the proper construction of section 74a(2)(a)
77 In general terms, the authorities provide relatively clear guidance as to the way in which the phrase 'goods of a kind ordinarily acquired for personal, domestic or household use or consumption' should be construed and applied. Many of the relevant authorities, however, concern the meaning and application of similar but not identical expressions found in sales tax legislation or tariff classification legislation, and care must be exercised in translating what was said in those contexts to the present context.
78 The decisions in Diethelm Manufacturing Pty Ltd v Commissioner of Taxation (1993) 44 FCR 450 ('Diethelm'), Commissioner of Taxation v Chubb Australia Ltd (1995) 56 FCR 557 ('Chubb'), Clean Investments Pty Ltd v Commissioner of Taxation (2001) 105 FCR 248('Clean Investments') and Hygienic Lily Ltd v Deputy Commissioner of Taxation (1987) 13 FCR 396 ('Hygienic Lily') all involved the construction and application of an expression found in Item 1 of the Third Schedule of the Sales Tax (Exemptions and Classifications) Act 1935 (Cth), namely 'goods … of a kind ordinarily used for household purposes …'. I will not attempt to discuss every relevant aspect of these cases because they were reviewed at length by Lindgren J in Clean Investments at 260-274 [35]-[103].
79 Subject to the caveat just mentioned, the sales tax cases contain the most helpful discussion of the principles that should guide the construction of the statutory phrase in s 74A(2)(a). There are some relevant decisions in the trade practices area dealing directly with the construction of the statutory phrase or substantially similar expressions: see Crago v Multiquip Pty Ltd & Dunogan Farm Tech Pty Ltd (1998) ATPR 41-620 ('Crago'); Minchillo v Ford Motor Company of Australia [1995] 2 VR 594 ('Minchillo'); Jillawarra Grazing Co v John Shearer Ltd (1984) ATPR 40-441 ('Jillawarra'); Carpet Call Pty Ltd v Chan (1987) ASC 55-553 ('Carpet Call'); and Westminster Properties Pty Ltd v Comco Constructions Pty Ltd (1991) 5 WAR 191 ('Westminster'). However, these cases tend to illustrate the application of the statutory phrase, rather than provide any illuminating discussion of the relevant principles of construction.
80 In my opinion, several propositions of relevance to this case can be extracted from the authorities.
81 First, the word 'ordinarily' means 'commonly' or 'regularly', not 'principally', 'exclusively' or 'predominately': see Clean Investments at 273 [97] per Lindgren J; Chubb at 560 per Burchett J, and at 57 per Hill J; Hygienic Lily at 399-400 per Gummow J. Counsel for the respondent invited me to depart from these authorities, and to hold that the word 'ordinarily' as used in s 74A(2)(a) means 'predominately'. In view of the authorities to which I was referred, I doubt that I am free to adopt such a construction. In any event, I am not persuaded that the word 'ordinarily' in s 74A(2)(a) means 'predominately' rather than 'commonly' or 'regularly'. On the contrary, I consider that the meaning which best accords with the policy and the purposes of the TPA is that of 'commonly' or 'regularly'. I am conscious that the Full Court of the Victorian Supreme Court in ICI Australia Operations Pty Ltd v Deputy Commissioner of Taxation (Vic) (1987) 82 ATC 5110 said at 5112 that the concept of 'ordinarily used for' equals 'whose primary but not necessarily exclusive purpose and customary use is'. However, I do not agree that the word 'ordinarily' should be given such a connotation in s 74A(2)(a) or elsewhere in the TPA.
82 Secondly, it is preferable to pose the statutory question (ie the question whether the goods in issue in the particular case are goods of a kind ordinarily acquired for personal, domestic or household use or consumption) as a single composite question: see Clean Investments at 273 [91]-[93] per Lindgren J; Diethelm at 472 per Hill J; and Chubb at 559[F] per Burchett J. This can be contrasted with a two-stage inquiry as to, first, the genus of goods in question, and secondly, whether that kind of goods is ordinarily acquired for personal, domestic or household use or consumption. As Lindgren J pointed out in Clean Investments,posing the genus question separately as a threshold one runs the risk of prejudging the answer to the statutory question. His Honour said at 273 [92]-[93]:
'In some cases it may be misleading to address separately the question of identification of the "genus" to which the particular goods in question belong, and the question whether that genus meets the description "ordinarily used for household purposes". The problem can be indicated by the question "What kind of goods is the Item speaking of?" Answering the genus question separately as a threshold one will assume, without making explicit, an answer to this question.
