Hepples v The Commissioner of Taxation of the Commonwealth of Australia

[1991] HCATrans 355

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IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Sydney No Sll4 of 1990

B e t w e e n -

PETER WILLIAM HEPPLES

Appellant

and

THE COMMISSIONER OF TAXATION OF

THE COMMONWEALTH OF AUSTRALIA

Respondent

Hearing as to form of order

MASON CJ
BRENNAN J
DEANE J

DAWSON J

TOOHEY J

GAUDRON J

Hepples(3) 1 12/12/91

McHUGH J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON THURSDAY, 12 DECEMBER 1991, AT 9.51 AM

Copyright in the High Court of Australia

MR D.H. BLOOM, QC:  May it please the Court, I appear with

my learned friend, MR B.J. SULLIVAN, for the

appellant. (instructed by Clayton Utz)

MR B.J. SHAW, QC: If the Court pleases, I appear with my

learned friend, MR T.H. SLATER, for the

Commissioner. (instructed by the Australian

Government Solicitor)

MASON CJ: Yes, Mr Bloom.

MR BLOOM:  Your Honours, we have prepared an outline of our submissions, if we might hand them up. Do

Your Honours have the Australian Law Journal Report

of the case?	We did put it on our list of
authorities.

MASON CJ: Most members of the Court have the ALR report of

the case.

MR BLOOM:  I see. Could I ask Your Honours to go to the

judgment of Justice McHugh on what should be the

first page of that judgment. Where the legislation

is set out - His Honour sets out the legislation at

the relevant time at page 525.	Your Honours see
firstly 160ZO which provides:

Where a net capital gain accrued to a taxpayer
in respect of the year of income, the
assessable income of the taxpayer of the year

of income includes that net capital gain.

Then on the same page in the ALR, 160ZC -

a net capital gain shall be taken to have

accrued to a taxpayer -

if -

capital gains accrued to the taxpayer during

the year of income.

Then over the page, section 160Z:

Where an asset ..... has been disposed of during

the year of income -

(a) if the consideration in respect of the
disposal exceeds the indexed cost base to the
taxpayer in respect of the asset - a capital

gain •.... shall be deemed for the purposes of

this Part to have accrued.

So to get to 160ZO which includes something in the

assessable income, one must, through section 160Z,

start with the disposal. Furthermore, section 160L

Hepples(3) 12/12/91

which is set out in His Honour's judgment at the

bottom of page 527 says that:

Subject to this section, this Part -

that is Part IIIA, dealing with capital gains tax -

applies in respect of every disposal on or

after -

a certain day -

of an asset.

So the operation not only of the assessing provision in the part, but of the entire part, is

conditioned upon there first being found to be a

disposal.

Your Honours, there is some utility, in our

respectful submission, in looking at what the late

Mr Justice Hartigan said in stating the case for

the Federal Court, and we have set that out in our

outline of submissions. He said:

The question at issue here involves the question whether a sum of money paid to the taxpayer as the result of a deed of restraint

was correctly included in the taxpayer's

assessable income as a capital gain as defined
in Part IIIA of the Income Tax Assessment Act

1936 pursuant to the operation of

section 160M.

So that is how His Honour saw it, in agreeing to

state the question and in formulating the question

that he did formulate, although he did formulate

it, of course, more narrowly.

Your Honours, it is our submission that the substantial issue between the parties, both in the

Federal Court and here, was whether there was a
disposal under section 160M.	The only two

subsections relevantly relied upon were (6) and

(7), and they were relied upon in the alternative

and, as Your Honour Justice McHugh pointed out in

this Court, the M6 point was raised by notice of

contention in terms that if M7 did not apply, then

M6 did.

Your Honour Justice Toohey - if I could turn

up Your Honour's judgment in the Australian Law

Reports - it is right at the commencement of Your

Honour's judgment. Your Honour identifies the

question there for the Court, at the end of the

first full paragraph in Your Honour's judgment, at

about line 39:

Hepples(3) 12/12/91

Specifically, the question is whether, in

respect of that sum, the appellant is liable

to tax under s 160M(7) of the Act (as held by

a majority in the Federal Court) or under

s 160M(6) (as rejected by three judges in the

Federal Court).

So that was how Your Honour Justice Toohey saw the

question.

Your Honours, in our submission, a finding as

to whether there has been a disposal under

section 160M is an indispensable step to a

conclusion as to assessability or

non-assessability. If the Court concludes that

there has been no disposal under M6 and no disposal

under M7, by a majority in each case, then in our

respectful submission it must follow that there can

be no assessability, where they are the only two

sections relevantly relied upon.

Your Honours, those of Your Honours who formed

the minority on the M(6) issue all said, in

concluding that M(6) applied, that in those

circumstances M(7) did not. Your Honour

Justice Brennan, at the very end of Your Honour's

judgment, at about line 26 on page 509, said:

That sum of $40,000 was correctly included in

his assessable income by reason of the
operation of s 160M(6), but not by reason of

the operation of s 160M(7).

