American Express International Inc v Commissioner of State Revenue [2004] VSCA 193

6. The method by which Amex provides charge cards to its customers is described in an affidavit of Agnes Lingane, the contents of which were not disputed. Ms Lingane deposed that applicants for Amex charge cards must be assessed as having a demonstrated ability to settle their accounts in full at the end of each month before they will be approved as a cardholder, since the terms and conditions of the charge card require payment of all accounts invoiced by Amex to the cardholder upon presentation of a monthly statement of charges. Amex developed the charge card as an alternative to travellers cheques. The card is designed to provide the cardholder with a convenient mechanism for paying for goods and services around the world without the need to carry large amounts of cash and as a substitute for travellers cheques.

9. Three separate contracts are involved when the cardholder uses the charge card to acquire goods or services from a merchant. The contracts are as follows:

(a) A contract between Amex and the merchant. By that contract:

(i) the merchant agrees that the cardholder acquiring goods and services will be treated as having provided full consideration for such goods and services if a charge card is produced and a record of charge form ("record of charge") is signed by the card member, or the card member provides evidence that a valid charge card is held; and

(ii) Amex is obliged to make payment to the merchant for all amounts charged by card members to that merchant.

(b) A contract for the supply of goods and services between the cardholder and the merchant, whereby the merchant agrees that the cardholder may present the charge card in complete satisfaction of the obligation to make payment for goods or services which have been acquired from the merchant. The transaction between the merchant and the cardholder is complete at the time the goods and services are acquired by the cardholder and the cardholder has no continuing liability to the merchant in respect of the cost of the goods or services acquired. Normally there is no formal written contract between the card member and the merchant.

(c) A contract between Amex and the individual cardholder. Some terms and conditions of the cardholder agreements can differ depending on the charge card type, and the cardholder type. The essential terms, however, are the same (and applied during the period of assessment):

(i) The cardholder is allowed to acquire goods and services upon presentation of the charge card to a merchant upon condition that the cardholder signs a record of charge form with the signature appearing on the charge card;

(ii) The cardholder will pay to Amex, immediately upon receipt of a statement of account from Amex, those amounts listed on the statement of account in relation to which record of charge forms have been signed or where the cardholder has provided the merchant with evidence that a valid charge card is held;

(iii) The cardholder will pay a joining fee and annual fee for the use of the charge card and services provided by Amex; and

(iv) If the card member fails to pay the account when due, he or she is liable to pay liquidated damages. The cardholder is not permitted to defer any part of the amount due for payment to subsequent months.

The Commissioner's Assessment

15. By notice dated 26 October 2000, the Commissioner of State Revenue (the respondent) assessed Amex to financial institutions duty (FID) of $700,924.84. The FID was imposed pursuant to s.18(1) of the Financial Institutions Duty Act 1982 (Vic.) ("the FID Act") on receipts of money by Amex in Victoria totalling $1,168,208,284.48 in the period 1 December 1996 to 31 October 1999. The respondent also assessed Amex to penalty tax of $101,222.89 calculated at 15% of the unpaid duty, and interest of $136,777.06. The penalty tax was imposed pursuant to Division 2 of Part 5 of the Taxation Administration Act 1997 (Vic.) ("the TA Act"). The interest was imposed pursuant to Division 1 of Part 5 of the TA Act.

19. Amex objected to the assessment by notice of objection dated 22 December 2000. On 28 March 2001 the respondent gave notice to Amex that its objection had been disallowed. Amex then had the disallowance of the objection reviewed by the Victorian Civil and Administrative Tribunal ("VCAT"). The parties to the review were Amex as applicant and the Commissioner as the respondent.

22. The review was heard before Mr Geoffrey Gibson, a member of VCAT. The issues before Mr Gibson were:

(a) whether Amex was a "credit provider", and hence a "financial institution", as defined in s.3(1) of the FID Act;

(b) whether s.18(3)(l) of the FID Act applied to exclude Amex from liability to FID;

(c) whether the penalty tax and interest had been correctly imposed.

The Legislation

28. It is convenient now to turn to the relevant provisions of the FID Act. FID is imposed by s.18, which provides insofar as relevant that -

"(1) Subject to this Act, a financial institution that receives money in Victoria during a month is liable to pay financial institutions duty in respect of each such receipt of money.

