Loan Market Group Pty Ltd v Chief Commissioner of State Revenue; Loan Market Pty Ltd v Chief Commissioner of State Revenue - [2024] NSWSC 390

Supreme Court

New South Wales

Amendment notes

Medium Neutral Citation: Loan Market Group Pty Ltd v Chief Commissioner of State Revenue; Loan Market Pty Ltd v Chief Commissioner of State Revenue [2024] NSWSC 390
Hearing dates: 10–12, 15–16 May 2023, 15 June 2023
Date of orders: 12 April 2024
Decision date: 12 April 2024
Jurisdiction: Equity - Revenue List
Before: Richmond J
Decision:
See [289] and [290]

Catchwords:
TAXES AND DUTIES — payroll tax — exemptions
TAXES AND DUTIES — payroll tax — liability — contractors
TAXES AND DUTIES — payroll tax — wages — deemed employees
TAXES AND DUTIES — payroll tax — wages — payments under relevant contracts
TAXES AND DUTIES — payroll tax — wages — taxable wages

Legislation Cited:
Accident Compensation Act 1985 (Vic)
National Consumer Credit Protection Act 2009 (Cth)
National Credit Code
Payroll Tax Act 1971 (Vic)
Payroll Tax Act 2007 (NSW)
Payroll Tax Act 2007 (Vic)
Payroll Tax (Amendment) Act 1985 (NSW)
Taxation Administration Act 1996 (NSW)

Cases Cited:
Accident Compensation Commission v Odco Pty Ltd (1990) 95 ALR 641
Bridges Financial Services Pty Ltd v Chief Commissioner of State Revenue [2005] NSWSC 788; (2005) 60 ATR 237
Chief Commissioner of State Revenue (NSW) v Smeaton Grange Holdings Pty Ltd [2017] NSWCA 184; (2017) ATR 151
Chief Commissioner of State Revenue v Downer EDI Engineering Pty Ltd [2020] NSWCA 126; (2020) 111 ATR 812
Downer EDI Engineering Pty Ltd v Chief Commissioner of State Revenue [2019] NSWSC 743
Drake Personnel Ltd v Commissioner of State Revenue (2000) 2 VR 635
Farnell Electronic Components Pty Ltd v Collector of Customs (1996) 72 FCR 125
FCT v Sara Lee Household & Body Care (Australia) Pty Ltd (2000) 201 CLR 520
IW v The City of Perth (1997) 191 CLR 1
Nationwide Towing & Transport Pty Ltd v Commissioner of State of Revenue (No 2) [2018] VSC 609; (2018) 1088 ATR 842
Smith’s Snackfood Co Ltd v Chief Commissioner of State Revenue [2013] NSWCA 470; (2013) 97 ATR 904
Tasty Chicks Pty Ltd v Chief Commissioner of State Revenue (2011) 245 CLR 446; [2011] HCA 41
Thomas and Naaz Pty Ltd v Chief Commissioner of State Revenue [2023] NSWCA 40

Category: Principal judgment
Parties:
2020/27826
Loan Market Group Pty Ltd (Plaintiff)
Chief Commissioner of State Revenue (Defendant)
2020/212582
Loan Market Pty Ltd (Plaintiff)
Chief Commissioner of State Revenue (Defendant)
Representation:
Counsel:
Ms E Collins SC, Ms C Burnett SC, Mr N Li (Plaintiffs)
Mr A Gerard with Ms F McNeil (10-12 and 15-16 May 2023) (Defendant)
Mr S Balafoutis SC, Mr A Gerard, Ms F McNeil, Mr C Chiam (15 June 2023) (Defendant)
Solicitors:
PwC (Plaintiffs)
Crown Solicitor’s Office (Defendant)

File Number(s): 2020/27826 and 2020/212582
Publication restriction: N/A

JUDGMENT

The plaintiffs, Loan Market Group Pty Ltd (LMG) and Loan Market Pty Ltd (LML), seek a review of the Payroll Tax Notices of Assessment issued by the Chief Commissioner of State Revenue (Commissioner) in relation to the financial years ending 30 June 2012 to 30 June 2018 (Relevant Period) pursuant to s 97(1)(a) of the Taxation Administration Act 1996 (NSW).
During the Relevant Period, LML was a party to agreements with individual mortgage brokers (Broker Agreements) whereby, in consideration for various fees paid by the broker to LML, the broker was provided with various services by LML which assisted the broker in establishing and operating their mortgage broking business. That business involved the broker applying to lenders for loans on behalf of their clients using systems provided by LML and, when those loans were approved, brokers became entitled to part of the commission paid by the lender. Lenders pay the commission on loans originated by the brokers to a related company of LMG and LML called eMOCA Pty Ltd (eMOCA) and the commission is then paid on to the individual mortgage brokers by LML, after subtracting fees owing to LML.
The Commissioner has assessed payroll tax to be payable under the Payroll Tax Act 2007 (NSW) (the Act) in respect of commissions paid by LML, via LMG, to the Authorised Brokers who had contractual relationships with LML, under the Broker Agreements (Assessed Brokers) during the Relevant Period.
The Chief Commissioner says that payroll tax is payable on the payments made to the Assessed Brokers because:

The Broker Agreements were ‘relevant contracts’ within the meaning of s 32(1)(b) of the Act. A relevant contract includes a contract under which one person supplies work-related services to another person in the course of that second person’s business. Here, the Assessed Brokers provided services to LML. Those services included assisting LML to secure new customers for the Lenders. That is issue 1. Issue 9 also raises that issue with respect to one representative broker.

None of the exceptions listed in s 32(2) of the Act are applicable. If the exceptions are applicable, some or all of the Broker Agreements are not relevant contracts. That is issues 3 to 8.

The payments made to Assessed Brokers were ‘for or in relation to the performance of work relating to a relevant contract’ within the meaning of s 35(1) of the Act. That is issue 10. Issue 2 also raises that issue with respect to trailing commissions.

By reason of these matters, LML is taken to be the employer of the Assessed Brokers (ss 33 and 34 of the Act) and the amounts paid to the Assessed Brokers are taken to be wages (s 35 of the Act). The employer is liable to pay payroll tax on those wages (s 7 of the Act).

It is common ground between the parties that the Commissioner will issue reassessments following the determination of these proceedings. The amount of those reassessments depends upon the Court’s answers to a series of agreed questions.
The parties agreed prior to the hearing that there are nine different categories of Assessed Brokers (the Broker Categories) and that certain Assessed Brokers, in respect of their circumstances in particular identified years, are representative of the Assessed Brokers in those categories. In addition, the parties agreed on a process by which if the Court answers a series of questions, agreed as “Common Questions”, on the basis that the Court’s answer to those questions will allow the parties to apply the Court’s answer to each category of Assessed Broker. The regime agreed by the parties was reflected in orders made by the Court in July 2022. A number of those Common Questions dropped away during the hearing and there are now ten remaining issues between the parties that require resolution. Those issues are set out at [35] below, and the Common Questions to which they give rise are set out at the end of this judgment.

The legislative scheme

Payroll tax is imposed on all taxable wages (s 6 of the Act).
“Taxable wages” is defined in s 10 of the Act to mean “wages that are taxable in this jurisdiction”. Under s 11 of the Act, wages are taxable in NSW if, among other things, the “wages are paid or payable by an employer for or in relation to services performed by an employee wholly [NSW]”. The expressions “paid” and “payable” have an extended meaning, so that they include amounts paid or payable in the ordinary meaning of those terms and also amounts provided, conferred or assigned (s 3 of the Act).
“Wages” are defined to mean wages, remuneration, salary, commission, bonuses or allowance paid or payable to an employee and to include certain other specified additional amounts (s 13(1) of the Act). One of those additional amounts is an amount that is included or taken to be wages by another provision of the Act (s 13(1)(e) of the Act).
Relevantly for present purposes, the contractor provisions in Div 7 of Part 3 of the Act deem amounts paid or payable by an employer during a financial year for or in relation to the performance of work relating to a “relevant contract” to be wages paid or payable during that financial year.
The deeming provision is contained in s 35 of the Act which provides:

(1) For the purposes of this Act, amounts paid or payable by an employer during a financial year for or in relation to the performance of work relating to a relevant contract or the re-supply of goods by an employee under a relevant contract are taken to be wages paid or payable during that financial year.
(2) If an amount referred to in subsection (1) is included in a larger amount paid or payable by an employer under a relevant contract during a financial year, that part of the larger amount which is not attributable to the performance of work relating to the relevant contract or the re‑supply of goods by an employee under the relevant contract is as determined by the Commissioner.

What constitutes a “relevant contract” is set out in s 32(1) which provides relevantly as follows:

(1)    In this Division, a relevant contract in relation to a financial year is a contract under which a person (the designated person) during that financial year, in the course of a business carried on by the designated person—
(a)   supplies to another person services for or in relation to the performance of work; or
(b)    has supplied to the designated person the services of persons for or in relation to the performance of work; or
(c)    ...

(2)    However, a “relevant contract” does not include … a contract under which a person (the designated person) during a financial year in the course of a business carried on by the designated person—
(a)   …
(b)     is supplied with services for or in relation to the performance of work where—
(i)     those services are of a kind not ordinarily required by the designated person and are performed by a person who ordinarily performs services of that kind to the public generally, or
(ii)     those services are of a kind ordinarily required by the designated person for less than 180 days in a financial year, or
(iii)     those services are provided for a period that does not exceed 90 days or for periods that, in the aggregate, do not exceed 90 days in that financial year and are not services—
(A)     provided by a person by whom similar services are provided to the designated person, or
(B)     for or in relation to the performance of work where any of the persons who perform the work also perform similar work for the designated person,

for periods that, in the aggregate, exceed 90 days in that financial year, or
(iv) those services are supplied under a contract to which subparagraphs (i)–(iii) do not apply and the Chief Commissioner is satisfied that those services are performed by a person who ordinarily performs services of that kind to the public generally in that financial year, or

(c)     is supplied by a person (the contractor) with services for or in relation to the performance of work under a contract to which paragraphs (a) and (b) do not apply where the work to which the services relate is performed—
(i)     by two or more persons employed by, or who provide services for, the contractor in the course of a business carried on by the contractor, or
(ii)     where the contractor is a partnership of two or more natural persons, by one or more of the members of the partnership and one or more persons employed by, or who provide services for, the contractor in the course of a business carried on by the contractor, or
(iii)     where the contractor is a natural person, by the contractor and one or more persons employed by, or who provide services for, the contractor in the course of a business carried on by the contractor…

The relevant provision relied on by the Commissioner in the present case is s 32(1)(b) on the basis that the Broker Agreements between LML and each broker are contracts under which LML (the designated person) is provided with the services of persons for or in relation to the performance of work. If the Broker Agreements are caught by s 32(1)(b), the relevant exclusions relied on by LML are those in s 32(2)(b) and (c).
For the purposes of the contractor provisions the following definitions are found in s 31 of the Act:

(1)   a “contract” is defined to include an agreement, arrangement or undertaking, whether formal or informal and whether express or implied;
(2)   “services” includes the results (whether goods or services) of work performed; and
(3)   a reference to a “supply”, in relation to services, is defined to include the providing, granting or conferring of services.

Subsection 32(2A) contains an anti-avoidance rule that s 32(2) does not apply if the Commissioner determines that the contract under which the services are supplied was entered into with an intention either directly or indirectly of avoiding or evading the payment of tax by any person. The Commissioner has made no such determination in this case.
Where a “relevant contract” exists, ss 33 and 34 identify the parties that are taken to be the “employer” and “employee” respectively. In the case of a relevant contract under s 32(1)(b):

the designated person is deemed to be the employer by s 33(1)(b) which provides:

For the purposes of this Act, a person
(a)   …
(b)   to whom during a financial year, under a relevant contract, the services of persons are supplied for or in relation to the performance of work, or
(c)   …
is taken to be an employer in respect of that financial year.

the person who performs work for or in relation to which services are supplied to the designated person is deemed to be the employee by s 34(a) which provides:

For the purposes of this Act, a person who during a financial year
(a) performs work for or in relation to which services are supplied to another person under a relevant contract, or
(b) …
is taken to be an employee in respect of that financial year.

