Cameron v Commissioner of Taxation [2012] HCATrans 360 (14 December 2012)

Last Updated: 19 December 2012

[2012] HCATrans 360

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Sydney No S173 of 2012

B e t w e e n -

MICHAEL CAMERON

Applicant

and

COMMISSIONER OF TAXATION

Respondent

Application for special leave to appeal

FRENCH CJ
GAGELER J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 14 DECEMBER 2012, AT 11.29 AM

Copyright in the High Court of Australia

MR D.B. McGOVERN, SC: If your Honours please, I appear with my learned friend, MR M.P. HERAGHTY, for the applicant. (instructed by AJH Lawyers)

MR B.J. SULLIVAN, SC: May it please the Court, I appear with my learned friend, MS C.A. BURNETT, for the respondent. (instructed by Australian Taxation Office Legal Services Branch)

FRENCH CJ: Yes, Mr McGovern.

MR McGOVERN: Your Honours, could I start by submitting that the issues of construction under section 87-20(1)(b), which is the so-called unrelated clients test, and the proper construction and the application of section 87-30(1)(a), which is the business premises test, raise significant questions particularly in the light of the fact that in this day and age there are so many people who are involved in what might be called one-man companies where they seek to obtain the benefits that arise through deductibility that can be obtained through such measures and also because of the ability to, in certain circumstances, alienate their personal services income.

GAGELER J: Do you say those questions are questions of construction?

MR McGOVERN: Your Honour, yes, because of the approach of the Administrative Appeals Tribunal which in turn was adopted and accepted by the Full Court the question of the proper construction of the provision was erroneous.

GAGELER J: Can you crystallise the question of construction?

MR McGOVERN: Yes, your Honours. Perhaps it is most convenient just to take your Honours to tab 7 of our bundle which is the statutory materials.

FRENCH CJ: You talk of tabs. There are no tabs, which makes it a little hard. You are taking us to the provisions of the Act, are you?

MR McGOVERN: Yes, your Honour. If your Honours have section 87-20(1) before you your Honours will see that the so-called unrelated clients test involves two limbs. In paragraph (a), which was not in dispute between the parties, the issue really is whether or not “the individual” - in this case, Mr Cameron, or, alternatively his company - gained or produced:

income from providing services to 2 or more entities that are not associates of each other –

et cetera – so there was no question about that, but then when your Honours look at (b), “the services” – that is what one may call the income producing services, that is the paragraph (a) services, which are the results of the contracts which have been successfully won, it is those services that have to be:

provided as a direct result of the individual –

Mr Cameron –

or personal services entity making offers or invitations (for example, by advertising), to the public at large or to a section of the public, to provide the services.

So it is the services where first appearing, the income producing services, that is the ones that are the production or that have given rise to contracts for services and the generation of income, then the “offers or invitations to provide services” where secondly appearing is not confined only to the income producing services at the beginning of the paragraph. The offer or invitation to provide the services in this instance is the totality of the offers or invitations to provide the services.

So, in other words, if one had a simple example, if there are six or seven services that are actually provided and have generated income the offers or invitations are not confined to the six or seven but are concerned with and have to deal with the totality of the offers made to provide, relevantly, the same kind of services. So, in short, the provision in that regard is not confined only to successful offers or invitations.

FRENCH CJ: Now, (b) covers all years of income in issue, does it not?

MR McGOVERN: It does, your Honours, yes.

FRENCH CJ: The other test is only the 2004 year, is it not?

MR McGOVERN: The 2004 year, yes, your Honour.

FRENCH CJ: So the question, I think, that Justice Gageler was directing to you is about construction as distinct from application?

MR McGOVERN: Your Honour, certainly the Tribunal, on that first point that I have raised, simply looked at what I would call the successful contracts or the services that were provided pursuant to the successful offers having been accepted and confining itself to those matters then applied the test, so it neglected to consider the totality of the offers or invitations that were available to be considered.

GAGELER J: What did the Full Court say about that point?

MR McGOVERN: About that point it did not really say very much. In the judgment of the Full Court at about paragraph 54, just of the question of consideration, their Honours set out the terms of section 87-20(1) and they indicate that the section would generally involve and then they list the various subparagraphs, subparagraphs (iv) and (v). Then their Honours say in paragraph 55:

In the present case there was an elision before the Tribunal of what we have identified as (iv) and (v) above, in that it appears that Mr Cameron’s case was there presented on the basis that it was evident from the manner of obtaining the contracts with the limited number of unrelated entities that those offers or invitations were to the public at large or to a section of the public to provide those services. This may, depending on the facts, be sufficient but it is unlikely to be sufficient where the number of communications is small.

