DENHAM CONSTRUCTIONS PTY LIMITED & ANOR v CHIEF COMMISSIONER OF STATE REVENUE (NSW)

Judges:
Studdert J

Court:
Supreme Court of New South Wales

Judgment date: 13 October 1998

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Studdert J

Denham Constructions Pty Limited and Sonenco Management Pty Limited have brought proceedings in this Court by way of summons against the Chief Commissioner of State Revenue, seeking orders as follows:

``1. An order that the objection decision be set aside.

2. An order that the objection be allowed.

3. Costs.

4. Such further or other orders as the Court thinks fit.''

The grounds stated in the summons in compliance with Pt 51A r 5 of the Supreme

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Court Rules are five in number, but grounds 1 to 3 have been abandoned. Grounds 4 and 5 are as follows:

``4. Further or alternatively the defendant, in determining not to exercise his powers which are contained in Section 16H of the Pay-roll Tax Act to exclude the plaintiffs from the alleged group of each of them and Hallam and FSE and the other companies (`the decision'):-

• (a) failed to take into account all relevant matters; and/or
• (b) took into account when making the decision matters of little or no relevance and matters extraneous to relevant matters; and
• (c) failed to take into account matters properly relevant to his decision; and
• (d) failed to take into account matters he should have taken into account; and
• (e) applied wrong principles in making the decision and acted capaciously in so doing.

5. (a) There was no proper exercise of discretion by the defendant and/or his delegate when making the decision; and/or

(b) The decision was taken by a person purporting to be the delegate of the Commissioner but to whom the decision making function was not properly and validly delegated.''

As the arguments developed on the hearing, the issues for consideration became more narrowly defined, but before considering them it is desirable to address the facts.

The Chief Commissioner treated as grouped for the purposes of Pt 4A of the Pay-roll Tax Act of 1971 the following companies:

Denham Constructions Pty Limited
Sonenco Management Pty Limited
Clifford Hallam Pharmaceuticals Pty Limited
Sonenco Investments Pty Limited
Hallam Agencies Pty Limited
Denham Investments Pty Limited
FSE Pty Limited
      

It is to be observed that the plaintiffs are among the above companies. At the commencement of the hearing Mr Raphael, for the plaintiffs, acknowledged that s 16D of the Pay-roll Tax Act called for the grouping of the companies, including the plaintiffs. Section 16D provides, in sub-ss (2) and (3) as follows:

``(2) For the purposes of this Act, where the same person has, or the same persons have together, a controlling interest under subsection (3) in each of two businesses, the persons who carry on those businesses constitute a group.

(3) For the purposes of subsection (2), the same person has, or the same persons have together, a controlling interest in each of two businesses if that person has, or those persons have together, a controlling interest under any of the following paragraphs in one of the businesses and a controlling interest under the same or another of the following paragraphs in the other business:

• (a) a person has, or persons have together, a controlling interest in a business, being a business carried on by a corporation, if the directors, or a majority of the directors, or one or more of the directors, being a director or directors who is or are entitled to exercise a majority in voting power at meetings of the directors, of the corporation are or is accustomed or under an obligation, whether formal or informal, to act in accordance with the directions, instructions or wishes of that person or of those persons acting together;
• (b) a person has, or persons have together, a controlling interest in a business, being a business carried on by a corporation that has a share capital, if that person or those persons acting together may (whether directly or indirectly) exercise, control the exercise of, or substantially influence the exercise of, 50 per centum or more of the voting power attached to voting shares issued by the corporation;
• (c) a person has, or persons have together, a controlling interest in a business, being a business carried on by a partnership, if that person or those persons-
  • (i) owns, or own together (whether or not beneficially) 50 per centum or more of the capital of the partnership; or
  • (ii) is, or are together, entitled (whether or not beneficially) to 50 per

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    centum or more of any profits of the partnership;
• (d) a person has, or persons have together, a controlling interest in a business, being a business carried on under a trust, if that person (whether or not as the trustee of another trust) is the beneficiary, or those persons (whether or not as the trustees of another trust) are together the beneficiaries, in respect of 50 per centum or more of the value of the interests in the trust firstmentioned in this paragraph;
• (e) a person has a controlling interest in a business if, whether or not he is a trustee of a trust, he is the sole owner of the business or persons, being two or more trustees of a trust, have a controlling interest in a business if they are the owners of the business.''

