Consideration
52 The application of Div 126 of the GST Act to the turnover commission and win/loss rebates depends on whether they satisfy the criterion of "consideration for" gambling supplies or "monetary prizes that [the applicants] are liable to pay" on the outcome of gambling events. The expressions "consideration" and "monetary prizes" both have statutory meanings for the purpose of Div 126 of the GST Act.
53 The word "consideration" has the same meaning in the context of s 126-10 as the definition in s 9-15(1), where the term "consideration" is defined to include "any payment, or any act or forbearance, in connection with a supply of anything" (s 9-15(1)(a)) and "any payment, or any act or forbearance, in response to or for the inducement of a supply of anything" (s 9-15(1)(b)). Moreover, the payment, act or forbearance may be voluntary and need not be by the recipient of the supply (s 9-15(2)).
54 The construction of the statutory phrase "in connection with a supply" in the context of the definition of "consideration" for the purposes of the GST Act has been the subject of judicial consideration. The phrase does not require a connection that is contractual (Commissioner of Taxation v Qantas Airways Limited [2012] HCA 41; 247 CLR 286 (Qantas) at 292 [14] per Gummow, Hayne, Kiefel and Bell JJ) but the nature and degree of the connection must be such that it can be said that the consideration is "for" the supply. In AP Group Limited v Commissioner of Taxation [2013] FCAFC 105; 214 FCR 301 Edmonds and Jagot JJ (with whom Bromberg J agreed at 321 [74]) explained at 310 [33]:
… The consideration must be "in connection with" the supply but the supply must also be "for" the consideration. "For", in this context, means "in order to obtain" (Macquarie Dictionary Online, item 3, Oxford Dictionary Online, item 9(a)). The word "for" thus functions in the statutory description to identify the character of the connection which is required. It ensures that not every connection between the giving of consideration and the provision satisfy the first condition of making a taxable supply. If it were otherwise, any form of connection of any character between the making of a supply and the payment of consideration would suffice…
The same reasoning is apt with respect to the use of the word "for" in the phrase "*consideration for all of your *gambling supplies", which informs the nature and degree of the connection required in the context of s 126-10 of the GST Act.
55 The expression "monetary prizes" (as it was in the tax periods in question) meant, with respect to a prize given at a casino, "any prize, or part of a prize, in the form of *money; or… gambling chips that may be redeemed for *money": s 195-1 of the GST Act. The GST Act does not contain a definition of "prize". In ordinary meaning, a "prize" includes "a thing, especially an amount of money … that can be won in a game of chance": Oxford Dictionary of English, 3rd ed., item 1, point 2. As well, to come within the definition of "total monetary prizes" in s 126-10(1), it must be a monetary prize that the casino is "liable to pay, during the tax period, on the outcome of gambling events". Plainly, an amount of money which is payable by the casino on a winning wager would be a monetary prize for the purposes of Div 126.
56 In the present case, the question of whether commission and rebates are to be dealt with under Div 126 is "an inquiry that begins in the agreements the parties made": Lend Lease at 160 [51]. There are four sets of transactional documents that are relevant to consider: (1) the Promotion Agreement; (2) the Junket Program Agreement; (3) the settlement sheet; and (4) the applicants' standard rules for the games played by the junket players.
57 The starting point is the Promotion Agreement between the casino and the junket tour operator. That agreement expressly stipulates in cl 6.1 that "in consideration of the matters referred to in clause 4.2" the casino will pay the junket tour operator a "commission" to be "calculated as a percentage of net Turnover (or mutually acceptable derivative thereof) of a Junket", which is to be negotiated between the casino and the junket tour operator "before the Junket arrives at the Casino". The matters referred to in cl 4.2 are "activities" to be undertaken by the junket tour operator at its own expense "in relation to the marketing, promotion and arrangement of Junkets" and "prior to the Junket Players arriving in Australia". It is also provided in cls 6.4 and 6.5 that before the arrival of the junket players, the casino is to deliver a Junket Program Agreement to the junket tour operator (if an accompanied junket) or a letter of introduction (if the junket is unaccompanied) detailing the percentage of commission to be used on that junket.
