Sturt Football Club Inc v Commissioner of State Taxation
[2010] SASC 279
•1 October 2010
SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
STURT FOOTBALL CLUB INC v COMMISSIONER OF STATE TAXATION
[2010] SASC 279
Judgment of The Honourable Justice White
1 October 2010
TRADE AND COMMERCE - OTHER REGULATION OF TRADE OR COMMERCE - TERMINOLOGY - GOODWILL
TAXES AND DUTIES - STAMP DUTIES - ASSESSMENT AND AMOUNT PAYABLE INCLUDING FINES - GENERAL MATTERS - SOUTH AUSTRALIA
The appellant took a lease of licensed premises, purchased the tangible assets of the business carried on at those premises and was granted a licence to use the goodwill and intellectual property of that business - the Commissioner assessed stamp duty on a basis which included the value of the goodwill, finding that the effect of the parties' agreement was to transfer the goodwill in the business to the appellant - the appellant appealed against this assessment, contending that the agreement for sale of the licensed premises did not effect a change in ownership of the legal or equitable interest in the goodwill - the Commissioner contended that the nature of goodwill meant it could not be dealt with separately from the business with which it is associated - in the alternative the Commissioner argued that duty was payable on the transaction under s 71E of the Stamp Duties Act 1923 (SA).
Held: dismissing the appeal, goodwill was so inextricably linked to the tangible assets purchased, and the business conducted at the premises, that it was transferred by the agreement for sale of the business - the transaction did not come within s 71E of the Stamp Duties Act 1923 (SA) as any change in ownership was effected by an instrument on which ad valorem duty was chargeable.
Stamp Duties Act 1923 (SA), Pt 3, s 4, Sch 2, s 60, s 71E; Taxation Administration Act 1996 (SA) s 92; Duties Act 1997 (NSW) s 8; Duties Act 2000 (Vic) s 7, s 8; Duties Act 2001 (Qld) s 8; Duties Act 2001 (TAS) s 6, s 7; Duties Act 1999 (ACT) s 7, s 8; Duties Act 2008 (WA) s 10; Acts Interpretation Act 1915 (SA) s 19, referred to.
Commissioner of Taxation (Cth) v Murry (1998) 193 CLR 605, applied.
PP Consultants Pty Ltd v Finance Sector Union of Australia (2000) 210 CLR 648, distinguished.
The Commissioner of Stamp Duties (Qld) v Hopkins (1945) 71 CLR 351; DKLR Holdings Co (No 2) Pty Ltd v The Commissioner of Stamp Duties (NSW) (1982) 149 CLR 431; Commissioner of State Revenue (Vic) v Pioneer Concrete (Vic) Pty Ltd (2002) 209 CLR 651; Inland Revenue Commissioners v Muller & Co's Margarine Ltd [1901] AC 217; Box v Federal Commissioner of Taxation (1952) 86 CLR 387; Roussos v Commissioner of Stamp Duties (Tas) (1992) 23 ATR 336; ACN 007 528 207 Pty Ltd (in Liq) v Bird Cameron (2005) 91 SASR 570; Fearnley v Australian Fisheries Management Authority [2006] FCAFC 3; Warne v GDK Financial Solutions Pty Ltd [2006] NSWSC 259; Kenmir Ltd v Frizzell (1968) 1 All ER 414; HA Rencoule (Joiners and Shopfitters) Ltd v Hunt (1967) ITR 475; Ex parte Punnett; in re Kitchin (1880) 16 Ch D 226; Winter Garden Theatre (London) Ltd v Millenium Products Ltd [1948] AC 173; Minister for Land and Water Conservation v NTL Australia Pty Ltd [2002] NSWCA 149; McDonald's Australia Holdings Ltd v Commissioner of State Revenue [2004] QSC 357; (2004) 57 ATR 395; Westpac Banking Corporation v Commissioner of Stamp Duties [2007] QSC 483; (2004) 55 ATR 50, considered.
STURT FOOTBALL CLUB INC v COMMISSIONER OF STATE TAXATION
[2010] SASC 279Civil
WHITE J. This appeal raises the question of whether stamp duty in respect of a contract by which a purchaser was granted a licence to use the goodwill of a business and by which the purchaser bought the remaining tangible assets of the business (in addition to taking a lease of the business premises) is to be assessed by reference only to the value of the tangible assets and without regard to the value of the goodwill. Related to that issue is the question of whether the contract vested in the purchaser an interest in the goodwill.
On 27 October 2005, the appellant (Sturt) entered into an agreement (the Agreement) with Central Properties Pty Ltd in relation to The Castle Tavern at Edwardstown (the Tavern). On its face, the Agreement provided for the transfer of the assets (other than the goodwill and intellectual property) of the business of the Tavern to Sturt, and for the licensing of the use by Sturt of the goodwill and intellectual property, if any, of the Tavern in the conduct of the business of the Tavern.
Settlement of the Agreement occurred just over one year later, on 23 November 2006.
In January 2007, the respondent (the Commissioner) assessed the amount of stamp duty payable in respect of the Agreement at $191,808.45, on the basis that the Agreement did not effect a transfer of the goodwill, and this was paid by Sturt. However, on 22 June 2007 the Commissioner issued a revised (and increased) assessment, based upon his assessment of the value of the business assets, including goodwill, all of which he determined had been transferred under the Agreement.
