Qantas Airways Limited v Commissioner of Taxation
[2011] FCAFC 113
•1 September 2011
FEDERAL COURT OF AUSTRALIA
Qantas Airways Limited v Commissioner of Taxation [2011] FCAFC 113
Citation: Qantas Airways Limited v Commissioner of Taxation [2011] FCAFC 113 Appeal from: Qantas Airways Limited v Commissioner of Taxation [2010] AATA 977 Parties: QANTAS AIRWAYS LIMITED v COMMISSIONER OF TAXATION File number: NSD 1842 of 2010 Judges: STONE, EDMONDS AND PERRAM JJ Date of judgment: 1 September 2011 Catchwords: GOODS AND SERVICES TAX – domestic airline travel – what is the taxable supply, if any, where passenger has paid the fare but cancels the reservation or does not present for carriage and no refund is available or claimed – the reservation or the failed flight?
Held: the failed flight and therefore no taxable supply.
Legislation: A New Tax System (Goods and Services Tax) Act 1999 (Cth) ss 9-5, 9-10
Administrative Appeals Tribunal Act 1975 (Cth) s 44
Cases cited: Commissioner of Inland Revenue v New Zealand Refining Co Ltd (1997) 18 NZTC 13,187 cited
Commissioner of Taxation v Reliance Carpet Co Pty Limited (2008) 236 CLR 342 distinguished
MacRobertson Miller Airline Services v Commissioner of State Taxation (Western Australia) (1975) 133 CLR 125 referred to
Re AGR Joint Venture and Federal Commissioner of Taxation (2007) 70 ATR 466 followed
Saga Holidays Ltd v Commissioner of Taxation (2005) 149 FCR 41 followed; on appeal (2006) 156 FCR 256 referred to
Travelex Ltd v Commissioner of Taxation (2010) 241 CLR 510 referred toWestley Nominees Pty Ltd v Coles Supermarkets Australia Pty Ltd (2006) 152 FCR 461 cited
Date of hearing: 24 May 2011 Place: Sydney Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 60 Counsel for the Applicant: Mr RC Cordara SC and Ms CO Gleeson Solicitor for the Applicant: PricewaterhouseCoopers Counsel for the Respondent: Mr J Hmelnitsky and Ms CA Burnett Solicitor for the Respondent: ATO Legal Services
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
NSD 1842 of 2010
ON APPEAL FROM THE ADMINISTRATIVE APPEALS TRIBUNAL
BETWEEN: QANTAS AIRWAYS LIMITED
ApplicantAND: COMMISSIONER OF TAXATION
Respondent
JUDGES:
STONE, EDMONDS AND PERRAM JJ
DATE OF ORDER:
1 SEPTEMBER 2011
WHERE MADE:
SYDNEY
THE COURT ORDERS THAT:
1.The appeal be allowed.
2.The decision of the Administrative Appeals Tribunal in [2010] AATA 977 be set aside.
3.The objection decision of the respondent dated 9 October 2009 be set aside.
4.The applicant’s notice of objection dated 31 July 2009 be allowed in full.
5.The respondent pay the applicant’s costs of the appeal.
Note:Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
NSD 1842 of 2010
ON APPEAL FROM THE ADMINISTRATIVE APPEALS TRIBUNAL
BETWEEN: QANTAS AIRWAYS LIMITED
ApplicantAND: COMMISSIONER OF TAXATION
Respondent
JUDGES:
STONE, EDMONDS AND PERRAM JJ
DATE:
1 SEPTEMBER 2011
PLACE:
SYDNEY
REASONS FOR JUDGMENT
STONE J:
I have had the advantage of reading, in draft, the judgment of Edmonds and Perram JJ. I agree with their Honours’ orders and the reasons for those orders.
I certify that the preceding one (1) numbered paragraph is a true copy of the Reasons for Judgment herein of the Honourable Justice Stone. Associate:
Dated: 1 September 2011
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
NSD 1842 of 2010
ON APPEAL FROM THE ADMINISTRATIVE APPEALS TRIBUNAL
BETWEEN: QANTAS AIRWAYS LIMITED
ApplicantAND: COMMISSIONER OF TAXATION
Respondent
JUDGES:
STONE, EDMONDS AND PERRAM JJ
DATE:
1 SEPTEMBER 2011
PLACE:
SYDNEY
REASONS FOR JUDGMENT
EDMONDS AND PERRAM JJ:
INTRODUCTION
This is an appeal from a decision of the Administrative Appeals Tribunal (‘Tribunal’) ([2010] AATA 977) that decided goods and services tax (‘GST’) is payable where a person books and pays for domestic air travel with the applicant (‘Qantas’) or its subsidiaries including Jetstar Airways Pty Limited (‘Jetstar’) (collectively ‘Qantas’) but subsequently cancels the booking, or does not turn up for the flight, and does not receive a refund either because, under the terms of the contract, no refund was available or, although it was available, it was simply not claimed.
The Decision Below
The ultimate issue, which the Tribunal answered in the affirmative, was whether, in the circumstances outlined in [2] above, Qantas is making a ‘taxable supply’ for the purposes of s 9-5 of A New Tax System (Goods and Services Tax) Act 1999 (Cth) (‘GST Act’).
The Tribunal began its consideration and determination of this ultimate issue by first considering the Qantas Conditions of Carriage as at September 2008 to determine an anterior issue; whether the arrangements between Qantas and passengers prior to travel are contractual, and if they are, what are the terms of the contract? Tribunal’s Reasons (‘Reasons’) [4]. The Tribunal came to the conclusion that the correct view of the Conditions of Carriage was that they gave rise to a contract enforceable at law between Qantas and each passenger: Reasons [9]: cf MacRobertson Miller Airline Services v Commissioner of State Taxation (Western Australia) (1975) 133 CLR 125.
