SP Investments Pty Limited (as Trustee of the LM Brennan Trust) v The Commissioner of Taxation

[1993] HCATrans 355

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Sydney No S41 of 1993

B e t w e e n -

S.P INVESTMENTS PTY LIMITED as

Trustee of the L.M. BRENNAN

TRUST

Applicant

and

THE COMMISSIONER OF TAXATION

Respondent

Application for special leave

to appeal

BRENNAN J
DAWSON J

McHUGH J

S.P. Investments 1 19/11/93

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 19 NOVEMBER 1993, AT 12.35 PM

Copyright in the High Court of Australia

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

learned friend, MR R.F. EDMONDS, for the applicant.

(instructed by C.R. Fieldhouse)

MRS. OWEN-CONWAY, QC:  May it please the Court, with

MR P.R. MACLIVER, I appear on behalf of the

respondent. (instructed by the Australian

Government Solicitor)

MR BLOOM:  Your Honours, we have a short outline and some

passages from cases, if I might hand those up.

BRENNAN J: Yes, Mr Bloom.

MR BLOOM:  Your Honours, might I just take the Court,

briefly, to some passages in the application book.

Firstly, at page 79, the middle of the page, the

judgment of His Honour Mr Justice Hill, with whom

the other members of the Federal Court agreed:

There remains one matter which has given

me some concern. In Myer -

that was a decision of this Court, of course -

and in Henry Jones (IXL) -

that was a decision of the Full Federal Court and

facts very similar to Myer which followed Myer -

the taxpayers were carrying on a business so
that the amount derived as a result of the

assignment could be seen in all the circumstances as a business profit.

In Myer, the High Court referred to the

fact that the profit was one made in the

course of carrying on a business as being of

"telling significance". Their Honours did not

necessarily, by this comment, intend to

suggest that a different result would follow

if there had been an assignment of future

interest other than in the course of business.

In Henry Jones (IXL), I left open the question

whether the substitution principle was

restricted to receipts in the course of

business, for in that case too the transaction
giving rise to assessable income was in the
course of business.

In the present case, the trustee could

not be said, in any conventional sense, to be carrying on a business activity involving its right to receive a share of the Hamersley

royalty, nor could the assignment be said to

have taken place in the course of that

S.P. Investments 2 19/11/93

business. However, I have concluded that the

second strand of Myer should not be seen to be
so limited, albeit that the fact that the

profit occurs in the course of business would
be not irrelevant to the outcome of a

particular case.

Now, pausing there, in relation to that last

sentence, His Honour refers to "the second strand

of Myer". Now, whether there are two separate and

unconnected strands of Myer is not a matter which

this Court has ever considered. That there were

two separate strands was decided in Henry Jones

and, again, it was expressed to be not without some

doubt that there was a separate independent strand.

So, one has doubt as to whether there is a separate

strand and then doubt in this case as to whether
that separate strand has operation absent a
business.

But the second aspect in that sentence is this: His Honour refers to the profit occurring in

the course of business but, while in both Henry

Jones and Myer there was profit, in this case there

is an express finding that there was not. If I may

take Your Honours to page 62, there is a passage set out there from the decision of this Court in

Myer at 216:

"The two transactions were interdependent in

the sense that Myer would not have entered

into the loan agreement unless it knew that

Citicorp would shortly thereafter taken an assignment of the moneys due or to become due for a sum approximating the amount payable in consideration of the assignment. Indeed, from the viewpoint of Myer the two transactions

were essential and integral elements in an

overall scheme, that scheme being a

profit-making scheme.

If the two transactions, namely the loan

agreement and the assignment, are considered

as separate and independent transactions,

Myer's argument that no relevant profit arose

from the assignment has compelling force.	The
consideration payable for the assignment
reflected the true value of the chose in

action which Myer assigned. But once the two

transactions are seen as integral elements in

one profit-making scheme, it is apparent that

Myer made a relevant profit, that profit being

the amount payable on the assignment."