Your Honour Justice Dawson, in the second full

paragraph of Your Honour's judgment at page 516,

said this:

Section 160M(7) of the Act is expressed

to be "subject to the other provisions of this Part", ie Pt IIIA, and it seems to me that, as

the transaction in question falls within

s 160M(6) (which is not made subject to the

other provisions of Pt IIIA), it cannot fall

withins 160M(7).

Then again, towards the end of Your Honour's judgment, the last paragraph on page 518 in

Your Honour's judgment:

Because s 160M(6) applies, s 160M(7) does

not in my view apply -

Your Honour Justice Gaudron, in the beginning of Your Honour's judgment, which is at page 523, at

about line 24, said:

Hepples(3) 4 12/12/91

I agree with Dawson J thats 160M(7),

which is subject to the other provisions of

Pt IIIA, has no application in this case

because the promise of the appellant falls

withins 160M(6).

So Your Honours are really saying, in forming the
minority, with respect, that there can be my hybrid
disposal. It is a disposal under M(6) or a

disposal under M(7), but there cannot be a disposal

half under one of those subsections and half under
the other, which is what my learned friend has to
construct in order to get assessability, in our

respectful submission.

Your Honours, we are in the circumstances

perfectly content, with respect, with the orders

proposed by the Chief Justice, although we have put

an alternative answer to question (a), which we

would be likewise content with, namely that:

No amount was, in consequence of the facts recited in the special case, included in the

assessable income of the Applicant for the

year of income ..... pursuant to subsection

160ZO(l) of the Act in that there was, in

consequence of those facts, no disposal of an

asset within and for the purposes of

section 160L of the Act whether by virtue of

subsection 160M(6), subsection 160M(7) or any

other subsection of section 160M of the Act.

Your Honours, in our submission, that would truly

reflect the ratio of the judgment.

MASON CJ: Thank you, Mr Bloom. Yes, Mr Shaw?

MR SHAW:  If Your Honour pleases, we have an outline of

argument, it is in bundle of statutory provisions.

MASON CJ:  Thank you.

MR SHAW:  If the Court pleases, in approaching the question

which has arisen here, in our submission, one

starts off with the fact that one had the reference

of a question to the Federal Court, pursuant to the
provisions of section 45 of the Administrative

Appeals Tribunal Act, at the request of the

parties, that question being referred in the terms

it was at the request of the parties, and one has

the fact that pursuant to the provisions of

section 45(3) of that Act, the tribunal is bound,

not in the proceeding to proceed in a manner or to

make a decision that is inconsistent with the
opinion of the Federal Court on the question. So,

the tribunal is bound with the opinion of the Court

on the question which has been referred.

Hepples(3) 12/12/91

Now, in our submission, the opinion of the

majority of the members of the court on that
question is an opinion which is favourable to the
Commissioner, and in our submission the question

ought to be answered conformably with those

majority opinions, especially when the question was

referred on the basis that it would finally

determine the issues between the parties, as are

set out in our submissions, and at base that issue

was whether or not an amount was properly included

in the income of the taxpayer or, rather, whether

he had demonstrated pursuant to section 190 of the

Assessment Act that the assessment was excessive.

If the matter had come to this Court as a

substantive appeal then, it is submitted, it is

perfectly clear that the question would have been

determined conformably with the way we suggest the

question should now be determined. In other words,

it would be held that the taxpayer had not

demonstrated that the assessment was excessive and

we refer in our outline to the practice of the this

Court, to the practice of the House of Lords and to

the practice of the Supreme Court of the United

States. And, indeed, in a dissenting judgment in

the Tidewater case, that is referred to in our

submissions, Mr Justice Frankfurter said in

relation to that case, at page 1948 of the report:

A substantial majority of the Court agrees

that each of the two grounds urged in support

of the attempt by Congress to extend diversity

jurisdiction to cases involving citizens of the District of Columbia must be rejected -

but not the same majority. And so,

conflicting majorities in combination bring to

pass a result - paradoxical as it may appear -

which differing majorities of the Court find

insupportable.

So, in our submission, there is nothing at all odd

or unusual in the answer which we propose.

In those circumstances, it is submitted, there

must be some very substantial reason why the

question should be answered otherwise. And, in our

submission, there are statement in this Court which

suggest that there is no such reason.

McHUGH J:  Can I just ask you about this. I had the feeling

that the nature of the case changed quite

dramatically, that from the beginning the
Commissioner's case was that the relevant asset

that was being disposed of was an asset of the

taxpayer; namely his right to work. For example,

the stated case, itself, makes no reference to

goodwill or anything like that. That seems to have

Hepples(3) 6 12/12/91

been an afterthought to get a peg on which to hang

the arguments after what seems to me to have been

the primary argument of the Commissioner was

rejected.

MR SHAW:  The submission that Your Honour suggests, the

initial submission, was never put, Your Honour. It

was never suggested that the asset disposed of was

the right to work, never.

McHUGH J:  Even though it takes up so much of the judgments

in the Full Court?

