Dominic B Fishing Pty Ltd and Commissioner of Taxation
[2014] AATA 205
[2014] AATA 205
Division Taxation Appeals Division File Numbers
2013/3932
2013/3933
2013/3934
Re
Dominic B Fishing Pty Ltd
APPLICANT
And
Commissioner of Taxation
RESPONDENT
DECISION
Tribunal Senior Member Bernard J McCabe
Date 10 April 2014 Place Brisbane The objection decision under review is set aside. In substitution it is decided the crew members were not employees for the purposes of the Superannuation Guarantee (Administration) Act 1992 (Cth).
..........................SGD............................
Senior Member Bernard J McCabe
Catchwords
SUPERANNUATION – Employee contributions – Relationship between commercial fisher and crew members – Whether contract of service or contract for service – Limited direction and supervision – Crew members conducting own independent businesses – Contract not wholly or principally for labour of crew members – Crew members not employees for purposes of legislation – Objection decision set aside.
Legislation
Superannuation Guarantee (Administration) Act 1992 (Cth) s 12
Fisheries Regulation 2008 (Qld) s 232, s 233
Cases
Wiltshire v Kuenzli (1945) 63 WN (NSW) 47
Hollis v Vabu Pty Ltd (2001) 207 CLR 21
ACE Insurance Ltd v Trifunovski (2013) 209 FCR 146
REASONS FOR DECISION
Senior Member Bernard J McCabe
10 April 2014
This case requires me to decide whether crew members on a commercial fishing vessel operated by the taxpayer were employees for the purposes of s 12(3) of the Superannuation Guarantee (Administration) Act 1992 (Cth) (“the Act”). If the crew members were employees, the employer is required to make superannuation contributions in respect of those individuals. (There is no corresponding obligation to make superannuation contributions in respect of self-employed individuals who are independent contractors.)
I understand many people within the commercial fishing industry are interested in the outcome of this case. Fishermen and their advisers expect the decision will have implications for how they conduct their operations and engage their workforce. If they are looking for authoritative guidance, they will be disappointed. Each case turns on its own peculiar set of facts. One must examine the precise details of the engagement in each case in order to characterise it. Generalisations – whether by the industry and its advisers, or by the Commissioner – are impossible, which is as it should be.
The crew members in this case were not employees within the meaning of the Act during the period under review. It follows the objection decision should be set aside. I explain my reasons below.
THE FACTS
The period under review runs from the quarter ended on 30 September 2009 through to the quarter ended on 30 June 2011 (inclusive). At all material times, the taxpayer company operated a commercial fishing vessel out of a port in central Queensland.
The vessel fished in waters around the Great Barrier Reef. The vessel, which was usually (but not always) captained by the director of the taxpayer, would put out to sea for an average of ten days at a time. The captain would be joined on each voyage by up to four crew members who were typically experienced fishermen. The crew members were engaged for each voyage. I will have more to say about the terms of their engagement shortly.While it was at sea, the vessel would anchor at a central spot each day and the fishermen would each board a small motorised boat called a ‘dory’. The dories would head off to remote locations where the crew members would spend all or part of the day fishing.
At an agreed time – usually the end of the day – the dories would return to the taxpayer’s vessel, which acted as a ‘mother ship’. Each fisherman would unload his catch.
The details of the catch would be tallied by the captain, and the fish would be stored.
At the end of the voyage, when the vessel returned to port, the catch would be unloaded and delivered to a wholesaler or processor under the terms of a contract with the taxpayer. The taxpayer would pay the individual fisherman under the terms of the separate agreement between the taxpayer and each fisherman.Those facts are uncontroversial. They are drawn from the evidence provided by the director of the taxpayer company and one of the fishermen who gave evidence at the hearing. Those individuals also gave evidence about the precise terms under which the fishermen were engaged for each voyage, and the way in which the taxpayer interacted with them. That evidence, along with the documentary evidence – most obviously the “Joint Fishing Adventure” agreements in Exhibit One at p 267 – is of particular importance to the question of how the relationships between crew members and the taxpayer should be characterised during the relevant period.
Before I address that evidence, I should refer to the legal tests I must apply. It is accepted the obligation to make superannuation contributions will arise in respect of anyone who is an employee at common law. But the Act imposes an extended definition of employee in s 12(3). That section provides:
If a person works under a contract that is wholly or principally for the labour of the person, the person is an employee of the other party to the contract.
After outlining the evidence that relates directly to this issue, I will turn to consider whether the individuals in question are employees at common law, and then – if they are not – I will discuss whether they are in any event employees for the purposes of the Act in light of the extended definition.
