Star City Pty Limited v Commissioner of Taxation

[2007] FCA 1701

FEDERAL COURT OF AUSTRALIA

Star City Pty Limited v Commissioner of Taxation [2007] FCA 1701

TAXATION – Income tax avoidance scheme – Meaning and application of ‘scheme,’ ‘tax benefit,’ and ‘dominant purpose’ under Part IVA of Income Tax Assessment Act 1936 (Cth) – Whether series of disjointed steps may be considered a ‘scheme’ – Whether a ‘tax benefit’ is obtained where no reasonable alternative form (ie, ‘alternative postulate’) of transaction was available – Whether ‘dominant purpose’ of transaction was to obtain tax benefit where form and structure were subject to constraints outside control of party taking deduction – Meaning of ‘incurrence,’ ‘capital outgoing,’ and ‘revenue outgoing’ – When an expenditure is incurred in relation to producing assessable income – When lump-sum or up-front lease payment is a non-deductible outgoing of capital or of a capital nature or deductible revenue outgoing – Penalties – Whether position is ‘reasonably arguable’

CONTRACTS – Admissibility of extrinsic evidence where contractual language read in context is unambiguous – Contemporaneously executed documents as context in interpreting contract – Objective factual background of contract – Relevant factual matrix of contract – Surrounding circumstances and background – Whether negotiations are part of objective factual background to be used in contract interpretation – Relevance of communications between entities or persons not party to the contract

PRACTICE AND PROCEDURE – Court books – Relevance and admissibility of evidence – Whether joint or consensual tender of evidence may be made without consideration of relevance and admissibility

Casino Control Act1992 (NSW) ss 3, 4(1), 5, 6, 7, 9, 10, 18, 19, 21, 114, 115, 116, 120, 133, 140
Evidence Act 1995 (Cth) s 55
Income Tax Assessment Act 1936 (Cth), ss 51(1), 177A, 177C, 177D, 177F, 224, 225, 226, 226K, 226L, 226AA
Income Tax Assessment Act 1997 (Cth) ss 1-3, 8-1
Taxation Administration Act 1953 (Cth) ss 284-145, 284-160

Explanatory Memorandum to the Tax Law Improvement Bill 1996 (Cth)

Administration of Papua and New Guinea v Daera (1973) 130 CLR 353 applied
Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 followed
Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 cited
Calder v Commissioner of Taxation (2005) 226 ALR 643 followed
Cape Flattery Silica Mines Pty Ltd v FCT (1997) 36 ATR 360 followed
Chacmol Holdings Pty Ltd v Handberg (2005) 215 ALR 748 followed
City Link Melbourne Ltd v Commissioner of Taxation (2004) 141 FCR 69 followed
Cliffs International Inc v FCT (1979) 142 CLR 140 (Stephens J dissenting) approved
Colonial Mutual Life Assurance Society Ltd v Federal Commissioner of Taxation (1953) 89 CLR 428 followed
Commissioner of Taxation (Cth) v Broken Hill Pty Co Ltd (2000) 179 ALR 593 considered
Commissioner of Taxation v Citylink Melbourne Ltd (2006) 228 CLR 1 applied
Commissioner of Taxation (Cth) v South Australian Battery MakersPty Ltd (1978) 140 CLR 645 considered
Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 followed
Darling Casino Ltd v New South Wales Casino Control Authority (1997) 191 CLR 602 cited
Duke of Westminster’s Case [1936] AC 1 cited
EA Greenwood (NSW) Pty Ltd v FCT 80 ATC 4039; (1980) 10 ATR 571 followed
Equuscorp Pty Ltd v Glengallan Investments Pty Ltd (No 2) (2005) 218 CLR 471 followed
Esso Australia Resources Ltd v FCT (1998) 84 FCR 541 cited
Farmer v Honan (1919) 26 CLR 183 considered
FCT v Consolidated Press Holdings Ltd (2001) 207 CLR 235 explained
FCT v Cooling (1990) 22 FCR 42 followed
FCT v Mochkin (2003) 127 FCR 185 followed
FCT v Payne (2001) 202 CLR 93 discussed
FCT v Raymor (NSW) Pty Ltd (1990) 24 FCR 90 discussed
Federal Commissioner of Taxation v Cooper Brookes (Wollongong) Pty Ltd (1979) 10 ATR 128 cited
Federal Commissioner of Taxation v Hart (2004) 217 CLR 216 applied
Federal Commissioner of Taxation v James Flood Pty Ltd (1953) 88 CLR 492 applied
Federal Commissioner of Taxation v South Australian Battery Makers Pty Ltd (1978) 140 CLR 645 considered
Federal Commissioner of Taxation v Spotless Services Ltd & Anor (1996) 186 CLR 404 followed
Frank Lyon Co v United States (1978) 435 US 561 referred to
GP International Pipecoaters Pty Ltd v Federal Commissioner of Taxation (1990) 170 CLR 124 considered
Hallstroms Pty Ltd v Federal Commissioner of Taxation (1946) 72 CLR 634 followed
JB Chandler Investment Company Ltd v Federal Commissioner of Taxation (1993) 47 FCR 588 considered
John Fairfax & Sons Pty Ltd v Federal Commissioner of Taxation (1959) 101 CLR 30 followed
Jupiters Ltd v Deputy Commissioner of Taxation (2001) 48 ATR 511 distinguished
Jupiters Ltd v Deputy Commissioner of Taxation (2002) 118 FCR 163 cited
Krampel Newman Partners Pty Ltd v Commissioner of Taxation (2003) 126 FCR 561 followed
L Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235 applied
Macquarie Finance Ltd v Commissioner of Taxation (2005) 146 FCR 77 followed
Ocelota Pty Ltd v Water Administration Ministerial Corp [2000] NSWSC 370 cited
Payne; Fletcher v Federal Commissioner of Taxation (1993) 173 CLR 1 followed
Pridecraft Pty Ltd v Federal Commissioner of Taxation (2004) 213 ALR 450 followed
Ronpibon Tin NL and Tongkah Compound NL v Federal Commissioner of Taxation (1949) 78 CLR 47 followed
Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 followed
Sinclair, Scott & Co Ltd v Naughton (1929) 43 CLR 310 at 327 considered
Starr v Commissioner of Taxation 2007 ATC 4080 cited
Sun Newspapers Ltd v Federal Commissioner of Taxation (1938) 61 CLR 337 applied
Vincent v FCT (2002) 124 FCR 350 followed
W Nevill & Co Ltd v Federal Commissioner of Taxation (1937) 56 CLR 290 cited
Walstern Pty Ltd v Commissioner of Taxation (2003) 138 FCR 1 applied
Walters v Commissioner of Taxation [2007] FCA 1270 followed
Wilkie v Gordian Runoff Ltd (2005) 221 CLR 522 followed

STAR CITY PTY LIMITED (ABN 25 060 510 410) v COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA
VID 915 OF 2005

STAR CITY PTY LIMITED (ABN 25 060 510 410) v COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA
VID 916 OF 2005

STAR CITY PTY LIMITED (ABN 25 060 510 410) v COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA
VID 917 OF 2005

STAR CITY PTY LIMITED (ABN 25 060 510 410) v COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA
VID 918 OF 2005

STAR CITY PTY LIMITED (ABN 25 060 510 410) v COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA
VID 919 OF 2005

STAR CITY PTY LIMITED (ABN 25 060 510 410) v COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA
VID 920 OF 2005

GORDON J
9 NOVEMBER 2007
MELBOURNE

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VID 915 OF 2005

BETWEEN:	STAR CITY PTY LIMITED (ABN 25 060 510 410) Applicant
AND:	COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Respondent

JUDGE:	GORDON J
DATE OF ORDER:	16 NOVEMBER 2007
WHERE MADE:	MELBOURNE

THE COURT ORDERS THAT:

1.The appeal be allowed.