And then His Honour continues over the page. I

might just indicate too that it had been found in

S.P. Investments 19/11/93

Henry Jones (IXL) that there were two

interdependent transactions. Mr Justice Hill says:

In the present case there are not two

interdependent actions that together can be

referred to as a profit-making scheme. There

is only one transaction that is relevant, and

that is the transaction of assignment. For

this reason, to adopt the words of the Full

High Court, the argument that no relevant

profit arose from the assignment has

compelling force.

And then to page 65, after the portion in quotes:

With respect to the argument for the

Commissioner and to the judgment below, in my

view, no profit was derived by the Brennan

Trust at all. Profit has to be determined, in

a case such as the present, by comparing the

position before and after the transaction.

Here, before the transaction, the taxpayer had a contractual right to the payment of

royalties by Hamersley Iron effectively for

the life of the iron ore body. After the

transaction, that right had been diminished by

an assignment of it for seven years. If one

assumes that the purchase price paid

represented the present value of the future

royalty stream, which at least as his Honour says was substantially the case, the decline

in value of the contract to receive the

royalty equalled the amount received. The

reasoning in Myer, expressed in the passage

quoted, depends on the words "the principal

[of] the loan being intact." The opposite is

the case in the present appeal.

If Your Honours then go two pages further, to

67, His Honour picks up the distinction which this

Court picked up in Myer between an annuity and a

right to interest. At the top of page 67, the

first full sentence:

In Myer, it was quite clear that what was

assigned was merely the right to receive

interest. There was neither an assignment of

the contractual rights under the loan

agreement, nor an assignment of the right to

repayment of capital.

In the course of their judgment, their

Honours in the High Court discuss the

difference between an assignment of interest,

on the one hand, and an assignment of an

annuity, on the other. At 218 their Honours

say:

S.P. Investments 4 19/11/93

"The source of interest is never the mere

covenant to pay. Interest is not like an

annuity. Annuity payments are not derived
from the money paid for the annuity; they are

derived solely from the annuity contract.

And pausing for a moment, Your Honours: so, here,

the right is derived solely from the contract for

the payment of the royalties.	Your Honours
continued in the High Court:

And so when a contractual right to be paid an

annuity is sold for a price, the proceeds of
sale are ordinarily capital in the hands of
the vendor."

For this proposition, their Honours cite the decision of Lord Romer in Commissioners of Inland

Revenue v Paget. At those pages, Lord Romer said:

"In these circumstances, the only question to be decided is whether the proceeds of sale of

a right to receive income in the future can be

treated as income for the purpose of the

Income Tax Acts. The question thus broadly

stated plainly admits of but one answer; and

that answer must be in the negative. The

proceeds of the sale for a lump sum of an annuity, for instance, are capital in the

hands of the vendor and not income. And this

is true even when the subject of the sale is

not the annuity for its whole duration but the
right to be paid the annuity for a number of
years or even for one year.

Now, if Your Honours go from there to page 76, which is probably the essential aspect in

His Honour's judgment:

In the present case, the mere fact that

the assignment was of part only, in monetary

terms, of the total royalty that might become

payable to the assignor, can not operate to

make that which is received as consideration

for the assignment income. There can be no

doubt, for example, that the assignment of
fifty per cent of an annuity right for
consideration would no more make that
consideration income than would be the case if
consideration were given for the assignment of
the whole annuity interest. Nor does the fact

that the assignment is for a term of years

necessarily produce the result that the

assignment is income. The assignment here was

not an assignment to enure for the whole of

the period the subject of the assignor's

S.P. Investments 19/11/93

rights, but merely for a limited term of

relatively short duration.

Well, of course, Your Honours, it was for more than seven years.

It is that fact, coupled with the restriction

to a defined amount of income, which in the
present case makes it clear that the
consideration was received in substitution for

the income assigned, or as I described it in

Henry Jones (IXL), in a passage erroneously

transcribed in the report, was an amount which

filled the "hole" (not "whole'') of income created by virtue of the assignment. The

purpose of the assignment, like the purpose of

Carapark Holdings Ltd v of the revenue receipts which the assignment prevented from arising.

the insurance in

Your Honours, that, in our respectful

submission, commits what Professor Parsons

described as the error of confusing measure with

quality. It will always be the case with every

assignment or commutation of an annuity or a

pension that the lump sum received, even where it

is an assignment for a term of years, will always

represent the future value of the present income

and, in that sense, is always a substitute for the

income which has been foregone. But it is a case

which is far away from the concept of insurance.

