Coles Meyer Finance Limited v The Commissioner of Taxation of the Commonwealth of Australia

[1992] HCATrans 132

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IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Melbourne No M33 of 1991

B e t w e e n -

COLES MYER FINANCE LIMITED

Appellant

and

THE COMMISSIONER OF TAXATION OF

THE COMMONWEALTH OF AUSTRALIA

Respondent

MASON CJ
BRENNAN J
DEANE J
DAWSON J
TOOHEY J
GAUDRON J

McHUGH J

Coles(2) 91 6/5/92

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON WEDNESDAY, 6 MAY 1992, AT 10.26 AM

(Continued from 5/5/92)

Copyright in the High Court of Australia

MASON CJ: Yes, Mr Batt.

MR BATT:  If the Court pleases, yesterday Justices Brennan

and Deane asked me questions about the treatment of

the $96,000 and the $100,000 and those questions

appear at pages 74 and 78 of the transcript, and I

now wish to give a better answer than I gave

yesterday, at least I hope.

In doing this, I want to make it clear that we

do not resile and consider ourselves still bound by

the agreement we made as recorded in the letter
that appears in the appeal book at pages 157 and

158.      I will explain what I mean about that when I

have answered the question.

In the Commissioner's view the $96,000 that

was received in year 1 was received on capital

account; and when $100,000 was paid in year 2,

$96,000 of that was on capital account and $4000 of

it was an outgoing or loss on revenue account as

being an expense of finance, and that approach to

the $4000 is, in our submission, authorized by what

Mr Justice Dixon said in the very well known

passage in the Texas Co case, No 29 on the

appellant's list of authorities, and I am not going

to read it, (1940) 63 CLR 382 at page 468 about

point 8 on the page, where he speaks of recurrent

expenditure and interest being an allowable

deduction under the Australian system, and the
Commissioner submits the discount on a promissory

note transaction is to be treated in like manner.

Now, so far as the $4000 figure, if that is

the figure in respect of which the Court is

answering the questions, there is no problem so far

as our concession is concerned because we are

asserting now that it is properly treated as being

on revenue account. If the Court, however, is

looking at the gross figures and considering

whether one is or is not on income or revenue

account and the other an outgoing of income or

revenue nature, we accept that the letter to which

we agreed binds us to agree that those amounts are

on revenue account.

DAWSON J: But that cannot bind us, can it?

MR BATT:  I am not saying that, Your Honour, no. I do not

believe it can, but it binds us and I do not wish

to depart from our agreement. Your Honours,

although it may not carry the matter much further

alternatively, in confining oneself to a finance

company as the present appellant is, my previous

remarks would be applicable to any company engaging

in bill discounting, but looking now at the

Coles(2) 92 6/5/92

appellant as a finance company with working capital

which is in some way analogous to trading stock, the gains and losses - not just foreign exchange gains and losses before the legislation

&upervened - are on revenue account and we would

refer the Court, without reading it, to a decision

of Mr Justice Enderby in the Supreme Court of New

South Wales, Mutual Acceptance Limited v Federal

Commissioner of Taxation, 84 ATC - - -

MASON CJ: What is this decision going to tell us?

MR BATT:  It is going to say, Your Honour, that an early

redemption of debentures, which resulted in a gain

to the debenture issuer, being a finance company,

the gain was income not capital. That is all I

cite it for - I do not propose to read it. Copies

have been made available, Your Honour.

MASON CJ: Yes. Thank you.

MR BATT:  84 ATC 4831 and the conclusion is at 4846. That

is all we wish to say in answer to Your Honours

Justices Brennan's and Deane's questions.

DEANE J:  Have you, and I am not suggesting you go to

them, but have you any references that support the

view that the original receipt was on capital, in

the case of a finance company?

MR BATT:  No, I have not come armed with any of those and,

Your Honour, in the case of a finance company, Avco

may, in fact, show that even the gross amounts are

on revenue account.

DEANE J: They go the other way.

MR BATT: Avco is No 14 in the appellant's list of

authorities.

DEANE J:  If there are any decisions in this Court which

support your approach, I would be grateful to have

a reference to them subsequently.

MR BATT: Might we have leave to submit, within 24 hours, a

memorandum saying "There are none." or "The

following are the references."?

MASON CJ: Yes.

MR BATT:  Thank you, Your Honour. May I ask for that to be

48 hours, on reflection, with travel and other

commitments?

MASON CJ: Yes, I do not see any reason why you should not

have seven days, Mr Batt.

Coles(2) 93 6/5/92

MR BATT:	Thank you, Your Honour.
MASON CJ:	I was rather surprised at your energy or expected energy.

MR BATT: Expected energy, I think.

DEANE J:	Or the expected energy of those behind you - - -
MR BATT:	On both sides, probably, I think, on this matter.

Your Honours, the other matter that was raised in a

general nature with me yesterday was raised by

Your Honour Justice Dawson, substance and form.	I
do not wish to say much about that at the moment.
I do propose to turn to that when we come to our
alternative argument about apportionment.

What I wish to do now is to proceed as

expeditiously as I can with the rest of our primary

argument, doing so by reference to the

jurisprudential analysis which, as we understand
it, was ordained in Nilsen's case and, on that

approach, we would submit that one is compelled by

authority to the view that discount is not the same

as interest and raising money by discounting bills

and notes is not borrowing and, we submit, as a

conclusion of our argument, that the loss or

outgoing is not incurred until year 2.

Your Honours, what I wish to do is to pick out

only parts of our written submissions which have
not been adverted to or, in our view, sufficiently
adverted to. My learned friend has read much of

them, and I have read parts of them to the Court

already and I am going to try and move briefly just

adding comments or citations at particular points.

Could I go to paragraph 3 where the case of

Ogilvy & Mather v Federal Commissioner,

(1990) 90 ATC 4836 is referred to, which is No 10

on our list of authorities, and I would just like
to read three passages from that case briefly.	I
told the Court the facts of it yesterday.

The first passage is the one indicated first

in our submissions, and it is from the joint

start on the page, Their Honours said:

judgment of Mr Justice Sweeney and Mr Justice Ryan.

In our view, the correct analysis of the

contracts between Ogilvy & Mather and the

media proprietors or publishers is that a

liability did not attach to Ogilvy & Mather

until the relevant advertisement had been

published or the time or space had been made

available for its publication on the agreed

Coles(2) 94 6/5/92

date. The effect of the commencement of a

"non-cancellation period" was to preclude

Ogilvy & Mather from unilaterally avoiding the

obligation to pay for the advertisement.

However, that is not to say that the liability

was incurred, in the sense that Ogilvy &

Mather was "definitively committed" to

discharge it, from the moment when the

non-cancellation period commenced. As we have

already suggested, it was publication of the
advertisement which definitively committed the

agency to the liability, even though payment

was not due under r.24 ..... In the language

in ..... Flood Pty Ltd it was not until

publication that there arose a debitum in
praesenti, solvendum in futuro, i.e. by the

thirtieth day of the next succeeding month.

Then if I could go to a very brief passage that is

not, I am afraid, in our written submissions. It

is at page 4,846, the last sentence of the last

paragraph to conclude on the page, about point 8 of

column 2:

Here payment depended on more than the mere

effluxion of time from the commencement of the

non-cancellation period.

It is our submission here that payment by Coles

Myer Finance depended on more than effluxion of

time, namely, as we tried to put it yesterday, the event of payment by the bank. Just before I leave the joint judgment, could I, for the purpose of

adverting to something Your Honour Justice McHugh

asked me yesterday, namely about, amongst others,

the RACV case, draw the Court's attention to the

fact that it is set out at page 4,845, column 2.	I
would ask leave to read from the second sentence, two sentences starting at the second sentence in the passage in the judgment of
Mr Justice Menhennitt:

Once events have occurred out of which a

liability to indemnify an insured arises, it

appears to me that within the meaning of

sec 51(1) of the Income Tax Assessment Act a

loss or outgoing has been incurred. Events

have occurred which have subjected it to a

liability to indemnify its insured against his

liability to a third person and the extent of

that liability is capable of reasonable

estimate.

That passage is in the authorized reports, the

Victorian Reports, at (1975) VR 1, and the passage

appears on page 8.

Coles(2) 95 6/5/92

Going then finally in the Ogilvy and Mather

case to Mr Justice Hill's judgment at 4,865,

column 2, the first paragraph to commence on the

column, second sentence. His Honour said:

Non-publication of the advertisement could

arise for a variety of reasons, including
strikes or default on the part of the media
proprietor in its contract.

Thus it is said that publication of the

advertisement is a condition precedent to the
liability of the appellant to pay the media

proprietors so that all that can be said is that their exists in the year of income the
possibility of a liability in the future.

And dropping down to about 10 lines from the bottom in a line that begins "in the way", His Honour

said:

it seems to me that the proper construction of

the rule -

that is the advertising rule -

is that the liability of the agent is
conditional upon publication of the

advertisement and that unless and until that

publication occurs there is no liability.

While, commercially, there is every prospect

that the advertisement will be published, that

is not the point. The liability still remains

merely "threatened" and "impending" rather

than "encountered" to use the metaphorical

language of the cases.

Your Honours, reverting then to the written

submissions, I have almost completely said all I wish to about the Commercial Union case. I just

wish to point out that in the passages referred to,

Mr Justice Newton spoke of voluntary payments could	satisfy the requirements of an outgoing or loss
incurred or an outgoing incurred, but they were cases where an actual payment had been made, not cases where, if the person concerned had wanted to they could have paid but they did not and here
Coles Myer could pay before maturity, but they did
not have to.
Then, Your Honours, section B deals with our submissions about the relevant bills. Much of this
had been covered, but we do wish, under paragraph 7
to read from the K.D. Morris case. That is in
paragraph 7 and it is No 7 on our list of
authorities, 146 CLR 165. At page 173, point 6, Justices Stephen and Wilson said:

Coles(2) 96 6/5/92

It is true that the Company's present

indebtedness to the Bank was immediately

attributable to the Company's failure to

indemnify the Bank after it had paid, as

acceptor, the last series of bills.

