SGIO Insurance v Velenski & Anor

[2001] HCATrans 337

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Melbourne  No M131 of 2000

B e t w e e n -

THE BROKEN HILL PROPRIETARY COMPANY LIMITED (NOW KNOWN AS BHP BILLITON LIMITED)

Applicant

and

THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

Respondent

Office of the Registry
  Melbourne  No M132 of 2000

B e t w e e n -

THE BROKEN HILL PROPRIETARY COMPANY LIMITED (NOW KNOWN AS BHP BILLITON LIMITED)

Applicant

and

THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

Respondent

Applications for special leave to appeal

GAUDRON J
KIRBY J

TRANSCRIPT OF PROCEEDINGS

AT MELBOURNE ON FRIDAY, 10 AUGUST 2001, AT 11.13 AM

Copyright in the High Court of Australia

__________________

MR D.H. BLOOM, QC:   May it please the Court, in these matters I appear with MR J.W. DE WIJN, QC, for the applicant.  instructed by Allens Arthur Robinson)

MR G.T. PAGONE, QC:   If the Court pleases, in these matters I appear with MS M.M. GORDON for the respondent.  (instructed by Australian Government Solicitor)

GAUDRON J:   Thank you, Mr Pagone.  Yes, Mr Bloom.

MR BLOOM:   Your Honours, there is a preliminary matter, a motion consequent upon the change of name of the applicant.  If your Honours could make orders accordingly?

GAUDRON J:   It is not opposed?

KIRBY J:   There is no opposition to that, I assume?

MR PAGONE:   No.

GAUDRON J:   Very well.  There will be an order as sought with respect to the title of the applicant.

MR BLOOM:   If your Honours please.  There are two questions, as your Honours will have seen.  The first is one of characterisation.  One frequently encounters today long periods between contract and completion in commercial contracts particularly, in order to enable due diligence to be carried out, finance to be arranged, unwanted assets to be sold and the like.  It may well be the case that financial accounts are available at the date of contract and projections of profits are likewise available so that the actual sale price can be fixed at the date of contract.  That happened in this case.  The transaction, being at the time the largest ever in Australia, involves, as your Honours know, a claim for a deduction of $200 million.

Your Honours, when there is a combination of such factors it is necessary for the parties to stipulate as to what is going to happen in the intervening period between contract and completion, as again happened here.  If I could ask your Honours to turn to the judgment of the learned trial judge at page 24 of the application book, paragraph 56.  Her Honour says:

I accept. as the Commissioner submitted, that the ownership of the shares was not transferred from GE to BHP on entry into the purchase agreement on 15 April 1983 and that the transfer did not occur before the closing:  see s 1.3.  I also accept, as BHP submitted, that on entry into the agreement, BHP acquired the protection of equity to the extent of its interest under the agreement.  If, for example, GE had set out to sell the shares to another purchaser or to destroy the underlying businesses and assets, BHP would have been entitled to injunctive relief.  BHP had, in that sense, acquired an interest in the shares commensurate with the extent to which equity would protect it:  See Stern v McArthur . . . 

Upon entering the purchase agreement, GE was deprived of much of the use and enjoyment of the shares –

and that, we say, is critical -

in so far as it was precluded from selling them or plundering the underlying businesses and assets.  GE could not have declared dividends in its favour since under the purchase agreement it had precluded itself from so doing.  Upon satisfaction (or waiver) of the relevant conditions precedent, it (or its assignee) –

Just pausing there, they were conditions precedent not to contract but to completion, of course -

was bound to transfer the shares to BHP (or its assignee).  Further, in the period prior to the closing, GE was unable to run the underlying businesses simply as it pleased, but was bound, by virtue of s 3.3 of the purchase agreement, to conduct the businesses only in the ordinary course . . . 

GE was, to use Harman LJ’s expression in Wood Preservation Ltd v Prior [1969] 1 WLR 1077 at 1097, “tied hand and foot”. In that case, there was a conditional contract for the sale of shares, pursuant to which the vendor precluded itself from declaring dividends or paying bonuses and from conducting its business other than in the ordinary course. Of that situation Lord Donovan said at 1095-6:

The shares (in a word) were like a tree which the owner could not sell and could not cut down and of which he could enjoy none of the fruit.