If one insures against a loss of income, what one

gets is the very income that one has lost.

What one gets here as a substitute for the

right to income is the capital sum which is paid as

the purchase price of that right and, in our

respectful submission, Your Honours, this is the

passage where the court goes wrong below, and it

really is a matter which is deserving of special

there are two separate strands in Myer or whether	leave so at least this Court can tell us whether
that is a matter of some doubt and when and in what
circumstances the second strand can operate where
one has, as here, an annuity, an assignment of that for a term of years, which will, if the passage in
Paget which this Court referred to in Myer with
apparent approval is correct.

DAWSON J:  What would be the position if you assigned a

percentage of the annuity income?

MR BLOOM:	No different, Your Honour.
DAWSON J:	No difference?

S.P. Investments	6	19/11/93
MR BLOOM:	No different.	As long as it was for a term of

years, it would be no different, Your Honour, and

His Honour so says at the top of page 76. But it

is a matter which has wide-reaching application

because it really does apply to every annuity and

every pension that might be commuted or assigned
for a term of years and that is something which is

quite frequent in terms of superannuees these days.

It is a matter which is of some importance -

DAWSON J: There is no difference in the fact that it is

a right to participate in the percentage of profits

of another venture?

MR BLOOM:  No, Your Honour. It is a right to a 15 per cent

royalty and it is a mere contractual right

associated with no other property owned by the assignor. That is the difference. His Honour accepts that here there is no underlying property

and that this is a right that is more akin to an

annuity.

DAWSON J: That seems to be correct.

MR BLOOM:	Yes.
BRENNAN J:	Mr Bloom, could I take you to page 78 which seemed to me to contain, as it were, the heart of
His Honour's reasoning, at line 23:

Subject to the terms of the assignments, the underlying right to take action against the

payer of the royalty remains with the

assignor. In that sense it can be said that

there was an assignment of a right to receive

periodical sums which when received would be

income, in circumstances where the underlying

chose in action is retained subject to the

assignment and the right is assigned in

consideration -

et cetera. Now, if that is the correct view of the

transaction, it is a transaction of a different

kind from the purchase of an annuity.

MR BLOOM:  Your Honour, we do not agree that that is the

correct classification - - -

BRENNAN J: I appreciate that. If it were - - -

MR BLOOM:  - - - but leaving that aside, if it were, it is

no different, with respect, to the assignment of an

annuity for a term of years, the very thing that

Lord Romer spoke about in Paget's case.

BRENNAN J: But it is, is it not, because if there is an

assignment of an annuity for a term of years, there

S.P. Investments 7 19/11/93

is an assignment pro tanto of the capital asset,

namely, the contract out of which the annuity

arose?

MR BLOOM: Well, the chose in action.

BRENNAN J: Yes.

MR BLOOM: Well, as here, Your Honour, even if there be but

an equitable assignment, there is still an

assignment in equity of the chose in action for

that term.

BRENNAN J: That raises another point because here there is

an assignment of a given amount which is to be

supplemented if it falls short or held in trust if

it goes over the top.

MR BLOOM:	Yes, Your Honour.
BRENNAN J:	Now, is that an assignment of the cause of

action out of which whatever is paid by way of

15 per cent royalty is derived or, more accurately,

is the nature of that transaction one that

justifies the grant of special leave?

MR BLOOM:  Your Honour, we say yes to both, with respect.

The assignment in equity is such that it always

requires the joining of the assignor as either

co-plaintiff or co-defendant in an action for

recovery, so any assignment in equity of an annuity

is going to have about it that same problem and

that is why that, really, makes no difference.