It is necessary to read from pages - perhaps not

all, but the passage starting at page 200 and going

to 202 in the judgment of Mr Justice Aickin, with

which Your Honour the present Chief Justice agreed,

is a very important passage. Your Honours, it is

the fact that as to whether the facility agreement

was the operative contract or arrangement between

the parties or whether it was a series of bills,

the Court was really equally split and one cannot

say that either the joint judgment or the judgment

of Mr Justice Aickin in which the Chief Justice

agreed constitutes the ratio decidendi. But we

would respectfully submit that there is, in

Mr Justice Aickin's judgment, a more detailed

consideration of the incidence of bill transactions

as opposed to facility agreements - or bill

contracts and accommodation bills because

His Honour saw that as the critical matter to

determine the outcome of the case.

May I begin on page 200 on the third line - I

omit that sentence and perhaps start two sentences

down:

The agreement on proper examination reveals that it was concerned with the terms and the

mechanics of the process of acceptance of the

accommodation bills and the charges involved

therein. True it provided for the "rolling

over" of the bills, so that as each set of

bills matured the Company should indemnify the

Bank, as it was bound to do from the very

nature of the bills as accommodation bills, in

respect of the liability which the Bank

undertook as acceptor and discharged when it

paid the face value of the bills to the holder

on presentation.

We derive from that sentence that an

accommodated party is bound to indemnify the
acceptor and may do so after discharge and we seek

to get, amongst other things, from this judgment,

or we draw from it, that there is not an hierarchy
of modes of indemnification as my learned friend
said, the one of indemnifying after the bank has

paid being not, in his words "co-equal with the

others". We say this judgment recognizes that it

is one of the ordinary modes and is co-equal.

His Honour went on:

Coles(2) 97 6/5/92

A procedure for financing the Company's

obligation to indemnify the Bank was provided

but the obligation to indemnify arose form the

drawing by the Company and the acceptance by

the Bank of the maturing bills not from the

agreement. The fact that the procedure

provided for the discounted proceeds of new
bills to be paid to the Bank, together with

sufficient additional funds to enable the Bank

to recoup -

I stress that word -

the whole of the amount paid to the holders of

the previous bills, does not alter the nature

or source of the obligations.

Then, in the next paragraph:

The liability to indemnify the Bank was

not contingent except in the sense that, if a

bill were not presented, there would be no

occasion for indemnification.

What we take His Honour to be saying there was that

the liability to indemnify was not contingent in
the sense of uncertain or doubtful, but it was

contingent in the sense that it depended upon an

event, namely, presentment and that is, in our

submission, made clearer in the next sentence:

Once the bills were presented the Bank was

obliged to discharge its liability to the

holders, and the obligation on the Company to

indemnify it arose, unless it had been

discharged by the provision of the full face
value to the Bank in advance.

We would say about that, that one has got to read the judgment as an entirety, and one cannot read the first sentence of that paragraph without the

said, "Oh, the obligation to indemnify arising is	second, but my learned friend, as to the second,	just a reference to performance". We say
His Honour spoke of an obligation arising.

At the very last line of the page, His Honour

said:

Separate liabilities arise from the drawing

and accepting of each individual bill, in each

series. Such liabilities are discharged so

far as the Bank is concerned on payment of the

full face value to the holder who presents it,

whatever the source of funds used by the

acceptor (the Bank) to make such payment -

Coles(2) 98 6/5/92

and the obligation is discharged -

so far as the drawer (the Company) is

concerned by its payment to the Bank of the

amount so paid -

so that clearly presupposes a payment by the bank

first -

by the Bank, whatever the source of the funds

so used by the Company. Those liabilities

arise under the bills so drawn and accepted

and not from the agreement.

Then we would go to about point 9 on the page, in

the middle of the line there is a sentence

beginning "The Company":

The Company was however at liberty to draw on

the facility in part or in full from time to
time and could satisfy its obligation to

indemnify in respect of each bill by putting

the Bank in funds to meet the liability or by

paying the Bank after it had met its liability

to the holders, using for that purpose funds

from any source it chose.

In our submission, that makes it very clear that payment after the bank has paid is certainly not a lesser mode but is one of three equal modes of

which His Honour only, in fact, mentions two there.

Finally, on page 202, at about point 4 of the page,

there is a line beginning "agreement.":

The liability of the Company was not dependent

upon any contingency once the bills had been

discounted.

As to that, we make our same remark about

contingency; that is to say that it was not

uncertain.

On the Bank paying each bill on presentation,	the liability to indemnify arose by reason of
the inherent characteristics of an
accommodation bill.

Those two sentences are very much parallel to or

similar to two that I have commented on in detail

on the earlier page.

The liability of the Company under the

agreement was to provide funds to the Bank in

advance of the maturity date by discounting
replacement bills but that was a mere

consequence of the liability to indemnify the

Bank. It was rather a means of satisfying the

Coles(2) 99 6/5/92

primary liability to indemnify than a separate

and independent liability.

We submit that those passages support the view we

have put as to the nature of an accommodated

party's obligation to indemnify.

In paragraph 7, Yates v Hoppe is referred to.

I think that has been fully read by one or other of

us and there has been some overlapping and I will

not read further on that.

MASON CJ: Doubly read, I would have thought.

MR BATT: Yes. Fortunately, though, Your Honour, it was

short to read. As to paragraph 8, we say two

things only: it begins absent any agreement to the contrary and our friend does not suggest that there

is any agreement to the contrary and we make good

the absence in our paragraph 14.

BRENNAN J: Just before you leave paragraph 8, the notion,

if it be relevant, of indemnifying the bank in a

variety of ways, strikes me as sort of curious if there is nothing to indemnify the bank for. Now,

if you take up the bill the bank never becomes

liable.

MR BATT:  The bank ceases to be liable.

BRENNAN J: Ceases to be liable. Is there any need for

indemnification then?

MR BATT: That is holding the bank harmless from the

possibility of having to pay.

BRENNAN J:  That is right. So the bank never becomes liable

to pay on the bill?

MR BATT:  Time for payment by it never arises, no,

Your Honour. But we do submit that is

indemnification and, certainly, the authors, the

textbooks and the judges have spoken of it as a

mode of indemnification.

BRENNAN J:  I see. The second method of payment, where the

bank puts itself in funds, are these bills an

unconditional order on the bank to pay? Each of

them is addressed to a bank, are they not?

MR BATT: Yes. They are each addressed to a bank.

BRENNAN J:  Each of them was a bank with whom the drawer had

a relationship of banker and customer?

MR BATT: Yes, Your Honour.

Coles(2) 100 6/5/92

BRENNAN J: And, indeed, in two of the cases, the account of

banker and customer was debited by the bank in

order to answer the bill?

MR BATT:  Yes, Your Honour, but there was no contractual

requirement that that method be adopted.

BRENNAN J:  No. As between those two parties, however, was

there any necessary requirement that it should be
treated as an accommodation bill as distinct from a

bill of exchange being an unconditional order to

pay, like a cheque, except as to the date?

MR BATT:  Yes, there was, Your Honour, and it is this, that

the bank lent its name to the bills by accepting

them so that they could be discounted and so that

the appellant could raise money on the bills, not

necessarily by purchase by the banks, although

sometimes they did, but by purchase by other

people. That makes it an accommodation bill. It

is not just the lending of the name, but it is

lending of the name so that money may be raised on

them, and money was raised on them.	So they are
accommodation bills.

BRENNAN J:	I see.
MR BATT:	And therefore you get the surety principal

relation between the two parties inter se. I will

come back to that, but I am not sure whether there

was not some other part of Your Honour's question

that I did not answer.

BRENNAN J:	No, I think you have answered the question.
MR BATT:	Your Honours, my other comment on paragraph 8 was

simply this:  my friend sought to put a rider on it

by - I think his rider was that not all modes were

co-equal, but we note that he did acknowledge that

there was no breach of contract on the part of the

appellant by allowing the bank to pay before it

reimbursed the bank. Paragraph 9 I certainly will
not read.	I just wish on page 5 to make a few
comments on the authorities.	I have recently read

K.D. Morris, and some of the passages are there.

We do point out that in Byles and Riley, there are

three modes of indemnification specified.

The comment we make on Reynolds v Doyle is

this, that what was said by Sir Nathaniel Tindal

was not an exhaustive statement of the modes of

indemnification; it was directed to a particular

point, and he gave only one example. That there is

the other mode, namely reimbursing the bank after

it has paid, is made very clear in the judgment of

Mr Justice Aickin.

Coles(2) 101 6/5/92

We make one other comment on Reynolds v Doyle

which held that the statute of limitations ran from

the date of the bank being indemnified, that is to

say the date the bank paid, and we would say if my

friend is right, the date should really be the date
of maturity, not the date of payment which may or
may not be maturity.

As to paragraph 10, we do wish to read from re

Mitchell,

(1913) 1 Ch 201, a decision of Mr Justice for the proposition that until the bank paid, there

was no debt between the appellant and the bank.	I
think my learned friend accepted - he said he
accepted that he could not say in relation to the
bills that there was an existing debt.

MASON CJ: Yes, he conceded that.

MR BATT:  Your Honour, may I then simply perhaps direct

attention to the particular passages in

Mr Justice Parker's judgment in the light of that

concession. Your Honours will see at page 205,

about point 3, there are the crucial words of the

will:

I forgive the said John Joseph James Mitchell

all debts -

et cetera. About point 8 on the page, the testator

is stated, in a line beginning "a day or two

afterwards", to have entered into a guarantee.

