Kearney v. Federal Commissioner of Taxation.
Judges:Tadgell J
Court:
Supreme Court of Victoria
Tadgell J.
The first question for decision upon these two appeals is whether a deduction by way of investment allowance was available under Subdiv. B of Div. 3 of Pt. III of the Income Tax Assessment Act 1936. The item of property for which the deduction was claimed by the taxpayer and disallowed by the Commissioner is a steel-hulled catamaran-type boat designed to carry some 100 passengers. It was acquired new by a partnership conducted by
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the taxpayer and his wife under a contract entered into during the 1978 calendar year and was first used before 1 July 1979. It is accordingly common ground that the vessel was a unit of eligible property in terms of Subdiv. B unless excluded by the terms of sec. 82AF(2)(f)(i). That provision declares that the Subdivision does not apply in relation to -``(f) plant or articles... for use in, or primarily and principally in connexion with -
- (i) amusement or recreation;''
The Commissioner disallowed the claim on the footing that sec. 82AF(2)(f)(i) precluded it and a Board of Review upheld the disallowance on that ground. If the decision was correct that is an end of it and these appeals must fail. If, however, sec. 82AF(2)(f)(i) does not preclude the claim, a second question arises. That concerns the time of the making of the contract under which the partnership acquired the vessel. The effect of sec. 82AB of the Act (the full terms of which I need not set out) is that if the vessel was acquired under a contract entered into before 1 July 1978 the allowable deduction is equal to 40% of the capital cost whereas if it was acquired under a contract entered into on or after 1 July 1978 the allowable deduction is equal to 20% of the capital cost.
I turn to the first question. The craft the subject of the claim was described on the front cover of the builder's specification as an ``18 metre catamaran tourist vessel''. More particularly, in the specification proper, it was provided that ``the vessel is to be capable of operating as a ferry or as a tourist vessel'' and that it was to be ``a twin-hulled (catamaran) high speed ferry constructed with welded steel hulls. A welded aluminium superstructure will be fitted containing passenger cabin, toilets, wheel-house etc. Passenger capacity will be about 100 dependent on final measurement by the survey authority. The vessel will be propelled by two high speed diesels. The vessel will be able to achieve a speed of about 25 knots fully loaded.''
The craft, the ``James Kelly'', was unquestionably sought and acquired by the partnership for the purpose of being used in the course of the partnership business, which was described in its relevant income tax returns as ``charter boat operators''. The partnership, the name of which is ``Scenic Gordon and Hells Gates Charters'', carries on business at Strahan in western Tasmania. The business involves as its principal activity taking parties of people by boat from Strahan into Macquarie Harbour and thence along the Gordon River to a place called Marble Cliffs, which is reached shortly before the Gordon River joins the Franklin River. The journey then proceeds back along the Gordon into Macquarie Harbour to Hells Gates, the narrow promontories guarding the harbour from the Southern Ocean, and back to Strahan. The area is noted for its rugged scenic beauty and it may be assumed that therein lies much of its attraction to those who undertake a cruise of the kind the partnership offers.
The taxpayer, who is now aged in his early forties, has operated vessels in and around Macquarie Harbour for the greater part of his working life and is a qualified mariner. He and his wife, rather younger than he, began their business in 1977, with himself as skipper, while she looked after bookings, clerical work, catering and the like as one of the crew of three. At first they used a steel mono-hulled ferry called the ``Matthew Brady'' which they leased from a company called Sullivan's Cove Ferry Company Pty. Ltd., of Hobart. That company's business merits a short excursus. It was, before 1975, operating a ferry service on the Derwent River, from Hobart on one side to Bellerive on the other, and in adjacent waters. Following the accidental destruction of the Derwent River bridge in January 1975 a greater call for ferry services arose and the company operated the ``Matthew Brady'' and three or four other passenger ferries 24 hours a day to supply the demand. Two of these the company hurriedly built for the purpose, so it acquired a measure of expertise in the design and construction, as well as the operation, of vessels of that kind. According to the evidence, the company carried some nine or ten million people in these craft during the period it operated over six or seven years until about 1978. Anticipating a drop in demand for ferry services after the reconstruction of the bridge, the company set about building a further vessel of a more comfortable and sophisticated kind than those previously in use. The object was to entice some, at least, of the commuters who had become used to water travel while the bridge had been down to remain loyal to the ferry service after the bridge's restoration. Shortly before the bridge's was re-opened in 1977 the new ferry was completed. The vessel, called the
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``Jeremiah Ryan'', was described in evidence by Mr. R.F. Clifford, the managing director of the company, as ``a catamaran, steel hulled, built with the purpose of carrying passengers across the Derwent, in a higher standard than had previously been done, higher speed, better seating and generally an upgraded ferry service''. He said, ``... We did hope that we would be able to retain as many passengers as possible on the ferry service, and not lose them to the roads. However, in the long term, that was unsuccessful, but the boat itself proved to be very successful''. Like the earlier ferries it was designed to replace, the ``Jeremiah Ryan'' was essentially a passenger-carrying craft and, like them, it contained facilities for providing light refreshments, including a small bar.The ``Jeremiah Ryan'' was operated as a commuter ferry on the Derwent for some little time before the bridge was re-opened and after that for some six months. It then went into service as a ferry operating from Townsville to Magnetic Island, then in the Port of Brisbane and later between Stoney Point and Cowes, in Westernport Bay. Mr. Clifford said in his evidence that when it was built he considered it as a prototype for the future development of a class of vessels. His expectation or hope has been borne out, for there are now over thirty of the class in operation in various parts of the world as passenger or light cargo carriers.
