Travelex v Commissioner of Taxation

[2010] HCATrans 125

[2010] HCATrans 125

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S79 of 2010

B e t w e e n -

TRAVELEX LTD ACN 004 179 953

Appellant

and

COMMISSIONER OF TAXATION

Respondent

FRENCH CJ
HAYNE J
HEYDON J
CRENNAN J
BELL J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON FRIDAY, 21 MAY 2010, AT 10.04 AM

Copyright in the High Court of Australia

MR R.C. CORDARA, SC:   May it please the Court, I appear on behalf of the appellants together with my learned friends, MR J.O. HMELNITSKY and MR P.P. PARISI.  (instructed by Mallesons Stephen Jaques)

MR S.J. GAGELER, SC, Solicitor‑General of the Commonwealth of Australia:   If the Court pleases, I appear with MR B.C. KASEP for the respondent.  (instructed by Australian Government Solicitor)

FRENCH CJ:   Yes, Mr Cordara.

MR CORDARA:   May it please the Court, this case involves the issue of the fiscal status of the sale of foreign exchange at Sydney Airport to a departing passenger and, as the Court will be well aware, that focuses attention on the provisions of the GST Act, section 38‑190 and specifically item 4(a) and the words to the effect of the making of a supply in relation to rights. I will develop the specific submissions on those words in a moment.

In our submission, the case has assumed or may be assuming an importance beyond its specific facts in the sense that it exemplifies a type of transaction which, although occurring between parties who are present and/or based in Australia, involves the creation or use of rights outside Australia and, as such, potentially has implications for any type of financial or, indeed, other transaction which bears those characteristics; for example, the issue in Australia between an Australian bank and an Australian client of the bank’s draft for use in payment of a bill in Europe or, alternatively, the grant of, say, intellectual property rights made in Australia between Australian parties but in relation, for example, to a trade mark or a licence in Fiji.

It is therefore an aspect of the argument, to which we will return, that it is important to understand exactly the analytical basis for the Commissioner’s position.  Your Honours, the three paragraphs of the decision of Justice Mansfield which we submit are the key to this case are paragraphs 23 to 25, which are to be found in the appeal book at pages 63 to 64.  It is the three themes in those three paragraphs which I will seek to follow in making my submissions to the Court.  The three paragraphs, the themes are, in our submission, these. 

First of all, in paragraph 23, a decision concerning the policy which his Honour, in our respectful submission, correctly identified as in play in the area of the legislation with which your Honours are concerned today and, in particular, he notes in his second sentence that:

it was the supply of a thing and it was clearly for use outside Australia. There is no element of “consumption” within Australia of those bank notes. The supply of that thing is capable of falling within the description in s 38‑190(1). If the bank notes were “goods”, so as to come within s 38‑185(1), they would have been GST exempt, being exported immediately upon their issue and not re‑imported: s 38‑185(2). 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. None is apparent to me. None was put forward by the respondent.

I will make that the third of the themes of the submissions that I make to your Honours this morning.  His Honour then goes on, in paragraph 24, to deal with the issue of rights and, clearly, it is a critical element in the statutory phraseology with which this case is concerned that there be a supply made which involves – I pick a deliberately neutral word – “rights” because there are two issues; there is the issue of rights and there is the issue of the relationship of the rights to which his Honour comes in the next paragraph.  In paragraph 24 his Honour says this:

I do not think that analysis of the terms of item 4 by reference to the supply of a different thing, such as a book, provides much guidance to resolving the particular issue. That is simply because a book is goods. It is not permitted to disaggregate the rights which the purchase of a book gives so as to attract item 4 of s 38‑190(1) because the introductory words of that provision say that it does not apply to goods. Nor would it be necessary to do so, as the GST‑free status of a book would be determined under s 38‑185. In the case of a supply that is a financial supply, or more generally of a supply that is of things other than goods or real property, s 38‑190(1) comes into play. The supply of Fijian currency is not a supply of goods or real property. It is the supply of Fijian bank notes which, as pieces of paper, have no especial value. Their value derives from the use to which they may be put in Fiji, that is the use as legal tender in Fiji. They were purchased for that purpose (and, on the findings, were intended for use and applied for that purpose). That purpose, in a practical and business sense, was the right to use the Fijian bank notes as legal tender in Fiji. It was not simply because of the pieces of paper or the design or colour or appearance of them. As bank notes which were legal tender in Fiji, they carried that right with them of being used in that manner.

The third theme is at paragraph 25 and as I have indicated, it is the question of the relationship between the right and the supply that is made, and his Honour quotes from Justice Hill in HP Mercantile dealing with the concept or the phrase in a different part of this legislation, “relates to”, in the context of section 11‑15(2) of the GST Act. Justice Hill said, on the occasion of that case:

It was common ground that the words “relates to” are wide words signifying some connection between two subject matters.  The connection or association signified by the words may be direct or indirect, substantial or real.  It must be relevant and usually a remote connection would not suffice.  The sufficiency of the connection or association will be a matter for judgment which will depend, among other things, upon the subject matter of the enquiry, the legislative history, and the facts of the case.  Put simply, the degree of relationship implied by the necessity to find a relationship will depend upon the context in which the words are found.

Justice Mansfield continued:

Having regard to the purpose of the GST Act, on the present facts, I consider that the relationship between the rights to use the Fijian bank notes as legal tender in Fiji and the supply of the Fijian bank notes is sufficient to conclude that there was a supply of a thing (the Fijian bank notes) which was made in relation to rights which were for use outside Australia.

He therefore concludes that the GST‑free relief applies.

HAYNE J:   Now, there are two premises, are there not, particularly for paragraph 24, that require examination through the lens of the statutory language and not otherwise.  First, what is the supply and second, what is meant by “thing” in the context of the relevant provision?  Much of what his Honour writes, speaks of “thing” in terms that at least admit of the possibility of viewing it as something tangible.  There may be a real question whether, in the relevant provisions, “thing” is to be understood in that sense, or in some other sense.  Do we not have to begin with the validity of those two premises, or at least their content? 

MR CORDARA:   Your Honour, I would not dissent from that, with respect.  The concept of the word “thing”, however, we submit, as used in this statute, particularly in the context of the concept of doing a thing, has a broader meaning, in our submission, where the thing is done.  It has a broader meaning, in our submission, than just an object.  It includes an action and an object.  While, as I have said, not in any way dissenting from your Honour’s propositions, the word itself is broad enough to encompass the provision of a service, the sale of a good or the freight, I should say, the doing of a thing, is broad enough to encompass the provision of a service, the sale of a good and certainly in a case such as the present one, the sale of what we describe, I hope with some degree of correctness, as a chose in action evidenced in documentary form, something which, as I will show your Honours briefly later, Professor Goode in his work on commercial law describes as a documentary intangible, a phrase which may capture the fact that this is both a chattel and also, we say, a group of legal rights.

HAYNE J:   That is again to apply not only terms but characterisation to what occurs that do not find their root directly in the statutory language.

MR CORDARA:   Your Honour, I accept entirely one must ‑ ‑ ‑

HAYNE J:   Do we not have to begin with what was the supply?  As I understand it, it is not disputed there is a supply.  There is a supply because it is a financial supply.  Do we not have to begin with a clear understanding of what the relevant financial supply is and only from that premise move on to any consideration of the engagement of 38‑190?

MR CORDARA:   Your Honour, with great respect, that must be right.  It is for that reason that I proposed to take the question of the legal incidence, or legal character, of the supply of the Fijian banknotes to Mr Urquhart as the first subject of the three themes that I have mentioned in support of the conclusions reached by Justice Mansfield at paragraph 24 and, if it is convenient to do so, I will turn to that question immediately.  The issue of the legal and/or factual nature of the supply that was made is not one, in my submission, as to which the judges below disagreed in any way and is not one in respect of which the taxpayer lost.

If one looks at the judgments below, and if I might begin by drawing your Honours’ attention to the judgment of Justice Emmett, there was a careful and, in our respectful submission, entirely correct analysis of the underlying transaction.  If one turns first of all to Justice Emmett’s judgment, paragraph 24, appeal book page 35, there is from that point onwards to approximately paragraph 33, first of all a careful analysis of the concepts that apply, but specifically if I may endeavour to point to certain conclusions reached which deal with the rights attendant upon the purchase of these banknotes.  Focusing if I may first of all on paragraph 24, line 31, his Honour says:

That is to say, the full force of the general rule on derivate transfers of title does not apply to title to money, in that title to money is exempt from the maxim nemo dat quod non habet. –

Then he moves on in the next sentence to negotiability.  He goes on:

In that regard, currency refers to the negotiability of money, such that, as a general rule, the right to money is inseparable from the possession of it.

Then at 27 and 28, he moves to consider the position concerning legal tender.  He starts the topic at 27, with some uncontroversial propositions if I may say so, and then at 28 he indicates again, uncontroversially, the essence of legal tender.  If ones takes those together, and particularly at 30 where he develops the legal tender point further, one sees a group of findings which deal with the rights that were obtained by the purchaser of currency.  These are entirely normal and familiar rights which anyone who holds paper money, in our submission, in all civilised countries enjoys. 

Those characteristics would have been in his Honour’s mind when he turned at paragraph 40 under the heading of “Supply in Relation to Rights”, and then to consider the question of the relationship.  He says there in his fourth line, quoting a contention by Travelex:  “It” - Travelex:

says that those rights were for use outside Australia, within the meaning of Item 4(a).  That latter proposition may well be sound.

Then he goes off to deal with a different topic.

FRENCH CJ:   That notion, incidentally, of “for use outside Australia”, that is satisfied by an intention to use outside Australia, and that is common ground in this case.

MR CORDARA:   Indeed, although we are not left to guess because we know that Mr Urquhart caught the plane and spent the money.  We have that advantage of hindsight which marks this out as a clear case of use outside Australia.  I am treating the use of the thing as a separate inquiry from the nature of the thing and, if I may remain on the subject of the nature of the thing, there is nothing in the judgment of the Full Court that undermines those basic conclusions of Justice Emmett as to the nature of the banknotes in question.  The characteristics of banknotes are possibly an issue in this case insofar as it may be necessary for the Court to inquire as to whether modern banknotes are still to be regarded as promissory notes or otherwise having the characteristics of private law bills of exchange. 

Your Honours may have seen references to Banco de Portugal v Waterlow in the written submissions.  It is perhaps important to get the position in terms of the critical path here of that submission into focus.  As I understand the judgments below, predictable and, with respect, correct findings were made, I have just indicated the basis of them, as to the legal characteristics or the rights which come with a banknote.  The banknotes themselves were not in evidence and, therefore, we do not know as a matter of evidence precisely what appears on them.  I personally, speaking for my clients I should say, have no objection to any discussion or use of knowledge of what is on those banknotes. 

It may be that we can discuss banknotes knowing that in some countries “promise to pay bearer” appears and in other countries, including Australia, it does not.  Essentially, my case is not dependent on a decision as to whether or not banknotes also have the characteristics of promissory notes for this reason.  It is quite sufficient that they have the customary public law rights that banknotes bring with them and those are powerful rights upon which our whole society is based but, if I may say so, which we all take for granted and do not think about from day to day, but they are there.

