Karshan (Midlands) Ltd t/a Domino's Pizza v The Revenue Commissioners

• Jurisdiction: Ireland
• Judge: Ms. Justice Costello
• Judgment Date: 31 May 2022
• Neutral Citation: [2022] IECA 124
• Court: Court of Appeal (Ireland)
• Docket Number: Court of Appeal Record Number 2020/53

Between

Karshan (Midlands Limited) Trading as Domino's Pizza

Appellant

and

The Revenue Commissioners

Respondent

[2022] IECA 124

Whelan J.

Costello J.

Haughton J.

Court of Appeal Record Number 2020/53

THE COURT OF APPEAL

Mutuality of obligations – Substitution – Integration – Appellant appealing a Tax Appeal Commissioner’s determination by way of case stated – Whether delivery drivers who delivered pizzas for the appellant were employees of the appellant

Facts: The appellant, Karshan (Midlands) Ltd, appealed to the Court of Appeal against the order of the High Court of 21 January 2020 in respect of a case stated by way of appeal for the opinion of the High Court pursuant to s. 949AQ of the Taxes Consolidation Act 1997 (the TCA), and of a judgment delivered on 20 December 2019: [2019] IEHC 894. The case stated arose following an oral hearing in July 2016 by a Tax Appeal Commissioner (the Commissioner). The central issue in the appeal was whether delivery drivers who delivered pizzas for the appellant were employees of the appellant. The Commissioner made a determination on 8 October 2018 that pizza delivery drivers engaged by the appellant: (1) worked during the relevant tax years of assessment (2010 and 2011) under contracts of services and are taxable under Schedule E of the TCA; and (2) did not work under contracts for services, thereby being self-employed, and taxable pursuant to Schedule D of the TCA, as the appellant had contended. The appellant appealed the determination to the High Court by way of case stated and the Commissioner stated a case raising nine questions for the determination of the High Court. The High Court determined that there were, in effect, four core issues for determination; mutuality of obligations, substitution, integration and whether the Commissioner failed to give proper weight to the actual terms of the contract. The High Court (O’Connor J) upheld the decision of the Commissioner in full and dismissed the appeal. The appellant appealed the decision of the High Court to the Court of Appeal in respect of each of the nine issues set out in the case stated, though the appeal focused on the four core issues identified by the trial judge.

Held by Costello J that the Commissioner erred in finding that there was mutuality of obligation in the contractual arrangements between the appellant and the drivers; that being so, it was not possible that the drivers were engaged on a contract of service and this conclusion ought to have been dispositive of the issue before her. Costello J held that the trial judge erred in upholding her determination and in failing to identify her errors in that regard. In Costello J’s judgment, it was open to the Commissioner to reach the conclusions she did in relation to both substitution and integration as there was evidence she was entitled to accept to support her conclusions and, applying the principles in Ó Culachain (Inspector of Taxes) v McMullan Brothers Ltd [1995] 2 I.R. 217, neither the High Court nor the Court of Appeal ought therefore to overturn her decisions in respect of those two issues. Costello J held that the findings on substitution and integration were not determinative of the status of the drivers as the want of mutuality of obligation precluded them from being employees of the appellant.

Haughton J, in a concurring judgment, indicated that he also would allow the appeal. Whelan J, in a dissenting judgment, indicated that she would not allow the appeal. Accordingly, the Court of Appeal allowed the appeal and set aside the judgment and order of the High Court and the decision of the Appeal Commissioner. It made a declaration that pizza delivery drivers engaged by the appellant who worked during 2010 and 2011 did so under contracts for services as self-employed independent contractors. As the appellant had been successful on the appeal, the provisional view of the Court of Appeal was that costs should follow the event and the appellant should be entitled to the costs of the appeal and of the High Court.

Appeal allowed.