Indeed, at a passage at the top of page 75,

His Honour tended to suggest, we think, that it

made no difference. He said:

In the present case no significance can

be placed upon the fact that the assignment is
expressed to be of the assignor's right,

title, interest and benefit in what the

agreement refers to as "the assignor's

interest". No different result could follow

whether the assignment was so worded or
whether it was worded as an assignment of the

assignor's right to receive $50,000 or

$75,000, as the case may be, for the

stipulated period.

That is open to a number of constructions but in
one sense His Honour is really saying it is not

different because it is an equitable assignment, as

he refers to at page 78. And, of course, the

assignment in Shepherd's case to which His Honour

makes reference, a decision of this Court, was an

equitable sum.

S.P. Investments	19/11/93
BRENNAN J:	Even if it be right to say that that is a

correct analysis on 78, your argument basically is
that the conclusion is incorrect because it is in

conflict with the received doctrine in relation to

the assignment of an annuity?

MR BLOOM:  An assignment of rights to income, yes,

Your Honour, so far as they concern contractual

rights, yes.

BRENNAN J:  Why is that not in turn a question which is

appropriate for the Federal Court to determine

finally?

MR BLOOM:  Your Honour, the way the Federal Court has got to

this is to take this Court's decision in Myer and

say, "Not without some doubt, we'll extend it

firstly so that we now have a separate strand

called the "second strand" in Henry Jones (IXL) and

then again, notwithstanding some doubt, we will

extend Henry Jones and say that even if there's no

business - and more importantly, no profit, no

gain - we will tax a taxpayer in these
circumstances." Your Honour, really, with respect,

it gets to a point where this Court should be

making the decisions as to how far its decision in

Myer should go.

We have taken Your Honours to Mount Isa.

There was a passage in Mount Isa that we seek to

capitalize on, and "capitalize" is the appropriate

word if I may say so. It is at page 152 in the

judgment which is annexed to the outline of

submissions that we have given Your Honours.	The
first full paragraph, third sentence:

It was also suggested that because the courts, in recent decisions, have extended the concept of revenue from the viewpoint of receipt and

allowable deduction, it was logical and

symmetrical for the Court to broaden the scope

of losses and outgoings allowable as
deductions pursuant to s 51.	The submission
is extremely elusive -

and I hope mine is a little less elusive -

to say the lest of it. If one were to accept,

in accordance with the submission, that there

has been some extension in the concept of

income, that would only be of assistance in

resolving the present problem if one could

demonstrate what the relevant extension was

and how it embraces the facts of this

particular case. At no stage did the
taxpayer's argument descent to the requisite

level of particularity. Certainly the

S.P. Investments 9 19/11/93

argument did not succeed in establishing that

the concept of income has been relevantly

extended.

Now, here we start with the assumption that it

has been relevantly extended and we point

Your Honours, by annexing parts of the decision of

the Federal Court in Creer's case, to the other

side of the coin. Now, if Your Honours look at the

headnote there - that was a 51(1) case,
deductibility.

Where a lease of premises for a term of five years was granted at "the total rent of

$18,260" payable as to 80 per cent forthwith

and thereafter by two annual instalments of

10 per cent each, the amount so described was

an outgoing of a capital nature and therefore

not deductible ..... because, on a true

construction of the lease, it was a

capitalised sum payable in instalments.

So, the other side of the coin is that one would

not get the deduction for a capitalized sum and yet

one is assessable on the capitalized sum if this is

a proper extension by two leaps of the decision of

this Court in Myer. It is for those reasons, if

Your Honours please - - -

BRENNAN J: Is it a case where Myer really is the governing

authority?	After all, Myer was a particular
decision.	It may be an important decision. But it
is not the	only decision on the meaning of
"income".

MR BLOOM:  No, Your Honour, but it is a very, very important

one.

