the 2011 to 2014 financial years. The alleged representation by Mr Blazek was: "Just engage corporate contractors and you'll be okay. They have to have at least 2 or 3 employees". Mr Chamoun gave evidence that, on the basis of this representation, E Group Security terminated all its sole traders and only engaged corporate contractors. 2. E Group Security noted that the Chief Commissioner did not call Mr Blazek, nor was Mr Chamoun cross-examined on whether the representation was made. Although as noted above the primary judge did not have to consider the issue of remission of interest, her Honour noted at PJ[343] that she was "troubled" by the evidence of Mr Blazek's representation. Chief Commissioner's reply 1. In reply, as to the minutes, the Chief Commissioner submitted that the primary judge did not rely on the minutes to support her Honour's findings. In addition, he submitted that E Group Security had inaccurately summarised them, that they were ambiguous and did not support the proposition that there was no "arrangement" in place. As to the contracts between E Group Security and its subcontractors, the Chief Commissioner again submitted that the primary judge did not rely on these documents. 2. The Chief Commissioner insisted that his argument that there was an additional "arrangement" outside of the Group Payroll Agreements was in fact put below, in the sense that he argued that, despite the Group Payroll Agreements, the Court was required to assess the substance of the parties' arrangements and their actual operation. 3. As to Personnel Contracting and CXC Consulting, the Chief Commissioner maintained that s 37's expansive definition of "contract" necessitates examination of circumstances beyond a written contract that may be in place, and that CXC Consulting in fact confirms (at [98]) that it would be inaccurate to say that the process "starts and ends with the contract". 4. The Chief Commissioner noted that E Group Security gave no answer to its submission that the subcontractors' invoices and declarations prove they entered into contracts for the supply of guards to the Grouped Entities. As to the organisational chart, the Chief Commissioner stated that Mr Chamoun's evidence that this was "a mistake" is wrong because that term was used with reference to one of Mr Chamoun's earlier affidavits, and not the organisational chart. 5. As to the financial statements and E Group Security's submission that it is not apparent how they are inconsistent with the Grouped Entities performing only a payroll function, the Chief Commissioner emphasised that if they performed only such a function, the payments they made to subcontractors would not be recorded as their own expenses, as they would be acting as E Group Security's agent. The Chief Commissioner maintained that despite the statements not being signed or audited, there was no reason to doubt them. And although the documents were not put to any witness, the Chief Commissioner's opening submissions put E Group Security on notice that they would be relied upon, so submitted the Chief Commissioner. 6. As to the invoices issued to the subcontractors and E Group Security's arguments on that topic, the Chief Commissioner submitted that: 1. the proposition that the invoices were intended to identify the paying party (rather than the contracting party) was contrary to their plain language; 2. it was implausible that the same supposed error (identifying the wrong contracting party) would be repeated in over 18,000 invoices, nor was there any evidence to support E Group Security's claim that they were computer-generated; and 3. although not all of the invoices were in evidence, a sufficient number was before the Court, with a sample having been cross-examined upon and considered "as a whole" by the primary judge. 1. On the issue of remission of interest, the Chief Commissioner submitted that if in fact the alleged representation was made (which was not conceded), it was directed to an exemption concerning the relevant contract provisions in s 32(2)(c) of the Payroll Tax Act, and not to payroll tax liability arising under the employment agency provisions. He emphasised that the Grouped Entities were not operating at the time the alleged representation was made and they were not the subject of the payroll tax audit for the financial years 2011 to 2014. For these reasons, the Chief Commissioner urged the Court not to remit any interest. Consideration and determination of the appeal Was there an "employment agency contract" between the Grouped Entities and E Group Security during the relevant years? 