G.P. International Pipecoaters Pty Ltd v The Commissioner of Taxation

[1990] HCATrans 33

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IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Perth No PS of 1989

B e t w e e n -

G.P. INTERNATIONAL

PIPECOATERS PTY LTD

Applicant

and

THE COMMISSIONER OF TAXATION

Respondent

BRENNAN J
DAWSON J
TOOHEY J

Pipecoaters(2)

GAUDRON J

McHUGH J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON THURSDAY, 8 MARCH 1990, AT 10.08 AM

(Continued from 7/3/90)

C2T2/l/SH 189 8/3/90

BRENNAN J:	Yes, Mr Fletcher.
MR FLETCHER:	Your Honours, at the time that the Court rose

yesterday afternoon I believe I was riding down a

box canyon. The question I was grappling with at

that time, Your Honours, was as I recall what term

of the agreement is not stated in the formal contract

that must be inferred and what extrinsic evidence

is there of it.

Having reflected overnight on that question,

I think the proposition is better put that the question in respect of which extrinsic evidence

is relevant is what is the correct characterization

of the receipts, the point being that the SECWA

on our case agreed that it would pay to

GP International Pipecoaters the three establishment

cost payments for the purpose of recouping or

compensating GPI for the estimated cost of

construction.

BRENNAN J:  Mr Fletcher, at the risk of interrupting the

even flow of your argument, that seems to me

to be sliding away from the problem. You say

SECWA agreed; do you mean contractually agreed?

MR FLETCHER:  Can I answer that, Your Honour, by proceeding

just two steps further down this line of argument?

BRENNAN J: Certainly.

MR FLETCHER:  I was about to get to that very point and

that is that what the extrinsic evidence is

relevant to is the motive of the payer in

paying and of the recipient in receiving because

that is relevant to the characterization of

the receipt~ Is it capital or is it income?

DAWSON J:	In other words, you confront the proposition
head on and you say you are not confined to
the contract in determing the character of these
payments for taxation purposes.

MR FLETCHER: Precisely. My error yesterday, Your Honour,

was that - - -

DAWSON J;	Was agreeing that you were.
MR FLETCHER:	No, was that, with respect, I was seeking

to suggest that there were other terms of the

contract that had to be found outside the contract

but that is not the case.

C2T2/2/SH	190	8/3/90
Pipecoaters(2)
MR FLETCHER (continuing):	The terms are all there.	What I

am driving at is that there is no extrinsic evidence

needed of any of the terms because they are clear,

that the relevant terms, for this purpose, are

that the payer will pay on day one, day 90 and

day 180 certain amounts. And, secondly, that

the receiver will construct a plant to coat pipes.

But the extrinsic evidence in relation to the

background to the contract is to show what were

those three payments for,	what were they designed
to achieve?

Starting with the contract, it is, in my

submission, perfectly clear that the one thing

which the establishment payments were not for

was the pipe coating. The rates for pipe coating

are quite clearly the remuneration applicable

to that activity. The extrinsic evidence is

relevant to the fact that, on our submission,

on our case, the establishment costs were intended

to match the estimated cost and, hence, to compensate

GPI.

BRENNAN J: Intended to?

MR FLETCHER:	Yes.
BRENNAN J:	By whom?
MR FLETCHER:	Intended to by the parties.
BRENNAN J:	By both parties?
MR FLETCHER:	Yes.
BRENNAN J:	To match the cost of construction?
MR FLETCHER:	Yes, that was the intention.
BRENNAN J:	And if it did not?
MR FLETCHER: If it did not then the question would arise

whether or not any surplus was assessable and

the answer to that question would turn upon whether

or not the necessary profit motive was there in relation to that surplus but the question

is totally hypothetical because there was no

surplus. In fact, we know from the evidence

that the payer's agent, Fluor Maunsell, knew
full well that the estimate that had been made
of the cost, 4.6 million, was likely to be an

underestimate on their careful costings.

C2T3/l /ND	1 9 1	FLETCHER	8/3/90
Pipecoaters(2)

MR FLETCHER (continuing):  So the question of a surplus

really did not entertain their minds because

SECWA was advised, by the agent, that it had

satisfied itself that $4.6 million was certainly

a most reasonable estimate of the likely cost.

It certainly wasnot an overestimate. That comes through, quite clearly, in the evidence.

So that what we say is that it is quite clear

from the contract that the establishment cost

payments were not, with respect, to the coating

part of the contract. His Honour Justice Pidgeon

found that the contract did have two parts. He

felt that, nevertheless, because there was one flow,

as he saw it, of moneys under that contract and it

was one contract for doing everything rather than two

separate contracts, that therefore it was all

income - all receipts were income. But he did

clearly find that there were two parts - there was a

construction part and there was the coating part

and what we say is strongly evident from the contract,

from its terms, is that the establishment costs do

not relate to the coating activity. The question
therefore is, "Was construction of plant part of

the business of the appellant, or the total business?"

and if the answer to that is "Yes" then the receipt

is in the course of that business, and is assessable.

Now the extrinsic evidence also becomes relevant

to answering that question and I think that was

conceded by my learned friend yesterday that, in

terms of determining what was the business activity,

relevantly, in terms of determing which receipts are
within the ordinary course of that business and
therefore assessable and what was not, then evidence

other than the terms of the written contract is

relevant and admissible.

In relation to this point Your Honours, may I hand up copies of a case CLIFFS INTERNATIONAL INC. V

THE COMMISSIONER OF TAXATION,adecision of this

Honourable Court:

(Continued on page 193)

C2T4/l/JL	192	8/3/90
Pipecoaters(2)

MR FLETCHER:  The question for decision in this case,

Your Honours, was the characterization of a payment

rather than a receipt. Nevertheless, the approach

adopted is, in all respects, pertinent in my submission.

The question concerned whether or not it was a

revenue or a capital outgoing. The Court comprised

Their Honours,the then Chief Justice Sir Garfield Barwick

Justices Stephen, Jacob, Gibbs and Murphy.

The majority was Chief Justice Sir Garfield Barwick,

Justices Jacob and Murphy.

The fact that I am going to refer to part of the

reasons for the decision of the minority, and the

fact that they were in the minority makes no

difference,in my submission,because on this particular

point, that is, the approach to be adopted in

characterizing an amount of money as on capital

account or revenue account was unanimously adopted.

If I could ask Your Honours to turn to page 148

of the report, on the left-hand page, at the top

of the page, the second paragraph down, and the

reasons for decision of the Chief Justice

Sir Garfield Barwick:

The proper conclusion in each case in this

particular area of the law -

that is the characterization of moneys as to being

on capital account or on income account -

is peculiarly dependent upon the particular

facts and circumstances of that case.

