Commissioner of Taxation of the Cth of Aust v Scully

[1999] HCATrans 270

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Melbourne  No M26 of 1999

B e t w e e n -

COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

Appellant

and

LYNETTE C. SCULLY

Respondent

GAUDRON ACJ
McHUGH J
GUMMOW J
KIRBY J
CALLINAN J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON TUESDAY, 7 SEPTEMBER 1999, AT 10.15 AM

Copyright in the High Court of Australia

MR B.J. SHAW, QC:   If the Court pleases, I appear with my learned friend, MS J.J. BATROUNEY, for the appellant Commissioner. (instructed by the Australian Government Solicitor)

MR G.J. DAVIES, QC:   If the Court pleases, I appear with my learned friends, MR J.F. GOLDBERG and MS J. DAVIES, for the respondent. (instructed by Coadys)

MRS A. MOSHINSKY, QC:   If the Court pleases, I appear with my learned friend, MR S.R. McCREDIE, for the Victorian WorkCover Authority, to seek leave to intervene in this matter.  (instructed by Paul Tipping, Victorian WorkCover Authority)

GAUDRON ACJ:   Yes.  Is that application opposed?

MR SHAW:   Not by us, no, if the Court pleases.

GAUDRON ACJ:   It is not opposed.  Well, notwithstanding that it is not opposed, Mrs Moshinsky, what is there about this case that warrants intervention?

MRS MOSHINSKY:   We say that the impact of this case is direct impact on Victorian WorkCover Authority on two grounds:  first of all, on the fact that we have a County Court action proceeding between Ms Scully and ourselves and the decision of this Court on the construction of what is an eligible termination payment will be determinative of that decision.  Not only is there that decision, that case, but there are many cases in the system that would be decided by this decision.

In the affidavit which we have filed and which I can take the Court to, we have set out that the Victorian WorkCover Authority not only regulates the Victorian WorkCover scheme but it is also liable for compensation under that scheme.  The sections which we have sought to set out in the affidavit, of which we have full copies which we can provide the Court, shows that the question of whether payments are suspended – that is compensation weekly payments – are determined by reference to whether a payment is an eligible termination payment under the Income Tax Act.  For that reason we say, using the principles in Levy, that we have a direct interest.

If the Court was not minded to take that view, we say that alternatively we can assist the Court.  This issue has wider implications in areas of personal injuries, the area of superannuation, and we say that we can bring a broader perspective to the matter.

GAUDRON ACJ:   That really is ‑ ‑ ‑

GUMMOW J:   What are you going to submit that is not already in the capable hands of Mr Shaw?  It is not a question of perspective, it is a question of construing the wretched legislation.

MRS MOSHINSKY:   If your Honours have seen our submissions ‑ ‑ ‑

GUMMOW J:   Yes.

KIRBY J:   You deal with a lot of things that Mr Shaw does not deal with.  Mr Shaw has completely neglected the issues that you deal with.

MRS MOSHINSKY:   Mr Shaw has given me the courtesy that he would adopt my submissions, but I would say that they are far wider and that we raise issues that were failed to be considered in the court below, and that is personal injuries in the context of personal injury cases, and we say this ‑ ‑ ‑

KIRBY J:   Even if you take the narrower view of standing or interventions that Chief Justice Brennan mentioned, and not the broader view that I mentioned, you, I think, fit within that narrower view in this case.

MRS MOSHINSKY:   We submit that we do but I am covering the alternatives, that even if the Court was against me, although I think we show direct interest quite clearly in this case, in fact, I think his Honour cited as an example where the parties were pending legislation in that – I mean, I can take you to that passage but from my recollection ‑ ‑ ‑

KIRBY J:   I think you quote it in your submission.

MRS MOSHINSKY:   We do that.

KIRBY J:   But even if your view was rejected because of the different statutory criteria for the federal Act and the State Act, is it your submission that the submissions that you would make to the Court would help the mind to focus upon the meaning of the federal statute?

MRS MOSHINSKY:   Well, yes, your Honour, and, in fact, we would not say that it was a difference between federal and State.  I know my learned friend, Mr Davies, in his response, tries to put that narrower view ‑ ‑ ‑

KIRBY J:   He puts pretty effectively I think, that you do not construe federal statutes by reference to State laws.

MRS MOSHINSKY:   That is true.  That was the case here, but if your Honour has had an opportunity to see our response to his material, we say that that is not the case.

In this statute, “personal injury” is not defined and we say that the Bankruptcy Act, for example, which refers to personal injuries would be the more apposite legislation save that it is wrong to go – what the court has done in this case is to go to workers’ compensation jurisdiction where they construed statutory definitions.

KIRBY J:   Do you say that you put in a reply to the respondent’s submission?  I have not received that.

MRS MOSHINSKY:   We have and we are hoping that it has been circulated.

KIRBY J:   I have received it now.  They are caught within my pages.

MRS MOSHINSKY:   Thank you.  So we say, yes, we come from a personal injury area of the law.

GUMMOW J:   It seems to me if you did get in, it really would be sufficient to deal with it on the written materials that you have provided.

MRS MOSHINSKY:   That is true, your Honour, but I pride myself on being short in appeal ‑ ‑ ‑

GUMMOW J:   Unless something arose in the course of the day.

MRS MOSHINSKY:   Yes, we would be guided by your Honour and that is why we took the precaution to put in a response as well so that you could see our view on that but if you are assisted by some oral submissions or response to any of the matters we raise then we would like to elaborate but that is all we ask.

KIRBY J:   Do I understand there is an agreement between you and Mr Shaw that you will contribute to the empty coffers of the Federal Taxation Commissioner to pay the costs of the respondent in any event in this case?

MRS MOSHINSKY:   Yes, well we took the view that we had a direct interest and therefore the converse of that is that we have a clear benefit if the decision is overturned.

KIRBY J:   Is that so if you do not get leave to intervene?

MRS MOSHINSKY:   If our submissions are persuasive without us ‑ ‑ ‑

KIRBY J:   The poor old Commissioner has to pay it all then, does he?

MRS MOSHINSKY:   No.  It is an unconditional agreement.

KIRBY J:   I see.

GAUDRON ACJ:   Yes, well thank you, Mrs Moshinsky.

MRS MOSHINSKY:   Thank you.

GAUDRON ACJ:   Yes, Mrs Moshinsky, your application will be granted but your leave to intervene will be confined to reliance on your written submissions unless something arises in the course of the day which indicates that we should hear from you further.

KIRBY J:   I would allow you to intervene generally, but I am the minority.

GAUDRON ACJ:   Yes, Mr Shaw.

MR SHAW:   If the Court pleases, most of the facts external to the superannuation deed and the federal legislation which are relevant will be found in an attachment to the letter of 6 December 1993 at page 8.  The same attachment is attached to the letter of 16 November 1993 at page 169.
Going to page 9, Mrs Scully’s date of birth appears there.  The date she commenced to work for the RACV appears, 29 September 1989.  She joined the fund on that date.  She retired on 29 November 1993, having had an accident on 10 July 1992 and her application for approval of what is called “total and permanent disability” was given on 16 November 1993.  The payment was made to her from the fund on 6 December 1993 and, as appears from our written submissions in paragraph 7, the Commissioner has included in her income a small part of the lump sum which she received.  The question is whether he was right in doing that or wrong.  That depends partly on the superannuation deed and partly on the terms of the Income Tax Assessment Act.

If I might go first of all to the deed, that appears at page 15 of the appeal book.  There was adopted the annexure which appears at page 19.  The deed commences with a number of definitions and if I could first go to page 22, at the top of the page there is definition of “disablement”:

means…..disablement caused through bodily injury, physical or mental illness, disease, infirmity or accident…..which the Trustees…..determine will render the Member temporarily or permanently incapable of performing his duties to his Employer, and occasions the termination of his Employment prior to the Normal Retirement Age.

There is also a definition immediately following that of “Dismissal” and “Dismissal for Misconduct”.

Going then to page 26, there is a definition in the middle of the page of “Normal Retirement Age”, being 65, and “Pension”.  At the top of the next page, page 27, there is a definition of “Potential Benefit Period”, meaning the:

Membership Period increased by the number of complete years and months by which the termination of his Employment precedes his Normal Retirement Age –

with a limitation on the amount.

At page 28 there is a definition at the top of the page of “Resignation”, it is “voluntary termination”; and then at line 17 a definition of “Retirement” to mean:

termination of his Employment after age 55 –

not 65 –

at the request of his Employer or by election of the Members and for reasons other than Disablement, Retrenchment, Resignation, Dismissal or Dismissal for Misconduct.

At page 29 in the middle of the page at line 18 there is a definition of “Retrenchment”.  At page 30 at line 29 there is a definition of “Total and Permanent Disablement” to mean disablement:

to a degree that, in the opinion of the Trustees…..the Member is unlikely ever to be able to undertake any form of remunerative work.

I think they are all the definitions that I need go to.

If I might then go to page 59 there is a provision on that page in clause 1.23 for “Employer Contributions” and a provision relating to “Member Contributions” at the bottom of the page in clause 1.24.  At page 63 in clause 1.28 it is provided that claims are limited to claims “expressly provided for in the Deed”.  Going then to page 76 in Part 2 of the trust deed, there is a provision in clause 2.2.1 for a member’s contribution of 5 per cent.  Then there are provisions for benefits.  The first benefit that is provided for is what is called a retirement benefit which the Court will recall had a special definition.  The benefit provided for is:

a lump sum equal to seven (7) times the Member’s Final Average Salary –

reduced according to the period of service with, as the Court will see, an option to take instead a pension in clause 2.3.2.

KIRBY J:   What was Ms Scully’s position?  It was a rather low final average salary; what was her position, her employment?

MR SHAW:   She is a typist, I think.  Then, on page 77 there is a provision for “Disablement Benefits”; first of all in 2.4.1 a benefit for “Total and Permanent Disablement”, which the Court will see is again:

a lump sum equal to seven (7) times the Member’s Final Average Salary reduced in the proportion that his Potential Benefit Period bears to thirty (30) years.

The Court will recall there was a definition of “total benefit period” in the definition clause and there is a “Pension Option”. 

Then, in clause 2.4.4 there is a provision for benefits in the case of “Disablement (other than Total and Permanent)” disablement.  Then, there is a provision on the next page, page 78, for “Death Benefits” with the provision in some cases for pensions being paid as in, for example, 2.5.3 on that page.  And then, on page 80, there are provisions for “Withdrawal Benefit (other than Retirement) for benefits in the case of “Retrenchment” at line 18, 2.6.1, and “Resignation and Dismissal” in 2.6.2, again with “Option Benefits” on the next page and the “Possibility of Additional Benefits” on page 82, of additional benefits.  Then, going to page 83 in Part 3 of the Deed, there is a provision for “Separate Benefits”. 

There are a series of definitions at page 84, including at page 85 a definition of “Total Account Balance” and there are then provisions for benefits, beginning at page 88 and, at the bottom of that page, there is a heading “Benefits” and in clause 3.5.1 it is provided that:

If a Member –

(a)  retires from the employ of the Employer and from all other Gainful Work on or after attaining age 55;

(b)  dies while in the employ of the Employer; or

(c)  becomes Totally and Permanently Disabled while in the employ of the Employer,

there shall be payable to or in respect of the Member from the Fund a lump sum benefit equal to the sum of –

amongst other things –

(i)  the Member’s Total Account Balance –

and there was a small payment made pursuant to that clause.  That is to say, a small part of the payment was made pursuant to that clause.  Much of the major part was made pursuant to clause 2.4.1, that is, “The Total and Permanent Disablement” clause.

If I could then take the Court to the legislation, the Court has been provided today, I think, with a copy of the legislation as it stood at the time.  I do not know that it really makes for present purposes any difference whether one looks at the present ‑ ‑ ‑

GUMMOW J:   What was the relevant year of income, Mr Shaw?

MR SHAW:   The payment was made, your Honour, in December 1993 so it was the year ended 30 June 1994.  The extract which the Court has been given is an extract from the legislation as it stood on 31 December 1993.  Division AA brings to tax some parts of eligible termination payments.  Eligible termination payment is defined in section 27A on the pages we handed up - that is at page 3533.  Eligible termination payment has, as the Court will see, very many subparagraphs and the Court will see that the structure is:

“eligible termination payment”, in relation to a taxpayer, means –

and then there are a number of paragraphs and if one goes over to page 3538 at about point 6 on the page it says “but does not include”, and then a number of additional paragraphs.

GUMMOW J:   What is the general rationale of subdivision AA?

MR SHAW:   Well, it is directed to bringing to tax some or all of what would otherwise be capital sums not necessarily payment on the termination of employment.  For example, it includes all payments from a superannuation fund which are not necessarily on termination of employment and also to bring to tax, in particular ways, annuities or pensions pursuant to section 27H.

