Commissioner of Taxation of the Commonwealth of Australia v Reliance Carpet Co Pty Limited
[2008] HCATrans 150
[2008] HCATrans 150
IN THE HIGH COURT OF AUSTRALIA
Office of the Registry
Melbourne No M163 of 2007
B e t w e e n -
COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA
Appellant
and
RELIANCE CARPET CO PTY LIMITED
Respondent
GLEESON CJ
GUMMOW J
HEYDON J
CRENNAN J
KIEFEL J
TRANSCRIPT OF PROCEEDINGS
AT CANBERRA ON TUESDAY, 15 APRIL 2008, AT 10.17 AM
Copyright in the High Court of Australia
MR A. ROBERTSON, SC: May it please the Court, I appear with my learned friend, MR J.O. HMELNITSKY, for the appellant. (instructed by Australian Government Solicitor)
MS J.J. BATROUNEY, SC: If the Court pleases, I appear with my learned junior, MR C.M. SIEVERS, for the respondent. (instructed by Ambry Legal)
GLEESON CJ: Yes, Mr Robertson.
MR ROBERTSON: Thank you, your Honours. I should start with the facts, which are short, they are set out in the judgment of the Full Court of the Federal Court in which this appeal is brought at relevantly pages 160 to 161 of the appeal book. The facts which I will take your Honours to are, of course, the same facts as the Administrative Appeals Tribunal had earlier found for the reason that the appeal to the Federal Court was an appeal on a question of law under section 44 of the Administrative Appeals Tribunal Act.
The relevant facts, as we would submit, your Honours, are those numbered perhaps (6), (7), (8), (9) and (14) on pages 160, 161, that is, the purchaser paid the sum of $300,000-odd on 5 February 2002 being the deposit plus interest and legal costs as required by the rescission notice. Then the applicant and the purchaser subsequently executed the contract for sale of real estate specified on 10 January 2002 as the day of the sale of the property to the purchaser for $2.975 million plus GST. There are various provisions then stated of the contract, that is, that purchaser pay the deposit which, as the facts showed, have already been paid and the balance is to be paid on settlement. Then there is a reference to an option to defer settlement which was in fact taken up and the provisions of table A of the Transfer of Land Act were incorporated.
GUMMOW J: The deposit was 10 per cent?
MR ROBERTSON: Yes.
GUMMOW J: So there is no debate that it was anything other than a deposit in ordinary usage of that term?
MR ROBERTSON: That is so. I think my learned friend ‑ ‑ ‑
GUMMOW J: There are cases about exceptional amounts ‑ ‑ ‑
MR ROBERTSON: Of course, particularly with perhaps terms, sales where there is some leeway granted. I think my learned friends wish to make some point about whether in any event it was damages. They raise that in a notice of contention. I should say, your Honours, in relation to the proposed notice of contention that the appellant consents to whatever leave is necessary to extend time and for the respondent to rely on the notice of contention. But to answer your Honour Justice Gummow, it was 10 per cent and no issue of it not being a deposit because of exceeding that amount arises, as we would see it. Certainly there is nothing in this judgment that deals with that.
GLEESON CJ: This would not have been a taxable supply if these had been residential premises. Is that so?
MR ROBERTSON: The ultimate transfer would not have been because, I think, that is an input tax credit. There will be an input tax and so therefore it will be a non‑taxable supply.
GUMMOW J: How do we see that?
GLEESON CJ: It is in Division 40 of Chapter 3.
MR ROBERTSON: There have been amendments but the actual sections that your Honours are concerned with have not been amended. There have been amendments – I take it your Honours are looking at Reprint No 2, the red reprint? There have been amendments to the section 40, I think, provisions. But to answer your Honour, the Chief Justice, it is subdivision 40-C on page 118 that specifies that “A sale of real property is input-taxed” to some extent.
GLEESON CJ: What does that expression signify?
MR ROBERTSON: There are two classes of non‑taxable supply. One is GST‑free. The other is, as Justice Hill explained in the decision that I will hand up to your Honours, with non‑taxable supplies, the supplier does not charge GST on its output, to use that expression, that is on its supply but is not able itself to get credits for the tax that it paid on its acquisition.
GLEESON CJ: I think it is common ground that the sale of a residential home is not a taxable supply. Right?
MR ROBERTSON: Yes.
GLEESON CJ: That is because of Subdivision 40‑C and you call it section 40‑65.
MR ROBERTSON: Section 40‑65. Yes.
GLEESON CJ: Yes. I just want to understand why they call it an “input‑taxed” supply.
MR ROBERTSON: Yes. Can I hand up, your Honours, some pages from a judgment of Justice Hill’s, where his Honour at the level of principle explained how the legislation worked with reference in particular to input‑taxed supplies.
GLEESON CJ: I did not want you to take any particular time about this, Mr Robertson. I was just curious about that jargon.
MR ROBERTSON: Yes. It is convenient to take your Honours to it, it might save time later. If your Honours go to page 557 of that judgment, HP Mercantile Proprietary Limited v Commissioner of Taxation 143 FCR 553, and at 557 his Honour Justice Hill at point 2 of the page sets out the statutory scheme and the relevant provisions. I will not read it all, but paragraph 11 his Honour talks about the problem of multi-stage taxes and cascading. Paragraph 13, if your Honours would correct the second word to “genius” rather than “genus”, and his Honour there explains at about the fourth or fifth line, that:
a credit for the tax borne by that entity by reference to the output tax payable as a result of the taxable supply. That credit, known as an input tax credit, will be available, generally speaking, so long as the acquirer and the supply to it . . . satisfied certain conditions.
et cetera. Then in paragraph 16 his Honour talks about GST theory:
certain kinds of activities where the basic system of output tax on supplies and input tax credits on acquisitions will not lead to taxation on the value added by each supplier in the chain. The most important example is said to be financial transactions ‑ ‑ ‑
GLEESON CJ: This is the last sentence on 16, is it?
MR ROBERTSON: “There are other examples,” yes. So “residential property (not being new residential property)” is within that input tax credits regime, and the other non-taxable supplies are called GST free.
The point that ultimately stems from that, in our submission, as we put in the written submissions, is that you start with the breadth of supply, you then have specific provisions where Parliament wishes to take particular dealings out of that. So you have Chapter 3 for exemptions and you have Chapter 4 for special rules, but it leaves intact what we would submit is the breadth of the word “supply”, which is what brings us here.
GLEESON CJ: On your case, if this had been a sale of residential property, that is an input‑taxed supply, would the forfeited deposit have attracted GST?
MR ROBERTSON: I think the answer to that is probably not, although there is no particular rule that says that.
GLEESON CJ: Why not?
MR ROBERTSON: If I could take perhaps a different example to residential property, say, for example, that the supply of educational services is GST free, a deposit was paid by, say, a prospective student, whether, if the ultimate contract for the supply of the services did not take place, the Act intended that the forfeited deposit should have that same status, it does not necessarily follow that it would have that same status.
GLEESON CJ: That is why I took the example of residential property. It is not GST exempt.
MR ROBERTSON: Yes.
GLEESON CJ: It falls under another kind of supply that is not a taxable supply and it is called input tax. I just wanted to know whether the Commissioner says in the very ordinary case of a contract for the sale of a residential property where the vendor terminates the contract and forfeits the deposit, the forfeited deposit attracts GST.
MR ROBERTSON: The answer, your Honour, would stem from – I think I said the answer is probably that it would not be in those circumstances. The answer would be supplied by, on page 17 of the print, section 9‑30(2) and, in particular, paragraph (b) which at least to some extent aligns the right to receive a supply with – or the “supply of a right to receive a supply” with the ultimate position of the transfer of land in that case, your Honour’s example. So the answer is probably, in that example, the position of the deposit paid on entry into the contract would be in the same position.
GLEESON CJ: If that is right, the anomaly for which your opponent contends does not exist?
MR ROBERTSON: My opponent contends for a number of anomalies, your Honour, but certainly that anomaly would not exist.
GLEESON CJ: I am sure you know the one I mean, Mr Robertson. It is referred to in the reasons in the Full Court on page 166, paragraph 50.
MR ROBERTSON: Thank you, your Honour.
GLEESON CJ: Sorry, line 50. Page 166, said to be an absurd result.
MR ROBERTSON: Yes. We have sought to respond to that by reference to the provision that by drawing to your Honours’ attention – and I’ll just give your Honours a cross‑reference to it – in the appellant’s reply, paragraph 16. That is the one dated 10 April 2008.
GUMMOW J: Which particular paragraph in your reply meets the ‑ ‑ ‑
MR ROBERTSON: Paragraph 16, your Honour, on page 4.
GUMMOW J: Thank you.
MR ROBERTSON: I have taken your Honours to the facts. The broad structure of the statute your Honours would have seen from section 2 on page 3 of the reprint which sets out what the Act is about and then the basic rules in 2‑5. Chapter 2 has the basic rules for the GST, when and how it arises, who is liable to pay it and then 2‑10 says:
Chapter 3 sets out the supplies and importations that are GST‑free or input taxed.
That is the general category of non‑taxable supplies that I was referring to. Then 2‑15 says “Chapter 4 has special rules” in particular cases. Then there is some interpretative material. One then gets on page 10 to what is helpfully called the central provisions in section 7, “GST and input tax credits”. Division 9, beginning on page 11, which sets out what are taxable supplies, who is liable for GST and how much GST is payable. Some of these expressions your Honours would have noticed are marked with an asterisk which directs one to the dictionary in section 195 and for present purposes, the defined expressions, they generally refer you back to the beginning of the Act. But if your Honours look at page 406, there is a definition of “taxable supply”.
On the same page there is a definition of “supply”, and on page 382 there is a definition of:
“consideration, for a supply or acquisition” defined to mean “any consideration, within the meaning given by section 9‑15, in connection with the supply or acquisition.
So most of those sections direct one back to 9‑5, 9‑10 and then, as I earlier indicated, Chapter 3 deals with supplies that are not taxable supplies and Chapter 4 deals with special rules and the other provision, that is besides, centrally, Section 9‑5, 9‑10, 9‑15, the other section which the Full Court considered and which, in our submission, is significant for present purposes in how it indicates that deposits are to be dealt with is on page 241.
GLEESON CJ: When you say “dealt with”, you mean dealt with as a matter of timing?
MR ROBERTSON: Dealt with in terms – we would put it that Division 99 at least assumes that deposits of the sort that it deals with would fall within the definition of supply.
GLEESON CJ: But they then make a special rule about it?
MR ROBERTSON: For the timing.
GLEESON CJ: For the timing.
MR ROBERTSON: In a sense it is a “wait and see” provision. One of the ways in which – in our respectful submission, and I will develop this later, but the Full Court looked at what had happened at the point of time of which the deposit was paid, although disavowing any utility or application of Division 99. In fact, what the Full Court did was to look at that event, what we would say was that supply, with the hindsight of later knowing that in fact the ultimate transfer of the land did not take place.
GLEESON CJ: One of your arguments, as I understand it, is that Section 99‑10 reveals a legislative assumption.
MR ROBERTSON: Yes, that is so.
GLEESON CJ: You may be right about that. Can I ask you how the Act deals with again a very common situation in relation to contracts for the sale of land, that is to say, where the purchase price is payable by instalments, perhaps over many years?
MR ROBERTSON: I will find out the answer to that, your Honour.
GLEESON CJ: The kind of contract I have in mind is the one that was considered by this Court in Stern v McArthur.
MR ROBERTSON: Yes.
GUMMOW J: Contract instalments at purchase price payable over years. Prior to completion vendor enters onto the land and builds a house on it.
MR ROBERTSON: I will check that, your Honour, and give you an answer to that. But certainly, in our submission, 99‑5 provides that:
A deposit held as security for the performance of an obligation –
so certain kinds of deposit –
is not treated as consideration for a supply, unless –
it is forfeited or is applied and, in our submission, that is entirely consistent with the nature of a deposit, that is ‑ ‑ ‑
GUMMOW J: Well, “unless” may mean except if. Or, to put it another way, if and when.
MR ROBERTSON: Yes, yes, I would accept that, if and when, yes. Then because until then you do not know what its application is going to be.
GUMMOW J: Or whether the so-called security is enforced.
MR ROBERTSON: Yes, so whether it ‑ ‑ ‑
GUMMOW J: Or whether there is a completion in the ordinary course.
MR ROBERTSON: Yes, so whether it becomes part of the consideration ‑ ‑ ‑
GLEESON CJ: Or the vendor might have to give it back.
MR ROBERTSON: Yes.
GLEESON CJ: The default might be on the part of the vendor and it might be the purchaser that terminates.
MR ROBERTSON: Yes.
GLEESON CJ: In which case the deposit will have to be returned.
MR ROBERTSON: Yes. Therefore, in my submission, the effect of 99‑5 and 99‑10 is that one does not have to bring that amount to tax until one knows what has happened to it.
GUMMOW J: Yes, but what the Chief Justice is putting to you is – and one of the outcomes may be such that there is no tax because the vendor hands it back, or has to hand it back.
MR ROBERTSON: Yes. Another outcome might be that it is applied as part of the consideration for the transfer of the land and loses its separate identity. In this case, of course, it is forfeited, as we now know, forfeited because of a failure to perform the obligation on the part of the purchaser. Now, section 49(2) of the Property Law Act (Vic) is not unique. It says:
Where the Court refuses to grant specific performance of a contract, or in any action for the return of a deposit, the Court may, if it thinks fit, order the repayment of any deposit.
Now, how does that statutory court based regime fit in with the fixing of the tax liability under 99-5?
MR ROBERTSON: That would be an order presumably – this was the equivalent of 55(2A), I think, of the Conveyancing Act (NSW) - that would be an order one would think in most cases that the vendor would return the deposit to the purchaser. There may be a question of timing involved.
GUMMOW J: That is what I am worried about.
MR ROBERTSON: Yes.
GUMMOW J: There may be a purported rescission on one side and on the other side a non-acceptance of the rescission and an assertion of readiness and willingness; on the other side it is want specific performance. I do not think the language of 99-5 readily accommodates those complexities.
MR ROBERTSON: Yes, I think that is right, your Honour. It may be that if it is forfeited at a particular time - - -
GUMMOW J: It may not have been effectively forfeited, you see.
MR ROBERTSON: Yes, and then afterwards - - -
GUMMOW J: If the court may later say, “No, no, no, there was no right to rescind.”
MR ROBERTSON: And afterwards it may be that, if it has been brought to account in that way and GST payable, there may have to be an adjustment to accommodate the subsequent order, which might be a year later when the court says either something under 49(2) of the Victorian Act or otherwise in relation to whether there was in the particular circumstances a right to forfeit the deposit. So there may be a different result depending on what the court ultimately - - -
GUMMOW J: Unless you read “is forfeited” as having some sense of forfeited effectually according to law ‑ ‑ ‑
MR ROBERTSON: One can imagine a taxpayer saying, “Well, it isn’t forfeited”, and there may be some dispute about that, how that will be worked out administratively. If it was brought to tax there would have to be an adjustment if the court said later that was incorrect.
GLEESON CJ: Presumably a lot of contractual disputes might result in litigation, it might take years ‑ ‑ ‑
MR ROBERTSON: Yes, that is right.
GLEESON CJ: You might need to use the benefit of hindsight to work out how the Act applies.
MR ROBERTSON: Yes, but there would not be anything in a sense peculiar about that. Whether it turned out that the Commissioner said, “Well, that’s the position at the moment, so you should pay it and there’ll be an adjustment later of the court if it is litigated and depending on the outcome”.
GUMMOW J: Yes, I was going to ask you - in the present case, there is no dispute that there was a forfeiture ‑ ‑ ‑
MR ROBERTSON: No dispute at all.
GUMMOW J: So we are not in this territory at the moment.
MR ROBERTSON: No, exactly.
GLEESON CJ: What do you say was the supply for which the deposit was consideration?
