Supreme Court New South Wales Medium Neutral Citation: UNSW Global Pty Ltd v Chief Commissioner of State Revenue [2016] NSWSC 1852 Hearing dates: 17 and 18 December 2015 Decision date: 21 December 2016 Jurisdiction: Equity - Revenue List Before: White J Decision: Direct counsel for the plaintiff to bring in short minutes of order in accordance with the reasons. Catchwords: TAX — payroll tax — employment agents — plaintiff provided the services of experts to provide expert services in connection with litigation or in relation to some aspect of a client's business — experts retained by the plaintiff were independent contractors — whether payments made by the plaintiff to experts were wages pursuant to s 3C(2)(C) of the Pay-roll Tax Act 1971 and s 40 of the Payroll Tax Act 2007 — held that services provided for a client's benefit but not provided by a service provider working in a client's business not intended to fall within the scope of the employment agency contract provisions — work done by the experts retained by the plaintiff was not done in the conduct of a client's business — payroll tax assessment notice set aside Legislation Cited: Industrial Arbitration Act 1940 (NSW) Industrial Relations Act 1991 (NSW) Interpretation Act 1987 (NSW) Pay-roll Tax (Amendment) Act 1985 Pay-roll Tax (Amendment) Act 1987 (NSW) Pay-roll Tax Act 1971 (NSW) Pay-roll Tax Act 1971 (Vic) Payroll Tax Act 2007 (NSW) Cases Cited: Alcan (NZ) Alumina Pty Ltd v Commissioner of Territory Revenue (2009) 239 CLR 27; [2009] HCA 41 Certain Lloyd's Underwriters v Cross (2012) 248 CLR 378; [2012] HCA 56 CXC Consulting Pty Ltd v Commissioner of State Revenue [2013] VSC 492 Delaney v Staples [1992] 1 AC 687 Drake Personnel Ltd v Commissioner of State Revenue (2000) 2 VR 635 Drake Personnel Ltd v Commissioner of State Revenue (Vic) (1998) 40 ATR 304; (1998) 98 ATC 4915 Federal Commissioner of Taxation v Consolidated Media Holdings Ltd (2012) 250 CLR 503; [2012] HCA 55 Freelance Global Ltd v Chief Commissioner of State Revenue [2014] NSWSC 127 Health Service Pty Ltd v Chief Commissioner of State Revenue [2014] NSWCATAD 83 Manly Council v Malouf (2004) 61 NSWLR 394; [2004] NSWCA 299 Park Trent Properties Group Pty Ltd v Australian Securities and Investments Commission [2016] NSWCA 298 Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355; [1998] HCA 28 Taylor v The Owners – Strata Plan 11564 (2014) 253 CLR 531; [2014] HCA 9 Wacal Developments Pty Ltd v Realty Developments Pty Ltd (1978) 140 CLR 503 Texts Cited: Bennion on Statutory Interpretation, 6th ed (2013) Category: Principal judgment Parties: UNSW Global Pty Ltd (Plaintiff) Chief Commissioner of State Revenue (Defendant) Representation: Counsel: E A Collins SC with C Burnett & K Josifoski (Plaintiff) P Taylor SC with E Bishop & S Kanagaratnam (Defendant) Solicitors: Bartier Perry (Plaintiff) Crown Solicitors (Defendant) File Number(s): 2014/140127 Judgment 1. HIS HONOUR: This proceeding concerns the reach of the employment agency contract provisions of the Pay-roll Tax Act 1971 (NSW) (s 3C), and the Payroll Tax Act 2007 (NSW) (ss 37-42). 2. On 7 May 2013 the Chief Commissioner issued a payroll tax assessment notice to the plaintiff ("UNSW Global" or "Unisearch") for the periods from 1 June 2007 to 30 June 2012. The basis of the assessment was that the Chief Commissioner contends that payments made by the plaintiff to consultants were deemed to be wages pursuant to s 3C(2)(c) of the Pay-roll Tax Act 1971 (in respect of the period from 1 June to 30 June 2007) and pursuant to s 40 of the Payroll Tax Act 2007 in respect of the periods from 1 July 2007 to 30 June 2012. The Plaintiff's Business 1. UNSW Global is wholly owned by the University of New South Wales. It has a business unit called Unisearch that arranges the provision of expert opinions. Its first service line is called Expert Opinion Services ("EOS"). It maintains a database of experts comprising academics employed by the University of New South Wales and experts external to the University. The areas of expertise cover many areas including analytical chemistry, medicine, civil, electrical and mechanical engineering, occupational health, architecture, aviation, school education, metallurgy, lighting, and actuarial science. Experts are added to the plaintiff's database either by making an application on Unisearch's website or by being selected by staff employed by Unisearch. 2. Typically a law firm whose client was involved, or expected to be involved, in litigation would make an inquiry of Unisearch as to the availability of an expert in a relevant field. Staff employed by Unisearch would consider the request and obtain more information from the law firm if necessary to enable the identification of a suitable expert or experts. An expert would usually be identified from a search of the database. The Unisearch employee (called an Account Executive) would contact the person who had been identified with relevant expertise and ask him or her if he or she were willing to take the job. The Account Executive would communicate the names of the parties to the litigation or dispute to determine if there was a conflict. If the expert were willing to take the job, information about the matter, such as a letter of instructions from the client, would usually be provided to the expert at that stage. The Account Executive would forward the expert's curriculum vitae to the client for approval. If the client agreed to the expert proposed, the Account Executive would send a consultant quote form and consultant terms and conditions to the expert. The consultant quote form was a template into which the Account Executive inserted the name of the matter, client and expert. The expert would complete the balance of the form. The contract terms and conditions were between Unisearch and the expert. The expert determined what charge he or she would make for acting on the proposed job. The jobs required the provision of an expert report for use in the litigation and sometimes involved a court attendance and conferences with the parties' lawyers. The expert would do the work and prepare the report at a time and place of his or her choosing. 3. Unisearch in turn would contract with the law firm for the provision of the report. Unisearch provided a fee proposal to its client based upon the expert's quoted price plus a mark-up. The amount of the mark-up varied, depending upon matters such as whether the expert was a medical expert or an expert in another field, whether the job was sourced by the expert or by Unisearch, whether the work involved court attendance, and whether or not the work would either come from the University of New South Wales or would incur additional overheads for using the University's facilities. Once Unisearch's fee proposal was accepted by its client, the Account Executive informed the expert of the approval and the expert would commence work. If an expert failed to deliver a report, which was rare, Unisearch would ordinarily find a replacement and the original expert would not be paid. 4. Once an expert had completed a draft report it would be sent to Unisearch. The report was placed into a Unisearch template and format. The Account Executive would check that the expert's report contained an executive summary, a statement of the expert's qualifications and referred to the code of conduct for expert witnesses, as well as checking that all of the questions asked of the expert in the letter of instructions had been answered. Otherwise the content of the report was wholly the responsibility of the expert. There is no question but that the experts retained by Unisearch to provide services in the form of an expert opinion were independent contractors. It is not suggested