Commissioner of Taxation v Commonwealth Bank of Australia

[1992] FCA 112

Re: COMMISSIONER OF TAXATION
And: COMMONWEALTH BANK OF AUSTRALIA
No. G663 of 1991
FED No. 112
Taxes (Non-Income) - Banks
(1992) 92 ATC 4141
(1992) 23 ATR 121, (1992) 105 ALR 294
(1992) 34 FCR 296

COURT

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Beaumont(1), Wilcox(1) and O'Loughlin(1) JJ.

CATCHWORDS

Taxes (Non-Income) - objection by Bank to assessment to tax by Debits Tax Act 1982 - Bank provided Building Society with facility whereby Bank honoured cheques signed by members of Society drawing on account in name of Society - s.3(1) Debits Tax Administration Act 1982 - definition of "account" - definition of "cheque" - whether cheques drawn "by or on behalf of the account holder".

Banks - objection by Bank to assessment to tax by Debits Tax Act 1982 - Bank provided Building Society with facility whereby Bank honoured cheques signed by members of Society drawing on account in name of Society - s.3(1) Debits Tax Administration Act 1982 - definition of "account" - definition of "cheque" - whether cheques drawn "by or on behalf of the account holder".

HEARING

SYDNEY

#DATE 13:3:1992

Counsel and Solicitors Mr R.B.S. Macfarlan QC with
for Appellant: Mr S.W. Gibb and Mr D.M.

Mendelssohn instructed by Australian Government Solicitor

Counsel and Solicitors Mr D.F. Jackson QC with Mr B.J. Sullivan
for Respondent: instructed by Corrs Chambers Westgarth

ORDER

1. Appeal allowed with costs.

2. The orders made at first instance setting aside the decision of the Commissioner are set aside; in lieu thereof order that the decision of the Commissioner disallowing the Bank's objection to the assessment be affirmed; further order that the respondent pay the costs of the Commissioner at first instance.
   NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

The appellant, the Commissioner of Taxation, appeals from an order of a Judge of the Court (Gummow J.) setting aside a decision of the appellant, which decision had disallowed an objection by the respondent, the Commonwealth Bank of Australia ("the bank") to an assessment by the Commissioner to tax imposed by the Debits Tax Act 1982 ("the Tax Act") (see Commonwealth Bank of Australia v Federal Commissioner of Taxation 91 ATC 4799).

The legislative scheme

1. By s.4 of the Tax Act, there is imposed a tax in respect of each "taxable debit" which is made to a "taxable account". By s.3(1) of the Debits Tax Administration Act 1982 ("the Administration Act"), "taxable debit" means "a debit (other than an exempt debit) made to an account". An "account" is defined to mean, relevantly, "an account kept with a bank being an account to which payments by the bank in respect of cheques drawn on the bank by the account holder...may be debited". (Emphasis added.) The expression "account holder" is relevantly defined to mean "the person in whose name...the account is kept." In relation to an account, "cheque" is defined to mean "an order in writing, drawn on a bank by or on behalf of the account holder...requiring the bank to pay on demand a sum certain in money to, or to the order of, a specified person or persons, or to bearer." (Emphasis added.) It should also be noted that the relevant legislation distinguishes between a "bank" and a "non-bank financial institution". It is common ground that the Bank is a "bank" for the purposes of this legislation.
   The background facts

2. The material facts, which are not in dispute in any significant respect, are as follows. Metropolitan Permanent Building Society ("the Society"), a building society registered under the Building Societies Act 1985 (Q), provided finance to its members for housing. Members held withdrawable shares in the Society. Because the Society was not in a position to offer members a facility by which a member could draw upon the Society (which would then debit the member's share account), the Society entered into a facility agreement in writing with the Bank. The material provisions of this agreement, which are important for our purposes, are as follows.
   The cheque facility agreement

