Commissioner of Taxation v Fabig

[2013] FCAFC 99

FEDERAL COURT OF AUSTRALIA

Commissioner of Taxation v Fabig [2013] FCAFC 99

Citation:		Commissioner of Taxation v Fabig [2013] FCAFC 99
Appeal from:		Matthew Dickinson v Commissioner of Taxation [2013] AATA 25; Janina Fabig v Commissioner of Taxation [2013] AATA 26
Parties:		COMMISSIONER OF TAXATION v JANINA FABIG and MATTHEW DICKINSON
File numbers:		NSD 247 of 2013 NSD 248 of 2013
Judges:		EDMONDS, GRIFFITHS AND DAVIES JJ
Date of judgment:		28 August 2013
Catchwords:		TAXATION – capital gains – Subdiv 124-M of Income Tax Assessment Act 1997 (Cth) – scrip for scrip roll-over relief – appeal from decision of Administrative Appeals Tribunal – whether the Tribunal erred in its identification of the “arrangement” – whether the arrangement was one in which participation was available on substantially the same terms for all shareholders – appeal allowed
Legislation:		Income Tax Assessment Act 1997 (Cth), Subdiv 124-M, ss 124-775, 124-780, 995-1 Administrative Appeals Tribunal Act 1975 (Cth), s 44
Cases cited:		Australand Investments Ltd v Commissioner of State Revenue (2009) 77 ATR 683 cited Commissioner of State Revenue v Australand Investments Ltd [2012] VSCA 152 cited S v Crimes Compensation Tribunal [1998] 1 VR 83 cited
Date of hearing:		29 July 2013
Place:		Sydney
Division:		GENERAL DIVISION
Category:		Catchwords
Number of paragraphs:		28
Counsel for the Applicant:		Mr M Richmond SC and Mr DFC Thomas
Solicitor for the Applicant:		Legal Services Branch, Australian Taxation Office
Counsel for the Respondents:		Mr JO Hmelnitsky and Mr R Raffell
Solicitor for the Respondents:		Balazs Lazanas & Welch LLP

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION	NSD 247 of 2013

ON APPEAL FROM THE ADMINISTRATIVE APPEALS TRIBUNAL

BETWEEN:	COMMISSIONER OF TAXATION Applicant
AND:	JANINA FABIG Respondent

JUDGES:	EDMONDS, GRIFFITHS AND DAVIES JJ
DATE OF ORDER:	28 AUGUST 2013
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1.The appeal be allowed.

2.The decision of the Administrative Appeals Tribunal be set aside.

3.The objection decision be affirmed.

4.The respondent pay the applicant’s costs as agreed or taxed.

Note:Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION	NSD 248 of 2013

ON APPEAL FROM THE ADMINISTRATIVE APPEALS TRIBUNAL

BETWEEN:	COMMISSIONER OF TAXATION Applicant
AND:	MATTHEW DICKINSON Respondent

JUDGES:	EDMONDS, GRIFFITHS AND DAVIES JJ
DATE OF ORDER:	28 AUGUST 2013
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1. The appeal be allowed.

2.The decision of the Administrative Appeals Tribunal be set aside.

3.The objection decision be affirmed.

4.The respondent pay the applicant’s costs as agreed or taxed.

Note:Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION	NSD 247 of 2013

ON APPEAL FROM THE ADMINISTRATIVE APPEALS TRIBUNAL

BETWEEN:	COMMISSIONER OF TAXATION Applicant
AND:	JANINA FABIG Respondent

JUDGES:	EDMONDS, GRIFFITHS, DAVIES JJ
DATE:	28 AUGUST 2013
PLACE:	SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION	NSD 248 of 2013

ON APPEAL FROM THE ADMINISTRATIVE APPEALS TRIBUNAL

BETWEEN:	COMMISSIONER OF TAXATION Applicant
AND:	MATTHEW DICKINSON Respondent

JUDGES:	EDMONDS, GRIFFITHS, DAVIES JJ
DATE:	28 AUGUST 2013
PLACE:	SYDNEY

REASONS FOR JUDGMENT

EDMONDS J:

1. I have had the considerable advantage of reading the reasons for judgment of Davies J in draft. I agree with her Honour’s conclusion that the appeals must be allowed, and for the reasons given by her Honour.