MR ROBERTSON: Here ‑ ‑ ‑
GLEESON CJ: Whatever the answer to that question is it has to be in terms of section 9-10, does it not?
MR ROBERTSON: Yes, that is so. Your Honour, what we say is that if one goes, perhaps for the sake of simplicity, from the opening words of that provision to the subparagraphs, even though of course they do not limit the operation of subsection (1) saying “any form of supply whatsoever”, as we put in paragraph 53 of the written submissions dated 31 March 2008, or perhaps paragraphs 51, 52 and 53, first of all at the general level we say that the purchaser who pays a deposit on entering into a contract does so for two reasons, and that echoes the language of the cases which I will remind your Honours of in a moment – that is, the first is to provide an earnest of performance, the second is to provide part payment of the purchase price in the event the transaction is performed. But a purchaser pays a deposit in order to secure the contract. Without payment of a deposit a purchaser does not obtain the benefit of the sale contract, namely, the promise to have the land conveyed at a known price at a known time. Then if one applies (e) – that is, 9-10(2)(e) – the vendor creates contractual rights in favour of the purchaser, or if one looks at (g), we submit that the vendor entered into an obligation to transfer the land.
GLEESON CJ: How many suppliers were there?
MR ROBERTSON: How many suppliers were there at that time?
GLEESON CJ: Yes. How many suppliers were there for which the deposit was consideration?
MR ROBERTSON: In our submission, one. If I can perhaps come to the heart of it, your Honours, this matter that your Honour the Chief Justice has asked me about is dealt with I think in a single paragraph in the Full Court’s judgment on page 174 of the appeal book. If your Honours have the Federal Court report it is at paragraph 18, “When the applicant entered into the contract for sale with the purchaser”. Does your Honour Justice Gummow have that?
GUMMOW J: They are mad with numbers.
MR ROBERTSON: There are a lot of numbers.
GUMMOW J: Yes, thank you.
MR ROBERTSON: Their Honours say it:
was a contract for the supply of real property; nothing more and nothing less. We accept the applicant’s primary contention –
which I will take your Honours to. They are not below; they are actually above on page 165 –
That supply did not take place because the contract was rescinded.
That is something of course that their Honours only know after the event rather than at the time it was happening. Then also:
the fact that that supply did not take place is not a warrant to undertake some juristic dissection of the contract to find some other supply, in terms of the GST Act, at the time of entry into the contract. In our view, there was no supply of interim obligations either then or subsequently.
In my submission, “interim” certainly would not have been seen as the nature of the obligations the contracting parties entered into at the time of the contract.
GUMMOW J: It is picked up in paragraph 32, I thought.
MR ROBERTSON: Of the judgment ‑ ‑ ‑
GUMMOW J: Yes, right near the end. You see this word “unconsummated” supply?
MR ROBERTSON: Yes. That is probably the same idea.
GUMMOW J: The first words, “we are unable to identify a supply upon the rescission”.
MR ROBERTSON: Yes. So that is looking at ‑ ‑ ‑
GUMMOW J: It postulates some temporal contemporaneity as being essential.
MR ROBERTSON: That is referring to a separate and alternative argument, which we put in the alternative, that is, that if there is no supply on entering into the contract, then one can look at whether or not there is a supply when that contract was rescinded. If I could just dwell for a moment on paragraph 18. In our submission, their Honours are saying, in effect, that as at the time the contract was entered into, there was no distinction between the entry into of the contract and the transfer of land that the contract contemplated.
GLEESON CJ: I am not sure I get that. The definition of “supply” includes the creation of a right.
MR ROBERTSON: Yes.
GLEESON CJ: It also includes the entry into an obligation.
MR ROBERTSON: Yes.
GLEESON CJ: It seems to suggest that the supply, as defined, occurs at the time of the creation of the contractual right, or the entry into of the contractual obligation.
MR ROBERTSON: Yes. We would so submit. What their Honours are saying is that if the contract is not performed, then it is of no consequence.
GLEESON CJ: That must apply to all contracts, not just contracts for the sale of land. Contract to sell an article of clothing on which you pay a deposit.
MR ROBERTSON: Yes, in a sense, one can see it more clearly with a contract for the sale of land because there is a formality about the entry into the contract and generally a later discernible event in terms of the conveyance of the land, but in principle what your Honour puts to me must be correct, we would submit.
GUMMOW J: Is it the third sentence in paragraph 18 that you fix on as unsatisfactory?
MR ROBERTSON: “That supply did not take place”?
GUMMOW J: Yes.
MR ROBERTSON: Well, that is what I meant earlier, your Honour, by hindsight. We know that now.
GUMMOW J: “That supply did not take place because the contract was rescinded.”
MR ROBERTSON: But if you look at the position of the people when they entered into the contract they did not know that. They were certainly making some provision against that event.
GLEESON CJ: This may exemplify the importance of not misusing the word “rescission”.
MR ROBERTSON: Yes.
GLEESON CJ: I think people now talk about the termination of contracts because of the danger that the word “rescission” will lead to an impression that there never was a contract but it was, as it were, obliterated.
MR ROBERTSON: Yes.
GLEESON CJ: There is a judgment of Sir Owen Dixon on this, McDonald v Denny Lascelles.
MR ROBERTSON: ‑ ‑ ‑ McDonald v Denny Lascelles, yes. We have given your Honours a reference to that in our footnote 16 on page 13. It is (1933) 48 CLR 457 and the pages I think your Honour the Chief Justice has in mind are 476 and 477. That seems to be the classic exposition of the error of thinking that because a contract is rescinded it is annihilated retrospectively.
GUMMOW J: That word “rescission” is not used in the Act, is it? It talks about failure to perform an obligation.
MR ROBERTSON: Yes, I do not think the word ‑ ‑ ‑
GUMMOW J: Is forfeited because of a failure to perform the obligation.
MR ROBERTSON: Yes, it does not ‑ ‑ ‑
GUMMOW J: All I am putting to you is this word “rescinded” seems to have come in from the conveyancing misunderstanding actually, one way of putting it.
MR ROBERTSON: Yes, I think that is right, with respect, your Honour. It is no doubt a description which the conveyancers applied to what happened ‑ ‑ ‑
GUMMOW J: They did. They served what they called the notice of rescission.
MR ROBERTSON: Yes, exactly and that has, I think, some statutory recognition, or certainly ‑ ‑ ‑
GUMMOW J: In New South Wales it would be a notice to complete.
MR ROBERTSON: Yes.
GLEESON CJ: That is why I am interested in contracts in which the purchase price is payable by instalments, which are typically cases in which the purchaser actually goes into possession.
MR ROBERTSON: Yes.
GLEESON CJ: Stern v McArthur is an example of that, and when that contract is later rescinded, there might have been a lot of things happened in the meantime.
MR ROBERTSON: Yes, I think another decision, your Honour, that deals with – it may not be correct to call it a contract, payment by instalments, but it is certainly a very protracted period where the purchaser went into possession and where there was an argument in this Court about what was a deposit, what was recoverable, whether it was a penalty, was a decision called NLS v Hughes 120 CLR 583, a Western Australian case, which is on the list of authorities and I will take your Honours to that. But if I might just complete this paragraph 18 on page 174, their Honours say:
We accept the applicant’s primary contention ([13](1)-(7) below).
I wanted to take your Honours to what those primary contentions were. It is the subparagraphs their Honours say are accepted numbered (1) through to (7), which is pages 165 and 167. So the first one is:
upon completion of the contract for sale between the applicant and the purchaser there is a single “supply” within the meaning of s 9‑10 of the GST Act, namely the supply of the real property.
So that is, in effect, what their Honours are adopting at paragraph 18 –
As the contract was terminated there is no supply by the applicant for which the forfeited deposit paid by the purchaser could be consideration. Division 99 has no work to do.
So that, again to use this expression of hindsight, because a later event occurs, as we would put it, their Honours said that the contract, the entering into of the contract, was of no consequence, no legal ‑ ‑ ‑
KIEFEL J: Are their Honours saying that the two provisions are talking about two different things? There is a lack of correspondence in that the obligation created at the entry into contract, namely, the vendors for which the consideration is given, is not the obligation referred to in Division 99 which, on its face, is the purchases.
MR ROBERTSON: I think at the moment I am just looking at – your Honour may well be ‑ ‑ ‑
KIEFEL J: Perhaps that is another way of looking at it, but that is not what their Honours are saying here. Is that your point?
MR ROBERTSON: At the moment I am trying to focus on the meaning of “supply” because what their Honours say about Division 99 I will have to come to separately ‑ ‑ ‑
KIEFEL J: Is that there cannot be a supply because of later events?
MR ROBERTSON: That is in effect ‑ ‑ ‑
KIEFEL J: So I am taking you far too ahead in your ‑ ‑ ‑
MR ROBERTSON: Your Honour, then what they say is that – and I will have to come back to this – Division 99 has a particular purpose, policy purpose, the language does not accommodate that purpose and because their Honours have already found there was no supply, then it has no work to do.
KIEFEL J: Well, perhaps there are a number of matters that their Honours are referring to, the first of which, as you say, is the notion of supply at the outset and whether that can be affected by later events. But are their Honours also saying that Division 99 is actually meaningless because, even if you consider the supply at the outset to have been provided and consideration given for it, therefore a taxable supply, Division 99 is talking about something else? It is talking about an obligation in the purchaser for which the consideration was not given.
MR ROBERTSON: I had not understood their Honours to be saying that.
KIEFEL J: But that is just one view I thought perhaps might be inherent in what their Honours are saying about Division 99.
MR ROBERTSON: At the moment, although that proposition on page 165 says Division 99 has no work to do, I think the focus of paragraph 18 of the reasons of their Honours is probably upon the status of the contract and whether that involved any supply because, if you go on to paragraph (2) on page 165, and this is again a contention approved or adopted by their Honours, their Honours say:
Upon the execution of the contract, certain rights were created in, and obligations were imposed on, both parties –
and so on.
GUMMOW J: Where does this ancillary doctrine come from? What is the thinking behind it?
MR ROBERTSON: It is, I think, a way of characterising what it is that has happened so that you do not have ‑ ‑ ‑
GUMMOW J: Multiple taxable events.
MR ROBERTSON: Yes, an unrealistic, as it were, multiple division of consideration for this bit and that bit and so on.
GLEESON CJ: But there seems to have been some case in the past where somebody found 47 rights on one side and 52 on the other and everybody got jumpy about that.
MR ROBERTSON: I do not think it was a case, it think it was more of an anecdote.
GLEESON CJ: Just take it to the other extreme. Suppose you had a conveyance without contract, that presumably would fall within 9‑10(2)(d).
MR ROBERTSON: A grant of real property, yes.
GLEESON CJ: Or an assignment of real property.
MR ROBERTSON: Or a transfer, yes, (c), (d) ‑ ‑ ‑
GLEESON CJ: So, if it is accepted that a conveyance without contract would itself be a supply, then it is presumably consistent with that to treat a contract to convey at a future date as a supply of a right to receive a supply within the meaning of section 9‑30(2)(b). In other words, you do not have to dissect the contract into as many juristic rights or obligations as there are clauses or sentences in the contract. You can characterise it as the creation by the vendor in the purchaser of a right to a conveyance of land at a future date with a number of ancillary rights which may or may not include possession before conveyance – it certainly would include taking it off the market, not selling it to other people – and then upon conveyance you have another act of supply. But there is only one consideration which is the purchase price of which the deposit is a part.
MR ROBERTSON: In that event.
GLEESON CJ: Is it that that prevents there being two taxable events, for example? One when you enter into the contract and another when you complete the conveyance?
MR ROBERTSON: When your Honour said “is it that” – I missed what your Honour said.
GLEESON CJ: When you have a conveyance on contract, a conveyance on sale, performance of a contract, what is it that stops there being two suppliers for consideration; one when you enter the contract in the first place and the other when you have completed the contract?
MR ROBERTSON: Certainly in terms of consideration that is part of the work of Division 99. If one actually has the conveyance, which your Honour is putting to me, then one can see at that point, we would submit, that the contractual supply, if I can call it that, became, in that event, ancillary to the transfer of the ‑ ‑ ‑
GLEESON CJ: Taxable supply is a supply for consideration. In the ordinary case of a contract for the sale of land there is only one consideration – that is the purchase price – of which the deposit is part. There may also be instalments that are part of the purchase price. But you cannot get a second lot of GST, I presume, upon conveyance, although a conveyance is a form of supply itself because there is only one lot of consideration. Is that right?
MR ROBERTSON: That is right. The amount that is paid here would be, in that event, because the payment of the GST would be delayed until you knew what had happened to the deposit, then it is applied as part of the consideration for that ultimate supply so that you do not get a payment of GST and then a repayment. You leave it until you see what has happened to the deposit.
GLEESON CJ: But the Full Court seems to have seen only two alternative views of the matter: either you undertake this juristic dissection, finding as many rights in the contract as you can count, or, alternatively, saying that there is only one supply – that which occurs on conveyance. I am wondering whether there is a possible intermediate view of the matter; that is to say that there is a contract which falls within the definition of supply – one supply, that is the supply of a right to receive a future supply and then there is a conveyance which would itself be a supply if there were no anterior contract or which is itself a supply, but there is only one lot of consideration, of which the deposit is part.
MR ROBERTSON: Yes. Certainly we would accept, your Honour, that the Full Court does seem to have adopted that view. That is, there are only two views: one is in the language, the juristic dissection into how many clauses of the contract there were. Each of those was a supply and presumably you have some disintegrated consideration - quite how you work that out I do not know. Or, their Honours say we cannot have that, so therefore the contract – and I am still looking at this central paragraph 18 – has no status even at the point at which it is entered into, and no status in the sense of answering the description of a supply. It is nothing until one gets to the conveyance. But in our submission there is a clear alternative.
GLEESON CJ: There is a difference between terminating a contract for breach and rescinding a contract for fraud, for example. It is the ambiguity of the word “rescission” that may have created a difficulty for the Full Court.
MR ROBERTSON: If that sentence that his Honour Justice Gummow drew my attention to, that is, the third sentence of paragraph 18, involves, which it may, the idea that the contract was retrospectively divested of any component of rights and obligations – I have not put that well – but if it has the McDonald v Denny Lascelles heresy involved in it, then that would confirm, in a sense, the error and it also does not grapple with the status of the contract when it was entered into. It necessarily involves waiting, contrary, in a sense, to their Honours view of Division 99, some period, I think in this case a year or so or a year and a half, before one knows that that is the result which, for a tax on businesses, would be, in our submission, an odd way of looking at it.
I will not go through all the parts of the applicant’s submissions that their Honours accepted but the same problem, in my submission, is inherent in the use of the term “interim obligations”. We would submit that one would not describe entering into a contract for the conveyance of land as interim obligations as at that time.
GUMMOW J: There is an awkwardness too, I think, in 9‑5 in the definition of “Taxable supplies”. It talks about, “You make” – it is uncouth language really – “the supply for consideration”.
MR ROBERTSON: If you make the supply for consideration?
GUMMOW J: Yes.
MR ROBERTSON: Yes.
GUMMOW J: What is the temporal connection between the making and the consideration? Do you see what I mean? You say they do not have to be synchronised in the light of ‑ ‑ ‑
MR ROBERTSON: In the light of Division 99?
GUMMOW J: Yes. Or to put it another way, 99 puts in a special regime about deposits to get over what otherwise might be an awkwardness in the language.
MR ROBERTSON: Yes, that is as we put it, your Honour, that is, Division 99 is entirely consistent – one can see the practicalities of it, that you do not want the ultimately unknown status, or at that point the unknown status of the deposit, to lead to the result where the GST is paid and then repaid, but it is an exception. It is a special rule for deposits, in my submission.
GLEESON CJ: There are various kinds of deposits too. The deposit that a tenant pays to a landlord as security for the obligation not to damage the premises is often kept separately and refundable.