GUMMOW J:   And to bring to tax at ordinary rates.

MR SHAW:   Yes, but it does not bring to tax all of the payment.  The definition includes first of all in (a):

any payment made in respect of the taxpayer in consequence of the termination of any employment of the taxpayer, other than –

and it will be seen that there is excluded payments from a superannuation fund or an annuity, and then going to (b) which is, for present purposes, the relevant one:

any payment made from a superannuation fund in respect of the taxpayer by reason that the taxpayer is or was a member of the fund, not being a payment –

(i) that is income –

in effect, and a number of other things and ‑ ‑ ‑

GUMMOW J:   Not being a payment that is already income, I suppose.

MR SHAW:   Yes.  Then going back to page 3538 ‑ ‑ ‑

KIRBY J:   You agree that it was not income.  I think you accept that it was not income.

MR SHAW:   Yes, apart from the provisions of this.

KIRBY J:   Even if it makes it a notional income but it would not otherwise be income but for the provisions of the Act.  You just told us that you accepted it was of capital nature.

MR SHAW:   I did, your Honour, but most things would not be income were it not for the provisions of the Act, or assessable income at any rate.  So that the mere fact that the Act makes it income when it otherwise might not be, depending on how one looks at it, is a defect or a blessing present in very many provisions of the Act.  Going to page 3,538 to the exclusionary part of the definition, the Court will see that it excludes a number of things.  One is an advance or loan on ordinary terms; (m) is relevant because it uses terms very similar to the terms of paragraph (n), which is, for present purposes, the relevant one:

Consideration of a capital nature for, or in respect of, a legally enforceable contract in restraint of trade by the taxpayer, or to the extent to which the amount or value of the consideration is, in the opinion of the Commissioner, reasonable having regard to the nature and extent of the restraint -

and (n) uses very similar words, but ‑ ‑ ‑

GAUDRON ACJ:   You do not make the same argument in respect of (n) that was advanced to the notice of contention in the Full Federal Court, do you?

MR SHAW:   Your Honour, I unfortunately do not know what it says in the notice of contention in the Full Federal Court, but ‑ ‑ ‑

GAUDRON ACJ:   You accept that (n) is a proper exclusion from paragraph (b)?

MR SHAW:   Yes.

GAUDRON ACJ:    Yes.

MR SHAW:   Then (n) is:

Consideration of a capital nature for, or in respect of –

so the opening words are precisely the same as in (m), but instead of:

a legally enforceable contract in restraint of trade by the taxpayer –

it is, “personal injury to the taxpayer”, and there is again a qualification of:

the extent, and the Commissioner has to regard it as reasonable –

in this case -

having regard to the nature of the personal injury and its likely effect on the capacity of the taxpayer ‑ ‑ ‑

GUMMOW J:   The notice of contention, the Acting Chief Justice referred to is at page 222.

MR SHAW:   Thank you, your Honour.  But, it is submitted that it is a matter of some significance that the words of subparagraphs (m) and (n) are so similar, since it gives a clue to the meaning of, amongst other things, consideration.  Consideration being more easily understandable in the context of (m) than (n), especially in the light of the provisions of subsection (8), which is at page 3,558, at the bottom of the page:

For the purposes of this Subdivision, a transfer of property to, or for the benefit of, a person shall be deemed to be a payment to, or for the benefit of, the person of an amount equal to the value of the property immediately before the transfer.

The reason that is of some significance is that it shows that it was not necessary to use “consideration” instead of “payment” in order to catch things which were not payments, because “payment” is extended by subsection (8) in a way which renders it unnecessary to use the word “consideration” for that reason.

The other section which I should draw attention to is section 27G and that is at page 3,614.  That provides that:

Where –

(a) an eligible termination payment is made in relation to a taxpayer in consequence of the termination of any employment of the taxpayer; and

(b) the termination of the employment of the taxpayer occurred –

(i)  by reason of the taxpayer’s physical or mental incapacity to engage in that employment; and

(ii) before the last retirement date in relation to the employment,

so much of the eligible termination payment as is equal to the amount ascertained in accordance with the formula

AB over C –

where –

A is the amount of the eligible termination payment;

B is the number of whole days in the period from the date on which the termination occurred to the last retirement date; and

C is the aggregate of the number of whole days in the eligible service period in relation to the eligible termination payment and the number of whole days represented by component B,

is an invalidity payment in relation to the taxpayer.

The consequence of being an invalidity payment at the time was that it was what was called a concessional payment, which meant that only 5 per cent was brought to tax.  Now none is.

CALLINAN J:   Is “invalidity payment” defined?

MR SHAW:   Only in there.

CALLINAN J:   Only to the extent that one can find it in there?

MR SHAW:   Yes.  That is as much as one is told.  We place some significance on the section, your Honour, because it seems to speak perfectly generally of invalidity and make this provision in relation to invalidity and it seems, it is submitted, surprising if payments which are otherwise precisely of the same character - take, for example, a payment under the total and permanent incapacity provisions of the trust deed here ‑ if a payment, say, of a lump sum is made under the deed in circumstances in which a personal injury has been suffered, it seems strange that that should be treated differently except to the extent that the amount is paid for the injury, in effect as damages for the injury, that it should be treated differently from an incapacity which does not result from a personal injury.  The provisions of section 27G seem indifferent to the kind of incapacity one is talking about.

GUMMOW J:   Now, we have been looking at a number of definition sections. 

MR SHAW:   Yes.

GUMMOW J:   Where is the actual section that relevantly brought tax to this payment, the actual provision?

MR SHAW:   Your Honour, the taxing provisions are in 27B and 27C.

KIRBY J:   At 3,581.

MR SHAW:   And your Honour will see in 27C(2) the limitation to
5 per cent in respect of concessional components.

GUMMOW J:   Yes, thank you.

MR SHAW:   We have set out in our outline at page 3 in paragraph 7 of how it was that the amount of nearly $20,000 was included in the assessable income, and going back to paragraph 6, your Honour will see that there is a concessional component of $148,000.  Five per cent of that is taken and that amounts to something like $7,500, and then there is a taxed element of the post-June 1983 component of $12,000 which is also included, making almost $20,000.

GUMMOW J:   Thank you.

MR SHAW:   But what the case turns on is the effect of subparagraph (n) of the definition of “eligible termination payment”, the taxpayer saying that the effect of that is that the whole of the payment that was made is excluded from being an eligible termination payment.  We submit that that is not so because the payment which was made pursuant to the terms of the trustee to the superannuation fund was not “consideration of a capital nature for, or in respect of, personal injury to the taxpayer”.

KIRBY J:   It really narrows down to a narrower question, does it not?  It is whether it falls within that phrase, “in respect of”, because I do not take the respondent, and the Full Federal Court to decide the matter on the word “for”.

MR SHAW:   No.

KIRBY J:   Therefore, the question is whether that phrase, “in respect of”, which is concededly a very wide phrase of connection is sufficient.

MR SHAW:   Well, your Honour, we would not put the question in such a restricted way.  We would say, rather, whether in the context, having regard to the general context of the subdivision and of the subparagraph, reading the subparagraph as a whole, the amount falls within the words:

consideration of a capital nature…..in respect of, personal injury.

In other words, your Honour seems to put the question to me as if one could look at the words “in respect of”, ignore the rest of the provisions of the subsection of the Act, and then say, “Well, that is very wide”.  No doubt, your Honour, if one did do that one could make that remark but, in our submission, that question ought to be somewhat narrowed, so that we would not accept quite your Honour’s description of it.  That is beside the question.

In our submission, one needs to bear in mind two things:  one is that, looking at subparagraph (n), it is not necessarily true that that subparagraph ought to be regarded as excluding from the definition something which otherwise might be included by each of the inclusionary paragraphs.  All I am saying is, it might apply, for example, to (a), but not to (b), and it is not to be assumed that when one looks at all the subparagraphs down to (j) that that exception has work to do in respect of each of those subparagraphs, and that ‑ ‑ ‑

KIRBY J:   But, prima facie, it would be construed as applying to each of them, unless something in the earlier paragraphs was such that it, of its nature, could not apply.  It is expressed in very general terms.

MR SHAW:   Well, it is expressed in a general way, but if one looks at (n), for example, it is very difficult to see how that could apply to (b).

KIRBY J:   Yes, but that is because the one, that is to say (n), does not operate in the circumstances of (b), but you would start from the proposition that all of the exclusions or non inclusions apply generally, if applicable, to each of the paragraphs above, this being the Commonwealth’s style of drafting and numbering of paragraphs at that time, just to continue the alphabetical order.

MR SHAW:   But, your Honour, subject to the “if applicable”, it will be one of the questions, and, all we are really saying is that it is perfectly clear that at least some or one of the subparagraphs of the exclusionary paragraphs do not apply to everything, so it would not be surprising if another one were the same. 

The other thing which, in our submission, has to be borne in mind is that this superannuation deed did not and does not only make provision for payments of the kind which are in question here and, indeed, one would suppose that the main body of payments made pursuant to the superannuation deed were different.  That is to say, most payments from superannuation funds are not made for total and permanent incapacity but, rather, made because a period of service has been served and, for one reason or another, it is time to go.

KIRBY J:   Is that not a point against you, that one would therefore give an ample construction to (n), because it is a true exception?

MR SHAW:   Your Honour, I should not have mentioned it had I thought it a point against me.

KIRBY J:   Well, you might not have mentioned it had you not thought it was a point against you, but you mentioned it and the question is whether or not it is against you?

MR SHAW:   That is absolutely true, your Honour.  But whether it is against me or for me, it is true the point I make, namely, that the superannuation fund does make provision for all sorts of payments and it would be surprising if this were the main one.

KIRBY J:   And it does make an exception where it is in respect of personal injury.

MR SHAW:   I am sorry, your Honour?

KIRBY J:   It does make an exception for this particular, exceptional and relatively rare circumstance.

MR SHAW:   Well, the Act has got (n) in it, yes, your Honour.  But the point I am making is a point about the trust deed and our submissions are that, on the one hand, the deed makes provision for contributions both by the employer and by the employee, and it makes provision for various kinds of payment out of the fund:  retirement benefits, as they are called;  disablement payments, as they are called;  death benefits;  and withdrawal benefits on retrenchment or resignation and dismissal.  In very many of those cases it makes provision for not only the payment of a lump sum but for an alternative which may be availed of, namely, the payment of a pension.

The Court will recall, for example, looking at the benefits provided in the retirement benefit clause at page 76, and it will be recalled that retirement has an artificial definition which is at page 28.  That is:

termination of his Employment after age 55 at the request of his Employer or by election of the Member and for reasons other than Disablement –

or, amongst other things, “Resignation”, and resignation is a voluntary retirement prior to the normal retirement age which, as the Court will recall, is 65, not 55.  So, benefits are provided for retirement, in that sense, pursuant to clause 2.3.1 at page 76, with a pension option.  Retirement is termination of employment after 55 “at the request of his Employer or by election of the Member”, which is not a resignation.

It is submitted that if somebody receives a benefit pursuant to that clause, that is to say 2.3.1, a lump sum benefit, it would be artificial to say that the payment was made to him in respect of the termination of his employment because, although termination of the employment in the particular way which is set out in the definition of retirement is necessary, it is made because the fund provides for payments in certain events and contributions have been made in accordance with the provisions of the fund and the particular person who gets that benefit has become entitled, pursuant to the terms of the deed, to that particular kind of benefit and it would not be stretching things too far to say that he has earned it.

KIRBY J:   It might be stretching things too narrowly to say that it is not “in respect of”.  Why do you suppose Parliament has enacted in juxtaposition the preposition “for” and the phrase “in respect of”?

MR SHAW:   In order to cover damages for loss of earnings.

KIRBY J:   That is one theory.

MR SHAW:   That is our theory, your Honour.

KIRBY J:   Did the Treasurer say anything as to the purpose of this generosity when the provisions were incorporated?

MR SHAW:   No, there is nothing about it, your Honour, except this: in the Explanatory Memorandum - and the Court has been given a copy of that, I think – at the top of page 5:

The changes will not apply to capital sums paid under covenants in restraint of trade or as compensation for loss of income through personal injury -

And at page 67, in the second‑last paragraph, at the top of the middle I was referring to.  At the bottom of the page it is 103 and 165.

GUMMOW J:   What was the first passage on page 5, Mr Shaw?

MR SHAW:   It is right at the very top of the page, your Honour.

GUMMOW J:   “The changes will not apply”?

MR SHAW:   Yes, and it is in the third line.

KIRBY J:   What do you get precisely from that elliptical and opaque expression?

MR SHAW:   Your Honour, what I get from that is that the submission I made in answer to your Honour, that the words “in respect of” was intended to cover something in the nature of “damages for loss of income through personal injury”, is what the Treasurer said.