2. First, I agree with what her Honour says at [25] that:

   If, and in so far as, the Tribunal took the circumstance of Photon’s indifference about the allocation of the purchase price as amongst the shareholders into account in defining the “arrangement” it fell into legal error. Photon’s indifference did not form part of the relevant “arrangement” because of the terms on which the parties did contract.

   The only “arrangement” of which the exchange of shares was a consequence (see s 124-780(1)(b)) was that confined to the Share Purchase Agreement and the Deed of Variation; it did not include or encompass any other fact, matter or circumstance.

3. I also agree with her Honour’s conclusion that there was legal error in the Tribunal’s reasoning that the condition in s 124-780(2)(c) was satisfied because Photon was willing to buy the shares on the same terms for all shareholders and was indifferent to the break-up of the consideration amongst the shareholders. As her Honour says at [27]:

   Photon may have been indifferent about the allocation of consideration when it made the offers but the Shareholders’ Agreement meant that it was not open to the shareholders to accept Photon’s offer on the same terms. They were contractually obliged to sell their shares for different consideration and in consequence, participation in the share sales was not available to them on substantially the same terms.

4. The appeals should be allowed with costs. The decisions of the Tribunal should be set aside and the objection decisions affirmed.

I certify that the preceding four (4) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Edmonds.

Associate:

Dated:       28 August 2013

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION	NSD 247 of 2013

ON APPEAL FROM THE ADMINISTRATIVE APPEALS TRIBUNAL

BETWEEN:	COMMISSIONER OF TAXATION Applicant
AND:	JANINA FABIG Respondent

JUDGES:	EDMONDS, GRIFFITHS AND DAVIES JJ
DATE:	28 AUGUST 2013
PLACE:	SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION	NSD 248 of 2013

ON APPEAL FROM THE ADMINISTRATIVE APPEALS TRIBUNAL

BETWEEN:	COMMISSIONER OF TAXATION Applicant
AND:	MATTHEW DICKINSON Respondent

JUDGES:	EDMONDS, GRIFFITHS AND DAVIES JJ
DATE:	28 AUGUST 2013
PLACE:	SYDNEY

REASONS FOR JUDGMENT

GRIFFITHS J:

1. I have had the advantage of reading in draft form the reasons for judgment of both Edmonds J and Davies J.  I agree with the orders proposed by both their Honours and with their reasons. 

I certify that the preceding one (1) numbered paragraph is a true copy of the Reasons for Judgment herein of the Honourable Justice Griffiths.

Associate:

Dated:       28 August 2013

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION	NSD 247 of 2013

ON APPEAL FROM THE ADMINISTRATIVE APPEALS TRIBUNAL

BETWEEN:	COMMISSIONER OF TAXATION Applicant
AND:	JANINA FABIG Respondent

JUDGES:	EDMONDS, GRIFFITHS AND DAVIES JJ
DATE:	28 AUGUST 2013
PLACE:	SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION	NSD 248 of 2013

ON APPEAL FROM THE ADMINISTRATIVE APPEALS TRIBUNAL

BETWEEN:	COMMISSIONER OF TAXATION Applicant
AND:	MATTHEW DICKINSON Respondent

JUDGES:	EDMONDS, GRIFFITHS AND DAVIES JJ
DATE:	28 AUGUST 2013
PLACE:	SYDNEY

REASONS FOR JUDGMENT

DAVIES J:

1. The Commissioner of Taxation (“the Commissioner”) has appealed the decisions of the Administrative Appeals Tribunal (“the Tribunal”) allowing the respondents (collectively “the taxpayers”) partial capital gains tax (“CGT”) roll-over relief under Subdivision 124-M of the Income Tax Assessment Act 1997 (Cth) (“the Act”) on the sale of their shares in iMega Pty Ltd (“iMega”) for cash and shares in another company, Photon Group Ltd (“Photon”). The sole question for the Tribunal was whether s 124-780(2)(c) of the Act was satisfied. Section 124-780(2)(c) contains the condition that:

   (2)The *arrangement must:

   …

   (c)be one in which participation was available on substantially the same terms for all of the owners of interests of a particular type in the original entity.