Features of the Agreement
On its face page the Agreement into which Sturt, as purchaser, and Central Properties, as vendor, entered on 27 October 2005 was described as an “Agreement for Sale of Licensed Business”. The preamble to the Agreement recited Central Properties’ status as the proprietor of the licensed business known as The Castle Tavern, its status as a lessee of the premises on which the business was conducted, and its status as the holder of liquor and gaming machine licences. Recital D then recorded:
The Vendor desires to sell part and to licence (sic) part of the Business to the Purchaser who desires to so purchase part and licence (sic) part of the Business upon the terms set out in this Agreement.
The principal operative provision in the Agreement is cl 2. It provides:
Agreement to Sell and Licence
2.1.1 The Vendor agrees to sell the Assets to the Purchaser and the Purchaser agrees to purchase the Assets from the Vendor.
2.1.2 The Vendor agrees to licence (sic) the Goodwill and Intellectual Property to the Purchaser and the Purchaser agrees to licence (sic) the Goodwill and Intellectual Property from the Vendor.
Thus the Agreement provided for a sale of specified assets, and a licensing of the use of the Tavern’s goodwill and intellectual property.
Clause 7 required vacant possession of the premises and “delivery of the Business” to be given and taken on settlement. In cl 1.1 the “Business” was defined to mean:
the business of [the] Tavern conducted by the Vendor using the Assets, Goodwill and Intellectual Property at the Premises.
The “Assets” to which cl 2 referred were defined in cl 1.1 as follows:
“Assets” means:
(a) The Plant and Equipment;
(b) The Licences;
(c) The Stock;
(d) The Cash On Hand; and
(e) The Communication Property.
A condition precedent to the Agreement was Central Properties granting Sturt a sub-lease of the premises – it leased the premises from Perpetual Nominees Limited – for a period of one year with rights of renewal for successive terms for a maximum of a further 10 years.
Each of the five items comprising the Assets was defined elsewhere in the Agreement or in annexures to it. The Plant and Equipment were identified in a Schedule; the Licences were liquor and gaming machine licences; the Stock and Cash On Hand were respectively the stock and cash on hand in the Tavern at close of business on the day immediately preceding settlement; and cl 16 identified the “Communication Property” as the Tavern’s telephone numbers, facsimile numbers, electronic mail address, internet website, home page address, post office boxes, and the white and yellow pages’ telephone book listings.
The defined Assets did not include the Tavern’s goodwill. The “Goodwill” to which cl 2.1.2 referred was defined in cl 1.1 as follows:
“Goodwill” means the goodwill of the Business together with all of the Vendors’ right title and interest in the Business.
Instead of providing for the sale of the goodwill, the parties agreed that Central Properties should “licence” the “Goodwill and Intellectual Property” of the business to Sturt during the currency of the sub-lease. Clause 9.1 of the Agreement provided:
9.1 General
9.1.1 In consideration for the payment of the Licence Fee by the Purchaser, the Vendor agrees to licence the Goodwill and Intellectual Property of the Business to the Purchaser. In order to avoid any ambiguity, the Purchaser acknowledges and agrees that the Purchaser will not acquire any interest in the Goodwill and Intellectual Property other than the right to utilize it in the operation of its business at the Premises, and that the use, imitation or duplication of the Goodwill or Intellectual Property in any other manner is a breach of this Agreement.
9.1.2 The licence granted to the Purchaser under clause 9.1.1 terminates on the date that the term of the Sublease terminates (including any period of extension or renewal, and any period of holding over under the Sublease).
9.1.3 The licence granted to the Purchaser under clause 9.1.1 is personal to the Purchaser and shall not be assigned by the Purchaser or dealt with by the Purchaser in any other manner without the Vendor’s prior written consent, which consent can be withheld in the Vendor’s absolute discretion.
9.1.4 The Purchaser acknowledges that the Purchaser’s right to use the Business Name is granted in consideration for the payment of the Licence Fee, and on the condition that the Vendor will automatically re-acquire the ownership of the Business Name at the end of the Sublease (including any term of renewal or extension and any holding over period).
9.1.5 In order to give effect to clause 9.1.3:
(a)at the Date of Settlement the Purchaser will provide to the Vendor a Transfer of Business Name form (with details of the transferee left blank) for the transfer of the Business Name signed by the Purchaser as transferor;
(b)the Purchaser authorizes the Vendor to complete the Transfer of Business Name form with such details as the Vendor sees fit to effect the transfer of the Business Name and to lodge the form with the appropriate authority at the end of the term of the Sublease, any term of renewal or extension or any period of holding over.
The second sentence in cl 9.1.1 indicates the parties’ intention that by the agreement to “licence” the goodwill, Sturt was to acquire only the right to use the Goodwill in the operation of the Tavern business at the premises, and no further right. That right will terminate on the termination of the sub-lease (cl 9.1.2). By cl 9.1.3, Sturt agrees that the licence to use the Goodwill and Intellectual Property is personal to it, and that it cannot assign, or otherwise deal with the goodwill without Central Properties’ prior written consent.
The “Licence Fee” to which cl 9.1 referred was defined in cl 1.1 to mean the sum of $650,000 per annum together with annual CPI adjustments.