The crew members and the terms of their engagement
Mr Hemingway (not his real name) gave evidence for the taxpayer. He is a fisherman who regularly formed part of the crew on the taxpayer’s vessel during the period under review. Mr Hemingway holds a speed boat licence, so he is authorised to operate the dories on board the taxpayer’s vessel. He does not otherwise hold or need a commercial fisher licence. While that was once a requirement, the Fisheries Regulation 2008 (Qld) (“the regulations”) now permit one person – presumably the boat owner, or perhaps the skipper – to hold a commercial fisher licence. Under that regime, crew members are assistant fishers: s 233. I will have more to say about the regulations and their implications for this case in due course.
Mr Hemingway said he lived near the port where the taxpayer’s vessel was based.
When he needed work, he said he would make himself known at the port amongst the various vessels that were berthed there. The taxpayer and others who were preparing to go to sea and who required a crew might contact him and invite him to become a member of the crew for that voyage. There were typically four crew members (as well as the skipper) on the taxpayer’s vessel.Each member of the crew of the taxpayer’s vessel was provided a written document in advance of a voyage. It was headed “[Name of taxpayer] Joint Fishing Adventure”.
The document was prepared by the taxpayer’s accountants some time before the relevant period, and the taxpayer’s director said he routinely used the same form. I accept the document at Exhibit One, p 267 is the document that was in use at the relevant time.Relevantly, the document provided:
·The parties were “joint venturers” for the purposes of a single voyage, although the document added the agreement should not be construed so as to confer any right or interest in the vessel or create a partnership.
·The cost of maintaining the vessel during the voyage was the responsibility of the taxpayer, but all of the parties would make a contribution towards the operating costs of the vessel. The maximum amount of operating costs that could be recovered under the terms of the agreement was $1500 or – if it were a larger number – an amount equal to 25% of the gross catch. The agreement said the costs would be borne in fixed shares, with the owner and the skipper shouldering bigger shares than the crew.
·The fish would be sold to a buyer at the conclusion of the voyage. Each of the parties to the agreement was entitled to a share of the gross proceeds of the catch in accordance with the schedule.
·Each party was required to bear the costs of sickness and accident insurance, and it was agreed “no party is liable for any accident or mishap that occurs during the voyage.”
The parties agreed the document did not give rise to a partnership, even though I pointed out during the hearing that a number of the indicia of partnership were present. The fact the parties explicitly agreed there would not be a partnership is relevant to the characterisation process. It is true that an express disavowal of a partnership might be ignored if a court were satisfied the relationship was, in substance, a partnership rather than some other form of agreement contended for by the parties: see, for example, Wiltshire v Kuenzli (1945) 63 WN (NSW) 47 at 50-51 per Roper J. In this case, however, there is sufficient ambiguity about the proper characterisation of the relationship to conclude the express disavowal of partners’ relations ought to operate on its terms.
It follows I am satisfied that whatever else it might do, the agreement does not create a partnership. But does it create a joint venture between independent contractors, as distinct from an employment relationship?
To answer that question, I must focus on what the taxpayer and the fisherman who gave evidence said about the way the relationship came into being, and how it tended to work. I have already mentioned, the fisherman, Mr Hemingway, would make himself available for a voyage and enter into an agreement with a particular boat owner. The taxpayer’s director explained fishermen were free agents but they tended to prefer working on a well-run vessel with a skipper who was more likely to have a successful voyage.
Boat owners, for their part, wanted crew members who got along and would be productive.
Once a crew was gathered, they would set about the task of preparing the vessel for sea. Mr Hemingway said he could bring his own equipment, or equipment would be supplied. He said the dories were allocated at the start of the voyage and crew members knew they were responsible for cleaning all of their gear and the dory they had used. (If they failed in this duty, the boat owner might hold back a surcharge from their final remittance. There appeared to be no formal obstacle preventing Mr Hemingway from arranging for someone else to attend to the cleaning tasks when he returned to port if he did not want to do it himself, although there was no suggestion that had ever happened.) Mr Hemingway said he also typically obtained an advance from the boat owner before the vessel left port so he could buy cigarettes and other personal items he would need on the voyage.
Mr Hemingway said he tended to be short of cash when he took a job, and the taxpayer was relatively relaxed about giving advances which would be deducted out of
Mr Hemingway’s gross remittances at the end of the voyage.