CALLINAN J:   Why would you need a provision for that?  They are not taxable anyway, are they, normally?

MR SHAW:   Pardon, your Honour.

CALLINAN J:   Why would you need a provision to exclude damages for loss of income?

MR SHAW:   Can I come to that in a moment, your Honour.  Your Honour Justice Gummow, the other passage was at page 67 or 165 at the second‑last paragraph.

GUMMOW J:   Thank you.

MR SHAW:   Your Honour Justice Callinan, because the definition of “eligible termination payment” includes any payment made in consequence of termination of employment, so that it would include all capital sums paid on termination of employment, even if they included a sum for or in respect of personal injury.  That is why.

McHUGH J:   What you have just said, does it not throw up the necessity to see the paragraph as declaring or stating a compound conception?  Your written submissions understandably break up the paragraph in the words of “in respect of” or “in consideration”, but is it not difficult to understand the paragraph unless - the exception - has been consideration of a capital nature in respect of personal injury.  So that consideration requires something more than mere payment.  It has - in the payment of court by one of the earlier paragraphs, but the payment has to have some extra quality.  It has to have the quality of consideration.  It seems to indicate it must be something in the nature of an exchange.  A mere gift, in respect of personal injury, would not be excluded by this section.

MR SHAW:   Yes, your Honour, we accept that.  We accept that it must be, as it were - your Honour has said “exchange”.  I was going to say “price”.  Consideration has sometimes been spoken of as the price or the promise and that sort of thing.  So yes, we accept that.  It is in exchange for the injury.

McHUGH J:   Yes.

MR SHAW:   We say this is not in exchange for the injury.  It is true that the injury has ‑ ‑ ‑

GUMMOW J:   Could it be an exchange for the beneficiary’s vested right under the fund by calling for a payment to discharge what otherwise is the entitlement against the trust deed?  That is not necessarily fatal to you, I think.  Would that cover the situation?

MR SHAW:   I was going to submit, your Honour, that was not only not fatal but favourable, and that was why I went to the fact that the superannuation fund does not just provide payments for incapacity or disablement; it provides for a whole range of things.  What the people get when they get a payment from the fund, it is really in satisfaction of the various rights they have.

McHUGH J:   Their entitlements.  It is a powerful argument in your favour really if you take that view of it, that the payment is in discharge of the obligations that the trust deed has to you.  There is an undifferentiated mass of obligations.

MR SHAW:   Exactly, your Honour.  What is more, this payment is not a payment measured by the injury.  It is not in exchange for the injury.  You have to have the injury which leads to the disablement but it is a payment which is simply seven times final annual salary.  It has nothing to do with the amount of injury you have suffered or the amount of loss of income you have suffered.  What it has to do with is you have, to put it in a loose way, bought these rights as part of the employment package and it is simply a mistake, we would submit, to regard the superannuation fund of this kind as providing consideration for the injury.

It is providing rights which arise in a whole series of different situations, the most important of which is probably retirement, I suppose, but it is providing a whole series of rights and those rights are discharged by the final payments which are made or by the pension.  If my learned friend’s construction is right, if the pension option had been taken here instead of the lump sum option, then the pension would be paid in respect of the personal injury.  I mean, it would not be caught by (n) because it is not of a capital nature, but the pension would be in respect of personal injury.  That, in our submission, is nonsense.

Why I went to the provisions of the deed was that to construe subsection (n) in the way which the Full Court has done, in our submission, fails to give effect to the true nature of what a superannuation fund is all about.

CALLINAN J:   Mr Shaw, is it affected by the date of the occurrence of the injury?

MR SHAW:   It is affected in some way, yes, your Honour, because, because it happened when it did ‑ ‑ ‑

CALLINAN J:   Before a person is aged 55, for example ‑ ‑ ‑

MR SHAW:   It is affected a bit, your Honour, because the payment which is made – if I can take your Honour to the clause, it is at page 77 at 2.4.1, and your Honour will see it is:

a lump sum equal to seven (7) times the Member’s Final Average Salary reduced in the proportion that his Potential Benefit Period bears to thirty (30) years.

So it is affected a bit, but it is a payment which relates to rights which arise out of the fund and it is true they are triggered by disablement.

KIRBY J:   That makes it difficult to say it has nothing to do with the disablement, which is what you said earlier.  I mean, the task is one of classification; it is one of finding the construction of the Act which is preferable in the circumstances and your submission may be correct, but to say it has nothing to do with it is really hyperbole.

CALLINAN J:   It is triggered by ‑ ‑ ‑

MR SHAW:   Your Honour, sometimes one - your Honour may even have sometimes been guilty of that.

KIRBY J:   Perhaps more at the Bar table than on the Bench.

CALLINAN J:   So it is triggered by the occurrence of the injury?

MR SHAW:   Not really, your Honour.

CALLINAN J:   Well, by the declaration of permanent disability and consequence of the injury, if you like.

MR SHAW:   Yes.

CALLINAN J:   And it is also quantified by reference to the date of the declaration of permanent disability?

MR SHAW:   Yes.  Your Honour, the second thing that we wanted to say was this, that I have been speaking as if the injury triggered the right, but it does not ‑ ‑ ‑

CALLINAN J:   But it is the acceptance by the trustees, is it not?

MR SHAW:   Well, not only that, your Honour, but - what your Honour says is right, it is, but “disablement” is defined in a way ‑ ‑ ‑

GUMMOW J:   But that has got the trustees wrapped up in it as well.

MR SHAW:   I know, it does, your Honour, so that it does depend – twice they are there – but it is not just that; it is that the disablement may be caused through bodily injury, physical or mental illness, disease, infirmity or accident.  In case I might be accused of hyperbole, I shall not say ‑ ‑ ‑

KIRBY J:   Surely not twice in one day.

MR SHAW:   - - - is no other sort of disablement you could have but I cannot think of any.  It seems to cover all sorts of disablement, so it is not disablement specific to bodily injury, it is really disablement arising in a whole series of different ways, or may arise in a whole series of different ways, and in order to get the right, what one needs to be is disabled, as accepted by the trustees, or totally and permanently disabled, but it is not necessary that you have a bodily injury or a personal injury, for that matter.  So that it is wrong to say that the injury triggers the right.  It is wrong to say too that the trustee’s decision triggers the right, although that is right in a certain way.  But what you need is disablement, or total and permanent disablement ‑ ‑ ‑

CALLINAN J:   But is that not the bodily injury really, that the acceptance by the trustees would be an acceptance that the disablement dates from the bodily injury, would it not?

MR SHAW:   No, your Honour ‑ ‑ ‑

CALLINAN J:   You can only know that afterwards but, in fact, you have to go back to disablement.

MR SHAW:   The payment is made from termination of employment, not from the date of the injury.  But all I am saying is, you have to have disablement, you do not have to have bodily injury, so that ‑ ‑ ‑

GUMMOW J:   Disablement is not an objective criterion.

MR SHAW:   It is not an objective criterion anyway and it is certainly not specific to bodily injury.

GUMMOW J:   Now, it may be that the trustees could be guilty of some breach of trust in the way they form their opinion but that is not a question.  You have to form it though.

MR SHAW:   But it does depend on that and it does depend on disablement and disablement can happen in all sorts of ways.

KIRBY J:   Is that correct to say that a disablement is not, in this context, an objective criterion?  It may be difficult to ascertain it but it is a criterion established by the deed, it must be discovered and must be determined, and it exists or it does not exist, it is a difficult definition.

MR SHAW:   I think, your Honour, that what his Honour Justice Gummow was putting to me and what I accepted, was that it is not enough to have whatever happened, the trustees have to accept it as leading to the consequences which are spelled out in the definition of “disablement and total and permanent disablement” because without that the right does not arise.

GUMMOW J:   Can I take you to paragraph 16 of your written submissions, Mr Shaw, on page 7?  The third and last sentence on paragraph  16.  I think your opponents take that as a proposition on your side that the payment was not a consideration in any sense, whereas I understood you were saying it may have been a consideration for the giving up of the rights against the trustee under the deed.

MR SHAW:   Yes.  What I really meant was it is inappropriate to characterise it as consideration for and in respect of the injury.

GUMMOW J:   That is what I thought but I think the submissions rather proceed at cross-purposes because it is rather assumed that you were denying it was consideration in any sense.

McHUGH J:   That was the way – the Full Court adopted the atomic approach to it, that is the problem.

MR SHAW:   Yes, it did.

McHUGH J:   It said it was a consideration in the sense that it was discharge of the liabilities.

MR SHAW:   Yes.

McHUGH J:   Then it said it is, in effect, a payment in respect of injuries.

MR SHAW:   Yes.

KIRBY J:   That phrase, “in any sense”, sounds a little bit like another hyperbole, whereas you are now conceding the task is one of characterisation.  That is the verb you just used in your less hyperbolic mood.

MR SHAW:   Your Honour, I accept that one does have to characterise, and I accept that it is inappropriate to characterise by taking the words one by one and looking at them separately and out of context.  You have to look at the whole and you have to say, “Well, in the circumstances, how should this be read?”, and what we are putting, your Honour, is that although it is true that in this case a bodily injury or a personal injury did occur, the payment from the fund was made in consequence of the trustees accepting that the outcome was that there was total and permanent disablement and, in consequence, she got her rights under the deed.

KIRBY J:   You twice say “in consequence”.

MR SHAW:   Yes.

KIRBY J:   That is not the criterion, the criterion is a much more nebulous one .  It is in “respect of”.

MR SHAW:   So it is.

KIRBY J:   If it were “in consequence” or if it were “for” or if it were “caused by”, I could well understand the argument you have put, but that is not the phrase of connection chosen by the Parliament.

MR SHAW:   No, but the phrase, so far as is relevant, is a phrase “consideration in respect of personal injury” and then it goes on to limit the operation of that phrase by referring to the extent to which the amount or value of the consideration is reasonable, having regard to the nature of the injury and its likely effect on the capacity of the taxpayer.

KIRBY J:   Presumably, that is to prevent false or semi-fraudulent payments and you concede that it is reasonable in this case and therefore that question does not arise in this particular case?

MR SHAW:   It does not, your Honour, but the use of that limitation demonstrates, we submit, that the earlier part of the subparagraph is concerned with an exchange for or the price for the personal injury.  Otherwise, one could not have the fraudulent possibility that your Honour has referred to.

KIRBY J:   Well, fraudulent, perhaps, but you could have an overpayment.

MR SHAW:   You could and, in our submission, that too points to the fact that what one is talking about is something which is related to or in respect of the personal injury where the personal injury is not merely the trigger, but the measure.

KIRBY J:   Could you give an instance of where the paragraph, that is to say the one in question, (n), would apply on your theory of the operation of the Act?

MR SHAW:   Yes.

KIRBY J:   In an ordinary superannuation scheme.

MR SHAW:   Not in an ordinary superannuation scheme, but it would apply in (a), not (b).

McHUGH J:   Exactly, and that is what has to be kept in mind.  It seems to me that this eligible termination payment, for example, would come with an insurance policy, would it not?

MR SHAW:   Yes, it might.

McHUGH J:   It may pay up upon termination of employment.

MR SHAW:   Yes.  It would cover any payment on the termination of employment.  It seems to.

KIRBY J:   So, on your theory, the Parliament, though it has expressed this, what I will call a benefit or a protection to workers who are injured and who are thereby required to leave their employment and lose benefits that are valuable to them under the superannuation deeds, that though it has not, in terms, restricted it to the paragraphs that precede it, must be taken to have restricted it so that it does not apply to (b) but is confined to (a), though Parliament did not say so and though that cuts back very considerably the entitlements of the worker and it cuts back very considerably the benefit of the exception.  That is your theory of the section, is it not?

McHUGH J:   I do not think it is, is it?  It would all depend on the terms of the superannuation deed.  I mean, one can have a superannuation deed, in fact, particularly one that is geared to insurance policies, as they frequently are, where you have a provision in the deed which would entitle you to a lump sum payment on termination of your employment because of personal injury.

MR SHAW:   And, your Honour, I think that Part III – I was going to say that I thought Part III did allow for insurance policies.  I am not quite sure whether that is right or not but yes, your Honour, I had been going to say to his Honour Justice Kirby that we were not, we thought, putting the argument which his Honour was placing in my mouth.  Rather, we were saying that the provisions of (n) will apply in such circumstances that they relevantly apply to, not that I want to read it down or restrict it or whatever terms they were that your Honour (power failure, 53 seconds) used for an injury, and to limit it to that. 

