SONENCO (NO 87) PTY LIMITED v FC of T
Judges:Beaumont J
Foster J
Cooper J
Court:
Full Federal Court
Beaumont, Foster and Cooper JJ
Introduction
The question in this appeal in a sales tax matter is whether the appellant, a motor vehicle dealer, is liable to pay sales tax assessed by the Commissioner in respect of the ``sale value'' of motor vehicles alleged to have been sold by wholesale by the dealer as a ``wholesale merchant'' in the period 1 February 1981 to 31 May 1982. It is common ground that the dealings now in question were entered into pursuant to a tax ``minimisation'' scheme. It was held in essence at first instance that the scheme was ineffective and that the appellant was liable for the tax assessed.
The appeal arises in the following legislative context. Generally speaking, Commonwealth sales tax legislation imposes tax upon the last wholesale sale of goods. The legislative scheme is that tax liability falls upon persons who are, or are liable to be, registered under the legislation, viz., manufacturers or wholesale merchants. Here we are concerned only with the position of a wholesale merchant. In particular, by s. 3 of the Sales Tax Assessment Act (No. 3) 1930 ("Assessment Act (No. 3)") it is provided that sales tax is payable upon the sale value of goods manufactured in Australia and sold by a taxpayer, not being either the manufacturer of those goods or a purchaser of those goods from the manufacturer. By s. 4(1) of that Act, it is further provided that the sale value of goods shall be the amount for which those goods are sold by a registered person, or a person required to be registered, not being either the manufacturer of those goods or a purchaser of those goods from the manufacturer, to an unregistered person or to a registered person who has not quoted his certificate in respect of the purchase of those goods. The Sales Tax Assessment Act (No. 2) 1930 ("Assessment Act (No. 2)") makes similar provision where the goods are sold by the taxpayer who purchased them from the manufacturer. The Sales Tax Assessment Act (No. 7) 1930 ("Assessment Act (No. 7)") similarly provides for the payment of sales tax on the sale value of goods imported into Australia and sold by a taxpayer not being the importer of the goods.
The general policy of the legislation was described by Gibbs C.J., Mason, Wilson, Deane and Dawson JJ. in
Brayson Motors Pty. Ltd. v FC of T 85 ATC 4125 at 4127; (1984-1985) 156 CLR 651 at 657:
``[The] general policy [of the sales tax legislation] was and is to levy a tax upon all goods after they are imported into or produced in Australia and before they reach the consumer. It was not intended that the retail price of goods should be increased by the incorporation in it of more than one amount of tax or that the retail sale itself should attract tax. It was, however, intended that they should be taxed at their full wholesale value. That being so, the policy of the legislation was and is that sales tax should, in the ordinary case, be a tax upon the last wholesale sale.''
Their Honours went on to refer to certain aspects of the underlying legislative policy (at ATC 4127-4128; CLR 657-658):
``The first is that sales tax was intended to be a tax upon all imported or locally manufactured goods. The second is that it should be levied upon the last wholesale sale and not upon sale by retail.... Implicit in
ATC 4707
those two aspects of the underlying legislative policy is a third which warrants express mention. It is that, in the words of Dixon J. (at p 89), sales tax was to be `a tax levied upon one only of the transactions which commonly take place in respect of goods before they reach the consumer after they are imported into or produced in Australia'.''
THE ORDERS THE SUBJECT OF THE APPEAL
The appellant, Sonenco (No. 87) Pty. Ltd. (formerly known as McLeod Investments Pty. Ltd.), appeals from orders made by a Judge of the Court declaring that it was liable to pay the sales tax assessed by the Commissioner, which included a substantial sum of additional tax pursuant to s. 29 of the Sales Tax Assessment Act (No. 1) 1930.
THE PROCEEDINGS AT FIRST INSTANCE
In order to understand the nature of the complex issues which arise on the appeal, it will be necessary to explain, in some detail, the course of proceedings at first instance.
THE CASE PLEADED BY THE APPELLANT
By its amended statement of claim, the appellant made the following allegations:
``2 Between 1 February 1981 and 31 May 1982 (`the relevant period') the [appellant] carried on a business inter alia of selling motor vehicles by wholesale.
3 During the relevant period the [appellant] sold a number of vehicles (`the subject vehicles') particularised hereunder.
Particulars
The subject vehicles comprise the vehicles referred to in the assessments particularised in Paragraph 7 hereof.
4. Each of the subject vehicles was purchased from the [appellant] by Ronald James Hopkins... trading as `Ron Hopkins Wholesale'.
5. [Hopkins] was the holder of a sales tax certificate no. 2 434 096 (`the certificate').
6. On the occasion of the sale of each of the subject vehicles [Hopkins] quoted to the [appellant] the sales tax certificate no 2 434 096 and represented that he was the holder of that certificate.
6A Alternatively the [appellant] neither purchased nor sold any of the subject vehicles.
7 The [Commissioner]
- (a) has asserted that on the sale by the [appellant] of the subject vehicles the [appellant] became liable to pay to the [Commissioner] sales tax pursuant to Sales Tax Assessment Act (No 7) 1930
- (b) Has issued to the [appellant] assessments (`the disputed assessments') of sales tax in respect of the subject vehicles.
Particulars
Assessment under s 10(2A) of Sales Tax Assessment Act (No 3) in a total amount of tax and additional tax of $2,658,960 and assessment under s 10(2A) of Sales Tax Assessment Act (No 7) in a total amount of tax and additional tax of $74,126.82, each of which is dated 18 November 1982, and of each of which one half comprises additional tax under s 10(2B) of the relevant Act.
8 The [Commissioner] contends and the [appellant] denies that the [appellant] is liable for sales tax in the amounts specified in the disputed assessments by reason of the sale by the [appellant] of the subject vehicles.''
The appellant sought the following relief:
``1 A declaration that no sales tax is or was payable by the [appellant] in respect of the sale by the [appellant] of the subject vehicles
2 A declaration that the [appellant] is not liable to pay the tax notified in the disputed assessments.''
THE STATEMENT OF FACTS, ISSUES AND CONTENTIONS PRESENTED AT FIRST INSTANCE
Although both parties adduced other evidence, to be mentioned later dealing with the facts which were in dispute, a statement of facts, issues and contentions was presented by the parties to the primary Judge which was in these terms:
``REVISED AGREED STATEMENT OF FACTS, ISSUES AND CONTENTIONS
FACTS
ATC 4708
1. Before February 1981 the [appellant] was a dormant company. At that time, the ordinary course of dealing in motor vehicles purchased by customers of McLeod Ford [Pty. Ltd.], another company controlled by Mr M.W. McLeod, was as follows:
- 1.1. The customer placed an order with or made an offer to McLeod Ford.
- 1.2 McLeod Ford (then or, in the case of stock vehicles, earlier) placed an order with Ford Motor Co.
- 1.3 Ford Motor Co sold vehicles to Citicorp Wholesale Pty Ltd (`Citicorp') under quotation of Citicorp's sales tax certificate.
- 1.4 Citicorp bailed the vehicles to McLeod Ford.
- 1.5 Immediately before the sale to the customer, Citicorp sold the vehicle (for the wholesale price plus sales tax) to Ford Sales Co.
- 1.6 McLeod Ford as agent for Ford Sales Co. sold the vehicle to the customer.
2. In February 1981 Mr McLeod [the controller of the appellant] on legal advice that it was permissible for him to do so, caused companies under his control to enter into a plan designed to reduce the incidence of sales tax upon the vehicles. The plan required participation by the [appellant] (activated for the purpose) and another McLeod company, Trad Pty Ltd, as well as McLeod Ford. The other party to the plan was Ron Hopkins Wholesale [an organisation which was at arms' length from the McLeod Group, hereafter `Hopkins'].
3. On 20 February 1981 [the appellant] and Citicorp entered into a bailment agreement [the terms of which are set out later in these reasons].
4. According to the design of the plan the course of dealing in motor vehicles purchased by customers of McLeod Ford was as follows:
- 4.1 The customer placed an order with or made an offer to McLeod Ford.
- 4.2 The [appellant] (then or, in the case of stock vehicles, earlier) placed an order with Ford Motor Co. for the vehicle.
- 4.3 Ford Motor Co. sold the vehicle to Citicorp under quotation of Citicorp's Sales Tax Certificate.
- 4.4 Citicorp bailed the vehicle to the [appellant].
- 4.5 The [appellant] purchased the vehicle from Citicorp a few days before delivery to the customer.
- 4.6 The [appellant] notified Hopkins of the proposed purchase by the customer.
- 4.7 The [appellant] borrowed from Trad 99% of the purchase price payable to Citicorp. Under the plan, the vehicle thereby became subject to a charge for that amount in favour of Trad.
- 4.8 Hopkins placed an order for the vehicle with the [appellant], and quoted its sales tax certificate on the order.
- 4.9 The [appellant] sold the vehicle to Hopkins, subject to a charge and for a price of 1% of the wholesale price payable to Citicorp.
- 4.10 Hopkins sold the vehicle to McLeod Ford for a slightly lower price, plus sales tax on that price, and again subject to the charge. [Emphasis added]
- 4.11 McLeod Ford repaid the debt due to Trad and the vehicle was released from the charge.
- 4.12 McLeod Ford sold the vehicle to the customer for the retail price.
5. The [appellant] says (but the [Commissioner] does not admit) that Mr McLeod arranged with the promoters of the plan for documentation passing between the McLeod companies and Hopkins to be delivered daily. The documentation was in part prepared by the promoters, on the basis of information given to them by McLeod staff, and in part prepared by McLeod Ford staff.
6. Between February 1981 and May 1982 customers of McLeod Ford purchased [certain specified] vehicles (`the plan vehicles')... Citicorp was not notified of or paid in respect of the vehicles until some days had elapsed after each customer's purchase.
ISSUE
7. The issue between the parties is whether the plan vehicles were, as the [Commissioner] contends, sold by the [appellant] to McLeod Ford for the wholesale price paid to Citicorp.
ATC 4709
CONTENTIONS
8. The [Commissioner] contends that:
- 8.1 The loans from Trad to the [appellant] and the supporting charges over the plan vehicles were shams.
- 8.2 The sales of plan vehicles by the [appellant] to Hopkins and by Hopkins to McLeod Ford were shams, either in their own right or consequentially on the preceding subparagraph.
- 8.3 The true nature of the relevant transactions was sales of the plan vehicles by the [appellant] to McLeod Ford.
- 8.4 Such sales were the last wholesale sales of the plan vehicles, thus creating a liability for sales tax in the [appellant].
- 8.5 Alternatively, if the transactions were real transactions such that the plan vehicles were sold by the [appellant] to Hopkins under quotation of a sales tax certificate, the loans involving Trad and the sales to and by Hopkins were void against the [Commissioner] by reason of the doctrine of fiscal nullity and their avoidance leaves exposed sales of the plan vehicles by the [appellant] to McLeod Ford for the wholesale price paid to Citicorp.
- 8.6 The conduct of the parties before February 1981 was such as to treat the transactions set out in paragraph 1 as sales rather than bailments so that there was, notwithstanding the documentation, a sale by Ford Motor Co. to McLeod Ford which itself sold to the customer.
- 8.7 The conduct of the parties after February 1981 in relation to the bailment plan of 20 February 1981 was such as to treat the transactions as sales rather than bailments so that there was, notwithstanding the documentation, a sale by Ford Motor Co to McLeod Investments which then sold the vehicles to McLeod Ford.
9. The [appellant] contends that-
- 9.1 Mr McLeod and the companies under his control, including the [appellant], intended that all the steps in the plan should be real transactions and that the plan (for the benefit of which they paid large sums of money to the promoters) should work according to its design; and accordingly contends that the plan and the steps therein were none of them shams.
- 9.2 The [appellant] made no sales of the plan vehicles except such if any sales as were made under quotation to Hopkins.
- 9.3 Alternatively if (as is denied by the [appellant]) the steps taken by the McLeod companies under the plan were shams, the sham necessarily extended to the whole plan including the participation of the [appellant] and the acquisition and sale of vehicles by it.
- 9.4 There is no doctrine of fiscal nullity in Australian revenue law.
- 9.5 Alternatively if there is an applicable doctrine of fiscal nullity it strikes down the whole of the plan including the acquisition and sale by the [appellant] of the plan vehicles.''
THE BAILMENT AGREEMENT BETWEEN CITICORP AND McLEOD INVESTMENTS DATED 20 FEBRUARY 1981
As has been noted, the bailment agreement made by Citicorp Wholesale Pty. Limited (``Citicorp'') and the appellant (there described as ``the bailee'') was dated 20 February 1981. In this agreement, it was recited that Citicorp carried on the business of a wholesale merchant and might from time to time have goods available for sale of which it might permit the appellant to have custody with a view to their eventual purchase by ``the retail distributor''. Earlier in the agreement, the appellant was described as ``a wholesale trader associated with Ford Sales Company of Australia Ltd. (`the retail distributor')''.
By cl. 2 of the agreement, it was provided that Citicorp might from time to time approve of the appellant ordering goods on its behalf under the agreement. Special provision was made for imported goods, but otherwise it was provided that the appellant was to take delivery of the goods ``ex the premises of the supplier''.
By cl. 4, all goods ordered in accordance with the approval granted by Citicorp were to be purchased from the manufacturer or wholesale distributor in the name of, or on behalf of, Citicorp which was to quote its sales tax registration certificate as prescribed pursuant to the Sales Tax Assessment Acts and was to make payment of the price.
ATC 4710
By cl. 8, which is important for present purposes, it was relevantly provided as follows:
- ``(a)... it is understood that the [appellant] may place any goods on the floor of the retail distributor which... may from time to time seek to obtain (but not as agent for [Citicorp] or the [appellant]) offers to purchase the goods... The [appellant] shall advise or arrange for the retail distributor to advise [Citicorp] from time to time of receipt of any such offer. [Citicorp] may in its entire discretion sell the goods to the [appellant] by wholesale ex the premises of [Citicorp] and the [appellant] may quote in respect of his purchase of the goods his sales tax certificate. Nothing contained herein... shall imply that either the [appellant] or the retail distributor has any interest in or option over the goods which shall remain at all times the property of [Citicorp] (unless and until sold to the [appellant] as provided above) and the existence of any such interest or option is hereby denied and neither the [appellant] nor the retail distributor shall have any right or authority to sell dispose of or part with possession or custody of the goods or create or authorise the creation of any lien thereon...
