Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue

[2009] HCATrans 76

[2009] HCATrans 076

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Darwin  No D2 of 2009

B e t w e e n -

ALCAN (NT) ALUMINA PTY LTD

Applicant

and

COMMISSIONER OF TERRITORY REVENUE

Respondent

Office of the Registry
  Darwin  No D3 of 2009

B e t w e e n -

COMMISSIONER OF TERRITORY REVENUE

Applicant

and

ALCAN (NT) ALUMINA PTY LTD

Respondent

Applications for special leave to appeal

HAYNE J
CRENNAN J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON FRIDAY, 1 MAY 2009, AT 10.22 AM

Copyright in the High Court of Australia

__________________

MR D.J.S. JACKSON, QC:   May it please the Court, I appear with my learned friend, MR P.G. BICKFORD, for the applicant in the first matter and the respondent in the second.  (instructed by Clayton Utz Lawyers)

MR A.H. SLATER, QC:   If it please the Court, I appear with my friend, MR T.W. ANDERSON, for the respondent in the first and the applicant in the second of those matters.  (instructed by Solicitor for the Northern Territory)

HAYNE J:   Is there any reason not to call the matters together, though I think there will have to be a bit of sequential treatment?

MR JACKSON:   No, your Honour.

HAYNE J:   Yes.  Well, Mr Jackson, perhaps if we hear from you first in support of your application.

MR JACKSON:   Your Honours, may we start at page 186 of the application book in the second matter in paragraph 1 of our summary of argument where we set out three questions of law an appeal in the case will decide.  For today’s purposes might we invite your Honours to focus on the question in paragraph 1(b) and we will address that one.

Our opponents submit that the issue we have nominated as the special leave question concerns only the interpretation of a provision of a repealed statute which has no equivalent in any current statute.  We accept at the outset that the proper meaning of the word “land’ in either section 56N or section 56R of the Taxation Administration Act is not itself a question of law of general importance; a question of law, of course, yes, but not of general importance.  In our submission, the special leave question which will arise in deciding an appeal is nevertheless a question of law of general importance as to the law of statutory interpretation even though the proper meaning of the section itself is not.

Could we, by reference to paragraph (b), identify two aspects of the question, your Honours.  The first is whether it is possible or relevant to discern a general statutory purpose to increase the revenue and the second part of it is whether regard should be had to the principle that a construction which imposes a tax should appear from clear and unambiguous language.

HAYNE J:   Where do we most conveniently find in the judgments of the Court of Appeal what you say is the commission of the error of which you are presently complaining?

MR JACKSON:   For present purposes, taking that question in two parts, if we could take the first part.  In paragraph [76] of page 144 of the application book your Honours will see that in the conclusion the Chief Justice articulates that:

the legislature has consistently increased its capacity to raise revenue by closing off avoidance practices and increasing the range of transactions attracting duty.

That was one place and, importantly, we start there because it was the conclusion.

CRENNAN J:   Is that to be seen as the identification of a mischief?

MR JACKSON:   Not the mischief if one is distinguishing between mischief and purpose for the purpose of the present case.  In the present case one would look at the mischief of Division 8A, and we will come to that in a while.  The purpose which his Honour is trying to identify is in deciding whether or not the exclusion in the definition applies in the sections in question is articulated at the highest level, which is to increase the revenue, and we would submit that that is a purpose which has no real meaning and is irrelevant.

HAYNE J:   It seemed to me that the point of which you were complaining centred around paragraph [66], page 139, line 33 or 34. “In my opinion, it is highly unlikely”.  Now ‑ ‑ ‑

MR JACKSON:   Yes, that is one of them, your Honour.  If we could take you to page 191, there are actually six or seven of them that we have identified in paragraph 21 of our summary of argument, so paragraph (d) in our paragraph 21 is the one your Honour Justice Hayne has just identified, but they start in paragraph [41] and they end in paragraph [76] which is where I just started with your Honours.  The point is that all the way through his Honour is testing the legislation to see at the highest level whether or not there is an intention to increase the revenue.  Our submission is that that is not for the purposes of interpretation or construction of a statute a relevant way of proceeding.

HAYNE J:   Does the court go so far or does the Chief Justice go so far as to discern a contrary intention for the purposes of application of the definition only from this legislation is revenue producing and presumably is intended to produce greater rather than less revenue?

MR JACKSON:   No, your Honour.  He identifies, to be fair to him, other aspects of the historical analysis of the legislation which he says support the view that it would not have been intended.  They are, though, we submit on analysis, all themselves things which are either erroneous or irrelevant and which at the end of the day leave the field fairly bare, hence, we would submit as a matter of also fairness to his Honour, the attempt to find something more, which is what the passages we have identified in paragraph 21 of the summary of argument shows.

HAYNE J:   Is this the central hinge about which your argument turns for leave?

MR JACKSON:   It is the first part of a two‑part central hinge.  The second part is that since Cooper Brookes, which our learned friends would rely upon, in about 1980, there has been no decision of this Court which deals with the status or the lack of status of earlier decisions of this Court, particularly Anderson’s Case, in which the statement of principle was made in the joint judgment that clear and unambiguous language is required in order to tax.

HAYNE J:   That proposition, baldly stated, presents some problems with the 1997 Income Tax Act, I would have thought, generally, but there we are.

MR JACKSON:   Quite, your Honour, but the thing about the 1997 Act, if one wants to look at that, is it has a series of provisions which state its purpose.

HAYNE J:   Yes.