that the moneys payable by Unisearch to the expert could be characterised as wages in the ordinary sense of that term. 5. A second service line of Unisearch was called Domestic Consulting. This included laboratory testing. Consulting projects were undertaken in Australia and overseas. Consulting projects undertaken in Australia fell within the Domestic Consulting service line. 6. In the Domestic Consulting service line Unisearch provided the services of experts to provide reports or, sometimes, other services, for jobs in Australia. The experts were not retained as witnesses in connection with litigation, but were engaged to provide expert services in relation to the client's business. In most, but not all, cases the work of the expert involved providing a written report. An example of a domestic consulting project undertaken by Unisearch was a clinical trial for a pharmaceutical company where the expert was a professor at the UNSW Prince of Wales Hospital clinical school. In that case, the intellectual property in the report of the trial was held by the pharmaceutical company, but this would have been rare. Other types of work included providing training or facilitating a workshop. Most domestic consulting projects undertaken by academics from the University of New South Wales were transferred to the University in 2011. 7. As part of the Domestic Consulting service line Unisearch engaged experts to carry out testing at laboratory facilities owned by the University and operated by employees of the University called "Mechlab". A client would approach an employee of Unisearch with a request for Mechlab testing. Unisearch would identify the equipment that would be required and the academic from the University or external expert with the appropriate expertise to undertake the testing. As with the EOS line, the expert retained would provide a quote for the work and enter into a contract with Unisearch and Unisearch in turn would contract with the client to provide the service at a fee that involved a mark-up. The plaintiff made payments both to experts and to the University for Mechlab jobs. It paid invoices of both the University and the expert within 30 days whether or not it had been paid by the client. 8. Notwithstanding the transfer of most domestic consulting projects to the University in 2011, UNSW Global continued to provide consulting on projects on dam structures in Australia and overseas where two experts were retained. The usual practice was for a client to approach either or both of the experts directly who then referred the clients to UNSW Global, although in some instances UNSW Global was approached first. The clients for the most part were water authorities or contractors engaged by those authorities. Unisearch negotiated contracts with the relevant dam authority or contractor and entered into its own contracts with the two experts. Many of the projects spanned multiple years. The jobs usually involved the presentation of a report or series of reports by the two experts or the panel of which one or other or both of them was a member. Sometimes they were appointed to an expert panel and a report was completed by the panel and sent to the client. 9. Similar arrangements were made in respect of international consulting projects. There were no standard client terms and conditions. International projects concerned matters such as the delivery of training programs, workshops or a final report or similar publication. One such project was a tender won by Unisearch to produce a geochemical atlas of Cyprus for the Cyprus government. This work primarily involved the collection and analysis of soil samples from across Cyprus in order to prepare a specialised atlas to illustrate the concentrations of elements and minerals across the soils of Cyprus. The group executive of the Unisearch business of the plaintiff, a Mr John Arneil, selected the team to carry out this work. The work predominantly involved mapping and sample collection and analysis. 10. Unisearch also won a tender from the Asian Development Bank for a job in Cambodia. The work was undertaken by six international experts and two local experts who were selected by Mr Arneil and the Unisearch team for their specialist knowledge of aspects of the petroleum industry. The tender was from the Cambodian National Petroleum Authority. Unisearch won a tender in 2008 to provide a two-day sustainable development workshop in Kolkata in India on coal. Work on the project was undertaken by an academic with the University of New South Wales and the school of Mechanical and Manufacturing Engineering engaged by Unisearch for that purpose. 11. There is no dispute that the experts retained by Unisearch were independent contractors. They were not subject to control or direction by Unisearch in how they were to undertake their engagement. I accept the plaintiff's submissions that the consultants were engaged to achieve a particular result. Consultants engaged as expert witnesses are engaged to provide an expert opinion for the purposes of litigation. Such experts' primary duty is to the Court. Their opinion might be favourable or unfavourable to the interests of the ultimate client (that is, the client of the law firm who engaged the services of Unisearch). Some consultants were engaged through their private companies. They bore the risk of any substandard work. Legislation: Employment Agency Contract Provisions 1. Section 3C of the Pay-roll Tax Act 1971 provided as follows: "3C Employment agents (1) For the purposes of this Act, an employment agency contract is a contract under which a person (in this section referred to as an employment agent) by arrangement procures the services of another (in this section referred to as a contract worker) for a client of the employment agent (by a means other than a contract of employment between the contract worker and the client) and as a result receives directly or indirectly payment in respect of the services provided by the contract worker to the client, whether by way of a lump sum or ongoing fee, during or in respect of the period when the services are provided. (2) For the purposes of this Act: (a) the employment agent under an employment agency contract is taken to be an employer, and (b) the contract worker under an employment agency contract is taken to be an employee of the employment agent, and (c) an amount, the value of a benefit or a payment, being: (i) any amount paid or payable to the contract worker in respect of the provision of services in connection with an employment agency contract, and (ii) the value of any benefit provided for or in relation to the provision of services in connection with an employment agency contract that would be a fringe benefit if provided to a person in the capacity of an employee, and (iii) any payment made in relation to the contract worker that would be a superannuation benefit if made in relation to a person in the capacity of an employee, is taken to be wages paid or payable by the employment agent. (3) If it is not reasonably practicable to determine the extent to which an amount, benefit or payment constitutes wages under subsection (2) (c), the Chief Commissioner may accept a return, or make an assessment, in which the amount on which pay-roll tax is levied is determined on the basis of estimates. (4) An employment agent is not liable to pay-roll tax under this Act in relation to an employment agency contract: (a) if the contract worker is liable to pay pay-roll tax (as the employer of the person who actually provides the services to the client of the employment agent under the contract) in respect of wages paid for those services and a declaration to that effect has been given by the contract worker to the