When one looks at section 27G which relates to invalidity payments, one cannot see a reason in the world for treating payments which do not have the relationship I have just referred to to personal injury any differently from any other kind of invalidity payment which results from incapacity.  So that ‑ ‑ ‑

KIRBY J:   Mr Shaw, could you help me a little bit.  I realise that 27G is important and I do not quite understand why this special provision, when read in the whole context, advances your argument.  That is my failure for not having quite grasped it.  Could you go through that in little steps.

MR SHAW:   If your Honour pleases.  Your Honour, what we point to is this:  you have a section, 27G, which deals with what are called invalidity payments. 

KIRBY J:   Is this for general purposes of the Act or is it also only confined in this context ‑ ‑ ‑

MR SHAW:   It is confined to this context.  If I could perhaps, before ‑ ‑ ‑

KIRBY J:   Was that inserted at the same time as these provisions?  Is it all part of ‑ ‑ ‑

MR SHAW:   I think it was all part of the same thing, although I am not sure.  If I could take your Honour first of all to page 3,527, the top, your Honour will see there a definition of “concessional component” and your Honour will see that it means:

so much of the eligible termination payment as consists of –

various things, and one of them is “an invalidity payment”.  An invalidity payment is defined at page 3,543 as meaning an invalidity payment ascertained under section 27G and your Honour will recall too that in section 27C(2) at page 3,582 the concessional component was taxed in a limited way; only 5 per cent was taxed.  That has now been altered and it is not taxed at all but at this time 5 per cent was taxed.

KIRBY J:   So you say that the particular case of concessional components are hived off and put into a special box by the combination of the definition of “concessional component” plus the definition of “invalidity payment” plus 27C.

MR SHAW:   It is given special treatment.  What is relevant is the way in which an invalidity payment is worked out.  How it is worked out is this: you have to have an eligible termination payment.  You have to have the termination caused by the taxpayer’s physical or mental incapacity to engage in the employment, and the termination has to occur before the “last retirement date”, which is defined on page 3,543 as mostly 65.  Then it says, if you have that:

so much of the eligible termination payment as is equal to the amount ascertained in accordance with the formula A by B over C, where –

A is the amount of the eligible termination payment;

B is the number of whole days in the period from the date on which the termination occurred to the last retirement date –

So you take the date on which the termination through physical or mental incapacity occurs, and you work out how many days there are between the date of that termination and the last retirement date.  Then you divide it by the number of whole days in the eligible service period in relation to the eligible termination payment.  In this particular case, what one got was – the concessional component is nearly $149,000, and that appears at page 92.  That is why the amount which has been included in the assessable income is reduced in that way.  What we say is, here is a concession specially made in the case of physical or mental incapacity.

KIRBY J:   But is that not an additional, or at least arguably an additional special and limited concession of a particular kind, that does not derogate from the general  ‑ ‑ ‑?

MR SHAW:   It might be, your Honour.  But what we say is there is a special provision made in relation to termination of employment by reason of physical or mental incapacity.  There is no sign in that section that one is dealing with special kinds of physical or mental incapacity.

KIRBY J:   But this is to suggest that one starts a construction of the Tax Act on an assumption that it is a beautifully harmonised and rationally inter‑operating realm in which everything is harmonised in a fashion that is rational, whereas in fact you have many little ‑ ‑ ‑

MR SHAW:   Your Honour, I would not seek to deny the general beauty of the Act, but, we would submit that it is perfectly acceptable, even in the light of the well-known difficulties caused by the Act, to regard section 27G as relevant to the other provisions of Subdivision AA.

McHUGH J:   This is a discrete part of the Act.

MR SHAW:   Yes.

McHUGH J:   So you would attempt to give it a harmonious construction.

MR SHAW:   I am not suggesting at all that this is a conclusive argument.  All I am saying is that it seems that this section is treating mental or physical incapacity in a general kind of way without distinguishing between one sort or another.

KIRBY J:   For a particular benefit.

MR SHAW:   For a particular benefit.  In those circumstances, it would be surprising if it turned out that some sorts of physical or mental incapacity were being dealt with in a different way, that is all.

McHUGH J:   Well, to take what may be a reasonable common case:  an employer terminates the employment, because a person has been injured in some sort of accident, makes a payment, ex gratia if you like, it is an eligible termination payment, because it is caught by paragraph (a), it is not excluded by (k), (m), (n) or (p), so it comes to tax, but then section 27G then operates to reduce it.

MR SHAW:   To reduce the amount that is taxable, or exclude it, depending upon what it is.

GUMMOW J:   And, for example, if one looks at (m), the payment for a restraint would fall, I suppose, literally within (a).

MR SHAW:   Yes, right, yes.

McHUGH J:   But it is interesting that, in the four exclusions, (k) talks about a payment, (p) talks about a transfer and (m) and (n) talks about consideration, so to come within (m) and (n) it has got to be more than a payment; the payment has to answer the description of consideration of a capital nature for and in respect of ‑ ‑ ‑

MR SHAW:   And, when one sees that in (m) one does not have to struggle to see what consideration means, so, here you are, in the very preceding subparagraph you have “consideration” being used in what is clearly a price, or exchange, if you like, sense.  It would be very surprising if (n) had meant something different.

GUMMOW J:   But the phrase “in consequence of” in (a) does look as if it is not necessarily, shall we say, legally consequential, necessarily and exclusively legally consequential.

MR SHAW:   That is probably right, your Honour.

GUMMOW J:   By way of satisfying rights.

MR SHAW:   Yes.

GUMMOW J:   That would pick up Justice McHugh’s ex gratia payment, for example.

MR SHAW:   Yes, that is right, your Honour.

GUMMOW J:   But it gets technical when one gets over to (m) and (n), by the look of it, when it starts talking about consideration.

MR SHAW:   This is no doubt one of the aspects in which the Act is not wholly beautiful, but it is a mistake to think ‑ ‑ ‑

GUMMOW J:   No, no, there is a reason for it.

MR SHAW:   Yes, but what I was going to say, your Honour, it is a mistake to think ‑ ‑ ‑

GUMMOW J:   That is wide, but the exclusions are couched in technical language.

MR SHAW:   So, our submission is that really the Full Court, by adopting the approach which it did, namely, dividing the provisions of the subparagraph up and really, in the end, coming to say, “Well, is ‘in respect’ wide enough to cover this?” and then having referred to that statement that you could not have any phrase which is wider, coming to the conclusion that it did.  It fails to give effect to what one can see is the whole scheme of the subdivision and where one has, as one does here, a payment which, although triggered by an injury which led to disablement, which led to termination and led to payment of the lump sum, it is a payment which ‑ ‑ ‑

GUMMOW J:   Well, “triggered” is a dangerous word here. It was a causa sine qua non, I suppose, there was the accident, but the immediate cause was the trustee’s activity.

CALLINAN J:   Mr Shaw, one way of testing it, perhaps, is to look at the definition in 2.4.1 on page 77 and to try to insert the words “consideration for or in respect of personal injury to the taxpayer” between the words “Member” and “a lump sum equal to”, and the words just do not fit comfortably there.  You really have to be able to say that, “The Trustee shall pay to the Member as consideration for or in respect of personal injury a lump sum equal to”, and that is a very uncomfortable insertion, I think, at first sight.

MR SHAW:   One would prima facie think it was not and, so, our submission is that Full Court was wrong about this and that the appeal should be allowed, that the court – I just mention this because ‑ ‑ ‑

GUMMOW J:   There was a condition on special leave about costs.

MR SHAW:   Yes, that is right, and we have set out in our ‑ ‑ ‑

GUMMOW J:   And there is also a private arrangement between the intervener.

MR SHAW:   Yes, we shall not be so impoverished as we otherwise might have been, but the orders that we have drafted, which are right at the end, I think, give effect to the condition ‑ ‑ ‑

KIRBY J:   I think you are about to resume your seat and could I ask you before you do so, just in case the intervener is not heard to support the argument, is there anything that is relevant to the Court’s elucidation of the Act to take into account from the Commissioner’s point of view on the operation of the Act in other contexts?

MR SHAW:   Your Honour, had my learned friend not been given leave, I should have adopted her submissions.

KIRBY J:   You do not wish to elaborate those submissions in any way that assists your client that is not sufficiently expressed in the written submissions which, at this stage, is all we have and all we might have.

MR SHAW:   Your Honour, it seemed to us that my learned friend’s submissions had sufficiently referred to and explained the considerations which she wanted to put forward and ‑ ‑ ‑

KIRBY J:   Just as a matter of general interest, is not Mr Davies right in saying that one would not construe a federal statute by reference to what States, in their wisdom, have done even, perhaps, on assumptions of the operation of federal Acts?

MR SHAW:   Certainly, your Honour.  I would not suggest that that was not so, but some of the considerations that my learned friend Mrs Moshinsky refers to, like considerations about whether payments under insurance policies or from superannuation funds were to be taken into account in assessing damages for personal injury, do seem to assist our argument and it was for that reason I would have adopted them had they not been before the Court.  If the Court pleases.

GAUDRON ACJ:   Thank you, Mr Shaw.  Yes, Mr Davies.

MR DAVIES:   May I start by taking the Court back to Subdivision AA, partly to correct some inaccuracies and to point out some things that were not pointed out.  It was said by my learned friend that the purpose of Subdivision AA was to bring certain termination and superannuation payments were of a capital nature into the Act to be dealt with in a certain way.  “Of a capital nature” was incorrect.  Subdivision AA created a concept, an eligible termination payment, that had not previously been in the Act.  The taxation consequences that are then dealt with in the other sections of the subdivision are all centred upon this concept of an eligible termination payment.  Paragraph (a) of the definition of “eligible termination payment” can catch ‑ ‑ ‑

GUMMOW J:   Are you saying that independently of Subdivision AA some of the receipts within Subdivision AA would have been brought to tax under some other provision of the Act which pre‑existed?

MR DAVIES:   Your Honour will see that section 25(1) - your Honour will not see it because it is not in front of your Honour, but if your Honours look at the Act at the time ‑ ‑ ‑

GUMMOW J:   There has to be some double provision.

MR DAVIES:   Section 25(a) excludes from assessable income income that is an eligible termination payment.

McHUGH J:   Mr Davies, prior to the insertion of Subdivision AA in 1984, is my recollection failing:  was there not some provision under which 5 per cent of these payments ‑ ‑ ‑

MR DAVIES:   Yes, that was section 26(d) and that dealt with allowances, gratuities and compensations payable on termination of employment and dealt only with the lump sum.  There were also some provisions dealing with superannuation payments and sections 26AA and 26AE were relevant.  Section 26AE brought into tax certain superannuation payments.  On our research of sections 26(d), 26AA and 26AE, for various reasons this payment would not have been caught by those sections.  It is true to say that ‑ ‑ ‑

GUMMOW J:   Section 26(d) was repealed, was it not?

MR DAVIES:   Yes, each of those three sections was repealed and replaced by Subdivision AA.

GUMMOW J:   So what are the three sections that were repealed?

MR DAVIES:   Sections 26(d), 26AA and 26AE.

GUMMOW J:   You said there was a specific provision in 25(1)?

MR DAVIES:   Yes, after the amendment, section 25(1) was also amended.

GUMMOW J:   To deal specifically with eligible termination payment?

MR DAVIES:   Yes.  Your Honour will see that subsection (1) now reads:

The assessable income of a taxpayer shall include:

(a) and (b), and then the qualification is:

which is not exempt income, an amount to which section 26AC or 26AD applies or an eligible termination payment within the meaning of Subdivision AA.

GUMMOW J:   There could have been an argument to take the restraint of trade provision.  There are some cases in which the taxpayer has been unlucky, are there not?  They have been treated as income, as a substitution for income.

MR DAVIES:   Your Honour, in our submission, section 27G that has relied so heavily upon by my learned friend will apply to compensation for loss of income where that compensation is paid pursuant to a contract.  It is not of a capital nature and, therefore, not excluded by paragraph (n).

GUMMOW J:   Say that again.  27G - - -?

MR DAVIES:   27G will operate in relation to compensation for loss of income caused by personal injury where the receipt is of an income nature.

GUMMOW J:   Why is that?

MR DAVIES:   It operates because the exclusion in paragraph (n), your Honour, only applies to consideration of a capital nature and, of course, under 27G there was still concessional treatment of the receipt.  That was prior to 30 June 1994.  The receipt of an income nature if otherwise ineligible termination payment but within section 27G.

MR DAVIES:   What comes out of that?  Assume you are correct about that.

MR DAVIES:   Your Honour, it means that section 27G has operation even if we are right and the payment of the nature in this case is excluded from the operation of AA because it falls within paragraph (n).

McHUGH J:   So you take a different point from the Full Court in relying on 27G.

MR DAVIES:   We rely upon the Full Court’s points but we have other examples, your Honour, of why it is that section 27G is not otiose on our construction of paragraph (n) but an obvious one is the fact that it will apply in relation to income receipts.