The Tribunal then proceeded to consider, in the circumstances outlined in [2] above, whether there had been a ‘supply’. In doing so, the Tribunal proceeded to consider first whether there was a ‘supply’ within subs 9-10(2) of the definition, specifically paras (e) and (g), and only then as to whether there was a ‘supply’ within the ordinary meaning of the word. It is not easy to understand why the Tribunal adopted this approach. At Reasons [13] it said it did so because the United Kingdom VAT legislation did not define a supply of services to include an obligation to provide them or a right to have them; that, accordingly, the United Kingdom cases are concerned more with the ordinary meaning of supply, which will determine the issue; and that, in Australia, it seems appropriate first to address a precise statutory definition. It did not say why the United Kingdom VAT legislation was relevant, nor did it refer to any United Kingdom cases and, with respect, the Tribunal’s approach seems to us to be back to front.
Nevertheless, the Tribunal found that a contract existed between Qantas and each passenger that creates rights (s 9-10(2)(e)) and involves entering into obligations ‘to do anything’ (s 9-10(2)(g)): Reasons [9]. It further found that the time of the creation of the rights and the entering into of the obligations will generally be at the time, or shortly after, a reservation is made, certainly no later than the time of payment (Reasons [9]). In consequence, that there is a supply within the statutory definition attracting GST on an airline reservation where the passenger is not carried as the result of a cancellation or the passenger not attending to travel, assuming no refund is made to the passenger: Reasons [19].
It further said that in approaching the question of whether there was a supply by referring to s 9-10(2)(e) and (g) it was acting consistently with the approach taken by the High Court in Commissioner of Taxation v Reliance Carpet Co Pty Limited (2008) 236 CLR 342 at 346, 347 and 355.
The Tribunal then proceeded to consider whether, in the circumstances outlined in [2] above, there was a ‘supply’ within the ordinary meaning of the word and found that what Qantas has done for such a passenger, and in return for the ‘fare’ that the passenger has paid, is holding itself ready in accordance with its Conditions of Carriage (not a particular flight at a particular time or in a particular seat) to carry the passenger and his baggage and to avoid delay in doing so; according to the Tribunal, that ‘holding itself ready’ is a sufficient service to give rise to the imposition of GST: Reasons [24]. Under this alternative, there is a supply of services within s 9-10(2)(b): Reasons [26].
The Tribunal came to the conclusion and made the findings referred to in [4] to [8] above in the face of, and despite, certain other findings, namely:
(1)There never was a supply of the service represented by the actual carriage of the passenger, although that was ‘obviously’ the purpose of each reservation: Reasons [10];
(2)that the acts of recording the reservation and processing it towards preparation for check-in and seat allocation would never be provided except as part of the passenger’s desire, at the time of reservation, to travel: Reasons [23].
THE APPEAL TO THIS COURT
At the heart of Qantas’ case is the simple proposition that the air journey was the supply in contemplation, it did not occur, and therefore no supply occurred; as such no GST liability was, in the event, triggered.
Qantas claims that the Tribunal misconstrued s 9-5 of the GST Act, including the requirement in s 9-5(a) to correctly identify the ‘supply for consideration’.
According to Qantas, the Tribunal’s finding is contradicted by its findings that:
(1)The actual travel is the purpose of the transaction (and, by logical inference, the actual travel is what the passenger paid their fare for); and
(2)acts related to the holding out and preparation of travel are not provided (i.e. supplied) to the customer except as part of the prospective travel, if and when taken.
Further, Qantas complained that the Tribunal ignored the clear distinction drawn in its objection and submissions between those fares that were fully refundable and those that had restrictions on the payments of refunds (non-refundable). According to Qantas, on proper consideration of the fully refundable fares, it would not have been open for the Tribunal to conclude, as it did, that pre-paid fully refundable fares were consideration for the act, by Qantas, of holding itself out to carry the passenger. This was so for the simple reason that the passenger was entitled to a full refund of the pre-paid fare where the actual travel was not provided. Qantas has only been left with the money due to the failure of the passenger to reclaim it. Qantas contends that one cannot retrospectively spell out consideration for a supply from the absence of a restitutionary claim for the refundable price of a non-supply.
In the alternative, Qantas took issue with the Tribunal’s observation at Reasons [16] that the circumstances before the High Court in MacRobertson Miller are distinguishable from the facts of this case. It argued that in MacRobertson Miller, as is the case with Qantas, the airline had the right to cancel the ticket or booking of any passenger; the ‘contingencies of airline operation’ the subject of Barwick CJ’s observations in MacRobertson Miller (at 134) exist today, and consistently the Tribunal found that Qantas does not hold itself ready to carry on a particular flight at a particular time or in a particular seat. Since the similarity between Qantas and Jetstar’s terms and conditions were those considered by the High Court in MacRobertson Miller, Qantas contended that the Tribunal erred in failing to follow the decision. Had it followed the decision there was no basis for finding that an enforceable agreement existed between passengers and Qantas at the time of making a reservation and booking; there was merely a prepayment of the fare in the expectation of a future supply of domestic travel.
Despite a faint hint to the contrary at the conclusion of the Commissioner’s written submissions, which was not pressed or expanded upon in oral argument, there is no issue that the appeal raises a question of law, indeed questions of law, sufficient to attract the jurisdiction of the Court under s 44 of the Administrative Appeals Tribunal Act 1975 (Cth).
BACKGROUND
At all relevant times Qantas sold domestic air travel, subject to terms and conditions of carriage as published by Qantas from time to time.
Relevantly, pursuant to the fare rules:
(1)There were pre-paid fares which were fully refundable – these included Business Class and Fully Flexible fares pre-paid on Qantas, and JetFlex fares pre-paid on Jetstar. In respect of Fully Flexible and Business Class fares, the passenger was entitled to a full refund of the pre-paid fare in the event of a cancellation or a no-show (i.e. the passenger failed to board the flight). Similarly, in respect of JetFlex fares pre-paid from on or about 26 July 2006, the passenger was entitled to a full refund of the pre-paid fare in the event of a cancellation or a non-show, provided the refund was sought on the day the flight was scheduled; and
(2)in respect of other fares, the fare rules allowed the booking to be cancelled and the pre-paid fare to be applied as a credit for travel on Qantas within the next twelve months. There were no restrictions as to which entity or type of travel the credit could be applied. It follows, as Qantas and Jetstar offer both domestic and international flights, the future credit could be used for actual travel that was taxable or GST-free. Similarly, as flights are operated by Qantas and its related subsidiaries, the pre-paid fare could be applied to actual air travel supplied by an entity different from the entity with which the initial reservation was made.
