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SUPREME COURT OF VICTORIA - COMMERCIAL AND EQUITY DIVISION

American Express International Inc v Commissioner of State Revenue

[2003] VSC 32

Harper J

25 February 2003 - Melbourne

Harper J.   1  This is an application for leave to appeal from part of an order and a judgment of the Victorian Civil and Administrative Tribunal (VCAT) which was delivered on 24 May 2002. The part to which the appellant objects is the tribunal's affirmation of an assessment made by the respondent pursuant to the Financial Institutions Duty Act 1982 (Vic). By this, the respondent declared that the appellant was liable to pay financial institutions duty in the sum of $700,924.84. To this, the respondent added penalty tax of $101,222.89 and interest of $136,777.06. The tribunal reduced each of these latter amounts.

  2  One of the purposes of the Financial Institutions Duty Act 1982 (Vic), as expressed in its long title, is to impose a duty upon financial institutions in respect of certain receipts. The appellant is such an institution, its application for registration having been granted by the respondent by letter dated 1 December 1987.

  3  The assessment the subject of the appeal was first issued on 22 December 1999. It covered the period of 35 months between 1 December 1996 and 31 October 1999. For reasons which were not explored at the trial, this assessment was on 20 October 2000 withdrawn. It was, however, immediately followed by a fresh assessment in the same amount. On 22 December 2000, the appellant lodged a notice of objection. This was disallowed by the respondent on the following 28 March. The dispute came on for determination before the tribunal on 23 May 2002. Its decision was handed down the following day.

  4  The Financial Institutions Duty Act 1982 (Vic) contains, in s 3, a large number of definitions of expressions to be found in it. That of "financial institution" is wide, in that it includes a large number of individuals or entities conducting a wide variety of businesses. Among them is "a credit provider". Unless the contrary intention appears in the Financial Institutions Duty Act 1982 (Vic), this means a person who provides credit under credit contracts in the course of a business carried on by that person in Victoria. "Credit", in turn, includes any form of financial accommodation, while "credit contract" means a credit sale, a loan, or a continuing credit contract. These terms are also defined. I shall return to them.

  5  Liability to financial institutions duty is imposed by s 18 of the Financial Institutions Duty Act 1982 (Vic). So far as is presently relevant, it provides that a financial institution that receives money in Victoria during a month is liable to pay financial institutions duty in respect of each such receipt: s 18(1). But this is subject to the Financial Institutions Duty Act 1982 (Vic). And the Financial Institutions Duty Act 1982 (Vic), by s 18(3), provides for exceptions. One of them is a receipt of money by an entity, such as the appellant, that is a financial institution by reason only that it is a credit provider: s 18(3)(l). Subject to what follows, a receipt of this kind is not caught by s 18(1).

  6  What follows, however, goes to the core of this case. There are, incorporated within s 18(3)(l) itself, exceptions to the exception. First, a financial institution which is so by reason only that it is a credit provider must pay duty on receipts of money which constitute "a repayment of the whole or any part of the amount financed under a credit contract". Secondly, financial institutions duty is likewise payable by a financial institution that is so by reason only that it is a credit provider if the receipt in question is "a payment of an amount owing to the credit provider under a continuing credit contract". (The emphasis in each case is of course mine.) The use of the word "repayment" in one place within para (1) and "payment" in another assumed some significance in this case as the competing submissions unfolded.

  7  The appellant says that neither of the 2 exceptions applies to it. The respondent argues that both are applicable. The tribunal agreed with the appellant on the first, but with the respondent on the second. Hence it upheld the assessment.

  8  It is common ground (or, if not common ground, it was not actively in dispute) that the appellant does not in its business provide credit under or as part of credit sales. The appellant contends that, at least for presently relevant purposes, it does not lend money either. Nor, it submits, does it provide credit under a continuing credit contract. The respondent contends that the appellant does both. Their differences on these matters go to the heart of this litigation.

  9  Draft notices of appeal and cross-appeal have been prepared. It is convenient to turn to them now, because the respondent does not oppose the appellant's application for leave to appeal; it does, however, seek - on that leave being granted - to cross-appeal. Both sides were in the circumstances content that appeal and cross-appeal be heard together, and immediately.

  10  I granted the leave sought by the appellant. The hearing then proceeded. The grounds of appeal as set out in the notice of appeal are as follows:

   

1. The learned member erred in law in holding that the receipts referrable to the charge card were not within the exclusion provided for by s 18(3) of the … Act … because the receipts constitute the payment of an amount to the appellant under a "continuing credit contract" as defined by s 5(b) of the … Act.

 

2. The learned member should have held on the proper construction of the agreements involved when a card member uses the charge card to acquire goods and services from a merchant, that s 5(b) of the … Act has no application to the charge card.

 

3. The learned member should have held that the true meaning and effect of the agreements is that:

 (a)  the appellant does not satisfy on behalf of the card member liabilities of that card member to a third person in respect of payment for goods and services or cash supplied by that third person to the card member from time to time;
 (b)  the card member assumes direct liability to the appellant when the card member uses their charge card, to the exclusion of liability to the merchant from whom the card member acquires goods or services;
 (c)  no credit within the meaning of that expression as defined in s 3 of the … Act is provided by the appellant to the card member.