MR SHAW: No. That matter has not been argued. It may be

said that answering the question in the way that my

learned friend suggests, or making the declarations

which Your Honour the Chief Justice has suggested,

would serve the purpose of maintaining legal

principle, but this Court has said expressly that

that is not the primary object of exercising

judicial power and, indeed, in Fencott v Muller,

152 CLR 570, at page 609 the majority of the Court,

consisting of Your Honour the Chief Justice, and Justices Murphy, Brennan and Deane, said at 609:

But the primary purpose of exercising judicial power is not the maintenance of legal

principle: that is incidental to the

determination of the dispute in hand.

That is at the end of the paragraph at the top of

the page. So that what the Court ought to be

looking at, in our submission, is the determination

of this dispute, and this dispute between these

parties and, moreover, in Stack v Coast Securities

which is in 154 CLR 261 - that is not on our list -

at 293 in a joint judgment, Your Honour

the Chief Justice and Justices Brennan and Deane,

said this:

It would be contrary to the advice of the

Judicial Committee in Nelungaloo, cited by

Walsh Jin Felton v Mulligan, to approach the

provisions in Ch. III -

that is Chapter III of the Constitution

on the footing that they require courts
exercising federal jurisdiction "to dissect
out of an entire legal question one of the

component issues it involves and to submit it

for decision in artificial isolation".

And, our submission is that the approach which is suggested does precisely that.

Hepples(3) 7 12/12/91

This problem is one which is discussed by

Justic~ Murphy in another context in Miller v TCN

Channc.L Nine, 161 CLR 556, at page 580. There,

His Honour said, in the paragraph that starts under

the number 2:

Seeking the opinion of the Court by a

stated case presenting separate questions

causes a difficulty. For example, a majority
of justices may answer No to each question,

yet a majority may be of opinion either s 92

or an implied guarantee prevents the

application of the sections to the defendant.

The problem of framing the questions so that

there is no possibility of a distorted result

was agitated in the preliminary proceedings in

Uebergang v Australian Wheat Board -

and there is a reference -

An example of where the adoption of

separate questions would have distorted the

ultimate result is Queensland v The

Commonwealth. There, a majority was in

favour of the view that if a previous decision

was wrong it should not be followed and a

different majority was in favour of the view

that the previous decision was wrong. Had

these questions been asked separately, and the

logical result of those answers been treated

as decisive, the previous decision would have been overturned even though a majority of the

Court was i~ favour of adhering to the previous decision.

A civil or criminal appeal also provides

a useful illustration of this point. If an

appeal is made on two or more grounds,

ordinarily the reasons of each justice are for

or against allowance or dismissal of the

appeal. If each ground of appeal was decided

have a majority on either ground but a	as a separate question, the appellant may not
majority of the Court, for disparate reasons, may consider that the appeal should be
allowed.

McHUGH J: That was what happened in Verwayen, there was a

majority against the appellant in Verwayen on every

ground, but the appeal succeeded.

MR SHAW:  Yes, that is so, Your Honour, and there are other

examples. And His Honour goes on:

As I understand it, the practice has been to refuse to poll the Court on separate issues. The Court bases its order on the whole of the

Hepples(3) 8 12/12/91

issues. Here the real question is whether the

defendant is entitled to protection either

under s 92 or under an implied guarantee.

And, of course, here the question is: was the

amount assessable under either M6 or M7.

GAUDRON J:  But why does one not approach this on the basis

that the question itself distorts the result? The

question itself does not reflect the proper

application of the subsection.

MR SHAW: Because, Your Honour, the ultimate question is

whether the taxpayer has demonstrated that the

assessment is excessive - that is section 190 of

the Act - I do not mean on the question referred

but - - -

GAUDRON J: But the basic question is, is it not, whether or

not there was a disposal?

MR SHAW:  No, in our submission. If one looks at the

ultimate dispute between the parties, it is whether

the assessment is excessive.

GAUDRON J: Well, that in itself depends on a further

question. That is the question at the end of the

road.

MR SHAW:  So it is, and all that is being submitted,

Your Honour, is that one should ask the question at

the end of the road - - -

GAUDRON J: Well, I find that very strange when, if you ask

the question at the beginning of the road, it will

produce a different result.

MR SHAW:  Your Honour, it is perfectly true that that

approach is a possible approach, but it is not the

approach which has been adopted in either this

Court or in the Supreme Court of the United States

or in the House of Lords, and no doubt for very

good reason.

GAUDRON J:  One would have to look to see whether the

questions that were posed in those cases were the

first questions in the road to a conclusion or the

last ones.

MR SHAW:  The cases that we have referred to are all cases

which deal not with stated cases, so that they were
all cases where the question which arose was the

ultimate question, and what we are submitting is

that to answer this question in the way we propose

gives an answer which would be given to the

ultimate question if that were proposed. And, in

Hepples(3) 12/12/91

our submission, that gives a consistent approach

and, accordingly, the proper answer.

