Raftland Pty Ltd as Trustee for the Raftland Trust v Commissioner of Taxation
[2008] HCATrans 9
[2008] HCATrans 009
IN THE HIGH COURT OF AUSTRALIA
Office of the Registry
Brisbane No B39 of 2007
B e t w e e n -
RAFTLAND PTY LTD AS TRUSTEE FOR THE RAFTLAND TRUST
Appellant
and
COMMISSIONER OF TAXATION
Respondent
GLEESON CJ
GUMMOW J
KIRBY J
HEYDON J
CRENNAN J
TRANSCRIPT OF PROCEEDINGS
AT CANBERRA ON WEDNESDAY, 30 JANUARY 2008, AT 10.17 AM
Copyright in the High Court of Australia
MR D.G. RUSSELL, QC: May it please the Court, I appear with my learned friend, MR H.L. ALEXANDER, for the appellant. (instructed by Tobin King Lateef)
MR A. ROBERTSON, SC: May it please the Court, I appear with my learned friends, MR J.H. MOMSEN and MR P.A. LOONEY, for the respondent and, subject to a grant of special leave to cross‑appeal, for the proposed cross‑appellant. (instructed by Australian Government Solicitor)
GLEESON CJ: Yes.
MR ROBERTSON: May I add one matter in respect of that, your Honours?
GLEESON CJ: Yes.
MR ROBERTSON: We were given late yesterday afternoon some written submissions on that proposed cross-appeal and it may be depending on how argument develops that I might need to reserve my position to put in a reply to that.
GLEESON CJ: Yes, thank you, Mr Robertson. Yes, Mr Russell.
MR RUSSELL: If the Court pleases, your Honours should have nine appeal books, submissions from us on the appeal on the notice of contention and on the cross‑appeal. Our learned friend’s submissions on the appeal and notice of contention are done in the one document and on the cross‑appeal. We have in addition to that material assembled a small number of articles which we think may be of assistance to the Court. They are a chapter from the 18th edition of Lewin on Trusts, on sham trusts, a chapter from the 17th edition of Underhill and Hayton on the same subject, an article by Professor Hayton ‑ ‑ ‑
GLEESON CJ: Yes, thank you.
MR RUSSELL: ‑ ‑ ‑ in the Jersey Law Review. Our list of statutes inaccurately referred to section 54 of the Corporations Law. It should have referred to Division 8 of the Corporations Law, and in particular sections 571 to 579, and they are there; and also a case which may be relevant to one of our learned friend’s submissions, Holli Managed Investments Pty Ltd v Australian Securities Commission.
KIRBY J: Is there any reason why one would not look at treatment of the sham concept in tax decisions of the United Kingdom or say Canada or the United States? Is their scheme of legislation so different that it is not helpful?
MR RUSSELL: In relation to the United States, your Honour would be familiar that the American Supreme Court developed a doctrine of sham in a case called Gregory v Helvering which Justice Murphy referred to in a number of cases. The American sham transaction doctrine is a quite different one to the Australian doctrine. It basically says that a transaction that has legal effect but no business purpose will be treated for the purposes of American tax law as a sham.
GLEESON CJ: Is that like the English doctrine of fiscal nullity?
MR RUSSELL: Yes, your Honour., with perhaps this exception, that the English doctrine of fiscal nullity – perhaps one almost nowadays should say the former doctrine of fiscal nullity – says that in a series of transactions that are prearranged one ignores interposed steps and assumes a tax result moving from the initial starting point to the end point and says one assumes it was done in one transaction, and one imposes a fiscal consequence on ‑ ‑ ‑
GLEESON CJ: One thing that none of these jurisdictions have, or that distinguishes them from our tax law, is that they do not have the general anti‑avoidance provisions that are such a feature of our act, or did not at the time some of these doctrines were developed. Any doctrine, I should have thought, of sham or fiscal nullity, would have to be one that is consistent with the general anti‑avoidance provisions of the Act in Part IVA or their modern counterpart.
MR RUSSELL: Your Honour, that was dealt with in this Court in a case called Jaques v Federal Commissioner of Taxation and what was said by the Court then was that a sham transaction is inherently worthless and therefore needs no general anti‑avoidance provision or, indeed, any anti‑avoidance provision to nullify its effect. It fails at the outset, so one is not looking at an anti‑avoidance rule.
The Commissioner, as your Honours will have seen from the pleadings, in this case initially did rely on Part IVA here. There were a number of Part IVA determinations, but ultimately they were not relied on. The other perhaps interesting factor is that, as appears from the material, one of the considerations of the parties was that specific anti‑avoidance provisions in relation to trust loss transfers were at the time of these transactions in the course of being legislated and, again, they were not relied on in this case.
GLEESON CJ: Before an Australian court developed brand new doctrine for Australia of sham, the Court would need to be confident it understood the legislative provisions that are aimed at tax avoidance.
MR RUSSELL: Yes. We do not apprehend our learned friends to be arguing in terms that the Court should develop a brand new doctrine of sham.
KIRBY J: That is why I am a little surprised that you have opened with sham because you are in front on sham at the moment, are you not?
MR RUSSELL: Yes.
KIRBY J: I would have thought you would have sat there and looked po‑faced and when the Commissioner starts to talk about sham that you would have a look of horror and wrath, but instead you have opened it all up at the first. Why have you done that?
MR RUSSELL: If I might, with respect, your Honour, as I recall it was the Chief Justice who raised the subject with me rather than the reverse but it was certainly my intention to do so ‑ ‑ ‑
KIRBY J: You have all these files open and ready for us.
MR RUSSELL: Your Honour, that was simply a matter of convenience so that your Honours know that this is not going to be a series of documents being handed up as we go along. Of course, I should say, our learned friends have all of that.
KIRBY J: I am only joking.
MR RUSSELL: Your Honour did in fact correctly anticipate my intention, and it is for this reason really. There are, in a sense, eight issues that the appeal presents which reduce to two if our learned friends’ submissions in respect of sham are upheld so that logically, the sham issue does come first because if the Full Court has that issue wrong, the only issue which remains is the source of income issue that is raised by the cross‑appeal.
KIRBY J: But we are dealing, at least primarily, with an appeal from the Full Court of the Federal Court and, therefore, in a sense, the first question which we ask ourselves is, is there error in the approach of the Full Court, which is very much anchored in Richard Walter, is it not?
MR RUSSELL: Yes.
KIRBY J: It says if sham arises, it only arises as a sort of trick of the mind or thinking process that comes up in testing the legal effect and consequence of the documents. That seems an attractive way to explain how you deal with sham, that you bore the onus. You have to establish the effect of the documentation and sham is something that might be posited to the mind in the course of testing the proposition of whether you have established what you need to establish on the legal consequences of the documents.