BRENNAN J: It will come as no surprise to you that I have

still got a certain affection for my judgment in

Federal Coke that you refer to.	May this not be a
case where it is simply to be said this is the sum

which is received for the income which is not to be

received and, on that account, is to have a - - -

MR BLOOM:  Then, Your Honour, it will always be the case

that when an annuity is assigned for the present

value or the capitalized value of the future

income, which is always the consideration for these

things, that, too, will be income on that
substitution principle and that principle is so

against authority both here and in England as to,

with respect, need either this Court to say it is

correct or to say it is wrong.	If Your Honour
pleases.

BRENNAN J: Yes, Mr Owen-Conway.

S.P. Investments 10 19/11/93

MR OWEN-CONWAY:  Your Honours, there are five principal

reasons why special leave ought not to be granted,

in my respectful submission.

BRENNAN J: State each of them in less than one minute and

then we will adjourn.

MR OWEN-CONWAY: Very well, Your Honour. First, the

judgment appealed from is clearly correct or

unattended by sufficient doubt. This case turned

on its own facts and, in particular, the facts

referred to by Justice Hill to which reference has

already been made this morning. The core issue was

whether the amount received was income in ordinary

concepts. This is to be determined as His Honour
indicated by the character of the receipt in the hands of the recipient, having regard to all the circumstances of the transaction without a
disproportionate emphasis upon the form in which

the transaction was structured.	So held His Honour
at application book, page 74.	he cases make it

quite clear that whether an amount is income depends upon its quality in the hands of the

recipient.

Second, there are no judicial differences of opinion raised by this case which require

resolution by this Court. The case raises the

application of principles previously enunciated in Myer to the facts of the particular case. In Myer

the High Court referred to Lake's case with
apparent approval. In Lake's case the Court looked

at the substance of what was assigned, in that

case, oil payment rights and a sulphur payment

right carved out by the taxpayer of a larger

mineral interest in each of the five cases,

producing income taxable as ordinary income.	The
Court there rejected the approach of form over

substance. With respect, the facts in Lake's case are relevantly indistinguishable from the facts in

this case.

Further, and most importantly, the second

strand of reasoning in Myer is not essential to the

conclusion in this case that the amounts received

were income. This conclusion is supportable by

reference to the Commissioner's alternate argument

that even if this case be one where the income-

producing asset has been disposed of either in

whole or in part, nevertheless, upon proper

analysis, having regard to all the circumstances of

the transaction, the amounts received represent
future income and are on income account.

Contrary to the submission put to Your Honours by Mr Bloom, in my respectful submission, a careful

reading of His Honour's judgment would lead to a

S.P. Investments 11 MR OWEN-CONWAY, QC 19/11/93

conclusion that His Honour decided this case, not

so much on the second strand of Myer but on general

principle.

BRENNAN J:  You can develop that perhaps at 2 o'clock.

AT 12.57 PM LUNCHEON ADJOURNMENT

UPON RESUMING AT 2.01 PM:

BRENNAN J: Yes, Mr Owen-Conway?

MR OWEN-CONWAY:  Your Honours, I was dealing with my third

point which was that the second strand of reasoning

in Myer is not essential to the conclusion in this

case that the amounts received were income. If I
could direct Your Honour's attention briefly to the

judgment of Justice Hill on page 72 of the

application book, at line 8. His Honour referred

to the:

considerable discussion as to the effect of	11 subject to cl. 2 11
the words	-

just pausing there, clause 1 of the deed purported to assign - by clause 1 of the deed, the assignor:

assign to the assignee all the right, title,

interest and benefit of the assignor in the

assignor's interest for the period

absolutely -

Now, His Honour noted that there is some difficulty

with the concept of the assignment of what was in

this case an equitable chose in action for a

limited period of time absolutely.

When one looks then at clause 2 - clause 1 is

subject to clause 2. Clause 2 provides that:

THE ASSIGNEE shall hold in trust all or any

amounts received by the assignee as a

consequence of the execution of these presents

over and above the amount of fifty thousand

dollars -

and then $25,000, combing to $75,000 and then for

the last nine months of the period, $25,000. So,

there was a trust. His Honour remarked on page 72:

S.P. Investments 12 MR OWEN-CONWAY, QC 19/11/93

There was considerable discussion as to the

effect of the words "subject to cl.2" and

whether there was, as submitted by the

appellant, an absolute assignment of the

entire interest in the royalty agreement for

the term of the assignment (with the trust

referred to in cl.2 thereafter arising), or

whether, as the Commissioner submitted, there
was no absolute assignment of the underlying

property right but only an assignment of

certain of those rights, that is to say,

amounts of $50,000 per month and $25,000 per

month during the periods specified.

