Commissioner of State Revenue v Placer Dome Inc

[2018] HCATrans 119

[2018] HCATrans 119

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Perth  No P6 of 2018

B e t w e e n -

COMMISSIONER OF STATE REVENUE

Appellant

and

PLACER DOME INC (NOW AN AMALGAMATED ENTITY NAMED BARRICK GOLD CORPORATION)

Respondent

KIEFEL CJ
BELL J
GAGELER J
NETTLE J
GORDON J

TRANSCRIPT OF PROCEEDINGS

AT PERTH ON MONDAY, 18 JUNE 2018, AT 10.15 AM

Copyright in the High Court of Australia

MR N.C. HUTLEY, SC:   If your Honours please, I appear with my learned friend, MR B.L. JONES, for the appellant.  (instructed by State Solicitor’s Office (WA))

MR N.J. YOUNG, QC:  If the Court pleases, I appear with my learned friend, MR A.C. WILLINGE, for the respondent.  (instructed by Ernst & Young Law Pty Ltd.)

KIEFEL CJ:   Yes, Mr Hutley.

MR HUTLEY:   If your Honours have our three‑page note, would your Honours wish to take a moment to read it?

KIEFEL CJ:   Yes, thank you.  Yes, Mr Hutley.

MR HUTLEY:   Thank you, your Honours.  As your Honours appreciate, the appeal arises in the context of a tax liability which depends on the value of the land owned by a company, the ownership of which has changed, and the proportion which that value bears to the value of the company’s assets as a whole.  The structure of our submissions will be, firstly, to deal with the factual and statutory context before addressing what we submit are the errors of the Court of Appeal and, finally, the submissions of our learned friends.

It is common ground that the best indicator of the value of all the company’s assets was the actual arm’s‑length price paid by the purchaser.  That value had to then be allocated amongst all the company’s assets, including the land.  The contest was as to the means of that allocation.

Critically we say, for the determination of this appeal, in Placer’s case, those assets did not include material goodwill of any value because the company’s only source of revenue was the gold produced from its land or likely to be produced from its land or mineral tenements, mining tenements more correctly.

It sold the gold for a price dictated by the market.  The evidence, without contradiction, was that no part of its revenue was attributable to its identity.  There was nothing about Placer at all that brought purchasers to it rather than to any other vendor of gold, to use the phrase from Murry’s Case.  There was nothing about Placer whatsoever as an attractive force that brings in custom; nothing, we submit, which comprised any substantial goodwill.

GAGELER J:   So, does your case come down to saying that a company that sells an undifferentiated product into a competitive market can have no goodwill?

MR HUTLEY:   We accept that if is obtaining above market returns, as adverted to in Murry, that can form a basis of goodwill.

GAGELER J:   By reason of production efficiencies of various sorts.

MR HUTLEY:   Production efficiencies of the sort but if, in effect, the custom, future, likely, is utterly indifferent to the identity of whom it is acquiring from then we submit there is no goodwill of substantial value beyond the observation which comes from the cases that to run a business means that you have some goodwill but does not tell you anything about the source of that goodwill or its value, as Murry indicates.

GAGELER J:   Production efficiencies, you accept, can have substantial value, or not?

MR HUTLEY:   Your Honour, Murry says that if you are obtaining above market returns that can be.  On one view that may be debatable, but we do not need to determine that in this case.

NETTLE J:   You accept that, do you, getting above market returns in the sense of a fixed price by a reason of the sort of market in which this company operated but given the efficiencies are lower cost of production compared to other entities equals goodwill?

MR HUTLEY:   That is what Murry appears to say and we do not need to contest it for the purposes of this appeal. 

KIEFEL CJ:   But is that because it feeds into something like reputation?

MR HUTLEY:   It is hard, with respect, your Honour, to be able to answer that question.  We accept that Murry says in those circumstances that can contribute to goodwill.  We do not need to debate it for the purpose of ‑ ‑ ‑

KIEFEL CJ:   This case.

MR HUTLEY:   In this case.  There may be a debate if it is coming solely out of an asset.  The mere fact that one is getting above market returns is merely that you are acting, using the asset efficiently and therefore that would not be ‑ ‑ ‑

GORDON J:   Goodwill on its own.

MR HUTLEY:   Quite.  But, your Honour, for the purposes of this case, we do not need to debate that because it is quite clear, and I will take your Honours to the evidence in a little while, that there was no suggestion that Placer was achieving above market returns; none.  In fact, the existence of ‑ ‑ ‑

GORDON J:   Well, it was having problems with its management and the like so there were questions about whether or not it was above market on any view.

MR HUTLEY:   Quite, and of course once one has $2.5 billion worth of what are called ‑ ‑ ‑

GORDON J:   Synergies.

MR HUTLEY:   ‑ ‑ ‑ synergies, one is really talking about inefficiencies.

GORDON J:   But synergies are not goodwill either, are they?

MR HUTLEY:   Quite, because really what one is talking about - and I will come to them, we will take your Honours to the evidence - it was stripping out cost.  So, the synergies really were in effect freeing up making the cash flow from the mines more profitable.

NETTLE J:   But is not that increasing the rate of return on sales?

MR HUTLEY:   I accept that.

NETTLE J:   Well, you are stuck with Murry again, unless you override it, are you not?  In other words, do not synergies represent the capitalised value of the improved return on sales that will be achieved?

MR HUTLEY:   I accept that, your Honour.

NETTLE J:   Well, do you not have to get over Murry then?

MR HUTLEY:   No, with respect, no, because Murry says if you are getting above market returns that can be goodwill, not that you are getting below market returns but somebody else could put together its property with yours and strip out cost.  That is not what Murry says.  All that synergies are saying is that you are running inefficiently and then one asks the question, what is the asset which will produce the increased return?  That is the mines.  So, we do not have to confront Murry.  Synergies are not, as it were, identical to the position of above market returns.  In fact, they are the very antithesis of it, in our respectful submission.

So, the synergies were a diversion.  One had to look at what they were and in effect they were inefficiencies.  It is odd that one is saying that inefficiencies are adding to the value or attraction of customs.  What it is making is the price is increased because your assets are able to be valued at their true value, the land, because someone can see of a way of removing inefficient cost.

GORDON J:   It really depends upon the perspective you take to it, does it not?  I mean, from the acquirer’s perspective, their synergies; from the vendor’s perspective, their inefficiencies.

MR HUTLEY:   Quite.  Of course one of the difficulties is the valuation of it becomes peculiar to the actual acquirer and therefore it really is one of the fundamental points which was missed by the Full Court, the Court of Appeal, in our respectful submission.  Once you have got to the point that the best evidence of value was the market price of the assets which was some 15 billion, to which we will come, then one really had to inquire deeply into what is the best way of ascertaining the price of these lands, and we will come to it in a little while.

But the one thing which was common - the real thing which drove this was the gold price, future gold price.  The gold expert called by our learned friends said it is basically a matter of guesswork.  Anybody can go incredibly wrong and he accepted – and the Tribunal found that - I will take your Honours to the passage - that was not overruled.  Therefore we say the best way to approach this was to interrogate as to whether there really was substantial goodwill in the attractive sense which we say lies at the heart of Murry and the court did not do that.  But that is where we are going, if your Honours please.

Now, the inherent implausibility of the position which arose with respect to the Court of Appeal’s judgment can be seen if your Honours go to the core appeal book, page 191 at paragraph 218.  This was, in effect, the conclusion arrived at by the Court of Appeal which, as your Honours know, where they observed, in effect, that it was very curious that you would have a gold mining company of this character where the value of its land was less than a third of the value of the business. 