“Intellectual Property” was defined in cl 1.1 in generic terms only, without identifying any specific property to which it referred. It was not suggested that the purported licensing of intellectual property had any significance for the purposes of this appeal.[1]
[1] Neither party referred to the possibility that Central Properties may have had a common law trade mark in the name “The Castle Tavern”.
I will refer to other provisions in the Agreement later in these reasons. However, it is appropriate to note at this stage that by cl 8.4.1 of the sub-lease, Central Properties is required, at the termination of the sub-lease, to re-acquire the assets of the business operating at the premises, but is not required to make any payment at all for goodwill. This is consistent with ownership of the Goodwill remaining with it throughout the period of the sub-lease.
The Assessment of Stamp Duty
Shortly prior to the settlement, Sturt submitted the Agreement for stamping together with an application for an opinion. Subsequently the Commissioner issued an assessment (dated 1 January 2007) on the basis that the assets transferred by the Agreement amounted in value to $560,551.36. Stamp duty was assessed on that sum in addition to the duty calculated under Part 3, Division 7 of the Stamp Duties Act 1923 (SA) (the SD Act) in respect of the net gaming revenue of the Tavern. The evidence did not disclose how the sum of $506,551.36 was derived as Sturt’s application for opinion indicated that the assets sold were:
Stock on Hand (est) $260,000
Cash on Hand $45,700
Plant and Equipment (WDV) $161,925
Gaming Machines (WDV) $15,681
TOTAL $483,306
======
It was in any event common ground that Sturt paid the sum of $506,551.36 for “tangible assets”, excluding goodwill. Having regard to cl 3.1 of the Agreement, none of the $506,551.36 was in payment for the grant of the sub-lease or for the transfer of the licences.
Subsequently the Commissioner reviewed the January assessment. After considering further information and submissions provided by Sturt, the Commissioner issued a re-assessment dated 3 May 2007 and a further re-assessment dated 22 June 2007.
In the June 2007 assessment, the Commissioner did not alter the stamp duty payable on the net gaming revenue of the Tavern. However, he assessed the value of the business assets transferred under the Agreement at $1,757,724. In an accompanying letter, the Commissioner said that he had caused a valuation of “the property in question” to be undertaken and that, by reference to that valuation, he “valued the Castle Tavern at $1,757,724 as a going concern” as at 27 October 2005.
This meant that Sturt was required to pay an additional $74,214.56 in stamp duty. Sturt objected to the revised assessment.
On 8 September 2009 the Treasurer disallowed the objection. In his letter disallowing the objection, the Treasurer said:
The goodwill associated with a business cannot be separated from the business itself. Where a business is leased or licensed the goodwill will be leased or licensed and where a business is sold, the goodwill of the business will also flow with that sale. Parties cannot alter this regardless of any express terms of an agreement to the contrary.
On the facts before me it is my view that the Sturt Football Club Incorporated bought the business in question under the Agreement for Sale of Licensed Business and the goodwill of the business was thus transferred to them as part of that sale. I note the terms of the Sub-lease of the premises associated with the sale, however they do not change my opinion on the effect of the Agreement for Sale of Licensed Business.
It can be seen that the Treasurer took the view that goodwill is inseparable from the business with which it is associated; that Sturt had bought the business of the Tavern; accordingly the sale necessarily carried with it the goodwill of the Tavern; and that it was not open to the parties to deny that consequence by the manner of expression, or other terms, of their agreement.
Sturt appeals against the disallowance[2] contending that the Treasurer’s decision is affected by errors of both fact and law.
[2] Taxation Administration Act 1996 (SA) s 92.
The evidence on the appeal was wholly documentary. There was no dispute as to the underlying facts.
Statutory Regime
By s 4(1) of the SD Act, the duties specified in Schedule 2 to the SD Act are charged in respect of the “instruments” specified in that Schedule. It used to be almost universally the case that stamp duty is charged on instruments, and not on transactions.[3] A number of States and the ACT have now moved to the imposition of stamp duty on transactions, rather than on instruments.[4] However, s 4(1) of the SD Act maintains the conventional position in this State.
[3] The Commissioner of Stamp Duties (Qld) v Hopkins (1945) 71 CLR 351 at 360; D.K.L.R. Holding Co (No 2) Pty Ltd v The Commissioner of Stamp Duties (NSW) (1982) 149 CLR 431 at 449; Commissioner of State Revenue (Vic) v Pioneer Concrete (Vic) Pty Ltd [2002] HCA 43 at [34]; (2002) 209 CLR 651 at 663.
[4] Duties Act 1997 (NSW) s 8; Duties Act 2000 (Vic) s 7, s 8; Duties Act 2001 (Qld) s 8; Duties Act 2001 (Tas) s6, s 7; Duties Act 1999 (ACT) s 7, s8; Duties Act 2008 (WA) s 10.
By Item 3 of Part 1 of Schedule 2 of the SD Act, stamp duty is charged in respect of a “conveyance or transfer on sale … including a contract or agreement for sale … not being a conveyance or transfer on sale of any financial product”. The same Item specifies the rate at which stamp duty will be charged on such instruments.
In s 60 of the SD Act, the word “conveyance” is defined relevantly as follows:
“Conveyance” includes –
(a) every conveyance, assignment, transfer or declaration of trust and …
…
(d) every other assurance or instrument of any kind,
by which or by virtue of which or by the operation of which, … any real or personal property or any estate or interest in any such property is assured to, or vested in, any person, and to convey has a meaning co-extensive with the meaning of conveyance, as extended by this section.