On 30 June 2008, Qantas lodged a GST refund notification with the respondent (‘Commissioner’) for GST that it says was incorrectly paid by it in respect of pre-paid fares for unused travel i.e. pre-paid fares for travel where the passenger failed to board, or where the passenger cancelled their booking and was not entitled to or failed to claim a refund of the pre-paid fare.
On 11 June 2009, the Commissioner issued Qantas with notices of assessment for the tax periods May 2006 to July 2006 inclusive and September 2006 to June 2008 inclusive. The net amount in each assessment includes GST paid by Qantas in respect of the disputed pre-paid fares. By letter dated 31 July 2009 Qantas lodged its objection to the assessments for tax periods July 2000 to June 2008 (inclusive).
On 9 October 2009, the Commissioner also gave to Qantas a notice of decision on objection including reasons for the decision, whereby the Commissioner disallowed Qantas’ objection to the assessments in full.
On 17 November 2009, Qantas filed an application with the Tribunal for review of the Commissioner’s decision disallowing the objection. The Tribunal affirmed the Commissioner’s decision.
LEGISLATIVE FRAMEWORK
Section 7-1 of the GST Act provides that ‘GST is payable on *taxable supplies and *taxable importations’.
Section 9-5 relevantly provides that ‘[y]ou make a taxable supply if … (a) you make the supply for *consideration …’.
‘Supply’ is defined in s 9-10 in terms which include the following:
‘(1) A supply is any form of supply whatsoever.
(2) Without limiting subsection (1), supply includes any of these:
(a) a supply of goods;
(b)a supply of services;
…
(e) a creation, grant, transfer, assignment or surrender of any right;
…
(g)an entry into, or release from, an obligation:
(i) to do anything; or
(ii) to refrain from an act; or
(iii) to tolerate an act or situation;
(h)any combination of any 2 or more of the matters referred to in paragraphs (a) to (g).’
Section 9-15 relevantly provides:
‘(1) Consideration includes:
(a)Any payment, or any act or forbearance, in connection with a supply of anything; and
(b)Any payment, or any act or forbearance, in response to or for the inducement of a supply of anything.
(2)It does not matter whether the payment, act or forbearance was voluntary, or whether it was by the *recipient of the supply.’
In its notice of appeal, Qantas raised grounds relating to the Tribunal’s failure to have regard to the impact its conclusions would have on the proper operation of Div 19 (grounds (t) and (u)). Relevantly, ss 19-10 and 19-40 provide:
‘19-10 Adjustment events
(1)An adjustment event is any event which has the effect of:
(a) cancelling a supply or acquisition; or
(b)changing the *consideration for a supply or acquisition; or
(c)causing a supply to acquisition to become, or stop being, a *taxable supply or *creditable acquisition.
…
19-40Where adjustments for supplies arise
You have an adjustment for a supply for which you are liable to pay GST (or would be liable to pay GST if it were a *taxable supply) if:
(a)in relation to the supply, one or more *adjustment events occur during a tax period; and
(b)GST on the supply was attributable to an earlier tax period (or, if the supply was not a taxable supply, would have been attributable to an earlier tax period had the supply been a taxable supply); and
(c)As result of those adjustment events, the *previously attributed GST amount for the supply (if any) no longer correctly reflects the amount of GST (if any) on the supply (the corrected GST amount), taking into account any change of circumstances that has given rise to an adjustment for the supply under this Subdivision of Division 21 or 134.’
THE COMMISSIONER’S CASE ON THE APPEAL
On the hearing of the appeal, the Commissioner sought to defend the Tribunal’s decision by reference to his answer to what he submitted was the only relevant question: was there a taxable supply when payment of the fare was made? And his answer to that question was: ‘Yes, there was’; what the passenger got for payment of the fare was the reservation; the reservation was the supply and the fare was the consideration.
According to the Commissioner, it did not matter that the supply that was identified by the Tribunal was of a different character from the supply that might have been intended by the parties and it did not matter that if things had gone differently and if the contract had been performed in a different way, that people would reach a different conclusion about what the character of that supply was. The point of the Tribunal’s finding, which the Commissioner submitted was right, was that there was a supply by Qantas when it took payment for the booking.
Moreover, the Commissioner submitted that while there may have been other supplies, there was only a single supply for consideration at the time when payments were made, and that was the supply of the reservation. Put another way, while the fare would cover the flight assuming someone turned up and presented their ticket, the payment only secured the reservation.
Counsel for the Commissioner sought to support this submission by reference to the Jetstar Conditions of Carriage, in particular, cl 5.5 headed: ‘Paying for your Booking’. According to the Commissioner, it is the booking that is paid for; the Conditions provide that the fare paid merely ‘covers’ the flight (see cl 5.1). We note here that, in a number of respects, the terms of the Qantas Conditions of Carriage are different; the importance, if any, of that difference is a matter considered below.
The Commissioner referred to the judgment of the High Court in Reliance Carpet at [5], [12], [13] and [33] in support of his submission that the fact that the parties bargain for an outcome which does not come to pass does not mean that nothing was supplied. So much may be accepted, but as that case manifestly illustrates, it all depends on the subject matter of the contract (in that case a contract for the sale of real property), the taxable event (in that case, forfeiture of a deposit to the taxpayer upon its rescission of the contract upon default by the purchaser) and the legislative context (in that case, in addition to those provisions of the GST Act referred to in [22] to [25] above, Div 99 dealing with deposits taken as security for an obligation).
