• Legal database
Legal database

WESTPAC BANKING CORPORATION v COMMISSIONER OF STAMP DUTIES (QLD)

Judges:
White J

Court:
Supreme Court of Queensland

MEDIA NEUTRAL CITATION: [2003] QSC 483

Judgment date: 24 September 2003

White J

On or about 18 September 1992 the Commissioner of Stamp Duties (``the Commissioner'') notified the applicant (``Westpac'') that it was required in terms of s 54A(2) of the Stamp Act 1894 (``the Act'') to furnish a duly completed statement in Form S(a) in respect of what was alleged to be the acquisition by Westpac of a business that existed in Queensland, namely, the Consumer Banking Group, a division of Chase AMP Bank Limited. Westpac did not do so.

2. On 12 October 1992 by application No. 824 of 1992 Westpac commenced proceedings to review that decision pursuant to the Judicial Review Act 1991 (Qld).

3. On about 16 October 1992 the Commissioner assessed under s 22A(1) of the Act the duty which ought to be charged on the Form S(a) as if it had been delivered by Westpac and issued a default assessment. On 2 November 1992 by application No. 892 of 1992 Westpac sought to review that decision. Westpac has paid the duty assessed.

4. On 15 January 1993 Ryan J ordered that the decision to require a Form S(a) to be furnished and the decision to issue the default assessment be stayed pending the hearing and determination of the applications [reported at 93 ATC 4317]. The two applications were consolidated by order of Williams J on 21 October 1993.

5. It is the decision made on or about 16 October 1992 to issue a default assessment which is principally challenged. Westpac does so on a number of the grounds set out in s 20(2) of the Judicial Review Act but central to its challenge is that in s 20(2)(d), namely, that the decision was not authorised by the enactment under which it was purported to be made. Unless Westpac was obliged by the provisions of s 54A to deliver a statement in Form S(a) the Commissioner was not authorised to assess duty under s 22A. The Commissioner accepts that this challenge does not involve a review of a decision in the sense described by Mason J in
Minister for Aboriginal Affairs & Anor v Peko- Wallsend Ltd & Ors (1986) 162 CLR 24 at 40-41 but rather requires an inquiry as to whether Westpac did in fact acquire or agree to acquire a business that existed in Queensland within the meaning of s 54A(2) and if it did, whether it acquired sufficient of the assets of the business to enable it to carry on the business within the meaning of s 54A(7).

6. The parties have filed statements of facts and contentions and extensive affidavit material relevant to the determination of that issue including evidence from expert bankers and accountants. Certain of the deponents gave some further evidence-in-chief on the hearing and were cross-examined. Once some accounting issues were explained it emerged that there was little that was contentious in the evidence of the officers or former officers of Chase AMP Bank and Westpac. The differences between Westpac and the Commissioner essentially arise from the inferences to be drawn from those facts.

7. There is no explanation as to why the applications have taken so long to come on for hearing.

The issues

8. On 4 July 1991 Westpac acquired certain assets of Chase AMP Bank Limited (``Chase

ATC 4137

AMP Bank'' or ``the Bank''; the company changed its name to Chase Manhattan Bank Australia Limited in December 1991). The Commissioner contends that the consumer (retail) banking activities as conducted by the Consumer Banking Group (``CBG'') within Chase AMP Bank constituted a business which existed within Queensland and that Westpac acquired sufficient of the assets of the business to enable it to carry on the business and accordingly fell within s 54A(2) and (7) of the Act and was liable to be charged with duty.

9. The issues for decision are:

  • • did the activities of the CBG constitute a ``business'' within the meaning of s 54A(2)?
  • • if the CBG did constitute a business, did Westpac acquire the business or sufficient of the assets of the business to enable it to carry on the business as contemplated by s 54A(7)?

The legislation

10. Section 54A(1) and (2) of the Stamp Act 1894 provide:

``(1) An acquisition or an agreement to acquire a business shall, for the purposes of this section, be deemed to include all goods, livestock, vehicles and other movable chattels, and all leases, tenancies and licences, and the goodwill appertaining to the business, which are acquired or agreed to be acquired from the owner of the business whether the same are included in the transaction by which the business is acquired or agreed to be acquired or are the subject of another transaction or other transactions.

(2) Every person who acquires or agrees to acquire a business that exists in Queensland shall, within 1 month after the person does so, deliver to the commissioner a statement in duplicate in the approved form.''

11. The terms ``acquisition of a business'' and ``agreement to acquire a business'' and ``business'' are inclusively defined in s 54A(7):

``(7) For the purposes of this section-

`acquisition of a business' and `agreement to acquire a business' include any transaction or transactions by which, although the whole of the assets of a business are not acquired or agreed to be acquired, sufficient of those assets are acquired or agreed to be acquired to enable the person acquiring the same to carry on the business.

The expression `business' includes-

  • (a) any business, profession, calling, vocation or other occupation carried on by a person on his or her own behalf or in partnership with any other person; and
  • (b) any interest or any part of an interest held by a partner in a business; and
  • (c) any interest or any additional interest acquired as a partner in a business.''

12. A statement required by s 54A(2) (``Form S(a)'') by s 54A(5):

``... shall be charged with duty under this Act as if it were a conveyance or transfer of the property to which the statement relates for a consideration equal to the full unencumbered value of such property and the person delivering that statement shall be liable accordingly.''

13. By s 54A(10) a business is deemed to exist in Queensland if it is conducted on or from any place in Queensland and where a business exists partly in Queensland and partly outside Queensland s 54A(11) provides that ss (2) applies only in respect of that part of the business that exists in Queensland. Provision is made for an apportionment of the value of the property in Queensland and of the consideration referable to that property so that duty is paid by reference to that portion.

14. Although s 54A(8) and (9) are not directly relevant to this application they may assist in the meaning of ``acquisition of a business'' in s 54A(2) and (7). By s 54A(8), where real property or other property appertaining to a business is acquired the other property is deemed to be a business for the purposes of s 54A. Section 54A(9) applies where property of any kind was being used in a business conducted on real property and there is an acquisition of the real property and other property in circumstances where it is likely that the other property will be used in conducting a business on the real property of the same or substantially the same description as the business previously conducted by the person from whom the other property was acquired. In that case the real property and the other property is deemed to be a business for the purposes of s 54A.

15. It is Westpac's contention that the requirements of s 54A(7) will be satisfied only

ATC 4138

where the business assets acquired are sufficient to enable the acquiring party to carry on the business formerly carried on by the person from whom the assets are acquired. By contrast to s 54A(7), s 54A(8) will be satisfied where real property and other property ``appertaining to the business'' is acquired while the requirements of s 54A(9) will be satisfied where the other property will be used in conducting ``a business of the same or substantially the same description'' as the business conducted by the party from whom the property was acquired. The Commissioner takes a different view and contends that the business which is acquired need only be a business of generally the same kind as the business carried on by the person from whom it is acquired and not the business. In a real sense the argument tends to be circular for it is the characterisation of what was acquired which will decide whether ``a business'' was acquired.

16. Westpac notes the use of the definite article in s 54A(7), ``... to carry on the business'' and contrasts that expression with those employed in ss 54A(8) and (9). Westpac also points to the Treasurer's Second Reading Speech to the Stamp Act Amendment Bill 1979 which introduced the definition of ``acquisition of a business'' in s 54A(7) but it does not greatly assist in resolving the issue. The previous legislation had obliged a person to account for duty upon the purchase or agreement to purchase any business. The Treasurer said (Hansard, 3 May 1979, pp 4562-4565):

``The sale-of-business provisions have been extensively reviewed. Because of the wording of the Act as it now stands, it is often claimed that there is no sale or purchase of a business, particularly if no document is executed.

