CBA Investments Limited v Northern Star Limited - [2001] NSWSC 465

No judgment structure available for this case.

Reported Decision:
(2001) 47 ATR 272

New South Wales

Supreme Court

CITATION: CBA Investments Limited v Northern Star Limited & Ors [2001] NSWSC 465

CURRENT JURISDICTION: Equity Division
Commercial List

FILE NUMBER(S): SC 50171/99

HEARING DATE(S): 26 April 2001
Final written submissions 18 May 2001

JUDGMENT DATE:
8 June 2001

PARTIES :

CBA Investments Limited (Plaintiff)
Northern Star Limited (First Defendant)
Richmond-Tweed TV Pty Limited (Second Defendant)
Richmond River Broadcasters Pty Limited (Third Defendant)

JUDGMENT OF: Bergin J

COUNSEL : AJ Meagher SC/AG Bell (Plaintiff)
AJ Sullivan QC/SE Pritchard (First & Second Defendants)
RR Harper/JW Gillespie (Third Defendant)

SOLICITORS: LE Taylor (Plaintiff)
Murray Backhouse Turner (First & Second Defendants)
NRG Legal (Third Defendant)

CATCHWORDS: [COMMERCIAL LEASES] - Construction of tax indemnity clause in Commercial Lease - Whether the self assessment method introduced into the Income Tax Assessment Act 1936, in 1989, obliged the plaintiff to furnish a return designating certain amounts as revenue rather than capital - Whether plaintiff entitled to elect to have Termination Value reviewed and amended. [WORDS AND PHRASES] "does not accept".

LEGISLATION CITED: Income Tax Assessment Act, 1936
Taxation Administration Act, 1953

CASES CITED: Ansett Transport Industries (Operations) Pty Ltd v The Commonwealth (1977) 139 CLR 54
Australian Casualty Co Ltd v Federico (1986) 160 CLR 513
GRE Insurance Ltd v FC of T (1992) 92 ATC 4089
Investors Compensation Scheme Ltd v West Bromwich Building Society (1998) 1 WLR 896
McCann v Switzerland Insurance Australia Ltd (2000) 75 ALJR 325
MIM Holdings Limited v FC of T (1997) 36 ATR 108

DECISION: Summons dismissed.

-

THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
COMMERCIAL LIST

BERGIN J

DATE 8 JUNE 2001

50171/99 - CBA INVESTMENTS LIMITED v NORTHERN STAR & ORS

The Facts

1 This litigation arises out of the financing by the plaintiff, CBA Investments Limited, in its former name, Australian European Finance Corporation Limited (AEFC) of a project for the construction of a new Head Office and Studio Facility for the Northern Star media group in Goonellabah in the city of Lismore, New South Wales.

2 Bain & Company (Bain), now Deutsche Morgan Grenfell (Deutsche), agreed to package and syndicate the finance proposal for presentation to appropriate financial institutions. Bain Leasing (Victoria) Pty Limited (Bain Leasing), now Deutsche Leasing (Vic) Pty Limited (Deutsche Leasing), was appointed by AEFC to act as its nominee and agent and was authorised to enter into the various agreements on its behalf in the financing of the project.

3 The land upon which the new Head Office and Studio were built was owned by Northern Star Limited (Northern Star), the first defendant, Richmond-Tweed TV Pty Limited (Richmond), the second defendant, and Richmond River Broadcasters Pty Limited (RRB), the third defendant, as tenants in common.

4 The structure for the finance was that Northern Star, Richmond and RRB leased the land to Bain Leasing under a long-term Lease (the Head Lease). Bain Leasing entered into a construction agreement with the head contractor and upon completion of the building it leased back, by way of sub-lease, the fully outfitted building. The Head Lease was between Bain Leasing as Lessee and the defendants as Lessor. The sub-leases for the building and equipment were between Bain Leasing as Lessor and Northern Star as Lessee.

5 The Head Lease executed on 16 August 1985 was for a period of 40 years and 1 day from 5.7.1986 to 6.7.2026. An event of default under the Head Lease was the expiration of the sub-leases entitling the parties to take steps to terminate the Head Lease. The sub-leases expired in 1996. The Contract Sum became payable and was paid by the defendants in the agreed amount of $2,528,472.56.