And then the second last paragraph he refers to the

fact that:

the description given such payment by the parties

cannot decide their quality ..... in deciding

taxability, and the same is true of deductibility -

with which they were dealing -

the nomenclature applied by the party or parties

cannot foreclose the examination of what in truth

the receipts or payments relevantly are.

And this, of course, goes straight to our underlying

point and that is that in substance and, in fact, in

form, but most certainly in substance, the payments

here were to equip the company with the capital

asset needed to carry on a profitable business.

BRENNAN J:  Why do you say to equip them with a capital asset

as distinct from the proposition to equip them with

the funds with which they might build -the capital

asset?

C2T5/1/LW	193	8/3/90
Pipecoaters(2)

MR FLETCHER:  The reason that I say that, Your Honour, is that

the funds were the means to the end. The end

designed to be achieved was the equipping of the

appellant with a suitable pipe-coating plant.

Certainly the funds were the means to that end;

there is no doubt about that. Just as if the

SECWA had had suggested to it that it subscribe for shares in the company then the provision of the share capital would have been for the purpose of equipping the company with the capital to buy the

plant. There is no difference, in my submission,

at all between the situatuion here and the situation

that would have applied there.

If I could ask Your Honours to turn to Page 152.

I should interpolate· here that this decision, this case, is also relevant to a question which has slipped into the background at the moment,

perhaps because it is essentially no longer in

dispute, and that is whether or not this plant

was of a consumable nature, that is to say, whether

or not it was a capital asset expenditure upon which

was expenditure on capital account.

(Continued on page 195)

C2T5/2/LW	194	8/3/90
Pipecoaters(2)
MR FLETCHER (continuing):	I do not intend to go	_

into that in detail, but the case is strongly in

favour of the appellant's submissions on that point

in that it makes it quite clear that, notwithstanding

the very short period of durability of the particular

asset acquired, if it is - and onpage 153 in particular

His Honour Justice Gibbs, half-way down the page:

In other words, the deferred payments should properly be regarded as expenditure necessary for the acquisition of property or of rights of a permanent character, the possession of which was a condition of carrying on the business of mining at all -

but further on he makes it quite clear that when

he says "permanent" he means relatively permanent,

not of a class of things which is normally having

to be replenished out of the proceeds of the

operation of the business. And- he refers to cases

in which the rights which were acquired were for a very, very, short period and Your Honours might

recall what I also referred to in SUN NEWSPAPERS,_

a reference to a case, SHORT BROTHERS V MOORE, I

believe it was, which involved the acquisition of
rights to mine coal for a period less than the period

of the use of the plant in this particular case, and

that right was of the class of things which is

capital.

If I could ask Your Honours to turn to page 157

and to the reasons for decision of His Honour

Justice Stephen. If I might suggest that although

HiJs Honour Justice Stephen was in the minority his

reasons for decision are extremely well reasoned and

cogent and in particular we draw support from the

statements made, starting at the third-last paragraph

from the bottom on page 157, in which he refers to

having read:

the reasons for judgment prepared by the

Chief Justice, in which appear a distillation

of the complex facts of the case, which are

recounted in their full detail in the

judgments at first instance

Federal Court

So therefore he does not consider it necessary to: undertake any further recitation, as distinct

from analysis, of the facts.

He certainly considers it necessary to conduct an analysis of those facts in answering the question

posed.

C2T6/l/CM	195	NR FLETCHER	8/3/90
Pipecoaters(2)

It must be from these facts, and by the

light which they cast, that the character of

these payments is to be determined. In my

view their character is that of outgoings

of capital.

And then he says:

An analysis of the facts may conveniently

begin with the terms of the agreement under

which these payments were made.

And, in my submission, quite clearly he anticipates

that one goes on from there and considers all of

the relevant material. On page 158, the second-last

paragraph from the bottom, starting "Of course,"

His Honour Justice Stephen says:

Of course, to regard what was acquired

as merely shares in Basic is to concentrate

upon form to the exclusion of substance.

And he then goes on in the final paragraph to say

that:

To look only at the acquisition of shares is to ignore that which was the real advantage

which, from a practical and business point of

view, was acquired by the exercise of the

option. The basis of calculation of the

deferred payments, as well as much else in

the agreement and in the evidence as a whole,

makes it clear that -

and he goes on to say that it makes it clear what

it was that was being acquired. What were the payments

for.

(Continued on page 197)

C2T6/2/CM	196	8/3/90
Pipecoaters(2)

MR FLETCHER (continuing):  We say that similarly in this case

it is necessary to look at some of the evidence to

determine what it was that the payments here were

being made for; that is to say, the establishment

costs. And, if I could ask Your Honours to turn to

page 162, at the top of the page, the first complete

sentence:

A bare payment of money is itself

devoid of any character, either as

on revenue or on capital account.

It is only from surrounding

circumstances that it acquires its

character and a most powerful

circumstance must be that it forms

the purchase price for a capital

asset, so that by its outlay an

advantage for the enduring benefit of

the payer's trade is acquired.

Once again, it is the reference to the surrounding

circumstances in printing, a characterization upon

what is otherwise something devoid of character.

BRENNAN J:  Mr Fletcher, CLIFFS INTERNATIONAL was a case

where money was outlaid and an asset was acquired.

MR FLETCHER:	Yes, Your Honour.
BRENNAN J:	The question at issue then was what was the nature

of the asset acquired, because that would give the
character to the payment, and to determine the nature
of the asset acquired it was relevant to look not at
the contract of acquisition or loan, but to the

surrounding circumstances. The asset acquired was

nominally shares. The purpose of the acquisition was to

get at the assets of the company whose shares were
being acquired, and so the whole exercise was

designed to show the character of the asset which was

acquired by the outlay of the money. Now, in this

case there is no asset being acquired by the outlay

of the money in the nature of a capital plant. What	is being done is outlaying money in order to put the
recipient in funds so that the recipient can outlay funds for the acquisition ·of a capital asset.

MR FLETCHER:  Yes.

C2T7/l/FK	197	8/3/90
Pipecoaters(Z)

BRENNAN J: That is a very different case, is it not?

MR FLETCHER:  Your Honour, it is not clear from the contract

in its terms that the second part of your proposition

is ev iden,t, the second part being that the out lay

being to put the appellant in funds for the purpose

of the appellant outlaying the funds and acquiring

a capital asset. That is our case.

BRENNAN J: That is your case.

