E Group Security Pty Ltd v Chief Commissioner of State Revenue

[2021] NSWSC 1190

Supreme Court

New South Wales

• Summary available

Medium Neutral Citation:

E Group Security Pty Ltd v Chief Commissioner of State Revenue [2021] NSWSC 1190

Hearing dates:

1 – 5 and 8 February 2021

Decision date:

22 September 2021

Jurisdiction:

Equity

Before:

Ward CJ in Eq

Decision:

1. Pursuant to s 101(1)(a) of the Taxation Administration Act 1996 (NSW), revoke the payroll tax assessments numbered 117241993.

2.   Direct that the parties file brief written submissions on the question of costs within 14 days, with a view to dealing with the matter on the papers if possible.

Catchwords:

TAXES AND DUTIES — Payroll tax — Liability — Employment agents — whether the workers are provided in and for the client’s business

TAXES AND DUTIES — Payroll tax — Liability — Employment agents — whether arrangements between parent company and subsidiaries are employment agency contracts — interpretation of s 37(1) of the Payroll Tax Act 2007 (NSW) – meaning of “client” — whether the services of workers “procured” by subsidiaries for parent company

Legislation Cited:

Liquor Act 2007 (NSW), s 77

Payroll Tax Act 2007 (NSW), ss 4, 6, 7, 10, 11, 12, 13(1)(e), 29, 37, 38, 39, 40, 41, 81

Security Industry Act 1997 (NSW), Pt 2 Div 2, ss 4, 6(3), 10, 38, 29B

Security Industry Bill 1997 (NSW)

Security Industry Regulation 2007 (NSW), Sch 1

Security Industry Regulation 2016 (NSW), cl 7, Sch 1

Taxation Administration Act 1996 (NSW), ss 21, 25, 97, 100(3), 101, Pt 5 Div 1

Taxation Administration Bill 1996 (NSW)

Cases Cited:

Adams Bidco Pty Ltd v Chief Commissioner of State Revenue [2019] NSWSC 702

Bayton Cleaning Company Pty Ltd v Chief Commissioner of State Revenue (NSW) (2019) 109 ATR 879; [2019] NSWSC 657

Chief Commissioner of State Revenue v Downer EDI Engineering Pty Ltd (2002) 103 NSWLR 772; [2020] NSWCA 126

Chief Commissioner of State Revenue v Incise Technologies Pty Ltd (2004) 56 ATR 82; [2004] NSWADTAP 19

Commissioner of Stamps v Garrett Hunter Pty Ltd (1997) 69 SASR 275

Commissioner of State Revenue (WA) v Placer Dome Inc (2018) 265 CLR 585; [2018] HCA 59

Commissioner of State Revenue v Liquid Rock Constructions Pty Ltd (2012) 87 ATR 921; [2012] VSC 329

Cripps v G & M Dawson Pty Ltd (2006) ANZ ConvR 350; [2006] NSWCA 81

CXC Consulting Pty Ltd v Commissioner of State Revenue (2013) 96 ATR 796; [2013] VSC 492

Dental Corporation Pty Ltd v Moffet (2002) 278 FCR 502; [2020] FCAFC 118

Freelance Global Ltd v Chief Commissioner of State Revenue [2014] ATC 20-445; [2014] NSWSC 127

Hollis v Vabu Pty Ltd (2001) 207 CLR 21; [2001] HCA 44

HRC Hotel Services Pty Ltd v Chief Commissioner of State Revenue (2018) 108 ATR 84; [2018] NSWSC 820

JP Property Services Pty Ltd v Chief Commissioner of State Revenue (2017) 106 ATR 639; [2017] NSWSC 1391

Lease A Leaf Property Pty Ltd v Chief Commissioner of State Revenue (2011) 85 ATR 273; [2011] NSWADTAP 41

N & M Martin Holdings Pty Ltd v Commissioner of Taxation [2020] FCA 1186

Securecorp (NSW) Pty Ltd v Chief Commissioner of State Revenue [2019] NSWSC 744

Southern Cross Group Services Pty Ltd v Chief Commissioner of State Revenue (NSW) (2019) 110 ATR 16; [2019] NSWSC 666

Trust Co of Australia Ltd v Chief Commissioner of State Revenue [2002] NSWADT 21

Tullett Prebon (Australia) Pty Ltd v Purcell [2009] NSWSC 1079

UNSW Global Pty Ltd v Chief Commissioner of State Revenue (2016) 104 ATR 577; [2016] NSWSC 1852

Zuijs v Wirth Bros Pty Ltd (1955) 93 CLR 561; [1955] HCA 73

Texts Cited:

New South Wales, Industrial Relations Commission, Reference by the Minister for Industrial Relations pursuant to s.345(4) of the Industrial Relations Act 1991 regarding the transport and delivery of cash and other valuables industry, (February, 1997)

Category:

Principal judgment

Parties:

E Group Security Pty Ltd (Plaintiff)
Chief Commissioner of State Revenue (Defendant)

Representation:

Counsel:
Mr J Hmelnitsky SC with Mr D Lewis (Plaintiff)
Ms R Seiden SC with Mr A Byrne and Ms G Edwards (Defendant)

Solicitors:
LionHeart Lawyers (Plaintiff)
Crown Solicitor’s Office (Defendant)

File Number(s):

2019/00047367

Publication restriction:

Nil

Judgment

1. HER HONOUR: By summons filed on 12 February 2019, the plaintiff, E Group Security Pty Ltd (E Group Security) seeks a review, pursuant to s 97 of the Taxation Administration Act 1996 (NSW) (Taxation Administration Act), of the determination by the defendant (the Chief Commissioner of State Revenue – the Chief Commissioner), for the purposes of liability to payroll tax under the Payroll Tax Act 2007 (NSW) (Payroll Tax Act), that the plaintiff is an employment agent and liable for payroll tax on payments made to service providers. The determination concerns the plaintiff’s liability to pay payroll tax for the financial years ended 30 June 2015 through to 30 June 2018 (Tax Years) and relates to the provision of security guarding services by E Group Security to its clients.

2. On 31 August 2018, the Chief Commissioner assessed E Group Security to payroll tax for the financial year ended 30 June 2015. This followed the conclusion of an earlier payroll tax audit, to which I refer in due course, in which E Group Security had been assessed as being compliant with its payroll tax obligations. On 3 September 2018, the Chief Commissioner assessed E Group Security to payroll tax for the financial years ended 30 June 2016 to 2018 (collectively, the Tax Years). The assessments related to payroll tax in respect of wages of security guards whose services had been sub-contracted from third parties; not E Group Security’s own employees. On 30 October 2018, E Group Security objected to those assessments. On 14 December 2018, the Chief Commissioner disallowed that objection. On 12 February 2019, E Group Security filed its summons seeking the Court’s review of the assessments issued to it.

3. An amended appeal statement was filed in Court by consent at the outset of the hearing on 1 February 2021. Relevantly, E Group Security does not here press issues two (an estoppel argument) and three (as to whether the plaintiffs’ subcontractors had already been assessed for payroll tax in respect of the relevant payments) of its amended appeal statement. However, it relies on the facts stated in relation to issue two in support of its claim that any interest should be remitted.

4. The principal issue in dispute is whether the arrangements between E Group Security and its clients (or, alternatively, the arrangements between E Group Security and its wholly-owned subsidiaries) are “employment agency contracts” as defined in s 37 of the Payroll Tax Act. (An issue as to the exempt status of certain of E Group Security’s clients was resolved between the parties and does not here require determination.) In addition to the principal issue in dispute there is an issue as to whether interest should be remitted and, if so, whether in whole or in part.

5. As to the contention that the contracts between E Group Security and its clients are employment agency contracts in relation to which E Group Security is the employment agent, E Group Security does not dispute that each of its clients meet the statutory description of a “client”, nor does it dispute that it “procures” the services of the security guards in question. Rather, E Group Security’s contention is that it does not procure the services of the security guards “for” (in the sense of “in and for the conduct of the business of”) its clients (referring to UNSW GlobalPty Ltd v Chief Commissioner of State Revenue (2016) 104 ATR 577; [2016] NSWSC 1852 (UNSW Global) at [62] per White J, as his Honour then was).

6. In this regard, E Group Security places no little emphasis on the security industry legislation (see Security Industry Act 1997 (NSW) (Security Industry Act)), under which it operates and which it contends in effect precludes the integration of workers providing security services into a client’s workforce by requiring the maintenance of control by E Group Security over the security guards whose services are provided to its clients. The Chief Commissioner, however, maintains that this misconceives the relevant security legislation, misapplies the relevant test (i.e., whether the workers are provided “in and for” the client’s business) and is not supported by the evidence. Pausing here, as I understand its submissions, E Group Security accepts that if it routinely flouted the restrictions placed on it by the security industry legislation then the fact or existence of those legislative constraints would not assist it; but says that this is not here the case. Certainly, given the significance to its business of the group companies’ security licences, it is inherently unlikely that E Group Security would knowingly breach those legislative constraints, but I come to this issue in due course.

7. As to the alternative contention that has been raised (i.e., that, on a proper characterisation of the arrangements between E Group Security and its related entities during the Tax Years, each related entity was an employment agent and E Group Security was the client, similar to the arrangements between the related entities in Southern Cross Group Services Pty Ltd v Chief Commissioner of State Revenue (NSW) (2019) 110 ATR 16; [2019] NSWSC 666 (Southern CrossGroup Services), such that E Group Security is jointly and severally liable for the unpaid payroll tax of the related entities on the payments to the workers), E Group Security contends that its arrangements with its wholly-owned subsidiaries are not employment agency contracts. E Group Security says, first, that, when those arrangements are correctly understood, the wholly-owned subsidiaries do not “procure” the services of security guards for the plaintiff (as the wholly-owned subsidiaries are not involved in any contractual relationship with the third-party subcontractors and simply perform a payroll function for E Group Security – the contractual relationship by which the services are procured being said to be between the plaintiff and the third-party subcontractors); and, second, that E Group Security is not a “client” of its wholly-owned subsidiaries in the relevant sense.

