Grant v Federal Commissioner of Taxation

[1976] HCA 64

HIGH COURT OF AUSTRALIA

Stephen, Mason and Jacobs JJ.

GRANT v. FEDERAL COMMISSIONER OF TAXATION

(1976) 135 CLR 632

26 November 1976

Gift Duty (Cth)

Gift Duty (Cth)—Gift—Disposition of property without fully adequate consideration passing from disponsee to disponor—Company—Allotment of shares—Preference shares allotted—Capital subscribed equal to par value of shares—Market value fo shares then less than amount of capital subscribed—Whether fully adequate consideration passed from company to allottee—Whether gift to company of difference between amount subscribed and market value—Gift Duty Assessment Act 1941 (Cth), s. 4.

Decisions

November 26.
The following written judgments were delivered: -
STEPHEN J. The Gift Duty Assessment Act 1941 (Cth) levies gift duty upon inter vivos gifts of property. The appellant, Mrs. Winifred Eleanor Grant, in circumstances which Jacobs J. fully describes in his reasons for judgment, effected payment to Winifred Pty. Ltd. of $97,000 upon the allotment to her of 97,000 "C" preference shares of $1 each in its capital. These shares were in fact worth only forty-one cents each and the Commissioner has assessed Mrs. Grant to gift duty on $57,230, the difference between $97,000 and the value of the shares, treating the transaction as, in effect, involving a gift by her to the company to the extent of the inadequacy of the consideration moving to her from the company upon the allotment of the shares. (at p635)

2. Mrs. Grant gave, in terms of value, rather more than twice as much as what she got and to one innocent of the subtleties of revenue and company law the transaction would bear all the appearances of a gift to the company; the more so perhaps since the large margin by which the value of the shares fell short of their nominal amount was due to no deficiency of assets or paucity of earnings experienced by Winifred Pty. Ltd. but solely to the very limited rights which "C" preference shares conferred upon a holder. They conferred a right to a non-cumulative dividend of only four per cent and to a return of capital only after all other preference capital had been repaid, with no further rights to participate in profits or assets; they conferred no right to attend or vote at meetings. They were shares which, from the moment of their creation, were destined to be worth much less than their nominal amount and for which no ordinary investor would have considered paying that nominal amount. (at p635)

3. The Commissioner was, in my view, correct in regarding their allotment, in response to Mrs. Grant's application and the payment to the company of their nominal amount, as involving a gift by her of the difference between her payment and the value of what she received in return. This is a case in which reality runs hand-in-hand with the law: both in ordinary parlance and for the purposes of the Gift Duty Assessment Act Mrs. Grant made a gift to the company. (at p635)

4. The definition of "gift" in s. 4 of the Act includes any inter vivos disposition of property if the consideration passing from disponee to disponor is not fully adequate. The property disposed of was a sum of $97,000; the consideration passing from the disponee, Winifred Pty. Ltd., whether it be regarded as a promise to allot the shares or as their allotment, was of a value of only $39,770. A "comparison of the value of what was promised or paid with the value of what was given" (McGain v. Federal Commissioner of Taxation (1966) 116 CLR 172, at p 176 ) reveals immediately the inadequacy and its extent. The dutiable value of the gift will be "the extent of that inadequacy": s. 17. (at p635)

5. The appellant relied upon two distinct arguments in support of this appeal. Mason J. has dealt in some detail with each of these in his reasons for judgment. Since I share his view that this appeal should be dismissed, I propose only to say something concerning one of the appellant's arguments, that which was founded upon the fact of payment of the nominal amount of the shares; I would otherwise adopt, with respect, all that is said by Mason J. (at p636)

6. It was contended that because Mr. Grant paid to the company the nominal amount of the shares and could not, in the absence of any order of the court under s. 59 of the Companies Ordinance, 1961, as amended (A.C.T.), lawfully have paid any less, she could not be said to have made any gift. Putting it another way, the law would have permitted no greater consideration to pass from the company to Mrs. Grant, in return for her subscription of $97,000, than the allotment of shares having a nominal value of $97,000. Accordingly, so it was said, there could be no question of any inadequacy of consideration. (at p636)