   Whether that condition was satisfied arose for determination because Photon did not pay the iMega shareholders the same consideration for their shares. The Tribunal found that the differential consideration paid to the shareholders was the direct result of a Shareholders’ Agreement pursuant to which the shareholders agreed to divide the proceeds of any share sale on an unequal basis. The Tribunal held that it was relevant to take into account, in identifying the “arrangement” for the purposes of s 124-780(2)(c), that Photon had made a global offer for the shares in iMega and had been indifferent as to the break up of the consideration amongst the iMega shareholders and, having regard to that fact, determined that the iMega shareholders could have accepted Photon’s offer on the same terms. The Tribunal accordingly held that the “arrangement” was one in which participation was available on substantially the same terms for all of the shareholders and that the condition in s 124-780(2)(c) was satisfied.

   ISSUES RAISED BY THE APPEAL

2. Two issues are raised by the appeal as questions of law within s 44 of the Administrative Appeals Tribunal Act 1975 (Cth): (1) whether the Tribunal erred in its identification of the “arrangement”; and (2) whether the Tribunal erred in its conclusion that

   
   

   s 124-780(2)(c) was satisfied. For the reasons that follow, I have concluded that the Tribunal erred in law insofar as it identified the “arrangement” as extending beyond the contractual relationship entered into, and erred in law in its conclusion that the condition in s 124-780(2)(c) was satisfied.

   THE SHAREHOLDERS’ AGREEMENT

3. iMega had five shareholders. At the time of disposition of the shares in iMega to Photon, the equity ratio of shares held by each member (collectively “the shareholders”) was as follows:

   ·Mr Dickinson  – 50%

   ·Ms Fabig – 32.3 %

   ·Robekesh Pty Ltd (“Robekesh”) and Kezweazel Pty Ltd (“Kezweazel”) – 16.3% and

   ·Global Interactive Pty Ltd (“Global Interactive”) – 1.4%

4. On 22 May 2006, the shareholders and board of directors of iMega entered into a Shareholders’ Agreement. Clause 31.1 of that agreement provided that for a period of 36 months from execution of the agreement (“the Restricted Period”), the shareholders would only sell their shares to the same purchaser(s) in proportions equal to their respective equity ratio and would do “all things and sign all documents necessary” to effect the distribution of the consideration paid or payable on any sale of shares by the shareholders in the Restricted Period in the proportions as follows:

   1.Up to the amount of $34,167,500:

   ·    Mr Dickinson –  80%

   ·    Ms Fabig – 15.5%

   ·    Robekesh and Kezweazel – 2.25%

   ·    Global Interactive –  2.25%

   (Clause 31.1(a))

   In excess of the amount of $34,167,500 – in accordance with the actual shareholdings held: Clause 31.1(b).

   THE SHARE PURCHASE AGREEMENTS

5. The share sale to Photon occurred during the Restricted Period and the terms of sale gave effect to the Shareholders’ Agreement. On 3 July 2006, the shareholders entered into a Share Purchase Agreement with Photon pursuant to which Photon purchased 90% of the shares in iMega from the shareholders for $8 million (“the purchase price”) payable in cash and the issue of shares in Photon in accordance with clause 4.2 of that agreement, plus a further sum (“the earn-out price”) that was to be paid in three tranches in future years based on future earnings under clause 4.3. Clause 4.2 provided for the payment of the purchase price in the same proportions that were prescribed in clause 31.1(a) of the Shareholders’ Agreement. Mr Dickinson, who held 50% of the shares, received cash and shares to the value of 80% of the purchase price. Ms Fabig, who held 32.3% of the shares, received cash and shares to the value of 15.5% of the purchase price. Robekesh and Kezweazel, which held 16.3% of the shares, received cash and shares to the value of 2.25% of the purchase price and Global Interactive, which held 1.4% of the shares, received cash (but no shares) to the value of 2.25% of the purchase price. Clause 4.3 of the Share Purchase Agreement also provided for the earn-out price to be paid to the shareholders on a basis that was disproportionate to their equity ratios. The Tribunal found that the allocation of both the purchase price under clause 4.2 and the earn-out price under clause 4.3 of the Share Purchase Agreement was as a direct result of the Shareholders’ Agreement.

6. The Shareholders’ Agreement was amended on 2 November 2006 by a Deed of Variation. The Deed of Variation relevantly provided for the sale of the remaining 10% of the shares in iMega to Photon for cash and shares in Photon payable to the shareholders in a manner consistent with the Shareholders’ Agreement.

