The Commissioner of Taxation of The Commonwealth of Australia v Equitable Life and General Insurance Company Limited

[1990] HCATrans 305

A -!J, AUSTRALIA I.!' .-.)).;-~~. ~(.C

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Sydney No S75 of 1990

B e t w e e n -

THE COMMISSIONER OF TAXATION OF

THE COMMONWEALTH OF AUSTRALIA

Applicant

and

EQUITABLE LIFE AND GENERAL

INSURANCE COMPANY LIMITED

Respondent

Application for special leave

to appeal

BRENNAN J
DAWSON J

GAUDRON J

TRANSCRIPT OF PROCEEDINGS

Equitable 1 7/12/90

AT SYDNEY ON FRIDAY, 7 DECEMBER 1990, AT 9.33 AM

Copyright in the High Court of Australia

MR G.K. DOWNES, QC: If the Court pleases, I appear with my

learned friend, DR H.R. SORENSEN, for the applicant. (instructed by the Australian

Government Solicitor)

MR R.J. ELLICOTT, QC: If the Court pleases, I appear with

MR R.F. EDMONDS for the respondent. (instructed by

Mallesons Stephen Jacques)

BRENNAN J: Yes, Mr Downes.

MR DOWNES:  Your Honours, the question which arises in this

case is whether the decision of this Court in the

London Australia case, 138 CLR, leaves a lacuna in

the law and, if it does, how that gap should be

filled.

The lacuna, if it exists, will relate to the

applicable principle where a taxpayer which is not
a share trafficker or trader regularly realizes

investments and reinvests but either, firstly, does

not have a principal object of earning income from

dividends or interest but rather, perhaps, has a

direct object of realizing increases in value or,

on the other hand, does not have as a purpose for

realizing and reinvesting the object of increasing

yield on the investments.

BRENNAN J:  What is the difference between such a person and

a share trader?

MR DOWNES:  The question ultimately is, as a result of

London Australia, a person who has investments with

the object of either earning dividends or, if you

look at with narrower eyes, with an object of

switching investments to maximize yield is subject

to tax. That is what London Australia said. By

the same token, somebody who has, as a purpose for

acquiring assets, the object of realizing them at a

profit on a regular basis as a trader, that person

is undoubtedly liable to tax on the profits as a

trader.

The third alternative is the one which

arguably arises in this case, is somebody who has a

business, a business of investing, it has as one of

its characteristics the realizing of profits on

realizations but in circumstances in which the

taxpayer cannot be said to have, as a purpose for
the acquisition of each of the investments, the

purpose of reselling at a profit, and whether that

person escaped - - -

BRENNAN J:  I do not understands that, Mr Downes. How do

you mean he has this as the purpose of his business

to sell, or to realize and to acquire profits but

Equitable 2 7/12/90

he does not have that purpose when he acquires the

things that are to be resold?

MR DOWNES:  Your Honour, the taxpayer has a purpose

associated with earning profits and those profits

are earned by the receipt of income in the form of

dividends and by the receipt of income in the form

of realizations as part of the carrying on of the

business with which the taxpayer is associated,

this business involving investing, earning income

by way of receipts by way of dividend, and earning

income by way of receipts in terms of realizations,

from time to time, when it seems appropriate to do

so.

DAWSON J:  And is that different from seeking to maximize

yield?

MR DOWNES:  With respect, no, Your Honour. One of the

points that we wish to raise is that if there is a

distinction to be drawn between whether there is a

liability to tax or not and which had as its

origins in whether one's object is to maximize yield from the investment and incidentally one

sells to maximize that yield, on the one hand,

which gives rise to tax, and a purpose which does

not have the indirect object of increasing yield or

maintaining yield but a direct purpose of

realizing, from time to time, accrued increases in

value which represent profits, then it really, we

would respectfully submit, ignores possibly the

reality of what taxpayers in the real world do.