And then at the bottom of page 73, line 22,

His Honour said:

Nor is it necessary or indeed profitable to consider whether there is first an

assignment of contractual rights following

which the trust in cl.2 arises, or whether the

trust in cl.2 qualifies that which is assigned

by cl.1. The question of whether an amount

received is income in ordinary concepts should
not be determined by subtleties of drafting,

or by the sorts of issues which bedevilled

practitioners in the area of death duties in

times gone by, such as whether an interest was

vested but defeasible on the one hand, or a

contingent interest on the other.

Then at line 11, having referred to Mullens' case,

His Honour said:

rather that the Court is required to consider
the character of the receipt in the hands of
the recipient having regard to all the
circumstances of the transaction without a

disproportionate emphasis upon the form in

which the transaction has been structured.

And His Honour made reference to Reuter's case, and

in Reuter's case reference is made to Cooling's

case, and in Cooling's case the well-known case is

where that principle has been established. It is

quite clear that from a reading of His Honour's

judgment, in my respectful opinion, that what

His Honour has done is reject the approach of form

over substance. He has looked at the reality of

these transactions which clearly are to assign
fixed amounts of interest for limited periods of

time carved out of the royalty entitlement, the

equitable chose in action comprising 15 per cent of

the prospectus two and a half per cent interest in

the Hamersley Iron Ore venture.

S.P. Investments	13 MR OWEN-CONWAY, QC 19/11/93
BRENNAN J:	How do you distinguish the case from the sale of

an annuity?

MR OWEN-CONWAY:  In the case of the sale of an annuity,

whether in whole or in part, the rights arising

therefrom arise from the contract of annuity itself

and probably, in the usual case, what is sold or

what is assigned is capital. I note that

His Honour here has suggested that a sale of an interest arising under an annuity for one year may,

in some circumstances, be the income, have the

character of income. Whether or not that is right,
in my respectful submission, does not matter for

the purposes of our argument because, in this case, what was sold to NML was not the equitable chose in

action. At best, on Mr Bloom's case, what was

assigned to NML was a segment of, a part only of

that equitable chose in action.

It is quite clear that the underlying property

right remained with the assignor. Not only was the

assignor entitled to receive and did receive the

benefit of any payments made in excess of the

specific sums assigned throughout the term. The

assignor was, at all times, responsible for any
obligations which accrued or may have accrued under

the royalty agreement and the 1964 agreement by

clause 5 of the deed. Now, that clause is not, in

fact, referred to in His Honour's judgment but I do

have copies of the deed. Perhaps I can hand them

up to Your Honours. The same clause appears in

both deeds, the first deed and the second deed.

If I might invite Your Honours' attention to

clause 5, Your Honours will see that by clause 5 of

the deeds, it was agreed that the assignee was not

to be:

liable to the assignor for the performance or

observance of all or any covenants agreements

or provisions on the part of the assignor

contained in or arising from either the

Royalty Agreement or the 1964 Agreement.

So, it follows that the assignor remained obliged

to perform such obligations as arose thereunder.

Further, Your Honours, it is perhaps

significant that neither deed contained any

provision for the reconveyance of the interest

which allegedly, if one were to pay, perhaps,

excess regard to form, had been assigned

absolutely. Now, one perhaps might have expected

that if, in fact, the interest had been assigned

absolutely, albeit for a limited period of time, if

that is possible, as a matter of law or equity - if

it be possible to assign an equitable chose in

S.P. Investments 14 MR OWEN-CONWAY, QC 19/11/93

action absolutely for a limited period - and I can

find no authority to support that proposition, but

if it be possible, then one might expect that there

would be a provision contained in the deed to

provide for reconveyance of that interest at the

expiration of the period.	No such provision is
found in these deeds.