58 An initial question is whether, as the applicants contended, the Promotion Agreement is "entirely irrelevant" because, as the applicants submitted, the Promotion Agreement does not have contractual force. The applicants described the Promotion Agreement as an in-principle agreement to set the expected terms upon which gambling may take place in the future with unspecified VIP players, and as an "illusory" contract in the sense described by Windeyer J in Placer Development Limited v The Commonwealth of Australia [1969] HCA 29; 121 CLR 353 (Placer Development) at 369, namely a bilateral transaction having some semblance to a contract but which is not, in truth, a contract because it is not capable of creating legally enforceable rights and obligations. It was argued that the Promotion Agreement does not create any legally enforceable right in the junket tour operator to sue for the commission in respect of the activities undertaken under cl 4.2 because cl 6.1 provides for the percentage to fix the amount of commission to be paid to the junket tour operator to be "negotiated between the Parties".
59 Placer Development sets out the principles of an "illusory contract". As explained by Kitto J at 356:
… wherever words which by themselves constitute a promise are accompanied by words showing that the promisor is to have a discretion or option as to whether he will carry out that which purports to be the promise, the result is that there is no contract on which action can brought at all.
To like effect, Taylor and Owen JJ said at 359-60:
But a promise to pay an unspecified amount of money is not enforceable where it expressly appears that the amount to be paid is to rest in the discretion of the promisor and the deficiency is not remedied by a subsequent provision that the promisor will, in his discretion, fix the amount of the payment.
Those passages do not support the applicants. The fact that cl 6.1 is not immediately enforceable because there is yet to be agreement as to the percentage of commission payable is not inconsistent with a concluded contract. As Williams J observed in York Air Conditioning and Refrigeration (A/sia) Proprietary Limited v The Commonwealth [1949] HCA 23; 80 CLR 11 at 29, "there is no reason why the parties to a contract should not agree that the determination of some of the incidents of the contract should be left to the decision of a third party or to one of themselves". Moreover, cl 6.1 expressly provides that the percentage is to be negotiated between the parties before the junket arrives at the casino and, by cls 6.4 and 6.5, the casino is obliged, before the junket arrives at the casino, to deliver a Junket Program Agreement or a letter of introduction to the junket tour operator for signing by the junket tour operator detailing the percentage to be used in calculating the commission.
60 Furthermore, the following provisions of the Promotion Agreement are also not mere "promissory expressions reserving an option as to the performance" (Placer Development at 356 per Kitto J, citing Leake on Contracts, 3rd ed.), but enforceable rights and obligations which immediately arise:
(a) clause 2, which provides for the appointment of the junket tour operator on a non-exclusive basis to market, promote and arrange junkets to the casino and the junket tour operator's acceptance of that appointment;
(b) clause 4.2, which sets out the obligations on the junket tour operator and pursuant to which the junket tour operator agrees to undertake certain activities with respect to the marketing, promotion and arrangement of junkets, including "actively develop markets for, advertise, solicit and promote participation in junkets";
(c) clause 4.4, which requires the junket tour operator to "observe all directions and instructions given by [the casino] in relation to the marketing, promotion and arrangement of Junkets";
(d) clause 4.5, under which the junket tour operator assumes full responsibility for claims arising in connection with the marketing, promotion and arrangement of junkets, and indemnifies the casino in respect of such claims;
(e) clause 4.6, which requires the junket tour operator to notify the casino of complaints made by a junket player;
(f) clause 9, which imposes obligations of confidentiality on the junket tour operator; and
(g) clause 11, which provides for the termination of the agreement by one party should the other party be in material breach, or the termination by the casino if the junket tour operator is placed in liquidation or if the Gaming Commission formally advises the casino to cease dealings with the junket tour operator.
61 Accordingly, I reject the contention that the Promotion Agreement is an illusory contract.
62 The Commissioner, however, did accept that cl 6.1 is not enforceable unless and until there is gambling by one or more junket players. Unless and until there is gambling, there is merely "an agreed consequence to future action" and cl 6.1 has no operation: Port Jackson Stevedoring Proprietary Limited v Salmond & Spraggon (Australia) Proprietary Limited [1978] HCA 8; 139 CLR 231 (Port Jackson Stevedoring) at 244 per Barwick CJ. However, it was argued, once there is gambling, there is an agreed consequence arising from that conduct, namely, at that point in time a junket tour operator could sue for payment of the "commission": Port Jackson Stevedoring at 244 per Barwick CJ.