(l) a receipt of money by a person who is a financial institution by reason only that he is a credit provider, other than a receipt that is a repayment of the whole or any part of the amount financed under a credit contract or a payment of an amount owing to the credit provider under a continuing credit contract;

Under s.3, the definition section, the word "credit" includes any form of financial accommodation, "credit contract" means a credit sale, a loan or a continuing credit contract, and "credit provider" means a person who provides credit under credit contracts in the course of a business carried on by him in Victoria. The expression "credit sale" is defined as meaning -

"A contract for the provision of credit by a credit provider in relation to the supply of goods and services where - (a) a charge is made for the provision of credit; (b) the amount payable is not required to be paid within the period of four months after the provision of credit; or (c) the amount payable may be paid by five or more instalments or by a deposit and four or more instalments; ...".

"A contract for the provision of credit by a credit provider to another person in one or more of the following ways - (a) by paying an amount to or in accordance with the instructions of that other person; (b) by applying an amount in satisfaction or reduction of an amount owed to him by that other person; (c) by varying the terms of a contract under which moneys owed to him by that other person are payable; (d) by deferring the obligation of that other person to pay an amount to him; (e) by taking from that other person a bill of exchange or other negotiable instrument on which the other person (whether alone or with another person) is liable as drawer, acceptor or endorser; ...".

By s.5, a "continuing credit contract" is defined in the following way -

"Where a person - (a) agrees with another person to provide credit to that other person in respect of payment for goods and services or cash supplied by him to that other person from time to time; or (b) agrees with another person - (i) to satisfy on behalf of that other person liabilities of that other person to a third person in respect of payment for goods and services or cash supplied by that third person to that other person from time to time; and (ii) to provide credit to that other person in respect of payment by that other person of amounts owing from time to time to him in respect of the satisfaction by him of those liabilities on behalf of that other person - and agrees to calculate the amount owing to him from time to time under the agreement on the basis that all amounts owing and all payments made by the other person under or in respect of the agreement, are entered in the same account - that agreement is, for the purposes of this Act, a continuing credit contract."

44. By reasons delivered on 24 May 2002, Mr Gibson concluded that Amex was a "credit provider" as defined and hence a "financial institution". He held that the receipts were not repayments under "credit contracts" but found that they were payments under "continuing credit contracts", and thus not excluded from liability by s.18(3)(l). Accordingly Mr Gibson affirmed the liability of Amex to pay FID. However additionally, he reduced the penalty tax and interest. The decision of VCAT was in the following terms -

"The assessment under reference be varied by reducing the penalty of $101,222.89, which had been assessed at a rate of 15%, to an amount found by applying a rate of 7.5% and by reducing the amount of interest charged to an amount assessed by applying the market rate as referred to in Revenue Ruling TAA.003 on the relevant amounts for the relevant period; otherwise the assessment is affirmed."

49. By originating motion filed on 21 June 2002 Amex sought leave to appeal from that part of the decision of VCAT which affirmed the assessment for FID on the receipts referable to the charge cards. Then, by notice of contention and cross-appeal, the respondent sought leave to contend that VCAT should have held that the receipts referable to the charge cards were repayments under "credit contracts" by way of "loan" within paragraph (a) and/or (d) of the definition of "loan" and to cross-appeal against the reduction in penalty tax and interest. On 25 February 2003 the judge granted leave both to Amex and the respondent to appeal and cross-appeal. His Honour held the receipts were not payments under "continuing credit contracts" but were payments under "credit contracts" by way of "loan" within paragraph (d) of the definition of "loan" (but not paragraph (a)). The judge dismissed the cross-appeal on penalty tax and interest. On 4 April 2003 two judges of this Court gave Amex leave to appeal from this judgment.

53. The issues in the appeal, including a cross-appeal and notice of contention filed by the respondent, are whether -

(a) for the purposes of s.18(3)(l) of the FID Act, a receipt by Amex of an amount referable to its charge card was:

(i) a repayment under a "credit contract" constituted by a "loan" as defined in paragraph (a) and/or (d) of the definition of "loan" in s.3(1) of the FID Act;

(ii) a payment of an amount under a "continuing credit contract", as defined in s.5 of the FID Act;

(b) the judge should have upheld the respondent's cross-appeal on penalty tax and interest.

At all stages in this litigation, only paragraphs (a) and (d) of the definition of "loan" were in issue. It was also common ground that paragraph (a) of the definition of "continuing credit contract" had no relevance.

