Bywater Investments Limited & Ors v Commissioner of Taxation; Hua Wang Bank Berhad v Commissioner of Taxation

[2016] HCATrans 184

[2016] HCATrans 184

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S134 of 2016

B e t w e e n -

BYWATER INVESTMENTS LIMITED

First Appellant

CHEMICAL TRUSTEE LIMITED

Second Appellant

DERRIN BROTHERS PROPERTIES LIMITED

Third Appellant

and

COMMISSIONER OF TAXATION

Respondent

Office of the Registry
  Sydney  No S135 of 2016

B e t w e e n -

HUA WANG BANK BERHAD

Appellant

and

COMMISSIONER OF TAXATION

Respondent

FRENCH CJ
KIEFEL J
BELL J
NETTLE J
GORDON J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON THURSDAY, 25 AUGUST 2016, AT 10.17 AM

(Continued from 24/8/16)

Copyright in the High Court of Australia

____________________

FRENCH CJ:   Yes, Mr Hutley.

MR HUTLEY:   Thank you, your Honour.  Your Honour, the facts are not in dispute.  The Full Federal Court dealt with the facts very shortly at paragraphs 16 and 17 in their judgment at appeal book 4, 1617.  So it is really to the first instance reasons that one must go to understand the factual matrix. 

We proceed on the basis, of course, that all of his Honour’s findings of fact are accepted other than the ultimate conclusion drawn from those findings, which was the central management and control conclusion.  However, we do propose to take your Honours shortly to some evidence and solely for this purpose, which points out the detail which is not wholly explicit in the judgment and that detail is of some significance.  It does not in any way depart from the judgment at all, just the little detail.

As your Honours know, the Bank was incorporated in 1994 and thereafter operated up to and including the years with which your Honours are immediately concerned, being 2004, 2005 and 2007.  The process of setting up the Bank is referred to in the trial judge’s judgment at paragraph 52 at page 801 and at paragraph 353 at page 874 in appeal book 2.  His Honour refers to the process and securing a banking licence for the company.  Those steps were largely performed in Samoa, although the initiative came from Mr Gould.

The Memorandum and Articles of Association appear in the appeal book in volume 3 at 1082.  Just to give your Honours a reference – Article 91 at 1103 vests the management of the bank in its directors.

From the time of its incorporation, the work of operating the Bank was at all times performed by the Samoan office of a corporate services provider called Asiaciti Trust.  That included, of course, the borrowing by the Bank and the lending by the Bank which, in fact, took place solely in Samoa.  At paragraphs 349 and 350 of the judgment, the trial judge – that is 874 in the book – outlined the nature of the Bank’s business.

His Honour stated at 349 that the business of the Bank was to engage in what might be called “back‑to‑back” transactions whereby Australian interests would cause funds to be placed on deposit with the Bank and those same Australian interests – and I will come to exactly what those Australian interests were in a moment – would borrow directly or through related companies, moneys back from the Bank as loans.  His Honour has restated this factual conclusion at 418 to 419.

His Honour, at 3, 1351, suggested that the – he found it almost impossible to imagine that the activities could be proper.  Your Honour, when I come to it, this is repeated by his Honour at a few points.  He did it again at paragraph 419 and we will submit led his Honour to be diverted from the true inquiry which was confronting him in the particular circumstances of this…..

Now, and just so I can explain a little how this works, at paragraph 349 his Honour recorded the deposit of the Bank consisted almost entirely of superannuation funds.  These funds, in fact, were funds established in Samoa at the instigation of Australian entities.  So they were funds established in Samoa to stand as superannuation funds for the benefit of Australian entities, corporate or otherwise.  I will show your Honours those in a minute.

The reason that almost all the superannuation funds was that there was considered to be favoured tax position that these funds could stand in for their Australian beneficial interested parties.  Those matters were outlined in the affidavit of a Mr Richard Lead who became the first director of Hua Wang Bank which was formed in 1994.  If your Honours go to appeal book 1, 346 – that is the commencement of his affidavit - at appeal book 1, 351 at paragraphs 32 to 37, your Honours will see that the reference to RFL3 is a brochure at 371 and the reference to RFL4 is a brochure at 379.

If your Honours go to 375, your Honours will see the reference to the perceived tax benefits being explained in the brochure so if your Honours then go back to the affidavit at 350 and look at 25 to 26, your Honours will see how – his dealings with Mr Gould and your Honours will see the reference there that:

“the fund is legally able to invest in or make loans back to members or sponsoring employers” -

That is a reference to RFL4, that is at page 381, and if your Honours look at the top lines, 24 and about 28.  The superannuation funds then placed moneys on deposit with Hua Wang Bank at the time that the Hua Wang Bank would also simultaneously make loans on to related entities in Australia.  So it would then go to the superannuation fund, superannuation fund to the Hua Wang Bank, Hua Wang Bank to some chosen entity.

GORDON J:   Or back to the same person.

MR HUTLEY:   I do not think – I will take your Honours to the list.  I do not think there is any evidence of ever going back to the same person.  It may have, your Honour, I just cannot tell your Honour. 

Now, the Hua Wang Bank held a licence issued by the Samoan Government that allowed it to operate as what is called an offshore bank and his Honour finds that at judgment 52, page 802.  The terms of this banking licence are set out in the agreed facts at first instance.  They are at volume 3 appeal book, 1122. 

Just so I do not have to take your Honours back to it later on, your Honours will see the identification at 1120 and 1121 of the directors from time to time of the Hua Wang Bank - they are individuals - and particularly of importance, the directors who were the Samoan‑based directors in the relevant tax years.  Your Honour will see Angela Nicolson and a Ross Hanning, but could I then go to the licences, your Honours?

Your Honours will see the original licences at paragraph 8, the terms.  Those terms came to be varied in a way which limited the persons from whom deposits could be taken to those who were identified in an undertaking and your Honours will see that from paragraph 9 and paragraph 10.  They limited the potential depositors in any licence year to nominated organisations.

Your Honours, we have in the supplementary book, just to complete, if your Honours go to 1783 in the book and 1787 and 1791, your Honours will see those lists in various years.  They change slightly over time but importantly, as your Honours will notice, that almost without exception – there are one or two exceptions – they are identified by the name of a super fund.

FRENCH CJ:   Barristers’ super fund included. 

MR HUTLEY:   I was unaware.  Yes, and as your Honours see from the agreed facts, one form of undertaking your Honours will see from the back of page 1784, but the agreed fact and the fact upon which the case was conducted is that in any given year one was limited to take deposits from the identified depositors.  That is all that the Bank could do in a year.

I am not going to take your Honours through the detail of that other than to say that there were slight changes over the period with which one is concerned.  There were, in 2002, 55 entities; in 2007, 46 entities; and the 2007 undertaking features nine new individual deposit holders who are not listed in the earlier 2002 – in other words, there was a very slight increment of customers over that period.

In his Honour the trial judge’s reasoning at paragraph 350, appeal book 2, 875, he made a finding that all entities which had deposits were clients of Mr Gould.  That is how the business broadly was conducted.       The ownership of the Bank lay in - the issued capital was held by Pacific Securities Limited – that appears from his Honour’s judgment at 47.  His Honour found at 48 that that was in turn owned by the company JA Investments in the Cayman Islands and at 110 his Honour found that Mr Gould was the controller of JA Investments and that underlies his Honour’s finding at paragraph 364.1 on page 878 that at all times Mr Gould owned the Bank, that in effect he had the sole economic interest in it.

Control - again a finding made by his Honour at 878, 364.2, was based on the findings of fact which his Honour made between paragraph 346 on 874 and paragraph 363 and in respect of one of two of those matters I will return in due course.

But it was never in dispute in the case that the Bank was administered by the corporate services adviser Asiaciti Trust and the directors nominated from its staff.  All the Bank’s transactions, that means its borrowings and lendings, were undertaken by that staff in Samoa.  If one goes to judgment 354 that is, with his Honour’s usual pithy phraseology “under the swaying palms”, they were “formally transacted”.  That is, the borrowing and lending, page 875, your Honours, over to 876.

What his Honour calls “formally transacted”, that is, the money was received by the Bank on deposit in Samoa, the contracts of loan were executed in Samoa by the Bank, the Bank then passed the money from its bank to the recipient under the loan.  That is how it operated.  Now, his Honour found that the Bank’s director’s meetings occurred in Samoa ‑ ‑ ‑

GORDON J:   Before you leave that point, do you propose to address 356?

MR HUTLEY:   I am sorry, your Honour?

GORDON J:   Do you propose to address paragraph 356 which is two on from that which you have just taken us to?

MR HUTLEY:   Yes, I am going to come ‑ your Honour, I know I have to deal with direction.  I am going to come to it, we embrace it.  We say it is absolutely right and it is important that your Honours – in your Honours’ discussion with my learned friend yesterday, when one goes to Wood v Holden we say it is important and, in fact, critical to concentrate when one is dealing with an outsider said to manage and control both.  That is, their management and control is external to the Bank is to how does one bring that about when there is an established structure which is operating?

In Wood v Holden a structural distinction was made in the law so far as Lord Justice Chadwick between where was an operative board and when there was not.  In other words, when there was not, in effect, almost by definition those who were running the operations became the central management of control.  In effect, if the management has walked out the door and someone has taken over, they are the individuals.  Where they are there, a different analysis has to take place practically and the distinction drawn by the Court of Appeal there was between ‑ ‑ ‑

GORDON J:   Usurping.

MR HUTLEY:   Usurping got one into, as it were, the Bullock stream.  Absent usurping there had to be what was called “dictation”.  “Dictation”, we say, means constructive usurping in the sense that merely because I direct a person to do something and they accede to it does not mean I have dictated to them.  If they do not want to do it or it is against their wish to do it and they do it, I have dictated to them.  In other words, I have usurped in substance the function of the board.

BELL J:   Is there an intermediate position where those exercising the legal power do so bringing no independent judgment to bear?  In such a circumstance, in a sense, can it be said they have walked out the door?

MR HUTLEY:   Your Honour, I am happy here to say it depends on the facts.

BELL J:   Yes.

MR HUTLEY:   I mean this in this sense, your Honour.  Let it be assumed for years a very simple business model has been operating before the relevant tax year.  You borrow some money at X per cent.  You lend on a back‑to‑back basis, and as the judge – I will come to it – defined it, saying it was almost risk‑free – that is the case it was – to associated entity.  In other words, they are locked arrangements.  What does it mean to say, I accede to that when it is not a loss‑making transaction for the Bank?  The Bank made a small turn on the transactions.

Now, to say that a person who is presented with that is acting under dictation if – and it is not suggested that they did not know what the terms were, it is not suggested that they did not understand what the transaction was in the sense of “in/out” – we say, merely, you get nothing from saying they acted on that instruction.  We say it is a simple, almost childish, business model when one gets to this.  His Honour had a great concern that they did not know about what he called the “commercial input”.  That is why he said, for example, at 357, if your Honours will look at 357:

None suggested that they had any commercial input into the decisions –

We embrace that.  They had nothing to do with the commercial input.  By “commercial input” means that which lay behind in Mr Gould’s dealings with his clients.  We accept that.  It had nothing to do with that – knew nothing about it, not informed about it, did not seek that information.  We say, why do they have to?  What compelled the board to ask this, particularly in 2004, 2005 and 2007?  I have got it right.  Yes, 2004, 2005 and 2007.  This is a business that had been running since 1994.

If the position which my learned friend, Mr Myers, advanced is not accepted by your Honours – and we embrace it – we put it in slightly different ways, but accepting for a moment it would not be embraced and one looks to the facts, and one is dealing with the outsider, therefore one has an operating commercial structure, our learned friends would have it that you have got to have enough information.  We say if you have got enough – if you know you are doing a pretty simple back‑to‑back – and I will come to it in a moment, I will come to the detail – risk‑free, essentially risk‑free transaction, which is profitable to the bank, we have got enough facts.  Then they say, there is another thing, you have got to have a time of reflection, the “magic moment” as we would put it.  How long that has to be is completely undefined and if, as we say, it is a simple, simple business model.

FRENCH CJ:   Now, this does not require the – it seems to me that your submission is a bit less hard‑edged than Mr Myers.  You use the word “multifactorial”, and it seems to me that you are not suggesting as a primary position that it is sufficient that legally effective decisions are taken by the board.  You are looking at a slightly somewhat wider range of considerations in determining where central control or management is.

MR HUTLEY:   Well, your Honour, and I do not think I am in substance at difference with my learned friend, I would not seek to in any way, but when one asks the question – and my learned friend did not suggest Wood v Holden was wrong.  When one gets to the question of what is it to act under dictation?  When do you achieve that very harsh reality?  It is not merely to act on instructions.  Occasionally when your Honours were at the Bar your Honours’ juniors would have had to act on dictation, that is, they would have had to do something that you as a senior counsel said they had to do and they did not believe in.  That is acting on dictation. 

Acting on instructions, if you are at liberty to dissent but there is no obvious reason to dissent, and that is where we say his Honour – his Honour was constantly concerned by the possibility that there could be illegality lurking behind this.  You see it in 358, you see it in the other paragraphs which, admittedly the directors led evidence that they would not knowingly do something illegal, and his Honour observed they would not know enough about the Bank’s business and by that I understand…..know if that is the case.  We accept that. 

But that really does not address the question.  What is the predicate obligation of the director who has offered a nice little bit of business to, as it were, conduct an interrogatory of those who are promoting for it as to the possibility that it may have some nefarious underpinning, particularly when it is all coming out of State mandated superannuation funds?

KIEFEL J:   If one puts the rather freighted word, the term “acting under dictation” to one side, if one says that the directors and employees of the Bank were willing and obedient to an outside person, can it be said that they control and manage the Bank?

MR HUTLEY:   Your Honour, “willing and obedient” has the suppressed, as it were, imputation of willing to do whatever they are asked.

KIEFEL J:   Well, you said they had no reason to question.

MR HUTLEY:   Quite, that is why I am saying if one says it of business which is being promoted to you which is ex facie profitable and has no – does not involve judgments of substantive risk, I am perfectly happy to accept that.

KIEFEL J:   There is no occasion on which they would need to turn their mind to any transaction and query it.

MR HUTLEY:   There is no occasion for doing that, yes.  They are being offered simple – and it was put, as his Honour found and I will take your Honours to the paragraph, there really was no occasion to exercise the judgment because he said they did not know enough because on the face of it this was a “blind Freddy” point, if you are offered it.

BELL J:   But his Honour did not make that additional finding, as I understand it.  That is, did his Honour make a finding that they knew sufficient of the business to appreciate that this was a lay‑down‑misère good thing for it?

MR HUTLEY:   But, your Honour, they had to know, and they were cross‑examined, that this was a back‑to‑back business.  It was actually put to them, and I will take your Honours, one of the witnesses, there was nothing for you to think about.

GORDON J:   But is that – that is rubber stamping.

MR HUTLEY:   Your Honour, if one is offered ‑ I do not accept if ‑ the problem with words like ‑ ‑ ‑

GORDON J:   Mr Myers accepts it is rubber stamping in the case of his clients.

MR HUTLEY:   That ‑ yes.

GORDON J:   Do you accept that in relation to yours?

MR HUTLEY:   Your Honour, if it means accepting an ex facie profitable piece of business without inquiring further, I accept ‑ if one wants to call that rubber stamping, it is rubber stamping, but the problem is these metaphors run the risk of carrying unfortunate connotations which are, in this field of discourse, apt to lead to a logical ‑ another step, to say one is acting under dictation.

GORDON J:   Well, but they are characterisations.  The question here is ‑ ‑ ‑

MR HUTLEY:   Quite.

GORDON J:   ‑ ‑ ‑ what are the facts and the moment we have transactions delivered up, to which they do not turn their mind, transactions started in Australia, returned to Australia, to which they do not turn their mind to.

