Seneca Exploration Pty Ltd T/A Dickeson's Amusements v Commissioner of State Taxation
[2007] SASC 369
•19 October 2007
SUPREME COURT OF SOUTH AUSTRALIA
(Full Court: Civil)
SENECA EXPLORATION PTY LTD T/A DICKESON'S AMUSEMENTS v COMMISSIONER OF STATE TAXATION
[2007] SASC 369
Judgment of The Full Court
(The Honourable Justice Nyland, The Honourable Justice Bleby and The Honourable Justice Layton)
19 October 2007
TAXES AND DUTIES - STAMP DUTIES - WHAT TRANSACTIONS OR INSTRUMENTS ARE LIABLE - GENERALLY
STATUTES - ACTS OF PARLIAMENT - INTERPRETATION - PARTICULAR WORDS AND PHRASES - SPECIFIC INTERPRETATIONS
Appeal against dismissal of appeal by single judge against assessment of stamp duty – whether the appellant was carrying on a “rental business” for the purposes of the Stamp Duties Act 1923 (SA) – whether the business of the appellant involved a “contractual bailment” – whether the placing of the coin-operated amusement machines of the appellant in premises involved the conferral of a right to possession or use of those machines on the owner or occupier of the premises – whether the right to possession or use of those machines was incidental to a licence to occupy land – construction of agreement – analysis of substance rather than form – appeal dismissed.
Stamp Duties Act 1923 (SA) ss 31B, 31D, 31F; Sales Tax Assessment Act (No 4) 1930-1936 (Cth) s 3; Sales Tax Assessment Act (No 1) 1930 (Cth); Acts Interpretation Act 1915 (SA) s 4, referred to.
SA Crate Pty Ltd v State of South Australia (1983) 35 SASR 92; Esanda Finance Corporation Ltd & Anor v Commissioner of Stamps (SA) (1992) 92 ATC 4418; Deputy Commissioner of Taxation v Taubmans (NSW) Pty Ltd (1966) 115 CLR 570; Max Factor & Co. Inc. v Federal Commissioner of Taxation (1971) 124 CLR 353; Stewart v Deputy Commissioner of Taxation (1982) 46 ALR 210, applied.
Deputy Commissioner of Taxation v Stewart (1984) 154 CLR 385; Commissioner of Taxation v Brambles Holdings Ltd (1991) 28 FCR 451; Federal Commissioner of Taxation v Hammersley Iron Pty Ltd (1981) 37 ALR 595, considered.
WORDS AND PHRASES CONSIDERED/DEFINED
"rental business"
"contractual bailment"
"use of goods"
"possession of goods"
SENECA EXPLORATION PTY LTD T/A DICKESON'S AMUSEMENTS v COMMISSIONER OF STATE TAXATION
[2007] SASC 369Full Court: Nyland, Bleby and Layton JJ
NYLAND J. I agree that the appeal should be dismissed for the reasons expressed by Bleby J.
BLEBY J.
Introduction
The issue on this appeal is whether the Appellant was carrying on a “rental business” for the purposes of the Stamp Duties Act 1923 (SA) (“the Act”), with consequent obligations to register the business and pay stamp duty. At the relevant time s 31D of the Act prohibited a person from carrying on a rental business unless the person was registered. Section 31F of the Act required a person carrying on a rental business to lodge a monthly statement in the approved form of the amount received during the previous month in respect of that rental business and to pay duty on that amount as prescribed.
Although some of the equivalent provisions in ss 31D and 31F of the Act have since changed, the relevant definitions have at all material times remained the same.
“Rental business” is defined in s 31B of the Act. So far as is relevant the definition provides:
“rental business” means–
(a)the business of conferring rights to the possession or use of goods under a contractual bailment; …
The key to the obligations specified in ss 31D and 31F at the relevant time and at present, and the key to the resolution of this appeal is the definition of “contractual bailee”, also found in s 31B. It is defined as follows:
“contractual bailment” means a contract or agreement under which a person who owns, or is entitled to the possession of, goods confers on another a right to possession or use of the goods, and includes a hire-purchase agreement, but does not include a contract or agreement conferring a right to the possession or use of goods, or providing for the sale of goods, incidentally to a lease of, or licence to occupy, or the sale of, land;
Background facts
The facts relevant to this appeal are not in dispute. The appellant, Seneca Exploration Pty Ltd trading as Dickeson’s Amusements (“Seneca”), owned amusement machines with which it operated two businesses. The first, which is not relevant to this appeal, was a “party hire business” in which the appellant rented amusement machines to individuals or groups in return for a rental fee paid directly to the appellant. The respondent, the Commissioner of State Taxation (“the Commissioner”) made an assessment of stamp duties owing in relation to this business. Seneca does not challenge that determination.
