Dickinson v Commissioner of Taxation

[2014] HCATrans 27

[2014] HCATrans 027

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S181 of 2013

B e t w e e n -

MATTHEW DICKINSON

Applicant

and

COMMISSIONER OF TAXATION

Respondent

Application for special leave to appeal

KIEFEL J
GAGELER J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 14 FEBRUARY 2014, AT 10.48 AM

Copyright in the High Court of Australia

MR B.W. WALKER, SC:   May it please your Honours, I appear with my learned friends, MR J.O. HMELNITSKY, SC and MR D.P. HUME, for the applicant.  (instructed by Balazs Lazanas & Welch LLP)

MR M. RICHMOND, SC:   If the Court pleases, I appear with my learned friend, MR D.F.C. THOMAS, for the respondent.  (instructed by Australian Government Solicitor)

KIEFEL J:   Yes, Mr Walker.

MR WALKER:   If it please your Honours, may I take your Honours directly to page 31 of the application book in order conveniently there to find not only the provisions but to start a reference to some of the reasons below.  The critical expressions, as your Honours appreciate, include in section 124‑780(1)(b), the word “arrangement”.  Over the page, there is a familiar and expansive definition of that which really is not much more than the ordinary meaning of the word “arrangement”.

The matters which, in our submission, highlight the discordance of the decision below with the intended relief surely to be seen in these provisions comes from subsection (2) and in subsection (2) one sees that the success of the arrangement in the course of which, by no doubt many, many separate transactions and conveyances, some people take money and some people take shares - it is the taking of shares that matters here - the success need not be complete.  So, one knows that up to 20 per cent of the persons to whom – I will call them offers, or possibilities are made available – to use a loaded word – do not take them up.

Then, the next element I want to take you to is, of course, the words which are at the heart of the argument below and which we offer to this Court as important words for a purposive understanding – provisions which are of quite obvious significance in the commerciality of very important commercial dealings – commerciality because of the tax treatment – commerciality because it involves leaving money invested in endeavours rather than cashing out upon their transformation by mergers and acquisitions.  One sees in subsection (2)(c) then, this critical phrase:

participation was available on substantially the same terms for all of the owners of interests –

So that will be, in the most straightforward or ordinary case, that will be the 100 per cent.

KIEFEL J:   But as a matter of fact they were not, were they?  Is your argument that because of Photon’s indifference, there was a possibility that they could have been otherwise?

MR WALKER:   Yes, is the short answer.  Photon’s indifference – and that is the language we have from the Tribunal – is, of course, a fixed point in this litigation because of the nature of the appeal to the Federal Court referred to the Full Federal Court.  So there is the finding of fact which seems obvious.  It is a bit like the division of price in the kind of old‑fashioned sale of business contracts with which your Honours would be familiar.  The purchaser does not usually – did not usually in the old days – much care about what was assigned for various elements of the business – real estate, personal estate, stock‑in‑trade, goodwill, et cetera, et cetera.  That was a division which was available for the choice of the purchaser. 

Now, in our submission, the indifference in question here, the indifference of the would‑be purchaser, showed that if they chose – I stress, if they chose – all persons could participate on the same terms.  The offeror was perfectly happy for conveyances, ultimate transfers, to be accomplished on terms which would call for, relevantly, the same price as what I will call pari passu for convenience. 

GAGELER J:   You are not saying anything different than given Photon’s attitude the deal could have been structured differently.

MR WALKER:   It is saying exactly that.  In other words, it was available – and here I am using the statutory language – on terms which could have included pari passu.  It is the pari passu which was departed from by the private deal between some original investors which assigned different weighting for different parcels, notwithstanding their arithmetic relation.  That is what defeated us.

KIEFEL J:   But what it comes down to then is whether or not the word “available” means was actually available or had the potentiality of being available.