MR HUTLEY:   Well, your Honour, except in the sense of accepting them and signing of them, they do not turn their mind to them in the sense of ‑ they do not evaluate them consciously in some broader commercial context, they are provided a back‑to‑back transaction which, as his Honour said at 418 ‑ ‑ ‑

GORDON J:   Which paragraph, sorry?

MR HUTLEY:   Paragraph 418, your Honour.  I am giving you paragraph numbers because I know you are at page 890, 891 – it says:

The business of the Bank appears to have been one of ‘borrowing’ money from various clients and lending it back to related persons or entities in a way which appears designed to conceal their original nature, or at least the original owner.  From the Bank’s perspective –

that is, from the point of view of the people running the Bank:

it was the business of matching loans with deposits.

That is what it was from the Bank’s perspective:

There was never any occasion for the directors to exercise any judgment about these transactions and the evidence is that they did not.

That is, they were being offered simplistic transactions of no risk and from their perspective, as his Honour found, there was never any occasion.

GORDON J:   Could I ask a different question?

MR HUTLEY:   Certainly.

GORDON J:   At the moment we are focusing upon what it is they did not do.  What did they do?

MR HUTLEY:   Well, your Honour, if one goes to ‑ his Honour accepts ‑ ‑ ‑

GORDON J:   Took the benefit of a profit margin ‑ took a profit margin, did they?

MR HUTLEY:   I will have the audited accounts, your Honour.  I have got them.  They show a small profit.

GORDON J:   But what was the profit for?

MR HUTLEY:   For the services.

GORDON J:   What were the services?

MR HUTLEY:   In effect, there was a charge for the difference between the loan in, the loan out.  There was a tiny margin, I think, very small margin.

GORDON J:   That is the service they provided.

MR HUTLEY:   The service they provided was, in a sense, the service of receiving funds and then lending funds.  That is what they did.  In effect, a lot of the analysis which tends to take place about this field of discourse is involving businesses of some complexity or of putative complexity in making judgments.  The truth of this is that by 2004, 2005, this was really a very small business.

There is just not much in it at a practical level.  The board is meeting, and I will come to that in a little while – but they are not meeting to determine these little transactions.  These have been done by the resident director in effect to whom the control and management of the company in Samoa is left by Mr Briggs, and there is a corporate director, and he or she over the relevant period or people under her or him are in effect superintending and agreeing to the receipt of deposits, the making of loans and receiving interest payments, disbursing and, as it were, we say, running the very small business that this organisation was.

KIEFEL J:   Is there any utility, Mr Hutley, in comparing the position, say, of a subsidiary company that is given a small but discrete task to carry out and where the control and management of that company resides?

MR HUTLEY:   Your Honour, those sorts of analogies are thrown up.  The myriad of ways organisations can be structured for “good” commercial reasons could have small organisations doing very small things in particular jurisdictions for tax advantages, opportunity advantages, property charges, employment costs, all the sorts of things about placing organisations doing often a little bit of business, little things.  In effect, they are part of a large corporate structure and their job is to do something which is little.  They have a board and the board does little things.  They do not have a lot of evaluative judgments.

KIEFEL J:   I suppose it would still be a question of fact about where the true control and management resides.

MR HUTLEY:   I accept that, your Honour, but one does go back to, I think, the observation your Honour made yesterday.  You are looking for control and management.  It is the collocation of the two - as Sir Owen Dixon said in the North Australian Pastoral, the superior direction and control – that is, the superior management, the controlling of the management of the organisation and the control of the organisation at a policy and business level.  That is why one is looking for where the real business is conducted.

GORDON J:   That is why I was asking you those questions about the real business.

MR HUTLEY:   Yes, your Honour.

GORDON J:   Because in this case in relation to HWBB you have the transactions starting in Australia, the returning to Australia, directed from Australia.  The actual business of the transaction itself is sourced in Australia.  You accept that the people in Samoa are not involved in deciding about that transaction itself, that is, either the forward or the backward aspect of the arrangements.

MR HUTLEY:   Your Honour, if one calls it the negotiation – I do not want to - of the deal – I agree with that, it does.  But banks borrow money and lend money and that is why I said every act of borrowing and every act of lending took place in Samoa.  It had bank accounts there.  In fact, the lending, essentially, was from a Samoan entity, that is, the trust.  True it is, it came, and I am not quibbling in any way with your Honour’s observations about what I call the negotiation, took place.  In effect, the commercial matter was discussed, obviously, by Mr Gould with his clients.

GORDON J:   Without him there would be no commercial matter.

MR HUTLEY:   Quite.  But legally the structure required him to be there.  The licences of these banks says that one has to have – one can only deal with either the clients of the controller or, latterly, with particular nominated funds with which he had the relationship because they were funds for the benefit of Australian entities.  I accept all that, your Honour. 

I will just tell you a little bit about – if I might your Honours – the facts about how it operated.  At paragraph 51, appeal book 2, 801, the primary judge explained that one of the directors was Mr Graeme Briggs.  Graeme Briggs was a resident of Singapore and the CEO of Asiaciti and he held the office as a director of the Bank through all the income years in dispute.

Mr Briggs explained that he played no significant role in the running of the Bank because the work of running the Bank was always done by the manager of the Samoan office of Asiaciti who was, at all relevant times, a director of the Bank.  Your Honours will see that from supplementary appeal book 1798, paragraphs 18 to 22.

The second director of the Bank was a Samoan company called Westco Directors Ltd – that is at his Honour’s judgment at paragraph 51, page 802.  He records that Westco was a service entity maintained by Asiaciti Trust and staffed by employees of Asiaciti Trust and Westco directors held the position throughout the relevant period.

The third director was a natural person who held the position as manager of Asiaciti’s Samoan office.  From January 2003 through to September 2006 – that is appeal book 3, 1120 – this natural person, director, was Ms Angela Nicolson, she being a chartered accountant who had worked at Deloittes prior to taking the job with Asiaciti.

In September 2006, she resigned as a director and from that point the manager of the Samoan office, a Mr Ross Hanning, who was also an accountant and he was a director from April 2006 until May 2007 and your Honours will see that from appeal book 3, 1120.  Now, they each gave evidence, and his Honour found this and accepted this, that all the transactions entered into the Bank, they originated from instructions from Mr Gould and were implemented in Samoa either by Ms Nicolson or Mr Hanning, personally, or by staff of Asiaciti under their supervision and his Honour found that at paragraph 356 to which I have taken your Honours in appeal book 876. 

Now, the primary judge made a finding that all formal aspects of the Bank were located outside Australia, the place of incorporation, the company’s banking licence, registered office and seal, directors’ meeting, all the shareholders, the employed staff, the Bank accounts, financial records and the auditing took place in Samoa as did, we say, the borrowing and lending, and if your Honours – I think that deals with that. 

Now, I need to take your Honours shortly to this before I – at appeal book 358 ‑ and I have referred to this your Honour, I just want to make clear the point ‑ that is appeal book 878, and at 364 his Honour said that the directors of the bank knew nothing of the affairs of the Bank and, secondly, had no idea what the business of the Bank was.  Now, it is quite clear from – that is the second one, your Honours, at 364, point 3, which seems to be the summation from 357 and 358.

Now, plainly what his Honour was saying was not that it had no knowledge of what the business was that was done in Samoa.  It is clear from his Honour’s finding – his Honour’s evidence about the directors’ considerations of their duty at 358, 364 and 417 to 418 that they knew what was happening in Samoa.  What his Honour meant is that they had no understanding of the commercial background which was driving these transactions. 

They maintained the Bank’s financial records and carried out its business.  His Honour in 359 refers to – I am sorry, I have got that wrong – his Honour at 349 – I do apologise, your Honours ‑ refers to a document called the “Analyze Balance Sheet”.  Now, that is a Bank record which ‑ could I just take a moment to show to your Honours, just to explain to you how – what it does disclose.  That is at volume – at page 528 in, I think, volume 2, with a bit of luck, yes. 

This is one of the Bank’s financial records, it is for the June 2005, and if your Honours go to 528 and kind of go down to “Customer Loans” at about line 30, your Honour will see “Allan J. Heasman (Sales) P/Ltd”, that is to whom the loan is.  I am sorry, does your Honour have that?  Good.  If your Honours go over to 531 goes to “Deposits Payable” at line 22, your Honours will see the “Automotive Engineers S/Fund”, same sum. 

Your Honours can, in effect, bounce backwards and forwards between those two lists and run down and it gives clear demonstration how this business was running:  superannuation fund deposit, payment out, then there are other things like interest and things like that which I will not trouble your Honours with but that is how it worked.  That was the Bank record maintained by the officers in Samoa. 

Now, again, at first instance, our learned friends submitted that there was minimal commercial risk for the Bank in entering the sort of back‑to‑back transactions that constituted the Bank’s lending business and accordingly very few occasions where the Bank’s directors were required to engage in independent decision‑making.  Your Honours will see that in their submissions at appeal book 4, 1553, paragraph 289, by reference to the cross‑examination of a Mr Carran which your Honours will find at appeal book 1, 252, line 25.  I do not need to take your Honours in detail to it, I just wanted to give you the references.  I am conscious not to delay too long. 

But his Honour accepted that, and that is at paragraph 364, point 3, in his Honour’s judgment where he observed that:

the directors were never placed in a position where they had to exercise the slightest judgment.

We accept that observation.  It was wholly correct and, your Honour, it was not concentrating on that where the error occurred because one then had to ask if one is dealing – if one was accepting one was dealing with an outsider situation, if I can use the terminology from Wood v Holden, what did the directors have to do with what we would respectfully submit was a childishly simple business model. 

In our respectful submission, there is no obligation upon them, even in accordance with their fiduciary duty, to go beyond that which was presented to them.  There was a lot with respect to imaginings as to the possible nefarious matters which might stand behind this.

One asks and observes, if one is looking at the relevant tax years, that this business had been going on for a decade.  Not one jot of evidence was led or suggested by the Commissioner that these directors could, would or should have been on notice that this was, as his Honour might have posited as a possibility, involve money laundering.

GORDON J:   Putting aside the colourful language of money laundering and the like for the moment, there is sort of artificiality about the proposition, though, is there not?  The difficulty here is that HWBB is a Samoan company.  I do not know what the Samoan law is in relation to directors’ obligations.

MR HUTLEY:   I think the parties proceeded - can I say, your Honour, that broadly they owed fiduciary duties in the same was as they would here.

GORDON J:   Assume that is right for the moment - I do not know whether it is or is not - to contend that directors of a company – I keep going back to rubber stamping but I use that as a collection of the conduct here for the moment ‑ ‑ ‑

MR HUTLEY:   If I accept it, your Honour will take it no further than the way I have put it.

GORDON J:   That is arguably not consistent with their duties as directors in Australia, to be blunt.

MR HUTLEY:   Your Honour, it might or might not be, with respect.

GORDON J:   I find the proposition quite alarming, really, that you can have directors that can rubber stamp – its entire process is that of a bank borrowing and lending.  It gets a deposit then it lends it out to an entity about which it knows nothing.

MR HUTLEY:   Yes.  On a related party basis where the position ‑ ‑ ‑

GORDON J:    But they do not know that.  They know nothing about it, do they?

MR HUTLEY:   With respect, that is exactly what was being put by the Bank, by our learned friends in cross‑examination to the witness.  That is what his Honour found.  His Honour found from the Bank’s perspective ‑ ‑ ‑

GORDON J:   We are not talking about the banks.  We are talking about the directors now.  We are talking about management and control.

MR HUTLEY:   No, but, with respect, your Honour, from the Bank’s perspective, the bank being only made up of individuals, was referring - his Honour could only have been referring to the men and women who stood there thinking about it, who were confronting it.

GORDON J:   But they did not turn their minds to it.

MR HUTLEY:   But, your Honour, they knew what was happening.  They had to know that there were back‑to‑back transactions.  They had to.  I have taken your Honours to the accounts.  I have taken your Honours to the findings. 

GORDON J:   How did they know there was a connection between deposit in and payable out that there was this connection?  I accept that there was a financial reason why it was set up this way but when we are talking about directors performing proper roles as director, I find it a startling proposition that they have exercised their duties according to Australian law and concepts by reference to what you have described, accepting what you described they did.

MR HUTLEY:   Your Honour, in my respectful submission, if an officer is promoted to them, a bank, on the basis that they are, in effect, back‑to‑back transactions taking place – that is what his Honour found and I will not go back through the findings – in my respectful submission, you cannot find they are acting under dictation in saying they accepted that.

GORDON J:   I think I am stepping away from dictation.  We are looking at management and control and we are looking to see where the real business is, to use your language from Justice Dixon.  We are looking to see what they did and what they did not do to try to work out where the real business is being carried on.

MR HUTLEY:   But, your Honour, to go to Justice Dixon, as he observed in that very judgment, there had never been a case ever where the central management control was not found to exist where the organs of the company were operating and the business was operating simultaneously.  I will give your Honours the reference to that, if I might?  I have got it here somewhere, I am sure I have.  His Honour said at 634, point 3, there had never been a case in which a company has carried on business in a jurisdiction which is the same jurisdiction where the company is incorporated and has the entirety of its formal life and the company has not been found to be a tax resident in the jurisdiction.

Now, this is the first case, we say.  No one suggests that the structures have broken down.  We were carrying on business.  We were borrowing and lending.  The formal structures were taking place there and Sir Owen Dixon observed there had never been such a case where it had, and that was a reflection, we say, of a fundamental aspect of the factual inquiry and why it is multifactorial because one is dealing with artificial entities conducting businesses.

His Honour also found in that case, mere influence – searching after influence is a sterile exercise and his Honour referred to the great case of John Hood v Magee which he was described by one of the judges as the, in effect, the perfect case of a one man company who, in effect, was resident and running a business in great part from New York, yet because of his business associations and various things about board minutes were found to be in Ireland. 

So, what we say is I accept the factual inquiry but it is, as my learned friend, Mr Myers, observed, a factual inquiry of a peculiar variety.  That is why, for example, in Esquire Nominees Sir Harry Gibbs started by setting out all the formal aspects of that company, where it was incorporated, where the directors were, where the shareholders were, where the auditors were, everything.  Not because these are just, in effect, irrelevant footprints, matters, and it can all be wiped away by just finding out what the influence on the directors is because at the heart of this one is really – it all goes back to the analogy of finding where an organisation keeps house – keeps home.  I mean, it goes all the way back to looking to those sorts of matters and those things are real and material. 

FRENCH CJ:   A less than purely formal approach is suggested by the sort of – I know one has to be careful of metaphors, but a metaphor which was in the passage from Justice Gibbs and I think quoted by Sir Owen Dixon, where he referred to the “tap‑root of the fruit‑bearing tree”.  There was a fruit‑bearing tree in Samoa and the question is where is the tap‑root?

MR HUTLEY:   Your Honour, I am not relying on metaphor but the usage reflects the fact because of the artificial nature of an organisation and in some ways the artificial nature of the inquiry one has to pay due regard to those structural aspects.  With all due respect to the trial judge and the Full Court, once they found that Mr Gould directed the directors – Mr Gould controlled the company – although they referred to all these other matters, they were just – I think his Honour referred to it – the “formal effusions” of the company, and that is how they were treated. 

They were just treated, with respect, as irrelevancies in the circumstances of the case.  That, we say, was wrong.  It was wrong by reference to many statements of principle in this Court and the approach of this Court to the inquiry which places great importance on these structural factors for very good reason.

People set up organisations with these structures because they want them to be somewhere.  They want them to be somewhere for good reason for those individuals and they are allowed to and that choice is not, in our respectful submission, to be set aside in circumstances unless one can actually say the structure does not matter. 

