B & L Linings Pty Ltd & Anor v Chief Commissioner of State Revenue (RD)

[2006] NSWADTAP 2

Appeal Panel - Internal

CITATION:	B & L Linings Pty Ltd & Anor v Chief Commissioner of State Revenue [2006] NSWADTAP 2
PARTIES:	APPELLANTS B & L Linings Pty Ltd L & B Linings Pty Ltd RESPONDENT Chief Commissioner of State Revenue
FILE NUMBER:	059044
HEARING DATES:	30/09/05
SUBMISSIONS CLOSED:	10/12/2005
DATE OF DECISION:	01/09/2006
BEFORE:	Chesterman M - ADCJ (Deputy President); Hole M - Judicial Member; Bennett C - Non Judicial Member
CATCHWORDS:	evidence - failure to give due consideration - Jones v Dunkel - applicability of rule in
MATTER FOR DECISION:	Principal matter
FILE NUMBER UNDER APPEAL:	046025
DATE OF DECISION UNDER APPEAL:	06/10/2005
LEGISLATION CITED:	Administrative Decisions Tribunal Act 1997
CASES CITED:	Australian Air Express Pty Ltd v Langford [2005] NSWCA 96 Azzopardi v Tasman UEB Industries Ltd (1985) 4 NSWLR 139 B & L Linings Pty Ltd and L & B Linings Pty Ltd v Chief Commissioner of State Revenue [2005] NSWADT 129 J A & B M Bowden & Sons Pty Ltd v Chief Commissioner of State Revenue [2001] NSWCA 125 Brutus v Cousens [1973] AC 854 Clarkson v Dent (1998) 84 IR 250 Commissioner of State Revenue (SA) v Roy Morgan Research Centre Pty Ltd [2004] SASC 288 Connelly v Wells (1994) 10 NSWCCR 396 Fitzpatrick v Evans & Co [1902] 1 KB 505 French v Sydney Turf Club Ltd (No 2) [2003] NSWADTAP 54 Graham v Chick, Unreported, Court of Appeal, NSW, CA 40671 of 1993 Hollis v Vabu (2001) 207 CLR 21 Hope v City of Bathurst (1980) 144 CLR 1 Housing Commission of New South Wales v Tatmar Pastoral Co Pty Ltd [1983] 3 NSWLR 378 Jones v Dunkel (1959) 101 CLR 298 Lloyd v Veterinary Surgeons Investigating Committee [2005] NSWCA 456 Manly Council v Byrne [2004] NSWCA 123 North Eastern Travelstops Pty Ltd v Bradley & Ors [2005] NSWADTAP 6 Pettitt v Dunkley [1971] 1 WLR 376 Roy Morgan Research Centre Pty Ltd v Commissioner for State Taxation [2003] SASC 342 Roy Morgan Research Centre Pty Ltd v Commissioner of State Revenue (Vic) [2005] VSC 136 Simmons v Heath Laundry Co [1910] 1 KB 543 Smith v General Motor Cab Co Ltd [1911] AC 188 Soulemezis v Dudley (Holdings) Pty Ltd (1987) 10 NSWLR 247 Stanoevski v Council of the Law Society of New South Wales [2003] NSWADTAP 33 Vabu v Commissioner of Taxation (1996) ATC 4,898
REPRESENTATION:	APPELLANTS J Eager, solicitor RESPONDENT I Latham, barrister
ORDERS:	1. The appeal is allowed; 2. The orders of the Tribunal made on 10 June 2005 are set aside; 3. Leave is granted for the appeal to extend to the merits; 4. The matter is set down for further directions at 9.30a.m. on 8 February 2006.

Introduction

1 The issue of substance raised in this appeal is whether the Tribunal was correct in deciding that 36 ‘entities’ engaged as sub-contractors on various building projects by a building company during a specified tax year were, according to common law principles, the company’s employees, not independent contractors. The ‘entities’ in question were a mixture of companies, partnerships and sole traders.

2 The matter came to the Tribunal by way of review of a decision by the Respondent, the Chief Commissioner of State Revenue (‘the Commissioner’), to disallow objections by the two Appellants, B & L Linings Pty Ltd (‘B & L’) and L & B Linings Pty Ltd (‘L & B’), against assessments to pay-roll tax under the Pay-roll Tax Act 1971 (‘the Act’) with respect to the remuneration paid to the 36 ‘entities’. The assessments spanned the tax years 2000-2003, but it was agreed between the parties that the 2002 tax year should be treated as a sample year.

3 If the entities were properly to be characterised as employees, the Appellants were indisputably liable for pay-roll tax. The remuneration paid to the entities would be wages, to be included in its tax base in accordance with s 3AA of the Act. If however they were independent contractors, exemptions from this tax would be available if certain further conditions were satisfied. These are set out in s 3A(1) of the Act.

4 The decision of the Tribunal, constituted by Acting Judge J Block, Judicial Member, was delivered on 10 June 2005 (B & L Linings Pty Ltd and L & B Linings Pty Ltd v Chief Commissioner of State Revenue [2005] NSWADT 129). The Tribunal ruled that the entities were employees of L & B. It therefore did not have to determine whether the further conditions set out in s 3A(1) had been satisfied.

5 By virtue of directions given before the hearing of this appeal, the only issue to be determined in the appeal is as to the correctness of this ruling. The question whether the exemption provisions in s 3A(1) would apply to any or all of the entities, if they were found to have been independent contractors, was not argued before us.

The Tribunal’s approach

6 The approach that the Tribunal adopted in reaching its conclusion as to the status of the entities was, as we understand it, along the following lines. We should add that the Tribunal’s judgment is relatively long and discursive and the direction of its reasoning is not always immediately discernible.

7 Principles governing the distinction between employees and independent contractors. The Tribunal observed at [22] that the Appellants bore the onus of showing that the entities were independent contractors according to common law principles. This onus, the Tribunal said, had been conceded by them to be the same as the onus placed on taxpayers by income tax legislation.

8 The Tribunal’s only explicit references to the content of these common law principles were at [20] and [96]:-

20 The case law establishes that to determine whether an entity is an employee or an independent contractor involves the consideration of a number of tests, the nature and importance of which has changed and evolved over time. It is unnecessary to refer, otherwise than briefly and later in this decision, to that case law….

96 Mr. Eager [who appeared for the Appellants] referred at length to a number of decided cases (Hollis v Vabu (2001) 207 CLR and Vabu v Commissioner of Taxation 1996 ATC 4,898 and other cases) in order to distinguish the position of the employees or contractors in those cases from that of the entities….