6 If the Contract Sum was less than an amount described as the “Termination Value” the defendants were required to pay to the plaintiff the amount by which the Termination Value exceeded the Contract Sum (cl. 5.2(d)).

7 “Termination Value” is defined in Clause 1.1 as the amount calculated by reference to Schedule 1. Schedule 1 relevantly provides:

Where the Termination Value becomes payable or any amount payable under clause 4.1 or 5.2 by the Lessor, the Lessee shall procure that the amount thereof shall be calculated by Bain as at the date on which the Termination Value becomes payable or (if applicable) is paid so as (in either case) to provide the Principal with its agreed rate of return such calculation to be made using the same method and adopting the same assumptions as were used and adopted by Bain in calculating the instalments of rent specified in the Sub-Leases as disclosed in a letter from Bain to Northern Star Limited dated 2 July 1985.

8 The relevant terms of the letter of 2 July 1985 referred to in Schedule 1 are as follows:

1. The lessor will be entitled to a deduction from assessable income in respect of each year of income of an amount equal to the rate of 4% per annum (prime cost) on the building component of the contract sum (excluding the landscaping and roads) and at the higher rates applicable to the plant components of the contract sum.

2. The transaction is treated as a lease for tax purposes.

3. The lessor will receive a deduction for all costs, fees and charges incurred by it in relation to its participation in the transaction.

4. The lessor is wholly assessable on rental income as received.

5. The company tax rate is 46% per annum throughout the transaction.

6. Any payment received by the lessor on termination of the Site Head Lease to compensate the sub-lessor at the time of termination and/or otherwise indemnifying it for loss of value, is of a capital nature. In this regard it is assumed that, as an operating lease, there are no residual value clauses under the Sub-Lease to Northern Star Limited and, hence, the lessor’s minimum return can be achieved only through receipt of the proceeds on termination of the Head Lease or otherwise through sale of the building.

In all circumstances whether on termination though effluxion of time or early termination, the lessor’s same percentage after tax rate of return is maintained, on a monthly basis (whereas its total profit will, of course, decrease in the event of early termination as its investment is not outstanding as long). Hence, Northern Star’s position is protected entirely insofar as the lessor cannot effectively receive an amount which takes his rate of return above the objectively verifiable yield built into the original assumptions.

9 When the parties executed the Head Lease in 1985 it was envisaged that the final payment to be made by the defendants would be on capital account. However Clause 6 provided for the possibility that the Commissioner of Taxation may “not accept” that such payment was of a capital nature. Part 6 of the Head Lease, Taxation Indemnity, provided:

Indemnity Event

6.1 If for any reason whatsoever the Commissioner of Taxation does not accept that the payment of the Termination Value or any amount payable under Clause 4.1 or 5.2 is a payment of a capital nature the Lessee may by notice to the Lessor elect to have the Termination Value reviewed and amended (subject to Clause 7.4) by Bain with effect from such date as Bain shall determine so as to take such circumstances into account in order to provide the Principal with the same rate of return using the same method and adopting the same assumptions as were used and adopted by Bain in calculating the amount of the rent instalments specified in the Sub-Lease as if such event had not occurred.

After Termination

6.2 The provisions of Clause 6.1 shall enure beyond the date of termination of this Lease.

Disallowance of Claim

6.3(a) For the purposes of this Part 6 the Principal shall be deemed to be entitled to give the notice referred to in Clause 6.1 if and when the Lessee notifies the Lessor that the Commissioner of Taxation has assessed as income any amount payable under Clause 4.1 or 5.2 and upon any such notice being given to the Lessor (which notice shall include evidence of the said Commissioner’s assessment of income) the provisions hereof shall be given full force and effect.

PROVIDED THAT

(b) Notwithstanding any proceedings undertaken or reference made by the Principal pursuant to sub-clause (a) hereof the Lessor shall pay the Termination Value as reviewed by Bain (subject to Clause 7.4) until final determination of the proceedings or reference whereupon the Lessee and the Lessor shall forthwith make such payments by way of adjustment as are necessary to give effect to the outcome of such proceedings or reference.