That is the only comment that is made about the matter. Of course, there was before the Tribunal clear evidence of what I would call the totality of the services. If your Honours go back to the decision of the Tribunal itself – it is very brief - your Honours will see that the relevant paragraphs commence at page 8 of the appeal book and your Honours will see in paragraph 13 that the Tribunal said:

The evidence before the Tribunal indicates in clear terms that the drafting services were provided either –

and then it just lists the details of how the drafting services were provided. That is what I call the successful services and it confines itself to that and then in paragraph (iv) there is a reference to the manner in which the services were secured, or the contracts were secured and then in paragraph 17 there is an adoption of the submission of the respondent which commences with the subparagraph (20):

Obtaining work as a direct result of making one-off approaches -

So that, in our respectful submission, is a reading of - the approach of the Tribunal on this particular point was to simply confine itself only to the services which were the income producing services, the offers and invitations that were manifest in the income producing services and not looking at the totality of the offers.

GAGELER J: Is paragraph 55 of the Full Court’s judgments a fair statement of the way in which Mr Cameron’s case was presented to the Tribunal?

MR McGOVERN: Your Honours, I have checked that and I can indicate this that certainly in the written submissions that were put to the Tribunal the evidence of what I call the totality of services was addressed in the written submissions and if your Honours have the supplementary materials perhaps one of the clearest ways of looking at it would be looking at Mr Cameron’s witness statement commencing at page 138. In paragraph 5 at page 138 of the supplementary book Mr Cameron refers to an exhibit to his affidavit and then discusses:

the usual process by which [the company] would find work was by constructing its own client lists and through targeting the clients on these client lists –

and referring also to -

direct marketing and tenders –

That is taken up at pages 141 to 142, for example, by reference to the Comalco contract in 2005. That is specific to that particular contract but at paragraph 23 on 142 the reference there to providing:

resumes to companies that were providing engineering, project and construction management . . . including –

then listing half a dozen of these other companies which were plainly not entirely, if at all, within the successful contracts categories. Then, at page 165 – I think this is the exhibit that was referred to in the witness statement itself – there is a reference to – starting at the top of 165, an explanation of how the contract work was obtained starting in 1994 and then relating the fact that there were lists and looking through the lists and contacting people on the list and various calls and what have you that were
made.

FRENCH CJ: I am just trying to marry up your proposition with what you are putting in the submissions. Am I oversimplifying the proposition that you have put to us by characterising it thus, that there was an error in rejecting characterisation of the offers as not offers to a section of the public because that characterisation depended upon offers that had been acted upon or accepted rather than a totality of offers or contacts that had been made?

MR McGOVERN: Yes, your Honour.

FRENCH CJ: I was trying to marry that up with what you say in paragraphs 25 and 26 of your submissions at 109 which was rather focusing on the failure to have regard to the nature of the services in determining the question of characterisation of the offer and then there is the case involving the niche market exercise and so forth.

MR McGOVERN: Your Honours, that is the second error in relation to the application. I have suggested construction but the way in which the Tribunal applied the provision is also bound up with what we submit is a second error and that is the – really in paragraphs 24 and following we have, in a sense, conflated the two propositions because the second construction point and the application point was this, that we would submit that what is required is a precise identification of the services that are the income producing services as the starting point and then, if one, for example, chooses to simply provide esoteric services, one might say, then the offers or invitations in respect of those services in their totality are the offers or invitations that are then presented to scrutiny for the purposes of determining whether or not there is a relevant section of the public.

GAGELER J: We, of course, are concerned with error on the part of the Full Court.

MR McGOVERN: Yes.

GAGELER J: Where is the error in the Full Court’s reasoning?

MR McGOVERN: Well, in paragraph 60, your Honours. Their Honours say:

In our view, a fair reading of the Tribunal’s reasons indicates that the Tribunal held, on the facts before it, that there was no public element to the offers or invitations.

Of course, that hearkens back to those paragraphs that I took your Honours to from the Administrative Appeals Tribunal decision which are focused entirely upon the successful services.

GAGELER J: So the error is in the Full Court’s evaluation of what the Tribunal did?

MR McGOVERN: Yes, your Honours. Then, if your Honours look at paragraph 60, going on their Honours also say that the way in which they approach the matter, having regard to accepting the Tribunal’s analysis was that the offers did “not extend beyond a limited number” – well, that plainly refers to offers giving rise to the provision of services, the six or seven, as opposed to whatever the totality were and then going on to say that:

also there was no practical possibility of the offer or invitation being taken up by any member of the public or section of the public.

Of course, in our respectful submission, that does not address the nature and the character of the offers or the totality of the offers.

FRENCH CJ: Is this an error of law on the part of the Tribunal that was asserted before Justice Edmonds because I am just looking through his summary of the first ground. The notice of appeal is not set out in the book, I do not think, but the first ground, the second ground and the third ground which appear at page 40 - that is the first ground - and then page 44 which is the second and page 47 which is the third - was this issue formulated in that way before Justice Edmonds as an error of law on the part of the Tribunal?

