Mercor Group Pty Ltd v State One Holdings Pty Ltd - [2019] WADC 169

JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CIVIL

LOCATION:   PERTH
CITATION:   MERCOR GROUP PTY LTD -v- STATE ONE HOLDINGS PTY LTD [2019] WADC 169
CORAM:   BRADDOCK DCJ
HEARD:   21-22 FEBRUARY 2019
DELIVERED          :   6 DECEMBER 2019
FILE NO/S:   CIV 926 of 2018
BETWEEN:   MERCOR GROUP PTY LTD
Plaintiff
AND
STATE ONE HOLDINGS PTY LTD
Defendant

Catchwords:

Contract - Formation of contract - Certainty of terms - Non-payment - Breach - 'Tax agent services' - Unlicensed provider - Prohibited conduct - Illegality - Unenforceability

Legislation:

Competition and Consumer Act 2010 sch 2 s 18
Industry Research and Development Act 1985 (Cth)
Tax Agent Services Act 2009 (Cth), s 2.5, s 50-5 and s 90-5

Result:

Action dismissed

Representation:

Counsel:

Plaintiff	:	Ms M Georgiou
Defendant	:	Mr W A S Keane

Solicitors:

Plaintiff	:	Jackson McDonald
Defendant	:	Tottle Partners

Case(s) referred to in decision(s):

Australian Breeder's Co-Operative Society Ltd v Jones (1997) 150 ALR 448
Fitzgerald v FJ Leonhardt Pty Ltd [1997] HCA 17; (1997) 189 CLR 215
Gnych v Polish Club Ltd (2015) 255 CLR 414
Jones v Dunkel (1959) 101 CLR 298
St John Shipping Corporation v Joseph Rank Ltd [1957] 1 QB 267
Sutton v Zullo Enterprises Pty Ltd [1998] QCA 417; [2000] 2 Qd R 196
Yango Pastoral Company Pty Ltd v First Chicago Australia Ltd (1978) 139 CLR 410

BRADDOCK DCJ:

INTRODUCTION

This is an action primarily for breach of contract.
Mr Peter Walkemeyer is the sole and managing director of the plaintiff company Mercor Pty Ltd (Mercor). He described Mercor as:
An independent contractor operating in five broad areas; in strategy and transformation, operational effectiveness, collaboration and team work, business systems and processes, and program and project management.
Mr Walkemeyer is a civil structural engineer by profession, who moved into consulting services in about 2006. In 2008, he founded Mercor.
State One Holdings Pty Ltd (SOH) is part of a group of companies whose business involves stockbroking. SOH provides employees and services to State One Stockbroking Ltd (SOSL). It holds assets on behalf of the group, such as software. Mr Alan Hill is the managing director of SOH. SOH had, at the relevant time, been involved in research and development (R & D) work involving software, for stockbroking purposes. It had incurred expenses in doing that work.
In October of 2016, Mr Walkemeyer was introduced by a mutual contact to Mr Hill. On 25 October 2016, Mr Walkemeyer, Mr Hill and a Mr Hansen, the finance director of SOH, met at SOH's offices for the first time. It is undisputed that, in general terms, Mr Hill explained the structure of SOH and its group to Mr Walkemeyer, in part using a whiteboard diagram.
Mr Walkemeyer and Mr Hill discussed R & D expenses incurred by SOH. The parties also discussed the possibility of making an application for a tax concession available under an AusIndustry Schedule in relation to SOH's expenditure in developing the new software. Mr Walkemeyer was happy to assist SOH in the preparation of such a R & D application. Mr Hill asked for a 'fee proposal'. He confirmed that by email the following day.
On 27 October 2016, Mr Walkemeyer sent to Mr Hill a letter by email. This proposed, amongst other things, charging a percentage of the value of any claim in relation to a R & D application, of between 5% and 7.5 %, depending on the complexity of the work.
It appears that Mr Hill did not immediately receive that proposal. Mr Walkemeyer sent it again by email, on 14 November 2016. On 4 December 2016, Mr Hill acknowledged receipt and indicated a desire to 'get this into shape at the earliest opportunity'.
On 9 December 2016, Mr Walkemeyer and Mr Hill met again for further discussions. Mr Hill wanted clarification that SOH's R & D would be eligible under AusIndustry requirements. Mr Walkemeyer said he would need financial information. Mr Walkemeyer says that Mr Hill then instructed him to proceed. This is disputed.
Later on 9 December 2016, Mr Hansen emailed Mr Walkemeyer attaching SOH's financial documents for the year 2016, plus all staff names and remuneration. He went on to say in the email:
Financials for which companies? All expenses occur in State One Holdings Pty Ltd. State One Stockbroking Ltd has revenue only and is 100% owned by SOH.
Mr Hansen included a diagram of State One Group's structure and a 'special purpose financial report'. There was further email communication and information exchanged between Mr Walkemeyer and Mr Hansen in December 2016, which continued into January 2017.
On 16 January 2017, Mr Walkemeyer emailed Mr Hill attaching an extract from his 'detailed financial analysis' for 'review'. He also stated that he had prepared an estimate of the R & D claim, based on the information provided, which showed that SOH would receive a tax refund of $599,644.
In a telephone conversation on 17 January 2017, Mr Hansen told Mr Walkemeyer to proceed with the R & D plan. Later that day, Mr Walkemeyer emailed Mr Hill the 'draft detailed financials' which he said could be sent to 'David for review'.
Further detailed information was exchanged, a R & D plan was finalised and lodged with AusIndustry. It was registered on 17 March 2017, although the notice from the Australian Tax Office is dated 18 April 2017.
In late May 2017, Mr Walkemeyer spoke to Mr David Coote, the independent accountant for SOH. Mr Coote advised Mr Walkemeyer that no tax refund would be available because the total turnover of the group exceeded the sum of $20 million. In response to that information, Mr Walkemeyer emailed Mr Hill referring to what he had been told by Mr Coote, and sent invoices for his work.
It is not in dispute that SOH received no tax refund for R & D in the year ending June 2016. It is not in dispute that SOH have not paid Mercor in respect of the invoices rendered.

The proceedings

On the 14 March 2018, Mercor issued a writ and statement of claim against SOH. Mercor pleaded that on 9 December 2016, Mercor and SOH entered into agreement for the provision of services by Mercor to SOH. The particulars of the agreement given were that the agreement was partly evidenced in writing and partly oral, being the letter of 27 October 2016 containing the fee proposal, and the oral discussions between Mr Walkemeyer, Mr Hill and Mr Hansen on 9 December 2016.
The statement of claim pleaded that the express terms of the agreement were to the effect that:
(i)Mercor would prepare an application for SOH to obtain a R & D tax incentive pursuant to the Industry Research and Development Act 1986 (Cth);
(ii)Mercor would at its election depending on the time and complexity involved in preparing the application charge between 5% and 7.5% of the amount of the R & D tax incentive sought, plus GST; and
(iii)SOH would pay Mercor within 14 days of the issue of an invoice or, alternatively, it was an implied term of the agreement that SOH would pay Mercor within a reasonable time.
It is pleaded that Mercor prepared an application for SOH to obtain registration of its R & D activities and obtain a 45% R & D tax incentive on its eligible activities, totalling $3,385,000.
Mercor pleaded that pursuant to the contract, it elected to charge 7.5% of the value of the application, being $114,243.75 plus GST. This sum SOH owed Mercor as a debt.
Mercor sought damages for breach of contract, in the same sum, or in the further alternative, payment by way of quantum meruit for the work done.
SOH, in its amended defence, denies the terms of the discussions and states that the meeting on 25 October 2016 between Mr Hill and Mr Walkemeyer led to the fee proposal being provided on 27 October 2016. SOH pleaded the fee proposal in detail, and denied that Mr Hill instructed Mr Walkemeyer to proceed with an application on 9 December 2016. SOH denied that it entered into a contract, as pleaded, on 9 December 2016.
In the alternative, SOH pleaded an implied term that Mercor would perform the services with due care and skill and that SOH could terminate the contract on reasonable notice.
SOH pleaded further that on 16 January 2017, Mercor provided a financial analysis and figures of the tax incentive, plus the fee. SOH claimed these were representations by Mercor, which induced SOH to enter into a contract on 17 January 2017, to prepare a R & D application. It was alleged that Mr Walkemeyer did not exercise due care and skill, and that contrary to the representations made, SOH were not entitled to a refund in the sum stated by Mercor, or at all.
This conduct is also pleaded as misleading and deceptive conduct, in trade or commerce, contrary to s 18 of the Australian Consumer Law 2010 (ACL).
Further, in answer to the whole claim SOH pleaded that, if there was an agreement as alleged, it was an agreement for the purpose of supplying tax agent services, in contravention of s 50‑5(1) of the Tax Agent Services Act 2009 (Cth) (TASA). SOH said that neither Mr Walkemeyer nor Mercor were registered tax agents, that Mercor knew or ought to have known that the services to be provided were tax agent services, and that Mercor could not recover, in contravention of the TASA.
On these pleadings Mercor bears the onus to prove, on a balance of probabilities, that:
(i)a contract was entered into, its terms and the date upon which it was made;
(ii)the obligations of Mercor under the contract were performed;
(iii)there has been a failure to make payment, under the contract and/or a breach of the contract; and
(iv)in the alternative, that SOH has been unjustly enriched by Mercor's work.
SOH must establish, on its pleadings, one or more of the following:
(i)there were misrepresentations that induced the formation of the contract;
(ii)Mercor failed to exercise due care and skill in assessing the revenue of SOH for the proposed tax refund;
(iii)there was no refund or benefit available;
(iv)the representations were misleading and made in trade or commerce, contrary to s 18 of the ACL;
(v)the work done by Mercor was of no value; and/or
(vi)the provisions of the TASA render such a contract unenforceable.