GAUDRON J: Again you see, I have this difficulty because it

seems to me the question is wrong.	To phrase it as
an either/or question seems to me to be wrong.	Why
do you not say, "If no to 6, is it taxable under
7?" That is to say as tt3 exclusive either/or
rather than - there are two different ways of
phrasing an either/or.

MR SHAW:  That may be, Your Honour, but in our submission,

it all comes back to the fact that, ultimately, if

one looks at the whole dispute, the ultimate

question is: has the taxpayer demonstrated that

the assessment is excessive? And, in our

submission, the majority of the court's view is,

"No, he has not."

There is this further difficulty. What I have

been urging at the moment is that the Court should

not attempt to deal with the matter differently

from the way in which it was dealt with in the Full

Court.	The next submission is that this Court is
not in a position where it can do so.	The reason
reference of a question pursuant to the provisions of section 45 of the Administrative Appeals	for that is this: the question gets here by way of not before this Court and was not before any court
and, except for this portion, remains before an
administrative tribunal which is not exercising
judicial power. The only matter which has come
before a court is the question which has been
asked.

DEANE J:  Does that mean we should, if we reject your first

argument, decline to answer the question as

inappropriate, send it back to the Full Court of

the Federal Court so it could act in accordance

with the view of this Court, and send it back to

the Administr~tive Appeals Tribunal so that the

question can be framed in an appropriate manner,

which would involve considerable legal expense and

achieve precisely nothing?

MR SHAW:  It would, Your Honour, but if the matter went back

to the tribunal it would be open to the tribunal

not to refer a question at all, it will be observed

that Justice Hartigan was somewhat reluctant to do

so, to rather determine the substantive question on the assessment, namely, whether or not the taxpayer

had shown that the assessment was excessive, and if

it did that the matter would, doubtless, come back here in due course through the various courts, and the matter would then be determined, it is

submitted, in the way which we have submitted it

Hepples(3) 10 12/12/91

ought to be determined in relation to this

question.

DEANE J: Surely, Justice Hartigan or whoever dealt with it

would, in those circumstances, look at the
judgments of the court and say, "It has been held

that it was not assessable under either subsection"

and act accordingly, and when it came back here the

members of this Court, on a taxation matter, would

follow the views of the majority in relation to

each subsection.

MR SHAW:  Your Honour, if the Court were to do that it would

be, in our submission, treating the opinions

delivered in this case as authority for something

for which they are not.

DEANE J:  Assume that there was a different method of

calculation under each of these subsections, and

the court held, by a majority, that neither
subsection applied, that some were for one

subsection, others were for another subsection,

would you really suggest that you could then say,

"Well, we will apply one of the subsections", or is

it just the coincidence that the calculations under

each subsection in this case correspond that alters

the position?

MR SHAW:  Your Honour, it is certainly the case but if the

case were different from what it presently is and

the law were differently from what it presently is

then, I suppose, the question would be whether or

not the assessment had been shown to be excessive

and one would take the lower of the two amounts

because the majority of the Court would be of the

opinion that to whatever extent the lower amount

went that the assessment was not excessive.

But, in our submission, one cannot and ought

not use the decision in this case, as it were,

forming a precedent for this case itself in

circumstances where, as Your Honours postulated, it

is not.

DEANE J: One final question: what if the questions had

been framed in accordance with the declaration

suggested by the Chief Justice which this Court

considers to be the appropriate way of framing?

MR SHAW:  Then there would have been a matter before the

court in those terms and doubtless they would have

been answered in that way; but that is not what

happened.

DEANE J:  So it is just a matter of the chance that the

questions were framed in a way which this Court

Hepples(3) 11 12/12/91

thinks inappropriate? That means that the taxpayer

in this case has to pay the relevant amount of tax.

MR SHAW:  Not at all, Your Honour, not a matter of chance.

It is a matter of, on the one hand, the good judgment of those involved in drafting the case and

drafting it in appropriate terms and the good

judgment of those and of Justice Hartigan in

avoiding the very difficulty which Justice Murphy

pointed to in Miller's case.

DEANE J:  But you are going back, you see. I put to you the

question on the basis that your first approach is

rejected and on the basis that the members of this

Court think the question was framed in an

inappropriate way and the appropriate way of framing it is in the manner suggested in the

Chief Justice's judgment.

MR SHAW:  Your Honour put to me that it was just a matter of

chance, and what I was submitting to Your Honour is

the terms of the case stated, having been carefully
thought about by those who were then appearing on
both sides of the matter and having been carefully
considered by Justice Hartigan, it seems more

unkind than usual to say that those terms happened

by chance.

DEANE J: Yes, I should not have said "chance".

McHUGH J: But it does come down to this, does it not,

Mr Shaw, that having regard to the reasoning of the court in this case on these identical facts, if the

formalism is allowed to prevail, this taxpayer will

be the only taxpayer who would be taxable.

MR SHAW:  The answer to that is no, Your Honour, that is not

so. If the facts were identical, this case would
form a precedent for taxability in that case,

because it is the decision which binds.