 

4. The learned member should have followed the reasoning in the English cases Re Charge Card Services Ltd [1989] Ch 497; [1988] 3 All ER 702 and Customs and Excise Commissioners v Diners Club Ltd [1989] 2 All ER 385.

  11  The grounds of appeal thus require an examination of the definition of the expression "continuing credit contract". This is to be found in s 5 of the Financial Institutions Duty Act 1982 (Vic). There are 2 species of this statutory creation. The first is defined by s 5(a); the second by s 5(b). Only the latter is directly relevant. It is, and the former is not necessarily, a form of financial accommodation of which it is entirely sensible to say that its discharge involves the credit provider being "repaid". This proposition is more easily understood if I quote the definition in full:

   

5. Where a person -

 (a)  agrees with another person to provide credit to that other person in respect of payment for goods and services or cash supplied by him to that other person from time to time; or
 (b)  agrees with another person -
 (i)  to satisfy on behalf of that other person liabilities of that other person to a third person in respect of payment for goods and services or cash supplied by that third person to that other person from time to time; and
 (ii)  to provide credit to that other person in respect of payment by that other person of amounts owing from time to time to him in respect of the satisfaction by him of those liabilities on behalf of that other person -

 

and agrees to calculate the amount owing to him from time to time under the agreement on the basis that all amounts owing and all payments made by the other person under or in respect of the agreement, are entered in the same account - that agreement is, for the purposes of this Act, a continuing credit contract.

  12  Persons who, as in s 5(a), agree to provide credit to their customers in respect of payment for goods and services supplied to those customers, do so on the basis that in due course they will be paid. Those who, while also falling within s 5(a), provide credit in respect of cash supplied by them to other persons or who, as in s 5(b), agree to satisfy liabilities of others to third persons, do so on the basis that in due course they will be repaid.

  13  For its part, the respondent's notice of contention and cross-appeal requires attention to be given to the definition in the Financial Institutions Duty Act 1982 (Vic) of the word "loan". It put forward the following as the contentions upon which the respondent would, on the hearing of the appeal, rely:

   

 (a)  The learned member erred in holding that receipts referrable to charge cards were not repayments of the whole or any part of the amount financed under a credit contract for the purposes of s 18(3)(l) of the … Act.
 (b)  On a proper construction of s 18(3)(l) and s 3(1) of the … Act, the learned member should have held that receipts referrable to charge cards constituted repayments of the whole or part of the amount financed by a loan as defined by paragraphs (a) and/or (d) of s 3(1).
 (c)  Further or alternatively, on a proper construction of the agreements, the learned member should have held, pursuant to s 18(3)(l) that receipts referrable to charge cards constituted repayments of the whole or part of the amount financed by a loan as defined by paragraphs (a) and/or (d) of s 3(1).

  14  The word "loan" is by the Financial Institutions Duty Act 1982 (Vic) endowed with many meanings, some of which take it into fields well beyond the limits of its expertise. By s 3 of the Financial Institutions Duty Act 1982 (Vic), a loan is brought into existence whenever a contract is made for the provision of any form of financial accommodation by a credit provider to another person in one or more of a number of ways. Not all have direct present relevance. I nevertheless set them all out here, because one can then appreciate the force of a proposition that was relied upon by the appellant. In an argument that, for reasons which will become apparent, formed an important part of the appellant's case, it submitted that it is not necessarily appropriate, given the usual meaning of the word, to speak of "repayment" as the means of discharging one's indebtedness in relation to these examples of financial accommodation.

  15  By s 3(1) of the Financial Institutions Duty Act 1982 (Vic), "loan":

   

… means a contract for the provision of credit by a credit provider to another person in one or more of the following ways -

 (a)  by paying an amount to or in accordance with the instructions of that other person;
 (b)  by applying an amount in satisfaction or reduction of an amount owed to him by that other person;
 (c)  by varying the terms of a contract under which moneys owed to him by that other person are payable;
 (d)  by deferring the obligation of that other person to pay an amount to him;
 (e)  by taking from that other person a bill of exchange or other negotiable instrument on which the other person (whether alone or with another person) is liable as drawer, acceptor or endorser.

  16  It may here be convenient to summarise the contending arguments. The appellant submits that, conceding that it is a financial institution, it is so only because it is a credit provider. Accordingly, it is not subject to financial duty except in respect of receipts that are either (a) repayments of the whole or any part of the amount financed under a credit contract, or (b) payments of amounts owing to it under a continuing credit contract. The former exception does not apply (so the appellant submits) because none of the receipts on which duty has been assessed are repayments of amounts financed under a credit contract. This expression, as I have noted above, encompasses a credit sale, a loan or a continuing credit contract. No credit sale is involved here, or at least the respondent does not assert that it does. Nor does any aspect of a credit card transaction involve a "loan" as that expression is defined in the Financial Institutions Duty Act 1982 (Vic). Likewise, the use by their respective holders of the appellant's charge card does not give rise to a continuing credit contract.

  17  The respondent challenges the latter conclusions. It submits that the use of the appellant's charge card does give rise to provision by the appellant of financial accommodation by way of a loan, as defined by the Financial Institutions Duty Act 1982 (Vic). Such use also forms a constituent element in a continuing credit contract. Accordingly, receipts by the appellant of amounts due to it following the use of its charge cards are assessable as being both repayments of a loan or loans (and thus repayments of amounts financed under a credit contract) and payments of amounts owing under a continuing credit contract.