KIRBY J:   It could not be blown down.

MR BLOOM:   Even with an appropriate sign perhaps, your Honour.

The Court of Appeal held in that case that the vendor had, on entry into the share sale contract, given up the beneficial ownership of the shares . . . In relation to these appeals, it suffices to say that, upon entry into the purchase agreement, GE was deprived of so much of its beneficial interest in the shares as equity would deny it.

Then at line 19 on the same page:

Under the purchase agreement, GE agreed to sell, and BHP agreed to purchase, the shares “as at and from January 1, 1983” –

that being the date of the accounts -

That date was chosen because the underlying businesses and assets could be (and were) valued as at 1  January 1983.  It was from that date, pursuant to the agreement, that BHP was to acquire the right to the enjoyment of any earnings to which the shares gave rise; and it was from 31 December 1982 that GE was to give up any entitlement to those earnings.

KIRBY J:   Now, there is no dispute about any of these facts, is there?

MR BLOOM:   No.

KIRBY J:   In fact, there is no dispute about the legal principles to be applied?

MR BLOOM:   Your Honour says that.  With respect, there is certainly ‑ ‑ ‑

KIRBY J:   Well, I mean, courts around the common law world that have been battling with this characterisation issue for a century.

MR BLOOM:   This turns more on what might happen in equity and one of the cases to which we have referred the Court is Harvela and it was a case where the time for completion of the purchase of some shares had passed and ultimately the purchaser was ordered, on completion and together with the purchase price, to pay interest because the purchaser was to be entitled from the date of completion to the profits.  Now, the question that arises here is one of a distinction between what the trial judge held, which was that that sort of principle applies where the benefits of possession arise, and what the Full Court held, which was, “No, it only arises where actual possession has been obtained”.

So, the distinction and the tension between the trial judge’s judgment and the judgment of the Full Court is that question.  If the purchaser is entitled to the fruits and ownership as and from the date of contract, is that enough or must actual possession be obtained before what is being paid can be called interest, whether in equity or in a situation here under a contract?  That is what divided, with respect, the court.  Her Honour held at page 26, at the bottom of that page:

As we have seen, under the purchase agreement, the shares were sold to BHP as at 1 January 1983 but the purchase price was not paid until much later, as it turned out on 2 April 1984.  As we have also seen, as from 15 April 1983, GE was deprived of the practical use and enjoyment of the shares . . . but BHP was not called upon to pay to pay GE until the closing –

Just pausing there, again, the principle underlying payment or an order for the payment of equitable interest, your Honours ‑ ‑ ‑

GAUDRON J:   But that is not strictly correct, is it?  I mean, there was a certain contingency about this at all times.

MR BLOOM:   At all times, yes, your Honour.

GAUDRON J:   So they were only contingently deprived.

MR BLOOM:   Yes, but, your Honour, as in Stern v McArthur Justices Deane and Dawson pointed out the beneficial interest which the purchaser gets under any contract for sale is contingent, in the very least, upon the payment of the purchase price.  It is always going to be contingent upon completion arriving.

GAUDRON J:   Yes.

MR BLOOM:   But there was a contract and under that contract GE was not entitled to detach and give to itself the profits of those businesses.

GAUDRON J:   If finance occurred?  There was a contingency about establishing the consortium?

MR BLOOM:   There was.  There were assets to be sold.

GAUDRON J:   That is right.  It does not seem to me to be analogous to the situation where somebody obtains the benefit of a contract in all but legal title.

MR BLOOM:   The equitable interest which BHP had was such, notwithstanding the conditional nature of the contract and the matters your Honour has mentioned ‑ ‑ ‑

GAUDRON J:   It was a very less substantial interest than that involved in Stern v McArthur, was it not?

MR BLOOM:   But it was the very interest which Justices Deane and Dawson identified, by reference to what Sir Frederick Jordan had said, namely that interest commensurate with the relief that equity would grant, and here ‑ ‑ ‑

GAUDRON J:   Yes, but what relief would equity grant here?

MR BLOOM:   An injunction to restrain General Electric ‑ ‑ ‑

GAUDRON J:   To restrain what?