1. As noted above, in concluding that there was no "employment agency contract" in the Relevant Years between the Grouped Entities and E Group Security as client, her Honour primarily relied upon her analysis of the terms and conditions of the Group Payroll Agreements. The Agreements were between E Group Security (as the stated sole shareholder) and each of the three Grouped Entities (described therein as "the payroll company"). The Agreements (which were drafted by Mr Chamoun) were in substantially similar terms. Clause 1.1 of each Agreement stated that "the payroll company must only performance (sic) a payroll function as required by the sole shareholder and on behalf of the group". Clause 2 of each Agreement described the role of the payroll company and reiterated that the sole function was to pay staff, including superannuation, payroll tax, workers compensation and any other staff related expenses in a particular State. In addition, among the general warranties in cl 3 of the Agreements, the sole shareholder warranted that "all staff, contractors, managers and suppliers be supplied and provided by the sole shareholder". The Agreements were signed by Mr Chamoun for and on behalf of both the sole shareholder and each payroll company. 2. The Chief Commissioner properly acknowledged that these Agreements provided some support for her Honour's conclusion. He also correctly pointed out, however, that the Agreements do not accurately record the facts at the time they were executed. Although E Group Security is recorded as the "sole shareholder" of the Grouped Entities, at that time this was not the case. In fact, Mr (Sami) Chamoun or his brother (Mr Armin Chamoun) was the shareholder of the Grouped Entities at those times. Mr Sami Chamoun was the shareholder of E Group Protective Services from July 2014 until 6 March 2018 (noting that the company was renamed on 18 October 2016 as E Security Group) and of Vitality Hospital Group from 1 July 2014 until 11 July 2017. Mr Armin Chamoun was the shareholder of E Group Events from 1 July 2014 until 31 August 2017. 3. In my respectful view, there was sufficient documentary evidence, apart from the Group Payroll Agreements, which indicated that there existed an arrangement between the Grouped Entities and E Group Security which involved the Grouped Entities procuring the supply of security guards for their client, E Group Security. 4. Perhaps reflecting the way in which the Chief Commissioner's case was conducted below, the only category of this documentation addressed by the primary judge was the invoices. Her Honour's reasoning in respect of this item is set out at PJ[340] (see [41] above). 5. On appeal, as noted above, the Chief Commissioner contended that there were at least three categories of documents which supported his contention that there were arrangements in place under which the Grouped Entities performed more than a payroll function for the Group. For the following reasons, that contention should be accepted. Accordingly, the appeal should be allowed. Invoices issued by subcontractors for provision of security guards 1. This category comprises invoices issued during the period 2015 to 2018 by various external subcontractors. Each of the invoices was addressed to one of the three Grouped Entities and each invoice contained a "Subcontractor's Statement" for the purposes of workers compensation, payroll tax and remuneration. Each of the subcontractor's statements (which were signed by the subcontractor) declared that the subcontractor had entered into a contract with one of the three Grouped Entities (and not E Group Security). As the Chief Commissioner submitted, the subcontractor's statements indicated that the subcontractors provided security guards to one of the three Grouped Entities and not to E Group Security. This suggests that the Grouped Entities procured the supply of security guards for E Group Security. 2. Mr Chamoun was not cross-examined on these subcontractor's statements but there was no forensic requirement to do so (bearing in mind that E Group Security had the onus below: see s 100(3) of the Taxation Administration Act). The significance of the statements is reflected in the fact that their provision was a mandatory statutory requirement under industrial relations (ss 127 and 127A of the Industrial Relations Act 1998), workers compensation (s 175B of the Workers Compensation Act 1987) and payroll tax legislation (Sch 2 of Pt 5 of the Payroll Tax Act). The making of a false statement was an offence under that legislation. Presumably, therefore, the statements were truthfully and solemnly made. 3. E Group Security submitted, in effect, that great weight should be given to documents entitled "Terms & Conditions for the Provision of Service". These documents were also drafted by Mr Chamoun. The parties to these contracts for the provision of "services" were E Group Security on the one hand (described as the "Contractor") and an