MR FLETCHER: If Your Honours are satisfied that that is

clear from the contract then I need to go no

further on this point but my reading of the contract

is that it simply says "Payments in relation

'	to the establishment costs" as opposed to coating
pipes "shall be made day one, day 90, day 180". between those payments and the obvious need to
outlay money by the appellant on constructing
a plant.

BRENNAN J: Except in so far as the contractual obligation of the payee was inter alia to construct a plant

and that is, I think, schedule C.

MR FLETCHER:	I appreciate that.
BRENNAN J:	Then there is the critical _path and the powers

in relation to the forfeiture or the cashing

in of the undertakings or the realization of

the bonds or non-compliance with the critical

path . performance. Now, you can draw something

from that.	The point is, the payment is not
for an asset.

MR FLETCHER: I fully appreciate that, Your Honour, but what

I was saying· is that if it is the case that the

contract does not spell out in precise terms

that these moneys are for the purpose of putting

you in funds for you to construct the necessary

asset then it is appropriate to go to the

surrounding circumstances and look at the extrinsic

evidence which makes it perfectly clear that

that was the purpose for which the payment was

being made.

I accept fully what Your Honour is saying

that there ar~ some indications in the contract

which lead to certain inferences but if

Your Honours are not satisfied from the contract

in its terms that that is what the moneys were

paid for then what I say is that it is appropriate

to go to the evidence, other than the contract

itself, to determine that fact, because what

is involved here is the characterization of the

receipts in the hands of the appellant.

C2T8/l/ND	198	8/3/90
Pipecoaters(2)

MR FLETCHER (continuing): As was said in GIBBS, that process

of characterization or the looking at all of

the surrounding circumstances and of the facts

and of all of the evidence is as relevant to

deciding taxability as it is to deciding

deductibility. The mere fact that that was

a case involving a claim for a deduction which

turned upon whether or not the payment was

acquiring a capital asset or not makes no

difference. This is an assertion that a receipt

is not taxable which also turns on the characterization

from the agreement and all surrounding circumstances.

Without asking Your Honours to look at

the pages but, at page 164 and the top of

page 165 His Honour Justice Stephen points out

again that in:

A number of cases, including mining cases, in which advantages of relatively short

duration had nevertheless been treated
as capital assets, payment for them being,

accordingly, outgoings of capital.

He agrees with that principle.	The principle
that emerges is:

"That if, on a consideration of the nature

of the asset in the context of the trade

in question, it is seen to be appropriate

to classify it as fixed rather than as
circulating capital, the brevity of its

life is an irrelevant circumstance".

And I simply mention that because it serves

to underline the point that was previously made

by the appellant as to the irrelevance of the

brevity of the life of this plant and, half-way

down the page, 165, His Honour says that:

This was, then, no case of continuing

expenditure to meet a continuous demand

in the sense referred to by Rowlatt J.

in OUNSWORTH V VICKERS LTD, the purpose
of the expenditure was not such as to

bring it within that class of things which

iri· the aggregate form the constant demand -

Without going to the particular pages, His Honour

Justice Jacobs also went specifically to passages

of the evidence which gave an explanation for the
meaning of "terms" and the intention that the

persons had in agreeing to make certain payments.

These are terms that were used in the agreement

and he was looking at the evidence to work out,

"Well, what were they intending by that?"

C2T9/l/SH	199	8/3/90
Pipecoaters(2)

DAWSON J:  He seems to put your point at the bottom of page 171

precisely.

MR FLETCHER:  Yes;

To the question for what purpose is the
.expenditure made, the answer in the case

of a pre-existing obligation could

always be that the expenditure was made

for the purpose of performing that obligation.

DAWSON J:  No, the earlier sentence:

Whether recurrent payments are made on

capital account or revenue account can

sometimes be answered by considering only

the terms of the original contract under

which the payments were agreed to be made,

this is not always, perhaps not frequently

so.

MR FLETCHER:  Yes, Your Honour. I am sorry. That is quite

right. He then goes on to point that:

The answer is but a conclusion law. But

that leaves no room for the "practical and

business point of view" -

which is the approach that is appropriately adopted -

nor does it enable a solution of the problem to

be found, not in "any rigid test or description"

but from "many aspects of the whole set of

circumstances,"

And, further on, on page 174 at the bottom, there is

a relevant statement. He is talking about:

The acquisition is of a depreciating right

or advantage of limited duration -

and -

the manner of remuneration of the transferor

is inevitably a factor which largely determines

whether that remuneration is deductible as a

revenue outgoing. The best known example is

the leas~ for a term of years where the

consideration is a premium and a rental. The

premium is a capital outgoing, the rental a

revenue outgoing.

C2T9/2/SH	200	8/3/90
Pipecoaters(2)
MR FLETCHER (continuing):

This can be explained upon the basis that

the premium is the price of the initial

grant and that the rental is the recurrent

price of use and occupation. That is true

but it does not gainsay the fact that the

obligation to pay both premium and rental

springs from the one agreement. It shows
that out of one agreement may spring
obligations to make payments some of which

are capital outgoings and some of which are

revenue outgoings.

We take that passage and say, "It is equally correct

if it is rewritten to apply to receipts arising

out of one agreement some of which receipts are

assessable as being on revenue account and some of

which receipts are capital" and that is, really,
precisely what we say the position is here in
relation to this. contract.

Finally, on 175, three-quarters of the way down, His Honour says:

The fact that the parties to the option

agreement described the payments as "deferred
payments" is entitled to some weight but in
the light of Mr Dohnal's evidence of the course

of negotiations it cannot be regarded as a

factor of great consequence.

So, I simply refer to the fact that some weight was

put upon the evidence in determining the

characterization of the payments.

Your Honours, there is some material which I

will wish to take you to in the appeal books in

this regard, firstly, in volume 3, page 637.

(Continued on page 202)

C2Tl0/l/JL	201	8/3/90
Pipecoaters(2)

BRENNAN J:	Does this arise in reply?
MR FLETCHER:	Yes, it does.
Bl{ENNAN J:	How?
MR FLETCHER:	One reason why it arises in reply is that

in relation to the material I am now going to take

you to in the contract, Your Honour, questions were

asked of my learned friend which he was not able to

give precise answers to and I am able to take you to

t	the material which gives those answers and which gives
a proper understanding of the way in which the contract
works in that area. And, in fact - - -

TOOHEY J: Before you take us to the evidence, can you tell us

in a summary way what it is designed to show.

MR FLETCHER:  I am sorry, these passages that I am now about

to take you to, Your Honour, are passages, or parts

of the written contract. The evidence I shall come

to in a moment. In summary - - -

TOOHEY J:  Well then, I will rephrase the question and ask it

in relation to the provisions of the contract.