Then on page 206, in the paragraph that begins,

"Now, I have heard a good deal of argument",

Mr Justice Parker deals with when a debt or right

at law arises. Our written argument is supported

by that. In the last two sentences of the long

paragraph that ends three lines from the bottom of
the page, he turns to the equitable rights and says

they are not a debt either.

Your Honours, we would go to Wren v Mahoney,

No 13 on our list of authorities, (1972)

126 CLR 212. Mr Justice Windeyer and

Mr Justice Owen agreed with the Chief Justice Sir

Garfield Barwick and there is the Chief Justice's judgment - the part of it that is material to this

case - stretches for some five pages.	I do not
propose to read all of that.	Your Honours will see

at page 215, point 3, the agreement to indemnify,

the terms of it, and moving as expeditiously as I can, I go to page 225, about point 7 on the page,

there is a line beginning "creditor's debt":

The deed set out in the petition contained no express promise by the appellant in terms to pay the amount of any tax which had become or

Coles(2) 102 6/5/92

might become due by the respondent to the

Commissioner of Taxation. Without such a

promise, a cause of action could only arise

against the appellant in my opinion when the

respondent had paid an amount of tax.	The
position of a person with no more than a
promise of indemnity

which is the bank here -

is set out by Griffith C.J. in Rankin v

Palmer -

and I do not think my learned friend read all of

that, or in Rankin v Palmer read this part of it.

Could I go to page 226, third line. This is what

Sir Samuel Griffith said:

The principle governing such cases was

fully discussed in the Court of Appeal in the

recent case on In re Richardson; Ex parte

Governors of St. Thomas's Hospital. In that

case Fletcher Moulton L.J., after pointing out

that at common law a person entitled to an
indemnity could not avail himself of his right

until he had actually paid the money said 'The

rule in Chancery was somewhat different, and

yet, to my mind, it emphasizes the fundamental

principle that you must have paid before you
have a right to indemnity, because the remedy

which equity gave was a declaration of a

right.

And going right down to the end of that quotation, the second-last sentence in it:

But I do not think that equity ever compelled

a surety to pay money to the person to whom he

was surety before the latter had actually

paid.	He might be ordered to set a fund
aside, but I do not think that he could be

ordered to pay.'"

Moving over the page to 227 at about point 5

of the page speaking of the judge below, His Honour

said:

He construed the deed as giving the respondent

"an indemnity against liability to make

payment". But even so, in my opinion no debt arose. So far as the Court of Bankruptcy was

concerned, such a construction of the deed

would not suffice to establish a debt due to

the petitioning creditor.

However, the distinction in my opinion is

not between an indemnity against payment and

Coles(2) 103 6/5/92

an indemnity against a liability to pay. The

distinction is between a promise to indemnify

the promisee and a promise given to the
promisee for the payment by the promisor of

the debt in question.

Our case is the former of those two.

Both promises may be given by the same

instrument. Further, a promise to pay the debt is a method of effecting an indemnity against a liability: but an indemnity against
claims or demands though in a sense an

indemnity against a liability does not

necessarily, of itself, import a promise by

the party giving the indemnity to the

indemnified party, to pay the debt or demand

direct to the creditor of the promisee -

the creditor of the promisee being here the holder

of the bill. Then on page 229 at about point 6

there is a line beginning, "Commissioner may make

an assessment". Dropping a line below that:

It is as it says a promise to indemnify the respondent. That the indemnity is against

claims and demands does not in my opinion

involve the conclusion that the method of

indemnity is a direct payment by the appellant

to the Commissioner.

The fourth last line on the page:

The promise in this case is merely one of

indemnity and in my opinion falls within the

language of Griffith CJ in Rankin v Palmer.

I am of opinion therefore that the

Bankruptcy Court ought not to have been

satisfied that at the date of the lodgment of

the petition of the appellant owed a

debt •.... Further I am of opinion that the

relevant promise ..... was no more than a mere

indemnity which would not give rise to an

action at law until an amount of tax had been

paid by the respondent.

Your Honours, in the discussion of the relationship

of surety and principal arising out of

accommodation bills in the textbook references we

have given at the bottom of page 5 is in

traditional indemnity terms. Whilst the indemnity

arises from a contract it does not suggest that

there is some different type of accommodation bills

from other indemnities.

Coles(2) 104 6/5/92

My friend did instance a section 66 event,

that is to say, the acceptor being the holder of
the bill at maturity, but that is a special case

and because there is that possibility, it does not

show that there was a definitive commitment by the

appellant at the time of the discounting.

At the top of page 6 of our outline we seek to

make good the point which we understand to be

accepted in this Court that what was said in the joint judgment in K.D. Morris at 174 point 7 was referable to obligations imposed by the express

facility agreement and we, of course, rely on that,

but I will not trouble the Court by either reading

the passage we discuss or the passages which

support what we have put there. But I would seek

to give the Court some additional page references,

and in particular the clause that is relevant,

clause 11, will be found on page 182 of the

judgment and one needs to read what

Mr Justice Aickin said at page 200 point 4 and
202 point 5.

If I could move to paragraph 11, dealing with the position in equity, and we do so - - -

MASON CJ: Well, you have covered that, have you not, by the

passage you read from Wren v Mahony?

MR BATT:  Yes, Your Honour, except for two things. I need

to comment on Rankin v Palmer because my learned

friend relied on a passage and it is necessary to

look a little further at the passage, or beyond

that passage, and I would wish to read two brief

passages from Ascherson v Tredegar Dry Dock & Wharf

Co Ltd, (1909) 2 Ch 401, No 1 on our authorities,

because they deal with a bill case. They deal with

the very case, and we would say it is clear that it

is an acceptance bill Mr Justice Swinfen Eady was

commenting on, and if I could go to that, .

In the report of argument at 404, there is a

paragraph in the argument of Mr Micklem that begins

at about point 3 on the page, "In Nisbet v Smith",

and I wish to refer to this page, if I may, and

then one other passage very briefly. Counsel

said - and he is reading the reports:

In Nisbet v Smith Lord Thurlow said: "It

is clear and never has been disputed that a

surety, generally speaking, may come into this

Court -

that was the court of equity -

and apply for the purpose of compelling the

principal debtor for whom he is surety to pay

Coles(2) 105 6/5/92

in the money, and deliver him from the

obligation." But this general proposition was

considerably limited in Dale & Perry v Lolley,

where it was decreed per totam curiam in the

Exchequer that "a bill will not lie upon any

general equity by a surety against the

principal debtor, to have an indemnity, or to
have the money paid into Court, where no
further time has been given, where the day of

payment has not elapsed, and the surety has

not been damnified, or is not in evident

danger of being so -

and then the rest of the judgment is set out and

what the court said about Lord Thurlow's statement.

Then, the judge interposed:

What was the liability in that case?

And junior counsel who must have been very

industrious was stated to have:

searched the record and finds it was a two

years' bill, of which about four months had

run.

The judge:

Of course, if the money is not due and payable, the surety cannot compel the debtor

to pay it.

And finally, over at page 409, speaking of

that case in his judgment, in the second paragraph

to begin on the page, His Lordship said:

The present action is not like Dale &

Perry v Lolley where a surety brought an

action to compel the debtor to pay a bill not

due for twenty months.

Without reading it, could I particularly direct the Court's attention to a passage in In re

Fenton, the next case listed - I am not going to

read it - at page 114, point 5, in (1931) 1 Ch 85,

in the judgment of Lord Justice Lawrence, that is a

particularly important passage.

Could I finally go to Rankin v Palmer, No 26

on our list of authorities.

MASON CJ: What are we going to this for?

MR BATT:  Because my learned friend relied on what

Lord Justice Buckley said. It was summarized as

saying, in the bottom of a page, and we wanted to

direct the Court to the form of the order for

Coles(2) 106 6/5/92

indemnity that appears on the next page in equity,

because Your Honour the Chief Justice will recall

my learned friend's point was that

Lord Justice Buckley in In Re Richardson case had

said, "Indemnity requires that the party to be

indemnified shall never be called on to pay". In

other words, my friend was saying there are only

two real modes of indemnity, putting in funds in

advance or taking up the bill yourself. But, if

one goes over the page to 291 in 16 CLR in a

passage from the Lord Justice's judgment, it goes

on:

and, according to my recollection, the

judgments which have been pronounced in Courts

of Equity upon rights of indemnity have

assumed that form." He then -

says the Chief Justice Sir Samuel Griffith -

referred to the judgment in Cruse v Paine, a

case in which the defendant was bound to indemnify the plaintiff against calls on shares which the plaintiff held as trustee for

him, and quoted the decree, which was as

follows: - "Declare that the defendants

are ... bound to procure the release or
discharge of the ... plaintiff's estate from

the ... calls ... and let the defendants

procure such release or discharge accordingly,

either by payment of the said calls or

otherwise, and indemnify his" (the

plaintiff's) "estate -

et cetera. We would rely on the words in that

decree "or otherwise".

Moving on in our written submissions,

paragraph 12 states in substance our conclusion and
paragraph 13 brings out the consequences for the

taxing year. In paragraph 14 we comment on the

only possible relevant arrangements that could be,

as it were, a small facility agreement, but my

friend does not rely on those in his argument and,

whilst we do say paragraph 14 is important in the

circumstances I may not, I think, need to read it. But he did, during his argument, however, point to

what was done by the banks on the day of maturity -

some debiting first and paying, one paying and

debiting later, but as to that we say, what was

done by the banks on the day of maturity, that is

their practice, is not material to the question of

whether there was a present liability at the date

of discounting, because there was not a contract

between drawer and acceptor which specifically said

that this was the only mode of indemnification and

this method had to be followed. There was not

Coles(2) 107 6/5/92

that. And so one cannot use what was done to

determine what the position was at the date of

discounting.