7. There was a significant difference between the percentage of iMega shares that the shareholders each held and the percentage of the consideration that they each received for the shares that they sold. As the Tribunal noted, this discrepancy was at the heart of the issue as to whether the condition prescribed by s 124-780(2)(c) was satisfied: Fabig v Commissioner of Taxation [2013] AATA 26 (“Fabig”) at [10]; Dickinson v Commissioner of Taxation [2013] AATA 25 (“Dickinson”) at [9].

   LEGISLATION

8. Subdivision 124-M of the Act permits a capital gain to be deferred (“rolled-over”) where post-CGT shares owned by the taxpayer are replaced with other shares: s 124-775. The requirements for scrip for scrip roll-over relief are set out in s 124-780 of the Act. Relevantly, s 124-780(1) and (2) provide as follows:

   124-780Replacement of shares

   (1)  There is a roll-over if:

   (a) an entity (the original interest holder) exchanges:

   (i)a *share (the entity’s original interest) in a company (the original entity) for a share (the holder’s replacement interest) in another company; or

   (ii)an option, right or similar interest (also the holder’s original interest) issued by the original entity that gives the holder an entitlement to acquire a share in the original entity for a similar interest (also the holder’s replacement interest) in another company; and

   (b) the exchange is in consequence of a single *arrangement that satisfies subsection (2) or (2A); and

   (c) the conditions in subsection (3) are satisfied; and

   (d) if subsection (4) applies, the conditions in subsection (5) are satisfied.

   (2)  The *arrangement must:

   a)   result in:

   (i)a company (the acquiring entity) that is not a member of a *wholly-owned group becoming the owner of 80% or more of the *voting shares in the original entity; or

   (ii)a company (also an acquiring entity) that is a member of such a group increasing the percentage of voting shares that it owns in the original entity, and that company or members of the group becoming the owner of 80% or more of those shares; and

   b)   be one in which at least all owners of *voting shares in the original entity (except a company referred to in paragraph (a)) could participate; and

   c)   be one in which participation was available on substantially the same terms for all of the owners of interests of a particular type in the original entity.

9. The expression “arrangement” is defined in s 995-1 to mean:

   [A]ny arrangement, agreement, understanding, promise or undertaking, whether express or implied, and whether or not enforceable (or intended to be enforceable) by legal proceedings.

10. Before the Tribunal it was common ground that s 124-780(1)(a) and (c) were satisfied and that s 124-780(1)(d) did not apply. It was also common ground that s 124-780(2)(a)(i) and (b) were satisfied. The sole issue was whether the condition in s 124-780(2)(c) was satisfied.

    THE TRIBUNAL’S DECISION

11. The Tribunal reasoned that it was first necessary to identify the arrangement in consequence of which each of the relevant exchanges occurred and then to consider whether the arrangement was one in which participation was available on substantially the same terms for all of the shareholders in iMega.

    Identification of the “arrangements”

12. The taxpayers had argued that pre-contractual offers made by Photon should be taken into account as part of the “arrangement”. The details of those offers are sketchy as they were not the subject of findings of fact by the Tribunal, although the Tribunal referred to them in the course of, and as part of, its reasons. It appears from a document tendered to the Tribunal entitled “Facts not in dispute” that Photon made an offer to the shareholders on 14 June 2006 to purchase 90% of iMega’s shares for a cash amount, without allocation of the consideration. A draft Share Purchase Agreement was prepared by Photon’s solicitors which provided for the purchase price to be paid to the shareholders in proportion to their equity ratios. Subsequent drafts of the agreement provided for the purchase price to be paid to the shareholders in accordance with clause 31.1 of the Shareholders’ Agreement. At some stage, agreement was reached that the form of consideration would be Photon shares and cash. A value per Photon share was set and the Share Purchase Agreement was entered into on 3 July 2006.

13. The Tribunal identified the relevant “arrangements” as:

    …[T]he first arrangement in question here is broadly the Share Purchase Agreement together with the fact that the consideration to be paid by Photon was a global price in relation to which Photon is fundamentally indifferent as to the break-up between the Shareholders. That fact is a critical part of the single arrangement and the exchange is in consequence of that single arrangement.

    The same reasoning applies by parity of reasoning to the Deed of Variation and the exchange arising there from. Again, the arrangement is broad enough to encapsulate the broad circumstances whereby Photon is fundamentally indifferent to the break-up of the consideration as between the Shareholders: Fabig at [33]-[34]; Dickinson at [32]-[33].

