Gregrhon Investments Pty Limited v Commissioner of Taxation; Clough v Commissioner of Taxation; Clough v Commissioner of Taxation

[1988] HCATrans 43

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Sydney No Sl35 of 1987

B e t w e e n -

GREGRHON INVESTMENTS PTY LIMITED

Applicant

and

CO:MMISSIONER OF TAXATION OF THE

COMMONWEALTH OF AUSTRALIA

Office of the Registry

Sydney No Sl36 of 1987

B e t w e e n -

NANCYE JEAN CLOUGH

Applicant

and

COMMISSIONER OF TAXATION OF THE

COMMONWEALTH OF AUSTRALIA

Office of the Registry

Sydney No Sl37 of 1987

B e t w e e n -

Gregrhon

MASON CJ

WILSON J

GAUDRON J

NORMAN CECIL CLOUGH

Applicant

and

COMMISSIONER OF TAXATION OF THE

COMMONw'EALTH OF AUSTRALIA

Applications for special

leave to appeal

MlTl/ 1/SH 1 18/3/88

TRANSCRIPT OF PROCEEDINGS

AT MELBOURNE ON FRIDAY, 18 MARCH 1988, AT 10.15 AM

Copyright in the High Court of Australia

MR D.A. STAFF, QC:  If the Court pleases, in each of those

matters I appear with my learned friend,

NR. D.H. BLOOM, QC, for the applicant. (instructed

by Needs, Chan & Monahan)

MR D.G. HILL, QC:	If the Court pleases, in each of those matters I appear with my learned friend,
MR M.T. SETTLE, for the respondents. (instructed
by the Australian Government Solicitor)
MR STAFF:	Your Honours, these are applications, of course,

for special leave to appeal from a decision of the

Full Court of the Federal Court given on

26 November 1987. That decision, Your Honour,

upheld appeals by the Commissioner of Taxation

from the judgment of Mr Justice Lee sitting in	the Supreme Court of New South Wales who had upheld
the taxpayers' appeals at first instance from the
disallowance of taxpayers' objections against their
assessments of income for the year ended 30 June 1980.

The appeals primarily involve the question

whether the taxpayers were parties to an arrangement

of the relevant kind within the meaning of section 260

of the INCOME TAX ASSESSMENT ACT. The cases - perhaps

before I go to that I should say that we move on the

affidavit of Robert William Monahan sworn on

16 December 1987.

MASON CJ: Yes, we have read the affidavit, Mr Staff.

MR STAFF: If Your Honours please. The appeals involve

transactions which I might call broadly similar

and, indeed, it is our submission that they are

indistinguishable from transactions which were

MlTl/2/SH	2	18/3/88
Gregrhon

SLUTZKIN V FEDERAL COMMISSIONER OF TAXATION	the subject of decision by this Court in
although, as always, of course, there were
some differences of fact and it might be
convenient if I take just a moment to indicate
what, in our submission, were the primary
differences of fact.

:MASON CJ:  Yes.

MR STAFF: Firstly, Your Honour, the taxpayers before selling

their shares in a company, Detail Furniture Company

Pty Ltd, which had carried on business for a number

of years caused that company to sell its business

to a new company which the taxpayers had formed for

a price equal to the value of the net tangible

assets of the vendor company. Thus, they transferred

the business or caused the business of Detail to be

transferred to a new company which thereafter

continued to carry it on.

Secondly, the contract for sale of the shares

contained a promise on the part of the vendors to cause Detail.Furniture Company Pty Ltd to hand to

the purchaser's nominee, a company called

Lockwing Pty Ltd that, on settlement, a bank cheque

for the amount of Detail's net tangible assets, a

sum of around about $744,000 .. That was a promise

which was performed at settlement when the vendors

sold their shares to the purchaser, that is, their

shares in Detail.

Thirdly, the contract also contained a warranty

that in substance the purchaser would not cause

Detail to give financial assistance in connection with the purchase of the vendors' shares. That
warranty was not performed by the purchaser but

that was a fact of which the vendors became aware

only many years later.

