Federal Commissioner of Taxation v St Helens Farm (ACT) Pty Ltd

[1981] HCA 4

HIGH COURT OF AUSTRALIA

Barwick C.J., Gibbs, Stephen, Mason, Murphy, Aickin and Wilson JJ.

FEDERAL COMMISSIONER OF TAXATION v. ST. HELENS FARM (A.C.T.) PTY. LTD.

(1981) 146 CLR 337

10 February 1981

Gift Duty (Cth)—High Court—Courts

Gift Duty (Cth)—Gift—Disposition of property—Company shares—Allotment—Conversion of ordinary shares to preference shares with limited rights on winding up—Allotment of ordinary shares to other persons for less than net value of company's assets after allowance for preference capital—Whether gift to allottees—Whether disposition of property—Whether disposition not for fully adequate consideration—Contingency affecting shares—Statutory direction that allowance not be made for contingency affecting interests of donee in computing value of gift—Allotment pursuant to contractual obligation—Valuation of shares—Power for Commissioner to adopt winding up method for shares in company not quoted on stock exchange—Whether absolute discretion—Appropriateness in particular case—Powers of board of review or court—Powers to appellate court—Gift Duty Assessment Act 1941 (Cth), ss. 4 (1), 12 (1), 18 (1) (a), (2) (c), (3). High Court—Precedent—Full Court—Decision of equally divided court—Judiciary Act 1903 (Cth), s. 23. Courts—Appeals—Questions of valuation—Review of method of valuation—Error in principle—Gross error of fact.

Decisions

1981, February 10.
The following written judgments were delivered: -
BARWICK C.J. The Court heard these appeals and cross appeals together. All the cases were heard and decided in the Supreme Court of New South Wales by Sheppard J. at a time when his Honour was a judge of that Court. The respondents in each case challenged assessments made by the appellant under the Gift Duty Assessment Act 1941 (Cth), as amended ("the Assessment Act") and were successful in every case in reducing the amount of the respective assessment. In one case, that of Q.A.W. Pty. Ltd., the reduction was to nil and the assessment was set aside. In their defences they raised a challenge to the propriety of this Court's decision in Ord Forrest Pty. Ltd. v. Federal Commissioner of Taxation (1974) 130 CLR 124 (Ord Forrest): but Sheppard J. treated himself as bound by that decision and applied it in his decision of the cases (1979) 46 FLR 217; 9 ATR 672; 79 ATC 4161 . (at p348)

2. The Federal Commissioner of Taxation (the appellant) has appealed in each case against his Honour's orders and the respondents have cross appealed to challenge the Court's decision in Ord Forrest. (at p348)

3. The cases in each instance involve the allotment and issue of shares in the respondent companies. The appellant claims the allotment and issue of the shares to be in each instance a disposition of property upon an inadequate consideration so as to attract gift duty imposed by the Gift Duty Act 1941 (Cth), as amended ("the Duty Act"): that is to say, that the allotment and issue was a disposition by the company of property to the allottee within the definition of the Assessment Act. His Honour in four of the five cases found the claimed inadequacy of consideration to be very considerably less than the inadequacy on which the appellant based his assessment. In the fifth case, the last in the list in the above heading, he found that there was no inadequacy. His Honour reduced the assessment in the first four cases and set aside the assessment in the fifth. The Commissioner seeks to restore his assessments in each case. (at p348)

4. Logically, one should first settle the question which the challenge to Ord Forrest by the cross appeals raises. For, if that case be overruled, no gift duty would be payable in any of the five cases. All involve the same basic question, whether there was in the respective case a disposition of property by the respective respondent to the person to whom an allotment of shares was made and, if so, was that disposition made by the respective respondent for an inadequate consideration passing from the allottee to the respective respondent. (at p348)

5. It is quite clear, in my opinion, and indeed settled doctrine in this Court that a case decided in this Court on an even division of opinion - as was Ord Forrest - does not constitute a binding precedent and that, notwithstanding it, the Court is at liberty, indeed, in my opinion, bound, to approach the question with which that case dealt, de novo, each Justice participating in the subsequent case to proceed upon his own view of the relevant law. My brother Aickin, in his reasons for judgment in these cases, which I have had the advantage of reading, refers to the authorities which establish this view. I therefore have no need to repeat them here. (at p349)

6. In the argument of the cross appeals, submissions were made which were not advanced in the argument of Ord Forrest and, generally, the possibilities of the construction of the Assessment Act, in particular s. 12 for which the appellant contends, were more fully explored. (at p349)

7. Having reconsidered the reasons for judgment expressed by my brothers Gibbs and Mason in Ord Forrest, particularly in the light of the reasons for judgment prepared by my brother Aickin in these cases and the additional submissions made in them, I feel fortified in the opinion I expressed in Ord Forrest. I adhere to it. I am quite satisfied that, upon its proper construction, the Assessment Act does not make the allotment and issue of a share in the capital of an incorporated company a disposition by that company of property to the allottee and, further, that the allotment money paid or payable by the allottee or in respect of the allotment and issue of the share does not constitute a consideration passing from the allotee to the company for the disposition of property by the company to the allottee; in other words, does not constitute a price. (at p349)

8. My brother Aickin, in arriving at this conclusion, has dealt most thoroughly and in depth with the difficulties which surround and attend a construction of the Assessment Act which, in effect, treats an allotment of shares as deemed to be a disposition of its property by the company to the allottee, involving both the company and the allottee in liability to gift duty. I agree entirely with my brother's analysis and with the critical significance of the illustrations he gives of the operation of the Assessment Act upon the construction which the statutory majority favoured in Ord Forrest (1974) 130 CLR 124 . (at p349)

9. Until allotment and issue, which includes the entry of the allottee's name on the share register in respect of the allotted share or shares, there is no property in the unissued shares; and, in particular, there is not then, or for that matter at any other time, any property or proprietorial right in or of the company in the unissued shares in its capital. The company has the capacity to allot and issue shares in the capital up to the amount of that capital, its nominal capital. But that capital is not property of the company. Indeed, when allotted and issued, the nominal amount of the issued share or shares constitutes in accounting terms a liability of the company. But, upon allotment and issue, the allottee has property in the shares allotted, the extent of that property being determined by the constitutional instruments of the company. But it is not property which comes to the allottee from, or by transfer from, the company. It is property which comes into existence by the allotment and issue or, more precisely, which is the consequence of such allotment and issue. The property consists of rights which may thereafter be exercised by virtue of the membership of the company thus gained and in accordance with its memorandum and Articles of Association. (at p350)

10. All this is trite law and fundamental to the concept of incorporation with nominal capital and with limited liability of the shareholders. (at p350)

11. The question is whether by including an allotment of shares in the particular examples of disposition in a definition clause, the legislature has taken the unprecedented and extraordinary step of deeming for the purposes of the Duty Act an allotment of shares to be a transfer by the company of its property to the allottee at a price which can be judged to be inadequate having regard to the value of the property transferred. (at p350)

12. The Assessment Act is enacted against the background of law as to shares in the capital of a company incorporated under the company law of the States. One could justifiably expect clear and unambiguous language to be employed if that law were to be overturned, even though for a limited purpose, and perhaps even more so in the case of a taxing Act. To deem the unissued shares to be the property of the company and allotment and issue to be a transfer of the company's property for a price or consideration paid to and received by it, a consideration related to the market value of the unissued shares, does such violence to accepted principle and is such a radical exercise as to call for the clearest and unambiguous expression of legislative intent. I have indicated that for the price or consideration to be inadequate, it must be weighed with the value of the property transferred, i.e., in the appellant's submission, the unissued shares. It seems unreal to conclude that all the unissued shares of a company are at any given time worth the then market value of issued shares. But that seems to me to be involved in the proposition that the allotment and issue may be found to be upon an inadequate consideration or price. (at p350)

13. There is, in my opinion, nothing in the language used by the legislature to compel the attribution to the legislature of an intention to effect such a drastic inroad into an accepted and well-entrenched legal structure, particularly having regard to the consequence of such an inroad. If any acceptable construction of the language of the legislation is at all available, quite clearly, in my opinion, it should be adopted. (at p350)

14. It would be difficult, indeed perhaps impossible, without statutory intervention to treat an allotment by direction of a person entitled to command or persuade or otherwise able to procure an allotment and issue of shares as a transfer of property of and by the directing party to the allottee. The inclusion of an allotment of shares in the definition of "disposition" is effective to make an allotment by direction, a transfer of property from that person to the allottee. The inclusion of "allotment" in the definition thus has a practical application and is effective to bring into duty a transaction savouring of a transfer of property but which otherwise might well fail to attract liability. There is thus available, as I thought in my reasons in Ord Forrest (1974) 130 CLR 124 and as my brother Aickin so cogently says, such a construction of the definitive and operative sections of the Act. To construe the definition as limited to such an occasion does no violence to the language employed and does give a substantial operation to the definition. To read the legislative language as deeming the company to have transferred its property to the allottee is, in my opinion, quite unnecessary in order to give a practical operation to the definition. On the other hand, it is, in my opinion, consonant with proper principle in statutory interpretation to construe the definition as not deeming that which has not the least resemblance to a transfer of property to be a transfer by the company to the allottee of its property upon a consideration of price capable of comparison with value. (at p351)

15. I agree entirely with my brother Aickin in thinking that the decision in Ord Forrest should be overruled and that in this case the cross appeals should all succeed resulting in the setting aside of all the assessments. (at p351)

16. Being of this opinion, it is strictly unnecessary for me to express a view as to the fate of the Commissioner's appeals. But, as others may differ, I should state my opinion as to the correctness of the judgment of the primary judge. (at p351)

17. In this connexion, I have had the advantage to considering the fully expressed reasons of my brother Aickin for supporting the views of Sheppard J., which my brother does with one exception to which I will presently refer. I fully agree with my brother's analysis of the facts of the various cases and with the legal propositions he propounds in relation to those facts. I agree that the primary judge's judgment in each of the cases ought not to be disturbed. He reached conclusions to which he was entitled to come. There are no valid reasons, in my opinion, for disturbing his findings or conclusions. If in the event the views expressed by the statutory majority in Ord Forrest are supported by the Court, I should then agree that the assessments as reduced by the Supreme Court should stand and the appellant's appeals be dismissed. (at p352)

18. The matter on which my brother Aickin did not accept the primary judge was the view expressed by him that the company's liability to gift duty consequent upon the allotment of the shares should not be included in the liabilities of the company when valuing the shares for the purpose of determining the adequacy of the allotment money treated as the price of shares paid to the company. (at p352)

19. I agree with my brother's conclusion differing from the primary judge and with my brother's use of the judgment of the Court in Robertson v. Federal Commissioner of Taxation (1952) 86 CLR 463 , and particularly of the reasons expressed by Kitto J. in that case. I agree that if allotment in the sense of allotment and issue of the theretofore unissued shares is to be regarded as a gift then made by the company, the company's liability for gift duty should be included in the liabilities of the company when determining the adequacy of the consideration or price paid for that transfer. To do so, to my mind, further highlights the difficulty of attributing to the legislature an intention to deem the allotment and issue of an unissued share as a transfer by the company of its property in return for a price measurable by the value of the shares so allotted and issued at or, as I would think, immediately before the time of the allotment and issue. (at p352)

20. In my opinion, the cross appeals should be allowed and all assessments set aside. The appeals should, in any case, be dismissed. (at p352)