MR RUSSELL: With respect, your Honour, perhaps we would put it slightly differently. It is common ground, and in fact Justice Edmonds refers to this, that if the documents were intended to have effect according to their tenor, then this present entitlement on which we rely was in fact established.
KIRBY J: It is not just the documents, is it? It is the things that were done pursuant to the documents that raise the issue of sham – or not done pursuant to the documents.
MR RUSSELL: Specifically, what is argued is that the documents were a pretence, that there was never any intention to create the legal rights and obligations for which the documents provided and therefore, as a matter of law, those legal consequences did not come into existence. Of course, if that is correct, then necessarily there was a sham. But we argue that it was fundamental to the intention of everyone in connection with this that, although the arrangements might be seen as contrived and tax driven, if there was one thing that was absolutely clear – perhaps most clearly in terms of the evidence of the solicitor who drafted the documents and advised the parties, but we would say on the parties’ evidence as well – that they did intend that the documents that they executed would have precisely the legal effect for which the documents provided. Nothing worked unless that happened.
GLEESON CJ: Is there a possible intermediate situation? Is it that the documents were intended to have legal effect according to their tenor almost but not quite to the full extent of that tenor? In other words, if you fasten on the issue on which Justice Edmonds decided the case – that is the question of present entitlement – the funds, the income, the money that represented the income that was derived by the successful business of the Heran interests, did not end up with the beneficiaries of the E & M Unit Trust; it ended up back with the Heran interests. That was the intention all along, was it not?
MR RUSSELL: That was certainly her Honour’s finding – that there was no intention to actually pay the money to the beneficiaries of the E & M Unit Trust.
KIRBY J: With whom there was no business interest.
MR RUSSELL: There had been no prior business connection.
GLEESON CJ: Is it then a possible point of view that the documents were intended – indeed people were anxious that the documents should have legal effect but that the full legal effect would not be carried into a practical consequence?
MR RUSSELL: Your Honours, two answers to that. The first is that this was a matter that arose in an exchange in relation to a New Zealand case – Re Securitibank – between Justice Edmonds and me in the court below. His Honour did not refer to it in his judgment, which is why it is not on our list, but that case at first instance and subsequently in the New Zealand Court of Appeal dealt with the question whether there is some sort of intermediate type of sham. I think this is effectively the question your Honour the Chief Justice asked me. The answer that the Court of Appeal gave is no. You have to ask the question, do the parties intend the documents to have legal effect? Once the documents are found to have legal effect in the sense they are binding the parties, then one simply applies the tax – in this case one applies the tax law to that consequence, because the relevant issue for tax law purposes is whether the beneficiary has a claim, not whether the beneficiary exercises the claim.
GLEESON CJ: Was it then part of the intention of the parties, relevant to the question of sham, that the Carey or Thomasz, if I have the name right, interests would have been able to claim this money?
MR RUSSELL: Yes, your Honour. That is the subject of explicit evidence by Mr Tobin, the solicitor involved ‑ ‑ ‑
KIRBY J: That was the so‑called “commercial risk”?
MR RUSSELL: Yes. It was a real risk ‑ ‑ ‑
KIRBY J: Do you have you got that New Zealand case or would you supply those in due course?
MR RUSSELL: Yes, certainly we will supply them to the Court. If I am still addressing at lunchtime I will perhaps take your Honour to the specific references.
KIRBY J: I think you might be.
GLEESON CJ: There is no suggestion the money was misappropriated, is there?
MR RUSSELL: That has not been made below.
GLEESON CJ: If the Thomasz interests were entitled to it, why did not the dealing with the money in the way it occurred amount to a misappropriation?
MR RUSSELL: If it is an amount of money that is still payable to them then the short answer is they can make demand for it.
GLEESON CJ: I was not actually thinking in terms of the civil law.
KIRBY J: Did not Justice Edmonds say that that issue, the one just raised by the Chief Justice, was not litigated before Justice Kiefel?
MR RUSSELL: Yes. But perhaps the clearest case on those sorts of issues is a case in the Full Court of the Federal Court, which is on our lists, Zobory v Federal Commissioner of Taxation. That involved a taxpayer who had actually stolen money, was held to hold it on constructive trust, in due course repaid it together with interest, but the Commissioner in the meantime assessed him on the interest. So the question then became whether or not the interest was the taxpayer’s income for the purposes of the Act. The taxpayer’s argument was that there was a trust estate because he was obligated to give the money to its true owner and therefore the interest belonged to the true owner.
That is a classic case, we would say, of a trustee who has absolutely no intention whatever of complying with the terms of the trust. Indeed, it was a case of misappropriation. There was actually a successful prosecution in relation to it. But notwithstanding that, the tax law had effect on the basis that one asks the question, “Who was entitled to the income beneficially?” and that was the person on whom the tax liability fell.
GLEESON CJ: Was that a case of alleged sham?
MR RUSSELL: No, that was simple theft.
GLEESON CJ: I was only wondering whether you cannot draw inferences about the intentions of the parties by taking account of the consequences that would flow if their intention was something else.
MR RUSSELL: The cases are clear that one can look at what happens afterwards for the purposes of determining what a party’s true intention was. I had mentioned in answer to your Honour’s earlier question that we had two comments to make. The second is a decision of Justice Gibbs in a case called Nadir Pty Ltd, which is on our list, which dealt with a situation of a company which declared dividends which it had absolutely no intention of paying in favour of a taxpayer who had absolutely no intention of receiving them.
So the issue became whether or not in those circumstances the taxpayer should be regarded as having derived the income represented by the dividends, notwithstanding it was common intention that they would not be paid. Nonetheless, his Honour held that because there was a legal entitlement to them, there was derivation and the Act applied.
KIRBY J: It seems a little ethereal in the practical world, in the real world, with respect to Justice Gibbs.
MR RUSSELL: Well, in our respectful submission, it is the result required by the Act because otherwise if you have trustees who do not intend to comply with their responsibilities that changes tax law consequences. Parties can simply say we did not mean to do what we were doing, and more to the point we have not in fact received money which we are entitled to and therefore we do not pay tax on it.
GLEESON CJ: Mr Russell, I do not want to prevent you from going to the first point with which you want to begin your argument, but it would be of assistance to me if you could explain the transaction with which we are concerned in its legal effect and its commercial effect just for the purpose of assisting and understanding of where the funds that were generated by the profitable business activities of the Heran interests travelled and where they ended up.
MR RUSSELL: Your Honours will find that in appeal book 1, an appendix to our learned friend’s statement of facts, issues and contentions before Justice Kiefel. It is at pages 91 to 93. In the notes there are a number of pejorative remarks which we obviously do not adopt, but if the question is where the cash moved then this diagram is a reasonably accurate description of what happened in each of the years in question. Page 91 is 1995, page 92 is 1996, and page 93 is 1997.