MR ROBERTSON: I think there is a statute which says it has to be, at least in residential ‑ ‑ ‑
GUMMOW J: Or a bond.
MR ROBERTSON: I think there is a board ‑ ‑ ‑
GLEESON CJ: I presume 99‑5 would cover that, that is, it does not treat that as consideration for any supply unless it is forfeited because of a failure to perform the obligation.
MR ROBERTSON: Yes. Certainly, the notion of deposits, we would submit, is not limited to the deposits about which there has been so much learning over the years, the Howe v Smith type deposits, that it would extend, depending on whether it was a deposit and what it was for and so on it, might apply for a purchase of goods or services for the performance of obligations.
GLEESON CJ: Well, if you reserve a hotel room for a week you may have to pay a deposit and sometimes the arrangements for booking hotel rooms, say if you cancel three months before the time for using the room applies, you will get it all back or you will have to forfeit half of it if you cancel a week before or whatever.
MR ROBERTSON: Yes, yes.
GLEESON CJ: Is that all covered by 99‑5?
MR ROBERTSON: If it is to secure the performance of obligations under the contract, which in that case the obligation, I suppose, would be to turn up on the allotted day and pay for the room.
GLEESON CJ: As a supplier and a consumer of services.
MR ROBERTSON: Yes.
GLEESON CJ: Now, how does that match with the European decision that we have been told about?
MR ROBERTSON: The European decision, the European Court of Justice, concluded that looking at it any way from the perspective of French law that the deposit, such as your Honour the Chief Justice has just put to me, would not be a taxable supply. This is Societe thermale, the decision of the European Court of Justice. The copy that I have got, your Honour, says the opinion of the advocate general at the beginning, who took a different view, and then the order is just after paragraph 37. The court said at 36 that:
Articles 2(1) and 6(1) of the Sixth Directive are to be interpreted as meaning that a sum paid as a deposit, in the context of a contract relating to the supply of hotel services which is subject to VAT, is to be regarded –
and this is, in my submission, important words –
where the client exercises the cancellation option available to him and that sum is retained by the hotelier, as a fixed cancellation charge paid as compensation for the loss suffered as a result of client default and which has no direct connection with the supply of any service for consideration and, as such, is not subject to that tax.
Now, one proposition, your Honours, that we would make is that it would not fit within the way the courts in Australia have treated the obligations of a contracting party, say, in relation to land or other things, to say that they have, in the ordinary case anyway, a cancellation option.
HEYDON J: Option to breach a contract.
MR ROBERTSON: Yes. Well, an option in an unusual sense of the word perhaps.
KIEFEL J: Perhaps an indication is given by paragraphs 24 and 26. It may be that the court is saying that under civil law the moneys cannot be sufficiently directly connected to the obligation to perform because civilian law assumes that performance will occur on the good faith principle.
MR ROBERTSON: Yes, I should take your Honours to the various paragraphs. One statutory provision which seems to have had a bearing is ‑ ‑ ‑
GUMMOW J: Paragraph 25 bears out what Justice Kiefel is putting to you perhaps:
in accordance with the principle that contracts must be performed.
That is good faith, I think, is it not?
MR ROBERTSON: Yes.
KIEFEL J: It is a slightly different approach. It has not been quite embraced in Anglo‑Australian law.
MR ROBERTSON: Quite so, but the position that the court was dealing with was that the argument was that the service was – I am looking at paragraph 12. It was said that the service – the forfeited deposit:
constitutes the remuneration for the supply of a service consisting in client reception formalities, opening a booking file for the client and entering into an undertaking to reserve accommodation for him.
That is what the Court said was I think ultimately too remote.
KIEFEL J: That is only the tribunal holding, though, is it not? That is the tribunal’s description of what they did.
MR ROBERTSON: Yes.
KIEFEL J: I do not think the court is approaching it in the same way.
GUMMOW J: Paragraph 14 Justice Brennan notes – paragraph 14 of this judgment has some affinity with the damages argument put against you here, does it not?
MR ROBERTSON: It is not put as damages there. It is put as compensation for its loss, whereas deposits as dealt with in Brien v Dwyer and so on – the point is that they are not regarded in that light if they are deposits. They are regarded as earnest of performance and so on, rather than referable to any loss. Indeed, the nature is that they do not have to be, and are not, referable to any loss as such.
GUMMOW J: No, but they have to be brought into account in any assessment.
MR ROBERTSON: They have to be brought into account, quite so, which is of course quite different to whether or not they are of themselves damages. Your Honours, can I take you to 17 which identifies, perhaps not in a clear way, that the court is dealing with French law. The court says:
it must be pointed out, first, that the definition of the concept of a ‘deposit’ can vary from one Member State to another and, second, that the exercise of the cancellation option which is linked to the deposit may entail different consequences depending on which national law is applicable. Thus, it is clear from the observations of the French Government that, in French law, the exercise of that option as a rule completely releases the resiling party from the consequences of the non‑performance of the contract, whereas in several Member States, a right remains, in such a situation, to exact damages exceeding the amount of the deposit retained.
The Court seems to be looking at the former of those and perhaps that is where the notion of the cancellation option – it is a true option because there are no further obligations,
GLEESON CJ: Paragraph 19 seems important. Paragraph 19 seems to state the principle according to which they are going to decide the case.
MR ROBERTSON: Yes. That is, whatever the services were, and they refer later I think, although your Honour Justice Kiefel was quite right, with respect, to say that it was the tribunal in paragraph 12; nevertheless the service rendered is ‑ ‑ ‑
GLEESON CJ: But they seem to say you have to find the genuine consideration for an identifiable service supplied.
MR ROBERTSON: Yes. Then they refer to the service, as I would see it, in 22. That is:
a client may make a request by mail, or even orally, for the reservation –
which can be accepted –
The acceptance in such a manner of a booking request gives rise no less to the existence of a legal link between the parties, entailing an obligation for the hotelier to open a file in the name of that client and to reserve the accommodation for him.
So there is some similarity between that and what the tribunal ‑ ‑ ‑
GLEESON CJ: That seems to proceed on the assumption that VAT would only be payable if the deposit were, for example, in the nature of a fee to compensate the hotelier for the administrative exercise undertaken by making the reservation.
MR ROBERTSON: That is services rather than, if I put it this way, rights, which is the focus of attention under 9‑10 of the Act. The court says at 20 – and I think your Honour the Chief Justice was referring to this – “those conditions are not met”. At 23 the court says:
the payment of a deposit by the client, on the one hand, and the obligation of the hotelier, on the other, not to contract with anyone else in such a way as to prevent it from honouring its undertaking towards that client cannot . . . be classified as reciprocal performance, because the obligation in those circumstances arises directly from the contract for accommodation, not from the payment of the deposit.
So, the court seems to have separated out, contrary to the approach of the courts in Brien v Dwyer and so on. It has separated out the payment of the deposit from the contract for accommodation.
KIEFEL J: Their Honours seem to be viewing it as what we call a collateral contract, that there is a separate contract which might be entered into in accordance with the parties freedom of contract, where there is a consequence flows from a booking being made and which might be linked with the fixed compensation theory at paragraph 31.
MR ROBERTSON: Yes. So, for those grounds of distinction, and 19 – and I think your Honour the Chief Justice was referring to this:
that a reply in favour of the first approach . . . may be given only if there is a direct link between the service rendered and the consideration received –
So, that reasoning would, with respect, seem foreign to the approach to deposits taken in Australian law.
GUMMOW J: You have to go to paragraph 30.
MR ROBERTSON: Yes, well, “they mark the conclusion”, yes.
GUMMOW J: Yes, “they mark the conclusion of a contract”, well, that is the notion of an earnest which is taken from the common law from civil law, marks “a presumption that the contract exists”, that is what that is all about. So we have that idea. Secondly, “a deposit encourages the parties to perform”, well, we have that too, have we not? But we do not have the third, do we, that “the deposit constitutes fixed compensation”?
MR ROBERTSON: Certainly do not have the third. I am not sure whether it had the first, your Honour, it marks the conclusion.
GUMMOW J: That is what an earnest is.
MR ROBERTSON: Well, depending on what the court means by the conclusion of a contract, it is a payment made, if it was not made the vendor ‑ ‑ ‑
GUMMOW J: No, but the bargain has been struck, that was the idea.
MR ROBERTSON: Yes, this contains, though, a temple element, that is, the conclusion of it, but perhaps that is not right.
GUMMOW J: I do not think it means performance, no. The second one, it encourages performance, we have that idea, but we do not have the third, that is right, is it not?
MR ROBERTSON: Not here.
GUMMOW J: This notion for release is then caught up in the use of the word “option”, I think.
MR ROBERTSON: And the idea of loss suffered is not for payment of deposits. I am reminded, your Honours, in Avon Products, which was a passing‑on case, I think, under sales tax a couple of years ago, your Honours looked at the differences and one has to look, I suppose, at the differences in the statutory provisions and your Honours used a metaphor which was that the international authorities tended to muddy the waters rather than to illuminate them and, in my submission, unless one knew that the statutory provisions were the same, that the reasoning could only be as persuasive as the reasoning was, really, and perhaps only at a conceptual level rather than at a level of detail.
GLEESON CJ: Does value‑added tax in Europe apply to sales of commercial property? I only wondered whether the problem that we are addressing in this case arises in Europe and what their answer to it is. If it is of some interest to us to look at what they do with deposits on hotel rooms it might also be of interest to look at what they do to deposits on the sale of real estate.
MR ROBERTSON: Yes. I am certainly not aware of any decided case on deposits on sales of advances of commercial‑ ‑ ‑
GLEESON CJ: How do they deal with deposits on the sale of goods with value‑added tax?
MR ROBERTSON: Again, if your Honour is asking me are there decided cases, I am not aware of any. But one would have to look to see whether the definition of “supply” was the same. There are two, I think, cases in New Zealand that are relatively low level, at tribunal level, I think, one of which suggests that GST is payable on deposits and one which suggests that it is not.
GUMMOW J: Do they have a special regime?
MR ROBERTSON: They do not have a Division 99. They also have, as I understand it, something called “time of supply” rules‑ ‑ ‑
GUMMOW J: In other GST systems that existed before 1999, of which there must have been some knowledge, I imagine, by those who promoted this Australian Act, had there emerged difficulties in classification of deposits?
MR ROBERTSON: Not that I know of. But there was, I think, at that time - I will have to get the chronology right - whether there was one decided case in New Zealand, the first of which I think pointed to deposits being treated in the way of which we submit they should be treated. But, as I was saying before, New Zealand has a supply deemed to occur on the receipt of any of the consideration for the supply. So that the sale of land, I will have to get your Honour the statutory provisions, is taken to occur when the deposit is paid. That would give a different perspective, rather than in a sense the reverse here. That is the Division 99 approach. But I will find the statutory provisions. Certainly, I think it is right to say, as was implicit in what your Honour Justice Gummow asked, that both the UK Act was in force and the New Zealand Act was in force before the Australian Act was enacted. Whether there was any particular mischief that had been identified at that point, I cannot say.
KIEFEL J: Mr Robertson, could I trouble you to restate what you say the supply is to which Division 99 refers, in the context of this case. So what is the supply at the outset that you would identify which 99‑5 then operates upon subsequently?
MR ROBERTSON: Your Honour, in my submission the supply, which we endeavour to state in 51 of the submissions at a general level and 52 and 53 perhaps by reference to the specific paragraphs of 9-10, is the vendor creating contractual rights in favour of the purchaser and in the alternative, the vendor entering into an obligation to do anything, which is to transfer the land.
KIEFEL J: But the linkage of the consideration with respect to each of those is quite different. Does it matter that the consideration might be provided by the party in whose favour the obligation is created?
MR ROBERTSON: What we submit was the money paid, which was the $297,500, would have been the amount moving from the purchaser to the vendor. What I was focusing on was ‑ ‑ ‑
KIEFEL J: I am sorry, I may have misunderstood you. You are only referring to obligations on the part of the vendor.
MR ROBERTSON: I am trying to focus on the “you” making a taxable supply, the “you” being the vendor.
KIEFEL J: So the vendor is supplying the vendor’s obligations to the purchaser?
MR ROBERTSON: Yes.
KIEFEL J: The purchaser is at that point providing the consideration for that supply, which I quite understand. Then you come to 99‑5 where that is not what is being talked about.
MR ROBERTSON: Well, 99‑5 says:
A deposit . . . is not treated as consideration for a supply –
so it is saying do not treat it “as consideration for a supply” (perhaps which it otherwise might be) unless or until, as I think your Honour Justice Gummow put to me, it is forfeited or it is applied. Then 99‑10, which as we would read it, the Full Court did not specifically refer to when dealing with Division 99 as it were, goes back to the positive and that is:
The GST payable by you –
still talking about the vendor –
on a taxable supply –
it would still be the same answer to that question –
for which the consideration is a deposit that was held as security for the performance of an obligation ‑ ‑ ‑
KIEFEL J: That is the purchaser’s obligation, it is a different obligation.
MR ROBERTSON: Yes, the vendor makes the supply and the deposit is held as security for the performance of the purchaser’s obligations, as we would submit.
GLEESON CJ: In the ordinary case of a contract for sale that proceeds ultimately to completion, presumably 99-5(1)(b) is talking about treating the deposit as part of the purchase price. Is that right?
MR ROBERTSON: Yes.
KIEFEL J: I suppose what I am asking, Mr Robertson, turned the other way around is whether or not the supply you first identify is the deposit, or is that which is guaranteed by the deposit.
MR ROBERTSON: Well, the consideration, we would submit, is that – that is, that the payment of the deposit is in respect of the vendor creating contractual rights in favour of the purchaser. So, take it away from the language of supply and 9-10 and so on, the position of the parties would be here is this contract in respect of the sale of the land and ultimate conveyance of the land, the contract says a deposit is to be paid, and one would assume that if a deposit was not paid then the – assume in the ordinary course, which is the facts here – that if the deposit was not paid the vendor would say, “Well, I am not going to enter into any obligations. I am not going to” – to come back to the language of 9-10 – “confer contractual rights on you or enter into an obligation to transfer the land”.
Your Honours, we would submit that if one looks at the cases on – and I will perhaps give your Honours references to where we say that this approach aligns with what the courts have said about the nature of deposits, at least in the context of real estate. Perhaps Brien v Dwyer 141 CLR 378 is a good example. I also gave Your Honours a reference, I think, to NLS v Hughes, which was payment by instalments. If I could answer your Honour the Chief Justice in relation to paying the purchase price by instalments, section 29‑5 of the Act and 29‑10 lead to the result that, at least if the taxpayer is accounting on a cash basis, then the GST is paid on each instalment and otherwise the GST is paid on the whole price upon invoice. I can certainly give your Honours a more detailed answer, but that is where the answer is to be found, in my submission, in 29‑5 and 29‑10.
GLEESON CJ: Thank you.
MR ROBERTSON: I was going to take the Court briefly to Brien v Dwyer. The question arose in that case about the time at which and the consequences of the time at which the deposit was paid. That is not a matter of immediate importance. This is 141 CLR 378. Chief Justice Barwick dealt with the nature of deposits, and I will not read all these passages to your Honours, but at the foot of 384 and through to 387, at the foot of 386 and the top of 387 his Honour approves what Justice Hutley had said in the New South Wales Court of Appeal as to the nature of the deposit and what the position of the vendor is on exchange of contracts. This is the top of page 387:
the purchaser acquires an equitable interest in the land, and this of itself has a constraining effect upon the vendor. What he can do with his land is materially limited from the moment of exchange.
At 388 in the middle of the page, and this is perhaps a point of distinction with the European Court of Justice approach, his Honour says, in the paragraph beginning “I might observe”:
it is, in my opinion, erroneous to discuss the position of a vendor on non-payment of a deposit in terms of damage or disadvantage thereby suffered by the vendor. To do so misconceives the function of a deposit and fails to give proper significance to the fact of its non-payment at the time the purchaser signs the form of contract.