McHUGH J:   I must say when I first looked at this before the special leave application in Melbourne, it occurred to me at the time that (n)’s principal area of operation of exclusion would be in respect of other insurance policies of some equivalent to - that is not necessarily against you but it seems to me that that was the sort of thing where there is some sort of agreement or a lump sum payment is made in respect of injury, figured in some way by termination of employment.

MR DAVIES:   Your Honour, I will come to it in relation to our submissions about the words “in respect of” but we do submit, your Honour, that looking at the particular provisions of the trust deed pursuant to which this money was paid, they are, in effect, an agreement by the trustees to pay a sum of money where there is personal injury and it causes certain things.

GUMMOW J:   That is not what it says at all.

MR DAVIES:   I will come to it, your Honour, but ‑ ‑ ‑

GUMMOW J:   People who draft trust deeds do not draft them that way.

MR DAVIES:   That is true, your Honour, but I ‑ ‑ ‑

GUMMOW J:   You would sue for negligence if they did.

MR DAVIES:   When one looks a the entitlement pursuant to which this money was paid, it is an entitlement of which the occurrence of personal injury was an essential element of this case.

GUMMOW J:   What do you mean by “essential element”?  Do you mean factually, or legally, or both?

MR DAVIES:   Legally, your Honour, and factually.

GUMMOW J:   Why, why legally?

MR DAVIES:   Because, your Honour, the deed says it is, and if I can go to clause ‑ ‑ ‑

KIRBY J:   Why do you have to go that high?  I mean, the Act merely says “in respect of”.

MR DAVIES:   That is so.

KIRBY J:   Why are you arguing this at the top of the mountain, when all you need are the foothills?

MR DAVIES:   Your Honour, in my submission, a payment made in satisfaction of an entitlement under a trust deed will be in respect of all of those matters that the trust deed says is relevant to that entitlement.

GUMMOW J:   What do you mean by relevant to the entitlement?  It is almost as slippery as “in respect of”.

MR DAVIES:   At the very least, your Honour ‑ ‑ ‑

GUMMOW J:   Relevant by what criterion?

MR DAVIES:   Relevant at the very least, your Honour, that if they occur ‑ ‑ ‑

GUMMOW J:   We have to write a judgment on - - -

MR DAVIES:    ‑ ‑ ‑ the entitlement arises.

GUMMOW J:   What is that?

MR DAVIES:   If they occur, the entitlement arises.

CALLINAN J:   One condition precedent to the entitlement, is that right?

MR DAVIES:   A necessary condition, a necessary element of the entitlement, your Honour.  Your Honour, if we start with ‑ ‑ ‑

GUMMOW J:   It is necessary in a sense.  The employee would still be alive.

MR DAVIES:   There are a number of matters, your Honour, but ‑ ‑ ‑

GUMMOW J:   Exactly.

MR DAVIES:   But, your Honour, each of clauses 2.4.1 and 3.5.1(c) requires “Total and Permanent Disablement” as defined, and “Total and Permanent Disablement” is defined by reference to “disablement” and that definition can be found on page 22 and your Honour Justice Gummow said that there was no requirement for objective disablement.  Your Honour, when your Honour reads that clause with care, it is clear that it does.  It requires a:

disablement caused through bodily injury –

or a number of other matters –

(none of which has been incurred or inflicted for the purposes of obtaining a benefit –

and if your Honour then jumps the reference “which the Trustees”, and goes to the bottom, and which:

occasions the termination of his Employment –

So, it does require an objective occurrence.  The reference ‑ ‑ ‑

GUMMOW J:   But that is necessary – all I am putting to you is, and I will not say it again, it may be necessary but not sufficient.

MR DAVIES:   That is very true, your Honour.  I do not resile with that.

GUMMOW J:   A lot of things are necessary. 

MR DAVIES:   A lot of things are necessary.  But, your Honour, to be in respect of something, the subject matter “in respect of” does not have to encompass all of the necessary elements.

GAUDRON ACJ:   Do you not mean that the other way around?  Is not your submission that it is “in respect of” if it encompasses any of the necessary allegations?

MR DAVIES:   Well, that is what I mean.

GAUDRON ACJ:   That really is the question, is it not, in this case: how widely the words “in respect of” are to be treated, and that depends on context?

MR DAVIES:   It does depend on context.  Can I say this about clauses 2.4.1 and 3.5.1(c), they refer to the expression “Total and Permanent Disablement”, but that expression is defined earlier in the deed.  So where they appear – taking 2.4.1 as an example – where it says:

in the event of the termination of Employment of a Member on the grounds of Total and Permanent Disablement –

that is a drafting technique that avoids the necessity for repeating all of the words that are then found in the definitions of “disablement” and “total and permanent disablement”.  So, in fact, the clause reads:

Subject to Clauses 2.4.2 and 2.4.3 in the event of the termination of Employment of a Member on the grounds of disablement caused through bodily injury, physical or mental illness, disease, infirmity or accident…..which the Trustees, after obtaining the advice of a legally qualified and registered medical practitioner, determine will render that the Member –

is unlikely ever to undertake any form of remunerative work, then a certain amount shall be payable.

GUMMOW J:   Just going back to this definition of “disablement” again, the last words “and occasions the termination”, is there any other content to that idea in the deed itself?

MR DAVIES:   Each of the benefits that are payable under the deed appear to be premised upon the termination of employment.  In relation to “total and permanent disablement”, that appears to be where the requirement is to be found.

GUMMOW J:   But there is a question of fact, is there, as to whether, in the particular case, the injury did occasion the termination?  Is that not another component of the operation of the definition?

MR DAVIES:   It is another component, yes.

GUMMOW J:   How does one find that out?  Does the deed provide for termination?  It does not, does it?  In other words, the termination is brought about by something outside the deed under the contract of employment, is it, or what?  In other words, what occasioned the termination of your client’s employment factually or legally?

MR DAVIES:   Factually, it was her inability to work and she then resigned, I think.

GAUDRON ACJ:   Page 8 suggests she resigned.

MR DAVIES:   Yes.  Page 169, that was the letter informing Mrs Scully’s solicitors that the application for permanent and total disablement has been approved, and the payment was made conditional upon Mrs Scully resigning from the RACV, and then at the top of page 8 records that Mrs Scully had given her resignation.

GAUDRON ACJ:   And the employer seems to have classified the payments in precisely the same way as the Tax Commissioner.

MR DAVIES:   Yes, your Honour.

GUMMOW J:   The employer took her termination because she resigned, because she was told that if she resigned she would be treated as disabled.

MR DAVIES:   I think the reality was, your Honour, she was incapable of working and it was simply a step to clarify the position under the contract of employment.

GAUDRON ACJ:   Yes.

MR DAVIES:   But if Ms Scully were to sue for the $164,000 under the deed, she would need to prove, in this case, the occurrence of the personal injury, the disablement suffered as a result of the personal injury, the fact that the trustees had formed views about the effect of the disablement on her capacity to work in her employment and to work generally and that her employment was terminated; she would need to prove, at the least, all of those matters, because each of those matters is stated by the deed to be an essential element of the right to the entitlement.

CALLINAN J:   Mr Davies, your argument focuses on the words “for or in respect of”.  What do you say about the word “consideration” though?

MR DAVIES:   Well, your Honour, consideration, in our submission, it is the sum of $164,000, is relevant to the consideration received by Ms Scully in satisfaction of her entitlements under clauses 2.4.1 and 3.5.1(c).

CALLINAN J:   Except consideration really does convey something more than payment, does it not, or something different, perhaps, from mere payment?

MR DAVIES:   She is exchanging, your Honour, for the receipt of the money – she is giving, in exchange for the money, the discharge of her entitlement.

CALLINAN J:   It is difficult, is it not, to insert those words that I put to Mr Shaw, in 2.4.1 on page 77 after “Member”:  “there is a consideration for or in respect of personal injury” – “the Trustees shall pay to the Member as consideration for or in respect of personal injury a lump sum equal to”.  They do not really fit very comfortably, do they?

MR DAVIES:   Well, your Honour, it does not fit comfortably with “for” but, in our submission, it fits very comfortably with “in respect of”, because the payment, however one looks at it, is being made in consideration of the occurrence of the personal injury and its effects upon the member’s employment and her ability to work.  If the word is used in accordance with ordinary language, it does fit comfortably to say that $164,000 is being paid by the fund in consideration of a number of things, one of which is personal injury.  The word must be being used in – not in a very narrow technical sense because one cannot have “consideration” in a narrow technical sense that is “for” personal injury.

KIRBY J:   What do you say about the suggested inference to be drawn from the juxtaposition of the consideration referred to in (m) and that referred to in (n)?

MR DAVIES:   Well, your Honour, we adopt Justice McHugh’s observation that the consideration does bring a requirement that not simply that there is a payment but that the nature of the payment, the nature of the consideration, has a material connection with the personal injury.  In this case, the payment is a payment of an entitlement and, therefore, to determine whether the payment, what connection it has with the personal injury, one should look at the provisions of the trust deed that create the entitlement.  The provisions of the trust deed itself demonstrate that there is a material connection between the personal injury and the payment of the money pursuant to the entitlement.

KIRBY J:   I think you are repeating what you said at the outset now.  What is your answer to Mr Shaw’s point that if the payment were of a pension as distinct from a lump sum that, in such a context, to describe that as a consideration in respect of personal injury would be artificial?

MR DAVIES:   Your Honour, leaving aside the requirement of it being a capital nature so that it would not fall within paragraph (n), leaving that aside, if the pension was paid pursuant to an agreement that the member of the superannuation fund should receive a weekly payment in the event that she suffers personal injury causing total and permanent incapacity to work, then the pension would be in respect of personal injury and it is not stretching the English language to regard it that way.

In our written submissions we have referred to a number of authorities which indicate that the words “in respect of” require a material connection or a rational and discernible connection or a causal link.  One of the authorities that we refer to is the case of State Government Insurance Office v Crittenden 117 CLR 412 and in the passage that I wish to take the Court to it makes good the point that simply because there are a number of things that have to be proved to give rise to the entitlement, it does not follow that one cannot say that the entitlement or the payment pursuant to the entitlement is in respect of each of those matters.

GUMMOW J:   I know counsel never like this, but one really has to look at the context of the case in which this phrase is being construed.  Now, what was the section doing in Crittenden’s Case?  What was it all about?  What was the context?  You cannot talk about authorities dealing with phrases like “in respect of” without going to the context of each case.

MR DAVIES:   It was simply to demonstrate, your Honour, that – yes, I will take it to the context.

CALLINAN J:   In respect of a motor vehicle, was it not?

MR DAVIES:   Yes.  The question was whether, where a husband is suing for loss of services of his wife occurred by reason of injury sustained by her as a result of a motor vehicle accident, ‑ ‑ ‑

McHUGH J:   But it dealt with the term “for”, did it not, and the Court said it was the equivalent.  It was basically the words “in respect of”.

MR DAVIES:   Yes, in the context of this particular case, yes, that is so, your Honour.

KIRBY J:   But in the section, which is set out in the headnote, it says:

all damages in respect of such motor vehicle for accidental bodily injury...to any person.

So that was brought down, so they had “for and in respect of”, as in this Act.  But, I think we would all know that the phrase is a very wide phrase in connection and there are plenty of dicta that say that.  That really does not answer the problem before the Court which is what it means in this particular context.

MR DAVIES:   It was simply, your Honour, that in that case Justice Menzies did say that in order for the husband to make good his cause of action, he would need to demonstrate a number of things, but the fact that he would need to prove a number of things did not alter the conclusion that the cause of action might not be said to be a cause of action “in respect of such motor vehicle”.  That passage can be found on page 421.  What we are saying, your Honour, is that it follows from what is said by Justice Menzies on that page, that if the deed provides that on the occurrence of a number of matters, an entitlement arises, it can be said that the entitlement is in respect of each of those matters.

GUMMOW J:   What was the point of debate, that it was the wife who was injured, not the husband, was it?

MR DAVIES:   Yes, your Honour

McHUGH J:   No judgments are too long to follow the English practice, but there is a great deal to be said for, what used to be the English practice to require counsel to read the whole judgment.

GUMMOW J:   I am not surprised.

KIRBY J:   If that were done in Perre v Apand we would be here a long while.

MR DAVIES:   It was simply this, your Honour, that, having concluded, your Honours, in that case, that a husband ‑ ‑ ‑

GUMMOW J:   He had an action per quod consortium.

MR DAVIES:   Yes, your Honour.

where a husband is entitled to damage for a loss of the consortium of the wife owing to injury caused to her by the use of a motor vehicle, the person liable is a person legally liable “by way of damages in respect of such motor vehicle for accidental bodily injury...to any person”.

GUMMOW J:   Well, that is obvious.

