FC of T v Kambrook Distributing Pty Ltd

Judges:
Sundberg J

Court:
Federal Court

Judgment date: Judgment handed down 27 March 1996

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Sundberg J

The appeal

The question in this case is whether three types of powerboard sold by the respondent (``Kambrook'') are ``adaptors'' and thus exempt from sales tax under item 90C(2) of the First Schedule to the Sales Tax (Exemptions and Classifications) Act 1935. That item exempts

``Goods of a kind used exclusively, or primarily and principally, in connexion with fixed electrical installations in consumers' premises, namely:

• (a) Adaptors;
• (b) Plugs;
• (c) Electrical safety devices for the protection of persons.''

The applicant (``the Commissioner'') assessed the items to tax at the general rate of 20%. Kambrook's objection was disallowed. Kambrook's application for review by the Administrative Appeals Tribunal was partially successful - two of the items being held exempt as adaptors. The Commissioner has appealed to this Court under s. 44 of the Administrative Appeals Tribunal Act 1975. Kambrook has cross-appealed in relation to the third item.

The goods

The first item, known as SP4, is an ``unswitched'' powerboard. That means it has no switches. It has four outlets, a flexible cord for connection to the power supply, and over- current protection. The second item, known as KD18, has three additional features: each of the four outlets is separately switched, safety shutters protect each outlet, and an indicator lights up when power is connected to the board. The third item, known as KD4SN, is similar to the first, but has two additional features: protection against power surges, and a noise filter to eliminate electrical interference.

The Australian Standards

Standards Association of Australia (``Standards Australia'') is the body which is primarily responsible for writing and publishing standards within Australia. Its Committee EL/4 is responsible for standards for electrical accessories. The standards relevant to this case are Standard AS 3122, dealing with socket outlet adaptors, and Standard AS 3105, dealing with electrical portable outlet devices. Both standards are the product of consensus in the

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electrical industry represented by manufacturing groups, regulatory bodies and contracting and user groups. AS 3122 was first issued in 1939. It was revised in 1950, 1964, 1981, 1985, 1989 and 1993. Until 1981 ``plug socket adaptor'' was defined as ``an accessory whereby a plug of another form, two or more plugs, or two or more flexible cords, or one or more plugs and one or more cords, may be connected to a plug socket''. However under the heading ``Prohibited Types'' were the words ``A plug socket adaptor shall not include more than two outlets, the term `outlet' being deemed to include facilities for the connection of a flexible cord''. In the 1981 revision the definition of ``plug socket adaptor'' was altered to ``an accessory for insertion into a socket outlet and containing metal contacts, to accommodate two plugs, or a flexible cord and one plug''. There was no change to the wording under the ``Prohibited Types'' heading set out above. The verbiage of later revisions is relevantly unchanged.

AS 3105 was issued in 1984. Subsequent revisions have not materially changed it. It defines electrical portable outlet device (``EPOD'') as ``A device, other than a cord extension set, having a single means of connection to a low voltage supply and one or more outlet facilities. It may incorporate a reeling or coiling arrangement''.

An EPOD must have over-current protection where the device has three or more 10 amp socket outlets or a socket outlet rated in excess of 10 amps, and be connected to the electricity supply by either a flexible cord of not less than.9 metre and a plug or an appliance inlet. A fixed socket outlet has a rated limit on the amount of current that can be passed through it. In most households each outlet is rated at 10 amps. By the use of a double adaptor, one 10 amp outlet is turned into two 10 amp outlets, but still with the rated limit on current that can be passed through the fixed outlet. With an EPOD there is no limit on the number of socket outlets that the one 10 amp outlet can be turned into. That is why ``over-current'' or ``overload'' protection is required. For example, if an EPOD were operated out of a fixed single socket outlet, and a fan heater were operated from the EPOD, it would draw out substantially the capacity of that single socket outlet. If at the same time other appliances were run from the EPOD, the power that would be drawn may be excessive, and without the over- current protection could cause overheating, damage to equipment and to the electrical circuit.