employment agent, or (b) if the wages that the amount, value of the benefit or payment under subsection (2) (c) is taken to be would have been exempt from pay-roll tax under section 10 had the contract worker been paid those wages by the client of the employment agent and a declaration to that effect has been given by the client to the employment agent, or (c) if the client of the employment agent: (i) is not registered or required to be registered as an employer under this Act, and (ii) would not be required to be registered as an employer under this Act if the client were the employer in respect of the wages paid or payable under all the employment agency contracts to which the client is a party, and a declaration to that effect has been given by the client to the employment agent. (5) If a contract worker gives a declaration to an employment agent under subsection (4) (a), and that paragraph does not apply or at any time ceases to apply to the contract worker, the employment agent is liable to pay pay-roll tax in respect of the wages paid or payable under the employment agency contract during any period in which the paragraph does not apply. (6) If a client of an employment agent gives a declaration to the employment agent under subsection (4) (b), and that paragraph does not apply or at any time ceases to apply in respect of the wages paid or payable under the employment agency contract, the client, and not the employment agent, is liable to pay pay-roll tax in respect of the wages paid or payable under the employment agency contract during any period in which the paragraph does not apply. (7) If a client of an employment agent gives a declaration to the employment agent under subsection (4) (c), and that paragraph does not apply or at any time ceases to apply to the client, the client, and not the employment agent, is liable to pay pay-roll tax in respect of the wages paid or payable under the employment agency contract at any time during the financial year in which the paragraph does not apply. (8) A declaration under subsection (4) is to be in a form approved by the Chief Commissioner." 1. The relevant provisions of the Payroll Tax Act 2007 are in Div 8 of Pt 3. Division 8 relevantly provides: "Division 8 Employment agents 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. 38 Persons taken to be employers For the purposes of this Act, the employment agent under an employment agency contract is taken to be an employer. 39 Persons taken to be employees For the purposes of this Act, the person who performs work for or in relation to which services are supplied to the client under an employment agency contract is taken to be an employee of the employment agent. 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. (2) Subsection (1) does not apply to an employment agency contract to the extent that an amount, benefit or payment referred to in that subsection would be exempt from payroll tax under Part 4 (other than under Division 4 or 5 of that Part, section 50 or clause 5 of Schedule 2) had the service provider been paid by the client as an employee, if the client has given a declaration to that effect, in the form approved by the Chief Commissioner, to the employment agent. 41 Liability provisions Subject to section 42, if an employment agent under an employment agency contract: (a) by arrangement procures the services of a service provider for a client of the employment agent, and (b) pays payroll tax in respect of an amount, benefit or payment that is, under section 40, taken to be wages paid or payable by the employment agent in respect of the provision of those services in connection with that contract, no other person (including any other person engaged to procure the services of the service provider for the employment agent's client as part of the arrangement) is liable to pay payroll tax in respect of wages paid or payable for the procurement or performance of those services by the service provider for the client. 42 Agreement to reduce or avoid liability to payroll tax (1) If the effect of an employment agency contract is to reduce or avoid the liability of any party to the contract to the assessment, imposition or payment of payroll tax, the Chief Commissioner may: (a) disregard the contract, and (b) determine that any party to the contract is taken to be an employer for the purposes of this Act, and (c) determine that any payment made in respect of the contract is taken to be wages for the purposes of this Act. (2) If the Chief Commissioner makes a determination under subsection (1), the Chief Commissioner must serve a notice of the determination on the person taken to be an employer for the purposes of this Act. (3) The notice must set out the facts on which the Chief Commissioner relies and the reasons for the determination. (4) This section has effect in relation to agreements, transactions and arrangements made before, on or after the commencement of this section." Parties' Contentions 1. The Chief Commissioner contended that Unisearch was an employment agent, being a person who procured the services of another (that is, the expert consultant) for its client otherwise than by the creation of a contract of employment between the expert consultant and Unisearch's client. In terms of s 3C(1), the Chief Commissioner contended that as a result of Unisearch's procuring the services of the expert consultants for its clients, Unisearch received payment in respect of the services provided by the consultants to the clients, in respect of the period when the services were provided. Hence it was said that it was an employment agent under an employment agency contract (s 3C(1)) and was taken to be an employer of the consultants whose services were procured for its clients (s 3C(2)(a)). The consultants were taken to be its employees (s 3C(2)(b)) and the amounts paid or payable to the consultants were taken to be wages paid or payable by it (s 3C(2)(c)). The Chief Commissioner submitted that accordingly the amounts paid by the plaintiff to the consultants were taxable wages upon which payroll tax was imposed. The same analysis applied to the periods after 30 June 2007 where the applicable provisions were ss 37-40 of the 2007 Act. 2. UNSW Global did not dispute that it entered into contracts and made arrangements whereby it procured the services of consultants for the benefit of its clients. 3. UNSW Global submitted that its contracts are outside the employee agency contract provisions because, properly construed, those provisions do not apply where the service provider is in substance an independent contractor. An employment agency provision was first incorporated into the Pay-roll Tax Act 1971 in 1985 as an anti-avoidance measure, along with the "relevant contract provisions" in s 3A of the Act. The 1985 amendments to the 1971 Act provided that "wages" included remuneration paid by an employment agent to a person engaged to perform services for a client of an employment agent for which the employment agent received payment. An "employment agent" meant a person who procured services of a person (called a worker) for a client under which the worker did not become an employee of either the agent or the client, but carried out employee-like duties (ss 3(1)(f) and (4)). 