However, whilst conceding the application of s 16D, it is the plaintiffs' contention that the Chief Commissioner should have excluded the plaintiffs from the group in the exercise of the discretion conferred under s 16H of the statute. Section 16H provides:

``(1) Where the Chief Commissioner is satisfied, having regard to the nature and degree of ownership or control of the businesses, the nature of the businesses and any other matters that the Chief Commissioner considers relevant, that businesses carried on by members of a group are carried on substantially independently of, and are not substantially connected with, the carrying on of a business or businesses of another member or other members of the group, the Chief Commissioner may, by order in writing served on those firstmentioned members, exclude them from that group.

(2) The Chief Commissioner shall not, under subsection (1), make an order so as to exclude a person from a group on and from a date if that person is or was on that date a corporation which, by reason of section 50 of the Corporations Law, is related to another corporation which is a member of that group.

(3) Notwithstanding any other provision of this Part, an order under subsection (1) shall have effect according to its tenor on and from the date specified in the order (being a date that is the date of the order or before the date of the order) as the date on and from which the person referred to in the order is or shall be deemed to have been excluded from the group so referred to.''

The language of the section makes it clear that before the Commissioner is enabled to exercise his discretion under s 16H(1) to exclude members of a group, he is required to be satisfied, having regard to the matters required to be considered by the sub-section:

``... that businesses carried on by members of a group are carried on substantially independently of, and are not substantially connected with, the carrying on of a business or businesses of another member or other members of the group...''

The evidence in this case is to be found in a number of affidavits:

The plaintiff's case:

The affidavit of Peta Bollinger, the plaintiff's solicitor, sworn 11 November 1997.

The affidavit of Bernard Van Der Heydon, a director of each of the plaintiff companies, sworn 19 January 1998.

The defendant's case:

The affidavit of David Anthony Martin, senior technical officer with the defendant, sworn 17 March 1998.

None of the deponents was required for cross-examination so that there has been no challenge to any of the facts set out in the various affidavits.

The matters relied upon by the plaintiffs as enlivening the statutory discretion were set out in a letter written by the plaintiff's accountant, Colin McLoughlin, dated 10 September 1997 and addressed to the defendant. (This letter is annexed to Mr Martin's affidavit.) In that letter it was conceded that the plaintiffs should be grouped for pay-roll tax purposes and that the first plaintiff paid management fees for management services provided by the second plaintiff. However, the writer then went on to address those matters which it was contended warranted the exclusion of the plaintiffs from the remaining members of the group:

``With respect to the request for exclusion of Clifford Hallam Pharmaceuticals Pty Ltd from grouping with Denham Constructions Pty Ltd I provide the following in respect of

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question 6 parts (a) to (i) of Revenue Ruling PT 2:

