Morgan Equipment Co v UMW Corporation Sdn BHD

[2001] NSWSC 364

CITATION:	Morgan Equipment Co v UMW Corporation SDN BHD [2001] NSWSC 364
CURRENT JURISDICTION:	Equity Division Commercial List
FILE NUMBER(S):	SC 50068/00
HEARING DATE(S):	02/04/01 to 03/04/01
JUDGMENT DATE:	7 May 2001
PARTIES :	Morgan Equipment Co. -v- UMW Corporation SDN BHD
JUDGMENT OF:	Foster AJ at 1

COUNSEL :	Mr P.M. Wood - Plaintiff Ms R. McColl/Mr G. Parker - Defendant
SOLICITORS:	Clayton Utz - Plaintiff Allen, Allen & Hemsley - Defendant
CATCHWORDS:	Plaintiff - a company incorporated under laws of State of California in the USA. - Defendant - a company incorporated under the laws of Malaysia. - Litigation arises out of sale by plaintiff to defendant the whole of the issued share capital in its wholly owned subsidiary carrying on business in Papua New Guinea. - Sale agreement included sale of potential tax losses. - Issue arises as to appropriate currency of payment - American dollars or PNG Kina.
CASES CITED:	Hungerfords & Ors v Walker & Ors (1990) 171 CLR 125 Batagol v The Commissioner of Taxation of the Commonwealth of Australia (1963) 109 CLR 243 Commissioner of Taxation v Ryan (2000) HCA4 Australian Broadcasting Commission v Australasian Performing Rights Association Ltd (1973) 179 CLR 99, 109. Reardon Smith Line v Hansen-Tangen (1976) 1 WLR 989 at 995, 997 Codelfa Construction Pty Limited v State Rail Authority of New South Wales (1982) 149 CLR 337, 350, 352 Lesiputty v Murphy, 47 SR 433 and 436
DECISION:	(a) Judgment to be entered for the defendant.; (b) Plaintiff to pay the defendant's costs.

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
COMMERCIAL LIST
FOSTER AJ

MONDAY, 7 MAY, 2001

50068/00 - MORGAN EQUIPMENT CO - v -

UMW CORPORATION SDN BHD

JUDGMENT

1    HIS HONOUR: The plaintiff in these proceedings Morgan Equipment Co. ("Morgan") is a company incorporated under the laws of the State of California in the United States of America, having its principal place of business in that state. The defendant UMW Corporation SDN BHD ("UMW") is a company incorporated under the laws of Malaysia.

2    The present litigation arises out of the sale by Morgan, in 1993, to UMW of the whole of the issued share capital in its wholly owned subsidiary Morgan Equipment Pty Limited ("MEPL" or "the Company"), which was a company incorporated in and carrying on business in Papua New Guinea. The sale involved the execution by Morgan and UMW of an agreement described by them as a "Share Sale and Purchase Agreement for Morgan Equipment Pty Limited" ("the Agreement") in January 1993, which Agreement was subject to an immaterial amendment in March 1993. It was completed on 30 December 1993.

3    The evidence does not make clear the nature of the business conducted by MEPL, other than it consisted of the sale and servicing of heavy equipment and parts. It had made trade losses which could be carried forward and used as a deduction against profits in future years in accordance with the revenue laws of Papua New Guinea, which, in this respect, were the same as those of Australia. The Agreement included the sale of such potential tax losses. Their price was not included in the general price for the sale of the shares in MEPL. Their sale purchase and payment were the subject of a separate regime established in the Agreement, the provisions of which have led to a dispute as to their proper construction. Depending upon that construction, UMW has either paid in full amounts owing under these provisions or it has made significantly late payments, which have resulted in consequential losses to Morgan.

4    Apart from the issue as to the construction of these provisions, other issues may arise in the case, namely as to the appropriate currency of payment (i.e. whether it should have been made in American dollars or PNG Kina) and whether damages should be enlarged because of considerations said to arise under the principles of Hungerfords & Ors v Walker & Ors (1990) 171 CLR 125. As these latter issues do not arise if the construction contended for by UMW is correct, it is convenient to consider the question of construction at the outset.