GIBBS J. The facts and statutory provisions relevant to these five appeals are fully set out in the reasons for judgment of Aickin J. In each case the owner of property, often of substantial value, entered into a scheme which was designed to avoid death and estate duties without attracting gift duty. The scheme involved transactions which, briefly stated, were as follows. The owner sold his or her property to a private company and was allotted a number of ordinary shares in that company. Those shares were then converted into preference shares which carried the right to a preference dividend at a fixed rate and on winding up or reduction of capital to a return of capital and to payment of any arrears of dividend, but did not entitle the holders to participate otherwise in profits or assets. It will be convenient to describe the former owner of the property, who thus became the holder of preference shares, as "the owner". The company then allotted a small number of ordinary shares to persons ("the relatives") whom the owner wished to be the objects of his bounty, or to companies in trust for such persons. The allottee, in each case, paid par value plus a premium. These were the only shares which carried unrestricted rights to share in the assets of the company, so that if the company were wound up the persons whom the owner wished to benefit would, subject, in four of the cases, to the possibility about to be mentioned, be entitled to the whole of the property transferred by the owner to the company, less the amount of the face value of the owner's preference shares and of course the costs of realization. The total amount paid for these ordinary shares was very much less than the value of the company's assets. To take an example, in the case of St. Helens Farm (A.C.T.) Pty. Ltd. ("St. Helens Farm") shares were allotted to four persons (one being a company which received two shares in trust respectively for different classes of grandchildren) who paid a total of $500 for them, whereas shareholders' funds amounted to $1,206,314. So far, the scheme is no different from that considered in Ord Forrest Pty. Ltd. v. Federal Commissioner of Taxation (1974) 130 CLR 124 . However, in the case of the other four companies, there was a material modification to the Ord Forrest scheme. In those cases, unlike in the case of St. Helens Farm, the preference shares carried ordinary voting rights during the lifetime of the owner, and the articles empowered the shareholders during the life of the owner by special resolution to vary the rights conferred on the holders of any issued shares. In addition, the articles of Ceedon Pty. Ltd. ("Ceedon"), Lucinda Investments Pty. Ltd. ("Lucinda") and Q.A.W. Pty. Ltd. ("Q.A.W.") gave to the owner the powers of a governing director, and the articles of Lucinda gave to the owner power by notice in writing to elect to convert his preference shares into ordinary shares, but even without these provisions in any of these four cases the owner could, by reason of the size of his shareholding and the provisions enabling rights to be varied by special resolution, cause his preference shares to be converted into ordinary shares. If that were done the allottees of the ordinary shares would, on a winding up, be entitled only to a small share in the assets of the company. There was another departure from the Ord Forrest scheme in the cases of Ceedon and Gwynedd Pty. Ltd. ("Gwynedd"). In those cases the allottees entered into an agreement, called in argument the escalation agreement, by which each allottee agreed to pay an additional sum for the allotment of the shares in certain specified circumstances. In the case of Ceedon, the material words of the agreement were as follows:
"(The) Applicant . . . agrees with the Company that if, but for this Agreement, the allotment of the shares at a premium of $99.00 each would constitute a gift within the meaning of the Gift Duties Assessment Act 1941 (as amended) then the Applicant agrees to pay to the Company the quantum of the difference between the true value of the shares as calculated by the Deputy Commissioner of Taxation for the Commonwealth of Australia and the amount of the application moneys to be paid by the Applicant for the allotment of the shares as a debt due and payable by the Applicant to the Company on demand."
In the case of Gwynedd the escalation clause provided for the payment by each of the allottees of the allotment and premium moneys "or such if any greater sum as will constitute the consideration passing from" the allottee to the company "in respect of the said allotment fully adequate within the meaning of that expression as used in the definition of 'gift'" in s. 4 of the Gift Duty Assessment Act 1941 as amended ("the Act"). (at p354)

2. The questions that fall for decision are whether each allotment of the shares to the relatives and to the companies in trust for them was a gift within the meaning of the Act, and if so how the gifts should be valued. (at p354)

3. If the decision of this Court in Ord Forrest (1974) 130 CLR 124 is to be followed, it must be held that a gift was made in each case when the company allotted the shares to or in trust for the relatives, unless of course the consideration paid for the allotment was fully adequate. However, the companies, by their cross appeal, seek to persuade the Court to decline to follow Ord Forrest. It is convenient to consider immediately whether that decision should be followed, since if it is overruled the present case will be at an end. In Ord Forrest, the matter was heard at first instance by Stephen J., and, on appeal from his decision, by a Full Court consisting of four Justices, who were equally divided in opinion, with the result that the judgment of Stephen J. was affirmed. It was submitted that, in these circumstances, the case is not a binding authority. Of course, this Court is, in one sense, never bound by a previous decision of its own, since it has power to reconsider any earlier decision, although the power is not lightly exercised. However, speaking generally, when this Court is equally divided in opinion the judgment which it pronounces is not a precedent with authority in this Court; the question does not arise whether it is proper to reconsider such a decision, for it is not binding. There does not appear to be any decision of the question whether the same principle applies when the equally divided Court sat on appeal from a Justice of this Court, although in Tasmania v. Victoria (1935) 52 CLR 157 at p 184 , Dixon J. suggested that this was the case. With the greatest respect, I have always understood that the reason why a Court comprised of four Justices is as a matter of regular practice convened to hear appeals from a decision of a single Justice of this Court is that, if the Court on appeal is evenly divided, there will be a majority in favour of one view or another and that the decision will be a binding one. If this view is wrong, the practice should be changed. I would treat Ord Forrest as a binding authority and I see no reason to reconsider its correctness, particularly since the law has been changed and gift duty is no longer payable in respect of gifts made after a stipulated date. (at p355)

4. Lest it be thought that it is right to reconsider the correctness of Ord Forrest, I should say that having reconsidered the matter, I adhere to the conclusion which I reached in that case. The submission of Mr. Handley, who appeared for the companies, was that an allotment of shares in a company is a "disposition of property" within the definition of s. 4 of the Act only if the allotment is made by the direction of a third party, in which case the third party is the disponor for the purposes of the Act. Mr. Handley relied on the judgment of Barwick C.J. in Ord Forrest. The learned Chief Justice there expressed the view (1974) 130 CLR, at p 143 , that the lettered paragraphs of the definition of "disposition of property" contain a list of examples of particular kinds of alienation of property which is included to ensure that the nature of a transaction does not preclude its classification as a disposition to the extent that it involves the transfer or movement of property. In other words, the definition only includes an allotment of shares which in truth involves an alienation of property. With the greatest respect I cannot agree. The definition commences, using very wide words, to refer to any sort of alienation of property. It then goes on to include transactions which would not otherwise come within the introductory words. The plain object of the lettered paragraphs of the definition seems to me to be to embrace transactions which have the substantial effect of a gift, in that, without fully adequate consideration, one person gives a pecuniary benefit to another, but which would otherwise escape gift duty because no alienation of property is involved. It seems to me that par. (a) of the definition, which refers to "the allotment of shares in a company" is designed to catch just such a case as the present. (at p356)

5. Mr. Handley went on to advance an argument which was not put to the Court in Ord Forrest. He submitted that the word "allotment" in the definition of "disposition of property" cannot be used in the sense either of an offer of shares or of a contract arising from the acceptance of an application for shares, since of itself an allotment does not make the allottee a member of the company, and until the share is issued the share (the subject of the gift) has no existence as an article of property: In re V. G. M. Holdings (1942) Ch 235, at pp 240-241 . Therefore, it was said, "allotment" must mean "complete allotment", that is, an allotment followed by some act (usually registration) that completes the title of the allottee - in other words "issue". So far this argument may be accepted. Then Mr. Handley submitted that unless "allotment" in the definition were limited to an allotment by direction, difficulties and anomalies would arise, because in many cases (as in fact in some of the present cases) a complete allotment will be made after, and pursuant to, a binding contract of allotment, and in that case, he submitted, will be made for a fully adequate consideration, so that there will be no gift. His submission was based on such cases as Archibald Howie Pty. Ltd. v. Commissioner of Stamp Duties (N.S.W.) (1948) 77 CLR 143, at pp 152-153; 156-158 and Federal Commissioner of Taxation v. McPhail (1968) 117 CLR 111, at p 116 and was that a disposition made in discharge of a legally binding contract cannot be a gift, even if the contract was entered into for an inadequate consideration. It is unnecessary to consider to what extent this proposition might be correct for other purposes, because the matter is dealt with by s. 12 (1) of the Act, which provides that a disposition of property made in pursuance of a contract or agreement entered into without adequate consideration in money or money's worth shall, for the purposes of the Act, "be deemed to be a gift so soon and so far as the disposition has affected property or any of the property to which the contract or agreement relates". It was submitted on behalf of the companies, and accepted by the learned primary judge, that this section could have no application to a disposition of property constituted by an allotment of shares, because the property would not be in existence before the disposition took place. However, s. 12 (1) does not require that the property should be in existence before the disposition is made. An agreement to allot shares relates to the shares when they are issued and come into existence as choses in action. The allotment (that is, the complete allotment) of the shares affects, as well as creates, those choses in action - it affects them by giving the title in them to the allottee. There is thus no difficulty in applying s. 12 (1) to the case of an allotment; under s. 12, the allotment is deemed to be a gift as soon as it takes effect. The argument that the words of par. (a) of the definition of "disposition of property" should be given a restricted meaning for the reason suggested should be rejected. (at p357)

6. Mr. Handley then submitted that if an allotment of shares is to be treated as a gift by the company, the gift duty payable by the company, being a liability of the company, must enter into the value of the gift, and that this situation, which arises in no other class of case, is so anomalous as to lead to the conclusion that the definition of "disposition of property" only refers to an allotment when the donor is someone other than the company. Even if it were right, in valuing the shares the subject of the alleged gift, to have regard to the gift duty payable by the company, that would not mean that the Act cannot apply to such a case. It would not be anomalous to take gift duty into account in valuing a gift in one class of case only, if it was only in that class of case that the duty properly entered into the value of the gift. However, in my opinion, it is not right, when valuing a gift constituted by an allotment, to have regard to the gift duty payable. Mr. Handley sought to find an analogy in Robertson v. Federal Commissioner of Taxation (1952) 86 CLR 463 , a case in which the articles of association of a company provided that on the death of the deceased the shares would be divided into two classes, the incidents of which would have the result that the shares held by the deceased at his death would have a much lower value than the other shares. The Commissioner, in assessing the value for estate duty purposes of the shares held by the deceased, sought to apply s. 16A (1) of the Estate Duty Assessment Act 1941 (Cth), as amended. He failed, because at the date of the death there was nothing in the articles of association that rendered it necessary to apply that section. Kitto J. said (1952) 86 CLR, at p 486 , that "the estate must be valued at the death, but on the hypothesis that the deceased has died". Mr. Handley contended that those words could appropriately be adapted so that in the present case the shares should be valued at the time of the gift but on the hypothesis that the gift had taken place. However, an examination of the judgment of Kitto J. (1952) 86 CLR, at pp 485-486 shows that the opposite conclusion would be reached if his reasoning were applied to the present case. Kitto J. made it clear that he accepted that although the death and the passing of the property took place at one moment, the former in law preceded the latter; the application of the Estate Duty Assessment Act, he said, "is a consequence of, and therefore is logically to be treated as subsequent to, the death of the deceased. It is not until there is an estate of a deceased person that the Act speaks". It followed that when that Act required the shares to be valued there was nothing in the articles that called for the application of s. 16A (1). Similarly, in the present case, although the gift is to be valued at the time of its making (s. 18 (1) (b) of the Act) and the duty is also payable on the making of the gift (s. 25 (1) of the Act) the making of the gift must logically precede the liability to the duty. Therefore the duty payable in consequence of the gift, being a liability which logically arises after the gift is made, should not be taken into account in determining its value. (at p358)