The evidence before the Tribunal

Francis Robert Bannigan is the chief executive of Kambrook. In 1972 he invented a ``panelboard'' consisting of four power outlets mounted on a plastic panel. He promoted the product for use in caravan parks, and envisaged that it would replace the piggy-backing of double adaptors that was common in caravan parks. Later Mr. Bannigan changed the name of the product from ``panelboard'' to ``powerboard''. In 1976 model KD18 was produced. A powerboard has to have a fixed cord, because a board that simply plugs into a wall outlet will be too heavy and will fall out. A double adaptor with two outlets does not have this problem. In 1979 the unswitched board was created. SP4 is an example. All three boards have relatively short cords of between 1 and 1.9 metres. Market research has shown that customers do not use the boards as extension leads. Extension leads are much longer - from 3 metres to 25 or 50 metres.

Mr. Bannigan said that some manufacturers package double adaptors so that they appear to be four outlet adaptors. Two double adaptors with flat faces are placed side by side in a blister pack so that there appear to be four connectors in a row. They are much cheaper than powerboards, and are marketed in direct competition to them.

In the course of cross-examination Mr. Bannigan conceded that while double adaptors are available with surge control, they are not available with noise control or overload protection. Despite these differences, Mr. Bannigan said that the powerboards perform the same function as a double adaptor.

William Shane Curry, an electrical engineer, gave evidence for Kambrook. He had been employed for over twenty five years as a professional electrical engineer with the State Electricity Commission of Victoria. This included six years as an engineer responsible for the Commission's electrical approvals testing laboratory and administration of the licensing of electrical mechanics regulations. He was also for ten years a member of the Commission's board of examiners for the licensing of electrical mechanics. From 1981 to 1991 he was chairman of the SEC Electrical

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Approvals Board. From 1984 to 1991 he was chairman of Standards Australia's Committee EL/2. He is currently chairman of Standards Australia's Subcommittee EL2/9, which is the International Electrotechnical Commission Subcommittee of Committee EL/2.

Mr. Curry expressed the view that each of the three items fell within the general meaning of ``adaptor'' as that word is used in the electrical industry in relation to household goods (``the industry''). One of the items which performs the function of an adaptor in the industry is the ``plug socket adaptor'' or ``socket outlet adaptor''. When this item has two socket outlets it is commonly referred to as a ``double adaptor''. The powerboards in question are examples of socket outlet adaptors or plug socket adaptors. He said that the use of the word ``adaptor'' as applied to a socket outlet adaptor or plug socket adaptor is not affected by the number of socket outlets, because adaptors are simply a means of allowing one or more appliance or item to be connected to a source of supply.

Mr. Curry said that the distinction drawn by the Standards between socket outlet adaptors and EPODs has had no impact on the usage of the word ``adaptor'' in the industry. Commenting on AS 3105, he said that a socket outlet adaptor with more than two outlets (and thus an EPOD) is still a socket outlet adaptor. All AS 3105 does is to require all socket outlet adaptors that are EPODs as defined to meet its requirements.

Mr. Curry was of the opinion that the fact that KD18 has switches does not relevantly distinguish it from the unswitched product (SP4) as an ``adaptor'' as the term is used in the industry. Nor does the addition of surge and noise protection relevantly distinguish KD4SN. It is still an adaptor, though with additional features.

Mr. Curry was cross-examined at length. He accepted that the industry distinguishes between double adaptors and powerboards, that the powerboard is a different type of connecting device from the adaptor, that the three powerboards in question are not interchangeable with a double adaptor, that the only feature the boards and the double adaptor have in common is that they have provision for more than one outlet, and that while an adaptor is no more than a conduit of power between the supply and the appliance, a board does more than that. But he maintained his opinion that powerboards are similar to double adaptors in that all they do is ``to adapt more than one to a single outlet''; they increase the number of available outlets; they adapt ``more than one to one''.