The second business, and the one relevant to this appeal, involves coin-operated amusement machines. Subject to a written agreement, the appellant placed these amusement machines in premises owned by others, such as hoteliers. These machines were then made available to those on the premises to play by inserting appropriate coins into the machine. During the relevant period, either Seneca collected the money deposited into the machines and paid the owner or proprietor of the premises a fee, or the owner or occupier of the premises collected the money, retained the agreed fee, and sent the remaining money to Seneca. The written Agreement was in a standard form and was used by Seneca for all of its machines.
The Commissioner also made an assessment of stamp duty owing in relation to this business of $18,748.43 for the period 1 July 2001 to 31 March 2003. Seneca has paid this sum and now claims a refund of that amount.
Seneca appealed to the Treasurer of the State of South Australia in relation to the second business. The Treasurer rejected this appeal on the basis that the activity of this business fell within the meaning of “rental business”. Hence Seneca was liable for the stamp duty.
Seneca then appealed against that decision to a single Judge of this Court who dismissed the appeal.[1] Seneca now appeals to the Full Court against that decision.
[1] Seneca Exploration Pty Ltd T/A Dickeson’s Amusements v Commissioner of State Taxation (2007) 96 SASR 394; [2007] SASC 13.
The Agreement
Crucial to the resolution of the appeal is the standard form of agreement used by Seneca (“the Agreement”). For convenience it is set out in full:
LOCATION AGREEMENT
This AGREEMENT is made the ....................... day of ..................... 199.............
between SENECA EXPLORATION PTY. LTD. (trading as DICKESONS AMUSEMENTS).
A.C.N. 007 783 075 (herein called the “Licensee”) on the one part
AND .......................................................................................................................
.................................................................................................................................
.................................................................................................................................
(hereinafter called the “Licensor”) of the other part
SCHEDULE
Description of Machines No. of Machines Profit Share
Location of Premises....................................................................................................
Contact....................................................................... Phone No. ...............................
The Licensor by its duly authorised representative acknowledges that the information contained in this Schedule and the terms detailed in the conditions overleaf incorporate all of the terms and conditions of the agreement between the Licensor and the Licensee and the execution of this Schedule constitutes acceptance of all of the Terms and Conditions by the parties.
Signed for and on behalf of the Licensor by a duly authorised person........................
Position .......................................................................................................................
In the presence of ........................................................................................................
Signed by the Licensee ...............................................................................................
in the presence of ........................................................................................................
CONDITIONS
IT IS AGREED AS FOLLOWS:
1. The Licensor agrees to grant to the Licensee the right to operate amusement machines referred to in the Schedule (“the Machines”) on the Licensor’s premises referred to in the Schedule (“the Premises”).
TERM
2. The Licensee shall operate the Machines on the Premises for an initial period of thirty six (36) months from the date of this agreement, and thereafter for recurring periods of twelve months each unless the Licensor or the Licensee give notice at least one calendar month prior to the end of the initial period or any recurring period of their intention to terminate this agreement.
CASH COLLECTION/COMMISSION
3. The Licensee shall collect the cash takings from the Machines every fourteen days, or such other period as may be agreed between the parties, and in consideration of the licence granted pay the Licensor the rate of profit share set out in the Schedule.
MINIMUM INCOME
4. In the event that the takings from any one machine shall at any time during any period of collection fall below a minimum of an average of ONE HUNDRED DOLLARS ($100.00) per week, the Licensee may, upon giving the Licensor seven days notice, remove any or all of the Machines from the Premises and this agreement shall terminate with respect to the Machines removed.