• (a) The business of Denham Constructions Pty Ltd is carried on substantially independently of that of Clifford Hallam Pharmaceuticals Pty Ltd.
• Denham Constructions Pty Ltd is a construction company located at 2 Commercial Road, Kingsgrove. It is managed by Mr Jim McGrath and Mr Bernard Van Der Heydon.
• Clifford Hallam Pharmaceuticals Pty Ltd is a wholesale pharmaceutical distribution company located at Bonds Road, Riverwood. The General Manager is Mr Malcolm Cole and the Offce Manager is Mr Noel Rippon.
• Each business is totally independent of the other with no continuous course of active and substantial relationship, in a business or commercial sense. All day to day management and running decisions are made totally independently of each other.
• There are no commercial transactions or dealings between the two businesses. Clifford Hallam Pharmaceuticals Pty Ltd supplies pharmaceutical supplies to the health industry with 90+% of its business being conducted with the State Hospital System. Denham Constructions Pty Ltd provides building and construction services to a variety of clients including universities, religious organisations and retirement villages.
• (b) Each company has its own premises, staff and management team. Each company has its own fully computerised accounting system.
  • As stated above each company is totally independent of each other in the making of management decisions and day to day administration.
  • Payroll administration services are provided to Clifford Hallam Pharmaceuticals Pty Ltd by Sonenco Management Pty Ltd and a commercially based fee is paid for such services.''

The following points were given further emphasis in the letter:

``(d) Whilst the companies use the same bankers, each has its own bank account and overdraft facility.

From time to time funds have been advanced by Denham Constructions Pty Ltd to Clifford Hallam Pharmaceuticals Pty Ltd to assist with the need for working capital. These advances have been on an arm's length basis and interest has been paid thereon.

(e) There is no sharing of customers due to the total diversity of the two businesses.

(f) There is no connection between the companies in the purchase or sale of goods and services.

(g) As explained above the two businesses are so totally diverse and divorced from each other that there is no connection.''

The affidavit of Mr Van Der Heydon addressed the assertions made in the above letter. Mr Van Der Heydon identified himself as being a director of both plaintiff companies and also of Clifford Hallam Pharmaceuticals Pty Ltd (``Hallam''). In his affidavit, Mr Van Der Heydon traced the history of ``Denham'' and of ``Hallam''.

Denham was incorporated in October 1976. Its directors are Mr Van Der Heydon and Mr James Christopher McGrath. They are also the directors of the second plaintiff.

Whilst the shareholders in Denham were earlier Mr James McGrath and his wife, following a divorce settlement made by Mr McGrath in November 1988 the shareholders became Mr McGrath as to eighty percent and Mr Van Der Heydon as to twenty percent. Denham's business apparently grew and the second plaintiff was incorporated in 1982 and since then has afforded managerial and office staff services to Denham. The shareholders of Sonenco Management are Mr Van Der Heydon as to twenty percent and Mr Stephen McGrath as to eighty percent. The businesses of the two plaintiffs are conducted from premises at 1-5 Commercial Road, Kingsgrove and those two businesses are managed by Mr Van Der Heydon and by Mr James McGrath.

The business owned and conducted by Hallam was established in 1973 and the principal activity has been the wholesale distribution of pharmaceutical supplies to the State and private hospital system. Hallam was

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incorporated on 20 November 1978 and in 1985 Denham built a warehouse and office facility for Hallam. Three years later in about June 1988, the shares in Hallam, which had all been owned by the founders, Mr and Mrs Skiller, were sold to the second plaintiff. As a condition of that sale, Mr Skiller was to appoint and train a general manager experienced in the pharmaceutical industry and to meet this condition Mr Christopher Sullivan was engaged.

Like the business of the first plaintiff, the business of Hallam continued to expand. In due course Mr Sullivan was replaced by a Mr Malcolm Cole. At relevant times Hallam has employed a large number of staff. According to Mr Van Der Heydon, the day to day administration and decision making for that company is made by management staff of Hallam at Bonds Road, Punchbowl. The only services provided from the plaintiffs' premises at Commercial Road, Kingsgrove have been a pay-roll and software programme and preparation of group certificates. These services have been provided by the second defendant for Hallam on a commercial basis. That is to say that the second plaintiff has charged commercial fees for the services rendered to Hallam.

The involvement of Mr James McGrath and of Mr Van Der Heydon in the management of Hallam has been limited to strategic planning and involvement in formal directors' meetings.

Hallam was in fact sold to an arm's length purchaser in July 1997 and none of the staff of Hallam joined the staff of either plaintiff following that sale. The present summons is concerned with the position before that sale.

