American Express Wholesale Currency Services Pty Ltd v Commissioner of Taxation; American Express International Inc v Commissioner of Taxation [2011] HCATrans 26 (11 February 2011)

Last Updated: 24 February 2011

[2011] HCATrans 026

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Sydney No S238 of 2010

B e t w e e n -

AMERICAN EXPRESS WHOLESALE CURRENCY SERVICES PTY LTD

Applicant

and

COMMISSIONER OF TAXATION

Respondent

Office of the Registry
Sydney No S239 of 2010

B e t w e e n -

AMERICAN EXPRESS INTERNATIONAL INC

Applicant

and

COMMISSIONER OF TAXATION

Respondent

Applications for special leave to appeal

FRENCH CJ
HEYDON J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 11 FEBRUARY 2011, AT 9.40 AM

Copyright in the High Court of Australia

__________________

MR J.W. DE WIJN, QC: May it please the Court, I appear with learned friend, MR T.M. THAWLEY, for the applicants. (instructed by Minter Ellison)

MR A.H. SLATER, QC: If the Court pleases, I appear with my friends, MS R.L. SEIDEN and MR T.H.J. HYDE PAGE, for the respondent. (instructed by Australian Government Solicitor)

FRENCH CJ: Yes, Mr de Wijn.

MR DE WIJN: Your Honours, can I deal first with the property point and put that in its statutory context. The GST Act in section 9-10 – and your Honours will find that in the respondent’s authorities at page 1. I am happy to use the respondent’s authorities so we are working off the same page – has a very wide meaning of the term “supply” which goes well beyond the supply of property. For example, your Honours will notice at paragraph (c) it includes the “provision of advice or information”.

The legislative scheme then moves, in fact, backwards to the phrase “taxable supply” in section 9-5 which then incorporates the broad concept of “supply” from 9-10 and then excludes two specific categories, that is, input tax supplies and GST free supplies. Those two categories have their own definitions and their own sort of mini regime. We then go via section 40-5 to the regulations to find a definition of “financial supply”, and the relevant regulation is regulation 40-5, and your Honours will find that at page 6 of the respondent’s bundle. Your Honours will see, and it is apparent from the judgments below, that as a prerequisite to the thing being a financial supply, the thing supplied must be property.

So here we have a situation where Parliament has sought to give special treatment to a subset of supplies and has clearly stated that that subset must constitute property. We note in passing, for example, that in the capital gains tax context the term “asset” in section 108-5 of the 1997 Act is specifically defined – we do not have that in the bundle – but it is specifically defined to include things that are not property. So it is not as if Parliament was oblivious to the distinction between property and personal rights.

In our submission, Justice Dowsett has given powerful and persuasive reasons why this Court has not, in fact, abolished the distinction between personal rights and property and we would say so much is implicit from this Court’s decision in ICM Agriculture [2009] HCA 51; 240 CLR 140. Justice Dowsett has also, we would say, given powerful reasons why the right to present the card for payments or goods or services and, of course, incur the obligation to pay Amex on the due date is not property. We would say that by contrast the majority in the Full Court has effectively ignored or wiped away the distinction between property and personal rights.

The majority’s reasoning, it seems, appears to have been based upon the wide scope of the definition of “supply” and “taxable supply” in section 9-5 and 9-10, which they then used as a mechanism to give a wide definition to the word “property” when dealing with the exclusion, but, of course, as your Honours will have seen, in section 9-5 which deals with taxable supply and 9-10 which deals with supply, the word “interest” or “property” is not included and, of course, the concept is to start with a wide concept of supply not limited to property and then specifically exclude certain things and the exclusion is, in express terms, limited to property.