Background

8. E Group Security was established in 2004 by Mr Sami Chamoun (its Managing Director, who gave evidence at the hearing). E Group Security is the main operating company in a group of companies involved in the security industry across Australia. That group included, at the relevant time(s): E Group Protective Services Pty Ltd (E Group Protective Services) (now known as EPS Security Pty Ltd), Vital Hospitality Group Pty Ltd (Vital Hospitality Group), Vital Security Group Pty Ltd (Vital Security Group) and EGroup Events Australia Pty Ltd (EGroup Events) (together, the Related Entities). The Related Entities are, or were at the relevant times, wholly-owned subsidiaries of E Group Security. As I explain in due course, there have been some changes to the group – and in particular the sale of part of the business of the group – both during and after the Tax Years. Moreover, and somewhat confusingly as far as some of the invoicing is concerned, it seems that there was a re-structure (or “re-branding” as the group’s national operations manager has put it – see the evidence of Mr Robert Czub to which I refer in due course) of some kind within the group by early 2018, such that EGroup Protective Services became referred to as the “Employer – EGroup Payroll Company” on at least one Workplace Employment Agreement (see Mr Czub’s contract of employment at Ex 6); and at least some invoices to clients contained a notation that the services were “supplied” by an entity named as “Egroup Protective Services Pty Ltd”, which has its own separate security licence.

9. The security services provided for E Group Security’s clients include workers who perform not only what might be regarded as stereotypical security guard services (such as patrolling buildings, maintaining static security posts, boom gate or access control, and crowd control) but also other services (such as concierge, loading dock control, and weighbridge services) that might not necessarily require any form of security licence.

10. As to the structure of E Group Security and its Related Entities (described in opening submissions as a flat corporate group structure), since 3 October 2017, E Group Security Holdings Pty Ltd (E Group Security Holdings) has held the sole legal and beneficial share in E Group Security. Prior to that date, the share was held by Mr Chamoun (T 70).

11. The evidence of Mr Chamoun is that E Group Security is the entity in the group which, with one qualification, enters into contracts with clients (and there are in evidence some examples of such contracts, said to be representative of E Group Security’s contractual arrangements, though the Chief Commissioner cavils with the proposition that these are necessarily representative and emphasises the incomplete nature of the documentary evidence).

12. Mr Chamoun’s evidence is that E Group Security is also, with the same qualification, the entity that enters into contracts with third party contractors for the supply of contracted security guards. So, for example, his evidence is that in the “Events” sector, only about 15% of the security guards provided are employed by E Group Security, the balance being contracted through other firms; whereas in the “Commercial” sector, most security guards provided are E Group Security’s own employees. (There is no issue here in relation to E Group Security’s own employees, in respect of which it is not disputed that it pays payroll tax.)

13. The qualification to be made to both of the above statements is that, since July 2017, contracts both with clients and with third party contractors in the hospitality industry have been entered into by a separate entity (with separate branding) in the group, that being Vital Security Group (see Mr Chamoun’s affidavit sworn 23 September 2019 at [18]).

14. Mr Chamoun’s evidence is that payroll functions in relation to the security guards engaged by E Group Security are performed by various of the subsidiaries, depending on the State in which the particular security guard is working. The Chief Commissioner argues that, on the proper characterisation of the arrangements, those entities provide more than payroll functions in that they “procure” the security guards for the benefit of E Group Security (referring in this context to invoices which contain a notation in the footer that the security services were supplied by an entity there referred to as “Egroup Protective Services Pty Ltd”).

15. There have been some changes in the shareholding of various of the companies in the group. So, for example, from 7 March 2018, the shares in EGroup Events have been held by E Group Security but prior to that the shares were held by Mr Chamoun personally (and, prior to 1 September 2017, Mr Chamoun’s brother, Mr Amin Chamoun, held the shares). (Where I refer to Mr Chamoun in these reasons, it is to Mr Sami Chamoun.) As to E Group Protective Services, its shares were held by Mr Chamoun until 7 March 2018 when E Group Security acquired the shares. (It may well be that the changes to the shareholdings in the relevant companies followed the conclusion of the payroll tax audit to which I have referred above but that is mere speculation on my part and nothing here turns on it.)

16. Vital Hospitality Group was sold to a third party, Mr Daniel Sobb, on 11 July 2017. There was also a reference to the sale of the business of EGroup Events shortly before the hearing (T 58; T 98) but this is obviously outside the Tax Years.

17. The Chief Commissioner has noted that E Group Security promotes itself, through its website, as a “national and dynamic Australian Owned business with over 18 years’ experience in tailoring and delivering high quality professional services to many private, corporate, retail and government organisations”, with the stated objective being “to add value through knowledge of local process, systems, and best practices”.

18. On its website, E Group Security describes the services it provides as including: “Security Services” (such as Security Officers, Dedicated Concierge Services, Loading Dock Services, Crowd Control & Events, Traffic Control, Mobile Security Patrols & Response, Car Park Attendants, Alarm Response, Weighbridge Operations, Control Room Operations “24x7” and Risk Assessments); and “Event Services” (including Crowd Control, Bag Checking, Incident Reporting, Carrying Out Evictions, Field of Play Monitoring, Patron Flow Monitoring and Management, Escorting of Players, Officials and VIPs, Traffic Management, Responsible Service of Alcohol Officers, Corporate Hostesses and Concierge Services). I refer in more detail in due course to some of the evidence in relation to the provision of such services across the different industry sectors.

19. As will be explained in more detail in due course, the evidence is that, in 2018, E Group Security had more than 600 clients in different industry sectors, with revenue of around $48 million (Mr Chamoun’s affidavit sworn 23 September 2019 at [30]). The particular services provided to clients in most cases are agreed between E Group Security and clients pursuant to public or private tenders or request for quotation (RFQ) processes (the preparation of which may take some weeks or months, as the case may be). In many, if not most cases, there is a Standard Operating Procedure (SOP) prepared for the relevant client (about which there was evidence at the hearing) and in some cases standalone SOPs for particular events, addressing relevant security procedures and the like. There was also reference in the evidence to the specification of key performance indicators (KPIs) in some of the client arrangements and the monitoring (and/or self-assessment) of compliance with such KPIs.

20. Mr Chamoun’s evidence is that E Group Security’s clients fall within three streams or industrial sectors: (i) commercial, government and retail; (ii) events; and (iii) hospitality (Mr Chamoun’s affidavit sworn 23 September 2019 at [31]). Mr Chamoun deposes that the contracts E Group Security has with clients in each sector, and the services which E Group Security performs are within each sector’s stream, are very similar (though, as noted above, the Chief Commissioner cavils with this at least to some extent).

21. Mr Chamoun categorises E Group Security’s clients as being: (a) NSW Government Clients (Government Clients) (of which there are around 50 clients, including hospitals, schools, councils and other government entities); (b) Community Non-Profit Establishments (Club Clients) (of which there are around 17 clients, including Bowling Clubs, RSL Clubs and Sports and Leagues Clubs); (c) Sports Organisations and Events (Sports Clients) (of which there are around 32 clients, including the NRL, various NRL clubs, Football Federation Australia and various horseracing clubs); (d) Superannuation Funds, Strata Plans, Landlords, Property Owners and Trusts (Property Clients) (of which there around 50 clients, comprising trusts and superannuation funds which tend to engage a property agent or representative to manage the asset on the trustee’s behalf); (e) one Food Industry client (being the poultry business known as Baiada Group); (f) Builders and Constructions (Construction Clients) (of which there are around 31 clients, such as construction companies); (g) Retailers (Retail Clients) (of which there are around 40 clients, including, for example, Emerald Group Investments Pty Ltd); (h) Hotels and Pubs (Pub Clients) (of which there are about 44 clients); and (i) one-off and short-term clients (Short-term Clients) (of which there are around 260 clients, most spending “no more than $1,000”).

Evidence

22. E Group Security adduced evidence from Mr Chamoun and a number of employees or contractors of E Group Security or a Related Entity, setting out the background, business or processes of E Group Security or a Related Entity, or describing the circumstances in which services are provided by security guards at particular client sites; as well as evidence from representatives of a number of clients across different industry sectors: a Property Client, Jones Lang LaSalle Pty Ltd (JLL); a Pub Client, the Northern Star Hotel in Newcastle; a Club Client, The Entrance Leagues Club; the only Food Industry Client, Baiada; and three Sports Clients, being the Australian Turf Club, Wests Tigers Rugby League Football Pty Ltd (West Tigers) and Cronulla Leagues Club (Cronulla Sharks). I will refer to that evidence in due course.

22. E Group Security also produced documentary evidence of contracts with various of its clients (albeit in some cases unsigned or in draft form, or otherwise incomplete). The Chief Commissioner notes that several of the contracts do not cover the Tax Years (at least in full); that E Group Security is not indicated as a contracting party on several of the documents; and that just over half of the contracts in evidence are with Property Clients (though it is not clear what, if anything, is said to turn on the disproportionate evidence of contracts with Property Clients).

23. Before turning in more detail to the evidence, it is convenient here to set out the relevant legislative provisions, including (given the focus placed thereon by E Group Security) the security industry legislative provisions.

Relevant legislative provisions

Payroll Tax Act

25. Section 6 of the Payroll Tax Act imposes payroll tax on taxable wages. Section 7 provides that the employer by whom taxable wages are paid or payable is liable to pay payroll tax on those wages. Section 10 provides, relevantly, that taxable wages are wages that are taxable in this jurisdiction. Section 13(1)(e) provides that wages includes an amount that is included as or taken to be wages by any other provision of the Payroll Tax Act.

26. Section 37 of the Payroll Tax Act provides that:

1.   For the purposes of this Act, an employment agency contract is a contract, whether formal or informal and whether express or implied, under which a person (an employment agent) procures the services of another person (a service provider) for a client of the employment agent.

2.   However, a contract is not an employment agency contract for the purposes of this Act if it is, or results in the creation of, a contract of employment between the service provider and the client.

3.   In this section:

contract includes agreement, arrangement and undertaking.

27. If a contract is an employment agency contract then it falls within the definition of taxable wages. Section 38 provides that an employment agent is taken to be an employer and s 39 provides that the person who performs work for or in relation to which services are supplied to the client under an employment agency contract is taken to be an employee of the employment agent. Section 40(1) provides:

For the purposes of this Act, the following are taken to be wages paid or payable by the employment agent under an employment agency contract—

(a)    any amount paid or payable to or in relation to the service provider in respect of the provision of services in connection with the employment agency contract,

(b)    the value of any benefit provided for or in relation to the provision of services in connection with the employment agency contract that would be a fringe benefit if provided to a person in the capacity of an employee,

(c)    any payment made in relation to the service provider that would be a superannuation contribution if made in relation to a person in the capacity of an employee.

