Pacific Film Laboratories Pty. Ltd. v. Federal Commissioner of Taxation.
Judges:Barwick CJ
McTiernan J
Windeyer J
Owen J
Walsh J
Court:
High Court (Full Court)
Barwick C.J.: By a case stated pursuant to sec. 18 of the Judiciary Act 1903-1966 the Court is asked certain questions which arise in the application of the Sales Tax Assessment Act ( No. 1) 1930-1966 (the Act). Pacific Film Laboratories Pty. Limited (the appellant) at relevant times carried on the business of developing photographic colour and colour reversal film and of black and white film, of making prints from such film and of making duplicates of colour transparencies. We are told that the appellant in the course of this business received either directly or indirectly from members of the public (a) exposed film to be developed and for the manufacture of prints therefrom, (b) developed negatives and colour transparencies for the manufacture of prints therefrom and (c) colour transparencies for the manufacture of duplicates therefrom. We are not told anything about the process by which prints or duplicates are made but it is conceded that however they are produced the appellant manufactures the prints and duplicates within the meaning of the Act. We have no information as to the documents, if any, prepared in connection with what I shall call the order by the members of the public for the manufacture of prints or duplicates whether given directly to the appellant or indirectly through an intermediary: but we are told that where the order comes by post to the appellant the amount payable in respect of the print or duplicate is pre-paid and that in other circumstances payment is made by members of the public on delivery of the print or duplicate if the order has come directly to the appellant but that where there are intermediaries between the members of the public and the appellant the intermediary pays the appellant on receipt of the print or duplicate the amount to be paid by the member of the public less a percentage and recovers the full amount from the member of the public when the print or duplicate is delivered. We are not told anything as to the scale of charges for the prints or duplicates except that I gather from what was said at the Bar table that there is a scale of charges.
The respondent Commissioner assessed the appellant to sales tax pursuant to sec. 25 of the Act treating the appellant as having sold the prints or duplicates manufactured by it. After an objection to the assessment had been disallowed by the respondent the appellant appealed to a Board of Review which in part allowed the appellant's appeal. Being dissatisfied with this result, the appellant appealed to this Court and in that appeal the present case has been stated.
It will be convenient to set out the principal sections of the Act with which we are at present concerned.
``17. (1). Subject to, and in accordance with, the provisions of this Act, the sales tax imposed by the Sales Tax Act ( No. 1) 1930 shall be levied and paid upon the sale value of goods manufactured in Australia, either before or after the commencement of this Act, by a taxpayer and on or after the first day of August One thousand nine hundred and thirty sold by him or treated by him as stock for sale by retail or applied to his own use.
(2). For the purposes of this section goods manufactured in Australia by a taxpayer and applied to his own use means goods manufactured in Australia in the course of carrying on a business and applied by the taxpayer to his own use whether for the purpose of that business or for any other purpose and whether or not those goods are of a class manufactured by that person for sale.
17A. Where goods are manufactured for a person wholly or in part out of materials supplied by him, the manufacturer of the goods, whether he manufactures those goods himself or procures their manufacture by another person, shall, for the purposes of this Act, be deemed to have sold the goods to the first-mentioned person, at the time of their delivery to him, for the amount charged to him by the manufacturer in respect of those goods.
18. (1). For the purposes of this Act, the sale value of goods, not being goods to which the next succeeding sub-section applies which are sold by the manufacturer to an unregistered person or to a registered person who has not quoted his certificate in respect of that sale shall be -
- (a) where the goods are sold by wholesale - the amount for which those goods are sold;
- (b) Where the goods are sold by retail -
- (i) if the goods are of a class which the manufacturer himself sells by wholesale - the amount for which the goods would be sold by the manufacturer if sold by wholesale; and
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- (ii) in any other case - the amount for which those goods could have been purchased by the taxpayer from another manufacturer if that other manufacturer had manufactured those goods in the ordinary course of his business for sale to the taxpayer; and
- (c) where the goods are deemed to have been sold by a manufacturer to another person pursuant to section seventeen A of this Act - the amount charged to that person by the manufacture in respect of those goods.''
The questions we are asked are as follows -
- ``1. Was the supply by the Appellant of prints and duplicates of colour transparencies manufactured by it in the above circumstances a sale by it of goods within the meaning of Section 17 of the Sales Tax Assessment Act ( No. 1)?
- 2. If the answer to question 1 is `No', is the Appellant by virtue of such supply deemed under the provisions of Sec. 3(4) of the said Act to have sold goods?
- 3. If the answer to question 2 is `Yes', does the Act fix or enable to be fixed a sale value for such prints and duplicates?''
In
F.C. of T.
v.
Riley
(1935) 53 C.L.R. 69
this Court by majority decided that photographs taken of and supplied to clients for reward in the course of a photographer's business were goods manufactured in Australia, within the meaning of sec. 17 of the Act. In
F.C. of T.
v.
