Cmr of State Revenue v Roadshow Distributors Pty Ltd

[1997] HCATrans 216

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Melbourne  No M11 of 1997

B e t w e e n -

COMMISSIONER OF STATE REVENUE

Applicant

and

ROADSHOW DISTRIBUTORS PTY LTD

Respondent

Application for special leave to appeal

BRENNAN CJ
DAWSON J
TOOHEY J

TRANSCRIPT OF PROCEEDINGS

AT MELBOURNE ON FRIDAY, 15 AUGUST 1997, AT 10.53 AM

Copyright in the High Court of Australia

MR R.R. BOADEN:   May it please the Court, I appear for the applicant in this matter.  (instructed by the Solicitor to the Commissioner of State Revenue)

MR F.G.A. BEAUMONT, QC:   If the Court pleases, I appear with my learned friend, MR J.W. DE WIJN, on behalf of the respondent.  (instructed by Herbert Geer & Rundle)

BRENNAN CJ:   Yes, Mr Boaden.

MR BOADEN:   Could I first take the Court through the judgment.  There are nine steps in the judgment that I wish to travel through, and the error ‑ ‑ ‑

BRENNAN CJ:   Must you?  We have read the judgment.

MR BOADEN:   Yes.  It was really just the analysis of the judgment, though, because - well, if I could deal with that, firstly, then and just briefly ‑ ‑ ‑

DAWSON J:   Just before you start, Mr Boaden, the legislation here has been amended.  It is in different form now from that which it was at the time this decision was given and, as I understand it, it is to be replaced entirely.  Is that so?

MR BOADEN:   That is likely to happen, your Honour, yes.  But still, both the legislation in its amended form, the legislation in the other States of Australia and the likely new form of the legislation still turns about the same concept, and that is rental transactions which involve giving the rights to use goods.  All of the legislation across Australia is based upon that, and that will still be the fulcrum of the new legislation.  The very difficulty which this decision raises is that, whilst there has been some difficulty in working out exactly what should be regarded as rent derived from the use of goods, the wild card that, in my submission, this judgment has introduced is a quite different approach.

What this judgment does is look at the revenue which is derived and, rather than saying is it derived from the use of the goods, it looks at the goods themselves and makes the discriminating feature the nature of the goods.  Now, we can see in the earlier judgments - and just by way of the context in which this arose, the first judgment which raised the point was the South Australian Crate Case and in that case the people rented crates and they had to pay to have the crates cleansed and delivered and things like that, and the question was:  was that part of the rent which was paid for the use of the goods?  It was held yes, it was.

That was followed by the Full Court judgment in Cyclone which said that when you have to pay ancillary costs for scaffolding - not just for the rent of the scaffolding itself, but to have the scaffolding put up to have it delivered, to have it assembled, to have it insured - that was not part of the rent that was payable for the use of the goods.

DAWSON J:   That was payable for the services.  Now, you do not quarrel with that, do you?

MR BOADEN:   No, I certainly do not.  So, what we had so far was the fairly consistent approach of the law becoming clear, because the first case can no longer stand in the light of the second case.  What both of those cases do is look at the use of the goods and say:  is the revenue coming for the use of the goods, or is it for something ancillary; for the insurance of them, or for something else?  That is still consistent with the judgment in this Court in Taxiway which looks at the payment that is paid for the use of the taxicab, together with the licence, because the payment that is being paid is for the use of the goods. 

Now, this case introduces a quite novel concept, because what it does is look at the goods themselves and say, well, if the goods come together with permission to use them - a licence to use them - one without the other is quite useless, and no one would pay for one or the other.  From that premise, the judgment says therefore, we must make an allocation, an apportionment.  That, in my submission, is the error in the judgment and, if that error is allowed to continue, then it will still permeate the new legislation, and still affect the other jurisdictions.

DAWSON J:   Why is it an error?  When you get a licence you get a form of incorporeal property.  You are paying not for the use of the goods as physical objects, but you are paying for something that is not physical at all.