His Honour Justice Gibbs at 391 point 5 talks about:
the customary procedure of exchange –
which is the –
crucial and vital fact which brings the contract into existence . . . until those things have been done the matter remains in the realm of negotiation.
That is at the foot of 391, and over on 392 at point 3 of the page, having referred to Soper v Arnold, Justice Gibbs discusses:
The primary purpose of the deposit would not be served unless the deposit were paid at the very time the purchaser assumed his obligations under the contract.
Their Honours were, of course, construing the standard terms to see what meaning should be given to the words, I think, upon the signing of the agreement. That was the point of it. His Honour Justice Gibbs, towards the foot of 392, says:
It is not, of course, intended that the payment of the deposit and the signing of the agreement should be strictly simultaneous, because that would be absurd.
It is sufficient, his Honour says at the top of 393, about line 10:
if the deposit had been paid before contracts are exchanged.
Justice Stephen at 397 point 9 and the top of 398 with reference to authorities – failure to pay the deposit is “failure to provide the agreed security”, et cetera. That is Justice Stephen. Justice Jacobs at 401 was dissenting in the result, but not dissenting on the point at 401, about line 10 or thereabouts, where his Honour is describing the nature of a deposit and whether or not it was an essential condition. Justice Aickin at 406 point 5:
This view accords with the nature of a deposit under a contract for the sale of land as an earnest given by the purchaser to bind the bargain and as security for its performance. It is thus the basis on which the purchaser obtains then and there an equitable interest in the land.
That discussion continues really until about point 6 on page 407. NLS v Hughes, your Honours, the only thing I will say about it at the moment is that the respondents submit by reference to a decision of the Western Australian Supreme Court that a function of the deposit or the characterisation of the deposit in this case should be as damages. NLS and, indeed, Brien v Dwyer were decided after that decision of the Western Australian Supreme Court, Justice Hale I think it was, and insofar as his Honour describes the nature of a deposit as damages, or liquidated damages, we would submit that all his Honour said has been overtaken by subsequent authority.
GUMMOW J: It would not matter, would it? The deposit has various characteristics. The only question is, does this deposit used in this contract have that characteristic upon which the taxing Act latches to provoke a taxable event.
MR ROBERTSON: So, in a sense, it is a false search to ask a question which is a non-statutory question, is this damages, but I deal with it because it is raised.
GUMMOW J: It is like the single characterisation theory in constitutional law.
MR ROBERTSON: Is it as bad as that, your Honour? So there is no section that says damages are in a different category.
GUMMOW J: It is put into credit, that is what Sir Garfield Barwick says.
MR ROBERTSON: Yes, exactly, but it is, we would submit, a confusion of thought to say because you have to take it into account that that changes its fundamental nature. So, your Honours, I had taken the Court to the Full Court judgment, particularly at paragraph 18, and I have made the submission that I wanted to make about that. We do, for the sake of completeness, point out that where their Honours at paragraph 24 on page 176 make reference to the explanatory memorandum, their Honours do not, and I say for what it is worth, refer to the immediately succeeding two paragraphs of explanatory memorandum which we have set out at paragraph 66 of our submissions, it being perhaps an unusual case where the explanatory memorandum actually said something directly in point. In explanation of Division 99:
if a security deposit is made it is treated as not being consideration for a supply (and hence not subject to GST) unless the deposit is forfeited or is applied towards the consideration for the supply.
Paragraph 6.169 states that:
if the deposit is forfeited or is applied towards the consideration for the supply, GST is paid on the amount of the deposit.
So, for completeness, those paragraphs should, in our respectful submission, have been included as part of paragraph 24.
Then their Honours deal, at 25, 26 and 27, with Division 99 and, really, their Honours’ view is that 99‑5, although their Honours do not mention again 99‑10, do not allow a construction whereby a forfeited deposit may be treated as consideration. How far that is linked to their Honours’, as we would submit, earlier error in not identifying the supply for which we contend, it is perhaps difficult to say. There was an argument put to their Honours which may have been a distraction that the effect of Division 99 was that it deemed there to be a supply and that argument is not put now on behalf of my client. One can see reflections of that in paragraph 26 of their Honours’ reasons and that is perhaps the argument that their Honours are dealing with.
KIEFEL J: Their Honours are perhaps dealing with that lack of correspondence as they see it between the vendor’s obligation first identified and the deposit. I am sorry to harp on it. I am trying to understand what might be implicit in their Honours’ approach. From your point of view you would say that just because you identify a vendor’s obligation as created at the outset, it would not matter that the moneys paid have different characteristics as supporting the vendor’s obligation but also binding the purchaser in the purchaser’s obligations.
MR ROBERTSON: But normally, and perhaps in this case, one would have a payment of money – in this case we would say a deposit – in consideration for rights and obligations ‑ ‑ ‑
KIEFEL J: Both ways.
MR ROBERTSON: - - - going in the other direction, as the contract was found to provide here, that is, it specified the payment of the 297,500 and one would assume that, if that had not been paid, the vendor would have said, “Well, I’m not going to assume any obligations or”, to use the language of the statute, “to make any supply to you. I’m not going to enter into the contract”. There is certainly no factual material to suggest that that would not be the ordinary situation. That really seemed to be what Justice Gibbs, for example, and perhaps the other member of the Court were dealing with in Brien v Dwyer. In answer to your Honour Justice Kiefel, I am not sure whether their Honours are grappling with that question.
KIEFEL J: I thought it might be implied in what they are saying, that they do not see Division 99 referring to a consideration paid for the vendor’s obligation.
MR ROBERTSON: As I would read it, your Honour, they are saying perhaps in the second sentence of paragraph 26:
But if a supply for which the forfeited deposit can be treated as consideration cannot be identified, s 99‑5 has no work to do.
That is why I was submitting that their Honours’ approach is probably heavily influenced by the fact that their Honours have found that there was no ‑ ‑ ‑
KIEFEL J: Yes, you may be right, because that appears to accept that as a forfeited deposit, the consideration moves in a wider context.
MR ROBERTSON: Yes, but they say there is nothing, there is no supply by the vendor therefore Division 99 does not work, their Honours seem to be saying.
GLEESON CJ: They are right to say, are they not, that Division 99 is not the division that creates the obligation. It was because they did not see the obligation – by the obligation I mean the obligation to pay GST. It rather assumes the obligation to pay GST. That is why they talked about not being willing to massage Division 99, but on your argument ‑ ‑ ‑
MR ROBERTSON: It assumes a bit more on our argument, that is, it assumes that a deposit held as security, et cetera, may be consideration for a supply.
GLEESON CJ: On your argument, as I understand it, if Division 99 were not there, there would be an obligation to pay GST. But the turning of the obligation would be anomalous.
MR ROBERTSON: Yes. On one view, contrary to an efficient way of administering the Act, that is, you would say, there is a supply and GST is payable in accordance with the earlier provisions of the Act.
GLEESON CJ: But the opening words of section 99‑10 reflect a legislative assumption, which you say is a correct assumption. They do not impose an obligation to pay GST.
MR ROBERTSON: Not as such, no. Perhaps the force of it is, if the question is, when do I pay it, perhaps on the assumption your Honour is putting to me that GST is payable by you, the answer is, it is attributable to the tax period in which the deposit is either forfeited or allocated.
GLEESON CJ: In fairness to the Full Court, I think part of what they said might have been in response to an argument that your side tried to run at an earlier stage, that is to say that Division 99 creates the liability.
MR ROBERTSON: I think that is fair to say, your Honour, and that is why I was, in answer to her Honour Justice Kiefel I was disavowing insofar of that paragraph 26 is dealing with the deemed supply proposition, I was in a sense, disavowing any complaint about that aspect of it, although pointing out that we did not pursue that argument here. The argument here is that there is either the supply‑ ‑ ‑
GUMMOW J: It is really 7‑1, is it, on page 10 of the print, that is the starting point, is it not? “GST is payable on taxable supplies”.
MR ROBERTSON: Yes.
GUMMOW J: That is where we start.
MR ROBERTSON: Yes, that is right, your Honour. I gave your Honour, perhaps too briefly a reference to that at the beginning. You start at 7‑1, then you go to the definition because you can see the asterisk - one does not worry about taxable importations for the moment - see what taxable supplies are. That ultimately gets you back to 9‑5, taxable supply. You make the supply for consideration. That is another asterisk provision which talks about in connection with the supply and then supply itself is 9‑10, and the payment of money, your Honours can see from 9‑10(4), “supply does not include a supply of money unless”. So those are the key provisions.
KIEFEL J: I take it from your disavowal of the deemed argument about Division 99 that you would say that 99‑5 does not alter the notion of consideration in any way?
MR ROBERTSON: Yes, we do say that. One looks for that elsewhere.
GUMMOW J: Section 99‑5 is really a modification of the definition of consideration, is it not, actually and that is how you track yourself back to
7-1?
MR ROBERTSON: It says that the deposit is not treated as consideration. So it may be a deeming provision or it is how you treat it, whether or not it is consideration, you do not treat it as if it were for that purpose.
GUMMOW J: I do not think it is creating a fiction. It is not deeming in a sense of creating a fiction.
MR ROBERTSON: No. No, it is telling you how you treat it.
GUMMOW J: It is giving a further exposition to the notion of consideration.
MR ROBERTSON: Whereas the matter was put in three different ways before the Full Court, if I can just make this point clear again, it is now put in two ways; the deeming is not persisted with or in, and it is submitted that either the legislation applies to the supply that I have identified or, in the alternative which we have elaborated at paragraphs 58 through to 62 of the original written submissions, that it is not a supply on entering into the contract it is a supply on rescission of the contract, that is, involving the surrender of rights and release of obligations.
GLEESON CJ: Is that argument supported by some special definition of surrender or release?
MR ROBERTSON: No, they are just other parts of the definition ‑ ‑ ‑
GLEESON CJ: That alternative argument of yours seems to turn upon a rather artificial concept of surrender and release, does it not?
MR ROBERTSON: Well, certainly it is true to say, your Honour, that we submit the non‑artificial result, that is, the ordinary way of thinking about the entering into of contracts and the payment of supplies is the primary way in which we put the case. If that fails, then perhaps one is in the land of slightly strained language but we wish to contend in the alternative that ‑ ‑ ‑
GUMMOW J: Too many overactive minds at play in this area, I am afraid.
GLEESON CJ: Anyway, good luck.
MR ROBERTSON: Your Honours, the last thing which I mention is that their Honours – and we do not quibble with, as it were, the approach and perhaps a lot of the high‑sounding phrases about the juristic dissections and so on that the level of principle everybody would agree with, and their Honours say in the penultimate paragraph of the judgment, 33, that their Honours’ conclusion is consistent with “a practical and business point of view”, and we take issue with that as we have developed ‑ ‑ ‑
GLEESON CJ: Their concern about what they call juristic dissection is a proper concern, is it not? A literal application of section 9‑10, too many contracts could produce the consequence, could it not, of identifying a very large number of supplies in the one contract?
MR ROBERTSON: It is a proper concern. Yes, we would accept, your Honour, it is a question of how one ‑ ‑ ‑
GLEESON CJ: I just want to be sure how your argument deals with that concern.
MR ROBERTSON: It deals with it in saying that it is a proper concern but it is not a concern that arises if one looks at the characteristics of the entry of the contract for single ‑ ‑ ‑
GLEESON CJ: Is part of your answer involved in this concept of rights that are ancillary, integral or subsidiary?
MR ROBERTSON: As we would see it, the reference to ancillary rights and so on is perhaps just another way of saying that one has to characterise here the contract and you can, in a perhaps juristic dissection mode, discern all sorts of other obligations but one has to characterise it, if that is a more useful way of thinking about it, to see what it is.
GUMMOW J: You come back to 9‑5, do you not, “you make the supply for consideration”?
MR ROBERTSON: Yes.
GUMMOW J: The Chief Justice was putting to you earlier, you can fragment the supply but why fragment the consideration?
MR ROBERTSON: And then you say, well, what is the consideration for, and, in our submission, in this case you get the answer, that is, the vendor entering into the contract and so on.
GUMMOW J: The obligation to complete, which did not happen, et cetera.
MR ROBERTSON: It is entering into the contract, is putting it at its broadest and then what his Honour the Chief Justice is putting to me is, well, do you look at the 37 clauses and say, well, there are 37 obligations and we would submit, well, no.
KIEFEL J: What if the deposit “is applied to all or part of the consideration for a supply”, 99‑5(1)(b), do you still characterise the supply then by reference to 9‑10(2)(e), (g) and (h), or do you characterise it by reference to some other paragraph?
MR ROBERTSON: The supply then would be the conveyance at that point.
KIEFEL J: Does that come under (d)?
MR ROBERTSON: Yes, it would. Maybe not exclusively but certainly under (d). The last matter I wanted to raise was that your Honours would have seen the form of orders that we seek. That is at paragraph 69 of the original written submissions and that is by reference to the orders of the Full Court at page 182 and the orders are in that form because of the undertakings given on special leave not to disturb the cost orders, et cetera and to pay the ‑ ‑ ‑
GLEESON CJ: I am sorry to take you back to this point, Mr Robertson, but the definition of “supply” in line 10 in its application to a particular contract may produce the consequence that there are many aspects of the contract or a number of aspects of the contract that constitute one or other of the forms of supply referred to in the definition. There may be some cases where there is just a total consideration for the bundle of rights. There may be other cases where the consideration is divided in some way. In a case where there is just one price for the bundle of rights contained in the contract, you treat that as just one supply, do you, one taxable supply?
MR ROBERTSON: One taxable supply. And I think, your Honours, the adjective and the reference which your Honour Justice Gummow was asking about , the adjective such as ancillary supplies and so on, they are all ways of, as I earlier put I think, trying to characterise what it is that is the non‑ancillary supply, the main supply. How you characterise it is another way of putting it.
GLEESON CJ: If you are looking for a taxable supply, the fact that it has characteristics that satisfy a number of the aspects of the definition in section 9‑10 does not alter the fact that you only have one supply.
MR ROBERTSON: That would be so, yes. It may be in a different case that there might be two in respect of which there are different aspects of consideration, but looking at this case, your Honour, just say there is one and whichever of the paragraphs, subparagraphs, that it is referable to, if 9‑10 ‑ ‑ ‑
GLEESON CJ: It really is a composite concept, is it not, in 9‑5, that is, “supply for consideration”?
MR ROBERTSON: In 9-5, your Honour?
GLEESON CJ: Yes.
MR ROBERTSON:
You make a taxable supply if:
(a) you make the supply for consideration ‑ ‑ ‑
GLEESON CJ: Yes.
MR ROBERTSON: Yes, the sections deal with it differently, in the sense that they give a different meaning in different sections to supply, on the one hand, and consideration on the other, but at the end of the day you are asking the question are you making a taxable supply and one has to go through the elements of that in 9-5.
CRENNAN J: One possibility having regard to 99-10 is that you do not go to (e) and (g) if you have a supply under (d). So really you are referring to points earlier in time.
MR ROBERTSON: Certainly, you have to ask – and this is one of the complaints, your Honour will recall, we are making about the Full Court – that is, you do have to ask the question at a particular time, that is, is there a supply and you ask the question as at that time. You cannot, in the ordinary case, in our respectful submission, wait and see because it is a taxable supply then and there. I am not sure whether I am dealing with what your Honour was putting to me, but ‑ ‑ ‑
CRENNAN J: In terms of having to find a taxable supply, you do not resort to (e) or (g) if in fact (d) clearly applies. That is what I was putting to you, and that may partially explain 99‑5.
MR ROBERTSON: When you get to that point and where you are looking at, say, 99‑5(1)(b) and saying what is that supply, yes.
CRENNAN J: Yes, it is a different supply.