MR BLOOM:   To restrain General Electric from dealing with the assets or the profits thereof in any way inconsistent with its bargain because they were conditions precedent not to contract but completion.

GAUDRON J:   Yes.  But in any way inconsistent with its bargain is simply to say to restrain any anticipated breaches of contract.

MR BLOOM:   Or actual breaches.

GAUDRON J:   Well ‑ ‑ ‑

MR BLOOM:   From continuing, I am sorry, your Honour, yes.

GAUDRON J:   Yes.

MR BLOOM:   But that is enough, we say, because that was enough to bring into play a principle upon which the grant of equitable interest itself is made.

GAUDRON J:   But your failure to identify what is bought too.  You are looking in your analysis, are you not, as though what is bought is what will be there at the settlement time.

MR BLOOM:   The non‑excluded assets – about that there was absolutely no doubt.  The non‑excluded assets were to be retained, were to be used to produce profits and General Electric was not entitled to those profits.  It could not detach them and take them for itself.  It had to leave them there for the purchaser, assuming that the contract proceeded to completion.  If the Full Court is right in this case, then in any case where equitable interest is ordered it must follow that because it is paid with the purchase price it is non‑deductible.

GAUDRON J:   The question may well be whether it is interest.

MR BLOOM:   That is the question for special leave, with respect.

GAUDRON J:   Just because the parties called it interest does not make it interest.

MR BLOOM:   Your Honours would not hear me put a submission to that effect or to the effect of the contrary.

GAUDRON J:   So, your general proposition is subject to whether or not something is truly interest?

MR BLOOM:   Yes, and the test which seems to have divided the trial judge and the Full Court is simply this, actual possession ‑ ‑ ‑

GAUDRON J:   It is true, is it not, that it is not interest in the general sense?

MR BLOOM:   We say it is, with respect, because we say the test for whether it is properly called interest is not as Justice Hill who delivered the judgment for the Full Court said, based upon actual possession but based as in the equitable interest cases upon the date as at which the fruits of possession accrue.

GAUDRON J:   Let us take an ordinary contract of sale for land.  There are adjustments as at the date of completion for this, that and the other thing.

MR BLOOM:   Yes, your Honour.

GAUDRON J:   Why is this not more analogous to the adjustments that would take place than to any payment of interest for early possession, and if it is in the nature of adjustments then it would seem to be ‑ ‑ ‑

MR BLOOM:   But, your Honour, this Court has been called upon on more than one occasion to deal with adjustments on account of rates and land tax and things like that and has identified what the adjustments are specifically for and has ruled, in the case of rates and taxes, that they are deductible.

GLEESON CJ:   These are adjustments for getting the benefit of the profits.

MR BLOOM:   Yes, and a payment for getting the benefit of the profits is properly called, in our submission, interest if it is based upon the date at which you become entitled to the fruits. If one goes back to Fry one sees a principle emerging a long time ago that says that no one party to a contract should at the same time have the benefit of the fruits of possession and continue to hold his purchase price.

KIRBY J:   Leave enough time, Mr Bloom, for your second point which seems more fruitful.

MR BLOOM:   Yes.  If your Honours please, I will turn to that immediately.  The second issue, of course, is the full and true disclosure one and a majority of the Full Court held that the applicant had not made full and true disclosure because its disclosure had been accompanied by a false and misleading statement.  Now, to understand this it is necessary - if I might ask your Honours to turn briefly to pages 133 to134 in our summary of argument, there is an extract from a letter of 27 March 1984 from BHP to the Commissioner.

KIRBY J:   This stands on its own, does it not, this separate point?

MR BLOOM:   Yes, your Honour, it does, quite separately.

KIRBY J:   It concerns quite a lot of money too.

MR BLOOM:   Yes, and a different year.

KIRBY J:   Yes.  The only thing you will have to demonstrate when you finish establishing the point is that it is still, in a sense, a live point, because the point is taken against you that it is ‑ ‑ ‑

MR BLOOM:   There are some 23 statutes in which this or similar expressions appear.  How the majority found against us was to say that a statement was misleading and that, of course, raises the Trade Practices Act as well, and we say they simply failed to apply the proper test in order to reach that conclusion.  Now, your Honours see that letter or the extract from it.  The agreement was enclosed.