Now, that was not something which was curious.  It was absurd, in our respectful submission, because, as we observe, if you took away the property which this company had, what could it do?  The answer was nothing.  If you took away the mining tenements you had 13,000 employees twiddling their proverbial thumbs.  That was it.  In our respectful submission, that very observation, the discomfort that the Court of Appeal had with the conclusion they had come to, the token that something had gone dreadfully wrong, and we submit it clearly had.

Can I take your Honours now to certain aspects of facts which we think are substantially agreed?  Placer, as your Honours know, was a substantial gold mining company with landholdings or, more accurately, mining and exploration tenements around the world, including Western Australia.  A list of those mining tenements your Honours will see at core appeal book page 12, paragraph 12.  I am not going to go into them in detail, it is unnecessary, but they are there.  There is some 15 of them, I think your Honours will find.

The evidence was that its revenue was principally derived from gold, an undifferentiated commodity, the price of which was set by world markets.  As the evidence of one of my learned friend’s experts said, gold miners will produce as much gold as they can and sell it at the prevailing price because they are price takers, not price setters. 

If your Honours would look at the appellant’s further materials page 55, line 40, this was a part of a report of Mr Hall, from the evidence of Mr Hall who was an expert called by our learned friends.  If your Honours go down to line 40, “This means” – and then it set out the demand structures in the whole paragraph, but it ends with:

that individual gold producers will simply aim to produce as much gold as possible and to sell that gold at the prevailing price because even large gold producers are not price setters in the gold market.

That is particularly the case with respect to gold because of the fact that it does not go away.  A vast amount of the gold produced in history is still standing as bullion ready to be deployed at any given moment.  Unlike other commodities such as iron ore, coal and the like, which are consumed in the ordinary course, gold, in effect, is with us.

Now, Placer derived a relatively minor proportion of its income revenue from copper, but no one suggested that that played any material role in assessing the position of the company.  The evidence of Placer’s experts was that in such a business customer relationships are irrelevant.  Customers do not ask for gold produced by Placer in preference to that produced by another miner.  That was the agreed position of the two experts, Mr Lee and Mr Patel, called by our learned friends.  If your Honours go to the appellant’s further materials, page 45, there is an extract from the transcript at line 23 where it says:

In any commodity‑based business it would be difficult to assert that value belonged to trademarks or trade names and similarly to customer relationships because no product differentiation –

Your Honours then would move to 52 and this is in the cross‑examination and, your Honours - I will not read it, but if your Honours note in Mr Slater’s cross‑examination from lines 10 to where they – takes up that passage from Mr Lee’s evidence down to line 40 where Mr Patel agrees with the position – Mr Lee’s evidence, your Honours will see that the evidence was being heard together, these experts.

There was nothing unique about Placer’s workforce.  Any major mining company could have operated its gold mines and exploited its tenements.  That was the evidence of Mr Fisher and if your Honours go to the respondent’s further materials volume at pages 105 to 106 commencing at about line 35 over to 106 at about line 18.  To similar effect was the evidence of Mr Lonergan and I will give your Honours the reference to this.  I do not need to take you to it.  It was appellant’s further materials, page 67, line 10 to 68, line 2.  It was the position that all took. 

Now, we will come back to the issue, if we might, of the technologies and skilled workforce of Placer that is affected by the legislation.  In October 2005, Barrick launched a hostile share and cash offer to acquire Placer’s shares.  Your Honours will see that at core appeal book page 127, paragraph 7. 

If we could take your Honours to the appellant’s further materials again shortly at page 71, this is the statement of the former president of Placer about Placer’s land which he made at the time of the initial takeover offer by Barrick when he recommended against Barrick’s offer.  Now, if your Honour’s go down to about 40 to 49 – it stops – at the top – before I come to that, if one goes to about line 6, the initial position that Placer took was:

The Barrick offer does not adequately compensate Placer Dome shareholders for scarce and valuable mineral assets, its gold production growth, or its portfolio of lands and projects. 

So its position was we are not being offered enough.  They then identified what their assets are from about line 34 onwards and the observation is made at about line 47:

Quality land is what this business is all about, and we have lots of it. 

In other words, the position taken by Placer at the time is what they had was valuable land.  That is what the business was all about.  The contemporaneous documents of Barrick disclose a similar attitude and motivation for the acquisition of Placer.  If your Honours go to the further materials at 7, page 7.  This, your Honour, is a presentation to the board of directors of Barrick on 27 October 2005 regarding the takeover.  I do not need to trouble your Honours with much of it but if your Honours would turn to page 20 where the rationale is described and there is a:

§     Combination creates largest gold company in terms of:

– Market capitalization, reserves, and production

§     Platform for further acquisitions

§     Opportunistic Timing . . . 

– Negative Placer shareholder . . . 

§     Synergies –

are referred to and I will return to those:

§     Barrick will acquire 3 major new development projects

§     Copper exposure –

I will pass over and then a last dot point:

§Accretive to reserves, resources, and production, as well as on all major financial metrics beginning in 2007 (including premium)

Now, the synergies, your Honour, are further referred to at page 35.  They are the further ‑ ‑ ‑

GORDON J:   Page 34 it starts, does it not? 

MR HUTLEY:   I am sorry.  It is 35 in ours.  Sorry, your Honour.  The number here is 35.  That is the core appeal book number.  Sorry, your Honour has a plethora of numbers.  Your Honour will see in the top right hand it is recorded 667.  The number I am working off is the number beside that - 35. 

GORDON J:   Thank you.

KIEFEL CJ:   Page 34, I think Justice Gordon is referring to, refers to intellectual property synergies.

MR HUTLEY:   Yes, thank you, your Honour.  I was going to come back to technology in a moment. 

GORDON J:   Well it is not ‑ the interesting thing about it is it is dealing with – it is classifying intellectual properties synergies as picking up things which, on its face would take them outside of the goodwill question. 

MR HUTLEY:   Quite, and I will come to the legislation that is required to be done and that legislation was developed - and I will take your Honours to the explanatory memorandum - to get over avoidance mechanisms of people saying we have this vast amount of intellectual property.  They required, if they had any intellectual property of worth, know‑how or the like, to value it, and they did and the valuation in total, which I will take your Honours to, is $35 million - 17 I am sorry - $35 million for the entire staff - $17 million, trivial in the scheme of things. 

The synergies referred to had a capitalised value of $1.6 to $2 billion and your Honours will see that from the core appeal book at page 54 - I am sorry, paragraphs 150 to 151 and the synergies were – the summary ‑ ‑ ‑

KIEFEL CJ:   Did you say page 154?

MR HUTLEY:   No, I do apologise your Honour, 54 in the core appeal book, paragraph 151, where the synergies which are identified are synergies which are taken from the 2006 annual report and there is administration and offices, exploration, technical services, finance and tax.  I will come back to and develop further the submission I made earlier about synergies.  Your Honour, the only other mention of technologies of this aspect was with respect to technologies at 34 which your Honours have gone to.  Can I now take your Honours to the further ‑ supplementary further materials at page 53?

GORDON J:   Is this the respondent’s or the applicant’s further ‑ ‑ ‑

MR HUTLEY:   I do apologise, your Honour – ours, the appellant’s.  This, your Honours will find, at 53 is an extract from Barrick’s annual report.  The acquisition of Placer Dome is described in the bottom right‑hand block, in the second column, particularly, of course, the final paragraph.  It is apparent from that, we submit, that the rational inference to be drawn from this evidence was that it was the nature and proximity of Placer’s mining and exploration tenements that made an attractive takeover target.