28. Section 40(2) provides an exception where the client for which the services of the service provider are procured is exempt under certain provisions of the Payroll Tax Act. (As noted, there is no longer an issue in the present case about this.)

29. Relevantly, in UNSW Global at [62], White J, as his Honour then was, construed the word “for” in s 37(1) such that a contract is only an employment agency contract if the asserted employment agent procures the services of another person “in and for the conduct of the business of” the asserted employment agent’s client. His Honour considered that this construction gave effect to the intended scope of the employment agency contract provisions, which (at [63]-[64]) his Honour said:

63.   …were intended to apply to cases where the employment agent provided individuals who would comprise, or who would be added to, the workforce of the client for the conduct of the client’s business …

64.    One of the hallmarks of an independent contractor is that he or she carries on his or her own business. But sometimes that is done, or is said to be done, by the individual, in substance, working for the client in the same way as would an employee of the client. Where the services of the individual are provided through the intermediary, that is, the employment agent, to help the client conduct its business in the same way, or much the same way, as it would do through an employee, then the arrangement is within the intended scope of the section.

30. That construction has been adopted in numerous subsequent decisions (see, for example, those cited below). It is accepted by both parties in the present case that the test as to whether the services of a service provider are procured “for” the client is whether the service provider is sufficiently integrated into the client’s business to be seen as an addition to the client’s workforce and works in much the same way as the client’s employees (see Southern Cross Group Services at [60]; HRC Hotel Services Pty Ltd v Chief Commissioner of State Revenue (2018) 108 ATR 84; [2018] NSWSC 820 (HRC Hotel Services) at [153]; Bayton Cleaning Company Pty Ltd v Chief Commissioner of State Revenue (NSW) (2019) 109 ATR 879; [2019] NSWSC 657 (Bayton Cleaning) at [94]-[96]).

31. In JP Property ServicesPty Ltd v Chief Commissioner of State Revenue (2017) 106 ATR 639; [2017] NSWSC 1391 (JP Property Services) at [74], Kunc J rejected the suggestion that this was equivalent to whether services of the service provider are provided “in the ordinary course of the client’s business”; and in Bayton Cleaning at [104] and [266], I rejected the suggestion that a distinction between services that were “integral”, “core”, “ancillary” or “incidental” to a client’s business was relevant to the enquiry required by s 37(1). Neither party cavils with those propositions (though the Chief Commissioner does rely upon the integral nature of the services here being provided as a relevant factor to take into consideration).

Security Industry Act

32. Part 2 Div 2 of the Security Industry Act provides for three classes of security licences, each of which is divided into subclasses. Section 7 provides for offences for unlicensed persons engaging in the conduct that would be permitted by the licences.

33. The relevant classes of licence are as follows: s 10 provides for master licences (which allow the holder of the licence to provide her or his services to carry on security activities (subclass MA) or to provide other persons to carry on security activities, each of whom must hold a class 1 or class 2 licence (subclasses MB to ME)); s 11 provides for class 1 licences (which, depending on the subclass, allow the licensee to carry on certain security activities, such as patrolling, bodyguarding or acting as a crowd controller); s 12 provides for class 2 licences (which, again depending on the subclass, allow the licensee to carry on certain other types of security activities, such selling security methods or principles, acting as a consultant in relation to security risks and providing advice in relation to security equipment).

34. In relation to master licences, the subclass determines the number of persons that the licensee may provide. For example, subclass MB allows for the provision of up to three persons; subclass ME allows for the provision of 50 or more persons.

35. Section 10(3) provides that:

A master licence does not authorise the licensee to enter into any arrangement, by contract, franchise or otherwise, with another person for the purpose of providing persons to carry on security activities unless the other person is the holder of a master licence or is a person holding a visitor permit authorising its holder to carry on security activities of a kind authorised by a master licence.

36. Section 38(1) provides:

A licensee must not delegate the carrying on of a security activity to a person who is not the holder of a licence authorising the person to carry on the same security activity.

Maximum penalty: 40 penalty units.

37. Thus, E Group Security points out that under the Security Industry Act a licensee is prohibited from delegating its functions to another person who is not the holder of the relevant class of licence; and a master licence does not permit the provision to an unlicensed person of persons to carry on security activities. E Group Security emphasises that the Security Industry Act expressly prohibits not only the hiring of security guarding labour to unlicensed persons, but also the delegation of the functions of a master licensee to an unlicensed person.

38. Section 29B(1) provides that:

A person who is the holder of a class 1 or class 2 licence must not carry on a security activity authorised by the licence unless the person:

a)   is employed by a master licensee or the holder of a visitor permit authorising the holder to carry out security activities of a kind authorised by a master licence, or

b)   is self-employed and is the holder of a master licence.

Maximum penalty: 500 penalty units or imprisonment for 2 years, or both.

39. Thus, E Group Security points out that the Security Industry Act also requires that individuals carrying out security activities must be employed by the holder of a master licence (or be self-employed and a holder of a master licence).

40. I was taken to the second reading speech to the Security Industry Bill 1997 (NSW) (Security Industry Bill), which identified that the licensing system under that new legislation was “largely based on the IRC recommendations” (a reference to the 28 February 1997 report of Justice Peterson of the Industrial Relations Commission of NSW in relation to the cash in transit security industry (New South Wales, Industrial Relations Commission, Reference by the Minister for Industrial Relations pursuant to s 345(4) of the Industrial Relations Act 1991 regarding the transport and delivery of cash and other valuables industry, (February, 1997) – the IRC Report)).

41. The IRC Report recognised that it was appropriate for the clients of the cash in transit security industry not to have involvement in the control or direction of security personnel in the industry, as those clients had neither the ability nor the expertise appropriately to manage the risks inherent in the industry. At 37-39, under the heading “The Role of Clients”, the IRC Report stated:

The raison d’être of the CIT industry is to satisfy the desire of a customer or client to have cash or valuables transported in a secure way by another whose business it is so to do. The virtually universal attitude of clients appears to be that the responsibility for the carriage, including safety of goods and personnel, is that of the CIT operator.

In the case of the banks, the ABA accepts that its members do seek to transfer responsibility in this way. However, overwhelmingly they engage either Brambles or Armaguard, who are regarded by the banks as the experts in this field, with an experience and ability the banks lack. The banks rely on the operators’ ready acceptance of the responsibility the banks transfer to them.

…

The ABA says, I think with some force, that it is difficult to understand how the banks can take more responsibility. Apart from changes in building structure, there are no obvious steps the bank could take in current circumstances of delivery which the law ought impose as a duty.

There can be no efficacy in the imposition by statute of a duty to care for contractors, particularly crew members, unless the means by which the duty may be, or is intended to be, satisfied is understood. If, for example, a cash delivery to a bank across a public footpath was thought to oblige the bank to make the delivery crew secure outside the bank while on the footpath, presumably that might be met by the bank’s provision of security staff to assist the delivery crew. But the security of the crew is already the responsibility of their employer; it is the employer who must make adequate the response to the obligation imposed by s.15 of the OH&S Act.

42. The IRC Report also recognised deficiencies in the predecessor legislative regime, which imposed training and competency requirements on the individual holders of security licences but imposed no such requirements on the holders of business licences (then referred to as class 2 licences) (at 175-176). This led to a number of recommendations as to the requirements that should apply to the holder of a business licence. Recommendation 10(d) (at 182) was that business licensees should:

(d)    be responsible for all failures by their franchisees, licensees and sub-contractors to satisfy minimum conditions while working for them. This is a two-fold requirement. The principal must exercise supervision and control to ensure that all requirements of the Code of Practices are met, as well as rectify and be responsible for any failures by his franchisees, licensees and sub-contractors to meet the conditions referred to above. [Emphasis as per E Group Security’s submissions]

43. The report further recognised problems with the competence of managers and supervisors in the industry (at 17-18):

6.    Managers and supervisors appear sometimes to be unqualified and inexperienced.

7.    There is very often, particularly in soft-skin operations, a lack of the minimum operating conditions needed to maintain adequate safety standards for employees and the public.

8.    Many employers and employees adopt unsafe operating procedures.

9.    Many employers provide their employees with little or no post-entry training, even in safe operating procedures.

…

11.   Industry clients (such as banks, local councils, shopping centres and retail stores) have had, and have desired to have, little input into improving the safety of CIT [cash in transit] guards, and there is no, or inadequate, consideration of the risks to CIT operations when planning, designing or building major shopping centre developments. It follows that there has been no particular care taken with respect to the safety of members of the public in the vicinity of relevant CIT operations.

44. E Group Security points out that the IRC Report recognised that clients of providers of security services were not taking responsibility for the control, direction and supervision of security personnel; nor was it appropriate for them so to do, as they lacked the ability and expertise to do so in a manner that resulted in an effective service delivery and promoted the safety of those security personnel who work in a dangerous industry; and that the IRC Report also recognised that existing standards of supervision were sometimes lacking because of insufficient training and competency requirements for the holders of business licences. It is noted that the solution proposed by the IRC Report was for business licensees to remain responsible for the control, direction and supervision of security personnel as they had, or should have, the ability and expertise to provide it, and further to impose stricter licensing requirements for business licensees to ensure that they did have that ability and expertise.

45. That recommendation was followed. In the explanatory note to the Security Industry Bill it was said that:

The object of this Bill is to replace the Security (Protection) Industry Act 1985 with a legislative scheme that reflects the expansion and changing nature of the security industry.

The main feature of the proposed Act is a modified licensing scheme that is designed to provide greater control over persons who work in the security industry or who conduct a business in the security industry. Under the proposed Act, a person will require a licence if the person intends to work in the security industry (eg as a security guard, bouncer or security consultant) or to conduct a business in the security industry. A licence applicant will need to satisfy stringent probity assessments and suitability criteria in order to obtain a licence.

46. Thus, E Group Security says that, for deliberate policy reasons, the Security Industry Act prohibits security guards from operating as a labour force available for hire to be added to an unlicensed person’s workforce (because an unlicensed person does not have the ability and expertise to control, direct and supervise security guards in a way that will promote the safety of those guards and members of the public).