The provisions have been recast to refer to the acquisition, rather than the sale, of a business. Further, the scope of the sale-of- business provisions is to be widened so that items such as other real property, goods, livestock, wares and merchandise are included for duty where they represent part of the sale of the whole business. There has been a tendency to split transactions so that some of such items are claimed as exempt under provisions intended for other purposes.

The definition of `business' itself has been recast, particularly in respect of ensuring that transactions involving the acquisition of an interest in a partnership fall within the sale of business provisions. The current wording leaves room for doubt where a new interest in a partnership is created.''

17. The authorities, while not considering analogous expressions, nonetheless suggest that no different meaning would be given to the expression ``to carry on the business'' than the same business as was conducted by the person from whom the assets were acquired. But they do not accord undue rigidity to the expression, see
Carnation Australia Pty Ltd v Commr of Stamp Duties 93 ATC 4486; [1994] 2 Qd R 366;
State Bank of New South Wales Limited v Commr of Stamp Duties 93 ATC 5005; [1994] 2 Qd R 661;
Campbells Hardware & Timber Pty Ltd v Commr of Stamp Duties (Qld) 96 ATC 4348; and
GE Crane & Sons Ltd v Commr of Stamp Duties 98 ATC 4149; [1999] 1 Qd R 480. It is a question of degree and, to some extent impression, as to what aspects of a business need to be acquired (or retained) to characterise what has been acquired as ``the business''. It remains to be seen what was ``the'' business carried on by the CBG which Westpac acquired if, indeed, it acquired any business for the purposes of the Act.

Background and context of ``the acquisition''

18. Chase AMP Bank was a joint venture between the AMP Society (``the AMP'') and Chase Manhattan Overseas Banking Corporation, a United States of America corporation (``Chase Manhattan''). Shares in Chase AMP Bank were held equally by the AMP and a wholly owned subsidiary of Chase Manhattan. From its inception in 1985 Chase AMP Bank carried on business in Australia in the several States and Territories, including Queensland, as a bank. The AMP had no direct involvement in the business of the Bank. Chase AMP Bank had its headquarters in Sydney and branches in other States and Territories.

19. The Bank was managed by a board of directors of whom Mr Lynn Anderson was the managing director. He was involved in all parts of the Bank's business and has set out in his affidavit the management practices and organisation of activities of the Bank. He was not required for cross-examination. Those practices were heavily influenced by banking practices in the United States. In particular each

ATC 4139

identified market segment was pursued as a ``line of business'' with discrete products created to attract market share. The overall structure of the Bank was divided into a number of closely inter-related and interdependent marketing and support groups. Mr Anderson and other senior officers deposed that the composition of these groups altered from time to time as the Bank responded to perceived market requirements. At the same time in Australia most banks were organised along division lines and engaged in transfer pricing across divisions which enabled management to arrive at the actual cost of operating a particular division.

20. As at June 1991 the groups within Chase AMP Bank included:

  • • the Consumer Banking Group (``CBG'') which took deposits from and made loans to individuals and family companies. It was principally directed to servicing the non-business banking needs of those customers who were referred to as ``consumers'' as opposed to wholesale corporate customers. According to Mr Anderson those transactions were regarded as ``retail banking operation'' in that they involved dealing directly with the public;
  • • the Transaction Banking Group which engaged in cash management and the financing of exports and imports as well as global securities custody transactions as required by customers of the entire Bank. It incorporated the Bank's wholesale operations and systems and administration units and was responsible, among other things, for the supply of computer services to the whole of the Bank;
  • • the Treasury and Risk Management Group (``Treasury'') was responsible for managing the liquidity and funding position of the whole of the Bank and through which it accessed wholesale money markets;
  • • the Corporate Finance Group which provided term loans, project finance and a range of risk management projects to corporate clients;
  • • the Human Resources Group which was responsible for personnel policy and procedures in respect of all employees of the Bank and all industrial relations;
  • • the Portfolio Management Group which was responsible for managing the Bank's overall credit exposure and the corporate and consumer lending portfolios; and
  • • the Financial Management Group which handled all statutory reporting for the Bank, legal matters including compliance issues, the supply of board secretarial services and reporting to the Reserve Bank of Australia; it set expense authorisation and delegation levels for the whole Bank and was responsible for payment of all Bank expenses.

21. The CBG, the Transaction Banking Group, Treasury and the Corporate Finance Group generated income from the supply of services to customers of the Bank while the other groups within the Bank provided support services. The Bank's policy was to remove from these groups anything which would be likely to interfere or distract them from their core activities so that, for example, employment matters were handled by the Human Resources Group. None of these groups was externally identifiable. The CBG was not known outside Chase AMP Bank even to senior bankers such as Mr RAD Nicholson who between 1988 and 1991 was group managing director ANZ chief operating officer or Professor TJ Valentine, Professor of Banking and Finance in the University of Western Sydney and involved in the field of banking and finance in Australia at the relevant time. They first heard of the CBG when preparing to give evidence in this matter. The groups and their personnel were flexible and could be reconfigured within the Bank by senior management.

22. Chase AMP Bank also had a number of committees which exercised control across the Bank which included the important Asset and Liability Management Committee (``ALMAC'') which was responsible overall for the management and matching of the Bank's assets and liabilities. It comprised Mr Anderson, the general managers of the groups and other senior officers. ALMAC determined interest rates for the entire Bank including for retail banking transactions entered into by the CBG on advice from Treasury. ALMAC was responsible for setting limits and determining strategies within which the Bank would operate and which, in the view of ALMAC, would best maximise the Bank's profits within an agreed risk profile.

23. Another governing committee within the Bank was the Credit Committee which

ATC 4140

comprised Mr Anderson and the general managers of the groups. The Credit Committee delegated authority to the CBG to undertake transactions within certain criteria prescribed by the Credit Committee. The relevant lending guidelines were determined by the Portfolio Management Group and loans made by the CBG were required to comply with those guidelines. Transactions outside those guidelines had to be approved by the general manager of the Portfolio Management Group who was also responsible for monitoring, reporting on and ultimately, for managing, the quality of the consumer loan portfolio and reported directly to the Bank's board of directors.

24. The Bank sought to attract custom for its retail banking division by targeting what it described as ``high net worth individuals'' identified as householders from 35 to 55 years of age earning in excess of $60,000 per annum with a net worth in excess of $150,000. It sought to attract these customers by offering and delivering a high level of service and unique products not generally available from the major Australian banks at that time, for example, telephone banking.

25. It will be necessary to return in more detail to the interrelation of the CBG with the other groups and control mechanisms within the Bank and to the products which it offered it customers.

26. During 1990 Chase AMP Bank was facing financial difficulties caused, according to Mr Anderson, because its capital adequacy ratio was dropping below the minimum percentage required by the Reserve Bank of Australia with the resulting inhibition on making loans to customers. In about September 1990 Chase Manhattan and the AMP conducted a strategic review of the Bank. According to Mr Anderson it was perceived that the Bank's activities were not contributing to the strategic objectives of its owners in the Australian market and, since neither of the shareholders was prepared to inject further capital, they decided to sell Chase AMP Bank. A Confidential Purchase Memorandum, upon which the Commissioner relies, was prepared for the information of interested parties in which the shareholders indicated their preference for selling the Bank as a whole by means of a sale of shares. Three areas were identified as ``business areas'' within the Bank - the CBG, the Transaction Banking Group and the wholesale banking groups which included the Corporate Finance Group and Treasury. Each business area was analysed in some detail. Reference was made to the potential for using the existing consumer banking business to provide specialised relationship banking services to current and future high net worth customers, the potential to build on the transaction banking business, an innovative customer responsive workforce and an opportunity to make use of AMP agents for the distribution of banking products.