After the rejection of its original price, Barrick increased its offer, and on 4 February Barrick was successful in its takeover of Placer for a price that ascribed a value to the total property of Placer at $15.3 billion.  These are all in United States dollars, your Honours.  Your Honours will see that from core appeal book, page 11, paragraph 3.  So, in effect, there was some debt carried.  One had to back up the two‑odd billion dollars worth of debt.  We say that is what triggered the land‑rich provisions of the State Act. 

Following the acquisition by Barrick, all Placer’s offices were closed, and most of its corporate staff retrenched.  In fact, 363 of 494 employees at Placer’s offices were laid off.  Your Honours will see that from appellant’s supplementary further material, page 33. 

Your Honours, just one matter about that document.  That document is incorrectly referred to in the index and submissions as an attachment to Placer’s notice of acceptance.  In fact, it was an answer by Barrick – an answer by a requisition from the Commissioner for information relating to Placer offices that were closed by Barrick after the takeover.  The index in that regard is incorrect, your Honours. 

Your Honours will see the extent to which the staff at the various offices were retrenched.  As we say, there were 363 out of some 494, and all offices were closed on the takeover.  The retrenchment of Placer’s management personnel was consistent with the evidence of Barrick’s CEO, Mr Sokalsky, who said that Placer’s executive management was held in lower regard than Barrick’s by institutional investors and that Barrick considered it could better manage Placer’s assets. 

Mr Sokalsky’s evidence to that effect is found in the appellant’s further materials, pages 139 to 140, in paragraph 5 - if your Honours take a moment to read that.  Your Honours will see (b) particularly, which would do away with any suggestion that Placer was obtaining above‑market returns.  Next, if we could go to the further materials at 115, line 8.  This is in the cross‑examination of Mr Sokalsky.  Mr Slater asked the question at the top of the page:

That’s an interesting way to put it but yes, the pitch was that these assets were better managed by Barrick and we could create more value out of it.  That’s why we were willing to pay more.

As for the employees at the coalface, or goldface, in his purchase price allocation report, Mr Patel valued the worldwide workforce at Placer’s mines at a mere $35 million and that was accepted by Mr Patel in cross‑examination, which again is in the further materials at page 111 and you will see it at about line 5 and following.

The individual amounts for each mine your Honours can find at the further materials between 93 and 107.  I do not need to take your Honours to them but if you add up the figures which appear in those documents being what is referred to as a “symbolled workforce value”, it added up to $35 million.  The basis of analysis on an avoided cost basis appears at page 93 between lines 25 and 32.  I do not need to take your Honours through the detail.

For the purposes of preparing its financial statements – and that is important, that is ex post, that is after the acquisition, after the price had been set in the marketplace ‑ Barrick obtained  a purchase price allocation report from Mr Patel of Ernst & Young, who used – I do apologise.  I jumped over one thing.

Many of Placer’s mining technologies were discontinued by Barrick and those that were not were concluded had no significant value except one, that is what is called a “hot cure” process, which was found to be worth about $17 million.  Your Honours will find that in the appellant’s supplementary further materials, pages 47 to 49, and your Honours can see the technology, and then at page 48 they refer to the “hot cure” process and the conclusion value is at page 49 at line 40.

So the entirety of the technology, technical know‑how and other matters falling within section 76ATI(4)(f) was a mere $17 million, and I will come to the detail of it in a minute.  Then I referred to the fact that Mr Patel produced this purchase price allocation report.  He used a DCF.  He valued all Placer’s assets at $8.84 billion, including land which he placed at $5.694 billion, the difference consisting of identifiable assets, $2.5 billion of which were excluded assets under section 76ATI(4). 

He then adopted the conventional accounting practice of allocating the difference between the DCF value and the purchase price, grossed up for debt, some $6.5 billion to goodwill.  Importantly, having regard to what has been said in Murry, this was goodwill, this figure, called goodwill, did not come out of any cash flow analysis.  It was not a remnant, as often goodwill is and as Murry refers to, of being after one does a DCF, values identifiable assets and finds a difference between the identifiable assets value and the DCF and calls that goodwill, this was a figure of $6.5 billion, which appeared to have nothing to do with projected cash flows for this business.

KIEFEL CJ:   And projected cash flows were problematic.

MR HUTLEY:   Quite, but had nothing.  So, in other words, it was a pure accounting entry.  Now, that calculation, which I have taken your Honours through, can be found in the reasons of the Tribunal at core appeal book page 82, paragraphs 303 to 314.  The respondent’s position before the Tribunal and the Court of Appeal was that that residual accounting amount of $6.5 billion was attributable to the value of Placer’s legal goodwill.  Your Honours will find that at core appeal book page 95, paragraph 373.

For the purpose of the Tribunal proceedings, the respondent also relied upon a report by Mr Lee, who, like Mr Patel, valued Placer’s assets using the DCF method.  His calculations were materially the same as Mr Patel’s, although he gave a fractionally lower value to land – some $5.25 billion – and consequently a fractionally higher amount to goodwill ‑ $6.65 billion.  The details of his approach can be found at core appeal book pages 84 and 85.

In making their DCF valuations, both Mr Patel and Mr Lee took into their calculations the whole of the projected revenue of Placer – that is, they assumed the whole of the revenue was produced by the assets they valued, the land and other tangible assets.  They deducted from the capitalised value of the whole of the revenue the value of the non‑land assets included in their valuations – the plant, the liquid assets and the like – and arrived at their land values as being the balances of the capitalised value of the whole of the revenue.

What is important is that their valuation was that there was no asset that produced any cash flow and therefore no asset of any value that comprised goodwill to Placer.  What we say is what they subsequently called goodwill was simply the difference between their valuations of all the assets that produced or could in turn produce cash, all the assets that had any value and the purchase price paid.  What they were saying, by identifying the difference between the valuations and Barrick’s purchase price was either Barrick had paid too much, more than the value of all Placer’s valuable assets ‑ ‑ ‑

KIEFEL CJ:   Was that ever acknowledged?

MR HUTLEY:   No.  No one ever suggested it because we accepted - it was common ground that the best value of the entirety of the assets was the price paid.

GORDON J:   So we ignore the fact they paid a 27 per cent premium?  We ignore the fact, do we, that they paid the premium that is recorded in the ‑ ‑ ‑

MR HUTLEY:   I am sorry, your Honour.

GORDON J:   In the board packs and other items there is a recognition by Barrick that they had to pay a premium over the share price, some 27 per cent.

MR HUTLEY:   Yes.

GORDON J:   We put that to one side?

MR HUTLEY:   No, one could put that in.  The premium over the share price may mean that they are of the view that the market is undervaluing the true value of the assets.  The best example, we say, and it was common ground, of the true value of all the assets was the arm’s‑length purchase price paid by the parties.  All the other ones are really an effect of product of market expectation and market analysis and the like, which can be wrong.

The true value is what, in the Spencer sense, in the true world is where you have an actual purchaser, an actual seller who comes in a free market to come to the value – that is, the best evidence of the value – and it was common ground.

GORDON J:   Not an anxious buyer?

MR HUTLEY:   Not an anxious buyer, not an anxious seller.  In fact, it was a ‑ ‑ ‑

GORDON J:   Reluctant, you would say.