In the present case, if the Broker Agreements are relevant contracts, the employer and the employee are LML and the Assessed Broker respectively.

Regulatory Regime – the Credit Protection Act

On and from 1 July 2010, the National Consumer Credit Protection Act 2009 (Cth) (Credit Protection Act) applied to regulate the provision of certain credit activities.
Part 2-1 of the Credit Protection Act requires a person to hold an ACL if they are to engage in credit activities. Section 6 of the Credit Protection Act provides that a credit activity includes a credit service. Section 7 provides that a person provides a credit service if the person: (a) provides credit assistance to a consumer; or (b) acts as an intermediary. Section 8 provides that:

A person provides credit assistance to a consumer if, by dealing directly with the consumer or the consumer’s agent in the course of, as part of, or incidentally to, a business carried on in this jurisdiction by the person or another person, the person:
(a)    suggests that the consumer apply for a particular credit contract with a particular credit provider; or
(b)    suggests that the consumer apply for an increase to the credit limit of a particular credit contract with a particular credit provider; or
(c)    suggests that the consumer remain in a particular credit contract with a particular credit provider; or
(d)    assists the consumer to apply for a particular credit contract with a particular credit provider; or
(e)    assists the consumer to apply for an increase to the credit limit of a particular credit contract with a particular credit provider; or
…

The provision of mortgage broking services constitutes the provision of credit assistance which constitutes the provision of credit services. An Assessed Broker would therefore ordinarily need to obtain a licence to provide mortgage broking services.
Section 35(1) of the Credit Protection Act explains that an “Australian credit licence” is a licence that authorises the licensee to engage in particular credit activities. Section 35(2) explains that the credit activities that the licensee is authorised to engage in are those credit activities specified in a condition of the licence as the credit activities that the licensee is authorised to engage in.
Section 29(1) provides the central prohibition: a person must not engage in a credit activity if the person does not hold a licence authorising the person to engage in the credit activity.
Part 2-3 of the Credit Protection Act sets out details regarding the authorisation of credit representatives by an ACL holder, including the ASIC notification requirements and obligations associated with that authorisation. Section 64 allows for written authorisation for a person to engage in specified credit activities on behalf of the licensee as a “credit representative”. Section 64 provides:

(1)    A licensee may give a person a written notice authorising the person to engage in specified credit activities on behalf of the licensee.
(2)    A person who is authorised under subsection (1) is a credit representative of the relevant licensee.
(3)    The credit activities specified may be some or all of the credit activities authorised by the licensee’s licence.

Section 65 provides for the sub-authorisation of natural persons by a credit representative that is a body corporate, as follows:

(1)    A body corporate that is a credit representative of a licensee may, in that capacity, give a natural person a written notice authorising that natural person to engage in specified credit activities on behalf of the licensee.
(2)    A natural person who is authorised under subsection (1) is a credit representative of the relevant licensee.
(3)    The credit activities specified may be some or all of the credit activities authorised by the licensee’s licence.

As an ACL holder, LML may authorise persons to engage in credit activities as an authorised credit representative under its ACL. The majority of the Assessed Brokers are authorised credit representatives of LML. Nomination as an authorised credit representative of LML is one of the services that LML provides to Assessed Brokers.
By section 67(1), a person must not authorise another person to engage in a credit activity as a credit representative under s 64(1) or s 65(1) if the other person holds an ACL. An Assessed Broker that holds their own ACL is not authorised as a credit representative of LML.
The core provisions in Division 4 are s 75, s 77, and s 78.
Section 75 provides:

If the representative is the representative of only one licensee, the licensee is responsible, as between the licensee and the client, for the conduct of the representative, whether or not the representative’s conduct is within the authority of the licensee.

Section 77 provides:

The responsibility of a licensee under this Division extends so as to make the licensee liable to the client in relation to any loss or damage suffered by the client as a result of the representative’s conduct.

Section 78 provides:

(1) If a licensee is responsible for the conduct of its representative under this Division, the client has the same remedies against the licensee that the client has against the representative.

Witnesses

There were 9 witnesses who gave affidavit evidence in these proceedings.

Two witnesses, Sam Raymond White and Nicole Jayne Glen are employed by the Group Administration and the LM Group, respectively, and give evidence in relation to the conduct of the LM Group’s business.

Additionally, seven of the Assessed Brokers (or a representative of an Assessed Broker) gave evidence in relation to how they conduct their mortgage broking businesses and their relationship with the LM Group. These were Katharina Fifer, Nicholas Gray, Gregory Michael Cook, Marco Cappetta, Elizabeth Tacon, Anastasia Theodoropoulos and Fetuanimoekie Kula.

The witnesses who were cross-examined were Mr White, Ms Glen, Ms Tacon, Mr Gray, Ms Theodoropoulos and Mr Cappetta. I considered each of them to be a truthful and reliable witness, and accept their evidence.
The Broker Categories to which each of the witnesses referred to at [31(2)] relate are as follows:

Category 1B (being an Authorised Broker who had an entitlement to trail commissions only in a given year and who worked less than 90 days in a given year (or for Authorised Brokers who are corporations, whose employees worked less than 90 days in a given year)): Ms Tacon and Mr Kula.

Category 2A (being an Authorised Broker who provided loan origination services to loan applicants/borrowers in a given year): Ms Theodoropoulos, Ms Tacon, Mr Kula, Mr Cook, Ms Fifer, Mr Cappetta and Mr Gray.

Category 3A (being an Authorised Broker who obtained services from the LML or LMG under or arising from the Broker Agreement in any given year): Ms Theodoropoulos, Ms Tacon, Mr Kula, Mr Cook, Ms Fifer, Mr Cappetta and Mr Gray.

Category 3B (being an Authorised Broker who obtained services from Galilee Business Support Services Pty Ltd (GBSS) in a given year): Mr Gray.

Category 3E (being an Authorised Broker who employed or utilised the services or administrative staff in a given year): Ms Fifer, Ms Theodoropoulos and Mr Cappetta.

Category 4A (being an Authorised Broker who utilised their own Australian Credit Licence (ACL) , in any given year, in the course of conducting their mortgage broking business): Ms Theodoropoulos.

Issues

As noted above, during the course of the hearing the issues in dispute narrowed and accordingly, the questions which the parties seek the Court to address have reduced.
The remaining issues in dispute are as follows:

Whether the Broker Agreements constitute a contract under which LML, in the course of a business carried on by LML, has supplied to LML the services of Assessed Brokers for or in relation to the performance of work, and to which s 32(1) applies.

Whether trail commissions paid by LML to Assessed Brokers are wages within the meaning of s 35(1). This issue concerns Category 1B and Common Question 1B-1.

Whether the services of the kind provided by the Assessed Brokers are provided to the public generally such that s 32(2)(b)(iv) applies. This issue concerns Category 2A and Common Question 2A.

Whether the provision of one or more of the Generic Services by LMG to the Assessed Brokers satisfied section 32(2)(c)(i)? This issue concerns Category 3A and Common Question 3A-1.

Whether the provision of one or more of the Generic Services by LML to the Assessed Brokers satisfied section 32(2)(c)(i)? This issue concerns Category 3A and Common Question 3A-2.

Whether Flintfox’s engagement of GBSS engaged section 32(2)(c)(i)? This issue concerns Category 3B and Common Question 3B-1 and Common Question 3B-2.

Whether Anastasia Theodoropoulos’ engagement of Maria Damjanic engaged section 32(2)(c)(iii)? This issue concerns Category 3E and Common Question 3E-2.

Whether MR & VL Cappetta’s engagement of Peter Carbone engaged section 32(2)(c)(ii)? This issue concerns Common Question 3E-4.

Whether the Broker Agreement between LML and Anastasia Theodoropoulos is a relevant contract by reason of Anastasia Theodoropoulos having her own ACL? This issue concerns Common Question 4A.

Whether the payments made to the Assessed Brokers were “for or in relation to the performance of work relating to a relevant contract” with the meaning of s 35.

The Common Questions are set out at the end of this judgment and the answers provided by the Court.

Facts

LM Group

LML and eMOCA are wholly owned subsidiaries of LMG, and may be referred to collectively as Mr White did in his evidence as the “LM Group”. Group Administration Pty Ltd (Group Administration) is the ultimate holding company for the LM Group, as well as a number of direct and indirect wholly owned subsidiaries which together make up the Ray White real estate business. In general terms, the LM Group provides mortgage aggregation services within the mortgage broking industry.
LMG is the entity that employs staff working in the business, except for senior executives who are employed by Group Administration. The tasks performed by LMG’s employees include recruiting new brokers, ensuring brokers comply with regulatory requirements, marketing the Loan Market brand, financial management and providing and maintaining software used by the brokers.
LML is a party to agreements with mortgage brokers under which it agrees to provide services to mortgage brokers in return for the payment of fees by mortgage brokers. LML was previously called Reva Broking Pty Limited.
LML held a transitional Australian Credit Licence (ACL) between 13 May 2010 to 27 May 2011. From 27 May 2011, LML has held an ACL which provides relevantly:

1.    This licence authorises the licensee to:
(a)    Engage in credit activities other than as a credit provider by:
(i)    providing a credit service where the licensee is not or will not be:
(A)    where the service relates to a credit contract or proposed credit contract – the credit provider under the contract; or
…

Most of the Assessed Brokers during the Relevant Period were nominated as an authorised representative of LML under LML’s ACL for the purpose of the Credit Protection Act, but some of the Assessed Brokers had their own ACL, (including Ms Theodoropoulos who gave evidence) in which case they did not act as an authorised representative of LML. The Commissioner contends that the nomination of Assessed Brokers as credit representatives had the effect that the Assessed Brokers acted “on behalf of” LML for all relevant purposes. LML submits that this overstates the position and the regulatory regime which attributes statutory liability for conduct of credit representatives of credit licensees does not determine, for the purposes of Division 7 of Part 3 of the Act, the factual question of whether a credit representative is under a broker agreement providing services to LML in relation to the performance of work.
eMOCA (previously known as Elkbay Pty Ltd) was the entity within the LM Group which entered into agreements with various lenders for the payment of commission by the lender if the borrower referred to the lender by eMOCA or one of its associates obtained a loan from the lender. eMOCA has held an ACL since 27 May 2011 in the same form as that held by LML. During the Relevant Period, eMOCA did not have any individual employees, and did not authorise mortgage brokers as credit representatives under its ACL.
Of LM Group’s intellectual property, both LMG and eMOCA were the registered owner of certain trademarks during the Relevant Period. All intellectual property rights to LM Group’s internally generated customer relationship management software, MyCRM, were held by MyCRM Pty Ltd.
Across the Relevant Period, the number of active mortgage brokers in New South Wales varied each year between 111 and 142.
At the date of swearing his affidavit on 15 October 2021, Mr White estimated that there were 2,700 mortgage broker businesses, who engage 6,000 mortgage brokers, aggregated under the LM Group across Australia and New Zealand. Half of these have their own ACL, whilst the others are appointed as authorised credit representatives under LML’s ACL.