63 Like the Promotion Agreement, the Junket Program Agreement is also between the casino and the junket tour operator. Further, by the express terms of the Junket Program Agreement, where a Promotion Agreement has been entered into between the casino and the junket tour operator, the "terms and conditions" of the Promotion Agreement are incorporated into the Junket Program Agreement, subject to the proviso that in the event of any inconsistency arising, the Junket Program Agreement will prevail. Accordingly, both agreements should be read as a single integrated document and, save as to any inconsistency, should be read harmoniously.
64 The Junket Program Agreement makes provision for commission and rebates to be paid, depending on the type of junket program selected by the junket tour operator. The program options in the reference schedule to the Junket Program Agreement in the above example are: (1) "Commission"; (2) "Commission and Rebate on Net Win / Loss"; (3) "Rebate on Gross Win / Loss"; and (4) "Commission and Discount on Loss". The payments required under the terms of the Junket Program Agreement are:
(a) with a commission based program, the payment by the casino to the junket tour operator of a "commission in the amount that is equal to the percentage selected in the Reference Schedule multiplied by the Program's total turnover as recorded by [the casino's] personnel at the time of settlement" - the "Program" being defined to mean the junket to be conducted at the casino with the program number described in the reference schedule;
(b) with a rebate on gross win/loss program, the payment: (i) by the casino to the junket tour operator of "a rebate in the amount that is equal to the percentage selected in the Reference Schedule multiplied by the [junket tour operator's] gross loss as recorded by [the casino's] personnel at the time of settlement"; or (ii) by the junket tour operator to the casino of "a rebate in the amount that is equal to the percentage selected in the Reference Schedule multiplied by the [junket tour operator's] gross win as recorded by [the casino's] personnel at the time of settlement";
(c) with a rebate on a net win/loss program, the payment (i) by the casino to the junket tour operator of "a rebate in the amount that is equal to the percentage selected in the Reference Schedule multiplied by the [junket tour operator's] net loss as recorded by [the casino] at the time of settlement"; or (ii) by the junket tour operator to the casino of "a rebate in the amount that is equal to the percentage selected in the Reference Schedule multiplied by the [junket tour operator's] net win as recorded by [the casino's] personnel at the time of settlement"; and
(d) with a discount on loss program, the payment by the casino to the junket tour operator of "a set percentage in the amount that is equal to the percentage selected in the Reference Schedule multiplied by the [junket tour operator's] gross loss as recorded by [the casino] at the time of settlement."
65 The first thing to note is that the amount to be paid as "commission" is calculated in the same way under the Junket Program Agreement as it is under the Promotion Agreement - that is, as a percentage of the turnover of the particular junket. I accept the Commissioner's submission that on a textual analysis, the word "commission" as used in cl 6.1 of the Promotion Agreement also captures the rebates and discounts on loss to be paid pursuant to the Junket Program Agreement. First, the Promotion Agreement, in express terms, recognises that an agreed percentage of turnover or "any mutually agreeable derivative" will constitute the "commission" payable to the junket tour operator for the marketing, promotion and arrangement of a junket which is conducted at the casino. Secondly, the other provisions of cl 6 appear to contemplate that "commission" may take the form of a rebate - eg cl 6.6, which provides that "where the commission calculated pursuant to clause 6 of [the Promotion Agreement] represents a repayment by Burswood of a portion of the participating players losses [sic], whether theoretical or actual, the commission will be paid…". Thirdly, the junket tour operator's selection of a rebate or discount on loss program and agreed applicable percentage evidences a mutual intention to adopt those terms as an "acceptable derivative" to be paid by way of consideration. Sub-clause 10(a) of the Junket Program Agreement also supports this construction. Clause 10 is headed "settlement transactions" and sub-cl (a) provides that "[a]ll commission payable" to the junket tour operator upon settlement will be telegraphically transferred to the overseas bank account nominated by the junket tour operator. A construction of the word "commission" as the umbrella term for the payment obligations of the casino to the junket tour operator is both textually open and gives commercial sense to sub-cl 10(a): Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; 251 CLR 640 at 656-7 [35] per French CJ, Hayne, Crennan and Kiefel JJ. On that construction, 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".