MR HUTLEY:   Reluctant seller, at least from the company’s point of view.  One is speaking about shares but if one identifies it from the point of view of the target with the target company, it opposed and, in effect, fought for a higher price and they came to a consensus to higher price and the case was conducted on the basis that the value of the total assets was $15‑-odd billion, because that is what was implied by the acquisition price grossed up for debt.  That is what it was and that was the value of the assets.

GAGELER J:   Does it follow from your submissions that Mr Patel and Mr Lee were out by a figure of about 6.5 billion in their discounted cash flow analysis?

MR HUTLEY:   Yes, and I will come to a moment as to what is said, and the common evidence from the experts of gold is – the evidence was this.  Whenever a gold company changes price, there is a thing called the NAV.  The price paid is somewhere between 1.4 and 1.8 times what the consensus DCFs show for the value.

GAGELER J:   Does the evidence say why that is so?

MR HUTLEY:   Mr Lee – Mr Patel, who was our learned friend’s expert, gave reasons why he thought it was, and it was all - and I will take your Honours to them – about the value of the actual land.  It was, in effect, the fact that there may be more gold there than you expect, you may be wrong about the price, and one or two other minor matters which I will take your Honours to. 

The evidence from Mr Christian was that predicting future gold price was just guesswork, and the Tribunal found there was a huge uncertainty about future gold prices.  They found that was common, and that was not challenged.  The best evidence – that is why we said at the end of the day the DCFs could not stand in the face of the reality because ‑ ‑ ‑

GAGELER J:   All experts used a DCF analysis.

MR HUTLEY:   Yes, I accept that, your Honour, and our case was always – and I will take your Honours through it – there is no goodwill.  We can identify every asset in this company, value them all; what is left has to be the land.  That was our case.

BELL J:   That was your case in the Tribunal too?

MR HUTLEY:   Yes, and, your Honour, there is a debate about that and I was going to leave that till reply, but can I give your Honours just as an indication how the Tribunal view it, and it is a very convenient way to do it.  If your Honours have a look at, as it were, the headnote, which was the headnote produced by the Tribunal as to what the case was as they saw it - your Honours will find that at core appeal book pages 8 and 9.  There is a lot else I will take your Honours to, but if your Honours go to the top of the second, page 9, it says:

The Commissioner approached the valuation from a different standpoint.  The Commissioner assessed the total value of the property of Placer Dome, the amount of which was not disputed by the applicant, and discounted from that figure all of the ‘non‑land assets’ which it could identify.  The Commissioner took the view that the resulting amount was the value of the land.  The Commissioner then adopted the same discounted cash flow methodology as a check valuation -

Our position was the fact that one rejects Mr Lonergan we say may mean that there was an error by the Tribunal in accepting it, but we say it is an immaterial error because our principal case was, if they are right, there has to be some evidence – this has to be goodwill, legal goodwill, and we say there is no evidence that could support it.  That was the finding of the Tribunal and it was right.

GORDON J:   But the way the argument is put against you about that last contention is that the Tribunal’s findings were infected by the Lonergan view that there was no goodwill.

MR HUTLEY:   No, the Tribunal says, “I don’t accept Mr Lonergan’s position that there can’t be goodwill.  I find as a fact that there is no evidence of goodwill”.  So you cannot say that the Tribunal – the Tribunal was very clear – and I will come to the paragraphs – not to say they were accepting Mr Lonergan’s approach.  What they did say, and it is important, at paragraph I think 347 – they said it is good that Mr Lonergan agrees with the true value, in effect.  They get criticised in the Court of Appeal with respect to that as being circular reasoning.  It was not.  What they were saying is, “Really what I found is no goodwill.”

GORDON J:   Or no goodwill of any material value.

MR HUTLEY:   Value.  “I’ve got a top‑down approach.  I’ve valued everything else.  I’ve excluded everything they have and that’s all common ground, all that can be listed as the value”.  That was against the finding, which is unchallenged, that they said the amount of – the prediction of gold prices was a highly ‑ ‑ ‑

GORDON J:   Well, that, in effect, underscored the idea that it was not possible to use those DCFs because, as the Chief Justice has put to you, they are just too volatile and too imprecise.

MR HUTLEY:   The methodology that is used, and they are there for what they are, but they cannot overcome the fundamentals of once you accept that this is an arm’s‑length transaction, that is the value of the assets - if you can exclude material goodwill in law – not an accounting entry – in law, then it has to be the land.

GORDON J:   Another way of potentially looking at it is to identify what would be called going concern value, which is not goodwill - that is, in a sense, what exists because you are buying something straightaway without start‑up.  You might pay for that, but it is not goodwill.  It does not detract from your contention about the value of the land.

MR HUTLEY:   Quite, and that runs into the construction question which we have about the approach to valuation where the Court of Appeal said you had to do what they called a restoration ‑ ‑ ‑

GORDON J:   Restoration methodology.

MR HUTLEY:   I find difficulty with that phrase – restoration methodology which we submit was wrong, for reasons which we will come to.

NETTLE J:   Mr Hutley, you said that Patel and Lee said either of two things.  One was that the company paid too much, which was not contended for.  You did not get to the second.

MR HUTLEY:   No, we do not say they were saying that.  We say it logically follows from what they were doing.

NETTLE J:   I understand.

MR HUTLEY:   The second is that their valuations of the assets were too low.  Can I return to the valuations?  The cash flows in the DCFs were based on estimates of future gold prices.  Mr Patel used what was called the average forecast of prices, referred to as consensus price, and Mr Lee used the management forecasts.  Your Honours can see that referred to at core appeal book page 87, in paragraphs 326 and 330.  I do not need to go to the details; that is where your Honours will find them.

All experts agreed that the differences in their DCF were principally driven by the gold price.  That is at core appeal book page 58, paragraph 170.  The evidence of the respondent’s gold expert, Mr Christian, was that the estimates of future gold prices could be “quite dramatically wrong” and “pretty unreliable”.  If your Honours go to the appellant’s further materials, pages 79 to 80 - your Honours, one really can take it from about line 13, Mr Slater’s question on 79 and follow it through to page 80, at line 25.

GORDON J:   What are we supposed to get from that passage, Mr Hutley?

MR HUTLEY:   That future projections ‑ that is, the first of them – are highly speculative.  That is the first aspect.  More directly, if your Honours then go to 84, line 30 - to page 86, at the end of the page, Mr Slater asked this:

All of which tends to suggest, doesn’t it, that all of these predictions were pretty unreliable ‑ ‑ ‑

WITNESS, CHRISTIAN:   Yes.

GAGELER J:   Is not the difficulty in estimating the future gold price taken into account in the discount rate that is used?  The uncertainty is accounted for in the DCF calculation, surely.

MR HUTLEY:   It is to a degree accounted for in the fact that one gets a consensus price.  It is a degree accounted for in taking certain sort of projections, leaning towards the high side.  But the difficulty with it is that the evidence was that everybody’s projections were highly uncertain.  The evidence was – actually, the actual evidence was, as a matter of fact that the projections were out by a factor of about five, compared to what actually happened to the gold price.  But that is neither here nor there; that is subsequent.

It was quite obvious that these sorts of gold were particularly – the evidence was from the experts – acutely uncertain.  One of the reasons – I will come to it, and it is an oddity; I have referred to this net asset value measure, NAV – that gold companies changed hands at a multiple of what their DCFs produced – a multiple – for a reason to which I will take your Honours in a moment.