The role of mortgage aggregators

Mr White gave evidence that lenders do not normally have a direct commercial relationship with mortgage brokers. Brokers must be accredited by each lender whose products they wish to consider (and offer to consumers). Lenders normally have a commercial relationship with the aggregator which in turn has a relationship with brokers because, based on Mr White’s experience and understanding, lenders are not willing to deal with hundreds or thousands of mortgage brokers. Most lenders have volume and compliance requirements that individual mortgage brokers could not maintain without an aggregator. Therefore, aggregators connect lenders to mortgage brokers.
Mr White’s evidence was that mortgage brokers using aggregators generally gain access to services including a panel of lenders, technology, training and professional development programs, business planning and business development, software, marketing collateral, administrative and compliance services, and licencing. The broker is charged a fee to access those services. Aggregators sit between the mortgage broker and lender, and do not deal directly with the public, but they do hold an ACL.
Mortgage brokers deal with and take instructions from customers directly. Mortgage brokers typically aggregate under an aggregator and, additionally, are accredited or engaged by individual lenders. Mortgage brokers operate differently depending on their business structure and role (eg. sole trader or corporate structure; owner, employee or contractor). The business models of mortgage brokers aggregating under LM Group include (but are not limited to) sole traders, private companies, trusts and partnerships.
Customers of the mortgage brokers are consumers of residential home lending products and services, which are provided by the lenders. During the Relevant Period, LM Group’s practice was to contact customers only rarely, unless there was a compliance issue, a complaint or (from 2015) for surveys.

Background to the LM Group

The Ray White brand was first established in 1902. Ray White Group is now the largest real estate franchise group in Australasia.
Ray White Group began offering financial services in about 1994 by establishing Elkbay Pty Ltd (Elkbay), an entity which traded as ‘Elkbay Finance’ and carried on a mortgage broking business. Elkbay entered into a number of agreements with lenders for the purpose of being able to offer the products of lenders to the Ray White Group's real estate clients.
In 1994, Mr White commenced as a mortgage broker of Elkbay Finance. He became NSW State Manager in 1996 and by 1997 was in practice running the business as National Manager for Elkbay. Elkbay’s name was changed to Ray White Financial Services in late 1995. The business provided its mortgage broking services directly through its employees.
In the late 1990s lenders began to impose conditions on mortgage brokers to receive accreditation, including minimum value of loans required to be written in a month. Mr White observed that around this time smaller brokers shared accreditations to meet the conditions. In or around 2000, Mr White observed that this sharing of accreditations developed into the emergence of aggregators in the industry. Ray White Financial Services lost a number of their top brokers to these new aggregators in or around 2000.
Elkbay, trading as Ray White Financial Services, was transformed into an aggregator in or around July 2002. Elkbay’s name was changed to eMOCA which stood for Electronic Mortgage Origination Channel Australasia. In June 2003, Ray White Financial Services established Reva Broking Pty Limited, trading as REVA, which stood for Real Estate Value Add.
In 2007, LM Group acquired Xinc Financial Services Pty (Xinc), a competitor within the aggregator industry, which involved 150 brokers being migrated over to the LM Group and henceforth aggregated under the LM Group. LM Group did not require those mortgage brokers to sign or enter into a new agreement but rather honoured pre-existing agreements. Mr White said this was done to ensure they retained the brokers. Following the acquisition, the name of the business was changed to Loan Market.
By 2010, approximately 80 mortgage brokers were aggregating under REVA with approximately 1–2 brokers within each business. eMOCA had approximately 25 agreements with various lenders including the “Big Four” Banks, being CBA, ANZ, Westpac and NAB.
On 1 July 2014, LM Group moved to a formal franchise model for its mortgage brokers. From that date, mortgage brokers were requested to enter new agreements with LML entitled Loan Market Mortgage Broker Agreement (being the Franchise Agreement referred to at [75] below), including those who operated under original agreements with Xinc. Some brokers from Xinc had terms or fees within their original agreements grandfathered as special conditions in their Franchise Agreement, where there was a real or likely detriment to the mortgage brokers by not respecting the original terms or fees.

EMOCA’s Contractual arrangements with lenders

LM Group provided the Assessed Brokers with access to a panel of lenders (Lenders).
The Lenders were “credit providers” within the meaning of the Credit Protection Act. The entity within the LM Group which entered into Lender Agreements with each of the Lenders was eMOCA. Each of the agreements with the Lenders is in a different form. Their nature is indicated by having regard to those which eMOCA entered into with the “Big Four” Banks.
The Lender Agreement between eMOCA and Westpac Banking Corporation (Westpac) commenced on 30 August 2013, and is entitled “Broker Agreement”. Key terms of this agreement are as follows:

The recitals state that eMOCA (referred to as “the Broker”) is engaged in the business of finance or mortgage broking/facilitation and Westpac is willing pay, on the terms set out in the agreement, certain fees to the eMOCA for each applicant referred by eMOCA to Westpac, if the Applicant obtains finance from Westpac. The expression “Applicant” is defined to mean “a person who has been referred to Westpac by the Broker and has completed an Application for Finance”.

Clause 3.1(a) provided that “the Broker may refer Applicants to Westpac as provided for in this Agreement”. As the plaintiffs pointed out, cl 3.1(a) does not impose an obligation on eMOCA to provide services to Westpac and is in facilitative terms only. By cl 3.2, if eMOCA referred an Applicant to Westpac, eMOCA was required to comply with the application process contained in cl 7.4 (which required eMOCA to submit applications in accordance with the “Introducer Kit” which was defined as a document described as such which Westpac issued to eMOCA for the purposes of the agreement) and Westpac was given the sole responsibility for and sole discretion in approving or declining any application made.

Under cl 21.1, eMOCA was permitted to enter into “Introducer Agreements”, defined to mean “an agreement with [eMOCA] relating to the referral to [eMOCA] of Applicants for [eMOCA], in turn, to refer those Applicants to Westpac …” and “Introducer” was defined to mean “a person or entity which has an Introducer Agreement with [eMOCA]”. eMOCA was liable for all acts or omissions of the Introducers as if those acts or omissions were acts or omissions of eMOCA.

Under cl 7.3, Westpac was entitled to require that “[eMOCA], any Introducer and their respective Associates … be accredited before they are permitted to recommend or continue to recommend Westpac’s products to Applicants”. The expression “Associate” is defined to include in the case of eMOCA, any Introducer. One of the requirements for accreditation was that the Introducer comply with the Code of Conduct set out in Schedule D to the agreement.

Clause 4 provided that Westpac must pay to eMOCA commission for each approved application in accordance with Schedule B to the agreement. Schedule B set out the rates method of calculation and payment of commissions (both upfront and trailing). Under cl 5, the parties agreed that Westpac can issue a recipient created tax invoice in respect of any taxable supplies for GST purposes made by eMOCA under the agreement, and eMOCA will not issue any tax invoices in respect of those taxable supplies.

Under cl 6.1, Westpac reserved the right to vary any commissions by giving eMOCA 30 days’ notice.

Clause 6.2 contains an acknowledgement by eMOCA that part of Westpac’s aim in contracting with eMOCA to refer applicants under the agreement was to achieve a specified conversion rate, (ie. a particular percentage of applications which are settled) and volume target (being a particular amount of residential or business finance over a specified period).

Under cl 7.1, eMOCA gave undertakings that it and its “Introducers” would comply with all relevant laws, including the National Credit Code and that eMOCA will hold an ACL and that each of its introducers will hold an ACL or be appointed as a credit representative of an entity which holds an ACL.

Under cl 7.5, Westpac agree to make its internet service known as “Introducer Net” available to the Broker.

The agreement between eMOCA (named as the Originator) and Commonwealth Bank of Australia (CBA) is dated 8 September 2014 and entitled “Originator Agreement (Retail)”. This provides relevantly as follows:

Clause 2.1 provided that the Bank appointed eMOCA, to perform the “Services”, defined to mean “the provision to the Bank of Applications from Clients introduced by the Originator and any Originator Associate”. The expression “Originator Associate” was defined to mean “(a) any employee, agent, sub-aggregator, broker, franchisee or contractor of the Originator, and (b) any third party who refers clients to the Originator or any of its employees, agents, sub-aggregators, or contractors …”.

Under cl 2.2, eMOCA accepted that appointment and agreed to provide the Services on the terms of the agreement.

Clause 2.3 permitted eMOCA to delegate the performance of its obligations under the agreement to “an Originator Associate”, who is accredited by the Bank to perform the relevant Services.

Clause 4 required each application submitted to the Bank to be submitted using the Bank’s standard document process for submitting applications and under cl 4.2 eMOCA gave undertakings in relation to how applications would be submitted to CBA.

Under cl 6.1, CBA agreed to pay a commission to eMOCA in relation to banking products which CBA actually provided to, accepted from or arranged for a client following the provision of the Services. The rates of commission (both upfront and trailing) method of calculation and payment were set out in a schedule to the agreement.

Clause 7.4 stated that CBA was permitted to issue a recipient created tax invoice in respect of the supply of services under the agreement for GST purposes and that eMOCA would not issue tax invoices in respect of those supplies.

Clause 8.1 contained undertakings by eMOCA to the Bank that in performing the Services it would at all times comply with all relevant laws and monitor the activities of the Originator Associates to ensure compliance by eMOCA with its obligations under the agreement.

Clause 11.4 required eMOCA to comply with the procedures prescribed by CBA for eMOCA and the Originator Associates to become accredited and to maintain their accreditation to provide the Services. Under cl 11.5, the Bank had an absolute discretion to refuse accreditation to an Originator Associate.

The agreement between eMOCA (named as the Approved Originator) and Australia and New Zealand Banking Group Limited (ANZ) is dated 14 May 2003, and entitled “Originator Agreement”. This provided relevantly as follows:

Clause 2.1 provided that the Bank appointed eMOCA to market the loan products in accordance with the terms and conditions contained in the approved Originator Operations Manual. Under cl 6.2, “Authorised Officers” of eMOCA who have been approved by the Bank from time to time could act on behalf of eMOCA in performing its obligations under the agreement. The expression “Authorised Officers” was defined to mean “employees, contractors or agents of the Approved Originator which are approved by the Bank”.

Clause 2.3 imposed certain obligations on eMOCA, including that it meet the agreed minimum performance target set out in Schedule 1, ensure that all applications from its clients to the Bank for loan products are in a form approved by the Bank and observe all applicable laws. Under cl 2.6, the Bank was under no obligation to give approval to any particular loan application submitted to the Bank by eMOCA, and could decline or approve any application in its absolute discretion.

Under cl 4.1, the Bank agreed to pay eMOCA fees in respect of loan products business written by the Bank and applied for by applications submitted through the Approved Originator at the rates and on the terms set out in Schedule 2 of the agreement. Schedule 2 included the rate of and method of calculation of commissions (both upfront and, a “trailer fee” (being an ongoing fee for the term of the loan) and manner of payment.

Under cl 5, the Bank was entitled to create Recipient Created Tax Invoices (RCTI) in accordance with the requirements of the GST Act in relation to all supplies made under the Agreement and eMOCA agreed not to issue tax invoices in respect of those supplies.

There were two agreements between eMOCA and National Australia Bank Limited (NAB) during the relevant period. The first applied from 1 August 2008 and was entitled “Broker Agreement”. The second applied from 1 September 2016 and was also entitled “Broker Agreement”.
In relation to each of these agreements the following points may be noted:

Under cl 3.1 of the first NAB Agreement, NAB appointed eMOCA on a non-exclusive basis, acting alone or through eMOCA’s Representatives, to assist NAB in originating Loans. The term “Representatives” was defined to mean “any employee, servant, agent, sub-agent, contractor, sub-contractor, delegate or franchisee appointed and authorised by you to act on your behalf in carrying out, or otherwise in connection with, your obligations under this agreement”. The expression “Loan” was defined to mean a NAB product or a Homeside product issued or varied as a result of an application or variation application introduced by eMOCA. The relevant products were loan products issued by NAB. Clause 3.1 of the second NAB Agreement is in similar terms.

Clause 4 of the first NAB Agreement required eMOCA to comply with the procedures and standards set out in what is referred to as the “NAB Broker Guide” and to comply with the requirements of all relevant laws, and to ensure that its Representatives did so. eMOCA was also required to meet, and ensure that each of its Representatives met, NAB’s requirements for a person to be accredited as a broker by NAB as set out in the NAB Broker Guide. Clause 4 of the second NAB Agreement is in similar terms.

