Reported Decision : 74 ATR 579 2008 ATC 20-079 New South Wales Supreme Court CITATION : Gloria Jean's Coffees International Pty Ltd v Chief Commissioner of State Revenue [2008] NSWSC 1327 HEARING DATE(S) : 15/10/08, 16/10/08 JUDGMENT DATE : 12 December 2008 JURISDICTION : Equity Division JUDGMENT OF : Barrett J DECISION : Orders that defendant's determination of 22 February 2006 be set aside, that plaintiffs' objection to assessment be allowed and that assessment of duty be set aside. CATCHWORDS : TAXES AND DUTIES - stamp duty - duty on agreement for sale or transfer of dutiable property - "business asset" - goodwill of business is "business asset" if sale of goods or services made to New South Wales customer of the business within preceding 12 months - identifying goodwill of business - identifying business - identifying customers - concept of sale of services where business is exploitation of intellectual property and rights under master franchise agreement - whether services provided - whether sale of services to customer - whether sale of goods to customer - where goods delivered - WORDS AND PHRASES - "services" - "sale of services" - "customer" Constitution Act 1902, s 5 Duties Act 1997, ss 8(1), 9, 11(1)(g), 28(5)(a), 65(17), 224(2), 225(4), 251(1), 267(4), 274(1), 274(2) LEGISLATION CITED : Interpretation Act 1987, s 31(2) Sale of Goods Act 1923, s 6 Stamp Act 1850 (UK) CATEGORY : Principal judgment Commissioner of Revenue v Amiwoodbroke Inc 634 NW 2d 114 (1994) Commonwealth v Sterling Nicholas Duty Free Pty Ltd [1972] HCA 19; (1972) 126 CLR 297 Director-General Department of Community Services v MM [2003] NSWSC 1241; (2007) EOC 93-464 Employers Mutual Indemnity Association Ltd v Federal Commissioner of Taxation [1943] HCA 36; (1943) 68 CLR 165 Federal Commissioner of Taxation v Murry [1998] HCA 42; (1998) 193 CLR 605 Flocast Australia Pty Ltd v Purcell (No 3) [2000] FCA 1020; (2000) 176 ALR 354 Francis v NPD Property Development Pty Ltd [2004] QCA 343; [2005] 1 Qd R 240 CASES CITED : Hyde v Sullivan (1956) 56 SR (NSW) 113 IW v City of Perth [1997] HCA 30; (1997) 191 CLR 1 Jansz v GMB Imports Pty Ltd [1979] VR 581 Johnson v Commissioner of Stamp Duties [1956] AC 331 Lambert v Rowe [1914] 1 KB 38 Potter v Commissioners of Inland Revenue (1854) 10 Ex 147; 156 ER 392 Re Dingjan; ex parte Wagner [1995] HCA 16, (1995) 183 CLR 323 The Clarkson Co Ltd v ACE Lumber Ltd [1963] SCR 110 Xerox of Canada Ltd v Regional Assessment Commissioner [1981] 2 RCS 137 Gloria Jean's Coffees International Pty Ltd - First Plaintiff PARTIES : Gloria Jean's Coffees Holdings Pty Ltd - Second Plaintiff Chief Commissioner of State Revenue - Defendant FILE NUMBER(S) : SC 2400/06 COUNSEL : Mr M Richmond/Mr I J Stanley - Plaintiffs Mr J E Marshall SC/Ms J R Baird SC - Defendant SOLICITORS : Coleman & Greig - Plaintiffs I V Knight, Crown Solicitor - Defendant IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION BARRETT J FRIDAY 12 DECEMBER 2008 2400/06 GLORIA JEAN'S COFFEES INTERNATIONAL PTY LTD & ANOR v CHIEF COMMISSIONER OF STATE REVENUE JUDGMENT Basic issue and statutory provisions 1 The question to be decided in this case is whether the transaction effected by a written agreement dated 5 December 2004 is chargeable with duty under s 8(1) of the Duties Act 1997. Although it will be necessary to consider its terms in some detail, the agreement is, at this point, sufficiently described as a sale of business agreement. I shall refer to it as "the 2004 sale agreement". 2 On 15 June 2005, the defendant (Chief Commissioner of State Revenue) issued an assessment of ad valorem duty against the plaintiffs (Gloria Jean's Coffees International Pty Ltd or "GJCI" and Gloria Jean's Coffees Holdings Pty Ltd or "GJCH") in respect of the transaction. The amount of duty and interest (which has been paid) is $673,244.03. GJCI and GJCH lodged an objection. This was determined adversely to them on 22 February 2006. The present proceedings are an appeal from that determination. GJCI and GJCH, as plaintiffs, seek an order that the determination of 22 February 2006 be set aside, an order that their objection be allowed and an order that the assessment be set aside. 3 The relevant head of charge under s 8(1) is that in s 8(1)(b)(i): "This Chapter charges duty on: … (b) the following transactions: (i) an agreement for the sale or transfer of dutiable property, …" 4 The Act contains definitions of "transfer" and "dutiable property". The dictionary at the end of the Act defines "transfer" in these terms: "'transfer' includes an assignment and an exchange". 5 The expression "dutiable property" is extensively defined in s 11(1). For present purposes, it is sufficient to quote s 11(1)(g) as follows: "'Dutiable property' is any of the following … (g) a 'business asset', being, at any relevant time (i) the goodwill of a business if, during the previous 12 months, a sale of goods or services, or goods and services, has been made to a New South Wales customer of the business, or (ii) intellectual property that has been used or exploited in New South Wales during the previous 12 months, but only if the intellectual property is the subject of an arrangement that includes a dutiable transaction over goodwill referred to in subparagraph (i), or …" 6 The concept of a sale to a "New South Wales customer of the business" is elucidated by s 28(5)(a) which, like s 8 and s 11, appears in Chapter 2 of the Act: "For the purposes of this Chapter, a sale of goods or services is taken to be made to: (a) a New South Wales customer of a business if the goods are delivered, or the services are provided, in New South Wales to the customer, …" 7 I should say, at this early stage, that I consider s 28(5)(a) to contain an exhaustive statement of the circumstances in which it is permissible to find that a particular sale of goods or services, or goods and services, to a customer of a business has been made to "a New South Wales customer of" the business. I say this because the expression "New South Wales customer" is so imprecise as not to indicate any readily identifiable territorial connection in its own right. It could refer to a customer resident in New South Wales, a customer domiciled in New South Wales, a customer carrying on business in New South Wales, a customer who enters into the sale transaction in New South Wales, a customer who transmits a purchase order that is received in New South Wales or a customer who is physically in New South Wales when the sale is made elsewhere. 8 Given these and other like possibilities – together with what one may take to be the legislature's concern to specify a precise territorial connection with New South Wales supportable under s 5 of the Constitution Act 1902 (Johnson v Commissioner of Stamp Duties [1956] AC 331 (PC)) and to avoid resort to s 31(2) of the Interpretation Act 1987 – it should be inferred that s 28(5)(a) is intended to give definite and delineated territorial content to what would otherwise be a vague concept. It may be presumed that Parliament enacted s 28(5)(a) to indicate "a standard or test which may be applied for the purpose of limiting, and thereby preserving the validity of the law": Re Dingjan; ex parte Wagner [1995] HCA 16, (1995) 183 CLR 323 at 339 per Brennan J. 9 The last provision of the Act to be mentioned is s 9. It provides that duty charged on a transaction by s 8(1)(b) is to be charged as if the transaction were a transfer of the dutiable property in question made at the time the transaction was entered into; with the purchaser being regarded as the transferee under such a transfer. Common ground and matters to be decided 10 It is common ground that the transaction effected and evidenced by the 2004 sale agreement is within s 8(1)(b)(i), if its subject matter is within s 11(1)(g)(i). It is accepted that the subject matter is within that provision at least to the extent that it is "the goodwill of a business". The contentious issue is whether the business satisfies the condition or description introduced by the word "if" – that is, whether "during the previous 12 months, a sale of goods or services, or goods and services, has been made to a New South Wales customer of the business". I shall refer to that period as "the relation-back period". As a practical matter, the parties proceeded on the basis that the relevant period is 5 December 2003 (12 months before the making of the contract) to 10 February 2005 (the date of completion of the sale and purchase). 11 It is also common ground that the transaction effected and evidenced by the 2004 sale agreement is within s 8(1)(b)(i), if its subject matter is within s 11(1)(g)(ii). It is accepted that the subject matter is within that provision at least to the extent that it is "intellectual property that has been used or exploited in New South Wales during the previous 12 months". The contentious issue is whether the condition introduced by the words "but only if" is satisfied – that is, whether the intellectual property "is the subject of an arrangement that includes a dutiable transaction over goodwill referred to in subparagraph (i)". This means that an essential element of any finding that intellectual property dealt with by the 2004 sale agreement is a "business asset" will be the existence of goodwill of a "business" as described in s 11(1)(g)(i), that is, a business satisfying the criterion concerning sale to a "New South Wales customer of the business" within the particular period of 12 months. 12 It follows from the matters on which the parties are agreed that if it is found that the "goodwill of a business" that is the subject of the agreement satisfies the condition in s 11(1)(g)(i) concerning a sale within the preceding 12 months, the intellectual property that is the subject of the 2004 sale agreement will satisfy the condition in s 11(1)(g)(ii). 