The issues

The essential issues to be determined therefore are:
(i)Was there a concluded contract, if so, when, and what were its terms?
(ii)Were the services provided under the contract, if proven, 'tax agent services', pursuant to s 90-1 of TASA?
(iii)Does the fact that Mercor and Mr Walkemeyer were not registered tax agents render the contract void or unenforceable?
(iv)Was Mr Walkemeyer's statement to SOH that:
The analysis shows that you will receive a tax refund of $599,644. The sheet also shows the fees paid to us and the final cost of your business for preparing the application following tax deductions and R and D incentives in relation to the cost of preparation that will be received in the following year.
misleading and deceptive conduct? and
(v)Was the work done by Mercor of any value to SOH such that recompense is available by quantum meruit?

The trial

Mercor called Mr Peter Walkemeyer as its sole witness at the trial and relied upon numerous documents tendered in evidence. SOH called Mr Freban Hansen and Mr David Coote to give evidence at the trial and also relied upon numerous documents tendered in evidence. SOH did not call Mr Alan Hill. Mr Hill had at an earlier stage in the proceedings filed an extensive witness statement. I have had no regard to the contents of that document.
At the outset of the trial, counsel for SOH informed the court that Mr Hill was unwell and was consulting a neuropsychologist. At the end of the trial, a report dated 20 February 2019 from Dr Craig Hargate of Perth Clinical Neuropsychological Services was tendered. That report, in its terms, made clear Dr Hargate had been consulted on 18 February 2019. His testing and inquiries were not concluded. Mr Hill had yet to attend a third appointment. Dr Hargate made it plain that his letter was to provide an indication of his provisional recommendations. He stated that those recommendations should only be used in conjunction with other relevant information, to inform and guide the solicitors' decision regarding whether Mr Hill was to act as a witness in the trial. On the face of the letter, Dr Hargate did not envisage that his report would be tendered in evidence. It was not a comprehensive or even complete medico-legal report. It is consistent with counsel's advice from the bar table that he was made aware of the difficulty in the week prior to trial. No other evidence was produced concerning Mr Hill. Mr Hill was a significant potential witness for SOH.
Counsel for Mercor argued that an inference ought to be drawn, contrary to the interests of SOH, pursuant to Jones v Dunkel (1959) 101 CLR 298 that the evidence of Mr Hill would not have assisted SOH's case.
Some issue with Mr Hill's health was raised with Dr Hargate shortly prior to trial. No evidence was called as to Mr Hill's medical condition, his actual capacity to give evidence or his likely capacity in the future. In the normal course of events, if a question arises about the capacity of a witness of sudden onset, an application for an adjournment would be made. Counsel for SOH stated, at the start of the trial, that this had been considered and was not going to be pursued. From the information available, whatever condition Mr Hill suffers from is unlikely to be of sudden onset. It is somewhat remarkable that the issue was not addressed in a more timely fashion.
The question is however, whether the court should draw an inference that his evidence would not have assisted the case of SOH, such that the evidence of Mercor may be more readily accepted. In the circumstances, I infer that it was feared that Mr Hill would not have been able to give cogent useful evidence at the time of trial. It is abundantly clear that his absence cannot assist SOH's case. SOH has taken the view that it prefers to proceed in the absence of Mr Hill and to accept any adverse consequences. I do not propose to draw any further negative inference. I have heard evidence called from other witnesses. There are ample documents in the case so that it may be properly considered. Mr Hill's absence does not prove any contrary fact. The burden of proof remains on Mercor.

Peter Leon Walkemeyer

Mr Walkemeyer commenced his evidence by giving background information on his qualifications as a civil structural engineer and how he had come to found Mercor. He described the work done by Mercor as set out above. He emphasised that it operated as an independent contractor, held workshops and assisted in negotiating commercial agreements. He outlined his experience in relation to R & D tax incentive applications and that he had attended a relevant course operated by AusIndustry. He was aware of the requirements to be satisfied by a company which sought to qualify for a tax benefit from its research.
He described his first meeting with Mr Hill and Mr Hansen on 25 October 2016. He indicated that Mr Hill had told him that SOH was a holding company with a number of entities. One of the entities was a stockbroking business; SOSL. Mr Hill had also told him that there was another company called State One Equities which was separated from SOH. He referred to Mr Hill saying that they had restructured the organisation. SOH had previously had R & D applications prepared by Ernst & Young, from which they had received non-refundable tax offsets. His evidence was that Mr Hill stated that now SOH had restructured and separated revenues from the share trading, he was keen to explore another R & D application.
Mr Hill drew a diagram on a whiteboard of the corporate structure, an image of which was tendered in evidence. From his evidence and description of the structure diagram, it is clear that Mr Walkemeyer was told and ought to have known that SOH owned 100% of SOSL and that SOH had revenue from SOSL. He understood that State One Equities was separate from SOH.
Mr Walkemeyer said he made it clear to Mr Hill and others on 25 October 2016 that Mercor operated as an independent contractor, and was not a tax consultant or a R & D consultant. He told Mr Hill that he was happy to assist him 'as an independent contractor', and under his supervision to work with him to prepare his R & D application. He explained to Mr Hill that he would typically charge a fee of between 5% and 7.5% of the value of the claim. This was considerably less than what specialised R & D consultants or tax accountants might charge. He said that he told Mr Hill that he was not qualified or permitted to give tax advice or to lodge any application on his behalf.
Subsequent to that first meeting, he sent an email on 27 October 2016 to Mr Hill. The email attached a letter with a fee proposal. The letter stated:
I understand you require our services to assist with identifying a business structure and mechanisms to satisfy the ASX and their specific requirements for brokers, and you require our services to assist you with developing an application for your research and development work so that you can take advantage of the tax incentives offered by the Federal Government.
Our fee proposal for carrying out this assignment is as follows:
For consulting work … (omitted).
For assisting with preparation of applications for R & D we will charge you somewhere between 5 and 7.5% of the value of your claim depending on the time and complexity of the work.
For our business consulting work we will invoice you monthly and require payment within 14 days of invoice.
For our work assisting you with your R and D we will invoice you monthly for a portion of the anticipated fee until the application is finalised at which time we will invoice the balance of the fee. Invoices are to be paid within 14 days.
Mr Walkemeyer resent the fee proposal on 14 November 2016, had a response from Mr Hill on 4 December 2016 and subsequently met with Mr Hill and Mr Hansen on 9 December 2016. Mr Walkemeyer described that meeting as 'a kick off meeting to commence work on the application'. He said Mr Hill went through much of the same material as on the previous occasion, and that he was unhappy with the high fees charged by Ernst & Young in the past. Mr Hill was happy to lodge the application or have their accountant do it, in order to save money.
Mr Walkemeyer said he emphasised the necessity for aggregated revenues of the submitting organisation to be less than $20 million, to qualify for a refundable tax offset. He said that Mr Hill reiterated that State One Equities was a separate entity for the purposes of conducting the share trading operations. Mr Walkmeyer said Mr Hill maintained that SOH aggregated revenues would be a lot less than $20 million.
Mr Walkemeyer said that as a result of the discussions, Mr Hill stated he was happy to proceed with the R & D application. Mr Hill wanted clarification on whether his R & D activities would be eligible for the tax incentive. This indicates they had some discussion around the eligibility of the R & D activities. Mr Walkemeyer said that Mr Hill stated words to the effect that he would like to commence the work with the preparation of the financial worksheets, rather than the written part of the application, because it would give him some indication of the value or size of the claim. The meeting concluded with Mr Hill stating he wanted to proceed with the financial analysis of the work.
Mr Hansen emailed to Mr Walkemeyer a set of financial papers the same afternoon. The covering email reads:
Hi Peter,
As asked for 2016 financials for State One Holdings Pty Ltd and all staff names and remunerations.
Financials for which companies? All expenses occur in State One Holdings Limited. State One Stock Broking Limited has revenue only and is 100% owned by SOH.
I would assume financials and MYOB accounts to match for SOH would suffice.
State One Equities Pty Ltd is a separate to State One Holdings Pty Ltd and has ownership in State One Holdings Pty Ltd and has a financial service licence.
Attached a diagram showing SOH and entities.