Mr Van Der Heydon's affidavit recorded that whilst the Hallam and Denham companies used the same bankers, each had its own bank account and overdraft facilities.

The letter which Mr McLoughlin wrote on 10 September 1997, from which I have set out extracts above, was written in response to a request for information from the defendant, which request focused attention on Revenue Ruling PT 2. Mr McLoughlin was asked to answer questions 6(a) to (i), and because of the matters argued on this summons it is appropriate to set out paragraphs 5 and 6 of Revenue Ruling PT 2:

``5. In considering whether or not there is substantial independence or no substantial connection, it is necessary for a member of a group to prove to the satisfaction of the Chief Commissioner that there does not exist a continuous course of active and substantial relationship, in a business or commercial sense, with any other member of the group, and that the connections which exist are no more than casual, irregular or occasional occurrences.

6. In arriving at a decision the Chief Commissioner will consider the nature and extent of all relevant contracts and dealings taken as a whole, between the member and all other members of the group, including:

• (a) the nature and extent of any commercial transactions or dealings, including the value and percentage of the member's total business which is conducted with other members of the group;
• (b) the extent to which members share resources, facilities or services, including premises, staff, management and accounting services;
• (c) the extent to which the member controls or is involved in managerial decisions and day to day administration of the other members, and the extent to which other members control or are involved in managerial decisions and day to day administration of the member;
• (d) the extent to which there are financial interdependencies, including the intra- group loans or guarantees and common banking facilities;
• (e) the extent to which there is a relationship between customers of the member and customers of the other members of the group, including such matters as sharing of customers' total business, and receiving or providing complementary goods or services in respect of particular customers;
• (f) the degree to which there is a connection between a member and other members of the group in the purchase or sales of goods and services;
• (g) the extent to which there is a connection between the natures of the businesses of the member and other members of the group;

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• (h) the extent to which there is a connection between the ultimate owners of the member and other members of the group; and
• (i) any other relevant information.''

On 21 October 1997 the defendant wrote to Mr McLoughlin a letter which did not specifically refer to Mr McLoughlin's letter of 10 September 1997 but the defendant advised that the plaintiffs' objections had been disallowed and the reason was stated thus:

``The reason for the disallowance is that it is considered, on the information provided it was not established that there does not exist a continuous course of active and substantial relationship, in a business or commercial sense between the companies. It is considered that the connections that exist are more than casual, irregular or occasional and thus there is no substantial independence between the members of the group.''

That letter of 21 October 1997 followed the preparation of what is described on its face as an ``objection report'', a document prepared by Mr Martin. That document was prepared apparently following receipt and consideration of Mr McLoughlin's earlier submission. The report is Annexure F to Mr Martin's affidavit, and it concludes:

``It is accepted that each business is separate and distinct, however Sonenco Management P/L is grouped with Sonenco Investments P/L vide section 16(D)(3)(b) [sic] of the Act, Sonenco Investments P/L is grouped with Clifford Hallam Pharmaceuticals and Denham Constructions (see Annexure A) which under the provisions of section 16E of the Act creates one group.

An exclusion is possible for Denham Constructions P/L from Clifford Hallam Pharmaceuticals P/L if it could be established that there does not exist a continuous course of active and substantial relationship, in a business or commercial sense between the companies, and that the connections which exist are no more than casual, irregular or occasional occurrences.

Determination

Based on the information and the fact that Sonenco Management derives nearly all its income from Denham Constructions P/L and would not survive without this income, I conclude that the entities Denham Constructions P/L and Sonenco Management P/L are not substantially independent of each other.

The client has been advised by Compliance that the penalties have been reduced from 50% to 10% and any further reduction is not warranted on the information provided.

Conclusion

On the information provided I have concluded that Denham Constructions P/L is not substantially independent of and is substantially connected with Sonenco Management P/L and subsequently the Clifford Hallam Pharmaceutical P/L group of companies.