MR McGOVERN: Your Honours, it was formulated as being a failure of the Tribunal to have regard to the nature and the character of the offers or invitations and it was - - -

FRENCH CJ: Which is a somewhat different issue, is it not?

MR McGOVERN: - - - formulated on the basis of the Tribunal’s approach being erroneous by simply looking at the number of the successful offers and then looking at the fact that the method by which the offers or invitations were made was by word of mouth and because his Honour was dealing only with a question of law and cast at a high level of generality, so to speak, his Honour was persuaded in paragraphs 44 and then in 54 of his judgment that there were errors by reason of the fact that the Tribunal deprived itself of a consideration of the full constellation of relevant facts.

Then the matter came before the Full Court and the Full Court, as your Honours know, was looking at the – well, the parties had proceeded before the Full Court upon the basis of really looking at the analysis upon the basis of the Credit Union Case and the factors that his Honour had taken into account as to whether or not the matter should be sent back for redetermination by the Tribunal and in the course of the argument before the Full Court the point that has been raised – as I have raised it today, in the terms that it has been raised today, was certainly raised before the Full Court but it really is just a – the starting point is that there was evidence of the totality of offers, the Tribunal confines itself to the specific successful offers and we submit that in the way in which the section operates that is an error because it identifies the incorrect offers or invitations of the provision of the services.

GAGELER J: The notice of appeal to Justice Edmonds, I think, is at page 188 of the supplementary book and at page 191 in paragraph 1.1 there is a statement of what I had understood to be the essence of the case put to the Tribunal and to Justice Edmonds.

MR McGOVERN: Well, the ground being that by itself and without more - - -

GAGELER J: Six was enough.

MR McGOVERN: Six was enough if you take into account all of the relevant offers or invitations, but even on the basis of six being enough there still becomes a question of necessity to identify with some precision – in a case where you have somebody who has multi skills and there are a number of different offers or invitations being made and one needs to have a starting point of the successful offers one needs to have a precision of identification of the successful offers in order to then ensure that the offers or invitations to a section of the public are the same offers as being, or analogous to the successful offers so that the Tribunal by going further and not identifying the precise offers and not identifying the nature or the character of the successful offers was nonetheless not able to discharge its function and to apply the section correctly.

Your Honours, I was just looking a paragraph 60. Could I just make these very brief further points that in relation to paragraph 60 their Honours talk about the inability to have any:

practical possibility of the offer or invitation being taken up by any member of the public or section of the public.

Of course, the mere fact that an individual offer is made on a one-on-one basis does not, in our submission, answer the question because it is possible to have a canvassing of a large number of individuals in order to make the same offer in a way which is more widespread, so to speak, so that there is an element of publicity associated with the offer. So the fact that the offer itself is incapable of being accepted does not answer the question because a multitude of similar offers made to other people in a canvassing sense can satisfy the test. That is certainly what was said in dealing with the question of “offer to the public” by the High Court in the Lee v Evans Case.

FRENCH CJ: Mr McGovern, I think you are out of time. We have all had the benefit of reading your written submissions on the other grounds. Is there anything very short that you want to say on the other two matters?

MR McGOVERN: Just in relation to the business premises test, your Honours. The point that is made is that the provision itself is fairly clear-cut in terms of requirement for considering the activities that occur at the premises. The approach of the Tribunal was to simply make two incorrect comparisons. Justice Edmonds was correct in his approach. The Full Court has, by reference to an idea of a qualitative assessment, as opposed to a quantitative assessment, really put a gloss on the statute and an impermissible gloss on the statute. They are my submissions, your Honours.

FRENCH CJ: Thank you, Mr McGovern. Yes, Mr Sullivan.

MR SULLIVAN: Thank you, your Honours. Your Honours, with respect to the unrelated clients test it was necessary for the applicant to adduce evidence establishing that his services were provided as a direct result of making offers or invitations to the public at large or to a section of the public. Now, the Tribunal made findings of fact which are set out at pages 8 to 10 of the application book. The applicant now says that those findings were limited to offers accepted and did not take into account evidence of other offers.

Two observations may be made about that, or perhaps three. Firstly, it is not our understanding that that contention was put either to the primary judge or to the Full Court. Secondly, we would observe that there was no clear evidence as to what other offers were made, merely a vague suggestion that there may have been telephone calls to potential clients but there was no specificity to that evidence at all. It was not evidence as to which any particular findings could have been made about particular offers either to particular persons or as to the nature of the offers.

Thirdly, the findings we would note of the Tribunal were essentially uncontested – the findings of fact on this point. Neither in its notice of appeal to the Federal Court, nor in the notice of appeal to the Full Court did the applicant contend that the Tribunal’s factual findings were in error or that the Tribunal ought to have made factual findings that it did not make.