Therefore there was plenty of evidence for the inherent uncertainty of all this.  All the differences in price were driven by the differences in projected price.  In this regard can I take your Honours to core appeal book 89 at paragraph 335.  This was in the conclusion section in the Tribunal, so the gold price in the future.  He refers to all those matters.  At 335, he says:

I accept that neither consensus pricing nor futures pricing provides particularly accurate or reliable forecasts of the future spot gold price, because they represent single point estimates –

et cetera.  So in other words he found as a fact that all these discounted cash flows were inherently uncertain – unreliable, in effect.  That is what people do; that is what he found.  He does not find that that is compensated for, as your Honour observed, by some measure in the discount rate.  They are inherently uncertain, and the major difference between all these valuations is what you chose to put in as the gold price.

GORDON J:   Is not the peculiarity here, accepting for the moment that you have this unreliability of one of the integers in the DCF being the gold price and that some aspects of that are taken into account in the discount rate, as Justice Gageler has put to you, are you not driven back, though, to the – I understand the fundamental principle that you have an NAV which is in gold companies always going to be very different from acquisition of other types of companies?  In other words, it is odd and here it was the same position.  What was the multiple here again?

MR HUTLEY:   I will have to have it checked.  Mr Jones will tell me in a short while.  I do not think they actually put a multiple on it Mr Jones tells me but he will check that and let your Honour know.

GORDON J:   In a sense, that is the rationale which explains the oddity of gold prices and gold companies.

MR HUTLEY:   It is the rationale that explains that you have 6.5 billion dollars‑worth of goodwill sitting outside any cash flow.

GORDON J:   Which drives you back to one view of looking at the top‑down approach and saying explain to me how I can have this value of goodwill and what is it?

MR HUTLEY:   Precisely, and the Tribunal correctly - and I will come to it - looked at the principles about goodwill and came to the right conclusion.  There was no material goodwill and therefore they were right to take the approach they took.  In effect – at 347, the paragraph which the judge was criticised for when he dealt with net asset value multiple:

It is also important to ensure that the value produced by the discounted cash flow valuation accords at least substantially with the price actually paid.

That is the circularity which she is attacked for and that is why Mr Lonergan’s calculations achieve that outcome.  He was not saying that he was being driven to Mr Lonergan’s because of that, because he had rejected any goodwill, because he could not see where it was other than in the land.  Mr Lonergan has had one benefit that it did actually get to a figure somewhere approaching what the arm’s‑length dealings of these parties indicated the value of this land was. 

Now, those uncertainties which I have taken your Honour to, it also contrasts with the Court of Appeal’s observation at core appeal book 153 at paragraph 91 that:

The difficulties which attend the valuation of goodwill . . . do not attend the valuation of land.

We say that in a sense hides the difficulty which we say existed with exactly this type of land.  It is rather curious given that the court later observed - and I will come to that multiple - that prices paid in takeover transactions uniformly exceeded the DCF and your Honours will see that at core appeal book 171, paragraph 150. 

With the exception of land and goodwill it was common ground as to the other relevant integers, namely, the value of total property and the value of excluded property.  Your Honours will see that at core appeal books paragraph 65, paragraphs 211 and 212.

Although not referred to in either judgment, it was not in dispute that all other identifiable property that was not excluded by reason of the Act was relatively immaterial.  Now, your Honours can see what the range of those figures was - they are not material to your Honour’s analysis - from the appellant’s supplementary further material in our submissions below - page 61 of that volume in paragraph 14. 

That is just a figure which had to be taken off because there were some assets such as cash and equipment which were not excluded materials which had to be also deducted from the cash flow which explains the difference between the DCF and the land value implied by the two experts.  Now, they are the facts, can I now take your Honours to the statute?

GAGELER J:   Were you going to tell us anything more about the NAV or was that ‑ ‑ ‑

MR HUTLEY:   I was going to come to that.  I am happy to do that now, your Honour.  I was going to that when I came to their Honours’ analysis of the problem but I can do that now, whichever is convenient.

GAGELER J:   It is up to you.

MR HUTLEY:   Thank you, your Honour.  I will take that course because it forms a significant part, both of our learned friend’s arguments against us and their Honours’ reasoning.  Now, can I take your Honours to the statute?  Your Honours will find that in the authorities - volume 1 behind tab 3. 

As your Honours appreciate the purpose of the provisions of Part IIIBA of the Stamp Act was to equalise the burden of stamp duties so that persons who indirectly acquired the benefit of land by acquiring the whole of the shares in a company that owns the land, when the underlying value of the company was substantially the land, would be required to pay ad valorem conveyance duty in the same way as if the land had been transferred from one individual to another.

Now, can your Honours go firstly behind that to page 28?  Your Honours, this is in the definition and just your Honours to note the definition of “land”, “minerals” and “mining tenement”.  Nothing before that need concern your Honours.  If your Honours then go to 76ATG, which your Honours will find on page 89, that sets out the obligation to prepare a dutiable statement, that is:

Where by a relevant acquisition a person acquires a controlling interest in –

(a)a listed land‑holder corporation;

et cetera.  I think the other parts of it I do not need to trouble your Honours with.  If your Honours then note section 76ATH, “Statement chargeable with duty”.  The important provisions, of course, are ATI and if I can take your Honours to those at page 96 and then there is a definition of a “listed land‑holder corporation”.  If a body has that “registered outside” or it would be “a subsidiary”, et cetera, and:

(b)it is a land‑holder within the meaning in subsection (2) and is listed on a recognised financial market.

(2)A corporation is a land‑holder for the purposes of this Division if at the time of an acquisition of a controlling interest –

(a) was agreed between the parties and:

(b)the value of all land to which the corporation is entitled, whether situated in Western Australia or elsewhere, is 60% or more of the value of all property to which it is entitled, other than property directed to be excluded by subsection (4) –

Subsection (4), if I can take your Honours down to that, identifies various matters of particular importance to this appeal, in (f) on 98:

a licence or patent or other intellectual property (including knowledge or information that has a commercial value) relating to any process, technique, method, design or apparatus to –

(i)locate, extract, process, transport or market minerals -

So a broad exclusion required to deduct anything of that variety and there are various other ones as prescribed, and I do not need to trouble you with that.

Now, the source of that provision was that in 2000, section 76AP, which your Honours will find commencing at page 58, and the equivalent provision being subsection (3)(da) was introduced.  We have, in the materials which we have handed to your Honours, given your Honours some explanatory memorandum for the introduction both of AP(3)(da) and ATI(4)(f) and we just ask your Honours to note them.  They are in the little bundle of materials.  Your Honours will see the Stamp Amendment Act (No 3) 2000. The reasons for these amendments taking place your Honours will see at the top of page 2, when it refers to three tests, and then they refer to:

The avoidance practices in question target the three tests and threaten the integrity of the land rich provisions.

Then dropping down to the third bullet point:

Certain additional types of property are to be disregarded in determining whether a company meets the 80% land‑rich test -

If your Honours then move over to page 21, your Honours will see at about point 3:

Paragraph (da) excludes –

and the explanation for that exclusion your Honours will find at about point 7 on the page:

property that has been used in the past for the purpose of defeating –

and then it goes on.  The other explanatory memorandum we have handed to your Honours is the explanatory memorandum for the 2004 Bill which introduced ATI and a cognate provision is referred to at pages 49 to 50, but I do not need to go to that.

The only statutory question in issue is that posed by section 76ATI(2), namely whether all the value of the land to which Placer was entitled was 60 per cent or more of the value of all of the property to which it was entitled, that being $15.3 billion, other than property directed to be excluded, namely $2.5 billion.