In paragraph 15 we submit that statements to

the effect that the party accommodated is the party

principally liable on an accommodation bill, are

merely compendious statements of the effect of the

implied contract of indemnity which subsists as

between those parties, and perhaps I will not read

it, but could I say that what Lord Watson said in

Steele v McKinlay, which is set out there, it

is 778 to 779, is, in our respectful submission,

the best statement of the nature of the, as it

were, side arrangement that arises from an

accommodation bill - - -

BRENNAN J: If the drawer puts the acceptor in funds and the

acceptor defaults, is the drawer still liable to

the holder?

MR BATT:  Yes, subject to the provisions of section 60(1A),

yes.

DAWSON J: What do you say to the proposition that the

drawer is really the acceptor?

MR BATT:  That was the next point I wished to make,

Your Honour. I wish to deal with that, and this

was where my learned friend said, pressing the

argument, one can press the argument one stage

further. We say that that is a statement of the

effect of the arrangement between the two of them

as principal and surety, but it is given effect to

by the indemnity, but it is not the position as

against the outside world. As against the outside

the accepting bank is the acceptor, and it is the

party primarily liable on the instrument to a

holder.

Paragraph 16 makes the point that I think I

have already made, that there are not two classes

of indemnities - accommodation bill indemnities and
others - and we refer to the words we have

extracted, particularly from Yates v Hoppe in

paragraph 8.

Then, in paragraph 17, in conclusion, on this

branch of the case, whether or not the appellant -
I accept that Mr Callaway does not concede the point but the wording of his paragraph 32 highlights the point that there must be an event and we say the occurrence of that event is the

condition of liability and there is no liability

until it occurs and the fact that the event is

expected and, indeed, intended, in no way

Coles(2) 108 6/5/92

differentiates the case from Nilsen and Ogilvy &

Mather; on the contrary, it assimilates the case

to those cases.

There is something more than the mere passing of time and it is not, as paragraph 32 of our

friend's written submissions might be read as

suggesting, a question of the degree of certainty

or likelihood and that is not to the point.

Your Honours, I move to promissory notes: here, we rely on Nevill's case. We would submit

that it is clear from the concluding sentence of

Mr Justice McTiernan's judgment, at page 309

point 4, in that case which is No 12 on our list,

56 CLR 290 - we would submit it is clear from the

concluding sentence of Mr Justice McTiernan's

judgment that he was agreeing with Mr Justice Dixon

so far as how much was allowable as a deduction in

year 1. We acknowledge that his judgment opens

with a statement that he agrees the answers should

be as stated by the Chief Justice but the

concluding words, which have what seems to be the

same error as on this occasion Mr Justice Dixon

made in years, that similarity of slip in the dates

would seem to indicate an agreement with that part

of Mr Justice Dixon's judgment. But whether it is

a mistake or not, I think, depends on looking at

the earlier legislation and it is arguable that it

is not. But I am not going to take the Court's

time in going into that.

So, we would submit that two Judges did decide the timing question for reasons expressed. As to

what the Chief Justice said, in our submission,
what he said he was not going to do was give a

reasoned decision but he gave a decision and he

said he had to do so in order to reach a

determination of the case. It is our submission, therefore, that the case did decide the timing of the incurring of an outgoing by means of promissory

notes and, in our paragraph 19, we draw attention

to the fact, as the Full Court below noted, that

timing was argued. The Chief Justice certainly

expressly adverted to the competing arguments, that timing was a matter which the Court had to consider

and in relation to which it made a decision and, in

(d), nothing was said by any of the Justices to
suggest that the decision depended on the fact that

the payments were being made in lieu of salary.

In paragraph 20, we move to later comments on

the case and we would submit that they do not -

and, in particular, Flood, which are comments by a

Full Court whereas it is only in Mr Justice Dixon's

judgment that one finds anything in Ash about the

Coles(2) 109 6/5/92

point. But we would submit that Flood is not an

authoritative explanation.

Your Honours will recall that the judges there

said that the court was probably influenced to some

extent and then ended their discussion of the point

by saying "Whatever be the rationale". So we say

those are hesitant remarks, with respect, and are
not an authoritative explanation. Therefore, we

say the case stands unaffected by the later cases.

In paragraph 21 we deal with whether leave

should be given to reconsider the case. That

paragraph presupposes that this Court has reached

the view that the decision was wrong, that it

decided the point and decided it wrongly. I

proceed in addressing myself to paragraph 21 on

that basis.

Your Honour, the cases in this Court on

overruling point out that it is not just enough
that the case is considered wrong. There is a
heavy burden of getting the case overruled. The
matter must be approached with caution and it is

only to be done in an exceptional case. We submit

that Nevill is a long-standing decision and should

not be overruled, assuming the Court reached a view

that it decided the point and decided it wrongly.

In our paragraph 22, we deal with a paragraph

of our friend's submissions which my friend, I

think, did not orally address himself to:

considerations of fiscal policy. I will not read

our paragraph, but we rely on it and say that what

is in paragraph 19 of our friend's written

submissions is nothing to the point. I would just

add this: the fact that the appellant might have

adopted, as that paragraph points out, some other

mode of raising money is not relevant. The

question is what it did adopt and what are the

consequences of that?

We move in section D to deal with the trading

stock and - - -

MASON CJ: Before you come to that, Mr Batt, perhaps I ought

to ask you what you have to say about this

difficulty as I see it. In response to a question

put by Justice Deane, you said that you would give

us a reference within seven days to the cases

establishing whether operations by a finance

company in terms of getting in and paying out money

were operations on capital or revenue account.

Earlier you said that you thought that Avco might

deal with that question.

MR BATT:  Yes.

Coles(2) 110 6/5/92

MASON CJ:  I have looked at Avco in the meantime, and it

seems to me that Avco does directly deal with the

question. At least in the joint judgment of

Justice Aickin, Justice Wilson and myself, it seems to establish that they are operations on revenue

account. That is inconsistent with the basic

assumption on which you are asking us to deal with

the case. How are we to deal with that problem?

MR BATT:  I think it is inconsistent, Your Honour, and what

I began the morning by putting would be wrong,

unless there are some other cases. One would

therefore deal with the case on the basis that was

agreed between the parties, namely that whether the

Court is considering the gross amounts, the 100,000 and the 96,000, or considering only the difference,

both are on revenue account, and the question does

come, as the parties have always treated it as

being, only one of timing.

DEANE J: But we start with the position, if they be treated

on revenue, that the taxpayer in the tax year has

received on revenue account $96,000. That means it

is taxable in respect of that $96,000 unless you

can put something against it.

MR BATT:  Yes.

DEANE J: That means, I would have thought, that common

sense demands that you put against it either the

whole of the 100,000 or the value of - value is a

bad word, but I think you know what I mean - the

value of the liability, which no doubt is 96,000 at

the time of the transaction, adjusted at the end of

the financial year.

MR BATT: Yes, Your Honour. I am conscious, Your Honours,

of the problem. If it is not resolved in the way

Your Honour Justice Deane suggests it is, we would

acknowledge, a consideration in favour of the

apportionment approach, accruing the discount over

time. That avoids the seeming injustice of the

appellant being taxed in year 1 on $96,000.

DEANE J:  It would make this the most unsuccessful appeal

for a long time I would have thought.

MR BATT: There are background aspects, Your Honour, to

which I should not advert. If one values the
liability, and that can be done by accountants - I

mean, it is more work but it can be done - that may

be a possible approach, Your Honour. The only

other one is apportionment, in our view. I do not

think I have given Your Honour the Chief Justice a

very satisfactory answer, but it does enable me to

say we in no way depart from our agreement.

Coles(2) 111 6/5/92

MASON CJ: Yes, well that means that you get out of your

difficulty. You just leave us with a difficulty,

pass it on to us.

MR BATT:  Your Honour, could I say one thing and ask one

thing. What I told the Court at the beginning of

the day were our explicit instructions from the - I

do not mean from Mr Boucher himself, but from high

in the tax office. The second thing is and I offer

this: would the Court be assisted if within the

same seven days we might submit a memorandum about

the matter? I am not sure that we will have anything particular to say, but if we did on reflection find a useful solution or another

solution, would the Court be assisted? But I make

no promises that we will find something worthwhile.

MASON CJ: At the moment I do not see any disadvantage from

our point of view in giving you leave to do that, appellant. After all, you are really seeking an

open-ended opportunity to put some view before us

without limiting that view in any way. I do not

know what Mr Callaway would have to say as to the

grant of leave to enable you to do that.

MR BATT:  Yes, well I understand that, Your Honour.

MASON CJ: Perhaps we ought to hear him in reply on it.

TOOHEY J: There is another aspect too, I think, Mr Batt.

That is the form in which the matter comes to us.

It is by way of questions asked on a special case.

It is not, as it were, an appeal at large.

MR BATT:  No, it is not, Your Honour. In one of the

letters - I think the one handed up in loose

form - there is an offer by the appellant that if

need be, if the matter has to be considered on the

gross amounts, it would agree to the questions

being amended, but I accept, Your Honour, that it

comes on the special case.

TOOHEY J:  Is that letter part of the material in the appeal

book?

MR BATT:  No, but it was handed up yesterday by my learned

friend. It is the letter of 30 July 1990 of

Freehill Hollingdale & Page, and I was referring to

the last sentence, the sentence on page 2.

Your Honour the Chief Justice, by offering to

attempt to provide an answer to what is almost a

conundrum, I did not want to disavow any intention

to claim some advantage over my friend, but it

might work that way.

Coles(2) 112 6/5/92

MASON CJ:  It did not occur to me that you were seeking to

obtain some advantage over the appellant.