Goods and purposes can be equally correctly described in different ways, in particular, broadly or narrowly, yet the description selected may dictate the answer to the statutory question. For example, an architect's stool, an office chair and a kitchen stool or chair may be described as "stools" or "chairs" and their purpose as being "to provide seating". Yet it would be wrong to conclude that the architect's stool or the office chair is of a kind ordinarily used for household purposes for no other reason than that, like the kitchen chair, it is ordinarily used for the purpose of providing seating.'
French J drew attention to the same risk in Diethelm at 465:
'It cannot be enough to say that because some goods fall into a genus wide enough to encompass goods ordinarily used for household purposes, they are therefore "goods of a kind ordinarily used for household purposes". The mere fact that office chairs and domestic chairs both provide "seating", which in some applications is a household purpose, is not sufficient to establish that office chairs are of a kind ordinarily used for household purposes.'
To my mind, the risk to which their Honours draw attention is a real one. I agree that it is preferable to pose the statutory question as a single composite question. On my reading, that was the course adopted by French J in Diethelm and, I think, by both Hill J and Tamberlin J in Chubb.
83 Thirdly, depending on the precise statutory question and the circumstances of the particular case,it will be relevant to inquire as to the essential character of the goods in question. In Diethelm, French J thought that the answer to the statutory inquiry depended critically on the essential character of the goods. Adopting what had been said by Gummow J in Hygienic Lily at 399, Hill J said that the question whether goods are of a particular kind was to be determined objectively, by reference to the nature, quality and adaptation of the goods in the class or genus in question. However, Hill J also expressed reservations about the essential character test, saying that the inquiry may be useful in some cases but in other cases it may suffer from a lack of precision: at 470. In Chubb, Burchett J doubted the usefulness of the essential character test: at 559. Hill J in Chubb looked beyond the essential character of the goods and took into account evidence that explained the attributes, the intended use and the cost of the goods; Tamberlin J adopted much the same approach as Hill J. In Clean Investments, Lindgren J said that the essential character test lacked sufficient precision to assist in answering the question whether the coin-operated washing machines under consideration in that case constituted goods of a kind ordinarily used for household purposes: at 273 [96]. Lindgren J added that there is a danger that the essential character test may serve simply to give an undeserved legitimacy to first impressions.
84 In Air International Pty Ltd v Chief Executive Officer of Customs (2002) 121 FCR 149, the Full Court considered whether imported fan assemblies, condensers and evaporators were goods 'of a kind used as replacement components in passenger vehicles' within the meaning of a particular item of the Customs Tariff Act 1995 (Cth). Tamberlin J adopted Gummow J's approach to the classification of a genus of goods in Hygenic Lily and considered whether the components in their nature, adaptation or quality could properly be characterised as 'replacement' components. His Honour had regard to evidence of actual use of the goods in deciding whether the goods are 'of a kind', stating at 160 [53]:
'It is helpful to look at actual use, if any, when deciding whether goods are of a kind used as replacement components. Where they are so used, then that points to a conclusion that they are "of a kind" so used. The words "of a kind" add a further level of generality to the expression "used" so that even if (to use the Tribunal's expression) the goods are not so used but are within a range of goods of a type which are used, then they satisfy the required description.'
Tamberlin J considered that it was open to the Tribunal to find, as it did, that the goods were of a genus of goods that were used as replacement components. O'Loughlin J agreed with Tamberlin J. In his dissenting judgment, Hill J said at 158 [35]:
'In my view the proper approach to the question of classification here, where it is obvious that the imported parts are capable of being used either as original parts for the assembly of motor vehicle air conditioning units or to replace parts that had previously been imported and used in the assembly of such motor vehicle air conditioning units is to consider what the essential character of the particular imported goods is. It can be accepted both from the language of the particular subheading and from the fact that customs duty will be payable on entry and before actual use, that the question how the particular parts are in fact used, will, subject to the comments below, be irrelevant to the question. That does not mean, however, that the purpose for which the goods are imported will be irrelevant.'
On the facts of the case, Hill J found that it was not possible to classify the goods by reference to their essential character and that, accordingly, it was necessary to classify the goods by reference to the exclusive or primary purpose for which they were imported. Hill J explained the reasons why that was so in the following passage, at 158-159 [37]:
'… I am of the view that goods cannot, for customs classification, be treated as belonging to more than one "kind". Further, where no distinction exists between articles which are of the kind used as replacement components, and those which are not, (and the present is such a case) the only way in which the relevant kind can be ascertained will be by ascertaining what the exclusive or primary purpose is for which the goods are imported. Subsequent use, may be the best evidence of that purpose. In my view it will generally be the case with goods of the present kind, that they will take their character from the purpose of the importing, rather than anything which is an inherent quality of the goods themselves.'
