Sonenco (No 87) Pty Ltd v Commissioner of Taxation

[1993] HCATrans 276

• 4,

4

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IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Sydney No Sl56 of 1992

B e t w e e n -

SONENCO (NO 87) PTY LTD

Applicant

and

COMMISSIONER OF TAXATION

Respondent

Application for special leave

to appeal

BRENNAN J
DAWSON J

TOOHEY J

Sonenco 1 17/9/93

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 17 SEPTEMBER 1993, AT 10.52 AM

Copyright iri the High Court of Australia

MR A.H. SLATER, QC:  May it please the Court, I appear with

my friend, MR S.J. McMILLAN, for the applicant.

(instructed by Vaughan Zarb & Capolupo)

MR D.M.J. BENNETT, QC:  May it please the Court, I appear

with my learned friend, DR H.R. SORENSEN, for the

respondent. (instructed by the Australian

Government Solicitor)

BRENNAN J: Yes, Mr Slater.

MR SLATER:  Your Honours, the contentions which we seek to

advance in this appeal, if Your Honours grant

leave, appear in our draft notice of appeal which

is at pages 125 and 126 of the appeal book and may

shortly be put in the form of a logical dilemma.

Either the transactions which the applicant sought

to undertake in relation to the motor vehicles in

question were effective transactions, in the sense

that they passed title, or they were not effective

transactions. If, as we would have it, the

operation of the Sale of Goods law was such that
the attempted transactions failed because the
applicant never had a title to pass, then the

applicant sold nothing and no liability to sales

tax could arise.

Alternatively, if we be wrong on the first

ground, then we would say that the vehicles were

sold only under quotation of a sales tax

certificate and the result of that is that, again,

no sales tax liability arises.

BRENNAN J:	What is the alternative, did you say?
MR SLATER:	The alternative is that if the vehicles were

acquired by the applicant and were sold, then they

were sold under quotation - - -

BRENNAN J:	To?
MR SLATER:	To Ron Hopkins Wholesale, Your Honour, and the

result of that is that again, because of the
quotation system, no sales tax liability arises.

In our submission, what merits the attention of

this Court is the way in which the Federal Court

dealt with the first branch of our argument. We

say that in holding us liable - because we had to

fail on both limbs of the argument - the Federal

Court enunciated a principle which is fundamentally

at variance with the law regulating the sale of

goods.

Your Honours, we have reduced our submissions

on that point to a very short summary and we hand

that up. The summary is in the first page of the

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document. The second bundle is extracts from the

authorities and statutory provisions on which we

rely and the third bundle in the material that has

been handed up to Your Honours is an extract from

the 1992 Act which, although the language is

different, raises the same issue, so that the point

that we make now, we respectfully submit, is one

which is of continuing relevance, notwithstanding

the repeal of the legislation on which the issue

arose.

DAWSON J: There is no question that towards the beginning

of this transaction your client had title in

the motor cars?

MR SLATER: Yes, Your Honour, there is. That is really the

point at issue.

DAWSON J:  There is no question that title ended up in the

purchaser of the motor cars? The argument is what

happened in the between time?

MR SLATER:	There is no question that title ended up in the purchaser. The title was initially in the
financier, Citicorp - - -
DAWSON J:	But then it moved from the financier to your

client - - -

MR SLATER:  No, Your Honour. That is the nub of the

question.

DAWSON J:	Your client passed title to Hopkins.
MR SLATER:	The intention of the arrangement, Your Honour, was that our client was to acquire title from
Citicorp, pass it to Hopkins - - -

DAWSON J: Exactly, that is what I am putting to you. That

is why I said towards the beginning, because you

start with Citicorp, but thereafter your client acquires title and, forgetting the intermediate

arrangements, where the title ultimately ends up is

with the purchaser of the motor car.

MR SLATER: That was the design of the arrangement,

Your Honour. That was the scheme. What we say is

that the scheme was never in fact implemented and
that because of the way in which the parties

conducted themselves, title passed directly -

DAWSON J: Not saying how it got there, but what I say is

right, is it not, that at the point where your

client acquired title from Citicorp, it had title?