In Re Charge Card Services Ltd.[1]

59. Charge Card Services Ltd. ("CCS") operated a charge card scheme under franchise agreements with participating garages under which they accepted its fuel credit charges and charged CCS the price for petrol and other fuels supplied to cardholders. The scheme was broadly similar to that under which Amex dealt with participating businesses. In January 1985 CCS ceased trading, going into liquidation with a large anticipated deficiency. At the date of liquidation, CCS owed substantial sums to garages, and a large number of debts were due from cardholders. The liquidator sought determination of the question to whom the cardholders' debts were payable. The garages contended that payment by charge card by their customer was conditional on CCS honouring its obligation to the garages. In the Court of Appeal, Sir Nicholas Browne-Wilkinson, V-C. described the general features of credit card transactions in the following way[2] -

"(A) There is an underlying contractual scheme which predates the individual contracts of sale. Under such scheme, the suppliers have agreed to accept the card in payment of the price of goods purchased: the purchasers are entitled to use the credit card to commit the credit card company to pay the suppliers. (B) That underlying scheme is established by two separate contracts. The first is made between the credit company and the seller: the seller agrees to accept payment by use of the card from anyone holding the card and the credit company agrees to pay to the supplier the price of goods supplied less a discount. The second contract is between the credit company and the cardholder: the cardholder is provided with a card which enables him to pay the price by its use and in return agrees to pay the credit company the full amount of the price charged by the supplier. (C) The underlying scheme is designed primarily for use in over-the-counter sales, i.e., sales where the only connection between a particular seller and a particular buyer is one sale. (D) The actual sale and purchase of the commodity is the subject of a third bilateral contract made between buyer and seller. In the majority of cases, this sale contract will be an oral, over-the-counter sale. Tendering and acceptance of the credit card in payment is made on the tacit assumption that the legal consequences will be regulated by the separate underlying contractual obligations between the seller and the credit company and the buyer and the credit company. (E) Because the transactions intended to be covered by the scheme would primarily be over-the-counter sales, the card does not carry the address of the cardholder and the supplier will have no record of his address. Therefore the seller has no obvious means of tracing the purchaser save through the credit company. (F) In the circumstances, credit cards have come to be regarded as substitutes for cash: they are frequently referred to as `plastic money'. (G) The credit card scheme provides advantages to both seller and purchaser. The seller is able to attract custom by agreeing to accept credit card payment. The purchaser, by using the card, minimises the need to carry cash and obtains at least a period of free credit during the period until payment to the card company is due."

This passage was accepted as correct and repeated in the judgment of Woolf, L.J. in Customs and Excise Commissioners v. Diners Club Ltd. and Anor[3]. The description was treated as correctly applied to the facts of this case by both parties. It was quoted in full both by the judge[4] and by Mr Gibson in his reasons.

The Respondent's Contentions on the Loan Issue

65. The respondent contends that moneys received by Amex constituted a repayment under a "credit contract" constituted by a "loan" as defined in the FID Act. The argument was made in two ways. First, it was submitted that the receipts of money by Amex from holders of its charge cards constituted repayments of the amount financed under a credit contract, on the basis that the contract between Amex and its customer deferred the obligation of the customer to pay an amount to it, thus bringing the contract within paragraph (d) of the definition of "loan" in the FID Act. Secondly, it was argued that the overall contractual scheme involved Amex paying an amount to the business or organisation which accepted payment by the customer's card, in accordance with the instructions of the customer, and thus brought the contract within paragraph (a) of the definition of "loan".

68. For the first argument Ms Symon for the respondent argued that by reference to clauses of the Amex charge card agreement, a cardholder is liable (clause 3) to Amex for all transactions made or charged with the charge card. Charges are due and payable immediately upon receipt by the cardholder of a monthly statement (clause 9). Amex does not however treat the cardholder as being in default until the date on which the next monthly statement is made up. Clause 12 of the agreement commences "if you do not pay your account in full by the date on which your next monthly statement is made up you are in default", following which charge privileges may be suspended and liquidated damages are payable. It was argued that clause 9 creates an obligation in the charge cardholder to make payment immediately, but that this obligation was then deferred to a time when the cardholder's next monthly statement was made up. The word "repayment" was, said Ms Symon, to be construed in the context of s.18(3)(l) of the FID Act, and against the background of the merchant agreement which suggested that Amex paid merchants before cardholders paid Amex. Particular emphasis was, however, based on the wording of s.18(3)(l), which includes the notions of "loan" and "amount financed" as defined by the FID Act. The definitions of these terms were said to provide a clear indication that the word "repayment" as used in the FID Act necessarily means something broader than simply the paying back of an amount of money. The argument continued that the definition of "loan" expressly includes (sub-para.(d)) the deferral of the obligation of a person to pay an amount. Reliance was placed on the fact that the agreement of the cardholder to pay "fees, liquidated damages, taxes and all other amounts", also does not involve an advance of money or a paying back. Yet in terms of para.(b) of the definition of "amount financed" in s.3(1) of the FID Act, such amounts form part of the "repayment" by the cardholder. It follows, so it was said, that the word "repayment" as used in the FID Act necessarily means something broader than simply the paying back of an amount of money.