MR ROBERTSON: Yes. I am sorry, I did not make that clear, your Honour. If I can just finally say this in answer to your Honour the Chief Justice, that you could perhaps, not in this case, but where you are looking to see what the considerations for or in connection with in terms of the definition, one could, I suppose, have consideration or considerations allocated or earmarked to different obligations as a matter of theory at least, but not in this case. We would not characterise it in that way here. Those are the submissions for the appellant, if your Honours please.
GLEESON CJ: Thank you, Mr Robertson. Yes, Ms Batrouney?
MS BATROUNEY: If the Court pleases, I might start by taking the Court – first of all I would seek leave to file our notice of contention. It was filed out of time.
GLEESON CJ: Is that opposed, Mr Robertson?
MR ROBERTSON: No.
MS BATROUNEY: I understand it is not opposed.
GLEESON CJ: Yes, you have that leave.
MS BATROUNEY: Thank you. Next I would take the Court through the facts, not merely to bore you with repetition, but to point out some relevant matters in relation to the facts, the first of which and most important of which is that this land was acquired pursuant to an auction agreement in the first instance. That option agreement is set out at page 113 of the court book.
MS BATROUNEY Page 113 is just the cover page of the Option Agreement and you will see over the page, on page 114 in recital B:
The Grantor in consideration in the sum of TWENTY FIVE THOUSAND DOLLARS ($25,000.00) (“the option fee”) paid to it by the Grantee on or before the execution hereof has agreed to grant to the Grantee the option to purchase the property –
We point out to your Honours that this is a right to acquire property. This is a taxable supply and GST was paid on the exercise fee. If I could take you over to page 126 of the court book you will see there a letter from Mr David Rush of Rennick & Gaynor stating at the first paragraph:
We refer to our recent discussions and we now enclose the cheque for $27,500.00 being option fee which includes the GST of $2,500.00.
Then he goes on in the next paragraph to refer to the deposit as well. So, first of all, the property was acquired pursuant to an option. We say the option was a right to acquire the land and, indeed, GST was payable on that right. Secondly, the contract was entered into, obviously the contract price included GST. Before the contract was executed ‑ ‑ ‑
GUMMOW J: There was a special clause about it, was there not, on page 27, special condition 7?
MS BATROUNEY It is, we would submit, a matter of clear law under the GST, that GST would be payable on its sale of commercial properties as long as it was not sale of a going concern. Before the contracts were, in fact, executed and before the deposit was paid, the first rescission notice was issued. There were two rescission notices issued in this case. The first rescission notice was a rescission notice because the purchaser had failed to pay the deposit. So the first rescission notice is ‑ ‑ ‑
GUMMOW J: Am I right in thinking that these premises were used for the business of the taxpayer?
MS BATROUNEY Yes, they were. The first rescission notice was in ‑ ‑ ‑
GUMMOW J: And the contract seemed to contemplate that the purchaser would close down its business and move somewhere else before completion?
MS BATROUNEY Yes. I am sorry, the premises were not sold as part of the going concern. The first rescission notice is at page 123 of the appeal book and you will see clause 7, “Particulars of Default” is “failure to pay the deposit”. Subsequently, the deposit was, in fact, paid on 27 February and, of course, as we now know, the second rescission notice was subsequently issued for failure to complete. We agree with our learned friend that the supply has, as the English courts have said, apparently unlimitless breadth and what we say delineates the.....of supplies to taxable supplies is that they must be a supply made for consideration. There must be a nexus between the supply and the consideration.
Division 99, as my learned friend has said, does not deem a supply. We say that Division 99 is an attribution section; that is, it is a timing section. It is not a taxing section and I do not understand our learned friends to dispute that. Before the section can apply, there must be what we call an underlying taxable supply. We say that the section was intended to apply to situations such as the hire of equipment, where someone would go and hire a trailer for the weekend, pay a deposit and the garage would not have to pay tax on the deposit unless it was applied as part of the consideration, in other words, applied or forfeited if the trailer was not brought back.
MS BATROUNEY: If I could take your Honours to the explanatory memorandum, there is an example in the explanatory memorandum which we say indicates what Division 99 ‑ ‑ ‑
GLEESON CJ: Where do we find that memorandum most conveniently, Ms Batrouney?
MS BATROUNEY: It was handed up to your Honours.
GLEESON CJ: Thank you.
MS BATROUNEY: If I could take your Honours to clause 6.166 initially, you will see that it says:
Also, if a security deposit made in relation to a taxable supply is forfeited, GST should be payable on the deposit.
So we say at clause 6.166, it is clear that the division only applies to security deposits made in relation to taxable supplies. It does not apply in relation to all security deposits.
GLEESON CJ: Now, just a minute. Look at Jo-anne.
MS BATROUNEY: We say Jo‑anne is an incorrect example.
GLEESON CJ: Incorrect in what respect?
MS BATROUNEY: We submit that in the example of Jo‑anne there would not be any taxable supply. Jo‑anne has contracted to buy widgets from a manufacturer, she has had to pay a deposit for those widgets, she subsequently changed her mind and the manufacturer has kept the deposit. We say it is impossible in that situation to identify a taxable supply, that is, a supply for consideration. We say that Rex, the home handyman, is in fact an indication of a taxable supply.
GLEESON CJ: Well, the explanatory memorandum, insofar as it refers to the case of Jo‑anne, you say is not an explanation at all, it is ‑ ‑ ‑
MS BATROUNEY: We simply say it is incorrect, your Honour. It is an incorrect understanding of the law.
GLEESON CJ: I am not sure I have previously come upon a case where somebody has said “Well, hang on, that explanatory memorandum is just wrong”.
MS BATROUNEY: As I understand it, such an argument was in fact raised in Brooks Case.
GLEESON CJ: Cooper Brookes?
MS BATROUNEY: No, your Honour, Brooks Case, which was a capital gains tax case. I am not sure that I have the correct citation for Brooks Case. I will get that citation for your Honour.
GLEESON CJ: If it is wrong it must be wrong because there is no taxable supply.
MS BATROUNEY: Yes, your Honour. I will take you to why, and we would say it is wrong for the same reasons, that there is no taxable supply in this case in that the deposit is not – well, certainly in relation to the contract for the sale of land we say the deposit is not paid for anything that is granted by the vendor.
GLEESON CJ: Just stick with Jo-anne for the moment, she orders $10,000 worth of widgets and the supplier says, “I will promise to supply you for widgets if you pay a $990 deposit”. Now, you test whether that is an erroneous example by going to section 9-10, I presume.
MS BATROUNEY: Yes.
GLEESON CJ: Why has not the supplier created in Jo-anne a right to delivery of the widgets?
MS BATROUNEY: We say that that is the subject of the contract, rather as distinct from the term of the contract. So, for example, if Jo‑anne had received the right to the widgets by payment of 10 per cent then why would she pay the other 90 per cent? It is the subject of the contract.
GLEESON CJ: But if the price of widgets suddenly skyrocketed and the supplier said to Jo‑anne, “Sorry, I have got a customer who is willing to pay more for them”, Jo-anne could sue for damages, could she not?
MS BATROUNEY: Yes.
GLEESON CJ: The measure of the damages would be the difference between what she had agreed to pay for the widgets and what they were worth when they should have been supplied ‑ ‑ ‑
MS BATROUNEY: Yes.
GLEESON CJ: ‑ ‑ ‑ which may be a great deal. Well, when the supplier said, “Yes, I will supply you with the widgets”, why did not he create a right, a contractual right?
MS BATROUNEY: He did create a contractual right, but what we say is that that was not a taxable supply because that was not what the consideration was paid for. It was paid to secure that right. It was not paid for that right. That is what we say about the Commissioner’s case as well, the deposit was paid to secure rights. It was not paid for the rights.
KIEFEL J: Your case is more concerned with the notion of consideration rather than supply then, is it not?
MS BATROUNEY: It is.
KIEFEL J: And as to whether or not Division 99 alters the concept of consideration?
MS BATROUNEY: Yes, and we say it does not. The Commissioner will concede that nexus is the cornerstone of any VAT or GST supply.
GUMMOW J: Well, what a minute, it all comes down to the construction you place on 99-5 when read with the definition of “consideration”, does it not:
A deposit held as security for the performance of an obligation is not treated as consideration . . . unless ‑ ‑ ‑
MS BATROUNEY: Yes.
GUMMOW J: That suggests it will be treated if.
MS BATROUNEY: That is the Commissioner’s deeming argument which he has ‑ ‑ ‑
GUMMOW J: It is not a deeming argument, it is a question of working the words. This word “deeming”, as Justice Windeyer explained 30 or 40 years ago, is a mischievous one. You have to say what you mean by “deeming”, Perma Blinds Case. What are you using the word “deemed” to mean; to create a fiction or just to further expound what is within this concept of consideration in the definition? Unless we get the starting point, we will just descend into further complexity.
MS BATROUNEY: Yes. Division 99 only applies where a deposit is paid in relation to a taxable supply. We do not get to Division 99 unless we find a taxable supply. Once we find a taxable supply, then Division 99 ‑ ‑ ‑
GUMMOW J: Wait a minute. A taxable supply, and that is a supply for consideration. There is definition of “consideration”, is there not?
MS BATROUNEY: Yes.
GUMMOW J: Section 9‑15, it includes various things. It is put against you that 99‑5 means that, notwithstanding what otherwise might be some ambiguities in 9‑15, deposits get in in the circumstances detailed in 99‑5 and that, therefore, if you have the supply for consideration, you will have a taxable supply.
MS BATROUNEY: Yes.
GUMMOW J: Taxable supply itself is not a distinct self‑sustaining entity, it is a conclusion of the operation of some definitions.
MS BATROUNEY: Yes, it is, but without Division 99 the GST would be payable on the whole of the consideration for a sale of land upon entering into of the contract. So what Division 99 is doing is deferring the time at which the consideration would otherwise be payable under the Act and that is an attribution question. If I could take the court to page 64 of your reprint, which deals with attribution under the GST system. Section 29‑5 states that:
(1)The GST payable by you on a taxable supply is attributable to:
(a)the tax period in which any of the consideration is received for the supply; or
(b)if, before any of the consideration is received, an invoice is issued relating to the supply – the tax period in which the invoice is issued.
So, but for Division 99, the entire consideration would be subject to GST at the time the deposit was paid and that would be on a taxable supply of the land, not on anything to do with rights or obligations. It would be ‑ ‑ ‑
GLEESON CJ: You seem to have a fairly physical notion of land. An estate in fee simple is itself a bundle of rights, it is not the dirt.
MS BATROUNEY: It is, but you do not pay the deposit for that bundle of rights.
GUMMOW J: You pay it to get on the register of title under the Torrens Act.
MS BATROUNEY: That, in a sense, is the crux of our case, so I will have to come back to that.
GLEESON CJ: Your argument about nexus seems – I am not saying it is inspired by this – to be very close to the proposition that you find in paragraph 19 in this European decision where they say there has to be a direct, which means nexus:
between the service rendered and the consideration received, the sums paid constituting genuine consideration for an identifiable service supplied in the context of a legal relationship in which performance is reciprocal.
MS BATROUNEY: That is one of the ways in which the European law is different to ours because the European law is a supply for consideration. Our law is consideration for or in connection with a supply. So, you will find learnings and certainly the commissioner has or will submit that there is a difference between Australian law and European law in that European law requires a more direct link than does Australian GST law. However, both parties agree that the correct test is the test set out in Berry’s Case and that is that the consideration must have a substantial relation in a practical business sense between what is supplied and what is paid for.
GLEESON CJ: Which is that case you referred to?
MS BATROUNEY: Berry’s Case, your Honour. It is referred to in both party’s submissions.
CRENNAN J: Berry v Federal Commissioner of Taxation (1953) 89 CLR 653.
MS BATROUNEY: Yes, thank you, your Honour.
GUMMOW J: But what was being construed by Justice Kitto there?
MS BATROUNEY: It was the term “in connection with”.
GUMMOW J: Yes, in a section doing what?
MS BATROUNEY: It was in relation to goodwill, whether or not a payment received by the taxpayer was consideration in connection with the goodwill acquired.
GUMMOW J: There are endless cases about “in relation to” and “in connection with”, “with respect to” and you can get what you want out of them, if you want to.
MS BATROUNEY: Yes. As I say, both parties agree that the nexus required under Australian law is that the payment must have “a substantial”– I am reading from page 659 at about point 3 – the payment must have “a substantial relation, in a practical business sense, to that property.”
GUMMOW J: But what was being taxed? Why was the Court moved to look at it that way? What would be the consequence of looking at it in some looser fashion?
MS BATROUNEY: At the very top of the page the Court notes the submission that:
a consideration could not be said to be “in connection with” a goodwill unless it was received for a part of that goodwill.
Justice Kitto goes on to say:
I am unable to accept that view. The words “for or in connection with” –
I am actually arguing the Commissioner’s case here.
GUMMOW J: The taxpayer lost in Berry, is that right, because they were putting it too narrowly.
MS BATROUNEY: Yes. So, in a sense, we are conceding the Commissioner’s argument that under Australian law there does not have to be that direct link that the European court referred to. We say that both parties agree that it is sufficient if there is a substantial link in a practical business sense. This comes back to what your Honour the Chief Justice was talking about, about the extreme breadth of the definition of “supply”.
GUMMOW J: Well, wait a minute, are you not construing the word “for” in the phrase “supply for consideration”?
MS BATROUNEY: Yes, but that is defined further ‑ ‑ ‑
GUMMOW J: No, just the word “for”.
MS BATROUNEY: ‑ ‑ ‑ as “for” or “in connection with”.
GUMMOW J: I am just wondering where this word “link” comes from; substantial link and insubstantial link, link between what required by what statutory phrase. Or are you construing the phrase “in connection with” in 9‑15(1)(a)?
MS BATROUNEY: First, on page 12 there is:
(1) Consideration includes:
(a)any payment, or any act or forbearance, in connection with a supply -
Also over in the definition section, my learned friend took you to it this morning, at page 382, it is said that:
consideration, for a supply or acquisition, means any consideration, within the meaning given by section 9-15, in connection with the supply or acquisition.
KIEFEL J: Does that not cut across your argument that it has to be a supply for consideration? That is where you get what you call your direct linkage.
MS BATROUNEY: Yes. But we say that in order to find a substantial relation to practical business sense it must be said that what is being supplied is being supplied for the particular amount of money. If one does not have a nexus argument then one falls in the trouble that the Chief Justice pointed out of the fact that under every contract there are a myriad of rights and obligations, and one in a sense must cut to the chase and find out what is the subject of the contract as distinct from the many terms and conditions of the contract.
If I could take you to the way in which the English courts have dealt with this. I will very briefly take you to three cases which will show how the courts have dealt with this problem. The first one I would like to take you to is the case of MBNA Europe Bank Ltd v Revenue and Customs Commissioners That case was in the bundle that the librarian supplied for the Court. It is the High Court Chancery Division.
GUMMOW J: Simon’s Tax Cases, is it?
MS BATROUNEY: It is reported in volume [2006] STC 2089. Could I take your Honours to page 2098 at about point 3 where the court first refers to Article 6, which is similar to our definition of “supply”, where it says:
“Supply of services” shall mean any transaction which does not constitute a supply of goods falling within the meaning of Article 5.
Such transactions may include inter alia:
-assignments of intangible property whether or not it is the subject of a document establishing title,
-obligations to refrain from an act or to tolerate an act or situation –
At paragraph [16] it said:
Read literally, para (1) of art 6 would appear to mean that any transaction of any kind (other than a supply of goods) constitutes a supply of services, although pursuant to art 2 it will only be subject to VAT if effected for consideration. As will appear however, para (1) of art 6 has not been interpreted with that degree of remorseless logic. Its apparently limitless breadth is circumscribed by reference to the essential nature and purpose of VAT.
GUMMOW J: What was the actual dispute between the revenue and the taxpayer here?
