Commissioner of Taxation of the C of A v Spotless Services Ltd

[1996] HCATrans 309

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Melbourne   No M32 of 1996

B e t w e e n -

THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

Appellant

and

SPOTLESS SERVICES LTD

Respondent

Office of the Registry
  Melbourne   No M33 of 1996

B e t w e e n -

THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

Appellant

and

SPOTLESS FINANCE PTY LTD

Respondent

BRENNAN CJ
DAWSON
TOOHEY J

GAUDRON J
McHUGH J
GUMMOW J
KIRBY J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON THURSDAY, 3 OCTOBER 1996, AT 10.21 AM

(Continued from 2/10/96)

Copyright in the High Court of Australia

_____________________

BRENNAN CJ:   Yes, Mr Shaw?

MR SHAW:   May I first deal with some answers I gave or did not give yesterday?  The first was an answer that your Honour the Chief Justice asked.  Your Honour asked me whether the funds were invested with BT at interest and I said, “Yes”.  That was substantially correct but incomplete in this way:  what happened was that so much of the 40 million as was sufficient at the agreed rate of interest with BT which was 15½ per cent to produce a return sufficient to repay the face value of the certificate of deposit - that is 40 million - the agreed interest on it payable to Spotless and the Cook Islands withholding tax.  The balance went partly in fees of which perhaps the largest one was the fee to the security provider, Midland.  It was over 100,000.  There were other minor fees.  The balance was kept by EPBC itself and invested separately.  It was something over 200,000.

BRENNAN CJ:   Now, can I just pursue that a little.  Could you turn to your flow chart under tab 3, Nos 7 and 8.  The question I want to ask you is this:  there are assumed transfers of funds from MIS to EPBC and from EPBC to the Spotless account

with EPBC.  Then, by way of this cheque that was drawn by Spotless in favour of EPBCL on the EPBC account 40 million was thereby supposedly transferred from EPBC to EPBCL.  The next two items are a transfer of 40 million from EPBCL to EPBC and from there to the account of EPBC with MIS.  Those two items I do not understand.

MR SHAW:   Can I answer your Honour generally in relation to the flow charts, particularly in relation to what your Honour has put to me.  Can I ask your Honour to look at page 11 of the flow chart which is the last page.  It has steps 9 and 10 on it.

BRENNAN CJ:   Eleven, did you say?

MR SHAW:   Eleven at the bottom right‑hand corner and at the top it has 9 and 10.

BRENNAN CJ:   Yes.

MR SHAW:   Your Honour, what the evidence shows is this, that in actual cash flows the cash flows which occurred were these and they were these in this order:  the first one is 8, which is two items, the Court will see.  The reason that came first was because disbursal was made of funds which has not yet arrived from Spotless due to the confusion about the settlement date.

The next in time is 1, the handing over of the bank cheque in Melbourne and its transmission to Sydney, so that is an actual cash flow.  And then 9 and 10, which are the repayments.  In relation to 4, we do know that that cheque was handed over.  By that I mean, on the second day somebody actually wrote out the cheque and it was handed over in the Cook Islands by Mr Levy to Mr Kuegler.

All of the other items - and they include the items that your Honour has specifically asked me about - are really a picture of the transaction as it was designed and, in so far as they occurred at all, must have occurred by paper entries, or book entries, rather than cash flows.  It is not clear that, in most cases, even that occurred, in the sense that - if you take 4, for example, we know that the cheque was drawn, but there was no account opened, so far as the evidence goes, and those steps represent a picture of the transaction as it was intended to occur.

BRENNAN CJ:   Well, that I could understand, if they were all marked by dots, that is assumed transfers.

MR SHAW:   Your Honour is perfectly right, they should have been dots.

BRENNAN CJ:   Well, does that apply to No 7, where EPBC pays $39,799,030 to MIS?

MR SHAW:   No 7, your Honour, is a payment from, as it were, MIS to MIS, the difference being where it is, and the answer is yes, I think.

BRENNAN CJ:   I am sorry, I do not understand.

MR SHAW:   I was saying two things, your Honour.  One was your Honour asked me a question as if the movement of the funds was a movement from EPBC itself.

BRENNAN CJ:   Yes.

MR SHAW:   All I was saying was that the blue box with “EPBC a/c MIS” is a reference to an account of EPBC with MIS in Singapore.  So that, what I was saying to your Honours was that whatever occurred, it was a movement, assuming it to have occurred within MIS itself.

BRENNAN CJ:   Was there any crediting of an MIS account with Westpac on the instructions of MIS Singapore which then debited the EPBC account?

MR SHAW:   I think the answer, your Honour, is no, to both aspects of it and, as to the second aspect, there could not have been a debiting of the MIS account with Westpac, because the funds had already been disbursed, and the account which was in overdraft had to be put in credit, which it was, when the funds actually arrived, but, as to the rest, I think the answer is no, and your Honour rightly says it should be dots.

GUMMOW J:   Do these not have to be reworked, Mr Shaw, so that one knows, without ‑ ‑ ‑

MR SHAW:   Your Honour, we are happy to do that.

GUMMOW J:   So that it is clear at one level, as it were, is the actual movement of funds.

MR SHAW:   If your Honour pleases, we will do that.

GUMMOW J:   So one can perceive that.

MR SHAW:   Your Honour, the second matter that I wanted to mention was this:  your Honour Justice Gummow did ask yesterday about the relationship between Midland and EPBC, and I said, your Honour, that there was a letter of credit facility and charge agreements.  I did not say to your Honour that they are, in fact, exhibited ‑ ‑ ‑

GUMMOW J:   Yes, I see that.

MR SHAW:   I was just going to give your Honour the reference.

BRENNAN CJ:   Please do.

MR SHAW:   It is  volume 2 appeal books 371.  The last matter was this, that yesterday your Honour Justice Kirby asked for the ALR references which corresponded to the appeal book references to the judgments in the passages that had been referred to, and we have prepared a page setting those out, and we will hand them to your Honours’ associates so that it is available to everybody.

KIRBY J:   I also asked a question yesterday which you said you would come to this morning, which was prompted by the paragraphs in the skimpy written submission, the shorter one, in paragraphs 8 and 11.  Paragraph 8 says:

At the very least Spotless has not established that the section 177D conclusion should not be reached.

And, 11 says:

Accordingly.....the Commissioner was entitled to determine -

Do you remember the questions?  You take it in your own time but I would like your assistance on this because from the history of the legislation, no constitutional question arising, it does seem that the Parliament deliberately moved from attaching consequences to facts to attaching consequences to a discretion by the Commissioner.