So, when one looks at the reality of what is

assigned, what is assigned is a stream of income,
no more, no less, for a limited period of time,
carved out of the wider royalty entitlement of the
taxpayer in exactly the same way as was assigned in
Lake's case, the case to which Your Honours in this

Court referred, with apparent approval in Myer's case, in the same way as in Lake's case what was

assigned a portion of the income stream flowing

from the sulphur payment royalties and the oil

rights. As I say, that case is entirely consistent

with the facts of this case; was cited with

apparent approval by this Court in Myer at the

point in Your Honours' judgment in Myer at which

reference was made to what is clearly the second

strand of Myer as it has become known.

At page 218, at about point 8 of the page,

Your Honours there said:

If the lender sells his mere right to

interest for a lump sum, the lump sum is

received in exchange for, and ordinarily as

the present value of, the future interest

which he would have received. This is a

revenue not a capital item - the taxpayer

simply converts future income into present

income: see Commissioner of Internal Revenue

V P.G. Lake.

Although the facts in Myer, of course, were quite

different from the facts in this case, in my respectful submission, the ratio of the judgment at	that point in Myer, in so far as it applies to the	second strand, is not confined to interest arising
from a debt.

It is not so confined but extends to all

income, howsoever arising, with the possible

exception of income arising from the sale of an annuity. Because, as Your Honours pointed out, again on page 218:

Interest is not like an annuity. Annuity

payments are not derived from the money paid

for the annuity; they are derived solely from

the annuity contract. And so, when a

contractual right to be paid an annuity is

S.P. Investments 15 MR OWEN-CONWAY, QC 19/11/93

sold for a price, the proceeds of sale are

ordinarily capital in the hands of the vendor.

Your Honours, fourthly, there have been many

cases where a payment received in substitution for
a stream of income has been held to be assessable
without the question of whether there was a profit
being made by the taxpayer in the course of

carrying on a business ever having been considered.

And I have referred already to Lake's case and I
would invite Your Honours' attention to

Commissioner of Taxation v Phillips and Greyhound

Racing Association v Cooper, both of which are on

our list.

The two strands of reasoning in Myer were not

related directly. In my respectful submission,
there is nothing in Myer to suggest that there

necessarily must be the existence of a profit in

order that the second strand should have

application and perhaps, at page 213, some support is found for that proposition. Your Honours there

refer to, at the middle of the page:

profits made on a realization or change of

investments may constitute income if the

investments were initially acquired as part of

a business with the intention or purpose that

they be realized subsequently in order to

capture the profit arising from their expected

increase in value.

And then at point 8:

If Myer's decision to assign to Citicorp the moneys due or to become due under the loan

agreement had been unrelated to and

independent of its decision to enter into the

loan agreement, the argument that the

assignment amounted to no more than the

realization of a capital asset would perhaps

have had more force, though, as will appear

later, we do not consider that the

respondent's argument would have prevailed

even in such a situation.

That is because Your Honours then looked at the second strand which, as I have submitted to

Your Honours, is quite independent of the first.

Fifthly, the appeal does not involve an

important question of law of general application or

matter of public interest and no question of

fundamental principle arises for decision. With

the introduction of capital gains tax in Part 3A of the Income Tax Assessment Act and the limitation of the application of section 25A, the old section

S.P. Investments 16 MR OWEN-CONWAY, QC 19/11/93

26(a), to the sale of property on or before

19 September 1985, circumstances in which gains

made by taxpayers carrying on a business, whether

or not in the course of business, are assessable

are of much less significance than they were at the time the assignments in question were entered into.

Your Honours, those are the five points upon which I principally rely today.

BRENNAN J: Yes, thank you, Mr Owen-Conway. Mr Bloom.

MR BLOOM:  Thank you, Your Honour. Your Honours, firstly in

relation to capital gains tax, a question remains

of real significance because the method of

calculating capital gains under those provisions is

entirely different from the method of computing the
amount of income and so different questions arise

still as to whether an amount is capital or income under the Act, and the consequences are different.