10 In 1991 there was a prospect that the Head Lease may have been terminated by reason of the sale of the building. On 25 February 1991 the plaintiff turned its mind to a recent tax ruling by the Commissioner and a recent decision in the Victorian Supreme Court and concluded that it was “likely” that the building would be considered to be held on income account rather than capital account (Ex. A p. 157). By 22 May 1991 this view was expressed as a “strong likelihood” and that “in the absence of a ruling confirming the capital nature” of the payment a higher Termination Value would apply (Ex. A p. 163). The sale and termination did not eventuate.

11 In 1996 when the Sub-Leases were to expire the parties had some discussions in relation to the defendants obtaining from Bain an indicative termination figure at the time of the expiration of the Sub-Leases. In a facsimile transmission dated 5 February 1996 Bain advised the defendants as follows:

The original lease analysis was done on the assumption that the building was a pre capital gains tax asset which was on capital account and, accordingly that any proceeds on eventual disposal would not be assessable to the building owner.

Revised Taxation Assumptions on Sale

In the years since the transaction was put in place, the ATO have adopted a more aggressive stance to the assessibility of finance companies on disposal of leased assets. This has been particular apparent in the ATO’s approach to Financing Unit Trust transactions. Although we have had no formal communication with the ATO in the context of a direct equity lease, we believe they would adopt a similar approach - that is to say the ATO is likely to assert the building is held on revenue account.

12 Bain advised the defendants that based on those revised taxation assumptions it calculated a Termination figure of $3,038,669.75 as “indicative only” and subject to confirmation. The defendants’ solicitors then sought from Bain detail as to how it had calculated that figure. Bain advised that the calculation was based on the assumption that the building is held on revenue account and the final payment would be taxable (Ex. A p. 183).

13 On 21 June 1996 the defendants’ solicitors advised that the Clause upon which the revised termination calculation were reliant was Clause 6.1 of the Head Lease and that the taxation indemnity provided could only be triggered by a notice from the Lessee. The defendants’ solicitors also advised that none of the conditions precedent to the giving of the notice had arisen.

14 On 25 June 1996 Bain wrote to the plaintiff in the following terms:

(Ex. A p.187)

15 On 3 July 1996 the plaintiff advised Bain that it agreed with its view that the building was held on “revenue account”. It expressed the opinion that the only way to obtain a more precise view for “this particular deal” would be to seek a Ruling. It stated:

As discussed, we see little value in pursuing such a course, besides the unwarranted expense (to Northern Star), it also runs the risk of raising other issues that would otherwise remain unchallenged (not that we are aware of any such issues).

(Ex. A p.195)

16 On 4 July 1996 Bain advised the defendants as follows:

(Ex. A p.199)

17 On 5 February 1997 the defendants’ solicitors sought clarification as to the manner in which the plaintiff had been reporting for tax purposes the leasing instalments pursuant to the building Lease and the Equipment Lease (the Sub-Leases) and how the plaintiff proposed to report the payment of the Termination Value. The defendants were advised that the plaintiff had been returning the rental as assessable income and depreciation had been claimed as a tax deduction in respect of the depreciable plant and articles the subject of the Lease. The defendants were also advised that the plaintiff proposed to return the payment of the Termination Value of the Lease as ordinary income (Ex A p. 226 and 227).

18 The parties further debated the issues without resolution and on 6 August 1997 the plaintiff advised Deutsche that the only thing standing in the way of a formal review and amendment of the Termination Value “is the need to provide evidence of the Commissioner’s assessment” (Ex. A p. 243). This created a problem for the plaintiff because the financial details of the Lease transaction were amalgamated with all other business of the plaintiff. It was concerned that it may disclose confidential information in relation to its other clients if too much detail was provided.

19 The plaintiff concluded that the only alternative was to seek the Commissioner’s specific view on “this particular Lease”. The plaintiff recognised that this would necessarily involve the lodgment of a Ruling Request and that “if this course is deemed necessary to provide the required evidence then time is now of the essence”. The plaintiff advised Deutsche that it would like to see a request lodged no later than mid September 1997 (Ex. A p. 243 - 244).

