BHP Billiton Limited (now named BHP Group Limited) v Commissioner of Taxation

[2019] HCATrans 211

[2019] HCATrans 211

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Brisbane  No B28 of 2019

B e t w e e n -

BHP BILLITON LIMITED (ACN 004 028 077) (NOW NAMED BHP GROUP LIMITED)

Appellant

and

COMMISSIONER OF TAXATION

Respondent

KIEFEL CJ
GAGELER J
KEANE J
GORDON J
EDELMAN J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON TUESDAY, 5 NOVEMBER 2019, AT 10.01 AM

Copyright in the High Court of Australia

MR D.H. BLOOM, QC:   May it please the Court, MR E.F. WHEELAHAN, QC and I appear with MS C.M. HORAN for the appellant.  (instructed by King & Wood Mallesons)

MR J.O. HMELNITSKY, SC:   If the Court pleases, I appear with my learned friend, MR D.P. HUME, for the respondent.  (instructed by Australian Government Solicitor)

KIEFEL CJ:   Mr Bloom, the Court was rather curious about your time estimate.  Have you revised it since you put it in?

MR BLOOM:   I will do my best, your Honour, to finish by lunchtime.  I know that your Honour will break at 11.15 or thereabouts.

KIEFEL CJ:   It has nothing to do with the Melbourne Cup.

MR BLOOM:   The time alone indicates that, your Honour.

KIEFEL CJ:   We are not that interested.

MR BLOOM:   Yes, but ‑ ‑ ‑

KIEFEL CJ:   No, but the four hours we thought was ‑ ‑ ‑

MR BLOOM:   Including reply?

KIEFEL CJ:   Given the points in issue, it seemed a little excessive.

MR BLOOM:   Yes, I am hopeful that I will finish by lunchtime, your Honour ‑ ‑ ‑

KIEFEL CJ:   Thank you, Mr Bloom.

MR BLOOM:   ‑ ‑ ‑ and if that is the case, I think we will finish by today. Your Honours, section 995, which is the dictionary definitions provision of the 1997 Act provides that:

“associate” has the meaning given by section 318 of the Income Tax Assessment Act 1936

I am not taking your Honours to it. I will just give your Honours the reference. It is in the joint book of authorities, volume 2, tab 12 at page 392. The approximately 160 provisions in which the term is used are to be found in both the 1936 and the 1997 Acts and generally when appearing in the 1936 Act the provision, usually internally, adopts the section 318 meaning. There is no definition in the1936 Act of “associate”.

An example, your Honours, is section 6F of the 1936 Act, in the joint book of authorities, volume 2.  If I could ask your Honours to go to tab 10, page 291.  That deals with dual resident investment companies, the relevance of which is solely to loss company provisions, and your Honours do not need to know anything more about that.  Subsection (2), over the page:

For the purposes of this section, companies are related to each other if they are controlled (as defined by subsection (3)) by the same person, either alone or together with associates –

Subsection (3):

For the purposes of this section, a person, either alone or together with associates, controls a company if:

. . . 

(b)the company or its directors are accustomed or under an obligation (whether formal or informal), or might reasonably be expected, to act in accordance with the directions, instructions or wishes of the person, either alone or together with associates.

So your Honours see the words from section 318(6)(b) there used in the definition of “control”. Then at page 293:

"associate" has the same meaning as in section 318.

Section 318 appears, without question, in Part X of the Act. That contains the controlled foreign company or CFC provisions and, in essence, the CFC provisions tax an Australian resident on certain types of passive income derived by a foreign resident company which the Australian resident controls. Its purpose is to tax that income on an accruals basis, rather than to wait for the income being accumulated overseas to be distributed to Australia, when it would otherwise be taxed. If I could ask the Court to go to the joint book of authorities, volume 5, tab 46, at page 1357.

GORDON J:   Could you just tell me what that is, please, Mr Bloom?  Some of us are working electronically.

MR BLOOM:   I am sorry, your Honour, I do tend to forget that.  It is the explanatory memorandum for the Bill for the Act which inserted Part X into the 1936 Act.

GORDON J:   Brilliant, thank you.

MR BLOOM:   Your Honour has to realise I was brought up without the benefit of electronics.  I am still catching up.

GORDON J:   You are doing well.

MR BLOOM:   Thank you, your Honour.  If your Honours would go to 1258 at the top, it is the Taxation Laws Amendment (Foreign Income) Bill 1990:

This Bill contains provisions to amend the Income Tax Assessment Act 1936 to give effect to the proposal, announced in the Economic Statement of 12 April 1989 –

I will take your Honours to that:

an accruals system of taxing certain foreign source income and, in particular:

·to attribute to Australian residents certain income derived by a non‑resident company that is controlled by Australian residents, unless the company is subject to a tax system comparable to Australia’s or is predominantly engaged in active business –

Then, if your Honours would go, please, to 1260, at the bottom, under the heading “Controlled Foreign Companies”:

The broad aim of the proposals in relation to companies is to attribute to Australian residents income, other than active business income, derived by foreign companies that are controlled by Australian residents other than in the case of a company that is subject to a tax system comparable to Australia’s or is predominantly engaged in active business.

Your Honours, if a CFC does not satisfy the active income test, the income which is attributed to the Australian resident taxpayer controller includes what is labelled “adjusted tainted income”.  This can involve a CFC resident in a listed or unlisted country, listed countries being those with a taxing system which is regarded as comparable, such as the United Kingdom or the United States.  So, for instance, dividends and interest in those countries, that form of passive income is also brought to account as income attributed from a CFC. 

Adjusted tainted income includes passive income, such as interest and dividends.  That is in section 386, and I will simply give your Honours a reference to it - the joint book of authorities, volume 1, tab 3 at 107.  “Passive income” is defined in section 446, which is in the joint book of authorities, volume 1, tab 3 at page 154, if your Honours would go to that.  Passive income is dividends, tainted interest income, annuities, tainted rental income, tainted royalty income, and income derived from carrying on a business of trading in tainted assets.  Then, there is a definition of “adjusted passive income” as:

the amount that, apart from this subsection, would be the passive income of the company of the statutory accounting period.

Section 447, which is on page 157, deals with tainted sales income and here BMAG, the company that you have seen, purchases goods from the subsidiaries of both BHP and of Plc and onsells those goods.  There is no doubt that the income it derives from the onsale of the goods purchased from the BHP subsidiaries is tainted sales income, for the purposes of this.  The question for the Court is whether the income from the sale of goods purchased from the Plc subsidiaries is also tainted sales income.

Now, whether BMAG is an associate, your Honours will see, depends upon the three ways it is put in the judgment of Justice Thawley at paragraph 58 in the core appeal book at page 93.  It is not in dispute that those are the three ways that if the Commissioner is right he succeeds and if he is wrong he fails. 

GORDON J:   They are independently sufficient. 

MR BLOOM: Independently, each one of them, yes, your Honour. So the question is whether Limited, which is defined in the section as your Honours will see as the controlled company, was sufficiently influenced by Plc, which is defined as the controlling entity or entities for the purposes of 318(2)(d)(i)(A); whether Plc as the controlled company was sufficiently influenced by Limited as the controlling entity for the purposes of (2)(e)(i)(A) and whether BMAG was sufficiently influenced by both Plc and Limited as the controlling entities for the purposes of section 318(2)(d)(i)(B).

Now, I will not, unless your Honours want me to, take you through the permutations and combinations of how one gets to this result. There is no issue between us and there is no issue below between us that these are the three questions. I will take a brief look at section 318 which is to be found in volume 1 at page 31, tab 3. The relevant section, as your Honours have seen, is subsection (2) and I will just take your Honours very briefly through it:

For the purposes of this Part, the following are associates of a company (in this subsection called the primary entity):

. . . 

(d)another entity (in this paragraph called the controlling entity) where:

(i)the primary entity is sufficiently influenced by . . . 

(ii)a majority voting interest in the primary entity is held by:

(A)the controlling entity; or

(B)the controlling entity –

and other associate entities –

(e)another company (in this paragraph called the controlled company) where –

it is sufficiently influenced by the primary entity or another entity, and again, the majority voting interest over the page.  Then if your Honours go to (6)(b), the definition of “sufficiently influenced” is at page 34.  A company, that is the controlled company:

is sufficiently influenced by an entity or entities –

the controlling entity or entities:

if the company, or its directors, are accustomed or under an obligation (whether formal or informal), or might reasonably be expected, to act in accordance with the directions, instructions or wishes of the entity or entities (whether those directions, instructions or wishes are, or might reasonably be expected to be, communicated directly or through interposed companies –

et cetera.  Your Honours see that the subsection certainly anticipates that the directions, et cetera, will be communicated.  I only say that because there was a submission to the contrary in our learned friends’ written submissions. 

GORDON J:   I think the distinction drawn was between the provision of information – whether that was sufficient itself to constitute communication of direction, wish or instruction.

MR BLOOM:   I think in the submissions it went further, with respect, your Honour.  To suggest you do not even need communications if two parties have already agreed that they are there to do things in concert, in harmony, then there is no need for a communication is what we understand our learned friends to say.  But, that is really, with respect, for him to put. 

Now, if I could take your Honours to the explanatory memorandum again for the Bill which inserted Part X.  It is volume 5 of the joint book of authorities, tab 46, 1273 to 1274.  If we could start at the middle of the page, 1273:

In cases where an entity is being tested to determine whether it is an associate of another entity and one of those entities is a trustee of a public unit trust . . . the trustee of the public unit trust is to be treated as if it were a company . . . 

The associate test in relation to a company may rely on the concepts of “sufficient influence” . . . or “majority voting interest” . . . As a consequence of a trustee of a public unit trust being treated as a company . . . these concepts are defined in terms relevant to public units trusts in paragraphs 318(5)(b) and (c).

Paragraph 318(5)(b) describes when a public unit trust entity is sufficiently influenced by another entity or entities.  This will be where the public unit trust entity is under an obligation or accustomed to acting in accordance with the directions of that other entity or other entities.  The direction may also include wishes or instructions and may be communicated directly or indirectly by using a third party, that is, an interposed entity. 

This sentence is important, with respect:

The influence described may have been imposed or it may be reasonable to expect it to be imposed.

Then, over the page, at about point 4:

Paragraph 318(6)(b) clarifies the expression “sufficiently influenced” that is used in section 318 in relation to a company. Where any entity or entities have influence, because of obligation or custom, over a company or its directors –

and these words are important, with respect:

to direct the actions of the company either directly or through interposed entities, that company will be sufficiently influenced by that entity or those entities. 

So the first relevance of the definition of “associate”, your Honours, is not to tainted sales income or anything similar, but it is relevant to the application of the control tests in Part X which in turn is relevant to two questions:  whether an entity is a CFC; and, secondly, who is the attributable taxpayer in relation to that CFC.

EDELMAN J:   When you are talking about control tests, I realise this language comes from the EM and the loose description in 318, but the control test itself is the test in the words of 318, is it not?

MR BLOOM:   Yes, your Honour.

EDELMAN J:   So when you describe something as the control test, you mean the sufficiently influenced test?

MR BLOOM:   In the context of 318, yes, but in the context of control of a CFC, no, you have to have an associate inclusive control of a CFC in order for income to be attributable.  So we are certainly looking at the definition of “associate” in that context for working out whether and who controls the company, and then it is also used for the purpose of working out the attribution percentage.  Now, here there is no question but that the appellant indirectly holds 58 per cent of BMAG and therefore it is the attributable taxpayer.  There is no issue about that.  But what I am trying to really ‑ ‑ ‑

GORDON J:   Is that not the end of the inquiry on that limb of it?

MR BLOOM:   That is not the end of the inquiry?

GORDON J:   Is that not the end of the inquiry on that limb of it?

MR BLOOM:   Yes, that is it.

GORDON J:   So you do not get any benefit out of that, do you?

MR BLOOM:   No, I am not seeking really to get a benefit, but only to show your Honours that the definition of “associate” is not limited to the sort of question about tainted sales income or the sort of passive income that is included.  It is far wider than that and it permeates all throughout Part X, and indeed throughout the 1936 and the 1997 Acts. 

So, your Honours, the 1989 economic statement that was referred to in the explanatory memorandum is at the joint book of authorities, volume 5, tab 50.  That is the last tab at page 1293.  Paragraph 2.1 is general.  The reason for the adoption of the control approach as opposed to the approach taken by the countries is dealt with in 2.2 and in the first sentence of 2.3 the conclusion was that for an accruals tax:

a control rule is necessary for the effective operation –

Then at 1298 at the bottom under the heading “Preliminary Definitions”:

Controlled foreign company (CFC)

2.6      A CFC will be defined as a non‑resident company which satisfied either of the control tests – the strict control test or the de facto control test.

Then if your Honours go to page 1300 at 2.11:

Related interests refer to those interests in the non‑resident company owned (directly and indirectly) by associated persons.  These interests will be determined by the use of constructive ownership rules – discussed in 2.39 and 2.40 – and their inclusion will present taxpayers avoiding the control tests through the fragmentation of a non‑resident company’s share ownership.

Then if your Honours go to page 1308:

2.39    As explained in paragraphs 2.10 and 2.21, a shareholder’s interest in a non‑resident company will be determined by the aggregation of direct, indirect and related interests.  Related interests refer to those interests in the non‑resident company owned by associated persons.  The meaning to be given to associated persons will follow the meaning given in recent amendments of the ITAA - such as the thin capitalisation and capital gains provisions –

and then the illustrations are provided in bullet points:

persons who are relatives –

and I might say, your Honours, the term “relatives” is very clearly defined and is wide – but it is defined very clearly to include all sorts of legal relationships, so that one coming to the definition of “relative” can find out who falls within it.   Second is:

a person and a company controlled by that person;

any two companies with substantially the same shareholders (or controlled by the same persons) –

Then at 2.40:

A resident will be treated as owning an associate’s interest in a non‑resident company although special rules will ensure that an associate’s interest is not counted twice for the purpose of determining control.

Then finally at 1310, or almost finally, 2.49:

Under the accruals tax measures:

(a)the accruals tax will apply only to controlled foreign companies . . . 

(b)a non‑resident company will be a CFC if it satisfies either of two control tests at the end of its accounting year:

(i)“strict control” -

or:

(ii)“de facto control”, where five or fewer resident shareholders, together with their associates, while not holding an aggregate interest of 50 per cent or more, nevertheless effectively control the company by whatever means.

Then 2.50:

In order to minimise avoidance of the accruals tax:

. . . 

(d)the interests held by associated persons will be determined using constructive ownership rules and the meaning given to associated persons will follow the meaning given in recent amendments of the Income Tax Assessment Act –

and they refer back to thin capitalisation and capital gains tax provisions in 2.39.  Whatever else is clear, your Honours, it is clear beyond doubt that the purpose of Part X is to attribute the income of the CFC to its attributable taxpayer, not to attribute the income of associates to each other and, with respect, the Chief Justice in the court below got that wrong. 

That proposition, in our respectful submission, would appear to have informed his Honour’s conclusion about multidirectional operation, as opposed to unidirectional operation of the provision.  If I could take your Honours briefly to his Honour’s judgment in the core appeal book, starting at page 75, I think.  Yes, page 75, paragraph 5:

The question is whether s 318(2)(d)(i), as informed by s 318(6)(b), is satisfied or engaged between equals, acting in each other’s mutual interests as one economic entity; or, whether the provisions are limited to circumstances where one entity has some degree of controlling influence over the other.

If the latter be the case, the provisions operate only in a unidirectional way, and one of the entities having a degree of influence over the other is sufficient for it to be able to be described as the controlling entity of the other, because the other has acted, does act or can be expected to act as set out in s 318(6)(b).

In paragraph 7:

If the former, the provisions can operate in a multidirectional way, such that separate entities may at once be the primary entity sufficiently influenced by the other (controlling) entity, and the controlling entity sufficiently influencing the other (primary) entity.

Then at paragraph 14 on page 77:

If the purpose or object of the enquiry is to understand whether the two have a relationship whereby it is appropriate to attribute the income of one to the other –

and that is not the question being asked:

the answer to that binary question as to whether A controls B or whether B is independent of A may not exhaust the field of relevant useful enquiry. If one can see from s 318(6)(b) a relevantly useful factual enquiry concerning circumstances short of control, but capable of being satisfied by the mutual recognition of two parties that they will act in conformity with the wishes of each other as they have done in the past, there is no reason why such acting in conformity must be unidirectional reflecting dominance or subservience.

GAGELER J:   So you say, in his Honour’s language, the provision is unidirectional, do you?

MR BLOOM:   We do, yes, your Honour.  We say that what it is concerned with, according to all the explanatory materials that I will take your Honours now to is effective control.  It may not be legal control, but effective control.

EDELMAN J:   That may be right, but the question is whether it could also be concerned with multidirectional influence.

MR BLOOM:   Well, your Honour, with respect, we say it is not.  It is concerned only ‑ ‑ ‑

EDELMAN J:   That does not follow from the extrinsic materials.  The extrinsic materials could not have been considering DLCs, which did not exist at the time, did they?

MR BLOOM:   Joint ventures did, your Honour, and this is just a form of a joint venture.

GORDON J:   Not what Justice Thawley thought.  He thought it was more like a partnership.

MR BLOOM:   Well, partnerships are specifically dealt with and one asks, what is the need to bring partnerships in, if partnerships were already there?

GORDON J:   Gives you some indication of the breadth of the provision, though, does it not?  It picks up Justice Edelman’s point - DLCs were not around in 1989, were they?