Section 60 also defines the expression “conveyance on sale”:
“Conveyance on Sale” includes -
(a) every conveyance, assignment, transfer or application under the Real Property Act 1886; and
…
(d) every other assurance or instrument,
by which or by virtue of which any real or personal property, upon the sale thereof, is legally or equitably transferred to or vested in, the purchaser or any other person on his behalf or by his direction, …
Parties’ Submissions
The hearing on the appeal proceeded on the basis that if the Commissioner was entitled to take account of goodwill in the assessment of the stamp duty liability, the valuation of $1,757,724 was appropriate. On the other hand, if goodwill was excluded, it was the sum of $506,551.36 which was appropriate. That is, it was not suggested that the tangible assets had some additional value by reason that they were in situ and could be deployed immediately in the conduct of the business of the Tavern.
Sturt’s position on the appeal was straightforward. It submitted that the Agreement was plain on its terms: it transferred the specified assets by sale; and granted Sturt only a licence to use the goodwill of the Tavern. What the parties had done was to choose different means by which Sturt would be able to use the assets in the conduct of the business of the Tavern. They had agreed that Sturt should be entitled to use the goodwill of the business by the grant of a licence from Central Properties, and that it should take a transfer by sale of the remaining assets of the business. It submitted that neither the inherent nature of goodwill, nor the law, indicates that the use of goodwill may not be licensed separately from a conveyance of the remaining assets of a business, when the combined effect of the grant of the licence and the conveyance is to permit the purchaser to carry on the business previously conducted by the vendor.
Sturt submitted that this was not a case of the parties purporting to separate the goodwill of the business from the business itself, or from the other assets of the business, nor a case of a mere artifice. In this respect the payment of the substantial annual licence fee of $650,000 (indexed annually after the first year) indicated that there was a real arrangement by which it became entitled to use, but not to own, the Goodwill.
The submission in short was that there had been no conveyance of the goodwill of the Tavern business to it.
The Commissioner, on the other hand, argued that goodwill is inseparable from the business with which it is associated. This means that a transfer of a business must mean that the goodwill of the business had also been transferred. In the present case the Agreement had the effect of transferring the business of the Tavern to Sturt. So much of the assets of the business of the Tavern had been transferred to Sturt that it could be said that the business itself, and therefore the Goodwill, had been transferred.
The Commissioner submitted, in the alternative, that in the event that Central Properties had not transferred the Goodwill to Sturt under the Agreement, the transaction nevertheless was one to which s 71E of the SD Act applied, with the effect that Sturt was liable for the same amount of stamp duty.
Was There a Transfer of Both the Business and the Goodwill?
The High Court considered goodwill in its legal sense in Commissioner of Taxation (Cth) v Murry.[5] The question in that case was whether an amount paid by the purchaser in consideration of the transfer by the owner of a taxi licence previously leased to a third party amounted to a transfer of goodwill which attracted the 50 per cent exemption from capital gains tax under s 160ZZR(1)(a) of the Income Tax Assessment Act 1936 (Cth). The Court held that a taxi licence, although a valuable item of property, did not constitute or contain goodwill. It was simply a pre-requisite to the activity of taxi driving.
[5] [1998] HCA 42: (1998) 193 CLR 605.
In the course of their reasons the majority (Gaudron, McHugh, Gummow and Hayne JJ) addressed the legal notion of goodwill in some detail, noting that it was notoriously difficult to define.[6] Nevertheless, the majority stated some propositions of general application:
1.Although goodwill can be difficult to define in legal terms, it can be described as “the legal right or privilege to conduct a business in substantially the same manner and by substantially the same means which in the past have attracted custom to the business”;[7]
2.Goodwill is an indivisible item of property;[8]
3.Goodwill is inseparable from the conduct of a business,[9] with the consequence that it cannot be dealt with separately from the business with which it is associated;[10]
4.Goodwill may derive from identifiable assets of a business but it is legally distinct from the sources, including the other assets of the business which have created it;[11] and
5.Goodwill does not inhere in the identifiable assets of a business, and the sale of an asset which is a source of goodwill, separate from the business itself, does not involve any disposition of the goodwill of the business;[12]
6.The sale of an asset of a business does not involve any sale of goodwill unless the sale of the asset is accompanied by or carries with it the right to conduct the business.[13]
[6] Ibid at [12]; 611.
[7] Ibid at [23], [45]; 615, 623.
[8] Ibid at [4], [32]; 608, 619.
[9] Ibid at [4], [23], [30], [36]; 608-9, 615, 617-8, 619-20.
[10] Ibid at [22]; 615.
[11] Ibid at [4], [30]; 608-9, 617-8.
[12] Ibid at [4]; 608-9.
[13] Ibid at [31]; 618.
Goodwill is therefore a form of personal property with distinctive features. It derives from the other assets of a business.[14]
[14] Ibid at [12], 611.