  18  Charge cards are a familiar part of everyday life. I take judicial notice of the fact that they are a means by which is effected a very significant proportion of the total trade in goods and services intended for personal consumption. The appellant says, with no dissent from the respondent, that charge cards are "designed to provide the card holder … with a convenient mechanism for paying for goods and services … without … cash": para 15 of the affidavit of Agnes Lingane sworn on 1 May 2002 in the proceeding before the tribunal. I should add that the appellant also issues credit cards, but they are not here relevant.

  19  The questions raised by this appeal require for their answer an analysis of the contractual arrangements which govern transactions in which a charge card is used. Three separate contracts are involved. They are described in Ms Lingane's affidavit (at para 18) in a passage with which the respondent does not take issue. "The contracts", the deponent there says, are as follows:

   

 (a)  A contract between [the appellant] and the merchant … By that contract:
 (i)  the merchant agrees that the card member [that is, the authorised user of the card] acquiring goods and services will be treated as having provided full consideration for such goods and services if a charge card is produced and a record of charge form ("record of charge") is signed by the card member, or the card member provides evidence that a valid charge card is held …; and
 (ii)  [the appellant] is obliged to make payments to the merchant for all amounts charged by card members to that merchant.
 (b)  A contract for the supply of goods and services between the card member and the merchant, whereby the merchant agrees that the card member may present their charge card in complete satisfaction of their obligation to make payment for goods or services which they have acquired from the merchant. The transaction between the merchant and the card member is complete at the time the goods and services are acquired by the card member and the card member has no continuing liability to the merchant in respect of the cost of the goods or services acquired. Normally there is no formal written contract between the card member and the merchant …
 (c)  A contract between [the appellant] and the individual card member ("card member agreement") … Some terms and conditions of the card member agreements can differ depending on the charge card type … and the card member type … The essential terms, however, are the same (and applied during the period of assessment):
 (i)  the card member is allowed to acquire goods and services upon presentation of the charge card to a merchant upon condition that the card member signs a record of charge form with the signature appearing on the charge card;
 (ii)  the card member will pay to [the appellant], immediately upon receipt of a statement of account from [the appellant] those amounts listed on the statement of account in relation to which record of charge forms have been signed or where the card member has provided the merchant with evidence that a valid charge card is held …;
 (iii)  the card member will pay a joining fee and annual fee for the use of the charge card and services provided by [the appellant] …; and
 (iv)  if the card member fails to pay their account when due, he or she is liable to pay liquidated damages … The card member is not permitted to defer any part of the amount due for payment to subsequent months. Payment of liquidated damages does not entitle the card member to defer or roll over payment of the account to a subsequent period.

  20  The general features of charge and credit card transactions were described by Browne-Wilkinson V-C in Re Charge Card Services Ltd.[1] It was a judgment with which the other members of the Court of Appeal agreed; and it was cited with approval by Woolf LJ (with whom Dillon and Ralf Gibson JJ agreed) in Customs and Excise Commissioners v Diners Club Ltd.[2] After observing that there was "no relevant distinction between charge cards and credit cards for present purposes", Browne-Wilkinson VC continued:

   

(A) There is an underlying contractual scheme which predates the individual contracts of sale. Under such scheme, the suppliers have agreed to accept the card in payment of the price of goods purchased: the purchasers are entitled to use the credit card to commit the credit card company to pay the suppliers. (B) That underlying scheme is established by two separate contracts. The first is made between the credit company and the seller: the seller agrees to accept payment by use of the card from anyone holding the card and the credit company agrees to pay to the supplier the price of goods supplied less a discount. The second contract is between the credit company and the card holder: the card holder is provided with a card which enables him to pay the price by its use and in return agrees to pay the credit company the full amount of the price charged by the supplier. (C) The underlying scheme is designed primarily for use in over-the-counter sales, i.e. sales where the only connection between a particular seller and a particular buyer is one sale. (D) The actual sale and purchase of the commodity is the subject of a third bilateral contract made between buyer and seller. In the majority of cases, this sale contract will be an oral, over-the-counter sale. Tendering and acceptance of the credit card in payment is made on the tacit assumption that the legal consequences will be regulated by the separate underlying contractual obligations between the seller and the credit company and the buyer and the credit company. (E) Because the transactions intended to be covered by the scheme would primarily be over-the-counter sales, the card does not carry the address of the card holder and the supplier will have no record of his address. Therefore the seller has no obvious means of tracing the purchaser save through the credit company. (F) In the circumstances, credit cards have come to be regarded as substitutes for cash; they are frequently referred to as "plastic money". (G) The credit card scheme provides advantages to both seller and purchaser. The seller is able to attract custom by agreeing to accept credit card payment. The purchaser, by using the card, minimises the need to carry cash and obtains at least a period of free credit during the period until payment to the card company is due.

  21  It will have been noticed that Ms Lingane refers to "card member", whereas the Vice-Chancellor uses the expression "card holders". Not all holders of charge or credit cards are in the same contractual relationship with the issuer of the card (the card company); they may hold a "supplementary" card issued pursuant to the contract between the card company and the holder of the principal card (often, and aptly, referred to as a "card member"). For the purposes of this case, the distinction is not a concern. For convenience, I will refer to all who hold a card, whether principal or supplementary, as "card holders". All such persons are in a position to invoke the underlying contractual arrangements described by Ms Lingane and the Vice-Chancellor. Only card members, but not holders of supplementary cards, are directly responsible to the card company for all charges made on either the principal or a supplementary card. Supplementary card holders are jointly and severally liable with the principal card holder for all charges made with the supplementary card using that card holder's name.