That is what Bullock was and we say that has properly understood what Lord Justice Chadwick was saying when he referred to “dictation”.  You have moved past where the organisation matters, not just directions – and some of the cases after which, which have been looking for a moment of reflection and, what have you, are misconceived.  That might be some evidence of the organisation having, in effect, ceased to exist as such – or operate as such, maybe – but no one made that finding about this organisation nor could because it was doing real business in Samoa.

KIEFEL J:   I take it from your earlier remarks about the way in which the primary judge approached this matter and some of the findings that his Honour made that it is your argument that his Honour has imbued the inquiry about residency and control and management with sham questions.

MR HUTLEY:   Yes, your Honour.  His Honour, in effect, has just set aside the structure, as he calls it, “formal effusions”. 

KIEFEL J:   Your argument and Mr Myers’ argument is that there is a very simple inquiry in relation to residency for limited purposes but that this case has been run as if it is an orange rather than an apple.

MR HUTLEY:   Yes, your Honour.  We say it went off the track by not keeping close attention to what we say the extraordinary nature of finding central management control outside a formally structured and appropriately organised company.  We make no apology from the choice of the residents that was done – that was done for reasons and it was structured to do it for reasons, proper reasons.  No saying why this happens.  We do not want to apologise for it, that is why it was done, and there was a punctilious following of forms in the organisation.  The law of Samoa insists that these sorts of structures, in effect, deal with a very limited class of people.  That is what we did.  The directors, in our respectful submission, did nothing for which they are to be criticised.

With respect, his Honour’s considerations of treating their statement that they would not do anything illegal as being, in effect, surplusage because they would never have an opportunity to know, with respect to his Honour, again, was a diversion in great part, was almost impossible to concede in this company, such was the simplicity of its business, how there would ever be a conflict, for example, which his Honour posited:  conflict between who and what, the interests of the Bank and who?  Anyway, that is how we put it, your Honours, and that is where we say the error took place.

NETTLE J:   Mr Hutley, just before you go, do the findings go as far as establishing that each deal or transaction was on the two‑way basis, namely, you will receive this and you will pay back that?

MR HUTLEY:   I do not think it went to everyone, your Honour.  I will have that checked but I cannot say that and, of course, I have got to accept there were sales of shares that took place in the tax years.  That is not the only transaction.  Yes, your Honour, at 349:

With very few exceptions every deposit matches up with a loan.

NETTLE J:   I understand they match up but were they on the basis that, here is some money, and it is in effect on condition that you pay back money to X Co?

MR HUTLEY:   I think I am missing the force of your Honour ‑ ‑ ‑

NETTLE J:   Sorry, when the money is sent from Australia to the company in Samoa, is it on the ‑ ‑ ‑

MR HUTLEY:   It is sent to the super fund, I think it is.

NETTLE J:   Sent to the super fund in Samoa.  It is upon the basis that here is this money and it is paid to you condition, in effect, that you will now make a loan back?

MR HUTLEY:   Firstly, they would make a deposit to Hua Wang Bank ‑ ‑ ‑

NETTLE J:   Sure.

MR HUTLEY:   Your Honour, I will have that checked.  I cannot say that it was necessarily a finding to that effect.  I do not know.  I am thinking in the judgment, I cannot say that there was a finding in those terms, your Honour.  I have taken your Honour, I think, to the findings of his Honour about the way the business was conducted.  I will just have Mr Hyde Page, if he might just ‑ ‑ ‑

NETTLE J:   It must be that though, that is the way the scheme worked, was it not?  That they had to be paid back, had to be an understanding at least to that effect.

MR HUTLEY:   Your Honour, it was obviously the commercial arrangement must have been, set up a super fund, put some money there, it will go from there to the Hua Wang Bank and it can be lent back from that to some related entity.  That must have been the commercial, but I cannot tell your Honour if that was inevitable, invariable; it may have been augmentations at different times to the fund once established.  I cannot give your Honour that assurance.

NETTLE J:   Thank you.

FRENCH CJ:   There is that general finding in the second sentence or third sentence, I think, paragraph 350:

predominant business –

That may be as close as you get.

MR HUTLEY:   Yes, your Honour.

NETTLE J:   Thank you.

MR HUTLEY:   Your Honours, just one thing about the structure.  Obviously, within a regularly run organisation, central management and control in point of fact, does not have to reside in the board.  The board may delegate it or may organise itself in a way that it goes to a committee of the board or it goes to particular directors and particular individuals.

A good example of that is the decision of Mr Justice Williams in Waterloo Pastoral v Federal Commissioner of Taxation (1946) 72 CLR 262 at 266 to 267. That is where his Honour in effect dealt with a company where their board was designated to appear ‑ to sit in Sydney I think, but the board in effect delegated to one director and a manager who, because management and control had to take place where the business was being run and therefore that happened when one director met the manager in the Northern Territory. But that is where, in effect, the organ of the company

has chosen how it will be centrally managed and controlled.  If your Honours please, those are our submissions.

FRENCH CJ:   Thank you, Mr Hutley.  Mr Slater.

MR SLATER:   Your Honours, we will structure our oral argument on seven topics indicated broadly in our written document.  I will deal firstly with some preliminary matters; secondly, with factual matters; thirdly, with the operation of the domestic law; fourthly, with the extent of treaty protection; fifthly, with the matter which has been the subject of most debate and that is the concept of residence of corporations in domestic law; and, finally, with some other arguments.  We have some submissions in writing about notice of intention and they have been responded to, but it seems that that issue has gone away.

So, your Honours, starting with the preliminary matters, your Honours have a bundle of materials concerning the special leave application, including the draft notice of appeal and the order granting leave.  The reason I take your Honours to these is that the order granting leave confined leave to ground 2. 

Grounds 3 and 4 in the application by Hua Wang concerned the contention that the assets were held as capital assets and that section 70‑40 of the Act was misconstrued.  My friend has not addressed that orally and it is mentioned only in passing in his written submissions, but quite clearly it is beyond the grant of leave and it is beyond the notice of appeal as filed.

Now, the significance of that is something I will come to in a moment, but without contesting those findings in summary, there is no basis upon which Hua Wang can succeed.  I will come back in a moment to why that is so.  The orders sought are for remission of matters to the court below to be redetermined.  In our submission, those are inappropriate orders.  They are in the first place beyond the grant of leave. 

I accept that this Court can vary the terms of the grant of leave point if the Court thinks there is something there to be dealt with, but further than that, no error in the reasoning of the court below has been demonstrated which would warrant sending anything back to it for redetermination.  One does not get a second run in the intermediate appeal court just because one was unsuccessful the first time.

If I could turn then to the Hua Wang matter and take your Honours – I said I would explain to your Honours why we put this as we do.  If I could take your Honours to section 6‑5 of the 1997 Act, it is on page 425 of volume 1 of the CCH materials.  It starts:

(1)Your assessable income includes income according to ordinary concepts, which is called ordinary income.

 . . . 

(2)If you are an Australian resident, your assessable income includes the ordinary income you derived directly or indirectly from all sources . . . 

(3)      If you are a foreign resident, your assessable income includes:

(a)     the ordinary income you derived directly or indirectly from all Australian sources . . . 

Now, it is not in contest in the Hua Wang matter, or in any of these matters, that the gains in question had an Australian source.  Nor is it in contest that they were ordinary income.  There was a contest a step below but it is beyond the scope of the present appeal.  The consequence of that is that whether Hua Wang is resident or whether it is a non‑resident, it is assessable.  If it is a resident, it is assessable under subsection (2).  If it is a non‑resident, it is assessable under subsection (3).  It simply does not matter in the Hua Wang matter whether it is resident or not and, indeed, there is just no basis upon which Hua Wang can succeed.

Now, we drew attention to that very early in the course of the appeal.  We filed a summons to have the matter determined as a preliminary matter so the Court’s time would not be wasted.  We deal with it now but that, in our submission, is the beginning and end of that appeal.  Notwithstanding that, your Honours have heard argument on the questions. 

We will respond to those arguments, and the result for the other appellants, Bywater, Chemical and Derrin, is similar, that is, whether they are resident or not, under the Australian Act they are assessable.  They can only succeed if the treaty protects them.  So the only real issue in that appeal is whether they are within the protection of either the English treaty from 2004 onwards or the Swiss treaty at any time.  I will come back to the treaty question at a later stage in the submissions.

NETTLE J:   Is it any different to central management and control?

MR SLATER:   The treaty question?

NETTLE J:   In substance.

MR SLATER:   We would say it is, your Honour.  The test under Swiss law as to liability to Swiss tax is different from the test under the OECD treaties and the concept of effective management is, albeit only subtly, different from the concept of central management control.  It may make no difference in the present case.

Your Honours, our opponents in both appeals say they embrace the findings of the primary judge, although it was not always so.  I say it was not always so because when one looks at the written submissions the findings of the primary judge simply do not rate a mention.  The ones that matter to central management and control are not mentioned in our friend’s submissions; they are mentioned in Part 4 of our submissions in each case.  I am tempted to remind your Honours of them, but I think the Court has already been to a number of them in the course of the argument to date.  If your Honours are assisted, I will briefly run over some of the key points, but I do not want to take up time otherwise.

FRENCH CJ:   I think you summarised them and they were referred to in debate earlier.

MR SLATER:   Yes.  Your Honours, I do wish to say something about the way my friend, Mr Myers, put his case orally.  It is somewhat different from the way in which the case was put to the Full Court.  In the Full Court there was a challenge to the factual findings and it was argued that Mr Borgas made independent decisions of his own and did not act as a puppet.  In this Court, that challenge is abandoned.

My friend puts his submissions, as we understand them, in essentially five proposition – three of law and two of fact.  If I can summarise them as we have elicited them from the transcript of yesterday’s argument, the first proposition is that the definition in section 6 of the 1936 Act should be approached in a formalistic way. 

One should have regard purely to form and not to questions of fact and in particular repeatedly one should make no inquiry into how decisions of the company are actually made because that would be entering into the heads of the directors.  My friend says that is an inappropriate thing to do, that the test must be straightforward, simple and completely bald.

Our second submission is that central management and control subsists where the board exercises its functions and my friend goes further than that and says that that is so even if the directors do not understand the decisions, even if they do not consider them, even if no member understands the issue, even if the board acts as a puppet or a rubber stamp.

FRENCH CJ:    But short of a sham arrangement.

MR SLATER:   Short of a sham but if they simply are appointed they accept the office of director but do nothing in execution of it except to sign minutes or sign documents.  He says nonetheless that is the board exercising its functions and that is all you need to ask.  The third proposition he makes is that if the board does not make any decision that is not exercising central management and control.  Those are the three propositions of law.

The two propositions of fact by which he invokes those propositions in the present case are, first, and he said this repeatedly, that on the evidence the board of his clients made all the decisions and for that he repeatedly relied on the minutes of the meetings of the directors and on the letters signed by Mr Borgas.  The final proposition is that the letters signed by Mr Borgas are the transactions, they are the business of the company, and again he said that repeatedly throughout the course of his argument.

We say two things about that argument.  The first thing we say is that the first three propositions put together are wrong in law.  I will come back to that as part of my fifth topic.  But the second thing we say is that they are not founded, either in the judge’s findings, or in the evidence.  Indeed, the fourth and fifth of his propositions are contrary to both.  Finally, my friend also dealt with the treaties but I will come back to that as well.

As to the findings of the evidence, and the evidence, our friend relies on, in part, the agreed statement of facts.  He took the Court to them yesterday – volume 3, page 1125, paragraph 24, when he said – he drew attention to the fact that at a document which was tendered at first instance – 20‑odd pages there were:

minutes of directors’ and annual general meetings –

He said there are the minutes, that is the evidence the board functioned, that is the evidence that the affairs of the company were regularly conducted through its board meetings, all the decisions were decisions of the board, the minutes demonstrate it.

Your Honours, that is simply contrary to the fact.  The finding, that my friend was taxed with on a number of occasions, of the trial judge, is at paragraph 67 on page 806 of volume 2 of the appeal book.  That is the passage to which Justice Gordon, in particular, drew my friend’s attention, where his Honour said he was satisfied that Mr Borgas’ evidence about the letters that are relied upon by our friends as being the transactions which comprise the company’s business – that his evidence about that:

was false and that the document trail generated by Mr Borgas is false too.  All of these taxpayers’ decisions were made by Mr Gould and Mr Borgas’ role was to make it appear that he had transacted the business –

That was his Honour’s findings after hearing the evidence over 22 sitting days and looking at some 10,000 pages of evidence.  The court officer threatened me with the boxes which are sitting over beside him but I am not taking up his invitation to take your Honours to them.

There was no evidence of any meeting of the directors, of any consideration by the directors of any of these transactions.  Neither counsel appearing at the trial, nor my friend in this Court, took the court to any such evidence.  The appellants were given notice at an early stage in the proceedings to produce all minutes of meetings.  What they produced in answer to that notice was those which are listed in paragraph 24 on page 1125 of the appeal book in relation to Chemical and corresponding ones in relation to Derrin.  There were no minutes in relation to Bywater because under the law of its place of incorporation it was not required to keep them.  So the only minutes were the minutes which are listed in that paragraph.

Those minutes are minutes which on their face were prepared by the accountants.  They are the usual formal minutes which show what happened at a meeting of the directors to adopt the accounts so that the headings in the directors’ minutes – the minutes of the previous meetings were read and confirmed.  Financial statements and directors’ reports are presented to the directors.  They are approved.  They are approved for signature submission to the annual general meeting. 

There is a resolution not to recommend the payment of a final dividend and indicating the source of this document.  There is a letter of representation relating to the financial statements for the year to be approved for signature and submission to the auditors.  Then, on the same day, there is an annual general meeting confirming the previous minutes, accepting the report of the auditors, accepting and adopting the financial statements, resolving that the directors’ remuneration as shown in the financial statements be resolved and approved.  That again, is a sort of formal language that accountants prepare to cover all their clients – resolving importantly, that the auditors’ remuneration be approved, resolving importantly that the auditors be appointed and resolving that no dividend be paid. 

Those are the only matters covered in the minutes which were presented to the primary court.  They are, when one takes together the circumstance that they were the only answer to those produced, the only minutes of these companies.  There are no minutes.  There is no evidence of any decision of the directors to undertake any of the transactions concerned.

His Honour heard Mr Borgas endeavour to explain how these transactions came to occur.  I am not going to take your Honours through Mr Borgas’ evidence but it is there in the appeal book.  It is quite entertaining to read.  Mr Fagan is a very adept cross‑examiner.  At the end of it, the primary judge came to the conclusion that everything Mr Borgas said was a lie.  In final submissions, he asked counsel for the applicants how much of Mr Borgas’ evidence he could rely upon and she said his name and his address. 

BELL J:   Was there some requirement that a transaction of the kind set out in Mr Borgas’ letter at paragraph 65, the relevant parts of which are on appeal book 806, required the approval of the board?

MR SLATER:   No, your Honour.

BELL J:   I thought the matter that Mr Myers was raising was what was the finding that that letter was false to be understood as meaning?

MR SLATER:   Can I come back to that?  Can I answer that in just a minute?

BELL J:   I am sorry, by all means.

MR SLATER:   In this way - what my friend, Mr Myers, said and said repeatedly was that the minutes were the evidence of the decision‑making process.  That is not so.

BELL J:   I must say, I had understood Mr Myers to make the point that this was an entity that had a board that was located in Samoa ‑ ‑ ‑

MR SLATER:   No, sorry, this is not the Samoan case. 

BELL J:   I am sorry, not the Samoan board – I am sorry.

MR SLATER:   This is the one in Neuchatel, this is Mr Borgas.

BELL J:   Yes, I understand.

NETTLE J:   Mr and Mrs Borgas.

MR SLATER:   Except that Mrs Borgas never appears.

