FC of T v BANK OF WESTERN AUSTRALIA LIMITED; FC of T v STATE BANK OF NEW SOUTH WALES LIMITED

Judges: Wilcox J

Hill J
Drummond J

Court:
Full Federal Court

Judgment date: Judgment delivered 15 December 1995

Hill J

Before the Court are two appeals brought by the Commissioner of Taxation from a judgment of a judge of this Court (Lindgren J). In the first of them, the Bank of Western Australia Limited (``the Bank of WA'') is the respondent. At issue in that appeal is the question whether goods purchased for the use of the Bank of WA and its predecessor, the Rural and Industries Bank of Western Australia (hereafter referred to as ``the former Bank of WA''), were exempt from sales tax. In the second appeal, the State Bank of New South Wales (``the State Bank'') is the respondent. At issue in this appeal is whether goods purchased for the use of the State Bank and its predecessor, the State Bank of New South Wales (``the former State Bank'') were exempt from sales tax.

The appeals concern two separate periods. The first period expires on 31 December 1992 and is governed by the terms of Item 74 of the First Schedule to the Sales Tax (Exemptions and Classifications) Act 1935 (Cth) (``the 1935 Exemptions and Classifications Act''). The second period commences on 1 January 1993 and depends upon Item 126 of the First Schedule to the Sales Tax (Exemptions and Classifications) Act 1992 (Cth) (``the 1992 Exemptions and Classifications Act'').

Item 74, applicable in the first period, was at all material times in the following terms:

``74. Goods for official use (whether as goods or in some other form), and not for sale, by a department of the Government of the Commonwealth, a State, the Northern Territory or the Australian Capital Territory, or an authority which is completely controlled by, and the expenditure of which is exclusively borne by , the Government of the Commonwealth, a State , the Northern Territory or the Australian Capital Territory, as the case may be, provided that, in the case of goods for the use of a department or an authority of the Government of a State, the Northern Territory or the Australian Capital Territory, an arrangement has been made between the Governor-General and the Governor-in- Council of the State, the Administrator-in- Council of the Northern Territory or the

ATC 4011
Chief Minister of the Australian Capital Territory, as the case may be, for the collection and payment by the State, the Northern Territory or the Australian Capital Territory, as the case may be, of sales tax upon the sale value of goods sold by the Government of the State, the Northern Territory or the Australian Capital Territory, as the case may be, and by every such authority established under the law of the State, the Northern Territory or the Australian Capital Territory, as the case may be, in the conduct of an enterprise which, in the opinion of the Commissioner, is a trading enterprise.

In this item, `authority' does not include an authority as defined by subsection 20A(1) of the Sales Tax Assessment Act (No. 1) 1930.''

[ emphasis added]

On and from 1 January 1993 a new Sales Tax regime came into force, described by those responsible for its introduction as a system of ``streamlined sales tax''. Under the new regime the 1935 Exemptions and Classifications Act was replaced by the 1992 Exemptions and Classifications Act. Item 126 was relevantly in the following terms:

``126(1) Goods for use by:

(a) an Australian government; or

(b) an authority that is completely controlled by an Australian government, and whose expenditure is exclusively borne by that government; or

(c) an authority that is completely controlled by 2 or more Australian governments, and whose expenditure is exclusively borne by those governments.

(2)...

(3) In this item, `Australian government' means the Commonwealth, a State , the Australian Capital Territory or the Northern Territory.''

[ emphasis added]

In the second period, it is only the application of the exemption to the Bank of WA and the State Bank which is in issue, the former Bank of WA and the former State Bank having by then ceased to carry on banking business.

As is noted in the judgment appealed against, there was no dispute between the parties that each of the four banks was ``completely controlled by'' a State Government, being that of Western Australia in the case of the former Bank of WA and the Bank of WA and New South Wales in the case of the former State Bank and the State Bank. Nor was it suggested before his Honour or before us that there was any material difference for present purposes between the language of Item 74 of the 1935 Exemptions and Classifications Act and Item 126 of the 1992 Exemptions and Classifications Act.

In respect of each of the four banks to which reference has been made, two issues thus arose below and on appeal. These are stated in the judgment appealed against in the following terms:

``1. Was the buyer of the goods, at the relevant time an `authority' within the meaning and for the purposes of Item 74 or Item 126 as the case may be?

2. If `yes' to (1), was the buyer's `expenditure... exclusively borne by... a State?'''

The Western Australian Banks

The former Bank of WA was reconstituted under the Rural Industries Bank of Western Australia Act 1987 and carried on the business of banking until 31 December 1990. The Bank of WA was incorporated in December 1990 under the Companies (WA) Code under the name R & I Bank of Western Australia Limited and was constituted as a ``bank'' under the R & I Bank Act 1990 (WA) which came into operation on 1 January 1991. It was a consequence of the latter Act that all of the assets and undertaking of the former Bank of WA became vested in the Bank of WA. The former Bank of WA, by force of the same Act, continued as a body corporate under the name R & I Holdings as the sole holder of the shares in and controller of the Bank of WA.

The New South Wales Banks

The former State Bank was reconstituted under the State Bank Act 1981 (NSW) and carried on the business of banking until 14 May 1990. On that date all of the assets and business undertaking of the former State Bank were vested in the State Bank which had been incorporated for that purpose on 29 March 1990 by registration under the Companies (New South Wales) Code as a company limited by shares. On 14 May 1990 the former State Bank was dissolved. The process of ``corporatisation'' was achieved through the operation of two Acts each passed in 1989,

ATC 4012

namely the State Owned Corporations Act 1989 (NSW) (``the SOC Act'') and the State Bank (Corporatisation) Act 1989 (NSW) (``the Corporatisation Act'').

The relevant legislation and characteristics of each bank

The judgment appealed against contains a very careful analysis of the relevant legislation governing and the characteristics of each of the four banks. It is accepted by the parties that this analysis is accurate. It is here repeated for ease of reference.

``THE WESTERN AUSTRALIAN LEGISLATION

The Rural and Industries Bank of Western Australia (`the former Bank of WA')

Within Part II (ss. 4-11) of the Rural and Industries Bank of Western Australia Act 1987 (WA) dealing with the constitution and administration of the former Bank of WA, s. 4 provided for the continuation and reconstruction as from 1 April 1988 in the form of the former Bank of WA, of the body corporate named `The Commissioners of the Rural and Industries Bank of Western Australia' which had been constituted under sub-section 9(1) of the Rural and Industries Bank Act 1944 (WA). By sub-section 4(4) the former Bank of WA was made an agent of the Crown in right of the State, and was entitled to the `status, immunities and privileges of the Crown except as otherwise prescribed'. By s. 5, it was provided that there should be a board of directors consisting of an ex officio managing director and between 5 and 8 other directors appointed by the Governor (in this section of these Reasons called `the Board'). Under s. 60 of the Interpretation Act 1984 (WA) such references to `the Governor' were references to the Governor acting with the advice and consent of the Executive Council. By Schedule 1, which was given effect by s. 5, a director might be removed by the Governor in certain circumstances. By s. 6 the Board was made the governing body of the former Bank of WA with power to determine its policy and to control its affairs. Sub-sections 6(3), (5), (6) and (7) provided as follows:

`6(3) Within the limits of its powers, the Board shall ensure that the policy of the Bank is directed to the greatest advantage of the people of Western Australia and promotes the balanced development of the economy of Western Australia.

...

(5) The Board and the Minister shall, at the request of either, consult together, either personally or through appropriate representatives, in relation to any aspect of the policies or administration of the Bank.

(6) The Board shall consider any proposals made by the Minister in relation to the Bank's affairs and shall, if so requested, report to the Minister on any such proposals.

(7) The Board shall consult the Minister before entering upon a course of action that in the opinion of the Board amounts to a major initiative.'

Part III (ss. 12-25) of the Act was headed `OPERATIONS OF THE BANK'. Within Division 1 (ss. 12-14) headed `Banking business', sub-section 12(1) provided that the former Bank of WA should carry on the business of banking and should have power to do all things necessary or convenient for that business. Section 14 provided for moneys which might be appropriated by Parliament to the purpose of the former Bank of WA or advanced to it to be applied by the Board for its purposes in accordance with the Act.