2.The respondent’s decision of 17 June 2005 to disallow the applicant’s objection dated 3 February 2004 to its assessment to tax in the year of income ended 31 December 1996 (in substitution for the year ended 30 June 1997) served by notice dated 16 December 2003 is set aside and in lieu thereof it is ordered that the objection be allowed in full and the assessment be amended accordingly.

3.The respondent pay the applicant’s costs of the proceeding including any reserved costs.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VID 916 OF 2005

BETWEEN:	STAR CITY PTY LIMITED (ABN 25 060 510 410) Applicant
AND:	COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Respondent

JUDGE:	GORDON J
DATE OF ORDER:	16 NOVEMBER 2007
WHERE MADE:	MELBOURNE

THE COURT ORDERS THAT:

1.The appeal be allowed.

2.The respondent’s decision of 17 June 2005 to disallow the applicant’s objection dated 13 February 2004 to its assessment to tax in the year of income ended dated 30 June 2000 served by notice dated 22 December 2003 is set aside and in lieu thereof it is ordered that the objection be allowed in full and the assessment be amended accordingly.

3.The respondent pay the applicant’s costs of the proceedings including any reserved costs.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VID 917 OF 2005

BETWEEN:	STAR CITY PTY LIMITED (ABN 25 060 510 410) Applicant
AND:	COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Respondent

JUDGE:	GORDON J
DATE OF ORDER:	16 NOVEMBER 2007
WHERE MADE:	MELBOURNE

THE COURT ORDERS THAT:

1.The appeal be allowed.

2.The respondent’s decision of 17 June 2005 to disallow the applicant’s objection dated 13 February 2004 to its assessment to tax in the year of income ended 30 June 2001 served by notice dated 22 December 2003 is set aside and in lieu thereof it is ordered that the objection be allowed in full and the assessment be amended accordingly.

3.The respondent pay the applicant’s costs of the proceeding including any reserved costs.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VID 918 OF 2005

BETWEEN:	STAR CITY PTY LIMITED (ABN 25 060 510 410) Applicant
AND:	COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Respondent

JUDGE:	GORDON J
DATE OF ORDER:	16 NOVEMBER 2007
WHERE MADE:	MELBOURNE

THE COURT ORDERS THAT:

1.The appeal be allowed.

2.The respondent’s decision of 17 June 2005 to disallow the applicant’s objection dated 13 February 2004 to its assessment to tax in the year of income ended 30 June 2002 served by notice dated 24 December 2003 is set aside and in lieu thereof it is ordered that the objection be allowed in full and the assessment be amended accordingly.

3.The respondent pay the applicant’s costs of the proceeding including any reserved costs.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VID 919 OF 2005

BETWEEN:	STAR CITY PTY LIMITED (ABN 25 060 510 410) Applicant
AND:	COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Respondent

JUDGE:	GORDON J
DATE OF ORDER:	16 NOVEMBER 2007
WHERE MADE:	MELBOURNE

THE COURT ORDERS THAT:

1.The appeal be allowed

2.The respondent’s decision of 17 June 2005 to disallow the applicant’s objection dated 13 February 2004 to its assessment of penalties for having a tax shortfall amount in the year of income ended 30 June 2001 served by notice dated 30 December 2003 is set aside and in lieu thereof it is ordered that the objection be allowed in full and the assessment be amended accordingly.

3.The respondent pay the applicant’s costs of the proceeding including any reserved costs.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VID 920 OF 2005

BETWEEN:	STAR CITY PTY LIMITED (ABN 25 060 510 410) Applicant
AND:	COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Respondent

JUDGE:	GORDON J
DATE OF ORDER:	16 NOVEMBER 2007
WHERE MADE:	MELBOURNE

THE COURT ORDERS THAT:

1.The appeal be allowed.

2.The respondent’s decision of 17 June 2005 to disallow the applicant’s objection dated 13 February 2004 to its assessment of penalties for having a tax shortfall amount in the year of income ended 30 June 2002 served by notice dated 30 December 2003 is set aside and in lieu thereof it is ordered that the objection be allowed in full and the assessment be amended accordingly.

3.The respondent pay the applicant’s costs of the proceeding including any reserved costs.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

STAR CITY PTY LIMITED (ABN 25 060 510 410)

Applicant

THE COMMISSIONER OF TAXATION

Respondent

INDEX

CONTENT	PARA
A	Introduction	[1] – [7]
B	The Bases on which the Litigation was Conducted	[8] – [11]
C	The Contract Issue – The Prepayment was an obligation of Star City	[12]
(1)       The Statutory Framework	[13] – [18]
(2)       The Transaction Documents	[19] – [20]
(a)       Casino Licence	[21] [22]
(b)       Casino Duty and Community Benefit Levy Agreement	[23] – [25]
(c)       Casino Exclusivity Agreement	[26] – [28]
(d)       Construction Lease	[29] – [31]
(e)       Occupational Licence Agreement	[32] – [38]
(f)        Continuity and Co-operation Agreement	[39] – [40]
(g)       Facility Agreement	[41]
(h)       Freehold Lease	[42] – [44]
(3)       Analysis	[45] – [70]
D	The Taxation Issues
(1)       The Prepayment was an outgoing incurred by Star City	[71] – [80]
(2)       The Capital / Revenue Issue	[81] – [116]
(3)       Part IVA Issue	[117] – [154]
(4)       Penalties	[155] – [167]
E	Conclusion and Orders	[168]

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VID 915 – 920 OF 2005

BETWEEN:	STAR CITY PTY LIMITED (ABN 25 060 510 410) Applicant
AND:	COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Respondent

JUDGE:	GORDON J
DATE:	9 NOVEMBER 2007
PLACE:	MELBOURNE

REASONS FOR JUDGMENT

A.       INTRODUCTION

1. On 14 December 1994, the New South Wales Casino Control Authority (“CCA”) granted a casino licence to the applicant, Star City Pty Limited, previously known as Sydney Harbour Casino Pty Limited (“Star City”). Star City is a wholly owned subsidiary of Sydney Harbour Casino Holdings Pty Ltd (“Holdings”).

2. On the same date, the CCA granted a lease (“the Construction Lease”), containing an agreement to grant a further lease (“the Freehold Lease”), to Sydney Harbour Casino Properties Pty Limited (“SHCP”) of Crown land at Pyrmont Bay in Sydney Harbour (“the Premises”) for a cumulative term of 99 years.  SHCP is also a wholly owned subsidiary of Holdings.  The Construction Lease and the Freehold Lease provided that the rent for the first 12 years of that total term was $15 million per annum and thereafter $250,000 per annum. 

3. It was a further term of the leases that the rent for the first 12 years would be prepaid by a payment of $120 million within 21 days of the commencement of the Construction Lease (“the Prepayment”).  The Construction Lease commenced on 14 December 1994.  The Prepayment was paid by Holdings to the CCA on 15 December 1994.

4. Also on 14 December 1994, SHCP and Star City entered into an Occupational Licence Agreement – Permanent Site (“the Occupational Licence Agreement”) under which SHCP granted Star City the non-exclusive licence to occupy and use the Premises.

