Pacific Film Laboratories Pty. Ltd. v. Federal Commissioner of Taxation.

Judges: Barwick CJ
McTiernan J
Windeyer J
Owen J

Walsh J

Court:
High Court (Full Court)

Judgment date: Judgment handed down 9 October 1970.

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Walsh J.: The Court is asked by the first question in the case stated to decide whether or not the supply by the appellant of prints and duplicates of colour transparencies manufactured by it in the circumstances set out in the case stated was a sale by the appellant of goods within the meaning of sec. 17 of the Sales Tax Assessment Act ( No. 1) 1930-1966 (Cth.) (hereinafter called ``the Act''). The question is not whether any of the agreements which the appellant made with its customers and under which it manufactured and supplied the prints and duplicates was a ``contract for the sale of any goods'' within the meaning of sec. 9 of the Sale of Goods Act, 1923 (N.S.W.) (or of other equivalent legislation) or was, on the other hand, a contract for the doing of work and labour and the furnishing of materials. In his judgment in this case the Chief Justice has drawn attention to the distinction between those two questions. But for the appellant it has been submitted that sec. 17

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of the Act refers to ``the sale value of goods'' and to goods ``sold'' and that there are no provisions in the Act which require that those expressions should be understood otherwise than in their ordinary sense. It has been submitted, therefore, that the question raised by the case stated is to be answered by the application of the same considerations and tests as would be applied in answering a question arising under the Sale of Goods Act. Without deciding whether that submission is correct or not but assuming in favour of the appellant that it is, I have reached the conclusion that the first question in the case stated should be answered ``Yes''.

In Benjamin on Sale, 8th ed., p. 156 the following statement appears -

``There has been much diversity and even conflict of opinion, in relation to the proper principle by which to test whether certain contracts are contracts for the sale of goods, etc., or contracts for work and labour done and materials furnished.''

After a review of some of the decisions the learned authors at p. 161 refer to the judgment of Blackburn J. in
Lee v. Griffin (1861) 1 B. & S. 272 ; 30 L.J.Q.B. 252 , in which his Lordship said (1 B. & S. at p. 277):

``If the contract be such that, when carried out, it would result in the sale of a chattel, the party cannot sue for work and labour; but, if the result of the contract is that the party has done work and labour which ends in nothing that can become the subject of a sale, the party cannot sue for goods sold and delivered.''

The authors go on to say:

``From the very definition of a sale, the rule would seem to be at once deducible: - that if the contract is intended to result in transferring for a price from B to A a chattel in which A had no previous property, it is a contract for the sale of a chattel; and unless that be the case, there can be no sale.''

They add at p. 162:

``This rule, however, cannot be accepted without qualification; where, for example, the transfer of the property in the materials is only ancillary to a contract for the use of skill and labour and the performance of work such a contract will not become a sale because of such transfer.''

In
Robinson v. Graves (1935) 1 K.B. 579 , Slesser L.J. referred at pp. 588-589 to the question whether a contract is for the sale of goods or for work and labour done as being a question which ``has vexed jurists from the earliest ages''. In that case it was held that a contract by which an artist was engaged to paint a portrait for an agreed sum was a contract for work and labour done. The view of Greer L.J. was that the Court had to determine what was the substance of the contract. He expressed the opinion, at p. 588, that in the case before the Court ``the substance of the matter was an agreement for the exercise of skill and it was only incidental that some materials would have to pass from the artist to the gentleman who commissioned the portrait''. At p. 591, Slesser L.J. expressed the opinion that ``the material, the paint and the canvas, were merely ancillary to the actual technical work of producing the work of art''. Therefore, he held it was a contract for work and labour. Roche L.J. referred at p. 593 to ``the history and reality of the transaction involved in the painting of a portrait of this kind'', and to ``the nature of the contract between the parties''.

It may, perhaps, be said of the references in those judgments to the need to determine the substance or the nature of the contract that they are statements of the question which has to be decided rather than statements of a test by means of which it may be decided. It may be suggested, also, that those judgments (see especially the statement of Slesser L.J. at p. 591 that he would decide the case upon its own particular facts) contain indications that a decision that a contract is one for the sale of goods or that it is one for work and labour may often be simply a decision of fact. However, I am of opinion, that even upon the assumption that the terms ``sale'' and ``sold'' in sec. 17 have their ``ordinary'' meaning, unaffected by the circumstance that the section is contained in a taxing Act which is wide in its scope, the question whether or not upon the agreed facts set out in the case stated there was a sale of goods within the meaning of sec. 17 does involve a question of law. I am also of opinion, as I have stated, that it should be answered in the affirmative. Clearly this must be so if the test laid down by Blackburn J. in Lee v. Griffin (supra) is applied. I think it is right to say, as is said in a passage cited above from Benjamin on Sale, that that rule cannot be accepted without qualification. But any qualifications which it may require seem to me to be irrelevant in the present case. The customers of the