Goodwill is transferable. In Inland Revenue Commissioners v Muller & Co’s Margarine Ltd[15] Lord Macnaghten said:
It is very difficult, as it seems to me, to say that goodwill is not property. Goodwill is bought and sold every day. It may be acquired, I think, in any of the different ways in which property is usually acquired. When a man has got it he may keep it as his own. He may vindicate his exclusive right to it if necessary by process of law. He may dispose of it if he will – of course under the conditions attaching to property of that nature.[16]
This passage was cited with approval by the High Court in Box v Federal Commissioner of Taxation[17] and in Commissioner of Taxation v Murry.[18]
[15] [1901] AC 217.
[16] Ibid at 223.
[17] (1952) 86 CLR 387 at 396-7.
[18] [1998] HCA 42 at [18]; (1998) 193 CLR 605 at 613.
As noted above, one consequence of the distinctive nature of goodwill is that it cannot be dealt with separately from the business with which it is associated. That does not necessarily mean that the means by which goodwill is transferred from one person to another must be exactly the same as the means by which the other assets of the business are transferred, but it does mean that goodwill cannot be disposed of separately from the business with which it is associated.
Murry is authority for the first two steps in the Commissioner’s argument, namely, that goodwill is inseparable from the business with which it is associated and that a transfer of a business must mean that the goodwill of the business has also been transferred.
Murry does not, however, conclude the third step in the Commissioner’s argument, namely, that the Agreement had the effect of transferring the business of the Tavern to Sturt. The question of whether one person has taken over or succeeded to the business or part of the business of another is a mixed question of law and fact.[19] The decision on one set of facts cannot conclude the same question on a different set of facts. The circumstances of this case are distinguishable from those considered in Murry and the question of whether there was a transfer of the Tavern business must be determined by reference to the particular circumstances of this case.
[19] PP Consultants Pty Ltd v Finance Sector Union of Australia [2000] HCA 59; (2000) 201 CLR 648 at 655.
The Commissioner placed reliance on the decision of the High Court in PP Consultants Pty Ltd v Finance Sector Union of Australia.[20] There the Court considered whether a pharmacist who, after a bank had closed one of its branches, carried on a branch agency for the bank in conjunction with its pharmacy business, should be regarded as a “successor, assignee or transmittee” of the business or part of the business of the bank so as to be subject to an industrial award in respect of the transferred employees. The majority (Gleeson CJ, Gaudron, McHugh and Gummow JJ) described the word “business” as a chameleon-like word with the effect that it was not possible to formulate any general test to ascertain whether, for the purposes of the statutory provision in question, one employer has succeeded to the business or part of the business of another. The majority suggested, however, an enquiry involving three stages:
As a general rule, the question whether a non-government employer who has taken over the commercial activities of another non-government employer has succeeded to the business or part of the business of that other employer will require the identification or characterisation of the business or the relevant part of the business of the first employer, as a first step. The second step is the identification of the character of the transferred business activities in the hands of the new employer. The final step is to compare the two. If, in substance, they bear the same character, then it will usually be the case that the new employer has succeeded to the business or part of the business of the previous employer.[21]
The Commissioner submitted that applying that three stage process led inevitably to the conclusion that Sturt had succeeded to the business of Central Properties in the Tavern. That was because the Agreement contemplated Sturt taking over the Tavern as a going concern in a way which made its conduct of the business indistinguishable from that by Central Properties.
[20] [2000] HCA 59; (2000) 201 CLR 648.
[21] Ibid at [15], 655.
It is plain that Sturt did succeed to the business of Central Properties. Counsel for Sturt conceded as much. However, contrary to the submission of the Commissioner, I do not consider that this by itself is conclusive of the question arising presently. This appeal concerns not only the question of whether Sturt has succeeded to the business of in the Tavern but whether it did so by a means which included a transfer to it of an interest in the goodwill. Put slightly differently, the question in this case is not whether Sturt has succeeded to the business of the Tavern but instead whether it did so by a means attracting the liability for stamp duty which has been assessed by the Commissioner.
Roussos v Commissioner of Stamp Duties (Tas)[22] provides an illustration of a circumstance in which a party succeeded to a business without taking a transfer of any asset of the business. The agreement in question in that case was one by which the owner of a restaurant licensed another to operated and conduct the restaurant business. Cox J accepted that no property in the plant, equipment or goodwill passed to the appellants. He also held that the authority of the appellants to use the registered business name of the restaurant during the currency of the licence was not a proprietary right passing to the appellants which could be characterised as a disposition of personal property. That was because the name was part of the goodwill of the business and the appellants had acquired only the right to use that name and the benefits attaching to it during the currency of the licence.
[22] (1992) 23 ATR 336.
Accordingly, I do not regard the application of the three stage approach outlined by the majority in PP Consultants as decisive of the proper outcome of this appeal.
Next, the Commissioner submitted that it was not, in any event, possible to lease or license the use of goodwill of a business. In support of this proposition, he referred to an article written by Ian Tregoning entitled “Goodwill in the Context of Licensing, Leasing and Franchising: Some Considerations”.[23] After discussing the possibility of the leasing or licensing of goodwill, the author stated:
… The preferred position, it is submitted, is that the goodwill is also the property of the lessor and is effectively leased to the lessee with other property comprising the business. In the final analysis, however, the important point to note is that goodwill remains attached to the business and cannot be leased or licensed, or otherwise dealt with, separately from it.