MR BOADEN:   Yes.

DAWSON J:   That was what the court held; why was that an error?

MR BOADEN:   Because what one does is to pay for both.  You pay for the use of the goods and for the licence and, in my submission, it is quite impossible to allocate or appropriate the money for one or the other.  The error appears - - -

DAWSON J:   It may be difficult, but it is not impossible.  They did it.

MR BOADEN:   In fact, it was not done in this case, because there was no allocation.  But that is really - - - -

DAWSON J:   You do not have any difficulty in allocating amounts when you talk about erecting scaffolding.  You say the use of the scaffolding was worth so much, but the payment which was made was for so much for erecting it, and servicing it, and so on.  Why cannot you perform the same process where you have a film which is pretty worthless without a licence to use it to avoid breach of copyright?

MR BOADEN:   It is a process which could be done if, for example, one were trying to sell the asset, and that is really what happened in the Dickens Case where one had the manuscript being sold and the goodwill.  They were both sold together and, having been sold, you had to apportion the proceeds of sale and decide which related to both right.  But that is not the way the legislation works.  The legislation works by imposing a duty where money is received in respect of the rental business in relation to the use of goods.  Now, the words are, in fact, not just “in relation to the use of the goods”, but “for or in relation to the use of goods”.  So, in other words, in that concept there is the concept that if money is paid for the use of the goods or if it is paid in relation to the use of the goods, then it attracts the stamp duty.

Now, the earlier cases and the Taxiway Case followed the legislation - - -

DAWSON J:   Let me see if I follow you.  You are saying that when you have a film and pay an amount for the right to show the film, notwithstanding that that amount relates also to the licence as well as the physical use of the film, nevertheless in that case the payment is for the use of the goods.  That is what you are saying, is it not?

MR BOADEN:   I am saying it is for both, yes.  What his Honour did - and it is just the one sentence which really encapsulates what, with respect, I say is the difficulty - his Honour says some of the money ‑ ‑ ‑

BRENNAN CJ:   What page is this?

MR BOADEN:   It is page 10 of the judgment, your Honour, which is page 61 of the application book and, if one goes to line 8 in the second paragraph, the first full paragraph on the page, his Honour says:

Were it so -

and “it” being that is if all of the revenue was for, or in relation to, the use of the goods -

Were it so, no part of the consideration received by the appellant could be regarded as received for or in relation to the use of the incorporeal property which the appellant provided in association with the use of the goods, and that cannot be right.

Now, what is built into this premise, this thesis, is that it must be possible to take 100 per cent and say a certain number of per cent is attributable to the use of the goods physically, and the balance must be attributable to the right to use the goods - the licence in this case.  Now, that is what, in my submission, is not correct because it is not necessary to say that there is a distinction and part must be allocated to this part, and part must be allocated to that.  Commercially and in substance and in reality, the payment is made for both rights - they are blended - and no one would purchase one right without the other.  No one would purchase the copyright if you have not got a film to project; no one would - - -

DAWSON J:   No, you would not, but you could have the right to use the goods, which is distinct from questions of copyright, can you not?

MR BOADEN:   Yes, you certainly can.  But what the legislation is seizing upon, and where the duty is imposed, is if the payment is made not just for the use of the goods, but for or in relation to the use of the goods.  Now, what the previous cases have demonstrated is that in weeding out payments that are not for the use of the goods, one concentrates not on the nature of the goods themselves and whether they come with or without incorporeal rights; what one concentrates on is the use of the goods.  That is what the legislation tells us to do.

So, going back to the Crate Case, one looks at the payments that are paid for the use of the crates, but one does not pay for things like cleansing the crates and the insurance that goes on top of them.  It is the same with scaffolding; one does not pay for the insurance - the administrative charges which are passed on to the hirer.  It is the same in the taxi example:  even though the taxi comes with a very valuable chose in action - the right to use the taxi licence - and, in those cases, the chose in action is worth far more than the value of the goods themselves - still the entirety of the revenue is money which is to be regarded as paid for, or in relation to, the use of the goods.

