Macoun v Commissioner of Taxation

[2015] HCATrans 112

[2015] HCATrans 112

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S1 of 2015

B e t w e e n -

ANDREW JOHN MACOUN

Applicant

and

COMMISSIONER OF TAXATION

Respondent

Application for special leave to appeal

FRENCH CJ
BELL J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 15 MAY 2015, AT 11.51 AM

Copyright in the High Court of Australia

MR R.J. ELLICOTT, QC:   Your Honours, I appear with MS M.J. HIRSCHHORN and MR M.J. LEIGHTON‑DALY, for the applicant.  (instructed by Hazen Hollander)

MR J.O. HMELNITSKY, SC:  May it please the Court, I appear with MS T.L. PHILLIPS, for the respondent.  (instructed by Australian Government Solicitor)

FRENCH CJ:   Yes, Mr Ellicott.

MR ELLICOTT:   Your Honours, this is, perhaps, an unusual case to come before this Court, not because of the principles involved but simply because of its extension into other areas geographically.  It is of some importance that the superior courts of this nation do, to some extent, reflect on the views that are adopted in other countries.  This is a case where there is a narrative, in effect, of persistence on the part of the Commonwealth – both the Parliament and the Executive – from early on in the history of the United Nations in relation to specialised organisations until at least 1988.  It is a narrative you will not find in the judgment.  It is a narrative which one would have expected would have been told.

The effect of the narrative is that really until 1988 the pension payments would have been exempt from tax under Australian law. The provision which was in force at the time this Act came into force in 1963 was section 23(y) of the Income Tax Assessment Act.  That provision actually was made the main provision because under the regulation that came into force in 1962 – that is 1962 regulations which were passed under the 1948 Act – the 1948 Act being a repeal by the 1963 Act ‑ those regulations had a section in them that, in effect, gave way to any other provision which would deal with one of the privileges.  The privilege here, of course, being exemption from taxation.  One found it in the Income TaxAssessment Act 1936 and it is a provision which your Honours will find is located at page 103 and the form it took in 1962, or at the time this Act was passed:

the official salary and emoluments of an official of a prescribed organization of which Australia and one or more other countries are members, to the prescribed extent and subject to the prescribed conditions.”

There was a prescription and that is regulation 4AB(2)(c) which you will find at 97.  At the foot of page 96:

For the purposes of paragraph (y) of section 23 of the Act, the organizations specified –

and the bank was one of them ‑

. . . and emoluments of an official of such an organization . . . exempt from income tax –

And then (c) ‑

in the case of an official . . . who is a resident of Australia, to the extent that his official salary and emoluments are for services rendered out of Australia, and, if the official is not an Australian citizen . . . performing his official duties, to the extent also that his official salary and emoluments are for services rendered in Australia”.

Clearly enough, section 23(y) would make the pension payments exempt from tax and that was not repealed until 1988. But, in 1986 there was a change and that change was effected by regulations being passed but also by the then government deciding that there would be an accession to the Convention which was absolute. In other words, that it was – there had been an earlier accession in 1962, or thereabouts, which attempted to reserve the right in relation to taxation. As a result of that, it was rejected as an accession. So, Australia did not actually accede to this Convention until 1986. On 9 May 1986, that accession was explained by Mr Hayden, and your Honours will find that at 114. It is just important to see it in its form – at line 20:

It will be recalled that on 20 November 1962 Australia presented to the Secretary‑General of the United Nations an Instrument of Accession to the Convention containing several reservations.  Included among these reservations was one reserving to Australia the right to tax its residents in respect of the salaries and emoluments received by them from the agencies.  In view of the objections expressed . . . the Instrument was never accepted . . . Australia carefully reconsidered its position in respect of the Convention before acceding to it on 9 May 1986, and was pleased to have done so without reservation.

The actual regulations of 1986, they were promulgated on 24 April 1986.  They are the new regulations and they are the ones that are now the subject of these proceedings.  But at that time ‑ ‑ ‑

BELL J: Section 23(y) ‑ ‑ ‑

MR ELLICOTT:   ‑ ‑ ‑ that reservation was – that was done and it was contemporaneous.  It meant that the Executive and, indeed, the Parliament because it did not do anything about the regulations, it meant that there was unanimity between the Executive and the Parliament that item 2 would apply and that, therefore, the pension payments would be exempt.