This case was lost in the courts below on a different point.  It was lost on the question of whether there was a relationship between those notes and the rights which, in my submission, incontrovertibly they bring with them.  If we are right that there is also in the background a private law promissory note/bill of exchange analysis to be made, at the end of the day that does not give significantly additional rights to the likes of Mr Urquhart.  It may make it easier in certain countries at certain times to get a replacement note, but in terms of negotiability, which is the key characteristic of any kind of legal currency, little is added.

That, therefore, is our broad submission as to the rights that came with this supply.  Returning, however, to the central point, which is, what is the supply, and addressing his Honour Justice Hayne’s question directly, the easy and non‑analytical answer is what was supplied were banknotes.  The second layer is, as I have already indicated, if one is then going to seek to analyse that in greater detail, I have already indicated they bear the characteristics of both chattels and choses in action.  I say “chose in action”, I fear I may be using that phrase slightly loosely because I use it to encompass the public law rights that the holders of banknotes have by reason of public legislation ‑ ‑ ‑

FRENCH CJ:   You say the supply then was a supply of rights?

MR CORDARA:   I do go that far for reasons that I will expand on, your Honour, I do.  The reason I do is that banknotes without the attendant public law rights, legal tender and so forth, are valueless.  This is not a case in which one has to do any kind of a significant balancing act between different parts of a complex supply, different parts which might have significance ‑ ‑ ‑

FRENCH CJ:   It would follow from your characterisation of them as a chose in action, would it not?

MR CORDARA:   Indeed, that is right.  They are undoubtedly a supply of at least public law rights and, if Banco de Portugal applies, those public law rights sit astride some ancient private law rights which derived from the laws of negotiable instruments over ‑ ‑ ‑

HAYNE J:   That is again to inject notions which have no statutory base.  We must grapple with the statute.  Relevantly, I would have thought that the path that had been settled in the courts below, and I did not think was in dispute here, was that you begin the chain of the statute which is – I forebear from any epithet – simply long.  You begin at section 9‑5 in the Act to make a taxable supply.  You go then to section 9‑10, what is a supply.  You observe the generality of 9‑10(1).  You then go to the more particular of 9‑10(2)(f), a financial supply.  You then go from financial supply through the definition in the dictionary via section 40‑5(2) into the regulations.  You then come to regulation 40‑5.09, what are financial supplies.  Then you observe that 40‑5.09(1)(a) provides there is a financial supply if the provision, acquisition or disposal has certain characteristics, but there must be a provision, acquisition or disposal of an interest mentioned in subregulation (3).

Relevantly, what we have in Mr Urquhart’s transaction is, is it not, a disposal by Travelex of an interest, an interest mentioned in subregulation (3), item 9, “the currency of a foreign country”.  Putting the same point rather more amply, what you have is the disposal by Travelex of an interest, which is to say, ownership of the currency of a foreign country and it is at that point you conclude the statutory investigation of whether there has been a supply, do you not?

MR CORDARA:   Your Honour, I would not dissent from the applicability of each and every step which your Honour has identified.  I would, however, make the point that the word “conclude” might be premature.  What one is able to conclude at that point is that there has been a financial supply which brings with it the status of input taxation.

HAYNE J:   One observes that there has been a financial supply because there has been a disposal of an interest in foreign currency.

MR CORDARA:   Indeed.  That is how Australia has chosen to define that group of domestic intra‑Australian supplies made by the financial sector, called financial supplies for the purposes of input taxation.

HAYNE J:   But when one comes to 38‑190, which is the area of dispute in the case, one is concerned to identify whether there is a supply.  We know what the supply is; I have just described it - a supply not of rights but a supply made in relation to rights.

MR CORDARA:   Indeed.

HAYNE J:   Is that not the entirety of the field for debate in this case?

MR CORDARA:   Your Honour, it is the perimeter but it does not give us the tools to work out who wins the battle, for a number of reasons.  First of all, the inquiry as to whether it is a financial supply or not, while material, does not give us the answer because one is dealing with, if not separate universes, certainly separate fields when one is looking in the regulations as to the definition of “financial supply” – and 38‑190, when one is looking to see where the fiscal frontier, if I can use that phrase, of Australian GST legislation has been drawn across an immensely wide field which will encompass financial supplies but many, many other types.

Therefore, while it is of interest, I have no doubt, to know that when viewed as a purely domestic matter, domestic supply, the supply in question is a financial supply.  When applying the statutory words in 38‑190 item 4(a) it really does not matter.  The four‑corner of those words are where the answer to this case is to be found.  Of course one gravitates to convenient phrases such as “the currency of a foreign country” in item 9.  But that does not ultimately help us know whether there has been a supply of rights.  One has to just face up to those words and ‑ ‑ ‑

FRENCH CJ:   The words are, in relation to rights, my understanding of your position was that a supply of rights would fall within the boundaries of that concept and that one of your positions is that this is a supply of rights.

MR CORDARA:   Indeed.  I am going further than I need to when I say that, but in a sense my argument compels me to that point given, as I have already indicated, that it is central to our case that a banknote with no rights is worthless.  If you therefore have a situation, a commercial transaction such as this one, where it is only given worth or sense if a particular characteristic is present, rights, it is but a short step to say what in essence that is what is being supplied.  I grossly oversimplify when I do that and I hope it has been noted.  I accept that we are dealing with chattels.  Indeed, it is the physical export of the chattels that in a sense is compelling evidence of foreign consumption in this case.  I do not in any sense seek to minimise the physicality, as it were, but I do go further than I need to when I say this is a supply of rights.  All I need to do is to persuade your Honours, obviously, that it is a supply in relation to rights.

If I may return to his Honour Justice Hayne’s point.  If one comes back to the interaction – I apprehend that an element of his point is is to inquire what, if anything, is the interaction between regulations to which he has directed attention and the question – they help in a certain way to answer this question not, in my submission, because status as a financial supply or not is ultimately determinative of whether one qualifies under item 4(a) but because, for example, it enables one to look at the schedule, Schedule 7 to the regulations, where there are examples of the supplies which are input taxed under item 9.

One sees there that foreign currency in cash, foreign currency in drafts, travellers cheques, international cheques and the negotiation of instruments.  Those are all examples, options, to buy and sell foreign currency.  All of those, the thread, we say, that connects them all is that they are rights‑based transactions.  They are not the simple handing over of a piece of property such as a book which you then do with as you please, exercising no more than your right of ownership.  They are all descriptions of transactions which, as with cash, are based on rights and when you consume them, you are exercising rights.  It is wherever you cut into this particular transaction you find rights.  That, we say, is the help one gets from the regulation. 

Coming back, if I may, again to the question that is put, having taken that help on board, one then returns to 38‑190 item 4(a) and one is still left with the banknote, as it were, in one hand and the section in the other.  The ultimate question does depend on the view the court takes as to what, in my submission, is a very simple and familiar question, albeit not one asked perhaps of the courts much these days, which is what is the juridical nature of a banknote?  I do not shrink from using “juridical” or perhaps legal is a better word.  I accept that it is a mixed question of law and fact always as to what is the nature of a supply.  Certain supplies will be purely factual.  Food cases, as to whether something is a cake or a biscuit, those will be purely factual cases. At the other end of the spectrum one has this kind case which is a lawyer’s case, in my submission, and it only can be answered by legal analysis of the transaction.

Your Honours, I am anxious to move onto the second part of what I have to say.  Your Honours would have seen that there is a debate, possibly an arid one, as to whether or not one is dealing here with bills of exchange or, forgive me, promissory notes and if I can very economically deal with this, as I have already indicated, we do not submit that it is ultimately on the critical path in the current case.  It is our case that these banknotes in common with all other banknotes issued by State authorities are indeed promissory notes and that they bring with them the normal incidence of such notes.  For that proposition we rely on Banco de Portugal v Waterlow, which hopefully is available. 

Now, if I may say something about the case briefly.  It is a case which is usually cited, as I understand it, in connection with measure of damages.  The relevant passages – and there was a split between their Lordships.  I will come to the relevant passages in just one moment.  The issue in the case concerned the damages which the Portuguese bank was entitled to recover from the printers in the United Kingdom of banknotes which had been diverted by a group of fraudsters, and that threw into contention the question, what is the measure of damages where a reserve bank of a country which is not on the gold standard claims damages for effectively allowing banknotes to come into the hands of fraudsters?

There was a three/two split, but importantly none of their Lordships disagreed with each other as to the juridical nature of a banknote.  In my submission, the most compelling and all‑embracing passage is to be found in the speech of Lord Atkin at page 487 through to 489.  If I may just draw your Honours’ attention to some of the key aspects of that, at page 487,
his Lordship said this – the third line on that page:

A bank note is a promissory note issued by a bank payable on demand.  The English note contains the promise on the face.  The Portuguese note does not, but there is competent evidence in this case that the note has the same effect.  So far the banker issuing his note incurs precisely the same liability as a merchant issuing his note.  If either fails to pay he is liable for the face value of the note.  One Bank becomes alone entitled to issues note; and let us assume that they have become currency so that they can be tendered in discharge of a debt:  the position of the Bank remains the same.  It is liable on its note.  If its note is payable in gold, then to a claim on a note the Bank must pay in gold; otherwise, on debts in general, the Bank as well as private traders will pay in currency; and, as I have said, on default will be liable to judgment for the face value.

I will just pause there, not because what follows is irrelevant, but because that is the key part of the first part of the page.

If your Honours would be kind enough, just at the bottom of the same page, five lines off the bottom, there is a sentence which starts on the right‑hand side, “If he fails to pay”:

If he fails to pay he can be sued for the face value of his promissory note.  The Bank is for the first time put in the same position as the merchant; it is bound to pay on its note; but it need only pay its note in currency, i.e., in its own notes; and if it will not or cannot so pay, it can be sued for the face value of the note.  Mr. Simonds, for Messrs. Waterlow, produced an analysis of the obligation of the Bank in issuing an inconvertible note with which in substance I agree.  It is:  (1.) to pay in other notes; (2.) when there is a return to gold, to pay in the decreed amount of gold; (3.) if other currency is decreed, to pay in that other currency.  But how this helps him it is difficult to see; for on examination it will be found that the obligation of a trader on his note is precisely the same, except that (2.) will probably only be to pay in notes convertible into gold instead of paying in gold itself.

Breaking off again - and the last part of Lord Atkin to which I would draw specific note is on page 489 - there is a paragraph that comes over from page 488, and just above the middle of page 489, there is a sentence - it is about eight lines from the end of the paragraph, it comes over the page, “I therefore find”:

I therefore find the position to be that the Bank by issuing its note like the trader issues its promise to pay a fixed sum; issues a bit of its credit to that amount; like the trader, it is bound to pay the face value in currency; like the trader, it is liable on default to judgment for the face value exigible out of its assets; and, like the trader, if it is compelled by the wrong of another to incur that liability, its damages are measured by the liability it has incurred.

For every obligation on the part of a bank, there is a right on the part enjoyed by the holder of the banknote.  I will not multiply those quotations, but may I simply say for your Honours’ note, if they wish to note this, that Viscount Sankey is to the same effect at pages 477 to 478, and Lord Warrington at 478 also, Lord Russell at 499 and Lord Macmillan at 508 to 509.