Legal principles:  the authorities addressing the principles of valuation of land sold as part of a concern, of first concern, the first decision is a decision of Queensland Court of Appeal in EIE Ocean v Commissioner of Stamp Duties, which your Honours will find in the second volume of the authorities at tab 14. 

The case concerned the Queensland land rich provisions.  Your Honours will find them set out in the report at page 42 in the volume at 391, at about line 35, and they are materially identical to those with which your Honours are concerned, except for, of course, the proportion. 

The analysis which we say assists in this regard your Honours will find at 387 – it is 38 of the report – lines 25 to 36, as to the approach that one might take.  Now, that is an approach for which the appellant contends, and has always contended, that once it were accepted that Placer had no material goodwill it would follow that the top‑down or subtractive approach, to use the expression of the Chief Justice, was an acceptable method to value Placer’s land.  There is a further decision – we say that is the appropriate approach in the circumstances of this case. 

Could I next take your Honours to the decision of Resource Capital Fund III LP v The Commissioner of Taxation.  Your Honours will find that at tab 15.  That is a decision of the Full Federal Court.  It was a case concerning Division 855 of the Income Tax Assessment Act which was the income tax equivalent of the land rich provisions.  Your Honours will find that the relevant provisions are set out at paragraph 38 in the judgment at page 300 of the report – 421 in the top right‑hand corner.

The effect of Division 855 is that non‑resident will only be assessed on a capital gain made on the sale of shares if the market value of the real property assets of the company is more than 50 per cent of the market value of all other assets.  At first instance, the trial judge concluded that the mining tenement should be valued according to the restoration method, that is, by reference to discounted cash flows less the cost of time delay as well as outlay recreating the mining information and replacing the plant and equipment assumed not to be owned by the owner of the mining rights and not otherwise available for purchase.

Your Honours can see that at the judgment we have handed up to your Honours, the first instance judgment of Justice Edmonds.  If your Honours go in that judgment to paragraphs 101 to 104, your Honours will see the argument that then developed which is akin to the argument which your Honours have before you today.  But his Honour then dealt with it at 105 and said that, in effect, one had to value the land as a standalone acquisition totally independent from the property with all the allowances he referred to.

That approach, your Honours, was rejected in the Full Court and your Honours can see that from paragraphs 50 to 53 in the report in the Full Court behind tab 15 at page 303 in the report, 424 in the bundle.  In our respectful submission, the purpose of Part IIIBA is materially identical to that which the Full Court was considering and the test under section 76ATI(2), looking as it does to the underlying value that the company’s lands represent in comparison to all the property of the business should be approached in the same fashion.

Now, the statutory context is one which requires the comparison of the value of land which is sold as part of a going concern, with the total property of the going concern.  To value the land as though it was not part of the going concern would be inimical to the statutory context and purpose which is to determine whether the underlying value of the going concern attributable to its lands exceeds the statutory threshold. 

The statutory test requires a determination of whether “the value of all land to which the corporation is entitled” relevantly is 60 per cent or more of the value of all property to which it is entitled.  Nothing in the text requires that the land be valued as it was the only property to which the company was entitled.  The comparison between land to which the corporation is entitled and all property to which it is entitled rather requires that the land be considered as part of all property in the corporation.

Now, the contrary simply comes from overworking the Spencer assumption which applies to a different statutory context, namely, where one is solely valuing an asset for the purposes in that case and in most other cases of determining a resumption approach.  Valuation of course cannot be divorced from the statute to which it is directed, for example here, the amendment which was made to section 33(1)(c) to exclude information shows that one is not dealing here with some process of valuation divorced from a statute.  It is quintessentially tied up with the statutory context and we ‑ ‑ ‑

GORDON J:   Is that consistent with the way in which the Act defines the valuation or requires you to consider the valuation?

MR HUTLEY:   We would submit yes, your Honour.  There is nothing in the legislation which they – the requirement is the requirement which exists in ATI(2), and it is repetition of “all the land” and “all the property”.  Otherwise one can get into quite odd situations in transpiring ‑ before the amendment to bring in 33(1)(c) you had the absurd possibility that the land had to be treated as being sold without the information but the company was sold with the information, which obviously bore upon the real value which would be attributed to the land by any incoming purchaser. 

GORDON J:   Is that the same as akin to part of “going concern” value?

MR HUTLEY:   Similar sorts of concept I think, your Honour, and that is really what the Full Court was saying.  You cannot treat this valuation as some sort of isolated exercise and that, of course, is what ‑ ‑ ‑

GORDON J:   Because that is not goodwill.

MR HUTLEY:   No.  That is what the Tribunal was referring to at trial and of course there was no goodwill built into the cash flow DCF.  The only goodwill which could come out of the DCF cash flow was that which was produced by the restoration method itself because all other goodwill was outside the cash flow, as I have sought to make clear. 

That is what led to the absurdity that the Full Court was confronted – the Court of Appeal was confronted by is that we have gone even further than the $6.5 billion worth of unattributable goodwill.  We now have to bring to account the restoration method, and I will take you to the figures in relation to that.  So that is one way it got down to the land was worth about less than a third of the value of this company which was, in our respectful submission, ridiculous.

Now, the –yes, and finally, and I will not take your Honours to it, nothing in the Commissioner of State Revenue and Nischu (1991) 4 WAR 437, which is volume 2, tab 9, is contrary to our submission. That case, when properly understood, and it is apparent from the judgment of the Chief Justice at 444 to 445 of the report, was solely concerned with the oddity produced by mining information and did not go beyond that. We say that the case has been, in effect, rendered irrelevant by the amendment to 33(1)(c) and your Honours know about that.

Can I now take you to goodwill and of course one relevantly deals immediately with Murry in this Court – Commissioner of Taxation v Murry which is behind tab 11 in your Honours’ bundles of authorities and we do not of course shy and we embrace that central to the concept of goodwill is this concept of attractive force of custom.  It is referred to on many occasions in Murry, and if I can give your Honours some of the paragraphs.  If your Honours go centrally to paragraph 23, their Honours say:

It is the right or privilege to make use of all that constitutes “the attractive force which brings in custom”. 

That is then reiterated at paragraphs 45, 52, 56, 57 and 68.

GAGELER J:   Mr Hutley, when you say it is central to the concept ‑ ‑ ‑

MR HUTLEY:   It is.

GAGELER J:   ‑ ‑ ‑ do you mean if you do not have it then you do not have goodwill?

MR HUTLEY:   Subject to that qualification, which I referred to at the beginning, if you are getting above‑market returns, yes ‑ if that is the law.  I am going to come to those paragraphs which we do not need to take on for the purposes of this case.  One is really, in effect, looking to that which attracts custom.  I do not need to go that far.

GAGELER J:   If you go a little bit of that way, why do you have to find the business is currently achieving above‑market returns?  Why would it not be sufficient that potential purchasers of the business as a going concern perceive that that business, as a going concern, is capable of achieving those returns?

MR HUTLEY:   There is no evidence suggesting that there was.

GAGELER J:   No - in concept, I am asking.

MR HUTLEY:   In concept, it may be correct.

NETTLE J:   It cannot be correct.  It does not bring in custom.  How can it be?

MR HUTLEY:   Your Honour, I am not taking on the proposition.  Can I take your Honours to the paragraphs of Murry? 

GORDON J:   Let us be blunt here.  Murry is cited as authority, depending upon which side of the fence you are on.  Sometimes it is cited as authority for the broad concept and the rights‑based approach to it and sometimes it is not.  The question is what is at its core?