Under cll 5 and 8, eMOCA and its Representatives who were accredited were entitled to submit an application for approval for the purposes of obtaining an offer to fund the loan to which the application relates. Such application needed to meet the requirements set out in Schedule 3 to the Agreement. Clauses 5 and 8 of the second NAB Agreement were to similar effect.

Clause 6 of the first NAB Agreement provided that NAB would pay commissions to eMOCA as set out in Schedule 2, which included detailed provisions regarding the manner of calculation and payment of both upfront commission in respect of each loan and trail commission. Under cl 6.2, NAB was entitled to issue RCTIs in respect of supplies by eMOCA under the Agreement and eMOCA was not to issue any tax invoices in respect of those supplies. Clause 6 of the second NAB Agreement is to similar effect.

As the parties submitted, the Court should not be diverted by the label used to describe eMOCA in these agreements: e.g. Hollis v Vabu Pty Ltd (2001) 207 CLR 21 at [58]. The same is true of the labels used to describe LML and the Assessed Brokers in the Broker Agreements. Whether styled or labelled in the Lender Agreements as a “Broker”, “Originator”, “Referrer”, “Aggregator”, “Independent Contractor” or otherwise, the substance of the relationship created by the Lender Agreements was:

the Lenders marketed and provided various finance, mortgage, loan and credit products to customers;

eMOCA was entitled to refer the Lender to applicants for credit products although it was entitled to appoint third parties to make those referrals;

eMOCA, was entitled to appoint authorised officers, associates, intermediaries etc, to act on eMOCA’s behalf in referring applicants for credit products to the Lenders and while strictly this may not have extended to the appointment of the Assessed Brokers as they had entered into broker agreements with LML rather than eMOCA, the parties proceeded on the basis that this did not matter;

the Lenders were contractually bound to pay eMOCA agreed commission for credit applications of a customer, introduced by eMOCA and approved by the Lender;

the Assessed Brokers were not a party to any of the Lender Agreements and the Assessed Brokers obtained no rights and incurred no obligations pursuant to the Lender Agreements;

the Lenders were not contractually bound to pay any credit representative of eMOCA or LML, including Assessed Brokers, any fees, commissions or rewards;

the Lenders issued Recipient Created Tax Invoices to eMOCA for supplies made by eMOCA under the Lender Agreements;

It was necessary for the Assessed Brokers invariably to be accredited with a Lender before brokering that Lender’s products, although LML did not require the Assessed Brokers to be credited with all Lenders on the panel. The lenders prescribed criteria for accreditation and had sole discretion regarding whether a mortgage broker would receive accreditation. When an Assessed Broker applied for accreditation by a Lender, it applied directly to the Lender (with the assistance of LML) and signed a form issued to it by the Lender, the purpose of which appears to have been to identify the individual creditor representative which the Lender would be dealing with (Ex C).

Broker Agreements Prior to July 2014

Prior to about July 2014, LML had three alternative agreements in place with LML’s Assessed Brokers. Those three alternatives were:

In relation to Assessed Brokers who switched to the LM Group after the Xinc Acquisition, LML adhered to the terms of the Xinc Agreements. In substance, LML and those Assessed Brokers entered a contract in the terms of the Xinc Agreement (either by express agreement or conduct) (Xinc Agreement).

In relation to Assessed Brokers who became an LML Assessed Broker prior to July 2010, those Assessed Brokers signed a “Independent Sub-Originators Agreement” or “Ray White Sub-Originators Agreement” (Sub-Originators Agreement).

In relation to Assessed Brokers who became an LML Assessed Broker after July 2010, those Assessed Brokers signed a “Introducer Agreement – Lead/Referral Scheme” or an “Introducer Agreement – Associate Scheme” (Introducer Agreement).

There is no direct evidence as to which of the above three agreements each individual Assessed Broker the subject of the Assessments in the 2012 to 2014 financial years was a party.

Xinc Agreement

The Xinc Agreement provided relevantly as follows:

Recital A stated that the Assessed Broker, described as an “Introducer”, intended to introduce “Applications” to Xinc. Clause 2.1 then provided that the Assessed Broker was authorised to refer “Applications” to Xinc. The term “Applications” was defined to mean “an application to Xinc for one or more of Xinc’s Products” and “Products” was defined to mean “loans and other products Xinc from time to time informs the Introducer are available for marketing by the Introducer”.

The Assessed Broker must at its own cost introduce Applicants in an efficient and businesslike manner and comply with applicable laws (cl 3.1); and in accordance with policies and procedures specified by Xinc and “Funders” from time to time (cl 3.5). The term “Funders” was defined to mean each company providing the Loans and other Products (being loans and other products Xinc from time to time informs the Assessed Brokers are available for marketing by the Assessed Broker).

Xinc was required to pay to the Assessed Broker the fees set out in Sch B to the Xinc Agreement which set out percentage entitlement to upfront and trail commissions payable by Xinc to the Assessed Brokers (cl 4.1).

Xinc was entitled to issue RCTIs to the Assessed Broker “in respect of supplies” to Xinc by the Assessed Broker and the Assessed Broker agreed not to issue tax invoices in respect of those supplies (cll 6(a) and 6(b)).

The evidence was that although the agreement is with Xinc, following the acquisition of Xinc in 2007 LML honoured the terms of the agreement and the Court infers that there was a novation by conduct of the agreement to LML.

Sub-Originators Agreement

The recitals to the Sub-Originators Agreement record that eMOCA has been engaged to originate Financial Products and Services on behalf of “Third Parties” and has engaged LML to assist eMOCA in originating such products and LML in turn, wishes to engage the services of the Assessed Broker (referred to as a Sub-Originator) to assist LML originate Financial Products and Services to be provided by “Third Parties”.
The Sub-Originator Agreement provided relevantly as follows:

LML engaged the Assessed Broker on the terms of the agreement to assist LML to originate Financial Products or Services on behalf of Third Parties (cl 2.1). “Third Parties” is defined to mean “any entity with whom eMOCA enters into an agreement under which eMOCA agrees to originate and/or manage financial products or services for and on behalf of that entity and advised by eMOCA or LML to the [Assessed Broker]”.

The Assessed Broker agreed to perform obligations and functions under the Sub- Originator Agreement in accordance with the requirements and procedures for the origination of financial products and services delivered or notified by LML to the Assessed Broker from time to time (cll 2.2(a) and 5.1).

LML agreed to pay the Assessed Broker the Net Commission (cl 4.1).

LML agreed to issue RCTIs “in respect of supplies of assistance to LML to originate Financial Products and Services made by the [Assessed Broker] under this Agreement” and the Assessed Broker agreed not to issue any tax invoices for those taxable supplies (cl 19.3(f)).

Introducer Agreement

The recitals to the Introducer Agreement recorded that the Assessed Broker (described as ‘Introducer’) intends to introduce ‘Applications to or through [LML]’ and that LML is an originator for various programs.
The Introducer Agreement provided relevantly as follows:

The Assessed Broker must at its own cost introduce Applicants in an efficient and businesslike manner (cl 3.1). “Applicants” was defined to mean “an applicant for a Product introduced by the [Assessed Broker] to LML” and “Product” was defined to mean “loans and other products LML from time to time informs the [Assessed Broker] are available for marketing by the [Assessed Broker]”.

The Assessed Broker must introduce applicants for loans and other products to LML in accordance with LML’s policies and reasonable directions (cl 3.5).

The Assessed Broker must undertake any ongoing services with respect to the loans specified by LML (cl 3.13).

LML must pay to the Assessed Broker the fees in Schedule A (cl 4.1).

LML was entitled to issue RCTIs in respect of taxable supplies [to LML] (cll 6(a) and 6(b)).

Broker Agreements Post July 2014

From about 1 July 2014, the LM Group decided to adopt a “franchise model” for its agreements with brokers. In 2014, two versions of the Franchise Agreements were implemented for this franchise model which replaced the earlier Broker Agreements. The differences between the two versions are relatively minor and not relevant for present purposes. This new agreement (Franchise Agreement) remained in place until the end of the Relevant Period. For convenience I will also refer to each Franchise Agreement entered into with an Assessed Broker as a “Broker Agreement”. This Agreement provided relevantly as follows:

LML granted to the Assessed Broker a non-exclusive licence to use LML’s intellectual property to operate a mortgage broking business on the terms set out in the Broker Agreement (cl 2.1).

LML appointed the Assessed Broker, in accordance with Schedule 4 of the Broker Agreement, as a credit representative of LML (cl 2.4). This occurred in most cases unless the Assessed Broker held an Australian credit licence.

LML authorised the Assessed Broker, as its credit representative pursuant to the Credit Protection Act, to engage in “credit activities” on LML’s behalf in relation to approved products (Schedule 4, cll 1.1 and 10.1(3)). The “credit activities” that the Assessed Broker is authorised to perform on LML’s behalf are the provision of “credit services” as defined in s 7 of the Credit Protection Act.

The Assessed Broker was prohibited from being a credit representative of any other ACL holder (Schedule 4, cl 1.2).

The Assessed Broker was required to respond to all leads in the manner specified in the Operations Manual (cl 3.1).

The Assessed Broker was responsible for seeking new customers (cl 3.2(1)).

The Assessed Broker was required to only work as a broker with LML (cll 4.2, 7.2 and 17).

The Assessed Broker was required to only offer loan products approved by LML (cll 4.3, 4.4).

The Assessed Broker was required to pay to LML: (1) an establishment fee; (2) a system fee; (3) a facilitation fee; and (4) where applicable, a lead generation fee (cl 5).

The Assessed Broker was required to operate their business strictly in accordance with the LM Group Operations Manual and any written direction given by LML (cll 6.2, 7.1(4)).

The Assessed Broker was required to conduct their activities in compliance with the requirements of cl 7, including “protect and enhance the good name and reputation of the Loan Market Group and the Intellectual Property” (cl 7.1(5)).

LML was required to notify to the Assessed Broker, and pay, the “Broker Payment” (ie. commission) after deducting the amounts set out in cl 5.10(2)(a)-(c) (cl 5.10).

The Assessed Broker was required to ensure that the business conducted by it under the agreement was under the direct supervision of the individual named in the agreement as the principal, who must devote his or her time and effort exclusively to the business (cl 8.1)

The Assessed Broker was required to train its staff to the satisfaction of LML (cll 8.4, 8.5)

The Assessed Broker’s commercial premises were required to be fitted out with a Loan Market identity (cl 10.2)

The Assessed Broker was required to participate in Loan Market marketing and only use the LML Group websites to market its business (cl 12).

LML was entitled to issue RCTIs on behalf of the Assessed Broker in respect of supplies made by the Assessed Broker to LML and, where LML did so, the Assessed Broker must not do so (cl 23.5).

As mentioned at (i) above, cl 5 dealt with the obligation of the Assessed Broker to pay certain fees to LML, including the Facilitation Fee. Clause 5.1 required the Assessed Broker to pay those fees, but this was subject to cll 5.9 and 5.10 which provide (emphasis added):

5.9   Subject to:
(1)   any Clawed Back Commissions and fees payable to loan Market;
(2)   the Broker Parties have complied with this Deed, including by complying with the Operations Manual when submitting an Application; and
(3)   an Approved Financier having entered into a Finance Agreement with a Customer as a consequence of an Application submitted by the Broker (or an Authorised Loan Writer) on behalf of that Customer,
Loan Market will pay the Broker Payment to the Broker in accordance with clause 5.10.

5.10 On or about the 12^th, 21^st and last Business Day of each month during the Term, Loan Market must:
(1) notify the Broker of the total of:
(a) the Gross Commissions received by Loan Market in respect of Finance Agreements with a Customer as a consequence of an Application submitted by the Broker;
(b) all payments due by the Broker Parties to Loan Market Group pursuant to this Deed or an Related Agreement (Loan Market Payments);
(c) the Clawed Back Commissions; and
(d) the Referral Fees,

for the previous period;

(2) pay to the Broker the Broker Payments payable in respect of the previous period after deducting an amount equal to:
(a) the Clawed Back Commissions to the relevant Approved Financier on behalf of the Broker;
(b) in Loan Market’s discretion, the Referral Fees payable to the relevant referrers by the Broker on the Broker’s behalf; and
(c) the Loan Market Payments.