MR SLATER:  No, Your Honour. I am sorry, I am clearly not

getting my point across, Your Honour.

Sonenco 3 17/9/93

DAWSON J:	No, you are not.
MR SLATER:	Our point is this, Your Honour: the parties set

about implementing an arrangement under which title

was to pass in the manner Your Honour has

indicated. It was to pass from Citicorp to our

client and then, through the intermediaries, to an

associate of our client called McLeod Ford, which

was a retailer, and from McLeod Ford to the end

customer.

DAWSON J: That is what I thought.

MR SLATER: That was the design, but what in fact happened

was that the end customer acquired title under the

Factors Act and at the time that the end customer

acquired title, title was still in Citicorp, and by

the time the parties, including our client, set

about implementing the transaction there was no

longer anything to sell.

DAWSON J: Yes. But putting aside the Factors Act, what I

am saying is right.

MR SLATER:  If Your Honours are against us, as the Federal

Court was, on the Factors Act, then yes, title

comes to us and we then say it passes through

Hopkins and to McLeod Ford and on to the customer.

DAWSON J:  And the Full Court ignored that intermediate set

of dealings and said, well, because your client had

title and because, ignoring the Factors Act, title

ended up in the customer, there was a sale.

MR SLATER: Yes, Your Honour, and we say that that involves,

on the second branch of the case, a fundamental

misapprehension of what a contract is.

DAWSON J: If you reject fiscal nullity, then you must have

regard to what happened.

MR SLATER: Yes, Your Honour.
DAWSON J:	You cannot have it both ways.

MR SLATER: Indeed, Your Honour. But the notion which was

enunciated by the trial judge and adopted, with

respect, fairly uncritically by the Full Court,

that title can pass in two streams between parties

who do not communicate and that that constitutes a

sale, is one which we say is fundamentally at

variance with contract law.

May I go back, Your Honours, to the first

branch of the case and simply say this, that we would have thought there was no issue about the

first four paragraphs of the outline which we have

Sonenco 4 17/9/93

handed up. In particular as to the fourth

paragraph, the matter in paragraph (a) was an

agreed fact and the matter in paragraph (b) was, in

effect, the basis of my friend's case on one branch

of it.

The issue which was debated, perhaps more

between bench and bar than between opposing ends of

the bar, was the operation of the Factors Act. The

Full Court expressed its reasons very shortly at

pages 97 and 98 of the appeal book. Your Honours

can, for present purposes, disregard what appears before that because it is really little more than

an account of the facts.

BRENNAN J:  Mr Slater, can I just take you back to your

paragraph 4. Is it implicit in your paragraph 4

that your first point, that is the transmission of

title from Citicorp to the taxpayer, was

conditional upon notification to Citicorp before

title passed to the customer?

MR SLATER:	Yes, Your Honour, we would say that there can be no passage of title between Citicorp and our client
unless there is some assent to that in some fashion or other, and Citicorp never assented because it
did not know about the transactions.
BRENNAN J:	If in the course of dealing between two parties,

such as these parties, the title is made to pass to

the ultimate customer of the floor plan contractor
and the course of dealing is such that notification

is given ex post facto, why would the inference not

be open that the intention of the parties is that

title should pass in order to feed the sale to the

customer?

MR SLATER:  The notion of feeding, Your Honour, is a notion

which protects the end purchaser. The concept of

feeding the estoppel is one whereby - - -

BRENNAN J:  I am not suggesting feeding estoppel, what I am

suggesting is that the intention of the parties to

be derived (a) from the contractual terms, (b) from

their course of dealing.

MR SLATER:	The difficulty with that, Your Honour, is that that would involve the conception that the title
passed along the chain not merely from Citicorp to
my client, the wholesaler, but then on through the
retailer and to the customer.

