Spriggs v Commissioner of Taxation; Riddell v Commissioner of Taxation

[2008] HCATrans 405

[2008] HCATrans 405

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Melbourne  No M68 of 2008

B e t w e e n -

DAVID RAYMOND SPRIGGS

Applicant

and

THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

Respondent

Office of the Registry
  Melbourne  No M69 of 2008

B e t w e e n -

MARK RIDDELL

Applicant

and

THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

Respondent

Applications for special leave to appeal

HEYDON J
CRENNAN J
KIEFEL J

TRANSCRIPT OF PROCEEDINGS

AT MELBOURNE ON FRIDAY, 5 DECEMBER 2008, AT 10.28 AM

Copyright in the High Court of Australia

__________________

MR N. OROW:   May it please the Court, I appear with MR A.J. MYERS for the applicant in both matters.  (instructed by DLA Phillips Fox)

HEYDON J:    Will we have the pleasure of Mr Myers’s company today?

MR OROW:   No, your Honour.  He was unable to attend and apologises.

MR D.H. BLOOM, QC:   May it please the Court, I appear with my learned friends, MR R.A. BRETT, QC and MR M.T. FLYNN, for the respondent in both cases.  (instructed by Australian Government Solicitor)

HEYDON J:   Thank you.  Mr Bloom, the applicants are really inviting reconsideration of the meaning of Maddalena’s Case and the correctness of Maddalena’s Case, as you have pointed out.

MR BLOOM:   Yes, your Honour.

HEYDON J:   A lot has happened in the last 37 years in what might be called the economic scene.  You have cited cases which have relied on Maddalena, but they are not cases in this Court, and you have cited academic writers who seem to assume or believe that Maddalena is correct, but they really have to accept the decisions of this Court as correct, at least until they are overruled.  Your submissions contend that the questions are not important and you contend there is no contested issue in principle.  Those submissions must be wrong, must they not?  It is of general public importance whether Maddalena is correct or not.

MR BLOOM:   Your Honour, Maddalena is not a case which is limited to sportspeople.  If I could ask your Honours to go to it.  It was in, I believe, a folder of authorities.

HEYDON J:   Yes.  Can I just conclude this part by saying this.  Whether or not these questions are going to be concluded in the Commissioner’s favour, are they not questions which it would be desirable to have this Court look at?  In other words, is this not a field where special leave ought to be granted for that purpose?

MR BLOOM:   Your Honour, we say no for this reason, and that is that there was a specific finding of fact here that was uncontested on appeal and that was that these were expenses incurred in relation to the negotiation of the contract of employment.  Maddalena is authority for the proposition, not limited to sportspeople, that such expenses are not deductible because they are incurred in getting the contract which produces the income, not in the course of earning the income under the contract.

HEYDON J:   Did any authority of this Court ever say that before Maddalena?

MR BLOOM:   Before Maddalena, no; since Maddalena – your Honours will recall recently in Day’s Case, a judgment which was delivered last month, the Court in paragraph 23 approved a passage in the judgment of Justice Hill in Cooper, again setting out that propositional principle, if I ‑ ‑ ‑

KIEFEL J:   I think “approved” might be putting it a little highly.  I think it was observed and Day was distinguished from the facts of that case and other cases.

MR BLOOM:   Can I say this much, your Honour, not referred to with disapproval.  So the proposition which, as I say, is much wider than sportspeople – it is put against us that because there have been changes in the last 40 years in relation to the way in which sportspeople earn their income that the proposition in Maddalena which applies to all employees should somehow be reconsidered. 

CRENNAN J:   Concentrating on sportspeople for a moment, of course, there is the finding in Stone’s Case in relation to characterising activities of sportspeople as business activities for taxation purposes.

MR BLOOM:   Yes, your Honour, on the facts of that case.

CRENNAN J:   On the facts of that case.  That case did not, of course, deal with the next obvious proposition, which is issues of deductibility in relation to that finding that a business was being carried on.

MR BLOOM:   But here, your Honour, there are two limbs to the deduction section.  The first allows outgoings incurred in gaining or producing the assessable income and the second, which was added specifically after a Royal Commission in the 1930s to extend deductions to businesses, was done so upon the basis that the definition of a business should exclude employment.  So it is that outgoings incurred in relation to employment are still not deductible under that second limb that relates to business.  In the context of Stone and in the context of income according to ordinary concepts, as this Court pointed out, one is concerned only with what is income and conceptions of business may or may not help that.  But there in the deduction section you have the specific reference to business and the specific exclusion from the definition of employment.  In those circumstances, what was said in Maddalena must remain correct.

If I could ask your Honours to go to it.  It is behind tab 1 of the folder of authorities that I have.  You will recall that Mr Maddalena, like Spriggs and Riddell, was changing clubs and the expenses were in relation to, inter alia, the negotiation of the contract for his new football club.  If your Honours go to the judgment of the Chief Justice at page 548 of the Australasian Tax Reports.  The case is not reported in the Commonwealth Law Reports, your Honours.  The Chief Justice says this:

The cost to an employee of obtaining his employment does not form an outgoing incurred in the course of earning the wages payable in the employment.

