Commissioner of Taxation v Qantas Airways Limited

[2012] HCATrans 132

[2012] HCATrans 132

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney   No S47 of 2012

B e t w e e n -

COMMISSIONER OF TAXATION

Appellant

and

QANTAS AIRWAYS LIMITED

Respondent

GUMMOW J
HAYNE J
HEYDON J
KIEFEL J
BELL J

TRANSCRIPT OF PROCEEDINGS

AT BRISBANE ON TUESDAY, 5 JUNE 2012, AT 10.17 PM

(Continued from 4/6/12)

Copyright in the High Court of Australia

GUMMOW J:   Yes, Mr Slater.

MR SLATER:   Thank you, your Honour.  Your Honour, before I go further, two matters briefly arising out of yesterday’s submissions.  The first is that your Honour raised with me the question of the Civil Aviation (Carriers’ Liability) Act 1959. The conventions which are attached to that Act as schedules and given force by it deal only with international air travel and we are concerned here only with domestic travel. Parts IV and IVA of the Act do apply to domestic travel, but they only apply to passengers, that is, only to those who have boarded aircraft, and this appeal is concerned only with the cases where customers do not board the aircraft so that the Act does not assist in any respect in the resolution of this appeal. The second matter is that in the course of argument I made a submission to your Honours about the effect of item 7 of section 38‑355 and suggested ‑ ‑ ‑

GUMMOW J:   Just a minute.

MR SLATER:   It is not in the materials which are attached to our submissions, your Honour.  It came up incidentally.

GUMMOW J:   Section 38?

MR SLATER:   Section 38‑355.

GUMMOW J:   Yes.

MR SLATER:   I suggested to your Honours that absent that item, that is item 7, a contract for international travel would be a taxable supply because only the rights to travel would be supplied at the time of contract.  I am reminded that I had overlooked the operation of section 9‑30(1)(b).  Subsection (1) provides that:

A supply is GST‑free if:

(a)it is GST‑free under Division 38 or under a provision of another Act –

Now, international travel is ‑ ‑ ‑

GUMMOW J:   “Or”.

MR SLATER:   ‑ ‑ ‑GST free.  Paragraph (b), if:

it is a supply of a right to receive a supply that would be GST‑free under paragraph (a).

So that paragraph negates the suggestion I made to your Honours.  But one thing it does do is to point up the correctness of the conclusion of this Court in Reliance Carpet that the obligation or right to supply something is in itself the subject of a supply, otherwise there would be no need for that provision. 

Your Honour, may I then go to Reliance Carpet and do so by pointing out – may I first point out that the court below cited the decision of this Court in Reliance Carpet at pages 238 and 239 of the appeal book, which I will come back to in a moment.  In our submission, the reliance placed by the court below upon those passages is misplaced and they are taken out of the context in which the observations were made in this Court.

Can I just remind the Court briefly that the issue in Reliance Carpet Co was whether GST was payable in respect of the amount of a deposit forfeited upon breach by the purchaser of a contract for the sale of land.  The outcome was governed by Division 99 of the Act, which is attached to our submissions at page 8.  Division 99 deals with deposits as security.  Section 99‑5(1) provides that:

(1)A deposit held as security . . . is not treated as consideration for a supply, unless the deposit:

(a)is forfeited . . . or

(b)is applied as all or part of the consideration for a supply.

(2)This section has effect despite section 9‑15 –

which I took your Honours to yesterday.  Section 99‑10 deals with the attribution of the GST relating to deposits:

The GST payable by you on a taxable supply for which the consideration is a deposit that was held as security . . . is attributable to the tax period during which the deposit:

(a)is forfeited . . . or

(b)is applied -

In Reliance Carpet, the Full Federal Court, in a decision reported at 160 FCR 433 and reproduced under tab 5 of our bundle of authorities, accepted a submission by the taxpayer, which is set out, although I will not take your Honours to it, at pages 438 and 439 of the report in 160 FCR, that the essential or principal supply was the sole subject of tax and that, in the case there before the Court, it was a supply of real property, nothing more and nothing less, which was the relevant supply. Your Honours will find that reasoning at paragraph 18 on page 445 of the report in 160 FCR. May I just draw your Honours’ attention to what the Court said there? They said:

When the applicant entered into the contract for sale with the purchaser it entered into a contract for the supply of real property; nothing more and nothing less.  We accept the applicant’s primary contention.

They went on to conclude that because the real property had not been supplied because the purchaser had defaulted then there was no supply which was taxable. That decision came on appeal to this Court, and the appeal to this Court is reproduced under tab 4. It is reported at 236 CLR 342. This Court rejected the basis on which the Full Court had decided the matter. The Court concluded that the issue was not whether land been supplied but whether there had been a taxable supply to which GST was attributed for the relevant period.

Can I take your Honours to page 347 of the report at paragraph 10, at about the middle of page 347, the judgment of the Full Court sets out the introductory section in Division 99, section 99‑1, and notes that the last portion of that section reads:

GST is not attributable prior to forfeiture.”

This temporal link is important.  There may have been an anterior supply, or more than one anterior supply, but GST is not attributable prior to the performance of the obligation or forfeiture of the deposit.

Your Honours will recall I took your Honours yesterday to the way in which the net amount for a period is arrived at and the way in which GST is attributed to a period.  They then went on:

The effect of the Commissioner’s submissions made to this Court and earlier made (unsuccessfully) to the Full Court, is that without the payment of the deposit by the purchaser, the purchaser would not have obtained contractual rights exercisable in relation to land, namely the benefit of the promise by the taxpayer to convey the subject land upon completion of the contract.

Then passing down to paragraph 13 they repeat the passage which I have just read to your Honours from paragraph 18 of the judgment of the Full Court.  At the top of page 348 this Court when on:

Several points should be made here.  The circumstance that the contract did not proceed to completion does not necessarily prevent there having been a “supply” when the contract was entered into; the ultimate issue is whether there was “a taxable supply” to which GST was attributed for the relevant tax period.

Pausing there, your Honours, that is what we say is the case in this appeal.  The question is not whether the flight was taken; the question is whether there was a taxable supply to which GST was attributed for the relevant period.  As the Court said in Reliance Carpets so we say here, the relevant supply was the supply of rights to performance of what was contracted for, there the supply of land, here the supply of carriage by air.  Can I take your Honours also to paragraph 28 on page 352 where the Court deals again with the submission made by the taxpayer and accepted by the Full Court and says at 28:

The circumstance that the deposit forfeited to the taxpayer had various characteristics does not mean that the taxpayer may fix upon such one or more of these characteristics as it selects to demonstrate that there was no taxable supply.  It is sufficient for the Commissioner’s case that the presence of one or more of these characteristics satisfies the criterion of “consideration” for the application of the GST provisions respecting a “taxable supply”.

Now, there the Court was dealing with the character of consideration.  Here, in our submission, the issue is what is the – I am sorry, I have confused what I was about to say – my apologies.  The consideration in the present case is capable of being characterised as consideration for carriage by air if it is, in fact, supplied, but it is also capable of being characterised as consideration for the supply of rights when the contract is entered into.  In a case where, as here, no carriage by air is actually provided, it still remains the case that the consideration has the character of being consideration for the supply of rights and thus making the supply of those rights a taxable supply.