BRENNAN J: As between Citicorp and your client, which is

the relevant step with which your first argument is

concerned, it would be a question of the intention

to be derived from the circumstances I have

outlined as between them, would it not?

Sonenco	17/9/93
MR SLATER:	Yes, Your Honour.
BRENNAN J:	Now restricting it to that, why would the

inference not be drawn?

MR SLATER:  It would not be drawn, Your Honour, because in

our respectful submission the title would already

have passed to the retail customer.

BRENNAN J: Well, in each case, it would have passed under

the Factors Act, yes.

MR SLATER:	So that although there might be an intention in the way in which the parties implemented the
bailment arrangement that title should pass to the
wholesaler, our client, from Citicorp, that
intention was frustrated because by the time that that intention was to be implemented, whether by
virtue of express agreement or by virtue of a course of conduct, title had already departed
Citicorp.
BRENNAN J:	In which event there would be no consideration for the payment of the purchase price to Citicorp?

MR SLATER: That would be right, Your Honour, except that

our client would then be - - -

BRENNAN J: It seems an extraordinary result, does it not?

MR SLATER:  It does, Your Honour, but statutory deemings,

which is what section 5 is, does create

extraordinary results and the position would be, so

far as Citicorp was concerned, that our client

would be estopped from denying against it, by

virtue of the very implied assumption that

Your Honour puts to me, from seeking to claim back from Citicorp the moneys paid or seeking to resist

a demand by Citicorp for those moneys.

BRENNAN J: But it does highlight, does it not, that the

inferences to be drawn in this case are material to
the ultimate legal question that you seek to

agitate?

MR SLATER:  They are, Your Honour, but in our respectful

submission they have not been addressed by the

courts below.

BRENNAN J:  The courts below say that these are facts which

are not altogether clear or where the issues depend

on facts that are not altogether clear.

MR SLATER:  To an extent, Your Honour, what I am putting to

Your Honour is circular, because of the nature of

the argument. The critical facts, we would say,

are felicitously clear, that at the time that the

Sonenco 6 17/9/93

customer acquired title Citicorp was aware of, and

had not assented to, the transaction and that at

the time that Citicorp assented to the transaction,

the title had already passed.

DAWSON J: There is a difference, surely, between a deemed

passing of title and an actual passing of title.

MR SLATER:  No, Your Honour, not when it is a statutory

deeming.

DAWSON J:	I can see a distinction.
MR SLATER:	I would be happy to respond, Your Honour,

but - - -

DAWSON J: They are two different streams. When there is a

deemed passing of title, one is precluded from

contesting it, but if something which is not is

deemed to be so, one can still contemplate it

actually becoming so.

MR SLATER:  Yes, Your Honour, except that a provision such

as - - -

DAWSON J:  And that might be crucial law. The court though

it was crucial.

MR SLATER:  There are two ways in which deeming can be used.

One is that a deeming can be contra the facts and

the other is the deeming can simply emphasize the

facts and preclude contesting of them.	We would
say this is the second.

DAWSON J:  The statute does not put it that way, the statute

says "as if".

MR SLATER:  I am sorry, Your Honour is entirely correct.

May I respond to it this way, that the effect of

the deeming is an effect which operates for all

purposes, that is there is not, and there should

not be taken to be - - -

DAWSON J:  Why cannot you say, look, under the statute it

was as if the mercantile agent had authority, but

now, looking at the actual facts, there is no "as

if" about it, title did pass in another manner.

MR SLATER:  No, Your Honour, because the effect of the "as

if" is to give the mercantile agent the authority

to bind the true owner.	So that the true owner is
bound by those acts.

DAWSON J: Put it another way: if it actually happened, you

do not ever get to the "as if".

Sonenco	17/9/93
MR SLATER:	When Your Honour says "if it actually

happened", if there was direct and overt authority

to the mercantile agent to sell -

DAWSON J:  No, if the title passed by some other means,

actually passed. Anyway, that is the line of

reasoning that the court adopted.