That is the proposition for which Maddalena stands, with respect.  It is made clear when one goes to the leading judgment of Justice Menzies, with whom all the other judges agreed.  At page 549, at the bottom of the page, at around line 49, his Honour says:

It is, I think, worthwhile looking at the taxpayer’s earnings as an electrician –

he was an employed electrician as well –

to illustrate what I regard as the decisive difference to be observed here.  Had the taxpayer claimed as a deduction the expenses of changing from one job to another as an employee electrician his outlay would not have been an allowable deduction.  The expenditure would have been incurred in getting, not in doing, work as an employee.  It would come at a point too soon to be properly regarded as incurred in gaining assessable income.  Nor would the expenditure have been an outgoing in carrying on a business.  There is a difference of first importance for present purposes between an electrician who seeks work as an employee and an electrician who seeks contracts to do work as a principal.  In the former case the electrician would not have a business; in the latter he would . . . 

What I have said about the taxpayer as an electrician is, I think, equally applicable to him as a professional footballer –

What is said against us here is that that broad proposition meant to apply to all employees and not just sportspeople should somehow be reconsidered by this Court after 37 years because of differences in the way in which sportspeople, who are also employees, now earn their income.

CRENNAN J:   One possibility is it remains correct, but there are points of distinction to be made having regard to the developments in relation to sportspeople and the moneys they earn.  There has been a huge development in the setting and passing off in relation to moneys earned by sportspeople of the kind of which we are speaking.

MR BLOOM:   Your Honour, it is absolutely clear that in this day and age a successful professional sportsperson can do sport and nothing else in order to earn income, but what remains the position in the facts of each of these cases, as in the case of Maddalena, is that it can be said truthfully, as our learned friends assert, that without the contract of employment, you cannot get the other, what I might call, business income.  But these expenses have been found to have been incurred in the getting of the contract and so are non‑deductible because, until you have got your contract, you do not earn income either as an employee or from endorsements or calendars or whatever it is that football people do.

HEYDON J:   There might be one point of distinction though, at least for Mr Spriggs.  It is not really a case of some sort of early industrial revolution Manchester‑style assisted employment where you move from hard‑hearted employer to hard‑hearted employer.  Mr Spriggs was tied up in a tripartite system where, in effect, not retain and transfer, but transfer possibilities exist, drafts exist.  In other words, he is in a system.  The identity from season to season of the particular employer can be important, but to lose one employment is not necessarily to be completely departing the whole arrangement.

MR BLOOM:   It generally is, your Honour, and it was in this case.  Each of the footballers in question, and that includes Maddalena, incurred this expenditure in relation to a contract with a new club, so a change of clubs.  Each of the footballers was subject to some sort of tripartite arrangement with the rugby league or the AFL, in effect, overseeing and insisting on the terms of each contract that was changed.  It was envisaged, of course, that successful footballers or, in the case of one of the footballers here, less

successful footballers, would have to seek new clubs from time to time.  So change is inevitable.  But the outgoing here is incurred in relation to the negotiation of the new contract with the new club.  If there is no new contract, there will be no income under that contract and there will be no endorsements and no calendars because if you are not playing, nobody, with respect, is interested in you.

CRENNAN J:   Do not some footballers seem these days to enjoy celebrity somewhat detached from their clubs?  That is to say, they could be in a transitional position or not employed at the moment by reason of delinquent behaviour even, but still seem to enjoy stand‑alone celebrity, if I could coin that phrase.

MR BLOOM:   Possibly more in those circumstances, your Honour.

CRENNAN J:   It just is a very unusual feature that has developed in more recent times.

MR BLOOM:   That may be so in a given case.  It may be so of somebody of the abilities of a David Beckham.  But of the three footballers here in issue, Mr Maddalena, Mr Spriggs and Mr Riddell, that cannot be said.  It is critically clear that the income that each of these people earn from, if I can call it, their non‑employment activities, depended upon their having a contract.  It is not as if there was a star status of the kind that attaches to a David Beckham that attached to any of these three.

CRENNAN J:   What they are doing in a way is merchandising their celebrity.

MR BLOOM:   Yes, but celebrity is, as your Honour knows, fleeting and in the case of footballers who are not at least in the very first rank, much more fleeting.  Your Honours, we say, with respect, that this is the application of well‑settled authority, 37 years of it, to facts clearly found and uncontested.  For those reasons, special leave should not be granted. 

HEYDON J:   Yes.  Thank you, Mr Bloom.  We need not trouble you, Mr Orow. 

The Court is of the opinion that special leave should be granted.  How long do counsel think the appeal will last? 

MR OROW:   Your Honour, I submit maximum of one day.

HEYDON J:   Thank you.  The Court would be assisted if counsel could agree among themselves the amount of time each is to take in oral argument and if no agreement is reached, the Chief Justice will work out an agreement for himself on the day of the hearing.  You asked for leave to rely on a notice of contention, Mr Bloom.  You do not need that leave.  So you can file any notice of contention directed to the point that you mentioned in your written submissions.

MR BLOOM:   Thank you, your Honour.

HEYDON J:   The Court will now adjourn to reconstitute.

AT 10.40 AM THE MATTER WAS CONCLUDED