ANALYSIS
Conditions of Carriage
Qantas
As noted in [4] above, the Tribunal began its consideration and determination of the ultimate issue, namely, that in the circumstances outlined in [2] above, Qantas is making a taxable supply for the purposes of s 9-5 of the GST Act, by first considering the Qantas Conditions of Carriage as at September 2008. At Reasons [3] it set out significant parts of these conditions, which the Court was told, on the hearing of the appeal, were in substance the same for Jetstar travel. Those that it set out were as follows:
‘1. Definitions of Expressions Used
…
Conditions of Carriage means these General Conditions of Carriage and includes the conditions of contract or terms and conditions of carriage set out in your Ticket
…
Electronic Ticket means the electronic booking record made by us or an Authorised Agent, which is held in our database
…Flight Coupon means either that part of the Ticket that reads “good for passage” or, in the case of an electronic ticket, the record in our database that indicates the particular places between which you are entitled to be carried
…
Passenger means any person with a Ticket who is carried or is to be carried on an aircraft, except members of the crew
…
Ticket means either the document entitled “Passenger Ticket and Baggage Check” or the electronic ticket issued by us or an Authorised Agent on behalf of us and includes all printed terms, conditions and notices. It also includes any other tickets issued in conjunction with the first ticket which together constitute a single contract of carriage
…
2. When These Conditions Of Carriage Apply
…
2.3 Basis of Carriage
The carriage of a Passenger on any flight by Qantas under the QF or AO Airline
Designator Code is, without exception, subject to:•these Conditions of Carriage
•any applicable Tariffs filed by us with regulatory bodies
•the Convention, Australian laws and/or New Zealand laws, as applicable, and any other applicable laws
•any specific directions given to a Passenger in writing, or orally by our staff, and
•the fare rules or Qantas Frequent Flyer Award redemption rules, as applicable
…
4. Reservations
4.1 When is a Reservation Made?
A reservation for a flight is made when recorded as accepted and confirmed by us or an Authorised Agent. If you ask, we or our Authorised Agent will give you written confirmation of your reservation.
4.2 Specified Reservation
You will only be allowed to travel if you have a specified reservation, in a specified class of service and on a specified date and flight (subject to 10). If your ticket is open-dated you will need to make a reservation prior to being allowed to travel.
…
4.5 Changes to Reservations
Some fare types may be restricted so that you:
• cannot change or cancel any reservation, or
• may request to change any reservation only to a limited extent, or•may request to change any reservation only by paying the applicable additional service fee or change fee (note: Qantas may increase fees from time to time, by giving at least one month’s notice of any such change by updating the applicable fare guide on qantas.com).
…
4.6If you are Late or Do Not Show Up for Your Flight
If you are late (see 8.2 and 8.4) or for any other reason fail to use a seat for which a reservation has been made, and you do not notify us in advance, then unless the fare rules say otherwise, we may:
•require you to pay a service fee for our reasonably incurred administration costs of proceeding your reservation
• cancel any onward and return reservations, and
•allocate the seat for that reservation to someone else
or,
•recalculate the fare and ask you to pay the fare for your actual transportation (or refund you any difference if your fare is refundable, less any applicable service fees).
If you notify us in advance that you will not show up for the flight, we will not cancel your subsequent flight reservations.
…
6. Tickets
6.1 Ticket Essential
Your ticket is the main evidence of our contract with you, so even though you have a reservation for a flight, you may not board that flight without first obtaining a boarding pass by either:
•presenting at check-in a valid and intact ticket issued in your name and containing the flight coupon for that flight, all other unused flight coupons (including the Passenger Coupon) in that ticket and any photo or other identification requested, or
•where a valid electronic ticket has been issued in your name, checking-in and presenting photo identification (passport or Australian driving licence).
A valid ticket/electronic ticket is one issued by us or an Authorised Agent and in respect of which the appropriate fare has been paid.
…
6.6 Ticket Validity
…
Travel wholly within Australia or wholly within New Zealand – unless the ticket provides otherwise, a ticket for Domestic carriage within Australia or within New Zealand is valid for one year from the date of issue of the ticket.
…
9. Schedules, Late or Cancelled Flights
9.1 Schedules
(a) The flight time shown on your ticket may change between the date of issue and your date of travel. We do not guarantee the flight times and they do not form part of your contract of carriage with us.
…
(c)If, after you buy your ticket, we make a significant change to the scheduled departure time of your flight:
• and you find this change unacceptable; and
•we or our Authorised Agents cannot book you on another flight which you are prepared to accept
Then, we will give you a fare refund (to the extent that the purchase price paid for the fare exceeds our reasonably incurred administration costs) or a credit for the non- refundable part of the fare for future travel with us.
9.2 Late or Cancelled Flights (Except in Circumstances Beyond Our Control)
We will take all reasonable measures necessary to carry you and your baggage and to avoid delay in doing so. In doing so and in order to prevent a flight cancellation, in exceptional circumstances we may arrange for a flight to be operated on our behalf by an alternative carrier and/or aircraft.
Except:
• as otherwise provided by the convention or other applicable laws, or
•in circumstances where the delay or cancellation is beyond our control (e.g. bad weather, runway closure, air traffic control issues)
If we:
• cancel a flight
• fail to operate a flight reasonably according to the flight schedule
• fail to stop at your destination or stopover destination, or•cause you to miss a connecting flight on your ticket on which you hold a confirmed reservation,
you can choose one of the following three options:
Option 1 – we will carry you at the earliest opportunity on another of our scheduled services on which space is available without additional charge and, where necessary, extend the validity period of your ticket.
Option 2 – we will within a reasonable period of time re-route you to the destination shown on your ticket by our own services or those of another carrier, or by other mutually agreed means (e.g. by bus) and class of transportation, without additional charge. If the fare and charges for the revised routing are lower than what you have paid, we shall refund the difference, or
Option 3 – we will make a refund in accordance with the provisions of 13.
Subject to the provisions of 6.9 and 9.1 above, these shall be the only remedies available to you and we shall have no further liability to you unless otherwise specified by the convention or any applicable laws.
9.3 Late or Cancelled Flights Due to Circumstances Beyond Our Control
Where the delayed or cancelled flight is as a result of circumstances beyond our control, whether you have checked in or not, we will try to assist you to get to your destination or next stopover, but subject to the provisions of 6.9 will not otherwise be responsible for refunding a non-refundable airfare (see 3.3), or paying any costs or expenses you may incur as a result of the delay except as otherwise provided in the convention or any applicable laws.