Fourthly, the purchaser caused Detail to be

left with no assets with which to meet its impending
liability for primary tax and undistributed profits'

tax. The vendors, however, were at all times

ignorant of such an intention on the part of the
purchaser and of the fact. Detail had at the time

of the sale of the shares current year profits of

a substantial amount as well as past years' profits.

Your Honours will recall that in SLUTZKIN the target

company or the company which the shares in which were

sold had a very small amount of current year profits
but a large amount of past years' profits. The

converse was the situation in this case.

Your Honours, it might be convenient if, before

which we seek leave to appeal, I indicate the

coming to the question of errorthat we submit

MlTl/3/SH	3	18/3/88
Gregrhon

features which, we would submit, justify special

leave in this case.

Firstly, Your Honours, the Connnissioner and

the appellants regard the cases as raising issues

of general public importance. That, so far as it

is of any real significance, appears from
Mr Monahan's affidavit and from exhibit RMW3 to

that affidavit which is a copy of Mr Stephen McMillan's

affidavit, he being principal legal officer of the

Australian Government Solicitor's office. That was an affidavit which Mr McMillan swore apparently in

contemplation of an application being made by the

Connnissioner for special leave to appeal from

Mr Justice Lee's judgment, an application which was

not pursued as things turned ou~ but the information

contained in the application is of interest in

demonstrating the Connnissioner's view of the

importance of the case and, also, of perhaps the

more significant facts in relation to seeking

special leave, namely, that there are or were at

the date of that affidavit 49 appeals to a supreme

court or an administrative appeals tribunal stood

over awaiting resolution of the three cases which

are before Your Honours today. Those appeals are
said to be, and I quote, "In circumstances such as

are here in question". So that the Connnissioner's

view, at least, is that those appeals, 49 of them,

are similar in circumstance to the current matter.

Secondly, the affidavit further demonstrates

that there are a further 2987 assessments which have

been issued by the Connnissioner of Taxation in

circumstances simila½ and I am using Mr McMillan's

words, to this matter. The tax involved in those

cases is approximately $303. 5: million and, ~rdly, the

affidavit demonstrates that the Commissioner of

Taxation proposed as at that date to issue a further

7000 similar assessments. So that, in summary,

there are something over 10,000 potential appeals

to be determined. Now, in those circumstances, it is our submission

that a definitive decision of this Court will very

likely,whichever way it should go,determine a large

number of those outstanding questions.

MASON CJ:  Yes. I am always somewhat suspicious of these

figures, Mr Staff, for the simple reason that they

seem to be compiled on the footing that a particular

submission or point is being raised without having

sufficient regard to the variety of factual situations

that underlie the submission.

MR STAFF: Well, I can appreciate that, Your Honour,and we are

not able, because we have not access, of course, to

the material to throw any light - - -

MlTl/4/SH	4	18/3/88
Gregrhon

MASON CJ:  Yes, it would have been interesting, indeed, to

hear your arguments had the Commissioner proceeded
with his application for special leave from

Mr Justice Lee's judgment.

MR STAFF: Well, Your Honour, we have not turned our minds

to what we might have wanted to put to Your Honours

then. Perhaps it is better, in these circumstances,

that we do not now but the most we can say is that
the Commissioner's view is that the circumstances

are similar. . Undoubtedly, Your Honour, there would

be differences in fact but one might think that the

substantial fact will be similar. But, at any rate,

which are those which give rise to today's application on behalf of the current applicants

the affidavit of Mr McMillan further demonstrates

that there were 27 cases selected by the

and those cases are the first ones so far and the

only ones yet to have been before the courts.

WILSON J: But, Mr Staff, why does not the decision of the

Federal Court resolve the uncertainty that underlay

Mr McMillan's affidavit?

MR STAFF: Well, Your Honour, in our submission, it would give

rise to a variety of attempts to distinguish that
case on minor factual differences and, in that sense,
the decision cannot be said to be a precedent for all

cases, at any rate, for those which people with somewhat

slightly different facts, perhaps, are concerned and,

of course, though there will be inevitably and we

must concede inevitably differences of fact, the

application of the decision of the Full Federal

Court by judges of first instance to other facts

will, we submit, give rise to an interminable

wrangle about the significance of what we would

describe as minor facts and, of course, to the

expenditure of a vast amount of judicial time,

public money and private money when, if in the	end, on a slightly different set of facts,
taxpayers are able to have a court reach a
different decision.