MR BLOOM:   I do not believe so, they are relatively new.  But, with respect, if effective control is thought to be the test, and there are a number of examples given where effective control would be expected to exist, then in the context of giving effect to the words “acting in accordance with”, those words are conceded by our learned friends to have a causative or require a causative effect and if that is the case, acting in accordance with and talking about companies defined as controlling entities and controlled companies does look to some form of unidirectional control, in our respectful submission.

EDELMAN J:   Without a doubt, but you may be confusing a sufficient criterion with one that is necessary.  Control may be sufficient, but the issue in this case is whether it is necessary, in other words, whether you derive the very test of sufficient influence from a core example of control.

MR BLOOM:   Well, your Honour, with respect, we say it is necessary.  It is unidirectional, and control is necessary. 

EDELMAN J:   But the words are “sufficient influence”, not “control”.

MR BLOOM:   Well, yes, and to what extent one pays attention to those words is moot, in the light of decisions of this Court, not decisions on contracts so much, but decisions on statute, those words do not have meaning, but then we rely upon the words “controlling entities” and “controlled company”, which also appear there, so really, it does not matter what you call it.  But the action must be caused by, in order to be in accordance with, a direction, an instruction, or a wish.

GORDON J:   Is that right?  Let us just unpack that a bit.

MR BLOOM:   Yes, your Honour.

GORDON J:   The definition has three elements to it, as I understand it.  It has “accustomed”, “under an obligation (whether formal or informal)”, so already we have some reduction in what you and I would otherwise understand to be obligation in that sense.

MR BLOOM:   Yes.

GORDON J:

might reasonably be expected, to act in accordance -

and then act in accordance with what:

directions, instructions or wishes -

and they themselves are qualified:

(whether those directions, instructions or wishes are, or might reasonably be expected to be, communicated directly‑

or not.

MR BLOOM:   Yes.

GORDON J:   So this phrase “effective control”, which you substitute for that, what does that mean?

MR BLOOM:   It means that, in the context of the two companies here – the controlled company and the controlling entity – there is a degree of subservience.  Perhaps, if I develop the argument because you really ‑ ‑ ‑

EDELMAN J:   Do you mean a “but for” type test?

MR BLOOM:   No, I do not.  I do not.  But if your Honours are content for me to develop the argument, I am happy to come back to this when I have tried to persuade your Honours – based on a little more than I have so far – as to why we rely upon the unidirectional test. 

So, talking about the wider context, because the section appears in so many places throughout the 1936 and 1997 Acts, its provisions cannot be construed, in our respectful submission, solely in the context of section 318 or Part X. They have to be construed upon the basis that there are many other provisions dealing with many other things which have adopted that definition and many of those – in fact, all of them – postdate section 318.

So, if I could take your Honours to section 102AAG, which is in volume 2 of the joint book of authorities at tab 10, at page 319, that section is dealing with when:

For the purposes of this Division, an entity is taken to be in a position to control a trust estate if, and only if –

and then there are references to a group in (a), (b), and (c) – I will come to that in a moment – but, (d):

a trustee of the trust estate was accustomed or under an obligation (whether formally or informally) or might reasonably be expected to act in accordance with the directions, instructions or wishes –

So, it is the same formula.  But, again, it is used where the legislation is using the term “control” and defining “control” as opposed to “sufficient influence”, which is one reason why you cannot get from “sufficient influence” something which excludes the concept of control. 

KEANE J:   That is because “control” is a criterion of the operation of the provision.

MR BLOOM:   Yes.

KEANE J: Whereas, in section 318, the terms “controlling entity” and “controlled entity” are used to orientate the application of the test.

MR BLOOM:   They may do but, your Honour, my point is that the same words ‑ ‑ ‑

KEANE J:   Yes.

MR BLOOM:   ‑ ‑ ‑ are used in the definition “sufficient influence” as in definition of “control”.

KEANE J:   Yes, but for quite a different purpose, for quite a different purpose.  Not for the purpose of – not as a criterion of the operation of the provision but as, in 318, as a signpost to enable – or to assist – the orientation of the test.  It is almost as if, in 318, that orientation is necessary because the provisions are inherently multidirectional.

MR BLOOM:   I hope to dissuade your Honour from that.

GORDON J:   In a sense, that was the proposition put against you by the Commissioner in paragraph 36 of your submissions ‑ ‑ ‑

MR BLOOM:   Yes.

GORDON J:   ‑ ‑ ‑ in response to the argument about 102AAG.

MR BLOOM:   But it is one only of a number of sections and other sections I am about to come to ‑ ‑ ‑

GORDON J:   Suffer the same problem, do they not?

MR BLOOM:   But were specifically referred to in the economic statement as setting out the test that the legislature wished to adopt in the context of “sufficient influence”.  I have taken your Honours to that and there is specific reference to thin capitalisation and to capital gains tax.  I will come to those shortly.

Then in section 41‑40, which is behind – I am sorry, Subdivision 34‑B behind tab 12 of volume 2 at page 335, this is looking at whether you can deduct expenditure you incur in respect of a non‑compulsory uniform – 34‑10 of the 1997 Act, your Honour.

GORDON J:   Thank you.

MR BLOOM:

If you are an employee, you can deduct expenditure you incur in respect of your non‑compulsory uniform –

if it is otherwise deductible.  Then, 34‑15:

What is a non‑compulsory uniform?

What is a uniform?

(1)A uniform is one or more items of clothing (including accessories) which, when considered as a set, distinctively identify you as a person associated (directly or indirectly) with:

(a)     your employer; or

(b)a group consisting of your employer and one or more of your employer’s associates.

That invokes the section 318 definition. Now, it is difficult to see, with respect, how a multidirectional definition or multidirectional construction of the definition would assist in a provision such as that. Then, section 40‑140, which is at page 345 ‑ ‑ ‑

GAGELER J:   When you say it would not assist, do you mean it is incongruous, it makes nonsense of the provision, or it just does not have any operation in one direction?

MR BLOOM:   Well, how difficult would it be, for instance, for somebody who wants to claim a tax deduction for a uniform to work out who is an associate, based on the multidirectional approach, based upon whether it is reasonable to expect that the employer company might act in accordance with ‑ ‑ ‑

GAGELER J:   You mean it is easier for the employee to work it out if it is unidirectional?  I mean, it is really beyond an individual’s capacity to work out these things, is it not?

MR BLOOM:   Well, these are not the individuals who can go to accountants and lawyers to work these things out, your Honour.  This is a provision about deduction for uniforms.

GORDON J:   Usually it is done by the unions I think, is it not?

MR BLOOM:   If you are a union member, your Honour, yes.

GORDON J:   Usually publish things like this.

MR BLOOM:   Yes.  Then at 345, getting information from associates, and I am taking your Honours now to a provision that has a penal consequence:

If you acquire a depreciating asset from an associate of yours where the associated has deducted or can deduct an amount for the asset under this Division, you may give the associate a written notice requiring the associate to tell you:

(a)      the method the associate was using to work out

. . . 

(b)      the effective life –

et cetera, et cetera, and subsection (3):

The associate must not intentionally refuse or fail to comply with the notice.

Then the penalty units are identified.  Then page 370, section 207‑130 defines:

A controller (for imputation purposes) –

Then subparagraph (d) uses the same formulation as section 318 – I am sorry, subsection (6)(d). Then your Honours will see a definition in section 328‑130 at page 374 of “affiliate”:

An individual or a company is an affiliate of yours if the individual or company acts, or could reasonably be expected to act, in accordance with your directions or wishes, or in concert with you, in relation to the affairs of the business of the individual or company.

Those words, “in concert with you”, of course do not appear in the section 318 definition. So your Honours recall in the economic statement the treasurer said that the meaning to be given to “associate” in section 318 would follow – follow the meaning ‑ that was his terminology ‑ in then recent amendments to the 1936 Act, such as thin capitalisation capital gains tax..

Now, the thin capitalisation provision is 159GZE.  That is in the joint book of authorities, volume 2 behind tab 18 and, at page 527, 159GZC is set out under the heading “Associates”.  A reference in this division to an associate is a reference to:

(v)a company where‑

(A)the company is, or its directors are –

and then one has the same formulation and, over the page, (b)(iv), if the primary person is a company another person with the primary company is - again the same formulation.  The explanatory memorandum for that is in volume 5 at tab 45.  This is one of the explanatory memoranda that the treasurer was specifically referring to as being mirrored or intended to be mirrored in the definition of “associate”. 

At page 1254 under the heading towards the top, “Section 159GZC:  Associates”:

The subsection (1) definition of “associate” has substantially the same meaning as in other parts of the Principal Act, e.g., sections 26AAB and 160E. 

So he is there bringing those subsections in as well. 

The definition specifies who is an associate of a natural person, a company, a trustee of a trust estate or a partnership and, in broad terms, refers to those persons who by reason of family or business connections might appropriately be regarded as being associated with a particular person. 

There, of course, it is 15 per cent rather than 50 per cent that they are concerned with, but that is not material here.  Then over at 1255, in the middle of the page, “Foreign controller”:

This section will ensure that the debt/equity ratio imposed on companies, partnerships and trusts will only apply where a non‑resident has the requisite substantial degree of control of the company, partnership or trust. 

Then at the very bottom of the page:

Paragraph (b) sets out the fourth tests which operates where control is less direct or formal.  This test applies to a resident company and to the directors of a resident company. Under the paragraph, foreign control will exist where such a company or such directors are accustomed to act or are under a formal or informal obligation . . . It will also exist where there is no past pattern of conduct but the circumstances are such that the company or the directors ‘might reasonably be expected’ to so act.

Again, the word used is “control”.  Then section 160E is in volume 2, tab 13, page 482. 

GORDON J:   What tab number was that, Mr Bloom?

MR BLOOM:   Tab 13, your Honour.

GORDON J:   Thank you. 

MR BLOOM: Associated persons - a reference in this part to an associate of a taxpayer is a reference to (v) “a company where” - and there is the section 318 formulation. Then over the page (iv)and (v), very similar again to what is in section 318 and using in each case the formulation with which we are concerned of sufficient influence.

Then the explanatory memorandum is in volume 5, tab 43 at pages 1243 and following.  At the bottom of 1243, “Section 160E:  Associated persons”:

New section 160E defines the term “associate of a taxpayer” for the purposes of the new Part.  The definition specifies who is to be treated as an associate of a taxpayer who is a natural person, a company, a trustee of a trust estate or by extension, a partnership.  Broadly the terms refers to those persons who by reason of business or family connections might appropriately be regarded as being associated with a particular person.  The definition is relevant for example, for the purposes of determining whether an asset is a “personal‑use” asset. 

Then little (a), the fifth bullet point:

a company that is effectively controlled (either individually or collectively) by the taxpayer or by persons who are, by reason of this definition, associates of the taxpayer - including any companies that are so controlled –

that is effectively controlled.  Then 26AAB is in volume 2, tab 8 at 251, the familiar definition in subsection (14), “associate” down to little (v) and across to (b)(iv) and (v) and the explanatory memorandum for that is in volume 5 at tab 42 at page 1230.

EDELMAN J:   Sorry, which tab? 

MR BLOOM:   Tab 42.  The bottom of page 1230:

The purpose of this clause is to insert a new section – section 26AAB - in the Principal Act to bring within assessable income certain profits made on the disposal of a previously leased car or station wagon where the vehicle is purchased from the lessor by the lessee, or an associate of the lessee, and where the lease charges –

have been deductible.  If you go to 1236, at the bottom of the page:

“associate”, in relation to a person (referred to as the “taxpayer” -

is a relative, partner, spouse, trustee of a trust estate, and then again, a company that is effectively controlled by the taxpayer or persons who are, by reason of this definition, associates.

Section 26AAC is in volume 2, tab 9, at page 261, subsection (14) towards the bottom of the page, the familiar definition of “associate”, and (d).  The reasonable expectation is not in that paragraph, but it is again specifically referred to by the treasurer in the explanatory memorandum for 159GZE.  Then the explanatory memorandum for 26AAC is in volume 5 at tab 44 at 1252, first four paragraphs:

Sub-section(14) defines the circumstances in which a person or company will, in applying the section, be regarded as an associate of a taxpayer.  It provides that a reference in the section to an associate of the taxpayer is a reference to a relative or partner . . . The expression also includes a company that is effectively under the direction or control of the taxpayer or a relative or that is capable of being controlled by the taxpayer and associates.

Again, everything expressed in terms of control or effective control.  I have two more I need to go to, your Honours.  The first is section 78A in volume 2, tab 14, at 486.  This was an anti‑avoidance provision to deal with the giving of gifts to charities where an associate got a benefit, or the taxpayer got a benefit.  Section 78A:

‘associate’, in relation to the donor of a gift, means‑

. . . 

(v)      a company -

and there are the familiar words from 318 without the reasonable expectation.  Then in volume 5, the explanatory memorandum is behind tab 40, at 1216 to 1217.  At the bottom of the page “associate” is defined in relation to a donor as including the familiar relative, partner, spouse, et cetera, and then:

a company that is effectively controlled (either in their own right or collectively) by the donor or by persons who are . . . associates of the donor and including any companies that are controlled by that company -

Then, finally, section 82KH, in volume 2 behind tab 15, at 492, the familiar definition, in 82KH(1).  That was an anti‑avoidance provision to do with certain deduction schemes, if there was some sort of payback to an associate.  There is the definition of “associate”.  Then in volume 5, tab 41, at 1223 to 1224, “associate” towards the end of the page:

being defined so as to mean ‑

familiar terms:

a company that is effectively controlled (either individually or collectively) by the taxpayer or by persons who are, by reason of this definition, associates of the taxpayer -

So the same formulation.  These are each of the antecedent provisions – most of which were referred to – directly or indirectly – in the explanatory memorandum for the insertion of the definition into Part X of the Act – and that is said to be intended to repeat the tests in those provisions, all of which are described in the context or terms of effective control. 

Your Honours, in our respectful submission, the focus of the shadow director provisions in the companies legislation is not materially different. Like section 318 and its antecedents, they are concerned with effective control, in our submission. The Court will recall that in Buzzle, a case to which I will take your Honours in a moment, the question was whether a mortgagee company was a shadow director. 

Your Honours, we point out that the term “reasonably be expected” which appears in section 318(6)(b), was construed in the context of Part IVA of the 1936 Act in Peabody – I will give your Honours a reference – simply, joint book of authorities, volume 4, tab 25, at page 385 – by reference to a Companies Act case, Dunn v Shapowloff.  So, the interchange or inter‑use of terminology from the Companies Act scenario is not unusual when one comes to the Tax Act. 

Your Honours, Buzzle, a decision in the New South Wales Court of Appeal, is in the joint book of authorities, volume 4, at tab 35.  If I could take your Honours to paragraph 9 in the judgment of Justice of Appeal Hodgson – it is at page 1010 of the court book:

I agree that influence exercised on directors of a company by a mortgagee acting in its own interests, particularly if supported by contractual rights in its mortgage documents, would not generally constitute the mortgagee a shadow director.  While in such a case the directors may on many occasions act in accordance with the instructions or wishes of the mortgagee, this will generally be so because the directors make their own decision that to do so is in the interests of the company, rather than because they defer to decision‑making by the mortgagee on behalf of the company.  In my opinion, the statutory formula contemplates the directors being accustomed to act in accordance with the instructions or wishes of a person, in the sense of treating those instructions or wishes as themselves being a sufficient reason so to act, rather than making their own decisions in which those instructions or wishes are merely taken into account as one factor, external to the management of the company, bearing on what is in the best interests of the company.

However, in my opinion, a mortgagee could satisfy the statutory formula if it appeared that, at least for some decisions, the directors were treating the mortgagee’s instructions or wishes as themselves being a sufficient reason so to act.

We, with respect, would adopt that formula just as the Tribunal and Justice Davies did below.  If we go then to the judgment of Justice of Appeal Young at paragraph 196, 1030.

GORDON J:   Sorry, where are we going now, Mr Bloom?

MR BLOOM:   Still in the judgment in Buzzle, your Honour.

GORDON J:   Sorry, just the paragraph number, I missed it.

MR BLOOM:   Yes, 196.

GORDON J:   Thank you.

MR BLOOM:   Page 1030.  That is at the bottom of that page:

In relation to the requirement that the directors “act in accordance with those instructions or wishes”, the primary judge considered the matter in some detail . . . 

“[244]           Another question is whether, in order for the directors of a company to act ‘in accordance with’ the instructions or wishes of a putative shadow director, it must be shown that there is a causal connection –

and your Honours know that is conceded here:

between the putative shadow director giving the instruction or expressing the wish and the directors acting on it.  In the present case, many of the things about which Apple or Mr Likidis gave instructions, or expressed a wish, are things which the directors who gave evidence said they would do in any event.  For example, the plaintiffs allege that Apple instructed the directors to arrange for Buzzle’s employees to prepare financial reports, prepare a plan for collection of Buzzle’s accounts receivable, and employ resources for debt collection.  These were basic steps for the operation of any business and things that the directors were in any event attempting to do.  Can it be said that by attempting to do those things after Apple expressed a wish or gave an instruction for the things to be done, that Buzzle’s directors were thereby acting ‘in accordance with’ Apple’s instructions or wishes within the meaning of para (b)(ii) of the definition?

[245]             The Oxford English Dictionary definition of ‘accordance’ is that it is ‘the action or state of agreeing; agreement; harmony, conformity’.  Ordinary usage of the phrase ‘in accordance with’ does not necessarily require a causal connection between the expression of a wish by A and the action of B.