The Proper Construction of the Three Agreements

72. I accept at once that, as Sir Nicholas Browne-Wilkinson said in Charge Card Services, there is an underlying contractual scheme upon which the charge card as a mechanism for paying for goods or services depends. Both appellate courts in the English cases already cited concluded, first, that, upon acceptance by the merchant of the card as a method of payment, the cardholder is unconditionally discharged from any liability to the merchant to pay the amount of the costs of goods or services[5]; secondly, the cardholder, in lieu, assumes direct liability to the card company, to the exclusion of liability to the merchant[6]; and thirdly, the card company assumes direct liability to the merchant.[7]

75. Insofar as the interpretation of the individual contracts is concerned it was, I think, made perfectly clear in the judgments at first instance and on appeal in Charge Card Services that the underlying contractual scheme involved the interpretation of three separate individual contracts. At first instance[8] Millet, J. (whose decision was affirmed on appeal) said[9] -

"On the use of the card, three separate contracts came into operation. [His Lordship then referred to each of the three contracts between merchant, cardholder and card issuing company] ... There are thus three separate contracts and three separate parties, each being party to two of the three contracts but neither party nor privy to the third. While the legal consequences of these arrangements must depend upon the terms of the particular contracts employed, one would expect each contract to be separate and independent and to be entered into between principals."

This view was, I think, clearly accepted by the Court of Appeal. When Sir Nicolas Browne-Wilkinson, V-C. came to deal with the question whether the acceptance of the fuel card was conditional or absolute payment, his Lordship said[10] -

"The answer to this question must depend on the terms of the forecourt agreement since this is the only contract made between the garage and the cardholder. The terms on which the garage accepted payment from the cardholder must be determined by the only contract to which they are parties ... Moreover, although both garage and cardholder are in general aware that some underlying contract exists between the garage and the company and between the cardholder and the company, neither the garage nor the cardholder is aware of the exact terms of the contract to which they are not a party. Therefore the terms of the forecourt agreement have to be inferred from the surrounding circumstances known to the parties."

The position is, I think, as counsel supporting the decision of Millet, J. put it in argument to the Court of Appeal[11], that -

"It is not correct to construe the three contracts within the scheme (the forecourt agreement, the subscriber agreement and the franchise agreement) as if they were parts of a single tri-partite agreement. They stand as three bilateral contracts. But, although independent of each other they are to be construed within a common factual matrix."

The Decisions of VCAT and the Trial Judge on the Loan Issue

84. Mr Gibson decided the first issue against the respondent, saying that he doubted whether credit charge transactions could amount to a "repayment" of the amount financed under a credit contract. Mr Gibson did not however have to decide the question finally, since he found for the respondent on the "continuing credit contract" issue. When the matter came before the Supreme Court, the judge found for the respondent on the first issue holding that the contracts between Amex and its cardholders deferred the obligation of cardholders to pay amounts due to Amex. His Honour said[12] -

"It is true that, by clause 9 of the terms of the contract between [Amex] and its cardholders, all charges are due and payable immediately upon receipt of the monthly account. In contradistinction to this, however, cardholders are not in default unless they fail to pay before the next monthly statement is made up: clause 12. In my opinion, the effect of the two clauses when read together is that, while the obligation to pay is immediate, no breach occurs if payment is deferred to a date not later than the day before the next monthly statement is prepared. In the words of clause 12, `If you do not pay your account in full by the date on which your next monthly statement is made up you are in default'. This, in my opinion, is the same as saying that the cardholder is not in default, and has therefore committed no breach, if he or she, while not making immediate payment, clears each account before the next is made up. In other words the agreement provides for an immediate obligation to pay, but that obligation is then deferred by the provision of credit for a period of weeks. This seems to me to fall squarely within the Act's definition of a `loan'. It is no answer, in my opinion, that the obligation and the deferral are to be found in the same document. The next question is whether the word `repayment' can properly apply to the payment of a monthly account. It can, it seems to me, if by the time payment is made [Amex] has already paid the merchant. Under clause 7 of the terms and conditions of the contract between [Amex] and the merchants who agree to accept [Amex's] card, free payment plans are offered. All if implemented would regularly see the merchant paid before the complementary payment is received by [Amex] from the cardholder. Against this background, the use of the word `repayment' is apt."

