Associated Beauty Aids Pty Ltd v Federal Commissioner of Taxation

[1965] HCA 20

HIGH COURT OF AUSTRALIA

Barwick C.J., Windeyer and Owen JJ.

ASSOCIATED BEAUTY AIDS PTY. LTD. v. FEDERAL COMMISSIONER OF TAXATION

(1965) 113 CLR 662

30 April 1965

Income Tax (Cth)

Income Tax (Cth)—"Private company"—Company "capable of being controlled by one person or by persons not more than seven in number"—Control dependent upon conversion of shares—Conversion operative "from the date of delivery" of notice—"From"—Income Tax and Social Services Contribution Assessment Act 1936-1955 (Cth), s. 105 (1) (f)*.

Decisions

April 30.
The following written judgments were delivered:-
BARWICK C.J. The appellant taxpayer is a proprietary company incorporated under the Companies Act, 1936 (N.S.W.) and a resident of Australia within the meaning of s. 6 of the Income Tax and Social Services Contribution Assessment Act 1936-1955 (Cth) (the Act). (at p664)

2. On 30th June 1954 the articles of the company contained the following :

1A. The nominal capital of the Company is 10,000 pounds divided into 6,628 ordinary shares of 1 pound each, 2,400 Cumulative Redeemable Preference Shares of 1 pound each and 972 "B" Cumulative Preference Shares of 1 pound each. (iv) The said new "B" Cumulative Preference Shares shall entitle the holders to receive notice of general meetings and to attend and vote thereat. (v) The holder of any of the said new "B" Cumulative Preference Shares may, by notice in writing left at the

Company's office together with the Certificate for the shares therein

referred to, elect to convert the new "B" Cumulative

Preference Shares specified in such notice into ordinary shares

whereupon such shares shall from the date of delivery of such notice become ordinary shares and shall rank in all respects pari passu with the ordinary shares of the Company and shall cease to have any preference or priority as abovementioned and a new Certificate relating to such converted shares shall be issued to the holder thereof free of charge. 54. On a show of hands every member present and entitled to vote shall have one vote and upon a poll the holders of the "B" Cumulative Preference Shares shall have one vote for every 25 "B" Cumulative Preference Shares held by them and the holders of ordinary shares shall have one vote for every 5 ordinary shares held by them. If and when the right of the holders of the Cumulative Redeemable Preference Shares comes into operation, then on a show of hands every holder of any such shares shall have one vote as a member of the Company in common with the other members and on a poll shall have one vote for each such Cumulative

Redeemable Preference Shares held by him.

The articles remained unaltered on 30th June 1955. On 30th June 1954 and on 30th June 1955 twenty-two shareholders each held 25 ordinary shares in the Company. On the same day in each of these years the 972 "B" Cumulative Preference Shares were held as follows : Ernest Stephen Vadasz 501 shares Maria Vadasz 471 shares The Commissioner assessed the appellant to tax in respect of each year on the footing that it was in that year a private company within the meaning of Div. 7 of the Act. The

appellant objected to the assessments made by the Commissioner

in respect of company tax and also to the assessments made by the Commissioner under Div. 7. These objections being disallowed, the appellant requested that they be treated as appeals and referred to this Court. Upon the hearing before a Justice of this Court of the appeals taken together, at the request of the parties, he stated a case for the opinion of a Full Court. The questions asked in the case are - (a) Whether on the facts stated the appellant was on 30th June 1954 a company which answered the description in par. (f) of s. 105 (1) of the said Act as being a company which was capable of being controlled by any means whatever by one person or by persons not more than seven in number and was therefore a private company within the meaning of s. 103 of the said Act.