Now, the Tribunal found that there was evidence of services having been provided as a consequence of phone calls or email messages to two individuals. That is at application book page 8 and paragraph 13 of the Tribunal reasons. In 2004 it was two individuals, in 2005 one individual and in 2006 one individual. That is the extent of the work raised as a consequence of offers or invitations made by the applicant, therefore coming within section 87-20(1).

There were some remaining jobs which were obtained as a consequence of recommendations by third persons but they did not result from invitations coming within section 87-20(1) so those ones referred to in paragraph 13(b) of the Tribunal’s reasonings at application book page 8 really do not come into the picture. The Tribunal noted at application book page 10, paragraph 19 of its reasons that the applicant gave evidence about the persons whom he had approached. He said:

I targeted those people because I knew they had long contracts that I could provide the drafting for –

So the applicant’s evidence was that he made targeted offers to a select group of potential work sources which, in our submission, was conduct inconsistent with the concept of offers to the public or a section of the public. The point that my learned friend makes about the necessity for precise identification of the nature of the services offered again that is a point that, in our submission, it is not really possible for the applicant to advance in this matter having regard to the state of the evidence.

An essential evidentiary foundation for that argument would be clear evidence as to the nature of the offers that were made but the extent of the evidence is essentially as summarised by the Tribunal at page 8 in paragraph 13. In circumstances where the applicant failed to adduce evidence as to the substance or the nature of the offers, in our submission, this matter would be an inappropriate vehicle for the Court to grant special leave to deal with that suggested question of construction.

In addition, the Full Court found at application book page 83 in paragraph 66 of its reasons, at the paragraph that I think my learned friend has already taken your Honours to:

It has not been established that the Tribunal erred in failing to have regard to the nature or character of –

the invitations, that is so far as the nature or character of the invitations was in evidence. So there is an express finding on that point, contrary to my learned friend’s contention about the failure of the Tribunal to take that matter into account. In our submission, so far as the unrelated clients test is concerned neither the Tribunal nor the Full Court erred in construing section 87-20. There was no error of law in applying the test.

In our submission, the essential complaint that is being made is one about the application of the test, not about the construction of any provision of the legislation and to the extent that it is suggested that there are questions of construction about the legislative provision that arise we submit that those questions just cannot be dealt with adequately on the basis of the evidence, such as it is in this case. Now, with respect to - - -

FRENCH CJ: We will not need to hear from you on the other two points.

MR SULLIVAN: If it please the Court, those are the submissions on behalf of the respondent.

FRENCH CJ: Yes, thank you. Yes, Mr McGovern.

MR McGOVERN: Your Honours, just in relation to that question of the nature and character of the offers or invitations, if your Honours go to the supplementary book at page 434 your Honours will see at the top of the page a reference to paragraph 54 in Justice Edmonds’ judgment and that was the paragraph that his Honour indicated was the error of the Tribunal in failing to take into account the nature and character of the offers or invitations. Your Honours will see at line 11 a concession by my friend that there was never a point taken in relation to that determination of Justice Edmonds being itself erroneous in the form of any notice of contention or the like.

So the essential complaint of our case is that the Tribunal had an array of evidence which, although it made findings of fact, it never considered the totality of the evidence. The parties then went forward to the Full Court on a basis that in a sense bespeaks of a necessity for this Court to intervene to clarify what seems to be some uncertainty in the approach that could be adopted, having regard to the Credit Union Case.

Finally, in relation to questions of targeted offers our third submission was that it is necessary – we have developed this in the submissions – to be able to understand that it is the same offers that are, if you like, if they are targeted offers - that those offers – this, in effect, does not disqualify one from being an offer or invitation to a section of the public. One then needs further analysis to determine whether that is so.

FRENCH CJ: Thank you, Mr McGovern.

In this case the applicant seeks special leave to appeal from a decision of the Full Court of the Federal Court of Australia dismissing an appeal by the applicant and allowing a cross-appeal by the Commissioner from a decision of a single Judge of the Federal Court. The application is said to raise questions about the proper construction, for the purposes of attributing personal services income, of the unrelated clients test under s 87-20(b) of the Income Tax Assessment Act 1997 (Cth) and the business premises test under s 87-30(1)(a) of the Income Tax Assessment Act 1997 (Cth). Further, it is said that the Full Court of the Federal Court failed to accord the applicant procedural fairness.

The facts of the case as found by the Administrative Appeals Tribunal indicate that the prospects of success on an appeal are not sufficient to warrant the grant of special leave. The question reduced to one of the application of the statutory provisions to the facts. The approach of the Full Court to construction is not attended with sufficient doubt to warrant the grant of special leave. The complaint about want of natural justice was somewhat elusive and in any event does not affect the conclusion that in regard to the factual substratum an appeal would be unlikely to succeed.

Special leave will be refused with costs.

AT 12.02 PM THE MATTER WAS CONCLUDED