Your Honour puts to me that it is mere formalism.

In our submission, it is not mere formalism,

because the majority of the Court is of the opinion

that the amount should be included. That is not

mere form.

McHUGH J: But if you say was he taxable under (6), there is

a majority that says "no". Was he taxable under

(7)? There is a majority that says "no".

MR SHAW:  Your Honour, that is a matter of how one defines

the substance, and it is two different views about
the substance but, in our submission, it cannot be

said of the approach which we are urging on the

Court that it is formalistic and to condemn it for

that reason. What one has to do if one wants to

Hepples(3) 12 12/12/91

approach the matter as a matter of substance is

say, "What is the substance?"

McHUGH J: Look at it this way:  supposing the Court refused

to answer the question, and sent it back to the

Full Court and was sent back to the tribunal.

Looking at the reasoning, whoever sat would then

say, "This was excessive", if that presidential

member followed the reasoning of this Court.

MR SHAW:  There are two difficulties about that,

Your Honour. One is that that may be so and

McHUGH J: That is a difficulty for you.

MR SHAW: It is not, Your Honour, because, although it is so

in the lower courts, the question in our submission

really is: what would the position be here? The

position has got itself a bit distorted because of

what has happened. So really the question is:

what would the position be here, not: what would

very likely the people down below do?

The other difficulty is this, that if one

regards the matter in the way in which Your Honour
has suggested it might be regarded, one has, in our

submission, slipped into the problem which arose in

O'Toole v Charles David, because one has the matter

which is referred, namely the question. One has

the opinion of the court on that question as

binding pursuant to section 45(3), but as the

authorities now stand, the views of the court, if I

can call it that to distinguish it from the opinion

on the question in section 45(3), would be an

opinion in the nature of an advisory opinion and

the court should not do that, so the cases seem to

say.

So that if one says to oneself, "Can this

Court substitute for the question is asked some

other question?", the answer to that, it is

submitted, is, "No, there isn't power", because the
matter is the matter that has come.	If the

question is, "Can the Court make these declarations

outside the question", then the Court is doing

precisely the sort of thing which it said it will

not do in the sort of line of cases leading to

O'Toole v Charles David.

MASON CJ:  Mr Shaw, it may be a little late in the day to

draw your attention to this, but can I invite your

attention to page 518 at the end of the reasons for

judgment of Justice Dawson, and likewise at

page 523 in the penultimate paragraph in the

judgment of Justice Gaudron. There, each of

Their Honours seems to say that if there was not a

majority for the view that section 160M(6) applies,

Hepples(3) 13 12/12/91

then they would be of the opinion that 160M(7)

would apply.

In those circumstances, is not this discussion

somewhat academic? May it not be that there being

a majority against the application of
subsection (6), there is in the circumstances a

majority for the application of subsection (7)?

MR SHAW:  I thought it only made three. I would be

delighted to agree with Your Honour.

BRENNAN J: It makes five.

MR SHAW:  In that case, I am happy to agree with

Your Honour.	I had not appreciated that, I must
say.

BRENNAN J:  You are not actually agreeing with me, Mr Shaw.

You are answering a question I put.

MR SHAW:  Well, yes. I think it really depends on the view

of Your Honour Mr Justice Brennan, to make the

majority, I mean - - -

BRENNAN J:  Not at all. You have got three members of the

Court now who say that there is liability under

subsection (7). You have then got a majority of

the Court saying that there is no liability under

subsection (6). Upon that contingency, namely that

there is no liability under subsection (6),

Justices Dawson and Gaudron say, "In that event,

there is liability under subsection (7), and we

then join the three who have already so held".

MASON CJ: But there are not three. There is only one.

DEANE J: If you look at paragraph 5 of Mr Bloom's

submission, he gets his majority without

Justice Dawson or Justice Gaudron.

MR SHAW:  I do not think we made a mistake. I would be

happy to hear that we had.

MASON CJ:	No, I think your first answer was right.
TOOHEY J:	I think you have only one judge saying that

subsection (7) applies, namely myself, saying it

continually.

BRENNAN J: That is right.

TOOHEY J:	You cannot get beyond three on any -
MR SHAW:	I am happy to accept that correction, but I have

to confess I do not think I should.

Hepples(3) 14 12/12/91

MASON CJ:	The gift is being withdrawn.
MR SHAW:	Our submission is that looking at the matter as a

matter of substance, if the matter had come here on

an appeal to be determined under section 190 of the

Income Tax Assessment Act, it is clear the decision

would have been given in favour of the

Commissioner, in view of the opinions of the

members of the Court and, that being so, it is
submitted that it distorts the judicial process to

give an answer on the question referred which

precludes that answer, and that is what is being

suggested.

In our submission, our approach is to look at

what is the fundamental substance and say, deal
with that, and it is true, as Your Honour

Justice McHugh puts to me, that there are various

ways of getting to the answer and some are

inconsistent with the other, but it is accepted in

England - Lord Simonds says this happens all the

time, although nobody was able to find quite as

many examples as he apparently had experienced - it
seems to happen in the Supreme Court of the United

States and it has happened here.