(b) Whether on the facts stated the appellant was on 30th June 1955 a company which answered the description in par. (f) of s. 105 (1) of the said Act as being a company which was capable of being controlled by any means whatever by one person or by persons not more than seven in number and was therefore a private company within the meaning of s. 103 of the said Act. (at p666)

3. Upon the facts as stated in the case, the only basis upon which the Commissioner claims to be entitled to assess the appellant as a private company within the meaning of Div. 7 in respect of these years is that the appellant fulfilled the description in par. (f) of s. 105 (1), that is to say, that on 30th June in each year the appellant was a company which was capable of being controlled by any means whatever by a person or by persons not more than seven in number. (at p666)

4. Neither of the holders of the "B" Cumulative Preference Shares had given on or before 30th June in either year any notice of election pursuant to art. 1A (v) to convert any "B" Cumulative Preference shares into ordinary shares. Thus, so far as the actual shareholding was concerned, seven persons could not have carried a resolution at a general meeting on 30th June in either year against the opposition of the other shareholders ; and, before this Court, it was not suggested that any person or persons was or were capable of controlling the company on those days by any means other than by the casting of votes at a general meeting. (at p666)

5. But it is said that a notice of election given pursuant to art. 1A (v) at any time on 30th June would be operative as from the commencement of that day or, alternatively, as from the time on that day when it was left at the company's office ; and that, being given, on either view of its operation, the holders of the "B" Cumulative Preference Shares could have voted as ordinary shareholders at a general meeting held at some time on that day. If this submission is correct, the result of such conversion of the "B" Cumulative Preference Shares held by either Mr. or Mrs. Vadasz into ordinary shares on that day would be that the two of them on that day could have controlled the company. The Company would therefore have been on that day a company capable of being controlled by one person, within the meaning of s. 105 (1) (f). (at p666)

6. The matter thus turns wholly upon the construction of the article giving the "B" Cumulative Preference shareholders a right to convert their shares to ordinary shares. The critical words are : "may by notice left at the Company's office . . . elect to convert any of such shares specified . . . in such notice . . . into ordinary shares whereupon the shares so specified shall from the date of delivery of such notice become ordinary shares". (at p666)

7. The appellant submits that, by analogy to its operation in the computation of time, the word "from" excludes the whole of the day from which the change in the nature of the shares is to take place and that therefore the holders of the "B" Cumulative Preference Shares were not capable of becoming ordinary shareholders on 30th June except by a notice given before the commencement of that day. (at p667)

8. An examination of the whole of the memorandum and articles of the Company yields no assistance in the construction of par. (v) of art. 1A. There can be little doubt however as to what the Company was seeking to achieve by this paragraph. With the necessarily artificial definition of Private Company in Div. 7 before it, and the decisions of this Court upon that definition available to it, see W. P. Keighery Pty. Ltd. v. Federal Commissioner of Taxation (1957) 100 CLR 66 and Federal Commissioner of Taxation v. Sidney Williams (Holdings) Ltd. (1957) 100 CLR 95 , the purpose of par. (v) inserted into the articles by amendment late in the financial year 1954 apparently was to ensure that a notice of election delivered on 30th June would not effect a conversion on that day of the "B" Cumulative Preference Shares into ordinary shares. (at p667)

9. But, though the purpose of the amendment of the articles is plain enough, there remains the question of the proper meaning of the words actually used. No doubt, generally where time is to be computed from a day, that day is excluded from the computation. The same is true of the computation as from a date, which is but a convenient abbreviation of the full expression, the day of the date. But the paragraph in question here is not dealing with the computation of time. It is dealing with the consequences of an event which has taken place. The notice of election having been left at the Company's office, the words in question deal with the point of time from which it has the designated effect. (at p667)

10. There are three possible points of time as on and from which the change in the relevant rights of the shareholder could take place. The first is that moment of time when the notice is left at the Company's office. The second is the commencement of the day on which it is so left, and the third is the end of that day, or the beginning of the next, these being descriptions of precisely the same point of time. It is immaterial for present purposes which of them is chosen. (at p667)

11. We are not here dealing with an actual situation as would be the case had a notice been given. We are dealing with the supposition that a notice had been left at the office of the Company at some time, presumably in business hours when the Company's office was open, on 30th June. The question is whether on that supposition the Company could be controlled by the carrying of a resolution at a general meeting held at some time on that day. It is quite clear that if the notice operated only on and from the moment of its delivery, no "B" Cumulative Preference shareholder could vote as an ordinary shareholder at a general meeting held before the notice was given. It could not be said therefore that the giving of the notice at any time on 30th June would confer a capacity to control a general meeting held at any time on that day. It could only be said that its giving would enable control of a general meeting held subsequent to its delivery. But it could be said that a general meeting held at some time on that day could be controlled by a holder of the converted shares : and for the purpose of Div. 7 I should think this is enough. (at p668)