MR HUTLEY:   We submit, and have always submitted, it is the attraction of custom.  Can I take your Honours to the paragraph?  Your Honours are responsive, not current - I do not think anybody current was.  We are not applying to take it on.  The words are there and the Full Court has taken the view that – can I take your Honours through the paragraph.  I am quite happy ‑ ‑ ‑

KIEFEL CJ:   You must be saying that the Court of Appeal has misunderstood Murry. 

MR HUTLEY:   We do.  We say that they misunderstood Murry because they failed to interrogate into source, they relied centrally on an observation in Murry about the difference between discounted cash flow and fixed assets or tangible assets, and that was wrong because it was exactly contrary to what Murry was actually dealing with, the situation here. 

GORDON J:   The real problem is that they treated going‑concern value as goodwill.

MR HUTLEY:   Quite.

GORDON J:   And it is not.

MR HUTLEY:   I accept that.  That is our case, your Honour.

GORDON J:   How they misunderstood Murry - they did not, as you say, as I understand your argument, isolate out that from goodwill.

MR HUTLEY:   Quite.  We put it differently.  We accept that there could be some goodwill, of miniscule value.  On one view, if you are running a business, you get some goodwill.  But what you have to then do is interrogate as to what is the source of that goodwill.  We say that once you got past property there was nothing of substance, and that was the end of it.

GORDON J:   That is enough for you?

MR HUTLEY:   That is enough. 

GORDON J:   But if you look at what the Court of Appeal has done, putting aside the categories you have identified – I assume you are going to go through synergies and all of those sorts of things ‑ ‑ ‑

MR HUTLEY:   I am going to come to that when I deal with the details of the Court of Appeal’s judgment.

KIEFEL CJ:   But for the moment you want to take us through Murry.  Correct?

MR HUTLEY:   Correct, just shortly.  I will not be long.  However, one has Murry at paragraph 12, which refers to the proposition from Box:

“[g]oodwill includes whatever adds value to a business, and different businesses derive their value from different considerations”. 

As a standalone proposition, that is somewhat odd.  For example, that would mean if you were a property‑owing company and it was rezoned, the rezoning would add to goodwill.  In a notional sense, at a miniscule level it might, if that proposition but it tells you nothing about the content of that value.

GORDON J:   Is that right given the sentence that immediately precedes that statement?

MR HUTLEY:   Yes.  It is ambiguous, I think, your Honour.

KIEFEL CJ:   It is not meant to be a standalone proposition.

MR HUTLEY:   Your Honour, can I say, I embrace everything that is falling from your Honours.

GORDON J:   The Chief Justice put it in better terms than I could.

MR HUTLEY:   Yes, I understand.  But there is an uncertainty which has – is reflected in discussions as to does Murry mean that only attractive force is goodwill or there is something beyond it.  For the purpose of our appeal, we do not have to answer that question for the reasons I have advanced but if we did we would submit it is solely the attractive force.

GORDON J:   One way of looking at Murry is possibly to say, yes, it is not dealing with custom in the old sense of people through the door, that is, custom in that classical sense because the way in which we conduct business has moved on and that is why you need to have this wider or broader view but is it any more than that, on your case?

MR HUTLEY:   No.

GORDON J:   Is that not what that sentence is saying – existence depends upon proof, the business generates, et cetera, by reference to a number of things rather than just the old‑fashioned view of custom.

MR HUTLEY:   But there is the paragraph which I am going to come to where the Full Court says if you are getting above‑market returns that in a company which is producing a solely undifferentiated product that can amount to goodwill.  Above‑market returns are not increasing custom because at that stage you are a price taker so you are just, in effect, making more out of sales than any other person because you are not getting a price premium and that – I have to deal with that paragraph and that is the way we seek to deal with it.

KIEFEL CJ:   Well, you come to it as you take us through Murry.

MR HUTLEY:   I am off and running, your Honour.  Now, the court has made it perfectly clear it has three separate aspects and your Honours will see that at paragraph 30 in Murry.  Therefore, although goodwill may exist it does not necessarily follow it has any material value.  That point was made clear by their Honours at paragraph 51 of the judgment:

Where the goodwill of a business largely derives from using an identifiable asset or assets –

et cetera.  The Court made clear that the mere fact that there is – one runs a business while it had some – although it may have been miniscule value it tells you nothing about the value.  That is made pellucidly clear at paragraph 61 in the judgment:

Most of the custom of a taxi business is new custom.  Repeat business is ordinarily accidental.  That is not decisive against the existence of goodwill.  But it is a powerful factor indicating that the business has no greater attraction than a similar business on its first day of operation.

Now, that is perhaps an extreme one but we would say when you get to a mining company which is selling an undifferentiated product where people are utterly indifferent to who they are dealing with and do not care who they are dealing with, they are just getting gold, it is a very similar cognate position.

KIEFEL CJ:   For revenue purposes.

MR YOUNG:   Sorry?

KIEFEL CJ:   For revenue purposes.

MR YOUNG:   Not for revenue purposes, for all purposes.  For the purposes of ascertaining what the fair value of an enterprise is, the law, the statute commands that accounts be prepared in accordance with accounting standards but if there is to be this very large departure that is urged by our learned friends, that will create an unwarranted and undesirable divergence, is the point.

KIEFEL CJ:   The distinction was noted in Murry.

MR YOUNG:   Yes, but one of marginal difference where you have an unprofitable business.  Not a wholesale one that says legal goodwill is now to be confined to patronage and business and accounting concepts are to be much, much wider.  The wider concepts are to be reflected in every company’s set of financial statements.  Unless I can assist the Court further, those are our submissions.

KIEFEL CJ:   Yes, thank you, Mr Young.  Yes, Mr Hutley/

MR HUTLEY:   Your Honours, can I deal with the proposition that we are running some form of new case and I just want to deal with that quickly.  Can I give your Honours a series of references to our submissions which are in the appeal books below at trial to show that we are running exactly the same case here as we have always run the case.

The central issue we put was that Placer had no goodwill of material value.  Your Honours will find that at our supplementary further materials pages 83 to 84, paragraphs 1(b), 5(a), and at 101, paragraphs 62 to 64.  It was also in the Court of Appeal submission ‑ in the submissions to the Court of Appeal – which your Honours will find in the same volume of the court book, page 60, paragraph 5.

GORDON J:   Sorry, what was reference?

MR HUTLEY:   Page 60, paragraph 5, your Honour.

GORDON J:   Thank you.

MR HUTLEY:   Now, our case was, as we have said, the best evidence of the value of the property was the arm’s length sole and your Honours know that that was the case common ground.  We submitted that applying the top‑down approach, excluding identifiable profit, led to the conclusion that the balance had to be property.  That was our submissions to the Tribunal at our supplementary further materials, paragraphs 100 to 108 of our submissions at pages 116 to 118 and also our submissions to the Full Court, the Court of Appeal, which your Honours will find in the same volume, page 64 at paragraph 28.

We had always maintained that the gold price issue was irrelevant; that your Honours will also find in the supplementary further materials volume of the appellant, page 141 at paragraphs 185 to 188 which the Tribunal noted at core book page 63, paragraph 199, and the same point was made to the Full Court, the Court of Appeal, in our submissions, which your Honours will find in our supplementary further materials at page 71, paragraph 44 and the top‑down approach had no logical basis unless that was our case.

Now, the Tribunal understood this was the Commission case, as evidenced both from the summary of its reasons which I have taken your Honours to and, if your Honours go to core appeal book page 58 at paragraphs 166 to 188, and it has always been the position of the Commissioner, even its rejection of the challenge to its assessment, which your Honours will see at core appeal book 23, paragraph 23, the point numbered 7.

