73 That means, in the present context, that the onus is on Hostess Marine affirmatively to satisfy the Court that the principal or predominant use which it intended for the "Hostess" on 7 July 1999 was other than the provision of one or more of pleasure, sport or recreation, private transport or accommodation. It cannot seriously be suggested that it was ever in contemplation that the vessel be used to provide private transport or accommodation, except as an incident of its use for pleasure, sport or recreation. The most significant example of the latter use occurred early in 2002 when Ungar and his wife used the "Hostess" for three weeks of recreational cruising around Tasmania. However, that use occurred after the decision had been made to sell the "Hostess" and assumes little significance in ascertaining the use to which, in mid-1999, it was intended to put the vessel.
74 It is not destructive of an exempt main, principal or predominant intended use that those proposed as having formed the intention may have contemplated some minor incidental use for a non-exempt purpose. I believe that, from the time when he first began negotiating for Hostess Marine to acquire the "Hostess", Ungar expected that he and members of his family might obtain some use of the vessel for their own pleasure or recreation. However, I do not regard that expectation as displacing the intention to use the "Hostess" principally or predominantly for demonstration and promotional purposes in connection with Hostess Marine's intended (and actual) business of selling "Monte Fino" motor yachts on commission.
75 The intended principal or predominant use which I have imputed to Hostess Marine is borne out, first, by the time and expense which that company incurred in its own incorporation, procuring distributorship appointments from Kha Shing and MFA and promoting sales of the "Monte Fino" range. Although criticisms have been made that the distributorship arrangements lacked sophistication, it has not been suggested that they were a sham in the sense identified by Lockhart J in Sharrment Pty Ltd v Official Trustee (1988) 18 FCR 449 where his Honour, after reviewing the authorities, observed at 454;
'A "sham" is therefore, for the purposes of Australian law, something that is intended to be mistaken for something else or that is not really what it purports to be. It is a spurious imitation, a counterfeit, a disguise or a false front. It is not genuine or true, but something made in imitation of something else or made to appear to be something which it is not. It is something which is false or deceptive.'
76 It is true that the distributorship agreement between Kha Shing and Hostess Marine appointed the latter as distributor of the Kha Shing "Monte Fino" range for the States of Victoria and Tasmania "together with Monte Fino Australia Pty Ltd" without specifying a rate of commission or how the commission should be shared between Hostess Marine and MFA. However, that omission was rectified by the stipulation in Hostess Marine's facsimile message to MFA on 28 June 1999 which is reproduced at [10] above. That stipulation recited that Hostess Marine should receive, presumably from MFA, a flat fee of $60,000 on any sale resulting from enquiries emanating from Ungar's contacts in Victoria and Tasmania. MFA's co-operation in the Sydney Boat Show, its sharing of promotional expenses and the payment to Hostess Marine of $30,000 noted at [6] above, despite the fact that the purchaser resided outside Hostess Marine's "territory", raise the strong inference that MFA genuinely regarded itself as bound by a joint distributorship agreement in terms of the facsimile message of 28 June 1999. All of those factors in combination militate strongly against the characterisation of that arrangement as a "sham".
77 I do not regard as weighing significantly against the intention which I have imputed to Hostess Marine the absence of a written distributorship agreement between Kha Shing and Hostess Marine antedating or contemporaneous with the latter's agreement to purchase the vessel. It is at least as significant in Hostess Marine's favour that it was incorporated a few days before the agreement to purchase was executed, with the obvious intention that it, and not Ungar or any other members of his family personally, should become the owner of the vessel. Moreover, the critical date at which Hostess Marine's intention has to be assessed is 7 July 1999 when it applied the "Hostess" to its own use in Australia.
78 Nor do I accept that the failure, until the ATO officers raised the matter, to have it noted on the insurance policy related to the "Hostess" that she was used for demonstration and viewing, gives the lie to the claim that she was intended, in July 1999, to be principally or predominantly for that use. In light of the elaborate steps already recounted to equip the "Hostess" for demonstrating and viewing, that failure is more readily to be explained as an oversight. Support for that view is provided by the fact that the insurance cover was transferred, as set out at [13] above, from the "Ranger", which had concededly been devoted to "private use only".