Under cl 5.9 read with cl 5.10(2), LML was required to pay the Broker Payment to the Assessed Broker after deducting the amounts payable by the Assessed Broker to LML under the Agreement.
The expression “Broker Payment” is defined to mean:

“Subject to cl 5.9, an amount equal to the Gross Commissions paid by Approved Financiers [the Lender] to the Loan Market Group in respect of a Finance Agreement”.

Through the operation of these provisions, LML paid to the Assessed Broker an amount equal to a proportion of the commissions received from Lenders by eMOCA for a loan originated by the Assessed Broker with that Lender. It was not suggested that the position was materially different under the pre-2014 Broker Agreements.
As mentioned in (j) above, Assessed Brokers were required to comply with an Operations Manual which was made available to each Assessed Broker during the Relevant Period. It sets out “the policies, specifications, standards and procedures you must comply with to operate a Loan Market mortgage broker business” (page 2). It dealt with such matters as requirements to pursue leads generated by the LM Group; use of Loan Market branding; the approved products; approved lenders; training; IT and software usage; compliance and legal; dispute resolution; sub-contracting and assignments; and other policies, procedures and services offered by the LM Group to mortgage brokers. There were five iterations of the Operations Manual throughout the relevant period. Pursuant to cl 6.4 of the Franchise Agreement, changes to the Operations Manual come into effect 14 days after mortgage brokers receive notice of the changes.

Financial arrangements between Lenders, LML and Assessed Brokers

During the Relevant Period, Assessed Brokers earned commissions through introducing customers to Lenders, comprising both upfront and trail commissions. There were also claw-back provisions for the repayment of commissions if the borrower defaulted or refinanced with another lender within a certain period of time. LM Group occasionally assisted mortgage brokers with disputing claw backs from lenders.
LM Group receives the commissions and pays them to the mortgage broker. The software used by the LM Group issues an RCTI to a mortgage broker each time they are paid.
Mr White gave evidence that LM Group’s customers are mortgage brokers, not loan applicants or borrowers. The LM Group generates revenue through fees charged to mortgage brokers in respect of the services provided by the LM Group to the mortgage brokers under the Broker Agreements and the Franchise Agreement including an establishment fee, a system fee and a facilitation fee.
The establishment was a one-off fee upon execution of the Franchise Agreement, varying between $1,400 to $2,000 plus GST between 1 July 2014 and 1 July 2018, for those joining LM Group after 1 July 2014 (although was occasionally waived).
The system fee varied in the Relevant Period before and after 1 July 2014. Before 1 July 2014, the system fee was approximately $100–$110 including GST per month for mortgage brokers party to an Introducer Agreement. There was no system fee under the Sub-Originator Agreements. Between 1 July 2014 and 30 June 2018, the system fee was $230 to $300 plus GST per user per month for access to the LM Group’s systems and $110 to $150 plus GST per user per month for administration services. It is directly debited from a mortgage broker’s nominated bank account on the last business day of each month.
The facilitation fee was charged during the Relevant Period generally as a set percentage of the mortgage broker’s commissions, determined by the applicable agreement. Generally, the facilitation fee would be charged on a tiered basis, determined by the commissions earned by the mortgage broker in each year – depending on the applicable agreement. The facilitation fee covered the services provided by the LM Group and was deducted from gross commissions paid by the lenders to LM Group on behalf of mortgage brokers.

Structure of the LM Group

The personnel of LM Group, all employed by LMG, relevantly included the:

NSW State Team of up to 6 people during the Relevant Period (the structure of the equivalent team in other States was similar but may vary in numbers).

National Compliance team which comprised up to 6 people during the Relevant Period;

National Marketing team which comprised between 5-8 people during the Relevant Period;

National Finance team which comprised between 6-10 people during the Relevant Period;

National Technology team which comprised between 2-50 people during the Relevant Period;

Agreements and Onboarding team which comprised between 2-6 people during the Relevant Period; and

Commissions team which comprised up to 5 people during the Relevant Period.

During the Relevant Period, LM Group employed some brokers, but these did not materially form a part of the business carried on by the LM Group.
The NSW State team included the NSW State Director who reports to Mr White, 2-3 Business Development Managers/Executives and a State Administrator. The Business Development Managers report to the State Director and are each responsible for a group of mortgage brokers’ productivity and satisfaction. Their role includes coaching, business planning, small group sessions, staff recruitment for the broker, identifying referral partners and online training. They also make arrangements with other LM Group teams if brokers request additional marketing or compliance support. The State Administrator provided support generally to the mortgage brokers and State team including being the point of contract for new mortgage brokers during the onboarding process, assisting with changes to their agreements (such as variation, termination or cassation), being the first point of contact for queries regarding systems and software provided by LM Group, and supporting mortgage brokers in recruiting and onboarding new staff.
The Compliance team was led by the Chief Operating Officer and was split between an onshore and an offshore team. The onshore team, in Sydney and Adelaide included up to 6 people during the Relevant Period, being the:

Chief Operating Officer, who oversaw the risk and compliance function within the LM Group.

National Risk and Compliance Manager, who was primarily responsible for drafting and implementing policies to align with LM Group’s obligations, particularly the obligations of LML and eMOCA as ACL holders.

National Risk and Compliance Manager, whose role was to support mortgage brokers in relation to their risk and compliance enquiries, as well as organise, update and provide optional risk and compliance education to the mortgage brokers.

National Risk and Compliance Manager (Audit), who was responsible for leading the offshore audit team that conducts file reviews of loan applications settled by the mortgage brokers to ensure these meet regulatory requirements. This role is also responsible for providing insights and coaching to the offshore team where applicable.

Compliance Support Officer, who was responsible for managing risk and compliance enquiries from mortgage brokers, as well as other administrative responsibilities relating to lender enquiries.

The offshore audit team based in Manila consisted of up to 10 individuals during the Relevant Period who reported to the National Risk and Compliance Manager (Audit). This team included an Internal Audit Team Manager and Internal Audit Officers.
The LM Group's Marketing team was based in Sydney and led by the Chief Marketing Officer. The Marketing team consisted of 5 to 8 individuals over the Relevant Period, who held the following roles: Chief Marketing Officer, Head of PR & Communications, Marketing Manager, Digital Marketing Manager, Communications Manager, Communications Coordinator, Marketing Coordinator(s), and Graphic Designer(s).
The National Finance team was based in Brisbane and was led by the Chief Financial Officer. The Finance team comprised between 6-10 people during the Relevant Period, including:

the Chief Financial Officer — Ms Nicole Glen who gave evidence in these proceedings, summarised below;

Finance Manager(s) responsible for coaching the team, financial reporting, cash flow management and managing external relationships;

Business Analyst(s) responsible for implementing and managing the database for the commission system;

a Finance Officer responsible for data entry of creditor invoices and expense claims for business units, preparing and processing twice monthly creditors payment runs and raising customer invoices on a weekly basis, processing payments by direct debit and credit card systems.

Senior Accountant(s), responsible for month end reporting requirements, bank account reconciliation, cash flow forecasting, preparation of journals and monthly GST and income tax reporting obligations;

Finance Accountant(s), responsible for the completion of month-end reporting requirements, daily bank account reconciliation and cash flow forecasting, monthly balance sheet reconciliations and preparation of month-end journal entries and monthly income tax and GST reporting obligations; and

Assistant Accountant(s), responsible for assisting the Finance Manager with the completion of month-end reporting requirements.

The National Technology team was led by Chief Information Officer (Eric Plumpton) and comprised between 2-50 people during the Relevant Period. The roles included software engineers, technical lead, product specialists, support analysts and customer experience officers. This team’s role was to continually improve the LM Group’s software (provided to mortgage brokers) and to provide support to mortgage brokers using LM Group’s software.
The Agreements and Onboarding team was based in Brisbane and was led by the National Onboarding & Agreements Manager, who reports to the Chief Financial Offer. The team was responsible for matters relating to the Franchise Agreement, referral agreements, lender accreditations, gathering documentation to support appointment under credit licence and accreditation with lenders, maintaining data. This team comprised between 2–6 people during the Relevant Period, with roles including:

National Onboarding & Agreements Manager, responsible for the day-to-day management of this team, as well as onboarding activities such as coaching Onboarding Officers, facilitating learning, assisting with the setup of broker data and managing the lender accreditation process;

National Agreements Administrator, who was responsible for the accurate preparation and execution of franchise related documentation, such as new Franchise Agreements, Deeds of Variation, Deeds of Termination & Release, among other documents. This role was also responsible for the preparation and execution of documentation relating to Loan Market's referral partner agreements;

National Onboarding Administrator, who was responsible for supporting new mortgage brokers through the onboarding process;

National Accreditations Administrator, who was responsible for managing the process required to get mortgage brokers accredited with lenders on Loan Market's lender panel.

Business support officer, who was responsible for preparing and executing franchise documentation, data creation, working with the state team and maintaining broker and referral relationships within the LM Group's CRM system.

The Commissions team consisted of approximately 4 to 5 people throughout the Relevant Period and was led by the National Commissions Manager who reported to the Chief Financial Officer. The Commissions team forms part of the broader Finance team within the LM Group. The National Commissions Manager was primarily responsible for the day-to-day management and control of all commission-related activities of the company. ln particular, this includes commission cash reconciliation, approval of payments prior to it being processed, updates to any changes to facilitation fees within the commission payments system.
This team included Commission Officers (also known as Payment Administrators) who were responsible for assisting with the accurate processing of payment data from a number of lenders to ensure that the mortgage brokers and referral partners receive income accurately and on time, including:

Entering data for the operating platforms and the payment system;

Reconciliating lender deposits to commission files;

Supporting mortgage broker and referrers by responding to inquiries and liaising with lender partners in relation to their policies; and

Maintaining records of all lender payment policy changes.

Support and services provided by the LM Group to Assessed Brokers

The support and services provided by the LM Group to mortgage brokers may be summarised as follows:

Onboarding of mortgage brokers — The onboarding process is for all new mortgage brokers joining the LM Group which now takes about six weeks but took longer during the Relevant Period. It involves issuing relevant agreements and forms, assisting with accreditation with lenders and, if they do not have their own ACL, appointing them as an authorised credit representative.

Access to the LM Group’s technology and software, including IT support — Technology services were provided as follows:

Mortgage Brokers were provided access to One View and/or, from December 2017, Springboard during the Relevant Period. These were both intranet websites containing learning and development tools and articles, employment/contractor agreement templates, reporting tools for running mortgage broker businesses and (in Springboard) formal online training courses.

Mortgage brokers were also provided access to Symmetry CRM and/or MyCRM. Prior to MyCRM, brokers used Symmetry CRM, a third party system designed to determine the best product for a customer, which was also used by brokers to submit loan applications through Apply Online. The provider of Symmetry provided mortgage brokers with assistance in relation to Symmetry. MyCRM was launched by LM Group in 2017 and provided a broader suite of customer relationship services, access to training and courses, a range of calculations, help and support, access to Apply Online, as well as a product finder, to find the ideal product finder for the customer’s circumstances and preferences. The product finder was never used by LM Group to direct mortgage brokers to particular products. LM Group’s Technology teams provided assistance to mortgage brokers for MyCRM on request throughout the Relevant Period.

Apply Online is a direct electronic interface between the lender and mortgage brokers, enabling efficient loan application lodgements and providing updates as to the progress of an applications through MyCRM. Apply Online is used industry‑wide, and increasingly lenders only accept loan applications through this portal. LM Group subscribes to Apply Online, owned by a third party, and made it available to mortgage brokers during the Relevant Period. Both the LM Group’s Technology team and the Apply On Line’s provider’s team provide technology support to mortgage brokers in relation to Apply Online.

eBroker was made available by LM Group to mortgage brokers from 2016 to 2019 and was used by mortgage brokers and referrers to mortgage brokers to track referrals. LM Group had purchased eBroker, but subsequently developed a referral feature within myCRM, which was launched in 2019.

