ROADSHOW DISTRIBUTORS PTY LTD v COMMR OF STATE REVENUE (VIC)

Judges: Brooking JA

Tadgell JA
Hayne JA

Court:
Victorian Court of Appeal

Judgment date: Judgment given on 14 March 1997

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Tadgell JA

The chief question raised by this appeal is whether the appellant, Roadshow Distributors Pty. Ltd., is liable to pay duty in respect of the period from September 1990 to March 1991 under subdivision (13A) - Rental Business - of Division 3 of Part 2 of the Stamps Act 1958. The subdivision consists of ss. 131AA to 131AG. Section 131AB applies to

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ATC 4272

a person who, in the month preceding a month in question ``... received in respect of rental business carried on by the person in Victoria (whether or not carrying on any other business) an amount exceeding $6500'': sub-s. (5). By virtue of sub-s. (1) of s. 131AB such a person is prohibited from carrying on in Victoria ``any rental business'' (whether or not carrying on any other business) unless registered under the subdivision. By s. 131AA(1) of the Act the expression ``rental business'' in subdivision (13A) is defined exclusively (so far as is now relevant) to mean -

``... the business of -

• (a) letting, bailing or otherwise giving rights to use goods...''

The expression ``goods'' in the subdivision is defined to include -

``... all chattels personal and fixtures severable from the realty but does not include money, livestock or things in action...''

A person registered under the subdivision is required each month -

to lodge with the Comptroller of Stamps a statement showing (so far as is now relevant) ``... the total amount received during the last preceding month (in this section called the `monthly total') in respect of rental business for or in relation to the use of goods (other than books)...'': s. 131AC(1)(a)(i); and

to pay in cash to the Comptroller an amount equal (so far as is now relevant) to 1.5 per cent of ``... the amount (if any) by which the sum of that monthly total... exceeds...'' $80,000: s. 131AC(1)(b)(i).

Subdivision (13A) was inserted into the Stamps Act in 1967 by Act 7500. Shortly afterwards similar legislation was enacted in Tasmania, Queensland, South Australia and Western Australia but an answer to the point now raised does not appear to be clearly indicated by a decision in any of those jurisdictions or our own. For many years the appellant registered and paid duty under subdivision (13A) on the assumption that it carried on rental business in Victoria. In about 1990 however the appellant, following professional advice, contended to the Comptroller of Stamps that it was not liable to duty pursuant to the subdivision, and then terminated its registration and formally sought the opinion of the Comptroller on the question. The opinion was unfavourable to the appellant and by arrangement, in order that the appellant's contention might be tested, the Comptroller issued a default assessment of stamp duty for the period above mentioned of $122,779.21. This was said to be the amount that should have been paid by the appellant had it been registered in respect of that period. An unsuccessful objection was followed by an unsuccessful appeal to the Supreme Court. Hence this appeal.

One of the appellant's general managers, in an affidavit that was before the Supreme Court, swore that at material times the appellant ``... carried on business in Victoria (and elsewhere) of distributing the rights (protected by way of copyright) to exhibit motion pictures for exhibition to the public''. In a later affidavit, also apparently before the Court, the same deponent swore that since incorporation the appellant had ``carried on a business of distributing the rights to exhibit motion picture films to exhibitors for exhibition to the public throughout Australia''. I point without present elaboration to the verbal difference - or distinction - in the references in the two affidavits to the exhibition of ``motion pictures'' and ``motion picture films''.

The appellant's commercial activity, as the learned judge noted, has been carried on under agreements made with head distributors by which the appellant is granted exclusive rights to the distribution and exhibition of motion pictures within specified territory. The judge had before him copies of agreements between the appellant and Warner Bros. (Australia) Pty. Ltd., Orion Pictures International, Galaxy Films BV, Lorimar Motion Pictures and Greencard Productions Pty. Ltd. which, it was common ground, were typical of those with head distributors. Although by no means identical in terms one with another, all provide for a grant to the appellant of intellectual property rights in respect of artistic work. Often the work is referred to in an agreement as a ``picture'' or a ``motion picture'', but in some agreements it is described as ``the film''; and I take ``film'', when used in that sense, to refer to the artistic work only and not to a celluloid or other print or reproduction of it. An agreement made on 1 July 1984 between the appellant (under the name of Roadshow International Pty. Ltd.) as distributor and Warner Bros. (Australia) Pty.