MR SHAW:   Your Honour, it is true that Part IVA only actually operates when the Commissioner in exercise of his discretion under section 177F makes a determination and then an assessment pursuant to that determination but, as I think the Chief Justice put to me yesterday, it is only open to the Commissioner to make such a determination if the facts exist necessary to enliven his discretion to make the determination.  Those facts are objective.

KIRBY J:   Well, are they?  The words “dominant purpose” is an evaluation.

MR SHAW:   It is true that one does have to make judgments and ‑ ‑ ‑

KIRBY J:   If the power is given to the donee of statutory power to make the judgment and if it is evaluative and if there is no, as it were, objective - well, there can be different opinions about it.  What function does a court have to disturb the evaluation which the donee of statutory power is given by the Parliament?

MR SHAW:   There are three things, your Honour, which have to exist before the discretion is available to the Commissioner and I have called them facts, but that may not exactly be the correct description of them for a reason that I will come to in a moment.  The first is that there should be a scheme and that is very widely defined in section 177A.  The next is that there should be a tax benefit obtained in connection with the scheme and whether or not a tax benefit exists depends on whether or not it is reasonable to predict that relevantly an amount has been or would be reasonably expected to be included in the assessable income of the taxpayer.

In Peabody the Court held that that was to be determined in an objective way.  It did not depend on the Commissioner’s opinion and the Court would look and see whether there was or was not such a thing and in that case the Court held that there was not.  So assessment fell because it was based on the determination and the Commissioner was not entitled to make the determination because something necessary to exist to entitle him to act did not exist as the Court held.  The last thing which needs to exist for the determination to be available to the Commissioner is that one can say, having regard to the eight matters set out in section 177D, that it would be concluded that “the purpose” it says, but one has to read that as “dominant purpose”, of one of the parties who entered into or carried out the scheme or any part of the scheme did so with the dominant purpose of enabling the relevant taxpayer to obtain a tax benefit in connection with the scheme.

Now, there are in that two, maybe more, but at least a number of judgments of a somewhat strange kind, perhaps, to be made.  The first of them is the one that your Honour just referred to:  assuming there is more than one purpose, what purpose is the dominant purpose?  That is a matter of judgment, of course, but depends on the facts and the second thing is whether that purpose exists having regard to the eight particular matters that are referred to in section 177D(b).  Now, in forming that judgment, one is not, as we put yesterday, concerned to come to a conclusion of fact in the sense that one says, “Well, this actually was the purpose or the motive”, or whatever word one uses, “of whatever it is you are talking about”.

The reason that it is not a question of fact is because you are not allowed to look at all of the facts.  You are only allowed to look at some of the facts and you are told what they are.  They do not just say “look” and “see”, it says “have regard to these things” and then say what is the conclusion.  So, in one sense it is not a conclusion of fact because it might logically be - I suppose it seldom would be - different from what the actual fact is.  One simply has to come to say whether or not that conclusion would or would not be reached and that is, it would seem, a matter of - it is a construct required by the Act because it is not a fact.  It is a construct which depends on one’s view of the particular things that are referred to.

KIRBY J:   I follow all this but why is not the theory of the legislation that because of the difficulty that was experienced under section 260, because of the necessary difficulty of finding the halfway house that was referred to, that Parliament has taken a new course.  It has established a system, the donee of statutory power having certain functions.  Some of them are factual and if he gets the facts wrong, well, obviously the discretion falls with it but then comes a point where there is an evaluation that has to be made and the evaluation is necessarily one which is problematical and upon which views may differ but it allows the Commissioner to step into a transaction, looking at it all, and saying whether or not the evaluation should come down on one side or the other and it is then for the taxpayer to displace that.  Now, is that not the theory of the legislation, the new approach?

MR SHAW:   In part, your Honour, and the reason I say “in part” is this.  The section does not say that if, in the opinion of the Commissioner, the dominant purpose of the taxpayer is, or if the Commissioner is satisfied that the dominant purpose of whoever it is, whatever it is, is not made to depend on the Commissioner’s opinion although, of course, the Commissioner has to form an opinion before he exercises his discretion under section 177F.

So that in that sense the Commissioner has to form an opinion.  But, the conclusion required by section 177D is not a Commissioner’s conclusion, as it were, but the position is that because the legislation places the onus on the taxpayer of showing that an assessment is excessive, if what one is looking at is section 177D, ignoring the other things, and one has a determination under section 177F, then it is for the taxpayer to demonstrate that it would not be concluded, having regard to those matters, that the dominant purpose of one of the parties was what is required. 

Your Honour rightly says to me, and we accept that because, in making a conclusion about dominant purpose that there is some elements of judgment on which people might differ but, more importantly, what would be concluded, having regard to those particular matters which are set out in section 177D(b), is this what I have called a “construct”, about which people might reasonably have different views.  As your Honour says, people do have different views about things.  That makes it more difficult to demonstrate that it would not be concluded and so on.  So that, in that sense, we accept what your Honour has put to me but we do not accept that “it would be concluded” means it would be concluded by the Commissioner.

If the Court pleases, the first factual matter to which we wish to draw the Court’s attention is the first telex, which is in September 1986.  It is at appeal book 2, page 349.  The point of the reference is that at that stage the interest rate offered was 4½ per cent per annum under the Australian bank bill buying rate, and so on.  So that it is perfectly clear that the rates of interest on offer were significantly lower than those available domestically.

KIRBY J:   Justice Beaumont said there was not really any dispute about the facts.  Are we entitled to take his Honour’s statement of facts and that of Justice Cooper as correct, or do you attack any of the findings of fact made by their Honours?

MR SHAW:   I do not think there is any major finding of fact about which we seek to differ and the ‑ ‑ ‑

KIRBY J:   Well, you have asserted, and I did not take it to be disputed, that the rate of interest was much lower in this transaction than was available in Australia at the time.  What is the value of going to this document?

MR SHAW:   Well, it makes clear that when the original telex was offered - when the original telex arrived making the first offer it bore, on its face, a demonstration of its non‑commerciality, apart from the relevant tax elements.  The next thing - I will not go to this - is that, in fact, EPBCL had a concessional tax rate in the Cook Islands.  The standard tax rate was 15 per cent, and there was power in the relevant - I will call it legislation, it might have been ordinances - but in the relevant statutory provisions there was a provision for concessional tax rates, and the tax rate was reduced for non‑residents to 5 per cent, from 15 per cent, up to the first 100,000 New Zealand dollars and, thereafter, 2½ per cent.

The various negotiations took place, and then there was the telex of 5 December, which is in 1 appeal book, 175, from Mr Cooper to Mr Williams, with the 13.3 per cent rate in it.  That was on 5 December.  On 8 December, the joint venture agreement was entered into between the two Spotless companies, and that appears in 1 appeal books at 140, and it will be seen - the object at paragraph 2, at line 21 - and the bank account is referred to at line 33, and it will be seen that it is the European Pacific Banking Company Limited, the subsidiary company.