You will not find any of that in this judgment that we are attacking.  It has to be borne in mind throughout that these immunities and privileges are not for the benefit of individuals, they are for the benefit of supporting the organisation.  An important thing – important characteristic of it is that the organisation itself, in the infancy of Bretton Woods and the setting up of the United Nations, there are degrees of scepticism between what I will call the private section and the United Nations’ organisations as to the effectiveness.  It has always been a very important matter that the United Nations’ bodies be able to operate at a top level.  The attraction of people to those positions – because they are the face of the organisation – demands that there be equality between – equality between, say, the private sector and the activities that they are performing.

So, in the course of their fulfilment of their functions they will have a very qualified body of people.  The tax exemption is obviously a very great attraction to people to give up the difficulties, or whatever they may be, their family life, travel distances.  It gets a little bit easier now but the fact is that there are many Australians who are either interested in it or involved, and we have given the numbers in relation to that, and there is a broad involvement of people in the public in Australia in this particular issue.

FRENCH CJ:   Did the joint judgment consider the interaction between the Convention and the provisions?

MR ELLICOTT:   No, your Honour.

FRENCH CJ:   Because Justice Perram really seems to have – in the one that is ‑ ‑ ‑

MR ELLICOTT:   Justice Perram – he dealt with the Convention as such.

FRENCH CJ:   Yes, and went to, at paragraphs 58 and 59, I think, the last couple of paragraphs of his judgment at 41, he directs attention to what he says as an inconsistency between the legislation and the Convention.

MR ELLICOTT:   Then his mind turned suddenly 180 degrees and he adopted the majority ‑ ‑ ‑

FRENCH CJ:   Well, I suppose it is a question ‑ ‑ ‑

MR ELLICOTT:   But he saw the light.

FRENCH CJ:   It is always going to be a question, is it not, when you look at the interaction between a statute and a Convention to which the statute might be said to be giving effect as to whether there are constructional choices available on the text of a statute which would make it compatible with the Convention.  Now, it seems to me that what Justice Perram has said in the end is that there are not, the text is too intractable. 

MR ELLICOTT:   That is what he said, and when you look at the judgment at page 34, it is the judgment of the plurality.  They first of all talk about a “bottom‑up” method – whatever that is ‑ but there is no problem here, your Honour, in relation to that because the starting point is obviously the Act, it is elementary, and that the ‑ ‑ ‑

FRENCH CJ:   By “bottom‑up” I think they are using the regulations to construe the Act.

MR ELLICOTT:   Yes.  Nobody was doing – we were not putting in a submission.  Mr Tamberlin was not doing anything to offend that particular simple rule of law. 

FRENCH CJ:   That does not mean – and I think I have said that somewhere in some judgment which might have been referred to here somewhere – that you can look at regulations to infer the purpose of the legislation if they are brought concurrently as part of a scheme and that may inform constructional choices within the legislation itself.

MR ELLICOTT:   Yes, well, you can.

FRENCH CJ:   Yes, treating them as a kind of extrinsic material.

MR ELLICOTT:   I do not want to depart from that, your Honour.  The fact is – in a sense the most important word is “confer”.  “Confer” is to give, to bestow, to present, it is a gift, and in the regulations ‑ ‑ ‑

BELL J:   The point is that the conferral was at the time the person was – at the time the person held office.

MR ELLICOTT:   Yes.

BELL J:   That is the point, is it not?

MR ELLICOTT:   That is the point. 

FRENCH CJ:   We might hear from your opponent now, Mr Ellicott.

MR ELLICOTT:   If your Honour pleases.

FRENCH CJ:   Yes, Mr Hmelnitsky.

MR HMELNITSKY:   Thank you.  Your Honours, may I deal firstly with what is said to be the error in the Court below.  The issue, as your Honours have seen from the written material, is solely whether or not Mr Macoun’s pension was exempt by reason of domestic legislation.  In that regard, your Honours, may I take the Court very briefly to three aspects of that to, as it were, set the scene for the way in which the issue was resolved in the Full Court.  First, might I show your Honours, very briefly, the text of section 6 of the legislation which commences at page 204 of the application book?  At page 205, your Honours see the particular provision on which the applicant relies and your Honours see that within paragraph (d) in section 6(1), there is the ability for privileges and immunities to be conferred on two classes of persons, first identified in paragraph (i):

upon a person who holds an office –

and in subparagraph (ii):

upon a person who has ceased to hold such an office –

So we draw particular attention there in the primary provision of the legislation to that distinction between those who hold an office and those who have ceased.