BRENNAN CJ:   Is this the proposition, that if there are two rights conferred by a licensor and one of those rights is a right which is for the use of goods and the two are not distinguished in terms of the consideration that is paid for them both, then the totality is paid for or in relation to the use of goods?

MR BOADEN:   Yes, it is, your Honour.  Yes, that encapsulates it.

BRENNAN CJ:   So that if it is not paid for the use of goods, that which is for the additional right is in relation to the use of goods.

MR BOADEN:   Yes.

BRENNAN CJ:   That means that the provisions of the Act can be avoided by a reallocation of the consideration in the hiring agreement.

MR BOADEN:   No, it does not, that is precisely the point.

BRENNAN CJ:   Why not?

MR BOADEN:   Because if one simply reallocates, one is doing what was happening in the South Australian Crate Case; one is charging rent but giving it a different name, and that will not succeed in defeating the revenue.

BRENNAN CJ:   But it is not charging rent.  You charge rent for the film and then you confer a licence under the Copyright Act for a separate consideration.

MR BOADEN:   But by doing that, one is simply breaking it down artificially, because still - that is when one comes back to the ‑ ‑ ‑

BRENNAN CJ:   But it is not artificial on your own submission, is it, because there are two rights?

MR BOADEN:   There are certainly two rights but ‑ ‑ ‑

BRENNAN CJ:   Why then can you not assign or create a right in consideration of a stipulated amount?

MR BOADEN:   Yes, it is possible for the rights to coexist separately, to be owned by separate people and to be granted to the one person, but the point is that when the person rents the goods and gets both of those rights, the consideration which is paid to both sources is paid for or in relation to the use of the goods, and it is paid for or in relation to the use of the goods because, as I said, no one would purchase or pay for one right without the other right.

DAWSON J:   Maybe they would not.

TOOHEY J:   Is there no anti-avoidance provision in the Act, or any power in the Commissioner, to interfere with allocated considerations?

MR BOADEN:   There is not any provision which would apply specifically in this case; it is simply the question of whether the revenue comes within those words “payment for or in relation to the use of goods”.

DAWSON J:   The two persons need not be the same.  You could have a bailor, could you not, who rents out the goods and you could have someone else entirely who granted the licence or sub‑licence under copyright law?

MR BOADEN:   One could in that case, yes.

DAWSON J:   Yes.  Well, they are two different things, are they not?

MR BOADEN:   Yes, but when both the rights are owned by the same grantor - which is what happens here - then the payment is, in my submission, inextricably blended, and the payment for both conceptual rights must be regarded as being, in totality, for or in relation to the use of the goods.

DAWSON J:   Would you say that the licensor, under the copyright law, where they are separated, was receiving a payment for or in relation to the use of the goods?

MR BOADEN:   I am sorry, your Honour, I did not hear that.

DAWSON J:   Would you say where the licensor is a separate person, and receives a payment for licensing the use of the goods, would you say he was receiving a payment in relation to the use of the goods, just as the bailor is doing so?

MR BOADEN:   Yes, the payment that he receives is for or in respect to the use of the goods, yes.

DAWSON J:   I think you must say that on your argument, yes.

BRENNAN CJ:   Let us say here you have Warner Australia Limited as the bailor, Warner Australia Copyright Limited as the licensor.  Now, how do you make this Act work as against Warner Australia Copyright Limited?

MR BOADEN:   One does not in that case, because the - what Warner Australia Copyright is giving is not goods, so the Act simply works in that case.

BRENNAN CJ:   And so, the licence fee that it acquires is not assessable to duty?

MR BOADEN:   Yes.

BRENNAN CJ:   And the business which it carries on is not that of a rental business?

MR BOADEN:   No, that is correct, your Honour.

DAWSON J:   I thought you were saying the opposite a moment ago, but I understand what you are saying now.