As I understand this passage, the author was not intending to indicate that the use of goodwill may not be licensed at all: only that by reason of its inherent nature, it must remain attached to the business and cannot be leased or licensed, or otherwise dealt with, separately from that business. I do not understand the author to be suggesting that parties may not adopt a means of transferring goodwill which is different from that used to transfer other assets, or that goodwill may not be transferred to an entity which is different from the transferee of the remaining assets of the business. The proposition is only that goodwill cannot be dealt with separately from the business with which it is associated.
[23] (2009) 37 ABLR 296.
I note in this regard that the goodwill of a business was licensed in Roussos v Commissioner of Stamp Duties (Tax).[24]In addition, in ACN 007 528 207 Pty Ltd (in liq) v Bird Cameron[25] Besanko J accepted that there may a licensing of the goodwill of a business within related entities.[26]
[24] (1992) 23 ATR 336.
[25] [2005] SASC 204; (2005) 91 SASR 570.
[26] Ibid at [126]-[129], 599.
Next, the Commissioner submitted that the reality and substance of the Agreement was that on the day of settlement Sturt was to be put in possession of the Tavern business as a going concern, ie, that it was to take over the business.
In support of this submission, the Commissioner referred to a number of features of the Agreement. In addition to the transfer of the assets of the business under cl 2.1, cl 7 required vacant possession of the premises “and delivery of the Business” to be given and taken at settlement; Sturt was to take over the stock in the Tavern at close of business on the trading day immediately preceding settlement (cl 4); Sturt was to take the cash on hand held in the Tavern at close of business on the day preceding settlement; Sturt was to have the advantage of all the forward bookings taken by Central Properties (cl 8.6); Central Properties was to carry on the business in a normal, proper and efficient manner until the date of settlement (cl 12); Central Properties was required to give Sturt access to the Tavern and to its records so that it could become familiar with the business (cl 14); Sturt was take a transfer of the “Communication Property” (cl 16); and Sturt was required to offer employment to the employees of Central Properties employed in the business on terms no less favourable to them than those which applied under their current employment contracts, and was to treat their service with Central Properties as service with it (cl 19). All of these are indicia of a business being taken over as a going concern.
As previously noted, the face page of the Agreement described it as: “Agreement for Sale of Licensed Business”. This statement by the parties of the nature of the Agreement is not, of course, decisive of its character. The significance of the parties’ own description of the character of their contract is that stated by Lewison[27] as follows:
The nature of the relationship between the parties is to be determined by the substance of the obligations into which they have entered; and if their contract is described by a label inconsistent with that substance, or if the parties incorrectly state what they believe to be the effect in law of their contract, the label or the statement will be rejected.
Although parties are free to enter into what contracts they please (subject to questions of illegality and public policy), they are not competent to determine the nature of the relationship created by the terms of the contract into which they have freely entered. The meaning of the contract (in the sense of determining what is the substance of the obligations in to which the parties have entered) is a question of construction; that is of ascertaining the presumed intention of the parties. However, the legal effect of the contract is to be determined as a matter of law; not as a matter of construction.[28]
[27] The Interpretation of Contracts, 4th Ed, 2007 at 363.
[28] Cited with approval in Fearnley v Australian Fisheries Management Authority [2006] FCAFC 3 at [27] and in Warne v GDK Financial Solutions Pty Ltd [2006] NSWSC 259 at [157].
In determining whether one person has taken over the business of another Courts generally look to the reality of what was achieved by the agreement. Widgery J in the judgment of the Court in Kenmir Ltd v Frizzell[29] said:
In deciding whether a transaction amounted to the transfer of a business regard must be had to its substance rather than its form, and consideration must be given to the whole of the circumstances, weighing the factors which point in one direction against those which point in another. In the end, the vital consideration is whether the effect of the transaction was to put the transferee in possession of a going concern, the activities of which he could carry on without interruption.[30] (Emphasis added)
[29] (1968) 1 All ER 414.
[30] Kenmir Ltd v Frizzell [1968] 1 All ER 414, 417.
In Kenmir the question was whether there had been a transfer of a business so that the service of employees with the former owner was to be aggregated with their service with the new owner.[31] The Court accepted that the transfer of the assets of the business may be so complete that it could be concluded, even in the absence of an express assignment of the goodwill, that the business had been transferred. Widgery J said that many factors were relevant to the question of whether the transferee had been put in possession of a going concern and continued:
Thus, if the new employer carries on business in the same manner as before, this will point to the existence of a transfer, but the converse is not necessarily true, because a transfer may be complete even though the transferee does not choose to avail himself of all the rights which he acquires there under. Similarly, an express assignment of goodwill is strong evidence of a transfer of the business, but the absence of such an assignment is not conclusive if the transferee has effectively deprived himself of the power to compete. The absence of an assignment of premises, stock-in-trade or outstanding contracts will likewise not be conclusive, if the particular circumstances of the transferee nevertheless enabled him to carry on substantially the same business as before.[32]
[31] Ibid at 414.
[32] Ibid at 418.
The Court in Kenmir also referred with approval to the decision of an industrial tribunal in HA Rencoule (Joiners and Shopfitters) Ltd v Hunt[33] in which, despite the express agreement of the parties that the purchaser was not purchasing the business and should not have the right to use the old firm name, it was held that the sale of the business assets, the transfer of the lease to the business premises, and the purchaser taking over the vendor’s former employees and work in progress meant that there had been a transfer of the business.[34]
[33] (1967) ITR 475.