- (b) If the retail distributor in anticipation of the ultimate purchase of the goods by him from the [appellant] obtains from a customer a sum equal to the retail purchase price or a hire purchase offer in respect of the goods, and delivers the goods to the customer, the title to the goods shall upon sale thereof by [Citicorp] to the [appellant] be deemed to have passed to the [appellant] immediately before but on the same day of such delivery PROVIDED THAT
- (i) Nothing contained herein shall oblige [Citicorp] to sell to the [appellant] or oblige the Guarantor or any subsidiary to accept a hire purchase offer in respect of the goods;
- (ii) in the absence of evidence to the contrary, [Citicorp] may treat the date of registration of the goods... as conclusive evidence that the vehicle was delivered to the customer on that date.''
THE FINDINGS OF FACT AT FIRST INSTANCE
The findings of fact made by the primary Judge may be summarised as follows:
(1) Originally, there were three companies involved in the distribution chain: (a) Ford Motor Co., the manufacturer or importer; (b) McLeod Ford as retail distributor; and (c) Citicorp. McLeod Ford ordered vehicles from Ford Motor Co. which were delivered to McLeod Ford. However, title passed from Ford Motor Co. to Citicorp and the vehicles were treated as bailed from Citicorp to McLeod Ford. Title passed from Citicorp at the time of the sale to the customer. Citicorp paid sales tax on the footing that there was a sale from it to McLeod Ford, being the last wholesale transaction.
(2) Mr. McLeod arranged with Hopkins that, for an agreed percentage of sales tax saved, Hopkins would ``install a tax avoidance structure'' whereby Hopkins would acquire title to each vehicle, would subsequently transfer title to McLeod Ford and, on that transfer, would incur any sales tax liability. For the purposes of the scheme, two further companies controlled by Mr. McLeod, the appellant and Trad Pty. Limited, were used as follows.
(3) On 20 February 1981, Citicorp entered into the bailment agreement with the appellant mentioned previously. The retail distributing business continued to be carried on by McLeod Ford, but the dealings with Citicorp were undertaken in the name of the appellant. When a vehicle was sold retail, the appellant paid Citicorp the wholesale price and quoted its sales tax certificate so that Citicorp was no longer liable to pay sales tax. The appellant and Trad agreed that, upon notice being given to it, Trad was to lend the appellant 99% of the price payable by the appellant in respect of each vehicle, on security of a charge over the vehicle. Hopkins was then to purchase the vehicle from the appellant, subject to the charge, at a price of 1% of its wholesale value. Hopkins then sold the vehicle to McLeod Ford, subject to the charge, at the price of 1% of wholesale value and paid sales tax on that figure.
(4) However, the conduct of the parties was not in accordance with their documentation. Notice was not given by the appellant to Trad as contemplated in the agreement for charge. When a retail customer ordered a vehicle, although a cheque was drawn by Trad in favour of the appellant for 99% of the wholesale price, the cheque was retained in a drawer. After payment had been received from the customer,
ATC 4711
the appellant drew a cheque in favour of Citicorp and McLeod Ford drew a cheque in favour of Trad for the same amount as the cheque drawn by Trad in favour of the appellant. The McLeod Ford cheque and the Trad cheque were always passed on the same day. Trad had no assets and no credit facility. McLeod Ford paid.6% of the wholesale price to Hopkins. The balance of.4% was included in a monthly statement which was presented by Hopkins to McLeod Ford for, inter alia, its percentage fee of the tax avoided.
THE CONCLUSIONS OF LAW AT FIRST INSTANCE
His Honour's conclusions of law were as follows:
(a) The appellant conceded that Trad did not obtain any security because the notice required by the agreement for charge was not given. Nor would equity assist Trad. Title passed instantaneously through a chain from Citicorp to the retail customer. Trad's cheque was not presented until well after the retail customer had obtained title to the goods and ``was invariably countered'' with a cheque in payment of Trad. ``Everybody involved understood'' that Citicorp was the owner of the vehicles until such time as title passed to a customer of McLeod Ford. The creation of a charge was a ``figment of the imagination''.
(b) Hopkins, which had its operational centre in Tweed Heads, was not capable of matching the quick transfer of title demanded by the fact that Citicorp held title. The learned Judge said [
Sonenco (No 87) Pty Ltd v FC of T; FC of T v Sonenco (No 87) Pty Ltd 91 ATC 4976 at p 4979]:
``There had to be an instantaneous transfer through a chain of title from Citicorp to [the appellant] to, theoretically, [Hopkins] to McLeod Ford, whenever a customer obtained title to a vehicle. [Hopkins] organised a daily pickup of documents from McLeod Ford but [Hopkins] had its operational centre at Tweed Heads. Accordingly, documents had to be sent to [ Hopkins], first to Brisbane and from Brisbane to Tweed Heads. There they were collected in bunches until they were processed. Employees of [Hopkins] Wholesale from time to time created documents, mainly backdated, purporting to show what had happened.''
(c) There was no effective sale by the appellant to Hopkins because (i) the documentation did not keep up with the transactions; and (ii) there was no basis for the equitable charge to Trad and there was ``a fundamental mistake of fact which affected the arrangement'' (between McLeod Ford and Hopkins). Thus, it was never agreed that the appellant would sell the totality of the interest in a vehicle to Hopkins for 1% of its wholesale value.
(d) Alternatively, even if there were a valid sale of a proposed 1% beneficial interest in a vehicle, such a transaction would not constitute a sale of goods for the purposes of sales tax legislation.
His Honour said [at p 4980]:
``The... legislation is not concerned with particular interests in goods, but with the process from the manufacture or importation to the ultimate sale of goods to a consumer. And it is concerned to see that, however goods pass through that process, one or other of the Assessment Acts will apply and sales tax will be levied upon the final wholesale value of the goods.''
He went on to say [at p 4981]:
``... it would be wrong to treat the sale to [ Hopkins] as the relevant sale when the plan proposed that Trad would take a 99% interest in the goods by virtue of an equitable charge and that that interest would merge with or form part of the total interest in the goods with which the retail distributor dealt. Title was to pass from [the appellant] in two streams to be reunited in McLeod Ford so that McLeod Ford could sell the vehicle to its customer. Neither the purported creation of the equitable charge nor the purported sale of the remaining interest in the goods to [Hopkins] were relevant wholesale dealings for the purposes of the Assessment Acts, even were they effective. They were, for sales tax purposes, merely conduits by which the title passed from [the appellant] to McLeod Ford, which was the relevant transaction for sales tax purposes.''
His Honour further held that the price of the interest sold to Hopkins was not, for sales tax purposes, ``the amount for which those goods are sold''. He said [at p 4981]:
``If the goods are sold by a wholesaler subject to a mortgage or a charge and the
ATC 4712
purchaser undertakes, in addition to paying the stipulated purchase price, to pay the sum due under the mortgage or charge, then the amount for which the goods are sold includes the amount of that part of the consideration.''
His Honour concluded that the amount for which the appellant sold the goods [at p 4982]-
``... was constituted by the price which it received from [Hopkins] and the cheque which it received from Trad. Both [Hopkins] and Trad were reimbursed by McLeod Ford for the whole of the sums which they paid to [the appellant]. Accordingly, the amount for which the goods were sold by [the appellant] was the full wholesale price of the goods and that price was paid by McLeod Ford via the conduits of [Hopkins] and Trad.''
(e) The Judge further held, contrary to a submission made on behalf of the Commissioner, that the bailment plan was not a sham. The Commissioner had sought to rely upon the failure of the parties to observe the notification procedures contemplated by cl. 8(a). His Honour, however, found that the provisions of cl. 8(b) described ``in substance, though somewhat inexactly, what the parties had in mind as a matter of practice''. He said that he was satisfied that the parties proceeded on the footing that there would be a sale from Citicorp to the appellant and that the sale would take place ``at the same time as but at the instant before'' the transfer of title from McLeod Ford to the customer.
(f) His Honour also rejected an argument advanced on behalf of the appellant that, even if title might pass from McLeod Ford as a mercantile agent in possession (by virtue of the operation of s. 5(1) of the Factors (Mercantile Agents) Act 1923 (N.S.W.)) it did not follow that this was a ``sale'' for sales tax purposes.
He said [at p 4982]:
``Secondly, [counsel for the appellant] submitted that, whenever title passed by the operation of s. 5(1) of the Factors (Mercantile Agents) Act 1923 (NSW), there was no sale for the purposes of the Sales Tax Assessment Acts, for sale is consensual while, under the Factors (Mercantile Agents) Act, title passes by the operation of the statutory provision. McLeod Ford was, of course, a mercantile agent and had possession of motor vehicles for the purpose of sale and authority to sell the goods. But even if the terms of the bailment plan with Citicorp were different from and inconsistent with s. 5(1) of the Factors (Mercantile Agents) Act, so that from time to time title did pass to the customer under the operation of s. 5(1), I would not regard that fact as establishing that there was no relevant transaction of sale for sales tax purposes. The relationship between Citicorp, McLeod Investments and McLeod Ford encompassed the operation of s. 5(1) of the Factors (Mercantile Agents) Act. Indeed, the bailment plan into which McLeod Investments and Citicorp entered must be read in the light of the intent and operation of that section.''
(g) Finally, his Honour referred to a practice, undertaken for warranty purposes, that on the retail sale of a motor vehicle, title in the vehicle passed from McLeod Ford to one of the Ford companies, Ford Sales Co. and from Ford Sales Co. to the customer who dealt with McLeod Ford. He said [at p 4983]:
``The evidence does not make it clear whether this arrangement continued during the period with which we are concerned. I note that the Citicorp bailment plan named the retail distributor as Ford Sales Co., so perhaps the practice continued. It makes no difference to the issues with which we are concerned. I therefore intend my references above to `McLeod Ford' to encompass any part which Ford Sales Co. may, for warranty purposes, have played in the distribution network.''
THE APPELLANT'S GROUNDS OF APPEAL
By its notice of appeal, the appellant contends that his Honour erred in holding that it was liable to pay the sales tax. The following grounds of appeal are relied on:
``3. His Honour erred in not holding that there was no sale of the subject vehicles by the Appellant and should have held
- (a) that the Appellant never obtained title to the subject vehicles;
- (b) that the Appellant did not sell the subject vehicles;
- (c) that title to the subject vehicles passed from [Citicorp] to the retail customers (or to their financiers)
ATC 4713
pursuant to the operation of the Factors (Mercantile Agents) Act 1923 (NSW);- (d) in consequence there was no taxable sale by the Appellant in respect of the subject vehicles.
4. Alternatively his Honour erred in not holding that the subject vehicles were sold by the Appellant, if at all, only to [Hopkins] and were so sold subject to quotation by [ Hopkins] of his sales tax certificate, so that the subject vehicles had, in relation to any sale by the Appellant, no sale value; and further his Honour erred in holding
- (a) that there was a `fundamental mistake of fact which affected the arrangement';
- (b) that the dealing between the Appellant and [Hopkins] was void;
- (c) that `it would be wrong to treat the sale to [Hopkins] as the relevant sale';
- (d) that `title was to pass from [the Appellant] in two streams to be reunited in McLeod Ford';
- (e) that `the amount for which the goods were sold by [the Appellant] was the full wholesale price of the goods and that price was paid by McLeod Ford via the conduits of [Hopkins] and Trad';
- (f) so far as his Honour so held, that documents prepared by [Hopkins] in respect of the subject vehicles were backdated.''
THE COMMISSIONER'S NOTICE OF CONTENTION
The Commissioner gave notice that, on the appeal, he proposed to contend as follows:
``1. The loans from [Trad] to the Appellant and the supporting charges over the plan vehicles were shams.
2. The sales of plan vehicles by the Appellant to [Hopkins] and by [Hopkins] to McLeod Ford were shams, either in their own right or consequentially on the preceding paragraph.
3. Alternatively, if the transactions were real transactions such that the plan vehicles were sold by the Appellant to [Hopkins] under quotation of a sales tax certificate, the loans involving Trad and the sales to and by [ Hopkins] were void against the Respondent by reason of the doctrine of fiscal nullity and their avoidance leaves exposed sales of the plan vehicles by the Appellant to McLeod Ford for the wholesale price paid to [Citicorp].''
THE EVIDENCE AT FIRST INSTANCE
By reason of the complexity and nature of the arguments advanced on the appeal and in lengthy written submissions made by counsel, it will be necessary to refer, at length, to the details of the material evidence given at the trial.
(1) The evidence called by the appellant
(a) The evidence of Maxwell William McLeod
(i) Mr. McLeod's affidavit sworn 25 May 1987
By his affidavit sworn 25 May 1987, Mr. McLeod, a director of the appellant, Lemdopa Pty. Limited (formerly known as McLeod Ford Pty. Limited) and of Trad, gave the following evidence.
(A) In February 1980, Kenneth John Gordon (apparently representing Hopkins) advised Mr. McLeod that his organisation had ``an arrangement whereby motor dealers are able to legally minimise sales tax payable on motor vehicles''. However, the matter proceeded no further at that stage.
(B) The matter was further discussed by Mr. Gordon and Mr. McLeod in December 1980 and in January and February 1981. In the course of these discussions, Mr. Gordon said that if McLeod Ford were to purchase vehicles from Hopkins at a reduced price, ``to take into account that the vehicles are subject to an encumbrance, sales tax will be legally levied on this lower price''. Mr. Gordon provided a diagram illustrating the proposed arrangements. The diagram mentioned an entity using the name ``Mensara'', being a reference to a company proposed by Mr. Gordon as the ``McLeod Group Wholesale Company''. Mr. Gordon said that each time Mensara wished to purchase a car, Trad would lend to Mensara 99% of the purchase price of the car. That loan would be secured by a charge over the car. Mensara would then pay out the floor plan agreement to Citicorp and obtain title to the car. Mensara would then sell the car (subject to the charge to Trad) to Hopkins who would quote his sales tax certificate. The sale would take place when Hopkins gave Mensara his order for the car and received Mensara's invoice. No sales tax would be payable in respect of that sale. Hopkins would then sell the car (still subject to the charge) to McLeod Ford who
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would pay out the encumbrance. Sales tax would be paid in respect of this sale. The car would then be sold by McLeod Ford to a customer.(C) Mr. Gordon also said that his organisation would telephone the appellant daily to get details, so that Trad could make its loan to Mensara and Hopkins could sell to McLeod Ford who could then pay Trad the following day before the car would be delivered to the customer on the third day. Mr. Gordon's organisation would have a courier service to collect the appellant's documents each morning and give the appellant his organisation's documents at the same time. They could ``sort out'' the cash movements once a month.