external service provider. An "Order" was defined as meaning the "purchase order or work request by which these Conditions are attached". "Contractor" was defined to mean E Group Security, each of its related bodies corporate (as defined in the Corporations Act 2001 (Cth)) and the employees, agents and sub-contractors of any of them. This definition was wide enough to cover the Grouped Entities. "Service provider" was defined to mean the entity to whom the Order is contracted or performed by and "Services" was defined to mean the services (or any of them) specified in the Order. E Group Security submitted that these documents supported its claim that a subcontractor or service provider contracted with it and not the Grouped Entities. 4. It is inaccurate to describe the document as a "contract". Rather it sets out the terms and conditions relating to any purchase order or work request for services specified in an Order. More significantly, however, the definition of "Contractor" is broad enough to include the Grouped Entities. Such a broad definition may present practical difficulties of the kind referred to by E Group Security at [54] above, but these anomalies flow from the plain wording of the document and perhaps reflect Mr Chamoun's lack of legal expertise in drafting. 5. In all those circumstances it is difficult to see how the documents advance E Group Security's position. Various internal documents 1. The following additional internal documents indicate that the Grouped Entities did more than simply perform a payroll function during the Relevant Years. 2. First, there is a Group organisational chart, which was annexed to Mr Chamoun's affidavit dated 23 September 2019. Under the heading "Function in the Group", the chart states that E Group Security (emphasis added): … manages all the cash flow of the group and issues all client's (sic) invoices and distributes it to its companies. It holds all client contracts. It employs no staff or contractors and all its operating expenses are managed and paid by its companies … 1. With respect to two of the Grouped Entities, the chart states that E Group Protective Services "employs and pays all the management and accounting staff across the entire group [and] also employs and pays all security guards and contractors [as well as] all marketing and advertising expenses for the entire group". In respect of E Group Events, the chart states that it "employs and pays all security guards and contractors that operate in the events sector". 2. In his subsequent affidavit dated 11 March 2020 Mr Chamoun stated that his earlier affidavit did not correctly identify the employer of the Group's employees (presumably this is a reference to the organisational chart, although that is not explicitly stated). He said that his earlier statement that E Group Security's "wholly-owned subsidiaries employed E Group's employees" was mistaken. He said that he was aware that employees were paid by E-Group Security's subsidiary companies "and on that basis had mistaken the identity of the payer with that of the employer at the time of swearing my September affidavit". 3. Mr Chamoun was not cross-examined on the organisational chart but it may be noted that it is broadly consistent with what the Group's accountant told the Office of State Revenue in an email dated 12 October 2017 (see [86] below). Moreover, as noted above, E Group Security carried the onus. 4. Secondly, in the proceedings below, E Group Security relied on an affidavit dated 16 September 2019 by Mr Chris Tarmagi, who described himself as a security manager employed by E Group Events. He described how, since April 2018 (ie shortly before the end of the last of the Relevant Years), he started working at E Group Events' head office as the rostering and security manager. He deposed that, in this role, he contacted "our guards and subcontractors to fulfil the rostering requirements …". Moreover, Mr Tarmagi deposed that E Group Events held a master licence "which allows it to employ up to a certain number of security guards" and he said that when E Group Events runs an event, a copy of its master licence is displayed in the control room. This evidence strongly suggests that E Group Events performed more than a payroll tax function at that time. 5. Thirdly, at the relevant times, master licences were held by each of the Grouped Entities under the Security Industry Act 1997 (NSW). These licences permitted each of the Grouped Entities to carry on "security activities", which includes providing 50 or more security guards on any one day to perform security activities. This suggests that the Grouped Entities provided security services and did not just perform a payroll function. This is so even though Mr Chamoun said that he understood that the Grouped Entities had to hold such licences even if they performed a payroll function alone. This view was not challenged in cross-examination. 