The other place to which we would refer your Honour is the introduction to our submissions in reply, paragraph 1, which set out the resolutions which were carried – which were adopted by the trustee of the Raftland Trust which sets out – paragraph (c) in particular describes where the moneys went, we would say.
GLEESON CJ: Well, is it the case that the moneys to which you say the beneficiaries of the E & M Unit Trust were presently entitled in fact went not to them but were applied in taking up shares in Navygate Property Limited?
MR RUSSELL: Yes, your Honour.
GLEESON CJ: The shares being taken up by Raftland Pty Limited?
MR RUSSELL: Yes. So that the E & M Unit Trust can call for those moneys at any stage, and Mr Thomasz as trustee of the Thomasz Family Trust and the Carey Family Trust can call for those amounts from the E & M Unit Trust.
GLEESON CJ: Or from Raftland Pty Limited?
MR RUSSELL: Raftland Pty Limited is now the trustee of the E & M Unit Trust but in its capacity as trustee of the E & M Unit Trust. That is the claim they have.
GLEESON CJ: Could Mr and Mrs Thomasz, as beneficiaries of the E & M Unit Trust, have obtained an injunction to prevent Raftland Pty Limited from applying those moneys by subscribing for shares in Navygate Pty Limited?
MR RUSSELL: The terms of the trust deed of the Raftland Trust, in our respectful submission, permitted the trustee to make that investment but to the extent it was challenged as an improper exercise of trustee discretion, yes, either directly or indirectly a claim could have been made.
GLEESON CJ: You mean that the shares in Navygate Pty Limited are now held by Raftland Pty Limited on trust for Mr and Mrs Thomasz?
MR RUSSELL: Through the E & M Unit Trust, yes, your Honour.
KIRBY J: And that, although there was no prior commercial or business dealings between them?
MR RUSSELL: Yes, that is the risk they take. They have created those rights and if the Thomasz interests choose to enforce them ‑ ‑ ‑
KIRBY J: But the solicitor gave explicit evidence on this question I thought and was very properly conscious of the commercial risk.
MR RUSSELL: Yes.
KIRBY J: What steps, if any, were taken to meet and defend against that commercial risk?
MR RUSSELL: The only step that was taken ‑ ‑ ‑
KIRBY J: Just gentlemen’s agreement?
MR RUSSELL: No, there was no agreement beyond what is in the documents.
KIRBY J: There is specifically no contractual obligation but there must be something that – it defies rational dealings to assume that $4 million is going to be put at risk of deployment contrary to the interests of those who have earned the $4 million.
MR RUSSELL: That is why two things happened, your Honour. The first was the Navygate transaction so that there would be no immediate obligation to pay over cash, but the second is that the parties concerned did accept that that was a risk that, if it were to materialise, would have to be dealt with.
KIRBY J: What was preventing the risk from materialising it being in the nature of human conduct that one, if one can, takes the benefit of $4 million?
MR RUSSELL: Nothing, your Honour.
GLEESON CJ: It is a big risk if there is a trustee in bankruptcy of Mr and Mrs Thomasz floating around the place.
MR RUSSELL: Yes, indeed, your Honour. This is post‑bankruptcy of course, but if they were to become bankrupt again, yes.
GLEESON CJ: Post that bankruptcy?
MR RUSSELL: Post that bankruptcy, yes. If they were to become bankrupt again, yes.
KIRBY J: You say nothing at all, but there must be some intention. The inference, as I think Justice Kiefel said, is so powerful that there must be some intention, our search being for the common intention that is restraining self‑interest taking charge of $4 million.
MR RUSSELL: Her Honour was urged to make that finding but did not make it. She simply said that she inferred that they did not have an intention but she did not find that there was an agreement that they would not claim.
KIRBY J: She said Mr Carey did not really understand what was going on.
MR RUSSELL: Well, of course, in a sense it is now Mr Thomasz. Mr Carey was simply an interposed trustee but at the end of the day that is the risk they took and it was pointed out to them by their solicitor and, indeed, in opinions from senior counsel.
KIRBY J: Sorry to press you on this, but a risk of $4 million is a big risk for ordinary human beings. There must be something that is restraining that risk, even if it is just gentlemen’s agreement, good and decent conduct, ideas of commercial morality. There is something that is restraining it.
MR RUSSELL: There may perhaps be an idea of commercial reality, but this, we would say, is a case that falls precisely within the terms that Justice Lehane was talking about in Richard Walter. Nobody, absent tax considerations, would enter into transactions of this sort because commercially you would be taking real and unacceptable risks, but it was precisely because to achieve the tax result that that risk had to be taken that they were taken. I do not know if it is helpful for me to take your Honour to Justice Lehane’s passage which Justice Edmonds referred to in his judgment, but we say that this is this situation.
GLEESON CJ: Yes, thank you.
MR RUSSELL: Perhaps the most convenient place to access it is in ‑ ‑ ‑
KIRBY J: He says that that was a dissenting opinion. What was Justice Lehane dissenting over? I am sorry. You were going to give the citation.
MR RUSSELL: Yes. Justice Edmonds sets it out ‑ ‑ ‑
GLEESON CJ: The reference is (1996) 67 FCR 243.
MR RUSSELL: Yes, although the extract from Justice Lehane is at pages 267 to 268 and it is at pages 3127 and 3128 of the appeal book.
KIRBY J: Is Justice Lehane’s dissent relevant to the significance of what his Honour says?
MR RUSSELL: That aspect of the matter is addressed by Justice Edmonds at paragraph 82 in which he notes that it is a dissenting opinion, but he says Justice Lehane “was the only member of the Court who directly addressed” that particular issue.
KIRBY J: It is hard enough for us to keep in mind the complex transaction of this case without trying to work out what the complex transaction in Richard Walter was. However, maybe you can tell us the principle that Justice Lehane expressed.
MR RUSSELL: Perhaps I should take your Honour to the actual case rather than Justice Edmond’s summary. Just below paragraph E on page 267 of the report:
Moreover, it must be borne in mind that it is of the essence of a structure intended to be effective to minimise tax that it be created by means of real transactions, giving rise to real rights and obligations, however “artificial” they may be, in the sense of being incapable of rational explanation except on the basis of their tax consequences. It cannot be said, I think, that there is anything more artificial in the transactions with which we are concerned than there was in those which, in a somewhat different context, confronted the Court in Sharrment Pty Ltd v Official Trustee in Bankruptcy (1988) 18 FCR 449. One expects, in a case such as this, that transactions are intended to have their apparent legal effect because it is only if they do that they are efficacious to achieve the desired consequences.