(D) In February 1981, Mr. McLeod, having taken professional advice, informed Mr. Gordon that his group was prepared to proceed with the arrangements proposed. Dealings commenced shortly after.
(E) Mr. McLeod described the procedures adopted as follows:
- (1) The appellant did not sell by retail but only by wholesale. Retail sales were made by McLeod Ford. When a customer of McLeod Ford ordered a car there was invariably a delay between the customer's order and delivery, the extent of the delay depending on the specification ordered and the availability of the stock held by the appellant. If the car ordered was a particular car in the showroom or on the appellant's lot, the delay was only for three days while the vehicle received pre-delivery servicing; but if the customer required the fitting of accessories or ordered a car not in stock, the delay was longer, depending on the time it took Ford Motor Co to provide a car as ordered. It was the practice of McLeod Ford to obtain from the customer a signed order before taking any further steps toward meeting the order.
- (2) When a signed order from the customer was obtained the staff of the appellant either: (if the vehicle was in stock) prepared a job card on which to record the costs associated with fitting accessories and pre- delivery costs; or (if the vehicle was not in stock) prepared an order to Ford Motor Co directing delivery to the appellant and invoicing to Citicorp. In the latter case a job card was prepared when the vehicle was received at the appellant's premises.
- (3) All new vehicles were held by the appellant under a floor plan arrangement. During the period from 24 February 1981 to 30 May 1982 the terms of the floor plan arrangement were those set out in the bailment agreement dated 20 February 1981.
- (4) When a customer's order had been received and the vehicle ordered was to become available in stock, the appellant's staff filled out a settlement sheet between the appellant and Citicorp concerning the vehicle. This settlement sheet recorded a description of the car, its identification (SIDO) number, the wholesale amount payable to Citicorp, and a transaction reference number. All vehicles to be acquired by the appellant from Citicorp on a particular day were recorded on the sheet and a cheque for the total amount payable by the appellant to Citicorp was then drawn. The settlement sheet and associated cheque were set aside for collection by Citicorp. Citicorp staff attended the appellant's premises two or three times weekly to collect settlement statements and cheques.
- (5) Once the settlement statement was filled out concerning a vehicle, it was the appellant's practice to treat that vehicle as available for delivery and sale to the purchaser from the appellant. Before and after the relevant period, and during that period in respect of tax exempt vehicles, the purchaser from the appellant was McLeod Ford, but during that period other vehicles were sold and invoiced to Hopkins.
- (6) The appellant received, by courier from Hopkins, order forms in respect of the vehicles identified. Invoices from the appellant to Hopkins for the same vehicles were prepared by Mr. McLeod or Mr. David Hughes, another official employed by the McLeod Group, and were handed to the courier for return to Hopkins.
- (7) Mr. Gordon met at approximately monthly intervals with the appellant's staff to settle the debts arising from the sales by the appellant to Hopkins and by Hopkins to McLeod Ford. On each occasion a list of transactions was prepared and the amounts payable between the parties calculated. A cheque was then drawn by Hopkins and delivered to the appellant in satisfaction of the purchase moneys, and that cheque was deposited to the appellant's account.
ATC 4715
(F) Mr. McLeod went on to describe a series of transactions involving several vehicles including, for illustration, a Ford Falcon station wagon, identification No. 334901, as follows:
- (i) On 10 February 1981, Kentia Pty. Limited placed an order in writing for a Falcon wagon.
- (ii) On the same day (10 February 1981) the appellant requested the Ford Motor Co. to supply a vehicle to the required specification.
- (iii) On 20 February 1981, Ford Motor Co. and Ford Sales Co. shipped the vehicle to the appellant and invoiced Citicorp.
- (iv) The appellant paid out the Citicorp floor plan arrangement on this vehicle in the sum of $7,369.60.
- (v) Trad advanced to the appellant $7,295.60 (99% of $7,369.60).
- (vi) The appellant received, by courier from Hopkins, order No. 0482, for a Falcon wagon, identification No. 334901.
- (vii) The appellant delivered by courier to Hopkins an invoice for three vehicles (including vehicle No. 334901) for the sum of $224.00, which included $74.00 applicable to vehicle No. 334901 (1% of $7,369.60).
- (viii) Hopkins invoiced McLeod Ford in respect of the sale of one Falcon Wagon, identification No. 334901. The amount of the invoice was $30.00 plus $4.50 sales tax.
- (ix) On 5 April 1981, Mr. Gordon met with a representative of the appellant and the following payments were then made: (a) McLeod Ford paid to Hopkins an amount of $2,113.25 by cheque (being in respect of purchases in March); and (b) Hopkins paid the appellant an amount of $4,836.00 in respect of purchases of vehicles during the month of March.
- (x) Prior to this, on 4 March 1981, McLeod Ford registered the vehicle, identification No. 334901, on behalf of Kentia, which took delivery of the vehicle on 10 March 1981.
(It will have been noted that, in some respects, the date upon which some of these dealings took place has not been stated. In fact, these dates did appear in the affidavit, but when Mr. McLeod's affidavit was read, counsel for the Commissioner successfully objected to parts of the foregoing evidence on the basis that it purported to attribute precise dates to each of the procedures described in the affidavit. There was, however, other evidence, in documentary form, of these matters. Some of this material was referred to, inter alia, in a further affidavit by Mr. McLeod sworn 3 May 1990.)
(ii) Mr. McLeod's affidavit sworn 22 July 1991
Another affidavit by Mr. McLeod, sworn 22 July 1991, was also read. In it he said that, before February 1981, neither the appellant nor Trad was actively engaged in the business of the McLeod group. Until February 1981, the business was conducted by McLeod Ford, a company incorporated in about 1966 and then jointly owned by Mr. McLeod's family and Ford Australia. In about 1970, his family acquired Ford's interest. McLeod Ford then sold cars as agent for Ford Sales Co. but held cars on display under a floor plan arrangement with Citicorp, by which Citicorp bought cars for sale through McLeod Ford from Ford Motor Co. and, immediately before their sale to retail purchasers, sold them to Ford Sales Co.
Mr. McLeod said that the business ``was chronically short of cash''. The principal sources of funds were a bank overdraft (with a limit of $100,000), together with a capital loan of $400,000 and a floor plan facility of $1,600,000, both provided by Citicorp. Mr. McLeod said:
``7. To maintain cash flow, it was the usual practice in the management of the business to defer paying creditors for as long as possible. Although Citicorp was supposed to [be] paid within 48 hours of the retail sale of a vehicle, there were special arrangements in relation to government orders and company fleet purchasers. For those orders, which were an important part of the market for Ford motor cars, longer terms (28 days) were allowed. Any transaction of McLeod Ford that could arguably be treated as falling within the 28 day arrangement was so treated, because doing so improved the cash flow of the business: the purchaser had paid McLeod Ford for the vehicle and McLeod Ford had the use of the money until it had to be paid over to Citicorp.
...
9. The main operating account of the business was that of McLeod Ford. Cheques which were drawn by Trad in favour of [the appellant], and by McLeod Ford in favour of
ATC 4716
Trad, in the manner indicated in my affidavit of 25 May 1987 and in the affidavit of David Hughes of 6 June 1990 [referred to later in these reasons] were generally not banked until it was necessary to put the [appellant's] account in funds to meet cheques drawn by [the appellant] in favour of Citicorp. The cheques from [the appellant] to Citicorp, from Trad to [the appellant] and from McLeod Ford to Trad were drawn on the date they bore but were held, with the associated documents, in the office of [the appellant] until it became necessary to hand the relevant [appellant's] cheque and dealer settlement sheet over to Citicorp. At that time the McLeod Ford and Trad cheques were banked so that there would be funds in the [appellant's] account to meet the cheque in favour of Citicorp.''
Mr. McLeod described a discussion with Mr. Gordon, shortly before his proposal was put into effect, as follows:
``Mr. Gordon said to me,
`The basis upon which we normally operate is that we have a monthly settlement.'
I said to him-
`That is no good to me. My advice is that if the plan is to work everything has to be done at the right time and in the right order. I want the documents to be prepared and delivered on a daily basis as each thing happens.'
He said to me-
`Well that will be all right, but you are going to have to bear the courier costs.'
I said-
`That's OK.'''
In this affidavit, Mr. McLeod referred to a Deed dated 13 February 1981 made between the appellant and Hopkins with recitals and operative provisions as follows:
``WHEREAS
- (a) The [appellant] conducts a wholesale business
- (b) [Hopkins] may from time to time purchase goods from the [appellant].
- (c) The [appellant] has negotiated certain advances in accordance with the terms of a Deed of which a copy is annexed hereto (hereinafter called the `Loan Agreement')
- (d) To secure such advances as are made the [appellant] has agreed to grant an equitable charge over each good acquired.
- (3) The parties have agreed to enter into this Deed to record and govern the terms upon which [Hopkins] shall purchase goods from the [appellant].
NOW THIS DEED WITNESSETH as follows:
- 1. Unless otherwise notified by the [appellant] to [Hopkins] any good sold by the [appellant] to [Hopkins] shall be subject to an equitable charge created in accordance with the terms of the Loan Agreement AND [Hopkins] shall accept title to each subject to such charge.
- 2. The purchase price of a good sold by the [appellant] to [Hopkins] shall be calculated having regard to the existence of that equitable charge AND it is expressly provided that [Hopkins] shall have no right of indemnity or contribution in respect of that charge or the liability secured by that charge and [ Hopkins] shall have no right of recourse whatsoever against the [appellant] by reason of any exercise of any power of sale or other remedy by the holder of the charge.
- 3. [Hopkins] shall not have any obligation to make any repayment of amounts secured by such equitable charge and the [appellant] shall have no right of indemnity from [Hopkins] in respect of its obligation to repay amounts secured by such charge.''
The ``Loan Agreement'' between the appellant and Trad, referred to in the deed between the appellant and Hopkins, was as follows:
``WHEREAS
- (a) The [appellant] conducts a wholesale business.
- (b) The [appellant] has requested [Trad] to make certain advances to enable the [appellant] to acquire goods.
- (c) To secure such advances as are made the [appellant] has agreed to grant an
ATC 4717
equitable charge over each of the goods acquired.- (d) The parties have agreed to enter into this Deed to record and govern the terms of such advances and equitable charges.
NOW THIS DEED WITNESSETH as follows:
- 1. The [appellant] shall apply for each advance by delivering to the [Trad] a list which
- (a) Specifies or describes goods which the [appellant] has purchased, has agreed to purchase or intends to purchase AND
- (b) Specifies prices at which each good in that list has or will be purchased by the [appellant] (which prices are hereinafter referred to as the wholesale prices)
- 2. For the purpose of Clause 1 delivery of an invoice addressed to the [appellant] from a supplier of goods to the [appellant] shall be deemed to be delivery of a list.
- 3. [Trad] may at its option reject or accept any application for advance.
- 4. Where [Trad] accepts an application for an advance it shall advance to the [appellant] forthwith an amount calculated by multiplying the total wholesale price by the prescribed percentage. For the purpose of this clause the `total wholesale price' shall be the sum of the wholesale prices on the list delivered in respect of that application and the `prescribed percentage' shall be the percentage specified in schedule 1.
- 5. Where [Trad] accepts an application pursuant to clause 4 the [appellant] shall purchase goods satisfying the specification or description of goods in the list delivered in respect of that application PROVIDED THAT where the [appellant] has already purchased goods satisfying that specification or description and retains unencumbered ownership of those goods at the time of acceptance of the application those goods shall be deemed purchased in pursuance of this clause.
- 6. The [appellant] HEREBY SEPARATELY CHARGES his interest in each good purchased or deemed purchased pursuant to clause 5 with repayment to [Trad] of an amount equal to the prescribed percentage of the wholesale price for which the [appellant] purchased the particular good which amount shall be treated as loan separately and independently repayable and recoverable. It is expressly provided that each charge hereby granted shall operate as an equitable charge only and that ownership of each good shall remain vested in the [appellant] who may at any time secure release of the charge in respect of any particular good by repaying to [Trad] an amount equal to the prescribed percentage of the wholesale prices for which the [appellant] purchased that particular good and the advance resulting in a charge upon that good shall be deemed repaid to the extent of the sum secured on that good.
- 7. The [appellant] may at any time sell or dispose of any good hereby charged but subject to such charge PROVIDED THAT the [appellant] shall remain primarily and solely liable for repayment of the sum secured thereon. In the event of default of repayment of a sum secured on a good sold or disposed of pursuant to this clause [Trad] shall exercise its powers pursuant to clause 9 before instituting any proceedings against the [appellant] for recovery of sums secured on that good.
- 8. The [appellant] covenants to repay the amount of each advance within 60 days of the making of such advance together with interest thereon at the rate per centum per annum specified in schedule 2 WHEREUPON each good purchased or deemed purchased pursuant to clause 5 shall be released from any charge created hereby.
- 9. In the event of default in repayment of an advance as provided by clause 8 [Trad] shall have power to sell the goods charged as a result of that advance AND the [appellant] hereby irrevocably appoints [Trad] the Attorney of the [appellant] in his name or otherwise to sell dispose of and give effectual
ATC 4718
discharge upon sale of the goods subject to this power of sale.- 10. The [appellant] covenants that it will at all times and from time to time hereafter at the request of [Trad] do and execute or cause to be done and executed all such acts and deeds for further and more effectually charging the goods hereby charged or expressed or intended to be charged and for enabling [Trad] to recover amounts advanced hereunder.''
Schedules 1 and 2 were as follows:
--------------------
"SCHEDULE 1 PRESCRIBED PERCENTAGE
---------------------
NINETY NINE PERCENT (99%)
-------------------------
SCHEDULE 2 RATE OF INTEREST
----------------
TEN"
---
--------------------
(iii) Mr. McLeod's oral evidence
In his evidence in chief, Mr. McLeod was shown the documentation of one of the transactions in question. He identified some of the writing on a document headed ``Citicorp Dealers Settlement Sheet'' as that of David Hughes, the General Manager of McLeod Ford. Mr. McLeod said that there was no other communication with Citicorp with respect to the sale of the vehicle there described. Several of Citicorp's ``dealer settlement sheets'' were in evidence. These documents were on a printed form. The name of Citicorp was printed on the form. Beside the printed word ``Dealer'' the name of the appellant was typed in. Under the general heading, ``Wholesale'', the following sub-headings appeared: ``Date sold'', ``Unit description'', ``Identification number'' ``O/s bal. excl. tax'' ``O/s bal. incl. tax''. Below these details appeared the following words (apparently impressed by a rubber stamp):
``I certify that [the appellant] is the holder of N.S.W. Sales Tax Registration No. 008 856,''
together with a certifying signature, apparently of an officer of the appellant.