MR BATT:  But it might work that way.

TOOHEY J: But if there is to be any elaboration of the

argument, or any further submissions made along

those lines, it may be that the answer does lie in

some form of amended question formulated on an

acceptable basis as to revenue and capital rather

than questions as they are asked in the present

form.

MR BATT:  Yes, Your Honour, but we would consider ourselves

still bound by our acknowledgement that - so far as

,we are concerned; I do not mean the Court - all the

sums were on revenue account.

TOOHEY J: Yes, I understand that, but given that agreement

it may nevertheless be possible to express the
matter in a different way which accords more with
what did go out and what came in in the particular

years in question - the year in question.

BRENNAN J:  Mr Batt, would there be any desirability in an

order that this Court should now revoke the grant

of special leave, reserving to the appellant its

right to apply again for the grant of special leave

be put into whatever order the parties might, in

if it should be so advised, on terms that the

the light of the background facts, think

appropriate.

MR BATT:  The question would then arise, Your Honour -

before I answer Your Honour - which court could

enable us to amend, because the Federal Court, one

would have thought, now was functus officio. It
would have to go back to proceed down the chain to

the tribunal, perhaps.	I think, Your Honour, we
have come geared on both sides to seek a

determination and we would not want our friend's

special leave revoked or rescinded, quite apart

from the question of costs.

BRENNAN J: Yes, I can appreciate that both sides came

geared. The trouble is there is some sand in the

gears, and perhaps something can be done about it.

MR BATT:  The gears were - many hours were spent in trying

to hone the gears correctly, Your Honour.

DEANE J: But if, at the end of the day, this Court were of

the view that the receipt was revenue and against

it there should be put the value of the liability

on an adjusted basis from time to time, the parties

could work out what the appropriate deduction was

Coles(2) 113 6/5/92

in the tax year and in the next year, without any

difficulty, I would have thought.

MR BATT:  Yes, Your Honour, they could, but they would need

the Court's decision that that was the

appropriate - - -

DEANE J:  I was not suggesting that would be the decision

but - - -

MR BATT:  No, but if the Court was of that view.

DEANE J: Which means, if we reach that stage, rather than

answer the question, if we simply left it to the

parties to work out the results.	Can you see any
difficulty in working it out?

MR BATT:  Would Your Honour pardon me just for a moment?

DEANE J: Yes.

MR BATT:  Your Honour, I think there would be no difficulty

if the Court either just gave reason for it and

said the Court declined to answer at all, or

alternatively, made a declaratory answer

summarizing the reasons.

DEANE J: Or stood it over to let the parties bring in an

order.

MR BATT:  Yes, and that, in our view, would be the

preferable approach than to rescinding special

leave. Might I have the Court's indulgence just

for one moment on Your Honour Justice Brennan's

question to me?

I think, Your Honour Justice Brennan, I would

maintain the answer that we would not like our

friend's special leave revoked. The members of the

Court who heard the application in Melbourne will

recall it was one of the quickest special leave
applications.	We did not consent, but we certainly

did not oppose it.

MASON CJ: Just before we leave this point. There is, it

occurs to me, an extra dimension to the problem

that has been identified arising out of this

concession that you made, and that is this: I have

not, and I doubt if any other member of the Court has, identified whether or not the view expressed

in the joint judgment in Avco is, in a sense, part

of the ratio of that decision. If it is part of

the ratio of that decision then, of course, the
question of precedent applies. But if it is not

part of the ratio of the decision, and the question

is at large, ie, whether or not these operations

are on capital or revenue account, then we are in a

Coles(2) 114 6/5/92

difficult situation because we have not really

heard argument from the parties in this case that

is directed to a resolution of that question and,

indeed, the case itself has not been stated in a

way that would perhaps enable the Court to

determine that question.

MR BATT:  No, Your Honour, for the reason that it was

accepted that it was on revenue and that it was

thought that the only question was timing, that is

true, Your Honour. The only argument the Court has

heard is a brief argument from my friend about the

financier, and this morning I referred to the

Mutual Acceptance case which sets out at length the exchange loss and gain cases and, in particular,

the finance companies, including, in particular,

especially Avco.

McHUGH J: But it has enormous ramifications, does it not?

I mean, one way of looking at the case is simply to

say it is not unlike the insurance business. All

these sums of money that come in one year are

revenue in that year, they are outgoings in another

year, but if tax is payable in the first year on these sums, it would have enormous ramifications

from a commercial point.

MR BATT:  Yes, it would, Your Honour, and the figures here

are large but they are only part of Coles Myers figures and, as I understand it subject to some

changes that might have occurred recently, it has

been increasing as money has been deflating, the

figures have been getting larger and whilst one may

think that Coles Myer Finance would be one of the

biggest users of bill or note arrangements in the

country, there are many others.

McHUGH J: But if your basic argument here is right and this

is all on revenue account, then the $100,000 would

have to be a deduction in the next year, would it
not, because it is not incurred in the year of

receipt?

MR BATT:  It would, unless one adopts what Justice Deane was

putting to me whereby you already would have

deducted, say, 98,000 in year 1 which would, in

effect, be accruing it.

McHUGH J: That means it is incurred?

MR BATT:  Yes, it has to be on that view. But, as my

learned junior reminds me, to say that the present value had been incurred would be inconsistent with

our primary argument. It would be consistent with

or another way of perhaps putting our alternative

argument where we are really at one with our

friends.

Coles(2) 115 6/5/92

GAUDRON J:  I take it, Mr Batt, if one goes to the substance

form and comes to the view that it is really a

borrowing, borrowings always go to capital account,

do they?

MR BATT:  I think not, perhaps, with finance companies,

Your Honour. Ordinarily, yes. But if it is

treated as the equivalent of stock-in-trade it may

not be with a finance company. But, ordinarily, it

would be, undoubtedly.

If it is convenient, Your Honours, may I go to section D very briefly?

MASON CJ: Yes.

MR BATT:  The trading stock analogy: our friend simply said

that it was a likened discount to - the funds

raised to trading stock. What we say about that

sufficiently appears in our typed paragraph 23.

Could I then move to the substance form - - -

BRENNAN J: What is the entire difference with character

that paragraph 23 speaks about?

MR BATT:  I am sorry, Your Honour, is the entire -

BRENNAN J: The second-last line says that here we have:

contracts of an entirely different character

from contracts for the acquisition of trading

stock -

what are the distinctions that you seek to draw?

MR BATT:  The distinctions, Your Honour, are that what is

involved with trading stock is a contract to

purchase goods. What is involved in the

discounting of accommodation bills is the sale by

the person raising money of an asset, namely, the

bill for 96,000. That is of a different nature

altogether and all the incidents of that are

different if one looks at it as a matter of legal

analysis.

BRENNAN J: But the analogy is the money that comes in is

the sale price.

MR BATT:	Yes, Your Honour.
BRENNAN J:	In other words, you create a liability on the

bill just as you pay for your stock-in-trade.

MR BATT:  Yes, but it is rather the reverse way in that by

selling something you get your stock-in-trade

whereas, with a trader with goods, he pays to buy

it.

Coles(2) 116 6/5/92

BRENNAN J:  I understand the difference but, I mean, it

seems to me that the analogy that is raised is that

the money that comes in from the sale of a bill is

like the stock-in-trade of a trader. Now, you may

say that it is not but it does not seem to me that

it is taken very far by just saying, "Here the

contracts are of an entirely different character".

MR BATT:  Your Honour, we would say it is somewhat like it

but that does not help resolve the questions here.

BRENNAN J: It may have implications for the question of the

Avco problem that the Chief Justice has mentioned.

MR BATT:  Yes, Your Honour, and Avco is one of the

authorities our friends cite on that.

Your Honours, may I come finally, or almost

finally, to apportionment. Our submission on this

is set out in typed paragraph 24, but I wish to

elaborate a little. We put the matter in two ways.

The first is this, that what we have said in

paragraph 24 assumes that the Court holds that a

liability was incurred, but what we say asserts

that something more is necessary to determine the

extent to which an expense comes home in the year

of income. That something more is the effluxion of

time.

The reason we assert that that is necessary is

because the outgoing is time related. One is

considering the enjoyment of a benefit, having the

money, over time. We submit in support of this

alternative argument that there is a distinction

between a liability and an expense which is

inextricably tied to time. So in our submission,

the liability, which for the purpose of argument we

assume is found, is qualified and is quantified by

reference to accounting practice which matches the

expense to the benefit.

That approach is supported by the passages in

our friend's written submissions from New Zealand	Flax which, as we understand it, is the only case
in this Court that was concerned with more than a
once only payment or a number of once only
payments. It is supported also by the approach
Your Honour Justice Toohey took in the Federal
Court in the Australian Guarantee case and by the decision of Mr Justice Woodward in the Supreme Court of New South Wales in a case cited in the Australian Guarantee case of Alliance Holdings v
The Federal Commissioner. That was cited in the
Australian Guarantee case by Your Honour at
2 FCR 489, points.

In support of this way of putting the

apportionment argument, we say that that approach

Coles(2) 117 6/5/92

of requiring something more, namely the effluxion

of time, is necessary. That it is necessary is

shown by a number of factors or examples of which

the following at least are some. First, we would

take Your Honour Justice Deane's example of the

long-term promissory note. Why should there be a

deduction in year 1 of the full face value of a

promissory note not payable until year 10?