MR BOADEN:   I am sorry, your Honour, if I said that.

BRENNAN CJ:   Well, then, it is artificial in the extreme, is it not?

MR BOADEN:   It is artificial, but the point is that there are very many different sorts of goods that are being rented out without this, perhaps, artificial breaking down of the right, the chose in action in the goods.  It is an important part of the revenue for all of the different States which extract stamp duty on these transactions and, so, we come back to the problem then, because what this case has done is to introduce this notion of looking at the property itself and applying a discriminating factor which is just not there in the legislation.

The legislation talks and seizes upon revenue which is related to the use of the goods.  The other decisions - South Australian Crates, Cyclone, Taxiway - have all fastened upon the use of the goods; but what this case does is to say where the total payment is being made to the one grantor who gives both the right to use the goods and whatever licence is necessary, then one can break it into two components for the logical reason, or the illogical reason, that there must always be two separate parts to the right that is given.  That, really, your Honours, is the essence of the complaint about the judgment.

Going on from there, your Honours, the special leave aspect of the matter is simply what I have already mentioned and that is that, basically, the legislation will still fail or succeed.

BRENNAN CJ:   What do you say about this proposition; that even if there be substance in the submissions that you are putting, and that the Court of Appeal was in error, their not perceiving the width of the term “in relation to”, that nonetheless this is legislation which is of importance to Victoria and to other States and, in the light of the proposal to revisit this legislation and to bring it into current and appropriate use, this is a matter which should be addressed by legislature?

MR BOADEN:   Your Honour, I do not know the stage that the so‑called rewrite has reached.  I do know that it was hoped that it would be in existence already at this stage, and that has not happened.

BRENNAN CJ:   All the more reason.

MR BOADEN:   I suppose, your Honour, that is correct, but it is like all ‑ ‑ ‑

DAWSON J:   It is only a question of statutory construction.

MR BOADEN:   Indeed, your Honour.

DAWSON J:   You can change the statute, and they are going to change the statute.

TOOHEY J:   Your point is that they may not be changing it in relation to this particular issue.  But the issue itself is live as soon as the Court of Appeal disposed of the matter and, presumably, the legislature could then and would have had regard to the decision as it then stood.

MR BOADEN:   Well, I have to concede that, your Honour.  That is plainly correct.  Really, what I can say is that there is a structure of legislation which has used words or very similar patterns words.  It has been in that position for a long time, and still is, all the way across Australia, and so is the rewrite still based on that.  So, whether or not the legislatures of all the different States and Territories will be able to change the law, if that is necessary, before the rewrites come into existence, one does not know.  But at the moment, it is my submission that this case has had a major and adverse impact on the structure of the stamp duty collection in relation to rental businesses, and that is the special leave aspect of the matter.  Thank you, your Honours.

BRENNAN CJ:   We need not trouble you, Mr Beaumont.

In this matter counsel for the applicant has placed before us arguments with respect to the construction of the provisions of the Stamps Act 1958 (Vic.) that were in issue in this litigation.  If special leave were granted in this case, no more would be involved than the interpretation of the particular words in the section on which the case turned.  If special leave were granted, the decision on those words, in the circumstances of this case, would not necessarily govern all situations of rental businesses.  More importantly, the words now appear in the form of a statute which is currently under consideration by Australian State legislatures and the question whether the decision of the Victorian Supreme Court should be regarded as binding or not, or conclusive or not, for the future is a matter which, we think is more appropriately left to the legislatures than decided by the Court.

In those circumstances, we think it right that we should refuse a grant of special leave, leaving it to the legislatures to determine the future shape of the legislation with respect to rental businesses.

Accordingly, special leave will be refused.

MR BEAUMONT:   I would ask for an order for costs, your Honour.

BRENNAN CJ:   You have nothing to say?

MR BOADEN:   Nothing to say, your Honour.

BRENNAN CJ:   Special leave will be refused with costs.

AT 11.15 AM THE MATTER WAS CONCLUDED