Travelex Ltd v Commissioner of Taxation

[2010] HCATrans 56

[2010] HCATrans 056

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney     No S290 of 2009

B e t w e e n -

TRAVELEX LTD ACN 004 179 953

Applicant

and

COMMISSIONER OF TAXATION

Respondent

Application for special leave to appeal

GUMMOW J
HEYDON J
BELL J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 12 MARCH 2010, AT 10.02 AM

Copyright in the High Court of Australia

MR R.C. CORDARA, SC:   Your Honours, I appear on behalf of the applicant with MR J.O. HMELNITSKY.  (instructed by Mallesons Stephen Jaques)

MR D.J. FAGAN, SC:   May it please the Court, I appear with my learned friend, MR B.L. JONES, for the respondent.  (instructed by Australian Government Solicitor)

GUMMOW J:   Mr Cordara, you have in your favour the dissenting judgment of Justice Mansfield.  Do you simply adhere to his reasons or do you seek to supplement it?

MR CORDARA:   We respectfully seek to adhere to his Honour’s reasoning.  If I may just add one comment.  What we say is at stake in this case is, in a sense, what was at stake in the Reliance Carpet matters which has already troubled your Honours.

GUMMOW J:   It does not trouble us, we have decided it.  It troubled counsel.

MR CORDARA:   Indeed.  Which is, how far in dealing with a GST analysis should one simply stick to basic common law principles?  We naturally submit that that is what Justice Mansfield did.

GUMMOW J:   The common law relevant principles being what?

MR CORDARA:   In Reliance it was land law principles of a basic kind.  In this case it is commercial law principles as to the meaning and function of bills of exchange in the sense of which we have at length set out in our written submissions.  What we say is common to both Reliance and this case at the level of the Full Court is that the Court has implicitly eschewed recourse to basic primary common law concepts, be they land law or commercial law, in preference to an approach based on a much more amorphous idea, seemingly having its roots in the concept of the practical business tax.  That process is particularly evident at paragraph 55, page 44 of the application book, of her Honour Justice Stone’s decision where her Honour, towards the bottom of the page, says that:

Generally the GST Act avoids describing supplies in technical legal language in favour of describing them as practical business transactions “made in the course or furtherance of an enterprise that you carry on”. Consistent with that approach one just would not speak of a transaction such as the Fijian Currency Transaction as being either a supply of rights or a supply in relation to rights.

We submit that Justice Edmonds not only agrees with that but takes that further.  The respectful criticism that we make of that is that it is effectively to jettison basic black letter principles of common law and to replace them with a concept, in her Honour’s words, of a “practical business transaction”, which is unknown concept, very amorphous, we submit, and if allowed to take root, will replace the ample certainties of common law in whatever area of commercial activity has given rise to the GST dispute.  His Honour Justice Edmonds, in paragraph 59, page 46, uses another phrase which comes up more than once in the case law.  Right at the bottom of the page he uses the possibly slightly pejorative phrase of “juristic disaggregation”.  It is a phrase which echoes a similar phrase used by the Full Court in Reliance; “juristic dissection” was the phrase there.  Indeed, in both this case and Reliance there are these ‑ ‑ ‑

GUMMOW J:   There is this phrase “practical reality” too.  The question is, what reality?  There are many views of reality.

MR CORDARA:   Yes, indeed.  It is simply not a safe basis upon which to administer a tax on transactions and what underlies it is a silent assumption that in some way a classical common law analysis is inconsistent ‑ ‑ ‑

GUMMOW J:   Which is a reality.

MR CORDARA:   Which is the reality, precisely.  It seems to implicitly presume that in some way the common law is at variance with common sense and is not a proper basis up on which ‑ ‑ ‑

GUMMOW J:   We would be assisted to hear what your opponent has to say.

MR CORDARA:   I am obliged, your Honour.

GUMMOW J:   Yes, Mr Fagan.

MR FAGAN:   May it please the Court.  Your Honours, the question is really a straightforward one of statutory construction.  One has in section 38‑190 a table of four exemptions from the operation of GST and only one of them is said to be in play on the basis of the concessions that have been made and common ground reached at earlier stages of the proceedings and so the question simply comes down to that of whether the supply of this currency on the air said of the Customs barrier at the airport for use in Fiji is a supply in relation to rights.  That expression “a supply in relation to rights” harks back to an earlier provision which defines what a supply is in a very inclusive way, that is section 9‑10, and one finds in section 9‑10 one provision which particularly deals with rights, that is (e).  Supply includes:

a creation, grant, transfer, assignment or surrender of any right –

Now, a view that was open on these sections and which was accepted in the court below by Justices Stone and Edmonds ‑ ‑ ‑

GUMMOW J:   There may be various views open, Mr Fagan.  The question is, which one is correct in a taxing statute?