MR DAVIES:   Yes, well he concludes that, your Honour, and then goes to say:

In such circumstances, the “any person” who suffers “accidental bodily injury” is the wife, and the liability in damages of the person responsible for the injury to the wife is a liability in respect of such motor vehicle for accidental bodily injury to the wife.  It is true that in establishing such liability the plaintiff must prove more than the negligent use of the defendant’s motor vehicle and his wife’s injury caused thereby; he will also have to prove his own damages due to his wife’s injury.  This further element, however, does not, in my opinion, take the liability outside the description of a liability for damages “in respect of such motor vehicle”.

And just simply rely upon that passage, your Honours, to say that simply because Ms Scully would need to prove other matters, apart from the occurrence of the personal injury, would not detract from the fact ‑ ‑ ‑

GUMMOW J:   To prove in what certain setting?

MR DAVIES:   If she were to sue for the entitlement, your Honour.

GUMMOW J:   If she were to sue for the entitlement, she would just have to bring herself within this definition.

MR DAVIES:   Your Honour, she would need to bring herself within ‑ ‑ ‑

GUMMOW J:   She has a disablement caused through bodily injury.

MR DAVIES:   Yes, your Honour, and that demonstrates the point.  What she would do to prove the disablement in this case would be to prove a number of things, one of which would be personal injury.

KIRBY J:   Might one say that that legislative context is different and that it is a beneficial statute that would be construed beneficially, whereas here we are dealing with a Tax Act ‑ ‑ ‑

MR DAVIES:   That is true, your Honour, but what we can gain from Subdivision AA itself is an indication by the legislature that where personal injury causes termination of employment, the subsequent payment is to receive concessional treatment, and that appears ‑ ‑ ‑

KIRBY J:   It may be that (m) is of some help to you there in that the consideration there is for something other than just termination which is, I suppose, the ordinary circumstance in which superannuation becomes payable.  It is for withholding your services in the same area, and I am talking of competition of the employer, and therefore you are given something more than just your termination.  Similarly with a personal injury, it is not to be put into the same category.  I have not expressed that well but I can dimly see some similarity between (m) and (n).

MR DAVIES:   Yes.  Your Honour, (m) and (n) are by their terms dealing with quite different things.  It may be easy to identify ‑ ‑ ‑

KIRBY J:   That is true, except they are each given a concessional treatment.

MR DAVIES:   They are each given a concessional treatment.

KIRBY J:   And one might say given a concessional treatment because they are payments for a different purpose, and they have been triggered, to use Mr Shaw’s words, by something extraneous to the normal circumstances that trigger the payment of superannuation.

MR DAVIES:   Your Honours, I started off with Subdivision AA.  May I go back to it and point out that the exclusions (k), (m), (n) and (p) appear at the end of the definition after the words “but does not include”, and the way in which they are set out they appear to apply to all of the preceding paragraphs.  If your Honours also go back to the preceding paragraphs, your Honours will see that in relation to the majority of them, each of the preceding paragraphs itself has an exclusion.  So that paragraph (a) says:

any payment…..other than a payment –

Paragraph (b), with which we are dealing with, has the same structure.  Paragraph (b) is:

any payment made from a superannuation fund in respect of the taxpayer by reason that the taxpayer is or was a member of the fund, not being a payment –

and then there is (i), (ii) and (iii).  Now, it is clear that had the legislature intended paragraph (n) only to operate in respect of some of the paragraphs and not others, then (n) would have gone into the particular paragraphs.  My learned friend took the Court to section 27A(8)  ‑ ‑ ‑

KIRBY J:   You said “there not being”, am I looking at the wrong paragraph?  In my Act it says “other than a payment”.  Is this the definition of eligible termination payment, paragraph (a)?

MR DAVIES:   Yes, your Honour.

KIRBY J:   It raises “other than”, so it is ‑ ‑ ‑

MR DAVIES:   It is a payment other than the following.

KIRBY J:   Yes.

MR DAVIES:   So, what is then included is a payment other than the following payment.  So that each of the particular paragraphs has its own particular exclusions and we submit that it is clear from that that paragraph (n) is intended, where appropriate, to qualify the operation of all of the preceding paragraphs.  Now, in relation to the meaning of “consideration”, my learned friend referred the Court to section 27A(8) which deals with the transfer of property.  My learned friend did not take the Court to the next subsection, (8A).  The effect of subsection (8A) is to reduce the value of the monetary amount:

by the amount or value of any consideration provided, paid or payable…..in respect of the transfer.

So, if one goes back to (n), and the word “payment” appeared in (n), what would be excluded by (n) would not be the whole of the payment, but the payment less than – an amount less than the payment being reduced by the amount of any consideration given in respect of the payment.

GUMMOW J:   Why does that follow, Mr Davies?

MR DAVIES:   Because this is in circumstances where there is a transfer of property in non-monetary form and subsection (8A) provides, in those circumstances, the ‑ ‑ ‑

GUMMOW J:   Of what section?

MR DAVIES:   Section 27A.  It is on page 3,561, your Honour.  The preceding subsection deems a transfer of property to be a payment and my learned friend’s point was that the Full Federal Court said that the word “consideration” was used because it was intended to cover both the payment in money form and the transfer of property.  My learned friend says that was unnecessary because there is subsection (8), but where subsection (8) operates, it is qualified by subsection (8A) which provides that the amount of the payment shall be reduced by the amount or value of any consideration provided in respect of the transfer.

So that if one then goes back to paragraph (n), what would be excluded by the operation of paragraph (n) where the consideration takes the form of the transfer of property and the word used in paragraph (n) had been “payment” and not “consideration”, then the amount of the payment would not have been the whole of the payment but an amount reduced by reference to any consideration given for the payment.           So, your Honours, that is one reason why, in our submission, the word “consideration” was used and not the word “payment”.

McHUGH J:   Can you put forward any policy reasons why the legislature would seek to exclude a termination payment altogether when what has triggered off the payment is personal injury as opposed to retirement in both cases over this deed?  For example, a lump sum payment is equivalent to seven times the member’s final average salary.  What policy reason would there be for the legislature to say if what triggers off the payment is personal injury as opposed to retirement, it is not going to be taxed at all?

MR DAVIES:   The explanatory memorandum does not indicate, your Honour, but the policy would clearly be that if the payment or the amount of the payment is referable to the loss of income earning capacity, then the Parliament has seen fit to give such a payment concessional treatment as far as income tax is concerned as opposed to simply a retirement payment.  A retirement payment generally, your Honour, is an amount that is calculated by reference to services that have already been rendered and is usually seen as a payment in return for those services.

McHUGH J:   Exactly, but that seems to me to create one of the problems for you because when you look at this disablement benefits, there is a lot more to the payment than payment for personal injury.  The worker gets this payment, not because he has had an injury, but because he has contributed and because he has been an employee, and I find it difficult to say that it can be said to be wholly in respect of personal injury.  I do not know whether you contend that it would be, but you have to get ‑ ‑ ‑

MR DAVIES:   No, your Honour, I do not contend that it is wholly in respect of personal injury, but here we have an agreement, in effect, arising as a result of a contract of employment, that in return for being an employee and paying contributions, if personal injury occurs and incapacity results, then a certain payment will be made to the employee.  Now, your Honour, that, in my submission ‑ ‑ ‑

McHUGH J:   I am…. certain incapacity, but certain conditions are fulfilled which then it requires the trustee to pay a certain sum of money.  If you ask, what is the money paid in respect of, you have to ask, was this payment consideration in respect of personal injury to the taxpayer?  I find it difficult to answer that in your favour at the moment, except by the approach which you say is to divide up the elements of the condition and say it is in respect of part of or all of those elements.  That is the only way you can do it.  That is the way you would do it, I think.

MR DAVIES:   It is, your Honour.  I would do it by showing that where the sum of money is consideration for the satisfaction of an entitlement, then it must be in respect of each of the matters that give rise to the entitlement.  Now, what I mean by that at the very least, I do not mean those as being factual matters, your Honour.  It is enough for me to demonstrate that that is limited to the matters that are required by the agreement, pursuant to which the consideration is given, to give rise to the entitlement.

Here the agreement provides that one of those matters is personal injury and what is more, your Honour, it then goes on to say that that personal injury must have a number of consequences.

GAUDRON ACJ:   But it need not be personal injury.  That is the other aspect to it.

MR DAVIES:   Yes, and that, I think, your Honour, was the basis upon which Justice Spender had found at first instance but, your Honour, the answer to that is that we are concerned in this case with the particular payment and the particular payment in this case was not paid for an entitlement caused by disease or illness or the other things that the deed provides might give rise to an entitlement.

GAUDRON ACJ:   You say you characterise it by reference to the facts that happened and not simply by the legal criterion which brought the payment about?

MR DAVIES:   Your Honour, in having a look at the legal criteria, one must put the legal criteria within the framework of the actual facts and if one looks at the undisputed facts in this case, it is clear that the entitlement in this case arises as a result of incapacity to work caused by personal injury.

KIRBY J:   It may be, and I put this very crudely, that the thinking behind it is not to kick a person when they are down.  If they have had an injury they will have some obligations and so on.  There is some notion of that, is there not, in the Bankruptcy Act?  There is an exclusion from the prohibition on bringing personal injury proceedings, I suppose partly for the same motivation.

MR DAVIES:   Your Honour can understand the legislature wanting to bring within the tax regime payments that reflect the services provided and not wanting to bring within the tax regime payments that, in effect, provide a form of compensation for loss of future earning capacity.

GUMMOW J:   Suppose your client had just suffered a stroke for some reason, what would be the consequence, you say, in terms of payment she then received by the trustees, the tax character of that?

MR DAVIES:   Well, one would determine the character of the payment by looking at the particular provisions of the deed pursuant to which the money is paid.

GUMMOW J:   Well, differential treatment of various disablements, would be the consequence, would it not?

MR DAVIES:   It does, your Honour, yes; one would need to look at the certain particular provisions, in a sense, if, only partial disablement was caused, but ‑ ‑ ‑

GUMMOW J:   No, she has had a serious stroke.

GAUDRON ACJ:   But at home.

GUMMOW J:   But at home.

MR DAVIES:   A serious stroke – well if the stroke caused total and permanent disablement ‑ ‑ ‑

GUMMOW J:   She gets the payment and it is taxed.

MR DAVIES:   Well, not if it is in respect of personal injury, your Honour, and, when I say not if it is in respect of personal injury, only if it satisfies paragraph (n).

McHUGH J:   Yes, but that is part of the difficulty, is it not, that tells against policy that Justice Kirby put to you a moment ago, that if the legislature wanted to help those who are down and out because of personal injury, they would surely have used the word “payment” in paragraph (n), as they used it in (k), but instead they used the words “consideration of a capital nature”.  They could have easily excluded “payments for, or in respect of, personal injury to the taxpayer”, they did not do it; they added these rather technical words “consideration of a capital nature”, which they had used in paragraph (m).

MR DAVIES:   Your Honour, paragraph (n) is qualified by the proviso that:

the amount or value of the consideration –

must be –

reasonable having regard to the nature of the personal injury and its likely effect on the capacity of the taxpayers to derive income from personal exertion – - -

McHUGH J:   I know, but that seems to me to tell heavily against you.  I mean, it is unreal to talk about this payment having been reasonable having regard to the nature of the personal injury.  It has nothing to do with the nature of the personal injury.  It could be such that the person could be confined to bed for the rest of his or her life as a vegetable, or it could be some sort of physical or psychological injury of a stressful nature.  In most cases, I would imagine, it just does not work in respect of a superannuation scheme unless it is of the sort that I mentioned earlier where it is in some ways, in effect, an insurance policy which provides for a lump sum payment in consideration of a person’s employment being terminated by reason of permanent disablement.  In most cases, you could not give any realistic operation of the last part of paragraph (n).

MR DAVIES:   Your Honour, the Commissioner did not have any problems in this case ‑ ‑ ‑

McHUGH J:   Well, he probably did not have any problems because ‑ ‑ ‑

MR DAVIES:   And has conceded in this case, your Honour, before Justice Spender and in the Full Court that in this case ‑ ‑ ‑

GUMMOW J:   I know, but we are talking about constructions at the moment.

MR DAVIES:   That is true, your Honour, but that proviso simply requires the Commissioner to look at the nature of the personal injury and its effect on its capacity to derive income from personal exertion.

McHUGH J:   I know, but it throws up the point – you have to say seven times final average salary was reasonable value for the personal injury she suffered.  Well, in the context of the paragraph, it does not make any sense.  It has nothing to do with it.  She was not paid because of the nature of her injury, and that is what the last limb of the paragraph refers to.

MR DAVIES:   It does refer to the nature but in the sense, your Honour, it is directed at the capacity to derive income.