Again, it is conceded here that a causal connection is required:

To take a homely example I advanced during argument, if on a Wednesday I decide to take my son or daughter to his or her football game on Saturday, and on Friday my wife asks me to take the child to football on Saturday, to which I agree, in performing that task I am acting in accordance with my wife’s wish (or instruction).  I am acting in agreement, harmony or conformity with her wish, even though I have already determined on that course of action.

[246]             But that is not how the definition in para (b)(ii) and cognate definitions have been approached.

He refers to other decisions in the United Kingdom and:

In Re Hydrodam (Corby) Ltd, Millett J (at 183) said that what was needed was that the board not exercise any discretion or judgment of its own, but act in accordance with the directions of –

the officers.  Then at [247] towards the middle of the paragraph, he refers again to the need for there to be a causal connection and in the last four lines:

it makes good sense that there must be a causal connection between the acts of the directors and the instructions of the putative shadow director for the definition to be satisfied.  I –

and this is Justice Young:

accept the defendant’s submission that such a causal connection is necessary.

EDELMAN J:   By causal connection, I think you have already accepted that you do not mean a “but for” causal connection?

MR BLOOM:   No, I do accept that.

EDELMAN J:   Is it anything more than an influencing, or a substantial reason for acting?

MR BLOOM:   In the context of the terminology in Buzzle.  So that it is, we would prefer, your Honour, to say that if the instructions or wishes are treated themselves as a sufficient reason so to act, then that is enough – that is the causation which was found necessary in Buzzle in relation to the companies legislation and that is what we, with respect, would say is necessary here.  You cannot talk about the direction causing the act unless it is involved somehow in causing it.  It is accepted that there must be causation.

EDELMAN J:   Well, it is not causation in the sense that it is necessary.

MR BLOOM:   No.

EDELMAN J:   And “necessary” is another adjective for “but for”.  But it is causation in the sense of sufficiency, and sufficiency might be described as influence or a factor.  There might be 10 reasons why a company acts.

MR BLOOM:   Yes.

EDELMAN J:   As long as reason one is sufficient, then it is, in your language, causative.

MR BLOOM:   We want to give some content to the word “sufficient”, with respect.  It is not as though the word “influence” is there by itself.  What does “sufficient” mean?  “Sufficient”, in our respectful submission, means that there is some acting upon it merely because it is given – whether or not it is in the interests of the company itself to do it, but acting upon it simply because it comes by way of a direction, instruction or expressed wish from the controlling entity.  One cannot ignore the word “sufficient” and just look at “influence”, with respect.

KIEFEL CJ:   But “sufficiently influenced” is satisfied by a company or its directors acting in accordance with?

MR BLOOM:   Yes.

KIEFEL CJ:   And it is “in accordance with” that you focus for this test of causation?

MR BLOOM:   Yes, your Honour.  That is the connective tissue. 

KIEFEL CJ:   But, textually, in that context of subsection (6)(b), could you not read “in accordance with” simply to mean where the actions of the company or directors align with those of others?

MR BLOOM:   We say, no, with respect, because that gives no work to be done to either causation – in the sense of something causing something ‑ ‑ ‑

KIEFEL CJ:   Why?  Why is it not – it might be a mild causal connection but the connection is still there if they are - the actions in fact align.  It is just that it might not answer the question what motivated or brought it about in the minds of the companies.  But that might not be what the provision is actually about.  It is looking for a coincidence.

MR BLOOM:   With respect, one still needs to give some work to that which starts it – the direction, instruction or wish.  The action must be in accordance with in the sense of caused by somehow the instruction, direction or wish.  We say that it is a step ‑ ‑ ‑

KIEFEL CJ:   It accords with – “in accordance with” simply means accords with.

MR BLOOM:   But where is the direction, instruction or wish? 

GORDON J:   Here – in the facts of this case?

MR BLOOM:   Yes. 

GORDON J:   There are a lot of facts put against you at the moment.  There is the DLC sharing agreement for starters. 

MR BLOOM:   Yes, but what is really put against us, I think in the judgment of Justice Thawley, is that both parties wished that the other – or each party wished that the other would comply with the agreement that they had entered into and, with respect, “wish” cannot mean that.  It must mean something more than wishing somebody “Merry Christmas”.

GORDON J:   I think that is probably an oversimplification, Mr Bloom, of what the DLC sharing agreement does.  I mean, it sets out a regime, as I read it, which is to govern the conduct of two entities and their subsidiaries and they undertake to each other to take all necessary steps to make it happen. 

MR BLOOM:   I will be coming to those provisions specifically, your Honours.  But that clause – clause 13‑ ‑ ‑

GORDON J:   But is that not, in effect, creating an arrangement whereby the company or its directors might reasonably be expected to act in direction in accordance with what had been agreed and that is a direction, instruction or wish from one entity to the other?

MR BLOOM:   No.  It is that latter that we have, with respect, difficulty with because all parties to a contract, presumably having signed the contract, would wish, expect ‑ ‑ ‑

EDELMAN J:   But they would not be sufficiently influenced.  The other party would not necessarily be sufficiently influenced by that wish. 

MR BLOOM:   But one has to identify the wish.  If the wish is merely that each party will comply with its contractual obligations, one is not sufficiently influenced by that wish.  Every party to a contract who enters into a contract hopes, presumably, that the contract will be abided by.  Where is the wish to be found in that?  As wide a meaning as you may give to the word “wish”, how do you get out of that a wish?  I mean, yes, certainly the parties agree that in the carrying out of the DLC certain things will happen between them.  But in the clause that her Honour referred to, which is clause 13, which is, effectively, a covenant for further assurance, that is implied anyway.

GORDON J:   Clause 13 might be the icing on the cake, but one starts even just with the recitals.

MR BLOOM:   Yes.

GORDON J:  

structure for . . . of the future conduct of their combined businesses and, accordingly, the implementation, management and operation of their combined businesses and affairs shall be undertaken in accordance with the terms of this Agreement and in particular, the DLC Equalisation Principles and the DLC Structure Principles ‑ ‑ ‑

MR BLOOM:   Yes, but wherein there does one find “by regard to a specific action”?  So one has to focus on the action.  One has to then find a direction, instruction or wish which caused that action.

GORDON J:   Well, “sufficiently influence” is might be reasonably be expected to or might be expected to be.

MR BLOOM:   Yes, of course.  Yes, your Honour, of course.

GORDON J:   So let us use that pocket for the moment.

MR BLOOM:   Yes, of course.  Well, my learned friend does, so I guess I have to deal with it, yes.

GORDON J:   One then says, “Well, identify for me an action”.  If one goes through the DLC sharing agreement, structure principles, that they are being managed in that way, one then goes to the things identified by Justice Thawley, you have the joint electorate matters, you have the class action rights, you have the adjustment of dividends, you have the voting that is adjusted to make sure that every resolution is – not only is the meeting held at a similar time, but the votes are sufficient to get it through.

MR BLOOM:   It is all dealt with in the agreements, yes, your Honour, but even then ‑ ‑ ‑

EDELMAN J:   So your submission then effectively would be that if you had a DLC arrangement that was unilateral so that, say, Plc always had to follow all of the decisions that were made by Limited, that still would not satisfy the requirements of 318?

MR BLOOM:   No, I do not say that.

EDELMAN J:   Why not?  Why does that not follow from the submissions that you have made?

MR BLOOM:   Because we say that under the documents here, to which I need to take your Honours, there is no direction, instruction or wish expressed.

KIEFEL CJ:   There is an outcome sought to be achieved and the parties say this is what we would like to happen, and that is not a wish?

MR BLOOM:   Your Honours, parties enter into a contract for the consideration, not for the wishes about it, not for the hope.

KIEFEL CJ:   Commercial outcomes?

MR BLOOM:   Well, yes, they intend to achieve the commercial outcome that they are conducting this joint venture and for the purpose of that joint venture certain sorts of resolutions like changing the company’s name or appointing an auditor need to be passed by both companies, or neither perhaps, and that does not, however, envisage any direction, instruction or wish, one to the other; still less one that is acted upon.  Justice Thawley at the end of the day fastened on one thing as the action and his Honour said it was keeping the general meeting open - I think he meant keeping the poll open – to allow the votes of a shareholder to be cast.

GORDON J:   Well, can I come back to even more basic ideas ‑ ‑ ‑

MR BLOOM:   Yes, of course, your Honour.

GORDON J:   ‑ ‑ ‑ in fact set out at clause 2(a).

MR BLOOM:   Of what agreement, I am sorry, your Honour?

GORDON J:   Of the DLC structure sharing agreement.

MR BLOOM:   Yes.

GORDON J:   They:

must operate as if they were a single unified economic entity, through boards of directors which comprise the same individuals and a unified senior executive management;

They must have regard to the interests of the holders of the other shares as if they were a single unified economic entity.  They must observe the principles and they:

agree to pursue and agree to procure . . . that each member of its respective Group –

will do the same.  It sounds like at least a wish, if not an instruction or direction to each other, does it not?

MR BLOOM:   Well, no, your Honour, it is a contract, and in that contract each party agrees to a certain thing, and one knows from Walker v Wimborne that each of these companies must have regard to its own stakeholders as a matter of law, and that is the same with companies in a group as well.  So each company ‑ ‑ ‑

GORDON J:   But here the relevant provisions of the constitution and the articles - I forget which - I think BHP has a constitution and Plc has articles – absolves the directors from not acting in the interests – of just the interests of the company and says it is not a breach of their fiduciary duty.

MR BLOOM:   Well, your Honour, with respect, how can that be in the context of the company law?

GORDON J:   It provides an indication of the extent to which they are prepared and expect to behave in accordance with each other’s directions and wishes.

MR BLOOM:   Not in accordance with directions and wishes, but in accordance with this overarching agreement, yes, with respect.

GAGELER J:   A contract, Mr Bloom, can be the source of a reasonable expectation for the purpose of the provision.

MR BLOOM:   Yes, but it still must be the source of a reasonable expectation that some action will occur, and that that action will be caused by a direction, instruction or wish.  You cannot elide all of that, with respect.  Those are elements of the section that one must find before the section is satisfied.

GORDON J:   So you accept that it can be a foundation of a reasonable expectation, but that there is nothing within either the DLC structure sharing agreement or the other provisions, other agreements to which it relates which set up, in effect, a prescribed form of conduct by the two entities is sufficient of itself to give rise to either a direction, instruction, or a wish.

MR BLOOM:   We do say that, your Honour, yes.

EDELMAN J:   So I come back then, to my earlier question - if you just framed this as unilateral or unidirectional rather than multidirectional, why would not the result for which you contend be the same, in other words, if one company was agreed that it would always comply in exactly the same way with the other company, rather than a multidirectional approach?

MR BLOOM:   Yes, but that is not to be found here, with respect.

EDELMAN J: I realise that, but the consequence of your submission is that one could very easily evade the purpose of section 318 then.

MR BLOOM:   Your Honour, I do not think even my learned friend is suggesting the DLC was put together to get around Part X.

EDELMAN J:   I realise that, but that would be the consequence of your construction.

MR BLOOM:   He sees this as creating a windfall for him.  You see, BMAG used to be a subsidiary entirely of Billiton, and dealt happily with the Billiton Plc subsidiaries.  Now, as a result of Part X, and BHP coming in and taking 58 per cent of BMAG, the Commissioner sees this as an opportunity to include income that was formerly outside the net from BMAG sales of Plc subsidiary product.  That is hardly an avoidance mechanism, and with respect, nothing could be further away.  I mean, certainly, they are ordering the way in which their joint venture is to be carried out, but nothing, in our respectful submission, rises to the level ‑ ‑ ‑

GORDON J:   It is not a joint venture, Mr Bloom.

MR BLOOM:   Well, your Honour, for want of a better term, it is an agreement that the companies will conduct their business in harmony in terms of certain mining activities and sale of product around the world.  Is that a convenient time, your Honour?

KIEFEL CJ:   Yes, it is a little early, but we can take ‑ ‑ ‑

MR BLOOM:   I am going to go through all of these documents now, your Honour, so‑ ‑ ‑

KIEFEL CJ:   A different subject, yes, very well.  We will adjourn.

AT 11.08 AM SHORT ADJOURNMENT

UPON RESUMING AT 11.23 AM:

KIEFEL CJ:   Yes, Mr Bloom.

MR BLOOM:   Thank you, your Honour.  Two things; first of all, your Honours, there are a number of overseas DLC’s, I am told, before 1990.  The first was Unilever in 1930, the second was the ABB Group in 1988, third was the Eurotunnel in 1986, and the fourth was Smith Kline Beecham in 1989, and the first Australian was Rio in 1995, so after this legislation.  The second thing is, your Honours, just to make it clear, if we are wrong about the necessity for effective control, or subservience, and the Buzzle formula applying, we lose.  But it is our submission that your Honours should, with respect, accept that subservience or effective control is necessary and that as a result the Buzzle formula is what should apply.

Your Honours, none of their Honours in the Full Court dealt with the meaning of the term “directions, instructions or wishes”.  Justice Thawley, in the core appeal book, paragraph 137, page 116:

As to the first issue, the fact that the notification is the provision of information does not mean it was not the communication of “directions, instructions or wishes”.  The communication of information is the communication of knowledge about some particular fact, subject or event . . . The communication of directions, instructions or wishes will always involve the provision of information, namely the content of the directions, instructions or wishes.

But his Honour does not say, with respect, why the corollary is true.  And having regard to their context, and if we are right about a need for effective control on one hand, subservience on the other, the context requires imperative command.  So directions, instructions, imperative command is easy to understand with respect to them, but even the word “wishes” in that collocation, means, in our submission, to command, to request, or entreat.  And I simply give your Honours a reference to the extract from the Macquarie Dictionary, which are in the joint book of authorities volume 5, tab 48, at page 1281.

That fits neatly, in our respectful submission, with the Buzzle formulation, namely that the controlling entity’s directions have been or will be treated as themselves as sufficient reason to act.  We adopt, with respect, what Justice Davies said, at paragraph 31, court book 84:

It is important to read s 318(6)(b) as a whole and the meaning of the phrase “to act in accordance with” cannot be considered without regard to the preceding words “are accustomed or under an obligation (whether formal or informal), or might reasonably be expected”. Read as a whole, it is reasonably clear, in my view, that the phrase “to act in accordance with” is not just the language of causation in the sense of taking into account. In my view, the causative connection imported in the words “to act in accordance with” involves more than simply taking account of, or having regard to, the direction, instructions or wishes of another entity. In my view what makes an entity an “associate” of a company within the meaning of s 318(6)(b) for the purposes of ss 318(2)(d) and (e) is the requirement or practice of the company (or its directors) to follow, or a reasonable expectation that the company will follow, the directions, instructions or wishes of that entity.

And her Honour refers to Buzzle and Justice Hodgson’s formulation.

Now, your Honours, the conclusion by Justice Thawley with whom the Chief Justice agreed that Limited and Plc sufficiently influenced each other within section 318 was based primarily upon the voting arrangements under the DLC. The relevant Act was, in his Honour’s opinion, the keeping open of the general meeting to allow a poll to be finalised and the direction, instruction or wish in accordance with which the Act might reasonably be expected to have been carried out was the giving of a notification as required by the constituent documents providing factual information.

Now, both of these ‑ keeping the poll open to allow the votes to be cast and the giving of the notification – are, as your Honours know, mandated by the constituent documents, in particular keeping the poll open could in no way, in our respectful submission, be said to have been in accordance with the notification which merely notified numerical information.  In his Honour’s view the arrangements with respect to matching dividends were, to use his words:

relevant to, and probative in, the enquiry required by ss 318(2) and 318(6)(b).

That is at page 123 of the core appeal book at paragraph 163.  He said that they together with the voting matters supported:

a conclusion that Ltd and Plc sufficiently influenced each other.

But what is not clear, with respect, is how that fits within the terms of the definition which require a direction in accordance with the Act takes place.

So I come now to the voting procedures:  they are set out in the Limited constitution and the Plc articles which mirror the Limited constitution, the sharing agreement and the special voting shares deed, all of which are contained in the appellant’s book of further materials, and your Honours know they were issued in Limited both ordinary shares and a special voting share.  The special voting share is held by BHP special vehicle company, and in Plc the special share is held by Plc SVC and those companies are unrelated to either Limited or Plc.  The special provisions are made with respect to two kinds of actions ‑ class right actions and joint electorate actions. 

I will ask your Honours to go to page 36, dealing first with Article 59:

The following matters shall constitute Class Rights Actions if undertaken by either the Company or Plc.

This is in the constitution of Limited but has its mirror provision in the articles of Plc:

(a)      the voluntary liquidation of the Company or of Plc;

(b)      amendment of –

various of the agreements, et cetera.  Then subparagraph (3):

(a)a Class Rights Action shall require approval by a Required Resolution of the shareholders of both the Company and Plc, in each case at a meeting at which the holders of Ordinary Shares and the holder of the Special Voting Share are entitled to vote as a single class on a poll; and

(b)in relation to such resolution proposed at a shareholders’ meeting of the Company, if the proposed Action has not, by the time of the closing of the poll, been approved by a Required Majority of the holders of Plc Ordinary Shares, the holder of the Limited Special Voting Share shall have sufficient votes to defeat such resolution as provided in Rule 62; and

(c)the holder of the Limited Special Voting Share shall otherwise not be entitled to vote in relation to that resolution.