79 My acceptance of the general thrust or substance of Ungar's evidence renders inapplicable the principle in Jones v Dunkel (1959) 101 CLR 298. That was a case in which a majority of the High Court concluded that the failure of the defendant to adduce evidence from the driver of the defendant's vehicle, entitled the jury, in a civil action for negligence arising out of a motor vehicle collision, to infer that the driver's evidence "would not have assisted the defendants by throwing doubt on the inference [that the defendants had been guilty of negligence] which, as I have explained, I consider was open on the plaintiff's evidence"; per Kitto J, at 308. To similar effect, Windeyer J observed, at 321;
'As Wigmore points out (Evidence 3rd ed. (1940) vol. 2, ss. 289, 290, pp. 171-180), exactly the same principles apply when a party, who is capable of testifying, fails to give evidence as in a case where any other available witness is not called. Unless a party's failure to give evidence be explained, it may lead rationally to an inference that his evidence would not help his case.'
80 In the present case, if I were to draw the inference that the evidence, for example, of Stephen Ungar who was not called, would not have helped Hostess Marine's case, that inference would not detract from the affirmative force of Ungar's evidence which I have accepted. Moreover, as I have explained at [70] of these reasons, notwithstanding Stephen Ungar's position as sole director in July 1999, the controlling mind and will of Hostess Marine for the purpose of its forming the relevant intention at that time was Ungar's.
81 Similar considerations apply to the failure to call evidence from Hostess Marine's accountant, Currie Communications, the employed skipper, Mike Percy, or any of the potential purchasers who had gone on board to inspect the "Hostess". Even if it be inferred, conformably with Jones v Dunkel, that the evidence of none of those potential witnesses would have helped Hostess Marine, that inference does not afford a basis for the rejection of the affirmative evidence of Ungar himself and the other witnesses, including Victor Bates, a director of MFA, from whom evidence was adduced. Nor does the inference made available by Jones v Dunkel from the failure to call the witnesses identified by Counsel for the Commissioner diminish the force of the inference which I have drawn from the matters canvassed at [71] above as to how Hostess Marine intended, in July 1999, to use the vessel.
82 I agree, in general, with the contention implicit in the Commissioner's criticism that Hostess Marine did not have a realistic prospect of generating substantial profits from sales of "Monte Fino" motor yachts within a reasonable time after the application to own use of the "Hostess". That militates, so the argument would go, against the existence of a claimed intention to use the ship for business purposes. However, an applier can have an intention to use a ship for business purposes notwithstanding that the business is unlikely to generate much, if any, profit. The confidence with which a court can impute the presence or absence of a "business" intention depends on the weight to be attached to all of the surrounding circumstances. Thus, if the applier can be shown to have known that the business would almost certainly generate a large loss, the Commissioner's argument that the principal or predominant intended use was for a non-business purpose becomes correspondingly more cogent.
83 On the other hand, it is not destructive of an intention to use the ship for the purposes of a business, that the applier thought that the business would be only modestly profitable, or even that it would break even. Nor does it necessarily negative an intended use for "business" purposes that the applier was likely to derive pleasure or enjoyment from the conduct of the business and activities associated with it. Whether the conduct of the business or the derivation of pleasure is the principal or predominant use for which the presumptively exempt goods are obtained is a conclusion to be drawn from the relevant facts and circumstances. One such fact or circumstance relevant to the present case is whether the goods are intended for uses mainly in the conduct of a business, but, the size or scope of the business may be immaterial to the inquiry; see eg Thomas v Commissioner of Taxation (Cth) (1972) 46 ALJR 397 at 401 where Walsh J observed;
'But a man may carry on a business although he does so in a small way. In my opinion the appellant's activities in growing the trees ought not to be found to have been carried on merely for recreation or as a hobby. I leave out of account the pine trees, the growing of which did not have, I think, a significant commercial purpose or character.'
84 In Hope v Bathurst City Council (1980) 144 CLR 1 Mason J ventured, at 10, this explanation of Walsh J's observation in Thomas;
'The issue in Thomas was whether the taxpayer was carrying on the business of growing avocado, macadamia nut and pine trees. Walsh J. in the passage quoted did no more than say that he left the pine trees out of account because the growing of them did not have a commercial purpose or character which was significant for the purpose of characterizing the taxpayer's other activities as a business. His Honour's remarks did not go to the magnitude or size of the activities necessary to constitute a business, nor indeed to the genuineness or bona fide character of those activities. His Honour had expressly conceded that a man may carry on a business though in a small way.'
85 After the hearing of the present application, I was referred by the solicitor for the Commissioner with notice to the solicitors for Hostess Marine to Ell v Commissioner of Taxation [2006] FCA 71 (10 February 2006). That case concerned a claim by two taxpayers to deduct for income tax purposes leasing expenses, interest, depreciation and the cost of repairs in relation to two yachts from each of which they claimed respectively to have derived income. Emmett J upheld the Commissioner's disallowance of the claimed deductions on the ground that, in the relevant years, the yachts had not been used mainly for letting on hire in the ordinary course of a business carried on by the taxpayers. His Honour found on the facts that neither taxpayer had the intention of using the yachts to gain or produce assessable income or in the course of carrying on a business. In the present case, the critical intention was to use the "Hostess" mainly for purposes other than the provision of the facilities enumerated in pars (a), (b) and (c) of Item 59(1). By contrast with Ell v Commissioner of Taxation, that intention was not negatived by the facts which I have found.