What is particularly clear from that case is that status as money, or as perhaps more precisely, currency, does not involve the notes losing their characteristic as private law promissory notes.  Whether that matters for the purposes of the present case, I have, as I have indicated, some doubt since none of the courts below have held that there are no rights supplied in this case. 

I would make two further points on this question before moving to the more central question of the relationship.  The first is to note that neither side has been able to detect any case in which any common law court – I do not think we have looked wider than that – has concluded that banknotes do not bring with them rights, public and indeed private law rights.

Secondly, however, the Supreme Court of Canada did come perilously close to a different and erroneous view in a case called Bank of Canada v Bank of Montreal.  I am not going to show that case to your Honours because ultimately they got it right, if I may say so with great respect to them.  However, in the course of reaching their judgments one of the minority – and I use that word in a slightly unusual sense because it was a four/four split.  For some reason they sat in an even number on the relevant day – the Chief Justice as part of the minority made possibly, with respect to him, was the mistake of quoting Dr Mann in the course of his decision.  That led to Dr Mann writing a short response.  I do not know if the article ‑ ‑ ‑

FRENCH CJ:   I think we have seen it.

MR CORDARA:   You have seen it - it is a lesson for us all.  I move on, therefore, to what the case is really about.  The point we lost on below was this relationship point and if I can come to that which is critical.  I have already trailed – I am very conscious – what I say about this somewhat extensively.  Again, if I could delve back into the judgments below on this point:  Justice Emmett starts the subject at page 40, as we have noted.  He notes at paragraph 42:

The phrase in relation to is a wide one –

and we would respectfully concur and he adds that it -

signifies some connection or association between two subject matters.

He refers to HP Mercantile Pty Ltd.  Your Honours have already seen the passage in question quoted by Justice Mansfield in the paragraph I read right at the start.  At 43 he summarises our case.  Then at 44 and 45 he summarises the Commissioner’s case, a case which was not accepted by the Full Court and therefore I apprehend I do not have to deal which was to the effect that there was some sort of magnetic attraction between section 9‑10(2)(e) and 38‑190.  Clearly there is not.  So I pass on.

There is then the book example on which both courts below focused with particular intensity, wrongly, in our submission.  The book example in 46, for reasons which are not entirely clear, led to the conclusion at 47 of an insufficiency of connection between the rights which undoubtedly were present and the supply which was made.  It is really this that was adopted, using different language, by the Full Court.  If one turns to Justice Stone’s judgment, he at appeal book page 72, paragraph 52 once again comes back to this example of the book.

It was, with great respect to the Commissioner, a most unhelpful example to put before a court in construing a provision which by definition does not deal with goods.  He was able thereby to effectively play both sides of the analytical street on the one hand, rightly, to concede that we are not in this case dealing with goods.  I have not drawn your Honours’ attention to it but there is a long passage in Justice Emmett’s decision where he analyses why these are not goods and no one disagrees with that.  Given that it is the case not to do with goods and given that that is conceded, it is very unhelpful then to seek to defeat the argument based on rights by treating the notes as if they were goods.  So that is the first point, there is an internal contradiction; either they are goods, in which case they would GST-free or they are not, in which case the book example is unhelpful.

The second point, which we have made in writing somewhat extensively, is that you use a book in a different way from the way in which you use a banknote.  There are two fundamental differences.  First of all,  once you are the owner of a book, whether you read it or use it to keep the door open, you are not thereby taking advantage of any cause of action against any third party.  Your dominion, of course, you assert your dominion but in the normal course one is simply using an object in an everyday non‑legal sense when one reads a book. 

When one uses a banknote one ipso facto engages in a legal transaction.  One uses a banknote by negotiating it away and, in other words, by exercising one of the fundamental public and, we would say, private law rights that comes with a banknote.  Unless one compares those two types of use with that legal analysis in mind, the example of the book is quite useless.  Once one does make that comparison, one sees, in our submission, that a book and a banknote are completely different things and that the role of rights in the life, as it were, of a banknote is central. 

The other observation I would make is this, if one is going to use a book as an example, then the proper way of doing it is to consider whether the words on the page of a book can be thought of separately from the book itself because the analogy, if one wants to do it, the better analogy is that it is the words and, indeed, the other printed messages on the face of the banknote that give it its efficacy and worth; just as with a book.  It is what is printed, pictures and words, in a book, which gives the book its identity and use.  Then the question would be, if you buy a book, has there been a supply in relation to the story contained in the book?  Clearly there has.  That is why you buy the book; to read the story.  That is why Mr Urquhart bought his banknotes, because of the legal status conferred on them by the symbols and words printed on the banknotes.

So for those various reasons, the book example is a cul de sac, in our submission, into which the majority were lured by the Commissioner.  We have yet to see if it will resurface, but once one realises that and sees that this chattel analogy does not take one anywhere, in our submission, it is but a short step to conclude that the requirements of 38‑190, item 4(a) are established; one has rights and one has a supply of banknotes which at the very lowest is a supply in relation to those rights. 

The majority in the court below, however, concluded that these rights were merely incidental as if that concept in some fashion prevented them from, nonetheless, falling within the concept of “in relation to”.  What we say about that is that one, mindful of Justice Hill’s comment, mindful of the fact that “in relation to” can, depending on its context, include indirect as well as direct relationships, if one looks at this situation, we say even if it is incidental, it is on any view a direct relationship, direct relationship because without the notes the rights cannot be evidenced.  The notes operate as evidence of the rights.

CRENNAN J:   Perhaps they were grasping at the idea that the rights in relation to the banknotes were not rights which the supplier in any way had the ability to grant, that is to say, they arose out of overseas law, and perhaps that is why they were talking about the incidental nature of the rights to contradistinguish from rights within the supplier’s gift to supply – within the supplier’s ability to supply.

MR CORDARA:   Your Honour, that may well be an explanation of what their Honours had in mind.  Let me deal with it, if it was.  The concept of a supply of rights, in my submission, is not limited to a situation which one has created them.  It must include any familiar situations, assignment, negotiation, transfer, where one has to come into possession of rights and passes them on.  While it may well be, as your Honour indicates that that may have been what they were focusing on, that would not have been, in my submission, a correct test to apply. 

Specifically, it still leaves the relationship between the notes and the rights as close or as distant as would be the case if one actually went to the central bank and enjoyed the issue of the note then and there.  The note does not function in any different way on day one of its life, as you take it out of the central bank crisp and new or after 10 years of grubby circulation.  So there are two reasons I say why that approach would not be right.  One is the transfer assignment point and, secondly, the rights do not get any closer or any more distant.  Their relationship to each other is fixed forever at the moment the note is issued.

HAYNE J:   Well, it may be important to test the validity of the general proposition that is advanced against the alternative and hypothetical case in which Travelex engages in a transaction for the assistance of travellers, not by provision of foreign currency but by, for example, crediting a travel card for use on the London underground, for example, by crediting a card, whether owned by the traveller or by Travelex, which can be used in an ATM machine in a foreign country for withdrawal of foreign currency but cannot be used in an Australian ATM for withdrawal of Australian currency.  The distinctions are perhaps there, perhaps not there, but when one observes that the relevant financial supply – forgive me for daring to take you back to the words of the Act, Mr Cordara, or in this case the regulation – include provision, acquisition or disposal.  Provision might encompass creation, acquisition, not our case for Travelex, are disposing.

MR CORDARA:   Cleary those transactions which your Honour has specified would be financial transactions, each of them, and we say clearly would involve the making of supply in relation to rights for use abroad.  The chattel analogy which was used to defeat the taxpayer below could not be deployed in any of those cases, not even, I would venture to say, where the card was the property of Travelex.  We say it would be remarkable if there was a relevant fiscal boundary drawn, as it were, at the counter at the airport between the charging of the card – which is now effectively, as I understand it, replacing travellers cheques, with increasing difficulty, in cash anywhere – and a cash transaction of the sort that Mr Urquhart engaged in. 

What we say one derives from that is that it is all rights based, and the electronic age in which we now live where plastic gives access to the machine in a sense only serves to underline the fact that when one is dealing with this kind of transaction – and by that I mean transactions where value is made available to an Australian by another Australian entity for use outside Australia – one is dealing in all these different manifestations with supplies in relation to rights.

FRENCH CJ:   Both the creation of a right to draw on an account, I suppose, in the particular physical way whereas an ATM machine or use of a credit card ‑ ‑ ‑

MR CORDARA:   Indeed.  We move away from the central bank situation to, as your Honour indicates, a situation which ‑ ‑ ‑

FRENCH CJ:   There is another layer of contractual – well, there is a layer of contractual relationships involved in that, is there not?

MR CORDARA:   There is indeed.  Indeed, one of the aspects of this case is that with the discussion about banknotes if forces one, briefly at any rate, to revisit the juridical nature of an everyday transaction.  The English Court of Appeal had a similar task set by the VAT system in the very area of credit card arrangements.  Briefly, if I may, just show the FDR, First Data Resources Case, to your Honours.  I am careful always to give health warnings about European VAT cases but this is common law judges analysing a commercial transaction from the common law point of view.

This was a case to do with financial supplies, which are very, very differently defined in Europe, by an entity that supplied to clearing banks the service of supporting the clearing banks credit card business.  So, I think this may also happen here, you get a credit card statement but it has not actually come from your bank, although it has your bank’s logo on it, it is supplied by an organisation which basically makes everything happen from the moment you put your plastic in to the ATM to the moment, a month later, when you get your statement.  At paragraph 36, Lord Justice Laws engaged in mutatis mutandis very similar to this, albeit not of cash but of the very sorts of transactions that ‑ ‑ ‑

FRENCH CJ:   This is at page 686 of the report, I think, is it?

MR CORDARA:  Your Honour, I am using a slightly different numbered report.

FRENCH CJ:   Yes.  Under the heading “Transfers in domestic law”?

MR CORDARA:   Your Honour, yes.  I will not read it all.  I will just read the first and last, but at 36 Lord Justice Laws begins saying this:

First, however, there is something to be said about the very meaning of a ‘transfer’ of money, a concept not defined in the Sixth Directive.  It is, even nowadays, not difficult to be beguiled by the old model of a transfer in specie, when money in the shape of tangible coin was moved from one place, and one owner, to another place and another owner.  We were shown two cases decided in the Commercial Court which describe the modern reality.  The first was Momm v Barclays Bank International Ltd [1977] QB 790. A credit entry had been made in the plaintiffs’ bank account on 26 June.

Then he describes Mr Justice Kerr, as he then was, holding that, of course, the way that money moves – I break off the quotation there – but money moves by means of entries being made in bankers’ books.

FRENCH CJ:   His general observation follows at 37, I think.

MR CORDARA:   Indeed, and it is 37 to which I was going.  He says:

The value of these statements (which have, according to counsel’s researches, never been doubted) is that they show that, if one leaves aside transfers in specie (of coin, goods or other property), a transfer of money means no more nor less than the entry of a credit in the payee’s account and the entry of a corresponding debit in the payor’s account.  There may be – will be – problems in cases of error or fraud in the posting of entries to the accounts.  But however those may fall to be resolved, there is no further, elusive, event by which the money is really transferred:  no Platonic form, of which day-to-day transfers are only shadows.  The pro and con entries constitute the transfer.  There is nothing else.  I recognise, of course, that this reasoning boils down the reality to the simplest case.  In truth, creditor and debtor may have accounts at banks A and B respectively; banks A and B may themselves have accounts at banks C and D respectively; and it may be only when one comes to banks J and K that one finds both of them having accounts at the Bank of England.  But the logic is unaffected.