BRENNAN J:  I think we understand the first point. The

first point that you wish to agitate is the effect of the Factors Act on the transmission of title to the customer that you say, in a sense,

short circuited everything and resulted in a

transmission of title from Citicorp to the

customer.

MR SLATER:  And we say, Your Honour, that what the Federal

Court has said about that is to distort the law as

a matter of mercantile law. The only point of

taking Your Honours to the report of the Federal

Court's decision, which is on the last page of the

materials handed up, is to draw Your Honours'

attention - and perhaps Your Honours will say that

this is somebody else's mistake or not - to the way

in which the case is advanced as authority in the

official reports of the Federal Court, and that is

that it is said on page 556, and paragraph (4) of

the headnote, that:

Section 5 of the Factors (Mercantile Agents)

Act ..... deal only with retail transactions -

That is the last page of the middle bundle of

documents that was handed up, Your Honours. And

that is simply contrary to what Your Honours said

in Gamers' case.

BRENNAN J:  I think we understand the point, Mr Slater.

Now, what about the second point. Assuming that one

fails, the transmission from Sonenco to the

customer via Hopkins.

MR SLATER:  Your Honours, the basis of reasoning of

Justice Davies at first instance, which appears in the extract at page 41 of the appeai book~ is that

title was - and this is a couple of lines below the

15 in the right-hand margin:

Title was to pass from [the appellant] in two

streams to be reunited in McLeod Ford -

His Honour the trial judge also took as sufficient

to support a sale that payment by the putative
purchaser to party X and receipt by the putative

vendor from another party Y was sufficient, taken with this notion of title flowing in two streams,

to amount to a sale. It is our submission that

Sonenco 8 17/9/93

that is completely outside the concept of sale as

it operates at common law and, in our submission,

sales tax law must take the parties as it find

them, just as must income tax law. It must take
the effect of the transactions at common law. It

cannot create some different scheme of contractual
dealing for the purpose of attaching liability,

particularly when regard is had to the fact that sales tax is a self-assessing tax, that is it is

not one in which the administrator, the ordinary course, works out what the result is and tells the taxpayer. The taxpayer has to work it out for himself and pay the Commissioner and the taxpayer must be entitled to take the results of

transactions as they are for every other purpose

and apply the sales tax law to them.

Those are our submissions on the second point,

if Your Honours please.

BRENNAN J:  Now what do you say about the question of

whether this Court should grant - and this was a
case which, I think, by common consent was, as the

Full Court described it, artificial and extraordinary in commercial terms.

MR SLATER: Yes, Your Honour, we do not shrink from that.

BRENNAN J: You do not shrink from that. What do you say

about the grant of special leave by this Court in a

case where the nature of the transaction is one of

that kind and where the purpose of the appeal is

simply to achieve the object of the scheme?

MR SLATER:  May I take the two parts of Your Honour's

question separately? First as to the nature of the

part, Your Honours, we say that tax avoidance of

its nature is something which stretches the

boundaries of the law or reaches to the boundaries

of the law and it has always been the case that

this Court entertains, and often develops, the law

by looking at those issues. And we have instanced

Norman's case, which was a tax avoidance arrangement, as was Shepherd's case, John's case,

the Brookton Co-operative case, I mean I

could - - -

BRENNAN J:	It can do so, but the question is whether those are cases which ought to attract the grant of
special leave, conscious of the fact that the Full
Federal Court, in the ordinary course of events,
will be the court to determine the operation of the
fiscal legislation.
MR SLATER:	If it were only a matter of whether or not the tax avoidance arrangement provisions worked,

Sonenco 9 17/9/93

Your Honour, there would be very little I could say

to Your Honours. The point on which we submit that

this Court ought to consider this case is the point

of mercantile law which this case has brought to

the fore.

I am sorry, Your Honour did put to me a second

point and it has just momentarily slipped my mind.

BRENNAN J: It has momentarily slipped mine, too. But I

think what I was concerned to raise with you is

whether, when the Full Federal Court is the court
which ordinarily deals with these matters, why we

should grant special leave.