BELL J:   I think the point that was being made, Mr Slater, was that this was a company that had its board in Neuchatel, kept records in conformity with whatever the requirements of the law were in that relation.  I did not understand the suggestion to be that the individual decisions representing the business of the company in the sense of the transactions were ‑ ‑ ‑

MR SLATER:   Your Honour, I do not have a copy of the transcript at hand marked up with the passages.  I can give your Honours the line references to the passages in which, as I understand it, my friend says, the minutes are the evidence.  If I just read them to your Honours, lines 391, 717, 733, 1027, 1130 to 1132 and 1458 to 1459.

BELL J:   But this was in support of a submission that contended that central management and control is established where legally effective decisions are made by a duly appointed body.  So the minutes had a degree of significance in that regard.

MR SLATER:   If they existed.

BELL J:   If ‑ ‑ ‑

MR SLATER:   If they existed they would have had some evidentiary value, but they did not exist.  There were no minutes of any such decisions.

GORDON J:   I think the point Justice Bell is trying to make is that if you take Mr Myers’ test at its highest, he says as long as you have a functioning board, that is sufficient of itself, irrespective of the underlying commercial decisions and business of it.  Not dissimilar to the debate I had with Mr Hutley about his contention about where the real business is carried on.  So it is that argument that has to be addressed, does it not?

MR SLATER:   And for him to succeed on it he must demonstrate that there was a functioning board and it is in that sense that the letters are false.  The letters suggest that there was a functioning board making a decision, whereas the reality, as the primary judge found, was that the decision was made by Mr Gould who told Mr Borgas to write a letter and Mr Borgas did what he was told, nothing else.  They were false insofar as they suggested that there had been a decision of the legally constituted organ of the company to undertake the transaction which is referred to in the letter.  There was no such decision.

BELL J:   Mr Borgas was a director of the entity and, as I understood an answer you gave a little time ago, there was no requirement that the board approved individual transactions of the kind that are evidenced by the letter in paragraph 65.

MR SLATER:   Yes, I accept that, your Honour, but his Honour’s finding was that Mr Borgas did not make any such decision, so one cannot rely on Mr Borgas as the organ of the company doing or making the decision to write or to undertake the transaction.  The most that he did was to make a decision to put pen to paper and sign a letter, no more than that, and the letter that he signed was a letter that Mr Gould had told him to sign.  Those were the findings of the primary judge.  There is no evidence to controvert them.

Mr Borgas attempted to give evidence that he had made the decisions and at the conclusion of his evidence the primary judge came to the conclusion that he could not believe anything that Mr Borgas had said, that there was no evidence, no credible evidence of any decision to undertake these transactions having been made by anybody connected with Chemical.

NETTLE J:   What is the answer to Mr Myer’s point that, nonetheless, acting on instructions, as it were, as he was, he still made a decision to sign the letter pursuant to the instructions and thus in his capacity as the director did the act which was the act of the official organ of the company which constituted its management?

MR SLATER:   That is very different from saying that somebody standing behind a shop counter selling a sweater to someone does the act which constitutes the business of the company but it is not exercising central management and control.  The question is not whether he did the act; the question is whether he exercised central management and control of the company in the course of its business.  All he did was the act of transmission.  It did not amount to any exercise of central management and control.  All he did was to do as he was told.

NETTLE J:   Well, he could decide to do what he was told or he could decide not to do what he was told and he has decided to do what he was told.  Why was that not him exercising his power as a director?

MR SLATER:   That was him exercising his function as a director of Anglore S.A.R.L., the company which was contracted ‑ ‑ ‑

NETTLE J:   The management company.

MR SLATER:   ‑ ‑ ‑ for a fee, to write these letters.  It was not him exercising any function as a director of Chemical; he was just writing letters because that is what he had undertaken to do and that is what he was paid a fee for doing.  There was no conscious act of management or control in what he did.  The trial judge heard him profess that he did think about these things and he did make the decisions and at the end of the cross‑examination the trial judge concluded, justifiably when one reads it, that he did not, that his evidence was completely false.  That is not exercising central management and control.

There is a distinction between merely doing something that could be characterised as being part of the company’s activities and exercising central management and control of the company.  All that my friend demonstrated was the Mr Borgas wrote a letter which was part of the company’s activities but it was not any – I hesitate to use the word “deliberate’ here because it has been impugned on other grounds but it was not any conscious act on his part of management and control.

NETTLE J:   Thank you.

KIEFEL J:   Mr Slater, all of the evidence and all of the extensive cross‑examination were led to two issues, were there?  One was ownership of the companies in the Bywater and the BCD matter and, secondly, to whether Mr Gould was the directing mind of all of the companies.  Are they the only matters that the evidence was led to?

MR SLATER:   No, your Honour.  I say this with a certain degree of diffidence because the only person at the Bar table who was there during the hearing was Ms Jaques.  So I am not speaking now from knowledge.  I must say Mr Hyde Page was there for the first couple of weeks but only that.

KIEFEL J:   This approach to the tax liability of entities through the definition of “residency” is, I will not say novel, but not something one sees very often.

MR SLATER:   That is really only because the Commissioner has not caught up with people yet but over the last 10 years he has started to catch up with them.

KIEFEL J:   What I am obviously alluding to is that there are other mechanisms, there are other provisions available which were not availed of – Part IVA. 

MR SLATER:   Your Honour is being a little too Delphic for me.  I am not sure what your Honour means.

GORDON J:   Part IVA.

KIEFEL J:   Part IVA. 

MR SLATER:   I say two things about Part IVA, your Honour.  It is a provision of last resort, as Vincent’s Case demonstrated.  If you make a Part IVA determination and there was not a tax benefit obtained because the Act operated otherwise then the Part IVA determination does not have any effect.  But, more than that, Part IVA is not the first resort that the Commissioner goes to.  The first resort is to make the Act work according to its terms and that is what was happening here.  The question your Honour asked me was ‑ ‑ ‑

KIEFEL J:   Is this a new approach, really?

MR SLATER:   I do not think so, your Honour, not in my – if I can say this from the Bar table ‑ ‑ ‑

KIEFEL J:   Yes, of course.

MR SLATER:   Not in my personal experience.  My personal experience is that this question has been the subject of agitation over the last 20 years and much more so over the last 10 years.  There are very few people who are obdurate enough to pursue it to an appellate level.

KIEFEL J:   It is just that we do not see the case law, if that is what you are saying?

MR SLATER:   Yes, it never gets to that point, people cave in.

FRENCH CJ:   There is a reference to Esquire and one AAT decision, is there not?

MR SLATER:   Yes, there is, your Honour.  There was one AAT decision which went that far. 

KIEFEL J:   Yes, thank you, Mr Slater. 

MR SLATER:   Your Honour asked me about the concentration on ownership and on the words “controlling mind”.  The words “controlling mind” appear in my friend, Mr Hutley’s submissions, I think.  They do not appear anywhere in the judgment.  They do not appear in the evidence.  They are a concoction of the author of Mr Hutley’s submissions and challenging them does not serve any particular utility.  As to the question of ownership, I can either deal with that immediately or deal with it at the end as I planned to.  I am happy to do it either way, whichever suits your Honour.

KIEFEL J:   No, I will not take you out of order.  It is easier for everyone to follow the order in which you ‑ ‑ ‑

MR SLATER:   Thank you, your Honour.  Your Honours, I have said what I was going to say about Mr Borgas’ letters.  The execution of the documents is not an exercise of control and management and it does not record one.  The letters are, in our submission, no more than transmission of instructions received from Mr Gould.  They are binding because Mr Gould allowed Mr Borgas to make that representation on the part of the company but Mr Borgas did not decide to do any of those.

Your Honours, if I can turn then to my friend, Mr Hutley’s submissions, in the Hua Wang Bank matter.  They were made with my friend’s customary lucidity and persuasiveness.  It is just that they were just a tiny bit incomplete.  He repeatedly said look at this bright, shiny bubble I am constructing.  The bright, shiny bubble is money coming in, a margin, money going out, nothing else, nothing else matters.  That is the whole of the business, very simple business model as he kept saying.  All the directors had to do was to see the money come in, see if there was a margin, see it go out.  That was the entirety of the business and anybody can do that and they have been doing it for years.

That is part of what happened.  Justice Gordon, I think it was, picked my friend up at one point on that and said, well, wait a minute, what about the parties to these transactions?  Who were they?  The answer to that question was not known to the people who acted as directors of Hua Wang and I am avoiding calling it the Hua Wang Bank because it was not a bank.  It had a banking licence but bank carries with it a connotation of the big four banks in Australia with prudential supervision and various controls.  This was not such a ‑ ‑ ‑

KIEFEL J:   There is a finding to that effect by the primary judge, is there not?

MR SLATER:   Yes, there is, but calling it a bank carries overtones which just should not be carried.  So the directors did not know who the lenders were.  They knew they were superannuation funds but that is all.  They did not know who was behind them, they did not ask.  It was enough for them to know that Mr Gould had told them to do it.  That was their evidence.  That was their evidence in‑chief as well as in cross‑examination, and that was his Honour’s finding.  They did not know who the borrowers were.  They did not need to inquire.  Who the borrowers were was a matter for Mr Gould. 

Those are, one would have thought, for any organisation carrying on a business of borrowing and lending, matters of some significance.  They were, one would have thought, part of what might be called management and control of the company’s business.  But the directors did not know about them.  They did not ask.  That is what his Honour meant when he said the directors had no knowledge of the company’s business.

NETTLE J:   So they knew nothing of the credit risk of the loans they were making?

MR SLATER:   No, did not ask.  They were told not to ask.  Perhaps I should – I think I am overstating that last proposition.  I do not think they were told not to ask, they simply did not ask.  They were told what to do.

BELL J:   Mr Hutley says it is not a big risk when you have got the deposit in and it is a back‑to‑back transaction.

MR SLATER:   Back‑to‑back is a colloquial and cunning expression.  It does not appear in the evidence, I think.  I may be wrong about that because, like my friend, Mr Myers, I have not picked over every word and I am not sure that back‑to‑back does not appear somewhere in the evidence.  What they knew was that Mr Gould had organised lenders and Mr Gould had organised borrowers and, one might suppose, they thought there was a pretty good chance that Mr Gould knew what was going on, but they did not inquire.  They ceded that question to Mr Gould and that question, one would have thought, was part of the control of management.  They did not exercise that, Mr Gould did.

The other thing that my friend did not mention is that this company was taxed on the profits on the purchase and sale of shares.  Those transactions were decided on by Mr Gould and they too were part of the business of the company and, in a very real sense, they were a significant part in terms of profit, a major part of the business of the company.  The directors knew nothing of that.  They just did what they were told.

Now, our friends say somewhere in their submissions that there were not very many of them.  There were half a dozen companies in which shares were sold but there were a lot of shares and there were quite a lot of transactions.  They are listed in the appeal statements and I do not have to hand in a way that I can usefully take your Honours to at the moment the pages of the appeal book which show what the transactions were.  I can endeavour to find them over lunch and perhaps give your Honours a list immediately afterwards.

It is not correct to say that this company had such a simple business model that blind Freddy could have operated it and exercised control and management over it.  It was more than that and the directors did not exercise it.

FRENCH CJ:   You set out the finding of the trial judge.  You referred to them earlier I think in paragraph 12 of your written submissions, but without wanting to oversimplify things, the very first finding that is “in relation to” all of the appellants is sufficient for the purposes of your case as you put it.  That is, “the directors . . . exercised no independent judgment in the discharge of their offices”, et cetera.  All of the others seem to be particular applications of ‑ ‑ ‑

MR SLATER:   I think your Honour has reasoned to me from the Bywater submissions rather than from the Hua Wang matters.

FRENCH CJ:   Yes, I am, but that was applicable, I thought.

MR SLATER:   Yes, that was his finding about all of the appellants.

FRENCH CJ:   Yes, that is right.

MR SLATER:   And we say that is sufficient on the view of the law which we put to the Court, which is not the view that our friends put.

FRENCH CJ:    Yes.

MR SLATER:   Your Honours, the third topic I was going to address was assessment under the domestic law but I have in fact already taken your Honours to that in relation to the first topic, so I will not spend any more time on it.

Turning then to residence for treaty purposes and dealing first with Hua Wang, it is not a resident of any treaty company and so the treaty issue simply does not arise for it.  As I said at the outset, under the Act it does not matter whether it is a resident or not.  As interesting as the debate is and as much as your Honours may consider it appropriate to take it into account in formulating your Honours’ reason for judgment, it just does not arise for decision.  Whether it was resident or not, it was assessable.

The findings about the United Kingdom treaty in relation to the other three appellants were not the subject of any ground of appeal to the Full Court.  Your Honours will see that if your Honours turn to volume 3 of the appeal book at page 972.  The only ground of appeal relates to the Swiss treaty – it is paragraph 5 at the foot of page 972.

They were argued briefly and that they were argued appears from the written submissions at page 1370 in volume 4 of the appeal books on the basis that the question turned wholly on the location of the central management and control of the companies.

The Full Court took note of the issue, noted that it turned on the location of central management and control, and if I can give your Honours the reference, I will not take your Honours to it now.  It is page 1611 in volume 4 at line 45.  They decided that central management and control was located in Australia, or the primary judge was correct in finding that, and they did not deal any further with it.  Now, in our submission, there cannot be error on the part of the Full Court in relation to the UK treaty in not dealing with a matter which was not appealed to them.  But, in any event, the matter has been argued before your Honours and we will respond to it.

The 1967 UK treaty is no longer an issue, as my friend, Mr Myers, made clear yesterday.  The 2003 treaty, Mr Myers took your Honours to the treaty terms.  Two of the companies were assumed by his Honour to be resident in the UK.  There is some squabbling about whether or not it is an assumption or a finding.  His Honour assumed that the UK law was the same as the Australian law and on that basis decided that they should be treated as UK residents for treaty purposes, satisfying requirements of being a UK company before getting to the tie breaker issue.

On the view which we put to the Court, contrary to the view which our friends put, they were all resident in Australia.  It is only at that point, in our submission, that the question of residence in Australia is relevant, that is, it is relevant only to the question whether, under the 2003 United Kingdom treaty, the companies are resident in Australia.  If our friends succeed in persuading your Honours that the companies were not resident in Australia, then as they were incorporated in the UK and on the assumption which his Honour made about UK law, they would be UK companies and they would have the benefit of the treaty, but on his Honour’s findings of fact, central management and control was in Australia and so the tie breaker was invoked.

Now, my friend, Mr Myers, took your Honours to the terms of the test in the tie breaker provision of the treaty and to what has been said in the OECD commentary about it.  It is common ground between us that the OECD commentary is relevant.  This Court decided as much in Thiel’s Case.  I am sorry, I cannot give your Honours the reference to Thiel off the top of my head.  I can recall that Mr Gzell argued it because I heard a lot about it during the argument but I cannot recall the reference.

What the OECD commentary suggests is that it is where the key management and commercial decisions are made and that is, I think, subtly different from central management and control.  That is why I answered Justice Nettle as I did earlier, but on the findings of fact made by the primary judge, that is on his Honour’s conclusions that central management and control is in Australia and on the findings of fact that he made leading up to that conclusion, central management and control and effective management are both in Australia because the key management and commercial decisions in the affairs of these companies were made by Mr Gould, and on that basis we would say the 2003 UK treaty does not assist the appellants in that matter.

In relation to the Swiss treaty – again, Mr Myers to your Honours to that – for your Honours’ convenience, the reference in the legislation is in volume 4, page 834 of the 2007 CCH print.  My friend placed reliance upon Mr Borgas as the person whose activities were relevant.  Under Article 4, clause 1:

a person is a resident of Switzerland if the person is subject to unlimited tax liability in Switzerland.

His Honour made a finding of fact on the evidence given by experts in Swiss law that that occurred only if the effective management of the companies was in Switzerland.  Your Honours will find that on page 895 of volume 2 of the appeal book in paragraph 438.  If I may I will just take your Honours to that.  I hope I said page 895.