3. The operative part of the instrument (which is headed "Request and Authority - Cheque Facility" and is addressed to the Bank from the Society) provided that the Society "requests and authorises the Bank to provide a facility whereby the Bank will agree to honour cheques drawn on the Bank by members of the Society issued by the Society to members (...'the facility') upon the...terms and conditions (then stated)." The Bank was to open the account in the name of the Society from which all cheques drawn pursuant to the facility were to be paid ("the account") (cl. 1.1). The Society was to deposit to the credit of the account a sum to be agreed to by the Bank representing the estimated aggregate amount of cheques that will be received for posting of entries to the account (cl. 2). The Bank agreed to grant to the Society standby overdraft accommodation to such limit as the Bank may agree from time to time for the purpose of payment of cheques in amounts in excess of the balance standing to the credit of the account on any day (cl. 3). Cheque forms to be issued by the Society to its members pursuant to the facility were to be in such form as the Bank shall require (cl. 5.1). The Society requested and authorised the Bank to pay cheques drawn by members of the Society pursuant to the facility signed by a member of the Society to whom, in the discretion of the Society, cheque forms have been issued by the Society (cl. 6.1). The Bank agreed to provide to the Society on every business day a magnetic tape or computer printout containing details of amounts and cheque numbers and Government duties or taxes applicable to the debit to the account of the cheques, in relation to all cheques in respect of which entries were posted to the account on the prior business day (cl. 7.1). The Society acknowledged that the Bank had the right to dishonour any cheques received for payment on any day where the amount of such cheques, if posted to the account on such day would, when added to the amount of cheques previously posted to the account on that day, in aggregate exceed the amount standing to the credit of the account on that day or the limit of the accommodation approved pursuant to cl. 3 (cl. 8.1). The Society acknowledged that the Bank also reserved the right to dishonour any cheques "where under the usual banker-customer relationship a bank had the right to dishonour its customer's cheques" (cl. 8.2). The Bank agreed to dishonour promptly any cheque "in respect of which the Society on behalf of members countermanded payment pursuant to clause 9..." (cl. 8.3). The Society might give to the Bank notice countermanding payment of any cheque (cl. 9.1). The Society acknowledged that the Bank would accept notices countermanding payment of any cheque from an authorised officer of the Society only and not from any member of the Society directly or any other person (cl. 9.2). The Society agreed with the Bank that prior to the Society allowing any member access to the facility and issuing cheque forms to any member, it would provide to the Bank a "Request and Authority" (in the form set out in a schedule) signed by the member and the Society "agreed where applicable to observe and be bound by the covenants of members set out in the schedule" (cl. 10). The Society agreed to indemnify the Bank against all claims made against the Bank arising from the conduct of the facility (cl.11). The Society was to pay to the Bank such charges as the Bank shall impose for the conduct of the facility, together with all Government taxes, charges and duties (cl. 12). All the terms and conditions of a banker and customer relationship applied to the conduct of the facility unless inconsistent with the terms of the instrument (cl. 13). The facility could be determined by either party on one month's notice (cl. 14.1).

4. Under the provisions of the schedule (which was headed "Cheque Facility - Metropolitan Permanent Building Society - Request and Authority" and addressed to the Bank) the members of the Society requested the Bank to provide, on the terms there specified, a cheque facility to the member "whereby the Bank agrees in accordance with arrangements entered into with (the Society) from time to time to pay cheques drawn by (the member) on the Bank in the form issued to (the member) by the Society..."
   The operation of the facility

5. The Bank opened an account in the name of the Society pursuant to the Facility agreement known as "the Control Account". All cheques drawn pursuant to the facility were paid from this account. The cheques were signed by members of the Society. The Society periodically deposited to the credit of the Control Account an amount estimated as the aggregate amount of those cheques. The Society was authorised by its members to debit their share accounts with amounts paid by the Society to the Bank in respect of cheques drawn by members and debited to the Control Account. The Society conducted a cheque account with the Bank and the Society credited to that account the moneys debited by it to the share account of members. The Society then drew a cheque on that account with the Bank for deposit to the credit of the Control Account.
   Was the Control Account an "account" within the meaning of s.3(1) of the Administration Act?

6. It will be recalled that, for present purposes, an "account" is defined to mean "an account kept with a bank being an account to which payments by the bank in respect of cheques drawn on the bank by the account holder...may be debited"; and that a "cheque" is defined to mean "an order in writing, drawn on a bank by or on behalf of the account holder...requiring the bank to pay...a sum certain..."

7. At first instance, it was submitted on behalf of the Commissioner that: (1) In drawing cheques on the Control Account, the members of the Society were acting as agents of the account holder, i.e. the Society, so that, in law, and within the sense of the statutory definition of "account", the cheques were drawn on the account by the account holder. (2) Under the arrangements between the Bank and the Society, the class of those who might draw cheques on the account was not limited to members, but included the Society itself, so that the account fell within the definition because the account was one to which cheques drawn on it by the Society, as account holder, might be debited.

8. Gummow J. rejected both contentions, holding that the Bank had discharged the burden placed upon it by s.25D of the Administration Act. With respect to the first argument, his Honour said (at 4,804):
   

"...both the substance and the legal form of the arrangements which I have described is that on certain terms the members are permitted to draw cheques on an account, the holder of which is the Society, and to have those cheques honoured by the Bank. In a sense, the implementation of those arrangements involves the giving by the Society to the Bank of an authorisation or mandate to make payments out of the moneys standing to the credit of the Society in the Control Account by honouring cheques drawn upon it by members. But the moneys in the account remain those of the Society; any mandate is not an immediate assignment: ... And, in law, the act in drawing the cheques upon the account is the act of the member, not the Society."