27. In early 1991 Westpac, Chase Manhattan and the AMP commenced discussions about an alliance. Westpac, through a subsidiary, Westpac Life Limited, was then involved in underwriting life insurance. Heads of Agreement between the AMP and Westpac dated 7 June 1991 signed by their respective chairmen outlined the proposed structure of an alliance between the two corporations. In effect, each indicated an intention to concentrate upon its core activities. In the case of the AMP - insurance, superannuation and funds management and investment. For Westpac - banking, group superannuation, funds management and a range of financial services. In recital B the AMP signified that it no longer wished to participate directly in banking and Westpac that it no longer wished to participate in writing life insurance. In recital C the AMP recorded its wish to obtain the benefits of Westpac's main distribution system of life insurance through Westpac's branch network.

28. Much of the Heads of Agreement concerns details of the alliance in respect of life insurance but cl 8, which interested the Commissioner, provided:

``8. Acquisition of Chase AMP consumer banking business

Westpac will acquire from the existing shareholders agreed parts of the business of the Chase AMP Bank Limited as a going concern for a price of $31 million (subject to due diligence). AMP will covenant not to compete with Westpac in the banking activities transferred to Westpac for the maximum period permitted by law, not exceeding the term referred to in Clause 16.''

The Heads of Agreement was not legally binding but was to be the basis for legally binding agreements. Ultimately there was no

ATC 4141

commitment by Chase AMP Bank not to compete with Westpac in the retail banking sector. The Heads of Agreement is relevant because it places the acquisition of the CBG into its strategic context which was explained by Dr Vernon Harvey, general manager of strategic development at Westpac and responsible for managing the approximately 12 projects which made up the Westpac - AMP alliance in 1991. The Chase AMP Bank transaction was described by Dr Harvey as one of the smaller tasks in the context of the alliance and of negligible strategic value to Westpac. While of general interest, the reasons advanced by Dr Harvey for this view are not of prime relevance to the issue except to support the conclusion that Westpac was not interested in acquiring Chase AMP Bank's special products and services.

29. In a letter to the Australian Stock Exchange of 5 June 1991 Westpac notified the establishment in principle of a long term strategic alliance with AMP setting out the main elements. Under the heading ``Chase AMP Bank Limited'' was the following:

``Westpac will purchase the consumer bank assets and liabilities of Chase AMP Bank Limited. Around 50 staff will be offered the opportunity to transfer to Westpac.''

A press release of the same day setting out, inter alia, the major elements of the strategic alliance stated:

``6) Westpac will purchase the consumer business of Chase AMP Bank. Until the sale is completed, Chase AMP will continue to service fully its existing retail customers.''

At the end of the press release appeared the following:

``Sir James Baulderstone, who is currently the chairman of Chase AMP Bank, added today that `Chase AMP's present retail customers can be assured that Chase AMP will maintain the full range of customer banking services until the sale to Westpac is completed.'

Sir James emphasised that Chase AMP's wholesale customers will not be affected by the sale of the consumer business. `In fact, this sale will enable Chase AMP to concentrate on its wholesale banking services. Chase Manhattan has delivered corporate banking services to Australia for 70 years, and will continue to do so', he said.''

The ``acquisition''

30. A second Heads of Agreement between Chase AMP Bank and Westpac dated 13 June 1991, not said to be legally binding, related specifically to the acquisition by Westpac of the consumer credit transactions and deposits of Chase AMP Bank. In the event that was not the way in which the agreement was structured but nonetheless the Commissioner relied upon it as indicating the underlying nature of the transaction between the parties.

31. On 4 July 1991 in all States and Territories in Australia except Queensland, Westpac acquired from Chase AMP Bank certain loans and customer receivables owed to it by customers of the CBG. It assumed liability in respect of deposits made with the Bank by customers of the CBG. On the same date Westpac orally accepted an offer for a Fully Funded Participation Agreement in respect of the activities of the CBG in Queensland. The effect of this agreement was that Westpac would pay to Chase AMP Bank an amount equal to the face value of loans in Queensland and provide to it sufficient funds to enable it to provide further finance under those loans. Chase AMP Bank would pay to Westpac all amounts received from its customers under the loans whether as principal or interest. There were difficulties in Westpac dealing with the Queensland loans differently from the loans in the other States and Territories and they were treated for all relevant purposes in the same way as all other loans.

32. Westpac acquired the Bank's cash on hand at its consumer branches as at 4 July 1991 of $930,000 (approx). Westpac did not, after due diligence, acquire certain investment funding loans with a face value of $95,000,000 (approx), AMP agent loans with a face value of approximately $5,000,000 and certain loans to two customers.

33. Westpac also entered into an Agency Agreement on 4 July 1991 with Chase AMP Bank whereby, in consideration of a payment to it of $16 million, the Bank undertook to provide services for Westpac as its agent in relation to the loans and deposit balances transferred to Westpac. From a practical perspective, since the whole alliance was to take place over a very short period of time, it was not possible to transfer the physical and financial records for

ATC 4142

the accounts involved from Chase AMP Bank to Westpac simultaneously. Since Westpac had acquired only the assets and liabilities (``the Consumer Book'') but not the systems supporting them the task had to be undertaken manually account by account. Mr Anderson said it was essential to have this period of the Agency Agreement to ensure that existing customers of Chase AMP Bank could continue to conduct their affairs in an orderly manner. Not surprisingly, it was recognised that those customers needed to be able to access their funds on a daily basis to make loan repayments, to maintain credit facilities and to retain facilities for stopping and dishonouring cheques. Chase AMP Bank provided those facilities to avoid any loss of faith by the customers. Had that occurred there may have been a run on Chase AMP Bank and a financial crisis precipitated. Mr Anderson said that during the agency period Chase AMP Bank's staff

``did little more than provide services, as agent for Westpac, to the Bank's former customers to enable them to conduct their financial affairs in an orderly manner, pending the transfer of their account balances from the Bank to Westpac.''

34. Westpac did not acquire from the Bank any of the following assets which were used by the CBG:

  • • the banking licence;
  • • Australian Clearing House Association membership;
  • • Australian Bankers' Association membership;
  • • premises;
  • • computer hardware;
  • • computer software and processing systems;
  • • the name, trademark, get up, logo, product name and other intellectual property rights associated with the business of the Bank;
  • • automatic teller machines;
  • • investment funding loans;
  • • know-how in respect of loans and deposits;
  • • fixtures and fittings, business equipment and supplies;
  • • the Bank's mobile sales force; or
  • • the relationship with AMP agents.

35. Mr Anderson said that following implementation of the various agreements the Bank closed down and terminated the leases on certain of its premises, none of which were transferred to Westpac. The premises were used by Westpac only to the extent that Chase AMP Bank used them as agent for Westpac during the agency period. Mr Anderson also said that Westpac was given temporary access to the computerised records of Chase AMP Bank to obtain information about the customers for which the CBG had responsibility. Westpac obtained a licence from Chase AMP Bank to use the ``chief's'' software relating to the operation of Visa Card accounts which was insufficient to enable Westpac to operate those accounts. Although Chase AMP Bank ceased to use them and sold its automatic teller machines it did not sell them to Westpac although two were subsequently purchased by Westpac from a broker in an independent transaction. Westpac offered employment to 50 employees of the Bank of the 222 who were to be made redundant. Forty-three took up employment with Westpac and according to Mr Paterson, who was involved in the implementation of the agreement, none was involved in the loan portfolio accounts.

36. After completion of the various agreements on 5 July 1991 Westpac made certain payments to Chase AMP Bank:

  • • $532,421,836 being the net difference between the face value of the loans and the face value of the deposits plus interest;
  • • $929,646 for cash on hand in Chase AMP Bank's branches;
  • • $31,000,000 being the fee referred to in cl 4.5 of the offer for New South Wales plus the fee of $16,000,000 referred to in cl 2 of the Agency Agreement;
  • • A net amount of $15,153,343 in respect of interest rate hedges.