They also relied upon – that is, the majority below – relied upon the broad definition of “real property” to broaden the scope of the specifically defined term “interest” and, in our submission, that is clearly wrong. They did that at paragraph 148 at application book 91. The supply of real property comes within the definition of “taxable supply”. So you are in the broad concept where you are not limited to property rights and, of course, real property is given special treatment by way of what is called the margin scheme and I do not need to delay your Honours with that. So the whole idea of relying on a definition of “real property” to broaden the definition of an exclusion is, we say, erroneous. Then the real thing that - - -

FRENCH CJ: To what extent is the outcome of these proceedings dependent upon the application of this non-statutory formula for the determination of the extent of creditable purpose based on revenue?

MR DE WIJN: In relation to the property point it is not dependent at all.

FRENCH CJ: I mean, accepting there are important questions of principle informing what you are saying, but just in terms of the suitability of these proceedings as a vehicle for the grant of special leave we seem to have – just so you can correct my misunderstandings, which I am sure there will be. I think 11-30(5) provides for a determination by the Commissioner of:

ways in which to work out, for the purpose of subsection (3), the extent to which a creditable acquisition is for a creditable purpose.

My understanding is there was a formula adopted by Amex which was accepted by the Commissioner as equivalent to his ruling in that respect. Is that correct?

MR DE WIJN: It was.

FRENCH CJ: Then there was a debate about whether the Commissioner had erred and that is the basis of the amendment argument?

MR DE WIJN: That is right.

FRENCH CJ: But the question is whether this went off on the basis of this non-statutory formula which does not really tell us a lot about the questions of principle that you are - - -

MR DE WIJN: With respect, your Honour, the first two points are questions of principle, that is, the property point and the payment system point because - - -

FRENCH CJ: Yes, I accept that.

MR DE WIJN: - - - they are critically important and they are points that can be dealt with before one gets to the formula. Then once one gets to the formula, the only thing that is, in a sense, peculiar is the way in which the formula was interpreted, that is, that revenue was treated by the Commissioner when he issued the assessment, not at a later stage – and we refer to a passage in the submissions dealing with this – was treated as being the equivalent to consideration for the supply.

We say that makes perfect sense because in this concept of apportionment, what you are concerned with is input tax supplies and you can only have an input tax supply if it is for consideration. That just deals with the amendment point, but the first three points are points of important principle which will apply no matter how you interpret the formula. We say it is an appropriate case because they are preliminary points that the Court can deal with and that are fundamental to the operation of the scheme without getting into the nitty gritty, if you like, of the way in which the formula applies.

Just continuing on the property point and moving to the payment system point. The failure of the majority to appreciate that to have a taxable supply one does not need to supply property has led to a fundamental error. Your Honours will see that at paragraph 173 at application book page 102 in the second line, and the majority says:

The question here is whether Amex Intl supplies cardholders with a property interest, broadly conceived, in or under a funds transfer system –

That is the payment system. Now, a supply of something in or under a payment system does not have to be property because it will be a taxable supply. If I could take your Honours to regulation 40-5.12, which is at page 10 of the respondent’s bundle, your Honours will see in the opening words to that regulation:

For subsection 40-5(2) of the Act, the supply of something, or an interest –

So we are now being told what is not a financial supply and one of the things that is not a financial supply is something in or under a payment system. So if it is not a financial supply, it comes within taxable supplies. To be a taxable supply it does not need to be property. That is made good when one looks at the introduction to 40-5.12 in the chapeau to the table “something, or an interest in”. Now, the majority proceeded on the assumption that the payment system that was being supplied or the thing in the payment system had to be property. That is just fundamentally incorrect because it only has to be property to come to be a financial supply, not to be a taxable supply.

So that then moves us into the payment system point, which again is a point of general principle, we say. Just as in Travelex where the GST Act provided a tie-breaker mechanism where something was both GST free and input taxed, here the regulations expressly provide that something might fall within 40-5.09, but also 40-5.12. So if you are in 40-5.12, one of the things there which includes payment system, you are specifically excluded from being a financial supply. It is to be noted that:

The object of this Subdivision is to identify a supply that is or is not a financial supply.