Joint electorate actions are dealt with in clause 60 and those are things like the change of name of the company, appointment or removal of auditors.  And subclause (2) on page 39:

(a)an ordinary resolution (or a special resolution if required by this Constitution or Applicable Regulation) of the votes cast by the holders of the Limited Ordinary Shares and the holder of the Limited Special Voting Share, voting as a single class; and

(b)an ordinary resolution (or a special resolution if required by the Plc Articles or Applicable Regulation) or the votes cast by the holders of the Plc Ordinary Shares and the holder of the Plc Special Voting Share, voting as a single class. 

Now, the DLC structure sharing agreement at page 164 to 7, in clause 4.1 at the top:

Neither BHP nor Biliton shall undertake any of the following actions unless such action has been approved in accordance with this Clause 4.

4.2 approvals, talking about the required resolution.  4.3, class rights procedure:

a Class Rights Action shall require approval by a [special] Resolution of the shareholders of each party at a meeting at which the holders of Ordinary Shares and the Special Voting Share are entitled to vote as a single class on a poll.  In relation to such resolution, if the proposed action has not, by the time of the closing of the poll, been approved by a Required Majority of the holders of Ordinary Shares in either party, the holder of the Special Voting Share in the other party shall vote so as to defeat the resolution (and will have sufficient votes to effect such defeat).  The holder of the Special Voting Share in the other party shall otherwise not vote in relation to that resolution. 

And in joint electorate matters, the joint electorate procedure is at 5.2:

A Joint Electorate Action shall require approval by both:

(a)an Ordinary Resolution (or a Special Resolution . . . of the votes cast by the holders of the BHP Ordinary Shares and the holder of the BHP Special Voting Share, voting as a single class; and

(b)an Ordinary Resolution (or a Special Resolution if required by either . . . of the Billiton Special Voting Share, voting as a single class.

Now, there is a definition of “parallel general meeting” in the constitution at page 15:

means in relation to the Company or Plc, the general meeting of the shareholders of that company which is most nearly, or is actually, contemporaneous with the general meeting of the shareholders of the other company and at which some or all of the same matters or some or all equivalent matters are to be considered ‑

Then the number of votes which attach to the special voting shares is dealt with in Articles 61 and 62 at page 39:

Subject to restrictions on voting affecting any class

. . . 

(b)       . . . on a poll:

(i)     each holder of Limited Ordinary Shares:

(A)has one vote for each fully paid Limited Ordinary Share held ‑

Over the page:

the holder of the Limited Special Voting Share shall have the Specified Number (as set out [in] Rule 62) –

Rule 62:

(1)The holder of the Limited Special Voting Share shall be entitled to attend at any general meeting at which the holder of the Special Voting Share is entitled to vote and, subject to the provisions below, to cast on a poll the Specified Number of votes, some of which may be cast for, some of which may be cast against, and others of which may be abstaining on, any resolution.

(2)(Joint Electorate Actions)  The Specified Number of votes in relation to a resolution of the Company on a Joint Electorate Action shall be the total number of votes validly cast on the poll on the equivalent resolution at the Parallel General Meeting of Plc

. . . 

(3)(Class Rights Actions)  The Specified Number of votes in relation to a resolution of the Company to approve a Class Rights Action shall be equal to 34 per cent (in relation to an action to be approved by special resolution) and 67 per cent (in relation to an action to be approved by ordinary resolution) –

Finally, your Honours, Articles 55 and 56 deal with voting.  Any meeting, under subrule (3), on which a:

Limited Special Voting Share is entitled to vote shall be decided on a poll.

And the taking of a poll is dealt with in 56, and it is that, subrule 56(1), that requires that the poll should be kept open to allow all the votes to be cast.

Notification is dealt with in the “Special Voting Shares Deed”, that is at 183 and following, relevantly.  This is the notification that Justice Thawley thought was a direction, instruction or wish.  2.1, this is “Joint Electorate Actions”:

BHP undertakes that, in relation to any resolution relating to a Joint Electorate Action, BHP shall, as soon as possible, notify Billiton SVC and Billiton in writing of:

(a)the number of votes cast for and against each resolution in relation to a Joint Electorate Action; and

(b)its calculation of the BHP Specified Number of votes which the Billiton Special Voting Share will carry in relation to each such resolution and of the way in which Billiton SVC is required to vote the BHP Specified Number of votes attaching to the Billiton Special Voting Share in relation to each such resolution in accordance with the Billiton Memorandum and Articles and this Deed.

So it is purely informative.  There is no direction in the ordinary sense, no instruction in the ordinary sense, and no wish conveyed by this notification.  Similarly for the notification by Billiton, just in reverse.  And then on “Class Rights Actions”, even simpler:

Billiton undertakes that, where it is required to pass a resolution in relation to a Class Rights Action, Billiton shall, as soon as possible, inform BHP SVC and BHP in writing in accordance with Clause 16.4 as to whether or not the resolution was passed by the Required Majority of the holders of Billiton Ordinary Shares.

And that is all the information that is given.  Everything else flows from the provisions of these documents.  Any obligation, any custom, any reasonable expectation flows from what the documents themselves require.

GORDON J:   Is that right, given clause 4 of that ‑ ‑ ‑

MR BLOOM:   I should have taken your Honours to clause 4; yes, I am sorry.  Yes, I think so, your Honour.  Well, they each undertake that they only cast the number of votes that they are entitled to.  Is that what your Honour is referring to?  They each undertake they will vote, but that is an undertaking in this deed. 

GORDON J:

in accordance with the requirements of the . . . Constitution and this Deed.

MR BLOOM:   Yes.

GORDON J:   Then shall only vote:

in accordance with the requirements of the . . . Memorandum and Articles –

of association.

MR BLOOM:   Yes, and the special voting shareholder is the only one who is giving that undertaking and it is the only one that can act on the information which was provided.

GORDON J:   Then the undertaking set out in 4.4 from the special shareholder.

MR BLOOM:   Yes.  Again, it is the SVC that undertakes what it will do, once it is notified.  So the notification, if it is a direction, instruction or wish, it can only be acted upon by the special voting company.  It is not acted upon by Limited.  That is why his Honour Justice Thawley said, “Well, there is an action, really, by the company, and that is keeping the general meeting open” ‑ we suspect he meant keeping the poll open.  But that again, too, is mandated by these documents.

So, if it is a direction, instruction or wish – and, with respect, we say it is not – it can only be sent, in the sense of requiring an action, to the special voting company, not to the other company and the action is that of the special voting company in complying with its obligations under these documents.

So, your Honours, just to summarise that – I hope, helpfully – in the case of joint electorate actions, the total number of votes cast at the general meeting of each of Plc and Limited will be the same.  That is because the special voting share in each company carries the same number of votes for and against as the ordinary shareholders cast in the other company.  There is an example given in the judgment of Justice Thawley at core appeal book, page 113, paragraph 127.  It is an example we handed up to his Honour.  Your Honours see that they are the ordinary shareholders who, of course, are not the company alone.  The special voting company is as much a shareholder as the ordinary shareholders, but the ordinary shareholders, of course, their vote does not affect anything as an act of the company in the general meeting.

So, the ordinary shareholders of Limited vote 5 million for, 800,000 against; Plc 200,000 for, 4 million against.  If it was just on the basis of those votes alone then obviously it would be carried in Limited and not carried in Plc.  So then the special voting company is given the same number of votes in the other company as was cast by the ordinary shareholders.  So, at the end of the day, in each company the resolution is carried by 5,200,000 to 4,800,000 as a consequence of the votes attached to the SVC.

GORDON J:   Putting aside your challenge to Justice Thawley’s analysis of what the effect of these provisions is, do you take issue at all with any of his description or analysis of the provisions themselves?

MR BLOOM:   Yes, unfortunately ‑ ‑ ‑

GORDON J:   If so, which bits?

MR BLOOM:   It is a bit colourful, with respect, talking about vetoes and that sort of thing.  His Honour does not fully deal with each of the provisions to which I have taken your Honours.  We prefer, with respect, that your Honours go to the provisions themselves and to the summary which I am giving your Honours at the moment.

GORDON J:   Does it remain the position that the parties put aside the equalisation fraction which is, on any view, close to incomprehensible? 

MR BLOOM:   It was one‑to‑one during the relevant time.  That part I understand, at least, your Honour.  Your Honours, when it comes to the expression of “wishes”, the shareholders in general meeting have no authority to speak on behalf of the company except to the extent and in a manner consistent with the constitution or statute. 

If I could ask your Honours to go to the decision of the Full Federal Court in Australasian Centre for Corporate Responsibility v Commonwealth Bank of Australia, which is in the joint book of authorities volume 4, behind tab 33, a decision of the Chief Justice, Justices Foster and Gleeson, and at page 936 beginning paragraph 34, there is a reference to the decision of Sir Frederick Jordon in Clifton v Mount Morgan.  And then at 37:

The appellant did not argue that Jordan CJ’s statement of the law in Clifton was incorrect.  In our view, Clifton is authority for the fundamental proposition that the shareholders in general meeting have no authority to speak or act on behalf of the company except to the extent in the manner authorised by the company’s constitution or any relevant statute, and to an extent and in a manner consistent with the constitution or statute.  This proposition extends to the expression of a “wish” on behalf of the company, unless it is demonstrated that the meeting has legal authority to represent the company on the relevant subject matter.

The correctness of the proposition arises from the fact that, if the shareholders in general meeting are to take any action on behalf of the company rather than as individuals (whether alone or collectively), they must be authorised by the company to do so.  Any source of authority must be found in the constitution of the company or in statute.

Now, a fortiori, in our submission, some only of the shareholders cannot speak, or indeed even express a wish on behalf of the company.  The ordinary shareholders are some only of the shareholders.  The company will not speak, in general meeting, until all of the shareholders have voted, and that includes the special vehicle company when it is authorised to vote.  And the GM, the general meeting, will involve the votes of all of those shareholders, and the result of the general meeting will be the result of all of those votes.  If your Honours will excuse me for a moment.  Yes, at the top of 934 in that report, if your Honours could just look at the first sentence:

Until and unless a resolution is passed, a meeting does not accomplish anything that has a real effect ‑

And on the class rights action resolution, it is even simpler.  Both companies must in general meeting pass the resolution, or it will fail.  Suppose that Limited’s ordinary shareholders vote in favour of a resolution.  If their votes alone were taken into account, it would pass.  Then suppose that the converse occurs with Plc, if the ordinary shareholders’ votes alone were taken into account, the resolution would fail.  In those circumstances, the number of votes attaching to the share of Limited special vehicle company in Limited, under the constituent documents, is sufficient to defeat Limited’s resolution, and the documents require Limited SVC to vote so as to do so.

EDELMAN J:   You could potentially have a tie, could you not?

MR BLOOM:   I have not thought that through, your Honour.

EDELMAN J:   Is there any tiebreak provision?

MR BLOOM:   I do not believe so.  I believe it depends on whether the resolutions are passed versus not passed, I think they are the only circumstances that the documents ‑ ‑ ‑

GORDON J:   The agreement provides the provision that the resolution will not pass if there is no agreement, is there not?

MR BLOOM:   Is there a provision to that effect, your Honour?  I had not appreciated that.

GORDON J:   Well, that is the way it worked.

MR BLOOM:   Tiebreak.

GORDON J:   No, not a tiebreak, it just does not go forward.

MR BLOOM:   Well, if it is not passed by one, it does not go forward in either.

GORDON J:   Correct.

MR BLOOM:   Yes.

GORDON J:   So there can never be the question of a tie.

MR BLOOM:   Yes.  Yes, your Honour.  If I could then take your Honours to the judgment of Justice Thawley at core appeal book 120, paragraph 151.  It starts at 119:

If the Plc ordinary shareholders had voted against a “Class Rights Actions” resolution, then notification of that by Plc to Ltd and BHP SVC is the communication of directions, instructions or wishes.

His Honour does not say why:

It is a communication which would occur after the Plc poll closed, because Billiton SVC had no entitlement to vote (the ordinary shareholders in Plc having voted down the resolution).  By reason of rule 59(3), rule 56(1) did not require the poll to be kept open.  In the scenario that the number of votes of the ordinary shareholders in Ltd were such that the resolution would pass in Ltd, the notification has the necessary consequence that BHP SVC cast the “Specified Number” of votes to ensure the resolution in Ltd fails.

That is a consequence, of course, under the constituent documents, not a consequence of the notice:

Ltd has agreed, by clause 6.3 of the Sharing Agreement –

as his Honour notes:

to keep the Ltd poll open to allow that to occur, and rule 56(1) of the Ltd Constitution requires the directors to keep the poll open.

But no notice, in information or otherwise, requires that:

Ltd –

and this is where his Honour, with respect, uses what we say is colourful language:

is under an obligation pursuant to the SVS Deed and the Sharing Agreement to facilitate Plc’s “veto” –

First, it is not a general veto.  It is only to ensure that with respect to the class rights action a resolution is either passed by both or neither and in those circumstances it involves attaching to the share the identified special number of votes.  That number of votes is the votes which can be cast by the special vehicle company.  That does not in any way involve an action by Limited or Plc in response to a notification of the number of votes that have been, for instance, cast at the other meeting or the number of votes worked out as being the special voting shareholders’ number of votes.             His Honour notes, at the beginning of 154:

The SVS arrangement did not put either Plc or Ltd in a position of subservience to the other -

a finding which would we rely upon if our formulation is correct. 

Your Honours, what happens here is to talk about these things in substance there are many provisions in the Tax Act where one is directed to look at the substance of a transaction.  Part IVA is a well‑known example.  But if one is not directed to look at the substance of a transaction one must look at the transaction itself – unless it is a sham – and there is no suggestion of that here.  It is the transaction - it is what actually takes place with which your Honours are concerned, not what might be said to be an “in substance” result.  We have given your Honours a reference to a judgment of Sir Nigel Bowen in Federal Coke and also of this Court in Orica making that proposition good – that you cannot go to substance unless the statute permits.

GAGELER J:   You embrace the first sentence, but is the remainder of the paragraph also an accurate description of the substance of the arrangements?

MR BLOOM:   Yes, both had a say, but not a controlling, determinative say.  It is the special voting company which has the say.  It is the one which exercises the votes.  It is not the company that essentially gives the notice of the number of votes attaching to the share that controls that situation.  It is the number of votes attaching to the share by virtue of the documents that brings about that situation.  So, no, with respect, in substance, even then his Honour is wrong.

GORDON J:   Could I just ask one question about that as a matter of fact?

MR BLOOM:   Yes.

GORDON J:   Does that proposition hold true, that is, that it is just the holder of the special share, given the terms of the special voting shares deed to which both those entities were parties and, in particular, their obligation that they undertook to act in accordance with the terms of that deed?

MR BLOOM:   Well, their obligation, Limited’s obligation, for instance, was to give a notice.

GORDON J:   No, no, your proposition was it was always the action of the holder of the special share.

MR BLOOM:   Yes.

GORDON J:   My question is does that still hold true, that proposition, given the terms of the deed to which they were a party, concerning the way in which they were going to behave?

MR BLOOM:   But the deed casts upon the special voting company the obligation to vote and in the case of class rights action in a particular way.  That is where the source of the obligation, whatever one calls it, is found.  Nothing done by Limited in giving a notice to the Plc special voting company causes that.  It is the agreement to which SVC is a party.  But more importantly, nothing causes Plc to do anything.  The only entity which does anything is the SVC.

GORDON J:   Thank you.

MR BLOOM:   Now, your Honours, we, with respect, submit that notification of the number of votes cast by the ordinary shareholders cannot, even as a matter of substance, be fairly regarded as a direction, notification or wish by Plc as to how Ltd SVC, for instance, will exercise the votes it is given under the constituent documents.  Your Honours, at paragraph 146 at page 118, Justice Thawley comes to what we say is the crux of the matter:

As to the third issue, it is true that the act of casting the “Specified Number” of votes was carried out by BHP SVC as the holder of the SVS in Ltd in accordance with the direction given under clause 2 by Plc as to what BHP SVC was “required” by Plc to do.  However, Ltd has to keep the meeting –

He means poll:

open to allow that to occur: rule 56(1). It was reasonably to be expected that both Ltd and Plc would act in accordance with the DLC Arrangement, the SVS Deed and their respective Constitution and Articles, which required each to ensure the votes of the other were taken into account in the manner contemplated.

Well, each provided for how the voting was to occur, but the notification which his Honour treats as the direction, instruction or wish did not do any of that.  It merely notified numbers and notified the numbers, for instance, attaching to the SVS share that in accordance with the constituent documents were required to be cast.  It of itself required in no sense anything.  His Honour then concludes the notifications were directions, instructions or wishes - again, his Honour does not come to grips, with respect, as to why:

were acted upon by Ltd and Plc and their directors, at a minimum, in keeping their [poll] open –

But again, keeping the poll open was mandated by the documents and keeping the poll open to allow shareholders entitled to cast a vote on a poll to vote is what all companies must do.  His Honour, in effect, notes that at the end of 151:

BHP SVC cast the “Specified Number” of votes to ensure the resolution in Ltd fails.  Ltd has agreed, by clause 6.3 of the Sharing Agreement, to keep the Ltd poll open to allow that to occur, and rule 56(1) of the Ltd Constitution requires the directors to keep the poll open.

So, your Honours, if we are correct that the notification is in no way causative of the keeping open of the meeting, or more correctly perhaps, the poll, then the consequences which flow are not to the point.  The consequences arise under the constituent documents.  The notification is essentially numerical and it provides the numbers upon which the constituent documents fasten to do their work. 