86 I draw no inference adverse to Hostess Marine from the fact that most of the time spent by the "Hostess" at her moorings was at the Sandringham Yacht Club. It is true that Ungar had strong social and recreational connections with that Club but its selection as a mooring of choice is equally explicable by a belief that those connections would enhance the prospects of making sales of "Monte Fino" vessels. As well, Sandringham had the convenience of proximity to the brokers, Jackson Marine, who had been selected to respond to day to day enquiries and requests to view the "Hostess". Quantitatively, the time which the "Hostess" spent at her moorings, mainly at Sandringham, constituted an overwhelming proportion of the two year statutory period. However, that fact casts no light on the use which Hostess Marine intended for the vessel at the time of application to own use. That is because, I infer, the "down time" for the "Hostess" would have been broadly the same whether the principal or main use to which she was intended to be put had been as a display and demonstration unit for the "Monte Fino" range or had been to provide pleasure, sport or recreation for Ungar, his family and friends. Similar reasoning applies to the time spent by the "Hostess" in dry dock or at contractors' berths. The evidence related to that time is, at worst, neutral for Hostess Marine and, at best, tends to support the claimed intention to use the "Hostess" as a display and demonstration vessel. I instance, in this regard, the modifications carried out in the Launceston Shipyard which are described at [27] of these reasons and were, it seems, principally intended to keep the appearance of the "Hostess" consistent with that of newer models in the "Monte Fino" range. It is not without significance in this connection that the relatively large expense of those modifications was incurred at the end of the two year statutory period.
87 Those "Monte Fino" related modifications and the continued use of the "Hostess" as a display and demonstration vessel after the expiration of the statutory period tends to confirm an intention subsisting throughout that period and beyond to use her mainly for that purpose. It seems to be implicit in the Commissioner's contentions that the use of the "Hostess" as a demonstration craft was elaborately colourable and devised to obscure an actual intention to use her primarily for pleasure, sport or recreation. However, that contention involves the corollary, which was not borne out, that the colourable use, with its attendant expense, would have ceased immediately upon the expiration of the statutory period. Similarly, although less unequivocally, the sale of the vessel a few moths after the end of the statutory period argues against a consistently maintained intention that her main use should be the provision of pleasure, sport or recreation.
88 I have not attached any weight to the fact that Ungar's decision to commission the construction of the vessel was heavily influenced by the provision to him of a copy of the ATO's "News and Views" for October 1993. That publication, amongst other things, posed the question "Do boats used for demonstration purposes qualify for exemption under Item 59?" To that question it supplied the answer reproduced at [32] above. The provision of that information prompted Ungar to request his accountant, Mr Axton, to seek advice from Hall & Wilcox, solicitors, about what was required to ensure that a boat used for demonstration purposes qualified for the exemption. That advice was obtained and was to the effect that the boat had to be acquired genuinely for demonstration use for at least two years and not for pleasure, sport or recreation. That history tends to corroborate that Hostess Marine's genuine intention in July 1999, formed through Ungar, was to use the "Hostess" as a demonstration vessel. The focus required by Item 59(1), as is borne out by the use of the word "intended" in the second item of the table of functions to Sch 1 of the ST(E&C) Act and numerous references in the Explanatory Memorandum accompanying the Bill which became the ST(E&C) Act, is on intention. Intention is an act of the will directing a particular action, in this case, the use of the "Hostess". It is a distraction from the inquiry into what was Hostess Marine's intention to have regard to the motive or the reason which prompted the intention. I accept that the, or a, motive, of Hostess Marine in forming the requisite intention was to qualify for the sales tax exemption which made the acquisition of the vessel economically attractive. However, that cannot be allowed, of itself, to detract from the genuineness of the formation of the intention.
89 A comprehensive review of the evidence, including the salient features noted at [70]-[88] of these reasons, has led me to conclude, on a preponderant balance of probabilities, that Hostess Marine in July 1999 genuinely intended to use the "Hostess" for the principal or predominant purpose of displaying and demonstrating the "Monte Fino" range of motor yachts. To the extent that it matters, I am also satisfied that the intended use which I have imputed to Hostess Marine was expected to generate income in the form of commissions under the agreement with MFA.