The taxpayer actually worked on the construction of the ``Jeremiah Ryan'' and knew it well by the time it was completed in mid-1977. Not long after the ``Jeremiah Ryan'' went into service, the bridge having been re-opened, the ``Matthew Brady'' became redundant to the Sullivan's Cove company and the taxpayer leased it for use in his business operating out of Strahan. It cruised at about 10 knots and the trip he offered, as I have briefly described it, took the best part of a day at that speed. While the taxpayer's venture, using the ``Matthew Brady'', was not unsuccessful in the first year of operation, he became keen by about the end of 1977 to acquire a better and faster vessel. He discussed with Mr. Clifford the prospect of having built for him by Sullivan's Cove Ferry Company Pty. Ltd. a vessel of which the ``Jeremiah Ryan'' was the prototype.
The taxpayer himself did not give evidence either before the Board of Review (the evidence before which was treated as evidence before me) or on these appeals. His wife and Mr. Clifford, however, did give evidence before the Board and Mr. Clifford gave further evidence in this Court. Between them they described the nature of the discussions which the taxpayer had had with Mr. Clifford. There were two aspects to the discussions, which continued over a period of six months or more. One concerned the nature of the vessel to be built and the other concerned the payment of its cost. I can concentrate for the moment on the former. It was a cardinal requirement of the taxpayer's that he should have a craft capable of accomplishing two cruises outward from Strahan and back within a day. That consideration made a vessel like the ``Jeremiah Ryan'' attractive to him. He also wanted a reasonably sophisticated and comfortable vessel affording good opportunities for the taking of photographs. A twin-hulled vessel was something of a novelty for the kind of operation he conducted but his hope was that it would be appealing to people minded to take the Macquarie Harbour cruise. A vessel capable of sustaining 25 knots could accomplish the journey in about three and three-quarter hours and was expected to appeal to many who might not care to spend the whole day at it. Furthermore, two cruises a day would increase the turnover.
The ``James Kelly'' was completed in June 1979 by a company in which Mr. Clifford is a guiding influence and to which the building contract with the partnership was assigned by Sullivan's Cove Ferry Company Pty. Ltd. The construction was done under the personal supervision of Mr. Clifford. According to his evidence the craft was designed as a passenger-carrying vessel modelled on and essentially the same in every respect as the ``Jeremiah Ryan''. The hulls were unchanged from those of the prototype but the after beam of the ``James Kelly'' was altered to lengthen the deck and improve appearance. The taxpayer wanted the vessel specifically for use in his business and, since it was built to his order, it was in that sense ``specially designed and built for cruising on the Macquarie Harbour and Gordon River'', as his advertising brochure asserts. According to Mr. Clifford's evidence, however, while he well knew that the vessel was to be used on Macquarie Harbour and the Gordon River, it was not specifically designed for that purpose. Like the ``Jeremiah Ryan'' on which it was modelled, the ``James Kelly'' was designed to ply as a passenger-carrying vessel within harbour limits and similar sheltered waters. It
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can be used in any harbour or sheltered waterway in Australia - for example Port Phillip Bay - subject to compliance with the relevant State survey requirements.Mr. Clifford said that the design of the ``James Kelly'' is essentially indistinguishable from that of the ``Jeremiah Ryan'' and that the former had been in no way adapted to carrying sightseers any more than the prototype had been. The ``James Kelly'' has an open top deck (which would accommodate sightseers) whereas the ``Jeremiah Ryan'' did not, but most of the other ferries built by Mr. Clifford's organisation did have the same kind of open deck. The ``James Kelly'' also had specially strengthened bollards so that it could tow barges if necessary. This feature was provided at the taxpayer's request because he had hoped to pick up some work of that kind as a result of the hydro-electric development on the Gordon River. The seats in the ``James Kelly'' are of the same kind as those that were used in the ``Jeremiah Ryan'' and the ``Matthew Brady''. There is a small bar on the ``James Kelly'' of the same general size and kind as that on the ``Jeremiah Ryan'' although, whereas the bar on the ``Jeremiah Ryan'' was astern, the bar on the ``James Kelly'' is forward, as it had been on the ``Matthew Brady''. There were other minor differences in the superstructure of the ``James Kelly'' when compared with that of the ``Jeremiah Ryan''. The engines installed in the ``James Kelly'' were as specified by the taxpayer because he preferred one make over another, and the exhausts were placed with a view to minimising noise. All these features, however, seem to have involved little if anything more than matters of taste or other individual preference. According to the evidence they did not distinguish the two vessels in their essential characteristics.