47. The Chief Commissioner points in his submissions to the definition of “carrying on a ‘security activity’” in s 4 of the Security Industry Act as follows:

(1)    For the purposes of this Act, a person carries on a security activity if the person carries on any one or more of the following activities in the course of conducting a business or in the course of the person’s employment:

(a)   acting as a bodyguard or acting in a similar capacity,

(b)   acting as a crowd controller, or acting in a similar capacity, by physical or electronic means,

(c)    patrolling, protecting or guarding any property, by physical means (which may involve the use of dogs or the possession or use of firearms) or by electronic means, including, but not limited to, in any one or more of the following circumstances:

(i)    carrying on control room operations,

(ii)    carrying on monitoring centre operations,

(iii)    carrying on retail loss prevention,

(iv)    patrolling, protecting or guarding cash (including cash in transit) or other valuables,

(v)    patrolling, protecting or guarding an airport or any other infrastructure,

...

(h1)    providing advice in relation to the identification and analysis of security risks and providing solutions or management strategies to minimise security risks,

...

(p)   any other activity, or class of activities, that is connected with security or the protection of persons or property, whether by physical or electronic means, and that is prescribed by the regulations for the purposes of this section.

(2)    In this section:

...

bodyguard means a person who is employed or engaged for the purpose of providing close personal protection to another person.

crowd controller means a person who, in respect of any licensed premises (within the meaning of the Liquor Act 2007), public entertainment venue or public or private event or function, as part of his or her regular duties performs for remuneration any of the following functions:

(a)    controlling or monitoring the behaviour of persons,

(b)    screening persons seeking entry,

(c)    removing persons for behavioural or other reasons,

(d)    any other function prescribed by the regulations.

48. Accordingly, it is noted by the Chief Commissioner that, subject to certain exemptions, the activities covered by the legislation relevantly include: acting as a bodyguard; acting as a crowd controller; patrolling properties; guarding properties; and protecting properties.

49. The Chief Commissioner points out that the Security Industry Act does not apply to persons identified in the Security Industry Regulation 2016 (NSW) (Security Industry Regulation) as being exempt (see s 6(3) of the Security Industry Act). Clause 7 of the Security Industry Regulation states that exempt persons are those specified in Schedule 1 to the regulations. It is noted that, relevantly, they include (and included during the Tax Years):

8.    Licensees under the Liquor Act 2007 and employees who perform activities relating to the exclusion of persons from licensed premises as authorised by that Act (other than any such employee who is employed for the purposes of carrying on security activities), but only to the extent to which they act in that capacity.

9.    Persons who inspect, examine or scan tickets or other documents (other than for the purpose of determining a person’s age) relating to the entry or admission of persons to premises (whether licensed or not), or who otherwise screen the entry of persons to premises (but not with a dog), for the purpose of a function, sporting or other event or entertainment, but only to the extent to which the persons act in that capacity and do not physically restrain or eject persons from, or prevent their entry to, such premises.

...

24.    Persons who are employed in the retail industry who, in the course of that employment, conduct customer bag checks (but only bag checks that are carried out in accordance with guidelines sponsored by the Australian Retailers Association (NSW) and endorsed by the Office of Fair Trading), but only to the extent to which the persons act in that capacity.

...

30. Persons who are employed or engaged for the purposes of carrying out [Responsible Service of Alcohol] supervisory duties (within the meaning of clause 53G (5) of the Liquor Regulation 2008) on licensed premises (within the meaning of the Liquor Act 2007), but only to the extent to which the person carries out those duties and does not physically restrain or eject persons from, or prevent their entry to, such premises.

31.    Persons who provide other persons to carry out security activities in respect of which that other person is exempt from the operation of the Act, but only in relation to providing those other persons to carry out the security activities in respect of which the other person is exempt.

50. I refer below to the significance attributed to the above exemption. I note that reference is also made to the Security Industry Regulation 2007 (NSW) (Security Industry Regulation 2007) that was replaced by the 2016 regulation on 1 September 2016 and so was in force for part of the Tax Years – I have not been directed to any relevant differences in the sections that are referred to by the parties.

Evidence

51. I propose shortly to deal with the evidence as to particular industry sectors and clients but, first, to note the following in relation to the evidence given by Mr Chamoun and those performing either a managerial or operational role within E Group Security or its Related Entities at the relevant time(s).

Mr Chamoun

52. The principal witness for E Group Security was its Managing Director, Mr Chamoun, who gave evidence of his understanding of E Group Security’s clients and the arrangements entered into with those clients over the relevant Tax Years. For example, Mr Chamoun deposed that most of the clients did not have a security licence. It was made clear in submissions that E Group Security was not here seeking to prove as a fact exactly which clients did, or did not, hold a security licence (T 23). There was also some contention as to a schedule that Mr Chamoun had prepared in which he had identified who the clients were in the relevant period, the roles performed for those clients and had made some notes about those clients. It was accepted that the schedule (which must have been created after July 2018 and hence in the context of the present proceeding being on foot – indeed it was suggested that it was prepared in the context of a mediation of the dispute) was not a business record as such. It was, however, relied on as evidence by Mr Chamoun of the particular types of contracts entered into and as an indication of the relative contribution to E Group Security’s business of the client revenue over the relevant period (T 31). I admitted this document, subject to weight, as a summary prepared by Mr Chamoun following his review of the documents explained in his affidavit and as recording Mr Chamoun’s understanding of particular clients and his understanding of the “contractor spend”, i.e., the amounts that were paid and for what they were paid.

53. Mr Chamoun gave further evidence in chief (see T 80ff) as to the way the schedule had been prepared by reference to MYOB records and based on his experience as to the service type for that kind of client; and as to how certain assumptions had been made as to the revenue for the 2015 financial year (see T 83). Effectively, Mr Chamoun says he used a percentage applied to revenue to break down the income across particular client groups (see T 83). (See also the further evidence as to the creation of the spreadsheet at T 101-102.)

54. Mr Chamoun’s evidence was, for example, that arrangements for clients such as Eastern Suburbs Leagues Club and the property at Aurora Place were representative of the services provided for the particular sectors in which those clients were operating (see his affidavit at [72]; [152]; T 47-48). That seems to me to be a logical proposition. There seems no logical reason, for example, for the guarding, patrolling or policing services provided by security guards not to be of a similar nature for different sporting events (Randwick Racecourse race days as opposed to NRL games, for example; unless it be assumed that the racing crowd differs relevantly from the rugby league crowd – about which I could not possibly speculate); although the level of services provided might well differ at different venues or for different events; and there might be different aspects of the provision of those services (such as access by E Group Security personnel to the joint operations control room at the Australian Turf Club on race days, for example). Similarly (with no doubt differences referable to particular buildings), it would be surprising if the nature of security services at commercial buildings differed in substantial respects (though I accept that there is a potentially relevant difference between the respective premises as to whether security guards are required to relocate to, or assist at, the concierge desks from time to time or on a regular basis; or provide services in a loading dock or car park, for example).

55. What emerged very clearly in Mr Chamoun’s oral testimony was his emphasis or focus (which to my mind is quite understandable) on the need for E Group Security to comply with its legal obligations under the Security Industry Act and therefore his assertion as to the inability of E Group Security to take instructions or directions from anyone (including a client) not licensed under the legislation (see for example at T 48; T 51; T 54; T 62; T 75). Mr Chamoun was adamant that (whatever the contractual documents might say) in practice that would not occur; and I accept that he was genuine in this belief; and that it is an important issue for someone in his position. Furthermore, Mr Chamoun’s evidence was corroborated in this respect by a number of other witnesses (see below) who made clear the distinction they saw between taking into account (or indeed complying with) a client’s request or meeting a client’s expectations; and making the relevant decisions as to security issues.

56. Cross-examined as to the various functions of security guards at commercial buildings, Mr Chamoun was taken to certain SOPs. Apart from somewhat testily (and uncharacteristically having regard to the manner in which he had otherwise given evidence) asking for a definition of “concierge services” (T 90), and dismissively describing SOPs as just containing “general stuff” that might not apply to particular sites, when focussed on the issue of concierge services Mr Chamoun maintained that E Group Security supplied no concierge staff or services to the office premises at 52 Martin Place, 100 Arthur St, Southgate Sylvania, Aurora Place or 2 Park St (T 66-67; 90). Mr Chamoun nevertheless accepted that the E Group Security “controller” would relocate to the concierge desk from 4 pm at 2 Park St (T 92). Taken to a clause in the SOP for the 420 George St building (apparently authored by an employee of E Group Security) which stated that the security manager reports directly to the building manager (JLL) for specified matters (including security matters), Mr Chamoun was adamant that it was “incorrect” and “illegal” for the security manager to report to building management (T 94-95).

57. I considered Mr Chamoun to be a matter of fact and forthright witness. For example, he did not shy away from his view that “marketing material” is usually completely different from what happens on the ground (T 53) and that, as adverted to above, whatever the marketing material or contract documents might say he would not accept that E Group Security would be, or was, obliged to follow directions as to security issues; rather, his position was that E Group Security would work with the client to understand its general expectations (T 56). Mr Chamoun’s evidence, quite candidly, was that E Group Security would be presented with standard client contracts and that it was easier just to sign the client’s contract (than to try to negotiate its terms) (T 60). However, Mr Chamoun was unshaken in his evidence that, for security matters, whatever the standard form contract or client induction might say, and whatever the client request might be, ultimately E Group Security would follow its own course (T 61). I consider that evidence to be wholly plausible (i.e., that Mr Chamoun would adopt an uncompromising position on security issues but would seek to manage client’s expectations in that regard).

58. Mr Chamoun was adamant that the security guards were at all times performing the job of providing security services (T 55). As to interactions with clients or customers of clients, Mr Chamoun said that this was not part of security guards’ duties but added that he would expect that the guards should be decent in those interactions (T 55; 62). All of that evidence rang true to me (the “puffery” of advertising or marketing material is by no means unheard of in the annals of litigation; and the requirement for security personnel to be presentable and courteous not surprising – indeed, it seemed to me consistent with the evidence given by the former manager of E Group Security, Mr Leif Gould, to the effect that one would place the “most articulate” guards at front of house – see T 197).