Recommendation

It is recommended the objections be disallowed, and as advised previously the penalties have been reduced from 50% to 10%.''

The review of the defendant's decision

It is not for this Court to decide whether, had it stood in the defendant's shoes, it would have exercised the discretion conferred by s 16H in the plaintiffs' favour.

Mr Raphael referred to the dicta of Dixon J, as he then was, in
Avon Downs Pty Limited v FC of T (1949) 9 ATD 5 at 10; (1949) 78 CLR 353 at 360 as being apt in determining whether the current decision may be disturbed:

``... His decision [referring to the Commissioner's decision to disallow objections], it is true, is not unexaminable. If he does not address himself to the question which the sub-section formulates, if his conclusion is affected by some mistake of law, if he takes some extraneous reason into consideration or excludes from consideration some factor which should affect his determination, on any of these grounds his conclusion is liable to review. Moreover, the fact that he has not made known the reasons why he was not satisfied will not prevent the review of his decision. The conclusion he has reached may, on a full consideration of the material that was before him, be found to be capable of explanation only on the ground of some such misconception. If the result appears to be unreasonable on the supposition that he addressed himself to the right question,

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correctly applied the rules of law and took into account all the relevant considerations and no irrelevant considerations, then it may be a proper inference that it is a false supposition. It is not necessary that you should be sure of the precise particular in which he has gone wrong. It is enough that you can see that in some way he must have failed in the discharge of his exact function according to law.''

Then in
Commr of State Taxation (WA) v Scotford Cameron & Middleton Pty Ltd 81 ATC 4576; (1981) 12 ATR 406, where the Commissioner of State Taxation had declined to exercise a discretion in favour of the taxpayer under s 16H of the Pay-roll Tax Assessment Act (WA), being the equivalent provision to s 16H of the New South Wales statute, Bird CJ, with whose judgment Kennedy J agreed, stated the test to be applied in that case (at ATC 4578; ATR 410):

``The appeal was argued before us upon the basis that should it appear upon the material before the Commissioner he fell into error because he did not address himself to the question which was formulated by that subsection or if his lack of satisfaction can be seen to have been affected by some mistake of law or by his taking into consideration some extraneous reason or by his excluding from consideration some factor which he ought to have taken into account - Avon Downs Pty Ltd v FC of T (1949) 78 CLR 353, per Dixon J at p 360 - then his decision can be examined by this Court. And if on the material before the Court it should appear that in that sense the decision of the Commissioner had been affected by error then the Court should reach its own conclusion as to whether the Commissioner ought to have been satisfied. If this Court is of the opinion that he ought to have been satisfied then the Commissioner concedes that he should exclude the taxpayer from the group.''

See also
Kolotex Hosiery (Australia) Pty Ltd v FC of T 75 ATC 4028; (1975) 132 CLR 535.

There has been no issue between the parties in this case as to the principles applicable. In addition to the above authorities I was referred by Mr Perram to
Minister for Immigration v Guo (1997) 144 ALR 567.

Put shortly then, in order to succeed on this summons the plaintiffs must show that the defendant's decision was influenced by discernible mistake of law, or that the decision reached is so unreasonable as to make it manifest that the discretion miscarried.

Competing submissions summarised

Mr Raphael has submitted that the defendant applied the wrong test. This is demonstrable by Revenue Ruling PT 2, para 5, and the reason for disallowing the plaintiffs' objection as expressed in the defendant's letter dated 21 October 1997. The defendant was required to direct himself to the language of s 16H and to exercise his discretion according to the language of the section. That language is not to be equated with the statement in para 5 of the Revenue Ruling, nor is it to be equated with the stated reason for disallowance in the letter of 21 October 1997.

Moreover, Mr Raphael submitted that had the correct test been applied the result must inevitably have been that the defendant would have exercised his discretion in the plaintffls' favour.