5. Star City claimed the Prepayment as a deduction under s 51(1) of the Income Tax Assessment Act1936 (Cth) (“the 1936 Act”) and / or s 8-1 of the Income Tax Assessment Act 1997 (Cth) (“the 1997 Act”) and s 82KZM of the 1936 Act as follows:

Period	Amount of Deduction ($)
Year ending 30 June 1995	$6,509,589
Year ending 30 June 1996	$12,026,287
1 July 1996 to 31 December 1996	$6,046,002
1 January 1997 to 31 December 1997	$12,000,000
1 January 1998 to 31 December 1998	$12,000,000
1 January 1999 to 30 June 2000	$17,983,562
Year ending 30 June 2001	$12,000,000
Year ending 30 June 2002	$12,000,000

The Commissioner of Taxation of the Commonwealth of Australia (“the Commissioner”) disallowed the deductions and imposed penalties. 

1. There are four issues:

   (1)whether the Prepayment was an obligation of Star City or, as the Commissioner contended, an obligation of SHCP (“the Contract Issue”);

   (2)whether the Prepayment was an outgoing incurred by Star City in gaining or producing assessable income under s 51(1) of the 1936 Act and / or s 8-1 of the 1997 Act (“the Incurrence Issue”)? The answer to the Incurrence Issue depends, to a significant extent, on the answer to the Contract Issue.

   (3)if yes to (2), whether the Prepayment was an outgoing of capital or of a capital nature (the “Capital / Revenue Issue”)?

   (4)if the Prepayment was an outgoing incurred by Star City in gaining or producing assessable income and was not of capital or of a capital nature, did Part IVA of the 1936 Act operate to disallow the deduction (“the Part IVA Issue”)?

2. For the reasons that follow, I would allow each of the appeals. The Prepayment is deductible under s 51(1) of the 1936 Act and / or s 8-1 of the 1997 Act. Further, the Prepayment was not an outgoing of capital or of a capital nature and Part IVA did not apply to otherwise disallow the deductibility of the Prepayment. The Commissioner concedes that that if the Prepayment is deductible then Star City was entitled (as it did) to claim a proportion of the deduction in each year of income in accordance with the formula in s 82KZM of the 1936 Act: see [5] above.

   B.       THE BASES ON WHICH THE LITIGATION WAS CONDUCTED

3. Before proceeding to address each of the substantive issues, it is necessary to address the bases on which the litigation was conducted.

   The documentary material

4. At the hearing, subject to some minor objections, a court book comprising 5 volumes of documents (approximately 2000 pages) was sought to be tendered by the parties by consent. I rejected the tender on that basis and required Star City and the Commissioner to address the question of the admissibility of each document by reference to the issues in the case: see s 55 of the Evidence Act 1995 (Cth). I did so because an unfortunate practice has developed of seeking to tender, often by consent, a court book (usually comprising a number of volumes) which, out of an abundance of caution on the part of the legal advisers, includes copies of a large number of documents without any apparent consideration of questions of admissibility. Documents are not admissible on that basis. Each issue needs to be considered separately. Material admissible on one issue may be inadmissible on another issue. There are no short cuts. Seeking to have the trial judge at the end of a trial work through a court book comprising a number of volumes to determine which document or documents are relevant to which issue or issues is not only unsatisfactory but inevitably leads to submissions being made based upon material which is inadmissible. The approach adopted by the parties necessarily results in these reasons for decision being longer and more detailed than they otherwise might be. I address the relevance (and admissibility) of particular documents in the context of each of the issues.

5. The Commissioner’s submissions referred to and placed reliance upon some of the events that took place over a period of months in the course of the New South Wales (“NSW”) Government seeking applicants to bid for the right to conduct a casino in NSW and ultimately awarding that right to the group of investors forming the Star City Consortium (“the Bid Process”).  Extracting part of the Bid Process without recognising the consequences of so doing necessarily means that any assessment based on part of the Bid Process is or is very likely to be incomplete and inaccurate, yet that is what the Commissioner would have the Court do.   The documents referred to by the Commissioner (and the facts said to be established by them) are incomplete and inaccurate because they were merely part of the Bid Process and, even then, a disconnected and disjointed part.   The conclusions or inferences the Commissioner would have the Court draw were not open because, when viewed objectively, the Bid Process was very different from that which the Commissioner submitted it to be.   The documents and facts referred to by the Commissioner had been taken out of context and, viewed objectively, did not lead to the conclusions contended for by the Commissioner.   To understand the Bid Process and, in particular, the Prepayment, it is necessary in this case to have regard to the whole of the Bid Process.   That is a lengthy task.   The Bid Process was spread over some 9 months and involved complicated arrangements.   Accordingly, I have taken the unusual step of including a summary of the Bid Process as I find it to have occurred as an annexure to these reasons rather than setting it out in this part of the reasons for decision.   I do so because, as I have said, it is necessary to understand the whole of the Bid Process but to include the lengthy description of that process at this point would distract attention from the development of the reasoning that is ultimately determinative of the case.

   The Prepayment

1. Both parties conducted the litigation on the basis that cl 2.1 of the Construction Lease and cl 2.1 of the Freehold Lease required SHCP to make the Prepayment which, without mutual agreement, was non-refundable. That is to say, the litigation was conducted on the basis that the agreements made between the CCA and SHCP left no room for the operation of s 144 of the Conveyancing Act1919 (NSW). It is unnecessary therefore to examine issues of the kind considered by Hodgson CJ in Ocelota Pty Ltd v Water Administration Ministerial Corp [2000] NSWSC 370 and the authorities cited in [72] and [75] of that decision.

   C.       THE CONTRACT ISSUE:  THE PREPAYMENT WAS AN OBLIGATION OF STAR CITY

2. On 14 December 1994, a suite of documents was signed or executed by Star City, SHCP, the CCA and the Treasurer of NSW (“the Transaction Documents”).  Neither the identity of the parties to nor the express terms of the Transaction Documents are in dispute.  Before identifying the Transaction Documents, it is necessary to understand the statutory framework in which they were executed.

   (1)       THE STATUTORY FRAMEWORK

3. In New South Wales, the conduct and playing of a game of chance or a game that is partly a game of chance and a game requiring skill and the use of gaming equipment is lawful when the game is conducted and the gaming equipment is provided in a casino by an operator that is the holder of a licence for that casino under the Casino Control Act1992 (NSW) (“the Casino Control Act): see s 4(1) (read with s 3) of the Casino Control Act. In 1994, the Casino Control Act, so far as is relevant, contained the following provisions.

4. Part 2 of the Casino Control Act was headed “Licensing of Casino”. It provided that only one casino licence could be in force at a particular time and a casino licence applied to one casino only: s 6.

5. The CCA was a statutory body created under the Casino Control Act whose objects “[were] to maintain and administer systems for the licensing, supervision and control of a casino” for stated purposes: ss 133 and 140 of the Casino Control Act. The CCA was not subject to the direction or control of the Minister except to the extent specifically provided for in ss 5, 7, 9 and 10 of the Casino Control Act. Section 5 may for present purposes be put to one side.

6. Under s 7, a Minister’s direction to the CCA as to the permissible location for a casino was not permitted to specify a particular site unless the site was vested in the Crown: s 7(3). In the present case, the Premises were vested in the Crown. Under s 19, the boundaries of the casino were defined initially by being specified in the casino licence and could not extend beyond the boundaries of the location for which the casino licence was originally granted: ss 19(1) and 19(4).

7. The Casino Control Act permitted the CCA, at the direction of the Minister, to publicly invite expressions of interest for the establishment and operation of a casino (s 9) and for a casino licence (s 10). An application for a casino licence had to comply with specified requirements as to form and content: ss 10(4) and (5). A casino licence, once issued, conferred no right of property and was incapable of being assigned or mortgaged, charged or otherwise encumbered: s 21.