7. Finally it is convenient to mention the argument submitted in Ord Forrest, and repeated before us, that the amount payable by the allottee to the company as the consideration for the allotment is an asset of the company to which regard must be had in valuing the gift, and that it would never be possible to arrive at a price that would represent the full value for the shares, since every increase in the premium payable for the shares would increase their value, and to pay full value it would be necessary to pay an infinitely large sum. The suggestion that the word "allotment" in par. (a) of the definition should therefore be given a restricted meaning which would avoid such a result was rejected in Ord Forrest (1974) 130 CLR, at pp 154,158 . The suggested impossibility ever to pay a fully adequate consideration only arises if the shares are valued on a liquidation or net assets basis, but if the shares have a market value, or if their value can be determined on some other basis (for example on the basis of maintainable earnings), that value will not necessarily be materially affected by the amount paid as the consideration, which may be so comparatively small that it will not affect the market value or the capacity of the company to earn at a particular rate. In some cases at least it is clearly possible to say whether, and to what extent, the consideration for the allotment was inadequate. In the present case the learned primary judge did not value the shares on a liquidation or assets basis, and the amount paid for the consideration was comparatively small, and it was not shown that the value of any of the shares would be materially altered if the consideration payable for the allotment were treated as an asset of the company at the time of the gift. (at p359)

8. The learned primary judge accepted the argument that the escalation clauses were void, both because the calculation would produce infinity for the reasons just mentioned, and because, in the case of Ceedon, the Commissioner was not bound to make the valuation. However, he held that the clauses were severable and did not affect either the contracts of allotment or the allotments themselves. Before us, Mr. Handley accepted that the clauses were void but disputed that they were severable. He said however that he had no interest in pursuing this matter if the Commissioner's appeals on value failed - in the case of Gwynedd the learned primary judge found no gift because the consideration for the shares was not less than their true value, and in the case of Ceedon the amount of duty payable was small. Since, for reasons which I shall give, I consider that the Commissioner's appeals should fail, I need not discuss this matter further. However, I do not wish it to be thought that I agree with the conclusions of the learned primary judge on these matters; I regard both questions as open ones. (at p359)

9. For these reasons, I consider that Ord Forrest was correctly decided, and that the cross appeals by the companies should be dismissed. (at p359)

10. The question which is crucial in the appeals by the Commissioner in all cases except that of St. Helens Farm is whether in computing the value of the shares an allowance should be made for the possibility that the owner might, by exercising his powers under the articles of association, convert his preference shares into ordinary shares. Section 18 (1) (a) of the Act provides that for the purpose of computing the value of a gift "no allowance should be made in respect of any contingency affecting the interests of the donees or any of them". The possibility that the owner might use his powers in this way is a "contingency", but the question is whether it is a contingency which affects the interests of the donees. On behalf of the Commissioner it was submitted that "interest" is a word of wide and uncertain meaning and that it can include something that can be described as an interest in a popular or commercial sense even if it is not a legal or equitable interest. Speaking generally, this submission is no doubt correct: see for the example Craig v. Federal Commissioner of Taxation (1945) 70 CLR 441, at p 446 . But of course the meaning of "interest" in a particular statutory provision depends on the context. I adhere to the view which I expressed in Bray v. Federal Commissioner of Taxation (No. 2) (1971) 123 CLR 348, at p 357 that the phrase "the interests of the donees" in s. 18 (1) (a) must refer to their interests in the property the subject of the gift. The paragraph could not sensibly refer to any other interest, for it is dealing with the valuation of the gift, i.e. with the valuation of the interest in property acquired by the donee under the gift less the consideration. In each of the present cases the subject of the gift was the ordinary shares, and the interest of each of the allottees in those shares was that of an ordinary shareholder. Plainly that interest would not be affected if the owner exercised his power under the articles of association to convert his preference shares to ordinary shares. If that occurred, the allottees would not be deprived of the interest in the shares which they had acquired as a result of the allotment, and each share would carry the same rights as before, although those rights would be less valuable than before, because there would be new ordinary shareholders with competing rights. In other words, notwithstanding the occurrence of the contingency, the interests of the allottees would be the same, but the value of their interests would be less. (at p360)

11. The question then is whether, in these circumstances, the contingency can be said to be one "affecting the interests of the donees". In ordinary language a contingency does not affect the interest of a particular person in property simply because it affects the value of that interest. For example, the contingency that the price of gold may fall may well affect the value of shares in a gold mining company, but it will not affect the interest of a shareholder in that company. Similarly it has been held that a proposed issue of new capital does not "affect" the rights of existing shareholders although it may affect the enjoyment of those rights: White v. Bristol Aeroplane Co. Ltd. (1953) Ch 65 ; In re John Smith's Tadcaster Brewery Co. Ltd. (1953) Ch 308 . There is no justification for giving to the words of s. 18 (1) (a) an extended meaning which would have the effect of artificially increasing the value of the interest on which gift duty may be exigible. It is not necessary to depart from the ordinary meaning of the words of the paragraph in order to render it operative. Its provisions clearly apply so that in valuing a gift it is necessary to ignore the possibility that the interest of the donees would be divested on the happening of a condition subsequent, or by the exercise of a power to which the interest was subject, such as a power of revocation or a power of appointment. The words of the paragraph, if given their ordinary meaning, indicate that its provisions can only apply if the interest itself is affected by the contingency. The contingency postulated in the present case does not affect the interests of the allottees; its effect is on the value of the shares, not on the interests of the allottees in the shares. (at p361)

12. Counsel for the Commissioner sought to bring the case within s. 18 (1) (a) by arguing that the allottees have an interest in the assets of the companies, and that that interest is affected by the contingency that the preference shares may be converted to ordinary shares. It was submitted that it is natural to say that shareholders have an interest in the assets of the companies in which they hold shares, and that this usage is supported by the words of Dixon J. in Archibald Howie Pty. Ltd. v. Commissioner of Stamp Duties (N.S.W.) (1947) 77 CLR, at p 154 . In that case Dixon J., speaking of a distribution in specie made by a company on a reduction of capital, said: "But that means that the shareholder in satisfaction of his proportionate 'interest' in the assets, an interest consisting of a congeries of rights in personam, takes an aliquot part of the assets." These words indicate that Dixon J. regarded it as an extended use of the term to say that shareholder has an "interest" in the assets and make it clear that such an "interest" consists in rights in personam and not in rights to the assets themselves. An interest of that kind is the same as the shareholder's interest in the share and in equally unaffected by the contingency now under consideration. (at p361)

13. For these reasons I have reached the conclusion that the learned primary judge was right in refusing to apply the provisions of s. 18 (1) (a) in making his valuation of the shares. It should perhaps be observed that the refusal to apply s. 18 (1) (a) does not have the result that duty properly payable on the gift is avoided. A true valuation of a gift consisting of an allotment of shares must take into account the contingency that the powers under the articles of association of the company in which the shares are held might be exercised with the result that the shares the subject of the gift would become of little value. Whether or not this conclusion means that death or estate duty can be sucessfully avoided by an arrangement of this kind is not a question that falls for consideration in the present case. However, it cannot be said that gift duty is avoided if the shares the subject of the gift are given their true value. (at p361)

14. The second question of principle that arises is whether it was proper to apply the provisions of s. 18 (2) (c) and to adopt as the value of the shares such sum as the holder thereof would receive in the event of the company being voluntarily wound up on the date when the allotment was made. Provisions similar to s. 18 (2) (c) have been considered in many cases. The Commissioner is not entitled to adopt a liquidation value simply because its adoption would benefit the revenue (Jekyll v. Commissioner of Stamp Duties (Q.) (1962) 106 CLR 353, at p 365 ); he should choose the method which in his opinion is most calculated to place a fair value on the shares: Federal Commissioner of Taxation v. Sagar (1946) 71 CLR 421, at p 428 ; Gregory v. Federal Commissioner of Taxation (1971) 123 CLR 547, at p 569 . Moreover, by s. 18 (3) of the Act, the court hearing the appeal from the Commissioner is entitled to substitute its own opinion for, and to use its own discretion in lieu of, the opinion or discretion of the Commissioner. The court is not limited to considering whether the Commissioner erred in the exercise of his discretion but may consider whether the discretion was soundly exercised, and if it forms the opinion that the value of the shares arrived at by applying s. 18 (2) (c) is not a satisfactory value, it will not allow the Commissioner's application of the provision to stand: see such cases as Jekyll v. Commissioner of Stamp Duties (Q.) (1962) 106 CLR, at p 363 , and Commissioner of Taxes (Tas.) v. Perpetual Trustees Executors and Agency Co. of Tasmania Ltd. (1969) 118 CLR 325, at pp 328-329 . Once it has been decided that s. 18 (1) (a) has no application, it is clear that it will not be appropriate to apply s. 18 (2) (c) and to value on a liquidation basis the shares in the four companies other than St. Helens Farm. The possibility that the preference shares may be converted to ordinary shares has such a depreciating effect on the value of the ordinary shares the subject of the gift that a fair value would not be placed on the shares by applying s. 18 (2) (c). In argument there was some discussion of the question whether the powers given by the articles could be exercised once the company had been put into liquidation, but in my opinion that question does not arise for consideration. Section 18 (2) (c) contemplates a hypothetical winding up which took place at the date of the gift, and not an actual liquidation. The power to convert the preference shares to ordinary shares had not in fact been exercised by the date of the gift, and on the hypothesis that a liquidation occurred on that date the existence of the power would have to be ignored. But the possibility that the power might be exercised has such a depreciating effect on the shares that a fair value would not be reached by applying a liquidation basis. (at p362)

15. In the case of St. Helens Farm the holder of the preference shares had not power to convert them to ordinary shares. However, for other reasons it is inappropriate to apply s. 18 (2) (c). There were five separate gifts and it was conceded that each gift (constituted by the allotment to a shareholder) should be valued separately. None of the individual allottees had the power, acting alone, to bring about a liquidation. It cannot be assumed that the allottees would use their combined power to achieve that result; they were different persons with interests which were not necessarily the same. The cse is not one in which the donee had it in his power to bring about a liquidation. Moreover, although the yield from the assets was extremely low, there was no intention of selling the assets. The learned primary judge correctly pointed out that the application of s. 18 (2) (c) would bring about a situation in which the interest of each of the minority shareholders would be regarded as being worth precisely the same as a proportionate part of the interest of the company in its assets as at the date of the allotment. In view of the circumstances that the allottees had no power individually to bring about a liquidation and did not intend to do so, and in view of the further circumstance that the shares in the Broken Hill Proprietary Co. Ltd. that formed the most valuable asset of St. Helens Farm were being traded at an exceptionally high price on the date of the allotment, I consider that the learned primary judge was justified in concluding that the application of s. 18 (2) (c) was not calculated to produce a fair valuation of the shares. (at p363)

16. Finally, it was submitted on behalf of the Commissioner that the learned primary judge should have adopted the evidence of one of the valuers called in support of his case, Mr. Robinson, who valued the shares on the basis of a valuation of the assets of the company less a discount of 20 per cent. This, it was submitted, produced a fair and realistic valuation. However, the learned primary judge, who carefully considered the evidence of the various valuers who gave evidence, rejected this method of valuation. He said that it was not strongly supported by the evidence and was not adopted in any of the cases to which he was referred. He preferred the approaches of valuers who valued on an earnings basis. His Honour committed no error in principle in taking this course. It was submitted in support of the respondent's cross appeal that in the case of St. Helens Farm the learned primary judge was not justified in adopting a lower rate of capitalization that was adopted by any of the valuers. The learned primary judge adopted a capitalization rate of 4 per cent whereas none of the valuers suggested a rate of lower than 5 per cent. However the low earning rate in fact produced by the assets supported this approach. The principles on which the appellate court will interfere with the decision of a primary judge on a question of valuation were stated by Dixon J. in The Commonwealth v. Reeve (1949) 78 CLR 410, at p 423 , in a passage recently cited in this Court in Emerald Quarry Industries Pty. Ltd. v. Commissioner of Highways (1979) 142 CLR 351, at pp 355, 374 . It has not been shown that the learned primary judge committed any error of principle that affected his valuation of the shares, or that the values he reached in these difficult cases were wholly erroneous. (at p364)