In our submission, there is good sense in it

too because it really goes to the heart of the

question yes or no and, in our submission, to give

the answer which is suggested by my learned friend,

or to make the declarations which are suggested in

the Chief Justice's reasons for judgment, not only

is something which the Court ought not do or cannot

do, in our submission, it really distorts the

decision making process which has been accepted in

this Court and, in our submission, the Court should

not do it. If the Court pleases.

MASON CJ: Yes, thank you, Mr Shaw. Yes, Mr Bloom?

MR BLOOM:  Your Honours, with respect to my learned friend,

distortion is really a little bit of the pot

calling the kettle black. The reasoning of this

Court is that there was no disposal, that is the

majority decision on M(6) and the majority decision

on M(7). It follows that Part IIIA cannot apply,

and it follows that there can be no accessibility

under ZO, tracing through from z and ZC, and one

cannot add the minorities to try and get around

those clear majorities, with respect. And the

differences between cases like Verwayen and this

case is the mutual exclusivity of M(6) and M(7).

This is not a case of estoppel or waiver which can

live together, but a case of one subsection which

cannot live with the other, and the finding by

Justices Dawson and Gaudron is that where M(6)

applied M(7) would not.

Hepples(3) 15 12/12/91

McHUGH J: But supposing a case had come up here on appeal

without questions, you are appealing against an

order of the Full Federal Court dismissing an

appeal, you would lose. You could not show that

the decision was wrong because there would be a

majority against you.

MR BLOOM: This is of seven Justices in this Court,

Your Honour?

McHUGH J: Yes.

MR BLOOM:	Your Honour, with respect, the orders that would be made would be similar orders, in my submission,
to those proposed.

McHUGH J: It would be appeal dismissed.

MR BLOOM:  We think not, with respect, Your Honour, because

there would be the very first step to be found.

The Court would go to the question of, "Has there

been a disposal triggering the operation of a

part?", and if the conclusion of the majority on

the only two subsections argued was that there had not been, then the decision that would follow that

would be that there is no assessability, with

respect, the same decision which we say this Court

can now give if it wants to answer the specific

questions. There is no assessability because there

was no disposal under M(6) and no disposal under

M( 7) •

McHUGH J: But if you were appealing, for instance, the

Chief Justice, Justice Deane and myself would have

allowed the appeal, but Justice Toohey would have

refused the appeal because he held it was caught by

(7), and Justice Brennan would have refused it

because he held it was caught by (6), and

Justices Dawson and Gaudron would have dismissed it

because they held it was caught by both.

MR BLOOM:  But if that were the order made by the Court,

Your Honour, surely the question would arise, of

anyone looking at the judgment, "Where was the

disposal that triggered the operation of

Part IIIA"?

McHUGH J: But that is another issue.

MR BLOOM: With respect, where it is - - -

McHUGH J: It also happened in Verwayen, but in Werwayen

there were 4 : 2 against the plaintiff on estoppel

and on waiver.

MR BLOOM:  But there was not that mutual exclusivity,

because Your Honours Justice Dawson and

Hepples(3) 16 12/12/91

Justice Gaudron have said, "If (6) applies, (7)

does not"; so it is not just a question of taking
two for (6) and two for (7); two of the minority
for (6) and, indeed, we think, Justice Brennan as

well, three of the minority for (6) say, (6), not

(7). So you cannot combine a minority of (6) and a

minority of (7) to get a majority for a disposal.

That is the difficulty, and that is the difference,

with respect, between this and Hawaiian and the

other cases.

McHUGH J: But it is a question of what the issue is, and on

an appeal the issue would not be whether there had

been a disposal, the issue would be whether the

order was right.

MR BLOOM:	The issue on an appeal would be, as Your Honours have said in Daleo, whether the assessment is
excessive, as my learned friend put it, and that
must be answered as to whether the amount should or
should not have been included in the assessable
income, and that in turn must be answered, in the
case of a part which is conditioned upon - almost
like a jurisdictional fact - finding that to exist
first.  Where the finding of the majority of the
Court is no jurisdictional fact, then it does not
matter what the minority would say.  It is that
sort of a finding, Your Honour - we would like to
say, Your Honour.

Your Honours, as to the question of power, as

we understand it our learned friends concede that

if the order the Commissioner wanted made were

made, that would be an order in exercise of a

section 73 jurisdiction, so the Court is exercising

the appellate jurisdiction under section 73 of the

Constitution. Now, that gives this Court a fairly

wide power, in our respectful submission. In

Charles David v O'Toole, 171 CLR 283 to 284, in the

joint judgment, Your Honours Justice Deane,

Justice Gaudron and Justice McHugh said that

section 73 is not to be construed in a narrow and

legalistic way and, when one goes to the companion

section in the Judiciary Act, section 37, that ·

gives the Court the right to:

affirm reverse or modify the judgment -

which includes any order, of course, by the

Judiciary Act -

appealed from

DEANE J:  Mr Bloom, would it matter, from your point of

view - and I am not suggesting this is the

position, but would it matter if the Court were to

say that, "To answer the question framed with a

Hepples(3) 17 12/12/91

simple answer would cause injustice, and the

question should have been framed as two distinct

questions;	we simply decline to answer the
question."?