59. I accept that Mr Chamoun’s evidence as to building procedure must be assessed in light of the fact that he is not the person “on the ground”, so to speak, i.e., not necessarily involved in day to day operational issues for particular locations. For example, when questioned on the evidence of Mr Arif Kazi (a security guard) as to procedures to be adopted if there were to be a lockdown at Aurora Place (i.e., a reference to the building manager informing E Group Protective Services whether it is a code red (full) or code brown (less than full) lockdown) and asked whether this indicated that the building manager determines if it is a code red or code brown lockdown, Mr Chamoun conceded that he was not sure of the procedures at Aurora Place (T 60-61). Nevertheless, I consider that Mr Chamoun’s evidence at a general level as to security procedures was consistent with that of the witnesses whose functions involved security services at a more operational level (see below).

60. In terms of the corporate structure, however, Mr Chamoun was perhaps best placed to give evidence as to the group and the practical role of companies within the group. Mr Chamoun described E Group Security Holdings as “my holding company” (T 70). Mr Chamoun’s evidence is that he bought EGroup Events as a shelf company and became a director in September 2017 (T 70); and that, prior to that, his brother, Amin Chamoun owned the company. From 7 March 2018, the shares in EGroup Events were held by E Group Security. (Mr Chamoun noted that EGroup Events has been recently sold – T 71.) Mr Chamoun accepted that, similarly, the shares in E Group Protective Services, previously held personally by him, were also transferred to E Group Security in March 2018 (T 70).

61. Relevantly, having regard to the alternative basis on which payroll tax liability might arise, Mr Chamoun’s evidence is that the Related Entities perform only a payroll function. In the course of cross-examination, Mr Chamoun was taken to a contract between E Group Security and Zenith Combined Services Pty Ltd (Zenith) (T 71-72). Mr Chamoun agreed that Zenith is a subcontractor that supplies labour to E Group Security. Mr Chamoun denied that Zenith supplied labour to the Related Entities. When taken to an invoice from Zenith to E Group Protective Services that suggested otherwise, Mr Chamoun denied that workers were provided to E Group Protective Services and said that he directs contractors to whom to send invoices for payment (T 72). Mr Chamoun insisted that E Group Protective Services was a “payment company”. A similar line of questioning occurred in relation to E Group Security’s arrangements with Prime Security Australia Pty Ltd (T 74).

62. Mr Chamoun was also taken to an invoice from E Group Security to the Australian Turf Club that noted “the above Security Services was [sic] supplied by Egroup Protective Services” and included that company’s own ABN and master licence details. Mr Chamoun explained that “[e]very company that pays the staff needs to have its own master licence as well” (T 75). Mr Chamoun maintained that E Group Security is the entity that employs the staff; not E Group Protective Services (T 75). Mr Chamoun was adamant that “all my companies in every State just pay staff” and that E Group Security “does everything else” (T 76). Mr Chamoun’s evidence as to the directions given for how invoices were to be directed is consistent with that given by E Group Security’s former general manager, Mr Leif Gould, to which I refer below.

63. I address Mr Chamoun’s evidence as to particular clients, where relevant, when I consider those clients. Suffice it for present purposes to say that I considered Mr Chamoun to be a credible witness and broadly accept that his evidence reflects his genuine understanding of the arrangements in place within the E Group Security group of companies.

Robert Czub

64. Mr Robert Czub is E Group Security’s national operations manager. Mr Czub swore an affidavit on 11 December 2020.

65. From 2015 to 2017, Mr Czub worked for E Group Security as a security manager at the Barangaroo Towers (comprising three towers and a basement). After working elsewhere for a period, Mr Czub returned to E Group Security in February 2018 and commenced his current role (T 149), which he said is more at the management level of E Group Security. Mr Czub said that his original contract was with E Group Security but that, when he returned to the group, E Group Security had changed its brand, and his current contract (a copy of which was in evidence) is with E Group Protective Services (T 149). (Since there is no issue, as I understand it, as to the payment of payroll tax for E Group Security’s own employees, nothing here turns on which entity is now employing Mr Czub.)

66. Mr Czub said that while he was security manager at Barangaroo Towers there were about 40 different guards reporting to him at any given time (T 150). As to the recruitment process for those guards, Mr Czub said that the guards were interviewed by E Group Security’s human resources team first, then by himself and the account manager (Mr Simon Smith) (who also gave affidavit evidence in the proceeding as to what was involved in the various security roles but was not cross-examined); and then guards would be introduced to (but not vetted by) JLL (T 150).

67. Mr Czub’s current role, as noted above, is at the management level of E Group Security, in which role he now has involvement in the development of SOPs. Mr Czub said that while he was working at Barangaroo Towers, it was Mr Craig James (who also gave evidence in the proceeding and was cross-examined) who was involved in the preparation of SOPs for the Barangaroo site (T 151). At T 154, Mr Czub confirmed that site managers do not have authority to “sign off” on a change to an SOP. Mr Czub agreed that a client might request a change to an SOP. Mr Czub referred (consistently with Mr Chamoun’s evidence) to the SOPs as “guidelines” (T 158).

68. Mr Czub agreed that, when he was responsible for Barangaroo Towers, monthly reports would be prepared and then discussed in a meeting with a representative of JLL, E Group Security’s account manager and, occasionally, the general manager (T 157). At T 160, Mr Czub said that, while the client might raise ideas or queries at these meetings, the client could not enforce ideas about how security functions are performed.

69. When giving his evidence, Mr Czub was wearing an E Group branded jacket but, when questioned about it, Mr Czub quite readily said that no one else in the group in fact had that jacket (indeed, he good humouredly told me that Mr Chamoun wanted one but did not yet have one) (T 163). Therefore, I draw no conclusions from the branding on this item of clothing other than to note that it is clear that E Group Security maintains its own corporate logo (and inspires employee loyalty – also, it was apparent from the exchange about Mr Chamoun wanting his jacket, that Mr Czub was hardly intimidated by giving evidence in the presence of the Managing Director). I considered Mr Czub to be a credible witness.

Leif Gould

70. Mr Leif Gould affirmed an affidavit in the proceeding on 18 July 2019, at which time he was the general manager of E Group Security. Mr Gould commenced work at E Group Security in January 2014 as general manager of the commercial/retail division. Mr Gould left E Group Security in February 2020 (T 196). Mr Gould is the holder of a NSW Security licence (class 1A, 2A and 2B). At the time that he affirmed his affidavit, Mr Gould said that the Protective Services division of the business of E Group Security serviced about 250 clients and engaged hundreds of guards in this State (see Mr Gould’s affidavit at [4]).

71. Mr Gould deposed to the tender process through which he said the overwhelming majority of work was won (see Mr Gould’s affidavit at [7]); the process by which E Group Security performed its role on winning a contract, including identification of suitable guards (see Mr Gould’s affidavit at [8]); the ongoing service and interaction with clients (see Mr Gould’s affidavit at [9]); and what he described as “contract management” or “contract administration”, in the way of monitoring the service provided to clients (see Mr Gould’s affidavit at [10]). Mr Gould’s very clear understanding of the commercial and retail accounts for which he was responsible was that clients were never engaged in the security aspects of the engagement and he deposed that none of E Group’s commercial or retail clients held a New Security Master Licence for the purpose of directing security officers (see Mr Gould’s affidavit at [10]-[11]).

72. Questioned as to whether E Group Security’s guards performed any concierge activities, Mr Gould said that there may be “rovers” (usually, he said, “the most articulate” guards) that would spend time during the morning in the front of house area to represent the security detail (but clearly regarded that as different from a traditional concierge role in that he said that they did not perform concierge activities such as organising movie tickets, dry-cleaning and sight-seeing) (T 197).

73. Taken to an invoice that described E Group Protective Services as providing a concierge service, Mr Gould said that he could not tell from the invoice whether it was for an ad hoc role (saying that the concierge may have called in sick, or the client may have asked for a service to be billed as a concierge service) (T 200). Taken to another invoice with a similar description, Mr Gould was insistent that “everything we did was under a security umbrella [sic]” and did not accept that the description on the invoice necessarily meant that a guard was at the concierge desk providing concierge services (T 202).

74. As to the 200 George St premises, Mr Gould said that the main tenant (Ernst & Young) had its own desk in the lobby for enquiries and its own concierge service. Mr Gould said that E Group Security had a desk next to it but that he understood that it was a way to have a controller situated in “the bowels of the building” to monitor cameras and be visible to tenants coming and going from the building (T 203).

75. Mr Gould confirmed that he was involved in the tender for the Chifley Tower building. Consistently with Mr Chamoun’s evidence (to which I have referred above), Mr Gould said that there was generally very little “wiggle room” on contracts sent out as part of the tender process and that the contract would rarely be altered (T 211).

70. Significantly from my perspective, at T 215, Mr Gould said that it was important that security officers stand out and that part of the security role was to be different to the building management and client. (I consider that to be eminently plausible and it accords with common sense).

71. Mr Gould also gave evidence that business decisions would be made by Mr Chamoun or Mr Amin Chamoun, including decisions as to which entity would issue an invoice (T 216-217), which supports Mr Chamoun’s evidence in relation to the issue of the invoices.

72. I considered Mr Gould to be a credible and sincere witness. He clearly has no personal interest in the proceeding (now having left E Group Security) and he displayed self-deprecating good humour (see, for example, his evidence at T 205.27). His evidence strongly supports the conclusion that, even at commercial buildings where the security guards might from time to time be located in the concierge area, they were performing a readily identifiable security guard role (which to my mind points against the proposition that they were integrated into the client’s workforce).

Craig James

79. Mr Craig James swore two affidavits in the proceeding, one on 18 September 2019 and the other on 27 February 2020. Mr James was previously employed as the security and operations manager at E Group Security (T 226) and, as noted above, was responsible in that role for the preparation or development of one or more SOPs (about which he was not, however, cross-examined) (see T 226-229). As to the Baiada sites that Mr James regularly attended (and as to the tender for which he had some involvement), Mr James added little to the evidence contained in his affidavit in the proceeding (see T 227; and see his affidavit evidence).

80. Mr James gave evidence in his first affidavit as to his role, as E Group Security’s national compliance manager, to monitor and review compliance with legislative requirements across all three of the main industry sectors in which E Group security operates (see from [11]ff of his affidavit).

Abdul Nemra

81. Mr Abdul Nemra is an operations manager at E Group Security. Mr Nemra has sworn three affidavits in the proceedings, on 18 September 2019, 1 October 2019 and 11 March 2020, respectively (although I note the 1 October 2019 affidavit was simply to amend a date in his first affidavit).