Division 2 (ss. 15-25) headed `Agency business' provided for the conducting of `agency business' by the former Bank of WA. `Agency business' was defined as business carried on under Division 2 in respect of a function conferred or imposed on the former Bank of WA by the Treasurer or by an Act, being `functions as agent, trustee or nominee of the Crown in right of the State.' Sub-section 17(1) provided that its agency business should be carried on separately from its banking business. By s. 25 the State indemnified the former Bank of WA in respect of losses, costs or damages incurred by it in performance in good faith of the functions conferred or imposed on it under the Division.

Part IV (ss. 26-30) was headed `FINANCIAL PROVISIONS'. Section 26

ATC 4013
provided that the former Bank of WA, with the approval of the Minister, might create and issue capital stock. This was a reference to debt capital, not to share capital, of which the former Bank of WA had none. Sub- section 26(2) provided that any capital stock should be issued, transferred and dealt with on such terms as were determined by the former Bank of WA with the approval of the Minister.

Sub-section 27(1) provided that subject to sub-section 27(2), the provisions of the Financial Administration and Audit Act 1985 (WA) regulating the financial administration, audit and reporting of statutory authorities applied to and in respect of the former Bank of WA and its operations. Sub-section 27(2) provided for a modified application of those provisions to the former Bank of WA. For example, sub- section 58(2) of the Financial Administration and Audit Act was to have effect in relation to the former Bank of WA as if it had been enacted in the following form:

`58(2) Without limiting the generality of subsection (1), the Treasurer may issue instructions relating to -

(a) the establishment and keeping of the accounts of statutory authorities including accounts of subsidiary and related bodies;

(b) the form and content of financial statements and reports on the operations of statutory authorities and their subsidiary and related bodies; and

(c) the preparation, issue or amendment of accounting manuals for statutory authorities.'

Sections 28, 29 and 30 assumed significance in the Bank of WA's submissions. The relevant parts of those sections were as follows:

`28(1) Instead of the income tax for which the Bank would have been liable if it were a public company liable to pay income tax under a law of the Commonwealth, the Bank shall pay to the Treasurer for the credit of the Consolidated Revenue Fund as soon as is practicable after the end of each financial year of the Bank and not later than 30 June, a sum equal to the amount of the income tax for which the Bank would have been liable under the law of the Commonwealth in respect of that financial year assuming that the Bank were a public company liable to income tax under that law.

(2)...

(3)...

(4)...

29(1) Subject to this section, the Treasurer may determine an amount that is to be paid by the Bank to the Treasurer for the credit of the Consolidated Revenue Fund by way of dividend from the net profits of the Bank for a financial year.

(2) A dividend under this section shall be calculated with respect to the net profits of the Bank for a financial year after first taking into account the amount payable to the Treasurer under section 28.

(3) The Board shall, as soon as practicable after the end of each financial year of the Bank, make a recommendation to the Treasurer as to the amount of the dividend (if any) that the Board recommends as appropriate for that financial year.

(4) In making a determination under subsection (1) in respect of a financial year, the Treasurer shall have regard to but shall not be bound by the recommendation of the Board.

(5) The Bank shall pay the amount of a dividend payable under this section as soon as practicable after the determination of the Treasurer and shall use its best endeavours to ensure that the amount is paid within 6 months after the end of the financial year to which the dividend relates.

30(1) The payment of the financial obligations of the Bank, other than the payment of moneys due by the Bank to the holders of capital stock or capital instruments issued under section 26, is guaranteed by the Treasurer.

(2) Any liability of the Treasurer arising from the guarantee in subsection (1) shall

ATC 4014
be met out of the Consolidated Revenue Fund which is appropriated to the necessary extent.'

In summary , the former Bank of WA was incorporated directly by Act of Parliament; it had no members; it was governed by a board of directors the composition of which was controlled by the Western Australian Government; it was an agent of the Crown; it was required to act in the interests of the people of Western Australia; it carried on a business which an ordinary citizen could carry on but which was well recognised as a business commonly and appropriately undertaken by governments, namely the business of banking; it carried on `agency business' which an ordinary citizen could not carry on; it was subject to the audit and reporting requirements generally applicable to `statutory authorities'; it was required to pay an `income tax equivalent' to the State; it was required to pay as dividend such amount as the Treasurer might determine to the State; and it had the benefit of a statutory guarantee of its obligations by the Treasurer.

R & I Bank of Western Australia Ltd (now called `Bank of Western Australia Limited') (`the Bank of WA').

Section 3 of the R & I Bank Act 1990 (WA) obliged the Under Treasurer, as soon as practicable, to ensure that the required steps were taken to complete the arrangements necessary for the commencement of the remaining provisions of the Act. One of these was that there should be in existence a public company limited by shares incorporated under the Companies (Western Australia) Code (in this part of these Reasons called `the Code' ) by the name `R & I Bank of Western Australia Ltd', the memorandum and articles of association of which complied with the R & I Bank Act 1990 and contained such provisions as were, and were in a form that was, approved by the Minister.

A copy of the memorandum and articles of association dated 6 December 1990 which was apparently lodged with the National Companies and Securities Commission (`the Commission') on 7 December 1990 was in evidence. The R & I Bank Act 1990 was assented to on 20 December 1990 on which date the Commission issued a certified copy of the memorandum and articles of association which had been lodged with it. Sub-section 3(4) provided that as soon as the Under Secretary was satisfied that the necessary arrangements had been completed, he or she was to certify to that effect to the Minister, after which a proclamation might be made fixing the date on which the substantive provisions of the Act were to come into operation. That date was 1 January 1991. Section 5 of the R & I Bank Act 1990 provided that the Act and all things done or omitted under it had effect notwithstanding any provision of the Code.

The articles of association can only be adequately understood when read with the R & I Bank Act 1990. They made certain of their provisions subject to that Act. The directors of the former Bank of WA became the first directors of the Bank of WA. The articles contained provisions which, as shall be seen, the R & I Bank Act 1990 required them to contain relating to Ministerial control. These provisions are adequately discussed in the following account of the provisions of the Act.

Section 43 of the R & I Bank Act 1990 repealed The Rural and Industries Bank of Western Australia Act 1987. But within PART 2 (ss. 6-21) headed `R & I HOLDINGS', s. 6 provided that the body corporate which had been reconstituted by sub-section 4(1) of the repealed Act (that is the former Bank of WA) was itself continued, unaffected by the repeal, as a body corporate under the 1990 Act under the name `R & I Holdings'.

Section 8 provided that R & I Holdings was an agent of the Crown in right of the State. Section 9 provided that it performed its functions through a director, namely the Under Treasurer for the time being.

Sections 10-13 provided for the functions and powers of R & I Holdings. Its major functions were to hold the shares in the Bank of WA, to borrow moneys and to lend moneys borrowed to the Bank of WA, and to hold `debt paper' (defined in sub-section 12(3)) of the Bank of WA. The power to acquire and hold further shares in, and debt paper of, the Bank of WA and to dispose of such debt paper could be exercised only with the approval of the Minister (sub-

ATC 4015
section 12(2)). Sub-section 13(1) provided as follows:

`13(1) The Minister may give directions in writing to R & I Holdings with respect to the performance of its functions, either generally or in relation to a particular matter, and R & I Holdings shall give effect to any such direction.'

Division 2 (ss. 14-17) headed `Financial provisions' provided that an account was to be established at the Treasury to be called the `R & I Holdings Account'. Sub-section 14(2) provided that there were to be paid into that account, inter alia, moneys received by R & I Holdings under ss. 31 and 32 (see later) and other moneys lawfully received by, made available to, or payable to, R & I Holdings. Sub-section 14(3) provided that there were to be paid from that account the sums required to be paid for the purpose of enabling R & I Holdings to perform its functions and to carry out the Act, and for no other purpose.

Section 15 provided, in substance, that the provisions of the Financial Administration and Audit Act 1985 (WA) regulating the financial administration, audit and reporting of statutory authorities were to apply to R & I Holdings.

Sections 16 and 17 merit quoting in full. They are as follows:

`16 Any surplus in the Account at the end of any financial year shall, except to the extent that moneys are reasonably required to be retained for the purposes of R & I Holdings, be paid to the Consolidated Revenue Fund or the General Loan and Capital Works Fund as the Treasurer may determine.