4. Section 3A(2) of the 1971 Act, also introduced by the 1985 amendments, provided in substance that a person to whom services were supplied under a "relevant contract" was deemed to be an employer, a person who performed work in relation to which services were supplied to another person under a "relevant contract" was deemed to be an employee, and the amounts paid by a deemed employer in relation to the performance of work under a "relevant contract" were deemed to be wages. Under s 3A(1)(a)-(c) a "relevant contract" included any contract under which a person supplied to another person services for or in relation to the performance of work, subject to specific exclusions. But for the exclusions, s 3A(1)(a)-(c) would have brought payments to an independent contractor for the performance of work by the independent contractor within the scope of the Pay-roll Tax Act. Section 3A(1)(d)-(f) then provided exclusions designed to exclude from the scope of the Act services provided by "genuine" independent contractors. In the Second Reading Speech for the Pay-roll Tax (Amendment) Bill 1985 that included both these measures, the Minister stated that "bona fide independent contractors will not be caught by this legislation". 5. UNSW Global submitted that the purpose of the employment agency contract provisions was to ensure that payments made to employee-like individuals were taxed not only where they were made directly by the employer, but where they were made indirectly through labour hire firms or other intermediaries. 6. UNSW Global submitted that where an arrangement would be outside the payroll tax if it were made directly, for example, because the service provider was an independent contractor within the exceptions to the relevant contract provisions, there was no need to tax the indirect form of payment. It submitted that to do so would be anomalous and was no part of the purpose of the employment agency provisions. It correctly submitted that the present case involves consultants who are quintessentially independent and were engaged because they are independent. If they were engaged directly by Unisearch's clients, payments made to them would fall outside the payroll tax regime because they are genuine independent contractors. 7. UNSW Global submitted that the purpose of the employment agency provisions was to capture indirect arrangements which would be employment arrangements if they were made directly and not to catch genuine independent contractor arrangements made through an intermediary. 8. UNSW Global submitted that if the Chief Commissioner's contentions in the present case were accepted then many like arrangements would attract payroll tax which could not have been contemplated by Parliament. Examples include barristers engaged by a law firm for clients of that firm. On the Chief Commissioner's contentions in his Appeal Statement a law firm would be liable to pay payroll tax on the payments made by the law firm to a barrister chosen by the law firm, for the services provided by the barrister to the client of the law firm. Payments to expert valuers engaged by an investment bank to provide an independent valuation for prospectuses for companies who were being advised by the investment bank, would attract payroll tax payable by the investment bank. Payments to architects engaged by a building company to design an aspect of a building for the building company's client would be liable to payroll tax. Payments to an interior designer engaged by an architect to design the interiors of the architect's client's home would be similarly liable. A planning professional who engaged a consultant to write a report for the planner's client for the purposes of obtaining development approval for the client's project would be liable to pay payroll tax for the consultant's fees. These examples could be and were multiplied. UNSW Global submitted that there were many independent consultants in New South Wales who obtain most or all of their work through intermediaries and that hitherto it has never been suggested that payments to them should be subject to payroll tax. 9. UNSW Global submitted that payments in respect of the services provided by genuine independent contractors are not subject to payroll tax. Genuine independent contractors come within the exceptions to the relevant contract provisions. It submitted that the position is not different merely because there is an intermediary between the independent contractor and the ultimate client. To construe the employment agency contract provisions literally would be to give them an operation going well beyond what Parliament must have intended and would create anomalies that would be out of keeping with the context and purpose of the statute. UNSW Global submitted that an interpretation that promoted the legislative purpose of the provisions was open on the text of the statute. It submitted that the employment agency contract provisions should be interpreted so as to include tripartite arrangements where the "service provider" is akin to an employee, but exclude arrangements where the service provider is in substance an independent contractor. It submitted that such an interpretation was grounded in the text of the legislation in four ways: by the meaning of the term "employment agent" being taken not only from the internal statutory definition, but also from the ordinary meaning of "employment"; by comparing the definition of "services" in the relevant contract provisions where the term is defined to include results, with the omission of such a definition in the employment agency contract provisions so as to give a narrower operation to the expression "the services of another person" in s 37 of the 2007 Act and s 3C of the 1971 Act; by construing the term "person" as it applies to a "service provider" in s 37 of the 2007 Act or as it applies to a "contract worker" in s 3C of the 1971 Act, so as to apply not to any person, but only those who are workers, and not to individuals who are in substance independent contractors; and by construing the linking term "for" in ss 37 and 3C as meaning "in the business of the client". 1. The Chief Commissioner initially submitted that none of these approaches is open. However, in the course of final oral submissions the Chief Commissioner accepted that if the employment agency contract provisions are applied literally they would bring many payments to genuine independent contractors within the scope of the payroll tax net that was not intended and would create anomalies. In final oral submissions the Chief Commissioner submitted that giving literal effect to the employment agency contract provisions was not the preferred construction. He advanced a construction of s 37 that I had rejected in Freelance Global Ltd v Chief Commissioner of State Revenue [2014] NSWSC 127 at [149]-[152]. The Chief Commissioner submitted that the employment agency contract provisions applied only to a person who could be regarded as an employment agent otherwise than merely by the fact that he or she satisfied the definition of that term in s 37, as being a person who procures the services of another person for a client of the employment agent. That is to say, in final oral submissions the Chief Commissioner contended that notwithstanding the definition of "employment agent" in s 37 (and s 3C), the employment agency contract provisions applied only to a person who could otherwise be described as an employment agent in the ordinary sense of that term. 2. This was a surprising concession. If correct it would mean that at least the amounts paid to the consultants in the EOS service line whose services were procured by UNSW Global would not be taken to be wages. This is because the Chief Commissioner responded to an allegation of UNSW Global in which it pleaded that it is not, and at material times was not, a labour hire firm or employment agent, as those terms are commonly understood. In response to that contention the Chief Commissioner stated that he assumed that the "commonly understood" description of a "labour hire firm/agent" is an entity that procures persons to provide their labour "in, and for the purpose of, the ordinary conduct of the clients' businesses". In his contentions the Chief Commissioner agreed that EOS consultants typically did not perform services "in and for the purpose of, the ordinary conduct of the clients' businesses" and were required to undertake only limited reporting, advisory and consultation tasks. 