9 In addition, the Tribunal at [32] rejected an argument, put by the Appellants, that since the commencement on 1 July 2000 of the Commonwealth regime for levying and collecting GST (goods and services tax), entities that had obtained an ABN (Australian Business Number) and had registered for GST could not be treated as employees at common law, for the purposes of State payroll tax regimes. The Tribunal said:

32 … The mere fact that an entity quotes an ABN or is registered for GST is determinative of nothing other than the fact that it has been so registered. The Applicants contended that the fact that this was so entitled them to treat the entities as independent contractors.

10 On a number of occasions, the Tribunal referred to evidence that the Appellants would not engage any entity unless it had an ABN.

11 At other points in its judgment, the Tribunal implicitly referred to one or more of the established criteria for determining whether a person is an employee or an independent contractor. It did so in the context of outlining testimony given by employees of the Appellants who had management responsibilities. On these occasions, it generally did not state expressly why it considered the evidence in question to be relevant to its determination.

12 At [55], for instance, the Tribunal noted that all the documentation required for establishing and maintaining business relationships with the entities, including particularly the invoices that they submitted to the Appellants, were prepared by the Appellants. It indicated at [55] (see too [63], [66] and [74]) that while there might be some negotiation as to price, ‘the price fell within a narrow compass’. At [58] (see too [61], [74] and [81]), it quoted evidence that on occasions, when entities needed money to complete a job, they would receive progress payments. In referring again to this matter at [74], it said that the making of progress payments ‘might be suggestive of employment’. At [59] (see too [76]), it pointed out that the Appellants supervised the work done by the entities, though the extent of that supervision was ‘far from clear’. At [62], it referred to evidence that the entities supplied their own tools and also some of the materials required. At [70], it noted that (a) some of the entities received petrol allowances when they travelled more than a certain distance and (b) the ‘men’ wore shirts indicating a close connection with B & L, because ‘they were provided to them’.

13 Deficiencies in the Appellants’ evidence. At [22], the Tribunal observed, as we have said, that the Appellants bore the onus of proving that the entities were employees. This onus, it said, had been conceded by them to be the same as the onus placed on taxpayers by income tax legislation.

14 At [28], it stated that its decision was against the Appellants ‘on the simple basis that they have not discharged the onus on them, and indeed made no real attempt to do so’. It described its findings in this regard as ‘findings of fact and not of law’.

15 Both before and after this indication of the basis of its decision, the Tribunal explained further why the Appellants had failed to discharge this onus.

16 At [20], it stated: ‘The Tribunal is unable in relation to any entity to determine into which category it falls simply because it heard evidence from none of them.’

17 It indicated, at the beginning of paragraph [27], that the Appellants were made fully aware of ‘the consequences of not calling the entities’ as witnesses. It then referred, in the same paragraph, to one of the reasons offered by the Appellants’ counsel for not calling the entities. It commented that the reason put forward was contradicted by the oral evidence of those witnesses whom the Appellants did call.

18 After some observations regarding income splitting for tax purposes, paragraph [27] concluded by returning to the topic of the Appellants’ decision not to call the entities as witnesses:-

… There might moreover and in relation to the relevant entities be disadvantages [of being characterised as independent contractors] in that some benefits (e.g. superannuation guarantee and workers compensation benefits) might be lost or endangered. The only obvious beneficiaries of such a regime would seem to be the Applicants [i.e., the Appellants] on the basis that where their employees (assuming that they were employees) are structured as independent contractors, they, the Applicants escape liability for payroll tax on amounts which would otherwise be caught. It is against this background that the Applicants had no option but to call the relevant entities. Because they have not done so I, (and for reasons set out later in this decision) must draw an (adverse) inference that such evidence would not have assisted them. In fact I draw an inference that such evidence would in all probability have been adverse to the Applicants. Jones v Dunkel (1959) 101 CLR 298; Manly Council v Byrne [2004] NSWCA 123.

19 At [33], the Tribunal quoted a passage from the transcript of the hearing, in which it warned counsel for the Appellants that it was ‘odd’ that none of the entities were to be called as witnesses. The Tribunal’s observations at that point included the following question to counsel:-

As to what exactly they do, as to how they do it, as to how they contract with your clients, as to how they organise their affairs, surely the best evidence is their own evidence?

20 A substantial proportion of the judgment (paragraphs [34] to [85]) was devoted to quoting from and summarising the oral evidence given by the Appellants’ accountant and by three of their employees who had management responsibilities. The Tribunal expressed grave doubts as to the credibility of three of these four witnesses.

21 At [45 – 46, 81, 85 – 94, 97 – 99], the Tribunal focused on the reasons why, having regard to the unreliability of this evidence, it did not accept the claim made on the Appellants’ behalf that there was a satisfactory explanation for their failure to calling any of the entities as witnesses. The reasons that the Appellants, through counsel and through their own employees, put forward at various points during the hearing were (a) that most of the entities were immigrants who could not speak English, (b) that they would initially refuse to testify and (c) that they might respond to being put under compulsion to testify by refusing to work for the Appellants in the future. The Tribunal found none of these reasons to be convincing. It placed emphasis on the fact that, in response to pressure during cross-examination, the Appellants’ managing director admitted that no attempt had been made to obtain testimony from any of the entities.

22 The Tribunal stated, at [97], that the Appellants could have applied to reopen their case before the Tribunal when they found that the evidence from the witnesses that they had called was unsatisfactory. It added that they could at this stage have called a ‘representative sample’ of the entities as witnesses. But they had chosen not to take advantage of these opportunities.

23 This section of the Tribunal’s judgment contains references also to the fact that it was at the earlier stage of objections to the Commissioner’s decision that the Appellants had elected to rely on documentation only. The judgment referred (at [96]) to an argument put by the Appellants that ‘the documentation comprised contemporaneous records whereas evidence by the entities would require them to remember events which occurred some time ago’. The Tribunal commented at [98] that the Appellants were not in any way bound by this election.

24 The documentary evidence tendered to the Tribunal included summaries of various characteristics of each of the 36 entities (for example, their legal status; the type of work they performed; particulars of their ABNs and their GST status; the number of invoices they rendered during 2002); some documents headed ‘terms of engagement’, each signed by one of the entities; quotations and invoices relating to specific jobs; records of inspections by L & B of the work done by the entities; and ledgers showing payments made by L & B to the entities.

25 At various points in the judgment, the Tribunal described this evidence as ‘vast’ (see [4] and [24]). It indicated, however, that it did not consider it necessary to ‘deal in detail with’ the documentation relating to the engagement of entities for particular jobs (see [55]) or with ‘the manner in which the documentation was prepared (see [58]). It stated, at [24], that it could ‘best demonstrate the nature of that evidence… by quoting, and in some cases extensively’, from the transcript of the hearing. As already mentioned, a substantial proportion of the judgment was taken up by quotations from the transcript.