82. As to the Australian Turf Club, Mr Nemra said that this client is unique in that it has its own master licence and own security staff. However, Mr Nemra said that on race days, the E Group Security staff followed E Group Security’s SOPs whereas the Australian Turf Club’s SOPs related to the Club’s staff (T 167).

83. Mr Nemra was firm in his evidence that clients do not direct the security guards at all. Mr Nemra drew a distinction between directions relating to non-security activities and a security activity (T 168). Mr Nemra accepted that there might be circumstances where a security guard would follow the client’s direction with respect to a non-security activity but said that, generally, any directions from a client would go through him (as operations manager) (T 168).

84. Mr Nemra had not previously seen the operational management plan for the Australian Turf Club to which he was taken in cross-examination (T 168-169). Mr Nemra agreed that in the security control room (at least on race day) there would be representatives of the Australian Turf Club, the NSW police force, E Group Security and others (T 171). Mr Nemra gave examples of situations where decision-making is exercised by E Group Security and not the client (T 177). Mr Nemra’s evidence was that a lot of the SOPs for events were “standalone” SOPs (T 181-182).

Brian Hill

85. Mr Brian Hill has sworn two affidavits in the proceeding, on 19 September 2019 and 27 February 2020 respectively. Mr Hill is a security manager at E Group Security with experience working at the office buildings at 420 George St, Chifley Tower and 60 Martin Place (Mr Hill’s affidavit sworn 27 February 2020 at [5]; T 111).

86. Mr Hill agreed that he was involved in refining the SOP for Chifley Tower. Mr Hill agreed with the proposition that an SOP was an important document but rejected as extreme the suggestion that dismissal would result from non-compliance with an SOP (T 113). Mr Hill accepted that, when making changes to an SOP, the requests or requirements of the client would be taken into account “to some degree” and that any changes were “run past” the client (T 113-115). However, it was clear from the qualifications there made that Mr Hill regarded this as being more from a client facing perspective than as some form of strict obligation to do so. Mr Hill’s evidence was that he would look at an SOP to understand what the guards can and cannot do but that he generally sought advice for important issues with his upper management (T 113). Furthermore, Mr Hill agreed that, when making amendments to the SOP, he was very careful to ensure that the changes are in line with the Security Industry Act (T 114). Mr Hill had never seen the contract between E Group Protective Services and the client in respect of Chifley Tower (T 114).

87. In his role at Chifley Tower, Mr Hill said that 12 E Group Protective Services’ workers reported to him. Mr Hill said that a different entity, not associated with E Group Protective Services, took care of concierge services at that building (T 111-112). To his knowledge (based on his interaction with Knight Frank at Chifley Tower), Knight Frank staff did not have security licences (T 112; his affidavit sworn 19 September 2019 at [19]).

88. As to his role as site security manager, Mr Hill considered that his role was determined as per client directions but added “and as approved by E Group management” (T 116). Mr Hill accepted requests could be made by building management (for example, he referred to a request from Knight Frank as to the removal of any vagrants from or in the vicinity of the premises) and accepted that the security staff would comply with such a request (T 123).

89. As to uniform, Mr Hill agreed that Knight Frank “had a say” in what security staff would wear “to some degree” (T 122). Mr Hill deposed that the security guard’s uniform included a white blouse with the E Group Security/client logo and explained in cross-examination that the client logo may have just been a “magnetic-type badge” (T 122). (A photocopy of a typical badge was later tendered as Ex A.) Mr Hill also said that E Group Security Guards wore E Group Security lanyards, safety vests, and branded shirts (T 134-135).

90. Cross-examined as to various provisions in the Chifley Tower SOP (see at T 125-136), Mr Hill agreed that the role of a rover as there set out was:

Rover patrols all floors of common areas, corporate office foyers, and carparks. In particular, attention to plant rooms, communication rooms, riser cabinets, electrical cupboards, and fire exits, to ensure that these are secure.

…

The rover will also conduct checks of all toilets for leaks or damage, conduct maintenance checks for damaged or ill-working lighting, and report defects in accordance with Knight Frank procedures.

91. Mr Hill accepted that it was an important part of the role of rovers when patrolling the building to check for any maintenance issues and report those back to the building manager (Knight Frank) and said that that was true of every building in which he had worked (T 125).

92. As to the reference in the SOP to “[a]ssist the dock master during peak periods, assist contractors, and complete tasks assigned by Chifley management, security controller, or security manager”, Mr Hill assumed that the reference to “Chifley management” was a reference to Frank Knight. Mr Hill accepted that the role of dock master was as set out in his affidavit at [18]-[20], including reference to the dock manager being responsible for the efficient, safe operation of the loading dock area “in accordance with house rules”. He was unable to shed light on the reference to “house rules”. (I note that in his affidavit Mr Hill refers to the “security dockmaster” and to “E Group Security’s dockmaster”, which seems somewhat inconsistent with the reference in the SOP to the security guard assisting the dockmaster but nothing seems here to turn on that.) Relevant to note is that Mr Hill’s evidence is that the role of security dockmaster includes controlling access to the dock (having been informed by building management of approved entrants); ensuring no unauthorised entry; inspection of vehicles if required and managing vehicle movement within the dock to ensure security and safety; and to conduct internal patrols (but with no involvement in car parking). Mr Hill agreed that some responsibility in the loading dock area included the reporting of spillages to the concierge (see T 126).

93. Reference was also made in cross-examination to the description in the SOP of “[p]atrol retail food court areas, car park and perimeter with a focus on implementing the non-smoking policy up on the colonnades”.

Steve (Soubhi) Sankari

94. Mr Sankari swore an affidavit on 16 September 2019. Mr Sankari is a security guard employed since 2009 by EPS Protective Services and working at 52 Martin Place. Mr Sankari now works as a controller in the control room of the building at that address. Mr Sankari has deposed that he works specifically in access control, to ensure there is no unauthorised access to the building (see his affidavit at [8]) and he has deposed that he reports and is answerable to the security manager, Mr Wally Nasr, who is also employed by EPS and works in the control room at the building (and who reports to Mr Simon Smith, the account manager for 52 Martin Place, who works at the EPS head office in Petersham) (see at [9]). In this role, Mr Sankari said that he trains and inducts “rovers” and ensures that they follow the EPS SOPs (see at [11]; T 241). Mr Sankari has deposed that he has no or very limited interaction with the client or building manager ([12]).

95. Mr Sankari has deposed to the uniform he wears to work (see at [15]ff). Mr Sankari said that “52 Martin Place” is on the jacket but that everything else (tie, lanyards, shirt) is labelled “E Group Security”. Mr Sankari accepted that the E Group Security logo on the shirt could not be seen with the jacket on (T 241). Mr Sankari said that, other than their breaks, rovers patrol constantly and that they do not have a desk. Mr Sankari said that there is a concierge desk in the building that is staffed by a Colliers employee during business hours and an E Group Security guard after hours (that being 6 pm) (T 242), at which time only people with access cards can enter the building (T 242).

Other affidavits by E Group Security personnel

96. Affidavits were also filed by the plaintiff from the following E Group Security personnel (none of whom was cross-examined): Mr Simon Smith (an operations/accounts manager at E Group Security working at the E Group head office since 2010, to whom I have referred above, who deposed to the roles of security guards at commercial buildings); Mr Steven Miklecic (an E Group Security rostering manager and formerly a casual security guard, who deposed to the overseeing of rostering of guards across client portfolios; briefing of guards about the full E Group uniform to be worn; and communications with site managers – such as Mr Hill from 2 Chifley); Mr Chris Tarmagi (a security manager employed by E Group Events Australia Pty Ltd – see his affidavit at [1]; cf Mr Sankari’s reference to EPS); Mr Kenneth Walter Jenkins (general manager – operations at E Group Security); and Mr Arif Kazi (a security guard).

Evidence of representatives of clients

97. Affidavit evidence was also given by representatives of various clients of E Group Security (not all of whom were cross-examined), to which I will refer (as relevant) when considering the particular client or industry sectors below, namely, evidence from: Mr Kieran McGuinness, national operations and sustainability manager of JLL; Mr Gary Colston, head of security and access at the Australian Turf Club; Ms Lisa Wilkinson, former operations manager at the Cronulla Leagues Club; Mr Mark Chaffey, CEO of the Entrance Leagues Club; Mr John Ramplin, owner and director of Northern Star Hotel; Mr Justin Pascoe, CEO of the West Tigers; and Mr Simon Camilleri, the managing director of the Baiada group of companies.

Industry sectors – commercial, government and retail

Government

New South Wales Department of Education and Communities

98. E Group Security says that, in the relevant financial years, it provided security services to the New South Wales Department of Education and Communities; those services consisting of patrol services performed at and around public schools during school holidays.

99. Mr Chamoun’s evidence is that, during school holidays, E Group Security’s security guards drive in a vehicle bearing E Group Security’s branding on a patrol route designed by E Group Security that takes the guards via a number of public schools, such that they pass by each relevant school between once and three times each week of the school holidays. The procedure is that when the security guards arrive at a particular school, they inform E Group Security’s control room of their arrival by radio or mobile phone, and then they conduct an external patrol of the school; and check that all of the doors and windows are locked and no unauthorised persons are present or suspicious activity are taking place; and that when they complete that patrol, they again contact E Group Security’s control room to inform the persons in the control room that the security guards have completed the patrol, and then they drive to the next school on the route (see Mr Chamoun’s affidavit sworn 11 March 2020 at [6]-[8]).

100. Mr Chamoun’s evidence is that sometimes E Group Security’s control room will contact the security guards and instruct them to change route (for example, in response to an alarm being activated at a particular school). If the security guards present at a particular school observe any damage to any school property then the procedure is that security guards contact the police and also contact E Group Security’s control room for instructions; E Group Security’s control room would then provide instructions to the security guards as to what to do until the police arrived. It is said that E Group Security’s control room, rather than the individual security guards, would notify the relevant persons at the Department of Education and Communities of the incident (Mr Chamoun’s affidavit sworn 11 March 2020 at [9]-[12]).

101. E Group Security submits that, consistently with the obligations under the Security Industry Act, the security guards are controlled by, take direction and instruction from and report to E Group Security (not E Group Security’s client). It is said that E Group Security determines the patrol route, remains in contact with the security guards and provides direction to the security guards as required; and that the Department of Education and Communities does not exercise any control over the security guards. It is submitted that the security guards are not integrated into the Department’s command, control and reporting structure and, hence, cannot be integrated into the Department’s workforce.