Your Honours will find that at the start of regulation 40-5 at page 6. So one of the things that could fall in both conceptually but is expressly excluded is an interest under a payment system, but what is critically important is that what is expressly excluded from financial supply does not depend upon whether it is property. Regulation 40-5.12 speaks of “the supply of something, or an interest in” and we say that is entirely consistent with the scheme of the Act because to be a taxable supply one does not need property, but to come within the exclusion of financial supply, one does need property. Your Honours will see that error is perpetuated and demonstrated at paragraphs 178 to 182 of the decision.

Here Justice Dowsett and Justice Emmett at first instance expressly held that the Amex system was a payment system. What is notable and relevant to statutory context is that the supplies by Amex to the merchants, that is the merchant half of the system, are taxable supplies being access to a payment system. The majority assumed that we had a payment system, but remarkably they said the card members were not participants in the system. Your Honours, the assertion that card members were not participants we say is difficult to accept. Why should a system that facilitates the transfer of money, including the payment by way of credit card or debit card, include the relationship with the ultimate payee, but exclude the payor?

Then their Honours relied upon the examples in Schedule 8 to give an idea of what was property. Their Honours do that at paragraph 176 and the table is set out at page 103 of the application book and here again they fall into error, with respect. First of all your Honours will see that item 2 includes as an example of something that is a payment system “Access to a payment system”. Your Honours will see that at about line 20 on page 103 of the application book. We say that is precisely what a card member gets in this case. But, in particular, the majority fell into error by using Schedule 8 as examples of property – that is one of the things they hook their decision on – when, in fact, they were examples of taxable supplies, in this case being the supply of an interest under a payment system which, of course, did not need to be property. That very conclusion of the majority throws up the mismatch which we referred to in our submissions.

The Act has a scheme of allowing tax credits for acquisitions in carrying on an enterprise regardless of whether any supply is made. That is the conceptual starting point. There is then a specific exclusion if the acquisition relates to making input tax supplies which by definition must be for consideration. We say here the merchant fees are consideration for taxable supplies, taxes payable, but the acquisitions in relation to earning that consideration are not limited to acquisitions concerned directly with dealing with merchants. To earn the merchant commissions you have to deal with card members.

The consequence, whether you use the formula or whether you use some – we are not limited to using the formula, subject to questions of fairness. We can do this apportionment on any reasonable basis. The consequence of only identifying half of the system as a payment system is that the costs of dealing with the card members, which you obviously have to incur to earn your merchant’s commission, are excluded from the equation. That results, we say, in the cascading which the Federal Court in HP Mercantile [2005] FCAFC 126; 143 FCR 553 at paragraph 11 said the system was designed to avoid. We have not got that in our authorities but we refer to it in the book. So that is one of the consequences of only treating half of this system as a payment system. The mistake appears to be made because of the way in which the majority assumed that the payment system had to be a proprietary interest, but, of course, it does not.

Can I move now briefly to the credit and consideration point which again we say is a point of general importance and applies regardless of the formula. In this case, except where there is an election made to defer payment in the case of credit cards, we say there is no supply of credit for consideration by virtue of the fact that cardholders pay on the due date on receipt of a monthly statement. This can be tested by the following example.

FRENCH CJ: This is for the credit cards as distinct from the charge cards?

MR DE WIJN: No, just charge cards. We accept that in relation to credit cards if a cardholder defers and pays monthly - - -

FRENCH CJ: You are paying interest, yes.

MR DE WIJN: Yes, we accept that. That has been accepted all along. We are concerned with the charge card where the amount is due and payable on receipt of the statement. There was a whole lot of evidence about how American Express follows up accounts and encourages people to pay on time because their model requires people to pay on time. The point here can be tested by changing the facts slightly; looking at a situation where a merchant sells goods on terms, that they shall be paid for, for example, on receipt of an invoice or seven days thereafter, the purchaser pays on the due date. Such an arrangement would, we say, simply not convert the sale of goods into an input tax supply. Now, that is conceptually what happens in this case, except that American Express is inserted into the chain to facilitate that situation. There is no supply of credit, there is no deferment, an obligation to pay on the due date.