MS BATROUNEY What happened here is the bank entered into a securitisation scheme and the question was whether or not ‑ ‑ ‑
GUMMOW J: We came to become more familiar with that expression, I suppose. What does securitisation mean?
MS BATROUNEY I will just see whether I can find ‑ ‑ ‑
GUMMOW J: It is not a term of immediate legal import.
MS BATROUNEY At paragraph [9] at page 2096, Justice Briggs says:
I have so far described in deliberately neutral terms the securitisation scheme as a process which involved the deployment by MBNA of receivables payable by its credit card holder customers for the purpose of raising work capital. A central question for the purposes of output issue 1 is the proper characterisation of the method by which that deployment was achieved, for the purpose of deciding whether it constituted a series of supplies for VAT purposes. In the barest outline, the Commissioners and both tribunals concluded that the method did not constitute a supply, but amounted to no more than the granting of security for a loan.
GLEESON CJ: I imagine that you rely on the kind of thinking involved in paragraph 53 of Advocate General Jacob’s opinion that is set out on page 2098 that you were just looking at, in paragraph [16]:
VAT is a tax on turnover and on consumption. Only supplies which form part of a taxable person’s turnover and are stages in a chain normally ending in consumption by a final customer can be subject to the tax.
Is that what it is that, as it were, excludes ‑ ‑ ‑
MS BATROUNEY All the myriad rights and obligations along the way.
GLEESON CJ: But is that the sort of thinking that led the European Court in the Hotel Booking Case to say, “This forfeited deposit was not a consideration for a supply, was not a consideration for anything that was consumed, even in the broadest sense of that term; it was payment of the nature of damages for breach of a contractual obligation”.
MS BATROUNEY:It is payment in the nature of damages or in the nature of compensation, yes. We rely on the European case, despite its reference to a direct link, to say in this case, as in that case, there were rights and obligations obtained under the contract – there is no question about that – but that is not what the deposit was paid for. Those rights and obligations arose upon execution of the contract regardless of whether or not the deposit was paid.
GLEESON CJ: The idea in this case that you are referring us to, and in Advocate General Jacobs’s opinion referred to there, seems to be that there is something about the nature of this tax that makes it incongruous to apply it to a situation like this, just as, for example, it was incongruous to apply it to an issue of shares by a company.
MS BATROUNEY:Yes. That is the big picture view. The big picture is it is a value added tax and what value is added by the granting of, as the Commissioner said, a right to transfer under the sale of contract, that is not already encompassed in the supply of the land.
GLEESON CJ: This is something you might want to come back to after lunch, Ms Batrouney. We will adjourn now until 2.15, if that is a convenient time.
AT 12.45 PM LUNCHEON ADJOURNMENT
UPON RESUMING AT 2.17 PM:
GLEESON CJ: Yes, Ms Batrouney.
MS BATROUNEY: If the Court pleases, before lunch I was explaining how, in our submission, a deposit is not paid for the rights and obligations that are obtained under the contract of sale. If I might take you back to the authorities in relation to what a deposit is and if I could start with a decision of Howe v Smith (1884) 27 Ch D 89 at 101 per Lord Justice Fry. If I could take your Honours to page 101 of the report at about point 7, Lord Justice Fry says that:
Money paid as a deposit must, I conceive, be paid on some terms implied or expressed. In this case no terms are expressed, and we must therefore inquire what terms are to be implied. The terms most naturally to be implied appear to me in the case of money paid on the signing of a contract to be that in the event of the contract being performed it shall be brought into account, but if the contract is not performed by the payer it shall remain the property of the payee. It is not merely a part payment, but is then also an earnest to bind the bargain so entered into, and creates by the fear of its forfeiture a motive in the payer to perform the rest of the contract.
It has been described as a payment made wholly for the benefit of the vendor. This was in Brien’s Case (1978) 141 CLR 378. Brien’s Case has been referred to by my learned friends.
In this case, if I could take you to page 384, at about point 2 Chief Justice Barwick was summarising the decision of the Court of Appeal and he said:
The Court of Appeal saw no reason to depart from the literal meaning of cl. 1 –
which is the clause under which the deposit was paid –
It held, as I read the published reasons for judgment, that the provision for payment of a deposit is wholly for the benefit of the vendor and that the obligation of the purchaser, unless its performance is waived by the vendor, is to pay the deposit either before or immediately upon the signature of the contract.
So our submission is that whatever rights and obligations were exchanged upon entry into of the contract of sale, those rights and obligations were supplied regardless of whether or not the deposit was paid. So we submit it is not possible to say that there is the required nexus, that is, that the deposit was paid for or in connection with those rights and obligations. Clearly, one can have a contract of sale where there is no deposit. It is becoming more common that there is 100 per cent financed sales of land these days. And so because what occurred under the contract of sale was an exchange of mutual rights and obligations, we submit it is not possible to say that the deposit was paid for those obligations. The deposit was paid as earnest money. The deposit was paid by the purchaser to prove to the vendor that the purchaser meant business. The vendor did not supply the purchaser any rights in relation to the deposit. Any rights that the vendor supplied were supplied pursuant to the contract. That is our main submission. If I could take you back to Brien’s case, for example, at page 391. My learned friend read this passage out to you so I merely remind you of it. At about point 5 Justice Gibbs said:
the exchange –
and I interpose, the exchange of contracts –
“is the crucial and vital fact which brings the contract into existence” –
It was not the payment of the deposit.
GUMMOW J: Do we know there was an exchange here?
MS BATROUNEY: There was an exchange here.
GUMMOW J: Do we know that?
MS BATROUNEY:I am glad Justice Gummow brought me to the facts of this case. In this case the rescission ‑ ‑ ‑
GUMMOW J: There were solicitors on each side.
MS BATROUNEY:I am sorry, I did not hear you.
GUMMOW J: There were solicitors for each party.
MS BATROUNEY:Yes. In this case the contract, we say, was entered into upon, as a result of, the acceptance of the option to purchase. You will recall at the beginning of the case I referred to the fact that there was an option to purchase, there was an option fee payable of $25,000 plus GST. When that option was exercised and accepted, we say that a contract then came into existence between the parties. The contract of sale of land was annexed to the auction agreement and, indeed, it was pursuant, we submit, to that contract that the first rescission notice was issued, the first rescission notice being a rescission notice that cited the failure to pay the deposit as the default.
So we say it cannot be said that the deposit was paid for the contract because a rescission notice was issued under the contract because of the failure to pay the deposit. The contract was in existence, we say, from the moment that the option agreement was exercised and accepted.
We submit the special facts of this case are helpful to our argument that the deposit was not paid in exchange for the rights and obligations, but we say that that would be the case regardless of the special facts in this case. The deposit is paid wholly for the benefit of the vendor. The vendor gives nothing. What does the purchaser receive in exchange for the deposit? The purchaser receives nothing. The vendor receives an assurance, a security, that the purchaser will complete its side of the bargain.
GLEESON CJ: What is it that a residential property, residential premises, has in common with a school tuckshop? The answer is, they are both input taxed.
MS BATROUNEY: Yes.
GLEESON CJ: What does that mean?
MS BATROUNEY: Input taxed means that the tuckshop must pay GST on the apples and the sandwiches and the drinks, but it cannot in turn charge GST on the sale of the apples and the sandwiches. So, when I renovate my home and I buy tiles and paint, I pay GST on the tiles and the paint but I cannot in turn charge GST when I sell my house. So, input taxed means you pay tax on the inputs but you cannot charge GST when you sell.
GLEESON CJ: On the output?
MS BATROUNEY: On the output.
GLEESON CJ: When you say you cannot charge GST, the output does not attract GST?
MS BATROUNEY: Yes, and I cannot claim an input tax for the sales when I on-sell.
GLEESON CJ: The transactions that will bear GST are transactions like acquiring the services of a painter or a builder that may attract tax, this tax, but the sale of the residential premises, reflecting perhaps the influence of the builder and the painter, is not an output that attracts this tax?
MS BATROUNEY: Yes.
GLEESON CJ: That is what residential premises have in common with school tuckshops?
MS BATROUNEY: Yes.
GLEESON CJ: It is self-defining in the sense that it is input taxed because the Act says it is input taxed. The Act could choose anything to be input taxed. Presumably it could – well, it says financial services are input taxed.
MS BATROUNEY: Yes.
GLEESON CJ: It could say the services of barristers are input taxed.
MS BATROUNEY: Yes, it could. Then as I recall there was a huge debate about books, whether or not books should be taxed or not, or books are exempt.
GLEESON CJ: Thank you.
MS BATROUNEY: GST free, I should say. So that is our primary submission, that to be a taxable supply the supply must be a supply for consideration. There must be a nexus between the two. We say that all the rights and obligations under the contract were in existence, enforceable upon exchange regardless of whether or not the deposit was paid. Therefore it is not correct to say that the deposit was paid for or in connection with those supplies under the contract, the rights under the contract.
GLEESON CJ: A possible embarrassment for your argument is those words “in connection”.
MS BATROUNEY: All of those rights and obligations would exist in exactly the same way and be enforceable in exactly the same way, regardless of whether a deposit was paid. Moreover, the deposit was not calculated in any way by reference to the value of those rights and obligations under the contract, the obligation to ensure, the obligation to transfer title on settlement. It was not calculated by reference to the value of those rights.
GLEESON CJ: Is that not a way of putting your argument to say the deposit is not the price of anything?
MS BATROUNEY: Yes. That would introduce into the GST legislation a concept that is not there. However, having said that, the consideration is defined to mean the price. I apologise, your Honour, at page 12:
Consideration includes:
(a) any payment -
Yes, I am sorry, your Honour, I was right in the first place. At page 19:
The amount of GST on taxable supplies
The amount of GST on a taxable supply is 10% of the value of the taxable supply.
Section 9-75 says
The value of a taxable supply is –
the price multiplied by 10 divided by 11.
price is the sum of:
(a) so far as the consideration for the supply is consideration expressed as an amount of money-the amount (without any discount for the amount of GST (if any) payable on the supply); and
(b) so far as the consideration is not consideration expressed as an amount of money -
that amount and then it talks about non‑monetary consideration, the value of non‑monetary ‑ ‑ ‑
GUMMOW J: What pages were you just reading from?
MS BATROUNEY: I am sorry, page 19 and page 20.
GLEESON CJ: Another way of putting the same idea, to say that this tax system operating on outputs minus inputs is in the nature of a value added tax, the value added being generally the output minus the input and a deposit is not the consideration for anything that adds value. Is that the general idea?
MS BATROUNEY: Yes, it is. If one is to reject that argument, and look at all the various rights and obligations as supplies we submit that then one must attribute consideration to each one of those supplies. If one is going to start dissecting, one must keep dissecting. One of the obligations, the obligation to insure, what is the value of the obligation to insure? Does the amount of the consideration reflect the value of the obligation to ensure? This is what the English courts were talking about when they talked about the remorseless logic and I promised before lunch that I was going to take you to the English authorities in brief to establish what they have done on this issue of supplies that are taxable supplies that are made up of a myriad of supplies. So we determine whether or not there is a principal supply or an ancillary supply or one supply.
If I could start by taking you to the decision of Card Protection [2002] 1 AC 202. Card Protection was a case involving the insurance of a situation where you would lose your credit card and there was an amount of insurance that was payable in relation to the loss of the card and, also, the card would be automatically replaced. If I could take you to page 212, Lord Slynn of Hadley said at paragraph 20 at about point 5 on the page:
In the circumstances on the appeal there is only question –
I think it should say “only one question”. I think that’s a typographical error on my copy –
for your Lordships to decide. Do the arrangements made constitute a single supply with some ancillary services or are there two independent supplies, an exempt insurance supply and a non‑exempt card registration service?
If we could drop down to paragraph 22, he says:
It is clear from the Court of Justice’s judgment that the national court’s task is to have regard to the “essential features of the transaction” to see whether it is “several distinct principal services” or a single service and that what from an economic point of view is in reality a single service should not be “artificially split”. It seems that an overall view should be taken and over‑zealous dissecting and analysis of particular clauses should be avoided.
Could I also briefly take you to the decision of Dr Beynon [2004] 4 All ER 1091. If I could take you to page 1100, this case involved the administration of drugs by a doctor and the question of whether it was one service or a number of services. Lord Hoffmann said, at paragraph [30], halfway down that paragraph – I read this out because it establishes the facts quite well:
Chadwick LJ likewise divided the transaction into three elements: first, the consultation and diagnosis, secondly the supply of the drug for the purposes of treatment and thirdly its administration.
If you drop down to paragraph [31], he said:
Besides raising the question of what authority a doctor would have to dispense drugs to patients who were not reg 20 patients –
if we could just put that to one side –
this approach seems to me to involve the kind of artificial dissection of the transaction which the Court of Justice warned against in its judgment in the Card Protection case . . . In my opinion the level of generality which corresponds with social and economic reality is to regard the transaction as the patient’s visit to the doctor for treatment and not to split it into smaller units.
The last case I would like to take you to is the case of Ford Motor Company Limited v Her Majesty’s Revenue and Customs which is in your bundle of authority. Again, it is a decision of the court of appeal. I do not think it has been reported in any of the authorised reports. Its citation is [2007] EWCA Civ 1370. It was handed down 19 December 2007. It was a case where Ford was, as a marketing thing, selling its cars with free insurance. Subsequently, it claimed that in fact it was making two supplies; one a supply of the car and another a supply of insurance, which was an exempt supply.
The Court looked at whether or not there was a supply of insurance for consideration. If I could take you to paragraph 40 which is on page 17. At about point 7 on the page the Court said:
Thus the issue of one supply or two involves a consideration of whether the potentially ancillary element, that is the ‘free’ insurance, “constitute[s] for customers an aim in itself or a means of better enjoying the principal service supplied”. It is just conceivable that some rich young tearaway would buy a Ford in order to get insurance entitling him to drive on a public road, but for the typical customer in the generality of cases the acquisition of ‘free’ insurance was not an aim in itself but a means of enjoying the car. Presumably in such a case it would be a better means of enjoying the car because, being ‘free’ it would be less costly to the buyer for that year. On this basis there could be no separate supply of insurance services.
We say here that it is not possible to say that the deposit is paid for the standalone rights underneath the contract.
GLEESON CJ: In the UK, are insurance services VAT exempt?
MS BATROUNEY: Yes.
GLEESON CJ: What a surprise.
CRENNAN J: In these cases taxpayers wanted to be able to offset their inputs against the exempt services. That is what these arguments are all about, is it not?
MS BATROUNEY: Yes, and that is the nature of the VAT/GST situation. One day the Commissioner will be arguing one way and the other day the Commissioner will be arguing the other way. It just depends on whether you are seeking to make a supply or get an acquisition. So we say that you cannot separate out a separate right under this contract. What that right is it is difficult to pin down. The Commissioner started off with the transfer obligation and it seems that the present right that the Commissioner submits that the purchaser obtains that the vendor supplies is the benefit of the sale contract, namely, the promise to have the land conveyed at a known price at a known time. That is the right that the vendor supplies in return for the deposit. That is the Commissioner’s argument.
Our first argument is that that is simply not the case. Alternatively, we say that if that is the right that is supplied, we say that that right is not covered by Division 99. Either it is a right to have the land conveyed or it is security for some other obligation; it has to be one or the other, it cannot be both. Division 99 applies to a deposit held as security for the performance of an obligation. That is not the supply that the Commissioner states that the deposit is paid for. The Commissioner states that the deposit is paid for the promise to have the land conveyed at a known price at a known time. Your Honours will recall that the Full Court said that the ‑ ‑ ‑
GLEESON CJ: I am sorry, before you pass from that point, you say that 99‑5 might cover the kind of deposit that a tenant gives a landlord in order to secure performance of the tenant’s obligation not to damage the premises?
MS BATROUNEY: Yes.
GLEESON CJ: But in the present case the deposit was not held as security for the performance of the purchaser’s obligation?
