Consideration
69 Consistently with the way the case was generally presented by the parties, we will consider the grounds of appeal together, rather than ground by ground. It is convenient to deal with the grounds in the notices of contention in the course of considering the notices of appeal.
70 The principles of statutory construction are well established and need not be discussed in detail. It is sufficient to refer to: s 15AA of the Acts Interpretation Act 1901 (Cth); Federal Commissioner of Taxation v Consolidated Media Holdings Ltd [2012] HCA 55; (2012) 250 CLR 503 at [39]; Certain Lloyd's Underwriters v Cross [2012] HCA 56; (2012) 248 CLR 378 at [25]-[26]; and SZTAL v Minister for Immigration and Border Protection [2017] HCA 34; (2017) 262 CLR 362 at [14].
71 The special rules in Div 126 of the GST Act were introduced to reduce the administrative complexity that entities that make gambling supplies would have faced in applying the ordinary GST rules. The explanatory memorandum to the A New Tax System (Goods and Services Tax) Bill 1998 (Cth) explained at [6.202]-[6.203]:
6.202 GST applies to gambling conducted by registered or required to be registered entities. This includes gambling in casinos, gaming machines in clubs and hotels, lotteries, raffles, betting on racing and other events⎯subsection 126-35.
6.203 However, determining individual bets or ticket sales (wagers) and prizes and then applying GST and input tax credits would be difficult. For example, a casino operator would have to apply GST on every spin of the roulette wheel for every player for every square on the table. For this reason, the GST on gambling is applied to the margin of the person providing the gambling opportunity (for example, the casino operator). Applying the margin to gambling activities achieves the same result as applying GST to individual wagers and allowing input tax credits in relation to prizes paid out.
72 Reflecting that purpose, s 126-10 of the GST Act provides for the calculation of a "global GST amount". This is calculated by taking the "total amount wagered" and subtracting the "total monetary prizes". The resulting amount is then multiplied by 1/11. The effect of this provision is that GST on gambling supplies is to be applied to the margin of the person providing the gambling supplies.
73 The expressions "total amount wagered" and "total monetary prizes" are defined in s 126-10. The following aspects of those definitions are noted:
(a) The expression "total amount wagered" is defined as meaning the sum of the "consideration for all of [the taxpayer's] gambling supplies" that are attributable to the relevant tax period. The word "consideration" is defined in s 9-15, which has been set out above. In AP Group Ltd v Federal Commissioner of Taxation [2013] FCAFC 105; (2013) 214 FCR 301, it was held that, while the consideration must be "in connection with" the supply, the supply must also be "for" the consideration: at [33] per Edmonds and Jagot JJ. The expression "gambling supplies" is defined in s 126-35(1), which has been set out above. It means a taxable supply involving (relevantly) "the acceptance of a bet (however described) relating to the outcome of a gambling event". The expression "gambling event" is in turn defined as meaning (relevantly) "a race, game, or sporting event, or any other event, for which there is an outcome": s 126-35(2).
(b) The expression "total monetary prizes" is defined as meaning the sum of (relevantly) "the monetary prizes [the taxpayer is] liable to pay, during the tax period, on the outcome of gambling events …": see paragraph (a) of the definition in s 126-10. Paragraph (b) of the definition can be put to one side because it refers to amounts of money that the taxpayer is liable to pay "under agreements between [the taxpayer] and recipients of [the taxpayer's] gambling supplies, to repay to them a proportion of their losses relating to those supplies" (emphasis added). Here, assuming the casino made gambling supplies in the case of a junket covered by the agreements described above, the recipients of the gambling supplies were the players rather than the junket tour operator (unless the junket tour operator was also a player). Accordingly, any payments by the casinos to the junket tour operators were not to the recipient of the gambling supplies, and were therefore outside paragraph (b) of the definition.
74 The following features of the contractual bargain between the casino and the junket tour operator, and the commercial context, should be noted.
75 First, the Promotion Agreement provided, in express terms in cl 6.1, that the commission was payable by the casino to the junket tour operator "in consideration of" the matters referred to in cl 4.2, that is, the marketing, promotion and arrangement of the junket (see [50] above). Further, the primary judge found at [65], in our view correctly, that the word "commission" in cl 6.1 of the Promotion Agreement also captured rebates to be paid by the casino to the junket tour operator under the Junket Program Agreement. The primary judge also found at [65], in our view correctly, that "the services provided by the junket tour operator to the casino in arranging the junket are the consideration for the commission, rebates and discounts on loss which the casino 'will pay'".