The passages cited by the Full Court below in the present case appear at pages 238 and 289 of the appeal book.  The passages as they appear in the judgment of this Court in Reliance Carpet are concerned with attribution to a tax period and not with the question whether there was an essential or relevant supply.  I have taken your Honours to the passage at page 354 – I am sorry, I have not taken your Honours to that yet, I will now.  Could I take your Honours to page 353, noting that at the top of page 239 of the appeal book, the court below referred to paragraph 34 as supporting the conclusion which their Honours arrived at.  At page 353 of the report, under tab 4, the Full Court of this Court said under the heading “Conclusions”:

Was the taxpayer liable to pay GST as assessed for the three month tax period . . . Had the taxpayer made a taxable supply, ie a “supply for consideration”? 

In answer to that question, paragraph 33:

First, as to the consideration.  The payment of the deposit by the purchaser to the taxpayer was “in connection with” a supply by the taxpayer, within the meaning of the definition of “consideration” in s 9‑15(1)(a) of the Act.  That connection is readily seen from the circumstance that, with the receipt of the written notice of the exercise of the option by the purchaser, and by force of cl 5 of the Option Agreement, the payment of the deposit obliged the parties to enter into the mutual legal relations with the executory obligations and rights laid out in the Contract.

Now, here, your Honours, the payment of the fare obliged Qantas to subject itself to legal relations with executory complications.  The Full Court, then, in paragraph 34, went on to set out section 99‑5, which I have already taken your Honours to.  Over the page, at paragraph 39, their Honours say:

The lack of temporal coincidence between “supply” and “consideration” was dealt with by s 99‑10 –

and they set that out and then refer to section 9‑5, the definition of “taxable supply”.  At paragraph 40:

Upon forfeiture to the taxpayer of the deposit, by reason of the failure by the purchaser to complete the Contract, the “supply” represented by the making of the Contract became “a taxable supply”.

What their Honours are dealing with there is the question of the tax period to which the taxable supply is attributed by the operation of Division 99.  They are not as the Full Court suggested below.

GUMMOW J:   Well, it tracks back to paragraph 32.

MR SLATER:   Sorry?

GUMMOW J:   The question posed at 32 governs what you have been putting to us. 

MR SLATER:   Yes.  Your Honours, the Full Court below also quoted paragraph 42 at the foot of page 239 of its reasons.  In our submission, paragraph 42 does not state a general principle but rather states the effect of the two provisions in Division 99.  Dealing with the question of whether a question of two taxable supplies arises, their Honours said:

The deposit is not treated as consideration for a supply (and therefore there is no taxable supply) unless, in the case of a sale that proceeds from contract to completion, it is applied (as normally it is on completion) as all or (more usually) part of the purchase price.  If and when it happens that the deposit is applied as part (or all) of the consideration for the transfer of the land then the GST is attributable to the tax period during which that occurs, and there is only one taxable supply.

So what this Court was doing there was, in effect, restating the operation of those two sections.  The second sentence effectively states the operation of section 99-5, and the third section states the operation of section 99‑10.  If I could take your Honours then back to the appeal book at paragraph 45.  The conclusion which the court below drew in relation to the significance of this Court’s decision in Reliance Carpet appears to be that at paragraph 45 at about line 35 on page 239.  Their Honours there say:

It is clear from what the High Court said in Reliance Carpet at [34] and [40] of its reasons (reproduced at [43] above) that, while it was prepared to accept that the entering into the contract for the sale of the property in that case was a ‘supply’, absent the statutory mandate that is Div 99, it would not have been the relevant supply.

Your Honours, in our respectful submission, that misstates the operation, or the effect of the decision of this Court.  Can I take your Honours back to page 348, the passage that I drew your Honours’ attention to at the top of the page?  This Court there said that:

The circumstance that the contract did not proceed to completion does not necessarily prevent there having been a “supply” when the contract was entered into; the ultimate issue is whether there was “a taxable supply” to which GST was attributed –

At page 352, paragraph 28 – I have taken your Honours to that as well:

The circumstance that the deposit forfeited to the taxpayer had various characteristics does not mean that the taxpayer may fix upon such one or more of these characteristics as it selects . . . It is sufficient for the Commissioner’s case that the presence of one or more of these characteristics satisfies the criterion of “consideration” –

The reasoning in those passages, in our submission, is directly contrary to the conclusion which the court draws below in paragraph 45.  At page 354 of this Court’s reasons, paragraph 33, at the top of the page, about the fourth line:

the payment of the deposit obliged the parties to enter into the mutual legal relations with the executory obligations and rights laid out in the Contract.

It was those mutual legal obligations which comprised the supply which was held to be the taxable supply in Reliance Carpet.  At page 355 in paragraph 38, this Court said:

Further, as indicated earlier in these reasons, and within the meaning of para (d) of s 9-10(2) as extended by the definition of “real property”, there was upon exchange of contracts the grant by the taxpayer to the purchaser of contractual rights exercisable over or in relation to land –

Again, this Court fixed on the creation of those rights as a supply which was sufficient to be a taxable supply.  Then at paragraph 40 in the middle of page 356:

Upon forfeiture to the taxpayer of the deposit, by reason of the failure by the purchaser to complete the Contract, the “supply” represented by the making of the Contract became a “taxable supply”.

That is the timing operation of Division 99, but it was the supply of the rights which was the supply which was made a taxable supply at the time of forfeiture by the operation of Division 99.  Your Honours, the Full Court in Reliance Carpet had come to a conclusion almost identical to that which they came to in this case, that is, that the only relevant supply, the essence and sole purpose supply was the supply of land.  It was that conclusion which was directly rejected by this Court.

GUMMOW J:   The point was captured in this Court in the submissions for the Commissioner, I think, at page 344, the second sentence:

The Full Court erred in accepting that a contract . . . was a single supply –

et cetera.  Then there is reference to 99‑5 as a “wait and see” provision and so on.

MR SLATER:   Yes, and that is the point which the Court was making about the operation of Division 99.  It is purely a timing provision.  It is not as the court below here reconstructed it to be a provision which alone constitutes the creation of a taxable supply.  In our submission, your Honours, the court below, in adopting the course which it adopted in paragraph 56 – I have not yet taken your Honours to that, perhaps I should.  Paragraph 56 is on page 244 of the appeal book.  It begins:

Using the criteria in the cases to which we have referred –

I have addressed your Honours on that.  In our submission, the cases that are referred to and relied upon there are not cases which are directed to the present issue.  Their Honours then went on to say –

it is plain that what each customer pays for is carriage by air.

That is the same reasoning as the Court comprised, as it happens, by two members of the Bench in Reliance Carpet, adopted the same reasoning there and went on –

This is the essence, and sole purpose, of the transaction.

That again does not ‑ ‑ ‑

GUMMOW J:   There seems to be running through this some echo of the idea in the old stamp duty legislation where one looked at the leading and principal object of the instrument, you remember?

MR SLATER:   Yes.