8. Part 8 of the Casino Control Act was headed “Casino Duty and Community Benefit Levy”. A casino operator was liable for payment of any duty, levy or interest payable under Pt 8 in respect of the operator’s casino licence and it was a condition of that licence that the operator had to pay those amounts: s 120. Sections 114 and 115 in Pt 8 of the Casino Control Act prescribed the duties and levies to be paid to the CCA. Section 114 imposed what was described as the ‘Casino Duty’. Section 115 imposed a ‘Community Benefit Levy’. Section 116 provided that any agreement or determination in relation to ss 114 and 115 was to be in writing and entered into by the Treasurer of NSW.

   (2)       THE TRANSACTION DOCUMENTS

9. The Transaction Documents included the following eight documents, all but two of which were executed on 14 December 1994:

   (1)       the Casino Licence;

   (2)       the Casino Duty and Community Benefit Levy Agreement;

   (3)       the Casino Exclusivity Agreement;

   (4)       the Construction Lease;

   (5)       the Occupational Licence Agreement;

   (6)       the Continuity and Co-operation Agreement;

   (7)       the Facility Agreement, which was in fact executed on 22 April 1994; and

   (8)       the Freehold Lease, which was in fact executed in 1997.

10. The Commissioner contends that none of these documents obliged Star City to make the Prepayment.  However, an examination of the rights and obligations conferred and imposed on the parties to the Transaction Documents demonstrates that this view is in error.  It is therefore necessary to refer to the Transaction Documents in some detail because it is only with an understanding of the rights and obligations of the parties to those documents that the Contract Issue can be resolved.

    (a)       Casino Licence

11. On 14 December 1994, pursuant to s 18 of the Casino Control Act, a casino licence was granted by the CCA to Star City “to operate the Casino [defined as the Temporary Site and the Permanent Site] for the period, at the location and on and subject to the conditions hereafter appearing” (“the Casino Licence”). The Casino Licence commenced on 14 December 1994 and was for 99 years: cl 3 read with cl 1.1. Consistent with s 21 of the Casino Control Act, cl 2 of the Casino Licence stated that it “[did] not confer any right of property and [was] incapable of being assigned, mortgaged, charged or otherwise encumbered.”

12. Conditions attaching to the Casino Licence which were prescribed by the Casino Control Act were set out: see cll 5 and 7 to 16. One condition required Star City to “pay the amount of any duty, levy or interest payable under Part 8 of the [Casino Control] Act pursuant to section 120 [of the Casino Control Act]”:  cl 14.

    (b)       Casino Duty and Community Benefit Levy Agreement

13. As noted earlier (see [18]), the Casino Duty and the Community Benefit Levy were payable by a casino operator under Pt 8 of the Casino Control Act. On 14 December 1994, the Treasurer of NSW and Star City executed the Casino Duty and Community Benefit Levy Agreement. No other entity was a party to this agreement.

14. The recitals recorded:

    “A.Contemporaneously with execution of this Deed, the [CCA] granted the [Casino] Licence to [Star City].

    B.Pursuant to section 120 of the [Casino Control] Act, it is a condition of [the Casino] Licence that [Star City] must pay any duty levy or interest payable under Part 8 of the [Casino Control] Act.

    C.Pursuant to section 114(2)(a) and section 115(2)(a) of the [Casino Control] Act, the Treasurer and [Star City] have reached agreement as to the amount of casino duty and amount of casino community benefit levy to be paid pursuant to Part 8 of the [Casino Control] Act and the times and manner … in which the same are due and payable.

    D.The casino duty payable pursuant to this Deed, during the period of 12 years commencing on the date upon which casino operations commence at the Temporary Casino, is payable in 3 forms:

    (a)a once only fixed amount, in consideration of the issue of the [Casino] Licence and the operation of the Casino Exclusivity Agreement;

    (b)weekly casino revenue duty payable in respect of the operation of the casino …;

    (c)a community benefit levy payable weekly as a percentage of Gross Revenue …”

15. The “once only fixed amount” referred to in Recital D(a) of the Agreement was called the ‘Specified Payment Amount’ which was defined to mean “the non-refundable lump sum casino duty referred to in clause 4 in the amount of $256,000,000”.  That amount was due and payable in full within 21 days of the issue of the Casino Licence:  cl 4.2.  Clause 4.3 stated that:

    “Once due and payable the Specified Payment Amount [was] not refundable in any circumstances and if any right to a refund or credit [arose] in the future in relation to the same[, Star City] waive[d] such right.”

    The ‘Specified Payment Amount’ was paid by Holdings on 15 December 1994. 

    (c)       Casino Exclusivity Agreement

16. The Casino Exclusivity Agreement was executed on 14 December 1994.  The parties were the CCA and Star City.  The Casino Exclusivity Agreement recorded that its execution was contemporaneous with the grant of the Casino Licence:  recital A.

17. In general terms, cl 3 provided that in consideration of Star City entering into the ‘Project Documents’, the CCA acknowledged and agreed that the Minister had directed that the permanent site was a permissible location for the Casino and that Star City was permitted to conduct casino operations.  The ‘Project Documents’ were defined by reference to the definition in a Compliance Deed executed on 22 April 1994 between the CCA and each of two short listed applicants for the Casino Licence to operate the Sydney Harbour Casino:  cl 1.3 of the Casino Exclusivity Agreement.  The Project Documents did not include the Casino Licence or the Occupational Licence Agreement.  The other documents listed in [19] above were Project Documents.

18. Clause 5.1 of the Casino Exclusivity Agreement provided that if during the Exclusivity Period a ‘Relevant Event’ occurred, the CCA would pay to Star City an amount of damages.  The Exclusivity Period was defined to mean 12 years and a ‘Relevant Event’ was defined to mean the grant of licence to a third party to operate another casino:  cl 1.1.

    (d)       Construction Lease

19. The Construction Lease was executed on 14 December 1994. The lease was granted by the CCA to SHCP. It commenced on 14 December 1994. It terminated on the date the Freehold Lease commenced. Clause 2.1 was entitled “Rent” and addressed rental payment generally in the following terms:

    “(a)[SHCP] covenants with the [CCA] that during the Term [SHCP] will pay to the [CCA] … the Rent provided for in Schedule 1 hereto.

    (b)[SHCP] shall pay the Rent in the manner specified in Schedule 1 PROVIDED HOWEVER that if the [CCA] shall exercise any right to require payment in one or more instalments then the [CCA] and [SHCP] agree that the provisions of section 144 of the Conveyancing Act 1919 shall not apply.

    (c)The [CCA] and [SHCP] agree that notwithstanding any other terms of this Lease the one and only circumstance where Rent paid in advance is likely to be refunded is if the Parties mutually agree to terminate this Lease and that Rent paid in advance shall be refunded.

    (d)If Rent shall be paid in advance beyond the termination date of this Lease and [SHCP] shall be entitled to the [Freehold Lease] then Rent paid beyond the Term of this Lease shall be applied to the Rent payable under the [Freehold Lease] in accordance with Part 16 and Schedule 1 to the [annexure to the Casino Operations Agreement] Lease Terms shall likewise be completed.”

    (Emphasis added.)

20. Schedule 1 provided specifically for the Prepayment in the following terms:

    “1.The Rent payable for the twelve years following the Lease Commencement Date as defined in this Lease (which period is referred to as the “Primary Rental Period”), which will be payable under this Lease and the [Freehold Lease], will be $15,000,000 per annum.

    2.Notwithstanding clause 1, the Parties have agreed that the rental payable during the Primary Rental Period shall be prepaid as set out in clause 3.