At the same time, there was executed a power of attorney to Mr Levy.  That appears at page 149, a few pages over.  At page 150, it will be seen that the attorney is Mr Levy, and the place in which the acts are to be performed is the Cook Islands, and it will be seen that the acts to be performed are - this is on page 151:

To draw a cheque on the bank account of the Grantor -

with the Banking Corporation, on this occasion, not the Banking Company Limited -

in the sum of A$(40,000,000)in favour of European Pacific Banking Company Limited (“EPBCL”).

and then -

To deposit the cheque -

To receive the Certificate of Deposit -

And the Court will see that the power of attorney is drawn up on the basis that Mr Levy would, in fact, carry out the plan as it was outlined in the information memorandum and leave the certificate of deposit in the Cook Islands and then surrender it there; although, in fact, that did not occur.

The other document of that day is the mandate, which is in volume 2 at page 351, and the Court will see that the mandate is to open an Australian bank account with the European Pacific Banking Company Limited, not the Banking Corporation, and it will be recalled, that Mr Levy exhibited that mandate to Mr Kuegler in the Cook Islands and if any bank account was opened in the Cook Islands, it was simply a consequence of the exhibiting of that mandate.

Mr Levy was then despatched to the Cook Islands and on 9 December a directors’ meeting of Spotless took place, that is in volume 2 appeal book 322, and that is ‑ the minutes of the meeting are significant.  It will be seen, at line 9 that:

The Chairman noted that at meeting of Directors of Spotless Services Limited and Spotless Group Limited it had been resolved to proceed in implementing an investment proposal in accordance with Step 1 of a report dated 26/11/86 prepared by Mr J.J. Bongiorno.

The following matters and documents were perused and/or considered by the Committee:

There was the:

Offer of Certificate of Deposit ‑

advice from accountants, advice from solicitors ‑

Form of Letter of Credit

Non-Negotiable Certificate of Deposit

Company Mandate

Power of Attorney

Joint Venture Agreement

Settlement Procedure.

And then it said:

Some time was taken in considering the Letter of Credit, as this is the document which secures the interest of both Spotless Services Limited and Spotless Group Limited.

Then it said that it was Westpac’s responsibility to confirm the bona fides of the letter of credit provided by Midland.  It is decided that legal representatives should be asked to attend settlement, to advise on the adequacy of the form of the letter of credit and then it was resolved that the transaction should be recorded by a joint venture agreement, and so on, and, at the top of the next page:

As the documents etc. were found to be in order the Committee authorised settlement to take place at 11.30 a.m. on Wednesday, 10th December, 1986 provided that all security arrangements are in place and to our satisfaction.

And then, on the next page, 324, is Mr Bongiorno’s consideration of the matter and on the next page, 325, there is:

Investment proposal for Spotless Services’ float proceeds and Spotless Group’s surplus funds.

All available funds in the two companies, now amounting to $40 Million, have been invested since mid‑September, 1986 in various short‑term money market instruments.

During the same period, the Finance and Development Committee has been formulating an investment strategy aimed at achieving the following key objectives:

1.  To achieve Spotless Services’ stated aim requirement of a minimum 8% after-tax return on funds;

2.  To maintain the purchasing power of investment funds in foreign currency terms, given the probability that the next major development will be offshore;

3.  To protect the investment funds from any threat posed by the possibility of re-introduction of exchange controls.

Then there is a recommendation of the following course of action, and step 1 - it will be recalled, that the resolution of the committee was by reference to step 1:

Step 1

The full $40 Million.....should be placed in what is called a 23Q investment.  As might be expected, the 23Q is a section of the Tax Act.

And so on.

KIRBY J:   Why does this not give weight to the Full Court’s decision that when you are looking at what was their dominant purpose, their dominant purpose was they had this sudden influx of surplus funds.  They were not, as it were, reorganising their income flow generally.  They had to put it out to the best advantage and this is what they were doing, and in doing that they obviously had to take into account the tax minimisation.

MR SHAW:   They did, your Honour, but we would submit not in the way they did, but may I defer answering your Honour’s question till I take the Court to such of the additional facts that it is necessary to take them to.  There was then a meeting in Melbourne at which it was discovered that the proposed letter of credit was not in satisfactory terms and the settlement did not proceed.  The meeting in Melbourne was to hand over the bank cheque in exchange for the letter of credit.  It did not proceed because Spotless was not satisfied.  The funds were reinvested overnight on the money market.  If you look at page 365 you will see the terms in which the letter of credit was at that time.  Going a little over halfway down the page, the amount is 40 million Australian dollars, plus interest of Australian dollars, and the amount set out less withholding tax and it is available at the Midland Bank at Cannon Street, London.  It says:

Drafts drawn under this letter of credit must be delivered to the address at which this letter of credit is expressed to be available accompanied by:-

1.  A statutory declaration -

and the statutory declaration has to set out the matters which are recorded, amongst other things, in paragraph (D).  That is:

That European Pacific Banking Company Limited has failed to deliver to the beneficiary a cheque payable to the beneficiary and drawn on European Pacific Banking Corporation for the face value of the certificate of deposit plus interest.....less withholding tax.....in accordance with the terms thereof after being requested to do so‑ ‑ ‑

BRENNAN CJ:   Was this not overtaken by a later‑ ‑ ‑

MR SHAW:   It was, your Honour.  The point is the difference.  It was overtaken, your Honour, by what appears at page 368 and it will be seen that between lines 5 and 10 the letter of credit was altered - and this was because Spotless required it - to make it available not in London, but in Collins Street, Melbourne and that the events which would give rise to the availability of the letter of credit were also altered and that passage that I was referring the Court to when your Honour the Chief Justice asked me that question were also altered and they were altered - and I shall not read the thing out because it is very convoluted, but they were altered, so that it is perfectly clear that the security secures not only payment by EPBCL, that is, the person who issued the certificate of deposit, but also by EPBC in case the moneys were deposited with EPBC.  So that, in effect, repatriation from the Cook Islands was guaranteed by the letter of credit.

Going back to the day before, on that day Mr Kuegler and Mr Levy met in the Cook Islands, but a call came from Australia saying that the transaction could not proceed, so an arrangement was made to meet the next day.  On the next day there was a meeting in Melbourne and the letter of credit was exchanged for the bank cheque for 40 million, the letter of credit having been then amended in the way that I have pointed out, and Midland was given the letter of authorisation to apply the moneys to an account with EPBCL at Rarotonga in the letter of authorisation to which I referred yesterday, which is at 3 appeal books 463.

