In the Matter Of the Stamp Duties Act 1923 And in the Matter Of An Assessment Of the Commissioner Of Stamps: Esanda Finance Corporation Limited And Esanda (Wholesale) Pty Ltd v Commissioner Of Stamps

[1992] SASC 3566

COURT IN THE SUPREME COURT OF SOUTH AUSTRALIA PERRY J

CWDS
Stamp duties - assessment - Appeal against assessment for stamp duty - appellants placed vehicles on "floor plan" with car dealers under "Bailment Plan" agreements - agreements provided that the bailment (by one appellant) was gratuitous but guarantee fees paid to the other appellant in consideration of the guarantee by that appellant of the bailee's obligations under the agreement - guarantee fee calculated as a percentage of the monies advanced by the bailor company with respect to the vehicles on display - held that the business conducted under the Bailment Plan agreement was not a rental business as defined in s.31f of the Stamp Duties Act and monies paid not "rent" within the meaning of that section - appeal allowed. Stamp Duties Act (1923) s.24, s.31b-n. SA Crate Pty Ltd v State of SA (1983) 35 SASR 92, per Walters J at p.99, applied.

HRNG ADELAIDE, 14 May 1992 #DATE 7:8:1992
Counsel for appellants:     Mr R Whitington
Solicitors for appellants:    Mouldens
Counsel for respondent:     Mr M F Johns
Solicitors for respondent:    Crown Solicitor

ORDER
Appeal allowed.

JUDGE1 PERRY J Esanda Finance Corporation Limited ("Esanda") and Esanda (Wholesale) Pty Ltd ("Wholesale") appeal against an assessment made by the Commissioner of Stamps ("the Commissioner") on 3 October 1991 in which the Commissioner assessed a statement lodged pursuant to s.31f of the Stamp Duties Act ("the Act") as liable to duty in the sum of $8,073.73. 2. In accordance with the procedure set out in s.24(4) of the Act and following a request made pursuant to that section, the Commissioner signed a case stated dated 11 March 1992. The matter then proceeded by way of the case stated. Pursuant to s.24(6) it is incumbent upon the court to determine the questions submitted, and assess the duty, if any, chargeable under the Act. 3. Sections 31b-31n (incl.) of the Act appear under the heading "Rental Business". 4. Section 31d provides, inter alia, that a person "shall not carry on any rental business in South Australia (whether or not he also carries on any other business)... unless he is a registered person". 5. Both of the appellants are registered pursuant to Section 31e, which obliges the Commissioner to register any person who applies in the prescribed form for registration under the section. 6. Section 31f has been the subject of amendment since the statement in question was lodged. At the relevant time, it read in part:
    "(1) Subject to this Act, and in particular to s.31i,
    a registered person shall -
    (a) not later than the twenty-first day of each month, lodge
    with the Commissioner a statement in the prescribed form and
    verified in the prescribed manner setting out the total amount
    received by him as rent during the preceding month in respect of
    his rental business:" 7. "Rental Business" is defined in s.31b to mean:
    ".. the business of
    (a) letting, bailing, or otherwise giving rights to use, goods
    other than books;
    or
    (b) acquiring the rights of the lessor, bailor or
    other disponer under any agreement or arrangement for the
    letting, bailing or hiring of goods other than books, or under
    any other similar agreement or arrangement with respect to the
    use of goods other than books, but does not include the business
    of giving to any person the right to use goods in conjunction
    with a lease of, or licence to occupy or use, any land." 8. The statement the subject of the disputed assessment was lodged on 22 October 1990. It is described in the case stated as a "combined statement by Esanda and Wholesale in respect of guarantee fees collected by both companies". The fees in question had been received by the companies from car dealers who had entered into agreements with the appellants, the agreement in some instances being described as a "Bailment Plan (New)" or in other instances as a "Bailment Plan (Taxpaid and Used)". 9. Although, as will be seen, the two forms of agreement differ somewhat, they are referred to in the questions posed in the case stated as the "Bailment Plan". 10. The questions for the determination of the Court, as set out in the case stated, are as follows:
    "(1) Whether the type of business carried out under the
'Bailment Plan' is a 'rental business' pursuant to s.31f of
    the Stamp Duties Act 1923.