Butcher
(1935) 53 C.L.R. 82
the Court by majority decided that prints made from film which had been exposed by amateur photographers and developed by the taxpayer were goods manufactured in Australia within the meaning of the same section. Formally there was no contest in either of these cases as to whether the prints were sold within the meaning of sec. 17. But it was said in
F.C. of T. v. Riley (supra)
-
``The special case raises no question as to the sale or sale value of the photographs, and this, no doubt, accounts for the economy of statement in reference to the terms upon which the clients' requirements are supplied. That the transaction is a sale is not, and doubtless could not, be disputed.''
Further, it was argued in F.C. of T. v. Riley (supra) by the Commissioner and denied by the taxpayer that the transaction between the customer and the photographer could not be regarded as only an agreement for the rendering of services but was an agreement for the production and sale of the photograph; consequently the production of the photograph was relevantly ``manufacture''. The Court decided that the production of the photographs was ``manufacture''. In doing so, and as part of its reasoning, the Court perhaps, at least inferentially, expressed the view that the photographs being ``vendible articles'' were in truth sold by the taxpayer (see p. 79 in the report). However that may be I am prepared to treat these cases as not formally deciding that question.
We were referred in the argument of this case to cases arising under the Statute of Frauds in connection with executory contracts such as
Clay
v.
Yates
(1856) S.C. 25
L.J. Ex. 237,
1 H
&
N 73
,
Lee
v.
Griffin
(1861) S.C. 30
L.J. Q.B. 252
and
Robinson
v.
Graves
(1935) 1 K.B. 579
.
Whilst one cannot derive any uniformity of application of principle from these and other like cases I think one can derive from them the principle that the question whether or not an agreement is an agreement merely to provide services or an agreement for the sale of goods depends upon the substance of the arrangements between the parties and is not to be resolved by any single criterion. However in this connection the circumstance that the services are to produce a chattel in which, but for the agreement and what is done under it, the person to whom it is to be delivered would have had no property is a most potent circumstance. By some it has been thought definitive and to require the conclusion that the agreement is one for the sale of goods. cf. a judgment of
Blackburn
J. in
Lee v. Griffin (supra)
: see also
Benjamin on Sale
(8th ed. p. 162) (Halsbury's 3rd ed. vol. 2 p. 6 para. 10).
But, once the contract is executed by the production and delivery of the goods, there is no need generally to decide whether the arrangement which preceded the delivery was an agreement to render services or an agreement to produce and sell goods. So far as pleading is concerned, in the days when common law pleading was understood and competently practised the pleader suing for the agreed sum where the agreement had been so executed would not have been troubled as to the nature of the antecedent contract. The common law form of pleading allowed the combination in one count of the common
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money counts. A competent pleader would necessarily have joined goods bargained and sold with work and labour done so that occasion did not arise for deciding whether or not, even when the initial arrangement may have been for the performance of services, the delivery for an agreed sum of specific goods in which the property passed by the delivery was a sale. It is notable, however, that Pollock C.B. in Clay v. Yates (supra) did say at p. 78 of the report in 1 H & N that the plaintiff after delivery of the goods could have sued either for goods bargained and sold or for work and labour done.The question in this case is not whether or not a memorandum is required in connection with an executory contract but whether when the transaction has been completed by delivery of the chattel, there has been a sale of manufactured goods in the meaning of the taxing statute. The statute as
Starke
J. said in
F.C. of T. v. Riley (supra)
is framed in comprehensive terms (see p. 80 of the report). It has in sec. 3(4) and sec. 17A provisions designed to bring within the scope of the section imposing tax, transactions which are not ordinarily or necessarily regarded as transactions of sale but are transactions in which the property in goods forming some part of the goods finally delivered passes from the taxpayer to other persons. The manner in which their Lordships of the Privy Council in
Dominion Press Ltd.
v.
The Minister of Customs and Excise
(1928) A.C. 340
dealt with the application of a taxing statute of a like kind to the Act, seems to me to be significant in connection with the distinction between on the one hand attempting to decide for the purposes of the Statute of Frauds whether an executory contract is one for the rendering of services or one for the sale of goods and deciding whether closed transactions satisfy the description of a sale within the meaning of a taxing statute such as the present Act.
But however that may be, I am of opinion that in this case the substance of the arrangement between the customer and the appellant whether effected directly or indirectly was an agreement for the sale and purchase of goods. The customer did not necessarily know anything about the process by which the print or duplicate was to be produced. Nothing in the case leads me to think that it involved any such personal skill as might in different circumstances persuade me that an arrangement was in substance one for the performance of personal services rather than for the purchase of the ultimate product. No doubt, to produce the print or duplicate some expertise would probably need to be applied. One may suspect that the process of production is largely mechanical though some degree of skill in tending a delicate plant may be involved. But so far as appears the appellant was not selected as the manufacturer of the print or duplicate either because of the personal skill of its corporate self or because of any known skill on the part of any of its employees. In my opinion, the substance of the arrangement constituted by the ordering of the print or duplicate and the delivery of the print or duplicate was an agreement for the sale of the print or duplicate and when delivered, or if because of some term of which we are unaware the property in the print or duplicate passed to the member of the public at an earlier point of time then, at that time, there was a sale of the print or duplicate by the appellant. For my part, I have no doubt whatever on the material before us that when the appellant delivered a print or duplicate either to the member of the public or to an intermediary for delivery to the member of the public it relevantly sold the print or duplicate.