LM Group operates an in-house IT support desk for mortgage brokers using the software, systems or tools provided by LM Group including One View/Springboard, Symmetry/MyCRM and Apply Online.

Use of LM Group’s Branding — Mortgage brokers were permitted but not required to use LM Group’s branding, including in their email signatures, newsletters, personal mortgage broker profiles on the LM Group’s website and their social media sites. There is guidance on Springboard about the use of those materials, including a Loan Market Style Guide. The LM Group Marketing Team is responsible for the provision and use of branding materials.

Access to a panel of lenders and accreditation assistance — LM Group provided mortgage brokers with access to a panel of lenders and accreditation assistance. The Compliance team is responsible for updating and managing the lender panel. Each lender has different requirements for accreditation, but each individual mortgage broker must receive accreditation from a lender if they wish to offer that lender’s products to their customers. All new mortgage brokers receive an accreditation pack during their onboarding containing declarations and forms for various lenders, regardless of whether they have existing accreditations (as all must be transferred). Mortgage brokers do not have to apply for accreditation with all lenders.

Compliance — The Compliance team monitors the loan writing activities of mortgage brokers to ensure compliance with requirements of legislation, lenders, regulators and LM Group itself. It does so through an audit process which involves three files (individual loans) being randomly selected and audited by an offshore compliance team. If the file fails the broker will be given two days rectify issues, a second audit will be conducted and, if it fails again, the mortgage broker will be sent an email stating there are still outstanding items. The Sydney Audit team will then contact the broker and conduct further investigations to see whether there are systemic issues with that broker’s files. The relevant state Broker Success Manager will be notified

Authorisation under LML’s ACL — Most (but not all) mortgage brokers did not have their own ACL. LM Group provided assistance by making them (and their employees) an authorised credit representative of LML.

Aggregation of the receipt and payment of commissions on behalf of mortgage brokers — Throughout the Relevant Period, LM Group aggregated commissions owed to mortgage brokers and remitted them to brokers, subtracting any fees owed to LM Group pursuant to the Broker or Franchise Agreements. The Commissions team managed this process.

Training and development — During the Relevant Period, all mortgage brokers undertook training during the onboarding process and on at least an annual basis, to maintain membership of a professional industry body such as Mortgage & Finance Association of Australia (MFAA) or Finance Brokers Association of Australia (FBAA) which required between 20 and 30 hours of training per year. LM Group made training resources available through MyCRM, Springboard, conducting professional development days and conferences and tailored training sessions.

Lender escalation and complaints handling — The NSW State team provided lender escalation assistance to mortgage brokers seeking to resolve delays with lenders reviewing and settling loans during the Relevant Period. The State team also assisted, with the Compliance team, when mortgage brokers receive complaints from clients or lenders.

Recruitment of loan writers/admin staff/brokers — The Broker Success Manager or State Administrator within the NSW State team assisted mortgage brokers with the recruitment, interview and selection process, as well as with the necessary documentations. Brokers ultimately decided who to employ.

Use of GBSS by mortgage brokers — ln or around March 2015, LMG entered into an agreement with GBSS, which undertakes an offshore processing business in Manila. From mid-2015, mortgage brokers could enter into an agreement with GBSS to conduct data entry with an attached fee, including to process entire applications on MyCRM and Apply Online from a scanned physical form from a client. LM Group paid GBSS and charged brokers a fee for their use of the services. The LM Group has used a different offshore processing service since 30 September 2020.

Payments to third parties on behalf of mortgage brokers — The LM Group also assisted mortgage brokers to streamline their referral arrangements through MyCRM. Template agreements are available (but not compulsory, as long as there is an agreement). Mortgage brokers can also arrange for LM Group to pay their referrers or ‘loan writers’ directly.

Additional marketing support — Throughout the Relevant Period, it was open to mortgage brokers to make custom marketing requests to the LM Group's marketing department by email or through Springboard for no additional fee.

Development and execution of business plans — During the relevant period, mortgage brokers could request business planning assistance for no additional fee, which would be provided by LM Group’s State teams and Finance teams.

Lead generation services — During the Relevant Period, mortgage brokers could opt-in for an additional fee for lead generation services, either qualified (higher fee where LM Group had already contacted/vetted the lead) or unqualified (lower fee where LM Group had contact details but it was left to the mortgage broker to make contact). The Operations Manual set out the fee but, as at May 2014, the fee was 30% of the total commissions paid by a lender for a settled loan. LM Group stopped offering qualified leads around 2017. If mortgage brokers did not opt-in, LM Group allocated leads to brokers who were located geographically proximate to the prospective client.

Third-party services

Mortgage brokers would sometimes engage third-party services in carrying on their mortgage broking business during the Relevant Period including: credit history and credit check services, market and product comparison tools, and analytics and data transfer services.
ln April 2013, the LM Group commenced offering the services of certain third-party service providers to mortgage brokers (on an opt-in basis). This was referred to as 'One System', which consolidated existing technology components of the LM Group's offering to mortgage brokers, including additional offering such as:

Professional indemnity insurance;

Stay-ln-Touch email marketing through CampaignBreeze; and

Property and sales data through Pricefinder.

The LM Group approached these third-party service providers with an offer to pay a flat fee on a monthly or yearly basis for the purpose of packaging up these services and providing them to its mortgage brokers on an opt-in basis – with the goal of obtaining a volume discount to pass on to brokers.

Going off-panel

Where a mortgage broker identifies that the needs of a client cannot be met by any of the products offered by the lenders on LM Group's panel, the mortgage broker must obtain LML's written consent to go "off-panel" prior to offering an off-panel product to the Borrower (see eg. cl 4.5 of the Franchise Agreement and chapter 4 of the Operations Manual). The Compliance team will review the broker’s 'Off-Panel Lender Request' which would explain why it is necessary to go off-panel, and will advise the broker whether the request has been granted. This use of off-panel lenders was relatively rare.

Termination of the Broker Agreements

Either LML or the mortgage broker were entitled, during the Relevant Period, to terminate the Broker Agreements without cause by giving the other party not less than the minimum prescribed notice. Generally, the LM Group only terminated if there was a breach by the broker. However, many brokers terminated during the Relevant Period to move to a different aggregator.
Upon termination of the Broker Agreements by a mortgage broker, the LM Group's practice throughout the Relevant Period was to provide the mortgage broker with a cessation letter, a Deed of Release and Termination for the mortgage broker to execute, and an exit letter setting out any compliance challenges in relation to that mortgage broker. A qualified exit letter would be sent where the mortgage broker ceased using LM Group as an aggregator with adverse circumstances present at the time of exist.
The practice of the LM Group has always been to allow the mortgage broker to take their customer information stored in MyCRM (processed by LM Group at no additional fee) and have it uploaded to their new aggregator’s system. Under the old Symmetry system, a mortgage broker was entitled to request a copy of their database of customer details on Symmetry from Stargate, which Stargate would provide at a cost to the mortgage broker.

(a)   The Assessed Broker is responsible for seeking new Customers, and must respond to all Leads within specified time periods: cl 3.
(b)   The Assessed Broker shall offer and market to customers the “Approved Products” for which it is accredited: cl 4.4.
(c)   The Assessed Broker must operate “strictly in accordance with the Operations Manual”: cl 6.2.
(d)   The Assessed Broker must devote its time exclusively to the business with LML, unless permission is otherwise provided: cl 8.1.
(e)   The Assessed Broker must fit out and maintain its commercial premises (if any) in the image prescribed by Loan Market: cl 10.2.
(f)   The Assessed Broker must participate in promotional activities and market research programs as specified in the Operations Manual: cl 12.3.

The services performed by Assessed Brokers for their clients comprise essentially the following:

(a)   Responding to customer inquiries (defined as “Leads”): cl 3.1.
(b)   Offering to customers the range of Approved Products for which the broker was accredited to provide: cl 4.4.
(c)   Submit loan applications for a prospective borrower: cl 4.8(1).
(d)   The Operation Manual provides further direction as to the services which the Assessed Broker provides to customers. These include meeting customers in person or over the phone (cl 3.1); providing referrals to the Ray White Network (a real estate agency) (cl 3.2); and where necessary and appropriate identifying solutions where a customer’s lending scenario cannot be serviced by an approved financier (cl 4.3).

In my view, when the two kinds of services are compared, it cannot be concluded that the services provided to the clients of the Assessed Brokers are of the same kind as those provided to LML. In particular, the obligations imposed on the Assessed Brokers under the Broker Agreements to originate loans by the Lenders in accordance with the practices and procedures mandated by LML as a Loan Market affiliated broker (including advertising in a particular way, complying with training requirements, and using certain documentation and software) and only recommend LML’s approved products were designed to build and protect the LM Group’s mortgage broking business. Those promises are directed to ensuring that each broker conducts a business which is successful, enhances the Loan Market brand and generates revenue for LML and the LM Group. The performance of these promises was a provision of a bundle of services different to, and more extensive in nature than, the services provided to the Assessed Brokers’ customers.

Issue 4: Whether the provision of one or more of the Generic Services by LMG to the Assessed Brokers satisfied section 32(2)(c)(i)?

This issue concerns Category 3A and Common Question 3A-1 which is:

Question 3A-1: Did the provision by LMG of one or more of the Generic Services used by an Authorised Broker engage any of the exceptions in s 32(2)(c)?

The plaintiffs contend the answer is “yes”, but the defendant contends the answer is “no”.
The evidence of each of the representative broker witnesses is relevant to this issue.
For the purposes of Common Questions 3A-1 and 3A-2 the expression “Generic Services” is defined to mean: (a) use of the plaintiff’s branding; (b) access to the plaintiffs’ lender panel by way of the lender agreements; (c) compliance services; (d) aggregation services, including arranging the receipt and payment of commissions on behalf of Authorised Brokers; (e) lender accreditation assistance; (f) authorisation under LML’s ACL where the Assessed Broker does not have their own ACL; (g) training and development; and (h) access to the plaintiffs’ technology and software, including IT support.
Some of these Generic Services are provided by employees of LMG and some by LML. Issue 4 concerns those supplied by employees of LMG and issue 5 concerns those supplied by LML.
On the argument put by the plaintiffs, this issue, and issue 5, both turn on the proper construction of the words “a contract under which a person (the designated person)” in the chapeau to s 32(2)(c)(i). It is helpful to set out s 32(2)(c)(i) in full:

However, a relevant contract does not include a contract of service or a contract under which a person (the designated person) during a financial year in the course of a business carried on by the designated person--
…
(c)   is supplied by a person (the contractor) with services for or in relation to the performance of work under a contract which paragraphs (a) and (b) do not apply where the work to which the services relate is performed--
(i)   by two or more persons employed by, or who provide services for, the contractor in the course of a business carried on by the contractor…

The plaintiffs contend that s 32(2)(c)(i) applies to all the Broker Agreements because a person, being the Assessed Broker (the designated person), is supplied with the services of a person, being LMG (the contractor), in the course of a business carried on by the Assessed Broker (the designated person) where the work to which the services supplied by LMG (the contractor) relate is performed by two or more persons employed by, or who provides services for, LMG (the contractor) in the course of a business carried on by LMG (the contractor). In other words, although the Assessed Broker is not the designated person in respect of the Broker Agreement which is treated as a relevant contract under s 32(1), the Assessed Broker can be regarded as the designated person for the purposes of the application of the exclusion in s 32(2)(c)(i) which would prevent, if it applied, the Broker Agreement from having the character of a relevant contract.
The Commissioner contends that the plaintiffs’ approach is not correct for two reasons. First, the proper construction of s 32 is that the “designated person” identified for the purpose of s 32(1) must be the same “designated person” when considering the exemption in s 32(2). The Commissioner’s case is that the ‘designated person’ under s 32(1) is LML and hence s 32(2) cannot be applied on the basis that the designated person is the Assessed Broker. If that approach to the identification of the “designated person” under s 32(2)(c)(i) is wrong, s 32(2)(c) is only capable of applying to contract where the designated person and the contractor are parties. Insofar as any services may be provided by employees of LMG to the brokers they cannot be “under” the Broker Agreement because LMG is not a party to that agreement and it is LML which contracts to provide all relevant services to the broker. The Commissioner relies on the legislative history of s 32(2)(c). The predecessor to Part 3, Division 7 of the Act was s 3A of the 1971 Act. That section was inserted by Payroll Tax (Amendment) Act 1985 (NSW). The explanatory note to that Bill explained that the definition of a term “relevant contract”, and the corresponding exemptions (which included what is now s 32(2)(c)) were (emphasis added):

Directed to capture several means of disguising the employer-employee relationship by contractual arrangements which have been increasingly resorted to in recent years by persons seeking to defeat the objects of the Principal Act. The definition contains appropriate exclusions so that the parties to genuine service contracts will not be prejudiced.