Then we move to the issue of liquidated damages, which is again of critical fundamental importance because there are many contracts with liquidated damages clauses, not just in the financial industry. So if we extend the example I have just given your Honours and say let us assume that the contract had a provision in it that if you did not pay on seven days there would be liquidated damages calculated in a certain way. If there was a default and there was a requirement to pay liquidated damages, that would not convert the sale of goods into an input tax supply and that is because the damages, the liquidated damages, are by way of damages. They are not consideration for any supply.

You only have to ask yourself, with respect, is American Express in the business of supplying the right to be in default? Obviously not. That is not what is being supplied. American Express does not want people to be in default. So simply having to pay liquidated damages is not consideration for any supply. It is simply something that happens if you are in default. The distinction, as Justice Emmett at first instance said, the distinction between the promise to pay when you enter into the contract and the actual payment is a real one. Everyone makes a promise to pay liquidated damages if they are in default, but do not expect to be in default. When you go into default, you pay something else. Now, that is not consideration for any supply at all. It is damages for the default.

Your Honours, as far as the amendment is concerned, we have dealt with that in detail in our written submissions. We say this is limited to our case, but we say it is fundamentally and grossly unfair that the Commissioner was permitted to change his case fundamentally on appeal when we have proceeded from day one on the basis that the term “revenue” in the numerator meant consideration for the supply. Now, the majority says that that issue arose and it probably does not matter, but the majority says that that issue arose at the objection stage. That is clearly not true.

In the Commissioner’s audit report, which he now calls a compliance activity report or something much more politically correct, he says for the purposes of determining the numerator this amount, that is, the default fees, were consideration from the supplier. We objected on that basis. Had the Commissioner adopted a wider basis, we no doubt would have objected on a wider basis. The case at first instance was run. It was an express statement in the submissions and when I opened that the case was run on that basis. No demurrer by senior counsel for the Commissioner.

What the Commissioner then does when he gets on appeal, Mr Slater submits that because we were bound by the grounds in our objection, we could not amend, therefore we could not introduce any further evidence. Well, with respect, that is wrong. If the Commissioner at trial had adopted

a broader ground, it is unimaginable that we could not have broadened the ground of our case and argued a portion on a different basis.

HEYDON J: Your fundamental point is you would have called four witnesses had the case put in the Full Court been put?

MR DE WIJN: Yes. If all of a sudden the Commissioner said this common basis for interpreting the formula has now changed, and possibly the Commissioner could have done that, but he did not do that, if he had done that we would have produced four witnesses. We gave examples of the evidence we would have called and Justice Dowsett accepted that. If your Honours please.

FRENCH CJ: Thank you, Mr de Wijn. Yes, Mr Slater.

MR SLATER: Your Honours, we do not controvert that the meaning of “property” is a significant question. Whether the meaning of “payment system” is a question of sufficient significance to warrant the attention of this Court is a matter for your Honours to decide, but what we do say is that the manner in which this case was conducted below, particularly at first instance and the nature of the evidence led, make this application an unsuitable one for the exploration of any of those issues.

On the two issues that the applicants seek to raise, what my friend calls the “property issue” and the “payment system issue”, it is our submission that the majority in the Full Court were clearly correct for the reasons they have given and the reasons we have put in writing. I do not wish orally to traverse that ground again, but we also say that the basis on which the applicants seek to challenge the majority decision cannot be considered on the evidence which was led. Your Honours, to make that good, may I briefly revert to the legislation. My friend took your Honours to Division 11 of the statute. The relevant bits are on page 4 of the respondent’s little bundle. I only wish to draw your Honours’ attention to this, that at section 11-15 at the top of page 4:

(1) You acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise.