6. Fourthly, the Grouped Entities' financial statements and tax returns (although unaudited and unsigned) allocated items to expenses of the Grouped Entities during the Relevant Years. Such accounting strongly suggests that the expenses were incurred by the Grouped Entities themselves and that they were not acting merely as agents for E Group Security. 7. Fifthly, and consistently with the point made immediately above, there is an email dated 12 October 2017 from the Group's accountant which provided a response to the Office of State Revenue's various questions which arose during the tax audit for 2011-2014. In response to questions concerning the Grouped Entities, the accountant said that "the entities that provided services for E Group Security provided all labour requirements including employees". In response to a further question requesting a description of the business of several specified entities in the Group, the accountant said that each entity had a specific purpose and use. In the case of E Group Security, he said that it "deals specifically with the public and third party customers" and did not engage any staff directly but it "is the main trading entity of the Group". In respect of E Group Protective Services, the accountant said that it operated exclusively in NSW and it "engages all staff and contractors for the commercial and retail sectors". Vital Hospitality Group was described as engaging all staff and contractors for the Hospitality Sector and E Group Events was described as engaging all staff and contractors for the Events Sector. These responses all indicate that the Grouped Entities had substantive functions in procuring staff and contractors. 8. Finally, and significantly, there are various tax invoices during the Relevant Years issued by one or other of the Grouped Entities to E Group Security which are expressly stated to relate to "Labour Hire Services" for specified periods. For example, E Group Protective Services issued a tax invoice dated 14 October 2015 to E Group Security in the amount of approximately $470,000 (including GST) for "Labour Hire Services" for the week ending 13 October 2015. Vital Hospitality Group issued a tax invoice dated 30 March 2016 to E Group Security in the amount of $115,000 (including GST) for "Labour hire services" for the week ending 27 March 2016. E Group Events issued a tax invoice dated 20 July 2016 to E Group Security in the amount of $69,000 (including GST) for "Labour Hire Services" for the week ending 17 July 2016. 9. These invoices strongly suggest that the Grouped Entities were not simply confined to performing a payroll function during the Relevant Years. It should be acknowledged that the invoices were not put to Mr Chamoun in cross-examination. But as has been noted above, E Group Security had the onus below and the documents on their face provide strong support for the Chief Commissioner's position. E Group Security's statements to clients and third parties 1. This category comprises documents and correspondence sent by E Group Security to third parties stating that the Grouped Entities were supplying security guards. The correspondence primarily took the form of taxation invoices sent to clients during the Relevant Years. Each such invoice contained a statement at the bottom of the page that the relevant security services were supplied by one or other of the Grouped Entities and details of its master licence were provided. At PJ[341], the primary judge described this statement as a "discrepancy" presumably because her Honour viewed the statement as not being consistent with the restructure or rebranding of the companies in the Group in 2015. Looked at in isolation, there may be some force in that view but the statements take on a different complexion when regard is had to all the other documents which indicate that the Grouped Entities performed more than a payroll function. Minutes of E Group Security and the Grouped Entities 1. These documents were not drawn to the primary judge's attention, hence it is unsurprising that her Honour did not address them. The Chief Commissioner contends on the appeal that they lend additional support to his position. 2. They include minutes of E Group Security and are dated 1 July 2015 (ie at the beginning of the Relevant Years). Item 2 of the minutes records: Transfer funds to its appropriate payroll and administration companies to cover the cost of wages, contractors and any other additional expenses. 1. Item 5 records: Start using E Security Group to pay all its staff and contractors in NSW moving forward. 