McHUGH J:   This payment was made because a condition or a number of conditions were satisfied.  Now, true it is that among those conditions were a determination by the trustee, the opinion of medical officers and personal injury to the taxpayer, but it is another thing altogether to say that the payment was consideration of a capital nature in respect of personal injury.

MR DAVIES:   Your Honour, in our submission, the word “consideration” is intended to cover, in the appropriate case, the types of things that are referred to in the previous paragraphs from (a) through to (j) including payments from superannuation funds.  The court quoted some authorities which make it clear that benefits payable under superannuation funds are benefits founded both in contract and in equity.  In our submission, the word “consideration”, on its meaning, covers at the very least the payment of a benefit from a superannuation fund of the type with which we are concerned.

GUMMOW J:   I do not think, Mr Davies, that Mr Shaw disputes that.

MR DAVIES:   No, your Honour.  The next matter is having then said that that is consideration, is it consideration in respect of personal injury?  We say it is consideration in respect of personal injury because the benefit, the relevant benefit, is expressed by reference to the personal injury.

GAUDRON ACJ:   But do not the concluding words that relate the amount to the “likely effect on the capacity of the taxpayer” suggest a really direct and close relationship rather than a relationship where it was a factor that came into consideration or a factor that even triggered it?  I mean that really seems to me to be your problem, that those concluding words direct a further close relationship.

MR DAVIES:   No, your Honour, because what those concluding words are designed to avoid is a director entering into an agreement with his company that if his employment is terminated by reason of personal injury, then he should be entitled to an amount which is clearly inflated.

GAUDRON ACJ:   Yes, one can understand that they serve that purpose, but they serve that purpose, I would have thought, by positing a real direct relationship between the payment, the injuries and the amount of the payment.

MR DAVIES:   It depends on what your Honour means by “direct relationship”.  We would say, your Honour, in this case, there is a direct relationship because the entitlement arises, for whatever amount, under the deed because of personal injury and its effects upon this member’s employment.

KIRBY J:   At least, arguably, the words “ in respect of” are broader than the necessity of a direct relationship, especially in juxtaposition to for.  I think there is a problem for you, though, in the use of the particular noun “consideration” twice, whereas in (k) it is a payment; and (p) it is transfer, but I do not know whether this is an answer to that problem, but each of them must be a payment because they are exceptions from the previous paragraphs, (a) to (j), all of which are payments – a payment or any payment.

MR DAVIES:   That is so, your Honour.

KIRBY J:   I cannot see why, where the Parliament has used the word “a payment”, it did not use the word “any payment” which is the common expression throughout, so I just think there may be some danger in assuming a neat structure that does not ‑ ‑ ‑

McHUGH J:   I do not think there is any doubt at all, well, there cannot be any doubt that (k), (m), (n) and (p) operate on payments, because the term “any payment” is used in all or most of the paragraphs, although (gb), for example, uses “a payment”, but when you get to (k) it talks about “a payment by way of advance or loan”, so it seeks to deal with that, and then in (m) it implies that the payment must represent “consideration of a capital nature”.  So, the question is:  was the payment consideration of a capital nature in respect of it?  But I think I atomised this paragraph a bit because it is not merely in respect of personal injury to the taxpayer, but: 

in respect of, personal injury to the taxpayer, to the extent to which the amount or value of the consideration is, in the opinion…..reasonable having regard to the nature –

You just cannot atomise it and divide it up.

MR DAVIES:   Well, coming back to Acting Chief Justice Gaudron’s direct relationship ‑ ‑ ‑

GAUDRON ACJ:   I am really just suggesting to you that that is part of the context and it suggests some fairly close relationship other than it being a necessary factor in the factual matrix.

MR DAVIES:   Your Honour, in our submission, one cannot have a closer relationship between two things than a necessary cause.

GAUDRON ACJ:   Or a necessary factor.

MR DAVIES:   A necessary factor ‑ ‑ ‑

GAUDRON ACJ:   In the factual circumstances.

MR DAVIES:   Than a necessary factor.

GAUDRON ACJ:   Well, that depends whether you look to the legal criterion, does it not?

MR DAVIES:   Your Honour, if one looks to the legal criterion expressed to be one of the criterion by the deed.  Apart from anything else, your Honour, it refers to the consequences of the personal injury.

GAUDRON ACJ:   I should take you back; a sufficient factor, in the legal criterion it is simply a sufficient factor.  If you look to the factual circumstances of this case you could say, well it was a necessary factor, but if you look to the legal criterion, you are looking at what is simply a sufficient factor.

MR DAVIES:   That is so, your Honour; your Honour, we cannot say that the personal injury in this case is sufficient by itself, but we do say, your Honour, that it is one of the factors, the necessary factors, and that the expression “or in respect of”, in the context of paragraph (n), does not require the personal injury to be the sufficient criterion, because otherwise, your Honour, the alternative would not be there and it would simply be consideration for personal injury.

McHUGH J:   I must say, the words “consideration for personal injury” does not seem to make much sense.  It has been copied out of (m) where the word “for” does have some meaning, but I would have thought in (n), “for” is really meaningless, it is really a consideration of a capital nature in respect of personal injury.  I cannot understand how you can have consideration of personal injury.

MR DAVIES:   Your Honour, my point is though that the “or in respect of” indicates that the personal injury does not have to be, within itself, the sole criterion for the consideration.  If it were the sole criterion, then you could have, your Honour, consideration of a capital nature for personal injury.

McHUGH J:   Yes, I follow that.

MR DAVIES:   So, we say, that that is an indication that it is not a requirement that personal injury comprise the whole criterion.

CALLINAN J:   Mr Davies, what the Full Federal Court said at page 236, line 10, cannot be right, can it, discussing “consideration”.  It may be right, but it may not assist the argument, I suggest:

It is accurate to speak of the benefits provided under the scheme as having been earned by the members.

In other words, the benefits were provided in consideration of the work but that is not the test.  The benefits under the exception in (n) have to be provided in consideration or in respect of the personal injury, not in respect of the work that has been done by the employee.  In other words, it does not advance the case at all to say what the Full Federal Court said at lines 10 and 11.

MR DAVIES:   It may be, your Honour, that the benefits are for the contributions or are for the work performed.  The consideration is for the work performed or for the benefits.

CALLINAN J:   But that does not make them the benefits in consideration of, “for or in respect of personal injury”.

MR DAVIES:   It does not, your Honour.

McHUGH J:   That is what Justice Callinan is putting to you, that the reasoning on 236 does not bridge the gap between ‑ ‑ ‑

MR DAVIES:   Your Honour, I know my learned friend said that the Federal Court approached the case by determining whether there was consideration and then working out whether it was “in respect of” or not, but that is because, your Honour, it was argued that way, and all that the Federal Court is doing in this case is to demonstrate that these payments, one way or the other, are consideration.  Of course there is then the next question as to whether they are in respect of.

CALLINAN J:   As Justice McHugh put to you much earlier, it is a combined phrase, you cannot do that segmented sort of exercise.

GUMMOW J:   That is what has been done at 236 and following, I think.  They were atomising paragraph (n).

MR DAVIES:   If this payment is consideration, then the next question is whether it is consideration in respect of personal injury.  The Full Court held that ‑ ‑ ‑

GAUDRON ACJ:   Would it be appropriate to consider the Full Court’s reasoning at 2.15?

MR DAVIES:   Yes; I should, just prior to that, take the Court to the last sentence of that paragraph, lines 14 to 16.

GAUDRON ACJ:   Yes.  Thank you.  The Court will adjourn until 2.15.

AT 12.47 PM LUNCHEON ADJOURNMENT

UPON RESUMING AT 2.17 PM:

GAUDRON ACJ:   Yes, Mr Davies.

MR DAVIES:   If the Court pleases, we were dealing with the Full Court’s judgment immediately prior to lunch.  If the Court turns to page 236 of the appeal book, lines 14 to 16 indicate that the court there was aware that it was the composite phrase with which it was concerned.  In the preceding sentence, commencing on line 12, the court found:

In this context, it is appropriate to refer to the payment as “consideration” passing from the Trustees to the member in satisfaction of the Trustees’ obligations and responsibilities to the member.

Your Honours, we would add at the end of that sentence, “under clauses 2.4.1 and 3.5.1(c)”, because they were the only obligations and responsibilities under those particular clauses that the payment in this case discharged, or was paid in satisfaction of.

GUMMOW J:   That is not quite right, is it?  There would have been a general interest in the undifferentiated mass of the assets, would there not, in some general sense?  There would have been a right to compel observance by the trustee of the deed, and so on and so forth?

MR DAVIES:   Well, your Honour, no.

GUMMOW J:   I do not think much turns on it here.

MR DAVIES:   No.

GUMMOW J:   It was not just a debtor/creditor relationship.

MR DAVIES:   No, it was not, your Honour, that is so, but the sum of $164,000 was calculated by reference solely to those particular clauses.

GUMMOW J:   Yes.

MR DAVIES:   And paid pursuant to them.  The court then concludes that:

There is nothing artificial or unusual in referring to a payment or other benefit given as a result of, or arising from personal injury as “consideration” in respect of or relating to that injury.

And that is a conclusion which we respectfully adopt.

KIRBY J:   Mr Davies, I am not hearing you.

MR DAVIES:   Sorry, your Honour.  In the last sentence, the Full Court does demonstrate that the question before it is whether or not it is consideration in respect of personal injury and concludes that:

There is nothing artificial or unusual in referring to a payment or other benefit given as a result of, or arising from personal injury as “consideration” in respect of or relating to that injury.

And that, your Honour, is a conclusion which we would respectfully adopt.  The Full Court then turns to consider the particular clauses under which the payment was made and then, on page 239 at line 7, concludes that:

In this case, in a real and practical sense, it is evident that the injury suffered by the member gave rise to the entitlement and resulted in payment of the consideration.  There is a real, discernible and rational connection between payment and the personal injuries.  In these circumstances the consideration was “in respect of” personal injury.

GUMMOW J:   Well, there are a number of propositions wrapped up there, are there not?

MR DAVIES:   There are, your Honour, but the point is that ‑ ‑ ‑

KIRBY J:   This is, after all, their conclusion.

MR DAVIES:   That is the conclusion.

GUMMOW J:   No, no, this phrase “real and practical”, where does that come from as a criterion?

MR DAVIES:   “Real, discernible and rational”, your Honour.

GAUDRON ACJ:   Well, it seems to be looking behind the trust deed, does it not?

MR DAVIES:  
The “discernible and rational”, your Honour, comes from the propositions in the ‑ ‑ ‑

GUMMOW J:   No, I am worried about “real and practical” at the moment.

MR DAVIES:   In a real and practical sense, well, that is having considered, your Honour, the trust deed and the facts of the case.

GUMMOW J:   Mr Shaw’s client could apply that to a number of receipts, he would be very rich.

MR DAVIES:   But, your Honour, that is a conclusion simply on the facts and the terms of the trusts of the trust deed, and then having ‑ ‑ ‑

GUMMOW J:   What I am putting to you is, one does not ordinarily construe taxation legislation that way.  The taxpayers would be distraught if that were so.  It is not a question of whether in a real and practical sense….., it is a question of whether the section bites.

MR DAVIES:   Your Honour, in relation to the conclusion that leaving out the first ‑ ‑ ‑

GUMMOW J:   Unless it is an avoidance provision.

MR DAVIES:   Leaving out the words up to the word “sense”, the conclusion that:

it is evident that the injury suffered by the member gave rise to the entitlement and resulted in payment of the consideration –

is, in our submission, undeniably correct, on the facts, whether one views it as a real and practical sense or as a matter of pure legal analysis.

GUMMOW J:   Gave rise to the entitlement?

MR DAVIES:   Yes, it did, your Honour.

GUMMOW J:   Well, we have been through that before.

MR DAVIES:   Yes, we have.  We rely on ‑ ‑ ‑

GUMMOW J:   There is an assumption - that is why I said it to you there is an assumption there as to the difference between necessary and sufficient.

MR DAVIES:   That is so, your Honour ‑ ‑ ‑

GUMMOW J:   That is what Justice Gaudron was discussing before lunch.

MR DAVIES:   It is correct to say, your Honour, that the injury, by itself, was not sufficient to give rise to the entitlement.

GUMMOW J:   Yes.  Now, where does the Full Court deal with these matters that I have just been putting to you.  You said that the proposition, that this wrapped up what they have been saying before, well, where did they say it before?

T49:JJ
MR DAVIES:   As to the conclusion?

GUMMOW J:   No, as to the meaning they were giving to “gives rise”.  It is just an expressed assumption, is it not?  “Necessary” is enough but it need not be sufficient.

MR DAVIES:   No, your Honour.

GUMMOW J:   I do not think it matters much at the end of the day.

MR DAVIES:   On the page before in the second paragraph, the Full Court says:

In order to resolve the present question, it is necessary to consider the bases on which the payment has been made.