Below this was a space for the insertion of the total amount of the outstanding balance due to or from Citicorp.
There was also printed at the bottom of the form the following:
``I/We certify that all other vehicles on bailment with you remain unsold and on my/ our floorplan at this date''
A space for a signature was provided.
Mr. McLeod also said, in his evidence in chief, that the name of McLeod Ford appeared on the showroom premises and no mention was there made of the name of the appellant.
In cross-examination, Mr. McLeod said that the appellant had its registered office in the showroom premises and shared its staff with McLeod Ford.
Mr. McLeod was also cross-examined about a monthly settlement sheet, prepared by Hopkins, which was as follows:
-------------------------
"CLIENT McLeod Ford MONTH May 1982
$
1. Amount invoiced to [Hopkins] 9738.00
Less amount invoiced by
[Hopkins] 3700.00
-------
6038.00
+ Sales Tax @17 1/2% 1056.65
SHORTFALL 7094.65
-------
2. Fee Calculation:
---------------
Sales Tax as per Schedule 149586.94
Less Tax charged 1704.15
---------
Tax Saved 147882.79
---------
Fee based on 25%
(As appears below, in his evidence, Mr. McLeod said that Corporate Management Pty. Ltd. ``introduced'' the subject of the tax scheme to the McLeod Group.)
Mr. McLeod said that the settlement normally took place in the month after the transaction was made. He went on to give this evidence:
``And would you go to the section 2 headed, `fee calculation'. Do you see that? - Yes.
Now, I suggest to you the first figure, `sales tax as per schedule' is the sales tax that would have been payable on the wholesale price of these vehicles had there been no arrangements? - Yes.
The tax charged is the sales tax paid by [ Hopkins]? - Yes.
And then the one is subtracted from the other to produce a figure called, `tax saved'? - Yes.
And that indicates that in the subject month [ Hopkins] saved you about $147,000 worth of sales tax? - Yes.
There's then a fee based on 25 per cent? - Yes.
That is because you had agreed with [ Hopkins] that he would be paid 25 per cent of whatever he saved for you? - Yes.
Then there is a figure called, `shortfall'. That, I suggest to you, is the difference in price between the 1 per cent paid by Hopkins to [the appellant] and the 0.4 per cent paid by McLeod Ford to Hopkins? - Yes, I understand that, yes.
In other words, [Hopkins] has made a small loss buying at 1 per cent and selling at.4 per cent and this was a recoupment of his loss? - Yes.
Yes, and then there's an item, `courier' and someone has written the words, `20 days at $5'? - Yes.
Do you know whose writing that is, by the way? - Who had written that?
Yes? - No, I don't. No, I wasn't-
But, in any event, as you can see, the $100 is included in the figures, as it were? - Yes.
Now, that total of 44,165.35 is then referred to lower down as a payment by McLeod's Retail to Corporate Management Pty Limited? - Yes.
Do you see that? - Yes.
There's - that was a company controlled or associated in some way with [Hopkins]? - Well, Corporate Management was the company which introduced the arrangement to us.
...
There's also, you will see, under the heading, `McLeods Retail' cheques required to [Hopkins] for $3700? - Yes.
Now, that, I suggest to you, is the.4 per cent of the 1 per cent for the last month, is it not? - Well, it would have been the amount invoiced by [Hopkins] to McLeod Ford.
Yes? - Yes.
So it was the sales from McLeod - from [ Hopkins] to McLeod Ford? - Yes.
ATC 4720
At.4 per cent of 1 per cent of the price - of the wholesale price? - Well, I believe so, yes.''
Mr. McLeod went on to give the following evidence:
``You were aware that it was the practice of McLeod Ford or [the appellant] - leave aside which for the moment - to pay Citicorp as late as possible in relation to the vehicles? - Yes.
And there were many cases in which the cheque was received from the customer and banked but no payment was made to Citicorp for some days or weeks after that? - Yes.
And sometimes up to four weeks? - Yes.
And there was an arrangement with Citicorp was there not under which where vehicles were sold to certain types of fleet buyer you were entitled to defer payment for 28 days or when you received payment, whichever was the earlier? - Yes.
But in practice what you did in cases that were arguably within that rule was to receive the cheques and pay Citicorp as late as you could? - Yes.
And the - would you agree with me that that's probably the reason why the copy that goes to Citicorp bears no date but the internal copy bears a date? - Probably, yes.''
Mr. McLeod was cross-examined about cl. 8(a) of the bailment agreement as follows:
``Now, that contemplates does it not, as you would understand it, that the [appellant] is authorised to seek offers to purchase addressed to Citicorp when it wants to sell a car? - Yes.
Now, that was never done was it? - So you're saying that [the appellant] would seek offers to -
Yes - well, no, I don't suggest that, no. I suggest what happened was, McLeod Ford sought offers to sell cars? - Yes, yes.
Yes. And the procedure referred to here of referring offers from the public to Citicorp before they were accepted was simply never followed was it? - Never.
No. And Citicorp never complained about that did it? - Never.
And you'll see it then says: The bailee - that's [the appellant] -
shall advise or arrange for Ford Sales Company to advise Citicorp from time to time of receipt of such offer.
Well, that was never done was it? - Not to my knowledge, no.
That would be quite impractical, wouldn't it? - Exactly, yes.
And it then says:
Wholesale-
that's what you said was Citicorp-
may at its entire discretion sell the goods to [the appellant] by wholesale-
and there's reference to its sales tax. As far as you were concerned there was never any question of discretion, was there? Once you sell the car Citicorp would have to sell it to you? - That would be my understanding, yes.
And you would have been appalled, I suggest, if an officer of Citicorp had said to you, after you'd sold the car, oh, we haven't been paid yet, we don't approve of your selling that car? - Yes.''
Mr. McLeod was cross-examined about Trad as follows:
``The cheques from [the appellant] to Citicorp and Trad to [the appellant] and from McLeod Ford to Trad were drawn on the date they bore but were held with the associated documents in the office of [the appellant] until it became necessary to hand the relevant [appellant's] cheque over to Citicorp? - Yes.
And when you say the office of [the appellant], you mean the office you've told us about? - Yes.
Yes? - Yes.
And you then said:
At that time the McLeod Ford and Trad cheques were banked... to meet the cheque in favour of Citicorp.
? - Yes.
I suggest to you there was a second purpose, and that was to ensure that there were funds in the Trad account to meet its cheque to [the appellant]? - I guess that would have
ATC 4721
been consequential, it wouldn't have been a prime purpose.No, but it was - you were aware at the time, were you not, that Trad had no overdraft arrangements? - Yes.
And the - you were aware at the time that the Trad account was maintained from day to day with nominal amounts? - Yes.
And what happened was that every time there was a settlement, which might be most days, there were two events which occurred to the Trad account: a cheque coming in from McLeod Ford and a cheque going out for the same amount to [the appellant]? - Yes.
And that was the normal way in which the arrangements were operated? - Yes.''
(b) The evidence of Walter Eugene Karlo
In his affidavit evidence Mr. Karlo, an officer of Citicorp, said that it was not the practice of Citicorp to require a motor vehicle dealer, to whom a floor plan facility was extended by Citicorp, to seek Citicorp's approval before the dealer entered into an agreement for sale by retail of a vehicle held by the dealer on a floor plan. He went on to say:
``7. Neither I nor to my observation any other person in the employment of [Citicorp] made any complaint to any of the directors or staff of McLeod Ford Pty Limited or of [the appellant] concerning this conduct [i.e. allowing customers to take possession of vehicles under the floor plan], nor would I, nor I believe would any employee, have done so unless McLeod Ford Pty Limited had failed to account to [Citicorp] for the proceeds of sale of the vehicle within 48 hours of the time at which possession of the vehicle was taken by the customer.
8. It was my experience [that] Citicorp... was aware that motor vehicle dealers holding motor vehicles on floor plan arrangements... represented the vehicles to customers as being available for sale by the dealers without disclosure of the interest of [Citicorp] and that the dealers regularly gave possession of the vehicles to purchasers in exchange for payment of the purchase price (being payment either by the customer or by the customer's lease financier, hire purchase financier or bank or other lender) without prior reference to or approval by [Citicorp]. It was, in my experience, the practice of [Citicorp] to accept this course of conduct by the dealer without complaint provided that the dealer accounted for the proceeds of sale within the time required by [Citicorp], which time was usually 24 hours from the time possession of the vehicle was given.
9. The period of 24 hours was allowed in order to permit the dealer to prepare and forward `paper work' associated with the sale transaction. In the case of McLeod Ford Pty Limited, I recommended to my superiors in the Citicorp organisation that having regard to the good financial standing of the McLeod Ford Group, that period of time for payment of the motor vehicles should be extended to 48 hours, and the recommendation was accepted.
10. It was my experience with [Citicorp] that in the event of default in payment by the dealer to [Citicorp] following the sale of the motor vehicle, [Citicorp] looked to the dealer for payment and did not seek to contend that the dealer had lacked authority to sell and deliver the vehicle to the purchaser. I do not recall any occasion... on which [Citicorp] sought to recover possession of a vehicle, payment for which had been made to the dealer by or for a purchaser but not accounted for to the financier by the dealer, on the ground that the dealer had lacked authority to sell the vehicle.''
Mr. Karlo was cross-examined as follows:
``Now, were you familiar with the respective roles in the McLeod organisation of [the appellant] and McLeod Ford? - Yes, I was.
Yes, and it was your understanding that [the appellant] was the wholesale company and McLeod Ford was the retail company? - That's correct, yes.
Now, the - you've told us that - in paragraph 7 - that they had to - that McLeod Ford had to account to you - or [the appellant], whichever it was - within 48 hours of the time the customer took possession of the vehicle? - That's correct.
The - now what steps were taken by Citicorp to enforce that? - Well, they took the dealer on trust really, except that we did regular audits to determine that these
ATC 4722
settlements were being performed in the manner required.Would it surprise you to know that from the transactions taken at random which have been looked at in this court, there were frequently periods of between 2 and 4 weeks between the customer taking possession and Citicorp being paid? - Well, there are some reasons for that. In some cases where the dealer had a fleet buyer and the fleet buyer insisted on an account to deal with the dealership, we gave the dealer grace on that occasion where we could see that that was a strong fleet buyer and we were comfortable the funds were coming in.
And the reason for that was that a strong fleet buyer might take a few days or even a few weeks for the transaction to go through its board or its other governing body? - Well, not so much that. I think there was an arrangement that the fleet buyer either paid once a month or paid fortnightly after taking possession or had a 30-day account with the dealership.
Now, I take it that you had no means of checking whether a fleet buyer in fact paid immediately but McLeod Ford held on to the money for two or three or four weeks? - Well, not really, but we checked that in the audit and if that happened we'd ask for the money immediately.
Yes, but it isn't something that would make you terminate the relationship if you found it was happening? - Well, we wouldn't be happy about it but at the time, you know, you would simply point out the fact that we would have preferred to be paid immediately.
Yes, but McLeod Ford was a very good customer, I take it, of Citicorp? - Yes, it was considered a good customer, yes.''
(2) The evidence called by the Commissioner
(a) The evidence of David Walter Hughes
In his affidavit evidence, Mr. Hughes, the General Manager of McLeod Ford at the time, said:
``4. During the term of the scheme documents were transferred daily between [ Hopkins] and [the appellant] and McLeod Ford. Such documentation was delivered by courier however, I cannot remember if [ Hopkins] was located in Bondi or Tweed Heads however, it was one or the other.
5. I had custody of the [appellant's] and [Trad's] cheque books.
6. When a particular vehicle was ready for delivery to a retail customer I would prepare an invoice from [the appellant] to [Hopkins] and I would also prepare the required cheques and complete the Dealer Settlement Sheet.
7. The invoice from [the appellant] to [ Hopkins] would particularise a number of vehicles. This invoice was sent to [Hopkins] by daily courier and when this invoice was received at [Hopkins] someone would complete an order for the vehicles particularised on that invoice and send that order to [the appellant] also by courier.
...
9. Vehicles sold by the [appellant] during the scheme were held by it under a floor plan arrangement. The finance company for this arrangement was [Citicorp]. The [appellant] was required to pay Citicorp within forty-eight hours of the vehicle being delivered to a retail customer. However, in cases where the customer was a government department or a fleet owner of vehicles the pay out period could extend beyond forty- eight hours. Citicorp would subject the [appellant] to an audit usually once per month however, it was sometimes fortnightly.
10. When a vehicle or vehicles were ready for delivery to a retail customer I prepared the Dealer Settlement Sheet for Citicorp and the invoice from [the appellant] to [Hopkins] and I would then draw cheques in anticipation of the payout to Citicorp. I would retain a copy of the Dealer Settlement Sheet. This copy would have information on it relevant to the scheme which information would not be on the copy that went to Citicorp.''
In his affidavit, Mr. Hughes described a series of documents evidencing transactions between the McLeod Group, Hopkins and Citicorp in respect of a new Ford Laser vehicle (registration number 161 288) as follows:
(i) Customer's order addressed to McLeod Ford dated 4 December 1981 at a total retail price of
ATC 4723
$8,190, for which a deposit of $190 was then paid, with delivery proposed for 8 December;(ii) Receipt for $8,000 paid by the customer on 8 December 1981, apparently the date of delivery;
(iii) Wholesale invoice dated 7 December 1981 addressed by the appellant to ``Ron Hopkins Wholesale 12/166 Mowbray Road, Willoughby NSW 2068 STC No. 2 434 096'' in the sum of $48.00;
(iv) Order for the Laser vehicle dated 7 December 1981 from ``Ron Hopkins Wholesale 12/166 Mowbray Road Willoughby, NSW 2068'' addressed to the appellant, bearing a certificate stating that ``Ronald J. Hopkins Wholesale is the holder of New South Wales Tax Certificate Number 2 434 096'';
(v) Invoice dated 7 December 1981 from Hopkins, at the Willoughby address, to McLeod Ford in respect of the Laser in the amount of $20.00 together with sales tax of $3.50, a total of $23.50;
(vi) Citicorp's dealer settlement sheet dated 7 December 1981, addressed to the appellant, referring, inter alia, to the Laser in which ``O/S Bal. excl. tax'' was stated as $4,819.25. The total amount stated to be owed (in respect of the Laser and several other vehicles) was $14,759.73. Endorsed on the sheet was a certificate that the appellant was the holder of ``New South Wales Sales Tax Registration No. 2 008 856'';
(vii) Cheque dated 7 December 1981 drawn by the appellant payable to Citicorp in the sum of $14,759.73, being the amount referred to above. (The appellant's bank statement showed that the cheque was debited to its account on 17 December 1981);
(viii) Cheque dated 7 December 1981 drawn by Trad payable to the appellant in the sum of $14,612.73 in respect of, inter alia, the Laser vehicle. (Trad's bank statement showed that this cheque was debited to its account on 17 December 1981 also); and
(ix) Deposit slip of Trad, also dated 17 December 1981, showing, inter alia, the deposit of a cheque drawn by McLeod Ford in the sum of $14,612.73.