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Ltd. gives the flavour. It provides that Warner grants to the distributor ``... the sole and exclusive right under copyright and otherwise to distribute, and to license others to exhibit, throughout the Territory (as such term is hereinafter defined) during the period hereinafter referred to, such motion pictures which have already been delivered under previous Agreement and the pictures which are to be delivered under this agreement... for distribution in the Territory during the term hereof...''. Sub-licences were commonly granted by the appellant for commercial exhibition in, but not only in, cinemas. Head agreements to which the appellant was a party commonly provided that the head distributor make available to the appellant (sometimes at a charge and sometimes not) at least one print of a motion picture, from which the appellant was expected to make further prints or copies for distribution to its sub-licensees. By comparison with the intrinsic value or worth of a motion picture as an artistic work or the value of a licence to exhibit it, the value of a print as goods is low: the evidence is that the cost of replication is of the order of $1500. Some agreements, but not all, require that prints be returned to the head distributor at the end of the period of public exhibition of a picture. If prints are not so returned the appellant usually destroys most of them after they are returned to it by exhibitors. The head-licensor is commonly entitled to receive an agreed percentage of the box office takings, after deductions are made for advertising and other expenses, but is entitled in any event to a minimum amount, usually paid wholly or substantially in advance.

The contractual arrangements between the appellant and exhibitors to the public in Australia of motion pictures are, by comparison with those between it and head distributors, in elaborate, depending very largely on industry practice or convention. The evidence is that, during the relevant period, the appellant did not grant rights ``pursuant to any formal or master distribution agreement''; and exhibition rights were, it seems, negotiated with exhibitors on a ``film-by-film basis''. The essential terms of the agreement respecting each film are set out in a so-called summary sheet which is signed on behalf of the exhibitor and the appellant. Generally, the appellant agrees to pay all advertising costs until completion of an agreed minimum season. Thereafter, advertising is paid for by the exhibitor and the appellant in agreed proportions. The appellant is entitled in respect of each film to a percentage of box office takings, less running expenses of the exhibition venue, but in any event to a minimum percentage of gross box office takings. The evidence is that the film comprising the motion picture is delivered by the appellant to the cinema with a reel and in a heavy duty container. The cost of freighting the motion picture in that form to the cinema - generally $4 to $6 per film - is charged to the exhibitor, but no separate charge is made by the appellant for the physical film, reel and container.

The assessment of stamp duty that is now challenged appears to have proceeded simply on the footing that what the appellant did, as a distributor to exhibitors, was to let, bail or otherwise give rights to use prints of films, being ``goods'' as defined. It was said to follow that the appellant, in so conducting itself and thus engaging in ``rental business'', was carrying on a ``rental business''. The appellant's principal answer before the judge and before us was, to put it broadly, that the essence of its business was and is not the physical distribution of films, or prints of films, but the provision to exhibitors of the means to exhibit copyright motion pictures in public. The argument is that provision of a sub-licence, by authority of the head distributor in the case of each picture, is an ineluctable ingredient of the means so to exhibit the picture; and that the provision of a film print, although necessary to enable the picture to be shown on a screen, is no more than incidental to the provision of the sub-licence. What is said to be commercially valuable to the head distributor and the appellant and the exhibitor alike is not the physical reel of film, but the legal entitlement to show in public the cinematograph images constituting the work in which copyright subsists.

There is a degree of prolepsis in each of these opposing arguments. The Commissioner contends that, because the appellant habitually engages in what is by definition ``rental business'', it carries on a rental business; and that the proportion of the box office takings that the appellant derives is ``received in respect of rental business for or in relation to the use of goods'' in terms of s. 131AC(1)(a)(i). The appellant contends in answer that, because it engages in substantial or essential business of a

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ATC 4274

kind which is not by definition ``rental business'', it does not carry on rental business at all.

The learned judge proceeded on the footing, evidently by agreement, that the principal issue before him was whether the appellant, at the relevant times, conducted a ``rental business'' as defined in s. 131AA. With due respect to his Honour and to those who evidently agreed upon that formulation, I do not think that it was quite accurate. The cardinal statutory expression is ``rental business''. There is no article or other adjective appended to it in any of the provisions of subdivision (13A) save sub-ss. (1) and (2) of s. 131AB, each of which refers to ``any rental business''. The true question therefore appears to me to be not whether the appellant conducted a rental business, or even whether the business of the appellant was a rental business. Rather, it is whether, during the relevant period, the appellant carried on ``rental business'', as defined. I should treat the term ``rental business'' as designating, not an attribute of some business undertaking or enterprise, but business or transactions of a particular, defined kind. There is, as I think, really no scope here, as in cases such as
Tourapark Pty Ltd v FC of T 82 ATC 4105 ; (1982) 149 CLR 176 , especially at ATC 4105-4106; CLR 179-180 , for an exercise of characterisation of a free-standing business. What the appellant systematically did during the relevant period either was to let, bail or otherwise give rights to use goods, or it was not. It may be accepted that the appellant, in business, granted rights to use or exploit work that was the subject of copyright, not being rights to use goods. These rights, however, did not negate or qualify any rights given by the appellant that were fairly comprehended within the definition of ``rental business''.