As London Australia points out, a drop in the yield is usually, though one assumes not always,

associated with an increase in the value of the

asset and we would respectfully submit that to

distinguish whether profits are taxable or not by

reference to whether the object of the taxpayer was

to make profits, on the one hand, as a result of

increases in value or to maximize yield, on the

other, ignores the reality that for virtually all

businesses both objects will co-exist with the

result that attempts to draw the distinction I have

just referred to will only lead to an inexact and

an inappropriate means of drawing a line. Yet,

that is the very result which, we would

respectfully submit, flows from the majority

decision in this case.

Your Honours, Mr Justice Davies, with whom

Mr Justice Gummow agreed, in effect, did think that

there was a lacuna but concluded, we would

respectfully submit, that the lacuna should not be

filled and the result was that there was no

liability to tax in the case of a non-share

trafficker or trader who profited from regular

Equitable 3 7/12/90

realizations of investments and who did not have

either of the two purposes I have referred to and

which one can gain from the precise analysis of the

facts in London Australia.

BRENNAN J:  Can you direct us to the passage in the majority

judgment that you say contains the fallacious

principle?

MR DOWNES:  Yes, Your Honour. Mr Justice Davies began

addressing the ultimate matter at page 47 and he

said at line 11:

If what occurred in the present case was an

activity of business, then the profits would

be assessable. The relevant business, if

there was one, would for present purposes be a

business of dealing or trading in shares -

and then His Honour looked at Whitfords Beach, at
Myer and some other cases including a reference to

London Australia on page 51, and at page 52 he

said, at line 24:

As the taxpayer in the present case,

Equitable Life Insurance Co Limited, was not a

trader in shares and did not carry on a
business of or involving dealing or trading in
shares, it follows from the principles I have

outlined that the profits made from its

investment activities did not form part of its

assessable income.

Now, although His Honour says in line 24, "As

the taxpayer in the present case ..... was not a
trader in shares", it does not appear, in any

event, to me, Your Honours, that he has actually

drawn that conclusion from reasons previously

expressed.

BRENNAN J:  Was there not a concession?

MR DOWNES: 

Your Honour, there was a concession, apparently,

not reproduced anywhere in the transcript, and I
did not appear at the original trial, but there
apparently was a concession of a kind which said
that the taxpayer was not a share trafficker or

trader.

Now, one of the criticisms we make of

Mr Justice Davies, with respect, Your Honours, is

that he drew too much from that alleged concession,

but if one goes back to page 47, His Honour there

does deal with the matter on the basis that there

would be liability if there was "a business of

dealing or trading in shares". Now, a question, I

suppose, arises as to whether His Honour is adding

Equitable 4 7/12/90

something there or speaking by way of emphasis -

technically, I suppose, a tautology, in the sense

that he is saying that the word "trading" is simply

a synonym for "dealing". Another view is that

His Honour is identifying two possibilities.

Now, when one gets to page 52 in the passage

to which I am dealing, the prospect of what

His Honour is doing is dealing with two

possibilities becomes clearer because at line 25 on

page 52 he does refer to the matter in a way which

suggests that he is dealing with two concepts; one,

that the taxpayer "was not a trader in shares" and,

two, "that the taxpayer did not carry on a business

of or involving dealing or trading in shares".

Now, at any event, so far as the second is

concerned, it is our respectful submission that to

the extent to which one finds in His Honour's

reasons the basis for coming to that conclusion, it

is in the next paragraph. Admittedly, that

paragraph is introduced by something which suggests

it is in addition. He says:

I should add that, in the appeal,

Mr Downes did not embark upon a detailed

examination of the facts -

et cetera, but His Honour then goes on from line 5

on page 53 to say:

London Australia was a different type of case for London Australia was listed on the London

Exchange and made regular returns to its

shareholders. Its activities, including its

share dealings, constituted a business and the

issue was whether, as its share dealings were

designed to maintain dividend income, the

profits arising from the dealings were

assessable.

So that one sees His Honour stating that narrowest,

we would respectfully submit, of views of the

London Australia case, namely, that it is concerned

only with the circumstance in which the object of

the taxpayer is to maintain yield.