1. In considering the Commissioner's second submission, the learned Judge said (at 4,804):
   

"Nor do I accept that the arrangements I have described are such that not only members but also the Society itself might draw cheques on the Control Account. At first sight, it may seem strange that the holder of an account with a bank has, by contractual arrangement, disabled itself from drawing cheques with which the account is to be debited. But, this was not the only cheque account maintained by the Society with the Bank. It is made plain in the opening passages of the Facility Agreement, by the particular definitions given the terms 'the facility' and 'cheque', that whilst the funds in the Control Account were at all times owned by the Society, the nub of the arrangement between the Bank and the Society was that the Control Account to be opened pursuant to clause 1.1 was to be the account from which there would be paid all cheques drawn pursuant to the facility, that is to say by definition, cheques drawn on the Bank by members of the Society."

1. With respect, we have difficulty in accepting his Honour's analysis of the matter. In our view, the Control Account was an "account" for present purposes.

2. The real question for determination is whether the Control Account is not an "account" for the reason that the cheques drawn on the Bank and debited to that account are not cheques "drawn on (the Bank) by or on behalf of the account holder", (i.e. the Society). In our opinion, although the cheques in question were, pursuant to the provisions of the Facility Agreement, signed by members of the Society and not by the Society itself, it does not follow that the cheques were not drawn "by or on behalf of" the Society. In our view, it is accurate to characterise the cheques now in question as cheques drawn either "by" the Society or, alternatively, "on behalf of" the Society.

3. The relevant dictionary meaning of "by" is "through the agency or efficacy of" (Macquarie Dictionary). In the present case, the cheque facility agreement was made between the Bank and the Society. The account was in the name of the Society. Cheques could only be drawn on that account in accordance with the provisions of the contract to which the Society was a party. It is true that those provisions contemplated that members of the Society would sign the cheques. At the same time, when regard is had to the existence, and the terms, of the cheque facility agreement, it is accurate to describe the drawing of the cheques on the Control Account as an act done "by" (in the sense of something done through the agency or efficacy of) the Society (see Lilydale Pastoral Pty. Ltd. v. Federal Commissioner of Taxation (1987) 72 ALR 70, per Pincus J. at 79). It was the actions of the Society in establishing and maintaining the account which made possible the drawing of the cheques by way of operation on the account. It may be accurate to say that these cheques were drawn "by" the members, as well as by the Society, that is to say, that there was a joint enterprise in which the Society and its selected members together operated the account. But the circumstance that the cheques were to be signed by a party (the member) other than the holder of the account (the Society) did not mean that the cheques were not drawn "by" the account holder. The evident purpose of the legislation was to exclude from debits tax transactions on an account which were not authorised by the holder of the account. The present dealings were clearly authorised by the Society as the holder of the account and thus fell within both the letter and the spirit of the legislation.

4. If it were necessary to come to the question, we would also have been of the view, for similar reasons, that the cheques were drawn "on behalf of" the Society. In The Queen v Toohey: Ex parte Attorney-General (NT) (1980) 145 CLR 374, Stephen, Mason, Murphy and Aickin JJ. said (at 386):
   

"The phrase 'on behalf of' is, as Lathan C.J. observed in R. v. Portus; Ex parte Federated Clerks Union of Australia....'not an expression which has a strict legal meaning', it bears no single and constant significance. Instead it may be used in conjunction with a wide range of relationships, all however in some way concerned with the standing of one person as auxiliary to or representative of another person or thing."

1. In the present case, in our view, the relationship or association between the Society and its members arising out of the contractual arrangements for the operation of the Control Account justify the conclusion that the cheques in question were drawn "on behalf of" the Society. As has been noted, the Society established the account by its arrangements with the Bank and thus it may be said that the cheque facility was the Society's facility. The operation of the account, including the drawing of the cheques, was done, vis-a-vis members, in accordance with the wishes and directions of the Society. The establishment and the operation of the account were activities carried out for the benefit, and in the interests, of the Society. It may be accepted that these activities were also for the benefit, and in the interests, of members. But it does not follow that these activities, including the drawing of the cheques, were not acts done "on behalf of" the Society. The fact that, as a procedural matter, the cheques were signed by the members does not, in our opinion, affect this conclusion. In our view, establishing and maintaining the cheque facility was something done "on behalf of" the Society, even if these were activities for the benefit of members as well.

2. It follows, in our opinion, that the Control Account was an "account" for the purposes of s.3(1) of the Administration Act.

3. In the result, the appeal should be allowed, with costs. We would further order that the orders made at first instance be set aside; and that, in lieu thereof, the decision of the Commissioner disallowing the Bank's objection to the assessment, be affirmed.