20 On 13 August 1997 Deutsche wrote to the defendants advising that they believed that it was clear that the ATO would assess the Termination Value on an income basis and that the plaintiff would lodge its return in early December with an amount in respect of the termination of the Lease consistent with that approach. It went on to say:

We have been instructed by the Bank to inform you that unless we receive your confirmation of acceptance of the above tax treatment and agreement to make the applicable payment under Clause 6.1 of the Lease, on demand, we are to prepare in consultation with the bank a request for Tax Ruling to be lodged with the ATO. If this is required to be done both the bank and Deutsche Morgan Grenfell will seek to recover the cost of preparing and obtaining the Tax Ruling.

21 The defendants advised Deutsche by letter dated 26 August 1997 that the conditions precedent to any entitlement to indemnity were set out in the Lease and Sub-Lease documents. In respect of the Bank’s proposal to obtain a Tax Ruling it advised that such “was a matter for the Bank both as to risk and cost” (Ex. A. p. 257).

22 On 25 September 1997 Deutsche advised the defendants that it had previously outlined the method by which the plaintiff was obliged to return the Lease Termination Value under the prevailing tax legislation and that it was proceeding on that basis with lodgement of the plaintiff’s return anticipated on or about 1 December 1997 ( Ex. A. p. 263). In response to this letter the defendants’ solicitors advised that such a letter foreshadowed the plaintiff’s intention to repudiate the contractual arrangements between the defendants and the plaintiff.

23 On 12 December 1997 the plaintiff lodged its Income Tax Return for the year ended 30 June 1997. That return included as income the sum of $1,090,886.75 being the profit component of the amount paid to it by the defendants after the expiry of the Sub-Leases. That amount included $580,690 being the difference between $2,528,472.56, the Contract Sum as paid by the defendants, and $1,947,782.46, the cost of the building.

24 On 13 January 1998 Deutsche wrote to the defendants in terms which included the following:

CBA Investment Limited’s income tax return has now been lodged with the Tax Office. The effect of lodging the return was to deem the Commissioner of Taxation to have made an assessment of taxable income and tax payable on that date (refer section 166A of the Income Tax Assessment Act 1936). That is, the return lodged is deemed to be a notice of assessment under the hand of the Commissioner and served on the company on that day.

Accordingly, an amended termination value of $3,075,346.71 has been calculated by Deutsche Morgan Grenfell pursuant to Clause 6.1 of the lease.

25 The amount of $547,758.73 was the amount by which the Termination Value exceeded the Contract Sum. The defendants have refused to pay that amount.

The Plaintiff’s claim

26 The plaintiff seeks a declaration that the defendants are jointly and severally liable to pay to the plaintiff the sum of $547,758.73 and an order that they pay such amount to the plaintiff.

27 This matter was heard on 26 April 2001 when Mr AJ Meagher SC, leading Mr A Bell of counsel, appeared for the plaintiff. Mr AJ Sullivan QC, leading Ms SE Pritchard of counsel, appeared for the first and second defendants and Mr R Harper of counsel, leading Mr JW Gillespie of counsel, appeared for the third defendant.

The Competing submissions

28 The plaintiff’s case is that it was entitled to make this demand pursuant to Clause 6 by reason of the following:

(a) in lodging its tax return the plaintiff was required to act honestly in compliance with the tax laws in place at the time of the lodgement in 1997;

(b) in so acting it was proper to include the relevant amount as income and that once lodged that relevant amount was assessed as income and not capital by force of s 166A of the Income Tax Assessment Act 1936 (ITAA) ;

(c) that assessment meant that the Commissioner did not accept the amount was of a capital nature and that the Commissioner had assessed the relevant amount as income; and

(d) in those circumstances the plaintiff was entitled to make the election pursuant to Clause 6.1 and to demand the payment pursuant to Clause 6.3 of the Head Lease.

29 The plaintiff submitted that the parties had agreed that the amount payable on termination of the Sub-Leases was to be calculated on the assumption that no part of it would be taxable as income in the plaintiff’s hands. It was submitted that although such calculation was to be made upon that assumption the parties recognised that the receipt may be taxable and for that reason included Part 6, the taxation indemnity, in the Head Lease.

30 In 1985 when the Head Lease was entered into the procedure for the assessment of income tax required each taxpayer to lodge an income tax return which was then the subject of an assessment issued by the Commissioner. From 1 July 1989 a self assessment regime came into effect. Section 166A was introduced which created a deemed assessment by the Commissioner automatically upon lodgement of the income tax return by the taxpayer.