17. For these reasons, I would in each case dismiss both the appeal and the cross appeal. (at p364)

STEPHEN J. These appeals and cross appeals concern five schemes by means of each of which it was sought, with the aid of an interposed corporate structure, to confer inter vivos benefits upon certain donees without attracting liability to Commonwealth gift duty. Because gifts made since 1st July 1979 are no longer liable to gift duty the questions which these cases raise are unlikely to be of any direct relevance for the future. Their solution is therefore no longer a matter of any general importance but will of course affect those who participated in these five schemes and others similarly situated. (at p364)

2. The facts appear in full in other judgments. One of the matters in issue is the correctness of the decision of this Court in Ord Forrest Pty Ltd v. Federal Commissioner of Taxation (1974) 130 CLR 124 . The scheme considered in that case has much in common with these five schemes and if that decision is not to be followed, the cross appeals by the five cross appellant companies will succeed. (at p364)

3. A preliminary point is whether the decision in Ord Forrest, in which two members of an evenly divided Court of four Justices upheld the decision which I gave at first instance, is to be treated as authoritative. This Court may of course overrule its past decisions, but there nevertheless exists a clear distinction between decisions which are precedents of authority and those which, although resulting in determinative decisions because of provisions of the Judiciary Act 1903, have no such precedential authority because they involved an even division of opinion on appeal. The practice of this Court in sitting with even numbers in appeals from a single Justice, although no doubt principally to be explained by considerations flowing from those provisions of the Judiciary Act, may be thought to lend some support to the view that, if evenly divided, the decision of those upholding the single Justice is to be regarded as authoritative. However, in Tasmania v. Victoria (1935) 52 CLR 157, at p 184 Dixon J. expressed the contrary view, which on balance I regard as preferable. I would accordingly treat Ord Forrest as not being a precedent of authority in the present appeals. (at p365)

4. The question then arises whether the view which prevailed in Ord Forrest should be overturned. For my part, I would follow it. I regard it as correctly stating the law and do so in reliance upon my own reasoning at first instance and that of Gibbs and Mason JJ. on appeal. I also agree with the additional reasoning of Gibbs J. appearing in his judgment in the present case, both as it concerns the submission founded upon Robertson v. Federal Commissioner of Taxation (1952) 86 CLR 463 and generally in relation to the decision in Ord Forrest. (at p365)

5. If Ord Forrest is to apply there remain the five appeals by the Commissioner which turn on questions concerning the valuation of the gifts in question. The learned primary judge resolved these questions substantially in favour of each of the five companies. They relate to s. 18 of the Act. (at p365)

6. Section 18 is concerned with the valuation of gifts. Both sub-s. (1) and sub-s. (2) prescribe certain rules for their valuation. The first question arises under s. 18 (1) (a), which reads:
"For the purpose of computing the value of a gift -
(a) no allowance shall be made in respect of any contingency affecting the interests of the donees or any of them". The question is whether in the case of each of the schemes other than that involving St. Helens Farm the circumstances give rise to a "contingency" to which par. (a) applies. If so, to value the gifts without allowance for such contingency, as the paragraph requires, will result in much increased valuations. The learned primary judge held that the schemes gave rise to no such contingency as par. (a) applies to, so that no such increased valuations were called for. (at p365)

7. The relevant circumstances are described in detail in other judgments. It is enough to say that in broad terms each of those four schemes involved the contingency that the real benefactor in each case, holding only preference shares, might at some future time convert those shares into ordinary shares, thereby greatly diminishing the value of the ordinary shares allotted to the donees whom the scheme was designed to benefit. Does, then, s. 18 (1) (a) require that the effect of the existence of this contingency upon the value of ordinary shares when allotted to donees be ignored in the valuation process? (at p365)

8. Paragraph (a) is loosely drafted. It uses the words "contingency", "affecting", "interests" and "allowance", words of no single, invariable meaning but which depend upon context for their meaning in particular cases. The determining context in the present case is provided by the character of par. (a) as a rule of valuation for purposes of gift duty. (at p366)

9. Context requires that some limits be placed upon the meaning of "contingency" in par. (a). It cannot, I think, refer to any aspect of the subject matter of a gift which itself forms part of the description of what is given. Were this not so, a direction to disregard such a contingency, to make no "allowance" for it, would be a direction to deem the subject matter of a gift to be other than it in fact is rather than a rule for its valuation. For example, assume a gift to one if he survives another: the contingency, survival, does not merely affect an already defined interest but instead forms part of the definition of what is given. To ignore it robs the subject matter of the gift of its identity and confers upon it a new and quite different identity. To interpret par. (a) as intending, even for valuation purposes, to transform such a gift into an absolute gift, stripped of its contingent element, would be to treat it as much more than a rule of valuation. (at p366)

10. If contingencies which define what is given are not within the operation of par. (a), neither are those contingencies which are quite extrinsic to the gift itself, being features of the particular market by reference to which the value of what is given must be determined. To exclude such contingencies from consideration would in most cases make valuation impossible. For example, if a gift is of gold its value at the date of gift will depend upon the current state of the bullion market, which will be affected by a whole range of contingencies; sellers and buyers in that market will have made their appreciation of those contingencies and this will be reflected in the current price of gold. Likewise in the case of a non-fungible, say farming land; the current market will again reflect contingencies entirely extrinsic to the gift, such as the market's estimation of future trends in primary product prices. Market factors such as these are the very stuff of valuation, without which value is a concept without content. Paragraph (a), as a rule of valuation, is not to be understood as excluding such contingencies from the process of valuation. (at p366)

11. That par. (a) does not refer to, and hence does not require the exclusion of these two kinds of contingency from the process of valuation is confirmed by the use of the word "allowance". To have regard to either of them in the valuation process would not aptly be described as the making of an "allowance" in respect of them. "Allowance" suggests some adjustment made to an arrived at value to take account of an isolated element or circumstance, whereas the existence of contingencies of these kinds are central to the valuation process itself. Without reference to them, no proper value can be placed upon the true subject matter of the gift. Accordingly, to speak of making no "allowance" is language which is inappropriate to refer to the exclusion of these kinds of contingencies from the valuation process. (at p367)

12. If these limits to the meaning of "contingency" in par. (a) be accepted, no further narrowing of its meaning seems permissible. It will then describe a contingency the happening of which affects no more than a donee's enjoyment of what is given and the existence of such a contingency will presently affect the value of what is given. (at p367)

13. The use of "affecting" in par. (a) is entirely appropriate if it be used to describe the effect of the existence of such a contingency upon the value of a donee's interest in what he is given. As to "interests" in par. (a), its meaning has been described by Gibbs J. in Bray v. Federal Commissioner of Taxation (1971) 123 CLR 348, at p 357 as the interests of donees "in the property the subject of the gift", in this instance their interest in the ordinary shares. I would, with respect, accept that description and use it, together with my understanding of the meanings of "contingency" and "affecting", to express the operation of par. (a). Its operation is to require that in valuing gifts no allowance shall be made in respect of any contingency which is neither definitive of what is given nor, being extrinsic to the gift itself, pertains generally to the applicable market but is one which affects the value of the interests of donees in what is given. (at p367)

14. It was contended on behalf of the five companies that par. (a) did not operate in this way, that what it operated to exclude were only those contingencies which bore on the nature of the particular legal interests taken by donees; accordingly it did not exclude contingencies which only related to the enjoyment by a donee of his interest in what had been given to him. Decisions concerned with the variation of class rights were relied upon in support of this view. However, those decisions turn upon quite special considerations, in no way applicable to s. 18 (1) (a), as appears from their reasoning. The leading judgment in White v. Bristol Aeroplane Co. Ltd. (1953) 1 Ch 65 , that of Evershed M.R., illustrates this. In concluding that to affect in value the enjoyment of the rights of holders of existing preference shares was not to affect the rights or privileges attached to their shares, his Lordship relied exclusively upon the terms of certain of the company's articles of association (1953) 1 Ch, at pp 75-76 . The same may be said of his Lordship's judgment and that of Jenkins L.J. in In re John Smith's Tadcaster Brewery Co. Ltd. (1953) 1 Ch 308 . (at p368)

15. These decisions are in my view of no assistance in determining the meaning of s. 18 (1) (a), which is concerned with matters entirely foreign to their particular subject matter. They draw a distinction between that which varies the rights of classes of shareholders and that which merely affects the enjoyment of those rights. In these cases the distinction was critical because the latter, although depreciating the value of one class of shares, accorded with the company's articles of association and was irrelevant as any ground of complaint. But in s. 18 (1) (a) the focus of attention is entirely different; the value of gifts is in question and when shares are the subject matter of a gift that which affects their value is directly relevant. (at p368)

16. Despite their quite different concerns, something may be gained from one of the earlier decisions on the variation of class rights, Greenhalgh v. Arderne Cinemas Ltd. (1945) 2 All ER 719 . In that case Vaisey J. said (1945) 2 All ER, at p 723 that "if you have an equal number of preference and ordinary shares in a company, with equal voting rights, assuming each class to have one vote per share, you would not vary the rights of the preference shareholders by issuing additional ordinary shares; in substance you would materially affect those rights, but you would not vary them. In my judgment, that argument must prevail." In the context of the variation of class rights it was irrelevant that what had occurred "materially affected those rights" and in doing so materially diminished the value of shares conferring those rights. In the context of s. 18 (1) (a), concerned with the valuation of gifts made to donees, a contingency consisting of the possible conversion of preference shares to ordinary shares and which materially affects the rights of donees as existing ordinary shareholders is most pertinent. (at p368)

17. Such a contingency is neither extrinsic to the gift nor is it definitive of what is given; it affects the value of the interests of the donees in what is given. In my view it falls within s. 18 (1) (a) and accordingly no allowance is to be made in respect of it in computing the value of the gifts to the donees. (at p368)

18. The second question arising under s. 18, again a matter of valuation, concerns sub-s. (2) (c) and affects all five of the companies. Sheppard J. concluded in each case that that provision should not be applied in the valuation of the shares allotted to the donees. I agree with his conclusions and with the method of valuation which his Honour adopted and do so for the reasons discussed in detail in the judgment of Aickin J., with whose observations concerning s. 18 (2) (c) and s. 18 (3) I am generally in agreement. I likewise agree with the view expressed by Sheppard J. concerning the severability of the escalator agreements which were entered into in the cases of the Ceedon and Gwynedd companies. Again I do so for the reasons appearing in the judgment of Aickin J. (at p369)

19. It follows that I would allow the appeals, but only insofar as they relate to s. 18 (1) (a). I would dismiss the cross appeals. (at p369)

MASON J. Aickin J. has set out in his reasons for judgment the relevant materials relating to these five appeals. I propose to consider each appeal separately, commencing with St. Helens Farm (A.C.T.) Pty. Ltd. ("St. Helens Farm").