[34] Kenmire Ltd v Frizzell [1968] 1 All ER 414 - See also Westpac Banking Corporation v Commissioner of Stamp Duties [2007] QSC 483 at [17]; (2004) 55 ATR 50 at 53-4.
The Commissioner drew support for his argument as to the reality and substance of the matter from the statement of the majority in Murry that:
Once goodwill as property is recognised as the legal right or privilege to conduct a business in substantially the same manner and by substantially the same means which in the past have attracted custom to the business, it follows that a person acquires goodwill when he or she acquires that right or privilege.[35]
The argument was that the transfer by Central Properties to Sturt of the assets of the business under the provisions of the Agreement other than cl 9 was so complete as to confer on Sturt the right to conduct the business “in substantially the same manner and by substantially the same means which in the past [had] attracted custom to the business”. On the acquisition of those assets, Sturt did not need anything else, including the rights it acquired under cl 9, in order to conduct the business of the Tavern as a going concern. That being so, the Commissioner argued that it should be concluded that Sturt had, even without cl 9, acquired in a practical sense the goodwill of the Tavern.
[35] [1998] HCA 42 at [45]; (1998) 193 CLR 605 at 623.
The Commissioner’s submissions in this respect assumed that even without cl 9, Central Properties was obliged to transfer the business name “The Castle Tavern” to Sturt. In this respect the Commissioner relied upon cl 6.2.1 of the Agreement which specifies Central Properties’ obligations at settlement. By sub‑paragraph (b) of cl 6.2.1, Central Properties was obliged to deliver a Certificate of Registration of Business Name. However, I regard cl 6.2.1 as being mechanical in nature, ie, specifying the particular matters to be addressed on settlement rather than establishing the underlying obligations of the parties. The obligation to transfer the business name arose instead from cl 9.1.4, ie, as an incident of the licensing of the goodwill.
Nevertheless, I consider that there is force in the Commissioner’s submissions. The transfer of the defined assets to Sturt did involve inherently a substantial transfer of goodwill. That part of the goodwill which derived from the location of the Tavern passed to Sturt on the grant of the sub-lease; that part of the goodwill which derived from the provision of liquor and gambling facilities passed to Sturt on the transfer to Sturt of the liquor and gambling licences; and that part of the goodwill which derived from the customers’ familiarity with “get up” and presentation of the Tavern (ie, the ability of customers to frequent the bars, meal areas and gaming machine areas with which they were familiar) passed with the assets. Some of the assets acquired by Sturt included the design works, signage, advertising and upgrade to the gaming room areas, all of which are features giving rise to the goodwill of the Tavern. That part of the goodwill derived from the “Communication Property” as defined (ie, the means of contact with the Tavern with which the customers were familiar) also passed to Sturt.
I do not mean by my reference to “that part of the goodwill” to suggest that the goodwill may be divided up into discrete portions which are attributable to the source or element giving rise to that portion.[36] As noted earlier, goodwill is indivisible. What I am emphasising is that numerous of the elements giving rise to that single indivisible goodwill were to pass to Sturt quite separately from the operation of cl 9, so that it could be said that those elements of the transaction led inherently to a vesting of goodwill in Sturt.
[36] Commissioner of Taxation (Cth) v Murry [1998] HCA 42 at [30]-[31]; (1998) 193 CLR 605 at 617-8.
It is true that without the business name “the Castle Tavern”, Sturt may not have received all of the assets giving rise to the goodwill. Nevertheless, the very nature and extent of the assets transferred to Sturt indicates that even without an express transfer (or licensing) of the goodwill, or of the use of the business name, Sturt had acquired the business of the Tavern.[37] This would have been so even if Sturt had been obliged to conduct the business under a different business name.
[37] I note that in Ex parte Punnett; in re Kitchin (1880) 16 Ch D 226 at 233, Jessel MR said:
It is quite plain that the goodwill of a public-house passes with the public-house. In such a case the goodwill is the mere habit of the customers resorting to the house.
The circumstances of this case are similar to those considered in the English cases of Kenmir Ltd v Frizzell[38] and in HA Rencoule (Joiners and Shopfitters) Ltd v Hunt[39] to which I referred earlier.
[38] (1968) 1 All ER 414.
[39] (1967) ITR 475.
It is not necessary presently to consider what the position may be at the expiry of Sturt’s sub-lease. Any liability for stamp duty at that time may have to take account of the reasoning of Chesterman J in McDonald’s Australia Holdings Ltd v Commissioner of State Revenue.[40]
[40] [2004] QSC 357; (2009) 57 ATR 395.
The fact that the parties agreed on the payment of a substantial licensing fee does not alter the validity of the conclusion that goodwill was transferred. The parties could not by their agreement deny the reality of what had occurred; nor is the question to be determined only by reference to the particular means adopted by the parties for payment of consideration to Central Properties.
Accordingly, I conclude that the transfer of the assets (as defined) did involve inherently a transfer of the goodwill of the Tavern.
On the agreed basis upon which the parties proceeded to which I referred earlier, this means that the appeal should be dismissed.
Section 71E of the SD Act
This conclusion makes it unnecessary, strictly speaking, to address the Commissioner’s alternative contention made under s 71E of the SD Act. However, in case this matter goes further, I will state my preliminary views.