76 Secondly, all dealings in relation to the provision of funds, the provision of credit and issuing and cashing of chips take place exclusively between the casino and the junket tour operator (or their agent). The casino does not receive from, or pay to, individual participants any amounts of money.
77 Thirdly, there is no evidence regarding the payment arrangements between the junket tour operator and the individual participants in a junket. There is no evidence as to what amounts the junket tour operator may pass on or retain, or what remuneration might be received by a junket tour operator from individual participants.
78 Fourthly, having regard to the three matters referred to above and the circumstances generally, the junkets are best seen as a particular type of commercial arrangement between the casinos and the junket tour operators, that is quite different from the ordinary relationship between the casinos and individual players. Among other things, there may be no relationship between the success or lack thereof of the individual player during the junket, and the amount of money ultimately payable by the junket tour operator to the player or by the player to the junket tour operator.
79 It is convenient to start by considering the GST treatment of the commissions and the rebates, if viewed as separate amounts payable, and then to consider the total amount payable. We note that the agreements impose an obligation on the casino to pay the commissions and rebates. For example, cl 3 of the Junket Program Agreement provides that Crown Perth "will pay" the junket tour operator a commission, and clauses 4 and 5 provide that the casino "will pay" a rebate.
80 Having regard, in particular, to the contractual and contextual matters referred to above, in our view, in a case where a commission or rebate is payable by the casino to the junket tour operator, the commission or rebate is not aptly characterised as forming part of "total monetary prizes" (being the potentially relevant expression in s 126-10). As discussed above, the contractual provisions state expressly that the commission is payable for the marketing, promotion and arrangement of junkets by the junket tour operator to the casino: see cl 6.1 of the Promotion Agreement. The expression "total monetary prizes" in s 126-10 relevantly refers to the sum of "the monetary prizes [the taxpayer is] liable to pay, during the tax period, on the outcome of gambling events …". The expression "monetary prize" is defined in s 195-1 as meaning (relevantly) "any prize, or part of a prize, in the form of money or in the form of gambling chips that may be redeemed for money". The word "prize" is not defined and takes its ordinary meaning, which in the present context is "that which is won in a lottery or the like" (Macquarie Dictionary, online edition, second meaning of "prize"). The commissions and rebates are not "prizes" within the ordinary meaning of that word. They are amounts payable by the casino to the junket operator referable to the commercial relationship between them and additional to any amount referable to winnings. It follows that they are not "monetary prizes" as defined.
81 Further, the commissions and rebates are not payable "on the outcome of gambling events" as referred to in the definition of "total monetary prizes". They are payable as consideration for the provision or marketing and other services by the junket tour operator. The respondents submit that a junket program "is a gambling event in itself, in that the players are established in a special salon, are issued with non-cashable chips, and gamble over a set period of time for one monetary result to be determined only when the 'dealing's done'". The expression "gambling event" is defined in s 126-35 as meaning, relevantly, "a race, game, or sporting event, or any other event, for which there is an outcome". This is not apt to refer to the junket as a whole; it refers, rather, in the present context, to each particular game of gambling.
82 For these reasons, the commissions and rebates payable by the casino to the junket tour operator do not form part of "total monetary prizes".
83 Turning to rebates payable by the junket tour operator to the casino, and having regard to the contractual and contextual matters referred to above, it is difficult to see how these amounts can form part of the expression "total amount wagered" (being the potentially relevant expression in s 126-10). That expression is defined as meaning the sum of the "consideration for all of [the taxpayer's] gambling supplies". "Gambling supplies" is defined in s 126-35(1) as meaning, relevantly, "the acceptance of a bet (however described) relating to the outcome of a gambling event". The definition of "total amount wagered" is apt to pick up, for example, bets placed by players at a casino on a game of roulette or baccarat. The rebates payable by a junket tour operator to the casino are payments to be made as part of, and in connection with, the commercial arrangements for the junket agreed between the casino and the junket tour operator; the rebates are not payments to be made in consideration for the gambling supplies. For these reasons, the rebates payable by the junket tour operator to the casino do not form part of the "total amount wagered" within the meaning of s 126-10.