13 In the light of the statutory provisions, the central question in this case is whether, during the relation-back period, there was a sale of goods or services, or goods and services, to a customer of the relevant business under or in pursuance of which delivery of the sold goods or provision of the sold services occurred in New South Wales (with "the relevant business" being understood as the business the goodwill of which constituted or was included in the subject matter of the sale effected and evidenced by the 2004 sale agreement). 14 A first step in addressing that question will be to delineate the scope of the relevant business – that is, the business the goodwill of which was (or was part of) the subject matter of the sale to be made under the agreement. As I have said, it is accepted by the parties that the subject matter of the sale to be made under the 2004 sale agreement includes the goodwill of a business. But the parties seem to have different views about the scope of the business. 15 If the central question referred to at paragraph [13] is answered in the affirmative, three consequences will follow. 1. The goodwill of the business (whatever the scope of the business might be) will be within the definition of "business asset" by operation of s 11(1)(g)(i). 2. Intellectual property used or exploited in New South Wales in the relation-back period that was the subject of the agreement will be within the definition of "business asset" by operation of s 11(1)(g)(ii) (it not being suggested that the agreement formed part of some wider "arrangement"). 3. If and to the extent that either such "business asset" was the subject matter of the 2004 sale agreement (that is, that the agreement was an agreement "for" the sale or transfer of the "business asset"), the agreement will be chargeable under s 8(1)(b)(i). The approach to the central question 16 In order to answer the central question referred to at paragraph [13], it is necessary to proceed by the following steps: 1. Identify the "goodwill of a business" agreed to be sold by the 2004 sale agreement. 2. Identify the nature and scope of that business. 3. Identify the persons who were "customers" of that business during the period of 12 months before 5 December 2004. 4. Identify sales of goods or services (or both) made to customers of the business during that period. 5. Determine whether the goods sold were delivered (or the services sold were provided) in New South Wales to the customer. 17 The plaintiffs bear the onus of proof. The 2004 sale agreement 18 There are seven parties to the 2004 sale agreement. Gloria Jean's Gourmet Coffees Corp ("GJGCC") and Gloria Jean's Gourmet Coffees Franchising Corp ("GJGCFC"), both Illinois corporations, are designated "Seller". They, together with Diedrich Coffee Inc ("Diedrich"), a Delaware corporation, contract "on the one hand". GJCI and GJCH (the present plaintiffs) are designated the "Purchaser". They, together with Jireh International Pty Ltd and Jireh Group Pty Ltd (together the "Jireh Parties"), contract "on the other hand". 19 The recitals are as follows: "WHEREAS, the Seller currently owns the Gloria Jean's coffee brand and distributes and sells specialty coffees under such brand through various channels, including through company owned and franchised stores, both within and outside of the United States. WHEREAS, subject to the terms, conditions and exceptions contained in this Agreement, the Seller desires to sell, and the Purchaser desires to purchase, the intellectual property that constitutes the Gloria Jean's coffee brand outside of the United States (except for certain rights retained in Australia) and the rights to the contracts and agreements specified on Schedule 1.1(a)(ii) attached hereto (collectively, the ' Business '); and WHEREAS, following the consummation of the transactions contemplated by this Agreement, the Seller will continue to roast, distribute and sell specialty coffees under the Gloria Jean's brand in the United States through various retail and wholesale channels, including through company-owned and sub-franchised stores." 20 The first operative provision is article 1.1 which reads in part as follows: " Purchase and Sale of Assets. (a) Acquired Assets . Subject to the terms and conditions of this Agreement, the Purchaser shall purchase from the Seller, and the Seller shall sell, transfer, convey, assign and deliver to the Purchaser, at the Closing, for the consideration set forth herein, all right, title and interest in and to all of the following assets, properties and rights which are exclusively used in the conduct of the Business (collectively, the ' Acquired Assets '): (i) Intellectual Property rights owned by the Seller and set forth on Schedule 1.1(1)(i) attached hereto (the ' Owned Intellectual Property '); (ii) the specific Master Franchise Agreements (the 'Master Franchise Agreements') and other contracts or agreements set forth on Schedule 1.1(a)(ii) attached hereto (collectively, the 'Assigned Contracts'); (iii) all manuals, correspondence, historical data, communications, notes and other materials relating to or delivered to master franchisees under the Master Franchise Agreements (all delivered in the format presently maintained by the Seller); and (iv) all goodwill arising exclusively in connection with the ownership, operation or conduct of the Acquired Assets and the Business. 21 Article 1.1 goes on to say: (b) Excluded Assets . The Acquired Assets shall not include any assets of the Seller or its Affiliates not specifically described in Section 1.1(a) above. For the sake of clarity, and not by way of limitation, the following assets are specifically not Acquired Assets (all assets retained by the Seller being collectively referred to herein as the ' Excluded Assets '): (i) all cash and cash equivalents held by the Seller; (ii) all Accounts Receivable; (iii) All Deferred Franchise Fees: (iv) all insurance policies of the Seller and its Affiliates pertaining to the Business or the Acquired Assets, together with all claims, proceeds and rights of every nature and description arising under such policies; (v) the rights and assets used by the Seller or its Affiliates in connection with roasting, distributing or selling specialty coffee under the Gloria Jean's brand in the United States; and (vi) all rights of the Seller under this Agreement related to the Excluded Assets and the Retained Liabilities or otherwise." 22 Article 1.2 deals with assumption of liabilities by the Purchaser at the Closing, being designated liabilities "relating to the Business or the Acquired Assets". 23 Article 1.2 fixes the purchase price at US$16 million. Article 1.4 deals with the Closing and specifies the matters to be attended to upon the Closing. Article 1.5 apportions the purchase price in a manner specified in Schedule 1.5. The total of US$16 million is allocated as to US$1,260,000 to Australian goodwill, US$840,000 to non-Australian goodwill, US$8,340,000 to Australian trade marks and license and US$5,560,000 to "[a]ll other trade marks and licences conveyed at the Closing". 24 Provisions with respect to representations, warranties, conditions and other matters follow. It is not necessary to refer to any of these. Diedrich and the Jireh Parties play a part in some of these matters. Their roles are, however, supporting roles, in that they join with their respective subsidiaries (the Seller, in the case of Diedrich, and the Purchaser, in the case of the Jireh Parties) in giving certain covenants. 25 Important components of the property sold are the "Intellectual Property rights owned by the Seller and set forth on Schedule 1.1(a)(i) attached hereto" (article 1.1(a)(i)) and the "specific Master Franchise Agreements … and other contracts or agreements set forth on Schedule 1.1(a)(ii) attached hereto" (article 1.1(a)(ii)). 26 Schedule 1.1(a)(i) contains particulars of registered trade marks and pending trade mark applications in 36 countries, including Australia. The proprietor or applicant, in each case, is said to be GJGCC. Schedule 1.1(a)(ii) contains particulars of contracts each of which is (or relates to) a "Master Franchise Agreement" between GJGCFC and another party. Each agreement concerns a particular country. 27 Upon completion under the 2004 sale agreement on 10 February 2005, a number of instruments were executed and delivered. These included assignments by GJGCC to GJCH of the four registered trade marks referred to in article 1.1(a)(i), a licence by GJGCC to GJCH of certain Australian trade mark applications, an assignment and assumption agreement by which GJGCFC assigned to GJCI (and GJCI assumed) the benefit of the Australian master franchise agreement and a like agreement as to the balance of the "Acquired Assets" and the "Assumed Liabilities". The Australian master franchise agreement 28 The first of the contracts listed in Schedule 1.1(a)(ii) to the 2004 sale agreement is described as follows: "Master Franchise Agreement by and between Gloria Jean's Gourmet Coffees Franchising Corp. ('GJGCFC') and Jireh International Pty. Ltd. ('Jireh'), dated March 6, 1996." 29 A copy of this contract dated 6 March 1996 is in evidence. The parties are GJGCFC ("Franchisor") and Jireh International Pty Ltd ("Master Franchisee"). The agreement begins by reciting that GJGCFC "has expended considerable time, effort and money in developing the gourmet coffee business specialising in the sales of bulk gourmet coffees, teas, beverages, coffee and tea makers and related supplies accessories and gifts (hereinafter referred to as the 'Products')". The recital goes on to say that the stores are known as "Gloria Jean's Gourmet Coffees Stores" (or "GJGC Stores"). Then follows this: "All GJGC Stores operate under distinctive trademarks, business formats, systems, methods, procedures, designs, layouts, standards and specifications, all of which Franchisor may impose, further develop or otherwise modify from time to time (the 'System')." 