His Honour decided the second issue, that is, that Amex did not provide credit to its cardholders by paying amounts to or in accordance with their instructions, against the respondent, saying that Amex was not contractually bound to do so.

90. Amex argued in this Court that upon a purchase of goods by a cardholder by use of the charge card, the merchant accepts the obligation of Amex as the consideration for the sale, so that the cardholder never becomes liable to the merchant. Instead, the cardholder becomes indebted to Amex pursuant to the contract with Amex for the amount Amex billed the cardholder. It follows, in my view inevitably, that the contract between Amex and its cardholders is not for the provision of credit by deferring the obligation of the cardholder to pay Amex. The debt which is discharged by payment by Amex to the merchant is Amex's own debt. It is not a debt of the cardholder to the merchant, as both the liability of the cardholder to the merchant to make payment and the indebtedness of the cardholder to the merchant are extinguished when the merchant accepts the charge card as the method of payment. Instead the cardholder assumes a direct liability to Amex for those charges that appear on the cardholder's billing statement and which, incidentally, will differ from the amount that Amex pays the merchant. The terms of the cardholder agreement, so Amex argued, and in my view correctly, contain no provision for any advance to or on behalf of the cardholder.

93. In the passages from the judge's reasons to which I have made reference in paragraph [16] above, his Honour took the view that the cardholder agreement gave rise to a loan under para.(d) of the definition in the FID Act because of the interrelationship between clauses 9 and 12 of the cardholder agreement. But the obligation of the cardholder is to pay "immediately upon receipt of the monthly statement". Even if a short period of grace is allowed before the cardholder is regarded as being in default, that obligation to pay immediately remains extant. I would accept the argument of Amex that the clauses of the agreement simply give the cardholder a reasonable opportunity to make payment before the shareholder becomes in default and liable to suspension of privileges and liquidated damages in accordance with clause 12.

96. Furthermore the payment by the cardholder to Amex under the card member agreement cannot in my view be described as a "repayment" as required by s.18(3)(l) of the FID Act; rather it is the payment of the amount due. The word "repayment" is not defined in the FID Act. It must accordingly be given its ordinary and natural meaning, which, to my mind, comprehends the payment back or return of money. The judge in the passage I have already cited, found that the use of the term "repayment" was apt to describe the payment made by a cardholder to the appellant under the terms of the cardholder agreement. But neither the underlying contractual scheme nor the terms of the cardholder agreement involve the advance of money to, or on behalf of, the cardholder by Amex. The question then is whether the payments made by the cardholder in discharge of the contractual obligation to Amex can constitute a repayment. It seems to me that in these circumstances the liability of the cardholder to Amex cannot be characterised as being in the nature of an obligation to make "repayment", there being nothing to repay.

99. Reliance was placed by the respondent on the conclusion of the judge that the term "repayment" is used interchangeably with the term "payment" in s.18(3)(l). On the contrary, it seems to me, with respect, that the language of the section itself makes plain that Parliament intended to draw a distinction between the words "payment" and "repayment". Furthermore there is a well-marked distinction in the authorities in this area between payments and repayments[13]. In Prime Wheat Association Ltd. v. Chief Commissioner of Stamp Duties[14], the New South Wales Court of Appeal considered the liability of a share sale agreement to stamp duty under the Stamp Duties Act 1920. A relevant question was whether the share sale agreement amounted to a loan under s.83(1) of that Act, as

"(a) an advance of money; and (b) money paid for or on account of or on behalf of or at the request of any person; and (c) a forbearance to require payment of money owing on any account whatever; and (d) any transaction (whatever its terms or form) which in substance effects a loan of money."

"There was here no forbearance to require payment of money owing. The meaning of forbearance in a context such as the present was explained in Tozer Kemsley & Millbourn (Australasia) Pty. Ltd. v. Point ... There was from the outset (leaving to one side the matter of the conditions precedent) an agreement between the parties as to time and amounts in which the purchase price was to be paid. The vendor did not exercise any forbearance. The vendor simply observed the mutually binding contractual obligations. Paragraph (d) of the definition of loan does not have a meaning which renders everything else in the definition superfluous. The definition had its origin in money lending legislation. There is ample authority to establish that the paragraph does not entitle a court to disregard the legal nature and effect of the instrument in question, or to treat all forms of financial accommodation as loans; ... A sale on terms giving the purchaser time to pay is not a disguised loan. The essence of a loan is an obligation of repayment. Here what was involved on the part of the purchasers was payment, not repayment; cf. Handevel Pty. Ltd. v. Comptroller of Stamps (Vic.) ...". (References omitted.)