The attached documents were SOH's special purpose financial report, a balance sheet as at the year ended 30 June 2016, with attached notes and a diagram of State One Group structure, which shows SOH owning 100% of SOSL, which in turn owned 100% interest in three subsidiary companies, the names of which are not currently relevant.
There followed further email communication between Mr Walkemeyer and Mr Hansen, about the formatting of financial information, detailed payroll breakdowns and the allocation of labour costs to R & D.
On 16 January 2017, Mr Walkemeyer emailed Mr Hill, with a copy to Mr Hansen, attaching a spreadsheet and describing the subject as 'R & D estimate'. The text of the email referred to the attached 'extract from my detailed financial analysis for your review'. It continued:
I prepared an estimate of your R & D claim based on the information you provided. The analysis shows you will receive a tax refund of $599,644. The sheet also shows fees paid to us and the final cost to your business for preparing the application following tax deductions.
The first page of the document attached shows 100% of Mercor fee as $114,275 exclusive of GST.
On the morning of 17 January 2017, Mr Hill emailed Mr Walkemeyer saying 'let's talk after 8.15 am'.
Mr Walkemeyer's evidence was that he spoke to Mr Hill that day. Mr Hill was satisfied with the financial analysis and said to proceed with the second part of the application 'being the written part'. Later that day, Mr Walkemeyer emailed Mr Hill attaching 'detailed financials that you can send to David for review'. The attachment was headed 'Financial Work Papers State One Holdings Pty Ltd'. It appears as a presentation of the profit and loss statement, with space for the insertion of R & D details. Already included are details of employees' base wages, payroll tax and other employee expenses. Much of the document is incomplete. It showed, at Item 12, total allocated notional deductions as $3,385,916. Attached to it is a document described as 'Tax Incentive Schedule R & D 2016', in part stamped 'example only', and bearing the apparent hallmarks of an Australian Tax Office document.
There followed a series of exchanges between Mr Walkemeyer, Mr Hill or Mr Hansen developing a R & D plan, starting with a pro forma into which information was inserted, provided by SOH. Mr Walkemeyer said he was provided with previous R & D application documents. He said they were not relevant, because they were old. On 7 March 2016, Mr Walkemeyer emailed Mr Hill the final application form completed for lodgement. The document is entitled 'Australian Government Department of Industry Innovation and Science R & D Tax Incentive Application: registration of R & D activities'.
The document clearly is designed for submission online. At page 22, it indicated that the entity did not rely on advice from a tax agent or an R & D consultant to complete it.
Once such an application for registration is lodged, if it is successful, a number is allocated to the entity, which in this case occurred.
Mr Walkemeyer gave evidence of a meeting on 24 February 2017 with Mr Hill, in the process of developing the written document, when Mr Wilde, the R & D officer of SOH, attended and had input. During the course of these exchanges and development of the document, Mr Hill had queried the status of Mercor and clearly was advised that Mercor was not a tax agent.
Prior to 30 May 2017, Mr Walkemeyer had a telephone conversation with Mr Hill. Mr Hill told Mr Walkemeyer that he had been advised by the accountant, Mr David Coote, that SOH would not be eligible for a tax refund. As a result of this, Mr Walkemeyer phoned Mr Coote. Mr Walkemeyer said that the explanation given was that there were some revenues from SOSL that 'were still going to be amalgamated' into the revenues of SOH, so that the total revenue would exceed $20 million, rendering them ineligible for a tax refund.
On 30 May 2017, Mr Walkemeyer emailed Mr Hill relaying his conversation with Mr Coote. He attached invoices for Mercor's work. No invoices had been rendered prior to this. Mr Walkemeyer said he generated five separate invoices 'out of sensitivity for State One's cash flow' distributing the fee across five invoices that could be paid by instalments. When asked why he did this, he repeated that it was out of sensitivity; that he considered that five invoices was 'a neat' way to spread them over six months. Mr Walkemeyer's evidence was he received no response to his email of 30 May 2017. He followed it up on several occasions. Subsequently he instructed solicitors to make a demand upon SOH for payment. He did eventually speak to Mr Hansen, who said he had seen the invoices but he could not pay them until Mr Hill had signed off on them.
In cross-examination, Mr Walkemeyer confirmed that he had no formal qualifications in business, accounting or finance. He said he would not necessarily know the difference between an individual company financial statement and a consolidated company financial statement. He said that he did not know the difference between stockbroking and proprietary trading. He confirmed that he had some experience in R & D tax incentive applications.
Mr Walkemeyer claimed that his understanding at the first meeting with Mr Hill was that all share trading activities had now been transferred to State One Equities, which was entirely separate from SOH. When asked what Mr Hill actually told him he said 'that's what I believe he did tell me'. He maintained that Mr Hill had said that SOH's revenue was under $20 million. Mr Walkemeyer confirmed that he was 'absolutely' aware of the $20 million ceiling for the tax rebate. No document in evidence indicates any restructuring of this description.
Mr Walkemeyer said he explained, at the first meeting, the AusIndustry guidelines for making the R & D application, and made it clear that he was not a tax agent, was not qualified to provide tax advice. He said that he was semi-retired for 'the last several years' but went to the meeting because there was a possibility of some new work. He said that he presented himself at the meeting as able to work as an independent contractor, to assist SOH to prepare an R & D application. He said his proposal was consistent with that wording.
He emphasised that Mercor was not an advisory business and disputed the proposition that 'consulting' usually involved giving expert or professional advice. When asked how he assisted somebody with identifying a business structure, if he did not give them any advice, he said:
You need to understand how we operate our business, Mr Keene. What we would typically do in a situation like that is engage our client in a series of workshops. And facilitate those workshops so there is a decision making process that we structure. As a business we bring structure, systems and processes to business. So that the business people within the businesses themselves have tools and mechanisms to help them structure and analysis the problems that they face. So that the solutions become self-evident to the business owners or the people in that business. We don't provide an advisory we don't have the skills and capabilities to do that. We're not Price Waterhouse.
This manner of description was evident also in his 'company brochure', which was tendered in evidence. He was cross‑examined in some detail upon the document. He was emphatic that he was not giving advice. On a second occasion, he said 'you need to understand how we conduct our business' and went on to repeat what he had said about workshops. He was directed to a part of the company brochure that said 'the right advice at the right level', but maintained that it was not an advisory business.
He was referred to information provided on 9 December 2016 by Mr Hansen entitled 'Responsible Executive Regime and Management Plan'. He said that he did not read it in detail because 'just the heading on the document makes it irrelevant for the purposes of preparing R & D application'. The document, when read, confirms the structure of SOH and the subsidiary SOSL. He said if he had read the relevant paragraph it would certainly have raised 'alarm bells'. He said that he did not think it was necessary to understand SOSL's business for the purpose of preparing a R & D claim. He went on to say the only relevance was what is in the guideline documents and the $20 million threshold. He maintained that there was discussion about aggregated revenues. He was asked whether he had requested SOH's financial documents, to which he replied:
No I made it clear even on the 25 October that I must have aggregated revenues. As we talked about the importance of corporate structure. I explained Mr Hill gave a very confused explanation of the overall business structure, even in relation that diagram.
He confirmed that he understood that the financial accounts provided on 9 December 2016 were for SOH alone. He agreed that they were not the aggregated financial statements. He said he requested the aggregated financial rents and expected that was what had been provided. When referred to the further question in Mr Hansen's email of 9 December 2016 - 'financials for which companies?' he confirmed that he had never answered that question. He confirmed that he clearly understood that the stockbroking business was 100% subsidiary and that its revenue was part of the group. He said he never saw SOSL's financial statement, neither did he ask for it. He repeated that he asked for the aggregated profit and loss statement for SOH and that would include all the revenues from SOSL. He said he did not notice that he was not given them. When it was put to him that he had been asked a question about what he wanted which he did not reply to, his response was 'I had no reason to answer that question because I believed that the financials I had been given were the correct financials'. He said his understanding was that SOSL was only receiving fees through licensing and not through share trading.
It was put to him that he was deciding what was relevant when making decisions and what he needed for his analysis. He said 'I think the word deciding is too strong, but it's simply a fact that if you're doing the calculation you need the information'. It was put to him that he needed to identify the information and that was his role for the project. He said 'Yes, I guess so. As an independent contractor you've got to have certain information to be able to do your job'. He maintained that what he thought he had been given was the aggregated profit and loss statement of SOH. He conceded that it was not and that he just did not know the difference.
He accepted that his work involved allocating expenses to particular R & D categories in his spreadsheet document, which was a template for the R & D plan. He agreed that he had to categorise the activities so that they aligned with the requirements of the legislation. He agreed that the template explained what was required to be gathered for the application to be lodged as a successful R & D application.
He was cross-examined in relation to the old applications that had been provided to him. In evidence-in-chief he had said that they were not relevant. It was demonstrated that he had in fact taken some of the material in the old applications and re‑produced it in one section of his draft application. He said he would have re-typed it.
He asserted that Mr Coote was present in a meeting on 17 February 2017, for the purpose of going through the financial analysis and the numbers. He confirmed that Mr Wilde attended the same meeting, for a different purpose. It was put to him that he never discussed any of the aggregated revenues or financial analysis with Mr Coote, but he maintained that the purpose of the meeting was to go through the financial analysis. He confirmed that he wrote the email to Mr Coote on 30 May 2017, when he learned that the application was not eligible. He agreed that he did not mention to Mr Coote any re‑structure of the group. He agreed that his work on the application finished around mid March.
He would not concede that he made any mistake in failing to identify the revenue from the stockbroking business as rendering the company ineligible for the tax refund. He denied that he knew that SOSL had a lot of revenue and said he was led to believe that it was State One Equities who was making billions of dollars in share trading activities. He maintained that he had been given misleading information by SOH, and denied that he had made a mistake because he did not have the necessary expertise.
He was also cross-examined upon his 'LinkedIn' page, and the Mercor website. Both of them refer to an organisation called Workplace Giving Australia. Effectively, both documents represented that Mr Walkemeyer had a significant role in Workplace Giving Australia, whereas the relevant search showed that the chairman of Workplace Giving Australia is a Mr Tony Harrington. Mr Walkemeyer offered a complex explanation of the history of Workplace Giving Australia, the transfer of the name and its development. Mr Walkemeyer conceded that the website landing page was very out of date and was currently misleading.
Mr Walkemeyer impressed, initially, as a careful and businesslike gentleman, who was well prepared and controlled in his evidence‑in‑chief. He presented as a polished salesman. He was keen, in both evidence‑in‑chief and cross-examination, to add information and explain. He gave complex verbose answers, which, in many cases, were lacking in substance. My impression was that he was acutely aware of certain factors, such as the aggregate maximum turnover figure for making applications for R & D rebate, and that he was not a registered tax agent.
I found his assertion that he ran a consulting business without giving advice to be disingenuous. I found his repeated use of broad general descriptions of the work of Mercor to be jargon, providing little information of use to the inquiry at hand. Whilst superficially impressive as a witness, he was keen to repeat certain 'set piece' assertions rather than answer particular questions. He was not, in summary, a witness upon whom I felt I could rely as to substance and detail without documentary or other support. His evidence denying his business did not include giving advice was incapable of belief. His repeated use of the phrase 'independent contractor' caused me to wonder if he thought this somehow was an acceptable disclaimer of responsibility. The matters put to him in cross-examination set out in the preceding paragraphs significantly caused me to doubt his reliability and credit.