There was a call then made to the Cook Islands saying the transaction could go ahead and Mr Levy, having previously exhibited the mandate to Mr Kuegler, he signed the cheque drawn on the Banking Corporation, handed it to Mr Kuegler and Mr Kuegler gave him the certificate of deposit, which appears in appeal book 1 at page 156.

DAWSON J:   What is a mandate, Mr Shaw?  He handed him the mandate.  You referred it to us before.  It does not appear to be signed by anyone or anything.

MR SHAW:   It was the document, your Honour, that I referred to.

DAWSON J:   Yes, you did refer to it, but what is it?

MR SHAW:   It is just an authority to open a bank account.

DAWSON J:   From whom?

MR SHAW:   An authority from Spotless to open a bank account with, I think, EPBCL, not the Banking Corporation.

DAWSON J:   Authority from Spotless to Spotless to open a bank account?

MR SHAW:   It was to enable Mr Levy to open the bank account.

DAWSON J:   I see.  It does not appear to be signed by anyone.  It does not matter.

MR SHAW:   I thought it was, your Honour.

DAWSON J:   It is just I have never seen one before.

MR SHAW:   Your Honour, it is signed in the sense that the signatories have all signed the specimen signatures.  Your Honour, of course the documents are silly.  They did not matter.  In a sense, that is our point.  If the Court pleases, the facts are dealt with by us in long submission at page 33 in paragraph 65 and it will be seen that they are there set out seriatim.  Spotless’ funds were obtained by it and held and previously invested by it in Australia in Australian dollars.  The business of both Spotless companies was essentially Australian.  The funds were intended for use in Spotless’ business in the next financial year and Spotless was seeking a short term investment in the meanwhile.  No long term investment in the Cook Islands was intended.  In fact the funds were placed in the period that is set out and it is pointed that that period expired just very shortly before section 23(q) expired and the period is referred to in Stephen Jaques’ letter.

Spotless had no connection with the Cook Islands or the EPBC companies other than this transaction.  Then it is pointed out that the transaction took place in Australian dollars.  It was suggested to Spotless in Australia by BT.  It was directed to taking advantage of the concessional tax rates available in the Cook Islands.  The information memorandum is dealt with in paragraph (viii) and it simply repeats the matters that I referred the Court to.  The telex of September is referred to in (ix).  The negotiation up is referred to in (x) and it is pointed out that there were other negotiations that took place, particularly in relation to the terms of the letter of credit which took place in Australia.

The standing of the Cook Islands banks is referred to in the next paragraph compared with the standing of Midland.  What took place in relation to the renegotiation of the terms of the letter of credit to make it payable in Australia is pointed out in the next paragraph.  The fact that both EPBC and EPBCL were secured pointed out in the next paragraph.  The fact that the money was handed over by bank cheque in Melbourne in return for the letter of credit in the next paragraph.  Then the confusion about which company the bank account was to be opened with is dealt with in the next paragraph.

BRENNAN CJ:   We can read these for ourselves.

MR SHAW:   If your Honour pleases.  They are set out there and in relation to those facts we take the Court back to what was said by his Honour Justice Cooper and if I might take the Court to part of the judgment which I referred to but did not read, that is at pages 1086 to 1088 where his Honour deals with the matters specified in section 177D(b) and going to page 1086 his Honour says:

As appears from the evidence of Mr Williams which is set out above, the taxpayers, because of the successful public float, had $40m available for investment and sought investment proposals.....One of those was Bankers Trust.....The manner in which the scheme was entered into and carried out was the subject of a number of findings.....Mr Williams negotiated up the interest rate on offer from EPBCL, the taxpayers took legal advice as to the form of the security offered and had the form of the irrevocable banker’s letter of credit which was offered varied to provide greater security, the investment chosen was one of a number of alternative proposals, the funds used were real funds and an officer of the taxpayers attended in the Cook Islands to make the contract and obtain the certificate of deposit.  The taxpayers took independent legal advice -

They had the information memorandum and so on.  We deal with the way in which his Honour dealt with the various matters that are referred to in the section in paragraph 70 of our long submission, commencing at page 41.  I will not read out what was there said, but in our submission, it demonstrates that the way in which his Honour dealt with the facts generalised them to such an extent that it deprived them of all the colour which they had because of their particular characteristics.

The next thing we would say is this:  his Honour came to the conclusion to which he came because he said that the dominant purpose was to obtain the best after‑tax return.  If I could refer the Court to the case of Bell 87 CLR 554. It is not on our list and we have had copies made for the Court and for my learned friends. It was in the ultimate decision of the Full Court. What happened was this. Some Australian residents bought some war disposals equipment which was in New Guinea. They took taxation advice and they were told that if they were to sell the equipment at a profit they would be taxed on the profit, and they were advised to set up a New Guinea company which had New Guinea shareholders and New Guinea directors, so that it was New Guinea resident, sell the equipment to that company at cost price more or less and then sell it at its real value to another company which was to be established in Australia, in Sydney, for its full value which was about £170,000.

So that, the profit was made mostly by the New Guinea company and not by the Australian company, or by the people who had originally bought the equipment, and that was done.  Then the nominees, shareholders and directors of the New Guinea company retired, and the matters remained in that state for some time.  Then somebody had a good idea, and it was the good idea which gave rise to the question under section 260.  That is dealt with by the court, commencing at page 569, in a joint judgment.  In the second complete paragraph on the page:

Until some date about August 1947, it remained the intention of the partners to follow out the scheme Mr. Salenger had devised -

And what had been devised was that the profits, having been earned by the New Guinea company, they would be doled out in small bits to the shareholders so that there was not too great a taxation liability in respect of them.  But the idea that somebody had was that, if they went through a course of action which is drawn up, as will be seen in that paragraph, in the memorandum of routine, they could sell their shares for, in effect, the profit that was remaining - each of them - receive it as a capital amount and not, for that reason, be liable to tax in respect of it.

So, what they were concerned to do was to go through a complicated series of transactions which changed the nature of what they were to receive from assessable income to capital.  I will not read out the complicated details, but they are set out commencing at page 569.  It is all very complex.  But the result is set out at page 571.  In the second complete paragraph on the page, after having described the general result in the first paragraph, the court says:

As regards the present appellant, Bell, the net result of all that happened.....was that instead of receiving £11,000 from the company. as he might have done either as a dividend in the ordinary sense of the term or as a distribution in a winding-up, he received £11,000 from the purchaser of his share, Corlett, as the price thereof.  Since his original acquisition of the share was not for the purpose of sale at a profit, this meant that the steps taken in accordance with the Routine, if treated as valid, made all the difference between his deriving £11,000 as assessable income and deriving £11,000 as a capital receipt not liable to inclusion in assessable income.