In summary, in our respectful submission, section 318 is not invoked in relation to the voting procedures for these reasons. Firstly, there is no direction, instruction or wish in any relevant sense communicated by Limited to Plc or vice versa. Secondly, there is no act by the recipient, that is, by Limited or Plc, of the notice which is in any sense caused by the notice, as opposed to the constituent documents. Thirdly, the relevant act is by the special voting company, and that is attending and voting in accordance with the acts required by the constituent documents. But again we adopt, with respect, what is said by Justice Davies at paragraph 41 at page 88:

The Tribunal also reasoned that a company is a legal entity separate from its shareholders and that the shareholders of Ltd and Plc in casting their votes at a general meeting exercised a personal right and “had no power even to express a ‘wish’ in respect of matters consigned to the board of that company”. That reasoning does not take into account that each company was not only required to notify the other company as well as the other company’s special voting shareholder of the votes required to carry or defeat a resolution, but was also bound to an arrangement under which the other company’s special voting shareholder was required to exercise the number of votes as notified. However, for a company to be “sufficiently influenced” within the statutory meaning of that expression, it is also a requirement that, in acting, the company is doing so on or at the direction, instruction or wishes of that entity. In this case, on the findings of the Tribunal, each company, in entering into and implementing the DLC arrangements, which included the special voting arrangements, was pursuing its own interests in the exercise of independent judgment. The fact that under the special voting arrangements each company must follow a procedure designed to achieve uniform resolutions at general meetings of the companies is not one company acting “in accordance with” the direction, instruction or wishes of the other company within the meaning of that phrase as used in s 318(6)(b). It is each company giving effect to the contractual terms governing the DLC Arrangement pursuant to which the companies act jointly with a mutuality of interest.

Then, for completion on this point, could I ask your Honours to turn to page 42 of the core appeal book and note ‑ ‑ ‑

KIEFEL CJ:   What was the page number, Mr Bloom?

MR BLOOM:   Page 42, your Honour, in the reasons of the Tribunal, and just ask your Honours to note paragraph 18 at about line 29:

During the Relevant Years:

(a)the votes cast by the Special Voting Shares never caused a resolution of Ltd or Plc to be passed in circumstances where the resolution would not otherwise have been passed solely on the vote of Ltd’s or Plc’s ordinary shareholders (as applicable);

(b)the votes cast by the Special Voting Shares never caused a resolution of Ltd or Plc to fail in circumstances where the resolution would not otherwise have failed, solely on the vote of Ltd’s or Plc’s ordinary shareholders (as applicable); and

(c)no resolutions on Class Rights Actions were proposed, or put to a vote at a general meeting of Ltd or Plc.

So reasonable expectation is the only basis upon which one can come at the subsection.  Your Honours, could I now turn to the question of dividends.  The relevant materials for this are found in the respondent’s book of further materials, if your Honours have that. 

Now, your Honours know that for each of Limited and Plc, the power to determine and pay dividends is conferred on the board of each company.  Rule 118 of the Limited constitution, which is the appellant’s material at page 55 - I will not take you to it - is mirrored in the Plc articles and it is trite to say, with respect, that the Limited board does not have power to declare dividends and pay dividends on Plc ordinary shares – only on its own.

Under rule 101 of Limited’s constitution, which is at page 53 of our materials, the Limited board can also delegate any of its powers or discretions to a committee.  That was the same, of course, mirrored in the articles of Plc.  Under the sharing agreement, Limited and Plc have, your Honours, agreed to pay matching dividends – and I do need to take your Honours to the appellant’s book of further materials for that.  It is page 162, clause 3.3.  The relevant subparagraph is (a):

if the Action proposed by either party is the payment of a cash dividend to its Ordinary Shareholders, then, notwithstanding that the provisions of Clause 3.2(b) . . . a Matching Action shall be taken in the form of a cash dividend by the other party to its Ordinary Shareholders -

If you go back to 3.1, under the DLC equalisation principles, (a)(i):

receive equivalent economic returns –

Now, at paragraph 4 of his reasons, which is core appeal book 43, the Tribunal noted that during the relevant years Limited and Plc acted consistently with these provisions.  I understand that is as much forward as it gets me, but his Honour made that note.  The Limited board and the Plc board each delegated authority to approve the payment of dividends to the risk and audit committee.  If your Honours go to the judgment of Justice Thawley at the core appeal book 121, paragraph 156:

Clause 3 of the Sharing Agreement required Ltd and Plc to declare matching dividends.  The evidence before the Tribunal indicated that the boards of Ltd and Plc, constituted by the same individuals, met at the same time. 

That, of course, does not mean anything, with respect.  They are still independently directors of each company, as your Honour Justice Gordon noted in the BHP Finance Case, which is in the materials.

Both Ltd and Plc delegated to the “Risk & Audit Committee” the authority to approve the dividend.  It was the practice of the Ltd and Plc boards to recommend to that Committee from time to time that it resolve to pay dividends in certain amounts payable on certain dates. 

Now, the terminology actually used, as you see from the next paragraph, is “resolve and note” so this is Limited board meeting:

Memorandum dated 25 January 2006 was submitted and it was resolved to delegate to the Risk & Audit Committee the authority to approve a dividend and to recommend to the Committee that it resolve –

that is in the case of Limited:

and note –

that is in the case of Plc:

at its meeting to be held on 13 February –

the dividend on BHP and the dividend on Plc.  Obviously the Limited board cannot resolve to pay a dividend on the Plc shares.  Then his Honour sets out, in 158, that the Plc minutes contain exactly the same words in reverse and then, 159:

The minutes of the meeting of the Risk & Audit Committee on 13 February 2006 contained:

. . . 

It was resolved on behalf of BHP Billiton Limited and noted by BHP Billiton Plc in respect of paragraph A, and resolved on behalf of BHP Billiton Plc and noted by BHP Billiton Limited in respect of paragraph B -

that the respective dividends be paid.  So no company was trying to recommend the actual declaration of a dividend of the other company.  That was just a notation but each had agreed, of course, under the constituent documents to pay matching dividends.  Those documents - I will not take your Honours to them - if you want to go to them are to be found in the respondent’s book of further material commencing at page 3.  They include the minutes of both companies and go through the minutes of the risk and audit committee.  So each company delegated the authority with respect to what it could delegate authority to, which is the payment of dividends on its own ordinary shares. 

Now, your Honours, where in all of this, with respect, is to be found the communication of a direction, instruction or wish by Plc to Limited or vice versa. With respect, the answer is nowhere. To say that each company wished the other to comply with its obligations under the constituent documents is not, with respect, to invoke the definition in section 318(6). It would mean that any two companies that complied with the - who expressed wishes about a contract they had entered into, would be associates for the purpose of the definition. That cannot be right, with respect. One needs to have both direction, instruction and wish and causative effect.

Finally, your Honours, might I come to the question of whether BMAG was sufficiently influenced by its two shareholders.  Justice Thawley held any company is reasonably expected to act in accordance with the wishes of its shareholders, ergo, it must follow that any subsidiary is going to be an associate of any other company, whether or not the control test in voting – separately dealt with – is satisfied.  With respect, that is not the intention of the provisions.  Justice Thawley at paragraph 170, which is at page 125:

The Tribunal’s reasoning at [52] –

which she set out just above, and I will come back to that:

is not sufficient for a conclusion that BMAG was not “sufficiently influenced” by Ltd and Plc as that term is described by s 318(6)(b). The conclusion in the last sentence, that BMAG did follow the wishes and directions of Ltd or Plc, implied that s 318(6)(b) applied. The reason the Tribunal concluded that s 318(6)(b) did not apply was that BMAG did not treat those directions as a reason to act “without more”. That is not what ss 318(2) and 318(6)(b) require –

But, in our respectful submission, that is precisely what they require:

whilst subservience or abdication of responsibility would likely be sufficient, neither is necessary –

Now, if we could go to the Tribunal at paragraph 43, page 57 – and we are looking at whether the company or its directors are sufficiently influenced by controlling entities – the company now being BMAG and the controlling entities, pivotally being its two shareholders, indirect shareholders:

On the evidence, there is no third party that controls the business or day to day activities of BMAG.  That control is exercised by its board.  There are no shams abroad here.  The evidence discloses meticulous attention within the Group to the legal realities of separate legal personalities.  This emerges from a study of both BMAG’s formal governance structure and the administration in the Relevant Years of that framework.

The following features of BMAG’s formal governance structure during the Relevant Years were not controversial:

(a)Pursuant to its Articles of Incorporation and the Swiss Code of Obligations (SCO), the shareholders’ meeting was the supreme corporate body of BMAG.  The shareholders’ meeting had the following inalienable powers:

(i)the adoption and the amendment of the Articles of Incorporation;

(ii)the election of the members of the BMAG Board and of its auditors;

(iii)the approval of the annual report and the annual accounts;

(iv)the approval of the annual financial statement as well as the resolution on the use of the balance sheet profit, in particular, the declaration of dividends and of profit sharing by directors;

(v)the granting of discharge to the members of the BMAG Board; and

(vi)the passing of resolutions on matters which by law or pursuant to the BMAG Articles of Incorporation were reserved to the General Meeting of the Shareholders.

(b)Pursuant to BMAG’s Articles of Incorporation, the SCO and the BMAG Management Regulations, the non‑transferable and inalienable powers and duties of its board included the following:

(i)the ultimate management of BMAG and the giving of the necessary, related directives;

(ii)the appointment and removal of BMAG’s officers who had managerial responsibility and who had the authority generally to represent BMAG; and

(iii)the ultimate supervision of such officers, in particular, in view of compliance with the law, BMAG’s Articles of Incorporation, regulations and directives.

(iv)subject to that ultimate supervision, an ability to delegate the implementation of some of the board’s duties to an Executive Committee, a Managing Director, and other managerial officers.

As a matter of law, the members of BMAG’s board were required to perform their duties with all due diligence and safeguard the interests of the company in good faith. 

Then he refers to Article 717 of the SCO:

A number of relevant propositions follow from these features of BMAG’s governance structure:

(a)control of BMAG, in the sense of an ability to appoint or remove board members so as to ensure conformity with a particular policy, reposed in the person who controlled the majority voting power at a general meeting ‑ here, ultimately, Ltd; and

(b)control of BMAG in the separate sense of control of its business and day to day activities reposed in its board.

As to each of these propositions, it is an agreed fact and I find that BMAG was so controlled during the Relevant Years.  In other words, the actions of Ltd as controlling shareholder and BMAG’s board were undertaken in accordance with the terms of its Articles of Incorporation and Management Regulations.

As to 318(2)(d)(i)(B) of the ITAA1936, the Commissioner submitted that Ltd and Plc, as shareholders in BMAG and as parties to the DLC Arrangement, together sufficiently influenced BMAG for the purposes of (B), because BMAG was accustomed, or could reasonably be expected, to act in accordance with their directions, instructions or wishes. He did not contend that Plc, alone, sufficiently influenced BMAG for the purpose of s 318(2)(d)(i)(B).

One difficulty with the Commissioner’s contention is that there is just no evidence to suggest that BMAG’s board members neglected their duties or failed to act, first and foremost, in its interest.  To the contrary, what is in evidence are minutes of the BMAG Board meetings during the Relevant Years.  These record careful deliberations of that board and the passing of resolutions based on those deliberations.

Ltd cited in support the following example of board conduct in its submissions as indicative of such behaviours by BMAG’s board.  These examples do indeed support the conclusions stated in the preceding paragraph:

(a)BHP Billiton Group guidelines regarding policies, strategies, procedures, etc. relating to the operation of BMAG, which materially include the marketing policies or frameworks referred to by the Commissioner in submissions, were considered and approved by the BMAG’s board before being implemented.  These guidelines were, necessarily, capable of being revoked or amended at any time by the BMAG’s board.

(b)BMAG’s board actively evaluated matters and recommendations put to it from BMAG’s perspective.

(c)In some instances, BMAG’s board rejected recommendations made to it, and requested revised recommendations, or for amended resolutions to be put to it for consideration.

(d)BMAG’s board was, as I have stated, meticulous in ensuring adherence to its corporate governance structure and compliance with board obligations under the SCO, including in relation to delegated authorities.

(e)Any delegation by BMAG’s board (including under various approval or authority frameworks) was subject to its ultimate management and supervision.

For reasons canvassed above in relation to Ltd and Plc, that it is possible, even probable, that BMAG’s interests regularly coincided with those of Ltd and Plc and that BMAG’s consequential actions regularly further not just its own but also the interests of those companies’ interests does not mean that BMAG’s board failed to make an independent judgment when making decisions for BMAG.  Further, and as Ltd correctly submitted, this did not derogate from the duties imposed upon BMAG’s board members when performing their functions (outlined above) to consider whether pursuing the interests of BMAG’s parents (and its parents’ ultimate shareholders) was compatible with their other obligations, particularly including their obligation to act in the interests of BMAG ‑

and his Honour refers to Charterbridge Corporation, of course, the same is said in Walker v Wimborne.  Then we get to paragraph 52 that Justice Thawley relied upon:

Ltd submitted that BMAG was neither accustomed to treating, nor could it reasonably be expected to treat, the wishes or directions of either Ltd or Plc, or both (if that were possible), as a sufficient reason to act without more.  I agree.  The reason for this agreement is twofold.  In law, the BMAG board was obliged to act in the best interests of that company and its shareholders.  In fact, it so acted on the evidence.  BMAG’s board only followed the wishes or directions of Ltd or Plc if the board considered that to do so was in BMAG’s best interests.

His Honour extracts from that, “Well, there were obviously some times when BMAG’s board followed the wishes or directions of Limited or Plc”. 

But one cannot, with respect, fairly dissociate the rest of that paragraph or the paragraphs that precede it. 

Again, your Honours, there is no evidence of any likely direction, instruction or wish which would be causative, again in the Buzzle sense, of any action to be taken by BMAG.  BMAG would always on the evidence, always on the findings of fact which were exclusively for the Tribunal, consider whether to act would be in its own interest, as it must, and would only act if it was in its own interest.  It would not therefore take into account anything that might come from its shareholders, assuming ever the two shareholders could give something together, independently of those obligations which it owed.  If your Honours please, those are our submissions.

KIEFEL CJ:   Yes, thank you, Mr Bloom.  Mr Hmelnitsky.

MR HMELNITSKY:   Thank you, your Honour.  Your Honours, we broadly support the reasoning that your Honours see in Justice Thawley’s judgment.  I will endeavour to cover the points that your Honours see outlined in the outline of oral argument without repeating the whole of the argument that Justice Thawley sets out. 

Can I start with text, and for that purpose can I invite your Honours back to section 318. Your Honours, we collect these various quite direct textual indications that Parliament did not have in mind in enacting section 318(6)(b) that the provision would only be satisfied and could only ever be satisfied in circumstances where an effective control relationship of the kind for which Limited contends was seen to exist.

The first of those is perhaps the obvious proposition that the section in fact does not use the word “control”, although that word “control” is used in the very following provision that your Honours see on page 35 in section 318(6)(c). I will come in due course to the manner in which this expression “associate” is employed elsewhere in the Act, and in particular elsewhere in Part X of the Act, and your Honours will again see side by side with the use of the word “associate” use of the word “control”, not control in any defined sense, but control used as an ordinary English word. That is the first point we make about the text of 318(6)(b).

The second is the reference in (6)(b) to the various ways in which the particular desire or wish, if I can use that expression neutrally, may be communicated to the primary entity in order for the provision to be satisfied.  The section speaks of directions, instructions or wishes.  There is a submission put by Limited that that expression, “directions, instructions or wishes”, is to be regarded as some kind of collocation indicating really just one meaning, that one meaning being wishes in the sense of a command.

There are difficulties with that, your Honours.  The first is, in our submission, it is just not the ordinary meaning of those words, “directions, instructions or wishes”.  In the context in which it was enacted that formulation, in our submission, seems rather to be attempting to widen the net of the kinds of communications that might be sufficient for the purposes of the section and not to narrow them to ‑ ‑ ‑

KIEFEL CJ:   I think Mr Bloom used the word “entreaty”. 

MR HMELNITSKY:  Yes.  

KIEFEL CJ:   That’s not quite a command. 

MR HMELNITSKY:   Yes, but it is on Limited’s submission an entreaty, or call it what one will, that is sufficient - that is itself a sufficient reason for the entity to act.  But in any event we do make the submission that that expression “directions, instructions, or wishes” is a broadening of the meaning.  It does not - it cannot be read, at least in its ordinary sense, to be attempting just to indicate a single kind of entreaty, being an entreaty of the kind that Limited contends for. 

I might just give your Honours a reference to this but there is - to the extent it is suggested that “directions, instructions or wishes” is intended to operate as a hendiadys, as it is sometimes called, may I just give your Honours a reference to what Justice Heydon said about that in Victims Compensation Board v Brown (2003) 77 ALJR 1797 at paragraph 34.

The next textual communication - I apologise, your Honours, the next textual consideration that we identify is the reference in 318(6)(b) to the fact that the action in question or the influence in question may be one or may be of a kind that is performed pursuant to an obligation and, indeed, it may be performed pursuant to either a formal or an informal obligation. 