MR BLOOM:	And remit it?
DEANE J:	No, not amend it, simply decline to answer it.
MR BLOOM:	Do Your Honours remit it then to the Federal

Court, on that basis?

DEANE J: Yes.

MR BLOOM:  There is only the question of cost and

convenience, Your Honour, and what we are really

submitting with respect, is that under section 73

of the Constitution and section 37 of the Judiciary

Act, Your Honours can do that here.

DEANE J:  I should have said set aside the answer given by

the Full Federal Court and decline to answer it.

MR BLOOM:  Yes, well, that is an alternative with which we

could live, Your Honour, with respect, but it is

not necessary that Your Honours have to do that, in

our submission, having regard to Your Honours'

powers.

DEANE J:  And one only reaches the question if one thinks

that the question posed should not be given a

simple answer.

MR BLOOM:  Yes, Your Honour. And we would ask Your Honours

to either do what the Chief Justice has suggested

or, alternatively, to say that this amount is not

assessable in the absence of a majority finding on

disposal, pursuant to one or other of M6 or M7.	If
Your Honours please.

MASON CJ: Thank you, Mr Bloom. Mr Shaw, do you want to

respond to the last question Justice Deane put to

Mr Bloom?

MR SHAW:  I thought that His Honour put that question not

quite precisely but more or less.

DEANE J: It was a different question, but it was only put

on the assumption that one was not convinced by

your main argument. What I said to Mr Bloom was,

in that event, if one thought that your main

argument should be rejected and that to give a

single answer to this question would be unjust, in

view of your jurisdiction argument, what objection

would there be to our simply setting aside the

answer of the Full Federal Court, for the reason

that that court should not have answered that

Hepples(3) 18 12/12/91

question, and declining to answer the question

ourselves.

MR SHAW:  The inconvenience of that, Your Honour, would be

that the matter - using ttmatter" gets one into

trouble in this area - but the thing would go back

to the AAT, or at least the AAT would have to

determine the reference to it. There could then be

an appeal to the Federal Court on a matter of law.

DEANE J:  But that would make it quite clear to the AAT that

this Court thought it should deal with the matter

on the basis that the payment was caught by neither

of the subsections, that being the view which

reflected the conclusion of the majority of this

Court.

MR SHAW:  Your Honour, that would really raise the question

of whether the taxpayer had demonstrated that

the -

DEANE J: That takes it back to your first argument if that

is right.

MR SHAW:  I do not know that it does, Your Honour, because

it would then find its way back, and the question

is what was the effect of what this Court had done

in this case, so one goes round in circles.

DEANE J: Perhaps if we added a paragraph saying, in the

event we were of that view that the Administrative basis that the majority of the High Court is of the

view that the payment is caught by neither

subsection.

MR SHAW:  Your Honour, I really said why the Court should

not do that.	If it were to do that, it would be
giving advice.

DAWSON J:

Mr Shaw, what if there is a taxpayer in exactly

the same position as the taxpayer in this case, or

after this is all over, who resists the

Commissioner's claim that he is liable to capital

gains tax, and it goes through the courts.

Inevitably, he would be held successful, that he

was not liable to pay the tax - - -

MR SHAW:	No, liable, we would submit.
DAWSON J:	Why?
MR SHAW:	Because the decision is what is binding, not the

reason.

GAUDRON J: But the decision would be a decision in relation

to a particular question, and if the taxpayer had

Hepples(3) 19 12/12/91

lawyers who read this judgment, they would frame

the question differently and get a different

result.

MR SHAW:  They could not frame the question differently.

GAUDRON J: Yes, of course, they could, because there are

always two ways of framing an either/or question.

I mean, this is fundamental logic. There are two

ways of framing an either/or question: one on the

basis that they are mutually exclusive, and the

other on the basis that they are not.

MR SHAW: But, Your Honour, Your Honour is supposing a case

stated or a question referred. It is certainly
true that questions referred may be drafted in all
sorts of different ways but if there were such a

taxpayer, the ultimate question in relation to him

would be on an objection by him whether he - just

as this taxpayer - had demonstrated pursuant to the

terms of section 190 of the Income Tax Assessments

Act whether his assessment was excessive.

GAUDRON J: But the ultimate question depends on the way in

which you frame the arguable part of the first

question.

MR SHAW:  What I am putting to Your Honour is that, on an

objection, there is one question and one question

only.

DAWSON J: That question would have to be answered in favour

of the taxpayer. You look at Hepples case and

there is a majority of the Court that say, in

relation to each of the subsections, it does not

apply. Maybe the result in this case binds the

taxpayer, but it is the ratio, what the case stands

for, that binds those who decide the subsequent

objections, and is it not an injustice that a

taxpayer in that situation should succeed on the

basis of the very case in which this particular

taxpayer does not succeed.