  22  Re Charge Card Services was an unusual case. It had its genesis in the financial collapse of a credit card company. The company, which traded for less than 3 years, had been promoted by 2 British Motor Associations for the purpose of establishing and operating a charge card scheme known as the "Motor Agents Association Fuel Card Scheme". A restricted range of products could be purchased by the use of the company's card: petrol and other designated products sold by members of one or other of the 2 associations. On the company's collapse, retailers (variously also referred to in the judgments as "suppliers" or "merchants" or "garages") who - to adapt the words of the Vice-Chancellor - had accepted the card "in payment of the price of goods purchased", found that the company could not honour its contractual obligation "to pay to the supplier the price of goods supplied less a discount": the liquidator was able to offer the unpaid retailers plenty of discount but little, if any, price. The latter argued that in these circumstances they were entitled to look for payment to those card holders to whom they had sold goods, but from which they - the retailers - had received nothing in return except an appropriate voucher, appropriately signed.

  23  It was held both at first instance and on appeal that this was all the retailers were entitled to require from those of their customers who presented the card in consideration for the price of the goods purchased. In other words, such customers were not indebted to the unpaid retailers (garages) from whom goods or services or both had been obtained. Speaking of the typical transaction, the Vice Chancellor said:[3]

   

To my mind … the transaction was one in which the garage was accepting payment by card in substitution for payment in cash, i.e., as an unconditional discharge of the price. The garage was accepting the company's obligation to pay instead of cash from a purchaser of whose address he was totally unaware … By the underlining scheme, the company had bound the garage to accept the card and had authorised the card holder to pledge the company's credit. By the signature of the voucher all parties became bound: the garage was bound to accept the card in payment; the company was bound to pay the garage; and the card holder was bound to pay the company. The garage, knowing that the card holder was bound to pay the company and knowing that it was entitled to payment from the company which the garage itself had elected to do business with, must in my judgment be taken to have accepted the company's obligation to pay in place of any liability on the customer to pay the garage direct.

  24  The payment to the merchant by the card company is, of course, the payment in cash (less a discount) of the amount which the merchant would have demanded from the card holder had the card not been offered in substitution. It is, in other words, the payment which in the absence of the agreement between the card company and the card holder (and in the absence of the additional agreement between the card company and the merchant) the card holder would be liable to make to the merchant.

  25  In accepting the card, the merchant is "accepting the [card] company's obligation to pay instead of cash from a purchaser"; for the merchant, "knowing that the card holder was bound to pay the company and knowing that it was entitled to payment from the company which the [merchant] itself had elected to do business with, must … be taken to have accepted the company's obligation to pay in place of any liability on the customer to pay [the merchant] direct".[4]

  26  The merchant's acceptance of the card company's obligation to pay in place of any liability of the customer to do so looks very like its acceptance of a situation in which a person (the card company) has agreed with another person (the card holder) "to satisfy on behalf of that other person liabilities of that other person to a third person [the merchant] in respect of payment for goods and services … by that third person to that other person".[5] In other words, it looks very like a "continuing credit contract" as defined by s 5(b) of the Financial Institutions Duty Act 1982 (Vic).

  27  It was on this basis argued on behalf of the respondent that proper recognition of the effect of the underlying contractual arrangements leads one to the conclusion that in the present circumstances an essential element of the definition of the expression "continuing credit contract" has been established. The agreement between the card company and its card holders is, so the argument runs, one the purpose of which is the satisfaction, by the card company on behalf of the card holder, of liabilities of the card holder to merchants in respect of payment for goods and services supplied by those merchants. It therefore places no strain on the language to say, as a potential card holder is poised to sign the relevant form of application for membership, that the foreshadowed arrangements will, once membership is granted, result in the card company satisfying on the card holder's behalf the card holder's liability to retailers as that liability arises when goods and services are subsequently acquired. That indeed is the essence of the deal. In Ms Lingane's words, the "card is designed to provide the card holder with a convenient mechanism for paying for goods and services … without the need to carry large amounts of cash". The only reason that cash is not needed is that the card company has by its agreement with the card holder agreed to satisfy on behalf of the card holder liabilities of the card holder to retailers in respect of payment for goods and services supplied by those retailers.

  28  It was the respondent's contention that this conclusion is not merely compatible with, but positively supported by, the decision of the Court of Appeal in both the Charge Card Services case and in another case involving charge cards, that of Customs and Excise Commissioners v Diners Club Ltd.[6] It was in the second of these that held, where a card was accepted by a retailer, not only was the liability of the card holder to the retailer extinguished, but so also was the debt created by the use of the card. A proper understanding of the underlying contractual scheme led inexorably to that result.