The evidence shows, I think, that the ``James Kelly'' is properly and appropriately described as a passenger-carrying vessel and that it is equally well adapted to the carriage of the general public on rivers and harbours for any purpose for which passengers might want to travel aboard it, whether for amusement or recreation or otherwise. I may say that Mr. Clifford observed in his evidence that, when he built the ``Jeremiah Ryan'' as a prototype, he had particularly in mind the prospect that the design might be suited for ferries in general use on Sydney Harbour. Indeed, it seems right to conclude that the vessel is suitable for general use of that kind. There was no evidence called for the Commissioner to suggest that the design was not appropriate for general purpose passenger ferries and there was, of course, evidence that ``Ryan class'' vessels are in use in that capacity.
The question, then, is whether the ``James Kelly'', having the characteristics I have described, and having been built and bought by the taxpayer for, and used in, his business of a charter boat operator, was a vessel ``for use in, or primarily and principally in connexion with... amusement or recreation''. In deciding this question against the taxpayer, the Board of Review appears to have been much influenced by the considerations that his partnership business is directed to catering for what is called the tourist trade or industry and that the vessel was purchased with a view to carrying tourists as passengers. These facts are indubitable. They are reinforced by the further fact that, following the taxpayer's application, the Tasmanian Department of Tourism provided a guarantee of a bank loan of almost half the cost of the vessel. The partnership needed the loan to pay for the vessel; and the bank would only provide it if the Tasmanian Government guaranteed repayment; and the guarantee was given on the footing that the vessel would be Tasmanian-made. According to the evidence of the taxpayer's wife the ``James Kelly'':
``... was solely built for passengers. That was the only reason we got the tourism loan, that it was for the Gordon River; that was stipulated. We could not use it anywhere else. It had to be used on the Gordon River.''
The Board of Review in its reasons referred to that piece of evidence and relied on it for its conclusion. It seems, however, not to be entirely accurate. At another stage of her evidence Mrs. Kearney said, ``... the vessel was built to be used in Hobart'' and in fact it was used on the Derwent River before being taken to Strahan. Moreover, the documents in evidence relating to the basis on which the Department of Tourism's guarantee was given do not suggest that the vessel could not be used elsewhere than on the Gordon River. Even so, it is perfectly clear that the taxpayer and his wife wanted to attract tourists to take their cruise and it may be safely assumed that, after the boat had been taken to Strahan, they did so.
There is an underlying but unexpressed assumption in the reasoning of the Board of
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Review that a tourist is to be equated with a person who is bent on amusement or recreation. No doubt the assumption is substantially, if not universally, justified. But not all tourists are on pleasure bent, as the dictionary definitions of ``tourist'', ``tourism'' and ``tour'' and one's general experience confirm.In
W. Smith v. F.C. of T. 82 ATC 4240 the Full Court of the Federal Court decided that para. (f) of subsec. (2) of sec. 82AF of the Act does not by its terms introduce any notion of use by a particular person. It is concerned with the nature of the articles it seeks to describe and not with the identity of their users. It follows that, if the ``James Kelly'' is not of its nature a vessel for use in or primarily and principally in connection with amusement or recreation, the use to which it was put or intended to be put, whether by the taxpayer or its passengers, will not alter its classification for the purpose of the subsection. The Federal Court applied and explained Smith's case in
Hamilton Island Enterprises Pty. Ltd. v. F.C. of T. 82 ATC 4302 at p. 4305, saying that the former decision:
``... should not be read as indicating that the use to which the relevant item of personal property is put will necessarily be irrelevant for the purpose of determining whether, for the purposes of sec. 82AF(2)(f)(i), the item answers the description `plant or articles for use in, or primarily and principally in connection with, amusement or recreation'. It may, in a particular case, be common ground that the use to which the relevant item is put corresponds with the use which it is of its character to serve. In such a case, the examination of the actual use of the item could well be decisive of the question whether it was or was not of a designated character. Quite apart from such cases, the use to which an item is actually put will ordinarily be illustrative of at least some aspects of its character.''