St. Helens Farm (A.C.T.) Pty. Ltd. (at p369)

2. The respondents by way of cross appeal raise questions which need to be disposed of at the outset. In particular they challege the correctness of the decision of this Court in Ord Forrest Pty. Ltd. v. Federal Commissioner of Taxation (1974) 130 CLR 124 . If this challenge can be sustained, the transactions in question involve no element of gift. The consequence then would be that the questions of valuation sought to be raised by the Commissioner's appeals would not arise. (at p369)

3. According to Gorton v. Federal Commissioner of Taxation (1965) 113 CLR 604 no gift was made to the ordinary shareholders by Mrs. Palfrey man. According to Ord Forrest the company made a gift, within the meaning of the Gift Duty Assessment Act 1941, as amended ("the Act") to each of the ordinary shareholders. (at p369)

4. The Court being evenly divided on appeal, the decision of the primary judge (Stephen J.) prevailed in Ord Forrest. It was a binding decision; other courts were bound to follow it, as Sheppard J. did in these five appeals. The decision does not bind this Court. But this is not because the four members comprising the Court on appeal were evenly divided, but because this Court is not bound by its previous decisions, although it will ordinarily follow these decisions unless there is some special reason for entering upon a reconsideration. Generally speaking the fact that the Court is evenly divided on appeal from a single Justice of the Court is not in itself, in my opinion, a sufficient ground to warrant a reconsideration of the decision. To the extent to which Dixon J. expressed a contrary view in Tasmania v. Victoria (1935) 52 CLR 157, at p 184 I do not agree with it. The theory which lies behind the Court's practice of sitting a bench of four Justices on appeal from a single Justice of the Court is that in the ultimate analysis there will be a majority within the Court for the decision, should there be an equal division of opinion on appeal. (at p370)

5. It would be a difficult, if not an impossible task, to specify all the grounds which would justify the Court in concluding that a special case has been made out for reconsideration of an earlier decision. There are many factors to be taken into account, of which some only need be mentioned. One is the number of Justices who participated in the earlier decision. The Court will be much less disposed to review a majority decision of a court of five Justices than a majority decision of a court of three Justices. Exceptionally strong grounds will be required to sustain a review of a decision of seven Justices. Of course I am speaking in the context of statutory interpretation where Parliament can amend the law. The interpretation of the Constitution raises other considerations which may call for a more liberal approach. (at p370)

6. A second factor is the importance which the decision has for future cases. A third factor peculiar to the appeal from a single Justice of this Court is the extent to which the reasons of that Justice are indorsed by those Justices who uphold his decision on appeal. Clearly enough if there be a divergence in reasoning then there may be no majority for a particular point of view among the Justices who considered the question. (at p370)

7. Reflection on these elements as they arise in the present case has persuaded me they do not justify a review of Ord Forrest (1974) 130 CLR 124 . Effectively there was a majority of three of the five Justices who considered the case for the view which prevailed. Stephen J. at first instance, Gibbs J. and I agreed on the interpretation to be given to par. (a) of the statutory definition of "disposition of property" and the reasons given for that interpretation were similar, being subject to minor qualifications only. The question has no importance for the future because by reason of amendments to the Act there is no longer liability to gift duty on gifts made on and after 1st July 1979. (at p370)

8. In any event I consider that Ord Forrest was correct. The attack upon Ord Forrest centred around the statutory definition of "disposition of property" contained in s. 4, in particular par. (a) of the definition which includes "the allotment of shares in a company". The respondents' argument is that par. (a) refers to a completed allotment of shares in a company constituted by the entry of the allottee's name in the register of members when the allotment of shares otherwise constitutes a disposition of property as, for example, when shares in a company are allotted to a non-shareholder on the direction of a shareholder who would, but for the direction, be entitled to have the shares allotted to him. (at p371)

9. The respondents pointed out that in Ord Forrest the Court was not called upon to give a precise meaning to "a contract to allot shares", "an allotment of shares" or "an issue of shares". According to the respondents, par. (a) does not mean the making of an offer by a company of its shares for subscription or the acceptance by the company of an offer to take shares; nor does it mean a binding contract between a company and another person to issue and take shares in that company. (at p371)

10. The respondents do not dispute that in a particular context "allotment" may bear a meaning different from that for which they contend (see Nicol's Case (1885) 29 Ch D 421, at p 426 ; In re Scottish Petroleum Co. (1883) 23 Ch D 413, at p 430 ). But the respondents fail to acknowledge what in my opinion is well established, that "allotment" ordinarily signifies an appropriation to some person of a certain number of shares, but not necessarily of any specific shares (Halsbury's Laws of England, 4th ed., vol. 7, p. 202), usually pursuant to a binding contract, not necessarily an allotment constituted by entry on the register. The judgments of Latham C.J. and Dixon J. in Central Piggery Co. Ltd. v. McNicoll and Hurst (1949) 78 CLR 594 are instructive. There the statute provided that "no company . . . shall proceed to the issue to any of its employees (of) any shares in the company" without the consent of the court. It was held that as the shares were issued on communication to the employees of the acceptance of their applications, the company had infringed the prohibition. Latham C.J. observed (1949) 78 CLR, at p 597 that "an application for shares is an offer which may be accepted by allotment notified to the applicant". His Honour pointed out that "The issue of the shares is the act which ends the transaction and ends in the issue of the shares to a specific person, an employee" (1949) 78 CLR, at p 598 . Dixon J. said (1949) 78 CLR, at pp 599-600 :

"Speaking generally the word 'issue' used in relation to shares means, where an allotment has taken place, that the shareholder is put in control of the shares allotted. A step amounts to issuing shares if it involves the investing of the shareholder with complete control over the shares. In re Ambrose Lake Tin and Copper Co. (Clarke's Case) (1878) 8 Ch D 635 makes that quite clear. Cockburn L.C.J. said (1878) 8 Ch D, at p 638 : - 'inasmuch as the term "issue" is used, it must be taken as meaning something distinct from allotment, and as importing that some subsequent act has been done whereby the title of the allottee becomes complete, either by the holder of the shares receiving some certificate, or being placed on the register of shareholders, or by some other step by which the title derived from the allotment may be made entire and complete.'"

His Honour referred to Spitzel v. Chinese Corporation Ltd. (1899) 80 LT 347 , where Stirling J. spoke of "allotment" as "an appropriation by the directors . . . of shares to a particular person", and went on to say, "an allotment does not necessarily create the status of membership" (1899) 80 LT, at p 351 . (at p372)

11. The respondents then urged that to construe par. (a) as applying to an executory contract would be to create an anomaly because all the other transactions which are included in the statutory definition by the general words or by the words of extension are executed transactions under which property rights are finally created, transferred or destroyed. This submission ignores par. (f) of the statutory definition which includes within a "disposition of property" the class of transactions described there, a class which obviously embraces contracts not necessarily amounting to dispositions of property in the ordinary sense of that expression. As Gibbs J. observed in Ord Forrest (1974) 130 CLR, at p 148 , Williams J. held in Grimwade v. Federal Commissioner of Taxation (1949) 78 CLR 199, at p 208 that the purpose of pars. (a) to (f) was to comprehend transactions which might not otherwise be held to be dispositions of property and that each paragraph is self-contained or "complete in itself". (at p372)

12. True it is that some of the paragraphs are designed to extend to transactions which involve the creation or destruction of proprietary rights and interests in addition to the alienation of such rights and interests. But in my opinion this does not provide support for the respondents' argument. Once the shares are allotted, at least when allotment takes place pursuant to a binding contract, the allottee is entitled to have his name entered in the register of members in respect of the shares. A binding contract to allot shares creates a proprietary right in the form of a chose in action and a binding contract to allot shares in many instances is capable of specific performance, e.g. in a proprietary company. (at p373)

13. Underlying the respondents' argument is the assumption that if "the allotment of shares in a company" does not mean an allotment completed by registration, the expression must refer to an executory contract. I do not agree. An allotment may give effect to an antecedent contract; it may even constitute a contract; but it is not as such a contract executory or otherwise. (at p373)

14. The respondents rely heavily on s. 12 (1). It provides that a disposition of property in performance of a contract without adequate consideration in money or money's worth shall be deemed to be a gift so soon and so far as the disposition has "affected" the property or any of the property to which the contract relates. I assume, as the respondents argue, that in general it is the conveyance of Blackacre by the vendor pursuant to an antecedent contract of sale, not the contract itself, that constitutes the disposition of property for gift duty purposes. As will appear later, I do not accept that, as a consequence of this proposition, a conveyance is for full consideration in money or money's worth if some consideration, albeit inadequate, moves from the purchaser to the vendor under the contract. (at p373)

15. What is important for present purposes is that s. 12 is designed to fix the time when the gift is deemed to be made in a situation where there is a contract and a subsequent disposition of property. As this is the purpose of the section, I am unable to distil from it a general intention that an executory contract can never constitute a disposition of property. Indeed, the very presence of the section in the terms in which it is expressed lends force to the proposition that, in some circumstances, an executory contract may amount to a disposition of that kind. (at p373)

16. It is immaterial that s. 12 makes no provision for valuing shares before they come into existence. Given its purpose as I have stated it, one would not expect the section to contain such a provision. (at p373)

17. Section 18 (1) (b) provides that the property is to be valued "at the time of the making of the gift". The comment of Kitto J. in Robertson v. Federal Commissioner of Taxation (1952) 86 CLR 463, at p 486 that the shares must be valued at the time of the gift but on the hypothesis that the gift has taken place, made in relation to s. 16A (1) of the Estate Duty Assessment Act 1914, has equal application to s. 18 (1) (b). However, this does not produce a consequence favourable to the respondents' general argument for in the end it is possible to compute the value of the gift by reference to the value which the shares have when they come into existence. (at p374)

18. I agree that in valuing the shares on an assets or liquidation basis it is proper to include in the company's assets the consideration payable by the allottee (Ord Forrest (1974) 130 CLR, at p 158 ). But I do not agree with the respondents' submission that because the amount of the premium is infinitely variable it is impossible to arrive at the consideration which is fully adequate for the allotment of the shares. In every case it is a question of ascertaining the worth of the company's shares, calculating a premium which will reflect that worth and no more. No difficulty seems to arise in those cases in which shares are valued on a market or earnings basis, as here, because the amount of the premium payable will not significantly affect the value or, if it does, it should be capable of measurement, when we bear in mind that valuation in not an exact science, but an exercise in estimation. I certainly do not agree that the difficulty of calculation the worth of the shares is a reason for rejecting a literal interpretation of par. (a) of the statutory definition. (at p374)

19. I am prepared to assume that in a case in which the relevant disposition of property is an allotment the company's liability to gift duty will need to be taken into account in computing the value of the gift. I acknowledge that in other situations it is not necessary to take account of liability to gift duty. But I can see no reason why this circumstance indicates that par. (a) should be given a limited meaning. The need to take the liability to gift duty into consideration is due to the nature of the property which is the subject of the gift, a share in a company, the donor being the company. (at p374)

20. If it be assumed, contrary to my own view, that there is some difficulty in applying s. 12 to an allotment not constituted by registration, it does not require the conclusion that par. (a) only catches completed allotments by direction. The application of s. 12 to an allotment of shares is not essential to the allotment constituting a gift. As I have already pointed out, s. 12 has a particular and limited role. Because it has a particular and limited role it would be wrong to use it as a basis for reading a limitation to par. (a) of the definition which the paragraph does not express. (at p374)

21. There is the reference in par. (a) to the allotment of shares "in a company" rather than "by a company". In Ord Forrest this was rightly not thought to be of significance. The language in which the paragraph is expressed is wider than the expression "by a company". For this reason I would not infer that the language chosen reflects an intention that a par. (a) transaction is one in which the company is not an active participant. (at p375)