KIRBY J:   You sent the agreement?

MR BLOOM:   Yes.

KIRBY J:   So that the Commissioner had the agreement?

MR BLOOM:   He did.

KIRBY J:   What more could you have done?

MR BLOOM:   Your Honour, nothing more.

KIRBY J:   I suppose he says, “Well we’ve got lots to do.  We don’t want to have to go ferreting around”.  You’ve got to give full” – “full” is the expression, “full and true”.

MR BLOOM:   Your Honours see there is a reference to “the interest due under Article 1.1” in the second paragraph.  So, we give him the agreement.  We say the interest is due under 1.1.  We then refer to “the loan”.  Now, as Justice Hill points out in his dissenting judgment on this point, in the context of withholding tax, when one refers to a loan one is referring to any form of financial accommodation because the withholding tax provisions deal not just with interest but amounts in the nature thereof.

So, this reference to “the loan”, not “a loan” but “the loan” after the reference to clause 1.1 of the agreement, is a reference to “loan” as understood in the wider sense of financial accommodation, in the context of withholding tax, and in an application for a certificate which five months after he got this letter, to the day, the Commissioner granted - one presumes after some reasonable look at the issue - he gives a certificate and in his own certificate he describes it as a loan.  It is the reference to the Commissioner’s certificate in the taxpayer’s return which is said to be a misleading statement by the taxpayer.

KIRBY J:   So it turns on the word “true”, does it, that you gave the full disclosure because you gave the agreement and you referred to the clause, but it is said that you did not give a true disclosure.

MR BLOOM:   Yes, your Honour, because we characterised it for the purposes of the withholding tax provisions – not for any other purpose.  That was an application for withholding tax exemption on the interest on the form of financial accommodation, as Justice Hill accepted in his dissenting judgment.  Now, your Honours, the test - their Honours in the majority accepted, with respect, that there was full and true disclosure but for this accompanying material misstatement, namely, the reference to the Commissioner’s own certificate.

The test for that, with respect, namely, whether a statement is misleading, is to ask, as this Court said in Krakowski, how in the context would it be understood by the recipient for whom it is intended?  So, how would a reasonable person in the position of the Commissioner, given all the material he was given, given it was an application for exemption from withholding tax, be affected by that representation?  They did not ask that question.  They simply said, “Well, they called it a loan.  It wasn’t a loan.  Therefore, it’s false and it follows it’s misleading”.

There is not one suggestion that a person in the position of the Commissioner ought to have been misled, still less that he was in fact misled in this case.  If one goes to his objection report, which we have included in the papers which we have given to the Court, at page ‑ ‑ ‑

GAUDRON J:   I wonder if it is relevant that he was misled.

MR BLOOM:   Well, he was not because in his objection report he makes no reference at all to this issue.  When he gets to section 107 and he says “My power to amend”, not once does he refer to the loan.

KIRBY J:   I think Justice Gaudron’s question, though, is is the test really subjective or is it objective, the court looking, as sit were, retrospectively.  It is not whether some clerk in the Commissioner’s office was in fact misled it is whether, objectively, a court will say, “This is not full and true disclosure”.

MR BLOOM:   I accept that.  I just add for more abundant caution in this case ‑ ‑ ‑

KIRBY J:   Yes, a little bit of forensic poison.

MR BLOOM:   Yes, your Honour.  If your Honours will excuse me that ‑ ‑ ‑

KIRBY J:   We are immune to that.

MR BLOOM:   Yes, your Honour.  But they did not apply the test.  In our respectful submission, had they applied the test they would have come to the same conclusion as Justice Hill came to on this point and ‑ ‑ ‑

KIRBY J:   Where does his Honour encapsulate his principal ‑ ‑ ‑

MR BLOOM:   Page 101.

KIRBY J:   Yes, it is down the bottom, is it not?