31 The plaintiff’s case is that prior to the lodgement of the income tax return both it and Deutsche regarded the final payment as on revenue account. It is submitted that such view was in accord with the decision of the Full Federal Court in GRE Insurance Ltd v FC of T (1992) 92 ATC 4089. It also submitted that under the relevant provisions of the ITAA, especially ss 226G - 226K, the plaintiff was liable to incur interest and penalties for an incomplete or incorrect return. It submitted that the parties cannot have intended to impose a contractual obligation upon the plaintiff which was contrary to its obligations under the relevant taxation laws: Ansett Transport Industries (Operations) Pty Ltd v The Commonwealth (1977) 139 CLR 54 at 62, 72.

32 Although the third defendant was separately represented I intend to refer to all the defendants by the use of that term as the first and second defendants’ submissions were supported by the third defendant. The defendants submitted that the right to elect to have the Termination Value reviewed and amended arises only when the Commissioner “does not accept” that the relevant payment is of a capital nature. It was submitted that the clause must be interpreted to give the words used their ordinary and fair meaning as would be understood by reasonable people in the position of the parties to the Head Lease: Australian Casualty Co Ltd v Federico (1986) 160 CLR 513 at 520-521, 525; McCann v Switzerland Insurance Australia Ltd (2000) 75 ALJR 325 at 336 par 74; Investors Compensation Scheme Ltd v West Bromwich Building Society (1998) 1 WLR 896 at 912 - 913.

33 The defendants submitted that in the context of the Head Lease and as a matter of ordinary usage the word “accept” means (a) to take or receive what is offered or (b) to take or receive (something offered); receive with approval or favour; to admit and agree to; accede or assent to: (Shorter Oxford English Dictionary Vol 1 p 11; Macquarie Dictionary 3rd Ed p.11).

34 It was submitted that the word “accept” connotes that something has been offered to or put before the Commissioner with the choice of accepting or not accepting it. In the context of Clause of 6.1 that which is to be put before or offered to the Commissioner is the assertion or claim that the final payment is a “payment of a capital nature”. It is only if the Commissioner does not accept such a claim that the right of election arises.

35 The defendants further submitted that the construction of Clause 6.1 for which they contend is supported by the language of Clause 6.3(a) which refers to the objection process contained in the ITAA at the time the Head Lease was executed. The objection referred to in the second part of Clause 6.3(a) is the objection to the disallowance by the Commissioner of a relevant claim that a particular amount should have been allowed as a deduction.

36 It was submitted that the language used in Clauses 6.1 and 6.3(a) leads to the inevitable conclusion that it was the intention of the parties, that the plaintiff, in its income tax return or in whatever form was available at the relevant time, would make a claim that the final payment received by the plaintiff was of a capital nature. It was submitted that by necessary implication such claim had to be made prior to the Commissioner making the determination referred to in Clause 6.3(a).

37 The defendants submitted that the construction for which they contend is not adversely affected by the introduction of the self assessment procedures after the Head Lease was executed. It was submitted that the plaintiff was obliged to make a claim either in the form as originally envisaged in its income tax return or in the form of an application for a private ruling together with the advancement of arguments to support a ruling in favour of the payment being accepted as of a capital nature.

38 In this regard it was submitted that an integral part of the self assessment system is the ability of the Commissioner to make binding private rulings in relation to a particular arrangement. The defendants submitted that the plaintiff has not made a claim, as is envisaged it would, that the final termination payment was of a capital nature and in those circumstances it cannot be said that the Commissioner “did not accept” that the payment was of a capital nature. Accordingly it is submitted the condition precedent to the exercise of the election to review and amend the Termination Value has not been fulfilled and the plaintiff is not entitled to the relief it seeks.