30 It is then recited that GJGCFC grants to qualified persons rights to develop and operate and franchise other persons to develop and operate such stores in particular geographic areas ("master franchises"); and that GJGCFC has approved an application by Jireh International for a master franchise for the "Development Area (defined below)". 31 The main operative provision is article 3.A: "Subject to the terms and conditions of this Agreement, Franchisor hereby grants to Master Franchisee the Development Rights during the Development Term. Master Franchisee may note itself own or operate GJGC stores within the Development Area; however, Master Franchisee may grant Franchises to its Affiliates. Franchisees, including Affiliates of Master Franchisee, shall execute a Franchise Agreement for each such Gloria Jean's Gourmet Coffee Store. The rights granted to Master Franchisee by this Agreement are limited to the Development Area and Master Franchisee agrees that it is not hereby granted any rights to franchise, and that it will not operate or grant Franchises for Gloria Jean's Gourmet Coffees Stores outside of the Development Area. Before granting any Franchise to a person that is not an Affiliate of Master Franchisee, Master Franchisee shall cause an Affiliate to develop, open and operate a Gloria Jean's Gourmet Coffee Store within the Development Area that successfully passes Franchisor's reasonable operational review, to be used as Master Franchisee's prototype GJGC Store and training facility. An Affiliate of Master Franchisee shall operate such prototype facility or a replacement therefor at all times during the Development Term and any extension thereof." 32 The expressions "Development Rights" and "Development Term" are defined as follows: "' Development Rights ' – the right to grant Franchises for the development and operation of Gloria Jean's Gourmet Coffees Stores to be located in the Development Area. ' Development Term ' – the period during which Master Franchisee is authorized to grant Franchises, which will commence on the Agreement Date and will expire, unless terminated sooner in accordance with the terms of this Agreement, on the Tenth (10th) anniversary of the Agreement Date." 33 The "Development Area" was defined as Australia. 34 The master franchise agreement also provided that GJGCFC and its "Affiliates" (a defined term) would not operate or grant franchises or Development Rights for the Development Area during the Development Term but that thereafter (or if the agreement was terminated) they might do so. Jireh International, for its part, agreed to ensure that a certain number of stores were opened within each of several periods and "to diligently and continuously monitor compliance with the System, to strictly enforce compliance with the System Standards by all Stores operated by Franchisees and to furnish assistance to Franchisees to correct deficiencies in operation". 35 The master franchise agreement imposed upon GJGCFC obligations concerning on-going support. By article 4.A, GJGCFC agreed to provide in the United States a training program for senior managers of Jireh International. Article 4.B was in these terms: "In each calendar year, Franchisor may conduct one (1) or more conferences for the Master Franchisees. Franchisor will periodically conduct additional training programs relating to various aspects of the development and operation of Gloria Jean's Gourmet Coffees Stores. Master Franchisee will have the right to designate one or more senior managers who will be required to attend such conferences or training programs, which will be provided at no charge to Master Franchisee. Master Franchisee agrees to be responsible for all travel and living expenses and compensation of its managers who attend such conferences and training programs." 36 Further like provision was made by article 4.C: "Franchisor shall provide ongoing advice and guidance to Master Franchisee concerning the development, operation and franchising of Gloria Jean's Gourmet Coffee Stores. In connection with such assistance, Franchisor shall furnish written and other materials and various of its personnel to communicate the System to Master Franchisee. Franchisor personnel shall be available for periodic consultation with personnel of Master Franchisee by telephone, facsimile transmission and correspondence. Franchisor will furnish to Master Franchisee copies of advertising and marketing materials developed by Franchisor for Gloria Jean's Gourmet Coffee Stores and information relating to equipment and computer systems and software developed for and implemented in Gloria Jean's Gourmet Coffee Stores in the United States." 37 By article 4.D, GJGCFC agreed to lend to Jireh International a copy of its operating manual for the development and operation of Gloria Jean's stores in the United States. 38 Article 7 of the master franchise agreement, headed "Initial and Continuing Fees", dealt with payments to be made by Jireh International to GJGCFC. Article 7.A provided for payment of a "non-refundable development fee" of US$156,000 (US$100,000 on execution of the agreement, US$28,000 on 29 June 1996 and US$28,000 on 30 September 1996). Article 7.B required Jireh International to make a particular payment (minimum US$5,000) within 15 days after the execution of each franchise agreement as a "non-refundable store opening fee". Article 7.C provided for payment of a "continuing fee" of "an amount equal to two percent (2%) of the Gross Sales of all Stores", such fee being payable forty days after the end of each month on the "Gross Sales" of the preceding month. 39 From this description it will be apparent that: (a) GJGCFC had developed a brand, concept and operating system with respect to coffee shops; (b) Jireh International was given the right to exploit those advantages within Australia during the ten year period by allowing other operators to establish and maintain coffee shops utilising the brand, concept and operating system: and (c) the financial reward passing to GJGCFC from Jireh International, apart from an initial "non-refundable development fee", was geared to and based on: (i) the number of stores opened by franchisees to whom Jireh International granted franchises in exercise of the rights enjoyed by it under the master franchise agreement; and (ii) the value of sales made by those franchisees in each month during the term of the master franchise agreement. 40 In the period 1 December 2003 to 28 February 2005, Jireh International paid GJGCFC "store opening fees" of A$609,375 and "continuing fees" of A$2,642,047. 41 A second agreement was made on the same day (6 March 1996). The parties to that agreement were GJGCC (as distinct from GJGCFC) and Jireh International. It is referred to as a "roasting licence agreement". This conferred on Jireh International the exclusive right to roast, blend, flavour and package "Gloria Jeans" coffee products and to supply them to its franchisees for a term of ten years. Jireh International was required to pay a licence fee to GJGCC based on the quantity of coffee products sold by it. It is to be noted, however, that this second agreement is not referred to in Schedule 1.1(a)(ii) to the 2004 sale agreement; also that, in March 2004, Jireh International granted a sub-licence under this agreement to its associated company, Maranatha Export Import Pty Ltd (see paragraph [59] below). Franchise agreements granted by Jireh International 42 Between 6 March 1996 and completion of the purchase under the 2004 sale agreement, Jireh International granted franchises in respect of more than 240 coffee shops in Australia. It did so (in exercise of the rights conferred by the Australian master franchise agreement) by entering into a series of separate franchise agreements with third parties. 43 The form of franchise agreement used by Jireh International was such that: (a) Jireh International granted to the franchisee a "franchise", being "a licence to operate [a Gloria Jeans store at particular premises] using the System, the Operations Standards Manual and the Marks"; (b) the franchisee agreed to make certain payments to Jireh International, some at commencement and others over the term; (c) the franchisee was required to offer the types and brands of "Products" suggested by Jireh International from time to time and was required to purchase these products from Jireh International or approved suppliers; and (d) the franchisee was expressed to be an independent contractor and not an agent of Jireh International. Identifying goodwill 44 Both parties referred to the decision of the High Court in Federal Commissioner of Taxation v Murry [1998] HCA 42; (1998) 193 CLR 605 where there was extensive discussion of the nature and sources of goodwill. 45 It was recognised in the joint judgment of Gaudron J, McHugh J, Gummow J and Hayne J (at [23]) that goodwill is property: "From the viewpoint of the proprietors of a business and subsequent purchasers, goodwill is an asset of the business because it is the valuable right or privilege to use the other assets of the business as a business to produce income. It is the right or privilege to make use of all that constitutes "the attractive force which brings in custom". Goodwill is correctly identified as property, therefore, because it is the legal right or privilege to conduct a business in substantially the same manner and by substantially the same means that have attracted custom to it. It is a right or privilege that is inseparable from the conduct of the business." 