Neville William Holdsworth gave evidence for Kambrook. Between 1983 and 1993 he had been Merchandise Director of Kmart, and before that had been in the buying office of G.J. Coles. Kmart purchased Kambrook power- boards in large numbers, and sold about 50,000 units per year. Before the introduction of powerboards, G.J. Coles sold double adaptors which were one of the largest selling items in the store. After the introduction of powerboards, the sale of double adaptors dropped off markedly. Mr. Holdsworth thought that the sales of powerboards have largely replaced the sales of double adaptors. He also said that the three products in question were not marketed as extension leads or purchased for that purpose. Other products met this need.

In the course of cross-examination Mr. Holdsworth said that Kmart displayed double adaptors and powerboards in the same area because they were similar products from a marketing point of view. He considered the powerboards were the same as double adaptors. Pressed to concede that the powerboards were, for retailing purposes, a totally new product, he said they were ``an advancement on the old double adaptor''. The fact that a powerboard has an extension cord makes it ``a better double adaptor''. Comparing the double adaptor and the three powerboards in question, he said that they had the same purpose, though the latter looks better.

Ernest Walter Robson, who is employed by Standards Australia, gave evidence for the Commissioner. He is co-ordinator of Committee EL/4 Electrical Accessories, which is responsible for AS 3122 and AS 3105. Mr. Robson expressed the view that the item which is now commonly referred to as a ``power board'', consisting of multiple socket outlets attached to a flexible cord, is not another form of double adaptor within the usual parlance of the electrical industry. He said that SP4 and KD18 would fall within AS 3105, and KD4SN would fall within AS 3197 which deals with portable conditioning and control devices. None of them would fall within AS 3122. In cross- examination Mr. Robson accepted that the

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standards were created to ensure that products that go on the market are safe, and that the definitions in the standards are not generally used in the marketing of products and were not intended for that purpose. He said that two double adaptors can safely be fitted into a double power point. Two outlets thus become four, whereas in the case of SP4, one outlet becomes four.

Dr. Gosbell gave evidence for the Commissioner. He had done research into the advertising of powerboards/adaptors, and produced numerous catalogues to support his view that in the main manufacturers and retailers do not describe powerboards as adaptors. He concluded, based on this research and on the distinction drawn by the Standards, that powerboards are not adaptors. His report is not specifically directed to the three products in question, which he had not examined before he gave oral evidence before the Tribunal. In the course of cross-examination he accepted that the only reason a cord is required for the three products is because of AS 3105. He said the major function of a powerboard is to provide a portable means of connecting several appliances away from the power point, and agreed that overload protection does not change that function. Overload protection is a safety requirement, because a board extends the number of outlets in an installation ``without having the tight control when an electrician installs it''. He said that surge protection is sold separately from a power board. One can buy devices which have no other function than surge protection. Dr. Gosbell agreed that ``adaptor'' does not have any technical meaning distinct from its ordinary English meaning, and said that what he was trying to do in his report was to discover that ordinary meaning.

The Tribunal's decision

The Tribunal said that the expert evidence did not produce a clear view of the definition of ``adaptor''. The bulk of the evidence related to the use of the word in composite phrases, such as ``double adaptor'' or ``plug socket adaptor''. After referring to the observation of Lee J. in
H.R. Products Pty. Ltd. v. Collector of Customs (1990) 20 ALD 340, at pp. 353-354 that a limited meaning of a word arising from trade usage must be ``clearly established by the evidence'', the Tribunal said it was not satisfied that there was an established trade usage of ``adaptor''. The Tribunal went on to say:

``given the ready acceptance of the device known as a double adaptor as an adaptor I am of the view that the word, in the context of Item 90C(2), includes both a device which enables connection to a fixed electrical outlet of a piece of apparatus fitted with a terminal plug of a different type and a device which enables connection of multiple plugs to one electrical outlet. In other words a device which allows connection of one or more plugs to an outlet which was not designed to accept either the quantity or type of plug. A device which `adapts' the outlet to a different or extended use.''