Consideration

39 As at August 1985 a taxpayer was able to deal with what it regarded as a non-taxable capital amount in the following ways:

(a) a non-binding “ruling” could have been sought from the Commissioner prior to submitting the return;

(b) the non-taxable capital amount could have been omitted from the tax return. If the Commissioner on audit correctly took a different view, penalties of up to 200% could have been imposed (former s 223 ITAA ) subject to remission in the Commissioner’s discretion, or prosecution could have been pursued under s 8K of the Taxation Administration Act, 1953 ( TAA ) , for instance, for making a false or misleading statement to a taxation officer or by omitting a material particular in a statement;

40 The self assessment regime came into effect on 1 July 1989. A non-taxable capital amount was able to be dealt with in the following ways:

(a) a binding private ruling could have been sought from the Commissioner up to 4 years after the lodgement of a return pursuant to Part IVAA TAA : ss 14ZAH(a), 14ZAI(a), 14ZAN(f). If such a ruling was sought before lodgement the plaintiff submitted there was no guarantee that the Commissioner would respond to a ruling request before the time for lodgment of the relevant return: s 14ZAO. As the defendants point out the option of applying for an additional period of time within which to lodge the return was available.

(b) if not eligible to apply for a private ruling, a document could be

lodged with the tax return raising the question for the Commissioner’s

attention: s 169A(2) ITAA .

ITAA

TAA

41 The plaintiff gave consideration to application for a private binding ruling in respect of whether the amount was able to be treated as capital in nature. Indeed Deutsche advised the defendants that it would commence preparation of such an application on 1 September 1997. It is not clear to me why it changed its approach, however there appears to have been some ambivalence as to whether or not the plaintiff would be liable in respect of other matters.

42 Mr Meagher SC submitted that the plaintiff was obliged to lodge the return in the manner it did. He submitted that to do otherwise in the light of its view that there was a strong likelihood that the Commissioner would treat the amount as on revenue account, would have made the plaintiff liable to possible prosecution, interest and penalty payments.

43 The plaintiff could have sought a binding private ruling. That was an approach that the plaintiff at least as at 3 July 1996 thought was “in a strictly legal sense” perhaps necessary. It is difficult to understand how the plaintiff could have been liable to prosecution, and more so conviction, if it had sought such a Ruling or lodged its return with a document pursuant to s 169A(2) ITAA signed by it, candidly stating the alternative ways in which the amount might be characterised, together with the history and intention of the parties to the Head Lease.

44 Clause 6.1 entitled the plaintiff to have the Termination Value reviewed and amended on the occurrence of a particular event. That event was the act of the Commissioner of Taxation not accepting that the payment was of a capital nature.

45 The use of the term “disallows the relevant claim” in Clause 6.2(a) of the Head Lease leads me to conclude that the parties intended that some positive step be taken to put before the Commissioner a claim that the payment was of a capital nature. I am satisfied that the structure and wording of Clause 6 evidences an intention that there would be steps taken, within the legislative structure, to defend the assumptions upon which the parties had agreed their relationship would be governed.

46 The Clause envisaged that a claim would be placed before the Commissioner for the relevant amount to be treated as of a capital nature. The Clause also provided for consultation between the plaintiff and the defendants as to whether objection should be pursued if the Commissioner did not accept that claim. The discretion as to whether to pursue such an objection was left with the plaintiff after that consultation.

47 If the plaintiff wished to activate its entitlement to have the Termination Value reviewed and amended, Bain Leasing was required to serve a notice on the defendants stating that “the Commissioner of Taxation has assessed as income” the payment. Once that election was made the review was to be conducted by Bain to provide the plaintiff with the same rate of return as if the event had not occurred. That event was the Commissioner not accepting the payment was of a capital nature.

48 I am not persuaded that the term “does not accept”, in the context of the Head Lease and the taxation legislation in force at the time, can be satisfied by a passive deemed rejection by reason of the furnishing of a return without the option to accept or reject it being raised. The parties’ intentions gleaned from the terms of the Head Lease and the surrounding circumstances at the time they entered into the Head Lease were in my view otherwise.

49 There was a reasonably arguable basis for making a claim and there was a mechanism for the plaintiff to be protected from prosecution, interest and penalties. That protection was to seek a Ruling or to file a document pursuant to s 169A and seek an extension of time within which the return could be lodged. There was no requirement on the plaintiff to do something that was inconsistent with the relevant taxation legislation.

50 On 25 October 1990 the Commissioner stated in Taxation Ruling 2616:

As a means of providing a greater degree of certainty for taxpayers in the self-assessment environment, subsection 169A(2) provides an opportunity for taxpayers who are uncertain about a question which affects their tax liability for the particular year to include such a question in a document furnished with their return.