That is a good example for considering the

securities, bills of exchange and promissory notes. That might deal with it from the point of view of taxing and payment of tax, but it does not deal with the theoretical matters raised.

theory and the jurisprudence of the matter and it
is not deprived of its usefulness by the fact that

there has now been inserted Division 16E in

My learned friend said, when Your Honour

Justice Deane raised that, that it was an unlikely

hypothesis, as I noted it down, but that there are

long term bills at any rate can be seen from

Willingale's case, (1978) AC. If I could just give

Your Honours the pages where you will find

references to long term bills are at 836G - there

is mention of six year bills - 841C, five year,

847F, six year, and then on 850A, it is stated that

the terms range from one to ten years.	So it is
not an unusual type of transaction.	The bank in

question there was a subsidiary of National

Westminster, so we are not talking of some small

bank but one that operates in a large area.

While I am on Willingale, may I just say that

my learned friend drew my attention to one matter

after Court. Your Honours will recall that I taxed

Lord Keith of Kinkel with making a mistake about

the issuers being under an immediate obligation.

It may be that the issuer was used by His Lordship

in relation to securities other than bills and

notes, because other obligations were discounted to
the bank there.	It is not clear, but Your Honours

will find at 849H and 836D the use of the verb

"issued" or "issue". That is the only factual

material that would go to show whether His Lordship
made an error or was using issuer of some other

security other than bills or notes. That is our

first example, the long-term promissory note.

Next we would recall the reflection which

Sir John Latham found impossible to avoid in

Nevill's case at page 302 to 303. Thirdly, we

would draw attention to the Australian Guarantee

Corporation case where the deferred interest

debentures had a currency of 20 years. The Federal

Court only had to deal with the claim in relation

Coles(2) 118 6/5/92

to a particular one, but if there was a liability

from year 1 and that was all one had to find, there

would be in year 1, unless some time requirement is

introduced, a deduction for the whole 20 years

interest.

Fourthly and very briefly, we would mention

interest rate swaps: a modern arrangement whereby

one can have one of the counter parties to an

interest rate swap arrangement contracting to pay

revenue amounts which are not interest, in the form

of six-monthly payments for 10 years, if it is what

is called a fixed rate payer. I do not want to

trouble the Court with the details, but I simply
alert the Court to the fact that there is, lurking
around, the problem of treatment of the incurrence,

or the time of incurrence, of payments made under

interest rate swaps.

BRENNAN J: Well, I do not understand what an interest rate

swap is. I do not know whether it is relevant to

your argument, Mr Batt.

MR BATT:  It is only an example. I will not take

Your Honour's time to try and explain it. I do not

say that I have mastered it properly myself and

that is why I speak only of it very briefly,

Your Honour.

MASON CJ: Well, there is not much we can do about this

problem that is lurking around if you do not

understand it and we do not understand it - - -

MR BATT:  It does not call for decision, Your Honour, and I

do not -

MASON CJ: That is heartening, at any rate.

MR BATT:  But we sought to give four examples of why there

might be needed a time factor. At least the first

three do not require, as it were, expert knowledge,

and we are content with the first three.

DEANE J:  Of course, the problem only arises where one is

dealing with a liability that does not attract

interest. If the liability bears interest

obviously - - -

MR BATT: There is no problem.

DEANE J:  - - - unless the interest is not a commercial rate

of interest, the liability has its present value

from the word go. It is only when there is a

future liability and there is no interest payable

that this problem arises.

Coles(2) 119 6/5/92

MR BATT:  Yes, Your Honour. Yes, and that may therefore

make my reference to the AGC case of less

significance, but the long-term promissory notes

are a good example and I will not mention again

swaps. ·

Your Honours, we would submit that such an

approach, that is allowing for a time factor, is

correct, is shown by the following example. If you

take a promissory note that is discharged early by

its purchase by the maker - buys it back, the
figures that he has to pay differ from what he

would pay at maturity and his loss or outgoing is

less and that is, in our submission, because a loss

or outgoing is calculated by reference to time.

That is not the case with trading stock, of course,

that is payable on delivery in the future, where

you have got, from day one, a fixed price.

Your Honours, those are our submissions on the

first way of approaching apportionment. We do put

a second approach. It is an alternative or

possibly an additional one and it is more radical.

It arises out of what Your Honour Justice Dawson

said to me yesterday, and we only put it on the

footing that the Court considered that it was not

constrained by authority which I will mention in a

moment; it was not constrained from saying that

the transactions here are really like borrowing

money, paying interest. If the Court considers it

is not so constrained, then raising money on bills
and notes is merely another way of raising finance,

and discount is in the same category as the other

direct costs of finance such as interest and should

be treated similarly by being accrued over time.

Now, we have in our typed paragraph 24 noted

authorities which would certainly be against that

approach, and our friends referred in their

corresponding paragraphs to Willingale's case,

(1978) AC 834. we would note the following pages

as being against that view:  841H, 843E and 845B;

and we would also note that the Court of Appeal in

New Zealand in the Securitibank (No 2) case,

(1978) 2 NZLR, No 26 on our friend's list, but we

do not want to go to it, is against that at

pages 146 to 147 in the judgment of the President,

Mr Justice Richmond, and at 166 to 167 and 172 to

173 in the judgment of Mr Justice Richardson. As

against that we point out that none of those cases

are taxation cases, and it may be that a way is

open to adopt that approach for the purpose of

taxation.

Your Honours, there is only one other thing I

wish to say, and that is we should say to the

Court, as the Court is no doubt aware, that the

Coles(2) 120 6/5/92

authority of Mendonca's case which I cited

yesterday is certainly not unaffected by more

recent cases, and one case is Clyne's case,

(1981) 150 CLR 1, No 16 on our friend's list of

authorities. I do not intend to go to it, but at

page 9 Chief Justice Gibbs referred to Mendonca,

and Your Honour the present Chief Justice referred

to it at pages 16 to 17 in a judgment that was

agreed in by the other members of the Court. We

simply point out that this Court in Clyne did not

have to go further than whether tax was due at the

date of assessment. It did not need to go back

further than that, but we accept that Mendonca is

is not unaffected by later decisions.

We add one other - the decision of the Full Federal Court in Taylor v Commissioner of Taxation,

(1987) 16 FCR 212, at pages 218 to 219, and copies

of this have been left with the Court

staff - where, nevertheless, it was held that a tax

obligation was incurred before the date of

bankruptcy. The date of bankruptcy was 30 June.

It was held that by that date a tax obligation at the end of the fiscal year had been incurred - the

word was "obligation" - even though the notice of

assessment did not issue until after that date.

Your Honours, unless there is any matter on which I

can assist the Court, those are our submissions.

MASON CJ: Thank you, Mr Batt. Mr Callaway.

MR CALLAWAY: If the Court pleases.

MASON CJ: Are you going to lead us to these pleasant

English meadows?

MR CALLAWAY:  No, Your Honour. My learned friend did not

speak of that, so I have no right of reply. If I

might first take up a matter that arises out of a
question Your Honour Justice Deane asked yesterday

and I think also arises out of something my learned

to my learned friend, "If a taxpayer incurs a	friend said about 10 minutes ago. Your Honour said
liability of $100,000 but could go out into the market-place tomorrow and extinguish the liability
by repurchasing the instrument, how can that be
regarded as a deduction incurred in the sum of
$100,000?".

In our submission, the difficulty with that

analysis is that the taxpayer cannot extinguish the

obligation as of right. It is not a liability for

$100,000 which you are entitled to extinguish if

you wish. You have to find the holder of the

instrument and the holder of the instrument has to

be willing to sell it to you. To put it another

way, one comes under a present obligation in the

Coles(2) 121 6/5/92

sum of $100,000 and that is true until and unless

you find the holder of the instrument and purchase

it back. So that, in our submission, that

possibility which, the Court recalls, never

occurred and so forth as stated iB the special

case, is simply a remote event of defeasance.

If it did occur, as really I think I answered

the question from Your Honour Justice Brennan right

at the start yesterday, there would be an

adjustment and I mentioned to Your Honour the

authorities referred to by Mr Justice Newton in

Commonwealth Aluminium at 4161.

It is true, pursuant to the decision of this

court in Sinclair, 114 CLR 537, especially at 543

and 545, that the adjustment would have to be on

revenue account, but that would not seem to be a

problem and would be assisted by the analysis in

Mutual Acceptance, to which my learned friend

referred this morning.

McHUGH J: But does the reply you have just made answer the

proposition that the present value of your
liability is $96,000? In other words, in the
market-place people are prepared to pay $96,000 now

or $100,000 in six months time.

MR CALLAWAY: Well, Your Honour, that does not alter the

fact that the taxpayer has come under an obligation

in the sum of $100,000. Every obligation is

capable of being discounted in the sense of down

valued. Another difficulty with the analysis

involved in His Honour's question, in our

respectful submission, is that it can be said of

all obligations. Any obligation now to pay a sum

of money later can be down valued, partly because

it is an obligation to pay in the future, and it

can also be discounted for contingencies. So any

contractual obligation of that kind would have to

be valued. It is not limited to bills of exchange

and promissory notes. Once one abandons the

nominalistic theory of money there is no end to it.

The logic would, in other words, extend to all

obligations that either are to be discharged in the

future or might be extinguished.

BRENNAN J: What you have sold on discounting is a bill, a

chose in action.

MR CALLAWAY:  Yes, Your Honour.

BRENNAN J: And what you have derived by that sale has been

paid to you by the holder of the bill.

MR CALLAWAY:  Yes, Your Honour.

Coles(2) 122 6/5/92

BRENNAN J:	The obligation that you have is an obligation to another party, the acceptor. When you sell the
bill, you sell it to the holder for its commercial
value.
MR CALLAWAY:	Yes, Your Honour.

BRENNAN J: Where is the loss there?

MR CALLAWAY:  The loss, Your Honour, is that you receive -

if one can stay with the 96 and 100 example, one

receives the 96, and on that transaction, one

incurs a present liability in the sum of 100,

therefore, the transaction involves a loss.

Alternatively, if it be regarded as an outgoing,

the 96 is received by way of assessable income and
to give a true reflex of the income, in accordance

with Carden's case, one must take into account the

present obligation and not defer it to the next

year of income.