So, the net result was that his after‑tax position was better, and it is for that reason that I have referred to this case, because we here have a case under section 260 where a transaction was entered into, as I submitted, very many transactions which would fall by reason of the provisions of section 260 and, we would submit, Part IVA, are done with the object of obtaining a better after‑tax return.  And the Court goes on:

If there had been no more in the case than that Bell, in preference to retaining his share and deriving the dividends which it seemed certain to yield, chose to sell the share for a capital sum equal to the assured dividends, the commissioner would not have been entitled to treat the capital sum as assessable income on the ground of an actual or supposed economic or business equivalence between the two courses. 

So, what the Court says is, if you have an ordinary commercial transaction section 260 would not apply.  But then they say:

But there was, of course, much more in the case than that.  The sale of the share was a part of a complex transaction carefully planned and carried through by Bell and a number of other persons acting in concert, for one ‑

and we have the very word, or, nearly the very word ‑

for one predominant purpose, which was to ensure that Bell and his six colleagues should each receive £11,000 tax‑free instead of £11,000 subject to tax.

So that the one predominant purpose was to secure a better after‑tax position.

McHUGH J:   I do not see any relevance in this case for the present purposes.  The whole object of Bell’s Case was to obtain a tax benefit.  Bell might have been of some interest if there was a great deal of evidence that it was just an ordinary winding up of the business, and then they started to adopt this particular scheme; then the question might arise as to what was the true purpose of the scheme.  Is it simply the liquidation of an asset, or was it to obtain a tax benefit?  It is as plain as a pikestaff in Bell’s Case that the only object was to have the £11,000 in your hands as capital and not income, so that you can obtain a tax benefit.  It seems a long way removed from this case, Mr Shaw.

MR SHAW:   Your Honour,  the Court said that the predominant purpose was to achieve a receipt of £11,000 in the form of capital rather than in the form of income subject to tax.

McHUGH J:   Yes, I know but, here in this particular case, one could say that the only purpose of this elaborate transaction was to achieve a better return on their money and that the tax benefit was just one of the means by which they got that greater return.

MR SHAW:   Your Honour, we would submit that you could say that in this present case too.

McHUGH J:   I am talking about this particular case.

MR SHAW:   Your Honour, in this case, as in that case, the tax benefit was vital.  Without the tax benefit there is no point in it at all, and it is the same here.

McHUGH J:   But Bell is a classic 260 case.  You are going to be taxed on a sum of money, so you change the structure.  I have great difficulty at the moment in seeing that Part IVA was designed to deal with this sort of case.  Cases like Curran, all the other cases ‑ so artificial ‑ only object was to obtain a tax benefit, but this seems to me to be a very different case when one is talking about what the dominant purpose of the transaction was.  I would have thought it was almost their sole purpose, was to get the maximum rate of return they could, and it would not matter what they had to do to get that maximum rate, they would have done it, they would have carried any means.

MR SHAW:   Your Honour, in our submission, your Honour overlooks one relevance at least, and we would say there are many more, but one relevance at least that this case, Bell’s Case, has to the present case.  His Honour Justice Cooper said because the dominant purpose was to obtain a better after‑tax return Part IVA could not apply.  This case is relevant, that is to say Bell’s Case is relevant, because it demonstrates that in a section 260 situation, where the Court held that the dominant purpose was to obtain a better after‑tax return, section 260 applied and, if the view which your Honour has just put to me is the correct one, it follows that Part IVA does not apply to circumstances to which section 260 does and since the whole purpose of the enactment of Part IVA was to widen the application of the general anti‑avoidance provisions of the Act, it is submitted that, if that view were to be taken of Part IVA, it would be precisely contrary to the views expressed in the explanatory memorandum of the object of the enactment of the part.  So to that extent at least ‑ ‑ ‑

McHUGH J:   I hear what you say.

BRENNAN CJ:   Mr Shaw, does not the problem come down to this, that if the purpose of the taxpayer’s exercise is such that one would conclude that the main purpose, if one puts it in global terms, is to maximise a return and the maximising of the return has two elements, one, the acquisition of interest or some other cash benefit and, secondly, the elimination or reduction of a tax liability, can you under Part IVA sever that global purpose into the return of the cash and the saving of the tax benefit and postulate in relation to the tax benefit that that is the dominant purpose and, if so, what is the test for the severance?

MR SHAW:   Indeed, your Honour, and what we would submit is this:  you have got to look at the various matters that are referred to in section 177D(b) and ask, do they have features which demonstrate a purpose of obtaining a tax benefit or do they not, and if you have circumstances which on their face appear to be simply ordinary commercial transactions or family dealings or whatever it might be, then it has not got the features, but if you find elements amongst the features which are inexplicable, except by reference to - to speak again in the global way - the operation of the Tax Act, then the question arises and the transaction may have - again, speaking globally but by reference to the various matters referred to in section 177D(b) - so many features which demonstrate the non‑commerciality of what was being done and, to use Justice Beaumont’s term, the tax driven nature of the transactions as they actually occurred, but one says, of course, one can see here that, although it is true that the people who entered into the scheme were doing it for their own financial ends, it is clear that their dominant object in what is done is to make sure that they get the tax benefit.

BRENNAN CJ:   To start with it is not their purpose.  It is the purpose of the scheme, is it not?

MR SHAW:   No.

BRENNAN CJ:   Not?

MR SHAW:   No.  That is one of the changes which occurred from section 260.  What the precise significance is, I am not sure, and what is more, it is only their purpose in the artificial abstract construct way that I was referring to before, but one of the specific changes which was made when the Part IVA was enacted was to change the relevant purpose from the purpose of the arrangement to the purpose of one of the persons who entered into or carried out the scheme or any part of the scheme.

BRENNAN CJ:   Yes, but the factors to which you are limited under paragraph (b) do not include the subjective intention, purpose, or motivation of the taxpayer.

MR SHAW:   Indeed, they do not, and your Honour will recall that I submitted yesterday that that is not either specifically one of the matters, nor is it stated to be the object of the inquiry, but it is conceivable that in some circumstances it might be relevant to one or other of the matters.

BRENNAN CJ:   Now, if one - one must therefore predicate of a scheme having regard, and I am using loose terms here, substance, form and effect whether or not the relevant taxpayer had the requisite dominant purpose.

MR SHAW:   Your Honour, there are two aspects to it, I suppose.  One is that it does not have to be the purpose of the taxpayer.  It is the purpose of‑ ‑ ‑

BRENNAN CJ:   Yes, you are quite right.  The person who entered into‑ ‑ ‑

MR SHAW:   Yes, and so here we might say - I mean, here is not a very good case to say so but I suppose if you had a black box sort of case you might say, “Well, the fact the taxpayer didn’t know how it worked and knew it involved‑ ‑ ‑

BRENNAN CJ:   Yes, it did not matter.