MASON CJ: It is difficult, is it not, to make an estimation

whether that is likely to prove to be so or not.

MR STAFF: I must confess it is difficult, Your Honour, but

the circumstances - - -

MASON CJ: Certainly, it may be a possibility but I would not

be inclined myself to rate it as anything more than

a possibility at the present time.

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Gregrhon

MR STAFF:  Of course, if this Court were to uphold the present

taxpayers' appeal, it would seem almost certain to

resolve a vast number of the cases which the

Commissioner has said are similar in circumstance because it is the present applicants' submission that the Full Federal Court was wrong because it

treated, as Mr Justice Fisher said, the decision in

SLUTZKIN's case as not even of persuasive authority

and, as we would seek to demonstrate, His Honour

took a view which is at odds with the principle in

SLUTZKIN's case and so that, on the one hand and in

the eventuality, of course, making the assumption

favourable to our ultimate success, there is a very

strong probability, we would submit, that a vast

number of the cases which are potential pieces of

litigation. will disappear. It would seem to be

unlikely, for instance, that the Commissioner would

issue the· 7000 assessments which he says he

proposes to issue and one would think unlikely that

he would proceed with the 2900 assessments which he

has already issued.

As well, of course, and this point is made and

I must concede it is somewhat speculative - it is ma.de in the affidavit - but I must concede it is somewhat

speculative, there are a larger number of matters
awaiting hearing in the Administrative Appeals

Tribunal arising out of the provisions of the

TAXATION (UNPAID COMPANY TAX) RECRUITMENT ACT

legislation, much of which would seem to be

unnecessary and, indeed, likely to be abandoned if

a favourable resolution of this case in favour of,

say, the Commissioner were made but, again, it is

really impossible to assess the likelihood of that

eventuality.

However, those are the matters to which we would

direct attention and submit w-arrants snecial leave	4
in the present case.

Now, may I then pass to my attempt to demonstrate

error in the Full Federal Court and, firstly, might I

turn, in volume I, to the judgment of Mr Justice Fisher

at pages 79 to 80 of that volume, commencing at the

second-last line of page 79 where His Honour said:

The learned trial judge approached the

question differently attaching much significance

to what he saw as the extent of the taxpayers'

knowledge. He concluded that this knowledge

of what was being done and was intended to be

done was only such as might be inferred from

the terms of the written agreement. He laid

emphasis upon his finding that there was

nothing to indicate any belief on the part of

MlTl/6/SH	6	18/3/88
Gregrhon

Mr and Mrs Clough that the transaction

into which they were entering was dishonest
or in any way fraudulent upon the Commissioner.

Furthermore they did not believe that it would result in Detail's assets being the source of

the purchase money for its shares. He also

held that there was nothing at the settlement

which aroused or ought to have aroused their suspicion that they might have been involved in any ingenious tax avoidance scheme. For
my part I would not approach the matter in

this way. Whether or not there is an

arrangement such as is contemplated by

s. 260 is a matter for objective assessment

and the attitudes of the taxpayers are little

if anything to the point. It is after all

the "purpose or effect" of the arrangement

and not the motives and intentions of the

taxpayers which determines the issue.

Well, now, there what His Honour is doing is

saying it is not to the point to look at the

taxpayers' knowledge of the tax avoidance effect of
what the purchaser is proposing to do behind the
taxpayers' back which is, respectfully, contrary

to the principles applied in SLUTZKIN.

Mr Justice Lockhart, at page 111, in the

paragraph commencing - - -

WILSON J: Perhaps, Mr Staff, if I could interrupt you before

you go to Mr Justice Lockhart, Mr Justice Fisher does
go on, does he not, to observe that the contractual

obligation imposed, iupon the applicants to hand over

the assets of Detail to a third party, the nominee

company, Lockwing, was a very significant fact or that
should have alerted them to the nature of the scheme

upon which they had embarked.