Freban Kel Hansen

Mr Freban Hansen was the finance director of SOH. He was both relaxed and precise. He gave evidence, without resorting to jargon. He did not remember a great deal about the first meeting with Mr Walkemeyer, save that he was present, that Mr Hill took the lead and explained the situation. He recalled the drawing from that meeting on the whiteboard, which he had subsequently photographed, before staff erased it the following day (exhibit 1). He confirmed that the bulk of the revenue of the group rested in SOSL, which contained traders who generated a lot of turnover. He said that State One Equities did the corporate work, which was different from stockbroking.
He recalled the second meeting in December 2016, when Mr Hill called him into the boardroom where Mr Walkemeyer was. He said that the R & D in SOH was software, and the head programmer Mr Ben Wilde was usually involved in that. He said Mr Wilde came into the room during this meeting. He did not stay very long in that meeting. He recalled a meeting also with Mr Coote, the tax accountant.
In cross-examination, he conceded nothing which would confirm that anything had been said about a re‑structure at the first meeting with Mr Walkemeyer. He did say that Mr Hill did not want to proceed with Ernst & Young because they could not get a cash refund. Mr Hansen said he was there as a finance director, to meet Mr Walkemeyer, because he was later to provide Mr Walkemeyer with financial information. He was firm that Mr Hill did not tell Mr Walkemeyer that all the revenue of share trading activity was now in State One Equity. He was certain that he would have recalled if something like that had been said. He took no part in any discussion of fees. His attendance at the second meeting was brief. When referred to his email of 9 December 2016, he said he referred to State One Equities as a separate entity to explain why he did not send their financials. He denied that Mr Hill said that SOH had been separated from the group. He did not recall whether any detailed financials were discussed at the meeting attended by Mr Coote.
Mr Walkemeyer called him on 20 November 2017 about the outstanding accounts. He said that his role in the company was to prepare the financials and that Mr Coote handled the tax return. He agreed that he never sent Mr Walkemeyer any document that would show an aggregated turnover of $700 million for SOH. He said that he sent Mr Walkemeyer what was requested. He said he did not recall him asking for the aggregated turnover.
I accept Mr Hansen's evidence as reliable, as far as he recalled events. He was certainly not attempting to include any factual matter he did not clearly recall.