MR SHAW:   The fact that the motor - that is enough and then the taxpayer is affected, so that one can look at anybody who - again, speaking loosely in your Honour’s way, anybody who was involved in carrying out the scheme, and then you have to ask yourself whether, having regard to all those things, that are listed, it would be concluded that the dominant purpose of one of those persons was the thing stated.

BRENNAN CJ:  Now, if one says, as one might say, the dominant purpose was to maximise the return to the relevant taxpayer, and in the context that meant obtaining interest at a taxable rate which was minimised, then, in order to arrive at the requisite test under paragraph (b), one must be able to sever that overall purpose into two and to postulate, in respect of the purpose of minimising tax, the other one to dominance.

MR SHAW:   Your Honour, that is one way of looking at it but, it is submitted, not perhaps the most helpful way because one might say that somebody can have immediate and ultimate purposes and one’s purpose might be to, at one level, obtain the tax benefit because at the next level that meant you were better off.  So, it may not be so much a matter of, as your Honour has put it to me, severance but a matter of levels. 

BRENNAN CJ:   Whatever way one might approach it, for my part, I would be assisted if you could postulate some test by which that division, whether by way of level or by way of severance does not matter, but how that division is to be effected when one comes to apply Part IVA because there must be some need, one would think, for some criterion to distinguish, for example, to take one of the cases that Justice McHugh put to you, an investment in a company whose dividends will attract one rate of tax as against another and a case such as the present.  After all, 177B(4) simply operates by deleting the deduction or reduction affect of the provisions of the Act in places where Part IVA applies.

MR SHAW:   Your Honour, the first thing we would say is this, that because of the way in which those matters are listed and your Honour will recall that the fifth of the matters is:

any change in the financial position of the relevant taxpayer that has resulted.....from the scheme. 

I have left out some words.  One of the matters is changes in financial position and, in our submission, that indicates that it cannot, as a matter of construction, be true that if one has a change in the financial position for the better and one says, “Well, it was perfectly obvious that it was desired to achieve that result”, that is the end of the matter, which is what his Honour said and if that were true as a matter of ‑ ‑ ‑

BRENNAN CJ:   I understand that, but that is only dealing with a negative proposition.  Does not your argument have to go to the extent of postulating some method by which the Court makes these distinctions?

MR SHAW:   Your Honour, ultimately yes, but at the first level no, because what I need to do first is to show that his Honour was wrong in his reasoning, and I have attempted to do that.  His Honour, you will recall, relied wholly on the general proposition about investments and returns, and our submission is that cannot possibly be right.

Then your Honour says to me, “All right, that means, as it were, you said that his method of reasoning is wrong, but that does not mean his answer is wrong too”.  I do have to demonstrate, in order to be successful, that the taxpayer has not demonstrated that it would not be concluded, and so on.  If, as it were, there is no satisfactory test that I can enunciate and if my learned friend is in the same difficulty, then he would fail because he has to establish the negative, but we do say we can demonstrate the positive, and that is the question your Honour has asked me.

DAWSON J:   That is right.  Why would not I, if I purchase fully franked shares for the purpose of obtaining a tax benefit because of imputation, have entered into a scheme which fits within section 177D, and that is my purpose?  Maybe you could say I have.

MR SHAW:   Your Honour cannot do that to me, and let me explain why.  Your Honour has said, “This is my purpose”.  If what your Honour means is, “This is my subjective purpose”- - -

DAWSON J:   Let us assume it objectively was my dominant purpose, the only possible purpose.

MR SHAW:   Your Honour, again that question is not a question which the section asks.

GAUDRON J:   There may be no scheme.

MR SHAW:   I am sorry, your Honour.

GAUDRON J:   The short answer may be that there was no scheme in that.

MR SHAW:   That may be, your Honour.

DAWSON J:   The scheme is very widely ‑ ‑ ‑

MR SHAW:   It is very widely defined.  One of the difficulties about the definition of “scheme” is that it is difficult to imagine most things that would not be.

GAUDRON J:   But one is looking at something that is in the nature of a scheme that is a little out of the ordinary and involves more than one person, by and large.

DAWSON J:   No.  Well, no, “scheme” means any course of conduct.

McHUGH J:   I do not think your client would be too happy about your narrowing that it ‑ ‑ ‑

MR SHAW:   I am sorry, your Honour?

McHUGH J:   I do not think your client would be too happy about your attempting to narrowing the definition of “scheme”, when it is high, wide and handsome.  It attracts almost any course of conduct, does it not?

TOOHEY J:   Well, there is another answer to Justice Dawson, I suppose, and that is that what he has in mind does fall within Part IVA, but it is one of those areas in which the Commissioner may not exercise the discretion available to him.

MR SHAW:   That is a possible answer, your Honour, but  ‑ ‑ ‑

DAWSON J:   Well, I was wondering whether it was your answer.

MR SHAW:   Your Honour, that very well might be.  But, your Honour, what I have been going to say is this ‑ ‑ ‑

DAWSON J:   In which case, the answer to his Honour the Chief Justice, is, well, all right, you may be attempting to maximise your profit, but if in the pursuit of that purpose you are also seeking a tax benefit, it is scheme, and it falls within 177D.

MR SHAW:   Your Honour, this is really by the by to what your Honour’s question is intended to mean, I think, but Mr Bloom points out to me there is a very much better escape in the case of your Honour’s example.  Because of the definition of “tax benefit” which is confined to non‑inclusion of amounts in assessable income and the obtaining of deductions which otherwise would not be obtained, it probably would not cover the frank dividend case anyway, because that does not operate by reference to either of those things.

McHUGH J:   Well, I do not know about that, because that is one of the things I have been thinking about in this particular case. Your case must be, in the end, that this taxpayer could have got 17 per cent on the market and would have got a net, say, 9 per cent.  Here they got 13.3, less whatever the New Zealand tax is.  So, the true benefits to them may be 4 or 5 per cent, but that is not necessarily the tax benefit, is it?

MR SHAW:   No, the tax benefit is the non‑inclusion of an amount in the assessable income and ‑ ‑ ‑

TOOHEY J:   Non‑inclusion of what amount, Mr Shaw?

MR SHAW:   The amount which would have been received on the 40 million had it been invested in Australia.

TOOHEY J:   In what form of investment?

MR SHAW:   Your Honour, at interest, I guess.

TOOHEY J:   No, I ask you that because under section 177F(1)(a) the amount which the Commissioner may by determination include is, or arises:

in the case of a tax benefit that is referable to an amount not being included in the assessable income ‑ ‑ ‑

MR SHAW:   Yes.