We were referred on behalf of the appellant to the decision of the Full Court of the Supreme Court of Queensland in
Cyclone Scaffolding Pty Ltd v Commissioner of Stamp Duties (Qld) 84 ATC 4812 ; [1985] 2 Qd.R. 435 for assistance on the question whether the appellant should be regarded as carrying on a rental business. The taxpayer in that case, which was in the business of hiring out its scaffolding, carried on rental business according to a definition in the Queensland Stamps legislation not unlike that in s. 131AA of the Victorian Act. The question for decision was whether certain extra charges made by the taxpayer to hirers of scaffolding for insurance, cleaning, repair, cartage, erection and stamp duty satisfied a description in the Queensland Act equivalent to the Victorian s. 131AC(1)(a)(i) - i.e. were ``received... in respect of rental business for or in relation to the use of goods...''. It was submitted for the taxpayer that the services provided by it that generated the extra charges were not part of its business of ``granting... rights to use... goods...'' in terms of the definition. In rejecting the submission McPherson, J., at ATC 4818; Qd.R. 445, observed that -

``... the word `business' used in a context such as this ordinarily refers not to a particular activity but to a series of activities all of which, when taken together, go to make up a single occupation or trade, to which some general description can be or is applied. In the present case that activity can fairly be described as the business of hiring out scaffolding. The process or activity of carting to and delivering the scaffolding on site, of insuring it, and of cleaning or repairing it on its return, are simply incidents of the appellant's business of hiring out scaffolding. They all form part of that single business, and are not capable of being regarded as separate or independent businesses carried on by the appellants....''

The appellant in the present case relied on that passage in support of a thesis that the various aspects or activities of its business are to be combined or synthesised in order that a general description - a hirer not of goods but of incorporeal rights - is to be applied to it: c.f. the judgment of Scrutton, L.J. in
Falcon v. Famous Players Film Co. [1926] 2 K.B. 474 , at 491 , in which he referred to the defendants having ``made a film from the play, imported a copy into England, and hired out the right to exhibit it...''. I can not see that the passage in the judgment of McPherson, J. assists the appellant. The Court was not concerned there, as we are here, to discover whether the taxpayer was carrying on ``rental business'', for there was no contest that it was; and the various activities in which it engaged that did not by themselves amount to rental business did not on that account fall outside the scope of rental business that was carried on by the taxpayer. So here, the hiring of goods - films on reels - in which the appellant admittedly engaged did not, because it may have engaged also in the hiring

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out of incorporeal property, fall outside the scope of ``rental business'', as defined.

The appellant, having in my opinion carried on ``rental business'' in the relevant period, admittedly received over that period out of box office takings the sum of $8,185,280.66 which was assessed to duty at the rate of 1.5 per cent. The remaining question that arises is whether that revenue was, in terms of s. 131AC(1)(a)(i) -

``... received... in respect of rental business for or in relation to the use of goods (other than books)...''

The learned judge expressed his opinion that the appellant's business ``is a rental business''; and said that ``My conclusion that the business of Roadshow is a rental business in respect of films with valuable sound and visual images on them means that income received from exhibitors is received `in respect of rental business'.'' As I have indicated, I do not think it is to the point to characterise the business of the appellant as a rental business, for the Act is not concerned with such a characterisation. For the reasons I have stated I do, however, agree that the income of $8,185,280.66 is to be classified as ``received... in respect of rental business'' in terms of s. 131AC(1)(a)(i) of the Act. Was that income also received ``for or in relation to the use of goods (other than books)''? The judge appears to have considered that his earlier conclusions carried with them the answer to this last question, for he said: ``... the fact that the goods are the films with these valuable characteristics means that the receipt is for or in relation to the use by the exhibitor of those goods''. With respect, the matter does not seem to me to be so plain. Section 131AC(1)(a)(i) indicates in terms that what is to be brought to account for assessment to stamp duty is not the whole of the amount received in a relevant period ``in respect of rental business'' but only that part of it which is received ``for or in relation to the use of goods (other than books)''. That is to say, the sub- section contemplates that ``the total amount received'' in a given month ``in respect of rental business'' may include amounts that are not ``for or in relation to the use of goods...''. All three judgments in the Cyclone Scaffolding Case , including that of Campbell, C.J. who was substantially in dissent, appear to recognise as much. The Court was there concerned to consider whether the taxpayer's extra charges were for or in relation to the use of goods; and the majority held that they were not, while Campbell, C.J. held that only those for insurance, cleaning and repair were not. In the present case, by comparison with the Cyclone Case , it was primarily contended for the appellant that no part of the receipts was ``in respect of rental business'' because no part should be treated as having been received ``for or in relation to the use of'' goods as opposed to incorporeal property. As I have explained, that argument should fail because, in my opinion, it cannot be said that no part of the receipts was in respect of rental business for or in relation to the use of goods.