7. Since to dispose of property for an inadequate consideration is to make a gift, as defined in s. 4 of the Act, the contention that there was here no gift must involve the proposition that consideration will be adequate, albeit of less value than what is disposed of, if it be as great as the law will permit. That proposition is wrong for at least two reasons; it adds an impermissible gloss to the clear words of the Act found in the definition of "gift"; it also distorts out of recognition the nature and purpose of the prohibition against the issue of shares at a discount, giving a new and unintended vigour to the ailing doctrine of par value for shares; see Gedge Committee Report (1954, Cmd 9112). (at p636)

8. To take the latter reason first, the prohibition is wholly unconcerned with any relationship which a share's nominal amount may bear to its value. What Australian companies legislation variously describes as a share's nominal amount or nominal value is but a recital of the amount of capital that has been subscribed to, or will become payable to, the company in respect of that share. It represents an attempt to ensure, for the benefit of those who deal with a company, that it initially receives assets, in cash or in kind, at least equivalent to the nominal amount of the paid up capital. The nominal amount of a share may have some bearing upon the share's value as, for instance, when winding up is in prospect, but will otherwise say nothing as to its value, which will depend upon supply and demand as manifested in whatever market place is available for dealings in the shares of the particular company in question. Thus, had Mrs. Grant sought to sell one of her fully paid "C" preference shares immediately upon its allotment to her, having first assured herself of its transferability and nothing having occurred in the meanwhile to affect its value, its nominal amount would have been irrelevant to a buyer unless he believed that liquidation or a return of capital was contemplated. (at p637)

9. It is with value that both s. 17 of the Act and the definition of "gift" in s. 4 are concerned when they speak of the adequacy of the consideration for a disposition of property. The fact that it would have been unlawful for the company to have allotted the shares to Mrs. Grant had she not paid or assumed liability to pay an amount equal to their nominal amount, an amount which was more than twice their worth, may say much as to the motives of those responsible for the creation and issue of the shares but tells one nothing about the adequacy of the consideration received by Mrs. Grant. (at p637)

10. No true analogy, I think, exists between the qualified statutory prohibition upon the issue of shares at a discount and the prohibition involved in any scheme of price control. A fixed price does not necessarily bear any relation to the value of a commodity, although in some cases it may do so; for instance to fix a maximum sale price of an article purchased otherwise than for consumption will tend to reduce the disposable worth of the article in the buyer's hands, thus reducing its "value" generally; in relation to land this effect was explained by the Court in The Commonwealth v. Arklay (1952) 87 CLR 159, at pp 170-171 . The fixing of a minimum sale price will no doubt have a comparable, although inverse, effect. However, to prohibit the issue of shares at a discount has a quite different purpose and effect. A share's nominal amount represents no more than the minimum contribution that must be made before an aliquot share in a company's undertaking can be acquired and has nothing at all to do with any control of prices. It arises solely from the requirements relating to the raising and maintenance of capital of limited liability companies and neither seeks to nor does it in fact create any general level of minimum lawful "prices". It operates in a way which no price-fixing legislation would ever seek to do, that is, differentially in the case of each company's shares, the minimum "price" bearing no relationship to the quality or character of what is being offered for acquisition and ceasing to have any application as soon as the share, if fully paid, reaches the shareholder's hands. The resale value of a share will thus be unaffected by its nominal amount, considerations such as those referred to by the Court in Arklay's Case (1952) 87 CLR 159 being wholly inapplicable. In truth, to speak of "price" in this context is a misnomer; shares are not bought from the issuing company but are issued in return for a promised contribution to its capital. Their nominal amount, liability for payment of which is assumed, may remain in part uncalled throughout the company's existence and liability for it will be extinguished on ultimate liquidation if the company is then solvent. (at p638)

11. If a company chooses to offer for subscription shares which are obviously worth less than their nominal value this will be calculated to provoke no response from potential investors; only those wishing, no doubt for good reasons of their own, to give more to the company than the value of the rights they will acquire in return will respond to such an offer and they will properly become liable to gift duty. Both the purpose (as distinct from motive) and the effect of their application for such shares will have been to make a gift to the company. That the law would prohibit such shares from being offered for subscription at less than their nominal amount will neither make them more profitable to the applicant nor more attractive to a buyer from the applicant. It will leave their value wholly unaffected. (at p638)

12. I accordingly reject the appellant's appeal. In doing so I would join with Mason J. in stressing the need for amendment of the Act so as to exempt from its provisions cases, of which the present is certainly not one, in which bona fide commercial transactions involving the allotment of shares may result in liability to gift duty. (at p638)