MR BLOOM:   At the top of that page, firstly:

The only issue upon which minds may differ is whether it is correct to say that BHP made, at least, ultimately, a disclosure that was “true”.  There is no doubt, for the reasons which I have already given, that the payment in question was not interest.  So far as the letter of 27 March is concerned, it is abundantly clear that there never was a loan made by GE to BHP.  A part of the difficulty is that while s 128H refers to “loan” (an undefined expression) and “interest”, the withholding tax and certificate of exemption can apply not only to “interest” but amounts “in the nature of interest” (see definition in s 128A(1)).  Just how broad that the latter concept is is far from clear.  The broader the concept of interest, the more it could impact on the meaning of the word “loan” as used in s 128H.

He notes in the explanatory memorandum bills of exchange were mentioned as a loan, when, of course, this Court has held and the House of Lords has held many times it is not.  Then he goes on to say:

Against this background –

so his Honour takes into account context which the majority did not -

it is to be noted that the correspondence made it clear beyond doubt what BHP was talking a bout.  It had agreed to purchase the relevant shares from GE under an agreement which it forwarded to the Commissioner.  That agreement referred to the relevant payment as “interest”.  The Commissioner could, in my view, have been in no doubt upon reading the correspondence together with the purchase and sale agreement that there was no loan in the sense of monies in fact advanced by BHP to GE.  What was being referred to was the payment identified in the correspondence as that to be made “under Article 1.1 of the agreement calculated as set out in that clause”. 

While I accept that a disclosure that is but a half truth is not a true disclosure or, for that matter, that a misleading disclosure is not a true disclosure the present disclosure has to be seen in the context of the correspondence which I have summarised.

Now, the majority, with respect to them, just simply did not do that.

The other thing is, there is a tension between this decision of the majority and the other decision of the Full Court in the MIM Case where three of their Honours in the Full Court held that to provide the agreement is enough, even if there is an incorrect characterisation in the return by the taxpayer, of the transaction to which the agreement refers.  If your Honours please, for those reasons we would ask for a grant of special leave.

KIRBY J:   You say that the self‑assessment system does not make this a redundant or ‑ ‑ ‑

MR BLOOM:   Certainly not, your Honour.  There are 23 statutes still where the issue of full and true disclosure still arises in this country and the basis upon which it was held against us ‑ ‑ ‑

KIRBY J:   Tax statutes?

MR BLOOM:   Not all tax.

KIRBY J:   No, but some are?

MR BLOOM:   We have listed them, your Honour, at 156 to 157.  The Child Support (Assessment) Act, for instance, the Bankruptcy Act, Co‑operative Housing Act, Stamp Duties Act, Pipelines Act, Associations Incorporations Act, Commissions of Inquiry Act.  Again, there is the wider question here, of course, the statement was here held to be misleading without application of the appropriate Krakowski test to that, and that of course goes into the Trade Practices Act and anywhere else where misleading statements are made to be a relevant issue.  So, we do say, with respect, it is an issue justifying special leave and, of course, there is a very large amount of money involved.

GAUDRON J:   Yes, thank you.  Mr Pagone.  The Court need not trouble you on the question of deductiblity, so if you would confine your submissions to full and true disclosure.

MR PAGONE:   If your Honour pleases.  Your Honours, may I begin by correcting what I think is an error of my learned friend’s.  If your Honours go to page 109 of the judgment of the majority, your Honours will see that what the majority say in respect of full and true disclosure at the bottom of the page in the reasons is that they:

accept the summary at [53] to [59] in the reasons of Hill J of the general principles to be applied in determining whether there was a “true and full disclosure” –

They were plainly aware of what his Honour had said and generally accepted it.  Where they differed from his Honour was in the construction of the facts, what the facts did or did not do.  If your Honours turn to the next page – what their Honours then did was to look at the observations that had been made by Justice Windeyer in the case of Thomas, particularly the passage which is quoted there, that is to say:

“…if it appears that without any accompanying misrepresentation it had made known to the Commissioner all that, properly considered, would lead to the conclusion that the expenditure was of a capital nature.”

What their Honours did was to construe the facts to see in the facts a misrepresentation - not a misleading statement, a misrepresentation.  That is plainly what they did.  They looked at the facts and they accepted the principles as laid down by Justice Hill.  The difference between the two is not a question of principle, it is a different view about the facts.