Not so, submitted Mr Perram, who joined issue with each of Mr Raphael's submissions. Neither of the documents criticised by Mr Raphael contained any misstatement of principle and further the defendant was entitled to reach the conclusion he did reach on the correct application of s 16H.

The decision of the defendant

Did the defendant apply the wrong test?

Section 16H(1) was considered by Rath J in
Mead Packaging (Aust) Pty Ltd v Commr of Pay-roll Tax 78 ATC 4164. In that case his Honour said, at 4172:

``... Section 16H(1) requires two findings to be made, namely (1) that a business carried on by the plaintiff (as a member of a group) is carried on substantially independently of a business carried on by any other member of that group; and (2) that the business is not substantially connected with the carrying on of the business carried on by the other members of the group. The first limb appears to relate to the independence of the businesses, and requires an examination of the connection between the business activities. The second limb appears to relate to connection in management. At all events the composite expression used in the subsection requires a consideration of the businesses and their control, and a finding of

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substantial independence and substantial absence of connection.''

In
Commr of Pay-roll Tax (Qld) v John French Pty Ltd & Ors 83 ATC 4283 the Full Court of the Supreme Court of Queensland had occasion to consider the equivalent provision to s 16H as found in the Queensland legislation. In that case, the earlier decision in Mead was considered. McPherson J, with whose decision Campbell CJ concurred, expressed some reservation (at 4293-4294) as to whether the distinction which Rath J drew between the first and second limbs of s 16H(1) was ``readily apparent'' but added that ``an examination of both business activities and management is clearly justified as part of the inquiry directed by the section.''

Mead was again referred to in this court by Yeldham J in
Baxter & Anor v Chief Commr of Pay-roll Tax (NSW) 86 ATC 4816. However Baxter was concerned with another point altogether, namely whether the language of s 16H(1) permitted of the exclusion of more than one business from a group and the decision does not assist in addressing the present issues. The plaintiffs' application was not refused because there were the two companies which were seeking exclusion.

In my opinion, the analysis of s 16H that was made in Mead was correct, and I respectfully agree with the dicta of Rath J which I have cited above. Ultimately what the section requires is ``a consideration of the businesses and their control and a finding of substantial independence and substantial absence of connection''.

Contrary to Mr Raphael's submission, I do not consider that the expression of para 5 of Revenue Ruling PT 2 or the stated reason for the disallowance discloses that the defendant misdirected himself as to the practical application of s 16H(1).

Paragraph 5 identifies the elements of substantial independence and substantial absence of connection; it recognises the onus upon the member of the group seeking the exclusion to prove the absence of a present substantial relationship in a business sense with any other member of the group; it recognises that if the member of the group satisfies the defendant that any connections are no more than casual, irregular or occasional occurrences the discretion may be enlivened. In itself I do not see para 5 as reflecting any misconstruction of the requirements of s 16H(1).

Paragraph 5 is to be considered in conjunction with para 6 of the same Ruling. Paragraph 6 was set out earlier and it identifies nine elements that the Commissioner perceived to be relevant to the possible application of s 16H(1). Each of those elements was plainly relevant in my opinion for the purposes of the section, and it was proper for the defendant to consider information supplied by the plaintiffs in response to para 6 in order to reach a decision as to whether the plaintiffs should be excluded from the group.

Nor do I consider that the manner of expression of the reason for disallowance in the letter of 21 October 1997 calls for a conclusion that the defendant misdirected himself as to the relevant principles to be applied for the purpose of s 16H.

In the result, I find myself unpersuaded that in reaching his conclusion the defendant misdirected himself as to the proper considerations to be weighed for the purposes of s 16H(1).

Is the decision under review to be viewed on the evidence as unreasonable, so as to make it plain that the defendant's discretion miscarried?

Mr Raphael submitted that the evidence compelled the conclusion that there was the requisite substantial independence and substantial absence of connection to warrant the exclusion of the plaintiffs from the other members of the group.