GUMMOW J:   They seem to be trying to distil this situation into that category.

MR SLATER:   Yes.  That leading and principal object argument suffered a bit of a setback in Pendal Finance v Commissioner of Stamp Duties, which I think your Honour sat on, I am not sure.

GUMMOW J:   Nevertheless, it was a well‑understood idea.

MR SLATER:   Yes, but this Act expressly goes way beyond that.

GUMMOW J:   Yes.

MR SLATER:   The breadth of the definition of “supply” in section 9‑10, the breadth of the nexus in section 9‑15 is clearly designed to escape any notion of leading principal object.  Anything that can be characterised as supply is intended to be caught and any payment that is even remotely, so long as somehow relevantly connected with the supply, will suffice as consideration.  So the underlying concept in this paragraph that there is an essence or sole purpose is one which simply does not sit with the language of the Act, in our submission, nor does it sit with the decision of this Court in Reliance Carpet as perhaps the Court recognised in the curious statement, dare we say, in the face of Reliance Carpet.

Now, your Honours, in our submission, the correct analysis is in the instances with which the Court is concerned in this appeal, that is instances where passengers have paid their fare for, in our submission, the rights which are given to them under the contract they make with Qantas.  Qantas receives those amounts of fares.  Qantas assumes obligations, creates rights and makes reservations and we say all of those things fall within subsection (1) of section 9‑10 and, more particularly, fall within the examples given in paragraphs (g), (e) and (b) respectively, of subsection (2).

The customer, in the event, did not call for performance.  Qantas retained the fares.  In our submission, the fares are amounts received in connection with the obligations, rights and services supplied by Qantas at the time that the contract is made.  In our submission, the fares are consideration.  The supplies are taxable and they are attributable to the period in which they are received.  It misdirects the inquiry to ask whether the fares are not consideration for carriage by air which was not supplied.  The issue which the Court must grapple with, in our submission, is what is it that Qantas did to acquire the right to retain the fares, not what did it not do. 

Now, your Honours, in our written submissions we have set out at page 15 in paragraphs 54 and 55 what seem to us to be curiosities which arise from the operation or the decision of the Full Court.  Those matters are fairly fully set out there.  I am not sure that there is any particular value in my reading to your Honours again.  Unless there are any questions your Honours have arising from either of those paragraphs, I will leave your Honours to read them. 

There is one other matter that I wanted to deal with and that is matters arising out of Qantas’ notice of contention.  There are several propositions advanced in support of a notice of contention filed by Qantas.  They are dealt with in our friend’s principal written submissions.  The first contention, which appears at paragraphs 56 through to 61 of our friend’s submissions, concerns refundable fares and while I should not speak for my friend and the way he might elaborate this orally, based on what is in the written submissions it appears that the submission is that the Tribunal erred in not addressing a supposed difference between non‑refundable and refundable fares.

I addressed the Court on that difference yesterday.  May I make two points about the contention?  The first point is that no material was put before the Tribunal in relation to the difference between refundable and non‑refundable fares, other than the fare rules, which one finds, for example, in relation to Qantas at pages 66 and following of the appeal book and the list of monthly claims for GST refund, which one finds at page 112 of the appeal book, and which nominates amounts under the heading “Forfeited and Unclaimed Refunds”. 

The basis of the argument appears implicitly to have been that customers did not seek a refund of the amounts listed.  That appears from – and I will not take your Honours to it – paragraph 128 at page 60 of the appeal book and the evidence of Mr Gibson at about line 10 on page 142, but there is no evidence of the events.  In our submission, it is difficult to see how the Tribunal erred in law in not dealing with an argument which is not supported by material and is not articulated to the Tribunal. 

The second point we make about this argument is that it proceeds on two false premises.  The first premise is that the fare is unconditionally refundable, but, in our submission, it is not unconditionally refundable and that appears from the fare rules.  Again, I took your Honours to those at pages 66 to 68 of the appeal book and from the conditions of carriage - I took your Honour to paragraph 13.7 of the conditions of carriage at page 100 of the appeal book. 

May I add there a reference to the corresponding rules in the case of Jetstar at page 107 at about line 45 of the appeal book and at page 108 at line 24.  In both cases according to the terms any refund right expires, either with the date of flight, in the case of Jetstar, or the first anniversary, in the case of Qantas. 

GUMMOW J:   That is true even with business class fares with Qantas.

MR SLATER:   Yes, your Honour.  So the proposition that the fare is unconditionally refundable is not made out and that seems to be a premise to the argument.  The other premise to the argument is that there is complete non‑performance; that appears at paragraph 59 of our friend’s submissions.  Your Honours, the contract is not wholly executory, it has been partly performed.  The customer has fully performed in the sense that the customer has paid all that he is required to pay, he has paid the fare, and the reason we are here is that the fare has not been refunded and may be ineligible for refund.

So far as Qantas is concerned, it has done part of what it promised.  It has made a reservation in the customer’s favour, or in the case of Jetstar a booking in the customer’s favour, and it has put itself in a position to carry the customer to his or her destination.  Your Honour Justice Heydon put it to me yesterday that these obligations are hedged around with numerous conditions and qualifications, and we accept that, but what we do say is that hedged around as they are they were enough for the customer to be prepared to pay the fare.

GUMMOW J:   What do you say about the fifth sentence of paragraph 59?  The third sentence says:

the concept is not confined by contractual principles . . . the purpose . . . was the flight, which failed to occur.  Qantas did not fail to perform any part of its contract with the passenger, and . . . may have stood ready to perform the contract, but that does not detract from the finding that there was a failure of consideration.

MR SLATER:   It is difficult to see what the failure of consideration is, your Honour, in this context.  The customer has paid his fare so there is no failure of consideration on the part of the customer.  Qantas has made its reservation in favour of the customer, as our friends say in their submissions, although in somewhat guarded fashion:

at the time of the no‑show may have stood ready to perform the contract –

It is difficult to see that there was a failure of consideration in that circumstance.

HEYDON J:   Well, it is a failure in the sense that appears in the second sentence of paragraph 59, the quotation from Equuscorp v Haxton:

“the state of affairs contemplated . . . has failed to materialise” ‑ ‑ ‑

MR SLATER:   Well, yes, your Honour, except for this.  One of the alternatives provided for in the contract has not materialised, that is, the passenger has not attended and boarded, but the consequences of not attending and boarding are provided for in the contract.  The contract contemplates two possibilities and your Honours will recall that the practice of Qantas was to overbook flights.  Clearly, Qantas contemplated that passengers would not attend and board the plane.  It is difficult to see what relevance the observations in Equuscorp have to this case.

Your Honours, in our submission, the position in relation to refundable fares is no different from those in relation to non‑refundable fares.  Qantas receives the fares in exchange for the promises it makes at the time of the contract, that is, the reservation, carriage on an agreed date on an agreed flight and the ancillary rights and services.  In the tax period in which the consideration is received it is in connection with those rights created by Qantas by the executory contract, the obligations assumed by Qantas.   The supply of those rights is, in our submission, itself a taxable supply, and the consideration is thereby taken into the net amount for the period in which it is received.