KIRBY J:   Yes, but it is in a context where the phrase is used in many statutes where the citizen has provided all the relevant material and in the context of the correspondence it is very strongly arguable – very strongly arguable - that full and true disclosure has been provided and it leaves on the record an approach to the statutory phrase of “full and true disclosure” a view which seems extremely burdensome on the citizen.

MR PAGONE:   Your Honours, we would say two things about that, first of all, that as a matter of legal principle, their Honours were correct in saying that there is no full and true disclosure if there is an accompanying misrepresentation.  We say their Honours were correct in principle in saying that.  Nothing that Justice Hill said was to the contrary.  He did not purport to say that what had been said in Thomas’s Case was in any way incorrect.  He was of the view, as far as one could see, that the facts did not disclose a misrepresentation.

Their Honours are of the view that on application of general principles there was an accompanying misrepresentation.  It is instructive to see how that occurs because their Honours saw it not once but twice arising in the correspondence between the parties.  That is to say, they begin at paragraph 90 by saying that:

In our view it is of the essence of a “full and true” disclosure that it be made without any accompanying material misrepresentation.

They then set out at paragraph 91 the facts:

the Commissioner was informed by BHP in its tax return for the 1984 year of income that:

it was claiming, as an allowable deduction, interest paid . . . 

an exemption –

There is a reference then to:

The letter of 27 August 1984, when read together with the enclosed Certificate, is to the effect that the interest in question had been paid on a loan –

Then at the bottom of the page:

If BHP’s disclosure had been that the payment of interest on the purchase price was made pursuant to cl 1.1 and 1.3 of the agreement we would accept that that disclosure, without more, would have been a full and true disclosure.

That is my learned friend’s case:

However, there was more.  The disclosure in the return, by incorporating the Commissioner’s letter of 27 August 1984, was to the effect ‑ ‑ ‑

GAUDRON J:   But is not that the difficulty?  It is the Commissioner’s certificate and the Commissioner must be taken to have known the context in which that certificate was given.  The difficulty of characterising is as a misrepresentation in the light of the Commissioner’s own procedures seems to me to be significant.

MR PAGONE:   Your Honour, in light of the Commissioner’s own procedures it does raise the question that your Honour asked of my learned friend about is it a matter that depends upon the Commissioner’s knowledge or is it to be viewed objectively?

GAUDRON J:   No, not his knowledge – no, I did not ask him that.  I said whether or not he was in fact misled.  It seems to me to be irrelevant.  The present question is:  can you regard it as a misrepresentation when you are relying on the Commissioner’s own, as it were, characterisation for a particular purpose which one would think the Commissioner would be aware of?

MR PAGONE:   Your Honour, we would say that there can be little doubt that there can be a misrepresentation in circumstances where what is put to the Commissioner by the taxpayer is a proposition of a fact which is plainly incorrect, and that is what their Honours did in the majority.  At page 111 – at the bottom of the previous page what they were concerned about was that there had been a misrepresentation that a loan had been made when, as they say, there was no such loan and therefore the disclosure was false.

GAUDRON J:   Had the Commissioner had the agreement for the purposes of the withholding tax application?

MR PAGONE:   Well, your Honour, this comes down to the beauty of the poisoned document.  My learned friend sought to take the Court to tab 7 behind their material and what is interesting about the poisoned document against us is what it actually says.  What it said at about halfway on page - your Honours will see behind tab 7 the pages are numbered pages whatever they are of 7 pages and if your Honours go to page 5 of 7 the document that our learned friends seek to rely upon today in the middle paragraph says:

The taxpayer maintains that the Commissioner was fully aware of all the facts (including a copy of the Purchase Agreement) prior to . . . While the Purchase Agreement is mentioned on the WT 10001 File a copy is not actually attached.

Now, there was, it is accepted, a letter which purported to attach the file.  There is no evidence about that other than this poisoned document that our learned friend wished to rely upon.

GAUDRON J:   So there is no evidence in the proceedings as to what the Tax Commissioner had for the purposes of the withholding tax application?