105. For the foregoing reasons I would conclude that the contract between Amex and its customers was not one which deferred the obligation of the customer to pay any amount to Amex.

108. The second part of the first issue raises the question whether, when Amex paid an amount to the merchant who accepted payment of the customer's card, Amex could be said to have been acting in accordance with the customer's instructions. The judge held that Amex did not so act because the cardholder's contracts with Amex contained nothing to bind Amex contractually to pay merchants on behalf of customers, and accordingly there was nothing in the contracts to bring them within paragraph (a) of the statutory definition in the FID Act of the word "loan".

111. The respondents submitted that the agreement between the cardholder and Amex should not be interpreted alone, but rather is to be seen as part of the underlying contractual scheme upon which the charge card depends for its utility. That underlying contractual scheme contemplates the existence of each of the three separate contracts previously described in paragraph 3 and involves the pre-existing agreement between Amex and a cardholder by which Amex authorises the cardholder to use the charge card in substitution for cash, on the basis that the cardholder becomes liable and pays Amex in respect of all transactions made or charged with the charge card; together with the second pre-existing agreement between Amex and a merchant by which the merchant agrees to accept the charge card as a method of payment for goods or services on the basis of Amex's promise to pay the merchant an amount, less the merchant fee, in respect of all payments made by a cardholder with the charge card for the bona fide purchase of goods or services in full satisfaction of the cardholder's obligation to pay the merchant for the underlying purchase.

114. Ms Symons argued that in a sale and purchase transaction the cardholder is liable to pay the merchant for the goods or services being purchased. When the cardholder chooses the charge card as the method of payment, the cardholder then activates the operation of the underlying contractual scheme, substituting for his or her obligation to pay the merchant for the goods or services being purchased, Amex's promise to pay cash to the merchant, less the merchant fee, in respect of all payments made with the charge card. She submitted that the operation of the charge card as a convenient mechanism for paying for goods or services thus depends upon the operation of the underlying contractual scheme. Use of the charge card is only possible if there are merchants who will accept the card. Acceptance of the charge card then depends in turn upon Amex's promise to pay in respect of all payments made with the charge card. It was submitted that merchants simply would not permit cardholders to use the charge card in the absence of Amex's promise to pay.

117. The respondent's argument relied substantially on the decisions of the Court of Appeal in Charge Card Services and Diners Club and the operation of the underlying contractual scheme in a sale and purchase transaction. It was put that the Court of Appeal's analysis of the general features of charge card transactions established that, in terms of s.5(b)(i) of the FID Act, when Amex accepts an application for the charge card and issues it to a cardholder, Amex agrees, whenever the cardholder chooses the charge card as the method of payment, to satisfy on behalf of the cardholder his or her liability to pay the merchant in respect of the goods or services supplied. Accordingly, Amex authorises the cardholder to use the charge card to invoke the underlying contractual scheme by which the cardholder's liability to pay the merchant for the goods or services is substituted for Amex's promise to pay the merchant and the cardholder's promise to pay Amex.

120. The argument continued that all three separate agreements should be regarded as parts of a single jigsaw. None of them are properly construed alone. The merchant, for example, only accepts the charge card because Amex has previously agreed with the holder to satisfy his liabilities to the merchant in respect of goods or services. The purchase of goods is, so the argument ran, the last piece of the jigsaw, indeed, is the transaction which gives life to the operation of the whole complex. The cardholder produces the card in substitution for an obligation to pay cash, knowing that the goods with be paid for later by Amex, while the merchant accepts the card only because it knows Amex has agreed to pay the merchant. Particular emphasis was placed on paragraph 6 of the merchant agreement which includes the following statement -

"You agree that our payment to you for a Charge will fully satisfy the Card member's obligation to pay you for the underlying purchase. Unless and until we definitively refuse to pay you for a Charge or we recover payment from you for a Charge, you agree not to bill the card member directly for the underlying purchase, and you agree to endorse and send to us immediately any and/all payments you may receive directly from the Card member for that purchase."

124. The short answer to the respondent's argument is, in my view, that there is here no contract which requires Amex to pay in accordance with the customer's instructions. Reference has already been made to the three conclusions of the Court of Appeal in Charge Card Services and Diners Club set out in para.[14]. Each of these conclusions is quite inconsistent with any notion that Amex pays the merchant on the instructions of the customer. On the contrary, the payment Amex makes to the merchant is pursuant to the separate contract it has made with the merchant, to which the customer (the cardholder) is not a party. That agreement contains provisions regulating the interest rate, the commission (which Amex is entitled to deduct) and the time at which Amex must pay the merchant. The cardholder, not being party to this contract, will usually be completely unaware of the content of these terms. In no sense, in my view, can payment be said to be made at the instructions of the cardholder.