MR JACKSON:   This is a classic Stamp Duty Act of the kind that really was in play when the statements of principles, such as those which led to Anderson’s Case which synthesised a number of earlier statements of principle out of cases in the House of Lords, were made.  The thing about this principle – and we do not contend that it is a first step.  It is important for us to mention to your Honours that is not what we say at all – rather, what happens is this. 

We say in the context of a statute like this where it is not all that clear what the answer should be from the text, if you are trying to see whether there is a contrary indication, there is nothing textually which tells you there is.  There is nothing much contextually, either, which tells you that.  We will come to our submissions about the context in a while.  Rather, you are left with a fairly clear field.  In that context we wish to submit on appeal that the presumption, as it was once called, or the principle – we will call it their intention principle, if we may, for simplicity – which once was applied still has a role to play much in the same way as in the sphere of penal statutes, notwithstanding the downplaying of the once principle that they should be strictly construed in favour of the accused, there is still, as a rule of last resort, a role for that principle to play.

CRENNAN J:   I suppose what is said against you is that there are many contemporary statements where looking at context and looking at historical considerations are appropriate approaches in the context that the language may not be clear.

MR JACKSON:   Yes.

CRENNAN J:   In other words, are contending for a principle of statutory constructing for Taxing Acts which somehow does not involve looking at context and historical considerations because of their special nature?

MR JACKSON:   No, your Honour, what we are saying in effect is that when you get to the process, and one goes through the ordinary process in the same way as now applies in penal statutes, when you get to the end, if it is not clear, there is still a role for the principle or the requirement of plain language or the clear intention principle to play.  In other words, there is still a setting which leaves a balance in favour of, in this case, the taxpayer; in the case of penal statutes, the accused.

HAYNE J:   Do you accept that the water is muddy in this statute or not?

MR JACKSON:   In this statute?

HAYNE J:   Yes.

MR JACKSON:   No.  We submit that the language is clear.  It is those who seek to not apply it who struggle, in our submission, to find reasons in the context or in principle.

HAYNE J:   I had thought that was the premise of your argument.  I was just not quite certain that that was so.

MR JACKSON:   To illustrate what we have just been discussing, your Honours, could I take you to page 198 of the application book.  This is how our opponents deal with the question of the role, if any, which could be played by the principle of clear intention.  Our learned friends describe it as being a restrictive rule that is passed into history and they refer in footnote 8 to two things.  One is some statutory material, particularly your Honours will see the Northern Territory equivalent of section 15AA – and we will come to a passage about that in a moment.  Secondly, to half a dozen, perhaps there are eight, cases I think. 

What is interesting about reading those cases is that none of them refers to this principle, none of them deals with it.  It lies in limbo.  That is, in our respectful submission, made also clear by a couple of other cases to which we had referred to in our reply which your Honours will see at page 203.  We there mention in footnote 4 three decisions of the Federal Court, as recently as the last year, in which the principle in which we say still has some role to play has been referred to. 

So if, as our learned friends say, it has long passed into history, it is something that has happened in the night silently and, in our submission, this case is one of an unusual kind because, given the lack of other indications in the text or the context of the statute, it is a case in which the principle may have, even as a rule of last resort, some role to play.  We relied on it in the Court of Appeal and their Honours did not even mention it.  Instead what we received in the reasons were the factors that were identified as showing the intention is to increase the tax or to decrease the revenue. 

Could we come back to two things.  One is that general idea again of an intention to increase the revenue and, secondly, the reference in footnote 8 on page 189 of the application book by our learned friends to section 15AA.  About that we would rely on a statement which was made by Chief Justice Gleeson in this Court in 2007 in Carr v Western Australia.  It is number 6 on our list of authorities.  It should be behind tab 6 of the bundle of authorities.  This case did not concern a Taxing Act at all and the Chief Justice’s reasoning in paragraph 6 on which we rely at page 143 by analogy.  But what he said was this:

it may be said that the underlying purpose of an Income Tax Assessment Act is to raise revenue for the government.  No one would seriously suggest that s 15AA of the Acts Interpretation Act has the result that all federal income tax legislation is to be construed so as to advance that purpose.  Interpretation of income tax legislation commonly raises questions as to how far the legislation goes in pursuit of the purpose of raising revenue. 

Bringing that back to the current context, the problem in this case is that the two vital sections, section 56N and section 56R both use the word “land”.  The question is whether the definitional provision applies to that.  We would submit, relying on conventional statements as to the way in which definitions are to be utilised, including the statement which is extracted by our learned friends from Justice McHugh’s reasons in Allianz Australia, we would rely on the proposition that the true purpose of the interpretation or definition clause is that it shortens but is part of the text of the subsequent enactment to which it applies.  Here, what you would do is apply the definition so that the word “land” in the two sections is read as if they were set out mutatis mutandis.  It would read in place of the word “land”, “land, including a lease of land and a lease granted under an Act but not including an option to renew a lease”.

There is no violence that is created by simply doing that.  So what happens, as our learned friends urge, well, definitions have some particular problem in terms of statutory construction.  Our submission is they do not.  The question is whether in the context of the legislation, applying the definition regularly, there is something to be seen which shows the contrary intention appears, it was not to apply. 

Could we, for that purpose, your Honours, move to the second part of our submissions because we accept that in considering whether this case is an appropriate vehicle we would have to show that the result arrived at by the Court of Appeal was wrong.  For that purpose, because there is not in the time available enough time to take you through all the provisions, could we take you to one conclusion in the reasons which was vital to the process of reasoning in the Chief Justice’s reasons at page 128, paragraph [45].  What his Honour there concluded was that the definition of “lease” which picks up the exclusion of an option to renew did not apply to the conveyance of a lease. 