  29  The appellant also relied upon a proper understanding of that scheme. It, however, contended that such an understanding led in a quite different direction. The appellant concentrated on whether, given the operation of the scheme, there was any liability upon which s 5 of the Financial Institutions Duty Act 1982 (Vic) could operate. It submitted that, if the card holder on presenting the card and signing the appropriate voucher discharges his or her obligation to the supplier, then there remains no further liability for the card company to satisfy. In paying the supplier, the card company is doing no more and no less then its contract with the merchant requires. It is not satisfying on behalf of the card holder liabilities of the card holder (the "other person" in s 5(b) of the Financial Institutions Duty Act 1982 (Vic)) to the merchant (the Financial Institutions Duty Act 1982 (Vic)'s "third person"). Those liabilities have already been discharged. It follows that one of the elements of a continuing credit contract - that is, the satisfaction by one person of the liabilities owed by a second person (the card holder) to a third (the merchant) - never materialises at any relevant time; and, depending on the nature of the transaction, the card holder may never be indebted to the merchant at all. Transactions involving the use, by the appellant's card holders, of the appellant's card, are therefore not such transactions as result in receipts that are, in the terms of s 18(3)(l), payments of amounts owing under a continuing credit contract.

  30  The respondent's answer to these submissions is that they depend for their validity upon the correctness of a technical analysis which, whatever its superficial attraction, does not adequately address the real issue. That, the argument continues, is what matters. It is not to the point that, when later the agreement is given effect, the operation of the underlying contractual scheme has the result that the card holder's liability is discharged before the card company is required to pay the retailer. Whatever the result of a separate analysis of the individual contracts which together constituted the underlying structure of the tripartite relationship, the reality is that the appellant assumed liability for the payment to the retailer of the "money consideration called the price"[7] without which the retailer would otherwise not have entered into the transaction. The fact that the underlying contractual scheme works itself out in a way which, on analysis of a particular element of that scheme, leaves the appellant with no card holder's liability to satisfy, does not have the result that the nature or intent of the antecedent agreement is changed.

  31  The respondent further submitted that the very complexity of the underlying contractual scheme is such that the problems presented by it must be resolved by adopting the approach of Ralf Gibson J in Customs and Excise Commissioners v Pippa-Dee Parties Ltd.[8] In a passage from his judgment[9] which was applied by Woolf LJ in the Diners Club case Ralf Gibson J said:

   

It is clear therefore that a technical analysis of one part of a transaction, or of one set of obligations within a contract, even though accurate in legal principle, which is capable of explaining the service supplied, or the consideration given, in a restricted way, is not necessarily the right answer in law to the application of the provisions of this statute. I accept counsel for the Crown's submission that this approach does indicate that taxable transactions should not be artificially dissected so as to demonstrate as being the service provided, or the consideration given, something other or less than that which appears to have been the service provided or consideration given upon examination of the entire transaction. The meaning of "entire transaction" for this purpose must be objectively determined upon the facts of the transaction by reference to the terms agreed.

  32  The Diners Club case was another in which it was necessary to analyse the contractual relationship which underlies transactions in which a charge card of the kind issued by the appellant is used. In carrying out this analysis, the Court of Appeal adopted the reasoning of the Vice-Chancellor in the Charge Card Services case. The question was whether, for the purposes of English value added tax, the card company "made supplies" to retailers who had agreed to accept its card, or whether the relationship was properly described as a factoring arrangement by which the card company simply bought the rights of the retailers to receive cash payments for goods and services supplied to card holders.

  33  The Court of Appeal accepted the former of the 2 alternatives. By its credit card operations, Diners Club not only provides "a means by which the retailer can increase his business by holding himself out as being prepared to accept" the Diners Club card, but also "confers on the retailer … the service of providing the payment which is assured by the credit card company."[10] Hence Diners Club "made supplies" to the merchants who accepted its card; and so (the respondent argued, in effect) the service is one without which the retailer would not be prepared to accept the tender of the appellant's card as consideration for the card holder's purchase.

  34  I respectfully accept the Court of Appeal's analysis. It also, in my respectful opinion, holds good for this case. It is nevertheless proper, I think, that my focus should be somewhat different. Here, the relevant focus, it seems to me, must be on the agreement between the card company and the card holder. The terms of s 5 of the Financial Institutions Duty Act 1982 (Vic) dictate that conclusion.

  35  Seen in this light, the question is whether the relevant contract falls within the terms of that provision. If it does not, it is irrelevant that the operation of the underlying scheme creates a situation in which in one - loose - sense it is accurate to say that the appellant picks up the liabilities of its card holders. If it does, it equally matters not that the contractual purpose is effected by bringing into play other arrangements the result of which is the discharge (before the card company's obligation to pay is, in accordance with the agreement between the retailer and the card company, crystallised) of the card holder's liability to the retailer.

  36  Seen in this light, too, it may be that the issue is a little more straightforward than might appear from the appellant's written outline of submissions. It is there argued that the tribunal should have followed the reasoning in each of the 2 English cases to which I have referred. According to the submissions, the tribunal should also have found:

   

… that the legal effect of the particular contractual scheme, properly construed, was that:

 (1)  [the appellant] did not satisfy on behalf of card members liabilities of that card member to a third person in respect of payment for goods and services or cash supplied by that person to the card member from time to time;
 (2)  the card member assumed direct liability to [the appellant] when the card member used their charge card, to the exclusion of liability to the merchant from whom the card member acquired the goods or services;
 (3)  no 'credit' within the statutory meaning of that word was provided by [the appellant] to the card member in respect of payment by the card member of amounts owing from time to time to [the appellant] in respect of the satisfaction by [the appellant] of those liabilities on behalf of the card member.