    (2) If so, whether the amounts received are 'rent' pursuant
to s.31f of the Stamp Duties Act 1923." 11. The bailment plan agreements are complex documents. It is clear that neither of them tell the full story of the relationship between the appellants and dealers, as each of them refers to another document called a "dealer agreement", which is not referred to in the case stated, or otherwise before me. 12. Both bailment plan agreements are very similar. I will refer first to the provisions of the Bailment Plan (Taxpaid and Used). 13. The essential terms of that agreement are that Esanda as the owner of a motor vehicle permits the dealer, in the agreement called "the Bailee", to place motor vehicles on display at the bailee's business premises. The agreement provides (clause 10(a)) that the bailee "shall be merely a bailee for safe-keeping of the goods upon the terms of this agreement". The bailee is under an obligation (clause 7(a)) to keep the goods in his possession at his showroom "or other approved place of display", and (clause 7(b)) "Not to use or permit the goods to be used in any way". The latter obligation is reinforced by clause 10(a), which provides that the bailee "shall not use the goods in any way whatsoever (whether for the Bailee's benefit or otherwise)". 14. The purpose of the bailment is stated in the agreement as being "for the purpose of re-supply" (see clause 22(1)(a)), which latter expression is defined (see clause 22(2)) to include "supply by way of sale, exchange, lease, hire or hire purchase".As to goods described in the bailment plan as "used goods" (see clause 6) the goods must be paid for in the first instance by the bailee "as agent for Esanda". Other goods described in the bailment plan as "tax paid goods" (see clause 5)) are to be paid for either directly by Esanda, or if the bailee pays for the goods, that amount is to be reimbursed by Esanda. 15. Pursuant to clause 6, the Bailee's expenditure on the purchase of used goods is subject to a right of reimbursement by Esanda, subject to various terms set out in that clause. 16. The bailment plan casts a number of other obligations upon the bailee, including an obligation to indemnify Esanda against any loss of or damage to the goods, and to indemnify Esanda against "all loss, damage or liability which Esanda may suffer or incur through any other party suffering any injury or damage" from or through the goods while bailed under the bailment plan (see clause 7(j)). Clause 22 includes an obligation on the bailee to ensure that the goods comply with any prescribed consumer product safety standard, and that the goods are not unsafe. 17. Clauses 15 and 16 are as follows:
    "15. WHOLESALE at the request of the Bailee (as testified
    by the Bailee's execution hereof) guarantees to Esanda the due
    observance and performance by the Bailee of all the obligations
    and indemnities binding upon or attaching to the Bailee
    hereunder except only obligations under Clause 22 hereof. This
    guarantee shall not be affected by any time or indulgence
    granted by Esanda.
    16. THE Bailee shall in consideration of the guarantee
    referred to in the last preceding Clause pay to Wholesale on
    demand any amount paid by it under the said guarantee and also
    pay to Wholesale on demand from time to time a fee or charge
    calculated at such rate on Wholesale's potential liability or
    calculated on such other basis as may prior to the delivery to
    the Bailee of particular goods be fixed by Wholesale from time
    to time for the purposes of this Clause and notified to the
    Bailee. 'Potential Liability' means the total of
    (a) any amount for which Wholesale is from time to time
    contingently or presently liable under its guarantee;
    (b) any sums which Wholesale has paid or caused to be paid
    pursuant to its guarantee and which have not been paid to
    Wholesale by the Bailee." 18. As to the Bailment Plan (New) it is sufficient to observe that it is in almost identical terms to the Bailment Plan (Taxpaid and Used), except that the position of Esanda and Wholesale are transposed. Under the Bailment Plan (New) it is Wholesale which, as the owner of a motor vehicle permits the bailee to take possession of it for the purpose of "resupply", and it is Esanda which acts as guarantor of the bailee's obligations to Wholesale under the agreement. Such variations in wording of some of the terms of the Bailment Plan (New) in comparison with the Bailment Plan (Taxpaid and Used), do not affect the determination of the questions before the court. It is important to note that paragraphs 15 and 16 of the Bailment Plan (New) are in exactly the same terms as the Paragraphs so numbered in the Bailment Plan (Taxpaid and Used), except that references to Esanda and Wholesale are transposed. 19. It is common ground that the statement which is the subject of the assessment in question, discloses the amount received by both Esanda and Wholesale by way of guarantee fees pursuant to Paragraph 16 of the Bailment Plan (Taxpaid and Used) or its analogue in the Bailment Plan (New). The total of the guarantee fees disclosed in the statement in question, which was for the month of September 1990, is $450,540.30. In a letter from Mouldens, solicitors for the appellants, dated 31st October 1990, addressed to the State Treasurer, being one of the documents appended to the case stated, appears the following:
    "A further ground of objection to the Commissioner's
    assessment is Esanda's contention that the amount payable by
    the Bailee under the Bailment Plan is a fee for guaranteeing the
    Bailee's obligations under the Plan rather than rent. Esanda's
    Bailment facilities are by nature a form of variable commercial
    loan granted to its dealers and the amounts charged to the
    dealers on their usage of 'bailment' is that of a guarantee fee.