Then he goes on to discuss ‑ ‑ ‑
KIRBY J: Where they have not in fact had the legal effect appearing on the documents, where a great deal of money is involved, where this transaction is part of a transaction which has been marketed, where you had no commercial dealings in the past, why was not Justice Kiefel entitled to draw an inference that the transactions do not reflect the real common intention of the parties and that therefore they are within the authorities a sham. As Justice Dowsett said, as an appellate court is very loath, particularly where there has been cross-examination and evidence, to interfere with a trial judge’s assessment on such matters.
MR RUSSELL: But his Honour Justice Dowsett also agreed with the majority in the Full Federal Court.
KIRBY J: I realise that, but he, as it were, started with that proposition which is certainly one that is one that for 25 years I have been applying in appellate cases.
MR RUSSELL: Your Honour, the answer we would say is this, that whatever might be said about the intention of the Heran parties in relation to the resolutions, that cannot apply in relation to the default of appointment clause in the trust deed because there one of the parties to the trust deed is the settlor, we would say it is the settlor’s intention which is crucial, and the only evidence on that was that the trust deed was intended to have effect according to its tenor.
KIRBY J: Why would one believe that intention, that stated intention when it is (a), not what has happened, and (b) not what would rationally happen with $4 million?
MR RUSSELL: Well, your Honour, insofar as what has happened is concerned, if one is ‑ ‑ ‑
KIRBY J: If you accept that that is relevant?
MR RUSSELL: Not in relation to the settlor point, your Honour. There is no suggestion that ‑ ‑ ‑
KIRBY J: Why can you not test the settlor’s suggestion of the intention by what has happened and what would rationally be expected to happen, which I take Justice Kiefel to have done?
MR RUSSELL: Well, your Honour, Mr Tobin’s evidence was not even really challenged in cross-examination. There is no suggestion that ‑ ‑ ‑
KIRBY J: It was fairly candid, I thought.
MR RUSSELL: Yes, but there was no suggestion to him that he did not intend the trust deed to have the effect according to its terms that it did on its face.
KIRBY J: You knew there was this big commercial risk with $4 million and something was restraining it, and this is what sets the mind looking for camouflage.
MR RUSSELL: But he also knew that unless the present entitlement was created the whole thing fell to the ground, and his evidence on that was quite explicit, and it was not suggested that that was not his understanding.
KIRBY J: But that is why you are entitled to test the present entitlement, the intention of the parties as to the present entitlement.
MR RUSSELL: Well, your Honour, our learned friends – there is an issue in the cases and in the authorities to just exactly whose intention is relevant in relation to sham trusts. The authorities in this country say that – and there is a decision of Justice Hill in the Federal Court in Faucilles Pty Ltd v Federal Commissioner of Taxation to which we can take your Honours in due course in which his Honour says the only person whose intention is relevant is the settlor. That followed a decision in this Court of Jolliffe which his Honour gives details of.
The articles which we have handed to the Court say that in England at least a view different to that would probably be taken that you may need a common intention of both the settlor and the trustee that the trust not be genuine, but the intention of the settlor has always been treated as critical, and there was no suggestion here that the settlor did not intend the default of appointment clause to have precisely the effect which it had. Indeed, the whole thing would have fallen over if it did not.
At no stage was it suggested she did not have that intention, and indeed our learned friend’s submissions here do not make that suggestion. They simply say that it is her intention and that of Mr Tobin should be disregarded because the only relevant intention is that of the Herans. That appears at paragraph 10 of their submissions, and our response to that is it is contrary to both principle and authority. It has to be contrary to principle because if a settlor genuinely gives money to a trustee to hold on trust and the trustee accepts the money but has no intention of holding the money on those trusts, the trust ‑ ‑ ‑
KIRBY J: Even if there is not in the back of the mind of the settlor a sort of mental reservation that this is not really going to go ahead as per documents? The documents are camouflaged.
MR RUSSELL: Well, your Honour, that was not put to Mr Tobin nor, in our respectful submission, could it have been. Again, if one can look at what the Full Federal Court said in Sonenco which picks up the propositions that were developed in Richard Walter, this may have been an odd transaction. It may have been a transaction that nobody would rationally enter into but for tax purposes, but those who entered into it understood, and understood very clearly, that unless a present entitlement was created the whole thing would fall to the ground and they set out to do just that and at no stage ‑ ‑ ‑
KIRBY J: Where rationality and commercial sense clash with asserted intention one naturally tends to prefer rationality and common sense and is entitled to test intention by those criteria, one would think.
MR RUSSELL: That might be a reason for testing the evidence, but at the end of the day if a witness gives the evidence and it is not challenged in cross‑examination and ‑ ‑ ‑
KIRBY J: I am just going back to what Justice Kiefel inferred. She had the advantage of being the trial judge. You see, you present us with nine volumes of appeal books. In human life I am not going to have the time to read all of those cover to cover. The trial judge will have absorbed that much better than an appellate court, especially a final appellate court.
MR RUSSELL: Her Honour has not found that Mr Tobin was dishonest or disingenuous in the way in which he gave his evidence and it is his evidence on this point which is relevant, we would say.
CRENNAN J: Can you just remind me of the relationship between the settlor and Mr Tobin?
MR RUSSELL: Yes, she was one of his employees, your Honour.
KIRBY J: That is right.
CRENNAN J: What was her job?
MR RUSSELL: She was a secretary in his office, your Honour, the usual situation of setting up a trust; the settlor in the solicitor’s office with the solicitor drafting the trust deed. But there cannot be, in our respectful submission, any question that that was what Mr Tobin intended to do and his evidence was that he accepted there was a risk. He gave advice as to steps which he thought might minimise it. But that is a very different thing from saying that Mr Tobin believed there was no risk which, of course, would be the position if there were no present entitlement. You would not need the Navygate transaction or anything else.
KIRBY J: You can just take it from me that I am concerned at some stage to understand why Justice Edmonds in the Full Court felt they were authorised to set aside Justice Kiefel’s conclusion and what was wrong with Justice Kiefel’s conclusion. Using the common sense of the trial judge to look at these documents and look at the assertions and look at the parties involved and the actors and to come to the conclusion that her Honour did seemed a pretty rational conclusion to me when I read it. That was the risk you were warned of in the special leave application, that you might come here and we might restore Justice Kiefel’s view of matters.
MR RUSSELL: Yes, indeed; your Honour was very frank about that.
KIRBY J: The Commissioner salivating at that prospect did not put up much of an argument against the special leave.
MR RUSSELL: I must say it was not our impression that the special leave application was not opposed, but your Honour has had more experience.
KIRBY J: I think it was said that he has been waiting for a long while to get this issue up before us.
MR RUSSELL: Yes. Well, your Honour, we would simply say that, in this Court and elsewhere, the authorities are clear that if parties intend to create legal relations, then whatever else one has, one does not have a sham. That is why, of course, one has, as his Honour the Chief Justice asked me earlier, general anti‑avoidance rules and things of that nature.