FRENCH CJ:   Yes.

MR SLATER:   At the top of the page, paragraph 438:

As a matter of Swiss law, a company will be subject to unlimited tax liability if it has its place of effective management in Switzerland.

My friend took your Honours to that paragraph.  What he did not take your Honours to was the next paragraph:

They were also in agreement that this would be where the day‑to‑day business decisions were made; that strategic decisions were relevant to the issue although not as relevant as day‑to‑day decisions and that administrative activities were irrelevant.

That is a slightly different test from the test which is adopted in the OECD commentary and is probably the test which should be adopted in construing the treaty.  When one applies it to this case, all the key management and commercial decisions were made by Mr Gould.

FRENCH CJ:   This was being put in 439 as a matter of Swiss law?

MR SLATER:   As a matter of Swiss law.  That is his Honour’s finding of fact as to what the Swiss law was on the evidence which was presented to him.  On that finding, these companies were not resident in Switzerland.  Whatever Mr Borgas did, he did not rise to the level of key management and commercial decisions.  Those decisions – and his Honour was quite emphatic about this in a variety of ways which we have set out in Part IV of our submissions – those decisions were not made by Mr Borgas.  They were made by Mr Gould.  Mr Borgas merely was retained to make it look as if he had made them to prepare letters as if he had made them and to contact people as if he had made them.  But, in fact, he did not.  That was his Honour’s finding of fact.

On that basis, in our submission, none of Bywater, Derrin or Chemical can obtain the benefit of the Swiss treaty and one does not need to go to the tie breaker provision.  But, if one did, the tie breaker provision invokes the criterion in the commentary of day‑to‑day management and that, too, lay in Australia with Mr Gould.

FRENCH CJ:   The place of effective management criterion here being addressed at 438 and 439 is not treaty criterion, it is Swiss law informing the criterion of subject to unlimited tax liability.

MR SLATER:   Yes.  So, what we say about that Swiss treaty is that these companies never get to the point of being able to invoke it, they are not Swiss companies.  It is not immaterial to remember that two of them are incorporated in the UK and one was incorporated in the Bahamas. 

Your Honours, if I can turn then, as the next topic, to the corporate residence for domestic purposes.  Your Honours have already been taken to the definition in section 6.  At the risk of boring your Honours, could I ask your Honours to turn it up – I knew this would happen to me, I do not have the page number.  It is in volume 2 and it is at page 1294, I apologise for the delay, your Honours, in paragraph (b):

a company which is incorporated in Australia, or which, not being incorporated in Australia, carries on business in Australia, and has either its central management control in Australia, or its voting power controlled by shareholders –

by residents in Australia.  Now, the argument which my friend presented yesterday would ‑ and I think this was what Justice Gordon put to him ‑ would require a recasting of those words.  In effect, what our friends want to say is that the middle part of that definition after “carries on business in Australia” should be read or should be edited by interpolating words so that it reads “has either its constitutional organ authorised to exercise central management and control located and functioning in Australia whether or not coherently or under direction”.  Our friends want to read all of that into those short words or read the definition as if it included those extra words.

We say that is not warranted and your Honours are familiar with the many cases in which it has been said that great caution should be adopted in reading into the text anything that is not there.  The Court has on more occasions that I can count said that one starts with the statutory text and takes into account its context and purpose.  Looking at context and purpose, this definition was inserted in 1930 as part of an amendment to the Income Tax Assessment Act 1922, when a major shift apparently attributable to the economic shakeup which was happening – I have not checked the dates but I think it was happening at that time ‑ it was a shift to tax income derived outside Australia by resident taxpayers, that had not previously been done, and in order to make such a change work one had to have a definition of resident.

Most of the debate which occurred at the time was about the importing into the concept of resident of the words which appear in subparagraph (1) of paragraph (a) of the definition dealing with individuals, a person whose domicile is in Australia.  There was much debate about whether the abstruse concept of domicile should be imported into tax law and what happens if you, as things then were – perhaps not now ‑ what happens if you marry a husband whose domicile is elsewhere, does your domicile automatically shift outside or into Australia, and all those questions.

But, in relation to companies, there was very little said in the explanatory memorandum to this legislation.  Effectively nothing is added other than that the words are set out.  If your Honours are assisted by this, I can provide to your Honours over the lunch break a copy of the relevant pages of the explanatory memorandum and a copy of the relevant pages from Hansard.  I do not want to burden your Honours with extra paper.

FRENCH CJ:   Unless there is a clear assistance to be derived from it, I think ‑ ‑ ‑

MR SLATER:   I do not think there is, your Honour.  I will tell you what Mr Latham, as he then was, said in the course of the debate.

FRENCH CJ:   To what end?

MR SLATER:   This is the only debate on the topic, it is the only thing that is said about it, and he was ‑ ‑ ‑

FRENCH CJ:   Well, is this identifying purpose or what?

MR SLATER:   It indicates what the role of the word “central” was.  If your Honours do not think that is of assistance I will not bother.

FRENCH CJ:   Unless you can make it pretty clear in terms of purpose.

MR SLATER:   No, I do not think it is that clear, your Honour, and I have to say I think Mr Latham was at that time Leader of the Opposition, although he was still speaking as if he were the Attorney‑General.  But it is clear that the expression has its origin in Lord Loreburn’s speech in De Beers Consolidated Mines v Howe, and your Honours have been taken to that.  I might, if I may, repeat that, just very briefly if I could take your Honours to that speech.  It is in the report De Beers Consolidated Mines, Limited v Howe (Surveyor of Taxes) (1906) AC 455. The relevant passage is at 458, and at about point 8 of the page his Lordship refers to:

the principle [established for many years] that a company resides for purposes of income tax where its real business is carried on.  Those decisions have been acted upon ever since.  I regard that as the true rule, and the real business is carried on where the central management and control actually abides.

So that is the origin of that expression which appears in the 1922 and then the 1936 Act.  One thing that is important is what his Lordship said was where it “actually abides” and that is emphasised in the next paragraph:

It remains to be considered whether the present case falls within that rule.  This is a pure question of fact to be determined, not according to the construction of this or that regulation or bye‑law, but upon a scrutiny of the course of business and trading.

Now, that is a decision of the House of Lords, not binding on this Court, but it is the origin of the expression and it is, in our submission, powerfully persuasive as to what Parliament intended to achieve by including the words that it did.  What appears from that and from all the cases which follow is that it is the actual course of business and trading which must be examined, not merely what the formal structure is, not what the constitutional organ is.

One does not stop at the register in the Corporate Affairs Office to see who the directors are and where the registered office is and say, “That’s the central management and control”, what is on the record.  One looks at what actually happens, where it actually abides, what the actual course of trade is and one subjects that to careful scrutiny.

KIEFEL J:   But his Lordship is really directing attention, is he not, to the situation where a company can be operating in two geographical locations and then there is a question about which one of those is really the true residence of where the company is being carried out?  It is not really -his Lordship’s question, whilst it might be applied by analogy, is not directly on point here to the exact question we have here.

MR SLATER:   I would suggest that it is, your Honour.  The relevant business activity here, that which gave rise to the gains which are subject to assessment, is the purchase and sale of shares on the Australian Stock Exchange.  That was the business activity which gave rise to the gains that are taxed.  That happened in Australia.

KIEFEL J:   But his Lordship is directing attention to the course of business and trading in that sense.  All I am saying is his Lordship is not directing himself to the question which arises here, which is one of control by a third party outside the corporation.

MR SLATER:   No.  I accept what your Honour says but the question is where is the central management and control being exercised?  That is why Unit Constructions v Bullock is of significance if one finds that it is not being exercised by those who are appointed as formally the directors but is being exercised by somebody else.

KIEFEL J:   But it may be that one may take the starting point for his Lordship’s inquiry, looking at what is discussed earlier in that passage commencing, “I cannot adopt Mr Cohen’s contention” as having at a minimum that some level of management and control is being exercised in each of two places.  The question then is where is the central management and control?  It is more of a question on one view of choice between what is seen as business activities in these two places, which will tip it into residency or not, and that seems to me on one view to be somewhat removed from the kind of question we have here.

MR SLATER:   Your Honours will form a view about what his Lordship meant, but can I put to your Honours that if one looks at the start of that paragraph in the middle of the page, what his Lordship was responding to was a suggestion by Mr Cohen:

a test which had the merits of simplicity and certitude –

it sounds very much like my friend, Mr Myers:

He maintained that the company resides where it is registered, and nowhere else. 

Then the next paragraph:

I cannot accept Mr Cohen’s contention.

KIEFEL J:   The passage I am really referring to is where his Lordship says:

Otherwise it might have its chief seat of management and its centre of trading in England under the protection of English law, and yet escape the appropriate taxation by the simple expedient of being registered abroad and distributing its dividends abroad.

So he is looking at two places and asking where is the chief – where, in reality and in fact, is the chief seat of management.

MR SLATER:   That is this case, your Honour.  The chief seat of management here is in Sydney with Mr Gould making all the decisions.  He has sought to escape the burden commensurate with the protection of Australian law by having the company registered abroad and professing to have directors abroad.  That is precisely the mischief to which his Lordship was speaking.

FRENCH CJ:   I do not want to tax you with a large hypothetical case but there was a kind of consequentialist argument put about the sort of multinational group companies with their headquarters in Australia and various subsidiaries tightly controlled from head office around the world.

MR SLATER:   I certainly do want to respond to that, your Honour, and I am happy to do so now.

FRENCH CJ:   When it suits you to do so.

MR SLATER:   What I was going to go to next was the course of authority which has followed De Beers and, in particular, following the adoption of that test in the Australian statute.  Some of the cases in which this issue has been debated, including the Koitaki Para Rubber Case which my friend took your Honours to yesterday, and the North Australian Pastoral Case which Mr Hutley took you to this morning, and the Waterloo Pastoral Case, all of those did not involve section 6.  They all involved the ordinary test of residence because the question arose under one or another paragraph of section 23 of the 1936 Act. 

In Koitaki Para Case, it was paragraph (n) of that section which exempted from tax income derived by a resident in Papua New Guinea.   In North Australian Pastoral and in Waterloo Pastoral, was paragraph (m), the immediately preceding paragraph, which exempted income derived by a resident of the Northern Territory.

Section 6 does not speak to those.  It only speaks to “resident of Australia” but their Honours in each case took the criteria to be the same – outside as inside – except that in each case their Honours also had regard, as had judges before De Beers Case, to the question where the company was incorporated and where it kept its registered office and the like as material factors. 

Under section 6, those are not among the material factors which may be looked at.  Therefore, in this case, which is concerned with the operation of section 6, the location of the registered office, the location of the corporate seal and records, the place of incorporation, save incorporation in Australia, are not relevant to residence.

NETTLE J:   In the passage in Justice Dixon’s judgment in North Australian Pastoral where he says there has been no other case in which a company incorporated in a jurisdiction which has its business in the jurisdiction and has been held not to be resident in the jurisdiction, was he talking only about what I will call “double residence” cases or generally? 

MR SLATER:   One has to read that, I think, in the context of the whole discussion which begins at the foot of page 632 with observations from the Codification Committee in London and then on page 633, turning out of the facts affecting this case and it is a conclusion which is drawn about the facts as set out in that case.  It is not, in our submission, a general statement. 

It is perhaps accurate that there has not been a case, there had not been a case which has been reported where both the substantial business is in a place and incorporation and formalities are in the same place and the company had been held to be resident elsewhere but that is hardly surprising because if substantial business is in a place, it would normally be the case that that is where the central management would in fact, not necessarily, but as a matter of practical fact, be found.

NETTLE J:   So, that observation of Justice Dixon is not to be taken as detracting from your proposition that for the purposes of section 6, place of incorporation and place of keeping registers is irrelevant?

MR SLATER:   We would say it is not to be taken as detracting from that and that is why I drew your Honours’ attention to the fact that this was not a case about section 6.  It is a case about section 23(m).

NETTLE J:   So truly that observation is confined to double residence cases, be it 23(m) or 23(n) or the like.

MR SLATER:   It is really confined to section 23(m) cases where his Honour was saying, well, I am not limited by section 6 and he does say that somewhere expressly in either that case or in Koitaki Para, I forget which but this case is not governed by section 6.  It is governed by the general law.  That, I think, is the significance of that passage.  I do not think it rises any higher than that. The practical reality is that very few cases about residence have arisen where there has been an attempt to manipulate the residence.

GORDON J:   What does that mean?

NETTLE J:   Not too many Esquire Nominees Cases.

MR SLATER:   Esquire Nominees Cases to put it broadly.  That is what I meant; cases where there has been, as my friend Mr Hutley said is entirely proper, an endeavour to locate the residence in another jurisdiction so as to have the benefit of being resident in that other jurisdiction.  Most cases concern real businesses, real activities and companies which might be characterised as having been resident in two places. So it was, for example, with Cesena Sulphur.

Your Honours, there is one other case that I thought I should take your Honours to very briefly in the course of authority and that is the decision of Justice Williams in Malayan Shipping Co v Federal Commissioner of Taxation (1946) 71 CLR 156. It is a section 6 case. The facts very briefly were that the company was incorporated and had its registered office and its two directors in Singapore but it had a managing director which under its constitution had complete control over the making of contracts and bank accounts and could veto any decision of the company and he was in Melbourne and Justice Williams found that he exercised complete management and control over the business operation and internal administration and that therefore, the company was resident in Melbourne and relevantly in Australia.

FRENCH CJ:   He could also appoint and remove other directors.

MR SLATER:   Yes, so, in that regard he was similar, for example, to the shareholders in Esquire Nominees or indirectly to Mr Gould, in the present case.  That was a case in which the person whose identity was taken to fix the residence of the company was an officer of the company.  So, it is not entirely on all‑fours with this case but it is of some relevance in considering where central management is.

May I then turn to Unit Construction Co Ltd v Bullock?  Again, it is a decision of the House of Lords, not binding in this Court but, in our submission, powerfully persuasive.  The formal organs of the company were in Africa but the effective decisions were made in London.  I do not think I need take your Honours to the background of this case, but there is one thing that I do want to take your Honours to because of the way in which my friend, Mr Myers, put his case, and that is this circumstance. 

This was an appeal from a decision of the Special Commissioners, so the Edwards v Bairstow test applied. One finds the findings of the Special Commissioners not in the report of the House of Lords but in the report of the Court of Appeal which is in [1959] Ch 315. The passage that I wanted to take your Honours to is at page 320, and it is the paragraph beginning at about point 3 of the page.

I should direct your Honours’ attention perhaps to the end of the paragraph immediately above that, where the Special Commissioners say that wherever any – if I could paraphrase – significant question arose, it was dealt with by the directors of the parent company.  For that purpose they used the person who was the chairman of directors - your Honours will see that in the middle of page 319, as an intermediary or on one occasion one of the number flew to East Africa.  It is the next paragraph I want to draw your Honours’ attention to and that is:

The minute books of the directors’ meetings of each of the African subsidiaries, recorded, in the main, only formal business (such as particulars of annual general meetings, appointments and retirements of directors, secretaries and accountants, resolutions concerning the operation of banking accounts or the affixing of the companies’ seals . . . at meetings held on irregular dates; in a few instances they recorded more important business, but in each such instance a decision had in fact been taken by the directors of Alfred Booth & Co. Ltd in London and the record in minute book of the African subsidiary merely formally records its implementation.

Then at about point 8 of the page, a sentence beginning:

In most cases, where the minute book records a meeting and business transacted thereat, the business recorded was in fact transacted by Meinertzhagen (in all matters of any importance, on the instructions of Alfred Booth & Co. Ltd) and the minute was written afterwards.  In no case did the directors of any of the African subsidiaries sit round a table as a board, and they never either took any decision as a board, met as a board, or were summoned to meet as a board.