So if one pays one’s electricity bill, ultimately the clearing bank with whom one has one’s account will be put in touch with the Reserve Bank of Australia, or will put itself in touch, in order that the Reserve Bank can make contra entries in favour of the clearing bank with whom the electricity company has an account and, as can be readily imagined, just one Australian clearing bank can have a hundred billion dollars worth of transactions with the Reserve Bank a day.

FRENCH CJ:   Anyway, this is all directed to the illusory character of a boundary between dealing in money and dealing in ‑ ‑ ‑

MR CORDARA:   Indeed, and the points made.

FRENCH CJ:   Yes.

MR CORDARA:   And it is responsive to paragraph 44 of the written submissions of the Commissioner where he says what he says about these transactions.  Coming to something much humbler, if an Australian resident buys a Eurail pass from an Australian travel agent, that is analytically exactly the same, we say, as the current transaction, or a hotel voucher to be used in Tokyo, et cetera.  Your Honours, those are the principal submissions on the relationship point, but we say ultimately that you can only have a debate as to what relationship one part of a supply has to another if you can identify two parts to the supply and we say that itself is an error in this case.  This is a unitary transaction. 

I think everyone on this side of the Bar is agreed that you cannot disaggregate the notes from the rights.  We each accuse the other, however, of doing it, but the reality is that one simply cannot do it.  It is the book and the story point that I made earlier.  There is, in our written submissions, a reference to a quotation from Perpetual Trustee Company v FCT.  It is a decision of the High Court and Mr Justice Dixon.

FRENCH CJ:   This is at paragraph 20, I think, of your submissions?

MR CORDARA:   Yes.  I am grateful.  I perhaps will not trouble your Honours.  I think we quoted it as a stamp duty case.  He makes the point that:

The distinction between the bond and the debt which it secures appears to me to be notional only.  It is not a distinction between two possible subjects of taxation, but between two aspects of one subject.  A Treasury bond is an instrument the property in which passes by delivery.  It is the title to the debt or obligation which it expresses.  Property in the instrument is property in the debt or obligation.  Whoever owns the paper owns the obligation.

In other words, one simply cannot separate them.  That is all I say about “in relation to”.  I say the test is amply passed here.  The third and final subject upon which I seek to address the Court briefly is this, the question of consumption outside Australia.  In my submission, if your Honours are persuaded by what I have said up to this point, that will be sufficient to dispose of the case because what I have been addressing are the words of 38‑190 and I have made the best points that I can make in support of my client’s position there, but the Commissioner’s response submissions received recently take this case into potentially uncharted territory in terms of his analysis of what is aimed for by the legislation as the target of the relief.  That brings one to the question of what is consumption in Australia.

We say there is an easy and simple answer which is that we are told by the words of item 4(a) that whatever consumption in Australia may be in the title to subdivision 38-E, as far as the localised problem that item 4(a) throws up, it is expressed as use outside Australia.  It is, in my submission, a short point.  One simply asks oneself when one has identified what has been supplied, one then asks where is it used, and analytically there is absolutely nothing else to be said on the subject, particularly in a case as simple as this one.

The Commissioner appears to propose a concept which he describes as consumption expenditure by reference to which he says he can justify both contending that the transaction with Mr Urquhart falls outside the policy of the Act and, indeed, in his paragraph 44, that ought also to be the case if Mr Urquhart had simply charged up a plastic card.

This is a slightly shadowy area, but the appellant is concerned that there is an element to this case which has not really been sufficiently ventilated.  Our concern is this, that the Commissioner has yet to accept that money can be consumed.  It was his submission below – we have given the references in the transcript below, the exchanges between my learned friend’s predecessor and Justice Mansfield - that money cannot be consumed, or rather that it is an inappropriate use of language perhaps, to be more precise, to talk of money being consumed.

Just for the reference, it is at supplementary appeal book pages 109 and 110.  The exchanges – perhaps it is worth just looking briefly at the exchanges arguendo between Justice Mansfield and Mr Fagan.  At page 109, using the line numbering of the transcript at 22, Mr Fagan is speaking.  He says this:

But, really, that negates their position because in no meaningful sense does one speak of consumption of money.  Money, currency is a medium of exchange, that’s how it’s commonly understood.  One may stretch notions of consumption a little.

Then he speaks of a banana and then Justice Mansfield says:

How does one consume the rights granted under a franchise agreement or a distribution agreement?

Then there are some inconclusive exchanges.  Then on the opposite page at transcript line 10, Mr Fagan says, just above that:

Because the appellants seek to construe the supply of money and subsequently the application of money as a consumption of it.  And they thus seem to gain – and that is paragraph 30 of what they have written – and thereby they seem to, as I understood it, sought to gain some support from those introductory words of the table and in the section of consumption.  But really, in our submission, they don’t get any impetus from that because you can’t apply consumption to money.

Now, the Commissioner has been discreet, to say the least about his position on this, but we say it is fundamental to understanding what he appears to be saying in terms of this consumption expenditure point.  In our submission, the sad fact of human life is that you can and we all do consume money and one does it by spending it.  It is in that way that Mr Urquhart used the supply of rights in relation to which the sale of the foreign exchange took place.  That is not a submission again which admits of much elaboration. 

However, the Commissioner’s consumption expenditure point is particularly troubling for this reason.  It proves too much because what he appears to be saying and I stress I may have misunderstood the point, I am just at the moment obviously following it in the written form which is not necessarily foreshortened, he appears to be saying that because Mr Urquhart paid his money at the airport it is consumption expenditure in Australia and therefore out with the policy of the Act to which we respond, but that would be true of any expenditure that stayed with the airport, at the airport, whether he bought a wallet to put the money into or had a business meeting with his Australian partners and they sold him some Fijian trademark rights for which he paid in cash at the airport.  If we are right and if it is that proposition we say it cannot be right and it proved too much. 

The only intellectual underpinning of the point are two articles, one by Dr Millar, Rebecca Millar, which hopefully are available.  I will deal with these very briefly.  I only asked for these to be put before your Honours essentially to prove a negative.  Dr Millar’s article is an article which as you can see from the front page dealing with a different topic, she writes her article about the timing of supplies.

The passage upon which reliance is made appears at 137 but if at any point your Honours have a moment to leaf through the article you will see that there is no mention at all of the subject of the place of consumption.  It is the timing of supply and the point, I believe, that she is making in or around the passage upon which the Commissioner relies is that when it comes to the timing of supplies for the sake of good order GST and VAT systems have to treat the moment of the transaction and/or the moment of payment as the moment of supply even if you then go on to use or consume the object for many years thereafter.  That is all she is saying.

The Danish academic, Dr Cnossen, who she in turn quotes, he - his article is not even about that.  The relevant passage is to be seen on, I think, around page 233, “Activities or Expenditures?”  It is he who generates this consumption/expenditure concept.  He is making a very high level economic point and what he is talking about - you will see there is a passage about raising a cow or a calf, I should say, on page 3 – is situations where you engender value yourself as opposed to where you purchase it.  It is very interesting but nothing to do with this case or this Act.

So with apologies for troubling your Honours with, as it were, the negative, that is the entirety of the intellectual underpinning that has so far being revealed for the consumption expenditure point.  We say that the point is wrong.  We have elaborated our reasons extensively at paragraph 9 of our written submissions, but since we are shooting slightly in the dark, I hope I may be forgiven at the moment for leaving our arguments to rest in written form.  The Commissioner at least has notice of what we say.  But our fundamental point is that money is indeed capable of consumption.  It is consumed by expenditure.  You spend it by using the rights you get with it, and that is what Mr Urquhart did.

Your Honours, I just have one final task to perform and that is to just draw your Honours’ attention to something I said earlier.  I mentioned Professor Goode and his book Commercial Law and I used a phrase “documentary intangible”.  It appears at page 29 of his book and if you look at the heading there “Personal Property Defined”, you will see a paragraph which starts “Apart from leaseholds”.  If you kindly look four lines down, you will see a sentence which starts “However”:

However, some intangibles are more concrete than others.  These are rights to money, goods or securities which are locked up in a document to the extent that the document is considered to represent the right, which thus becomes transferable by transfer of the document itself.  Rights so embodied may conveniently be termed ‘documentary intangibles’, and their significance lies in the fact that the document which manifests them is to most intents and purposes equated with goods and is susceptible to the same remedies of specific delivery, damages for conversion and the like.  Into this category of documents fall rights embodied in –

and then he gives a list.  That is the origin of that phrase.

HAYNE J:   Just before you sit down, Mr Cordara, do you point to any particular passage in Justice Stone’s reasons as the point at which her Honour takes what you contend to be a wrong turning?

MR CORDARA:   Yes.  I have not spent – forgive me; I should have.

HAYNE J:   Simply if you would identify where it is you say her Honour takes what you contend to be the wrong turn or turns.

MR CORDARA:   Indeed.  If one turns to page 72 of the appeal book, I would respectfully submit that the precise moment when her Honour takes the wrong turning, in our submission, is the first sentence of paragraph 51, where she says:

that a supply in relation to rights must be something more than the supply of goods (or bank notes) with their incidental rights.

While one might agree that the supply of goods – a book - it cannot be analysed as having incidental rights to read the book.  The error in that sentence is, number one, to equate this transaction with goods and/or – the same point – to equate banknotes with goods.  Secondly, to deploy the concept of incidentality, if that is a word, as a relevant tool for the analysis and her Honour then develops the point in that paragraph.  Then, in our respectful submission, she reinforces the point in the next paragraph by coming back to the possible need for the right to be capable of being dealt with independently from the chattel – the first sentence of the next paragraph.

Again, it all comes back to the, if I may say so, somewhat pernicious analogy with the book, which seems to have, in our submission, led the majority into error.  She repeats the incidentality point at paragraph 53 and then at paragraph 54, a point that I have only touched very lightly, there is a question of predominance – the predominant aspect of the supply.  Insofar as the court, the majority were thinking in terms of European VAT cases which the Commissioner placed before them to do with the analysis of an overall overarching character for European VAT purposes of a given supply, that was an error in itself.  It is not very clear from Justice Stone’s decision.  She uses “incidental” and “predominant” which are often hallmarks of that.

Justice Edmonds at appeal book page 76, paragraph 60, refers to the leading European case of Card Protection Plan, although he only refers to it for a slightly different proposition.  What we would respectfully say is that neither here nor elsewhere in the world would it be correct to analyse the banknote as containing a predominant supply and an ancillary supply because it is a unitary thing.  If one were forced to do it, then your Honours have my submissions that the predominant element is the rights because otherwise a genuine banknote is indistinguishable from a counterfeit one.