22. A general ground of criticism of the respondents' argument is that it concedes to par. (a) a minimal operation, an operation not remotely suggested by the actual language of the paragraph. By way of contrast it may be said that the application of the statutory definition to the facts of this case is an application which I should have thought that the Parliament rationally intended. (at p375)

23. For these reasons I would affirm the proposition established by Ord Forrest that par. (a) of the statutory definition of "disposition of property" is not to be read down so that it is confined to a completed allotment of shares by direction of a third party. This is to do no more than to give a literal interpretation to a revenue statute. (at p375)

24. The respondents next argue that if an allotment pursuant to a binding contract is a disposition of property it is necessarily made for full consideration in money or money's worth. In the case of St. Helens, this has relevance to the allotment to Mrs. Palfreyman who was present at the directors' meeting which resolved to allot the ordinary shares on 25th June 1968. As she had notice of the company's acceptance of the applications for subscription, a binding contract to actually allot preceded the allotment of shares to her. (at p375)

25. The argument rests on the proposition already mentioned that a disposition of property made in performance of a binding contract must be for fully adequate consideration, even if the executory contract was entered into for less than fully adequate consideration. There is a very clear distinction between the adequacy of consideration for the purposes of the law of contract and the adequacy of consideration for the purpose of revenue legislation such as the laws imposing stamp duty and gift duty. The distinction is partly brought out by the insistence in the statutory definition of "gift" in s. 4 on the absence of "fully adequate" "consideration in money or money's worth passing from the disponee to the disponor". The distinction has often been referred to. One instance was the observation of Dixon J. in Archibald Howie Pty. Ltd. v. Commissioner of Stamp Duties (N.S.W.) (1948) 77 CLR 143, at p 152 when his Honour, speaking of s. 66 of the Stamp Duties Act, 1920 (N.S.W.), as amended, said:
"In the context I think that the word 'consideration' should receive the wider meaning or operation that belongs to it in conveyancing rather than the more precise meaning of the law of simple contracts. The difference is perhaps not very material because the consideration must be in money or money's worth. But in the law of simple contracts it is involved with offer and acceptance: indeed properly understood it is perhaps merely a consequence or aspect of offer and acceptance. Under s. 66 the consideration is rather the money or value passing which moves the conveyance or transfer." (at p376)

26. Another instance is to be found in the judgment of Kitto J. in Davis Investments Pty. Ltd. v. Commissioner of Stamp Duties (N.S.W.) (1958) 100 CLR 392, at p 415 where his Honour, speaking of the same section, said that the consideration in question "is the money or money's worth really moving the conveyance". (at p376)

27. The statutory definition of "gift" looks to consideration in the same sense, so that it is to the amount paid or payable by the intending shareholder in consideration of the allotment that we must look in ascertaining whether there was a gift. The remarks of Dixon J. and Williams J. in Archibald Howie (1948) 77 CLR, at pp 152-153; 156-158 do not run counter to this view because in that case their Honours were considering the declaration of a dividend and a special resolution to return capital. What the shareholder received was in satisfaction of rights attached to his existing shares. In one sense the shareholder's rights had their source in contract but in another sense his property rights were of a different order from the purchaser's right to call for a transfer under a contract of sale. (at p376)

28. The respondents predict that, if the view which I favour prevails, horrendous consequences will follow and that an oppressive liability to gift duty will descent upon an unsuspecting citizenry. The force of this argument is somewhat diminished, to say the least of it, by the abolition of gift duty on gifts made on and after 1st July 1979. But in any event I am far from convinced that the examples offered by the respondents would lead to a liability for gift duty in the situations postulated. Some examples seem to be clear instances of payments or benefits received in satisfaction of rights of property. One example which presents a problem is the sale of property under a binding contract when the value of the property rises (or falls) between contract and conveyance. The question is whether gift duty is payable on the transfer if the change in the value exceeds $10,000. I see no occasion to answer this question but I make the comment that s. 12 (1) appears to proceed on the footing that gift duty would be payable on the transfer in such a case. The sub-section is, as I have pointed out, directed to a particular situation, but it is significant that Parliament provided in that situation for the very consequence that, according to the respondents, is so patently unacceptable that Parliament could not have intended it. (at p377)

29. I turn now to the Commissioner's appeal. He contends that the primary judge erred in applying s. 18 (2) (c) of the Act by reason of an incorrect interpretation which he placed upon this provision. (at p377)

30. The Commissioner's assessment to gift duty placed a value on each of the five ordinary shares in St. Helens of $330,529.60, resulting, according to the Commissioner, in a gift of $1,652,148 and giving rise to an assessment to gift duty of $460,949.29. This valuation of the shares was supported by resort to s. 18 (2) (c) and the winding-up basis evaluation which it authorized. An earnings basis produces a very much lower valuation basis. The reason for the difference lies in the high value of the assets of St. Helens Farm and in the very low income which they yield. (at p377)

31. The principal asset was the share in the Broken Hill Proprietary Company Ltd ("B.H.P.") which had a very low income yield in relation to their market value. On 25th June 1968 the shares reached a peak of $25 on the Stock Exchange and at this price they yielded .08 per cent. Their average yield between 1945 and 1968 was 3 per cent. (at p377)

32. The respondents' valuers approached the valuation upon the basis that each of the ordinary shareholders received one ordinary share. Each such shareholder had a minority interest and it was that interest that had to be valued. It was inappropriate to place on each ordinary share the value that would be placed on one-fifth of the company's shares in B.H.P. No single shareholder could wind up the company or bring about a distribution of the B.H.P. shares unless three of the other four shareholders joined with him to pass a special resolution for winding up. Although two shares were held by the one trustee company, the trusts affecting the two shares so held were different. It was therefore wrong to conclude that four shareholders would combine to wind up the company, and right to select earnings as a basis for valuation. Messrs. Bagnall and Goddard placed a value of $40,000 (approximately) on each of the ordinary shares. Mr. Young favoured a value of $30,000. Mr. Thompson-Laing, one of the Commissioner's valuers, agreed that $40,000 was approximately correct if an earnings basis was held to be appropriate. (at p377)

33. The Commissioner's valuers considered that an earnings basis was inappropriate because, to their way of thinking, it meant that a valuation of $200,000 only was to be placed on assets worth $1,200,000. This led them to favour a winding-up basis, which they sought to justify on the footing that St. Helens was a family company and that there was a possibility that the shareholders might combine and wind up the company so that its assets could be distributed or deployed to better advantage. They therefore applied s. 18 (2) (c). However, one of their number, Mr. Robinson, adopted a different approach. He conceded that it was wrong to value the shares by reference to the value of the company's assets. He took the value of those assets and discounted them by 20 per cent so as to make allowance for the slim prospects of each shareholder bringing about the realization of those assets. (at p378)

For these reasons I am at liberty to act upon my own view of the matter unfettered by the decision pronounced in Ex parte Nelson (No. 1) (1928) 42 CLR 209 ." (at p432)

94. I respectfully agree with that passage which draws no distinction between appeals coming from Supreme Courts of the States (and one may now add from federal courts) and those coming from a single Justice of this Court. (at p432)

95. The ultimate court of appeal in Australia for all federal and many State matters is the Full Court of the High Court of Australia, and it is only unanimous or majority decisions of the Full Court which have binding authority. There are practical as well as theoretical reasons why this should be so. It frequently happens that, when a case is argued at first instance and then subsequently on appeal, the argument presented for one or indeed both parties is not the same when the matter comes on appeal. In such a case it is a matter of speculation whether if the five Justices had sat together and heard the same argument their opinions would have been the same as those which they reached after hearing different argument at different times. (at p432)

96. In these circumstances I am therefore unable to regard the decision in Ord Forrest (1974) 130 CLR 124 as binding. I use the expression "binding", though noting that this Court regards itself as entitled to overrule its earlier decisions in what may conveniently, but imprecisely, be described as special circumstances. The same question having arisen in the present case it is properly to be considered de novo. (at p432)

97. Since the decision in Ord Forrest in 1974, the Parliament has passed further legislation with respect to gift duty but not by way of altering the provisions which were construed in Ord Forrest. The Gift Duty Amendment Act 1978 has amended the Gift Duty Act 1941 by providing that it does not apply to gifts made on or after 1st July 1979. Once the taxing Act ceases to apply there is no scope for the operation of the assessment Act. This is by no means an approval of the decision and shows no more than that the Parliament did not take the opportunity to amend the Act when dealing with the general subject matter of gift duty. The fact that gift duty is no longer exacted cannot be relevant to the consideration of the question whether the Court should now arrive at a different conclusion. (at p433)

98. On the matters with which I have so far dealt the result is that the appeals by the Commissioner should be dismissed. The cross-appeals raise only the question whether there was in the relevant cases a gift at all. This question does not arise in the case of Gwynedd and Q.A.W. where Sheppard J. held that the value of the shares in question did not exceed the sum of the par value and the premium. (at p433)

99. In the other three cases there was a difference between the value ascertained by Sheppard J. and the amount paid. (at p433)

100. The argument presented on behalf of the three cross-appellants covered in part the same ground as the argument before the Full Court in Ord Forrest, there being no report of the argument before Stephen J. at first instance, but in addition raised what appear to me to be new points not argued in Ord Forrest or covered by the reasons in the various judgments. The argument that the payment of the par value was always "fully adequate" consideration, which was rejected in Ord Forrest by all members of the Court, was not relied upon. (at p433)

101. I am in agreement with the reasons and the conclusions of the Chief Justice in Ord Forrest but in the circumstances it is desirable that I should express my own reasons for that concurrence and that I should deal with the new arguments which were put to the Court. (at p433)

102. The language of the relevant provisions of the Act presents a number of problems. In particular the question of what is meant by par. (a) of the definition of "disposition of property" which must be read with the definition of "gift". The relevant definitions are those of "disposition of property", "gift", "interest in property" and "property" which I have already set out above. (at p433)

103. It is necessary to set out the material parts of s. 12 which are as follows:

"(1) A disposition of property made or taking effect in pursuance of or in performance or satisfaction, whether wholly or in part, of a contract or agreement entered into (whether before or after the commencement of this Act and whether with or without an instrument in writing) without adequate consideration in money or money's worth, shall, for the purposes of this Act, be deemed to be a gift so soon and so far as the disposition has affected the property or any of the property to which the contract or agreement relates.