66 I do not think that the position is any different where a Promotion Agreement has not been executed and so does not form part of the terms and conditions of the Junket Program Agreement (which is only the case for junket tour operators with whom Crown Perth established a relationship prior to 5 June 2010, because previously the Gaming Commission approved junket tour operators). First, the Junket Program Agreement should not be construed any differently. Secondly, such a construction makes commercial sense given that the contract - being the Junket Program Agreement - is made between the junket tour operator and the casino and is a contract which governs the terms and conditions of a junket which the junket tour operator has arranged to be conducted at the casino: Mount Bruce Mining Pty Limited v Wright Prospecting Pty Limited [2015] HCA 37; 256 CLR 104 at 116-7 [46]-[51] per French CJ, Nettle and Gordon JJ.
67 The alternative contention was put by the applicants that even if the Promotion Agreement does have contractual force, cl 6.1 is unenforceable because the services provided by the junket tour operator under cl 4.2 are rendered before the contractual relationship comes into existence and so, the argument went, those services are unsupported by consideration. I also reject that contention. The fact that the junket tour operator provides its services before the obligation to pay the consideration crystallises does not mean that cl 6.1, when it becomes enforceable, is not valuable consideration for those services. As the authorities make clear, a subsequent promise to pay for previously provided services by their recipient is supported by consideration in the form of the provision of the services, which is not past consideration but valuable executed consideration if an act is done at a time when the parties intend that payment will be made: Re Casey's Patents; Stewart v Casey [1892] 1 Ch 104 at 115-6 per Bowen LJ; Pao On v Lau Yiu Long [1980] AC 614 at 629; Huntingdale Village Pty Ltd (receivers and managers appointed) v Corrs Chambers Westgarth [2018] WASCA 90 at [81]-[84] per Martin CJ (Mitchell and Beech JJA agreeing at [148]).
68 Contrary to the Commissioner's contention however, that contractual analysis does not of itself provide the answer to the correct treatment of commission and rebates for GST purposes and whether the special rules contained in Div 126 of the GST Act apply. On the facts, there are two supplies: (1) the services provided by the junket tour operator in arranging the junket; and (2) the gambling supplies provided by the applicants under the junket arrangement, which are the relevant supplies for the purposes of Div 126. The Commissioner's contractual analysis fails to address the relevant transaction, which is the provision of gambling supplies by the applicants and the characterisation of commission and rebates in that context for the purposes of the application of the special GST rules. There are three responses to the Commissioner's case.
69 First, I accept the applicants' submission that a contractual relationship exists as between the applicants, the junket tour operator and the junket players with respect to the conduct of a junket at the casino upon gambling taking place. When there is gambling, the effect of the gambling is that the junket players agree to be bound by the rules that apply to the gambling: The Satanita case. Those rules are to be found in the standard rules set by the casino, as modified by the terms of the junket program selected by the junket tour operator and recorded in the Junket Program Agreement with respect to any gambling that takes place. As matter of contract law, the terms agreed by the casino with the junket tour operator with respect to the conduct of a junket at the casino constitute an offer by the casino to make gambling supplies to junket participants on the terms agreed, and the commencement of gambling by the junket players constitutes acceptance of that offer. Under those terms, there is an amount either paid by or to the junket tour operator at the conclusion of the junket, to be calculated by the collective wins and losses of the junket players and then adjusted by the commission and/or rebates to be paid under the special terms that apply to the particular junket.