46 The footnote to the part of this passage saying that goodwill is correctly identified as property refers to several cases, including Potter v Commissioners of Inland Revenue (1854) 10 Ex 147; 156 ER 392. The question in that case was whether the goodwill of a business fell within the description "lands, tenements, rents, annuities, or other property, real or personal, heritable or moveable" in the Stamp Act 1850 (UK), so that a conveyance of goodwill was subject to stamp duty. In answering that question in the affirmative, the Court of Exchequer, in a judgment delivered by Pollock CB, said (at ER 396): "If we were for the first time to construe this clause, we do not feel any doubt that it was meant to apply to every sale for a sum of money of any subject of property – of that which belonged to a person exclusive of others, and which could be the subject of bargain and sale to another. The trade, or goodwill of a trade, sometimes enhances the value of real property, as well as well-accustomed tavern or shop will, on account of the habit of persons to frequent it, sell for much more, and the duty on a conveyance of the place where the business is carried on ought pro tanto to be augmented, and very frequently the goodwill of a business or profession, without any interest in land connected with it, is made the subject of sale, though there is nothing tangible in it. It is merely the advantage of the recommendation of the vendor to his connexions, and his agreeing to abstain from all competition with the vendee. Still it is a valuable thing belonging to himself, and which he may sell to another for a pecuniary consideration." 47 In the joint judgment in Federal Commissioner of Taxation v Murry (above) at [24], there was reference to the sources of goodwill: "The goodwill of a business is the product of combining and using the tangible, intangible and human assets of a business for such purposes and in such ways that custom is drawn to it. In Federal Commissioner of Taxation v Williamson ( (1943) 67 CLR 561 at 564), Rich J described the goodwill of a business as referable "in part to its locality, in part to the way in which it is conducted and the personality of those who conduct it, and in part to the likelihood of competition, many customers being no doubt actuated by mixed motives in conferring their custom". It is common to describe goodwill as being composed of elements ((1943) 67 CLR 561 at 564). However, goodwill is a quality or attribute that derives inter alia from using or applying other assets of the business. Much goodwill, for example, derives from the use of trade marks or a particular site or from selling at competitive prices. But it makes no sense to describe goodwill in such cases as composed of trade marks, land or price, as the case may be. Furthermore, many of the matters that assisted in creating the present goodwill of a business may no longer exist ( examples are an advertising campaign that has finished or a patent that has expired). It is therefore more accurate to refer to goodwill as having sources than it is to refer to it as being composed of elements. In Muller [1901] AC 217 at 235, Lord Lindley referred to goodwill as adding value to a business 'by reason of' situation, name and reputation, and other matters and not because goodwill was composed of such elements." 48 It is thus made clear that goodwill, as property, derives from or is sourced in other property (such as business premises and trade marks), human activity, contractual rights (such as non-competition covenants) and intangible attributes (for example, the reputation and skills of individuals) or, as is often the case, a combination of these. Identifying the business 49 The Duties Act refers to "the business of a pharmacist" (s 65(17)), "business involving the cultivation of the soil, the gathering of crops or the rearing of livestock" (s 224(2)), a corporation whose "sole or principal business is providing finance to the public" (s 225(4)), "insurance business" (s 251(1)), "the business of financing the purchases or use of motor vehicles" (s 267(4)), "the business of primary production" (s 274(1)), "a fishing business" (s 274(2)) and "a commercial hire business" (Schedule 1, item 62). It does not, however, attempt to define or explain the meaning of "business". Nor does it attempt to define or explain the meaning of "customer". 50 The general concept of carrying on business was stated by Street CJ, Roper CJ in Eq and Herron J in Hyde v Sullivan (1956) 56 SR (NSW) 113 at 119 as follows: "Speaking generally, the phrase 'to carry on business' means to conduct some form of commercial enterprise, systematically and regularly, with a view to profit, and implicit in this idea are the features of continuity and system." 51 The property agreed to be sold and purchased under the 2004 sale agreement was the whole of the right, title and interest of "Seller" (that is, GJGCC and GJGCFC, or either of them) in and to such of the items described in article 1.1(a)(i) to (iv) as were, at 4 December 2004, "exclusively used in the conduct of" the "Business" as defined by the agreement's second recital, that is: "the intellectual property that constitutes the Gloria Jean's coffee brand outside the United States (except for certain rights retained in Australia) and the rights to the contracts and agreements specified on Schedule 1.1(a)(ii) attached hereto". 52 The "Business", expressed (as it must be) as a form of activity, is, clearly enough, the business of ownership, enjoyment, exploitation and turning to account of the intellectual property and the contractual rights referred to in the second recital just quoted. To the extent, therefore, that GJGCC and GJGFC used exclusively in the conduct of the activity so described the body of property and rights consisting of the intellectual property rights owned by GJGCC and GJGCFC (or one of them) and set forth in Schedule 1.1(a)(i), the master franchise agreements and other contracts and agreements set forth in Schedule 1.1(a)(ii), the manuals and other documents relating to or delivered to master franchisees under the master franchise agreements (as referred to in article 1.1(a)(iii)) and the goodwill "arising exclusively in connection with the ownership, operation or conduct of" either the foregoing items or the activity of ownership, enjoyment, exploitation and turning to account I have mentioned, GJGCC and GJGCFC agreed to sell that body of property and rights to the two companies designated "Purchaser" and those two companies agreed to purchase it. 53 As far as goodwill is concerned, it was the goodwill attaching or belonging to the activity of ownership, enjoyment, exploitation and turning to account of the particular intellectual property owned by GJGCC and GJGCFC and the contractual rights of GJGCC and GJGCFC under the particular master franchise agreements and other contracts and agreements to which they were parties that became the subject of the 2004 sale agreement. By virtue of the transaction provided for in the 2004 sale agreement, the Purchaser came to enjoy that intellectual property, those contractual rights and that goodwill as successor to GJGCC and GJGCFC. The customers of the business 54 With the business thus identified, it becomes necessary to identify its "customers". 55 The general meaning of "customer" was referred to by Heerey J in Flocast Australia Pty Ltd v Purcell (No 3) [2000] FCA 1020; (2000) 176 ALR 354 at [25]: " The Macquarie Dictionary gives the primary meaning of ``customer'' as ``one who purchases goods from another; a buyer; a patron''. The Oxford English Dictionary gives, as ``the chief current sense'', ``one who frequents any place of sale for the sake of purchasing; one who customarily purchases from a particular tradesman; a buyer, purchaser''. A customer may be of recent standing. In Commissioners of Taxation v English, Scottish and Australian Bank Ltd [1920] AC 683 at 687 the Privy Council took the view that a person who had opened an account on the day before paying in a cheque was a customer of the bank within the meaning of s 88(1) of the Bills of Exchange Act 1909 (Cth). Their Lordships said (at 687): 'The contrast is not between an habitué and a newcomer, but between a person for whom the bank performs a casual service, such as, for instance, cashing a cheque for a person introduced by one of their customers, and a person who has an account of his own at the bank.'" 56 As his Honour also observed, "[t]he nature of a particular business is a critical circumstance in determining whether a given person is a 'customer' in relation to the business". 57 Here, the business of owning, enjoying, exploiting and turning to account the intellectual property and contractual rights referred to in the second recital to the 2004 sale agreement can have had as its customers only those persons to whom some form of right was granted in respect of that subject matter by way of exploiting it and turning it to account, whether as to the whole or some part. And, if one is seeking customers likely to involve a connection with New South Wales of the kind contemplated by s 11(1)(g) and s 28(5)(a), the search is necessarily narrowed. 58 The only person who, on this basis, can possibly be a "customer" of the "business" is Jireh International, the franchisee under the master franchise agreement of 6 March 1996, since that is the only agreement in Schedule 1.1(a)(ii) to the 2004 sale agreement having any connection with Australia. 