KIRBY J: I will only say lastly, the devil himself knoweth not the mind of man and, therefore, judges in all parts of the common law world have to sit there working it out. The trial judge in this case did, and she said it was a sham.
MR RUSSELL: Yes, but she did not really address the issue of Mr Tobin’s evidence. She seems to have come to the conclusion that because it was not intended ultimately to pay the money ‑ ‑ ‑
KIRBY J: Not a bad or unreasonable conclusion, one might think.
MR RUSSELL: Except, your Honour, that that could equally have been said of Mr Zobory.
KIRBY J: But you test what people say is their intention by what they did and what rationality suggests they always intended to do.
MR RUSSELL: Rationality, in our respectful submission, in this case operates in the way that Justice Lehane said in Richard Walter. None of this had the slightest capacity of achieving what the parties intended unless a present entitlement was created. The whole thing was a waste of time. It was only if a present entitlement was created that this had any prospect of working.
KIRBY J: It might indeed be a waste of time. That is what we are here to decide.
GLEESON CJ: The present entitlement of whom to what?
MR RUSSELL: The present entitlement of the E & M Unit Trust to a distribution from the Raftland Trust. If that was not created, then there was no prospect of income being distributed from the Raftland Trust to the E & M Unit Trust and then offset against the losses which it is common ground the E & M Unit Trust had.
GLEESON CJ: Is it the case that to avoid the effect of section 100(1) it was necessary to go further and to identify a present entitlement of certain beneficiaries of the E & M Unit Trust?
MR RUSSELL: I think your Honour is referring to section 100A(3A) – section 100A, not section 100.
GLEESON CJ: I am sorry.
MR RUSSELL: Yes. It was necessary that the beneficiary that was identified as being presently entitled itself be a trustee who had presently entitled beneficiaries.
GLEESON CJ: That is Thomasz.
MR RUSSELL: A lost company could not have filled the role.
GLEESON CJ: So the answer to the question, present entitlement of whom to what was present entitlement of Mr and Mrs Thomasz, was it not?
MR RUSSELL: They needed to be presently entitled to the income of the E & M Unit Trust. The E & M Unit Trust needed to be presently entitled to the income of the Raftland Trust. Section 100A works on a series of steps. Its intention is to catch the last trust in a trust chain. What has happened here is the Commissioner is not assessing the last trust in the trust chain. That is one of the reasons why there is a little bit of tension in the way in which section 100A operates in this case. If one goes to the explanatory memorandum, it would be either the Thomasz Family Trusts or the E & M Unit Trust which one might have expected the assessment to be made against.
CRENNAN J: Did the distribution dates have any significance in the case?
MR RUSSELL: In each case it was 30 June and, of course, it needed to be on or before 30 June because of the terms of the trust deeds.
GLEESON CJ: Is, therefore, one way of testing the correctness of the conclusion of Justice Kiefel to ask whether on the evidence consistently with the intention of whoever’s intention was relevant, Mr and Mrs Thomasz could have intervened to prevent the application by Raftland Pty Ltd for shares in Navygate Pty Ltd?
MR RUSSELL: Certainly it would be a derivative action on their part in the sense that they would be saying that the trustee of the E & M Unit Trust should be doing it. It might not be possible for them to do it directly. But yes, it is crucial to the operation of these arrangements that they have rights as a beneficiary to that money and have rights, therefore, to complain about misconduct by trustees if they dispute what the trustee is doing. It was fundamental that the relationship of trustee and beneficiary be established, to put it another way. That was accepted by the parties. That was the commercial risk that was referred to by Mr Tobin; that they not only had rights but would exercise them. If they were not beneficiaries and had no rights in relation to that income then they would not necessarily not have been presently entitled and, for that reason, the arrangements could not possibly have achieved the outcome that it was hoped they would achieve.
That is why we say that one can look at Justice Kirby’s question of rationality in two ways. Yes, one can say it would not be rational to give $4 million to total strangers, but likewise one can say that it would not be rational to go to all of this effort to create a present entitlement if the one thing you were confident of was that you were not going to create a present entitlement because the documentation was ineffective to achieve it. There is no suggestion here that there are side deals. All of the witnesses have been produced. All of the documentation and negotiations were placed before the court. So it is not a question of saying there must be something else out there that the parties have not brought to the court.
KIRBY J: As the solicitor in the passage quoted in Justice Edmond’s reasons at 3127 said:
At that time it was never in contemplation, leaving aside the question of $250,000, that any amount would be paid to the trustee of the E and M Unit Trust?---Do you mean physically paid?
Well, let’s start with physically paid?---Well, that’s probably right, yes.
MR RUSSELL: We would refer your Honour to the next paragraph:
And what was in contemplation at best was a distribution on paper only?---I think that sells it a bit too short because we recognized that there was a real risk that the unit holders could call up those funds.’
KIRBY J: It is just very hard for me to get my mind around the fact that a responsible and intelligent solicitor would take a real risk. I do not have to, and a judge at trial does not have to, accept a little “bit too short” as a full answer to the suggestion that in the normal commonsense activities of human kind you do not put $4 million at any real risk, especially if you are a responsible solicitor. You can say it is a little bit too short and there was a real risk, but it just defies belief that there is such a risk. It is not on face value necessary to be accepted that when it is said, “Well, there is a risk. We ran it”, that you are running it with a real risk. That sounds to me like sham. The documents are not reflecting the reality of the transactions.
MR RUSSELL: Your Honour, we can only say in response to that, first, that it was not suggested to Mr Tobin at any point that this evidence was dishonest or that what he was saying was untrue.
KIRBY J: Not dishonest. It is whether it is the whole truth.
MR RUSSELL: His evidence is that he set out to create and got the opinion of senior counsel about the terms of the trust deed directed to creating the present entitlement. He set out to do just that. One certainly would not do it other than for tax reasons, that is frankly conceded, but the question is whether in these circumstances these beneficiaries could have sued. If I come back to the Chief Justice’s question, were they entitled at the time had they wished to take actions that may have been appropriate to a beneficiary in those circumstances? Yes.
GLEESON CJ: Who got the $250,000?
MR RUSSELL: The beneficiaries of the Thomasz Family Trust.
GLEESON CJ: Mr and Mrs Thomasz?
MR RUSSELL: Yes. They did, in fact, receive that and that is ‑ ‑ ‑
KIRBY J: Less the $30,000 to the person who is selling this transaction.
MR RUSSELL: They used it to defray a debt of theirs. I mean, they beneficially received $250,000 and returned it as income, in the wrong year as it turned out, but it was returned as income.
GLEESON CJ: What was the consideration for the $250,000?