Then finally in answer to your Honour’s question, at paragraph 55 there are two elements that we complain of specifically there.  One is that her Honour, at line 40 of the appeal book numbering, says – this may be speaking of essentially of policy:

This may be accepted, however the policy underlying a tax on consumption cannot override the language of the statute interpreted in the context of the relevant provision and the Act as a whole.

We interpret that as a statement of perhaps concern on her Honour’s part, that she has not quite been able to marry up in her mind the consumption, a broad stream of this, with her interpretation of the words which actually fell to be applied and it is a hallmark, we say, of the fact that the majority had been led into error.  Her Honour should, in our submission, have been saying at that point “And I am confident that I am right because the policy leads me to the conclusion”, but she seems almost to be saying the opposite.

Finally, at the bottom of that same paragraph, she deploys this concept, four lines off the bottom of the page, of a “practical business” transaction.  I have said nothing about that because the Commissioner himself says that it is not determinative and I had not wanted to waste the Court’s time.  There are no doubt cases where it is, but as I said earlier, this is a case for lawyers.  It is about a legal analysis, and it can never be determinative.  That was all very critical of her Honour. 

May I seek to redress that slightly by noting that elsewhere in the case, paragraph 53, her Honour of course accepted that there were “rights consequent upon the bank notes being legal tender in Fiji”, but as I have said earlier, we did not lose on the rights point below.  We lost on the relationship.  Unless I can assist your Honours any further.

FRENCH CJ:   Thank you, Mr Cordara.  Yes, Mr Solicitor.

MR GAGELER:   Your Honours, when I get to the text of item 4 of section 38‑190(1) I will say in essence two things, although I will say them a number of different ways. I will say that there are no rights in the relevant sense and I will say that the connection required by the words “in relation to” is absent. Before I get to that text, may I deal first and in essence responsively to the argument at the foundation of the appellant’s case concerning the juridical nature of Fijian banknotes independently of the GST Act.

May I then, and I hope fairly quickly, get to the important question sought to be raised by your Honour Justice Hayne in the course of questioning of my learned friend, and that is the question concerning the treatment of the supply of foreign banknotes within the scheme of the GST legislation as a financial supply which is input taxed.  In our submission, it is in a proper understanding of both how, quite specifically, and why, as a matter of policy, such a transaction is treated within the scheme of the legislation as an input taxed financial supply that one finds most of the policy answer to the argument made by Justice Mansfield in paragraph 24 of his judgment ‑ ‑ ‑

CRENNAN J:   The lack of symmetry argument, in relation to goods.

MR GAGELER:   Yes.

CRENNAN J:   Paragraph 23.

MR GAGELER:   Yes, the paragraph 24 argument.  Your Honours, because it was raised towards the end of my learned friend’s address, can I just say this about the notion of consumption in Australia, or consumption outside Australia.  It is a question that simply does not usefully arise to be explored, nor does the question whether money can be consumed in some abstract sense arise to be explored.

“Consumption” is a somewhat ambiguous word used in its ordinary meaning. When used within the GST Act, and it is used some 25 times throughout the GST Act, it is used in a variety of senses. It does not appear in the operative language of item 4 and it is not usefully explored in our submission. Can I start with the juridical nature of the banknotes and it is necessary, given the way in which the argument is presented, to be a little precise about the status of those notes under Fijian law and the status of those notes within Australia.

Now, the status of the banknotes under Fijian law we know from the Reserve Bank of Fiji Act which was treated as in evidence before the trial judge, which was the subject of findings by him at paragraphs 29 and 30 of his judgment which is reproduced for your Honours’ benefit in the respondent’s accompanying material at pages 32 and 33, we know from that Act from section 2 that the banknote had the status of currency.  We know from section 22 that it must have been issued by the Reserve Bank of Fiji.  We know from section 24(1)(a) that it is legal tender in Fiji and we know from section 27 that the Reserve Bank was required as a matter of statutory obligation to re‑issue or exchange the note on demand.  That is as much as we know from the face of the statute.

By its designation as currency and interpreting that statutory language in the same way that it is being interpreted all over the world, we know that it is in Fiji negotiable in the sense that property passes with the note itself.  Justice Emmett explored that element of currency, as your Honours have seen in paragraph 24 of his judgment, entirely correctly.  As legal tender and, again interpreting that language in the way in which it is ordinarily interpreted, we know that the banknote is sufficient in Fiji if tendered to discharge a debt, a common but not essential attribute of money.  Justice Emmett deals with that entirely correctly at paragraphs 27 and 28 of his judgment. 

The status of the banknotes under the law of Australia independently of the GST Act was something that his Honour did not find it necessary to explore but touched upon in paragraph 33 of his judgment. May I say, his Honour was correct, in our submission, in finding it was something not necessary to explore.

His Honour said in paragraph 33 of his judgment in the fourth sentence something which, in our submission, is not entirely correct and should be drawn to your Honours’ attention.  He said that:

Foreign currency has no particular legal status or standing in Australia that would make coins or bank notes issued by the central bank of a foreign polity anything different from medals or tokens that would constitute goods in Australia.

That, as a matter of statute law and, in our submission, also as a matter of common law, is not entirely correct.  If one goes to the Currency Act 1965,
what one sees in section 9 is that the currency of some other country, like Australian currency, can be what might be described as a unit of account or a unit of exchange in a transaction entered into in Australia and if one goes to section 11(1) of the same Act, one can see that the currency of some other country can, like Australian currency, be a means of payment in Australia, that is it is legally permissible to pay and discharge a debt in Australia by the payment of foreign currency.

It seems to us that the only potentially relevant legislated difference between foreign currency and Australian currency, so far as Australian law is concerned, is that Australian currency is and foreign currency is not, legal tender in Australia. This Act, section 16 of the Currency Act makes coins issued by the Treasurer under section 14 legal currency in Australia and so far as banknotes are concerned it is the Reserve Bank Act 1959, section 36 that makes Australian notes issued by the Reserve Bank Australian currency.

So far as the position of common law is concerned, your Honours ought be aware of a sentence in a judgment of Sir Owen Dixon in a tax case where there is a suggestion that, at least in some respects, the money of another country might, at common law, be treated as like goods in Australia.  The reference, your Honours need not turn to it, is in a case called Caltex Limited v Commissioner of Taxation 106 CLR 205 at 220.

That is the position that has been accepted in the common law of New York since 1919.  It is the position that has been accepted in the United Kingdom since 1997 in the case of Camdex.  All of those authorities and others are explored in the current edition of Mann’s work on money relevantly at pages 44 to 46.  We have also put the cases on our list of authorities, but there is no need to take your Honours to them. 

There is, in our respectful submission, no basis in law or in fact for considering a Fijian banknote to be a promissory note.  There is in the record before the Court no finding and no evidence that a Fijian banknote contains a promise to pay.  It is something that we think your Honours can take judicial notice of and it is the fact that a Fijian banknote contains no promise to pay.  So far as an implied promise is concerned, if one needed to ask whether there was an implied promise, one would, applying the choice of law provisions in our own Bills of Exchange Act, relevantly sections 77 and 95, need to go to the law of Fiji and there is no law that has been sought to be proved at any stage of these proceedings concerning Fiji. 

It would seem, on its face, to be contrary to the scheme of the Reserve Bank of Fiji Act to imply a private law obligation on the part of the Reserve Bank of Fiji to honour a banknote.  No implication is necessary to give efficacy to the banknote and one would not readily imply a private law promise to do what section 27 of the statute requires.

So far as Banco de Portugal is concerned, that case, in our submission, turned on what Lord Atkin described at page 487, point 2, of the report in [1932] AC 452 in a passage to which your Honours have already been referred, as competent evidence as to how the note issued by the Bank of Portugal would be given effect in Portugal, that is, as a bill of exchange. The nature of that evidence is spelt out more fully at page 484 at about point 2 in the first full paragraph in the speech of Lord Warrington. That is really the explanation for Banco de Portugal. 

The case, in our submission, is put in perspective by the Canadian Supreme Court decision to which my learned friend did not want to go, that is, Bank of Canada v Bank of Montreal (1977) 76 DLR(3d) 385.  The case, as my learned friend mentioned, was decided by a bench of eight and, as we read the decision, the court was evenly divided on the question whether notes that had been issued by the Bank of Canada before 1967 were promissory notes and before 1967 notes issued by the Bank of Canada bore the inscription that is set out at the beginning of the headnote that the Bank of Canada will pay the bearer on demand the face value of the note.

The statutory majority said that before 1967 they were promissory notes, and the basis of that finding appears in the judgment of Justice Beetz at page 399 in the middle of the page in the paragraph beginning “I do not agree with that submission” and the basis of the statutory majority’s holding in that case was that we are in an area where form prevails over substance.  That was how the court was split in that case on the position before 1967, but as we read the judgments so far as they touched upon the position after 1967, not in issue but mentioned in the course of the judgments when that inscription no longer appeared on the banknotes, there was unanimous acceptance that they were no longer to be treated as promissory notes.  One sees that in the judgment of the Chief Justice, page 386 at about point 5, and one sees a passing reference we read as to similar effect in the judgment of Justice Beetz at page 399, about point 9 in the bracketed language.

We would say, if it were necessary to get to it and one does not need to get to it in this case, that even in those cases where a foreign banknote might continue to bear the historical promise to pay, that the better view is the view that was taken by Chief Justice Laskin and that is that within the definition in the Bills of Exchange Act, if something is itself legal tender and therefore money, it cannot be a promise to pay money within the statutory language.  We would commend the entirety of his Honour’s judgment but, in particular, that point he makes compellingly, in our submission, at page 388 at about point 6, at page 389 at about point 9 and page 391 at about point 5, but I do not want to spend more time on that.

Can I go to what is in our submission much more significant, and that is the treatment of a foreign exchange transaction within the scheme of the GST legislation, as an input taxed financial supply.  Your Honours may have noted in the appeal book at page 57 in paragraph 2 of the judgment of Justice Mansfield an identification of what he said was the issue in the case, and that is whether the sale of the foreign currency in the particular circumstances attracts the obligation on the part of the appellant to pay GST on the supply of that foreign currency.  His Honour, in our respectful submission, was simply wrong in so identifying the issue and he was wrong because if one goes to the scheme of the GST legislation, what one sees is that under section 7‑1(1) “GST is payable on taxable supplies”, and what one sees then in section 9‑5 in the concluding words is that:

the supply is not a taxable supply to the extent that it is [either] GST‑free or input taxed.

There is no dispute between the parties and never has been that but for the possibility that the transaction is GST-free, in which case section 9‑30(3) would kick in, the supply is input taxed.  So the real issue between the parties is not the issue identified by Justice Mansfield, but the issue of whether Travelex, having itself no obligation to pay GST on the transaction, is nevertheless entitled to claim input tax credits on the acquisitions that relate to the transaction.  To just mention the key provisions in that respect, if your Honours look back at section 7‑1, subsection (2) provides that:

Entitlements to input tax credits arise [relevantly] on creditable acquisitions . . . 

Section 11‑5 then provides, relevantly, in paragraph (a) that:

You make a creditable acquisition if:

(a)you acquire anything solely or partly for a creditable purpose –

Section 11‑15(2) says:

you do not acquire the thing for a creditable purpose to the extent that :

(a)the acquisition relates to making supples that would be input taxed –

Now, if one then asks precisely how and, more broadly, why, as a matter of the policy of the legislative scheme, a foreign exchange transaction, that is a supply of foreign exchange in exchange for Australian dollars, that occurs wholly within Australia comes to be input taxed, then one has the policy setting to answer Justice Mansfield with some precision.