David Coote

Mr David Coote is a chartered accountant and the principal of Coote & Associates. His firm was the external accountant for State One group of companies. He attended a meeting, in February 2017, at the offices of SOH. He believed that he attended because Mr Hansen had prepared a set of financial statements for SOH. He said he was in the boardroom when Mr Hill introduced him to Mr Walkemeyer who was going to prepare a detailed R & D work schedules. He had no involvement in that work. Mr Walkemeyer was going to do the detailed work to determine what the claim would be. They casually looked at a set of financial statements of SOH.
The next time he had anything to do with the R & D application was when the tax return needed to be lodged, around 17 May 2017. He said that there was a schedule of expenses to be included and some questions to be answered. He did not believe that SOH ever achieved a refundable R & D tax offset.
In relation to the application, he said that when they were preparing the tax return, he had to change some of the answers. He took the application to Mr Hill who said 'how am I going to pay Walkemeyer?'. He subsequently spoke to Mr Walkemeyer on the telephone. He told him that the aggregated turnover was over $20 million. Mr Coote said 'I think he complained that he should've been told earlier'. He remembered the meeting of the 17 February 2017 which he described as 'meet and greet'.
He knew at the relevant time that SOH aggregate revenue would be over $20 million, but recalled no discussion about it when he met with Mr Hill and Mr Walkemeyer. He confirmed that if you have relevant R & D activity reported in the tax return and you are eligible, you get a refund or, if you are ineligible you get an accelerated deduction. He said there was a benefit to the R & D claim but some people qualify and some people do not.
Mr Coote impressed as an honest straight forward external witness who had relatively limited recollection of events in question.

The contract

This case involves a contract, and on the pleadings there is a dispute as to both its terms and the date it was entered into. It is therefore appropriate to re-visit in overview the basics of contract law, involving the concepts of offer and acceptance. To succeed in a claim for breach of contract against another, a claimant must first show that a contract was made with that other party. The elements of the formation of a contract are usually identified as being an agreement, consideration, an intention to create legal relations and certainty of terms.

In this case, there is no dispute that the relevant offer was made by email from Mr Walkemeyer to Mr Hill on 27 October 2016. The email contained terms for services to be supplied by Mercor to SOH. Mercor has pleaded, at par 4 of the statement of claim, the 'material express terms'. Mercor also pleaded (par 5(c)) that the oral part of the contract consisted of a conversation between Mr Walkemeyer, Mr Hill and Mr Hansen on 9 December 2016. For present purposes, there is no dispute that the email was an offer to enter into a contract for services to be rendered by Mercor to SOH as per the terms contained in that email.
SOH disputes that at the 9 December 2016 meeting Mr Hill instructed Mr Walkemeyer to prepare an R & D application. On that basis SOH denies that the contract was entered into on that date. SOH pleads that the contract was concluded on 17 January 2017, after Mr Walkemeyer emailed advice to SOH on 16 January 2017, with an estimate of the benefit to be obtained from and on R & D tax incentive and its fee. The evidence from Mr Walkemeyer was that Mr Hill stated that he was happy to proceed with the application, but that he wanted clarification on what R & D activities would be eligible. He wanted Mercor to commence work with the financial worksheets to give an indication of the value of the claim. Mr Walkemeyer's evidence was that the meeting concluded with Mr Hill stating he would like Mercor to proceed with the financial analysis.
It is apparent, from the events that followed, that the work under discussion involved a number of processes; gathering the relevant financial information, ascertaining what R & D work had been done, discussing how to present that for the purposes of registration with AusIndustry, and computing the components of wages that went into R & D, rather than other services, in order to calculate the value of a claim. I accept that Mr Hill indicated on 9 December 2016 he wished to know what the financial analysis was and the value of the claim.
My reasons for reaching this conclusion are that it is consistent with common sense, and with the subsequent exchange of financial documents and other documents and the email exchanges that followed. It would, in my view, be unlikely that SOH would have disclosed the financial materials that Mr Hansen sent to Mr Walkemeyer, without some firm arrangement, such as a contract.
I am of the view that the work was as described in the fee proposal: 'to assist you with developing an application for your R & D work so that you can take advantage of the tax incentives offered by the federal government'. It would involve a number of stages. That is consistent with the email from Mr Walkemeyer to Mr Hill on the 16 January 2017, which was an estimate of the R & D claim, based on the information provided. The attached worksheet showed the actual fees that would be payable.
It was argued that the formulation of the fees, as between 5% and 7.5%, was not sufficiently certain as to amount to a contractual obligation.
I do not accept this argument. The final fee, as set out in the proposal, was not capable of being calculated at that stage with certainty. The proposal was for the doing of work, which was specified, for reward. The ascertainment of the precise value would depend upon matters involved in the undertaking itself. This is not a novel concept, indeed it is a very common concept in commercial and professional life. It is no more and no less than any agreement to do work for reward, the precise quantum of such reward to be calculated at a later date, with an estimate of the manner in which it would be calculated.
Accordingly, I find that an agreement to do work as set out in the proposal was concluded on 9 December 2016, when Mr Walkemeyer started work at Mr Hill's instruction and obtained financial information. Later, the detail of the fee was clarified by the email dated 16 January 2017, from Mr Walkemeyer to Mr Hill. This, in my view, was accepted by SOH the following day at a meeting between the parties. There is no suggestion of any argument about the quantum of the fee. The agreement is evidenced additionally by the ongoing email communications exchanging drafts for the R & D plan seeking further information and responses to such requests, in the following weeks.

The Tax Agents Services Act (2009) (Cth)

Section 2‑5 of TASA sets out the objects of the Act:
The object of this Act is to ensure that tax agent services are provided to the public in accordance with appropriate standards of professional and ethical conduct. This is to be achieved by (among other things):
(a)establishing a national Board to register tax agents, BAS agents and tax (financial) advisers; and
(b)introducing a Code of Professional Conduct for registered tax agents, BAS agents and tax (financial) advisers; and
(c)providing for sanctions to discipline registered tax agents, BAS agents and tax (financial) advisers.
Section 50‑5 of the TASA provides:
Providing tax agent services if unregistered –
(1)You contravened this sub-section if:
(a)you provide a service that you know, or ought reasonably to know, is a tax agent service; and
(b)the tax agent service is not a BAS service or a tax (financial) advice service; and
(c)you charge or receive a fee or other reward for providing the tax agent service; and
(d)you are not a registered tax agent; and …
(e)(not relevant legal service)
The section then provides for civil penalty both for individuals and bodies corporate.
Section 90‑5 of TASA provides:
Meaning of tax agent service
(1)A tax agent service is any service:
(a)that relates to:
(i)ascertaining liabilities, obligations or entitlements of an entity that arise, or could arise, under a taxation law; or
(ii)advising an entity about liabilities, obligations or entitlements of the entity or another entity that arise, or could arise, under a taxation law; or
(iii)representing an entity in their dealings with the Commissioner; and
(b)that is provided in circumstances where the entity can reasonably be expected to rely on the service for either or both of the following purposes;
(i)to satisfy liabilities or obligations that arise, or could arise, under a taxation law;
(ii)to claim entitlements that arise, or could arise, under a taxation law. …
(2)A service specified in the regulations (not relevant).
SOH pleaded that the agreement was for the purpose of supplying tax agent services in contravention of subsection 50‑5(1) of the TASA.
SOH pleaded that, as a consequence, the provision of the services and charging for those services were in contravention of and prohibited by TASA. Therefore SOH denied that Mercor was entitled to the relief claimed or any relief.
It is necessary therefore to determine whether the contract, concluded on 9 December 2016, as I have found it was, was a contract to provide prohibited services under TASA.
Further, it must be established that Mr Walkemeyer, as the sole and managing director of Mercor, knew or reasonably ought to have known that Mercor was providing tax agent services.