MR STAFF:	Yes. That, of course, was, as one can see from the argt.mm.t which was reported in SLlITZKJN, r~ly a re-enactment of the Commissioner's argument in SLUTZKIN which this
Court rejected. Not, as I think I made clear earlier,
that the precise form of the obligation was identical
but the argument was put in SLUTZKIN that because the
assets were required to be reduced to cash and made available, as it were, at the time of settlement in cash, the vendors were putting the purchaser in a
position where it could use the company's resources
to finance the purchase of the shares which is the point behind Mr Justice Fisher's observation.

MASON CJ: But, you have to read further, have you not, on

page 80 to get the full flavour of what

Mr Justice Fisher is saving. If you go down to

line 19, for exa~ple, ~e scys:

MlTl/7/SH	7	18/3/88
Gregrhon

If it were otherwise the law would place a premium on naivety, ignorance and calculated

abstention from knowledge and understanding.

The emphasis, I think, being on "calculated

abstention".

MR STAFF:	Yes.
MASON CJ:	In any event, however, all the surrounding circumstances in this matter were in my opinion such that the taxpayers, and more
particularly their accountant, whose
knowledge and intention may be imputed to
the taxpayers ..... should have been alerted to a scheme of tax avoidance, with
particular reference to their obligation
to hand over the assets of Detail to a
third party and the requirement that as
vendors they not be paid until this was
done.
MR STAFF:	Your Honour, that, of course, is a finding in the

teeth of the learned trial judge's finding who had

had the benefit of having seen the witnesses and -

MASON CJ: Maybe.

MR STAFF:  - - - His Honour does not, of course, give any

reason for rejecting Mr Justice Lee's finding but -

MASON CJ:  Maybe, but that immediately confronts you with an

obstacle, an obstacle of a kind that is significant
in a special leave application. You have to ask
us to reverse the finding of fact which seems to me
to be common, more or less, to the judgments in the

Full Court of the Federal Court.

MR STAFF:	Oh yes, I must concede that, Your Honour.
MASON CJ: Yes.
MR STAFF:	But, Your Honour, this idea of calculated abstention

from inquiry is a very odd and, we would submit,

unrealistic attitude when one finds in the contract

of sale proffered in its terms by the purchaser as

author, proffered to the vendor, contained a warranty

that Detail's assets would not be used by way of

financial assistance either for the purchase of the

shares or otherwise directly or indirectly. Now,

that is a statement in substance by the purchaser
that it is not going to use any of Detail's assets

for that purpose. Firstly, one might ask why should

a purchaser have to repeat the question which has

already been answered and, in any event, it is really

leaving reality out the door to expect a different

answer from a purchaser who has already offered that

warranty.

MlTl/8/SH	8	18/3/88
Greghron

If you do ask the question: 'Do you propose

to use Detail's assets to finance the purchase
of my shares?"one could really never expect a
purchaser who had proferred such a warranty to
say, "Yes, I do". Asking the question would not

advance the vendor's knowledge one step. And that

is one of the repsect~ on the way to their ultimate

conclusion in whic~ we would submit, the learned

judges of appeal went wrong.

WILSON J:  Correct me if I am wrong, but my understanding,

Mr Staff, is that there was evidence from the applicants
that they knew that it was not in their interests

to make inquiries.

MR STAFF:	I think, with respect, Your Honour -
WILSON J:	Was there evidence to that effect?
MR STAFF:	I think, with respect, Your Honour, there was

evidence by Mr Clough, the male, and by his

accountant, Mr Gelder, that he understood that

one of the consequences of SLUTZKIN was that if

you did not know · you were better off, perhaps,

than you might be if you made inquiry and that

was, whether a correct or incorrect reading of
what Mr Justice Stephen had said in SLUTZKIN.

Certainly, it was, as I think His Honour Mr Justice Lee

found, an attitude or a feeling that was widespread

in the taxation advisory industry at the time.

But His Honour Mr Justice Lee had found after

assessing Mr Gelder in the witness box that he

had no idea of any intention on the part of the

purchasers to indulge in any particular exercise.