84 The respondents submit that the commissions and rebates, if viewed as separate components from the total amount payable, "move the gambling transaction". The respondents emphasise that, if no gambling takes place, nothing is due and payable. In light of this, the respondents submit that the commissions and rebates payable by the casino to the junket tour operator are amounts the respondents are liable to pay "as specially agreed prizes determined on the outcome of the gambling events", and the rebates payable by the junket tour operators to the casino are consideration for their gambling supplies. We do not accept this characterisation of the commissions and rebates. In a case where no gambling takes place, the marketing and other services provided by the junket tour operator to the casino are of little or no value to the casino. The fact that no commissions and rebates are payable by the casino to the junket tour operator in this scenario is consistent with the amounts being payable for the marketing and other services provided by the junket tour operator (rather than being specially agreed prizes on the outcome of gambling events). Further, the fact that no rebates are payable by the junket tour operator to the casino simply reflects the commercial arrangements between the casino and the junket tour operator in relation to the junket; it does not establish a sufficient connection between the rebates and the supply of gambling services such that the rebates fall within the statutory concept of "total amount wagered".
85 For these reasons, the commissions and rebates, if viewed as separate amounts payable, do not form part of "total monetary prizes" or "total amount wagered". It follows that they are not to be taken into account in calculating the "global GST amount" under s 126-10, and the special rules in Div 126 do not apply to these amounts.
86 To this point, we have considered the issue of the correct GST treatment by considering the commissions and rebates. However, the respondents' submissions focus, to a large extent, on the total amount payable at the end of a junket, rather than on the commissions and rebates. We will therefore now consider the issue with reference to the total amount payable.
87 In circumstances where the total amount payable is calculated taking into account the commissions and rebates payable by the casino to the junket tour operator, and the rebates payable by the junket tour operator to the casino, which amounts do not fall within the statutory concepts of the "total monetary prizes" or the "total amount wagered" (for the reasons set out above), the total amount payable also does not fall within those concepts.
88 Putting this another way, the total amount payable at the end of a junket (which is a net amount taking into account winnings, losses, commissions and rebates), if payable by the junket tour operator to the casino, is not aptly described as consideration for the taxpayer's gambling supplies, and therefore should not be treated as constituting or forming part of the "total amount wagered". Likewise, the total amount payable, if payable by the casino to the junket tour operator, is not aptly described as a monetary prize that the taxpayer is liable to pay, and therefore should not be treated as constituting or forming part of the "total monetary prizes".
89 Further, the scheme of Div 126 is to calculate the "total amount wagered" and subtract the "total monetary prizes"; the resulting figure is then multiplied by 1/11. That scheme envisages a single calculation of a net amount, being the difference between the "total amount wagered" and the "total monetary prizes". It would be inconsistent with that scheme for there to be another calculation of a net amount, and for that other net amount to then form one of the inputs in calculating the net amount under s 126-10. But that is what would happen if the total amount payable at the end of a junket (which is a net amount taking into account winnings, losses, commissions and rebates for the junket) were treated as an input into the formula in s 126-10.
90 The primary judge's core reasoning for concluding that the total amount payable at the end of the junket (including the commissions and rebates) should be treated as constituting or forming part of the "total amount wagered" or the "total monetary prizes" for the purposes of s 126-10 was contained in [68]-[71] of the reasons for judgment, set out above. In our respectful opinion, the three reasons there set out do not support that characterisation of the payments.
91 The primary judge's first reason, at [69], was that a tripartite contractual relationship existed as between the respondents, the junket tour operator and the junket players with respect to the conduct of a junket at the casino upon gambling taking place, relying on the judgment of the House of Lords in Clarke v Earl of Dunraven & Mount-Earl [1897] AC 59 (The Satanita). In our view, the primary judge erred in finding that such a contractual relationship existed. First, The Satanita is distinguishable. In that case, the Court found that participation in a yacht race gave rise to contractual relationships as between the participants, in accordance with the rules of the race. The general principle that participation in a competition may give rise to contractual relationships as between participants does not support a broader conclusion that the individual junket participants become parties to a tripartite relationship with both the casino and the junket tour operator. Secondly, there was no evidence before the Court at first instance that individual participants saw or were otherwise aware of the specific terms of the Junket Program Agreement (unlike the participants in The Satanita, who each provided an undertaking to be bound by the relevant rules). Thirdly, the existence of a tripartite contractual relationship is inconsistent with, or at least does not sit easily with, cl 4.10 of the Promotion Agreement, which provides that the junket tour operator and the junket players are free to negotiate and conclude separate arrangements between themselves, and this will not affect the obligations of the casino to the junket tour operator and vice versa.