The basis for the $31,000,000 will be further examined below. There was some suggestion by the Commissioner that the last amount of $15,153,343 represented an acquisition by Westpac. It related to liabilities assumed by Westpac. This was discussed by Mr Philip Chronican, general manager, change program retail banking group, at paras 13-18 of his affidavit. From 1989 to 1992 he was chief manager Australian treasury at Westpac. In effect, Westpac paid Chase AMP Bank almost

ATC 4143

$48,000,000 to compensate it for the Bank's obligations under its interest rate swap agreements. Chase AMP Bank transferred some of the swaps to Westpac which had a negative value of $32,800,000 valued in the same way hence the approximately $15,000,000 payment.

Structure of Chase AMP Bank prior to 4 July 1991

37. As at 31 May 1991 Chase AMP Bank had a total staff of approximately 660 employees assigned to perform duties for particular groups within the Bank. The CBG had 222 employees, the Transaction Banking Group 248, Treasury and Corporate Finance Group had 92 employees, the Portfolio Management Group employed 33, the Special Credits Group 5 and Staff-Corporate and Management 61. The Special Credits Group was a special unit of the Portfolio Management Group set up to administer poorly performing loans. Staff- Corporate and Management included the Financial Management Group and the Human Resources Group. Approximately 215 of the personnel working in the Transaction Banking Group comprised the Operations & Systems Administrative Units which provided extensive support and processing facilities for the various marketing groups.

38. According to Mr Anderson, the Bank had a deliberate policy of removing from the revenue generating groups the various support activities which were likely to distract them from their primary mission. Those activities were performed by groups such as the Human Resources Group and the Financial Management Group. Senior banking witnesses as well as expert witnesses such as Mr Nicholson did not see the CBG as identifiable externally in its own right. So far as senior management of the Bank was concerned the CBG was not self-sufficient and was only distinct for internal organisation purposes. The functions performed by the CBG, according to Mr Anderson, were essentially the sale and marketing of particular products to a specific market segment. As already mentioned, in order to establish itself in the Australian market the Bank directed its energies at a section of the public which was described as ``high net worth individuals'' whose important characteristic was the capacity to service loans. Because of the Bank's size compared with the major banks in Australia it could not be price competitive and in order to attract the custom of the target market the Bank sought to differentiate itself from the major Australian banks. It did so by developing and marketing a number of specific products and services. It was senior management's view that by delivering a high level of forward looking services a niche would be developed in the Australian market.

39. A number of products in the late 1980s were regarded as very innovative and were not available from the major Australian Banks. According to Mr Ross Steele, general manager of the Transaction Banking Group and a specialist in the development of computer software for banks and financial institutions, Chase AMP Bank was committed to the use of sophisticated computer software technology. One of the services which the Bank was able to offer retail customers was ``Bank by Phone'' - today commonplace, then, as offered by the Bank, ``cutting edge''. This was a facility whereby banking transactions could be carried out over the phone. A critical element was the ability to provide a quick response to a customer. The Bank had developed a number of computer software packages to integrate Visa, current accounts and mortgage loan products so they had a single integrated appearance to the telephone support staff and allowed transactions within and between accounts while the customer was on the telephone. This software was not acquired by Westpac. Chase AMP Bank offered its retail customers one plastic card which contained all accounts known as the Cash Management Facility. For example, it could be used to access Visa and a cheque account management facility. This was a facility also offered by other small and regional banks but was not offered by the major banks and was not offered by Westpac.

40. Chase AMP Bank offered a Money Market Account which, according to Mr Nicholson, had features distinguishing it from similar products offered by some other banks at the time. As an example, transactions could be initiated by telephone, no transaction fees were charged for cheques in excess of $300 and it permitted withdrawal of funds through automatic teller machines. Another product which the Bank offered was a Capitalizer Account which provided a secured credit line giving flexibility to customers to reduce or increase their actual debt without continued reference to the Bank. Mr Nicholson described it as ``a product before its time as instanced by

ATC 4144

the current advertising campaigns from major banks offering similar products''. Further products, ``Direct Link'' and ``Link Pay'' provided an ability to transfer funds from other banks to Chase AMP Bank by telephone and permitted a Chase AMP Bank Visa card debit balance to be cleared automatically from funds into another bank without charge, respectively. None of these was taken up by Westpac.

41. It was the opinion of a number of banking witnesses that many of the retail customers of the Bank were dissatisfied former customers of the major banks who had become discontented with investment rates and the services which those banks offered. They were regarded as a highly mobile group. An internal Westpac memorandum dated 26 July 1991 referred to letters from former Chase AMP Bank's retail customers who had stated ``categorically'' that they did not wish to bank with Westpac.

42. It is Westpac's contention, supported by the witnesses formerly with Chase AMP Bank, that the CBG was dependent on other groups and particularly on Treasury for its operation and could not be characterised as a business independent of the Bank as a whole. As at June 1991 the value of the Bank's assets assigned to the CBG was approximately $1.2 billion. These were its retail loans. The value of liabilities allocated to the CBG was approximately $600 million. These were the deposits. As is plain, there was a funding gap of some $600 million. The CBG had no capacity to raise money itself. It relied on Treasury. If on a given day funds were required in excess of the funds which Treasury could provide from the Bank's own funds it would borrow money on the wholesale money market. According to Mr Anderson and Mr Sam Zweig, who was the Bank's chief financial officer and managed the Financial Management Group, the funding gap was an internal asset/liability differential in the Bank's accounting records.

43. Only personnel allocated to Treasury were authorised to deal on the wholesale money market. The CBG had no access to those markets because its officers were not authorised to deal in those markets. An officer of the Bank, Ms Toni Hume, who was located within the Marketing Unit of the CBG, liaised with Treasury and informed it of the CBG's funding requirements. She had no authority to deal directly on the wholesale money markets. Earlier requests that a person in that position have an independent dealing authority were rejected by the Bank's senior management. Amongst Ms Hume's responsibilities included working with Treasury to ascertain whether new products to be offered through the CBG could be funded. New products could not be introduced unless they had been approved by the Risk Management Committee comprising Mr Anderson and senior officers from a number of the Bank's groups.

44. The Financial Management Group provided a number of services to the CBG including accounting policies and procedures, payroll services, payment of expenses, guidelines for budget and business plan reporting including the establishment of annual targets, general ledger accounting, legal services including compliance, board secretarial services, Reserve Bank reporting and management and remission of taxes and duties such as income tax, interest withholding tax, bank account debits tax and financial institutions duties for the Bank as a whole. As well it drew on support and overhead functions provided by other groups within the Bank.

45. Pursuant to the Bank's policy each group was required to be productive. To test this, costs to operate each group were allocated at an annual meeting. The Financial Management Group staff tabled the assessment of costs provided by the supplier or the provider groups and allocated proportions to be approved for the coming year from the support, overhead and operations groups to the revenue generating groups. According to the witnesses, debate then ensued about proportions and equity issues until agreement was reached or a decision was made by the managing director. Mr Zweig described this allocation as ``arbitrary'' since amounts were estimated as to the likely future use by the revenue generating groups of the services of the other groups as well as senior management's time. As an example, the managing director's expenses were allocated on the basis of his estimate of the time to be spent by him in relation to each group within the Bank. Audit fees were allocated on a combination of the internal auditor's estimate of the time spent and the size of the group. Specific costs for stationery and postage were precisely allocated. Non-specific costs such as computer technology were allocated according to each group's proportionate usage.

ATC 4145

46. All computer and data processing systems used by the Bank including the CBG were provided by the Data Centre. It was within the Operations & Systems Administration Unit which was part of the Transaction Banking Group. The CBG did not have its own separate computer and data processing systems. The CBG was said by Mr Anderson to be a heavy user of services provided by the Data Centre exemplified by the allocation of some 45 per cent of the costs of the Data Centre to the CBG in 1991.