That has particular significance for the way in which Limited puts its case.  As your Honours have heard what on Limited’s case is seen to break the causation in the circumstances here is the fact that each of these entities, whichever way one tests it, each of the entities is seen to engage in action for its own reason, namely it is complying with the obligations that appear in the DLC agreement or in its constitution, or in the case of BMAG because it is taking action in accordance with a decision of the board taken having regard to BMAG’s own interests.

So, central to the way in which Limited puts its case is that the provision does not contemplate there being complementary causes for the particular action that one is examining for the purposes of deciding whether or not someone is an associate.  But a consequence of the reference to an obligation here has the result that a company may be found to be sufficiently influenced, it may be found to be acting in accordance with the directions, instructions, or wishes of another entity, even where that action is being performed pursuant to an obligation, and even where that action is being performed pursuant to a formal obligation, that is an obligation that would include at the very least an obligation that that entity has freely subjected itself to.

For that reason we say that much of what Limited puts in relation to the breaking of the chain of causation, as they put it, really must fall away.  Next, as your Honours have seen, the provision operates by ‑ ‑ ‑

EDELMAN J:   I mean in the language of causation what you are really talking about - or language of torts what you are really talking about is contribution rather than causation, is it not?  It is factors that contribute ultimately to a decision being made. 

MR HMELNITSKY:   Yes, we would accept that, your Honour.

EDELMAN J:   You are talking about sufficient contribution to amount to sufficient influence?

MR HMELNITSKY:   Yes.  One needs to be careful with the word “sufficient” here.  It is Limited’s case that the only directions, instructions or wishes that will satisfy the provision are those which are themselves sufficient to cause a particular action.  That is the language of control.  If you can supply a sufficient reason for somebody to do something, then you control the outcome.  That is, of course, within the provision, but it does not state the totality of what the provision has in mind when it speaks of acting in accordance with.  That is really what the case comes down to.

GORDON J:   Really here the reference to “sufficiently influenced” is in itself a bit of a distraction because the word “sufficiently” does not find itself within its own definition.

MR HMELNITSKY:   No, that is right.

GORDON J:   What follows is the matters I put to Mr Bloom, that in effect this sort of possibility of arrangements, directions, instructions and wishes, whatever that means, and then one has this sort of tripartite possibility – “accustomed”, “under an obligation, formal or informal”, and then “might reasonably be expected”.

MR HMELNITSKY:   Exactly so.  So when we say that action is sufficient or a wish is sufficient to bring particular circumstances within the provision, we are not taking the word “sufficiently” out of the definition and seeking to give it any meaning.  It is just an ordinary English way of expressing the fact that if the circumstances fall within the scope of (6)(b), then that is sufficient, the provision is engaged and one sees the associate relationship.  That is really all that need be said about that word.

But your Honour raises with me the third of those ways in which the provision may be engaged, and that is through the existence of a reasonable expectation.  We do fasten on that.  That is not the language of control.  When one speaks of control, one speaks of a prediction as to what somebody who is under control or subject to control will do.

GORDON J:   Is it your case that that idea of “might reasonably be expected” may arise in one of two ways?  It might arise because of past events, which I think was the way in which it was put in the explanatory memorandum or it might arise because the parties themselves have agreed to a certain course of conduct.

MR HMELNITSKY:   There are at least those two ways, your Honour.

GORDON J:   Are there others?

MR HMELNITSKY:   Well, none that come to mind, but the positive point that we would make about that is that the section does not say what the expectation need be based on.  So, so long as the expectation is reasonable, then the expectation will be sufficient to bring the circumstances within (6)(b).

GAGELER J:   Mr Hmelnitsky, what do you actually affirmatively say is meant by the words “in accordance with”?

MR HMELNITSKY:   Your Honour, we would say this about that, that in every case it is necessary to give all of the language of (6)(b) some work to do in determining whether or not the circumstances are such that the relationship is within it.  In that context, in our submission, the provision is asking a practical question, having regard to all of the circumstances, about whether or not it can be said, using the ordinary meaning of those words “in accordance with”, that the provision as a whole is satisfied.

GAGELER J:   Do you give any content to those – is the ordinary meaning the same as “coincident with” or is there something different to it?

MR HMELNITSKY:   No, your Honour, we do not seek to put any particular limitation on those words.  We accept that they require a degree of causation.  It must always be possible to identify some causation in the relationship with the parties.  It cannot, of course, be trivial.  It has to be material.  But beyond that, we would not seek to suggest that it implies a causation of a specific kind but for causation or providing a sufficient cause, or anything of the type.  In our submission, it falls to be applied in a practical way, according to the ordinary meaning of those words that appear in (6)(b) in every case.

KIEFEL CJ:   Does mutuality of interests and therefore desires or wishes in a contractual setting necessarily employ notions of causation, though?  It might have an effect.

MR HMELNITSKY:   No.

KIEFEL CJ:   But every effect does not necessarily have a source.

MR HMELNITSKY:   Well, we do accept that, your Honour.  We do accept that.  There may be cases where coincidence of action is not the result of anything that can be identified in terms of ‑ ‑ ‑

KIEFEL CJ:   As a starting point.

MR HMELNITSKY:   Yes.

KIEFEL CJ:   As a source.

MR HMELNITSKY:   Yes.  That may explain the reference in another provision that the Court has been taken to, to parties acting in concert as being a sufficient reason for the associate relationship to exist.

KIEFEL CJ:   Is that the kind of area you are in here with the agreements?

MR HMELNITSKY:   Well, we are well beyond that, in our submission, your Honour.

KIEFEL CJ:   You say it stronger.

MR HMELNITSKY:   Yes, and we have never put the case on the basis that there is a mere coincidence of action.  Our case has always been ‑ ‑ ‑

KIEFEL CJ:   It has been one of obligation.

MR HMELNITSKY:   Yes.

EDELMAN J:   As I understand it, the parties are not differing in the meaning of “in accordance with” insofar as that means that one factor that might reasonably be expected is the directions, instructions or wishes.  But where the appellant goes further is the appellant says it is not sufficient for it merely to be a factor.

MR HMELNITSKY:   Yes.

EDELMAN J:   It has to be a factor that in and of itself would be sufficient.

MR HMELNITSKY:   Exactly so.

EDELMAN J:   That is the addition that you depart from.

MR HMELNITSKY:   Yes, we do accept that those words “in accordance with”, that is the language of causation.

EDELMAN J:   Well, it is the language of contribution.

MR HMELNITSKY:   Or contribution.  But it is not necessarily, and for Limited’s case it must necessarily be language of control and only language of control.  So long as there is scope in those words of “in accordance with” to pick up action of the kind that we identify here and the arrangements of the kind that we are concerned with here then the entities are associates.

KEANE J:   But “in accordance with” as a matter of the ordinary meaning of the words means in harmony with.

MR HMELNITSKY:   Yes.

KEANE J:   These two companies agreed expressly to carry on their business in harmony with each other.

MR HMELNITSKY:   Yes.  Your Honour, I will come to that.  We have always put it as our primary case that the existence of the DLC arrangement and the obligation that exists as between each of these entities to do just that is a sufficient reason to conclude that they might reasonably be expected to act in accordance with one another’s directions, instructions or wishes.  Maybe there is a danger in, and perhaps we are guilty of it, of overrefinement in this area.  But the language of 318(6)(b) is – it is not imponderable.  It uses quite ordinary words, quite ordinary concepts to describe the relationships between parties.

In our submission, as I submitted to Justice Gageler a moment ago, there is a practical question that is asked here:  is it reasonable to expect that Plc or Limited might act in accordance with the directions, instructions or wishes of the other?

GORDON J:   One way of testing it – assume for the moment there was not the DLC sharing agreement, one would then look to see whether or not there were the actions consistent with it.

MR HMELNITSKY:   Yes.

GORDON J:   The fact that you have the agreement there is really, as I understand in your case, a rich provider of the necessary contributions.

MR HMELNITSKY:   It is a rich seam of obligations – one to the other – as to how each of the entities might act.

GORDON J:   In the future.

MR HMELNITSKY:   In the future.  But one also sees it in relation to how they have acted in the past, not just in relation to the matters that have been the subject of submission already today but in relation to the various policies that are promulgated group wide.  They are policies of Limited and Plc. 

GORDON J:   Directed at a unified economic entity.

MR HMELNITSKY:   Yes, yes – including their joint marketing hub, BMAG. 

GAGELER J:   Mr Hmelnitsky, I do not really want to dwell on this too much, but if you look at – I should ask, are you going to come to Buzzle at some stage in your ‑ ‑ ‑

MR HMELNITSKY:   I will.  I will come to that shortly, your Honour.  

GAGELER J:   All right. 

MR HMELNITSKY:   I am happy to deal with it now if there is ‑ ‑ ‑

GAGELER J:   It arises out of the questioning.  So, if you turn to paragraphs 245 and 246 of Buzzle – I think this is in Justice Young’s judgment.  In 245, he says what he would understand would ordinarily be connoted by a reference to “in accordance with”.

MR HMELNITSKY:   Yes.

GAGELER J:   Then he says that there is a much more limited meaning that has been given in the context of the shadow director provisions. Where in that spectrum does your reading of that language in section 318(6)(b) fit?

MR HMELNITSKY:   At the dictionary end, your Honour, at the dictionary sense of acting in accordance with, accepting, however, that there is - accepting, however, always, that because the subject matter of the provision, as we would submit, is influence, that there is nonetheless some causal requirement, but not a controlling requirement.

KEANE J:   But the causal requirement is a condition, is it not?  It is will act, so long as it is in harmony with your views.

MR HMELNITSKY:   Yes, yes.  So on the facts of our case we – that is exactly how we put it, your Honour.  But what we do submit in relation to Buzzle is that all of the considerations that led the court to conclude that on the language of the definition of “director” in section 9 of the Corporations Act, those considerations are not apparent at all in the context of section 318. The language is different, the purpose is different, and it cannot be seen that the legislative purpose that is being pursued by the shadow director provision really has anything to do with the legislative purpose that can be identified in relation to section 318.

Your Honours, I think that does bring me to questions of context. The most immediate context and the most useful context really is supplied by section 318 itself. If your Honours look to see the way that that expression “associate” is employed elsewhere in section 318 and specifically in section 318(2) – I am sorry, the expression “sufficiently influenced”, where your Honours see that that expression is used in section 318(2)(d) and (e), your Honours see that it appears next to and as something different from what the Act identifies as a majority voting interest.

So in 318(2)(d) your Honours see that in the case of a company another entity can be an associate either where that entity is sufficiently influenced by the controlling entity on the one hand or alternatively where a majority voting interest in the primary entity is held by the controlling entity.  One sees the same juxtaposition in (e)(i) and (ii).

That, in our submission, rather does suggest that Parliament had something else in mind other than control in referring to circumstances of sufficient influence.  The references to the majority voting interest can very comfortably be understood to be references to a form of control of a company but that is not in any sense the way in which Parliament has described the kind of relationship that will make you an associate in the absence of voting control, namely where there is otherwise sufficient influence.

That has particular significance for the way Limited puts its case.  One sees this, in particular, in paragraph 9 of their reply submissions where it is suggested that in looking at (d) and (e) of the 318 definition, (i) in all cases is concerned with the daily acts of the company, the acts done by the directors and (ii) is in all cases concerned with control with the company in general meeting. 

The difficulty with that, your Honours, is that “sufficient influence” itself may be something that exists where the sufficient influence is not on the directors themselves but on the company and one sees that in 318(6)(b):

a company is sufficiently influenced by an entity or entities if the company, or its directors, are accustomed or under an obligation (whether formal or informal) –

et cetera.  So, one does not see the strict categorisation of forms of control in 318(2)(d) and 318(2)(e) that the appellant contends for. 

More broadly, looking at the context of 318 a little more widely, your Honours see that the relationships that may give rise to a conclusion that someone is an associate are not exclusively or, indeed, are not mostly relationships of control. Relatives are associates, partners are associates, associates of associates are very often associates. It is often necessary to apply the provision more than once in order to determine whether a particular person is to be treated as an associate within the meaning of section 318.

So, it cannot, in any sense, be seen that the overall subject matter or the heartland of section 318 is a controlling relationship at all. Limited points also to the matter that your Honour Justice Gageler raises with me, that is, the circumstance that the section 9 definition of “director” in the Corporations Law shares some language with section 318 and the definition of “sufficiently influenced”.

Might I just take the Court briefly to section 9 and the definition of “director” which appears at page 226 of volume 2 behind tab 7. We have made the point already, your Honours, in our written submissions that the purpose of the shadow director limb of the section 9 definition is very different from the purpose that appears from section 318 and from Part X, in particular, but can I just identify the particular textual matters that also set the provisions apart?

First of all, your Honours see that it is no part of the “shadow director” definition that one would take expectations of any kind into account in reaching the conclusion that a person is to be treated as a shadow director, that is, the provision is only concerned with what might positively be demonstrated having regard to the circumstances as they appear.

Secondly, the provision is solely concerned with the members of the board of the company and is not concerned with how a company might otherwise act, not only in its general meeting but in any of the other ways that a company can act, such as through agents and officers and so on.

The section 318 definition is concerned with all of those matters. The section 9 definition of “director” is concerned solely with the position of a director and solely for the purpose of determining whether or not that person ought be treated as owing the duties to the company that a validly appointed director has.

Next, your Honours see that it is no part of the section 9 definition that a person can be held to be a shadow director of a company where he or she is acting in accordance with obligations of any kind. We have made the submission that we wish to make about that in the context of section 318 but one does not see that here, nor does one see, as one sees in section 318, any reference to the directions, instructions or wishes to which one has regard, being communicated via interposed entities or being communicated directly or indirectly in the way that one sees that in section 318.

So textually, in our submission, the section 9 definition of “director” is so distinct as to render it interesting but ultimately not terribly useful in determining the meaning that is to be ascribed to the section 318 definition and coupled with the materially different legislative purposes, the statutory purposes that appear in each of those contexts, in our submission it would be most unlikely that Parliament intended them to have the very same effect.

KIEFEL CJ:   That might be a convenient time, Mr Hmelnitsky.

AT 12.44 PM LUNCHEON ADJOURNMENT

UPON RESUMING AT 2.16 PM:

KIEFEL CJ:   Yes, Mr Hmelnitsky.

MR HMELNITSKY:   Thank you, your Honour.  Can I deal next with statutory purpose?  I need to say something more than what has already been said about Part X as a whole and the purpose of Part X as a whole largely to meet the submission that is put against us that the concept of control forms an integral or a fundamental part of that regime. 

Part X was introduced in order to combat a very specific mischief that was perceived by Parliament and that mischief was the deferral of tax liabilities.  It deals with the circumstance where an Australian resident taxpayer may have investments in overseas companies who earn income and may pay tax on that income in that overseas jurisdiction but defer the time at which the income is brought back to Australia and so defer the Australian taxing point.  So it is described as an anti‑deferral system or an accrual system and it works by reference to four basic elements. 

I will come back to them and say something about each of them, but the four elements of Part X, which your Honours will see taken up in the central charging provision of 456, are these.  First of all, you need to work out whether or not the foreign company is a controlled foreign corporation.  That is an inquiry that is directed to the circumstances of the controlled foreign company. 

You then need to work out, if the company is a CFC, whether you as an Australian resident taxpayer are an attributable taxpayer in relation to that controlled foreign company.  You then need to work out, as a separate step, what your attribution percentage is in relation to that controlled foreign company, and that is an inquiry into the extent to which you have ownership interests either directly or indirectly in that CFC.

Then, fourthly, you need to work out whether or not the CFC has derived any of the classes of income that are caught by Part X.  They are generally forms of passive income, and relevantly for our purposes they include income that BMAG earns from marketing and selling ore from mines operated by both Limited and Plc in Australia.

So the consequence of all of that is that the taxing point in relation to foreign income is brought forward.  You get a credit for any tax that is paid in the foreign jurisdiction.  There is no double tax when the profits are ultimately remitted to Australia.  But they are the mechanisms by reference to which the part operates. 

Your Honours see that at page 179, section 456 in volume 1 of the authorities.  I will just show your Honours this - I do not need to say much more about it.  Section 456 is the central charging provision in Part X and your Honours see in subsection (1) reference to each of those mechanisms or integers that I have just described.  So:

where a CFC has attributable income for a statutory accounting period in respect of an attributable taxpayer, the taxpayer’s attribution percentage is included in the assessable income –

et cetera.  Now, the first of those requirements, that there be a CFC, is something that is determined chiefly by reference to section 340, which appears on page 59.  Your Honours recall the submission put by Limited as to the role of the concept of “control” in Part X, and in particular the role of the concept of “control” in working out whether or not a company is a CFC in the first place. 

Section 340 is in the terms that your Honours see there on page 59.  We say a few things about that.  First of all, your Honours see in subsection (b)(ii) a reference to control and here your Honours see the use of the word “control”, not in any defined way, but in its ordinary sense and that is to be contrasted with the way the provision otherwise picks up the definition of “associate”, which it does by way of the definition of “associate‑inclusive controlled interests”, which your Honours see in (a) and your Honours also see the reference to “associates” in (c).

So that is the first point we make about section 340.  When it wants to refer to control it uses the word “control”.  Secondly, it is clear that a CFC may be a CFC because it is controlled by persons who have no controlled relationship in relation to one another.  It is perfectly possible to form a conclusion that a company is a CFC because it is controlled by persons who are associates by reason of being partners or relatives of one another, or relatives of a beneficiary of a trust of which one of them is a trustee.  There are any number of ways to form the conclusion that a CFC is controlled by associates in circumstances where those associates as between themselves have no relationship with control as between them whatsoever. 