In this case it was argued for the Commissioner that the ``James Kelly'' was built to order for the taxpayer for his own special purpose; and that he and Mr. Clifford were more concerned with the operational use of the craft than with its functional character or purpose. The argument went on to say that to characterise it as a passenger-carrying vessel is to adopt a terminology that is too wide or imprecise; that it is more appropriately described as a passenger vessel adapted to tourism or excursions; and that it is on that account brought within the exception. I do not agree because, when I look for an essential or important feature of the character of the ``James Kelly'' which distinguishes it from a general purpose passenger vessel, I can find none which designates it as a vessel for use in or primarily and principally in connection with amusement or recreation.
The use which, according to the evidence, it is of the character of the ``James Kelly'' to serve is that of the carriage of passengers by water. Whether a definition of its character might be further narrowed or refined to that of a vessel for use in or primarily and principally in connection with amusement or recreation depends, perhaps, on matters of impression and degree. That it is ideally suited for use by the taxpayer in accommodating or providing for the amusement or recreation of others is, I think, not determinative of its character. Nor is it determinative of its character that it was acquired with those purposes in mind. A motor bus suitable for carrying 36 school children on a geography excursion does not become an article for use in amusement or recreation because its owner uses it, or intends to use it, to carry two schoolboy football teams for which it is also ideally suited. A shotgun or a rabbit trap do not become articles for use in amusement or recreation because a farmer who buys them for use on his farm also lends or hires them to holiday makers, or even because when he bought them he had it in mind to do so. On the other hand, a merry-go-round would not, I should think, fail to answer the description of an item for use in amusement or recreation because its owner, a fair-ground proprietor, became exceedingly bored in operating it in the course of earning his living.
The evidence does not in my opinion sustain a conclusion that the ``James Kelly'' is of a character designated by the subsection, for it is not particularly adapted to serve that character; and I think it cannot be said to have been specifically constructed for amusement or recreation. The fact that it was purchased by the taxpayer and his wife with a view to catering for tourists or excursions does not fix or alter its character. I am therefore of opinion that sec. 82AF(2)(f)(i) does not apply to exclude it as an item of property eligible for the investment allowance.
I turn to the second question. This is simply whether the contract under which the vessel was
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acquired was made before 1 July 1978 or whether it was not. It is, as I say, common ground that the contract was made at some time during the 1978 calendar year and, although it was not necessary for the Board to decide the point, it upheld the Commissioner's submission that the contract was made after 30 June.I have already referred in part to the discussions between the taxpayer and Mr. Clifford which led to the construction of the ``James Kelly''. These began in earnest, it seems, towards the end of 1977 or early in 1978. The taxpayer used intermittently to come down to Hobart from Strahan and together the two spent many hours going in fine detail through the taxpayer's requirements. As well as discussing the physical nature of the vessel they dwelt on money matters. A boat such as the taxpayer wanted was on any view going to cost well over $200,000 and it was obvious that he and his wife did not have anything like that sum. Their personal assets were said to have been ``virtually negligible''. They needed a loan from a third party and a government guarantee of repayment was required before that would be forthcoming. In addition, it was mooted in discussion between the taxpayer and Mr. Clifford that the builder would provide finance of $50,000 on the security of the boat itself. It was envisaged that progress payments should be made in stages during the planning and construction so that all but $50,000 of the price would have been paid upon completion, with the remainder to be paid over a period thereafter.
The discussions between the taxpayer and Mr. Clifford continued, it seems, throughout most of the first half of 1978. During that period, however, the taxpayer did not confine himself to considering whether the boat he might acquire should necessarily be one like the prototype, the ``Jeremiah Ryan''. He considered at least one other craft, a so-called ``Hydro-flite'' mono-hulled vessel, which would carry some 90 passengers at a speed of 30 knots, but would be somewhat more expensive to acquire than a Ryan class vessel. As late as 7 June 1978 the taxpayer's accountants made a submission on behalf of the partnership to the Tasmanian Director of Tourism in support of an application for a government loan of $290,000 towards the cost of acquisition of a Hydro-flite. It is evident from this submission that the taxpayer regarded the expectation of the benefit of the investment allowance of 40% of the capital cost as an important factor affecting his ability to repay the loan. The submission included this statement:
``Should the Hydro-flite be acquired the building time required would allow delivery in time for fitting out in time for the next tourist season and permit benefit of the 40% investment allowance as a deduction from income tax provided the order is placed prior to the 30th June 1978 and operations commence prior to 1st July 1979.''