1. The reference to "payroll and administration companies to cover the cost of wages, contractors and any other additional expenses" may suggest that those companies performed more than merely a payroll function. 2. Reference should also be made to the E Security Group (not E Group Security) minutes dated 1 July 2015. Item 1 of those minutes records this company being used "solely to administer and pay all the staff, contractors and any other expenses for E Group Security" and that its sole purpose is to provide a payroll function for E Group Security (Item 4). Similar statements appear in minutes of the other two Grouped Entities (ie. Vital Hospitality Group and E Group Events). 3. The significance of the minutes lies in the fact that although they record the "sole purpose" of each of the Grouped Entities as being to provide a payroll function for the Group, they also contain references to the Grouped Entities "administering" all staff, contractors and any other expenses for E Group Security. What was involved in such administration was not explored below and the minutes were not put to Mr Chamoun in cross-examination. This affects the weight to be given to the minutes, but they appear to be consistent with other documentary material. Conclusion on the "arrangement" 1. The combined effect of the various categories of documents described above is sufficient to uphold the Chief Commissioner's central contention that, notwithstanding the terms of the Group Payroll Agreements, there was an arrangement that operated during the Relevant Years whereby the Grouped Entities performed more than a payroll function and extended to them procuring security guards for their client, E Group Security. 2. A fundamental difficulty with E Group Security's position is that it relies very heavily on Mr Chamoun's subjective views as to how the Grouped Entities were intended to operate, which views were contradicted in varying degrees and respects by the various categories of documents described above. There is no reason to doubt the genuineness of Mr Chamoun's subjective views (and, indeed, the primary judge found him to be a credible witness). Ultimately, however, the relevant legal issues fall to be determined primarily by reference to the contemporaneous documentation. It is regrettable that the primary judge was not provided with the assistance which this Court received with regard to the nature and scope of the relevant documentation. (b) Should interest on the payroll tax liability be remitted? 1. As noted, the primary judge did not have to determine this question because it did not arise when her Honour set aside the payroll tax assessments. 2. For the following reasons, I do not consider that this is an appropriate case to make any remission of interest. 3. The Chief Commissioner has a broad discretion under s 25 of the Taxation Administration Act to remit either or both the market rate component or the premium component by any amount. The breadth of the discretion is reflected in the fact that the discretion may be exercised "in such circumstances as the Chief Commissioner considers appropriate". 4. The relevant principles guiding the exercise of the discretion were not in dispute. They are helpfully summarised by Ward CJ in Eq (as her Honour then was) in Adams Bidco Pty Ltd v Chief Commissioner of State Revenue [2019] NSWSC 702 at [156]–[157] and [163] (see also Winston-Smith v Chief Commissioner of State Revenue [2018] NSWSC 773 at [81] per Emmett AJA and Antegra Pty Ltd v Chief Commissioner of State Revenue [2021] NSWSC 107 at [178] per Payne JA). 5. E Group Security's request that interest be remitted under s 25 of the Taxation Administration Act is based on the representation which it said was given by Mr Blazek in January 2015, the terms of which are set out at [59] above. Apart from Mr Chamoun's affidavit evidence concerning what Mr Blazek said at a meeting on 20 January 2015 which was attended by Mr Chamoun, E Group Security also relied upon a file note dated 28 January 2015 which was on the letterhead of PWC Accountants. The author of the file note does not appear on the document but the file note records the Office of State Revenue (presumably Mr Blazek) saying: "Only engage companies with 2 or 3 employees". 6. Even if the representation was made in the terms alleged by Mr Chamoun, it is more probable than not that it related to the effect of Div 7 of Pt 3 of the Payroll Tax Act (which relates to contractors) as opposed to Div 8 (which deals with employment agents). This is strongly suggested by the statement attributed to Mr Blazek that E Group Security should just "engage corporate contractors" and that they "have to have at least 2 or 3 employees". That statement reflects the terms and effect of s 32(2)(c)(i), which is in Div 7. 