    This is certainly how the payment is characterized by the
    document itself. We refer to Sections 15 and 16 of the
    document. Amounts charged to dealers relating to their usage of
    New (Tax Free) facilities in the books of Esanda (Wholesale)
    Pty. Ltd. (called 'Wholesale' in the documents) are payable to
    Esanda Finance Corporation Limited ('Esanda') by way of a
    Guarantee Fee for Esanda's potential liability as guarantor to
    Wholesale for the dealer's due observance and performance of his
    obligations and indemnities. The fee is calculated on the basis
    of the capital value of the goods from time to time subject to
    the Plan and in effect represents interest on that amount. The
    fee effectively is a fee for guaranteeing the due performance of
    the Bailee's obligations under the Plan. By virtue of the
    abovementioned Clauses of the Plan in effect a gratuitous
    bailment is created and the amounts payable by the Bailee are
payable by way of guarantee fee rather than rent." 20. That passage might be thought to give rise to some difficulty. 21. The first part of the first sentence of the third paragraph is evidence of the manner in which the guarantee fee, as it is described in the Bailment Plan, is calculated. The remaining part of that sentence, after the words "and in effect", and the two sentences which follow must be regarded as descriptive or argumentative only, and cannot govern the construction for present purposes of the agreement and the characterisation of the amounts payable under it. 22. A fee "calculated on the basis of the capital value of the goods" which "in effect represents interest" on that capital value could hardly be described as a "fee or charge calculated" on Esanda or Wholesale's "potential liability" within the meaning of Clause 16. It is only explicable as a calculation "on such other basis" as may have been fixed for the purposes of that Clause and notified to the bailee prior to the delivery of the goods. 23. However, insofar as the solicitors in their letter describe the fee as, "in effect" representing interest on the capital value of the goods, it would seem inappropriate to pay interest, for example, to Wholesale under the Bailment Plan (Taxpaid and Used), when under that Bailment Plan, it is Esanda not Wholesale which is supplying the goods. Bearing that in mind, the manner of calculation of the fee raises the question whether the agreement expresses the real terms of the arrangement between the parties. 24. But beyond making that observation, there is no evidence that the Bailment Plans are shams. Mr Johns for the Commissioner did not so contend. He argued that characterisation of the "guarantee fee" as "rent" within the meaning of s.31 of the Act followed from a proper construction of the agreements, taking them at their face value. He did not attempt to go behind the Bailment Plans to suggest that the true agreement between the parties was other than what was to be found in those documents.The argument supporting the assessment of the Commissioner may be summarised by repeating the opinion of the Commissioner as it is expressed in the case stated:
    "9. I was of the opinion that:
    (a) the transactions entered into under the 'Bailment Plan'
    agreements constitute a rental business within the meaning of
    the Act;
    (b) the 'Bailment Plan' agreements give the Bailee the right to
    use goods for the purpose of the Bailee's business, in the
    relevant sense in which the word 'use' is employed in the Act;
    (c) having regard to the substance of the 'Bailment Plan'
    agreements the 'Guarantee Fee' paid thereunder constitutes rent,
    being moneys received in respect of the use of goods; and
    (d) stamp duty is payable in respect of the said moneys; and
advised the Minister of Finance accordingly." 25. Before me, Mr Johns for the Commissioner amplified those arguments. 26. He contended that, leaving aside certain specific payments such as security deposits and the payments called "curtailments" (see clause 10(c)), the only amount required to be paid is the guarantee fee. He further contended that it was equally clear that without the payment of the guarantee fee there would not be any bailment, because the entering into the guarantee was, as he put it, a fixed condition of the bailment. He suggested, in effect, that the payment of the guarantee fee should therefore be regarded as the consideration for the bailment and hence "rent".In support of that argument he referred to the preamble to the agreements which in the case of the Bailment Plan (Tax paid and Used) reads: "Whereas Esanda may (subject to the guarantee of Wholesale) be prepared to permit the Bailee..." In my opinion that argument, while exhibiting the attraction of simplicity, is wrong. The fact that the bailment is "subject to the guarantee" of one or other of the companies, does not convert a fee for the guarantee into the consideration for the bailment. A financier will commonly agree to lend money subject only to a third person guaranteeing the repayment. If the lender pays someone to provide the guarantee, that does not mean that any such payment can properly be regarded as a repayment of, or consideration for, the loan. 27. However the matter is approached it is difficult to construe the "guarantee fees" as they are described in the agreements, as payments of rent in respect of a rental business, when the goods are owned by another company which is the bailor, rather than by the person receiving the "guarantee fee". 28. Against that view, Mr Johns submitted that "what we really have here is a joint business". In support of that contention, Mr Johns pointed to the fact that the statement lodged under s.31f of the Act was a single statement showing one amount representing the total received by both companies. 