5    The provisions of the Agreement which give rise to the tax loss issues need to be set out in full. They are as follows:-

"1. INTERPRETATION
(g) " Completion" means actual completion of the sale and purchase of the Sale Shares in accordance with the terms of this Agreement.
2. DEFINITIONS
(b) "Accounts" means the Company's audited balance sheet, profit and loss account drawn to the Accounting date, annexed as Exhibit A, including all applicable notes, statements and reports of directors and auditors;
(g) "Completion" means actual completion of the sale and purchase of the Sale Shares in accordance with the terms of this Agreement;
(n) "Income Tax Act" means the Income Tax Act 1989 of the Independent State of Papua New Guinea;
(z) "Tax Loss Carry Forward" means losses of the Company whether reflected in the Accounts, the books and records or the tax returns of the Company, which losses result in tax credits which can be utilized against payment of income tax in Papua New Guinea;
(aa) "Taxes" includes all taxes levied or assessed pursuant to the Income Tax Act or any other statute, ordinance or law, in Papua New Guinea or elsewhere, sales tax, payroll tax, group tax, PAYE, undistributed profits tax, land tax, water rates, municipal rates, stamp duties, gift duties or other provincial, or municipal charges or impositions together with any penalties of any kind assessed, charged or imposed in respect of the non late or short payment of the same;
5.(c) In addition to the Purchase Price, and as part of the consideration for the Sale Shares, the Purchaser agrees to pay to the Vendor, or its successors and assigns, a sum calculated as follows and subject to the provisions of this clause 5(c):
(i) The Purchaser will pay to the Vendor an amount calculated as follows:
50% of the Tax Loss Carry Forwards, multiplied by the applicable effective tax rates, as stated on the tax returns of the Company as at December 31, 1991, subject to adjustment for additional tax loss carry forwards which are accrued on the books and records of the Company through the Completion Date, if any.
(ii) Payments under clause 5(c)(i) will be due upon utilization of the tax loss carry forwards by the Company or upon a finding that taxable income should be imputed to the Company and thus subject to payment hereunder. For purposes of this Agreement, utilization will occur upon the filing of a tax return of the Company wherein a tax loss carry forward is used to reduce or eliminate the amount of Taxes payable by the Company. An imputation of taxable income would occur if, for example, the Purchaser or the Company engaged in actions reasonably calculated to transfer or reduce taxable income in Papua New Guinea in a manner inconsistent with the prior operating procedures of the Company. An imputation should not be made if such actions of the Company are consistent and in accordance with the then subsisting operating procedures of other companies owned or controlled by the Purchase4r. In this regard, Purchaser shall be entitled to assert interest charges incurred by the Purchaser on behalf of the Company and a management fee not to exceed 1.5% of annual sales of the Company.
(iii) In this regard, the Vendor will have the absolute right to inspect and audit the tax returns, books and files, including internal accounting records, of the Company and any other accounting, tax or other records of the Purchaser or its subsidiary corporations or entities to the extent that such records specifically relate to the Company and, if appropriate, to impute the income which was derived from the operations of the Company but were not accounted for in such a manner as described in Clause 5(c)(ii) above so as to constitute taxable income in Papua New Guinea.
(iv) For purposes of this Agreement, and in direct reference to the Company and the relevant tax laws of Papua New Guinea as the same shall apply, provided always that the tax loss carry forwards if utilizable and in repsect of which payment is to be made to Vendor or its successors or assigns hereunder, shall have to be utilized within a period of seven (7) years from the date they were first incurred, unless the laws and regulations of Papua New Guinea are amended to provide for a different period of utilization, in which case the appropriate period set forth in amended laws or regulations shall apply.
(v) The Purchaser will cause the Company to reflect the Tax Loss Carry Forwards on the books and records of the Company and its tax returns. The Purchaser will cause the Company to take all steps necessary to preserve and qualify the Tax Loss Carry Forwards. In no event will the Purchaser be required to make payment under this clause 5(c) unless the Tax Loss Carry Forwards are recognized as valid under the provisions of the Income Tax Act or in the event that the Company utilizes any portion of the Tax Loss Carry Forwards in the payment of Taxes payable by the Company which payment is related to the Asset Sale Agreement and the transactions contemplated therein.
(vi) The parties acknowledge that there have been writedowns of certain of Sale Assets on the books and records of Company which will create additional Tax Loss Carry Forwards. The Purchaser will cause the Company to reflect said Tax Loss Carry Forwards on the books and records of the company and its tax returns. The Purchaser will cause the Company to take all steps necessary to preserve and qualify these Tax Loss Carry Forwards. However, in the event that the Tax Loss Carry Forwards referred to in this clause 5(c)(vi) are not recognized as valid under the provisions of the Income Tax Act, the Purchaser will not be required to make payment therefore and shall not be held responsible to the Vendor in such an event."