102. Further, it is said that as E Group Security’s security guards only patrolled the schools during school holidays (when the Department’s workforce was absent from the schools), there was a complete physical separation of the two workforces. Additionally, it is submitted that it would be unlikely that there were any occasions on which security guards patrolling a school during school holidays would have an opportunity to liaise with staff, students or members of the public but that, to the extent that they did do so (unlike as was the case in HRC Hotel Services see at [153]), on any such occasions when they did liaise with staff, students or members of the public, it would have been obvious to any observer that the security guards conducting a patrol during school holidays in vehicles bearing E Group Security’s branding were not part of the Department’s workforce.

New South Wales Health

103. In the relevant financial years, the work performed by the plaintiff’s security guards for New South Wales Health consisted primarily of security guarding for mental health wards at the public hospitals at Liverpool, Bankstown, Nepean, Blue Mountains, Westmead and Fairfield.

104. E Group Security provided the security guarding services pursuant to the Whole of Government security panel arrangements (see Mr Chamoun’s affidavit sworn 23 September 2019 at [51]). E Group Security says that an example of these arrangements is the Memorandum of Understanding between E Group Security and Liverpool Hospital (an emanation of the South Western Sydney Local Health District), cl 3 of which (headed “Performance”), provides that: in performing the services, security guards are responsible for the provision of security services on the site in which they are working; in carrying out their duties, security guards will be under the control and supervision of the security contractor and not the client nor the client’s management or staff; and security guards must provide the security services required at the client’s sites without seeking the assistance from the client’s management or staff. Clause 3 goes on to provide that:

d)    In the course of carrying out their duties, Security guards must not in any way represent to customers or others that:

•    they are employees or agents of the client or site or have any association with it apart from being engaged as independent contractors to provide security services for the site; or

•    they are acting at the direction of the client

e)    Clients management and staff do not:

•    control, influence or assist Security guards in respect of the performance of their duties in performing the security services.

•    The client will monitor the performance by Security guards of their duties and report to the contractor and its management any ongoing or serious isolated incidents of unsatisfactory performance by individual Security guards to the security provider who supplies those Security guards.

105. E Group Security’s evidence is that the work performed by the security guards generally consisted of responding to ad hoc requests by hospital staff for a security guard to guard a patient who presented with apparent mental health problems such that the patient was a danger to the hospital staff or herself or himself. It is said that, at the time that the patient appeared to the hospital staff member to be a danger, the hospital staff member would contact E Group Security (initially by telephone) to request that a security guard be made available and, subsequently, the hospital staff member would send to E Group Security a written request (an MRN) for the security guard (see Ex B at 2814). It is noted that these requests were last-minute and varied in number (for example, ranging from between five to 25 requests on a weekend) and that the length of time that a guard was required could also vary depending on the particular patient (for example, ranging from between four hours to four weeks). It is said that, because of the unpredictable ad hoc nature of these requests, these roles were mostly performed by sub-contracted security guards, rather than E Group Security’s own employed security guards (see Mr Chamoun’s affidavit sworn 23 September 2019 at [51], [63]; Mr Chamoun’s affidavit sworn 11 March 2020 at [13]-[17]).

106. E Group Security submits that, consistently with the obligations under the Security Industry Act, the security guards are required to remain under the control and supervision of E Group Security, and are not permitted to be under the control and supervision of E Group Security’s client (Memorandum of Understanding cl 3(b)-(e)). It is said that, while E Group Security’s client is able to monitor security guards’ performance, the client is required to direct to E Group Security any complaints about the service being performed and the client does not discipline or direct the security guards directly (Memorandum of Understanding cl 3(e)). It is thus said that E Group Security’s client is not able to control the security guards, who remain under E Group Security’s control; and that they are not integrated into the client’s workforce.

317. However, the mere fact that two cases may concern the provision of services of security guards does not (and the Chief Commissioner does not suggest this) mandate a similar conclusion. Relevantly, for present purposes, I accept that there was no debate in Southern Cross Group Services as to the meaning in this context of the term “client” when considering the contracts between the employment agent and the contractors. Nor was there express consideration of the meaning of “client” in the consideration in UNSW Global of the phrase “procures the services of another … for a client of the employment agent”, which his Honour concluded meant “in and for the conduct of the business of the employment agent’s client” rather than simply as meaning for the client’s benefit.

318. As to Securecorp, there was some discussion of the meaning of “client” to the extent that Payne J held that “client” in s 37 is not to be read as the “ultimate end user of the services provided” (at [90]-[91]). His Honour also said (at [91]) that the “’client’, for the purposes of s 37, is the recipient of services – Westfield Management Co and JLL – even if those firms were not the so-called ‘end users’ of those services”.

319. I will turn shortly to the respective clients and industry sectors in the present case. However, at the outset, I wish to make clear that my understanding of the “in and for” test is that it requires an analysis as to whether the workers in question were integrated into the client’s business (or added in effect to its workforce), not whether the workers or the provision of their services were integral or essential (as opposed to ancillary) to the client’s business or workforce; nor whether the client could itself have performed the relevant tasks. In Bayton Cleaning, I considered it significant that what had occurred (at least in one instance) was that, in effect, the client’s workforce had simply transferred (or “transitioned”) to that of the employment agent and was then continuing to provide the same service and carry out the same tasks as had previously been undertaken as part of the client’s workforce (see at [273]), as this indicated to me that those workers continued to be performing the same role in the client’s workforce albeit no longer employed directly by the hotel client. The same cannot be said here. Moreover, the fact that clients could (and one, the Australian Turf Club in fact did) obtain their own security licence and employ their own security staff is not to my mind to the point.

320. Further, by way of introductory observation, while the capacity to direct or control the tasks that are performed or the manner in which they will be performed is a relevant consideration and will in some (perhaps many) cases be significant, I do not consider that this factor alone will necessarily be determinative in all cases.

321. In the present case, Mr Chamoun’s mantra in cross-examination (and I say this with no disrespect) was the invocation of E Group Security’s obligations under the Security Industry Act. I can well understand his concern to ensure that there be no breach (or perceived breach) of that legislation, which would carry significant consequences, not just as to penalty but also (one would assume) to the continued holding of a security licence. However, a contractual ability to give (or obligation to comply with) a direction would not seem to me necessarily to involve any breach of the legislation and nor would a refusal (if based on the security industry constraints) to accede to such a direction necessarily involve a breach of contract (since the contractual obligation to comply with such a direction could surely only be with a direction that was lawful – and hence, it would seem to me that there would be no contractual obligation to comply with a direction that would or might place E Group Security in breach of its security licence) (see by way of analogy the discussion as to lawful directions in a master/servant relationship in Tullett Prebon (Australia) Pty Ltd v Purcell [2009] NSWSC 1079 at [35]-[36] at first instance, for example). On the one hand, if, looked at pragmatically there would be no enforceable obligation to comply with directions that might place E Group Security in breach of its security licence, then a contractual provision reserving to the client the ability to give directions takes the matter no further because it says nothing about what in practice occurs in the performance of the contract. On the other hand, the mere existence of the constraints imposed by the legislation (as E Group Security in submissions quite fairly conceded) would say nothing if those constraints were not in practice regularly observed.

322. Furthermore, let it be assumed that client participation in determining the parameters of an SOP (whether by way of suggestion or request) did occur from time to time (or can be said to have occurred by way of the setting or monitoring of performance to stipulated KPIs), I do not accept that this would necessarily amount to sufficient control or direction to warrant a conclusion that the security guards were integrated into the clients’ workforce. There seems no doubt at a practical level that E Group Security personnel were required to perform their tasks at the client’s premises subject to the direction and instruction of their E Group Security supervisors. In that regard, I accept the evidence of those responsible for supervision of the security operations at various of the clients’ sites to the effect that, on the ground so to speak, the security guards were directed to comply with E Group Security’s instructions and to report back to E Group Security. Responding to a request from a client (or answering a query from a customer of the client) does not change that.

323. As to the complaint by the Chief Commissioner of incomplete contractual documents and the like, I bear in mind that there is not a complete documentary record of the whole of the 600 odd clients’ contractual arrangements but I note that Mr Chamoun’s evidence was that for a large number of clients (indeed as I understand it, more than half) the arrangements were not in writing and were conducted by telephone calls (and therefore for some clients it is explicable that no such record of contractual arrangements would exist). Moreover, I do have the benefit not simply of Mr Chamoun’s evidence but also of a selection of client representatives from across the various sectors and from former E Group Security personnel (who have no personal interest in the outcome of the proceeding and would have no reason not to present their honest recollection of events); and the overall picture they presented was consistently to the effect that E Group Security takes its security licensing obligations very seriously and that E Group Security maintains control over the supervision of the security guards it provides to clients (both its own employees and those contracted from sub-contractors).

324. By way of summary, and speaking at a general level, of the factors identified as relevant in considering whether the workers are provided “in and for” the client’s business, in the present case the evidence establishes the following. The location at which the services are provided by the workers is generally that of the client’s premises (although, as with Baiada, the location is physically separate from the client’s main business operations; and with the Department of Education holiday school patrols the location might be described as a roving location that necessarily extends beyond the boundary of the schools themselves). There is a regularity with which the workers provide the services to the clients in the Commercial sector but a more ad hoc provision of services in, say, the health sectors or Event sector and certainly for one-off or short-term clients. The level of interaction as between the workers and the client’s customers or contractors varies but there is generally at least some interaction between them (except in the Department of Education holiday patrols and the HammondCare out-of-hours vehicle patrols). There is some level of direction or instruction reserved to the client under the contractual documentation that was in evidence though, as noted above, I do not accept that it would extend to the control over or giving of binding instructions as to security decisions of a kind required under the legislation to be made by the security licence holder. I see as significant the distinction drawn by various of the witnesses between security issues and non-security issues. The workers’ access to and use of client staff facilities is limited or non-existent in most cases (and I do not regard access to the JOCC at the Australian Turf Club on race days relevant in this regard, since I consider that a necessary incident of control over the security aspects of the work performed by E Group Security personnel – and, equally, others have access thereto, such as the police officers, who on no view would be regarded as integrated into the Club’s own workforce). Last, I accept that there is an obvious significance (or necessity) to the clients of the security services provided by E Group Security’s workers; and the clients may or may not be in a position to obtain or hold licences which would permit the clients themselves to perform those services.