(2) However, you do not acquire the thing for a creditable purpose to the extent that:

(a) the acquisition relates to making supplies that would be input taxed –

Section 11-30 then provides a means of determining what is and what is not partly creditable. The relevant element in that calculation is at the top of page 5. It is:

the extent to which the creditable acquisition is for a creditable purpose –

It is common ground that - - -

FRENCH CJ: It is odd wording, is it not, to speak of a percentage of a purpose?

MR SLATER: It is odd wording, your Honour, but it is designed to feed into an arithmetical calculation. So you are supposed to work out a percentage and then apply that to the amount of acquisitions.

FRENCH CJ: What is the operation of paragraph (5)? Is that a species of delegated legislative power?

MR SLATER: That is a question which has agitated the minds of those instructing me, your Honour.

FRENCH CJ: Because it was embedded in a ruling, was it not?

MR SLATER: There was a ruling, but not a ruling which adopted the particular formulation which was used in this case.

FRENCH CJ: No, but what was done pursuant to (5) by the Commissioner was embedded in a ruling, is that not right, as distinct from a determination?

MR SLATER: Yes. The view which has been taken internally, and I am wandering away from anything in the evidence, is that it may be a legislative determination but that it has not been exercised.

FRENCH CJ: But in any event, the parties agreed to proceed on the basis of - - -

MR SLATER: There was an agreement and the point is - - -

FRENCH CJ: Yes, the Amex formula, if one can call it that.

MR SLATER: The point is that they agreed on a formula and the formula is one which is set out in the materials at various points. It is one minus revenue from input tax supplies over total revenue. Fundamentally, the argument that our friends seek to put is this, that the amounts which are received by reason of late payment – our friends persist in calling them liquidated damages which is the language of the agreement, but it is perhaps a slightly more neutral expression to say late payment charges. The argument is that they are not consideration and that, therefore, they are not revenue, but, nonetheless, my friends seek to include them in revenue in the denominator. There is no contest now that that is an incorrect approach. The majority explains why it is an incorrect approach at pages 82 and 83 of the application book starting at about paragraph 120 and going through to about paragraph 126. I do not want to read that to your Honours, but that explains - - -

FRENCH CJ: There is a sentence at the end of 123, I think “the formula departed from the text of the GST Act”. Is that a statement that the formula was incorrect?

MR SLATER: I do not think so, your Honour. The formula is just a means of arriving at something which is taken for the reasons that are given in 124, to be likely to arrive at a fair representation, but it is a fair representation because it apportions the gross revenue of Amex between input tax supplies and non-input tax supplies.

FRENCH CJ: It is founded on certain assumptions about rational behaviour.

MR SLATER: Yes. Those are bold assumptions in a fiscal context, but it is founded on an assumption that the revenue from input tax supplies will broadly correspond with the proportion of expenditures which generate input tax supplies. There is not any contest that these late payment charges are revenue. The contest is that they are not consideration, but consideration is not the language used in that formula. It is correct, as my friend says, that Amex persuaded the Commissioner and my friend persuaded my predecessor and the trial judge that the issue to be agitated was whether these payments were consideration. That is a forensic triumph on my friend’s part.

The path to winning an appeal is always to persuade the court that the issue to be decided is one you could win on, but it is a wrong issue. There is no doubt about that. There is no serious controversy now that if the matter is decided in the manner that the Commissioner assessed and the trial judge decided, the answer is simply wrong. That is one reason why, in our submission, this is not an appropriate case for this Court to entertain. One which proceeded and proceeds on a premise which is manifestly wrong and would result in an incorrect calculation of tax is not one which, in our submission, is an appropriate vehicle to test the issues which my friend refers to about property and the like.