6    It may be noted that the effective tax rate referred to in paragraph 5(c)(i) was 25% and that the provisions relating to the imputation of taxable income in paragraph 5(c)(ii) and the utilization of any portion of the Tax Loss Carried Forward in payment of taxes related to the Asset Sale Agreement referred to in paragraph 5(c)(v) do not call for consideration.

7    It is the contention of UMW that, on the proper construction of these provisions, no liability to make payment to Morgan could arise until the relevant Tax Loss Carried Forward had been accepted by the PNG taxation authority, by way of the issue of an assessment under the provisions of the Income Tax Act, which allowed the relevant loss as a deduction. In this regard, reliance was placed upon Batagol v The Commissioner of Taxation of the Commonwealth of Australia (1963) 109 CLR 243 and Commissioner of Taxation v Ryan (2000) HCA 4.

8    On the part of Morgan it was asserted that the provisions required that the appropriate payments be made to it when MEPL filed a tax return in which a claim for deduction based upon a Tax Loss Carried Forward had been made. This construction would require payment to have been made at significantly earlier points of time than the payments were actually made, in reliance upon the construction adopted by UMW.

9    A reading of the provisions of paragraphs 5(c)(i) to (vi) reveals a possible tension between paragraphs 5(c)(ii) and 5(c)(v) and (vi). There is the statement in 5(c)(ii) that payment "will be due upon utilization of the tax loss carry forward", which "utilization" is to "occur upon the filing of a tax return of the Company wherein a Tax Loss Carry Forward is used to reduce or eliminate the amount of taxes payable by the Company." In paragraphs 5(c)(v) and (vi), however, there is the provision that payment would not be required "unless the Tax Loss Carry Forwards are recognised as valid under the provisions of the Income Tax Act."

10    It is the assertion of Morgan that these latter provisions do not contemplate the issue of an assessment under the provisions of the Income Tax Act, in which the losses are accepted as allowable deductions, but are satisfied by the issue by the taxation authority of appropriate adjustment sheets in respect of the years of income in which the losses were claimed to have arisen, in the tax returns for those years.

11    At the outset, it may be stated that a consideration of the Agreement sufficiently indicates that there has been no attempt in it to reproduce the exact wording of the income tax legislation. The phrase "recognised as valid" does not have its origin in the legislation, nor does "utilization". Nor, it is agreed, does the definition of "Tax Loss Carry Forward", with its reference to "losses, (which) result in tax credits which can be utilized". These phrases, then, must be construed as part of a commercial agreement, in accordance with the legal principles relating to such construction.

12    Obviously the parties to the agreement did not intend to produce an unworkable situation in relation to the making of the payments contemplated in paragraph 5. In these circumstances, it is the Court's role to resolve, so far as possible, the apparent inconsistency between the provisions set out above. The Court should seek a construction, in these circumstances, which is relevantly "harmonious" (Australian Broadcasting Commission v Australasian Performing Rights Association Ltd (1973) 179 CLR 99, 109). The contract being a commercial one, it is appropriate to have regard to its apparent purpose and genesis (Reardon Smith Line v Hansen-Tangen (1976) 1 WLR 989 at 995, 997). If appropriate, regard should be paid to the "factual matrix" in which the contract found its origin as an aid to construction of doubtful terms. See generally per Mason J in Codelfa Construction Pty Limited v State Rail Authority of New South Wales (1982) 149 CLR 337, 350, and 352).

13    The general observation may be made that the agreement is an extensive and carefully drafted one having as its obvious purpose to provide for all aspects of the sale by Morgan to UMW of a subsidiary company as a going concern, the sale being effected by the transfer of the whole shareholding. The agreement is complex and covers a wide range of topics. The tax loss provisions are, although no doubt important, not the main focus of the agreement. As already stated, their sale and purchase was not reflected in the overall price for the sale of the share structure. It was obviously contemplated that UMW would pay Morgan only in so far as the losses were "utilized" in reduction of future taxable income of the subsidiary. At the very least, Morgan took the risk that the profit situation of the subsidiary in future years would not be such as to permit the "utilization". In those circumstances, of course, it would receive no payment for the losses. As against this, it would appear not unreasonable to suppose that UMW would not want to make payment to Morgan in respect of tax losses which it was unable to avail itself of because of their disallowance by the taxation authority.