17(1) The payment of the financial obligations of R & I Holdings is guaranteed by the Treasurer.

(2) Any liability of the Treasurer arising from the guarantee in subsection (1) shall be met out of the Consolidated Revenue Fund which is appropriated to the necessary extent.'

In summary , the former Bank of WA, now named `R & I Holdings', was an agent of the Government of Western Australia; it was without members; it had one director, the Under Treasurer; it was subject to the control of the relevant Minister; it was continued in existence in order to be the `conduit' through which the shares in the Bank of WA would be held; it was subject to the general financial administration, audit and reporting requirements applicable to statutory authorities in Western Australia; it was required to pay any surplus in its account every year to the State; and its obligations were guaranteed by the Treasurer at the cost of the Consolidated Revenue Fund.

PART 3 (ss. 22-39) of the 1990 Act was headed `R & I BANK OF WESTERN AUSTRALIA LTD'. PART 3 contained, inter alia, the following:

`22(1) The R & I Bank of Western Australia Ltd, referred to in section 3(2)(a), is constituted by this section as a bank.

(2) In carrying on its banking business the Bank -

(a) is an agency through which the State engages in State banking as referred to in section 51(xiii) of the Commonwealth Constitution;

(b) shall ensure that the policy of the Bank is directed to the greatest advantage of the people of Western Australia and promotes the balanced economy of the State.

23 Notwithstanding section 22(2)(a) -

(a) the Bank does not have the status, immunities and privileges of the Crown;

(b) except as provided in this Act, the State is not liable for the Bank's acts, omissions or obligations.

...

25(1) The articles of association of the Bank shall at all times contain provisions to the effect of those set out in Schedule 1.

(2) Subject to this Act and the Code, the memorandum and articles of the Bank shall contain such other provisions as are, and be in such form as is, approved by the Minister.'

By reason of s. 25 and Schedule 1 (Schedule 1 could be varied by regulation made after consultation between the Minister and the

ATC 4016
Bank of WA's board of directors), the Bank of WA's board of directors (in this section of these Reasons called `the Board') was to comprise not less than five nor more than nine directors including a managing director; the powers to appoint and to remove directors and the managing director was vested in the Minister (although exercisable only after the Minister had obtained a recommendation from, and had consulted with, the Board, and subject to any provision in the articles of association); the Board was required to prepare and submit to the Minister a proposed written `statement of corporate intent', to consider any comments by the Minister on it and to consult with him or her following communication to the Board of the Minister's comments and to make changes agreed to between the Minister and the Board, and to deliver the completed statement to the Minister; and each statement of corporate intent was required to specify certain information including objectives, activities to be undertaken and performance targets. By sub-sections 25(3) and (4) the memorandum and articles of association were not to be amended in a way inconsistent with the Act, and the Act was to prevail over any inconsistent provision in the memorandum and articles.

Sections 26-33 provided for the ownership of the share capital of the Bank of WA and further aspects of Ministerial control of it, the payment of dividends to R & I Holdings, and the State's guarantee of the Bank of WA's financial obligations. Those sections were relevantly as follows:

`26(1) On the appointed day the Bank is to be taken to have issued and allotted to R & I Holdings fully paid ordinary shares in the capital of the Bank the aggregate nominal value of which is equal to an amount agreed between the Bank and the Minister for the purposes of this subsection.

...

(4) Subject to section 27, shares in the Bank shall not be issued to any person except R & I Holdings.

27(1) This section applies where the Bank exercises its powers to issue or make capital securities by entering into an arrangement that may result in an issue of shares by the Bank.

(2) Where this section applies, the Bank shall not issue the shares to a person other than R & I Holdings unless the shares confer either -

(a) no rights in relation to the direction, management or control of the Bank; or

(b) a right to vote that is exercisable only in one or more of the following circumstances -

(i) during a period during which a dividend (or part of a dividend) in respect of the share is in arrears;

(ii) upon a proposal to reduce the share capital of the Bank;

(iii) upon a proposal that affects rights attached to the share;

(iv) upon a proposal to wind up the Bank;

(v) upon a proposal for the disposal of the whole of the business undertaking of the Bank;

(vi) during the winding up of the Bank.

28...

29(1) The board of directors of the Bank and the Minister shall, at the request of either, consult together, either personally or through appropriate representatives, in relation to any aspect of the policies or administration of the Bank.

...

30(1) The board of directors of the Bank shall consult the Minister before entering upon a course of action that in the opinion of the board amounts to a major initiative.

(2) Without limiting the generality of subsection (1), the Bank, or any subsidiary of the Bank, shall not enter into any contract, arrangement or other transaction for which the amount or value of the consideration or the amount to be paid or received by the Bank or the subsidiary exceeds 1%, or such other percentage as is prescribed, of the ``risk weighted assets of the Bank'' (as that expression is defined by the regulations),

ATC 4017
unless the board of directors of the Bank has first informed the Minister of the proposal and held such consultations with the Minister as the Minister may require.

31(1) The Bank shall pay to R & I Holdings in respect of a financial year a sum equal to the amount of any tax for which the Bank would have been liable under the law of the Commonwealth in respect of that financial year if the Bank were liable to that tax under that law.

...

32(1) A dividend under this section shall be -

(a) calculated with respect to the net profits of the Bank for a financial year after first taking into account the amount payable to the Treasurer under section 31; and

(b) paid to R & I Holdings, in accordance with subsection (4).

(2) The board of directors of the Bank shall, as soon as practicable after the end of each financial year of the Bank, make a recommendation to the Treasurer as to the amount of the dividend (if any) that the board recommends as appropriate for that financial year.

(3) The Treasurer may accept a recommendation under subsection (2) or, after consultation with the board of directors of the Bank, determine that some other amount is to be paid.

33(1) The payment of the financial obligations of the Bank is guaranteed by the Treasurer.

(2) The payment of money due -

(a) by the Bank under clause 8 of Schedule 2; or

(b) by a subsidiary of the Bank,

is not guaranteed under subsection (1).

(3) Any liability of the Treasurer arising from the guarantee in subsection (1) shall be met out of the Consolidated Revenue Fund which is appropriated to the necessary extent.

(4) The Treasurer may, after consultation with the board of directors of the Bank, fix charges to be paid by the Bank to the Treasurer for the benefit of the Consolidated Revenue Fund in respect of the guarantee under this section.

(5) Payments by the Bank to the Treasurer in respect of any such charges are required to be made at such times, and in such instalments, as the Treasurer determines.'

Clause 8 in Schedule 2 referred to certain liabilities of the former WA Bank.

`34(1) Notwithstanding sections 280 and 281 of the Code, the Auditor General shall audit the accounts of the Bank and shall do so in accordance with the Code.

(2) For the purposes of subsection (1) the Bank is to be taken to be a statutory authority to which Division 2 of Part III of the Financial Administration and Audit Act 1985 applies.

(3) A report of the Auditor General under section 95 of the Financial Administration and Audit Act 1985 may include a report relating to matters arising from the performance of his functions under this section and the Code.

35(1) The Minister shall cause a copy of each of the following documents to be laid before each House of Parliament within the time specified for that document -

(a) a copy of the memorandum and articles of the Bank, within 21 days after the appointed day;

(b) a copy of any amendment to the memorandum or articles of the Bank within 21 days after the amendment is made; and

(c) a copy of the annual report, audited financial statements, and the Auditor General's report on those statements delivered to R & I Holdings in accordance with Part VI of the Code, within 21 days after the day on which they are respectively so delivered.'

In summary , the Bank of WA was incorporated as a company limited by shares by registration of its memorandum and articles of association under the Code but it was also the subject of a special Act which

ATC 4018
required it to be incorporated, controlled its memorandum and articles of association, and prevailed over any inconsistent provision of the Code ; it carried on a business which any citizen could carry on but which was well recognised as a business commonly and appropriately undertaken by governments, namely the business of banking; it was declared to be an agent of the State for the purpose of conducting the business of banking; subject to the special Act, the content of its memorandum and articles was controlled by the Minister; the composition of its board of directors was controlled by the Minister; except in respects not presently relevant, its shares could be held only by the former Bank of WA; its board was required to consult with the Minister; it was required to pay to its parent, the former Bank of WA, a `tax equivalent' and also a dividend as determined by the Treasurer; its financial obligations were guaranteed by the Treasurer out of the Consolidated Revenue Fund; and notwithstanding provisions of the Code which would otherwise be relevant, it was subjected to the audit, accounting and reporting requirements applicable to statutory authorities in Western Australia.