Both Mr Hemingway and the director spoke about how decisions were made during the voyage. Both agreed the captain of the vessel was ultimately responsible for the safety of the vessel, but they also insisted decisions about where to fish and other operational matters were made jointly amongst the skipper and his crew. The director explained in his evidence that his goal was to ensure the experienced crew members were happy with the arrangements for the voyage. That made sense, he explained, because they had the skill, experience and knowledge to catch the fish he would sell in due course. In those circumstances, he said it was a good idea to negotiate the details of the voyage amongst all of the parties; if any individual was unable to agree to the consensus, he was free to leave the crew. Importantly, the director emphasised the details of the voyage were not determined unilaterally by the skipper unless there was a safety issue.
The director’s account of the way in which the crew and skipper cooperated was supported by Mr Hemingway. I have no reason to doubt their evidence on this point, and I accept it.
Once the vessel was moored at a particular location, the crew members would head off in their dories in search of fish. Each crew member operated independently, according to Mr Hemingway. He was not obliged to fish anywhere in particular, and he did not take instruction from the skipper or his crewmates as to how or where he should fish. He said each dory might travel several miles from the mother ship, and be gone all day. I have no reason to doubt the individual crew members enjoyed significant autonomy in the conduct of their fishing operations.
The director and Mr Hemingway also gave evidence about the remuneration arrangements for crew members. These were not clearly provided for in the Joint Fishing Adventure document, and it may be there was some inconsistency between the terms of the document and the way in which the parties habitually conducted themselves. It was agreed that a fixed amount would be deducted by the boat owner from the price of the fish that were caught to cover operating costs. (There was some confusion as to whether the amount deducted was $2 per fish caught, or $2 per kilo. Although I understood the fee was charged per fish, it does not ultimately matter for the purposes of these reasons.) The fisherman would then be paid a percentage of the market value of the fish he caught. Mr Hemingway said he was paid 30%, although if he caught in excess of 200 fish he was entitled to 32%. The amount would be paid at the conclusion of the voyage, although the fee in respect of operational costs and the amount of any advances would be deducted from the gross. Mr Hemingway said the owner would also withhold an amount in respect of tax. He admitted he had not filed a tax return in some time. He let the owner take care of his tax affairs. I have no reason to doubt that evidence, and I accept it.
Mr Hemingway agreed he did not keep books or records of his own. He did not have any sort of systematic approach to his work: he said he signed on for a voyage when it suited him to do so. He did not advertise or have any business loans or claim any deductions. It appears Mr Hemingway had an Australian Business Number (ABN) during the period under review, although it was subsequently cancelled without his knowledge. It is unclear whether he made any use of the ABN in any event. I am not aware of any evidence that GST was levied in relation to the services he provided. But he was not obliged to work for the taxpayer, and he knew he was free to work for other owners; indeed, he recalled situations where he had left one boat while still at sea and joined the crew of another. I have no reason to doubt that evidence, and I accept it.
The director said the taxpayer made its money by selling fish that were caught for it by the fishermen engaged to work from the company’s vessel.
THE LAW
There are many cases in which the courts have grappled with the need to distinguish between a contract of service (that is, a contract of employment) and a contract for service (most obviously supplied by an independent contractor who is an individual). Over time, the courts have emphasised the need to consider the extent to which the worker is subject to the (potential, if not actual) direction and supervision of the
would-be employer, and the extent to which the individual is integrated into the would-be employer’s organisation so that it could be said the individual was part of the same business, as opposed to operating his or her own business: see generally
Hollis v Vabu Pty Ltd (2001) 207 CLR 21.The Full Federal Court recently surveyed the authorities in ACE Insurance Limited v Trifunovski (2013) 209 FCR 146. In ACE, the relationships were being characterised with a view to determining whether the workers were entitled to certain benefits available to employees under the industrial laws. Buchanan J observed (at 173) there is:
…no single or unifying test to determine whether an employment relationship exists. Some features of a particular relationship may tend strongly against such a conclusion. Principal amongst such features, in my view, are contractual terms which deny any requirement for personal service or represent clear indications of the pursuit of an independent business. Even where such features are absent the proper conclusion may be that a particular relationship is not one of employment, but the analysis is less straightforward.
Of the indicia of employment it is clear that a right of control remains an important consideration in many cases. It may be found in a right of organisation and allocation of work, as much as in some theoretical right to say how actual work should be done.
In this case, the written contract suggests the parties intended the crew members should be contractors conducting their own business rather than employees. I acknowledge the contract does not expressly disavow an employment relationship, but it refers to the parties as joint venturers. Clause [9] in particular is inconsistent with employment insofar as it explicitly requires crew members to bear the cost of their own sickness and accident insurance and confirms “no party is liable for any accident or mishap that occurs during the voyage”.