47. According to Mr Anderson, on a number of occasions in 1990 and 1991 the Bank's adequacy ratio approached the minimum percentage set by the Reserve Bank. This was attributed to corporate lending losses and consumer operational losses because it had cost more to operate the CBG than had originally been estimated. Mr Anderson recalled that on a number of occasions ALMAC directed the CBG to cease making further loans to customers because the Bank did not have sufficient capital to support new loans.

Calculation of the amount of $31,000,000

48. Initially it was contended by the Commissioner that the amount of $31,000,000 paid by Westpac to Chase AMP Bank for what was known in the documentation at the time as the ``Consumer Book'' was a premium paid over and above the value of the loan portfolio and represented a payment for goodwill. As the hearing progressed it was a proposition less and less pressed on the witnesses. It seems no longer to be contended that the value of a loan portfolio is its face value. Nonetheless the acquisition of goodwill is still said by the Commissioner to be a benefit which flowed to Westpac from the agreements because some of the loans were expected to roll over and thus generate what was termed ``new business''. It is accepted that the discounted cash flow for a period into the future to be derived from that portfolio is the appropriate method of valuation. Mr Jeffrey Johnson, a senior Westpac employee and, at the relevant time, project manager group strategic planning, valued Chase AMP Bank's Consumer Book for the purpose of the acquisition. He estimated that value at $22,000,000 being the after tax net present value of the expected income stream less the expenses incurred using a discount rate of 16.3 per cent. This was Westpac's ``hurdle rate'', that is, the minimum required rate of return on capital investment which had been determined by Westpac's strategic planning unit.

49. Mr Johnson explained the assumptions which he made in valuing the Consumer Book and these are, to a large extent, reflected in a contemporaneous document of 5 July 1991. When he valued a banking business he ordinarily assumed that the loans acquired would give rise to a considerable volume of new business but did not make that assumption in the case of Chase AMP Bank's Consumer Book. That was because Chase AMP did not have a strong brand name, significant market share or critical mass. It did not have a competitive advantage in its areas of operation and although Chase AMP Bank had a good reputation for customer service, those customers offered limited strategic value to Westpac because many were disaffected former Westpac and other major banks' customers. They were very mobile in as much as they were attracted by favourable interest rates, and would transfer their deposits and loans to whichever bank offered the best rates at any time. Mr Johnson assumed that as the loans matured there was only a 50 per cent probability that they would be rolled over and refinanced. He described this as ``new business'' which excited the interest of the Commissioner at trial but as Mr Johnson and Dr Harvey explained, it was nothing more than predicting the life of the loans. A further factor tending to support the anticipated roll-over of loans was their particular feature which enabled this to occur by the substitution of securities without a new loan agreement.

50. As a usual component of valuing a banking business Mr Johnson assumed that the income stream would continue indefinitely justifying the payment of additional consideration by way of a premium. He referred to this as the ``terminal value''. In the case of the Consumer Book he considered there to be a nil terminal value and provided in his model for the income stream to terminate after 10 years ending in June 2001. Although it was usual to take into account income that could be earned by re-lending deposits at a higher rate of interest than paid to depositors, he placed no value on the deposits acquired by purchasing the Consumer Book. He had serious doubts about Westpac's ability to retain Chase AMP Bank's deposits. This was for a number of reasons including that a large proportion of the

ATC 4146

deposits were in short term savings products such as cash management accounts; the maturity profile of the deposit book was very short; Chase AMP Bank was offering more attractive rates than Westpac was prepared to offer; the customers were largely disaffected from the major banks; and the money had the potential to move quickly to other financial institutions. Mr Johnson took a conservative position about loss provision and allowed approximately $32,000,000 for losses in the first two years following acquisition. This was double what he would normally have provided for in a portfolio of loans. He did this because he had serious doubts about the adequacy of the security in respect of a number of loans.

51. In the end there was no dispute about the correct method of valuing a portfolio of loans by the net present value of those loans after their anticipated life and that there was no payment by Westpac in excess of the value of the loan portfolio. In other words, there was no payment made for goodwill and, from an accounting perspective no amount was, nor needed to be, recorded in Westpac's accounts as goodwill.

How Westpac dealt with Chase AMP's customers

52. Westpac established a task force under the direction of Mr Alan Hohne, general manager Australian marketing, to integrate the Chase AMP Bank Consumer Book into Westpac. Mr Hohne had been a member of the group of Westpac executives responsible for developing the alliance between Westpac and the AMP. Mr Robert Paterson was the day-to- day project manager who assumed Mr Hohne's position at the end of September 1991 with overall responsibility for the integration. The integration was regarded as very challenging, for example, all accounts had to be manually entered into the system while continuing to service those accounts. In large part this was because Westpac did not acquire Chase AMP Bank's software. Part of the problem, clearly acknowledged by Dr Harvey and Mr Hohne, was that only cursory thought had been given as to how the Consumer Book would be integrated into Westpac. Much was made by the Commissioner of a document which summarised the integration project described as a Post Implementation Review (``PIR'') dated 31 January 1992 and which, throughout, referred to the acquisition of the ``consumer banking business'' of Chase AMP Bank. There was no challenge to the assertions of Dr Harvey and Mr Hohne that those responsible for preparing the PIR were not party to the original strategic alliance negotiations and decisions and, in effect, had rationalised, ex post facto, a difficult and demanding process of integration. As will be considered it is not the label which is significant but the reality which will determine whether Westpac acquired a business.

53. Mr Paterson set out in his affidavit in detail the way in which the Westpac task force with the assistance of Chase AMP Bank staff under the Agency Agreement transferred the Consumer Book. This had to occur by 30 September, the end of Westpac's financial year and the expiration of the Agency Agreement. According to Mr Paterson, the decision not to acquire Chase AMP Bank's loan and deposit products or its computer programs or software made the transfer particularly difficult and the task force had to attempt a ``best fit'' with Westpac products.

54. The Bank by Phone service offered by Chase AMP Bank offered the kind of services that could be accessed at bank branches including a facility for home loan applications, telegraphic transfers, overseas drafts and a bill paying service. Westpac reduced the number of services available to former Chase AMP Bank customers during the transition period. It was replaced with the limited services already provided by Westpac's Handy Line Service which did not include, for example, issuing overseas drafts and bill paying, transfers between accounts and requests for bank cheques. During the transition period Chase AMP Bank staff who remained to undertake this service operated out of the Bank's premises and used its computer hardware.

55. On about 12 July 1991 the Bank's consumer customers were sent circular letters by Westpac and Chase AMP Bank proposing that they agree to become deposit customers of Westpac in place of Chase AMP Bank although they were not compelled to do so. Loan customers were advised that responsibility had been assumed by Westpac and on 4 September 1991 were offered particular types of accounts operated by Westpac on the terms and conditions for such accounts as were offered by Westpac to all its customers in substitution for their Chase AMP Bank accounts. Although Mr Paterson deposed that, in general, Chase AMP

ATC 4147

Bank customers did not dissent from this course and continued to operate their accounts as Westpac customers ``a not insignificant proportion of customers withdrew deposits''. Mr Paterson noted that the products offered and marketed by Westpac did not change as a result of the purchase of the Consumer Book.

Was the Consumer Banking Group a business?

56. It is accepted by both parties that ``business'' is an ordinary English word of common usage and is not used in s 54A in any other sense. Resort to dictionaries confronts the researcher with a multitude of meanings but it is only in the 23rd in the Online Oxford Dictionary which is described as ``modern'', from 1888, which is remotely of interest here-

``A commercial enterprise regarded as a `going concern'; a commercial establishment with all its `trade', liabilities, etc.''

Similarly the Macquarie Dictionary offers as its third meaning

``Comm. A person, partnership, or corporation engaged in this [business]; an established or going enterprise or concern.''