Now, a proper analysis of the court’s consideration of Mr Lonergan’s evidence makes that clear.  Your Honours have been taken to paragraphs 287 to 289, at page 79 of the core appeal book, together with 295.  We say it is the logic of paragraph 347, which I will not go over.  I think that is sufficient to make the point, your Honour.  There is absolutely nothing new about what we were dealing with. 

Can I then deal with some of the points made by my learned friend.  The case was approached, both at the Tribunal and the Court of Appeal, that the issue as to whether the company was a land‑rich company was the central issue.  Your Honours will see that from the whole analysis; that is, the 60 per cent point. 

No separate case – and that be said – turned on the question of goodwill.  No separate case was put that, if we were right and there were no substantial goodwill, the value in the property in Western Australia, which is the subject of the tax, could otherwise be supported in the face of our success in respect of goodwill.  If we are right with respect to that, our learned friends would just fail on the onus point with respect to the assessment of value of the property in Western Australia.

The case, as your Honours will see – and your Honours have been taken through the reasons – was about the 60 per cent point; that is, was it a land‑rich company?  Everything else followed from that. There was no separate case that, if we were right, the assessment in respect of the Western Australian land was still excessive.  No separate point was ever run. It is just wrong to put it.

As to approaching the valuation of the land qua land, we advanced the approach which found favour with the Tribunal at core appeal book 73, paragraphs 256 to 268, and we maintain that is correct for the reasons then set out, but otherwise I think our learned friends and ourselves are at issue. 

Now, a submission was made that the DCFs were just DCFs with respect to the individual projects.  That, with respect, misstates what was being done there.  Of course, it was a company which ran different projects i.e. not every mine is identical.  Therefore, to value the company you had to value the projects and that is made clear because, as your Honour will see, for example, you were taken to Mr Lonergan’s DCFs, they attributed or appropriated the management costs of the company, that is, the head office costs, across the projects and everybody did that.  What people were, in fact, valuing was the entire expenses and income of the company.  They were valuing the company. 

So, it is a distinction, with respect, without a difference.  They took the entirety of the cash flows of this company’s potential, applied to it the entirety of the costs and to the extent that their exploration costs, they will set them against the value of the exploration assets, and came to the view as to the value of this company.  Now, that was the curious thing about it.

Now, just a few points.  My learned friend said that the 35 million was 50 per cent of the staff.  My learned friend did not take you to any document which supported that proposition and we cannot find any in the documents which are before you indicate that it is the staff of the relevant projects. 

Now, your Honour Justice Nettle, after my learned friend had taken your Honours through ‑ and I will not go through the material ‑ the exegesis as to the documents as to the worth of this company and the things that they were about.  In effect, I put to my learned friend, with which he agreed, that what he had identified was the technical know‑how and ability of this organisation to develop future projects and that was of commercial value, he was saying.  That was part of the goodwill.  Well, that is exactly what is excluded under section 76ATI(4)(f) and that was one of our central points.  When one goes through what he identified, each of those documents, it is effectively we are saying we have the know‑how and technical ability to develop future projects.

GORDON J:   I put to Mr Young that if you take 76 and the exclusion and take 33, if you have got the land and the knowledge of how to exploit it which is, by any means, wrapped up in both those sections, what is left?

MR HUTLEY:   Quite, and it even goes to future, i.e. if there is technical ability, the technical ability must have commercial value, that is what my learned friend is saying.  That is why I took your Honours to the statutory material.  The whole purpose of introducing subsection (4)(f) was to avoid exactly the sort of argument which we are confronted with, namely, this company has wonderful know‑how which can, in effect, turn the blue sky into gold.

NETTLE J:   And that is what Chief Justice Martin completely overlooked.

MR HUTLEY:   Quite, and that ‑ in a sense, one has to see this structure as integrated and (4)(f) is vital and my learned friend pointedly did not go there.

GORDON J:   You have to read it with 33, though.

MR HUTLEY:   And 33, of course, your Honour.

GORDON J:   Because 33 picks up the knowledge aspect as well.

MR HUTLEY:   Quite, and that is why the Tribunal was correct when they say you cannot treat this as valuing some mothballed mine with nothing on it.  You just cannot.  It is ridiculous once you have 33(1)(c) and we say the court was wrong.

GAGELER J:   Mr Hutley, what are we to make of the agreement as to the value of the things it filled in?

MR HUTLEY:   That was agreed.  My learned friend has to take the advantages of that and the disadvantages of it.  He agreed it.  There may have been an argument to say they should not have agreed it, but they agreed it.  We embrace it and we say that has those consequences.  And the last point I want to make by way of reply is, upon analysis, the synergies cannot be divorced from the land.  They just simply are the land by another name and the analysis of the Court of Appeal, with due respect to them, did not go to what those synergies were and their relationship to the properties.

GORDON J:   Do you accept that there are two categories of synergies, i.e. there are the synergies that exist as a result of Placer, in Placer’s own hands, which you would say, as I understand your argument, cannot be divorced from the land, and then there are what I have described as the post‑acquisition synergies, which you would say, do you, should not be taken into account at all?

MR HUTLEY:   Your Honour, there may have been an argument to exclude that aspect from property of the company, but the agreement to which Justice Gageler removes that aspect, that does not convert an aspect of it into goodwill; that just is a result.  Your Honour’s observation cannot be goodwill because otherwise the value of the company would be the sum of all possible synergies with all possible companies in all possible words.

One is now starting to get into philosophical analysis at that level.  It is kind of like an uncertainty principle of some variety, so one has to view it in that way.  There was this agreement between the parties that the value, the price, was the value of all the properties and we both have to live with the consequences of it, but that does not convert things which are not goodwill into goodwill.

Now, a few other matters.  This introduction of the idea of going concern goodwill in Canada is wholly new.  There has been no evidence about it; there has been nothing about it.  It is not available.  It is irrelevant and that is a completely new development.

We submit also this accounting chaos argument is again a kind of floodgates policy argument which has not been investigated in any evidentiary sense and should not be.

Now, as to the multiples and the reference to the expert evidence, we embrace, with respect, the observation of your Honour Justice Gordon, that this was really just accounting opinion, dealing with accounts, and that is applicable – that is obvious when one goes to the further materials of the respondents and the footnotes at pages 7 to 9.

They were no more, in effect, than accounting theory and we dealt with that in our submissions in reply at paragraph 12.  It is interesting in this regard that Mr McKibben who my learned friends embrace, his opinion at paragraph 366 was said that:

the difference between net present value and enterprise value is not appropriately characterised as goodwill. 

That was his view.  And I think we have done Murry to death, your Honours.  Unless I can be of further assistance, those are our submissions.

MR YOUNG:   Your Honour, may I have leave just to give two references?

KIEFEL CJ:   Is this for the $35 million?

MR YOUNG:   Yes.  Well, this was to the 50 per cent of the staff.  It is footnote 75 of our written submissions, gives the evidentiary sources.  Can I give one other reference.  WA land was in issue, as recorded by the Tribunal at paragraphs 8, 30, 384 to 385 and by the Court of Appeal at paragraph 2 and as reflected in the notice of appeal to the Court of Appeal at core appeal book 116.  Thank you.

KIEFEL CJ:   The Court reserves its decision in this matter and adjourns to 10.15 am tomorrow. 

AT 4.13 PM THE MATTER WAS CONCLUDED