In the present case, as my colleague Pincus J.

has pointed out, the taxpayer had no portfolio

management plan directed to maintaining

dividends but was rather more concerned to
enhance the capital value of its portfolio.

Now, there is the alternative; the area which, with respect, we would submit, the question as to

whether there is a lacuna arises.	The issue then
is - - -

Equitable 5 7/12/90

GAUDRON J: But, Mr Downes, how can a lacuna arise other

than - I will take that away. I mean, if your

proposition is right, it must be because to that

extent the taxpayer is a share trader, must it not?

MR DOWNES:	No, with respect.
GAUDRON J:	To that extent it is dealing in shares.
MR DOWNES:	If the field is covered by, on the one hand, a

purpose of maintaining yield and, on the other

hand, being a share trader, somebody who buys with

an object of selling at a profit, then perhaps what

Your Honour says is correct but it is our
respectful submission that there is a third

alternative, of which this case is undoubtedly an

example, of somebody which has an investment

business, an investment business which involves,

amongst other things, earning dividends - - -

GAUDRON J: But that is precisely the finding of fact

against you in this case, that there was no

business and it was not an aspect of any business.

MR DOWNES: But, Your Honour, that was not the finding of

Mr Justice Wilcox and it was not the finding of

Mr Justice Pincus.

DAWSON J:	And, in fact, the only distinction between the ordinary individual private investor and a company
in this situation you would say is that it is
carrying on a business.

MR DOWNES: Exactly.

DAWSON J: Whereas the private individual is doing exactly

the same thing, he is trying to maximize his yield
and make sure the value of his assets are

maintained but he is not carrying on a business.

MR DOWNES:	I have, of course, in aid of that proposition the statements in London Australia, particularly of
Mr Justice Jacobs, but of Mr Justice Gibbs, as he
then was, as well, and also the statements in Myer
in this Court, that when one is dealing with a
company -

DAWSON J: It must be carrying on a business.

MR DOWNES: Exactly.

DAWSON J: Yes. Well, that is the point, is it not?

MR DOWNES:	Yes, Your Honour.
BRENNAN J:	I would have understood that very clearly if I

had understood what the scope of the concession was

Equitable 6 7/12/90

but when I read the paragraph on page 53, starting

at line 18 and going to line 26, it seems to me

that the problem which I face was the one which

Justice Davies faced, namely, once it was conceded

that there was no business of dealing in shares,

then where was the room for the finding that there

was a business?

MR DOWNES: But, Your Honour, could I start by saying that

when one has a concession of which, I would

understand it, this is an example, which has not

formed sufficient significance during the course of
the hearing for some note of the precise nature of
the concession to be made, then rather than giving

the concession wider effect, one would give it, as

Mr Justice Pincus suggested ought to be the case, a

much narrower effect. His Honour Mr Justice Pincus

said, in effect, and this is exactly the view which

we would put and which we put below, it was a

concession, no more and no less than that.	One way
of putting it is that the first limb of

section 26(a) did not apply. It was a concession

about purpose immediately prior to the acquisition

of each asset.

DAWSON J: 

Was it a concession that the business was not the

business of a share trader but that did not mean it
was not the business of an investor? Is that the
point?

MR DOWNES: 

I am sorry, Your Honour, if I could just

ask - - -

DAWSON J:  Your concession was that it was not the business

of a share trader - - -

MR DOWNES:	Yes, Your Honour.
DAWSON J:	- - - but that did not extend to being a

concession that it was not the business of an

investor.

MR DOWNES: Exactly, and the concession - the only place

that one could say it is formally recorded, as I

would understand it, is at page 5 in the decision

of His Honour Mr Justice Wilcox under the heading,

"The submissions of counsel":

Counsel for the respondent concede that

the applicant was not at any material time a

share trader.