The third point that we would make about the concept of “control” in section 340 is that in order for a company to be a CFC and to be within this net in the first place, it is not necessary that one demonstrate control in the sense that Limited speaks of it in its submissions.  It is sufficient, for the purposes of establishing a CFC by reference to the (b) formulation - there are three formulations here - but in (b) one reaches the conclusion that a company is a CFC if a single Australian entity has:

associate‑inclusive control interest . . . not less than 40% -

So the concept of “control” is important here but it is control within the very specific meaning of the language of section 340.

The second question that Part X asks is who is an attributable taxpayer?  There are many corporations that may be CFCs but it may or may not be possible to identify an attributable taxpayer in relation to the CFC who is an Australian resident.  The question of whether or not you, the Australian taxpayer – the Australian resident taxpayer – are an attributable taxpayer in relation to the CFC is answered chiefly by reference to section 361 which appears at page 83 of this bundle.  One sees again that this is an inquiry that involves looking to see who your associates are. 

There is reference there to the “associate‑inclusive control interest” that an entity has in the CFC.  I will not take your Honours through all of the definitions but the substance of it is that in working out whether or not you are an attributable taxpayer in relation to a CFC, one has regard, amongst a variety of other considerations, to the interests that your associates have in the CFC and they may be persons in relation to whom you have a control relationship or they may not be.

The third question that Part X asks is what is your attribution percentage in relation to a CFC in relation to whom you are an attributable taxpayer?  That is governed by section 362, starting at page 84.  Your Honours see that your attribution percentage is a function of your direct attribution interest and your indirect attribution interest.  They are expressions defined in sections 356 and 357 respectively.  I will not take the Court to them.  But in working out what percentage attribution is to be applied, one has regard to those interests which are not interests calculated by reference to the interest that your associates may have.  Here, the Act is looking to something different.  It is looking to the extent to which you have an ownership interest in the CFC in relation to whom you are an attributable taxpayer.

Then one comes to the final question which is has the CFC earned any attributable income?  There are many provisions that deal with the way that question is answered.  Relevantly, for our purposes in this case, the question is the one that is posed by section 447, on page 157 of this bundle.  The question is has BMAG derived tainted sales income in relation to a particular period?  Again, relevantly, that is a question that must be answered by asking who are the associates of BMAG? 

Your Honours see that in section 447(1)(a)(ii)(B).  That is how the question arises in this case, but your Honours see that it is looking to see who the associates of the CFC are in this circumstance, which is quite distinct from the way the expression “associate” is used, and the purpose for which it is used elsewhere within the part. 

The reason, your Honours, that I have taken some time to take the Court through Part X and to identify the various ways in which that expression “associate” is taken up is to make the point, your Honours, that neither Part X as a whole, nor any particular part of Part X can be seen to require or be better served, or be better given effect to, by adopting the appellant’s construction of “sufficiently influenced”. 

The part uses that definition of “associate” in section 318 in various ways to achieve various ends and as a cog in that anti‑avoidance wheel that is Part X your Honours ought not construe it in the manner for which Limited contends, which necessarily confines its operation and would have the effect of confining its operation in each of these steps that I have just described.

In fact, your Honours, although the section 318 definition of “associate” has been picked up in so many places elsewhere in income tax legislation in the 1997 Act and in the 1936 Act and perhaps also elsewhere, despite that, Limited does not point to any provision anywhere that is better served or better given effect to by adopting the construction of 318(6)(b) for which it contends. There is not a one.

That brings me, your Honours, to the facts and to what the Full Court and Justice Thawley in particular said about the facts and particularly the DLC arrangement.  Your Honours, we generally support and respectfully adopt what Justice Thawley said about the facts, and I will not repeat what his Honour said.  It is and always has been our case that the principal basis upon which one would conclude that Limited and Plc are associates is the fact of the DLC arrangements as a whole - the terms of the DLC arrangements as a whole, including their own constitutions and articles of association respectively, as well as the fact that was agreed that each of the entities complied with or acted in accordance with the constituent documents at all times.

Your Honours have already been taken to the constitution and I will not ask your Honours to turn that up again, although your Honours recall that it does specifically allow the directors of each of the companies to take into account the interests of the shareholders of each other company.  That is taken up, that concept is taken up in the sharing agreement and might I just briefly take your Honours back to the sharing agreement, which appears at page 151 of the appellant’s bundle of further material. 

Reference has already been made, your Honours, to clause 2 at page 160 of that bundle.  We rely on the whole of that in the way that Justice Thawley described but we would make this additional point that here in clause 2 of the sharing agreement we see the parties agreeing to even more than what is set out in their respective constitutions.  Their respective constitutions say only that the directors may take the interests of other shareholders into account.  Clause 2 of the sharing agreement requires them to.  Your Honours see that in (2)(b):

the directors of BHP and Billiton shall, in addition to their duties . . . have regard to the interests of the holders –

et cetera.

GAGELER J:   Is that enough for you?

MR HMELNITSKY:   Yes, although, your Honour, we would not isolate that and say that was enough.  It comes part and parcel with a number of other obligations.  The whole of clause 2 probably is enough, taken together with the form of the constitution and articles of the respective companies.  But there is more.

GORDON J:   Well, it is (b) plus the last four lines of the section, is it not?

MR HMELNITSKY:   Yes.

GORDON J:   The clauses.  That is the other critical aspect – well, not critical, the other element.

MR HMELNITSKY:   Yes.

GORDON J:   Because it brings into play BMAG and the other entities.

MR HMELNITSKY:   It does, it does.  In a practical sense it has this consequence, which is very relevant for the purpose of applying Part X.  When asked the question is it reasonable to expect that if the directors of Limited and Plc came to a view about, for example, the distribution policy to be adopted by their marketing hub, BMAG, is it reasonable to expect that BMAG will adopt that policy?

Now, having regard to the terms of clause 2 here, and some other aspects of the sharing agreement that I am just about to come to, that is a question that in our submission admits of a very ready and straightforward answer – which is it absolutely is reasonable to expect that that policy is going to be adopted elsewhere in the group.

So we do rely on the whole of – well, we rely on the whole of it.  We particularly draw attention to clause 2.  Clause 2 of course does not appear in isolation.  The equalisation principles dictate a number of matters and importantly the extent to which each of these companies will pay dividends.  It is a fundamental aspect of this arrangement that the parties have agreed to pay dividends that will give effect to the equalisation principles.  I will skip over the voting arrangements just for a moment because I will come back to those but, even leaving aside those voting arrangements, one then comes to clause 13 on page 171 which provides:

Without limiting Clause 2 –

Clause 2 is what I was just referring to, of course:

each party will enter into such further transactions or arrangements, and do such acts and things, as the other may reasonably require from time to time in the furtherance of the common interests of the holders of BHP Ordinary Shares and the holders of Billiton Ordinary Shares as a combined group or to give effect to this Agreement.

GORDON J:   Can I ask about clause 12 as well?

MR HMELNITSKY:   Yes.

GORDON J:   Because you said I think a moment ago that this agreement went further than either the constitution or the articles.  It would seem that clause 12 addresses that, does it not?

MR HMELNITSKY:   Yes, it does, your Honour.  Yes, that is exactly what it does do.  If ever a question were to arise in relation to the exercise of a director’s powers in making the decision having regard to the interests of shareholders in the other company, it would be resolved chiefly by this agreement.  What the Tribunal said about clause 13 at paragraph 36 of the Tribunal’s reasons was that that clause sterilises the ability of one party to dictate to the other. 

Now, Justice Thawley was critical of that.  It is an observation that really reflects what the Tribunal saw as being the central question for it, namely, is there subjugation; is there control of that kind?  But the real utility of clause 13, as Justice Thawley recognised at paragraph 110, is that it is highly relevant and, we would submit, highly probative of the question whether or not one party might reasonably be expected to act in accordance with directions, instructions or wishes of the other. 

So, in our submission, the DLC arrangement as a whole is a sufficient basis for the court to – or for the Tribunal to – I withdraw that. That is a sufficient basis to conclude that the entities are associates, picking up the language of section 318.

It probably ultimately does not matter but we do press the submission that Limited criticises in its reply, namely our submission that these arrangements have the result that it is possible for the directors of one entity to take a particular action because – solely because it is in the interests of the shareholders of the other entity. 

Now, the appellant is critical of that.  They say it can never really solely be because of the interests of the other entity.  The directors of one company are always bound to take into account the interests of the entity of which they are directors and so the proposition cannot be correct. 

But, your Honours, we are talking about causation – it is a proposition about causation and our point is simply that even if it is possible to imagine that the entity is coming to a different view about such a matter, if the directors of one company were to come to the view that it was very much in the interests of the shareholders of that company to take a particular action or to adopt a particular policy but those same directors with the other company’s hat on came to the view that made no difference from that company’s point of view then they would be entitled, having regard to these documents, to take that action and it is a perfectly natural use of language to say that they would be doing so because of the interests of the shareholders in the other company. 

Now, true it is, they would have regard to the interests of the shareholders in the company making the resolution but the effect of the constitution and the articles and the sharing agreement is that what can cause them to adopt the particular action or take the particular course can be a view that they have about the interests of the shareholders in the other company.

EDELMAN J:   The short point is that the interests of the company as defined by the constitution and read in light of the agreement can include the interests of the shareholders of the other company.

MR HMELNITSKY:   Exactly so, that is right, your Honour.  So, the point – as I say, your Honour, it is simply a point about causation.

GAGELER J:   Sorry, where does causation come into it, Mr Hmelnitsky?

MR HMELNITSKY:   Well, it is the word “because” - it is the word “because”.  So we say what is it that has caused the directors of one company to take a particular action.

GAGELER J:   Where is the word “because”?

GORDON J:   Where is the word “because”?

MR HMELNITSKY:   “In accordance with”.

GAGELER J:   You are reading it as “because” now?

MR HMELNITSKY:   I do not, your Honour.  My apologies, your Honour, no, I do not.

KIEFEL CJ:   I thought you had been swayed before lunch.

GORDON J:   When I put to you before lunch there are three possibilities here, one of them is “might reasonably be expected to”.  It has nothing to do with causation.  It is about might reasonably be expected to do something as a result of the facts and circumstances here.  Either the company or its directors, so we have itself got the distinction, might reasonably be expected to act in accordance with directions, instructions or wishes.

MR HMELNITSKY:   Yes, your Honour, and I can accept that.  I think I prefaced what I said about this particular submission with saying that it probably ultimately does not matter and I maybe should have left it there.  But, your Honours ‑ ‑ ‑

KIEFEL CJ:   I think you said “overworked” – or something like that.

MR HMELNITSKY:   Yes.  Your Honours, may I leave that there?  The simple point is the larger point and the more probative point which is that the terms of the DLC arrangement are a sufficient basis to satisfy the language of 318(6). 

All I wish to say about the voting arrangements, your Honours – in addition to what was said by Justice Thawley at paragraphs 112 through to 128 of his Honour’s reasons – is this.  Limited makes a couple of points here.  They say, first of all, where those voting arrangements are engaged one does not see a wish of one company to the other.  That is their first point.  But, your Honours, all members of the Full Court were of the view that there was such a wish – including Justice Davies who said so, in terms, at paragraphs 40 to 41 of her Honour’s reasons at 87 to 88 of the core appeal book.  Her Honour said, in paragraph 40, that:

The special voting arrangements thus provided a structural mechanism for uniform resolutions by the shareholders of each company.  Given that these special voting arrangements formed part of the DLC Arrangement between the companies, I am prepared to accept that the notification by each company to the other of the votes which must be cast by the special voting shareholder to achieve uniform resolutions can be characterised as instructions, directions or wishes given by that company to the other.  In that respect, I disagree with the Tribunal –

Her Honour also disagreed with the Tribunal on the related matter that her Honour deals with in paragraph 41, the:

company is a legal entity separate from its shareholders –

et cetera.  Then, we would pick up the second sentence:

That reasoning does not take into account that each company was not only required to notify the other company as well as the other company’s special voting shareholder . . . but was also bound to an arrangement under which the other company’s special voting shareholder was required to exercise the number of votes as notified.

GORDON J:   Did not Justice Davies’ dissent come to a different conclusion about “in accordance with”?

MR HMELNITSKY:   Exactly so, your Honour, that is right.  But the reason I take the Court to those paragraphs is because there is an answer there to the submission that is now put against us today, which is that the arrangements do not actually amount to the expression of a wish in the first place. 

Now, the Court was taken to what the Full Court said in the Australasian Centre for Corporate Responsibility Case.  May I just give your Honours this reference.  In that case, your Honours, the reason that the court came to the view that it did, critically, was because on the facts of that case, what the shareholders had purported to do was something that had not been authorised by the company or by its constitution.  Your Honours see that in particular in paragraphs 37 and 38.  That is what determined the fate of the expression of a wish by the shareholders in that case.

That is to be contrasted with the circumstances here, where each of the steps that have been described in relation to the voting procedure is a step that is not only contemplated by the constitution of each company, but is a step that has legal consequences for each of the companies involved.  That, of course, is very deliberately so, because it is ensuring compliance with those legal obligations that the companies are able to ensure that each company acts in the way that the DLC arrangement contemplates, that is, jointly. 

So what was said about the action, or the expression of a wish, in the Australasian Centre for Corporate Responsibility Case certainly cannot be said about the arrangements here.  It is really - perhaps I have come at this the long way around.  That is the point that Justice Davies was making in those paragraphs, 40 to 41, the arrangements reflect the constitution of the companies and they reflect in substance and as a matter of legal form the obligations set out in the sharing agreement and the special voting shares deed.

Next, your Honours, it is put against us that Justice Thawley did nothing more than observe that under the voting arrangements each entity was obliged to keep open its - the poll at a general meeting but do nothing more.  It seemed to us that Limited accepts - whether they do or not is perhaps by the by - that is a submission that really does ignore the substance of what is occurring because the substance of what is occurring when these special voting arrangements are engaged is that, in substance, the companies involved, each of Limited and Plc, are complying with their obligations under the sharing deed and the other constituent documents to ensure as a matter of substance that each of the companies will act in the way that the DLC arrangement contemplates.

Then, in relation to the declaration of dividends, I would only wish to add this, your Honours.  Each of Justice Logan and Justice Davies, who were against us on this point, referred to the resolutions of the relevant committee but did not have regard to the minutes of the board meetings which appear starting at about page 4 of the respondent’s book of further material. 

I think your Honours were taken to these this morning.  There is a short point to be made about these, your Honours.  If your Honours have our book of further material, your Honours see, starting at page 4 is an extract from the minute book of BHP Billiton Limited.  At about line 45 your Honours see the resolution that was passed in relation to the proposed dividend and the resolution that is passed by the directors of Limited is:

to delegate to the Risk & Audit Committee the authority to approve a dividend and recommend to the Committee that it resolve and note -

Emphasis was placed on the fact that in these arrangements it can readily be understood that what the Limited board was doing was making a resolution in relation to the dividend that the committee might decide Limited should pay, but only noting what the dividend might be in relation to the other company, Plc.

But the difficulty with that, your Honours, is that this resolution does not take place in a vacuum.  It takes place as part and parcel of the wider arrangement, including the whole of the DLC arrangement in which each of the parties has a very firm view, we know, as to what the dividend that the other entity will pay should be.

It is not merely noting as a matter of curiosity or interest.  It is readily to be understood as the directors of one company actually having a view as to what the dividend to be paid by the other company ought to be and it is reflected, in our submission, and Justice Thawley agreed, in these resolutions themselves.

The last matter, so far as the facts are concerned, is the question of whether or not BMAG is sufficiently influenced by Plc and Limited.  They are, of course, indirectly it is 58 per cent and 42 per cent owners.  Again, your Honours, that is a question that in our submission admits of a very ready and quite straightforward answer, having regard to the facts of this case and that is that it is reasonable to expect that BMAG, their joint marketing subsidiary, would act in accordance with directions, instructions or wishes of Plc and Limited. 

In evidence there were examples of policies.  One of them has found its way into the material before this Court.  Your Honours see it starting at page 16 of the respondent’s book of further material.  The writing is difficult to read on page 17, but this is the “Marketing Risk Management Standard”.  It is a policy promulgated, in the first instance, by Limited and Plc.  It purports to apply to marketing units – there is no dispute that that included BMAG.

The question is, is it reasonable to expect that BMAG would act in accordance with a policy such as this. In our submission, the answer to that is yes, for all of the reasons that I have already addressed. What is put against us here is that for all of that, it is not within section 318(6)(b) because and only because the BMAG directors have independently formed a view in the interests of their shareholders, being of course ultimately Limited and Plc, to adopt the policy.

We accept that that has occurred but, your Honours, that hardly takes the matter outside section 318(6)(b). One still asks the question is it reasonable to expect that BMAG would act in accordance with a policy like this. The answer, in our submission, is yes. The fact that the directors would satisfy themselves that it was in the interests of their shareholders who have promulgated the policy before deciding to adopt it is ultimately neither here nor there.

GORDON J:   Could I ask one factual question, if I could?  I understand this policy is, in effect, the marketing direction or policy for BMAG ‑ ‑ ‑

MR HMELNITSKY:   Yes, one of them.

GORDON J:   But it refers to Billiton throughout it.  Is it a document that is the subject of directional agreement or from both entities or is that an agreed fact or is it a finding by the Tribunal?

MR HMELNITSKY:   It is described as a BHP Billiton Group level document.

GORDON J:   I see.  Is that on its face, is it?