  37  I agree that, when the appellant comes to pay the merchants with whom it has a contractual relationship, there remains no relevant undischarged liability between the card holders for whose purchases the payments are being made and the merchant; but (as the respondent would contend) one can recognise this while at the same time concluding that the satisfaction of that liability was precisely what the antecedent contract between the appellant and card holder was intended to effect.

  38  I also agree that card holders assume direct liability to the appellant when they use their charge card; and this is to the exclusion of their liability to the merchant. Again, however, it does not follow (so the respondent submits) that the contract between the appellant and the card holder was not one the intent of which was that the appellant would satisfy on behalf of the card holder liabilities of that card holder to merchants from whom the card holder had acquired goods or services.

  39  Granted the above, it is also, I think, appropriate at this point to repeat that all this may be making the reasoning process more complicated than it should be. At the core of the case is the proper limits of the operation of s 5 of the Financial Institutions Duty Act 1982 (Vic). That legislation provides that a continuing credit contract comes into being when a person (the appellant) agrees with another person (the card holder) to satisfy the liabilities of the card holder to a third person (the retailer) in respect of payment for goods and services. But, as counsel for the appellant pointed out, an examination of the terms of the appellant's contract with its card holders shows that nowhere does the appellant agree to satisfy any liabilities of anyone. The underlying intent may be plain. The realisation of that intent may be an accomplished fact. These considerations, however, cannot bring under the umbrella of s 5 a contract which does not on its proper construction fall within it.

  40  It might be thought that the necessary term should be implied. I do not think that it can. The appellant would say, in my view rightly, that it is no business of the card holder whether or not the retailer is paid. As the English cases have established, card holders are discharged of their obligation to the retailer when they sign the relevant voucher. What happens thereafter is no concern of theirs. Not only that, but it is plain as plain could be that the underlying contractual scheme works perfectly well without the need for any implied terms. Accordingly, no term of the kind which the respondent might wish to imply is necessary to give business efficacy to the contract between the appellant and its card holders. In any case - as the appellant would doubtless contend - it would be wrong for it to make a promise to its card holders which is not reflected in, or might conflict with, the contract between it and its retailers. A retailer is not entitled to be paid, and the appellant is not obliged to pay the retailer, simply because that retailer has concluded with a card holder a transaction in which the card has been used.

  41  In my opinion, at least the first of these contentions is applicable here. No implied term sufficient to bring it within s 5 is necessary to give business efficacy to the contract between the appellant and its card holders. Accordingly, the tribunal was in my opinion wrong to hold that that contract is a continuing credit contract.

  42  I should before leaving this issue deal briefly with one remaining point. It might be argued that in many transactions of the kind commonly entered into by use of its card, the card holder is never under any liability to anyone. So, for example, when the card holder takes an intended purchase to the counter and hands it with the card to the shopkeeper who accepts it and produces an appropriate voucher which the card holder signs, no liability arises because the card holder is never indebted to the shopkeeper.

  43  One may concede that in the circumstances postulated the card holder is never so indebted. Otherwise, however, this argument is unattractive. "Liability" in the present context means simply the liability of each contracting party to provide good consideration.

  44  I now turn to the cross-appeal. The respondent submits that the tribunal erred in finding that the amounts received were not repayments of the whole or any part of the amount financed under a credit contract. It follows that those amounts do not fall within the first exception to the principal exception in s 18(3)(l) of the Financial Institutions Duty Act 1982 (Vic).

  45  Given the correctness of my conclusion that payments are not made by card holders pursuant to a continuing credit contract with the appellant, it is of course true that the appellant's receipts would only be taxable if they are properly categorised as falling within the first (that is, the "credit contract") exception to the principal exception: namely, as being repayments of the whole or any part of the amount financed under a credit sale, a loan, or a continuing credit contract. Ex hypothesi they are not repayments of amounts financed under the last of these; and it is not suggested that they are repayments of amounts financed under a credit sale. A loan therefore remains as the only possibility. The respondent contends that the appellant did lend to its card holders. The appellant asserts that it did not.

  46  The word "loan" as defined in the Financial Institutions Duty Act 1982 (Vic) is discussed in paras 14 and 15 above. According to the appellant, the only part of that definition which could possibly be relevant, and in truth it is not relevant anyway, is to be found in para (d): "loan" means "a contract for the provision of credit to another person…by deferring the obligation of that other person to pay an amount to him". But the obligation to pay does not arise until the card holder receives the relevant monthly statement. This is the effect of cl 9 of the agreement between the appellant and its card holders. By that clause, "receipt" occurs when the account is actually received; but, in the absence of that, is deemed to occur on the seventh day following dispatch. Immediate payment is then required.

  47  I accept these submissions. The appellant, however, goes on to argue that the contracts between the appellant and its card holders do not allow for any deferment of the card holders' obligation to pay. Moreover, such payment cannot be a repayment. In any event, what constitutes a repayment in the circumstances of this case is a question of fact to be determined by the tribunal. It has made its determination, and that is that.