MS BATROUNEY: If the Commissioner’s argument is right – the Commissioner is arguing that the deposit is paid for the right to receive the transfer of the land. If that is what the deposit is paid for that is not security for the performance of an obligation, it is a stand‑alone obligation.
GLEESON CJ: What led to the forfeiture of the deposit in the present case was the failure of the purchaser to perform its obligation under the contract, was it not?
MS BATROUNEY: Yes, for the second time.
GLEESON CJ: I understand an argument against you to be that a deposit has a number of characteristics and one of those characteristics is that it operates as a security for the performance of the purchaser’s obligations in that it is liable to be forfeited to the vendor if the purchaser breaks the contract.
MS BATROUNEY: Yes. We say that that is its character. There is no authority to the effect that the character of a deposit is for the right to obtain transfer of the title. There is no authority that the deposit is paid for the benefit of the sale contract, namely, the promise to have the land conveyed at a known price at a known time. There is no authority to that effect at all. That is not what the deposit is paid for. The deposit is paid, as in ancient times, a ring or a token was handed over, wholly for the benefit of the vendor. Whatever rights and obligations were imposed and conferred were imposed and conferred under the contract of sale itself, not for the deposit.
We say if there was - Justice Crennan referred to two supplies before. If there was a supply of some right – again, I will quote the Commissioner’s word. If there was a supply of the promise to have the land conveyed at a known price and a known time and the contract completed we ask rhetorically, what happened to that supply? That supply has still been made, and if the Commissioner’s argument is right, that consideration was paid for that supply, that is a separate supply that still exists and GST must be paid on that taxable supply.
Before the Full Court the Commissioner argued that the right transmogrified, that the existing right that was obtained upon the payment of the deposit, that is, the promise to have the land conveyed at a known price at a known time, transmogrified into the right to have the supply of the land.
We say if there is a separate right – firstly, we say Division 99 cannot apply, and secondly, if we say on completion, if the contract does proceed to completion, this right still exists. Moreover, on the third option, if the deposit is returned to the purchaser because of the default of the vendor, there is still GST to be payable because this separate right still has been conferred. The purchaser has still had the benefit of the promise to have the land conveyed at a known price and a known time. It has had the benefit. If that is what the deposit has paid for the purchaser has had the benefit of that right, even though subsequently, because of the default of the vendor, the deposit is returned to it.
GLEESON CJ: Section 9-39 refers to the existence of a supply which is described in 9-30(2)(b) as a supply of a right to receive a supply. That is a statutory concept.
MS BATROUNEY:I am sorry, what page are you on?
GLEESON CJ: I am on page 17 of the print ‑ ‑ ‑
MS BATROUNEY: I am sorry, 9-30(3)?
GLEESON CJ: I am sorry, 9-30(2)(b).
MS BATROUNEY:Yes.
GLEESON CJ: There is a statutory concept of a supply of a right to receive a supply. Can you give an example of that?
MS BATROUNEY:Exactly the option that was entered into in this case.
GLEESON CJ: The option?
MS BATROUNEY:The option, and so if the option was an option to acquire residential land the option would be treated as a GST‑free supply, input tax supply.
GLEESON CJ: So it refers to the option but not the contract of sale?
MS BATROUNEY:Yes, and when your Honour the Chief Justice raised with my learned friend the problem of forfeiture of deposits on residential land, your Honour said what happens when a deposit that is paid in relation to the sale of residential land is forfeited? Would that not be subject to tax in the same way? My learned friend’s answer was, “No, it’s not input, it’s not taxed. Because of the operation of section 9-30(2), it is input taxed.” Now, that can only be right if what is supplied in return for the deposit is a right to receive a supply.
GLEESON CJ: But forget about deposits for the moment; there has to be some reason, does there not, why a contract for sale of residential premises, as distinct from a transfer or conveyance of residential premises, is input taxed?
MS BATROUNEY:Yes.
GLEESON CJ: If it were otherwise, the provisions – section 40‑65(1)
says that a “sale of real property is input taxed”. That presumably includes a contract for sale. It says a sale of real property is input taxed.
MS BATROUNEY: Yes.
GLEESON CJ: That presumably covers a contract of sale as well as a transferral conveyance for consideration, does it not?
MS BATROUNEY: Yes.
GLEESON CJ: Mr Robertson suggested that section 90‑30(2)(b) covered a contract of sale of residential premises, as I understood his argument. Your explanation of section 9‑30(2)(b) gives 9‑30(2)(b) work to do in addition to 40‑65(1).
MS BATROUNEY: Yes.
GLEESON CJ: I am wondering whether Mr Robertson’s explanation of 9‑30(2)(b) gives it any work to do in addition to work that is already done, or otherwise done by 40‑65(1). This may be an argument in your favour.
MS BATROUNEY: Yes. It is my learned friend who is arguing that upon the payment of deposit there is a right to receive a supply. We say there is not such a right to receive a supply.
GLEESON CJ: But what is puzzling me at the moment, you raise an argument from anomaly. You say an anomaly or an absurdity that results from the Commissioner’s argument is that a forfeited deposit on the sale of residential premises attracts GST apparently inconsistently with the concept that sales of residential premises are input taxed or, to put it otherwise, do not attract GST. Mr Robertson answers your argument from absurdity by saying, no, section 9‑30(2), in particular, paragraph (b), covers that case.
MS BATROUNEY: Yes.
GLEESON CJ: Your argument is section 9‑30(2)(b) is talking about something different?
MS BATROUNEY: Yes.
GLEESON CJ: If it were not talking about something different, it would not add anything to section 40‑65(1).
MS BATROUNEY: Yes, but presumably that is something that my learned friend can answer. But if I could take you to a different example, and that is an example that the Commissioner has raised in his own rulings about food. We are in the realms of 9‑30(1), which is GST free. The Commissioner concedes in his ruling – I do not want to bother to take you to it, but you do have it – that when somebody wants to buy some beef to use in the restaurant, that supply is GST free. If it is particular beef so that the restaurateur has to pay a deposit in order to obtain that beef and then the deposit is forfeited because the restaurateur decides they do not want the beef any more, the Commissioner and his ruling has said that deposit is subject to taxation.
GLEESON CJ: Well, take precious metals, section 40-100, “A supply of precious metal is input taxed”.
MS BATROUNEY: Yes.
GLEESON CJ: What does the Commissioner say about a deposit paid in connection with an acquisition of precious metal and forfeited as a result of breach of contract by the customer?
MS BATROUNEY: If he is to argue consistently with his rulings, as I understand he has undertaken to do, he must say that the deposit is subject to taxation.
GLEESON CJ: Even though the purchase price is not subject to taxation?
MS BATROUNEY: Correct, your Honour, with respect.
CRENNAN J: Just going back to (2)(b) for a moment, it is a provision, is it not, to ensure that the right to supply has the same tax treatment as the underlying supply?
MS BATROUNEY: Yes, your Honour. That is its purpose.
CRENNAN J: It is not really likely to have a right to supply which is input taxed and an underlying supply that is not also treated the same way.
MS BATROUNEY: We would argue no, but the Commissioner in his rulings has argued yes. Your Honours will recall that the Full Court said that they did not feel that this was an appropriate case where the language of the Act can be massaged to make it something that it is not. Could I take you to Division 102 of the Act, which is an example of how simple it would have been to deem a supply if that was in fact what the legislature had intended. Division 102 is at page 244 of your reprint. You will see it deals with cancellation of lay‑by sales. Before I read the provision, obviously a lay‑by, say, I go to a department store; I want to buy a pair of shoes; I do not have money at the moment so I might pay a deposit or I might pay – it would not be called a deposit; I think a down payment, a part payment. Shoes would then be put in the back storage of the department store and I would pay it off by instalments and eventually I would get my shoes.
This section talks about what happens when a lay‑by sale is cancelled. A lay‑by sale would be cancelled if I decided I did not want those shoes any more and therefore the department store would have my part‑payment and I would not have any shoes. So there has been no supply made to me. What this section does is deem a supply. Section 102‑5(1) says:
If a supply by way of lay‑by sale is cancelled:
(a)any amount already paid by the recipient that the supplier retains because of the cancellation; and
(b)any amount the supplier recovers from the recipient because of the cancellation;
is treated as consideration for a supply made by the supplier and as consideration for an acquisition made by the recipient.
So this section deems the department store to have made a supply to me when the fact is that they have not supplied anything to me. The next section talks about attribution – a timing section. Section 102‑10(1) says that:
If an amount is retained or recovered in circumstances referred to in section 102‑5:
(a)the GST payable by you on a taxable supply for which the amount is consideration; or
(b)the input tax credit to which you are entitled for a creditable acquisition for which the amount is consideration;
is attributable to the tax period during which the amount was retained or recovered, as the case requires.
GLEESON CJ: That expression “is treated as” corresponds with the expression “is not treated as” in section 99‑5.
MS BATROUNEY: Yes, it does, and as I understand it “treated as” is the GST lingo for “deemed”. So we say that is a simple explanation, a simple example, of a taxing and an attribution section, whereas all Division 99 does – and my learned friend does not really dispute this, despite talk of assumptions – Division 99 is not a taxing section. It does not create a supply; it does not deem a supply. It only applies where you can find a taxable supply. Division 99 is an attribution section.
GUMMOW J: But 99-5 says, “is not treated . . . unless”?
MS BATROUNEY: Yes.
GUMMOW J: So one assumes that if there are those characteristics in (a) or (b) it is treated and therefore is deemed.
MS BATROUNEY: The other way in which the sections complete their deeming effect is by virtue of subsection (2). So this section says:
This section has effect despite section 9-15 (which is about consideration).
If it were to deem a supply it would say, this section has effect despite section 9-5, which is about taxable supplies. This section is talking about consideration. This is yet another example, we say, of the absurdity of the Commissioner’s argument. If in fact in this case the deposit upon forfeiture is subject to taxation, then if the vendor had exercised its rights under the contract to sue for damages and had obtained damages in excess of the amount of the deposit ‑ , so for example, let us say the deposit was $300,000 and the purchaser obtained damages amounting to $400,000, the first 300,000 of the deposit would be taxable but the extra 100,000 would not be taxable, as under the GST legislation as administered by the Commissioner, GST is not payable on damages unless there is an underlying supplier.
If I could just explain it to you this way? If a plaintiff is awarded $100,000 damages for damage to his or her back it is impossible to say that the plaintiff has supplied anything to the defendant in return for the money. However, if, for example, the dispute was in relation to defective goods so that the contract was for $100,000 for the manufacture of toys, and the toys were defective, so it was settled that there would be $50,000 damages payable rather than the 100,000. The dispute would be settled for payment of 50,000 rather than 100,000. Now, that 50,000 damages would be subject to taxation because there is an underlying supply of the defective merchandise, the defective toys.
GLEESON CJ: What if I enter into an agreement with a transport company for it to provide transportation services for me for a year and I then repudiate the agreement and the repudiation is accepted by the transport company before any deliveries are undertaken and the transport company then sues me for damages for breach of the contract, are the damages awarded to the transport company ‑ ‑ ‑
MS BATROUNEY: I would submit they are not subject to the GST.
GLEESON CJ: They are not subject to GST?
MS BATROUNEY: Not subject to GST, because the transport company has not supplied you with anything.
GLEESON CJ: There has been no output?
MS BATROUNEY: No.
GLEESON CJ: Is that right? Is that the theory?
MS BATROUNEY: That is as I understand it. The Commissioner will correct me if I am wrong, but that is as I understand it. There has been nothing supplied to you. However, if you had a contract with a transport company for $100,000 and you thought they had not performed adequately, so it was settled for $80,000, then the $80,000 you pay in settlement of the dispute would be subject to tax because you have been provided with a supply, albeit a defective supply.
GLEESON CJ: The agreement that I made with the transport company created a right. The transport company had the right to perform the services and be paid for them and I had the right to have the services performed.
MS BATROUNEY Yes.
GLEESON CJ: Why is that not a supply?
MS BATROUNEY Because we say that that is what we would refer to as elevating the terms and conditions of the contract to the supply itself. Can I give you an example that is taken out of the Commissioner’s ruling on this matter. Again, I do not need to take you to the ruling, but for the purposes of the record, it is Goods and Services Tax Ruling 2000/11 at paragraph 30. The Commissioner talks about an entry into an obligation to provide a car service. If one is to take a technical dissection of rights view on it, what is provided is the right to have the service performed and the obligation to service the car. That is, as I understand it, what your Honour was just putting to me. But the Commissioner says in that ruling that the true character is the supply of the car service. The Commissioner says:
The exchanges of rights and obligations over time form part of that transaction and are not separate supplies.
He said these sorts of rights and obligations do not have an economic value and independent identity which are separate from the transaction itself. This is the sort of thing that the court was referring to in Hallstroms, and the Full Court referred to that, more particularly in Raymor’s Case (1990) 24 FCR 90. If I could take you to page 99 of the report. My learned junior has just informed me that you do not have this case. If I can just refer you to what was said at page 99 at point 5. The Full Court said:
It is a misleading half truth to say that what the taxpayer acquired was merely a contractual right to obtain delivery of stock in the future.
They are referring to the test composed by Dixon J in Sun Newspapers as to whether or not an item is capital or income to look at the essential character of what is obtained.
The answer to the first question posed by Dixon J is not to be obtained by a jurisprudential analysis of the process of entering a contract.
It can be said of every payment pursuant to a contract that it secures to the payee the contractual rights under the contract. In that sense every payment made under a contract confers upon the payee a chose in action which can be described as an asset and which contractual right is discharged by the performance of the contract. But such an analysis is of no assistance in the resolution of whether a particular outgoing is on capital or revenue account.
The Full Federal Court referred to that extract at page 174 of the appeal book. So, in our submission, one must look at what is the subject of the contract, not what are the terms and conditions of the contract.
GUMMOW J: How do you work out what the subject is?
MS BATROUNEY:As the Full Court has said, and as the English authorities have said, by looking at what is the social and economic reality.
GUMMOW J: And how do you work out the social and economic reality?
MS BATROUNEY:In the case at hand, by looking at what the deposit was paid for, and it is artificial to say that the deposit was paid for ‑ ‑ ‑
GUMMOW J: That seems very artificial. It just becomes a question of assertion, does it not?
MS BATROUNEY: - - - the promise to have the land conveyed at a known price at a known time. The deposit was paid so that the purchaser could indicate that it meant business and a motive ‑ ‑ ‑
GUMMOW J: But the law says. I do not think out there in the world of social reality they think about these things. They think if you do not pay the deposit you will not get the contract.
MS BATROUNEY:Well, in this case the deposit was not paid and the rescission notice was issued pursuant to the contract and as a result of that the deposit was paid.
KIEFEL J: But, Ms Batrouney, if the deposit is to be viewed as securing the purchaser’s obligation, is there not a connection between that obligation and the vendor’s obligations, at least in the sense that the vendor undertakes what the vendor undertakes because the purchaser undertakes what the purchaser undertakes?
MS BATROUNEY:There can be no denying that there is ‑ ‑ ‑
KIEFEL J: But if that is so, is not the requirement of consideration under section 195‑1 satisfied?
MS BATROUNEY:I was going to say that there can be no denying that there are mutual rights and obligations that are entered into upon the exchange of the contract, but our argument is that the deposit was not paid for those mutual rights and obligations.
KIEFEL J: But the point is “in connection with”, not “for”. It does not have to be specifically directed to the vendor’s obligations.
MS BATROUNEY:Yes.
KIEFEL J: It has to be in connection with the vendor’s obligations and if that is, as you would say, linked with the purchaser’s obligations, why is that not sufficient?
MS BATROUNEY: Because, as we have submitted, the rights and obligations are full and complete and enforceable, as the facts of this current case demonstrate, regardless of the payment of the deposit. So we say then there can be no connection because all of those rights and obligations were effective and complete prior to and regardless of the payment of the deposit. There can be a sale of land where there is no deposit ‑ ‑ ‑
KIEFEL J: In this sense you are relying on the legal construct rather than the business construct of how a vendor might see the deposit.