MR HMELNITSKY:   On its face, yes.  Certainly, that is the basis upon which we tendered it – I think we tendered it.  There were a number of such documents tendered.  But one gets it out of the evidence – I am not sure, your Honour, I can give your Honour the evidentiary references as I stand here but I think one gets it out of the evidence that was led by Limited to combat this which was that yes it was propounded but then the directors of BMAG took their own independent step ‑ ‑ ‑

GORDON J:   That is not really what I am asking ‑ were there findings that this was a document of that nature, I suppose is what I am asking.

MR HMELNITSKY:   I do not think so, your Honour, I do not think so.

GAGELER J:   I am sorry, what inference are you asking us to draw on the basis of this evidence?

MR HMELNITSKY:   That it is reasonable to expect that BMAG would have acted in accordance with the policy.

GAGELER J:   This policy?

MR HMELNITSKY:   This, among others, yes.

GAGELER J:   Is that a finding that was made anywhere below?

MR HMELNITSKY:   Justice Thawley was content with that, as I recall, your Honour.  So, his Honour dealt with this at ‑ ‑ ‑

GORDON J:   He deals with it at paragraph 164 onwards in relation to BMAG and he sets out the Tribunal’s findings about the guidelines and the policies.

MR HMELNITSKY:   At paragraphs 170 and 171, particularly 171, his Honour said:

The “Marketing Risk Management Standard”, which was said to be but one example of material to equivalent effect before the Tribunal, demonstrated that BMAG was likely to follow the wishes of Ltd and Plc . . . Of course BMAG would reasonably be expected to follow the instructions of Ltd and Plc, its ultimate owners –

GORDON J:   If one goes back to what is set out at paragraphs 166 and 167 there is no finding about where this thing came from.

MR HMELNITSKY:   No, your Honour.  No, there is not.  His Honour Justice Thawley took a different view as to some of these facts and this is an example.  It is said against us that his Honour was not entitled to do that.

GORDON J:   This is paragraph 13 of your outline?

MR HMELNITSKY:   Yes, your Honour.  So it said that because somehow section 44 of the Tribunal Act did not allow the Full Court to come to its own view about particular facts and circumstances where the court was satisfied that the Tribunal had erred in law as to what the right test was.  The submission that we made to the Full Court and which his Honour Justice Thawley accepted was that the findings that had been made by the Tribunal on various issues, including this, were affected by the conclusion that his Honour had come to as to what was necessary in order to satisfy the test.

Ultimately, maybe not very much turns on it.  Our point is about the reasonable expectation.  So even if it cannot be demonstrated that that particular policy was promulgated by particular boards on particular days, and that something was done in reliance on it, the point we make is, with respect, still a good one, which is that a policy such as that – such a policy it is reasonable to expect that BMAG would comply with.

So it is a submission that we can make even without the benefit of an example of the document.  Our point is that having regard to the intramural arrangements it is reasonable to expect that policies of Limited and Plc, whether they are about marketing or anything else, will be acted in accordance with by subsidiaries like BMAG – by BMAG in particular.

Your Honours, I was just going to say something very briefly about Justice Davies’ reasons.  Can I just give the Court a reference to section 44(7) of the AAT Act, if anything turns on it.  I do not think your Honours need turn it up but it is in volume 2, tab 5, page 210; it is a provision that allows the Federal Court to find facts – of course, within its jurisdiction being delimited by the questions of law on which the appeal is brought.  I just give the Court that reference, if there is any question about the ability of Justice Thawley to have expressed the views that he expressed about the facts that were in issue.

As to Justice Davies’ reasons, ultimately her Honour’s reasons in dissent came down to the proposition that there cannot be sufficient influence if a company follows another’s instructions, but in the meantime has formed a view that it is in the company’s interests to take that action.

In other words, her Honour saw that the language of the section could never be satisfied, in circumstances where the primary entity had formed its own view as to whether or not it should take the action in question, and your Honours see that in particular in paragraphs 41, 42 and 45 of her Honour’s reasons.

And the last thing I would say about Justice Davies’ reasons is this.  If your Honours go to paragraphs 30 and 31 of the court’s reasons on pages 83 and 84 of the core appeal book, and in particular what appears on page 84, your Honour sees that her Honour Justice Davies has approached the matter as though there was nothing more involved here than the directors of another company merely taking account of directions, instructions or wishes.  Her Honour says that in the second line.  Her Honour refers to:

the company or its directors merely taking account –

GORDON J:   Well, it fails, on your analysis, as I now understand it, earlier than that.  It is about causal connection, as she describes it, earlier on, at the bottom of page 83.

MR HMELNITSKY:   Yes, yes.  And the only additional point is that, to the extent her Honour has considered the circumstances as we put them, her Honour has, with great respect, we would submit, mischaracterised our case.  We do not say that there was merely a taking into account of instructions or wishes.  We say that in all of the circumstances of the case, there was more than that.  There was subjecting companies to positive obligations to act in particular ways and so on.

Your Honours see that reference to “merely taking account” at the top of page 84 in the second line.  Your Honours see it again in the second last line on that page.  And your Honours see words to similar effect at the top of page 87 in her Honour’s paragraph 38:

Without more, to act in concert –

et cetera.  It was never our case that the section was satisfied on that slim basis.  Unless there is anything more, your Honours, those are our submissions.  If the Court pleases.

KIEFEL CJ:   Thank you, Mr Hmelnitsky.  Mr Wheelahan, are you doing the reply?

MR WHEELAHAN: Yes. If your Honours please, I will attempt to address the matters raised by my learned friend generally in the order in which he raised them. Commencing with the word “wishes” as it appears in section 318(6)(b), my learned friend submitted that the word “wishes” does not carry the ordinary meaning of a command, which is what we had submitted. We had in fact submitted that the word “wishes” carried the meaning of:

to command, request, or entreat –

And that is, in fact, an ordinary meaning of the word which is found in the Macquarie Dictionary, and I will just refer your Honours to volume 5, tab 48, page 1287.

And we say further that in circumstances where the wish must be communicated, firstly, and then acted upon, of all the available ordinary meanings of the word “wish” that you will see in the dictionary, that is the most suitable:

to command, request, or entreat –

The next matter that my learned friend addressed was the word “obligation”, as it appears in the provision.  The important thing to recognise about the obligation is that it is not enough that there be an obligation to do acts.  What is required is that there must be an obligation to do acts in accordance with the directions, instructions or wishes of the other entity.

Complying with a term of an agreement, being an act that is done in accordance with an agreement, is not complying in accordance with the directions or acting in accordance with the directions, instructions and wishes of the other entity, and it cannot be that the agreement itself is a direction, instruction or wish.  So, to take an example of the poll, both Limited and Plc were obliged under the constituent documents to keep the poll open.  To do so was not to act in accordance with the directions, instructions or wishes of the other entity, but to comply with the agreement.  If it were otherwise, and performing what is required of you under an agreement were the equivalent of acting in accordance with the directions, instructions or wishes of the counterparty to the agreement, then almost everybody in the commercial world would become an associate of one another.

To take a simple example, if a company enters into a restrictive covenant where it agrees not to compete with the counterparty to the agreement and then in the subsequent period it does not compete, it cannot be said that that refraining from competing was done in accordance with directions, instructions or wishes of the other entity.  It was done in order to comply with the agreement.

GAGELER J:   What if the agreement said “shall not compete where so directed by the other party”?

MR WHEELAHAN:   Yes, your Honour, that is the distinction that must be drawn.  If there were a term of an agreement that said, “Company X shall do as directed, instructed or a wish communicated by Mr Y”, then that certainly would give rise to an obligation to act in accordance with the directions, instructions or wishes of another entity, being Mr Y. 

EDELMAN J:   What then about the example that I asked in submissions in‑chief where you have exactly the same type of agreement, but the agreement provides that company X will act in exactly the same way as person Y acts?  It does not use the words “direction, instruction or wish”, but that is implicit, is it not?

MR WHEELAHAN:   For a start, that is not how DLC constituent documents operate, but if one were to assume that hypothetically ‑ you would have to examine the circumstances of the case, but if it were ultimately a situation where because the two parties have bound themselves together in that way, it was in their interests to work together mutually and make decisions mutually, then it could not be said in that situation that one is acting in accordance with the directions, instructions or wishes of the other, at least on our construction, because our construction requires that there be at least some level of subservience.  So the two entities that are equals in all respects cannot be said to be acting in accordance with the directions, instructions or wishes or the other. 

That comes back to what is really at the crux of this case, which is what is the meaning of the words “in accordance with”, and we say that those words require that the direction, instruction or wish, or the communication of it, be treated as a sufficient reason to act.  When that occurs, in terms of the decision‑making process, the locus of effective decision‑making has then been removed from the company and the board to somewhere else, which is to the person who is giving the direction, instruction or wish, and that is what these provisions contemplate.

When my learned friend was pressed as to how he would interpret those words “in accordance with”, he gave the answer that it is a practical question about whether or not the provisions are satisfied. Now, much of the submissions that have been made by my learned friend attempt to bundle up various concepts within section 318(6)(b), including obligation, formal or informal, reasonably be expected, wishes, all of those things are, it is true, components of the subsection but none of them affect the meaning of the words “in accordance with”, which is the fulcrum upon which the provision operates. None of them dilute that causative requirement that the Act, or that the direction, instruction or wish be a sufficient reason to so act.

Anything less than treating a direction, instruction or wish as a sufficient reason to act is merely to take it into account as part of a decision‑making process.  If you are not treating it as a sufficient reason to act, then it is something less than that, which means it must be that it is merely an element that goes into your decision‑making process, and that means also that there is a situation where the company is applying its mind independently to decide whether the thing is in its own interests.  So when her Honour Justice Davies referred to “merely” taking into account, it should be understood in that sense, “merely” as opposed to treating as a sufficient reason to act.

Once you get to a scenario where you are examining what role a communication of a direction, instruction or wish played in a decision‑making process in order to determine what the causative requirement is, you get into murky territory.  Your Honour Justice Edelman has already raised some questions about issues of causation in the context of tort and perhaps even trade practices.  My learned friend had said that it cannot be trivial, it has to be material.  In those contexts, tort and trade practices where the courts refer to a material contribution, all that that means is something other than de minimis.  It is essentially a “but for” test. 

Now, if that is what the Commissioner is contending that this provision means – that that means in any situation where you have a corporation that is taking into account directions, instructions or wishes from another entity as part of its decision‑making process, then it will become an associate of the communicator of that direction, instruction or wish.

Now, the consequences of that construction are, in a sense, obvious.  Just to take some simple examples, a lawyer will become an associate of their client because the lawyer has other clients who take the advice into consideration as part of the decision‑making process.  The lawyer’s clients will become associates with the other clients.  It does not take very long before the whole world becomes an associate of each other.

My learned friend referred to the two limbs of section 318(d) and (e), each of which refer to both majority voting interest and ‑ pausing there, that is what is commonly, or at common law, understood to amount to control of a company, the person who can cast the majority of votes at the general meeting ‑ and, secondly, the second limb, the sufficient influence limb.

Now, we would say that the fact that those two tests sit side by side under a provision which labels the two entities as controlled company and controlling entity tells you a lot about what the intention of this provision is which is to identify a form of control, something other than common law control of a company which is majority voting interest and, we say, it is effective control, control exercised by other means. 

My learned friend referred to the fact that there are a number of other relationships referred to in section 318 that do not involve control, for example, relatives and partnerships. However, as Mr Bloom pointed out, when you follow the definitions, for example, of relatives through, you will see a very bright line test as to who is and is not caught by that provision, including spouse and then a further definition of “spouse” with a number of limbs to it. What the Commissioner is seeking to do here is override what should be a test of effective control with something that is much more generic and difficult to pin down.

My learned friend also highlighted some of the differences between section 318(6)(b) and the shadow director definition in the Corporations Act, and he rightly pointed out that the purpose of the provisions are different, or purposes of the provisions are different. However, we would say that the ultimate purpose of the provisions are different, clearly, but the purpose of both of them is to identify a person who has control over the acts of a company. Just to be clear, we rely on the section 9 definition, shadow director definition, or the cases that have referred to it, only to construe the words “in accordance with”.

We acknowledge freely that there are many other differences, as I submitted earlier.  Those other components of the definition do not affect the meaning of those words “in accordance with”.  Your Honours, we do take issue with the notion that either Plc or Limited could have acted solely for the benefit of the shareholders of the other company.  That clearly is contrary to law and we have referred to the case of Walker v Wimborne.  Your Honours will find that in volume 3, tab 31, and we refer in particular to page 884. 

There are other aspects of the DLC arrangement that are worth noting.  Firstly, the arrangements set up a scenario of mutuality.  Neither entity subordinates itself to the other.  Secondly, the concept of single unified economic entity is a goal or aspiration and the words used are that they will act “as if”.  They are not in fact a single unified economic entity, they have agreed to act in particular ways so as to give effect to those principles, and that includes procuring their subsidiaries to do so.

My learned friend continued, when describing the voting arrangements, to confuse the distinction between the shareholders of either Plc and Limited and the company itself.  And it is critical to note that at the time when the notification is given by one company to the other and to its special voting shareholder, there has not been a resolution in the other company.  All that has occurred is that ordinary shareholders have cast votes.  And it cannot be said, in that circumstance, that the other company is acting in accordance with the direction, instruction or wish of the first company.  All that has occurred is ordinary shareholders, people that are distinct from the company itself, have cast votes.

In relation to the dividends, both the Tribunal and the Full Federal Court held that the dividends ‑ and the committee declared the dividends it did so in accordance with the direction, or recommendation, I should say, of the company for which it was declaring the dividend.  So, for example, when the committee was declaring a dividend for Limited, it was doing so upon the recommendation of Limited, and not Plc.  Even Justice Thawley accepted that was the case.

The most that can be said is that prior to making their respective recommendations to the committee, the boards of Limited and Plc, which comprised of the same individuals, would have consulted with each other, and determined what they should each declare by way of dividend, having regard to the fact that they will each be required to match the dividends. 

That is mutual decision‑making.  It cannot be said, in that circumstance, that either company is acting in accordance with the directions, instructions or wishes of the other. And, your Honours, just on that point, there was a case referred to by the Tribunal, and your Honours will see it referred to at paragraph 33, Dairy Containers Ltd v Auditor‑General [1995] 2 NZLR 30 at page 91. And it deals with that exact scenario, that it would be quite ludicrous, where you have two boards consisting of the same individuals, consulting or giving directions and instructions to each other in their various capacities, and I would refer your Honours to that decision.

Finally, in relation to BMAG, and in particular the marketing standard, Mr Bloom read out almost in full the section of the Tribunal’s reasons relating to BMAG, which addressed the marketing standard.  And if we are right about how the words “in accordance with” are to be interpreted ‑ and we say that the Buzzle interpretation is the correct interpretation ‑ then that dispenses with that matter.  We follow the reasons of the Tribunal in relation to that.

Finally, your Honours, if I could just address clause 13.  Mr Bloom mentioned that that clause is essentially a covenant for further assurance.  Covenants for further assurances were dealt with in a case called Fox Entertainment Precinct Pty Ltd v Centennial Park and Moore Park Trust (2004) 11 Butterworth’s Property Reports 21,629 by Justice Barrett, who noted that such covenants are usually there to provide that each party do whatever is reasonably required to do:

for the purpose of “further or more perfectly assuring” the defined subject matter –

of a conveyance.  His Honour then goes on to note that such covenants or their use has been expanded somewhat in modern contracts, however, his Honour said such clauses do not:

operate upon some subject matter wider than that delineated by the [agreement] itself.

We say that is what clause 13 does.  To begin with, its mutuality, as the Tribunal noted, does sterilise it.  If one entity tells the other that it should do something, the other entity can tell the first entity, “Can you withdraw that request?”  It is in one sense an aspiration where it is mutual.  Covenants for further assurances may not be mutual but in this situation it is a mutual clause.  The second point to note is that such ‑ ‑ ‑

GAGELER J:   I am not sure about that.  If you look at the final words of the clause, it is confined to giving effect to the agreement.  That is one limb.  It is about furtherance of the common interests as a combined group.

MR WHEELAHAN:   That is right, your Honour.

GAGELER J:   So it is not just like a Butt v McDonald type of clause.

Mr WHEELAHAN:   I was about to refer to Butt.  However, it refers specifically to clause 2.

GAGELER J:   Without limiting it.

GORDON J:   Without limiting, yes.

MR WHEELAHAN:   Yes.  We submit that it is really to give effect to the already existing obligations under the agreement.

GAGELER J:   All I am suggesting to you is it is very difficult to reconcile the final words of the clause itself.

MR WHEELAHAN:   In that case, your Honours, we rely upon its mutuality as being critical.  Yes, your Honours, just finally to note, as I said at the outset, the crux of this case is about the interpretation of the words “in accordance with” and whether it should be interpreted in the way that it was in the Buzzle Case.  Mr Bloom took the Court through all of that extrinsic

material and almost all of it supported the construction for which we contend.  Starting with the explanatory memorandum to Part X which then referred to the economic statement which then referred to earlier provisions which were said to be followed and all of the EMs for those provisions which also referred to earlier provisions and they all referred to “effective control” or words to that effect.  If your Honours please.

KIEFEL CJ:   Thank you, Mr Wheelahan.  The Court reserves its decision in this matter and adjourns to 9.30 am tomorrow for pronouncement of orders.

AT 3.25 PM THE MATTER WAS ADJOURNED