70 Secondly, I accept that the accounting for the outcome of the applicants' gambling supplies is one integrated and indivisible transaction of which the commission and rebates to be paid to the junket tour operator by the casino and the rebates to be paid by the junket tour operator to the casino are inseverable components, such that it can be said that commission and rebates are not separate and distinct amounts to be disintegrated from the collective win/loss results. Rather, they are amounts which are required to be taken into account as stipulated by the Junket Program Agreement in settling what is to be paid and by whom as the result of the gambling, as evidenced by the settlement sheets, and either form part of the "consideration for" the applicants' gambling supplies or the "monetary prize" which the applicants are liable to pay on the outcome of the gambling under the junket arrangement, depending on whether it is a net win to the casino or a net loss to the casino: cf Lend Lease.
71 Thirdly, and importantly, the High Court in Qantas rejected a strictly contractual approach to the application of the GST Act. It was held in relation to s 9-5(a) of the GST Act that the word "for" in the phrase "the supply for *consideration" was not used to adopt contractual principles but required "a connection or relationship between the supply and the consideration": Qantas at 292 [14] per Gummow, Hayne, Kiefel and Bell JJ. In that case, the majority found that fares received from prospective passengers who failed to take the flights for which reservation and payment were made were still "consideration for" a taxable supply by the airline, even though the airline supplied "something less than" actual air travel. Their Honours held that it was sufficient that there was "at least a promise to use best endeavours to carry the passenger and baggage, having regard to the circumstances of the business operations of the airline": Qantas at 299 [33] per Gummow, Hayne, Kiefel and Bell JJ. It is therefore not determinative that, in the case of a junket, the casino contracts directly with the junket tour operator and not the individual players. What is relevant for the purposes of Div 126 is that the applicants' 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. The operation of Div 126 does not depend on the characterisation of the commission and rebates as "consideration" as a matter of strict contractual principle: Qantas. Equally so, the definition of "monetary prize" is apt to apply where an amount is payable by the casino to the junket tour operator on the reckoning of collective gambling wins and losses adjusted by commission and rebates.
72 This conclusion makes it unnecessary to deal with the applicants' other arguments, save to make two points. First, there was no evidence at all to substantiate the contention advanced by the applicants (detailed at [50] above) that junket tour operators only receive a relatively small remuneration commensurate with their services and that the individual players benefit almost wholly from the special gambling terms. Nor can the withholding tax provisions be relied on to fill the gap in such evidence. Secondly, the terms on which individual VIP players engage directly with the casinos are irrelevant to the proper characterisation of payments which the casinos make to or are paid by junket tour operators under the arrangements applying to junkets.
73 Finally, the applicants argued that the Commissioner's contention that a commission was not a monetary prize as defined in s 195-1 was contrary to his public ruling in GSTR 2002/3 at [189]-[192]. The Commissioner had submitted that a commission is not a monetary prize because it is calculated on the basis of participation, ie by reference to total turnover of a junket program, rather than to a win or loss on baccarat or roulette. The relevant paragraphs of the GSTR provide:
GST treatment of points awarded as prizes by providers of gambling supplies
189. A common practice in the gambling industry is for points to be awarded to players to encourage their further participation in gambling events or to facilitate the purchase of products or services sold in the club, hotel or casino.
190. These points have a monetary value. For example, 30 points may be worth $15. Points may be issued in the following circumstances:
• as a prize or part of the prize on a gambling event or a competition (for example, points are awarded for a win on a gaming machine or a player's success in a card game at a casino);
• on the basis of participation rather than for a win on a gaming machine or a card game at a casino (for example, points awarded on the basis of the number of games played, time or money spent playing on gaming machines, or the time spent at gaming tables); or
• on the purchase of meals, beverages and other non-gambling services supplied by the entity.
191. We consider that participation in a gambling event has its own outcome. Points awarded for participation, or on a result, are points awarded on the outcome of the gambling event.
192. When points are awarded for a winning bet, or for participation, and the points are redeemed for money (or redeemable gambling chips if paid by a casino), the money (or chips) is a monetary prize. This monetary prize is included in the total monetary prizes for the purposes of calculating the global GST amounts in section 126-10.
74 As the Commissioner correctly pointed out, these paragraphs concern an entirely different factual context, namely the awarding by a club, hotel or casino of points that have a specified value to individual players. There is nothing inconsistent between the Commissioner's submission in this case and GSTR 2002/3.