26 The Tribunal also described the documentation as ‘at times haphazard’ ([93]). As an example, it stated that ‘Tax invoices it seems were not always what they seemed but were rather (somehow or other) quotations’ ([93]). In so concluding, it relied on some of the testimony of Mr Saraikin, who was the general manager of both Appellants (see [57]).

27 More significantly, at [58] the Tribunal made the following observation on the documentary evidence tendered by the Appellants:-

However that evidence left me in considerable doubt as to whether it truly reflected the real contract between the Second Applicant [L & B] and the relevant entity or as to whether it was effected (and not necessarily on the dates reflected) so as to create the necessary paper trail.

28 In the passage immediately following, the Tribunal then referred to the transcript of evidence of Mr Saraikin:-

Mr. Saraikin said that relevant entities at times received progress payments which were sometime made prior to the completion of the relevant work; see 2TS50 as follows:
Bevan So he is paid in instalments was he?

Saraikin Yeah, he got, he would have got a progress payment on 20th of the 12th and the balance would have been paid on the 13th of the 12th.

His Honour But that’s before. You’ve got your date order wrong surely.

Saraikin Sorry.

His Honour The 13th comes before the 20th.

Saraikin Yeah I understand, I am just having a look here now.

(inaudible muttering)

29 At [107], the Tribunal expressed the view that the Appellants, in structuring their dealings with the entities, were entirely motivated by a desire to avoid liability for payroll tax. An earlier comment to this effect, at [27], has been quoted above. Another appears at the end of [84], following the Tribunal’s recording of a finding that some at least of the entities would have been prepared, if asked, to give evidence. The relevant passage is as follows:-

The tax problems on the balance of probabilities were those of the Applicants and not the entities; by “tax problems” is meant, again on the balance of probabilities, their reluctance to pay payroll tax. It is significant that in the result the combined payroll of the Applicants has at all relevant times been below the threshold.

30 As a result of all these factors, the Tribunal concluded at [97] that ‘only one inference’ could be drawn from the Appellants’ failure to call any of the entities. This was that the evidence that the entities would have given ‘would not have assisted’ the Appellants and indeed ‘would have achieved the reverse’. In consequence, it said (at [99]): ‘An adverse inference fatal to the [Appellants] … must be drawn.’

Errors of law alleged by the Appellants

31 Appeals to an Appeal Panel are subject to s 113(2) of the Administrative Decisions Tribunal Act 1997 (‘the ADT Act’). This is in the following terms:-

(2) An appeal under this Part:

(a) may be made on any question of law, and

(b) with the leave of the Appeal Panel, may extend to a review of the merits of the appealable decision.

32 The Appellants accepted that their initial task in the appeal was to show that the Tribunal had erred in law. This was on the basis of a number of decisions (see, for example, French v Sydney Turf Club Ltd (No 2) [2003] NSWADTAP 54 at [29]) to the effect that an Appeal Panel must dismiss an application for leave under s 113(2)(b) for an appeal to extend to the merits if no error of law has been shown in the decision under appeal. Since the hearing, these decisions have been held in the Court of Appeal to be incorrect: see Lloyd v Veterinary Surgeons Investigating Committee [2005] NSWCA 456 at [14], [43 – 64]. Leave may be granted even though no error of law is established. The upshot is that the Appellants undertook a task that, on the law that now applies, might not have been necessary. But since, as will appear from our reasons below, they succeeded in this task, the publication of the Lloyd decision on 21 December 2005 did not necessitate the adoption of any further procedural measures in this appeal.

33 In his submissions to us, Mr Latham, counsel for the Respondent, argued that the question whether the entities were employees or independent contractors was wholly one of fact. It followed, he said, that any error in the Tribunal’s decision on the matter could not form the basis of an appeal under s 113.

34 Mr Eager, appearing for the Appellants, disputed this proposition. He argued that this question was a mixed question of both law and fact, because the distinction between employees and independent contractors was governed by well-established legal principles. Any determination that failed to take due account of these principles would, in his submission, be erroneous in law.

35 He claimed also that a number of errors of law were discernible in the Tribunal’s judgment. The principal errors that he identified may be summarised as follows: (a) failure to take proper account of legal principles governing the distinction between employees and independent contractors; (b) failure to address the Appellants’ ‘core contention’ regarding the status of the entities; (c) failure to give proper consideration to tendered and admitted business records of L & B, bearing upon its relationship to the entities; (d) a misunderstanding of the nature of the onus of proof borne by the Appellants, resulting in apparent reliance on a supposed principle that, in order to discharge this onus, the Appellants were obliged to call some at least of the entities as witnesses; and (e) misapplication of the principles laid down in Jones v Dunkel (1959) 101 CLR 298.

36 We will consider first Mr Latham’s proposition that the Tribunal’s decision was one of fact only, then examine in turn each of the errors alleged by Mr Eager.

Employees or independent contractors: a question of fact only?

37 The Respondent’s submissions. In arguing that the question whether the entities were employees and independent contractors was a question of fact only, Mr Latham relied first on a general proposition laid down by Mason J, with whom Murphy and Aickin JJ agreed, in Hope v City of Bathurst (1980) 144 CLR 1 at 7-9. This proposition has been endorsed in a number of other cases (see eg Azzopardi v Tasman UEB Industries Ltd (1985) 4 NSWLR 139 at 156). It is that where a statute uses words according to their common or vernacular meaning (the example given by Mason J was the word ‘insulting’, drawn from the House of Lords case of Brutus v Cousens [1973] AC 854) and the facts as found can reasonably be held to fall within that meaning, the question whether they do so fall is one of fact, not law.

38 Mr Latham cited a passage in Clarkson v Dent (1998) 84 IR 250, a decision of the Industrial Commission, in support of his argument that the specific question whether a named person is an employee or an independent contractor is one of fact. At 252, a Full Bench of the Commission said:-

The question so posed by the Commissioner [i.e., whether a contract of employment under which work is performed establishes an employer/employee relationship] is ultimately a question of fact, although during the course of its determination issues of mixed law and fact may, and probably will, arise. For instance, one such issue, a pure question of law, may be whether the facts found were capable of constituting the relationship between the parties as one of employer-employee. But, in a real sense, it seems to us that the Commissioner asked the wrong question. In order to found jurisdiction to deal with the appellant’s unfair dismissal claim it had to be held she was an “employee” within the meaning of s 83(1)(b) of the [ Industrial Relations Act 1996] – a question of fact.