10.Refusal of Carriage/Denied Boarding
10.1 Refusal of Carriage
Even if you have a ticket and a confirmed reservation, we may refuse to carry you and your baggage if any of the following circumstances have occurred or we reasonably believe will occur:
•if carrying you or your baggage may put the safety of the aircraft or the safety or health or any person in the aircraft in danger or at risk
•if carrying you or your baggage may materially affect the comfort of any person in the aircraft
…
10.3 Overbooked Flights - Denied Boarding Compensation
If you are denied boarding on an overbooked scheduled international flight for which you have both ... ticket and a confirmed reservation, and you have presented at check-in by the check-in deadline, then depending on the difference between your original scheduled arrival time and your actual arrival time, you may be eligible for compensation.
…
13. Refunds
13.1 When a Refund is Available
(a) Except where prohibited by restrictions on the fare type or value, if you:
• have a valid, partly or wholly unused ticket, and
• surrender all of that ticket to usthen on request, we will provide a refund as set out in 13.2 provided that the purchase price paid for the fare exceeds our reasonably incurred administration costs.
(b) Additionally, if we:
• are unable to carry you and you have a confirmed reservation
• delay your flight to the extent that you have to cancel your travel•make a significant change to the scheduled flight time, which is not acceptable to you and we are unable to book you on an alternative flight which is acceptable to you
• downgrade you from the class paid for
• fail to stop at a stopover or the destination specified on your ticket•cause you to miss a connecting Qantas flight on which you have a confirmed reservation
• cancel your flight, or
• the circumstances of 6.4 applythen on request, we will provide an appropriate refund, which shall, except as otherwise provided in these Conditions of Carriage, be the maximum extent of our liability.
…
13.7 Deadline for Refunds
Unless an applicable law says otherwise, we may refuse to provide a refund if it is requested after the end of the Validity Period.’
The Tribunal did not reproduce the following conditions which, in our view, are equally significant.
‘4.3 Ticketing Time
Once you make a reservation, you or someone on your behalf must pay for the ticket before the specified ticketing time, as advised by us or an Authorised Agent (see 5.5). If payment is not received on or before the specified ticketing time, we may cancel your reservation.
…
4.7Seating Selection and Allocation
Though we will try to accommodate your seating need or choice, we do not guarantee you any particular seat. We can change your seat at any time, even after you have boarded the aircraft, as we may need to do this for operational, safety or security reasons.
…
5.Fares
5.1What Your Fare Covers
Your fare covers the flight(s) for you and your Baggage Allowance:
• from the airport at the place of departure specified on your ticket
• to the airport at the place of destination specified on your ticket…
5.5Buying Your Ticket
To buy your ticket you or someone on your behalf must pay:
• the applicable fare
• any other applicable fees or charges, and
• all taxes imposed by governments (see 5.7)…
6.3Ticket is a Valuable Document
You should treat your ticket as a valuable document and take all necessary precautions to prevent it being damaged, lost or stolen. If your ticket is lost or stolen, you should notify us and, if away from home, the police as soon as possible.
…
6.6Ticket Validity
…
Travel wholly within Australia or wholly within New Zealand – unless the ticket provides otherwise, a ticket for Domestic carriage within Australia or within New Zealand is valid for one year from the date of issue of the ticket.’
Jetstar
Nor did the Tribunal reproduce the Jetstar Conditions of Carriage as at February 2008, although they were relied on by the Commissioner in his oral submissions on appeal (see [30] above). The terms differ in a number of respects, relevantly in respect of conditions 2, 4, 5 and 6. Condition 4 is headed ‘Bookings’ not ‘Reservations’. Clauses 2.3, 4.1 and 4.2 of the Jetstar Conditions of Carriage correspond with cll 2.3, 4.1 and 4.3 of the Qantas Conditions of Carriage and provide:
‘2. WHEN THESE CONDITIONS OF CARRIAGE APPLY
…
2.3 Basis of carriage
The carriage of a Passenger on any flight by Jetstar is, without exception, subject to:
• a Booking
•these Conditions of Carriage and the Key Conditions of Carriage set out in your Itinerary and Tax Invoice
•applicable laws which may include the Civil Aviation (Carrier’s Liability) Act 1959 (Australia) and any international Conventions that may apply to the journey in question
•any applicable Tariffs filed by us with regulatory bodies;
•any specific directions given to a Passenger in writing, or orally by Jetstar staff and
•the fare rules and conditions or Frequent Flyer Award redemption rules, as applicable.
In the event of any inconsistency between the Conditions of Carriage and the Key Conditions, the Conditions of Carriage will prevail.
…
4. BOOKINGS
4.1When is a Booking made?
A Booking for a flight is made when recorded as accepted and confirmed by Jetstar or an Authorised Agent. If you ask, we or our Authorised Agent will give you written confirmation of your Booking. We do not accept any responsibility for any loss you may incur as a result of making arrangements for travel on Jetstar through anyone other than Jetstar or its Authorised Agent
4.2Payment essential
Even if you have a Booking for a flight, if Jetstar has not received your payment you will not be carried.’
Condition 5 headed ‘Fares’ corresponds with condition 5 of Qantas. Clauses 5.1 and 5.5 correspond with cll 5.1 and 5.5 of Qantas and provide:
‘5. FARES
5.1What your fare covers
Your fare covers the flight(s) for you and your applicable Baggage Allowance:
• from the airport at the place of departure specified in your Booking
• to the airport at the place of destination specified in your Booking.…
5.5Paying for your Booking
You or someone on your behalf must pay for your Booking, which means the payment must be made for:
• the applicable fare
• any other applicable surcharges, fees or taxes, and•any applicable amounts relating to changes to your Booking, which may include change fees and fare differentials.
Condition 6.2(a) of Jetstar provides:
‘6. CHANGES
…
6.2Booking and travel dates
(a) No open Bookings
Unless the fare rules provide otherwise, you cannot hold an open Booking. Your Booking must be for travel on a specific flight.’
Conclusions on Conditions of Carriage
Reading these conditions in context, the following conclusions may be drawn:
(1)A person can make a reservation (Qantas) or Booking (Jetstar) without making any payment, but: if Qantas has not received payment for the ticket on or before the specified ticketing time, Qantas may cancel the reservation [Q 4.3] and, in consequence, travel will not be allowed [Q 4.2]; and, if Jetstar has not received payment, the person will not be carried, even if they have a Booking [J 4.2].