  48  I do not accept this conclusion. It is true that, by cl 9 of the terms of the contract between the appellant and its card holders, all charges are due and payable immediately upon receipt of the monthly account. In contra-distinction to this, however, card holders are not in default unless they fail to pay before the next monthly statement is made up: cl 12.[11] In my opinion, the effect of the 2 clauses when read together is that, while the obligation to pay is immediate, no breach occurs if payment is deferred to a date not later than the day before the next monthly statement is prepared. In the words of cl 12, "[i]f you do not pay your account in full by the date on which your next monthly statement is made up you are in default". This, in my opinion, is the same as saying that the card holder is not in default, and has therefore committed no breach, if he or she, while not making immediate payment, clears each account before the next is made up. In other words, the agreement provides for an immediate obligation to pay, but that obligation is then deferred by the provision of credit for a period of weeks. This seems to me to fall squarely within the Financial Institutions Duty Act 1982 (Vic)'s definition of a "loan". It is no answer, in my opinion, that the obligation and the deferral are to be found in the same document.

  49  The next question is whether the word "repayment" can properly apply to the payment of a monthly account. It can, it seems to me, if by the time payment is made the appellant has already paid the merchant. Under cl 7 of the terms and conditions of the contract between the appellant and the merchants who agree to accept the appellant's card, 3 payment plans are offered. All if implemented would regularly see the merchant paid before the complementary payment is received by the appellant from the card holder. Against this background, the use of the word "repayment" is apt.

  50  I do not agree that we are here dealing with a question of fact. It is at least one of mixed fact and law. In addition, I take into account what seems to me to be plain: that the Financial Institutions Duty Act 1982 (Vic) uses both the word "payment" and the word "repayment" without any nice concern for the distinction between them. I should not show concern where Parliament has not.

  51  I am also of the opinion that, as a matter of its general business practice, the appellant provides credit to its card holders by paying amounts to or in accordance with their instructions. But it is not contractually bound to do so. The fact that it would be commercially suicidal to refuse to pay otherwise than in exceptional circumstances is not to the point. What matters is that the card holders' contracts contain nothing to bring them within para (a) of the statutory definition of the word "loan."

  52  By its notice of contention and cross-appeal, the respondent also sought:

   

leave to appeal from that part of the judgment of the … Tribunal that orders that the assessment under reference be varied by reducing the penalty of $101,222.89 [sic], which had been assessed at a rate of 15%, to an amount found by applying a rate of 7.5% and by reducing the amount of interest charged to an amount by applying the market rate as referred to in revenue ruling TAA.003 on the relevant amounts for the relevant period. The grounds on which the respondent relies are:

 (a)  The learned member erred in that he failed to exercise, properly or at all, the discretion given by s 28 of the Taxation Administration Act 1997 (Vic) to remit the amount of interest payable by the appellant.
 (b)  The learned member erred in striking an interest rate composed only of the market rate on the relevant amounts for the relevant period.
 (c)  On a proper exercise of the discretion given by s 28, the learned member should have affirmed the amount of interest assessed.
 (d)  On a proper exercise of the discretion, the learned member should have had regard to the requirements of s 25 of the Taxation Administration Act 1997 (Vic).
 (e)  The learned member erred in that he failed to exercise, properly or at all, the separate discretion given by s 35 of the Taxation Administration Act 1997 (Vic) to remit penalty tax by any amount.
 (f)  On a proper exercise of the discretion, the learned member should have affirmed the amount of penalty tax assessed.
 (g)  On a proper exercise of the discretion, the learned member should have had regard to the provisions of s 30 of the Taxation Administration Act 1997 (Vic).
 (h)  On a proper exercise of the discretion, the learned member should have taken into account that the respondent had already remitted the amount of penalty tax from 25% of the amount of tax unpaid (as required by s 30) to 15% of the amount of tax unpaid.
 (i)  The learned member erred in construing the powers to remit given by s 28 and 35 of the Taxation Administration Act 1997 (Vic) as a power to reduce.

  53  The relevant portion of the tribunal's judgment reads as follows:

   

There was a short, but focussed, discussion on the issues of penalty and interest. There was some controversy over the issue of whether or not there had been a voluntary disclosure. But what is clear is that the law is unclear … It is apparent … that the position of the Commissioner has had to be reformulated, and more than once. On the one hand, it was clear enough that something more than recovering the cost of money was involved in the assessment of interest. On the other hand, it is clear that the taxpayer has been put to a lot of trouble and expense in respect of this objection anyway, which is a factor that must influence its future conduct. In all of the circumstances, I think that rough justice would be done by reducing the penalty of $101,222.89, which has been assessed at a rate of 15%, to an amount found by applying a rate of 7.5% and by reducing the amount of interest charged to an amount assessed by applying the market rate as referred to in revenue ruling TAA.003 on the relevant amounts for the relevant period.

  54  Division 1 of Pt 5 of the Taxation Administration Act 1997 (Vic) is headed "Interest". It provides, by s 24(1), that if a tax default occurs, the taxpayer is liable to pay interest on the amount of tax unpaid. The relevant interest rate is, by s 25, the sum of the market rate and the premium rate. The latter is 8% per annum. The former is either the rate specified for the time being by order of the Minister or the rate set pursuant to s 204A of the Income Tax Assessment Act 1936 (Cth) (the ITAA 1936). By s 28, however, the respondent, in such circumstances as he or she considers appropriate, may remit (by any amount) interest otherwise payable.