13. I would answer the questions asked in the manner proposed by Mason J. (at p638)

MASON J. The facts and the questions raised in this case stated by the Chief Justice are sufficiently set forth in the reasons for judgment of Jacobs J. (at p638)

2. When the current account of the appellant in the books of the company which then showed a credit balance in her favour of $98,445.14 was debited on 5th February 1969 with $97,000, being the moneys payable for the 97,000 "C" class preference shares of $1 each for which she was subscribing, the debit constituted a payment of $97,000 by the appellant to the company for the shares (see In re Harmony and Montague Tin and Copper Mining Co. (Spargo's Case) (1873) 8 Ch App 407 ). It is not in question that it was a payment which fell within the statutory definition of "disposition of property" contained in s. 4 of the Gift Duty Assessment Act 1941, as amended ("the Act"). This definition is in the following terms:

"In this Act, unless the contrary intention appears - 'disposition of property' means any conveyance, transfer, assignment, settlement, delivery, payment or other alienation of property and, without limiting the generality of the foregoing, includes - (a) the allotment of shares in a company; (b) the creation of a trust in property; (c) the grant or creation of any lease, mortgage, charge, servitude, licence, power, partnership or interest in property;

(d) the release, discharge, surrender, forfeiture or abandonment, at law or in equity, of any debt, contract or chose in action, or of any interest in property;

(e) the exercise of a general power of appointment of property in favour of any person other than the donee of the power; and

(f) any transaction entered into by any person with intent thereby to diminish, directly or indirectly, the value of his own property and to increase the value of the property of any other person." (at p639)

3. However, the appellant contends that as the allotment of a share in the capital of a company involves no passing of property from the company to the allottee in the sense that the company does not divest itself of title to the share and then vest it in the allottee, the disposition of property constituted by the payment of moneys to the company by the allottee is not a disposition of property of the kind referred to in the statutory definition of "gift" contained in s. 4 of the Act. The definition is in the following terms:

"'gift' means any disposition of property which is made otherwise than by will (whether with or without an instrument in writing), 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, or, in the opinion of the Commissioner, is not, fully adequate." (at p639)

4. The appellant's argument fastens on to the words "passing from the disponee to the disponor", the suggestion being that if consideration received by the disponor does not pass from the disponee the transaction is necessarily one which falls outside the statutory conception of disposition of property as referred to in the definition of "gift". This argument is plainly denied by that definition. By its terms a disposition of property will constitute a gift unless it is for fully adequate consideration and that consideration passes from the donee to the donor. A consideration which is fully adequate, or which is in the opinion of the Commissioner fully adequate, but which does not pass from the disponee to the disponor will not take the disposition out of the statutory quicksand. The consequence is that the appellant's argument, if it be correct, brings the payment in question fairly and squarely within the statutory definition of "gift". (at p640)

5. However, the argument is in my view misconceived. The words "passing from the disponee to the disponor" relate back to the word "consideration". They are not used in association with the word "property". Consequently they do not express the notion of title to property being divested from one person and vested in another. Instead their sense is to indicate the existence of a consideration, whether it be property, a promise or some other form of consideration, moving from, or provided by, the disponee to the disponor. It may be that the words have been carefully chosen with a view to ensuring that there is necessarily a gift when the consideration for the disposition of property is provided not by the disponee but by a third party, notwithstanding that the consideration received by the disponor is wholly adequate. But this is not a question I need stay to examine. For present purposes I have said enough to indicate that a consideration may be said to pass from a disponee to a disponor, whether it be property or a promise, so long as it moves from, or is provided by, the disponee for the benefit of the disponor. (at p640)

6. Once this is appreciated there is no difficulty in concluding that the consideration did so pass in the present case, whether the consideration for the payment made was the actual allotment of the shares or an antecedent promise to allot. The facts briefly recited in the case stated tend to indicate that the appellant's application was accepted by the making of the allotment. As the allotment was made by the company it constituted in my opinion a consideration "passing from the disponee to the disponor". (at p640)