MR RUSSELL: That is a matter of dispute. Her Honour found that it was the price for transfer of control of the trust. We would say, in fact, that it was a trust distribution. We deal with that matter in paragraph 1(b) of our submissions in reply to the notice of contention but her Honour said it was really a price paid for transfer of control of the trust therefore it could not be a trust distribution. We would say that at the time her Honour gave that judgment her Honour possibly did not have the advantage of the decision of this Court in ‑ ‑ ‑
GLEESON CJ: Did her Honour find that part of the consideration for the $250,000 was compliance?
MR RUSSELL: Compliance, your Honour?
GLEESON CJ: Compliance, that is, not seeking an injunction to prevent Raftland Pty Limited applying for shares in Navygate Pty Limited.
MR RUSSELL: No, her Honour made no such findings.
GLEESON CJ: Was that argued?
MR RUSSELL: No, it was not put to any of the witnesses.
KIRBY J: In a sense, her Honour’s view was you did not have to get to the point of thinking through all the consequences. The deal was they got $250,000 of which they had to pay $30,000 and that on that basis they would not, in fact, take steps to call up the ‑ ‑ ‑
MR RUSSELL: She said she thought it was unlikely and they did not expect to get any money, but that does not change the fact that they were legally entitled to do so. We would say this, that if the matter had simply come before a court of equity on 1 July 1995 and Raftland had said, “No, look, whilst I passed those resolutions and whilst I have signed the trust deed, whilst I am a party to a trust deed which says that in certain circumstances the E & M Unit Trust is a beneficiary, I did not really mean that, so I am ‑ ‑ ‑
GLEESON CJ: What if Raftland had said, “We paid him $250,000 to go away”?
MR RUSSELL: The short answer is that Raftland does not say that and it has never said that.
KIRBY J: It is not in its interests here to say it, but you are positing that we are in a court of equity back in 1996.
MR RUSSELL: We would say that on the material before the Court, which is all the material, Raftland would not have been in a position to say it because a court of equity would get access to all of this material which conclusively demonstrates, in our respectful submission, including the opinion of senior counsel on that issue, one would have thought, because it probably would not attract privilege in an action like that and that shows conclusively that the intention of Raftland was to create a present entitlement. It cannot resile from it.
KIRBY J: I may not be fully understanding the facts or fully aware of all the background of law on this issue but you have to convince me, I have to say to you, that the approach of Justice Kiefel is not a preferable approach to test propositions of common intention as asserted in documents by common sense, by rationality, by the flow of the facts, by the use of the secretary and the sale of the tax loss company that this is a transaction which is camouflage for tax avoidance and not the reality of setting up a trust which has no business purpose other than tax avoidance.
MR RUSSELL: Our only answer to that, your Honour, can be that, to achieve precisely that aim it was fundamental that the relationship of trustee and beneficiary be created and that the E & M Unit Trust be presently entitled to the income ‑ ‑ ‑
KIRBY J: That is the third time you have said that, but the flaw in that is that a trial judge does not have to accept that it was effective. A trial judge has to first ask what you have called the threshold question. Is this the reality as portrayed in the documents or are the documents camouflage, and if they are camouflage, that is within the authorities a sham.
MR RUSSELL: We would, with respect, your Honour, put it slightly differently. We would say that what a court has to determine is what the intention of the parties was and once the court has made that determination, then if the court is satisfied that the documents have the legal effect as between the parties that the parties intend, then the court applies the tax law. In this case we would say the evidence showed, and showed conclusively and rationally, that the parties did intend to create that present entitlement. Justice Kiefel really did not address the intention of Mr Tobin or Mrs Sommerville. She simply said that can be seen as part of the façade. In our respectful submission, Justice Edmonds and Justice Dowsett for different reasons established very clearly why that was not correct.
GUMMOW J: What do you say about Justice Kiefel’s findings at paragraph 35 of her reasons as to this $250,000? In a way it is left in the air somewhat. It begins at paragraph 34, I suppose.
MR RUSSELL: Yes, paragraph 34:
The accounts of the E&M Unit Trust for the 1995 year show the shareholders fund and current assets… with a loan due from ‘other entities’ of $250,000 and the balance of the assets owed by ‘other debtors’. Its tax return discloses –
a return to the Raftland Trust which was set off against balance losses; and balance losses were carried forward. In relation to Mr Carey – we deal with this in our submissions – the ledgers of the E & M Unit Trust show that a distribution was paid to Mr Carey. It was in fact paid in cash. There is no suggestion that is to be repaid. So to describe it as a loan cannot be accurate. The question really is whether the parties were entitled to characterise it as they did in their agreement on 30 June as being a trust distribution. We say they were. Justice Kiefel seems to have taken the view that it could not be both a trust distribution and consideration for transfer of control of the trust. Her Honour at the time said they did not have the benefit of the decision in this Court in Dick Smith Electronics which held that payment of a dividend could nonetheless be part of consideration for stamp duty purposes.
We would say that the parties by their agreement provided – and I will take your Honours to the documents – that they would amongst other things put the E & M Unit Trust in funds so it could make a distribution of 250,000 to Mr Carey. That is in fact what happened. The mere fact that that was part of a transaction in which control of the trust changed does not change the fact that it was a trust distribution.
GUMMOW J: What I was trying to get from you, if we go to the last couple of sentences on 35:
Mr Thomasz said that apart from the purchase price of $250 000 he had no expectation of receiving any further benefits from the transactions. He considered that control had been relinquished by the E&M Unit Trust. In answer to a question put by the Commissioner, he agreed that he understood the transaction to involve entities with which he or his wife were associated being owed a purchase price and from that point would have no further dealings with the trust.
Well, her Honour does not go on to say - she might have I think gone on to say the 250,000 is a covenant amongst other things not to sue.
MR RUSSELL: Well, her Honour did not say it, in our respectful submission, for good reason.
GUMMOW J: I know.
MR RUSSELL: The agreement between the parties was in writing and there is no such covenant.
GUMMOW J: What did she find the 250,000 was paid for?
MR RUSSELL: She said it was the price ‑ ‑ ‑
GUMMOW J: Where does she say that?
MR RUSSELL: At paragraph 85, your Honour, and paragraph 84.
KIRBY J: Also paragraph 80 is very relevant, is it not, because she says there was this submission and that submission and she ends up with the passage:
Whether the parties had an intention to the contrary of the apparent distributions is simply to be determined by reference to the evidence and by inferences which may be drawn, given that there is no direct evidence of the intention of Mr and Mrs Thomasz. Questions of onus of proof may therefore assume some importance.
That is all accurate, is it not?
MR RUSSELL: Your Honour, in our respectful submission, one comes to the question of which parties and which evidence. Her Honour there seems to be focusing on the distributions and not on the default of appointment clause, and it was on the default of appointment clause that we were successful in the Full Court.