39 Mr Latham also cited the following short passages from three English cases:-

It is a question of fact whether the relation of employer and employed had been established between the colliery owners and the deceased workman; but, as in the case of other questions of fact, there must be some reasonable evidence to go the jury on the question. ( Fitzpatrick v Evans & Co [1902] 1 KB 505 at 510, per Collins MR)

The question whether he was employed by the colliery owners is one of fact, and I find no evidence to go to the jury that he was so employed. (Fitzpatrick v Evans & Co at 511, per Mathew LJ)

Between these two extreme cases [i.e., an obvious instance of a contract of service and an obvious instance of a contract for services] lie an infinite number of intermediate cases where the special circumstances point with greater or lesser force towards the one conclusion or the other, and in my opinion it is impossible to lay down any rule of law distinguishing the one from the other. It is a question of fact to be decided by all the circumstances of the case. (Simmons v Heath Laundry Co [1910] 1 KB 543 at 549, per Fletcher Moulton LJ)

Quoad the employer himself, the question whether the relation of master and servant existed between the employer and the driver is one of fact. (Smith v General Motor Cab Co Ltd [1911] AC 188 at 193, per Lord Shaw of Dunfermline)

40 Mr Latham also put before us the well-established proposition (see eg Azzopardi v Tasman UEB Industries Ltd (1985) 4 NSWLR 139 at 156-157) that a finding on a primary issue of fact or inference can only be held erroneous in law if there is no tangible evidence to support it. It is not sufficient that the finding is considered to be against the weight of the evidence.

41 He argued that the Tribunal’s findings on matters of primary fact could not have been said to have no evidentiary basis and that its conclusion on the basis of these findings that the entities were employees – this being a term used in the Pay-roll Tax Act according to its common meaning – could not be described as unreasonable.

42 The Appellants’ submissions. Mr Eager contended that the question whether the entities were employees or independent contractors was a mixed question of both law and fact. He relied principally on short passages in two decisions of the Court of Appeal.

43 In the first of these, Connelly v Wells (1994) 10 NSWCCR 396 at 398, Gleeson CJ described as unhelpful the evidence of a layperson as to whether or not he believed himself to an employee of a party to the proceedings. His Honour said:

Since he [the witness] had probably not made a close study of the relevant authorities, his personal opinions on that issue of law [Mr Eager placed emphasis on these words] were unlikely to have been of assistance to the trial judge.

44 In the second case, Graham v Chick, Unreported, Court of Appeal, NSW, CA 40671 of 1993, Cole JA also said that oral evidence of this nature was of little value in this context. He described the ‘characterisation of the relationship’ as requiring ‘a careful balancing and weighing of a plethora of facts and circumstances’, which a ‘layman’ would be unlikely to know and would never consider or assess before giving evidence.

45 These two passages were cited with approval by Anderson J (with whom Mullighan and Nyland JJ agreed) in Commissioner of State Revenue (SA) v Roy Morgan Research Centre Pty Ltd [2004] SASC 288 at [9 – 10].

46 Mr Eager responded to Mr Latham’s reliance on Clarkson v Dent by drawing attention to the Industrial Commission’s indication, in the passage quoted at [38] above, that ‘issues of mixed law and fact may, and probably will, arise’ and that the question is ‘ultimately’ (i.e., not solely) one of fact.

47 Mr Eager’s observations regarding the three English cases cited by Mr Latham (see [39] above) were as follows. As to Fitzpatrick v Evans & Co, he pointed out that in the two passages quoted there must be some ‘reasonable evidence’ to go to the jury on the question whether the deceased workman was an employee. He drew our attention to a passage in Simmons v Heath Laundry Co ([1910] 1 KB 543 at 553) in which Buckley LJ, having referred to certain matters to be taken into account in deciding whether a worker was an employee or an independent contractor, said: ‘If the question which the county court judge puts to himself is that question, and his answer is given in view of those principles, then I think his finding is a finding of fact.’ Within the judgments in Smith v General Motor Cab Co Ltd, Mr Eager referred us in particular to the following pronouncement by Lord Atkinson ([1911] AC 188 at 190):-

Whether there was any evidence before the arbitrator in any given case proper for his consideration and on which he could reasonably act to sustain his finding on an issue of fact is a question of law, and his findings on such issues have often been set aside on the ground that there was an absence of such evidence…

48 Our conclusions. In our judgment, the question whether the entities in this case were employees or independent contractors cannot on any view be described as a question of fact only. The underlying reason is that the meaning of the term ‘employee’, when used in the relevant provisions of the Pay-roll Tax Act, is not the common or vernacular meaning. It is instead a meaning that has been developed at length in case law over many decades, initially for determining the scope of vicarious liability in the law of tort, then also for determining the range of application of numerous statutory provisions. It follows that the present context is not one in which to apply the principle stated by Mason J in Hope v City of Bathurst (1980) 144 CLR 1 (i.e., that the ascertainment of the meaning of terms used in a statute according to their common or vernacular meaning is, subject to exceptions, a question of fact).

49 We accept instead the proposition, put forward by Mr Eager, that the question whether the entities in this case were employees or independent contractors is a mixed question of law and fact. In resolving it, factual findings must be made, notably in the course of ascertaining the terms of the contracts between the entities and the Appellants. But in arriving at the ‘ultimate’ finding, the legal principles that may be distilled from the case law to which we have just referred must be put into operation. They must be applied to relevant findings of fact. If in a statutory context such as the present the ascertainment of a person’s status as an employee or an independent contractor were a question of fact solely, that case law and those principles would be entirely otiose.

50 This ruling is sufficient to dispose of any argument that any limits placed by s 113(2) of the ADT Act on the scope of appeals to an Appeal Panel preclude any appeal in this case against the Tribunal’s decision that the entities were employees of L & B. If in reaching that decision the Tribunal misunderstood or misapplied the legal principles governing the distinction between employees and independent contractors, its error in that regard would be an error of law on which an appeal under s 113(2)(a) might properly be based.

51 We should point out in addition that even if a question resolved by a judicial member or a panel of the Tribunal at first instance is purely a question of fact, an error of law, providing the basis for an appeal under s 113(2)(a), may still be discernible in other aspects of the Tribunal’s decision. The erroneous rejection of evidence tendered, or a failure to abide by the rules of natural justice, as required by s 73(2) of the ADT Act, are just two instances of appealable errors of law in such a case.

52 We turn now to the five errors of law that Mr Eager claimed to have been present in the Tribunal’s decision in this case.

Legal principles governing the distinction between employees and independent contractors

53 The Appellants’ submissions. The extent to which the Tribunal referred to these principles, expressly or by implication, is outlined above at [8 – 12].