3. That is, the Chief Commissioner accepted that in relation to the EOS service line, UNSW Global did not act as a labour hire firm or employment agent, as those terms, in his understanding, are commonly understood. It follows that if s 3C and s 37 applied only to a labour hire firm or employment agent as those terms may be commonly understood, the Chief Commissioner should accept that payments to EOS consultants were not taxable wages. 4. The Chief Commissioner contended that the consultants engaged in the domestic consulting project line were in a different position. He contended that such consultants provided services "in, and for the purposes of, the ordinary conduct of the client's businesses". He accepted that typically the provision of those services required particular knowledge, skill or diligence and the consultants could not be required by clients to perform general tasks. The Chief Commissioner appears to have contended that in respect of that service line UNSW Global did operate as a labour hire firm or employment agent as those terms are commonly understood, although no such contention was pleaded in his Appeal Statement. 5. For the reasons which follow, and which substantially repeat the reasons I gave in Freelance for rejecting the same submission advanced by the taxpayer in that case, I do not accept that s 3C and s 37 can be construed as applying only to the procuring of services by persons who are employment agents as that term might be commonly understood, as distinct from how that term is defined. I am not aware that there is a generally understood meaning of the expression "employment agent". One definition was contained in s 3(4) of the 1971 Act between 1985 and 1987 as set out at paras [18] above and [32] below. A different definition was contained in the Industrial Arbitration Act 1940 (NSW) (s 145B) and the Industrial Relations Act 1991 (NSW) (s 702); Freelance at [151]. The Chief Commissioner's description of his understanding of the ordinary meaning of the expression is different again. 6. But I do accept that the mischief to which s 3C and s 37 was directed was where a person procured the services of another to perform services in and for the purposes of its client's business where the person's status as employee or independent contractor might be unclear. I accept the correctness of the Chief Commissioner's concession in substance, although I do not accept that the construction can be arrived at by using the defined term to determine its own meaning. 7. The Second Reading speeches of the Victorian and New South Wales Ministers can be considered in the interpretation of the employment agency contract provisions to determine the meaning of those provisions if the ordinary meaning conveyed by the text leads to a manifestly absurd or unreasonable result (Interpretation Act 1987 (NSW), s 34(1)(b)(ii)). I accept UNSW Global's submission that a literal reading of the text does produce such an absurd and unreasonable result. This was ultimately common ground. It is unnecessary to decide whether the Ministers' Second Reading speeches would otherwise be available to determine the mischief the provisions were intended to address, that is, their purpose (cp. Certain Lloyd's Underwriters v Cross (2012) 248 CLR 378; [2012] HCA 56 at [25]-[26] per French CJ and Hayne J; but cf at [94]-[95] per Kiefel J and at [58] per Crennan and Bell JJ). Legislative History and the "Mischief" Addressed 1. I dealt with the legislative history of s 3A (the relevant contract provisions) and s 3C (the employment agency contact provisions) of the 1971 Act in Freelance at [142]-[149]. As noted above at [18]-[19], a predecessor provision to s 3C (s 3(1)(f) and (4)) was enacted by the Pay-roll Tax (Amendment) Act 1985 together with s 3A. The predecessor provision to s 3C included in the definition "wages" amounts paid by an employment agent as remuneration to a person engaged to perform services for a client of the employment agent for which the employment agent received payment directly or indirectly. An "employment agent" as defined in the 1985 Act meant a person who procured by an arrangement the services of a person (the worker) for another person (the client) under which the worker did not become an employee of either the agent or the client, but carried out duties of a similar nature to those of an employee. As noted above, in introducing the 1985 amending Act the Minister for Employment and Minister for Finance, speaking of both these provisions and the relevant contract provisions in s 3A, said that bona fide independent contractors would not be caught by the legislation. 2. The 1985 amendments to s 3(1)(f) and (4) were repealed by the Pay-roll Tax (Amendment) Act 1987 (NSW). In his Second Reading Speech the Minister said that this was done in order to switch the liability to the client using the worker's services. The experience to that point must have been that the workers provided by employment agents were employees. 3. In Drake Personnel Ltd v Commissioner of State Revenue (Vic) (1998) 40 ATR 304; (1998) 98 ATC 4915 the taxpayer provided temporary staff to its clients to work in the clients' businesses. The question was whether those "temporaries" (as they were called) were employees of the taxpayer (Drake). Drake supplied office staff, nurses and medical secretaries, professional people such as accountants, and labourers and tradesmen (at [12]). Balmford J held (at [36]) that the temporaries were not employees "as such" of Drake and that many temporaries would be within the exclusions to the relevant contract provisions (at [46]). 4. An appeal from that decision was allowed (Drake Personnel Ltd v Commissioner of State Revenue (2000) 2 VR 635). The Full Court of the Supreme Court of Victoria held that each "temporary" was an employee of Drake. However, in the meantime the legislation was amended in both Victoria and New South Wales. 5. In response to the first instance decision in Drake Personnel the Victorian Parliament amended its Pay-roll Tax Act 1971. In 1998 it introduced a new s 3D. Later in 1998, the NSW Parliament introduced a new s 3C to the 1971 Act. Section 3C to the Pay-roll Tax Act 1971 (NSW) was in broadly similar terms to the Victorian provision (s 3D to the Pay-roll Tax Act 1971 (Vic)), save that under the New South Wales Act the employment agent was taken to be the employer, whereas under the Victorian Act the client of the employment agent was taken to be the employer. Another difference was that the New South Wales provision referred to a "contract worker" rather than a "service provider". 