There is reference within section 6(d) and, indeed, throughout section 6 to the terms of particular schedules.  Section 6(1)(d) refers to Schedule 4 which your Honours find at page 210 of the application book.  There, again, your Honours see, as part of the structure of the schedule that same distinction as between serving officers and former officers reflected.  There is Part I which describes the privileges and immunities that may be enjoyed by a current officer, and in Part II the privileges and immunities that may be enjoyed by a former officer, and there is overlap between them.  That which is provided in II is also provided in I, we say recognising the different roles that those two parts of the schedule have to play.

The scheme of this legislation is that one only enjoys any of these privileges and immunities if the regulations have conferred them on you.  In that regard, can I take the Court to regulation 8 which appears at page 213 of the application book?  Your Honours will see – again in the terms of the regulation – in regulation 8(1) on the one hand, and in regulation 8(3) on the other hand – the self‑same distinction between the privileges and immunities enjoyed by current officers, on the one hand, and former officers, on the other.

So, your Honours, the question of construction that confronted the Tribunal and which again confronted the Full Court was how to determine what privileges and immunities the applicant might enjoy, if any, having regard to the distinction that is drawn there and having regard to the fact that in the 2009 and 2010 years, he was a former officer of the World Bank.  The way that the Tribunal approached the question your Honours will see, particularly, in paragraphs 41 and 42 of the Tribunal’s reasons at page 11 of the application book.  In those paragraphs, your Honours see the Tribunal’s conclusion in relation to what we say was the distinction to be seen in the statutory scheme and the Tribunal concluded that there was “no such dichotomy” and that – and I am picking up, your Honours, the first sentence in paragraph 42, that the language of the provision:

does not draw any such distinction or impose any requirement, or make any provision, that the person continue to hold office –

It is really, your Honours, the Tribunal’s conclusion that the pension that the applicant says ought not to be taxed is within the definition of emolument in Part I of the schedule.  It was really by way of that conclusion that the Tribunal reasoned to the result that it did, namely, that he was within the benefit of the section.  It was that reasoning, your Honours, that we say the Full Court, not unfairly, described as being a form of “bottom‑up” reasoning.  Whatever label one might attach to it, what the Full Court said about that reasoning, we say, was quite proper.  What their Honours said was that there is a need to have regard to the whole of the language of the provisions and to the structure of the provisions to discern the scope of the immunities that are conferred.  That, really, is all that the Full Court did.

One sees that, in particular, in the reasoning of Justices Edmonds and Nicholas at about paragraph 40 of their reasons at page 34 of the application book where their Honours describe that reasoning as being an example of, as it were, the tail wagging the dog.  Their Honours, in that vein were, we say, right to point out in paragraph 43 of their reasons at page 35 of the application book, that there is in the legislation – there is:

a clear dichotomy . . . between the privileges and immunities which apply to a person who holds office, and the immunities which apply to a person who has ceased to hold office.

That is a distinction and what they call a dichotomy that appears, as they point out, from the language of section 6, it is also to be found elsewhere in section 6.  It is also to be seen, as I have shown your Honours, in the regulations and in the schedule.

FRENCH CJ:   Does it matter when the entitlement to the emolument accrues – that being, in this case, the pension?  Presumably, the entitlement is complete upon the point of retirement.

MR HMELNITSKY:   It certainly is, your Honour, but in the scheme of this legislation what matters is when the emolument is received because the word that is used as a – for want of a better word – a source requirement in relation to this particular immunity is when the emolument is received.

FRENCH CJ:   No, the time you get the money in your hand is, as it were, can be distinguished from the time at which you have the entitlement to receive the money.

MR HMELNITSKY:   Yes, your Honour. 

FRENCH CJ:   Albeit, it is a periodical payment for the rest of your life or however the pension works.

MR HMELNITSKY:   Yes, and there are perhaps a few things to be said about that, your Honour.  At page 210 of the application book, your Honour sees the particular language that the schedule uses. 

BELL J:   So some form of termination payment that happens not to be paid until a week after you cease to hold office is not, for these purposes, an emolument received from the organisation as a holder of the office.

MR HMELNITSKY:   It is unlikely to fall within the ordinary meaning of the expression “emolument”, in any event, we would say, but if it were salary and if it were paid after a person had ceased to hold office, then the result may well be that it is outside the scope of the immunity.

FRENCH CJ:   Suppose you had a long service leave entitlement which you cashed out, as it were, at the time of retirement that also would not be covered by the immunity because you receive it maybe a week or two after you have gone.

MR HMELNITSKY:   That may be so, your Honour, but it would not have been so, of course, at the time that these provisions were inserted into the Act because there were other provisions in the Income Tax AssessmentAct that provided immunity in relation to payments of that kind. Section 23(y), which your Honours have seen, would likely have extended the immunity to deal with that. Subsequent to that, section 23AG, which your Honours do not have, would likely have done the same. As the scheme appears now, it may be that in relation to salaries, that the situation is as your Honour puts to me.