OWNERSHIP/TITLE
5. The Licensor acknowledges that the Machines remain the sole property of the Licensee.
EXCHANGE MACHINES
6. The Licensee may from time to time, and in its sole discretion, exchange the Machines for ones of a similar nature without notice to the Licensor.
PROMOTION
7. The Licensor shall make every reasonable effort to promote the operation of the Machines, and shall make the Machines available for use of the general public during the Licensor’s normal trading hours.
STATUTORY REQUIREMENTS
8. The Licensor and Licensee each warrant to comply at all times with the requirements of any duly designated governmental authority and with the requirement of any Act of Parliament for the time being then in force.
FINANCIAL STATUS
9. If an order shall be made for the sequestration of the Licensor’s estate, or if the Licensor shall enter into any composition or arrangement with the Licensor’s creditors, or if the Licensor (being a Limited company) shall enter into compulsory or voluntary liquidation, scheme of arrangement, voluntary administration or shall fail to observe and perform the terms and conditions of this agreement the Licensee may determine this agreement forthwith without notice and immediately take possession of the Machines and recover from the Licensor any moneys due to the Licensee under this agreement together with damages for breaches of this Agreement.
ACCESS
10. The Licensor warrants and undertakes that the Licensee shall have access to the Premises during normal business hours for the purpose of giving effect to this agreement including but without limitation thereto and without relieving the Licensor of its obligation under clause 12 to inspect the Machines and ensure that they are in good repair at all times.
DAMAGE RESPONSIBILITY
11. The Licensor shall use all reasonable care to ensure that no damage is effected to the Machines by either the Licensor or any third party.
REPAIRS
12. All repairs to the Machines will be done by the Licensee or his agent. The Licensor warrants to notify the Licensee when repairs appear necessary but will under no circumstances attempt any such repairs except with authority from the Licensee.
ASSIGNMENT
13. The Licensee may assign the licence granted under this agreement to a third party with the consent of the Licensor in which event the word “Licensee” shall be construed to include that transferee or assignee as the case may be.
14. The Licensor warrants to ensure that the licence granted under this agreement is made an integral part of any agreement to sell or dispose of the Licensor’s business which operates from the Premises and in the event of the sale of the business the Licensor shall arrange for an assignment of this agreement to the new proprietor on the same terms and conditions as set out herein.
SOLE RIGHTS
15. In consideration of the Licensee supplying the Machines the Licensor agrees that the licence under this agreement is an exclusive one and gives the Licensee the sole right to supply Machines to the Premises and the Licensee agrees that it will not install or operate on the Premises any other machines without the written consent of the Licensee.
WHOLE AGREEMENT
16. The contents of this agreement shall represent the total agreement between the Licensor and the Licensee and representations made prior to and subsequent to the execution of this agreement shall not be a part of this agreement. This agreement is made at Adelaide, South Australia.
INDEMNITY
17. The Licensor agrees to indemnify and keep indemnified and to hold harmless the Licensee, its servants and agents and each of them from and against all actions, costs, claims, charges, expenses and damage whatsoever which may be brought or made or claimed against them or any of them arising out of or in relation to the granting of this License to the Licensee.
It will be noted that Seneca is described in the Agreement as “the Licensee” and that the owner or occupier of the premises into which the machines are placed is described as “the Licensor”. For convenience I will adopt the same term when referring to the owner or occupier of the premises. However, as will become apparent, that description may be a misnomer.
Interpretation of “contractual bailment”
In order for there to be a contractual bailment as defined in s 31B of the Act, and therefore a rental business in respect of which duty is payable in this case, four elements must be satisfied:
1There must be a contract or agreement.
2There must be a person who owns or is entitled to possession of the amusement machines (“the owner”).
3Under the contract or agreement the owner must confer on another a right to possession or use of the machines.
4The right to possession or use of the machines under the agreement must not be incidental to a lease of or licence to occupy land.
The first and second elements are readily satisfied. Seneca is and remains at all times the owner of the machines. Upon installation in a licensor’s premises the machines become the subject of the Agreement set out above. Resolution of the issues in this case depends on whether the third and fourth elements are satisfied.