The Tribunal then turned to consider the ``essential character'' of each item-

``whether the device is primarily to adapt one outlet to two or more or whether it is primarily used for another purpose with the `adaptor' function as a secondary characteristic. It is clear that a point is likely to be reached where the additional features of some ostensibly similar devices lead to the view that those features become the primary function or essential character with the adaptor function being ancillary to those features.''

The Tribunal then concluded that SP4 and KD18 had the essential character of an adaptor, but that KD4SN did not. Its essential character was protection from power surges and noise interferences. It would be primarily purchased for that purpose, with its ability to provide four outlets as a secondary characteristic. It could not be regarded as an `` `adaptor' simpliciter''.

The nature of the appeal

The appeal under s. 44 is limited to a question of law. This imposes a significant restraint upon the role of the Court in reviewing decisions of the Tribunal. The appealable error of law must arise on the facts found by the Tribunal, or must vitiate the findings made, or must have led the Tribunal to omit to make a finding it was legally required to make. A wrong finding of fact is not sufficient to demonstrate error of law. Where the decision of the Tribunal involves matters of fact and degree, then provided it applies correct principles of law, no appeal will lie. See generally
Collector of Customs v. Pozzolanic Enterprises Pty. Ltd. (1993) 43 FCR 280, at pp. 286-287. In that case the Full Court described the restraint imposed on the Court by the limitation of the appeal to questions of law as

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``a practical as well as principled restraint''. The Court will not be concerned with looseness in the language of the Tribunal or with unhappy phrasing of the Tribunal's thoughts. ``The reasons for the decision under review are not to be construed minutely and finely with an eye keenly attuned to the perception of error'':
Politis v. FC of T (1988) 16 ALD 707, at p. 708 and Pozzolanic, at p. 287. In
Agfa-Gevaert Ltd. v. Collector of Customs (1994) 124 ALR 645 Gummow J. drew a number of propositions from earlier decisions on the distinction between matters of fact and law in the process of construction and application of legislation. They include these:

• ``(i) The meaning of a legal term of art is a question of law, but, otherwise, to determine the ordinary meaning of a word, which may be a scientific term or a word used by those with but a basic vocabulary, is to determine a question of fact. If it is contended that there is a commercial or other special meaning of a word, this is to be proved by evidence, as a fact.
• (ii) If a commercial or other specialised meaning of a particular item is established by evidence, it is then necessary to determine whether the legislation has used the term in its ordinary specification or in the special sense.
• ...
• (iv) The question whether or not a word or phrase in legislation is to be given its ordinary meaning or some special meaning... is a question of law.
• (v) The effect or construction of a term once its meaning or interpretation is established is a matter of law.
• (vi) So also is the question of whether the facts as found fall within the terms of the law as properly construed; to this there is the qualification that, where the statute uses words according to their ordinary meaning and it is reasonably open to hold that the facts as found fall within those words, the decision as to whether they do so fall generally is a matter of fact.
• (vii) The qualification `generally' is used in (vi), because the law may use a word in an ordinary sense, but there may be a number of ordinary senses and it then is necessary to select that which is appropriate, and because whilst the word may have but one ordinary meaning that is imprecise, the word will take its colour from the context and that will require construction of the law, a lawyer's task. The result in such cases will be more than the matching of a set of facts with plain words.
• (viii) With respect to revenue laws directed to commerce, the courts are more ready to conclude that items have been described according to common commercial or trade usage rather than in their natural ordinary sense.
• (ix) However, the expression must be uniformly understood in the specialised sense in the relevant trade and have been so understood when the law in question was enacted.''

Propositions (i), (ii), (iv), (v), (vi) and (vii) are based on the Full Court's decision in Pozzolanic, at pp. 287-289.

Competency of appeal

The Commissioner attacked the Tribunal's finding that there was no established trade usage or meaning of ``adaptor'' when used by itself. The Tribunal correctly stated the strict test applicable to the finding of a specialised meaning of a word, and was not satisfied on the evidence that ``adaptor'' was uniformly understood in a specialised sense. That view was open to it. Dr. Gosbell's evidence was that ``adaptor'' did not have any technical meaning distinct from its ordinary meaning. The Tribunal's finding on this point was one of fact. See Agfa proposition (i) and
Collector of Customs v. Bell Basic Industries Ltd. (1988) 20 FCR 146, at p. 159. Accordingly, the attack on the Tribunal's finding is not permitted by s. 44.

