Compass Group Education Hospitality Services Pty Ltd & Anor v Commissioner of State Revenue [2020] QSC 261

SUPREME COURT OF QUEENSLAND CITATION: Compass Group Education Hospitality Services Pty Ltd & Anor v Commissioner of State Revenue [2020] QSC 261 PARTIES: COMPASS GROUP EDUCATION HOSPITALITY SERVICES PTY LTD ABN 60 129 203 998 (first appellant) COMPASS GROUP HEALTHCARE HOSPITALITY SERVICES PTY LTD ABN 79 114 320 615 (second appellant) v COMMISSIONER OF STATE REVENUE (respondent) FILE NO/S: BS 1026 of 2019 DIVISION: Trial Division DELIVERED ON: 27 August 2020 DELIVERED AT: Brisbane HEARING DATE: Heard on the papers JUDGE: Holmes CJ ORDER: The appellants are to pay 85% of the respondent’s costs of the appeal. CATCHWORDS: PROCEDURE – CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS – COSTS – GENERAL RULE: COSTS FOLLOW EVENT – GENERAL PRINCIPLES AND EXERCISE OF DISCRETION – where the appellants’ appeal was dismissed – where the respondent seeks his costs of the appeal – where the appellants submit that any costs order against them should be limited to 50% of the respondent’s costs – where the appellants argue that they incurred unnecessary delay and costs due to the respondent’s making a late concession and failing to raise an argument on which he was ultimately successful until late in proceedings, thereby warranting a discount in the costs ordered against them – whether costs should follow the event COUNSEL: B O’Donnell QC, with E Goodwin and D Lewis, for the appellants M H Hindman QC, with A G Psaltis, for the respondent SOLICITORS: Herbert Smith Freehills for the appellants Crown Solicitor for the respondent -- 1 of 6 -- 2 [1] On 24 June 2020, I disallowed the appellants’ appeal under s 69 of the Taxation Administration Act 2001 against the respondent’s decision disallowing their objections to payroll tax assessments. At issue now is what costs order should be made. The appellants contend that the appropriate order is that they pay 50% of the respondent’s costs of the appeal. That variation from the usual approach that costs follow the event is justified, they argue, because the respondent made and persisted in findings later abandoned, compelling the appellants unnecessarily to file affidavits and make submissions which later became immaterial. In addition, the respondent had added at the hearing, for the first time, a particular argument of statutory construction, on which he succeeded. The issues raised prior to the appeal hearing [2] The case as it fell for decision turned on the construction of s 13J of the Payroll Tax Act 1971, which appears in Div 1B of Pt 2 of that Act, containing provisions governing “employment agency contracts”. That term is defined by s 13G as a contract under which an employment agent procures the services of a service provider for a client. Subsection 13J(1) prescribes what payments and benefits are taken to be wages paid by an employment agent under an employment agency contract, and s-s 13J(2) provides that s-s 13J(1) does not apply if the same payment or benefit, were it paid by the employment agent’s client, would have been exempt from payroll tax under various provisions of the Act. Here the appellants through their employees provided services to a school and hospital, both of which were exempt from paying payroll tax on wages. The appellants contended that they were employment agents procuring the services of their workers for their clients and that s 13J(2) had the effect that the wages they paid those workers were not subject to payroll tax. [3] The respondent’s decision the subject of the appeal and the accompanying statement of reasons identified the test for whether the appellants procured services “for” their clients by reference to New South Wales case law,1 as whether the appellants procured their employees’ services in and for the conduct of their clients’ businesses, the relevant question being whether those employees formed part of the clients’ workforces. Having considered the appellants’ contracts with their clients and representative employee contracts, the respondent found that their employees did not form part of their clients’ workforces and they did not, therefore, procure the services of their employees in and for the conduct of the businesses of their clients. The appellants were not, it followed, employment agents for the purposes of s 13G of the Payroll Tax Act. [4] In their statement of facts and contentions filed in the appeal, the appellants identified the issues as whether their contracts with their clients were employment agency contracts as defined in s 13G and, if they were, whether the wages paid under them were exempt by virtue of s 13J(2). Referring to relevant terms of their client and employee contracts, they contended that they procured the services of their employees as service providers to perform services at their clients’ premises and for their 1 HRC Hotel Services Pty Ltd v Chief Commissioner of State Revenue (2018) 108 ATR 84; [2018] NSWSC 820 and UNSW Global Pty Ltd v The Chief Commissioner of State Revenue (2016) 104 ATR 577; [2016] NSWSC 1852 and JP Property Services Pty Ltd v Chief Commissioner of State Revenue (2017) 106 ATR 639; [2017] NSWSC 1391. -- 2 of 6 -- 3 businesses, so that the employees were, in a practical sense, added to the clients’ workforces. [5] In his response, filed on 26 April 2019, the respondent maintained his position that the appellants did not procure their employees’ services “in and for” their clients’ businesses and the service providers were not added to the clients’ workforces. He added an argument: the appellants had not procured the services of their employees for their clients because they themselves were contracted to provide those services. If those contentions were not accepted, and if the court were minded to determine the question of exemption, the respondent contended that the appellants were in any event liable under the general provisions of the Payroll Tax Act to pay tax on