MR FAGAN:   Quite, your Honour, but what has occurred is that three out of four judges who have considered it have found an answer on an orthodox approach to statutory construction.  What is sought to be propounded by the applicant here is that if this Court enters into the debate, there may be found some broad policy key which will resolve this and other questions or that there may be found some broad approach which resolves a competition between black letter law and some looser approach to concepts which will solve this and other ‑ ‑ ‑

GUMMOW J:   I never understood this expression “black letter law” either.  It is either law or it is not the law.

MR FAGAN:   Well, I am picking up a phrase that my learned friend used.

GUMMOW J:   It is a pejorative expression which is vacuous, if I may say so.

MR FAGAN:   Well, it is an expression which my learned friend has used and I understood to embrace the proposition that there are competitive approaches, one being to take a strict legal view of concepts that are used in the Act and another to take a more broad and looser approach to the concepts in the Act.  But what I am putting to your Honour is that in the Full Court hearing this case in determining the construction of this fourth item in the table in section 38‑190, the court is not likely to find a policy basis for resolving this or any series of other small corners of statutory difficulty in the application of this Act to particular transactions.

GUMMOW J:   Does this provision in the Australian legislation have any analogue in the VAT legislation in another jurisdiction?

MR FAGAN:   Not that we can see, your Honour, no.  The explanatory memorandum and the second reading speech spoke of this legislation as designed to tax consumption, but in fact the mechanism that is adopted in the Act is to make tax applicable at the point of supply and supply is defined for a large number of situations and with a great deal of detail.  Then it was also said to be part of the policy that it would tax consumption in Australia, so it was intended to be domestic.  So one finds that there are a number of sections in here which seek to exclude points of supply which may be regarded as non‑domestic. 

From time to time, no doubt, with particular transactions one will find an issue arise as to whether the transaction does or does not fall within one of the exemptions.  There are bound to be little points of difficulty around the periphery of applying a statute that uses this mechanism to effect the policy that has been stated.  But when one finds a particular instance like this, a transaction in foreign currency at the airport for personal or private use, if you like, and when one then finds that there is a question of interpretation to be resolved as to the meaning of a “supply in relation to rights” ‑ ‑ ‑

GUMMOW J:   It is on the departure side of the barrier, is it not?

MR FAGAN:   It is, yes.  The answer to this question is not, contrary to what my learned friends have submitted to your Honours, it is not likely to throw up any general remedy to resolving all these peripheral questions of construction that may arise from time to time where transactions attract an issue as to whether they do or not fall within a taxing provision or an exemption.

BELL J:   The justices in the majority accepted the commissioner’s contention that the dominant aspect of the supply was the physical currency, as I understand the reasoning of Justice Stone with which Justice Edmonds agreed.  Justice Mansfield raised the question of, what is the supply of foreign currency if it is not the value that derives from it that can be used in the place where it is legal tender.  There might be a real issue concerning the characterisation of the transaction as one involving dominant and ancillary purposes when one is looking at the supply of foreign currency.  Presumably that is an issue that has some broader ramifications than the facts of this particular case throw up.

MR FAGAN:   In our submission, not, your Honour, because although that sort of broad inquiry about just what exactly is money and what is the character of a provision of some money and so on, although it might attract an open‑ended sort of inquiry and something of a very general level in another context, it does not in the context of this Act, because this Act very clearly says that the foreign currency is money and it very clearly says in explicit and unargued words that a supply of money is a financial supply and that a financial supply is input taxed, which means that you have to bear the taxes of your efforts to take part in the business of this sort of supply.  It is not GST‑free and you do not get any input tax credits.  There is explicit language in this Act which perfectly covers the supply of this foreign currency as a supply of money and that is through provisions that are referred to in the judgments. 

GUMMOW J:   What do you then say about paragraph 23 of Justice Mansfield’s reasons, page 34?  There was some discussion by the majority of books, too, which his Honour, in his dissenting reasons, did not find particularly cogent.

MR FAGAN:   I am not sure what part of that your Honour is particularly drawing attention to.

GUMMOW J:   The whole of it.

MR FAGAN:   The last sentence:

One may ask rhetorically what would be the legislative policy behind a supply of bank notes in the circumstances not being GST‑free, when exported goods and services generally are GST‑free.