An alternative argument for the appellant was that only a small proportion of the total amount received during the relevant period was for or in relation to the use of goods , the bulk of it being for or in relation to the use of incorporeal property. This argument concedes, in my opinion correctly, that part of the amount received was received ``for or in relation to the use of goods''; but I think it is also right to say, on the evidence, that not all of the amount is appropriately to be treated as so received. Were it so, no part of the consideration received by the appellant could be regarded as received for or in relation to the use of the incorporeal property which the appellant provided in association with the use of goods, and that cannot be right. In the unusual and interesting case of
In Re Dickens ; Dickens v. Hawksley [1935] 1 Ch. 267 it was necessary (or expedient) to make an apportionment of the proceeds of sale of the manuscript of a literary work by Charles Dickens, the manuscript itself and the copyright in the manuscript having (in effect) been bequeathed to different beneficiaries. Although the facts are removed from the present, the case nicely illustrates an apportionment as a matter of practical common sense where (as here, albeit by force of the statute) an incorporeal right in or to an artistic work is separated from the corporeal manifestation of the work, the one being, commercially, virtually useless without the other. It is true enough that there is no dissection in the account of incomings to the appellant as between that which it receives for or in relation to the use of goods and that which it receives for or in relation to the use of incorporeal property. Indeed the appellant makes no distinction in its dealings with

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ATC 4276

exhibitors between consideration for the one and consideration for the other. It would, however, be unrealistic to conclude on that account that all of the appellant's receipts during the relevant period ``in respect of rental business'' were ``for or in relation to the use of goods''. The uncontradicted evidence is that the most valuable commercial benefit provided to exhibitors by the appellant is not the physical film that is run through the current hardware by way of portrayal of a motion picture but the right to do so. The argument for the Revenue was to the effect that, without the celluloid film or its physical equivalent, exhibitors could exhibit nothing. This cannot be gainsaid; but it takes an incomplete view of the commercial reality which is, in my opinion, to be examined in order to discover ``for'' or ``in relation to'' what it was that the appellant received the amounts that it did receive. It is here instructive to consider the parallel with Re Dickens , supra , especially at 308-309. Were a film print to be destroyed by fire or other catastrophe, after its delivery to an exhibitor, it would presumably be replaced - or at least replaceable. There is no evidence to that effect but it is a fair inference from such evidence as there is that the physical film is a means but not the end. My impression is that destruction of the film does not carry destruction of the exhibitor's right to exploit the motion picture; that the grant of the right is therefore not appropriately treated as one simply for or in relation to the use of goods; and that it is equally inappropriate to treat the appellant's income derived from the grant as though the right were of that kind.

It follows, in my opinion, that an apportionment is required, for the purpose of ascertaining that part of the appellant's total income during the relevant period in respect of rental business that can fairly be said to have been received for or in relation to the use of goods. Section 131AD(2) of the Act seems to contemplate that a precise calculation of a total amount to be set out in a statement required by s. 131AC(1) might not be reasonably practicable. An estimate would no doubt be permissible for want of a better means of apportionment; and apportionment on the basis of cost of the subject goods would presumably be an important consideration, if not the only one, in the making of a realistic estimate on sensible, commercial grounds. Since the manner of making any apportionment was not the subject of argument I shall say no more about it; and it will be evident in any event that what little I have said on the subject is obiter.

Another matter that was not adverted to in argument is the significance (if any) to the appellant's liability to duty of the expression ``(other than books)'' in s. 131AC(1)(a)(i). Books are no doubt comprehended within the definition of ``goods'' in s. 131AA(1). This may be contrasted with the definitions of ``goods'' in cognate legislation in some other States and in subdivision (14) of the Victorian Stamps Act, which exclude books. Interestingly, s. 3 of the Stamps Act 1958 has since 1983 contained a definition of ``books'' which (subject to context and subject matter) includes various commercial records and the like and concludes by saying ``and includes any other document''. Section 38 of the Interpretation of Legislation Act 1984 defines ``document'' in any Act, ``unless the contrary intention appears'', to include any film, etc. in terms that would appear to cover films of the kind provided to exhibitors by the appellant. It may be that the definition of ``books'' in s. 3 is to be read down by reference to a context, but the matter is to my mind far from clear. If, however, the expression ``(other than books)'' in s. 131AC(1)(a)(i) does comprehend films the appellant's liability under subdivision (13) might presumably be queried accordingly. Perhaps the matter was not adverted to in argument because it was thought not to be covered by the appellant's notice of objection, or perhaps there was some other reason. In any event it is another matter on which I need say no more.

I would allow the appeal, set aside the assessment and direct that the respondent re- consider the liability of the appellant to duty under subdivision (13A) of Division 3 of Part 2 of the Stamps Act 1958 if so advised.