127. Nor does par.6 of the merchant agreement advance the respondent's case. I accept that, as between Amex and the merchant, the term suggests that the cardholder might remain liable to the merchant in the event of Amex failing to pay the merchant. But, as between Amex and the cardholder, such a proposition would be directly opposed to the second principal conclusion arrived at in Charge Card Services and Diners Club referred to in paragraph [14] above. No such term is contained in the cardholders' agreement with Amex, nor is there any reason to believe that the cardholder would have any knowledge of it.

130. It seems to me that the existence of the underlying contractual scheme, no doubt part of the factual matrix, takes the respondent's argument no further. The judgments of Millet, J. and Sir Nicolas Browne-Wilkinson, V-C. in the Charge Card Services litigation repeatedly, as has already been seen, stated that the rights and obligations of the parties must depend upon the terms of the individual contracts into which they have entered. This is entirely consistent with the stream of Australian authority referred to in the judgment of Gleeson, C.J. in the Prime Wheat Association decision[16], dealing with a statutory definition of "loan" for the purposes of levying stamp duties as including "every contract (whatever its terms or form may be) which is in substance or effect a loan of money", as not entitling a court to disregard the legal nature and effect of the instrument in question. As Williams, J. put it in Metropolitan Discounts & Investment Co. Ltd. v. Bowra Radio & Electrical Co. Ltd. (In Liq.)[17] -

"In order to determine whether the contract was in substance a loan of money, the substance or real nature of the transactions must be determined by ascertaining the legal effect of the bargain which the parties have entered into."

I would therefore conclude that the contracts between Amex and its customers was not one which involved Amex paying any amount to the merchant in accordance with the instructions of the customer.

135. For all these reasons the respondent in my opinion fails on the first issue in the appeal.

139. In VCAT, Mr Gibson decided that the contract between Amex and its customers should be regarded as a continuing credit contract, saying -

"The question then is whether [Amex] provides credit to the customer in respect of payment by the customer of amounts owing from time to time to [Amex] in respect of the satisfaction of those liabilities by [Amex]. In my opinion, [Amex] does give that credit. There is credit involved in the initial transaction with the merchant, since the customer is not paying cash, but credit is also involved because [Amex] gives time to pay on the face of its statements, notwithstanding that the agreement says accounts must be paid immediately a statement is issued and because a further one month's grace is given then."

143. On appeal, the trial judge disagreed. His Honour noted that s.5 of the FID Act provides that a continuing credit contract comes into being when a person such as Amex agrees with another (the cardholder) to satisfy the liabilities of the cardholder to a third person in respect of payment for goods or services. But his Honour accepted that an examination of the terms of Amex's contract with its cardholders shows that nowhere does Amex agree to satisfy the liabilities of anyone. The judge rejected the view that any term to this effect should be implied, observing that the English cases had established that cardholders are discharged of their obligations to the retailer when they sign the relevant voucher in accordance with their card, and that what happens thereafter is no concern of theirs. Accordingly, it was unnecessary to imply any term sufficient to bring the contract within s.5 of the FID Act to give business efficacy to the contract between Amex and its cardholders.

146. The respondent contends that the judge was in error, and incorrectly focused on the agreement between the cardholder and Amex instead of on the operation of the underlying contractual scheme behind any sale and purchase transaction effected by use of the charge card. Whereas ordinarily in a sale and purchase transaction the cardholder would become liable to pay the merchant for any goods or services purchased, once the cardholder chooses the charge card as the method of payment, the cardholder activates the operation of the underlying contractual scheme. In so doing, so the argument ran, the cardholder substitutes in place of an obligation to pay the merchant for the goods and services purchased, the fact that Amex has promised to pay cash to the merchant, less the merchant fee in respect of all payments made with the charge card. It was submitted that the analysis made by the Court of Appeal in Charge Card Services and Diners Club of the general features of charge card transactions established, in terms of s.5(b)(i) of the FID Act, that when Amex accepted application for the charge card and issued it to the cardholder, Amex agreed, whenever the cardholder chose the charge card as the method of payment, to satisfy on behalf of the cardholder his or her liability to pay the merchant in respect of the goods or services supplied. In so doing, it was argued, Amex also agreed to provide credit to the cardholder in respect of payment by the cardholder of amounts owing from time to time to Amex, pursuant to the terms of the card conditions, and thus satisfied also the terms of s.5(b)(ii) of the FID Act.