    3.On or before 12 noon (Sydney time) on the date which is 21 days after Lease Commencement Date, [SHCP] shall pay to the [CCA] an amount of $120,000,000 in immediately available and cleared funds in prepayment of the rental payable during the Primary Rental Period.”

21. Schedule 1 to the draft Freehold Lease (the draft Freehold Lease was attached to the Construction Lease as an exhibit) provided:

    “1.The rental payable will be at the rate of $15,000,000 per annum for the period of … being the balance of the Primary Rental Period.

    2.Notwithstanding clause 1, provided that the payment referred to in clause 2 of Schedule 1 to the Permanent Site Lease (Construction Lease) has been made, no further rental shall be payable in respect of the Primary Rental Period or any part thereof.

    3.In respect of the balance of the Term, rental will be payable at the rate of $250,000 per annum.”

    (e)       Occupational Licence Agreement

22. SHCP and Star City executed the Occupational Licence Agreement on 14 December 1994.  It appears that there was, in fact, an Occupational Licence Agreement in relation to the Temporary Site and a separate Occupational Licence Agreement in relation to the Permanent Site.  The title and terms of the Occupational Licence Agreement in relation to the Permanent Site which was tendered in evidence support such a view.  Neither the existence of an Occupational Licence Agreement in relation to the Temporary Site, nor (if it did exist) its terms, was the subject of direct evidence or submission.  Accordingly, the analysis is limited to the terms of the Occupational Licence Agreement in relation to the Permanent Site.

23. The Recitals to that Agreement recorded that SHCP had entered into the Construction Lease (recital A) and that, on the Permanent Casino being ready to commence business, the Freehold Lease would come into existence between SHCP and the CCA (recital B).  The recitals recorded that SHCP and Star City agreed that Star City was or would be entitled to be the licensee of the Permanent Site on the terms and conditions set out in the Occupational Licence Agreement. 

24. Clause 2.1(a) of the Occupational Licence Agreement entitled “Grant of Licence” provided that:

    “SHCP grant[ed] to [Star City] and [Star City] accept[ed] from SHCP a licence granting [Star City] a non-exclusive right to occupy the Permanent Site for the Term subject to the obligations and provisions set out in this Agreement.”

25. The “Term” was defined in cl 3.1 to:

    “commence on and from the date that [Star City] is entitled to occupy the Permanent Site to enable [Star City] to comply with its pre-opening services as set out in the Casino Complex Management Agreement and will continue for the term of the Freehold Lease.”

26. The Licence Fee was $1.00 per annum:  cl 4.1.  The Occupational Licence Agreement provided that the licence granted to Star City “under this Agreement” would terminate if the Casino Licence was cancelled or surrendered or the Construction Lease or the Freehold Lease was terminated:  cl 7.1.

27. In addition to the grant of the licence, cl 5 of the Occupational Licence Agreement entitled “Obligations of [Star City]” provided:

    “5.1[Star City] will ensure that (to the extent to which [Star City] is capable), SHCP does not breach any term or provisions of any agreement entered into with the Lessor of the Permanent Site, or any agreement with the [CCA] relating to the Permanent Site or the operation of the Casino Complex or the Casino Licence.  Without limiting the foregoing, [Star City] will not do any act, matter or thing or omit to do any act, matter or thing whereby the Lease or the Casino Licence are liable to be terminated, cancelled, suspended or liable to disciplinary action under Section 23 of the [Casino Control] Act or adversely affected in any manner.

    5.2[Star City] will pay and be responsible to ensure payment of all rent, outgoings, insurance premiums and payments for services that may be imposed on it under the terms of the Construction Lease or Freehold Lease.  [Star City] will provide such evidence as SHCP shall reasonably require of receipt of payment of each of these outgoings seven (7) days prior to the last date for payment of the same.

    5.3[Star City] will indemnify SHCP for any claims, actions, demands, losses, damages, costs and expenses for which SHCP is or may be liable or does or may suffer as a result of [Star City] not complying with its obligations under Clauses 5.1 or 5.2.”

    (Emphasis added.)

28. Clauses 6.1 and 6.2 of the Occupational Licence Agreement imposed mutual obligations on SHCP consistent with the obligations imposed on Star City under cl 5.1 and 5.3.  The terms of this agreement are considered in detail in Section C(3) below entitled “Analysis”.

    (f)       Continuity and Co-operation Agreement

29. The Continuity and Co-operation Agreement was executed on 14 December 1994.  The parties were the CCA, Star City, SHCP, Holdings and the Commonwealth Bank of Australia (“the Bank”). 

30. The Continuity and Co-operation Agreement provided, in effect, that if another casino licence were to be issued to a party other than the Star City Consortium during the first 12 years of the Casino Licence, the amount payable to Star City under the Continuity and Co-operation Agreement by the CCA in consequence of the issue of that other licence would be applied towards the amount lent by the Bank to the Star City Consortium.  The amount lent by the Bank was described as “Secured Moneys”:  see cl 14A of Continuity and Co-operation Agreement.  The term “Secured Moneys” had the same meaning as in the Facility Agreement: cl 1.1 of the Continuity and Co-operation Agreement. 

    (g)       Facility Agreement

31. The Facility Agreement was in fact executed on 22 April 1994 (as part of the Compliance Deed) and concerned the Star City Consortium’s financing for the acquisition of the Casino Licence and development of the Premises.  The Facility Agreement defined the term “Secured Moneys” to mean:

    “all amounts which at any time for any reason or circumstance in connection with this Agreement, any other Finance Document or any transaction contemplated by this Agreement or any other Finance Document, whether at law, in equity, under statute or otherwise:

    (a)are payable, are owing but not currently payable, are contingently owing, or remain unpaid by the Borrower to the Agent, the Participants, the Working Capital Facility Provider or any of them …”

    The Borrower was Star City, SHCP and Holdings. 

    (h)      Freehold Lease

32. The Freehold Lease was executed in 1997.  The relevant clauses remained cll 2.1 and 2.7 and Sch I.  Clauses 2.1 and 2.7 provided:

    “2.1     Rent

    (a)[SHCP] covenants with the [CCA] that during the Term and any extension thereof and holding thereunder [SHCP] will pay to the [CCA] in Sydney free of exchange and all deductions and without demand having been made by the [CCA] therefor the Rent provided for in Schedule I hereto and varied in accordance with this Lease.

    (b)[SHCP] shall pay the amounts referred to in Clause 2.1(a) commencing on the Lease Commencement Date and thereafter on each anniversary of the Lease Commencement Date PROVIDED ALWAYS THAT if the [CCA] shall have made an election pursuant to Schedule 1 of the Permanent Site Construction Lease to have the rent payable during the Primary Rental Period prepaid and [SHCP] shall have done so then for the balance of the Primary Rental Period no further rental shall be payable. The Parties agree that in respect of such payment the provisions of Section 144 of the Conveyancing Act 1919 shall not apply. Furthermore the parties agree that notwithstanding any other term of this Lease the one and only circumstance where rent paid in advance is liable to be refunded is if the Parties mutually agree to terminate this Lease and that rent paid in advance is to be refunded.

    (c)Nothing in this Clause 2.1 shall operate to limit the operation of Clause 4.1.

    …

    2.7Refund of Rent

    If at anytime the [CCA] and [SHCP] mutually agree to terminate the Lease then the [CCA] shall refund to [SHCP] an amount being the rent paid in advance for the period from the date of termination until the expiration of the Term and in such circumstances the amount to be refunded shall be calculated on the basis that the Rent is calculated on a daily basis.”

    (Emphasis added.)