7. The appellant's second submission was that the consideration was necessarily fully adequate because shares cannot be issued at a discount below their par value, subject to an exercise by the court of the power conferred upon it by s. 59 of the Companies Ordinance, 1961 (A.C.T.), as amended. That power is, as we know, very rarely exercised. The appellant's contention is that as the amount subscribed for the shares was the minimum amount which the law permitted to be subscribed for them, the power conferred by s. 59 not having been exercised, the value of the shares cannot be less than that minimum amount. (at p641)

8. The submission is misconceived. There is no necessary or precise relation between the par value of a share (the minimum amount which the law permits to be subscribed for it) and its actual value. Situations occur from time to time in which persons subscribe the par value for shares only to discover that the shares when alloted have a market value that is less than par. In other situations, because the shares have a special value to the subscriber or because he will derive indirect benefits from the company's receipt of further capital, a person may be willing to subscribe par value for shares although he is aware that at the time of his subscription the market value of the shares is slightly below par. To ascertain whether consideration is fully adequate for the purposes of the Act the Commissioner and, if need be, the court must determine the value of that consideration and when the consideration consists solely of shares that have a market value it is that value that is all-important. If there is no market the value must be established by other means. But the prohibition against the issue of shares at a discount with its requirement that the par value is the minimum amount payable on subscription for a share, says nothing as to the value of a particular share. To suggest that it establishes that the value of the share is not less than par is to import a legal fiction which has no foundation in reality. (at p641)

9. Whether it is legitimate to take into account the value to the subscriber of other advantages which may accrue to him as a result of the allotment of the shares or of the company's receipt of capital is not a matter which, in the circumstances of this case, calls for any discussion. (at p641)

10. One difficulty in the appellant's way is that the prohibition against the issue of shares at a discount is a requirement of the law related to the limitation of liability of the members of a company. The price which the shareholder pays for the limitation of his liability to the nominal amount of his share is that he shall remain liable up to that limit. The prohibition is accordingly confined to prescribing the minimum amount payable on subscription - see Gower, Modern Company Law, 3rd ed. (1969), pp. 106 et seq.; Ooregum Gold Mining Co. of India Ltd. v. Roper (1892) AC 125 . The prohibition has nothing to say about the minimum price for which a share may be bought and sold. Its character is therefore entirely different from that of a price-fixing law, that is if one imagines a law designed to promote, rather than to defeat, inflation, which fixes minimum and not maximum prices. If the existence of such a law be supposed the minimum price fixed by law for particular goods might well exceed the value of the goods and a court bound to ascertain the value of the goods for the purposes of compensation or for duty purposes could conclude that the value was less than the minimum price fixed. Yet in such a case there would be stronger ground than there is here for saying that the policy or purpose of the law was to fix values as well as prices. No such policy or purpose underlies the prohibition against the issue of shares at a discount. (at p642)

11. It must be acknowledged, as the appellant's counsel points out, that the failure of his argument will produce unwelcome consequences. That bona fide commercial transactions between a company and its shareholders entered into for purposes not associated with the making of gifts should be liable to gift duty is a matter of genuine concern. It cannot be doubted that there will be a detrimental impact on business and commerce if share allotments have to be examined to ascertain whether the value of the share is less than the moneys subscribed for it. Section 14 provides no protection in these cases (cf. Ord Forrest Pty. Ltd. v. Federal Commissioner of Taxation (1974) 130 CLR 124 where the converse case arose). That there are strong reasons for including cases such as the instant case within the penumbra of gift duty is evident, but it seems quite unnecessary to do it by means which include within the sweep of the legislation bona fide commercial transactions where no element of gift is intended. The Act merits legislative attention; its undesirable consequences should be eliminated. (at p642)

12. However, I am unable to see in all this a ground for reaching the result advocated by the appellant. The language of the Act is to my mind clear in its meaning and application and from that we cannot be distracted by the circumstance that in some instances the Act will have an operation which may be thought to be undesirable. That operation is, I think, fairly limited in its scope because in the majority of cases the value of the share allotted will exceed the moneys subscribed for it, unless the transaction has an exotic character like the transaction in this case. (at p642)

13. In the result, the shares received by the appellant being very much less in value (41 cents per share) than the moneys which she subscribed, the questions asked should be answered as follows: 1. Yes. 2. Yes. 3. A dividends basis. 4. Yes. 5. Yes. 6. Yes. 7. Yes. (at p642)