Your Honours, if there is a refund then, as I put to Justice Bell yesterday, there will be an adjustment event under section 19‑10(1)(b).  Justice Bell asked me whether it was paragraph (a).  We would submit that paragraph (a) is directed to a different circumstance.  By way of example, the sort of circumstance that it is directed to is one where a contract is made for the supply of 10 tonnes of widgets in July and a tax invoice is delivered in July.  The effect of the attribution rules is that the GST on that supply is attributed to July, but if at that point no payment is made and if in September the contract is rescinded by agreement then the supply will be cancelled.

The effect of the Act is not to go back and reopen the net amount for July but instead to make an adjustment in September when the contract is cancelled, and to confer on the taxpayer a right to a refund because the net amount can be in favour of the taxpayer or the Commissioner, and if it is in favour of the taxpayer then the amount must be paid to the taxpayer.

GUMMOW J:   If the passenger has booked and paid but then does not show up, putting aside contractual provisions for refunds, putting that aside, it is hard to see how the passenger could have a claim for money had and received against Qantas.

MR SLATER:   We would not have thought so, your Honour.  Certainly, Qantas does not seem to think so.  Qantas is entitled to retain the money.  A fundamental question in the broadest commercial substance terms is Qantas keeps these forfeited fares, what did it do for them?  What did it do in connection with them?  The answer is, it promised to supply a flight, it made a reservation, it made a seat available on the plane, not necessarily any particular one, and the passenger did not turn up and the plane took off with an empty seat.

Your Honours, a second contention that our friends make relates to apportionment; that is at paragraphs 62 to 65.  The submission at paragraph 62 of our friend’s submissions is that the Tribunal should have apportioned the fare over the supplies made, that is, the reservation and the right to a flight and the supply not made, that is, the carriage by air itself.  In our submission, there is an inherent self‑contradiction in the argument.  Qantas claims to have done enough to retain the fare, yet it claims that it did not do that for which the fare is consideration.

That seems a very odd argument.  Its argument is that the fare should be apportioned over, on the one hand, what it did do to earn the fare, and on the other hand, what it did not do, namely, provide the carriage.  In our submission, that argument does not sustain close examination.  Fundamentally, Qantas did all that it needed to do to retain the fare.  It might have been called on to do more, but it was not.  It supplied all that was required to be supplied on its part to earn the fare and there is, in our submission, no case for apportionment.

Finally, in that regard – this is one of the reasons why I drew your Honours’ attention early to the operation of the Taxation Administration Act – no evidence was led in support of this apportionment argument at all.  At its highest it was a submission from the Bar table that, obviously, everything should be apportioned to the carriage by air and nothing to anything else.  Yet, when one looks at it, Qantas retained the fare and did not supply the carriage.  It is difficult to see how nothing is apportioned to anything else. 

The third contention our friends make concerns an adjustment event.  That appears at paragraphs 66 to 68 of their submissions.  The claim there made is that on what Qantas have by way of industry practice called a “no show” - I have endeavoured not to use that expression - but on the failure of a passenger to attend and board the aircraft Qantas maintains there is an adjustment event.  This is distinct from the adjustment event on which I addressed the Court earlier, the adjustment event arising on a refund. 

We do not have a problem with the refund giving rise to an adjustment event and an entitlement to a return of the GST when the refund is made, but this contention is that there is an adjustment event simply by virtue of the passenger not turning up and boarding the aircraft and the argument is that it is either a cancellation within paragraph (b) or a variation of the consideration within – sorry, a cancellation within paragraph (a) or a variation of the consideration within paragraph (b). 

As to cancellation, in our submission, the supply from which the fare was consideration in the present instances was the rights under the contract and that supply was not cancelled when the passenger failed to attend.  It simply was not completed.  The customers were supplied with a reservation.  The fact that they did not exercise the right to board the plane is not an adjustment event within Division 19.  There is only a cancellation if, contrary to our submission, the Full Court is right in saying that the only relevant supply, the only supply to which any regard can be had, is the flight.  But if your Honours accept that submission, then the adjustment question simply does not arise.

As to the variation of consideration in paragraph (b), no variation occurs when the customer fails to attend and board the aircraft.  There is no refund.  There is no variation of the consideration at that point.  Qantas is entitled to and does retain the fare.  That is why this proceeding was instituted.  More materially, perhaps, the cases in which there was a refund are not before the Court.  The only GST refund claims are those for cases where either refunds were not available or, although available, were not sought.  In our submission, a failure to attend and board is not a variation of consideration which amounts to an adjustment event under Division 19.

Finally, there is a fourth ground, somewhat loosely articulated at paragraphs 69 to 71 of our friend’s submission, that there is a wholly executory contract.  It seems to us that this argument is incoherent.  It rests on the fourth premise that the contract is wholly executory.  I have addressed your Honours this morning on why, in our submission, it is not wholly executory.  In our submission, that part of our friend’s contentions simply does not withstand analysis. 

Your Honours, for the reasons that we have endeavoured to articulate to your Honours, in our submission the appeal should be allowed and the orders which are at paragraph 58 of our submissions should be made.

GUMMOW J:   Just explain what you say about paragraph 69 and following again of your opponent’s submissions and the ground 4 contract at an end.  You said it was incoherent?  That is not enough.

MR SLATER:   “Incoherent” may be a more pejorative term than I ought to have used, your Honour.

HAYNE J:   The proposition of incoherence is at least incomplete.  Let us complete it.

MR SLATER:   The argument begins with the premise that the customer has cancelled the contract which is wholly executory before any or any substantial act of performance has occurred on either side and that prepayment is open to being unwound.  Now, when one looks at the fare rules and the conditions of carriage, that simply is not so.  Qantas is entitled to retain the fares.  The fare rules are quite explicit. 

The fare is forfeited and so far as refunds are concerned Qantas is entitled to retain the fare unless and until a passenger entitled to ask for a refund does so.  In our submission it just cannot be said that the contract is wholly executory and when I said it was incoherent paragraph 70 throws up a grab bag of submissions, abandonment or cancellation.  The contract has not been abandoned.  It has been performed by the taxpayer.  Abandonment only arises where the parties agree to go no further, but all that the passenger has done is not to attend. 

There is no agreement to abandon the contract.  There is no agreement to rescind.  The passenger simply has not attended when the flight was called.  There is no repudiation here.  The passenger simply does one of the things which the contract provides for.  I have addressed your Honours on failure ‑ ‑ ‑

GUMMOW J:   Well, the passenger may repudiate it by not turning up, I suppose.  The question then would be ‑ ‑ ‑

MR SLATER:   I do not think that amounts to repudiation, your Honour.  It is a consequence or it is an event which is provided for by the contract, it is not repudiation. 

GUMMOW J:   The question then would be whether Qantas accepted the repudiation ‑ ‑ ‑

MR SLATER:   One of the things to be said about all this, your Honour, is that ‑ ‑ ‑

GUMMOW J:   ‑ ‑ ‑ and it does not because it hangs on to the money.

MR SLATER:   All of these arguments depend upon showing that things happened, that there was an agreement to abandon or to rescind, that rescission was accepted, that there was such conduct as amounted to repudiation.  There was no attempt to lead any evidence about what happened when a passenger did not attend.  There is absolutely no evidence in support of any of these propositions. 