33. Schedule I provided that:

    “(a)The [CCA] and [SHCP] acknowledge that the [CCA] made an election contemplated by clause 2 of Schedule 1 to the Permanent Site Lease (Construction Lease) and [SHCP] made the payment contemplated by that clause.  No rental shall be payable by [SHCP] under this Lease in respect of the balance of the Primary Rental Period;

    (b)In respect of the balance of the Term, rental will be payable at the rate of $250,000 per annum.”

    (Emphasis added.)

1. The ‘election’ made by the CCA referred to in cl 2.1(b) and para (a) of Sch I to the Freehold Lease was made by the CCA. It was, however, contemplated by cl 2.1(b) of the Construction Lease and not cl 2 of Sch 1 to the Construction Lease: see [29] and [30] above.

   (3)       ANALYSIS

2. The Contract Issue ultimately turns on the proper construction of the Occupational Licence Agreement.  The Commissioner contends that it did not impose any liability on Star City in respect of the Prepayment.  Star City contends otherwise. 

3. It was common ground that the obligation to pay rent, including the Prepayment, was imposed by the Construction and Freehold leases on SHCP, at least in the first instance. Star City was not a party to either the Construction Lease or the Freehold Lease. As noted above in [29], cl 2.1 of the Construction Lease provided in part:

   “(a)[SHCP] covenants with the [CCA] that during the Term [SHCP] will pay to the [CCA] … the Rent provided for in Schedule 1 hereto.

   (b)[SHCP] shall pay the Rent in the manner specified in Schedule 1 PROVIDED HOWEVER that if the [CCA] shall exercise any right to require payment in one or more instalments then the [CCA] and [SHCP] agree that the provisions of section 144 of the Conveyancing Act 1919 shall not apply.”

   (Emphasis added.)

4. Also as noted above in [30], Sch 1 provided specifically for the Prepayment in the following terms:

   “1.The Rent payable for the twelve years following the Lease Commencement Date as defined in this Lease (which period is referred to as the “Primary Rental Period”), which will be payable under this Lease and the [Freehold Lease], will be $15,000,000 per annum.

   2.Notwithstanding clause 1, the Parties have agreed that the rental payable during the Primary Rental Period shall be prepaid as set out in clause 3.

   3.On or before 12 noon (Sydney time) on the date which is 21 days after Lease Commencement Date, [SHCP] shall pay to the [CCA] an amount of $120,000,000 in immediately available and cleared funds in prepayment of the rental payable during the Primary Rental Period.”

5. Three things may be noted about the Construction Lease. First, the Prepayment was referable to both the Construction Lease and the Freehold Lease (see cl 2.1 and Sch 1). Secondly, it was the CCA’s right (and only the CCA’s right) to elect to receive the Prepayment in one or more instalments. The CCA in fact elected to receive the Prepayment by one instalment. Thirdly, as noted earlier, a draft of the Freehold Lease was an exhibit to the Construction Lease. Clauses 2.1 and 2.7 of the draft Freehold Lease addressed the question of the prepayment of rent. Clause 2.1 stated that SHCP would pay to the CCA the rent in Sch 1, provided that if SHCP had paid to the CCA the payment referred to in cl 2 of Sch 1 to the Construction Lease (the Prepayment), then no further rental was payable. The Prepayment was not refundable unless the parties mutually agreed to terminate the lease: cll 2.1(b) and 2.7.

6. The relevant provisions of the Freehold Lease as ultimately executed in 1997, cll 2.1 and 2.7, and Sch I, were in conformity with the Construction Lease and draft Freehold Lease provisions, also imposing an obligation to pay rent on SHCP and stating that the right to seek the first 12 years’ rent as the Prepayment was at the election of the CCA:  see [42]-[43] above.

7. Star City submitted that, notwithstanding the terms of the Construction and Freehold Leases, the obligation to pay rent was in fact on Star City and not SHCP due to cl 5 of the Occupational License Agreement, which as noted above (at [32]-[38]), provided:

   “5.1[Star City] will ensure that (to the extent to which [Star City] is capable), SHCP does not breach any term or provisions of any agreement entered into with the Lessor of the Permanent Site, or any agreement with the [CCA] relating to the Permanent Site or the operation of the Casino Complex or the Casino Licence.  Without limiting the foregoing, [Star City] will not do any act, matter or thing or omit to do any act, matter or thing whereby the Lease or the Casino Licence are liable to be terminated, cancelled, suspended or liable to disciplinary action under section 23 of the [Casino Control] Act or adversely affected in any manner.

   5.2[Star City] will pay and be responsible to ensure payment of all rent, outgoings, insurance premiums and payments for services that may be imposed on it under the terms of the Construction Lease or Freehold lease.  [Star City] will provide such evidence as SHCP shall reasonably require of receipt of payment of each of these outgoings seven (7) days prior to the last date for payment of the same.

   5.3[Star City] will indemnify SHCP for any claims, actions, demands, losses, damages, costs and expenses for which SHCP is or may be liable or does or may suffer as a result of [Star City] not complying with its obligations under Clauses 5.1 or 5.2.”

   (Emphasis added.)

8. The crux of the issue is the antecedent of the pronoun “it” in cl 5.2.  The Commissioner submitted that “it” clearly refers to Star City, while Star City contended that “it,” when viewed in context, clearly refers to SHCP.  While the Commissioner’s view may have superficial appeal, it must be rejected upon closer inspection.

9. Clause 5.2 cannot be considered in isolation.  The whole of the Occupational Licence Agreement is relevant together with the other documents to which it refers and which were executed “contemporaneously”:  Chacmol Holdings Pty Ltd v Handberg (2005) 215 ALR 748 at [63] - [78] (per North and Dowsett JJ) (collecting and discussing authority for the proposition that contemporaneously executed contracts forming part of the same transaction should be construed as one instrument). It was not suggested that anything turns on the order in which documents were executed or that “contemporaneously” means anything more precise than “bearing the same date”. The other documents fitting this description of being executed “contemporaneously” include the documents listed in [19] above as having been executed on 14 December 1994. Further, construction of an agreement as a whole necessarily involves giving effect to each part of it in relation to all other parts of it: Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 at 109 (per Gibbs J) and Wilkie v Gordian Runoff Ltd (2005) 221 CLR 522 at [15]-[16].

10. Applying those principles to cl 5.2 of the Occupational Licence Agreement, I reject the Commissioner’s construction of cl 5.2.  It is inconsistent with the terms of the Occupational Licence Agreement read as a whole and the other agreements executed contemporaneously, lacks commercial reality and, no less importantly, would leave cl 5.2 of the Occupational Licence Agreement with no work to do.

11. First, as noted, Star City was not a party to either the Construction Lease or the Freehold Lease.  Each lease was granted by the CCA to SHCP.  It was not in dispute that the lease of the Premises was granted to SHCP, and not Star City, at the insistence of the lender, the Bank, which required the lease to be held by a company other than the holder of the Casino Licence.  The Bank required this because the Casino Licence, by its terms, conferred no proprietary rights in Star City (see [21] above) and thus no security could be taken over the Casino Licence.  As a result, the income earning entity (the holder of the Casino Licence) was not the entity that held the lease. 

12. The Occupational Licence Agreement entered into by Star City (the holder of the Casino Licence) and SHCP (the holder of the lease) was the method by which two issues were resolved – to permit Star City to occupy the Premises and, at the same time, to be responsible for the costs attached to the Lease. The Occupational Licence Agreement was necessary. Without it, Star City was not entitled to occupy the Premises to conduct the casino. Without being responsible for the costs attached to the Lease, Star City would have been generating substantial revenues but occupying the Premises for $1.00 per annum: see Occupational Licensing Agreement cl 4.1 (reciting the annual License Fee) at [36] above. Such a position would have lacked commercial reality.