In determining whether those conditions are fulfilled the Court will look at the substance rather than the form of the transaction. In SA Crate Pty Ltd v State of South Australia[2] the Court had to consider, in respect of an earlier version of s 31F of the Act, whether certain payments in connection with the use of crates by primary producers for the packaging of fruit and vegetables constituted “rent” for the purposes of the then s 31f of the Act. In the course of his judgment, Walters J said:
It is my view that in enacting s 31f(1)(x), Parliament was not limiting the word "rent" to its strict signification, and that the sense in which the word is employed in relation to a credit and rental business has an expanded connotation. It is what the parties have done, and not the way in which they have described the transaction in their agreement, which must be the determining consideration, and it is for the court to decide on the effect of the agreement and what payments made in pursuance of it can be said to constitute "rent". In other words, the court is not concerned with what the parties have chosen to call the payments. Its concern is with the nature of the payments and whether they are "rent" within the meaning of s 31f(1)(x). In my opinion, a mere label, such as "initial fee", or "fill charge", is not sufficient to deny the quality of "rent" to payments received by a registered person in respect of his business of "letting, bailing or otherwise giving rights to use goods" (s 31b(1)). Whatever may be the words used, they must bear the same construction in a taxing case as in any other.[3]
[2] (1983) 35 SASR 92.
[3] Ibid at 97-98. See also Esanda Finance Corporation Ltd & Anor v Commissioner of Stamps (SA) (1992) 92 ATC 4418 at 4423, Perry J in relation to the application of the expression “giving rights to use … goods”.
It follows that, in determining whether this Agreement confers on another “a right to possession or use” of the machines, the Court will examine the substance rather then the form of the transaction governed by the Agreement.
In considering the third element of the definition there are two alternative limbs: the conferral of a right to possession or a right to use of the machines. I will first consider whether the Agreement conferred a right to use of the machines.
Whether the Agreement conferred a right to use of the machines
A right to the use of goods encompasses a wide range of possible activities and purposes. In particular, the expression is not confined to physical use of the object by the user. Deputy Commissioner of Taxation v Taubmans (NSW) Pty Ltd[4] concerned a wholesale paint manufacturer which sold its products through independent retail stores. The manufacturer supplied those stores with stocks of colour cards which were made available by the stores to intending purchasers or enquirers for the purpose of assisting them in selecting paint colours. The question was whether sales tax was payable by the manufacturer on the cost of the cards. That in turn depended on whether the manufacturer “applied those goods to his own use”.[5] Windeyer J said:
Whether or not a thing is used by its owner or applied by him for his own use, he being a person conducting a business depends, it seems to me, upon the use to which that kind of thing is put in that kind of business. The idea connoted by the phrase "applied by him for his own use" is not inconsistent with a gratuitous disposal of the thing by its owner. The nature of the use to which the thing is designed to be put is a most material consideration.
It may not be correct to say that all advertising material that is distributed is, by being distributed, brought within the description of goods applied by the distributor to his own use. But I think, and the Canadian cases to which I have been referred seem to me consistent with the view, that if free samples of goods be distributed in conjunction with a business carried on by their owner, distributed that is for his business purposes, they can be said to be applied by him to his own use. That is the use to which he puts them, the manner of use for which they were acquired by him. The fact that they would ultimately be used by somebody else is, as I see it, not a matter of critical importance. It cannot be said that a thing is not applied by a person to his own use because the use to which he puts it is to make it available to be used, according to its nature, by somebody else. A thing made available to be used by the owners, officers, servants or sub-contractors might well be said to be thereby applied by him to his own use. Sometimes it must be so too if it be made available to be used by other persons such as customers for example when containers, paper bags, cardboard boxes are provided for the carrying away of goods.[6] [Emphasis added]
[4] (1966) 115 CLR 570.
[5] Sales Tax Assessment Act(No 4) 1930-1936 (Cth), s 3.
[6] (1966) 115 CLR 570 at 573-574.
There will therefore be a variety of ways in which a person, in this case the licensor, may make use of the machines in order to satisfy this limb of the definition. It is also apparent from this judgment that it cannot be said that the machines in this case are not available for use by a licensor merely because they are in fact played only by customers of that licensor. There are other ways in which the licensor may make use of the machines.