MR FLETCHER:  The parts of the contract which I am about to

take you to deal with what were the separable parts

of the works, and that was one of the matters that

was raised by Your Honours, and not adequately
explained. What I wanted to do was to show Your Honours

what precisely the contract envisaged was encompassed

in the Works, being the sum of the separable parts

of the works. And, on page 63l SC2.6, dealing with:

Progress Certificates and Progress Payments

(a) The Contractor shall submit to the

Engineer a detailed statement -

et cetera -

showing the Contract value of the work

carried out in performance of the Contract

and incorporated in the Works.

And, if Your Honours could turn to page 662, SC13.6,

headed:

Separable Parts

Pursuant to Clause 35.2 of the General

Conditions and for the purposes of this Contract,

a Separable Part of the Works shall consist of

fifteen thousand (15,000) tonnes of coated pipe or

as otherwise determined by the Engineer.

C2Tll/l/FK	202	8/3/90
Pipecoaters(2)

And, if I could ask Your Honours to turn to pages 672

and 673 where we are looking at the general conditions

on page 672, under the heading "Interpretation"

three from the bottom, the definition is of:

"separable part of the Works" means a

part of the Works specified in the

Specification or Drawings as a separable

part -

and I recall Your Honour Justice Brennan raised the

question yesterday: were there any drawings in

relation to this point?

BRENNAN J: Whether any which specified separable parts.

(Continued on page 204)

C2Tll/2/FK	203	8/3/90
Pipecoaters(2)

MR FLETCHER:  Yes, and the answer is "No". There are no

other drawings in relation to this contract or

in this contract other than for construction

and this is not a separable part. Construction

does not form any part of the works.

That definition of "Separable part of the

Works", of course, is to some extend modified

by what we looked at a moment ago which is SC13.6.

That overrides it and that makes it clear that

separable parts of the work shall consist of

15,000 tons of coated pipe or as otherwise

determined and there is no evidence that there

was any other determination by the engineer.

At page 673, the last definition of "the

Works'·':

"the Works" means the whole of the work

to be executed in accordance with the Contract,

including all variations provided for by

the Contract, which by the Contract are

to be handed over to the Principal.

It is quite clear, in my submission, that this

contract does not contemplate that the works

or the separable parts of the works include anything

other~than coated pipe. And that is made even

more clear - there is a clause which makes it

clear that the - it is clause 35. 1 on page 694,

under the heading:

TIMES FOR COMMENCEMENT AND COMPLETION

35. 1 Time for Commencement of Work on the

Site -

and, in my submission, the site, clearly, in

this contract, is the plant, the premises.	At
35.2:

The Contractor shall complete the Works

within the period or by the date stated

in the Annexure hereto or within any extended

time granted or allowed by the Superintendent

pursuant to sub-clause 35.4. Upon the completion

of the Works the Contractor shall deliver

up the Works to the Principal.

And that, once again, highlights the fact that what is being delivered up is certainly nothing

other than the coated pipe.

BRENNAN J:	How do you reconcile those clauses with the scope of the work defined at page 572 in
clause Al. l?

C2Tl 2/1 /ND	204	8/3/90
Pipecoaters(2)

MR FLETCHER:  The reconciliation, Your Honour, is, in my

submission, not difficult at all because of the

fact that there is a sentence ending - if I could

just read the relevant sentence, the first

sentence:

The Scope of Work contained in this Contract

comprises application of external and interal
coatings of the type and system stipulated .....
in accordance with the various grades and

sizes of pipe as listed in Schedule B.

That is the scope of work.

The Contractor shall furnish all coating

materials, labour, supervision, inspection

and plant and equipment as required for

performance of the following work in

accordance with the applicable Specifications.

(Continued on page 207)

C2T12/2/ND	205/6	8/3/90
Pipecoaters(2)

MR FLETCHER (continuing):  Of course, the applicable specifications

apply to the work following but all of the work

following is coating. There are no specifications

in relation to construction. In my submission,

the reconciliation is, there is nothing to reconcile.

They are quite consistent.

BRENNAN J:  But then if you turn to page 587, schedule C,

part 1, paragraph (a).

MR FLETCHER:  Yes, the reference to the fact that:

The Contractor undertakes -

firstly -

to construct the coating plant and perform the

pipe coating operation -

That is quite in accord with the appellant's case

and that is that there arose under this agreement,

under this contract, an obligation to construct the

plant. What I am seeking to do is to show that there

is a clear distinction, quite apart from the fact

that the establishment cost payments were to be

made irrespective of any quantity of pipe that might

be coated and irrespective of whether the SECWA

might choose not to coat any pipe.

That is one factor which indicates the

separateness of the payments. The fact, nevertheless,

is that there was an obligation to coat the pipe

and to construct the plant and we do not resile from

that at all. We have always said that the obligation

arose under the agreement and the agreement was that

the moneys with which to construct the plant would

be provided by SECWA. That does not change the fact

that,on our case, this contract envisages quite
clearly that that is a preliminary or a prerequisite

to putting the company in a position to do that

which the SECWA wanted done - coated pipe supplied. It is quite consistent, Your Honour, with our case.

Those are the passages of the contract that

I wanted to go to to show the distinction between

the two matters. The extrinsic evidence that I wanted

to refer to, there is not a lot of it, Your Honours.

If I could ask - - -

BRENNAN J: What is it to show?

MR FLETCHER:  It deals with the fact that contrary to my

learned friend's submissions that these payments

were simply an advance in respect of the total contract

price which was in respect of the coating of pipe,

that contrary to that submission, the establishment

C2Tl3/l/LW	207	8/3/90
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costs were advanced for a particular purpose and

that purpose was the compensating by - I am sorry,

compensating might have an after event application.

It was compensation in advance, a putting in

funds, as Your Honour Justice Brennan has said, of

the appellant for the purpose that it can build

the plant. It is only in relation to that aspect
that I wish to refer to extrinsic evidence.

If I could ask Your Honours to look at oage 305.

BRENNAN J:  I do not understand that being in contest, in the

sense that this money was identified as a certain sum

in accordance with estimates that were formed.

Do you wish to say anything further than that?

(Continued on page 208)

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MR FLETCHER:  Yes, Your Honour, the contest is that on

the respondent's case,as I understand it, the
payments were not, in fact, for the purpose

of equipping the appellant with the funds with

which to build a plant which it would then use

to coat the pipe.