Your Honours, as to the second issue my friend seeks to raise concerning a payment system, one might say first that it only arises if my friend is wrong on the question of property in relation to what is a financial supply, but apart from that, the issue posed in relation to the formula which was adopted for the purposes of section 11-30 and opposed by regulation 40-5.12, which your Honours will find in the respondent’s bundle of materials at page 10, is this. In order to be excluded by that regulation from the category of financial supplies, it must be:

the supply of something, or an interest in or under something, that is mentioned in an item in the following table –

The question posed by the formula is whether the amounts comprising late payment charges are revenue derived from input tax supplies. My friend says they are not revenue derived from the tax supplies because they are revenue derived from the payment system. The derivation is receipt from the cardholder. The only way in which it can be excluded from financial supplies by this regulation is if it is revenue arising from the supply to the cardholder of or of an interest in or under the payment system. That is a question which simply cannot be explored on the evidence which is before the Court.

No evidence was led in relation to any payment system when the matter was at trial and that is because the applicants had successfully persuaded the court that the only issue to be decided was the meaning of the word “consideration”. The only evidence that can be said to go in any way to what is or is not a payment system is comprised in the tender of the terms of agreement for the issue of the card, the tender of the terms of a merchant agreement and a monthly statement to a cardholder. That is the entirety of the evidence and - - -

HEYDON J: What about paragraph 3 of the applicant’s written reply submissions? According to that, there was affidavit evidence which described various aspects of the business.

MR SLATER: All that it described was the way in which merchants entered into the terms of agreement. It did not deal with the manner in which payments were actually made with the operation of any payment system. That is perhaps pointed out by the document which was put to the Full Court and which appears right at the back of our friend’s bundle of materials. When the Full Court asked for an indication of the evidence which went to the payment system, the two documents, which appear on pages 123 and 124 were provided and one sees that all that could be pointed to were the terms of the agreement. The appeal book reference pages are simply to the terms of the agreement.

Your Honours, if it were to be said that there was a supply to a cardholder as a participant, then there would have to be some evidence of what the cardholder did. Your Honours will find at page 104 of the application book, but not in any of the bundles of material, the definition of “participant”. The majority said that it is not particularly illuminating, but it is to this extent. At about line 30 on page 104 a participant is:

“a person who is a participant in the system in accordance with the rules governing the operations of the system”.

There is nothing about the rules which apply to the cardholders in relation to any act of payment beyond simply the terms on which the cards are issued to them. There is no evidence about any actual payments having been made and there is no evidence about any banking arrangements. There is no evidence about any system for payment or receipt of moneys. There is no evidence beyond the merchant agreement of any merchant participation. There is no evidence beyond the cardholder agreement and the monthly account of any payments beyond the payment of a monthly account and there is no evidence of any relationship between the late payment charges and a payment system.

When one looks at what Justice Dowsett based his reasoning on, if I could take your Honours briefly to pages 60 and following of the application book, starting at paragraph 57 at line 30. Your Honours, I am going to just point to things without reading the full context to your Honours and I accept that that is not necessarily the best way of going about things. At about line 35 his Honour notes:

It is true that there is little detail of American Express’s internal operations, but the matter was dealt with on the evidence as it was.

On the next page at about line 33:

The American Express system appears to be simpler . . . Of course banks are generally involved . . . both cardholders and suppliers will usually operate bank accounts . . . there appears to be no relevant difference between the Visa and Mastercard systems and the American Express system.

On the next page at the top of page 62, third line:

a different outcome is unlikely . . . that seems to make no material difference.

At the beginning of paragraph 61:

is not entirely clear, it presumably included –

On page 63, paragraph 64:

One may safely assume . . . The definition . . . strongly suggests . . . All consequential transactions would facilitate such circulation. Further, such transactions would involve –

In the next paragraph:

A funds transfer system, I infer, is . . . No doubt American Express has its own substantial capital reserves –

and so forth. In other words, there was no evidence. His Honour proceeded on a series of assumptions and what the applicants invite the Court to do in an appeal is again to proceed upon a series of assumptions as to which different minds may reach different assumptions. The majority took a quite different view from Justice Dowsett and in the end, all that Justice Dowsett concluded was that the transactions between American Express and merchants comprised a payment system. Not that the payment system extended to the cardholders from whom the relevant revenue is said to arise.