MR PAGONE:   I think I can answer it this way, your Honour, that I am pretty confident there is no evidence that there was that document on that file, although there is a letter which purported to send it.  There is a letter that purported to send the document.  The letter, I think, was in evidence but I do not think the document itself, as sent by that letter, is in evidence.  So far as the Court here is concerned, it is not put by our learned friends that they can point to any passage where that fact was found.  In any event, their Honours went on to say at 111 that there was an early disclosure on 27 March, but in their view they say that is ambivalent and at line 9 they say:

In making that disclosure BHP made substantially the same misrepresentation in the letter as it made in its return.

Then there are references to Austin’s Case.  So far as the crux question on the full and true disclosure is concerned, one needs to ask:  what is the question of principle that the court may have got wrong?  We would say that as a matter of principle it cannot seriously be contended that if there is a misrepresentation, that the misrepresentation will therefore prevent the conclusion that there has been full and true disclosure.

GAUDRON J:   The real issue is, is it not, whether there was a misrepresentation?

MR PAGONE:   That is right, your Honour.

GAUDRON J:   In the context of the dealings it can be characterised as a misrepresentation.

MR PAGONE:   I accept even that, your Honour, and then one asks the question:  have the Federal Court got it so far wrong that the conclusion should be overturned?  To that you say, your Honour, (a), they got it right; (b), even if one were minded to the view that they got it wrong, it is not that far wrong.  It was open on the facts to reach that characterisation and that is what they did.

KIRBY J:   Yes, but if you are of the view tentatively that they have got it wrong, then it is not only where there is a matter of great principle involved.  I mean, we are still a court of justice and even a large corporation is entitled to justice and a lot of money turns on it.  In the old days they could have come here as of right.

MR PAGONE:   That is true, your Honour, but these days they cannot and what your Honours must ask is, looking at these facts:  are we of the view that the Federal Court could not have reached that conclusion?  We would say to your Honours that your Honours should not reach that conclusion, that this judgment, even if your Honours say, “Well, it is not the view that I would take”, your Honours should similarly say, “Well, it is not the view I would take but it is the view that I could reasonably expect someone else would take”, and for that reason this Court should not entertain reviewing it on that principle, otherwise it would be quite wrong for the Court to limit the case that it picks up in the way that it does.

So far as the number of statutes that do or do not pick up the concept, it is the case that there are some statutes that use the words “full and true disclosure”.  It is also true that this provision in this context with this effect has been repealed, so that whatever else can be said about those words in other contexts cannot be said about these words in this context because we have moved fundamentally away from a system where it was the Commissioner determining the tax on the basis of disclosure.

KIRBY J:   Yes, but that was the regime in force at this time.

MR PAGONE:   That is true.

KIRBY J:   Therefore, we are in the paradigm of dealing with it in this context, at least so far as justice is concerned.  You say the statute has changed and therefore it is not a live question for the future but, as Mr Bloom points out, there are many statutes of the Commonwealth that have this phrase.

MR PAGONE:   But, at most, that would put Mr Bloom’s analysis at the level that something may be gleaned from this case in that context, and what we say about that, your Honour, is that that is not a conclusion that can be reached because the words will have a different colour about them in that context.  What will constitute full and true disclosure for one context will be very different from another context.  To give a simple example, what would be encompassed by a full and true disclosure for the purposes of an employer’s declaration under fringe benefits tax, or indeed even an employer’s declaration in respect of PAYE tax that had to be remitted, on the one hand, and on the other hand the full and true disclosure that one might expect of a large corporation being involved in a whole range of activities involved in a great variety of facts, circumstances and transactions.

Full and true, in one context, is quite different from full and true in other contexts, and that is just within the paradigm of this legislation.  When one then takes different kinds of legislation, one cannot be confident that the Court would be opining in respect of full and true disclosure here would have even the remotest ‑ ‑ ‑

KIRBY J:   I think you make a good point that if the legislation had remained the same, then it is a different matter because the statute continues to be applied and now at least in this area it is not being applied.  I understand that point but there is still a strong dissenting view of Justice Hill and a strongly arguable point, a lot of money turning on it and a case where a party comes and says, “We’ve suffered an injustice.  We want to have this Court correct it”.