BRENNAN J: That is a complex proposition. The first part

of it is to equip them with funds. The second

part of it is for them to spend on the plant and

the proposition is that the money that was to

be paid to the respondent was agreed, in accordance

with certain estimates,and the second part of the

respondent's proposition, as I understood it,was

• and it was for the respondent to decide whether to

spend that money or in some other way to provide

the plant. In other words your nexus between
the payment, on the one hand, and the erection
of a p.lant, on the other, is broken.

MR FLETCHER:  Your Honour, the appellant's case is that there

was a nexus and, in the alternative,even if there was not it makes no difference just as it did not matter in relation to APA or BOYCE.- a colliery

company or the lessor company - but in terms of

determining what is the character of the receipt

in the hands of the appellant it is my submission

that all of the circumstances, including what is

said to have been the term, or the purpose I should

say, for which the funds were advanced is relevant.

If it is the case - it is relevant, firstly, to

determining whether it is simply an advance flow of

funds in respect of coating of pipe - part of the

price, on the respondent's case, of coating the

pipe, or whether it is not and it is relevant, also,

to the question whether it is a receipt on revenue

account in the course of carrying on a business by

the appellant. In my submission it is not possible - - -

BRENNAN J: Did you not put those propositions in-chief?

MR FLETCHER:  Yes, I did but, Your Honour, the point that emerged

in the course of my learned friend's case was that

there was an obligation on SECWA simply to pay on day 1, day 90, dayl80 -nothing further than that. The case has always been run on the basis, and it was

accepted in all courts below, that there was a

requirement that the funds be expended on the plant.

My learned friend conceded in his address that counsel for the respondent in the supreme court conceded

that that was what the funds were for, they were

to be applied - they were paid for the purpose of

applying to - - -

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BRENNAN J:  You take us to whatever you want to

Mr Fletche~ but you will understand that there are

limitations on reply which should be observed

and we are, to an extent, in counsel's hands.

MR FLETCHER:  Your Honour,I would bear that in mind. If I could

ask Your Honours to refer to page 305, volume 2,

at the top of the page, at the closing of the

examination in-chief of the witnes~ Mr Treloar,

who was the SECWA man,	the second paragraph
from the top. He says:

The second part was simply one of - - if
you are making a payment for something specific,

you like to know that that is what it is

being used for.

And that was in relation to the question:

Did the commission take any steps with a

view to any supervision or control being

exercised over the use to which these

front-end payments were put?

(Continued on pa~e 211)

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MR FLETCHER (continuing): That was the question. The answer

is:

Certainly. We wanted to make sure that the

payment was used for the purpose for which it

was provided.

Pa~e 268, Your Honours, in the same volume, the

evidence of Mr Van Kann is, in the third paragraph that:

It was quite clearly understood by all

concerned that they could not use the money

for anything else but establishing the plant.

In fact, that second 5 per cent would not have

been certified. I had the job - the authority

to certify the payments. I would never have

certified them unless I had been convinced

make sure that the plant had reached a stage where the second 5 per cent was due, and then it was paid.

that the money had been spent, and I was in to

Page 273 a few pages on. No, I am sorry,Your Honours,

I will not take you to that page, because it is not

directly on point. It is too peripheral. The final

page of Mr Van Kann's evidence is 294, at point 25, in

cross-examination counsel for the respondent asked

Mr Van Kann:

Yes. It was for that reason that you were

careful to estimate that the cost would be

approximately - - the cost in moneys would

be spent on the plant?

The answer is -

That is correct. It was our duty to.

That involved you making your own close estimate

of the cost of the plant?

And there is corroboration, without taking Your Honours

to the passages, there is corroboration of that

aspect in the evidence of Mr Perrott on pages 200, 230,

231 and 238. So, Your Honours, in my submission,

where we get to is that the payments were for a

particular purpose. That purpose was not to

remunerate for pipecoating. Therefore the question

is, was construction of plants for profit, the
business of GPI or part of it? If yes, the receipt is

in the course of that business and is assessable, and if

not, it is not, and I said earlier that, in relation

to that aspect, as to what was the business, which was

raised by my friend in his address, I wish to refer to

a few pages of the appeal books. This is not evidence.

C2Tl5/l/CM	211	8/3/90
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These are some pages which have been referred to

in the main by my learned friend and certain

passages of which he has not referred you to.

If I could ask Your Honours to refer to page 760,

volume 4, at the top of that page. This was

referred to by my learned friend, this particular

passage, but I wish to emphasize that what is there

agreed to in the joint venture agreement, is that:

The parties -

will be joining -

forces and to enter into the joint venture

project of applying the internal and external

coating of and to the natural gas pipeline

And at page 766, half-way through the first

paragraph:

(Continued on page 214)

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MR FLETCHER (continuing):

During the course of the project and at its

conclusion the joint venture company will
pursue other work of similar nature with

the intention of using the assets of the

joint venture company to the best possible

use. Should no further business prospects

be offering after the conclusion of the

project the joint venture company will

continue to look for business prospects.

And, at paragraph 21 point 45:

At the completion of the contract

the parties may mutually agree to allow the

company to continue and will review this

aspect at -

periodically.

Your Honours, the point there is, as is made in

my written outline of submissions in reply, that it

is clear that this company intended to carry on

work pipecoating. There was a system of repetition

in that but there is no evidence whatsoever of any

intention for it to build further plant and, at

page 802, there is further reference to that at

paragraph A at the top of the page.

TOOHEY J:	We have been taken to these provisions before,
Mr Fletcher.
MR FLETCHER:	I am sorry, Your Honour, this one - yes, that is the case; 802 you were takeri to by my learned
friend.  I do not know that you were taken to
805.
TOOHEY J:	Yes, we were, in some detail.

MR FLETCHER:  You were, yes. In that case, Your Honours, if

I could ask you to refer to exhibit 54. I do have

copies here which will make it a little easier for

Your Honours.

BRENNAN J:  What page is it in the appeal book?

MR FLETCHER: Exhibit 54 is not in the appeal book, Your Honour

I understand that all exhibits are available to the

Court if they are to be called upon by counsel. I

have five copies of the exhibit which will make it

simpler.

BRENNAN J:	What is this document?
MR FLETCHER:	This is an extract from a report by the respondent in the course of his determining whether or not the

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payments were assessable. This was tendered in the

supreme court and the only point I wish to make in

relation to this exhibit, Your Honours, is that

there were further contracts entered into by this

company with the SECWA apart from the particular

contract which is detailed here. Paragraph 4 on

page 14 of that exhibit 54:

The last pipe in connection with the

$31 million contract rolled out of the

factory in September 1983.