So those were the facts on which the decision was given.  Materially, in our submission, they are the same facts as those here.  The decisions here were made by Mr Gould in Sydney; they were implemented and recorded outside Australia.  The directors outside Australia, in our submission, were usurped in the Unit Construction sense, that is, they had to await instructions from, or confirm instructions with Mr Gould and then send correspondence and other documentation confirming it.

They did not consider the recommendations.  They did not pay attention to the commercial consequences or whether the transactions should or should not be undertaken.  They simply did what they were told to do, despite the fact that they were the official directors of the company.

In the House of Lords – in the short time I have left before the adjournment, could I take your Honours to what was said by Viscount Simonds, and I wish to do that partly because of what his Lordship says about the rationale for the decision. Your Honours will see the familiar passage beginning at the foot of page 362 of the report, [1960] AC 351, where his Honour says:

Nothing can be more factual and concrete than the acts of management which enable a court to find as a fact that central management and control is exercised in one country or another.

Again, we emphasise the reference to finding as a fact, not simply looking at the structure.  Then at the beginning of the next paragraph:

The business is not the less managed in London because it ought to be managed in Kenya.  Its residence is determined by the solid facts, not by the terms of its constitution, however imperative . . . I come, therefore, to the conclusion, though truly no precedent can be found for such a case, that it is the actual place of management, not that place in which it ought to be managed, which fixes the residence of a company.

It is the next sentence that I want to draw your Honour’s attention to:

If it were not so, the result to the Revenue would be serious enough.  In how many cases would a limited company register in a foreign country, prescribe by its articles that its business should be carried on by its directors meeting in that country, and then claim that its residence was in that country though every act of importance was directed from the United Kingdom?

That is the policy underlying the decision which the court took.  It is a policy which, in our submission, is equally relevant to the deliberations of this Court.  To like effect, Viscount Radcliffe at page 370 in the paragraph beginning in the middle of the page – I will not read it to your Honours, but may I direct your Honours’ attention to it, about what would be the consequences of adopting the argument which was put against the view which was finally taken by the House.

Your Honours were taken to the Australian decision on structures of the present sort, Esquire Nominees, by my friend, Mr Myers.  The one thing I do want to say about Mr Myers’ description of it is that, to a degree, he editorially rewrote the facts.  It was not a case in which the Court found that the directors on Norfolk Island were dictated to.  What his Honour Justice Gibbs found was directly the opposite.

The case which Mr Ellicott put to his Honour was that this was Unit Constructions v Bullock; that the directors in Norfolk Island were mere ciphers; that they were accepting dictation, doing what they were told.  He emphasised the fact that all the documents had been prepared by the accountants in Melbourne.  The running list of what was to be done was prepared by them.  It was sent over as a package, and what was done was in accordance with that package.

That seemed to the Solicitor‑General to be a powerful reason for saying that this was a case where the central management and control was in Melbourne.  But, his Honour heard the evidence of Mr McIntyre, Mr McIntyre was a very feisty solicitor and a very convenient one, I might say.  He was adamant that it was not so, that he did not do what he was told, that he and his fellow board members of this company thought about what it was they were asked to do and whether they should do it, that they took into account the effect for the beneficiaries.  They took into account the benefit in tax terms under Australian law to the beneficiaries and decided they should do it.  Those were the facts.  That case does not support the argument which is put by our friends.  That case is not this case. 

In this case, Mr Borgas did not, as his Honour found, make any decisions.  He was not, in his Honour’s words, he was not in the slightest involved in the decision‑making process.  His role was “fake”.  His Honour, by this stage, I think, was fairly weary of the whole matter and his language becomes perhaps a little more florid than is usual.  His role was “fake”:

He made no decision of any kind but simply implemented Mr Gould’s instructions ‑

The directors of Hua Wang:

at all times acted on [Mr Gould’s] instructions –

and:

were never placed in a position where they had to exercise the slightest judgment.

They had no commercial input to the decisions.  In our submission, what that shows is that there was no exercise of central management control outside Australia.  All of it, to a level of micromanaging, which is an expression which was used in the evidence, rested with Mr Gould.  This is more a Unit Constructions Case than an Esquire Nominees Case.

Now, we have said that Esquire Nominees says what I have just put to your Honours, that it established that if the directors do give genuine consideration to what they are doing then they are exercising central management control and that was a case where they did give genuine consideration to their exercise.  A case where they do not falls outside it.  If your Honours are persuaded to take a different view of what was decided by Sir Harry Gibbs then we would respectfully submit that that differing view should not now be adopted by this Court.  That is really all I wanted to say about the notice of contention point.  I do not think that more need be said about it.

Your Honours, there are later cases in which arrangements designed to secure the companies are resident somewhere other than where their principal economic activity is located, should be effective.  Wood v Holden is one such case. The only activity in that case was the acquisition and sale of a single parcel of shares. The case is reported at [2006] 1 WLR 1393, the passage that I wanted to take your Honours to is two paragraphs on page 1417.

The Court of Appeal rested its decision on an interpretation of the facts as found by the special commissioners.  This was another case where there were facts found by the special commissioners, and the only question available was whether those facts permitted of a conclusion in law.  The court found that the conclusion reached by the special commissioners was not permitted on the facts as found.  The facts on which they relied for that are remarkably narrow.  There are two of them, and your Honours will see them on page 1417, just below line E.  They say:

The first, at para 119 of their decision, was that “the directors of Eulalia . . . were not by‑passed nor did they stand aside since their representatives signed or executed the documents”.

The Court of Appeal rested on that as a finding of fact; they were not bypassed, nor did they stand aside.  The second, a few lines lower down, after the reference to Bullock:

The second—implicit in the finding that “their representatives signed or executed the documents”, but made explicit in the observation, at para 134 . . . that “From the viewpoint of Eulalia we find nothing surprising in the fact that its directors accepted the agreement prepared by [Price Waterhouse]”—was that –

the director of Eulalia, through its representatives:

did sign and execute the documents (including the purchase agreement); and so must, in fact, have decided to do so.

Then, at paragraph 41, they say:

Those two facts make it impossible to treat this case as one in which [the directors] made no decision.

Well, on those two findings, yes, that is so, but they are remarkably narrow interpretations of the findings of fact.  Whatever else may be said about it, that case is not binding and, in our submission, is not persuasive on its facts in this Court.

Insofar as it says, if the directors exercise their directorial function, if they make decisions, informed decisions, to do things, then in doing so they can be exercising central management control.  We do not quibble with that.  But insofar as this case has taken to say merely signing documents is enough to exercise central management control, we say, firstly, it does not establish that and, secondly, if it did, it is a case which should not be followed in this Court.  They say at paragraph 41:

Those two facts make it impossible to treat this case as one in which ABN AMRO –

acting as managing director “made no decision”.  Then in the last sentence on that page, a remarkable observation:

There was no basis for an inference that Price Waterhouse (or anyone else) dictated to ABN AMRO what decision it should take; and it is inherently improbable that a major bank . . . would allow its actions to be dictated by a client’s professional advisers ‑

There are two things about that.  That was not a finding.  The Court has substituted its inference of fact from the individual member’s experience or supposition for findings of the tribunal and we say that is contrary to Edwards v Bairstow.  Insofar as this case is put forward as being a support for the proposition that merely signing a document is enough, we say it does not support that but, if it did, it should not be taken as authority and should not be followed in this Court.

FRENCH CJ:   Now, the reference in Esquire Nominees to the board not being controlled, is that to be taken as a reference to it not being controlled as a matter of fact or not being controlled as a matter of law?

MR SLATER:   We would read it as an observation about the facts of the case, having heard Mr McIntyre ‑ ‑ ‑

FRENCH CJ:   I think that is probably right.

MR SLATER:   ‑ ‑ ‑ because immediately before that his Honour says – I will see if I can take your Honours to the actual passage – this is on page 191 of the report in 129 CLR.  In the third line his Honour says:

That firm had no power to control the directors . . . Although it is doubtless true that steps could have been taken to remove . . . [the accountants] could not control the appellant in the conduct of its business ‑

I think that is a factual observation, not a – I am not sure if your Honours ‑ ‑ ‑

FRENCH CJ:   Although they do talk about power, do they not?

MR SLATER:   Yes.

FRENCH CJ:   Yes.  All right, that might be a convenient moment, Mr Slater.  We will adjourn until 2.15.

AT 12.45 PM LUNCHEON ADJOURNMENT

UPON RESUMING AT 2.15 PM:

FRENCH CJ:   Yes, Mr Slater.

MR SLATER:   Your Honours, before lunch, your Honour the Chief Justice asked me a question about Part IVA.

FRENCH CJ:   I do not think I mentioned Part IVA.  I think Justice Kiefel might have.

MR SLATER:   I am sorry, I misdescribed it.  I was not in this case, as I said, at trial.  I was not familiar with the background but I have ascertained that the circumstances were these, that the assessments arose from an AUSTRAC report on movements of money and an inquiry made of a stockbroker.  The assessments were issued to the taxpayers based on profits made on the sale of shares.  At that point, questions of residence simply did not apply because nobody knew any of the matters which came to light in the course of the proceedings.  So, all of these questions we are debating were not up for consideration at the time the assessments were made.  That is why there was no consideration of Part IVA.

The other matter which was raised during the course of the morning was the circumstances concerning the transactions of Hua Wang. I said I would tell your Honours what had happened with the share trading transactions.  They are listed at page 94 in appeal book 1.  I will not take your Honours to this, I will just tell you where they are.  There are 64 transactions with a profit of $8.7 million and, as it turns out, that was the entirety of the profit of the company. 

Your Honours, I have dealt very briefly with Wood v Holden.  The other case in the Court of Appeal is Her Majesty’s Revenue and Customs v Smallwood [2010] BTC 637.  I do not think anything more needs to be said about that than has been said, your Honours, already.  There are some earlier cases which I mentioned in the course of the argument.  If I could briefly touch on two of them?  One is Cesena Sulphur v Nicholson (1876) 1 Ex D 428.

NETTLE J:   Thank you.

MR SLATER:   I am not going to read anything to your Honours from this.  I will just tell your Honours a couple of points about it.  It was decided before De Beers and there was more emphasis on incorporation and constitution in the argument than that case.  Your Honours will see that at page 445, point 6 and page 453, point 5.

In both the cases which are the subject of that report, the directors actually exercised control over the company’s business, albeit that they did so by appointing and supervising an agent.  Your Honours will see that in the report at page 446, point 8; at 447, point 7; at 455, point 9 and at 456, point 5.  We say that those are not the facts here.  The directors, or Mr Borgas, made no effective decisions.

The other case that was referred to briefly was John Hood & Co v Magee, which appears to be reported only in (1918) 7 TC 327. It is a decision of the Irish King’s Bench Division on appeal from the Special Commissioners.

FRENCH CJ:   I think it is also reported in the Irish Reports, (1918) 2 Irish Reports 34.

MR SLATER:   Your Honour has the advantage of me.  I only have the tax cases.  So I will give your Honours pagination of the tax cases, if I may.  All I was going to say about that was this, that in their written submissions our friend, Mr Hutley, cites a passage at page 350.  We would say that the relevant passages are to be found in the judgment of Justice Gibson at 351, point 6; in the judgment of Justice Madden at 354, point 5 and in the judgment of Justice Kenny at 358, point 3. 

What their Honours decided in those passages was that the central management and control rested with the shareholders in Belfast who could recall the managing director whose name the company bore and the shareholders were treated as being in active control.  Now, so far as that case has anything to say about the present circumstances, it is, in our respectful submission, contrary to what was said by Justice Williams in Malayan Shipping and we would submit that the Court should follow the course taken by Justice Williams in preference to the course taken almost 100 years ago by the Irish Divisional Court.

If it were applied here, then the circumstances are that the recall of the directors was effectively in Mr Gould’s hands, albeit indirectly.  He had complete ownership and complete control of the companies.  Your Honours, I said earlier that I would go back to Mr Myer’s three propositions of law about residence and the definition in section 6 - if I could do so very briefly?

His first proposition was that the definition should be construed in the formalistic manner which I put to your Honours this morning and that there should be no inquiry into how management and control decisions are actually made.  He said you do not look inside the directors’ heads; you just look at who the directors are and where they sit.  We say about this, first, there is no authority for that proposition and it is contrary to the view taken, both in the House of Lords in Unit Construction and in this Court in Esquire.

Just by way of a momentary aside, Justice Gibbs treated the question of residence as a side issue.  He says at about pages 189 to 190, there are two possible ways section 44(1)(b) might operate.  On either view, it does not matter where the company is resident.  What matters is where the source of the income is but he then went on to deal with it because it had been argued but in the Full Court all the members of the Court, in the passages which my friend, Mr Myers, referred the Court to yesterday, the members of the Full Court treated the residence of the companies in which Esquire Nominees had directly and indirectly invested as being determined by the same criteria.

So although Justice Gibbs’ observations might be said to be obiter they have the endorsement of the Full Court as to the way in which residence should be determined. 

The proposition that my friend, Mr Myers, put to the Court is, in our submission, contrary to the view taken in that case and in the House of Lords.  It is, in effect, an attempt to apply the indoor management rule in Turquand’s Case.  The policy reasons for that rule were examined in this Court some 25 years ago in Northside Developments Pty Ltd v Registrar General (1990) 170 CLR 146. The passage is in the judgment of the Chief Justice at page 155 and when one looks at the policy underpinnings of that rule, they are wholly inappropriate to the operation of an Income Tax Assessment Act. 

The question here is one of liability to tax.  It is not a matter of reliance by one party upon the acts of the other.  If ascertaining the liability of tax requires a close examination of facts, then so be it.  There is nothing new about that idea.  In Western Goldmines No Liability v Western Australian Commissioner of Taxation (1938) 59 CLR 729 at 740, and your Honours will be familiar with this passage because it has been repeated many times, it was said that in answering questions in assessment cases and in relation to the business of a company:

it is necessary to make both a wide survey and an exact scrutiny –

of the business.  The same, in our submission, applies to determining residence.  The second proposition my friend, Mr Myers, put was that if the directors do not understand or consider the decisions even if they are merely rubber stamping them, the question is still where the board sits and exercises its functions. 

We would submit that if the directors do not understand what they are dealing with, or act on direction or do not care then they are simply not exercising central management and control and their actions cannot be had regard to.  It is not management.  It is not control.  In the present case, it was just ritual – signing things because they had been told to sign them.  That, in our submission, is not an exercise of central management and control.

It has been put in writing and it was put, I think, to me and, I think, to Mr Hutley, this morning that one has to also consider the position of controlled companies in corporate groups.  What we would say about that is this.  In what might be called the real cases, the cases where there is a full‑scale business operating, it is operating in a corporate group through head companies and subsidiary companies operating different parts of the business, or in the case of an Australian company investing in a subsidiary abroad – the ANZ Bank investing in a British bank, for example - there, there are real policy and management decisions being made by the board of the subsidiary.  There is a real business going on.

It is those decisions to which reference is made.  In the case where a company, a single company, carries on activities in two locations – this was the subject of the debate in North Australian Pastoral Company where, as your Honours may recall, there was a manager and the pastoral activities and the registered office and the books and records in the Northern Territory but the directors were mostly in Queensland and, for their convenience, the directors met in Queensland. 

What Sir Owen Dixon said in that case – and the passage – his observations in that case and in Koitaki were taken up in various decisions in the United Kingdom - is that it is possible that a company can be resident, in the sense of having its central management and control in two places at once.  It is also possible that a company can be peripatetic - that its management and control can shift with the board from time to time.

But those were cases in which there were real business activities going on.  In the sort of cases which are similar to the present cases and similar to the factual situation in Esquire Nominees, there is, generally speaking, only one decision. 