Mr. Hughes was examined in chief as follows:
``... would you just have a look at paragraph 4 of [your] affidavit. You've told us there that during the term of the scheme documents were transferred daily between [ Hopkins] and [the appellant] and McLeod Ford? - Yes.
See that. The - were you aware whether or not the documents that came in from [ Hopkins] bore the same dates and were the matching transactions of the documents that went out each day to [Hopkins]? - No, I don't remember.
The - are you aware whether the courier was a courier employed by [Hopkins] or a general courier? - No, it wasn't - I'm not - wasn't aware of that.
Right. Now, I want to take you to paragraph 8. You've told us that you don't recall receiving telephone calls from staff of [ Hopkins] in which individual vehicles and amounts were disclosed. Did you make such calls every day? - I don't remember making the calls every day.
If you had made them every day or virtually every day, would you expect to remember that fact? - I guess I would, yes.
And do you recall any telephone calls in which you gave to someone at [Hopkin's] end of the phone details of particular sales and prices? - No, I don't remember that.
...
I think you can take it from the documents that the cheques drawn from Trad to [the appellant] and from [the appellant] to Citicorp were in your handwriting - were generally in your handwriting and signed by you? - Yes.
Does that accord with your recollection? - Yes.
Yes. Who wrote the cheques from McLeod Ford to Trad? - That I think was done by Brian Lowne.
Yes. What physically was done with the cheques written by you from Trad to [the appellant] and [the appellant] to Citicorp after you filled them in and signed them? - The cheques I then put in a - put them together and put them in a drawer.
And you've told us that you made a decision each day as to how much you'd pay to Citicorp depending on the - how many days had gone since the transaction -? - Yes.
ATC 4724
- and how much money there was available at the time. Did you decide which cheques would be given to Citicorp on each day? - Yes.
And what physically happened to the cheques signed by Mr Lowne from McLeod Ford to Trad after he signed them? - I can't be - I can't recall exactly but the - I wrote two cheques. At some point I must have given that information to Brian Lowne and received back the third cheque which I kept together and then released them all.
Yes. Now, the - do you prepare invoices from [the appellant] to [Hopkins]? - The invoices, yes.
Yes. What did you do with those? - They were then put in an envelope and left for the courier.
Yes. Do you know what time of day the courier collected them? - In the morning.
Early, middle, late morning? - Middle - middle I think, yes.''
In cross-examination, Mr. Hughes said:
``Now you told my friend that a courier arrived mid morning? - Mm.
What does mid morning mean to you? - Around 10.00.
And do you have - you told my friend that you don't have any recollection of who employed the courier? - No.
Wasn't - I withdraw that. Was the courier paid for by McLeod Ford or -? - I seem to recall that it was organised by Ken Gordon and we split it I think, I think we split at the end of each month.
Now the courier delivered an envelope? - Yes.
Which was either given to you or left for you? - Left for me, yes, yes.
And you left an envelope for him to pick up, is that right? - Correct.
Do you recall what you wrote on the envelope that was to be picked up? - Not exactly. I'd probably say [Hopkins] but I don't recall.
Do you recall whether you put an address on the envelope? - No, I don't recall that.
Do you recall where the envelope that was left by the courier came from? - No.
Did you ever see the courier? - I don't recall seeing the courier, no, no.
So your recollection is that there was an envelope left every day for you to open and you left out an envelope every day? - I left one and - yes, one was sent to me and - addressed to me from [Hopkins].
And when you opened it up there were documents from [Hopkins]? - Yes.
Now was it, as far as you were concerned, a matter of importance that the steps involved in preparing the invoice at - which is the pink form in front of you - and clearing cheques be done in a particular order? - Yes, it was important.
Was it important that they be done at a particular time - in terms -? - In that - in that - you mean, during the day or -?
No, on a particular day? - It was important that they be done on a particular day and in a particular sequence, yes.
And do you recall ever having a discussion with Mr McLeod about the importance of doing the documents in a particular order or having them done correctly? - Yes.
As best as you can recall, what was the effect of that conversation? - Well, the effect was that they had to be done in that order, I mean, I had to do them in that order to make them comply with whatever the scheme was set up to comply with.''
(b) The evidence of Bruce Gilmour Wall
In his affidavit evidence, Mr. Wall, Citicorp's Dealer Business Manager at the time, said:
``8. It was the practice of [Citicorp] to allow motor vehicle dealers 48 hours to make a payment to it when cars had been sold to a retail customer, not being a Government or fleet buyer.
9. In the period 1 February 1981 to 31 May 1982, it was the practice that a courier would pick up dealer settlement sheets from [the appellant] four days per week. When the courier returned to [Citicorp's] premises, it was the practice to date stamp the dealer settlement sheets showing the time and day of stamping.
ATC 4725
10. Accompanying the dealer settlement sheet would be a cheque from [the appellant] representing the amount due according to that dealer settlement sheet.
11. After the courier had date stamped the dealer settlement sheets they would then be passed to [Citicorp's] Officer, and the following procedures would take place -
- (a) The vehicles being paid for would be identified.
- (b) The account number would be inserted in the appropriate place on the dealer settlement sheet.
- (c) The amount being paid would be entered using a computer terminal to credit the particular account. When this entry had been made in the computer the word NETWORK would be stamped on the dealer settlement sheet, and also at that time the date of that stamping would be handwritten on the dealer settlement sheet.
- (d) The cheque attached to the dealer settlement sheet would then be handed to the cashier for banking. It was the practice of [Citicorp] to bank such cheques, if not on the day of receipt then the next available day.''
In his examination in chief, Mr. Wall said:
``Now, during 1981 and 1982, were you aware that McLeod Ford and [the appellant] were participating in a series of arrangements for the purpose of minimising sales tax? - No.
The - when you - when Citicorp entered into transactions involving new cars, with which company in the McLeod group did you consider that you were dealing with? - [The appellant]
Now, you're aware, are you not, of the - in general terms - the language of your bailment agreement? - Yes.
And you're aware that that provides that the dealer has no power to sell but can simply obtain offers addressed to you or the Ford Motor Company which you can accept at your discretion? - Yes.
Was that procedure ever used as far as you're aware? - No, no.
If - did you expect dealers like McLeod to ring you to get permission before they sold cars? - Not at all.
The - if - I think you're now aware, are you not, that there were occasions when Citicorp was paid some time later than the vehicle was sold to a customer and a cheque obtained from the customer? - Honorarium.
Yes? - Yes.
The - if a vehicle was sold to a customer in that situation and the customer paid McLeod cash for it -? - Yes.
- and subsequently McLeod Ford were to have collapsed - gone into liquidation - would Citicorp have done anything by way of trying to get the car back from the customer? - Not at all.
Have you ever done that in that sort of situation? - No, we didn't believe we had a legal right to do that.''
Mr. Wall was cross-examined as follows:
``Mr Wall, you told my friend that you were dealing with [the appellant] as you understood it -? - Yes.
- in relation to new vehicles. You understood, did you not, that McLeod Ford was the company which was engaged in selling operation? - I understood that McLeod Ford was the retail company.
Yes. And it had the vehicles on its lot -? - Yes.
- and was offering them for sale? - [The appellant] was the party that we financed -
But you -? - but McLeod Ford was the retail company obtaining the buyers.
And you understood that McLeod Ford was advertising the cars for sale? - Yes.
And that it was soliciting offers from the public to purchase -? - Yes, yes.
And you were asked some questions about what would have happened if McLeod Ford had gone bad after being paid for the vehicle and the customer had driven away? - Yes.
If McLeod Ford had gone bad and there were vehicles on the lot, it was your understanding was it not that those vehicles belonged to Citicorp? - Yes.
ATC 4726
And they belonged to Citicorp until such times as the customer drove them away? - That's right.''
Questioned in re-examination, Mr. Wall said:
``When you say, drove them away, do you mean when the customer paid for them or when he drove them away? - No, when he paid for them.''
(c) The evidence of Lorraine Mary Loving
Mrs. Loving was a member of the Board of the Body Corporate of the premises 166 Mowbray Road Willoughby, which was shown on some of the documentation in evidence as Hopkins' address (``12/166 Mowbray Road Willoughby''). Neither Mr. Hopkins nor Mr. Costello was called to give evidence.
In her affidavit evidence, Mrs. Loving said:
``3. In late 1980 I recall being approached by a person residing in a neighbouring unit and giving me an amount of mail addressed to 12/166 Mowbray Road, Willoughby New South Wales. I believe I received this mail because at the time I was serving on the Body Corporate and during that period of service I had previously kept and forwarded mail belonging to other units.
4. I recall a short time after receiving the mail for unit 12/166 Mowbray Road, I was approached at my residence by a man who identified himself as John Costello.
5. Costello said `Are you holding any mail for unit 12?' I said `Yes I am'.
Arrangements were then made between Mr. Costello and myself so that I would collect all the mail for unit 12 and forward it to a Post Office Box number on the Gold Coast. Costello said `I want to pay you $5.00 per week for performing this service'.
I said `I feel that that payment is excessive'.
However, Mr. Costello insisted that I take the $5.00 per week.
Costello said `It is more convenient for business reasons to do it this way rather than to notify a change of business address'.
6. Over approximately the next 12 months I collected all mail addressed to unit 12/166 Mowbray Road, Willoughby and forwarded it to the Post Office Box number on the Gold Coast. The mail which I received and forwarded was predominately business type mail and mainly addressed to Ron Hopkins Wholesale. There was never a large quantity of mail however the majority of the mail delivered was from the Australian Taxation Office.''
(d) The evidence of Tui Elizabeth Barron
In her affidavit evidence, Ms Barron said that in February 1982 she commenced work in an accountancy practice in Tweed Heads, N.S.W. She identified her handwriting on several orders from Hopkins to the appellant and on several invoices from Hopkins to McLeod Ford.
A statement given by Ms Barron to the Australian Federal Police with respect to her employment was also tendered in evidence:
``... I don't recall being interviewed for the position. I previously had lunch with Julie DAWNEY who was an employee of an accountancy practice named COSTELLO HUGHES & GORDON, (I believed that the practice was known as COSTELLO McCARTHY & WALTERS), at which time she told me I was hired and a couple of days later I started work. On starting I reported to Julie DAWNEY who explained to me what the job involved.
The office premises were situated in Wharf Street, Tweed Heads in a three storey building opposite the Tweed Heads Bowls Club. There was a Brodie Lighthouse at ground level, above that a floor of offices and storage rooms and beyond that the COSTELLO McCARTHY & WALTERS offices. I worked on the second level for the first two months. The only other people I worked with were Julie DAWNEY and Ron HOPKINS. We all worked in a small room which was nicknamed `The Dungeon'.
My immediate supervisor was Julie DAWNEY and we were both responsible to Ron HOPKINS. During normal business hours no clients came to that office. I think my work was always given to me by Julie DAWNEY. Ron HOPKINS was there most days but was not present for the whole of the day.
My first job involved writing orders and invoices involving cars and boats. I recall two of the companies involved as KEN SAMS TOYOTA and WESTON WEBB MARINE. I don't recall the order I worked on those.
ATC 4727
To the best of my knowledge my work was checked by Julie DAWNEY daily. The job typically was just writing orders and invoices from the time I commenced work to the time I finished. I may have done some banking during the first few months to fill in for Julie when she wasn't there.
Once invoices had been written the originals were removed from the bound books but I am not sure if that was done by Julie or me. I recall gathering the completed books and binding them with rubber bands and placing them in the filing cabinet (three or four drawers). I don't know what happened to the originals. I recall the invoices for the different businesses being stored separately, either in the filing cabinet or boxes on the floor.
I know the invoices and orders were related but don't understand in what way. I know if we made a mistake on one of them both had to be rewritten. The order forms were blank and once filled out by either Julie or myself were usually signed the same day by Ron HOPKINS. I would normally work on a number of similar documents at the one time, for example, a series of orders and then a series of invoices for the same goods (i.e., same serial numbers, engine numbers, chassis numbers). I don't recall ever being pressured to have sets of invoices and orders complete at all times.
I think Ron HOPKINS was mainly involved in using the calculator and writing up notes. He spent a lot of time on the phone and occasionally would assist with writing invoices. Julie DAWNEY was writing invoices as I was.
During the first couple of months of my employment Ron HOPKINS took his family to Disneyland for a holiday. I think he was away for two or three weeks. I don't recall what arrangements were made regarding someone doing Ron's work. Ron left some presigned orders for us to write up while he was away.
In that early period I did no typing for Ron HOPKINS (I don't think we even had a typewriter).
During the period we worked in `The Dungeon', the door was kept closed (I think that was because there was a closer on the door). I am not aware of other staff being discouraged from entering the office.
After that initial period of about two months we all moved out of `The Dungeon' upstairs to an area at the back of the general office area. Partners at this time were Ken GORDON, Grenville HUGHES and John COSTELLO as far as I know.
The new offices upstairs were equipped with typewriters, telex and regular office furniture. I don't recall being involved in writing invoices but I may have written some. My duties were mainly secretarial and I remember taking shorthand for just about everyone including John COSTELLO.''
In cross-examination, Ms Barron gave the following evidence:
``... [Y]ou recall that late last year you gave some evidence at a trial of those documents? - Yes.
And you recall that you were shown an invoice form which you had written out? - I was shown a lot of documents.