Now, one view of that concession is an even

narrower limitation on it, that the applicant was

not a conventional share trader of the kind that

has, so to speak, a business which has all the

badges of somebody who is, so to speak, full time

Equitable 7/12/90

associated with examining stock market reports and

devotes 8 hours of each day to activities

shares. It is fair to say that we went further than that in what we accepted as the effect of the concession before, I think, the court, the Full	associated with the dealings with a portfolio of the way it was put, that there was a concession
that the taxpayer was not a share trader, but we
were not there to fight a case which we could not
succeed in as a result of a concession made and the
argument was, the argument that was put, namely,
that there was a business, that there was a
business of investing and that business was a business which, when properly understood, gave rise to tax on realizations in accordance with not the precise facts of the London Australia case but in accordance with the principles which were there discussed.

So, we would respectfully submit that the

concession ought, in the circumstances, frankly to

be read down rather than read up and whatever is

done with it, in any event, it was not a concession

which, notwithstanding what Mr Justice Davies said

at about line 22, I think, on page 53, was not a

concession which, by any means, foreclosed the

case. And one of the errors that we would seek to

identify in the judgment of Mr Justice Davies is

the fact that, in effect, he did approach the

matter as if the concession did foreclose the case.

BRENNAN J: Well then, Mr Downes, the problem really is as

to the scope which ought to have been attributed to

the concession. If the scope was, as

Mr Justice Davies attributed it to the concession,

it foreclosed the case. If it was, as

Mr Justice Pincus attributed to the concession, it

did not foreclose the case.

MR DOWNES: 

Yes, Your Honour.

BRENNAN J: 

And does that make this a special leave case?

MR DOWNES: 

Your Honour, I would, with respect, take issue

with the conclusion that Your Honour suggests
because, with respect, the point in this case is

whether the concession being accepted as a

concession that the taxpayer was not a share

trader, consistently with that fact, namely, that

he was not a share trader and, it follows, did not
buy for the purpose of reselling at a profit, the
question which arises in the case, consistently
with that concession, is whether nevertheless such

a person can carry on a business, particularly a

company, which nevertheless gives rise to

assessable income in accordance with the principles

Equitable 8 7/12/90

in the London Australia case. And we would

respectfully submit that whilst His Honour

Mr Justice Davies, in effect, thought that the concession foreclosed the case, it was his conclusion that the concession foreclosed the case

which was the error of law which we would

respectfully wish to bring before this Court, and

before this Court one of the arguments would be
that notwithstanding the giving of full weight, the
reading up, as I described it a moment ago, of the

concession, nevertheless there is still room within

London Australia and, indeed, this Court ought to

find that a taxpayer who not being a share trader

but who nevertheless carries on a business

associated with investments and who realizes from

time to time profits on resales in connection with

that business is liable to tax.

BRENNAN J:	As part of its business?
MR DOWNES:	As part of the business is liable to tax.
GAUDRON J:	But that way, is he not a trader to that

business?

BRENNAN J:  What is the difference between that and being a

share trader? It is a business which involves the periodic realization of assets which are long-term

assets, is that correct? Is that the way you put

it?

MR DOWNES:  The difference is the difference which is

recognized in London Australia and recognized in

Myer, that there is a difference between - first

part of section 26(a) - someone who buys with the
object, with the purpose of reselling at a profit,

and someone who buys with the object of earning income in the meantime with the hope, to use, I think, the words of Mr Justice Gibbs in London

Australia - with the hope that it will increase in value; with a thought in mind that when it does increase in value, at the right moment, that value
might be realized by way of profit. But that such

a person does not buy with the object or purpose,

the 26(a) first limb object or purpose, of

realizing inevitably at opportune ti.me at a profit.

BRENNAN J: Well, is the distinction not that which was put

to you by Justice Dawson, namely, the distinction

between those who would realize as part of the
business which involves realization and those who

do not realize as part of the business of

realization?