57. It is the Oxford meaning which attracted Mason J in
Hope v The Council of the City of Bathurst 80 ATC 4386 at 4390; (1980) 144 CLR 1 at 8. His Honour noted

``... In truth it is the popular meaning of the word as used in the expression `carrying on a business', rather than the popular meaning of the word itself, that is enshrined in the statutory definition. It is the words `carrying on' which imply the repetition of acts... and activities which possess something of a permanent character. This conclusion serves to emphasize that it is necessary to engage in a process of construction in order to arrive at the meaning of the word in sec 118(1).''

The statutory expression under consideration was ``land... which is wholly or mainly used... for carrying on one or more businesses... of... grazing.'' His Honour, applying the ordinary meaning, said at ATC 4390; CLR 8-9

``... It denotes grazing activities undertaken as a commercial enterprise in the nature of a going concern, that is, activities engaged in for the purpose of profit on a continuous and repetitive basis. Putting aside the question whether the activities have a `grazing' character, the critical issue for decision is whether the material before the Court reasonably admits of different conclusions on the question whether the appellant's activities constitute a `business'.''

But as his Honour noted in
FC of T v Whitfords Beach Pty Ltd 82 ATC 4031 at 4043-4044; (1981-1982) 150 CLR 355 at 378-379 when considering expressions such as ``business'', ``commercial'' or ``trading'' in the context of the Income Tax Assessment Act 1936 (Cth), they have about them ``a chameleon-like hue, readily adapting themselves to their surroundings, different though they may be''. This is exemplified in
Fasold & Anor v Roberts & Anor (1997) ATPR ¶41-561; (1997) 145 ALR 548 where the Fair Trading Act 1987 (NSW) defined ``business'' to include ``a business not carried on for profit''.

58. In
Hungier v Grace & Anor (1972) 127 CLR 210 Barwick CJ at 216-217 was concerned to decide if one party to the dispute was a money lender the statutory definition of which was one ``whose business... is that of money lending''. His Honour cited McCardie J in
Edgelow v MacElwee [1918] 1 KB 205 at 206

``There must be more than occasional and disconnected loans. There must be a business of money-lending, and the word `business' imports the notion of system, repetition and continuity... The line of demarcation cannot be defined with closeness or indicated by any specific formula. Each case must depend on its own peculiar features. It is ever a question of degree.''

His Honour observed at 217

``Whilst no doubt system and regularity are involved in the carrying on of a business, it does not necessarily follow that one who has transactions of the same kind systematically or regularly is carrying on a business in those transactions. One may systematically make regular deposits to a bank account but not be carrying on a business of doing so. In other words, system and regularity of making transactions are not in themselves definitive in this field. Their absence may well deny that a business is being carried on but their presence does not necessarily establish that it is.''

59. Sackville J in Fasold, after reviewing a number of authorities, concluded at ATPR 43,775; ALR 588

ATC 4148

``... I think that in addition, ordinarily at least, the concept of 'business' imports, as Barwick CJ suggested in Hungier v Grace, a notion of system, repetition and continuity. I appreciate and accept that due regard should be paid to the `wide and flexible meaning' attributed to the word `business' in common usage:
Grieve v Commissioner of Inland Revenue [1984] 1 NZLR 101 at 111, per Richardson J. I also recognise that each case must depend on its particular circumstances. Nonetheless, in general, for an undertaking to constitute a business it would have to be conducted with some degree of system and regularity.''

60. In
FC of T v Bivona Pty Limited 90 ATC 4168; (1990) 21 FCR 562 the Full Federal Court said at ATC 4173; FCR 567, in the context of deciding whether money lending was the principal business of the company,

``The necessity for the repetition of acts or continuity is perhaps clearer from the phrase `carries on business' than the word `business' standing alone in a definition section... but for a business to exist there must be activity of the body concerned to constitute a commercial enterprise and generally one must look for system, regularity or recurrence.''

61. The High Court noted in
FC of T v Murry 98 ATC 4585 at 4596 [54]; (1998) 193 CLR 605 at [54] that

``... A business is not a thing or things. It is a course of conduct carried on for the purpose of profit and involves notions of continuity and repetition of actions.''

62. Perhaps of greater assistance are observations in
PP Consultants Pty Ltd v Finance Sector Union of Australia (2000) 201 CLR 648. The issue was whether, under the Workplace Relations Act 1996 (Cth), an award determining an industrial dispute was binding on any successor to the business or part of the business of an employer including a corporation that had acquired or taken over the business or part of the business of the employer. A bank closed one of its branches and appointed a pharmacist to carry on a branch agency in conjunction with his pharmacy business in premises which combined those in which the banking and the pharmacy businesses had formerly been conducted. Gleeson CJ, Gaudron, McHugh and Gummow JJ noted that the word ``business'' was notorious for taking its colour and content from its surroundings at 654 and continued at 655

``The question whether one person has taken over or succeeded to the business or part of the business of another is a mixed question of fact and law. For this reason and, also, because `business' is a chameleon-like word, it is not possible to formulate any general test to ascertain whether, for the purposes of s 149(1)(d) of the Act, one employer has succeeded to the business or part of the business of another...

As a general rule the question whether a non-government employer who has taken over the commercial activities of another non-government employer has succeeded to the business or part of the business of that other employer will require the identification or characterisation of the business or the relevant part of the business of the first employer, as a first step. The second step is the identification of the character of the transferred business activities in the hands of the new employer. The final step is to compare the two. If, in substance, they bear the same character, then it will usually be the case that the new employer has succeeded to the business or part of the business of the previous employer.''

63. It is clear that these various observations about what constitutes or are the essentials to characterise certain conduct or activity as a business will be governed by the particular facts in the statutory context of the inquiry. So much is recognised. The issue here is whether the CBG constituted a business in itself separate (or, more precisely, able to be separated) from Chase AMP Bank. There is no doubt that Chase AMP Bank carried on the business of banking. Westpac contends that the CBG was not a separate business because the business was a single business of banking in the course of which Chase AMP Bank conducted a number of business-like activities including but not limited to those of the CBG. It also contends that the activities of the CBG were so integrated into the rest of the Bank that they could not be characterised as a separate business. The Commissioner contends that the activities of the CBG satisfied all the relevant indicia of a ``business'' for the purposes of s 54A and that independence is not a necessary quality of a business. Mr Mark Bryant, the expert

ATC 4149

accountant retained by the Commissioner, maintained that many of the services which were necessary for the business of banking conducted by the CBG could have been ``outsourced'' outside the other divisions of the Bank. Mr Bryant had no banking experience to enable him to make this assessment and was contradicted by witnesses such as Mr Nicholson.

64. The Commissioner points to the definition of ``banking'' in PP Consultants at 655

``The essential characteristics of the business of banking are 'the collection of money by receiving deposits upon loan, repayable when and as expressly or impliedly agreed upon, and the utilisation of the money so collected by lending it again in such sums as are required'.''

That, submits the Commissioner, is precisely what was done by the CBG. No doubt those characteristics were sufficient to decide whether the pharmacy had engaged in the business of banking. Here the question is much more complex and sophisticated.

65. A useful approach to the characteristics of the business of banking is to be found in the judgment of Isaacs J with whom Gavin Duffy and Rich JJ agreed in
The Commissioner of the State Savings Bank of Victoria v Permewan, Wright and Company Limited (1914) 19 CLR 457. The court had to decide whether the State Savings Bank of Victoria was a bank within the meaning of the Bills of Exchange Act 1909. Isaacs J briefly reviewed the use of the expression ``business of banking'' or its equivalent in legislation from 1826. He said at 470-471

``This indicates a constant signification of the term `banking' as a business. The fundamental meaning of the term is not, and never has been, different in Australia from that obtaining in England. Various writers attempt various definitions, more or less discordant, and many of them referring to functions that are now very common and convenient, and even prominent, as if they were indispensable attributes. The essential characteristics of the business of banking are, however, all that are necessary to bring the appellants within the scope of the enactments; and these may be described as the collection of money by receiving deposits on loan, repayable when and as expressly or impliedly agreed upon, and the utilization of the money so collected by lending again in such sums as are required. These are the essential functions of a bank as an instrument of society. It is, in effect, a financial reservoir receiving streams of currency in every direction, and from which there issue outflowing streams where and as required to sustain and fructify or assist commercial, industrial or other enterprises or adventures.