The sumission went on to say:
``... with the investment allowance on the Hydro-flite vessel no personal income tax will be payable for approximately two years, allowing the capacity for substantial capital repayments in this period.''
In the event, that application met with rejection by letter from the Director of Tourism dated 12 June 1978. One reason for the rejection apparently was that the Hydro-flite would not be Tasmanian-built. The taxpayer's concentration then devolved exclusively on a Ryan class vessel. He and his wife were in Hobart for seven to ten days before 30 June with a view to finalising their arrangements. Another submission to the Director of Tourism was prepared. As Mr. Clifford said, ``... we were frustrated at that stage by not having the final agreement from the Tourism Development Authority on funds being available...''. Towards the end of June Mr. Clifford, purporting to act on behalf of the Sullivan's Cove company, offered to construct the vessel he and the taxpayer had previously discussed subject, as Mr. Clifford said in his evidence, ``to the Tasmanian Government coming good with their loan funds''. He said:
``We expected the Tasmanian Government to back the venture by way of loan funds from the - I believe it was the Tourism Development Authority - and we hadn't received - or the Kearneys hadn't received - a reply from their application at that stage but they were expecting a reply in a day or two so, in my arrangement with them, I allowed them 30 days to finalise their loan arrangements.''
The taxpayer and Clifford discussed the kind of programme of progress payments that would be required. No finality on this was reached before 30 June but on 26 June the secretary of
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the Sullivan's Cove company sent a letter to the taxpayer's accountant outlining a financial arrangement that the company had made in the past with a purchaser of a Ryan class boat. This provided for a deposit of $1,000 on ``signing'', a series of progress payments during planning and construction and all but $50,000 being payable by the time of ``hand over'', following which the remainder was payable over two years.According to Mr. Clifford's evidence the substance of his offer to the taxpayer was to construct the vessel for $285,000, payable progressively by instalments, and the offer included the proposal that $50,000 should be ``left in'' by the manufacturer, to be secured by a mortgage over the completed vessel. This evidence appears to be confirmed by the terms of the second submission made by the taxpayer's accountant on behalf of the partnership, which was sent to the Director of Tourism under cover of a letter dated 27 June 1978. The submission indicated that ``a Tasmanian company can provide a vessel at $285,000 carrying 140 passengers. The vessel is considered most suitable and purchase of a locally made vessel will assist in the present unemployment situation''. The submission was in support of an application for a government guarantee for bank finance of $190,000 and said (in effect) that the taxpayer and his wife had the remaining $95,000 available - $45,000 of their own and $50,000 from another source, which was the builder. The submission repeated the content of the earlier one about the significance of the expected availability of the investment allowance and its relevance to the partnership's ability to amortise the bank loan. The covering letter also said:
``An order must be placed with the Sullivan Cove Ferry Company Ltd., prior to the 30th June, 1978 of [sic. `if'] the full forty per cent investment allowance is to be enjoyed.''
On 30 June 1978 the taxpayer went to his accountant's office and consulted him. The evidence indicates plainly enough that it was the concern of both of them to bring about on that date a contract for the construction of the vessel but to provide for a means of escape if the government guarantee were not later obtained. With these objectives the accountant then and there had typed on the taxpayer's letterhead two letters addressed to the secretary of the Sullivan's Cove company. The text of the first was:
``Enclosed herewith you will find our acceptance of your company's offer to construct a Ryan Class Catamaran vessel for us.
It is a term of that agreement that the whole agreement is subject to the condition precedent that on or before 31 July 1978 the Tasmanian Government agrees to enter into a guarantee, guaranteeing the repayment of a loan to be taken by us from a lending institution to enable the purchase advice [sic, `price'] to be paid.''
There was in fact nothing ``enclosed'' with the letter. It was evidently intended that it should itself constitute an acceptance. The text of the second letter was:
``We have enclosed herewith a cheque for one thousand dollars ($1,000) being deposit on one Ryan Class Catamaran.''
Both the letters and the cheque was delivered by hand to the secretary of the Sullivan's Cove company by the taxpayer's wife on that day, as she swore in her evidence, which was on that aspect of it unchallenged.