14    I consider that the most convenient approach to the question of construction is to consider, in the first instance, the submission made on behalf of Morgan.

15    That submission founds primarily upon the wording of paragraph 5(c) (ii). It is submitted that it is the plain meaning of so much of that paragraph that does not refer to the question of imputation of taxable income, that the payments contemplated by paragraph 5 (c)(i) in respect of any particular Tax Loss Carry Forward should be made at the time of filing of a tax return was filed in which the relevant tax loss was "used to reduce or eliminate the amount of taxes payable by the company." This resulted from the provision that payment would be "due upon utilization" of the relevant Tax Loss Carry Forward, such utilization to "occur upon the filing" of the relevant tax return. It was said that any construction of the provisions of paragraph 5(c) which did not require payment to be made at this time would require the writing out of the agreement of the whole of the second sentence of paragraph 5(c)(ii).

16    The problem of the apparent inconsistency of this construction of paragraph 5(c)(ii) with the provisions of paragraphs 5(c)(v) and 5(c)(vi) could be overcome, it was submitted, by a construction of the phrase "recognized as valid under the provisions of the Income Tax Act" in 5(c)(v) and the equivalent provision in 5(c)(vi) which did not involve the concept of a successful claim for a deduction based upon the issue of an assessment by which the claim was accepted.

17    It was an integral part of this submission that the Court could and should have regard to certain documents which, it was contended, could properly be regarded as part of the factual setting of the agreement and could be called in aid of its construction.

18    Before considering these documents it is convenient to set out the schedule, which was the subject of agreement in the case, showing the dates of creation of the relevant tax losses, the dates of their inclusion in subsequent tax returns and the way in which they were so included. The schedule is as follows:-

DATE OF CREATION	DATE OF APPLICATION
TAX RETURN FOR PERIOD ENDING	AMOUNT (K)	TAX RETURN FOR PERIOD ENDING/	AMOUNT (K)
31 December 1989	397,632	31 December 1993	397,632
31 December 1990	2,089,619	31 December 1993 31 December 1994	1,257,852 831,767
31 March 1992	1,528,174	31 December 1994 31 December 1995	453,424 1,074,750
31 March 1993	8,049,749 ________ 12,065,174	31 December 1995 31 December 1996	2,894,330 5,155,419 12,065,174

19    The absence of a tax return for the period ending 31 December 1991 is explained by the Company's having adopted a different tax year, terminating on 31 March. It may be noted, also, that the last full financial year of the company prior to Morgan and UMW entering into the Agreement was the year ending 31 March 1992. The audited accounts and financial statements for this year were an exhibit to the Agreement and formed part of it.

20    Note 4 to these financial statements dealt with the topic of income tax. It included the statement:' "Future income tax benefits comprising accumulated tax losses of K2.5 million…have not been brought to account. The benefits will only be obtained if the company derives sufficient assessable income in the future to enable the benefits to be realized, the company continues to comply with the legally proposed deductibility conditions and no adverse legislative changes occur which could affect realization."

21    I am satisfied that the losses referred to are those appearing in the above schedule, as having been created in the tax returns for the periods ending 31 December 1989 and 31 December 1990. This is made clear, in my opinion, by reference to certain other documents. These are to be found at pages 491, 492, 493 and 494 of Exhibit "B". These are obviously documents forming part of the accounting records of the Company and would have been in existence prior to the date of the Agreement. Although objection was taken to them by the defendant on the basis that they were not shown to be part of the matrix of fact against which the agreement could be construed, I am satisfied that they fall within that description. There is nothing to suggest that, being such records, they were not open to inspection by UMW prior to the agreement. I am satisfied that they can be relevantly regarded as reasonably within the knowledge of both parties to the Agreement (Codelfa pp351, 2).

22    Document 491 is headed "Morgan Equipment Pty Limited" and is entitled as a "Statement of taxable income for the year ended 31 December 1989". It consists of a series of calculations resulting in the statement "Income tax loss - K397, 632." At the foot of the page appear the words "Please confirm the loss carried forward." It is clear that this document formed part of the material in the Company's tax return for the period ending 31 December 1989.