JACOBS J. The appellant on 5th February 1969 applied for and was allotted 97,000 "C" class preference shares of $1 each in Winifred Pty. Ltd. ("the company"). These shares carried the right to a fixed non-cumulative preference dividend of four per cent per annum on the capital paid up thereon and to return of capital paid up thereon in priority to ordinary but subsequent to all other shares. The shares did not carry the right to any further participation in the profits or assets of the company. She gave therefor to the company consideration of $97,000. The shares, after they were issued were, on a profit or earnings basis calculated upon the dividend payable, worth $39,770, each share being worth forty-one cents. On a liquidation basis the shares were worth their face value, $97,000. The appellant was not the holder of any ordinary shares in the company but held "A" and "B" class preference shares. The ordinary shares alone carried the right to participation in the profits and assets of the company beyond the preferred rights of the preference shareholders. (at p643)

2. The respondent assessed the appellant to gift duty in respect of a sum of $57,230, the difference between the consideration paid for the allotment of the shares and their worth on a profits or earnings basis after allotment. The appellant objected to the assessment but the objection was disallowed. The appellant requested that her objection be treated as an appeal to this Court; a case was stated and the following questions of law were directed to be argued before a Full Court:

"1. Was the payment of $97,000.00 by the appellant to the

company for 97,000 'C' class preference shares allotted by the company to the appellant on 5th February 1969 a 'disposition of property' within the meaning of ss. 4 and 17 of the Gift Duty Assessment Act, 1941 (as amended) (hereinafter called 'the Act')?

2. If the answer to question 1 is 'yes' were the said shares so allotted 'consideration in ... money's worth' passing from a 'disponee' namely, the company, to a 'disponor' namely, the appellant, within the meaning of ss. 4 and 17 of the Act?

3. If the answer to question 2 is 'yes' (a) should the said shares be valued as at 5th February 1969, upon a liquidation basis or a dividend basis or a profits basis or any other and, if so, what basis?

(b) what was the value of the said shares as at that date?

4. If the value of the said shares as at 5th February 1969 was less than $97,000.00 were the said shares so allotted 'consideration in ... money's worth' passing from the company to the appellant consideration which was not 'fully adequate' within the meaning of ss. 4 and 17 of the Act?

5. If the answer to question 4 is 'yes' did the appellant on 5th February 1969 make a gift to the company, or to any other person, within the meaning of s. 4 of the said Act?

6. If the answer to question 5 is 'yes' was the 'extent of that inadequacy' within the meaning of s. 17 of the Act the difference between $97,000.00 and the value of the said shares as at 5th February 1969?

7. If the answer to question 6 is 'yes' was the amount of that difference the 'value of the gift' within the meaning of s. 17 of the Act?" (at p644)

3. The first submission on behalf of the appellant, as I understand it, is that a subscription of capital to a company, whilst it does involve a payment and to that extent involves something that is capable of satisfying the definition of "disposition of property" in s. 4, is not a transaction involving a disposition of property for a consideration passing from the company. In my opinion this argument cannot be sustained. The Act by the definition of "gift" in s. 4(1) makes any disposition of property a gift where it is made without consideration passing from the disponee to the disponor or with consideration if the consideration is not fully adequate. The payment of money, or an equivalent thereto, is a "disposition of property" within the meaning of those words as they are defined in s. 4(1) of the Gift Duty Assessment Act 1941 (Cth) as amended. The consideration therefor need not itself be a disposition of property within the definition though no doubt it will ordinarily be so; but whether or not it is does not matter. (at p644)

4. Further, consideration passed from the company to the appellant. What the company gave in return for the payment was a promise. To say that the consideration for the payment of $97,000 was the allotment and issue of the shares is a compendious way of stating that the consideration was a promise by the company in terms of the rights attached to the shares under the relevant article of association or, as in the present case, special resolution of the company. The promise is a chose in action which is generally transferable in accordance with the provisions of the applicable company legislation, the Companies Ordinance (A.C.T.), and the memorandum and articles of association of the company. It may therefore be said, again compendiously, that the share is a chose in action; but strictly it is the promise which is the chose in action, and this was the consideration which passed. (at p644)