MR WALKER:   Your Honour, I fear – and against myself – if it came down to that, then I should lose both this application and if notwithstanding that, an application were granted, an appeal.  May I try and persuade you that it does not come down to something quite so loaded against me?  The attention has to be paid to the arrangement.  The arrangement is one which has at its heart a number of features, one of which is that there is the possibility of share for share.  The arrangement is obviously broader than the individual conveyances by which individual parcels are swapped – or, for that matter, money paid.

GAGELER J:   But the arrangement takes into account the universe of possible deals, does it?

MR WALKER:   No.  It is not the universe of possible but not accomplished deals.  The arrangement is here an arrangement by which an offer is made, importantly, at a fixed value including an equivalent in terms of share rather than cash, which has all the pari passu that we need and that arrangement is accompanied by the important indifference of the vendor as to what you do with the money, or, as we particularly need, how you decide among yourselves, insofar as there are camps rather than individual holders, how you among yourselves allocate the consideration.

GAGELER J:   The offer does not make the arrangement, does it?

MR WALKER:   No.  The offer is the working out.  Sorry, your Honour means the original on market offer.  No.  It is part of, not the whole of.  There are matters in the nature of negotiation and what might be called conveyancing matters that will then require what were the non‑pari passu allocation of consideration that is at the heart of this case. 

Now, in our submission, one then returns to that which is at the heart of the matter, namely, this is a scheme for relief which is intended to operate even if not all take up.  The fact that not all take up could, as we have pointed out in our written submission, very plausibly often would, be a result of inhibitions, more than commercial inhibitions, sometimes legal restraint, on the offer being accepted whether by way of prior agreements involving prior claims such as rights of first refusal or simple hypothecation and the inhibition that that would impose. 

So, when the legislature addressed the question of this relief and contemplated that it did not require 100 per cent take up – in other words, you did not have to say that everyone had taken up the offer equally – one has the premise of the application of these provisions but there might, for all sorts of reasons, be people who not only decided freely not to take up the offer, but also those who simply could not, that is, they could not avail themselves of it.  It was not available to them on the same terms.  It was not available to them at all.

It would be, in our submission, a really odd reading of the evident purpose of these provisions to suppose that investigation of the relief available for one among many who did take up an offer as to exactly why persons did not take up an offer.  It is an almost impossible proposition to suppose that the administration of these provisions would require rooting through the affairs of people who have nothing to do with the offeror and, by hypothesis, nothing to do with those who accepted the offer, in order to find out why they were not interested and, perhaps, were there among them,

persons to whom this offer was not available for reasons of private arrangement.

In our submission, the key elements have to do with an arrangement for this offer in which there is a scrip for scrip possibility.  If that is, by dint of the indifference of the would‑be purchaser, as in this case, to how people deal with proceeds and an evident, as in this case, willingness to proceed in the ordinary pari passu way, then there was within the meaning of the statute, the availability on substantially the same terms. 

To put it another way, it is availability according to the elements of the arrangement which is important, not availability according to the individual and probably occult reasons of restraint preventing some from either taking out it at all or from taking it up at the pari passu price which is the departure from equality that was the cause of our failure in the Full Court.

In our submission, your Honours, those are reasons why it is not by any means the facts - which are very simple in this case - of this particular case that present the one and only point.  It is, in our submission, quite plainly a matter of whether these provisions permit of the existence of private arrangements – I should not use that word – private restraints which destroy availability denying the intended relief for persons utterly unconnected with and completely ignorant of any such restraints falling within the requisite 80 per cent who have among themselves agreed to divide up a price that the purchaser is completely happy to offer on substantially the same terms. 

That, in our submission, is the special leave point and why, in our submission, an appeal would have sufficient prospects.  I hope, also, in answer to Justice Kiefel’s question, too.  May it please your Honours.

KIEFEL J:   We need not trouble you, Mr Richmond.

We are of the view that there is insufficient reason to doubt the correctness of the decision of the court below.  Special leave is refused with costs.

AT 11.01 AM THE MATTER WAS CONCLUDED