  55  The expression "tax default" is defined in s 3 of the Taxation Administration Act 1997 (Vic). It means "a failure by a taxpayer to pay, in accordance with a taxation law, the whole or part of tax that the taxpayer is liable to pay". The Financial Institutions Duty Act 1982 (Vic) is for this purpose a taxation law.[12]

  56  Penalty tax is the subject of Div 2 of Pt 5 of the Taxation Administration Act 1997 (Vic). It provides, by s 29, that a defaulting taxpayer is liable to pay penalty tax in addition to both the amount of tax unpaid and any interest. By s 30, the amount of penalty tax is 25% of the amount of tax unpaid, although the respondent may increase the rate to 75% if he or she is satisfied that the tax default was caused wholly or partly by the intentional disregard by the taxpayer of a taxation law. Likewise, the respondent may in such circumstances as he or she considers appropriate, remit penalty tax by any amount: s 35. I shall return to these provisions.

  57  It was common ground before me that the power to remit interest or penalty tax is confined only by the matter, scope and purpose of the relevant taxation law. It was also common ground that, in exercising its review jurisdiction in respect of a decision of the respondent, the tribunal has all the functions of the decision maker.[13]

  58  My position is somewhat different. To the extent that the tribunal's decision involves matters of fact and degree, and in the absence of any incorrect application of the law, no appeal will lie.[14] Put another way, I cannot interfere with the exercise of a discretion unless that exercise is vitiated by an error of law. I have no power to make a judgment about the merits of the decision itself, because the legislature has reserved that power to the respondent or, in the case of an appeal, to the tribunal.

  59  The respondent submits, and I accept, that the relevant discretions must be exercised so as to advance the purpose of the Taxation Administration Act 1997 (Vic). That purpose is expressed in s 1 as being "to make general provision for the administration and enforcement of taxation laws". The respondent also submits, however, that in making its decision on penalty and interest, the tribunal had regard to matters unrelated to such administration and enforcement. It (wrongly, as the respondent submits) took into account the law's lack of clarity, the appellant's trouble and expense and notions of "rough justice".

  60  In my opinion, no independent complaint can properly be made about the last of these heads. The exercise of a discretion as wide as that under consideration here will necessarily, on occasion at least, result in a determination that cannot be the subject of precise calculation. So long as the discretion is otherwise exercised in accordance with law, it will therefore not be vitiated simply because it incorporates an element of that which the tribunal described as "rough justice".

  61  Some guidance of particular relevance in the present circumstances is, it seems to me, given by s 31 of the Taxation Administration Act 1997 (Vic). It provides that, where the taxpayer - before an investigation by the respondent is carried out - discloses sufficient information to enable the nature and extent of a tax default by that taxpayer to be determined, the amount of penalty tax "is to be reduced" by a fixed percentage: 80% if the information is disclosed before the taxpayer is told that an investigation is to be carried out;[15] 20% if the information is disclosed after news of the investigation has broken.[16]

  62  It is significant, it seems to me, that these reductions are to be made even if the tax default was deliberate. At this point in the exercise, the respondent has no discretion; the reduction cannot be less than the percentage specified. But, since the respondent may "remit penalty tax by any amount" pursuant to s 35, he or she could if the default was innocent impose penalty tax of less than 20% and thus, in effect, increase the reduction. This discretion is mirrored by that conferred upon the Commissioner by s 30(2). He or she may "increase the amount of penalty tax payable in respect of a tax default to 75% of the tax of the amount of tax unpaid if the Commissioner is satisfied that the tax default was caused … by the intentional disregard by the taxpayer…of a taxation law". As far as I can tell, the legislation does not take into account the circumstance that an intentional default may be followed by disclosure before the respondent informs the taxpayer that an investigation is to be carried out. Perhaps the 80% reduction must follow regardless. But that is a matter for others to ponder.

  63  The respondent points to s 31(1) in support of a submission that the tribunal erred in remitting the penalty tax imposed on the appellant by an amount which equated to 30% of that which would have been payable had no reduction been allowed. This, the respondent submits, is obviously inappropriate. According to the respondent, the appellant put the respondent to considerable trouble and expense in endeavouring to calculate the amount of unpaid tax; and an appropriate allowance has already been made for (a) its co-operation in other respects; and (b) the inconvenience occasioned to it by the respondent's re-assessment of the appellant's primary tax. It follows, the respondent contends, that a remission of as much as 70% of the penalty tax is so extreme as to indicate that an error in the exercise of the discretion must have occurred.

  64  While there is, I think, some force in these submissions, they are in the end unpersuasive. It is for the tribunal, and not for me, to evaluate the rights and wrongs of the positions taken by the parties in the pre-litigation stage. While I agree that the decision on penalty tax should not be influenced by the fact that no costs can be awarded in proceedings before the tribunal, I cannot be sure that the tribunal was so influenced. And while I also accept that ss 30 and 31 do provide guidance to which in the appropriate circumstances the respondent or the tribunal (as the case may be) should have regard, I can see no obvious failure on the part of the tribunal on this point. This, after all, is a case in which the taxpayer has failed to pay tax the liability for which is in genuine dispute. There is no suggestion that the appellant intentionally disregarded an acknowledged or undoubted liability.

  65  Given that I cannot interfere with the exercise by the tribunal of its discretion in relation to penalty tax, nor can I interfere in relation to interest.

  66  In the circumstances, I have come to the same ultimate conclusion as the tribunal, but for very different reasons. The appeal must be dismissed. The cross-appeal is upheld in part and dismissed as to the remainder.


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