To make sense of that, can we suggest to your Honours that there are a number of assumptions that you need to make about the way Division 8A applies, which contains the sections in question.  The first is that the mischief of which Division 8A was aimed was avoidance of stamp duty which would have been payable on a conveyance of land in the territory which instead would be dealt with by an indirect transfer through the transfer of shares in a corporation holding the interest. 

The second assumption is that the remedy for the mischief was to provide for what was in substance a two‑part trigger mechanism to identify which transactions by way of transfer of shares should attract stamp duty at the conveyance rate or the land transaction rate.  The first part of the trigger was to identify which corporations held enough land to attract the duty.  They are commonly called “land rich corporations”.  The second part of the trigger was to identify what extent of shareholding in the corporation would have to be transferred before attracting the conveyance at the land rate. 

The third assumption is that the amount of duty on the relevant transaction which became payable was itself assessed as a two‑part mechanism.  The first part is that the land of the corporation is valued to enable calculation of the duty using the conveyance rate.  The second part is that the acquirer of the shares becomes liable to pay that proportion of the amount of conveyance on land duty which the shares acquired represent as a proportion of the overall shareholding of the company. 

That is unfortunately a bit long‑winded.  I do not have time to take you through the sections.  But if you bring those points together, the conclusion overall is that the scheme of Division 8A and the purpose of it when it applies is to make the person who pays the duty liable as if they had acquired by way of conveyance their proportionate interest in the land which their shareholding in the corporation represents.  The amount of duty thereby recovered is not more than would be payable if the land or the proportion of interest in the land was conveyed. 

That brings us back to paragraph [45] at page 128.  The reason why his Honour, rightly, we would submit, looked at the legislation from the beginning was to test whether if there had been a conveyance by way of assignment of a lease that would have been dutiable in a way that included or excluded the option to renew, according to the definition of “lease”.  He concluded that the conveyance by way of assignments would not have excluded the option as part of the dutiable property.  If he is right in that, the conclusion in the case arrived at by the Court of Appeal would be right,

because consistently that is the way we accept one would interpret the legislation.  But he was not and he was not right about that because of the clear language of the sections which he was looking at.  Can we take your Honours to those sections.  Page 120 is where the definitions are set out ‑ ‑ ‑

HAYNE J:   Does it not, in the end, this point come down to the same point, namely, the Act is clear, where is the contrary intention?

MR JACKSON:   Yes.

HAYNE J:   A point is either good or bad at this level as it is good or bad at the level at which you contend, is it not?

MR JACKSON:   Yes, your Honour, but the only point which effectively I am trying to address here is the proposition that, irrespective of whether the special leave question which we submit is identified and is a question of law of general importance is raised, is this an appropriate vehicle and we submit it is.

HAYNE J:   I understand that, yes.  Thank you, Mr Jackson.  Yes, Mr Slater.  Mr Slater, if we could hear you first please in answer to Mr Jackson’s application, then, when you are complete with that, if we can hear you in support of your side’s application.  Is that a convenient course to follow?

MR SLATER:  If your Honours please, it is, your Honour.

HAYNE J:   Yes, Mr Slater.

MR SLATER:   Your Honours, on the company’s application there are, in our submission, four positive reasons why special leave should be refused.  The first of those is that the unanimous decision of the Court of Appeal on the construction point is, in our submission, correct and not arguably incorrect.  The second, which is not contested, is that the decision appealed from concerns a repealed statute and a definition provision and one which does not arise elsewhere.

The third is that the statute in question is a tax statute and the general approach in this Court is that questions of construction of tax statutes are a matter in which the intermediate court is the final court of appeal, and your Honours will recall that has been said on many occasions, perhaps more forcefully by Justices McHugh and Kirby than by others, but ‑ ‑ ‑

HAYNE J:   Justice McHugh would say that these questions are all questions of fact.

MR SLATER:   Perhaps, your Honour.  We have had that debate before.

HAYNE J:   Yes.

MR SLATER:   The final positive reason why, in our submission, special leave ought not to be granted is that the principles to be applied are well‑established by various decisions of this Court, many decisions, in fact, over the past five or 10 years, and nothing in this case raises any new issue of significance.

The applicant’s case for special leave is not put on the basis that the conclusion of the Court of Appeal is so wrong as to justify the grant of special leave.  It is simply put on the premise that, as my friend put it, there is to be discerned in the reasons of the court below a reliance upon a general purpose of increasing revenue – may I say briefly in respect of that that we contest that that is to be discerned from the reasons – and, second, a reliance upon the passage from the judgment in Anderson and perhaps, more recently, the adoption of that by Justice Deane in Hepples.

CRENNAN J:   There is a reliance on plain meaning.

MR SLATER:   Yes, your Honour, there is a reliance on plain meaning up to a point, but the plain meaning of the words “unless the contrary intention appears” is not addressed in our friend’s submissions to any great extent.

HAYNE J:   But you have to say, do you not, that there is a contrary intention?

MR SLATER:   Yes, your Honour.

HAYNE J:   And what is the contrary intention based on if it is not based on the proposition this is a Tax Act designed to maximise revenue?  I am putting it neutrally, Mr Slater.

MR SLATER:   Yes.  I would hate to be on the wrong end if one was not neutral, your Honour.  It is based upon this, your Honour, that the reference in the definition to at least not including an option is one the manifest purpose of which at the time of its enactment was to exclude from the charge to duty upon the grant of a lease an amount calculated by reference to the term “subject and option”.