13. Reading the Occupational Licensing Agreement as a whole and with the contemporaneously executed Transaction Documents, the word “it” in the third line of cl 5.2 is not ambiguous.  It can only be construed as referring to SHCP, not Star City. 

14. In response, the Commissioner submitted that the obligation imposed by cl 5.2, if any, was conditional due to the phrase “may be imposed” so that the sentence should be read: “[Although no obligations are (currently) imposed on Star City by the Leases], Star City will pay … [any obligations that are imposed in the future].” In other words, the work to be done by cl 5.2 was that of a safety valve. Again, having regard to the terms of the Occupational Licence Agreement and the Leases, this submission is without foundation. The use of the word “may” in cl 5.2 is not in the future or probabilistic sense of “it may rain tomorrow”; rather, “may” is used in its concessive sense to concede a present, unconditional state of affairs: see Macquarie Dictionary (definition of “may”) at [4]. Understood properly, then, the meaning of the clause is “whatever payment obligations may be [ie, conceding that payment obligations are in fact] imposed on SHCP by the leases, Star City will pay them.”  

15. In short, “may” serves to create a comprehensive obligation, assigning to Star City any and all of the specified obligations (ie, rent, insurance premiums, etc.) that were or might be imposed on SHCP under the Construction Lease or the Freehold Lease.  Indeed, why would Star City need to provide evidence to SHCP of payment of outgoings unless the outgoings were in the first instance the responsibility of SHCP?

16. Finally, the Commissioner’s reference to and reliance upon the parties’ prior and subsequent conduct is misplaced.  Where, as here, the language in context is not ambiguous, the Court may not look at the prior and subsequent conduct of the parties to interpret the Occupational Licence Agreement:  Administration of Papua and New Guinea v Daera (1973) 130 CLR 353 at 446 (per Gibbs J); Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at 348 (per Mason J) and LSchuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235 at 261; cf Sinclair, Scott & Co Ltd  v Naughton (1929) 43 CLR 310 at 327; Farmer v Honan (1919) 26 CLR 183 at 197. Such conduct cannot be used to generate disputes about the meaning of unambiguous terms. Such an approach would be inconsistent with the “general test of objectivity [that] is of pervasive influence in the law of contract”:  Equuscorp Pty Ltd v Glengallan Investments Pty Ltd (No 2) (2005) 218 CLR 471 at [31]-[36] and, in particular at [34] quoting Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 at 549 (per Gleeson CJ).

17. In the event that I am wrong in my views on the relevance of this conduct to the disposition of the Contract Issue, then I consider that the particular conduct relied upon by the Commissioner (ie, the 13 December 1994 letter; the 1995 Star City Tax Return; the 20 September 1996 Arthur Andersen memorandum; the amended 1995 Star City financials issued in May 1997; and the 10 June 1998 Amending Deed with its 11 March 1998 covering letter:  see Annexure at [59]-[64]) does not lead to the conclusion asserted by the Commissioner. 

18. As to the evidence of prior conduct (the 13 December 1994 letter), although the Commissioner submitted that the letter explicitly states that SHCP was the party liable for the Prepayment, the inferences that the Commissioner sought to draw from the letter are not open on the face of it.  First, the letter was sent by Star City to the Treasurer of New South Wales, as the CCA’s nominated recipient of the Prepayment.  The letter was not a communication between the parties to the Occupational Licence Agreement.  As such, it is not relevant to the proper construction of cl 5.2 of the Occupational Licence Agreement.  It does not and cannot provide evidence of the objective factual background known to the parties at or before the date of the Agreement.  The letter does not form part of the relevant factual matrix in which the Agreement was set which might highlight the context in which the words were used and the purpose for which they were chosen:  Codelfa Construction at 401.

19. Secondly, the letter was concerned with and addressed an issue separate from the use to which the Commissioner sought to put it.  The letter dealt with the method by which the Prepayment was to be paid.  The fact that the letter described that issue in a particular way does not point to the conclusion that the Commissioner sought to draw from it – that the party obliged to make the payment had been absolved of liability or was not in fact liable.

20. Thirdly, even if the letter were to be considered as part of some relevant factual matrix, it would not assist in resolving the question of the proper construction of the Occupational Licence Agreement.  The letter was an attempt by Star City to gain leverage in its bargaining with the CCA in circumstances where it was the preferred candidate for the grant of the casino licence and, if successful, would be required to pay the Prepayment.  The letter was an attempt by Star City to secure repayment of the Prepayment if a possible legal challenge to the grant of such a licence, by an opposition bidding consortium associated with the late Mr Kerry Packer, had been successful.  Such a challenge was made although it was unsuccessful:  Darling Casino Ltd v New South Wales Casino Control Authority (1997) 191 CLR 602. Negotiations of this nature are evidence of no more than the expectations of the parties and cannot be used to construe the meaning of the written agreement: Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 at 606 and Codelfa at 352.

21. In relation to the correspondence and conduct which post-dated execution of the Occupational Licence Agreement (ie, the 1995 Star City Tax Return; the 20 September 1996 Arthur Andersen memorandum; the amended 1995 Star City financials issued in May 1997; and the 10 June 1998 Amending Deed with its 11 March 1998 covering letter), the Commissioner contended that, individually and collectively the evidence showed that:

    (1)if Star City and SHCP had shared a common intention or assumption that the word “it” was always intended to refer to SHCP, then Star City would have sought an order for rectification and it never did;

    (2)the Amending Deed did not purport to rectify the terms of the Occupational Licence Agreement and did not operate retrospectively; and

    (3)even if the Amending Deed was intended to operate retrospectively, it could not have that effect because it was not possible to amend a provision in an attempt to impose a liability on Star City for the obligations of another party (SHCP) which was no longer in force at the time of the amendment.  The argument was that the Prepayment was made in satisfaction of Star City’s obligations under the Construction Lease which ended when the Permanent Site opened for business in November 1997:  see definition of “Term” in cl 1.1 of the Construction Lease.

22. The foundational premise of the Commissioner’s argument is that the subsequent amendment to cl 5.2 of the Occupational License Agreement is (conclusive) evidence that the clause (and specifically the word “it”) meant something else prior to the amendment.  However, the evidence relied upon does not support the premise.  Taken as a whole, the amendment and the documents leading to it establish no more than what was already obvious - namely, that cl 5.2 was not artfully drafted. 

23. The documents do not, however, support the view that the word “it” in cl 5.2 was originally meant to, or did, refer to Star City rather than SHCP.  On the contrary, the Arthur Andersen memorandum makes clear that the original accounting treatment (ie, reflecting the Prepayment as an obligation of SHCP rather than Star City) “d[id] not reflect the legal documentation and its intention, as [Star City] is the entity responsible for payment of this amount pursuant to the Occupational Licence Agreement,” (emphasis added) and that the amendments do not change, but rather “reflect the true intentions of the deeds”.

24. Accordingly, even if evidence of subsequent events is relevant to the construction of cl 5.2 of the Operating License Agreement, it does not support the Commissioner’s contention that the word “it” originally referred to Star City.

25. The Commissioner next submitted that even if “it” in cl 5.2 were construed as referring to SHCP and even if “may” were construed as imposing an unconditional obligation on Star City, Star City was not liable to make the Prepayment because the Occupational Licence Agreement was not in force at the time the Prepayment was made on 15 December 1994.  This submission fails to take account of the distinction between the grant of the licence and the balance of the terms of the Occupational Licence Agreement.  The licence itself commenced on and from the date that Star City was entitled to occupy the Permanent Site to enable it to comply with its pre-opening services as set out in the Casino Complex Management Agreement and would continue for the term of the Freehold Lease:  cl 3.1 read with the definition of “Term” in cl 1.1.  However, the other obligations - including the payment of rent - were imposed on Star City from the date of the execution of the Occupation Licence Agreement, 14 December 1994. 