6. In his Second Reading Speech on the State Taxation (Further Amendment) Bill in the Victorian Parliament, the Treasurer said: "The bill also imposes payroll tax on payments made to employment agents by their client businesses in respect of on-hired workers. This amendment is necessary to overcome the effect of the recent decision handed down by the Supreme Court in the case of Drake Personnel Ltd v Commissioner of State Revenue. In that case the Supreme Court found that on-hired temporary personnel supplied by Drake Personnel to its clients are not common-law employees of Drake and many are not deemed to be employees under s 3C of the Pay-roll Tax Act 1971 [viz. the relevant contract provision equivalent to s 3A of the NSW Act]. As a result, a large percentage of payments by an employment agent for services rendered by its temporary personnel are not taxable. Furthermore, the decision creates an environment that encourages other businesses to structure engagement arrangements simply to avoid payroll tax if they are to remain competitive and undermine the revenue base. The bill meets key government objectives introducing a robust regime which will clarify liability for payroll tax, address inequities that result under the relevant contract provisions in s 3C of the act, and, importantly, will not lead to a broadening of the tax base overall. …" 1. In his Second Reading Speech on the amendments to the NSW Act the Minister said: "The Pay-roll Tax Act currently provides that wages paid to temporary staff provided through employment agents are taxable in the hands of the end user of the labour services. An administrative arrangement allows the agent to take responsibility for the tax but only if the end user agrees. Traditionally, the majority of temporary staff have been accepted as common law employees of the end user. Some are deemed to be employees under the relevant contract provisions. The relevant contract provisions are anti-avoidance provisions designed to bring to tax wages paid to persons who are, for all intents and purposes, performing duties similar to those of employees. Recent judicial pronouncements in other jurisdictions have confused the issue of liability to the point that employers and employment agents are unsure of their obligations. The uncertainty has prompted refund claims by employment agents which are likely to reach some $200 million in New South Wales alone. Those claims represent windfall gains for employment agents as the payroll tax would already have been passed on to the clients. To secure the traditional tax base and make taxpayers obligations and point of liability absolutely clear, the bill introduces specific provisions relating to payments to workers engaged through employment agents. The agent will now be liable for payroll tax, bringing New South Wales into line with Victoria, Western Australia, South Australia and Queensland. The other jurisdictions do not have specific agency provisions." 1. UNSW Global emphasises that the Minister introduced the employment agency contract provisions as being intended to secure "the traditional tax base" and as relating to payments made to "workers" engaged through employment agents. 2. In both jurisdictions the relevant Minister, in introducing the bill, said in substance, that the provisions were intended to secure and not to broaden the traditional tax base. 3. I accept the plaintiff's submission that the mischief against which the employment agency contract provisions was directed was the avoidance of payroll tax through the interposition of an agent to give the appearance of a contractor relationship where one did not exist in substance. The mischief to which the provisions were directed was not where the service provider was a genuine independent contractor whose services were provided to a client through an intermediary. Although the legislation did not use the language of the Pay-roll Tax (Amendment) Act 1985 which defined an employment agent as one who procured the services of a person for another under an arrangement where the worker, although not becoming an employee of either the agent or the client, carried out duties of a similar nature to those of an employee, that was the very mischief to which the 1998 provisions were directed, namely to address the consequences of the first instance decision in Drake Personnel. That this was the mischief sought to be remedied is apparent from the events that led to the amendments and the Second Reading speeches. 4. It does not follow that the text of the employment agency contract provisions admits of an interpretation that they do not apply where the service provider is a genuine independent contractor. 5. On a literal construction of the employment agency contract provisions all of the payments to consultants engaged by UNSW Global are taken to be wages paid by it under an employment agency contract. For all but one month the relevant provisions are ss 37-41 of the Payroll Tax Act 2007. In terms of s 37, in a literal sense, it is clear that UNSW Global entered into agreements and arrangements under which it (being a person) procured the services of another person (the expert consultant) for its client. In this case, in contrast to Freelance and CXC Consulting Pty Ltd v Commissioner of State Revenue [2013] VSC 492, there is no issue that UNSW Global procured the services of consultants it engaged for its clients. In relation to the one month between 1 June and 30 June 2007, UNSW Global had entered into a contract with its client under which it by arrangement procured the services of expert consultants on its books for its client. In all cases the services of the experts were procured by means other than a contract of employment between the expert and the client, and in all cases UNSW Global received payment in respect of the services provided by the expert to the client (Pay-roll Tax Act 1971, s 3C(1) and Payroll Tax Act 2007, s 37). 6. These conclusions follow if the "services" of "another" (within the meaning of s 3C(1)) or "another person" (within the meaning of s 37) include any services including those of an independent contractor rather than services akin to the service that would be provided by a worker who was an employee, and also, provided that the services can be regarded as being provided "for" the client merely if they are provided for the client's benefit. On a literal construction, the amounts paid by UNSW Global to its consultants are taxable wages. 7. In Alcan (NZ) Alumina Pty Ltd v Commissioner of Territory Revenue (2009) 239 CLR 27; [2009] HCA 41, the plurality (Hayne, Heydon, Crennan and Kiefel JJ) said (at [47]): "[47] This court has stated on many occasions that the task of statutory construction must begin with a consideration of the text itself. Historical considerations and extrinsic materials cannot be relied on to displace the clear meaning of the text. The language which has actually been employed in the text of legislation is the surest guide to legislative intention. The meaning of the text may require consideration of the context, which includes the general purpose and policy of a provision, in particular the mischief it is seeking to remedy." (Citation of authority omitted.) 1. In this case, unlike Alcan (see Alcan at [45]), giving the provisions their natural and ordinary, or literal, meaning does lead to an absurd or unreasonable result. 2. In Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355; [1998] HCA 28 the majority said (at [78]) that ordinarily the grammatical or literal meaning of a provision will be the meaning that the legislature is taken to have intended the provision to have. But that is not always so. The legal meaning may be different from the grammatical or literal meaning of a provision having regard to its context, using that term in its widest sense as including the mischief intended to be remedied. Moreover, as is said in Bennion on Statutory Interpretation, 6th ed (2013) at pp 901-904, the Court will seek to avoid a construction that cures the mischief the enactment was designed to remedy only at the cost of setting up a disproportionate counter-mischief. The learned author observes (at 903-904): "Often it is reasonable to assume that the counter-mischief that has arisen was quite unforeseen by Parliament. Enacted law suffers by comparison with unwritten law in that it involves laying down in advance an untried remedy. … ... As interpreters of legislation, it is the function of the courts to mitigate this defect of the legislative process so far as they properly can. Where an unforeseen counter-mischief becomes evident it may be reasonable to impute a remedial intention to Parliament. This would be an intention that, if such an untoward event should happen, the court would modify the literal meaning of the enactment so as to remedy the unexpected counter-mischief. This is one aspect of consequential construction. …" 1. A "consequential construction" as explained by Bennion (at 783) is that: "It is presumed to be the legislator's intention that the court when considering, in relation to the facts of the instant case, which of the opposing constructions of the enactment corresponds to its legal meaning, should assess the likely consequences of adopting each construction, both to the parties in the case and (where similar facts arise in future cases) for the law generally. If on balance the consequences of a particular construction are more likely to be adverse than beneficent this is a factor telling against that construction." 