It cannot be said that the Tribunal somehow erred in law in not making findings along these lines when no such propositions were put to them and certainly not supported by any material placed before the Tribunal.  Ultimately, and again I am sorry to be tedious about this, but this matter started as an objection against an assessment on the ground that the assessment was excessive. 

It was referred to the Tribunal for review.  The proceedings in the Full Court were an appeal on error of law under section 44.  This material – these arguments all proceed on a basis which was not put before the

Tribunal.  It cannot be that the Tribunal erred in law in not making findings of this nature.  If your Honours please.

GUMMOW J:   Thank you.  Yes, Mr Cordara.

MR CORDARA:   Your Honours, the central burden of our submission is that we are in an entirely statutory arena here, the application of this tax ultimately being a pure matter of statute, and that the critical approach that one should apply is first, of course, to read the Act and glean what one can, both in terms of the express words and also the policy of the Act in terms of its charging provisions as a first step; secondly, apply well‑known principles of common law analysis to identify the nature of the bargain that has been made between the customer and the supplier; and, thirdly and obviously, then put one against the other and reach a view as to whether a chargeable event has occurred or, if it has occurred, whether a chargeable event has in all the circumstances endured.

In our submission, it is critical to bear in mind when one carries through those stages that unlike Reliance this is not a case in which there are any “wait and see” provisions.  Reliance was a special case in that Division 99 was a provision which effectively stopped the film running and enabled events to unfold with judgment suspended as to what their tax consequences were.  That is a rarity.  It does not apply as far as I know in any other area of the tax and that is important because it is critical, in our submission, that one can tell at any given moment whether an Act constitutes a supply or not.  It is not open to the Commissioner to suggest that one may have supplies springing up and disappearing, depending on ultimately whether a customer who has a right to a refund exercises that right. 

At various points in the Commissioner’s submissions it seemed to be suggested that not only could one argue from consideration backwards to the question of whether there was a supply, but indeed it could be the question of whether there was a supply could actually be dependent on whether a customer decides or remembers that they have a refund awaiting them and then they take the trouble to ask for it.

In our submission, one cannot do this back to front.  One has to do it – mindful, as I say, of the fact that there is no “wait and see” provision – forwards, and the way to do that is, in our submission, to identify the bargain first of all, then identify what acts or performance of the bargain have occurred and then to apply the statutory test, and that is the approach, if it is convenient, that I will take in addressing these submissions in reply.

Some of the provisions to which I am about to refer do not appear in the otherwise extremely helpful synopsis of the relevant provisions, which is annexed to my learned friend’s submissions.  If I may invite the Court, nonetheless, to have that document open, the provisions to which the Commissioner directs attention begin, as you see, on the first page of his synopsis with section 9‑5, “Taxable supplies”.

We would submit that one needs to go to the original charging provision of the Act in order to begin the survey.  That is reproduced in divider one of the folder of materials that we have proffered, and I will as far as I can use my learned friend’s documentation.  It may well be that the Court has marked it up.  For the first reference one has to go to the folder, and before I explain the relevance, may I say this?  There is a critical difference between charging provisions and provisions which regulate the extent, timing and manner of the payment of the tax.  The latter category depends or assumes that the charging provisions have bitten and therefore the critical category in any case, of course, are the charging provisions.

In this case, the charging provisions include 7‑1, which is headed “GST and input tax credits”, and if I may give the others now - 9‑5 and 9‑10, also Division 19 whilst not a charging provision as such is material to the charge to tax ‑ ‑ ‑

GUMMOW J:   Sorry, what is the first charging provision you say?

MR CORDARA:   Your Honour, the first one is 7‑1, and I am at the moment just giving the list for the benefit of any note - 7‑1, 9‑5, 9‑10, and then Division 19 which is in some senses perhaps could be described as an uncharging provision, but I will come to that.  The first of the ones that I have just mentioned, 7‑1, is the charging provision of the tax and is critical.  It says:

GST is payable on taxable supplies and taxable importations.

Pausing there, the rest of that division deals with the process of the timing and manner of payment of the tax so 7‑5, 7‑10, 7‑15 all deal with such important but secondary matters as net amounts, tax periods, payments and refunds and I shall return to those in a moment.  But the charging provision – 7‑1 – is the provision which imposes the charge to tax.  That then takes us to the related charging provision which is 9‑5 and it is in that provision that the central concept is found.  You make a taxable supply if (a).  You make the supply for consideration and what one can derive from that is that there needs to be a supply that is made, you make the supply – not merely an intended supply, but a supply must be made, consideration must be present and there must be a linkage between the two, you make the supply for consideration.  That indicates that this tax is concerned with the making of, in essence, a bargain, some form of reciprocal arrangement, whether it is enforceable or not between a customer and a supplier.  I will develop that in just one moment.

If one looks – staying with Division 7 – at the provisions which deal with the timing and manner of payment one gets into the world of accounting where the Commissioner has sought to direct the case to some extent.  In 7‑5 there is introduced the concept of the net amount.  That reads:

Amounts of GST and amounts of input tax credits are set off against each other to produce a net amount for a tax period (which may be altered to take account of adjustments).

What one sees from that ‑ ‑ ‑

GUMMOW J:   You keep talking about taxing sections, charging sections, but the way things work in this country is there has to be a separate statute, a relevant statute, it is the New Tax System (Goods and Services Tax) imposition legislation which imposes the tax.

MR CORDARA:   Indeed, and I believe that to have been the case.  I must verify that.  Subject to that being satisfactorily dealt with, the net amount legislation which one sees at 7‑5 ‑ ‑ ‑

GUMMOW J:  I am referring to section 55 of the Constitution.

MR CORDARA:   Indeed.  There is, as far as I know, no challenge to the lawfulness of the tax extant.

GUMMOW J:   Yes, go on.

MR CORDARA:   I am grateful.  The provision at 7‑1 imposes – or defines the charge.  Section 7‑5 then introduces the concept of net amount, and the important elements to notice in 7‑5 are that at this stage it addresses itself to an aggregation of tax liabilities, it introduces the basic setting off process, but it also introduces the role of the adjustment, and it is critical to bear that in mind because one cannot analyse a case such as this without bearing the adjustment provisions firmly in mind.  Tax periods, one need say nothing about that.  Then 7‑15, “Payments and refunds”:

The net amount for a tax period is the amount that the entity must pay to the Commonwealth, or the Commonwealth must refund to the entity, in respect of the period.

The functioning of the provision at 7‑1, as I have said, is illuminated by 9‑5, and what is revealed if one looks at 9‑5, as I have already indicated, is that the concept of supply for consideration lies at the centre of the tax, and one of the fundamental differences between the Commissioner and the taxpayers in this case is how one identifies the nature of the supply for consideration.  The taxpayer says one must apply the law of contract, irrespective perhaps of whether or not the bargain is itself enforceable because the law of contract is a mechanism for discerning the nature of the agreement between the parties.  I have said already the word “make” is also critical, a supply has to take place.