TOOHEY J:   I do not want to shift you from the present line of thought, but how does one determine what is the amount that was not included when there is a whole range of investments available?

MR SHAW:   Your Honour, that is a question which might cause problems in some circumstances.  It does not here.  It does not here because what has been included pursuant to the determination is the amount actually earned on the investment in the Cook Islands and we know that that is less than would otherwise have been received, so that there is really no problem about it here.

TOOHEY J:   No, I understand that it is not in this particular case, but it just again opens up one area of inquiry as to how Part IVA in truth operates.

MR SHAW:   But if I might go back to the question your Honour Justice Dawson asked me.  Your Honour said to me what if my dominant purpose is to obtain the best after‑tax return and what I wanted to submit to your Honour was this.  Even if that is - to speak in a general sort of a way - your actual dominant purpose or only purpose, if you like, one is looking neither at that nor your actual motive.  One is looking at this strange construct, we have called it, which one arrives at by reference only to certain particular matters and what our submission is, is that what you do is you look at the various features of what was planned and what actually occurs, so long as they fall within the eight matters, and you say to yourself, “What character do these things have?”.

If they bear a wholly commercial character then, of course, one would not come to the conclusion that the dominant benefit was to obtain a tax benefit, but if there are so many features there dictated by or directed to that end then one would.  So that our answer to the question your Honour the Chief Justice asks is this - and, your Honour, I might not perhaps be able to give a universal answer because in other cases one might be looking at different things, but at least in this particular case one looks at the non‑commercial elements involved in the particular things that were done or planned, sees that they were directed to the obtaining of a tax benefit and says that means - I think Justice Kitto said in Peate’s Case - these things on their face bear the brand of tax avoidance.

KIRBY J:   But they are steps that were taken after the event.  If one looks at the facts of this case, the critical fact is that before the machinery was set in train there was this pot of gold and, therefore, if one is looking at what is the dominant purpose, the dominant purpose was to put to best use the $40 million and the steps that were taken were machinery, incidental and, as you acknowledge, it is appropriate and proper, perhaps compulsory, for directors to take into account tax minimisation, but the purpose that they had to address, at least arguably and as found by the majority, was to so deposit their pot of gold that they would get the best return for the company and the shareholders.  Why is that not the dominant purpose or why is it not open to the Full Federal Court to so determine?

MR SHAW:   Because, your Honour, the existence of the anti‑avoidance provisions demonstrates that for tax purposes there is a limit on what you can do in pursuit of your own financial ends and it is not as if Part IVA were not there.  It is there for the specific purpose of addressing circumstances in which, although the individual provisions of the Act do not themselves in the circumstances bring to tax an amount, nevertheless it will be brought to tax for whatever motive or purpose the steps involved in obtaining it may involve if it can be said that looking at the particular matters one is directed to look at the dominant purpose of all this was to obtain a tax benefit.

KIRBY J:   But is not the reality the dominant purpose was to get the best return for the company?

MR SHAW:   Well, your Honour, one is not concerned with reality.  One is concerned with the conclusion you come to in this artificial way, looking at this limited number of things, and say whether or not the conclusion would be reached.  Now, nobody ever ‑ ‑ ‑

DAWSON J:   But why do you not simply say in an answer to that, that, sure, if the dominant purpose is to get the best return for the company and that can only be done by achieving a tax benefit, then the purposes are one and the same.  You do not have to be complicated about it.

GUMMOW J:   Now, in Newton’s Case, for example, there was a pot of gold.  There were these profits sitting there, and if they were not distributed ‑ something was not done by 31 December, there was going to be undistributed profits tax.  So, they said, “We cannot have that; let us have these transactions.”  But that is all that is different from this case.

MR SHAW:   It was never an answer to the application of section 260 that whatever it was you had done and was attacked made you better off.  I mean, it was assumed that of course it made you better off, or you would not have done it in the first place.

McHUGH J:   But the big difference between here and Newton is this; that if you did not distribute, Division 7 got you, and so you had to do something.  Here, they had some money.  They could have left it where it was.  They could have sent it off overseas.

MR SHAW:   Your Honour, had they left it where it was, it was invested in various short-term investments in Australia and the income would have been subject to Australian tax.  The court below - all members of it - held that it was reasonable to predict that, had the scheme not been entered into, the moneys would have been invested in Australia.  So, there was there a reasonable expectation that, had the scheme not been entered into, there would have been a tax benefit in the inclusion in the assessable income of the interest on the 40 million.

Now, that expectation was defeated, and the question is whether or not it was defeated in such a way that, nevertheless, an amount is brought to tax.  We submit that, if the expectation is defeated in a perfectly ordinary, normal commercial way, the amount will not be brought to tax.  But if we can show such elements of artificiality that we can sensibly submit that the fact an amount does not come to tax has been contrived for the very purpose of avoiding tax, then ‑ ‑ ‑

McHUGH J:   Well, what about negative gearing?  I mean, most negative gearing schemes are totally artificial, from a commercial point of view.  Apart from the tax element, they would not be entered into.  Are they caught by this?  I mean, I do not know why the Commissioner does not go for it and say, “Well, the are all.....”  You want to have this intermediate position.  I use the word “intermediate” because you objected to “halfway house” yesterday.

MR SHAW:   I have revised my objection, your Honour.

KIRBY J:   I think the question the Chief Justice asked is one that you really have to address because, otherwise, all that is solved is the facts of this case.  Is there a stable principle by which one can determine that the case falls within one category or the other?

MR SHAW:   Well, your Honour, I have tried to address his Honour’s question, and his Honour asked me, as I understood it, what features does one look to of these various matters in order to see how one can determine whether or not there was the requisite dominant purpose, whether what you have got is somebody trying to end up in the best financial situation they can manage.

The answer we give in this case is that you look at all the particular features and, Bell’s Case, irrelevant though it may be in respect of everything else, is relevant at least in this, that what the Court did was look at, very particularly, what happened and says, “This demonstrates for section 260 purposes what the purpose of the arrangement there was.”  Here, of course, one is not concerned with the purpose of the arrangement but with the purpose of one of the parties but, in our submission, you do have to look very particularly at actually what occurred and when one does that one does see here the requisite features.

BRENNAN CJ:   The question is, of course, what are the requisite features?  I am not sure whether this is what you have been saying, but correct me if I am wrong.  Are you saying this?  That if, on examination of a scheme, there are steps in it which are explicable only by reference to a purpose of acquiring a tax benefit, and if those steps are sufficiently significant having regard to the whole of the scheme as to justify the conclusion that the dominant purpose of the scheme was to acquire that tax benefit, then Part IVA is attracted?

MR SHAW:   Your Honour, we would put it that way, but not quite. 

BRENNAN CJ:   Well, then, please give us the way in which you would put it so that we can consider it.