If that be the real and substantial business of a body of persons, and not merely an ancillary or incidental branch of another business, they do carry on the business of banking. The methods by which the functions of a bank are effected - as by current account, deposit account at call, fixed deposit account, orders, cheques, secured loans, discounting bills, note issue, letters of credit, telegraphic transfers, and any other modes that may be developed by the necessities of business - are merely accidental and auxiliary circumstances, any of which may or may not exist in any particular case.''

A spirited dissent by Griffith CJ at 463-466 as to the essentials of carrying on the business of banking as necessarily including the drawing of cheques demonstrates the difficulty in a comprehensive definition. The broad attributes of banking consistent with the definition proffered by Isaacs J are found in
The Lord Mayor, Councillors and Citizens of the City of Melbourne v The Commonwealth & Anor (1947) 74 CLR 31 at 63 per Latham J and at 64-65 per Rich J.

66. In
The Commercial Banking Company of Sydney Ltd v FC of T (1950) 9 ATD 112; (1950) 81 CLR 263 the issue was whether the lending of money was income due from personal exertion under the Income Tax Assessment Act 1936. Dixon J with whom McTiernan, Williams, Webb and Fullagar JJ agreed said at ATD 124; CLR 303-304

``... The matter must in some degree depend on an analysis of the business of banking or of the business of this particular bank, but in the end it depends less on this than upon a proper understanding of the meaning of the provision. It is, of course, true that the lending of money is a most important part of the general business of banking. It is also true that the business of banking considered

ATC 4150

as a separate business and not as forming simply one example of the business of lending money is not easily capable of definition. But the plain object of this particular provision of the definition is to allow a taxpayer the benefit of the rate for personal exertion where in truth the obtaining of interest is the substantial purpose of his business, if the interest is obtained by the lending of money. When, in ordinary understanding, what in point of law is interest is in substance a profit dependent upon the pursuit of organised business activities it is income from personal exertion. The word `principal' is introduced in order to exclude incidental and subsidiary activities in a business, but if the chief part of the business from which the profit is obtained consists of the lending of money that is enough. A banker's business may be said to be that of dealing in money. A great part of organised banking consists in the performance of services for customers which result in the banker having at his command large funds. But, extensive and important as those services are, and indispensable as they are to the acquisition of funds, if it stopped at that the banker would make no profit. The profit-making side of his activities is in putting out the money so as to increase it, and that substantially means to obtain interest. If attention is riveted upon the relations of the banker to his customer and the amount of work done in that respect it might be thought that to say that the principal business consists of the lending of money is to ignore all the business done with customers whose accounts are in credit as well as much else besides. But if attention is riveted on the activities of banking in which the money is used or laid out, it would seem correct to say that the decisively profit-making side of the business is concerned with the lending of money.''

67. As Westpac contends, the business of a bank involves dealing in money both borrowing and lending in all its manifestations. The CBG was quite unable to lend money in the amounts required from its ``own'' resources, that is, the loans. The evidence was clear that the activities of Chase AMP Bank both as a source of loans and as a place to deposit funds was conducted across the whole of the profit making groups within the Bank. These were the CBG, the Transaction Banking Group and the Corporate Finance Group. The ancillary activities and services which the Bank offered its range of customers such as foreign exchange services were provided not by the CBG but by the other two profit making groups. It was unknown and irrelevant to customers of the Bank who utilized those services which groups within the Bank were allocated these functions. While independence may not be, and probably is not, a necessary characteristic of a business, interdependence of such a kind and degree as has been shown to exist within Chase AMP Bank across its groups and committees may deny an activity that description.

68. Reference was made to
FC of T v Marshall and Brougham Pty Ltd 87 ATC 4522 at 4528; (1987) 17 FCR 541 at 548 per Bowen CJ and in
Memorex Pty Ltd v FC of T 87 ATC 5034 at 5047; (1987) 77 ALR 299 at 315 per Pincus J. These cases are no more than examples of enterprises which carried on different activities but which were held to be part of the whole business enterprise. As Pincus J commented in Memorex, it would have been possible to view the leasing activities of a group that principally distributed computer equipment as a distinct enterprise but that the more reasonable view was that it was an integral part of the business of a supplier of computer equipment.

69. Westpac has pointed to a number of English income tax cases concerned to decide whether the taxpayer conducted one business or two. The facts are not of particular interest, some propositions may assist in pointing to appropriate factors. In
Scales v George Thompson & Co Ltd (1927) 13 TC 83 the taxpayer company carried on the business of under-writing. It also owned a fleet of steamers. Rowlatt J said at 89

``I cannot conceive two businesses that could be more easily separated than those two. They both have something to do with ships; that is all that can be said about them. One does not depend on the other; they are not interlaced; they do not dovetail into each other, except that the people who are in them know about ships; but the actual conduct of the business shows no dovetailing of the one into the other at all. They might stop the underwriting; it does not affect the ships. They might stop the

ATC 4151

ships and it does not affect the underwriting. They might carry on underwriting in a country where there were no ships, except that it would not be commercially convenient; but the two things have nothing whatever to do with one another...

That method of book-keeping does not seem to me to throw any light upon this matter at all. I think the real question is, was there any inter-connection, any interlacing, any inter- dependence, any unity at all embracing those two businesses; and I should have thought, if it was a question for me, that there was none.''

70. In
North Central Wagon and Finance Co Ltd v Fifield (HM Inspector of Taxes) (1953) 34 TC 59 the question was whether a taxpayer who acquired railway wagons for either re-sale on hire-purchase terms or letting on simple hire was carrying on one business or two. Jenkins LJ said at 70

``On the other hand, I should have thought that the business of letting out wagons on simple hire is a business so closely allied to letting out wagons on hire-purchase, or, indeed, to any business of dealing in wagons or other vehicles that, in order to make out the existence of two separate businesses, it would be necessary for the Company to adduce some clear evidence of separation between the two. That, so far as I can see, the Company entirely failed to do, and in my view the Commissioners were well justified in the conclusion to which they came, and their finding must not be disturbed.''

See also
Cannon Industries Ltd v Edwards [1966] 1 All ER 456 and
GD Ault (Isle of Wight) Ltd v Gregory [1967] 3 KIR 590.

71. The Commissioner contends that the CBG was a separate business principally by reference to the Confidential Purchase Memorandum which was circulated to potential interested purchasers of Chase AMP Bank or parts of it and which spoke of the ``consumer bank business''. Its contents must be approached with some caution. Chase AMP Bank was desirous of selling the whole of its enterprise and, failing that, the various products which it had developed which serviced the retail and wholesale customers of the Bank. It is how the CBG actually operated which governs the resolution of this matter. In his pleadings the Commissioner contended that a number of aspects of the CBG pointed to it being a separate business. As the facts emerged at trial some were clearly without foundation. Those which remained were

  • • its own management structure;
  • • its own personnel section and staff;
  • • its own mission statement;
  • • its own transfer pricing and cost allocation system which required CBG to make a contribution to the profit of the Bank;
  • • many of those services could be outsourced;
  • • the word ``business'' was used in various documents relating to the activities of the CBG.

None is, in my view, determinative. The way in which most of those aspects of the CBG were integrated into the whole of the Chase AMP Bank has been discussed.

The ``outsourcing'' issue became rather argumentative at trial. It is not simply a question of ascertaining how many of the services which were provided to the CBG from other groups could have been obtained at a price from other entities outside the Bank. I accept the evidence of Mr Nicholson and Dr Valentine that, at the very least, it was inconsistent with the business of banking to outsource both the treasury functions and the computer systems for the CBG.