Submissions

Counsel for SOH argued that a court will not enforce a contract that is illegal in its formation or performance, citing St John Shipping Corporation v Joseph Rank Ltd [1957] 1 QB 267,293.
SOH argued further, that no benefit was received by the company as the work done was worthless. Therefore, no claim for quantum meruit could succeed. SOH relied on the proposition that where a statute expressly prohibits charging for services, restitution is not available: Australian Breeders Co-Operative Society Ltd v Jones (1997) 150 ALR 498 [541] and Sutton v Zullo Enterprises Pty Ltd [1998] QCA 417; [2000] 2 Qd R 196.
Mercor in its written closing submissions, denied that the services satisfied the definition under s 90‑5 of TASA. Mercor argued that even if they did, it was not reasonable, in the circumstances, for those services to be relied upon.
Counsel for Mercor relied upon Mr Walkemeyer's evidence that he had said he was not a tax agent (or an R & D specialist), that he had said that the accountant or Mr Hill would need to lodge the application, that Mr Walkemeyer had told Mr Hill that Mercor was not qualified or permitted to give any tax advice or lodge the application. Further, Mercor said that Mr Walkemeyer was to 'assist' in preparing the application, as 'project based work by Mercor'. Mercor referred to the fact that Mr Walkemeyer's estimate (exhibit 12) was based upon the information provided by SOH. Further it was argued that SOH was not inexperienced in relation to R & D applications and tax refunds or tax offsets. Mr Walkemeyer provided documents to be reviewed by Mr Coote. Mercor's submissions did not address the issue of illegality or its consequences directly.
Submissions in the present case therefore did not consider recent authority on enforceability or illegality in the context of TASA.

Discussion and findings

The documentary evidence in this case was almost all tendered by consent. The documents comprised, on the whole, emails passing between Mr Walkemeyer, Mr Hill, Mr Hansen and attachments to those emails. The key documents are: the letter of the 27 October 2016 (the 'fee proposal') (exhibit 2); the email from Mr Hansen to Mr Walkemeyer on the 9 December 2016, attaching a financial report and other documents (exhibit 4); the email from Mr Walkemeyer to Mr Hill of the 16 January 2017 giving his 'detailed financial analysis' (exhibit 12); the series of drafts of the R & D plan as developed between Mercor and SOH; the email of the 7 March 2017 from Mr Walkemeyer to Mr Hill with the attached application for an R & D incentive for lodgement with the ATO (exhibit 29); and Mr Walkemeyer's email of 30 May 2017 to Mr Hill attaching his invoices (exhibit 33).
I have already stated my reservations about the evidence of Mr Walkemeyer. The documentary evidence however is convincing and reasonably comprehensive in relation to the key events. I accept the evidence of Mr Hansen and Mr Coote, although their recollections were limited. I prefer their evidence where it conflicts with Mr Walkemeyer's testimony.
I find that the corporate structure of SOH group was explained to Mr Walkemeyer at the initial meeting on 25 October 2016. This was also set out in an attachment to Mr Hansen's email (exhibit 4) on 9 December 2016. It is not in dispute that Mr Walkemeyer was told that SOH was a holding company and held 100% of the shares in SOSL, a stockbroking company. There is no dispute that State One Equities is an entity outside of this structure. There was, I find, no basis for Mr Walkemeyer to exclude or discount the possibility of relevant income in SOSL.
I do not accept, in this context, that Mr Hill orally represented to Mr Walkemeyer that the group turnover for tax purposes was less than $20 million. This is an uncorroborated self-serving statement by Mr Walkemeyer. Neither do I accept that Mr Walkemeyer was told that there had been a re-structuring such that all revenue had been removed to State One Equities. If that was Mr Walkemeyer's understanding, he was seriously mistaken. Upon receipt of Mr Hansen's email which asked 'the financials of which entity', Mr Walkemeyer should have requested the documents relevant to those entities whose income would be aggregated for tax purposes. I cannot accept his evidence that he repeatedly emphasised the necessity of the aggregate income being under $20 million, but made no appropriate inquiries to satisfy himself that this was the case, such as by inspecting SOSL's financial reports and the tax return filed. I find it astounding in context that he made no response to Mr Hansen's enquiry.
These matters, however, do not address the nature of the services to be provided under the contract. Mr Walkemeyer's assertions would be directed to rebut allegations of incompetence on Mr Walkemeyer's part.
The work to be done, as described by Mr Walkemeyer on 27 October 2016, was assisting with developing an application for 'your R & D work to take advantage of the tax incentives'. This was the task that Mr Walkemeyer commenced after the 9 December 2016. As is apparent on the face of the documents to which I have referred, in particular Mr Walkemeyer's email of 16 January 2017, having obtained some financial documents, he prepared a financial analysis. He used his own spreadsheets and prepared the figures from the information he was provided. The analysis was directed to an estimate of the value of an R & D claim. In my view, it is obvious that this analysis had to include some judgment of what was eligible for that purpose under the relevant scheme. The analysis led him to advise that SOH would receive a tax refund of over half a million dollars. He calculated Mercor's fee on that basis. He referred to using a company tax rate of 28.5%.
On Mr Walkemeyer's own evidence, he was collating financial information and performing an analysis, 'for the purpose of ascertaining the entitlements of an entity arising under a taxation law, and advising the entity about entitlements that could arise under a taxation law'. In my view, this falls squarely within s 90‑5(1)(a)(i) and s 90‑5(1)(b)(ii) of the TASA. Mr Walkemeyer's assertion that Mercor did not give advice was nonsense, in the face of what he was actually doing. The fact that he was 'assisting' SOH and referring his work 'for review' does not, in law or in practice, change the nature of the service that he was providing.
In submissions, counsel for Mercor argued that in the circumstances, it was not reasonable to expect the services to be relied upon. Counsel relied upon par 2.33 (example 2.4) of the explanatory memorandum to the Tax Agents Service Bill 2008. That example is of a car dealer who, whilst selling cars to clients, makes suggestions as to the tax implications of a car purchase but includes with its advice that the clients should consult their tax agent. Because the car dealer did not hold itself out as a tax adviser and issued the caveat in the example it was not reasonable to expect the tax advice provided to be relied upon.
Counsel for SOH referred to another example from the same explanatory memorandum, (example 2.1) which gives a scenario where a person described himself as a R & D consultant and assisted his clients to identify the activities undertaken by them which met the definition of R & D activities, for the purpose of assisting them in making claims under the R & D tax concession provisions. The consultant advised upon which activities were eligible and helped them prepare their registration forms to be lodged with Innovation Australia in respect of the activities. Registration with Innovation Australia is a prerequisite to the making of a claim for the expenditure to be a tax concession. That example, according to the explanatory memorandum, resulted in the adviser providing a 'tax agent service' within the definition. The services were provided in circumstances in which the clients could reasonably be expected to rely on them to claim the entitlement.
I find that Mercor was engaged specifically for the purpose of assisting with work, and did work, for the purpose of obtaining AusIndustry registration and thereafter submitting a claim for a tax rebate. The fee was based on a percentage of the benefit to the company. In my view, it was reasonable to expect, in these circumstances, that this advice would be relied upon. Mr Walkemeyer, on his own evidence, had been told that previous applications had been made through a firm of accountants, and that SOH did not wish to instruct them again, because of the expense. He was told that the objective was to obtain a cash rebate. He prepared documents that are clearly Australian Tax Office documents and charged a substantial fee.
In my view, it is reasonable that the party commissioning and paying for this work, would rely on the work done, even if it is contained in the disclaimer, that the work is not being done by a tax agent. To say that somebody should review the documents does not obviate that reliance. Asserting that Mercor was not a tax agent does not change the nature of the services. The statute does not require direct evidence that the recipient did so rely, as the statutory requirement involves an objective test. Accordingly, I find that the contract was for the provision of a tax agent service and that the work he did was such a service. This would also be the case had the contract been concluded later on 17 January 2017.
I have no difficulty in finding that Mercor, by its director Mr Walkemeyer knew or ought reasonably to have known that the services were 'tax agent services'. Mr Walkemeyer had experience in R & D claims for tax rebates and he had been previously involved in such work when employed by another entity. His protestations that he was not giving advice, which defy credulity, coupled with his repeated instance that he informed SOH he was not a tax agent, convince me that he well knew the nature of the services that he was contracting to provide. It is ironic that had Mercor or Mr Walkemeyer been directly employed to do the same work, he would have been paid wages for his services, whatever the outcome. His emphasis on being an independent contractor was misconceived.
Accordingly, Mercor contravened s 50‑5(1) of TASA.