MR DOWNES: Well, realization is part of the business, we

would respectfully submit, but what is at the crux

of the concession is not the point at which

Equitable 9 7/12/90

realization takes place but the point at which

purchase takes place. The share trader brings in

his every purchase as trading stock for the reason

that he buys on every occasion with the purpose or

object of selling at a profit. But the concession
accepted that the taxpayer here was not such a

taxpayer, that the tax - - -

BRENNAN J: Well, is this the proposition, that the

concession says that the business which the

taxpayer had here was one which was not one where

he intended necessarily to sell at a profit every

share that he bought but none the less when the

taxpayer's business is looked at overall, it is

understood that shares will be sold from time to

time in order to realize the profit that inheres in

them?

MR DOWNES:  Yes, Your Honour.

DAWSON J: It is different, for instance, from the company

office which you acquire to live in.

MR DOWNES:	Yes.
DAWSON J:	You may sell it at the end but that is different.

But the business of the company is shares.

MR DOWNES:  Yes. But, Your Honour, that does not lead to

the conclusion that this is a case in which one is

simply applying facts to law because when one looks

at what Mr Justice Davies said on page 53,

Mr Justice Davies drew this distinction to which I

have referred, namely, the distinction between a

principal object of maintaining dividends - London

Australia - and a principal object of enhancing

capital value, on the other.

Now, oddly enough, Mr Justice Pincus, at

page 80, thought that the alternative case here was

an easier case than London Australia. In a sense,

the way His Honour Mr Justice Pincus approached it

has a taxpayer whose object, whose profit-making	is that London Australia posed this question: one
object is not associated with realizations of
profits on increases in value. No object
associated with that business is associated at all
with realization of profits on resale. The only
object of the business is an object associated with earning dividends, with earning income from
dividends or interest.

The real issue, as we would understand it,

which arose for consideration in London Australia
was this: that the object of the London Australia

company was to earn income from dividends. The

issue which arose was, was it part of that business

Equitable 10 7/12/90

which gave rise to assessable income when it earned

income not from dividends - or the question was, I

suppose, whether it was income - but when it gained

receipts not from dividends but from realizations

on sale and the court said, "Well, it had a

business associated with this investment which

earned an income" and when, from time to time, it

realized assets and gained a profit by so doing,

that gave rise to assessable income.

In the present case, if Mr Justice Pincus'

finding, with which I think Mr Justice Davies, at

any event, tentatively agrees that the principal

object was not to earn dividends, but to look for

potential capital profits then, with respect,

Your Honour, this case is a clearer case - - -

GAUDRON J:	Mr Justice Davies does not say to make capital profits. He says to "enhance capital value". That
is at page 53, which may be quite different from making capital profits.

MR DOWNES: Well, to enhance capital value, but then from

time to time, of course, that was realized. I

mean, one has the problem here commented upon by

Mr Justice Wilcox and by Mr Justice Pincus who used

it, I think, in the scale against the taxpayer but
the taxpayer here, bearing the onus, did not take
the step of putting the only person who could

explain why shares were sold into the witness box,

so one had large-scale realizations without any

explanation from the taxpayer as to why those

realizations took place, but the obvious inference

is that if there was an object of this taxpayer to

enhance capital value when on a regular basis and

in very large sums of money on an annual basis it

was realizing those capital profits, with respect,

that must have, Your Honour, extended the object

past the more limited version of it that

Your Honour Justice Gaudron points out in the judgment of Mr Justice Davies.

Can I just take Your Honours to page 80 of the

judgment of Mr Justice Pincus? At line 5 he quotes

from London Australia, the line:

"The taxpayer systematically sold its shares

at a profit for the purpose of increasing the

dividend yield of its investments" -

not for the purpose of making those profits. Then,

he goes on to say:

It appears to me that the circumstances

of this case, so considered, point more

strongly towards assessability than did those

in London Australia.

Equitable 11 7/12/90

It was not dividend income but gain from increases in value which was the respondent's purpose. So, he comes to the conclusion that the distinction to

the extent to which one can draw one between London

Australia and this case, is one which rather than leaving the taxpayer free of tax enhances the case against the taxpayer.