The approach of Windeyer J in the Taubmans Case was endorsed by the Full Court of the Hight Court in Max Factor & Co. Inc. v Federal Commissioner of Taxation.[7] Sales tax in that case was levied on goods manufactured in the course of carrying on a business that were “applied by the taxpayer to his own use whether for the purpose of that business or for any other purpose”. The company in question carried on the business of manufacturing and selling cosmetics. It gave cosmetics to its employees to use in demonstrations and for their own personal use. It also gave cosmetics to retailers for the purpose of promoting sales and to members of the public for the purpose of increasing or maintaining goodwill. It was argued that “use” of the goods in the relevant provision was confined to the physical use by the taxpayer of the goods. In rejecting that argument Gibbs J, with whom Barwick CJ, McTiernan and Windeyer JJ agreed, said:
The meaning of the noun "use" is not confined to physical consumption; its ordinary meanings, according to the Shorter Oxford English Dictionary, include: "Purpose served. A purpose, object or end, especially of a useful or advantageous nature." Of course the sense in which a word is used may be effected (sic) by the context in which it appears but I can see nothing in the context of s. 17 (1) to restrict the meaning of the word "use" in the manner suggested by the appellant. The word "applied" in no way contracts the sense of the phrase in which it appears; that word simply means "devoted to" or "employed for the special purpose of" (Williams v. Papworth [1900] AC 563, at p 567, cited in Davies v. Perpetual Trustees Executors and Agency Co. of Tasmania Ltd. [1935] HCA 26; (1935) 52 CLR 604, at p 608). The phrase "applied to his own use" is of broad import, and is equivalent in meaning to "employed for his own purposes". The words of s. 17 (2), which suggest that "use" in that subsection is synonymous with "purpose", support the view that in s. 17 (1) the word "use" should be given the same meaning. In my opinion a manufacturer may apply goods to his own use within the meaning of s. 17 (1), notwithstanding that he gives away the goods to others, provided that the purpose for which the goods are given is a purpose of the manufacturer.[8]
[7] (1971) 124 CLR 353.
[8] Ibid at 361-362.
Use of a machine in this case will therefore extend to and include the application of the machine for a purpose, object or end, particularly if there is some advantage to the person who is said to be using the machine.
Consistent with those observations of the High Court, Perry J observed in Esanda Finance Corporation Ltd v Commissioner of Stamps (SA)[9] that the word “use” in s 31f(1) of the Act, as it then was, is a word of wide import. His Honour said:
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.
It follows that the mere display of goods in some circumstances may constitute “use” of the goods, regardless of whether a person makes some other active use of the goods.
[9] (1992) 92 ATC 4418 at 4423.
The use to which the machine is put by a person need not be exclusive. It does not preclude simultaneous use by others. In Stewart v Deputy Commissioner of Taxation[10] a similar question arose under the Sales Tax Assessment Act (No 1)1930 (Cth). The taxpayers manufactured lottery ticket machines which they provided free of charge to various organisations, mainly public benevolent institutions. Those bodies used the machines for fundraising purposes. They bought tickets for use in the machines from the taxpayers who derived a profit from such ticket sales. The taxpayers, who remained the owners of the machines, serviced and, if necessary, replaced the machines free of charge. So far as is relevant, sales tax was levied on the manufacturer of goods “… applied by the manufacturer to his own use”. However, there was an exemption for goods “for use … by … a public benevolent institution”. It was conceded that the taxpayers had applied the machines to their own use during the period that they had supplied tickets for the machines at a profit. However, it was held that, even where the profit from ticket sales was derived through a trust of which the taxpayers were only discretionary beneficiaries, the machines were still applied for the taxpayers’ own use. As to that aspect of the case King CJ said, applying the Max Factor Case:
In furnishing the machines to and permitting them to remain where they are located by the organizations, the appellants are providing the outlet for the tickets whose sale resulted in income to the family trust of which they are beneficiaries. In my view, that amounts to applying the machines to their own use and, prima facie, attracts sales tax.[11]
[10] (1982) 46 ALR 210.
[11] Ibid at 212.