54 Referring to the Tribunal’s duties under the ADT Act to take account of ‘any applicable written or unwritten law’ (s 63(1)) in exercising its review jurisdiction and to set out in its reasons its ‘understanding of the relevant law’ (s 89(5)), Mr Eager submitted that these references to what was unquestionably fundamental ‘applicable law’ in these proceedings were clearly inadequate. He pointed out that, in a number of leading cases on the common law distinction between employees and independent contractors that had been cited to the Tribunal on the Appellants’ behalf, the importance of considering the totality of the contractual relationship between the parties and taking due account of a number of factors had been consistently stressed. Yet these authorities and the specific factors that they identified had received scarcely any attention in the Tribunal’s judgment.

55 In further support of this argument, Mr Eager submitted that the statement by the Tribunal, at [28], that its findings in its judgment were ‘findings of fact and not of law’ showed a misunderstanding on its part of the relevance of established legal principles to the determination on which it was engaged.

56 We will observe now that, for reasons that we have just explained, we agree with Mr Eager that this particular statement by the Tribunal does not properly describe the nature of its conclusion as to the status of its entities. But this error in a passing observation would not of itself warrant treating the Tribunal’s decision as open to challenge.

57 The Respondents’ submissions. Mr Latham’s response to Mr Eager’s principal submission was that, on a proper understanding of the true basis of the Tribunal’s decision, the detailed principles governing the distinction between employees and independent contractors were not, in fact, ‘fundamental applicable law’. The Tribunal had decided against the Appellants on the ground that it had failed to discharge its onus of proof. This failure was attributable to three causes: (a) they had decided not to call the entities as witnesses, with the result that inferences adverse to their case had to be drawn, pursuant to Jones v Dunkel; (b) the evidence of the witnesses whom they did call was unsatisfactory; and (c) there was doubt as to whether the invoices and other documents that they tendered truly reflected the contracts between them and the entities (see [27] above). In order to reach these conclusions, the Tribunal needed to, and did in fact, take account of the broad principles governing the distinction between employees and independent contractors. But it did not need to expound these principles in detail.

58 In putting forward this argument, Mr Latham relied on the principle, explained in Pettitt v Dunkley [1971] 1 WLR 376 and Soulemezis v Dudley (Holdings) Pty Ltd (1987) 10 NSWLR 247, that the judicial duty to give reasons is sufficiently discharged if the findings and reasons that are necessary to convey a proper understanding of the decision in question are set out. The additional material that, in Mr Latham’s submission, is not required is sufficiently described in one paragraph (at 269-270) from the judgment of Mahoney JA in Soulemezis, forming part of a passage that his Honour quoted from his own judgment in Housing Commission of New South Wales v Tatmar Pastoral Co Pty Ltd [1983] 3 NSWLR 378 at 385-386:-

However, [the duty of a judge to state reasons] does not exist in respect of every matter, of fact or of law, which was or might have been raised in the proceeding. It is not the duty of the judge to decide every matter which is raised in argument. He may decide in a way which does not require the determination of a particular submission: in such a case he may put it aside or … merely salute it in passing…

59 Our conclusions. As we said earlier, the direction taken by the Tribunal’s reasoning in its judgment is not always immediately discernible. But we are, on balance, inclined to agree with Mr Latham that a detailed account of the principles governing the distinction between employees and independent contractors was not essential to an understanding of the judgment. As appears from our own summary of the steps in the reasoning, the Tribunal decided against the Appellants because of deficiencies in their evidence, in consequence of which they failed to discharge the onus of proof to which they were subject. (The question whether this line of reasoning by the Tribunal was correct in law is not relevant in the present context.) Were it not for one other aspect of the judgment, its decision, in our view, could properly be reached without it being required to include in its reasons any more than a broad outline of the law on the distinction between employees and independent contractors.

60 The aspect of the judgment that causes us to hesitate over this ruling is that on several occasions, described in outline at [11 – 12] above, the Tribunal implicitly referred to one of the recognised ‘indicators’ to be taken into account when drawing this distinction (these are explained below at [63 – 64]). Usually, it did so when some part of the Appellants’ evidence suggested the presence of an ‘indicator’ supporting the conclusion, adverse to the Appellants, that the entities were employees, not independent contractors. In this way, the judgment was internally contradictory: it purported to treat as unnecessary an account of the detailed rules governing the distinction, yet attached significance to some, but not all, of those rules. In so far as it did the latter, it is at least arguable that its failure to outline all the detailed rules – or at least to set out a list the relevant ‘indicators’ – constituted a failure to outline all the law that was relevant to its decision.

61 It appears to us, however, that this element in the Tribunal’s decision was ancillary to its principal line of reasoning. For this reason, we conclude, after careful consideration, that the error of law alleged by the Appellants has not been demonstrated.

The ‘core contention’ of the Appellants

62 The Appellants’ submissions. Mr Eager submitted that the particular factors to be weighed up in determining whether a person was an employee or an independent contractor had been usefully summed up in a draft Superannuation Guarantee Ruling issued by the Australian Tax Office on 25 August 2004 (SGR 2004/D1). In their final submissions to the Tribunal, the Appellants had adopted the analysis in this Ruling. The Ruling set out eight ‘key indicators’, supplemented by a further category of ‘other indicators’.

63 The eight ‘key indicators’ in the Ruling were summarised in the Appellants’ submissions to the Tribunal along the following lines: (1) the terms and circumstances of formation of the contract between the parties; (2) whether the employer exercises control over the manner of performance of the work; (3) whether the worker operates on his/her account (in matters such as the payment of taxes and of the superannuation guarantee) or in the business of the employer; (4) whether the worker is paid a fixed sum on completion of a specified job; (5) whether the work can be delegated or subcontracted; (6) the nature and extent of any risk that the worker assumes; (7) whether the worker performs work for others; and (8) the extent, if any, to which the worker supplies tools and equipment and pays business expenses.

64 The category of ‘other indicators’ in SGR 2004/D1 comprises the following five factors, which were also listed in the Appellants’ submissions to the Tribunal: (1) whether the employer had the right to dismiss or suspend the worker; (2) the provision of benefits such as annual, sick and long service leave; (3) the provision of other benefits prescribed under an award for employees; (4) the existence of a requirement to wear the employer’s uniform; and (5) the provision of an allowance for, or reimbursement for, expenses incurred through the use of assets belonging to the worker.

65 Mr Eager argued that the ‘core contention’ of the Appellants before the Tribunal had been that if either (a) the contractual intentions of the parties or (b) the specific factors in SGR 2004/D1 were given full consideration, the inevitable conclusion would have been that the entities were independent contractors. The Tribunal, however, had merely outlined, then expressed its disagreement with, a particular submission constituting one component of this line of argument

66 This submission related to the significance of the manner in which a person who might be an employee or an independent contractor was treated under tax law. In two cases (Vabu v Commissioner of Taxation 1996 ATC 4898 at 4900; Australian Air Express Pty Ltd v Langford [2005] NSWCA 96 at [53 – 55]), the Court of Appeal had held the tax treatment of such a person was important in determining his/her status.