One does not need to resort to that policy question to resolve what applies here because we have a path through which very clear words of the statute categorise this particular transaction.  It is a supply of money, that is a financial supply, it is input taxed.  There is a provision in the Act which says, if a particular supply is both input taxed, according to application of the provisions, and also GST‑free, then the GST‑free characterisation prevails.  But what was accepted in the court below, and particularly by Justice Edmonds, is this, that if the Act very clearly places this into the pigeonhole of input taxed why would one treat item 4 in the table, by a stretching of language, as also attaching to the transaction and thereby create the proposition that it also has the character of GST‑free and create a conflict between the two which has to be resolved by the tiebreaking provision which says that GST‑free characterisation prevails?  This is contrary to ordinary canons of construction. 

There really is not a difficulty about finding provisions in this Act which in plain terms attract this transaction, put it into the character of input taxed and do not require that one stretch the idea of a supply of Fijian bank notes to call it a supply in relation to rights.  That is not at all a natural approach to the language and it is adopting an unnatural approach which leads one into conflicting characterisations of the transaction under the law.  Our respectful submission is that in dealing with this question of construction it is not a case which is going to present this Court with an opportunity to find an overarching policy or an overarching approach to concepts ‑ ‑ ‑

GUMMOW J:   That is not necessarily the question.

MR FAGAN:   Well, it is a consideration, your Honour.  That is what I am putting to the Court.  That is the consideration that I submit is the way the case ought be seen and is contrary to what is put by my learned friends and if it is accepted that this would not give rise to such an opportunity to find a resolution to numerous questions of construction in the Act, then this case really does not warrant special leave.  Those are our submissions, may it please the Court.

GUMMOW J:   Yes, Mr Cordara.

MR CORDARA:   Your Honours, there are a number of large questions here.  The definition of “money”, in particular, those parts of section 195‑1 which depend on financial instruments which are choses in an action but need to be evidenced in writing, is critically raised by the judgment of the majority and that has an impact on all financial transactions which use financial instruments which have a cross‑order element.  This is a fairly humble transaction at an airport, but its characteristics, in terms of involving a bill of exchange, or promissory note to be precise, evidencing legal obligations or financial obligations of an unconditional nature and therefore is a negotiable instrument, is a characteristic which it shares with all sorts of transactions which occur.

For example, if an Australian company asks an Australian bank to draw a dollar‑denominated banker’s draft in its favour to pay a US debt, analytically that is exactly the same as this case.  Hitherto, the financial sector, perhaps wrongly, had presumed that that was GST‑free being outside the fiscal frontier, if I may use that phrase, drawn by Division 38‑190, it would appear that that is not right.  Indeed, if I may just add, Justice Edmonds, who goes further still in effectively quarantining all money transactions as having no place in the Division 38‑190 regime, has effectively ruled that the reach of Australian GST covers all money transactions performed within Australia – if they were not within Australia they would need the benefit of 38‑190 – wherever in the world they are consumed and that places uniquely on the Australian financial sector a tax burden not shared by other financial sectors in other parts of the world who have their own systems.

So that is the money point.  In terms of the dominant ancillary point, what we say is important about that is twofold.  First of all, it is derived from an inaccurate understanding of European case law which is dealing with VAT system which has certain fundamental differences from the Australian system, one of them being that it, by definition, cannot be based on common law concepts for political reasons.  The European VAT system floats above individual member states’ legal systems.  So straight away it is not comparable.  Secondly, for reasons which perhaps there is not time for

me to go into, the concept of supply does slightly different work in Europe from here.

The introduction to this case, which is a case essentially about the analysis of a unitary transaction, a bill of exchange, promissory note, the introduction of concepts of dominant and ancillary is wholly inappropriate, we say, and evidences the danger present in both this case and Reliance where the winning party before the Full Court relied on European case law and, indeed, endeavoured to do so before the High Court.  There is a great danger of taking those cases out of context.

Finally, the overarching question to which say this case gives rise is whether a trend, which we respectfully identify in these two cases in the Full Court, away from using common law concepts towards this supposed practical business concept is to be allowed to develop or, as we respectfully submit, should be terminated at this stage and the primacy of normal common law analysis underlined as the correct analytical tool for the administration of tax.

GUMMOW J:   Yes, there will be a grant of special leave in this matter.  It will be a one day case.  The parties should ready themselves on the footing that it may be listed in the May sittings.

AT 10.22 AM THE MATTER WAS CONCLUDED