The Board of Review treated the first of these letters as introducing a new and basic condition into the negotiations relating to finance and therefore to amount not to an acceptance of the Sullivan's Cove company's offer but to a counter-offer. The Board held that, since the counter-offer was communicated to the Sullivan's Cove company on 30 June and not accepted before 1 July, there was no concluded contract by 30 June. What happened was that, having received the cheque for $1,000 as a deposit, the Sullivan's Cove company (or rather Mr. Clifford) immediately made arrangements to go ahead with the boat - ``within days'', as he said. Clifford swore in evidence that ``we were both very anxious to get on with the detailed plans of the vessel...''. As it happened, the Tasmanian Department of Tourism rejected the taxpayer's second application for a guarantee and none was obtained by 31 July, but a further application was successful later in the year after the builder had agreed to increase the amount to be ``left in'' from $50,000 to $100,000. A formal written agreement was signed between the Sullivan's Cove company and the taxpayer and his wife some time later in the year. Its date was
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later altered to read 29 June 1978. The explanation for the alteration, so far as there was an explanation, was not very satisfactory. It can be presumed that the alteration was made for the purpose of giving credence to the view that the relevant agreement had been made by 30 June. If the presumption is right the purpose was ill-served for, if no actual agreement by 30 June can be proved, the written agreement could not have overcome the lack of it. I therefore disregard the written agreement as irrelevant to any present issue.It is upon these facts that one must form an opinion whether the contract for the acquisition of the vessel by the taxpayer's partnership was made on 30 June 1978 or after that date. Matters of this kind are often finely balanced. As Lord Maugham observed in
G. Scammel & Nephew Ltd. v. H.C. & J.G. Ouston (1941) A.C. 251 at p. 255 [(1941) 1 All E.R. 14] in a celebrated passage:
``It is a regrettable fact that there are few, if any, topics on which there seems to be a greater difference of judicial opinion than those which relate to the question whether, as the result of informal letters or like documents a binding contract has been arrived at... The reason for these different conclusions is that laymen unassisted by persons with a legal training are not always accustomed to use words or phrases with a precise or definite meaning. In order constitute a valid contract, the parties must so express themselves that their meaning can be determined with a reasonable degree of certainty. It is plain that, unless this can be done, it would be impossible to hold that the contracting parties had the same intention. In other words, the consensus ad idem would be a matter of mere conjecture. This general rule, however, applies somewhat differently in different cases. In commercial documents connected with dealings in a trade with which the parties are perfectly familiar, the court is very willing, if satisfied that the parties thought that they had made a binding contract, to imply terms, and in particular, terms as to the method of carrying out the contract, which it would be impossible to supply in other kinds of contract: see
Hillas & Co. v. Arcos Ltd. (1932) 147 L.T. 503 at pp. 511, 512, 514.My Lords, it is beyond dispute that, if an alleged contract is partly verbal and partly in writing it is necessary to take the whole of the negotiations into consideration for the purpose of seeing whether the parties are truly agreed on all material points, for, if they are not, there is no binding contract. Nor is it right to construe a letter or other document forming a part of the negotiations in such a case without regard to the verbal statements which also form a part of them. To construe the language of such letter, so to speak, in vacuo might easily result in giving to the words, as used by the writer, a meaning which, in the circumstances of the case, he did not intend the words to bear, or one which the recipient of the letter did not attribute to them.''
Scammel's case itself provides a striking illustration of the way in which minds may differ about questions of this kind. In differing from the Board of Review, as I do, I am conscious of the narrowness of the line which divides their view of the facts from my own. At the same time, however, it is fair to notice that I had a somewhat fuller account from Mr. Clifford of the relevant discussions than the Board of Review received. I may say that the impressed me as a witness of truth. I did not derive any impression that he consciously strove to present a picture favourable to the taxpayer, although it was the taxpayer who called him as a witness. Nor, indeed, did counsel for the Commissioner submit that I ought to derive any such impression. The task of a Court in the circumstances, it has been said, is to construe a contract if there be one, without constructing it: G.H.L. Fridman, 76 L.Q.R. 523. The Courts' willingness, of which Lord Maugham spoke in the passage I have quoted, reflects a bias in favour of upholding contracts, which the parties believe themselves to have concluded, rather than negating, destroying or invalidating them on the grounds of a supposed uncertainty. This is especially true in commercial dealings in a trade with which both parties are familiar. The attitude has been forcibly stated and explained by Lord Wright in Hillas & Co. v. Arcos Ltd., supra, in these terms:
``Businessmen often record the most important agreements in crude and summary fashion; modes of expression sufficient and clear to them in the course of their business may appear to those unfamiliar with the business far from complete or precise. It is accordingly the duty of the court to construe
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such documents fairly and broadly, without being too astute or subtle in finding defects; but, on the contrary, the court should seek to apply the old maxim of English law, verba ita sunt intelligenda ut res magis valeat quam pereat.''