72. In the Commissioner's submissions the separateness of the CBG was further developed. Three particular areas were said to compel the conclusion that the activities of the CBG satisfied the relevant indicia of a ``business''. They were that the CBG was a retail bank serving individuals of a particular target group whose central strategy was to provide large balance loan and deposit products. The key mortgage products comprised residential mortgages and commercial mortgages as well as key consumer loan products including line of credit facilities and ``Optimiser'' and ``Capitaliser''. Visa card facilities were available through the CBG and other loan products were tailored to meet specific customer requirements. It provided cheque account facilities, money market accounts and term deposits. The Commissioner noted the number and value of the accounts managed by the CBG taken from the Confidential Purchase Memorandum as at 1990 and further noted that

ATC 4152

the management of these accounts was effected by 222 staff. The Commissioner contended that this compels the conclusion that the CBG was more than a static collection of assets and liabilities, that is, more than the Consumer Book and that the number and characteristics of the loan and deposit accounts and the sales and management activities of employees dedicated to the CBG were characteristic of a commercial enterprise.

73. If the ``going concern'' formula is the appropriate touchstone of a commercial enterprise it is not really apt for the CBG. As Mr Anderson noted, the three revenue raising groups within the Bank were organised so as to be free from the need to carry out functions which would distract them from their primary tasks and Chase AMP Bank as a whole was organised to this end. The CBG, just as were the other revenue raising groups, was unable to function without the other groups and committees within the Bank. It did not operate profitably although this is not an essential characteristic of a business. But it was absolutely dependent on Treasury to manage the funding gap between loans and deposits. There was no possibility that that money could have been raised elsewhere. The very important software products, which enabled the CBG to offer the kinds of forward thinking services which attracted customers away from the major banks, were provided to it by the Transaction Banking Group. Most of the other areas in respect of which it was reliant on other parts of the Bank are self evident such as Reserve Bank authorisation and electronic funds transfer as well as clearing house services. It is not without significance that the CBG was unknown outside Chase AMP Bank.

74. The conclusion must be that the interdependence of the CBG upon the other divisions and management organisation of the Bank meant that it was unable to exist in a way that allowed it to be described as a business within the meaning of s 54A of the Act.

Did Westpac acquire sufficient of the assets of the business to enable it to carry on the business?

75. If I am incorrect in the above conclusion and the CBG is characterised as a business for the purposes of the legislation then this second question needs to be addressed.

76. The Commissioner contends that the proper approach is to be found in the reasons for judgment of the Court of Appeal in
Kenmir Ltd v Frizzell & Ors [1968] 1 All ER 414 at 418 per Widgery J

``In the end, the vital consideration is whether the effect of the transaction was to put the transferee in possession of a going concern, the activities of which he could carry on without interruption.''

In the passage immediately prior appears the following

``In deciding whether a transaction amounted to the transfer of a business, regard must be had to its substance rather than its form, and consideration must be given to the whole of the circumstances, weighing the factors which point in one direction against those which point in another.''

It is important to keep in mind that the court was considering provisions of the Contracts of Employment Act 1963 (UK) to ascertain if employees who had formerly been employed by a firm that owned a factory and manufactured furniture continued as employees of the purchaser company which manufactured the furniture but sold all their products to another company in the group of which it was a member. The vendor firm agreed not to compete with the purchaser. There was no agreement to assign goodwill and no transfer of stock-in-trade. The purchaser company dismissed the employees and they became entitled to redundancy payments. The question was whether their periods of service with the vendor firm should be aggregated with their periods of service with the purchaser for the purposes of computing their redundancy payments. The legislation provided that if a business was transferred from one person to another the period of employment was not broken. The factors which influenced the court to conclude that there was a transfer of the business, although stated in general terms, were with this question firmly in mind as Widgery J emphasised at 417. The approach of the High Court in PP Consultants has been discussed [ 62] and provides a formula without listing essential and non-essential criteria to characterise an enterprise as a ``business'' which so often have been shown to hamper unduly a proper analysis of the transaction. Although referred to in counsel's submissions, Kenmir was not discussed by the court in PP Consultants.

ATC 4153

77. In my view Westpac did not acquire sufficient of the assets of the CBG, assuming it was a business, to carry on the business within the meaning of s 54A. What Westpac acquired was the Consumer Book. The Agency Agreement allowed those customers of Chase AMP Bank to be integrated into the Westpac system if they chose to transfer to Westpac. None of the products of Chase AMP Bank which made it so distinctive in its retail division were acquired by Westpac. In discussing whether the CBG constituted a ``business'' the things about Chase AMP which made it attractive to high worth individuals - its targeted customers - such as the mobile sales staff, telephone banking, the more attractive rates of interest, the expensive-looking premises and so on were not acquired by Westpac.

78. As already discussed above there was no premium paid for goodwill in the acquisition. It remains to consider whether in some intangible way there was goodwill associated with the acquisition. The customers of Chase AMP Bank were introduced to Westpac. The Agency Agreement facilitated their incorporation albeit as Westpac customers. In Murry's case Gaudron, McHugh, Gummow and Hayne JJ at ATC 4590; CLR 614 drew a distinction between the accounting concept of goodwill and the legal concept of goodwill. At ATC 4590-4591; CLR 615 their Honours proposed

``From the view point of the proprietors of a business and subsequent purchasers, goodwill is an asset of the business... because it is the valuable right or privilege to use the other assets of the business as a business to produce income. It is the right or privilege to make use of all that constitutes `the attractive force which brings in custom'. Goodwill is correctly identified as property..., therefore, because it is the legal right or privilege to conduct a business in substantially the same manner and by substantially the same means that have attracted custom to it. It is a right or privilege that is inseparable from the conduct of the business...''

At ATC 4594; CLR 623 their Honours said

``Once goodwill as property is recognised as the legal right or privilege to conduct a business in substantially the same manner and by substantially the same means which in the past have attracted custom to the business, it follows that the person acquires goodwill when he or she acquires that right or privilege. The sources of the goodwill of a business may change and the part that various sources play in maintaining the goodwill may vary during the life of the business. But, as long as the business remains the `same business'..., the goodwill acquired or created by a taxpayer is the same asset as that which is disposed of when the goodwill of the business is sold or otherwise transferred...''

It is clear that Westpac did not acquire that which constituted ``the attractive force which brings in custom''. As all of the witnesses with banking expertise and experience said, the consumer customers of Chase AMP Bank were largely disaffected customers of the major banks and they went to Chase AMP Bank because they were offered a level of service, including better interest rates, which they could not get from those banks. The acquisition of the loans and other receivables owing to Chase AMP Bank by the consumer customers of the Bank was insufficient to constitute ``the attractive force''. Although discussed in the Heads of Agreement there was no legal obligation on Chase AMP Bank to cease consumer banking activities in Australia. That it did so was part of the whole strategic alliance.

79. It follows that Westpac did not acquire sufficient of the assets of the CBG to carry on the business.

80. Allegations of bad faith made in the application for judicial review are no longer advanced by the applicant nor the allied allegations of a wrongful exercise of power or for an ulterior purpose and need not be further considered.

81. The orders are:

  • 1. The decision of the Commissioner requiring Westpac to furnish a duly completed statement in Form S(a) made on or about 18 September 1992 be set aside;
  • 2. The decision of the Commissioner assessing the duty which ought to be

    ATC 4154

    charged on the Form S(a) made on 16 October 1992 be set aside;
  • 3. The assessment of the Commissioner made on 16 October 1992 be set aside;
  • 4. The Commissioner pay Westpac's costs of and incidental to the applications to be assessed.


Back to top

This information is provided by CCH Australia Limited Link opens in new window. View the disclaimer and notice of copyright.