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appellant wished to obtain prints and duplicates which were not yet in existence at the time when the orders were given. When they had been produced by the appellant the prints and duplicates were to be handed over to the customers and were to belong to the customers. In the circumstances of this case there is no reason to take the view that the obtaining by a customer of property in a new chattel, in exchange for a sum of money to be paid to its manufacturer, was only ancillary to a contract the substance of which was that skill and labour should be exercised. The case concerns the commercial production of large numbers of prints and duplicates. Although the customer had to supply film or a negative or a colour transparency in order that the prints and duplicates might be made by the appellant, those prints or duplicates were new articles which contained no materials supplied by the customer. I am of opinion that the substance of the agreement between the customer and the appellant was that it was an agreement for the manufacture by the appellant of goods and for the delivery of them to the customer, to whom the property in them would pass at or before the time of delivery and who would pay to the appellant a price for the goods. It was, therefore, an agreement for the sale of goods.

Whether or not a different view of the transactions could be taken without holding that the cases of
F.C. of T. v. Riley (1935) 53 C.L.R. 69 and
F.C. of T. v. Butcher (1935) 53 C.L.R. 82 were wrongly decided, it cannot be doubted that the reasons of the majority of the Court in those cases support the conclusion that the transactions were sales of the goods.

It is set out in the case stated that when the appellant returned prints and duplicates of colour transparencies to the intermediaries with or through whom the customers dealt in some of the transactions, the appellant ``made separate charges with respect to developing, printing and duplicating which were shown on the film bag or docket accompanying the return''. From the intermediary the appellant received payment of those charges upon statements of account rendered monthly less a deduction by way of discount or commission to the intermediary. These facts do not require the conclusion that what was paid to the appellant was never a price for goods sold by it but was always a charge for work done by it. If without any dissection a total amount had been fixed by the appellant and paid by the customer, in cases in which the appellant had developed exposed film and had also made prints, it might, perhaps, have been difficult to treat the customer in those transactions as having paid part of that total amount as the price of goods sold to him by the appellant. The fixing of separate charges removes any such difficulty.

It was submitted for the appellant that the effect of the provisions of the Copyright Act 1912 (Cth.), which was in force at the relevant times, was that the first question in the case stated should be answered in the negative. It was submitted that the appellant when it produced a print or duplicate could not have any general property in it and was, therefore, incapable of transferring property in it to the customer. According to the argument the consequence of this was that the print or the duplicate could not be the subject of an agreement by which the appellant agreed to sell it to the customer. In my opinion, these submissions should be rejected. I am in general agreement with the reasons given by the Chief Justice for rejecting them.

In Robinson v. Graves (supra) references were made by Slesser L.J. at p. 591 and by Roche L.J. at p. 593 to the law of copyright. Their Lordships did not assert that as a matter of law there could not be an agreement for the sale of a portrait between the person who commissioned the painting of it and the artist who was to paint it. Therefore, their observations do not support the submission based on the copyright law which has been advanced for the appellant in the present case. Their Lordships did suggest, however, that the fact that the artist would be precluded from selling such a portrait to any one to whom he might choose to sell it, assisted the conclusion that the contract was not a contract for the sale of the portrait. But with respect I do not think that restrictions imposed by law upon the unauthorised reproduction of a copyright work or upon the unauthorised disposition of infringing copies can be regarded either as compelling or as tending towards a conclusion denying the character of a contract of sale to a contract to which the owner of the copyright (or a person acting with his authority) is a party and under which reproductions authorised by him are to be made and when made are to be delivered to him in accordance with his instructions.

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The first question should be answered ``Yes''. The second and third questions do not need to be answered.

ORDER:

The questions asked in the Stated Case answered as follows:

1. Was the supply by the Appellant of prints and duplicates of colour transparencies manufactured by it in the above circumstances a sale by it of goods within the meaning of sec. 17 of the Sales Tax Assessment Act ( No. 1)?

A. Yes.

2. If the answer to question 1 is ``No'', is the Appellant by virtue of such supply deemed under the provisions of sec. 3(4) of the said Act to have sold goods?

Unnecessary to answer.

3. If the answer to question 2 is ``Yes'', does the Act fix or enable to be fixed a sale value for such prints and duplicates?

Unnecessary to answer.

Appellant to pay respondent's costs of the Case Stated.