It was also argued by the Commissioner that for the exemption to apply, the use by the benevolent institution had to be exclusive. In rejecting that argument King CJ said:
Counsel for the respondent before us contended that the words connoted exclusivity of use by the institution and that the use by the appellants was inconsistent with the machines being “goods for use by” the institutions. The thinking underlying the argument possesses plausibility and, if enacted into law, would be an intelligible legislative policy. In the end, however, I have come to the conclusion that the words which the legislature has used cannot bear such a construction. Use does not of itself mean exclusive use. In certain other exempting items in the schedule the word “use” is qualified by “exclusively” or “primarily” or “principally” (see for example Items 13(1), 74(d), 77). It is not so qualified in the exemption under consideration. In my opinion, use by the institution means no more than use by the institution “to a significant degree”: See Federal Commissioner of Taxation v Hammersley Iron Pty Ltd (1981) 37 ALR 595 at 605; 81 ATC 4582 at 4590.[12]
[12] Ibid at 214. This decision was affirmed on appeal: Deputy Commissioner of Taxation v Stewart (1984) 154 CLR 385. See also Commissioner of Taxation v Brambles Holdings Ltd (1991) 28 FCR 451 at 457, Sheppard J; 465-466, Beaumont J and at 473-475, Burchett J.
In the present case, the licensors made use of the machines in a variety of ways. They did so by agreeing to have them in their premises, placed in a position where the machines were accessible to patrons, and by allowing patrons to operate the machines by opening the premises to members of the public and encouraging them to make use of the premises. The owners of the premises used the machines for the purpose of generating revenue for themselves by virtue of the profit sharing provisions of the Agreement.[13]
[13] Agreement, clause 3 and the Schedule.
The obvious inference is that licensors regarded the machines as a means of entertaining patrons on the premises. Counsel for Seneca conceded that the single judge was entitled to infer, which he did, that the machines were used to encourage patrons to attend the premises and thereby to make use of other facilities provided for use on the premises. The machines were therefore turned to account or applied for the purpose of the licensor, being the purpose of generating income both directly, by the profit sharing arrangement, and indirectly, by attracting patrons to the establishment and encouraging them to remain there.
It does not matter that patrons of the licensors may also have used the machines. All that is required to satisfy this limb of the definition of “contractual bailment” is that the Agreement confers “a” right, not an exclusive right, to use of the goods.
In order to succeed on this limb, counsel for Seneca had to resort to an extremely narrow meaning of the noun “use”. That is a meaning which that word in the definition will not bear, either in common usage or on compelling legal authority.
Accordingly, in my opinion the third element of the definition of “contractual bailment” is fulfilled.
Whether the Agreement conferred a right to possession of the goods
In view of my conclusion as to the “use” of the machines by licensors, it is not necessary to consider whether the Agreement conferred a right of possession of the machines. Nevertheless, in case I am wrong as to the “use” of the machines, it is appropriate that I express my view on this limb of the definition as well. It is an issue which was argued but not decided by the Judge at first instance.
This limb of the definition will be satisfied if the Agreement confers on another person “a” right to possession. It need not be an absolute right to possession or an exclusive right to possession. Under the Agreement, Seneca had the right to take possession of the machines in the circumstances described in clauses 4, 6 and 9. Subject only to the exercise of that right, the licensor had a right to possession of the machines to the exclusion of anyone else. Only Seneca or its authorised agents in those limited circumstances were entitled to remove the machines from the premises. The fact that the licensor was required, under the Agreement, to make the machines available for use of the general public did not mean that the licensor yielded up possession of the machines to members of the public. Members of the public were permitted to use a machine by inserting the appropriate coin or coins into the machine and by using the machine for the purpose of deriving the appropriate amusement. That did not interfere with the ultimate right of the licensor to exclude anyone from the premises, whether a particular individual or members of the public generally, for example by closing the premises. It did not prevent the licensor, in exercise of the powers conferred by clause 11, from ensuring appropriate use of the machines by patrons in order to prevent damage to the machines. The right to possession of the machines was at all times maintained by the licensor, subject only to the conditional exercise by Seneca of its own superior right to possession.
It follows that the third element of the definition is also satisfied by the conferral on the licensor of a right to possession of the machines.
Whether the right to possession or use of the machines is incidental to a licence to occupy land
I turn to consider the fourth element of the definition of “contractual bailment”, namely whether the Agreement is excluded from the definition by conferring a right to possession or use of the machine incidental to a licence to occupy land.