23    Document 493 is an Adjustment Sheet obviously issued by the taxation authority. It refers to Morgan Equipment Pty Limited and quotes a file number which corresponds with a similar reference on document 492. In the body of the document it is stated "Loss Carry-forward is K397632". I am satisfied that document 493 is, relevantly, an indication from the taxation authority that the income tax loss shown in document 491 was confirmed as being a loss carried forward in that amount.

24    Document 492 is a similar statement of taxable income. After calculation it shows "income loss to be carried-forward K2.089,619". It then includes a "summary of losses" being K397,632 for year ended 31 December 1989 and K2,089,619 for year ended 31 December 1990 totalling K2,487,251. The document ends with a similar request that the losses carried forward be confirmed.

25    Document 494 is a similar Adjustment Sheet issued by the Taxation Authority. It confirms the loss for the year ended 31 December 1990 as being K2,089,619 and shows "losses carried-forward as at 31 December 1990" confirmed as K2,487,251.

26    I am satisfied, as was submitted by counsel for Morgan, that the reference in note 4 in the audited accounts, referred to above, relates to the tax losses thus confirmed in the Adjustment Sheets from the taxation authority. Accordingly, it may be taken that, as at the date of the Agreement, the parties contracted upon the basis that there was in existence a confirmed tax loss which could be carried forward being K2,487,251 as at 31 December 1990. It was counsel's submission that the two amounts comprising this total were each "Tax Loss Carried Forwards" which had been "recognized as valid under the provisions of the Income Tax Act" within the meaning of those words in the Agreement paragraphs 5 (c)(v) and (vi). Recognition of validity, according to this submission, occurred when the claim for a Tax Loss Carry Forward had, as counsel put it, "been through the system for the first time" and emerged with a confirmation from the taxation authority that the amount in question was accepted as a loss that could be carried forward and, if otherwise available, be used in subsequent returns as a deduction against assessable income.

27    Counsel submitted that the same reasoning process should be applied in respect of tax losses which had not been so confirmed as at the date of the Agreement in January 1993, but which achieved such confirmation thereafter. The amount of K1,528,174 in the tax return of 31 March 1992 and the amount of K8,049,749 in return of 31 March 1993 fell into this category. Counsel submitted that this was contemplated in paragraph 5(c)(i) where reference was made to "adjustment for additional Tax Loss Carry-forwards which are accrued on the books and records of the company through the Completion Date" and in the reference in paragraph 5(c)(vi) to the "write downs of certain of the Sale Assets on the books and records of the company which will create additional Tax Loss Carry Forwards". He said that these passages evinced an intention on the part of the parties that tax losses which, at the date of the Agreement, had not "passed through the system for the first time" and had not been confirmed by an appropriate Adjustment Sheet were to be reflected in the books and records of the company and its tax returns. UMW was to cause the Company "to take all steps necessary to preserve and qualify these Tax Loss Carry Forwards". They would not, however, be "recognized as valid under the provisions of the Income Tax Act" until their availability was confirmed by the issue of an Adjustment Sheet. Once this had occurred, then, they, like those already confirmed as at the date of the agreement, could be "utilized" by being claimed as deductions in a later income tax return, at which point of time UMW would become liable to make payment in accordance with clause 5(c)(ii).

28    Counsel recognised that this construction of the words "recognised as valid under the provisions of the Income Tax Act" could result in UMW being required to make payment considerably earlier than the time when it would obtain the benefit of a Tax Loss Carry Forward. Moreover, circumstances might exist whereby the Tax Loss Carry Forward could be disallowed as a deduction, through circumstances beyond the control of UMW. In those circumstances Morgan would have received a windfall payment, having gained a significant percentage of a putative tax loss which did not eventuate. However, counsel submitted that this should not influence the construction of the words in paragraphs 5(c)(v) and (vi) as the purchaser UMW would obtain a reasonable measure of protection from warranty provisions in the contract. In the circumstances, I do not need to set these out, other than noting that they extended only for a period of 18 months in the situation where the tax losses could be carried forward for seven years.

29    It was put that this construction would harmonise paragraphs 5(c)(ii), (v) and (vi) and would not require, as it was submitted that a contrary construction would do, the writing out of that part of paragraph 5(c)(ii) to which reference has already been made. Those words would be given full effect. Payment would be required upon the filing of a tax return in which the relevant Tax Loss Carry Forward was claimed as a deduction. However, this would occur only in circumstances where that Tax Loss Carry Forward had been already confirmed as available through the prior issue of an appropriate Adjustment Sheet by the taxation authority.