The Commissioner also attacked the Tribunal's conclusion that in its ordinary meaning ``adaptor'' is not limited to a device which enables connection to a fixed electrical outlet of an apparatus fitted with a terminal plug of a different type, but extends to a device which enables connection of multiple plugs to one electrical outlet. That was a decision on a question of fact: Agfa proposition (i). The Tribunal referred to dictionary meanings of ``adaptor''. Some of them, (Macquarie, Concise English, Chambers and Australian Concise Oxford), give only the former meaning. Two dictionaries give the wider meaning. The Concise Oxford has as one meaning ``a device for connecting several electrical plugs to one

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socket''. The Australian Pocket Oxford's meaning is ``electrical fitting to join incompatible or multiple plug(s) and socket''. The meanings given by two further dictionaries, Shorter Oxford and Collins Australia Ringbinder, are too general to afford much assistance - respectively ``a connecting part'' and ``appliance for connecting two parts''.

As the Tribunal observed, on the narrower meaning favoured by a majority of the dictionaries, a double adaptor would not be an ``adaptor''. But it was common ground between the parties that a double adaptor is an ``adaptor'' within Item 90C(2). It was accordingly appropriate that the Tribunal adopt the more ample ordinary meaning of ``adaptor''. In any event, there was material in the form of two of the dictionaries, one of which is an Australian dictionary, that supported the Tribunal's view of the ordinary meaning of ``adaptor''.

I note in passing that the Tribunal was not referred to the Oxford English Dictionary meaning of the word:

``Socket-outlet adaptor, an accessory for insertion into a socket-outlet and containing metal contacts to which may be fitted one or more plugs for the purpose of connecting to the supply portable lighting fittings or other current-using appliances.''

This was accepted by Jenkinson J. in
Telstra Corporation Ltd v FC of T 95 ATC 4400, at p. 4409, and would have provided further support for the Tribunal's conclusion.

Having held that ``adaptor'' has no special trade meaning, and that its ordinary meaning is wide enough to include a device for connecting several electrical plugs to one socket, the next question for the Tribunal was whether the three items were adaptors within that ordinary meaning. Subject to the qualification in Agfa proposition (vii), if it was reasonably open to the Tribunal to hold that the facts found fell within the ordinary meaning of ``adaptor'', that is a question of fact: Agfa proposition (vi). The Tribunal's specific task was to determine the essential character of the goods in question. The essential character of goods is what essentially they are, not some characteristic they may have. ``Essential character derives from the basic nature of the goods, from what they are, though composition, function and other factors necessarily play a part'':
FC of T v. Thomson Australian Holdings Pty. Limited & Ors 89 ATC 4696, at p. 4698; Diethelm
Manufacturing Pty. Ltd. v. FC of T 93 ATC 4703, at p. 4712.

The Tribunal referred to the observation of French J. in Diethelm that statutory classification of goods to define exemptions or particular liabilities under revenue laws requires the ``determination, by reference to objective criteria, of the `essential character' of such goods''. The Tribunal then found that each of the three products was one item, the cord and plug being an integral part of the device; that each had the ability to provide four outlets from one socket; that SP4 had no added features other than those required by law (i.e. the cord and over-current protection); and that KD18 had additional features (separate switches, safety shutters and light). In the light of these facts, the Tribunal found that the essential character of each of SP4 and KD18 was to adapt one outlet to two or more. It was reasonably open to the Tribunal to hold on the facts it found that each product had the essential character of an adaptor. Accordingly, the holding was one of fact.