NEW SOUTH WALES

The State Bank of New South Wales (`the former State Bank')

The former State Bank was constituted a corporation with the corporate name, `State Bank of New South Wales', by s. 7 of the State Bank Act 1981 (NSW) (Act No. 89 of 1981) (the Act was discussed in the joint judgment of the High Court in State Bank of New South Wales v Commonwealth Savings Bank of Australia (1986) 161 CLR 639). That Act was amended by the State Bank (Contributions) Amendment Act 1981 (Act No. 117 of 1981) and by the State Bank (Amendment) Act 1986 (Act No. 169 of 1986). The account given here is of the Act incorporating the amendments.

Section 8 provided for a `State Bank Board' (in this part of these Reasons called `the Board') comprising not less than seven and not more than nine directors appointed by the Governor, of whom two should be full- time, one should be elected in a manner prescribed by the Regulations under the Act, and the remainder should be persons nominated for appointment as directors by the Minister and should be part-time. Under s. 14 of the Interpretation Act 1987 (NSW) (and s. 15 of its predecessor the Interpretation Act 1897 (NSW)) references in Acts of the New South Wales Parliament to the `Governor' are references to the Governor with the advice of the Executive Council. By sub-section 8(4) and Schedule 1 it was provided that a director should be deemed to have vacated office if, inter alia, he was retired from office by the Governor after he attained the age of 60 years and before attaining the age of 65 years, or if he should be removed by the Governor upon the latter's being satisfied that he was incapable or incompetent or had misconducted himself.

Section 9 made the Board the governing body of the former State Bank and empowered it to determine the former State Bank's policy and to control its affairs. However, sub-section 9(3) imposed a duty on the Board, within the limits of its powers:

`... to ensure that the policy of the Bank is directed to the greatest advantage of the people of New South Wales and has due regard to the stability and balanced development of the economy of the State.'

Sub-section 9(5) was as follows:

`9(5) The Minister and the Board shall, at the request of either, consult together, either personally or through appropriate representatives, in relation to any aspect of the policy or management of the Bank.'

PART III (ss. 13-35) was headed `GENERAL BANKING FUNCTIONS OF THE BANK'. Sub-section 13(1) provided that the former State Bank should `carry on general banking business'. Section 15 provided that the former State Bank should hold at least 12% `or such other percentage as may be approved by the Treasurer' of its total `Australian assets' in any of six classes of form, the last of which was `such other investments as may be approved by the Treasurer'. The expression `Australian assets' was defined in sub-section 15(2) to mean:

ATC 4019

`... assets in Australian currency within Australia, other than such amounts as may be approved by the Treasurer.'

Accordingly, the section made it possible for the Treasurer, in effect, to require that 100% of the former State Bank's Australian assets be subject to the limitation imposed by s. 15.

Section 16 was as follows:

`16(1) The payment of all moneys due by the Bank (whether or not in respect of its general banking business) is guaranteed by the Government of New South Wales.

(2) Any liability arising from the guarantee referred to in subsection (1) shall be met out of the Consolidated Revenue Fund, which is hereby appropriated accordingly.

(3) The payment of any money due by a subsidiary corporation of the Bank is not guaranteed under this section.

(4) The Treasurer may, after consultation with the Board, fix charges to be paid by the Bank in respect of the guarantee under this section, in so far as it relates to specified securities issued by the Bank.'

Sub-section 30(2) provided that from the `net profits' (defined in sub-section 30(1)) of the former State Bank in a financial year there should be payable to the Treasurer for payment into the Consolidated Revenue Fund an amount equal to the sum of the `dividend' and the `taxation-equivalent contribution' calculated in respect of those profits. The expressions `dividend' and `taxation-equivalent contribution' were both defined in sub-section 30(1), the former as follows:

`... dividend, in relation to the net profits of the Bank in a financial year, means such part, if any, of the amount of those profits (after deduction of the taxation- equivalent contribution calculated in respect of those profits) as the Treasurer determines , after consultation with the Board, having regard to the profitability of the Bank and the adequacy of its capital and reserves.'

(emphasis supplied)

The expression `taxation-equivalent contribution' was defined to mean the amount that would have been payable under a law of the Commonwealth as income tax in respect of the income represented by the former State Bank's net profits in a financial year, if it had been a public company liable to income tax under that law and if that income were taxable income within the meaning of that law, less certain specified amounts not presently relevant.

Section 35 empowered the former State Bank to make use of the services of any person employed in a Government Department or in the service of a statutory body, with the approval of the Department or body concerned and of the relevant Minister.

PART IV (ss. 36-60) was headed `GOVERNMENT AGENCIES'. Sub- section 36(1) provided that in Part IV `agency business' meant `the business in respect of an agency'. Sub-sections 37(1), 38(1) and (2) and 39(1)-(3) were as follows:

`37(1) The Governor may, by order, appoint the Bank to undertake, as an agent or otherwise, the exercise, on behalf of the Government of New South Wales or any body constituted by or under any Act, of such functions as are specified in the order.

...

38(1) The Bank shall exercise the functions conferred or imposed upon it in respect of its several agencies.

(2) Separate accounts shall be kept by the Bank in respect of each agency.

39(1) The agency business of the Bank shall be carried on separately and distinctly from the general banking business of the Bank.

(2) Transactions and accounts relating to the agency business of the Bank shall be kept separate from those relating to the general banking business of the Bank.

(3) Except as expressly provided in this Act, no moneys held by the Bank in respect of its agency business shall be used in connection with its general banking business and no liability incurred in respect of either such business affects the other business or the funds thereof.'

ATC 4020

The succeeding Divisions of Part IV provided for a `Rural Industries Agency', an `Advances to Settlers Agency', an `Irrigation Agency', a `Rural Assistance Agency' and a `Special Industries Agency'. The former State Bank was given groups of powers relating specifically to these respective agencies. It seems fair to say that the provisions reflect a governmental concern to assist certain classes of persons or to encourage or facilitate certain classes of activity.

Within Part V (ss. 61-79) headed `GENERAL', sub-section 69(2) required the former State Bank annually to prepare and submit to the Minister for presentation to Parliament a statement of accounts together with the Auditor-General's certificate in relation to it. Section 70 provided that the accounts and records of the former State Bank's financial transactions should be inspected and audited by the Auditor- General and that the Auditor-General should report to the former State Bank and to the Minister. Section 71 provided for the former State Bank, as soon as practicable but within six months after the end of each financial year, to prepare and forward to the Minister a full report on its operations during that financial year, and on such other matters related to the former State Bank as it thought fit should be included in the report. The same section obliged the Minister to cause a copy of each report forwarded to him under the section to be laid before each House of Parliament as soon as practicable after he received it.

Section 77 empowered the former State Bank to make by-laws with respect to, inter alia, its management and the conduct of its business. It required that a by-law be submitted for the consideration of the Governor and provided that a by-law could impose a penalty subject to a stipulated maximum amount for contravention.

In summary , the former State Bank was incorporated directly by statute; it had no members; it was managed by the Board the composition of which was a matter for the State Government; the Board was required to act in the interests of the people of New South Wales and to consult with the Minister; it carried on a business which any citizen could carry on but which was commonly recognised as one in which governments appropriately engaged, namely banking; it also carried on an agency business which was not a business which any citizen could carry on; payment of moneys due by it in connection with the general banking business was guaranteed by the State Government; it was required to pay a tax-equivalent amount into the State's Consolidated Revenue Fund each year and to pay to the State such dividend as the Treasurer should determine; it was subject to public audit and reporting requirements; and it had power to make by-laws.