BRENNAN J:  Do you mean to say that there is a loss because

you have paid more for what you have sold than what

you get for it?

MR CALLAWAY: In effect, Your Honour, yes.

BRENNAN J: Well then, have you paid anything?

MR CALLAWAY:  I am sorry, that is why I said, "in effect".

One has come under an obligation in an amount

greater than what one has received and it has not

hitherto, in our submission, been the law that one

discounts that 100 because it will be paid in the

future or because, theoretically, it is defeasible;

so that the cost of acquiring $96,000 is $100,000,

and one has sustained a loss.

If there were a defeasance, if early in July of the following year, the instrument were

repurchased, one would then have a profitable

transaction and it would be on revenue accounts and

that is why one would be able to bring it in the

next year.

BRENNAN J: What would the profit be?

MR CALLAWAY:  The profit would be the profit as in the

Mutual Acceptance case, where the company was able

to redeem its debentures early by paying less than

their face value. That is the very thing that was

held to be on revenue account in the case of a

finance company.

BRENNAN J:  If you pay the 100,000 in year 2, what is it

that distinguishes the character of the 96,000

being part of that 100,000 and the 4,000 balance?

Coles(2) 123 6/5/92

MR CALLAWAY:  On our analysis, Your Honour, one does not

look at it that way because one looks only at the

first year of income and the deduction has been

wholly incurred. The taxpayer cannot have the

deduction twice, that is certainly not the

submission we would seek to make.

Might I just add this in response to

Your Honour's question? We maintain the submission

that it is a loss but I said a moment ago if it

were to be analysed in terms of an outgoing, well

then the 96 would be income and to give a true

reflex one would have to take into account the 100

then and there. But it would also throw another

light on the position because the 100 would be an

outgoing incurred in the gaining or producing of

the 96. Both parties, I think, have proceeded on

the basis that the relationship for the gaining or
producing of assessable income is for the gaining
or producing of the ordinary assessable income if
the taxpayer is a finance company, but if the right
analysis is outgoing then the 100 is incurred
within the meaning of section 51 in the first limb

of 51 in gaining or producing assessable income,

namely, the 96 which must then, of course, be

regarded as a revenue item if one adopts the

outgoing approach.

BRENNAN J:  Is an outgoing ever incurred, except when it is

paid?

MR CALLAWAY:  Yes, Your Honour. All it has to be is a

presently existing liability. It is, with respect,

the distinction Your Honour drew in the passage

from Nilsen that I began with yesterday morning.
It is, of course, the reason one can claim interest

that is not payable yet.

BRENNAN J:  I thought you are saying this to outgoing as

distinct from loss or outgoing. Did Nilsen draw a

distinction between losses and outgoings?

MR CALLAWAY:  I am sorry, Your Honour?

BRENNAN J: Did Nilsen draw - - -

MR CALLAWAY:  Maybe I misunderstood Your Honour's question.

I thought Your Honour asked me whether an outgoing

could be incurred before it was actually paid?

BRENNAN J: That is right.

MR CALLAWAY: With respect, yes, because that is why the

Court has adopted the test of presently existing

liability though it may be payable in the future. That was not the reason Nilsen's case was decided

the way it was; it was because it was not a

Coles(2) 124 6/5/92

pecuniary obligation at all. And Your Honour
pointed out that it would be different if it were a

debitum in praesenti solvendum in future. That is,

of course, the case of an outgoing which is payable

later but which is incurred now; incurred because

it is a debitum owed, not a debt; incurred because

it is debitum solvendum in future.

BRENNAN J: But it may be a loss that is then incurred but,

perhaps, not - - -

MR CALLAWAY:  Depending on the nature of the transaction,

Your Honour. When one thinks of things like rents

and wages and salaries and so forth, it is easy to

see that outgoing is the appropriate word in

section 51. But when one is looking at a

transaction, be it the discounting of a promissory

note or a bill of exchange or, within Your Honour's

question, the early repurchase, loss is, in our

submission, the more appropriate way of looking at

it.

McHUGH J: That is the way you would look at a bank's

transactions, would you not? I mean, you would not

regard every money deposited with a bank as on

revenue account; you would look at it in terms of

interest received and interest payable as what is

revenue and what is expenditure. You do not say,

"Well, there have been 20 billion deposited with

the National Bank, therefore it is all revenue;

and there has been so much paid out, therefore it's

all outgoings on revenue account"?

MR CALLAWAY:  Your Honour, the interest earned by the bank

lending money to its customers would be assessable

income; the interest paid by the bank to its

customers would be an allowable deduction, it would

be an outgoing.

McHUGH J: Yes, but what you are looking is the differences.

You are not looking at the actual sums of money

which are underneath.

MR CALLAWAY: With respect, Your Honour, I do not know that

we would concede that in the case of a bank. Its

assessable income would include all the interest it

earns and its deductions would include all the

interest it had to pay - - -

McHUGH J:  I am not disputing that but what I am saying is

that in distinguishing between revenue and capital,

you would not say that the deposit that you place

with the bank tomorrow was revenue.

MR CALLAWAY:  No, Your Honour, I am sorry not to have answered the question earlier.

Coles(2) 125 6/5/92

McHUGH J: But does it not leave you with this problem, that

the $96,000 you receive is money that you use in

your business and although this may not be a loan

transaction, and on the authorities it clearly is

not a loan transaction, nevertheless it is receiv8d

into your business and you suffer no loss until ultimately you pay the 100,000 and you suffer a

loss of $4000?

MR CALLAWAY:  But, Your Honour, that would be equally true

if one purchased - I will give two examples - if

one purchased trading stock and did not have to pay

for it until the next year of income, but
immediately resold it, one would have the money

received from reselling it and one would not yet

have paid for it.

McHUGH J: Yes, but the vital distinction may be,

Mr Callaway, that the stock is really on revenue
account, the stock itself, whereas the money you
receive is not necessarily on revenue account, and
the view that was put earlier this morning by

Mr Batt may well be right in legal theory, that the

$96,000 is received on capital account.

MR CALLAWAY:  Your Honour, in our submission, not in the case of a finance company.

McHUGH J: Well I have read Avco and I am not sure that Avco

decides that. What it says is that because of the

nature of the business the loss and the exchange

transaction is to be regarded as on revenue

account, but it does not necessarily decide that

the underlying amounts are on revenue account - the

borrowing necessarily on revenue account.

MR CALLAWAY:  The question Your Honour asks me would lead to

the conclusion that it is better regarded as a

loss, or an outgoing which, of course, has hitherto

been the view taken at both ends of the bar table.

MCHUGH J: Yes.
MR CALLAWAY:	And from which we have never resiled, it is just that in light of questions and the alternative
submission my learned friend made, we make the
submission that if it is an outgoing it is even
more clearly all in the first year of income
because one then has to give a true reflex and one can then look at the first limb of section 51 from
a new point of view.
Your Honour Justice Dawson asked my learned friend some questions about economic equivalence.
If that is a helpful way of looking at the matter,
these transactions are not like borrowing money and then paying interest when the money is repaid.

Coles(2) 126 6/5/92

These transactions are more analogous, in our

submission, to borrowing $100 now and immediately

repaying $4 as interest.

DAWSON J:	I am sorry, I did not catch that.
MR CALLAWAY:	Your Honour, one could - this, of course is

something in the written submissions for a

different reason. One could, instead of

discounting a promissory note for $100,000 and

receiving $96,000 now and paying the 100 in three

months time, one could borrow $100,000 from a

lender, and immediately pay $4,000 to the lender as

prepaid interest.

BRENNAN J: At a higher rate.

MR CALLAWAY:  No, Your Honour. From the point of view of

the lender, those transactions would be exactly
equivalent_because, in the case of the promissory

note, the lender does not get its reward - the four

- until 90 days time. In the prepaid interest

example, the lender similarly does not get its

reward until 90 days time, because the lender pays

out $100,000, receives $4,000 back, but that is the
lender's own $4,000. It is not until the lender
gets the $96,000 in 90 days time that the lender

receives any reward at all for making the

accommodation available.

DEANE J:  The lender pays out $96,000, not $100,000.

MR CALLAWAY: Well, net, Your Honour, yes, and receives

no -

DEANE J:  I think you have got it back to front.

MR CALLAWAY:  I am grateful to Your Honour. So long as I

did not falsify my answer to Your Honour as to why

it is exactly the same from the point of view of

equivalence.

BRENNAN J:	I know which I would prefer to be as a lender.
DEANE J:	In one case the lender gets the 4000 at the

beginning of the loan; in the other it does not

get the 4000 until the end of the loan.

MR CALLAWAY:  I see that, Your Honour. Its security is

somewhat stronger to the extent of $4000.

BRENNAN J:  ..... the value of the receipt is different. You

have got it earlier.

MR CALLAWAY:  As far as the $4000 is concerned, yes,

Your Honour.

Coles(2) 127 6/5/92

DAWSON J: But how does that analysis tally with the

accounting practice that you see on page 14 of the

book?

MR CALLAWAY:  Your Honour, accountants do indeed regard this

matter in an economic way. That is so, and that
describes what the accountants do. They regard the

discount as accruing and write it off progressively

over the 90 days.

DAWSON J:	And that is what is called a "straight line basis".
MR CALLAWAY:	I think the "straight line basis", Your

Honour, means that you write it off in the same

amounts rather than doing some sort of compound

interest curved calculation.

DAWSON J:  So much per day or per month or whatever it is?

MR CALLAWAY:  Yes, Your Honour. If it is a figure of 100

over 100 days, you write off $1 a day. That is

what I understand the straight line method to mean.