The way in which it becomes relevant to the present dispute, which has nothing to do with the grant of a lease but rather to do with the transfer of shares or the indirect transfer of an estate by way of leasehold, is the product of a series of amendments over an extended period of time.  It is the interaction of those amendments.  It is not a consequence of a coherent scheme enacted by a single amending Act, the provisions to which it is now sought to apply the definition in section 4 is to bring to tax the value of the estate in land which is passed from one party to another either directly, as in a conveyance, or indirectly by this mechanism.

There is no contest between the parties that the value of a leasehold estate in ordinary terms includes the value of the option.  The Shell Case established that many years ago and there is no real contest about it, nor could there be.  So that it is only if the quirk of the process of amendments which causes the interaction upon which reliance is placed is taken without regard to the circumstances in which that interaction finally reached the form that it presently has that it can be said that plain words lead you to where it is. 

This Court has repeatedly said that in the construction of statutes one starts with context and purpose.  I grant that the Court has also repeatedly said in other contexts that one starts with the plain words and then looks at the context and purpose.  There is not, in our submission, any real difference between those.  One does have to look at context and purpose and, in our submission, a provision which was directed to relief from lease duty in its original form does not, as a matter of plain language, apply to a transfer of an estate as leaseholder which is enhanced in value because the estate carries with it an option to extend the term.

HAYNE J:   Could I just understand that better than I do.  In what circumstance under the Act is the exclusion of an option to renew a lease engaged or relevant?

MR SLATER:   It is engaged or relevant to the provisions which impose duty upon the grant of a lease by reference to the rent reserve during the term.

HAYNE J:   So only duty on grant but not, you say, duty as on conveyance, not, you say, for duty as on – the expression is unfortunate – deemed conveyance of land rich company, but we understand each other.

MR SLATER:   Yes, your Honour.

HAYNE J:   Is that the frame of the argument?

MR SLATER:   That is the frame of the argument because when one conveys a leasehold estate, one simply conveys it with all the advantages.  One conveys the leasehold estate.  The estate carries with it as an inherent part of it all the advantages resulting from the grant of the lease.  One of those advantages is the option to renew which is not a separate and distinct item of property; it is just a benefit of being the leaseholder.  That is why, in our submission, what the Chief Justice said at paragraph [45] on page 128 is manifestly correct.

HAYNE J:   That points to where the joinder of issue lies in this respect, does it?  But is there more to this joinder of issue than that?  You say have regard to the successive amendments and the fact that you are not dealing with a single piece of legislation, what other aspects bear on this question of whether there is a contrary intention shown?

MR SLATER:   None that is of sufficient significance to address in the limited time I have today, your Honour.  But the point about all of that, your Honour, is that none of that is a matter which goes to either of the points of general significance which my friend relies upon as a basis for the grant of special leave.

HAYNE J:   How much duty is at stake in this matter?

MR SLATER:   I think the total amount at stake, your Honour – and I stand to be corrected by my friend – is about $60 million.

HAYNE J:   Sixty?

MR SLATER:   It is about $60 million.  Which falls below the materiality threshold for my friend, but not for my client.

HAYNE J:   Yes.

MR SLATER:   Your Honour, can I pass from that to deal with the course taken by the Court of Appeal.  I think I have covered this to some extent already but we respectfully say that the course taken by the Chief Justice is correct.  The Chief Justice generally stated correctly the general principles, and that is at page 117 of the application book.  I will not take your Honours to it.  He then set out to explore the existing state of the law and the mischief which the statute was intended to remedy.

I have made to your Honours the point that the present state of the law is a product of the series of amendments which finally interact with each other to produce the position as it now stands.  The significance of that is that what his Honour did was to go through each of those amendments and address the purpose of those amendments and the context in which they were made and how they came to interact.  It was in that context that his Honour made the observations which our friends complain of about increasing or not decreasing revenue.

Those observations are not observations about the overall or any overarching purpose of the stamp duties legislation.  They are about the reasons why particular amendments were made and it is a reasonable, in our submission, consideration for the court to take into account in considering amendments, most of which were of an anti‑avoidance character, to take into account the anti‑avoidance purpose of them and to discount a suggestion that the purpose of the legislation was to reduce the incidence of tax.

It is in that context that his Honour made the observations that he did, not in the sort of context that Chief Justice Gleeson was talking about in Carr’s Case where he said of the act as a whole that one can discern no greater purpose than that it is an Act to impose tax.  This is not a case of taking the Act as a whole.  It is a case of taking the individual provisions. 

As to the Anderson’s Case principle, the reason why there has not been any judicial consideration of it other than relatively passing references, often unsuccessful, in the third of the cases referred to by my friends I was the counsel who unsuccessfully sought to press the Anderson’s Case upon the court.  The reason why it has generally been unsuccessful is that there is now a clear statement both by the legislature and by the courts ‑ perhaps anticipatory of the legislature ‑ that the purpose and context are relevant and purpose and context include extrinsic materials.  It is for that reason that there has not been and there is not now an occasion to revisit the 19th century approach to tax statutes which is to be found in its final flourish in Anderson’s Case.  We would respectfully submit that that is not a matter which warrants the grant of special leave. 

HAYNE J:   Do you say that this is a Cooper Brookes case, that is, that literal application of the Act?

MR SLATER:   No, your Honour.

HAYNE J:   No, you do not.

MR SLATER:   I have not put it that way.  It may be, if the matter were fully argued, that that would be the conclusion one would reach, but I have not relied upon that as the basis of it.

HAYNE J:   Yes, I understand.

CRENNAN J:   What about a problem which was not addressed in oral submissions but raised in written submissions identified, that is, that a person who has not appreciated the meaning as now found in the Court of Appeal but has relied on the literal meaning or would so argue, if that person fails to lodge a statement, the person will be guilty of an offence?