12. There is no general rule as to the consequences of the use of the preposition "from", whether it be in the computation of the period of time, or in any other connexion. In general, in computing a period of time from a date, the period will commence at the end of the day of that date, but there is no universally operating rule to that effect, see, for example, the illustration given in the note at page 1068 of the report of R. v. Stevens and Agnew (1804) 5 East 244 (102 ER 1063) , and Wilkinson v. Gaston (1846) 9 QB 137 (115 ER 1227) . When, as here, a change is to take place from a stated time, the general "rule" as to the computation of a period of time is not of direct significance, though it is illustrative of the separating effect of the preposition "from". In my opinion, it does not usually have an inclusive but rather an exclusive or separatist quality. But unquestionably it may have either. Thus, the preposition derives its relevant quality from the context in which it is found, which includes the purpose which the document in which it is found is evidently designed to effect. (at p668)

13. Lord Esher said in In re North ; Ex parte Hasluck (1895) 2 QB 264 : "No general rule exists for the computation of time . . . where time is mentioned in a contract, the rational mode of computation is to have regard . . . to the purpose for which the computation is to be made" (1895) 2 QB, at p 269 . Generally in the case of the commencement of a term under a lease, where it is expressed to commence from a date, it commences at the end of the day of that date though it may be otherwise if no date of commencement of the term is expressed. (at p668)

14. In this case, it seems to me impossible to construe the article so that a notice of election should be operative before the actual time it was given. The impractical consequences of such a construction are quite obvious and of a kind not to be contemplated in the business affairs of a company. Thus the paragraph of the article ought not to be read as providing for an operation of a notice of election at the earliest moment of the day on which it is left at the Company's office. (at p669)

15. There are also great practical difficulties if the paragraph is construed as giving an operation to the notice of election from the moment of its delivery. This time in the ordinary course would be difficult to establish with certainty. Also, the possibility of a notice being given during a general meeting would produce somewhat strange consequences. If it had been intended to make the notice operative at the moment of its delivery, it would have been sufficient to have said "whereupon such shares shall become, etc.". Though not of course by any means conclusive, it is significant that the clause does to some extent contrast the time of delivery with the time of operation by adding after "whereupon", the words "from the date of delivery etc.". (at p669)

16. In my opinion, the only practical construction of the paragraph is to give the preposition "from" its separatist quality and treat it as dividing off the time for the change in the quality of the shares from the day of the delivery of the notice of election. The notice of election, in my opinion, operates from the end of the day of the date on which it is left with the Company at its office. Accordingly, in the circumstances which existed, the Company was not capable of being controlled by one person or by persons not less than seven on 30th June in either of the years in question. (at p669)

17. The questions asked in the case should be answered -

(a) No. (b) No. (at p669)

WINDEYER J. I prefer not to express any view of what, in general, is the effect of saying that a consequence of doing some act in the law is to operate "from" the day on which it is done. I incline to the view that, if nothing to the contrary appears, what is meant is that the result of the act is operative from the first moment of the day on which the act is done - not because the act has a retroactive effect, but because it takes effect instanter, and when a day is spoken of the law does not take cognizance of parts of a day. But in this case it seems to me that the context and circumstances show that what was meant is that the consequences of the delivery of the notice should commence from the last moment of the day of the date of delivery, which is the same as saying from the first moment of the day following: Prowse v. McIntyre (1961) 111 CLR 264 . I therefore agree that both questions be answered in the negative. (at p670)