(2)A person buys a Qantas ticket by paying the applicable fare, applicable fees or charges and all government taxes [Q 5.5]; a person does not buy, but only makes a Qantas reservation [Q 4.1]; a person both makes [J 4.1] and pays for a Jetstar Booking by paying the applicable fare, applicable surcharges, fees or taxes, and any applicable amounts relating to changes to the Booking [J 5.5].
(3)The fare covers the flight for the person and the person’s Baggage Allowance from the airport at the place of departure specified on the Ticket (Qantas)/in the Booking (Jetstar) to the airport at the place of destination specified on the Ticket (Qantas)/specified in the Booking (Jetstar) [Q and J 5.1].
(4)A person may purchase a Qantas ticket without a reservation (an open-dated ticket), but the person will not be able to travel until the person makes a reservation in a specified class of service and on a specified date and flight [Q 4.2]. With Jetstar, a person cannot hold an open Booking [J 6.2(a)].
(5)With Qantas, a person cannot fly without making a specified reservation, in a specified class of service and on a specified date and flight [Q 4.2]; with Jetstar, a person cannot travel without a Booking on a specific flight [J 6.2(a)].
One of the difficulties with Qantas’ argument that there was no contract between Qantas and a passenger until the passenger presented his or herself for boarding with a ticket/boarding pass is the terms of cl 6.1 of the Qantas Conditions of Carriage which acknowledges that the ticket is ‘the main evidence of our contract with you’. If there is a contract, as the Tribunal found, then it was the wording of: ‘A reservation for a flight’ [Q 4.1], or: ‘A Booking for a flight’ [J 4.1] by which that contract was entered into or made. In the case of Qantas, the ‘ticket’ is no more than ‘the main evidence of [that] contract’ [Q 6.1]. In short, under the Conditions of Carriage in both, while a person can only fly if they have entered into a contract for a flight, the person will not be carried unless the fare has been paid. This would suggest that, contractually at least, the fare has a connection or ‘linkage’ (see Commissioner of Inland Revenue v New Zealand Refining Co Ltd (1997) 18 NZTC 13,187 at 13,193 per Blanchard J) with the flight rather than with the entry into the contract (the making of the reservation or the Booking).
The continuing analysis proceeds on the premise that a passenger entered into a contract with Qantas at the time of making the reservation (Qantas)/Booking (Jetstar), as the Tribunal found. If that premise is wrong, then it merely fortifies our conclusion, based on the analysis which follows, that the Tribunal’s decision is equally wrong.
The Identification of the Relevant Supply as the Taxable Supply
As the High Court said in Reliance Carpet at [5]:
‘The composite expression “a taxable supply” is of critical importance for the creation of liability to GST. In the facts and circumstances of a given case there may be disclosed consecutive acts each of which answers the statutory description of “supply”, but upon examination it may appear that there is no more than one “taxable supply”.
Consistent with this statement, and as noted in [29] above, the Commissioner eschewed reliance on multiple taxable supplies and contended that while there may have been other supplies, there was only one ‘taxable supply’ and that was the entering into the contract (the making of the reservation). Qantas likewise put its case on the basis that there was only one taxable supply in contemplation, namely, the flight, and that failed. It did, however, embrace a fall-back position that if the entering into the contract was a relevant supply, it was not the only ‘taxable supply’; there were other ‘taxable supplies’, including the flight, and the matter would have to go back to the Tribunal for a fact-finding determination of what they were and the allocation of the consideration (the fare) among them. This was, however, very much a fall-back position.
Statutory mandate aside, the task of identifying, in a given case, the ‘taxable supply’ among consecutive acts of supply cannot be a function of, or dependent upon, the failure of an outcome which, if it had not failed, would have been the ‘taxable supply’. In other words, simply because an outcome, which is the supply paid for, fails, does not provide some warrant, statutory mandate aside, to search for and identify some other anterior supply as the ‘taxable supply’. But that seems to us to be what the Tribunal did in the present case; and insofar as it found comfort for its approach in the decision of the High Court in Reliance Carpet (Reasons [15]), such comfort was, in our view, misplaced; Reliance Carpet was a case where the statute mandated that approach.
So much is manifest in what the High Court in Reliance Carpet said at [34] and [40] of it reasons:
‘[34] As noted earlier in these reasons, in this case the payment by the purchaser of the deposit was to be treated as “consideration” for a “supply” only if and when the deposit was forfeited because of the failure by the purchaser to perform its obligation to complete the Contract. That conclusion follows from the application of s 99-5.
…
[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”. (Emphasis added.)
In the present case, there was nothing in the statute mandating the conversion of the ‘supply’ constituted by the making of the contract (the making of the reservation/Booking) into a ‘taxable supply’ upon the cancellation of the contract by the intending passenger, or by failing to attend to fly, where the fare paid is not refunded. That being so, if the cancellation of the contract to fly did not convert the ‘supply’ constituted by the entering into of that contract into a ‘taxable supply’ by want of statutory mandate, it remains to consider, assuming there is only one relevant supply, what is that supply? The contemplated flight as contended by Qantas, or the reservation/booking as contended by the Commissioner?
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. Implicit in that is that the ‘taxable supply’ was the conveyance of the real property contemplated by the contract. So much comes from what the High Court said in Reliance Carpet at [42]:
‘… upon the proper construction of the Act no question of two “taxable supplies” arises. … 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.’
But there are other reasons why, in the present case, the relevant supply is the flight contemplated by the contract and not the entering into of the contract itself (the making of the reservation/Booking); and as that former supply failed, there was no ‘taxable supply’ and no GST liability was incurred.
As noted in [9(1)] above, the Tribunal found (Reasons [10]) that ‘the actual carriage of the passenger’ was ‘obviously the purpose of each reservation’. In Travelex Ltd v Commissioner of Taxation (2010) 241 CLR 510 at [32] French CJ and Hayne J (who with Heydon J comprised the majority) clearly supported recourse to the purpose of the transaction as identifying the relevant supply.
In the same case, Heydon J (at [47]) relied on ‘the legal substance of the transaction’ as characterising and answering the question of what was supplied in that case. The minority (Crennan and Bell JJ) too (at [99]) looked to ‘the direct object of the supply’ as determining what is supplied as between goods, services and other things or forms of supply on the one hand and ‘rights’, existing independently of those things, on the other.