There also seems to be little scope for the exercise of supervision and control.
The contract contemplates – and the evidence of the witnesses confirms – the parties managed each voyage by consensus. The skipper of the vessel could not and did not tell the crew members how or where to fish. The skipper had residual authority over the vessel for safety purposes, but that was in his capacity as master of the vessel rather than as employment supervisor. The crew members agreed to undertake certain tasks, like cleaning equipment and dories, and it was apparent they shared tasks on board like cooking. But that was all the product of the agreement. It did not fall to the skipper to allocate tasks or supervise their performance.Counsel for the Commissioner argues the language of the Fisheries Regulation 2008 is relevant to my analysis. I was told s 232 of the regulations provided for the holder of a commercial fisher’s licence to engage in commercial fishing operations. In the course of those operations, the licence holder may authorise other individuals to act as assistant fishers. Section 233 provides an assistant fisher must act “under direction of the commercial fisher”. The Commissioner argues the taxpayer must have been exercising control over the crew in order to comply with the terms of the commercial fisher licence.
There is something to be said for this argument, but I do not think it is decisive in this case – if only because it was obvious during cross-examination that the language of the regulation was news to the director of the taxpayer and did not accurately reflect the way in which he managed the business.
The taxpayer’s director says Mr Hemingway and the other crew members were independent small businessmen who came together with the taxpayer to carry out a joint enterprise – namely, to catch fish that would be sold by the taxpayer. The Commissioner pointed out Mr Hemingway at least did not exhibit many of the indicia that are thought to be a feature of a small business, like systems, records, business plans and the like.
I acknowledge Mr Hemingway operated with almost no formality at all: he sought work when he needed it and left the paperwork to the taxpayer. In the circumstances, I do not think I should make much of the absence of any sort of formality. Mr Hemingway is not a sophisticated man, even if he is obviously skilled. He was working with a boat owner who was prepared to relieve him of administrative responsibilities he did not want.
That is not the same thing as saying he integrated himself into the taxpayer’s organisation. His business did not require much in the way of formality, and he was happy to delegate the few functions that needed to be performed. He could have delegated them to an accountant or business adviser, but in this case he simply chose to delegate to the taxpayer responsibility for taking care of taxation obligations and some other matters.
As far as the common law is concerned, I think the taxpayer’s characterisation of the relationship with the crew members is preferable to that contended for by the Commissioner. The terms of the agreement between the parties contemplates them operating as joint venturers – independent business people who are cooperating for the limited purpose of catching and ultimately selling fish. Individual crew members brought their skills and preferred equipment to the venture, and they could exit the arrangement if they wished (albeit there were some practical limits on their ability to leave the boat while it was at sea). The taxpayer provided equipment – most obviously the boat itself – and the skipper and marketing arrangements. But the equipment was effectively placed at the service of the joint venture, to be managed collectively during the voyage for the common end. The crew members, for their part, were free to fish on their own and they were paid for their output. The crew were not integrated into the taxpayer’s organisation; each of the parties had a function that they performed individually, albeit cooperatively.
I do not think the extended definition in s 12(3) of the Superannuation Guarantee (Administration) Act 1992 (Cth) makes any difference to that characterisation.
The contract is not wholly or principally for the labour of the crew member. As I have already explained, it is a joint venture agreement that is intended to produce fish for sale. It is true the agreement contemplates the crew members contributing labour, in particular, but they are remunerated on the basis of an outcome. If there was no outcome – if they did not catch any fish – the director said in his evidence there would be no remuneration. Indeed, it was theoretically possible under the agreement the crew might return to port owing money to the taxpayer if there were no fish caught on a voyage (although the director acknowledged that had never occurred).CONCLUSION
I said at the outset of these reasons that it was difficult to generalise about the distinctions between a contract of service and a contract for service. The facts of each case must be examined, and subtle differences between cases might compel different outcomes. I am satisfied the relationship in this case should not be characterised as an employment relationship in the period under review. I therefore set aside the objection decision and decide in substitution that the crew members were not employees for the purposes of the Superannuation Guarantee (Administration) Act 1992 (Cth).
I certify that the preceding 31 (thirty -one) paragraphs are a true copy of the reasons for the decision herein of Senior Member Bernard J McCabe ............................SGD...............................
Associate
Dated 10 April 2014
Date(s) of hearing 3 March 2014 Solicitors for the Applicant Cooper Grace Ward Lawyers Counsel for the Respondent Mr L Clark Solicitors for the Respondent Australian Tax Office
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