The expression “land” is not defined in the Act. There is nothing in the Act to suggest that the expression as defined in s 4 of the Acts Interpretation Act1915 (SA) should not apply. As there defined, “land” includes “a building or structure affixed to land”. It would include the premises of licensors.
As previously noted, the Agreement describes Seneca as “the licensee” and the owner or occupier of the premises as “the licensor”. In form, the Agreement purports to be a licence by the “licensor” to Seneca to occupy the licensor’s premises for the purpose of operating the machines on the premises,[14] and that any right that the licensor may have to possession of the machines is merely incidental to the right of Seneca to occupy the premises. The Agreement is not in the form of a licence by Seneca to the owner of the premises to take possession of and to use Seneca’s machines for the purpose of allowing patrons to operate them.
[14] See clauses 1 and 2 of the Agreement.
The thrust of Seneca’s argument was that the Agreement was in essence a licence to occupy land with an incidental right of possession of the machines by the licensor. The Agreement was therefore excluded from the definition of contractual bailment.
In my opinion, the argument should be rejected. It relies on the form of the Agreement rather than its substance. As earlier pointed out,[15] it is the substance of the transaction that is relevant.
[15] See paragraphs 15 and 16 above.
The purpose of the statutory exclusion is to exclude from duty those transactions where a person, among other things, grants a lease or licence over land and incidentally also confers on another a right to possession or use of goods. It is clear that the exclusion envisages that the same person will be the grantee of the rights over land and of the rights over goods. The exclusion cannot apply where, as in this case, Seneca, being granted a licence to occupy land (if that is what it is) is not, by the Agreement, granted a right to possession or use of the machines. Seneca already has that right.
While the form of the Agreement might provide the basis for a superficially attractive argument, it does not reflect the reality of what occurs. Essential to a licence to occupy on which Seneca must rely is the concept expressed in clauses 1 and 2 of the Agreement, namely that the licence is granted by the licensor to Seneca to carry out an activity on the premises, namely to “operate” the machines. However, Seneca does not “operate” the machines on the premises. It merely places them in the premises of licensors for licensors and their patrons to operate. The reality of what occurs appears from clause 7 of the Agreement. Under that clause the licensor is obliged to promote the “operation” of the machines – not by Seneca but by members of the public – and to make them available for use of the general public. Clauses 1 and 2 of the Agreement are an attempt to create a licence to occupy land and to confer a right on Seneca to use the machines which does not reflect the true effect of the arrangement.
However, if that conclusion is wrong and the right to possession or use of the machines by the licensor arises by virtue of Seneca’s licence to occupy the premises, counsel for the Commissioner argued in the alternative that the right to “possession” or “use” of the machines is not incidental to the licence. Rather, that right is integral to the Agreement in that it “goes to the heart” of the licence. I agree.
In my opinion Seneca has failed to bring itself within the exclusion to the definition of “contractual bailment”.
The respondent’s notice of contention
Besides the alternative argument based on the licensor’s right to possession, the respondent advanced, by way of notice of contention, three alternative arguments in support of the assessment. The first was that a separate contractual bailment arose between Seneca and each patron of a licensor’s premises who used the machines. The second was that the Agreement constituted a joint venture by which each machine was directly bailed to each patron of the premises who used the machines. The third was based on the provisions of s 31F(1)(a) of the Act. I respectfully share the view of the Judge at first instance that these contentions are based on assumptions that are inconsistent with the conclusions already reached, and that accordingly they give rise to hypothetical considerations. It is inappropriate and unnecessary to express any view on those contentions.
Conclusion
The Agreement on which Seneca relied constituted a “contractual bailment” as defined in s 31B of the Act, and as Seneca was conducting the business of conferring rights to possession and use of goods under such an Agreement, it was conducting a “rental business” as defined in s 31B. It was therefore required to be registered under s 31D of the Act, to lodge the returns required by s 31F and to pay the duty prescribed by that section. Seneca’s appeal to the single Judge was rightly dismissed. The appeal to this Court should also be dismissed.
LAYTON J. I agree that the appeal should be dismissed for the reasons given by Bleby J.
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