Enforceability

Having determined that a contract was formed on 9 December 2016 between Mercor and SOH for the provision of work that satisfies the definition of tax agent services pursuant to TASA and that the work was done in contravention of s 50‑5(1), it is necessary to turn to the issue of the enforceability of the contract by Mercor.
Enforceability has been considered by the High Court of Australia on a number of occasions since Mr Justice Devlin, as he was in 1956, decided St John Shipping Corporation v Joseph Rank Ltd. In written submissions counsel for Mercor asserted:
A court will not enforce a contract that is illegal in formation or performance. If the Court finds that Mercor's services were tax agent services, an order to the effect that Mercor may recover a debt or damages pursuant to that contract would be an order enforcing conduct that is specifically and expressly prohibited by statute. This is fatal to Mercor's claim for contractual remedies.
(Footnote omitted)
Firstly, that broad statement was not the ratio of the case and the illegality argument failed on the facts. Secondly, the analysis in the judgment was considerably more nuanced: eg at (287).
The determination of the enforceability of a claim for payment under a contract, which is a breach of statute, requires consideration of many factors, first of which is the statute itself.
Section 2‑5 of TASA sets out the objects of the statute, which is one protective of the public. Its express aim is to ensure that tax agent services are provided in accordance with appropriate standards and to provide a framework in which that object can be achieved and where sanctions can be applied. The facts of this case well illustrate the reason for such provisions.
TASA does not specifically proscribe the making of a contract to provide tax agent services unregistered, rather it provides sanction for persons providing such services, if unregistered, by way of civil penalty. Thus, a person contravenes the law, if they provide such services unregistered and proceedings may be taken against them: TASA s 50‑5.
In this case, Mercor entered into a contract specifically to provide services it could not lawfully provide. It now sues upon that contract. Whilst there is no express prohibition on such contracts, nevertheless, the courts have held that a statute prohibiting conduct may, by implication, prohibit a contract involving such conduct. Particularly, this applies to contracts that involve illegal activity that could not be performed lawfully in the known circumstances. This raises the question of whether TASA impliedly prohibits all such contracts.

Yango Pastoral Company Pty Ltd v First Chicago Australia Ltd (1978) 139 CLR 410 concerned a statutory prohibition in relation to lending money under certain circumstances and the judgments include discussion of the relevant principles governing the enforceability of contracts alleged to be in breach of statutory provisions. Gibbs ACJ (as he then was) said at (413):
There are four main ways in which the enforceability of a contract may be effected by a statutory provision which renders particular conduct unlawful: (1) The contract may be to do something which the statute forbids; (2) The contract may be one which the statute expressly or impliedly prohibits; (3) The contract, although lawful on its face, may be in order to effect a purpose which the statute renders unlawful; or (4) The contract, although lawful according to its own terms, may be performed in a manner which the statute prohibits.
Gibbs ACJ went on to at (413):
It is often said that a contract expressly or impliedly prohibited by statute is void and unenforceable. That statement is true as a general rule, but for complete accuracy it needs qualification, because it is possible for a statute in terms to prohibit a contract and yet to provide, expressly or impliedly, that the contract will be valid and enforceable. However, cases are likely to be rare in which a statute prohibits a contract but nevertheless reveals an intention that it shall be valid and enforceable, and in most cases it is sufficient to say, as has been said in many cases of authority, that the test is whether the contract is prohibited by the statute. Where a statute imposes a penalty upon the making or performance of a contract, it is a question of construction whether the statute intends to prohibit the contract in this sense, that is, to render it void and unenforceable, or whether it intends only that the penalty for which it provides shall be inflicted if the contract is made or performed.
Gibbs ACJ referred to St John Shipping Corporation v Joseph Rank Ltd at (414):
… The question whether the statute was passed for the protection of the public is one test of whether it was intended to vitiate a contract made in breach of its provisions, but I am with respect in full agreement the views expressed in St John Shipping Corporation v Joseph Rank Ltd. (26) and Shaw v Groom (1972) QB 504 (27) that it is not the only test. It would be contrary to reason and principle to allow one circumstance to override all other considerations in the interpretation of a statute.
At (416) Gibbs ACJ said:
There have been many cases in which a statute which imposes a penalty on an unlicensed or unqualified person for acting in a particular capacity has been held to prohibit by implication all contracts express or implied made by such a person to act in that capacity. In those cases the unsuccessful plaintiff did the very thing which the statute forbade him to do unless he was authorised.
In Fitzgerald v FJ Leonhardt Pty Ltd [1997] HCA 17; (1997) 189 CLR 215 the High Court considered the position of a licensed driller under the Water Act 1992 (NT) who contracted with a land owner to drill bores. A dispute arose as to how much was owing and the driller sued the land owner. The land owner had not obtained bore construction permits, as was required. The land owner argued that in seeking to recover his fees the driller was wrongfully seeking to further an illegal purpose.
The High Court held that the contract was not unenforceable. The obligation rested on the land owner, not the driller, to obtain the permit. The contract could have been performed without any breach of the Act, if the land owner had obtained the relevant licence. Furthermore, the High Court determined that public policy did not require any interference with the enforceability of the contract. Kirby J held that it was neither an express purpose of the legislature nor an implied effect of the Act that such an incidental violation should deprive the driller of all remedies under the contract. He went on to hold that the position would have been different if the parties had a specific agreement to breach the Act deliberately.
In some cases it has been held possible to sever lawful from unlawful parts of a contract. In some instances the contract itself is capable of lawful performance. The task of the courts is to determine, as best they can whether the legislature intended the transactions bound up with breach of particular legislation should be held invalid, or whether the intention was merely that the contravener be liable to punishment.
In 2015, the High Court considered the effect of a breach of statute upon the enforceability of obligations under a lease: Gnych v Polish Club Ltd (2015) 255 CLR 414. The Polish Club Ltd (the Club) was a registered club and held a liquor licence in NSW. A lease arrangement was proposed with Mr and Mrs Gnych to run a restaurant in part of the premises. No lease was executed, but the Gnychs entered into possession and began trading. Over a year later the parties disagreed, the Club sought possession and the Gnychs relied on the agreement for a lease. The Gnychs succeeded at trial, but the Court of Appeal overturned that judgment. The Liquor Act 2007 (NSW) s 92(1) prohibited a licensee from sub-letting part of a licenced premises except with the approval of the Licensing Authority. No approval had been obtained. The Club argued that therefore the lease was void and unenforceable. The High Court rejected that argument.
The Gnychs argued that to render the lease void and unenforceable would prejudice them without furthering the objects of the Liquor Act.
The High Court unanimously upheld the appeal, the majority considered the general principles of illegality:
35.In Equuscorp Pty Ltd v Haxton, French CJ, Crennan and Kiefel JJ explained that an agreement may be unenforceable for statutory illegality in three categories of case, where:
'(i)the making of the agreement or the doing of an act essential to its formation is expressly prohibited absolutely or conditionally by the statute;
(ii)the making of the agreement is impliedly prohibited by statute. A particular case of an implied prohibition arises where the agreement is to do an act the doing of which is prohibited by the statute;
(iii)the agreement is not expressly or impliedly prohibited by a statute but is treated by the courts as unenforceable because it is a "contract associated with or in the furtherance of illegal purposes".
In the third category of case, the court acts to uphold the policy of the law, which may make the agreement unenforceable. That policy does not impose the sanction of unenforceability on every agreement associated with or made in furtherance of illegal purposes. The court must discern from the scope and purpose of the relevant statute "whether the legislative purpose will be fulfilled without regarding the contract or the trust as void and unenforceable".' (footnotes omitted)
36There was some vacillation on the part of the appellants as to whether their argument included an invitation to the Court to deal with the present case as a case in the first or third category. In the end, little turns on this point because the consequence of illegality is a matter of statutory construction whatever category of illegality is involved.
37In this regard, in Australian Competition and Consumer Commission v Baxter Healthcare Pty Ltd, Gleeson CJ, Gummow, Hayne, Heydon and Crennan JJ cited with approval the observation by Mason J in Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd that:
'the question whether a contract prohibited by statute is void is, like the associated question whether the statute prohibits the contract, a question of statutory construction'.
38Their Honours went on to state that whether a statute which:
'contains a unilateral prohibition on entry into a contract … is void … depends upon the mischief which the statute is designed to prevent, its language, scope and purpose, the consequences for the innocent party, and any other relevant considerations. Ultimately, the question is one of statutory construction.'
39That statement was, in turn, cited with approval by Gummow ACJ, Kirby, Hayne, Crennan and Kiefel JJ in Master Education Services Pty Ltd v Ketchell.
40Accordingly, the scope of the prohibition in s 92(1)(d) of the Liquor Act and the consequences of a contravention of the prohibition are to be determined by the language of s 92(1)(d) of the Liquor Act construed in the context of the Liquor Act as a whole.
In a separate judgment, in Gnych, Gageler J analysed the framework which determined enforceability: at [60] – [65].
Then said [66]:
The contemporary position is therefore that⁶⁸:
'There is no universal rule that can be applied to the construction of statutes in order to determine whether the effect of a failure to comply with a provision of a particular statute is to render a category of contracts (or an individual contract) to which that provision applied invalid or unenforceable. Each statute has to be considered as a whole and as a separate entity.'
(FN ⁶⁸ Tonkin v Cooma-Monaro Shire Council (2006) 145 LGERA 48 at 59 [65].)
And [70]:
Where a statute expressly or impliedly denies legal operation to an agreement, it is the statute itself which operates to render that agreement incapable of enforcement at common law. An agreement which is not denied legal operation by statutory force may still be unenforceable at the insistence of one or both parties by operation of the common law by reference to considerations of public policy. The cases in which that might occur, however, must now be closely confined.
And [74] – [75]:
But the other consideration of public policy - that a person ought not to be assisted by law to benefit from an immoral or illegal act – can have application where the first does not. That is the import of the further observation by Mason J in Yango that 'there could be a case where the facts disclose that the plaintiff stands to gain by enforcement of rights gained through an illegal activity for more than the prescribed penalty'(⁸⁰).
(FN ⁸⁰ (1978) 139 CLR 410, 420.)
A court examining the application of that consideration of public policy to the enforcement of an agreement made in breach of a statutory prohibition will examine the intention of a person in entering into the agreement and in seeking to enforce the agreement. The court will recognise that, 'whilst persons who deliberately set out to break the law cannot expect to be aided by a court, it is a different matter when the law is unwittingly broken'⁸¹. The court will weigh the consequences of withholding a remedy to enforce the agreement in light of the objects or policies which the statute seeks to advance and the means which the statute has adopted to achieve that end. Ordinarily, it would be open to the court to conclude that withholding a common law remedy from a person whose intention was, and remained, to flout the statute was justified by reference to the narrower consideration of public policy only if the consequence of withholding the remedy could be determined by the court to be both proportionate to the seriousness of the illegality and not incongruous with the statutory scheme ⁸². The moulding of an equitable remedy, if sought, might involve other considerations and permit of greater flexibility⁸³.
(FN ⁸¹ Fitzgerald v FJ Leonhardt Pty Lt (1997) 189 CLR 215, 221. See also Nelson v Nelson (1995) 184 CLR 538, 604.)
(FN ⁸² Nelson v Nelson (1995) 184 CLR 538, 612 ‑ 613; Fitzgerald v FJ Leonhardt Pty Ltd (1997) 189 CLR 215, 229 ‑ 230, 249 ‑ 250.)
(FN ⁸³ eg, Nelson v Nelson (1995) 184 CLR 538, 571 ‑ 572, 617 ‑ 618.)
TASA is expressly an Act for the purposes of protecting the public from certain types of conduct, for which it imposes a civil penalty. Protection of the public is an important policy consideration. If it were possible to ignore the law requiring professional registration and to profit from it, and to engage the court in the pursuit of contractual payments, the protective purpose of the legislation would in my view be circumvented.
In this case, the contract provided for the provision of services by a person who was unregistered, and who knew he was required to be registered. Thus, the contract could not have been lawfully performed by Mercor.
TASA provides civil penalties (250 penalty units for an individual and 1250 penalty units for a corporate entity). There is also a scheme for the maintenance of professional standards under TASA.
TASA does not expressly prohibit contracts of the kind in issue here. In a modern regulatory statute, if it had been intended so to prohibit contractual arrangements, in my opinion, it would be so expressed. I cannot interpret the Act to impliedly prohibit and render void all such contracts. Nothing in the statute requires that interpretation and circumstances may vary greatly. The scheme TASA created is clearly intended to regulate such contracts.
Mercor seeks to recover almost $150,000, which is likely to exceed any civil penalty. There is no certainty that proceedings for a penalty will be brought. By the very circumstances, conduct such as that disclosed in this case would be unlikely to come to light without this action by Mercor to pursue payment.
In my opinion, this case concerns the other aspect of public policy referred to by Gaegler J; that a person should not be assisted by law to benefit from an illegal act. This still requires consideration of the objects of the statute and the intent of the claimant.
Mercor, by its director Mr Walkemeyer knew, as I have found, that it was providing services it was not licenced to provide. I am satisfied that Mercor entered the contract knowingly with the intent to be paid for work which it was not lawfully authorised to perform.
There is no conflict with the statutory scheme set out in TASA in withholding a remedy to Mercor in these circumstances. It is not disproportionate where the fee is substantial and where, in addition, the advice given was erroneous and did not result in benefit to SOH.
The contract relied upon was for the performance of the very activity regulated by TASA. To permit Mercor to recover would undermine the intention of the statute, and prejudice SOH, who may be innocent of any deliberate wrongdoing.