29. It is puzzling as to why the companies thought it proper to lodge a single statement, as each of them is registered separately under s.31d, and if the scheme of the Act had been complied with, each would have put in a separate statement.But the fact that they put in a combined statement does not mean that they were carrying on a joint business. To reach a conclusion that the companies were carrying on a joint business one would need to see their accounts, and see how the receipts of the business were accounted for as between them. There is no evidence of that. 30. Mr Johns also referred to the provisions as to "curtailments", to be found in each agreement in Clause 10(c), as indicative of the carrying on of a joint business. I do not read those provisions as lending any support for that proposition. It is true that under both agreements the curtailment fee is paid to Esanda, which is under an obligation to repay when the bailee ceases to be under any liability to either company. In effect Esanda holds monies on behalf of the bailee which it can apply with respect to the bailee's indebtedness to either company. The amount obtained may be applied with respect to any liability arising under Clause 22 of both agreements. 31. The provisions of Clause 10(c) of each agreement prove that the roles of the appellant companies are intertwined, but they do not prove the carrying on of a joint business. Neither do they alter the characterisation of the guarantee fee. Duty was levied on the guarantee fees, not on any monies paid under the description of the "curtailment" within the meaning of Clause 10(c). 32. Mr Johns also referred to Clause 19 which is the same in both agreements and which reads:
    "19. WHOLESALE and Esanda respectively may pay on behalf
    of the other of them any moneys which such other may be bound or
    entitled to pay hereunder. Wholesale and Esanda
    (i) may pay or cause to be paid any moneys payable by the
    Bailee to any third party in respect of any goods and the sum
    paid shall be deemed a debt due by the Bailee to the party
    paying the same or causing it to be paid;
    (ii) are irrevocably authorised to appropriate or set off
    any moneys paid by the Bailee (including any curtailment or
    deposit) or any sum due to him by Wholesale or Esanda as the
    case may be towards any debt or liability owing by him. The
    Bailee also appoints Esanda his agent to receive any moneys
    payable by the Bailee to Wholesale on any account and to pay the
    same respectively to Wholesale. All payments to be made under
    this agreement shall be made to the office of Esanda or
    Wholesale as the case may be in the State in which the address
    of Wholesale appearing hereon is situated and shall only effect
    payment to the extent of cash actually received; the Bailee
    shall indemnify Wholesale and Esanda against and shall pay to
    each of them on demand the amount of the liability of them or
    either of them for any stamp duty or financial institutions duty
    upon moneys received under or pursuant to this agreement or any
transaction under this agreement." 33. I do not read the provisions of that clause as lending support for the view that Wholesale and Esanda should be regarded as carrying on a joint business. On the contrary the words "on behalf of the other of them" appearing in the first sentence is to the contrary. Those words would oblige each company to account to each other with respect to any payments made under that clause for the benefit of the other company. 34. The two agreements clearly lie closely together and they certainly provide for some interaction between the appellants. However, neither agreement, nor any other documents put forward with the case stated, would support the conclusion that the two companies should be regarded as carrying on a joint business. 35. I return then to the question whether or not the receipt by either company of the guarantee fees payable to it under one or other of the agreements should be construed as rent received "in respect of his rental business" within the meaning of s.31f(1)(a). 36. In order so to conclude it would be necessary first to characterise the business conducted under each of the agreements as a business of "letting, bailing or otherwise giving rights to use goods", and if that test was satisfied, one would have to address the question whether it was proper to characterise the payments received as amounts received "in respect of" that business. 37. It is easier to deal with the second question first. Even if the company which owns the goods should be regarded as letting or bailing them or otherwise giving to a dealer rights to use them in the course of a business properly described as a "rental business" within the meaning of the Act, I do not see how it is possible to characterise the amounts received by the other company as amounts received by it as a receipt of monies "in respect of his or her rental business". "His or her rental business" can only refer to the rental business of the company which is "letting, bailing or otherwise giving rights to use" the goods in question. The guarantee payments in the case of each agreement are made to the other of the two companies concerned. It follows that they are not payments which can come within the ambit of s.31f. 38. That conclusion is sufficient to dispose of the appeal, but in deference to counsel, I will deal briefly with the other arguments which were put. 39. As to the first question referred to above, Mr Whitington of counsel for the appellants advanced an interesting argument based on the fact that the agreements are obviously carefully drawn in an endeavour to exclude any right on the part of the dealers to "use" any of the vehicles (see Clauses 7(b) and 10(a), to which I have already referred). 