59 It was submitted on behalf of the defendant that Maranatha Import Export Pty Ltd, a company associated with Jireh International and under common ownership, should also be regarded as a customer of the relevant business. I do not accept that submission. In March 2004, Jireh International granted to Maranatha a sub-licence under the roasting licence agreement dated 6 March 1996 (see paragraph [41] above). But since the roasting licence agreement and rights derived from it did not in any way form part of the subject matter of the 2004 sale agreement, activities under and referable to the roasting licence agreement formed no part of the business the goodwill of which was dealt with by the 2004 sale agreement. It follows that Maranatha must be excluded from consideration in the search for customers of that business. The central question restated in context 60 Having completed steps 1, 2 and 3 at paragraph [16] above, I have concluded that: (a) the "business" the goodwill of which is potentially within s 11(1)(g)(i) is the business consisting of ownership, enjoyment, exploitation and turning to account of the intellectual property and contractual rights referred to in the second recital of the 2004 sale agreement (belonging, in each case, to GJGCC and GJGCFC or one of them); and (b) the only identifiable "customer" of that business in the relation-back period was Jireh International. 61 Since Jireh International is thus the only person who might be relevant to the part of s 11(1)(g)(i) beginning with "if", it is necessary to determine whether, in the relation-back period, a "sale" of "goods" or "services" was made by GJGCC and GJGCFC (or one of them) to Jireh International in the course of conducting the business and, if so, whether goods sold were delivered to New South Wales to Jireh International or services sold were supplied in New South Wales to Jireh International. 62 I should explain why I have included the words "in the course of conducting the business" in this formulation. I have done so because I consider that connection or qualification to be implied by the word "customer" when used in relation to business. Take the case of a retailer of footwear. If, over the years, a person periodically buys shoes from that retailer, the person is properly regarded as a "customer" of the retailer's business of selling footwear by retail. But if the person who periodically buys shoes answers an advertisement offering a second-hand car for sale and buys that car from the person who happens to be the proprietor of the footwear shop, it cannot be said that there is a sale of the second-hand car to a customer of the footwear business. The particular sale is foreign to the activities engaged in by the business proprietor vis-à-vis the customers of the business. Activities involving Jireh International in the relation-back period 63 It is the contention of the defendant that, throughout the relation-back period, GJGCFC sold services to Jireh International and that those services were provided in New South Wales to Jireh International. The relevant services are, it is said, services sourced in the master franchise agreement dated 6 March 1996. 64 The plaintiff maintains that, even though the master franchise agreement was in force and bound the parties throughout that period and Jireh International made payments to GJGCFC pursuant to it during the period, there was no sale of services and no provision of services to Jireh International by reason of the continued existence, operation and performance of the agreement. 65 In approaching the competing contentions, it is necessary to remember that the question goes beyond whether benefits properly described as "services" were conferred by GJGCFC on Jireh International during the relation-back period. It must also be found that there was a "sale" of the services by GJGCFC to Jireh International during the period and that the services the subject of the "sale" were "provided" by GJGCFC to Jireh International in New South Wales. 66 It will also be necessary to address the possibility that one or more sales of goods were made within the relation-back period. I shall consider first the questions concerning sale of services. The relevant concept of "services" 67 It is necessary to consider the meaning of "services", remembering that it is used in the phrases "a sale of goods or services, or goods and services, to a New South Wales customer of the business" and "if the goods are delivered, or the services are provided, in New South Wales to the customer". 68 It is thus clear that "services" are distinct from "goods" and that they must be capable of being "sold" (a concept to which I shall come) and "provided". 69 There was reference in submissions to the decision of the High Court in IW v City of Perth [1997] HCA 30; (1997) 191 CLR 1 where the meaning of "services" in an anti-discrimination statute was considered. The predominating (but not unanimous) view was that a local government authority, in considering and determining applications for planning approval, provided "services" – just as it did when making available libraries, parks and sporting facilities. 70 Reference was also made to Director-General Department of Community Services v MM [2003] NSWSC 1241; (2007) EOC 93-464, another case under anti-discrimination legislation, in which Barr J decided that when a government department received and dealt with an application by persons wishing to be approved as foster carers, it provided "services" to the applicants. 71 The defendant drew attention to the decision of the Supreme Judicial Court of Massachusetts in Commissioner of Revenue v Amiwoodbroke Inc 634 NW 2d 114 (1994) where it was held that subsidiary companies making loans to their parent provided "services" to the parent. 72 No reference was made in submissions to Employers Mutual Indemnity Association Ltd v Federal Commissioner of Taxation [1943] HCA 36; (1943) 68 CLR 165. The question there was whether a mutual insurance company had as one of its primary objects "the rendering of services to its shareholders". The "services" the company considered itself to render to its members were, in the words of Latham CJ, "the issuing of insurance policies against workers' compensation and motor car risks and the investigation, adjustment and payment of claims made under those policies". 73 Latham CJ (at 173-174) dealt first with the contention that the investigation, adjustment and payment of claims made by members under insurance policies entailed the rendering of services to those members: "It is contended for the company that when the company investigates and adjusts a claim made against it and either resists payment, or ultimately pays under the policy, the company is rendering services to its shareholders. In my opinion this is not the case. The company is bound by the terms of the policies which it issues to indemnify policy holders according to the terms of the policies, and in the case of workers' compensation policies it is also by statute liable directly to insured workers ( Workers' Compensation Act 1926-1938 (N.S.W.), s. 18 (3)). In making the investigations which are necessary before the company decides whether to pay or to resist a claim the company is not engaged in rendering a service to the particular shareholder who has taken out the policy, or to its shareholders generally. It is acting on its own account. It is either discharging a liability which it has undertaken, or is resisting a liability alleged by the shareholder or some other person to exist but disputed by the company. Accordingly, in my opinion, the business of the company in investigating, adjusting and paying claims under policies cannot be brought within the category of rendering services to any other persons." 74 The Chief Justice then (at 174) considered the possibility that the issuing of insurance policies to members in the first place was the rendering of services to them: "But it is claimed that the business of issuing insurance policies is itself a business which has as its primary object the rendering of services to the persons to whom policies are issued. The issuing of an insurance policy is the making of a contract of indemnity. An insurance company carries on a business in the same way as any other company or person carries on a business. In a very general sense it might be said that a company formed for the purpose of manufacturing and selling goods renders services to the persons who buy its goods; that a company which lends money on mortgage renders services to the mortgagors with whom it deals; that a company which produces wool renders services to the persons to whom the wool is sold; and that in each of the cases mentioned the company renders services to its shareholders, first, when it deals with any of them, and, secondly, when it seeks to make profits for them. But the rendering of services, in the ordinary sense of that expression, does not cover any and every kind of dealing between persons. It would not be in accordance with the ordinary use of language to say that every company which deals with another person in some way or other upon terms acceptable to that person, and therefore regarded by him as being beneficial to him, was engaged in rendering services to him. The object of the companies in the cases mentioned is to carry on business profitably and it cannot be said, even if in a very general sense they are rendering services to, among others, their shareholders, that the primary object of the company is to render such services." 75 Latham CJ's view of the general meaning of "the rendering of services" was then stated: "In my opinion the words 'rendering of services to' persons mean doing work of some kind for those persons. When it is the primary object of a company to do work for other persons, then it may be said that the primary object of the company is the rendering of services to such persons. But the issuing of an insurance policy to a person cannot be described as doing work for that person. It is making a contract with him. Work may be done for a person in pursuance of a contract with him, but the making of a contract with him does not amount to doing work for him." 76 Rich J (at 177) was of the opinion that an insurer, in issuing policies, rendered services: "The phrase 'rendering services' is as wide as could well be devised. The definition does not say rendering of services under contracts of service in the technical sense. It says 'rendering of services' generally, without any limitation expressly stated or involved in the context. A person who insures another against risk of loss is rendering him service in a very real and perfectly natural sense of the term." 77 This conclusion (coupled with a finding that the objects of the company entailed the rendering of such services to its members) made it unnecessary for Rich J to consider whether subsequent processing of claims involved the rendering of services. 