And, Your Honours, in evidence it is stated that the

contracts with the State Energy Commission in relation

to the Dampier to Perth natural gas pipeline did not

cease until March of 1984. So that we see that the

plant was put to useful purpose in coating pipe

beyond that intended cut-off point.

TOOHEY J: Mr Fletcher, I do not understand the relevance of this document. Is it a report from someone in the respondent's office?

MR FLETCHER: It is.

TOOHEY J: But, to whom?

MR FLETCHER:	To the respondent himself.
TOOHEY J:	You mean reflecting the views of an assessor or someone - - -

MR FLETCHER:  No, reflecting the facts. The point is that

this document contains evidence as to the further

contracts. That is the only purpose for which I -

TOOHEY J:  Who or what is the author of the document?

(Continued on page 216)

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MR FLETCHER:  One of the officers within the Department of the Australian Taxation Office.

TOOHEY J: Well, I thought I had asked you a moment ago whether

it was perhaps an assessor and I understood you to

reject that.

MR FLETCHER:  I am sorry, I misheard you, Your Honour, I

thought you said 'an assessment'. It would have been

an investigator or an assessor, the person whose task

is to ascertain the facts in relation to income

matters and produce a report as to whether - - -

TOOHEY J: Yes, I understand that, but it is an internal

memorandum, presumably. How is it said to assist

the task which this Court has to perform?

MR FLETCHER:  It would assist this Court, Your Honour, in so far

as it refers to the fact that there were further

smaller contracts, which took production to June 1984.

That is the only purpose for which I seek to use it.

It is in evidence as an exhibit and it simply happens

to be - apart from an answer to one question by one of

the witnesses, it is the only evidence which deals
with what I submit is a most pertinent matter for

the determination of the character of these receipts.

And that matter is - - -

BRENNAN J:  How is it then that it was not raised by you in-chief?

How does it arise in reply? ·

MR FLETCHER:  It arises, Your Honour, because of the submission

by my learned friend that the business of the appellant

is other than what we said it was, namely the coating

of pipe. He has submitted in detail that the business

was, amongst other things, to construct plant for

profit, and to perform the contract in toto. That

was the business, and - - -

BRENNAN J: That is right.

MR FLETCHER:  - - - the proposition I have developed,

Your Honour, in reply, is that in characterizing the

receipts you have to determine the answer to that
question and it is therefore relevant to ascertain
whether or not there was any intention, or any

evidence, of a repetition of the construction of

plant.

BRENNAN J: It does not appear to arise in reply, Mr Fletcher.

MR FLETCHER: As it may please the Court. I was going to take

Your Honours to evidence of Mr Perrott in relation
to the fact that there was no intention to repeat

the process of building plant, but I would assume that

that will be considered not to arise in reply.

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I will move on to the fact that if it is concluded,

as the appellant says - properly concluded - that

the receipt was not in the course of carrying on

a business of involving constructing plant, then

the question is, is the receipt the proceeds of a

one-off business venture in the sense that the

construction of the plant was conducted with a view

to profit? And my response to my learned friend's

submissions there is that, firstly, it is simply not

open to the respondent to argue that, and that has

already been canvassed, and that it requires an
intention to profit from construction, and it is

not open to propose that now.

But if it is open to the respondent to argue

that, then we would seek to refer to extrinsic

evidence in relation to that.	But that has been
referred to.	I simply wish to remind Your Honours

of the fact that the extrinsic evidence in relation

to that point is sat out in some detail in the outline of

argument for the appellant. That is, not the

appellant's outline of submissions in reply, but under

the heading "Additional Contentions" in the appellant's

outline of argument. There are detailed references to

the evidence which establishes that there was no

profit-making contention in relation to construction

of the plant.

(Continued on page 218)

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MR FLETCHER (continuing):  Your Honours, if I could now

move to the matter raised by my learned friend

in relation to APA FIXED INVESTMENT TRUST, I

would ask Your Honours to refer to that decision.

The point made by counsel for the respondent

was that APA can be distinguished from the

situation that pertains in this case because,

there, contrary to our case, there was some

precision in the calculation of the amounts which

were designed there to recoup to the taxpayer
the cost of erecting the building.

On page 370, the first page of the reasons for dee iS'ion of His Honour Justice Owen, the

paragraph a thjrd of the way down the page,

starting "In addition":

In addition to the rental payments

to be made by it under the proposed lease -

and we, of course, say that is analagous to our
situation in addition to the payments to be made

for coating the pipe -

the company was, during its term, to pay

the appellant an annual sum -

and I point out there that in this case - that

is to say GPI - the sums were lump sums which makes them even more akin - more likely to be

properly characterized as capital receipts than

revenue receipts -

of £250 as a "sinking fund to meet the cost"

to the appellant of "the erection of the

building." For each "sinking fund" payment

made, the annual rental was to be reduced

by £20.

So that means to say, Your Honours, that there

was to be, by this agreement, 15 payments of

£250 which, as far as I can ascertain, was nothing

other than an estimate of the cost of construction -

the building had not been constructed - and that

amounts to £3750 and it is stated in the following

paragraph that the cost of the land and buildings

combined was £18,011.

So I am afraid it is not at all clear what was the cost of the building on its own but I

simply point out tha~ contrary to what my learned

friend submitted, this case is, I submit, on

all fours in all relevant respects with the GPI

case, the appellant's case. There was here an

estimate as there was there an estimate.

C2Tl8/l/ND	218	8/3/90
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The further point that my friend made, I do believe, in relation to this is that there

was an encrustation of interest or something
akin to interest in both this and the BOYCE case.
And the point I would make in relation to that
is that that is because the payments were being

made after the event. It does not take the matter

any further.

(Continued on page 220)

C2Tl8/2/ND	219	8/3/90
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MR FLETCHER (continuing): In BOYCE's case the payments

were made to recompense the taxpayer for what had

already been spent and the same applies in APA

FIXED INVESTMENT.	In the GPI case the payments
are being made in advance.	So there is clearly
no need for interest.	I submit this takes it no

further at all and there is no proper basis for

distinguishing the cases or, indeed, for

distinguishing RACECOURSE BETTING CONTROL BOARD V

WILD which was relied upon by His Honour Mr Justice Owen,

on the last page of the report. He does state:

It will be noted that in that case the buildings

were to remain the property of the licensor

' at the end of the term of the licence.

So that what we say is that there is no relevant

distinction between the cases,BOYCE, APA and

this case,and that if the appellant's contentions were to fail then, in my submission, it can only

be because for some reason ii is considered that

the APA and BOYCE cases, and other cases such as

RACECOURSE BETTING CONTROL BOARD V WILD and others

of that line, are in fact wrong decisions or should
not be followed here. That is, in my submission,

not appropriate.