51 In addressing the concept of full and true disclosure in MIM Holdings Limited v FC of T (1997) 36 ATR 108 the Full Federal Court , Northrop, Hill and Cooper JJ said at 118:

W Thomas & Co Pty Ltd v Federal Commissioner of Taxation (1965) 115 CLR 58 at 76

I am not satisfied that the plaintiff had no alternative to the course it

adopted.

52 On the evidence before me the plaintiff had formed the view that there was a strong likelihood that the Commissioner would treat the amount as revenue. The expression of that view means that the plaintiff was not certain what the Commissioner would do. There was therefore some uncertainty about it. In the light of the intention of these parties there was every justification for pursuing the alternatives of placing the matter before the Commissioner for him to accept or not accept that the payment was of a capital nature.

53 I am not satisfied that for the purposes of an entitlement to the election in Clause 6.1, the self assessment regime entitled the plaintiff to simply decide for itself that the amount was to be treated as a revenue amount and not give the defendants the opportunity to have the assumptions upon which the parties agreed their relationship would be governed accepted by the Commissioner.

54 I am also satisfied that the plaintiff was not entitled to cause the review and amendment of the Termination Value as the “event” stipulated in Clause 6.1 of the Head Lease had not occurred. The plaintiff was therefore not entitled to demand payment of the amount claimed from the defendants.

55 Mr Harper submitted that post contractual conduct could be considered in aid of the construction of the Head lease. By reason of the fact that I am satisfied that the terms of the Head Lease are able to be construed without resort to such conduct, it is not necessary to deal with this matter.

Orders

56 The Summons is dismissed. I will hear counsel on costs if the parties are unable to agree on an appropriate costs order.

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Last Modified: 06/12/2001

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Citations

CBA Investments Limited v Northern Star Limited [2001] NSWSC 465

Cases Citing This Decision

0

Cases Cited

7

Statutory Material Cited

2

New South Wales Aboriginal Land Council v Minister Administering the Crown Lands Act [2016] HCA 50

Maughan v Federal Commissioner of Taxation [1942] HCA 32

Australian Casualty Co Ltd v Federico [1986] HCA 32

CITATION:	CBA Investments Limited v Northern Star Limited & Ors [2001] NSWSC 465
CURRENT JURISDICTION:	Equity Division Commercial List
FILE NUMBER(S):	SC 50171/99
HEARING DATE(S):	26 April 2001 Final written submissions 18 May 2001
JUDGMENT DATE:	8 June 2001
PARTIES :	CBA Investments Limited (Plaintiff) Northern Star Limited (First Defendant) Richmond-Tweed TV Pty Limited (Second Defendant) Richmond River Broadcasters Pty Limited (Third Defendant)
JUDGMENT OF:	Bergin J

COUNSEL :	AJ Meagher SC/AG Bell (Plaintiff) AJ Sullivan QC/SE Pritchard (First & Second Defendants) RR Harper/JW Gillespie (Third Defendant)
SOLICITORS:	LE Taylor (Plaintiff) Murray Backhouse Turner (First & Second Defendants) NRG Legal (Third Defendant)
CATCHWORDS:	[COMMERCIAL LEASES] - Construction of tax indemnity clause in Commercial Lease - Whether the self assessment method introduced into the Income Tax Assessment Act 1936, in 1989, obliged the plaintiff to furnish a return designating certain amounts as revenue rather than capital - Whether plaintiff entitled to elect to have Termination Value reviewed and amended. [WORDS AND PHRASES] "does not accept".
LEGISLATION CITED:	Income Tax Assessment Act, 1936 Taxation Administration Act, 1953
CASES CITED:	Ansett Transport Industries (Operations) Pty Ltd v The Commonwealth (1977) 139 CLR 54 Australian Casualty Co Ltd v Federico (1986) 160 CLR 513 GRE Insurance Ltd v FC of T (1992) 92 ATC 4089 Investors Compensation Scheme Ltd v West Bromwich Building Society (1998) 1 WLR 896 McCann v Switzerland Insurance Australia Ltd (2000) 75 ALJR 325 MIM Holdings Limited v FC of T (1997) 36 ATR 108
DECISION:	Summons dismissed.