67 Counsel for the Appellants had argued to the Tribunal that this factor became even more important, and possibly determinative, since the commencement on 1 July 2000 of the Commonwealth regime for levying and collecting GST. At [32], the Tribunal rejected this argument, saying that ‘the mere fact that an entity quotes an ABN or is registered for GST is determinative of nothing other than the fact that it has been so registered’.

68 Mr Eager’s submission to us was that in this passage the Tribunal treated one aspect of the Appellants’ arguments as representing, in effect, the full extent of these arguments. It therefore failed to give proper consideration to the Appellants’ ‘core contention’.

69 The Respondent’s submissions. In responding to this argument, Mr Latham gave the same meaning to ‘core contention’ as the Tribunal had done, viz, the specific submission relating to the effect of the new Commonwealth regime for levying and collecting GST. He argued that the Tribunal’s treatment of this submission was entirely correct. We would note in passing that, to the extent that this constituted a failure to appreciate the true nature of the Appellants’ arguments, it was an understandable failure. The written and oral submissions by Mr Eager were lengthy and not always clear in the direction that they took.

70 Our conclusions. With similar misgivings, based on similar concerns, to those that we have just recorded, we believe that the Tribunal’s reasoning in deciding against the Appellants did not necessarily require detailed consideration of what Mr Eager called their ‘core contention’. The Tribunal rejected the Appellants’ evidence as insufficient to discharge the onus placed upon them, for the three reasons summarised above at [57]. It therefore held that it did not need to investigate to any significant extent whether, having regard to the relevant ‘indicators’, the contractual intention discernible in the dealings between the Appellants and the entities produced the relationship of employer/employee or employer/independent contractor. We agree that in these circumstances it was sufficient for the Tribunal to display, as it in fact did, a general awareness of the broad thrust of the Appellant’s submissions.

71 The fact that the Appellants labelled this contention as their ‘core contention’ does not of itself mean that the Tribunal’s failure to examine it must have been an error of law. If, as the Tribunal held, their case could properly be dismissed on the ground of deficiencies in their evidence, their detailed submissions based on the relevant substantive law did not have to be subjected to assessment. The Tribunal did not have to proceed to this stage in its analysis of the Appellants’ case.

72 For these reasons, we reject the Appellants’ claim that the Tribunal erred through not examining their ‘core contention’.

Failure to give proper consideration to L & B’s business records

73 The Appellants’ submissions. In arguing that the Tribunal gave insufficient consideration in its judgment to the business records of L & B that had been admitted into evidence, Mr Eager pointed particularly to the absence of any detailed discussion of any of the following: (a) invoices submitted to L & B by the entities in respect of the work done by them; (b) ledgers maintained by L & B providing details of the payments made to the entities; (c) documents showing that the entities had obtained ABNs and, except in four cases, had registered for GST; (d) signed ‘terms of engagement’ between individual entities and L & B; and (e) records of ‘quality report/maintenance inspections’ carried out by L & B.

74 With regard to the Tribunal’s observation (for example, at [55 – 56], [93]) that the invoices submitted by the entities to L & B had in fact been prepared by L & B, Mr Eager drew our attention to a GST Determination by the Australian Tax Office (GST 2005/1, 8 June 2005) stating, at paras 11 – 13 and 16, that a document may be an invoice for GST purposes even though it is prepared by the recipient, not the supplier, of the relevant goods and/or services. He argued that it was therefore incorrect for the Tribunal to suggest by implication that the invoices were not genuine.

75 With regard to the Tribunal’s observation at paragraph [58] that the Appellants’ documentation may not have ‘truly reflected the real contract’ between L & B and the entities, Mr Eager argued that the Tribunal, in this same paragraph, attributed undue significance to an apparent discrepancy on the matter of progress payments between entries in L & B’s ledger and Mr Saraikin’s oral evidence. Mr Eager pointed out that Mr Saraikin’s statement suggesting that what he called a ‘progress payment’ had been made after the final payment to the relevant entity was the consequence of an understandable misreading of the ledger. The entry in the ledger recording the so-called ‘progress payment’ actually related to the contract dealt with in the next line of the ledger. This simple mistake by Mr Saraikin while in the witness box could not properly, in Mr Eager’s submission, provide significant support for an inference that the documentation was genuine.

76 The Respondent’s submissions. Mr Latham argued that the weight to be attached to L & B’s business records was entirely a matter for the Tribunal. Its decision to reject this evidence was quite correct, having regard particularly to the doubts that it expressed in paragraph [58], to the unsatisfactory nature of the evidence given by the three employees of the Appellants who had management responsibilities and to the fact that, since the so-called invoices were all prepared by the Appellants, they were clearly self-serving documents. In Mr Latham’s submission, it was not open to the Appellants to challenge this decision on appeal, since no error of law was involved.

77 With regard to the Tribunal’s discussion of testimony by Mr Saraikin in paragraph [58] of the judgment, Mr Latham’s submission was that Mr Saraikin did admit to there being a discrepancy between his evidence on the matter of progress payments and the ledger maintained by L & B.

78 Our conclusions. The Tribunal’s judgment placed considerable emphasis (for example, at [89] and [92]) on the fact that the Appellants, despite being warned of possible adverse consequences, chose not to call the entities as witnesses but instead to rely on their documentary evidence, in order to discharge the onus of proof that lay upon them. It did not, however, discuss at any great length the contents of the documents tendered, even though some of them – notably those headed ‘terms of engagement’ – had on their face considerable relevance to ascertainment of the contractual intentions of the parties.

79 Mr Latham sought to justify this course of action by the Tribunal as an appropriate consequence of its having decided that the documents were unreliable. As far as we can tell, it reached this conclusion on account of its doubts as to the true nature of some of them (for example, the invoices) and as to the credibility of three of the four witnesses called by the Appellants. But we are bound to say that in our judgment these doubts, as outlined in the judgment, provide an insubstantial foundation for a finding, in effect, that none of the documents had to be examined in any detail in order to assess the strength of the Appellants’ case.

80 Our grounds for making this observation include our opinion that the uncertainty displayed by Mr Saraikin in the passage quoted in paragraph [58] of the judgment did not warrant the emphasis that the Tribunal apparently placed on it. As indicated above at [27 – 28], this passage immediately followed a statement by the Tribunal that it had been left ‘in considerable doubt’ as to whether the documentary evidence ‘truly reflected the real contract’ between L & B and the relevant entity, or ‘whether it was effected (and not necessarily on the dates reflected) so as to create the necessary paper trail’. But Mr Saraikin’s confusion regarding a ‘progress payment’, which attracted criticism from the Tribunal, had a simple explanation, as explained above at [75].