The fact that one may be under an obligation to account for the tax before the supply takes place as, for example, in the current case, does not answer the question of whether the charge to tax has ultimately found a target.  Most of the time the bargain will, indeed, be a contractual bargain and we submit that in every case it is requisite to identify the nature of the bargain made.  The Commissioner at paragraph 27 of his submissions suggests that it is only necessary in a limited number of cases to do that.  The suggestion is that one need not characterise or identify the relevant supply, save in those cases where, for example, it might fall into one tax.

GUMMOW J:   Where do you get this notion of contract from - the essentiality of contract to this notion of supply?

MR CORDARA:   The essentiality of the identification of the nature of the bargain, your Honour, is ‑ ‑ ‑

GUMMOW J:   Where do you get the notion of bargain from?

MR CORDARA:   We say that the bargain – the concept of the bargain is inherent in the phrase “the supply for consideration”.  The word “for” indicates that there needs to have been some form of reciprocity between the paying party and the party who performs.  I would be wrong to suggest that the act requires the contract, it clearly does not, for example, of quantum meruit, if work is done at someone’s request in circumstances where there is no contract ‑ ‑ ‑

GUMMOW J:   Well, consideration includes a forbearance. 

MR CORDARA:   Indeed, and the essence of consideration itself would include third party consideration, which is outside the scope of consideration in the law of contract.  But having said all of that, it still lies at the essence of the tax that there has to be a relationship between the supply and the consideration and we assert that most of the time that relationship will be the result of some form of agreement between the customer and the supplier. 

I fully accept that agreement does not necessarily have to be contractual but it has, I say, an obligation operated by law in the context of a quantum meruit, but in the vast majority of cases - this case is within that vast majority - there will have been an agreement, a bargain of some kind, which will inform the inquiry.  It is a source of evidence.  It is not a legal requirement but it is something that informs the inquiry as to the existence or otherwise of a supply for consideration and we lay particular emphasis on the word “for”.

KIEFEL J:   But if you understand “for” or take “for” to mean to suggest only some linkage or connection between the supply and consideration, one does not need to and, indeed, one avoids, getting into the contractual relationship which seems to be fundamental to your argument.

MR CORDARA:   Your Honour, the answer is, there is, we submit, no escape from the facts of any given case.  Whether the linkage is strong or weak the analysis requires one to look at whatever factual material will inform one as to the nature or existence of the linkage.  In most cases, and this is no exception, the agreement or bargain or circumstances, to put it perhaps more broadly, in which one party came to perform and another party came to pay, will always be the matrix against which one ultimately has to analyse whether or not there has been a supply for consideration.  One drifts into – and it is analytically incorrect - talking about contract.  It is, I accept, not a requirement of the Act. 

Equally, the Act does require some form of relationship and where there is a contract, in our submission, that is the obvious place to start in order to explore the question of whether there has been a supply for a consideration.  Indeed, that is, if one looks at the case law, exactly where this Court looked in the Reliance Case as my learned friend has indicated to the Court.  It reminded the Court this morning, the Court analysed the answer to that case in strictly contractual terms.  The same, of course, was true in the Travelex Case. 

In both of those cases, the question was either has there been a supply and/or if so, what was the nature of that supply?  So while one accepts that the bargain, the agreement, whatever it may be, is not necessarily the only circumstance, it will usually be the major circumstance.  The simple point we make is that it is the obvious starting place for any inquiry as to the nature of the supply that has been made. 

Indeed, if one moves on from 9‑5 to 9‑10, the meaning of “supply”, the Act gives further clues as to the function of the supply concept and indirectly where one needs to look in order to ascertain whether or not a supply has occurred and, if so, what the nature of the supply is.  One casts one’s eye down 9‑10(2) one sees a list with no obvious generic coherence in the sense that in some points the definition is:

(a)a supply of goods;

(b)a supply of services” -

At other points, there are references to the nature of rights, for example, (d) which was a central in Reliance:

grant, transfer, assignment or surrender of real property;

and (e) the creation of rights.  So, in some cases, these examples intended, of course, to be helpful, focus on the content.  In other cases they focus on the nature of the chose in action created.  But in both cases, the clear intent and purport of the statute is to look at not only what is done but also why it was done and the circumstances of agreement against the background of which it was done. 

The difficulty, we submit, with the Commissioner’s approach to the current case, exemplified by the submissions that were made this morning, is that in relation to the Reliance Carpets decision, he says every time promises are exchanged - he is dependent on the law of contract, of course, to say that - he says every time promises are exchanged, a supply occurs.  Indeed, the supply occurs. 

What is at the heart of the current case and what was, in our submission, the heart of the decision of the Full Court is whether or not one accepts as a general principle that every time contractual relations are entered into, a supply – forgive me – the supply has occurred.  Our submission is that that approach takes - when one is looking at 9‑10(2)(e) and/or (g) - those two sub‑provisions out of context.  The context is that they are examples of what we can readily imagine is an infinitely variable spectrum of supplies that can be made. 

The difficulty about the Tribunal’s decision in this case is with – one will see - is that the Tribunal almost in the first breath said this is obviously a contract, we reject…..point, therefore it is (e) and (g), accepting the Commissioner’s submission, every time anyone makes a contract, they essentially make the entire supply contemplated in the contract and, therefore, said the Tribunal, one need go no further.

As we heard this morning, of course, absent a rescission ab initio that can only be cancelled.  So one has, according to the Commissioner, an instantaneous and complete furnishing of the entirety of the supply simply by shaking hands and agreeing the bargain whether it is legally enforceable or not.  In this case, it is critical to the Commissioner’s approach that it is a legally enforceable bargain because otherwise he would not be able to point to any chose in action to support this extremely broad approach, but secondly, the consequence of that is that both customer and supplier, since they exchanged promises, are making supplies to each other - the point to which no response has yet come from the Commissioner.

But if the supply is to be constructed out of the exchange of promises, one must not overlook the fact that the promises are exchanged.  Therefore, if what one is inhabiting in every case the world of (b) and the world of (g), then in every case the customer creates rights against itself for price, obligations of co‑operation, whatever the contract may be, the supplier creates rights, one is to actually perform whatever it may be.  So one is in a barter, if the Commissioner’s approach is correct.  The same is true with (g). 

The true and proper reading, we say, of 9‑10 is, without of course striving to provide for every conceivable case, that (e) and (g) are directed at those cases where the making of the contract is, in essence, the execution of whatever the bargain may be, for example, the grant of an intellectual property right.  If I grant someone the rights to use my trade partner in South ‑ ‑ ‑

GUMMOW J:   That is conveyance.  It is not a contract.

MR CORDARA:   In terms of the particular label, legal label, we submit that ultimately what matters is whether or not some form of right has come into existence.  In the case that I put, even if it is a conveyance it is a conveyance – or given, rather, that it is a conveyance – it is perfected immediately, subject to any documentation.  The agreement not ‑ ‑ ‑

GUMMOW J:   It need not have any anterior - a conveyance need have no anterior agreement.

MR CORDARA:   In a sense that is the point I am trying to make that even if there is no anterior agreement there is not necessarily any subsequent further performance that is necessary.  That is the essence of the point that (e) and (g) are dealing with cases where the entry into the obligation is the entirety of what is bargained for. 