A lot of documents, yes. You were shown one in particular, in a form similar to that which my learned friend just showed you. It's difficult to tell, Miss Barron, which document you were shown but I will show you a document. I'll just read you the questions that you were asked and the evidence you gave at that hearing. The question was - they were showing you a document: Up the top there is a stamp, Ron Hopkins Wholesale 12/166 Mowbray Road, Willoughby, do you see that? - Yes.
And you answered, yes. And the next question was: Did you work there while you were working with Ron Hopkins? And you answered that question, yes. Do you recall that? - No I don't.
Well, you now say that that answer was wrong? - I think there must have been some confusion, I've never worked anywhere except in the little room at Tweed Heads.
You say you never came to Sydney at all? - No.
Miss Barron, you filled out order forms and invoices for transactions with a large number of companies, is that right? - Yes.
ATC 4728
And you filled out a large number of documents - Yes.
Several hundred a day I presume, do you agree with that? - Possibly.
... In respect of any particular action with another person you wouldn't know except by looking at the document to see whether it was in your handwriting whether you had written it out or whether somebody else had written it out for you? - That's right.
So your only recollection is by looking at the document and seeing that it's in your handwriting? - Yes.
And you have no other recollection now of the circumstances in which you got the information -? - No.
- to put in - you're agreeing with me are you? - Yes.
And you have no other recollection now of what was done with any particular document after you'd filled it out? - No, they were separated, torn out of the books, but I don't know what happened to them.''
(e) The evidence of Julie Ellen Dawney (Faithfull)
A statement given to the Police by Mrs. Faithfull, tendered in evidence, was as follows:
``20. It was about June or July 1981 when I started doing the sales tax work. I recall RON HOPKINS approached me working through John Costello about doing the sales tax work.
21. When I started the sales tax work I had to move to an office downstairs from the accountancy practice. Shireen Davies and Ron Hopkins were the only people that were working in that office before I started there. Shireen left the office and returned upstairs to the practice. When I started only Ron Hopkins and myself were downstairs. I was offered extra money about an extra $20 per week involved, and the work was different to what I was doing, I was a bit bored with what I had been doing previously.
22. Ron Hopkins showed me how to write the invoices and orders out. The office downstairs did have its own telephone. The staff from upstairs in the practice did not come and go as they pleased between the office. The office was locked when the room was not occupied. The doors were kept closed while we were working in the office. The public and normal office staff did not have access to the downstairs office. I did not know whether staff or others were not permitted into that office.
23. Ron Hopkins was not present all the time that I worked downstairs from time to time. I was left to work by myself. I had to write out invoices and orders. The information to complete the invoices was supplied from a spreadsheet. I can't recall exactly what was on the spreadsheet, but it did have names and amounts and the company name up the top.
24. The way I usually completed invoices or orders was book by book. For example, I would complete an invoice book and once that was completed I would fill out an order book so it would correspond with the figures in the invoice book.
25. I am not sure how Ron Hopkins got the information. All I can recall is that the sheets came in rolled up with a rubber band around them. I do not know what Ron Hopkins did with them, but he then handed them to me to complete my invoices and orders, I handed the sheets back to Ron Hopkins when I had finished completing the invoices and orders.
26. There was quite a backlog of those spreadsheets waiting to be written up about February 1982, although I am uncertain about that date. Another person known as Tui Barron joined myself and Ron Hopkins in the downstairs office to help us out. Ron Hopkins showed Tui Barron the way he wanted the documents completed.
27. Once I had left the general side of the practice and gone into the sales tax side with Ron Hopkins I was still paid in cash. I am aware that Ron Hopkins used to draw up a cheque to get cash for our pay. Ron Hopkins then paid the cash to me. I am not sure whether I was still signing a wages book or not but I know we were using tax stamps.
28. Later, it may have been March or April 1982, but I cannot be certain we moved back upstairs into the practice. We did not go to the same area as I was working in previous to going downstairs, we took over the area which Chris Boyle's office used to occupy at the back of the building.
ATC 4729
29. Shortly after we moved upstairs Jim Rush was brought in. He was looking after the personal companies, business properties of John Costello's and Ken Gordon's.
30. Tui Barron left the practice in June 1982 and they got two girls to replace her because the personal company work and business properties for Ken Gordon and John Costello was really piling up. The two girls that replaced her were Loma Cornwall and Kate Adam.
31. The documents that had been completed were removed from the premises. I don't know where the documents were taken to, I think they were put into the boots of cars.
32. When I had completed writing out the invoices and orders I handed them to Ron Hopkins so that he could sign them. The originals were then pulled out of the book and bundled up. They were then handed back to Ron.
33. If Ron wasn't in the office the books just stayed there until he signed them. I did work with books that were presigned by him. He signed the books if he knew he was not going to be in the office for a period of time, or if he was going away or overseas. He would sign as many as he thought would be required for the period of time that he would be away. If there was not a sufficient amount of books signed while he was away they would just wait until he returned and then he signed them.
34. After the books were signed and the originals were removed from the books, the originals were bundled up and either placed into archive boxes with the duplicates and stored in the office or some of the originals were posted to various people. Ron Hopkins would tell me what to do with the books.
35. On some of the documents I would have to calculate certain percentages so that I could complete invoices. After completion of the three sets of documents I had to add up the total invoices and make sure they came to the total or percentage of the total and balance with the figures that were on the work sheets that were supplied by Ron Hopkins. After that was completed the work sheets may have been destroyed by Ron Hopkins. I know that Ron Hopkins in turn then was engrossed in those individual worksheets. I did not assist him in that task.
36. I travelled to Sydney with Ken Gordon on one occasion, we went to an office, I'm not sure where the office was, and I had to write out invoices. John Costello and Ron Hopkins also came to Sydney with us but I don't know where they went, they were not in the office with Ken Gordon and myself. Ken Gordon travelled to Sydney frequently.
...
49. The rubber stamps that were used for the invoice and order books were kept by Ken Gordon in his office and also in our office. Ken Gordon mainly kept the Sydney dealers stamps and our office kept the local Tweed and Queensland area stamps. Ken Gordon always handed the Sydney stamps to me when I required them. The Sydney orders would normally be handled by Ken Gordon or myself.
50. I have examined a green manila folder labelled 75/51 addressed to McLEOD Ford containing invoices and have identified my handwriting in the second section dated 13.4.82 in blue ink only. I don't recognise the other handwriting.
51. Most of the invoices, orders were completed in a batch process and were normally a couple of months in arrears.
52. I have examined a book of orders numbered 24/31 for McLEOD Investments dated from 4/1/82 to 22/2/82. The first two orders dated 4-1-82 could have been completed by Ken Gordon. There are five orders dated 17-2-82 which I am unable to identify the handwriting. There is one blank order. I have identified my handwriting on the rest of the orders. The authorised officers signature on all of the orders is Ron Hopkins. I can say that order book was also presigned by Ron Hopkins. In some cases the order books were presigned by Ron Hopkins.''
In her cross-examination, Mrs. Faithfull gave evidence as follows:
``And it would be fair to say that you now have no particular recollection of any individual one of those pieces of paper except what you can see by looking at it now? - Yes.
ATC 4730
And you have no particular recollection of filling out any of them? - I'm sorry, what do you mean? You have no particular recollection of the circumstances in which you filled out any one of them? - No.
That means you agree with me? - You mean I don't understand why I filled them out, is that what you mean?
No. You now have, do you agree, no particular recollection of filling out any specific order form, as distinct from any other one? - I'm sorry, I don't understand the question.
Well, you were shown a number of order forms a little earlier this afternoon? - Yes.
You don't now have a specific recollection of filling out those order forms, you only know you filled them out because you recognise your handwriting? - I remember filling them out.
Do you mean you recall being employed to fill out order forms? - Yes.
But if you were to take any specific order form you wouldn't recall which day you filled it out? - No.
And you wouldn't recall the particular circumstances in which you filled it out? - What do you mean by circumstance? Sorry, I don't -
You wouldn't recall who in particular asked you to fill it out or from what particular document you filled out the details? - Well Ron Hopkins was my immediate boss and he was the one that gave me the documents.
But you wouldn't now have any recollection of which documents you looked at to fill out a particular order form? - No, not really.''
CONCLUSIONS ON THE APPEAL
As has been noted, the single issue tendered to the Court at first instance was whether ``the plan vehicles were, as the Commissioner contended, sold by the appellant to McLeod Ford for the wholesale price paid to Citicorp''.
On behalf of the appellant, it is suggested that it is convenient to approach the matter by reference to the following subsidiary issues (putting to one side, for the moment, the Commissioner's ``fiscal nullity'' argument):-
(1) Did the appellant acquire title to the vehicles such that it could sell them?
(2) If not, was the appellant nonetheless liable for sales tax?
(3) If the answer to (1) is ``Yes'', to whom did the appellant sell? In particular, did the appellant sell (a) to Hopkins (under quotation) or (b) to McLeod Ford?
Both the appellant's notice of appeal and the Commissioner's notice of contention raise several questions of law which, to some extent at least, depend for their resolution upon conclusions with respect to the facts, both primary and secondary. Many aspects of the facts are controversial. It is proposed to turn first to the primary facts and then to address the secondary facts.
(a) The primary facts
His Honour's findings of fact have already been summarised. Two areas of contention remain. In the first place, the appellant challenges the finding that the documents prepared by Hopkins were backdated. Secondly, the Commissioner disputes his Honour's rejection of the Commissioner's contention that some of the subject transactions were ``shams''. Both these matters involve inferences being drawn from the relevant primary facts and it is proposed next to consider those facts in turn.
(A) Backdating of documents
It will be recalled that, so far as Hopkins was concerned, there were three kinds of documents involved: (1) the order from Hopkins to the appellant; (2) the invoice from Hopkins to the appellant; (3) the invoice from Hopkins to McLeod Ford. As has been noted, his Honour concluded that-
``[Hopkins] organised a daily pickup of documents from McLeod Ford but [ Hopkins] had its operational centre at Tweed Heads. Accordingly, documents had to be sent to [Hopkins], first to Brisbane and from Brisbane to Tweed Heads. There they were collected in bunches until they were processed. Employees of [Hopkins] from time to time created documents, mainly backdated, purporting to show what had happened.''
On behalf of the appellant, it is submitted that whilst the evidence does not disclose precisely when the contract for purchase by Hopkins was made, the Court should conclude that the contract, which was evidenced by the order form from Hopkins and the invoice, was
ATC 4731
made ``on the day the invoice was sent by courier to Hopkins or within a day or so thereafter''.The appellant relies, in the main, upon the facts that there was a daily courier service between Sydney and the Gold Coast and that this was consistent with published airline schedules.
On behalf of the Commissioner, it is submitted that the inference to be drawn with respect to the courier service is that the courier ``called almost daily'' at the appellant's premises to pick up invoices from the appellant to Hopkins and to deliver orders from Hopkins to the appellant and invoices from Hopkins to McLeod Ford. The courier ``would then probably post'' the appellant's invoices to Hopkins at Tweed Heads. At Tweed Heads, Mrs. Faithfull and Ms Barron would make out the corresponding orders from Hopkins to the appellant and the invoices from Hopkins to McLeod Ford. These would then be posted back to Sydney and delivered by the courier to the McLeod showroom.
As has been noted, the conclusions of the trial Judge in this area were expressed in general terms, as was much of the evidence adduced by the parties in this context. Many vehicles were involved and the parties chose, no doubt for good reason, to litigate the issues in a ``by and large'' way. His Honour expressed his findings accordingly. Now, at the appellate level, the parties have invited the Full Court to make specific findings of primary fact in this area. Given the absence of the Judge's findings (for the reason just given) and the absence of evidence from some of those who should have known these details (in particular, Mr. Hopkins and the firm of couriers), this has proved a difficult task for us.
However, some specific primary facts have emerged and should be mentioned here as follows:
(1) A ``daily'' courier service was employed and paid for by the appellant. The courier called at McLeod's premises at about 10.00 a.m.
(2) Airline schedules between Sydney and the Gold Coast (Coolangatta) meant that ``[i]f a consignment arrived at Sydney airport early enough, it was possible to arrange for same day delivery to an addressee in the Coolangatta area'' (see the affidavit of Claire Leeson, an executive employed by Ansett Airlines of Australia Limited, sworn 29 July 1991).
(3) Although Hopkins charged the appellant $5.00 per day for the courier service, the cost of transmission by air was much higher. (The parties have now agreed that it was no less than $25.00.)
The foregoing relates, of course, only to the delivery of the documentation between Sydney and Tweed Heads. A separate, but related question, is whether the documents were backdated.
As has been said, if the matter is looked at in terms of individual transactions, the primary facts are not easily located, let alone established, especially in the absence of Mr. Hopkins. The evidence of Mrs. Faithfull and Ms Barron already mentioned, not surprisingly, did not descend into the detail which would be required in order to justify specific findings of primary fact. All that can be said, at this stage, is that documentation evidencing the transactions in question was brought into existence at some point of time. Whether, in whole or in part, these documents were backdated is a question which will be deferred for consideration under the heading of the secondary facts (i.e. inferences to be drawn from the primary facts).
(B) ``Sham'' transactions?
So far as concerns the primary facts in this area, it will be recalled that his Honour found, as is common ground, that the appellant intended to embark upon, and did embark upon, the tax ``minimisation'' scheme the subject of professional advice. The real issue between the parties in this context is with respect to the proper conclusion to be drawn from the dealings. This question will be deferred also.
(b) Secondary facts
Again, it will be convenient to deal with the two main areas of contention separately.
(A) Backdating of documents?
Given the difficult logistics of the situation, it was reasonable to expect that it would not always be possible, let alone practicable, to ensure that all the intended dealings took place on the same day and in the sequence contemplated. Given also the lapse of time and the volume of the dealings, it was further to be expected that both Mrs. Faithfull and Ms Barron would not be able to recall the detail of particular transactions except by reference to
ATC 4732
the documents. Further, Mr. Hopkins, who could be expected to throw considerable light on these matters, was not called.As has been noted, his Honour's conclusions on the point were expressed as follows:
``Employees of [Hopkins] from time to time created documents, mainly backdated, purporting to show what had happened.
...
[T]he documentation did not keep up with the transactions as they purportedly occurred after a customer had agreed to purchase a vehicle.''
Several points arise here. First, though the Judge said that documents had been ``created'', he also found that there was no ``sham'' involved. It is unlikely that his Honour was intending to suggest that the documents brought into existence by the staff of Hopkins were generated for any purpose than the implementation of the tax ``minimisation'' scheme. To that extent, it appears that his Honour found that the documents reflected the actual intentions of the parties.