MR SHAW:  Your Honour, it depends on whether or not what

Your Honour has put to me about what the ratio of a case is is correct and - - -

DAWSON J: The ratio is that neither section applies.

MR SHAW:  Well, Your Honour, we do not accept that. Our

submission is that it is the decision which makes

the binding element.

DAWSON J: That is only a decision as between the individual

parties. It is an artificial result.

Hepples(3) 20 12/12/91

MR SHAW:  Your Honour, I am afraid I cannot cite the

authority at the moment, but my recollection is

that Chief Justice Barwick very often said in

relation to decisions something which I might not

be now saying, but at least I am trying to. But it

is the decision, not the reasons.

McHUGH J: Dickinson's Arcades is one of the cases.

MR SHAW:  I do not think I am putting something nobody has

ever said before.

DAWSON J: If that is so, Mr Shaw, if it is merely the

decision, then it has no relevance on the

particular facts, the particular case; it has no

relevance in subsequent cases. It is the mere

decision. At the moment you look beyond that in

another case you must go to the reasoning of the

Court.

MR SHAW: There is the case that His Honour referred to,

Dickinson's Arcades, and Dennis Hotels I think, are both cases where it is the decision that binds

despite the fact that one has some trouble in

finding reasons in the sense that Your Honour is

speaking of. Our submission is - - -

DAWSON J: That may apply where there is a difficulty in

finding the reasons, but it certainly, in my view,

would not apply where there is no difficulty in

seeing what the reasons are.

MR SHAW:  I think the difference between us, Your Honour,

lies in - Your Honour says, "That is the mere

decision", and we say, "It is the very decision".

It is just a question of how you look at the ratio.

BRENNAN J:  The real problem is this, is it not, Mr Shaw,

that if the matter went back and then came back

once more to this Court as an appeal, if the

members of this Court adhered to the view which

Commissioner would succeed? they had expressed in the first instance the

MR SHAW:  Yes.

BRENNAN J: But if, on the other hand, the members of the

Court were to say the majority is against the

Commissioner on (6) and on (7), and on that account

those who were in favour of imposing liability

would change the judgment in deference to the

majority view expressed thus far, then the

Commissioner would not succeed.

MR SHAW: Absolutely so, Your Honour.

Hepples(3) 21 12/12/91

BRENNAN J: Well then, I suppose it is a question of the way

in which this Court would regard the authority of

the decisions thus far given as applicable to the

future conduct of this litigation.

MR SHAW:  Yes, and Your Honour what we are really saying is

that one should give the decision in this case as

if it were being given for the first time on the

objection.

BRENNAN J: Well, that may be so to give it for the first

time, but the real question is: what would we say

if we were giving it for the last time?

MR SHAW:  What I meant by "the first time" was answer the

question in a way which is not affected by

precedent, is what I meant. So that I am looking

at the last question, but I am submitting to the

Court that it should approach the answer to this
question having in mind the difficulty that

Your Honour has articulated, but answering this

question in the light of the way that question

would be answered on an objection if this question

had not been referred, and so the Court were not

troubled by the precedential, if that is the right

word, effect of what has been said in this case.

BRENNAN J:  I suppose it raises questions of whether there

is a res judicata or not, does it not?

MR SHAW:  It would raise that, but the whole thing has come

here on this very basis. Justice Hartigan said, in

reporting the argument:

Mr Handley submitted that a decision in

the stated case would dispose finally of the

issue between the parties before the Tribunal. He also submitted that in the circumstances of this case costs would be saved and a final

decision expedited -

and then he goes on and says some other things,

including that -

the case stated would be one of a final

nature -

and goes on to say that -

Mr Sullivan for the applicant joined in

the request to state a case. He submitted

that the facts are within a narrow band and

they are not in dispute. He also submitted

that the answer to the case stated would allow

the matter to be disposed of thereafter -

Hepples(3) 22 12/12/91

and so on. So, it has all come here on the basis

that this is the answer and, in our submission, it

should be treated in that way and if one does treat

it in that way and one sees that the question

ultimately is the section 190 question, namely,

whether the taxpayer has demonstrated that the

assessment is excessive, it follows that the

question should be answered as we suggest. If the

Court pleases.

MASON CJ: Thank you, Mr Shaw. Mr Bloom, I do not know

whether the questions put to Mr Shaw go beyond what

you were replying to earlier. Is there anything

you wish to say that arises out of the discussion

between the bench and Mr Shaw?

MR BLOOM: Only one thing, perhaps, Your Honour, and that is

that if one examines the majority upon which the

Commissioner would rely, there is no reason for

decision common to that majority and, therefore, it

cannot be a majority reflecting the decision of

this Court, with respect. If Your Honours please.

MASON CJ:  Thank you, Mr Bloom. The Court will consider its

decision in this matter.

AT 10.56 AM THE MATTER WAS ADJOURNED SINE DIE

Hepples(3) 23 12/12/91