To deal with a few of the other points which

my learned friend made: he attempted, if I may
suggest, not particularly convincingly, in relation

to the hypothetical case put up by the appellant

that if it was that the SECWA was to cancel the

contract after the plant had been built, then the

appellant would be denied the opportunity to use
the plant to generate assessable income and yet
on the respondent's case the appellant was to be

assessed on the $4.6 million and would be denied

any deductions.

That is a very telling point, in my submission,

in favour of the underlying basis for the

correctness, as we assert, of the decisions that

we are relying upon, that there is a sound basis

in principle for those decisions. My learned friend

suggested that, no, if that happened, then there

would be a deduction allowable under section 51 (1).

My response to that, Your Honours, is that it is

quite demonstrably incorrect that section 51(1)

precludes a deduction for expenditure of a capital nature. The expenditure which would have occurred here would clearly have been of a capital nature

in creating an asset for the appellant and the loss

of that asset, pursuant to the terms of the contract,wuuld

be a capital loss. In rcy- submission, there is no prospect of

C2Tl 9 / 1 jV,T	220	8/3/90
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In my submission, there is no prospect of

any deduction, whatsoever, if that had happened.

It is not a convincing response to the point that the appellant has raised.

Secondly, my learned friend said that if it

was the case that the SECWA had effectively

foreclosed and taken back the plant, then the plant

would have been ready for use and, in terms of

section 54, depreciation deduction provisions,
depreciation would have applied. But, of course,
the plant was constructed by the end of 1982;
the pipe was then being coated from, I think,

1 July and so the only relief- assuming that

all provisions were satisfied in section 54,

the only depreciation deduction would be in
respect of the 1982 year and then, I believe, only
in relation to a proportion of that year because

the plant would only be towards the very end of the

year actually installed, ready for use

and,accordingly, that does not answer the fundamental

problem, as a matter of principle, which is thrown

up by the respondent's case. Of course, my friend

then pointed out that any provision of compensation

would be inadequate because of the limitation

on the amount.

My learned friend also referred to the fact

in that case, to the colliery company set

that in BOYCE's case it was not the main business. council,
I think I have already dealt with that yesterday

in response to an answer from His Honour Mr Justice Dawson.

it up in a business.

(Continued on page 222)

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MR FLETCHER (continuing): It is irrelevant whether it is a

new business, a secondary business, a main business

or one of a number of businesses. My learned

friend suggested that BOYCE can be distinguished

because the colliery there had a right to terminate

and, in my submission, there is no compelling

reason that I can think of that that makes any

difference at all.

The respondent's case is, in answer to a

question from His Honour Justice Dawson, that in

any contract for the supply of goods the price will

include the cost of plant to produce it and my

response to that is that, "Well, how does that

explain BOYCE and APA?" because that, certainly,

did not occur there or it did not prevent the

payments there being of a capital nature

notwithstanding that quite clearly the company

in APA could have recouped the cost by charging

more rental and in BOYCE, the colliery company

could have recouped the cost by charging more per gallon of water. It made not one iota of

difference to the courts dealing with those
cases.

A further point which my learned friend made was that for seven months the appellant was writing

off its expenses in constructing the plant against
income and he did refer to a passage in the transcript

of evidence of Mr Baker. There is nothing there that

suggests that that occurred at all. There is no
statement there that any deduction was claimed but,

assuming that a deduction was claimed, page 871 of

the appeal book shows that in that period the only

income was income from interest, from moneys on deposit. You will remember, Your Honours, that
there was a ·problem with the first establishment
cost payment. It was paid at the time of the

signing of the tender or thereabouts - I am sorry,

at the time of the acceptance of the tender or

thereabouts but because of the inadequacy of the

security that had to be put up to the bank before

it could be drawn down, the money was there for quite some time; until after the second payment

had been received, in fact and so it was earning

interest and that was the income in that period

so that any suggestion that any of the indirect

construction costs were deducted from pipecoating

income is not correct.	The pipecoating income
began to flow after -

BRENNAN J:  The proposition was simply that it was treated

as a revenue item and not as a capital item.

MR FLETCHER:  Your Honour, but of course; it has to be.

Interest has to be treated as a revenue item.

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BRENNAN J:	It was wages.	Wages were tre 9 ted as a revenue

item and then even though the wages were being

incurred as expenditure in relation to the

construction of the plant.

MR FLETCHER: It rais$ an interesting point, Your Honour,

as to whether or not in a circumstance that where

that is occurring and yet there is income being

derived, there is an allowable deduction in
respect of those outgoings, whether they are

necessarily incurred in deriving the interest

income. I do not know the answer to that question

but I do not think it really takes it very much

further. Certainly there was no deduction of

construction costs at all from pipecoating income.

In the SQUATTING INVESTMENT case, my learned friend seeks to obtain assistance and I would ask

Your Honours to refer to what has been written by

the appellant in written submissions in reply

at paragraph 8 dealing with paragraph l(g) of_the

respondent's written submissions. The essential

point there that is overlooked in the respondent's

case is that in the SQUATTING INVESTMENT COMPANY

case the receipt was an augmentation of revenue

quite clearly and this is illustrated by the

reference in the decision of the Full Federal

Court in FEDERAL COKE COMPANY which is set out

over the page. It says that additional receipts:

"Gifts to persons who are not employees -

et cetera; the principle underlying the taxability

of those is:

The same principle -

which -

applies in the case of persons or corporations

engaged in some profession or business. Thus

an additional payment made by the Government

to a wool grower, who had previously submitted

wool .for appraisal and been paid for it, the

additional payment by the Government being

discretionary but related to the amount of

wood supplied -

(Continued on page 224)

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MR FLETCHER (continuing):  Once again, this highlights

the point made in paragraph 4 of the written
submissions by the appellant in reply that
the establishment costs were paid irrespective
of whether or not any, or any particular quantity

of oipe was coated. That is the distinction

between this and the SQUATTING INVESTMENT COMPANY

case which renders it quite irrelevant to the

characterization of these receipts. They had no

relationship to - it is not because of the fact
of the supplier pipe coated that the payments were
made and, of course, RECKITT AND COLMAN deals also
with that distinction and there is a reference in
the next paragraph to HOCHSTRASSER V MAYES which,

we say, is authority for the proposition that where

a payment achieves no more than a mitigation of a

capital loss to be incurred that does not amount

to a receipt on revenue account.