In this case it was manifestly the intention, and indeed the mutual desire, of the parties to make a contract by 30 June to the advantage of both. That the taxpayer had both a desire and a need to take such legitimate benefit as could be derived from the then existing taxation law is clear; and there should be no less incentive on the part of the Courts to assist the survival of an intention to contract than if this were not so. At the same time the Courts must be careful not to arrogate to themselves the task of making a contract for the parties from language which, in a vague, uncertain way, indicates no more than the possibility that there was present an intention or desire to contract: Fridman, loc. cit., 523.
Here, I think, the term expressed by the taxpayer in his letter of 30 June 1978 relating to provision of the Tasmanian Government's guarantee was not essentially at variance with the offer that had been made by Clifford. That very matter had been discussed between the two and Clifford had made his offer ``subject to the Tasmanian Government coming good with their loan funds''. He explained his understanding of the negotiations by saying:
``I believed that I was committed to build the boat for them and the only way that I wouldn't be committed to build the boat for them was if they were unable to arrange their finance... They had a commitment to get that finance from the Tasmanian Government within the 30 days period.''
It is true that the letter of acceptance of 30 June is not in terms precisely of the offer as Clifford stated it in his evidence. Perhaps it would be surprising if it were, having regard to the way in which the offer was made. Certainly - and this is trite - a purported acceptance of an offer cannot of itself validly impose new conditions upon the offeror. But it is not necessary to the formation of a contract that there should be exact verbal equivalence or correspondence between offer and acceptance. It is sufficient in order to constitute a valid contract (and also necessary, as Lord Maugham said in Scammel's case) that the parties ``so express themselves that their meaning can be determined with a reasonable degree of certainty''. I have no difficulty in discerning a consensus upon the matter of the provision of the Tasmanian Government's guarantee except that the taxpayer's letter of acceptance, on one view of it, purports to stipulate for ``a term of the agreement that the whole agreement is subject to the condition precedent that on or before 31 July 1978 the Tasmanian Government agrees to enter into a guarantee...''. If, by using the expression ``condition precedent'', the taxpayer meant that the relation of vendor and purchaser of the subject vessel could not arise until fulfilment of the condition then the conclusion of the Board of Review would no doubt be sound. But, as Isaacs J. observed in
Maynard v. Goode (1926) 37 C.L.R. 529 at p. 540:
``... a condition precedent may have that [suspensory] effect, and it may not. We must ask the question `Precedent to what?'''
His Honour went on to distinguish (1) a condition precedent to an agreement's becoming operative as a contract and (2) a condition precedent to the performance of a particular term of a contract and (3) a condition which might be regarded as a condition precedent but which is ``... a condition subsequent in relation, not to a particular term, but to the whole contract, and a binding obligation, that is, a defeasance...'', the failure of which would entitle the person who stipulated it to retire from the transaction. Isaacs J. observed that whether any form of words operates in this last-mentioned sense "depends, as was said by Ashhurst J. in
Hotham v. East India Co. (1787) 1 T.R. 638 at p. 645, on `the nature of the transaction"'.
Here, in my opinion, the introduction by Mr. Clifford into the negotiations of a reference ``to the Tasmanian Government coming good with their funds'' was not intended to hold up or hinder the formation of a contract. Nor, I think, was the taxpayer's reference to the same subject in his letter of acceptance intended to do so. On the contrary, the last-mentioned reference would probably have been unnecessary had an immediately binding contract not been intended. The whole context of the negotiations indicates that the intention of the parties was to make a contract by 30 June 1978 and the payment and acceptance of a deposit of $1,000 on that date tends to confirm the intention. Non-fulfilment of the condition would have entitled the
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taxpayer to be discharged, and I think it would also have entitled the builder to withdraw. But neither chose to take advantage of it when the opportunity arose, each having in effect waived the non-fulfilment. Put in another way, I consider that each party was saying this: unless each could have the benefit of a term entitling him to retire if the Tasmanian Government would not guarantee a loan to the taxpayer, then he should not be obliged to proceed further. Each agreed to such a term, and each chose not to enforce it.I do not regard the fact that Mr. Clifford said that he allowed the taxpayer 30 days to finalise his loan arrangement and the fact the taxpayer stipulated for the Tasmanian Government's agreement ``on or before 31 July 1978'' as being in essential conflict. Perhaps, if one were seeking to negate a contract, rather than to uphold one that both the parties believed they had concluded, it would be possible to find a minor discrepancy. But that is not the view that I think should be taken. Trivial discrepancies between an offer and a purported acceptance of it will not inevitably prevent the acceptance from taking effect as such if the parties can be seen to have treated it as having taken effect.