MR SLATER:   We would respectfully submit not.  The point was raised in a very indirect fashion.  We responded to it in an equally indirect fashion by way of reference in a footnote.  The relevant materials are not before the court but they are the familiar provisions – I am being presumptuous by assuming ‑ ‑ ‑

CRENNAN J:   It is an important point in the context of Anderson’s Case. 

MR SLATER:   No, not in the context of Anderson’s Case, your Honour, because Anderson’s Case simply goes to the construction and the imposition of the liability tax.  If there were a prosecution ‑ ‑ ‑

CRENNAN J:   Well, put it in another way, it is important in the context of a literal meaning argument.

MR SLATER: If that was so, your Honour, the point would run far beyond tax statutes to every statute in which a penalty provision was included, including the Corporations Law, the Trade Practices Act, the Milk Vendors Act and everything else.

CRENNAN J:   It is not a Cooper Brookes situation so there is not an obvious slip by the draftsman despite a literal meaning situation.  It seems to me a point of some significance.

MR SLATER:   We would respectfully say not because if a prosecution were to be mounted or a fine were to be imposed on the basis that there had been a failure to comply because a view was taken of the law which was contrary to that adopted by the Court of Appeal, it would be, in our respectful submission, manifestly the case that the defendant could say that the position it adopted was one which he had an honest claim to assert.  One could hardly dispute that in the light of the decision of the trial judge.

Our friends say that the honest claim of right only applies to offences in relation to property but this is a case where the offence is in relation to property because there is a clearly sufficient connection between the transfer of property and the imposition of the offence.  The idea that one could be prosecuted for failing to file a statement in accordance with a decision which reversed a previous decision of the court is one which, in our respectful submission, is far stretched to say the least.  That provision is there to deal with the egregious case of evasion rather than a case where there is a genuine dispute about construction.  If your Honours please.  I do not think there is anything more I can say about that.

HAYNE J:   Is it convenient now to go to your application, Mr Slater?

MR SLATER:   It is, your Honour.  Yes.  I do not think that there is anything more I could usefully say to your Honours about the company’s application so I will turn to our application.  For that purpose, can I ask your Honours to turn to a different application book, although the materials are, in effect, the same, except for the outlines of argument. 

Could I start by asking your Honours to go to the order made at page 147 of the second application book, which is D3.  Your Honours will see that the order of the court was that the matter be remitted to the trial judge “for further hearing and determination in accordance with the reasons of the Court”.  In order to comply with that order, it is necessary to identify the reasons.  The reasons of Justice Southwood are conveniently found on the preceding page, at page 145 in paragraph [143].  In the last sentence his Honour says:

In my opinion the grounds pleaded in the notice of cross contention are made out and the value of goodwill should be determined in accordance with the principles enunciated in para [137] above.

I then take your Honours to [137] and the relevant passage is on page 142 of the application book at the top of the page where his Honour says:

When a business is profitable and expected to continue to be profitable, the value of goodwill may be measured by adopting the conventional accounting approach of finding the difference between the present value of the predicted earnings of the business and the fair value of the identifiable net assets.  In a profitable business the value of the goodwill for legal and accounting purposes will often be identical.

There are two things we want to say about that.  I will come back to the second one, which is the emphasis on “profitable” in that passage, and deal for the moment with the first, which is the method of calculation which is the method which, taken together, paragraphs [143] and [137], is the course which the trial judge is now directed to adopt, that is, to take the present value of the predicted earnings and deduct the fair value of the identifiable assets. 

Now, Justice Angel, at page 133 of the application book, takes a similar approach, so that there seems little doubt as to what it is that the trial judge is now mandated to do.  At paragraph [117] in the second sentence his Honour says:

I am unable to discern any reason to depart from “the conventional accounting approach” in the circumstances of this case.

It is clear that that is what his Honour is concerned with because in paragraph [119] his Honour says, “For these reasons the matter should be remitted”.  Now, the conventional accounting approach which his Honour refers to in that sentence is one which is drawn from the first sentence of the passage in the judgment of this Court in Murry’s Case 193 CLR 605 at page 624 which is set out in paragraph 49:

When a business is profitable and expected to continue to be profitable, its value may be measured by adopting the conventional accounting approach of finding the difference between the present value of the predicted earnings of the business and the fair value of its identifiable net assets.

That is pretty much the wording which Justice Southwood had adopted.  There are, in our submission, two fundamental errors in the reasons which the trial judge is now directed to have regard to.  I will come back to the second of those in a moment.  The first is specific to this statute and to this case and it is that, in our respectful submission, the majority has mistaken the statutory command of the legislation.  The legislation does not command a valuation of goodwill.  The legislation commands a valuation of land and a comparison of the valuation of land with the value of total assets.  Your Honours will see that on page 77 of the application book where the text of the legislation is set out.  The relevant text is just above line 10, subsection (2):

A corporation is a land‑holder for the purposes of this Division if, at the time of a relevant acquisition –

And the requirement in paragraph (a) is not in issue.  The requirement in paragraph (b) is that:

the value of all land to which the corporation is entitled . . . is 60% or more of the value of all property –

The point is that what the legislation is concerned with is the value of land, not the value of goodwill.  Goodwill does not feature anywhere in Division 8A.

HAYNE J:   If Alcan is right in its submissions about what land is, is there any remaining question tendered about goodwill, value of land or the like?

MR SLATER:   No.

HAYNE J:   So, if Alcan is right, this problem falls away, does it?