85 In contrast, Tamberlin J said that the intent or purpose of the manufacturer or importer is not the criterion to be applied: at 159 [46].
86 In my opinion, in the context of s 74A(2)(a) of the TPA, the essential character test is relevant, but the inquiry does not end there. The statutory question cannot be answered without a broader inquiry into the evidence concerning the design, marketing, pricing and potential uses of the type of goods in question.
87 Fourthly, the question posed by s 74A(2)(a) is ultimately a question of fact and degree. In Chubb at 559,Burchett J described the question which arose under Item 1 of the Third Schedule of the Sales Tax (Exemptions and Classifications) Act 1935 (Cth) in the following way:
'That is a question of fact into which degree and impression must enter largely, but I do not think its resolution is assisted much by turning back to the essential character of the article. Rather, attention must be focused on the statutory question whether goods of that kind are ordinarily used for household purposes.'
In the same case, Hill J said at 572 that the trial judge's finding that certain safes were of a kind ordinarily used for household purposes involved:
'… a question of judgment based upon a consideration of the description and in some cases photos or drawings of the relevant safe. No error is apparent in her Honour's judgment, although it is possible that minds could differ as to the outcome in a particular case.'
These assessments are borne out by the actual decisions in Diethelm and Chubb. Both cases ultimately turned on the sufficiency of the evidence to discharge the burden of proof which rested on the applicant for sales tax exemption.
88 Beyond endorsing a commonsense approach, the cases that have been decided under s 74A(2)(a) or s 52A(5) of the TPA do not take the analysis much further. In Crago, Lehane J considered whether an ostrich egg incubator and hatcher were goods falling within s 74A(2)(a). Lehane J concluded that they were not. In reaching this conclusion, he said that it was appropriate to ask whether the nature of particular goods is such that they are or are not of a kind ordinarily acquired for personal, domestic or household use or consumption, even in the absence of evidence of actual use: see at 40,798. Lehane J also placed weight on evidence that the goods were used in the ostrich egg 'industry' and that ostriches and their eggs were traded at high prices, and on the lack of evidence that the incubators were in fact acquired for personal, domestic or household use. His Honour drew a distinction between products which might be regarded as of a kind acquired for personal, domestic or household use 'as a matter of common sense' (such as a carpet, a washing machine or a television set) and an ostrich egg incubator.
89 In Jillawarra, Toohey J held that an air seeder purchased by the applicant for use in its farming business fell outside s 74A(2)(a). Toohey J rejected the applicant's contention that goods of a kind acquired for a farmer's personal, domestic and household purposes would encompass everything which is used on or in connexion with his farm: at 45,090.
90 In Minchillo, the Court of Appeal upheld the trial judge's decision that a prime mover was not 'goods' to which Div 2A of Part V of the TPA applied. Ormiston J, with whose reasons Fullagher and Brooking JJ concurred, stated at 617:
'The argument must be rejected, for it takes no proper account of the use of the words "ordinarily acquired". Although the words "domestic or household" have a similar connotation, "personal" use is clearly intended to cover a wider field, but the primary contrast intended to be drawn is with commercial or business use, whatever other personal activities a vehicle may be used for. In the case of a prime mover it is hard to see that it would, in the ordinary understanding of those words, be "ordinarily acquired for personal … use." The causes of action under ss 74B and 74D relied upon by the appellants were therefore rightly dismissed by the trial judge.'
91 In Westminster, the applicant brought a claim against the respondent pursuant to s 52A of the TPA, which prohibited a corporation from engaging in unconscionable conduct. By force of subs (5), s 52A only applied to goods or services of a kind ordinarily acquired for personal, domestic or household use or consumption. The Full Court held that building services provided by the respondent pursuant to a contract to erect a multi-storey office block were not services of a kind ordinarily acquired for personal, domestic or household use or consumption: at 206-207 per Kennedy J. Kennedy J also said that s 52A is directed essentially at consumer-type transactions, although the wording of the section is not such as to automatically exclude even substantial corporations from the category of consumer in every case: at 207.
92 In Carpet Call, Thomas J considered that carpet installed in a nightclub was within the scope of the statutory phrase. It was unnecessary for Thomas J to discuss the point at length as he decided the case on other grounds, but his Honour observed at 57,187:
'In my view "carpet" is a commodity, or goods, ordinarily acquired for domestic consumption, and it does not lose that description by reason of a commercial rating, or some quality which makes it last longer than other carpet normally supplied for use in a domestic setting. In fact the carpet supplied (as to which the warranty is alleged to apply) was of a domestic rating. The point may deserve discussion at greater length, but for the purpose of noting the submissions and expressing a provisional view, it is not necessary to engage in such discussion here.'