Secondly, my learned friend referred

Your Honours to two cases: Phillips, which was a

decision of this Court which involved a person

receiving in replacement for remuneration several

recurrent payments which were held to be the

remuneration that he had missed out on; and

Cooper's case, an English case, where, again, there

was underlying property and an assignment by a

company carrying on business. Here, as

Your Honours know, not only is there no underlying

property, there is no business and no profit.

Your Honours, the P.G. Lake case, the United

States case which our learned friend refers to, was

only referred to by Your Honours in the Myer case

to support the proposition that an assignment by a

lender of his right to interest shorn of the

underlying property gave rise to income. The

P.G. Lake case, like Myer, like Henry Jones (IXL)

was a case which involved underlying property once

again.

BRENNAN J: That really is the critical point, is it not?

MR BLOOM:  Yes, Your Honour.

BRENNAN J: Another way in which you can look at the Lake

case is that if there is a payment received for

nothing more than the stream of income, then it is

on revenue account. If it is, however, an

assignment of the property out of which the stream

of income grows, then it is on capital account.

MR BLOOM:  Yes, Your Honour.

S.P. Investments 17 19/11/93

BRENNAN J: Well now, in this case Mr Justice Hill looked at

it in the former way. He may have been wrong in looking at it in that way but that is the way in

which he looked at it.

MR BLOOM:  Your Honour, it is not clear that is what he did.

Here there was no underlying property in the

stricter sense. There was only the contractual

right to be paid royalties, just like an annuity.

There was no underlying property with which that

right was connected.

Henry Jones was a case which was a bit

different. There the assignor was the owner of

certain trade marks and it granted the licences,

retained the trade marks but assigned the right to

the licence income, all, as in the case of Myer, by

some preconcerted transaction. But this is not a

case where there is, in that sense, the traditional underlying property. In Lake there was. There was a retention in Lake of the general property, the

general rights, and only a carving out of some part

of them but not a monetary part and not for a

limited term.

Indeed, Mr Justice Hill, in Henry Jones (IXL),

if I may just remind Your Honours, distinguished

Lake. The relevant passage, Your Honours, is

highlighted, and Your Honours see that P.G. Lake

cannot be entirely accepted, according to

Mr Justice Hill in that case, because if it was it

would be authority contrary to the propositions of

the High Court in Shepherd's case; Shepherd's case

deciding that you can assign part of a chose in

action, otherwise assignable at law, validly in

equity, it being decided in Lake that you could

not.

But, again, Lake was a preordained series of

transactions, just like Myer and just like Henry

Jones (IXL) and, Lake, of course, was a case where

there was business, again, Your Honours, and this

is a case where the trustee carries on no business

and this assignment cannot be said to be in the

course of any business for that reason. If

Your Honours please.

BRENNAN J:  On the view taken by the Full Court of the

Federal Court in this case, the lump sum paid to
the taxpayer by the National Mutual Life

Association of Australasia Limited was no more than

a payment for and quantified by reference to a

stream of income. It was not a payment for the

capital asset from which the income was derived.

On that view, there is no question of principle

which requires further consideration by this Court.

S.P. Investments 18 19/11/93

Whether or not the view taken by the

Federal Court is correct is not a question of general importance which warrants the grant of special leave. For these reasons, special leave

will be refused.

MR OWEN-CONWAY:	I apply for costs, Your Honour.
MR BLOOM:	I cannot oppose that, Your Honour.

BRENNAN J: It will be refused with costs.

MR OWEN-CONWAY:  Your Honours, might Mr Macliver and I

briefly thank Your Honours for kindly rescheduling

our application today.

BRENNAN J:  I think, perhaps, you should direct your thanks

to the counsel behind you, Mr Owen-Conway.

MR OWEN-CONWAY:  Thank you.

AT 2.19 PM THE MATTER WAS ADJOURNED SINE DIE

S.P. Investments 19 19/11/93