MR SLATER:   Yes, your Honour.  There was an issue which was agitated in the second set of reasons which appears in the application book to which neither of us have taken your Honours about what the valuation was if the construction adopted by the trial judge of the legislation were correct.  That issue is no longer in contest.  It was not in contest before the Court of Appeal.  The consequence of adopting the trial judge’s interpretation of the legislation is that the value of the leasehold falls well below the 60 per cent level.

HAYNE J:   But if Alcan is wrong?

MR SLATER:   If the value of the leasehold is ascertained by reference to the advantage accruing by reason of the option, then the goodwill issue ‑ ‑ ‑

HAYNE J:   Then what is the point of determining the value of goodwill at all?

MR SLATER:   Can I endeavour to explain that, your Honour, now? 

HAYNE J:   Please.

MR SLATER:  I was about to say why is the Court of Appeal concerned with goodwill. The reason for that is that the value of all the property of the company which is referred to in the last two lines of paragraph (b) was not materially in issue between the parties. It was put at about $760 million. Your Honours will find a reference to that – I will not take your Honours to it now – at page 26 of the application book in paragraph 98 of the first judgment at first instance 208 FLR 158. So that was not at issue. The value of the identified non‑land assets – putting aside goodwill for the moment – was also not in issue by the time the matter reached the Court of Appeal, and that was an amount of $67 million for cash and stock‑in‑trade and an amount of $31 million for intellectual property. Your Honours will find those numbers ‑ ‑ ‑

HAYNE J:   Sorry, $31 million for?

MR SLATER:   For intellectual property.  Perhaps I should just take your Honours to it so that your Honours can get a visual impression of it.  Could I take your Honours to page 26 of the application book.  At paragraph 99 your Honours will see the $67 million in the little table there and two lines further down:

$31m for intellectual property and “know how”, resulting in a total of $98m. 

So when one deducts the 98 from the 760, one gets to the figure which appears a couple of lines lower down in the right‑hand margin of $663 million.  So, if the items which add up to $98 million were the only non‑land assets of the company, then one could conclude by deduction that the value of the land was $663 million and the 60 per cent threshold is past.  The contention which was advanced by the company at trial was that there were other assets of an intangible nature.  But it is important to understand that the intangible assets which were relied upon were not goodwill in the sense adverted to by the Court in Murry’s Case. that is, they were not goodwill which arose by reason of the attraction of custom to the business carried on by the company Gove Aluminium Ltd.

I will come back to that in a moment, but the reason why I said that the order of the court is one founded on reasons which make compliance with it virtually impossible is that what the court said was, you are to determine the value of goodwill, in effect, by deducting from that $663 million the value of the land.  Your Honours, if we knew what the value of the land was we would not need to go through the process of valuing goodwill.  So what the court has, in effect, done is to say value the goodwill by deducting the value of the land.  Now, how is the trial judge to deal with that? 

The course which all the submissions of both parties took the trial judge to was to say you arrive at the value of the land by deducting everything else, including, if there be some, goodwill.  We are now inverting that process.  It is very difficult to see what the trial judge can do.  Now, your Honours may say, as your Honours perhaps do not want to do, that that is a problem for the trial judge and not a problem for this Court, especially given the slightly inchoate nature of the order, even if the trial judge and the parties are put in an impossible position.

The second problem with the reasons of the majority on the goodwill issue is that it is one which goes to the manner in which the parties come to be put in what we submit is that impossible position by the direction of the court.  Justice Southwood, if I can take his Honour’s reasons first, at page 141 in paragraph [136] summarises in a manner, with which we do not cavil, the conclusions as to principle to be drawn from the decision in Murry’s Case.  It is important perhaps to note that his Honour in doing so brings out the importance which the court attributed to the attraction of custom as the core concept of goodwill in the legal sense.  So that at about line 14 his Honour notes:

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 . . . by substantially the same means which in the past have attracted custom -

The attraction of custom is the core concept of what the court discerned as the legal notion of goodwill in Murry’s Case.  Your Honours, we said in our submissions that we were not going to take your Honours to any authority outside the application book, but I do perhaps need very briefly if I may to take your Honours to the judgment of the High Court in Murry, and I apologise for doing so.

It is in our friend’s bundle of materials for this application as tab 1, and I wanted, if I may, very briefly to take your Honours to three passages in the majority judgment. First to the conclusion at page 630 of 193 CLR 605, paragraph 68, I will just read your Honours the first two sentences:

For legal purposes, goodwill is the attractive force that brings in custom and adds to the value of the business.  It may be site, personality, service, price or habit that obtains custom.

Now, the point which I draw from that is the emphasis that the Court took, and this is not in its conclusion on attracting custom.  Earlier at pages 614 to 615 in paragraphs 20 and 23; in paragraph 19 their Honours read from Judge Swan’s reasons and then go on to say:

This definition comes close to achieving a synthesis –

and about halfway down the paragraph – and I apologise to your Honours for this skip approach to reading the reasons:

But the attraction of custom still remains central to the legal concept of goodwill.

In paragraph 23 in the second sentence:

It is the right or privilege to make use of all that constitutes “the attractive force which brings in custom”.

Your Honours, the reason why I am labouring the point, and I accept that I am labouring it, is that there was no contest at trial, that there was no attractive force which brought in custom.  The evidence of the expert witness for the company, Mr Bryant, which was read and adopted by the company at trial, appears at page 122 of the application book ‑ ‑ ‑

HAYNE J:   Just before you come to that and going back if I may to the order that was your starting point at page 147, do you understand that order to permit the adducing of further evidence?

MR SLATER:   I would have thought so, your Honour, yes.