But it is objected that there could not in any case be a sale of a print or duplicate either to the photographer or to any other person because of the provisions of the Copyright Act 1912. It has been assumed in argument that the person ordering the print was the owner of the copyright in the negative or transparency. This may or may not be so, but I am prepared to assume it as fact. Because the negative or transparency was the subject of copyright it is said that the appellant as the producer of the print or duplicate as a reproduction of the negative or transparency could not have any general property in the print which he could transfer by sale to any person including the owner of the copyright. It is submitted that he would have no more than a lien for the amount agreed to be paid for the production of the print or duplicate. The fact that he owned the sensitised paper or the film on which the print or duplicate was made to appear and such of the chemicals as remained on the paper or film at the end of the process of making the print or duplicate did not give him any general property in the print or
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duplicate as reproductions of the copyright work, the negative or transparency as the case may be.The Copyright Act 1912 which was in force during the period relevant to the assessment in this case carried the Copyright Act 1911 of the United Kingdom into operation in Australia. Section 1 sub-sec. 2(a) of the Act of 1911 gives to the author of a photograph the sole right to reproduce the photograph and to authorise its reproduction. By sec. 2 sub-sec. 1, copyright shall be deemed to be infringed by any person who without the consent of the owner of the copyright does anything, the sole right to do which is by the Act conferred on the owner of the copyright. By sec. 7, all infringing copies of any work in which copyright exists shall be deemed to be the property of the owner of the copyright who accordingly may take proceedings for the recovery of possession thereof or in respect of the conversion thereof. But sec. 8 provides that where proceedings are taken in respect of the infringement of the copyright in any work and the defendant establishes that he was not aware nor had reasonable ground for suspecting that copyright existed in the work the plaintiff shall not be entitled to any remedy other than an injunction.
There are, in my opinion, several clear answers to this submission. In the first place, there is authority for the proposition that the property in a chattel may be in one person and the copyright in another;
In
re Dickens
,
Dickens
v.
Hawksley
(1935) 1 Ch. 267
.
In the second place, an authority to reproduce a copyright work given by the owner of the copyright allows the authorised person to produce the copy as his own property and indeed unless the authority to reproduce it provides otherwise he is free to dispose of the reproduction, cf.
Coppinger
10th ed. p. 378 sec. 1027. In the third place, whilst of course the
Copyright Act
enables the copyright owner to recover possession of infringing copies of the copyright work or damages for the conversion of such infringing copies there were in this case no infringing copies, the owner of the copyright on the supposition made, authorised the making of the copy and its delivery to himself. It seems to me that even if the agreement between the owner of the copyright and the appellant had been no more than an agreement for the rendering of services the print produced by the appellant could not have been claimed by the owner of the copyright as his own nor could he have recovered it
in detinue
before it had been delivered to him but if as I think the agreement was an agreement for the sale of the print or duplicate by the appellant to the owner of the copyright it seems to me necessarily to follow that not only was there no property in the owner of the copyright in the print viewed as a chattel at any time before the delivery of the print to the owner of the copyright but that it was intended that property in the print or duplicate should pass on delivery of the print or duplicate.
In my opinion, the appellant had general property in the print or duplicate when produced with the authority of the copyright owner: it was not an infringing copy of the negative or transparency as the case may be though possibly it might have become so if sold to some person other than the owner of the copyright: this because of the limited nature of the authority to reproduce given by the owner of the copyright. But the rights given by sec. 7 to recover infringing copies, though subject to sec. 8, only arises when the copy is the infringing copy: that is to say, it is the sale which attracts the operation of the section in the case supposed. But that conclusion denies that the authorised reproduction had no general property in the print or duplicate. As I have said, the appellant, in my opinion, had the general property in the print or duplicate which is manufactured out of its own materials and none the less so because the copyright in the negative or transparency was in some other person, or as has been supposed in the member of the public ordering the print or duplicate.
In my opinion, the delivery of the prints or duplicates by the appellant for an agreed sum was a sale of those prints or transparencies within the meaning of sec. 17 of the Act. Accordingly, in my opinion, the sale value of those sales was rightly included in an assessment by the respondent Commissioner of the appellant. The question whether the sale value assigned by the Commissioner in the assessment was the correct sale value is not a question which is before this Court on the case stated.
In my opinion, the first question asked should be answered in the affirmative and it is unnecessary to answer either of the other two questions.
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