State Bank of New South Wales Limited (`the State Bank')

As noted earlier, `corporatisation' in New South Wales, as relevant to this case, was effected by the SOC Act and the Corporatisation Act . As in the case of Western Australia, the process involved a change from a statutory corporation with no share capital, to a company limited by shares which was incorporated by registration under the Companies Code of the State, but which was nonetheless provided for specially and substantially controlled by another Act.

Section 4 of the SOC Act provided that a company limited by shares became an SOC by the insertion of its name in Schedule 1 to that Act by an Act of Parliament. Section 4 of the Corporatisation Act amended Schedule 1 to the SOC Act by inserting in it the name `State Bank of New South Wales Limited' which, as noted earlier, was a company limited by shares incorporated by registration under the Companies (New South Wales) Code (in this part of these Reasons called `the Code' ).

The shares in the State Bank were to be held by `eligible Ministers', namely the Treasurer and four or more other Ministers for the time being nominated by the Premier (ss. 6 and 12, definitions of `eligible Ministers' and `voting shareholders' in s. 3, and clause 1 of Part 2 of Schedule 2). Sub-section 7(1) provided for a transfer to an SOC or to any of its subsidiaries in exchange for the issue of shares or on any other basis, of assets, rights and liabilities of the State or of `an authority of the State'. However, this

ATC 4021
provision was not utilised in relation to the transfer from the former State Bank to the State Bank.

Sections 8, 9 and 10 of the SOC Act were as follows:

`8 The principal objective of every State owned corporation is to be a successful business and, to this end:

(a) to operate at least as efficiently as any comparable businesses; and

(b) to maximise the net worth of the State's investment in the corporation; and

(c) to exhibit a sense of social responsibility by having regard to the interests of the community in which it operates and by endeavouring to accommodate these when able to do so.

9 A State owned corporation or any of its subsidiaries:

(a) is not and does not represent the State except by express agreement with the voting shareholders of the corporation; and

(b) is not exempt from any rate, tax, duty or other impost imposed by or under any law of the State merely because it is a State owned corporation; and

(c) cannot render the State liable for any debts, liabilities or obligations of the corporation or any of its subsidiaries,

unless this or any other Act otherwise expressly provides.

10(1) The directors of a State owned corporation are to be persons who, in the opinion of those appointing them, will assist the corporation to achieve its principal objective.

(2) The board is accountable to the voting shareholders in the manner set out in Part 4 and in the memorandum and articles of association of the corporation.'

Paragraphs (a) and (b) of s. 8 together with s. 9 reflected a `more commercial' orientation than that which had been exhibited by sub-section 9(3) of the State Bank Act 1981 referred to earlier.

Section 12 provided that the Ministers who were the voting shareholders of an SOC were responsible to ensure that its memorandum and articles of association contained provisions to the effect of those in Schedule 2. These included provisions that only eligible Ministers might hold shares in an SOC; that they held them for and on behalf of the State; and that a person ceased to be eligible to hold shares in an SOC on ceasing to be an eligible Minister, and could not thereafter exercise rights as a shareholder except the right to transfer his or her shares as directed by the Premier. Other provisions in the Schedule were to the effect that directors were appointed by the voting shareholders (that is, by the eligible Ministers), that dividend policy was ultimately under the control of the voting shareholders, and that an SOC might not have subsidiaries except with the voting shareholders' approval and only if the subsidiary's memorandum and articles of association conformed to Schedule 3 to the SOC Act .

Section 14 provided that, subject to an exception not presently relevant, dividends payable to eligible Ministers were to be paid to the Treasurer on behalf of the State for payment into the Consolidated Fund.

Section 16 was as follows:

`16(1) The obligations of a State owned corporation or any of its subsidiaries are not guaranteed by the State of New South Wales, except to the extent that the board of the corporation and voting shareholders agree in writing .

(2) Any liability arising from an agreed guarantee is to be met out of the Consolidated Fund, which is appropriated accordingly .

(3) The voting shareholders may, after the consultation with the board of the corporation, fix charges to be paid by the corporation or any of its subsidiaries to the Treasurer in respect of an agreed guarantee, either generally or in so far as it relates to specified matters.

(4) Payments by the corporation or any of its subsidiaries to the Treasurer in respect of any such charges are required to be made at such times, and in such

ATC 4022
instalments, as the Treasurer determines.'

(emphasis supplied)

It is convenient to note here that sub-section 12(1) of the Corporatisation Act provided that until a day to be appointed by the Governor by proclamation (and it was common ground that none had been appointed) `the payment of all money due by the [ State Bank] is guaranteed by the Government of New South Wales', and sub- section 12(4) provided that this guarantee was to be taken to be the subject of an `agreement' between the board of directors and the voting shareholders of the State Bank as referred to in s. 16 of the SOC Act .

Section 19 provided, relevantly, that an SOC or any of its subsidiaries might not acquire or dispose of fixed assets or investments without the prior written approval of the voting shareholders. Similarly, sub-section 20(1) provided that none of the main undertakings of an SOC or of any of its subsidiaries might be sold or disposed of except with the prior written approval of the voting shareholders.

PART 4 (ss. 21-30) was headed `ACCOUNTABILITY'. Section 21 provided for a `written statement of corporate intent' to be resolved upon by the board of directors of an SOC within a limited period after the commencement of each financial year. The board was required to consider any comments by the voting shareholders on the draft which the board was required to supply to them, and was required to `consult in good faith' with them. The statement was not to be published before being laid before both Houses of Parliament. Sub-section 21(7) empowered the voting shareholders from time to time by written notice to the Board to direct it to include in, or omit from, a statement of corporate intent any specified matter. Section 22 provided for the contents of statements of corporate intent.

Section 23 required the Board to deliver to the voting shareholders a report on the operations of the SOC and of its subsidiaries during each half year, and s. 24 provided for delivery of annual reports by the Board to the voting shareholders. Section 24 also provided for audit by the Auditor-General. Section 25 empowered the Auditor-General to make a special report regarding any matter arising from his or her audit which he or she might opine should be brought to the attention of Parliament and he or she was required to present any such special report to the Legislative Assembly.

Section 5 of the Corporatisation Act provided that the State Bank was constituted by that Act as `a bank' and was an agency through which the State engaged in `State banking' and in `State insurance'. However, the section provided that these provisions did not affect s. 9 of the SOC Act which, it will be recalled, was to the effect that an SOC was not the State and did not represent the State except by express agreement with its voting shareholders, that is to say, the eligible Ministers.

Section 9 empowered the Minister, by order in writing, to direct that the business undertaking of the former State Bank be transferred to the State Bank, upon such considerations as were specified in the order. The same section provided that upon the commencement of the order, the assets of the former State Bank comprised in its business undertaking vested in the State Bank without the need for any conveyance, transfer, assignment or assurance, and that the rights and liabilities of the former State Bank comprised in its business undertaking became the rights and liabilities of the State Bank. As noted earlier, the date of divesting and vesting was 14 May 1990. Section 10 repealed the State Bank Act 1981. Section 11 dissolved the former State Bank and its board. Section 12 provided that until a day to be appointed by the Governor by proclamation, the payment of all money due by the State Bank was guaranteed by the Government of New South Wales. Finally, s. 16 provided that any agency under Part 4 of the State Bank Act 1981 held by the former State Bank immediately before the commencement of the Corporatisation Act was to continue as an agency of the State Bank.

Clause 5 of the State Bank's memorandum of association provided that to the extent that the provisions of the SOC Act applied to the State Bank, those provisions and the provisions of the Corporatisation Act prevailed over any inconsistent provisions in

ATC 4023
the memorandum of association. Clause 6 provided that the memorandum and articles of association might not be altered or added to in a way inconsistent with the provisions in Schedule 2 to the SOC Act unless and until resolutions approving the alteration or addition were passed by both Houses of the New South Wales Parliament. Regulation 132 of the State Bank's articles of association expressed a similar provision in relation to alteration of or addition to the articles of association.