78 Starke J disposed of the matter by finding that the relevant statutory concept was one entailing the doing of acts by the company for its members, such as where a company shears its members' sheep and thereby renders services to them by relieving them of the need to do something that they would otherwise have to do for themselves. Starke J did, however, say (at 181): "In a general sense insurance companies do give or render service to the public or their members." 79 McTiernan J said (at 185): "The word 'services' does not mean services rendered pursuant to a contract of employment between master and servant. The word refers to services which are of the same nature as those rendered by a business enterprise in satisfying the business needs of persons having recourse to it. It is within this ordinary general meaning of the expression "the rendering of services" to say that an insurance company renders services to its policy holders by covering them against loss or damage to their property or claims by workmen in their employment, and by performing the promises in the policies upon the happening of the loss, damage or claim insured against." 80 Williams J approached the matter in the same was as the Chief Justice. He rejected the view that the grant of indemnity through a contract of insurance involves any form of "services". In the view he took, "services" are the product of a contract of service or a contract for services – in other words, some form of work. Furthermore, in receiving, processing and paying claims, an insurer "acts on its own behalf and for its own protection and not as a service to its policy holders" (at 188). 81 The question at issue in Xerox of Canada Ltd v Regional Assessment Commissioner [1981] 2 RCS 137 was whether a company that leased photocopiers to customers carried on "the business of selling goods or services". The Supreme Court of Canada held that it did not. It accepted in their entirety the conclusions of Blair JA, the dissenting judge in the Court of Appeal for Ontario ((1980) 115 DLR (3d) 428) where the first instance decision ((1979) 27 OR (2d) 269) was reversed by majority. 82 In the Court of Appeal, Blair JA referred (at [68]) to the distinction between "goods" and "services": "The Act deals with the assessment of businesses and it therefore follows that the words 'goods' and 'services' are used in their ordinary commercial sense. In everyday business the distinction between sales of 'goods' and 'services' is well understood. A grocery sells goods; a laundry sells services, and some businesses, such as garages, sell both goods and services. As distinguished from 'goods', 'services, are intangibles; they are the work of the hand or the brain, valuable to the purchaser or user but not in themselves articles of trade or commerce." 83 He held that the hiring agreement did not entail the provision of services: "[I]f the customer wanted only a photocopying service, it could deal with any number of outside retail outlets engaged in he business of making photocopies for the public, but the customers obviously want to have the use of their own machine, so that they can provide that service themselves. The very fact that each customer has several employees trained to operate the machine makes it clear that it is the customer, with the use of the rented machine, who provides the photocopying service required. At the very most Xerox merely provides to its customers the ingredients from which they could perform photocopying services for themselves." 84 A similar conclusion had been reached by the Supreme Court of Canada in The Clarkson Co Ltd v ACE Lumber Ltd [1963] SCR 110. The question there was whether a company that let construction equipment on hire to a builder thereby furnished or performed "any work or service upon or in respect of" the construction of the building. The court held that it did not. Ritchie J, delivering the judgment of the court, said (at 115): "Even if it were accepted that the presence of the equipment at the building site in itself constituted a 'service upon or in respect of … constructing' the building it is nevertheless may view that the words 'furnishes and 'performs' as they occur in s 5 of the Act must be given separate meanings and that the latter word must be taken as connoting some active participation in the performance of the service on the part of the lien claimant. Having regard to the rule of construction, which I consider to be applicable under the circumstances, I do not think that by merely making their equipment available at a fixed rental, the respondents can be said to be persons who performed any service upon or in respect of the building within the meaning of the section." 85 The Canadian cases show, in my opinion, that where possession of physical property is given by one person to another so that the second person may use it to perform some task or pursue some beneficial activity, the first person does not, by making the property available, render to the second person "services" consisting of or represented by the second person's performance of the task or pursuit of the activity. The "sale" of services 86 In Commonwealth v Sterling Nicholas Duty Free Pty Ltd [1972] HCA 19; (1972) 126 CLR 297, Windeyer J said (at 313-314): "[O]ne has to decide what is meant by a sale of services. That in law is an unusual expression. When used it seems that it does not mean rendering services for reward but selling the services of one's servants so as to put them under the buyer's orders." 87 The difficulty thus expressed comes from the ordinary meaning of "sale" which is "the conveyance or transfer of something in return for money": Francis v NPD Property Development Pty Ltd [2004] QCA 343; [2005] 1 Qd R 240 at [15]. This is the definition of "sale" in the Sale of Goods Act 1923, s 6. The general notion is that the seller, having something capable of being transferred, transfers it to the buyer in return for a money consideration. It is this concept of "sale" that caused Windeyer J to say, in effect, that the only person who can make a "sale" of services is the person who has a right to have the services rendered or performed. Only someone in that position can effect the transfer that is central to "sale". 88 In some statutory contexts, however, the word "sale" should be construed in a popular sense rather than the technical or strict legal sense: see, for example, Lambert v Rowe [1914] 1 KB 38; Jansz v GMB Imports Pty Ltd [1979] VR 581. 89 The present context is one in which it is made clear by s 28(5)(a) that a "sale" of services to a "customer" of a business entails the services being "provided to" the customer. And it is implied that the services will be "provided" by the person who makes a "sale" of them. That concept co-exists with the more familiar one of a "sale" of goods to a customer under or in consequence of which the goods are "delivered to" the customer. The parallel so obviously drawn warrants the adoption of a meaning of "sale" in relation to "services" that corresponds, as far as is possible, with the meaning it has in relation to "goods". 90 On this basis, I am of the opinion that a "sale" of services to a customer of a business should be taken to occur when the proprietor of the business supplies, renders or provides the services to the customer, but only if the services are made available in return for a money consideration. 91 The need to identify a money consideration as the quid pro quo for the provision of the services comes from the adoption of the word "sale". As I have said, a money price is of the essence of "sale" according to its technical legal meaning. Adoption of the "sale" concept in relation to services must, I think, carry with it this element of the legal meaning. If it were otherwise, the legislature would have been content to speak of the "supply" of services to a customer of the business, or simply the "provision" of services to a customer ("provided" being the word used in s 28(5)(a)). The fact that the recipient was a "customer" would have been sufficient to encompass forms of consideration other than a money price if "supply" or "provide" had been used. A business does not deal with its "customers" on gratuitous terms. 92 Services "provided" to a customer, as mentioned in s 28(5)(a), will, in my opinion, be properly regarded as the subject of a "sale" to the customer, as mentioned in s 11(1)(g), only if it is possible to identify a money consideration for the supply or rendering of those services. Assessment of the present case 93 Having regard to the meaning of "services" and the meaning of "sale" as applied to "services", it is possible to identify two possibilities requiring consideration in relation to the relation-back period. 94 The first possibility is that things actually done by GJGCFC under the master franchise agreement during that period entailed or included the sale of services by GJGCFC to Jireh International, with those services being provided to Jireh International in New South Wales. The general proposition is that GJGCFC enhanced the position of Jireh International by its actions under the agreement during the period. 