MR SLATER:  If it were simply a matter of interpreting an

anti-avoidance legislation which was of limited

significance beyond the particular scheme, then

there would be little I could say to Your Honour.

BRENNAN J:  If you put it then on the basis of the

mercantile law point - - -

MR SLATER:  Your Honour asked me why this taxpayer should

have the benefit of it and make the scheme work.

That goes to the question whether this is the

taxpayer against whom the tax ought to have been
levied and, in our respectful submission, the

taxpayer against whom the tax ought to have been levied was Hopkins. He was the one who made the

last wholesale sale and for whose benefit the

divergence of title arrangement was implemented. This company was merely incidental and it is not

truly the company upon which the tax liability

ought to have fallen.

BRENNAN J: Until Hopkins' arrangements were put in place,

was not the chain of title from Citicorp to Sonenco

to McLeod Ford?

MR SLATER:  No, Your Honour, this company was established for the sole purpose of undertaking the Hopkins'

arrangement. Before the Hopkins' arrangement, this

company had no part to play in the commercial

activities of McLeod Ford.

BRENNAN J: Where did the title go to from Citicorp?

MR SLATER: Before that it went by a circuitous route, at

least according to the intention of the parties.

It went from Citicorp to Ford Sales Limited, a subsidiary of the Ford Motor Company, which then sold through McLeod Ford as its mercantile agent.

And so far as the evidence discloses, that was done

for warranty purposes. If Your Honours please,

those are our submissions.

Sonenco	10	17/9/93
BRENNAN J:	Yes.	Can I just ask you one further question.

If you rely, as you do, on the construction of the

Factors Act as a relevant consideration, ought that

not be a question that arises in some concrete case

where the question of passing of title arises as

between the putative owner and the purchaser?

MR SLATER:  If Your Honour is putting to me that the

question will be better tested in a case where

somebody in the position of a consumer was a party,

we would say no, Your Honour, because it is

in precisely an investigation of this nature where a party aliunde the transaction, the Commissioner, comes in and asserts that the transaction takes a

different form, that these issues arose.

BRENNAN J:  I was thinking rather of the case in which

Citicorp sued Sonenco for the price and Sonenco

said we have no title.

MR SLATER:  Perhaps that would raise the point as clearly as

it is raised here, Your Honour, but it is raised

equally clearly here, in our submission. If

Your Honours please.

BRENNAN J:	Mr Bennett, are you supporting this application?
MR BENNETT:	No, Your Honour.

BRENNAN J: Then we do not need to hear you further.

MR BENNETT: If the Court pleases.

BRENNAN J: Where the Full Court of the Federal Court has

held that a tax avoidance scheme is artificial and

extraordinary in commercial terms and fails in its

purpose, as the Full Court has held in this case,

so that the taxpayer is held liable to the extent

to which it would have been liable had it not

entered into the scheme, a grant of special leave

will not be made to review such a decision unless	there is a particular issue which the case will
necessarily determine and which, in the public
interest, ought to be determined by this Court on
appeal, or there is some other compelling reason
for the grant of special leave.

In the present case, the applicant seeks to

raise a number of issues which include the

following:

1.    whether the floor plan agreement resulted in a

sale, that is the passing of title, from
Citicorp to the taxpayer; and

2.     whether there was a sale by the taxpayer to

Hopkins and by Hopkins to McLeod Ford.

Sonenco 11 17/9/93

The issues which the applicant seeks to raise in this case are particularly unsuited to the grant of

special leave.

As the Full Court of the Federal Court noted, both issues depend to some extent upon conclusions

with respect to the facts, many aspects of which

are controversial. For these reasons, the case is not one which attracts the grant of special leave.

Special leave is accordingly refused.

MR BENNETT:  I would ask for costs.

BRENNAN J: Refused with costs.

AT 11.22 AM THE MATTER WAS ADJOURNED SINE DIE

Sonenco 12 17/9/93