By way of instance, I can mention the present case, Wood v Holden, Her Majesty’s Commissioners v Smallwood, and two cases that I mentioned in the written submissions but have not been the subject of address to your Honours.  One is New Zealand Forest Products Finance NV v The Commissioners for Inland Revenue [1995] 2 NZLR 357 and the other is Fundy Settlement v Canada [2012] 1 SCR 520. There is also an Indian tribunal decision…..in the name of Re AZR for which I only have an internet page and I cannot give your Honours a citation.

Those are cases where somebody has set out to establish the residence in a place detached from the economic activities and in all of those there is effectively only one decision, to acquire something, to dispose of something or to do both and usually it is a something which is movable, like shares. 

In all of those, where the change of residence was said to be successful, there was a finding of fact that the decision was made by the people who had been appointed directors.  That is not this case.  The finding of fact in this case is that the people who acted as directors did not make the effective decisions.  Here the commercial decisions – what shares to buy, when and at what price and when and at what price to sell them, what money to put on deposit, at what rate and with whom – all of those decisions were made in Sydney.

So were the decisions made about loans to and by Hua Wang, the amount, the term, the rate, the creditworthiness of the borrower and so forth?  In these cases, the people who had been appointed as directors made no business decisions.  They only decisions were to sign documents.  In our submission, that puts them in the same category, whether or not one uses the word “usurpation”, as the directors in Unit Constructions.

The case of multinational subsidiaries might be thought to pose a difficulty for the argument that we are putting to the Court.  Our friends appeal to what they call real world examples.  The difficulty with appealing to real world examples in that fashion is that our friends have not actually given any facts. 

In the real world, subsidiaries of multinationals carry on real businesses.  Acquiring one parcel of shares or paying one dividend is not their only act and different considerations apply.  Such companies may take strategic directions from their shareholders but the actual business decisions in real operating subsidiaries of multinationals are made by the local boards. 

A company whose board cedes to somebody else its only decisions, for example, to acquire shares and to pay dividends, may properly be said, in our submission, to be a resident where the person to whom the decision is ceded is to be found.  In the real world, a company carrying on a real business does more than just pay dividends whether or not the parent demands them.  In the real world, the directors would not pay dividends if it prejudiced the solvency of their company or the business of the subsidiary company. 

This case is not about the boards of multinational subsidiaries carrying on real businesses and making real decisions.  This case is about steps taken to manipulate the residence of a corporation.  The question in these cases is a question of fact, where the central management and control was exercised. 

The facts have been traversed at length and I do not propose to take your Honours to them.  There is one thing that I might say just briefly about my friend Mr Hutley’s saying that he embraced the facts that were found by the trial judge which was a refreshing surprise to us.  Mr Hutley took the Court to volume 2 and page 530 of the appeal book.  If I may I will draw your Honours’ attention very briefly to some other aspects of that.

The material that Mr Hutley took the Court to is a trial balance – well, perhaps it is not a trial balance, it is a computerised balance sheet, I think, because it only includes non‑revenue transactions or items.  That is at page 530.  If your Honours go a couple of pages over to page 536, your Honours will see the revenue statement and what is conspicuous about it is this that taking as an instance the case to which Mr Hutley drew the Court’s attention, that is, the first in the list of depositors and borrowers, one sees that “Allan J. Heasman (Sales)” - this is on page 536 at line 21 approximately - paid interest to Hua Wang of $240,800. 

If one goes over to page 538 at about line 25, again, the first item under “Interest Expense” one sees “Automotive Engineers S/Fund” which Mr Hutley told the Court was the corresponding borrower – sorry, depositor - one sees interest expense of $216,720 and it was on the basis of that, I think, that my friend said to the Court that the company made a small margin on the transaction. 

But that is not the whole of the story.  If you go to page 539 about line 42 under the heading “With/Holding Tax Expense” you will see that it is withholding tax expense for “Allan J. Heasman” of $24,080.  If you add that to the interest expense you come to precisely the amount of the interest received.  In other words, there was no margin. 

Then, if one looks on page 537, at the second line on the page, at about line 15, under “Facility Fee Income”, there is “Allan J. Heasman” again, income of $18,880 but if one goes over to page 539 at about line 18, one sees “Commission Expense Automotive Engineers S/Fund”, $18,880. 

Now, these are transactions which yielded no profit at all.  There was not a business model yielding a gain.  This company was there, not for the directors to make commercial decisions yielding a small profit doing something that they have doing for years.  What they were doing and had been doing for years was simply passing money from hand to hand.

The company did make a profit for the year but the profit came at page 536 at about line 18 from profits from the sale of shares and gain on the sale of investments of about 4.8 million and that in due course is approximately the amount of the profit made by the company for the year, at page 540, at about line 38. 

Now, your Honour Justice Nettle asked before lunch whether there was a condition to the deposit of funds in Samoa that they would come back on the same or similar terms.  The answer to that question is that there is no finding on that score.  There was no evidence on that score.  The only person who knew what negotiations had occurred was Mr Gould and Mr Gould elected not to give evidence.  The directors did not know. 

The directors simply knew that if Mr Gould had approved a borrowing and lending transaction, then they should execute the documents and that is very clear, for example, from the evidence of Ms Nicolson.  It is his Honour’s finding but if you look at the cross‑examination of Ms Nicolson, you will see that she is asked a number of times whether what she did was done because Mr Gould said so, whether a transaction could be undertaken without reference to Mr Gould.  The answer was no and any commercial decision was Mr Gould’s to make and the answer was yes.

This was not a case where the directors were doing anything.  Whether or not they were the constitutional organs of the company, they played no part in the central management and control of any of the appellant companies. 

Now, I was going to say your Honour, the Chief Justice, but I might be doing an injustice again; somebody asked me this morning about the question of ownership and what role it played and Mr Myers yesterday took the Court to some statements which were made in opening.  It was not a complete account of the statements which were made in opening.

Can I give your Honours a reference to what was said by Ms Seiden in the course of her opening?  Your Honours will find the opening set out pretty much in full at page 1688 to 1704 in volume 4 of the appeal book and perhaps because Mr Myers did take you to the words in some parts of it, I should just quickly take your Honours to them.  At page 1689, line 6, the opening was:

Mr Borgas will give evidence that he owns those shares in those entities -

meaning the ultimate owners of the company, JA Investments, referred to on 1688 at line 30.  At the end of that paragraph:

The shares in Angelor are owned by Wendy Borgas –

Then at page 1692, at the top of the page:

the applicant’s primary submission in relation to Chemical, Derrin and Bywater, is that Mr Borgas manages the business.  It’s his business.  He makes the decisions.  To the extent that the applicants contend that there’s somebody shadowy behind that –

I presume that is respondent’s content, that there is somebody shadowy behind that:

then your Honour would also look at how he manages other –

things.  So clearly at that point ownership was front and centre in the argument.  At page 1701, still in the opening, at the foot of the page, speaking of Mr Borgas’ prospective evidence, he will give evidence:

that Chemical, Derrin and Bywater are not – he doesn’t run them as fiduciary companies, they are his entities. 

At 1702 at line 6:

your Honour was raising with me earlier, the way he operates Anglore is, the applicant contends, relevant to how he would run his own entities -

meaning Chemical, Derrin and Bywater.  Then at line 12:

In relation to his activity as an investor – so this is for Chemical, Derrin and Bywater – he says that he has been an active investor –

clearly meaning that Chemical, Derrin and Bywater are his companies.  At page 1703, at the top:

He says that the other assets that he has is he makes loans to Australians and he accepts that a lot of those are an interests in which Vanda – Mr Gould has an interest. 

Then I have to take your Honours back to volume 3 because the way in which the appeal book is put together is somewhat eccentric.  At page 1048, the transcript continues, and the passages to look at there are at about line 18:

Peter Borgas gives independent thought to his duties as a director of Anglore.  And your Honour asked earlier how that was relevant, and it was submitted that it was relevant directly to, indicating that, in relation to his own entities – Chemical, Derrin and Bywater – he brings an independent thought to mind –

Then at line 40 there is a further statement to the same effect.  So Mr Borgas’ putative decision‑making was explained on the basis that the companies were all his companies and one sees that in his evidence at volume 1, pages 284 to 286.  Mr Gould did not give evidence.  Credit was an issue from the outset.  His Honour ordered – beside the fact that affidavits had been filed his Honour ordered that all the evidence be given orally.  Ownership claims went to the heart of the credit and the case as put. 

That case was maintained throughout, and it was maintained through the Full Court hearings and there was a very good reason for that and it is manifest at page 873 of the appeal book in his Honour’s judgment at paragraph 344 quoting a document.  The object of the curious structure adopted for Hua Wang was to avoid the operation of Part X.  Had Mr Gould conceded that these companies belonged to him, he would have been at – the best I can put it is at serious risk of being treated as an attributable taxpayer under Part X.

So he maintained, one might reasonably infer and I cannot put it any higher than that, throughout that these companies belonged to Mr Borgas so that he was not at risk of being assessed personally.  The case was not decided on the basis that ownership determined who exercised central management and control but of ownership as going to the credibility of the evidence about who exercised it.

His Honour found, on the facts, that all the business decision‑making was in Sydney, that all the managing and controlling happened there.  Ownership is not a false issue, as our friends maintain.  It did not pollute his Honour’s thinking.  It did not distort it.  His Honour recognised throughout, and he makes it very clear at the beginning of his judgment at paragraph 68, that the question of ownership went to a credibility question.  If Mr Borgas was not the owner of these funds, why was it that he was supposedly making the decisions? 

FRENCH CJ:   I think his Honour made that – I think it was a point I put to Mr Myers - at paragraph 77 at 809. 

MR SLATER:   Yes.  So, both at 68 and at 77 his Honour makes it quite clear why he was investigating these questions.  So we respectfully say that the contention that ownership was a false issue is one that should be rejected.  What I am doing here is dealing with the penultimate topic that I announced at the outset of my oral address and that is other arguments advanced.  That was the first of them.

The second other argument that one finds in written submissions is this argument that a conclusion should be drawn from supposed legislative acquiescence in the lore – spelt l-o-r-e - surrounding Esquire Nominees for the past 40 years.  The basic premise of these arguments is that the judgments below, in this matter, go beyond the earlier law and expand its reach. 

In our respectful submission, that is not so.  The law has not changed.  It is a matter of fact in each case.  Each case has been decided on the facts as found, either as found by the Court or as found by the Tribunal or as found by the Special Commissioners.  The circumstance that in 1975 the Asprey Committee considered but did not recommend a change to the definition in section 6 is scarcely an endorsement of either the law or the lore concerning the effect of Esquire Nominees. 

That Part X has been enacted has nothing to do with the definition of “residence”.  Part X is framed to catch the indirect owners of entities which are clearly indisputably non‑resident.  The suggestion that the appellant’s arguments should be accepted because the legislature has acquiesced in the court’s adoption of their argument is, in the first place, circular because it assumes that the argument is correct.  If their argument is not correct, then the legislature has not acquiesced in it.  Secondly, it is baseless in law. 

Subsequent legislative inaction says nothing about the meaning of a provision.  This is not Grain Elevators v Dunmunkle territory.

Finally, your Honours, can I say something briefly about the orders sought.  I touched on this earlier.  The orders sought include orders remitting matters to the Full Court to rehear.  Now, they do that without demonstrating any error in the reasoning on the matters in respect of which a remitter is sought.  In our respectful submission, that is not something which this Court would do.  The Court does not give litigants a second bite of the cherry ‑ send them back without demonstrating error and allow them to have another go before the Full Court or, for that matter, before the primary judge.

The appeal before the Full Court was the time to contest the various matters of which they complain and in respect of which the remission orders are sought.  In order to succeed in an appeal to this Court, one has to demonstrate error in the findings of the court below and that has not been done in relation to the matters, the subject of the claimed remission.

Chief Justice Gleeson said in Swain v Waverley Municipal Council 220 CLR at the beginning of his judgment with respect to an appeal from a first instance decision:

The system does not regard the trial as merely the first round in a contest . . . When there is an appeal, the appellate court does not simply re‑try the case.

In our submission, the same principle applies to an appeal from an intermediate court.  We would submit that the orders sought concerning remission not only are beyond the scope of leave to appeal which was granted but are inappropriate.  Your Honours, I said earlier that there was not anything more that needed to be said about our latest contention.  Unless your Honours are assisted in hearing from me on that, I do not propose to say anything else.

FRENCH CJ:   Thank you, Mr Slater.  Yes, Mr Myers.

MR MYERS:   Mr O’Loughlin…..

MR O’LOUGHLIN:   If the Court pleases.  The appellants for whom we act submit that Mr Borgas made decisions for the company.  Mr Gould was effectively a shareholder in the company but had no power to bind the company at all.  It is impermissible to fuse the two roles, one of the effective shareholder and one of the director of a company, as was indicated in the Full Court of the Federal Court in Commissioner of Taxation v BHP Billiton Finance 182 FCR 526 at paragraphs 18 and 19.

Mr Slater said that genuine consideration to decisions is required.  There is no work for the notion of genuineness to do.  Absent a consideration of whether there is a sham, if a decision or an action is made in the regular or lawful way that is a decision and you need go no further.  There is no evidence that Mr Borgas was bound to comply with any directions given to him by Mr Gould.

Mr Slater referred to Mr Borgas’ activities being a function as part of his role was a director of Angelor.  We say not so.  Your Honours, he was a director of the companies and the actions that he took were as director of the companies and those actions bound the companies to the commercial transactions they entered. 

Mr Slater also indicated that the letters of transmission of instructions were binding because Mr Gould allowed Mr Borgas to do it.  We say no.  They were binding because Mr Borgas was a director of the company and had the authority to do it.  The decisions and the transactions were regularly made and entered. 

Mr Slater indicated that the two companies were assumed to be resident of the United Kingdom.  Again, we say no.  The primary judge found that they were resident and our reply submissions at paragraph 6 indicate that. 

The Court was taken to paragraph 439 of the primary judgment and a discussion about day‑to‑day decisions and strategic decisions of the primary judge.  It is submitted that the relevant business decisions were the decisions made by the company or of the company made by its director to buy and sell shares and the decision was antecedent to that, the step taken in writing and sending the letters to give effect to that decision. 

Mr Slater indicated that matters of incorporation and the like, place of registered office are not relevant for the purposes of the definition of “resident” in section 6.  He said they are relevant for the purposes of section 23 and some of the paragraphs within it which concern the common law test of residency.  Well, we say, not so.  Forty five years ago in Esquire Nominees the Commissioner ran the same argument and was told by this Court, not so. 

We would refer your Honours to the passages of Justice Gibbs at page 190, Chief Justice Barwick at page 208, Justice Menzies at 220 and Justice Stephen at page 223.  Forty‑five years ago the Commissioner was told that that was not relevant, that he was wrong with that submission, sorry, and he should be told that again today. 

MR O’LOUGHLIN:   Mr Slater referred to Malayan Shipping and complete management control.  At page 160 of that decision, the articles of association gave the director that power.  So the complete management and control in the one person was a product of the constituent arrangements of the company.

The Chief Justice asked a question just before lunch about whether control of the board - the test is whether it is factual or legal control.  I understood Mr Slater’s response was it was factual control.  We disagree.  We take the Court to page 191 of the decision in Esquire Nominees.  At the top of the page, Justice Gibbs said:

That firm had no power to control the directors of the appellant in the exercise of their powers –

and it goes on.  We say what his Honour was referring to was legal control.  Mr Slater after lunch referred to, or implied that we had invoked the indoor management rule.  We did not raise the indoor management rule and we do not rely on it.  Those are the submissions in reply, your Honours.

FRENCH CJ:   Yes, thank you, Mr O’Loughlin.  Mr Hutley.