One needs here to look at the legislative scheme that emerges from a reading of the Act with the regulations.  This is a scheme like the sales tax legislation of old where the legislative policy really only emerges when the Act is read with the regulations.  That is not the usual position, but it was the position as recognised in a number of cases in this Court.  Can I just mention the principal cases dealing with the scheme of the sales tax legislation.  One of them is Ellis & Clarke 52 CLR 85, particularly at 89 and the other is the case of Brayson Motors 156 CLR 651 and particularly at page 657.

If I can tell your Honours where I am going with this and then take you to the detail, but not too tediously, I hope, what emerges is that a supply wholly in Australia of money, as broadly defined in general but within that of foreign currency in particular, is specifically treated within the legislative scheme as a financial supply which is input taxed.  As an input taxed financial supply it is taxed, in substance, on the basis that it is a supply of a financial service. 

In some of the VAT designed legislation the language is that of “an intermediary service mediating between borrowers and lenders”.  It is taxed on the basis that it is a supply of a financial service where the value of the service lies not in the face value of the thing supplied, if I can use “thing” loosely but not in its defined sense, but in the margin that the supplier makes on the making of the supply.

Here, if one were to look at that, it is the permission plus any margin that is built into the exchange rate and the way the system works by denying input tax credits to inputs that relate to the making of an input taxed supply is that the GST that is paid by the supplier on the acquisition of those inputs is, in the design of the scheme, expected to be built into that supplier’s margin and to that extent the acquirer of the financial service will bear the economic burden.

HEYDON J:   In this case 80 cents or so.

MR GAGELER:   Yes.  Now, the provisions, if I can take your Honours to the provisions, and in a couple of passages in the explanatory memorandum and in the extremely lucid judgment of Justice Hill in HP Mercantile, I will hopefully make those propositions clearer.

HAYNE J:   Just before you embark on that task, can I understand better what the object of the task is.  You have described an object, but how is that object then to be related to a particular question of statutory construction?

MR GAGELER:   I am simply setting the broader context within which the particular question raised by the operative language of item 4 arises.  I am seeking here, insofar as is necessary, to provide an answer drawn from the legislative context and a clearly discernible legislative policy to a central plank in our learned friend’s argument and that is, how can there possibly be a justification, as in that policy, for treating this supply of foreign currency in Australia in a way that is different from the treatment of goods which are for export?

HAYNE J:   Your argument is directed to meeting that argument or is it an argument that is directed as well to urging a particular construction of a particular provision?

MR GAGELER:   The only particular provision that I am asking your Honours ultimately to construe is item  4.  I am attempting to provide your Honours with a comfortable policy explanation which Justice Mansfield said was absent from our argument in the court below as to why the construction for which we contend should be accepted.

CRENNAN J:   It is contemplated as a possibility, is it not, that a supply could be an input tax supplied and also a GST-free ‑ ‑ ‑

MR GAGELER:   Indeed.

CRENNAN J:   So you are not setting some exclusive distinction?

MR GAGELER:   It is not hermetically sealed that it is a policy reason for the outcome and, if I could say, the policy reason we would submit for the outcome.

HAYNE J:   We will get to the construction at some point, Mr Solicitor.

MR GAGELER:   I told you where I was going and I am not going to waste too much time, your Honour.  The provisions, section 40‑5 is the starting point which says that:

(1)A financial supply is input taxed.

It now provides in subsection (2):

(2)Financial supply has the meaning given by the regulations.

Your Honours ought be aware as a matter of legislative history that as originally enacted but before its commencement section 40‑5(2) was in a different form.  Your Honours have that in the additional materials volume 2 at page 892, and at that stage, subsection (2) set out in a table the supplies that were financial supplies, the first of those in item 1 being “Money” as it is still defined and there was an ability then in the regulations to take particular things out of that definition and put other things in.

The current form of section 40‑5(2) was substituted then by the Act that appears at page 926 of those materials.  It begins at page 923 but 926 – and the reason as given in the explanatory memorandum for that change – in the explanatory memorandum it relevantly has a passage in the last page of that book of materials, at paragraph 1.14 it was:

To provide greater certainty to entities making financial supplies and to avoid potential inconsistency between the regulations and the principal Act -

One then goes to the regulations in their current form.  Your Honours have those at the beginning of the same book of materials.  The relevant provisions are within Division 40 beginning at page 602.  I will not go through the object or definitions but one gets to the operative provisions with 40‑5.08(1)(a) and then 40‑5.09(1), which your Honours will note to a very large extent mirrors the general provision in section 9‑5 of the Act dealing with the making of a taxable supply, that this is in circumstances where one has:

the provision, acquisition or disposal of an interest mentioned in subregulation (3) –

and the supplier is, amongst other things, a financial supply provider as defined and it is within subregulation (3) and within the table as item 9 that one finds the reference to:

Australian currency, the currency of a foreign country, or an agreement to buy or sell currency of either kind.

One then notes in regulation 40‑5.11 that Schedule 7 gives examples, and within the examples in Schedule 7 in this compilation at pages 652 and following, what you see at page 655 is examples for item 9.  Within those examples, item 1 and item 8 are both entirely appropriate to cover the transaction in question, that is, not only is it appropriate and, indeed, this fits the language of item 9 itself to regard what is occurring here as a provision or a supply of foreign currency in cash form, but equally one can describe what is occurring as the conversion of Australian currency into foreign currency.

HAYNE J:   Even if the traveller paid for it by EFT?  I suspect you may need them both to deal with the exchange of notes and the traveller who simply debits an account.

MR GAGELER:   Your Honour is probably right.  If I can simply refer your Honours again within this book of material to the statements in the explanatory memorandum that indicate the legislative scheme to which I have referred, and then very briefly to HP Mercantile.  The explanatory memorandum begins at page 675.  At page 703, you will see a heading “Non‑taxable supplies”, and the last two paragraphs under that heading deal with the supply that is input taxed.  Page 706, the point is made at the bottom of the page that:

In general financial supplies are input taxed.

Then at page 760, paragraph 5.4, it is said:

You do not charge GST on supplies that are input taxed.  However, you are not entitled to input tax credits on acquisitions relating to the supplies.  The effect is that you have borne GST on those acquisitions and will pass on that cost in the price of the supply.

In other countries, input taxed supplies are referred to as exempt.

In the course of the special leave hearing Justice Gummow asked a question as to how the equivalent foreign exchange transaction would be dealt with within the VAT systems of other countries.  We have prepared a note on the English position and the New Zealand position which we can provide at the conclusion of the argument.  We have provided it to our friends.  The position is that, in substance, the tax treatment would be the same as that which is arrived at in Australia by treating the transaction as input tax, that is, under the foreign legislation the transactions would be exempt.  At page 781 what one sees under the heading “Input Taxed Supplies” is at 5.140 the statement that:

Most countries that have a GST system exempt financial services as there is no readily agreed identifiable value for supplies consumed by customers of financial services.  The approach adopted in the Bill is consistent with the international model.

Just reading the first three sentences of the next paragraph:

The principal adopted in the Bill relies on describing categories of activities.  This is consistent with the methodology used in other countries.  The phrase financial supply encompasses the concept of supplying a variety of financial facilities.

FRENCH CJ:   This is addressing the Bill at a stage where the categorisation of financial supplies are actually to be included in the Act?

MR GAGELER:   Yes, and what I am seeking to ‑ ‑ ‑

FRENCH CJ:   The explanatory memorandum relates – yes.

MR GAGELER:   Yes.  What I was seeking to show is that the subsequent amendment was to introduce greater precision and nothing more.  What one sees in Justice Hill’s judgment in HP Mercantile 143 FCR 553, if I could take your Honours to that, is a careful analysis of the legislative policy underlying the tax treatment of financial supplies. I will not obviously read it to your Honours, but the analysis usefully begins in paragraph 10 and goes over to paragraph 17 at least. Can I just pick up two short passages. In paragraph 16, in the middle of the paragraph there is a sentence that begins, “Indeed,” and his Honour says:

Indeed, as the Explanatory Memorandum [stated] “there is no readily agreed identifiable value for supplies consumed by customers of financial services”.  In such a case, it is the margin or imputed margin that is the real economic subject of the supply.

Responding to an argument later on in the judgment at page 564 under the heading “The legislative policy”, his Honour set out at paragraph 47 a submission which he said was almost correct, but the way that his Honour preferred to put it.  He put it in paragraph 50 where he said:

If it be necessary here to state a general policy for the application of the GST to enterprises making input taxed supplies, it would be that, to the extent that an entity carries on an enterprise that consists of making input taxed supplies, it will bear the GST on acquisitions without an input tax credit so that its pricing of outputs, if any are made, will take into account, commercially, all GST it will be required to bear on its inputs.

May I then go to Subdivision 38‑E of the Act within which one finds the relevant section and the relevant item.  In defence of our reference to consumption expenditure in the written submissions can I say this.  It is not particularly helpful but it is more helpful than describing GST at the highest level of generality as a tax on consumption in Australia.  What this Court said in Reliance Carpet, paragraph 3 – I will not take your Honours to it – was that it is more correctly described as a tax on particular transactions, that is, supplies, and it is even more precisely described as a tax on particular transactions being, amongst other things, supplies for consideration.  Nothing more was meant in the language of consumption expenditure than identifying supplies with that particular characteristic.  It helps a little more than referring to GST as a tax on consumption.

Here one has in the language of the heading of subdivision 38‑E and in the language of the heading to section 38‑190 and then again within the heading to the table itself, the language of consumption of things outside Australia, those references of course have no operative effect and at the most they serve as a brief guide to what follows in each case which is an itemised list of specific supplies, not all supplies but specific supplies that can be seen at a level of generality that fall within that general description.

Before I get to section 38‑190 and again simply because it is part of the policy answer to Justice Mansfield, can I pause a moment on section 38‑185 which is concerned with the export of goods and what is abundantly clear from section 38‑185 is that it is not the supply within Australia of any goods intended for consumption, in some broad sense, overseas that are made GST-free by this provision. What one gets is a highly particularised and in some cases highly regulated set of circumstances in which a supply of goods will be GST-free.

The relevant one, at least the most closely analogous to the circumstance here, one finds in item 7 of the table in section 38‑185(1) and that is:

a supply of goods to a relevant traveller –

a defined expression, where -:

the supply is made in accordance with the rules specified in the regulations -

and there is there is set out in Schedule 5 to the regulations an extensive set of rules which translate into things being in plastic bags and being picked up at particular times and boarding passes being needed to be shown and all those sorts of things and the goods are exported as accompanied baggage of the relevant traveller.  So that deals only in those highly specific circumstances with the taking of goods outside Australia by someone in a position broadly analogous to Mr Urquhart in the present case. 