He thought they must have something in mind but

it never crossed his mind that an exercise such

as that which was perpetrated was in the purchasers'

mind. And, of course, so to~ as this Court said

in SLUTZKIN, the amount which was payable as the

price of the shares was so close to the value of

the net tangible assets that the vendors must have

anticipated that the purchasers were going to do

something to avoid or reduce or eliminate the tax

liability which otherwise would arise. So that

is the way in which we would answer the question

which Your Honour asked.

Mr Clough, I should say,because that is the

other half of the question, said he had been told

that it was better not to inquire and he just was

not interested in what the purchasers were going
to do. And, as I am reminded, Mr Gelder had also

been given an opinion of senior counsel, whom the

learned trial judge described as having expertise

and integrity,to the effect that the transaction

MlTl/9/AC	9	18/3/88
Greghorn

of this character, true not this particular transaction

because the opinion had been written before this

one was entered into, but having the broad main

features of it would not attract tax in the hands

of the vendor shareholders. And that, as His

Honour found, was a reassurance to Mr Gelder.

Also, Mr Gelder had made inquiry as to the propriety

and reputation of the agent of the purchaser from
one of Sydney's leading firmsof accountants and

had received a favourable endorsement as to his

reputation.

WILSON J:  But you must accept that there is some substance

in Mr Justice Fisher's finding of a calculated

abstension from inquiries.

MR STAFF: We would ~ubmit there is none, Your Honour. It

is a finding directly in the teeth of the finding

by the learned trial judge after seeing the witness

and hearing his evidence. And His Honour's finding

was that in those circumstances, having seen

Mr Gelder, he was of the view that it never crossed
Mr Gelder's mind that there was any need for inquiry.

But, certainly, there was no calculated abstension

and His Honour Mr Justice Fisher has, as it were.

made that assertion without indicating any reasons for

rejecting the learned trial judge. However, that

would be a matter whidh, if we ever got to an appeal
we would have to persuade Your Honours about, but

that is how we would seek to go about it.

Your Honours, it does seem to have been common

to the three judgments in the Full Federal Court

that each took the view that to answer the question,

whether the Cloughs were parties to the relevant

arrangement, had to be determined objectively and
that what the Cloughs knew about it or believed about what was to happen was of little, if any,

relevance. That again, Your Honours, we would

submit, flies in the teeth of what is expressed

in SLUTZKIN because in SLUTZKIN it was said that

the arrangement to which the taxpayers were a party

was to be viewed as terminating at the moment of

settlement of the sale of the shares. Because,

thereafter, they had no knowledge of what the purchaser
intended to do. True they had a suspicion that
something would be done to diminish or eliminate

the liability to tax which would otherwise arise

because of the price which was payable. But beyond

that they had no knowledge of what steps the purchaser
intended to take and so could not be said to be

parties to any arrangement continuing past the

moment of settlement.

GAUDRON J:  But in this case, Mr Staff, they were parties

to an arrangement which effectively stripped Detail

of its business and its assets,were they not?

MlTl/10/AC	10	18/3/88
Greghorn

MR STAFF:  We would submit, with respect, not, Your Honour.

They were parties to an arrangement between themselves,

initially, to sell Detail's business to Trazian
but there is nothing to suggest that the purchaser

of the shares was party to that arrangement. It

can be said to be interrelated or interconnected
or carried out by the vendors because they wanted

to ready, using Mr Justice Stephen's word, Detail

for sale. But there was no evidence that Shareholder,

the purchaser, had anything to do with that or

even knew about it. So, it could not have been

part of what is said to be the tax avoidance

arrangement.

Now, there then was the contract of sale which

both the purchaser and the vendors were parties

to, clearly.

GAUDRON J:	And that took away all the assets then remaining
MR STAFF:	No, with respect, not, Your Honour. That was simply

a contract for the sale of shares and when it was

settled the obligations were performed, according
to the contract, between the vendors and the purchaser.
The value of Detail's asset~ being reduced to cash,
was put in the hand~ by the purchaser's direction,
of its nominee in the form of a cheque which thereafter

the purchaser got possession of and dealt with

for its own benefit. But that was being, of course,

in breach of the warranty which the purchaser had

given to the vendor.