There is reference to clause 2.4.1.  It is then said that:

There are two elements in this description of the event which give rise to an entitlement.

GUMMOW J:   No, at line 20 it says:

The requirement of causation, which is the nexus selected in the paragraph –

and we all know there are many theories of causation.

MR DAVIES:   I am sorry, your Honour, which line?

GUMMOW J:   Line 20.

MR DAVIES:   On page 237?

GUMMOW J:   Page 238.

MR DAVIES:   I am sorry, your Honour, I was referring to page 237.  At 237 in the second paragraph the court refers to clause 2.4.1 and says that:

There are two elements in this description of the event which give rise to an entitlement.  The first is termination of employment.  The second is that termination must be on the ground of total and permanent disablement.

Then “disablement” is defined.  Then in the next paragraph:

The member’s entitlement, under the Deed, in the present case, arises not simply upon termination of employment alone but upon termination on the ground of total and permanent disablement.  This is a composite requirement.  It is an essential requirement of any entitlement that it arise because of the total and permanent disablement, which results from bodily or physical injury.  Therefore, in a practical and significant respect, the payment is made as a consequence of the underlying basis of personal injury.  A classification of the personal injury as being simply a condition precedent to entitlement is unduly narrow and somewhat artificial given the language of the relevant provisions.

The Full Court is aware, your Honour, that it is not simply the personal injury that gives rise to the entitlement but that personal injury is one of the critical factors that gives rise to the entitlement.

CALLINAN J:   I did not understand why if something were a condition precedent, in any event, that meant that it was not “in respect of”.

MR DAVIES:   No, your Honour.

CALLINAN J:   It was not necessarily so.

MR DAVIES:   Coming back to the reason why we have come to the passage, and that is because my learned friend submitted that the court approached the question in a disjunctively way, in our submission, it did not.  It determined what the consideration was for and then determined whether the consideration was in respect of personal injury, and concluded, correctly as we would submit, that because personal injury was one of the critical elements giving rise to the entitlement, that it was consideration in respect of personal injury.

May I go back to paragraph (n), and revisit very briefly the proviso to paragraph (n).  In our submission, the proviso to paragraph (n) indicates that there may be:

consideration of a capital nature for, or in respect of, personal injury –

that is in no way measurable with, or proportionate to, any loss of earning capacity of loss of income.  That is because the proviso is there.  The words “in respect of” do not qualify the proviso.

McHUGH J:   But it is not really a proviso, is it?  It is a statement of your entitlement to come within the exception, or it is part of the ‑ ‑ ‑

MR DAVIES:   It is, your Honour, but it works this way.  What is said to be not an eligible termination payment is this.  First of all, “consideration of a capital nature for, or in respect of, personal injury” but that is then qualified and the qualification is that only:

to the extent to which the amount or value of the consideration is…..reasonable –

and so on.  So, the first question is whether there is consideration “for, or in respect of, personal injury” and then having identified such a consideration, the next question is whether the Commissioner is of the opinion that the amount of the payment is reasonable.  In this case, the Commissioner was so satisfied.  So in determining in this case whether the connection required by the words “for, or in respect of” is satisfied, a consideration of the proviso can only support the conclusion that there is a relevant connection.

GAUDRON ACJ:   It is not correct to say that the Commissioner was satisfied.  The true position is he makes no assertion and he could not be satisfied.  The Commissioner never got to (n), did he?

McHUGH J:   He got to (n).  Sorry, he excluded it.

GAUDRON ACJ:   If he got to (n) he did not go on to the proviso, as you call it.

MR DAVIES:   The Commissioner’s case was that it did not satisfy the first bit but the Commissioner said that if it satisfied the first bit then he was content with the second bit.  My only point is this, your Honour.  First is that in determining what connection is required by the words “for, or in respect of” in the first part, the proviso is, in a sense, irrelevant because it operates independently.

KIRBY J:   At paragraph 16 of the written submissions the Commissioner, in terms, concedes that the whole of the amount is reasonable.

MR DAVIES:   Yes, your Honour.  Before Justice Spender, it was conceded that - the concession was that if the first part was satisfied, then he was satisfied that the amount was reasonable.

GUMMOW J:   How does this help construction?

MR DAVIES:   I am sorry, your Honour?

GUMMOW J:   How do these matters help construction?

MR DAVIES:   Because, your Honour, it was put prior to lunch that the proviso was relevant in determining what is meant by “consideration for or in respect of personal injury”.

GUMMOW J:   I am not sure it is a proviso at all.  It is an exegetical, is the technical meaning of the word “consideration”.  It is explaining what consideration is.

MR DAVIES:   With respect, your Honour, that is precisely what it is not doing.

GUMMOW J:   All right.

MR DAVIES:   And I will say why, your Honour, because what is permitted to be an exclusion from the eligible termination payment ‑ ‑ ‑

GUMMOW J:   So much of the:

consideration of a capital nature for, or in respect of, personal injury to the taxpayer –

as satisfies this further criterion which is being spelt out?

MR DAVIES:   That is so, your Honour, that is so.  That means, therefore, your Honour, that you can have consideration for or in respect of personal injury that does not satisfy that further criteria and, your Honour, in determining in this case whether that criteria, if it qualifies the meaning of “consideration” is satisfied, it is satisfied because what it is ‑ ‑ ‑

GUMMOW J:   So much of that consideration is not included in the payment which otherwise falls in this case, I think, under (b).  That is what is happening.

MR DAVIES:   Yes, your Honour, and what the proviso is looking at, your Honour, is truly the opinion of the Commissioner and that is why it is relevant in this case, your Honour, because it is the Commissioner’s opinion that is qualified; and in this case the Commissioner would have that opinion.  He does not say, your Honour, that, “There is no consideration in this case because I am not satisfied in relation to the proviso”.  That is not put, and never has been.

My learned friend submitted that payment does not fall within (n) if the personal injury is merely the trigger but not the measure by which the amount is calculated.  That submission is contrary to the words of the proviso.

My learned friend relied upon section 27G and submitted that that section brought a certain symmetry to the operation of the subdivision in relation to payments where the termination of employment has occurred as a result of physical or mental incapacity, and submitted that there was no indication in section 27G that it was dealing with a restricted or limited type of physical or mental incapacity.

My learned friend ignored the opening words of paragraph (a); the section operates only where there is an eligible termination payment, therefore the section has no application and no intended application to a payment that is not an eligible termination payment, because it falls under paragraph (n).  So, to that extent, the express provisions of section 27G in the definition of “eligible termination”, indicate themselves that section 27G does have a limited operation in relation to payments relating to personal injury.

It is submitted in the written submissions by my learned friends that if the payment in question in this case was excluded from being an eligible termination payment by reason of paragraph (n), then section 27G would have no meaningful operation.  In paragraphs 29 through to 33 of our written submissions, we have given examples of where section 27G may operate, even if the payment in this case is excluded as an eligible termination payment.  I have already explained the first one, which is referred to in paragraph 30, and that is that the paragraph (n) does not exclude payments of an income nature and therefore, in the appropriate cases, section 27G will apply to those. 

The second is, where, although incapacity is the cause of the termination of employment, there is no material connection between the payment and the personal injury.  That may simply occur where a director agrees with his company that he should, upon termination of employment, receive a sum of money.  Paragraph (n), in those circumstances, would not operate, even if the reason for the termination of employment were personal injury, but section 27G would operate.  That is an example that the Full Court sets out at appeal book page 240, lines 19 to 24.

The next thing to note is that paragraph (n) refers to “personal injury” and section 27G does not refer to “personal injury” but to “physical or mental incapacity”.  There may be cases where the reason for the termination of employment is an incapacity that is not due to personal injury.  The final example that we have given of where 27G may operate is where, because of the proviso to paragraph (n), the payment would not be excluded from the definition as an eligible termination payment.  So it cannot be said, in our submission, that having regard to those matters, that the operation of section 27G would be rendered otiose.

We do submit that the existence of section 27G and its treatment of the types of payment that fall within it are consistent with a legislative intention that paragraph (n) should have ample operation.  If there is an invalidity payment that falls within section 27G, it received at that time concessional treatment.  Since 30 June 1994 a payment falling within section 27G has not been taxed at all.  In those circumstances it would be a curious result if the legislature intended that the exclusions set out in paragraph (n) should have anything other than a wide operation.

Your Honours, can I say in two sentences our case.  The payment of the $164,000 was the consideration the respondent received for the discharge or satisfaction of her entitlements under clauses 2.4.1 and 3.5.1(c) of the trust deed.  That sum of money was consideration in respect of each of the matters which under the trust deed gives rise to those entitlements.  If the Court pleases.

GAUDRON ACJ:   Thank you, Mr Davies.  Yes, we will hear you in reply now, Mr Shaw.

MR SHAW:   If the Court pleases, I do not desire to say anything in reply.

GAUDRON ACJ:   Yes, thank you.  We have your submissions.

CALLINAN J:   Well, can you ‑ ‑ ‑

MR SHAW:   I did not escape, I thought I might.

CALLINAN J:   Can you tell me what work the phrase “in respect of”, to what situation it would apply as opposed to the situations that the word “for” would apply to?

MR SHAW:   Well, your Honour, I was asked that before lunch and the answer I gave was that it was intended to distinguish between damages or compensation actually for the injury and damages which were to compensate for loss of income flowing from the injury.  It was suggested to me over lunch that it might also cover, that is to say “in respect of” a sum paid in settlement of a claim for a personal injury where the claim was not admitted.

CALLINAN J:   What about possibly a lump sum payment for an injury sustained by a worker, worker’s compensation lump sum?  Would that be consideration “in respect of” as opposed to consideration “for” the personal injury.

MR SHAW:   Your Honour, in our submission, what it is intended to do is to pick up, if I could call it, compensation for a reimbursement for the injury and what flows from it, as opposed to covering something which, it is true, may, in part, have flown from the fact that the injury happened but the quantum of which has no absolutely no relationship to the injury.

CALLINAN J:   I must say, I do not fully follow that because consideration paid for, still is subject to the requirement that the quantum be reasonable, is it not?

MR SHAW:   Yes.

CALLINAN J:   So you do not draw a distinction between “for” and “in respect of” on the basis of quantum, that has nothing to do with it.  I really want to know what sorts of cases to which the words “in respect of” can apply, what sorts of instances.

MR SHAW:   Your Honour, I cannot really add to what I have said to your Honours, since they were the examples we thought of, but perhaps I can add this by way of, as it were, confession and avoidance.  The same phrase appears in (m), as opposed to (n), where it is:

Consideration of a capital nature for, or in respect of, a legally enforceable contract in restraint of trade –

and the difficulty of giving an example of “in respect of” as opposed to “for”, in that case, is even harder.

CALLINAN J:   Yes, it is.

MR SHAW:   So, perhaps I could say to your Honour in the same case as in (m).

CALLINAN J:   But we do not have to construe (m) at the moment.

MR SHAW:   One does a bit.

CALLINAN J:   Let us focus on (n).

MR SHAW:   Yes, but we would say that the two examples we have given are both examples of something which could be regarded as “in respect of” ‑ ‑ ‑

GUMMOW J:   What was the first example again, Mr Shaw?

MR SHAW:   The first example was that part of a payment which related to a loss of income which flowed from the injury as opposed to

compensation for the actual injury itself, like pain and suffering and medical expenses and whatever.

GUMMOW J:   Yes.  That would link up with the idea of severance to the extent.

MR SHAW:   Yes.  The second example I gave was an example of where you have a termination occur, a personal injury has arisen, a claim is made in respect of that.  The employer does not admit liability for the injury but there is a settlement which involves no admission of liability but a payment.

GUMMOW J:   Yes, and was Mr Davies right in pointing out to us the amendment to section 25(1) and the removal of 26(d) and 26AA and 26AE?

MR SHAW:   Your Honour, without being absolutely certain of what the answer is, I think so, yes, and if I find out the answer is no, I shall let your Honour know.

GUMMOW J:   So, to an extent it appears to me that this division is dealing with matters of income as well, what otherwise would have been matters of income.

MR SHAW:   By reason of the Act?

GUMMOW J:   Yes.

MR SHAW:   Yes, your Honour.

GUMMOW J:   Thank you.

GAUDRON ACJ:   I think you are safe now, Mr Shaw.  Mrs Moshinsky, we have your written submissions.  We do not think that anything else arises.  You think otherwise, do you?

MRS MOSHINSKY:   No, just the courtesy of coming here, but I will also not add anything.  Thank you very much.

GAUDRON ACJ:   Thank you, Mrs Moshinsky.  The Court will consider its decision in this matter and adjourn until 10.15 am tomorrow.

AT 2.49 THE MATTER WAS ADJOURNED