KIRBY J: But she is doing that to test your assertions of the intentions and whether they can be taken at face value, which is what a judge must do, as I understand it. I mean, people make assertions of intentions, judges cannot get into their brains, therefore they have to test what they say is their intention. That was hotly contested, as paragraph 80 shows:
The Commissioner does not contend that non-payment is conclusive, but submits that it can be seen that there was never any intention that the E&M Unit Trust benefit.
MR RUSSELL: Then her Honour goes on to say:
reliance upon the existence of the resolution may not be sufficient.
GUMMOW J: Can we just attend to my question? You referred me to paragraph 85?
MR RUSSELL: Yes, your Honour.
GUMMOW J: What does it mean to say, to find:
Clearly the sum paid was understood to be the price for control of the Trust –
What is meant by that non-legal expression “the price for control of the Trust”?
MR RUSSELL: Her Honour seems to be saying, as we apprehend it, that if you receive that money as part of a transaction which is going to result in a transfer of control of the trust, it cannot be a trust distribution and that there is a distinction to be drawn between the price on the one hand and a trust distribution on the other. We would say that that is wrong. Dick Smith Electronics is a good example in a corporate context of where that is wrong. In this case, the parties in writing agreed that ‑ ‑ ‑
GUMMOW J: What do you read as her Honour saying when she uses this expression “the price for control of the Trust”?
MR RUSSELL: We think probably she is saying consideration for transfer of control.
GUMMOW J: Yes, but what does “control” mean?
MR RUSSELL: Change of trustee in this case, because if one goes to the actual agreement between the parties, one of the terms was that Mr Carey would resign as trustee of the E & M Unit Trust and be replaced by Raftland Pty Ltd. I can take your Honour to the transaction documents if it would assist.
GLEESON CJ: Look at the findings in the last sentence of paragraph 86. If you were to relate what is said in paragraphs 85 and 86 to the question raised earlier, that is to say, what would have happened if the Thomasz interests had attempted to intervene to prevent the application of these funds by Raftland Pty Ltd taking up shares in Navygate, is not her Honour saying they were paid $250,000 in consideration for agreeing that that is all they would ever be entitled to. That would constitute a defence to an attempt by them to intervene in the manner I suggested.
MR RUSSELL: If there were such an agreement. Her Honour says there was no evidence that they made such a promise.
GLEESON CJ: No “direct evidence”, she says, actually.
MR RUSSELL: No direct evidence that they made such a promise. Well, there was no other evidence and we would say that on the other side of the transaction, the recognition that they could do so makes it very clear there was not a common understanding.
GUMMOW J: Wait a minute, her Honour when she says “no direct evidence” in paragraph 86 is, I think, referring back to paragraph 35:
Mr Thomasz said that apart from the purchase price of $250,000 he had no expectation of receiving any further benefits from the transactions. He considered that control had been relinquished –
et cetera. That is an inference which you can draw, I suppose, from the way station at paragraph 35. That is not a question of sham. That is just a question of the detail collapsing under the facts.
MR RUSSELL: The case against us has never been that there was an assignment of the units in the E & M Unit Trust to interests associated with the Herans, or that there was a present entitlement which was defeated by a right of this nature.
KIRBY J: One can turn your argument against you there though and say there was no such evidence because, of course, that evidence would not be provided in the documents. That would undo the transaction on its face.
MR RUSSELL: Yes.
KIRBY J: But that still leaves common sense to be applied to inferences, and that is what I take Justice Kiefel to have done in the absence of anything more from Mr Thomasz than she summarises at paragraphs 35 and 80.
MR RUSSELL: In our respectful submission, your Honour, the answer to that is simply that there was no suggestion that the other evidence that was directly in point that the Heran parties accepted that they would be liable. It makes it quite unlikely that there was any agreement of that nature. I mean, there is a whole range of documentation which is quite inconsistent with the Heran parties having entered into an agreement which secured effectively a release from the Thomaszes of their rights. Indeed, there is an explicit provision in the transaction documents that they agreed not to disclaim their interests. So far from the documentation not dealing with the issue, it dealt expressly with the prospect that they might disclaim an interest.
GUMMOW J: Where do we see that?
MR RUSSELL: The transaction documents are in volume 9, your Honour.
KIRBY J: It was referred to in Justice Kiefel’s reasons too, that passage in the transaction documents.
MR RUSSELL: Yes. Perhaps if I take your Honours first to the – they are listed in paragraph 7 of our reply, your Honour. Perhaps if one goes first to pages 2803 and 2804 and the proposal is that an amount be paid of $250,000, about point 6, that that is to be a distribution and it can be paid either by way of distribution to unit holders or part payment of debts. Debts may be assigned. There is to be amendment to the terms of the E & M Unit Trust. There are further steps then to be taken. There were then some difficulties with company searches.
At page 2808 there is a further letter from the solicitors for the appellants. At the bottom of the page your Honours can see again they return to the distribution of $250,000 to be made to a default beneficiary being the E & M Unit Trust. Mr Carey is requested to sign a document acknowledging that he is trustee, acknowledging acceptance of appointment and agreeing not to disclaim his interest as a beneficiary. This, in that stage, is in the context of a trust called the Heran Developments Trust. Ultimately it became the Raftland Trust. There is then discussion about ‑ ‑ ‑
GUMMOW J: When one looks at paragraph (c) on page 2809:
agrees not to disclaim –
We should read it as what? Raftland, should we?
MR RUSSELL: Yes. That becomes clear at a later stage in the documentation, your Honour. But even at this point, the fact that Mr Thomasz is to continue to be a beneficiary is explicitly provided for. There is then an answer to those questions, which comes from the accountant to Mr Thomasz sent to Mr Adcock, but in due course sent on to Mr Tobin, and some discussion of the facts. The critical document, which we say is the final offer between the parties and therefore the document that creates the contract, is the facsimile reproduced at page 2821 and 2822. At page 2823 there is a typed – that is reduced to typescript.
KIRBY J: Could you help me? My recollection is, from the reasons of Justice Kiefel or maybe the Full Court, that the actual cheque for the $250,000 was a bank cheque drawn not on the trust but on the Heran interest, a Heran company. Is that right?
MR RUSSELL: Yes, on another Heran company. Yes, your Honour. But there is no doubt that the parties intended it, we would say, to be a trust distribution.
KIRBY J: Is that not another indicium of the reality that lay behind the transactions for which these documents were camouflage.
MR RUSSELL: There is no particular unreality, we would submit, in one group company discharging the debt of another group company.
KIRBY J: Yes, but the company with the immediate connection with the Herans, who were those who stood to gain from this transaction, coughed up the $250,000.
MR RUSSELL: Yes. It is recorded as a loan in the books of account, your Honour. It is dealt with in the accounts of the Raftland Trust appropriately. There is no doubt, in our respectful submission, what the parties intended to do. Then ultimately one comes to the deed that was forwarded with the facsimile.