(Continued on page 12)

MlTl/11/AC	11	18/3/88
Greghorn

GAUDRON J: It would not matter whether it had been in breach

of the warranty or not, would it, Mr Staff? It

would, at that stage, amount to a stripping.

MR STAFF:  With respect not, Your Honour. The sequence of

events was that a company called Transia lent the

money to the purchaser which was paid to the vendor

shareholders by the company called Shareholder,

the purchaser. That money then went to the Cloughs

as vendors. They then paid off some debts which

they owed Detail and Detail handed over a cheque
to the value of its net tangible assets to Lockwing.

But the sequence of events as found by the learned

trial judge and as found by Mr Justice Lockhart

was iust that. So that third party external funds

financed the purchase of the shares.

The Detail's funds assisted Shareholder to repay its financier and, in that sense, Detail

provided financial assistance.

WILSON J:  But the fact remains that Detail had no assets

whatever left after the cheque was paid to Lockwing.

MR STAFF:  I suppose, Your Honour, there being no evidPnce

of an intention to make a gift by Det~il and

there was an implied promise by Shareholder or

Lockwing to repay it, but the practicality is that

Lockwing and Shareholder had no funds by the time

they paid out their financier and the company was ultimately left with no money. But none of those

steps was steps of which the vendors had any

knowledge or in which they had any participation

and, in that sense, we submit, the case is on all

fours with SLUTZKIN, that the arrangement terminated

at that point of time.

Your Honours, might I just very shortly - I will not detain Your Honours long, more than a minute or two - go to SLUTZKIN, 140 CLR - - -

MASON CJ: Yes, we have it~ Mr Staff.
MR STAFF:	And may I indicate, Your Honours, firstly by

reference to the argument of Mr Priestley for the

appellant and Mr Cullinan for the commissioner in that case, what very clearly emerges as the

real point of the decision, at page 315,

Mr Priestley says·at the beginning of his argument:

The judge found that the 11 arrangement 11 terminated on the sale of the shares.

Then, if I may go over to Mr Cullinan, at page 316,

he said:

MIT2/l/ND	12	18/3/88
Gregrhon

The present case was brought withins 260 by the requirement that on settlement the

assets should consist solely of cash, so

that the buyer could withdraw from the

company an amount equivalent to the

accumulated profits. The sellers made it

possible for the buyer to use the company's

funds to effect the purchase.

That is, in reality, the basis of Mr Justice Fisher's,

and probably the other two members of the court,

decision in the present case; namely, that by giving

the cheque to Lockwing the vendors made it possible for the purchasers to use the assets of the company

to finance the purchase of shares. And yet, nowhere

in the judgment does it appear that the members of the court regarded that as of any relevance.

The learned Chief Justice cited, at page 318, in

the middle of the page, citing from the judgment

of Mr Justice Rath - if I may just read it, he

said this, right in the middle of the page:

11

••••• By this stage the transactions

culminating in the sale of the shares had come
to an end, and the subsequent activities of
the company and Cadiz Corporation were no
part of any arrangement to which the appellants
as trustees were parties, or of the implementation

of any such arrangement.

What, in fact, happened in the present case was

that by direction of the shareholder, and in

accordance with the contract of sale, the vendors

handed to Lockwing, a nominee of Shareholder, a cheque in favour of Lockwing. What happened to that cheque thereafter was no consequence of anything

that the applicants did. What happened to it

happened because of the activities of Shareholder

and Lockwing to which the vendors were - in which

activities the vendors had no participation.

At page 322, Mr Justice Stephen commenced,

at the top of that page in the paragraph there

commencing, said:

They had, it is true, readied the company

for a sale at maximum advantage.

The readying there consisted of conversion of its then · assets into cash, something which, in this case was done by the sale of the business to

Trazian by Detail before ever the contract for

sale of the shares was entered into. And it was

a different form of readying the company for sale

but in substance the same activity preceeding the

entering into the contract of sale.