81 In these circumstances, we conclude that the Tribunal erred in law through failing to record any findings – other than a general verdict of unsatisfactoriness – regarding the content of business records which, in the Tribunal’s own acknowledgment, constituted the evidence on which the Appellants predominantly relied. Failure to give due consideration to a significant component of a case being put forward by a party has been held more than once by an Appeal Panel to constitute an error of law – see, for example, Stanoevski v Council of the Law Society of New South Wales [2003] NSWADTAP 33 at [17]; North Eastern Travelstops Pty Ltd v Bradley & Ors [2005] NSWADTAP 6 at [27].

The onus of proof on the Appellants, and their decision not to call the entities as witnesses

82 The Appellants’ submissions. Mr Eager did not dispute the statement, in the Tribunal’s judgment at [22], that the Appellants had conceded that they bore an onus of proof similar to that placed on taxpayers by income tax legislation. He argued however that the Tribunal, in holding that a failure to discharge this onus necessarily followed from their failure to call the entities as witnesses (see for example [20], [27], [28] and [99]), misconceived the nature of the onus borne by taxpayers in disputing assessments to taxation.

83 In developing this argument, Mr Eager relied principally on a Supreme Court case, Allied Pastoral Holdings Pty Ltd v Federal Commissioner of Taxation (1983) 83 ATC 4,015. Here Hunt J was faced with the task of determining whether the Tax Commissioner had correctly assessed a corporation to pay income tax on the profits on the sale of two pastoral properties. Reversing the Commissioner’s decision, he held that the taxpayer had discharged the onus of showing that it had not acquired either property for the purpose of resale at a profit.

84 At 4,019 – 4,021, having discussed various authorities, his Honour emphasised that the taxpayer’s burden of proof in this situation was no different from the standard of proof on the balance of probabilities, required in ordinary civil cases. There was, he said, no distinct and more demanding ‘statutory onus’, according to which a taxpayer who ‘withholds a material witness or otherwise fails to expose all the material facts’ (see 4,020) would for that reason be held to have failed to discharge the onus.

85 Hunt J went on to hold, at 4,021 – 4,022, that while taxpayers might well fail to discharge this onus if they did not provide evidence from other sources to corroborate their own evidence, there was no rule of law requiring them to do so. He said, at 4,021:-

And it is not obligatory for a taxpayer, before he can discharge his burden of proof, to call all the material witnesses and to produce all the material documents which support his evidence,…

86 At 4,022 – 4,023, Hunt J rejected a contention by the Tax Commissioner that where a person (such as a taxpayer) who bears the onus of proof is also the person best able to provide evidence on the relevant matter, because the facts are peculiarly within his or her knowledge, the standard of proof is more demanding. His Honour stated that while this consideration is important in determining where the onus of proof should lie (i.e. its incidence), it does not affect the standard of proof to be achieved.

87 At 4,023, Hunt J pointed out that the unexplained failure of a taxpayer, or other party to proceedings, to call witnesses whose evidence was relevant might expose him or her to the operation of the rule in Jones v Dunkel (1959) 101 CLR 298.

88 Mr Eager submitted also that there existed no principle of law requiring that where taxpayers or other parties to proceedings wished to prove that persons working for them were independent contractors, they must necessarily call one or more of those persons as witnesses. He listed five cases where this question arose for determination but in which, he said, oral evidence had not been required from the putative employees/independent contractors. These were the following: Vabu v Commissioner of Taxation (1996) ATC 4,898; Hollis v Vabu (2001) 207 CLR 21; J A & B M Bowden & Sons Pty Ltd v Chief Commissioner of State Revenue [2001] NSWCA 125; Commissioner of State Revenue (SA) v Roy Morgan Research Centre Pty Ltd [2004] SASC 288; and Roy Morgan Research Centre Pty Ltd v Commissioner of State Revenue (Vic) [2005] VSC 136.

89 The Respondent’s submissions. Mr Latham did not dispute the principles regarding onus of proof stated by Hunt J in Allied Pastoral Holdings Pty Ltd v Federal Commissioner of Taxation (1983) 83 ATC 4,015. He pointed out, however, that His Honour drew attention to the practical importance of corroboration in many cases involving taxpayers.

90 As to the five cases, just mentioned, in which Mr Eager claimed that no oral evidence was required from putative employees/independent contractors, Mr Latham submitted that this claim could not be made because they were appeal cases, not decisions at first instance.

91 Our conclusions. It appears to us that the pronouncements made by the Tribunal as to the significance of the Appellants’ decision not to call the entities as witnesses were based either on a supposed principle of law that if they were not called the Appellants, being taxpayers seeking to challenge an assessment to tax, must necessarily be held to have failed to discharge the onus of proving that they were independent contractors, or on a factual finding that the lack of testimony from the entities left the Appellants with inadequate evidence to discharge this onus. We will discuss in turn each of these alternative interpretations.

92 The former, which on balance we consider to be the one less likely to reflect the true meaning of the judgment, derives some support from two statements made by the Tribunal. At [20], it said: ‘The Tribunal is unable in relation to any entity to determine into which category it falls simply because it heard evidence from none of them.’ At [28], having outlined the advantages that the Appellants would gain from proving the entities to be independent contractors, it said: ‘It is against this background that the [Appellants] had no option but to call the relevant entities.’ The absolute nature of both of these statements, which appear early in the judgment, seems to imply that the Tribunal was basing them on a principle of law.

93 If this indeed were the case, we are bound to say that the Tribunal would have erred in law. The judgment in Allied Pastoral Holdings Pty Ltd v Federal Commissioner of Taxation (1983) 83 ATC 4,015 clearly leaves it open for taxpayers, in challenging an assessment to tax, to bring forward evidence of whatever kind will suffice to discharge the onus of proving the relevant matters on the balance of probabilities. They are not obliged to bring forward all the evidence that is available to them, and there is no general principle requiring that any documentary evidence that they bring forward must be supplemented by oral evidence from relevant third parties.

94 The five cases cited by Mr Eager (see [88] above) with specific relevance to proceedings in which a person’s status as an employee or an independent contractor must be determined do not go as far as he claimed in showing that oral evidence from the person concerned is not needed. They are all, as Mr Latham submitted, appeal cases. In one of them, J A & B M Bowden & Sons Pty Ltd v Chief Commissioner of State Revenue [2001] NSWCA 125, it is clear from the first instance decision (Bowden v State Revenue [2000] NSWSC 639 at [16]) that oral evidence was in fact given by at least one of the people whose status was in dispute. But in another, Commissioner of State Revenue (SA) v Roy Morgan Research Centre Pty Ltd [2004] SASC 288, the report of the first instance decision (Roy Morgan Research Centre Pty Ltd v Commissioner for State Taxation [2003] SASC 342) indicates at [11] that, in similar fashion to the present proceedings, the only witnesses called by the taxpayer were employees who had management responsibilities.