Your Honour, it is at this point that,

perhaps, it is worth underscoring the point that I

sought to make earlier, namely, that there is a

problem, we would respectfully submit, in practical

terms in drawing such a distinction because that

which causes yield to drop will be that which

causes value to go up. To really say of one

company, or to have to ask the question in

individual cases, whether a company has a business

which is associated with, on the one hand,

maintaining yield, in which case tax, or a

business, on the other hand, of making profits

from realizations as a result of increases in value

on the other, in which case no tax, is really a

difference which is illogical, we would

respectfully submit, in the extreme and one which

it would be unlikely that the law would lead to.

Now, Your Honours, I have said what His Honour

Mr Justice Davies decided. Mr Justice Pincus, in

the Full Federal Court, and Mr Justice Wilcox, at

first instance either found there was no lacuna -

to use my word - or, if there was, that it should

be filled by a reference to the decision in London

Australia. But they came to the conclusion from

slightly different approaches. Mr Justice Pincus

considered that a taxpayer whose motive was

associated with capital, as I think I have said to

Your Honours, was a taxpayer who more clearly than

even the facts of London Australia was liable to

tax.

Mr Justice Wilcox, on the other hand,

considered that this taxpayer was a taxpayer whose

object was primarily associated with earning

dividends even although there was not any precise

evidence on the point. So, what Mr Justice Wilcox

did was, in effect, said that this was a case on
the facts which was really on all fours with London

Australia with two exceptions: there was no

evidence about the reasons for the switching and so

one had to draw inferences about that; and there

was not evidence which would justify a conclusion

that the object was narrowly associated with

increasing yield although that ultimately was the

conclusion that His Honour drew. So the result is

that so far four judges have looked at this case:

two judges have come to one view and two judges

have come to another.

Equitable 12 7/12/90

The views in this case, London Australia, must

then be contrasted with the views expressed by a
unanimous Full Court in the CHI Services case, the

reasoning of which, we would respectfully submit, can be seen as inconsistent with the reasoning of

the majority in the present case, notwithstanding
the fact that Mr Justice Gumrnow was a member of the
court in CHI Services and also agreed, for present
purposes, in the judgment of Mr Justice Davies in

the present case.

BRENNAN J:  We do not wish to analyse the various cases in

this application, Mr Downes. The question is

whether you can make good your submission that this

is a suitable case for the entertainment of a

question of principle.

MR DOWNES: If Your Honours please. Could I just indicate

briefly, though, Your Honours, that this Court did

refuse leave in the CHI Services case, an

application on the part of the taxpayer, but that

the ground upon which leave in that case was

refused was that the correctness of the decision in

CHI Services was not attended by sufficient doubt.

Your Honours, it is submitted that

Mr Justice Davies and Mr Justice Gummow made two

substantial errors. Firstly, they allowed the case

to be determined by the form and not the substance.

That is the concession and that appears at page 53,

line 25, and we would seek to contrast

Mr Justice Pincus, at page 75 and at line 20, who

indicated that the matter, he thought, ought to be

dealt with on the substance. We would respectfully

refer again, if we might, to the fact that this

concession finds itself simply as a line in a

judgment using the phrase "share trader". It does

not appear to have - that is, the extent of the

concession, does not thereafter appear to have

troubled or concerned Mr Justice Wilcox in his

deliberation.

It was really only in the Full Court of the

what His Honour then called a concession and that	Federal Court, when Mr Justice Davies seized upon
concession then became, so to speak, a focus in any event so far as His Honour was concerned in the
appeal; a focus which it had not been before
His Honour Mr Justice Wilcox. And we would
respectfully submit that a statement made by
counsel during the course of argument which is not
recorded in a way which one can look at the precise
nature of the concession is not one which ought to lead to the kind of approach taken to it which
His Honour Mr Justice Davies took.

Equitable 13 7/12/90

The second error, we would respectfully

submit, that His Honour Mr Justice Davies made was

the error of limiting London Australia in the way

that I have indicated and which arises from a

reading of what His Honour said on page 52, at the

bottom of that page over to page 53 about half-way

down the page. It is perhaps worth noting, as

Mr Justice Pincus noted, that the taxpayer itself

described its own business, in its tax return -

this appears at page 65 line 20 - as:

" ..... the holding of investments for the

purpose of earning income."