the wages. The employment agency provisions were intended to extend, not limit, liability for payroll tax. Even if the contracts were employment agency contracts, s 13J(2) could not operate to exempt wages paid by the appellants from payroll tax. [6] In June 2019, the parties filed an agreed statement of facts. Among other things, it set out the effect of the relevant terms of the appellants’ contracts with their clients and of two representative contracts with employees. In September 2019, the appellants filed eight volumes of evidence, principally consisting of affidavits from their general managers, with voluminous exhibits. Those exhibits included, as well as copies of client and employee contracts, a variety of documentation concerning the appellants’’ working arrangements with their clients; such as, for example, budgets, procedures, meeting minutes and email correspondence (That material was also provided to me in electronic form.) [7] In February 2020, both parties filed their outlines of submissions. The appellants referred to authority for the proposition that an employer could “procure” the services of its employees, and then devoted several pages of submissions, with references to the evidence filed, to the factual question of whether their employees’ services were procured “for” their clients. As to the application of Div 1B, they submitted, among other things, that the Division constituted a statutory regime for employment agency contracts, with a specific mechanism in s 13J(2) for exempting wages from payroll tax; so that in the case of the appellants’ employees, there was no wage to which the general provisions of the Payroll Tax Act imposing liability could apply. [8] In his outline of submissions, the respondent abandoned the finding that the appellants’ employees’ services had not been procured “for” the businesses of their clients, saying that he “…no longer contend[ed] that the phrase ‘for the business of the client’ ought to be construed narrowly…That issue has now been sufficiently settled by a series of first instance decisions in New South Wales”. However, the respondent continued in his argument that it was the appellants, not their employees, who were engaged to provide the relevant services. In connection with that argument, he referred to the descriptions given in the appellants’ managers’ affidavits as to how services were provided and to four exhibits, those being the two client contracts and the two representative employee contracts referred to in the agreed statement of facts. There was a passing footnote reference to other employee contracts, purely as showing that these two contracts were indeed representative. -- 3 of 6 -- 4 [9] In his submissions, the respondent continued in his broad argument that the employment agency provisions of the Payroll Tax Act were not a code and were not designed to apply to common law employees. They were deeming provisions, designed to expand, rather than disturb, the liability to payroll tax. Div 1B and, in particular, the “exemption” in s 13J(2), did not apply. The hearing of the appeal [10] At the hearing of the appeal, senior counsel for the appellants indicated that there was no objection to the respondent’s relying upon the two grounds for disallowance advanced for the first time in his response to the appellants’ statement of facts and contentions (as to the general liability of common law employers and the provision of services by the appellants, rather than their employees). [11] The appellants’ counsel took me to one of the client contracts and one of the representative employee contracts to give an overview of the appellants’ arrangements with their clients. He informed me, however, that the respondent had conceded an issue to which many of the facts were relevant, so that it was now a question of statutory construction. Counsel later explained: the respondent had abandoned his position that the services were not provided “for” the clients. That had been a fact-intensive question, requiring examination of the factual circumstances of the provision of the labour, which did not now have to be considered. None of those statements met with any challenge from the respondent. [12] In oral submissions, the respondent made a further point about the proper construction of the Div 1B provisions: that in any event, s 13J(2) created no exemption. If it applied, it did no more than render s 13J(1) inapplicable, so that even if the appellants were employment agents and the amounts they paid to their employees were not deemed to be wages paid under an employment agency contract, that would not affect the status of those payments as taxable wages under other provisions of the Payroll Tax Act. The argument that the appellants did not “procure” their employees’ services, but themselves provided those services to the clients through their employees, was maintained, with reference made to one of the representative employee contracts to illustrate the point. [13] Accepting the respondent’s submissions on statutory construction, I held that the relevant provisions were not intended to apply to common law employees and that the expression “procure services of another” was correspondingly not intended to apply where an employer provided services for a client through its own employees. Having disallowed the appeal, I invited submissions on costs. The submissions on costs [14] The appellants argue that the respondent’s continuing, in April 2019, to press his findings that the appellants’ employees did not form part of their clients’ businesses so their services had not been procured in and for the conduct of the clients’ businesses, had forced them to file the managers’ lengthy affidavits on 19 September 2019 to demonstrate the errors in the respondent’s findings and reasoning. Two of the relevant New South Wales decisions (HRC Hotel Services Pty Ltd v Chief Commissioner of State Revenue and UNSW Global Pty Ltd v The Chief Commissioner of State Revenue) were