In my view, the Commissioner’s construction of “designated person” in s 32(2) is correct for the following reasons.
First, while it is true that the chapeau to s 32(2) appears to contain its own definition of “designated person” and does not expressly identify the designated person as being the same as the one under the relevant contract arising from s 32(1), this can be explained by the structure of s 32(1). There can be circumstances (and the present case is one) where a contract is a relevant contract under each of s 32(1)(a) and (b), so that each party is a designated person in which case the tie breaker in s 33(2) applies;

(2) If a contract is a relevant contract under both s 32(1)(a) and (b)--
(a) the person to whom, under the contract, the services of persons are supplied for or in relation to the performance of work is taken to be an employer,
(b) despite subsection (1)(a), the person who under the contract supplies the services is taken not to be an employer.

It may be noted that s 33(2) does not deny the character of “designated person” to each party, but rather it ignores the consequences that would otherwise arise from there being a relevant contract under s 32(1)(a) if there is also a relevant contract under s 32(1)(b).
Consistently with the co-existence of two designated persons under the same contract, s 32(2) operates by focusing on the relationships which otherwise make a contract a relevant contract under s32(1) rather than by expressly specifying that the designated person in s 32(2) is the designated person under s32(1). In the case of s 32(2)(c) this is done by the words “a contract under which a person…during a financial year in the course of a business carried on by [the person]…is supplied by a person…with services for or in relation to the performance of work” which track closely the words of s 32(1)(b).
Second, the purpose of s 32(2) is to exclude from s 32(1) a contract which would otherwise fall within s 32(1). It is apparent that each of the subparagraphs of s 32(2) is identifying some feature of the services supplied to the “designated person” under the relevant contract arising under s 32(1) which qualifies that relevant contract for exclusion. For example, subparagraph (b) looks to the nature of the services supplied to the designated person and can only sensibly operate if the designated person is the same as the designated person under the relevant contract. Subparagraph (c), which only operates where subparagraph (b) does not apply, then focuses on how the other party to the relevant contract (referred to as ‘the contractor’) performs the work to which the services relate (i.e. by two or more persons). Each of the subparagraphs of s 32(2) only operate in a manner coherent with the contract which has been identified as the relevant contract under s 32(1) if the designated person under each is the same.
For these reasons, in my view the basis on which the plaintiffs contend that s 32(2)(c) applies to Generic Services provided by employees of LMG is not correct.

Issue 5: Whether the provision of one or more of the Generic Services by LML to the Assessed Brokers satisfied section 32(2)(c)(i)?

This issue concerns Category 3A and Common Question 3A-2 which is:

Question 3A-2: Did the provision by LML of one or more of the Generic Services used by an Authorised Broker engage any of the exceptions in s 32(2)(c)?

The plaintiffs contend the answer is “yes”, but the defendant contends the answer is “no”.
The evidence of each of the representative broker witnesses is relevant to this issue.
The reasons already given in relation to Issue 4, the provision of one or more of the Generic Services by LML to the Assessed Brokers did not satisfy s 32(2)(c)(i).

Issue 6: Whether Flintfox’s engagement of GBSS engaged section 32(2)(c)(i)?

This issue concerns Category 3B and Common Question 3B-1 and Common Question 3B-2 which are:

Question 3B-1: Did Flintfox Australia Pty Ltd (Flintfox) engage the exception to a relevant contract in s 32(2)(c)(i) in the 2016 financial year, in that Flintfox supplied services to LML or LMG and the word to which the services of Flintfox related was performed by GBSS and the principal of Flintfox (Nicholas Gray) in the 2016 financial year?
Question 3B-2: If the answer to 3B-1 is “Yes”, did the 3B-2 Brokers (who received the same type of services from GBSS as Flintfox did) engage the exception to a relevant contract in s 32(2)(c), in that the 3B-2 Brokers supplied services to LML or LMG and the work to which the services of the 3B-2 Brokers related was performed by GBSS and the principal of the 3B-2 Broker?

The plaintiffs contend the answer to each question is "yes", but the defendant contends the answer to each question is "no".
Mr Gray is the representative broker witness relevant to this issue. The Court will address this issue by reference to his evidence, so that the answer to Common Question 3B-1 and 3B-2 will be the same. The Court does not understand parties to contend otherwise.
The factual background to this issue can be summarised as follows. In around March 2015, LMG and GBSS entered into an agreement by which LMG engaged GBSS to provide LMG with business support services “on its behalf”, which were to be provided by GBSS via its branch office in the Philippines (cl 2.1 and 2.2). Flintfox was not a party to this agreement.
On 30 May 2016, Flintfox entered into the “Business Broker Support Services Agreement” (BBSSA) with LML under which LML agreed to provide Flintfox with the “services” (defined to mean data entry for loan applications). Clause 5.1 provided that “[LML] may, at its discretion, engage a third party to provide the Services on its behalf or to assist with provision of the services (Service Provider). [LML] does not require your consent to appoint a Service Provider”. Under cl 3.1, the fee payable by Flintfox was $30 (plus GST) per loan application completed.
LML informed the Assessed Brokers of the availability of this service in the Operations Manual which (in its form in the 2016 financial year) stated as follows:

Loan Market has engaged a business processing offshore company in Manila called Galilee Business Support Services (GBSS). Through GBSS we have employed a number of staff who are based in Manila with the primary intention to assist Loan Market Brokers with a number of services including data entry for loan processing.
The loan processing or ‘remote PA’ solution we have implemented is available to all Brokers as an opt in service that you are free to take up wen and as it suits your business. The service will incur a $30 (plus GST) fee for each fille that is sent to Manila which is payable by the Broker through direct debit. This will form part of the agreement if and when the Broker decides to take up the service. All transactions are processed on a monthly basis.
The loan processing team or (otherwise known as Broker Support Officers) have a direct relationship with the Broker and are made aware on sign up that they will be contacted via phone or email if clarification or request for information is needed. The Brokers send information across to Manila via Loan Market systems i.e. G5 Mail and Google Drive. No information is allowed to be taken offsite or printed out in hard copy for security and data integrity purposes.
The data entry process currently being provided is viewed as the beginning of this offering and we anticipate the Broker Support Officers to be able to extend the breadth of their offering through support around valuation ordering, lender follow-up and co-ordinating settlement activities. Brokers will have the option to choose the extent of support they wish to receive and pricing will be made available once the program is extended.
For further information and to see how Manila can help you, please go to:
…

Flintfox engaged the services of GBSS for 10 loan transactions in the 2016 financial year and paid a total of $330 (incl GST) for those services. Mr Gray said in his evidence that this was considerably cheaper than the amounts he had previously paid to outsource this service ($300 per file) and he took up the service because he considered it to be “a bargain”.
The plaintiffs submit that Flintfox’s engagement of GBSS and the services performed by GBSS satisfy the conditions of the exception in s 32(2)(c)(i) because the work to which the services which Flintfox provided to LML were performed by Mr Gray and GBSS in the 2016 year.
The Commissioner submits that it was LML rather than GBSS which provided the services to Flintfox and the exception in s 32(2)(c)(i) is not engaged where the person supplying the services through the contractor is also the recipient of the same services (as the designated person under s 32(2)), or put in another way, a person cannot supply services to itself.
Section 32(2)(c)(i) will apply to Flintfox in the 2016 year if the exclusions in subparas (a) and (b) do not apply (which is either not in dispute or is the outcome of this judgment) and “the work to which the services relate is performed by two or more persons employed by, or who provide services for, [Flintfox] in the course of a business carried on by [Flintfox]”.
The focus of the exclusion is on the person or persons who perform the work to which the services provided by Flintfox to LML relates. It asks whether that work was performed by two or more persons, in the course of Flintfox’s business, who are either employed by Flintfox or who provide services for Flintfox. The second alternative is quite general and is not limited so as to require a contract between Flintfox and the person who provides services for Flintfox.
In the present case the work to which the services supplied by Flintfox under the Broker Agreement to LML in the 2016 year relate was performed by Mr Gray (an employee) and GBSS which provided services for Flintfox (pursuant to the BBSSA). The fact that there was no contract between Flintfox and GBSS is irrelevant because it is not a requirement of subpara (c)(i) that GBSS carries out the work under a contract with the contractor. It is clear from Odco in the passage set out at [203] above that a person (GBSS) may properly be said to perform a service for Flintfox notwithstanding that it does so on behalf of LML under BBSSA. In other words, GBSS provides services to LML at the same time that it provides services to or for Flintfox in respect of the data entry for the 10 loans in the 2016 year.
The Commissioner submitted in the alternative that the work performed by GBSS for Flintfox in the 2016 year is so minor that it should be ignored under the de minimis principle. In Farnell Electronic Components Pty Ltd v Collector of Customs (1996) 72 FCR 125 at 128, Hill J explained the de minimis principle in this way:

Unless the contrary intention appears, an enactment by implication imports the principle of legal policy expressed in the maxim de minimis non curat lex (the law does not concern itself with trifling matters); so if an enactment is expressed to apply to matters of a certain description it will not apply where the description is satisfied only to a very small extent.

The de minimis principle has been applied to s 32(2); see Bridges Financial Services at [235] and Smith’s Snackfood at [81].
The Commissioner drew attention to the relatively small amount paid for the services of GBSS ($330) and the fact that the evidence does not clearly establish the relative proportion of loan transactions for which Flintfox utilised the services of GBSS in the 2016 year.
While the amount charged by GBSS in the 2016 year is relatively small ($330) the work related to the data entry for 10 loan transactions over a five-month period. The use of GBSS was not isolated to the 2016 year, but rather should be seen as the commencement of a new outsourcing arrangement for data entry undertaken by Flintfox, as it continued to use GBSS in subsequent years: in the 2017 and 2018 years it did so for 70 loan transactions. In my view, obtaining assistance on 10 loan transactions in the 2016 year is not trifling, because the work of data entry is a key element of the process whereby the Assessed Broker originates a loan as described at [188] above, and the number of transactions (10) is not so small that it should be regarded as trifling.

Issue 7: Whether Anastasia Theodoropoulos’s engagement of Maria Damjanic engaged section 32(2)(c)(iii)?

This issue concerns Category 3E and Common Question 3E-2 which is:

Question 3E-2: Did Anastasia Theodoropoulos engage the exception to a relevant contract in s 32(2)(c)(i) in the 2018 financial year in that Anastasia Theodoropoulos supplied services to LML or LMG, and the work to which the services of Anastasia Theodoropoulos related was performed by Maria Damjanic and Anastasia Theodoropoulos in that year?