40. Mr Whitington argued that the words "letting, bailing or otherwise giving rights to use" where they appear in the definition of "rental business" in s.31b connote what he described as an "active" rather than a "passive" use. While perhaps differing from an ordinary contract of consignment, he suggested that the agreements were a form of floor plan and the vehicles should be regarded as, in effect, being on consignment for sale. If the vehicles were simply to be left on display and could not, for example, be driven even on a test drive without breaching the agreements, there is (so his argument went) no right to "use" the vehicles within the meaning of the definition of rental business. 41. However, if under the agreements the possession of the goods by the bailee clearly entitled the bailee to deal with the goods in a manner which involved a use of the goods within the meaning of the section, it would not avail the parties to attempt to avoid a proper characterisation of the dealing with the goods as a "use" of the goods, by the insertion of contractual provisions of the kind to be found in Clauses 7 and 10. It is the substance rather than the form of the transaction which is all important (see S.A Crate Pty. Ltd. v State of South Australia (1983) 35 SASR 92 per Walters J at page 99). 42. The word "use" is a word of wide import. In one sense dealers in ordinary parlance are "using" a vehicle for display if it is put in their showroom. A museum may pay a rent or fee for the right to place a particular vehicle on display. A film company may hire a luxury car from a car rental firm, simply as a static backdrop to a film. I see no reason why such arrangements, if otherwise within the statutory provisions, might not be within the Act. Those illustrations demonstrate that what Mr Whitington described as a distinction between "active" and "passive" use, is not a distinction which is of any assistance to apply in determining whether a particular activity is within the definition of "rental business" in the Act. 43. However, the situation becomes more complicated when the vehicle is not held simply for the purpose of display, but as part of the trading stock of the bailee in a contract more closely approximating to a placing of the goods with the dealer on consignment. In such a case, and in a case such as the present, while the "use" of the goods given by the bailor is a use which is capable of coming within the meaning of that word in the definition of "rental business", it does not follow that the giving of such a use constitutes the conduct of a "rental business" within the meaning of the Act. 44. On the contrary, if the business being conducted is that of a financier, for example, or that of a wholesaler of goods, the "giving of rights to use" the goods to a retailer for the purpose of sale, does not mean that the business, or an aspect of the business, becomes a "rental business". If the "giving of the rights to use", albeit for a fee charged for that use, is merely an incidence of the business of a financier or wholesaler in arranging the disposal of goods, I doubt that it could properly be said that the financier or wholesaler is conducting a "rental business" within the meaning of the Act. Where the commercial objective of the transaction is the sale or disposal of the goods, it would be a strained, and in my view, wrong process of construction to characterise the incidental bailment of the goods as the carrying on of a rental business, even allowing for the wide definition of those words to be found in the Act. 45. I do not think that the legitimacy of those observations is affected by the presence of the words in s.31d "whether or not he also carries on any other business". The question upon which attention must focus is whether the business in respect of which the "rent" alleged to be dutiable is received, is properly to be construed as a "rental business", whether or not it is carried on in conjunction with another business. 46. Mr Whitington further contended that if the payments in question were not properly to be regarded as payments made in consideration of the guarantee, they should be characterised as payments of interest, rather than payments in respect of a rental business. He went on to point out that although payments of interest were at one time within the provisions of the Act, they ceased to be dutiable by reason of the Stamp Duties Amendment Act (No. 2) of 1983, which came into operation on 1 January 1984. 47. I am inclined to agree that if anything, the payments have the character of payments of interest rather than the character of "rent" in respect of a "rental business". It is unnecessary however, and probably an impossible task to find a label to describe the payments in terms which will answer to ordinary commercial usages such as "rent" or "interest". 48. It is sufficient to dispose of the matter to find, as I do, that the appellants were not conducting a "rental business" within the meaning of the Act, that there was therefore no receipt of "rent" in respect of a rental business, and that even if the circumstances otherwise amounted to the conduct of a rental business, payments were not made to the company conducting the rental business, and therefore could not for that reason alone be characterised as rent received in respect of that business within the meaning of s.31f. 49. The questions in the case stated should be answered as follows: (1) No.

(2) No. 50. The appeal should be allowed and there should be an order quashing the assessments and substituting an assessment that the payments do not attract duty under the Act. 51. I will hear counsel as to the form of the order and as to costs.