In summary , the State Bank was incorporated as a company limited by shares under State companies legislation; it carried on a business which any citizen could carry on but which was well recognised as appropriately engaged in by governments, namely banking; in its agency business, it carried on a business which could not be carried on by any citizen; only `eligible Ministers' could be shareholders; the `principal objective' of the State Bank as stated in s. 8 of the SOC Act was more liberal than the obligation imposed on its predecessor, the former State Bank, by sub- section 9(3) of the State Bank Act 1981, but nonetheless constituted a special statutory constraint not applicable to `ordinary' trading companies incorporated by registration; its voting shareholders, the eligible Ministers, held their shares on behalf of the State; its obligations were, by reason of sub-section 12(1) of the Corporatisation Act , guaranteed by the Government of New South Wales; its board of directors was required to provide a written statement of corporate intent to its voting shareholders who were entitled to vary, from time to time, the statement of corporate intent initially agreed to by the board and the voting shareholders; it was subject to public audit and accounting requirements; and its memorandum and articles of association were subject to the provisions of the SOC Act .''

The judgment appealed against

Prior to the hearing of the present case at first instance, Heerey J had decided
Government Insurance Office of NSW v DFC of T & Anor 92 ATC 4178 ; (1992) 35 FCR 247 . That case concerned the question whether goods purchased by the Government Insurance Office of New South Wales for its own use were exempt from sales tax under Item 74 of the 1935 Exemptions and Classifications Act. It was conceded before Heerey J by the Commissioner that the expenditure of the applicant was exclusively borne by the Government of New South Wales. The only issue thus in dispute in the Government Insurance Office case was whether the applicant, which carried on an insurance business, was ``an authority'', as that expression is used in Item 74. It was held that it was.

It was not suggested below that the GIO case was distinguishable. Thus Lindgren J correctly accepted that he should follow the GIO case , unless of the opinion that it was clearly wrong. His Honour, however, embarked upon an analysis of the case law relevant to the meaning of the expression ``authority'' and an examination of the textual context of the 1935 Exemptions and Classifications Act and the 1992 Exemptions and Classifications, concluding that each of the four banks was an ``authority'', for the purposes both of Item 74 and Item 126. In his Honour's view the word ``authority'' was:

``... used in Item 74 as a loose means of emphasising the public as distinct from private nature of the entity, and perhaps of indicating that in order to be an authority, an entity must be `acknowledged' as an instrument of the State by Act of Parliament.''

The qualities necessary in his Honour's opinion, to constitute an ``authority'' for the purposes of the two exemption items are to be found in the following passage which sets out his Honour's conclusions in relation to the four banks:

``But all four were totally owned and controlled by the respective States and their expenditures were exclusively borne by these States; they can appropriately be described as constituted by or under special Acts; they carried on a business which, although it could be carried on by any citizen, was at all relevant times well recognised as one peculiarly appropriate for a government to carry on; they also carried on an `agency business' which not every citizen could carry on; their obligations were guaranteed by the State; they were subject to the financial administration, accounting, reporting and audit which applied generally

ATC 4024
to public instrumentalities; and they were subject to extensive government control.''

His Honour's alternative conclusion was that the decision in GIO in any event was not clearly wrong and so should be followed.

The historical background to Item 74

Before turning to discuss the two substantial issues in the present case, it is useful to consider the historical background to Item 74.

Sales tax was first introduced in Australia in 1930. The original legislative scheme is discussed in the seminal judgment of Dixon J in
DFC of T (SA) v Ellis & Clark Ltd (1934) 3 ATD 98 at 100; (1935) 52 CLR 85 at 89 . As that discussion indicates, the general policy of the legislation was to levy a tax upon the last sale of goods by wholesale. However, if the tax were confined solely to sales by wholesale, there would be considerable scope for avoiding it. To this end a liability for sales tax arose also in respect of certain sales by retail, as well as in circumstances where a registered person who had quoted a certificate in respect of the goods applied those goods to his or her own use. Liability was also imposed upon manufacturers who treated goods as stock for sale by retail, but that is not presently relevant.

At the time the sales tax legislation was introduced there was no separate legislation dealing either with exemptions from the tax or with classifications necessary, having regard to differential rates. Such exemptions as there were, were to be found in s. 20 Sales Tax Assessment Act (No. 1) 1930 (as amended), the provisions of which were incorporated by reference into the other eight Assessment Acts which formed part of the then legislative scheme. There was no relevant exemption for goods purchased by the Commonwealth or a State or any Commonwealth or State authority at the time sales tax was originally introduced.

No doubt those responsible for the introduction of sales tax would have been aware of the decision of the High Court in
Attorney- General of New South Wales v The Collector of Customs (1908) 5 CLR 818 (``the Steel Rails case''). In that case the question arose as to whether customs duty was payable upon the importation into Australia of certain steel rails by the Government of the State of New South Wales. The State argued that so to impose customs duty was to impose a tax on the property of the State, contrary to s. 114 of the Constitution . This argument was rejected because customs duty was a tax not upon property but upon movements of property into the country. It was a tax on importation, not a tax on the goods themselves.

By analogy, sales tax (other than in circumstances where the tax was imposed on the application to own use of goods) would likewise be seen not as a tax upon the very goods themselves, contrary to s. 114 of the Constitution , but as a tax upon some transaction in the goods themselves, whether that transaction was a sale by wholesale, a sale by retail or a treating of the goods as stock for sale. A Commonwealth or State authority might purchase goods in transactions which gave rise to a liability for sales tax payable by some other person. Since sales tax is normally passed on to the purchaser as part of the purchase price of the goods it could be expected that the authority would thus bear the sales tax. However since the tax was not payable by the authority directly it is difficult to imagine that any constitutional challenge could be brought against the liability to tax, irrespective of the applicability of the Steel Rails case to sales tax.

In July 1931 the then Treasurer, Mr Theodore, announced a Government decision to increase the rate of sales tax from the initial two and a half percent to five percent. At the same time he announced an intention to ``grant exemption from sales tax in respect of purchases by State Governments and Government Departments to the official use of those Departments and to increase the list of exemptions''. The Budget Speech gave the following detail of the proposed exemption:

``Goods imported into and goods purchased in Australia by a Government of the Commonwealth or a State if the Commissioner is satisfied that the goods are for the official use of a Department of that Government and are not for resale or distribution for use by any person, organisation, association or other body which is not completely controlled or the expenditure of which is not completely borne by that Government. This exemption will be subject to the condition that the State Governments will charge sales tax and pay it to the Commonwealth on sales of goods made by State trading concerns.''

It will be noted that the proposal confined the exemption to goods for use by Government

ATC 4025

departments. It did not extend to goods for use by government authorities. The legislation to give effect to the proposal was in wider terms. It inserted Paragraph (aa) in the exemption section in the No. 1 Assessment Act, s. 20, in the following terms:

``Goods sold to the Government of the Commonwealth or the Government of a State, where the Commissioner is satisfied that the goods are for the official use of a Government Department, or of an authority which is completely controlled by, and the expenditure of which is exclusively borne by, the Government and are not for resale, and, in the case of goods sold to a Government of a State, an arrangement has been made between the Governor-General and the Governor in Council of the State for the collection and payment by the State of sales tax upon the sale value of all goods sold by the Government of the State and by every such Authority established under the law of the State, in the conduct of an enterprise which, in the opinion of the Commissioner, is a trading enterprise.''

The change would suggest, if nothing else that there is a distinction between a government department and an authority and that the word ``authority'' thus added something to an exemption of goods for the use of a government department.

Item 74 has not materially changed since the enactment of the 1935 Exemptions and Classifications Act which, inter alia , replaced the exemptions theretofore contained in the No. 1 Assessment Act, save for the reference to s. 20A of the No. 1 Assessment Act introduced in 1987 to which reference will later be made.

Textually there is a difference between the original exemption contained in s. 20(aa) of the No. 1 Assessment Act and that contained in Item 74. The exemption in s. 20(aa) requires that the goods actually be sold to the relevant government, whether State or Federal. Under Item 74 it is not necessary that the goods actually be sold to the relevant State government. It is sufficient that they be for the official use of a relevant department or authority.

The expression ``authority'' was one which in 1930 (or 1935) was well-known in legislation. Section 14(1)(a) of the Income Tax Assessment Act 1922-1934, exempted from income tax ``the revenue of a municipal corporation or other local governing body or of a public authority''. The expression ``public authority'' was well understood in the United Kingdom. The House of Lords in
Bradford Corporation v Myers [ 1916] 1 AC 242 in restricting the operation of the Public Authorities Protection Act 1893 (UK), an Act dealing with limitations of actions against certain bodies, referred to the class of ``public authorities'', with no suggestion that there was any difficulty in determining whether a particular body was or was not a public authority.