The plaintiffs contend the answer is “yes”, but the defendant contends the answer is “no”.
Ms Theodoropoulos is the representative broker witness relevant to this issue.
The evidence of Ms Theodoropoulos on her engagement Ms Damjanic is set out at [143]. The Commissioner contends that the plaintiffs failed to discharge their onus of proof on this issue because there is no evidence of the volume or scope of work performed by Ms Damjanic for the Court to make this an assessment that her work was more than de minimis.
I have accepted Ms Theodoropoulos’ evidence that she employed Ms Damjanic for approximately nine months from March/April 2017 at $100 per week which would include approximately six months in the 2018 financial year. Ms Damjanic was employed to assist with administrative tasks, but the main work she performed was data entry for clients for whom Ms Theodoropoulos was working in her mortgage broking business including the entry of customer information into the CRM system. Ms Damjanic had relevant experience for this role and there is an adequate explanation for why the arrangement was informal, being the serious illness which Ms Theodoropoulos was diagnosed with in 2017.
In my view, the plaintiffs have discharged their onus of proof that the work was done and that s 32(2)(c)(i) is satisfied for Ms Theodoropoulos for the 2018 year on the basis that two persons performed work-related services for that year, being Ms Theodoropoulos and Ms Damjanic. As indicated earlier, in my view the data entry activity is an integral part of the work-related services performed by a mortgage broker.

Issue 8: Whether MR & VL Cappetta’s engagement of Peter Carbone engaged section 32(2)(c)(ii)?

This issue concerns Common Question 3E-4 which is:

Question 3E:4: Did MR & VL Cappetta engage the exception to a relevant contract in s 32(2)(c)(ii) in the 2012 financial year in that MR & VL Cappetta supplied services to LML or LMG, and the work to which the services of MR & VL Cappetta related was performed by Cheryl Hudson and Marco Cappetta (the principal of MR & VL Cappetta) in that year?

The plaintiffs contend the answer is “yes”, but the defendant contends the answer is “no”.
Mr Cappetta is the representative broker witness relevant to this issue.
The Court notes that this question was put forward by the plaintiffs at the conclusion of the hearing, and the Commissioner does not accept that the answer to it will apply more broadly than to the position of the MR & VL Cappetta partnership as an Assessed Broker for the 2012 financial year.
The Commissioner submits that the plaintiffs have not discharged their onus of proof that Mr Carbone performed the relevant services or, alternatively, that the work was not de minimis (and therefore to be ignored). I have accepted Mr Cappetta’s evidence that he did engage Mr Carbone under an informal arrangement which started in February 2012 and lasted for a period of six to eight months. However, when Mr Cappetta was asked how many transactions Mr Carbone assisted Mr Cappetta with during that six to eight month period, his answer was “half a dozen possibly”. He was not able to identify whether the amount of $1,590 appearing as an expense in the partnership tax return for the 2012 year described as “contractor, subcontractor and commission expenses” related to the payments he made to Mr Carbone and merely said that it “could”.
The difficulty for the Court is that the evidence does not clearly establish the number of loan transactions for which Mr Carbone performed work for the partnership in the 2012 financial year, or the amount paid in respect of that financial year. It could not have been more than six but it may have been considerably less. In all the circumstances, the Court is not satisfied that the plaintiffs have discharged their onus of proof that the work performed by Mr Carbone was more than trivial.

Issue 9: Whether the Broker Agreement between LML and Anastasia Theodoropoulos is a relevant contract by reason of Anastasia Theodoropoulos having her own ACL?

This issue concerns Common Question 4A which is:

Question 4A: Did the Broker Agreement between Anastasia Theodoropoulos and LML constitute a relevant contract for the purpose of s 32(1) in the 2018 financial year given that Anastasia Theodoropoulos conducted credit activities under her own Australian Credit Licence in the conduct of a business of arranging and origination of loan application(s) made by loan applicants?

The plaintiffs contend the answer is “no” but the defendant contends the answer is “yes”.
Ms Theodoropoulos is the representative broker witness relevant to this issue. For the reason given at [205] above, in my view the fact that Ms Theodoropulous acted under her own ACL does not affect the conclusion reached for Issue 1.

Issue 10: Whether the payments made to the Assessed Brokers were “for or in relation to the performance of work relating to a relevant contract” with the meaning of s 35(1).

The plaintiffs submit that if the Broker Agreements are relevant contracts, to the extent that any services were provided by the Assessed Brokers to LML under the Broker Agreement they were nominal and de minimis and should be disregarded, in particular any such services were not sufficiently connected to the commissions paid to the Assessed Brokers so that the commissions were not for work “relating to a relevant contract” within the meaning of s 35(1). Rather, the Plaintiffs say that the work performed by the Assessed Brokers was only connected to the services they supplied to their customer. The plaintiffs drew attention to the observations made in Bridges Financial Services at [237] (where Gzell J said that s 3A(2)(c) of the 1971 Act, which is the precursor to s 35(1), was limited to the labour content of the commissions and brokerage received on behalf of the representatives from Bridges in that case) and Smith’s Snackfood at [174] and [184]–[187].
In my view the plaintiffs’ submission should be rejected. The work performed by the Assessed Brokers was central to the operation of LML’s business, which included assisting eMOCA earn commissions. LML employed no staff to assist it achieve that outcome. Instead, LML relied upon the work performed by the Assessed Brokers that it engaged under the Broker Agreements. The phrase “relating to” or “in relation to” requires no more than a relationship, whether direct or indirect, between two subject matters: Smith’s Snackfood at [59]. There was a direct relationship between the commissions, the performance of work by the Assessed Brokers and the Broker Agreements: the work was authorised by the Broker Agreements and the commissions were paid to the Assessed Brokers under the Broker Agreements.

Conclusion

For the above reasons the Court answers the Common Questions as set out below.
The Court will stand the matter over for directions to deal with any outstanding issues, including penalty tax and costs, and the finalisation of orders.

Common Questions and Answers

Question 1B-1: Does an Authorised Broker in the Category 1B cohort, who according to records held by ASIC was a credit representative under LML’s credit licence for 90 days or less in a given financial year, and who received only trail commissions and no upfront commissions during that given financial year, fall within the exception in s 32(2)(b)(iii)?

Answer: Yes.

Question 2A: Does an Authorised Broker in the Category 2A cohort engage the exception within s 32(2)(b)(iv) in a given year, by the Authorised Broker providing assistance in the arranging and originating of loan applications by loan applicants with lenders in that year?

Answer: No.

Question 3A-1: Did the provision by LMG of one or more of the Generic Services used by an Authorised Broker engage any of the exceptions in s 32(2)(c)?

Answer: No.

Question 3A-2: Did the provision by LML of one or more of the Generic Services used by an Authorised Broker engage any of the exceptions in s 32(2)(c)?

Answer: No.

Question 3B-1: Did Flintfox Australia Pty Ltd (Flintfox) engage the exception to a relevant contract in s 32(2)(c)(i) in the 2016 financial year, in that Flintfox supplied services to LML or LMG and the work to which the services of Flintfox related was performed by GBSS and the principal of Flintfox (Nicholas Gray) in the 2016 financial year?

Answer: Yes.

Question 3B-2: If the answer to 3B-1 is “Yes”, did the 3B-2 Brokers (who received the same type of services from GBSS as Flintfox did) engage the exception to a relevant contract in s 32(2)(c), in that the 3B-2 Brokers supplied services to LML or LMG and the work to which the services of the 3B-2 Brokers related was performed by GBSS and the principal of the 3B-2 Broker?

Answer: Yes.

Question 3E-2: Did Anastasia Theodoropoulos engage the exception to a relevant contract in s 32(2)(c)(i) in the 2018 financial year in that Anastasia Theodoropoulos supplied services to LML or LMG, and the work to which the services of Anastasia Theodoropoulos related was performed by Maria Damjanic and Anastasia Theodoropoulos in that year?

Answer: Yes.

Question 3E:4: Did MR & VL Cappetta engage the exception to a relevant contract in s 32(2)(c)(ii) in the 2012 financial year in that MR & VL Cappetta supplied services to LML or LMG, and the work to which the services of MR & VL Cappetta related was performed by Cheryl Hudson and Marco Cappetta (the principal of MR & VL Cappetta) in that year?

Answer: No.

Question 4A: Did the Broker Agreement between Anastasia Theodoropoulos and LML constitute a relevant contract for the purpose of s 32(1) in the 2018 financial year given that Anastasia Theodoropoulos conducted credit activities under her own Australian Credit Licence in the conduct of a business of arranging and origination of loan application(s) made by loan applicants?

Answer: Yes.

**********

Amendments

17 April 2024 - Update to defendant's representation in coversheet.

Decision last updated: 17 April 2024

Medium Neutral Citation:	Loan Market Group Pty Ltd v Chief Commissioner of State Revenue; Loan Market Pty Ltd v Chief Commissioner of State Revenue [2024] NSWSC 390
Hearing dates:	10–12, 15–16 May 2023, 15 June 2023
Date of orders:	12 April 2024
Decision date:	12 April 2024
Jurisdiction:	Equity - Revenue List
Before:	Richmond J
Decision:	See [289] and [290]
Catchwords:	TAXES AND DUTIES — payroll tax — exemptions TAXES AND DUTIES — payroll tax — liability — contractors TAXES AND DUTIES — payroll tax — wages — deemed employees TAXES AND DUTIES — payroll tax — wages — payments under relevant contracts TAXES AND DUTIES — payroll tax — wages — taxable wages
Legislation Cited:	Accident Compensation Act 1985 (Vic) National Consumer Credit Protection Act 2009 (Cth) National Credit Code Payroll Tax Act 1971 (Vic) Payroll Tax Act 2007 (NSW) Payroll Tax Act 2007 (Vic) Payroll Tax (Amendment) Act 1985 (NSW) Taxation Administration Act 1996 (NSW)
Cases Cited:	Accident Compensation Commission v Odco Pty Ltd (1990) 95 ALR 641 Bridges Financial Services Pty Ltd v Chief Commissioner of State Revenue [2005] NSWSC 788; (2005) 60 ATR 237 Chief Commissioner of State Revenue (NSW) v Smeaton Grange Holdings Pty Ltd [2017] NSWCA 184; (2017) ATR 151 Chief Commissioner of State Revenue v Downer EDI Engineering Pty Ltd [2020] NSWCA 126; (2020) 111 ATR 812 Downer EDI Engineering Pty Ltd v Chief Commissioner of State Revenue [2019] NSWSC 743 Drake Personnel Ltd v Commissioner of State Revenue (2000) 2 VR 635 Farnell Electronic Components Pty Ltd v Collector of Customs (1996) 72 FCR 125 FCT v Sara Lee Household & Body Care (Australia) Pty Ltd (2000) 201 CLR 520 IW v The City of Perth (1997) 191 CLR 1 Nationwide Towing & Transport Pty Ltd v Commissioner of State of Revenue (No 2) [2018] VSC 609; (2018) 1088 ATR 842 Smith’s Snackfood Co Ltd v Chief Commissioner of State Revenue [2013] NSWCA 470; (2013) 97 ATR 904 Tasty Chicks Pty Ltd v Chief Commissioner of State Revenue (2011) 245 CLR 446; [2011] HCA 41 Thomas and Naaz Pty Ltd v Chief Commissioner of State Revenue [2023] NSWCA 40
Category:	Principal judgment
Parties:	2020/27826 Loan Market Group Pty Ltd (Plaintiff) Chief Commissioner of State Revenue (Defendant) 2020/212582 Loan Market Pty Ltd (Plaintiff) Chief Commissioner of State Revenue (Defendant)
Representation:	Counsel: Ms E Collins SC, Ms C Burnett SC, Mr N Li (Plaintiffs) Mr A Gerard with Ms F McNeil (10-12 and 15-16 May 2023) (Defendant) Mr S Balafoutis SC, Mr A Gerard, Ms F McNeil, Mr C Chiam (15 June 2023) (Defendant) Solicitors: PwC (Plaintiffs) Crown Solicitor’s Office (Defendant)
File Number(s):	2020/27826 and 2020/212582
Publication restriction:	N/A