decided before the respondent made its decision, the first of those cases, in particular, being against his position. The reasoning in that case had -- 4 of 6 -- 5 been considered favourably in subsequent decisions of the New South Wales Supreme Court,2 delivered before the appellants filed their evidence in September 2019. The respondent’s error and his failure to concede it earlier, notwithstanding the state of the case law, warrant (the appellants contend) a discount in the costs ordered against them, to recognise the costs they unnecessarily incurred in consequence. [15] Secondly, the appellants say, the respondent’s statement of reasons contained no reference to the statutory construction points on which the respondent succeeded: the general argument that Div 1B was not intended to apply to common law employees and the particular argument that a literal reading of s 13J(2) did nothing to assist the appellants but left them liable to pay payroll tax under the general provisions of the Act. The latter argument was not articulated until the hearing of the appeal. If the argument had been made earlier, time and costs would have been saved. [16] The respondent argues that he was entitled to raise any available defence; which included, in this case, whether the appellants could be said to procure services “for” their clients. He had not sought to challenge the test as set out in the New South Wales cases, but merely disputed whether on the facts the test was satisfied. The onus was on the appellants to prove that it was. It was not unreasonable for him to wait to see the appellants’ evidence before deciding whether to maintain his position on the issue. In any case, he had maintained his argument that the appellants’ arrangements did not amount to “procur[ing] the services of another person”, but rather involved themselves providing the services, and the appellants’ evidence was relevant to that issue. That was demonstrated by references he had made, in his response to the appellants’ statement of facts and contentions and written submissions, to the client contracts and the representative employee contracts, and by the fact that after the hearing the appellants put in a list identifying the material they relied on, which included several hundred pages of employee contracts. [17] The argument as to the application of s 13J(2), the respondent submits, was put in response to the appellants’ submissions, which argued that its effect was to deem amounts paid to the appellants’ employees not to be wages. The first opportunity to respond to that argument came in oral submissions at the hearing. In any event, the s 13J(2) point was no more than an illustration of how the employment agency provisions operated as deeming provisions. Its having been advanced at the trial had not led to any costs thrown away. Conclusions [18] I accept the respondent’s submissions on the statutory construction point. The respondent was entitled to counter the appellants’ argument, made in its statement of facts and contentions, which was in effect premised on a reading of Div 1B as a code. The appellants, having said at the hearing that they had no objection to the advancing of the ground that as common law employers they were caught by the Act’s general liability provisions, presumably did not regard themselves as disadvantaged by its late emergence, and can hardly complain of it now. The more particular argument involving a closer consideration of how s 13J actually operated was a proper response to the appellants’ argument that the provision conferred an exemption. It also served 2 Bayton Cleaning Company Pty Ltd v Chief Commissioner of State Revenue (2019) 109 ATR 879; [2019] NSWSC 657 and Banfirn Pty Ltd v Chief Commissioner of State Revenue [2019] NSWSC 1058. -- 5 of 6 -- 6 very effectively to reinforce the respondent’s larger argument that the employment agency provisions had no bearing on the appellants’ liability to payroll tax. It did not introduce some significantly new element to the appeal or alter its course. [19] However, the respondent is on less solid ground in respect of his maintaining the position that the appellants had not provided their workers’ services “for” their clients because they did not form part of the respective clients’ workforces. As to the argument that the evidence was relevant to whether the appellants or their employees provided the services, the respondent did not refer before or during the appeal to evidence other than the descriptions given in the managers’ affidavits as to how services were provided and the four exhibits: the appellants’ contracts with their clients and the two representative employee contracts; all of which could probably have been provided in a single volume. The appellants’ counsel proved correct in his statement at the hearing as to the irrelevance of most of the factual material filed. The arguments from both sides focussed overwhelmingly on the Queensland payroll tax legislation and analogues from other States, extrinsic material and authorities. [20] It is true that after the hearing the appellants put in a list of material relied on, which for reasons best known to them, included many exhibits to the managers’ affidavits (almost entirely, copies of employee contracts) to which I was not referred in submissions, written or oral, and did not need to consider. That list comprised about half of the material filed. Nonetheless, I conclude that the respondent’s late concession that the basis on which he made his original decision could not be sustained occasioned the unnecessary filing of a great deal of material, and caused the appellants to waste time and effort in advancing arguments on the point in their statement of facts and contentions and their written submissions. [21] Consequently, I think it a proper case to depart from the usual order that costs follow the event. I order, instead, that the appellants pay 85% of the respondent’s costs of the appeal. -- 6 of 6 --