MR SHAW:   Your Honour, it was only when your Honour said - and your Honour may have been intending this in any case, but your Honour spoke of features of steps which were sufficiently significant in relation to the scheme.

BRENNAN CJ:   To the whole scheme?

MR SHAW:   And what we would say is sufficiently significant in relation to the whole of the scheme and in relation to the particular matters which are set out in section 177D(b).  It is just that section 260, as it were, operated in a general vacuum.  Section 177D directs one’s attention to particular things and one needs, therefore, to ask the question about the scheme, of course, but in respect of, in so far as they are relevant in a particular case, those particular things.

BRENNAN CJ:   Perhaps the problem is in my reference to the use of the word “steps”.

MR SHAW:   That may be, your Honour.

BRENNAN CJ:   Because steps might relate simply to:

(i)  the manner in which the scheme was entered into or carried out;

MR SHAW:   It might, your Honour, yes.

BRENNAN CJ:   But, it seems to me that one might, nonetheless look at the steps in the context of the other matters that are referred to in (b).

MR SHAW:   Yes.

McHUGH J:   Do you go so far as to submit that Part IVA is attracted when the taxpayer has taken advantage of provisions of the Income Tax Act that would not ordinarily apply to his or her activities?

MR SHAW:   Your Honour, I can answer that question on the basis of what your Honour, I know, regards as sound.  Your Honour, section 177C specifically deals with it.  In section 177C(1) one has the definition of obtaining a tax benefit, and I have been repeating the relevant words of that on a number of occasions.  Section 177C(2) says this:

A reference in this Part to the obtaining by a taxpayer of a tax benefit in connection with a scheme shall be read as not including -

So it implies that otherwise it would include:

a reference to ‑

(a)  the assessable income of the taxpayer of a year of income not including an amount that would have been included, or might reasonably be expected to have been included, in the assessable income of the taxpayer of that year of income if the scheme had not been entered into or carried out where‑

(i)  the non‑inclusion of the amount in the assessable income of the taxpayer is attributable to the making of a declaration, election or selection, the giving of a notice or the exercise of an option by any person, being a declaration, election, selection, notice or option expressly provided for by this Act; and

(ii)  the scheme was not entered into or carried out by any person for the purpose of creating any circumstance or state of affairs the existence of which is necessary to enable the declaration -

and so on.  Then there is a similar provision in relation to deductions.

GUMMOW J:   And there is a chronology too, a rather lengthy and useful, it seems, chronology of 16 pages.  Is that agreed?

MR EMMERSON:   No, your Honour.

BRENNAN CJ:   What a pity.  Would it be satisfactory for you to prepare the variations, at least so far as issues of fact are concerned, identifying the variations by reference either to the chronology or to the paragraphs of the written submissions?

MR EMMERSON:   Yes, I could ‑ ‑ ‑

BRENNAN CJ:   And, perhaps, referring us to the page references in the appeal books from which your contentions are drawn.

MR EMMERSON:   Yes.

BRENNAN CJ:   That may be the most efficient way of dealing with the ‑ ‑ ‑

MR EMMERSON:   I think it probably would.  I do not think it is useful for me to, as it were, try to go through the chronology now.

BRENNAN CJ:   No.

MR EMMERSON:   If it is convenient to the Court I could say something about the outline, or the written submissions, but I think it is pretty clear that I would not be able to deal with all that I would need to say by 4.30.

BRENNAN CJ:   I am thinking only in terms of the factual matters of the ‑ ‑ ‑

MR EMMERSON:   Yes.  I think the factual matters actually could be picked up reasonably easily.  The position between the parties as to the facts is really this, that there is no major issue about credibility of witnesses, and there is no issue as far as I know about the primary findings of fact made by the learned trial judge.  The problem is that the learned trial judge and the Full Court both concluded, as the Court is aware, that the transactions that took place in the Cook Islands were real in every sense, that there was no element which allowed one to conclude that they were somehow unimportant.  They were, in fact, the principal events that occurred, and the immediately antecedent events in Melbourne were simply facilitating.    A lot of our learned friend’s submissions are inconsistent with that.

That does not, as we would understand it, involve a real dispute about the underlying facts.  It is more a difference of emphasis.  That is something which maybe one could deal with compendiously in a paragraph or two.

BRENNAN CJ:   If that should be the way in which you seek to deal with it, then let it be so.

MR EMMERSON:   If your Honour pleases.  Under the heading of the “Predication Test” we would just observe at paragraph 6 that that is where our learned friend starts putting forward the test of whether things have been implemented in a particular way so as to avoid tax.  Now that, as will be clear from my earlier submissions, is a point on which we are in major disagreement.  We say that the language of 177D is clear.  It asks why a scheme was entered into or carried out.  It does not ask why it was constructed in a particular way and this is where we say that Part IVA draws a critical distinction between schemes to which the Part applies and commercial transactions in which tax considerations have played a part but they do not provide one with the dominant purpose of entering into, or affecting the incidence of tax. 

Our learned friends review a number of the cases, and we do not differ on those.  On the matter of the purposes for which Part IVA were introduced, we say simply, on our construction of that part, it achieves the purposes which are set out.  In paragraph 21 and following, our learned friends set out what is to be achieved by Part IVA in paragraph 22, quoting from the explanatory memorandum, and then goes on to say:

The Explanatory Memorandum specifically explained that the proposed new Part IVA was “designed to overcome these difficulties and provide ‑ with paramount force in the income tax law ‑ an effective general measure against those tax avoidance arrangements that ‑ inexact though the words may in legal terms be ‑ are blatant, artificial or contrived”

Now, this is an explanatory memorandum and the words used are, by concession, inexact as legal tests.  Now, we say that the test in the present case is simply not whether something is blatant, artificial or contrived.  I am conscious, your Honour, that the clock is ‑ ‑ ‑

BRENNAN CJ:   I think the time is probably where we might adjourn, Dr Emmerson.  The Court has, of course, another matter listed tomorrow.  How long would you expect your submissions to take?

MR EMMERSON:   Not more than half an hour, your Honour.

BRENNAN CJ:   Now, I think perhaps that should be the maximum, and it will be a matter of limiting the time for further oral advocacy to half an hour for you tomorrow morning, and half an hour for you, Mr Shaw.

MR SHAW:   I have asked my learned friend, Mr Bloom, to make the reply, if your Honour pleases.

BRENNAN CJ:   Yes, well then, for Mr Bloom.

MR SHAW:   He is famously short, in any case.

BRENNAN CJ:   Very well.  The Court will adjourn then until 10 o’clock tomorrow morning.

AT 4.31 PM THE MATTER WAS ADJOURNED
UNTIL FRIDAY, 4 OCTOBER 1996