Secondly, his Honour found that the documents were ``mainly'' backdated and no attempt was made, understandably in the light of the general manner in which the evidence was led, to make a specific finding in this area in respect of individual transactions.
Given the nature of that evidence, it is difficult for an appellate court to attempt to embark upon a reconstruction of each of these transactions from the material in the transcript of the proceedings at first instance. Having examined the evidence, including the documentary material, we are not persuaded that his Honour erred in his conclusion that the documents prepared at Tweed Heads were ``mainly backdated''.
(B) ``Sham'' transactions?
In support of his submission that certain of the dealings were ``shams'', the Commissioner relies upon the observations of Diplock L.J. in
Snook v London & West Riding Investments Ltd. (1967) 2 Q.B. 786 (at 802) that-
``... [A sham] means acts done or documents executed by the parties to the `sham' which are intended by them to give... the appearance of creating between the parties legal rights and obligations different from the actual legal rights and obligations (if any) which the parties intend to create. But... for acts or documents to be a `sham'... all the parties thereto must have a common intention that the acts or documents are not to create the legal rights and obligations which they give the appearance of creating.''
As has been noted, in the ``revised agreed statement of facts, issues and contentions'' the Commissioner contended as follows:
``8.1. The loans from Trad to the [appellant] and the supporting charges over the plan vehicles were shams.
8.2. The sales of plan vehicles by the [appellant] to [Hopkins] and by [Hopkins] to McLeod Ford were shams, either in their own right or consequentially on the preceding subparagraph.
8.3 The true nature of the relevant transactions was sales of the plan vehicles by the [appellant] to McLeod Ford.''
To support his contention, the Commissioner relies upon circumstance of the cheques in question being cleared simultaneously to negate the existence of any loans. If the cheques were held together until the settlement with Citicorp, then no ``real'' loan was made and the ``charge'' in favour of Trad was not necessary. Neither was there any intention that Trad would enforce the charge. Further, the Commissioner asserts, the dealings with Hopkins were conducted in a ``haphazard'' way, and the parties never intended that the vehicles should be sold to or by Hopkins at ``ridiculous'' prices.
We have difficulty accepting this analysis. As was pointed out in Snook above, and
Sharrment Pty. Ltd. & Ors v Official Trustee in Bankruptcy (1988) 18 FCR 449 at 454-458 and 467-469 (and the cases there cited), one must first determine what were the genuine common intentions of the parties. If the acts and documents in question reflect those intentions, there will be no ``sham''. Haphazard conduct or departures from the provisions of the documentation may, or may not, indicate that the documents do not truly reflect what was intended. What is crucial, for present purposes, is the ascertainment of the parties' real intentions.
In our opinion, the relevant parties (i.e. Mr. McLeod and all of the companies controlled by him, and Mr. Hopkins) genuinely intended to enter into the transactions contemplated by the
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tax ``minimisation'' scheme advised by Mr Gordon. It is true that some of the transactions involved in the plan were extraordinary, even artificial, in commercial terms. But it did not follow that they were ``shams''. On the contrary, given the tenor of the advice tendered to Mr. McLeod, it was necessary, in his perception, that his company enter into transactions of this kind. Likewise, given his own role, Mr. Hopkins was willing to co- operate. It follows, in our view, that the dealings now challenged were entered into in accordance with the real intentions of Mr. McLeod and of Mr. Hopkins. They were not, in our opinion, ``sham'' transactions.It does not, of course, follow that the dealings were legally effective. They were artificial and extraordinary in commercial terms. Moreover, some of the dealings were embarked upon in a haphazard way and in other instances, the provisions of the documents were departed from and many instruments were backdated. We will return to the significance of these matters when considering what conclusions should be made on the questions of law which remain for determination.
The legal character of the subject transactions for the purposes of the sales tax legislation
The Commissioner's assessments in this matter, upheld by the primary Judge, were grounded upon Assessment Acts (No. 3) and (No. 7). The former deals with goods manufactured locally; the latter deals with imported goods. The appellant contends that the provisions of Assessment Act (No. 2) are applicable here. Under Assessment Act (No. 2), sales tax is levied and paid on the sale value of goods manufactured in Australia and sold by a taxpayer who purchased them from the manufacturer.
For present purposes, it will suffice to refer again to the relevant provisions of Assessment Act (No. 3) as follows.
By s. 3 it is provided:
``3. Subject to, and in accordance with, the provisions of this Act, the sales tax imposed by the Sales Tax Act (No. 3) 1930 shall be levied and paid upon the sale value of goods manufactured in Australia and sold by a taxpayer, not being either the manufacturer of those goods or a purchaser of those goods from the manufacturer.''
By s. 4(1) it is relevantly provided:
``... for the purposes of this Act the sale value of goods shall be the amount for which those goods are sold by a registered person, or a person required to be registered, not being either the manufacturer of those goods or a purchaser of those goods from the manufacturer, to an unregistered person or to a registered person who has not quoted his certificate in respect of the purchase of those goods:
Provided that where goods are sold by retail by a registered person who has quoted his certificate when purchasing the goods the sale value of the goods shall be the amount which would be the fair market value of those goods if sold by him by wholesale, but if the Commissioner is of opinion that the amount set forth in any return by the registered person as the sale value of any such goods is less than the amount which would be their fair market value if sold by wholesale, the Commissioner may alter the amount set forth in the return to the amount which, in his opinion, would be the fair market value of the goods if sold by wholesale, and the amount as so altered shall be the sale value of the goods for the purposes of this Act.''
On behalf of the Commissioner, it is said that there was (1) a sale from Citicorp to the appellant, and (2) a sale from the appellant to McLeod Ford; which both occurred in the same instant as (3) the sale by McLeod Ford to the retail customer. The Commissioner says that we are not here concerned with (1) (an earlier wholesale transaction) or (3) (a retail transaction), because sales tax is payable only on the last wholesale transaction. The question for our determination is whether, within the meaning of the statute, there was a ``sale'', at the wholesale price, by the appellant to McLeod Ford (i.e. transaction (2)).
It will be recalled that sales tax is imposed ``upon the sale value of goods... sold by a taxpayer'' (emphasis added). The concept of a ``sale'' for this purpose was discussed by Hill J. in
Genex Corporation Pty. Ltd. & Ors v The Commonwealth of Australia & Anor 91 ATC 4564 at 4570; (1991) 30 FCR 193 at 199-200 as follows:
``As indicated above, one of the taxing points, indeed the most usual, is `sale' of the goods. That expression also has its ordinary meaning, and involves a bargain and sale at
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a price and a transfer of title to the goods. Benjamin on Sale, 8th ed., 1950 at 1 et seq discusses the elements of sale as being parties competent to contract, mutual assent, a thing, the absolute or general property in which is transferred by the seller to the buyer and a price in money paid or promised. What is essential for present purposes is that a sale involves a passing of title to goods. Hence, as title to the film in the present case remains throughout in the customer, and never passes to or from the applicants, it is obvious that there can be no sale of the film in the ordinary sense of that expression.The Assessment Act No 1 does, however, deem certain transactions to be a sale. So, for example, if title to goods passes under the terms of a contract, not being a contract for the sale of goods, the contract being one pursuant to which the person deemed to have sold the goods received or became entitled to receive consideration, there will be a deemed sale: s. 3(4) of Assessment Act No 1. Thus, a contract for work and labour, if it results in title to goods passing, will amount to a sale of goods, and, unless a relevant exemption applies, sales tax will be exigible.''
(a) Was there a sale by Citicorp to the appellant?
On behalf of the Commissioner, it is submitted, in the first place, that there was an effective wholesale of the vehicles from Citicorp to the appellant. On the face of the events which occurred, there is considerable force in the submission: Citicorp dealt with the appellant; the floor plan, or bailment agreement, was made between Citicorp and the appellant; Citicorp knew that the appellant was a wholesaler and that McLeod Ford was a retailer; Citicorp received sales advices and cheques from the appellant; and, although the provisions of the floor plan agreement with respect to the prior notification by the appellant of individual sales were not complied with (and, it would seem waived or, perhaps, varied - see R.B.S. Macfarlan Q.C., ``Waiver of Conditions and Conditions Precedent'' (1992) 9 Aust Bar Rev 110), in other respects the agreement was adhered to.
On the other hand, the appellant's case is that where there is no title to goods in the taxpayer, the taxpayer cannot sell the goods so as to be liable to tax. It follows, the argument runs, that an unperformed contract to sell goods, even if binding on the parties ``so that they are estopped inter partes from denying its efficacy or performance, does not attract tax: only actual sale does so, and only when the sale occurs''.
The appellant argues that it never had title to the goods and so could not, and did not, sell them. Alternatively, if it did acquire title, the only sale made was to Hopkins, who quoted a certificate.
Did s. 5 of the Factors (Mercantile Agents) Act apply here?
The appellant contends that McLeod Ford was a mercantile agent whose business was to sell vehicles in its possession that were owned and entrusted to it by Citicorp. Accordingly, it is said, by s. 5 of the Factors (Mercantile Agents) Act 1923 No. 2 (N.S.W.) (either alone or in conjunction with s. 28(2) of the Sale of Goods Act 1923 No. 1 (N.S.W.)), McLeod Ford was empowered to and did make sales of the vehicles which were ``as valid as if [McLeod Ford] were expressly authorised by the owner of the goods to make the same''. It followed that, by those sales and by virtue of the statutory agency, the title to the goods passed from the owner, Citicorp, to the retail customer of McLeod Ford and so passed when the customer paid McLeod Ford and took delivery; it further followed that the appellant never acquired title.
We have difficulty in accepting that this analysis has any bearing upon the present matter.
As Brennan J. observed in
Gamer's Motor Centre (Newcastle) Pty. Ltd. v. Natwest Wholesale Australia Pty. Ltd. (1987) 163 CLR 236 (at 251-252), the object of legislative provisions of this kind is to protect an innocent purchaser who is deceived by the physical possession of goods and who is inevitably unaware of legal rights which fetter the apparent power to dispose.
It is clear that, in the present context, legislation of this kind deals only with the retail transactions. The legislation could afford protection to an innocent retail customer of McLeod Ford by deeming the acquisition by the customer to have been authorised by the true owner of the goods. But, in our view, the legislation has no relevant operation with respect to the dealings between the appellant
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and Citicorp. Those wholesale dealings were governed by the provisions of the bailment agreement and by the conduct of those parties in the performance of those provisions. There was substantial performance of the bailment agreement which, as has been said, was intended to operate in accordance with its terms, save with respect to the prior notification by the appellant of a particular sale. (And as has been mentioned, it would seem that this provision was either waived or, to the necessary extent, the floor plan arrangement was varied.) The evidence of the Citicorp officers was that the relationship between the appellant and Citicorp was conducted in a manner that was satisfactory from Citicorp's point of view.It follows, in our opinion, that the appellant acquired title to the goods from Citicorp pursuant to the wholesale provided for by cl. 8(a) of the bailment agreement.
(b) Was there a sale by the appellant to McLeod Ford within the meaning of the sales tax legislation?
Under the scheme intended to operate in the present case, it was proposed that the appellant receive, and it did in fact receive, as his Honour put it, ``monetary consideration equivalent to the totality of the wholesale value of the motor vehicles''. The primary Judge said [at 4981-4982]:
``At the stage when McLeod Ford received an order from the customer, a cheque was drawn by Trad in favour of [the appellant] for 99% of the wholesale price. That cheque was, at that stage, kept in a drawer. But [the appellant] ultimately received the cheque and banked it. [The appellant] also received a cheque from [Hopkins] for the 1% beneficial interest which [Hopkins] acquired or was intended to acquire. After the customer had paid for the vehicle and taken possession of it, there was a banking in which McLeod Ford paid Trad the amount necessary to discharge the purported loan of 99% of the wholesale value. The equivalent cheque from Trad to [the appellant] was banked on the same day, leaving Trad with no significant amount in its bank account. The cheque from [Hopkins] to [the appellant] for the 1% value was banked at some stage. McLeod Ford purportedly purchased [Hopkins'] interest for.6% and a cheque for that amount was paid. At the end of each month, there was a further accounting in which the entitlement of [ Hopkins'] percentage fee was calculated together with other charges made by [ Hopkins] including the remaining.4% from the 1%. At the time when Trad's cheque was paid into its bank account, [the appellant] paid Citicorp the wholesale price of the vehicle.''
We agree.
In a passage from his reasons already cited, his Honour had said that, for the purposes of the sales tax legislation, both Trad and Hopkins were ``merely conduits''. We agree with this characterisation.
Once it is accepted, as it should be, that the appellant received monetary consideration equivalent to the totality of the wholesale value and that the role of Trad and Hopkins in the scheme was that of mere conduits, it was, we think, open to his Honour to hold, as he did, that for the purposes of the sales tax legislation, there should be inferred from the conduct of the parties an agreement that the appellant sell the vehicles by wholesale to McLeod Ford.
In our opinion, the sales tax legislation does not depend for its operation upon the existence of an express sale. Sales tax may be payable upon the sale value of goods sold pursuant to an agreement which is implied: i.e. to be inferred from the circumstances of the case. Halsbury's Laws of England (4th ed. Vol. 41 para. 643 n. 5) states:
``A contract of sale may be implied from conduct as an inference of fact, that is to say, when the parties really intend a sale, but do not express it in words, e.g. when a man takes up an article in a shop and pays for it, or otherwise appropriates it with the consent of the owner, or goes into a restaurant and orders a meal, or where an unsigned contract is acted on by the parties according to its terms:
Brogden v Metropolitan Rly Co (1877) 2 App Cas 666, HL. In such cases there is in fact `an understanding between the parties', which may be called an implied contract:
Falcke v Scottish Imperial Insurance Co (1886) 34 Ch D 234 at 249, CA, per Bowen LJ... A contract of sale may also be implied from conduct by inference of law. `In such a case the law does not require an actual agreement, but implies a contract from the circumstances; in fact, the law itself makes the contract':
Gore v Gibson (1845) 13 M & W 623 at 626, per
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Pollock CB. See also
Rumsey v North Eastern Rly Co (1863) 14 CBNS 641 (contract implied against express intention)... As to a party so conducting himself as to be precluded from denying that he intended to be a buyer or seller, as the case may be, see para. 631, ante. Moreover a new contract may be implied by law from acts done in part performance of a contract of sale, e.g. where the buyer retains part of the goods delivered: see
Mavor v Pyne (1825) 3 Bing 285 (contract not performable within a year)...''