HAYNE J:   It seemed to me so.  If that is so, there are two possibilities.  Either evidence is adduced which assigns, or attempts to assign, some separate value to goodwill, or there is not.  Does the difficulty that you are pointing to about using goodwill as a means of getting at value of land, which is the statutory question, go away according to the course that is taken at the further hearing, in particular, whether there is new evidence or not?

MR SLATER:   I do not think so, your Honour, because the direction – I am sorry, your Honour.  It will be a matter for the trial judge and the trial judge is put in a difficult position ‑ ‑ ‑

HAYNE J:   A matter for the parties immediately what further evidence, if any, they seek to put on.

MR SLATER:   Yes, but the difficulty which both the parties and the trial judge are going to confront is that the court has ordered that the matter be determined in accordance with their reasons, and their reasons mandate a calculation of goodwill by taking the total value which is not in contest and deducting the value of everything else, including land.  One finds it difficult to see how that can be done.  Perhaps one just says that ‑ what one disregards the “in accordance with these reasons” and the trial judge is to start again, but that seems the ‑ ‑ ‑

HAYNE J:   It is not an order for retrial.

MR SLATER:   No, so what is it?

HAYNE J:   Yes.

MR SLATER:   Your Honour sees why I say that the parties are put in an impossible position and while perhaps that is not a matter of general public importance, it is a matter of some significance to the parties. 

HAYNE J:   Obviously so, but the point I think we need to grapple with, Mr Slater, is this, that if Alcan were to be granted leave, is there utility in granting the Commissioner leave?  Conversely, if the Commissioner were to be granted leave on the point about which you would now complain, should Alcan be granted leave?  That is, do these two matters necessarily march in step?

MR SLATER:   As to the second, I think not, your Honour. 

HAYNE J:   As to the first?

MR SLATER:   As to the first, if Alcan were granted leave and were successful the second issue was to go away ‑ ‑ ‑

HAYNE J:   Yes.

MR SLATER:   If Alcan were granted leave and were unsuccessful then we would be in the position that we are presently, that is before the making of these applications, that is left with orders of the court below which are to say the least difficult to observe.

HAYNE J:   Yes.

MR SLATER:   It is for that reason that we made application in the hopeful anticipation that Alcan would be unsuccessful, to try to get to a better position and also because we say that the Court of Appeal went astray in the course it took.  I see that I am running out of time.  The point which I wanted to make very briefly about the reason why we are in this position in a sense is that it was common ground at trial that there was no attractive force which brought in custom.  Your Honours see the evidence of Mr Bryant tendered and relied upon by the applicant ‑ that is by the company - at page 122 of the application book in the two paragraphs which are quoted there.  Mr Lonergan, who was the expert for the Commissioner, agreed with that.

In consequence, the factual basis for an evaluation of goodwill on the premise relied upon – or adumbrated by the Court in Murry was simply not explored at all.  The various things which agitated the mind of the majority in the Court of Appeal such as the existence of long‑term contracts and such like were not agitated.  Now, in the event ‑ although it does not appear clearly from the judgments – the long‑term contracts which were referred to were contracts with an associated company which obliged – gave alumina to supply as much as the associated company wanted but did not entitle it to supply any more and gave it no pricing advantage.  So there was no goodwill inherent in those contracts.

HAYNE J:   The central difficulty I think can be identified by page 153, Mr Slater, which is your draft notice of appeal.  Do the orders which you seek follow from the grounds?

MR SLATER:   From our grounds?

HAYNE J:   From your grounds, that is if the Court of Appeal has got it wrong about goodwill in that way why does that lead to reinstatement of the orders made at first instance?

MR SLATER:   Because the uncontested evidence at trial was that there was no goodwill in the sense referred to by the Court in Murry’s Case.  That is the passage that I just took your Honours to on page 122. 

HAYNE J:   Yes, I see.

MR SLATER:   In our submission, where the majority went astray was in disregarding that evidence and disregarding the statements of principle in Murry’s Case and instead concentrating on the notion that Gove Aluminium was a profitable company and, therefore, by implication it had goodwill.  Their Honours appear to have proceeded – and I grant that it is not very clear – on the premise that the company was indisputably profitable and therefore it must have goodwill.  We say that that is a mistaken conception.  Clearly a company which has lower costs would be more profitable than one which has higher costs.  It does not necessarily follow that there is goodwill for a variety of reasons.  I think I have run out of time.

HAYNE J:   Yes, thank you, Mr Slater.  Mr Jackson, we would be grateful to hear you in answer to Mr Slater’s application, if you could confine yourself in the first instance to that.

MR JACKSON:   Thank you, your Honour.  There are, I think, two important submissions made by our learned friend at the outset which we would contest about what the effect of the order of the Court of Appeal is and the first is your Honours will recall that he submitted that the effect of paragraph [137] and surrounding passages in Justice Southwood’s reasons, as well as a paragraph mentioned in Justice Angel’s reasons, was that a wrong exercise is now to be carried out in accordance with the court’s reasons.

Our submission is that there is no basis for that.  The passage in Justice Southwood’s reasons at paragraph [137] is where his Honour identified the way in which goodwill may be measured, which requires the assessment of the fair value of the identifiable net assets, and your Honours can see that on page 142 at line 5, I think.  There is absolutely no error in that approach and there is no insuperable difficulty that our learned friend identifies, except for saying that there is in that being done.  As your Honours have suggested, there is no reason why further evidence cannot be led ‑ ‑ ‑

HAYNE J:   But was trial conducted on a particular footing?

MR JACKSON:   That is the second submission we want to come to.  There was evidence, which is referred to and relied upon by our learned friend, given by Mr Bryant, who was an expert called by Alcan, to the effect that the business did not have an attractive force for customers in the sense of bringing customers to go to do business.  That is the sense in which it is being dealt with.