MR HUTLEY:   The central first factual proposition which my learned friend put forward was that the officers of the Hua Wang Bank did not know at the time they approved transactions who the lender was and who the borrower was.

NETTLE J:   Who was behind them?

MR HUTLEY:   No, no, he put it ‑ ‑ ‑

NETTLE J:   That was all he said.  He noted the companies – he just did not know who the people were behind them.

MR HUTLEY:   In fact, if that is all there is to it, I am content.  He actually said they did not know who the borrowers were.

GORDON J:   I think it was in the context of me raising the question of credit risk.

MR HUTLEY:   I am content then.  There is no difficulty - he did not know “who was behind them” but, in our respectful submission, one does not have to know who is behind a lender or a borrower.

NETTLE J:   He did not know there was any right of set‑off was there, between a deposit and a loan.

MR HUTLEY:   No, but we have the advantage of the finding of his Honour.  His Honour said there was really no risk in the loans.  That is what his Honour found because that was the case that was put by the Commissioner and I took your Honours to it.  That was their case, there really was no risk because they were back to back; they were linked.  In effect, if you did not pay one, I was not going to pay the other.  That was the approach his Honour took to them and that was the finding he made.

Now, as to the next proposition of fact, my learned friend took your Honours back to the “Analyze Balance Sheet” document and said, there is nothing in it.  What he did not take you to, and I am not going to trouble your Honours with it, is 530, where there is a facility fee.  Over the years, one can tell what is happening in respect of particular facilities and that produced a facility fee income in the 2005 year of $158,000, just slightly less than the year before of $285,000.  Like many loan documents, one makes a fee on the raising it or the renewing it.  That was the source of the income.  So, I was saying that there was a clear benefit ‑ ‑ ‑

GORDON J:   I thought that was set‑off against commission expense.  I thought Mr Slater took us to that.  It was 537, offset against 539, or do I have the wrong entries?

MR HUTLEY:   No, your Honour, that is a different thing.  If your Honour goes to the - your Honour is talking about a different entry.  I will just get that, your Honour, if I could.  They do not match up in the way that I am indicating.  Bear with me for a moment.  He took your Honours to interest expense.  He then goes on and took your Honour to ‑ ‑ ‑

GORDON J:   You took us to facility fee income at page 537, which was offset in the same amount against commission expense at 539.

MR HUTLEY:   Yes, but, with respect, your Honour, if one compares the facility fee, for example, you see there are commission expenses for various organisations which do not match up against the facility fees.  There are commission expenses which are not absolutely regular, I think, your Honour.  There is commission expense of $193 and facility fees of $158 and they are not matching in the way that one would expect if they were the same thing.

All I am saying, your Honour, is that there were incomes which came from this transaction and one can see it, if nothing else, from the audited accounts.  The audited accounts speak of the entity as profitable to the extent of – I will have to take your Honour to the entry.  If your Honour goes to – sorry, I have lost it momentarily because I did not think this was really an issue – bear with me a moment, I will just have that turned up - 548, I think, your Honour.  There was an operating profit before income tax of $269,000 at 854 which takes you down to note 7 which shows a difference between the interest income, which is obviously a cumulative, and the interest expense of $400,000.

That does not take into account dividend received and other benefits.  This was a profitable company.  In effect, outside when it was not selling and a bit of interest dividend is received which were generally of the order of about 90,000, it was making money on the business and really the only business it was doing was these loan transactions.  That is why we said – now, the next – sorry, I do not have to do that.  They are the two factual propositions which I wish to make, that is, it was a simple business with a simple return.  Now, the next ‑ ‑ ‑

NETTLE J:   Before you go to that, do you disagree with the submission that there was $8.4 million worth of revenue from sale of shares?

MR HUTLEY:   I am not contesting that.

NETTLE J:   That was the major source of income of the company.

MR HUTLEY:   In those years, yes, but if your Honour goes to his Honour’s analysis of what the business was, it is almost solely concentrated upon what was the general business of this company, the loan transaction. 

NETTLE J:   I see, thank you.

MR HUTLEY:   I said in‑chief, I accepted that in the relevant years there was some share sales but that was not the way, in our respectful submission, that his Honour analysed, his Honour concentrated on the business which was, in effect, the substantial business of this company being the deposits and loans and I have made my submissions in relation to that.  I just wanted to correct those things that it was a profitable business and a simple one.

GORDON J:   At page 551, just out of interest, it talks about the credit risk being managed through the Bank’s market risk management process.  We have none of that sort of evidence before us, do we?

MR HUTLEY:   No, your Honour, none.  Can I just deal with one other point of law?  My learned friend observed that case law ‑ it was irrelevant where one was incorporated.  Every case which has applied the central management and control, one of the things they have referred to is where was the place of incorporation and where was the register kept?  And that is hardly surprising because people, for example, tend to keep their registers close to the heart of the company because they are, of course, running the company for the benefit of shareholders and they tend to keep that close to their hearts.

All I am saying is that it is not a major point but every case ‑ Esquire Nominees, all the English cases that one goes through, every one, like Re Little Olympian – all of them start with saying, we were once incorporated, and they observe where the shares are registered and, in our respectful submission, for the reason which we observed in‑chief.  That is all we wish to say in reply, your Honours.

FRENCH CJ:   What about the question, which is what is the good of the appeal?

MR HUTLEY:   I totally forgot that, I am sorry.  Yes, your Honours, it is relatively simple.  What we seek is simply that it be sent back to the Full Court, if we are right, we say to have determined grounds 7 to 10 of the notice of appeal to the Full Court at appeal book 3, 980.  That was the notice of appeal in the further amended notice of appeal and what we sought in 7, 8, 9 and 10 was finding capital and revenue, what have they founded at revenue.  The relief we sought consequent upon that ground was prayers 2 and 3 at 983.

I want to say something about how this case was run.  From the commencement of the first instance proceedings it was common ground that a question whether the trading stock provisions would apply only arose if the applicant’s assets were on revenue account. 

Now, if your Honours go to appeal book 1, page 63 - your Honours this is in the applicant’s amended appeal statement, there was a reference to “Capital v Income” and it is set out.  At 17 there was an issue identified, that is (b), whether the applicant was the beneficial owner of the shares, et cetera, and:

(f)If the Applicant’s shares were held on revenue account, whether the trading stock provisions apply, permitting the Applicant to make a trading stock election –

If you went over then to paragraph 29 at page 68, the “Trading stock provisions” said:

This issue only arises if the court concludes that the Applicant held its shares on revenue account.  The Applicant and the Respondent agree that the trading stock provisions do not apply to capital assets.

If one then goes – if your Honours would to page 81 in our Commissioner’s response, the respondent’s amended appeals statement commencing at 78.  If your Honours go to 81 the issue, 9.3:

Whether the gains made by HWB Berhad from buying and selling the Shares are income according to ordinary concepts, or are capital in nature.

9.3.1If the gains made by HWB Berhad from buying and selling the Shares are income according to ordinary concepts, whether the Shares were “trading stock” . . . 

9.3.2If the Shares were “trading stock” of HWB Berhad pursuant to s 70‑10 of the ITAA97 –

et cetera.  So, in other words, it was absolutely common ground from first that there was a dichotomy.  Capital, not trading stock – could not be – revenue account debate whether there is trading stock.  That is how his Honour the trial judge dealt with the matter.  I am not taking your Honours through the submissions and they are all in there and the appeal in the first instance and the appeal but they all say exactly the same – they all proceed on this basis and the trial judge treated the matter that way. 

If your Honours would kindly go to appeal book 2, at 895.  I am sorry – the paragraph, your Honours, being 441 and following.  His Honour turned to “The Capital/Revenue Distinction”.  If your Honours see that, at 442, you will note, the Commissioner made no submission that if the shares were on capital account the trading stock provisions might apply, not even mentioned, not suggested.  If you go on to page 902, if your Honours please, at paragraph 457, his Honour said:

On the assumption that they were Australian resident taxpayers and that the profits they had made on the purchase and sale of the shares were on revenue account, the taxpayers next claimed –

In other words, we wanted it – our position was capital account but if on revenue account, trading stock, so we had the relevant powers in respect of trading stock, no submission ever by the Commissioner, ever, that if on capital account it could ever move to trading stock.  That is how the parties conducted it.  That is how his Honour conducted it and that, with respect, is how it was conducted on the appeal.  Nobody ever put forward an argument such as that if it was on capital account – if it was on capital account it would be revenue.  Now, can I take you now to what the Full Court, with respect, did?  I have lost their judgment.

BELL J:   Page 1618, paragraph 18.

MR HUTLEY:   Yes, your Honour, thank you.  Now, the Full Court, unbidden by either party, arrived at the conclusion set out at paragraph 18.  Now, my client did not want to challenge the fact that it was trading stock and the Commissioner elected not to.  My client put forward an appeal saying it was on capital account because the whole way the case had been run, if that was the case, the relief which would follow would be that the assessments would be set aside because their fundamental underpinning to the trading stock analysis which his Honour came to was on the premise that the assets were on revenue account.

So this was just a question of relief from our point of view.  If we won that, the relief which we sought in the notice of appeal followed as night follows day owing to the fact that the parties had conducted themselves on that basis from day one and conducted themselves in this appeal on that basis.  This, in effect, with respect to the Full Court, amounted to a constructive failure, an actual failure, to deal with our notices of appeal which were raised issues which were validly raised and had to be addressed by the Full Court.

BELL J:   And that complaint was the subject of ground 3 in your application for special leave.

MR HUTLEY:   Yes, and the judges who determined not to grant that, in their wisdom realised, in my respectful submission, that I did not need that because it was purely a question of what relief flowed if there was success on the point that we raise.  Because if the Full Court had not dealt with a ground, their reason for not dealing with a ground was a matter of irrelevance if the ground ought to be addressed and this ‑ ‑ ‑

BELL J:   Ground 3 asserted the failure to determine the matter.

MR HUTLEY:   Yes.

BELL J:   There is an issue about that raised by ground 3.

MR HUTLEY:   Your Honour, can I say – but the mere fact that we raised something in a special leave application, in the wisdom of those who granted special leave, was that ground 3 was wholly unnecessary.  If we were right, if we were right on the resident’s point, the relief we wanted was an order that it be sent back to the court to conclude the appeal.  They had not concluded the appeal, and nothing said in paragraph 18 is, with respect, to the point.  So that is our short point, your Honour.

And, frankly with respect, were it necessary ‑ and we say it is not – if your Honours upheld us on the other ground, it would be, with respect,

extraordinary that a whole total miscarriage of justice, with respect to the Full Court, in departing from the fundamental basis upon which this litigation has been run from day one would stand in the way of relief.  Those are our submissions, if your Honours please.

FRENCH CJ:   Just before you sit down, Mr Hutley, what about the treaty point that is made?

MR HUTLEY:   I am not involved in the treaty, your Honour.

FRENCH CJ:   I am sorry.  Of course, that was – yes.

MR MYERS:   Your Honour, I have dealt with the treaty point.  There was only one issue in reply, which my learned junior dealt with, which was paragraph 538, I think.  We say that the decisions or the decisions antecedent and the writing of the letters on behalf of Chemical, Bank and so on – that was the only treaty point that we had to make submissions on.

FRENCH CJ:   I am sorry, I am not sure that I ‑ as I understood it, there was a no‑treaty point made against you in relation to Samoa.

MR HUTLEY:   Then it just means that I rise and fall on – I have to succeed on the capital question to have ultimate relief in relation to it, and I accept that.  If your Honours were minded to find that the residence point went in my favour and your Honours then said I cannot yet determine the capital point, the point would be moot.  But, in our respectful submission, that is inconceivable, your Honour, with respect.

FRENCH CJ:   That is how it feeds in, yes.  Thank you, Mr Hutley.  Yes, Mr Slater.

MR SLATER:   Your Honours, I did not address what my friend has just put because it is not in his written submissions and he did not address it orally so I took it that it was no longer in contest but I would like to say a couple of things about it, if I may?

FRENCH CJ:   Yes, you may. 

MR SLATER:   I would first make the point that Justice Bell made that this issue was squarely raised in the draft notice of special leave and in the application for special leave and leave was not granted to argue it.  It was not argued in the written submissions.  It was not argued orally until a few minutes ago and it would be a remarkable thing to grant that relief without hearing argument on it.

NETTLE J:   There has been an exchange of written argument in the course of the interlocutory stages of this appeal to that effect, has there not?  That is to say, you have written letters and they have written letters pretty much to the effect that you put this morning and that Mr Hutley put this afternoon.  Indeed, I think they might have been put in or as exhibits two affidavits in support of various summonses to bring the matter back on to have the grant of leave revoked upon the ground that it was moot. 

MR SLATER:   That may be right, your Honour, I do not have that correspondence immediately to hand although ‑ ‑ ‑

NETTLE J:   There is nothing new in all of this.  It has sort of been raging backwards and forwards on paper for six months ‑ well, at least it seems like that.

MR SLATER:   That much I accept, your Honour, and I was in a position to say something about it if it had been pressed today but I thought until a moment ago that it was not being pressed.  That is all I wanted to say about it. 

NETTLE J:   I see.

MR SLATER:   As to the nature of the dispute, at first instance, the taxpayers argued that the shares were trading stock, and without taking your Honours to the detail, volume 2, page 765 at lines 25 to 40 of the appeal book, the Commissioner argued that they were not, and I think my friend has taken you to that, page 1566 at line 32, the primary judge held that they were.  That is order 2 at page 918, line 35 and at pages 920 and 922.  So, there was an outstanding order that they were trading stock. 

If they were trading stock, the definition of trading stock is goods held for resale at a profit, and there is no consistent basis on which they could be held on capital account, if it had been determined that they were trading stock.  That issue was not contested in the notice of appeal.  The on capital account point was contested, I freely grant that, but there was no appeal against his Honour’s order declaring that they were trading stock.

It was not contested in the written submissions in the Full Court although it was said not to arise if the profits were on a capital account, at page 1368 in the argument in relation to Bywater, Chemical and Derrin and at page 1390 in relation to Hua Wang.  In the course of argument, Mr Myers made the point in the Full Court that the issue of whether the shares were trading stock was not one raised on the appeal.  So, we have put the argument that they were trading stock and prevailed.  The judge decided in favour of the taxpayers.  We have not appealed that finding. That is where the matter was left to stand there.

Mr de Wijn, who appeared for Hua Wang in the Full Court, said that he found it a little surprising but that is the way it is; we have to live with that.  We have to go away and make an election.  The Commissioner had argued that they were trading stock in the court below and that had gone against him and he did challenge that finding.  In the course of the argument – in the course of the argument for the Commissioner, Justice Pagone said to my friend, Ms Stern, “If there is a positive finding that it is trading stock, is there any basis on which it could not be held to be on revenue account?”

In reply, my friend, Mr Myers, said he was unable to defend the notion that it was trading stock.  Mr de Wijn made no submission to that effect.  In our submission, Justice Pagone had squarely raised with all the parties the existence of the order, the fact that it had not been appealed from, that it was a standing order not disturbed, that they were trading stock from which it must follow that they were not on capital account. 

In effect, what our friends wanted to do was to have it both ways.  They wanted to be able to say it was not taxable because it was capital, but was also not taxable because it was trading stock and a cost‑base uplift.  They were confident of getting a cost‑base uplift; as it turned out that confidence was misplaced. 

The Full Court had squarely put the issue before the parties.  There was no application to amend the grounds of appeal.  There has been no application to amend the grounds of appeal in the Full Court.  There has until now been no application to vary the grounds of appeal or the grant of special leave in this Court.  It is all a bit too late, in our submission.  If your Honours please.

FRENCH CJ:   Thank you, Mr Slater.  The Court will reserve its decision.  The Court adjourns until 10.00 o’clock tomorrow morning.

AT 3.21 PM THE MATTER WAS ADJOURNED