MlT2/2/ND	13	18/3/88
Gregrhon

And at the end of that paragraph on 322,

His Honour concluded

They -

. II h II h d

t at 1s, h t ey , t e ven ors -

were 1n no way interested in what occurred

to the company after they sold their shares.

That is, they had no concern about what happened

to it and they had no participation in the conduct

which was adopted. True, a different form of conduct

in that case from the present but nevertheless

a form of conduct which,had the vendors been parties

to it and entered into the transaction contemplating
that tax avoidance activit½ would have brought

the case clearly within the decision of this Court

in MAYFIELD and in ROWDELL and HANCOCK. But the

distinction made is between the time at which the

transaction to which the vendors were parties ends

and if it ends before any participation in tax

avoidance activity, then it is not a 260 case.

And that, we would submi½ was the case in the present

case.

Mr Justice Aickin, at 323, in the middle of the page indicated that he had read the judgment

of the Chief Justice with which he expressed his

respectful agreement and again at the foot of

page 324 emphasized the finding which

Mr Justice Rath had made which, incidentally, was
precisely similar to the finding which

Mr Justice Lee made in the present case; namely,

in the words of Mr Justice Rath, cited at the foot

of 324:

The way in which I finally determined

the case was to hold that whatever arrangement

was the one to consider it must be one which

terminated at the date of the sale of the

shares.

And he went on, at page 325 to emphasize that fact,

saying, in the second paragraph on 325, about four

lines from the beginning of that paragraph:

What the purchaser wanted to do with the company or with the funds which comprised

its assets was not known to the vendors.

And my learned friend reminds me that at the end

of that paragraph, in the last sentence,

His Honour said:

That characterization is not affected by the

fact that the purchaser required the assets

MlT2/3/ND	14	18/3/88
Gregrhon

of the company (which consisted of money out

on loan) to be reduced to liquid cash and

required appropriate safeguards in the

contract.

That is a reference back, of course, to

Mr Cullinan's argument.

For those reasons, we would submit, this

Court would grant special leave.

MASON CJ:  Thank you, Mr Staff. Mr Hill, what do you wish

to say about the special leave aspects of this

matter?

MR HILL:	Your Honours, the Commissions neither support nor
oppose this application.  We are happy to assist
the Court in any way we can but we certainly do
not - - -
MASON CJ:	You are happy to?

MR HILL: Assist the Court, of course, but we do not otherwise

support or oppose the application.

MASON CJ: If you do not oppose it and you do not consent

to it, I do not really know how you are going to

assist us.

MR HILL: There is a problem, Your Honour.

MASON CJ:  So despite your profession of willingness to

assist us I think it turns out to be a somewhat

empty offer.

MR HILL: If Your Honours please.

MASON CJ:  Thank you, for nothing, Mr Hill. Mr Staff, there

is nothing you need reply to, I suppose.

MR STAFF:  No, nothing at all.

MASON CJ:  The critical question sought to be raised by

the proposed appeals relates to the ascertainment or identification of the arrangement to which the

taxpayers were parties. The answer to that question

depends on the particular facts of this case.

One of the material facts found by the Full Court

of the Federal Court was that there was calculated

abstention on the part of the taxpayers from making

an inquiry as to the way in which the transaction

they were entering was to be carried through to

completion.

Counsel for the applicants rightly concedes

that in order to succeed in the proposed appeals the applicants would need to persuade this Court

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Gregrhon

to overrule that finding of fact. An answer to

the question we have identified would not, in our

view, result in any elucidation of general

principle, the present case being distinguishable

from SLUTZKIN's case, as the Full Court of the

Federal Court demonstrated on the facts which it

found.

In this respect, we should mention one

specific matter, namely, that the taxpayers did
participate in the disposition of Detail's assets

to the Lockwing company which was a vehicle of the purchasers. The case is, therefore, not a

suitable vehicle for the grant of special leave

and we would refuse the application.

MR HILL:	Costs?
MASON CJ:	You cannot oppose costs, can you, Mr Staff?
MR STAFF:	No.

MASON CJ: There is a question whether you really deserve

them, Mr Hill, but we will refuse the application

with costs.

AT 11.03 THE MATTER WAS ADJOURNED SINE DIE

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