30    This is a very appealing submission but a consideration of paragraph 5(c) and the definition of Tax Loss Carry Forward leads me to reject it.

31    It is clear that, as emphasised by paragraph 1(g), the words "Tax Loss Carry Forward" must have their defined meaning wherever they are used in the agreement. It is an essential element of that definition that the "losses result in tax credits which can be utilized against payment of income tax in Papua New Guinea." I am satisfied that these words contemplate that the relevant losses have the status of "tax credits" which are able to be used in reduction of the Company's income tax liability. The use of the word "can" rather than "may" is strongly suggestive of a present ability to utilize in the sense that no further step is required before utilization can take place. The term "tax credits" , although, not apparently, of statutory origin, sufficiently conveys the concept of a loss which can be legally set off against a taxation liability. In my opinion, a financial loss of the Company cannot qualify as a "Tax Loss Carry Forward" unless it has become a utilizable tax credit which, in turn, requires that it be in a form such that credit can be claimed for it in the Company's tax return. In my view, this necessitates that it should have already been accepted by the taxation authority as a quantified loss capable of being carried forward in a future tax return, in diminution of the tax otherwise payable in respect of that return. In other words, I am satisfied that a Company loss does not become a "Tax Loss Carry Forward" unless, in counsel's words, it has "been through the system once" and has become the subject of an Adjustment Sheet.

32    This being so, I am of the view that the "Tax Loss Carry Forwards" referred to in paragraphs 5(c)(v) and (vi) necessarily refer to losses which have already been the subject of confirmation as losses apt to be carried forward, through the issue of Adjustment Sheets by the taxation authority. In these circumstances they have already been "recognized as valid" if the submission of Morgan as to the meaning of those words be adopted. This indicates, in my view, that the phrase cannot have that meaning. If it did, it would be redundant. Accordingly it must be intended to do other and different work. In these circumstances, I am satisfied that it must refer to the ultimate acceptance by the taxation authority, in accordance with the Income Tax Act, of the claimed loss carried forward, as being an allowable deduction against the income of the year in respect of which the relevant return is lodged. Therefore, in my opinion, paragraphs 5(c)(v) and (vi) each require that UMW as purchaser is not obliged to make payment except in circumstances where a previously accepted loss has ultimately been allowed as a deduction.

33    So far as paragraph 5(c)(ii) is concerned, I do not agree that the meaning I have ascribed to the words "recognized as valid" in paragraphs 5(c)(v) and (vi), which is the meaning contended for by counsel for UMW, necessarily requires that its second sentence be, in effect, written out of the agreement. Counsel for UMW sought to avoid this result by arguing that the word "upon" did not, in the sentence, have a temporal significance and would, rather, have the meaning "as a result of ". It may be noted that "upon" does not necessarily mean "at the same time as ", (ex parte Lesiputty v Murphy 47 SR 433 and 436). Accordingly, attributing to the word "upon" in that sentence and also in the first sentence of paragraph 5(c)(ii) the meaning "as a result", would have the effect of producing consistency between that paragraph and the other paragraphs.

34    Another approach to the construction of paragraph 5(c)(ii) would focus on the word "due" in the first sentence. A distinction is often made between the words "due" and "payable". In Jowitt's Dictionary of English Law, Second Edition, Vol.1 page 669 the following appears in relation to the word "due":

"As applied to a sum of money 'due' means either that it is owing or that it is payable: in other words, it may mean that the debt is payable at once or at a future time. It is a question of construction which of these two meanings the word 'due' bears in a given case."

35    If the word "due" in paragraph 5(c)(ii) is taken to mean "owing" rather than "immediately payable" , then consistency between the paragraphs can be achieved, on the basis that the debt is created when "utilization" occurs but payment is not required until the Tax Loss Carry Forward has later been accepted, in accordance with the Income Tax Act, in reduction or elimination of the taxable income of the Company.

36    I therefore find that, as a matter of construction, UMW was not obliged to make payment to Morgan under Clause 5(c)(i) at the times when the Company filed tax returns utilizing the tax losses, as shown in the schedule set out above. As it is not suggested that the times when UMW in fact made its payments to Morgan were productive of any loss, it follows that UMW must succeed. Accordingly, the other issues in the case do not arise.

37    I make the following orders:

(a) Judgment to be entered for the defendant.

(b) Plaintiff to pay the defendant's costs.

Last Modified: 05/16/2001