14. The Tribunal’s reasoning was that:

    a)as the term “arrangement” was broadly defined and extended well beyond formal agreements to include such things as unenforceable promises and undertakings, the “arrangement” that resulted in each of the two share exchanges can include more than just the Share Purchase Agreement and Deed of Variation: Fabig at [26]-[27]; Dickinson at [25]-[26];

    b)the extent that the pre-contractual offers were inconsistent with the final agreements, the terms of those offers could not themselves form part of the “arrangement” for the purposes of s 124-780 because they cannot be part of the arrangement in consequence of which the exchange takes place: Fabig at [28]-[29]; Dickinson at [27]-[28];

    c)the Share Purchase Agreement and Deed of Variation were comprehensive documents that constituted the terms of the arrangement: Fabig at [30]; Dickinson at [29];

    d)while the arrangement cannot include terms that directly contradict the terms of the Share Purchase Agreement and Deed of Variation, the fact that there were a variety of previous offers made with different allocations of consideration and the reasons why they were made is “relevant”: Fabig at [31]; Dickinson at [30];

    e)the fact that there were other offers which were not accepted and the reasons for those other offers being rejected are matters which may form part of the arrangement: Fabig at [31]; Dickinson at [30]; and

    f)the offers themselves cannot form part of the arrangement but the circumstances in which the offers were made and the fact that Photon was indifferent to the break-up of consideration could be taken into account in identifying the arrangement: Fabig at [31]; Dickinson at [30].

1. The Tribunal concluded:

   Therefore, even though the arrangement is broadly defined by the terms of the Share Purchase Agreement and the Deed of Variation, and cannot be contradicted by the terms of rejected offers, the general circumstances that led to the finalisation of those terms can be and are in this instance part of the arrangement. Critically, here the indifference of Photon as to the break-up between the Shareholders of the consideration is such a circumstance which is a relevant part of the arrangement. Fabig at [32]; Dickinson at [31].

   WAS THE ARRANGEMENT ONE IN WHICH PARTICIPATION WAS AVAILABLE ON SUBSTANTIALLY THE SAME TERMS FOR ALL THE IMEGA SHAREHOLDERS?

2. The Tribunal concluded that participation was available on substantially the same terms for all the iMega shareholders. The Tribunal reasoned:

   What is abundantly clear from all the evidence is that Photon made available an offer of cash plus shares for all the shares in iMega. How that would be split between the various vendors was of no interest and of no consequence to Photon. In terms of the relevant legislation, Photon was making available an offer to all the Shareholders for all the shares in iMega. That offer was available to all Shareholders on the same terms. How it would be accepted was entirely a matter for the Shareholders who could accept and did so on terms that would give some Shareholders more and others less consideration. So long as the total amount did not exceed the amount Photon was willing to pay, Photon was indifferent as to the allocation of the consideration among the Shareholders. The fact that the Shareholders decided to take the offer on the basis that more consideration would be paid to some Shareholders and less to others does not detract from the fact that participation was ‘available’ on substantially the same terms to all Shareholders: Fabig at [35]; Dickinson at [34].
   …

   In other words Photon was willing to buy out the Shareholders in iMega on the same terms for all and that offer could have been accepted on those terms. They do not have to accept on the same terms in order to conclude that participation was available on the same terms: Fabig at [38]. Dickinson at [37].

   THE FIRST ISSUE: WHETHER THE TRIBUNAL ERRED IN ITS IDENTIFICATION OF THE “ARRANGEMENT”

3. The Commissioner argued that the Tribunal fell into legal error in the identification of the “arrangement” either because it misconstrued the “arrangement” for the purposes of

   
   

   s 124-780 or because it reached a conclusion that was not open on the facts as found. Either basis, if established, constitutes an error of law:  S v Crimes Compensation Tribunal [1998] 1 VR 83 at 88-93 per Phillips JA; Australand Investments Ltd v Commissioner of State Revenue (2009) 77 ATR 683, 702-3 per Mandie J; affirmed on appeal in Commissioner of State Revenue v Australand Investments Ltd [2012] VSCA 152. The argument was that the arrangement was constituted by the contracts that were entered into which contained the entire terms on which the parties contracted, including the consideration payable by Photon for the shares in iMega, and that as Photon had contractually obliged itself to pay differing amounts of consideration to the iMega shareholders, therefore Photon could not be indifferent to the amounts that each shareholder would receive for their shares.