By reference to all these criteria, the relevant supply in the present case is the contemplated flight, not the reservation or Booking; and the contemplated flight failed to occur.
Senior counsel for Qantas took the Court to passages from the reasons for judgment of Conti J at first instance in Saga Holidays Ltd v Commissioner of Taxation (2005) 149 FCR 41, as further support for this view. At [30] his Honour said:
‘The Commissioner submitted for operation in the present circumstances the observation of Ralph Gibson J of the Queens Bench Division made in the value-added tax context of Customs and Excise Commissioners v Pippa-Dee Parties Ltd [1981] STC 495, where at 501 the following appears:
It is clear therefore that a technical analysis of one part of a transaction, or of one set of obligations within a contract, even though accurate in legal principle, which is capable of explaining the service supplied, or the consideration given, in a restricted way, is not necessarily the right answer in law to the application of the provisions of this statute. I accept counsel for the Crown’s submission that this approach does indicate that taxable transactions should not be artificially dissected so as to demonstrate as being the service provided, or the consideration given, something other or less than that which appears to have been the service provided or consideration given upon an examination of the entire transaction.
That approach to construction of value-added taxation statutes provides support for the Commissioner’s asserted “substance and reality” approach. It is an approach which I think aptly accommodates those provisions of the GST Act falling in particular within Subdiv 9-A of which ss 9-5, 9-10 and 9-25 form an integral part.”
Again, at [112], his Honour said:
‘The focus of SAGA’s case upon the effectuation of supply of a tour as at and by reference to the time of entry into the agreement or arrangement for participation in that tour, whereby the traveller as a consequence may be said by SAGA to receive thereby a supply of rights of various kinds by way of satisfaction of the statutory notice of supply, is therefore in my opinion at odds with the scope and breadth of the statutory notion of “supply” inherent as well as apparent in the provisions of the GST Act to which I have drawn attention, and in particular those exemplified in the general descriptions appearing within Subdiv 9-A. In income tax contexts, assessable income may be conceivably derived by a taxpayer as at the point of time of entry into an executory contract. As I have found the GST notion of “taxable supply” is conceptually wider in its scope of operation, albeit that in some business contexts nevertheless, the supply may alone involve the “creation … of any right” within s 9-10(2)(e), such as a tradable option over a commodity or derivatives thereof, or chose. That type of supply is not in my opinion exemplified in the circumstances addressed in this case, where what is the mutually intended subject matter of supply is not a chose against a travel agent but provision of accommodation which the travel agent has been able to organise as his supply to his customer.’
An appeal from his Honour’s orders was dismissed by a Full Court: (2006) 156 FCR 256. The principal judgment was given by Stone J, with whom Gyles and Young JJ agreed. At [42]–[43] her Honour looked to the ‘substance and reality’ of the transaction in concluding that there was a single supply of real property in Australia. See too Young J at [69]–[71].
The Court was also referred to extracts from the reasons for decision of the Tribunal (constituted by Downes J, President, and Senior Member A Sweidan) in Re AGR Joint Venture and Federal Commissioner of Taxation (2007) 70 ATR 466 in support of the view that the relevant supply in the present case was the contemplated flight and that failed. The relevant facts and issues are summarised at [1] to [7] of the Tribunal’s reasons:
‘1.AGR Joint Venture carried on the business of refining and selling gold and silver, as well as fabricating gold and silver products, including coin blanks. It sold coin blanks to the Royal Australian Mint and Gold Corporation. The issue in this case is whether the transactions in relation to coin blanks are subject to goods and services tax on the gold or silver component of the blanks.
2.A coin blank is an unmarked flat metal disc. It is a precursor to a struck coin. Coin blanks are supplied to mints that use them to strike bullion coins and collectors’ coins. Bullion coins are principally for investment and are tradeable at a price close to the spot price of gold or silver. Collectors’ coins, or numismatic coins, are typically limited in edition and are tradeable at a price significantly above the spot price. Coin blanks themselves are not generally traded.
3.To produce coin blanks, AGR took refined gold or silver, melted it, cast it in bars, rolled the bars into strips of requisite thickness and used a blanking tool and press to punch blanks from the strips. The refined gold and silver was sourced from AGR’s Perth refinery and was in both granular and cast form. It also included scrap such as strips from which coin blanks had been punched. The fabrication process took place at AGR’s premises in Somerton, Victoria.
4. The relevant transactions were generally carried out as follows:
(a)The Mint and Gold Corporation placed orders with AGR for the manufacture of coin blanks according to specifications;
(b)AGR issued credits, specified in grams of metal, to unallocated metal accounts of the Mint and Gold Corporation. The credits were equivalent to the metal content of the coin blanks. AGR billed the Mint and Gold Corporation for the metal content;
(c)AGR fabricated the coin blanks from its general stock of metal, none of which was owned by either the Mint or Gold Corporation. AGR billed the Mint and Gold Corporation for the fabrication cost; and
(d)AGR debited unallocated metal accounts of the Mint and Gold Corporation with an amount equivalent to the metal content of the fabricated coin blanks.
5.The Commissioner of Taxation contends that each transaction constitutes a single supply of coin blanks and that AGR is liable for GST on the full value. AGR contends that there are two supplies. The first supply is the supply of a credit to the customer’s metal account, which is a supply or right to the supply of precious metal. The second supply is the service of fabricating the metal into coin blanks. AGR asserts that only the fabrication service is a taxable supply on which GST is payable.
6.The crediting of a metal account is a paper transaction which does not generally involve any delivery of metal. The Commissioner says that, in the present case, such credits serve only to confirm a previous agreement regarding the price for the metal content of coin blanks (as opposed to fabrication charges). AGR contends that the credits signify a separately enforceable right to precious metal.
7.The issue between the parties is essentially whether contracts for the supply of coin blanks can be broken down into two separate supplies, the first of which is GST-free or input taxed and the second of which is taxable. The Commissioner contends that the commercial reality of the transaction is that AGR contracted to supply coin blanks, not rights to credits on a metal account plus a fabrication service.’