1. This is not a case in which a literal construction fails to address the mischief that Parliament was concerned to address, but rather a case in which the literal words used to address that mischief go far beyond the mischief intended to be addressed. To the extent the text of the legislation permits (Federal Commissioner of Taxation v Consolidated Media Holdings Ltd (2012) 250 CLR 503; [2012] HCA 55 at [39]; Taylor v The Owners – Strata Plan 11564 (2014) 253 CLR 531; [2014] HCA 9 at [39]), the provisions should be construed so as not to apply to all arrangements that could fall within their literal terms, but should be construed in accordance with the legislative intent as ascertained from the statutory context, including the juxtaposition of the employment agency contract provisions with the relevant contract provisions, the legislative history, and the extrinsic materials. This may mean that the legal meaning to be given to the provisions differs from their literal meaning (Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355; [1998] HCA 28 at [78]; Park Trent Properties Group Pty Ltd v Australian Securities and Investments Commission [2016] NSWCA 298 at [74]-[77], [82]). 2. As noted above, the Chief Commissioner ultimately accepted that a literal interpretation would have far-reaching and unintended consequences. He submitted that in s 37 of the Payroll Tax Act 2007 the words "an employment agent" were an "adjectival description that brings into the notion of the person referred to someone having the characteristics of the ordinary qualities of an employment agent and thereby preserves an in tandem operation of both the relevant contract provisions and the employment agent provisions". The Chief Commissioner accepted that on this construction the scope of the employment agency contract provisions were both defined and confined by the notion that it applied only to a person who could otherwise be regarded as an employment agent, that is to say, could be regarded as an employment agent otherwise than merely from the fact that he or she or it procured the services of another person for a client. 3. This argument was propounded by the taxpayer in Freelance. I there rejected the argument. I said (at [151]-[152]): "151 If s 3C (or s 37) were intended to apply only to the activities of the employment agents, as that expression is said to be commonly understood, subs (1) would not have defined an 'employment agent' for the purposes of the Act by reference merely to any person who by arrangement procured the services of another for a client of the employment agent etcetera. The section could simply have provided that an employment agency contract was one under which an employment agent procured the services of another for a client of the employment agent etcetera. If Parliament thought that there was not a common understanding of what an employment agent is, then there was a definition readily to hand in s 702 of the Industrial Relations Act 1991 (NSW) (and formerly in s 145B of the Industrial Arbitration Act 1940 (NSW)) which provided that a person carried on the business of a private employment agent if he acted as an agent for the purpose of finding or assisting to find a person to carry out work for a person seeking to have work carried out, or finding or assisting to find employment for a person seeking to be employed, whether pursuant to a contract of employment or otherwise (see later s 60P introduced to the Fair Trading Act 1987 in 2002). 152 I do not consider that the fact that the activities of employment agents or labour hire firms was an intended focus of the provisions justifies the conclusion that it was the only intended focus of the provisions such that the word 'procure' should be construed as applying only to the activities of employment agents or labour hire entities in sourcing, vetting and supplying persons to clients. Freelance carries on the last activity, that is, supplying persons' services to clients on Freelance's behalf. It procures those services by arranging or causing the performance of work by the contractors for the client to occur through the contracts it enters into with its clients and the business structure provided to its contractors." 1. UNSW Global did not endorse the construction for which the Chief Commissioner contended. Even if it had, a court is not bound to adopt a construction of the legislation that both parties might urge. 2. Section 37 is a definition section. Section 3 of the Payroll Tax Act 2007 provides that: "employment agency contract has the meaning given in section 37. employment agent has the meaning given in section 37." 1. Section 3C(1) of the 1971 Act also defined what in that section the expressions "employment agency contract" and "employment agent" meant. 2. In Wacal Developments Pty Ltd v Realty Developments Pty Ltd (1978) 140 CLR 503 Gibbs J said at 507: "… it is impermissible to construe a definition by reference to the term defined. The expression is given by the statute a special meaning which must be applied, whether or not it accords with the ordinary meaning." 1. However, as UNSW Global submitted, the ordinary meaning of a defined expression can influence the meaning to be given to the definition (Delaney v Staples [1992] 1 AC 687 at 692; Manly Council v Malouf (2004) 61 NSWLR 394; [2004] NSWCA 299 at [8]). Nonetheless, on the Chief Commissioner's submission (and on the submission of the taxpayer in Freelance) there would be no need for a definition at all. I do not think that the construction propounded by the Chief Commissioner is available on the text of the legislation. 2. However, it is significant that in the definition of "employment agency contract" in s 3C of the 1971 Act the person whose services are procured for a client of the employment agent is defined as a "contract worker". "Contract worker" is not otherwise defined. The Victorian legislation that was enacted shortly before the 1998 amendment to the Pay-roll Tax Act 1971 that prompted the introduction of s 3C had not used that description. It had referred to the person whose services were procured as a "service provider", the same description as contained in s 37 of the 2007 Act. "Work" is often a term that, like "service", is used in contradistinction to the provision of services. 3. Neither party submitted that the 2007 legislation effected a change in substance to the operation of the provisions. The definitions in s 3C of the 1971 Act and s 37 of the 2007 Act merge the concepts of work, service and services in an ill-defined way. However, I do not accept that s 3C and s 37 were intended to apply only to those who provided services to a client of the employment agent as an employee. There would have been no need for such a provision. (The Chief Commissioner argued (unsuccessfully) in Health Service Pty Ltd v Chief Commissioner of State Revenue [2014] NSWCATAD 83 that s 37 applied only where there was no contract of employment between the service provider and the employment agent. It is not necessary to decide if that decision was correct.) 