149. It is convenient here to note that the definition of "continuing credit contract" in s.5(b) of the FID Act contemplates an agreement between two persons, for one person to satisfy on behalf of the other, that other person's liability to a third person and to provide credit to that other person in respect of the amounts that the former satisfies on the latter's behalf. In the Victorian Credit Act 1981, the expression "continuing credit contract" was defined in like terms to s.5 of the FID Act in s.53(1). The Credit Act was re-enacted in 1984, and contained a new definition, in s.48, of the expression "continuing credit contract". In this definition the word "agreement" was extended to include any "arrangement, understanding or course of conduct". Further, a new sub-s.(3) was introduced as follows -

"Where the creditor agrees to make payments to a third party in respect of goods or services or cash supplied by that third person to the other person, as referred to in sub-paragraph (ii) of paragraph (a) of sub-section (2), then, for the purposes of this Act, the creditor shall, in respect of any goods or services or cash so supplied, be deemed to have provided credit to that other person to the extent of any payments made to or to be made by the creditor to that third person." (Emphasis added.)

It is significant that no similar amendments were made to the definition of "continuing credit contract" in the FID Act.

154. The respondent relies on the underlying contractual scheme in order to satisfy the requirements of sub-paragraphs (b)(i) and (ii) of the definition of "continuing credit contract" in the FID Act. It has already been noted that this contractual scheme involves three separate contracts, establishing separate contractual relations between the three parties to the underlying scheme. Amex in this Court submitted, and I think correctly, that under the terms of the cardholder agreement the cardholder has direct liability to Amex to the exclusion of liability to the merchant who accepts the charge card in complete satisfaction of the cardholder's obligation to make payment for the goods or services. Similarly, under the terms of the merchant agreement, Amex has direct liability to the merchant, who accepts the obligation to pay as the consideration for the sale. It follows, in my view, that there is no agreement within the terms of s.5(b)(i) or (ii) of the FID Act, since Amex does not satisfy any debt of the cardholder to the merchant, nor does it provide credit to the cardholder in respect of the satisfaction by Amex of such debt owed by the cardholder to the merchant.

157. I therefore agree, with respect, with the trial judge, in his conclusion that the terms of Amex's contract with its cardholders show that nowhere does Amex agree to satisfy any liabilities of anyone; to which I would add that, upon completion of a sale using a charge card, the cardholder has in my view, no obligation thereafter to the merchant which remains to be satisfied.

161. It follows that in my opinion s.18(3)(l) of the FID Act applied to exclude Amex from liability to FID and receipts by Amex of amounts referable to its charge card were not repayments under a "credit contract" constituted by a "loan" as defined in either paragraph (a) or (d) of the definition of loan in the FID Act. Nor did they amount to payments of an amount owing under a "continuing credit contract" as defined in s.5 of the FID Act.

164. Amex's appeal should accordingly be allowed and the orders of the judge set aside. In lieu thereof, the order of VCAT made on 24 May 2002, to the extent to which the Tribunal affirmed the respondent's assessment dated 26 October 2000, and the respondent's assessment of that date, should be set aside.

167. The cross-appeal should be dismissed, to the extent that the respondent sought leave to contend that VCAT should have held that the receipts referable to the charge card were repayments under "credit contracts" by way of "loan" within paragraph (a) or (d) of the definition of "loan". It is unnecessary, in the circumstances, to consider the arguments in the cross-appeal against the reduction in penalty tax and interest.

172. I have had the advantage of reading the draft reasons for judgment of Charles, J.A. in this case. I agree that for the reasons advanced by his Honour the appeal and cross-appeal should be disposed of as he proposes.

[1] [1989] 1 Ch. 497.

[3] [1989] 2 All E.R. 385 at 389-390.

[4] Reasons for judgment at paragraph [20].

[5] Re Charge Card Services Ltd. at 513-514; Diners Club at 393.

[6] Re Charge Card Services Ltd. at 513; Diners Club at 393 per Woolf, L.J., and at 397 per Dillon, L.J.

[7] Re Charge Card Services Ltd. at 513; Diners Club at 395 per Woolf, L.J.

[8] In Re Charge Card Services Ltd. [1987] 1 Ch. 150.

[12] Reasons for judgment at paragraphs [48]-[49].

[13] Handevel Pty. Ltd. v. Comptroller of Stamps (Vic.) [1985] HCA 73; (1985) 157 C.L.R. 177 at 192, 193-4.

[14] [1997] NSWSC 546; (1997) 42 N.S.W.L.R. 505.

[17] (1944) 18 A.L.J.R. 88 at 90.