(2) For the purposes of this Act, a gift shall be deemed to be made after the commencement of this Act when the disposition of property comprises in the gift is made or takes effect after the commencement of this Act, notwithstanding that a contract or agreement or instrument of title which relates to the property or any part thereof was made or executed before the commencement of this Act." (at p434)

104. I have already said that I regard the expression "allotment of shares" as meaning the "complete allotment". It is a process by which a new item of property is created, i.e. the shares so "allotted and issued" and entered in the register. Unissued shares of a company are not existing property of the company which it may dispose of by allotting and issuing shares or at all: see In re V.G.M. Holdings Ltd. (1942) Ch 235, at pp 240-241 . Unissued shares represent no more than the extent of the capacity of the company to allot and issue new shares without first having to increase its nominal capital pursuant to the Companies Act. A "complete allotment" involves the creation of a particular form of chose in action, involving rights and obligations defined by the memorandum and articles of association and by the Companies Act itself. There being thus no transfer or disposition of property within the ordinary sense of either of those terms, it is no doubt clear that some special provision would be needed if a complete allotment of shares were to be brought in any way within the ambit of the legislation. (at p434)

105. I am unable to agree with the suggestion that each of the particular items in pars. (a) to (f) of the definition is mutually exclusive and that each of them represents something not falling within the opening words of the definition of disposition of property, though no doubt par. (f) is properly to be regarded as self-contained. For example par. (e) relating to the exercise of a general power of appointment would in most, if not all, cases involve the creation of a trust but in the end nothing seems to turn upon the view that these paragraphs may all be regarded as mutually exclusive. (at p434)

106. The next feature of the definitions which is of importance for present purposes is the requirement derived from the definition of gift that it embraces dispositions of property "without consideration in money or money's worth passing from the disponee to the disponor, or with such consideration so passing if the consideration is not . . . fully adequate". The Act is thus dealing with a very limited kind of consideration, which differs from the sense in which the word is used in relation to simple contracts and from the sense in which it is used in relation to conveyancing. The distinction between the latter two kinds of consideration is discussed in and well illustrated by the decision of this Court in Archibald Howie Pty. Ltd. v. Commissioner of Stamp Duties (N.S.W.) (1948) 77 CLR 143 (Archibald Howie). That case concerned s. 66 of the Stamp Duties Act 1920-1940 (N.S.W.) which dealt (inter alia) with conveyances either without consideration in money or money's worth or upon a bona fide consideration in money or money's worth of less than the unencumbered value of the property. The company, pursuant to a resolution for reduction of capital duly confirmed by the court, had returned capital to the holders of paid-up shares in the company to the extent of 19/6d. for each 1 pound share by distributing in specie paid-up shares in other companies on the basis of their value in the company's books. The actual value of the shares so distributed was greater than the value appearing in the books. It was held by this Court that the transfers were made upon a bona fide consideration in money or money's worth of not less than the unencumbered value of the property conveyed and therefore were not within either of those categories. (at p435)

107. Dixon J. said (1948) 77 CLR at p 152 :
"In the context I think that the word 'consideration' should receive the wider meaning or operation that belongs to it in conveyancing rather than the more precise meaning of the law of simple contracts. The difference is perhaps not very material because the consideration must be in money or money's worth. But in the law of simple contracts it is involved with offer and acceptance: indeed properly understood it is perhaps merely a consequence or aspect of offer and acceptance. Under s. 66 the consideration is rather the money or value passing which moves the conveyance or transfer." (at p435)

108. On the same page he said:
"The reduction involving the payment off of part of the paid up share capital must therefore be considered an effectuation of a provision of the contract of membership. The allotment of the share and the payment up of the liability thereon conferred upon the holder for the time being of the share a right to have the assets of the company used and applied in the various ways in which the articles expressly or impliedly require or authorize and this is one of them. It is an effectuation or realization of the rights obtained by the acquisition of the share in the same way as is the distribution of a dividend. The consideration given is the payment up of the share capital in satisfaction of the liability for the amount of the share incurred on allotment." (at p435)

109. He also said (1948) 77 CLR, at pp 153-154 :
"The direct allocation of assets for distribution in reduction of the amount of the shares is doubtless within the provision. But that means that the shareholder in satisfaction of his proportionate 'interest' in the assets, an interest consisting of a congeries of rights in personam, takes an aliquot part of the assets. There is an equivalence not only from a logical but from a realistic point of view. The reduction in both the amount and value of the share affords an adequate consideration in money and in money's worth." (at p436)

110. Williams J. dealt with the matter in somewhat the same terms (1948) 77 CLR, at pp 156-159 . Rich J. agreed with the judgments of both Dixon J. and Williams J. (at p436)

111. Thus consideration in that sense may include no more than the discharge of an obligation. Thus a payment made in discharge of an obligation under a contract for the purchase of goods which have already been delivered is made for full consideration because what it does is to discharge an existing obligation. The sense in which the term "consideration" is used in the case of simple contracts is that the promise must do or suffer or promise to do or suffer something but there is no requirement that such consideration shall move from promisor to promisee or vice versa. A simple contract may thus oblige A to transfer goods to B in consideration of a promise by B to make a payment to C. Moreover the common law was not concerned with the "adequacy" of consideration so long as it was real and not illusory and again in the case of consideration in the conveyancing context there was no requirement as to "adequacy". It may be noted that the Stamp Duties Act which was dealt with in Archibald Howie did have such a requirement, but did not have any requirement that consideration should pass from transferee to transferor. (at p436)

112. The definition of gift in the Act requires that there should not merely be a disposition of property but that it should be made "without consideration in money or money's worth passing from the disponee to the disponor" or that the consideration so passing was not fully adequate. That which constitutes good consideration either in the conveyancing or in the simple contract sense may therefore not be sufficient to take a disposition of property outside the ambit of the definition of gift. The importance of this lies in the curious consequences which appear to me to flow in the case of the complete allotment of shares. (at p436)

113. In Ord Forrest (1974) 130 CLR 124 it was argued that the expression "allotment of shares in a company" did not mean that the allotment of shares by a company to a person who became a shareholder was deemed to be a disposition of property by the company. It was said that it meant an allotment of shares, at the direction of a person entitled to have the shares allotted to him, to the person so nominated, the amount due in respect of such shares being paid by the person giving the direction. This argument was rejected. (at p437)

114. Such a nomination would involve no transfer of property to the allottee by the person entitled to have the shares completely allotted to him, unless there was a contract by which the right against the company was transferred to the nominee. That the former transaction would not involve any transfer of property is plain enough from the nature of a complete allotment of shares and it was in fact so held in In re Pool Shipping Co. Ltd. (1920) 1 Ch 251 . It was there held that letters of renunciation in respect of bonus shares in favour of a nominee and acceptance by that nominee did not constitute a "transfer of shares". The directors had refused to issue the new shares to the nominees on the ground that it involved a transfer which they were entitled under the articles of association in their discretion to refuse to register. It was held that there was no transfer and that the directors could not refuse to complete the allotment by issuing shares to the nominee. The case would of course have had obvious consequences for stamp duty purposes. (at p437)

115. It was argued in Ord Forrest that anomalous consequences would follow from treating par. (a) of the definition as covering an allotment of shares at an under-value because of the effects it would produce upon the issue of bonus shares by public companies and the making of further issues to shareholders at par or at a premium lower than the market premium. This was dealt with by Gibbs J. where he said (1974) 130 CLR, at p 150 : "I would agree that it would be a striking departure from existing notions if, for example, a bonus issue of shares in a public company were held to be a gift."

116. And he then said:
"Where a company makes a bonus issue, or a new issue at a price below the real value of the shares, to persons who are already shareholders, there will ordinarily be no want of full consideration. In such a case, speaking generally (for of course there may be special circumstances that make a difference), the making of the new issue of shares is no more than 'a fulfilment or satisfaction of the rights of the shareholder as such' (Davis Investments Pty. Ltd. v. Commissioner of Stamp Duties (N.S.W.) (1958) 100 CLR 392, at p 409 ), and the payment up of the share capital when the original shareholding was allotted provided the consideration for the acquisition of the rights which the shares conveyed, and therefore for any subsequent distribution of capital or profits in satisfaction pro tanto of those rights." (at p437)

117. His Honour then referred to the judgments in Archibald Howie (1948) 77 CLR 143 and said (1974) 130 CLR, at p 151 :
"Of course, what has just been said is only applicable where the issue is made to existing shareholders, and would not apply, for example, where a company issued shares to its employees, or placed shares with particular buyers, not already members of the company, at a price less than their full value." (at p438)

118. Gibbs J. however did not advert to the difference between the kind of consideration involved in Archibald Howie and that which is required by the Act. It is undoubtedly true that full consideration in the conveyancing sense would be given in the case both of a bonus issue and of a new issue at par or at a premium. In the latter case there would ordinarily be a separate market value for the "rights". In the former case it does not appear to me that it is possible to say that consideration moves from the shareholder to the company. It might be possible to say in the case of an original shareholder that his subscription for shares and payment of the par value or other issue price was consideration moving from him to the company in respect of all rights which might thereafter emerge from the company whether by way of dividend, return of capital, bonus shares or new issues at par or above par. It is difficult to see how the original consideration on the initial issue for shares could constitute fully adequate consideration passing from the subscriber to the company and also be fully adequate consideration passing from the shareholder to the company on a bonus issue many years later. Any diminution in value of the old shares could scarcely be said to pass from subscriber to company. Moreover whatever may be said of an original shareholder cannot be said of transferees from him. Nothing would pass from them to the company. Such subsequent shareholders would however be entitled to the bonus shares and to take up the new shares, or sell the rights thereto. (at p438)

119. A transferee from one of the original shareholders becomes entitled to all the rights and interests to which that shareholder was entitled or would have become entitled if he had continued as a shareholder, but the consideration for which the new shareholder acquired the shares passed from him to the old shareholder and not to the company. It does not seem to me that in such a case Archibald Howie can be used for the purpose of demonstrating that full consideration in respect of the bonus share or the shares issued at a figure less than their market value had passed from the shareholder to the company. It is worth considering also the situation where a shareholder (whether original or otherwise) disposes of his entitlement to new issue shares by "selling his rights" to a stranger and receiving for those rights the current market price. In such a case the purchaser of the rights becomes entitled on application to the company and payment of the issue price to have the relevant number of shares allotted to him and entered in the register in his name. This is a commonplace transaction in the case of listed public companies. In that case shares are issued by the company to the purchaser of the rights at a price below the market value of those shares. The consideration passing from the purchaser of the rights to the company would be only the figure at which they were offered by the company to existing shareholders. The new shareholder would have paid separately for the rights of the existing shareholder and would pay to the company only the favourable price available to existing shareholders. Archibald Howie does not assist in such a situation to demonstrate that the complete allotment of the shares to a stranger by the company was made for fully adequate consideration passing from the allottee to the company. It would follow from Ord Forrest that a stranger who purchased rights on the open market and paid the existing shareholder for those rights and then applied for the shares would receive a "gift" from the company for an amount equal at least to that which he had paid for the rights. Such a gift might be of a larger value if at the time of the complete allotment of the shares the price of the rights had increased on the open market. Such a new shareholder would incur liability for gift duty, as would the company itself, each being obliged to indemnify the other to the extent of one-half of the gift duty. (at p439)

120. In Ord Forrest Mason J. also dealt with this argument by reliance upon Archibald Howie. He said (1974) 130 CLR, at pp 155-156 that the issue of bonus shares or of shares having a value greater than the consideration payable for them to shareholders in proportion to their existing holdings was "in a very real sense a satisfaction of their existing rights". I would respectfully agree with that proposition, but it does not follow that the shareholder gives fully adequate consideration which passes from him to the company, nor that the purchaser of such rights who applies for the shares can be said to provide fully adequate consideration which passes from him to the company. With respect I agree with Mason J. when he said that "(t)he company receives full consideration in the form of the amount payable by the allottee and in the satisfaction of the rights of the existing shareholder". (1974) 130 CLR, at p 157 However such full consideration does not flow from the allottee to the company; only part of it does. That observation is true in the conveyancing sense of consideration but that does not satisfy the requirements of the Act. (at p440)

121. For those reasons I am satisfied that the anomalies which were relied upon in argument in Ord Forrest and in the present case do exist and that they are of a sufficiently serious character to call in question the interpretation of the statutory provisions which brings about those consequences. It is not a legislative intention which one would expect to find unless expressed in clear language and, if an alternative interpretation of the language is available which appears more rational and just, it is to be preferred, even if its consequence is that the entitlement of the revenue is less than that for which the Commissioner contends. (at p440)

122. A further argument was based upon an analysis of the transaction involved in the acceptance by the company of an offer to take shares, or the acceptance by an offeree of the company's offer to allot shares and the subsequent performance by both parties of their obligations under such a contract, i.e. the complete allotment by the company involving the entry of the applicant in the share register in respect of the shares the subject of the contract, and the payment by the allottee of the amount due to the company in respect of the complete allotment. (at p440)