4. An harmonious relationship between Divisions 7 and 8 of Pt 3 of the 2007 Act and between ss 3A and 3C of the 1971 Act could have been reached if the legislation had provided that an employment agency contract did not include a contract that resulted in the provision of services by the service provider to the client which, if not procured by the employment agent, but provided directly, would fall within any of the exceptions to the relevant contract provisions (s 32(2) or s 3A(1)(d)-(f)). 5. But that construction is not open because of s 32(3) of the 2007 Act and s 3A(1B) of the 1971 Act. Those sections provide that an employment agency contract under which services are supplied by an employment agent, or a service provider is procured by an employment agent, is not a relevant contract. 6. That is to say, the relevant contract provisions (s 3A and ss 32-36) do not apply where the employment agency contract provisions apply. I observed in Freelance (at [160]) that one cannot read down the operation of the employment agency contract provisions by making assumptions about the intended operation of the relevant contract provisions because they operate in different fields and the boundary of those fields is marked out by the terms of the employment agency contract provisions, not by assumptions as to the operation of the relevant contract provisions. 7. That is not to say that the scope of the employment agency contract provisions should not be confined by a purposive construction if the text of the provisions so permits. The argument advanced by UNSW Global was not advanced in Freelance nor CXC Consulting. Applying a purposive construction, as mandated by s 33 of the Interpretation Act, I think that the definition of an employment agency contract as being a contract under which a person (the employment agent) "… procures the services of another … for a client of the employment agent" can be read as meaning a contract under which a person procures the services of another person in and for the conduct of the business of the employment agent's client. That was the intended scope of the provisions. It does not do too much violence to the text (Taylor v The Owners – Strata Plan 11564 at [40]) to confine the operation of the phrase "for a client" in that way, rather than as meaning for the client's benefit. 8. Whether the worker is to be characterised as an employee or a contractor, the employment agency contract provisions were intended to apply to cases where the employment agent provided individuals who would comprise, or who would be added to, the workforce of the client for the conduct of the client's business. The mischief apprehended by the legislature following the first instance decision in Drake Personnel was that the supply of temporary personnel by a labour hire company resulted in the avoidance of payroll tax because it muddied the waters as to whether the individuals concerned might be classified as independent contractors, although they would be serving the same function for the client as its employees. 9. One of the hallmarks of an independent contractor is that he or she carries on his or her own business. But sometimes that is done, or is said to be done, by the individual, in substance, working for the client in the same way as would an employee of the client. Where the services of the individual are provided through the intermediary, that is, the employment agent, to help the client conduct its business in the same way, or much the same way, as it would do through an employee, then the arrangement is within the intended scope of the section. 10. But where the services, although provided for the client's benefit, are not provided by the service provider working in the client's business, the arrangement does not fall within the intended scope of the provision. In substance, when the Chief Commissioner's oral submissions are read with his contentions referred to at [26] above, this was conceded by the Chief Commissioner. 11. It follows that in my view none of the payments made by UNSW Global to consultants who provided opinions or appeared as expert witnesses in the line of business called Expert Opinion Services, are taxable wages. In none of those cases could it be said that the work done by the consultant was being done in the conduct of the client's business. The same is true of the moneys paid to the experts for undertaking testing in the laboratory facilities of the University of New South Wales. 12. As noted at [28], the Chief Commissioner disputed that this was so in relation to UNSW Global's domestic consulting project line of business. But the evidence as to the work done by experts retained by UNSW Global for clients in the domestic and international consulting project service lines is that the work done by such experts is provided for the benefit of the client's business, but is not carried out in the client's business. A Professor Greg Leslie, a professor in the school of chemical engineering, acted as an expert consultant on the development of a water recycling and desalination plant. This involved his visiting the site, participating in conference calls, attending meetings and the like and led to the production of a report on what he called the influent water quality envelope. Emeritus Professor Robin Fell was engaged to provide consulting work on dam projects in Australia and overseas. The work involved visits to site, attendance at meetings with the client's employees and other experts, the making of a presentation to management and the provision of reports. Associate Professor David Cohen specialises in geochemistry. He was retained by UNSW Global on a project undertaken for the government of Cyprus involving the compilation of a geochemical atlas of Cyprus. The work ultimately resulted in the production of the atlas. The largest expense of the project was the carrying out of geochemical analysis by another party. Associate Professor Cohen was paid for his time, much of which involved travel to Cyprus apparently for the purposes of sample collection. 13. None of the witnesses called by UNSW Global was cross-examined. It was not suggested that the clinical trial conducted for a pharmaceutical company referred to at [8] was work that would otherwise have been done by the pharmaceutical company's employees. In none of the cases of which specific evidence was given of particular projects could it be said that the work of the experts whose services were procured by UNSW Global involved the carrying out by those experts of work in the client's business, as distinct from for the client's benefit. 14. I do not accept the Chief Commissioner's contention that in its domestic consulting service line UNSW Global's consultants provided services in the ordinary conduct of the client's business. 15. For these reasons I have concluded that the assessment issued by the defendant dated 7 May 2013 should be revoked. The defendant should pay the plaintiff's costs. I will stand the matter down to a convenient time for counsel for the plaintiff to bring in short minutes of order in accordance with these reasons. The short minutes should deal with any consequential orders to be made, including for the making of refunds. ********** Amendments 03 February 2017 - Para 62, end of third sentence: "business of the employment agent" amended to "business of the employment agent's client". 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: 03 February 2017