FRENCH CJ:   What do you say about the proposition that, as a matter of public international law, the Commonwealth is not permitted to levy income tax on Mr Macoun’s pension?  I do not put that as a matter of the correctness of the proposition but, rather, its relevance to whether special leave should be granted in this case.

MR HMELNITSKY:   Your Honour, one is ultimately drawn back, as your Honour suggested in argument to our learned friend, to the text of the statute as to what meanings it is capable of bearing.  Even Justice Perram who formed the view that Australia’s international obligation was not to levy tax on the pension was of the view that despite that there really was nothing in the Act that would allow him to construe the Act accordingly.  In other words, it really comes down to the difficulty that his Honour, we say, rightly identified at paragraph 59 of his reasons on page 41, which is that:

the legislation has been drafted with the specific intention of ensuring that pensions of employees of international organizations are subject to income tax.

BELL J:   If his Honour is right in his analysis of public international law, that is a conclusion that the legislation has been drafted intentionally to put us in breach of those obligations.  That is not a conclusion that a court would likely come to in construing domestic legislation. 

MR HMELNITSKY:   No, your Honour.  We do accept that.  But, we suggest there may be reason to doubt the correctness of his Honour’s conclusion as to the state of Australia’s international law obligations.  In one particular respect, which is that his Honour did not conduct – I do not say critically because it was hardly front and centre of anyone’s argument in the Full Court – but his Honour did not conduct a review, as it were, of State practice in relation to the taxation of pensions, nor was that a matter that was addressed in the Tribunal as a matter of State practice.

BELL J:   Mr Hmelnitsky, appreciating there may be great force to what you have put, as things stand there is a judgment of the Full Federal Court in which a justice has expressed the opinion that legislation has been drafted intending to produce a result that puts Australia in breach of its international obligations.  Why is that not a special leave point?  Perhaps to establish the very point that you make which is that it is not so clear that Australia is in breach of those obligations.

MR HMELNITSKY:   May I say two things about that, your Honour?  First, his Honour’s reference to intention we take to be a reference to the intention as discerned from the language of the section.  That is, it is the intention of the words as opposed to anyone’s actual intention.

BELL J:   Yes, accepting that.

MR HMELNITSKY:   Secondly, your Honour, on the question of leave, taking that matter into account and taking into account the other matters that the applicant invites the Court to take into account on the question of leave and, in particular, the size of the class of persons who may be affected by the outcome, there still, in our submission, does not appear to be a special leave question in relation to any of the reasoning that underpins the conclusion as to how the legislation ought to be construed.

In other words, leaving aside the outcome on the ultimate issue, namely, is Mr Macoun entitled to the immunity or not, if one looks to the reasoning that was employed in the Full Court and if one considers the reasoning that would needs be employed by members of this Court if leave were granted, there would be no contention in relation to it.  The outcome depends on the application of settled principles of statutory interpretation.  There is no dispute as to what they are.  In our submission, in those circumstances, all that is really put in issue by the special leave application is the ultimate issue and no aspect of the reasoning.

If leave is granted, we suggest, your Honours, that the case will be resolved in precisely the manner in which the majority of the Full Federal Court resolved it, that is, by reference to the text of the legislation and by seeking to discern the object and purpose of the legislation considered in its wider sense but having regard to the language of the Act.  In those circumstances, we suggest, leave ought not be granted and the application be dismissed with costs.  If the Court pleases.

FRENCH CJ:   Thank you.  There will be a grant of special leave.  I notice in your submissions, Mr Ellicott, that there was a reference to a special costs comfort which we would not be prepared to make as an attachment to the grant.  The question of the costs of the appeal, and so forth, will have to be determined in the light of the outcome.

MR ELLICOTT:   Yes.  I thought that special pleading related to the dismal prospect of losing, your Honour. 

FRENCH CJ:   Yes.  Well, that is right.  Nobody is going to immunise you against that.

MR ELLICOTT:   It does not arise, your Honour.  I appreciate that.

FRENCH CJ:   About half a day to a day?

MR ELLICOTT:   Yes, your Honour.

FRENCH CJ:   Mr Hmelnitsky?

MR HMELNITSKY:   I would think half a day, your Honour.

FRENCH CJ:   Half a day should probably suffice, yes.  Now, there is a timetable for filing of submissions.  The Court will now adjourn to reconstitute.

AT 12.20 PM THE MATTER WAS CONCLUDED