92 The primary judge's second reason, at [70], was that the accounting for the outcome of the respondents' gambling supplies was "one integrated and indivisible transaction of which the commission and rebates … are inseverable components". Accordingly, in the primary judge's view, the commissions and rebates "are not separate and distinct amounts to be disintegrated from the collective win/loss results". There are two principal difficulties with this characterisation of the transaction. First, under the contractual framework, the commission was expressed to be payable by the casino to the junket tour operator as consideration for the marketing and other services provided by the junket tour operator: see cl 6.1 of the Promotion Agreement and [65] of the primary judge's reasons for judgment. Given this, we do not consider it correct to see the transaction as "one integrated and indivisible transaction" for the purposes of determining whether the total amount payable constitutes or forms part of the "total amount wagered" or the "total monetary prizes" as defined. The commissions and rebates were of a different character from the losses and winnings, and that difference is relevant in determining whether the total amount payable falls within the statutory concepts. Secondly and in any event, for the reasons given at [89] above, it is inconsistent with the scheme of Div 126 for there to be another calculation of a net amount, and for that other net amount to then form one of the inputs in calculating the net amount under s 126-10. We note for completeness that, while the High Court in Lend Lease at [53]-[62] characterised the transaction in question in that case as "single, integrated and indivisible", the issue before the Court in that case (that is, whether the consideration "for" certain transfers included the performance of certain promises under a Development Agreement) was very different from the present issue, which concerns whether the total amount payable (including the commissions and rebates) falls within the statutory expressions "total amount wagered" or "total monetary prizes".
93 The primary judge's third reason, at [71], was that "the [respondents'] gambling supplies are made to the participating junket players, with the adjustments for commission and rebates reckoned upon the gambling supplies actually made and by reference to the outcome of the gambling events", relying on the judgment of the High Court in Commissioner of Taxation v Qantas Airways Limited [2012] HCA 41; (2012) 247 CLR 286 (Qantas). In our view, having regard to the contractual framework, it is not correct to treat the commissions and rebates as mere adjustments to the gambling winnings and losses. As discussed above, the Promotion Agreement, in cl 6.1, provided that the commission payable by the casino was payable as consideration for the marketing and other services provided by the junket tour operator. In light of this provision, and the contractual framework and commercial context more generally, the commissions and rebates were not merely adjustments to the gambling winnings and losses; they were of a different character and this is relevant in characterising the payments in issue. This analysis is, in our view, consistent with the statement of the majority of the High Court (Gummow, Hayne, Kiefel and Bell JJ) in Qantas at [14] that, in the phrase "the supply for consideration" (emphasis added), which appears in the definition of "taxable supplies" in s 9-5(a) of the GST Act, the word "for" is "not used to adopt contractual principles". Rather, it "requires a connection or relationship between the supply and the consideration". In the present case, the issue is quite different; it is whether the total amount payable (including the commissions and rebates) constitutes or forms part of the statutory concepts "total amount wagered" or "total monetary prizes". Further, in addressing the issue before the High Court in Qantas, the majority gave close consideration to the contractual framework: see at [29]-[33].
94 For these reasons, we consider that the primary judge erred in concluding that the total amount payable at the end of a junket (including the commissions and rebates) constitutes or forms part of the "total amount wagered" (if payable by the junket tour operator to the casino) or the "total monetary prizes" (if payable by the casino to the junket tour operator).
95 In connection with their notices of contention, the respondents submit that the primary judge misconstrued the contractual obligations under the Promotion Agreement at [59]-[61] of the reasons for judgment. The respondents submit that the primary judge ought to have found that the Promotion Agreement was a framework relationship agreement or a non-binding "agreement to agree", in that no junket had been identified and the respondents merely agreed that special options would be inserted into actual Junket Program Agreements, relying on Placer Development Ltd v Commonwealth [1969] HCA 29; (1969) 121 CLR 353 at 356, 359-361, 369-370. In our view, no error is shown in the primary judge's analysis of the Promotion Agreement at [59]-[67] of the reasons for judgment. While it is true that the Promotion Agreement left some important matters to be agreed in the Junket Program Agreement, it nevertheless created rights and obligations in relation to several matters (as set out at [60] of the reasons for judgment). Further and in any event, as the primary judge found at [63], the terms and conditions of the Promotion Agreement were expressly incorporated into the Junket Program Agreement (save that the Junket Program Agreement prevailed to the extent of any inconsistency). Thus we do not accept the respondents' submission that the Promotion Agreement is irrelevant to the GST treatment of the commissions and rebates, and the total amount payable.