GUMMOW J: Is this at 2826?
MR RUSSELL: Yes, your Honour, and at page 2828 is the signed copy.
GUMMOW J: The trouble is that to make this watertight, one needed to face up in the documentation explicitly to this outstanding risk and needed to make it plain on the face of the documents that it was recognised that there was this risk which the parties accepted. It does not do that. It is left to surmising in your client’s favour.
MR RUSSELL: We would have submitted, your Honour, that it goes the other way, that if my clients have put to Mr Carey a document that, amongst other things, says that he will not disclaim his interest as a beneficiary or any distribution, then it would follow from that, in our respectful submission, that he would be met – if it were to be said against him when he asked for an account of the trust income – that you have effectively assigned your interest in this trust to us, this document would be ‑ ‑ ‑
GUMMOW J: That is right. It had to be drawn to be watertight with a full appreciation of old style trust conveyancing as to what the 250,000 was being paid for, not just some vague expression like “control” which is to a conveyancer abhorrent and meaningless, but with some specificity as to what the entitlement to an account would be or would not be in this trust structure after this payment was made.
MR RUSSELL: In our respectful submission, your Honour, what it would ‑ ‑ ‑
GUMMOW J: If I could just add to that, otherwise your side of the record is in the position of being seen to be trying to have its cake and eat it too.
MR RUSSELL: Your Honour, in our respectful submission, there is a document which specifies exactly what the $250,000 is and that is the facsimile of 30 June. It is a trust distribution, nothing more. It is certainly not a payment in return for release of all further claims as a beneficiary. Undoubtedly it would be perhaps helpful if I could say that there was a further document in which that was made plain, but these are the ‑ ‑ ‑
GUMMOW J: Were the lawyers acting for both sides?
MR RUSSELL: No, your Honour.
GUMMOW J: Exactly.
GLEESON CJ: It was a trust distribution of what?
MR RUSSELL: Of income of the Raftland Trust to the E & M Unit Trust and then ‑ ‑ ‑
GLEESON CJ: What was the source of the income of the Raftland Trust?
MR RUSSELL: That was sourced in the profits of the Heran group. There was a distribution into the Raftland Trust from other Heran ‑ ‑ ‑
GLEESON CJ: That is right. So to describe it as a trust distribution is to tell part of the story. From the point of view of the Thomaszes, the beneficiaries of the E & M Unit Trust, this trust had nothing to distribute. This trust had made millions of dollars in losses and from the point of view of the Thomasz’s interests, the only hope that they had of ever getting anything out of this trust was to turn to account its tax losses and this transaction was to turn the tax losses to account and the method of doing that was to deliver control of the trust to an entity or to entities that had profits that they would put into the trust to permit a distribution of this kind.
MR RUSSELL: Yes, but in circumstances where they retained their beneficial interests in the trust.
GLEESON CJ: But when you say the $250,000 was a trust distribution, there was nothing to distribute but for this transaction.
MR RUSSELL: Yes. The facsimile goes on to say:
we will hand to you one bank cheque . . . for $250,000 . . . representing a distribution from the Raftland Trust . . . on the basis that the funds will be disposed of in payment of existing loan accounts to the Thomasz Family Trust and/or the ECK Family Trust and or by way of distribution to those trusts as unit‑holders in the E & M Unit Trust.
It came, in fact, from the Brian Heran Discretionary Trust into the Raftland Trust. That appears from page 2814 of the record. That is the minutes of Maggside Pty Limited as trustee of the Brian Heran Discretionary Trust. That is the source of the funds.
HEYDON J: Justice Kirby’s question is trying to establish a priority. Is your primary position that Justice Kiefel was correct on sham, end of story, or is your primary position that the Full Court was right on its analysis with the legislation?
MR ROBERTSON: That is difficult to answer in the abstract because, in my submission, Justice Kiefel was right both in terms of findings of fact and her analysis of the legislation. Because her Honour found as she did, she analysed largely a different section, that is, she analysed and applied section 100A(1), whereas Justice Edmonds, having found that the E & M Unit Trust was presently entitled, analysed section 100A(3A). So there is that difference, although there is a common point, or a point common to both those approaches, that is, the reimbursement agreement. Her Honour Justice Kiefel found a particular reimbursement agreement and Justice Edmonds found a different one, or a smaller one.
GLEESON CJ: Mr Robertson, in Federal Commissioner of Taxation v Casuarina 127 CLR 62 at 73 – you might have a look at this overnight – Justice Windeyer, analysing a particular transaction, refers to the relationship between section 260 and the sort of problem analogous to what we have here. He says:
In particular he said that there was no evidence of one allegation: namely that it was arranged that Forum would not interfere in the management of Casuarina . . . It is true that there was no evidence that this was explicitly arranged and agreed to by Forum. Certainly there was nothing which in law restricted Forum exercising whatever rights it had as beneficial owner of its shares in Casuarina. Had it not been in law free to do so, the scheme would have fallen to the ground. Nevertheless it was I think an element in the scheme, well understood by all concerned, that Forum would not in fact interfere in Casuarina’s affairs provided it received by way of dividends the stipulated payments –
There may be three possible approaches. One is to say, as Justice Gummow put to you earlier, the agreement was not intended to take legal effect according to its tenor. Another is to say there was a collateral agreement that having taken the $250,000 they would in fact interfere any further in the affairs of this trust and, in particular, would not demand their entitlement and if that agreement existed, it would in law cause the scheme to fall to the ground, or there might be a scheme of the kind once covered by section 260 and perhaps, or perhaps not, covered by Part IVA or the more particular anti-avoidance provisions of the Act, of which I think section 100A(3A) happens to be on.
MR ROBERTSON: Yes, I would accept that, your Honour.
GLEESON CJ: You might let us know in the morning whether you have any comment on what Justice Windeyer said.
MR ROBERTSON: Yes. I notice the time but could I just do two housekeeping things, your Honours. One is that there is a proposed amended notice of contention which is consented to. We have a summons and an affidavit of its ‑ ‑ ‑
GLEESON CJ: Yes, you have that leave.
MR ROBERTSON: Thank you, your Honour. The other aspect which I have either assumed, which I should not have, or I am about to assume, is that these matters, particularly when I get to the $57,000 or so intertwined, that that will be the basis of an application for special leave to appeal in relation to the cross‑appeal.
GLEESON CJ: I am only asking this question for the benefit of the next case in the list, Mr Robertson. How long do you think you are going to require to complete your submissions?
MR ROBERTSON: Your Honours, I would think an hour and a half.
GLEESON CJ: We will say the next case in the list will be not before 12 noon tomorrow. We will adjourn until 10.15.
AT 4.18 PM THE MATTER WAS ADJOURNED
UNTIL THURSDAY, 31 JANUARY 2008
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