95 The second possibility is that that, simply by reason of the making of the master franchise agreement on 6 March 1996 and its continued existence, GJGCFC, at every subsequent point during the term of the agreement (and, in particular, at every point during the relation-back period), sold to Jireh International services that were delivered in New South Wales to Jireh International. The first possibility 96 The defendant relied upon a passage in the cross-examination of Mr Laverty (a senior executive of the Gloria Jean's group in the United States from May 2003 to December 2005) as identifying benefits actually conferred on Jireh International by GJGCFC during the relation-back period: "Q. Are you able to describe first in general terms the key features of a franchise business such as that of Gloria Jeans? A. Well the most important aspect, a concept like Gloria Jeans has is the concept itself and the intellectual property developed with the concept. What I referred to was to be successful as a franchisor you must have a concept that is consistent, reputable and predictable in terms of its capability to generate revenue so that when selling franchises to potential franchisees you are in a position to be able to if not guarantee at least predict with a higher degree of certainty what they will be getting for their investment in that concept. Q. Is the concept referred to as the system? A. Yes. Q. Was the Gloria Jeans system one which had detailed guidelines for how to carry out each individual store's operations? A. It was, Gloria Jeans' history in the United States developed detailed guidelines for store operations, or supply chain management, for its products, unique recipes for its individual products, for its signage and branding and any other attributes of the fiscal concept of stores and these were critical to maintaining the consistency of the operation. Q. You also said there was the senior executive work with new countries, with existing countries and were involved in concept evaluation. Can you explain that? A. One of the major efforts of franchising is to ensure franchisees the overall concept maintains its freshness. Its desirability with the purchasing public and is something that is competitive with similarly situated franchise operations in its marketplace. At Gloria Jeans in the United States in particular we had, the concept had begun in a mall environment, an interior mall environment and grown almost exclusively in that environment. We determined if we were going to be successful in growing that business in the United States we needed to develop a product type that would be a free standing unit outside a sharing mall environment so we did invest the capital dollars in developing that product type and we had actually learned from some of the successes of Australia and attempted to apply that in the United States. Q. Does that mean the concept or the system was continually updated and evolving? A. That was the objective. Q. And it happened didn't it? A. It did happen. Q. Mr McGuinness you said worked, reported to you, that is right? A. Yes. Q. One of his roles was to oversee the development of the international operation? A. That is correct. Q. That would mean developing the evolution of the system internationally? A. That is correct. Q. That would mean identifying new countries in which you could enter into an arrangement with a major franchisee, correct? A. Correct. Q. So that in order to grow the business it was necessary to continually update the system, correct? A. Correct. Q. It was also necessary to maintain good relationships with master franchisees from every country? A. That is correct. Q. To identify new countries in which there could be a master franchise relationship? A. Correct. Q. Identify new products? A. Correct. Q. Test those new products and carry out market research for those new products? A. That is correct. Q. Introduce those new products in the United States and internationally? A. That is correct. Q. And all of that happened the entire time you were at Diedrich, didn't it? A. It did, it was an ongoing effort. Q. One of the benefits that a new master franchise business in a new country would have, correct me if I am wrong, is that the international reputation and quality of a Gloria Jeans store was high? A. It was high in some countries and not so high in others. Q. And the job of Matthew McGuinness was to ensure the standard was kept as high as reasonably practicable in all the countries, wasn't it? A. Yes it was. Q. You regarded him as satisfactorily carrying out that job, didn't you? A. Yes. Q. And the benefit of making sure there was a consistent quality of system was a benefit not just for each country but for all of the other countries, is that not so? A. The success of the brand would be reflected in the operations of all the franchisees, that would be correct. Q. So that the master franchisee in country A would benefit from the success of the business in country B because of the enhanced reputation of the Gloria Jeans company? A. Of the brand, that is correct. Q. And under the master franchise agreement the Gloria Jeans American company had the ability to carry out detailed inspections of the operations of the individual stores in each country, didn't it? OBJECTION [Allowed] A. That is correct." 97 The defendant also relies on the following passage in Mr Laverty's cross-examination: "Jireh was left to grow the Gloria Jeans brand in Australia with oversight from the United States limited to ensuring brand image and quality." 98 I do not accept that performance by GJGCFC of its obligations under the master franchise agreement during the relation-back period entailed or included a sale of services or the provision of services by GJGCFC to Jireh International. There are five reasons for this. 99 First, given the approaches taken by the majority in the Employers Mutual Indemnity case (above), there is a real doubt whether the performance of a pre-existing contractual obligation entails the rendering of a service, as distinct from an act of self-protection by way of contractual compliance. 100 Second – and even if the doing of things already contracted to be done does amount to the rendering of services – there is no "sale" of those services unless one can see that the rendering of them is in consideration of a monetary consideration. In the present case, the fee structure under the master franchise agreement paid no attention to the nature or quantity of things done under the agreement by GJGCFC for the benefit of Jireh International. The fees, beyond the initial "non-refundable development fee", were related solely to the number of franchises granted by Jireh International and the volume of sales achieved by the franchised stores. If, in a particular period, GJGCFC, acting under article 4.C of the master franchise agreement, had furnished to Jireh International vast quantities of written materials and made fifty of its personnel available full-time "to communicate the System", the amount payable by Jireh International to GJGCFC would have been the same as if no written materials and no personnel had been made available. In short, it is not possible to point to any part of the financial arrangement between the parties as involving a money consideration (or price) for any services provided by GJGCFC to Jireh International 101 Third, there is a factual problem with the argument of the defendant that, during the relation-back perid, GJGCFC was benefiting Jireh International by enhancing and updating the system. Mr Laverty's evidence, on examination, does not identify anything specific or tangible that GJGCFC actually did to confer benefit on Jireh International. It is concerned with no more than high level generalities. There is no reference to any identified benefit accruing to Jireh International, whether in the relation-back period or at all. 102 The same is true of other similar matters upon which the defendant relies. Mr Laverty said that, although during his time there were no conferences arranged for international master franchisees (see article 4.B of the master franchise agreement), there were conferences for United States franchisees and international franchisees "were invited to attend if they wished"; and that this applied to Australia. But it is not shown that any such invitation was extended to Jireh International within the relevant period. 103 Fourth, whatever (if anything) may have been done by GJGCFC within the relevant period to preserve the brand was done for its own purposes of maximising the possibilities that franchises would be attractive and returns to it under the master franchise agreement by way of store opening fees (article 7.B) and continuing fees (article 7.C) would be increased. 104 Fifth, the evidence makes it clear that, by December 2003 (the start of the relation-back period), Jireh International's expertise had developed to a point where it was well able to conduct its operations without any assistance or support from GJGCFC. Indeed, the skills of Jireh International had become superior to those of GJGCFC. It had no need of services from GJGCFC during that period. 105 I do not accept that the first argument makes good the proposition that, during the period of 12 months preceding 5 December 2004, GJGCFC sold services to Jireh International and those services were provided in New South Wales to Jireh International. The second possibility 106 The defendant's contention that, within relation-back period, GJGCFC sold services to Jireh International and that those services were provided in New South Wales is next put on a broader footing that has regard to the fundamental nature of the master franchise agreement. 