CRENNAN J:   That is because of having captive customers to whom it was to supply as much as they required.

MR JACKSON:   In the sense that the location of the business did not bring in customers in the sense of passing trade, we would submit.  What there was, though, was a detailed report by Mr Bryant, which is not before your Honours but which is dealt with in the reasons of the court below, in which he identified a whole lot of things which were advantages of the business, as we would describe it.  Our learned friends would say no, they all attach just to the assets in the distinction that is made in Murry’s Case.  But they were things which, as we submitted to the Court of Appeal and which was not abandoned before the primary judge – the primary judge considered whether they were things that amounted to goodwill in law.

HAYNE J:   Could you go back on the Full Court’s order as it presently stands and on the evidence as it presently stands and conduct the exercise the Full Court appears to have contemplated in relation to goodwill?

MR JACKSON:   You could.  We are not suggesting the parties are bound by that.

HAYNE J:   I understand that, but ‑ ‑ ‑

MR JACKSON:   The primary judge did not determine the answer to that question, having decided there is no goodwill in law and that the matters identified in Mr Bryant’s report were not themselves identifiable assets for the purpose of valuation.  We submit that is where the error, which was corrected in the Court of Appeal, occurred.  He then did not proceed to decide what were some other questions raised in the evidence.  The difficulty with this business, because it is integrated and both the operation of a mining venture and the operation of an alumina refinery were conducted in the one business, was that to get effectively what would be attributable to the mining operation and the alumina operation to identify land value assets you had to break it up.

That is the sort of thing that valuers do.  It is the sort of thing that was the subject of reports on both sides, no less than four by Mr Lonergan.  At the end of the day, what happened before the primary judge was that in a report delivered on the eve of the trial by Mr Lonergan he said, “Well, you don’t need to do that because I can tell you by a top-down exercise”, as it was called – taking the whole of the value of the assets and identifying what our learned friends have shown your Honours, the $98‑odd million worth of identifiable, tangible assets – “that there is nothing else” and therefore the answer to the question is the rest of its land.  His Honour looked at whether there was any intangible asset but rejected in his reasons that there was goodwill, for the reasons that are set out in his judgment, and the Court of Appeal said no.

When you look at in fact what was identified and articulated in Mr Bryant’s report and the evidence, there are things which amount to goodwill in law.  Our learned friends say that should be dismissed because, for example, the long‑term contracts that were relied upon were with an associated entity.  One, most of the contracts were not in evidence.  There is one that is of that character.  But on the sale the association ended, so the long‑term contract was with a party at arm’s length.  As their Honours found in the Court of Appeal, there was no reason to think that valuable contract was not going to continue or that it did not continue for a lengthy period of time.  So the exercise can be done.  There is no prohibition to it, despite our learned friend’s urging.

Could we then address the grounds which your Honour mentioned in the notice of appeal and which are articulated in the summary of argument, which really is that the Court of Appeal in the majority judgments decided nothing more about goodwill than whether or not a profitable business necessarily has it.  We tried, in our summary of argument, your Honours, to identify or summarise the judgment of both Justice Angel and Justice Southwood to show that that is not what they had done at all.  We did that in paragraphs 10 and 11 of our summary, which appears on pages 161 and 162 of the application book. 

Now, that process of abstraction our learned friends challenge in their reply.  So could we, without trying to fathom what the true challenge is, identify in very brief terms what we say the process of reasoning was and where, in our submission, it is apparent that the majority of the Court of Appeal did make the finding that Gove Aluminium Ltd’s business had attractive force which brings in or retains custom.

HAYNE J:   But assume that you are right in what you say in these paragraphs.  If your side was to obtain a grant of leave and were to fail in the appeal pursuant to that leave, what position would then obtain?

MR JACKSON:   If our learned friend were not granted leave, or if it were?

HAYNE J:   Yes.

MR JACKSON:   If our learned friend were not granted leave we would be back before the primary judge to assess what the value of the land is.

HAYNE J:   On a footing where it is said that there is an error in what the Full Court has done?

MR JACKSON:   Yes.  Our learned friends say ‑ ‑ ‑

HAYNE J:   That is, how connected is the Commissioner’s application with your application?  If yours is granted leave should we grant leave, even though you say it is application of known principle to particular facts of the case?

MR JACKSON:   This is a utility question your Honour asked our learned friend.

HAYNE J:   Well, it is more than utility.  It is should we in the circumstances?

MR JACKSON:   Can I, as a matter of utility, make a concession?  If our learned friend is right – we say he is not – but if he were right in the contention he makes about what was decided below and the appeal were upheld, that will bring an end to the proceeding for both parties.  So in a sense there is that utility.  Having said that, though, there is no unfairness, we would submit, in granting leave on our application in circumstances where if we are ultimately unsuccessful there will still have to be a further determination of the value of the land.  They are our submissions.

HAYNE J:   Yes.  Thank you.  We will not need to trouble you in reply, Mr Slater.  There will be a grant of special leave to appeal in both of these matters.  Do counsel have an estimate of how long they think the two appeals together would take?

MR SLATER:   I confess, your Honour, that I have not given the depth of thought to it that the question deserves, but we both think two days.

HAYNE J:   Yes, I had more a day and a half in mind, Mr Slater, but we will not conduct the auction.  Do you think it will go over a day is the real question?

MR SLATER:   I think it will go a little over a day.

HAYNE J:   Very well, there will be a grant of leave in both matters.  It will be a day and a half case or thereabouts. 

The Court will adjourn to reconstitute.

AT 11.29 AM THE MATTERS WERE CONCLUDED