Other issues

SOH also alleged misleading and deceptive conduct by the representations contained in the email of the 16 January 2017. It was asserted that the representations induced the contract on or about 17 January 2017. This argument must fail as I have already found that the contract was concluded on 9 December 2016. The advice given on the 16 January 2017 was in part performance of the contract. The advice given was misleading, misconceived and plainly wrong, but it did not induce Mercor to contract. It did cause SOH to have Mercor continue the work.
On the facts, SOH did not receive a tax refund. Mr Coote did not believe there was a tax offset either. Mr Coote had to amend the applications prepared by Mr Walkemeyer because SOH was ineligible due to its turnover exceeding $20 million.
SOH did obtain registration with AusIndustry as a result of the work done by Mr Walkemeyer on the R & D expenditure. There is no evidence that this registration has a monetary value.
There is no evidence of the value of the work done in preparing the application. It was pleaded that a fair payment or market value would be 12.5% of the value of application plus GST. No evidence was lead in support of this proposition.
In my view, the manner in which Mr Walkemeyer approached the task was fundamentally flawed, due to his failing to confirm that SOH could qualify for the refund it sought. I have found that he failed to make an appropriate response to Mr Hansen's question of which financial documents he required, that he ignored or misconstrued what he was told about the company structure, and did not read documents he was sent.
He therefore failed to conduct the work with reasonable care and skill and conferred no measurable benefit upon SOH. Therefore, even if TASA had no operation in these circumstances, I would hold that SOH were entitled to judgment.

Summary and conclusions

The contract was made between the parties on 9 December 2016.
The contract was for the provision of work for reward, described by Mr Walkemeyer in his letter of 27 October 2016.
The work so described in part constituted tax agent services within s 90‑5 TASA. The work done constituted such services.
The advice given by Mr Walkemeyer by email on 16 January 2017 was misleading and deceptive. It was, on the evidence, simply wrong. It caused Mr Hill to advance the work further.
The provision of the services under the contract was in breach of TASA, as neither Mercor nor Mr Walkemeyer were licensed tax agents.
The contract is unenforceable in this court.
No other equitable remedy is available.
Accordingly, the claim for payment of invoices rendered fails and the action is dismissed.
I will hear counsel on costs.

I certify that the preceding paragraph(s) comprise the reasons for decision of the District Court of Western Australia.
JM
Associate to Judge Braddock
5 DECEMBER 2019