The plaintiffs conceded their inclusion in the grouping under s 16D(3)(b), which I set out earlier. They did not concede the application of s 16D(3)(a). Whilst there appears to be some contradictory evidence about this, it would seem that the directors of Hallam at relevant times were Mr Van Der Heydon, Mr Stephen McGrath, Mr James McGrath, Mr Gary McGrath and Mrs Van Der Heydon. The directors of Denham were Mr Van Der Heydon and Mr J. McGrath. Whilst both Mr J. McGrath and Mr Van Der Heydon were directors of each company it was not contended that the plaintiffs should have been grouped with Hallam by reason of the operation of s 16D(3)(a). Mr Van Der Heydon and Mr McGrath did not have a majority for the purposes of that sub-paragraph, there being no suggestion that the other directors of Hallam were accustomed to act or

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were under an obligation to act in accordance with directions, instructions or wishes of the directors of Denham. Section 16D(3)(b) operated because, as illustrated by the chart, Exhibit 1, Mr Van Der Heydon and Mr J. McGrath controlled 100 percent of the voting power of Denham and sixty percent of the voting power of Hallam.

That section 16D(3)(a) is not applicable is a matter which Mr Raphael submitted was of much importance. Its significance related in particular to the second limb of s 16H(1).

Even if it could be said that the management of Hallam was to be viewed at directors' level, Mr Van Der Heydon and Mr J. McGrath did not control the management of Hallam because they were outnumbered on the board.

Mr Raphael however submitted that the concept of management for the purposes of s 16H meant day to day management and Mr Van Der Heydon's affidavit discloses that the day to day management of Hallam was controlled firstly by Mr Sullivan, then by Mr Cole, and later by Mr Rippon. By way of contrast, the management of Denham and of the second plaintiff has been exercised by Mr Van Der Heydon and by Mr James McGrath.

Mr Raphael was unable to refer to authority that management ought to be viewed in the narrow sense for which he contended, and I am not attracted by the submission to that effect. Nevertheless he relies upon the fact that Mr Van Der Heydon and Mr James McGrath were outnumbered on the board of directors of Hallam.

I have been asked by the parties to have regard to the additional evidence to be found in Mr Van Der Heydon's affidavit. Nevertheless without it the evidence was such, Mr Raphael argued, as required the defendant to exclude the plaintiffs from the group.

Mr Perram has drawn attention to a number of features in reliance upon which he contends that the decision under review cannot be regarded as unreasonable:

• (i) as directors of Hallam, Mr Van Der Heydon and Mr J. McGrath participated in the management of that company, and they certainly controlled the management of the plaintiffs as the sole directors and the managers of those companies;
• (ii) apart from their involvement in directors' meetings, Mr Van Der Heydon and Mr J. McGrath participated in ``the planning process'' of Hallam and in discussion of quarterly financial results of that company;
• (iii) the second plaintiff provided pay-roll administration services to Hallam, providing a pay-roll and wages software programme, and preparing requisite certificates, albeit for a commercially based fee;
• (iv) from time to time Denham advanced funds to Hallam to assist in providing the latter company with working capital.

Mr Perram submitted that the above considerations afforded a proper basis for the decision reached by the defendant.

I have considered the material that was placed before the defendant and the additional material introduced in evidence in Mr Van Der Heydon's affidavit. Not without some hesitation I have decided that Mr Perram's submissions should be accepted, whether or not the additional material in Mr Van Der Heydon's affidavit is brought into account. I remind myself of the nature of these proceedings, and of the onus which the plaintiffs bore in satisfying the defendant of substantial independence and the absence of substantial connection between the plaintiffs and the other members of the group. Having so reminded myself, I am not satisfied that a proper basis has been established to disturb the decision of the defendant.

I therefore dismiss the summons and I order the plaintiffs to pay the defendant's costs.