5. The second submission on behalf of the appellant raises the question whether the promise by the company in terms of the rights conferred by the allotment of the particular shares was a fully adequate consideration for the payment of $97,000. The promise, represented by the shares, was on a current earnings basis worth less than the amount paid. A promise of a dividend of four per cent per annum on an amount subscribed by way of preferred capital, where there were no contingent rights of further benefit, was not a promise of a rate of dividend which on a basis of currently obtainable return gave the preference shares when issued a value equal to their nominal value. However, it is submitted that the consideration passing from the company was not the shares as property which could be valued on a profits or earning basis and compared with the payment made to the company. It is submitted that the payment must be looked at as the minimum amount which by law the intending subscriber could pay for the shares subscribed, that the promise by the company in terms of the rights attaching to the shares was the maximum consideration which could lawfully be given by the company in respect of the particular transaction, and that therefore there was necessarily a fully adequate consideration for the payment by the appellant to the company. The submission is not the subject of any prior decision. No such question arose, or could arise, in Ord Forrest Pty. Ltd. v. Federal Commissioner of Taxation (1974) 130 CLR 124 , where the value of shares when allotted was greater, not less, than the face value and premium paid. There is nothing in the Companies Ordinance (A.C.T.) to prevent the issue of shares at a premium but s. 59 effectively prevents the issue of shares at a discount unless the provisions of the section can be, and are, complied with: Ooregum Gold Mining Co. of India Ltd. v. Roper (1892) AC 125 . (at p645)

6. In my opinion the payment under an agreement for the allotment of shares of the minimum sum which is able in law to be paid cannot itself be a disposition of property for a consideration which is not fully adequate. If the payment is, or is part of, a transaction entered into by a person with intent thereby to diminish, directly or indirectly, the value of his own property and to increase the value of the property of any other person then the transaction will be a disposition of property within the definition of those words in s. 4(1)(f). As such it will be a gift if there is no, or less than fully adequate, consideration. But that is not what is claimed by the Commissioner in this case. (at p645)

7. I have purposely omitted from my recitation of the relevant facts the material in the stated case which would support the view that the transaction was not one at arm's length between the appellant and the company, and that the intent of the appellant may have been to benefit the company, and, through it, the ordinary shareholders who were related to the appellant by kinship or marriage. Intent is not relevant to the question whether or not there is a disposition of property unless it is claimed that there is a disposition within s. 4(1)(f). If the Commissioner's claim were that this was a disposition of property within par. (f) of the definition, the matter could not be dealt with on a case stated unless the case stated the intent of the appellant. Intent is not a matter which can be inferred from primary facts in a case stated. It is itself a primary fact. (at p646)

8. Further, on that part of the definition in s. 4 which is claimed presently to be applicable, motive is not relevant. The motive might be that of sustaining an ailing company in which the applicant for shares already had a substantial financial stake. Neither the existence of such a motive nor a hope of future benefit through restoration of the company's fortunes would alter the value of the shares allotted or of the promise which they represent as at the date of payment for them. No provision in the Act would relieve the transaction from liability to gift duty. In particular, s. 14(f) would not apply unless the transaction took place in the course of carrying on a business. This being so, material which clouds the transaction with an aura of motive or intention to benefit another or others serves only to confuse. (at p646)

9. No reliance can be placed on the fact that a payment of less than $1 per share might have been possible if the approval of the court had been obtained. The fact is that no approval of the court was given. It is not relevant that approval was not sought. The problem is no different from that which would fall for determination if approval had been sought and had been refused. (at p646)

10. There is no definition in the Act of "fully adequate consideration". Section 17 provides:

"Where any disposition of property is made and consideration in money or money's worth passes from the disponee to the disponor but the disposition constitutes a gift for the purposes of this Act by reason of the consideration not being, or, in the opinion of the Commissioner, not being, fully adequate, the value of the gift shall, for the purposes of this Act, be the extent of that inadequacy."