GUMMOW J:   What is the significance of section 9‑10(4)?

MR CORDARA:   The significance is that when a payment is made by a customer that is a furnishing - or the policy of the Act wishes to treat it, not as the making of the supply, but as the furnishing of consideration for a supply.  However, in the financial arena if, for example, dollars are exchanged for euros – money for money – then it will be treated as a supply in both directions.  But if I may return to 9‑10, the sheer breadth of the list is indicative, we submit, of the fact that it is an entirely open question in any given case as to what the nature of the supply may be; that is point 1. 

Point 2, in order to answer that question one needs to analyse whatever bargain or agreement, if there is one, has been made.  One has to use common law principles to do that and that is what has been done in this Court previously.  Point 3 - the fact that one has (e) and (g) is clearly responsive to situations where the mere grant of the right is the whole story.  No further performance perhaps is needed of a physical kind or an ongoing kind.  But that to do what the Tribunal did in this case which is to go straight to those and say, “Well, we find that rights have been created, therefore, we need to go no further” is to misread the Act and to misapply the provision.

Then finally we say that the Commissioner’s endeavour to persuade the court that what this Court held in Reliance was that the making of every contract is supply is misguided.  I have made the point about barter.  It would mean, as I have already said, that every time promises are exchanged there is a perfected supply.  It would further mean that the adjustment provisions can have – certainly (a) and we will come to those – little effect because absent a decision ab initio that exchange of rights can never be undone.  That would be a chaotic way to operate the tax and the question is, is such an agenda to be found within the wording of the statute? 

BELL J:   Can I just raise with you, since you put against your opponent that acceptance of their position would produce chaos, it is the fact, is it not, that Qantas pays the GST in as it were the regular way.  Qantas does not know whether a person is going to turn up and take the flight or not.  On your analysis the scheme of this legislation requires, in a circumstance such as this, that the parties simply do not know what their liability is, notwithstanding that consideration has been paid and notwithstanding that it has been paid for a supply as broadly defined.  How can one maintain that?

MR CORDARA:   Your Honour, I hope I have a complete answer to that.  This is a point that was raised, I believe, on a special leave hearing as a reason for the grant of leave on the basis that if Qantas were right, as your Honour puts to me, chaos may ensue.  The answer is to bear in mind the distinction between provisions which identify the charge or the event, which I have been looking at and that second group of provisions which regulate the collection of the tax. 

To answer your Honour’s question directly, the second group of provisions require, as a matter of the day‑to‑day administration of the tax, that as soon as you receive any money in connection with an intended supply – it does not use the word “intended”, but it simply says “in connection with a supply” – future, past, it does not distinguish.  It says please hand the money over or please hand 10 per cent of it over to the government.  Then, if the supply does not eventuate there is a provision which deals with handing the money back and that is the complete answer, we say, to the suggestion that the Qantas approach might lead to difficulty.  I am going to come almost immediately to those provisions.

BELL J:   The matter I was raising was in the context of you putting to the Court that a reading of the text makes the proposition for which the Commissioner contends productive of chaos.  Now, I accept that if chaos be produced, so be it, if that be the result of a proper analysis of the legislation.  But it was just that that did rather seem to be putting the boot on the wrong foot.

MR CORDARA:   The two allegations of chaos, as it were, are of a slightly different nature.  We say that to operate the tax on the basis that every time anyone gives a promise they made a supply or the supply in fact, that is a form of chaos because everyone, including customers, would find themselves in the position of making supplies when they perhaps hitherto – perhaps wrongly – had thought they were not.  The classic customer would presume that the supplier is making supply to him, not that the customer because of any promises the customer has made will have made a supply to the supplier, because obviously the contracts or the agreement involves promises both ways.

BELL J:   Does not the matter that is of concern to parties turn on the amount of the payment to be made which is referable to the consideration?

MR CORDARA:   Your Honour, indeed so.

BELL J:   I am not quite sure what this problem that you see is arising out of ‑ ‑ ‑

MR CORDARA:   The problem is that the approach of a tribunal was to say “We identify a promise by Qantas, therefore, we are in 9‑10(2)(e) or (g)” and what we say is if the identification of a promise is ipso facto, in every case, a supply because it can obviously fit within (e) and (g), then one should notice that promises are not unidirectional.  That the other party to the contract will also have made promises – I will speculate on what they may be – but they will be promises from the customer to the supplier.  What I submit is there is nothing in (e) or (g) to say that those promises from being equally supplies being in the nature of the creation, grant, et cetera, of rights or the entry into obligations and it is that point that we say would be productive of a chaotic situation because every time a contract was entered into there would be supplies in both directions.

BELL J:   In the real world, Mr Cordara, here looking at the facts of this case, the customer pays Qantas $1,000 for a fare.  One can analyse it as Qantas having undertaken obligations to the customer and the customer to Qantas, but for the purpose of GST one looks at that $1,000, does one not, and calculates the GST on it?

MR CORDARA:   Indeed, and we are anxious to return to the real world, your Honour, in this sense that in the real world, when the customer puts the phone down from the travel agent and is asked, “What was that about?” they say “I have just booked my flight to Melbourne”.  They do not say, “I have just made an agreement that Qantas will hold itself ready for a period, in case I turn up”.

BELL J:   But for the purposes of the GST, Mr Cordara, there has been consideration; Qantas has received that sum.  It may be that ultimately it will be required, not only to hold the seat, but to carry the passenger, or perhaps it will not.  But at the point that it receives the consideration what is the difficulty that you are highlighting with the view that a taxable supply for consideration has been made?  I do not perceive it.

What is really inferred in such a case is that the contract has been discharged by agreement, each party being entitled to assume from a long‑continued ignoring of the contract on both sides that  . . . “the matter is off altogether”.

In effect, the parties agree to discharge the contract without calling for further performance.

GUMMOW J:   Or possibly there is an estoppel to that effect.

MR SLATER:   Yes, possibly.  The other point that I wanted to make about my friend’s argument about adjustment events – and I do not want to belabour this any further than this but simply to make the point that the claim that there is some sort of adjustment event on a no show in the same tax period is not one which was put to the Tribunal.  The material which would round it is the material which my friend no longer presses on court.  It was not a ground of objection and it was not the subject of argument before the Tribunal.

Your Honours, as to wholly executory contracts, in our submission, there is no GST on the exchange of rights and obligations under a wholly executory contract until there is an event which makes a supply, a taxable supply, attributable to a tax period.  That event will either be the delivery of an invoice or the payment or provision of some part of the consideration.  That is the operation of Division 29 to which I took your Honours yesterday.  Then it will only be a taxable supply if the other criteria in section 9‑5 are met. 

So that, for example, on an exchange of promises in an executory contract between a merchant and a consumer, the consumer does not become subject to GST because the consumer is not registered or required to be registered nor carrying on a relevant enterprise.  So the broad sweeping statement that every contract must give rise to GST in both directions is simply unsustainable. 