Of course, the terms of an acceptance must accord with those of the offer before an agreement arises. But such an accord, or lack of it, is to be determined on all the surrounding evidence. The subsequent actions of the parties may be considered: e.g. Corbin on Contracts, (1963) vol. 1, 355. In the same work it is said, at p. 353, that:
``The question whether a communication by an offeree is a conditional acceptance or counter offer is not always easy to answer. It must be determined by the same commonsense process of interpretation that must be applied in so many other cases.''
There is then cited the following dictum of the Supreme Court of North Carolina:
``Where the contract... is in several writings - as offer and acceptance - and not contained in a single document which both parties have executed, the court will not, of course, be astute to detect immaterial differences in the phrasing of offer and acceptance which might defeat the contract, but will try to give each writing a reasonable interpretation under which substantial justice may be reached according to the intent of the parties.''
Richardson v. Greensboro Warehouse and Storage Co. (1943) 149 A.L.R. 201 at p. 203.
See also the annotations to the case: 149 A.L.R. at p. 214. That dictum is a useful guide for our Courts as for those in the United States; and I think it applies as much to a case like the present, where the offer is oral and the purported acceptance is in writing, as to a case where offer and acceptance are both in writing: cf. 9 Halsbury's Laws of England, 4th ed., para. 256, notes 9 and 18. It is simply an application of the rule that, if a variance between the offer and acceptance is on no more than some immaterial matter, the acceptance completes the contract: e.g.
Re Aberaman Ironworks (1869) L.R. 4 Ch. App. 532 at p. 535. Put in another way, the rule may be expressed by saying that the offer and the acceptance must express assent to one and the same thing, and there must be no substantial or material variance between them: American Jurisprudence, 2nd ed., vol. 17, p. 400. The very form of words in which the offer is expressed will be material if the offeror so intended. In that case an acceptance in a different form will not produce a contract; and a variation in the substance of the offered terms may well be substantial though the variation be slight: Corbin, op cit., vol. 1, pp. 368-369.
In this case the choice is between concluding (on the one hand) that the offeror intended that there should be no contract if the offeree stipulated in his acceptance that he should be entitled to withdraw unless ``on or before 31 July 1978 the Tasmanian Government agrees to enter into a guarantee...'' or (on the other) that he regarded such a term as substantially an acceptance of his offer as made. On this, I think the evidence is all one way. I conclude that there was an acceptance of the offer and that the offeror by his subsequent conduct acknowledged as much.
The Board of Review regarded the fact that no firm arrangement as to finance had been negotiated by the taxpayer by 30 June as indicating an intention not to make a contract by that date. For the reasons I have indicated I do not agree. The Board also concluded that at 30 June agreement was still to be concluded ``on matters which were basic to the construction of the boat, and here we would mention the superstructure, and a choice of engines''. Again, I do not consider that the evidence
ATC 4305
supports a conclusion that matters of this kind stood in the way of a contract for the supply of a vessel of the nature discussed, as it had been in detail, to the taxpayer and his wife. One must bear in mind the nature of the transaction. It was one for the supply of a specifically identified kind of vessel as discussed and agreed between the taxpayer and Clifford, with engines and other refinements to be nominated by the taxpayer. That the make of the engines and the precise nature of the other refinements had not been specified by 30 June was, I think, of little consequence having regard to the matters that had been agreed. It was almost inevitable, having been regard to the subject matter, that incidental items would need to be dealt with in the course of construction. In my opinion the parties had by 30 June 1978 expressed assent to one and the same thing, namely that the builder would build and supply, and that the taxpayer and his wife would purchase for the sum of $285,000 a Ryan class catamaran as discussed, and with such variations, extras and refinements as should later be nominated by the taxpayer. So far as appears, there was at 30 June nothing of substance remaining to be agreed, rather than to be nominated by the taxpayer; and I think the builder had agreed to accept such reasonable nominations as to components, finish, and the like, as the taxpayer should make during the course of construction.For these reasons the taxpayer's appeals will be allowed. The assessments for each of the years of income ended 30 June 1979 and 30 June 1980 are set aside. I direct the respondent to re-assess the appellant for each of those years in accordance with these reasons for judgment. The respondent will pay the appellant's costs of each appeal, to be taxed.
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