The word ``authority'' is an ordinary English word. It signifies a body which has the right or power to exercise authority or command. It is an example, as Dixon CJ observed in
FC of T v Silverton Tramways Co Ltd (1953) 10 ATD 295 at 297; (1953) 88 CLR 559 at 565 , of a word the meaning of which has come about by a transfer of meaning from the abstract concept of power or command to the body or person possessing it. The Macquarie Dictionary (2d ed) contains the following relevant definitions:

``1. The right to determine, adjudicate, or otherwise settle issues or disputes; the right to control, command, or determine. 2. a person or body with such rights.''

The context in which any word appears may impact upon its meaning. Hence it will be necessary later in this judgment to return to the context in which the word ``authority'' is used in the context of the relevant exemption item. However, it will be useful first to consider the meaning which the word has been given in the decided cases.

Australian cases as to the meaning of ``authority''

Most of the cases have considered the meaning of the word ``authority'' in the context of the expression ``public authority''. It is difficult, however, to see that the addition of the word ``public'' significantly alters the meaning of the word ``authority'', particularly where it is used, as in the present context, in relation to governmental authorities. To the extent that the word ``public'' does affect the meaning of the word ``authority'' it can only be in the emphasis upon the public character of the body, or the public nature of the activity with which the body is concerned rather than the intrinsic characteristics of the body itself.

ATC 4026

Although a number of cases have determined whether particular bodies were or were not authorities or public authorities, it is fair to say that no test of universal applicability has emerged. Perhaps the closest any judicial comment has come to attempting a definition of the word ``authority'' is in the judgment of Gibbs J in
Committee of Direction of Fruit Marketing v Australian Postal Commission (1980) 144 CLR 577 at 580 where his Honour said:

``The expression `authority of a State' refers to a body which exercises power derived from or delegated by the State, but the fact that a body is established under State law and possesses power conferred upon it by State law will not necessarily mean the body is an authority of a State. For example, a private company, such as a gas supply company, which provides a public service for profit, may be set up under the company laws of a State, and may be given special statutory powers to enable it to carry on its undertaking, but it does not thereby become an authority of a State. The words `authority of State' naturally mean a body which is given by the State the power to direct or control the affairs of others on behalf of the State - ie., for the purposes of and in the interests of the community or some section of it. In some cases it may be decisive that the body concerned is given exceptional powers of a kind not ordinarily possessed by an individual or a company, and that those powers are intended to be exercised for a purpose that would ordinarily be regarded as a purpose of government. On the other hand, in some cases it may be decisive that the body is conducted in the interest and for the profit of its members. In all cases, however, it is necessary to have regard to all the relevant circumstances in order to determine the character of the body in question.''

It is likewise generally true to say, with respect, that the outcome of most of the decided cases was fairly predictable.

Thus, a community based public hotel, (
Renmark Hotel Inc v FC of T (1949) 8 ATD 424 ; (1949) 79 CLR 10 ); a corporation established to operate a private railway, ( FC of T v Silverton Tramway Co Ltd (1953) 10 ATD 295; (1953) 88 CLR 559); a members racing club (albeit that it had the power by statute to license horse racing) (
The Western Australian Turf Club v FC of T 78 ATC 4133 ; (1977-1978) 139 CLR 288 ) and a body incorporated by Statute for the publication of law reports (
Incorporated Council of Law Reporting of Queensland v FC of T (1924) 34 CLR 580 ) have all been held not to be authorities (or public authorities).

Conversely, the NSW Commissioner of Railways was an authority of the State within the meaning of ss. 125 and 132 of the Patents Act 1952:
General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 , as was a body corporate established by Statute having the responsibility under that legislation for marketing of fruit with the power to impose levies on growers and on fruit marketed in the Fruit Marketing case. Of the remaining Australian cases it suffices to say that doubt was expressed whether the Anti- Cancer Council of Victoria (
Re Anti-Cancer Council of Victoria ; Ex parte the State Public Services Federation (1992) 175 CLR 442 ) or the Registrar of the Accident Compensation Tribunal of Victoria (
Registrar of the Accident Compensation Tribunal (Vic) v FC of T 93 ATC 4835 ; (1993) 178 CLR 145 ) were.

In Renmark Hotel Rich J gave some useful examples of bodies which his Honour considered would be ``public authorities'' or which are called such in normal speech. The list is diverse and includes municipal authorities, a highway authority, a sanitary authority, a water supply authority, a lighting authority, a harbour authority, a tramway authority, a transport authority, a railway authority and a construction authority. In addition there are, as his Honour observes by reference to the English cases, numerous other examples, such as boards of guardians, the Mersey Docks and Harbour Board, public elementary schools and the like.

A number of propositions can be derived from the cases.

1. A question whether a particular entity is an authority will be a question of fact and degree dependent upon all the circumstances of the case: Western Australian Turf Club per Stephen J with whom Barwick CJ agreed at ATC 4134; CLR 290. No one factor will be determinative, rather there will be a ``range of considerations'': the Fruit Marketing case at 580.
2. A private body, corporate or unincorporated, established for profit will not be an authority: Renmark Hotel at ATD

ATC 4027
429; CLR 17 per Rich J, Silverton Tramway per Dixon CJ at ATD 297; CLR 566.
3. Incorporation by legislation is not necessary before a body may be classified as an authority: Renmark Hotel per Rich J at ATD 430; CLR 19, Western Australian Turf Club at ATC 4135; CLR 293.
4. For a body to be an authority of a State or of the Commonwealth, the body in question must be an agency or instrument of government set up to exercise control or execute a function in the public interest. It must be an instrument of government existing to achieve a government purpose: the Fruit Marketing case at 580.
5. The body in question must perform a traditional or inalienable function of government and have governmental authority for so doing: Renmark Hotel at ATD 428; CLR 16 per Rich J, General Steel per Barwick CJ at 134, Anti-Cancer Council case at 450-451 per Mason CJ, Brennan and Gaudron JJ.
6. It is not necessary for a person or body to be an authority that he, she or it have coercive powers, whether of an administrative or legislative character: Renmark Hotel per Rich J at ATD 430; CLR 18. Conversely the fact that a person or body has statutory duties or powers will not of itself suffice to characterise that person or body as an authority: Western Australian Turf Club per Stephen J at ATC 4137; CLR 297.
7. At least where the question is whether a body is a ``public authority'' the body must exercise control power or command for the public advantage or execute a function in the public interest: Silverton Tramway per Dixon CJ at ATD 297 and 298; CLR 565 and 567. The central concept is the ability to exercise power or command: the Fruit Marketing case per Gibbs J at 580.

Left open by Rich J in the Renmark Hotel case is the question whether it is necessary before a person or body be found to be an authority that he, she or it have exceptional powers or authority. The proposition that possession of exceptional power will not necessitate the conclusion that a body is an authority can be seen to have been decided in the Silverton Tramway case. In Renmark Hotels , Rich J said (at ATD 430; CLR 18):

``... for instance, a tramway board or trust has the exceptional authority of taking its trams down a public street. A water authority may lay its water mains, a lighting authority may do the like. Some exceptional powers of doing what an ordinary private individual may not do are generally found in any body which we could describe as a public authority.''

The view of Latham CJ in the Full Court in Renmark Hotels that:

``the appellant company is not given any power or authority by law in the form of a State statute to do any acts in relation to the public which otherwise would be beyond its power or unauthorised''

is clearly to the same effect (at ATD 108; CLR 23). Aickin J was of the view in Western Australian Turf Club (at ATC 4145; CLR 311) that there was a need for ``exceptional power or authority'' and suggested that this was in accord with the cases. It must be said that there is not much discussion of the matter in the cases, but I am of the view that there is such a requirement and that it flows out of the word ``authority'' itself, which suggests that the body is able to exercise command or authority, something which a mere member of the public can not do in a public sense.