If one goes then to section 38‑190 itself, it is abundantly clear that, on any view, even the most expansive reading of the section, it does not extend and it is not intended to extend to any supply of something other than goods or real property where the use or enjoyment is expected to occur outside Australia. One could take, for example, the supply within Australia of advice, that is, the supply by the adviser to the person advised for consideration of advice relating to circumstances overseas which will be acted upon overseas. That clearly does not fall within any of the items. What one sees in section 38‑190(1) within the table is a list of specific circumstances in which a supply will become GST‑free. What one does not see, and again it is relevant to the context, is an equivalent of item 7 of the table in section 38‑185(1).

We would not say that a supply of money necessarily falls outside section 38‑190(1) and in that respect we differ slightly from Justice Edmonds who, upon one reading of his judgment, would have put the supply of money entirely outside the table. A supply of money being a financial supply is a supply of a thing and, believe it or not, like the word “you” the word “thing” is defined in this legislation in section 195(1) and it is defined at page 511, if your Honours are looking at our compilation, as “anything that can be supplied or imported”. The supply of money as a financial supply is a supply of a thing and it is capable of falling within item 2 in the specified circumstances and it is also capable of falling within item 3 in the specified circumstances.

We do say, however, consistently with the majority judgments below and the judgment of Justice Emmett that when item 4 is properly construed, a supply of money, generally, supply of foreign currency in particular, falls wholly outside item 4 and as I indicated at the beginning and I am coming, your Honour, finally to the pointy end of the submissions, we say that for two reasons:  one, because there are no rights in the relevant sense, and secondly, because, in any event, there is no relevant connection with the making of the supply.

May I deal first with the absence of rights?  It is now, although it may not have been, or have been so clearly before, common ground that what the appellant seeks to identify as rights are, if I can attempt to use neutral language, attributes of the money supplied.  That is what the appellant points to, as we understand it, as rights being the ability to negotiate deriving from the status’ currency, and the ability to deploy as legal tender in Fiji are inseparable from the money itself, that is, they are an aspect of the money they derive from possession of the money.

HAYNE J:   When you speak of the money, are you referring to the physical token being the paper?

MR GAGELER:   The paper, yes.

HAYNE J:   Is what is supplied in a financial supply constituted by a sale of foreign currency?  Is it a supply of a thing other than goods or real property?

MR GAGELER:   It is a financial supply which is a “thing” as defined.  We characterise the supply as a financial supply within the scheme of the legislation.  That is sufficient for it to be the supply of a “thing” as defined.

HAYNE J:   Because “thing” as defined, is to be understood, is it not, as an item of property, whether tangible or intangible or mixed?

MR GAGELER:   No.

HAYNE J:   No.

MR GAGELER:   No, it encompasses that, but it encompasses anything that can be supplied.  So it encompasses, for example, a service or a right ‑ ‑ ‑

HAYNE J:   Service, yes.  In the case of sale of foreign currency, the subject of the sale of foreign currency falls within the concept of “thing”, does it not?

MR GAGELER:   Yes, but within the scheme of the Act it gets translated immediately into a financial supply.  So if one is asking what is the thing that is being supplied and goes back to section 9‑10 what you see within that scheme really from subsection (4) is “a supply of money” and what one then sees from the scheme of the regulations and the Act, which I have sought to show is a single coherent scheme, that supply of money being treated as a financial supply, and as I have sought to demonstrate to your Honours, within the policy of the legislation, treated in substance as the supply of a peculiar kind of service.

HAYNE J:   The point that underpins the question I ask is that I would understand a criticism made of the judgment of the majority in the Full Court to be – you can put it in a number of ways – but to be the reification of the supply, that is, to see the supply in tangible terms and not otherwise - that is to say, to see the supply as a dealing with bits of paper rather than within the expressions used in the Act, first as a supply; second as a species of supply, financial supply; third, as a financial supply because it is a sale, a disposal, of the whole interest in something which the Act deals with as foreign currency which is not at least sufficiently identified simply as a piece of paper, a chattel – it is not to be understood as reified in that way.

MR GAGELER:   That is one version of the attack.  The other version almost comes at it from the polar opposite, but may I deal with it this way.  What one has - if you are asking what is the thing supplied within the statutory scheme, the thing supplied is a financial service, going through the chain of analysis.

FRENCH CJ:   The first question is that there is a supply of a thing within the statute.

MR GAGELER:   Correct.

FRENCH CJ:   I do not think one can just sweep away also the distinction between the statute and the regulations with this global rubric of a legislative scheme.

MR GAGELER:   I was hoping to convince your Honour otherwise, that in respect of financial supplies if your Honour were to look at the statute as originally enacted ‑ ‑ ‑

FRENCH CJ:   That may inform construction.

MR GAGELER:   One sees a scheme and the design of the scheme has not changed with the movement of the detail into the regulations.

FRENCH CJ:   That part of it has been put in the hands of the Executive, subject to disallowance, has it not?

MR GAGELER:   Well, it always was because things could be taken out of the table by regulation.  Let me go back to the answer to the question and be quite clear.  Within the scheme of the Act, if one is asking what is supplied here, what is the nature of the supply, what is the thing supplied, what one has is a supply of a financial product.  That is the answer within the statutory scheme.

The next question, though, is such a supply one that is made in relation to rights and that is really what I am addressing at two levels.  One is are there rights in any relevant sense and that is the point that I have currently reached.  The second, which overlaps to some extent, is the relationship.  But the point I am seeking to make now is that there are no rights in any relevant sense.

There are no rights in a relevant sense because what is being pointed to is really no more than attributes of that which forms the subject matter of the financial supply itself, that is, it is the supply of money which is the financial supply and what is being pointed to is nothing more than the attributes of money. Within the scheme of the GST Act, in our submission, the word “right” not being defined, one has a choice.

FRENCH CJ:   Are these attributes not entitlements that run with the money?  They are a bit different from colour and the feel of the paper, are they not?

MR GAGELER: Can I put it this way. Let me say what I wanted to say and then I will come back and defend it. At its widest, of course, the word “right” can cover any expectation or interest that is legally protected. At its narrowest, and as often applied in other taxing contexts, the word “right” connotes some form of property. Within the scheme of the GST Act, in our submission, the word “right” connotes something that falls somewhere between those two notions and the scheme is one that really emerges if you look back at section 9‑10(2), relevantly, the listing of various forms of supply, and within that listing paragraph (e) and paragraph (h).

In our submission, when one is reading the word “right” in the GST Act and, in particular, in item 4 of section 38‑190, what one is looking for is a right that is capable of “creation, grant, transfer, assignment or surrender” alone or in combination with something else. These aspects of money which are pointed to are not, in our respectful submission, rights in that GST Act relevant sense. They are, at most, incidents of possession. They are not separately capable of “creation, grant, transfer, assignment or surrender”.

HAYNE J:   Why are they not transferred simply by delivery, by reason of currency being negotiable in that sense, and the rights attaching to the currency being transferred by the bare fact of negotiation by delivery?

MR GAGELER:   In no different sense is that true than the rights that attach to ownership of a chattel.  Now, I do not want to get too much into the book analogy, but if I take anything, any chattel which is in the lawful possession of an owner, carries with it the right to sell to another, in a sense, taking the word “right” at its broadest, but it is not a right that can be severed from the chattel.

HAYNE J:   But if we are to descend into analogy, the bearer bond is the closer analogy, but analogies are inherently perilous.

MR GAGELER:   May I say, it is not entirely an analogy because the bearer bond, of course, can only be sued upon by the holder; the person physically in possession.  So it is not entirely an analogy because, of course, the bearer bond falls within the definition of “money”.  But it really makes my point.  One does not have here a right that is capable of independent transfer, assignment, et cetera.  That is the point about the non‑existence of a right in any relevant sense.  A right within the scheme of the legislation is something that, in our submission, can exist independently of goods, services or other forms of supply and be capable of transfer, assignment, et cetera, alone or in combination with those things, but not exclusively as an aspect of those things.  That is the first point, this ‑ ‑ ‑

FRENCH CJ:   That does not depend upon any consideration of what you call the legislative scheme.  This is just the notion of a juristic analysis of the negotiability and legal tender aspects as things which you would call attributes or incidents which are not rights within the meaning of item 4(a).

MR GAGELER:   That is right.  It is really in the connection that one finds the legislative policy.

FRENCH CJ:   Then you go to a purposive approach to “in relation to”.

MR GAGELER:   Of course, and those words, of course, necessitate that.  There is no other way of interpreting or applying them, and it is important to recognise that the connection here that is connoted by those words is a connection between the making of the supply and the rights in question, not that which is physically provided in the supply, and the rights in question, but the making of the supply.

BELL J:   Can I just inquire, before you go on, do you embrace the reasoning on Justice Emmett in paragraph 49.  This is appeal book 42 where he speaks of:

A supply that does not bind the parties in some way is not a supply that is made in relation to rights.

Then his Honour uses the language which one finds in 9‑10(2)(e).

MR GAGELER:   Yes.  I might use slightly different language but, yes, in substance, I do.

BELL J:   Does that draw at all upon the significance of the meaning of “supply” in 9‑10(2)(e)?

MR GAGELER:   Yes, I should have employed that more directly, your Honour, in what I have just been saying before moving on.  The answer to your Honour is very much.  Can I move to what we say about the words “in relation to” and do it fairly quickly.  In our submission, the words “in relation to” are intended and do simply cover the multitude of ways in which a right itself might be supplied, that is, it covers the forms of supply that are referred to in section 9‑10(2)(e) and possibly any other form of supply of a right that may be imagined and it is simply in that way that the provision should be interpreted.

HAYNE J:   Does it follow that the fact that the supplier of the right does not create the right that is supplied and is not liable under the right that is supplied is neither here nor there?  There can be a transfer, can there not, of a right against another, not created by the supplier, not a right which is enforceable against the supplier?

MR GAGELER:   There can be a right as against a third party which is then assigned when a person –

HAYNE J:   Yes.

MR GAGELER:   Of course.  But in the assignment of that right there is a legal relationship between the assignor and the assignee.

HAYNE J:   Yes.

CRENNAN J:   A binding of the assignor? 

MR GAGELER:   A binding of the assignor.

CRENNAN J:   To use Justice Emmett’s language.

MR GAGELER:   Exactly.

HAYNE J:   To deliver the right or to assign the right in question.  If I agree with you, Mr Solicitor, that I will sell you a hundred US dollars in return for about 80 dollars Australian today, then you and I make a binding agreement, do we not?

MR GAGELER:   Yes.

HAYNE J:   And I supply something to you.

MR GAGELER:   Yes, and the something is the, we will assume in this case, banknotes.

HAYNE J:   The currency.

MR GAGELER:   The currency.

HAYNE J:   The currency may or may not give you rights against the Federal Reserve or who knows what?

MR GAGELER:   Yes.

CRENNAN J:   If the taxi driver in Fiji said “I do not want to accept that note.  It is torn”, there would be no comeback in relation to Travelex, would there?

MR GAGELER:   Correct.  It is, if one needs to call it a right, something that attaches simply to possession.  Travelex is out of the picture, if I can put it that way.

HAYNE J:   You make no point about localisation of the right in the sense of it being a right having certain localised characteristics?