95 What these five cases do indicate, sufficiently for Mr Eager’s purposes, is that the question whether what he called the putative employees/independent contractors are or are not called as witnesses in proceedings such as these is not treated as a significant one. If it were a rule of law that they must be called for the taxpayer to succeed, this would have been at least mentioned in the various judgments.

96 The alternative and more likely reading of the Tribunal’s decision on this question is that it made a factual finding to the effect that the absence of testimony from the entities left the Appellants with inadequate evidence to discharge the onus that lay on them. In the judgment, this interpretation seems to us to be supported by (for instance) the statement in [28] that its findings were ‘findings of fact and not of law’, and by the passage in [33] that we have quoted above (at [19]).

97 In our judgment, this conclusion was only open to the Tribunal if it had given full consideration to the other evidence that the Appellants had put before it. But it did not do this. While it quoted at length from the evidence of the witnesses whom the Appellants did call, and it commented, mainly adversely, on the credibility of this evidence, it did not, as we have held, give the requisite consideration to the Appellants’ documentary evidence, on which they principally relied. Prompted, it would seem, by the considerations underlying the rule in Jones v Dunkel (1959) 101 CLR 298 (which we shall shortly discuss), it treated the Appellants as having ‘no option but to call the relevant entities’ (see the judgment at [28]) without for its own part having investigated the scope and quality of their documentary evidence.

98 To proceed according to this reasoning involves, in our opinion, a failure to take account of two propositions laid down by Hunt J in Allied Pastoral Holdings Pty Ltd v Federal Commissioner of Taxation (1983) 83 ATC 4,015. These are that in challenging assessments to taxation, (a) it is open to taxpayers to discharge the onus placed upon them by whatever forms of evidence may achieve this aim and (b) they are not obliged to adduce all the evidence that is or may be available to them.

99 In our opinion, this aspect of the Tribunal’s approach in the present case constituted an error of law. If it was not such an error, it was a wrong turning that it took by virtue of an error of law that we have already held to have been present, namely, its failure to give the requisite full and careful consideration to the Appellants’ documentary evidence.

The rule in Jones v Dunkel

100 As the final sentences of paragraph [27] of the Tribunal’s judgment show (see [8] above), the Tribunal drew two conclusions from the absence of any evidence from the entities.

101 The first, with which we have already dealt, was that it left the Appellants with insufficient evidence to discharge the onus upon them. In so holding, the Tribunal made the assumption that such evidence as the entities might have given would not have assisted the Appellants.

102 The second conclusion that the Tribunal drew took the matter a step further. It was that this evidence ‘would in all probability have been adverse to’ the Appellants.

103 In drawing these conclusions, the Tribunal relied on Jones v Dunkel (1959) 101 CLR 298 and the subsequent decision of the Court of Appeal in Manly Council v Byrne [2004] NSWCA 123.

104 In outline, the principle stated in Jones v Dunkel, in its application to witnesses, may be stated as follows: where a party to proceedings fails, without adequate explanation, to call a witness whom he or she (rather than any other party) might be expected to call, and whose evidence might be expected to elucidate a factual matter that is in issue, the court or tribunal may (a) infer that this evidence would not have assisted the party who failed to call the witness and (b) draw any inference adverse to that party which is otherwise open upon the evidence and which the witness might have been expected to contradict.

105 In view of a concession properly made by Mr Latham, our discussion of the Tribunal’s reliance on the rule in Jones v Dunkel need not be lengthy. Mr Latham conceded that the Tribunal, in indicating (for example, at [28], [97] and [99]) that it considered itself bound to draw these inferences adverse to the Appellants’ case on account of their failure to call the entities, misstated the rule. The rule provides that the court or tribunal may draw such inferences. It does not insist that these inferences, or any one of them, must be drawn.

106 In addition to the two cases cited by the Tribunal in its judgment, this aspect of the rule also received emphatic support from the judgment in Allied Pastoral Holdings Pty Ltd v Federal Commissioner of Taxation (1983) 83 ATC 4,015 at 4,023.

107 We agree also with a submission by Mr Eager that the Tribunal erred in invoking the rule in Jones v Dunkel without making a careful assessment of the evidence that the Appellants did in fact adduce. The need to do so follows from that part of the rule that limits the adverse inferences to be drawn to those that are ‘otherwise open upon the evidence’. This error may be seen as a further consequence of the Tribunal’s failure to give full and careful consideration to the business records tendered by the Appellants.

108 These errors on the Tribunal’s part are, in our opinion, errors of law, in consequence of which the Tribunal’s decision, in so far as it is dependent on the application of the rule in Jones v Dunkel, is open to challenge.

109 We should indicate, however, that we do not accept a submission by Mr Eager that the Appellants were not the party who ‘might be expected’ to have called the entities as witnesses. It was not for the Commissioner to undertake this task. Equally, we agree with the Tribunal that the Appellants’ explanations for their failure to call the entities were contradictory and unconvincing.

Our orders

110 On account of the errors of law that we have held to be present in the Tribunal’s reasons, we are bound to rule that the order that it made, affirming the Commissioner’s decision under review and remitting it for further action by the Commissioner, must be set aside.

111 Having regard to observations made by representatives on both sides, we consider that the most appropriate step for us to take in this eventuality is to grant leave under s 113(2)(b) of the ADT Act for the appeal to extend to the merits and to decide for ourselves, under s 115(1), what is ‘the correct and preferable decision’. Initially, we will confine this decision to the issue to which this appeal itself was confined, namely, whether in the sample year the 36 entities were properly to be regarded as the employees of L & B, or as independent contractors.

112 In order that we may do so effectively, we believe that we should receive further written and oral submissions from the parties. This is for two reasons: (a) that most of the written and oral submissions in the appeal were concerned with the approach adopted by the Tribunal, as opposed to the merits of the issue to be resolved; and (b) that, as the Tribunal itself observed, both the evidence and the submissions advanced by the Appellants were voluminous. We consider that more tightly focused submissions are required, making more easily accessible the material relevant to the contractual arrangements between L & B and each of the individual entities (or each of a representative group of entities). This further assistance is necessary if we are to take over effectively from the Tribunal the task of reaching a decision on the merits.

113 For the purposes of ensuring that the further material put before us answers these specifications and settling an appropriate timetable for a further hearing, this case is set down for further directions at 9.30a.m.on 8 February 2006.