MS BATROUNEY:It is our submission that the vendor would see the deposit as compensation if his bargain goes off and that is in accordance with the authorities. Both the purchaser and the vendor know that if the purchaser does not complete he will lose his deposit and that is what the deposit is paid for.
GUMMOW J: It is not really compensation; it may not be compensation. There may be no loss at all. But that does not matter.
MS BATROUNEY:That is correct.
GUMMOW J: That is what makes deposits peculiar.
MS BATROUNEY:They are peculiar, and in fact the entire deposit would be forfeited even if the vendor made a ‑ ‑ ‑
GUMMOW J: And peculiar because it is then said it is not a penalty, so you do not get relief against it – if it is 10 per cent or so and not excessive.
MS BATROUNEY:Yes.
GUMMOW J: That is weird, too.
MS BATROUNEY: Indeed. As it has been said there is absolutely no logic in the amount of the deposit, and that is from the Workers Trust Case. I acknowledge this is a difficult argument to run, but we do run it, that the vendor, that the purchaser gets nothing in return for the deposit. If I could take you to the decision of the Privy Council in Workers Trust & Merchant Bank v Dojap Investments [1993] AC 573. If I could take you to page 580 at the end of point B, the Privy Council says:
In their Lordships’ view the correct approach is to start from the position that, without logic but by long continued usage both in the United Kingdom and formerly in Jamaica, the customary deposit has been 10 per cent.
So we say not only is it without logic, it is without value, from the purchaser’s point of view. The purchaser gets nothing in return for its deposit, merely the risk of losing it if the purchaser does not complete.
GLEESON CJ: What are those pages again, where consideration was defined in terms of price?
MS BATROUNEY: Price is in page 19, your Honour, the value of taxable supplies, price being the sum of money plus non‑monetary considerations.
GLEESON CJ: There the word “price” is used to pick up non‑money consideration. Is that right?
MS BATROUNEY: Yes, it is.
GLEESON CJ: Your argument seems to work in the other direction, which is that the deposit is the price of nothing.
MS BATROUNEY: The purchaser gets nothing in return for the deposit. The vendor gets something for nothing. Yes, he has to take the property off the market, but he has to do that under the terms of the contract, regardless of whether or not the deposit was paid. Yes, he must insure the property, and keep it insured, but he must do that under the terms of the contract regardless of whether a deposit is paid. Another way of testing it is to say if the purchaser pays the deposit for the vendor taking the property off the market, how do you value that right? The deposit of 10 per cent would be payable regardless of whether the settlement period was one day, one week, one year. So the fact that the property has been taken off the market for a period of time is not reflected in the value of the deposit.
GUMMOW J: That is not quite right, I think. Did Justice Jacobs not put his finger on the point in Brien 141 CLR 401 at about line 10 or 12? He was giving some substance to this notion of a security pending completion.
He can take his property off the market and not concern himself with other offers in case the sale should go off, with the comfort at least that the deposit is there for his security.
MS BATROUNEY: Yes, but if the deposit was paid for that comfort, then one would ‑ ‑ ‑
GUMMOW J: He is saying that by long usage it is.
MS BATROUNEY: Yes. It depends which aspect you are looking at. If the deposit is paid for taking the property off the market, then one would expect that it would be a larger deposit if the settlement period was a longer time and a lower deposit if it was a short settlement, but deposits are not calculated that way. It is there for his comfort because he knows that he has compensation already in his possession if the contract should go off.
GLEESON CJ: Is sterilisation of activity a form of supply which attracts consequences, for example, a restrictive covenant? Do you have to pay GST on the price for a restrictive covenant?
MS BATROUNEY: The answer is I am not sure about that, your Honour.
HEYDON J: Section 9‑10(2)(g)(ii).
MS BATROUNEY: Section 9‑10(2)(g)(ii) refers to a supply including:
an entry into, or release from, an obligation . . .
(ii)to refrain from an act –
So we would say that if the restrictive covenant was the subject of the contract and consideration was paid for that restrictive covenant, that would be a taxable supply. But one could equally see a larger contract or a larger settlement where there might be a restrictive covenant attached as one of the terms and conditions and that may not necessarily amount to a supply in its own right. It might merely be an incidental supply to some other supplier.
GLEESON CJ: Do you know how the VAT in Europe operates in relation to this very problem that we are concerned with here?
MS BATROUNEY: I have been informed over lunchtime but I would prefer to, if your Honour pleases, put it in a note to hand up to you.
GLEESON CJ: Then we would like to have a note on that from both parties. Since we are being invited by both parties to consider this European case in relation to deposits for hotel accommodation, then we may also be interested to know the way they treat deposits of the kind with which this case is concerned.
MS BATROUNEY: Yes. But I agree with my learned friend that we have not been able to find any authority dealing with the situation of forfeited deposits.
GLEESON CJ: There must be texts on the subject, for example.
MS BATROUNEY: There must be.
GLEESON CJ: Perhaps both parties could let us have, within seven days of today, a note in writing of their information on that subject.
MS BATROUNEY: Yes. I can say that we might also, if your Honour pleases, include the situation in New Zealand and Canada. As I understand it ‑ ‑ ‑
GUMMOW J: I was wondering about Canada. They have this system too, do they not, to some extent?
MS BATROUNEY: They do, they do, so we will add in a bit about how they treat it. I think in a nutshell it is all a bit different to us, but they have specific provisions, as I understand it, where you might wait and see and then have an adjusting event at the end of the day.
GLEESON CJ: It may very well be that when we have this information we will decide that it has no direct bearing on our case at all, but if we are going to have any degree of information about some kinds of deposits perhaps we should have some information about deposits of the kind with which we are concerned, even at the end of the day it is only for the purpose of satisfying ourselves that there is nothing in that information that will assist the resolution of this problem.
MS BATROUNEY: Yes. At the end of the day I think the whole reason why Division 99 was put in there was to help business people so that every time the garage hired out the trailer they did not have to account for GST on the deposit when the deposit is only going to come back the next day, so that they did not want to have to – and if that straddled a taxing period that they would have to return tax on the deposit of the trailer in day one, and when the trailer came back on day two they would do a decreasing adjustment to take out the GST payable on deposit.
GLEESON CJ: Well, a lot of these security deposits are paid by credit card where they put the imprint of the credit card in an envelope and give it back to you to tear up when you have returned the goods intact.
MS BATROUNEY: Yes.
CRENNAN J: In any event, Division 99 deals with adjustments under this Act, does it not, so there is the possibility to make adjustments?
MS BATROUNEY: Yes, it does, yes. But I think, yes, as I said, that Division 99 was trying to make it easier for business people. I was going to move on to the rescission supply, unless the Court has any other questions in relation to the main supply? So to wrap up on the main supply, we say that the – definitely there were rights and obligations under the contract of sale but the deposit was not paid for those rights and obligations. If the Court is to consider that there are rights and obligations, then one should consider those rights and obligations were ancillary to the main supply, that there was only one supply, and that one supply was the supply of land.
That is in fact the way the Commissioner treats these rights, when a contract for sale does complete, which makes logical sense. So when a contract for the sale of land does complete, as is normal, the Commissioner treats these – I will quote it again – treats the benefit of the contract, namely, the promise to have the land conveyed at a known price and a known time, he treats those rights as ancillary to the main supply, so being part of the main supply as the supply of land.
In relation to the rescission supply, what we say is that obviously there were two rescission notices in this case. In relation to both, the vendor by its rescission notice said that if the purchaser did not remedy its default by a certain date the contract would be at an end, and we refer to both VEDC v Clovervale and the McDonald v Denny Lascelles cases as saying that what happened was that on the failure of the purchaser to remedy its defaults the contract was discharged, that there was no release, there was no surrender, it just was discharged by virtue of the operation of Table A and by virtue of the contract.
Alternatively, we respectfully adopt the Commissioner’s view of the rescission supply set out at paragraph 60 of his submissions as follows:
Expressed in another way, on rescission, the vendor releases the purchaser from the obligation to complete in return for the release of the obligation on the vendor to return or apply the deposit.
They were mutual releases, neither of them were released for the deposit. I did mention to the Court that there has been examples. I will just hand up to the Court examples where the explanatory memorandum has been wrong and we will just hand up a relevant part from Pearce and Geddes for your Honour.
GLEESON CJ: Thank you.
MS BATROUNEY Sixth Edition of Pearce and Geddes at page 84, if I could just take you all to point 7 on the page, you will see there is a reference to paragraph [3.16] and there the learned authors say:
It has also been pointed out that there are example of explanatory memoranda containing incorrect statements of the law.
It refers to Brook’s Case and then the authors go on to say:
In Sandoval v Minister for Immigration & Multicultural Affairs [2001] FCA 1237 Gray J commented: ‘Unless an explanatory memorandum gives a clear guide as to the intention behind the drafting of legislation, it is an unsafe guide’.
HEYDON J: I think there are many examples of explanatory memoranda containing incorrect statements of the law.
MS BATROUNEY Hepples’ Case, as I understand it, was one as well. If the Court pleases, they are the submissions of the respondent.
GLEESON CJ: Thank you, Ms Batrouney. Yes Mr Robertson.
MR ROBERTSON: Thank you, your Honours. In relation to the what our learned friends describe as the main submission, that is, this question of nexus, there were findings of fact from the tribunal at page 139 of the appeal book at about line 39, or perhaps the whole of paragraph 13, “nothing out of the ordinary”, “standard contract”:
In accordance with usual practice the purchaser paid a deposit of 10 per cent of the agreed purchase price to secure the bargain.
That is, in my respectful submission, a finding by the tribunal of fact that that is what the deposit did in this case.
Perhaps not so much a finding of fact, maybe a mixed question of fact and law, at 141 at about line 38 where the tribunal finds that entering an obligation to do the things it was bound to do in the contract and further that the payment of the deposit was a consideration for a supply and it was a payment in connection with a supply. But as to the former proposition, in my respectful submission, that was what the tribunal found that the purchaser paid the deposit for.
GLEESON CJ: On your case, how would the Act operate in the present case if the default had been default by the vendor and not default by the purchaser and the vendor was obliged was obliged to repay the deposit to the purchaser? Would GST have been attracted at any stage?
MR ROBERTSON: No, I think not, your Honour.
GLEESON CJ: Why not? Why would not the GST have been attracted when the deposit was paid?
MR ROBERTSON: I am sorry, I thought you meant on the return of the deposit. When it was paid it would have been, yes. It would have been attracted in the sense that but for Division 99 there would have been a taxable supply and consideration for a supply.
GLEESON CJ: So it would be 99‑5 that would produce the consequence that it was not treated as consideration for a supply, is that right?
MR ROBERTSON: Yes.
KIEFEL J: Would it not become taxable as a supply because the element of consideration was missing because.....defers it?
MR ROBERTSON: Could I give your Honours a more considered answer on that point?
GLEESON CJ: If you would please, because that is one of the arguments from absurdity that is put by your opponent.
MR ROBERTSON: Yes, it may be preferable if I do a short note on that, your Honours.
GLEESON CJ: Yes.
MR ROBERTSON: In relation to this finding of fact, as we would submit, on 139, it should not be necessary, given the nature of the appeal from the Administrative Appeals Tribunal to the Federal Court, for your Honours to review what underlies that finding but, in my submission, that finding would be well open. If one looks at the option agreement on 114, 115, and in particular clause 5 where at that point there was an unexecuted contract and clause 5 says:
Upon the Grantor receiving written notice of exercise of this option and the payment of the deposit under the Contract ‑ ‑ ‑
GUMMOW J: I am sorry, what page is this?
MR ROBERTSON: That is page 114, right at the foot of the page. So it makes the payment of the deposit, as it were – the contract there referred to is still an unexecuted contract. As we know, the deposit was paid on 5 February 2002 and thereafter the contracts were exchanged.
If one looks at the particulars of the contract of sale on page 24, where at about point 6 of the page, line 41, there is a reference to the deposit. It says “2,975,000.00”:
Upon the exercise of the option contained in the Option Agreement dated 3 December 2001 between the parties -
There are emails about that at page 121 of the appeal book, where the option was exercised and by agreement of the parties the payment of the deposit was deferred. So that as I said before, the deposit was paid on 5 February 2002, but there is really nothing to suggest that if the deposit had not been paid, the vendor would have executed the contract of sale that is at 24 and 25. It would seem counterintuitive to think that it would and there is certainly no finding of fact to that effect by the tribunal of fact that there was a disconnect or lack of relationship between those two events.
The few other things I wanted to touch on, if I may, your Honour Chief Justice asked about a hypothetical contract with a road transport company in relation to the question of damages. This may not advance the answer to the question very far, but the answer would depend on whether there was a connection between the damages and the supply. So, obviously in the case of personal injuries there would not be, but in the case of a commercial contract, there might well be.
So if the damages are unrelated to a supply, they would not be subject to GST but if the damages are for breach of contract for underpayment of the price of goods, then they may well be – or the damages would be related to the provision of the goods and therefore taxable.
Your Honour, there was a question your Honour the Chief Justice asked with reference to the sales of residential premises and it may be that the answer in relation to the sales of residential premises would not depend, perhaps, on 9–30(2)(b). If it did not depend on that section in relation to residential premises only, it would turn on the use of the words “sale of real property” in 40‑65(1) rather than the word used in relation to other input‑taxed supplies, such as with precious metals it talks about a supply of precious metal. In the case of ‑ ‑ ‑
GLEESON CJ: Why does it distinguish between the sale of premises and supply of gold?
MR ROBERTSON: I cannot answer that, your Honour. I do not know why that word was used but if it was used advisedly, which one would have to assume that it was, then the sale might well mean that, as I submitted, one did not have to resort to 9-30, but only in that case so that one would still resort to it - forfeited deposits and other cases would still be covered by 9‑-30, precious metals, for example, on the basis that Division 40 just covers the supply itself rather than any wider notion. I do not know whether it was suggested that 9-30 was limited to options. We would submit that there is nothing there to limit it to options. As to the case about the sale of beef, that, in my submission, would depend on similar considerations, that is, if one has supply in Division 40 then one would resort to the 9‑30 in order to see what was the position in relation to deposits.
It may be, just to go back to the question, your Honour, about sale, that the word was used to distinguish in subdivision 40-C sales of real property as opposed to 40-B which deals with other supplies of premises because 35 says, “A supply of premises that is by way of lease, hire or licence” and there is, presumably, the contradistinction being drawn but whether it has that overall effect which your Honour the Chief Justice thought, that is to making resort to 9‑30 are necessary. At the most, it would only make that provision have no work in relation to the sales of residential property rather than give it no work to do across the entire scope of the Act. Notwithstanding, your Honours, that we do not seek to invite your Honours to rely on foreign decisions, we will, if we may, join in the note about the position in Canada, New Zealand and the United Kingdom.
GLEESON CJ: Yes, thank you. It may be that we may feel the need to say something about that European decision and the better informed we are the less ‑ ‑ ‑
MR ROBERTSON: Yes. The last thing, your Honour the Chief Justice put to my learned friend a proposition that one way of putting our argument was that the deposit was not consideration for anything that adds value. We would only wish to say that the Act does not proceed by reference to value being added in terms but in terms refers to whether consideration has been given for a supply.
GLEESON CJ: Yes, quite, it might be colloquially described as a broad‑based consumption tax, but the definition of supply makes it plain that it goes beyond consumption.
MR ROBERTSON: Yes, and, indeed, although it is called a goods and services tax, the definition makes it clear that it goes beyond goods and services as separately dealt with under, say, the English law in one of the
cases that your Honours were taken to. Those are the submissions in reply, if your Honours please.
GLEESON CJ: Thank you, Mr Robertson. We will reserve our decision in this matter and we will adjourn until 10.15 tomorrow.
AT 3.44 PM THE MATTER WAS ADJOURNED
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