So, your Honours, for those reasons, in our respectful submission, the case is not a suitable one in which to explore what is a payment system and the role of cardholders in it and it is not a suitable case in which to explore the interpretation of section 11-30 because it proceeds upon a formula which is not to be found in that section or any statutory determination pursuant to that section and, as is not really disputed, it is a formula which leads to a wrong result. If your Honours please.

FRENCH CJ: Thank you, Mr Slater. Yes, Mr de Wijn.

MR DE WIJN: Your Honour, my learned friend seeks to blame me for the formula - - -

FRENCH CJ: Well, in a complimentary sort of way.

MR DE WIJN: I think a backhanded compliment, with respect, your Honour. But it is fundamentally wrong. It arose in the Commissioner’s audit report and the assessment was based upon that issue and thereafter an objection was lodged based on that issue and thereafter American Express consistently treated the numerator, the reference to revenue in the numerator as meaning consideration and in the end, that is the beginning and the end of it. We do not accept at all that that interpretation leads to a wrong result. We say that that is what the parties agreed. It was only when Mr Slater got involved in the Court of Appeal that someone came up with a point of saying this is a wrong interpretation. It is a correct interpretation because input tax supplies must be for consideration and that is why it is a correct result.

The real issue is that that was the basis upon which the parties acted. The Commissioner issued an assessment on that basis and it continued on that basis. My learned friend is also wrong to say the payment system was not agitated at trial. It was agitated. Justice Emmett made a decision on the payment system point in our favour. My learned friend says there is not enough evidence. With respect, the payment system – my learned friend wants to make the payment system more complicated than it really is. The payment system comprises essentially of a contract between Amex and a merchant, or a lot of them, and contracts between Amex and cardholders.

Sample contracts between cardholders of various different cards, gold cards, whatever, were put into evidence and accepted as representative samples and a sample of a merchant agreement was put into evidence as a representative sample. There were examples of the invoices and charges that are made and the bills that are sent. There were three senior executives from American Express gave evidence, four affidavits, and gave evidence about the way in which cards were marketed, what the business model of American Express was, the reason that they wanted people to pay on time because they wanted people to revolve, they did not want people to default. They were not in the business of collecting default fees.

There was extensive evidence about the calculation of the liquidated damage. My learned friend has referred to nothing about this because at one stage we anticipated and the Commissioner was saying these are not genuinely liquidated damages. So we went to the extent of proving the way in which the damages were calculated. That went into evidence and was not challenged. There were three senior executives from American Express, including two that came from overseas, to give evidence on the model and how it operated. If my learned friend says, well, it is a simple system, so be it. Essentially, the rules of the system – and the majority says the rules were not in evidence. The rules were. The agreements between American Express and the cardholder and American Express and the merchants and samples of those were in evidence. With respect, what else do you need?

If your Honours please, we say it is a suitable case on a number of issues and the application of the formula we only get to that if we were to lose on property and payment system. If we win on property and payment system, it is clear that no matter whether you call it revenue or consideration we win. So they are two preliminary points which are of critical importance to the administration of this Act especially bearing in mind it is a consumption tax that ultimately consumers end up paying. If

we lose on the first two points, then it is still critically important to deal with the liquidated damages which we say is of general importance and it is unlikely that another case is going to come up to clarify these issues in the near future. All these things take a long time. If your Honours please.

FRENCH CJ: Thank you, Mr de Wijn. We will adjourn briefly to consider what course we take.

AT 10.22 AM SHORT ADJOURNMENT

UPON RESUMING AT 10.26 AM:

FRENCH CJ: This matter will be referred to a Full Court.

AT 10.26 AM THE MATTER WAS CONCLUDED