The Commissioner contended that the Tribunal erred in law by looking at primary function alone in determining the essential character of the goods; it should have looked at the basic nature of the goods. The Tribunal did use the words ``primary function'', but not in a way that showed that it failed to look at the ``basic nature'' of the goods. The Tribunal quoted a passage from Diethelm which made clear that it had to determine the essential character of the goods by reference to objective criteria. In Thomson, at p. 86 Davies J. acknowledged that the function and composition of goods necessarily play a part in determining their basic nature. The Tribunal's enquiry as to ``whether the device is primarily to adapt one outlet to two or more or whether it is primarily used for another purpose with the `adaptor' function as a secondary characteristic'', was in my view an attempt to discover the essential character of the goods by reference to their basic nature, with permissible reference to their function. The Tribunal's observation that ``a point is likely to be reached where additional features of some ostensibly similar devices lead to the view that those features become the primary function or essential character with the adaptor function being ancillary to those features'', is again a permissible reference to function and

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composition (additional features) in order to ascertain the basic nature of the goods. It is true that the passage I have just quoted could have been more felicitously expressed. The phrase ``primary function or essential character'' might suggest that the essential character of goods is governed by their primary function. But the Commissioner's attack on this part of the Tribunal's decision is the very approach against which Lockhart J. cautioned in Politis - construing the reasons ``minutely and finely with an eye keenly attuned to the perception of error''. In my view the Tribunal's approach to the determination of the essential character of the goods involved no error of law.

The Commissioner sought to bring the case within the qualification in Agfa proposition (vii). But the ordinary meaning of ``adaptor'' as found is not ``imprecise''. There is no need to discover its true ordinary meaning as opposed to some other available ordinary meaning by resort to its context. The relevant meaning is quite clear. A device which enables connection to a fixed electrical outlet of an apparatus fitted with a terminal plug of a different type is an adaptor. So is a device which enables connection of multiple plugs to one electrical outlet. It is not a case where ``adaptor'' can have only one of those meanings so that it is necessary to decide which is the appropriate one. That is the situation with which Agfa proposition (vii) is concerned. Accordingly no question of construction is involved, and the Tribunal's decision was one of fact and is not reviewable under s. 44.

In my view the appeal is wholly incompetent.

The cross appeal

The Tribunal said that the essential character of KD4SN is ``that of protection from power surges and noise interferences'', and that it ``would be primarily purchased for that purpose with its ability to provide four outlets from one socket as a secondary characteristic so that it is not to be regarded as an `adaptor' simpliciter''. Kambrook attacked this passage on the ground that it treats the purpose for which the goods are purchased as determinative of their essential character. If all the Tribunal had said was that the essential character of the third item is that of protection from power surges and noise interferences with its ability to provide four outlets from one socket as a secondary characteristic, the formulation could not have been criticised. But I do not consider that the additional phrase ``and would be purchased for that purpose'' (emphasis added) means that the proper test was not applied. In
Rotary Offset Press Pty. Ltd. v. DFC of T 72 ATC 4212, a case concerned with newspapers, Stephen J. said that evidence which clarifies the manner in which a publication circulates ``and the use to which it is put, that is to say its function or purpose, is undoubtedly of assistance in determining'' its essential character. The Tribunal was not in my view asserting that there was evidence that disclosed why customers would purchase KD4SN. Having expressed the view that its essential character was as a protection against surges and noise interferences, the Tribunal stated, perhaps gratuitously, that in its opinion customers would buy it because of its essential character. As I have said, one should not require of the Tribunal pristine purity of expression, and one should not be astute to find error from looseness of language. I doubt that I would have reached the same conclusion as the Tribunal, but it was reasonably open to it to hold as it did, and its decision was thus on a matter of fact, and Kambrook's cross-appeal is also incompetent.

Conclusion

I will dismiss the appeal and the cross-appeal as incompetent. Most of the hearing was devoted to the appeal, and I will order that the Commissioner pay three quarters of Kambrook's costs, to be taxed in default of agreement.

The Court orders that:

1. The appeal be dismissed as incompetent.

2. The cross-appeal be dismissed as incompetent.

3. The applicant pay three quarters of the respondent's costs of the appeal, to be taxed in default of agreement.