7. In Antegra at [171] Payne JA adopted Ward CJ in Eq's description in Adams Bidco at [163] of the purpose of the market rate of interest being to compensate the revenue for loss of tax at the time it was due. I am not satisfied that there are any "special circumstances" which justify a remission of the market component of interest in respect of the Relevant Years. 8. As to remission of the premium component, in both Antegra and Winston-Smith, the issue was addressed with reference to the following four criteria: 1. all principal tax that is owing and not in dispute has been fully paid; 2. there has been co-operation by the taxpayer in providing relevant information to the Commissioner so as to enable the Commissioner to issue assessments; 3. such co-operation has occurred prior to any investigation being commenced by the Commissioner, or, at the very least, within a reasonable time after a request for information had been made by the Commissioner; and 4. there has been no wilful default by the taxpayer in not paying tax on time. 1. As Payne JA observed in Antegra at [179], these criteria are not exhaustive in determining whether to exercise the power of remission. 2. The reference to "wilful default by the taxpayer" in not paying the tax on time is an important consideration. It was open to E Group Security to pay the assessed liability for the Relevant Years and then seek a refund of tax (together with interest) if it succeeded in an objection or on a review. It plainly elected not to do so. Absent any good reason for remitting the interest, I would not accede to E Group Security's request. Costs 1. The parties agreed that the Court should determine the issue of costs both below and on appeal, with leave for either party to make an application in respect of the proposed orders within, say, 14 days. It should be noted that the Court did not interfere with the costs orders below when it dismissed grounds 1, 2 and 3 of the amended notice of appeal. But the Court did order the Chief Commissioner to pay the respondent's costs of the appeal in relation to those grounds. 2. As to the costs of the proceeding below, the Chief Commissioner said that if he now succeeded on grounds 4 and 5 he should have 80% of his costs below. In my view, a more appropriate order is that the Chief Commissioner should pay one half of the plaintiff's costs of the proceeding below. This reflects: 1. the fact that the Chief Commissioner lost on his primary claim, which dominated the proceeding below, and he was unsuccessful in his appeal concerning that claim; 2. his failure to cross-examine on many of the documents which were heavily relied upon in the appeal and attracted a different emphasis in the Chief Commissioner's case on appeal; and 3. the fact that the Chief Commissioner does not challenge the primary judge's decision in respect of the 2015-2016 financial year. 1. The Commissioner should have all his costs of the appeal. Conclusion 1. For these reasons, I consider that the appeal should be allowed. 2. The Commissioner should have all his costs of the appeal concerning grounds 4 and 5. 3. The costs order made below on 13 October 2021 should be set aside and in lieu thereof there should be an order that the defendant pay 50% of the plaintiff's costs of the proceeding below. 4. The parties should have leave to apply within 14 days hereof if either of them disagrees with the costs orders. 5. There should also be an order that the matter be remitted to the appellant to reassess the respondent's payroll tax liability for the Relevant Years in conformity with the reasons of the Court, as sought by the Chief Commissioner. 6. There should be no order remitting interest on the respondent's payroll tax liability for the Relevant Years. ********** Endnotes 1. Payroll Tax Act 2007 (NSW), s 81(1) ("Payroll Tax Act"). 2. E Group Security Pty Ltd v Chief Commissioner of State Revenue [2021] NSWSC 1190 ("Primary judgment"). 3. Securecorp (NSW) Pty Ltd v Chief Commissioner of State Revenue [2019] NSWSC 744 at [90] (Payne JA); Southern Cross Group Services Pty Ltd v Chief Commissioner of State Revenue [2019] NSWSC 666 (Ward CJ in Eq, as her Honour then was). 4. See Griffiths AJA at [73]-[74]. 5. Workers Compensation Act 1987 (NSW), s 175B; Payroll Tax Act 2007 (NSW), Sch 2 Part 5; Industrial Relations Act 1996 (NSW), s 127. 6. Affidavit, Steven Miklecic, 16 September 2019 at p 3; Affidavit, Sami Chamoun, 23 September 2019 at [26(i)]. 7. See Griffiths AJA at [75]-[77]. 8. See Griffiths AJA at [79]-[80]. 9. Tcpt, 1 February 2021, p 76(03)-(18). 10. See Griffiths AJA at [83]-[84]. 11. Griffiths AJA at [85]. 12. See Griffiths AJA at [87]-[88]. 13. See Griffiths AJA at [89]. 14. Primary judgment at [341]; see Griffiths AJA below at [68]. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 13 December 2022