This view finds support as well in the Fruit Marketing case, where the exceptional powers conferred upon the body in that case led to the conclusion that it was an ``authority'' and in the joint judgment of Mason CJ, Brennan and Gaudron JJ in the Anti-Cancer Council case at 450 where the question of exceptional power or authority is mentioned in the context of a test which would need to be applied if it had been necessary to decide whether the Anti-Cancer Council was a public authority.

Applying these tests to the facts of the present case the factors pointing in favour of the banks being characterised as authorities are:

• Each bank is the means adopted by the respective government for the carrying on by it of a banking business. In this sense each can be seen as the agent or instrument of the respective governments which control them.
• The business of banking is a traditional function of government, although not an exclusive function of government.

ATC 4028
• Each bank has government authority for carrying on its banking business.

The factors which work against the banks being characterised as authorities can be summarised as follows:

• None of the banks can readily be said to be an instrument of government existing to achieve some government purpose, other than in respect of ``Agency Business'' which the former WA Bank and the former State Bank were authorised to carry on separately from the banking business.
• None of the banks is authorised to exercise control power or command.
• To the extent to which the need for exceptional power or authority is a requirement separate from the ability to exercise power or command, the bank appears to have no power or authority additional to that which a private bank would have and no greater authority to conduct an intrastate banking business than any other person.

It will be recalled that in arriving at his conclusion Lindgren J placed weight as well upon ownership and control, the fact that expenditure was to be borne by the respective States and that each bank was constituted under special acts of parliament. None of these factors is of course determinative, although each has some relevance. Reference is made as well to State guarantees and financial and reporting requirements, each also matters of relevance. In my view it is the lack of ability of each bank to exercise authority or command which leads to the conclusion that it is not an authority in the normal sense of the expression. It then becomes necessary to see whether there is any special context in the relevant sales tax legislation which leads to the conclusion that the word ``authority'' is used in some different sense to that referred to in the cases discussed above.

The context of the Sales Tax legislation

In reaching his conclusion the learned judge below considered the language of Item 74 in which he identified four clues. Two of the matters identified by his Honour need not be repeated for his Honour ultimately did not rely upon them, nor did any party to the appeal. Of the remaining two, the first is the reference to ``trading enterprise'' in Item 74 which suggests that a body may be an authority, notwithstanding it conducts a trading enterprise. This is not determinative, as his Honour recognised. For while the Item accepts that a trading enterprise may be an authority, it does not follow from that that an enterprise which is merely a trading enterprise is for that reason an authority. Something more is clearly required.

The second factor identified by his Honour is the definition of ``authority'' inserted by Act No. 42 of 1987. That definition refers back to s. 20A(1) of the Sales Tax Assessment Act No. 1 1930, which is in the following terms:

``In this section `authority' means...

(a) an authority established before 14 May 1987, being an authority specified in Schedule 2; or...''

Schedule 2 lists a number of authorities including Qantas Airways Limited. Thus it is submitted on behalf of the Banks that the 1987 amendment makes it clear that, at least by that time, Parliament intended that the word ``authority'' as used in Item 74 was wide enough to cover an authority of the kind listed in Schedule 2. Put more simply, it is submitted that the word ``authority'' is used in the Item in a sense wide enough to encompass a commercial airline incorporated under companies law, the shares of which were held by the Government, Qantas being an entity listed in Schedule 2.

There is a real difficulty in construing words used in a statute by reference to later amendments. It may be permissible, in some cases, to have regard to the subsequent legislative history of an enactment as a guide to its interpretation:
Grain Elevators Board v Dunmunkle Corporation (1946) 73 CLR 70 at 86 . Perhaps, as the Full Court of this Court observed in
Kalwy v Department of Social Security (1992) 38 FCR 295 at 299 , all that this means is that the view taken by Parliament as to the legal meaning of a doubtful enactment may be treated as persuasive though not binding authority.

The problem here is that it does not necessarily follow that Parliament was of the view that each of the bodies referred to in the Second Schedule was an authority, within the meaning of Item 74. It may well be that Parliament was concerned to ensure that each of these bodies was clearly taxable and that in respect of some of the bodies in the Schedule there was doubt and accordingly their names were included in the Schedule out of an

ATC 4029

abundance of caution. The problem is that we do not know.

For this reason I do not obtain any real assistance from the definition added in 1987.

The broader context of Schedule 1 to the 1935 Exemptions and Classifications Act likewise offers little assistance. Division XI, comprising Items 71 to 81C deals generally with the exemption of goods for use by governments, representatives of governments and public bodies. Items 74D and 78 both refer to ``public authorities'' and Item 77 ``public transport authorities'', but this does not assist at all in the interpretation of Item 74.

Not only do I obtain no assistance from the context in which Item 74 applies, but I can see no reason in policy (contrary to the approach adopted by the learned judge below) why the word ``authority'' should be so widely construed as to equate to the word ``entity'', the logical result of the submissions made on behalf of the Banks. The obvious policy was at the very least to exempt from sales tax goods purchased for the use of governments (and not for resale). It was appreciated that governmental activity may be organised so that the function of government may be carried out through governmental departments or through entities controlled and financed by the government. Had the exemption been intended to apply to goods for use by any government controlled and financed entity Parliament could have used the word ``entity''. It chose to use the word ``authority''. It did so because the word ``authority'' suggests the exercise of authority or command which is the hallmark of government. It was not intended to exempt bodies which could most readily be characterised as trading corporations which are government owned and financed and which trade in competition with private trading enterprises who must bear sales tax when they purchase goods for their use. I should say that there is nothing in the 1992 legislation which suggests that the word ``authority'' as used in Item 126 of the 1992 Exemptions and Classifications Act should have any different meaning than the word had in the 1935 Exemptions and Classifications Act.

I would accordingly hold that none of the Banks was an ``authority'' in the relevant sense.

How was the expenditure of the Banks borne?

The second question argued before us does not arise having regard to the conclusion which I have reached on the first question. However, as the matter has been fully argued I would express my views upon it.

It was submitted for the Commissioner that the word ``expenditure'' refers to the payment of money. Thus it is said that to bear expenditure is to shoulder the immediate burden of making a payment not simply to be the ultimate beneficiary of the enterprise conducted by an entity which makes a payment. So it is said that the exemption should be confined to authorities whose operations are wholly funded by the State concerned through Parliamentary appropriations and no other. Entities which receive money from sources other than a State cannot be said, so the submission would have it, to have their expenditure ``exclusively borne by'' the State.

With respect, this is to adopt too narrow a view. To limit the exemption to those authorities whose every item of expenditure is required to be appropriated from consolidated revenue is neither warranted as a matter of language nor could it reflect a sensible policy. In my view expenditure of an authority will be exclusively borne by a government where the government is liable for funding any loss which may arise after there is deducted from the income of that authority the actual payments which the authority is required to meet. This will be the case where the liabilities of a bank are, as here, guaranteed by the government.

On the Commissioner's view, once an authority had any income at all it would of necessity cease to be an authority exclusively funded by the relevant government for its expenditure would in part be funded out of income. A court, if otherwise to be seen as an authority of a State would not be exclusively funded by that State if any part of its outgoings were funded out of Court revenue. That hardly appears to be a policy which underlies the exemption.

That expenditure may be ``borne'' by a person even although that expenditure is not required to be paid directly by the person emerges from the use of the word in many contexts. A tenant may be obliged in a covenant in a lease to bear expenditure by way of outgoings, although the outgoings themselves be directly paid by the landlord. Sales tax is

ATC 4030
borne by the end purchaser of goods by being included in the calculation of the purchase price, although the actual liability is a liability of some earlier vendor.

I am accordingly of the view that his Honour was correct in concluding that the expenditure of each of the banks was, in the sense used in each of the Items in question ``exclusively borne'' by the respective governments.

However, on the view I have taken I would allow the appeals, set aside the declarations and orders appealed against and in lieu thereof make declarations to the effect that none of the goods purchased by any of the banks for official use in the periods in question was exempt from sales tax. In my view the respondent banks must in each action pay the Commissioner's costs.

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

Individuals online services

Business online services

Agents online services

Non-residents online services

Foreign Investor

FC of T v BANK OF WESTERN AUSTRALIA LIMITED; FC of T v STATE BANK OF NEW SOUTH WALES LIMITED

Tools

Tax information for

Help and support