DAWSON J:	So the answer is that accountants look at it as being the equivalent of a loan at a particular
interest rate which is equivalent to the discount rate.
MR CALLAWAY:	Your Honour, the accountants look at the

discount as spread over the period and write it off progressively. We do not have the evidence, but we

would suggest the accountants would do the same

thing with prepaid interest. They would take the 4

and write it off in the same way. But our

submission is we do not invite the Court to adopt

economic equivalents, but if we are wrong about

that and if it is the right way, partly because it

gets into evidence, to know whether Xis equivalent

to Y, one usually needs real world evidence about

the market or financial - that is the danger. But

if we are wrong about that or if it is not

applicable in this case, we submit that the

transaction is more like the prepaid interest

example.

DAWSON J:  I understand that. How does that tie up with the

question of whether it is on revenue account or

capital account? They are only notional things,

are they not, really?

MR CALLAWAY:  Yes, it was a different issue, Your Honour.

DAWSON J: The accountant if he were asked, looking at that

particular accounting practice, would say, "Well, I

certainly don't put it on revenue account", would

he?

Coles(2)	128	6/5/92
MR CALLAWAY:	We do not know, Your Honour.	It might depend

on the nature of the business.

DAWSON J: They would not put the capital sum on revenue

account, would they?

MR CALLAWAY:  No, Your Honour, that is true.

DAWSON J: Obviously the interest is, yes.

MR CALLAWAY:	Yes .
McHUGH J:	The very fact that he or she writes debit

discount suspense account off against the profit

and loss account shows that, does it not?

MR CALLAWAY:  As regards the 4000, Your Honour, yes.

McHUGH J: But could I just ask you about the converse

situation. Take the case of a finance company

which purchases book debts. Now, the payment for

the book debts is obviously expenditure on revenue

account immediately in that financial year. What

about on the receipts side? Would the receipts from the finance company's point of view be the present value of the debts or would it be when

those debts are collected maybe two, three years

down the track?

MR CALLAWAY:  It would appear to be the latter, Your Honour,

because when it is on that side one does not know,

for the reasons explained in Willingdale's case.

It is one thing to talk about a presently incurred

liability, it is another to talk about a presently

valued expected receipt. So they are asymmetrical,

in our submission.

Your Honour Justice Toohey and Your Honour

Justice McHugh both referred to the finding by the

jury in Yates v Hoppe that the payment was

voluntary.	It is not easy to know what that refers
to but presumably it refers to the fact that the

payer did not have to provide the funds yet, unless

it refers to something concerned with the

bankruptcy legislation. There are repeated

references to, "The jury found that though the

payment was voluntary it was not made in

contemplation of bankruptcy". So, it may well be

it reflects some language of the bankruptcy

statutes about voluntary payments made in

contemplation of bankruptcy, or it may be that it

refers to absence of compulsion but, re-reading it

this morning, the best I could do was to think that

it probably refers to the fact that he did not have

to make the payment now which, of course, is true.

But that does not in any way impinge on it being a

Coles(2) 129 6/5/92

present obligation as, indeed, the Court appears to

say.

My learned friend this morning referred to

part of Mr Justice Menhennitt's judgment in RACV,

the part that is quoted in Ogilvy v Mather, 4845,

right-hand column, point 7, where His Honour

referred to an event giving rise to the liability

to indemnify. But, in the case of the bills, that

event is the bill being discounted. Once the bill

is discounted the liability is fully present that

the party accommodated must be regarded as the real

acceptor of the bill with a consequent obligation

to indemnify against the consequences of

acceptance, usually to protect against third
parties; if the bill were held at maturity, to
protect the acceptor against being the acceptor and

therefore the bill being discharged.

My learned friend also, this morning, read the

passage in Chief Justice Barwick's judgment in Wren

v Mahony, at 227 point 6 where His Honour drew a

distinction between a promise to indemnify the

promissee and a promise given to the promisee for

the payment by the promissor of the debt in

question. And my learned friend said that this was

a simple promise to indemnify the promissee,

promised by the taxpayer to indemnify the bank.

But if we are right in our submission about

the modes of indemnification it would, in truth, be a promise given by the taxpayer to the bank for the

payment by the taxpayer of the amount in question,

and I have already made submissions as to why, in

our respectful submission, it cannot be on the case

of an accommodation bill that one is entitled to

make the acceptor pay first and then indemnify him.

The reason that is not a breach of contract is

simply that, on the facts in this special case, it

is left to the banks to do the debiting and if one

bank chooses to debit in the afternoon, it cannot

turn around and say, "That was a breach of your

contract of indemnity".

Your Honour Justice Dawson asked my learned friend what his submissions were on our central

submission that the contract of accommodation is

that the party accommodated is to be regarded as

the real acceptor. My learned friend said, "Yes,

but that's just between the parties". Well, that is true, it is just between the parties, but that

is the obligation with which this case is

concerned. On any view, whether we are right or

wrong, the bills part of this case is concerned
only with the nature of the obligation owed by the

taxpayer as the party accommodated to the bank as

Coles(2) 130 6/5/92

the accommodation party. The case is not concerned

with obligations on the face of the bill.

I said earlier this morning in answer to a

question by Your Honour Justice Brennan that if,

contrary to our primary submission, the right way

of looking at this matter is outgoings, it would

have two consequences: one is the true reflex - I

should not add anything to that - and the other is

that is would then be apparent that the $100,000

was incurred in the first limb of 51 in gaining or

producing the 96, and in regard to that we would

rely on what the Court said in John v Federal

Commissioner of Taxation, (1989) 166 CLR 417,
at page 427, a passage that the Court would well

remember:

But the of a step taken in the process of

gaining or producing income must be regarded

as an outgoing or taken into account in

calculating the loss (if any) incurred,

whatever purpose or motive may have attended

all or any of the steps involved.

We are conscious that the Court has recently

commented on that passage in Fletcher, 103 ALR 97,

but we submit that those comments would not detract

from the applicability of that passage in the way

that we have suggested.

Your Honours, that leads me to the

housekeeping matters. We would respectfully ask

the Court not to give my learned friend open-ended
leave to put in whatever submissions may seem
advisable. That, we suggest, is very dangerous in

principle, not only from our point of view, but

looking down the track to the Court.

If my learned friend thought of something

which was really vital which he thought, as

counsel, ought to be submitted to the Court by way

of a supplementary submission, it would be open to	him to show it to us and to ask for our consent.	I
realize there is a difficulty I will come to about
that.

If he thought we were irresponsible, it would

be possible to apply to Your Honour the

Chief Justice in chambers for leave to put it in.

The only difficulty in that is that ordinarily one is not entitled to put in anything after the

argument except by leave. But perhaps in a case

like this, if my learned friend thought of some

genuinely helpful, major new point and we agreed

the Court should be aware of it, the Court would

not be offended if that were then submitted. But

that, we submit, is a safer course, and my learned

Coles(2) 131 6/5/92

friend is protected because if we are irresponsible

the matter can be decided. If my learned friend

were given leave, of course we would respectfully

ask for leave to respond, and that is exactly the

kind of reason why it is a path that we ourselves

would not invite the Court to go down.

We would also respectfully ask the Court not

to rescind special leave. It is not just that this

is a case that has been years in the preparation on
both ends of the bar table, but it is a case of
great public importance where there are many

people, including my learned friend's client,

waiting for the guidance of this Court. And it

may turn out that when the Court considers the

arguments, some of the difficulties because of the

way the Court decides the case are not as worrisome

as they might seem this morning. But if in the end

the Court considered that the questions were

unhappily framed, as in Hepples' case, it would be

open for the Court to pronounce an order in

accordance with its view of the matter, and as

Your Honour Justice Deane I think this morning

suggested, perhaps to give the parties leave to prepare an order for the Court's consideration.

But Hepples' case is quite a good analogy showing

that the Court is not without remedy if it concludes that the questions asked and the

presentation of the case are not as helpful as they

should have been.

Your Honour, I am grateful for the Court's patience in this case. That is all we wish to say

by way of reply.

MASON CJ:  Thank you, Mr Callaway. The Court is not minded

to grant you open-ended leave, Mr Batt. If you

want to raise something, then I think you should

follow the course that has been outlined by

Mr Callaway.

MR BATT:  It gives my learned friend a prima facie power of

veto.

MASON CJ:  No, he has pointed out that if he does not give

his consent it is open to you to approach the

Court.

MR BATT:  If Your Honour pleases. May I just say we have

received instructions. We would wish, if the Court

would allow it, to make submissions on this capital income question which may prove to be beneficial to

my friend. But in the light of what Your Honour

said, such submissions as we would want to put, we

would have to show to our friend first.

Coles(2) 132 6/5/92

MASON CJ: Yes, well I think you ought to follow that course

rather than proceed on a footing that you get

open-ended leave, and if you do that at least you

will be able to give attention to the precise

submissions that you are going to put.

MR BATT:  Yes, Your Honour. Would Your Honour indicate a

time by which that should be done, bearing in mind

that we would have to approach our friend and - - -

MASON CJ: Well, I think I should say to you, Mr Batt, that

the sooner you prepare submissions and decide

whether you wish to put them to Mr Callaway and

ultimately the Court, the better. And I certainly

think you ought to have in mind a time frame of

seven days, fourteen days, say, perhaps at the

outside.

MR BATT:  Thank you, Your Honour. I think we should let the

Registry know if we, either after speaking to our friends or of our volition, do not wish to put

anything in so the Court will not be under a

misapprehension.

MASON CJ: Yes, well I think you ought to keep the Registry

informed so that we know whether or not there is a

possibility of further material coming to the

Court. Thank you.

MR BATT: If the Court pleases.

MASON CJ:  The Court will consider its decision in this

matter.

AT 12.29 PM THE MATTER WAS ADJOURNED SINE DIE

Coles(2) 133 6/5/92