Section 71E appears in Div 8 of Pt 3 of the SD Act. The heading to Div 8 indicates that its subject matter is “transactions effected without creating [a] dutiable instrument”.
Section 71E provides relevantly:
(1)Subject to subsection (2), this section applies to a transaction in the following circumstances—
(a) the transaction results in a change in the ownership of a legal or equitable interest in—
(i) land; or
(ii) —
(A) a business situated in the State; or
(B)a part of a business (being a business situated in the State), excluding goods that are stock-in-trade of a business where the transaction occurs in the ordinary course of business, where the transaction is associated with, or is for the purposes of, a change in the ownership of a legal or equitable interest in the business (including a case where a business is being divided up into separate parts and then those parts are being transferred to one or more persons as part of one transaction or one series of transactions); or
(iii) an interest in a partnership; and
(b) —
(i)the transaction is not effected, or not wholly effected, by an instrument on which ad valorem duty is chargeable; but
(ii)if the transaction had been effected, or wholly effected, by an instrument, the instrument would be chargeable with duty as a conveyance or as if it were a conveyance.
(1a)For the purposes of this section (and for the calculation of the value of any property), a change in the ownership of a legal or equitable interest in a business will be taken to include a transfer of the goodwill of the business.
…
(3)Where a transaction to which this section applies is entered into, a statement in a form approved by the Commissioner must be lodged with the Commissioner setting out—
(a) the nature and effect of the transaction;
(b) a description of the property affected by the transaction;
(c) a statement of the value of any property to which the transaction relates;
(d) a statement of any consideration that has passed or is to pass between the parties to the transaction.
(4)Duty is payable on the statement as if it were a conveyance effecting the transaction to which it relates.
(4a)A statement under this section will, for the purposes of this Act, be taken to be an instrument executed by the person required to lodge the statement on the date of the change in legal or equitable ownership of property effected by the transaction to which the statement relates.
(5) Where a statement is lodged with the Commissioner under this section—
(a) any instrument that relates to the same transaction is not chargeable with duty to the extent to which duty has been paid on the statement; and
(b) the statement will not be charged with duty to the extent that duty has been paid on any instrument that relates to the same transaction.
…
It can be seen that sub-s (1) identifies a particular kind of transaction to which s 71E applies. In respect of such a transaction, the parties must lodge a statement in an approved form setting out the detail required by sub-s (3). Duty is then payable on that statement as if it was a conveyance effecting the transaction to which it relates.
Subsection (1a) operates only when it is established that the transaction in question is one to which s 71E applies.
The Commissioner submitted that if, contrary to his first submission, the goodwill of the business had not been transferred to Sturt by the Agreement, then s 71E was applicable. The argument was that the Agreement reflected a transaction resulting in a change in the ownership of a legal interest in the business. If there was such a transfer, then, by virtue of sub-s (1a) that transfer is deemed to involve a transfer of the goodwill of the business. Accordingly, Sturt became chargeable with the same liability for stamp duty as would have been the case had there been an actual transfer of goodwill.
In order for a transaction to be one to which s 71E applies, the transaction must (relevantly for present purposes) have the following features:
(a)the transaction must result in the change of the ownership of a legal or equitable interest in a business or part of a business;
(b)the transaction not be effected, in whole or in part, by an instrument on which ad valorem duty is chargeable; and
(c)if the transaction had been effected in whole or in part by an instrument, that instrument would be chargeable with duty as a conveyance or as if it was a conveyance.
When these elements are understood, it is apparent that s 71E is not applicable in the present case. The transaction into which Central Properties and Sturt entered on 27 October 2005 did result in a change in the ownership of a legal or equitable interest in The Castle Tavern. However, that change in ownership was effected by an instrument on which ad valorem duty was chargeable.
Section 71E is, as the title suggests[41], directed to transactions effected without the creation of a dutiable instrument, and not to those in which stamp duty is chargeable upon only one aspect of a single instrument.
[41] By s 19 of the Act Interpretation Act 1915 (SA) it is permissible for the Court to have regard to the Part headings and Division headings in a statute.
Accordingly, had it been necessary to do so, I would not have upheld the Commissioner’s argument relying upon s 71E.
The Nature of the Clause 9 Rights
Before concluding these reasons I note that the appeal proceeded on the basis that the licence granted to Sturt by cl 9 of the Agreement did not, of itself, involve a vesting in Sturt of any interest in the goodwill, so as to bring the clause within the definition of “conveyance” in s 60 of the SD Act. This question was raised at the hearing but was not the subject of submissions.
Given my conclusion as to the fate of the appeal, it is inappropriate to address the issue. I merely note that it may not necessarily be the case that cl 9 did not result in the transfer to Sturt of some interest in the goodwill. In addition to the express terms of cl 9, regard would have to be had to the issues of exclusivity, revocability, assignability, enforceability, and to the rights of both parties with respect to the manner of the conduct of the business arising from the terms of the sub-lease. The discussion of the differing kinds of licence in Winter Garden Theatre (London) Ltd v Millenium Products Ltd[42] and in Minister for Land and Water Conservation v NTL Australia Pty Ltd[43] may be pertinent. However, the parties did not address the issue and, as indicated, it is not appropriate to elaborate further.
[42] [1948] AC 173 at 188-9.
[43] [2002] NSWCA 149 at [13]-[21].
Conclusion
For the reasons given above, I dismiss the appeal.
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