Owen J. This is a case stated by Kitto J. pursuant to s. 198 of the Income Tax and Social Services Contribution Assessment Act relating to assessments to tax for the years ending 30th June 1954 and 30th June 1955 respectively. The question that arises is whether on 30th June of each of those years, that being the last day of its year of income, the taxpayer was a company "capable of being controlled by any means whatsoever by one person or by persons not more than seven in number" within the meaning of s. 105 (1) (f) of the Act. The facts show that if there had been a general meeting of the Company on 30th June in each of the years concerned no one shareholder or group of not more than seven shareholders could, as the shareholdings then stood, have out-voted all other shareholders. Two of the shareholders, however, held between them 972 "B" Cumulative Preference Shares, that being the total number of issued shares of that class, and the Company's Articles provided that "the holder of any of the said "B" Cumulative Preference Shares may by notice in writing left at the Company's office together with the certificate for the shares therein referred to, elect to convert any of such shares specified in such notice into ordinary shares whereupon the shares so specified shall from the date of delivery of such notice become ordinary shares . . .". (at p670)

2. The ordinary shares in the Company carried greater voting rights than did the "B" Cumulative Preference Shares and had the two persons who held those preference shares converted their holdings into ordinary shares they could, between them, have out-voted all other shareholders. In fact no conversion of the preference shares took place. (at p670)

3. For the Commissioner it was contended that if on 30th June in the years in question the two holders of the "B" Cumulative Preference Shares had exercised their election to convert their shares into ordinary shares they would, by virtue of the article set out above, have become ordinary shareholders as from the beginning of that day and able to control a general meeting held on that day whether before or after the giving of the notice to which the article refers. If, on its true construction, the article would produce this result, the Commissioner's contention is correct: Federal Commissioner of Taxation v. Sidney Williams (Holdings) Ltd. (1957) 100 CLR 95 . (at p671)

4. What meaning then is to be given to the words in the article "whereupon the shares so specified shall from the date of delivery of such notice become ordinary shares"? There are three possible interpretations. One is that it was intended that the conversion should become effective at the instant of delivery of the notice at the Company's office ; another that no matter at what hour of the day the notice was left at the office the conversion would take effect as from the beginning of that day ; the third that the conversion would take effect on the first moment of the day following the leaving of the notice at the Company's office. The word "whereupon" may, at first sight, appear to support the first of these interpretations but, on consideration, it does not seem to me to have that significance. I read it as meaning "and these things having been done". The words "from the date of" may mean "on and from the date of", which would include the day of delivery of the notice, or they may mean "immediately after the day" of delivery, thus excluding the day of delivery as is usually the case where a period is fixed "from" a particular day for the doing of some act. This, however, is not such a case. On the whole I think the article should be read as meaning that the conversion is to become effective on the first moment of the day following that on which the notice in writing is left at the Company's office. The general rule is that the law disregards fractions of a day. For that reason, and also because the words are "from the date of delivery" and not "from the delivery of", I do not accept the suggested interpretation by which the conversion would take effect at the moment when the notice was left at the Company's office. To adopt the view that it was intended that the conversion should become effective as from the first instant of the day when the notice is left at the Company's office could produce some difficult problems in cases, such as the hypothetical one which it is necessary to consider here, in which the Company's general meeting is held on the same day as that on which notice is left at the Company's office. If, for example, the general meeting took place in the morning of that day and at it the shareholders exercised the voting rights conferred by the shares then held by them and later in the day the notice was left at the Company's office, what would be the effect on resolutions passed at the meeting which had already been held? (at p671)

5. These considerations point, I think, to the conclusion that the intention was that the conversion should take effect not on the day of delivery of the notice but "from", in the sense of "immediately after the conclusion of" the day of delivery. (at p672)

6. I would therefore answer the questions submitted in the negative. (at p672)

Orders

Questions asked in stated case are answered as follows :

(a) Whether on the facts stated the appellant was on 30th June 1954 a company which answered the description in par. (f) of s. 105 (1) of the said Act as being a company which was capable of being controlled by any means whatever by one person or by persons not more than seven in number and was therefore a private company within the meaning of s. 103 of the said Act. Answer : No.

(b) Whether on the facts stated the appellant was on 30th June 1955 a company which answered the description in par. (f) of s. 105 (1) of the said Act as being a company which was capable of being controlled by any means whatever by one person or by persons not more than seven in number and was therefore a private company within the meaning of s. 103 of the said Act. Answer : No.

Respondent to pay the costs of the stated case.