325. Balancing all of those factors, I have concluded that the arrangements by which E Group Security provided security guard services to the clients in the present case do not constitute employment agency contracts and do not give rise to payroll tax liability.

326. Turning then to the particular categories of clients, I find as follows.

327. First, for the one-off clients and those clients for whom services were provided on an ad hoc basis (such as the NSW Department of Health and the Board of Studies) or outside the ordinary day to day activity of the client’s workforce (such as the NSW Department of Education where the patrolling of school sites occurred completely outside the functioning of the school terms), I can see no basis on which the security guards could be said to be integrated into the client’s workforce. I would conclude the same for events functions on a one-off basis (such as the jeweller’s functions). As to the patrolling in school holidays, I make clear that it is not only that it occurs after hours or after the school term as such that I consider significant (because I consider that in some cases after hours workers – say, cleaners for example – could well be sufficiently integrated to form part of the client’s workforce). However, the evidence points to an almost complete lack of interaction by the security guards with anyone at the schools (indeed there would only be such an interaction if a security breach or problem was detected and the evidence then is that it would be relayed to the client through E Group Security and directly to the police). I would have thought that no-one seeing a security car patrolling outside a school would think that this was a Department of Education employee foraying into the security guard’s world.

328. That points to a very significant issue in my opinion. Common sense would suggest that security guards (particularly those monitoring crowd control or bag screening or the like at sporting events or other such events but also no doubt those located in public or other areas of commercial buildings) need to be readily distinguishable (much in the same way that police officers patrolling areas to ensure compliance with, say, public health orders during the current pandemic are no doubt meant to be readily distinguishable to the public). Indeed, that was the very evidence that was given by Mr Gould (see at T 215) and by Mr Colston (see above). In those circumstances one would expect that it would be important for the security guards to stand out as such. True it is that some clients (such as the Australian Turf Club, for example; or occupants of buildings such as Westpac at the Barangaroo site – see Mr James’ affidavit) may have their own security licence and may employ their own security guard employees. However, even then, there is no suggestion that E Group Security’s guards would be indistinguishable from or mistaken for employees of the client. There is, for example, no suggestion that those E Group Security guards patrolling Randwick Racecourse on race days or carrying out bag services or other crowd control were not readily distinguishable to the public from ordinary Australian Turf Club employees (and the evidence is that they were in fact used as a quite separate taskforce at race day events). The fact that some E Group Security personnel had access to a joint control or operations area (say, the JOCC at the Australian Turf Club) does not change my opinion in that regard. Nor does the fact that in situations of emergency (such as a lost child) all staff at the venue are likely to be diverted to the emergency at hand (as was one example explored in the course of cross-examination at the hearing).

329. Second, as to the Club and Pub Clients and the like; for the reasons adverted to above, I see the E Group Security personnel as not sufficiently integrated into the client’s workforce. In general, the evidence is that the security guard’s use public facilities, that they take instruction from E Group Security, and that they wear distinguishing clothing. While they provide an integral function for the clients, they are not an addition in the sense of being integrated into the workforce.

330. The two categories in respect of which I have some concern are the commercial buildings (including those where security staff may be deployed to sit at a concierge desk or as additional concierge staff or in the loading dock) and the one Food Industry client, Baiada.

331. As to the first, in buildings, such as the Ernst & Young building, where there is a separate Ernst & Young concierge desk that is clearly identifiable, I do not have a concern. The fact that E Group Security are instructed to be polite to clients of their clients’ business (and might give directions to the bus stop or a helping hand to old ladies in need of assistance from time to time) is not to the point (indeed, it is no more than good manners and courtesy, which no doubt is the professional face that E Group Security would wish for the workers it provides to display). Nor do I have a concern as to security guards who might relocate to a concierge desk after business hours in order to perform a security function from that location. I accept that in some of the commercial buildings there seems to be less distinction in the clothing that is worn (the relevant distinction seemingly being a lanyard or perhaps a badge – particularly where the E Group Security branded white shirt is covered by a suit jacket) and it might be that a casual observer would not appreciate the difference between a security guard and, say, a receptionist or concierge if the guard were sitting at the concierge desk. However, the evidence is that for the most part any security guards that were located at the concierge desk did so after hours. As Mr Camilleri says in relation to 52 Martin Place, by the time the security guard sits at the concierge desk (6 pm), only people with access cards can enter the building (T 242). Moreover, in most of the material to which I was taken it was apparent that the security guards are not (or should not be) spending their time at a desk – they are patrolling or roaming or being placed at strategic static positions to monitor for risks to the security of the building or harm to its occupants.

332. My area of concern is with the examples of a security guard being invoiced to a client as a concierge. While I have less difficulty with ad hoc invoicing for an “additional concierge” (for example, the invoice for an “ad hoc guard/concierge desk” at 52 Martin Place for one day on 12 May 2017), there is evidence of consistent invoicing for concierge services at a number of buildings (100 William St, 200 George St, 607 St Kilda St and 420 George St). However, even where a security guard is stationed consistently at the concierge desk, this is still a small proportion of the work provided by E Group Security’s guards (as I noted above, most of the evidence was that the guards are patrolling the buildings, performing access control or at the loading dock). Moreover, I also accept that some security function is no doubt performed at the concierge desk, indeed, there is an invoice (Ex 6 at 9052) for a representative of E Group Security to “[i]nvestigate poor CCTV system connection at Concierge Desk 100 William St”. While it may be that an ordinary observer would have difficulty distinguishing between the E Group Security guard seated at the concierge desk in those particular buildings from the client’s employees, I am not persuaded that, as a whole, the E Group Security guards are indistinguishable. Ultimately, considered with the other relevant factors as to control, use of client’s facilities, and E Group Security uniforms for example, I find that the E Group Security guards in the commercial buildings are not sufficiently integrated in the relevant client’s workforce.

333. As to the loading dock functions carried out at commercial buildings generally, I accept that there is a security function involved and I am not satisfied that the security guards are otherwise sufficiently integrated into the workforce at those locations to warrant a different conclusion.

334. Finally, as to the Baiada chicken operation, the security guards there provided are in a physically separate location and readily identifiable as E Group Security personnel. While I have some hesitation as to the weighbridge tasks performed, I accept that there is a security function in ensuring that there is not access by unauthorised persons (or objects) to the Baiada sites. Further, I accept Mr Camilleri’s evidence that the E Group Security guards also perform access control, CCTV and alarm monitoring. Moreover, the E Group Security workforce there is physically separated from Baida’s workforce (Mr James’ affidavit sworn 27 February 2020 at [26]-[27], Annexure B) and wear highly distinct clothing (Mr James’ affidavit sworn 27 February 2020 at [24]-[25]). All factors combined, I am satisfied that the plaintiff’s guards were not integrated into the Baiada workforce.

335. Therefore, the first basis on which it might have been concluded that the payroll tax liability arose is not, in my opinion, the correct analysis of the situation. I accept that E Group Security bears the onus of establishing that it does not fall within s 37. I consider that it has satisfied that onus.

336. As to the alternate proposition that the contracts between E Group Security and its subsidiaries were themselves employment contracts, I am also not satisfied that a payroll tax liability has arisen. First, as to the meaning of “client” in s 37(1), I do not accept that it is necessary to show that there was some goodwill arising from the contractual arrangement in order to bring it within the client/employment arrangement. I consider that “client” (which is not defined in the legislation) should be given its ordinary (common parlance) meaning – as someone with whom there is some form of relationship whereby (for reward or otherwise) one party does something on behalf of or at the request of another at least where that is in a professional or business context (and I consider that this accords with Payne J’s analysis in Securecorp). In that sense, it might be said that E Group Security is the client of the Related Entities insofar as the Related Entities perform an invoicing service for E Group Security but that does not make E Group Security a client for the purpose of procuring of workers. However, more likely to my mind is that the payroll arrangements were not “client” arrangements but were instances of compliance by the subsidiary with a direction from the parent company.

317. However, this argument ultimately turns on whether the Related Entities “procured” the services of the security guards for E Group Security within the meaning articulated by White J in Freelance Global. I am not persuaded that there was an agreement between E Group Security and its subsidiaries to procure the workers. I consider that the Group Payroll Agreements were a contract or agreement for the subsidiaries to perform a payroll function. That is because I accept that (poorly drafted as they may have been) the intent was that the payroll functions be performed by the subsidiaries but that the security guards (though paid via the subsidiaries) were procured as such by E Group Security. I accept that the footer of the invoices that refers to services having been “supplied” by E Group Protective Services raises concern in relation to this point. However, considering the invoices as a whole that discrepancy does not seem to me to warrant a conclusion contrary to E Group Security’s position (particularly since I consider that the re-structure or re-branding of the companies in the group does not appear to have been consistently implemented in the documentary arrangements). On the whole, I am of the view that the Related Entities did not procure the security guards for E Group Security in the relevant years but, rather, facilitated E Group Security’s provision of services to its clients.

318. Therefore, I consider that E Group Security’s application for review should be allowed.

319. As to the question of remittal of interest, had it arisen (which in light of the above conclusion it does not), I confess I am troubled by the evidence as to the advice or representation said to have been made in the course of the audit (albeit that I do not suggest that any such advice or recommendation would have been expressed as binding; nor do I accept that any misrepresentation has been established). However, if a taxpayer acts on the basis of such advice or recommendation (and I am not here suggesting that there was any impropriety in what was alleged to have been said), particularly if there is no disclaimer, and ultimately it is shown to be incorrect, then that may well provide a basis (amounting to special circumstances not exceptional circumstances) to exercise the discretion to remit interest or at least penalty interest but as it is, it is not necessary to explore that issue further.

Costs

344. The parties indicated that they wish to make further submissions as to the question of costs. I will make orders for that to occur with a view to dealing with the issue of costs on the papers.

Orders

345. For the above reasons I make the following orders:

1. Pursuant to s 101(1)(a) of the Taxation Administration Act 1996 (NSW), revoke the payroll tax assessments numbered 117241993.

2. Direct that the parties file brief written submissions on the question of costs within 14 days, with a view to dealing with the matter on the papers if possible.

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Decision last updated: 22 September 2021