JUDGMENT of Ms. Justice Costello delivered on the 31 day of May, 2022

1 . This is an appeal of the order of the High Court of 21 January 2020 in respect of a case stated by way of appeal for the opinion of the High Court pursuant to s. 949AQ of the Taxes Consolidation Act 1997 (“the TCA”), and of a judgment delivered on 20 December 2019, [2019] IEHC 894. The case stated arose following an oral hearing in July 2016 by a Tax Appeal Commissioner (“the Commissioner”). The central issue in the appeal is whether delivery drivers who deliver pizzas for the appellant are employees of the appellant. The Commissioner made a determination on 8 October 2018 that pizza delivery drivers engaged by the appellant:

• (1) worked during the relevant tax years of assessment (2010 and 2011) under contracts of services and are taxable under Schedule E of the Taxes Consolidation Act 1997 (“the TCA”); and

• (2) did not work under contracts for services, thereby being self-employed, and taxable pursuant to Schedule D of the TCA, as the appellant had contended.

2 . The appellant appealed the determination to the High Court by way of case stated. The High Court (O'Connor J.) dismissed the appeal and the appellant has appealed to this court. This is my judgment in respect of the appeal.

Background

3 . The appellant trades as Domino's Pizza. It manufactures and delivers pizzas and ancillary food items to customers who place orders by telephone, internet and by attending at their stores. The appellant engages drivers to deliver the pizzas to its customers. Each driver entered into a written agreement with the appellant. It recites that:-

“… the company wishes to subcontract the delivery of pizzas, the promotion of its brand logo and the contractor [each driver] is willing to provide these services to the company on the terms hereinafter appearing.”

4 . The agreement states that the contractor shall be retained by the company as an “independent contractor” within the meaning of and for all purposes of that expression (Clause 1). At Clause 17, the contractor confirms that he or she is aware that any delivery work undertaken for the company “is strictly as an independent contractor”. The driver acknowledges that the company “has no responsibility or liability whatsoever for deducting and/or paying PRSI or tax on any monies [they] may receive under this agreement”.

5 . Each driver is required to provide his or her own delivery vehicle in a roadworthy and safe condition. Clause 4 states that a driver could rent a delivery vehicle from the company on certain terms. Clause 5 requires the contractor to insure the vehicle with a reputable insurance company within the State for business use. If the driver does not have the appropriate business insurance, the company “is prepared to offer same (third party only) at a pre-determined rate.”

6 . At Clause 3, the company agrees to pay the contractor according to the number of deliveries successfully undertaken, “[i]n addition the company shall pay for brand promotion through the wearing of fully branded company supplied clothing and/or the application of company logos affixed temporarily to the contractor's vehicle.” Clause 9 states “… the company does not warrant a minimum number of deliveries.” The driver is entitled to engage in a similar contract delivery service for other companies at the same time as the contract is in force, but this right “does not extend to delivering similar type products into the same market area from a rival company at the same time, where a conflict of interest would be possible” (Clause 11). Clauses 12 and 14 were the focus of the debate between the parties and I set them out in full:-

“12. The Company accepts the Contractor's right to engage a substitute delivery person should the Contractor be unavailable at short notice. Such person must be capable of performing the Contractor's contractual obligations in all respects.

…

14. The Company does not warrant or represent that it will utilise the Contractor's services at all; and if it does, the Contractor may invoice the Company at agreed rates. The Company, furthermore, recognises the Contractor's right to make himself available on only certain days and certain times of his own choosing. The Contractor, in turn, agrees to notify the company in advance of his unavailability to undertake a previously agreed delivery service.”

The agreement may be terminated without notice (Clause 15).

7 . In addition, the drivers were required to sign a document entitled “Social Welfare and Tax Considerations” which the Commissioner held provided:-

“This is to confirm that I am aware that any delivery work I undertake for Karshan Limited is strictly as an independent contractor. I understand that, as such, Karshan Limited has no responsibility or liability whatsoever for deducting and/or paying PRSI or tax on any monies I may receive from this or any of my other work related activities.”

8 . The drivers were also required to sign a document entitled “Promotional Clothing Agreement” which provided for a deposit to be paid in respect of a branded crew shirt, baseball cap, name tag and driver jacket.

9 . In her written determination, the Commissioner set out the oral evidence and the terms of the written contract between the appellant and the driver. At para. 38 of her determination, the Commissioner set out her findings of fact based on the evidence from the witnesses, together with the documentary evidence. Her findings were:

• (a) that the practice was that drivers would fill out an “availability sheet” approximately one week prior to a roster being drawn up indicating their availability for work, and that the roster would be drawn up by a store manager based on the availability sheets;

• (b) that the substitution clause permitted drivers to...