123. I agree with the submission that the scheme of the Act is not to tax executory contracts for the disposition of property at an under-value but only to tax the disposition itself. This general scheme is confirmed by the terms of s. 12. Sub-section (1) provides that where a disposition of property takes effect pursuant to a contract entered into without adequate consideration in money or money's worth it is to be deemed to be a gift "so soon and so far as the disposition has affected the property to which the contract relates". That recognizes that the executory contract is not a disposition of property and that in the case of a contract at an under-value there is no gift until the disposition of property occurs. Sub-section (2) is concerned only to ensure that sub-s. (1) is not so read as to exclude dispositions of property taking effect after the commencement of the Act but pursuant to contracts made before the commencement of the Act. This section emphasizes that it is the "disposition" and not the executory contract which comprises the gift and that the performance of such a contract constitutes a gift notwithstanding that there may have been an enforceable legal obligation to transfer the property in existence prior to the coming into operation of the Act, or that the inadequate consideration had already passed to the disponor. (at p440)

124. The question then arises as to how s. 12 (1) can operate when shares are allotted to the person who has subscribed for them. Section 12 (1) assumes the existence of property which is the subject of a contract. A contract for the allotment of shares does not relate to or affect any property because unissued shares are not property. There cannot therefore be any scope for the operation of s. 12 (1) in such a case. (at p441)

125. It was argued that par. (a) of the definition of disposition of property will only work where there is an allotment to a nominee, and that in such a case the company is not the disponor. It was said that this view serves a rational purpose in completing the scheme. In the case of an issue of shares by direction the disponor is the person giving the direction to the company. By so doing he effectively transfers to the allottee (the donee) his rights as against the company under its articles to receive the shares by their complete allotment. If full consideration does not pass from the allottee to the directing party there will be a gift within the meaning of the Act. By its creation of the new shares on complete allotment the company transfers nothing. On the basis of Ord Forrest (1974) 130 CLR 124 there would be two gifts, one by the directing party, and the other by the company. (at p441)

126. It was submitted that the executory contract may be at an under-value but that the conveyance of property in one case or its creation in the other is for full value because it is in satisfaction of the obligation to convey or create. (at p441)

127. There are other anomalies involved in the definition of disposition of property which must qualify its operation. An example is the expression "delivery" of property. I do not think that the definition could be read so as to deem all deliveries without consideration to be gifts; consider for example the delivery of a chattel to a gratuitous bailee, whether for storage or use. Such deliveries do not "dispose of" goods and certainly would not fall within the expression "other alienation of property". That expression must qualify all the words which precede it in the opening part of the definition so that only such deliveries as constitute an alienation of property will be caught by the definition. (at p441)

128. The problem presented by a contract for the sale of land for full consideration which is followed by the transfer at a time when the value of the land has risen in the meantime discloses another anomaly. The same difficulty arises where the benefit of a contract of sale is assigned by the purchaser to an assignee who then becomes entitled to have the conveyance executed in his favour. On settlement the property passes from the vendor to the assignee but no consideration or only part consideration will flow from the transferee of Blackacre to the vendor, depending on whether the original purchaser had paid the whole or part of the price prior to the assignment of the chose in action. Another example is the assignment of a debt arising from the supply of goods and payment made by the buyer to the assignee of the book debt. No consideration moves from the assignee of the book debt to the buyer. All these situations are of course covered by considerations adverted to in Archibald Howie (1948) 77 CLR 143 but which do not apply to "gifts" as defined in the Act. (at p442)

129. In Ord Forrest the judgments in favour of the Commissioner made no distinction between allotment, complete allotment or a binding contract to allot. Indeed, in some instances the words "allotment" and "issue" appear to be used without drawing any distinction between them. (at p442)

130. In Grant v. Federal Commissioner of Taxation (1976) 135 CLR 632 , shares were issued at par but were then worth less than par value and that was held to constitute a gift to the company. There the Court did advert to the distinction between allotment and a binding promise to allot. That distinction was also expressly referred to in Commonwealth Homes and Investment Co. Ltd. v. Smith (1937) 59 CLR 443, at pp 453-454 by Latham C.J. where the passage from the judgment of Chitty J. in Nicol's Case (1885) 29 Ch D 413 to which I have referred above was quoted. Dixon J. also referred to this point. He said (1937) 59 CLR, at p 461 :

"In the formation of a contract of membership it may be the acceptance of the offer constituted by the application or the making or authorization of an offer or counter-offer accepted by the subsequent assent of the allottee. But it is also the appropriation of a given number of shares to the allottee. Shares are personal property. Allotment, entry in the share register and the sealing and delivery of share certificates are matters of fact which constitute the issue of shares, considered as a form of property. The assent, whether prior or subsequent, of the shareholder, however evidenced, is enough for the purposes of forming the 'agreement' which is necessary to membership."

This case was not referred to in Ord Forrest. The same distinction appears from the judgment of Dixon J. in Central Piggery Co. Ltd. v. McNicoll (1949) 78 CLR 594 in the quotations which he makes from Fletcher Moulton L.J. in Mosely v. Koffyfontein Mines Ltd. (1911) 1 Ch 73 and from Cockburn L.C.J. in In re Ambrose Lake Tin and Copper Co. (1878) 8 Ch D, at pp 638, 641-642 . (at p443)

131. It was also submitted that an executory contract was not included in any part of the definition of disposition of property. Executory contracts, generally speaking, and perhaps always, create property in the sense that they create choses in action. When a complete allotment is made in discharge of an obligation there is necessarily full consideration because it is in satisfaction and discharge of the existing obligation and is the counterpart of the right of the subscriber to compel the company to make the complete allotment. Conversely there is the right of the company to compel the subscriber to pay. Such consideration could properly be regarded as passing from company to allottee and vice versa. (at p443)

132. All these considerations point to the conclusion that the definition applies only to allotments by direction. If such a direction were given without consideration ordinary principles of equity would produce a resulting trust in favour of the shareholder giving the direction unless there were a presumption of advancement or evidence of an intention that the nominee should take the beneficial interest. Without some express statutory provision allotments by direction would not be dispositions of property at all because the shares allotted by direction do not exist as items of property until created by the company in the making of the complete allotment. However the direction plus the presumed or actual intention to make a gift would cause both the beneficial and the legal title in the newly created shares to arise at the same moment in favour of the allottee. There would be no moment of time when the beneficial interest in the shares was in the directing party and there would be no gift of money to the nominee and no gift of shares by the company. (at p443)

133. The situation thus described is comparable to that dealt with by this Court in Commissioner for Probate Duties (Vict.) v. Mitchell (1960) 105 CLR 126 . That case dealt with the incidence of probate duty on the proceeds of insurance policies within the terms of the Married Women's Property Act 1928 (Vict.) and the provisions of the Life Insurance Act 1945 (Cth) which in substance replaced it. Fullagar J. said (1960) 105 CLR, at p 140 :

"The chose in action created by the policy was, no doubt, 'property', but the bringing into existence of that chose in action did not, in my opinion, amount to or involve any alienation of property within any reasonable meaning of that expression. It is clear, I think, that every one of the transactions mentioned in par. (a) of the definition denotes an act done by the deceased in his lifetime. In and about the issuing of the policy there was no conveyance or transfer or assignment or delivery of anything by him. He created no power of appointment. 'Payment' I take to mean payment of money to or in trust for a donee. There was no such payment by the deceased. He paid a premium on the issue of the policy, and he paid many subsequent premiums. But Sarah Grinblat took no interest of any sort or kind in any premium paid. It seems to me to be out of the question to suggest that the payment of the premium was a 'disposition of property'. If it were, what ought to be brought into charge would be not the amount assured plus bonuses but the total sum of premiums paid. It may be said that the transaction involved a 'creation of a trust' or of an 'interest in property' - expressions which occur in the parenthesis in the definition. But the definition does not take into its scope creations of trusts or creations of interests in property. It takes in alienations of property by way of creations of trusts or of interests in property. There was no alienation of property by the deceased."

Another anomaly involved in the view that the company is the donor in the case of an allotment is that the gift and the gift duty both enter into the computation of the value of the shares, at least in a case where there is no market value as in the case of shares listed on a stock exchange. The amount payable upon allotment, or prior to complete allotment, will to some extent increase the assets of the company and therefore the total value of those assets, but one-half of the amount of the gift duty will be payable by the company because s. 35 places the liability for payment of duty both upon the donor and the donee with the result that each must contribute half the amount. No doubt the company and the allottee might agree as to who should bear that burden, but that too might involve a gift. This is not an impossible calculation but it is a somewhat odd result and adds to the anomalies. (at p444)

134. Again in the case of a bill of exchange which is presented on maturity by the ultimate holder after having passed through many hands a situation is created in which full consideration is provided to the acceptor for the payment of the amount due on the bill by the discharge of the obligation on the bill though nothing moves from the holder in due course to the acceptor other than the delivery of the bill which discharges the acceptor's liability. (at p444)

135. In the result therefore I am of opinion that the decision in Ord Forrest was not in accordance with principle and involved a misconstruction of the Act. With due respect to those who have thought otherwise I am unable to accept the decision as correct. (at p444)

136. Accordingly I am of opinion that the cross appeals by the taxpayer companies St. Helens Farm (A.C.T.) Pty. Ltd., Ceedon Pty. Ltd. and Lucinda Investments Pty. Ltd. should be allowed. I have already indicated that the appeals by the Commissioner in the cases of each of the five companies should be dismissed. We were informed by counsel that it had been agreed that there should be no order as to costs. (at p445)

WILSON J. In these appeals, save with respect to the matter I am about to mention, I agree generally with the reasons for judgment which have been prepared by Mason J. The reservation concerns the authority of the decision of this Court in Ord Forrest Pty. Ltd. v. Federal Commissioner of Taxation (1974) 130 CLR 124 , a case in which the four members who constituted the Full Court were equally divided in opinion. Although I agree with the decision, I consider that it ought not be regarded as a binding decision for the reasons developed in his judgment by Aickin J. (at p445)

2. I would therefore allow the appeals of the Commissioner, so far as they relate to s. 18 (1) (a), and dismiss the cross appeals. (at p445)

Orders

FEDERAL COMMISSIONER OF TAXATION V. ST. HELENS FARM (A.C.T.) PTY. LTD.

Appeal dismissed.

Cross appeal dismissed.

No order as to costs.

FEDERAL COMMISSIONER OF TAXATION V. CEEDON PTY.LTD.

Appeal allowed in part.

Cross appeal dismissed.

Remit the matter to the Supreme Court of New South Wales to proceed in accordance with the judgment of this Court.

No order as to costs.

FEDERAL COMMISSIONER OF TAXATION V. GWYNEDD PTY. LTD.

Appeal allowed in part.

Cross appeal dismissed.

Remit the matter to the Supreme Court of New South Wales to proceed in accordance with the judgment of this Court.

No order as to costs.

FEDERAL COMMISSIONER OF TAXATION V. LUCINDA INVESTMENTS PTY. LTD.

Appeal allowed in part.

Cross appeal dismissed.

Remit the matter to the Supreme Court of New South Wales to proceed in accordance with the judgment of this Court.

No order as to costs.

FEDERAL COMMISSIONER OF TAXATION V. Q.A.W. PTY. LTD.

Appeal allowed in part.

Cross appeal dismissed.

Remit the matter to the Supreme Court of new South Wales to proceed in accordance with the judgment of this Court.

No order as to costs.