The Tribunal concluded that, in substance, the transactions constituted supplies of coin blanks. Although the transaction may have involved a number of steps, there was in each case only one supply. That supply attracted GST. In the alternative, the Tribunal concluded that even if there were two supplies, each supply would attract GST. The amount of GST would be the same.
In relation to whether there was one supply or two, the Tribunal relevantly said:
‘35.AGR structured its transactions in the manner set out above long before the introduction of GST. There is no suggestion that it did so to avoid GST. AGR says this shows there were two genuine supplies. The Commissioner says that the parties were engaging in hedging transactions to protect against fluctuations in the price of the metal. This is why the price of metal was “locked in” at the time each customer lodged an order.
36.AGR says that the transactions involved, as a “significant element… [that] is not merely incidental”, the “supply of the right to precious metal (in the form of London good delivery bars) on metal account”. It says that the supply of the credit was “physically and economically dissociable” from the supply of the fabrication service.
37.This case is ultimately one of characterisation. The question is whether there is one or two supplies in terms of s 9-5 of the Act. Answering the question requires attention to ss 9-5 and 9-10. Do the facts of each of the transactions in this matter show one supply or two?
38.Although the question of whether property in goods passes will often be relevant and sometimes determinative, that will not always be so. The creation of a right can be a supply (s 9-10(2)(e)) just as much as a supply of goods (s 9-10(2)(a)).
39.In the present case, AGR seeks to rely upon the creation of rights associated with the grant of credits in unallocated metal accounts as the source of a supply. The question is whether, for the purposes of the Act, the totality of the facts disclose one transaction or two. The essence of the transactions between the parties was undoubtedly the delivery of coin blanks. There is no suggestion that either the Mint or Gold Corporation established unallocated metal accounts on their own, independently of orders for coin blanks. When we examine the nature of the transactions, they seem to us to be transactions for the supply of blanks which are carried out through a series of steps, rather than a series of independent steps which incidentally result in the supply of blanks. We accept that this alone does not lead to the characterisation of a series of steps as one supply. We can readily imagine situations in which one transaction involves more than one supply. However, in our opinion, that is not the case here.
40.What is critical to our findings is that the real purpose for the dealing and all its steps is the supply of blanks. The fact that there is no physical delivery of metal, nor any allocation of metal, nor even an enforceable contractual right to identified metal until the blanks are made are factors to take into account. The fact that no credit in an unallocated account arose except in connection with a supply of blanks is also relevant. So is the fact that the immediate benefit from using an unallocated metal account credit is the fixing of the price of the blanks at the time of contract.
41.We accept that the dealings are capable of being characterised as the supply of a bundle of rights, including the crediting of a metal account, followed by the fabrication of metal into blanks. However, that does not mean that there are two supplies. To say that there are two supplies is, in our opinion, to create an artificial splitting of the transaction. The effect of the GST legislation on the dealings is not simply determined by identifying their precise legal character. The question is how they should be characterised for GST purposes. This involves an analysis of the nature of the dealings as much as a technical legal analysis.’ [Emphasis added]
Using the criteria in the cases to which we have referred or to which the Court was taken, it is plain that what each customer pays for is carriage by air. This is the essence, and sole purpose, of the transaction. The prospective supply is of air travel, dare we say, in the face of Reliance Carpet (at [13]), ‘nothing more or less’. Having recognised the actual travel had not been supplied, and that was the purpose of the booking, that should have been the end of the inquiry. The actual travel was the relevant supply, and if it did not occur there was no taxable supply. Instead, what the Tribunal did was to look for other ‘acts’ satisfying the definition of supply. It erred in doing so, for even if the identified ‘acts’ were capable of meeting the definition of supply, they were not ‘acts’ for which the consideration was provided.
In Westley Nominees Pty Ltd v Coles Supermarkets Australia Pty Ltd (2006) 152 FCR 461 at [35] it was observed:
‘Where one can identify a supply as incidental to a principal supply, courts have generally treated the transaction as giving rise to one supply.’
Here, the transaction does not even comprise numerous aspects. It merely comprises the provision of domestic air travel by Qantas. That is the substance and reality of the transaction, and, as the Tribunal correctly found, that is what (the purpose) the passenger pays his or her fare for. The Tribunal erred in artificially splitting the transaction, and in the absence of the principal supply, looked for things otherwise incidental to that supply. If the supply of travel is to be atomised into supposed sub-elements, there are more obvious elements than that which the Tribunal found. These include things such as frequent flyer points, baggage handling and carriage, lounge access and onboard catering. These are things that the Commissioner correctly accepts form part of a ‘single supply of air transportation when the tickets for air travel are sold: see, for example, GST private ruling GST/SYD/5974753 issued to Qantas and dated 18 June 2008 in material put before us by way of submission.
If there were any doubt as to what the fare is paid for, it is confirmed in the conditions of carriage for both Qantas and Jetstar which state: ‘Your fare covers the flight(s) for you and your Baggage Allowance’ [Q 5.1; J 5.1].
CONCLUSION
For these reasons, the appeal must be allowed with costs. One of the grounds of Qantas’ appeal was that the Tribunal erred in law in failing to distinguish between those fares that were fully refundable and those which were non-refundable. Qantas submitted that both factually and contractually, there are fundamental differences between the fully refundable fares and the non-refundable fares; in fully refundable cases, the absence of performance of the substance of the contract, and the resultant defeat of any right to retain the monetary consideration, mean that no supply for the consideration paid has occurred and that the contract has come to an end with no substantial performance having taken place. According to Qantas, the parties are returned to the status quo ante the booking. In the context of a fare that is fully refundable, where the passenger cancels their flight (or fails to show, which is implicitly the same thing) the passenger is entitled to claim a refund of the prepaid fare. The entitlement to a refund in those cases arises irrespective of what internal preparations Qantas has made. Where Qantas retains the fare, it does so not because of what it has done, but because of the failure of the passenger to claim a refund.
There is considerable force in these submissions, however, having regard to the conclusion we have reached, it is unnecessary to address them.
I certify that the preceding fifty nine (59) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Edmonds and Perram. Associate:
Dated: 1 September 2011
Key Legal Topics
Areas of Law
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Taxation Law
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Administrative Law
Legal Concepts
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Taxable Supply
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Administrative Review
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Appeal
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