In the circumstances of the present matter, we are not persuaded that the primary Judge erred in his conclusion that for sales tax purposes, the last sale by wholesale, in truth, took place between the appellant and McLeod Ford.
It must follow, in our view, that the appeal should be dismissed.
``Fiscal nullity''
As has been noted, the Commissioner also relies on the United Kingdom doctrine of ``fiscal nullity''. By this principle, it is said, parts of a composite transaction may be disregarded for fiscal purposes. Although, having regard to the view we have already formed it is not strictly necessary that we deal with the point, we propose to express an opinion on it.
The ``fiscal nullity'' doctrine is derived from the decisions of the House of Lords in
W.T. Ramsay Ltd. v Inland Revenue Commissioners [1982] AC 300;
Inland Revenue Commissioners v Burmah Oil Co. Ltd. [1981] 54 TC 200 (H.L. (Sc.)) and
Furniss v Dawson [1984] AC 474. The principle was later considered by the Lords in
Craven v White [1989] AC 398 and, more recently, in
Ensign Tankers (Leasing) Ltd. v Stokes [1992] 1 A.C. 655.
Ramsay involved the interpretation of English capital gains tax legislation. The taxpayer, having incurred a liability for capital gains tax, entered into two transactions whereby it made an allowable loss which was purportedly matched by a non-chargeable gain. An attempt to claim a set-off for the loss against the liability for tax failed by virtue of an approach to the question which has been criticised by some English commentators (see, e.g., the comments by John Tiley in The All England Law Reports Annual Review 1991 at 343-344 and 350-351).
In Ramsay, Lord Wilberforce said (at 323-324):
``4. Given that a document or transaction is genuine, the court cannot go behind it to some supposed underlying substance. This is the well-known principle of Inland Revenue Commissioners v. Duke of Westminster... This is a cardinal principle but it must not be overstated or overextended. While obliging the court to accept documents or transactions, found to be genuine, as such, it does not compel the court to look at a document or a transaction in blinkers, isolated from any context to which it properly belongs. If it can be seen that a document or transaction was intended to have effect as part of a nexus or series of transactions, or as an ingredient of a wider transaction intended as a whole, there is nothing in the doctrine to prevent it being so regarded: to do so is not to prefer form to substance, or substance to form. It is the task of the court to ascertain the legal nature of any transaction to which it is sought to attach a tax or a tax consequence and if that emerges from a series or combination of transactions, intended to operate as such, it is that series or combination which may be regarded. For this there is authority in the law relating to income tax and capital gains tax: see Chinn v Hochstrasser... and Inland Revenue Commissioners v Plummer...
For the commissioners considering a particular case it is wrong, and an unnecessary self limitation, to regard themselves as precluded by their own finding that documents or transactions are not `shams', from considering what, as evidenced by the documents themselves or by the manifested intentions of the parties, the relevant transaction is. They are not, under the Westminster doctrine or any other authority, bound to consider individually each separate step in a composite transaction intended to be carried through as a whole. This is particularly the case where (as in Rawling) it is proved that there was an accepted obligation once a scheme is set in motion, to carry it through its successive steps. It may be so where (as in Ramsay or in Black Nominees Ltd. v Nicol... there is an expectation that it will be so carried through,
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and no likelihood in practice that it will not. In such cases (which may vary in emphasis) the commissioners should find the facts and then decide as a matter (reviewable) of law whether what is in issue is a composite transaction, or a number of independent transactions.''
In Furniss, Lord Brightman expressed the limitations of the Ramsay principle as follows (at 527):
``First, there must be a pre-ordained series of transactions; or, if one likes, one single composite transaction. This composite transaction may or may not include the achievement of a legitimate commercial (i.e. business) end. The composite transaction does, in the instant case; it achieved a sale of the shares in the operating companies by the Dawsons to Wood Bastow. It did not in Ramsay. Secondly, there must be steps inserted which have no commercial (business) purpose apart from the avoidance of a liability to tax - not `no business effect'. If those two ingredients exist, the inserted steps are to be disregarded for fiscal purposes. The court must then look at the end result. Precisely how the end result will be taxed will depend on the terms of the taxing statute sought to be applied.''
In Craven, Lord Oliver explained the decision and reasoning in Ramsay in this way (at 505-506):
``What the case does demonstrate, as it seems to me, is that the underlying problem is simply one of the construction of the relevant statute and an analysis of the transaction or transactions which are claimed to give rise to the liability or the tax exemption. But it does not follow that because the court, when confronted with a number of factually separate but sequential steps, is not compelled, in the face of the facts, to treat them as if each of them had been effected in isolation, that all sequential steps must invariably be treated as integrated, interdependent and without individual legal effect. Indeed,... Plummer... was a case in which, although the transactions effected were integrated as part of a preconceived scheme which was commercially marketed and had no other conceivable purpose than that of saving tax, the construction of the statute compelled the acceptance of a fiscal result which accorded very ill with the true `substance' of the transactions taken as a whole. Every case has to be determined on its own facts and every series of transactions has to be examined and analysed to determine whether in truth, it constitutes a single composite and integrated whole entitling the court, in construing the statute, to ignore the legal effect of individual steps because they are not and never were contemplated as other than part of a single whole. No doubt the fact that neither the transaction as a whole nor any ingredient in it, taken on its own, serves or is intended to serve any purpose other than that of avoiding a liability to or attracting an exemption from a charge to tax facilitates an analysis of the transaction as an integrated whole, both in fact and in intention, but the appellants in Ramsay failed not because they had engaged in an exercise designed to eliminate their tax liability, but because the planned and integrated steps which they took and the intended and actual outcome of those steps did not, on analysis, achieve the fiscal purpose which it was hoped to achieve. And the reason why it did not achieve it was that, on its true construction, the word `loss' in the statute meant an actual loss and not merely a manipulated arithmetical difference.''
In Ensign, Lord Templeman said (at 676):
``There has been a difficulty in defining and identifying a single composite transaction distinct from two or more transactions which are independent. In Craven... this difficulty led to a difference of judicial opinion. But the difficulty does not arise in the present case and cannot affect the principles of Ramsay... and subsequent cases once a single composite transaction is either admitted or proved. In the present case the argument for the appellant amounts to no more than a repetition of the dictum of Lord Tomlin in the Westminster case... Subsequent events have shown that though this dictum is accurate so far as tax mitigation is concerned it does not apply to tax avoidance.''
In
Comptroller of Stamps (Vic.) v Ashwick (Vic.) No. 4 Pty Ltd 87 ATC 5064; (1987) 163 CLR 640, a stamp duty case, Mason C.J., Wilson, Dawson, Toohey and Gaudron JJ. (at ATC 5072; CLR 654) did ``not find it necessary
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to decide how far, if at all, the Ramsay principle is part of the law governing the judicial process in Australia''.Although Ramsay was relied on by the Commissioner in a sales tax context in Brayson Motors Pty. Ltd. v FC of T 85 ATC 4125; (1984-1985) 156 CLR 651 (at 653), it was not necessary in that case to decide whether the doctrine applied. See also
Bayford Wholesale Pty. Ltd. v Boucher & Anor 84 ATC 4626 at 4634; (1984) 2 FCR 427 at 436-437.
In
John v FC of T 89 ATC 4101; (1988-1989) 166 CLR 417, an income tax case, Mason C.J., Wilson, Dawson, Toohey and Gaudron JJ. referred to the description of Ramsay by Lord Goff in Craven as ``essentially a principle arising from the construction of the statute'' and said (at ATC 4110; CLR 434-435):
``If any such or similar principle is to be applied in relation to the Act, it is one that must be capable of implication consonant with the general rules of statutory construction. One such general rule, expressed in the maxim expressum facit cessare tacitum, is that where there is specific statutory provision on a topic there is no room for implication of any further matter on that same topic. The Act, in sec. 260 and now in Pt IVA, makes specific provision on the topic of what may be called tax minimisation arrangements and thereby excludes any implication of a further limitation upon that which a taxpayer may or may not do for the purpose of obtaining a taxation advantage. We would respectfully adopt as correct that which was said by Gibbs J. in Patcorp...:
`The presence of sec. 260 makes it impossible to place upon other provisions of the Act a qualification which they do not express, for the purpose of inhibiting tax avoidance.'
See also Oakey Abattoir Pty. Ltd. v. F.C. of T....; W. & J. Investments Ltd. v F.C. of T....''
On behalf of the Commissioner, it is now said that the ``fiscal nullity'' principle applies so as to ``render fiscally ineffective the scheme transactions [so as to] ascertain for sales tax purposes the true underlying transactions''. It is contended, for the Commissioner, that the ``steps inserted'' (to use Lord Brightman's phrase) were: (a) the loans from Trad to the appellant and the supporting charges over the plan vehicles; and (b) the sales of plan vehicles by the appellant to Hopkins and by Hopkins to McLeod Ford. Then, the argument runs, sales of the plan vehicles by the appellant to McLeod Ford for the wholesale price paid to Citicorp are left exposed.
An alternative and narrower submission put on behalf of the Commissioner, is that Ramsay establishes that where a taxing statute makes liability depend upon the existence of a circumstance defined in terms of a legal concept (for instance, ``sale'' or ``loss'') and where the sole purpose of a preordained series of transactions is to cause that circumstance to occur for a taxation purpose, the scheme fails because the ``true'' definition of that circumstance in a taxing statute excludes a circumstance created for such a sole purpose.
Although it may be accepted that there is no specific anti-avoidance provision in the sales tax legislation of the kind relied on in John, we have difficulty in accepting either of the Commissioner's submissions.
In our opinion, the resolution of the present matter must depend upon the effect of the sales tax legislation upon the transactions actually entered into by the parties to those dealings. First, this will call for the application of the ordinary rules of statutory construction. The legislation so construed will pick up the transactions as the statutes find them, that is, subject to the general law in all its relevant aspects (see
Stewart Dawson & Co. (Vic.) Pty. Ltd. v FC of T (1933) 2 ATD 221; (1933) 48 CLR 683 per Dixon J. at ATD 226; CLR 691 and
MacFarlane v. FC of T 86 ATC 4477 at 4486; (1986) 13 FCR 356 at 367).
Relevantly, there are no special rules applicable here. If, properly construed, it is a necessary ingredient of liability for sales tax that a ``sale'' be established, then in the absence of a special statutory definition, a sale for the purposes of the general law will need to be demonstrated. Likewise, if it be alleged that certain transactions were, in truth, interdependent, then it will be a question of fact for determination by the Court whether this was the actual intention of the parties (see, e.g.
Boydell v James [1936] SR (NSW) 620 per Jordan C.J. at 625-627). Again, this calls for nothing more than the application of ordinary legal principles.
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If it be the case (and the position in the United Kingdom is not clear) that the Ramsay principle stands for a special rule of statutory interpretation in certain circumstances then, in our view, that rule does not extend to the sales tax legislation now in question. There is no provision, explicit or implicit, in that legislation which dispenses with the requirement that a ``sale'' must have taken place in order that there be liability for tax in the present context. As has been said, the sale need not be express. It can, as in the present circumstances, be implied from the circumstances. But this result is arrived at by the application of the ordinary rules of statutory interpretation to the transaction which in fact took place, and not by virtue of any special doctrine of revenue law.
On behalf of the Commissioner, reliance is placed upon some observations on Ramsay made by Northrop and Sheppard JJ. in
FC of T v Ilbery 81 ATC 4661; (1981) 58 FLR 191. Their Honours said (at ATC 4663; FLR 193-194):
``It is our opinion that what their Lordships have said is as apt for the Australian legislation as it is for that in force in the United Kingdom. It follows that if, contrary to our opinion, the expenditure was incurred in gaining or producing assessable income, the arrangement pursuant to which it was incurred should be treated as fiscally a nullity, and thus not resulting in an expenditure incurred in gaining or producing the taxpayer's assessable income. We make it clear that what we have said is said in the context of a factual situation such as arises for consideration in this case. We do not intend it to apply otherwise than to cases of this or the Ramsay kind where there are, in the words of Lord Wilberforce, `closely integrated situations'. We express no opinion as to whether the principles expounded in Ramsay's case may have some wider application.
We also make it clear that the legislation with which we have been concerned is that in force at the time of the transactions here in question. We have not considered what effect, if any, the provisions of Pt. IVA of the Act may have upon the application of Ramsay's case in Australia. Part IVA of the Act was inserted by Act No. 110 of 1981 which came into force on 24 June 1981. It applies to schemes (as therein defined) which have been or are entered into after 27 May 1981. It could be that a full consideration of its provisions would lead to the conclusion that in relation to such schemes there is no room in Australia for the operation of the doctrine espoused in Ramsay's case. That is a matter upon which we express no opinion.''
Toohey J., in a judgment agreed in by their Honours said (at ATC 4670; FLR 205):
``But for the reasons already given, I am of the opinion that the sum of $14,000 represented by the prepayment of interest was not an outgoing incurred in the course of gaining or producing the taxpayer's assessable income and that the Commissioner was right in refusing to treat it as an allowable deduction. It follows that the appeal should be upheld, the judgment of the Supreme Court set aside and the assessment confirmed.
These reasons make it unnecessary to examine a submission made on behalf of the Commissioner based upon the decision of the House of Lords in W.T. Ramsay Ltd. v. I. R. Commrs... In brief their Lordships held that when analysing a transaction and its implications for revenue purposes a Court is not `bound to consider individually each separate step in a composite transaction intended to be carried through as a whole' (Lord Wilberforce...) The Court may view the transaction as a whole, in determining for instance whether there has been a gain or a loss. The authority of the judgments is of course unquestioned; their application to sec. 51 of the Income Tax Assessment Act and to the facts of this appeal are matters that do not have to be considered.''
It is plain that their Honours' observations were made obiter. Moreover, in John, the High Court has decided to the contrary and, in so doing, approved the decision of the Full Federal Court in both
Oakey Abattoir Pty Ltd v FC of T 84 ATC 4718 at 4725; (1984) 55 ALR 291 at 298-299 and in
W & J Investments Pty Ltd v FC of T 87 ATC 4860 at 4872-4873 and 4874; (1987) 16 FCR 314 at 320-321, 322 and 323.
Result of the appeal
In the result, we dismiss the appeal, with costs.
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