4. An “arrangement” of the kind to which s 124-780 is directed is an arrangement that meets the composite requirements of the section. The roll-over provisions only apply where the share exchange “is in consequence of a single arrangement that satisfies subsection (2) or (2A)”: s 124-780(1)(b). Perforce of s 124-780(1)(b), there are four elements of the statutory context that identify the features of an “arrangement” to which Subdivision 124-M applies. First, there must be something capable of constituting an “arrangement” as defined in

   
   

   s 995-1. Secondly, the “arrangement” must satisfy s 124-780(2) or (2A). Thirdly, that “arrangement” must be a “single” arrangement and fourthly, the relevant share exchange must be in consequence of that “single arrangement”.  The “arrangement” to be identified must have those features.

5. There can be no question in this case that the contractual arrangements between the parties were within the statutory description of “arrangement” in s 995-1.  There can also be no question in this case that the share exchange was in consequence of the share sales on the terms of the Share Purchase Agreement and the Deed of Variation. The Tribunal correctly held at Fabig [30] and Dickinson at [29] that the Share Sale Agreement and the Deed of Variation constituted the terms of the arrangement, which provided for the issue of shares in Photon as part of the consideration paid by Photon for the iMega shares. Nor can there be a question in this case about whether the share exchange was in consequence of a single arrangement. Quite plainly, the sale of the iMega shares and the issue of shares in Photon in exchange were part of the same transaction. Quite plainly also, the share sales resulted in Photon becoming the owner of 80% or more of the voting shares in iMega, satisfying the condition in s 124-780(2)(a)(i) and, because all of the iMega shareholders were involved in the transaction, the condition in s 124-780(2)(b) was also satisfied.

6. The “arrangement” in this case was the contractual relationship entered into. The Tribunal correctly held at Fabig [30] and Dickinson at [29] that the contracts constituted the terms of the arrangement. The Tribunal also correctly held at Fabig [31] and Dickinson at [30] that the pre-contractual offers “themselves” did not form part of the arrangement. If, and in so far as, the Tribunal took the circumstance of Photon’s indifference about the allocation of the purchase price as amongst the shareholders into account in defining the “arrangement” it fell into legal error. Photon’s indifference did not form part of the relevant “arrangement” because of the terms on which the parties did contract. That is not to say, however, that it was wrong for the Tribunal to have regard to the matters that it did take into account in its consideration as to whether the condition in s 124-780(2)(c) was satisfied. The broader circumstances were relevant to explaining an element of the arrangement that was central to the Tribunal’s determination.

7. This case does not turn on the proper identification of the “arrangement” for the purposes of s 124-780 but upon the fact, as the Tribunal found, that the disparity in consideration amongst the shareholders arose as the direct result of their private Shareholders’ Agreement. In that context, Photon’s indifference to the allocation of the consideration bore upon the question that the Tribunal had to decide although for the reasons that follow, I have concluded that the Tribunal was wrong to conclude that Photon’s indifference meant that the shareholders could have sold their shares on the same terms and that the condition in s 124-780(2)(c) was satisfied.

8. There was, in my view, legal error in the reasoning of the Tribunal that the condition in s 124-780(2)(c) was satisfied. The Tribunal reasoned that the condition in s 124-780(2)(c) was satisfied because Photon was willing to buy the shares on the same terms for all shareholders and was indifferent to the break-up of consideration amongst the shareholders. The Tribunal thereby concluded at Fabig [38] and Dickinson at [37] that Photon’s offer could have been accepted by the shareholders on the same terms. However, that conclusion was reached without regard to the legal obligations on the shareholders under the Shareholders’ Agreement. Photon may have been indifferent about the allocation of consideration when it made the offers but the Shareholders’ Agreement meant that it was not open to the shareholders to accept Photon’s offer on the same terms. They were contractually obliged to sell their shares for different consideration and in consequence, participation in the share sales was not available to them on substantially the same terms. The Tribunal was wrong to conclude otherwise.

   CONCLUSION

9. The appeals should be allowed. The decisions of the Tribunal should be set aside and the objection decisions affirmed.

I certify that the preceding twenty-three (23) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Davies.

Associate:
Dated:       28 August 2013