The point made by my friend at paragraph l(h)

of his submissions relates to the periodical nature of the receipts. I wish to make very little comment

about that. . It is simply perfectly clear, on all

the authorities, that that is of little relevance, if

any, and in particular, if I could ask Your Honours

to refer to CLIFFS - I refer to the fact that in the
decision of this "honourable Court in CLIFFS -Robe River ·-
both Justices Gibbs and Stephen found that the

periodicity of the payment was of no relevance.

My learned friend referred to LONDON AUSTRALIA

INVESTMENT BANK and the fact that it stood for the proposition that a business may start with one transaction. What he did not refer to is the fact

that that case also stands for the proposition that

there must be the existence of a profit purpose in

relation to that transaction. So the fact that we

have built one coating plant is really neither here

nor there if the necessary profit purpose is not

there. Now, my learned friend referred to the MYER

case and said that that is authority for the

proposition that a. gain which is somewhat extraordinary

is nevertheless assessable if it is related to

the business activities. But this, I suppose,

highlights the underlying proposition of the appellant

which is that there is a danger in saying too quickly,

"Look this is a commercial situation, here are receipts
and they are all assessable because they relate to a
business activity". There must be a category and there
is a category of receipts even in a business context

which will not be assessable and, Your Honours, the

respondent recognizes that in his income tax ruling

2191          and I should point out that I gave the wrong

C2T21/l/JL	224	8/3/90
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reference to that at this hearing in Perth, I

think I referred to 2308 - it was, in fact 2191 -

which dealt with an amount paid by the government,

admittedly as a grant, but to a company to service
the needs of the company, as well as others, to build

a training centre to be used for apprentices and the

Corrnnissioner's attitude is that that is not part of

the proceeds of carrying on the company's business,

nor is it - - -

(Continued on page 226)

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BRENNAN J:	Mr Fletcher, you really are going on extensively into arguments which do not seem to be pitched to
responding to the respondent's case. We have
been here now for an hour and a half this morning. of this document that you have produced to us
and your reply is trespassing upon matters which
were dealt with in-chief and are not addressing specifically the propositions to which you wish
to reply. You must constrict yourself, I would suggest, to the propositions that were advanced
and in as pithy a fashion as you can join issue
with them and respond. There is no limitation
on your doing so but it must be done having regard
to the principles that are applicable to reply.

MR FLETCHER:  Yes, Your Honour, I do apologise. The point

that I was there dealing with was the point made

by my learned friend that the MYER case stands

for a proposition which embraces these receipts

and renders them assessable. I am simply saying

that it does not necessarily go that far.

Otherwise, every gain, of any sort, in a business

context would be taxable and this is not the

case.

Your Honours, I had not proposed at the

commencement this morning to go to all of the

pages in my outline of submissions because I

have already dealt with a number of them yesterday.

There is no need to go back to them. I will

not take the time of the Court in relation to

what I call the depreciation question, which

I have said is a red herring. I would simply

ask that what has been written, particularly

in paragraph 3 of my outline of submissions,

be considered. It would involve going to certain

pages of the appeal book but that deals with

the points raised in my learned friend's argument

about depreciation deductions. My learned friend did raise the matter of

the paragraph from the text written by

Professor Parsons which is on his list of

authorities and if I could ask Your Honours to

refer to page 13 of my written outline, in relation

to that point, what the appellant responds with

is to say that there Professor Parsons is dealing

expressly with receipts for services rendered

and if a receipt is not, in fact, as

consideration for services rendered then the

comments simply do not apply.

Furthermore they relate to the case of

improvements made to an ongoing business and

what we say the distinction is here is that this

was a payment made to enable a business to commence

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in the very beginning and there are further

paragraphs there which deal with the matter of

what is the gain which is something other than

the full amount.

On page 14, Your Honours, if I could ask

you to refer to some hypothetical questions and

answers that have been set out there and these

are by way of explanation to the point raised

by His Honour Justice McHugh yesterday as to,

for instance, '"Why is it not open to GP International

or another company to simply replicate itself

and enter into contract after contract?" And

these propositions deal with that and with the

fact that if it was the case that as my learned

friend says the appellant's argument would lead

to an extraordinary consequence and give rise

to the prospect of tax avoidance, well, why has
it not occurred with regularity since the time

of the decision in APA FIXED INVESTMENTS.

(Continued on page 228)

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MR FLETCHER (continuing):. The reasons for that

are perfectly straight forward and are set out

on those pages and I think that it is unarguable

that it just is not attractive, except in the

most extraordinary situations, such as the one

we have here, where a government instrumentality,

for instance, seeks to make a payment to enable

the doing of certain services for its benefit,

and at page 15, if I could simply point out that

paragraph (b) where I state that the percentage

which would be paid if you were paying amounts

by dividing them up into certain amounts for the

setting up of the capital asset and certain amounts

for the payment for the goods and services to be

provided, using that asset, then the amounts being

ostensibly paid for the capital asset cannot be

depreciable to the payer as part of the cost of the

goods, if that asset itself is to be used in

production, that is the goods are to be used in

production.

And this is the other side of the coin of course,

that in this case the revenue does not lose , because

the depreciable value for the SECWA is reduced by

$4.6 million. It cannot argue that there is a

payment totallin~ $31 million for the coated pipe.

Your Honours, there was just one final point and

my learned friend has requested that I bring to

your attention, 8C21.,_ and with leave

of the Court I wi:,_l ask you to refer to that and I

d~L_not want to in any way appear to be ignoring

anything that may assist the Court at all in construing

these payments and _SC21, I do'not

think takes us very tar at all, but nevertheless in

deference to my friend I do refer to it. It is on

page 669, under the heading "Quantities".	Page 669,
volume 3. It simply states that:

Further to Clause 4B.l General Conditions

of Contract, quantities in Schedule B have

been estimated at time of Documentation.

Payment will be based on measured quantities

and rates and for this purpose, the rates

shall be deemed to be applicable to measured

quantities within the r~nge of plus or minus
five percent (5%) of the total area of coating

to be supplied under the Contract.

I do not understand precisely what the relevence
is of that, but it simply seems to say that the

contract - it underlines what we have been saying and

that is that this is simply a notional contract

value, based upon an estimated number of kilometres

of pipe to be coated and there is a plus or minus

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5 per cent variation built into the contract,

in relation to the total of pipe to be coated

under the contract. Your Honours, those are

my submissions in reply, unless there is anything further

I can assist the Court.

BRENNAN J:  The Court will consider its decision in this

mattter and will adjourn to Melbourne to 9.30 am

tomorrow morning.

AT 11.36 AM THE MATTER WAS ADJOURNED SINE DIE

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