Now, Your Honours, it is for those reasons

that we would respectfully submit that it is

appropriate for Your Honours to grant leave, based

upon the point that I have referred to.

There is, however, a further ground upon which

we would respectfully submit that this Court should

grant leave. That is because, Your Honour, either

the relevant fund was an insurance fund retained

from the point when the taxpayer did carry on an

insurance business - and the facts there appear at

page 2 and line 21 - or, alternatively, because the

investments of the taxpayer, although during the

tax years in question the taxpayer did not carry on

any insurance business nevertheless those assets,

along with the assets of other companies were, to

use His Honour Mr Justice Wilcox's finding

"critical to the achievement of the insolvency

margin".

So, the question which this case throws up is

whether an insurance fund retained by a company

after the time at which it carried on insurance

business gives rise to assessability in accordance

with the usual insurance company, the Australasian

Catholic Assurance Co Ltd case and other cases.

BRENNAN J:  Where are your findings of fact which support

this conclusion?

MR DOWNES:  Your Honour, page 2 and line 21, where

His Honour says:

Since the transfer of its life insurance business to Friends', the applicant has not

carried on any insurance business. Until 1984

it did, however, retain an investment

portfolio and it received income from that

source.

Now, undoubtedly, there were a lot of sales and a

lot of acquisitions from that point of time up

until the point of time in which the two tax years

Equitable 14 7/12/90

with which we are concerned arose. But that is one

factor that one takes into account. The other

factor - and the relevant finding here is at

page 12, point 9 - - -

BRENNAN J:  When did it cease carrying on insurance

business?

MR DOWNES:  In 1977, but the fund continued, Your Honour, to

be made use of by the group as a part of the fund

which was used to satisfy the solvency margin

requirements of the insurance commissioner. Now,

that appears, Your Honour, at page 12 and line 7,

perhaps:

It follows, of course, that the inclusion of

at least some s.30 assets -

section 30 assets are assets in one company in a

group which represent holdings in another company

in the group:

It follows, of course, that the inclusion of

at least some s.30 assets was critical to the

achievement of the solvency margin. In each

year the insurer's investment in the applicant

company was shown as one of the s.30 assets.

Indirectly, therefore, the subject shares were part of the assets considered in determining that the insurer met the solvency margin.

So, the second basis upon which we submit this

is a case in which it would be appropriate for this

Court to grant leave, an issue which was left open by His Honour Mr Justice Pincus but resolved

against the Commissioner by the other judges, is
the issue whether an insurance fund to attract the

provisions which give rise to liability tax on

realizations must be a fund of the taxpayer or

whether it being a fund of an associated company is

a sufficient basis.

Your Honours, for all of those reasons, we

would submit that this is a case in which the Court

ought to grant it special leave to appeal.

BRENNAN J: Yes, thank you, Mr Downes. We need not trouble

you, Mr Ellicott.

Having regard to the concession made and the

suggested uncertainty of its scope, this case does

not give rise to an issue of principle which would

warrant the grant of special leave.

The difficulty, as Mr Justice Pincus in

dissent observed, is to determine on which side of

the line the case falls. That question, which

Equitable 15 7/12/90

depends on the complexion placed on the facts, is

affected by the concession. The case is thus not a

suitable vehicle for determining whether there is,

to use the phrase of counsel for the Commissioner,

a lacuna in the tax law left by London Australia

Investment Company Limited v Federal Commissioner

of Taxation, (1977) 138 CLR 106.

The argument founded on the connection with a

relevant insurance business is not supported by the

facts. Accordingly, special leave is refused.

MR ELLICOTT:	I make an application for costs, Your Honours.
BRENNAN J:	Mr Downes?

MR DOWNES: There is nothing I can say, Your Honour.

BRENNAN J: It will be refused with costs.

AT 10.15 AM THE MATTER WAS ADJOURNED SINE DIE

Equitable 16 7/12/90