107 By article 3.A, GJGCFC granted to Jireh International "the Development Rights during the Development Term". As a result, Jireh International enjoyed, as a matter of contract as against GJGCFC, the particular "right" referred to in the definition of "Development Rights" (see paragraph [32] above) so the enjoyment of that right continued "during" the period referred to in the definition of "Development Term" (see again paragraph [32] above). The "right" so granted is supported or made more secure by a promise by GJGCFC not to operate or grant other franchises for the Development Area "during" the Development Term. 108 The plaintiff sees this part of the contract as entailing the creation of a right once and for all at the time of the making of the contract. The defendant's characterisation is to the effect that the grantee of the so-called right is a continuing recipient of on-going performance by the grantor in the form of the grantor's desisting from itself operating or giving others the right to operate within the area during the period, with the grantor liable to restraint by injunction should it attempt to do otherwise. That, it is said, constitutes the provision of services. 109 I do not accept the defendant's characterisation. By granting the "Development Rights", GJGCFC put Jireh International into a position where it could itself use the intellectual property and "the System" and turn them to account by granting franchises to third parties. Jireh International's position was analogous with that of the hirer of photocopying machines in the Xerox of Canada case (above) or the hirer of construction equipment in The Clarkson Co Ltd v ACE Lumber Ltd (above). The owner of the property put at the disposal of the hirer thereby enabled to exploit it did not, by continuing to honour the contractual duty to allow the property to be available to that hirer, render services to that hirer. 110 There is also the point that no price can be identified in relation to any particular benefit said to represent "services", with the result that an element essential to any finding of "sale" of services is lacking. Sale of goods? 111 Four invoices relating to sales of goods during the relation-back period were put into evidence. It is the contention of the defendant that these warrant the conclusion that a sale of goods was, within the period, made to a New South Wales customer of the relevant business. 112 The first invoice is dated 19 December 2003. It relates to 20 cases of plastic espresso cups and is addressed to Jireh International. The invoiced amount is $1,017.60. The terms of the invoice include: "Ship via air". The issuer of the invoice is shown as "Diedrich/Gloria Jean's Coffees" and a single address in Castroville, California is stated. The Gloria Jean's and Diedrich logos are both included. At the foot appears: "Remittance to: Diedrich Coffee 11480 Commercial Parkway Castroville CA 95011" 113 The second invoice is dated 10 February 2004. It relates to espresso cups and cup hole punchers. It is addressed to Maranatha Import Export Pty Ltd and is in the sum of $1,483.87. The basis of consignment is stated to be "FOB Shipping Point". The letterhead on which the invoice appears is unusual. On the left appears "Diedrich Coffee" and the Diedrich logo. On the right appears "Gloria Jean's Gourmet Coffees" and the Gloria Jean's logo. 114 The third invoice is dated 20 February 2004 and relates to 2,645.520 pounds of "Brazil Cup of Excellence" which, it is accepted, is green coffee. The invoice is addressed to Maranatha Import Export Pty Ltd. The invoiced amount is $5,661.41. The basis of consignment is stated to be "FOB Shipping Point: Oakland". The letterhead is in the same form as for the second invoice. 115 The fourth invoice is dated 31 March 2004 and relates to 600 pounds of "Kona", which is also green coffee. The invoice is addressed to Maranatha Export Import Pty Ltd. The invoiced amount is $5,460.00. The basis of consignment is "FOB Shipping Point: Oakland". The letterhead is the same as that used in the second and third cases. 116 Mr Eldred, the general manager of Maranatha, gave evidence. As I have said, that company is associated with Jireh International. The companies are under common ownership. Maranatha was the sub-licensee of Jireh International under the roasting licence agreement dated 6 March 1996 (see paragraphs [41] and [59] above). Maranatha's business entailed preparation of coffee products (principally roasting and flavouring) and supply of those products to franchisees holding franchises granted by Jireh International under the master franchise agreement. 117 Mr Eldred explained that the second invoice (the invoice for $1,483,87 issued to Maranatha) was wrongly addressed. It was, he said, intended for "Jireh or JIWD" (that is, Jireh International or its associated company, Jireh International Warehouse Distribution Pty Ltd). The goods sold did not pertain to Maranatha's business. They were items useful to Jireh International's franchisees who actually operated coffee shops. Mr Eldred further explained that Maranatha had paid the $1,483.87 to GJGCC as part of a larger remittance covering goods properly supplied to Maranatha. Although he could not be precise, it was his view that Maranatha would later have recovered this sum from "one of the Gloria Jean's companies in Australia". He did not say which one. 118 Mr Eldred's evidence also makes it clear that the third and fourth invoices were properly directed to Maranatha and related to coffee products relevant to Maranatha's business. Given my finding that Maranatha was not a "customer of the business" for the purposes of s 8(1)(g)(i) (see paragraph [59] above), these sales made clearly and uncontroversially to Maranatha may be ignored. 119 The possibility that the sale under the first or second invoice was a sale to a "customer of the business" must, however, be pursued since Jireh International is the only identified "customer of the business" and the first invoice, on its face, relates to a sale to Jireh International and the second invoice, on Mr Eldred's evidence, relates to a sale to "Jireh or JIWH". 120 I deal first with the sale under the second invoice relating to cup hole punchers and espresso cups invoiced at $1,483.87. It is relevant to note that the sale was "FOB Shipping Point" and, although the shipping point is not nominated, it is clear that it was in the United States. One of the ordinary incidents of a sale of goods FOB is that delivery prima facie occurs when the goods are placed on board for shipment. Property will normally pass at the same point. At that point, goods are clearly appropriated to the contract and committed by the seller to it. There is nothing in the facts of this case to suggest that the parties intended anything other than these normal incidents of an FOB contract. 121 On this basis, property in and delivery of the goods the subject of the second invoice may be taken to have occurred in the United States. It follows that, if the sale under the second invoice was a sale to Jireh International, the circumstance that the goods were delivered outside New South Wales is sufficient to produce the result that the sale was not a sale of the kind described in s 8(1)(g)(i) (the territorial connector in s 28(5)(a) being absent). 122 I turn, therefore, to the first invoice in which Jireh International is clearly identified as the buyer. For that sale of plastic espresso cups to be within s 11(1)(g)(i), it must be found that the sale was a sale by the proprietor of the relevant business to a customer of the business. I have identified the relevant business as the business of owning, enjoying, exploiting and turning to account the intellectual property and contractual rights referred to in the second recital to the 2004 sale agreement. The owners of the intellectual property and contractual rights were there identified as "Seller", that is, GJGCC and GJGCFC. They were therefore the proprietors of the business. 123 Two questions then arise for consideration. The first is whether it was within the scope of the business, thus delineated, for GJGCC and GJGCFC (or one of them) to sell coffee cups. 124 In my opinion, it was not. The business of ownership, enjoyment, exploitation and turning to account by the intellectual property and contractual rights referred to in the second recital entailed deriving returns from the brand and the system by means of the grant of franchises. The selling of cups did not form part of any exploitation or turning to account of the property in question – a process that entailed granting of franchises. If made by GJGCC or GJGCFC, the sale was, in the particular context, of the same character as the postulated sale of the second-hand car at paragraph [62] above. (This point, I should add, applies also to the sale under the second invoice and is another reason for finding that it is, for present purposes, irrelevant). 125 The second question in relation to the first invoice is whether the sale of the cups was, in any event, made by the proprietor of the business, that is, GJGCC and GJGCFC or one of them. The heading on the invoice is described above. It is ambiguous as to the identity of the seller or issuer of the invoice. The name at the top is "Diedrich/Gloria Jean's Coffees". Both logos appear. But at the foot, as I have described, is an instruction to remit payment to Diedrich Coffee. This is, in my opinion, a sufficient indication that it was Diedrich, rather than GJGCC or GJGCFC, that sold the goods. 126 The sale of goods the subject of the invoice dated 19 December 2003 was not a sale to a customer of the business to which the 2004 sale agreement related. Conclusion 127 The plaintiffs have discharged the onus of establishing that there did not occur, within the relation-back period, any sale of goods or services of the kind referred to in s 11(1)(g)(i) of the Duties Act. 128 The court will therefore make the orders sought by the plaintiffs in their summons. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.