Your Honours, before invoice or payment there is no independent consideration of market value.  The reciprocal promises are each conditioned on performance by the promisee, and the promises have no market value.  That is why the spectre which is raised by our friends of an unworkable system, if executory promises are taken to be a potential taxable supply, does not stand up to analysis.

We do say that barter transactions are subject to GST and if they are between registered parties in the course of an enterprise then each party will be subject to GST at the attribution point which would be either the delivery of an invoice or the provision of consideration, but that is remote from the present case.  As to the net amount for a tax period, that is the subject matter of these proceedings.  The proceedings are objections to an assessment of the net amount for a tax period.  It belittles them and mistakes the issue between the parties in the case to describe them as mere accounting.

Your Honours, our friends defended the Federal Court decision in a number of respects, firstly and perhaps the most significantly in reliance on the cases to which the Federal Court referred, principally the decision of this Court in Travelex and to a lesser extent the decision of the Federal Court in Saga Holidays.  But the issue in those cases was not, as here, the issue as to whether there was a supply.  It was an issue as to the character of the supply, essentially, essentially, whether it fell into Division 38 and so became a GST‑free supply.

GUMMOW J:   That is where the phrase “in relation to rights” comes into play in item 4 in section 38-190.

MR SLATER:   Yes, it comes into play in section 38-190, yes.  I had the pleasure of investigating that point at first instance but only at first instance.  It is not, as our friends say, the very point that we run here.  It is a quite different point.  Here if the flight was within Division 38, we accept that one would look to the flight to characterise the transaction as a GST‑free supply or a taxable supply. 

Similarly, your Honours, Baltic Shipping looks to a different issue. Essentially it was concerned with unjust enrichment. The difference here is that the promise was all that was received. Here it was more than a bare promise and contrary to the discussion at page 378 of 176 CLR, here there was no refund. Qantas keeps the fare. It forfeits or retains it and it does so because it has given value for it. It is not the bare promise case. We accept, as did the Tribunal, that the object of the transaction when made was to secure travel or at least the right to it.

If I could take your Honours to page 205 of the appeal book, that is the burden of what the Tribunal – the Tribunal accepted that at paragraph 23.  It is unfair to the Tribunal to say that it did not do so, and perhaps that is not an accurate characterisation of what my friend said and I may have misrecorded it.  But, in any event, whether or not that was the object of the transaction there was, in this case, a supply of rights and of a reservation.  Qantas received and Qantas retains the fare as consideration in connection with the supply of the rights and the reservation and in the cases before the Court in connection with no other supply.

Your Honours, as to my friend’s observations on Reliance Finance, there is only one thing that I have perhaps not said that I would say again, or I would say – I draw your Honours’ attention to – and that is paragraph 37 of this Court’s judgment in Reliance Finance.  It is at page 355.  I am sorry, I keep saying “Reliance Finance”.  I beg your Honours’ pardon, it is Reliance Carpet.  Reliance Finance was a different client.  My friend read to your Honours parts of paragraph 37.  There are two other parts that I would draw your Honours’ attention to and that is the opening words of paragraph 37 which shows that this Court was not simply concerned with the typical consequences of a deposit.  At the beginning of paragraph 37 the Court says:

The “supply” by the taxpayer occurred before the forfeiture and thus before the provision of consideration in accordance with s 99-5.

Then in about the middle of the page the Court says:

The AAT correctly applied that definition –

and the portion of the AAT’s observations that I wish to draw your Honours’ attention to is the concluding sentence of the passage quoted:

In the circumstances it may fairly be said that upon execution of the contract the applicant made a supply –

So it is upon “execution of the contract”, not upon deposit -

in that, in terms of section 9-10(2)(g) –

which as I draw your Honours’ attention to was the ‑ ‑ ‑

GUMMOW J:   That explains the emphasis in paragraph 39 of:

The lack of temporal coincidence between “supply” and “consideration” –

and gets one into 99‑10.

MR SLATER:   Indeed, your Honour, and at paragraph 40 the point is reiterated.  Your Honours, there are some other brief points that I might make, and they are only brief and almost, one might say, peripheral.  The submission which was made a number of times, both this morning and this afternoon, that there is no contract of carriage until the passenger presents at the gate is really just a matter of semantics.  It is playing with words.  The contract formed on the making of the reservation was also a contract of carriage, albeit a conditional one.

Secondly, the point which we make at paragraph 54 of our written submissions about the implications of the Full Court’s decision and the difficulty which would arise if the characterisation of the consideration, if the ascription of the taxable supply to the time at which the consideration was received could not be made until it was known, possibly much later, whether the consideration had been supplied, it is one to which, despite your Honour Justice Bell’s invitation, my friend simply makes no attempt to respond. 

There is, in our friend’s submissions, both oral and written, a hint of a reliance upon a concept of prepayment.  This on no view was a prepayment.  This was on any view consideration for a reservation, a right to a seat, and carriage by air in the event the carriage by air was provided.  Each of those things would have been a supply, although as I said earlier, GST will be payable only once.  In the instances which are in contest here, only the rights and the reservation were supplied.

Your Honours, my friend referred to the decision of Justice Gzell in TAB v Commissioner of Taxation. I wanted to draw your Honours’ attention only to one thing in regard to that. A relevant portion of his Honour’s judgment is on page 194 of 192 FLR 189. I am not sure if that is the report that my friend gave to your Honours earlier, but it is taken from his bundle of authorities. The point about the TAB decision was that the liability in contest there was a liability under section 126-35, which your Honours will find set out in paragraph 16 on page 192, and the significant thing about it is that:

A gambling supply is a taxable supply involving:

(b)the acceptance of a bet (however described) relating to the outcome of a gambling event.

It is the words “relating to the outcome of a gambling event” which were the critical point.  It was not that the bet was cancelled.  It was that there was no outcome of the gambling event when the race was cancelled.  It has nothing to do with cancellation of a supply.

One final point is the point which your Honour Justice Kiefel made in argument, and there is no value in my repeating them, that the word “for” in “consideration for a supply” is not an adoption of contractual principles.  We adopt the question that your Honour put to our friend.  It is a reference to a concept of “in connection with” or “in relationship to”, in our submission. 

Finally, your Honours, throughout our friend’s submission there runs an unstated premise which was notable in my friend’s discussion of the reasons of the Tribunal at paragraphs 9 to 10 of those reasons.  The unstated premise is that the relevant supply, or the only supply, what my friend described as what the bargain is, is carriage by air.  If you start with that premise, then it is not surprising that that is where you conclude.  But that is not the correct premise with which to start, in our submission.

The substance and reality, again to use an expression to which my friend adverted on a number of occasions, of the present cases is that Qantas received fares before any carriage by air was provided.  Qantas retains the amounts it received, and it says it is entitled to retain them.  The substance of the reality is that the reason it is entitled to retain them is that it gave value for them.  The value was the reservation, and the right to be carried.  That is, in our submission, a taxable supply, and in our submission it is sufficient to sustain the assessments and the appeal should be allowed.  If your Honours please.

GUMMOW J:   The Court will consider its decision, and will now adjourn to 10.15 am tomorrow.

AT 3.24 PM THE MATTER WAS ADJOURNED