Section 18(1)(b) provides:

"(1). For the purpose of computing the value of a gift - (b) subject to this Act, the value of a gift shall be taken to be the value thereof at the time of the making of the gift;" (at p647)

11. In order to determine the value of the gift the property disposed of must, if necessary, be valued and the consideration passing from the disponee must also be valued. Then a comparison must be made and the value of the consideration must be found to be at least equal to the value of the property disposed of; otherwise there is a gift to the extent of any inadequacy in the value of the consideration. However, a particular value of the consideration, unless it be a payment in currency, is not intrinsic to the subject matter of the consideration. The value depends on the value placed on the subject matter of the consideration, in this case the promise represented by the shares, in the community. Where by law there is a minimum price which can be paid for the subject matter of the consideration then the latter cannot be regarded as having notionally a lower value than that minimum which the law requires. The fixing by law of the minimum may make the giving of the consideration unattractive and may therefore tend to discourage the transaction; but if the transaction does take place, then in the extrinsic circumstances which determine the value of the property on the one hand and of the consideration on the other, against which alone adequacy of consideration can be tested, there must be taken into account the minimum consideration on the one hand and the maximum consideration on the other hand which the law requires. (at p647)

12. The question whether or not there is a fully adequate consideration could on the contention advanced on behalf of the Commissioner arise in analogous cases when either the maximum or the minimum consideration for an agreement is fixed by law. A maximum consideration on one side of an agreement could result in the party paying that consideration giving to the other party less than fully adequate consideration if by those words were meant a consideration which, it is conceived, would be paid on the market if the law permitted it to be paid. The rent for a lease of rent-controlled premises would on such a view be less than fully adequate consideration even if it was the maximum permitted by law; so also the interest paid on a loan of money if interest rates were controlled and the price paid for land or goods if prices were controlled, and if in any of these cases the controlled price was less than that which, it was conceived, would otherwise be obtainable on the market. (at p647)

13. In the present case the minimum consideration permitted by law in respect of the "C" class preference shares in return for the payment of the $97,000 was a promise in respect of shares which when issued would have a face value of $97,000. It is apparent that there was no way in which, as consideration for the payment, the issue of shares of a face value of an equal number of dollars could lawfully be avoided. It therefore becomes unreal to test the consideration which was given against an extrinsic standard or norm which cannot in law exist. The only extrinsic standard or value is that which the law permits and that was the consideration given in the present case. It cannot therefore be regarded otherwise than as fully adequate. (at p648)

14. I would answer the questions in the stated case as follows:
1. Yes.
2. No; the consideration in money's worth was the promise by the company to the appellant in terms of the rights attaching to the 97,000 "C" class preference shares of $1 each fully paid which were allotted to the appellant.
3. Not answered, but instead it is stated that the consideration described in the answer to question 2, being the maximum consideration which could lawfully be given by the company for the $97,000 paid by the appellant to the company, was fully adequate.
4. Not necessary to answer. 5. No, omitting the words "If the answer to question 4 is 'yes'". 6. Not necessary to answer.
7. Not necessary to answer. The Commissioner should pay the appellant's costs of the case stated. (at p648)

Orders

Order that the questions asked in the case stated be answered as follows:
1. Was the payment of $97,000.00 by the appellant to the company for 97,000 "C" class preference shares allotted by the company to the appellant on 5th February 1969 a "disposition of property" within the meaning of ss. 4 and 17 of the Gift Duty Assessment Act, 1941 (as amended) (hereinafter called "the Act"),
Answer: Yes.
2. If the answer to question 1 is "yes" were the said shares so allotted "consideration in ... money's worth" passing from a "disponee" namely, the company, to a "disponor" namely, the appellant, within the meaning of ss. 4 and 17 of the Act?
Answer: Yes.
3. If the answer to question 2 is "yes"
(a) should the said shares be valued as at 5th February 1969, upon a liquidation basis or a dividend basis or a profits basis or any other and, if so, what basis?
(b) what was the value of the said shares as at that date?
Answer: A dividends basis.
4. If the value of the said shares as at 5th February 1969 was less than $97,000.00 were the said shares so allotted "consideration in ... money's worth" passing from the company to the appellant consideration which was not "fully adequate" within the meaning of ss. 4 and 17 of the Act?
Answer: Yes.
5. If the answer to question 4 is "yes" did the appellant on 5th February 1969 make a gift to the company, or to any other person, within the meaning of s. 4 of the said Act?
Answer: Yes.
6. If the answer to question 5 is "yes" was the "extent of that inadequacy" within the meaning of s. 17 of the Act the difference between $97,000.00 and the value of the said shares as at 5th February 1969?
Answer: Yes.
7. If the answer to question 6 is "yes" was the amount of that difference the "value of the gift" within the meaning of s. 17 of the Act?
Answer: Yes.

Remit case to Barwick C.J. to be disposed of accordingly.

Order that the costs of the case stated be paid by the appellant.