26. The Commissioner’s contention that this distinction is somehow negated by the definition of “Licence” as “this Licence” in the Occupational Licence Agreement must also be rejected.  There is nothing to suggest that the terms “Licence” and “Agreement” are used interchangeably in the Occupational Licence Agreement.  The Occupational Licence Agreement was not limited to the grant by SHCP to Star City of the licence to occupy the Premises:  cll 2.1(a) and 4.1.  The balance of the Occupation Licence Agreement recorded other and separate obligations that the parties had agreed would be imposed on Star City and SHCP respectively:  cll 5 and 6.

27. In short, the Prepayment was an obligation of Star City because under the Occupational License Agreement Star City - not SHCP - was responsible for all rent, outgoings, insurance premiums and payments for services under the Construction Lease or Freehold Lease on and from 14 December 1994, being the date of execution of the Occupational Licence Agreement and the day before the Prepayment was paid to the CCA.

    D.       TAXATION ISSUES

    (1)       The Prepayment was an Outgoing incurred by Star City

28. Section 51(1) of the 1936 Act applied in the income years ending 30 June 1995, 1996 and 1997. It provided, so far as is relevant, that:

    “All … outgoings to the extent to which they are incurred in gaining or producing the assessable income, or are necessarily incurred in carrying on a business for the purpose of gaining or producing such income, shall be allowable deductions except to the extent to which they are … outgoings of capital, or of a capital … nature ….”

29. Section 8-1 of the 1997 Act applied to the balance of the income years in dispute.  It provides, so far as is relevant, that:

    “(1) You can deduct from your assessable income any loss or outgoing to the extent that:

    (a)it is incurred in gaining or producing your assessable income; or

    (b)it is necessarily incurred in carrying on a business for the purpose of gaining or producing your assessable income.

    (2)However, you cannot deduct a loss or outgoing under this section to the extent that:

    (a)it is a loss or outgoing of capital, or of a capital nature; or   ...”

1. The Commissioner referred to the 1995 Annual Return of Star City in which there was no reference to the Prepayment and a subsequent memorandum prepared by Arthur Andersen dated 20 September 1996.  After referring, inter alia, to the Construction Lease and the Freehold Lease and two Occupational Licence Agreements, the Arthur Andersen memorandum recorded that:

   “1.       LEGAL POSITION
   1.1      Rent and Outgoings
   …
   Pursuant to these [Occupational Licence] [A]greements, [Star City] agrees to ‘pay and be responsible to ensure payment of all rent, outgoings, insurance premiums and payments for services that may be imposed on it under the terms’ of the leases as mentioned above.

   The wording of the above clause of both Occupational Licence Agreements does not appear to be correct.  A review of the various lease agreements as mentioned above impose all such obligations on SHCP, rather than [Star City].  We have discussed the wording of this clause with Ian Johnston of Dunhill Madden Butler.  Ian has agreed that the relevant clause (5.2) of both Occupational Licence Agreement’s (sic) should read as follows:

   “[Star City] will pay and be responsible to ensure payment of all rent, outgoings, insurance premiums and payment for services that may be imposed on SHCP”

   Ian has advised that the agreements should be amended.  He indicated that this will require [CCA] approval but not Ministerial approval.  He does not see that this should be a problem and believes that the amendments should be made to reflect the true intention of the deeds.

   1.2      Permanent Site Rent

   Assuming that this amendment is made, we note that under the [Freehold] Lease, a payment of rental of $120m liable to be made in advance in respect of the first 12 years of the lease has been made.  Rent in relation to the permanent site will be $250,000 per annum thereafter.

   Under the terms of the Occupational Licence Agreement, [Star City] is required to pay all rent and outgoings imposed on [Holdings] under the terms of the lease agreements.

   However, we note that the audit workpapers indicate that [Holdings] actually made the payment of the rental in advance in relation to the permanent site.

   For accounting purposes, when the above amount was paid by [Holdings], an inter-company loan entry was made between [Holdings] and [SHCP] in relation to this amount on the basis that [Holdings] had paid it on behalf of [SHCP]. …

   This accounting treatment does not reflect the legal documentation and its intention, as [Star City] is the entity responsible for payment of this amount pursuant to the Occupational Licence Agreement.

   Accordingly, the accounting entries should be adjusted to reflect that [Holdings] paid rental on behalf of [Star City] rather than [SHCP]. …

   …

   1.3      Temporary Site Rental

   We note that rental for the temporary site is satisfied by the construction costs of the Temporary casino site.

   We understand … that the payments in respect of the temporary casino construction were paid by [Star City].

   For accounting purposes, an inter-company loan entry was made between [Star City] and [SHCP] in relation to the payments, so that the rent expense is reflected in the books of [SHCP].

   This is incorrect, as the rent expense is imposed on [Star City], and not [SHCP], pursuant to the Occupational Licence Agreement.  Accordingly, these accounting entries should be reversed immediately, so that the temporary site rental is expensed in the books of [Star City], and not [SHCP].   …”

   (Emphasis added.)

2. Consistent with the legal advice and the Arthur Andersen memorandum two events occurred.  First, amended audited accounts for Star City for the 1995 year were issued in May 1997.  The amended audited accounts recorded that:

   “We have previously audited the financial statements of [Star City] for the year ended 30 June 1995, and have issued out report thereon dated 20 September, 1995.  As indicated in Note 1 to the financial statements, due to an inconsistent interpretation of the Occupational Licence Agreements that exist between [Star City] and [SHCP], the current year amounts were restated to reflect the true intention of the agreements.  Accordingly, we hereby withdraw our auditors’ report on the financial statements referred to above, and replace it with this one, dated 20 March, 1997.”

3. Secondly, an Amending Deed was executed by Star City and SHCP on 10 June 1998 (“the Amending Deed”).  The Commissioner contended that the Amending Deed and the correspondence forwarding a draft of it to the CCA provided further support for its construction of cl 5.2.  The covering letter from Holdings to the CCA was dated 11 March 1998 and stated, in part, that:

   “The wording in Clause 5.2 of that Occupational Licence Agreement has caused some confusion in the past.  The reference to “it” in the second line of the clause has been read both as a reference to Star City as well as SHCP.

   To avoid uncertainty in the future, our clients wish to remove the ambiguity by stating that the reference to “it” is in fact a reference to “SHCP”.

   To this end, we have prepared a short Amending Deed which will make this change.  …”

4. The Amending Deed was in the following terms:

   “A.The parties to this Deed entered into an Occupational Licence Agreement in respect of the Permanent Site dated 14 December 1994 (the “Occupational Licence Agreement”) pursuant to which SHCP and Star City agreed that Star City would be entitled to be licensee of the Permanent Site on the terms and conditions set out therein.

   B.SHCP and Star City wish to make certain amendments to the text of the Occupational Licence Agreement and have for that purpose agreed to enter into this Amendment Deed.

   NOW THIS DEED WITNESSES:

   …

   2.Amendment to Occupational Licence Agreement

   2.1The Occupational Licence Agreement is amended by deleting the word “it” in the second line of Clause 5.2 and substituting therefore the abbreviation “SHCP”.

   3.Miscellaneous

   3.1To the extent that the consent or approval of SHCP or Star City is required to the amendment to the Occupational Licence Agreement set forth in Clause 2 of this Amending Deed, that consent is hereby given and both SHCP and Star City ratify the amendment and confirm their respective obligations under the Occupational Licence Agreement as so amended. …”