MR GAGELER:   The statutory question is whether the right, assuming it to exist, is for use outside Australia.  As I have sought to show, there are aspects of foreign currency which have legal operation in Australia, if one wants to call them rights.  The only unique legal attribute of the currency in Fiji is that of legal tender, as we see it.

Your Honours, may I just perhaps make the same point another way.  It is this, that within the legislative scheme whereas one sees from section 9‑10(2)(e) in its context a right is treated as itself a thing, that is capable of being supplied, that at least can be distinct from other forms of supply.  It is, in our submission, somewhat anomalous to the point of being contradictory to treat the rights that simply pertain to, or are inherent in, or attach to another thing as rights in relation to the making of the supply.  That is really perhaps another way of stating what I have already said.

If I can come, finally and more narrowly, to the quite precise context where the supply is of money which is specifically treated as input taxed and therefore as a financial supply, and if one is using the words “in relation to” to find the most appropriate connection or lack of connection for a provision which, if applicable, would take that supply into the realm of being GST-free, in our submission, there are two considerations that bear upon not reading those words so elastically. 

One is the absence of any provision equivalent to item 7 of section 38‑185(1), that is the elaborate provisions that deal with the circumstances in which a supply of goods becomes GST-free, where the traveller is seeking to take then out of Australia.  The second point, which overlaps somewhat, is the practical difficulty of administering a provision in such circumstances where the use to be made of the rights turns on the intention of the recipient, that is, to interpret item 4 in such a way as to cover the supply of foreign bank notes creates practical difficulties and this is the only respect in which the GST Act as a practical business tax self‑assessed at the time of the transaction comes into this analysis.  To treat it that way creates practical difficulties of administration.

Your Honours, subject to handing your Honours the note we prepared in answer to Justice Gummow’s question, if your Honours would be assisted by it, those are our submissions.

FRENCH CJ:   Mr Solicitor, you referred to the use of the word “made” in “a supply that is made in relation to rights”.  If one were to speak of a supply that relates to rights, would one be speaking of a wider range of supplies or something subsumed within the notion of a supply that is made in relation to rights?

MR GAGELER:   The important connection, and it may be a matter of some subtlety, your Honour, is between the making of the supply and the rights, on the one hand – I am sorry, that is the connection that one has to look for.  It is not the statutory question to ask what is the relationship between the rights and what might be physically provided in the supply.  The connection between the banknotes and such rights as any as might be sought to be exercised in Fiji is not the ultimate question.  The question is the connection asked by the terms of the provision as between the making of the financial supply by Travelex in Australia and those rights.  If your Honours please.

FRENCH CJ:   Thank you, Mr Solicitor.  Mr Cordara.

MR CORDARA:   Your Honours, if I may in reply.  My learned friend drew your Honours’ attention to the Reserve Bank of Fiji Act, I think, in connection with submissions to do with the public law rights as I have been describing them, and they are just ‑ ‑ ‑

HEYDON J:   I am just having a bit of trouble hearing your, Mr Cordara, could you speak up a bit?

MR CORDARA:   Forgive me, your Honour.  My learned friend drew the Court’s attention to the Reserve Bank of Fiji Act.  I would just like to revisit that very briefly to make the point that one sees at section 22(1), that:

The Reserve Bank shall have the sole right of issuing currency in Fiji –

and these are the words that perhaps you may care to note as a background consideration:

no other person shall issue currency or any documents or tokens payable to bearer on demand having the appearance of or purporting to be currency.

I think a similar provision appears in the equivalent Australian Act. I will be reminded of the provision number in a moment. Section 44 of Reserve Bank Act says the same thing.  It is a slight point, I accept, but it would appear that the Banco de Portugal view of things is still strongly in the background, I put it no higher than that, when legislation is being put in place in terms of currencies and that does give perhaps some, I accept, purely background support to the contention that we make that there is no contradistinction between a banknote being both currency, state currency rather than just common law currency, and also maintaining its character as a negotiable instrument in a private law sense.

Furthermore, my learned friend made the point that there is no promise to pay on the face of a Fijian banknote.  The banknotes themselves were not put in evidence, but that is absolutely true.  There is a signature, which is, of course, a critical requirement for a promissory note.  We respond by saying the answer to that is to be found at the top of page 487 of the Banco de Portugal report where the court took the view that it made no fundamental difference.  I think my learned friend then mentioned, at the top of 487, where Lord Atkin notes the distinction between the English and the Portuguese notes.  That is one point.

Secondly, the explanation.  The evidence that was given, to which again I think my learned friend drew your attention, at the top of 484 was that there had been witnesses who had indicated that the only material obligation would be satisfied by exchanging one note for another.  That is, I submit, a characteristic of all modern state bank notes, states which are not on the gold standard, and I know of none that are.  So there is no space, as it were, that can be created between these notes and others. 

Inevitably, this case has a generic dimension in that one asks rhetorically, would the answer be different if Mr Urquhart had been travelling to Hong Kong where the promise to pay, I am told, is still on its face, or the United Kingdom where it clearly is.  In my submission, the fiscal treatment of a transaction at the airport cannot turn on the niceties of the precise language on the face of the banknote, assuming of course it is even in a language that one can understand.  That is our reply to what was said on behalf of the Commissioner on that issue.

Then my learned friend turned to the question of input taxation.  It seemed that the thrust of that was to suggest that it is in some way relevant, and I may have misunderstood, that there is a theory of input taxation which leads to, in some sense, taxation on the margin.  He drew your attention to that.  I am not sure, perhaps, that ultimately he developed it any more than a background point, but it may explain the reference to the $8 and the commission in certain key paragraphs of the Commissioner’s written submission.

Our response to that is to say, first of all, if I may echo the words of Lord Justice Laws in the passage I read this morning, there is no platonic form of GST system of which any nation’s actual enactments are a shadowy description of.  The fact is that each country that has one of these systems has made its own decisions.  If I may say so the Australian legislation has developed the Act and the concepts certainly at greater length than that of any other country and with a greater degree of sophistication.

At the end of the day one has to read, in my submission, the words on the page and there is only, I think, one area within the legislation where supplies are taxed on the basis of the margin and without perhaps inviting the Court necessarily to open the Act it is to be found at page 236 of the helpful printout that the Commissioner has provided where, in the context of the sale of land, there is a specific margin scheme - 75-10(1):

the amount of GST on –

certain taxable supplies of land is to be calculated by reference to a margin.  

However, in the context of financial supplies, the concept of consideration is obviously present.  One cannot have a financial supply if one does not have consideration.  If your Honours are able to revisit regulation 40 in the early provisions – Division 40 and regulations there under, page 602 and following of the additional materials binder, one sees the various requirements for financial supplies.  At 40‑5.09(1)(a)(i), one sees that there has to be consideration.  There is no reference, however, to a margin or anything of the kind and therefore, in our submission, it has its natural meaning, ie, everything that Mr Urquhart had to pay.

HEYDON J:   If the tax was $38 or something like that.  If the tax were payable, it would not be 80 cents, it would be $38 or so.

MR CORDARA:   Yes, precisely, then it would be that.  Indeed, yes.  So the margin point, and it may not have been intended to go anywhere in particular, but the margin point does not really fit at all here, we say.  The other point to make is that the choice made through the regulations in Australian terms for the definition of financial advice has been – I am going back to them, forgive me – a proprietary based approach.  As your Honours have seen, it is the supply of an interest in various kinds of financial product, if I may use that word, that lies at the core of the regulations.  That is evident from the early subregulations.  Regulation 40-5.02 gets straight to the definition of interest and so forth, and they are carefully defined.

Then when one gets to the centre of it at 40‑5.09(3), one sees that the core of financial supplies are the supply of an “interest in or under” and then there is a table.  Other countries have taken a different route and have been much more service/transactionally based in the way they have approached these matters.  That does not have any relevance, in my submission, to the current exercise.  It does, however, we say, underline that when one is looking at what the thing is here, one is entirely able to conclude both that this is indeed a financial supply, which it obviously is, and also, in our submission, a supply of rights.

As far as the reference to the judgment of this Court in Reliance is concerned and its adoption of the Full Court’s observations in the Sterling Guardian Case as to the nature or not of the tax here being a tax on consumption in Australia, I respectfully accept the comment made by my learned friend that obviously the court in Sterling Guardian observed, as it had to, by reference to section 7‑1, that the charge to tax is on the making of supplies and, to that extent, it is not a tax which has as its basic charge a tax on consumption in Australia.  It is a matter of proper reading of the statute, the charge to tax is on supplies and one accepts that.

However, when we come to an area such as 38‑190 the curtain is lifted and one sees that which one was prepared to see when one read the explanatory memorandum that, if I can put it in the negative at least, this is not a tax on consumption outside Australia, and it is only I think at 38‑190 that the word “consumption” appears.

I had thought, and maybe I am wrong, that the titles were operative, but be that as it may, it does not ultimately matter.  What matters is the words of item 4(a) and specifically the phrase “for use outside Australia” and it therefore perhaps does not matter whether the title to Subdivision 38‑E is operative or not. 

Then the final points made by my learned friend dealt with the question of whether the word “right” in item 4(a) has a narrower meaning than we would say would be a normal meaning for the word.  This, in a sense, is the critical submission.  It is right to say that the majority below did not, in our submission, accept that there was any peculiar or narrower meaning to the word “right”.  There was a suggestion that 9‑20 exercised some form of magnetic control over the concept of rights in 38‑190, item 4(a), and narrowed it.

Justice Mansfield at paragraph 20 of his judgment very succinctly and, we say with great respect, correctly disposed of that contention and he did not seem to find favour with the majority.  That is the first point.  The second point is that if we do have to pass through the eye of the needle represented by 9‑10(2)(e), then delivery of a banknote is sufficient by definition to transfer the rights which the banknote evidences and therefore there is indeed a transfer of a right.  The third point is to observe, of course, that there is also (f) which is a financial supply and therefore we do not necessarily have to pass through (e) and, finally, there is (h) which in any event dilutes any implicit suggestion that one has to pass only through one gateway at a time.

Finally, I observe that in certain circumstances, particularly if we are right on the promissory note point, you can have your rights, as long as you have the proof, even if the Bill has been lost.  There are provisions, indeed, that that is the usual reason, if one reads the case law, why there have been instances where the Court has had to decide the true nature of bank notes.  Portugal was somewhat exceptional because it was to do with a fraud, but

usually the cases are concerned with people trying to enforce their rights although they have lost the notes.  There are statutory provisions which indicate that as long as you can prove that you have had the notes and/or put up security you can enforce it, which underlines the fact that at the end of the day, if it is a competition between the paper and the rights, ultimately the rights predominate.  As your Honours will be aware, we say that it is not any such competition.

Finally I would observe this.  If my clients sell notes, they do implicitly warrant something as to those notes.  They do not warrant anything about the financial standing of foreign reserve banks nor as to the attitude of taxi drivers, but they do warrant that they are genuine and perhaps they warrant that they are not so defaced as not to be acceptable.  So there is some element.  It is not definitive, but there is some element of warranty.  Unless I can assist your Honours further, those are our submissions.

FRENCH CJ:   Thank you, Mr Cordara.  The Court will reserve its decision.  The Court adjourns to 9.30 next Wednesday, 26 May 2010.

AT 1.02 PM THE MATTER WAS ADJOURNED