MR PAGONE:   Your Honours, one then needs to focus upon the injustice, narrow oneself to the question of what is the injustice and we say, as a matter of principle, nothing wrong, the Full Court, the majority got it right on the question of principle.  Application of principle to the facts, we say it was open to the court, on the facts, to reach that conclusion.  They reached the conclusion correctly.  It was urged upon them that there had not been full and true disclosure.  A number of arguments had been put to them.

Not all the submissions were plainly accepted but they found that there had not been full and true disclosure because of what they perceived to be – correctly, we say – a misrepresentation and in those circumstances we say it is plain that the court was correct, there is no injustice.  As it were, the last line of defence is that even if there be an injustice, it is not just any injustice that would justify the Court granting special leave, it must be one that is simply not open to the Court to reach.  We say that on these facts that is not a view that the Court could or should determine.  I hope I have made up some of my time.

KIRBY J:   You do not feel obliged to fill in the time.  You took up so much earlier.

MR PAGONE:   If your Honours please.

GAUDRON J:   Yes, Mr Bloom.

MR BLOOM:   Your Honours, as to my friend’s, if I may, with respect, call it opportunistic point arising from his own objection document in which he says he had lost the agreement by 1992, there is not the slightest bit of doubt that both Justice Hill at pages 99, 100 and 101 and the majority found that the agreement had been sent and indeed, as Justice Hill pointed out, there was a subsequent ‑ ‑ ‑

GAUDRON J:   When?

MR BLOOM:   With the letter of 27 March.

GAUDRON J:   For the withholding tax.

MR BLOOM:   Yes, the withholding tax, with the application.  Indeed, it is hard to believe that somebody would have sent a letter saying, “Agreement enclosed” or “attached” and the Commissioner having got the letter and then not having got the agreement would not have asked for it, and, in any case, there was a subsequent letter that Justice Hill refers to in which the final copy of the agreement was subsequently forwarded before the certification was obtained.

KIRBY J:   We are not going to have an argument about whether the facts were properly before the courts below?

MR BLOOM:   Certainly not, your Honour.  The case was conducted below by my learned friend on all bases.

KIRBY J:   It does appear that way, from the record.

MR BLOOM:   Most certainly.  On the principal point, yes, it is true that misrepresentation was what the majority referred to but they did so in the context of a misleading statement then without applying the test as to whether or not it was reasonable in the context to expect that a person in the position of the Commissioner had been misled.  They simply failed to ask that question.

GAUDRON J:   Again, there may be another test:  “would be misled” as distinct from “might be misled”.

MR BLOOM:   Yes, your Honour, whatever the test might be, but that test needed to be applied.  When applied in those latter terms by Justice Hill the conclusion was clearly to the contrary.

KIRBY J:   Could I ask you a question on the sordid issue of costs?

MR BLOOM:   Yes, your Honour.

KIRBY J:   If this Court dismisses the application so far as it related to your first point but you had to bring your application in order to get up on the second point and if you were to get up on the second point, would it be proper in those circumstances to order that you pay the costs of the respondent on the first point, or do you say that you should get the costs of the application because you had to make it?  I am not sure what should be done in those circumstances.

MR BLOOM:   Ordinarily, your Honour, probably we ought to pay the costs.  I have no instructions and I should perhaps get them, but we perhaps should pay the costs on the first point, it would seem.  We have lost on that point, if that is what your Honour is saying.  Would your Honour permit me to get instructions briefly?

KIRBY J:   We might make our order whatever your instructions are.

MR BLOOM:   Yes.  Then your Honour can anticipate I will obtain them in due course.  If your Honours please.

GAUDRON J:   So far as concerns the question of deductibility, the Court is of the view that the decision of the Full Federal Court in that regard is not attended with sufficient doubt to justify the grant of special leave and on that aspect of the application special leave should be refused, with costs.  However, there will be a grant of special leave limited to the question of full and true disclosure, and the Court orders in those terms.

KIRBY J:   This would only be half a day or maybe a little bit longer, I suppose, to get through the evidence.

MR BLOOM:   Certainly no longer than a day, your Honour, and it may be over in half a day.

KIRBY J:   Do you agree with that, Mr Pagone?

MR PAGONE:   Yes, I do, your Honour.

GAUDRON J:   Thank you.

AT 11.54 PM THE MATTER WAS CONCLUDED